Squire Patton Boggs is pleased to have secured a victory in the High Court for leading independent investment bank, Hannam & Partners, in a landmark case for the investment banking sector (H&P Advisory Limited v. Barrick Gold (Holdings) Limited (formerly known as Randgold Resources Limited) BL-2022-002009).
The team advising Hannam & Partners comprised Chris Swart, Lucy Webster, Gabriella Martin and Thulasy Packianathan in London.
Global mining conglomerate, Barrick Gold, has been ordered by Deputy Judge Simon Gleeson to pay US$2m plus expenses to Hannam & Partners for the financial advisory services it provided to originate and facilitate the US$18bn merger of Barrick Gold Corporation (“Barrick”) and Randgold Resources Limited (“Randgold”) at a nil premium, which completed in January 2019. Hannam & Partners’ Mr. Ian Hannam initiated the merger negotiations in early 2018 which continued for some months before Mr. Hannam was sidelined from the deal – without having an engagement letter signed. Randgold paid substantial fees to other financial advisors who became involved later in the deal, but did not remunerate Hannam & Partners.
Mr. Hannam arranged a series of meetings with Mr. John Thornton, Chairman of Barrick, and Dr. Mark Bristow, CEO of Randgold, with a proposal for a nil premium merger, and Hannam & Partners produced arguments and extensive modelling presentations for both between February and April 2018. These included Mr. Hannam briefing Barrick’s financial advisor, Mr. Michael Klein, in person in New York and attending a key meeting between Mr. Thornton, Mr. Klein and Dr. Bristow at Dr. Bristow’s home in Jackson Hole, Wyoming in April 2018. The merger at a nil premium proposal was approved in principle by both parties’ Boards in May/June 2018, continuing to use the project name “British Rail” chosen by Mr. Hannam, and was announced in September 2018.
Mr. Thornton, Dr. Bristow and Mr. Hannam all gave evidence in person in the High Court, as did Barrick Gold’s CFO (formerly Randgold’s CFO) Mr. Graham Shuttleworth. The Judge found that all the witnesses did their best to tell the truth as they saw. Barrick had referred to the well-known 2014 FCA Decision Notice concerning Mr. Hannam, relating to the disclosure of confidential information by those engaged in corporate finance business. Deputy Judge Gleeson noted in terms that “in those proceedings the FCA found in terms that Mr. Hannam did not act “without integrity or dishonestly in making the disclosures” (FCA Decision Notice 5.6(c)). I therefore do not regard this history as impeaching Mr. Hannam’s testimony in any way, or as any reason to question his bona fides.
The Judge rejected Hannam & Partners’ claim for a US$10m fee based on an oral agreement but went on to find, following review of the extensive work done by Mr. Hannam and his team at Hannam & Partners, that, nothwithstanding the lack of an engagement letter, Hannam & Partners’ work conferred a “valuable benefit” on the merging parties, for which it was entitled to receive U$2m as a restitutionary quantum meruit (an equitable remedy meaning ‘what one has earned’). Crucial to this decision was the Judge’s finding that “it was clear to Mr Shuttleworth [CFO of Randgold Resources] (and would have been clear to any objective observer) that Mr Hannam [founder of Hannam & Partners] believed that he was (or was to be) appointed as financial adviser on the transaction” and that “Mr Shuttleworth had the opportunity to disabuse Mr Hannam of this belief, but did not do so”, so “there was a common basis of understanding that H&P would be appointed between the Claimant and the Defendant that H&P would be appointed.
The Judge was assisted in reaching the figure of US$2m by Barrick Gold’s own disclosure in the proceedings which revealed that this was the amount that Randgold was considering paying to Hannam & Partners, whilst it paid larger amounts to its other financial advisors.
The High Court additionally found that there was a contract (agreed orally) for reimbursement of the expenses that Hannam & Partners incurred in carrying out its work. Those expenses were not insignificant, as Hannam & Partners had purchased a specialist mining database and substantial international travel was required for Mr. Hannam and his team to attend key meetings pertaining to the merger.
The 130-page judgment provides an extensive review of both the investment banking sector in London as well as the legal authorities in relation to the tests to be met for a claim for unjust enrichment to succeed in English law. In respect of the former he observed that “Investment bankers, like teenage lovers, pour out their efforts, almost without limit and in response to the slightest encouragement in the hope of reaching the nirvana of a mandate” …. and “It is clearly the case that any sensible investment banker will after a while decide that a particular mandate is no longer worth pursuing, on the principle of not throwing good money after bad. However, until that point is reached, as Pope wrote in his “Essay on Man”, hope springs eternal in the human breast.
The case is important for the investment banking and other commercial sectors, where mandates typically are not ‘papered up’ until shortly before deals are announced, so significant and substantive work is often done by financial advisors at risk and on trust that they will be compensated if the deal is concluded. The Judge expressly found that “[i]t is normal practice in this industry for transactions of this kind for fees to be agreed some time after services have begun to be provided”, soHannam & Partners’ restitution covered all of the services it provided from the outset (not only those after a ‘basis of understanding’ was established).
The judgment shows how, in the absence of a contract where an advisor or service provider works extensively on a project on the understanding that they will be remunerated, then their services go beyond mere marketing and they are entitled to reasonable compensation. Each case turns on its facts and the Judge was very careful to set out limiting circumstances and the hurdles which any party claiming a quantum had to overcome.
A copy of the judgment can be found here.