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Offers of compromise

20/09/2011

A recent case has highlighted the need to take care with the precise wording of offers of compromise.

Consolidated Minerals engaged JP Morgan to advise it about a takeover bid.  An incentive fee was agreed, based on the price achieved.  Another second bidder entered the fray and made an unsolicited offer for much higher amount.   JP Morgan invoiced $50 million, but Consolidated Minerals disputed the claim.

It wrote a letter, marked “without prejudice”, to JP Morgan.  The letter said “We have reviewed the engagement letter and we consider that an appropriate payment in respect of the transaction is $20,000,000.00.  Accordingly, we are pleased to enclose a cheque for $20,000,000.00 in full and final settlement of this matter.”  A cheque was enclosed for that amount. JP  Morgan banked the cheque, but declined the offer of settlement and required payment of the full $50 million.

Consolidated Minerals resisted recovery proceedings by alleging that an accord and satisfaction had been reached and JP Morgan was precluded from recovering the balance.

However, the Court of appeal saw “nothing in the letter to indicate that Consolidated Minerals was expressly or impliedly asserting that if JP Morgan banked the cheque it would be taken to have agreed not to pursue the balance of its claim or that Consolidated Minerals was offering to pay $20,000,000 in return for JP Morgan agreeing not to pursue its claim.”

Marking a letter “without prejudice” does not prove the letter should be treated an offer of final settlement.  It might prevent the letter being used as evidence of its content, but it does not require the letter to be interpreted as an offer of settlement.

Read all the reasons for judgement in JP Morgan Pty Ltd v Consolidated Minerals Pty Ltd.

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