Illustration: Simon Letch

In a court battle between an investment bank seeking to recover extremely steep fees and a tough Ukrainian businessman refusing to pay, it's hard to find an underdog.

The NSW Court of Appeal yesterday found that JP Morgan had no right to the $50 million in advisory fees it had charged Consolidated Minerals - a company which is now owned by Gennadiy Bogolyubov.

But there was little downside for JP Morgan in rolling the legal dice again and appealing the NSW Supreme Court judgment it lost last year. There was a potential $30 million to recoup - and the costs of the appeal would represent only a small fraction of that amount.

By most accounts, the bank had a reasonable chance of having the primary decision overturned, despite the fact that a $50 million fee it was seeking for a $1.3 billion takeover appeared excessive. The $20 million it received certainly seems more in line for a transaction of that size.

From a moral standpoint, the $20 million JP Morgan received looks reasonable enough but the practicalities, and more importantly the precedent it sets, would be of concern for the investment banking industry.

Consolidated Minerals engaged JP Morgan in late 2006 to defend it against what it believed to be an impending takeover from Pallinghurst Resources.

Beyond the base retainer fee JP Morgan agreed for defence and advice, the deal between the two parties also contained an incentive fee based on the increase in the offer price from the bidder.

All this is pretty standard stuff. JP Morgan did manage to get Pallinghurst to eventually make an offer that the Consolidated Minerals board found acceptable but it ultimately wasn't too difficult to achieve.

However, in the end three suitors for Consolidated Minerals entered into a bidding war, with the ultimate winner putting a whopping $5 a share on the table - almost $3 more than Pallinghurst's original offer of $2.05.

Towards the latter half of 2007, both the board of Consolidated Minerals and JP Morgan were just sitting on the sidelines watching escalating bids being lobbed backwards and forwards.

JP Morgan must have been under the impression that its ship had come in.

When the deal had finally been signed, the investment bank mailed a $50 million bill to Consolidated Minerals' new owners. The company refused to pay, instead posting back a cheque for $20 million.

The primary and appeal courts took the same unusual view that JP Morgan's incentive fee could be calculated only on the difference between the opening and closing offers made by the ultimate buyer - which in this case was Palmary - rather than the lowest initial offer and the highest offer made.

As it is quite usual for defence advisers when defending a company to drum up competing bidders, the stance taken by the court is curious.

It would work against the target company's interests if its advisers did not try to create competitive friction between suitors to extract the best possible price for the company under bid.

In many agreements between companies and their advisers, there is plenty of scope for a variety of views on payments.

Investment bankers will tell you there is no shortage of fee disputes when it comes to payment time, but these generally end with a negotiated settlement rather than a court battle.

In this case, the variation between the two parties was enormous and the bidder was unlikely to be a repeat customer, so JP Morgan saw little point in taking a haircut.

The extent of the disparity between the fee sought and that paid must also come down to poor wording in the contract. There is a lesson to be learnt in that for everyone in the advisory industry.