It is not often that several million dollars in fees turns on the interpretation of the use of an adjective at the start of a list. This is what occurred in the recently reported Court of Appeal case of Cantor Fitzgerald & Co v Yes Bank Limited.
While the case didn’t create new legal precedent for contract interpretation under English law, it highlights an important principle: when an adjective or determiner appears at the start of a list, it is generally assumed to qualify all of the items in the list unless another adjective or determiner in the list suggests otherwise.
Case summary
This case involved an engagement letter between Cantor Fitzgerald (GC) and Yes Bank of India (the Bank) under which GC was engaged to assist the Bank with raising additional capital. The engagement letter entitled CG to a non-refundable fee (to be credited against further fees) and a further fee of 2% of the funds raised by the Bank in connection with a “Financing”.
The definition of “Financing” was the key issue. This was defined as: one or more financing(s) through the private placement, offering or other sale of equity instruments in “any form” from a specified list of potential investors.
The Bank raised funds, including from some of the listed investors, in the form of a further public offer (an FPO).
CG claimed for its fee at, essentially, 2.0% of the amount raised in the FPO from the listed investors, in the sum of US$374.5 million, the amount claimed being in excess of US$7 million.
The question for determination was whether the word “private” in the definition of Financing qualified not only the word “placement” but also “offering or other sale of equity instruments”. The Court of Appeal, upholding the decision in the High Court, determined that it did. As a consequence, the FPO was not a private offering or sale and CG was not entitled to this additional fee commission.
Court rationale
In reaching this conclusion, the Court applied the established legal principles in construing contracts (which were not themselves in dispute in the case). The Court is required to consider the ordinary meaning of the words used in the context of the contract as a whole and the relevant factual and commercial background – what a reasonable person with all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean.
CG argued that all forms of equity financing were covered by the defined term Financing. However, the Court disagreed and found that the natural assumption was that the word “private” qualified the entire list, applying the ordinary meaning of the words used.
CG also argued that the concept of a “private placement” is a term of art. The Court disagreed, stating that although “private” naturally couples with “placement”, that does not prevent the word “private” also being applied to “offering” and “other sale” if that was what the natural meaning of the words indicated. In particular, CG provided no clear answer to what would be covered by “private offering” or “other private sale” which would not also be covered by “private placement”.
As well as applying the natural meaning of the words in the definition, the Court considered the wider contractual context, which provided material support for the Bank’s interpretation. In particular, there was a further section in the engagement letter which explicitly contemplated that there could be some other form of equity financing that was not a Financing, which was directly contrary to CG’s interpretation of the definition as being all forms of equity financing.
Lessons we can learn
This case serves as a cautionary tale about the importance of clarity in drafting contract terms. Ambiguity in contract language can lead to costly disputes. Assuming this was the commercial intention of the parties, the parties could have avoided the potential ambiguity by excluding the word “private”, including the word “public” or by changing the order of the list.
When wording a list in a contract, an adjective which is only intended to qualify part of the list should not be used at the start of the list. The defined term Financing could have been phrased as “one or more financing(s) through the offering or other sale of equity instruments or private placement”. Alternatively, the definition might have been split into separate sub-paragraphs as “(a) the private placement of equity instruments or (b) the offering or other sale of equity instruments in any form.”
