Written by Marian Boyle (partner) and Samson Verebes (trainee)
The importance of clear drafting cannot be overstated. Ambiguity of language can lead to disputes, costly litigation and unintended outcomes. The recent Court of Appeal judgment in Cantor Fitzgerald & Co v Yes Bank Ltd [2024] EWCA Civ 695 provides a useful reminder of the English court’s approach to contractual interpretation, which should inform the drafting of any contract.
Background to the case
Cantor Fitzgerald & Co ("Cantor"), a New York-based financial adviser, entered into an agreement with YES Bank Limited ("YES Bank"), a Mumbai-based commercial bank to assist in connection with a financing in return for a US$500,000 retainer as well as 2% of funds raised from their investors. Facing financial hardship, YES Bank sought to raise funds through a further public offer ("FPO"). Under the terms of their agreement, Cantor claimed that it was owed a 2% fee from the subscriptions of the investors under the FPO.
The dispute between the parties related to the following term of the agreement:
"We have been advised by the Company that it contemplates one or more financing(s) through the private placement, offering or other sale of equity instruments in any form, including, without limitation, preferred or common equity, or instruments convertible into preferred or common equity or other related forms of interests or capital of the Company in one or a series of transactions (a "Financing"),"
specifically, whether the term "private" only qualified "placement" or whether it also qualified "offering or other sale."
The Court’s approach
The judgment provides a useful summary of the principles of interpretation any English court is required to consider. It will assess the ordinary meaning of the words used in the context of the contract as a whole and the relevant factual and commercial background, which will exclude prior negotiations. The objective is to identify the intention of the parties, but in an objective sense, namely what a reasonable person, having all the background knowledge which would have been available to the parties, would have understood them to be using the language in the contract. Interpretation is an iterative process in which rival interpretations should be tested against the provisions of the contract and its commercial consequences.
The Court of Appeal referenced the fact that the parties have control over the language they use and emphasised the point that, while evidence might be adduced as to the genesis and aim of a contract as part of the admissible factual matrix, evidence of previous negotiations and declarations of subjective intent are inadmissible.
The Court of Appeal unanimously upheld the first instance court’s decision, agreeing with YES Bank’s contention that the term "private" qualified all of the terms following it and thus excluded non-private forms of equity financing (such as the FPO). The Court of Appeal considered that the ordinary meaning of the words used; the contractual context; and the factual matrix all provided material support of YES Bank’s interpretation.
Commentary
When drafting any form of agreement, it is important to remember that it is likely to be argued that where an adjective or determiner is followed by a list of nouns, it modifies all of them unless a discordant adjective or determiner breaks the pattern. The example given by the trial judge was the expression "negligent act, error or omission". It is unlikely to be assumed that the word "negligent" only applies to "act". Had the agreement separated each component element in the form of a list, for example:
"We have been advised by the Company that it contemplates one or more financing(s) through the:
a) private placement;
b) offering; or
c) other sale of equity instruments in any form ...",
it could not have been reasonably argued that the word "private" applied to each limb. It is also important to remember that English courts are reluctant to reject the natural meaning of a provision simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of the wisdom of hindsight.
For further information, please contact Marian Boyle or your usual contact at the firm.