Principles of contractual interpretation
Cantor Fitzgerald v Yes Bank [2024] (CA)
This case involved questions of contractual interpretation and what commission was properly payable
Facts:
The case involved Cantor Fitzgerald's engagement to find "Financing" for Yes Bank in return for a US$500,000 retainer and 2% of funds raised from the "Investors" listed in a schedule to the Engagement Letter. The Engagement Letter defined “Financing” as a ““private placement, offering or other sale of equity instruments”. Yes ultimately raised funding via a public offer in which three of the listed Investors participated. Cantor claimed, in addition to the retainer, that it was entitled to 2% of the amounts subscribed by the three Investors listed in the schedule. Before the High Court, Cantor was unsuccessful and was not awarded the commission claimed.
Decision:
The Court of Appeal reiterated the principles of contractual interpretation. The court is required to consider the ordinary meaning of the words used [in the written contract] in the context of the contract as a whole and the relevant factual and commercial background, which excludes prior negotiations. The objective is to identify the intention of the parties 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 the language in the written contract to mean.
The Court of Appeal held that the word "private" in the phrase "private placement, offering or other sale of equity instruments" qualified not only "placement" but also "offering or other sale". Therefore no commission was due to Cantor.
The Court of Appeal commented that:
“While there is no firm grammatical rule that an adjective at the start of a list of nouns qualifies them all, the nature of the list may well indicate that it does. Unless something in the drafting of the list suggests otherwise, the reader will naturally tend to assume that an adjective at the start of a list qualifies the entirety of it. No legal authority is required for this assumption. It is an aspect of the ordinary meaning of the words used, which includes their placement within a phrase or sentence”.
“The parties did nothing to counter the assumption, whether by omitting the word "private", including the word "public", changing the order of the list or otherwise. If the parties meant the engagement to cover any form of equity finance, they could have achieved that with simpler drafting (for example, a reference to "any sale of equity instruments")”.
The above interpretation was said to be supported by the rest of the contract and the factual matrix.
So far as the rest of the contract was concerned, the court said ““the language of the contract does not suggest that any form of public offer was contemplated as being in the mix of possibility for which the parties contracted”
For the factual matrix, the court said that the focus of the engagement had always been on non-public fundraising from new sources of investment. Interestingly, the court said, “It is well established that, while previous negotiations and declarations of subjective intent are inadmissible, evidence may be adduced as to the genesis and aim of a contract as an aspect of the admissible factual matrix”.
Points to Note:
- The reference to the ‘genesis and aim of a contract’ is an interesting one – expressed in this form it does seem to open a fairly large ‘door’ through which evidence of contract negotiations can be admitted.
- Be very careful to check the use of qualifying terms in lists. Perhaps instead of listing items in a single sentence, break the list up using sub-clauses or bullet points. This can make it clear which items are qualified by particular adjectives and which are not.
- Consider possibly including ‘for the avoidance of doubt’ wording to offer extra clarification.