This week:
- The court finds that an adjective at the beginning of a list applied to all items in the list, not just the first one, with consequences for the payment of a commission
- A buyer was unable to rely on its own failure to satisfy a condition precedent in order to avoid paying a non-refundable deposit
- The court sanctions a scheme of arrangement for a public takeover, despite the company failing to disclose certain instruments held by scheme shareholders
- The Financial Conduct Authority publishes increases in its fees for 2024/2025
Court finds adjective in a broker's letter applied to all items in a list and not merely the first one
In Cantor Fitzgerald & Co. v YES Bank Ltd [2024] EWCA 695, the Court of Appeal had to decide whether an adjective attached to only one noun in a list or to the entire list.
YES Bank and Cantor had entered into an engagement letter, under which Cantor was instructed to identify potential investors in YES Bank from outside India and Europe.
Under the engagement, Cantor would receive a flat fee of $500,000, plus a commission of 2% on all funds raised from specific investors listed in a schedule to the letter.
Specifically, the letter engaged Cantor to procure investors in connection with a "Financing". That term was defined as a:
"private placement, offering or other sale of equity instruments"
In March 2020, following a restructuring, YES Bank conducted a capital raise conducted through a public offer on the Indian capital markets. The offer attracted capital, including from three investors listed in the schedule to YES Bank's engagement letter with Cantor. The total amount raised from those three investors was ₹27.93 billion, equivalent to approximately $373.4 million (US).
Cantor claimed commission on this amount under the engagement letter. It argued that the word "private" attached only to the word "placement", such that it would be entitled to commission if YES Bank raised funds through any offer or other sale of equity instruments, whether that offer or sale was private or public.
The Court of Appeal disagreed, finding that the word "private" applied to all items in the list. As a result, Cantor was entitled to commission only on a private placement, private offering or other private sale of shares. As the fundraising had been carried out by way of a public offer, Cantor was not entitled to commission.
Buyer could not avoid contractual obligations by preventing condition precedent from being satisfied
The High Court has held that a buyer remained liable to pay a deposit even though the condition for doing so had not been met, because the buyer's actions had prevented the condition from being satisfied.
What happened?
King Crude Carriers SA v Ridgebury November LLC [2024] EWCA Civ 719 concerned three contracts on substantially similar terms to purchase three vessels.
Each contract required the buyer to pay a 10% non-refundable deposit into an escrow bank account. In each case, the deposit was to be paid within three banking days after the account was opened.
To this end, each contract required the parties (including the buyer) to: "provide ... all necessary documentation to open and maintain the account without delay".
The buyers failed to provide documentation necessary to open the escrow accounts. In two cases, the buyer failed to provide necessary know-your-customer (KYC) documentation. In the third case, the buyer failed to provide a signed copy of the relevant escrow agreement.
The sellers terminated the contracts and sued for payment of the non-refundable deposits. The buyers claimed that the deposits were not payable, because payment was conditional on the escrow account being opened, and that had not happened.
The court disagreed. It held that the reason the condition to payment of the deposits had not been satisfied was because the buyer had failed to provide documentation needed to open the account.
In other words, the buyer's own actions had caused the condition not to be met. Moreover, that failure amounted to breach of each buyer's obligation under the contracts to provide all necessary documentation to open the account.
Under established principles of law, the buyer was unable to rely on the fact that the condition had not been satisfied due to its own breach of contract. The court embarked on an interesting legal analysis of this particular principle of law, although it concluded that, fundamentally, it was not necessary to identify the precise legal basis of the principle.
What does this mean for me?
There is a general principle of the law of England and Wales that a party should not benefit from its own wrong. This principle manifests itself in various ways. In this case, it was to prevent a party from relying on the failure of a condition precedent when that failure arose from its own breach of contract.
It is important to understand the limited context of this particular case. The court's decision rested on the fact that the buyer's obligation in question was to pay a specific sum – in other words, it was an obligation to pay a debt.
In other circumstances (e.g. where the condition applied to taking some kind of action), the same rule would not apply. However, the general principle remains and a court would no doubt be very hesitant to allow a party to engineer its own "out" from a contract.
The principle does not prevent a party from withholding payment or other performance under a contract in response to a breach of the contract by the other party.
Although common in real estate transactions and other types of contract, deposits are relatively infrequent in the UK on corporate acquisitions.
Nevertheless, we see them from time to time. This case underscores that a buyer, once committed to paying a non-refundable deposit, will not be permitted to engineer its way out of that payment.
Existence of convertible loan notes did not impede takeover by way of scheme of arrangement
The High Court has held that a scheme of arrangement put in place to effect a public takeover was not prejudiced by the fact that the target company had failed to disclose details of loan notes held by certain shareholders.
What happened?
In the matter of Lakes Distillery Company plc [2024] EWHC 1535 (Ch) concerned the takeover of the Lakes Distillery Company (the Company) by Nyetimber.
Prior to the takeover, the Company had issued convertible loan notes (CLNs), which provided that, on a change of control of the Company (including as a result of the scheme taking effect), the Company would repay the principal amount of the CLNs, plus interest and a 100% premium.
(There was initially some argument over the interpretation of the CLNs, as the CLN instrument did not explicitly provide for a 100% premium repayment on a change of control. The court interpreted the CLNs as requiring this, as the parties had intended to base them on the Future Fund standard form.)
Several scheme shareholders held CLNs. However, the scheme circular did not disclose the CLNs or the 100% premium repayment.
The Company's shareholders approved the scheme by a significant majority.
The court said that the CLNs were not part and parcel of the scheme. The CLNs had been put in place at a time when Nyetimber had approached the Company with a takeover offer. However, the Company had rebuffed that offer and, at that time, had not been contemplating a takeover by Nyetimber.
However, the existence of the CLNs and the 100% premium was information that may have been relevant to the Company's shareholders in deciding whether to approve the scheme.
Although the Company had complied with its obligation under the Companies Act 2006 to circulate to its shareholders an explanatory memorandum in connection with the scheme (the scheme circular), that memorandum was deficient, because it failed to disclose and describe the CLNs.
The court seriously considered convening a fresh meeting of the Company's shareholders to reapprove the scheme. However, given the size of the majority that had voted in favour of the scheme, it decided that to do so was unnecessary.
The court also held that the fact that certain shareholders held CLNs did not prevent the shareholders generally from consulting with other shareholders. As a result, the scheme did not need to be approved by separate meetings of the CLN-holders and the other shareholders.
The court therefore sanctioned the scheme.
What does this mean for me?
The facts of the case are quite specific and unlikely to arise frequently.
However, the decision shows the flexibility of the court to take a practical view of the circumstances surrounding a scheme of arrangement and to exercise its discretion to permit a scheme to proceed even where there are deficiencies in the circular to shareholders.
The decision also gives comfort that a potential takeover target should, in principle, have relative freedom to put in place arrangements, such as debt or equity financing structuring, while the subject of a possible offer without the concern that those arrangements could impinge on any future recommended offer for the company.
FCA sets out fee increases for 2024/2025
The Financial Conduct Authority (FCA) has set out the increases to its fees for 2024/2025.
The increases follow the FCA's previous consultation in April 2024. They affect (among other things) the fees payable to the FCA for applying to list shares or other securities and to approve a prospectus or other significant transaction document.
Read the FCA Policy Statement PS24/5 on increases in FCA regulated fees and levies (opens PDF)
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