THE IMPORTANCE OF SIMPLE AND CLEAR ENGAGEMENT LETTERS – CANTOR FITZGERALD & CO V YES BANK LIMITED [2024] EWCA CIV 695

A recent decision by the Court of Appeal serves as a stark reminder of the importance of ensuring that engagement letters have clear terms. This is particularly important for our clients in professional service firms, corporate finance advisory or independent financial advisory, where having broadly drafted or unclear engagement letters could lead to dispute over payment terms. Moreover, while not discussed in Cantor v Yes Bank, such ambiguities could result in a broader scope of engagement than intended, potentially increasing the risk of professional negligence claims.

In Cantor Fitzgerald & Co v Yes Bank Limited [2024] EWCA Civ 695, the Court of Appeal dismissed Cantor’s appeal and upheld the High Court’s decision that Cantor was not entitled to recover a financing fee in connection with Yes Bank’s Further Public Offering (FPO).

Facts

The case involved finance services firm Cantor Fitzgerald & Co’s engagement with Yes Bank Limited, which was experiencing severe financial problems and sought Cantor’s assistance to raise new capital. An engagement letter was issued by Cantor in December 2019, later amended by a letter dated February 2020.

The engagement letter outlined the following:

1. “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”).
2. In consideration of our services pursuant to this Agreement, the Company agrees to pay CF&CO the following compensation:
   • Upon execution of this Agreement, the Company shall pay to CF&CO a non-refundable cash fee in the amount of $500,000 (“Retainer”), which fee will be credited against any fees payable pursuant to Section 3(b) below.
   • Upon the closing of any Financing, the Company shall pay to CF&CO a non-refundable cash fee equal to 2% of the aggregate maximum gross proceeds received or receivable in connection with such Financing, including, without limitation, aggregate amounts committed by Investors to purchase securities, whether or not all securities are issued on the closing date of the Equity Financing.”

New capital was not raised in time and the Reserve Bank of India intervened, leading to Yes Bank’s reorganisation under a statutory scheme. Following the reorganisation, Yes Bank successfully raised further capital from an FPO, which involved certain investors with whom Cantor had already been in discussion with during their engagement. The subscriptions totalled the equivalent of $373.4 million. As a result, Cantor sought to be paid a 2% fee (approximately $7,468,000) for the amounts subscribed in the FPO by the named investors.

Decision

Yes Bank successfully argued that the FPO did not fall within the scope of “Financing” because the use of the word “private” qualified all forms of financing covered by Cantor’s engagement letter. Consequently, Cantor was only entitled to its retainer.

The Court of Appeal agreed with the High Court’s decision, noting while there is no firm grammatical rule that an adjective or determiner at the start of a list qualifies them all, the nature of the list may well indicate that it does. Unless something in the content of the list or another adjective or determiner suggests otherwise, a reader will assume that an adjective or determiner at the start of a list qualifies the entirety of it. This is not a point of law for which any authority is required.

Given this natural assumption, it is notable that the parties did nothing to counter it, whether by omitting the word “private”, including the word “public”, changing the order of the list or otherwise. In contrast, they went to the trouble of making it clear in the same sentence both that all kinds of equity instruments were covered and that the arrangement would cover both a single and a series of financings, as seen in the references to “equity instruments in any form, including without limitation…” and “one or more financing(s)” and “in one or a series of transactions”.

Comment

The takeaway from this decision is to carefully check engagement letters and terms of business, rather than relying on standard forms (not that this was the case here). It is important to ensure that the engagement letter accurately reflects the commercial agreement between the parties and that the terms outlining the scope of the engagement and payment terms are clear and straightforward. Simpler drafting can sometimes be more effective in clearly outlining what has been agreed upon by the parties. In this case, had the drafting been “a private placement, an offering or another sale”, the result may have been different.

We suggest that our clients, particularly professional service firms, corporate finance advisers or independent financial advisers, take this decision as a reminder to review any standard form engagement letters and ensure that the drafting is clear and simple. Using lists or bullet points to set out commercial terms or payment terms can be an effective way to outline what has been agreed. Particularly attention should be paid to the scope of engagement and any provisions concerning renumeration and any trigger events.

The full judgment is available here.

If you would like assistance reviewing your engagement letters in light of this decision, or have any queries regarding this article, please feel free to contact our corporate law specialists, James Hutchinson and Jonathan Booton.