The importance of positioning adjectives in a contract

02 July 2024

The Court of Appeal had to decide whether an adjective attached to only one noun in a list or to the entire list – the answer was worth $7.5m.

The judges found that the word “private” at the beginning of a list of fundraising structures in a broker’s engagement letter described all of those structures, and not just the first of the structures in the list. As a result, the broker was not entitled to a commission.

What happened?

Cantor Fitzgerald & Co. v YES Bank Ltd [2024] EWCA 695 concerned an engagement between well-known broker-dealer Cantor Fitzgerald (Cantor) and Indian commercial bank YES Bank.

By 2019, YES Bank had been experiencing severe financial problems and urgently needed additional capital. It engaged several financial institutions to assist it, including Cantor.

YES Bank and Cantor 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, the Reserve Bank of India imposed a moratorium on YES Bank. The next day, it published a reconstruction scheme for the State Bank of India to acquire 49% of the shares in YES Bank. There followed a change in YES Bank’s board and a further capital raise conducted through a public offer on the Indian capital markets. (As we will see below, the fact that the capital raise was a public offer was an important factor in the proceedings.)

The public 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 ₹27.93bn, equivalent to approximately $373.4m (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.

YES Bank refused to pay the commission. It argued that commission under the engagement letter applied only to funds raised through a private offer, whereas YES Bank had in fact raised funds through a public offer.

At first instance, the High Court found in favour of YES Bank. Cantor appealed the decision.

What did the Court of Appeal say?

The court dismissed Cantor’s appeal and found that no commission was payable.

In reaching its decision, the court focussed heavily on the phrase “private placement, offering or other sale of equity instruments”, employing orthodox principles of contractual interpretation (see box “How will the courts interpret a contract?” for more information).

The judges found that the word “private” in that phrase attached not only to the word “placement” (as Cantor had contended), but also to the words “offering” and “other sale of equity instruments”.

The court reached this conclusion based on various factors.

  • There is no general grammatical rule that an adjective at the start of a list qualifies all items in the list. But the nature of the list may indicate that it is intended to do so in a particular case.
  • The phrase “other sale of equity instruments” naturally embraced the concept of a placement. If the parties had intended it to apply to public sales as well as private sales, there would have been no need to include a specific reference to “private placements” (as that would already have fallen within the concept of an “other sale”). If the parties had intended this, they could simply have referred to “any sale of equity instruments” instead of listing specific fundraising structures.
  • Where the parties did want to embrace broad concepts in the engagement letter, they used drafting with wide wording, such as “equity instruments in any form, including without limitation” and “in one or a series of transactions”. The fact that they didn’t do so in the definition of “Financing” suggested they intended it to be a restricted category of transactions.
  • The court acknowledged that the term “private placement” is a term of art commonly understood by those with relevant financial background. But that did not mean the adjective “private” could not also apply to “offering” and “other sale” if the context required it.
  • The engagement letter dealt specifically with “Qualified Institutional Placements (QIPs)”. Cantor would act as “financial advisor, placement agent and arranger”, provided the “Financing” was not a QIP. (This was because, under Indian law, Cantor could not act on a QIP without registering as a merchant bank in India.) For QIPs, Cantor would act only as an “offshore financial advisor”. Under Cantor’s interpretation of the letter, the same role and fee arrangements would have applied both to QIPs and non-QIPS, even though Cantor was unable to act as agent and arranger on a QIP. This would not have made sense.
  • The engagement letter also gave Cantor the right to act as lead bookrunning manager for any other financing by YES Bank that was not a “Financing”. But, if the phrase “other sale of equity instruments” had included both private and public fundraisings, it was difficult to envisage a type of financing that would not also be a “Financing”.
  • The letter referred to Cantor’s willingness to “arrange any private placement or other exempt offering … or otherwise effect the Financing”. This suggested that Cantor was being engaged to procure investors for an offering that was not subject to (in the court’s words) “the full panoply of regulation” that would apply to a public offer.
How will the courts interpret a contract?

The approach the courts will take to interpreting (in legal terms, construing) a contract has now been effectively codified in a series of three cases (Arnold v Britton [2013] EWCA Civ 902; Rainy Sky SA v Kookmin Bank [2011] UKSC 50; Wood v Capita Insurance Services Ltd [2017] UKSC 24).

If the wording of a contract is clear and unambiguous, the court will assume that it reflects the parties’ intentions and apply that wording literally. This is the case even if the wording produces an uncommercial or unlikely result, provided the result is not completely absurd. In this case, the court has no power to enquire into the meaning behind the contract words.

If a contract contains unclear or ambiguous wording, the court will embark on the process of interpreting it. It will attempt to identify what the parties intended by the wording in question.

In doing so, the court will apply an objective test. It will consider the ordinary meaning of the words in the contract to establish what a reasonable person with all the relevant background available to the parties would have understood by them.

To achieve this, the court will consider different, “rival” interpretations of the language used (the iterative process), testing them against the language elsewhere in the contract (textual analysis) and the factual circumstances surrounding the making of the contract (contextual analysis).

The court will consider the commercial consequences of each rival interpretation and ultimately adopt the interpretation that most closely accords with what the evidence suggests was the parties’ intentions. Often, this will align with the interpretation that makes most sense commercially, but the court will not discount the possibility that parties intended to conclude an uncommercial bargain.

What does this mean for me?

It’s not uncommon to hear quips about lawyers arguing over the positioning of a word, or even a comma, in a sentence. Whilst lawyers can no doubt on occasion become overexuberant in the quest for ideal drafting, the courts in England and Wales are pragmatic and will normally read a contract in a sensible way.

But there are inevitably circumstances, such as in this case, where a clause is genuinely ambiguous and where that ambiguity can have significant financial implications for the parties. In these cases, judges will embark on an exercise of grammatical analysis to attempt to understand the contract.

Here, the use of the word “private” once at the start of the list created confusion over which of the items in the list it described. Contracts often use a numbering system to achieve this (i.e. numbering the list after the adjective to make clear that the adjective applies to the full list, as illustrated in the example below).

However, that was not the case in this contract. The court felt the clause was unclear and so undertook a grammatical analysis of the contract.

Whilst there is logic to the decision, it is in some ways slightly hard to digest. The concept that the word “private” attached not only to “placement” (which is beyond dispute) but also to “offering” (so, “private offering”) appears logical. However, to apply this also to the phrase “other sale of equity instruments” is more of a struggle. By the court’s logic, the letter effectively read: “private other sale of equity instruments”. Clearly, this would not be a commonplace use of English.

With the benefit of hindsight, it is of course possible to conceive of better ways to draft the clause in question, depending on whose position was to prevail. For example, had the parties wanted to make it clear that Cantor would receive a commission on any public offering or other sale, whether public or private, they might have said (example A):


(i) private placement; or

(ii) offering or other sale of equity instruments (whether public or private)”.

By contrast, had they wanted to make it clear that Cantor was to receive a commission only on a private fundraising, they might have said (example B):

“any private placement, private offering or other private sale of equity instruments”.

It’s easy to recommend this in retrospect. Often the weaknesses in drafting only become apparent when a dispute arises. The job of a good contract lawyer is to think ahead, countenance adverse scenarios (even if thought unlikely) and attempt to avoid them with crystal-clear drafting.

This is not always easy when transactions proceed at a frantic pace and is often thought not to be cost-effective. Indeed, in this case, the drafting appears to have been “boilerplate” (i.e. part of a commonly-used template) and so may not have been a key focus of negotiations.

The key is to strike the right balance and to engineer language that is clear from the outset. Things parties and their legal advisers can do to aid with this include the following.

  • Use sub-clauses. Instead of listing complex items out in a single paragraph, break the list up using sub-clauses. This can make it clear which items are qualified by particular adjectives, descriptions or determiners. See example A above.
  • Repeat any important language. Although shorter clauses (and contracts) are naturally more pleasing, sometimes repeating important concepts, descriptions or characteristics is a useful way of ensuring there can be no confusion. See example B above.
  • Include clarificatory wording. Even if a clause seems to be clear, there is often no harm in including additional language to put any potential ambiguity beyond doubt. For example, in this case, the letter might have stated (in an operative provision that clarifies the defined terms) something like: “Without prejudice to any other provision of this letter, no [commission] will be payable on the basis of any funds raised through any public offer or other public sale of equity instruments”.
  • Keep an eye on grammar. It may seem tedious during the early hours of the morning or the final, frenetic moments of a months-long negotiation, but it is worthwhile to check that clauses are all correctly constructed from a grammatical perspective and properly formatted, and that all internal and external cross-references are correct and refer to the intended part of the document. Decisions with significant financial implications have turned on the placement of a comma, the use of the plural instead of the singular, and even a lack of indentation in contract text.

Of course, applying these principles risks making the contract longer and wordier. The trick for parties and their legal advisers is to strike the right balance between sufficient detail to avoid ambiguity, whilst keeping the contract succinct and easy to understand.

Access the court’s decision in Cantor Fitzgerald & Co. v YES Bank Ltd [2024] EWCA Civ 695 on whether an adjective applied to an entire list or only the first item.