The case concerned the proper interpretation of a letter agreement which provided for the fees to be paid to the claimant bank for its work in acting as the corporate finance adviser to the defendant company in relation to the company's acquisition of a target and the funding of that acquisition. The letter indicated that the bank would be paid (on top of a basic fees and its expenses) an additional fee based on a multiple described as "the EV/EBITDA 2006 entry multiple implicit in the transaction". At first instance the defendant company had succeeded in its argument that this expression meant that, where at the time the transaction took place "EBITDA 2006" was no longer the EBITDA figure implicit the transaction, the expression should be read as though the reference to EBITDA 2006 was a reference to the company's then current EBITDA figure (which on the facts of the case meant EBITDA 2007) and the bank's additional fee should be calculated accordingly. The judge at first instance went on dismiss, in brief terms, the defendant's alternative argument which was that, if, on a true construction of the contract, the bank's additional fee should be calculated by reference to EBITDA 2006, then there was an estoppel by convention which prevented the bank from asserting that its fees should be so calculated. The claimant bank appealed and the defendant company cross-appealed. The Court of Appeal allowed both the appeal and the cross-appeal. On the construction issue the Court of Appeal observed that the well-known case Chartbrook v. Persimmon Homes enabled a court to re-write the words of a contract only where the literal meaning of the contract wording produced a result that was absurd or where it was clear that something had gone wrong with the language. Here, the result of calculating the fee by reference to EBITDA 2006 was not absurd and there was nothing wrong with the language as such, what had gone wrong was that the parties had failed to anticipate the consequences of the language they had used. On the estoppel issue the Court of Appeal found that there was an estoppel by convention established in circumstances where the claimant bank had made statements to the defendant indicating that it shared the defendant's assumption that the fee would not be being calculated by reference to EBITDA 2006 (and its implied assumption that the fee would be calculated rather by reference to EBITDA 2007). Rix LJ also found for the defendant on the basis that the claimant was under "a duty to speak", in particular a duty to inform the defendant of the bank's internal and private calculations of its fee (which were based on EBITDA 2006 and which were entirely inconsistent with the figures for transaction costs more generally that the bank appeared to be endorsing).
Charles Graham QC and Simon Colton appeared on behalf of the Respondent.