$30 Million Contract Dispute Hinged on a Single Word
A case in which the outcome of a $30 million dispute hung on the interpretation of a single word proves the point that the drafting of commercial contracts is not for the uninitiated and is better entrusted to legal professionals.
An investment bank had agreed to provide advice with a view to raising capital for a natural resources company and arranging its sale. It was agreed that, if a sale of the business on certain terms were 'consummated' within 12 months of the contract's completion, a success fee would be payable to the bank.
A sale of shares in the company was agreed in principle during the 12-month period; however, the $1.5 billion transaction was not completed until some time later. A judge found that the sale had been 'consummated' when the sale agreement was reached and that the bank was entitled to a fee of $29,907,000.
In allowing the company's appeal and ruling that the bank was not entitled to the fee, the Court of Appeal noted that 'consummate' is an ordinary English word and not a legal term with a specific meaning. Its most common usage is in the context of marriage wherein it is understood to mean completion, accomplishment or fulfilment. The judge's finding that consummation was achieved when the major terms of the sale were agreed was inconsistent with the contractual language.