ING Bank N.V. v Ros Roca S.A.

A contractual success fee based on an entry multiple should ordinarily compare the enterprise value with the EBITDA current for the transaction, which may be a forecast figure. A specified accounting year may be corrected where it was included by oversight, provided it is clear that the language has gone wrong and what a reasonable person would have understood the parties to mean. A construction producing a ratio with no rational relationship between its numerator and denominator may be rejected as commercially nonsensical. An estoppel by convention requires a shared assumption of fact or law, objectively manifested by mutual conduct, reliance, and circumstances making it unjust to resile from the assumption.

ING acted as Ros Roca’s financial adviser in connection with the acquisition of Dennis Eagle Group and a subsequent equity investment. Under the Hawk Retainer, ING’s additional fee depended on the Enterprise Value/EBITDA 2006 entry multiple implicit in the transaction.

The transaction completed in late 2007, when the current EBITDA was said to be a 2007 forecast. ING claimed a fee calculated using 2006 EBITDA. Ros Roca contended that the clause required the current EBITDA, producing a lower fee, and alternatively relied on estoppel by convention. The court therefore had to determine the proper construction of the fee clause and, if ING succeeded on construction, whether estoppel prevented ING relying on that construction.

1. Construction. The words used to express the Entry Ratio were unclear and contained an apparent linguistic error. Applying the principles in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, the court could correct the wording if it was clear both that something had gone wrong and what a reasonable person would have understood the parties to mean.
2. The phrase “entry multiple implicit in the Transaction” indicated a comparison of like with like. Market practice used current Enterprise Value and current EBITDA, with EBITDA capable of being a forecast. ING’s construction would compare an Enterprise Value at completion with an outdated 2006 EBITDA, without any obvious relationship between the two figures. It would therefore produce a commercially nonsensical result unless the parties had made their intention abundantly clear. They had not done so.
3. The proper construction was that “EBITDA 2006” referred to EBITDA without restricting it to the specified year. The denominator was therefore the EBITDA current when the transaction completed. The court rejected ING’s construction and concluded that a reasonable person would regard the reference to 2006 as having been included by oversight.
4. Estoppel. The court dealt briefly with the alternative defence. An estoppel by convention required a shared assumption of fact or law, communication by mutually manifest conduct, reliance, and circumstances making it unfair, unjust or unconscionable to resile. Ros Roca’s alleged assumption that total transaction costs would be about €4 million was an assumption about the future, not an assumption of fact or law. There was no sufficient evidence of an assumption that ING’s fee would be calculated using the 2007 multiple, and no basis for reformulating the case as promissory estoppel.
5. ING’s claim therefore failed.