ING Bank NV v Ros Roca SA (Rev 1)

A court cannot rewrite an agreed contractual formula merely because later events expose an unprovided commercial consequence. Corrective construction under Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 requires both a clear error in the contractual language and a clear intended meaning.

Estoppel by convention may nevertheless prevent a party from enforcing a contractual entitlement. It may arise where parties proceed on a shared assumption, or where one party acquiesces in the other’s assumption, and it would be unjust to depart from it. In a joint transaction, a financial adviser which knows that an agreed estimate is irreconcilable with its intended fee must disclose that position where honest and responsible conduct requires it.

ING acted as Ros Roca’s exclusive financial adviser in finding an investor to fund Ros Roca’s acquisition. Its engagement letter provided a fixed fee and an additional fee calculated by reference to an entry multiple using Enterprise Value and EBITDA 2006.

Deyà invested in December 2007. ING claimed an additional fee of €6.7 million using EBITDA 2006. Ros Roca paid an additional fee of €943,922.44 using forecast EBITDA 2007. Walker J in the Commercial Court accepted Ros Roca’s construction and rejected its alternative estoppel case.

ING appealed on construction. Ros Roca cross-appealed on estoppel, contending that ING had participated in a €4 million estimate of total transaction costs while internally calculating a much larger fee.

1. Disposition. ING’s appeal on contractual construction and Ros Roca’s cross-appeal on estoppel were allowed. The judge’s order was preserved, but because ING was estopped from charging the larger fee rather than because of the contractual construction.
2. The clause meant what it said. The reference to EBITDA 2006 could not be replaced with EBITDA current at completion. The corrective construction test in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 was not met. The parties had deliberately selected EBITDA 2006; their error was a commercial failure to provide for delay and changed circumstances, not an error in the language or one with a clear alternative meaning.
3. Estoppel by convention could arise where parties acted on a shared assumption of fact or law, or where one made an assumption which the other acquiesced in, and it would be unjust to permit departure. ING and Ros Roca had jointly proceeded on a genuine €4 million estimate of total transaction costs. Once ING had calculated that its fee would exceed €7.3 million if EBITDA 2006 were used, that estimate necessarily implied that this was not the intended charging basis.
4. ING was advising Ros Roca on the same transaction and knew that disclosure could lead to dispute or renegotiation. In those special circumstances, honest and responsible conduct required ING to disclose the inconsistency. Its silence and acquiescence made it unconscionable to assert the EBITDA 2006 calculation. Ros Roca lost the opportunity to renegotiate or alter the transaction, which was sufficient detriment.
5. The only realistic alternative EBITDA figure was EBITDA 2007. The estoppel therefore confined ING to the fixed fee, expenses and additional fee calculated on that basis, which Ros Roca had already paid.
6. Rix LJ additionally considered that the same result could be reached through promissory estoppel and a duty to speak. Stanley Burnton LJ agreed with the outcome and warned that disputed estoppel claims will generally be unsuitable for the CPR Part 8 procedure without proper pleadings.

• Court of Appeal (Civil Division): By [2011] EWCA Civ 353, allowed ING’s appeal on construction but allowed Ros Roca’s cross-appeal on estoppel, preserving the practical result below.
• Commercial Court: Walker J held that the fee formula should use current EBITDA and rejected Ros Roca’s alternative estoppel case. The citation of that decision is not stated in the judgment.