Key takeaways
Clear contracts help avoid costly disputes
Ambiguous terms can lead to confusion and legal challenges.
Courts consider the bigger commercial picture
Judges look at the full agreement and its business purpose.
Success fee clauses need precise wording
Vague terms around payment can result in disagreement.
The case of Kigen (UK) Ltd -v- NOR Capital Ltd [2024] EWHC 3164 (Ch) is an important ruling by the High Court concerning the interpretation of contractual terms, specifically regarding the payment of a “success fee” in the context of capital raising. This case provides valuable insights into how the courts approach ambiguous contractual clauses and the importance of commercial sense in contractual interpretation.
Background
Kigen (UK) Ltd, a leader in the eSIM and iSIM technology sector, engaged NOR Capital Ltd, an investment banking firm, to secure external investment. The engagement was formalised through an agreement that included a provision for a “success fee” payable under certain conditions. However, the ambiguity in the contract led to a dispute when Kigen’s parent company, SoftBank Group Corp, ultimately provided the necessary capital instead of an external investor.
Key issues
The primary issue before the court was whether NOR Capital Ltd was entitled to a success fee despite the capital being provided by Kigen’s parent affiliates rather than an external investor. The contract contained conflicting clauses: one stating there would be “no charge” for funding provided by management or the existing majority shareholder, and another stipulating a “minimum success fee of GBP 500,000 regardless of the source of the funding”.
Court’s decision
The High Court ruled in favour of Kigen (UK) Ltd, finding that the success fee was not payable. The court emphasised the need to interpret the contract as a whole, considering both the language used and the commercial implications. It concluded that it would make little commercial sense for Kigen to pay a success fee when the funding outcome was precisely what the agreement aimed to avoid.
Implications
The decision reiterates several key principles of contract interpretation:
Importance of clear contract drafting: This case highlights the necessity for precise and unambiguous language in contracts to prevent disputes. Ambiguities in the wording open the door to differing interpretations and potential litigation.
Commercial sense in interpretation: Courts will consider the commercial logic behind contractual terms. It is not always the case that the court will be constrained by the specific language used. In this case, the court found it unreasonable for Kigen to pay a success fee when the funding came from its parent company, which the agreement aimed to avoid.
Whole contract interpretation: The decision underscores the importance of interpreting contracts as a whole, rather than focusing on isolated clauses. The court balanced conflicting provisions to reach a fair conclusion.
Role of context: The broader context and purpose of the agreement played a crucial role in the court’s decision. Understanding the intent behind contractual terms is essential in resolving ambiguities.
Precedent for Financial Advisory Agreements: Lastly, this ruling serves as a precedent for similar disputes in financial advisory agreements, emphasising the need for clarity in terms related to success fees and funding sources.
Conclusion
The decision in Kigen (UK) Ltd -v- NOR Capital Ltd serves as a reminder for companies and financial advisors to ensure that their contracts are carefully drafted to avoid potential disputes. It also illustrates the court’s role in interpreting contracts in a manner that aligns with commercial logic and fairness.
