The appeal related to proceedings brought by Cantor in the High Court against YES BANK in 2021, claiming it was owed a financing fee in relation to YES BANK’s successful Further Public Offering (“FPO”) in India in July 2020. 

Background

YES BANK had been facing severe financial difficulties and engaged Cantor in December 2019 to assist with raising urgent financing.  Under its engagement agreement, Cantor was entitled to a retainer fee at the outset, then a financing fee linked to any proceeds YES BANK received from specified investors in relation to a “Financing”.

The case turned on the meaning of Financing, defined as a:

“private placement, offering or other sale of equity instruments in any form…”. 

In particular, the key question was whether the word “private” applied to “offering” and “other sale of equity instruments” as well as “placement”.   If so, only private forms of financing were within scope of the engagement and the FPO (a public financing) fell outside of it, such that Cantor was not entitled to a financing fee.

Despite Cantor’s efforts to raise financing from late 2019 to early 2020, capital was not raised in time and YES BANK’s regulator intervened to impose a moratorium in March 2020.  Shortly afterwards, the State Bank of India (“SBI”) acquired a 49% shareholding in YES BANK, a substantial capital injection led by SBI followed and YES BANK’s board was replaced.

The new board resolved to raise further funds through a public offer, following which YES BANK completed an FPO in July 2020. Cantor had no involvement in the FPO at all, but three investors with whom Cantor had previously been in discussion participated.

Cantor claimed it was entitled to a financing fee in relation to those investors, arguing that the FPO was a “Financing” under its engagement agreement.  YES BANK denied this on the basis that Cantor’s engagement was limited to raising private forms of financing, and so did not cover an FPO.

High Court decision in YES BANK’s favour

Following a one-week trial in March 2023, High Court judge Mr Justice Bright agreed with YES BANK’s position that “Financing” was limited to private forms of financing, ruling that the use of the word "private" in “private placement, offering or other sale of equity instruments in any form…” qualified all forms of financing covered by the engagement.

Dismissal of Cantor’s appeal

Cantor then lodged an appeal with the Court of Appeal, which was heard on 12 June 2024.

The three Court of Appeal judges (Chancellor of the High Court Sir Julian Flaux, Lord Justice Popplewell and Lady Justice Falk) unanimously upheld the judge’s decision, dismissing the appeal in a judgment handed down on 24 June 2024.

The Court of Appeal agreed with YES BANK that the use of the word private had “undoubted significance” and a reader would naturally assume that an adjective or determiner at the start of a list – such as “private” in the list concerned – qualifies all of it.  Given that natural assumption, the Court found it notable that the parties did nothing to counter it in the agreement. 

The Court of Appeal also dismissed Cantor’s attempts to argue that “private placement” was a term of art under Indian law such that “private” applied only to “placement”.  The Court found that the concept of a private placement is understood internationally well beyond the confines of Indian law; and the fact that "private" naturally couples with "placement" did not prevent it also being applied to "offering" and "other sale".

The Court of Appeal found further support for YES Bank's interpretation in both the contractual context and the factual background.  In particular, the Court found that “the language of the contract does not suggest that any form of public offer was contemplated” and referred to Mr Justice Bright’s finding that an FPO was not a realistic possibility when the contract was agreed.

Finally, the Court of Appeal went further than the High Court and found that even if “Financing” did include an FPO, Cantor would not have been entitled to a fee in relation to one of the three investors – the Indian company Hinduja Leyland – since the Cantor engagement expressly excluded Indian resident entities.

All in all, this was a resounding victory for YES BANK. 

The Hogan Lovells team was led by Neil Mirchandani (Partner) and includes Michael O’Donoghue (Senior Associate), Georgina Denton (Senior Associate) and Bethany Bridges (Trainee). The Counsel team comprised John Taylor KC and Chris Langley of Fountain Court Chambers.

To read the Court of Appeal’s full judgment click here.

Authored by Neil Mirchandani, Michael O’Donoghue and Georgina Denton.