We’ve seen a case where an extra comma made a million-dollar difference: AMJ Campbell Inc v Kord Products Inc (2003) 32 BLR (3d) 90 (Ont SCJ); now there’s one involving a hyphen potentially worth a great (but unspecified) deal more. Concessionária do Rodoanel Oeste SA borrowed $895 million from a group of banks and entered into interest-rate swaps with a further group of hedge providers in order to protect the parties from sudden spikes in interest rates. The swaps were governed by the 2002 ISDA master agreement and the related schedule. Interest rates plunged, making the swap agreements very favourable to the hedge providers. Rodoanel gave notice of its intention to prepay the loans, which it could do under the loan documentation without penalty. The hedge providers pointed to the ISDA master agreement, which requires payment of ‘Close-out Amounts’ on early termination, including (a) the costs of liquidating and replacing the terminated transactions and (b) the value of remaining rights under the terminated transactions (the mark-to-market (MTM) amount, or net present value of expected future cash flows from the swap). Rodoanel pointed to the ISDA schedule, which provides that ‘no Close Out Amount’ (note the absence of a hyphen) is due on pre-payment. In an action for breach of contract, the hedge providers contended that the schedule relieved Rodoanel of the obligation to pay the liquidation cost but not the MTM amount, arguing that the difference in punctuation between the ISDA master agreement and the schedule created an ambiguity that could be resolved only through extrinsic evidence.  

The New York Supreme Court appears to have bought that argument, but the Appellate Division did not. Consideration of the entire swap agreement favoured Rodoanel’s position that ‘Close-out Amount’ and ‘Close Out Amount’ were intended to mean the same thing. The ISDA master sets out a number of early termination events (not including pre-payment) which are subject to the payment of ‘Close-out Amounts’, but the schedule goes on to add others (including pre-payment) which are not (even if the punctuation of the defined term is different). The hedge provider’s argument that the MTM amount was still payable was simply ‘irrational’ and their breach of contract claim had to fail. If they had wanted Rodoanel to be on the hook for payments on early termination, they could (as commercially sophisticated parties) have simply negotiated that and expressed it clearly. Ultimately, ‘the words and not the punctuation guide us’ in contractual interpretation; obvious mistakes in grammar, spelling or punctuation should not vitiate otherwise clear statements of contractual intention.  

Banco Espírito Santo SA v Concessionária do Rodoanel Oeste SA (NY App Div, 1st, 18 September 2012)  

[Link available here].