Summary and implications

The Court of Appeal handed down its decision in ING Bank NV v Ros Roca on 31 March 2011. It provides some useful guidance regarding contractual interpretation, estoppel, and mistake. It also serves as a valuable warning that by providing very optimistic estimates of costs and fees, banks may provide a basis for estoppel by convention or estoppel by representation to operate and thereby risk rendering fee clauses in a contract unenforceable.


ING Bank (ING) entered into a Contract to act as financial advisor with Ros Roca SA (Ros) in connection with the purchase of another company. ING also provided a bridging loan of €63.5 million, which was to be repaid through a capital increase to be subscribed to by a third-party investor, Deya Capital SCRA, S.A. (Deya). The claim (and specifically the appeal) turned on the construction of the formula for calculating ING’s fees, described by the judge as the “Entry Ratio”.  

The agreement set out that ING was entitled to the following fees:

  1. a fixed fee of one per cent of the bridge facility or the third party equity investment (whichever was the higher); and
  2. an additional variable fee based on the Enterprise Value/EBITDA 2006 entry multiple implicit in the transaction.

There was no dispute as to the definition of “Enterprise Value”, which was agreed by the parties to be €441 million. Equally the definition of EBITDA was uncontroversial, with both parties agreeing the normal use of “earnings before interest, tax, depreciation, and amortisation”.

The dispute arose because of the specific reference to the date (i.e. 2006) in relation to a transaction that did not in fact take place until the end of 2007. By October 2007, it was clear that Deya was going to subscribe €63.5 million by way of capital injection in return for a shareholding. Ros then asked ING, as its financial advisor, to help calculate the correct shareholding to allocate to Deya. That calculation would be based on the ration injection, less the company’s estimated net financial debt.

Crucially, to estimate the net debt of the company, Ros and ING exchanged estimates of Ros’ net debt including estimates of transaction costs between €3 and €4 million. In November 2007, the relationship manager at ING sent an email to his colleague setting out the difference between fees calculated with reference to EBITDA 2006 and those calculated with reference to EBITDA 2007. On EBITDA 2006, the fees came to € 7.3 million, several million pounds more than EBITDA 2007.

A week later, ING and Ros agreed a figure of €4 million for the transaction costs (a figure low enough to make it clear that ING’s fees had not been estimated using EBITDA 2006) and this figure was used when completing the deal.

When ING subsequently came to calculate the fees, using EBITDA 2006, Ros argued that the clause should instead be construed to read EBITDA 2007 as that was the EBITDA that was implicit in the transaction. It was, Ros argued, the later EBITDA, that would be used to calculate costs in accordance with market practice.

The first instance decision

The judge at first instance, Mr Justice Walker, found in favour of Ros, that the correct EBITDA should be the later (2007) figure; he considered it clear that a reasonable person would have understood the parties, when using the words they did in expressing the entry ratio, to have included references to 2006 by oversight, and to have intended that EBITDA should not have been linked to a specific year.

The High Court therefore held that ING’s interpretation (which was, unsurprisingly, more favourable to it to the tune of some millions of pounds) was “commercially problematic” and relatively “ill-defined”.

The Court of Appeal decision

On the issue of construction, the Court of Appeal disagreed with the judge at first instance, and held that ING’s construction of the relevant clause was correct. The fact that the parties had overlooked the possibility that EBITDA 2006 would be outdated by the time ING’s fees were calculated was not sufficient to satisfy Hoffman LJ’s test from Chartbrook v Persimmons (i.e. that “something must have gone wrong with the language”). The mistake was not the language, but failing to anticipate the consequences of the contract. By itself, this could not require a construction that involved ignoring the explicit reference to “2006” in the EBITDA.

However, on the new issue of estoppel, the Court held that, although ING’s construction of the clause was correct, they were estopped from relying on it. When ING had provided Ros with the estimate of the entry ratio, in November 2007, there was a shared assumption that ING’s fees would not be calculated with reference to EBITDA 2006 (in spite of the reference to it in the contract). Giving the leading judgment Carnworth LJ concluded that it would be unconscionable to reverse that assumption.

Rix LJ concurred, but on different grounds, that ING was estopped by its representation in November 2007 that it would not base its fee on the EBITDA 2006 calculation.


The case follows a trend of recent cases where a literal interpretation is overruled by a purposive one in the higher courts. It is also interesting to note that in this case, ING was effectively prejudiced by its failure to point out the mistake to Ros. If it had pressed for its fee on the basis of EBITDA 2006, it might have received a figure closer to it.

The case therefore serves as a reminder to take care in communications with corporate customers. Communications not intended to formally change the contractual arrangements which are in place could have that effect, and a party may not be able to rely on its contractual rights where the other has acted to his detriment in relying on a shared assumption or representation.