CONTRACTUAL INTERPRETATION: ENTITLEMENT TO BE PAID UPON “VALUE REALISED”
Ishan Anoop Sakraney v Ameet Nalin Parikh and another matter [2021] SGHC(A) 12 concerned an appeal from the decision of the High Court. The dispute turned on whether, on a proper construction of Clause 4.2 of the contract in question, a party who completed his obligations within the relevant period was only entitled to be paid upon the other party’s receipt of the sale proceeds.
Ameet Nalin Parikh, the respondent (“Ameet”), was engaged by Ishan Anoop Sakraney, the appellant (“Ishan”), to help liquidate and monetise certain assets pursuant to a Letter of Engagement (“LOE”) as modified by an Addendum of 1 April 2017 (“Addendum”) (collectively, “the Contract”) (at [1]). There was no dispute that Ameet had rendered services which resulted in the successful completion of the asset sale (“the Sale”) and that Ameet had been paid up till 30 September 2019.
The only issue in dispute was whether Ameet was entitled to fees for his services for completing a sale before 30 September 2019, even if Ishan had not received the Sale proceeds before 30 September 2019 (at [2]).
The High Court interpreted Clause 4.2 of the LOA as amended by the Addendum (“Clause 4.2”) in Ameet’s favour and held that Ameet was entitled to fees for services rendered between June 2013 to September 2017 in relation to the completion of sale of assets under two holding companies (collectively, “the Companies”).
The dispute turned on (at [4]):
(a) The plain language of the Contract (specifically, the interpretation of Clause 4.2);
(b) The commercial context surrounding the Contract; and
(c) The parties’ conduct between the start of the Contract on 14 June 2013 and the last day of the tail period on 30 September 2019 (“the Relevant Period”).
The Appellate Division of the High Court found that the plain language of the Contract supported Ameet’s interpretation and neither the commercial context nor the parties’ conduct urged a different interpretation (at [5]).
Plain language of the Contract. The Court stated that the applicable law on contractual interpretation was uncontroversial and undisputed (at [9]). This article will focus only on the interpretation of Clause 4.2 of the Contract.
Clause 4.2. Clause 4.2 states, among others, that “Fees for such services will be computed and paid on the basis of [a percentage] of the value realized by Ishan” (at [10]). The clause also provided that:
“For the purposes of this letter, “value realized by Ishan” will be value or amounts received from the Companies by Ishan … in any form whatsoever commencing from the date of this Addendum, including but not limited to sales proceeds form [sic] the sale of the assets of the Companies, dividends, royalties, non-compete fees or any similar such payments / fees … However, for the avoidance of doubt, this will not include any monthly dividends (US$25,000) received by Ishan and will not be counted as "value realized by Ishan". These fees will be paid immediately upon Ishan receiving the monies described above…” (emphasis added by the Court in bold) (at [10])
The Court found that the interpretation of Clause 4.2 turned on the interpretation of the words “value realised” (at [11]). Since Ameet’s fees arose upon and were calculated by reference to “value realised” from the contract, Ishan’s submission was that value was only truly realised when Ishan received the Sale proceeds.
The Court disagreed (at [12]). Firstly, the words “value” and “realised” were broad terms; “value” need not be purely monetary and “realisation” of the same need not be limited to receipt of monies. Secondly, the phrases highlighted all indicated that a narrow construction of “value realised” should not be adopted. Value could take “any form whatsoever” and was not restricted to cash amounts received by Ishan within the two-year tail period after the termination of the Contract. Since “value realized by Ishan” will be value or amounts received, this suggests that Clause 4.2 treated “value” and (cash) “amounts” as alternatives. This was also supported by the canon of contractual interpretation that parties are assumed to have intended every word in a given contract as well as the presumption against redundant words.
Among Ishan’s arguments, the Court highlighted that the line that Ameet’s fees “[would] be paid immediately upon Ishan receiving the monies described above” did not assist Ishan as it conflated the question of Ameet’s entitlement in principle to the fees with when Ishan’s payment obligation arose (at [13(c)]).
The Court also agreed with the High Court’s hypothetical scenario in response to Ishan’s interpretation that Ameet is only entitled to fees upon Ishan’s receipt of the Sale proceeds (at [13(d)]:
“Assuming that Ameet had fully rendered his services (this being undisputed) and assuming that the Sale had been fully completed within the Relevant Period (again, undisputed), what would happen if the Companies had not distributed the Sale proceeds through dividends until after the Relevant Period? Ishan’s response was: “no payment if no dividends declared until after 2 years”. That plainly could not have been the case. That would mean an individual could have done all he was expected to under a contract, and yet remain unpaid due to factors completely beyond his control. That would not have made commercial sense.”
Conclusion. It is important to note that contractual interpretation is fact-specific and the plain language of the clause is an important starting point. Clause 4.2 provided a formula to calculate Ameet’s fees and stated when Ishan’s payment obligation arose. But as the Court emphasised at [13(c)], this was not to be conflated with Ameet’s entitlement to the fees.
The Court emphasised that “the parties did not dispute that Ameet had rendered his services fully, and that the Sale was completed within the Relevant Period. Ameet deserved to be paid for completing those services, and further, to be paid according to the terms of the Contract, even if the precise quantum was to be calculated at a later date.” (at [25])
Therefore, readers must pay attention to the precise wording of the contract clauses in question and how their rights, entitlements and obligations are defined in the contract.
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