Ing Bank NV v Ros Roca SA

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
Judgment Date31 Mar 2011
Neutral Citation[2011] EWCA Civ 353
Docket Number2008 folio No: 548

[2011] EWCA Civ 353






Before: Lord Justice Rix

Lord Justice Carnwath and

Lord Justice Stanley Burnton

2008 folio No: 548

Case No: A3/2010/0308

Ing Bank NV
Ros Roca SA

Stephen Phillips QC & Paul Stanley QC (instructed by Messrs Allen & Overy LLP) for the Appellant

Charles Graham QC & Simon Colton (instructed by Messrs Izod Evans) for the Respondent

Hearing dates: Monday 29th & Tuesday 30th November, 2010




This appeal concerns the construction of a clause governing the calculation of an "additional fee" for financial services provided by ING Bank NV ("ING") to Ros Roca SA ("Ros Roca"). In monetary terms ING claims €6,700,000; on Ros Roca's interpretation, upheld by the judge, the correct amount is €943,922.44. The cross-appeal is based on the contention that, even if ING succeeds on the construction issue, it is precluded by estoppel from relying on that construction.


Ros Roca is a Spanish company specialising in waste and environmental services. ING is a Dutch bank, which in 2006 acted as financial adviser to Ros Roca in connection with negotiations for the purchase of another company, Dennis Eagle Group Ltd ("DEG"). ING also provided financial assistance by underwriting a bridging facility of up to €63,500,000. It was a term of that arrangement that the funds provided would be repaid through a capital increase to be subscribed by a third party investor (or "partner"). Under a separate agreement, Ros Roca engaged ING as its exclusive financial adviser in connection with the search for such an investor.


The terms of that agreement were set out in a letter dated 31 October 2006. For reasons explained by the judge this agreement has been referred to as "the Hawk Retainer". In due course a suitable investor was identified, Deyà Capital SCR, S.A. ("Deyà"). Under an investment agreement dated 7 December 2007 Deyà made an equity investment of €63,500,000, which enabled Ros Roca to repay the Bridging Facility. The appeal turns on the construction of the formula for calculating ING's fees, described by the judge as the "Entry Ratio".

The Hawk Retainer


ING undertook to act for Ros Roca –

"in connection with the search of a partner to subscribe a capital increase in Ros Roca…("the Transaction") on the terms set out in this letter ("the Engagement")"


By section 1 ("Engagement and scope of work") Ros Roca retained ING as "its exclusive financial adviser". The services to be provided as appropriate included:

"a) using information provided by the Company for the purposes of the Engagement, provide the Company with a valuation of the Ros Roca's assets that form part of the transaction;

b) advising on the best long term financial structure for Ros Roca;

c) preparation, with the assistance of the management of the Company, of the information which will be made available to the potential buyers, including the elaboration of a descriptive sale memorandum, with detailed information of the businesses and its economic financial situation;

d) in consultation with the Company, developing, updating and reviewing a list of potential purchasers (the "List") and contacting those in the List which have been approved by the Company;

e) advising the Company on the conduct of the Transaction, including advising on obtaining confidential undertakings from potential purchasers in respect of confidential information, dealing with enquiries from potential purchasers, accompanying potential purchasers as required on due diligence meetings with the Company and management and site visits, and distributing further information;

f) advising and assisting in the negotiations the Company may hold with potential purchasers or any other party in the Transaction and its advisers and/or investors and, if appropriate, the advice on tactics which the Company may wish to adopt in relation to such negotiations;

g) assisting the Company on the final terms of the Transaction;

h) collaboration and co-ordination of the Company's other advisers, which will prepare the economic, financial, administrative, technical, tax and legal information (Vendor Due Diligence and Data room) to be delivered to the potential interested parties; and

i) co-ordination of, and assistance with the preparation of any documentation required to execute the Transaction."


ING was to assist in co-ordination of the work of other advisers, but not so as to make it responsible for "any due diligence" on behalf of the company. Further:

"It is solely the Company's responsibility to ensure that the information and advice relating to any due diligence and the implementation of any transaction contemplated in connection with the Engagement is received and considered by the Company as adequate for its purposes under the Engagement."


Section 2 ("Fees and expenses") provided for payment of fees to be paid "upon the successful completion of the Transaction". Section 2(a) provided for a fixed fee of 1% of "the higher of the equity bridge facility or the equity investment in Ros Roca". Section 2(b), which is at the heart of the appeal, provided for an additional fee as follows; payable on top of the fixed fee. It was in these terms:

"b) an additional Fee based on the Enterprise Value/EBITDA 2006 ("EV/EBITDA 06") entry multiple implicit in the Transaction.

In this letter of agreement, the term "Enterprise Value" means the pre-money valuation of the partner's economic offer for its equity investment, plus any debt outstanding in Ros Roca before completion.

Illustrative example: in case of total equity raising from a financial partner of EUR 60m at an entry EV/EBITDA 06 multiple of 9.5x, proceeds for ING would amount to a total of EUR 825,000 (fixed fee of EUR 600,000 plus additional fee of EUR 75,000 + EUR 150,000)."

The construction issue

For an implicit EV/EBITDA 06 multiple in the following range

An additional fee per 0.1x multiple of

Below 8.9 x


Larger than 8.9 x and below/equal to 9.2 x

EUR 25,000

Larger than 9.2 x and below/equal to 9.5 x

EUR 50,000

Larger than 9.5 x and below/equal to 10.0 x

EUR 75,000

Larger than 10.0 x and below/equal to 10.5 x

EUR 100,000

In excess of 10.5 x

EUR 200,000


The first issue turns on the proper construction of the formula:

"the Enterprise Value/EBITDA 2006 ("EV/EBITDA 06") entry multiple implicit in the Transaction."


There is no dispute about the numerator, that is the Enterprise Value as defined (or "EV"). It is common ground that "the pre-money value" referred to the valuation of the whole of Ros Roca prior to the investment, to which was to be added any debt outstanding, and that on that basis the amount of the Enterprise Value "implicit" in the Transaction was €441 million.


As to the denominator, it is also common ground that "EBITDA" refers to earnings before interest, tax, depreciation and amortisation; and that this is a measure widely used in financial markets to value companies. As the judge observed:

"… the higher the EV/EBITDA multiple, the higher the capital value which the purchaser is prepared to ascribe to the Company in comparison with what is known about its underlying profits."


The dispute arises because of the specific reference to the date ("EBITDA 2006") in relation to a transaction which did not take place until the end of 2007. It is common ground that calculation of the denominator by reference to the 2006 EBITDA would result in a denominator of €33.1 million, and an Entry Ratio of 13.3. If instead the 2007 EBITDA is taken (as current at the time of the transaction in December 2007), the corresponding figure for the denominator becomes €42.6 million, and the Entry Ratio 10.35.


As already noted, the difference is very substantial. By an invoice dated 6 May 2008 ING claimed fees of €7,350,749.05, made up of a fixed fee of €635,000, expenses of €15,749.05, and an "additional fee" of €6,700,000, based on an entry ratio of 13.3. Ros Roca has paid €1,594,671 made up of the same fixed fee and expenses, but an additional fee of €943,922.44, based on an entry ratio of 10.35. The difference between the parties accordingly is over €5.7m.

Additional background facts


The judge made certain additional findings as to "surrounding circumstances… known to both parties" at the time of the agreement:

"(1) The Hawk Retainer was part of the arrangements that were required in order to enable Ros Roca's purchase of DEG to take place in late 2006, and it and ING's underwriting of the bridging finance were mutually conditional.

(2) At the time of the Hawk Retainer neither party could say what form the offer(s) to invest would take.

(3) If Project Hawk achieved its aim, the successful bid to invest might explicitly identify an Enterprise Value in the sense used in the Hawk Retainer. If it did not then, because bidders would have to say how many shares they wanted for a fixed amount of money, it would always be possible to extrapolate that value.

(4) At the time of the Hawk Retainer it was not contemplated that ING would have any control over which offer was eventually accepted, which was always a matter for Ros Roca (and in reality for Ros Roca's shareholders). Indeed, there was to be no obligation on the part of Ros Roca to accept the 'highest' offer. In this regard there was an element of risk to ING.

(5) At the time of the Hawk Retainer neither the EBITDA for 2006 nor the EBITDA for 2007 could be known as a...

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