Regular readers will recall that syntactic ambiguity arises from uncertainty over what part of a sentence a given phrase modifies, or what part of a phrase a given word modifies. (If you want a bellyfull of syntactic ambiguity, search for “syntactic” using this blog’s search function.)
It can sometimes seem as if syntactic ambiguity is a curiosity rather than something that we all need to watch out for. It’s possible to have a bit of a chuckle over, for example, a syntactic-ambiguity dispute involving dueling KFC and Buffalo Wild Wings restaurants (here).
But in its recent opinion in Bank of New York Mellon v. Commerzbank Capital Funding Trust II (copy here), the Delaware Supreme Court considered syntactic ambiguity in what is manifestly a BigLaw contract, one governing payments on securities issued by an affiliate of the German bank Commerzbank.
The question was whether certain securities were “Parity Securities” under the the limited-liability-company agreement of one of the Commerzbank affiliates. The court parsed as follows clause (ii) of the definition:
(ii) preference shares [“Term 1”] or other instruments [“Term 2”] qualifying as consolidated Tier I regulatory capital of the Bank [“Internal Modifier”] or any other instrument of any Affiliate of the Bank [“Term 3”] subject to any guarantee or support agreement of the Bank ranking pari passu with the obligations of the Bank under the Support Undertaking [“Trailing Modifier”] . . . .
It went on to say that “Using these formulaic terms, the Parity Securities definition may be expressed as follows: [Term 1] or [Term 2] + [Internal Modifier] or [Term 3] + [Trailing Modifier] . . . .”
Here’s how one side interpreted clause (ii):
- [Term 1] + [Internal Modifier] + [Trailing Modifier] or
- [Term 2] + [Internal Modifier] + [Trailing Modifier] or
- [Term 3] + [Trailing Modifier].
And here’s how the other side interpreted it:
- [Term 1] + [Internal Modifier] or
- [Term 2] + [Internal Modifier] or
- [Term 3] + [Trailing Modifier].
The court opted for the second interpretation. On cursory examination, I agree.
But I’m not going to offer any grand analysis, or attempt a redraft of clause (ii): given the complexity of the deal, that would take too much time and probably wouldn’t make for thrilling reading.
Instead, I simply want to point out that if you think syntactic ambiguity is something relegated to the nether fringes of the contract world, this case ought to disabuse you of that notion.
Oh, and in its opinion the Delaware Supreme Court cited the second edition of A Manual of Style for Contract Drafting. It’s nice to receive further confirmation that Delaware courts are aware of the book and find it worth their while to consult it.
