How do you interpret the term ‘the purpose’ in an acquisition contract?
A recent High Court case has considered the possible ways of interpreting the words ‘the purpose’ in a contract between a seller and a buyer of a business. The phrase was used in the context of an earn-out or ‘contingent value right’ provision where transactions undertaken for ‘the purpose’ of reducing payments to one of the parties could nevertheless be factored into the relevant calculation.
The central issue for the parties in Starbev GP Ltd v Interbrew Central European Holdings BV  EWHC 1311 was what, if any, consideration was due under a deferred consideration provision. The High Court queried whether a certain instrument fell within the definition of a transaction ‘structured or undertaken… with the purpose of reducing the payments due to [the seller]’ and the court considered how to interpret the term ‘the purpose’.
While contractual interpretation will turn on the facts of each individual case and what the parties reasonably intend (in this case, with some fairly complex and highly technical drafting), the Starbev judgment could also apply in similar contexts and is therefore of general interest…
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