Private Equity

I suspect that there are few private equity deal professionals or their counsel that are unfamiliar with the beginning lyrics to Elton John and Tim Rice’s famous song, Hakuna Matata, from the 1994 Disney movie, The Lion King: 

Hakuna Matata!
What a wonderful phrase
Hakuna Matata!
Ain’t no passing craze

What you may be surprised to learn, however, is that a reference was made to this “wonderful phrase” in a recent hearing before the Delaware Court of Chancery regarding the question of whether a non-party to a Stock Purchase Agreement (the “SPA”) had submitted himself to the jurisdiction of the Delaware courts pursuant to the forum selection clause set forth in Article 10 of the SPA.^[1]  Apparently the non-party was a minority investor in one of the seller parties to the SPA and had entered into a one-page member side agreement (the “MSA”), which incorporated by reference Article 10 of the SPA.  Article 10 of the SPA encompassed six pages of the so-called miscellaneous boilerplate provisions of the SPA, including a forum selection clause.  To make clear that the incorporation of Article 10 needed to be done in light of the different parties to the SPA versus the MSA, the MSA’s incorporation by reference provision stated that the incorporation of Article 10 of the SPA into the MSA was “mutatis mutandis.” 

In arguing that the MSA did not subject its signatory to the effect of the forum selection provision that was clearly binding on the parties to the SPA, counsel for the MSA signatory suggested that “mutatis mutandis” was “a rarefied phrase.”  He further noted that when he said mutatis mutandis it made him “feel like [he was] in the Lion King movie, [even though] “Hakuna Matata …was the reference there.” As the song taught us, “hakuna matata” is a Swahili phrase that apparently means “no worries.”  But, unlike mutatis mutandis, which has been part of the English language since the 16^th century despite is Latin derivation,^[2] hakuna matata has not officially become part of the English language as far as I am aware. 

According to Merriam-Webster “mutatis mutandis” is an adverb that means “with the necessary changes having been made,” or “with the respective differences having been considered.”^[3]  It is considered an “unnaturalized” English word and for that reason it is typically italicized.^[4]  It can be a useful and efficient term to employ; and its use is not limited to legal documents.  A quick search of “Google Scholar” reveals that the word/phrase is used in a lot of academic articles involving technology, economics, language, philosophy, and psychology, as well as the law.  Accordingly, counsel to the MSA signatory conceded that, even though it was an “unusual phrase,” “[i]t can be used correctly and with clarity.”  Counsel argued, however, that it was not used with sufficient clarity in this case because it was not clear how the “necessary changes” to each of the various miscellaneous provisions contained within Article 10 of the SPA (such as the notice provision and certain provisions specifically related to the lenders providing financing to the buyer) could in fact be made so as to specifically apply to the signatory to the MSA.  But Vice Chancellor Laster, focusing solely upon the forum selection clause set forth in Section 10.8 of the SPA, had little trouble concluding that “[u]sing the phrase mutatis mutandis does not render the member side agreement insufficiently clear;” indeed, mutatis mutandis “is a venerable phrase” that in this context simply “means look at the thing we’re referring to and move it into our situation, making any obvious changes that you have to.”  Thus, the signatory to the MSA was bound to the forum selection clause set forth in the SPA as incorporated, mutatis mutandis, into the MSA. 

Despite the fact that mutatis mutandis is very much a part of the English language and there can sometimes be real utility in using that phrase to avoid unnecessary repetition in documents entered into concurrently by various parties, critics have reacted to the word/phrase in much the same way friends of Pumbaa, the warthog, reacted to his aroma when they stood downwind.  For example, Mark Anderson, an English contract drafting guru, has listed mutatis mutandis as among the 10 words and phrases you should never use in a contract, noting:

Mutatis mutandis.  This is a horrible Latin phrase, which is used as lawyers’ shorthand for “I am too lazy to retype an earlier clause and make changes to it to make it suitable for a different situation, so I will state the new obligation very briefly and cross-refer to the earlier clause where you can get more detail on roughly what I have in mind.”  The phrase should be avoided by all right-thinking contract drafters.^[5]

Ken Adams, the U.S. contract drafting guru, has a more nuanced approach to the concept captured by mutatis mutandis.  First he seems to appreciate that there is a certain efficiency to using the concept conveyed by mutatis mutandis as a simple means of incorporating from one agreement into another provisions that require simple adjustments to make them specifically applicable in the new agreement.^[6]  In other words, he doesn’t suggest that “all right thinking contract drafters” should retype all of the incorporated provisions and make all the necessary and obvious changes.  But he does list mutatis mutandis in a group of “Latinisms” that should be omitted from contracts,^[7] and he suggests that “a phrase such as together with any necessary conforming changes would seem to convey the same meaning more clearly [than mutatis mutandis].”^[8]  Perhaps so.  And depending on the specific circumstances I may well follow that advice.  But if mutatis mutandis is in fact part of the English language, and it means what it means, why avoid it just because it carries the stigma of being a Latinism? 

While I would agree that we should always strive to convey contractual concepts in clear English, there are occasions where certain words, even those that have the moniker “Latinisms,” may convey a concept clearer and with less wordiness than would be the case if those words were avoided altogether—the term “pro rata,” for example.  To me, at least, mutatis mutandis may be just such a word/phrase, and it is, therefore, “no passing craze.”  Indeed, I am unaware of any caselaw that failed to properly interpret the term mutatis mutandis.  But care should be taken to use mutatis mutandis, or even Ken’s suggested phrase, with specific reference to each and every provision being thus incorporated into your agreement so that the “necessary changes” are obvious.