Business Law – Corporate Law – Joint Ventures – Contract Interpretation of Joint Venture Clauses

Nearfield Ltd v Lincoln Nominees Ltd and another case [2006], deals with the formation of contractual clauses in agreements. The first defendant is the attorney firm for the second defendant. The first defendant was incorporated in the British Virgin Islands.

In April 2002, Plaintiff Company entered into a joint venture agreement (“JVA”) to redevelop a property. Pursuant to Article 4.1 of the JVA, the plaintiff was obliged to advance a loan of £3,000,000 to the first defendant. According to Article 5.1.3, the term of the loan is three years from the date of the loan. After three years, the second defendant will “facilitate” the repayment of the loan along with all outstanding interest on plaintiff’s written demand.

Redevelopment of the property was unsuccessful and the property was subsequently sold. Although some payments were made to the claimant, the difference was GBP 2,251,406.23 plus interest of GBP 1,030,947.35. The claimant attempted to enforce section 5.1.3 of the JVA.

The plaintiff submits that the “facilitation” in clause 5.1.3 obligates the second defendant to secure the repayment of £3,000,000 plus outstanding interest by the first defendant on the plaintiff’s written demand. They argued that if 1st Defendant failed to pay, it was liable to pay damages equal to the amount owed by 1st Defendant.

Second Defendant argued that the scope of its obligations under Section 5.1.3 was merely to seek to cause First Defendant to repay the loan, and did not extend further to provide any guarantee or guarantee that the loan would be repaid solely by First Defendant.

Claims are allowed.

What a document conveys to a reasonable person is different from what it actually says in words. The court held that the meaning of the words was a matter of dictionaries and grammar, whereas the meaning of the documents in question was what the parties would reasonably have understood when they were used in the context of the relevant context.

The normal meaning of the word procure is “to pay attention to”. Therefore, a person who agrees to cause a third party to perform a contractual obligation must do the following:

– they will be required to endeavor to ensure that third parties comply with their obligations; and

– If the third party fails to comply, they will have to pay damages in the amount payable by the third party.

There is nothing in the communications between the parties in this case to suggest that “procurement” under clause 5.1.3 should be given different meanings in different parts of the JVA, nor to suggest that “procurement” other than as the claimant says: i.e. it means “Notice”.

Also, there are no restrictions in JVA and it can be done easily. Therefore, it is considered that Article 5.1.3 should be understood as submitted by the applicant. In any case, there is no document or any evidence in the pre-JVA draft to draw a different conclusion.

The court ruled that the second defendant had a duty to “facilitate” the first defendant’s repayment of the loan to the plaintiff.

Comment: Parties must always limit their liability when establishing a joint venture.

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© RT COOPERS, 2007. This briefing does not provide a comprehensive or complete legal statement relating to the issues discussed, nor does it constitute legal advice. It’s just to highlight general issues. Professional legal advice should always be sought for specific situations.

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