In a dispute between two partners to a joint venture (JV) agreement, the Court of Appeal ruled that despite not having performed all of its obligations under the agreement, a JV partner was still entitled to its share of the profits. What lessons does this hold for businesses when drafting and negotiating JV agreements, particularly where the JV partners are acting both as investors and suppliers to the JV?
What happened in the case?
Donovan v Grainmarket Asset Management LLP (GAM) concerned a JV agreement which allowed for money to be raised from investors and used to purchase commercial properties and convert them to residential properties for future sale. Rather than being contained in a single written contract, the agreement between the parties was formed on the basis of Heads of Terms dated March 2013, oral communications and the conduct of the parties.
What contractual obligations were undertaken by the parties, and in particular by Mr Donovan, was disputed. GAM personnel were primarily responsible for finding sites for the joint venture to acquire and for managing the redevelopment and sale of the properties, while Mr Donovan was primarily responsible for securing investment to finance the acquisition of those sites and acting as an investment relations manager and point of contact for investors on an ongoing basis. This division reflected the parties' respective expertise. However, these were only the parties' primary responsibilities. There was no rigid division of responsibilities between them. Thus while Mr Donovan's experience and expertise lay mostly in fundraising and managing investor relationships, he also discharged from time to time a wide range of other tasks concerned with the management of the properties.
By the beginning of 2015, the relationship between the parties was breaking down, and Donovan did not do any further work for, or provide any further services to, the JV after the end of February 2015.
Following the final sales of properties in 2020 by the JV, GAM declined to pay Donovan his share of the profits (in the form of a performance fee), which the London Circuit Commercial Court subsequently found Donovan was entitled to. GAM appealed the judgment on the basis that:
- Donovan's right to payment was conditional on the performance of his contractual obligations (i.e. the ongoing provision of services to the JV); and
- the JV agreement had terminated before Donovan's right to payment had accrued.