When Joint Venturers Fall Out

Introduction

A recent NSW Supreme Court case is a timely reminder that joint venturers can become fierce opponents.

Lesdor Properties owned some land and entered into a Joint Venture Agreement (“JVA“) with Cordon Investments, a builder.  The agreement was simple enough.  Cordon would carry out residential building works and on completion of the works, the properties would be strata titled for sale to the general public, with the parties to share in the rewards.

The agreement required Cordon to finish the building works and to have the Strata Plans approved at its own expense.  Lesdor, as owner of the land, was required to sign the plan of subdivision.

When Condor said it had finished the works, Lesdor refused to sign the Strata Plans.  The refusal prevented Condor from obtaining the approval for the Strata Plans and a stalemate resulted.

The terms of the agreement

Under the JVA, Cordon was to “at its own expense use its best endeavours to have the Strata Plan approved by the Council and registered … as expeditiously as possible following the completion of the Building Works.

Lesdor (the land owner) was to “execute any plan of subdivision, the Strata Plan, any accompanying instruments and such Contract, Contracts, Transfer or Transfers … to such persons or corporation as Cordon shall nominate and shall deliver … such Contract, Contracts, Transfer or Transfers to Cordon forthwith upon request.”

The court proceedings

When Lesdor refused to sign, Cordon applied for an urgent order from the Court compelling Lesdor to sign the Strata Plan – called a “mandatory injunction”.  As a general rule, courts very rarely issue this type of order. Usually, an injunction is a temporary order that remains in place until the court has time to hear the full argument from both sides and make final orders. A court would only issue the order that Cordon was seeking if:

  • It was satisfied that Cordon had a clear case on the face of the papers provided, without needing to hear evidence;
  • On balance, more harm would be done to Cordon if the injunction was refused than to Lesdor if it was granted; and
  • If the Court did grant the temporary order but ultimately found at the trial that it should not have been granted, Cordon could compensate Lesdor for any adverse consequences of the temporary order by paying damages.

Generally, injunctions are granted in an effort to preserve the status quo until the court has opportunity to hear the full arguments of each side.  That is why injunctions are more commonly preventative.

The evidence on completion of the work

Because Lesdor’s obligation to sign the Strata Plans did not arise until “completion” of the works, a central issue in Court was whether the works were complete.  The JVA did not adopt the normal language of a building contract by referring to practical completion followed by a period of defects liability.  Instead, the clause simply required the “completion of the works”.

The parties called experts to give their opinion as to whether the works were completed.

The experts agreed that the works had reached practical completion in the sense that certificates of occupancy were issued.  But the judge drew a distinction between the term “practical completion” as commonly used in the industry and the phrase “completion of the works”.  He said:

The event with which clause 15 is concerned is “completion”, not the issue of an occupation certificate or reaching of a stage where the building is suitable to be occupied.  The event upon which clause 15 turns is completion in fact.  Unless and until completion in fact has occurred, Lesdor’s obligation now in contention – effectively to cooperate in obtaining registration of the strata plan – has not become due for performance.

Due to the wording of the JVA in referring to “completion”, the judge was not satisfied that there was a serious question to be tried as to the breach by Lesdor of its contractual promise.

He noted further that a mandatory injunction is a “rare bird” and that the application did not fit the class of case that would require the issue of an injunction.  He said that, even if the debate about completion had not been a deciding factor, the fact that any injunction would not have preserved the status quo would have made it difficult for the application to succeed.

In most disputes of this nature, time is of fundamental importance and the builder’s cash flow demands would compel it to adopt a commercial solution. A failure to obtain the interlocutory mandatory injunction would often be the end of the legal proceedings, as the matter might take some months to proceed to trial.  By then, the holding costs would very likely have compelled the parties to resolve their dispute.

Conclusion

Joint venturers need to be sure that the contract terms reflect their true intentions before committing to the project.  The difference between “completion” and “practical completion” was decisive of the outcome of this dispute.  The court will only look at the actual words used in the contract to reach an objective view of what it means – the parties’ intentions are irrelevant.

All Joint Venture Agreements should include a robust dispute resolution clause that will enable the parties to expeditiously resolve disputes and complete the project without resorting to time consuming and expensive legal proceedings.

Contributor: Tom Grace

Tom is a former engineer who ran his own construction company for 20 years before becoming a construction lawyer.  He has wide experience in the engineering and construction fields and specialises in the resolution of commercial disputes.

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