The claimant, Nearfield Ltd was one of six parties to a joint venture agreement dated April 2002. Other parties to the agreement included Lincoln Trust Co (Jersey) Ltd (LTC) and LTC’s offshore nominee, Lincoln Nominees Ltd (LNL); second and first defendants respectively.
The agreement was entered into for the purposes of redeveloping a property with 97,00 ft2 of office building and a self-contained wine bar and restaurant. A special purpose vehicle was used to purchase the property. The bank agreed to provide £31m of the purchase price. Nearfield agreed to advance the balance of £3m; the mechanism for which was set out in the agreement. Essentially, Nearfield advanced the £3m to LNL, who then lent it to the special purpose vehicle.
The redevelopment was not a success. It was sold in April 2005 at a shortfall. The bank was repaid, however Nearfield was left with more than £3m owed to it in principal and interest.
Nearfield sought to enforce clause 5.1.3 of the joint venture agreement, which provided that upon written demand by Nearfield, LTC would procure the payment of the £3m loan together with interest. Nearfield argued that the word “procure” placed an obligation upon LTC to see to it that LNL repaid the £3m together with outstanding interest upon written demand by Nearfield and, significantly, that should LNL fail to make such a payment, LTC would be liable to pay damages equal to the amount payable (but not paid) by LNL. LTC on the other hand argued that the clause merely placed an administrative function upon it; in keeping with its non-participatory role in the joint venture and also in keeping with its other administrative functions under the agreement. Further, LTC argued that the judge was required to look beyond the agreement itself and into the surrounding circumstances in order to ascertain what was intended by clause 5.1.3.
Whether the obligation on LTC to “procure” that the loan was repaid by LNL imposed an obligation on LTC to see to it that LNL repaid the loan or, in the event that LNL defaulted, to pay damages equal to the amount payable but not repaid.
Reference
The ordinary meaning of the word “procure” was to “see to it”. Therefore, a party who agrees to procure that another party performs a contractual obligation is first obliged to ensure that the first party complies with that obligation and, should it not comply, to pay damages in the amount that that ought to have been paid by the defaulting first party. That meaning was not displaced by the terms of the agreement. LNL had received the loan monies and assumed primary responsibility to pay it back. LNL was LTC’s nominee; LTC agreed to procure that LNL would repay the loan upon demand by Nearfield. In the absence of a claim for mistake or rectification, evidence that it was never LTC’s intention to assume direct liability to Nearfield was inadmissible.
NEARFIELD LTD vs (1) LINCOLN NOMINEES LTD (2) LINCOLN TRUST CO (JERSEY) LTD [2006] EWHC 2421 (Ch) (Peter Smith J)
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Postscript
LTC contended that is not only permissible but also necessary to review the surrounding circumstances to aid in the construction of the clause in question. The court disagreed. The nature of the obligation was clear from the agreement: LTC was obliged to “see to it” that Nearfield was repaid.
Joint ventures are commonly used entities in property development. The nature of the obligations between the parties should be well recorded in the joint venture agreement. If the liability of certain parties is to be limited, it must be clearly stated in the joint venture agreement, because the court will generally not look to the surrounding circumstances to assist in the construction of that agreement.
