Sale of land – Contract – Joint venture – Parties entering into joint venture for development of hotel – Limited partnership set up for that purpose and company formed to act as general partner – Conditional contract executed for sale of hotel site by appellant to company – Company serving notice purporting to waive conditions in sale agreement – Whether having power to do so in absence of agreement between appellant and respondent under limited partnership agreement – Appeal allowed
The appellant and the respondent were involved in a joint venture to acquire a property in London and develop it as a hotel. The appellant was to provide the site for the development while the respondent was to contribute its expertise in developing hotels. The joint venture was structured as a limited partnership in which the appellant and the respondent were the limited partners. In addition, a special purpose company, jointly owned by the appellant and the respondent, was set up to be the general partner.
After first drawing up some non-binding draft heads of terms, the parties subsequently entered into three binding agreements. The first was a sale and purchase agreement (SPA) by which the appellant agreed to sell the site to the partnership, acting through the company. The SPA was conditional on the grant of planning permission and, since the site was above a railway tunnel, on appropriate consents being given by the Transport for London (TfL) as the relevant transport authority. It was also conditional on the fulfilment or waiver of various conditions in the second agreement, a limited partnership agreement (LPA) entered into between the parties. The conditions in the LPA, as set out in two schedules, included a condition relating to the provision of funding for the development, requiring the respondent to put in place satisfactory intra-group funding, and a condition relating to the obtaining of the necessary consents from TfL. The terms of the LPA conferred power on the appellant and respondent to waive the LPA conditions. The third agreement was a shareholders’ agreement (SHA) dealing with such matters as the internal running of the company and the appointment of directors, of which the parties were each to appoint two; under the terms of that agreement, the company was given the power on behalf of the partnership to waive the conditions in the SPA. All three agreements were executed on the same day.
Subsequently, the two company directors appointed by the respondent gave notice to waive the SPA conditions; under the terms of the SHA, they had “absolute discretion in respect of any waiver” of the conditions, without requiring the approval of the board.
An issue arose as to whether the company was entitled to exercise its power of waiver in circumstances where the appellant had not agreed to the waiver of the conditions under the terms of the LPA. In the court below, the judge held, in favour of the respondent, that the waiver was valid. The appellant appealed.
Held: The appeal was allowed.
(1) Following the natural process of reading the agreements in sequence, the proper conclusion was that the company did not have the right to waive the SPA conditions without the appellant’s agreement under the LPA. The SPA involved only the partnership, acting by the company, and the appellant as vendor, and so the right to waive conditions under that agreement was given to the company, as one of its powers of management. However, under the LPA, the company was only entitled to exercise its powers of management of the partnership in accordance with the LPA and the SHA. The schedules formed part of the LPA and, under the terms of that agreement, operated as a limitation on the company’s powers of management. Accordingly, the company could not exercise its powers of management in conflict with the provisions of the schedules to the LPA. That meant that, unless the schedules had been operated in conformity with their provisions, the company could not serve a notice of waiver. Any such power was excluded by implication because it could not co-exist with the powers spelt out in the schedules to the LPA.
The power conferred by the SHA to waive the funding and TfL conditions was a ministerial power to implement a decision taken by the active parties to waive those conditions in conformity with the schedules to the agreement. That was consistent with the chosen business structure, namely a limited partnership with the company, a jointly-owned special purpose limited company, as general partner. The power of waiver under the SHA was conferred on the directors and not on the respondent, which was consistent with the relevant clause being concerned with the allocation of powers that the company had, and not with the creation of some new power. Moreover, the relevant clause of the SHA, referring to a decision “in respect of any waiver”, suggested that the waiver preceded the decision by the company. Finally, the schedules to the LPA were very detailed and it had to be assumed that they had some purpose, and were not there simply to be pre-empted by the actions of the company.
Accordingly, as regards the funding and TfL conditions, the company could only exercise its right to waive under the SHA if a waiver had already taken place under the schedules to the LPA. It followed that the waiver notice given by the company was invalid.
(2) No different meaning could be given to the contractual provisions by reference to the contents of the non-binding draft heads of terms, so far as these contained a provision giving to the respondent sole and untrammelled discretion to serve a waiver notice making the purchase of the site unconditional. Even assuming, without deciding, that the heads of terms were admissible as an aid to interpretation, the court could not use them to come up with a different meaning from the apparently plain meaning of what the parties had finally agreed. That was because the terms of the joint venture had changed markedly after the heads of terms were agreed. The parties had not, in the event, granted to the respondent absolute discretion to serve the waiver notice under the SPA in its commercial interest; instead, the power to serve a waiver notice was conferred on the company, acting by the respondent’s directors. Those directors owed fiduciary duties to the company, which was jointly owned by the respondent and the appellant.
John McGhee and James Sheehan (instructed by Boodle Hatfield LLP) appeared for the appellants; Simon Salzedo QC and Michael Bolding (instructed by CMS Cameron McKenna LLP) appeared for the respondent.
Sally Dobson, barrister
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