Whether a dissolution agreement contains a condition precedent to the share of profits is a matter of construction of the agreement focusing on the words used by the parties and applying commercial common sense.
The court has determined a dispute between the partners in a property development partnership in Rishover v Rishover and another [2023] EWHC 2019 (Comm). Brothers Jamie and Jason Rishover were in partnership with a third party, James Craig. In 2018, after a falling out, the partners agreed a division of partnership assets concerning development projects in Cowley Hill and Hendon.
Cowley was a joint venture between Jamie and James with each holding half of the shares in the company incorporated for the project, which was to develop 58 dwellings. Hendon was a joint venture between Jason and James. The profits were split two-thirds to Jason, a third to James and each held equivalent shares in the company vehicle for the project.
Heads of agreement provided that if “for whatever reason” Hendon did not proceed to a sale to a third party, Jason would receive half of Jamie’s share in Cowley and be entitled to 25% of the profits and liable for 25% of the costs. The equivalent agreement for Cowley envisaged Jamie receiving half of Jason’s share in Hendon, so a third of the profits while bearing a third of the costs. A further agreement in 2019 provided that the partners would at all times act in the best interest of the partnership projects and promote their success and use all reasonable endeavours to achieve this.
Hendon was sold in July 2021 but Cowley was not. The development was complex, involving a housing development and primary school. Outline planning permission was granted but the final grant was deferred. A section 106 agreement could not be agreed. Jamie argued that Cowley had floundered and he was entitled to a third of the profits on Hendon amounting to £1.5m. Jason denied this, arguing that the reasonable endeavours obligation was a condition precedent which had to be performed before he was liable for the consequences of failure of Cowley.
Granting Jamie’s application for summary judgment, the court found nothing in the words used by the parties in the 2019 agreement to elevate the general words to a condition precedent and there were strong indicators that there was no objective intention to do so. The use of the words “for whatever reason” allowed Jamie to receive a share of the Hendon project even if he was in breach of his contractual obligations to progress Cowley.
Louise Clark is a property law consultant and mediator