Following the termination of a joint venture, how will fees and payments be allocated to the joint venture parties?

The recent Court of Appeal judgment Donovan v Grainmarket Asset Management LLP [2021] EWCA Civ 686 relates to a joint venture agreement that was agreed on terms which were only partly recorded in writing.  The termination of this joint venture was similarly informal, with one of the parties simply leaving without completing the performance of his obligations. Therefore, when the joint venture project was successfully delivered, there was a dispute about how the resulting profits should be distributed amongst the joint venture parties.

This dispute ought to serve as a reminder to commercial parties of the importance of clear written language. This applies both when agreeing contractual terms, and when there is any question as to whether a contract has been terminated by repudiation.

The joint venture related to property development and investment. One of the key issues was whether a JV party’s right to a performance fee under the contract upon the sale of a property was conditional upon him performing all or substantially all of his contractual duties. Males LJ found that, given the contract did not make payment of the fee expressly conditional on performance of the recipient’s contractual duties, on its proper construction the right to the fee was unconditional. This was subject to one proviso – that the JV had not been terminated by allegedly repudiatory emails (or otherwise). On this issue, Males LJ agreed with the trial judge that the main email was not a renunciation of the contract, but rather part of a discussion as to the appropriate way forward.

Commercial parties entering into joint ventures or services agreements should take note of the Court’s findings in Donovan. Firstly, if a payment fee is to be conditional upon the performance of contractual duties, the language in the contract should make that intention clear. And secondly, repudiation must be clear and unequivocal (as must any acceptance of that repudiation).   In the event of a breakdown of an unwritten commercial relationship (or the departure of a key person), it is sensible to use this as an opportunity to take stock of the agreement and to try to clarify where the risks and obligations lie.