CONSTRUCTION LAW UPDATE – No. 606
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:
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.
Contact Details
Tom Grace – Partner
Ph. (08) 8110 8004
Jeanie Elliott – Partner
Ph. (08) 8110 8006
June 2006
This publication is not legal advice. It is for general interest. You should not rely on it without obtaining
legal advice.
Fenwick
Elliott Grace is a law firm that specialises in providing legal services to the
construction and engineering industry.
Office: Level
10, Optus Centre
ADELAIDE SA 5000
Ph: (08) 8110 8000
Fax: (08) 8231 2922
Web: www.feg.com.au