Court of Appeal considers the contractual interpretation of “THE”
The recent Court of Appeal decision in Hulbert Developments Limited v Tairua Marine Limited concerned a joint venture for a marina development. It was agreed that one of the original joint venture partners would exit. The terms of the exit of were recorded in an agreement, including a payment of $250,000 on practical completion of “the” marina.
The joint venture initially applied for resource consent to construct a 253 berth marina. However after several withdrawn applications and appeals to the Environment Court, resource consent was granted for a 95 berth marina and then completed. Tairua Marine Limited (TML) refused to pay the $250,000.00 exit fee to Hulbert Developments Limited (HDL), claiming that the smaller (95 berth) marina was not “the” marina of approximately 200 berths as contemplated in the exit agreement.
HDL sued on the basis that construction of “a” or “any” marina trigged the $250,000 payment. However, the High Court and Court of Appeal disagreed.
The exit agreement, although a separate document, stated that it was subject to the “head” joint venture agreement between HDL and TML in the Background clauses of the exit agreement. This head joint venture agreement contemplated that the proposed marina development would have approximately 200 berths. Therefore the parties would have had to complete a marina of this scale in order to trigger the $250,000 payment under the exit agreement.
The Court went beyond the signed agreements to determine what “the” marina meant. Various meetings, plans, draft joint ventures agreements with third parties, reports and the state of the project at the time the exit agreement was signed all demonstrated that all parties had a large, 200+ berth marina in mind when they drafted and signed the exit agreement. Therefore the Court of Appeal ruled that TML was right to not pay the $250,000 exit fee upon completion of the 95 berth marina as this was not “the” marina.
It is very important to ensure that joint venture or shareholders agreements are clear and reflect pre- and post- contractual conduct. As highlighted from this decision, a misplaced reference in the Background section of these agreements can have unexpected consequences or increase the costs for one side to honour its obligations. Exit mechanisms are especially important as these cover when you can expect to be paid or receive the fruits of the contract.
Don’t miss the boat – call our Business Team today if you wish to review your commercial contracts or partnership/shareholder/joint venture agreements. It may be timely to check that your current agreements reflect how your projects and businesses have developed over time and to ensure that there will be no unexpected surprises at the end of the day.