Chancery Division rules on the interpretation of joint venture contracts

03/03/16

On 23 February 2015, Murray Rosen QC (sitting as a Deputy High Court Judge) ruled in favour of citizenM LND St Paul’s Properties BV (“citizenM”) on various important preliminary issues concerning the true construction of a number of agreements governing a joint venture between citizenM and Chil Limited (“Chil”).

citizenM is part of a group of companies that operate hotels. It entered into a joint venture with Chil in 2011 relating to the acquisition and development of an extremely valuable plot of land adjacent to Holborn Viaduct in central London, for the purpose of constructing a hotel on that land. The joint venture operates via a limited partnership, the general partner (&lldquo;the GP”) of which is a company in which citizenM and Chil each hold 50% of the shares. One of the agreements governing the joint venture is a Sale and Purchase Agreement (“the SPA”), which requires Chil to grant a long lease of the land in question to the GP if certain conditions precedent have been satisfied or waived before 31 December 2015. The SPA states that the GP may waive any of those conditions precedent. A Shareholders’ Agreement between the parties relating to the GP (“the SHA”) also states that the B Directors of the GP, i.e. the directors appointed by citizenM, may waive any of the conditions precedent under the SPA.

One of the conditions precedent under the SPA is securing the consent of Network Rail and/or Transport for London to the development plans (“the TfL Condition”), because that the Thameslink railway line runs directly beneath the relevant property. A disagreement arose between the parties concerning a proposed escape route from the railway line which Network Rail wanted to be included in the development plans. As a result, the TfL Condition was not satisfied before the deadline of 31 December 2015. Prior to that deadline, the B Directors of the GP served a notice seeking to waive all of the outstanding conditions precedent under the SPA, including the TfL Condition (“the Waiver Notice”).  

Chil did not accept that the Waiver Notice was valid and sought to terminate the SPA on 1 January 2016. Chil argued that it would be contrary the provisions in two schedules to a Limited Partnership Agreement between the parties (“the LPA”) if the B Directors of the GP had the power unilaterally to waive the conditions precedent under the SPA. citizenM argued that, on their true construction, those schedules did not prevent the B Directors unilaterally waving the conditions precedent. Murray Rosen QC stated in his judgment that he agreed with citizenM’s interpretation of the joint venture contracts and that, subject to various other issues in the case, the Waiver Notice was valid. The case will now be transferred from the Chancery Division to the Technology and Construction Court for a trial to take place of Chil’s allegation that, in serving the Waiver Notice, the GP acted in breach of its duties to the partnership. citizenM contends that that argument is hopeless.

The judgment is here.