It transpired that the development was unprofitable and ASL went into liquidation. ASL was incorporated for the purpose of carrying out the development and had no assets of its own. The funds to carry out the development were provided by:
§ A bank loan to ASL; and
§ A loan from a loan facility granted by the claimant under the terms of a facility letter from the claimant to ASL. This letter was annexed to the JVA.
According to clause 10.3 of the JVA, the defendant guaranteed that ASL would perform its obligations under the agreement. In addition to this, clause 2.12 of the JVA obliged ASL to repay to the claimant all monies that the claimant had advanced in pursuance of its loan facility. Furthermore, clause 4.3 of the facility letter entitled the claimant to debit to ASL's loan account 'any management charge'.
The claimant alleged that a sum of Ł97,762, which included interest, was due to be paid by the defendant in accordance with the guarantee. Although the claim included only a small part of the outstanding loan, it was substantially made for 'management charges'. Those charges were divided into:
§ Charges relating to the facility letter; and
§ Charges provided for in the cash flow appraisal.
The claimant applied for a summary judgement under CPR 24. As the management charges were due pursuant to the facility letter, the issue before the judge was whether the JVA and the facility letter constituted one agreement or two separate agreements.
If they were one agreement, the defendant accepted (subject to any other defence it might have) that it would be liable for the management charges. If they were two separate agreements, the claimant accepted that the defendant would not be liable.
The judge held that there were two separate agreements, and therefore made a declaration that the defendant was not liable for the management charges. The claimant appealed against this decision.
The appeal was allowed. The question as to whether there was one agreement or two agreements was irrelevant. Whether there was one agreement or two agreements, there could be no doubt that since the facility letter was, at the very least, referred to in the JVA, both the JVA and the facility letter had to be interpreted in each other’s context.
Considering clause 2.12 of the JVA and clause 4.3 of the facility letter, it was impossible to resist the conclusion that as and when the claimant did in fact debit any management charge to ASL's loan account, the amount in the loan account (including any management charge) was part of the advance. According to clause 2.12 of the JVA, it was ASL's obligation to pay that sum. As the repayment had not been made, the defendant had to be liable as they were the guarantor.
Please contact us for more information on assessing damages due under termination of a contract at enquiries@rtcoopers.com
Visit http://www.rtcoopers.com/practice_corporatecommercial.php
© RT COOPERS, 2007. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.