Daniel Donovan v Grainmarket Asset Management LLP
| Jurisdiction | England & Wales |
| Judge | Lord Justice Males,Lord Justice Arnold,Lady Justice King |
| Judgment Date | 12 May 2021 |
| Neutral Citation | [2021] EWCA Civ 686 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A4/2020/1238 |
| Date | 12 May 2021 |
[2021] EWCA Civ 686
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
LONDON CIRCUIT COMMERCIAL COURT
HHJ Pearce
[2020] EWHC 1882 (Comm)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice King
Lord Justice Males
and
Lord Justice Arnold
Case No: A4/2020/1238
Paul Lowenstein QC & James Kinman (instructed by Howard Kennedy LLP) for the Appellant
Andrew Green QC & Dominic Howells (instructed by Quinn Emanuel Urquhart & Sullivan UK LLP) for the Respondents
Hearing dates: 27 th & 28 th April 2021
Approved Judgment
This is an appeal from the judgment of HHJ Pearce sitting in the London Circuit Commercial Court in which he held that the first respondent and first claimant, Mr Daniel Donovan, was entitled to his share of the profits of a joint venture agreement with the appellant defendant, Grainmarket Asset Management LLP (“GAM”), notwithstanding that Mr Donovan had not performed all of his duties under the joint venture either wholly or substantially. GAM appeals, contending that Mr Donovan's right to payment was conditional on performance of his contractual obligations and, moreover, that before any right to payment accrued the agreement had been terminated. GAM contends also that the termination of the joint venture agreement meant that Mr Donovan's company, Naled Ltd, the second respondent and second claimant, was no longer entitled to the benefit of a fee exemption agreement which formed part of the joint venture.
The respondents support the judge's reasoning, contending that the right to payment and the duty to perform were independent of each other and that there was no repudiation of the agreement by Mr Donovan.
There is also an issue whether pre-judgment interest at 8% over base rate is payable pursuant to the Late Payment of Commercial Debts (Interest) Act 1998 on part of the sum found due to the appellants.
Background
The judge's task in finding the facts was not easy in circumstances where the parties' contract was not fully recorded in writing but rather arose from their conduct in the light of the written and oral communications between them, and where neither Mr Mark Crader (the principal of GAM) nor Mr Donovan was a satisfactory witness. Nevertheless, it was common ground that there was a binding contract between the parties, albeit its terms were in dispute, and the judge's conclusions as to the obligations undertaken are not challenged on appeal.
In or around 2012 Mr Crader and Mr Donovan, who had worked together before, began to discuss the idea of forming a joint venture to take advantage of the opportunities presented by a change in planning law by which it had become easier to convert property from commercial to residential usage. This was referred to as the “permitted development” or “PD” business. It was separate from a distinct (and more substantial) venture between the parties referred to as “Lime Street”, with which these proceedings are not concerned.
Eventually they agreed that Mr Donovan and GAM would enter into a joint venture agreement in which money would be raised from investors and used to purchase and convert such properties for sale. Mr Crader and Mr Donovan would both invest in these projects, together with outside investors. Thus each project undertaken by the joint venture would be purchased by a limited partnership comprising (1) GAM or other companies owned by Mr Crader, (2) Naled Ltd (Mr Donovan's investment company), and (3) outside investors. The limited partnership thus formed would enter into a Property Management Agreement with GAM pursuant to which GAM would redevelop the property and manage it. Investors would pay GAM an administration fee calculated as a percentage of their investment and a performance fee on sale of the redeveloped property. It was agreed that GAM would retain 90% of the administration fees (reflecting the fact that it bore the greater part of the costs of managing the projects) and would pay the remaining 10% to Mr Donovan. It was initially agreed that the performance fees would be split 55%/45% in favour of GAM, but that division was later revised so that Mr Donovan's share would be 40%.
Since Mr Donovan (through Naled Ltd) and GAM would be liable to pay the administration and performance fees as investors in the projects, but would then be entitled to receive their shares of these fees through the arrangement just described, it was agreed that the fees payable by Naled and GAM need not be paid. This was referred to as the “fee exemption agreement”. The judge found that it was a term of the joint venture agreement and not a separate contract.
Heads of Terms for the joint venture were set out in a document produced on 6 th March 2013 but this did not contain all of the terms which the judge found to have been part of the parties' contract. In particular, it did not identify the parties' respective obligations and, while referring to the way in which the performance fees would be split, did not set out what conditions, if any, had to be fulfilled in order for them to be earned.
What contractual obligations were undertaken by the parties, and in particular by Mr Donovan, was disputed. The judge found that Mr Crader, along with other GAM personnel, was primarily responsible for finding sites for the joint venture to acquire and for managing the redevelopment and sale of the properties, while Mr Donovan was primarily responsible for securing investment to finance the acquisition of those sites and acting as an investment relations manager and point of contact for investors on an ongoing basis. This division reflected the parties' respective expertise. However, these were only the parties' primary responsibilities. There was no rigid division of responsibilities between them. Thus while Mr Donovan's experience and expertise lay mostly in fundraising and managing investor relationships, he also discharged from time to time a wide range of other tasks concerned with the management of the properties. Ultimately the judge's finding was that the essential obligation of each party was to work towards the success of the projects undertaken consistently with his experience and expertise.
Five projects were undertaken by the joint venture, for the redevelopment of properties in Slough, Farnborough, Elstree, Reading and High Wycombe. A company called York Capital was an investor in all but the first of these projects. By early 2015, when Mr Donovan ceased to have day-to-day involvement in the joint venture, none of these projects had been completed, although finance for them had been secured.
By the end of 2014 and the beginning of 2015 the relationship between Mr Donovan and Mr Crader was breaking down. Because there is an issue whether the joint venture was terminated by GAM's acceptance of a repudiation by Mr Donovan, it is necessary to set out the parties' communications at this time in some detail.
I begin with an email sent by Mr Crader on 11 th December 2014, which acknowledged that the relationship was not working well and appears to have been the first suggestion that the parties should terminate the joint venture. Mr Crader was concerned that difficulties between him and Mr Donovan should not affect their Lime Street venture. His proposal was that Mr Donovan should buy him out of the permitted development joint venture if they could not agree some other solution:
“I have thought about this overnight and below are my thoughts. They are only that. It is really important that this rather minor issue doesn't spoil what I think can be profitable for us both though the vast majority of the profits will come from Lime. It's also really important for personal reasons you and I don't fall out — I really have had enough of angst. …
First and foremost as it is you that want to change it [the joint venture agreement concerning permitted development] the suggestions should come from you. I accept you say you don't know how to do this but the onus is on you to try. Therefore what follows below is not a solution but maybe a path to one.
Firstly if we can't both be happy we should try and separate the PD business and take it out from my office as a first step. This way any costs that it incurs will be clear and it will have to pay them. …
Following on from that if you want to take the PD business on your own and I don't want this to be the case I am happy to discuss a price for you buying me out. …
I do think this would give us a problem with York because we did agree to see the schemes through but perhaps your relationship with them could persuade. I certainly don't want to deal with York without you. I also accept that this would be a draconian solution and I put it first so that we are both aware that this must be the natural solution if we can't agree. …
I am sorry I haven't had any eureka moment. I am also open to any compromise you can think of. …”
The potential “problem with York” arose because the terms of York Capital's funding agreement enabled them to walk away if either Mr Crader or Mr Donovan ceased to be involved in the joint venture. It was therefore critical, if this were to happen, to ensure that York Capital did not exercise this right.
Mr Donovan did not respond to this email until 26 th January 2015, when Mr Crader chased him for a response, reiterating that Mr Donovan should buy him...
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Zymurgorium Ltd v Hammonds of Knutsford Plc
...such obligations when they fell due would be repudiatory. 81 Mr Reed also referred us to Donovan v Grainmarket Asset Management LLP [2021] EWCA Civ 686 at [58] per Males LJ, where he said that repudiation by renunciation arises where a party “evinces an absolute intention not to perform it......