Home Information Cases Nearfield Ltd v (1) Lincoln Nominees Ltd (2) Lincoln Trust Co (Jersey) Ltd (2006)

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Nearfield Ltd v (1) Lincoln Nominees Ltd (2) Lincoln Trust Co (Jersey) Ltd (2006)

Summary

The obligation in a joint venture agreement on one party to procure that a loan was repaid by another party imposed an obligation on the first party to see to it that the second party repaid the loan or, in the event that the latter defaulted, to pay damages equal to the amount payable but not repaid.

Facts

The claimant (N) sought to enforce clause 5.1.3 of a joint venture agreement. The parties to the joint venture agreement included N and the second defendant (L), a trust company incorporated in Jersey that carried on business as the provider of offshore trust company services. The first defendant (C) was a nominee company of L, incorporated in the British Virgin Islands, used by L in its offshore trust business. The agreement had been entered into for the purpose of redeveloping an office building. The acquisition of the building was to be carried out through a special purpose vehicle. Most of the purchase price was borrowed from the bank. The balance of GBP 3 million was borrowed from N. Under the agreement N advanced the money to C, which lent it to the special purpose vehicle. The redevelopment was not a success and there was a shortfall in respect of the principal sums borrowed. N sued L on the basis of clause 5.1.3 of the agreement, which provided that L would procure the payment of the loan together with all outstanding interest thereon on written demand by N. N contended that "procure" put an obligation upon L to see to it that C repaid the GBP 3 million together with outstanding interest on written demand by N, and that in the event of a failure by C to make the payment it was liable to pay damages equal to the amount payable but not repaid by C. L submitted that the clause did no more than place an administrative and ministerial function upon it in keeping both with its facilitative and non-participatory role in the joint venture and in keeping with its other administrative obligations under the agreement.

Held

(1) The normal meaning of the word procure was to "see to it". Thus a person agreeing to procure that someone else performed a contractual obligation was first required to attempt to ensure that that person complied with the obligation and, in the event that he failed to comply, to pay as damages the amount that ought to have been paid by the third party, Moschi v Lep Air Services Ltd (1973) AC 331 and Barnicoat v Knight (2004) EWHC 330 (Ch), (2004) 2 BCLC 464 applied. The question was whether that meaning was displaced by the terms of the joint venture agreement. (2) L's evidence was that it was never the intention of L to assume a direct liability to N, but that evidence was inadmissible in the absence of a claim for rectification or relief from the consequences of a mistake. Even on L's case it had some obligation to seek to persuade C to pay the money but it had taken no such steps. The agreement had to be construed against its background, but evidence of negotiations or previous drafts of the agreement could not be used to construe the final version of the agreement. (3) There was nothing in the agreement to displace the conclusion that "procure" meant "see to it". C had received the money and had the primary obligation to repay. C was the corporate creature of L, which agreed to procure that C would repay. The clause should be construed as N submitted.

Judgment for claimant

Chancery Division
Peter Smith J
Judgment date
9 October 2006
References

[2006] EWHC 2421 (Ch)

Practice areas