Wolsey Securities Ltd v Abbeygate Management Services (Hampton) Ltd

Joint venture agreement – Construction of flats – Meaning of contractual term – Respondent guaranteeing loan facility – Whether facility letter forming part of agreement – Whether respondent liable for management charges under agreement – Appeal allowedThe appellant sued the respondent as the guarantor of a company (ASL) under a joint venture agreement (JVA) that had been made between the three parties to construct a block of flats. The venture was unprofitable and ASL, which had been incorporated or acquired for the purpose of carrying out the development and had no assets of its own, went into liquidation. The funds to carry out the development were to come from a bank loan to ASL and from a loan facility granted by the appellant under the terms of a facility letter from the appellant to ASL that was annexed to the JVA. The respondent guaranteed that ASL would perform its obligations under the agreement. The final figure of £88,845.16 together with interest was alleged to be due pursuant to that guarantee for which the appellant sued. Although the claim included a small part of the outstanding loan, it was substantially for management charges, which were divided into those “relating to the facility letter” and those “provided for in the cash flow appraisal”. The respondent accepted that it was liable for ASL’s failure to pay the small outstanding part of the loan but not for either part of the management charges. The narrow issue for the judge was whether the JVA and the facility letter constituted one agreement or two separate agreements. If they were one agreement, the respondent accepted that it would be liable for the management charges, whereas if they were two separate agreements, the appellant accepted that the respondent was not liable for the management charges. The judge held that the agreements constituted two separate agreements and declared that the respondent was not liable for the management charges. The appellant appealed. Held: The appeal was allowed.The question as to whether there was one agreement or two was semantic. Since the facility letter was annexed to the JVA, there was only one composite agreement. In any event, because 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 the light of each other. The JVA obligations had to be interpreted in accordance with the facility letter.Therefore, since the JVA obliged ASL to repay to the appellant all moneys that the appellant had advanced in pursuance of its facility, and since the facility letter entitled the appellant to debit to ASL’s loan account “any management charge”, the only conclusion was that, as and when the appellant in fact debited any management charge to ASL’s loan account, the amount in the loan account (including any management charge) was part of the advance that ASL was obliged to repay. To the extent that that repayment had not been made, the respondent, as guarantor, had to be liable. Accordingly, the court would declare that management charges were, in principle, payable by ASL and, thus, by the respondent, as the guarantor, save to the extent that such charges should not have been debited to ASL’s loan account.Robert Griffiths QC and Damian Falkowski (instructed by Laytons, of Guildford) appeared for the appellant; Christopher Parker (instructed by Howell-Jones Partnership) appeared for the respondent.Eileen O’Grady, barrister