On 7 March 2022, George Bompas QC (sitting as a Deputy Judge of the High Court) handed down judgment in Garnet Commerce Limited v (1) VRFB Holdings Limited (2) Enerox Holdings Limited [2022] EWHC 481 (Ch). The case concerned a joint venture to develop and manufacture vanadium redox flow batteries between VRFB Holdings Limited (“VRFB”), a vehicle through which a consortium of investors led by the AIM-listed vanadium producer Bushveld Minerals Ltd invested, and Garnet Commerce Limited (“Garnet”). The joint venture was governed by a joint venture agreement (“JVA”) between VRFB, Garnet and Enerox Holdings Limited, the joint venture company.
Garnet alleged that VRFB had breached the JVA by failing to exercise reasonable endeavours to promote the business and failing to act in accordance with the spirit and intention of the JVA. It relied on VRFB accepting funding from Mustang Energy Plc (“Mustang”), an LSE listed Special Purpose Acquisition, which it alleged was a breach of a non-disclosure agreement between Mustang and EHL, and on VRFB allegedly making misrepresentations in relation to such funding. Garnet alleged that those breaches amounted to material breaches of the JVA entitling it to purchase VRFB’s shares in EHL for 50% of their fair value.
In a detailed judgment, the Court rejected each of Garnet’s claims, holding that there had been no breach of the non-disclosure agreement and no reliance on any representation. It further held that those matters would not have amounted to breaches of the reasonable endeavours and spirit and intention clauses of the JVA in any event. Finally, the Court held that even if there had been a breach it would not have been material.
The case is of particular interest for two reasons. First, it considers the scope and operation of clauses requiring a party: (1) to exercise reasonable endeavours to promote a joint venture business; and (2) to give effect to the spirit and intention of an agreement. While such clauses feature in the vast majority of JVAs, they have rarely been considered by the Courts and the case provides a helpful example of the limits of their operation.
Secondly, the case is significant for its consideration of the meaning of “material breach”. The Court held that the severe consequences of a finding that a breach was material (namely that the party in breach would be required to sell its shares at a 50% discount) “indicates that the parties must have contemplated a comparatively high threshold for breach by one of their number to have placed the party in material breach”.
Anna Boase QC and Patrick Harty, instructed by Gowling WLG, acted for the successful Defendant, VRFB.
Link to the judgment can be found here.