Performance key to performance fee

Emma Warren

In Donovan v Grainmarket, the High Court held that a joint venture party, to an agreement contained in heads of terms, was entitled to his performance fee, even though he had arguably abandoned the venture.

In 2012, the parties entered a joint venture to acquire commercial properties and redevelop them for residential use. The parties had agreed heads of terms but never signed a long form contract. After identifying a suitable property for redevelopment, Donovan’s role was to attract investors for its acquisition and Grainmarket’s role was to redevelop and manage the property. Investors would pay Grainmarket an “administration fee”, of which Grainmarket would pay 10% to Donovan. On the sale of the property, Grainmarket would receive further fees from the investors, a so called “performance fee” of which Donovan would be paid 40%.

In 2015, Donovan moved to another role, arguably abandoning the joint venture. At this time, 5 properties had been redeveloped and sold, but Donovan had not received his full share of the performance and administration fees. Donovan sought to recover these fees, arguing that the heads of terms contained the contractual agreement, and that the best evidence of the parties duties’ were the actual tasks performed. As Donovan’s role had been in securing the investment for each property, he argued that he had already performed his duties in respect of the 5 properties. Grainmarket countered that the contract was entered into by performance over a prolonged period of time and also argued that in any event, by abandoning the joint venture, Donovan was in repudiatory breach of the contract.

The court agreed with Donovan’s position, and therefore held that he was entitled to both the administration fees and performance fees due to him. The court also held that the failure of Grainmarket to request that Donovan continue to perform his work on the joint venture after he abandoned it was a jointly agreed position and not consistent with Donovan being in repudiatory breach of the contract.