Missing clause held to have caused loss of millions for developer

Missing clause held to have caused loss of millions for developer

A law firm acting for the landowner and his company in a large-scale property development failed to include a critical clause in the joint venture agreement. The court is yet to determine the damages, but the losses claimed are in excess of $100 million.

The missing clause would have made all joint venturers liable for a $20 million debt facility secured by mortgage over the land. Instead, the agreement contained a condition requiring the landowner to repay the debt within 30 days after planning approval was obtained. The landowner could not afford this, and a default clause was triggered, allowing a forceable sale of the land (now with the benefit of the planning approval).  The landowner sued the law firm for the significant costs it incurred and could no longer recoup, and the loss of its share of the net profit of bringing the development to fruition.

The law firm argued that there was no guarantee the clause would have been agreed to, and that the relationship between the joint venturers was so dysfunctional that a forced sale was inevitable. As there were no other likely substitute joint venturers it was argued that the loss was unavoidable.

It was held that by the law firm’s failure to appreciate the need for the missing clause the landowner lost the opportunity to amend and as a result suffered a loss. The lost opportunity to amend was held to be valuable, not merely negligible, speculative or theoretical. Proof that the landowner faced the burden of a debt that could not be discharged without selling or securing a new joint venture partner was sufficient to establish this requirement for the loss of chance claim to succeed. Calculation of loss is a separate issue to establishing the loss of chance, and the court is yet to determine the amount.

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