Not all or nothing: WA Court of Appeal confirms joint venture interest earned by deemed contribution

The Western Australia Court of Appeal grappled with questions of contractual interpretation in Vango Mining Limited v Zuleika Gold Limited formerly known as Dampier Gold Ltd [2024] WASCA 54, which concerned Zuleika Gold Limited’s right to earn interest in a joint venture, based on its contribution to capital expenditure.

Background

Vango Mining Limited (Vango) and Zuleika Gold Limited(Zuleika) entered into a ‘binding terms sheet’ (BTS Agreement) which provided for the creation of an unincorporated joint venture.

The parties agreed that:

• Zuleika could earn joint venture interest based upon its Contribution of “up to” AUD$3,000,000, or 50% of the ‘capital cost estimate for the development of the mine on the Tenement’ (CAPEX) for, among other things, exploration and development of a mine (Expenditure);
• the sum of AUD$245,239.78, which was owed to Zuleika by Vango and Dampier Plutonic (together, the DPPL Parties), formed part of Zuleika’s Contribution to Expenditure;
• Zuleika would earn an interest equal to its Contribution to Expenditure within the first two years of the venture, which interest was capped at 50%;
• Zuleika’s Contribution to Expenditure and joint venture interest would be calculated at the expiration of an Earn In Period (initially two years, later extended by agreement to 30 months after commencement).

Zuleika did not contribute any sums towards Expenditure in addition to the AUD$245,239.78 debt.

Zuleika argued that it was it was entitled to a 4.1% interest in the joint venture in respect of its Contribution.

The DPPL Parties argued that Zuleika had not earned any joint venture interest because it had failed to contribute AUD$3,000,000 (or 50% of CAPEX) to Expenditure, submitting that, the parties had agreed that Zuleika’s Contribution was ‘all or nothing’: Zuleika either contributed AUD$3,000,000 and earned a 50% joint venture interest, or it contributed less and earned nothing. The DPPL Parties’ interpretation of the BTS Agreement relied on the fact that Zuleika’s Contribution was assessed at the end of the Earn In Period.

The Court’s Interpretation of the BTS Agreement

The Western Australia Court of Appeal (Court of Appeal) held that the BTS Agreement allowed Zuleika to contribute any amount “up to” AUD$3,000,000, or half of the CAPEX, and that Zuleika was entitled to joint venture interest proportionate to its Contribution to Expenditure.  Zuleika’s deemed Contribution of AUD$245,239.78 therefore enabled it to earn an interest of 4.1% in the joint venture.

Nevertheless, in his concurring judgment Vaughan JA rejected Zuleika’s argument that its position was justified by the ‘commercial absurdity’ that, it asserted, would result if Zuleika had Contributed a significant sum (such as AUD$2.5m) to Expenditure and received a joint venture interest of 0%, as argued by the DPPL Parties, warning against the use of the notion of ‘commercial absurdity’ to justify the interpretation of a particular contractual clause in isolation.  Rather, the Court’s interpretation of the BTS Agreement was based on its interpretation of the contract as a whole.

Commentary

The judgment is an important reminder to ensure your joint venture agreements are drafted to ensure you that you get what you bargained for and that you understand the effect of the agreement as a whole.

Careful drafting can, in many cases, prevent disputes from arising which, given the time, costs and reputational damage that are associated with litigation, should always be at the forefront of contracting parties’ minds. We recommend seeking expert, legal advice when entering into (or varying) any contracts and would be happy to discuss should you wish to review your contractual arrangements.