Poor Communication Causes Collapse Of High Value Transaction


A recent case in the High Court has emphasised the importance of continuous communication between the parties throughout the execution of a business deal.
Venture North Sea Gas Limited (Venture) brought a claim against Nuon Exploration and Production UK Limited (Nuon) on the basis that Nuon had not completed a sale that the two companies had commenced in June 2009. Nuon intended to purchase half of Venture’s 60 per cent interest in two licences, which required the signature of joint operating agreements between several parties. It was a condition that these had to have substantially the same terms as the draft agreement approved by Nuon and Venture at the beginning of the transaction.
Venture signed two joint operating agreements with two other licencees and pressed on with the sale. These documents were quite different from the original, however. For this reason, Nuon contended that completion could not take place. Venture should have obtained Nuon’s prior agreement as to the contents of the agreements.  
The High Court held that if the joint operating agreements had been in substantially the same form as the draft, Nuon could not have objected to the sale. The difficulty was that material changes had been made to the essence of the business relationship. These altered the rights and obligations of the parties, the commercial nature of the agreement and included new clauses that impacted on the financial relationship between the parties. As a result, and notwithstanding the fact that the business transaction had been of an extremely high value, the Court decided that Venture’s claim should fail.
In this case a severability clause, which enables the rest of the contract to remain binding if one clause becomes illegal or unworkable, could potentially have avoided the eventual collapse of the sale. It is important for parties who intend to conduct business together to communicate effectively throughout the transaction.
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