The recent decision of the Supreme Court of New South Wales in Bacchus Resources Pty Ltd v Talisman Mining Limited  NSWSC 1044 considered whether an agreement between parties was intended to be a binding joint venture agreement, or only an agreement to negotiate in good faith.
Bacchus and Talisman have interests in the mining industry. The parties entered into an “Alliance Deed” under which they agreed to consider prospective mining projects in New South Wales. That agreement contained provisions for a party to identify an “Opportunity” and for giving the other party an “Opportunity Notice” offering to join in the exploitation of, or decline of, the Opportunity. Relevantly, the Alliance Deed provided that if a party elected to accept the Opportunity, the parties will “negotiate in good faith the terms upon which the Opportunity will be acquired and enter into any necessary agreements to give effect to such acquisition”.
Talisman subsequently gave Bacchus an Opportunity Notice in relation to an Opportunity referred to as “Mt Nobby”. The parties executed a proposal which provided that Bacchus shall make an initial payment to Talisman, following which “the parties shall form a separate joint venture”. The proposal also provided for the structure of the joint venture and stated that “the parties shall negotiate in good faith the formal JV Agreement and then execute and exchange the JV Agreement”. The parties negotiated in good faith, but ultimately failed to execute the formal joint venture agreement that was contemplated by the proposal.
A dispute arose as to whether the execution of the proposal brought into existence a binding joint venture agreement between the parties. Bacchus argued that, following payment of the initial amount, a binding joint venture agreement came into existence between the parties. It contended that the failure to execute and exchange a formal joint venture agreement simply meant that the joint venture was to proceed on the structure and terms outlined in the proposal. Talisman argued that the proposal only obliged the parties to negotiate in good faith, and then execute and exchange a further formal joint venture agreement. It contended that because the parties failed to reach consensus on the terms of the further agreement, the proposal was exhausted, and no binding joint venture agreement came into existence.
In finding that a binding joint venture agreement did come into effect upon payment of the initial amount, Hammerschlag J held:
The parties to an agreement may agree immediately to be bound even though they may wish to restate their terms in a fuller or more precise way in a formal document, or they may agree immediately to be bound even though there would be a more formal agreement subsequently which could contain other terms.
In the present circumstances, the language employed by the parties disclosed an intention that there be a joint venture on specified terms together with an intention to negotiate in good faith toward the execution of the fuller or more precise formal joint venture agreement. If the parties did not agree, they simply revert to the terms of and incorporated in the proposal.
This decision highlights the importance of clear and unambiguous language as to the intended effect of an agreement. If the parties to an agreement do not intend immediately to be bound by the agreement, or to be bound only upon satisfaction of certain conditions, then the words of the agreement must reflect such intention.
The full decision can be found here.