Venture v Nuon: High Court rules JOAs are not “in substantially the form” of agreed JOA

United Kingdom

On 10 February 2010, the High Court handed down its decision in Venture North Sea Gas Limited (Venture) v Nuon Exploration & Production UK Limited (Nuon) which makes interesting findings in relation to whether an executed agreement, such as a joint operating agreement (JOA), is considered to be “in substantially the form” of a draft agreement for the purposes of fulfilling a condition precedent to completion in a sale and purchase agreement.

The case, which concerned an application by Venture for specific performance of Nuon’s obligations under a sale and purchase agreement entered into between the parties in June 2009 (SPA), considered two main questions. Firstly, did Venture need to obtain Nuon’s agreement to the executed JOAs in question in order for them to be considered completion documents? Secondly, were the executed JOAs in substantially the form of the draft JOA appended to the SPA?

Despite Venture succeeding on the first question, to which the Court answered “no”, the Court held that this success was merely “academic” compared to the more important second question on which its case ultimately fell down. In deciding that Venture failed to fulfil the condition precedent requiring it to execute JOAs in substantially the form of the draft JOA, the Court found the defendant, Nuon, to be justified in refusing to complete its purchase of certain of Venture’s interests in two producing gas fields and a number of exploration blocks in the North Sea.


The SPA involved the proposed purchase by Nuon of half of Venture’s 60% interest in two licences. Appended to the SPA was a draft JOA in the United Kingdom Offshore Operator’s Association (UKOOA) standard form. The SPA made it a condition precedent to completion that the other two licensees execute JOAs “in substantially the form” of the draft JOA.

Venture argued that, in executing the JOAs with the other two licensees concerned before the SPA’s back stop date in December 2009, it had fulfilled its condition precedent and that completion could therefore take place.

Nuon disagreed, arguing that it was justified in not completing the purchase because it considered that 1) Venture should have obtained its prior agreement in order for the JOAs to constitute completion documents; and 2) the JOAs which Venture executed with the third party licensees were not in substantially the form of the draft JOA agreed in the SPA.

The key points of the High Court’s decision

  • It was not a requirement that the executed JOAs constitute completion documents. The Court ultimately came to this decision due to a term of the SPA stating that Nuon’s agreement to the JOAs could not be unreasonably withheld, particularly if they were in substantially the form of the draft JOA.
  • Upon applying an objective test based on the commercial substance of the draft and executed JOAs rather than their form, the Court found the executed JOAs not to be in substantially the form of the draft JOA. The Court’s main consideration in applying this test was the cumulative effect of the differences between the draft and executed JOAs. Having regard to the executed JOAs as a whole, certain fundamental differences were found to result in an overall “material” change to the draft JOA, and this, the Court decided, was why it was not in substantially the form of the draft JOA.
  • The fundamental differences that the Court felt “went to the heart of the JOA and its operations” were twofold. Firstly, in the draft JOA the default position was that the Operator was authorised to represent the Participants – to restrict the Operator’s authority would require a sixty-five per cent majority to vote in favour of any such restriction. By contrast, under the executed JOAs the Operator could not represent the Participants unless authorised by a sixty-five per cent majority to do so. The Court considered this difference to be a material change in the parties’ contractual rights and obligations and also the commercial realities of the JOA. Secondly, the executed JOAs contained new clauses not found in the draft JOA, which required unanimity for the issue and/or approval of an Authorisation for Expenditure in certain circumstances. The Court stated that these new provisions impacted on the financial relationship between the parties which, it agreed with Nuon, was a “key area” of the JOA.
  • Despite the large size of the transaction covered by the SPA and the fact that many of the provisions of the executed JOAs gave no rise to dispute, the Court felt compelled to decide that Venture’s claim as a whole must fail due to the lack of a severability clause in the SPA (which may have ordinarily allowed the Court to order Nuon to complete the purchase of the assets that were not governed by the JOAs in question in this case).


This case highlights for the seller of an interest in a licence the importance of:

  • obtaining the buyer’s permission before entering into a JOA with a third party prior to the completion of the sale of an asset which contains any potentially commercially important terms that materially differ from those contained in any agreed form of JOA in the SPA; and
  • including a severability clause in the SPA so as to avoid the completion of the sale of an entire package of assets falling through due to the seller’s failure to fulfil a condition precedent in relation to any one of those assets.

For the full text of the decision, click here.