A joint venture company was able to enforce a joint venture agreement despite not being a direct party or signatory to it.

Medical imaging

Canon Medical Systems, a manufacturer of medical imaging equipment, entered into an agreement with The Imaging Centre to create a new joint venture company, TIC Mobile. Under the agreement, CMS would sell transportable units containing MRI and CT scanners to Mobile, who would then rent them out to clients.

The joint venture was less successful than hoped, and CMS stopped supplying units to Mobile. Mobile wanted to enforce the agreement against CMS, but this was complicated by the fact that Mobile was not actually a signatory to the agreement.

When are you privy to a contract?

CMS and TIC were listed as the only parties to the agreement. However, the expanded definition of TIC within the agreement encompassed “any of its subsidiaries”, including Mobile. The agreement also expressly gave TIC the power to contract on Mobile’s behalf.

The court focused on the substance of the agreement. It was held that Mobile was privy to the agreement on the basis that TIC was contracting for itself and also for Mobile. This interpretation, while not entirely coherent throughout what was “not a well drafted document”, made sense of its key business provisions. Mobile would be the entity carrying out the joint venture business by purchasing and renting out the units, so the agreement made more sense where Mobile was privy to it.

What about third party rights and transferred loss?

The court did not accept that Mobile could alternatively bring its claim under the Contracts (Rights of Third Parties) Act 1999. As Mobile was privy to the agreement, it was not a third party. Moreover, even if it was a third party, the rights of third parties were excluded under the agreement.

The court also dismissed the argument that Mobile’s losses had been transferred to TIC so that TIC could claim for them itself. Instead, TIC’s proper claim here would be for the reduction in value of its share in Mobile.

Judgment: Canon Medical Systems v The Imaging Centre