Today is part one of a two-part introduction to joint ventures. In today’s piece, we look at some of the common characteristics of joint ventures as defined by the courts and the forms that a joint venture might take. In part two we will look at the obligations that hold between participants in a joint venture
The concept of a joint venture
There is no all-encompassing legal definition of “joint venture” in Australian legislation. While the term does appear in various statutes, those definitions are for specific legal purposes, rather than offering a general definition.[1] Nor has a general legal definition been provided by the courts.
One oft-quoted case remarks:
“As a matter of ordinary language, it connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. Such a joint venture (or, under Scots’ law, “adventure”) will often be a partnership. The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership: such as a company, a trust, an agency or joint ownership.’”[2]
So, from this we might say that the ordinary concept of a joint venture captures a general idea of people or entities working together for mutual gain. And while this ‘association’ might take various legal forms, the focus is on those associations that are not legal partnerships.
‘Recognisable and common characteristics’ of joint ventures
A more recent case held that, while the existence or otherwise of a joint venture will be a question of fact depending on the particular case, the following are “recognisable and common characteristics” of a joint venture:[3]
- Participants have property, or property interests in the assets of the association
- Participants exercise joint control
- Participants both contribute, though not necessarily in equal measure
- Participants have rights and obligations in relation to the association and these are often relative to the ownership of shares and/or contributions made
- Participants have a joint interest in achieving the purpose of the association
- Participants enter into the association for mutual gain, often for mutual profits.
Types of joint venture
Two key types of joint venture (though by no means the only ones) are contractual joint ventures (or ‘unincorporated joint ventures’) and corporate joint ventures.
A contractual joint venture binds two individuals or entities via a contract. This kind of arrangement provides considerable flexibility for both participants and can be particularly useful for short-term or single purpose ventures.
A corporate joint venture is registered as a limited liability company. In this arrangement parties to the venture become shareholders of the joint venture company. This arrangement means that the joint venture is subject to the requirements for companies in the Corporations Act 2001 and other corporate legislation such as the Australian Securities and Investments Commissions Act 2001 and Competition and Consumer Act 2010.
In our next piece, we will look at the obligations that participants in a joint venture owe each other.
Please note, that the information here is intended as a general introduction and for advice specific to your business, please seek professional legal advice.
[1] See, for example, the definitions contained in section 128A(1) of the Income Tax Assessment Act 1936 and section 4J of the Competition and Consumer Act 2010.
[2] United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1, at [10].
[3] Gibson Motor Sport Merchandise Pty Ltd & Ors v Robert James Forbes & Ors [2005] FCA 749 at [80].
