Joining with others for mutual gain? An introduction to joint ventures in Australia (part two)

In our last piece (part one) on joint ventures we described some of the common characteristics of a joint venture and some of the legal forms that such a venture might take. Today, we take a look at how parties to a joint venture might acquire legal obligations to one another. Note, as usual, this is general commentary only and does not constitute legal advice.

The importance of the joint venture agreement

The legal obligations of the participants in a joint venture depend on the legal form of the joint venture. For example, incorporated joint ventures have obligations which arise from the Corporations Act 2001. Joint ventures which take the form of a trust will incur the obligations of trustees. In unincorporated joint ventures, the obligations of the participants will arise largely from the agreement between the parties.

Just last year, the NSW Supreme Court considered in Coyte and Anor v Norman and Anor; Centre Capital (Newcastle) Pty Ltd and Anor [2016] NSWSC 1242 a series of claims and counterclaims relating to a ‘Unit Trust’ joint venture. In that case, several claims relied on the breach of contractual obligations relating to an oral “further agreement”. The court did not find that that agreement existed. This emphasises the importance of a clear written agreement setting out the specific obligations of participants to each other in a joint venture.

The importance of distinguishing between a partnership and other joint ventures

In part one, we mentioned that a distinction can be made between a legal partnership and unincorporated joint ventures. The definition of a ‘partnership’ is provided in various state laws as “persons carrying on a business in common with a view of profit”.

The requirement to be “carrying on a business” is suggestive of one potential difference between a partnership and other joint ventures; the former tends to be (though there are exceptions) a repetitive endeavour rather than a one-off. Furthermore, it is common for the relationship in a joint venture to involve a common undertaking to produce a product to be shared amongst themselves, rather than profit.

So, what is the relevance of the joint venture/partnership distinction? The relevance is that the existence of a partnership imposes stringent fiduciary obligations on the partners, such as a duty against undisclosed conflicts of interest and a duty not to profit to the detriment of the other partners.

Note, however, that some fiduciary obligations may also arise whether or not the joint venture constitutes a partnership. In many cases this will be as a result of what the participants agreed to and the circumstances of the agreement. Fiduciary duties that may arise include:

• A joint venture participant may be restricted from dealing in assets committed to that joint venture without the informed consent of the other parties
• A joint venture participant may be restricted from obtaining any “collateral advantage” in relation to the joint venture, without the knowledge and informed consent of other participants.

 

[1] See, for example, (NSW) Partnership Act 1892, s1(1)

[1] Smith v Anderson (1880) 15 Ch D 247 at 277-8; [1874-80] All ER Rep 1121

[1] United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1

[1] United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 13

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