Sep272017 by LawEditorNo Comments
Joining with others for mutual gain? An introduction to joint ventures in Australia (part two)

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

Commercial Law

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

Sep252017 by LawEditorNo Comments
Joining with others for mutual gain? An introduction to joint ventures in Australia (part one)

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

Commercial Law

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].