Joint ventures are often established to synergize what each member of the joint venture can add to the consortium. Sometimes a joint venture is the structure chosen because those members engaged in the joint venture are located in different jurisdictions, a consideration which may be pivotal for its success. While invariably created by contractual agreement, some joint ventures have been held by the courts to be a partnership, while others have been determined to be merely contractual, without comprising a partnership. A myriad of considerations have been used by the courts in determining whether a joint venture is a partnership. Issues have also arisen concerning the management and operational structure of a joint venture and whether such structure necessarily results in the joint venture being found to comprise a partnership.
Historically the distinction between partner and contractor has been important, since the law only imposed a fiduciary duty upon partners, and not simple contractors. However, more recent authority has held, in some circumstances, that such duties also exist for mere contracting parties. Moreover, the Supreme Court of Canada recently held in Bhasin v. Hrynew, 2014 SCC 71 that “It is appropriate to recognize a new common law duty that applies to all contracts as a manifestation of the general organizing principle of good faith: a duty of honest performance, which requires the parties to be honest with each other in relation to the performance of their contractual obligations.” Accordingly, should the interpretation of the joint venture agreement or the issue of performance be governed by the laws of Canada, the purely “contractual” joint venture may require the members of the joint venture to act towards other partners to the joint venture with a duty akin to a partner’s fiduciary duty. The circumstances of each case and the application of governing law must be uniquely considered in determining that issue.
International joint ventures are often the chosen structure in international mining, development, infrastructure, energy, transportation, large-scale or cross-border construction and other projects. Those in particular industries, such as telecommunications, pharmaceuticals, chemical engineering, cosmetics, petrochemical, automotive, ship-building and other heavy industries sometimes chose the international joint venture structure. Most international joint venture agreements require that the parties to refer disputes to international arbitration. The application of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the “New York Convention”, and whether it applies to the joint venture members, is often a consideration in deciding to include a mandatory arbitration clause in a joint venture agreement. The resolution of disputes under third party supply contacts and lending agreements are usually not covered by a joint venture arbitration agreement and may still require disposition by the local courts.
This writer recently spoke on the “The Differences (Legal and Drafting) Between a Partnership and a Joint Venture – Understanding the Significant Consequences“, as a panelist at the Law Society of Upper Canada Continuing Professional Development program, The Annotated Partnership Agreement 2015.
If you have a joint venture or international joint venture claim or dispute, please contact us to arrange an initial consultation.
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