Resolving a dispute arising from a joint venture

A joint venture (or JV) between two businesses can be a great way of pooling resources, of harnessing talent and knowledge and of spreading commercial risk.  However, it can also be a source of dispute where there is a lack of clarity around key issues, such as what the joint venture was set up to achieve, the level of investment and commitment expected, who will own what and how costs and profits will be shared and expenses borne.

Disputes can also arise where there is uncertainty as to how key decisions should be made, what happens where further investment is needed or a change of direction is suggested, the process to be followed where one of you wants to exit or bring in someone new, and the circumstances in which the whole or part of the JV can be sold off or forcibly disbanded.

‘The potential for conflict is particularly high where there is no written agreement in place setting out the ground rules under which the joint venture will operate, or where there is a poorly drafted (or DIY) agreement lacking in important detail,’ explains Phil Moir director and commercial dispute resolution lawyer with Richard Reed Solicitors.

The approach you should take to dealing with a dispute will depend on the circumstances and will be influenced by a variety of factors, the most important of which will be whether there is a pressing need to ensure the joint venture continues.

Should you persevere or throw in the towel?

As with any business dispute, contentious issues that arise in the context of a joint venture need to be handled with care and thought must be given to the importance of preserving the commercial relationship that you have worked to establish.

Where the purpose for which the joint venture was set up has not yet been met, or where the activities being pursued by the venture are of strategic significance, then there is likely to be a strong incentive to ensure that the arrangement continues.  You will therefore need to adopt a conciliatory approach to finding an acceptable resolution, for example by trying to work through your problems at a face to face meeting or by agreeing to attend a jointly arranged, lawyer supported mediation.

Conversely, where you feel the benefits to be derived from the joint venture are nearing exhaustion then you may be prepared to tackle the dispute in a more head-on manner, despite the risk that this may mean bringing the arrangement to an end slightly earlier than planned.  You may even contemplate issuing court proceedings to obtain an independent determination of your dispute by a judge whose decision will be final.

However, it is important to say that going to court is not something you should do lightly and should always be viewed as a step of last resort, not least because it can be expensive and means that details of your dispute will almost certainly become public knowledge.

The structure of the joint venture

Another factor that will influence the approach you take will be the legal structure under which the joint venture was established.

For example, if you operate as a partnership and the cause of the dispute is your partner’s consistent failure to pull their weight or to commit to achieving the purpose for which the JV was established, then the best approach may be to start by seeing if there is any way they can be persuaded to start towing the line and, if not, if they will agree to exit the partnership on mutually agreeable terms so that you can go it alone or bring in a new partner.  If this does not work, then your final recourse is likely to be to apply to the court under the Partnership Act 1890 to have the partnership dissolved so you can move on and start again.

Where you operate as a company and face similar difficulties with a co-director/shareholder, then the best approach is likely to be to check your articles of association and shareholders agreement to see whether there is any mechanism by which you can force them to play ball or else have them removed from office, and if not to seek advice on whether you may be able to apply to the court under the Companies Act 2006 to force them to buy you out or else to have the company forcibly dissolved.

Consult a solicitor

To improve your chances of achieving a swift and commercially acceptable resolution, you should speak to a solicitor as soon as you can and take heed of the advice you are given and keep an open mind as to the various ways in which disputes of this sort can be tackled.

For more information on joint venture disputes, please contact Phil Moir on 0191 567 0465 or email: phil.moir@richardreed.co.uk

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