Joint ventures can be a terrific way to combine resources, skills, and experience into a business, and they also have the added benefit of spreading out some risks. As a consequence, joint ventures are becoming a more widely used method for businesses to carry out important commercial operations and implement initiatives. However, if you are engaged in a joint venture, you may discover that disagreement between individual parties emerges at some point throughout the duration of the professional relationship, just like in any partnership. Throughout this article, we examine the different types of joint venture disputes that could occur and how to handle them.
What is a Joint Venture?
As mentioned previously, a joint venture entails parties coming together to collaborate for a variety of reasons. The following are a few examples of the shapes a joint venture might take:
- A limited firm where each participant owns shares.
- Under the Partnership Act of 1890, a conventional, unincorporated partnership.
- A Limited Liability Partnership (‘LLP’) joint membership.
What Can Cause a Joint Venture Dispute?
Without a written joint venture agreement (JVA), there may be disruptive business disagreements over each party’s responsibilities, and the cost of resolving these conflicts will likely be far more than the price of drafting a written agreement in the first place. Failure to create a JVA can prove to be a significant false economy because it is always preferable to safeguard your position up front rather than having to deal with a difficult conflict later.
The following examples can be used to identify some typical circumstances that lead to joint venture disputes:
- Disagreements regarding the proportion of the company owned by each partner and the degree of financial and capital growth compensation.
- It is unclear how much effort or contribution each participant is expected to put into the firm.
- The transfer of business from the joint venture into a different firm by one side.
- Arguments over the company’s future course (such as whether to acquire a new business or expand into another sector).
- Not being upfront about the conditions under which a new party, whether from the outside or a member of the present party’s family, can join the company.
- Lack of clarity over whether and how much to sell the firm for.
How a Joint Venture Dispute is Handled in Court
There are various ways that such joint venture conflicts can be handled in court. These forms depend on your type of company and the specifics of your claim. In the section below, we examine some potential issues’ causes, underlying legal theories, pertinent legal precedents, and outcomes.
- Partners may be held accountable for violating the many obligations they have to one another under the Partnership Act 1890 in a traditional partnership dispute.
- There are frequent allegations of violations of the Shareholder Agreement. A minority shareholder or member of an LLP may have grounds for an Unfair Prejudice Petition under section 994 of the Companies Act 2006 if they feel they are being treated unfairly. If successful, the majority shareholder is frequently required to buy out the unhappy minority stakeholder.
- A shareholder may ask the court for authorisation to file a derivative action, which is a claim made by the shareholder in question in the name of the corporation when the loss complained of affects the company rather than an individual.
- Finally, a director who has personally benefited or caused harm to the company may be pursued by the company via its other directors for breach of their fiduciary duty to the company.
Alternative Dispute Resolutions
If a joint venture dispute develops despite the best efforts of the parties involved, you should consider using alternative dispute resolution (ADR), particularly mediation, to try to reach a settlement where one party buys the other out or the business is divided between you. A mediated settlement gives parties the freedom to reach a business-focused resolution while avoiding the high expenses of litigation and potential long- and short-term harm to the company.
It is no secret that a joint venture gone wrong can ruin your company, thus it is essential to have a well-constructed and transparent joint venture agreement at the outset of the working partnership.
How Can We Help?
We have helped a client in a previous case who was involved in a Joint Property Venture Dispute Based on a Fraudulent Declaration of Trust. Our client was successful in bringing proceedings to the High Court. The client prevailed and was eventually awarded a 50% share in the property, which the opposition argued he had no interest in. Costs were also awarded in our client’s favour on an indemnity basis, owing in part to the opposition’s fraud charges. Our civil litigation experts can help you with a variety of property challenges, ranging from building law to commercial conflicts.
Find out more about our work and how our civil litigation solicitors can help you. You can contact us online or by phone at 0208 769 6739.