Joint ventures can be a great way to pool resources, talent, and knowledge into a business, not to mention the fact that such collaborations come with the added bonus of spreading certain risks. As a result, joint ventures have become an increasingly popular medium through which companies undertake significant business activities and projects. But, as with any partnership, if you are involved in a joint venture, you may find that conflict between individual parties arises at some point during the course of the working relationship. In this article, we take a look at what kind of joint venture disputes are likely to arise, and how to resolve them.
If you are dealing with a joint venture dispute or want advice on how to prevent one our business dispute solicitors are here to help. Whether you need support drafting a joint venture agreement, advice on your legal options, or help resolving a dispute through negotiation, mediation or court proceedings, we will work with you to protect your interests and keep your business on track.
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What are the common causes of joint venture disputes?
On paper, joint ventures bring together complementary strengths, capital, expertise, market access or technology. In reality, they often stumble over strategy, funding, governance or control. Disagreements over budgets, the pace of expansion, capital contributions or the division of profits can quickly harden into disputes. Sometimes the issues are operational, such as one party failing to deliver promised resources. At other times, the cause is more serious: business being diverted away from the joint venture, breaches of confidentiality or competition restrictions, or directors acting in their own interest rather than that of the joint venture.
Deadlock is another common cause of disputes. Even with the best intentions, a joint venture can grind to a halt if key decisions require consensus and the parties simply cannot agree. The impact is severe: projects stall, staff lose confidence, and opportunities are missed.
Whatever the trigger, it is rare for joint ventures to collapse overnight. The warning signs usually appear first, financial reporting becomes patchy, information flows dry up, meetings are missed, or one party starts making unilateral decisions. Recognising these patterns early gives you a better chance of resolving matters before they escalate into formal proceedings.
How is the joint venture agreement structured?
The way your joint venture is set up shapes the duties of those involved and the options available when a dispute arises. Most UK joint ventures use one of three structures: a limited company with a shareholders’ agreement, a limited liability partnership (LLP), or a general partnership.
In a company structure, directors owe statutory duties to the company, not directly to shareholders. That means complaints about mismanagement or diversion of business are usually pursued as claims by the company itself, through derivative actions, or via shareholder remedies such as an unfair prejudice petition.
In an LLP, the entity itself is a separate legal person. Members’ duties are usually defined by the LLP agreement, though equitable obligations can arise. Members typically enjoy limited liability, but the LLP can be liable for wrongful acts committed by its members in the course of business.
A general partnership offers no such shield. Partners are agents of the firm and their acts in the ordinary course of business bind all other partners. Liability is joint and several, which means each partner can be held personally responsible for the full amount of partnership debts and liabilities.
Understanding your structure is an important first step. It defines not only what duties are owed and by whom, but also your personal exposure and the remedies realistically available.
How to prepare for a joint venture dispute?
The first step is to gather all the governing documents: the joint venture agreement, shareholders’ or LLP agreement, articles of association, funding documents, guarantees, side letters and any security arrangements. Alongside these, assemble recent management accounts, board minutes, key correspondence and evidence of any alleged misconduct, such as client diversion.
Preserve evidence carefully. Avoid deleting emails or messaging history, and consider asking IT support to implement holds on accounts if you suspect tampering or deletion could occur.
Keep emails factual and measured, assume they will one day be read in court or arbitration. Avoid threats or accusatory language that may make settlement harder later.
Finally, seek early legal advice. A case assessment will help you separate contractual breaches from potential breaches of fiduciary or statutory duties, identify the remedies available and build a strategy that aligns with your commercial goals.
What to look for in your joint venture agreement
Most well-drafted joint venture agreements contain mechanisms for dealing with disputes. These can dramatically alter your options. Key clauses to check include:
- Objectives and scope, setting out the business objectives and scope of the joint venture.
- Decision-making and voting rights
,setting out how decisions are to be made, voting rights andwhich dictatewhat actions require unanimous approval.
- Ownership and management structure, setting out how the joint venture is to be owned and managed.
- Profit and loss sharing, setting out how profits and losses are to be shared.
- Capital contributions and funding obligations, setting out capital contributions, how capital calls work and the consequences of default.
- Information rights, which may give you access to financial data and operational records.
- Intellectual property, setting out the ownership of intellectual property developed by the joint venture, licensing of existing intellectual property and what happens to intellectual property on exit.
- Non-compete and confidentiality provisions, restricting what venturers can do outside the joint venture.
- Deadlock resolution mechanisms, ranging from escalation procedures to buy-out formulas such as “Russian roulette” or “Texas shoot-out” clauses.
- Dispute resolution clauses, which may mandate mediation, expert determination or arbitration before litigation is possible.
- Duration, termination and exit, setting out the duration of the joint venture, the circumstances under which it may be terminated and how exits will be managed.
If there is no written joint venture agreement, or if it is silent on these issues, you may face more uncertainty. Disputes then hinge on company articles, LLP or partnership law, or on evidence of what was agreed through conduct and correspondence. This typically increases cost and risk, underlining the importance of early strategic advice.
Who owes what duties?
In company joint ventures, directors’ duties are set by the Companies Act 2006. These include the duty to promote the success of the company, exercise independent judgment and avoid conflicts of interest. These duties are owed to the company itself, not the shareholders individually.
LLP members generally rely on the terms of their LLP agreement, though duties of good faith and loyalty can arise in equity. The LLP itself may be liable for wrongful acts of its members carried out in the course of business.
In partnerships, partners are bound by the Partnership Act 1890. Each partner acts as an agent of the firm and all partners are jointly and severally liable for its debts. This makes personal exposure a real risk unless limited liability is introduced.
Personal guarantees, indemnities or security arrangements given to funders can also pierce the protective veil of limited liability, even in a company or LLP structure. Always check what obligations you have given outside the joint venture agreement itself.
How to resolve a joint venture dispute
Disputes can be resolved in several ways, and the right choice depends on urgency, cost, confidentiality and the remedies you seek. Whether you wish to maintain the joint venture’s continuity is an important consideration too.
Negotiation is often the first step. Without-prejudice correspondence and meetings allow parties to speak candidly without fear of admissions being used later in court. If handled well, negotiation preserves relationships and avoids the costs of formal proceedings.
Mediation is the next rung on the ladder. A neutral mediator facilitates discussion, but the outcome remains in the parties’ control. Mediation is confidential, relatively quick and inexpensive, and has high settlement rates. But mediation settlements are not binding unless agreed. Courts expect parties to attempt mediation before pursuing litigation too, and refusal can attract costs penalties.
Expert determination works well for narrow technical issues, such as valuing shares or resolving accounting disputes. If the contract specifies it, the expert’s decision is usually binding. It is quicker and cheaper than arbitration or litigation, but unsuitable for broader disputes.
Arbitration is private, allows parties to choose an arbitrator with specialist expertise, and arbitrators make binding decisions that can be enforced through the courts. It can be quicker than litigation, but costs vary, and subject to limited exceptions, arbitration is confidential (evidence, hearing and the final award). Exceptions include details of the arbitration and any award being made public during any court challenge or enforcement, if there is a need to disclose details of the arbitration to a third party such as an auditor, if disclosure of a document is court ordered or if it’s in the public interest.
Litigation remains necessary in some cases, particularly where statutory remedies are required, or urgent court powers are needed. It is more public and can be slower, but it provides a structured appeals process and may be the only forum for certain remedies.
Timing, cost and interim remedies
Time and cost in disputes are driven not only by the forum you choose but by factors such as data volume, disclosure requirements, interim applications, expert evidence and the conduct of the other side.
Urgent cases may require interim remedies such as injunctions, freezing orders or orders for delivery-up of property. Courts apply strict tests to these applications, and unsuccessful bids can backfire, leading to adverse costs. Careful preparation and evidence are essential.
What are the likely remedies?
Few joint venture disputes end with a decisive court judgment. More often, they are resolved through agreement once both sides understand the strengths and weaknesses of their case. Common outcomes include: a negotiated buy-out, a restructured governance or funding arrangement, damages or an account of profits, or undertakings supported by injunctions. In extreme cases, winding-up or exit from the joint venture may be the only realistic solution.
Summary
A joint venture gone wrong can cause havoc for your business, so the need for a properly structured and transparent joint venture agreement at the start of the working relationship is crucial. At Harper James, our team of experienced solicitors can assist you with drawing up the right Joint venture agreement and also with providing tailored legal advice if a dispute does arise.
