Disputes

Choice of law and resolution methods

In your jurisdiction, are there constraints on the choice of law or the method of dispute resolution provided for in joint venture agreements?

Typically, courts in Canada will respect the choice of law and jurisdiction provided by the joint venture parties in the joint venture agreement. The joint venture parties are also free to stipulate the dispute resolution methods in the joint venture agreement.

When considering the arbitration provisions in a joint venture agreement, joint venture parties should bear in mind that some types of disputes should be resolved in court. For example, matters such as breach of confidentiality, non-competition or non-solicitation agreements, or matters involving specific performance remedies should not be left to arbitration.

The joint venture agreement should stipulate whether the arbitration decision is final and binding, or whether appeal lies to an additional resolution process. Courts will typically honour the finality of an arbitrated decision where the joint venture agreement clearly intends for this outcome. However, it is always a possibility that courts may take jurisdiction notwithstanding an arbitrated resolution.

Mandatorily applicable local law

What mandatory provisions of local law will apply irrespective of the choice of governing law?

There are no express laws that govern joint ventures in Canada but all joint ventures are subject to applicable laws based on the nature of the joint venture business or its assets are regulated under applicable statute. As such, they are governed by the contractual law of the jurisdiction chosen by the joint venture parties. However, the business and operations of the joint venture will be subject to the laws of the jurisdiction in which they operate, and are regulated in accordance with their activities and formation. Joint ventures conducted through separate entities, such as a corporation, will be subject to the federal and provincial laws applicable to such entity. Joint ventures will also, however, be subject to laws that apply to the applicable businesses being carried on including competition, environmental and health and safety laws as well as labour and employment laws with respect to employees.

Remedy restrictions

Are there any restrictions on the remedies a tribunal can grant that would have a bearing on the arbitration of joint venture disputes? Are there any restrictions on the arbitration of shareholder claims?

Although it is common practice, and even recommended, for joint venture agreements in Canada to contain an arbitration provision for dispute resolution (binding or non-binding decisions vary), there are limitations to the type of relief that such arbitrator or panel of arbitrators may grant. An arbitration is generally subject to the rules selected in the joint venture agreement (unless they incorporate broad procedures) and arbitrators generally are unable to grant remedies that have an effect beyond the parties engaged in the dispute or that, by statute or law are remedies that can be given only by the courts. This might include, for example, injunctive or other equitable remedies or a remedy specific to an incorporating statute that is outside the jurisdiction of the arbitrators’ authority. It is also recommended when selecting arbitration as a dispute mechanism that, where appropriate, certain disputes be reserved for either party to seek remedies in court (ie, alleged breaches of confidentiality or other restrictive covenants).

Minority investor protection

Are there any statutory protections for minority investors that would apply to joint ventures?

In Canada, there is no statutory protection for minority investors for contractual or partnership joint ventures but there is case law in some limited circumstances, particularly where there has been bad faith or egregious actions or conduct by a controlling party.

There is however, statutory protection under Canadian corporate governance law that protects minority investors of incorporated joint venture companies. This includes, without limitation, derivative actions and actions for oppression. Although this protection is available to all investors, in practice it is more applicable to minorities. Such protection is in addition to case law relief and remedies.

Liabilities

How can joint venture parties have liabilities to each other beyond what is expressly agreed in the joint venture agreement?

In most cases the joint venture agreement will contain the terms under which various joint venture parties (and their representative) may be liable to each other (or others), and in some cases the nature of the resolution mechanism or form for dispute, and often the thresholds and Iimits for damages and other relief. Where it is purely a contractual joint venture or general partnership, there appears to be far more risk that the joint venture parties could be liable outside the joint venture contract as they are parties to the joint venture and active participants in the joint venture, and do not have the benefit of limited partnership or corporate governing statutes that restrict looking beyond the joint venture vehicle (other than in very limited circumstances). This can be mitigated somewhat in the definitive joint venture contract.

Under Canadian law there are other potential sources of liability among joint venture parties, which include statutory and even common law claims. These might be breaches of representations and warranties under other contracts (either outside the joint venture agreement itself or implied representations and warranties) that prove incorrect or misleading. There might be liabilities under statute among joint venture parties including under applicable corporate law or partnership or other governing statutes (as well as in limited circumstances common law) in respect of the shareholder or partner joint venture parties themselves (over potential liability for their representatives on the board, etc). These might include without limitation, actions based on derivative or oppression remedies, failure to comply with governing laws (ie, limited partners who actively participate in the joint venture business in violation of the governing statute), as well as the failure to act in good faith or even breach of implied fiduciary obligations.

Depending on the facts and circumstances, fraud and other similar claims for liability or other remedies can be brought by third parties against joint venture parties outside the joint venture contract.

Disclosure of evidence

Are there any particular issues that can arise in joint venture disputes in your jurisdiction concerning disclosure of evidence?

In Canada, the courts have broad authority to determine disclosure over documents for discovery, including whether a party possesses or has a right to possess or inspect a document. Although it is generally accepted what constitutes discoverable evidence, the courts in Canada may take a broader approach in determining whether a party does in fact have control over a document.

In the absence of an agreement or statutory corporate governing law, a shareholder would not typically have rights to possess or inspect documents generated by a corporate joint venture, and the documents would usually fall outside of its control. However, the courts will consider company practice when determining whether a party does in fact have control over a document.

A corporate joint venture cannot assert privilege against its parents other than in relation to a dispute between it and a shareholder. If the advice relates to the conduct of the joint venture's affairs, care should be exercised to ensure that privileged material is addressed to the joint venture, or to the appropriate parent if the advice relates to its shareholding, to avoid unintended disclosure or waiver of privilege. Nominee directors of the joint venture company should take particular care in this regard when seeking advice.