At a glance: joint venture disputes in South Africa

Disputes

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

A joint venture business operating in South Africa is not constrained as to the governing law provided for in its joint venture agreement. Similarly, there are no constraints on the method of dispute resolution chosen by a party. The party should ensure that they choose dispute resolution mechanisms appropriate to the various types of dispute that may arise. For example, a deadlock dispute may be better resolved by expert determination (if such a mechanism is recognised under its chosen governing law) than by litigation.

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

The choice of law of the parties will generally apply, other than in matters of procedure or instances where the choice of law would result in something that is against public policy in South Africa. There may also be instances where specific statutory requirements would override the choice of law. For example, the South African courts will not enforce the revenue laws or penal laws of foreign states.

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?

There are no general restrictions on the remedies that a tribunal can grant that would have a bearing on the arbitration of joint venture disputes.

In certain circumstances, the South African Companies Act makes a provision for alternative dispute resolution as an alternative to applying for relief to a court or filing a complaint with the Companies and Intellectual Property Commission.

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

In the case of incorporated joint ventures (companies), the South African Companies Act contains statutory protections for minority shareholders. Broadly, these minority protections will protect minority shareholders if the company’s business is being carried out recklessly, with gross negligence, with intent to defraud any person or for any fraudulent purpose. If a company’s business is conducted in such a manner, the Companies and Intellectual Property Commission may issue a compliance notice to the company, requiring it to cease its operations.

Shareholders may also apply to a court for relief if any act or omission of the company has had an oppressive or unfairly prejudicial result on, or unfairly disregards the interests of, the shareholder. Shareholders can also apply for relief if the business of the company has been carried out or conducted in an oppressive or unfairly prejudicial manner, or that unfairly disregards the interests of the shareholder.

Minority shareholders who dissent in decisions of the company relating to takeover transactions have an appraisal right, which entitles them to require the company to buy their shares at fair value. There are certain requirements that must be met for shareholders to exercise their appraisal rights (for example, they must vote against the resolution). Shareholders also have a derivative action to protect the legal interests of the company.

There are also a number of additional minority protections set out in the South African Companies Act; for example, remedies to promote certain purposes of the South African Companies Act. These are obviously not restrictions and are intended to assist mainly minority shareholders in their ability to enforce their rights under the South African Companies Act.

Partnerships are generally unregulated and effect would be given to the partnership agreement between the parties.

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

If the joint venture is a company, the partners do not generally have liability to each other beyond what is expressly agreed in the shareholders’ agreement or the memorandum of incorporation.

If the joint venture is a partnership, the partners are jointly and severally liable for the partnership debts. If one partner pays more than its interest in the partnership, it may have a claim against the other partner for the balance of the claim at common law.

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

Apart from practical considerations and the rules relating to information sharing, there are no general issues particular to joint venture disputes concerning disclosure of evidence.