Joint ventures between higher education institutions have become increasingly common. But what should you do when things don’t go according to plan?
Even with the best intentions of the parties, JVs often don’t run smoothly. Some of the most common types of dispute arise out of visa rule changes, one party not complying with the Home Office’s Tier 4 compliance requirements, breaches of non-compete or exclusivity clauses, financial disputes (eg over commissions or profit shares) or the interpretation of the JV agreement.
The consequences of a dispute can be far reaching and serious. In the most severe cases, an institution may be unable to continue to teach its current students, either due to financial constraints or because the party with the accreditation powers has had its sponsor licence revoked. Reputational damage is another hazard. The institution will be unable to enrol international students for future intakes in the case of licence revocation.
Disputes can be extremely expensive to resolve. The financial viability of an institution can even be put into jeopardy by the costs and disruption caused by a dispute, particularly if student numbers (and therefore revenue) are down. If an institution is unable to meet its ordinary trade debts as they fall due, it will be technically cash flow insolvent, in which case the directors or governors risk being held personally liable for wrongful trading if they continue to trade and the institution subsequently goes into insolvent liquidation.
So what should you do to try to avoid a dispute with your JV partner, and what should you do if a dispute arises?
First, you should lay the groundwork at the outset so that a dispute is less likely to arise in the first place, and if one does, its impact is minimised. Get the terms of the JV agreement right so that they are clear and unambiguous, they work for you and they protect your interests.
Consider including a dispute resolution clause within the JV agreement. A DR clause sets out the DR forum to be used if a dispute arises. For example, rather than the parties going down the default route of having a court based resolution, you could specify an alternative procedure such as arbitration or mediation (or a combination eg mediation followed by arbitration if mediation fails). There are distinct features and advantages and disadvantages to each of the different forums available, but one point to consider is that arbitration and mediation are private processes, whereas litigation takes place in public.
Make sure that you maintain a proper record of all documents and correspondence relating to the JV. You never know when you may need to refer to them again and in the event of a dispute, they could prove invaluable.
Parties involved in a dispute inevitably need to divert a substantial amount of time to dealing with it, and that expense is notoriously difficult to recover from the other side if you succeed on your claim. To have a good chance of recovering the expense of management time spent on a dispute, you should keep contemporaneous timesheets showing how much time has been spent, by whom, and doing what eg investigating allegations, meetings with lawyers or reviewing witness statements.
Take early legal advice. An early indication of the strength (or otherwise) of your position will allow you to take appropriate steps to try to resolve the dispute before it escalates.
Consider which party is at fault. If it is the other party which has breached the agreement, you may have a choice to either terminate the agreement and claim damages, or to hold the other party to the agreement. Bear in mind that if you decide to continue with the agreement, you may be considered to have affirmed the contract and consequently lose your right to terminate later for that particular breach.
Aside from claiming damages (which are intended to put the injured party into the same position that they would have been in had the contract been properly performed), you may also be entitled to other discretionary remedies eg an order requiring specific performance of the agreement by the other party, or an injunction to prevent them taking a particular course of action.
Finally, remember that parties claiming damages for breach of contract are under a positive obligation to mitigate their loss. If you have suffered a loss as a result of the other party’s conduct, you should take any steps that you reasonably can to try to minimise your loss. You will not be able to claim damages from the other party for losses that you could have avoided if you had taken reasonable steps to do so.