The existence and scope of fiduciary duties imposed on joint venture parties is dependent on the contractual rights conferred, and obligations imposed, on each party.  Where an agreement allows a party to act on its own interests regarding a specific matter, general fiduciary duties are unlikely to be found.  If parties to a joint venture intend fiduciary duties to apply, this should be made clear.

Red Hill Iron Ltd (Red Hill) and API Management Pty Ltd (API) were joint venturers in respect of iron ore rights in some tenements in the West Pilbara (Joint Venture).  The Joint Venture arose from a Farmin Agreement and a Joint Venture Agreement limiting the Joint Venture’s purpose to exploration and evaluation unless decided otherwise by agreement between the parties.  API was the Joint Venture manager and was solely responsible for funding exploration, evaluation and associated expenditure for the relevant tenements.

In June 2008, API decided to assess infrastructure that would be used to transport ore mined from the tenements under its own account and for a different joint venture in which Red Hill had no interest.  Red Hill contended that API’s conduct had breached its fiduciary duties owed as the manager of, and a participant in, the Joint Venture.

In considering the existence of a fiduciary duty and its scope, the Court observed that the relationship between joint venturers alone does not automatically assume a fiduciary character.  Rather, whether a relationship between joint venturers is fiduciary depends on the form of the particular joint venture undertaken and the content of the obligations imposed on each party. 

The Court found that three overlapping features in the Farmin Agreement and the Joint Venture Agreement weighed decisively against the existence of general fiduciary duties (as claimed by Red Hill), namely:

  • the limited scope of the Joint Venture purposes, with the need for agreement between the parties to expand the purposes;
  • the absence of any power or function being conferred on, or undertaken by, API to act on behalf of Red Hill in relation to activities outside the Joint Venture tenements; and
  • provisions in the Farmin Agreement allowing API sole discretion to pursue other business and activities outside the tenements in competition with the Joint Venture.

A general fiduciary duty imposed on API would be inconsistent with its right to exercise sole discretion in its own interests.  API’s assessment of transport infrastructure did not alter the scope of the Joint Venture, or the parties’ relationship.  It was entitled under the Farmin Agreement and the Joint Venture Agreement to do so.  Consequently, the Court rejected Red Hill’s claim of breach of fiduciary duty.

See the case.