Under English law, the nature of their relationship in operating the joint venture can impose additional obligations beyond those in a joint venture contract and that might apply to the members of the board of the joint venture company. More specifically, where one joint venture partner becomes wholly dependent on their co-venturer the Court has confirmed that they can be owed fiduciary duties.
Justice Newey had to consider in Michael Donald Miller (2) Domestic Fire Appliances Limited (3) BFM Europe Limited (4) American Electric Fires LLC –v- (1) Christopher Simon Stonier (2) Hearth Products Limited (2015), the circumstances in which, despite it not being expected, commercial joint venture partners might be legally obliged to act in the best interest of their co-venturer rather than their own commercial interest.
The Position of the Joint Venture Participants
In this case, the Court considered how far it could take the doctrine set out, for example, in Murad v Al-Saraj (2004) that where a member of a joint venture company becomes “wholly dependent” on their co-venturer (for example for advice or recommendations), and the partner is aware of his co-venturer’s dependence, the co-venture may be found to owe fiduciary duties to his or her co-venturer; in the end the Court did not find that it went far enough to grant relief on the facts of the case.
On a factual enquiry, the more dependant one co-venturer is of the other, the more likely that they will owe a fiduciary duty to act in the best interest of their co-venturer personally. This may prove rather difficult where one partner in a co-venture wishes to leave the venture and set up or work for a competing business.
While there has been no statutory legal change, this case also highlights the risk of breaching fiduciary duties to the joint venture company, where one partner leaves the venture to set up or work for a potentially competing business. The Court had to consider whether the joint venture company was in the market and, if not, the prospect of it re-entering the market in the future.
The Directors of the Joint Venture Company
Directors of joint venture companies are often directors or senior employees of the companies involved in the joint venture, with the result that conflicts of interest and loyalty often arise. For this reason, it is particularly important for a director of a joint venture company to understand the nature of their duties.
Additional duties and limitations may be imposed on directors of a joint venture company, either through the company’s articles of association and/or by separate shareholders’ agreement in order to clearly separate the rights and obligations of the director. It is therefore important that directors clearly understand their position and, if necessary, are trained to understand how to manage their competing obligations to the joint venture company and the shareholder company of which they are also a director.
- If you are a member of a joint venture, consider the extent of dependency between the joint venture partners to determine if any additional fiduciary duties might apply.
- Keep under review how your joint venture is operating in practice in order to understand if your position in the joint venture is evolving in a way which might lead to the creation of fiduciary duties.
- If you leave a joint venture company to enter directly or through another arrangement a market that the joint venture may have been evaluating, you should consider what complaint the joint venture or your former partner(s) may assert for breach of fiduciary duties such as a conflict of interest.