Joint Venture Partner Has An Obligation To Act In Good Faith

Ross River Limited & others v Waveley Commercial Limited & Others [2012] EWHC 81

Waveley and Ross River were parties to a JV Agreement to undertake a property development project. Both parties acknowledged that Waveley owed Ross River money under the JV Agreement, although the amount was in dispute. The JV Agreement provided that Ross River would get a share of the net profits on sale of a part of the development site which it could elect to receive either as a fixed sum or a percentage share. Ross River chose the latter on the back of information provided by Waveley.

Waveley subsequently sold the site to a company incorporated by one of its directors, Barnett (B), and Ross River brought proceedings arguing that Waveley and B were liable under terms to be implied into the JV Agreement or pursuant to fiduciary obligations. In particular, Ross River sought to imply into the JV Agreement:-

a term preventing Waveley from conducting any business other than that necessary for implementing the development; and a term preventing Waveley and B from acting in any way that would prejudice Waveley's ability to pay the sums owing to Ross River. The Court held that there was no need to imply the terms, but that Waveley did owe Ross River fiduciary duties:

Implied terms - The Court found that neither term should be implied (following AG of Belize v Belize Telecom Limited (2009)). With regard to (a) the Court said that this was too far reaching and there was no support for it in the pre-agreement negotiations. Neither was it obvious nor necessary to give business efficacy to the agreement. With regard to (b) the Court said implying this would mean that potentially, where a contract required one party to pay a debt to the other and the potential debtor dissipated its assets in a way likely to leave it unable to pay its debts, it would be committing a breach of contract. Fiduciary duties – Ross River did succeed in respect of part of the fiduciary duties claim. The Court held that Waveley had an implied obligation to act in good faith in its conduct of the joint venture and in its accounting to Ross River in respect of the net profits, and it had an obligation not to do anything in relation to the handling of the joint venture revenues which put itself at an advantage over Ross River. However, the Court said that Waveley did not owe fiduciary obligations not to allow a conflict between its own...