Misrepresentation In Joint Ventures

In Abu Dhabi Investment Company & ors v. H. Clarkson

& Company & ors (26 June 2008) the Court of Appeal has

held that a special purpose vehicle created by joint venture

partners may bring a claim in misrepresentation even where it was

not formed when the representation was made.

Abu Dhabi Investment Company (ADIC) entered into a joint venture

with Norasia Shipping Limited to operate ten container ships.

Norasia made representations to ADIC about the speed, performance

and profitability of the vessels which turned out to be false. ADIC

subsequently invested in the joint venture through a SPV, Al

Shira'a Marine Investments (ASM), which raised capital for the

investment from third parties. The joint venture collapsed after 18

months and ASM lost its entire investment.

ASM made claims against Norasia and others, alleging that

fraudulent and negligent misrepresentations had induced it to enter

the joint venture. The Court of Appeal allowed ASM's claim,

despite the fact that ASM had not existed when the

misrepresentations were made. The Court found that the

misrepresentations were continuing when ASM was formed and that it

had always been clear to Norasia that ADIC would invest through a

SPV.

This decision shows the willingness of the English courts to

hold parties to joint ventures accountable for their

representations, irrespective of how the joint ventures are

structured. However, such issues can and should be avoided

altogether by ensuring that joint ventures agreements incorporate

all...