28 Mar 2013

Information limitation - are you sure you have access to joint venture records?

by Graham Taylor, Samy Mansour

A joint venture agreement should make it clear that participants' interests include the records of the joint venture, and contain express rights for them to be able to access joint venture records.

A joint venture participant generally expects that, as a matter of course, it will receive certain information about the operations of that joint venture. A Federal Court decision handed down this month highlights that this may not be the case where information rights are not dealt with in the joint venture documentation (Alliance Craton Explorer Pty Ltd v Quasar Resources Pty Ltd [2013] FCAFC 29).

The unincorporated joint venture

In 2002, an unincorporated joint venture was created between Alliance Resources (25%) and General Atomic Technologies (75%) to explore for uranium in South Australia.

General Atomic Technologies provided the manager for the joint venture. In 2008 and 2009, Alliance complained about the manager's failure to provide records and information regarding the joint venture. In particular, Alliance wanted some specific records so that it could review and clarify certain expenditures made by the manager and determine matters relating to cash calls.

At trial, Alliance made various claims against the manager, including breaches of the joint venture agreement and fiduciary duties. The primary judge rejected all of Alliance's arguments.

Agency and fiduciary duties

On appeal, Alliance argued, amongst other things, that because the manager is an agent of the joint venturers:

  • Alliance has a proprietary interest in all documents and other records created or obtained by the manager, including joint venture records; and
  • the manager has a fiduciary duty to Alliance, giving Alliance an equitable interest in the joint venture records.

After reviewing the terms of the joint venture agreement, the Court decided that the manager was not holding the joint venture records as an agent of Alliance.

The mere fact that the manager undertook work at the joint venture's request, and for its benefit, and invoiced the joint venturers for its work, did not make the manager the agent of the joint venturers. An agency relationship could only be established by the consent of the principal and the agent (whether actual or implied) and, in this case, there was no such consent. In fact, the joint venture agreement contained a clause that expressly disclaimed any agency arrangements and there was no evidence to suggest that this disclaimer was a sham.

Additionally, the manager was virtually given a free hand to decide how the mine was to be managed. This also suggested that the manager was not an agent, as the joint venturers were not controlling it.

The joint venture agreement

Alliance also claimed a proprietary interest in the joint venture records. It argued that the definition of "Joint Venture Interest" referred to the "property" of the joint venture which should include joint venture records and it would be absurd if the records relating to the location of minerals, for example, could not be examined by Alliance as a participant.

Also, Alliance claimed that a term should be implied "to the effect that the joint venturers have a right of access to the data, records and information relating to the Tenement created or received by the Manager for the purpose of the joint venture". The Court said that it was not enough that it might be reasonable to draw this implication – the term had to be necessary to give business efficacy to the agreement.

Ultimately, the implication was not necessary. Amongst other things:

  • there was no need for Alliance to have access to the documents in order to comply with its obligations under the joint venture agreement;
  • the requirement to meet cash calls and contribute to the costs of the joint venture was not expressed in the joint venture agreement to be subject to Alliance's satisfaction with the relevant documentation; and
  • Alliance's rights and responsibilities under the joint venture agreement continued independently of whether or not it had access to documents.

In those circumstances, the Court considered it unnecessary to deal with the Alliance's submissions regarding its proprietary interest in the joint venture records.

So how do you ensure you have access to joint venture records?

At a minimum, a joint venture agreement should make it clear that a participant's interest includes the records of the joint venture. In addition, parties should ensure that the terms of their joint venture agreements contain express rights for participants to be able to access joint venture records. These terms should be carefully drafted to take into account not just the need for a participant to understand the operations of the joint venture, but also that participant's accounting, management and regulatory reporting requirements.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.