There have been a number of recent cases considering an obligation of good faith in the context of joint venture arrangements.142 Unlike a partnership, a joint venture may not necessarily give rise to a fiduciary relationship. Notwithstanding, parties to a joint venture may still be subject to an obligation of good faith by virtue of a term implied in law.143 Thus, in Paper Reclaim Ltd v Aotearoa International Ltd Chambers J suggested that there is no need for equitable intervention in the form of a fiduciary relationship where the joint venture contract itself contains an implied term to act reasonably and in good faith.144 Even where parties have expressly excluded a fiduciary relationship under
141
Ibid, at 198.
142
See Ross River Ltd v Cambridge City Football Club Ltd [2008] 1 All ER 1004; Chirnside v Fay [2007] 1 NZLR 433; Archibald Barr Motor Company Ltd v ATECO Automotive New Zealand Ltd (High Court, Auckland, CIV 2007-404-5797, 26 October 2007, Allan J); Vero Insurance New Zealand Ltd v Fleet Insurance & Risk Management Ltd (High Court, Auckland, CIV 2007-404-1438, 21 May 2007, Asher J); Todd Petroleum Mining Company Ltd v Shell (Petroleum Mining) Company Ltd (High Court, Wellington, CIV 2005-485-819, 19 June 2006, Wild J); McLachlan v Mercury Geotherm Ltd (in rec) (High Court, Auckland, M 129-IM00, 14 June 2002, Potter J) (Court of Appeal, CA 142/02, 28 August 2003) (2006) 7 NZCPR 135 (PC); Petroleum Resources Ltd v Greymouth Petroleum Acquisition Co Ltd (High Court, Auckland, CIV 2003-404-6962, 22 December 2003, Heath J).
143
A joint venture agreement is considered to be a class of contract in which a term of good faith may be implied in law. See generally Burrows, Finn and Todd, above n 57, at 177.
144
the contract, it is possible that the parties must still act towards each other in good faith in carrying out the obligations which they have assumed under the joint venture agreement.145 An obligation of good faith will be implied provided the specific contract can be characterised as requiring mutual trust and confidence.146
In Petroleum Resources Ltd v Greymouth Petroleum Acquisition Co Ltd Heath J suggested that obligations of good faith found within joint venture agreements can be utilised to interpret the express terms of the contract.147 It is envisaged that the subject doctrine would assume a similar function under all contracts.
Obligations of good faith within New Zealand have been held to require a joint venture party to appropriately account to the joint venture for profits made148 and to make an informed and open-minded decision when exercising a voting power under a joint venture agreement.149 In this respect a duty of good faith may impose positive obligations. However, there are limits on the concept of good faith. The duty will not be breached where one party to a joint venture arrangement makes a commercial decision to further its interests, provided it does not destroy the fruits of the contract for the other party.150 Similarly, a joint venture party is entitled to utilise the services of a competitor of the other joint venture party where the joint venture contract does not provide any relevant restriction.151 As is intended under a general doctrine, joint venture parties are not totally precluded from acting in a self-interested manner.
145
Todd Petroleum Mining Company Ltd v Shell (Petroleum Mining) Company Ltd (High Court, Wellington, CIV 2005-485-819, 19 June 2006, Wild J).
146
See generally Archibald Barr Motor Company Ltd v ATECO Automotive New Zealand Ltd (High Court, Auckland, CIV 2007-404-5797, 26 October 2007, Allan J).
147
(High Court, Auckland, CIV 2003-404-6962, 22 December 2003, Heath J), at [34].
148
Chirnside v Fay [2007] 1 NZLR 433.
149
Petroleum Resources Ltd v Greymouth Petroleum Acquisition Co Ltd (High Court, Auckland, CIV 2003-404-6962, 22 December 2003, Heath J).
150
McLachlan v Mercury Geotherm Ltd (in rec) (High Court, Auckland, M 129-IM00, 14 June 2002, Potter J), at [86]; (Court of Appeal, CA 142/02, 28 August 2003); (2006) 7 NZCPR 135 (PC).
151
The leading case in respect of obligations owed by joint venture parties is the decision of the Supreme Court in Chirnside v Fay. Perhaps contrary to prior understanding, it was asserted that the majority of joint venture arrangements will give rise to a fiduciary relationship.152 The Court sought to justify its conclusion on the analogy between a joint venture relationship and a partnership.153 Both types of arrangement not only give rise to duties of good faith but also an obligation of loyalty.154 These duties required that neither of the joint venture parties is permitted to put himself or herself in a position of conflict with the joint venture and each party is obliged to account for any unauthorised profits obtained by an opportunity arising through the venture.155
Based on the Chirnside decision, it is evident that the majority of joint venture parties will owe each other equitable fiduciary obligations unless such obligations have been expressly excluded within the contract. Conceivably any definition or application of good faith which may emanate from a joint venture arrangement will give rise to similar problems to that which is encountered in the partnership arena when attempting to apply the definition to a general contractual doctrine. Whilst joint ventures may provide some guidance as to contractual cooperation, the fact that obligations of good faith on joint venture parties are generally equitable in nature suggests that the type and standard of conduct required is liable to be too stringent to have any meaningful application to the subject contract doctrine.
152
The strong preference for fiduciary duties in a joint venture arrangement and the analogy with partnership has been criticised as not representing the commercial realities of risk and return and the principle of freedom of contract. See generally Bram van Melle, ‘Fiduciary Duties and Joint Ventures’ [2007] New Zealand Law Journal 32. For a comprehensive discussion of the Chirnside decision and equitable intervention in commercial relationships see Jessica Palmer, ‘Fiduciaries and Remedies’ [2007] New Zealand Law Journal 36.
153
[2007] 1 NZLR 433, at 458 per Tipping J.
154
Ibid, at 459.
155