Joint-venture disputes

Proving approval, or the lack thereof, by a joint-venture committee can result in the opening of a can of worms. As the venturers are in a dispute, it goes without saying that they cannot agree upon whether or not the operator’s actions are authorized or fall within some general approval.

One of the first problems to be overcome is that in almost all joint ventures, even where there are elaborate provisions for the making, distributing and correcting of committee meeting minutes, minutes are, at best, sketchy and vague and, at worst, only a pile of handwritten “squiggles” — if they exist at all. Minutes should be the first line of attack to settle a dispute such as the one put forward here. Without adequate minutes, the court will have to rely on the memories (and biases) of the venturers.

If a venturer was not present at the meeting in question, he may lose his “day in court.” In the end, the venturers will be relying upon the decision of a judge (who probably is not familiar with the mining industry) to decide whether or not the meeting in question authorized the agreement in question. The judge will have to base his decision upon the facts as presented to him through evidence and upon his evaluation of the reliability of the various witnesses. Good detailed minutes would be preferable and cheaper.

Even with good minutes, in the real world the chances of the agreement in question having been specifically approved are slimm Accordingly, it will be necessary to consider such things as:

* If, at the meeting, there was a discussion about the subject matter of a feasibility study, could that discussion have gone so far as to let the operator reasonably think that he had the go-ahead? Were there any specific objections or references to parts that had to be clarified or sorted out. Individual notes made by a venturer at the meeting could be invaluable here and should always be kept.

* If a program was approved at the meeting, is it reasonable to interpret that program to include the negotiating, settling and signing of the agreement in question by the operator on behalf of the venturers? In many cases, it is “obvious” to at least some of the venturers that the operator would be expected to come back to the committee after negotiating the agreement and before signing it in order to give the other venturers a chance to see what they were being committed to and to have an opportunity to offer some suggestions for changes. Obvious or not, if a venturer expects this to happen, he better speak up and see that the operator understands it and that the minutes note that this is to happen.

* Once a lawsuit has been commenced, the lawyers will be looking carefully to make sure that the committee meeting in question was, or was not, properly called and constituted and that the requirements set forth in the joint-venture agreement were fully complied with. Although failure to follow the technical requirements set forth (which unfortunately is more often the case than not) may not, by itself, decide the matter one way or the other, it certainly will add weight to an “inclination” to favor either side in a joint-venture dispute.

As a side consideration, it should be noted that, in the situation ouulined above, the small interest holder carries the swing vote and could end up “controlling” the joint venture to an extent in excess of its proportionate interest. The small holder will almost certainly end up in a position from which he will be able to benefit, especially if there is a falling-out among the parties. The potential problem could have been easily solved by requiring a 55% vote for approval. This problem is particularly dangerous where there are only three venturers, one of which has only a small interest.

The potential problem of a disproportionately large interest is usually quickly made the subject of negotiations and will be addressed in the agreement. It is, however, worth bearing in mind when deciding percentages that, in most joint ventures, fluctuating interests are a possibility. If the percentage is not thought about, the venturers could find themselves with the problem of having a potential controlling small interest soon after the joint venture was started.

The first and foremost rule to follow is this: stay friendly and stay away from disputes, or at least from major disputes. If, however, you get into a major dispute, make sure your records are complete and answer the nasty questions that will come up.