There have been a lot of lessons learned about joint venture mechanisms since the GFC. But not about deadlock procedures, even though they’re now more important than ever.
There are a number of significant aspects in relation to the structuring and documentation of joint ventures which arose out of the impact of the GFC. However, there are a couple of matters or a couple of issues which retain their force. Nothing seems to have really changed, notwithstanding the lessons learnt from the GFC.
One of those is the treatment and dealing with of deadlock breaking mechanisms in joint venture agreements. Now I’m not talking here about disputes, disputes are where one party alleges that the other is in breach of the document. What I am talking about is deadlock breaking mechanisms, ie where the parties are not in breach of their obligations but they simply cannot agree within the terms of the document as to whether they should proceed with the project or not or proceed with the very stage of the project or indeed make some commercial decision.
There is a view in the commercial community that deadlock and dispute are confused and that dispute breaking mechanisms, expert determination, arbitration, mediation, etc are things that should be used to resolve deadlock. But it is difficult to understand how an expert notwithstanding how broad their scope of expertise can make decisions for commercial parties in relation to how a project is to be implemented in a joint venture scenario.
Dispute breaking mechanisms such as expert determination, mediation and so forth do not work to break a deadlock. It cannot be that an expert determines for commercial parties the nature in which a project is to proceed. There needs to be consideration and documentation of appropriate deadlock breaking mechanisms to move the project forward or if the project cannot be moved forward, then there is a forward option, the project is either sold or there is an option between the joint venturers as to one party buying the other out.
Whatever it be, stop and stare has been shown by the GFC to be conclusively a no go area in this particular structure and thought needs to be given at the beginning as to the exit strategy and not left up to the lawyers and the night before the parties trying to sign their documentation to work out some sort of solution.