Recent joint venture dispute trends in mining sector

Joint ventures and mining
Good faith: civil versus common law approach
What is good faith?
Comment

This article considers the duties, both express and implied, which joint venture partners may be under when dealing with each other. Can a party simply look out for itself or must it consider its partners' interests when conducting joint venture business? How do arbitrators approach these questions?

Joint ventures and mining

Joint ventures are a popular tool to share financial and development risk in the mining sector. Junior miners focused on exploration seek to access capital and expertise by teaming up with larger mining companies which need to replace reserves and diversify portfolios but do not want to take on exploration risk. States look to partner with international mining companies to have an operational stake in projects and develop their local workforce's skills. Private equity firms willing to bear short-term volatility for long-term returns inject cash into capital-constrained mining companies.

While joint venture partners may therefore appear to have a common goal – a successfully operating mine – parties often enter into these relationships for different strategic reasons, and interests can sometimes diverge. Joint venture disputes are common in the industry and take many forms, including:

• disagreements about work plans and budgets;
• challenges to operatorship;
• defaults for failing to meet cash calls; and
• disputes about off-take arrangements.

In an international market, these disputes are typically arbitrated before tribunals from different backgrounds and jurisdictions.

Good faith: civil versus common law approach

Good faith is a topic where the approach of civil and common law practitioners diverge. Civil lawyers will naturally expect principles of good faith to apply in the joint venture context, whereas their common law counterparts will not consider parties to be under any general duty to "put one's cards face up on the table".(1) When joint venture disputes are arbitrated, this contrast can lead to different views among the tribunal and the parties, and the panel must pay close heed to the applicable law governing the relationship to determine the parameters of the parties' obligations to each other.

What is good faith?

In circumstances where a party must act in good faith, either by the express terms of the contract or because a term has been implied, what conduct would amount to a breach of that standard?

The courts have used phrases such as behaviour which "would be regarded as commercially unacceptable by reasonable and honest people". While this is relatively difficult to give practical meaning to, in the High Court of England and Wales case Bates v Post Office,(2) Justice Fraser found that the good faith obligation was not a demanding one and therefore it would appear that the behaviour complained of would need to be relatively egregious to amount to a breach of contract. However, if a breach is established, the consequences can be serious. For example, in the High Court of England and Wales case Yam Seng Pte Ltd v International Trade Corporation(3) the defendant's covering up of the pricing arrangement which it had with another distributor entitled the claimant to terminate the contract and claim damages.

Comment

Joint venture agreements are par for the course in the mining sector and the complexity of such relationships coupled with the risky nature of the business mean that disputes are not uncommon. Where one party is aggrieved at the behaviour of another, it is perhaps inevitable that it will plead that its partner failed to act in good faith, whether as a standalone cause of action or to bolster its case. In those circumstances, the parties and the tribunal must consider the governing law of the contract and how it addresses good faith. The starting point is to look at the words used and consider the following questions:

• Are there are any express obligations to act in good faith? If not, it is worth considering whether there may be an implied term.
• Have the parties agreed to exclude any term as to good faith being implied?
• If not, does the joint venture agreement bear the hallmarks of a relational contract?
• If it does, when considered in context, was it the reasonable intention or expectation of the parties that they would each act in good faith?
• Even if there is an obligation to act in good faith, does the behaviour complained of breach that standard?

For further information on this topic please contact Holly Stebbing or Joshua Coates at Norton Rose Fulbright by telephone (+44 2072 836 000) or email (holly.stebbing@nortonrosefulbright.com or joshua.coates@nortonrosefulbright.com) The Norton Rose Fulbright website can be accessed at www.nortonrosefulbright.com.

Madeline Hallwright, trainee, assisted in the preparation of this article.

Endnotes

(1) Lord Justice Bingham, Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd ([1989] QB 433).

(2) Bates v Post Office [2019] EWHC 606 (QB).

(3) Yam Seng Pte Ltd v International Trade Corporation [2013] EWHC 111 (QB).