Joint ventures are created by a contract between two parties and are set up for limited periods of time or for a limited purpose or both.
Defining the Relationship of a Joint Venture
When a contract is created, the document will often say that the relationship created is a joint venture and not a partnership. The reason for this distinction being made is that partners owe fiduciary duties to each other. A fiduciary has a duty of undivided loyalty to the other contracting party and to put the interests of the other contracting party ahead of their own. The goal in defining the relationship of a joint venture and not a partnership is to avoid fiduciary duties. However, it should be noted that joint venturers could still owe each other fiduciary duties depending on the circumstances. While partners are automatically fiduciaries of each other, joint venturers can also have fiduciary duties imposed on them.
While joint venturers do not always owe each other fiduciary duties, they do owe each other duties of good faith in the performance of their joint venture obligations. So, a joint venture party will have a duty of full disclosure, a duty to not make secret profits and a duty to not compete with the business. Recently, the Supreme Court of Canada in Bhasin v. Hrynew, 2014 SCC 71, found that in regards to the performance of all contracts, the contracting parties owe a duty of honest performance flowing from a common principle of good faith. This means that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. It does not impose a duty of loyalty or disclosure that exists in the joint venture context.
Formation of a Joint Venture Agreement
Even before the formation of a joint venture agreement, the parties contemplating a joint venture and engaged in the exchange of confidential information owe a duty to each other not to breach that confidence. If the information is confidential and disclosed then it is clearly intended to remain confidential and the courts will not allow the information to be used for another purpose to the detriment of the confider. As a result, a party cannot take an idea gained in confidence during the negotiations, and proceed using that idea for its own profits.
A joint venture agreement is governed by the contract itself and the courts will closely read the terms of the agreement to determine the duties and obligations that arise from it between the joint venturers. Consequently, it is extremely important to spend the time to properly document the terms of the joint venture agreement at the beginning of the relationship.