Jurisdiction - Australia
Australia – Joint Venture Relations In A Challenging Market.
16 July, 2013


Legal News & Analysis – Asia Pacific – Australia – Energy & Project Finance – Regulatory & Compliance




With the costs of mining projects increasing and commodity prices falling, the prospect of relationships in a mining joint venture being strained increases. In the current market, it seems that joint venture partners are more closely examining their strict legal rights and obligations under a joint venture agreement and scrutinising the performance of the operator.


Common issues that are looming as possible disputes between joint ventures?


Some of the issues that appear to be looming as disputes between joint venture partners include:


  • insufficient information being provided by operators to joint venture participants
  • perceived sub-optimal cost management and contract administration from the operator (leading to cost overruns and lower productivity)
  • disagreements on the appropriateness of ceasing or deferring of operations or proposed expansions (particularly where specific capex may have been previously approved in better times), and
  • how precisely pre-emption rights and other restrictions on transferring joint venture interest are intended to work.


When the mining boom was in full swing, it seemed to us that once a joint venture agreement was agreed (often after robust negotiations), the legal documents relating to the joint venture were often placed on a shelf to ‘gather dust’.


With the mining sector coming off the boil, joint venture participants seem to be more closely reviewing their strict legal rights (and the obligations on the operator) to see how they can influence the direction, and performance, of mining joint venture projects.


Will the joint venture agreement offer a ‘silver bullet’ solution?


In our experience, it is rare that a joint venture agreement offers a ‘silver bullet’ to address issues such as perceived poor performance of an operator (e.g. poor cost management or contract administration) which falls short of gross negligence or wilful misconduct. This is particularly the case if the operator is engaged on a ‘no-profit/’no-loss’ basis, being an affiliate of the largest joint venture participant.


In these circumstances, it is often better for joint venture parties to engage with the operator outside the scope of the joint venture agreement to have a full and frank discussion around any issues of concern. It is always better to get any issues on the table so as to give to the operator a chance to address such issues. It is also a good opportunity for joint venture participants to offer suggestions as to how operations can be conducted more cost effectively since usually each joint venture participant can bring different skills to the joint venture.


Be sure to know your rights before acting


If the matter at issue is of a serious nature which may result in a formal dispute between joint venture parties, each joint venture party should ensure it is fully aware of its legal rights and obligations (both in contract and at law) before embarking on any legal action or alternative dispute resolution process prescribed in the joint venture agreement


herbert smith Freehills


For further information, please contact:


Matthew FitzGerald, Partner, Herbert Smith Freehills
[email protected]


Mary Boittier Herbert Smith Freehills
[email protected]


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