Parties to a joint venture may owe fiduciary duties to each other in addition to the legal structure of their joint venture.
Fiduciary duties may arise when one party has a reasonable expectation that the other party has an obligation of care.
Such duties can impose substantial constraints on the parties, including constraints on the use of knowledge regarding business opportunities acquired during the currency of the joint venture. One party may not exploit such knowledge for their own gain without the consent of the other.
This duty continues even after termination of the joint venture.
The recent Court of Appeal case of Curtis v Gibson considered how such obligations can arise and the remedies for breach. In 2003, Mr Curtis and Mr Gibson entered into a joint venture in New Zealand to develop and sell a portable home called the Habode and recorded their arrangement in a memorandum of understanding.
The Habode was built in and formed part of a standard shipping container and was intended to be marketed in New Zealand and internationally.
Mr Gibson was responsible for project management, design and manufacturing of the Habode and his company Habode IP Ltd owned the intellectual property in the Habode. Mr Curtis was responsible for business management, sales and marketing and advanced several hundred thousand dollars to the venture. The parties ran the New Zealand operations through Habode NZ Ltd under a licence granted by Habode IP.
A prototype was constructed and several regional licences were sold in New Zealand.
In 2004, the parties began exploring marketing opportunities internationally. They incorporated companies in Hong Kong and Australia and entered discussions with an architect in Perth regarding a Western Australian franchise.
During 2004-05, there were ongoing issues with funding of the venture and a cost dispute with the Chinese manufacturer of the prototype.
Cashflow difficulties continued and in March 2006 the business relationship between the parties broke down. Habode IP cancelled its licence agreement with Habode NZ which was then placed into liquidation. At that time Habode NZ had not taken any formal steps to implement any international sales.
In mid-2006, Mr Gibson established a new company to run the Australian operation and with the help of the Perth architect, he sold part of that company to an Australian investor for several million dollars.
Mr Curtis then sued Mr Gibson in the High Court in New Zealand for a share of the Australian sale proceeds.
Mr Curtis' lawyers argued that, separate to the New Zealand operation, the parties had pursued a joint venture to market the Habode internationally.
They argued the Habode project was an asset of that joint venture and Mr Curtis was entitled to his share of the sale proceeds. The High Court rejected this argument and concluded that if there had been a separate joint venture to market the Habode internationally, such a joint venture did not acquire ownership of the Habode project.
Mr Curtis appealed the case to the Court of Appeal where his lawyer presented a revised argument. The lawyer argued that Mr Gibson had obtained the information regarding the business opportunity presented by the Perth architect during the currency of the joint venture. This constituted confidential information belonging to the joint venture which neither party could exploit for their own gain to the exclusion of the other.
The Court of Appeal accepted there was a joint venture to market the Habode internationally and when the parties began talking to the Perth architect they were dependent on each other to perform their respective roles and therefore owed fiduciary duties to each other.
Even though the joint venture had ended well before the Australian sale, the court held that Mr Gibson had breached his fiduciary duty to Mr Curtis by exploiting the Perth business opportunity to the exclusion of Mr Curtis and without his agreement.
The court ordered Mr Gibson to account to Mr Curtis for a share of the net gains attributable to the breach of duty. The matter was remitted back to the High Court for determination of the amount of the award.
This case again shows that fiduciary obligations can be imposed on joint venturers and they will constrain a fiduciary from exploiting confidential information belonging to the joint venture, even after the joint venture has ended.
• David Smillie is a partner in legal firm Gallaway Cook Allan.
