Unclear terms lead to not-so-joint Joint Venture Agreement

On 21 September 2017 judgment was delivered in the matter of Ozmen Entertainment Pty Ltd v Neptune Hospitality Pty Ltd [2017] FCA 1124, in which orders were made dismissing an interlocutory application by the plaintiffs for the appointment of a receiver and manager to take control of the vessel, “Seadeck”, pending final trial.

The proceedings concern a Charterparty and Joint Venture Agreement (JVA). They were arranged to allow Ozmen, the owner of “Seadeck”, to share in profits from the hospitality and entertainment business conducted by Kanki Sea Tourism and Entertainment Pty Ltd (Kanki) and Neptune Holding Pty Ltd (Neptune) on board the vessel. Under the JVA, Kanki and Neptune were to be equally responsible for the day-to-day running of the business and under the Charterparty they took complete control of the vessel.

Less than two years after the commencement of the agreements, the relationship between the parties began to deteriorate. Ozmen and Kanki perceived Neptune was making decisions on its own which affected all parties and which were adversely affecting the returns on the business. For example, the plaintiffs alleged that Neptune removed the top of the mast of the “Seadeck” and relocated the “Seadeck” to Brisbane, where it continued to operate without their consent. Ozmen and Kanki sought urgent relief and the appointment of an independent receiver and manager to take control of the vessel and its business operations.

In determining whether interlocutory relief ought to be granted, Burly J found that there was a serious question to be tried. The plaintiffs had an arguable case that Neptune had, by its unilateral acts, acted in breach of the JVA and Charterparty. Neptune had an arguable case that its acts were reasonable and not a fundamental breach of the agreements, in view of the losses experienced by the business to date (which prompted Neptune to take the action that it did) and apparent unpreparedness of Kanki to help conduct day-to-day operations by placing a representative on-board.

The disputed characterisation of the respective rights and duties of the parties so soon after the commencement of the Charterparty and JVA highlights the need to make the terms of joint venture agreements in marine services businesses as clear as possible. To avoid disagreement and potential financial and reputational cost, parties considering these arrangements should be minded to:

• explicitly set out the procedures for decision-making, particularly in relation to conducting operations on the vessel, relocating the vessel and its base of operations and making physical modifications to it
• identify those decisions that one or more parties may be able to make unilaterally
• identify those decisions which require mutual agreement; and
• identify, even if non-exhaustively, the contents of mutual obligations of the parties, such as ‘full cooperation’, ‘good faith’ and ‘no sole benefit’ and provide a supporting framework to achieve those obligations.

Had these matters been set out more clearly in the Charterparty and JVA, the parties would have been much clearer on who was in charge, how important decisions about operations affecting profitability were to be made and any wronged party would have been far more likely to be able to get injunctions preventing any wrongful conduct.

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future. 

Published by:

Nathan Cecil

Rebecca Niumeitolu

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