25 November 2025
7 min read
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The negotiation phase of establishing a joint venture can be demanding. Potential areas of conflict include the proposed structure of the venture, business strategy, financial and capital allocations and operational control. If these disputes are not addressed at the outset, negotiations can stall and affect the long-time viability of the project or venture.
To manage these risks, joint venture parties should consider agreeing on clear and determinative dispute resolution mechanisms when preparing the joint venture agreement. Most agreements contain a provision to determine the preferred mechanism, but the choice will depend on the circumstances and the preferences of the parties involved.
In this second instalment of our three-part series on internal management of a joint venture, we outline some of the common dispute points we come across during negotiations and the mechanisms to resolve them. If you are in the early stages of setting up a joint venture, view our legal checklist here to help you plan for success.
Differing views on direction and business strategy relating to a project or joint venture is often a key and significant sticking point. With different experiences, angles and motivations, ensuring joint venture partners can overcome differences is a vital component of effective joint venture negotiation and agreement.
All too often we see disputes arise on strategic direction, financial and operational management and governance related issues. All of which can be overcome and dealt with to avoid the joint venture spiralling into a mix of lawyer controlled litigation, cost and general business grief.
When a dispute escalates to the point that the joint venture parties cannot reach an agreement and there is a risk of terminating the agreement, there are options to resolve the dispute that ought to fall into contractual arrangements between parties. The most appropriate mechanism will depend on the circumstances and the preferences of the joint venture parties.
Below are some dispute resolution methods typically considered for joint ventures:
A joint venture party may seek to terminate the relationship by acquiring the other parties’ interests. When this approach is adopted, certain key matters will be identified as matters upon which a “deadlock” situation may arise.
If a deadlock occurs, the first step is generally for each of the parties to meet and attempt to resolve the deadlock. If the deadlock cannot be resolved, the joint venture parties may consider terminating the relationship and winding up the venture.
Some common forms of termination provisions in deadlock situations are set out below, which generally relate to the incorporated joint venture scenario:
1. Texas shoot-out
A ‘Texas shoot-out’ provision is where each party submits a sealed cash bid to purchase the other party’s shares or interests in the joint venture. Once all bids are received, the bids are opened and the highest bidder must buy the other party’s shares in the joint venture. This approach is typically suited for two-party joint ventures but can be modified for ventures with three or more parties.
2. Russian roulette
A ‘Russian roulette’ provision allows one joint venture party to notify the other of its intention to buy their shares or interests at a specified price. The party receiving the notice may either accept the offer or submit a counteroffer to purchase the initiating party’s shares or interests in the joint venture at a higher price. This process continues until a final price is agreed on. Similar to the Texas shoot-out, this mechanism is designed for two-party joint ventures but can be modified for ventures with three or more parties.
3. Dutch auction
The ‘Dutch auction’ provision is a variation of the Texas shoot-out method. Under this mechanism, each joint venture party submits a sealed bid stating the minimum price at which they are willing to sell their shares or interests to the other party. The party that submits the highest price at which they would be willing to sell their shares or interests will be required to buy the other party’s shares at the price the other joint venture party stated they would be willing to sell. This termination mechanism can also be adapted for joint ventures involving multiple parties.
If buyouts are not feasible, the parties may attempt to resolve a dispute through mediation before turning to more formal methods of dispute resolution. Mediation involves a neutral third-party facilitator who helps the joint venture parties negotiate a mutually acceptable solution. Although generally non-binding, mediation is often highly effective in preserving relationships and encouraging parties to compromise without incurring the costs and pressures of arbitration or litigation. The influence of a measured, calm independent mediator to de-escalate tensions in a soured joint venture relationship cannot be overstated.
Arbitration has become an increasingly popular method for resolving joint venture disputes, both domestically and internationally. In this process, a third party considers the joint venture dispute based on the parties’ submissions and imposes a decision that is generally binding on all parties, depending on the drafting of relevant clauses. Many domestic and international arbitration centres can assist in administering the arbitration process and their respective rules are often referred to in joint venture agreements as becoming applicable in dispute proceedings. Benefits to using arbitration include:
While arbitration awards are generally binding on the parties and are generally enforceable by the courts, there are circumstances in which an arbitral award can be challenged depending on the jurisdiction in which the enforcement is sought.
The parties may choose to resolve joint venture party disputes by going to court. If this is the case, it is recommended that the parties agree on the jurisdiction that will govern the contractual relationship of the parties in advance in the joint venture agreement and include a clear and specific governing law and jurisdiction clause.
When the relationship between the joint venture parties breaks down, it is often neither practical nor in the best interests of either party for one of the joint venture parties to buy out the other. Similarly, continuing the venture’s operations may not be ideal if the relationship has broken down to the point that arbitration or litigation is required to resolve a deadlock.
In such cases, the joint venture parties may choose to dissolve the venture by liquidating and winding up the affairs of the joint venture entity.
Like many other complex and significant commercial agreements, the dispute resolutions mechanics of a joint venture contract are vital. A clear and well-considered mechanism to overcome disputes broadly save the parties considerable time, expense and uncertainty. While planning for the worst is not front of mind when joining forces with business partners in a venture or project, a trusted and knowledgeable lawyer can draft appropriate mechanics to deal with the area of discontent and dispute and move the parties forward with certainty and clarity.
For a more detailed guide on these and other legal considerations when entering a joint venture, access our comprehensive checklist here.
In the final part of this series, we look at what parties need to think about once the joint venture has been set up. If you have any questions about your joint venture agreement or how to settle disputes with another party, please contact us here.
Disclaimer
The information in this article 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 article is accurate at the date it is received or that it will continue to be accurate in the future.
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