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By Paul Armit & Scott HornseyTucker & Cowen, Solicitors, Brisbane.

The recent case of Lien & Anor v Clontarf Residential Pty Ltd & Anor [2018] QSC 94, Justice Jackson of the Supreme Court of Queensland considered and found an implied term of good faith in a joint venture contract.

Circumstances

The parties entered a joint venture contract for the development of land (“JV Contract”).  At the time, no plans or development application for the project existed, and neither party had the financial means to complete it.

The plaintiff contributed the land, and the defendant arranged finance (with the land as security) and acted as project manager.  The dispute arose from payments made by the defendant as project manager which, on the express terms of the JV Contract, were permissable.

However, the plaintiff alleged the payments made by the defendant breached an implied term of good faith, arguing the term required the parties to act in good faith towards each other in the performance of, and in exercising powers under, the JV Contract (“Good Faith Term”).  The defendant’s breach was said to be either repudiation or sufficient to ground termination.

Findings

  1. The parties were fiduciaries by virtue of being joint venturers.
  2. The plaintiff was vulnerable to excessive spending of the defendant as project manager, given the plaintff’s land was security for the finance and the defendant was an otherwise impecunious corporation.
  3. The JV Contract provided for a co-operative decision making process, through a management committee comprising both parties, the proper functioning of which was vital to the success of the project, and required a relationship of confidence and trust.

In these circumstances, implying the Good Faith Term was required to give business efficacy to the JV Contract.

What does this mean for joint venturers?

The existence of an implied Good Faith Term will turn on the specific express terms of a contract. So, venturers should be aware that express terms in agreements can give rise to an unexpected duty of good faith.

All agreements should be reviewed and advice sought before they are entered into or enforced. Venturers and lawyers should continue to watch the development of good faith law as cracks in the dam wall continue to grow.

Contact the author directly by email or by telephone.

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