Joint Venture vs Partnership: Definition, Relevant Case Laws and Issues

This article discusses the definition of joint venture and partnership, relevant case laws, and issues with their definition. It also provides advice to businesses and comments.

COMPANY LAW
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Definition
A partnership may be defined as an agency relationship which tends to exist amongst people
who are carrying on the business with common ownership and intent to earn profits. In
accordance with s.1, Partnership Act 1892 (NSW), a partnership has three essential attributes
as highlighted below (Gibson & Fraser, 2014).
 The business is carried on which essentially refers that the business must not be
restricted to a single transaction and instead the business activities must be repeated as
highlighted in the verdict of Smith v Anderson (1880) 15 Ch D 247 case.
 It is done so in common which implies that there is common ownership of the
underlying business activities even though the participation of different partners may
vary.
 The underlying intention of profit drives the business activities which enables
separation of partnership from clubs and associations.
A joint venture is defined as association of people or legal entities in order to conduct
business together or for assuming a given project without the loss of their respective
corporate structures. There is an underlying agreement also which highlights the rights and
obligations of the parties to the joint venture (Latimer, 2016).
Another definition of joint ventures has been highlighted in United Dominion Corporation
Ltd v Brian (1985) 157 CLR 1 by Mason J and is given below (Chetwin, 2007).
Relevant Case Law
One of the relevant case laws with regards to defining joint ventures is United Dominions
Corporation Ltd v Brian Pty Ltd. (1985) 157 CLR 1. It is highlighted that in common
law, there is no particular definition of joint ventures. Also, it is acknowledged that often in
cases where a given entity contributes money and the other property, it is difficult to
segregate a joint venture from a partnership (Davenport & Parker, 2014).
Another relevant case is Canny Gabriel Castle Advertising Pty Ltd & Anor v Volume
Sales (Finance) Pty Ltd (1974) 131 CLR 321. In the given case, there was a joint

venture agreement between Fourth Media Management Pty Ltd (FM) and
Volume Sales(Finance) (VS) whereby the former entered into contract with
artists while the latter was responsible for providing finance. The very next day
of the joint venture agreement, an equitable charge on the box office proceeds
was extended to Canny Gabriel Castle Advertising Pty Ltd. With regards to the
key question as to whether FM and VS had a joint venture, the honourable
judges highlighted that all the key elements of partnership were present despite
the underlying agreement being called Joint Venture Agreement. The key
reasons cited were the presence of a commercial establishment driven by profit,
profit sharing, joint agreement on various matters coupled with mutual concern
with each other‘s financial stability. All these factors are witnessed in case of a
partnership relationship (Pendleton & Vickery, 2015).
Yet another relevant case law with regards to defining the characteristics of
joint ventures is Television Broadcasters Ltd v Ashton’s Nominees Pty Ltd
(1979) 22 SASR 552 in which the underlying venture was termed as joint
venture on account of the following reasons (Lindgren, 2011).
 Agreement between parties only limited to profit sharing but not with
loss sharing
 The obligations arising from the agreement were not common but
separate which implies that the two entities were separate.
 Employees were limited to having a relationship with only the defendant
and not both the parties which would have resulted in partnership
Based on the above cases, it is apparent that even though there are certain
overlapping attributes of partnership and joint venture but the following
attributes tend to define a joint venture.
 The underlying liabilities and rights tend to be different and not common
 The parties to the joint agreement continue to function as separate
entities
Issues with definition of Joint Ventures
The key problem with joint ventures is that there is no strict legal definition for the concept
owing to which issues in interpretation do arise. This task becomes complicated with the
proliferation of the underlying forms particularly the unincorporated joint venture where an
underlying contract does not exist. Also, in context of law, there is a question which still

remains resolved as to whether joint ventures form a separate law. The various countries are
severely divided in this matter since countries such as United States joint ventures are
covered under Partnership Law but other countries such as Britain, Canada intend to have a
separate law for JV. The fact that partnership and JV have a number of common attributes
also complicates the task of providing a precise and tight definition (Chetwin, 2007).
The resultant lacuna leads to a situation whereby the two terms are often used
interchangeably even in legal circles. Earlier, it was thought that a JV is usually formed for
an isolated transaction but this test does not hold as one transaction partnerships do exist.
Also, JV could be continuously in business. Also, the judges while giving their verdicts in
case of cases involving JV and partnership tend to rely on American concepts which have
little relevance in the Australian context. The end result is that the parties tend to label their
relationship as JV but the same also is inconclusive since the relationship substance is
imperative (Chetwin, 2007).
Advice to businesses & Comments
A key takeaway from the above discussion is that there is lack of a formal legal definition of
JV and also a plethora of common elements between the two business structures. Further, the
rights and obligations arising from a partnership relation are significantly different from those
contained in a JV. In order to ensure that a JV is not classified as a partnership, it makes
sense to introduce explicit provisions in the agreement which prevent integration between the
parties to the extent required in partnership (Gibson& Fraser, 2014). This has been done in
Spree Engineering and Testing Limited v. O'Rourke Civil and Structural Engineering Limited
1999 (NLC 299058403). In this case, the JV players had specific clauses in the written
agreement to prevent integration leading to conducting business under joint ownership and
hence the court upheld this as JV. With other business structures, there is precise legal
definition and hence scope of ambiguity is minimal and hence the only precaution is to
understand the resultant rights and obligations that could potentially arise (Latimer, 2016).
References

Chetwin, M. (2007) The Broad Concept Of Joint Venture: Should It Have A Fixed Legal
Meaning? Retrieved from
https://ir.canterbury.ac.nz/bitstream/handle/10092/1994/12605386_Chetwin.pdf
Davenport, S. & Parker, D. (2014). Business and Law in Australia (2nd ed.). Sydney:
LexisNexis Publications.
Gibson, A. & Fraser, D. (2014) Business Law (8th ed.). Sydney: Pearson Publications.
Lindgren, K. E. (2011) Business Law of Australia (12th ed.). Sydney: Butterworths
Pendleton, W & Vickery, N. (2015) Australian business law: principles and applications.
(5th ed.) Sydney : Pearson Publications.
Latimer, P. (2016) Australian business law (24th ed.) Sydney: CCH Australia Ltd.