Breach and dispute on farming joint ventures

Last week I wrote an article titled “Joint ventures on farms through offer letters”. This article was well received by many readers. I received several calls and messages from readers.

Quite a number asked me if I could give some advice on how to deal with breach and disputes on joint ventures.

This article is aimed at addressing that.

The main point in last week’s article was to communicate that, as regards farms held through Government offer letters, section 28 of the Land Commission Act (Chapter 20:29) prohibits leasing of such farms or joint ventures thereon unless approved by the Ministry of Lands, Agriculture, Water and Rural Resettlement (“the Ministry”).

Nature of disputes

According to many readers who contacted me, many disputes on farming joint ventures emanate from breaches by one or both parties.

There can also be differences or disputes arising from or relating to the agreement in areas such as implementation, execution, interpretation, rectification, validity, enforceability, termination or cancellation of the joint venture agreement.

Some readers pointed to specific issues such as the investor who is a party to the joint venture refusing to share income or profit with the landholder or disagreements over the interpretation of income or expenses.

For example, income may mean gross income or sales or it may mean profit which is basically joint venture revenue less expenses.

At times there can be differences as to what constitutes expenses for the joint venture and those that should be for the account of the landholder or the investor.

In other situations the landholder may attempt to unilaterally terminate the joint venture agreement when set up is done and the farming operations are progressing well.

The intention at that point may include the desire to enjoy all the benefits from the joint venture. “Greed” is the word.

I always advise clients to ensure that in any agreement breach is provided. It does not matter whether you go to the same church, eat at the same restaurant or drink from the same bar. Just provide for breach. A breach may be intentional or unintentional.

There has to be clarity as to what constitutes a breach, whether material or immaterial. Consequences or remedies in the event of breach ought to be provided for as well.

Material breach is the breach that goes to the core of the agreement. In the case of the investor, it can be his or her failure to make financial or other contributions which are provided in the joint venture agreement. An investor may also refuse to pay the landholder his or her share of the joint venture income or profit.

In the case of the landholder his or her breach can be the failure to provide the full extent of the land agreed per the joint venture agreement or interfering with the joint venture operations in a manner prohibited by the agreement.

Consequences of material breach which is not rectified may include summary termination of the joint venture agreement. The aggrieved party may have the option of suing for positive performance by the offending party.

Dispute resolution

Agreements including farming joint ventures should always provide for dispute resolution. From experience, I have seen parties to a contract being excited at the time of entered into an agreement to the extent of disregarding the possibility of disputes.

I repeat that differences or disputes can arise from or relate to the agreement in areas such as implementation, execution, interpretation, rectification, validity, enforceability, termination or cancellation of the joint venture agreement.

Luckily the joint venture form used by the Ministry provides for dispute resolution.

The following are some of the ways to resolve joint venture disputes:

Engagement by the parties themselves or through their legal advisors.

Consulting and involving the Ministry, if the joint venture agreement is registered with or approved by the Ministry.

Arbitration in terms of the Arbitration Act.

Other lawful legal proceedings such as litigation.

Parties are encouraged to engage directly or through their legal advisors for an amicable resolution of their disputes.

If that fails and the joint venture agreement is approved by the Ministry then the parties can consult and involve the ministry in an attempt to resolve issues swiftly and amicably.

If arbitration fails then the next stage is arbitration if provided for in the joint venture agreement. In the event that arbitration fails any other lawful legal proceedings such as litigation may be unavoidable.

Conclusion

At the time of agreeing to a joint venture please make sure the joint venture agreement has adequate safeguards including breach and dispute resolution. The joint venture agreement should also be approved by the ministry.

Disclaimer

This simplified article is for general information purposes only and does not constitute the writer’s professional advice.-herald