How can you prevent joint venture disputes from escalating into litigation?

The three ways to ensure this is: 1. Do comprehensive market research. 2. Carry out a thorough stakeholder engagement internally. 3. Set clear commercial expectations beforehand with the counterparty.

Choosing your partner necessarily involves discussions and negotiation. One thing that might be effective in avoiding disputes during this phase is adhering to without-prejudice negatiation method.

Very clear legal drafting of JV agreements can help in bringing clarity and understanding when things go wrong. Often the question of turning the pages on the JV agreement can serve to resolve issues quickly. However strategic alignment is a key aspect. Not just choosing the right partner but really understanding each others goals and vision to make sure there is proper alignment and enough in the deal to keep everyone happy.

A well drafted agreement will clearly define the rights and obligations of each party. That clarity is key to avoiding disagreements, but no complex JV agreement can cater for all eventualities. Building in well structured dispute resolution architecture is therefore essential. In a JV arrangement, it could be worth considering a waterfall clause that provides expressly for periods of amicable negotiation between senior representatives of the parties as a pre-cursor to formal dispute resolution.

It is always easiest to resolve situations before there is any real money involved. I would propose resolutions that are automatically triggered and resolved by outside third parties so the interested parties cannot influence the process. The last thing founders want is a lack of control. If the founders are going to play a role in the dispute resolution process, then create a scenario that does not create a prolonged soap opera. A shotgun clause with a short time to counter-purchase can be very effective although it is not the sole potential remedy.

A good agreement is vital for if things don’t go as planned. At the outset, when everyone is pulling in the same direction and full of enthusiasm it’s the only/ best time to leverage that and get an agreement in place where they have thought about the “what ifs”… without an agreed “way out” if things go wrong it can be even more costly and acrimonious than spending the time and energy thinking about it at the outset.

Needless to say, for the agreement to be comprehensive and effective, it should be fkexible by providing a room for continuous review and development. The outcome of this often materialises in the form of amendments to the terms of the agreement and addendums that could be added from time to time along the way.

I think being very clear about the rights and obligations of parties and managing the expectations at the outset goes a long way. If parties focus too much on what in contract law is known is 'trader's hype' and leave lawyers to do the dirty work of negotiating liability, damages, breach, exclusions on warranties, etc. then the there may be a difference between expectations and what the JV agreement actually says. This may present itself quite starkly once the 'sweet' period post deal is over

I think there should be a regular face to face meeting between the key principals. This should serve to bolster the relationship and resolve any easily solvable issues. This should be regularly attended by the same key people and should also involve some social interaction like an off site lunch or evening meal so people can get to know each other as people.

This monitoring also needs documenting. Key minutes of any discussions should be written up promptly and shared between the parties. AI can help take the pressure off this rather mundane task if secretarial support is not available.

Embracing all possible remedies to avoid a legal dispute escalating to court should be utilised. Avoid unnecessary pitfalls such as premature early termination of legal agreements when things go wrong.

Definitely it should be resolved before it gets into EGO clash. There should be right mentor for every conflict resolution.

When I and some of my law partners had an issue with another one of our partners, we were able to resolve the issue through mediation without going through litigation. This experience led me to become a mediator myself, and I have since helped several business owners and partners resolve their disputes without litigation, and published articles and conducted seminars advising other mediators how to resolve those disputes.

Composition of the Board is crucial. The Chair should be an experienced independent director, not a Founder, with seats for two other independent directors. Anticipate the worst personal issues at the outset (death, disability, lack of time or money commitment by executive leaders and founders) and resolve those potential issues at the start. Remember that your money partner from whom you expected no time commitment should not be expected to take on operating responsibilities when the company is able to raise money. Don’t forget the value that partner contributed built your business. PLUS agree on an equitable valuation formula and process before needed. Laurel Bellows Bellows Law Group Executive Compensation and Governance