Renegotiating a Joint Venture

Renegotiating a joint venture

Our client entered into a 50/50 joint venture with a Canadian company to distribute its technology in that country, in order to establish “proof of concept” to underpin a roll-out in the US. The joint venture partner was chosen because it had a very close and long-standing business relationship with a major Canadian corporation that was the primary end-user target for the technology in Canada.

The agreement called for our client to provide its technology, updates, ongoing support and further development of the underlying technology. The local partner was to run the Canadian business, providing all necessary infrastructure and finance to launch the business and support its operations for the first two years.

Our challenge

Not long after the joint venture had been legally concluded, the Canadian partner began to agitate for greater control over the technology and the business. It also delayed work on the IT integration programme that was scheduled to run for six months. Moreover, it became evident that the partner was incapable of executing the business.

This was potentially disastrous for our client, not only because it put the Canadian launch and an investment of several million pounds at risk, but also because of the possibility of missing the boat in the US if the Canadian launch was delayed.

Our challenge was to restructure the contractual relationship with the Canadian partner by reducing its control and operational involvement, at the same time ensuring minimal further delay.

What we did

We put together a detailed analysis and argument that provided strong grounds for our client to terminate the agreement for breach. However, the Canadian partner had a reputation for being litigious, and a successful litigant at that. Litigation would have resulted in at least a two-year delay, which was considered commercially unacceptable – as was any capitulation to the demands of the partner.

Our solution was to recruit the end user target to the notion that it would be in their interests for the Canadian business to be managed by our client rather than by the Canadian partner, despite their close working relationship. This required very delicate and sensitive negotiations over a four-month period. These were ultimately successful.

The outcome

The joint venture was renegotiated, limiting the partner’s operational involvement but not its investment, and putting our client in control of the Canadian business. The Canadian launch took place with only a three-month delay to the original schedule, and was followed a short time later by launch in the US.

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