When joint ventures go wrong: the risks of informal agreements
Property developers and construction businesses frequently enter into joint ventures without formal written agreements. While these arrangements may work when relationships are good, disputes can quickly arise over profit entitlements, ownership interests and who controls the project.
But what happens when one party decides to exclude the other?
In Lawrdo Super Pty Ltd v Chehade & Sons Constructions Pty Ltd [2026] SASCA 121, the South Australian Court of Appeal considered disputes arising from several property developments undertaken through informal joint venture arrangements.
The decision demonstrates that the absence of a signed agreement does not necessarily prevent a joint venture from being legally enforceable. It also highlights the fiduciary obligations that may arise between joint venturers and the importance of clearly documenting entitlements to construction work.
When does an informal arrangement become legally binding?
A joint venture is a commercial arrangement in which two or more parties undertake a particular business activity or project for their mutual benefit.
Although joint ventures are commonly documented in written agreements, a binding contract may also arise from oral discussions, previous dealings and the parties’ conduct.
In Lawrdo Super, companies associated with Mr Lawrence and Mr Chehade had undertaken a series of property developments together.
Their established arrangement was relatively straightforward:
- The Lawrdo entities funded the acquisition and development of properties;
- Property Partners, associated with Mr Chehade, identified development opportunities and managed the projects; and
- After accounting for agreed financing costs, the parties shared the resulting profits equally.
The parties initially entered into written joint venture agreements. However, between 2013 and 2016, they completed a further five developments without formally documenting the terms of their arrangements.
Disputes subsequently arose concerning three developments at Radar Street, Upton Street and O’Connell Street.
The Lawrdo entities contended that the parties’ arrangements had changed, including that the profit-sharing obligations had been varied or terminated.
The District Court rejected those contentions and found that separate joint venture agreements existed in respect of the three developments, substantially reflecting the parties’ previous arrangements.
The Court of Appeal upheld those findings.
An important qualification is that the parties had conducted the trial on the basis that separate joint venture arrangements existed. Their dispute principally concerned the terms of those arrangements and whether they had been varied or terminated. The Court of Appeal declined to entertain a materially different argument that no binding agreements existed at all.
Nevertheless, the case illustrates the significance of previous dealings, communications and conduct in establishing the terms of informal commercial arrangements.
The practical lesson: An unsigned agreement does not necessarily mean there is no contract. Equally, a history of working together does not automatically establish every term one party might seek to enforce.
Can one joint venture partner exclude another?
One of the most significant aspects of the decision concerns what happens when a joint venture participant takes control of a project and excludes the other party.
In the O’Connell Street development, Mr Chehade, through Property Partners, had undertaken substantial work associated with the proposed subdivision and development.
However, following disagreements between the parties, Mr Lawrence arranged for other businesses to become involved in the project and informed Mr Chehade that he would no longer be participating.
The dispute raised an important question: could the Lawrdo entities deal with the development property and its proceeds without accounting for Property Partners’ interests?
The Court of Appeal upheld the District Court’s finding that the Lawrdo entities owed fiduciary obligations concerning the joint venture property and its sale proceeds.
Those obligations prevented the Lawrdo entities from dealing with the property or its proceeds without regard to Property Partners’ interests as a joint venturer.
What are fiduciary duties?
Fiduciary duties are obligations of loyalty that may arise where one party has undertaken to act in relation to another party’s interests.
In a joint venture, those obligations may restrict how participants deal with venture property, opportunities or proceeds.
However, fiduciary duties do not arise automatically merely because parties describe their arrangement as a joint venture. Their existence and scope depend on the particular relationship and the obligations undertaken.
In Lawrdo Super, the fiduciary obligations were significant because they concerned the parties’ respective interests in the development property and the proceeds generated from its sale.
The Court of Appeal also upheld the assessment of Property Partners’ damages for breach of the joint venture agreements.
The practical lesson: Holding legal title to development property does not necessarily mean a participant can disregard another joint venturer’s contractual or equitable interests.
Does a joint venture guarantee the right to building work?
The decision also highlights an important distinction between participating in a joint venture and having a contractual entitlement to undertake construction work associated with the project.
Chehade Constructions claimed that it had been engaged to undertake both civil infrastructure works and residential building works associated with the O’Connell Street development.
At trial, the District Court accepted both claims and awarded damages for the profits Chehade Constructions would have earned from that work.
However, the Court of Appeal drew a distinction between the two arrangements.
It upheld the finding that Chehade Constructions had a binding agreement to undertake the civil infrastructure works and was entitled to damages for the loss of profit on those works.
Conversely, the Court found there was an insufficient basis to establish a binding agreement entitling Chehade Constructions to undertake residential building works for purchasers of the 13 allotments created by the development.
Accordingly, the appeal succeeded in part, and the damages awarded for the anticipated residential building work were set aside.
This is a particularly important distinction for builders and developers.
A participant may have an enforceable interest in the profits of a development without necessarily having an enforceable right to undertake every construction contract associated with it.
The practical lesson: If a builder expects to receive construction work as part of a joint venture, that entitlement should be separately and clearly documented, including the scope of work, remuneration and circumstances in which the builder may be replaced.
Five lessons for developers and construction businesses
The decision in Lawrdo Super provides several practical lessons for businesses entering into joint ventures and collaborative development arrangements.
1. Put the agreement in writing
Clearly document each party’s contributions, responsibilities, ownership interests, profit entitlements and exit rights before committing substantial resources.
An informal arrangement may be enforceable, but establishing its terms through litigation can be costly and uncertain.
2. Clarify ownership and control of project assets
Where development property is registered in one participant’s name, the agreement should identify the parties’ respective interests and any restrictions on dealing with the property.
Legal ownership and beneficial entitlements are not necessarily the same.
3. Document changes to commercial terms
Changes to profit-sharing arrangements, financing costs, management responsibilities or other essential terms should be expressly agreed and recorded.
Do not assume that sending a revised agreement or email establishes that the other party has accepted its terms.
4. Address fiduciary obligations and exit arrangements
The agreement should establish how decisions are made, what happens when the parties disagree and whether a participant can be excluded or the arrangement terminated.
The ability to withdraw from a project should not be left to assumption.
5. Separate joint venture rights from construction contracts
If a joint venture participant is also expected to perform building or infrastructure works, document that engagement separately.
The existence of a joint venture agreement does not necessarily establish an enforceable entitlement to future construction work.
How Dark Legal can assist
Informal joint ventures can create significant legal and financial exposure, particularly where substantial development costs have been incurred and the parties disagree about their respective entitlements.
Disputes may involve contractual rights, profit-sharing arrangements, property ownership, fiduciary obligations and claims for lost construction profits.
Dark Legal advises and represents clients in building and construction disputes, commercial litigation, contractual disputes and matters involving joint venture arrangements.
Whether you are entering into a joint venture, seeking to enforce an existing arrangement or facing a dispute with another participant, obtaining legal advice early can help protect your commercial interests.
Contact Dark Legal on 1300 68 68 66 to discuss your circumstances.
This article provides general information only and does not constitute legal advice. The application of the principles discussed will depend upon the facts and applicable law.
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