Setting robust joint venture terms

Developing or acquiring a port or terminal requires significant financial investment, and port authorities or operators (whether public or private) are not always willing or able to make such investment alone. Joint ventures (JVs) provide a useful structure through which parties can pool resources and expertise.

We look at some key issues a company may need to consider before entering into a JV for the development or acquisition of a port or terminal.

The parties should undertake due diligence on their proposed JV partner(s) to confirm that they (or their group) have the necessary expertise and financial solvency to undertake the development or acquisition. If a port authority (or other governmental body) is to participate in the JV, the private partners will want to ensure that the port authority has the authority to enter into the agreement and carry out its obligations.

The contractual relationship between the JV partners may be dictated by the overarching port or terminal concession agreement or local law, in particular if port authority participation is required. Although a concession agreement may include certain provisions governing the relationship between the JV partners, a separate JV agreement will be required to establish the roles and responsibilities of each shareholder in developing or acquiring the port or terminal.

JV structures will vary between projects and jurisdictions – for example, it is quite common for a special purpose vehicle (SPV) to be created in which each partner is a shareholder, with this SPV then undertaking the development or acquisition in its own name.

Ownership and management

The JV agreement should clearly set out each JV partner’s share of ownership and financial contributions, as well as how any returns will be distributed.

The operational responsibilities and liabilities of each JV partner should also be established. Increasingly, port authorities are retaining only a financial stake in new projects, with private JV partner(s) in charge of the development, and subsequent operation, of the port or terminal.

The JV agreement should specify the constitution of the management board and the agreed process for dealing with issues or disputes (often known as ‘deadlock’ provisions). Ideally, these provisions will give sufficient powers to the port or terminal operator to ensure the smooth running of business day-to-day, subject to the other JV partners’ input on critical matters only.

Additionally, while this may be the last thought of the JV partners during negotiations, it is important to consider the possibility of a JV partner exiting the JV during the life of the concession. Each JV partner may require different restrictions: a port authority may want to lock-up an experienced JV partner for a minimum period in order to maximise their expertise, or prevent certain prohibited parties from taking an interest in the relevant port or terminal, while a minority JV partner could request ‘tag-along’ rights in the event the majority JV partner seeks to exit.

Craig Grant is an associate at HFW, based in London.