8.15 In a JV, deadlock can arise at board level (e.g. where opposing positions are taken by an equal number of directors and there is no casting vote) or at the participants' level (where participants fail to agree those matters which have been reserved to them). The JV agreement can provide for deadlock disputes to be escalated to senior individuals in the participants' parent organisations (e.g. to the chief executive of the private sector company and the Permanent Secretary of a Department).
8.16 However, some disputes may result in an intractable deadlock where there is a fundamental breakdown in management and inability to continue with the JV. It is usual to include in the JV agreement mechanisms for avoiding deadlock (e.g. referring disputes to an expert) and the consequences of an intractable deadlock. The participants will know the consequences of failing to resolve a deadlock and this knowledge may help disputing parties to focus their minds on trying to resolve the disputes. Types of provisions for when a deadlock becomes intractable include:
● winding up of the JV; or
● some form of buyout mechanism leading to one party buying out the other e.g. so-called sealed bids, Russian roulette clauses, etc.
8.17 It is possible for the contractual documents to be silent as to the consequences of an intractable deadlock; in effect this may mean that the only documented route to follow in that case would be an exit at the instigation of one party or other. The participants will then have to agree a procedure when it occurs (or move straight to exit). This can lead to protracted disputes as there is no time frame or mechanism for resolution of the deadlock issue and this may have a detrimental effect on the JV's ongoing business. This approach is strongly discouraged. If the parties are sufficiently confident about the proposition to enter into the JV in the first place, they should understand the potential for disputes and be clear about what they would want to happen in the event of disputes. If they have that clarity it will be appropriate to document agreed procedure and it is unlikely that immediate recourse to exit from the arrangement will be the preferred strategy.