A longstanding client, an art dealer, came to seek some advice. Over the years he had entered into many joint arrangements with another dealer.
Most of these, as was their way, were done on a handshake. However, he explained that the last deal they did together did not go that smoothly, there was an issue between them, eventually it was sorted out, but this time he would like to put everything in writing.
He described the details, we prepared some draft terms, there was nothing too unusual and matters proceeded much as expected. His joint venture partner appointed solicitors and we progressed the draft contract together.
The essence of the deal was as follows:
They would be 50:50 partners in sourcing works at an art fair in the US. The focus was on a very narrow genre in which both dealers specialised. They would not attend the fair, but had agreed on a third party who would do so with instructions provided to that party by them both. All fine so far, no problem with that.
Terms were agreed accordingly and the contract was completed.
Some time later, prior to the fair, my client returned. He explained that it would greatly benefit him if the third party agent prioritised the proposed joint purchases by attending first a particular gallery at the fair which both he and his joint venture partner knew well.
He went on to explain that usually he would just chat to his partner, arrange matters accordingly, it wouldn’t be a problem and he would not normally be coming to see me on this point.
However, this time, he knew that his partner wouldn’t agree to this proposal because for various reasons his partner disliked the gallery owner which my client wanted to prioritise. So, to get round this, my client was proposing to pay the agent a bit extra, privately, if he could prioritise the purchases to be through the preferred gallery.
He thought he better check this with me first – was this all okay?
Be clear
Before I said anything, my client made clear that he was not planning to make any secret profit out of the deal and that all profits for the venture would continue to be split 50:50. I advised that it was not as simple as that.
Firstly, it was clear from what he was saying that in some way or other which he hadn’t specified, he was going to get some commercial benefit, by preferring the particular gallery owner with the business proposed. Secondly, given that there would be this ‘secret profit’, his joint venture partner, if and when he found out, could, at the very least raise the following issues: ‘misrepresentation by omission’ insofar as the client would be failing to disclose information directly material to the contract between them and his partner could have a claim for damages for that.
His partner could also raise allegations along the lines of breach of duties of good faith existing between the two partners in the circumstances of the joint venture contract. In summary I advised that it made no sense to build up this problem, it just wasn’t worth it, and he should either tell his partner or dump the idea altogether. He said he would go away and think about it but immediately agreed it all felt like a bad idea. After he left the office another point began to occur.
Legal dangers
The dangers which I had outlined to the client would, if he went ahead, give rise to a possible civil claim by his partner for sums due. But, more seriously, the proposed payment to the agent could be construed as contravening the Bribery Act 2010. If so, he would be in danger of being convicted of a criminal offence. On realising this I telephoned and told him so. He was grateful and said that that does indeed change things.
One critical phrase in the Bribery Act concerns where the ‘offeror’ (eg my client) intends to bring about the “improper performance by another person of a relevant function”. It could certainly be argued that there was a danger of him doing this here.
In fact this tale had a happy ending. I, together with the other solicitor, agreed in correspondence that they would indeed prioritise the preferred dealer and all arrangements made were crystal clear and disclosed. Though it didn’t start well, his partner was not quite so hostile as he had imagined after all.
A key point is: as long as everything relevant to the venture is disclosed in a clear, upfront manner between the contracting parties then this greatly diminishes the possibility of any claims between them being made.
Milton Silverman is senior commercial dispute resolution partner at Streathers Solicitors LLP, London.
