Lessons on good faith duties in joint ventures

In the recent case of Matière SAS v ABM Precast Solutions Limited , the court had to decide whether one party to a joint venture bid found to be in breach of a good faith obligation was liable to pay damages to the other party when the bid failed. In this article we give the background to the case and consider the court's decision that the breach of good faith did not give rise to a liability to pay damages.

Background to the joint venture

Matière, the claimant, is a French company that designs, fabricates and installs civil engineering structures. ABM, the defendant, is a UK company that specialises in the manufacture and installation of pre-cast reinforced concrete. As a joint venture, Matière and ABM  bid for a subcontract to provide three 'cut and cover' tunnels along the route of the HS2 rail project. The joint venture bid was rejected and Matière claimed for fees it had incurred in preparing the bid from its joint venture partner, ABM. That claim succeeded when the dispute came to trial. ABM cross claimed against Matière for loss of the chance to win the bid and earn a profit, but its cross claim failed. 

As part of their joint venture, ABM and Matière split responsibility for the bid. Matière was responsible for the co-ordination of the installation with ABM responsible for the manufacture of the tunnels themselves. It was intended that, if the bid succeeded, each party would make whatever profits it could on the element of the work which it had priced and undertook. 

As part of the joint venture process the parties entered into a collaboration agreement, which was intended to ‘establish the framework to govern their respective rights and obligations in relation to the Project in respect of which they wish to co-operate’. The collaboration agreement contained a good faith clause that required the parties to: 

‘…co-operate and collaborate with one another in accordance with the terms of this Agreement and in the course of their performance of their obligations…each of ABM and Matière shall act in good faith toward the other and use reasonable endeavours to forward the interests of the co-operative enterprise’

Matière’s claim against ABM for the fees it had incurred in preparing the bid was around £373,000. ABM’s cross claim involved an allegation that Matière was in breach of the good faith obligation in the collaboration agreement. One of ABM’s allegations was that Matière had deliberately undermined part of ABM’s bid, which was to build a factory in Scunthorpe to manufacture the pre-cast concrete for the tunnels. ABM said that had adversely affected the prospect of success for the bid. ABM also complained that during the course of preparing the bid, Matière gave a slide presentation showing proposals for the tunnels to a key competitor of ABM. ABM said this also undermined the joint venture. 

Court findings on breach of good faith and damages

The judge agreed that the activities of negotiating and bidding as a joint venture were subject to the good faith obligation. Although the judge dismissed ABM’s complaint that by giving a slide presentation to one of ABM’s competitors, Matière was in breach of its duty of good faith, Matière was found to have deliberately undermined ABM’s plan to use the Scunthorpe factory for its part of the joint venture bid, and that amounted to a breach of the good faith obligation. 

The more important question for the court however was what, if any, damages ABM had suffered as a result of the breach of good faith by Matière. Did that breach mean ABM lost  the chance to win the bid? To succeed in its claim for damages, ABM had to prove that it had a real and substantial chance of winning the bid, and that the breach by Matière was the effective or dominant cause of the bid being rejected. The court held that Matière’s breach of good faith did not cause the bid to fail. Joint venture bids are inherently risky, and there was no evidence here that the decision to reject that bid was affected by Matière’s breach of good faith towards ABM. ABM’s claim for damages failed, and Matière got judgment for its unpaid fees. 

Key takeaway

The case shows the difficulty of proving that a chance to win a bid was lost as a result of bad faith by one of the joint venture partners. It does not automatically follow that because one joint venture partner acts in bad faith towards the other, the court will award damages for loss of the bid. In most cases, the likely cause of the failure of a bid is because another bid was preferred, rather than as a consequence of adverse conduct by one of the joint venture partners towards the other. 

For further information, please contact our construction team.