Joint Venture Participants Can’t Escape Liability for £68 Million Pensions Deficit

Those who engage in joint ventures necessarily submit to an element of communal decision-making and must take the rough with the smooth if things go wrong. The Court of Appeal made that point in apportioning financial responsibility for a £68 million deficit in an employee pension scheme.

Three participants in an offshore gas and oil venture argued that liability in respect of the deficit rested solely upon a fourth, who was designated as the project’s operator. They submitted that the deficit had neither been foreseen nor contemplated by the venture’s operating committee, which approved proposed programmes of work and budgets annually.

The operator, however, argued successfully before a judge that, on a true reading of the agreement, the other participants were between them liable for 54.41 per cent of the deficit. Via the operating committee, on which they were all represented, they had authorised the employment of staff and the incurring of pension costs. Even to the extent that the deficit was unforeseeable when such authorisations were given, the participants were required to shoulder their allotted share of the loss.

In dismissing the other participants’ challenge to that ruling, the Court found that the judge’s conclusion accorded with the agreement’s natural and ordinary meaning. One of its purposes was to impose liability on participants, in agreed percentages, for costs incurred by the operator in furthering the venture, and the provision of employee pensions was one such cost.

Having exercised a judgment call to authorise the operator’s expenditure on pensions, the participants had assumed responsibility for any liabilities arising therefrom and could not argue that the deficit was entirely the operator’s fault. Common sense and the overriding commercial purpose of the agreement also compelled a finding that the participants must share responsibility for the deficit.