The Duty Of Candor

Joseph W. Bartlett, Special Counsel, McCarter & English LLP, Co-Founder of VCExperts

McCarter & English LLP


What obligations does one joint venturer owe the others to disclose proprietary information which is related to the business of the joint venture but not part of its central core? This issue is part of a larger conflict-of-interest problem and includes (as discussed below) corporate opportunity and self-dealing. The fundamental question has to do, again, with the essential nature of joint ventures in general and the given joint venture in particular. Is the beast a partnership (implying duties of good faith and fair dealing which go beyond the four corners of the partnership agreement), or a limited-purpose vehicle? In the latter case, the argument is that the partners owe each other only those duties expressly set forth in writing. Hence, if venturer A possesses information which might be useful to the venture (and/or to B) but which A wishes at all costs to protect, A may remain silent. The opposing view derives from Judge Cardozo's language in a landmark case: "joint adventurers, like copartners, owe to one another while the enterprise continues, the duty of the finest loyalty." The conflict problems are exacerbated if the joint venturers are otherwise competitors.


Introduction to Venture Capital and Private Equity Finance