Russell v Cartwright and others

Joint venture – Breach of contract – Fiduciary duty – Claimant suing former business partners for damages for failing to disclose development project under joint venture agreement – Defendants counterclaiming for costs on indemnity basis – Whether defendants in breach of express or implied contractual terms, fiduciary duty or unlawful means conspiracy – Whether claimant establishing fraud or dishonesty – Claim dismissed – Counterclaim allowed From 2011, the claimant was involved in a property development business with the defendants as a joint venture. The claimant left the business by a settlement deed dated 1 July 2014. Thereafter, the three defendants continued to operate the business. The claimant subsequently complained that the defendants had failed to tell him about, or give him an opportunity to participate in, a development project relating to a site in Wembley successfully executed shortly after the claimant’s departure from the business. He said that he had been wrongfully excluded and the defendants’ actions in doing so were dishonest. The claimant argued that, if it had not been for the alleged breaches, he would not have entered into the settlement deed and would have continued to participate in the joint venture. Alternatively, if he had found out about the true position before completion of the sale of his interest, he would have rescinded it on grounds of fraudulent misrepresentation. The claimant brought an action for damages for breaches of express or implied contractual terms or fiduciary duty, breaches of a duty to disclose or a duty to correct a misunderstanding by the claimant or, alternatively, unlawful means conspiracy. It was common ground that, owing to the terms of the release contained in the settlement deed, none of those claims could succeed in the absence of fraud or dishonesty being established. The defendants denied the claims, and counterclaimed on the basis that the proceedings were brought in breach of the terms of the settlement deed and the claimant was obliged to pay their costs on the indemnity basis. Held: The claim was dismissed. The counterclaim was allowed. (1) A fiduciary was someone who had undertaken to act for or on behalf of another in a particular matter in circumstances which gave rise to a relationship of trust and confidence. Fiduciary duties typically arose where one person undertook and was entrusted with authority to manage the property or affairs of another and to make discretionary decisions on behalf of that person. The test was an objective one, asking whether the nature of the relationship was such that one party was entitled to repose trust and confidence in the other. Fiduciary duties did not usually arise in commercial settings where each party was entitled to prefer his own interests: Bristol and West Building Society v Mothew [1998] Ch 1; [1996] EGCS 136 followed. Glenn v Watson [2018] EWHC 2016 (Ch) considered. In the present case, the parties agreed that there was a high level of trust and co-operation between them when they started business. However, that did not establish a fiduciary relationship. None of the evidence came close to establishing that the nature of the relationship was such that the claimant could trust in the loyalty of the defendants to put his interests first, and act in his best interests rather than their own. Each principal was looking after his own interests throughout the life of the joint venture. Nothing happened after the claimant expressed an intention to resign to indicate that he was now relying on the defendants to manage the business for his benefit and in his interest, when he had not done so before. (2) In determining whether an obligation of good faith should be implied, the question was whether a reasonable reader would consider that an obligation of good faith was obviously meant, or was essential to the proper working of the contract which would otherwise lack commercial or practical coherence (the business efficacy test). It was an objective exercise and any implied term had to be capable of being clearly expressed. The existence of express good faith obligations, as in the present case, strongly suggested that implying a more general good faith obligation would be inconsistent with the express terms. A duty of good faith typically required a party to refrain from conduct which would be regarded as commercially unacceptable by reasonable and honest people. In contrast to a case where fiduciary obligations existed, it did not involve an obligation of loyalty, and parties were generally free to pursue their own interests rather than subordinate them to those of the counterparty. In the present case, the claimant had indicated that he was not interested in being told about anything other than specified projects. The defendants were entitled to pursue their own interests. Their conduct would not be regarded as commercially unacceptable. (3) In considering the claimant’s allegations of dishonesty, the court had had regard to the “presumption of innocence” in fraud cases. However, the court would have reached the same conclusions on the evidence in any event. The claimant had not succeeded in proving that the defendants were dishonest. They did not owe any positive duty to the claimant to inform him about projects of which he was unaware, although they would have provided such information if requested. There was no conspiracy to avoid providing the claimant with information or to exclude him from other opportunities: Jafari-Fini v Skillglass Ltd [2007] EWCA Civ 261 considered. In order to establish dishonesty the first stage was to determine the actual state of the individual’s knowledge or belief as to the facts and then determine whether the individual’s conduct was honest or dishonest by reference to the objective standards of ordinary decent people. In this case, the dishonesty claim failed at both stages. Having heard all the evidence, the court was confident that the defendants had acted honestly. They were not at any relevant stage under a duty to correct any misunderstandings which the claimant might have developed: Ivey v Genting Casinos (UK) Ltd [2018] AC 391 followed. (4) As there was no breach of contractual or other duties, no unlawful means conspiracy and no fraudulent non-disclosure or failure to correct a misunderstanding, the claim failed. It followed that the defendants’ counterclaim succeeded. The court would declare an entitlement to an indemnity in respect of costs and direct a detailed assessment on the indemnity basis: Renewable Power & Light Ltd v McCarthy Tetrault [2014] EWHC 3848 (Ch) followed. Romie Tager QC and Isabel Petrie (instructed by Ince Gordon Dadds LLP) appeared for the claimant; Dan McCourt Fritz and Stephanie Thompson (instructed by Gowling WLG (UK) LLP) appeared for the defendants. Eileen O’Grady, barrister Click here to read a transcript of Russell v Cartwright and others