Lucas and another v Gilbert and another

Joint venture – Fiduciary duty – Undue influence – Parties entering into joint venture for purchase and development of property – Claimants providing purchase monies and defendants agreeing to develop property – Issues arising as to terms of agreement – Whether parties entering settled agreement on terms – Whether agreement vitiated by first claimant’s alleged breaches of fiduciary duty or undue influence – Claim allowed The first claimant was a commercial property solicitor who provided the sum of £401,483 to the defendants for the purchase of a freehold property at 12 Palmerston Road, London, E17. The property was acquired in the name of the second defendant, of which the first defendant was sole director and shareholder. The sum of £335,483 came from the personal bank account of the first claimant and the remaining £66,000 from the second claimant, a company controlled by his wife as majority shareholder. The first claimant’s firm acted in the conveyancing. Between 2011 and 2020, improvement works to the property were carried out and it was divided into several parts including residential accommodation and two business units. It was sold in 2020 for £1.3m. The parties said they were “in it” together, equally, to their mutual financial advantage. There was no written contract. The court was asked to determine: (i) whether before completion on the property and the provision of the purchase monies there was a settled agreement on terms certain between the parties; (ii) if so, whether it was for the purposes of a capital investment as part of a joint venture to purchase and develop the property, or in the property itself, or whether the purchase monies were a loan to the defendants; (iii) whether there was an agreement between the parties under which the first defendant would procure the second defendant to issue and allot a further share so that the first claimant and the first defendant would be registered each as 50% stakeholders in the second defendant; (iv) the scope and extent of the first claimant’s fiduciary duties and whether such duties were engaged; and (v) whether any agreement was vitiated by the first claimant’s alleged breaches of fiduciary duty or undue influence. Held: The claim was allowed. (1) The best approach for a judge to adopt in a commercial case was to place little if any reliance on witnesses’ recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts: Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm) considered. Faced with documentary lacunae, the judge had little choice but to fall back on considerations such as the overall plausibility of the evidence; the consistency or inconsistency of the behaviour of the witness and other individuals with the witness’s version of events; supporting or adverse inferences to be drawn from other documents; and the judge’s assessment of the witness’s credibility: NatWest Markets Plc v Bilta (UK) Ltd (in liquidation) [2021] EWCA Civ 680. (2) An objective assessment of all the evidence demonstrated that, before the property was purchased, the claimant orally agreed to participate in a joint venture with the defendants to secure equal, albeit indirect, interests in the property to enable them to benefit equally from its ownership by the second defendant and ultimately the proceeds of resale at a profit. It was inherently improbable that the claimants would have advanced more than £400,000 by way of unsecured loan to the second defendant without providing for interest or repayment terms. On the evidence, the parties had orally agreed to engage in a joint venture to purchase, maintain, manage and develop the property. All other things being equal, the first claimant was entitled to a declaration that he was entitled to a 50% interest in the share in the second defendant and the share was held on trust in equal shares between the first claimant and the first defendant. The first claimant was also entitled to an order for specific performance of the agreement to bring about an equal shareholding in the second defendant as between himself and the first defendant. (3) A joint venture agreement did not in itself give rise to a fiduciary relationship. One had to be careful not to distort the contractual agreement arrived at between commercially contracting parties by too readily superimposing fiduciary obligations inconsistent with the contractual bargain: Fujitsu Services Ltd v IBM UK Ltd [2014] EWHC 752 (TCC). The scope of fiduciary duties was moulded according to the nature of the relationship and the facts of the case. The application of fiduciary doctrine required a meticulous examination of the facts to determine what non-fiduciary duties were owed, to determine the effect that fiduciary principles would have. The fiduciary relationship could not be superimposed upon the contract so as to alter the operation which the contract was intended to have according to its true construction. Careful analysis was crucial of both fiduciary and non-fiduciary duties which would differ with the circumstances of each case. It was also necessary to determine in what respects the person was a fiduciary because, outside of those respects, the fiduciary owed no fiduciary duties and was free to act in accordance with ordinary legal principles. In the present case, the agreement was outside the scope of any fiduciary relationship between the first claimant and his then firm and the defendants. Even if the agreement was a fiduciary relationship, the first defendant enthusiastically approved and authorised the conduct that would, in other circumstances, have constituted a breach of fiduciary duty. He wanted funding which was only realistically available from the first claimant, who would not subordinate his own commercial interest to those of the defendants. As a sophisticated property businessman, the first defendant understood that and proceeded accordingly. (4) Given that a rebuttable presumption of undue influence would arise in the context of a relationship of influence between two parties, which would include solicitor and client, the presumption was only engaged where the impugned transaction called for an explanation because it could not be readily accounted for by the ordinary motives of ordinary persons in that relationship or was explicable only on the basis that undue influence had been exercised to procure it: National Westminster Bank Plc v Morgan [1985] AC 704 and Royal Bank of Scotland Plc v Etridge (No 2) [2002] 2 AC 773; [2001] PLSCS 216 considered. This classic joint venture afforded all the protagonists value for money and discernible mutual benefits. It could not conscientiously be said that any operative undue influence was actively or subliminally at work here. James Goodwin (instructed by IBB Law of Chesham) appeared for the claimants; Carl Troman (instructed by MJD Solicitors of Brentwood) appeared for the defendants. Eileen O’Grady, barrister Click here to read a transcript of Lucas and another v Gilbert and another