Ross River Ltd and Another v Waveley Commercial Ltd and Others
Jurisdiction | England & Wales |
Judge | Mr Justice Morgan |
Judgment Date | 06 September 2012 |
Neutral Citation | [2012] EWHC 2487 (Ch) |
Court | Chancery Division |
Docket Number | Case No: HC09C00596 |
Date | 06 September 2012 |
[2012] EWHC 2487 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Rolls Building, Fetter Lane, London, EC4A 1NL
Mr Justice Morgan
Case No: HC09C00596
Mr David Caplan (instructed by Mischon de Reya) for the Claimants
Mr Piers Hill (instructed on Public Access) for the Second Defendant
Hearing dates: 19 th and 20 th June 2012
Introduction
This judgment deals with certain matters arising out of the judgment which I handed down in this action on 25 th January 2012, the neutral citation of which is [2012] EWHC 81 (Ch). In this present judgment I will adopt the definitions which I used in the earlier judgment. I will also assume that anyone who wishes to follow the reasoning in this present judgment will have available the earlier judgment. Thus, I will not restate all of the many matters which were considered in the earlier judgment although I may need to refer to some matters which I then decided in order to explain the reasons for my further conclusions.
On 17 th February 2012, I ordered WCL to make an interim payment of £1,000,000 to Ross River. WCL did not pay any part of that sum. On 21 st March 2012, Ross River presented a petition for the winding up of WCL and on 14 th May 2012 the Registrar ordered that WCL be wound up. On 19 th June 2012, pursuant to section 130(2) of the Insolvency Act 1986, I granted leave to Ross River to continue the present action against WCL.
The two principal matters with which I will deal in this judgment are: (1) the amount of the Net Profits pursuant to the JVA and (2) the possible liability of Mr Barnett to pay a sum to Ross River by way of equitable compensation for alleged breaches of fiduciary duties which he owed to Ross River.
The Net Profits
I can take the first of these matters shortly. Following my earlier judgment, I was provided with a supplementary expert report by Mr Davidson, the expert instructed on behalf of Ross River. Mr Davidson had calculated the amount of Net Profits in accordance with the JVA and in accordance with the detailed conclusions set out in my earlier judgment. I was not provided with any further evidence by any expert instructed by WCL or Mr Barnett. Mr Davidson's conclusions as set out in his supplementary expert report were not the subject of any criticism by counsel instructed by Mr Barnett. Accordingly, I accept Mr Davidson's conclusions. I hold that the amount of Net Profits in accordance with the JVA was £1,209,815.
In accordance with the agreement that Ross River would receive 40% of Net Profits, and in accordance with WCL's liability to pay a further sum to Ross River pursuant to the side agreement, the sum payable by WCL to Ross River is £1,043,926. As explained in my earlier judgment, the simplest way to arrive at the sum payable by WCL to Ross River, now that the figure for Net Profits is established, is to take 40% of that figure and add £560,000 (i.e. £325,000 + £235,000) to it, rather than arriving at the same answer by doing the calculation in the more complicated way directed by the terms of the side agreement. That means that out of the Net Profits of £1,209,815, WCL is entitled to retain the balance of £165,889.
WCL is now in insolvent liquidation. That fact does not affect its legal liability to pay the sum of £1,043,926 to Ross River. However, the insolvency of WCL may have a bearing on the next matter with which I will deal in this judgment, namely, the possible liability of Mr Barnett for alleged breach of fiduciary duty. I will deal with the implications of WCL's insolvency, in that context, later in this judgment.
Mr Barnett's position: the background
I now turn to the second matter, namely, the possible liability of Mr Barnett to pay a sum to Ross River by way of equitable compensation for alleged breaches of fiduciary duties which he owed to Ross River. At paragraph 263 of my earlier judgment, I held that Mr Barnett owed fiduciary duties to Ross River. These duties were a duty of good faith and a duty not to do anything in relation to the handling of the joint venture revenues which favoured himself to the disadvantage of Ross River. I explained that a reference to "favouring himself" included a case where the party favoured by him was a company controlled by him or in which he had a substantial interest. I also explained that his fiduciary duties extended not only to protect Ross River's rights to payment under the original JVA but also to payment of the sums due to Ross River under the side agreement.
Between paragraphs 264 and 279 of my earlier judgment, I addressed the question whether Ross River had established that Mr Barnett had committed a breach of his fiduciary duties. I commented that I had received very little assistance from the parties in the course of the trial in answering that question. That was because Ross River had made unrealistic submissions as to the position and because Mr Barnett had given inconsistent evidence on a number of matters and, in any event, I held that I had to be very cautious about any of the evidence which he gave. At paragraph 266 of my earlier judgment, I commented that the difficulty of deciding the question was increased by the fact that Ross River had failed to ask the right question and had failed to adduce evidence directed to answering that question.
I then considered the evidence which I had as to what WCL ought reasonably to have considered from time to time would be the likely outcome of the development and the resulting sum payable to Ross River and the resulting sum which could be retained by WCL. I then considered the evidence which I had as to the sums which WCL had paid to connected parties otherwise than for joint venture purposes. In the course of that consideration, I referred to a point which divided the parties as to the right response to the fact that WCL had apparently incurred a liability to pay substantial sums by way of legal fees in defending the present action. I noted that I had been asked to leave that point open until I received further submissions on it, following judgment. I also referred to the fact that there were loose ends as a result of certain written submissions made following the trial. I eventually came to the conclusion that I was constrained to leave undecided, at that stage, the question of any liability on Mr Barnett's part for alleged breach of fiduciary duty.
Following my earlier judgment of 15 th January 2012, I gave directions for a further hearing of the two matters with which I am now dealing. On the day when that further hearing was due to take place, Mr Barnett applied for the matter to be adjourned. I concluded that I ought to adjourn the hearing on terms that Mr Barnett would make an interim payment on account of his possible liability for the alleged breach of fiduciary duty. On 17 th February 2012, I ordered Mr Barnett to make an interim payment of £450,000 to Ross River. I understand that he did not in the event pay any part of that sum. Also on 17 th February 2012, I permitted Mr Barnett to serve Points of Defence addressing the extent of his alleged liability to Ross River.
In a judgment which I gave on 17 th February 2012, I discussed the nature of the intended further hearing as to Mr Barnett's alleged liability to Ross River. Ross River's position was that it did not wish to serve any further evidence and would rely on the evidence adduced at the trial. Counsel for Mr Barnett did not press an earlier suggestion that Mr Barnett should be allowed to adduce further evidence. I took the view that the parties should not be permitted to call further evidence. The original trial was not a split trial; it was intended to be a trial of both liability and quantum. At that trial, Ross River had alleged that Mr Barnett owed fiduciary duties, that he had broken those duties and that Ross River had suffered loss as a result. Mr Barnett ought to have been well aware of the case which he had to meet in those respects. I considered that he had had a full opportunity to put his side of the case. He had been involved in the detail of the joint venture and he was in a position to put his side of the story. Although Ross River had put the case against him higher than I held in my judgment was justified, nonetheless since Ross River is confining itself to factual matters which were the subject of the evidence at the trial, Mr Barnett ought to have been able to put his factual case in response. As it happened, he gave evidence which I considered to be inconsistent and not impressive in a number of respects. Further, I concluded that I had to treat all of his evidence with caution. Although Mr Barnett has complained on a number of occasions that certain evidence was tendered by Ross River's expert at a late stage in the trial, I did not consider that this complaint was justified. The evidence in question was given when the expert was called to give his evidence and following that evidence there was an adjournment over the long vacation in 2011 and the trial resumed and ran for a further 6 days in October 2011. When, in my earlier judgment, I stopped short of coming to a final conclusion on this question, I did so for specific reasons which I intended would be dealt with by hearing further submissions from the parties but not so as to necessitate the re-opening of the trial.
On 4 th May 2012, Mr Barnett applied for a stay of the action and an adjournment of the intended hearing as to Mr Barnett's alleged liability for breach of fiduciary duty. By that date, he had served an Appellant's Notice in relation to my earlier judgment of 25 th January 2012. This application was a reversal of...
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