Ross River Ltd and Another (Claimants Appellants) v Waveley Commercial Ltd and Another (Defendant Defendant and Respondent) (3) Paul Harney and Another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lloyd,Lord Justice Fulford,Lord Justice Mummery |
| Judgment Date | 29 July 2013 |
| Neutral Citation | [2013] EWCA Civ 910 |
| Docket Number | Case No: A3/2012/2944 |
| Court | Court of Appeal (Civil Division) |
| Date | 29 July 2013 |
[2013] EWCA Civ 910
Lord Justice Mummery
Lord Justice Lloyd
and
Lord Justice Fulford
Case No: A3/2012/2944
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR JUSTICE MORGAN
[2012] EWHC 81 and 2487 (Ch)
Royal Courts of Justice
Strand, London, WC2A 2LL
David Caplan (instructed by Mishcon de Reya) for the Appellants
Piers Hill (instructed by way of Direct Access) for the Respondent
Introduction and summary
This judgment is given on an appeal and a cross-appeal against an order of Mr Justice Morgan dated 9 October 2012, following the delivery of two judgments, one on 25 January 2012, [2012] EWHC 81 (Ch), and the other on 6 September 2012, [2012] EWHC 2487 (Ch). I will refer to the latter as the judgment on remedies.
The litigation arose from a development project concerning land in Ampthill, Bedfordshire. The project was initiated by Mr Barnett, the Second Defendant and respondent to the appeal, together with Mr Harney, the Third Defendant, who took no active part in the litigation. At first the project was conducted through a company owned by Mr Barnett, Bradcliffe Ltd. Late in 2004, the Claimants were introduced to Mr Barnett and to the project. They were able to assist by providing the finance needed to buy a site (known as the Shell Site) which was required so as to make it possible to satisfy a condition subject to which it was expected that planning permission would be granted, and by contributing that site to the project on agreed terms. At that stage, the First Defendant, Waveley Commercial Ltd (WCL) was incorporated, to be owned by Mr Barnett and Mr Harney, and a joint venture agreement (JVA) was entered into between the Claimants and the First Defendant, to which Mr Barnett and Mr Harney were also parties as guarantors of liabilities of WCL, though only of liabilities which did not in the event arise.
I will refer to the Claimants together as Ross River, though Ross River Ltd, the First Claimant, was a party to the JVA as the general partner of the York Development Limited Partnership, which later changed its name to Blue River Limited Partnership, the Second Claimant. The individual who stands behind Ross River is a Mr York.
WCL was not specifically restricted to carrying out only one development project, but in fact it did not do anything else. When it was set up Mr Harney was its only director, but Mr Barnett, who became a director in 2008, accepted that he had been a shadow director throughout.
I will have to refer to some of the terms of the JVA in detail later. In August 2005 the parties entered into a Side Agreement which, as the judge found, increased Ross River's entitlement to the Net Profits (as defined in the JVA) from one third to £560,000 plus one third, and gave priority to Ross River's entitlement to that amount. Later, another agreement increased Ross River's share from one third to 40%. A further agreement was reached in February 2006 under which Mr Barnett and Mr Harney were to be entitled to be paid management fees of (or up to) £120,000, the payment of which by WCL which would be deductible for the purpose of calculating the Net Profits.
The development was completed in 2007, but its realisation took a long time, and the last elements of the scheme were not sold until 2011, during the trial. Ross River became dissatisfied in 2008 with the lack of progress and the lack of information supplied by WCL, and suspicious of some of WCL's dealings. The litigation was commenced in 2009, the immediate occasion being an application for an injunction to restrain what was said to be an improper sale of part of the development. The issues developed during the litigation, but from the start one of the contentious points was the status and effect, if any, of the Side Agreement.
By the time of the trial, which took place over 11 days in July 2011 followed by 6 days in October 2011, the principal issues were what was the amount of the Net Profits, what was the status and effect of the Side Agreement, and whether Mr Barnett owed duties directly to Ross River as well as the duties that he owed to WCL as director and those that WCL owed to Ross River under the JVA and related agreements. Ross River contended that Mr Barnett owed it contractual duties, under terms to be implied into the JVA, but also that both he and WCL owed it fiduciary duties. By then WCL was not able to pay its debts as they fell due, and was being supported by Mr Barnett. Although WCL was clearly indebted to Ross River, subject to the decision as to quantum of Net Profits and as to the effect of the Side Agreement, a judgment against WCL was unlikely to be of any real value to Ross River. So it was important for it to establish a direct remedy against Mr Barnett. WCL and Mr Barnett were represented by a single team of solicitors and Counsel at the trial.
The judge decided most of the issues at trial in favour of Ross River, though he rejected the case as to implied contractual duties owed by Mr Barnett. He decided a number of specific issues as to the Net Profits in favour of Ross River, but did not decide the exact figure because the impact of his judgment on consequential calculations would need to be considered, for which he did not have the necessary material. He held that the Side Agreement was enforceable according to its terms, and was not a sham, as Mr Barnett and WCL had alleged, and he resolved in favour of Ross River arguments as to its interpretation. He also held that WCL and Mr Barnett did owe fiduciary duties to Ross River, of good faith and not to do anything as regards the handling of the joint venture revenues which favoured WCL (and Mr Barnett) to the disadvantage of Ross River. He rejected the argument that they also owed a more extensive fiduciary duty.
Mr Justice Morgan gave his first judgment on 25 January 2012, and a date in February was fixed for the final details to be sorted out. In the event, that hearing was adjourned, but the judge then made orders for interim payments to Ross River, of £1 million by WCL and £450,000 by Mr Barnett, neither of which was paid. He gave a separate judgment about the interim payment orders: [2012] EWHC 407 (Ch). The adjourned hearing took place in June 2012. In the meantime, WCL had been ordered to be wound up in May 2012. The outcome of the adjourned hearing, explained in the judge's judgment handed down on 6 September 2012, was that the Net Profits were quantified at £1,209,815, and Ross River's entitlement out of that as being £1,043,926, but that Ross River was not held to be entitled to any equitable compensation for breach of fiduciary duty as against Mr Barnett. The judge's eventual order was made after a further hearing on 8 and 9 October 2012; his judgment on that occasion has the reference [2012] EWHC 3006 (Ch). His order included a provision that there be no order for costs as between Ross River and Mr Barnett.
Mr Barnett had filed an Appellant's Notice against the holding in the first judgment that he owed fiduciary duties to Ross River. Ross River was given permission to appeal by the judge against his final order and against his rejection of the implied terms and of the more extensive fiduciary duty for which they had contended. Mr Barnett's earlier appeal did not proceed, but the issues were taken up in a Respondent's Notice to Ross River's appeal, by which Mr Barnett contends first that he owed no fiduciary duty at all to Ross River (and nor did WCL) and in the alternative that the duty was less extensive than the judge had found it to be. Ross River has not pursued on appeal the contention that terms are to be implied into the JVA.
During the trial Mr Barnett and WCL were represented by leading and junior Counsel instructed by Geoffrey Leaver LLP, solicitors. By the time of the hearing in June 2012, Mr Barnett was acting in person, but with the benefit of representation by Mr Piers Hill (who had not appeared in the proceedings before) instructed on a direct access basis. For the appeal and cross-appeal Mr Hill represented Mr Barnett again, still on a direct access basis. Ross River was represented on the appeal by Mr David Caplan on instructions from Mishcon de Reya, he having been their junior Counsel at the trial and (on his own) at the hearing in June.
The first issue on the Respondent's Notice, as to whether Mr Barnett (and WCL) did owe a fiduciary duty at all, has to be addressed, logically, before any issue as to the scope of the duty or its consequences. Mr Hill therefore opened his cross-appeal first. In the course of his submissions on the cross-appeal Mr Caplan opened up some of the questions as to the scope of the duty, which arose on both the appeal and the cross-appeal. Then we heard argument separately on the appeal as to whether the judge was right to reject the claim for equitable compensation for breach of fiduciary duty.
For the reasons which are set out below, my conclusion is that the judge was right to hold that WCL and Mr Barnett were subject to fiduciary duties owed to Ross River, but that he failed to apply the incidents and features of those duties correctly. I would therefore dismiss Mr Barnett's cross-appeal and allow Ross River's appeal, to an extent and in terms that I will set out below.
The Joint Venture Agreement
Mr Hill submitted that the JVA...
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