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Joint Ventures & Implied Fiduciary Duties

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The Court of Appeal has confirmed for the first time that a joint venture arrangement can give rise to an implied fiduciary duty owed by the director of one joint venture partner to another partner.

In Ross River Limited and anor v Waveley Commercial Limited and ors [2013] EWCA Civ 910, the claimants entered into a joint venture agreement with the first defendant, Waveley Commercial Limited (“WCL”), to develop property in Bedfordshire. Under the terms of the agreement, the claimants were to provide finance for the development. Mr Barnett and Mr Harney (the second and third defendants) owned WCL, and were more personally involved in the development on a day-to-day basis than the claimants.

After a few years, the claimants became suspicious of WCL, particular in respect of several large payments they were making to third parties. The development appeared to be progressing slowly, and in February 2009 proceedings were issued against WCL, Barnett and Harney.

Under the joint venture agreement, Ross River had contracted with WCL in respect of various obligations which the former alleged had been breached. Unfortunately for the claimants, WCL did not have sufficient assets to meet the claim. Therefore the claimants sought to persuade the court that the shareholders of WCL (Barnett and Harney) owed a fiduciary duty of good faith to Ross River, such that they should be required to pay equitable compensation.

Original decision and subsequent appeal

At first instance, Morgan J held that a fiduciary duty existed. Specifically, a duty of good faith and a duty not to misuse joint venture revenues could be implied into the joint venture agreement. However, Morgan J limited the scope of the duties, and therefore considered that there was no loss actionable against Barnett and Harney.

The claimants appealed on this latter point, and the Court of Appeal not only upheld the existence of a duty, but also extended its scope. It was therefore established that Barnett was liable to pay the claimants equitable compensation by virtue of the fiduciary duties established.

Analysis

This is not the first time that a fiduciary duty has been implied into a joint venture agreement. However, it is the first time that the Court of Appeal has upheld such a decision, providing confirmation of the legal principle. The consequences could be far-reaching, and potentially of great use to a claimant who cannot seek redress from the contractual obligations between companies who are party to a joint venture agreement (most likely because the company in breach does not have the necessary assets to make such a claim viable, as in Ross River).

However, caution is to be urged. In the above case, the Court of Appeal was eager to stress that fiduciary duties will certainly not be implied lightly. Each case will be decided on its particular facts. In Ross River, it was especially significant that the claimants placed a very high level of trust in Barnett and Harney (as to the operation of the joint venture). It was also recognised that Barnett made a very notable personal contribution to the venture, and therefore the court was more willing to imply fiduciary duties.

If there is a lesson to be drawn from this case, perhaps it is that the scope of duties owed (both between joint venture partners and between their respective directors) should be set out as clearly as possible in the joint venture agreement, in order to avoid any future ambiguity. Establishing fiduciary duties is very much a last resort, and most claimants finding themselves in this position might have avoided the expense of litigation had they been better advised from the outset.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 020 7404 0606 and ask for your usual Goodman Derrick contact.