Membership of rival bidding consortia

In Button v Phelps ([2006] EWHC 53 (Ch)) P signed on 9th May contractually binding heads of terms to participate in a consortium headed by B (Ryeheath) that would bid for certain commercial properties. At the same time, he was a member of and working for a rival consortium intending to bid for the same properties. On 23rd May P made it clear that he was not part of the Ryeheath consortium and he had no duty towards Ryeheath after that date. Neither of these consortia was successful; the successful bidder was another consortium of which P was a member that participated in a second round of bidding. B claimed damages for breach of contract (essentially to recover the wasted costs of the Ryeheath bid). That claim succeeded.

B’s further claim for an account of profits (based on breach of fiduciary duty or on the Pallant v Morgan equity) failed. It is interesting to see that the court took the view that these were separate potential sources of an equitable claim and that the Pallant v Morgan equity is a constructive trust. The fiduciary duty claim failed because P never undertook to act on behalf of Ryeheath or its members: he had been assigned no clear role by the heads of terms (paras. 60- 61). In any event, there could be no liability to account because there was no link between the alleged breach and the profit made by participating in a later-formed consortium that bid in the second round (para. 66). The Pallant v Morgan claim failed because of the lack of the relevant pre-acquisition arrangement or understanding and because of the lack of advantage / detriment.

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