Archive for the ‘Fiduciary duty’ Category

Fiduciary duties after a joint venture has ended?

March 8, 2012

Active Profit Ltd v Nissho Iwai Hong Kong Corp Ltd ([2006] 4 HKLRD 467, CFA) concerned a joint venture arrangement set up for the sole purpose of developing a site in Tai Wai. K and C (though a company they owned) were to contribute part of the land for the development. A was one of the parties providing the finance. Ultimately the plan to develop the site was abandoned for compelling financial reasons. The joint venture was terminated in accordance with the terms of the agreement between the participants and K and C  sold the shares in the vehicle through which they held the site to a developer at a profit. A claimed that as a result of the terms of the joint venture agreements K and C were under a duty to account to A for part of the proceeds of sale of the ‘joint venture’ assets. The CFA (Lord Scott giving the only full judgment) rejected this. The terms of the joint venture agreements subjected neither the site nor the shares to any trust in favour of A. Once the joint venture had ended, K and C were free to sell the site (or the shares in the company that owned the site) without having any duty to account to A. The outcome might have been different had A or the joint venture done anything to enhance the value of the site / vehicle. Despite A’s efforts to introduce fiduciary duties into the analysis, the CFA’s analysis focuses on the contractual rights and duties of the parties. As Lord Scott said: ‘This case raises no issue about the scope of fiduciary duties owed by one joint venturer to another.’ (para. 42)

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Membership of rival bidding consortia

March 6, 2012

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.