Joint Ventures & Implied Fiduciary Duties

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...