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The claimants (a property development company and its directors) brought a claim against the executor of the estate of one of their fellow joint venturers for breach of a joint venture agreement to build flats. The executor counterclaimed for the return of the freehold property upon which the flats had been built.
The dispute dated back many years and was complicated by the death of two of the joint venturers. A professional administrator had to be appointed to complete the joint venture pending resolution of various disputes.
The court considered and applied inter alia the legal principles on:
(a) contractual interpretation;
(b) good faith clauses;
(c) the imputation of fiduciary duties;
(d) Henderson v Henderson abuse of process; and
(e) the approach to witness evidence.
The court relied upon the usual authorities, including the summary in Network Rail Infrastructure Ltd v ABC Electrification Ltd  EWCA Civ 1645. The court noted the general principle that the parties’ subjective understanding or intentions with regard to a contract are irrelevant to its construction, concluding that it is therefore not necessary to consider such matters at any length.
The joint venture agreement contained an express good faith clause.
The court relied upon the principles in Unwin v Bond  EWHC 1768 (Comm), which stated that a defendant who owes a duty of good faith must observe the following “minimum standards”:
(a) they must act honestly;
(b) they must be faithful to the parties’ agreed common purpose as derived from their agreement;
(c) they must not use their powers for an ulterior purpose;
(d) when acting they must deal fairly and openly with the claimant;
(e) they can consider and take into account their own interests but they must also have regard to the claimant’s interest.
These minimum standards are not entirely distinct from one another. Rather, they tend to overlap.
The court also, however, noted the principles in Re Compound Photonics Group Limited  EWCA Civ 1371 in which it was held that the meaning of a good faith clause depends on the construction of the particular clause in question, applying normal principles of contractual construction, and that there are no “minimum standards” necessarily implied into every such clause.
It is clear that the interpretation of good faith clauses is, in large part, fact specific.
It was alleged that the joint venturers owed various fiduciary duties by virtue of the nature of the joint venture.
The court relied on the summary of principles in Glenn v Watson  EWHC 2016 (Ch), and went on to note as follows:
(a) For fiduciary duties to exist in the context of a contractual commercial joint venture is unusual. The key is usually not whether there is trust and confidence arising from the contractual (or familial) relationship, but whether or not a party (A) is in a position where s/he trusts that one or more other parties will act exclusively in A’s interests or put A’s interests first.
(b) Fiduciary duties, even if they are owed in a joint venture context, are not necessarily owed by each joint venturer to all or any of the others.
(c) Even if a fiduciary duty is owed with respect to certain aspects of a joint venture, it will not necessarily be owed in respect to other parts of it.
(d) The fact that there is an express good faith clause suggests that there are no fiduciary duties owed over and above that contractual duty.
As with good faith clauses, the imputation of fiduciary duties is also, in large part, fact specific, and it will be necessary to consider carefully whether a particular duty should be owed in a particular context and by and to whom.
The court considered the case law on the approach to evidence, including the summary in R (Dutta) v General Medical Council  EWHC 1974 (Admin). It was concluded that caution should be exercised given witness animosity and self-interest, and given the facts dated back some two decades and had been discussed by the witnesses with each other and others on many occasions. Furthermore, the court held that the witness evidence should be tested against:
(a) the contemporaneous documents;
(b) other independent evidence; and
(c) the inherent probabilities.
As with any case dating back many years and involving considerable animosity and self-interest, having contemporaneous documents and independent evidence can be extremely important in raising the prospects of success.
The claimants succeeded in recovery of an overpayment made to the administrator and on breaches of the joint venture agreement (namely, a failure to sign loan renewals and a section 106 agreement). It was also found that the transfer of the freehold to the first claimant by the administrator could not be reversed on the proper construction of the joint venture agreement and because it would constitute an abuse of process as the court had previously considered the issue and directed that the freehold be transferred to the first claimant.
To read the full judgement click here.
Elaine Palser has an extensive chancery and commercial practice with an emphasis on contentious probate and trusts, insolvency, commercial disputes, and professional negligence. She is also a CEDR-accredited mediator. Elaine has been described as “an excellent advocate”, “technically superb” and “a seasoned legal gladiator” (Legal 500), and she is recommended as a leading junior in three areas.
To instruct Elaine or to find out more please contact Elaine’s Practice Management Team: Matt Sale (+44 (0)20 7427 4910) or George Bennett (+44 (0)20 7427 0807).
Commercial, News 4 May, 2023
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