Russell v Cartwright [2020] EWHC 41 (Ch) concerned a claim brought by one of four individuals who had engaged in property development together under a joint venture agreement.
Following his departure from the business, he claimed that he had not been told about, and was excluded from, an investment opportunity relating to a site in Wembley purchased shortly after he had left the business. He argued that the joint venture agreement was fiduciary in nature, or that his former business partners were in breach of express duties in the joint venture agreement, or that duties of good faith and fair dealing could be implied, and sought damages.
Was the relationship between the parties fiduciary in nature? The authorities indicate that fiduciary duties arise where one person is entrusted with authority to manage the property or affairs of another and to make discretionary decisions on behalf of that person, or where an adviser has a substantial degree of power over another party’s decision-making: Bristol and West Building Society v Mothew [1998] Ch 1. Consequently, fiduciary duties arise as between trustees and beneficiaries, solicitors and their clients, and principals and agents.
The test of whether a party is owed fiduciary duties is not based on whether he or she has subjectively placed trust in another. The test is an objective one, asking “whether the nature of the relationship is such that one party is entitled to repose trust and confidence in the other”. And, while contracting parties usually trust each other, that does not, of itself, mean that they can “trust” each other to act in each other’s best interests. Fiduciary duties do not usually arise in commercial settings, because the parties are usually entitled to put their own interests first.
What then of the fact that the parties had expressly agreed “to act in good faith” as regards the procurement of business for the joint venture? The judge considered that this might have been relevant if the Wembley project had been turned away, stalled for no good reason or diverted elsewhere. But that was not what had happened; the project was successfully procured for the joint venture, although by the time it was acquired one of the principals had left the business, so that the joint venture was continued by only three of them. So the continuing joint venturers were not in breach of their obligation to act in good faith – or of exclusivity and non-competition clauses in the joint venture agreement.
But the existence of the specific good faith obligation was highly relevant to whether any more general duty of good faith or fair dealing could be implied into the parties’ agreement. It strongly suggested that implying a more general good faith obligation would be inconsistent with the express term. So it was neither obvious, nor essential to the proper working of the contract, to imply some broader obligation of good faith.
Furthermore, even if some form of good faith obligation could be implied, typically it would involve no more than requiring “a party to refrain from conduct which in the relevant context would be regarded as commercially unacceptable by reasonable and honest people”. And the failure to mention the Wembley project, which was highly speculative at the time, in circumstances where the retiring partner had indicated that he was interested only in certain specified projects and it had not been concealed from him, was not conduct that would be regarded as commercially unacceptable by reasonable and honest people.
Allyson Colby is a property law consultant
