Summary

The court discussed the circumstances in which fiduciary duties could arise in the context of a claim for breach of fiduciary duty arising from a dispute concerning plans to take advantage of a business opportunity to recover the assets of a deceased wealthy businessman. In particular, the court examined the scope of a fiduciary's duty not to divert a "maturing business opportunity", and the effect of resignation of a company director on the continuation of his fiduciary duties.

Facts

The claimant companies (RP and Revoker) claimed that the first to third defendants (D1, D2 and D3) had breached fiduciary duties owed to them and to a third company (SCPI).

A wealthy businessman had died intestate in 2008. His family believed that he had substantial assets, but had no idea of their location or how they were held. SCPI had known the businessman well and D1 had been its director. SCPI had been attempting to reach an arrangement with the family to provide recovery services in relation to the assets, and incorporated RP and Revoker as part of that arrangement. Revoker was a limited liability partnership, and RP was admitted as one of its members. D2 and D3 were also involved in the project. D1 and D2 were partners in Revoker, and D3 was an employee. In 2011, a disagreement led to D1, D2 and D3 resigning from SCPI. In 2012, the family came to an agreement for recovery services with D1 and the fourth to ninth defendants (companies controlled by D1, D2 and D3). RP and Revoker claimed that D1, D2 and D3 had breached fiduciary duties owed to SCPI by diverting for themselves a business opportunity to conclude the contract for the recovery of the assets with the family.

Held

Relevant principles concerning fiduciary duties - Fiduciary duties were imposed as a reaction to particular circumstances of responsibility assumed by one person in respect of the conduct of affairs of another. A fiduciary had to undertake to act for or on behalf of another in circumstances which gave rise to a relationship of trust and confidence in which the fiduciary was not free to pursue their separate interests. A fiduciary was under a duty not to divert "a maturing business opportunity" away from the principal, Canadian Aero Service v O'Malley [1971] 1 WLUK 77 applied. Such limited guidance as the authorities provided indicated that a business opportunity might be regarded as "maturing" if there was contact between the principal and a third party with regard to future business, which had progressed to the stage where some outlines of future contractual relations were in play. There did not need to be a draft contract or any imminence of agreement, Island Export Finance v Umunna [1986] 1 WLUK 204, Hunter Kane Ltd v Watkins [2003] EWHC 186 (Ch)and Kao Lee & Yip v Koo Hoi Yan [2003] W.T.L.R. 1283 considered. The business opportunity had to come to the fiduciary only by reason of his position as fiduciary and had to be one which the company or person to whom duties were owed was actively pursuing (see paras 46-60, 65-68 of judgment).

Duration of fiduciary duties - D1 contended that his fiduciary duties ceased to operate once he resigned from SCPI. However, the "no profit rule" meant that a fiduciary could not avoid liability by resigning where he used property or information which he had acquired while a fiduciary for his own benefit. The business opportunity had to be treated as if it were property of the company in relation to which the fiduciary owed fiduciary duties; by seeking to exploit the opportunity after resignation the fiduciary was appropriating that property for himself, CMS Dolphin Ltd v Simonet [2001] 5 WLUK 607 applied. The question of whether resignation alone could be a breach would turn on whether it was inconsistent with the fiduciary duty of a director to act in good faith in the best interests of the company. It was possible that a "bad faith" resignation in breach of fiduciary duty might exist unaccompanied by any preparatory steps. However, the authorities did not justify a firm conclusion that a resignation with an intention to compete was necessarily by itself a breach, Foster Bryant Surveying Ltd v Bryant [2007] EWCA Civ 200 considered (paras 69-73, 81-84).

Limited liability partnerships - Under the Limited Liability Partnerships Act 2000 s.6(1), every member of an LLP was an agent of the LLP. However, that did not mean that all LLP partners would owe a general fiduciary duty outside the Limited Liability Partnerships Regulations 2001 reg.7. That would depend on the role which they performed, F&C Alternative Investments (Holdings) Ltd v Barthelemy [2011] EWHC 1731 (Ch) applied (paras 95-98).

Conclusions on breach of fiduciary duties - D1 and D2 owed fiduciary duties to SCPI, having both been employed in senior roles. D1 also owed fiduciary duties to RP, having signed a consultancy agreement setting out his duties concerning the recovery services. In relation to Revoker, D1 and D2 had been members, and fiduciary duties arose through their acts as agents under s.6(1) of the 2000 Act in view of their roles and the acts which they had undertaken. D3's senior and important role for Revoker was also sufficient to give rise to fiduciary duties (paras 307-347). SCPI had plainly intended to take advantage of the business opportunity. RP and Revoker also had an interest in the opportunity. D1, D2 and D3 had become aware of the opportunity through their positions in SCPI, Revoker and RP. There had plainly been a sufficiently mature business opportunity, with agreement having seemed close more than once. Active pursuit of the business opportunity had not ceased, and the defendants had not been released from their fiduciary obligations (paras 352-387). D1, D2 and D3 had clearly resigned with intent to compete. Their actions undoubtedly amounted to disloyalty, particularly when taken together with their preparatory actions to continue the recovery services. Their resignation had been in bad faith and they had breached their various fiduciary duties to SCPI, RP and Revoker (paras 403-426).

Other causes of action - RP and Revoker had also made out claims for breach of confidence, conspiracy and knowing receipt (paras 428-447, 450-453).

Statements of truth - It was troubling that D1 and D2 had not signed statements of truth in relation to the pleadings served on their behalf. Where there were multiple defendants, each should review and provide either his own statement of truth or his authority to his legal representative to make that statement for him. If composite defences were served, each defendant should review and verify each element of the case as it pertained to him. The court issued a reminder of the importance of statements of truth and of the careful observance of the requirements of CPR Pt 22 (paras 34-42).

Judgment for claimants