Watersheds Ltd v Dacosta & Anor

A contractual description such as a success-fee basis does not override clear written terms providing for a minimum fee. A party who signs contractual documents knowing that they have legal effect is generally bound by their terms, absent an effective misrepresentation or other vitiating factor.

Non-disclosure ordinarily does not amount to misrepresentation. A special duty to explain contractual provisions arises only in an appropriate special category. Financial advisers assisting a company to identify investors and present information do not necessarily arrange deals in investments under the Financial Services and Markets Act 2000. Activities which merely assist communication, or which do not bring about a transaction, may fall outside the relevant regulated activities and exclusions.

Watersheds claimed £59,119.20 under personal guarantees given by the directors of companies which had engaged Watersheds to assist in raising finance. The defendants alleged misrepresentation about the minimum fee, misrepresentation or non-disclosure concerning their personal liability, and unenforceability under the Financial Services and Markets Act 2000. They also counterclaimed damages for negligent advice, alleging that Watersheds had advised them to give personal guarantees to HSBC.

The central issues were whether the contractual provisions were enforceable, whether Watersheds had carried on a regulated activity in breach of the general prohibition, whether any exemption or discretionary relief applied, and whether negligent advice had been proved.

1. Misrepresentation and non-disclosure. The defendants failed to prove that Watersheds represented that no fee would be payable unless the whole funding objective was achieved. The expression success-fee basis was capable of ambiguity, but it did not override the clear written provisions for a minimum fee. The defendants had received the contractual documents, understood that they would have legal effect if signed, and signed them repeatedly after the funding arrangements were varied.
2. The guarantee provisions imposed personal liability and were sufficiently clear. Watersheds was not under a general duty to draw the defendants’ attention to or explain provisions which might have unwelcome consequences. Non-disclosure did not amount to misrepresentation, and no special relationship or special category giving rise to a duty of disclosure was established. Clause 15 also excluded claims for misrepresentation in the circumstances of this case.
3. FSMA. The agreement was a single and indivisible agreement for the purposes of sections 26 and 28. Watersheds’ work did not constitute activity specified by article 25(1) of the RAO: it involved introductions and assistance in presenting information, but Watersheds could not materially influence whether an investment was made. Alternatively, any arrangements did not bring about a transaction and were excluded by article 26. Article 25(2) did not apply, having regard to the distinction between providing facilities for transactions and assisting one party; alternatively, article 27 applied because Watersheds merely provided means of communication.
4. Alternatively, any regulated activity was incidental to Watersheds’ professional services and Watersheds was exempt under section 327. In the further alternative, it was just and equitable under section 28 to permit enforcement. Watersheds reasonably believed that it was exempt, and the surrounding circumstances supported enforcement.
5. Counterclaim and outcome. The defendants did not prove that Mr Jones positively advised them to enter into the HSBC guarantees, or that they relied on negligent advice. Judgment was therefore entered for Watersheds on the claim, subject to interest, and the counterclaim was dismissed.

The judgment records that Watersheds previously obtained summary judgment and that the defendants’ appeal was successful in part. The pleadings were then amended before trial. No further appellate decision is identified.