National Grid Electricity Transmission Plc v McKenzie Harbour Management Resources Ltd & Anor (Rev 1)

An employee may owe fiduciary duties in limited respects arising from the context of particular contractual responsibilities. Such duties do not automatically make the employee a general fiduciary or trustee. Secret payments received by an employee because of his position are recoverable as bribes. A fiduciary who diverts a commercial opportunity through a partnership or joint venture may be liable for the profit received by the venture, including profits distributed to co-venturers. Equitable relief must deprive the fiduciary of benefits obtained through the breach without imposing a penalty. Common-law damages remain compensatory and require proof of actual loss. Reasonable investigation costs may be recoverable as consequential loss where they were incurred in detecting or mitigating the wrong.

National Grid claimed against an employee, a retained quantity surveyor and associated companies for corruption, breach of contract, deceit, breach of fiduciary duty, dishonest assistance and conspiracy. The claims concerned secret payments, inflated labour and fuel charges, vehicles and equipment, and profits allegedly obtained through subcontracting arrangements.

After a lengthy trial, the court assessed which payments and charges were proved, whether National Grid had suffered compensable loss, and whether the defendants had to account for secret profits obtained through joint ventures. The central issues included the scope of employee fiduciary duties, the remedies for bribery and secret profits, and the distinction between compensatory damages and equitable account.

1. Disposition. The claims succeeded in substantial part. Mr McKenzie was ordered to account for bribes of £161,403 and was ordered to pay or account for further sums, including damages for overcharged labour and fuel, profits from the Devon culvert joint venture, South Wales profits, vehicles and equipment, and investigation costs. Mr Read was made jointly liable or accountable for specified parts of that relief.
2. An employee does not become a fiduciary merely by being employed. Fiduciary duties may arise in limited respects from the context of particular responsibilities. Mr McKenzie owed duties of honesty and good faith, not to place himself in a position of conflict, and not to make a secret profit in connection with his responsibility for negotiating contracts and approving charges.
3. The payments and benefits received from suppliers were bribes because they were received by virtue of the employment and in dereliction of duty. National Grid could recover the bribes themselves. Alternatively, it could claim damages for proved loss arising from the transactions connected with the payments.
4. Where a fiduciary exploits a commercial opportunity through a partnership or joint venture, he may be liable for the profit diverted through that vehicle, not merely the sum personally received. The principle applied to the £90,000 profit from the culvert arrangement.
5. Common-law damages for breach of contract, deceit or conspiracy remained compensatory. National Grid failed to recover damages where it proved improper conduct but not actual loss, including the South Wales subcontracting arrangements and the culvert transaction itself. Equitable relief could nevertheless require disgorgement of secret profits.
6. Investigation costs were recoverable in principle as consequential loss where incurred in detecting or mitigating the wrong. On the evidence, £575,000 was awarded jointly against Mr McKenzie and Mr Read.

First-instance judgment of the High Court (Chancery Division). No prior appellate decision is stated in the judgment.