Ross River Ltd & Anor v Waveley Commercial Ltd & Ors

A fiduciary duty owed in the management of joint venture revenues does not ordinarily prevent a company or its director from defending genuine litigation brought against them, even where the expenditure may reduce the funds available to satisfy a judgment. Liability for breach requires proof of the particular breach and proof that it caused loss. Insolvency and an aggregate deficit do not, without more, establish either element. Where the alleged breach consists of payments by a company to third parties, restoration to the company may be the natural equitable remedy, with the claimant’s loss assessed by reference to the position after restoration. Compensation should not be awarded where the evidence does not establish breach or causation and the loss cannot reliably be quantified.

The judgment addressed matters left unresolved in the court’s earlier judgment in the same proceedings, [2012] EWHC 81 (Ch). The court quantified the net profits payable under a joint venture agreement and considered whether Peter Barnett was liable to Ross River by way of equitable compensation for alleged breaches of fiduciary duty.

Waveley Commercial Ltd had entered insolvent liquidation. Ross River contended that payments to connected parties and legal fees had depleted joint venture revenues and caused the shortfall in its recovery. The central issues were whether Mr Barnett had breached his fiduciary duties, whether any breach had caused loss, and whether that loss could be quantified.

1. The court accepted the supplementary expert calculation that the net profits under the joint venture agreement were £1,209,815. The sum payable by Waveley Commercial Ltd to Ross River was £1,043,926.

2. The fiduciary duties previously found to exist required good faith and prohibited conduct in handling joint venture revenues which favoured Mr Barnett or a connected company to Ross River’s disadvantage. Those duties did not require Waveley Commercial Ltd or Mr Barnett to refrain from defending genuine claims brought against them. Waveley was a necessary and real defendant, and was entitled to use its assets to defend the proceedings, even though the expenditure might leave it unable to satisfy a judgment.

3. The court rejected the proposition that insolvency or the existence of a deficit automatically established breach. Not every payment to a third party was a breach, and the claimant had to establish the relevant conduct and its causal effect. The court also declined to treat the failure to liquidate Waveley in early 2009 as a breach, since the allegation had not been pleaded or put to Mr Barnett in cross-examination.

4. The legal fees were properly apportioned equally between Waveley and Mr Barnett. The payments made by Waveley towards those fees did not constitute a breach of Mr Barnett’s fiduciary duties. The court regarded the analogy with Re Bathampton Properties Ltd [1976] 1 WLR 168 as inapplicable on the facts.

5. Even if part of the deficit had resulted from breach, the natural equitable relief for payments made away by Waveley would have been restoration to Waveley. Any loss to Ross River would then have had to be assessed by reference to the increased dividend available in the liquidation. The uncertainties surrounding the liquidation and costs made reliable quantification impossible.

6. Ross River failed to establish breach, causation or a quantifiable loss. No equitable compensation was awarded against Mr Barnett. No order was made for payment of equitable compensation by him.

The present judgment was a further first-instance determination following the court’s earlier judgment in the same proceedings, [2012] EWHC 81 (Ch), which had left Mr Barnett’s fiduciary liability unresolved.