Ross River Ltd v Waverley Commercial Ltd (first instance)

The court was asked to determine a large number of accounting and contractual disputes arising from a joint venture agreement (JVA) for a property development at Ampthill, together with the validity and effect of a contemporaneous side agreement and guarantee. The judge concluded that the side agreement and accompanying guarantee dated 15 August 2005 were not a sham and were enforceable in accordance with their terms. The court resolved numerous specific items relevant to the calculation of Net Profits under Part II of the JVA and directed that the forensic accountants complete the cash‑flow, bank charges and interest calculations in accordance with the judge’s findings.

As to contract law, the court refused to imply the wide contractual terms for which the claimants contended (drawing on the principles in Attorney General of Belize v Belize Telecom), holding that the JVA did not admit the far‑reaching implied obligations sought. On fiduciary law the court held that the promoter company (WCL) and Mr Barnett did owe fiduciary obligations to the claimants in the form of a duty to act in good faith and not to take actions in relation to joint venture receipts that favoured themselves to the detriment of Ross River; the judge found that the side agreement sums were within the scope of those duties. The judge declined at that stage to make final awards of equitable compensation, pending completion of the accountancy work and further evidence and submissions.

This case concerned the administration, accounting and legal consequences of a joint venture agreement of 23 December 2004 relating to a development at Bedford Street, Ampthill. Ross River Limited and Blue River LP (the claimants) entered the JVA with Waveley Commercial Limited (WCL) and two individuals, Mr Barnett and Mr Harney. The dispute required the court to determine:

• the proper calculation of Net Profits under Part II of the Schedule to the JVA (and numerous particular items of revenue and expenditure);
• whether a side agreement and accompanying guarantee dated 15 August 2005 were genuine and, if so, their effect;
• whether contractual terms should be implied into the JVA which would place wide restrictions on WCL’s conduct; and
• whether WCL and/or Mr Barnett and Mr Harney owed fiduciary duties to the claimants and, if so, whether those duties had been breached and by whom.

Procedural posture: first instance trial in the Chancery Division with extensive factual and expert accounting evidence. The court proceeded to determine, on the evidence, the legal construction issues and numerous accounting items (revenues and allowable deductions) but left the final cash‑flow computation of bank interest and bank charges to the parties' forensic accountants to implement in accordance with the judge’s findings.

Key factual and legal reasoning (concise):

• Net Profits: the court treated the Financial Proposal annexed to the JVA as a base costing document, not an immutable schedule of fixed sums; actual costs and proper evidence of expenditure had to be proven by the promoter. The judge resolved particular disputed items (for example, that the cash actually received for Flat 12 of £140,000—not the £189,500 shown on some documents—was the revenue to be brought into account; that the Bradcliffe package was, in substance, paid for by £450,000 and that Bradcliffe’s historic costs of £208,621.97 were deductible; that the snooker‑club lease payment was £550,000 and no larger sum could be treated as WCL’s liability; and assessed reasonable legal fees at £254,550). The judge emphasised the contractual mechanism for expert determination (clause 15) but concluded it was too late to insist on exclusive expert determination because the parties had led evidence and litigated the accounting issues.
• Side agreement and guarantee: after examining negotiation history and contemporaneous documents, the court rejected the defendants’ sham argument and held the side agreement and guarantee effective according to their terms. The judge construed clause 3 (grossing up of the £235,000 figure) so as to give a commercially sensible result in light of the subsequent third supplemental agreement.
• Implied terms: applying the approach explained in Attorney General of Belize v Belize Telecom, the court refused to imply the broad terms sought by the claimants (for example a term prohibiting WCL carrying on any business other than the joint venture or an obligation not to take steps that would prejudice its ability to pay sums due). Those terms were neither obvious nor necessary to give business efficacy to the JVA and would have unduly altered the parties’ commercial bargain.
• Fiduciary duties: after a careful review of authority and the contractual matrix, the judge held that WCL (as promoter with control of the venture receipts and disposals) and Mr Barnett (given his role, the extent of trust reposed and personal involvement) did owe fiduciary obligations to Ross River: a duty of good faith in operating the venture and a duty not to use joint venture receipts in a way that favoured themselves (including associated companies) to Ross River’s detriment. The court identified a large number of transfers to connected parties and observed that, subject to precise calculation and further submissions, those transfers had likely jeopardised Ross River’s entitlements. Final relief (accounts, equitable compensation or other remedies) was adjourned for the accountants to complete the cash‑flow work and for further submissions.

At first instance the court (Morgan J) directed determinations on many accounting and construction questions. The judge held the side agreement and accompanying guarantee (15 August 2005) to be genuine and enforceable; he construed the JVA (including clauses 10.5 and 12.3.5) but refused to imply the wide contractual protections contended for by the claimants. The court found that WCL and Mr Barnett owed fiduciary duties (good faith and a duty not to favour themselves in respect of joint venture receipts) and that the conduct of WCL and Mr Barnett had, on the material before the court, likely jeopardised Ross River’s entitlements; the judge directed further accountancy calculations and adjourned determination of final remedies pending those calculations and further submissions.