Ross River Ltd & Anor v Waveley Commercial Ltd & Ors

A commercial joint venture does not automatically create fiduciary obligations, nor does the use of a newly incorporated company establish a single-purpose vehicle. Fiduciary obligations may nevertheless arise where one party assumes responsibility for managing the venture, controlling its revenues and accounting to the other party, in circumstances requiring trust and confidence. The obligation must conform to the contractual allocation of rights and risks.

A term requiring a party to preserve assets so that future debts can be paid will not ordinarily be implied into a contract. Implied terms must reflect the objective meaning of the agreement as a whole. Where a contract confers control over joint venture receipts and contemplates payments on account of profit, the controlled party may owe a fiduciary obligation to act in good faith and not handle revenues so as to favour itself, or a connected company, to the disadvantage of the other participant.

The claim arose from a property development joint venture at Bedford Street, Ampthill. Ross River Limited, acting for Blue River Limited Partnership, contracted with Waveley Commercial Limited under a joint venture agreement. Peter Barnett and Paul Harney also executed the agreement in limited personal capacities.

The dispute concerned the calculation of Net Profits, the enforceability and construction of a side agreement and guarantee, alleged implied contractual terms, fiduciary obligations, and Mr Barnett’s personal or accessory liability. Mr Harney was in default and did not participate in the trial. The court was also asked to determine the parties’ accounting disputes notwithstanding the contractual reference to an expert accountant.

1. Net Profits. The parties had proceeded to trial on the basis that the court would determine the accounting disputes. The contractual mechanism for an expert accountant was therefore not invoked at the conclusion of the trial. WCL bore the burden of proving deductible expenditure. The court determined the treatment of the disputed revenues, Bradcliffe expenditure, the snooker club, legal fees, management fees, administration costs and other items. The accountants were directed to calculate the remaining bank charges and interest.
2. Side agreement. Applying Snook v London and West Riding Investments Ltd [1967] 2 QB 786, the court held that the documents were not a sham. The relevant parties intended the written side agreement and guarantee to govern their rights. Any inaccurate description of the transaction’s tax or financial character would not extinguish WCL’s liability. The side agreement was construed so that the capital repayment and Prior Profit Allocation produced a sensible commercial result, including after the increase in Ross River’s profit share to 40%.
3. Implied terms. Applying Attorney General of Belize v Belize Telecom [2009] 1 WLR 1988, the court refused to imply terms preventing WCL from carrying on other business or requiring WCL, Barnett and Harney to preserve assets for future payment. The express provisions concerning payment on account and security, particularly clauses 10.5 and 12.3.5, made further terms unnecessary and inappropriate.
4. Fiduciary obligations. The expression joint venture was not itself determinative. On the particular facts, WCL had control of the development, receipts, expenditure and accounting, while Ross River relied on it to operate the venture and account for its share. WCL therefore owed fiduciary obligations to act in good faith and not handle joint venture revenues so as to favour itself to Ross River’s disadvantage. The same limited obligations were owed personally by Barnett, including where a company controlled by him was favoured. The obligations extended to sums payable under the side agreement.
5. Breaches and relief. The court provisionally concluded that WCL and Barnett had probably used joint venture revenues in a manner jeopardising Ross River’s entitlement, but further calculations were required. Final calculation of Net Profits, any equitable compensation, costs and consequential orders were adjourned.

First-instance judgment. The judgment determined the principal issues but adjourned final consequential matters, including the final calculation of Net Profits, possible equitable compensation and costs.