Avrahami & Ors v Biran & Ors

A fiduciary who acts dishonestly throughout a long-running relationship may forfeit remuneration, even where the relationship involved substantial legitimate work. The court must assess the misconduct in context and decide whether forfeiture would be proportionate and equitable.

Expenses incurred in investigating and pursuing litigation are generally recoverable, if at all, through costs rather than damages. Limitation is postponed under Limitation Act 1980, section 32 where claims are based on fraud or facts deliberately concealed by the defendant.

The claimants invested in and jointly developed a London property through Carlton Landmark Properties Limited. They alleged that the first defendant, who managed the project and owed fiduciary duties, had misappropriated company money, failed to contribute his agreed shareholder loans, made fraudulent representations, and acted negligently.

The defendants relied on alleged agreements authorising withdrawals, including management fees and VAT refunds. They also counterclaimed for management fees, a finder’s fee and remuneration for services. The issues included limitation, interest, consequential losses, deceit, negligence and whether fiduciary misconduct caused forfeiture of remuneration.

1. Liability. The claims were substantially established. The first defendant had misappropriated numerous sums and had largely failed to contribute his share of the shareholder loans. The alleged management-fee agreement, VAT agreement, £914,457.75 VAT agreement and finder’s-fee agreement were not proved.
2. Limitation. The claims relating to the earlier misappropriations were based on fraud and involved deliberate concealment by misleading spreadsheets. Time therefore ran from discovery, or when the fraud or concealment could with reasonable diligence have been discovered, under section 32 of the Limitation Act 1980.
3. Consequential loss. Additional borrowing costs caused by the misappropriations were recoverable using the proposed allocation formula. By contrast, the claimant’s fees and expenses for investigating and conducting the proceedings were litigation expenses. Following Aerospace Publishing Ltd v Thames Water Utilities Ltd [2007] EWCA Civ 3 and Al-Rawas v Pegasus Energy Ltd [2008] EWHC 617 (QB), they were not recoverable as damages.
4. Fiduciary remuneration. The first defendant and his management company had acted dishonestly throughout the fiduciary relationship and had made numerous substantial misappropriations. Applying the principles discussed in Keppel v Wheeler [1927] 1 KB 577, Imageview Management Ltd v Jack [2009] EWCA Civ 63 and Stevens v Premium Real Estate Ltd [2009] NZSC 15, forfeiture of management fees was proportionate and equitable. No quantum meruit or equitable allowance was payable.
5. Other issues and orders. The deceit, non-disclosure and negligence claims failed. Interest was awarded at 2% above base rate with monthly rests until October 2007 and annual rests thereafter, subject to further submissions concerning money transferred to Aquarius. Counsel were directed to agree an order reflecting the judgment.