Baturina v Chistyakov

A written commercial agreement must be construed objectively, giving primary weight to its natural language, read with the contract as a whole, its purpose and the relevant background known to both parties. A court should not rewrite an imperfect bargain by invoking hindsight or commercial common sense.

A term is implied only where the established requirements of necessity or obviousness, clear expression and consistency with the express contract are met. A commercial joint venture does not ordinarily give rise to fiduciary duties; the relationship and contractual terms must disclose sufficiently special features.

Reliance damages cannot be recovered merely by characterising payments under separate transactions as wasted expenditure. The claimant must prove factual causation and recoverable loss.

The claimant and defendant, experienced Russian business people, agreed to pursue Moroccan property-development projects. Their February 2008 agreement allocated the project and funding interests 65% to the claimant and 35% to the defendant. The claimant caused substantial sums to be advanced through loan agreements to a company associated with the defendant.

The claimant alleged deceit, breach of fiduciary duty and breach of contract. She contended that the defendant had failed to fund his share, diverted funds, and made dishonest representations. The defendant denied liability and disputed both the construction of the agreement and the alleged loss. The court also considered the effect of a later supplemental agreement converting the loans into equity.

1. Construction and contractual obligations. The court applied the objective approach stated in Arnold v Britton [2015] AC 1619, read with Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 and Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900. The PPA was a binding framework agreement, not a sale and purchase contract. Clause 3 required the defendant, personally or through others, to fund 35% of both initial capital and ongoing project expenditure. The contribution could be made in cash or in kind and could come from a third party. Clause 4 did not require all money to be paid to Andros Bay.
2. Implied term and representations. The alleged overarching term requiring exclusive use of funds for the Projects was neither necessary nor obvious and lacked sufficiently clear content. The alleged funding, application-of-funds, fair-value and subsequent representations were not proved. The deceit claim therefore failed. The court applied the requirements in Derry v Peek [1889] 14 App. Cas. 337, including proof of falsity, fraud or recklessness, reliance and damage.
3. Fiduciary duty. The relationship was an arm’s-length commercial venture between parties with comparable bargaining power. The claimant was sophisticated, independently advised and not vulnerable or dependent. The facts did not disclose the special features required for fiduciary duties. The claim accordingly failed.
4. Breach of contract. The defendant failed to provide, personally or through others, the required 35% contribution. The evidential material did not permit a precise shortfall to be quantified.
5. Supplemental agreement and loss. The supplemental agreement was binding, but it did not itself terminate the loans or release obligations. Transfer of the shares and a release or conversion agreement were required, and those transactions never occurred. The claimant failed to prove that the assignments and later set-off were caused by the breach or that the claimed diminution in share value was recoverable. The court also found that the Projects would probably have failed and the investment would probably have been lost in any event.
6. Disposition. The deceit and fiduciary-duty claims failed. The contractual claim succeeded only in establishing breach, with no recoverable damages proved. The claim concerning rescission or damages under the supplemental agreement also failed. Consequential matters, including costs, were left for agreement.

The judgment records that the main proceedings had previously been stayed for forum non conveniens. That stay was overturned by the Court of Appeal in [2014] EWCA Civ 1134. The present judgment determined the substantive claims in the High Court.