Cullen Investments Ltd v Brown

The court held at first instance that Julian Brown breached his contractual obligations under the Heads of Agreement and his duties as a director of Kauri Investments Ltd (KIL) by taking a personal investment in the "German Opportunity" without Cullen's consent and by failing to disclose that interest. The court found that the joint venture arrangements contemplated use of special purpose vehicles (SPVs) and that Cullen effectively declined to provide shortfall funding by offering terms that were not accepted. Julian's concealment produced a real conflict of interest and breached duties under sections 172, 175 and 177 of the Companies Act 2006 and corresponding fiduciary rules (no-conflict/no-profit). Quentin Brown was held to have a personal entitlement to a share of Julian's profit which he must account for to KIL; the court did not find that Cullen/Eric enjoyed wider fiduciary obligations from Julian beyond those arising from the joint venture and KIL directorship. The result was entitlement to an account of profits against both defendants, with contractual and equitable remedies and possible further directions on quantification.

This is a first-instance Chancery Division judgment arising from disputes between Cullen Investments Limited (Cullen)/Eric Watson and Julian and Quentin Brown concerning a Berlin property venture called the "German Opportunity". The parties had entered a joint venture embodied in a Heads of Agreement (HoA) and operated through Kauri Investments Ltd (KIL). The dispute followed Julian's personal investment in the German venture which Cullen contended was impermissible and concealed.

The claimants sought an account and damages and alleged: breach of contract (HoA), breaches of directors' duties and fiduciary duties, and an unlawful means conspiracy. The court examined the documentary evidence and live witness testimony from Cullen's executives and the Browns.

Main factual and legal findings:

• Nature of the claim/application: the claim was for an account of profits and/or damages and equitable relief on grounds including breach of contract, breach of statutory and common-law fiduciary duties by directors and unlawful means conspiracy.
• Issues framed by the court included whether the June 2008 funding terms were accepted, whether KIL was given and had declined first refusal, whether Julian disclosed or obtained consent for a personal investment, when Julian became committed to invest, whether his personal interest created a conflict, and whether Quinn assisted or conspired.
• Key factual findings: the JV commonly used SPVs rather than KIL to hold equity; Cullen offered restructured loan terms in June 2008 which Julian did not accept; Cullen's conduct amounted in practical terms to declining to provide shortfall funding; Julian did not obtain Cullen's consent and did not disclose his personal investment; Quentin was told by Julian that Cullen had purportedly given a green light and believed that to be so.
• Court reasoning: the HoA permitted Julian to invest personally only if Cullen decided not to invest and provided other conditions (first right of refusal to KIL; KIL had declined; no material conflict). The court found those conditions were not satisfied because KIL continued to participate as service provider and had not in substance declined. To afford business efficacy and fairness the HoA carried an implied duty to disclose a personal investment; Julian breached that implied contractual term as well as statutory duties (s.172, s.175, s.177) and the no-conflict/no-profit rules. Quentin, having accepted a profit-sharing promise from Julian, was liable to account for sums received. The court rejected an extended fiduciary claim to impose additional duties owed to Cullen/Eric beyond those already analysed. The unlawful means conspiracy claim was not finally determinative because, although a combination and unlawful means could be found, loss in damages had not been established at that stage and the parties were invited to address remedy/quantification.

Remedies and next steps: the court held that KIL (and so Cullen derivatively) is entitled to an account of profits and that further proceedings/directions are required to quantify the relief and determine disclosure directions for the defendants to enable the claimants to elect between an account and damages.

This first-instance claim was largely successful for the Claimants on the principal heads. The court held that Julian breached the HoA by making a personal investment without consent and by failing to disclose his interest. He also breached directors' duties to KIL (conflict/no-profit and duties under ss.172 and 177 Companies Act 2006). Quentin breached directors' duties by accepting a profit share and must account for sums received. The court rejected the Claimants' broader contention that additional fiduciary duties to Cullen/Eric arose outside the contractual and directorship framework. Relief was left in the form of entitlement to an account of profits and/or damages, with further directions to be determined to quantify recovery.