Cullen Investments Ltd & Ors v Brown & Ors

A contractual permission for a director or joint venture participant to pursue a rejected property opportunity personally remains subject to its express conditions, including any first right of refusal, absence of conflict and required consent. A refusal to provide funding may amount in practice to declining to invest where the proposed terms are deliberately unattractive, but that does not necessarily mean that the joint venture vehicle has declined the opportunity.

A director who takes a personal interest in an opportunity for the company, while the company remains involved in providing services or resources, must obtain informed authorisation and disclose the interest. The no-conflict and no-profit rules apply despite the opportunity being held through a special purpose vehicle.

The proceedings arose from the breakdown of a joint venture between Cullen Investments Limited and Julian Brown, operated through Kauri Investments Limited. Julian, KIL’s chief executive and director, pursued a German residential property venture after Cullen declined, in practical terms, to provide the requested funding on acceptable terms. He later acquired a personal interest without obtaining consent or disclosing it. Quentin Brown, also a KIL director, subsequently received a promised share of Julian’s profit.

Cullen brought personal and derivative claims for breach of contract, breach of statutory and fiduciary duties, and unlawful means conspiracy. The central issues were whether Julian was contractually entitled to invest personally, whether the German Opportunity was an opportunity for KIL, whether the directors’ duties applied, and what relief followed.

1. Contractual entitlement. Cullen’s conduct amounted in practice to a decision not to provide shortfall funding because the terms offered were so unattractive that they were likely to be rejected. However, Cullen’s decision was distinct from KIL’s decision whether to participate. KIL had been given a first right of refusal, but had not declined the German Opportunity. Julian therefore could not rely on the contractual permission to invest personally.
2. Julian’s personal investment created an obvious conflict because KIL continued to provide services, incur or fund costs, lend its name and potentially earn fees from the venture. He had neither obtained Cullen’s consent nor disclosed his intention. The HoA therefore contained an implied term requiring disclosure, and Julian was in breach of contract.
3. The German Opportunity was an opportunity for KIL. KIL was the operational vehicle and engine of the joint venture, even though the ultimate equity interest would probably have been held through an SPV for the parties’ trusts. Julian’s ordinary statutory and common-law directors’ duties were not displaced by his concurrent contractual and joint venture roles.
4. Julian breached Companies Act 2006, sections 175, 172 and 177, together with the corresponding no-conflict and no-profit rules. KIL was entitled to an account of profits. Quentin’s promised share of Julian’s profits also created an unauthorised conflict and profit. Quentin breached sections 175, 176 and 177 and was liable to account to KIL for the amount shown to have been received.
5. The alleged wider fiduciary relationship between Julian and Cullen or Eric was not established. The joint venture was formal, commercial and substantially at arm’s length, without the special features required for supplementary fiduciary duties. There was a combination between Julian and Quentin involving Quentin’s unauthorised financial interest, and the requisite intention to injure KIL was established, but actual loss sounding in damages had not yet been proved.
6. The parties were directed to agree an order. Further submissions or a hearing might be required on the appropriate relief.

First-instance decision. The judgment records earlier consolidation and permission orders within the proceedings but no prior merits judgment.