Glenn v Watson

This case is a first instance Chancery Division judgment dealing with investment arrangements promoted by Mr Eric Watson to Sir Owen Glenn and vehicles advised or controlled by him. The court considered whether (i) Mr Watson owed fiduciary duties to Sir Owen or to Kea Investments Ltd (“Kea”), (ii) whether the July 2012 Project Spartan agreements and related documents were procured by deceit, inducements or other improper means, and (iii) consequential equitable remedies including rescission, tracing, knowing receipt and equitable compensation.

Key holdings and legal principles:

• Fiduciary duties: the court found no fiduciary duty owed by Mr Watson to Sir Owen or to Kea in relation to Project Edsel (the earlier affordable housing transaction). By contrast the court held that Mr Watson owed a fiduciary duty to Kea in relation to Project Spartan where Kea was dependent on Mr Watson to secure third-party rights and relationships; that duty included a duty of full disclosure and not to obtain undisclosed personal profit from opportunities which were to be exploited for the joint venture.
• Deceit and misrepresentation: the court found that the presentations and subsequent negotiations contained deliberate and material misrepresentations about the nature and destination of the sums Kea was being asked to pay (notably the representation that Kea’s contribution was to buy out a pre-existing 50% partner). Those misrepresentations were a principal cause of Kea entering the Spartan arrangements and justified setting the agreements aside.
• Inducements (bribes/secret commissions): the court found that promises and efforts to procure a training contract for Mr Dickson’s daughter constituted an inducement that gave rise to an irrebuttable presumption of inducement and rendered the July agreements voidable.
• Trust and proprietary issues (Edsel): the court held that the monies paid by Kea in respect of Project Edsel had the character of a Quistclose-type arrangement (money paid for a specified investment purpose) but that, on the facts, Kea was not entitled to the B-class (management carry) share acquired nominally by Clearview/Novatrust; Project Edsel claims therefore failed.
• Second and Third Kea Loan Agreements: the court concluded these agreements were executed after knowledge of an injunctive Nevis Order and in circumstances amounting to lack of authority / improper purpose; they were not effective to bind Kea.
• Remedies: the court concluded Kea could avoid the Spartan agreements (and consequential related documents) and that equitable remedies (tracing, knowing receipt, account or equitable compensation) were available in principle against those who received Kea’s money. The court refused a late amendment seeking an atypically high compound interest rate but left open quantification and certain tracing/receipt issues for later determination.

The judgment contains detailed subsidiary findings on credibility and documentary history (notably the court found key witnesses’ oral evidence to be unreliable in parts and placed greater weight on contemporaneous documents).

Background and parties

This trial concerned two related investment projects introduced by Mr Eric Watson to Sir Owen Glenn’s family trust interests (Corona Trust) and Kea Investments Ltd: Project Edsel (an affordable housing transaction) and Project Spartan (a larger joint venture vehicle). The claimants were Sir Owen Glenn and Kea; the defendants included Mr Watson, Novatrust (trust company), Mr Miles Leahy (project manager / Nucopia), and others. Two related sets of proceedings (a derivative action and a winding-up petition) were settled during the trial so the judgment concentrates on claims against the remaining defendants, principally Mr Watson.

Nature of the claims and procedural posture

• Claimants sought to unwind or set aside the Project Spartan arrangements entered by Kea in July 2012 and to obtain proprietary and personal remedies against Mr Watson and others. Alternative causes of action included deceit, breach of fiduciary duty, knowing receipt, dishonest assistance, and equitable compensation. The claim also encompassed questions of tracing and whether specific sums paid (notably a c. £12.5k–£12.7m element of the Spartan purchase price and a small £7,045 item in Project Edsel) were held on trust or misapplied.
• The hearing was lengthy; the judge emphasised the primacy of contemporaneous documents over reconstructed witness accounts and recorded significant reservations about the reliability of key witnesses.

Issues the court identified and decided

1. Whether Mr Watson owed fiduciary duties to Sir Owen or Kea in relation to Project Edsel and Project Spartan, and if so their scope.
2. Whether Project Edsel or Project Spartan documentation and presentations contained fraudulent misrepresentations or induced Kea to enter the July 2012 agreements.
3. Whether monies transferred to close the deals (including the £7,045 in Edsel and the c. £12.5m in Spartan) were held on trust (Quistclose analysis), and whether recipients (Munil, Novatrust, Mr Watson, his associates) were liable in knowing receipt or held property on constructive trust.
4. Whether later events (including a Nevis injunction and subsequent settlements) constituted affirmation or otherwise extinguished claims.
5. Remedies: rescission, tracing, knowing receipt, account of profits, equitable compensation and interest.

Reasoning and conclusions

• Project Edsel: the court found that the information sent to Sir Owen and to his advisers did disclose the existence of management/performance fees payable to the managers, and that Kea (and its advisers) either knew or should have been able to discover that management carry existed. Mr Watson did not owe a fiduciary duty to Sir Owen or Kea in relation to Edsel and the claim to recover the B-share (management carry) failed. A Quistclose characterisation of the initial funding was recognised but did not support a proprietary claim to the B-share. The court declined to unwind Edsel or to require Mr Watson to account.
• Project Spartan and July 2012 agreements: the judge found that the 1 April presentation and successive drafts and meetings contained deliberate and material misrepresentations about (a) the nature of the business being bought into (presenting Spartan as an existing 50/50 business owned with a third party), and (b) the destination and purpose of the sums Kea was asked to pay (representing Kea’s sum as paying out a third party). Mr Leahy, Mr Watson and others carried out a deliberate campaign of concealment. The misrepresentations were material and fraudulent and did induce Kea to enter the July 2012 agreements. The court therefore held the agreements were voidable for deceit and induced by secret incentives; it also held Mr Watson was in breach of a fiduciary duty owed to Kea in relation to the schedule 2 rights (failure to disclose personal interest and secret profit).
• Second and Third Kea Loans: these were executed after the Nevis injunction had been made; the evidence demonstrated the steps were taken to defeat or evade the injunction and the loans were therefore without proper authority and in breach of the injunction; they were not effective to bind Kea.
• Remedies and quantum: the court recognised Kea’s entitlement in principle to rescission and to pursue tracing and knowing receipt claims against those who had received the funds (including Munil / Mr Watson) and to seek equitable compensation for any shortfall. The judge refused a late attempt to plead and prove an elevated compound interest rate (8%) and indicated that quantification, the allocation of settled sums and some aspects of tracing should be dealt with subsequently.

Context and implications

The judgment emphasises the fact-sensitive nature of fiduciary duty inquiries in commercial joint ventures, the need for clear documentary proof in reputationally sensitive fraud litigation and the court’s caution about oral witness accounts in long reconstructed commercial dealings. The remedy of unwinding and tracing for fraud was applied in principle to the Spartan transactions but not to Edsel, reflecting the distinction between disclosure and concealment of the management carry and the different factual matrix for each project.

Claim allowed in part. The court dismissed the Claimants’ Project Edsel claims but found that the Project Spartan arrangements were induced by deceit and by impermissible inducements and that Mr Watson breached a fiduciary duty he owed to Kea in relation to Spartan. The July 2012 agreements and related documents are therefore voidable/voidable as between Kea and the remaining Defendants; the Second and Third Kea Loan Agreements were executed in breach of a Nevis injunction and lacked authority. The court granted that equitable restitutionary remedies (rescission, tracing and knowing receipt) and equitable compensation were available in principle but reserved quantification and allocation and refused a late amendment seeking an atypical compound interest claim.