Glenn v Watson & Ors

Commercial co-venturers do not ordinarily owe fiduciary duties. A limited fiduciary duty may nevertheless arise where one party controls a third-party relationship and is entrusted to negotiate rights for the joint venture. That party must act for the venture’s benefit and disclose fully any personal interest or profit.

A contract is also voidable where an agent receives or is offered an undisclosed benefit creating a realistic possibility of conflict. The benefit need not be monetary. Fraudulent misrepresentation permits rescission where it materially induced the contract. Once material fraud is shown, inducement is readily inferred.

The claim arose from two property investment ventures promoted by Mr Watson to Sir Owen Glenn and Kea Investments Ltd. Claims concerning Project Edsel sought an account of profits from a management-carry interest. Project Spartan involved Kea acquiring half of Spartan Capital Ltd and agreeing to advance substantial funds.

The claimants alleged that the Spartan agreements were induced by fraudulent misrepresentations about the destination and purpose of Kea’s entry payment. They also alleged undisclosed benefits, breaches of fiduciary duty and want of authority. Agreements between Kea and Spartan had already been set aside by consent following a settlement with Novatrust, but their validity remained material to claims against the other defendants.

1. Project Spartan: The July agreements and all subsequent agreements between Kea and Spartan were liable to be set aside. Mr Watson and Mr Leahy deliberately represented that Kea’s entry payment would be used to buy out Mr Watson’s existing business partner. The true intention was that a substantial part would benefit Mr Watson’s interests. Those representations were knowingly false, material and intended to be acted upon. Mr Dickson was induced by them to execute the agreements for Kea.

2. The agreements were independently voidable because Mr Watson offered to assist Mr Dickson’s daughter in obtaining a solicitors’ training contract. An undisclosed benefit falls within the rules against bribery where it creates a realistic possibility of conflict between an agent’s interest and duty. The benefit need not be money or have a monetary value to the agent. The prospective training contract was substantial, not de minimis.

3. Mr Watson owed Kea a limited fiduciary duty in relation to Project Spartan. Kea depended on him to negotiate with third parties for rights which Spartan would acquire. He was therefore required to negotiate for Spartan’s benefit and disclose his interests in the relevant transactions. His intended benefit from the goodwill payment and the sale of interests in the management company was not fully disclosed. This breach supplied a further ground for avoiding the agreements.

4. The Second and Third Kea Loan Agreements were not binding. Mr Dickson executed them after learning of the Nevis injunction and in breach of it. He acted without authority and for an improper purpose. Spartan had the relevant knowledge.

5. Project Edsel: All claims failed. The parties were commercial co-venturers, and Mr Watson had obtained his management-carry rights before inviting Kea to invest. He owed no relevant fiduciary duty concerning that project. The term sheet did not confer any share of the management carry on Kea. Although Kea’s initial payment was held on a purpose trust before completion, the money became Copperstone’s on completion of the contemplated loan; its temporary use of £7,045 did not establish the proprietary claim advanced.

6. Affirmation was not established because the relevant decision-makers lacked full knowledge of the fraud. Assuming receipt of Kea’s money could be traced to Mr Watson, his knowledge made retention unconscionable for knowing-receipt purposes. Equitable compensation was available in principle for any unrecovered loss caused by his fiduciary breach. Proposed late amendments claiming damages in deceit and an eight per cent return were refused.

This was a first-instance trial. Related derivative proceedings brought by Novatrust on Spartan’s behalf and a winding-up petition concerning Spartan were managed with the claim. During the trial, the claimants settled with Novatrust and Spartan. By consent, the agreements between Kea and Spartan were set aside as between those parties, without determining the rights of the remaining defendants.