Sheikh Tahnoon Bin Saeed Bin Shakhboot Al Nehayan v Kent

A long-term joint venture between shareholders may be a relational contract. Where its nature, purpose and mutual dependence make this necessary to give effect to the parties’ reasonable expectations, English law implies a duty of good faith. The duty requires honesty, fidelity to the bargain and fair dealing. It does not require either party to subordinate its own interests to the other’s.

A co-venturer acts in breach by opportunistically using its shareholder position to block a vital third-party transaction unless the other co-venturer accepts an unjustified personal payment. Such pressure, reinforced by threats of violence, is duress. The principal is vicariously liable where its agents make the threats while negotiating on its behalf. If the victim’s payment obligation would produce an equal damages claim against the claimant, circuity of action defeats enforcement.

The claimant and defendant were friends and beneficial co-owners of companies operating the Aquis hotel business and the YouTravel online travel business. In April 2012, when the businesses were in acute financial difficulty, they executed a Framework Agreement to separate their interests and a promissory note under which the defendant agreed to pay €5.4m.

The claimant sought the value of the promissory note and further sums under the Framework Agreement. The defendant denied liability and counterclaimed, alleging fiduciary duties, a contractual duty of good faith and duress. He did not ultimately seek rescission. The central issues were the proper construction of the agreements, whether the parties’ joint venture was fiduciary or relational, whether the agreements were procured by duress, and whether any resulting damages provided a defence to the promissory-note claim.

1. Neither party was entitled to recover money. The claimant established no claim under the Framework Agreement. Although the claimant was in principle entitled to damages for the defendant’s anticipatory renunciation of the promissory note, that claim was defeated by circuity of action.

2. The court construed the Framework Agreement commercially. The undertaking concerning the Operational Debts required the defendant to procure payment to Investors SA while it was owned by the claimant, on revised dates agreed with its creditors. The claimant failed to prove a breach. The indemnity for other liabilities likewise concerned ascertained liabilities of Investors SA or Aquis Cyprus, outside the defined Investors’ Debts, discovered or arising while the claimant owned the company. None of the alleged liabilities was proved to satisfy those requirements. The grant indemnity also failed because the claimant did not prove that non-receipt of the grant while he owned Investors was caused by an act or omission of the defendant.

3. The parties were not partners and the claimant owed no fiduciary duty. A fiduciary must undertake to act for or on behalf of another in a matter involving discretionary power affecting that other’s interests. The claimant was an investor deciding whether further investment was in his own financial interests. Mutual friendship, trust and confidence did not alter that position.

4. However, their informal, long-term joint venture was a relational contract and contained an implied duty of good faith. The duty required honest, cooperative and fair dealing, but not loyalty or self-sacrifice. The claimant’s representatives breached it by covertly negotiating with FTI and, more materially, by using the claimant’s control of YouTravel to prevent the defendant pursuing a necessary FTI transaction unless he accepted an unjustified promissory note.

5. The pressure was duress. The demand for €5.4m had no reasonable basis and was reinforced by threats of litigation and physical violence. The threats were a reason for the defendant entering the agreements. The claimant was vicariously liable because his agents made them while negotiating on his behalf. Duress did not automatically found a tort, but here the breach of the contractual duty of good faith and intimidation gave the defendant a damages claim. The promissory note was inseparable from the Framework Agreement and could not be rescinded alone. Any payment under it would nevertheless create an equal damages liability, so the claim failed by circuity of action.

not stated in the judgment.