JAMES RUSSELL GRAY v DOUGLAS SIMPSON SMITH & Anor

An alleged oral agreement to build and manage an investment fund will be enforceable only if the parties objectively agreed sufficiently certain and complete terms, intended legal relations and supplied consideration. Performance is insufficient to imply a contract where the parties could have acted in the same way without one. Terms are implied only where necessary or obvious, and the court will not rewrite an incomplete bargain. Ad hoc fiduciary duties in commercial dealings require an undertaking to act for another in circumstances of trust and confidence; they arise only with caution. Restitution for services performed in anticipation of a contract depends on the objective basis on which the services were supplied, the real benefit received and whether it would be unconscionable to leave the claimant uncompensated.

The claimant alleged that he and the first defendant orally agreed to build and manage the Blackmoor investment fund as equal partners. He claimed damages for breach of contract, equitable relief for alleged fiduciary breaches, and restitution from both defendants for services provided while anticipating a 50:50 share of profits.

The defendants contended that the claimant joined only a non-binding trial collaboration, focused on raising capital, with any future participation dependent on success and further agreement. The court determined whether the alleged agreement existed, whether fiduciary duties arose, and whether either defendant was unjustly enriched.

1. Contract. The court applied the objective contractual test. An oral contract requires agreement, intention to create legal relations, consideration, and sufficiently certain and complete terms. The parties’ performance and subsequent conduct were admissible but did not establish a contract where the same conduct was equally consistent with a non-contractual trial collaboration.
2. The alleged agreement was not proved. The documentary record showed that the first defendant was developing a team without the claimant and that the claimant first became involved on 5 July 2016. The alleged agreement was also commercially improbable and inconsistent with the accepted start-up investment norm of working on a no-win, no-fee or no-equity basis.
3. The alleged agreement was in any event incomplete and unworkable. It omitted essential matters including minimum launch capital, pre-launch termination, post-launch termination and any agreed equity interest in the fee-generating vehicle. The proposed implied termination term was neither obvious, necessary nor sufficiently certain.
4. The parties’ actual arrangement was a non-binding trial collaboration. The claimant would receive nothing unless he succeeded in raising capital and the fund was launched, with any future participation requiring further discussion. It was not intended to create legal relations and was too uncertain to be enforceable.
5. Fiduciary duties. No ad hoc fiduciary relationship arose. The parties had not undertaken to act in each other’s interests. Their dealings, pooling of contacts and exchange of confidential information were ordinary features of a commercial start-up. Imposing fiduciary duties would also risk conflict with the first defendant’s duties to BIPL under sections 171–177 of the Companies Act 2006.
6. Unjust enrichment. The claimant did not provide services in anticipation of a 50:50 share of profits. He knowingly undertook the risk of receiving nothing unless he raised capital. There was no failure of basis. Any benefit was received by BIPL, not Mr Smith personally, and the relevant end-product was committed investor capital, which the claimant failed to obtain.
7. All contractual, fiduciary and unjust enrichment claims failed. The action was dismissed. The parties were directed to submit an agreed draft minute of order or return for further directions.