JAMES RUSSELL GRAY v DOUGLAS SIMPSON SMITH & Anor

The court rejected the claimant's case that an oral 50:50 agreement to establish and operate an activist investment fund (the Alleged Oral Agreement) was concluded by 15 June 2016. The judge applied the familiar objective tests for formation of contracts (offer, acceptance, intention to create legal relations and certainty) and emphasised the evidential significance of the documentary record and commercial probability in cases of alleged oral agreements. Key findings were:

• The contemporaneous documentary footprint did not support the existence of the Alleged Oral Agreement; communications show the defendant pursuing alternate team compositions without the claimant until 5 July 2016.
• The parties' actual arrangement from 5 July 2016 was a non-contractual, non-binding trial collaboration focused on capital-raising, with any future economic participation contingent on the claimant's demonstrable success in raising capital.
• The alleged terms were commercially improbable and, in several respects, too uncertain (notably minimum launch capital, post-launch duration and the form of economic participation) to form an enforceable contract.
• No fiduciary relationship arose: the facts did not show an undertaking to act for the other in circumstances of trust and confidence that would properly attract equitable obligations between two commercial coventurers.
• The unjust enrichment claim failed because (inter alia) the claimant assumed the risk that pre-launch work would be unpaid and, in any event, no enrichment of the defendant company in the form of committed capital resulted from the claimant's efforts.

Accordingly the claimant's contractual, equitable (fiduciary) and restitutionary claims all failed and the action was dismissed.

Background and parties: The claimant (an American investment professional resident in London) alleged that, by 15 June 2016, he and the first defendant (a UK investment professional and majority shareholder/director of Blackmoor Investment Partners Ltd (BIPL)) had made an oral agreement to co-found and co-manage an activist investment fund on a 50:50 basis. The claimant asserted breach of contract, breaches of fiduciary duty and, alternatively, unjust enrichment. He sought damages or equitable compensation and, alternatively, restitution.

Procedural posture: First instance hearing in the Chancery Division. The hearing included extensive factual and expert evidence on quantum.

Nature of claim / relief sought: The claimant alleged (i) a binding oral contract concluded by 15 June 2016; (ii) in the alternative, a contract implied from conduct; (iii) fiduciary duties arising from a joint-venture style relationship; and (iv) unjust enrichment in the event no contract or fiduciary duty was established. Relief sought included contractual damages for lost fees, equitable compensation or an account of profits for fiduciary breaches, and an unjust enrichment remedy for value of services performed.

Issues framed:

• Was there a concluded oral contract on the terms pleaded (the Express and Implied Terms)?
• If not, could a contract be implied from the parties' conduct?
• Did a fiduciary relationship arise between the parties?
• Was the defendant (or BIPL) unjustly enriched by the claimant's services?
• If liability arose, what is the correct measure of loss/quantum and had the claimant mitigated his loss?

The court's reasoning, briefly:

• Evidence and documentary footprint: the judge emphasised the lack of contemporaneous documentary support for a June 2016 agreement. Documentary materials and contemporaneous emails showed the defendant working to assemble alternative teams and only from 5 July 2016 did communications with the claimant about the investor presentation and related matters increase.
• Commercial probability and certainty: the alleged Express and Implied Terms (including an unconditional equal split of fees and equal decision-making, and implied limits on termination) would have been commercially one-sided and, in several respects, insufficiently certain (notably the absence of an agreed minimum launch capital and post-launch termination arrangements). Authorities on oral agreements, agreements to agree and implication of terms were applied and the judge held that the agreement pleaded was not proven and in any event suffered from uncertainty.
• Actual basis of collaboration: the judge held the realistic description of the July 2016 discussions was that the defendant offered a non-binding trial collaboration, where the claimant's role was to attempt to raise capital and any future economic participation depended on success. That arrangement reflected the market norm for start-up fund remuneration — "no win, no fee or no equity" — and fit the contemporaneous conduct and documents.
• Fiduciary duties: the judge determined that no ad hoc fiduciary relationship arose. The combination of documentary record, the lack of an agreed joint-venture structure and the commercial context did not establish the necessary objective undertaking to act in the other's interests in circumstances of trust and confidence.
• Unjust enrichment: the judge concluded there was no unjust factor (failure of basis) because the claimant had accepted the risk of no remuneration absent capital raising; BIPL (not the individual defendant) would be the entity affected; and in any event no committed capital resulted from the claimant's work.
• Quantum: the court criticised the claimant's expert approach and found proposed benchmarks and assumptions unreliable; in any event, on the judge's view, had the claimant mitigated (for example by seeking senior banking employment), potential losses would have been avoided.

Result: All claims dismissed. The judge invited the parties to agree a form of order embodying his findings.

The court dismissed the claimant's claim. The judge found there was no binding oral 50:50 agreement concluded by 15 June 2016; the parties' collaboration from 5 July 2016 was a non-contractual trial arrangement conditioned on the claimant's success in raising capital; the alleged contractual terms were commercially improbable or too uncertain to be enforceable; no fiduciary relationship arose; and an unjust enrichment claim failed because the claimant bore the risk of non-payment absent capital raising and no enrichment in the form of committed capital resulted. The claimant's damages and restitutionary calculations were also rejected as speculative and inadequately proven.