MARK JULIAN O’BRIEN v SIMON PHIPPS

An alleged general business relationship of equality and trust does not, without more, create fiduciary obligations or an enforceable agreement to share profits and losses. A fiduciary relationship requires an undertaking to act for or on behalf of another in particular matters in circumstances of trust and confidence. An express trust may arise from informal words if they objectively manifest an immediate intention to create a trust, identify the trust property and beneficiaries, and make the arrangement administratively workable. A trustee who disposes of trust property without informed consent remains accountable for the relevant proceeds.

The claimant and defendant had been close friends and had conducted several businesses on an equal basis. The claimant alleged that the defendant declared at a 2013 meeting that half of his shareholding in Shortfall Cover LLC was held for the claimant on trust. The defendant denied this and counterclaimed under an alleged oral agreement to share profits and losses from their business ventures.

The court had to determine whether the alleged profit-sharing agreement existed, whether the parties’ general relationship was fiduciary, whether an express trust had been declared over the defendant’s Shortfall shares, and what consequences followed from later dealings with those shares.

1. The alleged Profit and Loss Sharing Agreement was not proved. The arrangement was inherently implausible as an indefinite agreement governing future ventures, and the primary facts relied upon were equally consistent with ad hoc decisions and equal shareholdings in particular companies.

2. The parties’ close friendship, mutual trust and history of equality did not itself create a fiduciary relationship or general fiduciary obligations. Such obligations required an undertaking to act for or on behalf of the other in particular matters in circumstances of trust and confidence. No such undertaking was pleaded or evidenced.

3. The court rejected both the alleged Initial Understanding that the claimant would be an equal participant in Shortfall and the alleged bare promise to look after him if the venture made money.

4. The defendant’s statement at the August 2013 Harvester meeting that half his Shortfall shares belonged to the claimant objectively manifested an intention to create a trust forthwith. No technical wording was required. The declaration identified the property and beneficiary and was administratively workable. It was a bare trust covering the defendant’s Shortfall shareholding, including shares acquired subsequently.

5. The defendant’s later dealings breached that trust. Completing the SWBC transaction without the claimant’s informed consent was a breach, and the defendant had to account for half of the relevant proceeds. He also remained accountable for the proceeds of his later disposal of the remaining Shortfall shares. The claimant was entitled to accounts and enquiries, with the question of a wilful-default surcharge left open.

6. The counterclaim was dismissed. The parties were directed to exchange draft orders and short skeleton arguments concerning consequential relief.