Joint venturers beware?

We all know that an agent who commits a breach of fiduciary duty in respect of a given transaction presumptively forfeits his remuneration for that transaction. But, according to a curious decision today from Newey J (Hosking v Marathon Asset Management [2016] EWHC 2418 (Ch)), this principle is much wider. In that case H, an active partner entitled to a sizeable share of the profits of a very profitable partnership, committed a breach of fiduciary duty, essentially consisting in attempting to filch a part of its business and four of its employees. The loss caused to the partnership was £1.38 million, and there was no doubt of H’s liability for that sum. But an arbitrator also decided that H forfeited his entitlement to some £10 million, being one-half of about five months’ profits entitlement. He did this on the basis that 50% of H’s drawing entitlement was in effect remuneration (his entitlement being exactly twice that of non-executive partners), and that the agent rule should apply. Newey J upheld this decision, saying that the agent rule should apply to partners and (it seems) fiduciaries in general.

This, if taken literally, is enormously significant for anyone setting up a partnership or joint venture, whether in shipping or elsewhere. Joint venturers are, after all, fiduciaries in the same way as partners; furthermore, normally it will be a fair inference that most of the profit entitlement of each venturer amounts to remuneration for the work and services put in. If any breach of fiduciary duty — which can be quite a technical matter — is apt to lead to forfeiture of profit share, this is to say the least a drastic result, which until today would have caused quite a few raised eyebrows.

We don’t know whether Newey J’s decision will be appealed, or if it is what the Court of Appeal may have to say. But as a matter of prudence anyone drafting a joint venture agreement who wishes to avoid this kind of sword of Damocles hanging over his client might be well advised to introduce a term excluding the forfeiture of profits for breaches of duty: something which, thankfully, Newey J at Para.[43] accepted was possible.

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Professor Andrew Tettenborn

Professor Andrew Tettenborn joined Swansea Law School and the Institute of International Shipping and Trade Law in 2010 having previously taught at the universities of Exeter (Bracton Professor of Law 1996-2010), Nottingham and Cambridge. Professor Tettenborn is a well-known scholar both in common law and continental jurisdictions. He has held visiting positions at Melbourne University, the University of Connecticut and at Case Law School, Cheveland, Ohio. He is author and co-author of books on torts, damages and maritime law, and of numerous articles and chapters on aspects of common law, commercial law and restitution.

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