Rockbrook Ltd v (1) Humayun Khan (2) Miracles by Design Ltd (2006)
The claimant company had not established an arguable case that one of its company directors had acted dishonestly in the sense of conscious impropriety by allegedly diverting a business opportunity away from it, when purchasing a development site on behalf of a third party. Consequently, interim injunctions constraining the manner in which the third party could deal with the development site following purchase were not justified as there was no sufficient basis for subjecting the site to a constructive trust.
The claimant company (R) had applied for a declaration that the second defendant company (M) held a development site on trust for R following an alleged breach of fiduciary duty of the first defendant director (K), and sought interim injunctive relief to restrain M from disposing of the site. R had been acquired by K and two other directors (S and H) to be used by them to develop a building site. K, S and H had agreed to put in equal sums of money to finance the buying of the site and development work. They had learnt of the development potential of two sites. However, as there was a plan to develop an adjacent site, which would diminish their development value, H and S decided not to proceed with the purchases. S subsequently learnt that M, a company owned by K, had exchanged contracts to purchase one of the development sites. S and H visited K and recorded a conversation without his knowledge or permission in which K had not been entirely frank about his involvement in the acquisition. It transpired that the contract for the purchase of the development site, originally stated to be in the name of R, had in fact been completed in the name of M. K's evidence was that the solicitors acting on the purchase had made a mistake when originally drawing up the contract in the name of R. R submitted that K had acted in breach of fiduciary duty to R by diverting a business opportunity away from R. R further submitted that K's actions were dishonest in the sense of conscious impropriety and as M had received the fruits of the breach of fiduciary duty in the knowledge of K's dishonesty, R would have a proprietary remedy against M as constructive trustee of the development site.
(1) At this stage of the action it was not possible to reach a conclusion in relation to K's alleged breach of fiduciary duty. There was an arguable case that K had acted in breach of fiduciary duty but there was equally an arguable case that K had not been in breach of fiduciary duty. However, it was clear that R had not established an arguable case in relation to the allegation of dishonesty, in the sense of conscious impropriety. R's main allegation, namely that the contract had originally been in R's name, was withdrawn during the course of the hearing when the solicitors acting on the purchase had produced documents to support K's evidence that it was a mistake. Although there were aspects of K's behaviour that required explanation including the misleading version of facts given by him in the tape recorded meeting, they would not provide a basis for the serious allegation of conscious impropriety put forward by R. (2) As R had not established an arguable case on K's alleged dishonesty in the sense of conscious impropriety, there was no sufficient basis for subjecting the development site to the constructive trust contended for by R. Consequently, the interim injunctions sought could not be justified. Further, the balance of convenience was against granting an injunction, and in any event, the evidence of R's ability to meet any possible liability under the cross-undertaking in damages was unsatisfactory.