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Hageman v Holmes (2009)


A deed of covenant which gave the claimant a contractual right to receive a share of the proceeds of sale of the defendant's shares in a company did not create a trust over, or a fiduciary duty in relation to, the shares in the claimant's favour.


The court was required to construe a deed of covenant made between the claimant (C) and the defendant (D) and to determine whether D was liable for fraudulent misrepresentation. D was a director and majority shareholder of a company (G). C had been a director of a subsidiary company. C claimed that when he began his employment, there was a binding agreement that he should have a 10 per cent holding in G, but nothing had been formalised until the deed of covenant was entered into. C subsequently surrendered his rights under the deed of covenant, unaware that D was at that time in negotiations with another company for the sale of G. G was sold a few months after C entered into the deed of surrender. The issue was whether the deed of covenant merely gave C a contractual right to receive a share of the proceeds of sale of D's shares in G, should G be sold, or whether it imposed on D a trust over, or a fiduciary duty in relation to, the shares in C's favour. It was common ground that if there was a trust or fiduciary relationship, D was under a duty to keep C informed prior to a surrender of his rights. C maintained that D had made positive assertions which had led him to believe that there was no interested purchaser and which gave rise to liability for fraudulent misrepresentation. D had joined his former solicitors (S) to the proceedings, claiming that if the deed of covenant was construed as having created a trust or fiduciary duty, S were negligent in drafting it.


(1) As a matter of construction, evidence of previous negotiations and of the subjective intentions of the parties in entering into the deed of covenant was inadmissible, Investors Compensation Scheme Ltd v West Bromwich Building Society (No1) (1998) 1 WLR 896 HL considered. Evidence of the subsequent conduct and intentions of the parties was also irrelevant. However, if there were a binding pre-existing agreement, it would be one of the factors to take into account when construing the deed of covenant, HIH Casualty & General Insurance Ltd v New Hampshire Insurance Co (2001) EWCA Civ 735, (2001) 2 All ER (Comm) 39 applied. On the evidence, there was no binding agreement for shares prior to the execution of the deed of covenant. (2) The recitals to the deed could not be said to record any binding agreement, let alone an express trust. The overriding thrust of the deed was that it was not intended to transfer any interest in D's shares in G. Furthermore, it was clear that the tax consequences of C acquiring the beneficial interest in the shares militated against a construction of the deed giving C an immediate beneficial interest in a proportion of the shares registered in D's name. (3) It was difficult to see how a deed which did not create a trust nevertheless could be held to create a fiduciary duty, Bristol & West Building Society v Mothew (t/a Stapley & Co) (1998) Ch 1 CA (Civ Div), Goldcorp Exchange Ltd (In Receivership), Re (1995) 1 AC 74 PC (NZ), Arklow Investments Ltd v Maclean (2000) 1 WLR 594 PC (NZ) and Sinclair Investment Holdings SA v Versailles Trade Finance Ltd (In Administrative Receivership) (2005) EWCA Civ 722, (2006) 1 BCLC 60 considered. In certain circumstances a director might owe a fiduciary duty to a shareholder, Peskin v Anderson (2001) BCC 874 CA (Civ Div) considered. However, in the instant case, the purely contractual relationship of the parties in relation to the proceeds of sale of shares was insufficient to constitute such special circumstances as would give rise to a fiduciary duty by analogy with established categories of agency or trust. Furthermore, it would stretch the boundaries of equity too far to impose a fiduciary duty on D as an adjunct to, or to supplement, the express provisions of the deed of covenant. (4) On the evidence, C's claim for fraudulent misrepresentation was not made out. There was insufficient particularity in C's evidence. Furthermore, it was relevant that at the time of the deed of surrender C had a deal in principle that he thought was fair. (5) Had C succeeded in his claim, S would not have been liable in negligence to D, as the chain of causation would have been broken by the fact that D made a fraudulent misrepresentation. S could not be held liable for damage of a kind that they could not reasonably have foreseen as a result of their negligence, Humber Oil Terminal Trustee Ltd v Owners of the Sivand (1998) 2 Lloyd's Rep 97 CA (Civ Div) considered. S, it was common ground, had advised D to tell C the truth about the negotiations for the sale of G.

Judgment accordingly

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21 Jan 2009

Chancery Division
Proudman J

‚ÄčLTL 2/2/2009 

Practice areas
Commercial Disputes