Peter Button & Anor v David Phelps & Ors (2006)
A person was in breach of contract where he had been involved in setting up and facilitating a bid for an insolvent company from a consortium, to whom he was bound by heads of terms, at the same time as he was involved in a rival bid.
The claimants (B) sought damages for breach of contract in a claim that arose out of the financial collapse of a group of companies. Following the appointment of administrators, a number of parties expressed an interest in bidding to acquire the more profitable parts of the companies. The first defendant (P) together with B and the second and third defendants were participants in an unsuccessful bid. It was alleged that P had agreed to participate in B's bid but, whilst still under contract to them, he had been engaged in furthering a rival bid that was ultimately successful. Although the heads of terms for the unsuccessful bid were signed by all the named parties to them at a meeting, P alleged that he had been bullied into signing at that meeting and consequently did not consider himself bound by the agreement. P was not named as a party to, nor did he sign, the revised heads of terms and his intention not to continue his involvement in the bid was confirmed by fax to B. As the first round of bidding between the various consortiums had not produced a successful bid, a second round was commenced. By that stage B knew not only that P would not be joining them in a further bid, but also that P would be participating in a rival bid. As the original heads of terms had been terminated, there was no reason as a matter of contract why P should not have done so. The issues for determination were whether (i) P's apparent agreement to the heads of terms was voidable for duress; (ii) there was a mutual agreement that P was not bound by the heads of terms immediately after he had signed them; (iii) there was a consensual termination of the heads of terms; (iv) P owed a fiduciary, in addition to a contractual, duty not to participate in another bid; (v) P had misused confidential information; (vi) P was obliged to account for the profits he made out of the acquisition by reason of a breach of fiduciary duty or misuse of confidential information; (vii) B was entitled to a Pallant v Morgan equity in P's proceeds of the acquisition; (viii) B was entitled to damages for breach of contract in the amount of any expenditure wasted by reason of P's breach.
(1) The facts in the instant case did not begin to approach a case of conduct of such a kind as to impugn the heads of terms that P had signed. There had been no domination of P and the fact that a conversation became heated did not of itself give rise to a basis for finding duress or undue influence. P was not the type of person who would have been readily dominated or even influenced by another in a commercial matter. He was a shrewd and forceful businessman and the allegation of duress lacked any substance. (2) Whether there was a consensual release immediately after execution was essentially a question of fact and resolution of that issue depended on the evidence. The evidence of B's witnesses was truthful and correct. Although P had been upset and tempers were frayed at the meeting, the general perception was that the bid would be proceeding in accordance with the heads of terms and with P's participation. (3) Any release from the heads of terms could only have been prospective in operation. There was nothing to suggest that there was intended to be any waiver by B of past breaches by P of the heads of terms. Furthermore, there was nothing to suggest that B had any inkling, prior to the execution of the revised heads of terms, that P had been acting in breach of the original heads of terms. However, there had been a termination of the original heads of terms when the revised heads of terms were drawn up and executed by the four participants in the bid other than P. Therefore, it appeared that it was generally accepted that the original heads of terms could not be proceeded with and it was accepted by B that P would no longer be a party to the bid. All parties were thus released from any future contractual obligations under the original heads of terms. (4) P had been involved in setting up and facilitating the rival successful bid and he was undoubtedly in breach of contract as the heads of terms were binding on him up to the date of execution of the revised heads of terms. (5) P was not undertaking to act "for or on behalf of" the other parties and under the heads of terms, aside from making or procuring financial contributions, the members of the management team had no clear roles, Bristol & West Building Society v Mothew (1997) 2 WLR 436 applied. Therefore, it was not a relationship upon which a fiduciary duty in equity should be superimposed on P's contractual obligations. His liability for having promoted the rival bid whilst contractually bound to B's bid was a liability for damages for breach of contract, not a liability for an account of profits for breach of fiduciary duty. (6) The claim for misuse of information was not made out, as the rival bid was not based on information that P had acquired as a result of his participation in B's bid. (7) Although P's conduct in secretly participating in the rival bid at the same time as being contractually bound to B deserved no sympathy, it was no basis for imposing a constructive trust on the assets acquired by him, Pallant v Morgan (1953) Ch. 43 and Banner Homes Group Plc v Luff Developments Ltd (2000) 2 WLR 772 considered. The appropriate remedy was the ordinary remedy of damages for breach of contract. (8) On balance, B's bid would probably have succeeded on the first round of bidding if P had been using his best endeavours to promote the bid. B was entitled to recover by way of damages for breach of contract against P the amount of the expenditure that they had incurred in the first round of bidding. However, B was not entitled to recover the expenditure incurred in the second round of bidding.
Judgment for claimants.
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