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‘Once in a Lifetime’ Development Triggers Court Row

A falling out between four businessmen in relation to a ‘once in a lifetime’ opportunity to develop 1,000 new homes on the Isle of Wight has culminated in a High Court ruling that two of them breached their fiduciary duties in seeking to freeze their colleagues out of the deal.

Businessmen A and B were the first to spot the huge development potential of 76acres of farmland and had entered into an option agreement with the owner of the land. Requiring finance for the project, they had brought on board businessmen C and D and the four of them became directors of a company (company A) which was to be used a vehicle to bring the project to fruition.

Whilst they were still directors of company A, C and D established an offshore company (company B) which entered into a contract to buy the land for £16 million. They also began to approach neighbouring landowners with a view to incorporating their holdings into the development, which it was hoped would comprise 1,000 new homes, sports pitches and 3,000 square metres of commercial space.

A and B launched proceedings against C and D, claiming that they had breached the fiduciary duties that they owed to company A. It was submitted that, in arranging the sale of the land and surrounding holdings to company B, they had acted in their own interests and contrary to the interests of company A.

Ruling in favour of A and B, the Court rejected C and D’s claim that a binding agreement had been reached whereby A and B had agreed to sell out their interests in the project. C and D had been bound to act for the benefit of company A until their resignation as directors and their serious breaches of fiduciary duty were clear.

In diverting the potential fruits of the project away from company A, C and D had also breached their duty to act in good faith. Dismissing claims that A and B had acquiesced in what happened, the Court noted that they had throughout vigorously attempted to secure their stake in the project and had taken whatever steps they could to vindicate their rights. Issues relating to relief were left over for further argument.