Gleeson: No retainer
There was no fiduciary relationship between a solicitor acting for a start-up and its majority shareholders, and an investor in the company, the High Court has ruled.
Simon Gleeson, sitting as a deputy High Court judge, said it was not disputed that claimant Justin Cohen “knew at all times” that John Reid was retained by the company and majority shareholders Paul Morrison and Rebecca Artmonsky, and was acting on their behalf.
There was also “no suggestion” that there was any arrangement between Mr Reid, who worked for Russells Solicitors, and Mr Cohen that could have constituted either an express or implied retainer.
Referring to plans by Mr Cohen to sell his shares in Apollo Branded Content Group International, the judge said: “The position between Mr Reid and Mr Cohen was therefore that Mr Reid was acting – and Mr Cohen knew that he was acting – for other parties to the transaction, and that he was seeking to persuade Mr Cohen, on behalf of those parties, to enter into a transaction involving them.
“The idea that a solicitor in such a situation who expresses view to a third party as to the merits of the transaction, or who helps to find supporting parties, or who intermediates between the third party and his client, is assuming a fiduciary duty to that third party, seems to me to be completely unarguable.
“This is an argument in which reverse summary judgment is entirely appropriate.”
Delivering judgment [1], Judge Gleeson recounted that Mr Cohen “invested in Apollo BC, a start-up business which showed “great promise financially”.
“Unfortunately, its business model was entirely dependent on large numbers of people being permitted to gather together for entertainment, and the implementation of restrictions on such gatherings in response to the Covid outbreak caused it to fail.
“Mr Cohen had repeatedly tried to exit his investment at a substantial profit both in the run-up to Covid and thereafter but was unsuccessful in this endeavour and has now (he says) lost his money.
“He has responded by commencing legal action against the company, its directors and its solicitors in the hope of recovering some of his investment and lost profit.”
The essence of the claim was that Mr Morrison and Ms Artmonsky withheld information from Mr Cohen which they were under a positive duty to disclose to him, for the express purpose of deceiving him into selling his shares at an undervalue, and that Mr Reid both dishonestly assisted them in that endeavour, and assumed fiduciary duties to Mr Cohen himself which he subsequently breached.
The judge said the particulars of claim identified “an extraordinarily wide set of allegations of wrongdoing”. The defendants – Mr Morrison, Ms Artmonsky, Mr Reid, Russells Solicitors and Apollo – responded by seeking to have the particulars struck out, in whole or in part, or reverse summary judgment.
Judge Gleeson said that if Mr Reid was “neither a fiduciary nor bound by any obligations arising from an implied retainer”, the question was whether he had assumed a common law duty in tort and was negligent.
However, “an action in negligence requires the establishment of a duty of care”, and there was “no possible basis” for any such finding. “The acts alleged to found the duty of care are the same as those alleged to found the fiduciary duty.”
Mr Reid could not have “dishonestly assisted” Mr Morrison and Ms Artmonsky to breach their fiduciary duties to Mr Cohen, since the judge found there were no such duties.
Judge Gleeson said Mr Cohen’s claims in deceit, conspiracy and negligence all failed, on the grounds that “any damage suffered by Mr Cohen cannot be shown to have been caused by the actions complained of, and no cause of action therefore arises.
“Mr Reid did not owe fiduciary duties to Mr Cohen. The pleaded actions by Mr Reid are insufficient to enable a court to conclude that he had assumed any such duty.”
The judge said Mr Cohen “may have a valid action” against Mr Morrison and Ms Artmonsky for breach of a share purchase agreement.
“However, if this claim is pursued, a further hearing will be needed to establish what documents (if any) Mr Cohen is entitled to in this regard.”