Proof allowed in action for lost profits arising from alleged property development site poaching

About this case:

• Citation:
  [2023] CSOH 87
• Judgment:
  External link
• Court:
  Court of Session Outer House
• Judge:
  Lord Richardson

Pursuer James Watson sought damages from six defenders, including five individuals and a company, on the basis of breach of fiduciary duty by the first defender and dishonest assistance of the first defender by the remaining defenders.

The case was heard by Lord Richardson in the Outer House of the Court of Session. Lindsay KC appeared for the pursuers, with the defenders each instructing separate counsel.

Threatened to stop working

The pursuer was the assignee of a company, Croftshore Ltd, of which he was a director alongside the first defender, Graham Fletcher, and a third individual. The company was the heritable proprietor of land in Portpatrick which it acquired for the purposes of residential development. In or around 2006, two plots of land near the Croftshore land were acquired by a partnership, Portpatrick Holidays LLP, the members of which included the first defender and the other director of Croftshore but not the pursuer. Holidays later went into administration in 2013.

After Holidays entered administration, there were discussions between the first defender and the LLP’s joint administrators on the possible purchase of their site by Croftshore. Ultimately, no agreement was reached and the site was instead sold to the sixth defender, SBAY-C SA(1) Ltd, the sole director and shareholder of which was the second defender. The third, fourth and fifth defenders were averred to have provided financial assistance to the sixth defender to allow it to purchase the Holidays site.

It was the pursuer’s case that the defenders had devised and executed a scheme whereby the sixth defender 4 would acquire ownership of the Holidays site to the exclusion of Croftshore and the profits would be shared by them. After a draft summons at the instance of Croftshore had been intimated to the defenders, the first defender threatened to stop working for Croftshore, and he left the company on 6 July 2015.

The damages sought were quantified on the basis of profits the averred Croftshore would have made had it been able to develop the site sold to the sixth defender. Counsel for the first defender challenged the relevancy of the pursuer’s pleadings on the basis that he had failed to aver that Croftshore would have been in a position to purchase the site but for the alleged breach of fiduciary duty and dishonest assistance. This argument was adopted and developed by counsel for all the other defenders.

More probable than not

In his decision, Lord Richardson began: “Based on what the pursuer has averred, I do not consider that it can be said that were the pursuer to prove all of his averments at proof, he could not establish causation. I do not consider that the criticisms made by the first defender take adequate account of the fact that this part of the pursuer’s case proceeds on the basis that, as a result of the actions of the defenders, Croftshore lost the chance to develop the Holidays site and that the diversion of this opportunity occurred at a relatively early stage.”

He continued: “When one considers the factual averments made as a whole, the pursuer has set out a basis from which the inference can be drawn that it was more probable than not that Croftshore would have been able to obtain the necessary funding to enable it to purchase the Holidays site. In other words, the pursuer has relevantly set out a basis upon which it could be inferred that it was more probable than not that Croftshore would have obtained the necessary funding from its bankers with relevant contribution being made by Croftshore’s directors.”

On whether there was a case for breach of fiduciary duty, Lord Richardson said: “The pursuer’s case is that through his actions of walking off site and refusing to cooperate, the first defender was breaching his duty ‘to act in the way he considered in good faith would be most likely to promote the success of Croftshore for the benefit of its members as a whole’. Contrary to the submission of the first defender, the duty upon which the pursuer founds is therefore one which arises from the fact that the first defender was, at the material time, a director of Croftshore.”

Turning to the case against the other defenders, he added: “Based upon the authorities to which I was referred, there is no doubt that Scots law recognises a remedy for dishonest assistance in the commission of a breach of a fiduciary duty. That notwithstanding, there would appear to be a degree of uncertainty both as to the precise legal basis for that remedy and, as a result, the way in which that remedy is to be characterised.”

He concluded: “I consider that the pursuer has averred a relevant basis on which it could be said that the second defender had materially contributed to causing Croftshore’s loss through the role played in implementing what the pursuer characterises as the scheme for purchasing and developing the Holidays site. In particular, I consider that the pursuer’s averments in respect of the role played by the second defender, through the sixth defender, in concluding missives for the purchase of the Holidays site are relevant for inquiry.”

Accordingly, the defenders’ motions were refused, and the case put out by order to discuss further procedure.

Representation:

Pursuer: Lindsay KC; Thorntons Law LLP
First Defender: McKinlay; Lindsays LLP
Second Defender: Brown; Drummond Miller LLP
Third, Fourth and Sixth Defender: A Garioch, (sol adv); Gilson Gray LLP
Fifth Defender: Sanders; Levy & McRae