Catherine Newman QC writes on a breach of fiduciary duty

In the case of Satnam Investments Limited v Dunlop Heywood & ors, the House of Lords has refused Satnam's petition to appeal a Court of Appeal decision.

Satnam's surveyors, Dunlop Heywood, sent a letter to Satnam's business rivals, informing them that administrative receivers had been appointed by Satnam's bankers. Rival developers Morbaine Ltd knew Satnam had interests in land in an area of Greater Manchester, known as Tiviot Way, ready for redevelopment. Morbaine also owned land in the vicinity.

Satnam had an option to buy a site in the area called Brewery Street but the owner had the right to withdraw in the event of the appointment of administrative receivers over Satnam's assets. Morbaine conducted its own title searches, establishing the identity of the owner of the site. It learned that Satnam's option was not protected by any sort of registration.

In breach of its contractual obligations to the owner, Satnam had not disclosed the appointment of administrative receivers to the owner. Morbaine did so and the owner terminated the option, although it notified Satnam that it was willing to sell the site for the option price.

A contract race began for the site which Morbaine won, buying the land from the owner. Later the receivers were discharged.

Judge Chadwick found that by writing to Satnam's rivals, the surveyors were in breach of their fiduciary duty to Satnam. He found that Morbaine knew of the breach of duty and this had caused Morbaine to buy the land. He imposed a constructive trust on the property to prevent Morbaine from profiting from its conduct.

But on appeal Morbaine's counsel successfully argued for the constructive trust to be set aside and the land returned to its client.

The judge found that Morbaine had not participated in the surveyors' breaches of duty and did not itself come under any fiduciary duty. There was no finding of any dishonesty on the part of Morbaine. Thus there could be no finding of constructive trust.

A submission made by Satnam that the case was suitable for the imposition of a remedial constructive trust was rejected.

Lord Justice Norse made clear that such a remedy could not be imposed without legislation.