The New Zealand Court of Appeal has recently released a decision highlighting the importance of receiving legal advice before entering into business relationships with friends. In the present case a lot of time and expense could have been avoided by obtaining proper advice in relation to fiduciary obligations and ensuring they are satisfied.

In Detection Services Pty Limited v Pickering [2019] NZCA 575 the Court of Appeal faced the question of whether Mr. Pickering breached their fiduciary obligation to Detection Services Pty Limited (DSP).

The parties entered into a joint venture to develop a computer controlled leak detection system for use by DSP. The prototype was completed in mid-2011 and DSP sought delivery for immediate use. Mr. Pickering then asserted that he was the sole owner of the system, and refused to deliver it to DSP until the parties reached agreement on the price and other terms governing its use. The parties were unable to reach agreement, and their relationship was irretrievably broken. The Court of Appeal notes that the uncertainty surrounding the legal nature of their relationship extended even as to exactly which parties were involved in the dispute.

The Court of Appeal held that the join venture parties owed fiduciary duties to each other:

  1. Pickering’s attempts to appropriate the system for his own benefit breached this fiduciary duty, because retention of the device frustrated the entire purpose of the joint venture.
  2. The principle that one who comes to equity must come with “clean hands”, was not applicable. The letter sent by DSP’s solicitor did not have a sufficiently close connection to the relief sought by DSP to deny DSP relief for Mr. Pickering’s breach of fiduciary duty.

The case has been remitted back to the High Court for assessment of the damages to be paid by Mr. Pickering to DSP.

The issues in this case could have been avoided by the parties seeking legal advice prior to embarking on the joint venture, and entering into a formal arrangement outlining the key elements. Those include the ownership of the system and the form of remuneration for its development.