Key takeaway
When a joint venture breaks down, a director’s fiduciary duties do not automatically end with the commercial relationship. The Court of Appeal in Song & Anor v Smith & Ors [2026] EWCA Civ 719 drew an important distinction between future opportunities that arise after the breakdown and opportunities that had already matured into assets or business of the joint venture. That distinction can determine whether pursuing the next deal amounts to a breach of duty and unfair prejudice.
Two people build a business together through jointly owned companies. They fall out. One walks away and stops funding the venture. The other keeps going, picking up new work of exactly the same kind, but through different companies he controls. Has he done anything wrong?
That question sits at the heart of the Court of Appeal's decision in Song & Anor v Smith & Ors [2026] EWCA Civ 719, and the answer is more nuanced than either side in that case would have liked.
The Court, applying the Supreme Court's recent decisions in Recovery Partners GP Ltd v Rukhadze and BTI 2014 LLC v Sequana SA, has drawn a line that anyone involved in a quasi-partnership needs to understand before, not after, the relationship breaks down.
What happened in Song v Smith?
Mr Song and Mrs Zhao, and Mr and Mrs Smith, ran a joint venture developing properties, largely for housing associations. The structure was a familiar one: a parent company, Kestral Group Ltd (KGL), held equally by both couples, with two operating subsidiaries beneath it, SGR Estates Limited (SGR) and Kestral Construction Limited (KCL). Mr Song and Mr Smith were directors of all three companies. Mr Song funded the property purchases, primarily through loans to SGR. Mr Smith managed the construction work, which was subcontracted to KCL.
Shortly after April 2022, Mr Song withdrew his director's loan from SGR and refused to contribute further funding. By July 2022, the relationship had collapsed entirely. The Smiths twice offered to buy out the Songs' shares. Both offers were rejected. Mr Song believed Mr Smith had misappropriated the Group's assets on a large scale and disputed the valuations of SGR and KCL as being near or actually insolvent.
Rather than stop working, Mr Smith carried on. Through KCL, he completed or nearly completed three refurbishment projects already under way when the relationship broke down: Bay Chambers, Stow Hill in Newport and Haydock House in Barry.
He also took on two new projects, Holton Road and Albany Road, but routed them through newly incorporated vehicles, Kestral Construction Holton Road Limited and Kestral Construction (Albany Road) Limited, rather than through the joint venture companies.
The Songs petitioned under section 994 of the Companies Act 2006, alleging unfair prejudice on the basis that Mr Smith had both misappropriated the Group's money and diverted business opportunities that properly belonged to the joint venture.
This article focuses on the diversion allegation and its effect on the unfair prejudice claim.
At first instance, HHJ Jarman KC found for Mr Smith on every point. He had not breached any of his duties, the joint venture had been mutually terminated, he was free to pursue the new projects on his own account, and the buyout offer meant nothing unfair had occurred.
The Songs appealed.
For a wider look at remedies available when shareholder relationships break down, see our article on remedies in disputes between shareholders.
Do directors’ fiduciary duties survive the breakdown of a joint venture?
Lord Justice Zacaroli, giving the leading judgment, with which Lady Justices Whipple and Cockerill agreed, corrected the first instance decision on the law, but not entirely in the Songs' favour.
Directors owe what is known as the profit rule: a duty to account to their company for profits made from opportunities connected with their directorship, and that duty does not evaporate simply because the underlying relationship has soured.
It made no difference that the joint venture had ended, and no difference that the companies were insolvent or close to it.
Insolvency changes whose interests directors must consider, shifting the focus toward creditors, but it does not remove the fiduciary duty itself.
The Supreme Court has recently confirmed that fiduciaries may remain accountable for profits made after the fiduciary relationship ends where those profits derive from the earlier relationship.
For related analysis, see our article on the Supreme Court’s strict profit rule for directors and other fiduciaries.
When does a future business opportunity belong to the joint venture?
This is the part of the judgment that will matter most in practice.
The termination of the joint venture made no difference to Mr Smith's continuing fiduciary duties as a director. But that did not mean every opportunity he went on to pursue was unfairly prejudicial to the Songs.
The Court drew a distinction between opportunities that were merely future prospects at the point of breakdown, which, had the parties not fallen out, would simply have fallen within the future scope of the joint venture, and those that had already matured into something the company owned.
A partner who withdraws their funding and walks away can hardly complain of unfairness when the other pursues future opportunities for their own account.
That reasoning has its limits, though. It does not entitle the remaining director to help themselves to the company's existing assets or business.
Why did Holton Road belong to the joint venture but Albany Road did not?
Applying that distinction to the facts, Albany Road, a church conversion owned by a housing association, was at best a future prospect.
The Songs could not therefore treat Mr Smith's pursuit of it through his own vehicle as unfairly prejudicial.
Holton Road was different.
SGR had already purchased that property using its own funds together with loans from Mr Smith and his mother, which SGR repaid shortly afterwards from the proceeds of an earlier development. Refurbishment plans were already contemplated well before the relationship broke down.
That made Holton Road a matured opportunity and an existing asset of SGR.
Mr Smith therefore continued to owe the joint venture companies a duty under the profit rule to account for any profit he made from it, notwithstanding that he had personally helped fund its purchase, and notwithstanding that the joint venture itself had ended.
The Court held that this duty had been breached and that, if the Holton Road project turned out to be profitable, the failure to account for those profits would, in principle, have unfairly prejudiced the Songs as fellow shareholders.
For another example of the risks that arise when directors pursue competing opportunities, see our article on directors competing with their company.
Does a reasonable buyout offer defeat an unfair prejudice claim?
A buyout offer is not a shield against everything.
The Court confirmed, following North Holdings Ltd v Southern Tropics Ltd [1999] 2 BCLC 625, that a reasonable offer to buy out a departing shareholder can answer a complaint of exclusion.
It does not answer a separate complaint that the remaining director misappropriated the company's assets or diverted its opportunities.
These are different wrongs, and one offer cannot dispose of both.
Does a breach of fiduciary duty automatically amount to unfair prejudice?
No.
Winning the argument on breach of duty is not the same as winning the unfair prejudice claim.
Even having established that Mr Smith breached his duty over Holton Road, the Songs are not yet home.
Following Re Tobian Properties Ltd [2012] EWCA Civ 998, the Court directed a preliminary hearing to determine whether the Songs have a real prospect of establishing that:
- the Holton Road project actually generated profits;
- those profits exceeded the amount outstanding on Mr Smith's own director's loan account with KCL; and
- paying those profits to KCL would have enhanced the value of the Songs' shares in KGL.
That final question becomes particularly difficult where the companies appear to be insolvent, since additional profits paid into an insolvent company may do nothing for the value of its shares. BAILII
What does Song v Smith mean for joint venture disputes?
If you are in a joint venture structured through shared companies, this case should change how you think about the moment things go wrong, not after the fact.
The key question the Court will ask is not "did the relationship end?" but "how far had this particular opportunity progressed when it did?"
That is a factual enquiry, one that turns heavily on the evidence.
Board minutes, correspondence with counterparties, heads of terms and the source of any funding will all matter. The further advanced a deal was, the more it looks like an asset the company already owned, and the less freedom the remaining director has to take it for himself.
For anyone continuing a business after a falling out, the safer course is to treat any project that was already underway, funded or contracted for as belonging to the company, and to document clearly which new opportunities are genuinely fresh.
For anyone walking away, do not assume that a rejected buyout offer, or the fact you have stopped funding the business, gives you a claim over everything that happens afterwards.
It does not.
Your claim, if you have one, will live or die on how developed the specific opportunity was, and on whether you can actually show it would have put money in your pocket.
Joint ventures rarely end cleanly. This judgment is a useful reminder that when they do end messily, the law will look closely at the calendar, and at exactly what had already been done, before deciding who was entitled to what.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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