Criterion Properties Plc v Stratford UK Properties LLC and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Carnwath,Lord Justice Brooke |
| Judgment Date | 18 December 2002 |
| Neutral Citation | [2002] EWCA Civ 1883 |
| Date | 18 December 2002 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No A3/2002/0799 |
[2002] EWCA Civ 1883
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
The Hon Mr Justice Hart
Royal Courts of Justice
Strand,
London, WC2A 2LL
Lord Justice Brooke and
Lord Justice Carnwath
Case No A3/2002/0799
Mr Christopher Carr QC and Mr Edmund Nourse (instructed by Ashurst Morris Crisp) for the Appellant
Mr Alan Steinfeld QC and Mr Nicholas Cherryman (instructed by Denton Wilde Sapte) for the Respondent
This is an appeal from the judgment of Hart J on an application by the Claimant for summary judgment on its claim that an agreement dated 30 th March 2000 (the "SSA") was unenforceable against it.
The main facts to be taken into account or assumed for the purpose of this application can be taken from the judgment. The relevant paragraphs are reproduced as an Appendix to this judgment. They include the judge's account of the relevant facts, and also his citation from the evidence of Mr Glaser (the second defendant, who was not represented before us).
Although, as appears from this account, both Oaktree and Criterion had launched applications for summary judgment, only that of Criterion was pursued to judgment, and that is the only matter before us. Although there are fundamental disputes on many factual aspects of the case, these cannot be resolved on an application for summary judgment. Insofar as they are relevant to the matters in issue before us, we have to assume (within the bounds of reasonableness) that they would be resolved in favour of the Defendant.
In summary, Oaktree, an American company, and Criterion, a UK Plc, were parties to a joint venture for investment in real property in this country. The legal form was that of a limited partnership, the terms of which were governed by an Investment and Shareholders Agreement ("ISA") dated 26 th January 1998. The Chairman of Criterion was and is Mr Nordström; he also now owns (following acquisitions since the SSA) 50.42% of the shares of Criterion. The managing director of Criterion was Mr Glaser (the second defendant to these proceedings).
The SSA was entered into in March 2000, by way of variation of the ISA. Its avowed purpose was to protect Criterion against a possible take-over and change of management, by what has been called a "poison pill" arrangement. Its effect was to give Oaktree the right to have its interest in the joint venture bought out, on very favourable terms, in the event of another party gaining control of Criterion, or in the event of Mr Nordström or Mr Glaser ceasing to be director or employee or involved in the management of Criterion. The buyout price was fixed at the greater of the market value of Oaktree's interest in the partnership and a sum calculated to give Oaktree a guaranteed 25% per annum (compounded monthly) return on its investment in the partnership.
The SSA having apparently achieved its purpose of deterring the take-over, there were negotiations to secure its rescission in late 2000 and early 2001. Following the breakdown of these negotiations (the reasons for which are contentious), on 30 th March 2001 Mr Nordström notified Oaktree of legal advice that the SSA was unenforceable, having been entered into by Mr Glaser in breach of duty to the knowledge of Oaktree. On 3 rd April 2001 Mr Glaser was dismissed. Oaktree then served notice to exercise its option to be bought out under the SSA, and Criterion commenced these proceedings to have the SSA set aside.
For the purpose of this application, we have to assume (although this is disputed) that the SSA was entered into with the knowledge of, and indeed at the instigation of, Mr Nordström. We also have to proceed on the basis that the Oaktree evidence is accepted: that is, that it acquiesced in the arrangement in good faith, and for good commercial reasons, and that it had no reason to believe that it was in any way improper. Further, both parties were advised by reputable and experienced English solicitors, who raised no legal or ethical objections to the arrangement. We have evidence from Oaktree's legal advisers at the time, English and American, who saw this principally as a matter for Criterion and its solicitors. We have no equivalent evidence from Criterion's solicitors as to how they viewed the matter, or why the SSA was drafted in the way it was.
Issues
The judge summarised Criterion's three reasons for contending that the SSA was not binding on it:—
(1) because the board of Criterion were in breach of their duty to Criterion in entering into the agreement, and Oaktree's entry into the agreement was a dishonest assistance by Oaktree in that breach of duty ("the dishonest assistance claim");
(2) because the purpose of the second supplementary agreement was an improper one on the part of Criterion's board, and Oaktree was on notice of the improper purpose, and thus that the agreement was in excess of the actual and ostensible authority of the members of Criterion's board (in particular Mr Glaser) ("the apparent authority point");
(3) there were formal respects in which the second supplementary agreement did not comply with the machinery prescribed by the ISA for its own variation ("the Clause 5.2 point").
He treated the critical issue as the second, which he subdivided into two issues:—
"For Criterion to succeed on this point, it must show (1) that the entry by Criterion into the second supplementary agreement constituted an improper use by the Criterion board of its power to contract on behalf of Criterion, and (2) that Oaktree knew sufficient about the motivation of the Criterion board to disable it from relying on that board's apparent authority to commit Criterion to the contract."
Having decided both issues in favour of Criterion, he found it unnecessary to determine the "dishonest assistance" or "clause 5.2" points. He accordingly made a declaration that the SSA was unenforceable against Oaktree.
Oaktree has appealed against the judgment on both the issues decided by the judge, on the grounds (in summary) that:
i) There is nothing wrong in a company employing defensive tactics, such as a poison pill, to ward off unwanted bids, provided that the directors act honestly in what they believe to be the best interests of the company;
ii) The judge applied too low a test for disentitling Oaktree to rely upon the SSA; good faith on the part of Oaktree should have been sufficient.
By a respondent's notice Criterion seeks to uphold the judge's order, on the alternative ground that the effect of the agreement, known to Oaktree, was to entrench the position of the directors, in abuse of their powers. Mr Steinfeld QC, for Criterion, did not separately pursue before us the "dishonest assistance claim" or the "Clause 5.2 point", save to the extent that the former overlaps with the "apparent authority" point.
Summary judgment
This is an application for summary judgment under CPR Part 24. Criterion therefore has to establish that Oaktree has "no real prospect" of successfully defending the claim at trial. As has been often said, these words direct the court to the need to see whether there is a "realistic" as opposed to a "fanciful" prospect of success.
In Three Rivers DC v Bank of Engl and (No 3) [2001] 2 All ER 513 (para 94–5), Lord Hope emphasised the importance of relating the words of the rule to the "overriding objective" of dealing with the case "justly", and the further question "what is to be the scope of that inquiry?" He continued:—
"I would approach that further question in this way. The method by which issues of fact are tried in our courts is well settled. After the normal processes of discovery and interrogatories have been completed, the parties are allowed to lead their evidence so that the trial judge can determine where the truth lies in the light of that evidence. To that rule there are some well-recognised exceptions. For example, it may be clear as a matter of law at the outset that even if a party were to succeed in proving all the facts that he offers to prove he will not be entitled to the remedy that he seeks. In that event a trial of the facts would be a waste of time and money, and it is proper that the action should be taken out of court as soon as possible. In other cases it may be possible to say with confidence before trial that the factual basis for the claim is fanciful because it is entirely without substance. It may be clear beyond question that the statement of facts is contradicted by all the documents or other material on which it is based. The simpler the case the easier it is likely to be take that view and resort to what is properly called summary judgment. But more complex cases are unlikely to be capable of being resolved in that way without conducting a mini-trial on the documents without discovery and without oral evidence. As Lord Woolf MR said in Swain's case [2001] 1 All ER 91 at 95, that is not the object of the rule. It is designed to deal with cases that are not fit for trial at all."
With that guidance in mind, I turn to consider whether, as the judge found, the issues in this case were suitable for resolution by summary means.
The judgment
On the first issue, the judge noted that the authorities give some support for the proposition that the directors may use their powers to raise capital, with a view to resisting a take-over which they think would be damaging to the company. He cited the...
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