Ok, I think I've copied and pasted it ok, good luck! Oh, and after previewing it, it's decided to put
where the no 8 should be, that's not me messing around!
In Depth
Full Judgement
Neutral Citation Number: [2006] EWCA Civ 237
Case No: A2/2005/2458
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY
H.H.JUDGE NORRIS QC
Royal Courts of Justice
Strand, London, WC2A 2LL
14/03/2006
B e f o r e :
PRESIDENT OF THE QUEEN'S BENCH DIVISION
LORD JUSTICE DYSON
and
SIR PETER GIBSON
____________________
Between:
WREXHAM ASSOCIATION FOOTBALL CLUB LTDAppellant
- and -
CRUCIALMOVE LTDRespondent
____________________
Clive Freedman QC and Patrick Lawrence QC (instructed by Messrs Berrymans
Lace Mawyer) for the appellant
John Randall QC and Alistair Wyvill (instructed by Messrs Turner
Parkinson) for the respondent
Hearing dates: 14th February 2006
____________________
HTML VERSION OF JUDGMENT
____________________
Crown Copyright ©
Sir Peter Gibson :
1. This is an appeal by the Defendant, Crucialmove Ltd ("CL"), from the
order made on 4th November 2005 by His Honour Judge Norris QC, sitting as
a judge of the Chancery Division in the Birmingham District Registry. By
that order the Judge, on an application for summary judgment by the
Claimant, Wrexham Association Football Club ("the Club"), declared that CL
held certain property on trust for the Club subject to a charge in CL's
favour.
2. The Judge refused permission to appeal. The application for permission
was renewed in this court and Jonathan Parker LJ granted permission on the
papers. In reaching his conclusion the Judge had found a want of good
faith on the part of Alexander David Hamilton, who owns all of the shares
and is the sole director of CL. The Lord Justice thought it arguable that
on an application for summary judgment the Judge should not have made that
finding.
The facts
3. Wrexham Football Club is one of the oldest football clubs in the
country. It was established in 1872 and incorporated as the Club in 1912.
For a number of years it has been in the lower divisions of the Football
League. Currently it is in Division 2 of the Coca-Cola League. It has had
financial difficulties for some time and has been in administration since
3rd December 2004. Its most important asset has been its ground, known as
the Racecourse Ground ("the Ground"). Immediately before the events in
2002 which are at the heart of the present proceedings, the freehold of
the ground ("the Freehold") was owned by Marston Thomas & Evershed plc
("the Brewery") subject to a lease ("the First Lease") dated 22nd July
1998 and granted by the Brewery to the Club for a term of 125 years at a
peppercorn rent. For the First Lease the Club paid the Brewery a premium
of £750,000.
4. Mr Hamilton is a former solicitor who practised for 24 years. He has
been involved in property development through a number of companies. Mark
Guterman is also a property developer. Prior to 7th February 2002 Mr
Guterman and Mr Hamilton had collaborated on three property deals. The
pattern was that Mr Guterman would find the development projects and that
Mr Hamilton would provide the funding. On 7th February 2002 Mr Guterman
and Mr Hamilton entered into a Joint Venture Agreement ("JVA"). By it Mr
Hamilton agreed to lend Mr Guterman £180,000. In the event of any joint
venture involving Mr Hamilton or his associates, Mr Hamilton was to
receive 60% and Mr Guterman 40% of the net profits.
5. One project which Mr Guterman wished to pursue and to which he
introduced Mr Hamilton in mid-February 2002, when another business
associate pulled out "fearing high adverse publicity", was what was known
to them as "the Wrexham project". The project objective was said to be "to
relocate the football club to a new stadium in Wrexham and redeveloping
the existing stadium site for commercial retail purposes" (Mr Hamilton's
second witness statement paragraph 24). Mr Hamilton continued:
"From the upfront financial commitment of an institutional investment
buyer there would be ample funds to construct the new stadium, and pay off
all the historic club debt and thereafter the project should in theory
provide a significant return to the developer."
6. For the project to be carried through to completion two steps were
perceived as needing to be taken: obtaining control of the Club and
obtaining ownership of the Ground.
7. Of the 9,980 issued shares in the Club, 7,868 shares (or 78% of the
issued share capital) were held by the then director and chairman, Pryce
Griffiths, who was willing to sell those shares. The Club needed financial
aid urgently and Mr Hamilton was prepared to lend and did lend the Club
money from the end of February onwards. By 26th March 2002 Mr Pryce
Griffiths and Mr Hamilton had agreed the terms of the sale of the shares.
That day the Club's Board approved the transfer to "Mr Guterman of
Memorvale" Ltd of the 7,868 shares. Memorvale Ltd ("Memorvale"), a company
wholly owned by Broadhill Properties Ltd ("Broadhill") which in turn was
wholly owned by Mr Hamilton, was to be the purchaser. Mr Guterman, who
conducted the negotiations, was a director of Memorvale. The next day
Memorvale entered into an agreement to purchase the 7,868 shares for
£50,000 plus a further deferred consideration of £500,000, which became
payable in certain events, one of which was the sale or development of the
ground. Our attention was drawn by CL to this provision as indicative of
the openness with which Mr Hamilton furthered the Wrexham project. It does
nothing of the sort. It is hardly likely that the provision was inserted
at Mr Hamilton's insistence and it must have been obvious that a 7.6 acre
site on the edge of Wrexham town centre might have development potential.
Still less can the approval by the Board of the sale of the shares be
taken to be the approval of the Wrexham project nor can any inference be
drawn that disclosure of that project or of Mr Guterman's and Mr
Hamilton's interest in it was made to the Board, as the Judge correctly
held.
8. In 2002 David Rhodes was the secretary and managing director of the
Club. In proceedings ("the Guterman proceedings") commenced in 2004 in the
Chancery Division by Mr Guterman against Mr Hamilton and three of his
companies including CL, he has made a lengthy witness statement in which
he says (in paragraph 15) that, following completion of the share sale, Mr
Guterman took up the office of an executive director and chairman of the
Club, although not officially appointed. His formal appointment did not
take place until the Board meeting on 10th June 2002 when Mr Pryce
Griffiths resigned.
9. On 27th March 2002 Mr Guterman and Mr Hamilton varied the JVA by a
letter written by Mr Hamilton to Mr Guterman under the heading "Single
variation of agreement 7th February 2002 Wrexham Football Club Ltd
Development at Stadium". In that letter Mr Hamilton confirmed his
agreement with Mr Guterman that subject to Mr Hamilton funding the
development up to £250,000 "the division or distribution of net profit ?
will be equal fifty per cent each", with a division in accordance with the
JVA if he had to put in more than £250,000. The letter went on to explain
that the variation was in recognition by Mr Hamilton of Mr Guterman's
efforts and that it was because of Mr Guterman's footballing connections.
10. On 17th April 2002 Mr Guterman and a company of his (together called
"MSG") on the one hand and Mr Hamilton and Broadhill (together called
"ADH") on the other entered into Heads of Agreement written in manuscript
by Mr Hamilton. It was recited that MSG and ADH were jointly participating
in property development ventures in accordance with joint venture
agreements and that ADH had agreed to pay £100,000 to MSG upon the terms
then following. There then followed three terms under the heading "Wrexham
Football Club". The first term was to restore "the profit shares and/or
distribution of profit arising out of development in Wrexham or connected
in any way with the ? Club" to the 60/40 ratio in the JVA. The second term
was that if a particular project in Rotherham did not proceed, the
percentage division of profit on the Wrexham project was to be amended to
75% to ADH and 25% to MSG. In the event those were the profit shares which
applied. The third term ("clause Aiii") was in this form:
"Aiii. The management and control of the Football Club is to be on an
equal control basis with main and sole objective to realise the maximum
potential gain from the property assets of the Football Club for the
benefit of ADH and MSG".
The Heads of Agreement were expressed to cancel and extinguish the
variation agreement of 27th March 2002.
11. Negotations to purchase the Freehold from the Brewery commenced in
April 2002 with the help of Bolton Birch, chartered surveyors. It was the
deliberate policy of Mr Guterman and Mr Hamilton that the purchase was to
be in the name of the Club, although Mr Hamilton was to provide the
purchase price. Mr Hamilton or a company of his was to be the beneficial
owner. In paragraph 10 of his first witness statement Mr Hamilton said
this:
"[Mr Guterman] suggested that the Football Club could approach the Brewery
without informing the seller of the true purpose. I certainly accepted
that it would be stupid to inform the seller of the true long term
objectives and agreed he was not obliged to do so particularly when
seeking to achieve Title assembly of different land titles and he should
adopt the standard property developer procedure of keeping his true
objectives to himself ?. [Mr Guterman] wanted the Club to approach the
Brewery directly, whilst I suggested approaching the Brewery directly as a
major shareholder. I acceded to his views as he was in the driving seat".
In paragraph 12 Mr Hamilton said:
"[Mr Guterman] insisted that the Football Club should continue to front
the acquisition on my behalf 'to avoid complications' as he did not want
the introduction of a different purchaser to cause any possible revision
of thinking by the Brewery".
12. In early May 2002 Mr Guterman and Mr Hamilton went together to see a
solicitor, known to Mr Guterman, Mr Zatman, to instruct him to act on the
purchase of the Freehold. Mr Zatman's note of the meeting states that the
Freehold was to be acquired in the name of the Club and that a trust deed
was to establish that the Club was purchasing as a bare trustee for
"Newco", to which, at the completion of the purchase, the Freehold was to
be transferred. Mr Zatman was to implement this and in the note he raised
a query "Conflict?", to which he answered "No". "Newco" was to fund the
transaction and pay his costs and he had to give a quotation to Mr
Hamilton. He noted that he was acting for the Club and "Newco" jointly.
13. "Newco" was incorporated on 27th May 2002 as Damens Ltd and later
changed its name to CL. Mr Guterman was a director of CL from 10th to 12th
June 2002. Subject to this, Mr Hamilton was its sole director. It has been
accepted throughout that Mr Hamilton's knowledge of material matters can
be imputed to CL.
14. Negotiations for the purchase of the Freehold from the Brewery by the
Club had, by 9th May 2002, advanced sufficiently for Bolton Birch to
record in a letter to the Brewery what were described as the Heads of
Terms which had been agreed verbally. The purchase price was £300,000.
15. On 31st May 2002 contracts were exchanged. Two provisions should be
noted. By clause 17 the contract was expressed to be personal to the Club.
By clause 23 the Club and the Brewery agreed to enter into an agreement in
the form attached at Schedule 3 to the contract on the completion date for
the allocation of seats at the ground. In Schedule 3 there is what on its
face is an Agreement executed by the Club in 1999 (but otherwise not more
specifically dated) expressed to be supplementary to the First Lease. By
the Agreement the Club agreed with the Brewery that, during each of the 10
consecutive football seasons following practical completion of alterations
permitted by the Brewery under a licence also dated 22nd July 1998, the
Club was to provide the Brewery with a number of tickets at the Ground.
16. On 10th June 2002 a meeting of the Board of the Club was held. At that
meeting Mr Pryce Griffiths resigned and Mr Guterman was formally appointed
a director and the Chairman. As the Judge observed, that is the clearest
indication that there had been no intermediate Board meeting since 26th
March 2002 when the sale of Mr Pryce Griffiths' shares were approved. The
minutes make no reference to the contract of 31st May 2002 or to what was
to happen to the Freehold. Nor do they refer to any disclosure by Mr
Guterman of any interest in the development of the Ground.
17. On 25th June 2002 completion took place. The Brewery, by deed (a Land
Registry transfer form TR1), transferred the Freehold to the Club. That
form provides for a declaration of trust by which the transferee can state
for whom it is to hold the property transferred. That was left blank. For
the Club Mr Guterman as director and Mr Rhodes as secretary executed the
deed.
18. Also on 25th June 2002 the Club, acting by Mr Guterman as director and
Mr Rhodes as secretary, and CL executed as a deed a Declaration of Trust
("the Declaration of Trust"). This recited that the Freehold had been
transferred that day by the Brewery to the Club and that the £300,000
purchase price was paid by CL. By the operative part of the deed, it was
said that the Club entered into the deed by way of confirmation and
declaration that the Club agreed to accept the transfer and held all
interest in the Freehold as trustee for CL absolutely. This was followed
by a transfer ("the CL Transfer") also dated 25th July 2002 whereby the
Club by deed, executed by Mr Guterman as director and Mr Rhodes as
Secretary, transferred the Freehold to CL. By a further Declaration of
Trust dated 2nd July 2003 it was recited that the cost of acquiring the
Freehold was borne by Mr Hamilton. CL declared that since the transfer to
it of the Freehold it had held and was thenceforth to hold the Freehold in
trust and as a nominee for Mr Hamilton.
19. A year later the Club found itself in urgent need of funds. By a
letter signed by Mr Guterman as Chairman and Mr Rhodes as secretary and
addressed to CL and dated 26th June 2003 the Club confirmed that in
consideration of the payment of £300,000 by CL to the Inland Revenue, the
Club agreed to surrender its 125 year lease and to enter into a new lease
for the same term but at an annual rent of £30,000 instead of a
peppercorn. The Club agreed to the inclusion of a break clause exercisable
by CL as landlord but providing compensation to the Club of the greater of
£1,000,000 or one third of the freehold value of the Ground.
20. The new lease ("the New Lease") was executed on 19th May 2004. It
expanded on the bare terms of the letter of 26th June 2003, but it is not
necessary to go into that save to note that the break clause provided for
termination of the New Lease on 30th July in any year by either CL or the
Club on not less than 12 months' notice.
21. On 21st July 2004 CL gave such notice for the termination of the New
Lease on 30th July 2005. It was the imminence of the termination that
caused the Club, acting by its Administrators, on 2nd June 2005 to
commence the present proceedings.
22. Before I describe the course of these proceedings I must complete the
relevant history. By an Option Agreement dated 6th May 2004 CL granted Mr
Guterman an option to purchase CL's interest in the Ground for £1,926,500.
By another Option Agreement of the same date Memorvale granted Mr Guterman
an option to purchase its 7,868 shares in the Club for £50,000. By clause
5.3 of that Agreement, in any of certain events indicative of the
insolvency of the Club, Memorvale would make the Club an interest-free
loan of £200,000.
23. One week later Mr Guterman and Mr Hamilton agreed on a transaction
wholly different from that suggested by the Option Agreements. By an
Agreement dated 13th May 2004 they agreed to rescind those agreements. Mr
Hamilton agreed to buy out Mr Guterman's interests in relation to the Club
for £320,000. Mr Guterman agreed to call a Board meeting of the Club and
to procure resolutions for Mr Hamilton to become a director and the
chairman in place of Mr Guterman, who was to resign.
24. It was primarily to enforce the Agreement of 13th May 2004 that Mr
Guterman commenced the Guterman proceedings against Mr Hamilton. In those
proceedings Mr Guterman asserts and Mr Hamilton admits that Mr Guterman,
by virtue of the JVA as amended, had an entitlement to 25% of any net
profits arising out of the development of the Ground or in any way
connected with the Club.
25. The facts which I have recited thus far are all uncontroversial in
that they are taken from contemporary documents or from evidence put in by
or on behalf of Mr Hamilton in these or the Guterman proceedings
The present proceedings
26. By its Amended Particulars of Claim the Club averred that Mr Hamilton
and Mr Guterman were the partners interested in CL as the persons for whom
CL acted (paragraph 6.4); that Mr Guterman and Mr Rhodes were acting at
the behest, under the direction and/or with the knowledge and approval of
Mr Hamilton (paragraph 6.5); that from March 2002 until 23rd May 2004, Mr
Hamilton was a shadow director of the Club (paragraph 6.7); that one or
both of Mr Guterman and Mr Rhodes knowingly made false representations to
the Brewery to induce it to sell the Freehold (paragraphs 8, 11 and 12.1)
and for CL and, through it, Mr Hamilton and Mr Guterman to make a profit
from the development of the Ground (paragraph 12.3); that the Declaration
of Trust and the CL Transfer were not approved or authorised by the Board
or the Club (paragraphs 15.2, 15.3 and 16.3); that the New Lease was not
approved or authorised by the Board or the Club (paragraphs 21.2 and
21.3); that CL held the Freehold on trust for the Club (paragraph 26.1);
that the execution by Mr Guterman and Mr Rhodes of the Declaration of
Trust and of the CL Transfer, and further or alternatively the surrender
of the First Lease and the taking of the New Lease, were not valid acts of
the Club and, by reason of Mr Hamilton's involvement on behalf of CL, CL
has not dealt with the Club in good faith and could not claim that the
Club is bound by the actions of Mr Guterman and Mr Rhodes (paragraph
26.3); that Mr Guterman and Mr Rhodes were not acting in the best
interests of the Club but for the purpose of benefiting CL and themselves
in breach of their fiduciary duty to the Club (paragraph 26.4.1) and that
CL was knowingly involved in and/or party to that breach of fiduciary duty
(paragraph 26.4.2).
27. By its Defence CL denied all these allegations. It denied that Mr
Guterman had any interest in CL (paragraph 6). It denied that Mr Guterman
and Mr Rhodes were acting at the behest, under the direction and/or with
the knowledge and approval of Mr Hamilton and averred that Mr Hamilton,
prior to his appointment as a director, had no involvement in the
management of the affairs of the Club (paragraph 7). It put the Club to
proof of the allegations as to Mr Guterman's and Mr Rhodes' purpose, and
averred that the Club was in no position to purchase the Ground (paragraph
21). It said that CL was entitled to and did rely on the authority of Mr
Guterman as Chairman and Mr Rhodes as Managing Director to act in
executing the Declaration of Trust and the CL Transfer and in any event CL
believed there was a Board resolution conferring authority (paragraph 26).
CL, it said, acted in good faith in its dealing with the Club (paragraph
38) and was not involved in or party to any alleged breaches of fiduciary
duty (paragraph 39).
28. The disclosure obtained from CL on 28th September 2005 cast light on a
number of issues raised by the pleadings. In particular, it revealed to
the Club the JVA and its variations which specifically brought the Wrexham
project within the agreement by Mr Guterman and Mr Hamilton to share
profits. Of particular note is the agreement in clause Aiii. The pleadings
in the Guterman proceedings confirm Mr Guterman's financial interest in
the Wrexham project via the JVA as amended.
29. In the light of that disclosure the Club applied for summary judgment
but limited its application to challenging the validity of the Declaration
of Trust.
The judgment
30. The Judge in his judgment was careful to distinguish between the
evidence which derived from Mr Hamilton and was common ground and the
evidence which could not be so described. He noted that the application
proceeded on a very narrow front. He concluded in paragraph 23 of his
judgment that there could be no real dispute about the following matters:
(a) Mr Guterman was acting at all material times as an agent for the Club
and as such owed fiduciary duties not to profit from his fiduciary
position and to avoid conflict between his fiduciary position and his
personal interests
(b) Whilst acting as agent he was able to secure the opportunity for the
Club to purchase the Freehold from the Brewery.
(c) At all times after 6th February 2002 he had a personal interest under
the JVA in arranging the property interests in the Ground so that he and
Mr Hamilton could redevelop it.
(d) The acquisition by CL of the Freehold would promote those interests.
(e) From 17th April 2002 Mr Guterman was under a contractual obligation to
Mr Hamilton to conduct the management and control of the Club with the
sole and main objective of realising the maximum potential gain from its
property assets for the benefit of himself and Mr Hamilton, an obligation
in direct conflict with his duty to the Club.
(f) Mr Guterman thought (and Mr Hamilton knew that he thought) that
pursuing the purchase of the Freehold in the name of the Club (rather than
in the name of CL as the intended true purchaser) conferred an advantage,
and negotiations with the Brewery were begun and continued with that in
mind, Mr Hamilton having an equal role in those negotiations with Mr
Guterman and acquiescing in that approach.
(g) At the very least this provided grounds for the Club to claim that CL
must account to the Club for any benefit it derived from the transactions
in which it had used the Club's name for its own purposes.
(h) The acquisition of the Freehold (in the course of which the Club
assumed a liability not underwritten by CL) proceeded as directed by Mr
Guterman and (to the extent that there were joint instructions to Mr
Zatman) Mr Hamilton, and concluded with the transfer of title to the Club.
(i) The Declaration of Trust by the Club which was signed by Mr Guterman
(by which the Club appeared to acknowledge the equitable title of CL, and
that this beneficial entitlement derived from an agreement with the Club),
must itself be a breach of fiduciary duty unless made after a full
disclosure of all relevant circumstances to the relevant decision-making
body of the Club.
31. The Judge then considered whether there was a real case to be answered
that there had been the requisite disclosure to the Board of the Club and
considered that there was not. In so doing he noted that the statements of
Mr Guterman and of Mr Rhodes adduced by Mr Hamilton contained no
suggestion that there was full disclosure to the Board or that the Board
approved the Declaration of Trust and the CL Transfer. The Judge noted
that there was no suggestion in the evidence that the Board delegated to
Mr Guterman and Mr Rhodes the power to approve transactions in which Mr
Guterman was personally interested. The Judge also took into account
evidence from Mr Rhodes that following the share sale in March 2002 the
former practice of formal Board meetings to discuss Club matters and
finances did not continue when Mr Guterman unofficially became an
executive director and chairman of the Club. He noted the evidence of five
other directors that there was nothing disclosed by Mr Guterman to any of
them. The Judge also noted the complete absence of any disclosure recorded
in the minutes of 26th March and 10th June 2002. The Judge referred to the
unusual nature of the transaction by which the Club was the nominal
purchaser of the Freehold and made a Declaration of Trust that it held the
Freehold for CL. He described it as fanciful to suggest that there was
disclosure to the Board and actual or implied assent to what was going on.
32. Finally the Judge considered whether there was a real case that Mr
Hamilton did not know what was going on. Mr Hamilton's evidence was that,
so far as he was aware, Mr Rhodes as Managing Director and Mr Guterman as
Chairman had authority from the Club to deal with the Declaration of Trust
and Transfer. The Judge referred to statements of principle by Slade LJ
and Browne-Wilkinson LJ respectively in Rolled Steel Products Holdings Ltd
v British Steel Corporation [1986] Ch 349 at pages 295-6 and pages 306-7
to the effect that a person dealing with a company on notice that the
directors are exercising a power of the company for purposes other than
the purpose of the company cannot rely on the ostensible authority of the
directors and cannot hold the company to the transaction. The judge
rejected an argument that section 35A(1) Companies Act 1985 has supplanted
the Rolled Steel principles, but acknowledged that the burden was on the
Club to establish lack of good faith on the part of Mr Hamilton if section
35A was otherwise applicable. The Judge considered that the Board had no
power to effect transactions not for the benefit of the company.
33. The Judge continued in paragraph 33:
"But although that is my view of the law, if my assessment of the
respective cases had led me to the view that there might be a different
outcome depending on whether it was for Mr Hamilton to show good faith
(under Rolled Steel) or for the Club to prove a lack of good faith (under
section 35A) I would incline to the view that the matter should proceed to
trial. However I am clear in my view that the assessment yields the same
answer whichever approach is taken. In my judgment it is fanciful to
suggest that Mr Hamilton acted in good faith in relation to the
Declaration of Trust when it is demonstrable from uncontroversial material
or from his own case that he knew:-
(a) that the whole object of Mr Guterman's and his own involvement with
the Club in the first place was to promote a redevelopment of its stadium
to their personal advantage (that was 'the Wrexham project');
(b) that Mr Guterman was chairman and director of the Club;
(c) that Mr Guterman had a personal interest in the acquisition of the
freehold through its admitted interest in the JVA;
(d) that Mr Guterman had promised Mr Hamilton that he would exercise his
powers of control and management within the Club with the sole or main
objective of realising the maximum potential gain from its property assets
for the benefit of himself and Mr Hamilton;
(e) that the Declaration of Trust and transfer by the Club were the final
steps to secure a benefit for Crucialmove which Mr Guterman had thought
(and had explained to Mr Hamilton) could most advantageously be pursued in
the name of the Club;
(f) that the Club had no independent solicitor acting. for it in the
transactions;
(g) that all relevant documents had only been signed by Mr Guterman and Mr
Rhodes and that no board resolutions authorising any step in the
transaction had at any stage been produced.
If those circumstances do not demonstrate to a person acting in good faith
that the transaction is improper (or put him on enquiry as to its
propriety) it is difficult to know what would."
34. The Judge acknowledged that a finding of a person not acting in good
faith ought generally to be reached at trial, but he said that the quality
of the evidence and the clarity of the legal principle had led him to the
judgment that this was a plain and obvious case and that it would not be
just to compel a trial. He regarded it as a straightforward case in which
a fiduciary position in the Club had been misused for the benefit of those
interested in the exploitation of its property assets. He therefore
granted a declaration that the Freehold was held by CL on trust for the
Club subject to a charge in CL's favour to secure the purchase price of
£300,000 and the costs of acquisition of the Freehold and such other sums
and allowances which CL was entitled to claim as a charge on the Freehold.
The Judge directed an inquiry as to those sums and allowances.
The appeal
35. No less than four skeleton arguments have been lodged on behalf of CL
on this appeal, two by Counsel previously instructed for CL and two by Mr
Clive Freedman QC and Mr Patrick Lawrence QC, who have appeared for CL on
this appeal. Of the latter two skeleton arguments the first is expressed
to be supplemental to the first skeleton argument lodged for CL and so
none of the earlier arguments has been abandoned. However I intend to
concentrate on what appear to be the main points which featured in Mr
Freedman's oral submissions.
36. There are two related aspects of the submissions for CL. The first is
the issue of substance as to whether the Judge could properly conclude on
the material before him without a trial that there was an absence of good
faith on the part of Mr Hamilton such that CL could not rely on the
purported execution of the Trust Declaration by the Club acting by Mr
Guterman and Mr Rhodes. The second is whether the Judge should in any
event have given summary judgment because of the seriousness of the
allegation against Mr Hamilton.
Good faith
37. Mr Freedman rightly recognised from the outset of his address to us
that the central question on the appeal was whether the Judge was right to
find bad faith on the part of Mr Hamilton. However, in his further
skeleton argument he went so far as to suggest that CL as a third party
which was not a fiduciary had to be shown to have been dishonest. For this
the decision of the court in Satnam Ltd v Dunlop Heywood Ltd [1999] 3 All
ER 652 was cited as authority. I do not agree. That case established that
under the equitable rules governing accessory liability (or what used to
be known as liability as a constructive trustee for knowing assistance in
a breach of trust) dishonesty on the part of the person sought to be made
liable must be shown. In Satnam the third party could not be so liable
because there was no finding of dishonesty, nor could it be liable as a
constructive trustee for knowing receipt because, on the assumption that
information acquired through a breach of fiduciary duty was property, it
could not be traced into what the third party had acquired. It was not
held that dishonesty was an essential ingredient of that type of
constructive trust.
38. In the present case the Judge was not concerned with a claim of
accessory liability. What was said by the Club was that CL had notice,
actual or constructive, that Mr Guterman as a director in executing the
Declaration of Trust was acting otherwise than wholly for the purpose of
the Club without having made full or any disclosure of his personal
interest. That, it was said, was a breach of Mr Guterman's fiduciary duty
to the Club and Mr Hamilton was on notice of it and accordingly could not
be said to be acting in good faith, whether or not he was guilty of
dishonesty.
39. I do not understand Mr Freedman seriously to dispute that Mr Guterman
was guilty of a breach of fiduciary duty in putting himself in a position
where his duty to the Club, as a director and agent of the Club in
executing the Declaration of Trust, and his personal interest conflicted,
unless he made full disclosure of all material facts. The judge referred
to the statement of the law by Jonathan Parker LJ in Bhullar v Bhullar
[2003] 2 BCLC 241 at paragraph 27. This makes it clear that the inflexible
rule of equity of universal application is that a fiduciary is not allowed
to place himself in a position where his duty to his principal and his own
interest may conflict nor may he make a profit out of his fiduciary
position. As Millett LJ said in Bristol & West Building Society v Mothew
[1998] Ch 1 at 18, the principal is entitled to the single minded loyalty
of his fiduciary. The fiduciary cannot act for his own benefit without the
informed consent of his principal. It would not be enough, in my view, for
the fiduciary to disclose the existence of his interest in a transaction
without disclosing the nature and extent of that interest.
40. It is immaterial that the principal could not obtain for himself the
benefit of the transaction. This has been the law since at least as early
as Keech v Sandford (1726) Sel Cas Ch (t King) 61 and there are numerous
other instances in the authorities of this point. The fact, if it be such
(and the Club suggests otherwise), that the Club did not have the means to
purchase the Freehold is irrelevant. What is relevant is that both Mr
Guterman and Mr Hamilton recognised the importance of the purchase of the
Freehold being in the name of the Club and that was also the Brewery's
view, as is evidenced by clause 17 of the contract with the Brewery. The
opportunity to purchase was unquestionably that of the Club, and for Mr
Guterman and Mr Hamilton to proceed with the purchase on the footing that
the Club would be the purchaser on a bare trust for CL required Mr
Guterman to make full disclosure if the conflict of his interest with his
duty to the Club was not to cause him to be in breach of his fiduciary
duty.
41. There can, in my judgment, be no real doubt but that there was no
disclosure by Mr Guterman, full or otherwise. The Judge's reasoning and
conclusion on this point, which I have summarised in paragraph 31 above,
seem to me unchallengeable.
42. There was some debate before us on the meaning of clause Aiii. It was
suggested by Mr Freedman that the clause should not, and does not have to,
be read as an agreement obliging Mr Guterman to act in breach of fiduciary
duty at the expense of creditors and minority shareholders because that
would be to render the contract unlawful. Mr Freedman said that a term was
to be implied requiring Mr Guterman to act in a way which avoided any
breach of fiduciary duty. He referred us to Lewison on the Interpretation
of Contracts (3rd Edition) at paragraph 7.101, where it is said: "Where
the words of a contract are capable of two meanings, one of which is
lawful and the other unlawful, the former construction should be
preferred". I do not think that the words of clause Aiii are capable of
two meanings. On the contrary they appear to me to be as unambiguous as
they are strongly expressed. The clause is in an agreement which recited
that the parties were engaged in property development ventures in
accordance with joint venture agreements. Mr Hamilton was to provide yet
more funding and by clause Aiii, it was agreed how the Club should be
managed and controlled even though Mr Hamilton was not an officer of the
Club. In particular the clause sets out what was the "main and sole
objective" (the word "and" is how Mr Hamilton interpreted his own
manuscript) of that management and control. There is not a word suggestive
of the need to consider the interests of others or of the necessity to
make full disclosure. On the contrary: the parties were only addressing
their own interests and objective under the JVA in relation to the Wrexham
project. I see no room, still less necessity, for the implication of any
term such as Mr Freedman suggested, which would have the effect of
rewriting the agreement.
43. Mr Freedman relied on a number of matters of which he said the Judge
took no or insufficient account in finding bad faith on the part of Mr
Hamilton.
(1) Mr Freedman said that Mr Hamilton was entitled to rely on Mr Zatman as
the solicitor acting for the Club and CL on the purchase of the Freehold
and the Declaration of Trust. Mr Freedman pointed in particular to Mr
Zatman's conclusion in his note that there was no conflict. However, there
is no evidence that Mr Zatman was told of the JVA and its variations and
in particular clause Aiii. Mr Hamilton, as a practising solicitor for many
years, should surely have realised that he could only rely on Mr Zatman if
and to the extent that Mr Zatman had been fully informed.
(2) Mr Freedman said that the fact that Mr Guterman and Mr Hamilton had a
commercial arrangement was not kept hidden from Mr Rhodes or the Club's
bank. Again there is no evidence of Mr Rhodes or the bank being informed
of the full details of the JVA including clause Aiii.
(3) Mr Freedman said that Mr Hamilton was entitled to rely on Mr Rhodes as
a long-standing officer of the Club and one experienced in football
matters to ensure that there had been compliance with the formalities, and
he drew attention to the fact that the Club by its pleadings had attacked
Mr Rhodes' good faith. The Club accepted that no finding adverse to Mr
Rhodes could be made by way of summary judgment. I do not see how any of
this goes to show the good faith of Mr Hamilton. I refer again to the
absence of evidence of full disclosure to Mr Rhodes who in any event was
not a lawyer. There is no suggestion that Mr Hamilton enquired of Mr
Rhodes whether, on this unusual transaction for a football club, the Club
had been fully informed of Mr Guterman's interest in the Wrexham project.
(4) Mr Freedman criticised the Judge for making the false assumption that
the transaction on 23rd June had been carried out for the benefit of Mr
Guterman and Mr Hamilton at the expense of the Club. Our attention was
drawn to the substantial sums advanced by Mr Hamilton to the Club. I
accept that there is some evidence that the joint venturers thought that
the Club would obtain a benefit from the fulfilment of the Wrexham
project. However that does not begin to meet the objection based on what
the joint venturers were aiming to achieve as evidenced by clause Aiii,
nor to give proper recognition to the fact that Mr Guterman was misusing a
profitable opportunity which belonged to the Club.
(5) Mr Freedman relied on the inability of the Club to purchase the
Freehold and on the dire financial state of the Club. But this ignores Mr
Hamilton's own view of the potential profitability of the Wrexham project.
Although he said in his second witness statement that £300,000 was a very
full price for the Freehold, in paragraph 46 of his witness statement in
the Guterman proceedings he said that he and Mr Guterman had expected to
pay in excess of £1 million, that there was no doubt that it was a good
deal for them and that he had pushed Mr Guterman to progress the purchase
of the Freehold. He also said (in paragraph 74) that Mr Guterman
calculated the value of the entire site with the benefit of planning
permission could be as much as £8 million, but while he rightly considered
that to be speculative, there can be no doubt but that Mr Hamilton also
regarded the Wrexham project as a valuable investment opportunity. However
he knew or ought to have known that the opportunity was the opportunity of
the Club in whose name the Freehold was to be purchased, even if its own
reserves were insufficient to carry out the development.
(6) Mr Freedman said that Mr Hamilton came to this opportunity prior to
his acquiring any shares in the Club. I cannot see how this shows Mr
Hamilton's good faith. Within days of the JVA being signed Mr Guterman
introduced him to the Wrexham project, integral parts of which were that
he would acquire Mr Pryce Griffiths' 78% shareholding, Mr Guterman would
succeed Mr Pryce Griffiths as chairman and the Club, with Mr Hamilton's
money, would acquire the Freehold as bare trustee for Mr Hamilton's
company.
(7) Mr Freedman said that Mr Hamilton was an outsider to the Club prior to
becoming a director in 2004 and that he did not concern himself with the
Club. But by clause Aiii he had procured Mr Guterman's agreement as to how
the Club was to be controlled and managed.
(
Mr Freedman said that the Judge had made a significant error in saying
(in paragraph 15 of his judgment) that the consideration for the Freehold
was not simply the payment funded by Mr Hamilton of the purchase price for
the Freehold but included the undertaking by the Club to supply prime
seats, some free, to the Brewery, and in commenting (in paragraph 18(b))
that there was no indemnity from CL in relation to the obligation to
provide seats to the Brewery. Mr Freedman said that this was wrong because
the obligation to the Brewery already existed by reason of the Agreement
between the Club and the Brewery in 1999. I am not persuaded that the
Judge made any such error. Mr Freedman said of clause 23 of the contract
of 31st May 2002 that it was an agreement to abide by the 1999 Agreement.
I cannot accept that clause 23 should be construed in a way which rendered
it of no effect. Clause 23 was clearly intended to be a new obligation on
the Club to enter into a new agreement with the Brewery to provide seats
at the Ground.
44. I conclude that those matters to which Mr Freedman referred do not
cast doubt on the correctness of the decision of the Judge in paragraph 33
of the judgment that Mr Hamilton did not act in good faith in relation to
the Declaration of Trust. I would emphasise, as did Mr John Randall QC,
appearing with Mr Wyvill for the Club on this appeal, the highly unusual
circumstances of the present case. This is not the usual case of a third
party dealing with a company and having no knowledge of what was done
inside the company other than knowing the names and capacity of the
officers acting on behalf of the company. Mr Hamilton, through his
personal involvement in the JVA and its variations, knew of the personal
interest of Mr Guterman in the Wrexham project. He had, pursuant to that
project, caused Mr Guterman to be put into his fiduciary position in
relation to the Club by the purchase of the outgoing chairman's
controlling shares. He knew of the importance attached to the Freehold's
purchase, funded by him, being made in the name of the tenant of the
Ground, the Club. He knew that the Declaration of Trust was a significant
step to be taken by the Club to enable Mr Guterman and him to redevelop
the Ground as part of the Wrexham project. He can have seen no documents
to show that any members of the Board of the Club, other than Mr Guterman
and Mr Rhodes, authorised or approved the Declaration of Trust, as there
were no board minutes or other documents to that effect. In these
circumstances any person acting in good faith, and particularly an
experienced solicitor like Mr Hamilton, would be bound to enquire whether
the transaction had been authorised or approved by the Club or its Board
and, if so, whether full disclosure had been made by Mr Guterman. The
statement of belief by CL, which it pleads in paragraph 26 of its Defence,
that there was a Board resolution confirming authority, rings hollow in
the absence of any evidence to substantiate the reality of that belief.
45. Mr Freedman sought briefly to argue that Mr Guterman and Mr Rhodes had
(a) actual authority, (b) alternatively ostensible authority, to enter
into the Declaration of Trust. The Judge described it as fanciful to
suggest that there was express or implicit authority to enter into such
unusual transactions. On the evidence I agree. Nor do I see that there is
an arguable case for ostensible authority. Mr Freedman suggested that the
Board had held out Mr Guterman and Mr Rhodes to CL as having apparent
authority because it had appointed him to the offices they held. I doubt
if that is sufficient in relation to this transaction and in any event,
for the reasons given in Rolled Steel, a third party put on notice, as CL
was through Mr Hamilton, that Mr Guterman was entering into the
transaction for an improper purpose and in breach of his fiduciary duty
cannot rely on the ostensible authority of the officers concerned.
46. Reference was also made to the rule in Turquand's case (Royal British
Bank v Turquand (1856) 6 E & B 327) that persons dealing with a company in
good faith can assume that acts within the company's constitution and
powers have been properly and duly performed and are not bound to enquire
whether acts of internal management have been regular. But CL cannot rely
on this. As was said in Rolled Steel at pages 284-5 by Slade LJ, the very
nature of a proposed transaction may put a person on inquiry as to the
authority of the directors of a company to effect it, even if he has no
special relationship with the company. That must be the more so where the
person has a special relationship with the company, and in the present
case Mr Hamilton can be said to have had that relationship. CL was put on
inquiry but no inquiries were made. CL cannot satisfy the requirement of
good faith.
47. Mr Freedman further sought to invoke sections 35A and 35B and section
36A of the Companies Act 1985. Section 35A deems, in favour of a person
dealing with a company in good faith ...as to which there is a presumption
in favour of that person), the power of the board to bind the company, or
to authorise others to do so, to be free of any limitation under the
company's constitution. Section 35B provides that a party to a transaction
with a company is not bound to inquire as to the capacity of the company
or the authority of its directors. Mr Hamilton relies not on any action of
the Board of the Club but on the authority of Mr Guterman as Chairman and
Mr Rhodes as Managing Director and Secretary. He has not suggested that he
made enquiries as to whether the Board authorised Mr Guterman and Mr
Rhodes to enter into the Declaration of Trust. I do not see that either
section 35A or section 35B absolves a person dealing with the company from
any duty to inquire whether the persons acting for the company has been
authorised by the Board to enter into the transaction when the
circumstances are such as to put that person on inquiry (see Buckley on
the Companies Acts paragraphs 35B.7-8). In the unusual circumstances of
this case Mr Hamilton was put on inquiry and CL cannot satisfy the
requirement of good faith. Nor can Section 36A, deeming in favour of a
"purchaser" the proper execution of documents by a company, assist CL.
There is no presumption of good faith applicable to the purchaser and a
"purchaser" means a purchaser in good faith for valuable consideration
(section 36A(6)). CL cannot satisfy the requirement of good faith for the
purpose of this section.
Summary judgment when good faith in issue
48. I come finally to the procedural objection taken by CL, that the Judge
should not have given summary judgment when it involved a finding of lack
of good faith. This was the point which caused Jonathan Parker LJ to give
permission to appeal.
49. The first point taken by Mr Freedman in his supplemental skeleton
argument is one in which he rightly did not persist during his oral
submissions. This was that those allegations which were made by the Club
in its pleadings but on which the Club did not seek to rely in the
application for summary judgment should be deemed by the court for the
purpose of that application to be allegations on which CL succeeded. That
goes too far. The fact that the Club accepted that such allegations should
go to trial requires no assumption in favour of CL other than that it
might succeed on those points.
50. Mr Freedman submitted that it was inappropriate for the Judge to give
summary judgment on one, and only one, of the various related issues in
the case. He said that it was inconsistent for the Judge to note that the
Club did not seek to argue on the application that the benefit of the
contract to purchase the Freehold was held on constructive trust for it
but to decide that the Declaration of Trust, being part and parcel of the
same transaction, could be impugned. It is however plain from the wording
of Part 24 that the court has power to give summary judgment on one or
more of the issues raised in an action. If a party chooses to confine its
application to a single issue and the judge thinks it appropriate to give
summary judgment on that issue I do not think that this court should
interfere unless some unfairness was seen to result from that course. In
the present case I can discern no such unfairness to CL and Mr Hamilton.
51. The Judge was well aware that the conclusion that a party has not
acted in good faith ought generally to be reached at trial (paragraph 34
of the judgment). However, it has not been suggested that that conclusion
can never be reached on a summary judgment application, and it must depend
on the circumstances of the particular case whether the point can be
decided without a trial. The seriousness of the allegation against Mr
Hamilton, which was acknowledged by the Judge, does not oblige the court
to dismiss the application for summary judgment. In this case the Judge
has been led to his conclusion by the quality of the evidence, derived
from matters which were common ground or had been adduced by Mr Hamilton,
and the clarity of the principle involved. It was said by Mr Freedman in
his supplemental skeleton argument that recent cases show that the law in
this area is open to development, and reference was made to the obiter
remarks of Arden LJ in Murad v Al-Saraj [2005] EWCA Civ 939 at paragraphs
82-83 to the effect that the harshness of the equitable principle might be
tempered by a modern court in some circumstances. For my part I cannot see
how any such tempering could be done by a court below the House of Lords
and I very much doubt if the present case would be seen to be an
appropriate case for the relaxation of the principle. The Judge, in my
opinion, was entitled to give summary judgment in the circumstances of
this case as being a just disposal of the issue in question. There was no
real prospect of CL succeeding in its defence of the Club's claim in
respect of the Declaration of Trust and there was no other compelling
reason for the trial of that issue.
52. For completeness I should mention that in the further skeleton
argument of CL Mr Freedman raised a point not mentioned in the grounds for
appeal relating to the scope of the inquiry ordered by the Judge. He
wished to argue that, if the appeal was otherwise dismissed , the Judge
should have held that the Club was obliged to make counter restitution of
all benefits received resulting directly or indirectly from the
acquisition of the Freehold by CL. This point was not pursued after Mr
Randall submitted that it was open to CL on the inquiry to seek to justify
such sums as it wished as a charge on the Freehold and that, although CL
appeared to be seeking to claim a sum greater than the maximum amount of
the claim which it had previously indicated pursuant to a direction of the
court, the Club would not take a point on time if CL were now to amend the
maximum amount.
53. I would dismiss this appeal.
Lord Justice Dyson:
54. I agree.
President of the Queen's Bench Division:
55. Order 24.2 of the Civil Procedure Rules provides:
"The court may give summary judgment against a claimant or defendant on
the whole of their claim?if
a) It considers that ?.
i) That defendant has no real prospect of successfully defending the
claim?:
b) There is no other compelling reason why the case ? should be disposed
of at a trial"
56. For the reasons given in his judgment I agree with Sir Peter Gibson
that there is no real prospect of the defendant successfully defending the
present claim.
57. I do not underestimate the importance of a finding adverse to the
integrity to one of the parties. In itself, the risk of such a finding may
provide a compelling reason for allowing a case to proceed to full oral
hearing, notwithstanding the apparent strength of the claim on paper, and
the confident expectation, based on the papers, that the defendant lacks
any real prospect of success. Experience teaches us that on occasion
apparently overwhelming cases of fraud and dishonesty somehow inexplicably
disintegrate. In short, oral testimony may show that some such cases are
only tissue paper strong. As Lord Steyn observed in Medcalf v Weatherill
(2003)1 AC120 at paragraph 42, when considering wasted costs orders:
"The law reports are replete with cases which were thought to be hopeless
before investigation but were decided the other way after the Court had
allowed the matter to be tried".
And that is why I commented in Esprit Telecoms UK Ltd and others -v-
Fashion Gossip Ltd , unreported, 27 July 2000 that I was
"troubled about entering summary judgment in a case in which the success
of the claimant's case involves, as this one does, establishing
allegations of dishonesty and fraud, which are strongly denied, and which
cannot be conclusively proved by, for example, a conviction before a
criminal court "
58. This collective judicial experience does not always, or inevitably,
provide a compelling reason for allowing the case to proceed to trial, nor
for that matter require the judge considering the application to reject
the conclusion that there is no real prospect of a successful defence of
the claim if he is satisfied that there is none. That is not what the
Rules provide, and if that had been intended, express provision would have
been made. It is however a factor constantly to be borne in mind, if and
when, as here, the reason for concluding summary judgment is appropriate
is consequent on a disputed finding, adverse to the integrity of the
unsuccessful party.
59. Judge Norris fully addressed these issues, and had them well in mind.
At the end of a meticulous and careful judgment he decided that summary
judgment should be given against the defendant. No adequate basis for
interfering with his conclusion has been demonstrated.
60. Accordingly, I too, would dismiss this appeal.
