Criterion Properties plc v Stratford UK Properties LLC

Summary judgment is inappropriate where deciding whether a company may set aside a transaction would require substantial factual findings or a mini-trial. Whether a third party may rely on directors’ apparent authority depends on whether enforcement would be unconscionable in the circumstances. Actual knowledge of facts constituting a breach is not necessarily decisive. The assessment is flexible and commercial. It includes the parties’ relationship, their respective knowledge, conduct and motives, and relevant legal advice. The court left open the general validity of narrowly tailored poison-pill arrangements. An agreement with triggers extending beyond the particular threat may be difficult to justify as a reasonable exercise of corporate power.

Criterion sought summary judgment declaring unenforceable an agreement varying its joint-venture arrangements with Stratford UK Properties LLC, referred to as Oaktree. The agreement operated as a poison pill, giving Oaktree a right to require a buy-out if control of Criterion changed or specified directors ceased their roles.

Hart J granted the application, holding that the agreement was an improper exercise of the board’s powers and that Oaktree knew enough to lose the benefit of apparent authority. He did not decide the dishonest-assistance or contractual-formality points. Oaktree appealed. The Court of Appeal had to decide whether the issues, including unconscionability and Oaktree’s knowledge, could properly be determined summarily.

1. Appeal allowed. Under CPR Part 24, the claimant had to show that Oaktree had no real prospect of successfully defending the claim. The court applied the guidance in Three Rivers DC v Bank of England (No 3) [2001] 2 All ER 513 and Swain’s case [2001] 1 All ER 91. The substantial factual disputes could not fairly be resolved without a trial.
2. The court accepted, provisionally and on the assumed facts, that the agreement was outside the directors’ powers. It did not rest that conclusion on the judge’s simple logic that a poison pill could work only if it damaged the company. Nor did it decide the general extent to which a poison pill confined to deterring a particular predator might be lawful. This agreement went considerably further, since its triggers included takeovers generally and departures of key individuals unrelated to a change of control.
3. On apparent authority, the court adopted the flexible approach in BCCI v Akindele [2001] Ch 437. The question was not answered merely by asking whether Oaktree had actual knowledge of the circumstances constituting the breach. Unconscionability had to be assessed in the context of the parties’ commercial relationship as a whole. That required consideration of both parties’ conduct and motives, including the fact that the arrangement was assumed to have been instigated by Criterion’s chairman, as well as the legal advice received by both parties.
4. The pleaded case concerned Oaktree’s knowledge when the agreement was made, not its knowledge when it later exercised the put option. Lord Justice Brooke agreed that the latter issue need not be considered.
5. Whether it was unconscionable for Oaktree to rely on the agreement raised triable issues. Hart J’s declaration was set aside and the matter was left to proceed to trial.

• Court of Appeal allowed Oaktree’s appeal and set aside Hart J’s declaration.
• High Court, Chancery Division Hart J granted Criterion summary judgment and declared the agreement unenforceable.