Criterion Properties Plc v Stratford UK Properties LLC & Ors

Summary judgment is inappropriate where the dispute requires a fact-sensitive assessment of commercial circumstances and the evidence may reasonably resolve in either direction. In deciding whether a third party is disabled from relying on a company agent’s apparent authority, the court must apply the flexible question whether the third party’s state of knowledge made reliance unconscionable. Actual knowledge of facts constituting the directors’ breach is not necessarily sufficient. The court should consider the parties’ commercial relationship, their respective conduct and motivations, the surrounding circumstances and, where relevant, legal advice received. A defensive arrangement may in principle be legitimate, but a provision going materially beyond the purpose of deterring a particular takeover may be outside the directors’ powers.

Criterion sought summary judgment declaring unenforceable an agreement varying a joint-venture shareholders’ agreement with Stratford UK Properties LLC, also known as Oaktree. The agreement gave Oaktree a favourable buy-out right if there was a change of control of Criterion or either of two directors ceased to be involved in its management. Criterion alleged that its directors had acted for an improper purpose and that Oaktree knew enough to prevent reliance on their apparent authority.

Hart J accepted both elements of the apparent-authority case and declared the agreement unenforceable, leaving other grounds undetermined. Oaktree appealed, contending that the agreement could be a legitimate defensive measure and that its good faith was sufficient. The central issue was whether the dispute could properly be resolved summarily by applying the unconscionability approach to Oaktree’s knowledge and conduct.

1. Appeal allowed. The declaration that the agreement was unenforceable was set aside. The appeal concerned only Criterion’s summary-judgment application. Costs were awarded to Oaktree, costs below were left in the cause, and £30,000 was ordered to be paid on an interim basis.
2. Under Civil Procedure Rules 1998, Part 24, the question was whether Oaktree had no real prospect of successfully defending the claim. The court must distinguish a realistic prospect from a fanciful one, while avoiding a mini-trial. Complex disputes involving contested facts, commercial context and competing inferences are ordinarily unsuitable for summary determination.
3. Carnwath LJ accepted, for present purposes, that the agreement was outside the directors’ powers. He did not adopt Hart J’s simple logic that a poison pill could only work if it damaged the company. It was unnecessary to decide whether a takeover defence confined to a particular threat could be lawful. The agreement went materially beyond that purpose because the buy-out could be triggered by events unrelated to the identified threat, including a beneficial takeover or the departure of either director.
4. The apparent-authority issue had to be approached through the unconscionability formulation in BCCI v Akindele [2001] Ch 437. The court rejected the narrower view that actual knowledge of the circumstances constituting the directors’ breach was automatically sufficient. Reliance had to be assessed in the context of the parties’ continuing arm’s-length commercial relationship, including the conduct and motivations of both sides and the legal advice received by them.
5. The pleaded case concerned Oaktree’s knowledge when the agreement was made, not its later knowledge when it exercised the put option. Brooke LJ agreed and emphasised that the assumed evidence that the agreement had been instigated by Criterion’s chairman raised an issue properly requiring trial.

• Court of Appeal (Civil Division) — Appeal from Hart J’s decision in the Chancery Division. The Court of Appeal allowed the appeal and set aside the declaration of unenforceability.