Criterion Properties plc v Stratford UK Properties LLC & Ors

The House of Lords dismissed the appellant's appeal against the Court of Appeal's order setting aside a summary declaration that a Second Supplementary Agreement (the SSA) was unenforceable against Criterion. The core legal issue was whether the directors who signed the SSA had actual or apparent authority to bind Criterion, assessed by ordinary agency principles together with the rule in Royal British Bank v Turquand and sections 35A and 35B of the Companies Act 1985. The Appellate Committee held that the question of authority could not be resolved on the paper before the court and that the case had been improperly conflated with equitable causes of action such as "knowing receipt" or unconscionability; those concepts are distinct from the preliminary question whether an executory contract is binding on the company.

This litigation arose from a joint-venture investment and shareholders' agreement (the ISA) between Criterion and Oaktree and a later amendment, the Second Supplementary Agreement (SSA), executed on 30 March 2000. The SSA purported to confer on Oaktree a put option (clause 7A) — a so-called "poison pill" — triggered by events including removal or cessation of certain directors and change of control, and containing an adverse pricing formula for Criterion.

Parties and procedural history:

• Criterion Properties plc (appellant) sought a declaration on summary judgment that the SSA was not binding on it and should be set aside.
• Stratford UK Properties LLC ("Oaktree", respondent) contended the SSA was valid and counterclaimed for specific performance.
• Hart J granted summary judgment for Criterion, declaring the SSA unenforceable.
• The Court of Appeal ([2002] EWCA Civ 1783) set aside that declaration and ordered that trial was required.
• The appeal to the House of Lords followed ([2004] UKHL 28).

Issues framed:

• Whether the SSA was a valid and binding agreement on Criterion, i.e. whether the directors who signed it had actual or apparent authority.
• Whether principles associated with "knowing receipt" or unconscionability were the correct test on the summary judgment application.

Facts relevant to authority: The SSA was signed by Criterion's managing director (Mr Glaser) and company secretary/director (Mr Palmer) purportedly on behalf of the company; Criterion alleged Mr Glaser acted improperly and that the SSA was not in the company’s commercial interests. For the purposes of the summary-judgment applications, Criterion made concessions that narrowed contested factual issues (notably accepting for the application that Oaktree acted in good faith and that certain board members may have known of the SSA).

Court's reasoning: The Appellate Committee (Lord Scott, with whom other members agreed) emphasised that the determinative issue on the summary application was the authority of the signatories. The court criticised the lower courts’ emphasis on unconscionability and "knowing receipt" because an executory contract’s enforceability is a distinct question from recovery of assets for knowing receipt. The Lords concluded that material factual matters affecting whether there was actual or apparent authority (including who on the Criterion side authorised the SSA, and whether the board could lawfully approve a "poison pill" that contingently divested company assets) remained unresolved. Given the absence of clear evidence and the lack of full argument below on authority principles, the House held that the authority issue could not be resolved summarily and that trial (or further CPR Part 20 procedure) was required.

Appeal dismissed. The House of Lords held that the central question — whether the directors who signed the SSA had actual or apparent authority to bind Criterion — could not properly be resolved on the material before the court. The courts below erred by treating the matter primarily as one of unconscionability or "knowing receipt"; those equitable concepts are distinct from the preliminary agency/authority question. Because key factual and legal issues on authority were unresolved, summary judgment was inappropriate and the matter required trial or further procedural resolution.

First instance: Hart J granted summary judgment declaring the SSA unenforceable. Court of Appeal (Brooke LJ and Carnwath LJ) set aside that declaration and held that a trial was necessary ([2002] EWCA Civ 1783). Appeal to the House of Lords ([2004] UKHL 28) — appeal dismissed, remitting unresolved authority questions to trial or further procedure.