Ross River Ltd & Anor v Cambridge City Football Club Ltd

A contractual relationship falling short of partnership may contain sufficient elements of joint venture to impose mutual duties of good faith. The contract remains the primary source of the parties’ obligations. Detailed disclosure provisions may preclude a wider duty to volunteer information. However, a party asked for material information in circumstances governed by good faith must answer honestly or refuse unambiguously.

A fraudulent and material misrepresentation entitles the induced party to rescind. A payment to a company’s chief negotiator during negotiations is a bribe unless adequately disclosed and supported by the company’s informed consent. Disclosure by that negotiator to only one fellow director is ordinarily insufficient. Rescission restores the parties to their pre-contractual position but does not ordinarily unwind a separate agreement made before the fraud or bribe.

The claimants purchased a football club’s ground under an agreement providing for the parties to share the increase in value attributable to planning permission and vacant possession. The purchaser later bought the club’s share of that overage for £900,000 and obtained a replacement lease which was more readily terminable.

The club registered a unilateral notice against the claimants’ title. The claimants sought its removal, possession, declarations of non-liability and damages under section 77 of the Land Registration Act 2002. By counterclaim, the club sought to set aside the sale agreement, the overage agreement and the replacement lease. It alleged fraudulent misrepresentation and bribery arising from dishonest information supplied by the purchaser’s project manager and a £10,000 payment to the club’s chief executive during the overage negotiations.

The liability-only trial therefore concerned whether the overage agreement had been induced by fraud or procured through bribery, whether the parties’ relationship imposed duties of good faith or disclosure, and the permissible extent of rescission.

1. The counterclaim succeeded in part. The overage agreement was rescinded. The earlier sale agreements remained effective, and the claimants’ possession claim was dismissed.

2. The sale agreements created a project with sufficient characteristics of a joint venture to require mutual good faith. The parties shared the anticipated profit and, through the overage calculation, the relevant development costs. Ross River’s contractual powers and responsibilities in preparing the development scheme and obtaining planning permission were exercised for the parties’ joint interests. The duty was better characterised as contractual good faith than as a general fiduciary duty.

3. The detailed contractual provisions exhaustively specified when Ross River had to volunteer information. No wider general duty of disclosure could therefore be implied. Once the club’s surveyor expressly requested information needed to advise on the proposed buy-out, however, good faith required Ross River either to provide it or to refuse in unambiguous terms. Its project manager instead purported to answer while dishonestly understating the intended development density, overstating affordable-housing and access constraints, and denying the existence of favourable professional reports.

4. Those statements were fraudulent and material. Truthful answers would have enabled the surveyor to give materially clearer advice about the value which the club might surrender. The powerful inference that the deliberate fraud achieved its purpose was not displaced. The fraud remained actively present in the advice given before contracting. The club was therefore entitled to rescission without any statutory discretion to substitute damages.

5. The £10,000 payment to the club’s chief executive during the overage negotiations also constituted a bribe. It created a potential conflict by placing the chief negotiator under a personal obligation to the opposing party. Proof that his negotiations were actually corrupted, or that the payer intended to call in the favour, was unnecessary.

6. Disclosure by the chief executive to one fellow director did not constitute disclosure to the company. The payment required informed consent from all directors, although consent need not have been given at a formal meeting. Because the payers left disclosure to the agent, they accepted the risk that adequate disclosure would not occur. Rescission followed independently on this ground.

7. Neither the later bribe nor the fraudulent conduct supplied jurisdiction to rescind the earlier sale agreements. The club had to repay the £900,000 and restore other benefits received under the overage agreement. It was entitled to restoration of its earlier leasehold position. The precise restorative orders, interest and treatment of the unilateral notice were reserved for submissions.

This was a first-instance liability trial. The club had registered a unilateral notice against the claimants’ registered title. The claimants then commenced proceedings seeking removal of the notice, declarations, possession and damages under section 77 of the Land Registration Act 2002. The club advanced its substantive claims for rescission by defence and counterclaim.