LNOC Ltd v Watford Association Football Club Ltd

The claimant LNOC sought recovery of approximately 900,000 plus interest under two funding transactions (the Danny Graham Transaction and the Football League Transaction). The central legal issues were whether the Club was bound by those transactions because (i) Mr Laurence Bassini, as de facto managing director and authorised signatory, had actual or apparent authority to enter into them; and (ii) LNOC (through its agent Mr Weiss) was a purchaser in good faith for the purposes of section 44(5) Companies Act 2006. The court applied the established principles on actual authority (including the subjective duty in section 172 Companies Act 2006) and the law on apparent authority and the statutory protection under section 44.

On the facts the court found that the Club had delegated wide managerial authority to Mr Bassini; there was no reliable evidence that, when entering into the transactions, he did not honestly believe they were in the Clubs best interests. The court also found that LNOC (and its agent Mr Weiss) genuinely and reasonably believed that Mr Bassini had authority and acted in good faith. As a result the Clubs defences based on lack of actual authority, lack of apparent authority and the section 44(5) good faith exception failed. The Clubs counterclaim failed and the claimants claim succeeded.

This was a first instance commercial trial between a funder (LNOC) and Watford Association Football Club concerning two forward-funding transactions totalling some 2.62 million of which about 900,000 remained unpaid. LNOC sought repayment of the outstanding sum plus interest and alternatively relied upon unjust enrichment; it also sought a declaration as to the validity of an assignment of sums due from The Football League (interpleader funds were paid into court).

Background and parties:

• LNOC provided funding implemented by intermediary Good for Sport / New Avenue Projects Ltd and structured by Mr Nigel Weiss.
• Watford AFC was controlled de facto by Mr Laurence Bassini, who worked with an associate Mr Angelo Barrea; the board was small and non-executive members had delegated authority to Bassini.
• The disputed transactions comprised (i) a forward-funding of instalments due from Swansea City arising from the Danny Graham transfer (using promissory notes); and (ii) a receivables/assignment style transaction in respect of sums due from The Football League, restructured into promissory notes and supported by a personal guarantee from Mr Bassini.

Relief sought: repayment of sums paid under the transactions (about 900,000) with interest; declaration as to validity of the assignment; alternatively restitution/unjust enrichment.

Issues framed by the court:

• whether Mr Bassini had actual authority to bind the Club, in the light of the duty in section 172 Companies Act 2006;
• whether LNOC was protected by apparent authority or by the statutory deeming/protection in section 44(5) Companies Act 2006 (the good faith purchaser limb);
• whether LNOC was put on enquiry by the circumstances such that it lacked good faith under section 44(5); and
• whether, if the transactions were not binding, LNOC had restitutionary remedies.

Reasoning and findings:

• The judge accepted that authority to manage ordinarily sits with the board but that a managing director or de facto managing director may have implied actual authority (Hely-Hutchinson principles). The court emphasised the subjective nature of the section 172 duty: a directors honest belief that a transaction promotes the companys success is decisive.
• On the evidence (documentary materials and witness testimony), the court found that the board had entrusted wide authority to Mr Bassini; the transactions were entered into openly at the Clubs offices, were executed by the company secretary as well as by Mr Bassini, and the objective circumstances did not establish that Bassini honestly believed the transactions were not in the Clubs interests.
• The court considered the Football League Regulations (in particular Regulation 19 and Regulations 44.2/48.1) and the risk of sanctions, but found no convincing evidence that Mr Bassini had turned his mind to those Regulations in a way that would negate his honest belief in acting for the Clubs interests; his later attempts to avoid disclosure reflected other motivations and did not prove lack of authority at inception.
• As to apparent authority and section 44(5), the court accepted the modern approach that a purchaser (or its agent) is entitled to rely on apparent authority absent dishonesty or an irrational belief or conscious blindness. The evidence established that Mr Weiss genuinely and reasonably believed in Bassinis authority and acted in good faith; LNOC was therefore protected.
• Given those conclusions it was unnecessary to decide the restitution claim in detail. The Clubs counterclaim failed.

The court ordered in favour of LNOC: the defences of lack of actual or apparent authority were rejected and the claim succeeded.

Claim succeeded. The court held that (i) Mr Bassini, as de facto managing director and authorised signatory, had implied actual authority to enter the transactions and there was insufficient evidence that he did not honestly believe the transactions were in the Clubs best interests; and (ii) LNOC (through its agent Mr Weiss) acted in good faith and reasonably believed in Bassinis authority, so the Club was bound by the transactions (including the statutory protection under section 44 of the Companies Act 2006). Defences and the counterclaim failed.