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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Criterion Properties Plc v Stratford UK Properties Llc & Ors [2002] EWHC 496 (Ch) (27th March, 2002) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2002/496.html Cite as: [2002] EWHC 496 (Ch)

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Criterion Properties Plc v Stratford UK Properties Llc & Ors [2002] EWHC 496 (Ch) (27th March, 2002)

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		Wednesday 27 March 2002 ..........................................................

Mr Justice Hart:

1. In this action the claimant Criterion Properties Plc (“Criterion”) seeks an order setting aside an agreement dated 30 March 2000 (“the second supplementary agreement”) purportedly made between Criterion, the first defendant Stratford UK Properties LLC (“Oaktree”) and the third defendant, Criterion-Stratford Umbrella GP Ltd (“The General Partner”). That agreement was made in order to vary the terms of an Investment and Shareholders Agreement (“the ISA”) made on 26 January 1998 between the same parties. Criterion also claims against the second defendant, Aubrey Glaser (“Mr Glaser”), that as its director he was in breach of duty in causing Criterion to enter into the second supplementary agreement.
2. The ISA had been entered into pursuant to an agreement between Criterion and Oaktree to enter into a limited partnership under the Limited Partnership Act 1907 (as amended) with a view to investing in real property. The ISA provided for the establishment and regulation of the activities of the General Partner and other companies set up under the partnership, and a Limited Partnership Agreement of the same date provided for the formation and establishment of the partnership. At the date of the ISA, 150 of the General Partner’s issued shares were already registered in the name of Criterion and the remaining 850 shares were issued and allotted to Oaktree in accordance with Clauses 3 and 4 of the ISA. Clause 7.1 and 7.2 of the ISA provided so far as material as follows:

“Clause 7.1

(1) In the event of:

(a) Impasse;

(b) Bankruptcy of a Shareholder; or

(c) breach of this agreement or the Umbrella Partnership Agreement by a Shareholder which is not remedied to the satisfaction of the other Shareholder within 14 Business Days of its occurrence;

the Offeror may serve a notice (hereinafter called the “Sale Notice”) on the other Shareholder (in this clause called the “Offeree”) stating the grounds on which the notice is served and making both the following alternative offers:

(x) to purchase all of the Ordinary Shares owned by the Offeree (the “Offeree Shares”), any Debt owed by the Company to the Offeree and its associated companies (the “Offeree Debt”) and the Offeree’s (and its Connected Persons’) entire interest in the Umbrella Partnership (Offeree Partnership Interest”) at the Sale Price (as defined in clause 7.2(a));

(y) to sell all of the Ordinary Shares owned by the Offeror (the “Offeror Shares”), with any Debt owed by the Company to the Offeror and its associated companies (the “Offeror Debt”) and the Offeror’s (and its Connected Persons’) entire interest in the Umbrella Partnership (“Offeror Partnership Interest”) at the Sale Price (as defined in clause 7.2(a)).

Clause 7.2

(2) Sale Price

(a) Both the offers set forth in clauses 7.1(x) and (y) shall be made at the same price per Ordinary Share and proportionate interest in the Umbrella Partnership (which may be a positive or negative figure), specified by the Offeror in the Sale Notice being such price as the Offeror shall in its absolute discretion think fit, and at 100p in the pound in respect of Debt (in each case payable in cash) (“Sale Price”);

(b) An offer for Ordinary Shares, Debt and an interest in the Umbrella Partnership is not severable into separate offers and accordingly any acceptance must relate to all of them.”

3. “Impasse” was defined as meaning an inability on the part of the Board of the General Partner to approve a draft Business Plan or to agree on a material issue relating to the implementation of a Business Plan or on any one of certain other specified matters: see Clause 1.1. The privilege and duty of preparing the draft Business Plan was for Criterion: see Clause 5.3.
4. Under Clause 2.1 of the Limited Partnership Agreement the General Partner was appointed the general partner, with the power to carry on day to day management of the business of the partnership and Criterion and Stratford Associates Ltd (“SAL” a wholly owned subsidiary of Oaktree) were the limited partners. Clause 9 of the Limited Partnership Agreement governed the amount of Capital Contributions and Advances to be made by Criterion and Stratford Associates Ltd, and provided as follows:

“Clause 9.1

The initial capital of the Partnership shall be £1,000 to be contributed by the following Capital Contributions:

General Partner £2

Stratford Limited Partner £849

Criterion Limited Partner £149

Total £1,000

Clause 9.2

The capital of the Partnership may only be increased from time to time as all Partners shall agree and the amount of any increase shall be as agreed between them.

Clause 9.3

The Limited Partners shall each make Advances to the Partnership if and when required by the General Partner as follows. The Criterion Limited Partner shall made an Advance equal to 15 per cent of the amount required by the General Partner but shall at the option of the Criterion Limited Partner be entitled to make an Advance equal to a maximum of 50 per cent of such amount required. Each Advance shall be attributed to an Investment Partnership and any Advance made after the fist Advance made in respect of an Investment Partnership must be in the same proportions as the first Advance. The balance of the amount required by the General Partner shall be advanced by the Stratford Limited Partner provided always that the maximum aggregate amounts advanced by the General Partner, the Criterion Limited Partner and the Stratford Limited Partner shall not exceed £20,000,000.

Clause 9.4

Neither Partner shall while it remains a Partner be entitled directly or indirectly to draw out or receive back any part of its share of its Capital Contribution other than on dissolution of the Partnership pursuant to clause 19.

Clause 9.5

No Partner shall be paid interest by the Partnership or by the General Partner on or in respect of its Capital Contribution or upon any amount, whether of Net Income or otherwise, allocated to any Partner but not yet distributed to it, except as otherwise mutually agreed to by the Partners. No interest shall be paid or payable on any Advance.”

5. Clause 14 of the Limited Partnership Agreement governed the repayment of Advances to Criterion and SAL and the sharing of profits. Clause 14.3 provided that any Net Income and Capital Contribution attributable to an Investment Partnership available for distribution should be used to pay any Advances or other indebtedness due to Criterion and SAL pro rata to the amount of such indebtedness. Thereafter, Clause 14.4 provided that the profits of the Partnership should be distributed as follows:-

“(a) until the Stratford Limited Partner achieves an IRR (calculated as set forth below) in respect of the relevant Investment Partnership equal to or exceeding 20% distribution of profit in respect of the relevant Investment Partnership in relation to the Limited Partners will be in proportion to the aggregate of each Limited Partner’s Capital Contributions;

(b) when the Stratford Limited Partner achieves an IRR in respect of the relevant Investment Partnership exceeding 20%, distribution of profit in respect of the relevant Investment Partnership in relation to the Limited Partners will be in the proportions set out in the Profit Sharing Exhibit with respect to such Investment Partnership....”

Clause 19 provided that, on a liquidation of the partnership and subject to providing for liabilities, any surplus should be distributed so as to ensure that the total distributions accorded with the scheme of division provided for by Clause 14.

6. Following the establishment of the partnership Criterion and SAL made Advances to the Partnership for the purposes of acquiring four properties in England through the medium of four separate Investment Partnerships.
7. Oaktree is a subsidiary or associated company of Oaktree Capital Management LLC an institutional money manager and investment adviser registered with the US Securities and Exchange Commission. That company manages approximately US$20 billion for institutional investors and high net worth individuals. Criterion is a UK listed company. Its Chairman at all material times has been a Mr Rolf Nordström. At all material times until the events mentioned below Mr Glaser was its Managing Director.
8. In a witness statement dated 15 November 2001 Mr Sean Frederick Armstrong, the Managing Director of Oaktree Capital Management LLC describes the background to the second supplementary agreement as follows:-

“In about January 2000, I was contacted by telephone by Aubrey Glaser and, as far as I can recall, Rolf Nordström. They informed me that they were concerned about parties who were acquiring a substantial number of Criterion shares. They went on to explain that, under the London Stock Exchange Take-over Panel’s Rules, if a party acquired 30% of the shareholding in a company, it must offer to purchase the other shareholders’ shares. We were all concerned about the possibility of a change in control of Criterion as this would jeopardise our close personal working relationship.

It was discussed that two options existed for avoiding this, namely, either Rolf Nordström could purchase more shares in Criterion or Oaktree could do this.

I was subsequently telephoned by Aubrey Glaser stating that they wanted to put in place a strong disincentive to any person seeking to take control of Criterion. They were therefore proposing that the terms of the Joint Venture be amended so that, in the event of a change in control of Criterion, Stratford could bring the Joint Venture to an end.

They often referred to this as the “Poison Pill”. I confirmed over the telephone that Stratford would agree to this amendment. A change in control in Criterion would have been of grave concern to Stratford. As stated previously, Stratford had contributed between 75 and 85 per cent of the funds to purchase the properties concerned and had thereby adopted the majority of the risk in the Joint Venture. As such, Stratford had a strong vested interest in preserving the identify and character of its partner in the Joint Venture. Stratford knew and liked dealing with both Aubrey Glaser and Rolf Nordström. We worked well as a team. Although Criterion was a plc, Criterion’s Board of directors appeared to have a purely administrative function as opposed to a strategic one. As far as I was concerned, to all intents and purposes, Rolf and Aubrey were Criterion. It never occurred to me that this suggestion was in any way improper. In the United States, such “poison pill” agreements are common and it is a normal business practice for one to be put in place to try and deter parties seeking to take over a company in an unfriendly or “hostile” manner.

On terms being agreed, I asked Marc Porosoff to instruct AMC to deal with the necessary documentation.

Subsequently, I had a further conversation over the telephone with Aubrey Glaser in which we discussed the calculation of the amount to be paid by Criterion to “buy-out” Stratford from the Joint Venture. It was agreed that this would be calculated on the basis of the sum of the Stratford investment (as defined) and an amount equal to 25% per annum return on the Stratford investment compounded monthly. I do not recall who suggested this although it is likely that I did. I informed Marc Porosoff of my further discussions with Aubrey Glaser.

I had no involvement with the documentation of the second supplementary agreement. This matter was dealt with between Marc Porosoff and AMC. I have no recollection of whether Marc Porosoff asked me if I would be available for a Board Meeting of the General Partner on 30 March 2000 to authorise the execution of the second supplementary agreement.”

9. The references there to Stratford are to what I have described as Oaktree. Marc Porosoff is a Senior Vice President, Legal of Oaktree Capital Management LLC. The reference to AMC is a reference to Oaktree’s London solicitors Ashurst Morris Crisp.
10. The form of the second supplemental agreement was drafted by Brough Skerrett, Criterion’s London solicitors and produced to AMC for their approval on behalf of Oaktree. It provided for the insertion of additional provisions in the ISA requiring (at Oaktree’s option) Oaktree’s entire interest in the General Partner and under the partnership to be bought out by Criterion upon the happening of particular events in the following terms:-

“Clause 7A.1

If:

(a) any person gains control (as defined in section 840 Income and Corporation Taxes Act 1988) (and “person” shall include persons acting in concert as defined in the city Code on Take-overs and Mergers) of Criterion; or

(b) Rolf Leonard Nordström or Aubrey Glaser ceases to be a director or employee of Criterion or involved in the management of Criterion

then Oaktree shall have the right to:

(c) notwithstanding clause 5.1(a), require each of the directors appointed by Criterion to immediately resign from the Board of the Company and to confirm in writing under seal that they know of no claim or rights of action against the Company, the members of the Group or any Partnership by them and that to the extent that any such claims or rights of action may exist they are thereby irrevocably waived;

(d) by notice in writing (“Put Notice”) require Criterion to buy all of the Ordinary Shares owned by Oaktree (“Oaktree Shares ”), together with any Debt owed by the Company to Oaktree and its associated companies (Oaktree Debt”) and Oaktree’s (and its Connected Persons’) entire interest in the Umbrella Partnership (“Oaktree Partnership Interest”) at the Sale Price (as defined in Clause 7A.2) in accordance with this clause 7A.

For the purposes of clause 7A.1(d) the Sale Price shall be the greater of:

(a) The amount which would be paid to Oaktree pursuant to clause 19.5 and 19.6 of the Umbrella Partnership Agreement if the Umbrella Partnership Agreement were then dissolved or terminated as determined by an independent expert (“Expert”) on the basis that each of the assets of the Umbrella Partnership has a value equal to the best price then reasonably obtainable in the open market between a willing seller and a willing purchaser each acting at arm’s length. The Expert shall be agreed between the Shareholders or, in default of agreement within 14 Business Days of a proposal being made by a Shareholder, nominated by the President for the time being of the Institute of Chartered Accountants in England and Wales. The Expert shall act as an expert and not an arbitrator and the Expert may consult with such chartered surveyors and other professionals as he or she shall see fit prior to making his or her determination. The Expert’s determination shall be final and binding. The costs of the Expert and other professionals consulted by him or her shall be borne by Criterion.

(b) The sum of (1) the Oaktree Investment (as defined below) and (2) the amount equal to a 25 per cent per annum return on the Oaktree Investment compounded monthly calculated on the basis that all Capital Advances, Advances and Distributions (each as defined in the Umbrella Partnership Agreement) and the Oaktree Debt and the Oaktree Subscription Amount (each as defined below) shall be considered made as of the first day of the month during which they have been paid.

“Oaktree Investment” means the sum of Capital Advances, Advances, (each as defined in the Umbrella Partnership Agreement), Debt owed by the company to Oaktree (“Oaktree Debt”) and the amount subscribed by Oaktree for Ordinary Shares (“Oaktree Subscription Amount”) less (1) Distributions (as defined in the Umbrella Partnership Agreement) and (2) repayment of Oaktree Debt.”

The second supplementary agreement was executed on behalf of Criterion by Mr Glaser, as director, and a Mr Palmer, as secretary. There is a dispute (not capable of resolution on the papers before me) of the extent to which the Criterion board did in fact authorise the second supplementary agreement. That is a dispute between Mr Glaser and Mr Nordström. It is Mr Glaser’s case that he and Mr Nordström were at one in entering into it, but Mr Nordström says that he only discovered its existence in November 2000.

11. For reasons which are in dispute between Criterion and Mr Glaser (and which cannot be resolved on the applications which are before me) Criterion subsequently in late 2000 and early 2001 sought Oaktree’s agreement to a rescission of the second supplementary agreement. There is a similarly irresoluble dispute as to whether or not Oaktree agreed to this in principle. Finally on 30 March 2001 Mr Nordström forwarded to Mr Armstrong a draft press announcement which asserted that legal advice had been received by Criterion that the second supplementary agreement had been entered into by Mr Glaser in breach of duty, that Oaktree must have been aware that it was not binding, and that it could not be enforced. It is not in dispute that this was the first intimation given by Criterion to Oaktree that the second supplementary agreement was unenforceable. On 3 April 2001 (again in circumstances which are disputed as between Criterion and Mr Glaser) Mr Glaser was dismissed as managing director of Criterion. Mr Nordström remains as its chairman and is said to have (directly or indirectly) a controlling interest in it. On 20 June 2001 AMC, as solicitors for Oaktree, served a Put Notice on Criterion under Clause 7A of the ISA (as amended by the second supplementary agreement) requiring Criterion to buy all the Oaktree shares together with the Oaktree Debt and the Oaktree Partnership Interest at the Sale Price calculated in accordance with Clause 7A.2 of the ISA (as amended). The letter relied on Mr Glaser’s dismissal as a director of Criterion as the triggering event for the Put Notice.
12. Before me Criterion has contended that the second supplementary agreement is not binding on it for three separate reasons namely:-

(1) because the board of Criterion were in breach of their duty to Criterion in entering into the agreement, and Oaktree’s entry into the agreement was a dishonest assistance by Oaktree in that breach of duty (“the dishonest assistance claim”);

(2) because the purpose of the second supplementary agreement was an improper one on the part of Criterion’s board, and Oaktree was on notice of the improper purpose, and thus that the agreement was in excess of the actual and ostensible authority of the members of Criterion’s board (in particular Mr Glaser) (“the apparent authority point”);

(3) there were formal respects in which the second supplementary agreement did not comply with the machinery prescribed by the ISA for its own variation (“the Clause 5.2 point”).

13. These proceedings were commenced by Criterion on 10 July 2001. Oaktree was first off the mark with an application for summary judgment dated 15 November 2001. At that stage, although the apparent authority point had been pleaded in defence to Oaktree’s Part 20 claim, the main thrust of Criterion’s case appeared to be the dishonest assistance claim. Oaktree’s evidence in support of its summary judgment application was therefore designed to show that all its executives had acted in transparent good faith in entering into the second supplementary agreement, and for that purpose privilege was waived in respect of the legal advice which had been received from AMC. Witness statements from Mr Armstrong, Mr Porosoff, Mr Clyne (an assistant solicitor at AMC) and Mr Kershaw (a partner in AMC) were relied on. Following receipt of that evidence in support of its summary judgment application, Criterion amended its pleadings to put the apparent authority point at the forefront of its case, and launched its own application for summary judgment, dated 22 February 2002, for an order that the second supplementary agreement be set aside. Mr Glaser is not directly involved in either application, but is potentially affected by the result. He was accordingly represented on the hearing before me (by Mr James Ayliffe of Counsel) being concerned to argue that he had acted properly in causing Criterion to enter into the second supplementary agreement but that it was in fact unenforceable by virtue of the Clause 5.2 point.
14. As the arguments developed before me, Mr Hollander QC (on behalf of Oaktree) conceded in relation to its application for summary judgment that the apparent authority point did raise a triable issue, and that his summary judgment application could not succeed in terms. However, he maintained that Criterion still had no realistic prospect of succeeding either on the dishonest assistance claim or on the Clause 5.2 point and that I should so rule, whatever I might hold in relation to the apparent authority point.
15. The critical issue as between Oaktree and Criterion which needs to be determined before the matter is allowed to go to trial is whether Oaktree has any realistic prospect of succeeding at trial on the apparent authority point. Criterion submits that it has not. I deal first therefore with that submission.
16. For Criterion to succeed on this point, it must show (1) that the entry by Criterion into the second supplementary agreement constituted an improper use by the Criterion board of its power to contract on behalf of Criterion, and (2) that Oaktree knew sufficient about the motivation of the Criterion board to disable it from relying on that board’s apparent authority to commit Criterion to the contract. As to the motivation and purpose of the Criterion Board, Mr Hollander invited me to proceed on this summary application on the basis that Mr Glaser’s evidence might be accepted in full at any trial. I so proceed. That evidence is set out in paragraphs 1-6 of paragraph 11.1 of his defence and counter-claim in these proceedings (which he has confirmed by a statement of truth) in the following terms:-

“(1) Over the course of 1998/1999 Johan Claasen Group (“Claasen”) built up a shareholding of over 20% in Criterion and wished to acquire further shares and to obtain representation on the board of Criterion.

(2) Mr Nordström was concerned about Claasen’s intentions. In particular:-

(a) He caused an investigation to be made into the individuals behind Claasen which indicated (or so he informed Mr Glaser and the rest of Criterion’s board of directors) that they were disreputable people with whom it would not be in the interests of Criterion to become closely associated.

(b) He informed Mr Glaser that Claasen’s objective was to wind up Criterion’s’ business and to liquidate the company (a suggestion which was supported by Claasen’s past record).

(c) He suggested to Mr Glaser that it might become necessary in due course to adopt a device (such as a rights issue or the creation of a “poison pill”) to thwart Claasen’s attempts to obtain control of Criterion.

(3) Mr Nordström’s concerns about Claasen increased in the first few months of 2000. On a date which Mr Glaser is at present unable to specify (save that it was prior to 29 March 2000) Mr Nordström telephoned Mr Glaser and asked him to contact Oaktree urgently to see whether Oaktree would be willing to vary the arrangements between it and Criterion so as to include a condition under which Criterion would become immediately liable to purchase Oaktree’s interests in the Partnership for their full value plus an internal rate of return of 25% per annum in the event that (i) there was a change of control of Criterion or (ii) he or Mr Glaser were removed as directors of Criterion. He explained that the purpose of the variation was to create a “poison pill” which could be used to deter Claasen from proceedings further with its attempts to obtain control of Criterion. Limb (i) would be the primary deterrent whilst limb (ii) would reinforce (i) and at the same time provide a rationale for the variation from Oaktree’s point of view, namely to ensure continuity and stability in the ownership and management of the company with whom it had entered into partnership. Mr Nordström omitted Mr Palmer from the proposed variation because he was not regarded by Oaktree as a key individual at Criterion.

(4) Mr Glaser believed that the proposed variation was in the best interests of Criterion for the following reasons:-

(a) It would act as a deterrent to Claasens, something which he believed was in the interests of Criterion given the concerns previously raised ((see (2) above) about the individuals behind Claasen and Claasen’s intentions for Criterion.

(b) Although it subjected Criterion to an additional financial obligation, this obligation would never be triggered in practice because the whole purpose and effect of the variation would be to prevent the occurrence of the triggering event (i.e. change of control of Criterion or removal of Mr Nordström or Mr Glaser as directors).

(5) Mr Glaser was also aware from earlier discussions with Mr Nordström that Mr Nordström wanted, if possible, to acquire Claasen’s shareholding and thereby to acquire a majority shareholding in Criterion. It was therefore apparent to Mr Glaser (and Mr Nordström himself was open about this) that the variation might also assist Mr Nordström in achieving this. However, Mr Glaser also believed that this would be in the interests of Criterion in that acquisition of a majority shareholding by Mr Nordström would eliminate any further threat from Claasens.

(6) Mr Glaser therefore proceeded as instructed by Mr Nordström. He spoke to Mr Sean Armstrong at Oaktree to whom he explained the purpose of the proposed variation and who indicated that Oaktree would be prepared to agree to the proposed variation. The matter was left on the basis that the parties’ lawyers would liaise to prepare and agree the necessary legal documentation to implement the variation.”

In addition Mr Glaser denies that it was any part of his purpose to keep himself or Mr Nordström in office.

17. Mr Hollander submitted that the motivation revealed by this evidence meant that the entry into the secondary supplementary agreement was a proper exercise by the Criterion board of its powers, or at least that it was capable of being so regarded (a final conclusion on the point not being possible without a trial). In that connection, he referred me to some observations made by Sir Robert Megarry VC in Cayne & Anr v Global Natural Resources Plc in the following passage:-

“...... Most of what I have said is taken from Howard Smith Ltd v Ampol Petroleum Limited [1974] AC 821 at 834-836 (a case in which the sole purpose in issuing the shares was to alter the majority shareholding: see at p 837), and in Re Smith and Fawcett Ltd [1942] Ch 304. A particular application of these principles which has caused some difficulty is the case of directors who issue shares in order to maintain themselves in office in the honest belief that this is for the good of the company, and not for any unworthy motives of obtaining a personal advantage. In Hogg v Cramphorn Limited [1967] Ch 254 [1966] 3 All ER 420 it was held that this honest belief did not prevent the motive for issuing the shares from being an improper motive. At the same time, this principle must not be carried too far. If Company A and Company B are in business competition, and Company A acquires a large holding of shares in Company B with the object of running Company B down so as to lessen its competition, I would have thought that the directors of Company B might well come to the honest conclusion that it was contrary to the best interests of Company B to allow Company A to effect its purpose, and that in fact this would be so. If, then, the directors issue further shares in Company B in order to maintain their control of Company B for the purpose of defeating Company A’s plans and continuing Company B in competition with Company A. I cannot see why that should not be a perfectly proper exercise of the fiduciary powers of the directors of Company B. The object is not to retain control as such, but to prevent Company B from being reduced to impotence and beggary, and the only means available to the directors for achieving this purpose is to retain control. This is quite different from directors seeking to retain control because they think that they are better directors than their rivals would be. I think that Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Company No Liability (1968) 121 CLR 483, and Teck Corporation Limited v Millar (1972) 33 DLR 288, which were both cited with apparent approval in Howard Smith v Ampol Petroleum Ltd [1974] AC 821, go some way towards supporting such a restriction on the scope of Hogg v Cramphorn Limited [1967] Ch 254 [1966] 3 All ER 420, though I do not forget the way in which the Teck case was mentioned in the Howard Smith case at page 837. I may add that Mills v Mills (1938) 60 CLR 150 shows that where the main purpose of the directors’ resolution is to benefit the company it matters not that it incidentally benefits a director.”

He also referred me to the judgment of Berger J in Teck Corporation Ltd v Millar [1972] 33 DLR (3d) 288 at 315 where he said:-

“So how wide a latitude ought the directors to have? If a group is seeking to obtain control, must the directors ignore them? Or are they entitled to consider the consequences of such a group taking over? In Savoy Corp Ltd v Development Underwriting Ltd (1963) NSWR 138 at p.147 Jacobs J said:

It would seem to me to be unreal in the light of the structure of modern companies and of modern business life to take the view that directors should in no way concern themselves with the infiltration of the company by persons or groups which they bona fide consider not to be seeking the best interests of the company.

My own view is that the directors ought to be allowed to consider who is seeking control and why. If they believe that there will be substantial damage their powers to defeat those seeking a majority will not necessarily be categorised as improper.”

He pointed out that the decision in Teck had received some approval from the Privy Council in Howard Smith Ltd v Ampol Ltd [1974] AC 821 (per Lord Wilberforce at p 837). He also invoked various passages in Lord Wilberforce’s judgment in the latter case as supporting the proposition that it was only after the widest investigation into all the circumstances that a conclusion could be arrived at as to the motives of the participants.

18. I would comment at this stage that the reasoning in those authorities was directed to a case where the exercise by the directors of their powers to raise capital was impugned on the grounds of improper motive. Where directors are raising capital, they are doing something which is prima facie for the benefit of the company as an economic unit. There clearly has to be a wide ranging investigation of all the facts and circumstances in such a case if there is an issue as to whether the exercise of the capital raising power was in fact motivated by an improper desire to deprive an existing majority of shareholders of their position as such. The present case is rather different since, if Criterion is right, the only possible consequence of the exercise of the power was to expose the company to the possibility of economic damage.
19. Mr Steinfeld’s submission on behalf of Criterion was that this was indeed the position. The inevitable consequence of the second supplementary agreement was contingently to transfer value from Criterion to Oaktree. If the second supplementary agreement was to achieve its object of deterring a predator from making a bid for Criterion, it was necessary that its provisions be tailored in such a way as to ensure that, if the trigger were ever to be pulled, the consequences for the predator would be so unappetising as to be indigestible. For that reason the Sale Price under the Put Notice was whichever was the greater of the market value of Oaktree’s interest in the partnership and a sum calculated to give Oaktree a guaranteed 25% per annum (compounded monthly) return on its investment in the partnership. This was all pure bounty so far as Oaktree was concerned, and pure detriment so far as Criterion was concerned. No matter how undesirable the presence of the Claasens as majority shareholders might be, it was in his submission impossible to see how it could justify this exercise of contingently “giving away” Criterion’s property.
20. Moreover, submitted Mr Steinfeld, even if the limited purpose of preventing a take-over by the Claasen interests could have justified such a contingent gratuitous alienation of Criterion’s property, the actual terms of second supplementary agreement went very much further. The trigger events extended to any change of control in Criterion, and to any circumstances in which either Mr Nordström or Mr Glaser ceased to be a director or an employee of Criterion or involved in its management. These provisions were self-evidently designed to entrench the status quo as regards the control of Criterion, both at shareholder level and at board level. Its practical effect was not merely (as in Howard Smith v Ampol) to interfere with the constitutional rights of an existing majority of shareholders but to interfere with the constitutional rights of the majority of shareholders at any time, since if such a majority were to exercise the power vested in them inalienably by statute (see Section 303 of the Companies Act 1985) to remove Mr Glaser or Mr Nordström as directors, they would potentially expose Criterion to a serious and wholly gratuitous liability.
21. That the second supplementary agreement did expose Criterion to a serious contingent liability seems to me to be beyond argument. Even had the Sale Price been limited to the market value of Oaktree’s investment, the pill would have been a bitter one for Criterion. It is however demonstrable that the expectation was that the Sale Price could be expected to be calculated in a manner which would give Oaktree more than the market value of its interest. Under the Limited Partnership Agreement Oaktree was entitled to be paid, as a first charge on the profits, up to a 20% per annum return on its investment. There was no guarantee that this would happen. Thereafter, to the extent that there were profits, the agreement provided for a progressive allocation of profits in Criterion’s favour. The second supplementary agreement put Oaktree in a position where, if the triggering event occurred, it was guaranteed a 25% return (compounded monthly) on its investment. Indeed it went even further than that since, by Clause 7A.5, it could in certain circumstances substitute an even higher figure for the Sale Price. A final point to note, but which was not the subject of argument, is that in the event of the put option being exercised by Oaktree, the Sale Price could be satisfied by an issue of shares in Criterion, the price thereof for that purpose being taken to be the average of the middle market quotation, five dealing days immediately preceding the date of announcement of the proposed issue (or the date of issue if no announcement had by then been made). Although satisfaction of the Sale Price by this means might not do the same economic damage to Criterion (as opposed to its shareholders) it is impossible to view it as a commercial justification.
22. Apart from a desire to avert the threat (which I take to have been real) that the Claason interests might acquire a controlling interest in Criterion, there cannot be said to be any commercial justification whatsoever for the second supplemental agreement from Criterion’s point of view. It is true that it does contain a provision (in Clause 7A.3) entitling Criterion to transfer the whole of its interests under the Partnership arrangements to a third party, a facility which it did not enjoy under the ISA in its unamended form. Mr Hollander placed some reliance on this as showing that the benefits did not flow all one way under the second supplementary agreement. However, the price of this provision was the grant of the right of pre-emption to Oaktree at the price and on the terms notified in respect of the sale to the third party. Exactly what the purpose of this provision was is not a matter to which any of the evidence has been directed. However, even supposing there to be some economic advantage in principle to Criterion in having this new right, it may be significant that the exercise of the right does not in express terms remove the poison from the pill. Even after transfer to the third party Oaktree’s put option could still be triggered by a change in control of Criterion. Even if the trigger of the Put Notice can be construed as limited to a time prior to the exercise by Criterion of its rights to sell to a third party under Clause 7A.3, the fact remains that the whip hand is at all times left with Oaktree (either in the form of a Put Notice or in the form of its right of pre-emption).
23. I am unable to conclude that the provisions of Clause 7A.3 could have been perceived as providing any kind of commercial justification for the otherwise gratuitous contingent transfer of value inherent in the Put Notice provisions. As it seems to me, I am left with the bare question of whether the granting of the put option could in any circumstances be justified by the desire to deter a predator whom the Criterion directors bona fide believed to be unsavoury. If the matter is simply one of degree, then I am inclined to agree with Mr Hollander that the matter would be one that would have to go to trial. The issue would be whether reasonable directors could legitimately have concluded that the economic damage to the company which would result from the predator’s acquisition of control justified the company in thus contingently alienating its assets. However, the logic of the second supplementary agreement must be that the result of the calculation (had it been done) would have demonstrated that its effect on Criterion would in fact have been more damaging than the effect on Criterion of the acquisition of control by an unwanted predator. If that was not the effect of the agreement, it would fail to have the deterrent effect on the predator which it was professedly designed to have. On that analysis, I do not myself see how the exercise can begin to be justified as a proper exercise by the Criterion board of its powers. My conclusion is that Oaktree has no realistic prospect of succeeding in showing that the board of Criterion was acting properly in causing it to enter into the second supplementary agreement. In reaching this conclusion I should perhaps emphasise that I am saying nothing as to the validity of a provision such as this had it originally been included as one of the negotiated terms of the ISA.
24. I turn therefore to the second question raised by this issue, namely whether Oaktree knew or must be taken to have known that the board of Criterion was acting in excess of its authority. The law applicable to this question was discussed in some detail by the Court of Appeal in Rolled Steel Products (Holdings) Ltd v British Steel Corporation & Ors [1986] Ch 246. In that case the plaintiff company had borrowed money from, and given a guarantee of the liabilities of another company to, Colvilles the predecessor of the first defendant. Both the borrowing, and the guarantee, were within the powers conferred on the plaintiff by its memorandum of association. In that case, however, those powers were held to have been exercised for an improper purpose (i.e. a purpose other than the interests of the plaintiff company itself). At p295-296 Slade LJ summarised the effect of the authorities as follows:-

“(1) The basic rule is that a company incorporated under the Companies Acts only has the capacity to do those acts which fall within its objects as set out in its memorandum of association or are reasonably incidental to the attainment or pursuit of those objects. Ultimately, therefore, the question whether a particular transaction is within or outside its capacity must depend on the true construction of the memorandum.

(2) Nevertheless, if a particular act (such as each of the transactions of 22 January 1969 in the present case) is of a category which, on the true construction of the company’s memorandum, is capable of being performed as reasonably incidental to the attainment or pursuit of its objects, it will not be rendered ultra vires the company merely because in a particular instance its directors, in performing the act in its name, are in truth doing so for purposes other than those set out in its memorandum. Subject to any express restrictions on the relevant power which may be contained in the memorandum, the state of mind or knowledge of the persons managing the company’s affairs or of the persons dealing with it is irrelevant in considering questions of corporate capacity.

(3) While due regard must be paid to any express conditions attached to or limitations on powers contained in a company’s memorandum (e.g. a power to borrow only up to a specified amount), the court will not ordinarily construe a statement in a memorandum that a particular power is exercisable “for the purposes of the company” as a condition limiting the company’s corporate capacity to exercise the power; it will regard it as simply imposing a limit on the authority of the directors: see the David Payne case [1904] 2 Ch 608.

(4) At least in default of the unanimous consent of all the shareholders (as to which see below), the directors of a company will not have actual authority from the company to exercise any express or implied power other than for the purposes of the company as set out in its memorandum of association.

(5) A company holds out its directors as having ostensible authority to bind the company to any transaction which falls within the powers expressly or impliedly conferred on it by its memorandum of association. Unless he is put on notice to the contrary, a person dealing in good faith with a company which is carrying on an intra vires business is entitled to assume that its directors are properly exercising such powers for the purposes of the company as set out in its memorandum. Correspondingly, such a person in such circumstances can hold the company to any transaction of this nature.

(6) If, however, a person dealing with a company is on notice that the directors are exercising the relevant power for purposes other than the purposes of the company, he cannot rely on the ostensible authority of the directors and, on ordinary principles of agency, cannot hold the company to the transaction.”

Since the defendant knew of the purposes for which the powers were being exercised, it was held that it had acquired no rights under the transactions.

25. The case also raised a question on the law of constructive trusts, since Colvilles had appointed a receiver and manager under the debenture and the sums secured thereby had been paid to its successor the first defendant in the action. To what extent was it liable to disgorge what it had received? Slade LJ answered that question by citing the judgment of Buckley LJ in Belmont Finance Corporation Ltd v Williams Furniture Ltd (2) [1981] All ER 393 at 405 where he said:-

“A limited company is of course not a trustee of its own funds: it is their beneficial owner; but in consequence of the fiduciary character of their duties the directors of a limited company are treated as if they were trustees of those funds of the company which are in their hands or under their control, and if they misapply them they commit a breach of trust (In re Lands Allotment Co [1894] 1 Ch 616, 638 per Lindley and Kay L JJ.). So, if the directors of a company in breach of their fiduciary duties misapply the funds of their company so that they come into the hands of some stranger to the trust who receives them with knowledge (actual or constructive) of the breach, he cannot conscientiously retain those funds against the company unless he has some better equity. He becomes a constructive trustee for the company of the misapplied funds. This is stated very clearly by Jessel MR in Russell v Wakefield Waterworks Co (1875) LR 20 Eq 474, 479, where he said:

“In this court the money of the company is a trust fund, because it is applicable only to the special purposes of the company in the hands of the agents of the company, and it is in that sense a trust fund applicable by them to those special purposes; and a person taking it from them with notice that it is being applied to other purposes cannot in this court say that he is not a constructive trustee.”.”

26. Browne-Wilkinson LJ (as he then was) stated his conclusions in similar terms. So far as material his summary of the relevant principles was:-

“(4) If a transaction falls within the objects, and therefore the capacity, of the company, it is not ultra vires the company and accordingly it is not absolutely void. (5) If a company enters into a transaction which is intra vires (as being within its capacity) but in excess or abuse of its powers, such transaction will be set aside at the instance of the shareholders. (6) A third party who has notice - actual or constructive - that a transaction, although intra vires the company, was entered into in excess or abuse of the powers of the company cannot enforce such transaction against the company and will be accountable as constructive trustee for any money or property of the company received by the third party. (7) The fact that a power is expressly or impliedly limited so as to be exercisable only “for the purposes of the company’s business” (or other words to that effect) does not put a third party on inquiry as to whether the power is being so exercised, i.e. such provision does not give him constructive notice of excess or abuse of such power.”

27. It will be noted that in that last passage Browne-Wilkinson LJ treats the test applicable to the apparent authority point as identical to that applicable to the constructive trust point, namely that the test is whether the third party has “notice - actual or constructive”. The case, however, did not raise the issue as to whether constructive notice was sufficient for either purpose, since the judge had found as a fact that Colvilles and the defendant knew that the guarantee and the sum debenture were not entered into by the plaintiff for any purpose of the plaintiff:-

“.... Essentially, therefore, as I read his judgment, the judge found liability established against British Steel Corporation and Mr Cooper because the plaintiff had acted ultra vires “in the wider sense” in regard to the relevant transactions and received the relevant assets of the plaintiff with knowledge that the relevant transactions were entered into in furtherance of purposes which were not authorised purposes of the plaintiff.” (see per Slade LJ at 278F emphasis supplied).

That was a finding which the Court of Appeal held that there was abundant evidence to justify (see ibid. at p.282).

28. Mr Hollander’s fundamental submission here was that Oaktree’s ability to rely on the apparent authority of the Criterion board depended not on a test of whether or not it had notice of the facts which constituted the breach of duty (which if I am right on the point that there was breach of duty it clearly did) but on whether it was unconscionable in all the circumstances for Criterion to have relied on that authority.
29. For that proposition he relied on the decision of the Court of Appeal in BCCI v Akindele which he cited to me in the All England reports, but which is reported at [2001] Ch 437. He submitted that, although that case was concerned with the test to be applied in relation to the “knowing receipt” class of constructive trust, there was every reason why the same test should be applied on the “apparent authority” point. With that proposition I am inclined to agree. As a matter of authority the Rolled Steel case treated the two situations as calling for the application of the same test although it was there expressed as being a test of constructive notice. The facts of that case illustrate the logic of that approach: the question whether Colvilles could enforce the debenture in the first place and the question whether it (or British Steel as it successor) could subsequently retain the sums which it had received under that debenture can readily be seen as two sides of the same coin. To put the point in another way the contractual rights received by Colvilles under the debenture can be viewed either as flawed by lack of authority in the counterparty (the apparent authority point), or as themselves property transferred to Colvilles in breach of trust.
30. What then was decided in Akindele? For a detailed exposition of the facts in that case one has to go to the report of the case at first instance at [1999] BCC 669. In very brief summary they were that Chief Akindele had entered into an agreement in 1985 with an investment company (ICIC Overseas) under which he was to invest US$10m in the purchase of 250,000 shares of BCCI Holdings, and to hold the shares for two years. If he wanted to sell the shares after the expiry of two years and up to five years from the date of the agreement, ICIC Overseas undertook to sell the shares at a price which would give him a return of 15% per annum on his investment, compounded annually. In 1988 Chief Akindele decided to terminate the agreement and did so by an agreement (the divestiture agreement) under which he was paid a total of US$ 16.679m. The fraud underlying the 1985 agreement was a fraud being carried on by BCCI, namely the purchase of its own shares through nominees, including ICIC Overseas, financed by “dummy” loans made to the nominees by companies within the BCCI group. In order to disguise from its auditors and regulators that the dummy loans were in fact non-performing, real money had to be raised and raised in such a way as not to create balance sheet liabilities. Offering Chief Akindele the opportunity of investing on the terms of the 1985 agreement achieved that aim.
31. BCCI claimed that Chief Akindele was liable as a constructive trustee both on the grounds of “knowing assistance” and, in relation to the 1988 divestiture payment, on grounds of “knowing receipt”. Carnwath J applied to both questions the test of whether the defendant had been dishonest by the objective standard explained by the Privy Council in Royal Brunei Airlines SDN BHD v Tan [1995] 2 AC 378 (a knowing assistance case), and concluded that he had not been. The Court of Appeal refused to interfere with that finding: the judge had been entitled to find that the Chief had acted honestly by that objective standard (see p. 448 A)
32. The principal question before the Court of Appeal was, therefore, whether the Royal Brunei Airlines test of dishonesty was the correct test to have applied to the knowing receipt claim. BCCI’s liquidators submitted that in a “knowing receipt” claim, in contrast to a “knowing assistance” claim, all that was required to make the defendant liable was constructive knowledge. The Court of Appeal, while ultimately deciding that even the test of constructive knowledge was not satisfied by the judge’s findings of primary fact (see p. 458C), took the opportunity to review and re-state the law applicable to a case of knowing receipt. Nourse LJ (with whose judgment Ward LJ and Sedley LJ agreed) expressed his conclusion on the point in the following passage:-

“Knowing receipt - the recipient’s state of knowledge

In Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, which is now the leading authority on knowing assistance, Lord Nicholls of Birkenhead, in delivering the judgment of the Privy Council, said, at p 392G, that “knowingly” was better avoided as a defining ingredient of the liability, and that in that context the Baden categorisation was best forgotten. Although my own view is that the categorisation is often helpful in identifying different states of knowledge which may or may not result in a finding of dishonesty for the purposes of knowing assistance, I have grave doubts about its utility in cases of knowing receipt. Quite apart from its origins in a context of knowing assistance and the reservations of Knox and Millett JJ, any categorisation is of little value unless the purpose it is to serve is adequately defined, whether it be fivefold, as in the Baden case [1993] I WLR 509, or twofold, as in the classical division between actual and constructive knowledge, a division which has itself become blurred in recent authorities.

What then, in the context of knowing receipt, is the purpose to be served by a categorisation of knowledge? It can only be to enable the court to determine whether, in the words of Buckley LJ in Belmont Finance Corpn Ltd v Williams Furniture Ltd (No 2) [1980] I All ER 393, 405, the recipient can “conscientiously retain [the] funds against the company” or, in the words of Sir Robert Megarry V-C in In re Montagu’s Settlement Trusts [1987] Ch 264, 273, “[the recipient’s] conscience is sufficiently affected for it to be right to bind him by the obligations of a constructive trustee”. But, if that is the purpose, there is no need for categorisation. All that is necessary is that the recipient’s state of knowledge should be such as to make it unconscionable for him to retain the benefit of the receipt.

For these reasons I have come to the view that, just as there is now a single test of dishonesty for knowing assistance, so ought there to be a single test of knowledge for knowing receipt. The recipient’s state of knowledge must be such as to make it unconscionable for him to retain the benefit of the receipt. A test in that form, though it cannot, any more than any other, avoid difficulties of application, ought to avoid those of definition and allocation to which the previous categorisations have led. Moreover, it should better enable the courts to give commonsense decisions in the commercial context in which claims in knowing receipt are now frequently made, paying equal regard to the wisdom of Lindley LJ on the one hand and of Richardson J on the other.”

33. It is clear from that passage that the single test of unconscionability now applicable in knowing receipt cases is intended to be something different from the “dishonesty by an objective standard” test applicable in a knowing assistance case. It is not obvious, simply as a matter of the language being used whether making out a case of unconscionability (in the sense of the recipient’s conscience being affected) is supposed now to be easier, or harder, to make out than a case of Royal Brunei dishonesty. The latter is unquestionably an objective standard, albeit with subjective elements. But “unconscionability” might be thought to be a wholly subjective standard. Lord Nicholls drew attention to some of the dangers in using it as a standard in the Royal Brunei case itself. (see [1995] 2 AC 378 at p.392). In fact it is absolutely clear from earlier passages in Nourse LJ’s judgment that he saw the unconscionability test as being a lesser test than the Royal Brunei dishonesty test. That accords with one’s intuition: a person who has actually received stolen goods should be more vulnerable to being held accountable to the true owner for their value than someone whose actions have merely facilitated the theft. In the former case one might expect liability to be imposed not only because the recipient knows or must, in a Royal Brunei sense, be taken to have known they were stolen, but also because the mere fact of the receipt of the property can be expected to have put him on some inquiry as to the reason for its having come in to his hands.
34. The Court of Appeal in Akindele unequivocally stated that Carnwath J’s application of the Royal Brunei test to a knowing receipt case was “incorrect in law. While a knowing recipient will often be found to have acted dishonestly, it has never been a pre-requisite of the liability that he should” (see at p.448 H). In support of that proposition Nourse LJ invoked the earlier decision of the Court of Appeal in Belmont Finance Corporation Ltd v Williams Furniture Ltd (No 2) [1980] 1 AER 393, a case whose significance in this context must have been familiar to him as the counsel who had appeared for a defendant (‘City’) which was held liable on the basis of knowing receipt, but not liable on the basis of knowing assistance. City was not liable in knowing assistance because it had not been party to a dishonest design: Mr James, the chairman of both the plaintiff Belmont and City, had:-

“genuinely believed that the agreement [whereby value passed out of Belmont to inter alios City pursuant to a transaction which contravened s.54 of the Companies Act 1948] was a good commercial proposition for Belmont. It was a belief which, on his view of the commercial aspects of the case, Mr James could have sincerely held.” (see per Buckley LJ ibid at 403 A-B).

City was, however, held liable as a knowing recipient for the money which it had actually received.

35. Why, in Belmont, was City held liable as a knowing recipient? According to Vinelott J in Eagle Trust plc v SBC Securities [1993] 1 WLR 484, at 497 it was because:-

“.... the defendant knew that the monies paid to him were trust moneys and of circumstances which made the payment a misapplication of them.”

In Akindele Nourse LJ did not reject that formulation. On the contrary he cited it with apparent approval (see p.450 F), and interpreted Belmont as a case where “actual knowledge was found” (see p.452 B). The actual knowledge was knowledge, not that the monies were being paid in breach of duty, but of the circumstances which made it a breach of duty. It was that factor which rendered it impossible for the recipient, in the words of Buckley LJ at [1980] 1 AER 393, 405, “conscientiously [to] retain [the] funds against the company.”

36. So far as the present case is concerned that provides a sufficient answer as to what kind of knowledge is capable of, or is to be treated in law as, binding the conscience of the recipient for the purposes of the unconscionability test. The purpose of that test is not to destroy the old authorities which say in general terms that “constructive” knowledge is enough: it is to enable the court to articulate the conditions which must be satisfied before he is held liable to account. A sufficient condition for that purpose is actual knowledge of the circumstances which make it a breach of duty.
37. The other strand in the judgment is the emphasis placed on the desirability of upholding bona fide commercial transactions, and the corresponding undesirability of allowing notions of constructive notice to intrude into commercial transactions. The locus classicus of that is the passage from Lindley LJ’s judgment in Manchester Corporation v Furness [1895] 2 QB 539, 545 cited by Nourse LJ in Akindele at p.453 F-G. That proposition does not, however, lead to the conclusion that the type of knowledge established in Belmont should be treated as insufficient to establish knowing recipient liability. Nourse LJ clearly treated Belmont as having been rightly decided (as indeed he was bound to do).
38. In my judgment, therefore, what Belmont and Akindele decide for present purposes is that actual knowledge of circumstances which make the payment a misapplication is sufficient to bind the conscience of the recipient. What is left open and undecided by either of these cases is the case where the recipient knows of circumstances which may on the one hand make the payment a misapplication but which may on the other hand be consistent with perfect propriety. Such a case might be determined on its particular facts by the principle that a party to a commercial agreement should not be fixed with notice simply because in a loose sense he has been put on inquiry. Close examination of the particular facts might in such a case be necessary. On my analysis of the essential nature of the second supplementary agreement that, however, is not this case. It was plain for all to see that its terms were motivated not by a desire to advance or protect the commercial interests of Criterion but from a desire contingently to cripple those interests so as to deter an unwanted predator. If I am right that there could be no circumstances in which that was a legitimate exercise by the Criterion board of its powers, the question of Oaktree being faced with the dilemma of not knowing whether or not the board’s powers were being exercised from a proper motive cannot arise. It knew what the motives was, and it is irrelevant that neither it nor its lawyers perceived that to be a vitiating factor.
39. For those reasons I do not consider that Oaktree has any realistic prospect at trial of resisting Criterion’s claim that the second supplementary agreement is unenforceable against it. It follows that Criterion’s application for summary judgment succeeds.
40. There is, however, one further point arising out of my consideration of Akindele which I should mention. In the course of argument I suggested to Mr Hollander that, even if he were right as to the state of Oaktree’s knowledge as at the date of the second supplementary agreement, the matter might have to be re-assessed in the light of its state of knowledge at the time at which it sought to exercise the put option or even at the time it sought to invoke the court’s assistance in enforcing the contract created by that exercise. Mr Hollander countered this by submitting that there was no principle of law which would entitle the court to interfere with the contract once it had been established that it had been validly entered into in reliance on the ostensible authority of the Criterion board. He added that, if there were such a principle, attention would have to be given to possible defences available as the result of intervening events, and that summary judgment against Oaktree should not be entered until these had been explored. With the latter proposition I have no difficulty in agreeing. Subject to that, however, it is not obvious to me that there is no principle of law which prevents the court from interfering. If the validity of the initial contract is seen simply as depending on a question of authority, I see the force of Mr Hollander’s submission. If, however, the validity of the initial contract is itself analysed as a case of knowing receipt (of a bundle of contractual rights), a different analysis is possible. In Akindele itself there seems no reason why the validity of the 1985 contract could not have been analysed as depending on principles of agency and found to have been enforceable by Chief Akindele. But if that analysis had been adopted (and Mr Hollander is right), the question of the extent of Chief Akindele’s knowledge of BCCI’s frauds at the date of the divestiture agreement (which simply enforced the 1985 agreement) could not have arisen. It was, however, treated as a separate question by the Court of Appeal: see [2001] Ch at p.457 B-D. This seems to me at least to raise a doubt as to whether Mr Hollander’s proposition is correct.
41. Having reached the clear conclusion that Criterion is entitled to summary judgment on the apparent authority point, it is unnecessary for me to decide either the dishonest assistance or the Clause 5.2 points.