Wrexham Association Football Club Ltd. v Crucialmove Ltd.

This is an appeal by the Defendant, Crucialmove Ltd (“CL”), from the order made on 4^th November 2005 by His Honour Judge Norris QC, sitting as a judge of the Chancery Division in the Birmingham District Registry. By that order the Judge, on an application for summary judgment by the Claimant, Wrexham Association Football Club (“the Club”), declared that CL held certain property on trust for the Club subject to a charge in CL’s favour.

The Judge refused permission to appeal. The application for permission was renewed in this court and Jonathan Parker LJ granted permission on the papers. In reaching his conclusion the Judge had found a want of good faith on the part of Alexander David Hamilton, who owns all of the shares and is the sole director of CL. The Lord Justice thought it arguable that on an application for summary judgment the Judge should not have made that finding.

Wrexham Football Club is one of the oldest football clubs in the country. It was established in 1872 and incorporated as the Club in 1912. For a number of years it has been in the lower divisions of the Football League. Currently it is in Division 2 of the Coca-Cola League. It has had financial difficulties for some time and has been in administration since 3^rd December 2004. Its most important asset has been its ground, known as the Racecourse Ground (“the Ground”). Immediately before the events in 2002 which are at the heart of the present proceedings, the freehold of the ground (“the Freehold”) was owned by Marston Thomas & Evershed plc (“the Brewery”) subject to a lease (“the First Lease”) dated 22^nd July 1998 and granted by the Brewery to the Club for a term of 125 years at a peppercorn rent. For the First Lease the Club paid the Brewery a premium of £750,000.

Mr Hamilton is a former solicitor who practised for 24 years. He has been involved in property development through a number of companies. Mark Guterman is also a property developer. Prior to 7^th February 2002 Mr Guterman and Mr Hamilton had collaborated on three property deals. The pattern was that Mr Guterman would find the development projects and that Mr Hamilton would provide the funding. On 7^th February 2002 Mr Guterman and Mr Hamilton entered into a Joint Venture Agreement (“JVA”). By it Mr Hamilton agreed to lend Mr Guterman £180,000. In the event of any joint venture involving Mr Hamilton or his associates, Mr Hamilton was to receive 60% and Mr Guterman 40% of the net profits.

One project which Mr Guterman wished to pursue and to which he introduced Mr Hamilton in mid-February 2002, when another business associate pulled out “fearing high adverse publicity”, was what was known to them as “the Wrexham project”. The project objective was said to be “to relocate the football club to a new stadium in Wrexham and redeveloping the existing stadium site for commercial retail purposes” (Mr Hamilton’s second witness statement paragraph 24). Mr Hamilton continued:

For the project to be carried through to completion two steps were perceived as needing to be taken: obtaining control of the Club and obtaining ownership of the Ground.

Of the 9,980 issued shares in the Club, 7,868 shares (or 78% of the issued share capital) were held by the then director and chairman, Pryce Griffiths, who was willing to sell those shares. The Club needed financial aid urgently and Mr Hamilton was prepared to lend and did lend the Club money from the end of February onwards. By 26^th March 2002 Mr Pryce Griffiths and Mr Hamilton had agreed the terms of the sale of the shares. That day the Club’s Board approved the transfer to “Mr Guterman of Memorvale” Ltd of the 7,868 shares. Memorvale Ltd (“Memorvale”), a company wholly owned by Broadhill Properties Ltd (“Broadhill”) which in turn was wholly owned by Mr Hamilton, was to be the purchaser. Mr Guterman, who conducted the negotiations, was a director of Memorvale. The next day Memorvale entered into an agreement to purchase the 7,868 shares for £50,000 plus a further deferred consideration of £500,000, which became payable in certain events, one of which was the sale or development of the ground. Our attention was drawn by CL to this provision as indicative of the openness with which Mr Hamilton furthered the Wrexham project. It does nothing of the sort. It is hardly likely that the provision was inserted at Mr Hamilton’s insistence and it must have been obvious that a 7.6 acre site on the edge of Wrexham town centre might have development potential. Still less can the approval by the Board of the sale of the shares be taken to be the approval of the Wrexham project nor can any inference be drawn that disclosure of that project or of Mr Guterman’s and Mr Hamilton’s interest in it was made to the Board, as the Judge correctly held.

In 2002 David Rhodes was the secretary and managing director of the Club. In proceedings (“the Guterman proceedings”) commenced in 2004 in the Chancery Division by Mr Guterman against Mr Hamilton and three of his companies including CL, he has made a lengthy witness statement in which he says (in paragraph 15) that, following completion of the share sale, Mr Guterman took up the office of an executive director and chairman of the Club, although not officially appointed. His formal appointment did not take place until the Board meeting on 10^th June 2002 when Mr Pryce Griffiths resigned.

On 27^th March 2002 Mr Guterman and Mr Hamilton varied the JVA by a letter written by Mr Hamilton to Mr Guterman under the heading “Single variation of agreement 7^th February 2002 Wrexham Football Club Ltd Development at Stadium”. In that letter Mr Hamilton confirmed his agreement with Mr Guterman that subject to Mr Hamilton funding the development up to £250,000 “the division or distribution of net profit … will be equal fifty per cent each”, with a division in accordance with the JVA if he had to put in more than £250,000. The letter went on to explain that the variation was in recognition by Mr Hamilton of Mr Guterman’s efforts and that it was because of Mr Guterman’s footballing connections.

On 17^th April 2002 Mr Guterman and a company of his (together called “MSG”) on the one hand and Mr Hamilton and Broadhill (together called “ADH”) on the other entered into Heads of Agreement written in manuscript by Mr Hamilton. It was recited that MSG and ADH were jointly participating in property development ventures in accordance with joint venture agreements and that ADH had agreed to pay £100,000 to MSG upon the terms then following. There then followed three terms under the heading “Wrexham Football Club”. The first term was to restore “the profit shares and/or distribution of profit arising out of development in Wrexham or connected in any way with the … Club” to the 60/40 ratio in the JVA. The second term was that if a particular project in Rotherham did not proceed, the percentage division of profit on the Wrexham project was to be amended to 75% to ADH and 25% to MSG. In the event those were the profit shares which applied. The third term (“clause Aiii”) was in this form:

Negotations to purchase the Freehold from the Brewery commenced in April 2002 with the help of Bolton Birch, chartered surveyors. It was the deliberate policy of Mr Guterman and Mr Hamilton that the purchase was to be in the name of the Club, although Mr Hamilton was to provide the purchase price. Mr Hamilton or a company of his was to be the beneficial owner. In paragraph 10 of his first witness statement Mr Hamilton said this:

In early May 2002 Mr Guterman and Mr Hamilton went together to see a solicitor, known to Mr Guterman, Mr Zatman, to instruct him to act on the purchase of the Freehold. Mr Zatman’s note of the meeting states that the Freehold was to be acquired in the name of the Club and that a trust deed was to establish that the Club was purchasing as a bare trustee for “Newco”, to which, at the completion of the purchase, the Freehold was to be transferred. Mr Zatman was to implement this and in the note he raised a query “Conflict?”, to which he answered “No”. “Newco” was to fund the transaction and pay his costs and he had to give a quotation to Mr Hamilton. He noted that he was acting for the Club and “Newco” jointly.

“Newco” was incorporated on 27^th May 2002 as Damens Ltd and later changed its name to CL. Mr Guterman was a director of CL from 10^th to 12^th June 2002. Subject to this, Mr Hamilton was its sole director. It has been accepted throughout that Mr Hamilton’s knowledge of material matters can be imputed to CL.

Negotiations for the purchase of the Freehold from the Brewery by the Club had, by 9^th May 2002, advanced sufficiently for Bolton Birch to record in a letter to the Brewery what were described as the Heads of Terms which had been agreed verbally. The purchase price was £300,000.

On 31^st May 2002 contracts were exchanged. Two provisions should be noted. By clause 17 the contract was expressed to be personal to the Club. By clause 23 the Club and the Brewery agreed to enter into an agreement in the form attached at Schedule 3 to the contract on the completion date for the allocation of seats at the ground. In Schedule 3 there is what on its face is an Agreement executed by the Club in 1999 (but otherwise not more specifically dated) expressed to be supplementary to the First Lease. By the Agreement the Club agreed with the Brewery that, during each of the 10 consecutive football seasons following practical completion of alterations permitted by the Brewery under a licence also dated 22^nd July 1998, the Club was to provide the Brewery with a number of tickets at the Ground.

On 10^th June 2002 a meeting of the Board of the Club was held. At that meeting Mr Pryce Griffiths resigned and Mr Guterman was formally appointed a director and the Chairman. As the Judge observed, that is the clearest indication that there had been no intermediate Board meeting since 26^th March 2002 when the sale of Mr Pryce Griffiths’ shares were approved. The minutes make no reference to the contract of 31^st May 2002 or to what was to happen to the Freehold. Nor do they refer to any disclosure by Mr Guterman of any interest in the development of the Ground.

On 25^th June 2002 completion took place. The Brewery, by deed (a Land Registry transfer form TR1), transferred the Freehold to the Club. That form provides for a declaration of trust by which the transferee can state for whom it is to hold the property transferred. That was left blank. For the Club Mr Guterman as director and Mr Rhodes as secretary executed the deed.

Also on 25^th June 2002 the Club, acting by Mr Guterman as director and Mr Rhodes as secretary, and CL executed as a deed a Declaration of Trust (“the Declaration of Trust”). This recited that the Freehold had been transferred that day by the Brewery to the Club and that the £300,000 purchase price was paid by CL. By the operative part of the deed, it was said that the Club entered into the deed by way of confirmation and declaration that the Club agreed to accept the transfer and held all interest in the Freehold as trustee for CL absolutely. This was followed by a transfer (“the CL Transfer”) also dated 25^th July 2002 whereby the Club by deed, executed by Mr Guterman as director and Mr Rhodes as Secretary, transferred the Freehold to CL. By a further Declaration of Trust dated 2^nd July 2003 it was recited that the cost of acquiring the Freehold was borne by Mr Hamilton. CL declared that since the transfer to it of the Freehold it had held and was thenceforth to hold the Freehold in trust and as a nominee for Mr Hamilton.

A year later the Club found itself in urgent need of funds. By a letter signed by Mr Guterman as Chairman and Mr Rhodes as secretary and addressed to CL and dated 26^th June 2003 the Club confirmed that in consideration of the payment of £300,000 by CL to the Inland Revenue, the Club agreed to surrender its 125 year lease and to enter into a new lease for the same term but at an annual rent of £30,000 instead of a peppercorn. The Club agreed to the inclusion of a break clause exercisable by CL as landlord but providing compensation to the Club of the greater of £1,000,000 or one third of the freehold value of the Ground.

The new lease (“the New Lease”) was executed on 19^th May 2004. It expanded on the bare terms of the letter of 26^th June 2003, but it is not necessary to go into that save to note that the break clause provided for termination of the New Lease on 30^th July in any year by either CL or the Club on not less than 12 months’ notice.

On 21^st July 2004 CL gave such notice for the termination of the New Lease on 30^th July 2005. It was the imminence of the termination that caused the Club, acting by its Administrators, on 2^nd June 2005 to commence the present proceedings.

Before I describe the course of these proceedings I must complete the relevant history. By an Option Agreement dated 6^th May 2004 CL granted Mr Guterman an option to purchase CL’s interest in the Ground for £1,926,500. By another Option Agreement of the same date Memorvale granted Mr Guterman an option to purchase its 7,868 shares in the Club for £50,000. By clause 5.3 of that Agreement, in any of certain events indicative of the insolvency of the Club, Memorvale would make the Club an interest-free loan of £200,000.

One week later Mr Guterman and Mr Hamilton agreed on a transaction wholly different from that suggested by the Option Agreements. By an Agreement dated 13^th May 2004 they agreed to rescind those agreements. Mr Hamilton agreed to buy out Mr Guterman’s interests in relation to the Club for £320,000. Mr Guterman agreed to call a Board meeting of the Club and to procure resolutions for Mr Hamilton to become a director and the chairman in place of Mr Guterman, who was to resign.

It was primarily to enforce the Agreement of 13^th May 2004 that Mr Guterman commenced the Guterman proceedings against Mr Hamilton. In those proceedings Mr Guterman asserts and Mr Hamilton admits that Mr Guterman, by virtue of the JVA as amended, had an entitlement to 25% of any net profits arising out of the development of the Ground or in any way connected with the Club.

The facts which I have recited thus far are all uncontroversial in that they are taken from contemporary documents or from evidence put in by or on behalf of Mr Hamilton in these or the Guterman proceedings

By its Amended Particulars of Claim the Club averred that Mr Hamilton and Mr Guterman were the partners interested in CL as the persons for whom CL acted (paragraph 6.4); that Mr Guterman and Mr Rhodes were acting at the behest, under the direction and/or with the knowledge and approval of Mr Hamilton (paragraph 6.5); that from March 2002 until 23^rd May 2004, Mr Hamilton was a shadow director of the Club (paragraph 6.7); that one or both of Mr Guterman and Mr Rhodes knowingly made false representations to the Brewery to induce it to sell the Freehold (paragraphs 8, 11 and 12.1) and for CL and, through it, Mr Hamilton and Mr Guterman to make a profit from the development of the Ground (paragraph 12.3); that the Declaration of Trust and the CL Transfer were not approved or authorised by the Board or the Club (paragraphs 15.2, 15.3 and 16.3); that the New Lease was not approved or authorised by the Board or the Club (paragraphs 21.2 and 21.3); that CL held the Freehold on trust for the Club (paragraph 26.1); that the execution by Mr Guterman and Mr Rhodes of the Declaration of Trust and of the CL Transfer, and further or alternatively the surrender of the First Lease and the taking of the New Lease, were not valid acts of the Club and, by reason of Mr Hamilton’s involvement on behalf of CL, CL has not dealt with the Club in good faith and could not claim that the Club is bound by the actions of Mr Guterman and Mr Rhodes (paragraph 26.3); that Mr Guterman and Mr Rhodes were not acting in the best interests of the Club but for the purpose of benefiting CL and themselves in breach of their fiduciary duty to the Club (paragraph 26.4.1) and that CL was knowingly involved in and/or party to that breach of fiduciary duty (paragraph 26.4.2).

By its Defence CL denied all these allegations. It denied that Mr Guterman had any interest in CL (paragraph 6). It denied that Mr Guterman and Mr Rhodes were acting at the behest, under the direction and/or with the knowledge and approval of Mr Hamilton and averred that Mr Hamilton, prior to his appointment as a director, had no involvement in the management of the affairs of the Club (paragraph 7). It put the Club to proof of the allegations as to Mr Guterman’s and Mr Rhodes’ purpose, and averred that the Club was in no position to purchase the Ground (paragraph 21). It said that CL was entitled to and did rely on the authority of Mr Guterman as Chairman and Mr Rhodes as Managing Director to act in executing the Declaration of Trust and the CL Transfer and in any event CL believed there was a Board resolution conferring authority (paragraph 26). CL, it said, acted in good faith in its dealing with the Club (paragraph 38) and was not involved in or party to any alleged breaches of fiduciary duty (paragraph 39).

The disclosure obtained from CL on 28^th September 2005 cast light on a number of issues raised by the pleadings. In particular, it revealed to the Club the JVA and its variations which specifically brought the Wrexham project within the agreement by Mr Guterman and Mr Hamilton to share profits. Of particular note is the agreement in clause Aiii. The pleadings in the Guterman proceedings confirm Mr Guterman’s financial interest in the Wrexham project via the JVA as amended.

In the light of that disclosure the Club applied for summary judgment but limited its application to challenging the validity of the Declaration of Trust.

The Judge in his judgment was careful to distinguish between the evidence which derived from Mr Hamilton and was common ground and the evidence which could not be so described. He noted that the application proceeded on a very narrow front. He concluded in paragraph 23 of his judgment that there could be no real dispute about the following matters:

The Judge then considered whether there was a real case to be answered that there had been the requisite disclosure to the Board of the Club and considered that there was not. In so doing he noted that the statements of Mr Guterman and of Mr Rhodes adduced by Mr Hamilton contained no suggestion that there was full disclosure to the Board or that the Board approved the Declaration of Trust and the CL Transfer. The Judge noted that there was no suggestion in the evidence that the Board delegated to Mr Guterman and Mr Rhodes the power to approve transactions in which Mr Guterman was personally interested. The Judge also took into account evidence from Mr Rhodes that following the share sale in March 2002 the former practice of formal Board meetings to discuss Club matters and finances did not continue when Mr Guterman unofficially became an executive director and chairman of the Club. He noted the evidence of five other directors that there was nothing disclosed by Mr Guterman to any of them. The Judge also noted the complete absence of any disclosure recorded in the minutes of 26^th March and 10^th June 2002. The Judge referred to the unusual nature of the transaction by which the Club was the nominal purchaser of the Freehold and made a Declaration of Trust that it held the Freehold for CL. He described it as fanciful to suggest that there was disclosure to the Board and actual or implied assent to what was going on.

Finally the Judge considered whether there was a real case that Mr Hamilton did not know what was going on. Mr Hamilton’s evidence was that, so far as he was aware, Mr Rhodes as Managing Director and Mr Guterman as Chairman had authority from the Club to deal with the Declaration of Trust and Transfer. The Judge referred to statements of principle by Slade LJ and Browne-Wilkinson LJ respectively in Rolled Steel Products Holdings Ltd v British Steel Corporation [1986] Ch 349 at pages 295-6 and pages 306-7 to the effect that a person dealing with a company on notice that the directors are exercising a power of the company for purposes other than the purpose of the company cannot rely on the ostensible authority of the directors and cannot hold the company to the transaction. The judge rejected an argument that section 35A(1) Companies Act 1985 has supplanted the Rolled Steel principles, but acknowledged that the burden was on the Club to establish lack of good faith on the part of Mr Hamilton if section 35A was otherwise applicable. The Judge considered that the Board had no power to effect transactions not for the benefit of the company.

The Judge continued in paragraph 33:

that the whole object of Mr Guterman’s and his own involvement with the Club in the first place was to promote a redevelopment of its stadium to their personal advantage (that was ‘the Wrexham project’);

that Mr Guterman was chairman and director of the Club;

that Mr Guterman had a personal interest in the acquisition of the freehold through its admitted interest in the JVA;

that Mr Guterman had promised Mr Hamilton that he would exercise his powers of control and management within the Club with the sole or main objective of realising the maximum potential gain from its property assets for the benefit of himself and Mr Hamilton;

that the Declaration of Trust and transfer by the Club were the final steps to secure a benefit for Crucialmove which Mr Guterman had thought (and had explained to Mr Hamilton) could most advantageously be pursued in the name of the Club;

that the Club had no independent solicitor acting. for it in the transactions;

that all relevant documents had only been signed by Mr Guterman and Mr Rhodes and that no board resolutions authorising any step in the transaction had at any stage been produced.

The Judge acknowledged that a finding of a person not acting in good faith ought generally to be reached at trial, but he said that the quality of the evidence and the clarity of the legal principle had led him to the judgment that this was a plain and obvious case and that it would not be just to compel a trial. He regarded it as a straightforward case in which a fiduciary position in the Club had been misused for the benefit of those interested in the exploitation of its property assets. He therefore granted a declaration that the Freehold was held by CL on trust for the Club subject to a charge in CL’s favour to secure the purchase price of £300,000 and the costs of acquisition of the Freehold and such other sums and allowances which CL was entitled to claim as a charge on the Freehold. The Judge directed an inquiry as to those sums and allowances.

No less than four skeleton arguments have been lodged on behalf of CL on this appeal, two by Counsel previously instructed for CL and two by Mr Clive Freedman QC and Mr Patrick Lawrence QC, who have appeared for CL on this appeal. Of the latter two skeleton arguments the first is expressed to be supplemental to the first skeleton argument lodged for CL and so none of the earlier arguments has been abandoned. However I intend to concentrate on what appear to be the main points which featured in Mr Freedman’s oral submissions.

There are two related aspects of the submissions for CL. The first is the issue of substance as to whether the Judge could properly conclude on the material before him without a trial that there was an absence of good faith on the part of Mr Hamilton such that CL could not rely on the purported execution of the Trust Declaration by the Club acting by Mr Guterman and Mr Rhodes. The second is whether the Judge should in any event have given summary judgment because of the seriousness of the allegation against Mr Hamilton.

Mr Freedman rightly recognised from the outset of his address to us that the central question on the appeal was whether the Judge was right to find bad faith on the part of Mr Hamilton. However, in his further skeleton argument he went so far as to suggest that CL as a third party which was not a fiduciary had to be shown to have been dishonest. For this the decision of the court in Satnam Ltd v Dunlop Heywood Ltd [1999] 3 All ER 652 was cited as authority. I do not agree. That case established that under the equitable rules governing accessory liability (or what used to be known as liability as a constructive trustee for knowing assistance in a breach of trust) dishonesty on the part of the person sought to be made liable must be shown. In Satnam the third party could not be so liable because there was no finding of dishonesty, nor could it be liable as a constructive trustee for knowing receipt because, on the assumption that information acquired through a breach of fiduciary duty was property, it could not be traced into what the third party had acquired. It was not held that dishonesty was an essential ingredient of that type of constructive trust.

In the present case the Judge was not concerned with a claim of accessory liability. What was said by the Club was that CL had notice, actual or constructive, that Mr Guterman as a director in executing the Declaration of Trust was acting otherwise than wholly for the purpose of the Club without having made full or any disclosure of his personal interest. That, it was said, was a breach of Mr Guterman’s fiduciary duty to the Club and Mr Hamilton was on notice of it and accordingly could not be said to be acting in good faith, whether or not he was guilty of dishonesty.

I do not understand Mr Freedman seriously to dispute that Mr Guterman was guilty of a breach of fiduciary duty in putting himself in a position where his duty to the Club, as a director and agent of the Club in executing the Declaration of Trust, and his personal interest conflicted, unless he made full disclosure of all material facts. The judge referred to the statement of the law by Jonathan Parker LJ in Bhullar v Bhullar [2003] 2 BCLC 241 at paragraph 27. This makes it clear that the inflexible rule of equity of universal application is that a fiduciary is not allowed to place himself in a position where his duty to his principal and his own interest may conflict nor may he make a profit out of his fiduciary position. As Millett LJ said in Bristol & West Building Society v Mothew [1998] Ch 1 at 18, the principal is entitled to the single minded loyalty of his fiduciary. The fiduciary cannot act for his own benefit without the informed consent of his principal. It would not be enough, in my view, for the fiduciary to disclose the existence of his interest in a transaction without disclosing the nature and extent of that interest.

It is immaterial that the principal could not obtain for himself the benefit of the transaction. This has been the law since at least as early as Keech v Sandford (1726) Sel Cas Ch (t King) 61 and there are numerous other instances in the authorities of this point. The fact, if it be such (and the Club suggests otherwise), that the Club did not have the means to purchase the Freehold is irrelevant. What is relevant is that both Mr Guterman and Mr Hamilton recognised the importance of the purchase of the Freehold being in the name of the Club and that was also the Brewery’s view, as is evidenced by clause 17 of the contract with the Brewery. The opportunity to purchase was unquestionably that of the Club, and for Mr Guterman and Mr Hamilton to proceed with the purchase on the footing that the Club would be the purchaser on a bare trust for CL required Mr Guterman to make full disclosure if the conflict of his interest with his duty to the Club was not to cause him to be in breach of his fiduciary duty.

There can, in my judgment, be no real doubt but that there was no disclosure by Mr Guterman, full or otherwise. The Judge’s reasoning and conclusion on this point, which I have summarised in paragraph 31 above, seem to me unchallengeable.

There was some debate before us on the meaning of clause Aiii. It was suggested by Mr Freedman that the clause should not, and does not have to, be read as an agreement obliging Mr Guterman to act in breach of fiduciary duty at the expense of creditors and minority shareholders because that would be to render the contract unlawful. Mr Freedman said that a term was to be implied requiring Mr Guterman to act in a way which avoided any breach of fiduciary duty. He referred us to Lewison on the Interpretation of Contracts (3^rd Edition) at paragraph 7.101, where it is said: “Where the words of a contract are capable of two meanings, one of which is lawful and the other unlawful, the former construction should be preferred”. I do not think that the words of clause Aiii are capable of two meanings. On the contrary they appear to me to be as unambiguous as they are strongly expressed. The clause is in an agreement which recited that the parties were engaged in property development ventures in accordance with joint venture agreements. Mr Hamilton was to provide yet more funding and by clause Aiii, it was agreed how the Club should be managed and controlled even though Mr Hamilton was not an officer of the Club. In particular the clause sets out what was the “main and sole objective” (the word “and” is how Mr Hamilton interpreted his own manuscript) of that management and control. There is not a word suggestive of the need to consider the interests of others or of the necessity to make full disclosure. On the contrary: the parties were only addressing their own interests and objective under the JVA in relation to the Wrexham project. I see no room, still less necessity, for the implication of any term such as Mr Freedman suggested, which would have the effect of rewriting the agreement.

Mr Freedman relied on a number of matters of which he said the Judge took no or insufficient account in finding bad faith on the part of Mr Hamilton.

Mr Freedman said that Mr Hamilton was entitled to rely on Mr Zatman as the solicitor acting for the Club and CL on the purchase of the Freehold and the Declaration of Trust. Mr Freedman pointed in particular to Mr Zatman’s conclusion in his note that there was no conflict. However, there is no evidence that Mr Zatman was told of the JVA and its variations and in particular clause Aiii. Mr Hamilton, as a practising solicitor for many years, should surely have realised that he could only rely on Mr Zatman if and to the extent that Mr Zatman had been fully informed.

Mr Freedman said that the fact that Mr Guterman and Mr Hamilton had a commercial arrangement was not kept hidden from Mr Rhodes or the Club’s bank. Again there is no evidence of Mr Rhodes or the bank being informed of the full details of the JVA including clause Aiii.

Mr Freedman said that Mr Hamilton was entitled to rely on Mr Rhodes as a long-standing officer of the Club and one experienced in football matters to ensure that there had been compliance with the formalities, and he drew attention to the fact that the Club by its pleadings had attacked Mr Rhodes’ good faith. The Club accepted that no finding adverse to Mr Rhodes could be made by way of summary judgment. I do not see how any of this goes to show the good faith of Mr Hamilton. I refer again to the absence of evidence of full disclosure to Mr Rhodes who in any event was not a lawyer. There is no suggestion that Mr Hamilton enquired of Mr Rhodes whether, on this unusual transaction for a football club, the Club had been fully informed of Mr Guterman’s interest in the Wrexham project.

Mr Freedman criticised the Judge for making the false assumption that the transaction on 23^rd June had been carried out for the benefit of Mr Guterman and Mr Hamilton at the expense of the Club. Our attention was drawn to the substantial sums advanced by Mr Hamilton to the Club. I accept that there is some evidence that the joint venturers thought that the Club would obtain a benefit from the fulfilment of the Wrexham project. However that does not begin to meet the objection based on what the joint venturers were aiming to achieve as evidenced by clause Aiii, nor to give proper recognition to the fact that Mr Guterman was misusing a profitable opportunity which belonged to the Club.

Mr Freedman relied on the inability of the Club to purchase the Freehold and on the dire financial state of the Club. But this ignores Mr Hamilton’s own view of the potential profitability of the Wrexham project. Although he said in his second witness statement that £300,000 was a very full price for the Freehold, in paragraph 46 of his witness statement in the Guterman proceedings he said that he and Mr Guterman had expected to pay in excess of £1 million, that there was no doubt that it was a good deal for them and that he had pushed Mr Guterman to progress the purchase of the Freehold. He also said (in paragraph 74) that Mr Guterman calculated the value of the entire site with the benefit of planning permission could be as much as £8 million, but while he rightly considered that to be speculative, there can be no doubt but that Mr Hamilton also regarded the Wrexham project as a valuable investment opportunity. However he knew or ought to have known that the opportunity was the opportunity of the Club in whose name the Freehold was to be purchased, even if its own reserves were insufficient to carry out the development.

Mr Freedman said that Mr Hamilton came to this opportunity prior to his acquiring any shares in the Club. I cannot see how this shows Mr Hamilton’s good faith. Within days of the JVA being signed Mr Guterman introduced him to the Wrexham project, integral parts of which were that he would acquire Mr Pryce Griffiths’ 78% shareholding, Mr Guterman would succeed Mr Pryce Griffiths as chairman and the Club, with Mr Hamilton’s money, would acquire the Freehold as bare trustee for Mr Hamilton’s company.

Mr Freedman said that Mr Hamilton was an outsider to the Club prior to becoming a director in 2004 and that he did not concern himself with the Club. But by clause Aiii he had procured Mr Guterman’s agreement as to how the Club was to be controlled and managed.

Mr Freedman said that the Judge had made a significant error in saying (in paragraph 15 of his judgment) that the consideration for the Freehold was not simply the payment funded by Mr Hamilton of the purchase price for the Freehold but included the undertaking by the Club to supply prime seats, some free, to the Brewery, and in commenting (in paragraph 18(b)) that there was no indemnity from CL in relation to the obligation to provide seats to the Brewery. Mr Freedman said that this was wrong because the obligation to the Brewery already existed by reason of the Agreement between the Club and the Brewery in 1999. I am not persuaded that the Judge made any such error. Mr Freedman said of clause 23 of the contract of 31^st May 2002 that it was an agreement to abide by the 1999 Agreement. I cannot accept that clause 23 should be construed in a way which rendered it of no effect. Clause 23 was clearly intended to be a new obligation on the Club to enter into a new agreement with the Brewery to provide seats at the Ground.

I conclude that those matters to which Mr Freedman referred do not cast doubt on the correctness of the decision of the Judge in paragraph 33 of the judgment that Mr Hamilton did not act in good faith in relation to the Declaration of Trust. I would emphasise, as did Mr John Randall QC, appearing with Mr Wyvill for the Club on this appeal, the highly unusual circumstances of the present case. This is not the usual case of a third party dealing with a company and having no knowledge of what was done inside the company other than knowing the names and capacity of the officers acting on behalf of the company. Mr Hamilton, through his personal involvement in the JVA and its variations, knew of the personal interest of Mr Guterman in the Wrexham project. He had, pursuant to that project, caused Mr Guterman to be put into his fiduciary position in relation to the Club by the purchase of the outgoing chairman’s controlling shares. He knew of the importance attached to the Freehold’s purchase, funded by him, being made in the name of the tenant of the Ground, the Club. He knew that the Declaration of Trust was a significant step to be taken by the Club to enable Mr Guterman and him to redevelop the Ground as part of the Wrexham project. He can have seen no documents to show that any members of the Board of the Club, other than Mr Guterman and Mr Rhodes, authorised or approved the Declaration of Trust, as there were no board minutes or other documents to that effect. In these circumstances any person acting in good faith, and particularly an experienced solicitor like Mr Hamilton, would be bound to enquire whether the transaction had been authorised or approved by the Club or its Board and, if so, whether full disclosure had been made by Mr Guterman. The statement of belief by CL, which it pleads in paragraph 26 of its Defence, that there was a Board resolution confirming authority, rings hollow in the absence of any evidence to substantiate the reality of that belief.

Mr Freedman sought briefly to argue that Mr Guterman and Mr Rhodes had (a) actual authority, (b) alternatively ostensible authority, to enter into the Declaration of Trust. The Judge described it as fanciful to suggest that there was express or implicit authority to enter into such unusual transactions. On the evidence I agree. Nor do I see that there is an arguable case for ostensible authority. Mr Freedman suggested that the Board had held out Mr Guterman and Mr Rhodes to CL as having apparent authority because it had appointed him to the offices they held. I doubt if that is sufficient in relation to this transaction and in any event, for the reasons given in Rolled Steel, a third party put on notice, as CL was through Mr Hamilton, that Mr Guterman was entering into the transaction for an improper purpose and in breach of his fiduciary duty cannot rely on the ostensible authority of the officers concerned.

Reference was also made to the rule in Turquand’s case (Royal British Bank v Turquand (1856) 6 E & B 327) that persons dealing with a company in good faith can assume that acts within the company’s constitution and powers have been properly and duly performed and are not bound to enquire whether acts of internal management have been regular. But CL cannot rely on this. As was said in Rolled Steel at pages 284-5 by Slade LJ, the very nature of a proposed transaction may put a person on inquiry as to the authority of the directors of a company to effect it, even if he has no special relationship with the company. That must be the more so where the person has a special relationship with the company, and in the present case Mr Hamilton can be said to have had that relationship. CL was put on inquiry but no inquiries were made. CL cannot satisfy the requirement of good faith.

Mr Freedman further sought to invoke sections 35A and 35B and section 36A of the Companies Act 1985. Section 35A deems, in favour of a person dealing with a company in good faith (as to which there is a presumption in favour of that person), the power of the board to bind the company, or to authorise others to do so, to be free of any limitation under the company’s constitution. Section 35B provides that a party to a transaction with a company is not bound to inquire as to the capacity of the company or the authority of its directors. Mr Hamilton relies not on any action of the Board of the Club but on the authority of Mr Guterman as Chairman and Mr Rhodes as Managing Director and Secretary. He has not suggested that he made enquiries as to whether the Board authorised Mr Guterman and Mr Rhodes to enter into the Declaration of Trust. I do not see that either section 35A or section 35B absolves a person dealing with the company from any duty to inquire whether the persons acting for the company has been authorised by the Board to enter into the transaction when the circumstances are such as to put that person on inquiry (see Buckley on the Companies Acts paragraphs 35B.7-8). In the unusual circumstances of this case Mr Hamilton was put on inquiry and CL cannot satisfy the requirement of good faith. Nor can Section 36A, deeming in favour of a “purchaser” the proper execution of documents by a company, assist CL. There is no presumption of good faith applicable to the purchaser and a “purchaser” means a purchaser in good faith for valuable consideration (section 36A(6)). CL cannot satisfy the requirement of good faith for the purpose of this section.

I come finally to the procedural objection taken by CL, that the Judge should not have given summary judgment when it involved a finding of lack of good faith. This was the point which caused Jonathan Parker LJ to give permission to appeal.

The first point taken by Mr Freedman in his supplemental skeleton argument is one in which he rightly did not persist during his oral submissions. This was that those allegations which were made by the Club in its pleadings but on which the Club did not seek to rely in the application for summary judgment should be deemed by the court for the purpose of that application to be allegations on which CL succeeded. That goes too far. The fact that the Club accepted that such allegations should go to trial requires no assumption in favour of CL other than that it might succeed on those points.

Mr Freedman submitted that it was inappropriate for the Judge to give summary judgment on one, and only one, of the various related issues in the case. He said that it was inconsistent for the Judge to note that the Club did not seek to argue on the application that the benefit of the contract to purchase the Freehold was held on constructive trust for it but to decide that the Declaration of Trust, being part and parcel of the same transaction, could be impugned. It is however plain from the wording of Part 24 that the court has power to give summary judgment on one or more of the issues raised in an action. If a party chooses to confine its application to a single issue and the judge thinks it appropriate to give summary judgment on that issue I do not think that this court should interfere unless some unfairness was seen to result from that course. In the present case I can discern no such unfairness to CL and Mr Hamilton.

The Judge was well aware that the conclusion that a party has not acted in good faith ought generally to be reached at trial (paragraph 34 of the judgment). However, it has not been suggested that that conclusion can never be reached on a summary judgment application, and it must depend on the circumstances of the particular case whether the point can be decided without a trial. The seriousness of the allegation against Mr Hamilton, which was acknowledged by the Judge, does not oblige the court to dismiss the application for summary judgment. In this case the Judge has been led to his conclusion by the quality of the evidence, derived from matters which were common ground or had been adduced by Mr Hamilton, and the clarity of the principle involved. It was said by Mr Freedman in his supplemental skeleton argument that recent cases show that the law in this area is open to development, and reference was made to the obiter remarks of Arden LJ in Murad v Al-Saraj [2005] EWCA Civ 939 at paragraphs 82-83 to the effect that the harshness of the equitable principle might be tempered by a modern court in some circumstances. For my part I cannot see how any such tempering could be done by a court below the House of Lords and I very much doubt if the present case would be seen to be an appropriate case for the relaxation of the principle. The Judge, in my opinion, was entitled to give summary judgment in the circumstances of this case as being a just disposal of the issue in question. There was no real prospect of CL succeeding in its defence of the Club’s claim in respect of the Declaration of Trust and there was no other compelling reason for the trial of that issue.

For completeness I should mention that in the further skeleton argument of CL Mr Freedman raised a point not mentioned in the grounds for appeal relating to the scope of the inquiry ordered by the Judge. He wished to argue that, if the appeal was otherwise dismissed , the Judge should have held that the Club was obliged to make counter restitution of all benefits received resulting directly or indirectly from the acquisition of the Freehold by CL. This point was not pursued after Mr Randall submitted that it was open to CL on the inquiry to seek to justify such sums as it wished as a charge on the Freehold and that, although CL appeared to be seeking to claim a sum greater than the maximum amount of the claim which it had previously indicated pursuant to a direction of the court, the Club would not take a point on time if CL were now to amend the maximum amount.

I would dismiss this appeal.

I agree.

Order 24.2 of the Civil Procedure Rules provides:

It considers that ….

That defendant has no real prospect of successfully defending the claim…:

There is no other compelling reason why the case … should be disposed of at a trial”

For the reasons given in his judgment I agree with Sir Peter Gibson that there is no real prospect of the defendant successfully defending the present claim.

I do not underestimate the importance of a finding adverse to the integrity to one of the parties. In itself, the risk of such a finding may provide a compelling reason for allowing a case to proceed to full oral hearing, notwithstanding the apparent strength of the claim on paper, and the confident expectation, based on the papers, that the defendant lacks any real prospect of success. Experience teaches us that on occasion apparently overwhelming cases of fraud and dishonesty somehow inexplicably disintegrate. In short, oral testimony may show that some such cases are only tissue paper strong. As Lord Steyn observed in Medcalf v Weatherill (2003)1 AC120 at paragraph 42, when considering wasted costs orders:

This collective judicial experience does not always, or inevitably, provide a compelling reason for allowing the case to proceed to trial, nor for that matter require the judge considering the application to reject the conclusion that there is no real prospect of a successful defence of the claim if he is satisfied that there is none. That is not what the Rules provide, and if that had been intended, express provision would have been made. It is however a factor constantly to be borne in mind, if and when, as here, the reason for concluding summary judgment is appropriate is consequent on a disputed finding, adverse to the integrity of the unsuccessful party.

Judge Norris fully addressed these issues, and had them well in mind. At the end of a meticulous and careful judgment he decided that summary judgment should be given against the defendant. No adequate basis for interfering with his conclusion has been demonstrated.

Accordingly, I too, would dismiss this appeal.