Ross River Ltd & Anor v Cambridge City Football Club

On 19 September 2007 Briggs J handed down judgment after a  trial  that he had heard over seven days at the end of July,  between  Ross  River  Limited and  Blue  River  LP as claimants, and Cambridge City Football Club as defendant. The neutral citation number is [2007] EWHC 2115 (Ch).

His judgment is long, full and careful but does not satisfy either side. Both parties have applied for permission to appeal. The applications came on paper before me in March. I refused permission for reasons briefly stated on those occasions but both parties, as they are entitled to, have applied to renew their applications orally. We have accordingly heard this morning Mr Jonathan Seitler QC with Mr Andrew Mold for the claimants, and separately, not responding to each other, Mr Nicolas Davidson QC for the club.

The case arises from a series of transactions under which the club sought, with some success, to extract itself from the sort of acute financial difficulties that football clubs, at any rate below the top levels of the game in England, sometimes find themselves in. They were close to being insolvent, perhaps actually insolvent, but they had one valuable asset, namely their ground and premises, with certain development potential. In short, they came to an agreement for the sale of the ground at a sale price of £1.3 million with an overage provision under which the club was to be entitled to be paid half of any net increase in value over the sale price but after deducting planning and development costs, and the agreement set up what was in effect a joint venture as regards the process of applying for planning permission and so on. The original sale agreement was in 2004. It was substituted by a new agreement in 2005 with Ross River, the first claimant, as the purchaser. That agreement was completed on 29 April 2005. After provision for various secured liabilities and other matters the club emerged with a relatively modest net sum. Already before that date discussions had got under way between the club and the claimants’ representatives for the possible purchase by the claimants of the club’s entitlement to the overage provision. That ultimately led to an agreement in October 2005 (the overage agreement) by which the club received £900,000 in return for giving up its entitlement to overage under the sale agreement.

The club alleged, and persuaded the judge, that the claimants and their representatives, particularly a Mr Harney, had been guilty of two kinds of improper behaviour between the date of the completion of the sale contract and the entry into the overage agreement. These two forms of improper conduct consisted, as to one, in the making of unauthorised payments of some £10,000 to Mr Eastham, the Chief Executive of the club, and as to the other in the making of what the judge considered to be fraudulent misrepresentations by Mr Harney in a letter of 25 May, written in response to requests on behalf of the club by their solicitor Mr Lee. The judge dealt with both of those matters at length and there is no challenge on either side to his findings of fact in those respects.

The claimants would seek to challenge his finding as to the consequences of the unauthorised payments. In that respect I said when dealing with the case on paper, and I remain of the view, that there is at least an arguable point of law in favour of the claimants’ appeal, so that if the matter depended only on the case as regards unauthorised payments or, to put it more shortly, bribery, it is a case in which the claimants might very well get permission to appeal. However they would have to overcome also the judge’s finding, not merely of fraudulent misrepresentation, but the findings based on the fraudulent misrepresentation which provided the club with an additional and entirely separate basis for having the overage agreement set aside. The judge did set aside the overage agreement because of both the unauthorised payments and the fraudulent misrepresentations. What the judge declined to do was, in reliance on either or both of those matters, to set aside the sale agreement itself. The claimants appeal against the findings in respect of bribery and fraudulent misrepresentation, but the club seeks to appeal against the judge’s refusal to set aside the sale agreement.

As I say, on the claimant’s appeal, if it rested with the matter of the unauthorised payments or bribery, they might very well get permission to appeal but they have to overcome the hurdle of what the judge said about fraudulent misrepresentation as well, because otherwise to appeal on bribery would be purely academic; it would not affect the result of the case.

Mr Seitler, in his very succinct, well-focussed submissions this morning, homes in on one point in the context of the case based upon misrepresentation as demonstrating an arguable ground of appeal, and that is that he submits that the judge has not made a finding of fact that is essential, that the misrepresentation was operative, at the time of the overage agreement in October 2005, on the mind of the club as the representee. As I say, the representations were made in a letter of 25 May. They were fraudulent misrepresentations, in particular in the sense that Mr Lee had asked for information about the state of the preparations for assessing the development value and potential of the ground. Mr Harney could, the judge found, have refused to answer. He could have said: we are not bound to disclose any such information to you and we do not. It is up to you to take what advice you wish. But he did not do that. He disclosed information. He made statements as to, for example, the intensity with which the ground could be developed, the extent to which affordable housing was likely to be required, and the need to allow up to 30 percent of the land value for the cost of providing suitable access. He suggested that specialist planning advice had been disclosed in substance, whereas the judge held that important aspects of it had not been disclosed, and he said that there were no reports that would assist him to advise his clients, which was not true.

Those statements were false. True statements would have been that a greater intensity of development was possible, a lower percentage of affordable housing was likely to be necessary, no provision need be made for the cost of providing access, additional planning advice had been obtained and there were reports from various professionals that would certainly have been of assistance to Mr Lee in advising his client.

Mr Seitler points, however, to two parts of the evidence. One is the evidence of Mr Eastham, the Chief Executive, who gave evidence for the claimants and who the judge regarded as honest but far from in all respects reliable, because in particular of his dealings with Mr Harney in preparation for the case. Paragraph 7 of the judgment bears on that and it seems to me that that knocks that part of Mr Seitler’s submissions from under him. His more powerful evidence is a letter from Mr Lee to the club of 7 October, a letter of advice, in which he says for example:

“It is, however, obviously very difficult to give accurate advice on this without having the benefit of the draft development brief, to include density, off-site improvement works, etc. From our previous experience with Paul Harney it is unlikely that such information or assistance would be given, as at best he is obstructive and [at] worst objectionable.”

Mr Lee says, essentially, to the club: I can’t advise you whether to accept the suggested payment, but it may be that if the directors consider that the club can make better use of a cash payment now rather than a potentially higher future payment, the amount currently on offer merits serious consideration.

At the time of the May letter the offer on the table was £500,000 and the club did not accept that. The club appears to have been quite successful in its negotiation techniques, as the judge recorded at paragraph 123, and eventually the figure agreed was £900,000. Mr Seitler tells us that the experts were agreed that at that stage the value of the club’s share on a properly-informed basis would have been taken to have been £1.1 million, so he says £900,000 is by no means far off the mark.

He took us through the section of the judge’s judgment from paragraph 241 onwards in which he deals with the question of misrepresentation and in particular inducement. The judge started by saying that the claimant’s submissions on inducement were of real force, and that he had found it by no means easy to resolve. He gave four reasons for holding that the claimant’s submissions should not be accepted. One was what Mr Seitler says is an impermissible inference as to the effectiveness of a fraudulent misrepresentation, which he says deprives the ingredient of inducement of any content. It seems to me that the judge is doing no more there than stating in strong but clear terms the fact that it is presumed that, if someone has made fraudulent misrepresentations with a view to influence a negotiation, it is likely to have succeeded; and the authorities show that there is a presumption so that it is for the representor to disprove inducement.

Then the judge says that Mr Lee obviously regarded Mr Harney as extremely uncooperative but that he did not at that stage, and indeed did not until the course of the trial, suppose and realise that he had been lied to. The judge then makes a separate point, that the comparison to be made is between the statement actually made and the truth rather than the actual statement and silence, and Mr Seitler says that is right as regards falsity but wrong as regards inducement. The judge’s fourth point is the question of causation and Mr Seitler states there are many cases in which causation and reliance are basically the same point but they are not inherently the same point, and that what the judge has not done, and ought to have done if he was to find against the claimants, was that he has not made a finding that what Mr Harney said in the letter of 25 May was present to the mind of any relevant person within the club, including of course Mr Lee, in October 2005 when the overage agreement was entered into.

It seems to me, while it is true the judge has not said that in terms, that that is part of the gist of what he has found on inducement. I do not accept that he has said in his paragraph 241 that there is an irrebuttable inference such as to render inducement irrelevant and not susceptible of proof or disproof. It seems to me that what he says at paragraph 242 about Mr Lee’s attitude to Mr Harney is indeed material. Mr Lee says in his letter of 7 October that Mr Harney was obstructive and objectionable and it seems to me that, in the light of what the judge has recounted in his judgment, one could not say that that comment was made without reference to what Mr Harney had said, among other things, in his letter of 25 May, in which he was being seen to be cooperative but hiding behind this semblance the reality of being dishonest.

Moreover it seems to me that the judge was perfectly entitled to say that a comparison is to be made between the false statement and a true statement in considering the effect of the actual statement on the person to whom it was made, even so many months after it had been made. It seems to me, therefore, that, despite Mr Seitler’s clear and well-presented submissions, there is no prospect that the Court of Appeal would be persuaded that the judge was wrong in law in holding in favour of the club on misrepresentation because of his not having made what is said to be the crucial finding of inducement. I would dismiss the claimants’ application for permission to appeal.

I turn to the club’s application which is of a very different kind. The judge held that the club was entitled to rescind the overage agreement and there was no equitable bar to that. It was not the subject of a statutory discretion to award damages in view of the fraudulent misrepresentation and there was certainly no equitable bar as might otherwise have arisen. What he then went on to consider was whether he could, and, if so, should, also accede to the club’s invitation to set aside the sale agreement. He reviewed the law on that point and came to the conclusion that there was no jurisdiction to set the prior agreement aside, the improper conduct, whether you regard it as the bribery or the fraud or both, having post-dated the sale agreement. Mr Davidson says that that is wrong as a matter of law. He submits primarily that the club is entitled as of right to have the sale agreement rescinded, absent any equitable factors such as delay or third party rights intervening, none of which arise in the present case; alternatively, he submits that the court has at least jurisdiction to set it aside. He faces a serious obstacle on the latter point because the judge, not content with holding that there was no jurisdiction, went on at paragraph 242 and following to say what he would have done if he had considered that he had had jurisdiction to rescind the sale agreement by way of discretion. He would have refused to do so as he says in paragraph 242, in which he concludes that it would to his mind be a positive injustice to the claimants to require them now to transfer the land back to the club even if they were to be restored in financial terms.

The force of Mr Davidson’s well-argued submission is that he relies on the fact that this was not just an ordinary sale agreement; it was a sale agreement which left both parties tied together in respect of the development potential with a view to realising the planning and development gain and for the club’s point of view the overage, and he submits that it is entirely unsatisfactory for the injured party, the club -- injured both by the finding of bribery and by the finding of fraudulent misrepresentation -- to have to be tied to the claimants, and in particular to the man responsible for the fraud, namely Mr Harney. There is some evidence of matters since the trial which he would seek to use on the appeal if permission were granted for the appeal. I can see, and the judge could see, that that would be an unsatisfactory situation, but he came to the conclusion that it would be a positive injustice to rescind the sale agreement. If it is a matter of discretion, I can see no basis at all for Mr Davidson to impugn the judge’s exercise of that discretion.

So it has to come back to being a matter of law and so far as that is concerned Mr Davidson starts with an interesting, important but, in this context, unsatisfactory decision of this court in Panama and South Pacific Telegraph Works Company v. India Gutta Percha Telegraph Works Company (1875) 10 Ch App 515, which was a decision of a court consisting of two Lords Justices, who were agreed on the result but not on the reasoning. James LJ decided on the one basis which Mr Davidson relies on and Mellish LJ decided the matter on a much more cautious basis. It is the only case that we have been shown in which in effect a covert deal between one of the principals to a contract and the servant or agent of the other principal, after the date of the contract, has led the court to set aside the contract. James LJ puts forward a proposition that in terms is helpful to Mr Davidson:

“…that the defrauded principal, if it comes in time, is entitled, at his option, to have the contract rescinded, or, if he elects not to have it rescinded, to have such other adequate relief as the Court may think right to give him.”

Nor was rescission simply a matter for the future because there had been a down payment which was ordered to be returned.

So Mr Davidson has one Lord Justice in his favour in 1875 but not as the ratio of the case since the other Lord Justice disagreed. Mr Davidson has shown us some, at any rate, of the history of citations of the Panama case. It has been cited a number of times since to different effect. It is referred to in authorities and text books as being a case of major importance but no one until now has had to consider quite its impact in the sense that Mr Davidson puts to us.

The case was rather different because what had happened was that the servant of one of the companies, shortly after the entry into the contract between the two companies, had done a deal with the other company which it might reasonably be possible to infer had been in contemplation at the time of the initial contract. Here there is no such possible connection between either the bribery or the fraud and the entry into the initial contract.

Mr Davidson’s proposition relates to dealings between one principal and an agent of the other principal, whether before or after the making of the contract between the two principals, at least where there is an element of future conduct arising under the principal contract remain to be undertaken after the matter came to light. He submits that the injured principal is entitled as of right to rescind the contract, subject only, he would accept, to coming in time i.e. to equitable factors such as delay or the introduction of third party rights or the impossibility of restitution.

I find it impossible to suppose, notwithstanding the interesting citation that we have had, that the court of appeal would conclude that the club was entitled as of right to have the sale agreement set aside in the circumstances that the judge found. I find it by no means impossible to conclude that the court might conclude that the court had a discretion to rescind the sale agreement but that is not sufficient for Mr Davidson because the judge had said, in a way that is not appealable, what he would have done in that event.

I am not persuaded, for all Mr Davidson’s learning and research as to the citations to what one might call the reception of the Panama case, that it is arguable that his proposition is right and that the club could have the sale agreement set aside as a matter of entitlement rather than as a matter of discretion.

For those reasons I would also dismiss the club’s application for permission to appeal.