COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY
H.H.JUDGE NORRIS QC
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE DYSON
SIR PETER GIBSON
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John Randall QC and Alistair Wyvill (instructed by Messrs Turner Parkinson) for the respondent
Crown Copyright ©
Sir Peter Gibson :
"From the upfront financial commitment of an institutional investment buyer there would be ample funds to construct the new stadium, and pay off all the historic club debt and thereafter the project should in theory provide a significant return to the developer."
"Aiii. The management and control of the Football Club is to be on an equal control basis with main and sole objective to realise the maximum potential gain from the property assets of the Football Club for the benefit of ADH and MSG".
The Heads of Agreement were expressed to cancel and extinguish the variation agreement of 27th March 2002.
"[Mr Guterman] suggested that the Football Club could approach the Brewery without informing the seller of the true purpose. I certainly accepted that it would be stupid to inform the seller of the true long term objectives and agreed he was not obliged to do so particularly when seeking to achieve Title assembly of different land titles and he should adopt the standard property developer procedure of keeping his true objectives to himself …. [Mr Guterman] wanted the Club to approach the Brewery directly, whilst I suggested approaching the Brewery directly as a major shareholder. I acceded to his views as he was in the driving seat".
In paragraph 12 Mr Hamilton said:
"[Mr Guterman] insisted that the Football Club should continue to front the acquisition on my behalf 'to avoid complications' as he did not want the introduction of a different purchaser to cause any possible revision of thinking by the Brewery".
The present proceedings
(a) Mr Guterman was acting at all material times as an agent for the Club and as such owed fiduciary duties not to profit from his fiduciary position and to avoid conflict between his fiduciary position and his personal interests
(b) Whilst acting as agent he was able to secure the opportunity for the Club to purchase the Freehold from the Brewery.
(c) At all times after 6th February 2002 he had a personal interest under the JVA in arranging the property interests in the Ground so that he and Mr Hamilton could redevelop it.
(d) The acquisition by CL of the Freehold would promote those interests.
(e) From 17th April 2002 Mr Guterman was under a contractual obligation to Mr Hamilton to conduct the management and control of the Club with the sole and main objective of realising the maximum potential gain from its property assets for the benefit of himself and Mr Hamilton, an obligation in direct conflict with his duty to the Club.
(f) Mr Guterman thought (and Mr Hamilton knew that he thought) that pursuing the purchase of the Freehold in the name of the Club (rather than in the name of CL as the intended true purchaser) conferred an advantage, and negotiations with the Brewery were begun and continued with that in mind, Mr Hamilton having an equal role in those negotiations with Mr Guterman and acquiescing in that approach.
(g) At the very least this provided grounds for the Club to claim that CL must account to the Club for any benefit it derived from the transactions in which it had used the Club's name for its own purposes.
(h) The acquisition of the Freehold (in the course of which the Club assumed a liability not underwritten by CL) proceeded as directed by Mr Guterman and (to the extent that there were joint instructions to Mr Zatman) Mr Hamilton, and concluded with the transfer of title to the Club.
(i) The Declaration of Trust by the Club which was signed by Mr Guterman (by which the Club appeared to acknowledge the equitable title of CL, and that this beneficial entitlement derived from an agreement with the Club), must itself be a breach of fiduciary duty unless made after a full disclosure of all relevant circumstances to the relevant decision-making body of the Club.
"But although that is my view of the law, if my assessment of the respective cases had led me to the view that there might be a different outcome depending on whether it was for Mr Hamilton to show good faith (under Rolled Steel) or for the Club to prove a lack of good faith (under section 35A) I would incline to the view that the matter should proceed to trial. However I am clear in my view that the assessment yields the same answer whichever approach is taken. In my judgment it is fanciful to suggest that Mr Hamilton acted in good faith in relation to the Declaration of Trust when it is demonstrable from uncontroversial material or from his own case that he knew:-
(a) 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');
(b) that Mr Guterman was chairman and director of the Club;
(c) that Mr Guterman had a personal interest in the acquisition of the freehold through its admitted interest in the JVA;
(d) 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;
(e) 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;
(f) that the Club had no independent solicitor acting. for it in the transactions;
(g) 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.
If those circumstances do not demonstrate to a person acting in good faith that the transaction is improper (or put him on enquiry as to its propriety) it is difficult to know what would."
(1) 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.
(2) 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.
(3) 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.
(4) Mr Freedman criticised the Judge for making the false assumption that the transaction on 23rd 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.
(5) 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.
(6) 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.
(7) 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.
(8) 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 31st 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.
Summary judgment when good faith in issue
Lord Justice Dyson:
President of the Queen's Bench Division:
"The court may give summary judgment against a claimant or defendant on the whole of their claim…if
a) It considers that ….
i) That defendant has no real prospect of successfully defending the claim…:
b) There is no other compelling reason why the case … should be disposed of at a trial"
"The law reports are replete with cases which were thought to be hopeless before investigation but were decided the other way after the Court had allowed the matter to be tried".
And that is why I commented in Esprit Telecoms UK Ltd and others -v- Fashion Gossip Ltd , unreported, 27 July 2000 that I was
"troubled about entering summary judgment in a case in which the success of the claimant's case involves, as this one does, establishing allegations of dishonesty and fraud, which are strongly denied, and which cannot be conclusively proved by, for example, a conviction before a criminal court "