Criterion Properties plc v Stratford UK Properties LLC [2004] UKHL 28

Criterion sought to invalidate a 'poison pill' agreement (SSA) signed by directors without proper authority. The House of Lords held the case turned on whether directors had actual or apparent authority to bind the company, not on 'knowing receipt' or unconscionability principles. The appeal was dismissed, requiring trial on authority issues.

Facts

Criterion Properties plc entered into a joint venture partnership with Oaktree (Stratford UK Properties LLC) in 1998 for property investment. In March 2000, a Second Supplementary Agreement (SSA) was signed by Criterion’s managing director Mr Glaser and company secretary Mr Palmer, granting Oaktree a put option to require Criterion to purchase Oaktree’s interest upon certain triggering events, including a change of control of Criterion or the departure of key directors. This was designed as a ‘poison pill’ to deter hostile takeovers.

Criterion later claimed its board never authorised the SSA and sought a declaration that it was unenforceable. Oaktree counterclaimed for specific performance.

Issues

Primary Issue

Whether the directors who signed the SSA had actual or apparent authority to bind Criterion to the agreement.

Secondary Issue

Whether the case should be analysed under ‘knowing receipt’ or ‘knowing assistance’ principles, and whether unconscionability was the relevant test.

Judgment

The House of Lords unanimously dismissed Criterion’s appeal, holding that the case could not be resolved on summary judgment and required trial.

Lord Scott delivered the leading judgment, criticising the approach taken in the courts below:

“This is neither a case of ‘knowing receipt’ nor one of ‘knowing assistance’. The word ‘receipt’ in the expression ‘knowing receipt’ refers to the receipt by one person from another of assets… The question whether an executory contract is enforceable is quite different from the question whether assets of which there has been a ‘knowing receipt’ are recoverable from the recipient.”

Lord Scott emphasised that the critical issue was one of authority:

“This case turns, in my opinion, on the ‘authority’ issue. If Mr. Glaser and Mr. Palmer either had actual authority to conclude the SSA… or, if they did not have actual authority, had apparent authority to do so, then I can see no reason why the SSA should not be held enforceable against Criterion.”

Lord Nicholls agreed and clarified the applicable principles:

“If a company (A) enters into an agreement with B under which B acquires benefits from A, A’s ability to recover these benefits from B depends essentially on whether the agreement is binding on A. If the directors of A were acting for an improper purpose when they entered into the agreement, A’s ability to have the agreement set aside depends upon the application of familiar principles of agency and company law.”

Key Principles Established

Lord Nicholls explained that if an agreement is valid under agency principles, questions of knowing receipt do not arise. If the agreement is set aside, the recipient’s liability for unjust enrichment is strict and not dependent on unconscionability.

Implications

This case is significant for clarifying the distinction between questions of authority in company law and equitable liability for knowing receipt or assistance. It establishes that the enforceability of corporate contracts turns on agency principles and statutory provisions (including sections 35A and 35B of the Companies Act 1985), not on unconscionability tests developed in the context of accessory liability.

The decision also raises important questions about the authority of directors to implement ‘poison pill’ devices that may entrench management or harm commercial interests, though these issues were left for trial determination.

Verdict: Appeal dismissed. The House of Lords held that the case could not be determined on summary judgment as the critical issue of whether the directors had actual or apparent authority to bind Criterion required determination at trial.

Source: Criterion Properties plc v Stratford UK Properties LLC [2004] UKHL 28