Planning inquiry — Evidence — Witness — Commercial agreement made by company relating to land — Undertakings by directors of company to support planning applications for redevelopment by other party and not to object in any way to such applications — Whether enforceable — Whether directors free to give or procure the giving of evidence at the inquiry opposed to the application — Whether undertaking illegal or contrary to public policy — Whether an improper fetter on future exercise of directors’ fiduciary powers
On February 10
1989 Vicenza Developments Ltd (‘Vicenza’), a subsidiary of the defendants,
Cabra Estates plc (‘Cabra’) and freehold owners of Craven Cottage, Fulham, the
home of Fulham Football Club (‘the club’), applied to Hammersmith and Fulham
London Borough Council for planning permission to develop the whole site for
residential purposes. Under this proposal the club would move to another
ground, which it would share with a second football club. The council responded
by proposing an alternative scheme of limited development and in May
1989 they made a compulsory purchase order for the compulsory purchase of
Craven Cottage. The council’s scheme would enable continued use of the football
ground itself by the club. The first plaintiffs, Fulham Football Club Ltd
(‘FFCL’), held the lease of the site through a subsidiary company, Fulham
(1987) Ltd. The shareholders in FFCL were the fourth plaintiffs, Ruxley
Holdings Ltd, and three of the four individual plaintiffs. The four individuals
plaintiffs were and remained directors of FFCL.
Vicenza appealed
against the deemed refusal of their application. A public inquiry, which would
consider the rival applications and objections to the CPO, was fixed to begin
on January 30 1990. Until January 27 1990 all the plaintiffs supported the
council’s scheme and confirmation of the CPO. On January 28 1990 Vicenza and
Cabra made an agreement in writing with the plaintiffs relating to possible
future redevelopment of Craven Cottage whereby substantial payments would be
made to FFCL, some of which were dependent on the club leaving Craven Cottage.
On the same date, the second to sixth plaintiffs entered into a letter of
undertaking with Cabra whereby they covenanted, inter alia, by covenant
(r), to use their powers and rights as directors and members of FFCL to procure
that FFCL and Fulham (1987) Ltd (‘the Companies’) would withdraw their support
for the CPO and
(ii) . . . if
the Council decides notwithstanding knowledge of the existence of this
Agreement to proceed to promote the CPO (or any new Compulsory Purchase Order
in like terms in substitution of the CPO) at the Inquiry commencing on 30th
January 1990 (or at any later Inquiry in respect of the substituted CPO) then
the Companies shall not support the CPO or any new Compulsory Purchase Orders
in any way and without prejudice to the generality of the foregoing the
Companies shall not:
(a) provide or procure the provision of any
witness to give evidence in support of the Council’s case at any CPO inquiry or
any planning and/or listed building inquiry in relation to the appeals in
respect of the [council’s] applications for planning and listed building
consents . . .;
(b) provide or put forward any written material
by way of statement letter or in any other form which supports or tends to
support the confirmation of the CPO;
(c) procure or encourage any third parties to
support any CPO;
(d) object or procure any objection in any way to
the current planning applications under appeal submitted on behalf of you to
the Council for development of . . . the Property (or any other applications
for planning permission or listed building consent for redevelopment of Craven
Cottage or any part thereof)
. . .
(v) The Companies will if called upon so to do by
you write to the Planning Authority and Secretary of State for the Environment
(in respect of such planning and listed building applications and appeals as
shall be made in respect of a development of the whole or substantially the
whole of the Property for residential and/or office purposes as [Vicenza] shall
identify in writing from time to time) stating that the Companies support the
same and are in favour of the same being granted.
The
obligations in para (r) were to be binding for seven years from the date of the
letter or until the sooner grant of planning permission for a major development
of the site. At the inquiry, and in accordance
Vicenza. In November 1990 the Secretary of State issued his decision: in
agreement with the conclusions and recommendations of the inspector he decided
not to confirm the CPO nor to grant the associated planning permissions sought
by the council, and he also dismissed Vicenza’s appeal.
Vicenza then
prepared and submitted fresh applications for planning permission. These were
refused by the council and Vicenza again appealed. A further inquiry into these
appeals began on June 2 1992. Prior to its commencement Vicenza’s solicitors
sought the agreement of the covenantors to provide a letter of support to put
before the inspector. On June 5 1992 solicitors for the covenantors, who had
reconsidered their position, wrote to explain why such support would not be
given and seeking confirmation that the individual plaintiffs were ‘free to
give such relevant evidence as they think proper, fit and truthful to the
present planning inquiry and are not prevented from so doing by the
undertakings’. Cabra’s solicitors replied, stating that the effect of the
undertakings was to require the covenantors to do ‘nothing detrimental to our
clients’ current planning appeal’. Consequently, on June 8 1992, the plaintiffs
issued a writ seeking a declaration ‘that . . . the second to sixth plaintiffs
are entitled to give or procure the giving of such relevant evidence to the
inquiry as they consider to be in the best interests of [FFCL]’.
At the trial
of the action Chadwick J accepted the arguments of the plaintiffs that the
undertaking in para (r)(ii) did not extend to the June 1992 inquiry at all and,
further, that the restraints sought to be imposed by that paragraph were
unenforceable as being illegal and contrary to public policy. Reliance was
placed on section 2 of the Witnesses (Public Inquiries) Protection Act 1892
(see p 39F-G). However, he rejected the argument that the individual covenantors
could not be bound by the undertakings in so far as to comply with them would
conflict with the fiduciary duties they owed as directors to FFCL. Cabra
appealed, and by a respondents’ notice the plaintiffs renewed their argument
based on fiduciary duty. In support of their argument based on illegality, the
plaintiffs submitted that the effect of the covenant, if enforced, would be to
prevent them from putting their true views as to the merits of the current
planning application before the inspector. Furthermore, as FFCL had now decided
that the Vicenza application was not in the best interests of the club, any
evidence which suggested that the club still supported the application would be
false and might be perjured.
1. The letter
of undertaking and the 1990 agreement had to be read together. Alternatively,
the 1990 agreement, and the obligations and benefits imposed and conferred by
that agreement, formed part of the factual matrix against which the letter of
undertaking was to be construed. On a proper construction, para (r)(ii)(d)
extended to ‘any applications for planning permission or listed building
consent for redevelopment of Craven Cottage or any part thereof’ during the
currency of the letter of undertaking: see pp 40F-42B.
2. Although no
covenant or undertaking could lawfully require a covenantor to give false
evidence, nor prevent a witness from attending to give evidence in response to
a subpoena, there was no valid objection on grounds of public policy to a
covenant whereby a party to a commercial transaction involving the disposition
of land undertook to support, and to refrain from opposing, planning
applications by the other party for the development of the land: see pp
43H-44C. The relevant underlying principle was that, as a matter of public
policy, the court would prevent and, if necessary, punish conduct which
interfered with the proper administration of justice. In any individual case
the question was: has the act impugned interfered with, or will it interfere
with, the due administration of justice?
It was not sufficient to pose the question: is the effect of the
agreement that a party or a witness may be prevented from putting forward a
particular contention in court or before a tribunal? It was necessary to take a broad view of the
public interest and, where necessary, seek to achieve a balance between
countervailing public policy considerations which, in the present case,
included the public interest in allowing business to be transacted freely and
holding commercial men to their bargains: see p 44E-G. On the facts of the
case, no rule of public policy (i) entitled the covenantors to ignore the
provisions of para (r) and to volunteer to oppose Vicenza’s application, or
(ii) could be invoked to prevent FFCL and the club writing a letter to the
Secretary of State and the planning authority in strict accordance with para
(r)(v) stating that ‘the Companies’ supported the planning application and were
in favour of it being granted: see p 45B-D.
3. It was
trite law that directors were under a duty to act bona fide in the
interests of their company. However, it did not follow that directors could
never make a contract by which they bound themselves to the future exercise of
their powers in a particular manner, even though the contract taken as a whole
was manifestly for the benefit of the company. Such a rule could prevent
companies from entering into contracts which were commercially beneficial to
them. The true rule, as stated by the High Court of Australia in Thorby
v Goldberg (1964) 112 CLR 597, was that if, at the time when a contract
was negotiated on behalf of a company, the directors bona fide thought
it in the interests of the company as a whole that the transaction should be
entered into and carried into effect, they could bind themselves by the
contract to do whatever was necessary to effectuate it: see pp 45G-46G. The
undertakings given by the directors were part of the contractual arrangements
made on January 28 1990 which conferred substantial benefits on the company. In
those circumstances it could not be said that they had improperly fettered the
future exercise of their discretion, nor was there any scope for the
implication of a term in the undertaking that the directors would not thereby be
required to do anything inconsistent with the fiduciary duties owed by them to
the company: see pp 46H-47A.
Decision of
Chadwick J reversed.
to in the judgments
Attorney-General v Butterworth [1963] 1 QB 696; [1962] 3 WLR 819; [1962] 3
All ER 326, CA
Barratt v Kearns [1905] 1 KB 504; 74 LJKB 418; 92 LT 255; 21 TLR
212, CA
Bilston
Corporation v Wolverhampton Corporation
[1942] Ch 391; [1942] 2 All ER 447; (1942) 40 LGR 167; 111 LJ Ch 268; 167 LT
61; 106 JP 181
Hargreaves v Bretherton [1959] 1 QB 45; [1958] 3 WLR 463; [1958] 3 All
ER 122
Harmony
Shipping Co SA v Saudi Europe Line Ltd
[1979] 1 WLR 1380; [1979] 3 All ER 177; [1980] 1 Lloyd’s Rep 41, CA
John
Crowther Group plc v Carpets International plc
[1990] BCLC 460
Kearley v Thomson (1890) 24 QBD 742; 59 LJQB 488; 63 LT 150; 54 JP
804
Marrinan v Vibart [1963] 1 QB 528; [1962] 3 WLR 912; [1962] 3 All ER
380, CA
Rackham v Peek Foods Ltd [1990] BCLC 895
Taylor v Chichester and Midhurst Railway Co (1870) LR 4 HL 628; LR
2 Ex 356; 39 LJ Ex 217; 23 LT 657, HL
Thorby v Goldberg (1964) 112 CLR 597
Trapp v Mackie [1979] 1 WLR 377; [1979] 1 All ER 489, HL
Watson v M’Ewan [1905] AC 380; 93 LT 489, HL
Appeal against
decision of Chadwick J
This was an
appeal by the defendants, Cabra Estates plc, against the order of Chadwick J on
July 13 1992 granting declarations as to the scope and legality of certain
covenants entered into with Cabra by the second to sixth plaintiffs, James
William Hill, William Arthur Muddyman, Ruxley Holdings Ltd, Thomas Wilson and
Cecil Albert Frederick Swain in a letter of undertaking dated January 28 1990.
The letter of undertaking formed part of contractual arrangements entered into
between the plaintiffs, the defendants and Vicenza Developments Ltd relating to
proposed redevelopment of the Fulham football ground at Craven Cottage, Fulham.
Scrivener QC and Timothy Dutton (instructed by Lovell White Durrant) appeared
for the appellants, Cabra Estates plc.
QC, Joe Smouha and Ian Albutt (instructed by Frere Cholmeley) appeared for the
respondents.
following judgment of the court was delivered.
NEILL LJ: This is the judgment of the court to which all the members of the
court have contributed.
This is an
appeal by Cabra Estates plc (‘Cabra’) from the order of Chadwick J dated July
13 1992. The order was made in accordance with the judgments given by the judge
on June 19 1992 (‘the main judgment’) and on July 13 1992. By his order the
judge granted declarations as to the scope and legality of certain covenants
entered into by the second to sixth plaintiffs dated January 28 1990. We shall
set out the precise terms of these declarations later in this judgment.
The facts
This case is
concerned with the future use and development of the football ground and
surrounding land known as Craven Cottage at Stevenage Road in Fulham. Craven
Cottage is the home of the Fulham Football Club (‘the club’).
On February 10
1989 Vicenza Developments Ltd (‘Vicenza’), who
known as Fulham Football Club Ltd, made an application for planning permission
to develop Craven Cottage for residential purposes. Vicenza is a subsidiary of
Cabra. The application was made to Hammersmith and Fulham London Borough
Council (‘the council’) as the local planning authority.
On February 24
1989 the council responded by itself making planning applications for an
alternative development of Craven Cottage. On May 3 1989 the council issued a
compulsory purchase order (‘the CPO’) for the compulsory purchase of Craven
Cottage. In broad terms the Vicenza application provided for the development of
the whole Craven Cottage site for residential purposes and for a move by the
club to another ground where it would share the ground with a second football
club, whereas the council application provided for some development on the
site, but also for the continuing use of the football ground itself by the
club.
In due course
the Secretary of State ordered a local public inquiry for the purpose of
considering: (a) the confirmation of the CPO and the associated planning
applications made by the council; and (b) the appeal by Vicenza in relation to
their application for planning permission based on the council’s failure to
determine the application within the prescribed time.
The public
inquiry was fixed to begin on January 30 1990. Until about January 27 1990 all
the plaintiffs in the present proceedings supported the council’s applications
for development and the confirmation of the CPO. The first plaintiffs, Fulham
Football Club Ltd (then known as Bannerton Ltd), held the lease of the site
through a subsidiary company, Fulham (1987) Ltd. The shareholders in the first
plaintiffs were Ruxley Holdings Ltd, the fourth plaintiffs, and three of the
four individual plaintiffs. The four individual plaintiffs were and remain the
directors of the first plaintiffs.
On January 28
1990 Vicenza and Cabra made an agreement in writing with the plaintiffs. The
agreement (‘the 1990 agreement’) contained a number of provisions relating to
the possible future development of Craven Cottage and for the payment of
substantial sums of money to the first plaintiffs, some of these payments being
dependent on the club leaving Craven Cottage. The 1990 agreement also contained
provisions designed to enable the first plaintiffs to regain the name of Fulham
Football Club Ltd. The performance of the obligations of Vicenza under the 1990
agreement was guaranteed by Cabra.
On the same
date the second to sixth plaintiffs entered into a letter of undertaking with
Cabra. The first plaintiffs were not parties to the letter of undertaking which
was made under seal.
The letter of
undertaking contained a large number of covenants and undertakings by the
second to sixth plaintiffs, which were expressed to be given ‘individually but
not jointly’. It is, however, only necessary to refer to covenant (r) and to a
few other provisions at the end of the letter of undertaking.
Covenant (r)
was in these terms:
We will use
our powers and rights as directors and members of the Company [meaning the
first plaintiffs] to procure that:
(i) the Club [meaning the subsidiary in which
the leasehold interest was held] shall forthwith notify the London Borough of
Hammersmith and Fulham (‘the Council’) and the Secretary of State for the
Environment of the withdrawal of their support for the CPO (as hereinafter
defined) in the form annexed hereto marked ‘B’;
(ii) From the date hereof the Company, and the
Club (together ‘the Companies’) shall do nothing to prevent or discourage the
withdrawal of the Hammersmith and Fulham (Fulham Football Ground) Compulsory
Purchase Order 1989 made on the 3rd of May 1989 by the Council and including
appeals in respect of applications for planning and listed building consent by
the Council under the Department of the Environment references:
LRP/33/H5390/01, LRP/270/H5390/02 and LRP/999/H5390/03 (the ‘CPO’) relating to
the property at Stevenage Road, Fulham, London SW6 (‘the Property’) by the
Council and if the Council decides notwithstanding knowledge of the existence
of this Agreement to proceed to promote the CPO (or any new Compulsory Purchase
Order in like terms in substitution of the CPO) at the Inquiry commencing on
30th January 1990 (or at any later Inquiry in respect of the substituted CPO)
then the Companies shall not support the CPO or any new Compulsory Purchase
Orders in any way and without prejudice to the generality of the foregoing the
Companies shall not:
(a)
provide or procure the provision of any witness to give evidence in
support of the Council’s case at any CPO inquiry or any planning and/or listed
building inquiry in relation to the appeals in respect of the applications for
planning and listed building consents hereinbefore mentioned;
(b)
provide or put forward any written material by way of statement letter
or in any other form which supports or tends to support the confirmation of the
CPO;
(c)
procure or encourage any third parties to support any CPO;
(d)
object or procure any objection in any way to the current planning
applications under appeal submitted on behalf of you to the Council for the
development of (and listed building consent in relation to) the Property (or
any other applications for planning permission or listed building consent for
redevelopment of Craven Cottage or any part thereof)
(iii) The Company will issue a Press Statement upon
signing hereof in the form attached marked ‘C’
(iv) The Companies will send a letter immediately
after the signing hereof requesting that any draft Proofs Proofs letter or
submissions or any material whatsoever given or supplied by the Companies or
any third party acting on behalf of the Companies supporting the CPO which have
been sent to the Department of the Environment or the Inspector at the
Department of the Environment or to the Council for use in support of the CPO
or to any third party for use in support of the CPO shall be immediately
withdrawn to the intent that the Inspector at the Inquiry and the Secretary of
State for the Environment are aware that the final stance of the Club is that
they do not now support confirmation of the CPO and in the event that the
requests in the letter are not complied with the Companies will take reasonable
steps to procure compliance
(v) The Companies will if called upon so to do by
you write to the
such planning and listed building applications and appeals as shall be made in respect
of a development of the whole or substantially the whole of the Property for
residential and/or office purposes as Fulham shall identify in writing from
time to time) stating that the Companies support the same and are in favour of
the same being granted.
(vi) The Companies shall if so requested by Fulham
make a reciprocal response in any event that any director or employee of the
Companies does any of the things referred to in Clauses r(ii)(a) to (d) above
and for the purposes of this Clause a reciprocal response shall mean an equal
and opposite response to whatever the said director or employee has done or
said (thus for example if a director or employee of the Club gives evidence at
any Compulsory Purchase Order Inquiry or planning inquiry supporting such
Compulsory Purchase Order or opposing such Planning application as is the
subject of the planning inquiry then a witness on behalf of the Company or the
Club would also appear at the relevant inquiry to state that the said director
or employee did not represent the views of the Club and the Club would then
rebut the evidence given by the said director or employee but if the evidence
given by the said director or employee was given only in writing then the said
statement and rebuttal of the Club would need only to be made in writing and
not by way of personal appearance at the inquiry)
(vii) The Companies will not either on their own
behalf or through any third party or parties make or cause to be made or held
any planning application or appeal in respect of any development of the
Property or any part thereof.
It will be
seen that subparas (i), (iii) and (iv) of covenant (r) required immediate
action to be taken by the covenantors. This action was taken and there is no
need to refer further to these subparagraphs. Nor is it necessary to make
further detailed reference to subparas (vi) and (vii). Counsel for Cabra
accepted during the course of the hearing of the appeal that subpara (vi) could
not be enforced because the obligations imposed, particularly if evidence had
to be given, were too vague and uncertain. As to subpara (vii), no breach of
this covenant is alleged or contemplated. The crucial subparagraphs are (ii)
and (v).
The letter of
undertaking further provided that the obligations contained in para (r) should
be binding for a period of seven years from the date of the letter ‘or if
sooner a period expiring upon a date on which a Relevant Planning Permission is
granted and a Relevant Planning Permission means a written planning permission
for a Major Development together with any Listed Building Consent necessary to
carry out the development the subject of such planning permission’. The
definition of ‘Relevant Planning Permission’ was expressed to be subject to
certain provisos which do not require separate examination, but it is to be
noted that in proviso (a) reference was made to the ‘payment of the Third
Payment’ which was a reference to the sum of £ 5m payable by Vicenza in certain
events under the 1990 agreement.
At the public
inquiry which began on January 30 1990 the application by Vicenza was supported
by the plaintiffs. This support was in accordance with the letter of
undertaking and was of course contrary to
of 17 days and concluded on February 22 1990.
In due course
the inspector reported to the Secretary of State. On November 2 1990 it was
announced that the Secretary of State agreed with the inspector’s conclusions
and recommendations and that it had been decided not to confirm the CPO nor to
grant the associated planning permissions sought by the council. At the same
time the Secretary of State dismissed Vicenza’s appeal.
Vicenza then
proceeded to prepare fresh applications for planning permission. These
applications were submitted to the council for approval. The applications were
refused and as a result Vicenza appealed. A further local public inquiry was
ordered. The inquiry began on June 2 1992. By this time, however, the
plaintiffs had had a change of heart.
In the period
just before the inquiry was due to start Vicenza’s solicitors sought the
agreement of the covenantors to provide a letter of support to put before the
inspector on the hearing of the appeal. On June 5 1992 the solicitors acting
for the covenantors wrote to explain why such support would not be given. They
wrote:
The
considerable developments and changes of circumstances since the date of the
undertakings have led the individuals to look again at the whole question of
the undertakings they gave in January 1990.
The solicitors
then referred to four matters which were stated to be particularly material,
which included the current financial position of Cabra, and continued:
As you know,
the critical expectation which underlay the giving of those undertakings was
financial security for Fulham to enable it to continue on a sound basis in the
future. Those circumstances have changed dramatically and your clients’ current
position has undermined the rationale behind the undertakings. Further, the
originally CPO of the Local Authority has since been rejected and no new CPO
has been made.
The
individuals, as directors of Fulham, have a fiduciary duty to act in the best
interests of the company and accordingly in the light of the very considerable
change of circumstances they must reconsider the whole matter. As a matter of
law their fiduciary duty qualifies any contractual obligations which may
otherwise still apply under the undertakings. In any event, those undertakings
could not apply to prevent the individuals or any of them from giving evidence
as an individual to the current inquiry — either in the terms of the
undertakings or as a matter of public policy.
Accordingly,
the individuals are free to give such relevant evidence as they think proper,
fit and truthful to the present planning inquiry and are not prevented from so
doing by the undertakings.
We invite you
by return to confirm that you accept the position stated above, failing which
proceedings seeking declaratory relief will be instituted forthwith and without
further reference to yourselves.
On June 8 1992
Cabra’s solicitors replied rejecting the covenantors’ interpretation of the
position. Cabra’s solicitors stated that the effect of
our clients’ current planning appeal’. It was also stated that the undertakings
included a provision requiring the covenantors to support Vicenza’s planning
applications.
It was in
these circumstances that the plaintiffs issued a writ on June 8 1992.
Present
proceedings
In the
statement of claim indorsed on the writ (as subsequently clarified in a letter
from the plaintiffs’ solicitors dated June 16) a declaration was sought in the
following terms:
A declaration
that . . . the second to sixth plaintiffs are entitled to give or procure the
giving of such relevant evidence to the inquiry as they consider to be in the
best interests of Fulham.
The action
seeking a declaration came on for hearing before Chadwick J within a few days
of the issue of the writ. Three principal arguments were addressed to the judge
on behalf of the plaintiffs: (1) that the undertaking contained in para (r)(ii)
did not extend to the June 1992 inquiry at all; (2) that the restraints sought
to be imposed by para (r)(ii) were unenforceable as being illegal and contrary
to public policy; (3) that in any event the individual covenantors could not be
bound by the undertakings in so far as to comply with them would conflict with
the fiduciary duties which they owed to the first plaintiffs in their position
as directors.
The judge
accepted the first of these arguments which was based on the construction of
the letter of undertaking. He referred to the opening 20 or so lines of para
(r)(ii) which required the covenantors as directors and members of the first
plaintiffs to ‘do nothing to prevent or discourage the withdrawal’ of the CPO,
and, if the council proceeded to promote the CPO or any new CPO in like terms
in substitution thereof, ‘not [to] support the CPO or any new CPO in any way’.
The judge described this undertaking as ‘the principal restraint’. He then drew
attention to the following words: ‘without prejudice to the generality of the
foregoing the Companies shall not . . .’. The judge concluded that these words,
which immediately preceded subparas (a) to (d), indicated that the particular
matters set out in subparas (a) to (d) were covered by the principal restraint.
He further concluded that this prima facie view was reinforced when one
examined the matters which were described in the four subsidiary paragraphs.
The most
important of the subparagraphs was and is (ii)(d) which provides that the
companies shall not ‘object or procure any objection in any way to the current
planning applications under appeal submitted on behalf of you to the Council .
. . (or any other applications for planning permission or listed building
consent for redevelopment of Craven Cottage or any part thereof)’.
The first part
of subpara (d) gives rise to no difficulty. The problem is caused by the words
in parenthesis. The judge dealt with this as follows:
The second
part of the paragraph, which the draftsman has put in parenthesis, refers to any
other applications for planning permission or listed building consent. The
question is whether, as the plaintiffs contend, the other applications referred
to are applications which may be made by way of opposition to the 1989 CPO or
any new Compulsory Purchase Order in like terms in substitution of the 1989
CPO; or whether, as the defendants contend, the reference is intended to extend
to any application for planning permission or listed building consent made by
Cabra or Vicenza in the future within the period (which could extend for seven
years) during which the obligations in the letter of undertaking continue to be
binding.
In my view
the former construction is correct. The words ‘any other applications’ must be
read in context. The context includes the structure of the paragraph — para (r)
— in which they appear. The words have been placed in parenthesis in a
subsidiary paragraph, the principal purpose of which is to make it clear that
objection to current planning applications at the 1990 inquiry is to be
regarded as indirect support for the 1989 CPO.
The words can
be given a perfectly sensible meaning within that subsidiary paragraph if they
are treated as having been introduced in parenthesis for the purpose of making
it clear that, in the event that a new Compulsory Purchase Order is made in
like terms in substitution of the 1989 CPO and that new Compulsory Purchase
Order is the subject of a later inquiry, objection to further planning
applications in opposition to that new compulsory order which, or appeals in
respect of which, are also to be heard by that later inquiry are to be regarded
as indirect support for the new Compulsory Purchase Order, and so are within
the scope of the principal restraint.
At the time
when Chadwick J delivered his main judgment he was not asked to deal with the
restraint imposed by para (r)(v). This subparagraph formed the subject-matter
of the further hearing on July 13. It is, however, common ground that this
subparagraph refers to any applications made during the currency of the letter
of undertaking.
The judge also
accepted Cabra’s second argument, which was based on illegality and public
policy.
The judge was
referred to section 2 of the Witnesses (Public Inquiries) Protection Act 1892
(‘the 1892 Act’), which applies to any inquiry held pursuant to any statutory
authority. Section 2 is in these terms:
2. Every
person who commits any of the following acts, that is to say, who threatens, or
in any way punishes, damnifies, or injures, or attempts to punish, damnify, or
injure a person for having given evidence upon any inquiry, or on account of
the evidence which he has given upon any such inquiry, shall, unless such
evidence was given in bad faith, be guilty of a misdemeanour and be liable on
conviction to . . . [a penalty or to imprisonment] . . .
The judge came
to the conclusion that to enforce the obligation imposed by subpara (r)(ii)
would be contrary to public policy. He said this:
An obligation
which purports to require a potential witness not to give evidence to a particular
effect is imposed, prima facie, in order that the covenantors [(semble)
covenantees] can threaten legal proceedings to enforce
obligation which may tend to deter a person from giving truthful evidence at an
inquiry; and which is plainly intended to have that effect . . .
The
requirement of public policy is that the witness should not be under threat of
being damnified as a result of evidence given honestly and truthfully.
Accordingly,
if and so far as the undertakings in the Letter of Undertaking dated January 28
1990 — and, in particular, the undertakings in para (r)(ii) and (v) — were to
be construed or relied upon in order to found a claim for damages in respect of
evidence at the current inquiry, that again would be unenforceable by reason of
public policy.
In reaching
this conclusion the judge considered and applied a passage from the judgment of
Lord Denning MR in Harmony Shipping Co SA v Saudi Europe Line Ltd
[1979] 1 WLR 1380 at p 1386. We shall return to this passage later.
On the other
hand, the judge rejected the arguments put forward on behalf of Cabra based on
the fiduciary duties of the covenantors as directors of the first plaintiffs.
The judge concluded that whether or not, if an obligation is assumed by
directors solely in their capacity as directors of the company, it may be
unenforceable as an improper fetter of their discretion, no similar objection
can be sustained ‘where the obligation is assumed by directors who are at the
time, and intend to continue to be, together the only members of the company;
or where it is assumed with the approval of all those who are the members of
the company’. On this aspect of the case we agree with the judge’s conclusion,
though, as we explain later, for different reasons.
The
arguments on the appeal
In this court
the arguments followed the same pattern as before the judge. We can consider
them under the following headings:
(1) The construction of the letter of
undertaking.
(2) Public policy.
(3) Fiduciary duty.
The
construction of the letter of undertaking
The plaintiffs
sought to support the decision of the judge that para (r)(ii), and in
particular (r)(ii)(d), had no application to the present planning appeal before
the inspector (‘the 1992 appeal’). It was submitted that subparas (a) to (d)
were to be regarded as instances of what the judge called ‘the principal
restraint’ imposed by the opening words of para (ii), which was plainly
concerned with the 1989 CPO and any substitute for the 1989 CPO. Counsel placed
particular reliance on the words at the end of the principal restraint: ‘and
without prejudice to the generality of the foregoing . . .’ These words, it was said, showed that the
prohibitions in the succeeding subparas (a) to (d) were examples of what was
comprehended by the preceding words. Furthermore, this construction of the
letter of undertaking, which had to be construed alone and not together with
the 1990 agreement, was in no way invalidated by the fact that in subpara (d)
there were the words ‘or any other applications for planning permission . . .’.
These words were in
applications which might be made by way of response to any substitute for the
1989 CPO; the possibility of a substituted CPO was contemplated in the opening
part of para (ii) which constituted ‘the principal restraint’.
We are unable
to accept this construction for the following reasons:
(a) We consider that the letter of undertaking
and the 1990 agreement have to be read together. The two documents were
prepared separately for tax reasons, but they represent different facets of the
same transaction. In both documents great importance is attached to the grant
of a ‘Relevant Planning Permission’ which is defined in rider B in the letter
of undertaking in the same terms as in clause 1.23 in the 1990 agreement. In
addition ‘a Major Development’ in rider B is defined in the same terms as in
clause 1.8 in the 1990 agreement. Furthermore, the phrase ‘the Third Payment’
in para (a) of rider B can only be understood by applying the definition in
clause 1.26 in the 1990 agreement.
(b) Even if it were not permissible to read the
two documents together, it is plain that the 1990 agreement, and the
obligations and benefits imposed and conferred by the 1990 agreement, form part
of the factual matrix against which the letter of undertaking is to be
construed. The factual matrix included the following: (i) the parties to the
1990 agreement and the letter of undertaking contemplated the development of
the Craven Cottage ground for residential purposes and the transfer of the
playing facilities for the Fulham Football Club to another ground which would
be shared with another club. (ii) The 1990 agreement provided for the immediate
payment to the first plaintiffs of £ 2m and for the payment of further sums
amounting to another £ 9m or even more if vacant possession of Craven Cottage
were obtained for the development and if planning permission was granted. (iii)
Clause 5 of the 1990 agreement imposed an obligation on Vicenza to keep the
first plaintiffs informed of future applications for planning permission. It is
clear that this obligation applied to applications other than those considered
by the inspector at the hearing of the 1990 planning appeal.
(c) The opening words of para (r)(ii) of the
letter of undertaking relate specifically to the 1989 CPO and to any
substituted CPO before the 1990 inquiry. The principal restraint, as the judge
called it, is not a general restraint nor does it impose a genus of restraints
of which the prohibitions contained in subparas (a) to (d) can be identified as
species. In our judgment, the words ‘and without prejudice to the generality of
the foregoing’ do not mean, as they might mean in other contexts, that the
succeeding prohibitions are particular illustrations of a preceding general
prohibition. Rather, the words mean that succeeding additional prohibitions are
not to affect the generality of the preceding prohibition. It is true of course
that subparas (a) and (b) relate to the 1990 inquiry, but they do so because of
the terms in which they are expressed and not because of the use of the phrase
‘without prejudice to the generality of the foregoing’.
(d) Paras (r)(v) and (r)(vi) clearly extend to
later planning applications and fit in with the contemplated scheme for the
development of the site.
parenthesis in para (r)(ii)(d) were less extensive than the positive
requirement in para (r)(v).
(e) It is expressly provided in the letter of
undertaking that ‘each of the obligations contained in paragraphs (a) to (r)’
are to be binding for a period of seven years or, if sooner, until the grant of
a relevant planning permission.
We are
therefore satisfied that para (r)(ii)(d) extends to ‘any application for
planning permission or listed building consent for redevelopment of Craven
Cottage or any part thereof’ during the currency of the letter of undertaking.
We turn to the second argument.
Public
policy
It was argued
on behalf of the plaintiffs that paras (r)(ii) and (r)(v) were unenforceable as
being contrary to public policy. There were several strands to the argument.
In the first
place, reliance was placed on section 2 of the 1892 Act. It will be convenient
to repeat the provisions of this section:
2. Every
person who commits any of the following acts, that is to say, who threatens, or
in any way punishes, damnifies, or injures, or attempts to punish, damnify, or
injure, any person for having given evidence upon any inquiry, or on account of
the evidence which he has given upon any such inquiry, shall, unless such
evidence was given in bad faith, be guilty of a misdemeanour, and be liable on
conviction . . . [to a penalty or imprisonment] . . .
It is common
ground between the parties that proceedings before a planning inspector are
proceedings to which section 2 of the 1892 Act applies. The events which led to
the enactment of the 1892 Act are set out in the judgement of Lord Denning MR
in Attorney-General v Butterworth [1963] 1 QB 696 at p 720. He
recounted that a station master, John Hood, who had been a station master for
20 years, gave evidence before a select committee of the House of Commons which
was not welcome to his employers, the railway company. He continued:
Three weeks
later they dismissed him at a moment’s notice, giving him a month’s wages in
lieu of notice. The directors were summoned to the bar of the House for
contempt. The House resolved that they had committed a breach of the privileges
of the House; they were called in and admonished by the Speaker . . .
Following on
these proceedings, an Act of Parliament was passed within three months so as to
provide a more convenient machinery for punishing such contempt. It was felt
that the procedure by bringing the parties to the bar of the House was too
cumbrous. So a substitute was provided of bringing them before the courts of
law.
As the
argument in this court progressed, it was conceded on behalf of the plaintiffs
that section 2 would not invalidate any restriction on such activities as
writing letters of protest to the local planning authority or organising public
meetings to challenge a planning application. It was submitted, however, that
in so far as the enforcement of para (r)(ii)
inspector, either orally or in writing, section 2 would apply to prevent any
relief being obtained. Indeed, to bring such a claim would be a criminal
offence.
The second
strand in the argument invoked the principle that a witness enjoys absolute
immunity from suit in respect of any evidence given by him in court: see Watson
v M’Ewan [1905] AC 380; Hargreaves v Bretherton [1959] 1
QB 45; Marrinan v Vibart [1963] 1 QB 528. The rule has been
extended beyond evidence given in courts of justice so as to apply to
authorised inquiries before tribunals which, though not courts of justice, have
similar attributes: see Barratt v Kearns [1905] 1 KB 504; Trapp
v Mackie [1979] 1 WLR 377. It is to be noted that the procedure of
planning inquiries is regulated by the Town and Country Planning (Inquiries
Procedure) Rules 1988 (SI 1988 No 944) and the Town and Country Planning
Appeals (Determination by Inspectors) (Inquiries Procedure) Rules 1988 (SI 1988
No 945). In reliance on this principle it was submitted that a claim for
damages based on evidence given to the inspector in alleged breach of the
covenant not to object to a planning application by Cabra or Vicenza would be
bound to fail.
The third
strand in the argument was based on the proposition that any contract which
inhibits the disclosure of relevant matters to a court is contrary to public
policy. Moreover, in a planning inquiry full disclosure is particularly
important because the recommendations of the inspector will affect the
community as a whole and not just the main proponents and opponents of the
application. In support of this proposition we were referred to Kearley
v Thomson (1890) 24 QBD 742, where, in relation to an agreement not to
appear at the public examination of a bankrupt or to oppose his discharge, Fry
LJ said at p 745:
The tendency
of such a bargain as that entered into between the plaintiff and the defendants
is obviously to pervert the course of justice. Although the defendants were
under no obligation to appear, they certainly were under an obligation not to
contract themselves out of the opportunity of appearing.
It was
submitted that the effect of the covenant in para (r)(ii), if enforced, would
be to prevent the plaintiffs from putting their true views as to the merits of
the current planning application before the inspector. The covenant was
objectionable and illegal. Furthermore, as the first plaintiffs had now decided
that the Vicenza application was not in the best interests of the club, any
evidence which suggested that the club still supported the application would be
false and might be perjured.
We see the
force of these submissions, but we feel bound to reject them.
Clearly, no
covenant or undertaking can lawfully require a covenantor to give false
evidence. Accordingly, even if para (r)(vi) were not unenforceable on the
ground of uncertainty, it could almost certainly be objected to on the ground
that, if enforced, any ‘reciprocal response’ which involved the giving of oral
evidence might put the witness in an
meetings of the club’s directors. Nor can a covenant or undertaking prevent a
witness from attending to give evidence in response to a subpoena.
On the other
hand, we can see no valid objection on grounds of public policy to a covenant
whereby a party to a commercial transaction involving the disposition of land
undertakes to support, and to refrain from opposing, planning applications by
the other party for the development of the land. Such covenants are
commonplace. In the course of the argument we were referred to precedents in
the Encyclopaedia of Forms and Precedents which include clauses designed
to secure the support of, for example, the vendor of land. Such clauses have
been in use at least since the fourth edition of the encyclopaedia was
published in 1969. In addition, evidence was put before the court in the form of
information supplied by firms of solicitors in the City of London and elsewhere
which showed that covenants of the kind set out in para (r)(ii)(d) were
regarded as a necessary form of protection for those acquiring land for
development.
It seems to
us, with respect, that the plaintiffs’ argument based on public policy is based
on a misunderstanding of the underlying principle which led to the enactment of
the 1892 Act and the development of the rules about the immunity of witnesses.
The 1892 Act had the effect of extending the law of contempt of court so as to
include some conduct which hitherto would have amounted to a breach of
parliamentary privilege. At the same time the law of contempt was applied to
inquiries as defined in section 1 of the 1892 Act, which included inquiries
‘pursuant to any statutory authority’.
The principle
which underlies both the law of contempt of court and the rules governing the
immunity of witnesses from suit, however, is that, as a matter of public
policy, the court will prevent and, if necessary, punish conduct which
interferes with the proper administration of justice. Thus, ‘any contract which
has a tendency to affect the due administration of justice is contrary to
public policy’: see Halsbury’s Laws of England (4th ed) vol 9, para 407.
In any individual case therefore the question is: has the act impugned
interfered with, or will it interfere with, the due administration of
justice? It is not sufficient merely to
pose the question: is the effect of the agreement that a party or a witness may
be prevented from putting forward a particular contention in court or before a
tribunal? It is necessary to take a
broad view of the public interest and, where necessary, seek to achieve a
balance between countervailing public policy considerations. Thus in the
present case there is the public interest in allowing business to be transacted
freely and in holding commercial men to their bargains.
There are many
circumstances where parties can properly and legally reach agreements as to the
future course of legal proceedings. The law favours rather than disapproves of
the compromise of a civil action, and the court will intervene to prevent a
party pursuing a legal remedy in breach of a valid compromise. In the same way,
there is nothing to prevent an objector to a Private Bill in Parliament making
an agreement with the promoter of the Bill to withdraw his objection in return
for
Railway Co (1870) LR 4 HL 628), though in such a case the court will
probably decline to grant an injunction to restrain a threatened breach of the
agreement and will leave the matter for the consideration of Parliament: see Bilston
Corporation v Wolverhampton Corporation [1942] Ch 391.
The court will
consider the facts of each case. But where, as here, a commercial agreement
relating to land has been entered into between parties at arms’ length and one
party agrees in return for a very substantial payment to support the other
party’s applications for planning permission we can see no rule of public
policy which renders such an agreement illegal or unenforceable. This does not
mean, of course, that witness could be prevented by agreement from giving
evidence on subpoena, because this could involve an interference with the
course of justice. But we are satisfied that on the facts of this case the
covenantors cannot rely on any rule of public policy which would enable them to
ignore the provisions in para (r) of the letter of undertaking and to volunteer
to oppose Vicenza’s application. Nor can we find any ground of public policy
which could be invoked to prevent the first plaintiffs and the club writing a
letter of the Secretary of State and the planning authority in strict
accordance with para (r)(v) of the letter of undertaking stating that ‘the
Companies’ support the planning application and are in favour of it being
granted. We see no objection to the inclusion of a sentence in the letter to
the effect that it is written in accordance with the letter of undertaking
dated January 28 1990.
We come
finally to the third argument.
Fiduciary
duty
The opening
words of para (r) in the letter of undertaking are ‘we will use our powers and
rights as directors and members of the company to procure . . .’. Before the
judge it was argued by the plaintiffs that it was an implied term of the
undertaking that the directors would not thereby be required to do anything
that would be inconsistent with the fiduciary duties owed by them to the
company. It was further argued that, whether or not any such term should be
implied, as a matter of law a director of a company may not fetter the exercise
of his fiduciary duties by contractual undertaking. Both these arguments were
rejected by the judge but were revived before us by a respondents’ notice.
It is trite
law that directors are under a duty to act bona fide in the interests of
their company. However, it does not follow from that proposition that directors
can never make a contract by which they bind themselves to the future exercise
of their powers in a particular manner, even though the contract taken as a
whole is manifestly for the benefit of the company. Such a rule could well
prevent companies from entering into contracts which were commercially
beneficial to them.
The true rule
was stated by the High Court of Australia in Thorby v Goldberg
(1964) 112 CLR 597. The relevant part of the headnote reads:
If, when a
contract is negotiated on behalf of a company, the directors bona fide think it
in the interests of the company as a whole that the transaction should be
entered into and carried into effect they may bind
Kitto J stated
the argument in that case in the following passage from his judgment at p 601:
They [the
appellant defendants] say . . . that because it [the alleged contract] purports
to bind the directors of a company as to the manner in which they shall
exercise a discretion of a fiduciary nature it is void for illegality.
He dealt with
that argument at pp 605-6:
The argument
for illegality postulates that since the discretionary powers of directors are
fiduciary, in the sense that every exercise of them is required to be in good
faith for the benefit of the company as a whole, an agreement is contrary to
the policy of the law and void if thereby the directors of a company purport to
fetter their discretions in advance . . . There may be more answers than one to
the argument, but I content myself with one. There are many kinds of
transactions in which the proper time for the exercise of the directors’ discretion
is the time of the negotiation of a contract, and not the time at which the
contract is to be performed. A sale of land is a familiar example. Where all
the members of a company desire to enter as a group into a transaction such as
that in the present case, the transaction being one which requires action by
the board of directors for its effectuation, it seems to me that the proper
time for the directors to decide whether their proposed action will be in the
interests of the company as a whole is the time when the transaction is being
entered into, and not the time when their action under it is required. If at
the former time they are bona fide of opinion that it is in the interests of
the company that the transaction should be entered into and carried into
effect, I see no reason in law why they should not bind themselves to do
whatever under the transaction is to be done by the board. In my opinion the
defendants’ contention that the agreement is void for illegality should be
rejected.
McTiernan and
Windeyer JJ agreed with Kitto J and Owen J supported this particular part of
the judgment Kitto J in the following passage at p 617:
For all that
appears from the plea, the directors of the Company may, before the execution
of the agreement, have given proper consideration to the desirability of
entering into it and decided that it was in the best interests of the company
that it should be made. If so, it would be impossible to argue that they had,
by executing the document, improperly fettered the future exercise of their
discretion. In fact they would already have exercised it and, in the absence of
an allegation that they had done so improperly, the suggested defence could not
be sustained.
For a general
discussion of this question see Finn on Fiduciary Obligations (1977) pp
25-30.
In the present
case the undertakings given by the directors were part of the contractual
arrangements made on January 28 1990 which conferred substantial benefits on
the company. In those circumstances it cannot be said that the directors
improperly fettered the future
such term as is suggested by the plaintiffs.
The judge
rejected the plaintiffs’ arguments under these heads on the somewhat different
ground that the undertaking in the present case was to use powers as members as
well as directors, and that all the members of the company were parties to the
undertaking. He referred to a passage from the judgment of Menzies J in Thorby
v Goldberg (1964) 112 CLR 597 at p 616 which relied on the fact that in
that case all the shareholders were party to the agreement, and what the
directors undertook to do was what all the shareholders committed themselves to
ensure that they did.
We find some
difficulty in supporting this reasoning. The duties owed by the directors are
to the company and the company is more than just the sum total of its members.
Creditors, both present and potential, are interested, while section 309 of the
Companies Act 1985 imposes a specific duty on directors to have regard to the
interests of the company’s employees in general. Accordingly, we prefer to
reject the plaintiffs’ arguments on the more general grounds set out above.
We were
referred to two English cases at first instance where in each the court held
that an undertaking by directors to use their best endeavours to ensure that
their shareholders should approve a particular deal by the company (in one case
a purchase, in the other a sale) was unenforceable. The cases are Rackham
v Peek Foods Ltd [1990] BCLC 895 and John Crowther Group plc v Carpets
International plc [1990] BCLC 460. In neither case was Thorby v Goldberg
cited. It may be that these decisions can be justified on their particular
facts, but they should not be read as laying down a general proposition that
directors can never bind themselves as to the future exercise of their
fiduciary powers. If they could be so read then they would be wrong.
Conclusion
For these
reasons we would allow the appeal. We will hear argument as to the precise form
of the relief to be granted.
Appeal
allowed with costs; application for leave to appeal to the House of Lords
refused.
