''Criterion Properties plc v Stratford UK Properties LLC'' UKHL_28
is_a_leading_UK_company_law.html" ;"title="004
UKHL 28
is a leading UK company law">004
UKHL 28
is a leading UK company law concerning takeover defences that a board of directors may employ to prevent a bidder buying shareholders' shares without the board's consent. It held that it is an improper use of a directors' power to frustrate a takeover bid through issuing a poison pill. For public companies, the case is superseded by Rule 21 of the City Code on Mergers and Takeovers, which prohibits any action that frustrates a takeover bid.

Facts

The former managing director (Aubrey Glasner) of Stratford UK (a subsidiary of Oaktree Capital Management LLC, a Delaware institutional money manager) had entered the company into a poison pill contract. If the managing director or the chairman (Rolf Nordstrum) left office, or if there was a takeover, the company would owe a crippling payment to a Criterion Properties through a put option. Criterion and Oaktree were in a

joint venture A joint venture (JV) is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and economic risk, risks, and shared governance. Companies typically pursue joint ventures for one of four rea ...

. When the board of Stratford learnt of the pill, it dismissed Glasner.

Judgment

High Court

Hart J at first instance struck down the pill. Quoting from Megarry VC's judgment in '' Cayne v Global Natural Resources Plc'', he argued that the refusal to consider such reasons must not be taken too far and that the board must have authority to interfere with these constitutional rights where the threat is big enough. A company cannot, he suggests, be incapable of acting where it is at risk of ‘impotence and beggary’.

Court of Appeal

Brooke LJ and Carnwath LJ held that the judge's conclusion that the directors' had improperly exercised their powers was correct and should not have gone on to consider the actual knowledge of the director.

House of Lords

The House of Lords held that the case should be remitted to trial, to determine whether the directors had the authority to issue a poison pill. Lord Nicholls held that there was no question of ‘knowing receipt’. An agreement can be set aside if company assets have been misapplied ‘and irrespective of whether B still has the assets in question, A will have a personal claim against B for

unjust enrichment In laws of equity, unjust enrichment occurs when one person is enriched at the expense of another in circumstances that the law sees as unjust. Where an individual is unjustly enriched, the law imposes an obligation upon the recipient to make re ...

, subject always to a defence of change of position. B’s personal accountability will not be dependent upon proof of fault or ‘unconscionable’ conduct on his part. B's accountability, in this regard, will be ‘strict’. Lord Scott held that the agreement would obstruct any takeover, not just the ‘unwanted predator’. So the case turned on authority, actual, apparent or ostensible.

Notes

{{reflist, 2

References

*V Brudney, 'Fiduciary Ideology in Transactions Affecting Corporate Control' (1966) 65 Michigan Law Review 259 United Kingdom company case law House of Lords cases 2004 in United Kingdom case law