The Court of Appeal allowed an appeal by Cabra Estates from Mr Justice Chadwick's decision on 13 July 1992 that covenants entered into by the second to fifth plaintiffs, the shareholders and directors of the first plaintiff, Fulham Football Club Ltd, were illegal and contrary to public policy.
In 1989, Vicenza Developments Ltd, a susbsidiary of Cabra which owned Craven Cottage, the football ground, applied to Hammersmith and Fulham Borough Council for planning permission to develop Craven Cottage for residential purposes. The council then applied for an alternative development and issued a compulsory purchase order for Craven Cottage. The plaintiffs supported the council's applications. The Secretary of State ordered a public inquiry which was fixed to begin on 30 January 1990.
On 28 January 1990 Cabra and Vicenza made an agreement in writing with the plaintiffs involving the payment of substantial sums of money to the first plaintiff. The second to sixth plaintiffs also entered into a letter of undertaking with Cabra and covenanted for seven years not to support the council at any inquiry or to provide witnesses or evidence to support the council and covenanted to support Vicenza's application.
In November 1990 the Secretary of State agreed with the inspector's decision not to confirm the CPO and to refuse the council planning permission. Vicenza made fresh applications for planning permission which were refused by the council. Another public inquiry began on 2 June 1992. The plaintiffs refused to support Vicenza's application.
The plaintiffs issued a writ claiming a declaration that the second to sixth plaintiffs were entitled to give evidence they considered to be in the best interests of Fulham. The plaintiffs argued that the restraints imposed by the covenants were unforceable as being illegal and contrary to public policy, and that to comply with the undertakings would conflict with the fiduciary duties owed as directors to the first plaintiff.
Anthony Scrivener QC and Timothy Dutton (Lovell White Durrant) for Cabra; Ian Hunter QC and Joseph Smouha (Frere Cholmeley) for the plaintiffs.
LORD JUSTICE NEILL, giving the judgment of the court, said that the covenants extended to any application for planning permission or listed building consent for re-development of Craven Cottage during the currency of the letter of undertaking.
The proceedings before a planning inspector were ones to which section 2 of the Witnesses (Public Inquiries) Protection Act 1892 applied. No covenant or undertaking could lawfully require a covenantor to give false evidence.
However, 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. Such covenants were commonplace.
The principle which underlay both the law of contempt of court and the rules governing the immunity of witnesses from suit 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 therefore the question was: had the act impugned, interfered with, or would it interfere with, the due administration of justice? It was not sufficient merely to pose the question: was the effect of the agreement that a party or a witness might 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.
In the present case there was the public interest in allowing business to be transacted freely and in holding commercial men to their bargains.
Where, as here, a commercial agreement relating to land had been entered into between parties at arms' length and one party agreed in return for very substantial payments to support the other party's applications for planning permission, there was no rule of public policy which rendered such an agreement illegal or unenforceable. That did not mean that a witness could be prevented by agreement from giving evidence on subpoena, because that would involve an interference with the course of justice.
On the facts of this case, the covenantors could not rely on any rule of public policy which enabled them to ignore the provisions of the covenants of the letter of undertaking and to volunteer to oppose Vicenza's application.
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 from that proposition 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 well prevent companies from entering into contracts which were commercially beneficial to them.
In the present case the undertakings given by the directors were part of the contractual arrangement which conferred substantial benefits on the company. It could not be said that the directors improperly fettered the future exercise of their discretion.