Sale of land – Equitable interest – Joint venture – Claimant alleging joint venture agreement with first defendant regarding purchase and development of residential and commercial properties – Whether claimant entitled to share in profits of redevelopment or beneficial interest in land – Claim allowed in part
The claimant and the first defendant were both property developers. The second and third defendants were companies controlled by the first defendant or members of his family. The claimant alleged that he reached agreement with the first defendant regarding a joint venture involving the purchase and/or development of a number of pieces of land in Cumbria acquired in the name of the second and third defendants.
Three of the sites were purchased for residential development and two for commercial development. The claimant alleged that he was entitled to share in the profits made in respect of the purchase and/or development thereof, and/or to a beneficial interest in the land in question.
The claimant alleged, among other things, that he and the first defendant were subject to the terms of a joint venture agreement, binding also on the second and third defendants when land was acquired by the latter.
Alternatively, the present circumstances gave rise to a so-called Pallant v Morgan equity (Pallant v Morgan [1953] Ch 43), whereby the second and third defendants were to be treated as having acquired the sites subject to an equity in favour of the claimant that recognised and gave effect to the agreement that the claimant should have a half beneficial interest, or such other interest as was necessary to give effect to the bargain that the profits of the venture should be shared equally between them out of the proceeds of sale of the relevant properties.
Held: The claim was allowed in part.
(1) The residential sites were all acquired in the second or third defendants’ names, and the acquisition and development costs were borne by those companies, by the use of their own funds and by borrowing in their own name for the purpose.
There was no understanding, let alone any binding agreement, that the use of the second defendant as the corporate vehicle for a joint venture should be superseded by a partnership or other arrangement providing for the sharing of profits and/or the claimant acquiring an interest in the properties acquired for residential development. The understanding was that only when the claimant was able to make an appropriate contribution or procure appropriate 100% funding on commercial terms would the envisaged joint venture be pursued through the second defendant.
(2) A Pallant v Morgan equity had to relate to specific property that was not at first owned by either of the parties. There had to be a common intention that the acquiring party would take steps to acquire the property and that the non-acquiring party would obtain some interest in it, which did not have to be a specific proprietary interest (whether legal or equitable) in the land itself: Kilcarne Holdings v Targetfollow (Birmingham) Ltd [2005] EWCA Civ 1355, Cobbe v Yeoman’s Row Management Ltd [2008] 3 EGLR 31 and Kearns Brothers v Hova Developments Ltd [2012] EWHC 2968; [2012] PLSCS 240 applied.
The common intention need not be in writing. Nor did it require an arrangement that amounted to a contract capable of specific performance. However, the main terms of the arrangement must have been agreed between the parties. Further, the equity could not arise where the agreement was made in arms-length commercial negotiations where the agreement was expressed to be “subject to contract” or where both parties agreed that the arrangement was not legally enforceable since they both planned and intended to enter into a binding agreement in the future: Banner Homes Group plc v Luff Developments Ltd [2000] Ch 372; [2000] PLSCS 16, Cobbe and Generator Developments v LIDL UK GMBH [2018] EGLR 22 considered.
The equity would arise if the non-acquiring party could show that, in reliance on the acquiring party’s assurance or its own expectation that they would acquire an interest in the land, it had done something which conferred an advantage on the acquiring party or which was detrimental to its ability to acquire the property on equal terms. The equity would also arise where it would be unconscionable for the acquiring party to keep the property for itself.
(3) In the present case, the claimant had failed to establish a Pallant v Morgan equity in respect of the residential sites. The understanding between the parties was that the claimant would only be entitled to share in the profits of any joint venture and/or to some interest in the properties acquired if he made some appropriate financial contribution or was able to procure appropriate 100% funding, so that the second and third defendants were not left bearing the full cost of the acquisition and development of the sites. There was no common intention that the claimant should obtain some interest in the sites.
In any event, in the circumstances, it would not be unconscionable for the second or third defendants to retain the benefit of the profits from the development of the relevant sites. Moreover, it was impossible to identify a promise or assurance sufficient to support a proprietary estoppel, or the adoption of a course of conduct in reliance thereupon.
On the court’s factual findings, the claimant did not have a mistaken belief as to the binding nature of the defendants’ obligations to him and had failed to make out a case based on unjust enrichment.
(4) There was an agreement and understanding between the claimant and the first defendant that if the commercial properties were acquired, the claimant would share equally in any profit without the claimant providing any contribution or procuring any funding, or for the second defendant to be used as a corporate vehicle.
While the court was not satisfied that what was agreed or understood between the parties was sufficiently clear or certain to give rise to a binding contract (of partnership or otherwise), or was intended to create a binding contract, it was satisfied that a Pallant v Morgan equity arose in respect of the commercial properties.
While the claimant might have negotiated terms for the purchase of the properties, he did not own them when they were introduced to the defendants. He had merely negotiated “subject to contract” terms for their purchase.
The parties had formed a common intention that the second defendant would take steps to acquire the commercial sites and that the claimant would acquire some interest therein. The overriding consideration was that the properties were to be acquired by the second defendant on behalf of itself and the claimant so that they could share 50:50 any profit to be made from the acquisition.
The court was satisfied that it would be unconscionable to permit the second defendant to retain any net profit that might have been made from the acquisition of the commercial properties, without accounting to the claimant for 50% of that profit.
Glenn Willetts (instructed by Marshall Hatchick LLP) appeared for the claimant; Hashim Reza (instructed by SAS Daniels LLP of Macclesfield) appeared for the defendants.
Eileen O’Grady, barrister
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