The court may decide that there is a constructive trust where two parties have agreed that one will acquire a property for their joint benefit and, in reliance on that agreement, the other refrains from attempting to acquire the property itself: Pallant v Morgan [1953] Ch 43. The pre-acquisition arrangement colours the acquisition itself and the buyer will be treated as a trustee if it seeks to act inconsistently with it. However, the non-acquiring party must be able to show that the parties contemplated that the non-acquiring party would obtain some interest in the property and that it relied on the arrangement to its own disadvantage or to the advantage of the buyer.
The question that arose in Generator Developments LLP v Lidl (UK) GmbH [2018] EWCA Civ 396; [2018] PLSCS 46 was: did Generator agree to step aside and allow Lidl to purchase a site on the understanding that they would pursue a joint venture and that Generator would obtain an interest in the property, once it had been acquired? In essence, it was proposed that Lidl would buy the site and, if Generator succeeded in obtaining planning permission, Lidl would then sell the freehold to Generator. Generator would build a mixed-use development and grant a 999-year lease of a new retail store to Lidl. But the discussions ended soon after Lidl acquired the property.
Generator had spent a considerable sum on architects, mechanical and engineering consultants and structural engineers, and its involvement made a material contribution to the success of Lidl’s bid. Indeed, the judge at first instance noted that the seller was more likely to accept the joint bid than it would have been if Lidl had made a bid on its own. Even so, the High Court dismissed the claim – and the Court of Appeal has upheld the decision.
Lord Justice Lewison delivered the judgment of the court (which is much more closely aligned with the House of Lords decision in Yeoman’s Row Management Ltd v Cobbe [2008] UKHL 55 than the recent decision of a differently constituted Court of Appeal in Farrar v Miller [2018] EWCA Civ 172). Lewison LJ noted that both businesses had been legally advised. Furthermore, although they had been trying to reach an agreement, they remained far apart on many important terms, which showed that they did not share a common intention.
It was also important that the discussions were expressed to be “subject to contract”. Lewison LJ stated that a “subject to contract agreement is no agreement at all” and doubted whether a Pallant equity can arise where an agreement is not intended to have contractual effect. The parties had taken the risk that the other might back out. The draft documentation expressly reserved Generator’s right not to proceed and it cannot be unconscionable for one party to follow a course of action that the other party has insisted is open to itself.
It was also significant that Lidl had not acted as Generator’s agent when it bought the property and that Generator knew that Lidl’s board had not approved the joint venture. Generator knew that the employees with whom it was dealing were not decision-makers and, in order to invoke a Pallant equity, it must be possible to say that the agreement or understanding in question has been confirmed by a person capable of binding the party in question (or who, at least, has ostensible authority to do so).
Allyson Colby, property law consultant
