Constructive trust – Joint venture – Appellants and respondents each owning one house in a development of three – Developer retaining access road and amenity land serving development – Respondents subsequently purchasing road and amenity land – Appellants alleging purchase contrary to agreement to purchase on behalf of all residents – Whether land held on constructive trust for all residents – Appeal dismissed
In 2001, the appellants and the respondents each acquired one of two new houses that a developer had built on the plot of an existing detached house, using part of its garden. The developer retained the land to the west of the plot, on which it had constructed an access road serving the three houses, leaving a grass strip between the plot and the access road. Part of the strip housed a sewage treatment plant. The transfers to the parties included a right of way over the access road and the right to drain sewage into the plant, subject to the payment of a proportion of the costs of repairs and maintenance.
The residents of the three houses experienced problems with the sewage plant. In January 2003, they held a meeting at which they discussed the problems with the common parts of the development and resolved that they should pressure the developer into selling the access road and grass strip to them. They also discussed the possibility of setting up a management company; in the event, they did not.
In 2003, the developer sold the original house to its sitting tenant, including that part of the grass strip immediately in front of it. In 2004, unknown to the appellants, the respondents negotiated with the developer to purchase the access road and the remainder of the grass strip for £3,000.
The appellants brought proceedings in which they claimed that the respondents had acted unconscionably in acquiring the access road and grass strip, contrary to the 2003 agreement, such that they held them on constructive trust for all the residents. Dismissing that claim, the judge held that the agreement reached in 2003 did not support the imposition of a constructive trust and, in any event, the appellants had not relied on the agreement to their detriment: see [2009] EWHC 1636 (Ch); [2009] PLSCS 207. The appellants appealed.
Held: The appeal was dismissed.
(1) A constructive trust could be imposed in joint venture cases that involved an arrangement short of a contract, under which the parties had agreed to acquire property for their mutual benefit: Pallant v Morgan [1953] Ch 43 applied. The trust would be imposed if it would be unconscionable for the purchasing party to retain ownership of the land for its own benefit having regard to the prior agreement reached and the claimants’ reliance on it. The court had to decide questions of unconscionability on an objective basis, having regard to the terms agreed or the representations made and the effect that they had. The question was whether the claimants had reasonably relied on the agreement made or the words used as an assurance that they would obtain an interest in the property; it was therefore relevant to consider the quality of the assurance given and whether any reliance on it was reasonable: Gissing v Gissing [1971] AC 886 and Banner Homes Holdings Ltd (formerly Banner Homes Group plc) v Luff Developments Ltd (No 2) [2000] Ch 372 applied.
(2) Although the 2003 agreement had to be sufficiently clear, so that all parties understood that they would acquire an interest in the developer’s retained land, it was not necessary for them to have decided whether to use a management company or some other form of common ownership. That was a matter of detail and could be discussed as and when the land was acquired; it did not go to the central issue of whether it could be held by any one resident or group of residents to the exclusion of the others. The judge’s findings of fact supported an assumption that the developer would, if possible, be divested of ownership of the retained land and replaced by a management company or some other form of ownership for the benefit of the residents. The agreement reached was sufficient to found the necessary equity if it was relied on, up to and including the date on which the respondents acquired the retained land, so as to make their acquisition of it unconscionable. The judge had therefore erred in finding that the agreement was insufficient to found the equity. However, the judge had correctly concluded that the appellants had not relied on the 2003 agreement and, accordingly, no constructive trust arose.
John McDonnell QC and Paul Stafford (instructed by AJ Powell & Co, of Tunbridge Wells) appeared for the appellants; Timothy Morshead (instructed by Thomas Eggar LLP, of Corley) appeared for the respondents.
Sally Dobson, barrister
