Key points
• The court can come to the assistance of a disappointed joint venturer that stood aside to enable its partner to acquire land
• The requirements that must be satisfied in the absence of a legally enforceable agreement between the parties are strict
Geoffrey Chaucer’s Troilus and Criseyde teaches us that “he that attempts nothing will nothing achieve”. In other words, you can’t get anywhere unless you take a risk. Developers do so all the time. What remedies are available if they plan a joint venture relating to land, which is never documented or not fully documented, and the transaction falls apart?
The answer would appear to lie in section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, which imposes strict requirements in respect of contracts for the sale or disposition of interests in land. All such contracts must be made in writing and signed by or on behalf of the parties.
However, constructive trusts are not affected by these requirements (section 2(5)). So it is possible to sidestep section 2 if a constructive trust has arisen: see Pallant v Morgan [1953] Ch 43 and Banner Homes Holdings Ltd (formerly Banner Homes Group Plc) v Luff Developments Ltd (No2) [2000] PLSCS 16.
Pallant equity
The “Pallant equity” is available where two parties have agreed that one of them will acquire a property for their joint benefit and, in reliance on that agreement, the other refrains from attempting to acquire it himself, on the understanding that he will obtain an interest in it. In such circumstances, the parties’ pre-acquisition arrangement will colour the acquisition and the buyer will be treated as a constructive trustee of the land if it tries to renege.
The equity will arise even though the arrangement was not intended to have contractual effect, or is too uncertain to be enforced. There would be no need to invoke the remedy if the arrangement was enforceable as a contract.
The disappointed joint venturer must show that the buyer did not inform him that it had changed its mind about honouring the agreement (or did so only when it was too late to do anything about it). Furthermore, he must have relied on the arrangement to the buyer’s advantage, or to his own detriment, and it must be unconscionable for the buyer to retain the property for itself.
Retail opportunity
In Generator Developments LLP v Lidl (UK) GMBH [2016] EWHC 814 (Ch) the parties entered into negotiations with a view to acquiring an industrial site for the construction of a mixed-use development. The developer took the lead in the negotiations and the strength of its pre-existing relationship with the seller made a significant contribution to the success of their joint bid. Indeed, the seller gave evidence that it would have been less likely to accept a bid from the retailer alone.
Following acceptance of their offer, the parties agreed that the retailer would fund the acquisition and complete the purchase in its own name. The plan was that, if the developer succeeded in obtaining planning permission, the retailer would sell the site to the developer so that it could undertake the development and then grant a 999-year lease of the retail elements of the scheme back to the retailer.
The draft heads of terms for the joint venture were expressly made subject to contract and approval by both companies’ boards, and had not been agreed when the purchase completed. The retailer did not tell the developer that it regarded itself as free to exploit the opportunity for itself, but began approaching other developers three days after exchange of contracts in order to test the market, and ended discussions with the developer shortly after completion.
Interest in land
Had a Pallant equity arisen in the developer’s favour? The High Court rejected the retailer’s arguments that the fact that the negotiations between the parties were expressed to be subject to contract and approval by both companies’ boards had put paid to a Pallant equity. However, the judge was not satisfied that any assurances had been given or that there was any agreement or understanding that the developer would acquire an interest in the land if the retailer bought it.
Both parties were commercially experienced and legally represented and the developer was conscious of the risks that it was taking. Furthermore, it was not making any contribution to the purchase price and had not agreed to bear any of the retailer’s losses if the development did not proceed and the retailer had to sell the site.
It was also telling that the parties had not agreed any mechanism that would enable the developer to acquire the land, or obtain an interest in it, if they could not agree terms or the development did not proceed. Indeed, the developer had added a provision to a draft joint venture lock out agreement giving it the right to walk away from the transaction. Consequently, no Pallant equity had arisen.
Strict requirements
The equity mitigates the severity of section 2. It survived Cobbe v Yeoman’s Row Management Ltd and another [2008] UKHL 55; [2008] PLSCS 227, where the House of Lords refused to allow a developer to rely on proprietary estoppel to circumvent the requirements of section 2, and a subsequent attempt in Crossco No 4 Unlimited and others v Jolan Ltd and others [2011] EWCA Civ 1619; [2012] 1 EGLR 137 to restrict the situations in which it can be applied.
However, disappointed joint venturers must satisfy stringent requirements in order to make a successful claim. For, as Arden LJ remarked in Crossco, it would inhibit the pursuit of commercial negotiations, which fuel entrepreneurial activity, if the law in general were to provide scope for claims on the back of unsuccessful negotiations that fail to turn into contracts.
