The court has considered the requirements for establishing a Pallant v Morgan equity in a dispute between property developers in Dixon v Willan and others [2022] EWHC 2160 (Ch).
The claimant alleged that in February 2015 he reached agreement with the first defendant regarding a joint venture for the purchase and/or development of a number of pieces of land in Cumbria acquired in the name of the second and third defendants (WTL and JWH), companies controlled by the first defendant or his family. The claimant would source or negotiate prices for properties which the defendants would not otherwise be able to purchase and undertake pre-development works. The first defendant would provide the delivery vehicle for the purchase and development, through WTL and JWH, which they would fund either themselves or through loan finance. The claimant sought a share in the profits of the purchase and redevelopment or a beneficial interest in the land.
To establish a Pallant v Morgan equity the following are required:
- The equity must relate to a specific property that is not at first owned by either party
- The parties must form a common intention that if one party acquires the property then the non-acquiring party will obtain some interest in it
- The common intention need not be in writing, nor amount to a contract capable of specific performance, but the main terms must have been agreed between the parties.
- The non-acquiring party must show that in reliance upon the acquiring party’s assurance or its own expectations it has done something which confers an advantage on the acquiring party or disadvantage to itself
- It would be unconscionable for the acquiring party to keep the property for itself.
The effect of a Pallant v Morgan equity is that the acquiring party becomes bound by a constructive trust to prevent them benefiting from their unconscionable breach of the agreement.
The court dismissed the claims in relation to residential sites where the understanding was that the claimant would only be entitled to a share of the profits of any joint venture and/or an interest in the properties if he made a financial contribution or procured funding. A claim in proprietary estoppel failed for similar reasons.
However, the claimant had introduced the first defendant to two commercial properties in Penrith and negotiated terms of acquisition, and it was agreed between them that both would be a joint venture with an equal share of profit. The properties were acquired by WTL. Since one site was acquired as a rental property and the other did not have planning permission, it was unlikely that the requirement for the claimant to contribute financially was a condition of the agreement. There was equity in both properties at the date of acquisition, a profit which the claimant had contributed. By passing on the benefit of the purchase contracts, the claimant conferred an advantage on WTL and it would be unconscionable to allow WTL to retain any net profit without accounting to the claimant for half of it. The court directed an account as to the net profit made.
Louise Clark is a property law consultant and mediator