A disappointed joint venturer has lost its plea for equitable assistance

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 and Banner Homes Group Ltd v Luff Developments Ltd [2000] Ch 372.  The pre-acquisition arrangement colours the acquisition and the buyer will be treated as a trustee if he seeks to act inconsistently with it. A Pallant v Morgan equity will arise even though the arrangement was not intended to have contractual effect or is too uncertain to be enforced. Indeed, there would be no need to invoke the equity if the agreement was enforceable as a contract. 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 equity survived Yeoman’s Row Management Ltd v Cobbe [2008] UKHL 55, where the House of Lords refused to allow a developer to rely on proprietary estoppel to circumvent the requirements of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. It also emerged relatively unscathed from Crossco No 4 Unlimited v Jolan Ltd [2011] EWCA Civ 1619, despite Etherton LJ’s attempt to restrict its use to cases where there is a pre-existing fiduciary relationship. The question that arose in Generator Developments LLP v Lidl (UK) GMBH [2016] EWHC 814 (Ch) was: did Generator agree to step aside and allow Lidl to purchase a site on the basis of a continuing and mutual understanding that they would pursue a joint venture for a mixed-use development and that Generator would obtain an interest in the property, once it had been acquired?  The parties had entered into “subject to contract” negotiations, which were subject to approval by both companies’ boards, but the court rejected arguments that this had put paid to a Pallant v Morgan equity. The judge held that the point at which Lidl exchanged contracts to purchase the site was the point at which any Pallant v Morgan equity would have arisen. So the question was: was there, on the facts of the case, at that point in time, an arrangement or understanding that, if Lidl acquired the property, Generator would obtain some interest in it? Both parties were commercially experienced and legally represented. They understood that they had not entered into a contractual relationship and that their negotiations were “subject to contract”. Indeed, the proposals under discussion pointed to a lack of agreement between the parties. They had agreed that Lidl would be the only party to the purchase contract, but Lidl had not given any assurances that Generator would acquire an interest in the property if Lidl purchased it. Furthermore, Generator had been aware that the transaction might abort and was actually proposing terms that would give it the right to walk away in certain specified circumstances. And there we have it. The fact that there was no arrangement or understanding that Generator would acquire an interest in the property was an insuperable obstacle to its claim, even though it was able to satisfy other limbs of the requirements for a Pallant v Morgan equity.   Allyson Colby is a property law consultant