Banner Homes Group plc v Luff Developments and another

Parties coming to non-binding agreement to buy site as a joint venture – Company formed by defendant as vehicle for venture – Defendant announcing withdrawal from venture after arranging for company to acquire site and effect subsale of part – Claimant seeking declaration that company shares held by defendant on constructive trust – Claimant successful on appeal During 1994 the first defendant (Luff) became interested in the speculative purchase of a 6.8-acre disused industrial site in White Waltham, Berkshire, at a price of £3.4m. In early 1995, on being satisfied that 2 acres could immediately be resold for £1.2m to an industrial buyer (HE Ltd), Luff held exploratory talks with the plaintiff (Banner) with a view to sharing the risks and rewards of retaining and developing the remaining acres. At a meeting, on 14 July 1995, both parties spoke in terms of an acquisition of the entire site by a jointly-owned new company that would act as the vehicle for the immediate part sale to HE Ltd. No formal record was made of that meeting. A further series of meetings took place regarding the planned joint venture and agreement was reached on most matters. Meanwhile, Luff acquired the second defendant (S Ltd) off the shelf to serve as the new company. S Ltd purchased the site and sold part to HE Ltd, completing the two contracts with funds provided by Luff. By November 1995, Luff was having second thoughts about the joint venture, but did not mention this to Banner. In December 1995 Banner wrote protesting that Luff had ceased to treat the site as one purchased on their joint behalf. In January 1996 Luff replied stating that it was no longer possible for any joint agreement to take place. Banner immediately issued proceedings claiming that it was beneficially entitled to half the shares in S Ltd. Banner’s action was dismissed at first instance, it being held that Banner had failed to establish a binding contract or to show that Luff held the shares on constructive trust. The judge considered the latter claim untenable because: (i) Banner was at all times aware that the agreement might be revoked; and (ii) Banner had not, in any event, been induced to act to its detriment, as it had never had any plans to make its own bid for the site. Banner appealed against the ruling on the constructive trust point. Held: The appeal was allowed. 1. Banner’s case was supported by a line of first instance decisions, notably Pallant v Morgan [1953] Ch 43 (as explained by Megarry V-C in Holiday Inns v Broadhead (interlocutory hearing) unreported 2 December 1974. These applied where the acquisition of property was preceded by an arrangement or understanding that, while not necessarily contractually enforceable, contemplated that one party would acquire the property on the basis that the other (the claimant) would obtain some interest in it. In such a case, unless the acquiring party had, before acquisition, informed the claimant that he no longer intended to honour the arrangement (and had done so before it was too late for the parties to be restored to a position of no advantage/no detriment), an equity arose in favour of the claimant when he did or omitted to do something that was either advantageous to the acquiring party as regards the acquisition or detrimental to the ability of the claimant to acquire the property on equal terms. In many cases, the advantage/detriment was to be found in the claimant’s agreement to keep out of the market. 2. The reasoning in those cases was subsequently approved by Goff J in the full hearing of Holiday Inns (1974) 232 EG 951 at p953; by Millet J in Lonrho plc v Fayed (No 2) [1992] 1 WLR 1 at p10; and by Oliver J in Time Products Ltd v Combined English Stores Ltd unreported 2 December 1974. 3. In dwelling upon the revocability of the arrangement, and by taking insufficient account of the bidding advantage enjoyed by Luff with Banner out of the market, the judge had taken an unduly restrictive view of the equity contended for by Banner, which was beneficially entitled to a half interest in the shares or their proceeds of sale: Yaxley v Gotts [1999] 3 WLR 1217 considered. Charles Purle QC and Mark Warwick (instructed by Titmuss Sainer Dechert) appeared for the appellant; John Brisby and Paul McGrath (instructed by Leboeuf Lamb Greene & MacRae) appeared for the respondents. Alan Cooklin, barrister