Banner Homes Group plc v Luff Developments and another
Parties contemplating speculative purchase of development site through medium of new company to be jointly owned – Defendant forming company and acquiring site while provisions of draft shareholder agreement still under discussion – Defendant deciding to proceed alone – Plaintiff claiming beneficial half share in new company – Court ruling out claim in contract – Whether site nevertheless held on constructive trust for plaintiff
During 1994 the first defendant (Luff) became interested in the speculative purchase at a price of £3.4m of a 6.8-acre disused industrial site in White Waltham, Berkshire. In early 1995, on being satisfied that 2 acres could be immediately 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 (the net site). At a meeting on July 14 1995 both parties spoke in terms of an acquisition of the entire site by a jointly owned new company, which would act as the vehicle for the immediate sale of part of the site to HE Ltd. No formal record was made of that meeting.
On July 24 1995 it was agreed that both parties would instruct solicitors to prepare documentation to serve as a “partnership document”. At about the same time, Luff acquired the second defendant (S Ltd) to serve as the new company. At a meeting on October 18 1995, Luff reluctantly agreed that the partnership agreement should be based on a 46-page draft shareholder agreement, prepared by solicitors for Banner. Detailed discussion of the draft took place on October 23 1995, but among the matters left unclarified were the extent to which Luff might act as banker to the venture, and how a commitment guarantee, which Luff sought from Banner, was to operate should the sale to HE Ltd not go ahead. On November 1 1995 contracts were exchanged for the sale of the entire site to S Ltd and the subsale to HE Ltd. The last meeting between the parties was held on November 16 1995 with little progress on outstanding matters. On November 22 1995, S Ltd completed the two contracts with funds provided by Luff, which was no longer inclined to work with Banner. On December 18 1995 Banner wrote, protesting that Luff had ceased to treat the site as one purchased on their joint behalf. On January 4 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 one-half of the shares in S Ltd.
Parties contemplating speculative purchase of development site through medium of new company to be jointly owned – Defendant forming company and acquiring site while provisions of draft shareholder agreement still under discussion – Defendant deciding to proceed alone – Plaintiff claiming beneficial half share in new company – Court ruling out claim in contract – Whether site nevertheless held on constructive trust for plaintiff During 1994 the first defendant (Luff) became interested in the speculative purchase at a price of £3.4m of a 6.8-acre disused industrial site in White Waltham, Berkshire. In early 1995, on being satisfied that 2 acres could be immediately 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 (the net site). At a meeting on July 14 1995 both parties spoke in terms of an acquisition of the entire site by a jointly owned new company, which would act as the vehicle for the immediate sale of part of the site to HE Ltd. No formal record was made of that meeting.
On July 24 1995 it was agreed that both parties would instruct solicitors to prepare documentation to serve as a “partnership document”. At about the same time, Luff acquired the second defendant (S Ltd) to serve as the new company. At a meeting on October 18 1995, Luff reluctantly agreed that the partnership agreement should be based on a 46-page draft shareholder agreement, prepared by solicitors for Banner. Detailed discussion of the draft took place on October 23 1995, but among the matters left unclarified were the extent to which Luff might act as banker to the venture, and how a commitment guarantee, which Luff sought from Banner, was to operate should the sale to HE Ltd not go ahead. On November 1 1995 contracts were exchanged for the sale of the entire site to S Ltd and the subsale to HE Ltd. The last meeting between the parties was held on November 16 1995 with little progress on outstanding matters. On November 22 1995, S Ltd completed the two contracts with funds provided by Luff, which was no longer inclined to work with Banner. On December 18 1995 Banner wrote, protesting that Luff had ceased to treat the site as one purchased on their joint behalf. On January 4 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 one-half of the shares in S Ltd.
Held Judgment was given for the defendant.
1. Banner had no contractual claim as the parties had at no point reached a binding agreement, there being no intention to create legal relations before the subject-matter had been set out in a signed unconditional document. Moreover, no valid distinction could be drawn between the “basic deal” and the contents of the proposed shareholder agreement, as the latter, far from being limited to the “mechanics” of the arrangement, touched on various matters central to the joint venture itself, notably how the parties were to stand in the event of the net site remaining unsold.
2. Although a constructive trust could arise out of a non-legally binding joint venture agreement (see Holiday Inns Inc v Broadbent (unreported, December 19 1969) no such claim could be made by Banner: (a) because Banner, in its anxiety to see the shareholder’s agreement finalised, was plainly conscious of the right of either side to withdraw; and (b) because Luff had done nothing to cause Banner to act to its detriment. It would have been otherwise if Luff had caused Banner to desist from making its own bid for the site, but Banner had no such intention at any material time: cf Pallant v Morgan [1953] Ch 43; Time Products Ltd v Combined English Stores Group Ltd unreported, December 2 1974.
David Johnson QC and Mark Warwick (instructed by Titmuss Sainer Dechert) appeared for the plaintiff; Richard Millett (instructed by Leboeuf Lamb Greene & MacRae) appeared for the defendants.
