Development – Land – Development – Joint venture – Claimant company alleging breach of joint venture agreement by two defendants – Whether parties entering into binding agreements with defendants – Whether constructive trust arising in favour of claimant – Claims allowed in part
The claimant company brought proceedings against the defendants in respect of two development sites. The claimant said that there was in place a joint venture agreement to which it was a contracting party. The first development was the ‘Maidenhead property’ in respect of which the other joint venturer was the second defendant. The second development site was the ‘Oxted property’, in respect of which the other joint venturer was the first defendant.
As regards the Maidenhead property, the claimant contended that the second defendant had failed to pay to it the sums due under the joint venture agreement. The second defendant denied that claim and contended that the joint venture he had entered into in respect of the Maidenhead property was with one of the claimant’s directors (K) personally. As regards the Oxted property, the claimant contended that the first defendant, having purchased the Oxted property, had wrongly, and in breach of contract, failed to proceed with the development of that property. Rather, the first defendant had sold it on virtually immediately for a modest profit.
The claimant claimed, by way of damages for breach of contract, the profit share which it said it would have received had the first defendant developed out the Oxted property in accordance with the joint venture agreement. If there was no enforceable contract in place in respect of the Oxted property, the claimant sought similar relief under a constructive trust by whereby, if A and B agreed that A would acquire specific property for the joint benefit of A and B; and B, in reliance on A’s agreement, refrained from attempting to acquire the property, equity would not permit A, when he acquired the property, to keep it for his own benefit, to the exclusion of B: Pallant v Morgan [1953] Ch 43.
Held: The claims were allowed in part.
(1) On the facts, the claimant had no cause of action against the second defendant in respect of the profit made on the Maidenhead property. It was clear that K had been acting in respect of the Maidenhead property on his own personal account and not as agent, or purported agent for the claimant. Further, the second defendant was entitled to 70% of the profit in respect of the Maidenhead property. As the claimant’s claims against the second defendant failed in respect of the Maidenhead property, its claims against him failed in their entirety.
(2) The essence of the principle underlying the Pallant v Morgan equity required the specific property to be acquired for the joint benefit of A and B. It did not require some agreement or understanding that B would acquire some specific proprietorial interest, legal or equitable, in the property. The equity had its genesis as a specific form of constructive trust designed to apply in failed joint ventures for the purchase of land. There was no reason why it was necessary to import into it a requirement that it should operate only if B was intended to obtain a specific proprietorial interest in real property. Such a requirement would negate the purpose underlying its genesis and was, in any event, a requirement not set out in any of the authorities. Furthermore, the defendant was not liable in contract in respect of the Oxted property as he was not a contracting party; nor could he be liable under a Pallant v Morgan equity since he never purchased the Oxted property: Banner Homes Group plc v Luff Developments Ltd [2000] Ch 372; Kilcarne Holdings Ltd v Targetfollow (Birmingham) Ltd [2005] 2 P & CR 8; and Cobbe v Yeoman’s Row Management Ltd [2008] 3 EGLR 31; [2008] 35 EG 142 considered.
(3) As regards the first defendant, on the facts, the court would not have construed the contract as requiring the first defendant to build out the Oxted property. That would have been the end of the contractual claim for damages based upon the profit which could have been made had the development proceeded. However, the court would have construed the contract as requiring the first defendant, if the Oxted property had been re-sold without the development proceeding, to pay 40% of the net profit from the re-sale to the claimant. On the facts, it was clear that, when the first defendant exchanged contracts for the purchase of the Oxted property it had become a true trustee of that property. Therefore, as from exchange of contracts, the first defendant owed fiduciary duties as a trustee.
(4) Although the Pallant v Morgan equity did not seek to give effect to the parties’ bargain, still less did the equity seek to make for the parties some bargain that they had not themselves made. As it was the pre-acquisition arrangement or understanding which created, and coloured, the Pallant v Morgan trust, there was no reason why equity, with its traditional flexibility, should insist on a 50/50 profit share when the parties understanding was a 60/40 profit share. Accordingly, the relief awarded to the claimant under the Pallant v Morgan equity would be 40% of the agreed actual net profit made on the resale of the Oxted property (£51,300), namely, £20,520: Banner Homes Group plc v Luff Developments Ltd [2000] Ch 372 considered.
Stuart Hornett (instructed by Jeffrey Green Russell Ltd) appeared for the claimant; David Head (instructed by Edwin Coe) appeared for the defendants.
Eileen O’Grady, barrister
