Banner Homes Group plc v Luff Developments Ltd

In this case ([2000] Ch 372) the parties had agreed to form a joint venture company to buy a site suitable for property development. The joint venture company was owned by Luff.  The site was acquired but before the site had been acquired Luff had changed its mind about the joint venture agreement with Banner. It did not tell Banner about its change of mind because it was afraid that Banner would make a rival offer for the site.

Chadwick LJ explained the essential elements of a Pallant v Morgan equity:

(i)                  a pre-acquisition agreement;

(ii)                not necessarily contractually enforceable;

(iii)               contemplating that one party (‘the acquiring party’) will take steps to acquire the relevant property and that the other party (‘the non-acquiring party’) will have some interest in the property if it is acquired;

(iv)              the acquiring party must not have informed the non-acquiring party, before it is too late, that it no longer intends to honour the arrangement or understanding (‘too late’ meaning either before the date of the acquisition or, possibly, before it is too late to undo the advantage / detriment caused by the non-acquiring party’s reliance on the arrangement or understanding);

(v)                 the non-acquiring party’s reliance on the arrangement or understanding must either have conferred an advantage on the acquiring party in relation to the acquisition of the property or imposed a detriment on the non-acquiring party in terms of its ability to acquire the property on equal terms. It is this presence of either or both of the advantage or detriment that makes it unconscionable for the acquiring party to resile from the arrangement or understanding.

L had secured an advantage because B had refrained from seeking to acquire the site. It did not matter that the terms of the shareholders’ agreement had not been finalized even though it had been anticipated that the acquisition would be in the name of the joint venture.

It was not inequitable for the joint venture company to retain the property for itself. Rather, it was unconscionable for L to be allowed to enjoy sole beneficial owner of the joint venture company; L held the shares of the company (Stowhelm) as to one half on constructive trust for B.

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