‘Subject to contract’ and the Pallant v Morgan equity

In London & Regional Investments Ltd v TBI plc ([2002] EWCA Civ 355, CA (Eng)) L bought TBI’s property portfolio by way of a share sale and purchase. The sale agreement included a clause to the effect that, after completion, the parties would use their reasonable endeavours to agree the terms of a joint venture for the development of land at two airports (one site was owned by TBI and TBI had an option concerning the other site). The outline terms of the proposed joint venture were set out in a note attached to the share sale agreement. The note was headed ‘subject to contract’. L & R claimed that this note reflected an earlier understanding between the parties and that it paid more for the shares than it would otherwise have done because of its expected profit from the joint venture. It claimed that the joint venture was integral to the entire deal and that only lack of time had prevented the completion of a formal binding joint venture. Summary judgment was given for TBI at first instance and the English Court of Appeal concurred: even if one accepted L & R’s version of events, its claim must fail.

L & R sought to invoke the Pallant v Morgan equity but the fact that the agreed note of the joint venture terms in the share sale agreement was headed subject to contract was fatal. It showed that there was no underlying agreement to share the relevant sites through the joint venture:

‘L & R seeks to invoke equity not to counter unconscionable conduct by one party which would defeat the informal understanding of both parties, but to reverse the effect of the express agreement they have made and replace it with state of affairs (sic) (joint ownership of the land with no joint development) which was never contemplated.’ (per Mummery LJ at para. 48).

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