A Lidl More Certainty In Commercial Negotiations

Facts

The case concerned a 'subject to contract' arrangement between Generator and Lidl to buy land at an Industrial Estate in Brentwood, Essex for the purposes of developing a supermarket and a number of residential units. After extensive negotiations and efforts, Generator allowed Lidl to buy the land on behalf of the proposed joint venture knowing the terms of the joint venture were still being negotiated between Lidl and Generator. Once Lidl acquired the land it subsequently reneged on the proposed joint venture, denying Generator any interest in the land and its future development.

We discussed the 2016 High Court decision in an earlier Real Estate Bulletin. The Court of Appeal has very recently considered and rejected Generator's appeal.

The Law

Put simply, a Pallant v Morgan equity will arise when two parties agree that one will acquire property (with the other refraining from the acquisition) for the joint benefit of both, on terms which are not yet finalised. In such circumstances, a constructive trust may arise.

This was the case in the Banner Homes Holdings Ltd v Luff Developments Ltd (No 2) [2000]. There was an informal agreement to form a joint venture and develop a site. However, Luff changed its mind without informing Banner and acquired the site in its sole name and then reneged on its informal agreement with Banner. The court held that a constructive trust was created in favour of Banner. Subsequent courts have been reluctant to apply Banner to commercial negotiations. The facts of Banner were quite unique; including a 'Texas Shoot-Out' in the event the contemplated development did not proceed and the facts suggested that Luff deliberately misled Banner into thinking that an agreement had been made so as to prevent Banner bidding against Luff for the site, resulting in unconscionability.

Following on from Banner was Crossco No 4 Unlimited v Jolan Limited [2011] EWCA Civ. This case side-lined the Banner case, stating that the constructive trust created in Banner was a common intention constructive trust, mostly found in family cases rather than in commercial relationships. Unconscionability was needed to create such trusts. In Crossco, there was no unconscionability, rather carelessness on behalf of the Claimant. The court was reluctant to interfere in negotiations between legally advised parties at arm's length and refused to imply a constructive trust.

Generator's Appeal

On Appeal, Generator was unsuccessful. The Court of...

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