Banner Homes Group Plc v Luff Developments Ltd

A Pallant v Morgan equity may arise from a pre-acquisition arrangement or understanding under which one party is to acquire property and the other is to receive an interest in it. The arrangement need not be contractually enforceable. Equity does not complete or enforce an incomplete bargain. It prevents the acquiring party from retaining property inconsistently with an arrangement on which the other party has acted.

The necessary unconscionability may arise from an advantage obtained by the acquiring party or a detriment suffered by the other. Both are not required. An acquiring party who obtains the benefit of the other party's support, or keeps that party out of the market, may be subject to a constructive trust if it later repudiates the arrangement without timely disclosure.

Banner and Luff discussed a joint venture to acquire and develop a site through a company owned equally by them. Although they negotiated a shareholders' agreement, no binding contract was concluded. Luff acquired an off-the-shelf company, Stowhelm, as the intended vehicle for the transaction. Stowhelm completed the acquisition with funding from Luff.

Mr Justice Blackburne dismissed Banner's contractual and estoppel claims. Those rulings were not appealed. He also dismissed Banner's alternative claim that Luff held half the shares in Stowhelm on constructive trust. He considered that the parties retained the right to withdraw before a formal agreement and that Banner had not established detriment.

Banner appealed only against the dismissal of its constructive-trust claim. The central issue was whether the pre-acquisition joint-venture understanding, and Banner's conduct in reliance on it, gave rise to a Pallant v Morgan equity notwithstanding the absence of an enforceable contract.

1. Appeal allowed. Lord Justice Chadwick gave the reasons of the court, with Lords Justices Evans and Stuart-Smith agreeing. The judge had misapplied the principles governing the Pallant v Morgan equity.

2. The equity is not a means of enforcing an incomplete or non-binding bargain. It arises where property is acquired in circumstances making it unconscionable for the acquiring party to deny the other party's beneficial interest. An arrangement made before acquisition may suffice even if it is too uncertain for specific performance or was not intended to have contractual effect. The court applied the equitable principles illustrated by Pallant v Morgan [1953] Ch 43 and explained in Lonrho Plc v Fayed (No 2) [1992] 1 WLR 1.

3. The relevant arrangement must contemplate acquisition by one party and an interest in the acquired property for the other. The acquiring party must not, before acquisition or before restoration to a position of no advantage and no detriment becomes impossible, tell the other that it will not honour the arrangement.

4. Reliance must confer an acquisition-related advantage on the acquiring party or impair the non-acquiring party's ability to acquire on equal terms. Both advantage and detriment are not essential. Luff obtained the advantages it sought: Banner treated the site as unavailable to it and remained available as a committed joint venturer. Luff deliberately withheld its doubts because Banner might otherwise become a rival bidder. Those circumstances made it inequitable for Luff to retain the venture for itself.

5. The appropriate relief reflected the contemplated corporate structure. One half of Luff's shares in Stowhelm was held on trust for Banner. The court reserved the precise form of order, including any sale, for further submissions if the parties could not agree.

• Court of Appeal (Civil Division) — allowed Banner's appeal and held that one half of Luff's shares in Stowhelm were held on trust for Banner: [2000] Ch 372.
• Chancery Division — on 1 July 1998, Mr Justice Blackburne dismissed the claim that a binding joint-venture contract existed, the estoppel claim, and the alternative constructive-trust claim. The lower-court judgment citation was not stated in the judgment.