Banner Homes Holdings Ltd v Luff Developments Ltd & Anor

The court applied the equitable principle derived from Pallant v Morgan to hold that where shares were acquired in furtherance of a prior joint‑venture arrangement it may be inequitable for the acquirer to treat those shares as wholly his own.

That principle can give rise to a constructive trust over share capital acquired to carry into effect the joint venture.

Conversely, the principle will not create a trust over land acquired by a separate company where it was always contemplated that that company would hold the land as its own asset.

The appellant appealed from an order of Mr Justice Blackburne dismissing its claim. The dispute concerned a joint‑venture arrangement under which parties contemplated acquisition of a site through a vehicle company.

The principal question was whether equity required that either the site or the shares in the vehicle company be held on constructive trust for the appellant.

The Court of Appeal heard argument and considered whether the "Pallant v Morgan" equitable principle applied to the shares, the land, or both.

1. Disposition: The appeal was allowed. The Court declared that the whole of the issued share capital of Stowhelm was held by Luff on constructive trust for Luff and Banner in equal, indivisible shares. The appellant's application to amend to claim the site itself was held on constructive trust was dismissed.
2. Ratio — shares: Per Chadwick LJ (leading), the equitable principle commonly labelled Pallant v Morgan applies where it would be inequitable to allow a defendant to treat as his own property acquired in furtherance of a prior arrangement that contemplated a shared interest. The shares in the vehicle company were acquired by Luff in furtherance of the joint arrangement. It was therefore appropriate to declare that the issued share capital was held on trust for both parties in equal shares.
3. Ratio — land: The court explained that the principle does not automatically follow the asset acquired. Where the land was acquired by the vehicle company as its own asset, and it was always contemplated that the company would hold the land as such, it is not inequitable to allow that company to treat the land as its own. On those facts no constructive trust arose over the site.
4. Remedial and practical orders: The court made consequential orders to give effect to the declared trust. It charged the shares as security for the appellant's contribution, ordered execution of the trust, appointed receivers and managers of the issued share capital with specified powers, restrained parties from dealing with shares or assets pending further order, and set aside the ordered inquiry into damages under the cross‑undertaking.
5. Costs and further relief: The court ordered the respondent to pay the appellant's and the vehicle company's costs of the action and appeal, stated interim payment directions and refused permission to appeal to the House of Lords.
6. Guidance for future cases: The judgment illustrates that constructive trusts founded on prior arrangements are fact‑sensitive. The decisive inquiry asks whether, in the particular acquisition, it would be inequitable to permit retention of full beneficial ownership by the acquirer. Equity may impose a trust in respect of shares acquired to implement a joint venture even if it will not do so in respect of land acquired by the vehicle company in its own name.

• Court of Appeal (Civil Division): Appeal allowed; declared issued share capital of Stowhelm held on trust for Luff and Banner in equal shares; consequential orders made (30 March 2000) [2000] EWCA Civ 3016
• High Court (Chancery Division): Action dismissed by Mr Justice Blackburne (order dated 1 July 1998).