Kilcarne Holdings Ltd v Targetfollow (Birmingham) Ltd & Anor

A constructive trust based on common intention requires the parties, by the time of acquiring the property, to share an intention or understanding that the claimant will have a beneficial interest. An intention merely to negotiate a future written joint venture does not suffice.

A Pallant v Morgan constructive trust similarly requires an arrangement or understanding that the acquirer will obtain the property and the claimant will receive an interest, together with reliance by the claimant. A quantum meruit claim for requested services requires a request to the claimant itself, rather than to a separate person or entity that performed the work.

The claimant lent £1 million to the first defendant to help finance its acquisition of a long lease of Baskerville House. The written loan-note instrument contemplated that it might later be supplemented or replaced by a written joint venture agreement. No such agreement was concluded.

Lewison J dismissed the claimant’s action in the High Court, [2004] EWHC 2547 (Ch). The claimant did not appeal the rejection of its alleged oral joint venture agreement. It appealed on the grounds that the defendants held the lease or company shares on a Gissing v Gissing or Pallant v Morgan constructive trust and, alternatively, that it was entitled to a quantum meruit.

The central questions were whether the parties shared the necessary intention or understanding concerning a beneficial interest, and whether the defendants had requested services from the claimant.

1. The appeal was dismissed unanimously. Sir Martin Nourse gave the judgment, with which Carnwath and Brooke LJJ agreed.

2. A Gissing v Gissing constructive trust required TBL and Kilcarne, at or before completion, to share a common intention or understanding that Kilcarne would have a beneficial interest in the lease. The trial judge was entitled to find that Kilcarne relied on the negotiated written contracts and intended its rights to be governed by the loan-note instrument. Its board resolutions said nothing about an existing joint venture. The evidence instead showed an intention to negotiate a future written agreement whose important terms remained unresolved. The necessary common intention was therefore absent, and reliance did not need to be considered.

3. The Pallant v Morgan principle, adapted to these circumstances, required an arrangement or understanding that one party would acquire the property and the other would obtain an interest in it. It also required the latter party to act in reliance on that arrangement or understanding. The claim failed at the first requirement because there had never been an agreement, arrangement or understanding that the lease would be acquired for the parties’ joint benefit or that Kilcarne would receive an interest. On these facts there was no material difference between the application of the two constructive trust principles.

4. The first formulation of the quantum meruit claim required proof that TBL or TGL requested Kilcarne itself to provide services. The evidence showed that Mr Singh acted personally or through Sitac and did not represent that services were being performed for Kilcarne. A request to Kilcarne was not established.

5. The alternative quantum meruit formulation required Kilcarne to have incurred a liability to Sitac in anticipation of a contract that failed to materialise. Kilcarne itself had no expectation that a joint venture agreement would be completed. Its position could not be equated with Mr Singh’s because he lacked authority to bind it. That alternative claim also failed.

1. Court of Appeal (Civil Division): The court unanimously dismissed the appeal: [2005] EWCA Civ 1355.
2. High Court of Justice, Chancery Division: Lewison J dismissed the claimant’s action after trial: [2004] EWHC 2547 (Ch).