Clarke & Anor v Corless & Anor

An informal, pre-acquisition arrangement may give rise to a Pallant v Morgan constructive trust even if it is not contractually enforceable or intended to have contractual effect. The essential questions are whether the arrangement reasonably assured the claimant of an interest in the property and whether reliance made it unconscionable for the acquiring party to retain the property inconsistently with the arrangement. Agreement on common ownership may suffice without agreement on the precise ownership mechanism. Reliance must continue until acquisition. Failure to object promptly or otherwise act on the arrangement may defeat the claim. The appeal was dismissed because, although the agreement was sufficiently certain, the trial judge was entitled to find that the claimants had not relied on it.

The claimants appealed the dismissal of their claim for a declaration that an access road and adjoining amenity land had been acquired by the defendants subject to a constructive trust. They relied on an informal agreement reached between the residents in January 2003 to remove the original owner from involvement in the development and secure common ownership of the retained land.

Proudman J held that the January agreement was insufficient to bind the defendants’ consciences and that the claimants had not relied on it. The land was acquired by the defendants in December 2004. The appeal concerned whether the January agreement was sufficient in principle and whether the claimants continued to rely on it until acquisition: [2009] EWHC 1636 Ch.

Lord Justice Patten gave the substantive judgment. The Chancellor of the High Court and Lord Justice Thomas agreed.

1. Applicable principles. The Pallant v Morgan equity can arise from an informal, pre-acquisition arrangement or understanding. It need not be contractually enforceable or intended to have contractual effect. The relevant guidance in Banner Homes Group plc v Luff Developments Ltd [2000] Ch 372 was applicable and remained authoritative for arrangements of this kind. The later decisions concerning agreements subject to contract or contractual arrangements did not undermine it.
2. Objective unconscionability. The issue is whether it would be unconscionable for the acquiring party to retain the land for personal benefit. That is assessed objectively. The court must consider whether the agreement or words used reasonably assured the claimant of an interest in the property, focusing on the quality of the assurance and the reasonableness of reliance, as explained in Gissing v Gissing [1971] AC 886.
3. Sufficiency of the January agreement. The agreement had to be sufficiently clear for the residents to understand that they would acquire an interest in the retained land. It was not necessary to settle at that stage whether the land would be held by a management company or through another form of common ownership. That was a matter of detail. Proudman J was therefore wrong to treat the agreement as merely an informal campaign against the original owner. The finding that the land would pass to the residents as a whole was sufficient in principle.
4. Reliance and result. The equity still depended on reliance up to the acquisition, such that retention would be unconscionable. The trial judge was entitled to rely on the claimants’ failure to object to the purchase as a breach of the January arrangement, their failure to respond to an offer of part of the land, and the absence of a focused complaint until proceedings were issued. Those findings had a sufficient evidential basis and could not be disturbed on appeal. The appeal was dismissed.

• Court of Appeal (Civil Division): The appeal was dismissed. The court held that the January 2003 arrangement was sufficiently certain in principle but that the claimants had not established continuing reliance. [2010] EWCA Civ 338.
• High Court (Chancery Division): Proudman J dismissed the claim for declaratory relief concerning the alleged constructive trust. [2009] EWHC 1636 Ch.