Generator Developments LLP v Lidl (UK) GmbH

A Pallant v Morgan equity may arise from a pre-acquisition arrangement or understanding even where negotiations are expressly or impliedly subject to contract. Contractual enforceability is unnecessary. The understanding must contemplate that one party will acquire identified property and that the other will obtain an interest in it. The non-acquiring party must act in reliance on it, conferring an advantage on the acquiring party or suffering a disadvantage. The decisive question is whether it would be inequitable for the acquiring party to retain the property inconsistently with the understanding. On the facts, negotiations, assurances and draft terms did not establish the necessary common understanding.

Generator and Lidl jointly bid for an industrial estate intended for mixed-use redevelopment. Generator conducted negotiations with the vendor and materially contributed to the successful bid. Lidl was later substituted as the sole purchaser, while Generator was described as the delivery partner. The parties negotiated draft heads of terms for a proposed sale and leaseback development, but those terms remained subject to contract and were never concluded. Lidl exchanged contracts with the vendor before any agreement with Generator had been made, and later marketed the property to other developers. Generator claimed that Lidl held the property subject to a Pallant v Morgan equity.

The central issues were whether the subject-to-contract status was fatal to the claim, whether the parties had formed a sufficient arrangement or understanding, and whether Generator had acted in reliance on it.

1. Disposition. Generator’s claim was dismissed. No Pallant v Morgan equity arose.
2. Applicable principles. The propositions in Banner Homes Plc v Luff Developments Ltd [2000] Ch 372 provided the starting point. The arrangement must precede acquisition, need not be contractually enforceable, and must contemplate acquisition by one party with the other obtaining an interest. The acquiring party must not withdraw before it is too late to restore the parties to their former positions. Reliance must confer an advantage on the acquiring party or cause a disadvantage to the other. The essential question is whether retention of the property would be inequitable.
3. Subject to contract. Express or implied subject-to-contract negotiations are not, by themselves, fatal to the equity. The Court of Appeal’s decision in Banner Homes Plc v Luff Developments Ltd could not be treated as confined to implied subject-to-contract negotiations. London & Regional Investments Ltd v TBI Plc [2002] EWCA Civ 355 concerned materially different circumstances, including land already owned by one party and an express contractual allocation of the risk that no joint venture agreement would be concluded.
4. No sufficient understanding. The relevant period was between Lidl’s proposal to purchase the property on 6 December 2013 and its exchange of contracts on 14 February 2014. The parties had not agreed that Generator would necessarily obtain an interest if Lidl acquired the property. The draft heads of terms contained materially different default proposals, remained subject to contract, and did not establish a common position if the proposed development failed. The references to the parties as partners and the general assurances relied upon by Generator were insufficiently specific.
5. Reliance. Since no qualifying arrangement or understanding existed, the reliance issue did not arise. The court nevertheless found that Generator’s involvement had materially assisted Lidl’s acquisition and that Generator had refrained from competing with Lidl, but those matters did not create the equity without the necessary understanding.