Kiwak v Reiner

A joint venture or partnership is not created merely because parties have begun preparatory steps or made payments. The court must identify an objectively concluded agreement, including agreement on essential terms. Where the parties intend to contract only through a formal written agreement, no legal relationship arises until that agreement is concluded. A proposed venture to be conducted through a special purpose company is not ordinarily a partnership where the parties intended their interests to be held through that company. A Pallant v Morgan constructive trust requires an arrangement and an advantage or detriment connected with the acquisition. Payment of money does not automatically justify a proprietary remedy beyond repayment on resulting trust principles.

The claimant alleged that he and the first defendant had agreed to acquire and develop a public house through the second defendant, a special purpose company. He sought declarations concerning a 50 per cent interest in the property, shares, security and profits, together with alternative contractual and equitable relief.

The defendants denied that any concluded agreement or partnership had been created. The central issues were whether the parties had reached a binding agreement in April or May 2014, whether a partnership or constructive trust arose despite the absence of such an agreement, and what remedy was available for the money advanced by the claimant.

1. Claim and agreement. The claim was rejected except to the extent that the claimant was entitled to repayment of the money advanced. The document signed on 21 May 2014 remained draft heads of terms. The parties had not reached consensus on the proposed second charge, which was an essential term rather than a matter of machinery. Alternatively, any agreement was conditional upon further agreement on that issue.
2. Partnership. No partnership arose in April or May. The parties intended the venture to be conducted through a special purpose company, with their interests represented by shares and an agreement as to profit distribution. The payments were made in anticipation of a future formal agreement and did not themselves create a partnership.
3. Authorities and constructive trust. Khan v Miah was distinguished because the proposed enterprise in this case was to be carried out by a company. Valencia v Llupor was treated as more directly analogous, since the parties had not intended to create a partnership before a formal agreement. The principles concerning a Pallant v Morgan constructive trust, as explained in Cobbe v The Yeomans Row and Banner Homes v Luff, require an arrangement and an advantage to the acquiring party or detriment to the other party connected with the acquisition.
4. The claimant’s payment did not justify a proprietary interest in the property or company. The contemplated arrangement depended on a contribution of approximately £1 million before completion, which was not made. The circumstances did not make it inequitable for the defendants to retain the property, subject to repayment of the advances.
5. As no contract, partnership or constructive trust was established, the claimant was entitled to recover the sums advanced without deduction. The defendants’ counterclaim for financing costs therefore failed.