Farrar v Miller

A joint-venture constructive trust is not invariably confined to property acquired after the parties’ arrangement. It may arise where a person obtains control of property through an undertaking and a relationship of trust and confidence, but then appropriates it inconsistently with that undertaking. Contractual incompleteness or non-compliance with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 does not necessarily preclude such a trust.

Proprietary estoppel requires a sufficiently clear assurance of an interest, reasonable reliance, detriment and unconscionability. Whether section 2 bars such a claim may depend on the facts and was unsuitable for summary determination. Joint venturers may also owe fiduciary duties where one undertakes responsibility for property in circumstances of trust and confidence. A claim to recover property controlled under such antecedent duties may fall within section 21(1)(b) of the Limitation Act 1980.

The claimant and defendant had conducted property-development business together for many years. The claimant alleged an oral joint-venture agreement under which development land would be transferred to a jointly owned vehicle, developed and sold, with the proceeds divided among the participants. He alleged that the defendant assumed responsibility for the necessary corporate arrangements but secretly procured transfers which excluded him from the land and its proceeds.

The original contractual claim was struck out because the agreement did not comply with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. A deputy High Court judge subsequently permitted amendments alleging a Pallant v Morgan constructive trust and proprietary estoppel, but refused permission to add a claim for breach of fiduciary duty.

The defendant appealed against permission to plead the constructive-trust and estoppel claims. The claimant cross-appealed against the refusal of permission to plead breach of fiduciary duty. The principal questions were whether the proposed claims had a real prospect of success and whether the fiduciary claim was time-barred.

1. The defendant’s appeal was dismissed and the claimant’s appeal was allowed. Kitchin LJ delivered the leading judgment. Floyd and Patten LJJ agreed.

2. The alleged facts disclosed a properly arguable constructive-trust claim. A Pallant v Morgan equity commonly concerns a pre-acquisition arrangement, but it is not necessarily confined to that situation. A constructive trust may arise where a person lawfully assumes responsibility for property through an undertaking and a relationship of trust and confidence, but subsequently appropriates the property. On the pleaded facts, the defendant arguably controlled the land for the purpose of transferring it to the joint-venture entity and then used that control for himself.

3. The alleged arrangement was capable of satisfying the relevant Pallant v Morgan criteria. It preceded the intended acquisition by the joint-venture entity; contemplated shared interests; was allegedly repudiated without disclosure; and induced the claimant to permit the defendant to control the property. That control arguably conferred an advantage on the defendant, caused detriment to the claimant and made retention of the property inequitable. Contractual enforceability and complete agreement on every commercial term were not indispensable.

4. Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 did not defeat the constructive-trust claim at the amendment stage. Section 2(1) regulates contracts, while section 2(5) preserves resulting, implied and constructive trusts.

5. The proprietary-estoppel claim also had a real prospect of success. The claimant had pleaded a sufficiently clear assurance of an indirect or beneficial interest in the land and its sale proceeds, together with reasonable reliance, detriment and unconscionability. Whether section 2 prevents a proprietary-estoppel claim is a difficult and potentially fact-dependent question. It was therefore inappropriate to determine it summarily. The absence of a complete contract was not conclusive because proprietary estoppel does not require an agreement, provided the promised right or interest is sufficiently clear in context.

6. The proposed fiduciary-duty claim was arguable. Joint venturers do not invariably owe fiduciary duties, but such duties may arise where one undertakes to act for another in circumstances of trust and confidence. The parties’ longstanding relationship and the defendant’s alleged responsibility for transferring and protecting the property were capable of establishing such duties.

7. The fiduciary claim was not properly characterised as an ordinary breach-of-trust claim subject to section 21(3) of the Limitation Act 1980. The pleaded duties arose before the alleged misappropriation and coloured the defendant’s control from the outset. The claim was therefore arguably one to recover trust property or its proceeds within section 21(1)(b), to which no limitation period applied.

1. Court of Appeal (Civil Division): By [2018] EWCA Civ 172, dismissed the defendant’s appeal against permission to plead constructive trust and proprietary estoppel, and allowed the claimant’s appeal against refusal of permission to plead breach of fiduciary duty.

2. High Court, Chancery Division: HHJ Barker QC, sitting as a deputy High Court judge, permitted amended claims based on constructive trust and proprietary estoppel, but refused permission to add a claim for breach of fiduciary duty.

3. Chief Master: Struck out the original contractual claim because the alleged oral agreement did not comply with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, was inadequately particularised and lacked consideration. On appeal, the latter two grounds were reversed, but the section 2 ruling was upheld.