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The Court of Appeal handed down an important judgment on (1) the scope of the Pallant v Morgan constructive trust and (2) the application of s2(1) of the Law of Property (Miscellaneous Provisions) Act 1989 to proprietary estoppel.

The judgment is likely to be relevant, in particular, to fraud disputes arising out of commercial joint venture arrangements.

The judgment was delivered in the course of ongoing commercial proceedings between two former property developers. The claim alleges that the parties entered into a joint venture concerning the development and sale of property, and that the Defendant secretly misappropriated that property for his own profit.

The claim was originally pleaded in contract but was struck out on a finding that the relevant joint venture agreement was a contract for the sale or disposition of an interest in land, and, being oral, failed to comply with s2(1) LPA 1989.

Permission was given by the High Court to substitute two equitable claims, alleging that the joint venture arrangements gave rise to a Pallant v Morgan constructive trust and a proprietary estoppel. The Defendant appealed, on the basis that neither claim was arguable in law. The High Court refused permission to add a claim for breach of fiduciary duties arising from the same joint venture arrangements. The Claimant cross-appealed in relation to that decision.

On appeal, the Court of Appeal dismissed the appeal and allowed the cross-appeal. It held that:

  1. The Pallant v Morgan equity was not limited to circumstances in which the property in issue was not at first owned by either party, and the House of Lords in Cobbe v Yeoman’s Row Management Ltd [2008] 1 WLR 1752 had not laid down any rule to the contrary.
  2. A prior acquisition of the property by one or both parties would not prevent the Pallant v Morgan equity being made out, on a conventional analysis, where the arrangements at issue still pre-dated the relevant acquisition of a property by a Joint Venture entity.
  3. It is not a requirement of a Pallant v Morgan equity that the agreement or arrangement between the parties be sufficiently certain to be contractually enforceable, although the commercial context and the absence of agreement on critical parts of the deal may indicate that there was never a common intention to enter into any kind of legal commitment.
  4. The Court would leave to trial the question of whether s2(1) LPA 1989 precluded a claim in proprietary estoppel, but there were, in the Court of Appeal’s view, strong arguments for saying that s2 of the 1989 Act was concerned only with the requirements of a valid contract for the sale or other disposition of land (and not causes of action beyond that) (see in particular the five points considered by Kitchin LJ at paragraphs 59 to 63).

Click here to read the full judgment. 

Shane Sibbel successfully acted for the claimant/appellant (Mr Farrar).