Home Information Cases Frederic Achom & Ors v Thomir Lalic & Ors (2014)

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Frederic Achom & Ors v Thomir Lalic & Ors (2014)

Summary

A potential co-venturer in a nightclub project had not established his entitlement to a share in the venture by means of an interest arising from his non-financial contribution where there was no evidence of any concluded agreement between himself and the purchasers of the lease, and consequently no evidence of a partnership. Nor had the purchasers given any assurance which was clear enough to found a claim based on proprietary estoppel, which in any case had to be approached with caution in a commercial context.

Facts

The claimant (X) claimed that he was entitled to a 50 per cent shareholding in a nightclub venture financed by the defendant company (Y).

The first and second defendants (L and P) held the entire shareholding in Y. L and P, who were interested in investing in nightclubs in London, were put in touch with X by a business consultant. The parties gave conflicting evidence as to which of them was responsible for agreeing the purchase price of £250,000 for the transaction in issue and as to who first saw the nightclub's potential as a business venture. Contracts on the lease for the premises were exchanged in September 2011 and completion took place the following month, with Y providing the purchase price and becoming the sole shareholder in the club. Following the acquisition, extensive renovations were carried out. X paid approximately £100,000 towards refurbishments and controlled the day-to-day running of the club. X claimed to be entitled to 33 per cent "sweat equity" in the project, namely an interest arising from non-financial contribution. L and P disputed that an agreement had ever been reached as to X's involvement in the venture. A meeting took place in November 2011. According to L and P, the outcome of that meeting was that they agreed in principle to X having around 5 per cent of "sweat equity", whereas X maintained his entitlement to 33 per cent. The parties agreed to go their separate ways and Y served a notice purporting to dissolve the "partnership" relating to the club. X disputed the validity of that notice and issued proceedings on the alternative bases of contract, partnership, an equity pursuant to the principle in Pallant v Morgan [1953] Ch. 43 and proprietary estoppel. As a fallback position, X claimed that he had a restitutionary claim in respect of the money and effort he had put into the venture.

Held

(1) On balance, no contract had been concluded in September 2011. At that stage, L and P saw X as no more than a potential co-venturer. A reasonable observer would have taken the same view. While the parties had spoken about the basis on which they could join forces, there was no evidence that any such deal had been struck before September 2011. In relation to the November meeting, it was unlikely that X would have accepted terms of no more than 5 per cent "sweat equity", given his previous stance, and L's evidence that they were not prepared to offer more than that was credible. The likelihood was that the meeting ended without true agreement. X's contractual claim therefore failed (see paras 64, 69, 72, 74 of judgment). (2) Notwithstanding that L and P had themselves asserted the existence of a partnership when they served the notice of dissolution, partnership also depended on the existence of a binding agreement between the parties. In the absence of a contract, no partnership could have come into being (paras 76-78). (3) There was insufficient evidence that X would have sought to acquire the club for himself if he had not thought that he had a binding agreement with L and P because he had not established that he could have arranged the requisite funding and, in any event, there would have been very little time for him to arrange a bid. Accordingly, X had not proved that he had acted to his detriment on the basis of the alleged understanding and it followed that his claim to a Pallant v Morgan equity could not succeed, Pallant v Morgan considered (paras 85-89). (4) The courts had to beware of introducing uncertainty into commercial transactions by accepting proprietary estoppel claims, Cobbe v Yeoman's Row Management Ltd [2008] UKHL 55, [2008] 1 W.L.R. 1752 followed. In any case, L and P did no more than represent that X would have an interest in the club venture once terms had been finally settled and committed to writing. They did not represent that X already had an interest, let alone one of 50 per cent. To establish proprietary estoppel, there had to be an assurance that was "clear enough", and that was absent in the instant case, Thorner v Major [2009] UKHL 18, [2009] 1 W.L.R. 776 followed. Even if there had been such an assurance, it would not have been just to award X anything like 50 per cent of the venture on the basis of 33 per cent "sweat equity" (paras 95-96, 98). (5) X was entitled to restitutionary relief in respect of payments made and services provided in connection with the venture (para.111).

Judgment for defendants in part

Chancery Division
Newey J
Judgment date
10 June 2014
References

LTL 17/6/2014 : [2014] EWHC 1888 (Ch)

Practice areas