Home Information Cases Generator Developments LLP v Lidl UK GMBH (2016)

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Generator Developments LLP v Lidl UK GMBH (2016)

Summary

It was not fatal to a claim to an equity under the principle in Pallant v Morgan [1953] Ch. 43 that negotiations between the parties were expressly subject to contract. However, the court determined that two companies which had entered into negotiations with a view to acquiring a property as joint venture partners had not entered into an arrangement or understanding sufficient to give rise to a Pallant vMorgan equity.

Facts

The claimant property development company claimed that the defendant supermarket had purchased a property in circumstances which gave rise to an equity under the principle in Pallant v Morgan [1953] Ch. 43.

The claimant and defendant had entered into negotiations with a view to acquiring the property as joint venture partners. The vendor had accepted the claimant's offer to buy the property and the parties had agreed that the defendant would be named as the sole purchaser in the heads of terms. A joint venture heads of terms was drafted but never agreed or signed. Each draft was specified as "subject to contract". Without agreeing the heads of terms, the defendant exchanged contracts and completed the purchase of the property. After that, discussions between the claimant and defendant continued for a short time, before terminating.

The issues were whether (1) the claimant was prevented from acquiring a Pallant v Morgan equity by the fact that its negotiations with the defendant were subject to contract; (2) in all the circumstances, there was an "arrangement or understanding" sufficient to give rise to a Pallant v Morgan equity; (3) the claimant had acted in reliance on that arrangement or understanding to its own disadvantage and/or the defendant's advantage.

Held

(1) In Banner Homes Holdings Ltd (formerly Banner Homes Group Plc) v Luff Developments Ltd [2000] Ch. 372, the Court of Appeal held that it was not fatal to a claim to a Pallant v Morgan equity that negotiations between the parties were impliedly subject to contract. The position was no different when those negotiations were expressly subject to contract. The "subject to contract" status of negotiations was usually unaffected by the question of whether they were expressly or impliedly subject to contract. The judgment in London & Regional Investments Ltd v TBI Plc [2002] EWCA Civ 355 was not authority for the proposition that there could never be a Pallant v Morgan equity if negotiations between the parties were expressly, rather than impliedly, subject to contract. London & Regional Investments was significantly different on its fact from those cases where a Pallant v Morgan equity had been found because it did not involve a proposed joint venture for the acquisition of property. The judge in London & Regional had not been addressing the question of the difference between negotiations being expressly and impliedly subject to contract. He had not simply described London & Regional as a subject to contract case, but as a subject to contract case in which it was part of the bargain between the parties that specific matters remained in a state of negotiation until a future agreement was made, Banner Homes and Crossco No.4 Unltd v Jolan Ltd [2011] EWCA Civ 1619, [2012] 2 All E.R. 754 applied, Island Holdings Ltd v Birchington Engineering Co Ltd and Kilcarne Holdings Ltd v Targetfollow (Birmingham) Ltd [2004] EWHC 2547 (Ch), [2005] 2 P. & C.R. 8 considered, London & Regional Investments explained (see paras 169-170, 187-191 of judgment). 

(2) No Pallant v Morgan equity arose. There was no arrangement or understanding that if the defendant acquired the property, the claimant would obtain some interest in it. The claimant and defendant were experienced commercial parties and were both legally represented. Each understood that they had not made a contract and the meaning and effect of the words "subject to contract" in the joint venture heads of terms. Varying proposals had been put forward and they suggested an absence of agreement, rather than a common understanding about what the default position would be if the proposed development did not go ahead. No assurances had been given by the defendant to the claimant to the effect that the claimant would definitely acquire an interest in the property if the defendant purchased it. The steps which the claimant took to protect its position fell short of requesting, let alone obtaining, a written commitment from the defendant that the claimant would have an interest in the property if the defendant bought it. It was also clear that the claimant recognised that it could be pushed out of the deal if an agreement was not concluded. The evidence suggested that it was not even the claimant's understanding, let alone the mutual understanding of the parties, that if the defendant bought the property, the claimant would necessarily have an interest in it, Banner Homes applied (paras 193-205).

(3) In light of the finding that there was no arrangement or understanding sufficient to give rise to a Pallant v Morgan equity, the question of whether the claimant had acted in reliance on such an arrangement or understanding did not arise. However, a number of the claimant's actions were to the defendant's advantage and/or its own disadvantage. The claimant made a material contribution in assisting the defendant to progress from acceptance of the bid to exchange of contracts and it was to the defendant's advantage that it did not seek to make its own bid or seek to discourage the vendor from selling to the defendant (paras 206-209).

Claim dismissed

Chancery Division
Nicholas Lavender QC
Judgment date
13 April 2016
References

[2016] EWHC 814 (Ch); LTL 13/4/2016

Practice areas

trusts-and-settlements,Trusts & Settlements