Nison David Kiwak v (1) Chaim Reiner (2) CHMR Developments Ltd (2017)
The court rejected a claim that a Rabbi living in Jerusalem had entered into a partnership with a property developer in relation to a London development.
The court was required to determine whether the claimant and first defendant had entered into a partnership in relation to a property development.
The first defendant was a property developer who lived in London. He identified properties with development potential and purchased them with the assistance of an investor via a special purpose vehicle. The investor provided a cash contribution and the first defendant secured a mortgage for the balance. When the properties were sold, the profits were split equally between the first defendant and the investor. The claimant was a Rabbi who lived in Jerusalem. It was his case that he and the first defendant had entered into a partnership in April or May 2014 with a view to acquiring a property to develop. He claimed that the first defendant had found and bought a property for £2.61 million; that he had contributed £361,000 towards the purchase; and that the partnership was formalised by a concluded written agreement on 21 May 2014. The claimant alleged that the first defendant had failed to honour his borrowing obligations under that agreement and had sought to cut him out of the deal. He claimed that he was entitled to a 50% interest in the property and/or an account of any profits. It was the first defendant's case that there was no such partnership. He claimed that at all material times he had been dealing with a third party (X) who was a friend and business associate of the claimant. The first defendant claimed that X had held himself out as the person who was investing; that there was no mention of X acting as an agent for anyone and the claimant's name was not mentioned.
Partnership/joint venture agreement - The claimant's case that a partnership between himself and the first defendant was formed in early April 2014 when he contributed the first advance towards the purchase of the property had to be rejected. There was no agreement in April; only an understanding that a joint venture would be pursued. The contract being negotiated was not to form a partnership, but for the property to be acquired by a special purpose vehicle or company in which both parties would own shares. Furthermore, neither party had intended to create a contractual relationship until a written agreement was concluded. The claimant argued that such an agreement was made on 21 May 2014, but the document signed on that date was not a final concluded legally binding contract; it merely set out and reaffirmed a revised understanding between the parties as to their respective contributions. The claimant also argued that there was a constructive trust along the lines of Pallant v Morgan  Ch. 43, such as arose where there was a joint venture arrangement which fell short of a concluded agreement. It was essential to the application of that principle that, in reliance on the arrangement or understanding, the non-acquiring party should do something which conferred an advantage on the acquiring party in relation to the acquisition of the property or was detrimental to the ability of the non-acquiring party to acquire the property on equal terms. It was the existence of the advantage to the one, or detriment to the other, gained or suffered as a consequence of the arrangement or understanding, which led to the conclusion that it would be inequitable or unconscionable to allow the acquiring party to retain the property for himself in a manner inconsistent with the arrangement or understanding which enabled him to acquire it. Although the claimant had argued that his payment of £361,000 towards the acquisition was such a benefit conferred on the acquiring party, the arrangement under which he was to have shares in the company holding the property and a share of the profits was dependent on him providing £1 million towards the purchase price before, not after, the acquisition. The failure to come up with the rest of the money was a breach of a condition precedent to the formation of either a partnership or a joint venture agreement, Pallant and Banner Homes Holdings Ltd (formerly Banner Homes Group Plc) v Luff Developments Ltd  Ch. 372 considered (see paras 86-87, 112-120 of judgment).
Who was the principal dealing with the first defendant? - The question of whether the claimant or X was the principal was somewhat academic. If the claimant was in fact the principal, it did not matter whether the first defendant was aware of that. The monies advanced were the claimant's monies and he was entitled to reclaim them (para.121).
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29 Nov 2017
Jonathan Gaunt QC