Kearns Brothers Ltd v Hova Developments Ltd and Finlay
Citations:  EWHC 2968.
KBL claimed that they were a party to two joint venture agreements with the first and second defendants respectively. Mr Kearns, KBL’s owner, negotiated these deals. According to KBL, ender the first agreement, the parties agreed that the first defendant would acquire a plot of land and sell it. Then, the parties would split the proceeds. Under the second agreement, the parties agreed that the second defendant would acquire a development site, develop it, and then sell it at a profit. Once again, the parties would split the profit.
KBL claimed that the first defendant had failed to share the profits from the sale, while the second defendant failed to develop the site and instead sold it immediately for a small profit. KBL sued both defendants for breach of contract. In the alternative, they argued that they had rights under a Pallant v Morgan constructive trust.
- Did KBL have an enforceable contract against either defendant?
- Did KBL have rights under a Pallant v Morgan constructive trust against either defendant?
The Court held KBL was not a party to any joint venture with the first defendant, either as a matter of contract law or under an informal arrangement which might give rise to a trust. Rather, the deal was between the first defendant and Mr Kearns on a purely personal basis. Any cause of action accrued to Kearns, not KBL.
Meanwhile, the second joint venture agreement was too uncertain to amount to a binding contract. Anything agreed was subject to an exchange of contracts. Even if there had been a contract, it would not impose a duty to develop the property. However, the agreement was sufficient to give rise to a Pallant v Morgan trust. This did not impose a duty to develop the property either, since there was no agreement on that matter, but it did give KBL a right to a share in the sale proceeds.
This Case is Authority For…
When establishing a Pallant v Morgan trust, the non-acquiring party can establish sufficient detriment or conferred advantage by showing that they stayed out of the market in circumstances where they could have impeded the acquiring parties’ purchase.
The non-acquiring party does not need to have been intended to have a property interest when establishing a Pallant v Morgan trust. It is enough that they intended to have ‘some interest’, including an interest in the sale proceeds. This is what distinguishes Pallant v Morgan trusts from ordinary common intention constructive trusts.
The judge noted that a Pallant v Morgan trust does not necessarily seek to give effect to the parties’ non-contractual bargain. However, the terms of the bargain will influence the remedy which equity grants under the trust and this will often be the starting point.