Farrar v Miller
Court of Appeal
Citations:  EWCA Civ 172;  2 P & CR DG3.
Farrar and Miller worked together as property developers for their company Roxylight. In 1995, Roxylight acquired a group of companies. One of these companies owned a property named Long Stratton. Though their ownership of Roxylight and Roxylight’s ownership of the group company, Farrar and Miller therefore had an indirect 50% interest each in Long Stratton.
Farrar claimed that in 2008, he, Miller and the chairman of the group made an oral agreement. They agreed that they would transfer Long Stratton to a joint venture entity, which would then sell it after obtaining planning permission to develop it. Miller would oversee this process, and each of the three men would receive a third of the profits from this sale. Farrar claimed the agreement had three implied terms:
- The parties would ensure that any intermediary entities which owned or controlled Long Stratton during this process would carry out the agreement;
- The parties would not prevent or frustrate performance of the agreement;
- Miller, as the person taking responsibility for transferring Long Stratton to the joint venture entity, owed Farrar and the chairman fiduciary duties.
Long Stratton was sold to one of Roxylight’s subsidiaries. The subsidiary then sold it to Edged Red LLP for £150,000. Miller was a member of Edged Red LLP, but Farrar was not. Edged Red LLP then sold the property to Sunguard Land Ltd. Once again, Miller had an interest in this company while Farrar did not. After obtaining planning permission, Sunguard Land Ltd sold Long Stratton for £5 million.
Farrar argued that Miller held the proceeds on constructive trust for Farrar, either under the principle in Pallant v Morgan  Ch 43 or by virtue of Miller’s fiduciary duties. In the alternative, Farrar argued that a proprietary estoppel had arisen. This appeal concerned whether Farrar could plead these causes of action at trial. He needed to establish that he had an arguable case for each.
- Was it arguable that a Pallant v Morgan trust existed on these facts?
- Was it arguable that proprietary estoppel existed on these facts?
- Was it arguable that Miller owed Farrar fiduciary duties?
The Court of Appeal held for Farrar.
- Pallant v Morgan: It was arguable that the parties had a common intention to sell Long Stratton and share in the proceeds. It was similarly arguable that in reliance on the arrangement, Farrar was deprived of both the opportunity to participate in the joint venture and his pre-existing indirect interest in Long Stratton. Farrar could plead a constructive trust based on Pallant v Morgan.
- Proprietary Estoppel: It was arguable that there had been an agreement between the parties on which Farrar relied. It did not matter that the agreement may not have been complete.
- Fiduciary Duties: The existence of a fiduciary duty is highly fact-sensitive. It was certainly possible that a fiduciary relationship could arise in a joint venture context.
This Case is Authority For…
A Pallant v Morgan trust arises when:
- The parties enter an arrangement. There is no need for the arrangement to be contractually enforceable. It only needs to demonstrate a common intention.
- The arrangement contemplates that one party will acquire property and the other(s) will get some interest in it.
- The non-acquiring party acts detrimentally or confers an advantage in reliance on the arrangement. This can take any form, provided it makes it unconscionable for the acquiring property to keep the property absolutely.
Kitchen LJ thought that a Pallant v Morgan constructive trust can arise even if the parties made the agreement after they acquired the property. He applied the equitable maxim that ‘equity looks on that as done which ought to be done’. This expands the Pallant v Morgan trust, which has only previous arisen in relation to pre-acquisition agreements.
Miller argued that proprietary estoppel could not be used to avoid the formalities requirements under s.2(1) of the Law of Property (Miscellaneous Provisions) Act 1989 Act. Kitchen LJ clarified that s.2(1) did not prevent a proprietary estoppel arising and the court granting (at least) a non-proprietary remedy to satisfy it.