The Pallant v Morgan Equity - otherwise known as Pallant v Morgan Constructive Trust

In Dixon v Willan [2022] EWHC 2160 (Ch), at paragraph 12, HHJ Cawson QC (sitting as a Judge of the High Court) on 26 August 2022 said that the following 'formulation of the relevant principles' (paragraph 12) was 'entirely accurate' (paragraph 12):

i) The equity must relate to specific property that is not at first owned by either of the parties – see Cobbe v. Yeoman's Row Management Limited [2008] UKHL 55, [2008] 1 WLR 1752, per Lord Scott at [37].

ii) The acquiring party and the non-acquiring party must form a common intention that the acquiring party will take steps to acquire the property and if they do so that the non-acquiring party will obtain "some interest in it", which does not have to be a specific proprietary interest (whether legal or equitable) in the land itself. It "just requires that specific property be acquired for the joint benefit of A and B" - see Kilcarne Holdings v. Targetfollow (Birmingham) Limited [2005] EWCA Civ 1355, and Kearns Brothers v. Hova Developments Limited [2012] EWHC 2968, per Edward Bartley Jones QC (sitting as a Deputy Judge of the High Court) at [114] to [119].

iii) The common intention need not be in writing. Nor does the common intention require that there be an arrangement that amounts to a contract capable of specific performance (i.e. because its terms are insufficiently certain or because the arrangement was not intended to be an enforceable contract). However, there is a requirement that the main terms of the arrangement have been agreed between the parties. Further the Pallant v. Morgan equity cannot arise where the agreement is made in arms-length commercial negotiations where the agreement is expressed to be "subject to contract" or where both parties mutually agree or each realise that the arrangement is not legally enforceable since they both plan and intend to enter into a binding agreement in the future - see Banner Homes Group PLC v. Luff Developments Limited [2000] Ch 372, 397-399, Cobbe v. Yeoman's Row Management Limited (supra) at [37], and Generator Developments v. LIDL UK GMBH [2018] EWCA Civ 396, [2018] 2 P& CR 7, per Lewison LJ at [56] to [70].

iv) "In order to be able to invoke the Pallant v Morgan equity it must in my judgment be possible to say that the agreement or understanding in question is one which has been assented to by a person capable of binding the party in question; or who at least has ostensible authority to do so" – see Generator Developments v. LIDL (supra), per Lewison LJ at [82], and Pallant v. Morgan (supra), per Harman J at 47.

v) The Pallant v. Morgan equity will arise if the non-acquiring party can show that in reliance on the acquiring party's assurance or the non-acquiring party's expectation that they would acquire an interest in the land, the non-acquiring party then does something which confers an advantage on the acquiring party in acquiring the property or which is detrimental to the non-acquiring party's ability to acquire it on equal terms - see Banners Homes v. Luff (supra).

vi) The Pallant v. Morgan equity will arise where it would be unconscionable for the acquiring party to keep the property for itself. As it was put in Banners Homes v. Luff (supra) at 398-399, per Chadwick LJ: "It is 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 leads 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 … What is essential is that the circumstances make it inequitable for the acquiring party to retain the property for himself in a manner inconsistent with the arrangement or understanding on which the non-acquiring party has acted. Those circumstances may arise where the non-acquiring party was never "in the market" for the whole of the property to be acquired; but (on the faith of an arrangement or understanding that he shall have a part of that property) provides support in relation to the acquisition of the whole which is of advantage to the acquiring party. They may arise where the assistance provided to the acquiring party (in pursuance of the arrangement or understanding) involves no detriment to the non-acquiring party; or where the non-acquiring party acts to his detriment (in pursuance of the arrangement or understanding) without the acquiring party obtaining any advantage therefrom."

vii) The effect of the Pallant v. Morgan equity is that the acquiring party becomes bound by a constructive trust to prevent them from benefitting from their unconscionable breach of the agreement.

viii) Since it is an equitable jurisdiction, the court has a wide discretion as to what remedy it orders, which could include the court declaring that the acquired property is held on trust for the acquiring party and the non-acquiring party jointly, that the property be re-sold and that after the deduction of the expenses of purchase and development that the net proceeds of sale be divided between the parties in equal shares or that the acquiring party holds the property on a constructive trust for both parties to give effect to their informal common intention and/or that the court orders accounts and enquiries and/or that the court makes an award of equitable compensation to one of the parties – see Cobbe v. Yeoman's Row Management (supra) at [30] and Kearns Brothers v. Hova Developments Limited (supra) at [123] to [130]).'

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