Farrar v Miller [2018] EWCA Civ 172

[2018] EWCA Civ 172Case No A3/2016/3780
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
HIS HONOUR JUDGE BARKER QC (sitting as a
Deputy Judge of the High Court)
HC14F01534
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 14/02/2018
Before
LORD JUSTICE PATTENLORD JUSTICE KITCHINLORD JUSTICE FLOYD
Between
PETER FARRARClaimantDAVID CHARLES LAWSON MILLERDefendantPETER FARRAR Claimant/Respondent (in Appeal 3780) Appellant (in Appeal 3788)- and -DAVID CHARLES LAWSON MILLER Defendant/Appellant (in Appeal 3780) Respondent (in Appeal 3788)
Shane Sibbel (instructed by CANDEY) for Claimant/AppellantJonathan Cohen QC (instructed by Swan Turton LLP) for Defendant/RespondentHearing Hearing date: 29 November 2017Further written submission received on 1 December 2017
Judgment Approved by the court or handing down (subject to editorial corrections)Lord Justice Kitchin:

Introduction

[1]On 15 July 2016 His Honour Judge Barker QC, sitting as a judge of the High Court, gave the claimant, Mr Farrar, permission to amend his particulars of claim to allege that the proceeds of sale of a piece of land known as “Long Stratton” were held on trust for him by the defendant, Mr Miller, under a Pallant v Morgan constructive trust, or that the facts gave rise to a proprietary estoppel. However, the judge refused to give Mr Farrar permission to introduce a claim for breach of fiduciary duty.[2]Mr Miller and Mr Farrar now appeal to this court. Mr Miller contends that the judge was wrong to give Mr Farrar permission to amend his particulars of claim because the claims so raised were misconceived as a matter of law and had no real prospect of success. Mr Farrar argues that the judge ought to have given him permission to introduce the claim for breach of fiduciary duty.[3]I will deal with these contentions in turn but before doing so I must explain the relevant facts and the allegations made by Mr Farrar, and say something about the procedural background.

Factual background and Mr Farrar’s case

[4]Mr Farrar and Mr Miller were for many years in business together as property developers and their principal operating vehicle was Roxylight Holdings Ltd (“Roxylight”).[5]In or about 1995 Roxylight or one of its associated companies acquired Edmond Homes Plc (“EHP”) and its various subsidiaries. One of the assets of the EHP group of companies was Long Stratton.[6]From this time until the events giving rise to these proceedings, the registered proprietor of Long Stratton was a company in which Mr Farrar and Mr Miller each had an indirect 50% interest. Mr Farrar contends that this company was Saxon Developments Limited; Mr Miller says it was one of Saxon Development’s subsidiaries. However, it is common ground for the purposes of this appeal that nothing turns on this particular dispute and so I shall refer to the relevant company as “Saxon”.[7]It is Mr Farrar’s case that in early 2008 he, Mr Miller and Mr Richard Chalcraft, who had been chairman of EHP, made an oral agreement (“the Joint Venture agreement”) with the following express terms: i) Mr Chalcraft would seek to obtain planning permission for the construction of houses on Long Stratton; ii) Long Stratton would be transferred out of Saxon into a new entity (“the Joint Venture entity”) which would be directly or indirectly owned by the contracting parties in equal shares; and iii) once planning permission had been obtained, Long Stratton would be sold by the Joint Venture entity and each of the contracting parties would receive one third of the net profits of the sale.[8]Mr Farrar also contends that the Joint Venture agreement included the following implied terms: i) in so far as Long Stratton was owned or controlled indirectly through intermediate entities, the contracting parties would direct, permit or procure those entities to act as to give effect to the express terms of the Joint Venture agreement; and ii) that the contracting parties would not take any steps which would prevent their performance of the Joint Venture agreement or otherwise frustrate it.[9]It is a further aspect of Mr Farrar’s case that it was the practice, as between himself and Mr Miller, that Mr Miller would deal with corporate matters arising in connection with their joint ventures and, so Mr Farrar continues, Mr Miller was given or assumed the responsibility of arranging the transfer of Long Stratton to the Joint Venture entity. Further, Mr Miller owed Mr Farrar and Mr Chalcraft fiduciary duties pursuant to the Joint Venture agreement and, in particular: i) a duty to act in a manner consistent with the purpose and objectives of the agreement when exercising control (whether through his rights as a director, ultimate shareholder or otherwise) over any entity dealing with Long Stratton; ii) duties of good faith and loyalty; iii) a duty not to act in his own self-interest or for his own benefit without the consent of Mr Farrar and Mr Chalcraft; iv) a duty not to make a profit from the trust of Mr Farrar and Mr Chalcraft and to account for any such profit; and v) a duty to hold Long Stratton or its traceable proceeds for the benefit of the contracting parties.[10]At about this time Mr Nigel Brunskill also became involved in the project. Mr Farrar contends that he made a collateral agreement with Mr Miller and Mr Brunskill to the effect that Mr Brunskill would receive a beneficial interest in Roxylight and that the net profit derived from the sale of Long Stratton would be divided in the following shares: 33% to Mr Chalcraft; 28.3% to Mr Farrar; 28.3% to Mr Miller and 10% to Mr Brunskill.[11]Later in 2008 and following the onset of the global financial crisis, Saxon became insolvent. Administrators were appointed and on 7 October 2008 Long Stratton was sold to Artillery Mansions Limited (“Artillery”). Artillery was owned by Leongreen Limited (“Leongreen”) which was itself owned by Roxylight. There is no dispute that in this way Mr Farrar and Mr Miller retained their respective interests in Long Stratton, but, says Mr Farrar, subject to the terms of the Joint Venture agreement and the collateral agreement.[12]In August 2009 Artillery sold Long Stratton to Edged Red LLP (“Edged Red”) for £150,000. Mr Miller was a member of Edged Red, as was Mr Brunskill, but Mr Farrar was not. Mr Farrar maintains that this sale took place without his knowledge or consent. He also asserts that in or about December 2010 and again without his knowledge or consent, Edged Red sold Long Stratton to Sunguard Land Limited (“Sunguard”), a company in which Mr Miller, Mr Chalcraft and Mr Brunskill had an interest but he did not, and that in March 2013 the local planning authority granted planning permission for its development. In December 2013 Sunguard sold Long Stratton for a sum believed by Mr Farrar to be in excess of £5 million.[13]Mr Farrar asserts that Mr Miller was the controlling mind of Artillery, Edged Red and Sunguard for the purpose of the dealings to which I have referred and that each of these companies took possession of Long Stratton on notice of Mr Miller’s fiduciary duties under the Joint Venture agreement.[14]Mr Farrar also contends that the matters to which I have referred at [7] and [8] above constituted representations and assurances given to him by Mr Miller and Mr Chalcraft and that in reliance upon them and to his detriment he: i) agreed that Mr Chalcraft would receive one third of the net profit on the sale of Long Stratton thereby diminishing his own indirect interest in Long Stratton; ii) directed, procured and permitted the transfer of Long Stratton from Saxon to Artillery; iii) permitted Mr Miller to exercise control over Artillery, which control Mr Miller then exploited by transferring Long Stratton from Artillery to Edged Red.[15]Finally, Mr Farrar contends that in all these circumstances it is unconscionable and a breach of his fiduciary duties for Mr Miller to deny Mr Farrar’s interest in Long Stratton and its proceeds. Mr Miller is therefore estopped from doing so and holds those proceeds subject to a constructive trust.

Procedural history

[16]Mr Farrar originally advanced his claim on the basis that Mr Miller had, by his actions, acted in breach of the express or implied terms of the Joint Venture agreement. That claim was struck out by order of Chief Master Marsh on 26 January 2015 on the following grounds: first, the Joint Venture agreement amounted to an oral agreement for the disposition of an interest in land and so was unenforceable by virtue of s.2 of the Law of Property (Miscellaneous Provisions) Act 1989 (“the 1989 Act”); secondly, the claim failed to comply with the requirements of CPR 16 PD 7.4 because it did not set out adequate particulars of the agreement; and thirdly, the agreement lacked consideration.[17]Judge Barker heard the appeal against the order of the Chief Master on 15 July 2015. He came to the conclusion that the Chief Master had fallen into error in relation to the application of CPR 16 PD 7.4 and the issue of consideration but upheld his decision in so far as it was based upon the provisions of the 1989 Act. Nevertheless, he took the view that the claim and the evidence before him provided a sufficient basis for Mr Farrar to be granted a stay to formulate a claim for breach of constructive trust and proprietary estoppel and to apply for permission to amend his particulars of claim. Draft amended particulars of claim were provided on that same day and the judge heard argument about them on 17 July 2015.[18]On 18 December 2015 Judge Barker gave judgment. He found that the proposed amended particulars of claim did disclose a properly arguable claim for breach of constructive trust and proprietary estoppel but that they required further refinement. At a consequential hearing on 15 July 2016, the judge approved the form of the amended particulars of claim. At that same hearing and for reasons he gave in a short ex tempore further judgment, the judge refused a further application by Mr Farrar to re-amend his particulars of claim to introduce a claim that Mr Miller had also acted in breach of fiduciary duty. All of these rulings were embodied in the order that the judge made on that day and against which Mr Farrar and Mr Miller now appeal.

Constructive trust

[19]Mr Sibbel, who has appeared on this appeal on behalf of Mr Farrar, has made clear to us that the foundation of Mr Farrar’s claim for breach of constructive trust is and has always been the decision of Harman J in Pallant v Morgan [1953] Ch 43. In that case the agents of two landowners agreed immediately before the auction of a piece of land that one of them, the agent of the plaintiff, would refrain from bidding and that if the other, the agent of the defendant, was successful, the defendant would divide the land according to a formula agreed between them. The defendant was successful but, the parties having failed to agree all of the details of the division, retained the whole of the land. Harman J held that the agreement left too much to be decided to be enforceable. But to allow the defendant to retain the whole of the land would be tantamount to sanctioning a fraud on his part. The defendant’s agent was bidding for both parties on an agreement that there should be an arrangement between them for the division of the land if he were successful. The parties had failed to agree on the division and the court could not compel them to do so. But the court could and would decree that the defendant held the land for himself and the claimant jointly.[20]The Pallant v Morgan equity was considered by the Court of Appeal in Banner Homes Group plc v Luff Developments Ltd [2000] Ch 372. This claim concerned a development site in Berkshire in which both parties (“Banner” and “Luff”) were interested and which they agreed in principle to acquire and develop together through a joint venture company. Following that agreement, Luff acquired an “off the shelf” company (“Stowhelm”) as the corporate vehicle for the purchase and development and with the intention that it should be the joint venture company. Later but before the purchase of the site, Luff began to have second thoughts about having Banner as a joint venture partner. But it never mentioned these thoughts to Banner for fear that, if dropped, Banner might emerge as a rival for the site. There was no indication before the purchase that any difference of principle existed between them. In these proceedings Banner claimed an interest in the site pursuant to the agreement or by way of a constructive trust over half the shares in Stowhelm. The trial judge rejected both claims. He held that no agreement had been reached and he rejected the claim in equity on the basis that it converted an undertaking which was qualified by a right to withdraw into an undertaking which was unqualified.[21]The Court of Appeal allowed the appeal in relation to the claim in equity. It held that Luff acquired the property in circumstances where it would be inequitable to allow it to treat the site as its own. Luff had obtained the advantage which it had sought, namely the advantage of knowing that it had Banner’s support as a potential joint venturer whose commitment was not in doubt, in an acquisition on which it had not been prepared to embark on its own. In the course of his judgment, Chadwick LJ, with whom Evans and Stuart Smith LJJ agreed, said that there was no doubt that a Pallant v Morgan equity existed and that it was firmly based. It was, he thought, an example of the wider equity to which Millet J (as he then was) referred in Lonrho Plc v Fayed (No.2) [1992] 1 WLR 1 at 9-10 and again, in the Court of Appeal, in Paragon Finance Plc v D B Thakerar & Co [1999] 1 All ER 400. There Millett LJ, as he had by then become, said this at 408-409:
“… the expressions ‘constructive trust’ and ‘constructive trustee’ have been used by equity lawyers to describe two entirely different situations. The first covers those cases already mentioned, where the defendant, though not expressly appointed as trustee, has assumed the duties of a trustee by a lawful transaction which was independent of and preceded the breach of trust and is not impeached by the plaintiff. The second covers those cases where the trust obligation arises as a direct consequence of the unlawful transaction which is impeached by the plaintiff. A constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another. In the first class of case, however, the constructive trustee really is a trustee. He does not receive the trust property in his own right but by a transaction by which both parties intend to create a trust from the outset and which is not impugned by the plaintiff. His possession of the property is coloured from the first by the trust and confidence by means of which he obtained it, and his subsequent appropriation of the property to his own use is a breach of that trust. Well-known examples of such a constructive trust are McCormick v. Grogan (1869) L.R. 4 H.L. 82 (a case of a secret trust) and Rochefoucald v. Boustead [1897] 1 Ch. 196 (where the defendant agreed to buy property for the plaintiff but the trust was imperfectly recorded). Pallant v. Morgan [1953] Ch. 43 (where the defendant sought to keep for himself property which the plaintiff trusted him to buy for both parties) is another. In these cases the plaintiff does not impugn the transaction by which the defendant obtained control of the property. He alleges that the circumstances in which the defendant obtained control make it unconscionable for him thereafter to assert a beneficial interest in the property.”
[22]Chadwick LJ continued (at 397-399) that it was important to identify the features which would give rise to a Pallant v Morgan equity and define its scope whilst keeping in mind that it was undesirable to attempt anything in the nature of an exhaustive classification and further, that equity must never be deterred by the absence of a precise analogy provided that the principle invoked is sound. He then advanced five propositions. For the purposes of this appeal, the material aspects of those propositions are these.[23]First, a Pallant v. Morgan equity may arise where the arrangement or understanding on which it is based precedes the acquisition of the relevant property by one party to that arrangement. It is the pre-acquisition arrangement which colours the subsequent acquisition by the defendant and leads to his being treated as a trustee if he seeks to act inconsistently with it. Where the arrangement or understanding is reached in relation to property already owned by one of the parties, he may (if the arrangement is of sufficient certainty to be enforced specifically) thereby constitute himself trustee on the basis that “equity looks on that as done which ought to be done”; or an equity may arise under the principles developed in the proprietary estoppel cases.[24]Secondly, it is not necessary that the arrangement or understanding should be contractually enforceable. In particular, it is no bar to a Pallant v Morgan equity that the pre-acquisition arrangement is too uncertain to be enforced as a contract, nor that it is plainly not intended to have contractual effect.[25]Thirdly, it is necessary that the pre-acquisition arrangement or understanding should contemplate that one party will take steps to acquire the property, and that if he does so, the other party will acquire some interest in it. It is also necessary that, whatever private reservations the acquiring party may have, he has not informed the non-acquiring party before the acquisition (or before it is too late for the parties to be restored to a position of non-advantage or detriment) that he no longer intends to honour the arrangement or understanding.[26]Fourthly, it is also necessary that in reliance upon the arrangement or understanding the non-acquiring party should do something, or omit to do something, which confers an advantage on the acquiring party in relation to the acquisition of the property, or is detrimental to the ability of the non-acquiring party to acquire the property on equal terms.[27]Fifthly, it is not necessary for the advantage or detriment to take the form of the non-acquiring party keeping out of the market. Nor is the existence of both advantage and detriment essential; either will do. It is, however, essential 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.[28]The Pallant v Morgan equity was also considered by the House of Lords in Cobbe v Yeoman’s Row Management Ltd [2018] 1 WLR 1752. Mr Cobbe, an experienced property developer, entered into negotiations with the third defendant, the sole director of Yeoman’s Row, to buy a property comprising a number of flats. They reached an oral agreement in principle on the core terms of the sale but no written or draft contract was ever produced, and some terms remained to be agreed. Pursuant to that agreement in principle, Mr Cobbe made and pursued an application for planning permission, and in so doing incurred considerable costs. The application was successful and planning permission was obtained. But at that point the defendants withdrew from the agreement. Mr Cobbe thereupon began proceedings in which he asserted that he had acquired a beneficial interest in the property and relied for that purpose on proprietary estoppel and constructive trust. The judge found that the third defendant had encouraged Mr Cobbe’s belief that if he succeeded in securing planning permission the agreement in principle would be honoured and that she had taken unconscionable advantage of him, and the claim based upon proprietary estoppel and constructive trust succeeded. The Court of Appeal dismissed the defendants’ appeal.[29]A further appeal to the House of Lords was allowed, however. Their Lordships held that the claim based upon proprietary estoppel failed for the following reasons. The claim could not be founded merely upon unconscionable conduct and required clarity as to what it was that the object of the estoppel was to be estopped from denying or asserting, and clarity as to the interest in the property that that denial or assertion would otherwise defeat. Further, an expectation dependent upon the conclusion of a successful negotiation was not an expectation of an interest having the necessary certainty. Here, Mr Cobbe did not have an expectation that he would, if the application for planning permission succeeded, become entitled to a certain interest in the land. Further, his belief or expectation was always speculative for he knew the defendants were not legally bound by the agreement; and the terms of the agreement were not complete.[30]The claim based upon constructive trust also failed. Yeoman’s Row owned the property before Mr Cobbe came onto the scene; the agreement was known to the parties to be unenforceable, and an unenforceable promise to perform an unenforceable agreement could confer no greater advantage than the unenforceable agreement; Mr Cobbe never expected to get an interest in the property otherwise than under a legally enforceable contract; and Mr Cobbe’s expectation of an enforceable contract was inherently speculative.[31]Nevertheless, in addressing the issue of constructive trust, Lord Scott, with whom Lord Hoffmann, Lord Brown and Lord Mance agreed, recognised not only that it was impossible to prescribe exhaustively the circumstances sufficient to create a constructive trust but also that such a trust could arise out of a joint venture relating to land, as it did in Pallant v Morgan and Banner Homes:
“30. It is impossible to prescribe exhaustively the circumstances sufficient to create a constructive trust but it is possible to recognise particular factual circumstances that will do so and also to recognise other factual circumstances that will not. A particular factual situation where a constructive trust has been held to have been created arises out of joint ventures relating to property, typically land. If two or more persons agree to embark on a joint venture which involves the acquisition of an identified piece of land and a subsequent exploitation of, or dealing with, the land for the purposes of the joint venture, and one of the joint venturers, with the agreement of the others who believe him to be acting for their joint purposes, makes the acquisition in his own name but subsequently seeks to retain the land for his own benefit, the court will regard him as holding the land on trust for the joint venturers. This would be either an implied trust or a constructive trust arising from the circumstances and if, as would be likely from the facts as described, the joint venturers have not agreed and cannot agree about what is to be done with the land, the land would have to be resold and, after discharging the expenses of its purchase and any other necessary expenses of the abortive joint venture, the net proceeds of sale divided equally between the joint venturers.”
[32]The jurisprudential basis of the Pallant v Morgan equity has been the subject of considerable debate and was considered further by the Court of Appeal in Crossco No 4 Unlimited v Jolan Ltd [2012] All ER 754. There the appeal turned on the factual findings made by the trial judge but the Court of Appeal nevertheless explored the basis of the equity and, in particular, whether it is to be explained as an example of a common intention constructive trust or in conventional terms by the existence and breach of fiduciary duty or in some other way. Arden LJ, with whom McFarlane LJ agreed, thought it clear that the ratio of the Banner Homes case is firmly based upon a common intention constructive trust of the kind enunciated in Gissing v Gissing [1970] 2 All ER 780, [1971] AC 886. Etherton LJ conducted a detailed analysis of the relevant authorities and academic literature from [80] to [95] and concluded that the cases in which the Pallant v Morgan equity has been applied can be explained in a conventional manner as examples of breach of fiduciary duty and that it is sound policy that they should be understood in that way. Interesting and difficult though this question is, it is not necessary to explore it further on this appeal. What can be said, however, is that many of the cases giving rise to a Pallant v Morgan style equity will have at their heart a fiduciary relationship and, as shall I explain in addressing Mr Farrar’s appeal, this is said to one of them.[33]Reverting to the circumstances of this appeal and the pleaded case, the Joint Venture agreement contemplated the transfer of Long Stratton from Saxon, a company indirectly owned or controlled by Mr Farrar and Mr Miller, to the Joint Venture entity, a new company which would be directly or indirectly owned by the three joint venturers in equal shares. Saxon foundered and was in effect replaced by Artillery. But at this point the status quo was in a sense preserved in that Mr Farrar and Mr Miller retained their indirect interest in Long Stratton through Artillery, Leongreen and Roxylight. And importantly, on Mr Farrar’s case, Long Stratton was still the subject of the Joint Venture agreement.[34]Further, Mr Farrar continues, and as a consequence of and pursuant to the Joint Venture agreement, Mr Miller was entrusted with and assumed responsibility for transferring Long Stratton from Artillery to the Joint Venture entity. However, contrary to the terms of the agreement, Mr Miller used the position with which he had been entrusted to procure in secret the transfer of Long Stratton to Edged Red.[35]I should say at this stage that, at least for the purposes of this appeal, it has formed no part of Mr Miller’s response to these submissions that the matters upon which Mr Farrar relies could not give rise to a constructive trust which attaches to Long Stratton for it was always intended that it should be owned by the Joint Venture entity, and that Mr Farrar should simply be a shareholder in that entity. Nor has it been a part of Miller’s response that Mr Farrar only ever had an indirect interest in Long Stratton via Artillery before the matters of which he complains in these proceedings.[36]These points aside and subject to Mr Miller’s grounds of appeal, to which I will come in a moment, the facts and matters upon which Mr Farrar relies are and were in my view sufficient to raise a properly arguable case of breach of constructive trust which justified the grant by the judge to Mr Farrar of permission to amend his pleading. On the facts alleged, Mr Miller never took control of Long Stratton in his own right but as a result of the Joint Venture agreement and the long standing relationship of trust between him and Mr Farrar, and he did so for the purpose of transferring the property to the Joint Venture entity. He was entrusted to deal with the property in accordance with the agreement he had made but instead appropriated it to his own use. In the words of Millett LJ in Paragon Finance, his possession of the property was coloured from the first by the trust and confidence by which he obtained it, and his subsequent appropriation of the property to his own use was a breach of that trust. Put another way, Mr Miller acquired the property in circumstances such that it was inequitable for him to treat it as his own and where, as a result, it is necessary to impose upon him the obligations of a trustee.[37]So I turn to Mr Miller’s grounds of appeal and the submissions of Mr Cohen QC who has appeared on his behalf. It is contended first, that a Pallant v Morgan style constructive trust is only capable of arising where there is a pre-acquisition agreement, but in this case Mr Farrar and Mr Miller were already beneficial owners of the land.[38]In developing this ground of appeal, Mr Cohen points to this passage in the speech of Lord Scott in Cobbe:
“33. The constructive trust in these failed joint venture cases cannot, in my opinion, be recognised or imposed in the present case. The Yeoman's Row property was owned by the defendant company some years before Mrs Lisle-Mainwaring began her joint venture discussions (for such in effect they were) with Mr Cobbe. In the Banner Homes case [2000] Ch 372, 397 Chadwick LJ commented on how the situation might appear in such a case: “Where the arrangement or understanding is reached in relation to property already owned by one of the parties, he may (if the arrangement is of sufficient certainty to be enforced specifically) thereby constitute himself trustee on the basis that ‘equity looks on that as done which ought to be done’; or an equity may arise under the principles developed in the proprietary estoppel cases.”
For the reasons already explained I think the “principles developed in the proprietary estoppel cases” are inapplicable in cases such as the present; and “if the arrangement is of sufficient certainty to be enforced specifically” there would be a straightforward contractual remedy, with no need to resort to trusts. But the point underlying Chadwick LJ’s comment is a valid one. If the property that is to be the subject of the joint venture is owned by one of the parties before the joint venture has been embarked upon (as opposed to being acquired as part of the joint venture itself), on what basis, short of a contractually complete agreement for the joint venture, can it be right to regard the owner as having subjected the property to a trust and granted a beneficial interest to the other joint venturers? As Chadwick LJ observed in the Banner Homes case, at p400:
“The [Pallant v Morgan] equity is invoked where the defendant has acquired property in circumstances where it would be inequitable to allow him to treat it as his own.” “Where the arrangement or understanding is reached in relation to property already owned by one of the parties, he may (if the arrangement is of sufficient certainty to be enforced specifically) thereby constitute himself trustee on the basis that ‘equity looks on that as done which ought to be done’; or an equity may arise under the principles developed in the proprietary estoppel cases.”
[39]Mr Cohen continues that it is important to note that in Cobbe the House of Lords did not merely decide that a Pallant v Morgan style constructive trust could not arise absent a pre-acquisition agreement. The House also decided that where an agreement between parties to dispose of land was reached post-acquisition, no constructive case of any kind could arise. Either the agreement itself was contractually enforceable or it was not.[40]It is, says Mr Cohen, readily understandable why the authorities distinguish between a case where a joint venturer betrays his co-venturer by “going alone” from, on the other hand, a case where the parties have simply failed to comply with the requirements of s.2(1) of the 1989 Act. In the former case the innocent joint venturer has reposed trust in his associate by alerting him to an opportunity and relying on him to effect the purchase. In the latter case, to allow a constructive trust to bridge the gap left by non-compliance with the statute would render s.2(1) wholly pointless. An oral agreement for the disposition of land will inevitably reflect the common intention of the parties, but that common intention does not give rise to a constructive trust.[41]Mr Cohen also submits that the alleged agreement between Mr Farrar and Mr Miller in this case was not a pre-acquisition agreement for they already owned Long Stratton in equal shares, albeit through a corporate structure. The negotiations between them were concerned with what was already beneficially theirs. The two were, in effect, on both sides of the alleged agreement but were at all times dealing with what they had long since acquired. As a result, no constructive trust could ever have arisen. Either they had arrived at a specifically enforceable agreement or, as was in fact the case, they had not.[42]I recognise that a Pallant v Morgan equity will typically arise in circumstances where the property in issue was at first not owned by either party. But I do not accept that it is necessarily so limited. As Millett LJ explained in Paragon Finance,a constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of a property to assert his own beneficial interest in the property and deny the beneficial interest of another. Where a party, though not expressly appointed as a trustee, has lawfully assumed the duties of a trustee and in that capacity has received trust property but later appropriates that property to his own use then he will be acting in breach of trust. Pallant v Morgan may be understood as an example of such a constructive trust. In this and in other such cases the claimant does not impugn the transaction by which the defendant obtained control of the property; he contends that the circumstances in which the defendant obtained that control make it unconscionable for him to treat the property as his own.[43]I do not understand the House of Lords in Cobbe to have been purporting to lay down any different rule and in my view the passage in the speech of Lord Scott upon which Mr Cohen so heavily relies must be seen in the context of the circumstances of that case and, in particular, the relationship between the parties, the speculative nature of Mr Cobbe’s belief and the fact that the agreement was known to the parties to be unenforceable. Nor do I believe that the reasoning of Chadwick LJ in Banner Homes necessarily precludes the imposition of a constructive trust in circumstances such as those of this case. Indeed he made it clear that he was not purporting to lay down an exhaustive classification and expressly recognised that equity must not be deterred by the absence of a precise analogy. I also reject Mr Cohen’s argument that allowing a constructive trust to bridge the gap left by non-compliance with the statute renders s.2(1) of the LPA 1989 pointless. As Mr Sibbel submits, s.2(1) is not expressed to limit non-contractual obligations or other causes of action; s.2(5) expressly provides that nothing in the section affects the creation of resulting, implied or constructive trusts; and it is perfectly comprehensible for Parliament to have intended to increase certainty in contractual dealings by imposing formalities requirements whilst avoiding any interference with equitable doctrines which require both intention and unconscionable conduct.[44]In any event, however, it seems to me to be properly arguable that the circumstances of this case, as they are alleged by Mr Farrar to be, did give rise to a Pallant v Morgan style constructive trust on a more conventional analysis. Addressing each of Chadwick LJ’s criteria in turn, the Joint Venture agreement did precede the relevant acquisition of the property, that is to say its acquisition by the Joint Venture entity; the Joint Venture agreement and other arrangements between the parties contemplated that they would have an equal (though diminished) interest in the property through the Joint Venture entity; at some point before the transfer Mr Miller formed the intention no longer to honour the agreement but did not disclose this to Mr Farrar; in reliance upon the agreement Mr Farrar permitted Mr Miller to have control over the property through Saxon and subsequently Artillery, and in consequence he both conferred an advantage on Mr Miller in that it allowed him to deal with the property as his own and suffered a detriment in that he was deprived of the ability to protect his own interest. Finally, the circumstances, if established, would make it inequitable for Mr Miller to retain the property in a manner wholly inconsistent with the agreement between them. He not only deprived Mr Farrar of his opportunity to participate in the joint venture; he also deprived him of his pre-existing but indirect interest in the property.[45]I can deal with the other grounds of appeal concerning the constructive trust claim quite shortly. It is said, first, that no Pallant v Morgan equity can arise where an agreement is incomplete. Here Mr Cohen submits that, on Mr Farrar’s own case, a component part of the Joint Venture agreement was that a sum should be paid to Saxon but the amount of that sum was never agreed. In these circumstances it is impossible for a constructive trust to have arisen for it shows that there was never any common intention to enter into any kind of legal commitment. Absent an agreement on price, there was nothing upon which an equity or trust could bite.[46]As I have explained, it is not a requirement of a Pallant v Morgan equity that the agreement or arrangement between the parties is sufficiently certain to be contractually enforceable although I recognise that the commercial context and the absence of agreement on critical parts of the deal may indicate there was never a common intention to enter into any kind of legal commitment: see, for example, Crossco per Etherton LJ at [107]. It seems to me, however, that the critical parts of the deal here concerned, not the payment to be made to Saxon or Artillery, but rather the development and sale of Long Stratton. Certainly, the possibility that a judge at trial might come to a contrary conclusion would have provided a wholly inadequate basis to refuse permission to amend.[47]The final ground of appeal on this aspect of the case is that Mr Farrar’s plea of detrimental reliance and unconscionability is misconceived since the only relevant aspect of the joint venture upon which the claim is based, namely the promise to transfer Long Stratton to the Joint Venture entity, was in fact fulfilled upon the sale of Long Stratton to Artillery, and this was a company in which Mr Farrar had a 50% interest.[48]I disagree. Assuming the correctness of the proposition upon which this ground of appeal is based, the transfer of Long Stratton to Artillery did not fulfil any relevant part of the Joint Venture agreement for Artillery was not the new Joint Venture entity owned by the parties as contemplated by the agreement; nor was it the entity through which it was intended that Long Stratton should be developed. The transfer to Artillery was instead made necessary by Saxon’s administration. What is more, Long Stratton did not remain in Artillery until its development and sale. Instead, it was, on Mr Farrar’s case, transferred out of Artillery by Mr Miller and used for his own purposes.[49]For all of these reasons, I have come to the conclusion that this aspect of Mr Miller’s appeal should be dismissed. The judge was both entitled and right to give Mr Farrar permission to plead a case based upon constructive trust. The claim has a real prospect of success.

Proprietary estoppel

[50]In Thorner v Major [2009] 1WLR 776 Lord Walker noted at [29] that most scholars agreed that the doctrine of proprietary estoppel is based upon three main elements: a representation or assurance made to the claimant; reliance upon it by the claimant; and detriment to the claimant in consequence of his reasonable reliance. The relevant assurance must be clear enough and what amounts to sufficient clarity is dependent upon the context: see Thorner at [56] and [64] per Lord Walker, and [84] to [86] per Lord Neuberger. In addition, the position of the parties must be such that the court is justified in intervening, or in other words, the conduct of the defendant must be unconscionable.[51]Mr Farrar contends, and the judge accepted he had a real prospect of establishing, that these requirements were satisfied on the pleaded facts of his case. To recap, it is Mr Farrar’s case that Mr Miller represented to him that Long Stratton would be transferred out of Saxon (and subsequently Artillery) into a new entity which would be owned directly or indirectly by him, Mr Miller and Mr Chalcraft, in equal shares, and that, upon planning permission being obtained, Long Stratton would be sold and the net profits divided between them, again in equal shares. Further, in so far as Long Stratton was owned directly or indirectly through intermediate entities, Mr Miller would procure and direct those subsidiary companies to act in such a way as to give effect to the agreement and would take no steps to prevent its performance or to frustrate it. Mr Farrar relied upon those representations and to his detriment agreed that Mr Chalcraft would receive a share of the net profits, and, following the transfer of Long Stratton from Saxon to Artillery, permitted Mr Miller to exercise control over Artillery and Long Stratton which he then exploited by transferring the property to Edged Red. In all of these circumstances, Mr Farrar continues, Mr Miller is estopped from denying that he, Mr Farrar, has a one third direct or indirect interest in Long Stratton or the proceeds of its sale.[52]Mr Miller now relies upon three grounds of appeal against this aspect of the judge’s[53]Mr Cohen has developed the first ground of appeal as follows. He submits that s.2(5) of the 1989 Act creates a limited exception from the otherwise void bargain that would result from non-compliance with s.2(1) and that this exception does not extend to a proprietary estoppel. Mr Cohen also points to this passage in the speech of Lord Scott in Cobbe:
“30. … Section 2 of the 1989 Act declares to be void any agreement for the acquisition of an interest in land that does not comply with the requisite formalities prescribed by the section. Subsection (5) expressly makes an exception for resulting, implied or constructive trusts. These may validly come into existence without compliance with the prescribed formalities. Proprietary estoppel does not have the benefit of this exception. The question arises, therefore, whether a complete agreement for the acquisition of an interest in land that does not comply with the section 2 prescribed formalities, but would be specifically enforceable if it did can become enforceable via the route of proprietary estoppel. It is not necessary in the present case to answer this question, for the second agreement was not a complete agreement and, for that reason, would not have been specifically enforceable so long as it remained incomplete. My present view, however, is that proprietary estoppel cannot be prayed in aid in order to render enforceable an agreement that statute has declared to be void. The proposition that an owner of land can be estopped from asserting that an agreement is void for want of compliance with the requirements of section 2 is, in my opinion, unacceptable. The assertion is no more than the statute provides. Equity can surely not contradict the statute. … ”
[54]Mr Cohen recognises that these words are obiter but submits they were expressed with considerable force and that they are words with which Lord Hoffmann, Lord Brown and Lord Mance agreed. Accordingly, says Mr Cohen, there is a short answer to the question whether proprietary estoppel falls in the scope of s.2(5). The answer is that if it did, it would say so. Since s.2(5) does not, proprietary estoppel cannot fall within the exception to the normal rule in s.2(1), even were we to think it desirable that it should.[55]Mr Cohen continues that older authorities suggesting otherwise should now be put to rest, including Yaxley v Gotts [2000] Ch 162. Further, it would be wrong to suggest that the inclusion of constructive trust in s.2(5) catches a proprietary estoppel, for although a proprietary estoppel may have similarities with a common intention constructive trust, the two are different both in terms of their jurisprudential basis and in their effects. In this connection he fairly points to the observations of Lord Walker in Stack v Dowden [2007] AC 432 at [37] that he was rather less enthusiastic about the notion that proprietary estoppel and common interest constructive trusts could or should be completely assimilated. As Lord Walker proceeded to explain, proprietary estoppel typically consists of asserting an equitable claim against the conscience of the owner and as such is a “mere equity” to be satisfied by the minimum award necessary to do justice. A common intention constructive trust, on the other hand, identifies the true beneficial owner and the size of his beneficial interest. So, Mr Cohen submits, the claim based upon proprietary estoppel is barred by the 1989 Act.[56]These are powerful submissions but I am not persuaded that they are necessarily correct. In my judgment this ground of appeal raises a difficult question which may depend upon the facts and which is better determined at trial in light of the evidence and full argument. In these circumstances it is neither necessary nor appropriate to attempt a full exposition of all of the relevant authorities, textbooks and academic commentaries. I will, however, explain, as briefly as I can, the reasons for the conclusion to which I have come.[57]There are in my view strong arguments for saying that s.2 of the 1989 Act is concerned only with the requirements of a valid contract for the sale or other disposition of an interest in land. Section 2(1) says:
“[a] contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all of the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each.”
[58]As Mr Sibbel submits, these words, on their face, refer only to the circumstances in which arrangements between the parties over the sale or disposition of land will give rise to a valid contract. They say nothing to prevent those arrangements giving rise to another cause of action. I recognise that s.2(5) says that the general rule does not affect the creation or operation of resulting, implied or constructive trusts and that no mention is made of proprietary estoppel, but the fact remains that s.2(1) is, on its wording, concerned only with contracts.[59]Does a free standing action based upon proprietary estoppel nevertheless frustrate the policy behind s.2? A number of matters point to the conclusion it does not. First, as Beldam LJ explained in Yaxley [2000] Ch 162 at 188 to 191, the 1989 Act was intended to implement three reports of the Law Commission, including, of particular importance to this appeal, Report No. 164, “Transfer of Land: Formalities for Contracts for Sale etc of Land”, 29 June 1987. This makes it clear at, especially, 4.13-4.15 and 5.1-5.5, that the policy behind s.2 was to increase certainty in contracts and to exclude the uncertainty and complexities in unregistered conveyancing caused by the doctrine of part performance. The Law Commission did not intend to exclude the application in appropriate cases of equitable remedies, including proprietary estoppel.[60]Secondly, it cannot be contended that s.2 has any application to certain non-proprietary remedies despite the fact that no mention of them is made in s.2(5). In Cobbe, Lord Scott had no difficulty with the notion that Mr Cobbe was at least in principle entitled to pursue claims for unjust enrichment, a quantum meruit and a restitutionary remedy based upon a total failure of consideration.[61]Thirdly, it has never been suggested that it is necessary for there to have been an agreement for a proprietary estoppel to arise. For example, it may arise where there has never been any agreement of any kind between the parties but where one party, the owner of the land, has stood by and allowed the other party to act to his detriment knowing that he mistakenly believes that he has or will obtain an interest in or right over the land. It has not been contended that s.2 of the 1989 Act would preclude a finding of proprietary estoppel in such a case.[62]Fourthly, and while an argument might be developed, based on the foregoing point, that s.2 would only preclude a finding of proprietary estoppel in a case where there was some sort of contractual connection, for example where the agreement was complete but for the necessary formalities, it is hard to see how such an argument could be justified, despite Lord Neuberger’s observations in Thorner at [99]. As Lord Neuberger later pointed out extra-judicially in “The stuffing of Minerva’s owl? Taxonomy and taxidermy in equity” CLJ, 2009, 68(3), 537-549, it would mean that the more clear and the more precise the defendant’s indication or promise, and therefore the stronger the claimant’s case in principle, the more likely it would be that s.2 would defeat a proprietary estoppel claim.[63]Finally, if and in so far as it may become necessary to consider in any case whether the claim would or would not frustrate the policy of the 1989 Act, it seems to me that Mr Farrar has a real prospect of establishing that his claim falls into the latter category for, although the agreement was never reduced to writing, it was an agreement which, at least in its essential respects, was complete and which Mr Farrar believed would be honoured. The facts of this case, as alleged by Mr Farrar, are far removed from those of Cobbe where the terms of the agreement had not been finalised and the agreement itself was not intended to be legally binding. It seems to me therefore that a judge at trial might well conclude both that the parties did reach an agreement, at least in principle, and that Mr Farrar had a reasonable expectation that the agreement would be honoured and that he would have a right in relation to Long Stratton and, following its sale, in the proceeds of that sale. Put another way, there is in my view a real prospect that the trial judge will conclude that Mr Miller represented and Mr Farrar reasonably assumed that Mr Miller would ensure that Mr Farrar would secure an interest in Long Stratton through the joint venture and that, despite their failure to satisfy the formality rules, it would be unconscionable for Mr Miller to contend otherwise.[64]I turn then to Mr Miller’s second ground of appeal against the judge’s finding and order. Mr Cohen submits that a proprietary estoppel cannot arise where the agreement between the parties said to give rise to the equity is incomplete and that such is made clear by Lord Scott in Cobbe at [18] to [19] in explaining the meaning of the necessary expectation of a “certain interest” in land. The agreement must, he says, be complete such that there is no uncertainty as to its terms.[65]In my judgment this submission goes too far. It is not a requirement of a proprietary estoppel that the parties have reached an agreement. What is required is that the owner of the land has induced, encouraged or allowed the claimant to believe that he has or will acquire a right or interest in the land, and that right or interest must be clear enough in all the circumstances. In Thorner, Lord Walker cited with approval Hoffmann LJ’s statement in Walton v Walton (1994) that:
“The promise must be unambiguous and must appear to have been taken seriously. Taken in context, it must have been a promise which one might reasonably expect to be relied upon by the person to whom it was made.”
[66]In my judgment Mr Farrar has a real prospect of establishing at trial that the relevant assurance was sufficiently clear in that it was made in respect of an indirect or beneficial interest in one third of Long Stratton to be realised upon its development and sale. It was a promise which one might reasonably expect to be relied upon by Mr Farrar, the person to whom it was made.[67]Mr Miller’s third ground of appeal is that the judge ought to have found that the relevant promise relied upon by Mr Farrar was fulfilled. In my judgment and just as in the case of the claim based upon constructive trust, Mr Farrar has a real prospect of establishing that it was not. The relevant assurance was not just that Long Stratton would be transferred into the Joint Venture entity but also that he would have an indirect interest in Long Stratton to be realised upon its development and sale.[68]I would therefore dismiss this second aspect of Mr Miller’s appeal. The judge was both entitled and right to give Mr Farrar permission to plead a case based upon proprietary estoppel. The claim has a real prospect of success.

Breach of fiduciary duty

[69]I come now to Mr Farrar’s appeal against the judge’s refusal of his application for permission to re-amend his particulars of claim to introduce a claim for breach of fiduciary duty.[70]The claim can be summarised as follows. Mr Miller owed Mr Farrar fiduciary duties by virtue of the Joint Venture agreement; Mr Miller has acted in breach of those duties by denying Mr Farrar’s interest in Long Stratton and its proceeds and by treating the property as his own; and Mr Miller therefore holds Long Stratton or its proceeds on constructive trust for him. Further, Mr Farrar is entitled to claim an account of profits or equitable compensation.[71]In refusing the application, the judge held that the proposed amendment was based upon the minority judgment of Etherton LJ in Crossco and that it had no real prospects of success.[72]Mr Sibbel now contends the judge has fallen into error because the claim is based upon the established principles that: i) joint venturers may owe to each other fiduciary duties, depending upon the facts of the case; ii) a fiduciary who holds a benefit in breach of his fiduciary duty holds that benefit on trust for his principal; and iii) a fiduciary must in any event account in person for the benefit, or pay equitable compensation.[73]Mr Cohen responds that it is not reasonably arguable that Miller ever owed to Mr Farrar the particular duties upon which he relies in the circumstances of this case. He also argues, upon Mr Miller’s respondent’s notice, that the judge’s order should in any event be upheld on a limitation point.[74]The first question, therefore, is whether Mr Farrar has a real prospect of establishing that Mr Miller owed him the fiduciary duties for which he contends. Here I should say straight away that the judge appears to have misunderstood the way that Mr Farrar’s case was put. It was never asserted that Mr Miller owed Mr Farrar those duties as a result of the existence of a Pallant v Morgan equity. That would have been to put the cart before the horse. Mr Farrar was asserting and maintains before this court that he has a properly arguable claim for breach of fiduciary duty which stands on its own.[75]I recognise that joint venturers may or may not have a relationship in which one of them owes fiduciary duties to the other. The question, to my mind, is whether the circumstances of their relationship justify the imposition of such duties, and in answering that question it is often helpful to consider whether, to adopt the words of Millett LJ in Bristol and West Building Society v Mothew [1998] Ch 1 at 18, one joint venturer has undertaken to act for or on behalf of the other in a particular matter or circumstances which have given rise to a relationship of trust and confidence. It may also be helpful to ask whether one joint venturer is in a relationship with the other which has given rise to a legitimate expectation, which equity will recognise, that he will not use his position in such a way which is adverse to the interests of the other: see, for example, Arklow Investments Ltd v Maclean [2000] 1 WLR 594 at 598. Whether a joint venture relationship carries obligations of a fiduciary nature is therefore highly fact-sensitive: see, for example, Ross River Ltd and anor. v Waverley Commercial Ltd and ors. [2013] EWCA Civ 910 at [30] to [64].[76]Mr Cohen submits as follows. The pleaded basis for any allegation that Mr Miller was at any time in a fiduciary relationship with Mr Farrar is far too general and lacking in particularity. Further, when the alleged breach of duty took place, Mr Farrar and Mr Miller were mere shareholders in Artillery, and it is that company which is alleged wrongly to have sold Long Stratton. Shareholders in a company do not owe fiduciary duties to it or to each other. It is true that Mr Miller was a director of Artillery but that does not mean that he owed fiduciary duties to its shareholders. So, Mr Farrar’s claim, if he had one, would have been a derivative claim against Mr Miller as a shareholder in Artillery. But he had no basis for a claim against Mr Miller as a fiduciary.[77]I am not persuaded by these submissions. The basis of this aspect of the claim is not simply the fact that Mr Miller and Mr Farrar were shareholders in Saxon or Artillery; nor simply the fact that Mr Miller was a director of Artillery. It is that the parties had been in business together as property developers for very many years and it was in that context that Mr Miller was entrusted with the corporate aspects of the parties’ joint ventures and was specifically given or assumed the responsibility of transferring Long Stratton from Saxon to Artillery and then from Artillery to the Joint Venture entity. It was only as a result of that relationship of trust that Mr Miller was able to transfer Long Stratton out of Artillery to Edged Red, the means by which he thereafter denied Mr Farrar any interest in Long Stratton or its traceable proceeds. I appreciate that these allegations are heavily contested by Mr Miller but Mr Sibbel submits and I agree that, if made good at trial, it is arguable that they did indeed give rise to the fiduciary relationship for which Mr Farrar contends.[78]That leaves the limitation point. Sections 21 and 23 of the Limitation Act 1980 (“the 1980 Act”) provide, so far as relevant: “21. (1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action— (a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or (b) to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee, or previously received by the trustee and converted to his use. … (3) Subject to the preceding provisions of this section, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Act, shall not be brought after the expiration of six years from the date on which the right of action accrued. For the purposes of this subsection, the right of action shall not be treated as having accrued to any beneficiary entitled to a future interest in the trust property until the interest fell into possession. … 23. An action for an account shall not be brought after the expiration of any time limit under this Act which is applicable to the claim which is the basis of the duty to account.” (a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or (b) to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee, or previously received by the trustee and converted to his use.[79]Mr Cohen submits a claim for breach of fiduciary duty is treated as equivalent or analogous to a breach of trust and that a six year limitation period applies by application of s.21(3) and s.23 of the 1980 Act or by analogy with those provisions. In the present case the moment at which Mr Miller is said to have breached the agreement and so also his fiduciary duties was on the sale of Long Stratton by an entity which was 50% owned (albeit indirectly) by Mr Farrar to an entity in which he had no interest. That took place on or about 7 August 2009. However, here the claim would have been introduced by amendment, had the amendment been allowed, on 15 July 2016, over six years after the alleged breach.[80]What is more, argues Mr Cohen, Mr Farrar cannot rely upon CPR r.17.4(2). This provides that where a limitation period has expired the court may only permit an amendment whose effect will be to add a new claim “if the claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings”. This rule is made under s.35(4) and (5)(a) of the 1980 Act which say that a rule may provide for the allowing of a claim involving a new cause of action after the limitation period has expired if “the new cause of action arises out of the same facts or substantially the same as are already in issue on any claim previously made in the original action”. Mr Cohen submits that CPR r.17.4(2) must be interpreted in light of s.35(4) and (5)(a) and can only mean that the relevant comparison is between the new claim and the facts in issue in the claim as originally pleaded, without bringing into account any subsequent amendment. Here, says Mr Cohen, it is self-evident that the fiduciary claim does not arise out of the same or substantially the same facts as those the subject of the originally pleaded claim for breach of contract. Further and in any event, it does not arise out of the same or substantially the same facts as the Pallant v Morgan style constructive trust introduced by amendment.[81]The premise of Mr Cohen’s submissions is that the claim for breach of fiduciary duty is a claim to which s.21(3) of the 1980 Act applies. In my judgment that is not a correct characterisation of the claim, however. Mr Farrar contends that Mr Miller took control over Long Stratton and assumed the duties of a fiduciary in relation to it pursuant to the Joint Venture agreement, the trust that Mr Farrar placed in Mr Miller to deal with corporate matters and the particular responsibilities that Mr Miller assumed in relation to its transfer from Artillery to the Joint Venture entity. These duties preceded the alleged misappropriation of Long Stratton by Mr Miller. This is therefore a case falling within the first class of cases identified by Millett LJ in in Paragon Finance [1999] 1 All ER 400 at 408 to 409, that is to say one in which it is said that Mr Miller took control of the property not in his own right but as a consequence of a transaction and in circumstances which gave rise to a trust at the outset. His control of the property was coloured from the start by the trust and confidence by which he obtained it and his misappropriation of it was a breach of that trust. It is therefore a claim for the recovery of trust property, Long Stratton, or its proceeds and it is one falling within s.21(1)(b) of the 1980 Act to which no limitation period applies.[82]In these circumstances it is not necessary for the purposes of this appeal to address the parties’ further submissions in relation to CPR r.17.4(2). I would, however, observe that I have considerable doubt as to the correctness of Mr Cohen’s submissions concerning the proper interpretation of CPR r.17.4(2).

Conclusion

[83]For the reasons I have given I would: i) dismiss the appeal of Mr Miller; and ii) allow the appeal of Mr Farrar.

Lord Justice Floyd:

[84]I agree with both judgments.

Lord Justice Patten:

[85]I agree also.[86]As Kitchin LJ has explained, the claim began as one for damages in contract arising from Mr Miller’s alleged breach of the joint venture agreement relating to Long Stratton. After that claim had been stuck out by the Chief Master on the ground that any such alleged agreement would be unenforceable for non-compliance with the requirements of s.2 of the Law of Property (Miscellaneous Provisions) Act 1989 (“the 1989 Act”), Mr Farrar obtained leave from HH Judge Barker QC in December 2015 to re-formulate the claim as one for breach of trust and, in the alternative, as a claim based on proprietary estoppel which, if successful, would entitle the Court to fashion its own remedy for making good the dishonoured promise or representation on which Mr Farrar says that he relied.[87]When the matter came back to the judge in July 2016 for the purpose of settling the final form of the amended pleading, Mr Farrar sought permission to re-amend the particulars of claim so as to add a claim for breach of fiduciary duty. This was the first time that it had been expressly alleged that the joint venture agreement created a fiduciary relationship between the parties. In their re-amended form the draft particulars of claim considered by the judge pleaded in [11A]) that Mr Miller owed various fiduciary duties to Mr Farrar and Mr Chalcraft arising out of the joint venture agreement including a duty to act in good faith; a duty not to act for his own benefit without the consent of the other parties; and a duty to hold the proceeds of Long Stratton, once sold, for the benefit of the joint venture parties. The subsequent transfer of Long Stratton to Edged Red LLP and then on to Sunguard; and the failure to account for the profits realised on the eventual sale of Long Stratton were alleged (in [21C]) to be the breaches of the fiduciary duties pleaded in [11A] as a result of which Mr Miller holds the traceable proceeds of sale of Long Stratton on a constructive trust for the benefit of the claimant and is required to account for the same or to pay equitable compensation for the loss which Mr Farrar has suffered.[88]The plea of a constructive trust was part of the draft amended pleading for which the judge gave permission in his judgment of 16 December 2015. The trust was alleged to have arisen because it was unconscionable for Mr Miller to have sought to deny Mr Farrar’s interest in Long Stratton having previously agreed that the property would be transferred to a joint venture company in which Mr Farrar retained a 28.3% interest. The type of trust relied on was explained in argument before the judge as being a Pallant v Morgan constructive trust rather than what has in the past sometimes confusingly (and inaccurately) been referred to as a remedial constructive trust imposed on property which a defaulting fiduciary acquires and is required to account for: see FHR European Ventures LLP v Mankarious [2015] AC 250 at [47]. A constructive trust of the Pallant v Morgan kind is normally imposed on the person who acquires property in which the claimant is intended to have an interest but then seeks to deny his title. Equity intervenes by imposing a trust on the property in the hands of the defendant so as to give effect to what had been agreed. It does so on the basis that it would be unconscionable for the defendant in the circumstances to deny the claimant the interest he was intended to receive. The circumstances which are capable of giving rise to the equity are, as Kitchin LJ has explained, variable and depend in part on factors such as whether the claimant relied on what had been agreed with the defendant in relation to the acquisition of the property and whether he acted to his detriment in so doing. Pallant v Morgan was just such a case.[89]The claim based on the Pallant v Morgan constructive trust and the alternative claim based on proprietary estoppel both depend (in terms of the pleading) on Mr Farrar having allowed Long Stratton to be transferred to Artillery and placed under the control of Mr Miller in reliance on the representations and assurances previously made to him as part of the joint venture agreement. Paragraphs [21B] and [21C] of the amended particulars of claim do not make it clear whether it is alleged that the constructive trust arose when Long Stratton was transferred to Artillery or only when it was subsequently transferred to Edged Red. Both are possible candidates. There are also potential issues about whether any constructive trust could have attached to the land itself rather than shares in Edged Red or Sunguard given that it was contemplated under the joint venture agreement that Mr Farrar would be a shareholder in the development vehicle rather than having a direct interest in Long Stratton. A similar issue arose in the Banner Homes case where the Court of Appeal ordered the successful claimant to be given shares in the development company.[90]These are not, however, issues for us on this appeal. The judge’s grant of permission to amend in order to plead the claim based on a constructive trust or proprietary estoppel has been challenged on the more fundamental basis that the joint venture agreement and the other circumstances surrounding the transfer of Long Stratton to Artillery and subsequently Edged Red are not sufficient to have created an equity in Mr Farrar’s favour. Particular reliance has been placed by Mr Cohen QC on the decision of the House of Lords in Cobbe where the fact that the agreement between the parties was always known to and treated by them as subject to contract was held to be a barrier to the intervention of equity by way of a constructive trust to, in effect, enforce the agreement. The invalidity of the joint venture agreement as an enforceable contract has been relied on by Mr Cohen as an answer to both the constructive trust and estoppel claims. In the case of proprietary estoppel, reliance is also placed on s.2 of the 1989 Act but, for the reasons which Kitchin LJ has explained, these points do not provide a conclusive answer to the claim so as to justify refusing permission to amend.[91]Having granted permission to introduce the claims based on estoppel and a constructive trust, the judge nevertheless refused permission to add a specific claim for breach of fiduciary duty. He seems to have done so on the basis that the majority of the Court of Appeal in Crossco held that a Pallant v Morgan constructive trust is a species of common intention constructive trust and not (as Etherton LJ suggested) a means of enforcing a pre-existing fiduciary duty. The judge seems to have treated this as a decision that no fiduciary relationship can exist in such circumstances but the existence of such a relationship is highly fact-dependent and Crossco certainly does not decide that a joint venture agreement of the kind under consideration in this case cannot give rise to fiduciary obligations.[92]The judge was also, I think, wrong to treat the claim for breach of fiduciary duty and any constructive trust which may be imposed to give effect to that duty as one and the same with the claim based on Pallant v Morgan. If the joint venture agreement created a fiduciary relationship between the parties then it is clearly arguable that one of Mr Miller’s duties to his co-venturers was to protect the ownership and development of Long Stratton for their mutual benefit. In that regard, he was in an analogous position to a director of a company who, although not the owner of the company’s assets, is nonetheless treated for Limitation Act purposes as a class 1 fiduciary within the classification explained by Millett LJ in Paragon Finance in the sense that, by virtue of his directorship, he controls the relevant assets for the benefit of the company: see JJ Harrison (Properties) Ltd v Harrison [2012] 1 BCLC 162; First Subsea Ltd v Balltec Ltd [2017] EWCA Civ 186.[93]If the joint venture agreement imposed fiduciary duties of the kind alleged on Mr Miller then he would have been accountable for his management and use of Long Stratton even though it was held through the medium of a company such as Artillery. Those duties would have continued to subsist up to the eventual disposal of the property and Mr Miller would, on conventional principles, hold on trust and be accountable for the proceeds of sale. The trust obligation would not therefore arise from a Pallant v Morgan constructive trust and the correct legal basis for imposing such a trust is therefore irrelevant for the purposes of this appeal. I would therefore make the order which Kitchin LJ has suggested.

order

first, the amendment should not have been permitted because a proprietary estoppel can never avoid the need to comply with s.2(1) of the 1989 Act; secondly, a proprietary estoppel can never operate where the agreement is incomplete, as it is here; and thirdly Mr Farrar did not rely to his detriment upon any representations made by Mr Miller, and Mr Miller has not behaved unconscionably. I should make clear that it is not and has not been contended on this appeal that there can be no proprietary estoppel because any promise made by Mr Miller could have related only to an interest which Mr Farrar already had, or that any such promise could have related only to the shares in the Joint Venture entity.

Cited in 12 later judgments

and 3 more of the most senior