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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Clarke & Anor v Corless & Anor [2010] EWCA Civ 338 (31 March 2010) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2010/338.html Cite as: [2010] EWCA Civ 338, [2010] WTLR 751

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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
Mrs Justice Proudman
HC 07C 03305

		Royal Courts of Justice Strand, London, WC2A 2LL
		31st March 2010

Lord Justice Patten :

Introduction

1. This is an appeal by the claimants, Mr and Mrs Baynes Clarke, against the dismissal by Proudman J ([2009] EWHC 1636 Ch) of their claim for a declaration that the access road together with some adjoining land in a housing development known as Carmelstead Close, Lewes Road, Haywards Heath is held by the defendants, Mr and Mr Corless, on a constructive trust. The two issues on this appeal are whether an agreement between the parties in January 2003 was sufficient in its terms and effect to support the imposition of a trust upon the defendants' acquisition of the land in question and whether the claimants continued to rely upon the agreement up to the time when the purchase took place in December 2004. The judge found against the claimants on both issues.
2. It will be necessary for me to consider in more detail the evidence presented to the judge about a number of the key events. But, by way of introduction, the history of the dispute can be summarised as follows.
3. In 2000 Allum Estates Limited ("Allum") bought a large detached house in Lewes Road called Carmelstead from a Mr Burleigh with a view to carrying out a development in its garden. The property consisted of a large rectangular plot running longitudinally on a north-south axis from the Lewes Road in the south. Carmelstead itself is situated at the southern end of the plot close to the road and this enabled Allum to build two detached houses on the land behind.
4. The two new houses each have a garden at the rear and a parking area at the front. They were divided by a newly-built brick wall. In order to create the necessary garden space at the rear, the houses were sited centrally in the plot acquired from Mr Burleigh but Allum retained land on the western side of the plot which it used to construct a new access road running from some entrance gates to Lewes Road situated in the far south-eastern corner of the plot in front of Carmelstead. The access road curves around the front of Carmelstead and then passes to the west of the house in a northerly direction so as to connect with the front drives and parking areas of the two new houses. There is a grass strip ("the western strip") between the access road and the western boundary of the plot, the northern end of which was used to accommodate a sewage treatment plant ("STP") serving all three houses. The access road, as constructed by Allum, terminates in what has been described as a turning circle in front of the farthest of the two new houses (North Heath) which is owned by the defendants. The area in question is not in fact circular but is much wider than the access road itself and was designed to allow the residents and their guests to turn their cars there if necessary in order to avoid reversing along the access road back on to the main road.
5. North Heath was transferred to the defendants by Allum on 2^nd July 2001. The transfer included the grant of a vehicular right of way (in common with Allum and its successors in title) over the access road (including the turning circle) and the right to drain the property into the STP, subject in each case to the payment of a fair proportion according to use of the cost of renewal, repair and cleansing of the facilities. For this purpose the transfer included the grant of a right of entry to the STP. Schedule 1 of the transfer contained a party wall declaration in respect of any walls dividing North Heath from any adjoining part of Allum's estate.
6. The claimants purchased the other newly built house (South Heath) on 26^th July 2001 and were granted similar rights in respect of the access road and the STP. Schedule 1 of the transfer to them also contained a party wall declaration in like terms. In March 2002 Carmelstead was let by Allum to a Mr and Mrs Gareze. By then there had already been problems with the STP which started in about September 2001 and continued throughout 2002.
7. In September 2001 the unit (supplied by Klargester Limited) caused sewage to be discharged on to the land surrounding North Heath after a period of heavy rain and Mr Baynes Clarke made the first of many complaints to Allum about it. Contemporaneously with this, Allum's solicitors (in November 2001) proposed setting up a management company in the form of a company limited by guarantee of which the owners of the three houses on the development would become members. Contributions by the residents towards the maintenance of the access road and the STP would be paid to the management company but it was not proposed that the company should own either the access road or the western strip. It would simply covenant with the residents to keep these areas and facilities in repair in return for the payments made.
8. In the event, the proposal was not acted upon but the problem with the STP continued. A drainage engineer inspected the system in July 2002 and reported that the soakaway was too small. Allum agreed to carry out remedial work and informed Mr Baynes Clarke on 5^th December 2002 that an order had been placed with contractors to remove the existing Klargester unit and to replace it with a new one.
9. It is common ground that in January 2003 all three couples met for dinner at Carmelstead and discussed the problems which had occurred about the maintenance of the common parts of the development. The claimants' case at trial was that an arrangement or understanding was reached on this occasion between all parties that a management company should be established once the drainage problem had been fully resolved and that Allum should be removed from further involvement in the Close by the access road and the western strip being transferred to the management company. In their defence Mr and Mrs Corless accepted that there had been an agreement that the residents should continue to manage the estate and to put pressure on Allum to sell its retained land to them. What they disputed was that any agreement was reached as to how this should happen or the structure by which the residents would acquire the common areas.
10. The judge found that there was what she described as a degree of consensus in January 2003 about the approach to be made to Allum. She also seems to have accepted that the logic of what was agreed was that, if Allum were displaced as owner, the retained land would have to pass to the residents as a whole, although the details of the mechanism to be used were not agreed. But in paragraph 55 of her judgment she went on:-

"However I find some difficulty in construing the consensus that was reached in January 2003 as binding on the defendants' conscience in the acquisition of the amenity land. It was of the nature of an informal agreement between neighbours as to how to proceed against the common enemy, rather than an agreement intended to give rise to legal consequences between themselves. The thrust of the meeting was directed at forcing Allum out, not at the acquisition of the land."

11. In reaching this conclusion the judge said she relied on the fact that in February 2003, shortly after the meeting, Mr and Mrs Gareze purchased Carmelstead from Allum and, as part of that purchase, acquired the part of the western strip running from the frontage on to Lewes Road to a point parallel to the boundary between Carmelstead and South Heath. The evidence given by Mr Gareze showed, she said, that he had no thought that his purchase of that part of the western strip contravened any prior agreement or understanding.
12. On 3^rd February 2003 Mr Corless had written to Allum's solicitors about the work being undertaken to remedy the defective STP. He says in that letter:-

"At some stage we will also have to discuss the maintenance of the estate going forward and the ownership of the common areas, the gate and the roadway within the estate. I propose that this be done once the work on the Klargester has been completed…".

13. Both Mr Corless and Mr Baynes Clarke continued to press Allum about the work and for details of the new system but on 21^st March Allum wrote to say that the new Klargester unit had been installed and was fully operational. The letter went on to say that Allum had no continuing responsibility for the operation and maintenance of the gates or the STP and would hand over responsibility for their running to the residents. The offer to set up a management company was repeated.
14. Mr and Mrs Gareze replied saying that, following discussions about the management company proposal with the other residents, they wished to decline the offer. Mr Corless wrote to Allum on 27^th June complaining that the entry gates were not working properly and that the casing of the new Klargester unit had worked loose. He went on:-

"Before you start on the issue of the management company and responsibility for the gates, the management company was to be set up to manage the estate including the common land (all land to the north of the made up road). Your sale of part of the common land to the Carmelstead owners appears to invalidate the concept of a management company because the land sold was to be managed by such a company. The alternative is that the sale of this land was illegal, as it was not yours to sell, but held in trust for the common enjoyment of all the estate residents (you specifically built a woodland path and picnic area in the land sold for common use by residents). As such I believe that either the management company is now dead as a concept (the objectives of such a company in managing the common land can no longer exist) or the sale of the parcel of common land was illegal. Assuming you believe you had the right to sell the parcel of common land, the concept of a management company is dead. As such there can be no onus on the residents to maintain or repair the gates, roadway or Klargester unit which you still own".

15. The problems with the STP unit continued. Its lid had failed and the residents wrote to Allum on 9^th November 2003 making the point that it was for Allum to take responsibility for ensuring that any defects in the new unit were put right. The letter was sent from North Heath but signed by all three sets of residents. It said:-

"Regarding the maintenance of the Carmelstead site, the residents will be forming a formal management company to manage the estate once your involvement with the estate ceases. Your responsibility to us for the Klargester unit ends on 11 March and your commitment to maintain the road surface ends in July next year …We therefore expect, once all outstanding claims by the residents have been settled, that the common land be transferred to the management company set up by the residents (as originally proposed) on 12^th March 2004. Ownership of the roadway and gates should be transferred (as originally proposed) in July 2004 on the expiry of the agreement with South Heath. We would therefore expect your involvement with the estate to cease and all means of access to the estate to be returned to the residents. We will take on the responsibility of negotiating access to the woods to the north of the property with Mr Burley, who would also be happy for your involvement in the estate to cease."

16. Allum rejected the proposal that the retained land should be transferred to a management company owned by the residents. But in March 2004 Mr Corless suggested to Mr Baynes Clarke that the proposal should be revived and that, once acquired, the land in front of North Heath and South Heath could be transferred on to them respectively. This would presumably have replicated the position in relation to the western strip adjacent to Carmelstead. But on 3^rd May Mr Corless appears to have had second thoughts and told Mr Baynes Clarke that they should leave what he described as the land situation until the problem with the STP had been sorted out.
17. Inspection of the new Klargester unit had revealed a crack in it which was accepted to be a manufacturing defect. Klargester indicated that they would take steps to remedy it under the terms of their warranty and Mr Baynes Clarke (who was left to chase Allum and Klargester about it) continued to complain about the discharge of foul water and to press for action. By June 2004 arrangements were made for Klargester to attend the site and to fit some new parts. In September the work was completed.
18. On 14^th September 2004 the defendants wrote to Allum about the landscaping around the STP. They complained that the landscaping conditions contained in the planning permission for the development had not been complied with and that some trees overhanging their property were in a dangerous condition. They said that they proposed to take up the planning issue with the local authority and to commence a claim for £5,000 in the small claims court as compensation for the absence of proper screening for their property and for the inconvenience caused by the malfunctioning of the STP. But the letter went on to say:-

"However, we would consider dropping any action or claims against yourself if you were to transfer title of all land to the front of our property up to the boundary of the adjoining property to the west of Carmelstead Close and north of the wall adjoining our property to South Heath (including the wall itself) to ourselves. This would include the tarmac turning area, the common land (including the Klargester unit) and the access road to Mr Burleigh's property outwith Carmelstead Close. We would, in additional consideration for the transfer of title to this land, undertake (subject to transfer of title taking place by 31 December 2004 and the Klargester unit to continue to function properly up to that date) that you would incur no further liabilities regarding the Klargester unit, the tarmac area, the access road or the common land. We would bear the cost of landscaping the Klargester unit and related common land to planning consent and would pay for the management of the trees on the common land. We would also repair the access road used by Mr Burleigh, which is [in] need of repair after the recent heavy rain.

In addition at a later stage we would require you to transfer the tarmac road and the gates of the estate to a management company that will be set up by the residents of Carmelstead. In consideration of which the residents of Carmelstead would take over complete management of the estate with no further expense or time to be incurred by yourself."

19. Allum's response on 4^th October was to suggest that it had a potential purchaser for the access road in the form of a developer who wished to use it in connection with the development of a low-cost housing scheme on some adjacent land. They were, however, willing to consider any serious offers for the road. Mr Corless replied the next day. He said that his enquiries of the local planning authority and the owners of the adjoining land indicated that there was no real prospect of any such development or of it being able to use the access road to service the development. He said that he regarded the retained land as basically valueless but was willing to offer £1,000 for it.
20. There was an issue at the trial as to whether Allum's letter of 4^th October had been shown to the other residents. Mrs Corless said that she took it round and showed it to Mr Gareze and to Mrs Baynes Clarke on the evening it was received. Mr Gareze accepted that he was shown the letter and he sent an e-mail about it to Mr Corless on 13^th October:-

"I am not sure where you are with your response to Allum but we would of course be very interested in what he says about the land and drive. I realise the view taken is that he is trying it on but for all concerned I think it would be very useful if possible to find out what he wants for the land and drive, as more information is better than less. While assurances to allay concerns about possible development are comforting in the short term, at the end of the day ownership of the drive, land and gates is conclusive against any attempt to use them against our interests. I therefore believe that it is important to establish what needs to be done to obtain that ownership and confirm between us whether it is sensible in the circumstances. I say this because while our house is up for sale it is by no means certain that we will be moving as many things can go wrong, and in any event in a sale the properties will always be more valuable to a well informed purchaser if the close is fully owned by the residents, which is no news to you as that is what you've been trying to achieve!!"

21. Mr and Mrs Baynes Clarke both denied ever being shown the letter. They said they were unaware that Allum was willing in principle to sell its retained land and was soliciting offers for it. The judge said that she could not be satisfied as to where the truth lay on this issue and made no findings about it. She therefore proceeded on the footing that Mr and Mrs Baynes Clarke were not aware of Allum's offer to sell the land.
22. What was not in dispute was the defendants' failure thereafter to keep the claimants informed about the negotiations which then took place with Allum. The defendants instructed Mr Richard Martin of KSB Law to act for them on the purchase. He initially assumed that the purchase was to be by all of the residents but Mr Corless disabused him of this in an e-mail of 25^th October. Their primary purpose was, he said, to acquire the land in front of North Heath. If Allum offered to sell all of its retained land they would purchase it and then transfer to the other residents the parts of the amenity land adjacent to their houses whilst retaining the land in front of North Heath:-

"This may be slightly underhand, but we do not want the potential argument about the land in front of our property, which our next door neighbours sometime use to park in, much to our annoyance. We would want to enclose this land with gates, develop it to our design, etc and we want to retain control over the issue.

We would involve our neighbours more fully, but they both have their houses on the market at present, so we would rather sort our issues with Allum out first. We did not set up a management company and if the parcels of land became attached to the individual properties rather than a management company we feel that this will be a simpler solution."

23. On 14^th October Allum offered to sell their retained land to the defendants for £3,000 subject to their indemnifying the vendors against all further claims. The offer was accepted on 25^th October.
24. The solicitors then corresponded about the form of the transfer. Allum's solicitors proposed a transfer to the defendants of the remainder of the western strip plus the turning circle to be followed by a transfer of the remainder of the access road and the gates to a management company to be set up by the residents. In each case Allum was to be released from all existing and future liabilities to the residents for the facilities transferred.
25. The defendants were not, of course, able to release Allum from the claims against it by the other residents. The most that they could do was to offer Allum an indemnity against such claims. Mr Martin wrote to Mr Corless on 2^nd November pointing out, quite correctly, that it would not be possible to give Allum the release it was seeking in respect of the STP without involving the other residents. He proposed to Allum's solicitors that the defendants should give to the company an indemnity in respect of all liabilities including those to the other residents but he made it clear to Mr Corless that he was not happy with the open-ended liability which this would involve and said that the other residents, if upset about the transaction, would be able to bring claims against Allum for which the defendants would become responsible.
26. Mr Corless's response was that:-

"I understand your concerns, but having spoken to the neighbours I think their key motivation is getting Mr Allum out of the estate. We have specifically left out any indemnity for the two properties themselves, i.e. the buildings (which is the only thing I think that our next door neighbour may pursue him for), our neighbour at the top of the road wants the road quite badly and is likely to drop all thought of claims if he gets it. It is a risk, but I think the carrot of owning the land would be enough to drop any potential claims. If the worst comes to the worst, we will own the areas that are likely to be the subject of a claim and we will be landscaping the area to bring it back up to the standard we all expected, mitigating any potential action. We are on pretty good terms with the neighbours, so hopefully it won't be an issue and as mentioned, they are trying to sell up.

I take your point on the timing of the transfer and although I am comfortable with being "at risk", perhaps we should try to shorten the period when we are at risk. Could you please draft two contracts for the transfer of land fronting our neighbours properties (South Heath is next door to us and Carmelstead is at the entrance to the estate) for nil consideration but indemnifying us against any claims for maintenance, repair, etc by them as per the Allum transfer document. Presumably this will mean that they could not sue Allum, given we have given him an indemnity and they would effectively be suing us? The property transferred should follow the outline property boundaries due west but make clear that the wall adjoining our property and South Heath belongs to us. Once we have transacted with Allum we will start talks with our neighbours."

27. On 12^th November Mr Martin asked for the names of the other residents for insertion into the draft contracts referred to and said that he would liaise with them direct. Mr Corless replied:-

"I will let you have the full names of our neighbours over the weekend (I'm not quite sure of the spelling of the surname [of] our neighbours at Carmelstead). If you could leave contacting them directly until after the transaction is completed as we envisage speaking to them in person about the transaction (they don't know how much we are paying for the land and our neighbours at South Heath have a habit of violently upsetting Mr Allum which we want to avoid at all costs). If you could let us have the draft contracts for the transfer of land in front of their properties once we have supplied their names and then we can speak to them and point them in your direction to finalise things. We are hoping to informally speak to them over the weekend to update them (without giving out full details of the transaction)."

28. Despite the terms of this correspondence, Mr Corless did keep Mr and Mrs Gareze informed about his negotiations with Allum. On 27^th November he sent them this e-mail:-

"We got a letter yesterday suggesting Allum will go ahead as we discussed.

I await final confirmation next week. Are you still happy with the proposal that you would take over ownership of the land in front of your property (including the gates, driveway up to your North boundary with South Heath) in exchange for agreeing not to pursue Allum for any claim for the Klargester, driveway or gates? I haven't spoken to Simon yet as I want to be 100% sure of any agreement with Allum before I do, but I can't believe he won't be in favour. Once I get final agreement from Allum I'll let Simon know what's happening and I'll arrange for everyone to get together to discuss final details, sort out service agreements for the gates/Klargester, etc."

29. Mr Gareze replied:-

"I hadn't however appreciated that the gates would form part of our property. I'm sure we will discuss more fully but would a solution be for Allum to transfer the drive and gates into a management company directly owned by all three of us and for the land situate opposite your and Simon's properties to go directly to you and Simon. I'm thinking really of maintenance etc of those bits which are used by all of us as being more easily managed if owned by a company. This of course doesn't deal with the Klargester which I guess would be on your land but presumably an agreement can be drawn via the company to meet the overhead costs if we want."

30. The transfer was completed on 23^rd December 2004. On 24^th December the defendants sent to Mr and Mrs Baynes Clarke and to Mr and Mrs Gareze a long e-mail announcing that they had purchased all the land retained by Allum. They explained the service arrangements which had been set up for the STP and said that they would be carrying out repairs and landscaping to the turning circle and to the adjacent area. The e-mail went on:-

"Given your current situation regarding the sale of your properties we did not consider setting up a management company to manage the land acquired and given the significant costs that we have/will be incurring to bring the land up to the required state we will retain ownership. Hopefully this should make the sale of any property in the estate easier as the costs of ownership for South Heath and Carmelstead will be limited to the service, running and maintenance costs of the gates and Klargester unit. We will retain the liability for maintenance of the road surface as we will retain ownership.

The transaction obviously does not affect any rights of access that you have including the turning circle at the bottom of the road, however we would stress that right of access is for turning only….".

31. On 28^th December Mr Corless sent an e-mail to Mr Baynes Clarke following a conversation with him and confirmed his willingness to sell to him the part of the western strip in front of South Heath. There was no response to this offer. The judge accepted Mr Baynes Clarke's evidence that he did complain orally about the purchase but that his complaint concentrated on the un-neighbourly and underhand way in which Mr Corless had gone about acquiring the land rather than on any suggestion that the defendants had acted in breach of the January 2003 agreement. Their solicitors wrote to the defendants on 25^th February 2005 but the focus of the letter was the defendants' plan to extend the boundary wall so as to enclose the turning circle and to place brick piers at the point at which the access road merges into it. They asked the defendants not to carry out these works because they were likely to interfere with the claimants' rights of way over the turning circle and to cause damage to what was a party wall between the two houses.
32. Correspondence continued between the parties about the defendants' proposals for the Close and their possible impact on the defendants' rights of way. The detail is not relevant for the purposes of this appeal. In October 2005 Mr and Mrs Gareze sold Carmelstead to a Mr and Mrs Grey. On 24^th December the claimants wrote to the defendants about the maintenance of the access road and the need for a formal agreement about its upkeep. They proposed the setting up of a management company under which the responsibility for maintenance would be shared by all the residents including the Greys:-

"As we have a new neighbour, maybe now is the time to sit down and work something out that would be mutually agreeable".

33. This suggestion was not taken up and the dispute between the claimants and the defendants about the party wall and the rights of way continued. But, as the judge found, it was not until 13^th September 2006 that the claimants' solicitors raised an argument that it would be inequitable for the defendants to retain the access road and the western strip. The basis for this contention was that the defendants had misled Allum into believing that they were acting for the benefit of all the residents rather than in their own interests. It was not based in terms on the January 2003 agreement.
34. Essentially the same point was made in the letter before action sent to the defendants on 25^th April 2007. In this the claimants' solicitors stated:-

"In the same letter [of 14^th September 2004], you stated that you would (not might) require Allum to transfer the tarmac road and the gates of the estate to a management company that would be set up by the residents of Carmelstead. That letter implied (a) that there was an agreement between the residents to establish such a company and (b) that you were acting for those residents in the negotiation. However, no such agreement existed at that time and you had not been instructed by the other residents to approach Allum. It is our clients' belief that (as the subsequent correspondence indicates), had you explained the true position that no such agreement existed and that they did not have authority to speak for the other residents, Allum would not have made the statements indicating they understood the position being made by you and agreed to transfer the residue of the land in the way it did.

…

You obtained the ownership of the residue of the estate by making representations to Allum (whether directly or through its solicitors) and by deception. Had such misrepresentations and deception not taken place and the residents had actually been informed about and involved in the acquisition, the freehold to the residue of the estate would have been secured for the ownership and benefit of all the residents, much as you suggested would be the case to Allum."

35. The action was commenced on 5^th December 2007. The claimants sought declaratory relief in respect of three matters: whether the defendants' acquisition of the retained land from Allum was subject to a constructive trust in favour of the claimants and the other residents; the alleged interference with the claimants' right of way in respect of the turning circle; and the ownership of the dividing wall between North Heath and South Heath. On this appeal we are concerned only with the first issue.

A constructive trust

36. As already mentioned, the imposition of a constructive is said to be necessary in order to give effect to the agreement reached during the discussions at the January 2003 meeting. In terms of authority, the claimants rely on the line of cases beginning with the decision of Harman J in Pallant v Morgan [1953] Ch 43. Most of these cases concern some kind of joint venture in which there was an arrangement short of a contract under which the parties agreed to acquire property for their mutual benefit. In Pallant v Morgan itself the plaintiff had allowed his neighbour to bid alone at an auction for some adjoining land on the basis of an understanding that if he successfully acquired it he would then transfer part of it to the plaintiff. The neighbour was successful at the auction but then reneged on the agreement. He was held by the court to have acquired the property for the benefit of both parties jointly and to hold it on trust on those terms.
37. The conditions necessary for the imposition of a constructive trust in these circumstances were considered by Chadwick LJ in Banner Homes Group plc v Luff Developments Ltd [2000] Ch 372 at page 397:-

"(1) 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 of those parties 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. As I have sought to point out, the concepts of constructive trust and proprietary estoppel have much in common in this area. Holiday Inns Inc v Broadhead 232 E.G. may, perhaps, best be regarded as a proprietary estoppel case; although it might be said that the arrangement or understanding, made at the time when only the five acre site was owned by the defendant, did, in fact, precede the defendant's acquisition of the option over the 15-acre site.

(2) It is unnecessary that the arrangement or understanding should be contractually enforceable. Indeed, if there is an agreement which is enforceable as a contract, there is unlikely to be any need to invoke the Pallant v Morgan equity; equity can act through the remedy of specific performance and will recognise the existence of a corresponding trust. On its facts Chattock v Muller, 8 Ch.D. 177 is, perhaps, best regarded as a specific performance case. 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 – see Pallant v Morgan [1953] Ch. 43 itself, and Time Products Ltd v Combined English Stores Group Ltd., 2 December 1974 - nor that it is plainly not intended to have contractual effect – see Island Holdings Ltd v Birchington Engineering Co Ltd., 7 July 1981.

(3) It is necessary that the pre-acquisition arrangement or understanding should contemplate that one party ("the acquiring party") will take steps to acquire the relevant property; and that, if he does so, the other party ("the non-acquiring party") will obtain some interest in that property. Further it is necessary, that (whatever private reservations the acquiring party may have) he has not informed the non-acquiring party before the acquisition (or, at the least, before it is too late for the parties to be restored to a position of no advantage/no detriment) that he no longer intends to honour the arrangement or understanding.

(4) It is necessary that, in reliance on the arrangement or understanding, the non-acquiring party should do (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. 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. Pallant v Morgan [1953] Ch. 43 itself provides an illustration of this principle. There was nothing inequitable in allowing the defendant to retain for himself the lot (lot 15) in respect to which the plaintiff's agent had no instructions to bid. In many cases the advantage/detriment will be found in the agreement of the non-acquiring party to keep out of the market. That will usually be both to the advantage of the acquiring party – in that he can bid without competition from the non-acquiring party – and to the detriment of the non-acquiring party – in that he loses the opportunity to acquire the property for himself. But there may be advantage to the one without corresponding detriment to the other. Again, Pallant v Morgan provides an illustration. The plaintiff's agreement (through his agent) to keep out of the bidding gave an advantage to the defendant – in that he was able to obtain the property for a lower price than would otherwise have been possible; but the failure of the plaintiff's agent to bid did not, in fact, cause detriment to the plaintiff – because, on the facts, the agent's instructions would not have permitted him to outbid the defendant. Nevertheless, the equity was invoked.

(5) That leads, I think, to the further conclusions: (i) that, although, in many cases, the advantage/detriment will be found in the agreement of the non-acquiring party to keep out of the market, that is not a necessary feature; and (ii) that, although there will usually be advantage to the one and co-relative disadvantage to the other, the existence of both advantage and detriment is not essential – either will do. 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."

38. Although in subsequent cases such as Kilcarne Holdings Ltd v Targetfollow (Birmingham) Ltd [2005] EWCA Civ 1355 and Cobbe v Yeoman's Row Management Ltd [2008] UKHL 55 the Court of Appeal and, more recently, the House of Lords have had to consider the application of these principles to cases where the agreement between the parties was known to be "subject to contract" or, conversely, was in fact contractual, I do not read the decisions in those cases as casting any doubt upon the correctness or the authority of Chadwick LJ's judgment in cases such as the present one where the arrangements were not and were never intended or expected to be incorporated into a contract. The judge was therefore correct in my view to apply the Banner Homes guidelines to the facts of this case.

The January 2003 agreement

39. Having referred to the judgment in Banner Homes, Proudman J went on to analyse what she considered to be the minimum conditions for the imposition of a constructive trust. Although the agreement between the parties will be less than contractual, the equity could not arise, she said, if there was "anything less than an express accord between the parties". She developed this in paragraph 23 of her judgment where she says that:-

"Secondly, while unconscionable behaviour is a necessary condition for relief by way of constructive trust, it is insufficient by itself. I accept Mr Morshead's submission that the court should have two aims: one is to recognise and prevent unconscionable conduct, but the other is to protect people from unintended legal consequences resulting from informal relationships. Thus while something less than contractual certainty will suffice it is not clear in the absence of some rubric such as "subject to contract" how informal the consensus may be. What does seem to me to be plain as a matter of law is that in order to be enforced there must be a clear agreement on the basic details of the arrangement without difference of principle."

40. I doubt whether this is a correct direction on the law if what the judge is saying is that there had to be agreement not only that the land in question would be acquired for the residents as a whole but also that the machinery under which the land would be held needed to be specified or agreed at the same time. The key to the imposition of a constructive trust is that it would be unconscionable for the purchasing party to retain ownership of the land for his own benefit having regard to the prior agreement reached and to the claimants' reliance upon it. Questions of unconscionability are matters for the court which fall to be decided on an objective basis having regard to the terms agreed or the representations made and the effect which they had.
41. The question in every case must be whether the agreement made or the words used were reasonably relied upon by the claimants as an assurance that they would obtain an interest in the property. The court has therefore to concentrate on the quality of the assurance given and whether the claimants' reliance on it was therefore reasonable: see Lord Diplock's speech in Gissing v Gissing [1971] AC 886 at page 905. Although the January 2003 agreement had to be sufficiently clear for everyone to have understood that they would acquire an interest in the retained land, I doubt whether it was necessary for a decision then to have been made about whether to use a management company or some other form of common ownership. That was a matter of detail which could be left for discussion as and when the land was acquired and did not go to the central issue of whether it could be held by any one resident or residents to the exclusion of the others.
42. The judge's findings about the January meeting are set out in paragraphs 49-52 of her judgment:-

"49. The claimants say that at the meeting there was agreement that the residents of the Close would work together as follows:

•     To get Allum to fix the STP;

•     To remove Allum from the remaining parts of the estate after the sale of Carmelstead to the Garezes;

•     To transfer ownership of those parts to all the residents (and it followed, not to any one of them alone);

•     While the details of that ownership remained to be worked out it was understood that a management company would be the vehicle for holding ownership as well as managing the estate.

50. It is not alleged that there was a legally binding contract to the above effect. What is said is that there was an agreement, arrangement or understanding. Much was made in evidence and argument of the difference between these three concepts but it does not seem to me that anything turns on any such distinction in the present case. What is relevant is whether there was sufficient consensus between all those present at the meeting to found the claim.

51. The defendants accept that the first two matters were agreed at the meeting. However they say that there was no clear agreement as to how Allum would be removed or how the amenity land was to be owned and managed. There was a campaign to get rid of Allum but no discussion of detail.

52. I agree with Mr Stafford that it follows logically that if Allum were to be displaced, someone else would have to take its place and that this had to be the residents as a whole. I also accept Mr Baynes Clarke's evidence that although the residents did not know exactly what the ownership mechanism would be, a management company was discussed as the probable vehicle. A management company was evidently thought to be a good idea for the purpose of holding the amenity land as well as managing the Close. There was therefore in my judgment a degree of consensus in January 2003 about the approach that was to be made to Allum at that stage and what was to be the effect if that approach were successful."

43. Mr McDonnell submits that the judge found in paragraphs 51-52 that agreement was reached to remove Allum from its ownership of the retained land and that the only reasonable construction to be placed on what was agreed was that ownership would, as a consequence, pass to the residents. He accepts that no agreement was reached about the method of ownership but that, he says, is immaterial for the reasons which I have given. The acceptance by everyone at the meeting of the principle of common ownership was sufficient to make it reasonable for the claimants to assume that any acquisition of the retained land would be for the benefit of all the residents and to direct their energies towards removing Allum in that belief.
44. The judge's rejection of the agreement as insufficient to raise the equity on the grounds set out in paragraph 55 of her judgment (quoted earlier in paragraph 10) is not easy to follow. The informal nature of the agreement is not inconsistent with it being binding in conscience. What she appears to be saying is that it was, in terms, an agreement to get rid of Allum rather than one to acquire the land. But that finding is, with respect to the judge, inconsistent with her earlier acceptance that the removal of Allum would be followed immediately by an acquisition of the land by all of the residents. That conclusion was consistent with the admitted discussion at the meeting of placing the land into a management company and with the letter sent to Allum on 9^th November 2003 signed by all of the residents.
45. Mr Morshead took us to extracts from the evidence dealing with the January meeting. Mr Corless (in his amended witness statement) said that it was agreed that a management company should be set up to manage the estate but that it would be necessary for Allum to give up any interest in the amenity land. He says that there was no discussion as to how that interest was to be given up. In his first witness statement Mr Gareze also recalled discussing a proposed management company and that it was agreed that it would be necessary for Allum to give up any interest in the retained land. Mr Corless was not cross-examined about this part of his witness statement and Mr Gareze said in cross-examination that his witness statement set out his recollection of what was discussed and agreed.
46. None of this contradicts the judge's findings set out in paragraph 52 of her judgment and the evidence in fact supports an assumption that Allum would be divested, if possible, of ownership of the retained land and be replaced by either a management company or some other form of ownership for the benefit of the residents.
47. Mr Morshead submits that, in the absence of any clear agreement to the effect that the land would be owned by the residents, the January 2003 discussions were too casual to give rise to a Pallant v Morgan equity and that this was in fact the conclusion reached by the judge in paragraph 55 of her judgment. But, as I have already indicated, that finding is inconsistent with what she says in paragraph 52 and is not supported by the evidence.
48. One fact strongly relied upon by the judge to support her assessment of what was agreed at the January meeting was the subsequent purchase by Mr and Mrs Gareze of the southern section of the western strip. In paragraph 56 of the judgment she says:-

"This conclusion is supported by Mr Gareze's conduct. Very shortly after the meeting, in February 2003, he and his wife purchased Carmelstead and part of the amenity land for themselves. His evidence showed that he had no thought that his purchase of the western strip contravened any prior agreement or understanding. He had a clear conscience. His anger against the defendants was not because they had breached any agreement reached in January 2003 but because they had acted in what he felt was an underhanded way in the context of the discussions he had had with Mr Corless in the autumn of 2004. Mr Gareze was one of the supposed joint venturers in 2003 but he seemed to have no idea that the parties' consciences were affected by any earlier understanding about the destination of the land. His own conduct would otherwise be inexplicable, both in 2003 on the purchase of Carmelstead with part of the western strip, and in 2004, when he agreed with Mr Corless that the claimants should not initially be involved in the negotiations with Allum."

49. This finding appears to be based on the following passage in the cross-examination of Mr Gareze:-

"Q. So am I correct in understanding that you wish to add nothing to your first witness statement as to what transpired at the meeting of January 2003?

A. That's right.

Q. You later bought Carmelstead including part of what had, in January 2003, been part of the amenity land. Do you remember that?

A. I do, yeah.

Q. If at that time you had had the belief that the residents had reached an agreement as to the ownership of the amenity land presumably you would not have proceeded in that way without first telling your neighbours what you were going to do?

A. That's right.

Q. That's correct? And can I take it from that that in January 2003 you did not have an understanding or belief that the residents had agreed that the ownership of the amenity land should be shared as between all three dwellings?

A. I don't recall a conversation about that specific issue. I think my witness statement, my first witness statement, sets out what I believed was covered to the best of my recollection.

Q. Thank you very much."

50. I have already summarised what Mr Gareze said in his first witness statement. It seems to me doubtful whether his acceptance of the propositions put to him by Mr Morshead is a satisfactory basis for determining his state of mind at the time of the purchase. The contract of sale relating to Carmelstead was not disclosed or dealt with in evidence and may have pre-dated the January meeting. But the real point is that Mr Gareze's subjective intent does not matter. The question is not whether he had a clear conscience but whether it was unconscionable for any one resident to retain the amenity land for his own benefit. That depends, as I have indicated, on an objective assessment of what passed at the meeting and whether it was reasonable for the claimants to have relied on it. Neither Mr Corless nor Mr Gareze denied that an agreement did take place to attempt to remove Allum from ownership of the retained land and to replace it with some kind of mechanism for the benefit of the residents. The judge's findings in paragraph 52 indicate, in my view, that the agreement reached was sufficient to found the necessary equity if it was in fact relied upon up to and including the date on which the defendants acquired the retained land so as to make their retention of it unconscionable. Proudman J was, in my judgment, wrong to test the effect of the agreement by referring simply to the subjective intentions of Mr Gareze the following month. On that issue I would have allowed the appeal.

Reliance

51. The judge's treatment of this issue begins with the letter of 9^th November 2003. This was signed by all of the residents and referred in terms to a transfer of the retained land to a management company set up by the residents "as originally proposed". The claimants sought to rely on this at trial as confirmation of the January agreement, whereas Mr Corless (who drafted the letter) said that it referred to what he was originally given to understand by Allum would happen when the estate was completed. The judge preferred his explanation but nothing, I think, turns on that in relation to the issue of reliance.
52. The judge dealt with the 9^th November letter in paragraph 58 of her judgment:-

"The letter of 9^th November 2003 to Allum to which I have referred stated the residents' position. Allum rejected it out of hand. The letter is expressed as a statement of what the residents expected, but in my judgment that was a turn of phrase intended to put pressure on Allum to accede. Under cross-examination, Mr Baynes Clarke showed a marked reluctance to accept that this letter could be analysed as a proposal rather than a mere statement of intent. It seems to me that this was because he saw and understood the inconsistency of his position; the letter could be construed as a discrete proposal, separate from the discussions of January 2003, but even if it were not, it could be said that once Allum had rejected the residents' stance, any earlier agreement came to an end. In that context, Mr Corless's statement that the acquisition of the land should be addressed after the resolution of the STP problems can be taken at face value. There was no thought in his mind that the consensus reached at the January 2003 was still binding."

53. Mr McDonnell submitted that the judge was wrong to conclude that Allum's rejection of the proposals contained in the letter somehow brought the January 2003 agreement to an end. He pointed to the way in which the residents behaved after that time. On 21^st March 2004 Mr Corless suggested that the proposal should be repeated in a further letter to Allum and that the remainder of the western strip could then be divided between the defendants and the claimants. He then suggested delaying any further approach to Allum until the problem with the STP was resolved. None of this, Mr McDonnell submits, suggests that he thought that the January 2003 consensus about obtaining ownership of the retained land for the residents had been abandoned.
54. The real change on the defendants' side came with the letter to Allum of 14^th September 2004 (see paragraph 18 above). By then, as I have mentioned, the problem with the STP had been resolved. The explanation given by Mr Corless for seeking to acquire the retained land without reference to the claimants was two-fold. First he said that he believed that the claimants and Mr and Mrs Gareze were about to leave the Close and had lost interest in acquiring the retained land. His second reason was his alleged concern that Mr Baynes Clarke would jeopardise the purchase if he became involved by antagonising Allum as he had already done in his dealings with the company over the STP.
55. It is common ground that in August 2004 the claimants did locate a property in Maresfield which they intended to move to in order to be closer to Mrs Baynes Clarke's mother and they put South Heath on the market. But their plans were to demolish the existing house on the Maresfield site and to build a new house which would require the grant of planning permission. Their evidence was that South Heath was only put on to the market in order to establish a value for mortgage purposes so as to allow them to raise money on the property to finance the re-development of the Maresfield house. It was a long-term project and they have in fact continued to live in South Heath to this day. But the judge found that the defendants had gained the impression that the claimants intended to move to Maresfield in the short-term even though she accepted that this quickly changed to the long-term plan which I have mentioned. In paragraphs 67 and 68 of her judgment she said this:-

"67. Against that background, and the claimants' reluctance to admit it, I am satisfied that there were conversations between the defendants and the claimants in which the claimants either disowned interest, or showed little interest, in the future of the Close.

68. In all the above circumstances any consensus reached in January 2003 had been abandoned by September 2004. In any event, in order to succeed in their claim, the claimants have to show that they relied on the consensus reached at the January 2003 meeting. The circumstances would have to be such that the defendants' consciences were affected by the consensus and by the reliance. I find that the claimants placed no reliance on what happened in January 2003, whether in failing to press the defendants, or in failing themselves to negotiate with Allum, or at all."

56. In order to succeed on this appeal the claimants have to persuade us that the judge was wrong to find that they had placed no reliance on the January 2003 agreement. She refers in paragraph 68 both to the consensus being abandoned by September 2004 and to there being no reliance. The first finding appears to be based on the conversations mentioned in paragraph 67 of her judgment. But the only conversation before September 2004 which the judge made any findings about was that referred to in paragraph 63 which was a conversation with the claimants' daughter when she came to baby-sit for the defendants. In this conversation the defendants apparently said how nice it would be for her if she went to live near to her grandmother. This hardly supports the finding that there were conversations in which the claimants disowned any interest in the future of the Close.
57. It seems to me that the judge's finding that the defendants had been induced by conversations with the claimants to believe that the latter had in effect abandoned the 2003 agreement are inconsistent with Mr Corless's response to the queries raised by his own solicitor. On 25^th October he told Mr Martin in terms that he envisaged buying the retained land himself and then gifting part of the western strip to the claimants. And, as Mr McDonnell submitted, had Mr Corless believed that his neighbours were not in fact interested, there would have been no need to exclude them deliberately from the negotiations with Allum. They would not have wished to participate in any event.
58. Mr Morshead, on behalf of Mr and Mrs Corless, does not therefore suggest that there was any express discussion about or an agreement to abandon what had been proposed in 2003. What he relies on is the second finding in paragraph 68 of the judgment that the claimants had placed no reliance on the agreement. At the trial Mr Baynes Clarke was cross-examined at length about his lack of reaction to the e-mail of 24^th December 2004 and his apparent acceptance of the situation. It was pointed out to him that his solicitors, in their letter of 25^th February 2005, took a number of points about the interference with the claimants' rights of way over the turning circle and the claimants' ownership of the dividing wall but never raised any objection to the purchase on the grounds that it was a breach of the 2003 agreement. Mr Baynes Clarke denied that the agreement had been effectively abandoned by September 2004. He said that no mention was made of it prior to the commencement of proceedings in 2007 because he had to assemble the evidence to support the January 2003 agreement.
59. Mr Corless was asked in this connection about the e-mail which he sent to his solicitors on 11^th November 2004 (see paragraph 26 above). His reference to having spoken to the neighbours and to their key motivation being to get Allum out of the estate was relied on by the claimants at trial as being inconsistent with their having ceased by then to rely on the 2003 agreement and to no longer having any interest in the Close. But, when asked in cross-examination about the timing of the conversation, Mr Corless said that this had been his neighbours' position during the last two years and that he was not referring to any particular recent conversation. Mr Morshead submits that this evidence supports the view that all the residents wanted Allum out of the development. Not that the claimants retained an interest in acquiring the land themselves.
60. The judge therefore had to decide whether Mr Morshead was right to suggest to Mr Baynes Clarke that he and his wife's failure to respond more forcefully to the defendants' purchase of the retained land was due to the fact that by September 2004 things had moved on and the 2003 agreement had ceased to be relied upon.
61. The judge formed the view on the evidence that there had never been any effective reliance by the claimants on the January 2003 agreement either after September 2004 or at all and that they had not therefore acted in a way which made it unconscionable for the defendants to retain the land which they had purchased from Allum. Both in their oral and their written submissions Mr McDonnell and Mr Stafford criticise Proudman J for her failure to address the points I have referred to and to explain her reasons for preferring the defendants' evidence. I accept that her conclusions on this issue are shortly stated, but it is unrealistic to expect a trial judge to refer to every single piece of evidence upon which he or she relies or to assume that, because there is no express reference to a particular piece of evidence, it must be inferred that the judge has failed to take it into account.
62. The lack of response by Mr and Mr Baynes Clarke to being informed by the defendants that they had purchased the retained land does not stand easily against their claim to have relied on the January 2003 agreement up to and including the date of purchase. As explained earlier in this judgment, there was no complaint about Mr and Mrs Corless having acted contrary to the agreement and no response to the offer to sell the claimants part of the western strip opposite South Heath. The judge's view of Mr Baynes Clarke (fully supported by the evidence) was that he was well able to fight his corner when his interests demanded it. But his only complaint (see paragraph 31) was that Mr Corless had been underhand in negotiating with Allum without telling the Baynes Clarkes what he was doing.
63. The absence of any focussed complaint based on the January 2003 agreement continued right through until proceedings were issued in 2007. The judge had to consider whether this was explicable by the need to find evidence of the January 2003 agreement (as alleged by Mr Baynes Clarke) or whether it was in fact indicative of a lack of interest or reliance on the original proposal to acquire the retained land for the residents through some form of common ownership. The conflict between this and the evidence relied on by the claimants to support their continuing reliance on the agreement was for the judge to resolve.
64. The judge refers to the claimants' lack of response in paragraphs 45 to 47 of her judgment and clearly had these matters in mind when she made the findings contained in paragraph 68 that the claimants placed no reliance on what happened in January 2003. Although some of the other factors which the judge took into account do not have the substance she ascribed to them for the reasons which I have already explained, I remain of the view that the events following 24^th December 2004 coupled with the judge's assessment of the claimants was a sufficient basis for her rejection of the case on reliance and that it is not possible for this Court to disturb them. I would therefore dismiss this appeal.

Lord Justice Thomas :

65. I agree.

The Chancellor of the High Court :

66. I also agree.