P and D agreed informally that neither would bid for a plot of land. D then did so and P claimed that D held it on trust for both of them. CA allowed P’s claim, saying that where there was an arrangement as to the purchase of property between potential rivals, to give rise to a constructive trust it was necessary to establish either advantage to the acquiring party or detriment to the non-acquiring party. The agreement didn’t have to be enforceable, but it was essential that the circumstances made it inequitable for the acquiring party to retain the property.
Chadwick LJ: There are situations in which equity will impose a constructive trust on property acquired by one person, say "A," in furtherance of some pre-acquisition arrangement or understanding with another, say "B," that, upon the acquisition of the property by A in circumstances in which B kept out of the market, B would be granted some interest in the property. Requirements: (1) an arrangement; (2) The agreement contemplated the possibility of one party acquiring the property and that if he did so then the other party would take an interest; (3) The acquiring party didn’t inform the other one in time to enable it to take part in the bid; (4) Unconscionability, defined here as the “existence of the advantage to the one [party], or detriment to the other, gained or suffered as a consequence of the arrangement”.
Why does a CT arise here? This situation has nothing to do with property rights- the courts are effectively using a remedial constructive trust without admitting it. Also this will encourage companies not to bother with binding agreements, which is the proper way to deal with such a situation.