Banner Homes Group plc v Luff Developments Ltd [2000] Ch 372

• Plaintiff and Defendant agreed informally that neither would bid for a plot of land.

• Defendant then did so and Plaintiff claimed that Defendant held it on trust for both of them.

• CA allowed Plaintiff’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.