Generator developments Ltd v LIDL UK Gmbh [2018] EWCA Civ 396

Relevant background:

The Court of Appeal has rejected a claim by a commercial developer (Generator) seeking to argue that it had agreed a joint venture with Lidl Supermarkets for the development of commercial land in Essex worth £6.8 million. There was no formal, single written agreement Generator could rely upon. The Court of Appeal dismissed the claim, finding that a constructive trust had not arisen and therefore the developer did not have an equitable share in the value of the property.

Facts of the case:

Generator and Lidl were interested in purchasing a site at Wates Way in Brentwood in Autumn 2013. Generator’s interest was in developing the site as a mixed use or purely residential scheme. Lidl wanted to buy the site primarily for a new Lidl store with an adjacent residential element. The seller’s agents suggested that the two parties discuss the possibility of a joint venture, and preliminary discussions were held between Generator and Lidl.

An offer was made on behalf of both parties, and was accepted by the seller of the site. It was subsequently agreed at a meeting between the parties that Lidl would purchase the site in its sole name and the terms of a possible joint venture between the parties would be discussed subsequently.

A contract for Lidl’s acquisition of the site was exchanged on 14 February 2014. The scheme being discussed at that point between Lidl and Generator was a purchase of the site by Lidl with a “flip” sale to Generator and leaseback to Lidl. It was discussed that Generator built out the residential part of the site and also built Lidl’s store. Generator had drafted and sent to Lidl a “lock-out” agreement by March 2014 relating to the proposed joint venture, proposing an exclusivity period and reserving to Generator the ability to withdraw from the proposed transaction.

Following purchase of the site in mid-March 2014 by Lidl, it informed Generator that it had decided to offer the site for sale to the market.

Generator alleged this was a breach of a constructive trust which had arisen in their favour. In the proceedings, Generator claimed the existence of a “Pallant v. Morgan constructive trust” and an Order from the Court that the site be sold and the proceeds shared with Lidl. In order to succeed in establishing the existence of a constructive trust a party has to demonstrate not only that that there was a common intention that both parties should have a beneficial interest in the land, but also that the claimant had acted to his or her detriment on the basis of that common intention so that it would be inequitable for the defendant to deny the claimant an interest.

Decision:

The Court of Appeal found that some of clauses in the draft contracts that Generator Developments relied upon on were expressly stated as being “subject to contract”.

The proposed sale and leaseback agreement was to be subject to the approval of the boards of both companies, and the Court of Appeal ruled that neither company was committed to it.

The court of Appeal dismissed Generator’s claims after reviewing the terms of the lockout agreement, further draft versions of contracts and correspondence that had been exchanged between Lidl and Generator.

On the facts the Court of Appeal found there was no “common intention” to found a “Pallant v Morgan” constructive trust.

Generator always knew there was a risk that Lidl may proceed with a deal with a different developer or approach the development of the site in another way.

Key points

- The case restates the importance of ensuring a concluded agreement is recorded in writing and contains all the relevant terms.

- The court will not intervene and assist where a party was aware of the risk that the lack of a concluded agreement could mean a counter-party could withdraw. This is especially true where the parties are legally advised and experienced commercial entities.

- If a party is in doubt as to whether it’s deal is enforceable, it should immediately seek legal advice.

- If a party is engaging in informal discussions in respect of a property deal, it is best advised to take advice at an early stage to guard against the risk of a claim that the informal discussions create a legally binding agreement.