Farrar v Miller [2018] EWCA Civ 172

Key point

  • Transfer of property of the principal in reach of fiduciary duty gives rise to a constructive trust over it
  • This is a distinct principle from Pallant v Morgan which concerns agreements before acquisitions

Facts

  • F and M acquired a piece of property ‘Long Stratton’ (LS) through a company they both owned, the idea was that they will obtain planning permission and then resell the land
  • LS was later sold to another company that only M had an interest in without the consent or knowledge of F
  • When the property was eventually resold only M received proceeds
  • F alleged that there was a constructive trust of LS
  • It was argued by M that there was no pre-acquisition agreement, the property was already owned by F and M when the alleged agreement was made, and thus there is either an enforceable contract or not

Held (Court of Appeal)

  • Constructive trust of LS had arisen in favour of F

Kitchin LJ

  • Refused to decide the debate of whether Pallant v Morgan equity is based on a common intention constructive trust or a breach of fiduciary duty, but commented that many of the cases giving rise to a Pallant v Morgan style equity will have at their heart a fiduciary relationship
  • While Pallant v Morgan equity would typically arise in circumstances where the property was at first not owned by either party, it is not necessarily so limited
  • Where a party, although not expressly appointed as a trustee, lawfully assumes the duties of a trustee and, in that capacity has received trust property and appropriates that property, then here will be a breach of trust
  • M not only deprived F of his opportunity to participate in the joint venture, but also deprived him of his pre-existing and indirect interest in LS
  • *In the commercial context and the absence of agreement on critical parts of the deal might indicate there was never a common intention. This was not, however, one of those cases.

Patten LJ

  • It is 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
  • Here the parties had been in business together for many years, in that context that M was entrusted with the corporate aspects of the parties’ joint ventures and has the responsibility of transferring Long Stratton. It was arguable moreover that those dealings did give rise to the fiduciary relationship for which M contended.

Commentary

  • This case presents a more flexible approach to Pallant v Morgan equity, whereby the absence of an agreement does not dictate that such equity does not arise