• In the case of Crossco no 4 unlimited v Jolan ltd 2012 2 all er 754, it was held that although there were advantages in restricting constructive trusts as described in Banner to family home property disputes, the reasoning in that case was firmly based on common intention constructive trust and it remained binding in respect of commercial property disputes in the absence of Supreme Court authority to the contrary.

Facts of the Case

  • The appellant tenants (C) appealed against a decision that the respondent landlords (J) had been entitled to operate a break clause in the lease of commercial premises.
  • C and J had previously comprised a group whose interest included the ownership of commercial premises and the operation of an amusement arcade on the ground floor of the premises.
  • As part of a demerger, J became the building’s landlords from April of 2009. C held the tenancy on the ground floor.
  • It was originally intended that C would own both the building and the arcade however this changed during negotiations in February 2009. Following these negotiations, the parties did not agree as to the extent of the ground floor demise.
  • J served notice on C under a break clause in the lease.
  • C claimed that an agreement reached in February prevented J from doing this. As j had known that C was unaware of the break clause, a constructive trust had arisen preventing its operation.
  • The judge at first instance held that no agreement had been reached in February and that C had mistakenly overlooked the clause, meaning that a trust had not arisen.
  • C then claimed that J held the freehold on constructive trust and that C would remain as ground floor tenants, making it unconscionable for them to operate the clause.
  • C claimed the trust was a common intention constructive trust based on the equity arising in Pallant v Morgan.

Issues in Crossco no 4 unlimited v Jolan ltd 2012 2 all er 754

  • Can C claim a common intention constructive trust

Held by Court of Appeal

  • Appeal dismissed.

Arden LJ

  • The authorities on common intention constructive trusts concerned disputes where a couple had purchased property as a family home. The law in that area was driven by specific factual and policy considerations that had not applied to Banner Homes and did not apply in the instant case. Instead, the cases in which the Pallant equity was said to have arisen could be explained by the existence and breach of fiduciary duty. 

Lady Justice Arden

  •  “However, the reasoning in Banner Homes v Luff Developments Ltd [2000] Ch 372 , which Etherton LJ has set out at paragraph 76 above, makes it clear that the ratio of that case is firmly based on a common intention constructive trust. By common intention constructive trust, I mean a constructive trust of the kind enunciated in Gissing v Gissing [1971] Ch 162   …  common intention constructive trusts may be limited in the future to family cases, but I do not consider that that position is so clear as to make it possible at this stage for this court to hold that Banner Homes cannot stand with decisions of the House of Lords and Supreme Court, and to treat the ratio of Banner Homes as not binding on it. [129]
  •  For the law in general to provide scope for claims in respect of unsuccessful negotiations that do not result in legally enforceable contracts would, in my judgment, be likely to inhibit the efficient pursuit of commercial negotiations, which is a necessary part of proper entrepreneurial activity.” [133]

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