Summary

Where a business understanding had not been contractually formalised, the claimant had failed to make out a case based on proprietary estoppel or a constructive trust as her expectation of an enforceable contract was contingent upon the successful outcome of ongoing negotiations and she had not conferred any advantage on the defendant or the company, so that it was not unconscionable for the defendant to withdraw.

Facts

The claimant (X) claimed an entitlement in equity to half the shareholding in a care home business belonging to the defendant (Y). Y owned a residential care home business in the process of expansion. X and Y entered into discussions regarding a business partnership whereby X would buy shares in the company. X's case was that they had reached an understanding that they would be equal shareholders; however, the parties intended that a formal contract would be negotiated with the help of professional advisors. X had worked full-time in the company's business for modest remuneration and paid £5,000 into its accounts. Y had treated X as a business partner in dealings with third parties. X's purchase into the company was dependent upon her selling two properties which she owned; therefore the transaction was delayed until such time as those funds were available. In the meantime, the company acquired further properties without any capital input from X. Y later informed X that she did not wish to formalise their agreement. X contended that on the basis of proprietary estoppel or, alternatively, the operation of a constructive trust, she was entitled to a half share of the company. Failing that, she claimed entitlement to a quantum meruit payment.

Held

(1) On the facts, X and Y had reached an initial understanding that X would buy 50 per cent of Y's shares in the company. X had not incurred any loss of earnings during the period in which she worked for the company because she was in receipt of sick pay from her employer during that time. Although she would not have spent time working in the business had she not believed that she was to acquire a half share in the company, it became clear that Y's intention was to retain a proportionately greater interest in the company to reflect her greater capital contribution, evidenced by different classes of shares. (2) Any interest which X expected in the company was contingent upon the successful outcome of negotiations, which in fact never occurred. It was not unconscionable for Y to have withdrawn from the agreement when she had never made a binding promise to sell shares to X. X knew that she was not an equal partner in the business, and Y's conduct in relation to third parties was a mere courtesy in anticipation of the formal business relationship that was expected to develop. Accordingly, X had not made out a case based on proprietary estoppel, Cobbe v Yeoman's Row Management Ltd (2008) UKHL 55, (2008) 1 WLR 1752 applied. (3) Neither had X made out the existence of a constructive trust, given that Y already owned shares in the company before she knew X and in view of X's expectation being contingent on a legally enforceable contract and shareholder's agreement. It was always contemplated that the subsequently-acquired properties would be purchased by the company and there was nothing inequitable in the company being allowed to treat those properties as its own. X had not conferred any material advantage on Y, or on the company, in relation to the acquisition of those properties, since Y and the company were always in a position to acquire them independently of X. X had therefore failed to bring her case within the principles relevant to establishing an equity within the meaning of Pallant v Morgan (1953) Ch 43 Ch D considered. (4) X was entitled to a quantum meruit payment for her services and for any benefit conferred by her introduction of the payment of £5,000, since neither party intended that the very modest remuneration she received was to be the only benefit derived by X from her association with the company.

Judgment for claimant in part