Court of Appeal Upholds the Dismissal of Claim for a Development Profit Share.
(1) NEIL FARRAR (2) FARRAR CONSTRUCTION LTD v (1) JAMES RYLATT (2) KEVIN RYLATT (3) JKR PROPERTY DEVELOPMENTS LTD  EWCA Civ 1864
Profit share agreements were said to have been entered into in relation to two residential development schemes (H) and (B). H was land owned by the respondent developers with planning for a substantial house. The appellants’ pleaded case was that there had been had been an oral agreement before works were completed, to "create and evidence a trust in respect of H and the proceeds of sale thereof" under which the respondents and the first appellant would hold the beneficial interest in H as tenants in common of 50% each. In relation to B, it was common ground that Heads of Terms had been drawn up providing for a profit share in relation to two barns originally owned by the first appellant but they were unsigned and marked “subject to contract & without prejudice".
At first instance in the High Court (TCC) the Judge considered that the Claimant builder had failed to evidence any oral agreement for an express trust in relation to H. As to B, the Heads of Terms were in substance an agreement for the sale and development of land which, having being marked “subject to contract”, could not bind anyone.
On appeal, the appellants sought to argue that, in relation to H, the Judge had failed to address the existence or otherwise of the oral agreement separately from the existence of the trust, and that his findings on the factual evidence generally were unclear. As to B, they argued that despite the “subject to contract” tag, the Heads of Terms created a binding profit share agreement because there was nothing left to agree and the document was appended to the final JCT building contract.
Rejecting the appellants’ arguments, the Court of Appeal found that the Judge had been entitled to find that the two alleged profit share agreements were not binding. In relation to H, if the Judge had focused on the existence of the trust, then that had been because that was the way in which the Claimant’s case had been put. The Judge had expressed reservations about the first appellant’s evidence, which had been fully justified in the circumstances, and which supported the finding that he had made. In relation to B, the Heads of Terms were clearly not a binding contract of any sort. They could not be a contract for the sale of land because there they were unsigned and therefore fell foul of section 2(3) of the Law of Property (Miscellaneous Provisions) Act 1989. Neither were they a valid building contract because the terms clearly envisaged a further agreement being entered into, which was precisely what had happened on the facts. Finally, the document could be not be a valid profit share agreement because, amongst other things, it was headed “subject to contract” and the appellant’s argument that the caveat had somehow fallen away was simply unsustainable.
Although the Court of Appeal agreed that the judgment could have been clearer, it had been given ex tempore, doubtless for reasons of speed and efficiency. Furthermore, attacking a judge’s findings of fact on appeal was always a “formidable burden”, particularly when such findings were made by a specialist tribunal. Ultimately, the judgment contained proper answers to the critical issues in the case and there was no scope to displace the decision reached.
Property practitioners will appreciate that developers regularly enter into profit share agreements with their appointed builder. Such arrangements are often poorly recorded, if at all. The instant case is a stark reminder of the risks in not seeking specialist legal advice so that the relevant contract can be properly documented from the start.