Farrar & Anor v Rylatt & Ors

Factual and Procedural Background

In November 2017, a trial took place in the Technology and Construction Court (TCC) in Leeds involving appellants seeking declarations against respondents concerning two alleged profit share agreements related to separate developments in West Yorkshire, known as Hazel Grove and The Barns. The trial judge rejected both claims in an ex tempore judgment given immediately after the trial.

The Hazel Grove dispute concerned an alleged oral agreement made around March 2013, which purportedly created a trust whereby the legal owners held Hazel Grove and its sale proceeds on trust for the respondents and the first appellant as tenants-in-common with equal beneficial interests. The Barns dispute involved a written but unsigned Heads of Terms (HoT) dated 4 November 2013, which included a "Subject to Contract and Without Prejudice" clause and outlined a joint venture partnership with a 50:50 split of net proceeds.

The appellants contended on appeal that the judge failed to properly address the existence of the oral agreement separately from the trust issue in Hazel Grove and erred in rejecting the binding nature of the HoT for The Barns despite the Subject to Contract clause. The appellants sought reversal and declarations of binding agreements, but the court noted that if the criticisms were sustained, a new trial would be the appropriate remedy due to the reliance on oral evidence.

The court acknowledged some lack of clarity and unexplained passages in the trial judgment but emphasized that the appeal must focus on whether the judgment addressed the issues raised at trial rather than hypothetical alternative arguments.

Legal Issues Presented

1. Whether the trial judge erred in conflating the existence of an oral profit share agreement with the existence of an express trust in the Hazel Grove matter, and whether the oral agreement was sufficiently established.
2. Whether the unsigned Heads of Terms document relating to The Barns, subject to a "Subject to Contract" clause, constituted a binding profit share agreement as of 4 November 2013.
3. Whether any subsequent events, including the sale of land or the entering into of a building contract, created a binding profit share agreement in respect of The Barns.
4. Whether the attachment of the Heads of Terms to the building contract altered the legal effect of the Subject to Contract clause or created binding obligations.

Arguments of the Parties

Appellants' Arguments

• In Hazel Grove, the judge failed to separately consider the oral profit share agreement distinct from the express trust and inadequately explained the rejection of the oral agreement.
• The judge's positive findings on the credibility of the first appellant's evidence undermined the rejection of the oral agreement.
• The involvement of the first appellant in the marketing of Hazel Grove indicated an interest in the profits.
• In The Barns, despite the Subject to Contract clause, the mandatory terms of clauses 5-7 of the HoT evidenced a binding profit share agreement as at 4 November 2013.
• The attachment of the HoT to the building contract demonstrated that the Subject to Contract tag had fallen away, evidencing a binding agreement.
• If the court found error in the judgment, it should grant declarations affirming the existence of the agreements rather than merely ordering a new trial.

Respondents' Arguments

• There was no oral profit share agreement in respect of Hazel Grove; the case depended entirely on the first appellant's evidence, which was found imprecise and confusing.
• The Subject to Contract clause in the HoT for The Barns precluded it being a binding agreement as at 4 November 2013.
• The land was not purchased by the respondents personally but by a separate company incorporated after the HoT was drafted, so no binding profit share agreement could exist between the parties as pleaded.
• No subsequent agreement to share profits was alleged or proven.
• The attachment of the HoT to the building contract was irrelevant and not pleaded as altering the legal effect of the Subject to Contract clause.

Table of Precedents Cited

Court's Reasoning and Analysis

Regarding Hazel Grove, the court found that the trial judge's conflation of the oral profit share agreement with the express trust was understandable given the pleadings but ultimately problematic. The appellants had pleaded that the oral agreement expressly created a trust, so the judge’s failure to find an express trust led logically to rejection of the oral agreement. However, the court acknowledged these were distinct issues and the judge should have separately addressed the existence of the oral agreement.

The court analysed the oral evidence and found the trial judge's criticisms of the first appellant’s evidence—describing it as imprecise, confusing, and contradictory—were justified. The evidence lacked clarity on key matters such as the date and terms of the oral agreement. There was no contemporaneous documentation supporting the alleged agreement. The judge was entitled to reject the oral agreement on the balance of probabilities given the evidential burden lay with the appellants. The involvement of the first appellant in marketing Hazel Grove was not sufficient to infer a profit share agreement, as there were alternative plausible explanations and no documentary support.

On The Barns, the court emphasised the legal effect of the "Subject to Contract" clause in the unsigned HoT, which precluded the document from being a binding contract for the sale of land or for a joint venture profit share agreement as at 4 November 2013. The HoT anticipated future agreements and further specification, which had not been finalized at that time. The identity of the parties changed after the HoT was drafted, with a company incorporated later purchasing the land and entering into the building contract, further undermining the appellants’ pleaded case.

The court rejected the appellants’ late attempts to argue that subsequent events (the land sale, building contract, and attachment of the HoT to the building contract) created binding obligations, holding that these arguments were not pleaded or supported by evidence and contradicted by the trial record. The trial judge’s rejection of a binding profit share agreement as at 4 November 2013 was sound and not open to criticism.

Holding and Implications

The court DISMISSED the appeals in relation to both Hazel Grove and The Barns.

Consequently, the trial judge’s findings that there was no enforceable oral profit share agreement or express trust in Hazel Grove, and no binding profit share agreement in The Barns as at 4 November 2013 or thereafter, stand. The appellants failed to meet the high evidential threshold required to overturn findings of fact by the specialist tribunal. No declarations of binding agreements were made, and no new trial was ordered.

No new legal precedent was established by this decision; it reinforces established principles regarding appellate review of factual findings, the effect of Subject to Contract clauses, and the necessity of clear pleadings and evidence to establish binding agreements in property and construction joint ventures.