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Proprietary Estoppel: An Oasis Without Palm Trees (Or Water?)

John Wilson looks at the implications for family lawyers on the use of proprietary estoppel following the recent Lords judgment in Yeomans Row v Cobbe

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John Wilson, 1 Hare Court

"If Lord Scott's approach to (proprietary estoppels in Yeoman's Row) is applied in its entirety, it is difficult to see how there is any scope at all left in the doctrine in the case of detrimental reliance on or change of position in consequence of, a promise which creates an expectation in the mind of the claimant"[1]

In Yeomans' Row Management Limited & Another v Cobbe [2008] UKHL 55; [2008] 1 WLR 1752 ("Yeoman's Row") Yeoman's Row reneged on a "gentleman's agreement" under the terms of which Mr Cobbe, at his own expense, obtained planning permission for residential development of land owned by Yeoman's Row on the expectation that Yeoman's Row would sell the land to Mr Cobbe for an agreed up-front price (£y) and he would then develop the land in accordance with the planning permission, sell off the residential units and when the gross proceeds of sale received by Mr Cobbe equalled £2y any further gross proceeds of sale would be divided equally between the parties.  No concluded agreement had been reached, everything was "subject to contract" and significant matters of detail remained to be negotiated. 

Mr Cobbe obtained planning permission and, at that point, Yeoman's Row moved the goal posts and refused to negotiate further on the pre-existing basis.  On any view this behaviour was unconscionable. The House of Lords said so in terms.  Mr Cobbe cried foul and said that this was unfair.  He brought proceedings relying on proprietary estoppel and constructive trust and Etherton J and the Court of Appeal agreed with him. The House of Lords disagreed: both parties were well-versed in commercial matters, everything was "subject to contract" and ultimately a gentleman's agreement wasn't worth the paper it wasn't written on.  Neither proprietary estoppel nor the concept of constructive trust saved Mr Cobbe and, at best, he had his restitutionary remedies for unjust enrichment and quantum meruit. 

Etherton LJ (as he now is), in a lecture to the Chancery Bar Association described Yeoman's Row as "a jurisprudential milestone in the development and application of the doctrine of proprietary estoppel".

It is well known that, whereas in ancillary relief proceedings the court has significant discretion to look at what is fair and reasonable when dividing up the matrimonial assets, in cohabitation claims - or ancillary relief claims where a third party's interests are engaged - one must address the hard laws of property and trusts.   The idea, fostered by the tabloid press, that the courts have gone soft on these realities, is not one that is supported by the recent heavy flow of decisions that are finding their way onto the internet and into the law reports.

Thus, in Yeoman's Row Lord Scott and Lord Walker cited with approval the dicta of Deane J in the Australian case of Muschinski v Dodds (1985) 160 CLR 583.  Although Deane J was speaking of constructive trusts, their Lordships observed that his remarks were equally germane in the context of proprietary estoppel.  Deane J said:

"The fact that the constructive trust remains predominantly remedial does not, however, mean that it represents a medium for the indulgence of idiosyncratic notions of fairness and justice.  As an equitable remedy, it is available only when warranted by established equitable principles or the legitimate processes of legal reasoning, by analogy, induction and deduction, starting from the conceptual foundations of such principles …Under the law of this country - as I venture to think under the present law of England …proprietary rights fall to be governed by principles of law and not by some mix of judicial discretion, subjective views about which party 'ought to win' … and the 'formless void' of individual moral opinion …"

If proprietary estoppel is an oasis of fairness in the desert of dry chancery principle, it is an oasis without palm trees.   It may even be an oasis without water.

In short, it is not enough to show that a person has behaved unconscionably. One must, in addition, provide a coherent formulation of the content of the estoppel or of the proprietary interest that the estoppel was designed to protect.  It is comparatively trite law (see Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] QB 133) that to establish a proprietary estoppel one must prove the existence of three specific elements, namely:

(i) a representation or assurance by the owner of land to the claimant that the claimant has acquired, or will acquire, rights in respect of that property;
(ii) detrimental reliance or change of position by the claimant in reliance thereon; and
(iii) unconscionable conduct by the owner denying the claimant's rights.

In Yeoman's Row the House of Lords emphasised that all three elements need to be present.  In relation to the first element, their Lordships stressed again the need for the representation to be referable to "a certain interest in land".  Lord Scott cited with approval the use of that specific phrase by Oliver J in Taylor Fashions and noted that the learned judge had, himself, filched it deliberately from the speech of Lord Kingsdown in Ramsden v Dyson (1866) LR 1 HL 129 at 170.   Too many cases have been launched on the basis of concepts of general fairness without having proper regard to the restrictions on the sort of representations that will do.  In Lissimore v Downing [2003] 2 FLR 208 a rich man, who owned a large country estate, said to his girlfriend "I bet you never thought all of this would be yours in a million years" and described her as "the Lady of the Manor" as well as making unspecific representations to the effect that she would never want for anything and he had always looked after his girlfriends.  Her claim based on estoppel failed because the representations were referable to entirely unascertained and unascertainable property.  The requirement for the representations or promises to be referable to "a certain interest in property", or at least something more concrete than the generalisations set out above, has been emphasised in a series of recent cases (see James v Thomas [2007] EWCA Civ 1212; [2008] 1 FLR 1598, Negus v Bahouse [2007] EWHC 2628 (Ch); [2008] 1 FLR 381 and cf Holman v Howes [2007] EWCA Civ 877; [2008] 1 FLR 1217).  

Further, as Lord Scott made clear at paragraph 17 of Yeoman's Row:

"A finding of proprietary estoppel, based on the unconscionability of the behaviour of the person against whom the finding was made but without any coherent formulation of the content of the estoppel or of the proprietary interest that the estoppel was designed to protect invites, in my opinion, criticism of the sort directed by Deane J in the passage cited."

It is not, therefore, enough to stamp one's feet and say "it's not fair!"  Equitable estoppel is "not a sort of joker or wild card to be used whenever the Court disapproves of the conduct of a litigant who seems to have the law on his side" (per Lord Walker at paragraph 46).

Lord Walker was assisted by the taxonomy of proprietary estoppel adopted by Gray & Gray in Elements of Land Law at paragraph 10.189.  The authors identified three overlapping categories, namely (1) the "imperfect gift" cases, (2) the "common expectation" cases and (3) the "unilateral mistake" cases.   Most cohabitation cases will fall into the second category.  But, per Lord Walker, expectations must be more than hopes.   This point may be more apparent in commercial cases where both sides are experienced people of business backed up by specialist lawyers than it would be in family or domestic cases where no one turns to legal advice until hopes or expectations are dashed.  But in the latter cases, where an estoppel was in fact established, "the claimant believed that the assurance on which he or she relied was binding and irrevocable."  Lord Walker observed that some domestic cases might have been decided differently if the nature of the claimant's belief had been an issue vigorously investigated in cross-examination although in most of these cases the controversial issues tend to be whether any sufficient assurance was made and whether it was causally relevant.

A business man is usually hoping, with the benefit of legal advice, to secure a contract.  In the domestic setting the claimant is usually expecting to get an interest in immovable property often for long-term occupation as a home.  "The focus is not on intangible legal rights but on the tangible property which he or she expects to get.  The typical domestic claimant does not stop to reflect (until disappointed expectations lead to litigation) whether some further legal transaction (such as grant by deed or the making of a will or codicil) is necessary to complete the promised title" (per Lord Walker at paragraph 68).

Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989
Perhaps the most interesting part of the House of Lords decision for family lawyers lies in the obiter dicta of Lord Scott in relation to section 2.  Section 2 reads as follows:

"(1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are being exchanged, in each.

(5) This section does not apply in relation to -

(c) a contract regulated under the Financial Services Act 1986; and nothing in this section affects the creation or operation of resulting, implied or constructive trusts.

(8) Section 40 of the Law of Property Act 1925 (which is superseded by this section) shall cease to have effect."

Section 2 of the 1989 Act abolished the judicially developed doctrine of part-performance which had been retained by Section 40 of the 1925 Act.  It can be compared with Section 53 of the Law of Property Act 1925.  Section 53(1)(b) requires a trust of land to be created or evidenced in writing, but section 53(2) is in terms very similar to the saving at the end of section 2(5)(c) and reads as follows:

"This section does not affect the creation or operation of resulting, implied or constructive trusts."

Neither statute makes specific mention of proprietary estoppel.   However, it has long been accepted that proprietary estoppel cases fall within the exceptions created for resulting, implied or constructive trusts.  This is not surprising because estoppel is an equitable remedy that is designed, in part, to prevent a party relying unconscionably on his or her strict legal rights.   Equity will not allow a statute to be used as an engine for fraud.  Thus, in Yaxley v Gotts [1999] 2 FLR 941 the issue arose as to whether or not a claim in proprietary estoppel under the terms of which a claimant sought the transfer of an interest in property could be defeated because of a failure to comply with section 2(5).  Robert Walker LJ (as he then was) held that the claim was not defeated.   He said:

"Section 53(1) (b) requires a trust of land to be created or evidenced in writing, but s. 53(2) is in terms very similar to the saving at the end of s. 2(5),

"This section does not affect the creation or operation of resulting, implied or constructive trusts."

To recapitulate briefly: the species of constructive trust based on 'common intention' is established by what Lord Bridge in Rosset called an "agreement, arrangement or understanding" actually reached between the parties, and relied on and acted on by the claimant. A constructive trust of that sort is closely akin to, if not indistinguishable from, proprietary estoppel {emphasis added}. Equity enforces it because it would be unconscionable for the other party to disregard the claimant's rights. Section 2(5) expressly saves the creation and operation of a constructive trust.

I cannot accept that the saving should be construed and applied as narrowly as (Leading Counsel for the Appellant) contends. To give it what I take to be its natural meaning (comparable to that of s. 53(2) of the Law of Property Act 1925 in relation to s. 53(1)) would not create a huge and unexpected gap in s. 2. It would allow a limited exception, expressly contemplated by Parliament, for those cases in which a supposed bargain has been so fully performed by one side, and the general circumstances of the matter are such, that it would be inequitable to disregard the claimant's expectations, and insufficient to grant him no more than a restitutionary remedy.

To give the saving a narrow construction would not to my mind be a natural reading of its language. Moreover it would often require the court to embark on minute enquiries into informal negotiations, between parties acting without legal advice, in order to decide whether or not the parties' 'agreement, arrangement or understanding' would have amounted to a complete and legally binding contract but for the single fatal defect of non-compliance with s. 2. The course which this case has taken vividly illustrates the problems involved."

Robert Walker LJ thus evoked the then growing alignment between proprietary estoppel and constructive trusts in support of his conclusions. 

The Court of Appeal dealt, in addition, with the submission that the doctrine of estoppel may not be invoked to render valid a transaction which the legislature, on grounds of public policy, has enacted is to be invalid or void.  Per Clarke LJ it was necessary to consider the mischief at which the statute is directed.   He considered the Law Commission's recommendations in three separate Reports which had led to the enactment of the 1989 Act.    It was not the Commission's intention that statutory reform should affect the power of the court to give effect in equity to the principles of proprietary estoppels and constructive trusts:

" The Commission's Report makes it clear that in proposing legislation to exclude the uncertainty and complexities introduced into unregistered conveyancing by the doctrine of part performance, it did not intend to affect the availability of the equitable remedies to which it referred.

The general principle that a party cannot rely on an estoppel in the face of a statute depends upon the nature of the enactment, the purpose of the provision and the social policy behind it. This was not a provision aimed at prohibiting or outlawing agreements of a specific kind, though it had the effect of making agreements which did not comply with the required formalities void. This by itself is insufficient to raise such a significant public interest that an estoppel would be excluded. The closing words of Section 2(5) "... nothing in this section affects the creation or operation of resulting, implied or constructive trusts" are not to be read as if they merely qualified the terms of Section 2(1). The effect of Section 2(1) is that no contract for the sale or other disposition of land can come into existence if the parties fail to put it into writing; but the provision is not to prevent the creation or operation of equitable interests under resulting implied or constructive trusts, if the circumstances would give rise to them."

Quite apart from the views expressed by the Commission, it was well recognised that circumstances in which equity is prepared to draw the inference that a party is entitled to a beneficial interest in land held by another may frequently also give rise to a proprietary estoppel."

Practitioners have, in the light of the conclusions of the Court of Appeal in Yaxley v Gotts been able to shrug their shoulders when an unconscionable defendant seeks to rely on section 2 of the 1989 Act to avoid a liability that would otherwise exist if the formality of a written contract for the transfer of land was in place.  However, that insouciance may now have to be revisited.  Lord Scott said, at paragraph 29:

"Subsection (5) expressly makes an exception for resulting, implied or constructive trusts.  These may validly come into existence without compliance with the prescribed formalities.   Proprietary estoppel does not have the benefit of this exception.  The question arises, therefore, whether a complete agreement for the acquisition of an interest in land that does not comply with the section 2 prescribed formalities, but would be specifically enforceable if it did, can become enforceable via the route of proprietary estoppel.  It is not necessary in the present case to answer this question …My present view, however, is that proprietary estoppel cannot be prayed in aid in order to render enforceable an agreement that statute has declared to be void.  The proposition that an owner of land can be estopped from asserting that an agreement is void for want of compliance with the requirements of section 2 is in my opinion, unacceptable.  The assertion is no more than the statute provides.  Equity can surely not contradict the statute."

For his part, Lord Walker did not think it necessary or appropriate to consider the issue of section 2 (see paragraph 93).  Practitioners are thus left with two contradictory stances, each of which is of high authority.  

In truth, even prior to Yeoman's Row the relationship between proprietary estoppel and section 2 was not entirely clear.  In Kinane v Mackie-Conteh [2005] EWCA Civ 45 , where the issue arose, Neuberger LJ stated [paragraph 39] that the only real question in the case was whether, in the light of facts found by the judge a "constructive trust" within the meaning of s.2(5) had been created.  He went on to say that, when considering that question, one could not regard the sub-section as "an automatically available statutory escape route from the rigours of section 2(1) … simply because fairness appears to demand it".  The court should not allow its desire to avoid what might appear a rather harsh result in a particular case to undermine the statutory policy.   The Court must consider (see paragraph 41)

"…whether, on the particular facts, it can fairly be said that a resulting, implied or constructive trust has been created.  It would be contrary to legal principle, and inconsistent with the statutory purpose, if the court were to hold that a particular set of facts fell within section 2(5) if, as a matter of extra-statutory law, the facts could not properly be said to give rise to "the creation or operation of [a] resulting, implied or constructive trust".  In other words, in my view, it would be wrong to give an artificially wide (or indeed an artificially narrow) meaning to the words of section 2(5) of the 1989 Act."

Neuberger LJ was content to assume in favour of the Mr Mackie-Brown that it would not be open to Mr Kinane to avoid the consequences of section 2(1) if he could only establish a proprietary estoppel and not a trust but found, in any event that the reasoning in Yaxley led him to the conclusion that a constructive trust had been created in the case before him.   At paragraph [51] he stated:

"…the essential difference between a proprietary estoppel which does not also give rise to a constructive trust and one that does, is the element of agreement, or at least expression of common understanding, exchanged between the parties, as to the existence, or intended existence, of a proprietary interest, in the latter type of case.  That requirement is plainly satisfied in the present instance, and accordingly it seems to me that Section 2(5) can properly be invoked by Mr Kinane."

There has been limited time for the position, post Yeoman's Row, to be clarified although it has arisen for consideration on several occasions.  In Herbert v Doyle [2008] EWHC 1950 (Ch) reported on 4th August 2008, less than a week after Yeoman's Row Mark Herbert QC, sitting as a Deputy High Court Judge commented on Yeoman's Row and said at paragraph 15 of his judgment:

"Lord Scott's statement of his present view was avowedly obiter, and in my view it remains the case that, if all the requirements are otherwise satisfied for a claim based on proprietary estoppel to succeed, the claim will not fail solely because it also consists of an agreement which falls foul of section 2. The analysis of such a case may be that the court gives effect to the proprietary estoppel by recognising or imposing a constructive trust, and it is this which enables section 2(5) to apply."

In Hutchison & Others v B & DF Limited [2008] EWHC 2286 (Ch) Peter Smith J referred to paragraph 29 and expressed his agreement with Lord Scott's "present view" that an estoppel cannot be used for asserting that an agreement void for want of compliance with section 2 of the 1989 Act..
In Brightlingsea Haven Ltd & Another v Morris & Others [2008] EWHC 1928 (QB) Jack J  relied upon the decision of the Court of Appeal in Kinane v Mackie-Conteh [2005] EWCA Civ 45 and the dicta of Neuberger LJ referred to above.  

Having reviewed the authorities, including Yaxley, Jack J concluded that Lord Scott's statement at paragraph 29 "does not sit easily with those cases where it has been held that a proprietary estoppel may be given effect to by a constructive trust."  He was able to resolve the matter in favour of those seeking equity's help by finding that the circumstances created a constructive trust as well as a proprietary estoppel.

Conclusions
In Stack v Dowden [2007] UKHL 17; [2007] 1 FLR 1858 a distinction was drawn between parties dealing with each other in a commercial context and cohabiting couples (see, subsequently Laskar v Laskar [2008] EWCA Civ 347; [2008] 2 FLR 589 where the Court of Appeal applied Stack v Dowden to an investment property owned by mother and daughter and adopted a resulting trust analysis).  Etherton LJ, in his lecture, described the express drawing of this distinction as "marking a new departure from the previous jurisprudence".

In Yeoman's Row, Lord Walker also drew a broad distinction between cases involving a domestic setting and those involving parties in a commercial relationship.

Yeoman's Row was a commercial case.  Its factual matrix is therefore far removed from those that will usually concern family practitioners.   However, it does emphasise the need for intellectual rigour when assessing the sometimes amorphous claims that are brought in cohabitation cases.   The practitioner must ensure that all the elements necessary to create a proprietary estoppel are present and, in particular, as many recent cases have emphasized, must examine critically the representations and/or promises that are to be relied upon to ensure that they relate to a "certain interest in land".   They must be truly "proprietary" in their nature:  unconscionability is not enough.  Nor can one rely upon an instinctive feel for who is in the right or who deserves to win.   The growing proximity between constructive trusts and proprietary estoppel, charted by Jack J in Brightlingsea Haven and championed by Robert Walker LJ has stopped short of a complete assimilation.  

However, the observations of Lord Scott on section 2(5) of the 1989 Act and the judicial reaction thereafter mean that the current state of the law is uncertain and unsatisfactory.  What distinguishes Section 53(2) of the LPA 1925 from Section 2(5) of the 1989 Act?  If constructive trust and proprietary estoppel are not synonymous it cannot be right that the former can be used unthinkingly as a Trojan Horse for the latter.  Nor can it be right that, in every case, one must consider whether or not the relief sought falls foul of the mischief that the statute was enacted to prohibit.  It may be that cases that fail to satisfy the intellectual rigorous test for the existence of a proprietary estoppel will, by the same token, fail to surmount the section 2(5) hurdle whilst those that do, particularly if they are "common expectation" proprietary estoppels, will in most cases, also contain the necessary constituent elements of a constructive trust.[2]  In other words, in those cases where a proprietary estoppel is prayed in aid to establish the right to a transfer of property, notwithstanding the absence of the prescribed formalities, all the constituents of a constructive trust will, in these limited circumstances, be present.   At the very least the practitioner embarking on a cohabitation claim, whether preparing the pre-action protocol letter or going on to draft the statement of case must give careful consideration to pleading the existence of both a constructive trust and, in the alternative, a proprietary estoppel.

Etherton LJ, in closing, said:

"This is not an area of law in which the courts have yet managed to weave together the various strands in a coherent manner.  Perhaps most curious of all, in policy terms, is that the House of Lords has relaxed the requirements for a constructive trust in the form of the CICT ("common intention constructive trust"), by the decision in Stack, while at the same time restricting, perhaps severely, the doctrine of proprietary estoppel.  From a conventional equity perspective this is counter-intuitive.  It might be said that they have shot the wrong beast.  Proprietary estoppel, with its traditional requirements of a clear representation and detriment or change of position and the remedy restricted to the minimum to do justice, has usually been considered a more reliable and certain instrument for remedying unconscionable conduct than the rather fluid concept of the constructive trust.  The attractiveness of proprietary estoppel is not undermined, but rather enhanced, by the wide discretion of the Court as to the choice of appropriate remedy (proprietary or personal), which makes it a particularly appropriate and sensitive tool for achieving justice."

Whether Yeoman's Row will be interpreted broadly or narrowly by the lower courts remains to be seen.  Similarly, the impact it is likely to have on purely "domestic" cases is, as yet, far from clear.   Watch this space!

NOTES
[1]  Constructive Trusts and Proprietary Estoppel: The search for clarity and principle delivered by Etherton LJ to the Chancery Bar Association on 16th January 2009
[2] But see St Pancras and Humanist Housing Association Ltd –v- Leonard [2008] EWCA Civ 1442 where a claim based on estoppel by acquiescence succeeded despite the absence of formality.


 


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