Proprietary Estoppel, Constructive Trusts & Informal Agreements
In the recent (30 July) case of Yeoman’s Row Management Limited v Cobbe (2008) UKHL 55, the House of Lords decided that the Courts below had been so indignant about the unconscionable behaviour of the appellant that they had failed to pay adequate heed to the strict requirements of claims in proprietary estoppel and constructive trusts. This is perhaps unsurprising given the facts.
The directing mind of the appellant company, Yeoman’s Row Management Limited, was a Mrs Lisle-Mainwaring. Mrs Lisle-Mainwaring had transferred a large London property into the company’s name in April 1998. In February 2001, she started negotiations with Mr Cobbe, an experienced property developer. By the end of 2002 they had reached an oral agreement that:
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Mr Cobbe, at his own expense, would apply for planning permission to demolish the existing block of flats and to erect in its place a terrace of 6 houses;
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Upon the grant of planning permission and the obtaining of vacant possession, the property would be sold to Mr Cobbe or to a company nominated by him for an upfront payment of £12 million;
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Mr Cobbe would develop the property in accordance with the planning permission; and
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Mr Cobbe would sell the 6 houses and pay to the company 50% of the amount, if any, by which the gross proceeds of sale exceeded £24 million.
However, as soon as Mr Cobbe acquired planning permission, Mrs Lisle-Mainwaring changed the deal terms, demanding £20 million rather than £12 million and that Mr Cobbe only be entitled to 50% of the proceeds if the sale price exceeded £40 million.
When ambushed like this, what is Mr Cobbe entitled to expect from Court? As highlighted by Lord Justice Mummery in the Court of Appeal, there are at least three possible answers:
(a) he ought to expect nothing because someone who acts prematurely and imprudently without securing the protection of a prior contact takes the risk of getting nothing;
(b) he should be entitled to reasonable payment for his efforts and reimbursement of his expenditure; or
(c) the Court should not let Mrs Lisle-Mainwaring off lightly. She should be made to behave decently and to satisfy the expectation of an interest in the property that she had raised in Mr Cobbe and from which she had unconscionably derived a benefit which she now sought to retain.
The House of Lords chose (b) above; he was awarded his reasonable expenses but not an interest in the property. Their Lordships applied a rigorous approach to proprietary estoppel and constructive trust claims. Mr Cobbe’s proprietary estoppel claim failed because:
i. Mr Cobbe could not establish that he was under an expectation of acquiring a certain interest in land. His expectation was dependant upon the conclusion of a successful negotiation with Mrs Lisle-Mainwaring;
ii. The negotiations did not create an enforceable agreement between the parties. They were effectively “subject to contact”. In a “subject to contact” case, a proprietary estoppel could not ordinarily arise because the purchaser’s expectation of acquiring an interest in the property was subject to a contingency that is entirely under the control of the other party to the negotiations. The expectation is therefore speculative; and
iii. Section 2 of the Law of Property (Miscellaneous Provision) Act imposes requirements that contracts for sale of land must be in writing and signed. The Act makes an express exception to these formalities for resulting, implied and constructive trusts but makes no reference to proprietary estoppel. The Court of Equity would not contradict the statute and proprietary estoppel cannot make enforceable an agreement that statute has declared to be void .
The House of Lords was not prepared to find that the property was held on constructive trusts for Mr Cobbe either. The key distinction drawn by the House of Lords was between joint venture property and non-joint venture property. The House of Lords confirmed that if two or more persons agree to embark on a joint venture which involves the acquisition of an identified piece of land and a subsequent exploitation of, or dealing with, the land for the purposes of the joint venture, and one of the joint venturers with the agreement of the others who believe him to be acting for their joint purposes, makes the acquisition in his own name but subsequently seeks to retain the land for his own benefit, the Court will regard him as holding the land on trust for the joint venturers. By contrast, Mrs Lisle-Mainwaring had owned the Yeoman’s Row property for some years before she even began her joint venture discussions and it was never jointly owned. The interest in the property that Mr Cobbe was expecting to acquire was an interest pursuant to a formal written agreement, some of the terms of which still remained to be agreed and that never came into existence. Mr Cobbe expended his time and money in making the planning application knowing that Mrs Lisle-Mainwaring was not legally bound.
This case is a reminder to practitioners that proprietary estoppel is not (in the words of Lord Walker) “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”.
Gibson & Co
12 September 2008
Addendum 8 October 2008:
The dictum of Lord Scott in this case:
“Proprietary estoppel cannot be prayed 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 [of the Law of Property (Miscellaneous Provisions) Act 1989] is unacceptable.”
was followed precisely by Peter Smith J on 3 October 2008 in Hutchison & Others v B & DF Limited [2008] All ER (D41).