The Current State of Proprietary Estoppel: Alive and Kicking? by William Hansen

It was thought by some practitioners and academics that the decision of the House of Lords in Yeoman’s Row v. Cobbe [2008] 1 WLR 1752 had severely curtailed, or even virtually extinguished, the doctrine of proprietary estoppel: see e.g. McFarlane and Robertson, “The Death of Proprietary Estoppel” [2008] LMCLQ 449. However, following the decision of the House of Lords in Thorner v. Major [2009] 1 WLR 776, it is now clear that proprietary estoppel remains alive and well in the domestic or family context, although it may be fair to say that it has had its wings clipped in the commercial context.

Yeoman’s Row v. Cobbe

The Facts. Yeoman’s Row Management Ltd (YR) owned a block of flats in Knightsbridge with perceived development potential. Mr Cobbe, an experienced property developer, reached an oral agreement with Mrs Lisle-Mainwaring (LM) acting on behalf of YR the substance of which was as follows: (i) that 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 six houses, (ii) that, 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 up-front payment to the defendant company of £12m, (iii) and that Mr Cobbe or the nominee company, would develop the property in accordance with the planning permission and (iv) would sell the six houses and pay to the defendant company 50% of the amount, if any, by which the gross proceeds of sale exceeded £24m.

There was no written contract to comply with s.2 of the LP(MP)A 1989 and neither Mr Cobbe nor Mrs LM thought that the agreement was a legally enforceable contract.

The oral agreement covered the core terms but not everything that would have been expected in a formal written contract.

Mrs LM gave Mr Cobbe the impression, and intended so to do, that she intended to carry through the agreement into a formal binding contract if planning permission were obtained

Mr Cobbe obtained planning permission in March 2004 whereupon Mrs LM, acting on behalf of YR, resiled from the agreement and Mr Cobbe brought proceedings founding his claim on proprietary estoppel and/or constructive trust.

The Decision. Etherton J. found in favour of Mr Cobbe on the basis of proprietary estoppel. He also indicated he would have found for him on the basis of a constructive trust.

Etherton J. held that his estoppel equity was to be satisfied by a lien over YR’s freehold interest to secure one-half of the increase in value of the property caused by the grant of planning permission (later assessed at £2m). The Court of Appeal upheld the result.

The House of Lords. The House of Lords allowed YR’s appeal against the finding of proprietary estoppel and instead held Mr Cobbe was only entitled to relief by way of a quantum meruit for his services and expenditure in securing planning permission. This reduced the value of the claim from £2m to an estimated £150,000.

The two important speeches were given by Lord Scott and Lord Walker.

Lord Scott analysed proprietary estoppel as an extension of estoppel by representation. Such an estoppel bars the defendant from asserting some fact or facts, or mixture of law and fact, that would otherwise stand in the way of the right claimed by the person entitled to the benefit of the estoppel. On this analysis, the question becomes, what is the fact or facts, that the appellant is barred from asserting?

Lord Scott answered his own question as follows:


“The terms of the oral "agreement in principle", the second agreement, relied on by Mr Cobbe are pleaded but it is accepted that there remained still for negotiation other terms. The second agreement was, contractually, an incomplete agreement. The terms that had already been agreed were regarded by the parties as being "binding in honour", but it follows that the parties knew they were not legally binding. So what is it that the defendant company is estopped from asserting or from denying? It cannot be said to be estopped from asserting that the second agreement was unenforceable for want of writing, for Mr Cobbe does not claim that it was enforceable; nor from denying that the second agreement covered all the terms that needed to be agreed between the parties, for Mr Cobbe does not claim that it did; nor from denying that, pre-18 March 2004, Mr Cobbe had acquired any proprietary interest in the property, for he has never alleged that he had.

He reinforced his conclusion, albeit obiter, by reference to s.2 LP(MP)A where he said:
“… 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.”


Constructive Trust. Lord Scott then considered whether there was any basis for a Pallant v. Morgan constructive trust on the basis of the intended joint venture and concluded that there was not:

“If the property that is to be the subject of the joint venture is owned by one of the parties before the joint venture has been embarked upon (as opposed to being acquired as part of the joint venture itself), on what basis, short of a contractually complete agreement for the joint venture, can it be right to regard the owner as having subjected the property to a trust and granted a beneficial interest to the other joint venturers? As Chadwick LJ observed in the Banner Homes case, at p 400: "The [Pallant v Morgan] equity is invoked where the defendant has acquired property in circumstances where it would be inequitable to allow him to treat it as his own."

In sum: Lord Scott dismissed all the proprietary claims but found for Mr Cobbe on a much more limited basis, namely restitution and/or a quantum meruit.

Lord Walker. The speech of Lord Walker examined the leading cases on proprietary estoppel by reference to the following taxonomy: a) the imperfect gift cases; b) the common expectation cases and c) the unilateral mistake cases.

Lord Walker analysed the present case as a common expectation case and on that basis dismissed the estoppel claim on the basis that “hopes are not enough”: see e.g. A-G of Hong Kong v. Humphreys Estate [1987] AC 114. He said: “conscious reliance on honour alone will not give rise to an estoppel.”

Lord Walker summarised his reasons for allowing the appeal as follows:

“Mr Cobbe's case seems to me to fail on the simple but fundamental point that, as persons experienced in the property world, both parties knew that there was no legally binding contract, and that either was therefore free to discontinue the negotiations without legal liability…”

In sum: Lord Walker’s reasoning emphasises that Cobbe acted in the hope that YR would act in a particular way, not in the belief that YR was legally bound so to act. He distinguished the long line of “domestic cases” on this basis, namely that in those cases the claimant had believed the assurances relied on were binding and irrevocable. Lord Walker did not decide the s.2 point.

Thorner v. Major

Since the decision of the House of Lords in Yeoman’s Row in July 2008, practitioners have been concerned that Lord Scott’s approach to proprietary estoppel had severely curtailed the scope of the doctrine.

However, it is now clear that the doctrine is alive and well, particularly in the domestic or family context, and that Yeoman’s Row was very much a case on its own peculiar facts, although it does contain a cautionary tale for those seeking to rely on oral agreements in relation to land in a commercial context.

The case of Thorner v. Major was concerned with whether the Claimant could rely on proprietary estoppel against the estate of the deceased, who had died intestate, based on an assurance given by the deceased to the claimant that he would inherit the deceased’s farm.

It was concerned with two major issues:

(1) The necessary character or quality of the representation or assurance;

(2) Whether a claim was liable to fail because the land was insufficiently identified or had undergone a change since the assurance was given.

As to (1) above, this issue arose out of the oblique nature of the assurances given. As the agreed statement of facts made clear, David’s hope that he might inherit Steart Farm became an expectation in 1990 when Peter gave him the 1989 Prudential bonus notice on two assurance policies on his own life and said “That’s for my death duties”. Given that Peter was a “man of few words” who kept his thoughts about his financial affairs to himself, this was a sufficiently clear assurance in the context and was reasonably relied on by David.

As to (2) above, the House of Lords held that the assurance referred to the farm as it existed from time to time. Thus the extent might change but this did not mean that there was any real doubt as to the subject of the assurance.

Conclusions

The primary significance of Thorner v. Major lies in the House of Lords’ affirmation of “the beneficial principle of proprietary estoppel” and the confirmation that that principle has not been emasculated by the decision in Yeoman’s Row v. Cobbe.

It is also clear, following Thorner v. Major, that testamentary proprietary estoppel has survived Yeoman’s Row, as has the established body of law in relation to proprietary estoppel more generally.

However, the decision in Yeoman’s Row remains important where the relationship between the parties is commercial and the person raising the estoppel is an experienced businessman. In such circumstances the Court will generally expect the parties to enter into a contract and will be unsympathetic to attempts to rely on estoppel.

It would therefore appear that proprietary estoppel will have little or no role to play in cases involving incomplete commercial bargains relating to land. It will be the Pallant v. Morgan equity or constructive trust or, perhaps more likely, nothing unless there is scope for some kind of restitutionary remedy as in Yeoman’s Row.

Section 2 LP(MP)A 1989 will also be important in a commercial context but will not have any impact on “a straightforward estoppel claim without any contractual connection” (see paragraph 99 in speech of Lord Neuberger in Thorner v. Major).

In the domestic context, proprietary estoppel remains alive and well and, following the decision of Lord Walker in Yeoman’s Row, practitioners should be alert to the need to explore in cross-examination the nature of the claimant’s belief in the irrevocability (or otherwise) of any particular assurance relied on.