West Law Report

Unconscionable behaviour does not create proprietary estoppel

Posted in House of Lords (case), Times Law Report by mrkooenglish on September 10, 2008

From The TimesSeptember 8, 2008

Unconscionable behaviour does not create proprietary estoppel

House of Lords

Published September 8, 2008

Cobbe v Yeoman’s Row Management Ltd and Another

Before Lord Hoffmann, Lord Scott of Foscote, Lord Walker of Gestingthorpe, Lord Brown of Eaton-under-Heywood and Lord Mance

Speeches July 30, 2008

Where the claimant had entered into an oral agreement with defendants in connection with the redevelopment of their property, their unconscionable behaviour in withdrawing from the agreement once planning permission for the redevelopment had been obtained did not result in a proprietary estoppel or a constructive trust in favour of the claimant.

The House of Lords allowed an appeal by the first defendant, Yeoman’s Row Management Ltd, from the Court of Appeal (Lord Justice Mummery, Lord Justice Dyson and Sir Martin Nourse) ([2006] 1 WLR 2964), who had dismissed an appeal by the first defendant and the third defendant, Mrs Zipporah Lisle-Mainwaring, from Mr Justice Etherton ([2005] WTLR 625). The judge had held that claims against them by Mr James Cobbe in proprietary estoppel and constructive trust succeeded. The second defendant, Mr Robert Lisle-Mainwaring, the third defendant’s husband, died after the commencement of the proceedings.

Mr Nicholas Dowding, QC and Mr Timothy Morshead for the defendants; Mr Thomas Ivory, QC and Ms Myriam Stacey for Mr Cobbe.

LORD SCOTT said that the substance of the agreement had been that Mr Cobbe, at his own expense, would apply for planning permission to demolish a block of flats owned by the first defendant and erect six houses in its place; that on the grant of permission and the obtaining of vacant possession the property would be sold to him or his nominee company for an up-front payment of £12 million and that he or the company would then develop the property and sell the houses and pay the first defendant 50 per cent of the amount, if any, by which the gross proceeds of sale exceeded £24 million.

The oral agreement reached in principle had not covered everything that would have been expected in due course to be dealt with in a formal written contract.

The outstanding matters would not have been expected to be difficult matters on which to reach agreement but had all been matters for future discussion, and the outcome of future negotiations had always an inherent uncertainty.

Planning permission had been obtained, but Mrs Lisle-Mainwaring, on behalf of the first defendant, had then announced her dissatisfaction with the financial terms of the agreement and demanded an up-front payment of £20 million and suggested that the first defendant’s share of the proceeds of sale of the development should become 40 per cent of the amount by which the gross proceeds exceeded £40 million.

Mr Cobbe had at first agreed to those changes but had subsequently insisted on adherence to the terms of the original agreement.

He claimed, by amendment, that the first defendant held the property on constructive trust for itself and him and was estopped from denying that he had an interest in the property.

The judge had granted him relief on the footing that he was entitled to compensation calculated by reference to the value of his expectations under the oral agreement.

The judge and the Court of Appeal had regarded the relief granted as justified on the basis of proprietary estoppel. His Lordship disagreed. The remedy to which, on the facts as found by the judge, Mr Cobbe was entitled could be described neither as based on an estoppel nor as proprietary in character.

An estoppel barred the object of it from asserting some fact or facts, or, sometimes, something that was a mixture of fact and law, that stood in the way of some right claimed by the person entitled to the benefit of the estoppel. The estoppel became a “proprietary” estoppel if the right claimed was a proprietary right.

So what was the fact or facts, or the matter of mixed fact and law, that the first defendant was said to be barred from asserting? And what was the proprietary right claimed by Mr Cobbe?

The first defendant could not be said to be estopped from asserting that the agreement was unenforceable for want of writing (section 2 of the Law Reform (Miscellaneous Provisions) Act 1989), for Mr Cobbe did not claim that it was enforceable, nor from denying that the agreement had covered all the terms needing to be agreed, for he did not claim that it had, nor from denying that, before planning permission had been granted, he had acquired any proprietary interest in the property, for he had never alleged that he had.

And what proprietary claim was he making that an estoppel was necessary to protect? His claims were presumably based on the proposition that a constructive trust of the property should, by reason of Mrs Lisle-Mainwaring’s unconscionable conduct, be imposed on it. That proposition was not one that required or depended on any estoppel.

Unconscionability of conduct might lead to a remedy, but proprietary estoppel could not be the route to it unless the ingredients for a proprietary estoppel were present.

The reality of the case was that the judge and the Court of Appeal had regarded their finding that Mrs Lisle-Mainwaring’s behaviour was unconscionable as sufficient to justify the creation of a “proprietary estoppel equity”.

Proprietary estoppel required, in his Lordship’s opinion, clarity as to what it was that the object of the estoppel was to be estopped from denying, or asserting, and clarity as to the interest in the property in question that that denial, or assertion, would otherwise defeat.

If those requirements were not recognised, proprietary estoppel would risk becoming unprincipled and unpredictable. The present was not a case for a remedy on the basis of proprietary estoppel.

His Lordship’s present view was that proprietary estoppel could not be prayed in aid to render enforceable an agreement that statute (section 2 of the 1989 Act) had declared to be void.

A claim for the imposition of a constructive trust to provide a remedy for a disappointed expectation engendered by a representation made in the course of incomplete contractual negotiations was misconceived and could not be sustained by reliance on unconscionable behaviour on the part of the representor.

Mr Cobbe was, however, entitled to a quantum meruit payment for his services in obtaining the planning permission The amount of the quantum meruit would represent the extent of the unjust enrichment for which the first defendant should be held accountable to him.

LORD WALKER, concurring, said that the court should be very slow to introduce uncertainty into commercial transactions by overready use of equitable concepts such as fiduciary obligations and equitable estoppel. The Court of Appeal’s decision would tend to introduce considerable uncertainty into commercial negotiations.

The matters that had not been agreed, or even been under negotiation, between the parties had been far from trivial. The claimant’s case failed on the fundamental point that both parties had known that there was no legally binding contract and that either was therefore free to discontinue the negotiations without liability in equity or at law. The claimant had run a commercial risk with his eyes open.

Lord Hoffmann, Lord Brown and Lord Mance agreed with Lord Scott.

Solicitors: DLA Piper UK LLP; Bird & Bird.

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