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|Judgments - Yeoman's Row Management Limited and Another V Cobbe
HOUSE OF LORDS
 UKHL 55
on appeal from: EWCA Civ 1139
OF THE LORDS OF APPEAL
FOR JUDGMENT IN THE CAUSE
Yeomans Row Management Limited (Appellants) and another v Cobbe (Respondent)
Lord Scott of Foscote
Lord Walker of Gestingthorpe
Lord Brown of Eaton-under-Heywood
Nicholas Dowding QC
(Instructed by DLA Piper UK LLP)
Thomas Ivory QC
(Instructed by Bird & Bird)
4 and 5 JUNE 2008
WEDNESDAY 30 JULY 2008
HOUSE OF LORDS
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
Yeomans Row Management Limited (Appellants) and another v Cobbe (Respondent)
 UKHL 55
1. I have had the advantage of reading in draft the speech of my noble and learned friend Lord Scott of Foscote. For the reasons he gives, with which I agree, I too would allow this appeal.
LORD SCOTT OF FOSCOTE
2. The essence of the problem to be resolved in this case can be quite shortly stated. A is the owner of land with potential for residential development and enters into negotiations with B for the sale of the land to B. They reach an oral agreement in principle on the core terms of the sale but no written contract, or even a draft contract for discussion, is produced. There remain some terms still to be agreed. The structure of the agreement in principle that A and B have reached is that B, at his own expense, will make and prosecute an application for the desired residential development and that, if the desired planning permission is obtained, A will sell the land to B, or more probably to a company nominated by B, for an agreed up-front price, £x. B will then, again at his own expense, develop the land in accordance with the planning permission, sell off the residential units, and, when the gross proceeds of sale received by B equals £2x, any further gross proceeds of sale will be divided equally between A and B. Pursuant to this agreement in principle B makes and prosecutes an application for planning permission for the residential development that A and he have agreed upon. B is encouraged by A to do so. In doing so B spends a considerable sum of money as well, of course, as a considerable amount of time. The application is successful and the desired planning permission is obtained. A then seeks to re-negotiate the core financial terms of the sale, asking, in particular, for a substantial increase in the sum of money that would represent £x. B is unwilling to commit himself to the proposed new financial terms and A is unwilling to proceed on the basis of the originally agreed financial terms. So B commences legal proceedings. The question for your Lordships is what relief, in the circumstances described, B should be granted, for, I believe, none of your Lordships considers that he would not be entitled to any.
3. A number of possible bases for the grant of relief to B need to be considered.
(i) First, there is proprietary estoppel. B has, with the encouragement of A, spent time and money in obtaining the planning permission and has done so, to the knowledge of A, in reliance on the oral agreement in principle and in the expectation that, following the grant of the planning permission, a formal written agreement for the sale of the property, incorporating the core financial terms that had already been agreed and any other terms necessary for or incidental to the implementation of the core terms, would be entered into. In these circumstances, it could be, and has been, argued, A should be held to be estopped from denying that B had acquired a proprietary interest in the property and a court of equity should grant B the relief necessary to reflect Bs expectations.
(ii) Second, there is constructive trust. In circumstances such as those described, equity can, it is suggested, give effect to the joint venture agreed upon by A and B by treating A as holding the property upon a constructive trust for himself and B, with A and B taking beneficial interests calculated to enable effect to be given to Bs expectations engendered by the agreement in principle.
(iii) Third, there is unjust enrichment. The grant of planning permission, obtained by B at his expense and through the deployment of his time and planning expertise, has increased the value of the property. So A has been enriched at the expense of B and, since it was As repudiation of the oral agreement in principle that frustrated the basis upon which B had been relying, perhaps unjustly enriched.
(iv) Fourthly, there is the question of a quantum meruit. B has supplied valuable services to A in obtaining planning permission for the benefit of As property. There is no question of the services having been provided gratuitously but no fee for the services was agreed between A and B. Bs reward was supposed to have been the conclusion of an enforceable contract. In these circumstances a quantum meruit, taking into account the amount of Bs expenditure of time and money and the value of the services, can, it could be argued, be fixed by the court.
(v) Fifthly, the arrangement between A and B for the sale of the property to B can be regarded as involving two stages. The first stage is the making and prosecution by B at his own expense of the application for the grant of planning permission. This stage constitutes, in effect, the consideration given by B to A in return for As promise, if planning permission is granted, to enter into a formal written contract of sale embodying, inter alia, the core financial terms that had already been agreed. As promise, being no more than an oral promise to enter into a written contract and, moreover, part of an incompletely negotiated agreement, is not contractually enforceable but As repudiation of that promise, after B had supplied his first stage consideration and the planning permission had been granted, would, it could be argued, constitute a complete failure of the consideration that A was to have given, and entitle B to a restitutionary remedy.
(vi) Finally, in circumstances such as those described the possibility of a remedy in damages for the tort of deceit must be kept in mind. If A represented to B that he was willing to enter into a written agreement, or regarded himself as bound by an oral agreement embodying the core financial terms that had already been agreed, and so represented at a time when he, A, had already decided to repudiate those terms and demand better ones, B, if and to the extent that he had acted on those false representations and thereby suffered loss, would have an action in deceit for damages.
4. Two features of these possible remedies are worth noticing. First, both the proprietary estoppel claim and the constructive trust claim are claims to a proprietary interest in the property. The other remedies do not require proprietary claims but follow upon in personam claims for compensation or restitution. Second, a proprietary estoppel claim and a constructive trust claim would constitute, if successful, a means whereby B could obtain a remedy providing him with a benefit more or less equivalent to the benefit he expected to obtain from the oral and inchoate agreement; in effect a benefit based on the value of his non-contractual expectation. By way of contrast, an unjust enrichment remedy, a quantum meruit remedy and a consideration that has wholly failed remedy are essentially restitutionary in character, concentrating not at all on the value of the expected benefit of which B has been deprived but, as the case may be, on the extent of As enrichment at Bs expense, on the value of Bs services or on the amount or value of the consideration provided by B to A. And a tortious remedy for deceit would concentrate on the loss caused to B in acting on As false representation and would seek to restore him to the position in which he would have been if the false representation had never been made. One of the main issues for your Lordships to decide on this appeal is, in my opinion, whether B should be held entitled to a proprietary remedy based on the extent of his disappointed expectations or to an in personam remedy of, using the adjective fairly loosely, a restitutionary character. The question of a remedy in deceit does not arise, for no allegation of fraudulent misrepresentation has been made, but the conceptual possibilities of such a claim are useful to keep in mind. It is very well established that the remedy for a fraudulent misrepresentation inducing a contract is, besides rescission of the contract if the victim so elects, a tortious action in deceit for damages for any loss thereby caused; and that, unless the representation has become a term of the contract, the victim is not entitled to claim damages measured by the loss of the benefit he would have obtained if the representation had been true, i.e. he is not entitled to contractual damages.
5. A, in the present case, is the appellant company, Yeomans Row Management Ltd. B is the respondent, Mr Cobbe. He is an experienced property developer. The property in question consists of a block of, originally, thirteen flats, one of which has, since 1983, been the home of Mrs Lisle-Mainwaring and, until his fairly recent death, her husband. In about 1986 Mr and Mrs Lisle-Mainwaring, no doubt recognising the development potential of the property, decided to purchase it. They used the appellant company, of which they were the directors and shareholders, as the vehicle by means of which to do so. First, however, Mrs Lisle-Mainwaring acquired a long leasehold interest in her flat (and, later, two other flats with which her flat was then physically combined into one unit). Then, in April 1998, the property was transferred to the appellant company subject to Mrs Lisle-Mainwarings long lease and to the tenancies of the other flats, five of which were held on Rent Act protected tenancies. Negotiations with Mr Cobbe about the development of the property began in February 2001. It was Mrs Lisle-Mainwaring who, on behalf of the appellant, played the leading role in the negotiations that led, towards the end of 2002, to an oral agreement in principle being reached between her and Mr Cobbe. This agreement replaced an earlier agreement in principle that she and Mr Cobbe had reached and is, for that reason, referred to in the judgments of the trial judge, Etherton J, and Mummery LJ in the Court of Appeal as the second agreement". I shall, for convenience, also do so.
6. The substance of the second agreement was (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 appellant of £12 million, (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 appellant 50 per cent of the amount, if any, by which the gross proceeds of sale exceeded £24 million. So, in effect, Mr Cobbe was to take the risk, first, that planning permission might be refused, in which case his expenditure and time spent in seeking to obtain the planning permission would be wasted, and, secondly, that the gross proceeds of sale, after deduction of the cost of obtaining planning permission, the £12 million and the building and other costs of development, might leave him with an inadequate profit or even none at all. The amount that he, or his nominee company, would have to pay as the up-front price would clearly have constituted an important element in his calculations.
7. The oral agreement in principle that had been reached, i.e. the core terms, did not cover everything that would have been expected in due course to be dealt with in a formal written contract. It must have been expected, for example, that Mrs Lisle-Mainwaring would have wanted some provision to be included in the formal contract regarding the reasonably expeditious commencement and progress of the development and, also, some security and timetable for the payment of the appellants share of the excess over £24 million of the gross proceeds of sale. The nature of the transaction would plainly have excluded reliance on a vendors lien. Mr Cobbe, for his part, would probably have wanted some contractual assurance as to the timing of the availability of vacant possession of the block of flats. These would not have been expected to have been difficult matters on which to reach agreement but were all matters for future discussion, and the outcome of future negotiations has always an inherent uncertainty.
8. Planning permission for the demolition of the existing block of flats and the erection of a terrace of six houses on the site was formally granted on 5 April 2004 but the Council resolution approving the grant had been passed on 17 March 2004 and Mrs Lisle-Mainwaring on 18 March announced her dissatisfaction with the financial terms of the second agreement and demanded an up-front price of £20 million in place of the originally agreed £12 million. She suggested that the appellants 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 at first agreed to these changes but subsequently, after further reflection on the commercial implications, withdrew his agreement, and insisted on adherence to the financial terms of the second agreement. Mrs Lisle-Mainwaring refused to proceed on those terms and the impasse led to Mr Cobbe commencing the proceedings which are now before the House.
The proceedings in the courts below
9. Mr Cobbes claim, as originally pleaded, sought specific performance and damages for breach of contract, i.e. contractual relief. However, at the outset of the trial on liability, on 18 January 2005, these contractual claims were abandoned. Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 made them untenable -
2(1) A contract for the sale or other disposition of an interest in land can only be made in writing
But section 2(5) of the 1989 Act says that
nothing in this section affects the creation or operation of resulting, implied or constructive trusts.
and Mr Cobbe, with the permission of Etherton J, amended his pleadings in order to substitute for the claims he had abandoned claims for declarations that the appellant held the property on constructive trust for itself and him and was estopped from denying that he had an interest in the property, with, in each case, consequential relief. He added, also, a claim for an inquiry into the time he had spent and expenditure he had incurred in obtaining planning permission and, following that inquiry, such restitution as the court considers just". These amended claims left it, in my opinion, open to the court, if the proprietary estoppel and constructive trust bases of claim should fail, to award relief on the basis of unjust enrichment, or a quantum meruit, or a consideration that had wholly failed.
10. Etherton J held, on 25 February 2005, that the conditions for proprietary estoppel were satisfied and that the minimum equity to do justice to Mr Cobbe required that he be awarded one-half of the increase in value of the property brought about by the grant of planning permission and that he be granted a lien over the property to secure that interest. The judge held, also, that Mr Cobbe would have been entitled to relief on his constructive trust claim but that relief on the basis of proprietary estoppel was the more satisfactory way of satisfying the equity to which the facts of the case entitled him. The judge did not, therefore, find it necessary to deal with Mr Cobbes alternative claim in restitution. By a later supplemental judgment, given on 12 August 2005, the judge directed that, for the purpose of assessing the increase in value of the property attributable to the planning permission, the valuation of the property was to be on a vacant possession basis. In addition, the judge extended the scope of the lien so as to include Mrs Lisle-Mainwarings leasehold interest in her enlarged flat. But she successfully appealed against this extension of the lien. The appellants appeal was, however, dismissed. The lien over the property to secure payment to Mr Cobbe of the one-half of the increase in value of the property brought about by the grant of planning permission was granted by Etherton J on the condition that the appellant be given permission to use the architects plans in respect of which the planning permission had been granted (see para 2 of the judges order dated 25 February 2005). Mr Cobbe, following Mrs Lisle-Mainwarings repudiation of the second agreement, had instructed the architects not to permit any such use.
11. Following the dismissal of the appellants appeal, the inquiry directed by the judge into the increase in value of the property attributable to the planning permission commenced and led eventually to an agreement between the parties that the amount payable to Mr Cobbe pursuant to the order made by Etherton J was £2million. In March 2007 the appellant paid Mr Cobbe that amount. However nothing, for present purposes, turns on that.
12. Etherton Js findings of fact are conveniently set out in summary form by Mummery LJ in the twelve sub-paragraphs of paragraph 35 of his judgment :
(1) Mrs. L-M acted as agent for YRML [i.e. the appellant] in her dealings with Mr Cobbe in connection with the sale and development of the property.
(2) Neither Mr Cobbe nor Mrs L-M thought that the second agreement was a legally enforceable contract, which would only come into existence after planning permission was granted and a formal agreement was drawn up by lawyers containing terms to be negotiated and agreed additional to those of the second agreement. They would include some provision for security for the payment of overage, obtaining vacant possession and the obligation of the purchaser to commence, carry through and conclude the development in accordance with the planning permission.
(3) Mr Cobbe believed that the second agreement comprised all the critical commercial terms, that the other terms were secondary and would inevitably be agreed one way or the other, and that YRML was bound in honour to enter into a formal written contract embodying the terms of the second agreement if Mr Cobbe obtained planning permission.
(4) Mr Cobbe believed that the second agreement was binding on him in honour.
(5) Mr Cobbe envisaged that, if Mrs L-M decided not to proceed before the grant of planning permission, he would be re-imbursed his reasonable expenditure and that, if planning permission were refused, he would not be re-imbursed.
(6) In those beliefs Mr Cobbe spent considerable time and effort and incurred considerable expense pursuing the planning application between the end of 2002 and 17 March 2004.
(7) His beliefs and his expenditure in reliance on them were encouraged by Mrs L-M, who was fully aware of the expenditure. She gave him the impression, and intended so to do, that she intended to carry through the second agreement into a formal binding contract if planning permission were obtained.
(8) Christmas 2003 was an aspirational date set for obtaining planning permission, but it was not a final and irrevocable cut-off date. Mrs L-M was aware that it was highly unlikely that planning permission would be obtained by then. From Christmas 2003 on she became increasingly involved in promoting a successful outcome of the planning application.
(9) Sometime before Christmas 2003, however, Mrs L-M had formed the settled intention not to abide by the terms of the second agreement, as it left deferred and uncertain a much greater proportion of the consideration in terms of overage than she originally envisaged. If planning permission were obtained, she intended to renegotiate for a higher fixed sum. However, she deliberately refrained from giving Mr Cobbe any indication that she did not intend to carry the second agreement into effect and intended to renegotiate, so as to ensure that he continued unabated his efforts to obtain planning permission. She was aware of the risks to the success of the application if she alerted Mr Cobbe to her true intentions regarding renegotiation of the second agreement.
(10) The grant of the planning permission immediately resulted in a significant increase in the value of the property.
(11) The day after the resolution to grant planning permission (18 March 2004) Mrs L-M told Mr Cobbe that the second agreement was no longer relevant, as planning permission had not been obtained by Christmas 2003. She would only enter an agreement on terms for payment by him of £20m together with overage.
(12) Mr Cobbe believed he had been badly treated by Mrs L-M and that he had been ambushed'. He reached an agreement with Mrs L-M in principle at the end of March 2004 in an attempt to salvage a commercial deal, but he decided in May 2004 not to proceed with the March 2004 terms, because they did not provide him with a sufficiently secure and worthwhile return on the money he would have to invest in the purchase and development of the property.
13. Etherton J said, in paragraph 123 of his judgment -
I have found as proven facts that Mrs Lisle-Mainwaring, on behalf of [the appellant], encouraged Mr Cobbe to believe that, if Mr Cobbe succeeded in obtaining planning permission in accordance with the Second Agreement, that Agreement would be honoured, even though it was not legally binding, and that, in reliance on that belief, Mr Cobbe, to her knowledge and with her encouragement, acted to his detriment. I have also concluded that, in all the circumstances, she took an unconscionable advantage of him
and, in paragraph 140, that -
The Second Agreement, broadly speaking, reflected an intention that [the appellant], through Mrs Lisle-Mainwaring, and Mr Cobbe should share equally the increased value or commercial potentiality arising from the grant of the Planning Permission. In all the circumstances, including the conduct of the parties and their mutual beliefs and intentions, the minimum equity to do justice to Mr Cobbe is to order the payment to him by [the appellant] of one-half of the increased value of the Property due to the grant of the Planning Permission.
It is apparent, therefore, that the judge granted relief on the footing that Mr Cobbe was entitled to compensation calculated by reference to the value of his expectations under the unenforceable and incomplete agreement that the second agreement constituted.
14. Both the learned judge and the Court of Appeal regarded the relief granted as justified on the basis of proprietary estoppel. I respectfully disagree. The remedy to which, on the facts as found by the judge, Mr Cobbe is entitled can, in my opinion, be described neither as based on an estoppel nor as proprietary in character. There are several important authorities to which I want to refer but I want first to consider as a matter of principle the nature of a proprietary estoppel. An estoppel bars the object of it from asserting some fact or facts, or, sometimes, something that is a mixture of fact and law, that stands in the way of some right claimed by the person entitled to the benefit of the estoppel. The estoppel becomes a proprietary estoppel - a sub-species of a promissory estoppel - if the right claimed is a proprietary right, usually a right to or over land but, in principle, equally available in relation to chattels or choses in action. So, what is the fact or facts, or the matter of mixed fact and law, that, in the present case, the appellant is said to be barred from asserting? And what is the proprietary right claimed by Mr Cobbe that the facts and matters the appellant is barred from asserting might otherwise defeat?