Judgments - Yeoman's Row Management Limited and Another V Cobbe

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29.  There is one further point regarding proprietary estoppel to which I should refer. Section 2 of the 1989 Act declares to be void any agreement for the acquisition of an interest in land that does not comply with the requisite formalities prescribed by the section. 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, for the second agreement was not a complete agreement and, for that reason, would not have been specifically enforceable so long as it remained incomplete. 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. As I have said, however, statute provides an express exception for constructive trusts. So to Mr Cobbe’s constructive trust claim I must now turn.

Constructive Trust

30.  It is impossible to prescribe exhaustively the circumstances sufficient to create a constructive trust but it is possible to recognise particular factual circumstances that will do so and also to recognise other factual circumstances that will not. A particular factual situation where a constructive trust has been held to have been created arises out of joint ventures relating to property, typically land. 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. This would be either an implied trust or a constructive trust arising from the circumstances and if, as would be likely from the facts as described, the joint venturers have not agreed and cannot agree about what is to be done with the land, the land would have to be re-sold and, after discharging the expenses of its purchase and any other necessary expenses of the abortive joint venture, the net proceeds of sale divided equally between the joint venturers. A number of cases exemplify the operation of a constructive trust in such a situation. Pallant v Morgan [1952] Ch.43 was one such case. In essence, A and B agreed, prior to an auction of land in which both were interested, that A would bid for the land, that B would refrain from bidding and that if A became the purchaser the land would be divided between them. A did become the purchaser but he and B failed to agree on the scheme and terms of the division. A then claimed to be entitled to retain the whole of the land. Harman J at 50 said this:

“The plaintiff and the defendant have failed to agree on a division, and the court cannot compel them to agree. The best it can do is to decree that the property is held by the defendant for himself and the plaintiff jointly, and if they still fail to agree on a division the property must be resold, either party being at liberty to bid, and the proceeds of sale divided equally after repaying to the defendant the £1,000 which he paid …”

31.  The Holiday Inns case, properly understood, was, in my opinion, a case falling into this class. Holiday Inns and Mr Broadhead embarked, in effect, on a joint venture pursuant to which Mr Broadhead acquired the site intended for the building of the hotel. Mr Broadhead reneged on this joint venture and Goff J, citing Pallant v Morgan, declared (1097) the property to be held on trusts equivalent, in effect, to those that had been declared in Pallant v Morgan. This was, if I may respectfully say so, a straightforward recognition of a constructive trust arising out of a failed joint venture and was nothing to do with proprietary estoppel.

32.  Another case in which a constructive trust provided a remedy following a frustrated joint venture was Banner Homes Group Plc v Luff Developments Ltd [2000] Ch.372. As Chadwick LJ, who gave the leading judgment in the Court of Appeal, observed at 397 -

“It is the pre-acquisition arrangement which colours the subsequent acquisition [of the land] by the defendant and leads to his being treated as a trustee if he seeks to act inconsistently with it.”

Chadwick LJ referred in his judgment to an unreported case, Time Products Ltd v Combined English Stores (in which Oliver J gave judgment on 2 December 1974) in which the plaintiff and the defendant had been interested in acquiring a particular property and had agreed that one of them would make an offer, the other refraining from doing so, and that if the offer were to be accepted the purchaser would deal with the property in a manner to the advantage of both. The arrangement was not sufficiently detailed as to constitute an enforceable contract and the offeror, having become the purchaser with the other refraining from competing, sought to keep the property for itself, excluding the other from any benefit. The result was that the property was declared to be held on trust for the two parties in equal shares.

33.  The constructive trust in these failed joint venture cases cannot, in my opinion, be recognised or imposed in the present case. The Yeoman’s Row property was owned by the appellant some years before Mrs Lisle-Mainwaring began her joint venture discussions (for such in effect they were) with Mr Cobbe. In the Banner Homes case Chadwick LJ commented (at 397) on how the situation might appear in such a case

“Where the arrangement or understanding is reached in relation to property already owned by one of the parties, he may (if the arrangement is of sufficient certainty to be enforced specifically) thereby constitute himself trustee on the basis that ‘equity looks on that as done which ought to be done'; or an equity may arise under the principles developed in the proprietary estoppel cases.”

For the reasons already explained I think the “principles developed in the proprietary estoppel cases” are inapplicable in cases such as the present; and “if the arrangement is of sufficient certainty to be enforced specifically” there would be a straightforward contractual remedy, with no need to resort to trusts. But the point underlying the Lord Justice’s comment is a valid one. 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 at p.400 of his judgment in Banner Homes

“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".

34.  Banner Homes was considered by the Court of Appeal in London & Regional Investments Ltd v TBI Plc [2002] EWCA Civ.355. This case, like the present case, was one which concerned a joint venture arrangement that had never become contractually enforceable (it had been expressed to be “subject-to-contract”), but in premature reliance on which one of the parties, London & Regional, had taken certain steps said to constitute detriment (see para.34 of Mummery LJ’s judgment). The joint venture related to a property which had been owned by TBI before the joint venture had been embarked upon. When TBI announced its decision to withdraw from the joint venture London & Regional claimed a Pallant v Morgan equity in the property. TBI sought summary judgment dismissing London & Regional’s claim. They succeeded both at first instance and in the Court of Appeal. Mummery LJ, whose judgment was concurred in by the other members of the court, distinguished Banner Homes, not only on the ‘subject-to-contract’ point (para.47):

“The recorded intentions as to the joint venture implicitly proceeded on the basis that no concluded agreement had been reached and contemplated that such an agreement might never be reached”

but also on the footing that

“… the person sought to be made liable as a constructive trustee has an existing entitlement to the land in question and the claimed agreement to dispose of it, in this case to a joint venture, is too uncertain and vague to be enforced".

All of that could be said of the present case.

35.  The final case on this point to which I should refer is Kilcarne Holdings Ltd v Targetfollow (Birmingham) Ltd [2005] 2 P & CR 105 where a Pallant v Morgan type of equity was claimed consequent upon an abortive alleged joint venture. Lewison J examined in some depth Chadwick LJ’s judgment in Banner Homes and Mummery LJ’s judgment in the London & Regional case and, on the “pre-acquisition or post-acquisition arrangement” point, noted (in para.242) that the case was

“… not a case of a pre-acquisition agreement which colours [the first defendant’s] acquisition of [the property in respect of which the equity was claimed]".

Kilcarne appealed but its appeal was dismissed ([2005] EWCA Civ.45).

36.  The circumstances of the present case are that the property in question was owned by the appellant before any negotiations for a joint venture agreement had commenced. 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 remained still to be agreed and that never came into existence. Mr Cobbe expended his time and money in making the planning application in the knowledge that the appellant was not legally bound. Despite the unconscionability of the appellant’s behaviour in withdrawing from the inchoate agreement immediately planning permission had been obtained, this seems to me a wholly inadequate basis for imposing a constructive trust over the property in order to provide Mr Cobbe with a remedy for his disappointed expectations. This property was never joint venture property and I can see no justification for treating it as though it was.

37.  The unconscionable behaviour of Mrs Lisle-Mainwaring is, in my opinion, not enough in the circumstances of this case to justify Mr Cobbe’s claim to have acquired, or to be awarded by the court, a beneficial interest in the property. The salient features of the case that preclude that claim are, to my mind, that the appellant owned the property before Mr Cobbe came upon the scene, that the second agreement produced by the discussions between him and Mrs Lisle-Mainwaring was known to both to be legally unenforceable, that an unenforceable promise to perform a legally unenforceable agreement - which is what an agreement “binding in honour” comes to - can give no greater advantage than the unenforceable agreement, that Mr Cobbe’s expectation of an enforceable contract, on the basis of which he applied for and obtained the grant of planning permission, was inherently speculative and contingent on Mrs Lisle-Mainwaring’s decisions regarding the incomplete agreement and that Mr Cobbe never expected to acquire an interest in the property otherwise than under a legally enforceable contract. In these circumstances the imposition of the constructive trust on the property and the pro tanto divesting of the appellant’s ownership of it seems to me more in the nature of an indignant reaction to Mrs Lisle-Mainwaring’s unconscionable behaviour than a principled answer to Mr Cobbe’s claim for relief.

The Proprietary Claims: Conclusion

38.  I would for the reasons I have given reject both of the proprietary claims made on Mr Cobbe’s behalf. Mr Cobbe’s alternative in personam claims are relatively uncontroversial but before turning to them I want to reflect for a moment on the implications of the claim he has not made, namely, a claim in deceit. The findings of fact made by Etherton J suggest that well before 18 March 2004 Mrs Lisle-Mainwaring had decided to repudiate the core financial terms of the second agreement but nonetheless had continued to represent to Mr Cobbe, by conduct if not expressly, that she intended to abide by the core financial terms and regarded herself as honour bound to do so. It may be that the detriment incurred by Mr Cobbe had already been incurred and that no further detriment in reliance on any such knowingly false representations was incurred, but that may not have been so. If Mr Cobbe’s proprietary claims, of proprietary estoppel and to an interest under a constructive trust, were well founded, similar claims could presumably be brought in many cases where a contract had been induced by a fraudulent misrepresentation. The dishonest representation would often have led to unrealised expectations of benefit. But, unless the representation had become a term of the contract, no one, I think, would suggest that the victim could claim to be compensated for the loss of the expected benefit. The tortious damages recoverable for the deceit would be limited to consequential loss. How could the victim be entitled to a better result than that if there were no contract at all but simply a dishonest representation on which he had acted to his disadvantage, or, a fortiori, to a better result if not only had there been no contract at all but, in addition, the representation had not been dishonest? In my opinion, the representations of intention on which Mr Cobbe acted in the present case cannot, in principle, entitle him to a remedy intended to give him the value of his expectations engendered by the representations. A genuine proprietary claim enabled to succeed by the operation of a genuine proprietary estoppel would be in accordance with principle. But a claim for the imposition of a constructive trust in order to provide a remedy for a disappointed expectation engendered by a representation made in the context of incomplete contractual negotiations is, in my opinion, misconceived and cannot be sustained by reliance on unconscionable behaviour on the part of the representor.

The in personam remedies

39.  Each of these is a well recognised common law remedy and, I think, each produces much the same result.

Unjust enrichment

40.  There is no doubt but that the value of the property will have been increased by the grant of planning permission and that the appellant has, accordingly, been enriched by the grant of the permission for which it has had to pay nothing. Since the planning permission was obtained at the expense of Mr Cobbe it is very easy to conclude that the appellant has been enriched at his expense and, in the circumstances that I need not again rehearse, unjustly enriched. So, in principle, he is entitled to a common law remedy for unjust enrichment.

41.  But what is the extent of the unjust enrichment? It is not, in my opinion, the difference in market value between the property without the planning permission and the property with it. The planning permission did not create the development potential of the property; it unlocked it. The appellant was unjustly enriched because it obtained the value of Mr Cobbe’s services without having to pay for them. An analogy might be drawn with the case of a locked cabinet which is believed to contain valuable treasures but to which there is no key. The cabinet has a high intrinsic value and its owner is unwilling to destroy it in order to ascertain its contents. Instead a locksmith agrees to try to fashion a key. He does so successfully and the cabinet is unlocked. As had been hoped, it is found to contain valuable treasures. The locksmith had hoped to be awarded a share of their value but no agreement to that effect had been concluded and the owner proposes to reward him with no more than sincere gratitude. The owner has been enriched by his work and, many would think, unjustly enriched. For why should a craftsman work for nothing? But surely the extent of the enrichment is no more than the value of the locksmith’s services in fashioning the key. Everything else the owner of the cabinet already owned. So here.

Quantum Meruit

42.  It seems to me plain that Mr Cobbe is entitled to a quantum meruit payment for his services in obtaining the planning permission. He did not intend to provide his services gratuitously, nor did Mrs Lisle-Mainwaring understand the contrary. She knew he was providing his services in the expectation of becoming the purchaser of the property under an enforceable contract. So no fee was agreed. In the event the expected contract did not materialise but a quantum meruit for his services is a common law remedy to which Mr Cobbe is entitled. The quantum meruit should include his outgoings in applying for and obtaining the planning permission, which should be taken to be reasonably incurred unless Mrs Lisle-Mainwaring can show otherwise, and a fee for his services assessed at the rate appropriate for an experienced developer. To the extent, of course, that Mr Cobbe’s outgoings included the fees of planning consultants whom he employed, there must not be double counting. The amount of the quantum meruit for Mr Cobbe’s services would, in my opinion, represent the extent of the unjust enrichment for which the appellant should be held accountable to Mr Cobbe.

Consideration which has wholly failed

43.  Where an agreement is reached under which an individual provides money and services in return for a legal but unenforceable promise which the promissor, after the money has been paid and the services provided, refuses to carry out, the individual would be entitled, in my opinion, to a restitutionary remedy. The consideration in return for which the money was paid and the services were provided would have wholly failed. In such a case the money paid, with interest thereon, could be recovered, together, in my opinion, with a fee for the services. The remedy would be, in my opinion, co-extensive with the quantum meruit discussed in the previous paragraph.

44.  I would, therefore, hold Mr Cobbe to be entitled to a quantum meruit. The appellant, in the course of the trial, made an open offer to Mr Cobbe of £150,000 intended to exceed the maximum sum recoverable and in full and final settlement. The offer was not accepted by Mr Cobbe but is some indication of the amount a quantum meruit might provide. The quantum meruit should be assessed on the footing that the appellant is entitled to use the architects’ plans in respect of which the planning permission was granted and, accordingly, should be subject to the same condition as was imposed by Etherton J as a condition of the grant of the lien over the property (see para 10 above).

Conclusion

45.  In the result, for the reasons I have given, I would allow this appeal, discharge the orders made by Etherton J and the Court of Appeal and substitute orders

(1) if Mr Cobbe instructs Paul Davies & Partners, architects, to permit the use of the plans in respect of which the planning permission for the appellant’s property was granted, for the payment by the appellant to Mr Cobbe of a quantum meruit for his services in obtaining the planning permission, such quantum meruit to include the repayment to him of the expenses reasonably incurred by him in making and prosecuting the planning application, with simple interest thereon at the judgment rate from 18 March 2004 until payment;

(2) for the amount of the quantum meruit if not agreed to be assessed in chambers in the Chancery Division with liberty to either party to apply for directions regarding the assessment;

(3) subject to (4) below, for the repayment by Mr Cobbe to the appellant of the £2million referred to in paragraph 11 above, with interest thereon at the rate referred to in (1) above from the date of payment of that sum to Mr Cobbe until repayment;

(4) for the amount due to Mr Cobbe under the quantum meruit to be set-off against the £2million repayable by Mr Cobbe under (3) above, and so that, pending the assessment of the amount of the quantum meruit or agreement by the parties as to the amount, Mr Cobbe is to be at liberty to retain out of the £2million a sum of £150,000.

The parties may make submissions in writing within 14 days as to how the costs in the courts below, including the costs of the abortive inquiry into the value of the property before and after the grant of planning permission, and the costs of the appeal to this House, should be borne. Any costs of the assessment of the quantum meruit should be costs in the assessment.

LORD WALKER OF GESTINGTHORPE

My Lords,

46.  Equitable estoppel is a flexible doctrine which the Court can use, in appropriate circumstances, to prevent injustice caused by the vagaries and inconstancy of human nature. But it 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. Flexible though it is, the doctrine must be formulated and applied in a disciplined and principled way. Certainty is important in property transactions. As Deane J said in the High Court of Australia in Muschinski v Dodds (1985) 160 CLR 583, 615-616,

“Under the law of [Australia]—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’” [references omitted].

47.  The principle has been applied in quite a wide variety of factual situations, sometimes of a domestic nature, sometimes commercial. Any formulation of the principle must, if it is to be comprehensive, be expressed in such general terms as to give little idea of what it is really about—what Lord Hoffmann (comparing estoppel with legitimate expectation in R (Reprotech (Pebsham) Ltd) v East Sussex County Council [2003] 1 WLR 348, para 35) referred to as “the moral values which underlie the private law concept of estoppel.” Wide tripartite formulations, which need to be fleshed out by reference to the facts of decided cases, can be found in Megarry and Wade, The Law of Real Property, 6th Edit. para 13.001 (cited by Etherton J at para 51) and Gray and Gray, Land Law 4th Edit. para 10.174. The main difference between these formulations is that Professor Harpum, the editor of Megarry and Wade, links detriment to the second element whereas the authors of Gray and Gray link it to the third. This difference may not ultimately be of great significance. It is fully discussed in Gray and Gray at paras 10.256-10.267.

48.  The authors of Gray and Gray (para 10.189) propose a classification which Mr Ivory QC (for the respondent, Mr Cobbe) adopted in his printed case:

“The concatenation of ideas underlying proprietary estoppel emerges from three broad, and not entirely distinct, categories of circumstance. These categories comprise (1) the ‘imperfect gift’ cases, (2) the ‘common expectation’ cases, and (3) the ‘unilateral mistake’ cases. These cases alike present the essential characteristics of proprietary estoppel, but each class of case in its turn gives a heightened emphasis to one or other of the constituent elements of representation, reliance and unconscionable disadvantage. The tendency in the modern case law is to synthesise the jurisprudence of proprietary estoppel in a more unified doctrine of ‘detrimental reliance'".

I may have made a small personal contribution to that tendency. But the difficulty and importance of this appeal, and the very full examination of the authorities which counsel have undertaken, remind me that synthesis and unification, however desirable as objectives, have their dangers. Without embarking on anything like an exhaustive review of the case law, I propose to look at some of the key authorities with Gray and Gray’s suggested taxonomy in mind.

49.  Dillwyn v Llewelyn (1862) 4 De G F & J 517, one of the earliest leading cases, is a very clear example of an imperfect gift. In 1853 a father wished to give his younger son an estate in Wales, and thought he had done so by signing a memorandum presenting it to him “for the purpose of furnishing himself with a dwelling-house". The memorandum was unfortunately not a deed. The son incurred great expense in building himself a house on the land. Two years later the father died and the elder son disputed his brother’s title. The Master of the Rolls decreed that the younger son was entitled to a life interest. Lord Westbury LC allowed the younger son’s appeal. He said (at p.521):

“About the rules of the Court there can be no controversy. A voluntary agreement will not be completed or assisted by a Court of Equity, in cases of mere gift. If anything be wanting to complete the title of the donee, a Court of Equity will not assist him in obtaining it; for a mere donee can have no right to claim more than he has received. But the subsequent acts of the donor may give the donee that right or ground of claim which he did not acquire from the original gift . . . so if A puts B in possession of a piece of land, and tells him, ‘I give it to you that you may build a house on it,’ and B on the strength of that promise, with the knowledge of A, expends a large sum of money in building a house accordingly, I cannot doubt that the donee acquires a right from the subsequent transaction to call on the donor to perform that contract and complete the imperfect donation which was made. The case is somewhat analogous to that of verbal agreement not binding originally for the want of the memorandum in writing signed by the party to be charged, but which becomes binding by virtue of the subsequent part performance.”

The Lord Chancellor awarded the younger son the fee simple since “no one builds a house for his own life only.”

 
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