The beneficial principle of proprietary estoppel

‘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 The Principle Has Not Been Emasculated By The Decision In Yeoman's Row V. Cobbe.' (William Hensen No 5 Chambers)

Discuss.

Proprietary estoppel usually arises where a representation is made that consists of a promise of an interest in land. Where the owner of land (A) knowingly allows his rights to be infringed by another (B) who has acted in respect of the land to his detriment (for example, by spending money on the land) in the mistaken belief that it belonged to B, A could not afterwards be allowed to assert his own title to the land.

The three-fold test that has developed is based not on B's mistake but on an agreement between A and B or on A's encouragement of B's expectation.

The court will inquire:

(a) whether an equity in favour of B arises out of the conduct and relationship of the parties;

(b) what is the extent of the equity, if one is established; and

(c) what is the relief appropriate to satisfy the equity.

Proprietary estoppel must be distinguished from the doctrine of constructive trust but the two concepts may coincide in the area of a joint enterprise for the acquisition of land. The principle is called proprietary estoppel, but sometimes estoppel by acquiescence or estoppel by encouragement. Unlike other kinds of estoppel, proprietary estoppel may be a cause of action but only where it involves the promise of an interest in land.

In Dillwyn v Llwellyn (1862) 4 De GF&J 517 a father promised a house to his son who took possession and spent a large sum of money improving the property. The father never actually transferred the house to the son. When his father died, the son claimed to be the equitable owner and the court ordered the testamentary trustees to convey the land to him

In Wilmott v Barber (1880) 15 Ch D 96, Fry J considered that five elements had to be established before proprietary estoppel could operate:

  • the claimant must have made a mistake as to his legal rights;

  • the claimant must have done some act of reliance;

  • the defendant, the possessor of a legal right, must know of the existence of his own right which is inconsistent with the right claimed by the claimant;

  • the defendant must know of the claimant's mistaken belief; and

  • the defendant must have encouraged the claimant in his act of reliance.

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. 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. In Yeoman's Row, each of A and B knew that their oral agreement was not legally binding. As far as B's proprietary estoppel claim was concerned,this raised the question of whether the oral agreement, coupled with A's conduct in encouraging B to rely on that agreement, could constitute a commitment made by A to B. The oral agreement covered “all points of principle which were at the core of thecommercial deal” and contemplated that a subsequent formal contract was needed only to take care of “legal mechanics”. So the agreement, coupled with A's willingness to allow B to continue working on the planning application, constituted a commitment by A; and B's reliance on the agreement was reasonable. As to the extent of B's right, Etherton J ordered that B “should share equally the increased value or commercial potentiality arising from the grant of the Planning permission”. In practice, this meant that B could expect to receive around £2m from A and B's attempt to share the increase in value of A's land was thus successful. A's appeal to the Court of Appeal was unsuccessful. However, the Court of Appeal did seem troubled by the question of howbest to decide on the extent of B's right. A then appealed to the House of Lords. If the Houseof Lords were to reject B's proprietary estoppel claim, it would have to consider his claim in unjust enrichment, and his claim for a constructive trust.

The House of Lords was unanimous in allowing A's appeal, and finding that B had no proprietary estoppel claim. Given the rejection of B's proprietary estoppel claim, the House of Lords had to consider B's other claims. It was also held that no constructive trust had arisen; and that A's enrichment at B's expense did not include the increase in value of A's land caused by the grant of planning permission. the decision that B had no proprietary estoppels claim might have been reached relatively easily by applying the pre-existing test for proprietary estoppel. On the facts, it could perhaps have been said that A had not made the necessary commitment that B had, or would get, a right in relation to A's land. Such a commitment could not be spelled out from the parties' oral agreement, even when coupled with A's encouragement of B. After all, B was an experienced businessman and knew that further negotiations had to be completed before any legally binding agreement could be concluded. Lord Hoffmann and Lord Brown each agreed with Lord Scott; Lord Mance also agreed with Lord Scott's analysis of proprietary estoppel.

Lord Scott's approach was based on seeing proprietary estoppel as a form of evidential estoppel and therefore as depending on A's being prevented from denying a matter of fact or of law. On this view, B's claim could not succeed as he could not identify a matter of fact or law that A was prevented from denying. For example, B could not show that A had told him that B already had a right in A's land; B could only argue that A had made a commitment to act in a particular way in the future.

The House of Lords has recently handed down its judgment in Thorner v Majors and others [2009] UKHL 18; The Times, 26 March 2009. The case concerns the doctrine of proprietary estoppel and will henceforth be the leading case on the application of that doctrine in the non-commercial context.

It is to be contrasted with the House of Lords' decision in Cobbe v. Yeomans Row Management Ltd [2008] 1 WLR 1752 which concerns the application of proprietary estoppel 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. The House of Lords was unanimous in allowing B's appeal. Lord

Hoffmann, Lord Walker, Lord Rodger and Lord Neuberger found that A had made the necessary commitment to B and that B did therefore have a proprietary estoppel claim. Lord Scott was content to concur, but preferred to find that A's duty to B arose under a remedial constructive trust. The decision of the first instance judge was re-instated, and A's estate was thus under a duty to transfer the farm to B. Thorner gave the House of Lords the chance to consider, and perhaps to re-consider, its decision in Yeoman's Row. Lord Scott essentially stuck to his position in the earlier case, weakening it only slightly to allow proprietary estoppel to operate where B believes that he has, or will very shortly acquire, a right in A's land. On this view, in Thorner, B had no proprietary estoppel claim. Instead, according to Lord Scott, B could be protected by means of a remedial constructive trust, attaching to A's farm 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.

A comparison of Cobbe and Thorner reveals a sharp dividing line between the application of proprietary estoppel in the commercial and non-commercial contexts. In the former, it will generally be difficult for a claimant to succeed because the court's emphasis is likely to be on the need for certainty in commercial dealings. The arrangements between the parties are more likely to be reduced to writing, and so there is less scope for relying upon assurances arising out of indirect statements and conduct. Moreover, as Cobbe demonstrates, it is not generally reasonable for a businessman to rely upon an agreement which he appreciates is not legally binding.

In contrast, a proprietary estoppel claim in a non-commercial context will generally be easier to establish. The court in that context is more likely to emphasise the need for fairness. Whether an oral representation is sufficiently clear will depend upon the context in which it is given, but Thorner suggests that the court is likely to take a fairly generous approach. It is also likely to be easier to argue that a claimant who does not have commercial experience was reasonable in relying on an assurance.