Proprietary estoppel and constructive trust and the ‘double assurance’ aspect of proprietary estoppel in contractual settings

In Kinane v Alimamy Mackie-Conteh ([2005] WL 62273 and [2005] EWCA Civ 45 CA (Eng)) K made a loan of GBP50,000 to a company (“Almack’) owned by M. M wrote a letter to K confirming that K was to have a second charge over M’s home. This letter created an equitable charge and envisaged that there would be a later formal charge  M failed to repay the loan and K sought to enforce his security.

M argued that the agreement contained in the letter was invalid.  It did not comply with section 2(1) of the UK’s Law of Property (Miscellaneous Provisions) Act 1989; this requires contracts concerning land to be signed and in writing:

‘A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document, or where contracts are exchanged, in each …’

K argued that he could take advantage of the exception for constructive trusts in s.2(5). He succeeded on this ground. This was a case of a proprietary estoppel giving rise to a constructive trust.

Arden LJ explained how a proprietary estoppel could arise in cases where there is an agreement that does not satisfy section 2(1). In the ordinary case, the fact that the parties have not yet satisfied the formalities or have used the ‘subject to contract’ label is an indication that they do not intend to be bound. But there can be other cases where the promissor not only promises to create or transfer an interest in land but gives a ‘double assurance’ that he will not rely on the failure to comply with statutory formalities.  Arden LJ explained:

‘Thus, the requirement that the defendant encouraged (or allowed) the claimant to believe that he would acquire an interest in land may (depending on the facts) consist in the defendant encouraging the claimant (by words or conduct) to believe that the agreement for the disposition of an interest in land (here a security interest) was valid and binding’ (at para. 28)

The cause of action is founded on the defendant’s conduct and not the unenforceable agreement (at para 29).

Given that there was a proprietary estoppel, was there also a constructive trust?

‘Unconscionability on the part of a party seeking to rely on subsection (1) is the touchstone giving rise to a constructive trust. It will arise where a party leads another to believe that he would obtain an interest in property to another and then stands by while that other party acts to his detriment in reliance on that promise.’ (at para. 32)

Neuberger LJ reached the same conclusion but his explanation as to when the proprietary estoppel would give rise to a constructive trust was slightly different:

‘The other question is whether Mr Mackie-Conteh can contend that the equity is satisfied by a mere estoppel, or whether … it is an estoppel which can also be said to amount to a constructive trust.’ (at para 45)

He explains:

‘[T]he essential difference between a proprietary estoppel which does not give rise to a constructive trust, and one that does, is the element of agreement, or at least expression of common understanding, exchanged between the parties, as to the existence, or intended existence, of a proprietary interest, in the latter type of case.’ (at para. 51)

Arden LJ stresses unconscionably allowing another to believe that he will have an interest in land while while Neuberger LJ stresses the fact of agreement or common understanding.

Martin Dixon comments on this decision in ‘Invalid contracts, estoppel and constructive trust’, ([2005] Conveyancer and Property Lawyer 247).

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One Response to “Proprietary estoppel and constructive trust and the ‘double assurance’ aspect of proprietary estoppel in contractual settings”

  1. Proprietary estoppel in contract-like settings « Michael Lower's Blog Says:

    […] estoppel in contract-like (or bargain) cases. It is available here. In Yaxley v Gotts and Kinane v v Alimamy Mackie-Conteh, the English Court of Appeal had to consider agreements for the grant of an […]

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