Failed contractual negotiations and proprietary estoppel after Cobbe

In A v B ([2008] EWCH 2687) B owned the only two issued shares in a company intended to run a care home business. B owned a care home which she transferred to the company. She agreed in principle that she would transfer one share to A once they had agreed a buy-in price. Negotiations to agree the buy-in price were lengthy and slow. A helped B with the senior management responsibilities of the business. They both clearly anticipated that they would finalise a price and that the shareholders’ agreement and other documents would be concluded. The company acquired three more properties with the funding entirely coming from or reliant on B. A and B fell out. A claimed to be entitled to one half of the shares in the company on the basis of proprietary estoppel.

The proprietary estoppel claim failed. A had no expectation of a claim to any property; her expectation was that the terms of the agreement would be finalised and incorporated in a sale and purchase agreement for the shares and a shareholders’ agreement. A knew that there were negotiations to be concluded and documents to be finalised; her expectation was contingent on the successful completion of negotiations (para. 189). Lord Scott in Cobbe stated that proprietary estoppel arises when the owner of the asset is estopped from pleading some fact or mixed question of law and fact that would defeat the claim. Here, however, the relevant facts (that agreement had not been reached and that no shares had been transferred to A) were well-known to A and there was nothing to estop B from relying on them (para. 198). A’s attempt to argue that the claim was to an interest in the business run by the company also failed. A knew that her interest depended on acquisition of shares in the company (para. 199). Nor was there any unconscionability on B’s part. Once she had decided to terminate negotiations she promptly informed A of this fact (para. 187). In the commercial context it is more likely that claimants relying on proprietary estoppel will have expected to enter into a formal agreement and failure to reach such an agreement will be damaging to a proprietary estoppel claim (paras. 200 – 202).

The attempt to argue for a contructive trust based on a Pallant v Morgan equity also failed. There was no clear agreement that imposed any kind of trust on the shares in the company. There was no sign that A had suffered any detriment or conferred any benefit on B in reliance on any agreement.

B had, however, provided services to the company for which she was entitled to compensation on a quantum meruit basis. Otherwise, the company would be unjustly enriched.

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