Posts Tagged ‘proprietary estoppel’

Guest v Guest: Aims of proprietary estoppel and principles governing relief (2)

January 9, 2023

Introduction

An earlier blog post outlined the facts and the judgment of the majority of the UK Supreme Court in Guest v Guest ([2022] UKSC 27).  

One of the distinctive features of proprietary estoppel, in comparison with the common intention constructive trust for example, is the judicial discretion as to the relief to be awarded. This discretion gives judges some flexibility and an ability to seek solutions that are fair to all concerned in the circumstances of a particular case.

It is desirable, however, that there should be a conceptual framework to guide the exercise of judicial discretion. Judges can then draw on this framework as they exercise their discretion and can use it to give reasons for their decision.

Judges will then be helped to focus on, and properly assess, the facts of the case that are of most importance in the light of the guiding principles.  Clarity of exposition as to the relative importance of these facts and the part they played in designing the relief will help appeal courts to assess whether a first instance award was soundly based.

This clarity must also be helpful to the parties and their advisers when negotiating a potential settlement, surely a good thing.

This blog post outlines the approach taken by the majority in Guest v Guest which proposed an expectations-based model for relief. This approach gave rise to the outcome described in the earlier blog post. A minority of the Supreme Court advocated a different approach placing a heavier emphasis on detriment.

Guest v Guest concerned the promise of a future right

Lord Briggs made the point that Guest v Guest concerned the promise of a future interest, rather than an assurance of a supposed existing right. The same doctrine applies, he thought, but he implies that the relevant considerations might differ ([8]).

Expectation v detriment

A description of the detriment-based approach of the minority in the Supreme Court in Guest v Guest can help us to understand why the difference in approach can have very significant practical consequences.

The majority took the plaintiff’s expectation (of sufficient land to run a viable farming business) as the starting point, modified so that accelerated receipt of the award did not mean that the plaintiff got more than his expectation.

The minority took the plaintiff’s detriment as the guiding principle. It thought that the detriment was easy to identify and quantify. The plaintiff worked for many years at low wages on his father’s farm because of the assurance. The detriment was the difference between market-level wages for the work he did and the wages he actually received ([278]).

This could be identified with certainty (GBP 267,748). The plaintiff was also entitled to interest on the sum at 2% above base rate (GBP 342,162). Rounded up, he total relief that the minority would have awarded was, thus, GBP  610,000.

The value of the majority’s award is not specified in the judgment but it is presumably much more valuable than the sum arrived at by the minority’s detriment-based approach.

Proprietary estoppel seeks to undo unconscionability

While the main focus of the judgments is on the principles governing equitable relief in proprietary estoppel, some attention is paid to the broader question of the aim of proprietary estoppel.

Giving the majority judgment, Lord Briggs said:

‘neither expectation fulfilment nor detriment compensation is the aim of the remedy. The aim remains what it has always been, namely the prevention or undoing of unconscionable conduct’ ([94]).

Fulfilling expectations while avoiding an award that is out of all proportion to the detriment

Lord Briggs’ review of the authorities led him to the conclusion that expectation fulfillment has always been the starting point for equitable relief ([5]).

But specific enforcement of the promise might sometimes be disproportionate to the detriment and so be much more than is required to undo the unconscionability ([6] and [10]).

So ‘the concept of a proportionality test does appear to have taken root in England, as part of the assessment of whether a proposed remedy to deal with the proven unconscionability based on satisfying the claimant’s expectation works substantial justice between the parties’ ([72]).

And ‘the best summary of the proportionality test is that the remedy should not, without some good reason, be out of all proportion to the detriment, if that can readily be identified. If it cannot, then the proportionality test is unlikely to be of much use’ ([72]).

Lord Briggs close his discussion of proportionality by observing that, ‘the question of proportionality is not to be carried out on the basis of a purely financial comparison’ ([73]).

Other factors that might mean that it is not appropriate to fulfil the plaintiff’s expectation

Proportionality is a relevant factor, then. Other factors too may mean that specific performance of the promise would be unjust:

‘The promise may be incapable of specific enforcement, for example where the underlying property is no longer in the hands of the promisor or his estate. The promised date for performance may lie so far in the future, or the date may be so unpredictable, that an order for performance on the promised date would be too insubstantial as a remedy. Or the early enforcement in full of a promise which, although repudiated, is years away from the due date for performance may give the promisee too much, or something radically different from that which was promised. The promisor may have other powerful equitable or moral claims on his bounty, so that the appropriation of the whole of the promised property to meet the claim of the promisee may be unjust to those other claimants, and be more the cause of unconscionable conduct than a remedy for it. Finally the magnitude of specific enforcement in full may be so disproportionate to the detriment undertaken by the promisee that something much less than full specific enforcement is needed to clear the conscience of the promisor ([6]).

In some cases, as in Guest v Guest itself, the need for a ‘clean break’ between the parties might also be an important factor ([64]) so that solutions that would require the parties to live or work together might be unworkable.

The majority’s principles for the design of equitable relief

Lord Briggs argued that the court should approach equitable relief in the following stages:

  1. Decide whether repudiation of the promise is unconscionable in the circumstances ([74]);
  2. Start with the assumption that the appropriate relief is full performance of the promise performance (or a monetary equivalent) but be aware that there may be factors which would render this disproportionate ([75];
  3. The burden of proof is on the party arguing that full performance is disproportionate ([76]);
  4. Full performance is likely to be appropriate in cases that fall just short of a contract ([77];
  5. Just because full specific performance is inappropriate does not mean that detriment should be taken as the yardstick ([79];
  6. ‘In the end the court will have to consider its provisional remedy in the round, against all the relevant circumstances, and ask itself whether it would cause injustice to third parties’ ([80]).

Appropriate to focus on detriment where it is specific and short-lived

Despite the insistence on performance of the promise as the starting point, Lord Briggs acknowledged that it might be appropriate to focus on detriment (and undoing it) ‘where the detriment is specific and short-lived, and in particular shorter than the parties are likely to have contemplated’ ([72]).

But, ‘wherever the relevant detriment has (as here) had lifelong consequences, a detrimental valuation analysis will fall upon stony ground’ ([72]).

Fulfilling expectations where the promise has had life-changing consequences: harm v detriment

Throughout his judgment, Lord Briggs distinguishes between ‘detriment’ and ‘harm’. Detriment is an essential element of a proprietary estoppel claim and, as we have seen, the court should consider whether the proposed award is proportionate given the detriment; this presupposes that detriment can always be measured in some way.

‘Harm’ seems to be a broader concept, less susceptible to being reduced to a specific sum of money. The idea seems to be that repudiation of a promise may give rise to harm that is incalculable or difficult to calculate. In such cases, it seems that the court should be more ready to give full effect to the promise.

Lord Briggs explained the harm in Guest:

‘In a case like the present, the harm consists of the soul-destroying, gut-wrenching realisation of being deprived, and then actually being deprived over the rest of a lifetime, of an expected inheritance of land upon which the promisee has spent the whole of his life and work to date and which, in due course, he expected to be able to pass on to one or more of his own children, making the same promise to them as his father made to him  … this cannot necessarily be valued with any reliability ([11]).

Specific performance recognises the inability to assign a monetary value to expectations concerning land ([12]). It also seems appropriate where the promise has induced ‘life-changing choices’ ([51]).

A detriment-based approach, ‘mistakenly treats the detriment rather than the loss of expectation as the relevant harm’ ([53]).

In Guest, the fact that the father’s promise induced the son to make decisions ‘with incalculable whole-life consequences’ ([95]) meant that it would be inadequate for relief to be based on the detriment (reduced wages over the course of a career).

Thus, it would be, ‘simply impossible to identify some monetarised value of his detriment in a way which would render a fulfilment of his expectation disproportionate’ ([95]).

Michael Lower

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Guest v Guest: Aims of proprietary estoppel and principles governing relief (1)

December 5, 2022

Introduction

The judgment of the UK Supreme Court in Guest v Guest ([2022] UKSC 27) provides an authoritative review of the fundamental aims of proprietary estoppel and the principles governing equitable relief. The majority judgment was given by Lord Briggs (with whom Lady Arden and Lady Rose agreed).

This blog post provides a description of the facts and of the outcome. The next blog post looks at the account of the fundamental principles concerning equitable relief and the structured approach proposed by the majority of the Supreme Court.

Facts

A father (David) owned Trump Farm (‘the farm’) and promised one of his sons (Andrew) that on the death of his parents, Andrew would inherit enough of the farming business, and of the farm where the business was carried on, to establish a viable farming business. In response, Andrew worked for many years for low pay on the farm and did not pursue any alternative career opportunities.

Andrew and David fell out and David made it clear that Andrew would not receive the promised inheritance. Andrew brought proceedings in proprietary estoppel. The claim succeeded but there was disagreement as to the approach to be taken to the relief to be awarded.

At first instance and in the Court of Appeal, Andrew was held to be entitled to a monetary payment equivalent to 50% of the market value of the farming business and 40% of the market value of the farm. This sum was to be reduced by the value of the parents’ entitlement to a life interest in the farmhouse (see [88] in the Supreme Court judgment).

The problems with this were that the order would probably require the parents to sell the farm during their lifetimes and it meant that Andrew would enjoy accelerated receipt of the sum, in effect giving him more than his expectation.

The Supreme Court therefore gave the parents an option either:

  • The creation of a trust over the farm and business under which the parents were to have a life interest with Andrew to be entitled to 50% of the farming business and 40% of the farm only on their death, thus overcoming the accelerated receipt problem. Andrew would not be entitled to compensation for being off the farm in the meantime ([101] – [102]); or
  • The original first instance award but with a sufficient discount for early receipt built in  ([103]). The first instance approach of reducing the award by the value of a notional life interest in the farmhouse could be taken as the discount if the parents agreed. This would avoid the costs of a further dispute over the discount ([105}).

It was appropriate to allow David to make the choice since:

‘Either remedy if afforded to Andrew would draw the sting of unconscionability from the outright repudiation of their promises to him. Since the aim of the remedy is to prevent or remove unconscionability, then where there are two different ways of doing so the persons against whom the equity is asserted should in principle be the ones to make that choice.’ (104)

Conclusion

This post describes the facts and the outcome in Guest. Its importance lies in its approach to the roles of expectation, detriment and other factors in the design of equitable relief. The next blog post looks at what the majority judgment had to say about these fundamental issues.

Michael Lower

Proprietary estoppel and oral land contracts: the last word?

September 26, 2021

Howe v Gossop ([2021] EWHC 637) addressed the question as to whether proprietary estoppel can be relied upon where the claim arises out of an oral agreement concerning land.

The problem is that such an agreement is only enforceable if the formalities requirements in section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 have been satisfied. There are concerns as to whether it would be legitimate to allow oral land agreements to be the basis of a successful proprietary estoppel claim. In that case, proprietary estoppel appears to undermine the formalities rules.

In Howe v Gossop, the court resolved this conundrum with the proposition that proprietary estoppel claims can arise out of oral agreements concerning land so long as the relief sought does not amount to the enforcement of the oral agreement.

Facts

Mr and Mrs Howe sold land and buildings near their farm to Mrs Gossop. The terms of the transfer required Mr and Mrs Howe to pay GBP7,000 to Mrs Gossop for road resurfacing work carried out at Mrs Gossop’s expense.

Mr and Mrs Howe and Mr and Mrs Gossop subsequently orally agreed that the Howes would transfer two parcels of land (the ‘Green land’ and the ‘Grey land’) to the Gossops in return for a waiver of the obligation to pay GBP 7,000.

The Gossops carried out work on the Green land and the Grey land. Then relations between the parties broke down. The Howes brought proceedings to recover possession of the Green land and the Grey land.

The Gossops relied on proprietary estoppel in their defence, seeking a declaration that they were entitled to an irrevocable licence to occupy and use the land. They only raised this defence in relation to the Green land because the parties had not clearly delineated the Grey land. The defence succeeded in the court below.

Appeal

The Howes argued that a proprietary estoppel claim could not succeed because the agreement was not in writing as required by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. They argued that a claim based on an oral land contract could only succeed in exceptional circumstances (relying on passages in the House of Lords decision Cobbe v Yeoman’s Rowe Management Ltd and the Court of Appeal decision in Herbert v Doyle).

Decision

Snowden J. rejected the appeal. There was no requirement that the case be exceptional before proprietary estoppel can be relied on ([65]).

He distinguished cases in which proprietary estoppel was being used, in effect, to secure specific performance of an oral contract from cases where proprietary estoppel was being used as a defence to an action for possession.

The Gossops sought an irrevocable licence rather than specific performance of the contract and so there was no clash with the formalities requirements for land contracts ([50] and [53]).

Nor did it matter that the parties attempted to arrange for the agreement to be embodied in a written contract ([79]).

Snowden J. does not appear to rule out entirely the use of proprietary estoppel to enforce an oral land agreement but this would only be possible where there was some additional (unspecified) factor:

‘if a claimant is seeking relief that amounts to enforcement of a non-compliant contract, he needs to point to something else as the basis for an estoppel based on unconscionability.’ ([66])

Kinane v Mackie-Conteh ([2005] EWCA Civ. 45) is given as an example. In these cases, ‘some additional representation or conduct by the defendant’ is needed ([70]).

The fairness of the decision

Snowden J. pointed out that the Howes could not complain of being unfairly treated; the Gossops waived the GBP7,000 debt and got only equitable relief in return ([76]).

Michael Lower

Proprietary estoppel: Does detrimental reliance need to be incurred before the death of the promisor?

July 12, 2021

In Cheung Lai Mui v Cheung Wai Shing ([2021] HKEC 2263) the Court of Final Appeal had to consider whether, in proprietary estoppel cases, detrimental reliance had to be incurred before the death of the landowner who gave the assurance. If it did, they had to consider whether this requirement was satisfied in the present case.

The dispute concerned land in a village in the New Territories. The landowners in question were three brothers, each with a one third share in the land. D3 was the only grandson of the three brothers’ father.

There was a common understanding between the brothers, from the 1970s onwards, that D3 would inherit the land.

Knowing of this, D3, a building contractor, began building a wall around the property in the 1980s. D3 did further work in the early 1990s.

The death of the last of the brothers was in 1999. D3 erected two buildings and did improvement work at the property after 1999.

D3 inherited a one third share of the land. P was the executrix / administratrix of the other two thirds. She sought an order for sale of the land under the Partition Ordinance.

There were two questions:

(1) Did D3’s detrimental reliance have to have been incurred before the death of the brothers?

(2) If so, was the work that he did in the 1980s and early 1990s substantial enough to amount to detrimental reliance?

The Court of Final Appeal held that the detriment had to be incurred before the death of the landowner ([31]).

Where there were co-owners, the detriment had to be incurred before the last of the co-owners who gave the assurance ([33]).

Post-death events might be relevant to the form that the relief should take ([32]).

Implicitly, the Court of Final Appeal accepted that D3’s work before 1999 was detrimental reliance.

D3’s claim succeeded.

P held the two-thirds share on constructive trust for D3 who became, therefore, the sole beneficial owner ([38]).

Michael Lower

Informal land contracts: overlapping equitable doctrines

March 3, 2021

Introduction

The judgment in Ng Yuk Pui Kelly v Dung Wai Man [2019] HKCFI 210, shows that part performance, common intention constructive trust and proprietary estoppel are each available to plaintiffs seeking to enforce oral land contracts. The court also decided that a belief that one is in possession as owner by virtue of a valid contract (even when this belief is correct), is no bar to a successful adverse possession defence / claim.

Facts

Kelly (P) and Kuen were brothers. Kuen provided the finance to acquire two flats but legal title was assigned to his wife (D). D held the flats on resulting trust for Kuen.

In 1985, Kuen was in financial difficulty and orally agreed to sell the flats to P for HK$1 million (‘the 1985 agreement’). P paid the HK$ 1 million to Kuen but agreed not to press D to assign the legal title to P.

Kuen died and D and her children denied that P was the beneficial owner pursuant to the 1985 agreement.

P relied on part performance, common intention constructive trust and proprietary estoppel. Alternatively P argued that his adverse possession since 1985 meant that D’s title was extinguished.

P was successful under each heading except for part performance (where the problem may have been technical rather than substantive).

Part performance

P argued that payment of the HK$ 1 million to Kuen was an act of part performance of the 1985 agreement. P’s claim failed because he had not shown that payment of the money was referable to the agreement ([460]).

Common intention constructive trust

This succeeded. The 1985 agreement provided the common intention and the payment of the HK$1 million was the detrimental reliance ([466]).

D’s attempt to rely on Luo Xing Juan (to argue that the fact that D was not a party to the common intention was fatal to P’s claim) failed. Kuen did own the beneficial interest and the common intention can refer to a beneficial interest ([468]).

D’s attempt to rely on CPO s. 3(1) also failed. Cobbe v Yeoman’s Row was distinguished on the basis that in that case there was no valid agreement while in this case there was ([469]).

Proprietary estoppel

P could also succeed in proprietary estoppel. The lack of written formality for the disposal of an equitable interest in land (CPO s. 5(1)) was not a problem ‘where constructive trust and proprietary estoppel overlap’ ([471]).

The 1985 agreement was the assurance and payment of the HK$ 1 million was the detrimental reliance ([473]).

Adverse possession

As mentioned above, the alternative adverse possession claim also succeeded ([488]).

Michael Lower

Cheung Lai Mui v Cheung Wai Shing (Hong Kong Court of Appeal)

October 26, 2020

Introduction

Cheung Lai Mui v Cheung Wai Shing ([2020] 2 HKLRD 15) concerned a claim based on common intention constructive trust and proprietary estoppel. Where the landowner (the maker of the relevant assurance) has died, does detrimental reliance need to take place before the death? What kind of knowledge of the detrimental reliance must the maker of an assurance have for a proprietary estoppel claim to succeed.

Facts

Three brothers (W, K and F) were tenants in common in equal shares of land in a village near Sai Kung. From the late 1970s onwards, they reached a common understanding (‘the common understanding’) that D3 (W’s grandson and the sole surviving male descendant of the Cheung family) would own the land when he became an adult.

P was K’s daughter. When he died, she became the executrix of his estate. F died intestate and letters of administration of his estate were granted to P. She thus became the legal owner of K and F’s shares and the beneficial owner of K’s share and beneficial co-owner of F’s share.

W was the last of the brothers to die (he passed away in 1999). His share in the tenancy in common passed to his son and daughter (D1 and D2). D3 was D1’s son.

In 2002, D3 built a one-storey structure on the land and in 2003 he created a second one-storey structure to which he added a second storey. D3 and his family began to live in these buildings in 2002 or 2003.

P lived near D3’s home and visited it on various occasions. She knew that D3 carried out work on the land and raised no objections.

Relations between P and D3 started to deteriorate in 2012. P sought an order for D3 to remove the structures he had built. D3 claimed to be the sole beneficial owner of the land relying on common intention constructive trust and proprietary estoppel.

D3’s claim was based (a) on the common understanding, and (b) on P’s acquiescence in the works that D3 carried out on the land.

The common understanding: timing of the detrimental reliance

P argued that D3’s claims based on common intention constructive trust and proprietary estoppel had to fail because D3’s detrimental reliance (the building works) was incurred after the death of the brothers.

The Court of Appeal agreed that this would be fatal to a common intention constructive trust claim. The case was remitted to the first instance judge for him to determine whether there was any detrimental reliance while the brothers were still alive.

There appears to have been a difference of opinion as to whether detrimental reliance also needed to have been incurred before death for the proprietary estoppel claim to succeed.

Lam VP ([1.6] and Cheung JA ([6.35 and 6.38]) agreed that for common intention constructive trust purposes the detrimental reliance needed to take place before death.

If it had then the brothers’ estates were subject to the equity that had arisen. If not then the property would pass according to their wills or under the intestacy rules, unencumbered by any equity ([1.20] and [6.36]).

Lam VP thought that, in this respect, the law of proprietary estoppel might be different from that of the common intention constructive trust ([1.28]) and that D3’s proprietary estoppel claim based on the common understanding succeeded ([1.35]).

The assurance was that D3 would become the owner of the land when he became an adult. It was not a promise that he would inherit the property on the death of the brothers.

Cheung JA, on the other hand, thought that the requirement for detrimental reliance before the death of the brothers was the same both for proprietary estoppel and the common intention constructive trust ([6.38]).

Could D3 succeed even if there were no detrimental reliance before the death of the brothers? Estoppel by silence.

Cheung JA thought that D3 might still succeed in proprietary estoppel even if D3 only incurred detrimental reliance after the death of the brothers.

It might be possible to argue that she was a party to the common understanding ([6.39]).

Alternatively, there might be an estoppel by acquiescence or standing by ([6.40]). Cheung JA referred to the outline of the relevant law in Mo Ying ([5.6]). P stood by and allowed D3 to carry out the building works in (possibly mistaken) reliance on the common understanding. The case was being remitted to the Court of First Instance and this aspect of the matter would also need to be re-appraised.

Does the maker of the assurance need to know about the detrimental reliance?

It is not normally necessary for the maker of the assurance (the brothers) to know about the detrimental reliance ( Lam VP at [1.34]). Cheung JA addresses this issue at some length in his judgment.

Cheung JA tied his discussion of a knowledge requirement into the ‘narrow’ concept of unconscionability which is concerned with the state of mind of the person giving the assurance ([6.46]). The emphasis is on the quality of the words used not on knowledge of any actual detrimental reliance (Thorner v Major Lord Hoffmann at [5]).

In active encouragement cases (express words of encouragement or assurance) there is not usually any need for the maker of the assurance to have actual knowledge that there was detrimental reliance or the form it took. This knowledge is necessary in the case of estoppel by silence or acquiescence ([6.59] – [6.60]).

Comparison of the common intention constructive trust and proprietary estoppel

Lam V-P thought that the outcome was different in the case of proprietary estoppel when compared with common intention constructive trust. It is not surprising, then, that he draws attention to their differences ([1.4]).

Equitable estoppel ‘is the more flexible tool’ and the court looks backwards from the time when the promise falls to be performed([1.10] referring to Lord Hoffmann’s words in Walton v Walton at [105]).

Michael Lower

When does the proprietary estoppel right arise?

November 11, 2019

In Walden v Atkins ([2013] EWHC 1387) the court held that a proprietary estoppel claim arises when there is promise, reliance and detriment and not when the maker of the representation goes back on it.

C sold property to DW and MW at a substantial discount to market value. He did so in reliance on DW and MW’s promise that they would ensure that the ownership of the property would revert to him on the death of the survivor of DW and MW.

DW died first and then MW died. MW left the property to E. C brought a claim in proprietary estoppel.

E argued that C had no standing to bring the claim. C had gone into bankruptcy and the effect was to vest C’s property in the trustee in bankruptcy. Did C have a proprietary right at that time?

C argued that the equity did not arise until MW died without giving effect to his promise and this was long after C’s bankruptcy.

The argument failed:

‘On the assumed facts, what happened was that by the sale of 37 Archery to DW and MW in January 1976 at a discount greater than 50% on the then market value, C acted to his detriment in reliance on the promise the subject of the 1975 Agreement. The promise thereby became irrevocable and the estoppel arose’ (at [35] per HHJ Simon Barker QC).

A little later:

‘The equity comes into existence, if at all, as the result of a promise being made to and relied upon by and a detriment being suffered by a promisee. It is at that point that the promise becomes irrevocable, the equity is recognised, and it is this equity to which the definition of property at s.436 IA 1986 is to be applied.’ [(48)]

This is so even though the question of unconscionability, and what may be necessary to undo it, is not considered until the later time when the promise falls to be performed ([45]).

Michael Lower

 

Habberfield v Habberfield

June 8, 2019

Habberfield v Habberfield [2019] EWCA 890

A mother and father owned a farm. They assured one of her daughters that she would inherit it. She worked long hours for low pay for many years. More generally, she did not pursue any alternative career plans. The father died and a dispute arose between mother and daughter.
The daughter’s proprietary estoppel claim succeeded. One of the issues that the Court of Appeal (Lewison LJ) had to consider was the relief.
Should it be calculated by reference to the detriment (GBP 220,000) or the expectation (GBP 1.1 million). The first instance judge decided that it was the latter. The mother was ordered to pay the daughter a sum sufficient to allow her to buy a farm of the type promised.
The mother argued that this failed to respect the principle that the relief should be proportionate to the detriment suffered.
There was some discussion of the question as to whether this was one of those ‘not far short of a contract’ cases and a recognition that this is not a hard and fast category but is at one end of a continuum.
Reluctantly (because of the hardship caused to the mother who would be forced to sell the farm and the farmhouse in which she lived) Lewison LJ upheld the first instance order.

Estoppel where the family home is owned by a company

April 26, 2019

 

The inference of a trust when the family home is owned by a company controlled by a spouse
In Prest v Petrodel Resources Ltd the UK Supreme Court established that English family law (specifically section 24 of the Matrimonial Causes Act) does not give the court any special power to pierce the corporate veil in the case of disputes concerning the family home owned by a company controlled by one of the spouses.

In an important passage of his judgment, however, Lord Sumption suggested that, ‘in the case of the matrimonial home, the facts are quite likely to justify the inference that the property was held on trust for a spouse who owned and controlled the company.’ This beneficial interest would count among the spouse’s assets when dealing with ancillary relief.

Other forms of equitable intervention
There might be cases, though, where the courts do not feel able to infer the existence of a trust but where the spouse (or co-habitee) who owned and controlled the company has assured the other that they have or will have an interest in the family home.

On the face of it, the person giving the assurance has no legal or equitable interest in the property. It would seem to follow that there is no basis on which the recipient of the assurance can claim an interest in the family home.

How might equity intervene to protect the expectations of the recipient of the assurance in these circumstances? In 2008, in Luo Xing Juan v Hui Shui See, the Hong Kong Court of Final Appeal considered this question.

The facts in Luo Xing Juan v Hui Shui See

Luo Xing Juan (‘L’) and Hui Shui See (‘H’) co-habited in a property owned by Glory Rise Ltd (‘Glory Rise’). Glory Rise had acquired the property as an investment. The company had two shareholders when incorporated but subsequently H became the sole shareholder and director.

H asked L to marry him and she agreed. H assured L that he would give her a 35% interest in the property when he was in a position to do so. In the meantime, he transferred a 35% shareholding in Glory Rise to L.

H died before he was in a position to give effect to his promise to make L a co-owner of the property. H’s estate sought to revoke L’s licence to occupy the property. L responded with claims to an interest in the property based on the common intention constructive trust and proprietary estoppel.

The corporate veil rules out the use of the common intention constructive trust and proprietary estoppel

L’s claims failed because there was no reason to pierce the corporate veil: H had given an assurance about property owned not by him but by a third party, Glory Rise. Unlike Prest, it could not plausibly be suggested that the company held the property as trustee for H.

Promissory estoppel as the solution
L successfully resisted the company’s attempt to evict her by relying on promissory estoppel. H’s assurance was re-interpreted so that it related to the exercise of his powers as controlling shareholder of Glory Rise.

In effect, H had assured L that he would not allow his powers as controlling shareholder to be used to evict her until she had received the 35% beneficial interest in the property that she had been promised.

The Court of Final Appeal ordered that Glory Rise should be wound up on the just and equitable ground. The property was to be sold and L was to vacate it once a buyer had been found. L would then receive 35% of the net sale proceeds.

This solution has the clear merit of both respecting the corporate veil and of giving practical (and just) effect to H’s assurance and L’s detrimental reliance on it.

Promissory estoppel: no proprietary effect

Ribeiro PJ, in the main judgment in Luo Xing Juan, emphasised that promissory estoppel was a mere equity; it was not proprietary. It conditioned H’s exercise of the voting power connected with his controlling stake in Glory Rise and, indirectly, deferred Glory Rise’s ability to evict L.

The blurring of the distinction between proprietary and promissory estoppel

It is not surprising that promissory estoppel should be invoked so as to defer a licensor’s right to evict a licensee. Maharaj v Chand had already shown the way on this; promissory estoppel was used to prevent the man who was the legal owner of the family home from evicting his wife.

On the other hand, it is very noticeable that, in considering the relief to be granted, the Court of Final Appeal was guided by the classic English proprietary estoppel authorities (Crabb v Arun District Council; Pascoe v Turner; Gillett v Holt; Campbell v Griffin and Jennings v Rice). The Court of Final Appeal clearly intended that L’s relief should be designed with the exercise of the proprietary estoppel remedial discretion in mind.

Promissory estoppel was used, in effect, to protect L’s expectation of a 35% interest in Glory Rise’s property. This is surprising because it seems to contradict the proposition in Coombe v Coombe that promissory estoppel cannot be used as a cause of action.

The interplay between promissory estoppel and winding up on the just and equitable ground

The order was that Glory Rise should be wound up on the just and equitable ground. The substratum of Glory Rise was as ‘the intended vehicle for holding the Property as the matrimonial and family home of the deceased, Miss Luo and [Miss Luo’s daughter]’ (Ribeiro PJ at [74]). This substratum disappeared with H’s death.

This prompts the reflection that where, like L, the plaintiff is a shareholder in the company then a winding up petition (or, perhaps, unfair prejudice proceedings) are an option. Further, they represent an option which is available independently of any estoppel claim.

Limited to cases where the recipient of the assurance is a shareholder?

The Luo Xing Juan promissory estoppel approach is available even in cases where the recipient of the assurance is not a shareholder in the company that holds the property. Thus, in Hong Kong Hua Qiao Co Ltd v Cham Ka Tai (later upheld by the Hong Kong Court of Appeal), the Luo Xing Juan approach was adopted in a case with similar facts.

L and C began to co-habit in a property owned by a company in which L was effectively the sole shareholder. Each was already married when the relationship began.

L assured C that she would be able to live in the property for the rest of her life. L and C co-habited for five years before L died intestate. His wife and son sought to evict C from the property.

C was not a shareholder in the company that owned the family home, although the assurance concerned both the family home and shares in the company that owned it. Winding up would have been of no use to the recipient in this case.

Deputy Judge Saunders, relying on Luo Xing Juan, decided that L’s promises that C could live in the property for the rest of her life were ‘enforceable by way of promissory estoppel’ ([115]).

On relief, Deputy Judge Saunders, relying on Luo Xing Juan, said that C was entitled to an order transferring the legal title of the property to her ([118]). Again, this seems to have been a proprietary estoppel case in all but name.

Limited to family home cases?
Luo Xing Juan and Hong Kong Hua Qiao each concerned the use of promissory estoppel to establish a claim to the family home.

In Hong Kong Hua Qiao, Deputy Judge Saunders drew attention to the fact that both cases involved couples living together as man and wife ([93]) without explaining the significance of this fact. In Chan Sung Lai v Chan Sung Lim Paul, Deputy Judge Saunders (at [128]) expressed his uncertainty as to whether the doctrine could apply as between father and son.

Clearly, the distinction drawn in Thorner v Major between this context and the commercial context is likely to be relevant if there is any dispute as to the meaning of any words or conduct said to constitute an assurance.

Luo Xing Juan and Hong Kong Hia Qiao, however, were not concerned with questions of interpretation. If context was relevant it was for some other reason.

Deputy Judge Saunders may have intended to indicate that this approach to promissory estoppel was more likely to be used in the family home or ‘domestic’ context.

It may be that the Luo Xing Juan promissory estoppel will turn out to be confined to cases with the very specific features of these cases; it may be limited to cases where a couple are living together as man and wife (whether or not they are married) in a property owned by a company controlled by one of them (who gives the relevant assurance).

Limited to company owned by a single shareholder?

In both Luo Xing Juan and Hong Kong Hia Qiao, the company that owned the family home was solely owned by the maker of the relevant assurance. In Luo Xing Juan, H bought out his sister’s 20% minority stake around the same time as he transferred the 35% shareholding to L.

This raises the question as to whether the doctrine can only operate where the maker of the assurance is the sole shareholder. There are arguments in principle in favour of either possible answer to this question.

On the one hand, the relevant assurance is an assurance as to the exercise of voting control. There is no need for a shareholder to own all of the shares in a company to have the power to dictate the outcome of the board decision on any question.

On the other hand, if there are minority shareholders, other than the recipient of the assurance, then the effect of the use of the doctrine on their interests would need to be taken into consideration. They may view the property as an investment and in some market conditions might prefer the company to retain ownership.

This may seem a purely theoretical question but in Luo Xing Juan, H’s sister retained a 20% stake in the company for a few months after the transfer of the 35% shareholding to L. Had H died during those few months then this question would have had practical importance.

Limited to cases where the recipient of the assurance is in occupation of the relevant property at the time of the proceedings?

In Luo Xing Juan and Hong Kong Hia Qiao, the company that owned the family home sought to evict the recipient of the assurance who was in occupation of the property. Promissory estoppel is invoked, in the first place, as a defence against this attempted eviction.

Is this an essential element of the Luo Xing Juan doctrine? The company’s right to possession is not taken away but is conditioned by the estoppel. This accords with a traditional understanding of promissory estoppel and, as noted earlier, suggests a continuity with Maharaj v Chand.

Limiting the Luo Xing Juan approach to cases like this would be consistent with the idea, just discussed, that its use might be limited to family home cases.

A more general relaxation of the distinction between promissory and proprietary estoppel?

The approach in Luo Xing Juan challenges what had seemed to be a well-established distinction between proprietary and promissory estoppel in ways that I have indicated.

I have considered the possibility that the Luo Xing Juan approach is only intended to take effect in certain circumstances. I have considered what those circumstances might be.

It is possible, however, that the Court of Final Appeal intended to establish a more general proposition; it may be that the judgment intended to minimise or even abolish altogether the distinction between proprietary and promissory estoppel. This would explain why proprietary estoppel principles and authorities were applied so readily.

On the other hand, there is no express indication in any of the judgments to indicate that this was the intention; one would have expected that an intention to restructure the law in this way would be clearly flagged up and that some justification would be offered for it.

In paragraph [54] of his judgment, Ribeiro PJ raises the question of the relationship between promissory and proprietary estoppel:

‘The doctrine of estoppel continues to represent a developing area of the law and aspects of the applicable principles are subject to debate. Thus, there is discussion as to the extent to which promissory estoppel and proprietary estoppel overlap, with a body of opinion inclining towards the view that there is no real difference between them. In the present context, proprietary estoppel is inapplicable because the deceased, not being the owner of the Property, was not in a position to confer on Miss Luo a proprietary interest in it. However, as Maharaj v Chand establishes, this does not prevent recourse to promissory estoppel. The doctrines therefore differ at least to that extent. However, it is at the same time clear that many of the constituent elements of the two forms of estoppel are shared and where that is so, authorities on proprietary estoppel provide guidance in cases involving promissory estoppel.’

This passage leaves the question in the balance: there is substantial overlap but some (unspecified) difference. There is no suggestion here of an intention to effect radical change in the law.

Conclusion
When a limited company holds the title to the family home, assurances concerning ownership of the home given by a director or shareholder cannot directly limit the rights of the company nor give rise to a common intention constructive trust or proprietary estoppel claim.

Luo Xing Juan created the possibility that such an assurance could condition the exercise of that shareholder’s voting rights so that they could not be exercised in a way that is inconsistent with the assurance that has been given. This limitation is presented as a form of promissory estoppel.

The Court of Final Appeal went further when it decided that the effect of the estoppel was, in effect, to require the company to make good on the assurance given by the controlling shareholder.

It is not clear whether this promissory estoppel has general application or applies only in limited circumstances. If the latter, the circumstances in which the estoppel applies are not clearly defined.

Michael Lower

Satisfying the equity in proprietary estoppel

January 12, 2019

Moore v Moore

In Moore v Moore ([2018] EWCA Civ 2669) a father (Roger) and son (Stephen) carried on a farming business in partnership; each owned one half of the business. Roger assured Stephen that Stephen would inherit Roger’s share in the business. Relations between the two broke down and Roger sought to dissolve the partnership.

In the ensuing litigation, Stephen relied on proprietary estoppel. He was able to establish the elements of a proprietary estoppel claim. The question then arose as to the approach to be taken to the relief to be granted.

Relief in proprietary estoppel: expectations, detriment or somewhere in between?

When the elements of a proprietary estoppel claim are established, deciding how to satisfy the equity ‘is a retrospective exercise looking backwards from the moment when the promise falls due to be performed’ (Davies v Davies [2016] EWCA Civ 463 at [38] per Lewison J). There is debate as to whether expectations or detriment ought to provide the measure for relief in proprietary estoppel cases (Davies v Davies at [39]) and often each of these factors will have a part to play.

In Jennings v Rice ([2002] EWCA Civ 159) Robert Walker LJ referred to a category of cases where ‘the assurances, and the claimant’s reliance on them, have a consensual character falling not far short of an enforceable contract’. Here, expectations are more likely to set the measure of equitable relief (Jennings v Rice at [45]). These cases are referred to below as ‘consensus’ cases).

Where, however, expectations are uncertain or incommensurate with the assurances given then expectations are no more than a starting point and the court is more likely to search for ‘the minimum equity to do justice to the plaintiff’ (Crabb v Arun District Council [1976] Ch. 179 at 198 per Scarman LJ).

In an important passage in Jennings v Rice, Robert Walker LJ said:

‘It would be unwise to attempt any comprehensive enumeration of the factors relevant to the exercise of the court’s discretion, or to suggest any hierarchy of factors. In my view they include, but are not limited to… misconduct of the claimant… or particularly oppressive conduct on the part of the defendant… To these can safely be added the court’s recognition that it cannot compel people who have fallen out to live peaceably together, so that there may be a need for a clean break; alterations in the benefactor’s assets and circumstances, especially where the benefactor’s assurances have been given, and the claimant’s detriment has been suffered, over a long period of years; the likely effect of taxation; and (to a limited degree) the other claims (legal or moral) on the benefactor or his or her estate. No doubt there are many other factors which it may be right for the court to take into account in particular factual situations.’ (Jennings v Rice at [52])

Application of the principles to Moore v Moore

At first instance

The first instance judge decided that the right approach was for Stephen to take over the farming business and assets (including houses on the farm) immediately. This would give effect to the clear intention that Stephen should be sole owner of the farm on his father’s death (to keep the farm in family ownership). He thought this meant that Roger and his wife should continue to receive what they had expected to receive from the farm during their lifetimes.

Specifically:

  1. Roger’s interest in the farm was to be transferred to Stephen immediately;
  2. Roger and his wife were to be granted irrevocable licences to live free of charge in one of the houses on the farm for the rest of their lives;
  3. Stephen was to make a weekly payment of GBP200 to Roger and his wife for the rest of their lives;
  4.  Stephen was to pay the reasonable costs of residential care for Roger and / or his wife should the need arise.

In the English Court of Appeal

Henderson LJ, with whom the other members of the English Court of Appeal agreed, thought that there were serious difficulties both with the first instance approach and with the scheme to which it gave rise ([90]):

  1. Roger (as Stephen must have appreciated) intended his wife to be the beneficial owner of his half share in the farm, with access to capital and income, during her life ([91]);
  2. Roger’s assurances to Stephen assumed that the partnership between them would remain a harmonious relationship. This was no longer the case so that the need for a ‘clean break’ became a paramount consideration. The first instance order, however, created an ongoing state of financial dependence on Stephen ([93]);
  3. It was a dangerous over-simplification to regard this case as a paradigmatic example of a consensus case. Referring back to paragraph 52 of Jennings v Rice (see above), there had been ‘alterations in the benefactor’s assets and circumstances’. The personal and commercial relationship had broken down. Roger’s health had broken down; he had Alzheimer’s disease and lived in a care home ([94]);
  4. The first instance judge had taken a minimalist view as to the provision to be made for Roger and his wife. The judge should, rather, have considered the minimum award to satisfy the equity. The decision to order an immediate transfer to Stephen made it all the more important ‘to provide full and generous protection for Roger and Pamela during the remainder of their lives, and to reflect as far as possible the provision that Roger would have wished to make for Pamela on his death’ ([95]);
  5. The judge had also failed to take account of ‘the likely effect of taxation’ (Jennings v Rice [52]). The first instance judge had been provided with no guidance on this issue: ‘this should be as unacceptable in a substantial proprietary estoppel
    case as it would be in a big money divorce case’ ([96]). The order made at first instance would have seriously adverse taxation consequences.
  6. The judge had failed to consider the effect of any costs order on the financial arrangements he had provided for. Where, for example, was Roger to find the money to meet any such order once he had transferred his assets to Stephen and had only the weekly payment from Stephen to call on ([97]).

The order made at first instance could not stand and the case was remitted for a further hearing as to how the equity was to be satisfied with the benefit of the Court of Appeal’s guidance ([101] – [108]). While the order for an immediate transfer to Stephen should stand, there should be more generous provision for Roger and his wife (both in terms of capital and income) to allow for a clean break.

To this end, the order should require Stephen to pay a considerable (GBP 1 million – 2 million) lump sum to Roger and his wife. While Stephen should assume responsibility for his father’s health costs, the lump sum would allow his wife to pay for her own health care needs.

Comment

Moore v Moore offers detailed guidance as to how the court should approach equitable relief and the requirement to ‘satisfy the equity’. Paragraph [52] in Jennings v Rice emerges as a significant source detailing the factors to be borne in mind.

Moore v Moore illustrates the need for careful consideration of the nature of the expectations generated by the assurances given, the context in which they were given and any changes in that context at the time when effect is to be given to the assurance.

In general it illustrates the potential for proprietary estoppel to combine remedial flexibility with a degree of predictability as to the factors that the court will take into account when granting relief.

This approach might well, in time, give proprietary estoppel the edge over the common intention constructive trust when dealing with the property and financial aspects of a relationship breakdown. Crucially, it is possible to have regard to the state of the relationship between the parties and their circumstances both at the time that the order is made and thereafter.

Michael Lower