‘Subject to contract’ re-affirmed

In Joanne Properties Ltd v Moneything Capital Ltd ([2020] EWCA Civ 1541) the English Court of Appeal had to consider whether a contract had been formed even though the relevant exchange was prefaced by the words ‘subject to contract’.

The parties were trying to negotiate a compromise of a dispute between them. Moneything’s solicitor introduced ‘subject to contract’ at an early stage in the discussions and nearly all the email and phone exchanges between the parties were explicitly ‘subject to contract’.

Moneything did, however, make one offer on 19 June 2019 which was not ‘subject to contract’. There were continuing negotiations (explicitly ‘subject to contract’). These exchanges culminated in an email offer on 11 July 2019 on behalf of Joanne Properties. Moneything’s solicitor’s reply was ‘agreed’. This email exchange, too, was ‘subject to contract’.

The terms in the 11 July 2019 offer were found not to be contractually binding. Lewison LJ reviewed the authorities on the meaning of ‘subject to contract’ and its continuing effect until expressly or impliedly withdrawn.

It was not enough that the parties appeared to have reached agreement on all terms nor even that one of the parties subjectively thought that the matter was settled. The ‘subject to contract’ umbrella prevented the emergence of a legally enforceable contract. The 19 June 2019 email had not ‘recalibrated’ the discussion by withdrawing the ‘subject to contract’ umbrella.

Michael Lower

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Common intention constructive trust: when is the agreement ‘subject to contract’?

In Ely v Robson [2016] EWCA Civ 774 (CA, Eng) E and R co-habited in a property the title to which was in E’s name. When the relationship between E and R broke down, E began possession proceedings and R counterclaimed that she had a beneficial interest in the property under the terms of a common intention constructive trust. The couple met and orally agreed a relatively complex settlement under the terms of which E would hold the property for himself for life with the remainder interest belonging 80% to his children and 20% to R. There were terms governing the payment of outgoings, the right to occupy the property and the compromise of E’s claims to other properties owned by R. It was accepted that the terms of the arrangement would be reflected in a trust deed and that the precise form of the agreement was provisional since, amongst other things, the tax implications of the way in which the deal was structured would need to be considered. E did not pursue the proceedings any further given R’s acceptance of the settlement.

R claimed that the settlement was not binding on her since it was not incorporated in a signed, written agreement satisfying section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989. E argued that R was bound by the agreement on the basis of either a common intention constructive trust or proprietary estoppel.

For the purposes of the judgment, the English Court of Appeal  (Kitchin LJ giving the judgment) assumed that R, prior to the agreement, had a beneficial interest in the property under a common intention constructive trust. It reminded itself of Lord Scott’s approach in Cobbe v Yeoman’s Row to the use of proprietary estoppel in the context of agreements concerning land that did not satisfy section 2(1). Lord Kitchin also referred to the passage of Arden LJ’s judgment in Herbert v Doyle concerning such agreements. There is no common intention constructive trust where:

1. a formal written agreement is anticipated; or
2. further terms remain to be agreed so that the interest in property to be acquired is not clearly identified; or
3. the parties did not expect their agreement to be immediately binding.

In these situations, if the agreement is incomplete, the parties cannot rely on constructive trust or proprietary estoppel (Herbert v Doyle, Arden LJ [57]).

The Court of Appeal rejected R’s contention that these requirements were not satisfied in the present case:

1. although a formal written agreement was contemplated, nothing was said or written that precluded the possibility that a binding compromise had been agreed in the meeting between the parties (‘This was not a commercial transaction.’); and
2. there were no terms still to be agreed; and
3. the terms were sufficiently clear to constitute a binding agreement.

E relied on the agreement to his detriment by: not pursuing the possession proceedings; abandoning his claims to R’s other properties; and allowing R to remain in possession. Consequently, E held the property on constructive trust in accordance with the terms that had been agreed.

Michael Lower

A disciplined approach to proprietary estoppel

Cobbe v Yeoman’s Row Management Ltd

Introduction

The House of Lords decision in Cobbe v Yeoman’s Row Management Ltd ([2008] 1 W.L.R. 1752) looks again at the conditions to be met if a proprietary estoppel claim is to be successful. In particular, it emphasises the need for the claimant to be ascertaining a clearly ascertainable proprietary right; this will not be the case where reliance is being placed on statements made in the course of negotiations that did not result in a concluded contract. As Lord Walker of Gestingthorpe said:

‘[E]quitable estoppel is a flexible doctrine … 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.’ (at 1775)

Facts

Mr Cobbe (a property developer) had agreed with Yeoman’s Row Management Ltd (YRML) that he would get planning permission for the development of a property owned by YRML. When that had been achieved the property would be transferred to him. He would carry out the development works and the profits from the sale of the property above an agreed sale price would be shared between them according to a profit-sharing formula (an overage arrangement). No written contract existed but the parties had agreed on many of the essential terms (though some important terms of the deal remained to be agreed).  Mr Cobbe believed that he and YRML were bound ‘in honour’ though as an experienced developer he knew that there was no legal commitment until contracts had been exchanged.

Mr Cobbe spent time and money on the effort to obtain the planning permission and was successful. YRML then refused to conclude a formal agreement on the basis of the earlier negotiations. YRML proposed a new deal that was more advantageous to it. Mr Cobbe refused and brought proceedings based on proprietary estoppel and constructive trust, arguing that YRML was estopped from entering into a contract on the terms that had been agreed. He had succeeded in the Court of Appeal but failed in the House of Lords.

Proprietary remedies: proprietary estoppel

The House of Lords rejected the award of a proprietary remedy (whether by way of proprietary estoppel or constructive trust) since this would amount to enforcement of the contract. The House of Lords was not prepared to do this since there were important terms of the contract still to be agreed and since the parties clearly envisaged that there would be a formal written contract.

The proprietary estoppel claim was rejected by the House of Lords.  The seminal authorities all show that the claimant must have an expectation of a ‘certain interest in land.’ Mr Cobbe did not satisfy this since he was fully aware that there was no binding contract nor any other basis on which he could have claimed such an interest.

Lord Scott of Foscote provided this important explanation of the nature of an estoppel:

‘I want first to consider as a matter of principle the nature of a proprietary estoppel. An “estoppel” bars the object of it from asserting some fact or facts, or, sometimes, something that is a mixture of fact and law that stands in the way of some right claimed by the person entitled to the benefit of the estoppel. The estoppel becomes a “proprietary” estoppel – a sub-species of a “promissory” estoppel – if the right claimed is a proprietary right, usually a right to or over land but, in principle, equally applicable in relation to chattels or choses in action.” (at 1761)

Here the claimant had failed to show both (1) the fact or matter of fact and law that the defendant was estopped from asserting; and (2) the claim to a proprietary right that the fact or matter of fact and law would defeat. The claimant was not asserting that there was a contract. Even if there had been a concluded oral agreement, there was no reason why YRML should be estopped from arguing that it was not enforceable because not in writing (as required by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989).

‘The present case is one in which an unformulated estoppel is being asserted in order to protect Mr Cobbe’s interest under an oral agreement for the purchase of land that lacked both the requisite statutory formalities .. and was, in a contractual sense, incomplete.’ (at 1763)

This reasoning explains why documents marked ‘subject to contract’ cannot form the basis of a proprietary estoppel claim:

‘The reason why, in a “subject to contract” case, a proprietary estoppel cannot ordinarily arise is that the would-be purchaser’s expectation of acquiring an interest in the property is subject to a contingency that is entirely under the control of the other party to the negotiations … The expectation is therefore speculative.’ (at 1767)

‘Proprietary estoppel requires, in my opinion, clarity as to what is that the object of the estoppel is to be estopped from denying, or asserting, and clarity as to the interest in the property in question that the denial, or assertion, would otherwise defeat. If these requirements are not recognised, proprietary estoppel will lose contact with its roots and risk becoming unprincipled and therefore unpredictable’. (at 1768 – 1769)

Lord Walker of Gestingthorpe reached the same conclusion. If this was to be a proprietary estoppel case, it would be one where the estoppel is based on the common expectations of the parties (rather than one where one party knows of the other’s mistake and does nothing to correct it). But in these cases, mere hope of an interest is not enough. There must be a confident expectation that one has an interest in the land. But both parties here knew that the argument was not binding.

Constructive trust: the Pallant v Morgan equity

Mr Cobbe’s constructive trust claim also failed. This was not a Pallant v Morgan  type of case. Lord Scott explained the basis of the Pallant v Morgan equity thus:

‘where a joint venture involves the acquisition by one of the joint venturers of the property intended for the purposes of the joint venture and the pursuit of the joint venture then becomes impracticable or impossible, the acquirer is not entitled to retain the benefit of the property for his own benefit but must be taken to hold the property on trust for himself and the other joint venturers jointly.’ (at 1766)

But the property in this case was never ‘joint venture property.’ (at 1772).

So the proprietary claims failed, unconscionability alone is not enough:

‘In these circumstances, the imposition of the constructive trust on the property and the pro tanto divesting of the defendant company’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.’ (at 1772)

However, unconscionability plays ‘a very important part in equitable estoppel in unifying and confirming, as it were, the other elements.’ (at 1788 per Lord Walker of Gestingthorpe).

In essence, the proprietary claims had to fail since: (i) there was no concluded agreement but both parties expected that there would be; and (ii) YRML owned the property before the negotiations started (at 1772).

In personam remedies

Although the proprietary claims failed, the House of Lords ordered YRML to make a reasonable payment for his professional work and expenses in obtaining the planning permission provided he allowed YRML to use the drawings produced for the purposes of getting planning permission. The remedy is essentially restitutionary with the focus being on YRML’s enrichment at Mr Cobbe’s expense or the value of Mr Cobbe’s services.

Lord Scott pointed to a variety of possible bases which would lead to Mr Cobbe obtaining an in personam remedy:

1. unjust enrichment.
2. Quantum meruit
3. The contract was the second part of a two-stage transaction and the first part had been completed (total failure of consideration).
4. Damages for the tort of deceit.

Lord Scott thought that the claimant could rely on unjust enrichment. It would apply where YRML has been enriched by the claimant’s work in obtaining planning permission. YRML’s repudiation of the agreement in principle had frustrated the basis upon which Mr. Cobbe had been relying. The award on this basis would be the value of the services provided by Mr. Cobbe.

Quantum meruit was available too. Mr Cobbe had supplied valuable services which were not intended to be provided gratuitously. No fee had been agreed because the agreement in principle had been intended to provide the consideration. Mr Cobbe was entitled to a quantum meruit remedy which would reimburse his outgoings and give him a fee for his services at a rate appropriate for an experienced developer (while avoiding any double-counting).

Third, obtaining planning permission was the first part of a two-stage process. There had been a total failure of consideration (at 1774) and this would entitle Mr Cobbe to an award calculated in the same way as the quantum meruit.

The House of Lords did not, however, believe that the tort of deceit provided a remedy for Mr Cobbe.

Proprietary estoppel and statute

Obiter dicta of  Lord Scott of Foscote indicate that proprietary estoppel cannot be used in England (against the background of England’s own legislation) to make enforceable contracts that fail to comply with the formality of writing:

‘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.’ (at 1769).

The role of equity in commercial transactions

Lord Walker of Gestingthorpe argued that:

‘The court should be very slow to introduce uncertainty into commercial transactions by over-ready use of equitable concepts such as fiduciary obligations and and equitable estoppel.’ (at 1785)

Michael Lower