Proprietary estoppel — Relief — Agreement to sell — Developer relying upon “in principle” agreement — Developer incurring substantial expense and time in obtaining planning permission — Non-binding agreement by which developer expected to acquire property on terms — Following grant of planning permission property owner reneging on agreement — Whether developer entitled to relief — Whether proprietary estoppel — Terms of relief
In 2002, the respondent property developer orally agreed “in principle” to acquire a property from the first appellant company for redevelopment into six town houses at a price of £12m. Known as the second agreement (to distinguish it from an earlier agreement that did not proceed), it was subject to an overage arrangement, under which each party would receive 50% of the gross proceeds above £24m, the respondent keeping any profit. The respondent expended a substantial amount of time and money in obtaining an appropriate planning permission for the property. He acted in the belief, encouraged by the second appellant, a director of the first appellant, that the first appellant would honour the second agreement and sell the property to him on the agreed terms. Planning permission was granted in April 2004, but the first appellant refused to honour the second agreement, demanding £20m instead of £12m. In proceedings before Etherton J (see [2005] EWHC 266 (CW)), the respondent’s claim based upon proprietary estoppel, alternatively constructive trust, was allowed. The judge made an order in satisfaction of the equity arising from the estoppel giving the respondent a lien over the property for 50% of the increase in value of the property in consequence of the grant of planning permission. Following his main judgment, Etherton J then gave a second judgment (see [2005] EWHC 1755 (CH)), extending the lien to include a leasehold flat belonging to the second appellant and varying the method of valuation to a vacant possession basis. The first appellant appealed the main judgment; the first and second appellants appealed, and the respondent cross-appealed, the second judgment.
Held: The first appellant’s appeal was dismissed; the second appellant’s appeal was allowed in part; and the respondent’s cross-appeal was dismissed. There was a proprietary estoppel; it was unconscionable for the first appellant to rely upon its strict legal rights. The respondent’s expectation was that the second agreement would have resulted in the formation of a binding contract for the sale and purchase of the property on the agreed terms. Save for the lien on the second appellant’s flat, the respondent was entitled to a lien on the property to satisfy the equity in the terms ordered. The court did not have power to order the lien over the second appellant’s flat.
The following cases are referred to in this report.
Attorney-General of Hong Kong v Humphreys Estate (Queen’s Gardens) Ltd [1987] 1 AC 114; [1987] 2 WLR 343; [1987] 2 All ER 387; (1987) 54 P&CR 96, PC
Banner Homes Holdings Ltd (formerly Banner Homes Group plc) v Luff Developments Ltd (No 1) [2000] 2 All ER 117, CA
Cobbe v Yeoman’s Row Management Ltd [2005] EWHC 266 (Ch)
Cobbe v Yeoman’s Row Management Ltd (No 2) [2005] EWHC 1755 (Ch)
Crabb v Arun District Council [1976] Ch 179; [1975] 3 WLR 847; [1975] 3 All ER 865, CA
Holiday Inns Inc v Broadhead; Holiday Inns Inc v Yorkstone Properties (Harlington) (1974) 232 EG 951
Jennings v Rice [2002] EWCA Civ 159; [2003] 1 P&CR 8 and 100; [2002] WTLR 367
Kilcarne Holdings Ltd v Targetfollow (Birmingham) Ltd [2004] EWHC 2547 (Ch); [2005] 2 P&CR 8
London & Regional Investments Ltd v TBI plc [2002] EWCA Civ 355
Plimmer v Wellington Corporation (1884) 9 App Cas 699
Sledmore v Dalby (1996) 72 P&CR 196, CA
Taylor Fashions Ltd v Liverpool Victoria Friendly Society; Old & Campbell Ltd v Liverpool Victoria Friendly Society [1982] QB 133; [1981] 2 WLR 576; [1981] 1 All ER 897; [1979] 2 EGLR 54; (1979) 251 EG 159
Yaxley v Gotts [2000] Ch 162; [1999] 3 WLR 1217; [2000] 1 All ER 711; (2000) 32 HLR 547; 79 P&CR 91; [1999] 2 EGLR 181
This was an appeal by the appellants, Yeoman’s Row Management Ltd and Mrs Zipporah Lisle-Mainwaring, and a cross-appeal by the respondent, James Cobbe, from decisions and orders made by Etherton J on the respondent’s claim for relief based upon proprietary estoppel.
Jonathan Seitler QC and Joanne Wicks (instructed by DLA Piper Rudnick Gray Carry LLP) appeared for the appellants; Thomas Ivory QC and Myriam Stacey (instructed by Bird & Bird) represented the respondent.
Giving the first judgment, Mummery LJ said:
Introduction
[1] This case is more difficult and more interesting than most cases in the field of proprietary estoppel. The main challenge for the court is fashioning relief in a form that fairly reflects the particular facts of the case, is just, reasonable and realistic and is consistent with general legal principles.
[2] On this topic, the courts have built up a considerable body of case law. A doctrine designed to grant relief for unconscionable conduct covers a wide spectrum of situations and needs to be flexible. Since it potentially affects property rights and interests, it needs to be certain. The imprecise limits of the doctrine and its relationship to more precise concepts of contract, property and trust law commend a cautious approach. It would be unwise, on the one hand, to cramp the court’s competence to achieve just outcomes in as many cases as possible. On the other hand, simply doing what the court thinks is just and equitable on the facts of each individual case is liable to increase uncertainty in matters affecting property, in which certainty is important. Unpredictability and inconsistency also make it difficult for parties in actual or prospective litigation to obtain the sufficiently solid advice for negotiating sensible settlements.
[3] An article in (1999) 115 LQR 438, “The Remedial Discretion in Proprietary Estoppel”, is the most valuable discussion that I have read about the principles of equitable relief for proprietary |page:108| estoppel. It was referred to by Robert Walker LJ in Jennings v Rice [2002] EWCA Civ 159; [2003] 1 P&CR 100, at p112. The author, Dr Simon Gardner, concentrates on two main theses: (a) discretion; and (b) expectation. Other theses are: (c) detriment (relief for the claimant’s detrimental reliance upon the defendant’s unconscionable conduct); and (d) restitution (of the benefits that have unjustly enriched the defendant guilty of unconscionable conduct, for example by encouraging the claimant to act so as to increase the value of the defendant’s property or to save the defendant the expense of paying for something to be done in connection with its property or of doing something itself.)
[4] This case is set very close to contract territory. It arises in the context of pre-contractual negotiations for the sale, purchase and development of a block of flats in Knightsbridge. Under English law, there is no general duty to negotiate in good faith, but there are plenty of other ways of dealing with particular problems of unacceptable conduct occurring in the course of negotiations without unduly hampering the ability of the parties to negotiate their own bargains without the intervention of the courts.
[5] The case is also set in the area of work done or services rendered by a claimant without first having secured a contract to protect its position. The work done by this claimant was not, according to the judge, merely in anticipation of a contract: it was done in the positive expectation of a promised contract to sell deliberately induced, encouraged and then ultimately defeated by the unconscionable conduct of the defendant.
[6] Where the defendant has received and accepted the benefit of the claimant’s enhancement of the defendant’s property, but the promised contract to sell, which encouraged the claimant to act for the defendant’s benefit, never materialises, what is the claimant entitled to expect from the court? The question provokes different reactions. First, there are those who think that the claimant is not entitled to expect anything. The person who acts prematurely and imprudently without securing the protection of a prior contract takes the risk of getting nothing. Second, there are those who think that entitlement should be limited, for example to reasonable payment for its efforts and reimbursement of its expenditure. Third, there are those who think that the court should not let off lightly the defendant that is culpable of unconscionable conduct: it should be made to behave decently, such as by satisfying the specific expectation of a right or interest in property that it has raised in the claimant and from which it has unconscionably derived, and seeks to retain for itself, the value added by the claimant to the defendant’s property.
[7] This appeal requires the court to find a principled way of devising relief in a form that fits a case in which the court below found an expectation by the claimant that the defendant would not withdraw from a promise of a contract to sell property on agreed terms, and the specific expectation has been raised and then disappointed by the unconscionable conduct of the defendant.
[8] In giving judgment for the claimant, Mr James Cobbe, against the defendant, Yeoman’s Row Management Ltd (YRML), the trial judge, Etherton J, held that Mr Cobbe had established a case of proprietary estoppel: see [2005] EWHC 266 (Ch). It was based upon his expectation of acquiring from YRML for redevelopment the property for which he had been encouraged by YRML to apply and obtain detailed planning permission in the belief that it would not withdraw from a promise to sell the property to him on agreed terms. In all this, Mr Cobbe had been encouraged and induced to act by the conduct of the controlling director of YRML, Mrs Zipporah Lisle-Mainwaring (Mrs LM).
[9] There is an appeal by YRML against the conclusion that this was a case of proprietary estoppel. Another question is whether the judge was wrong in the relief that he granted to Mr Cobbe. It took the form of a share, secured on the property by a lien and calculated by reference to the amount by which the planning permission obtained by him had increased the value of YRML’s property as at the date when YRML withdrew from the promised contract.
Overview of case
[10] Before examining the detailed facts and the law, a brief overview of the main events will set the scene.
[11] Mr Cobbe is a very experienced property developer. After reaching an oral agreement “in principle” in August/September 2002 to buy a property from YRML for redevelopment into six town houses, he expended substantial labour, skill, time and money (he says around £196,818, YRML concedes around £80,000) over a period of 18 months between around September 2002 and March 2004. Mr Cobbe’s efforts were specifically directed to a planning application for the development of the freehold block of 11 flats at 38-62 Yeoman’s Row, Knightsbridge, London SW3 (the property).
[12] YRML was formed in 1995 as a vehicle to purchase the property. It had owned it since 15 April 1998, when it was registered as proprietor of the freehold. The property was subject to tenancies, including long leases (105 years from 25 March 1998) of three flats on the ground floor, which were physically combined into one flat, now known as 50 Yeoman’s Row, held personally by Mrs LM and registered under a separate title. Mrs LM is the sole director of YRML, in which her husband, Mr Robert Lisle Mainwaring, (Mr LM) is the sole shareholder.
[13] Mr Cobbe acted in the belief, which was encouraged by Mrs LM on behalf of YRML, that if the planning application was successful, YRML would honour the “in principle” 2002 agreement and sell the property to him. In reliance upon that belief, Mr Cobbe set about obtaining planning permission. He retained professional advisers, including architects, in relation to the proposed development and paid them; he attended various meetings relating to the proposed development over the following 18 months with Mrs LM, professional advisers and the Kensington and Chelsea Royal London Borough Council planning department.
[14] The planning application was submitted on 3 July 2003, revised on 21 November 2003 and revised again on 28 January 2004. The resolution granting planning permission was passed on 17 March 2004. Planning permission was formally granted on 5 April 2004.
[15] The price orally agreed with YRML (acting through Mrs LM) in August/September 2002 was £12m. Mr Cobbe would develop the property. Subject to an overage arrangement, under which each party would have 50% of the gross proceeds of the property above £24m, Mr Cobbe would be entitled to keep any profit from the development.
[16] YRML did not honour the agreement. No binding contract of sale ever materialised, even though the planning permission did. Almost as soon as the resolution to grant detailed planning permission was passed on 17 March 2004, YRML, acting by Mrs LM, withdrew from the oral “in principle” agreement and demanded £20m instead of £12m. Further negotiations between the parties broke down at the end of May 2004.
[17] Proceedings were issued on 20 July 2004. On 22 July 2004, notice of a pending land action was registered by Mr Cobbe against YRML’s title. (No such notice was ever registered against Mrs LM’s leasehold interest in the flat 50.) This was removed on 27 January 2005 on the undertaking of YRML not to deal with the property. No undertaking was sought or given by Mrs LM in respect of her leasehold interest.
[18] Mr Cobbe initially sought specific performance against YRML. The specific performance claim was then abandoned at the start of the trial in the course of the hearing of an application for summary judgment by YRML. In the absence of writing, Mr Cobbe accepted that there was no legally enforceable contract for the sale of the property by YRML to him.
[19] Mr Cobbe also alleged unconscionable conduct on the part of YRML so as to estop it from denying that he had acquired a beneficial interest in the property. He pleaded the elements of proprietary estoppel, in particular his belief, the knowledge and encouragement by YRML of his belief, his detrimental reliance thereon and YRML’s unconscionable refusal to honour the terms of the oral agreement.
[20] The proprietary estoppel claim succeeded, as did an alternative claim based upon constructive trust. Mr Cobbe also claimed unjust |page:109| enrichment and restitution of such sum as the court considered just by reference to the value of the benefit conferred on YRML by the grant of planning permission. The judge found it unnecessary to rule on the latter claim. Mr Cobbe also claimed, in the alternative, reimbursement of particularised items of expenditure amounting to a total sum of £196,818.97 and reasonable remuneration in respect of work carried out in pursuance of the oral agreement.
[21] Liability on the proprietary estoppel claim is challenged by YRML on this appeal. There is also a dispute about the nature and extent of the relief that the court should grant. YRML argued that a lump sum was appropriate, having made an open offer to pay Mr Cobbe £150,000 on condition that the copyright in the development plans was transferred to it. Mr Cobbe argued that his equity should be satisfied by the award of a proprietary interest, which would reflect his expectation of a binding contract for sale and the increase in value of the property (estimated by him at £10m) resulting from the detailed planning permission obtained by him on behalf of, and for the benefit of, YRML.
[22] Following the terms of his judgment of 25 February 2005 (the main judgment), Etherton J made an order in satisfaction of the equity arising from the proprietary estoppel established by Mr Cobbe against YRML. He decided that the minimum that Mr Cobbe should have to satisfy the equity was a lien for 50% of the increase in value of the property in consequence of the grant of planning permission.
[23] There are, in fact, two appeals by YRML arising from two separate judgments given by Etherton J. The first appeal is from the main judgment deciding that Mr Cobbe was entitled to a lien over the property to secure his interest in its increase in value. The judge granted permission to appeal.
[24] The second appeal is from Etherton J’s judgment of 12 August 2005 (the second judgment), in which he varied the terms of the order under the main judgment. The variation was made on the application of Mr Cobbe under the slip rule and/or the inherent jurisdiction of the court: see Cobbe v Yeoman’s Row Management Ltd (No 2) (2005) EWHC 1755 (Ch). The original order was varied in two significant respects: the lien granted to Mr Cobbe was extended to cover the leasehold interest of Mrs LM in flat 50, as well as the freehold of YRML, and it was provided that the valuation of the property in connection with the ascertainment of Mr Cobbe’s half-share in the increase in value was to be on the vacant possession basis.
[25] Both YRML and Mrs LM appeal from the second judgment, pursuant to permission granted by Etherton J. With the permission of Ward LJ, on 21 October 2005, Mr Cobbe cross-appeals to vary the order made on the second judgment in the event that the appeal against it succeeds.
[26] Mr Jonathan Seitler QC and Ms Joanne Wicks appeared for both appellants. Mr Thomas Ivory QC and Ms Myriam Stacey appeared for Mr Cobbe. The court is grateful to them for their helpful submissions at the oral hearing and in the written submissions that continued after the hearing, since it finished before all the oral submissions had been completed. I shall deal, first, with the appeal from the main judgment on both liability and relief
A. Main judgment
[27] I need to examine in more detail the judge’s findings of fact outlined earlier and his conclusions on the application of the law to the facts.
Judge’s detailed findings of fact and conclusions
[28] As already explained, the origin of the proceedings for proprietary estoppel and constructive trust was in negotiations between YRML and Mr Cobbe with a view to forming a joint enterprise for the development of the property and in the failure of the parties to conclude a legally binding contract for the sale of the property by YRML to Mr Cobbe.
[29] Mr Cobbe was to obtain planning permission for the property. YRML was to obtain vacant possession of the property. Mr Cobbe spent a substantial amount of time, effort and money between September 2002 and March 2004 in obtaining the detailed planning permission for the property. He began work on the planning application following an oral agreement with Mrs LM, acting for YRML, in August/September 2002. It was an agreement “in principle” to purchase the property for £12m plus an overage provision under which he would be entitled to 50% of the gross proceeds above £24m of the completed units on the development. In the proceedings, this is called “the Second Agreement” in order to distinguish it from: (a) an earlier first oral agreement in principle (February/March 2001), which was not progressed after July 2001 and was followed by a period of no further contact until June 2002; and (b) a later third agreement in principle (24 March 2004), with which Mr Cobbe decided not to go ahead in May 2004. Neither the first agreement nor the third agreement form the basis of any claim in the action.
[30] The second agreement was not legally binding because it was not made in writing. It also lacked the certainty required for a concluded binding contract. The parties knew that the second agreement was not a binding contract. They had agreed not to proceed to exchange contracts.
[31] No fee was agreed between the parties for the work to be done by Mr Cobbe on the planning application. His expenditure in obtaining planning permission for the development of the property was incurred, however, with the knowledge of Mrs LM and in reliance upon encouragement by her that, if he obtained detailed planning permission, the second agreement would be honoured.
[32] Instead of honouring the second agreement, YRML reneged on it the day after the resolution to grant detailed planning permission was passed. Mrs LM then demanded £20m as the price for the sale of the freehold.
[33] Etherton J concluded that the conduct of YRML was unconscionable and that the circumstances gave rise to an equity in Mr Cobbe that YRML should not be allowed to withdraw from the promised contract to sell. Under the main judgment, Etherton J made the order mentioned earlier in satisfaction of the equity arising from proprietary estoppel. Although it was not strictly necessary to decide the constructive trust claim, the main judgment also covered in detail the facts and law relevant to the alternative claim of constructive trust. It was held that there was a constructive trust in Mr Cobbe’s favour, although there is a dispute as to whether, in so holding, the judge was recognising an institutional constructive trust or imposing a remedial constructive trust as a remedy to give effect to the proprietary estoppel.
[34] I shall deal separately with the second judgment, in which Etherton J, relying upon the slip rule and upon the inherent jurisdiction of the court to give effect to the main judgment, varied the order on the application of Mr Cobbe in the two respects explained above affecting the subject matter of the lien and the basis of valuation of the property. Issues arise on the jurisdiction of the judge to vary the original order and whether it was right for him to exercise any discretion to vary it.
[35] In his excellent main judgment, Etherton J made a number of clear and detailed findings of fact relevant to liability for proprietary estoppel and to relief. I would summarise them as follows.
(1) Mrs LM acted as agent for YRML in her dealings with Mr Cobbe in connection with the sale and development of the property.
(2) Neither Mr Cobbe nor Mrs LM thought that the second agreement was a legally enforceable contract, which would come into existence only after planning permission had been granted and a formal agreement had been drawn up by lawyers containing terms to be negotiated and agreed additional to those of the second agreement. They would include some provision for security for the payment of overage, obtaining vacant possession and the obligation of the purchaser to commence, carry through and conclude the development in accordance with the planning permission.
(3) Mr Cobbe believed that the second agreement comprised all the critical commercial terms, that the other terms were secondary and would inevitably be agreed one way or the other, and that YRML was bound in honour to enter into a formal written contract embodying the terms of the second agreement if Mr Cobbe were to obtain planning permission. |page:110|
(4) Mr Cobbe believed that the second agreement was binding on him in honour.
(5) Mr Cobbe envisaged that if Mrs LM decided not to proceed before the grant of planning permission, he would be reimbursed his reasonable expenditure, and that if planning permission were refused, he would not be reimbursed.
(6) In those beliefs, Mr Cobbe spent considerable time and effort and incurred considerable expense in pursuing the planning application between the end of 2002 and 17 March 2004.
(7) His beliefs and his expenditure in reliance upon them were encouraged by Mrs LM, who was fully aware of the expenditure. She gave him the impression, and intended so to do, that she intended to carry through the second agreement into a formal binding contract if planning permission were obtained.
(8) Christmas 2003 was an “aspirational date” for obtaining planning permission, but it was not a final and irrevocable cut-off date. Mrs LM was aware that it was highly unlikely that planning permission would be obtained by then. From Christmas 2003 on, she became increasingly involved in promoting a successful outcome of the planning application.
(9) Sometime before Christmas 2003, however, Mrs LM had formed the settled intention not to abide by the terms of the second agreement, since it left deferred and uncertain a much greater proportion of the consideration in terms of overage than she had originally envisaged. If planning permission were obtained, she intended to renegotiate for a higher fixed sum. However, she deliberately refrained from giving Mr Cobbe any indication that she did not intend to carry the second agreement into effect and intended to renegotiate, so as to ensure that he continued unabated his efforts to obtain planning permission. She was aware of the risks to the success of the application if she alerted Mr Cobbe to her true intentions regarding renegotiation of the second agreement.
(10) The grant of the planning permission immediately resulted in a significant increase in the value of the property.
(11) The day after the resolution to grant planning permission (18 March 2004), Mrs LM told Mr Cobbe that the second agreement was no longer relevant because planning permission had not been obtained by Christmas 2003. She would enter an agreement only on terms for payment by him of £20m together with overage.
(12) Mr Cobbe believed that he had been badly treated by Mrs LM and that he had been “ambushed”. He reached an agreement with Mrs LM “in principle” at the end of March 2004 in an attempt to salvage a commercial deal, but he decided in May 2004 not to proceed with the March 2004 terms because they did not provide him with a sufficiently secure and worthwhile return on the money that he would have to invest in the purchase and development of the property.
[36] In holding that the facts found by him gave rise to a proprietary estoppel in favour of Mr Cobbe the judge said:
123. … I have found as proven facts that Mrs Lisle-Mainwaring, on behalf of the First Defendant, encouraged Mr Cobbe to believe that, if Mr Cobbe succeeded in obtaining planning permission in accordance with the Second Agreement, that Agreement would be honoured, even though it was not legally binding, and that, in reliance on that belief, Mr Cobbe, to her knowledge and with her encouragement acted to his detriment. I have also concluded that, in all the circumstances, she took an unconscionable advantage of him.
[37] As for relief, the judge held that Mr Cobbe’s equity would not be adequately satisfied by reimbursement of his expenditure on the planning application. The minimum equity to do justice to Mr Cobbe would be to give him a share in the increased value of the property as a result of the grant of planning permission. The judge said:
140. The Second Agreement, broadly speaking, reflected an intention that the First Defendant, through Mrs Lisle-Mainwaring, and Mr Cobbe should share equally the increased value or commercial potentiality arising from the grant of the planning permission. In all the circumstances, including the conduct of the parties and their mutual beliefs and intentions, the minimum equity to do justice to Mr Cobbe is to order the payment to him by the First Defendant of one half of the increased value of the Property due to the grant of the planning permission.
[38] Both sides agreed that if that relief were granted, the valuation establishing the increase in the value of the property owing to the planning permission should be as at 18 March 2004, that being the date upon which Mrs LM told Mr Cobbe that she did not intend to abide by the terms of the second agreement.
[39] The judge gave the following reasons for granting the relief that he did.
136. … In the present case substantial cost was incurred, pursuant to the Second Agreement, at the risk of Mr Cobbe in return for the prospect of sharing in the commercial potential and financial rewards from the grant of planning permission. It was part of the Second Agreement that he would apply for planning permission and that he would enjoy, through the acquisition and development of the Property, the benefit of the planning permission. An order which merely entitled Mr Cobbe to reimbursement of his expenditure would not reflect the balance of the risks and rewards to him of pursuing the planning application, as perceived by both he and Mrs Lisle-Mainwaring, reflected in the terms of the Second Agreement, and it would leave the First Defendant disproportionately advantaged by the grant of planning permission.
137. … It was at the core of the understanding of the parties, reflected in the terms of the Second Agreement that if planning permission was obtained by Mr Cobbe, he would enjoy the financial and commercial rewards of the acquisition and development of the Property.
[40] The relevant parts of the order were in the following terms:
1. In this Order the following abbreviations are used:
(1) “the Property” means the property known as 38/62 Yeoman’s Row, London SW3 2AH and registered at HM Land Registry under title number BGL 20495;
(2) “the Planning Permission” means a planning permission granted on 17 March 2004 by the Royal Borough of Kensington and Chelsea in respect of the Property and confirmed on 5 April 2004;
(3) “the Plans” means the plans drawn up by Paul Davies & Partners, architects, in respect of which the Planning Permission was granted; and
(4) “the Increase in Value” means the difference between:
(a) the open market value of the Property on 18 March 2004 with the benefit of the Planning Permission; and
(b) the open market value of the Property on 18 March 2004 without that benefit and disregarding any effect on value resulting from the planning application made on 3 July 2003 (as amended from time to time) as a consequence of the grant of planning permission.
2. If the Claimant instructs Paul Davies & Partners to permit the use of the Plans by the First Defendant or, at its direction, any other person, the Property is held to be subject to a lien in favour of the Claimant for an amount equal to half of the Increase in Value.
3. There shall be an inquiry into the amount of the Increase in Value (if any) to be heard before a Master of the Chancery Division.
[41] Several features of the order should be noted, since they are relevant to the appeal from the second judgment. First, the definition of “the Property” replicates the definition in the amended particulars of claim. It relates only to the freehold title of which YRML was the registered proprietor. The leasehold flat of which Mrs LM was registered proprietor was a different title and was separately defined in the amended particulars of claim. Second, the claims against Mrs LM, who was joined as third defendant, were dismissed with costs: see paras 8 and 9 of the order. None of the claims against her related to her flat. The claims were made against her in respect of “the Property”, as defined and alleged that she was “the guiding mind of the Company and has made all its decisions on its behalf”: see para 5 of the amended particulars of claim.
Appellant’s submissions
[42] As indicated at the outset, the nature and extent of the remedy to which Mr Cobbe is entitled is an important point in this appeal.
[43] Before addressing relief, Mr Seitler submitted that the judge was wrong in holding that all the conditions for proprietary estoppel were satisfied. There was no substantial dispute about the elements of the doctrine of proprietary estoppel as laid down in Taylor Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] QB 133*.
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* Editor’s note: Also reported at [1979] 2 EGLR 54; (1979) 251 EG 159 |page:111|
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[44] Mr Seitler relied upon five main grounds.
1. Mutual promises point
[45] It was contended that the proprietary estoppel claim must start with a consideration of a particular promise or representation relating to proprietary rights. This was a case of a complex bargain consisting of mutual promises and, it was argued, there is no estoppel since Mr Cobbe did not fully perform his side of the bargain. Until he had performed all or substantially all of his side of the bargain, he could have no expectation of obtaining the interest promised to him by YRML. He had not paid the purchase price or carried out the development.
[46] In my judgment, there is nothing in this point. First, it is not a requirement of the doctrine of proprietary estoppel that the agreement or understanding between the parties relied upon to found the estoppel should have been fully performed by the claimant. The focus of the doctrine is on the unconscionable conduct of the defendant and its effects. It is not the same thing as seeking to enforce an agreement.
[47] Second, on the facts of this case, Mr Cobbe performed his side of the bargain with YRML so far as he was able. He spent considerable time and money in obtaining the planning permission for the property, which he undertook in reliance upon the assurance of a contract to sell the property to him should planning permission be granted. Without Mr Cobbe’s input, planning permission would not have been obtained when it was and the property would not be worth what it is.
[48] Third, Mr Cobbe was willing and able to perform his outstanding obligations under the second agreement, but he could not do so because YRML would not allow him to do so. It refused to honour the second agreement.
2. Uncertainty point
[49] Mr Seitler contended that a proprietary estoppel cannot come into existence where the promise upon which the estoppel is based is not of an immediate or future interest in property, but is a promise of a contract the terms of which were and remain uncertain. Further, the promise must be “clear and unequivocal” as to the existence or nature of the claimant’s entitlement. He said that a promise of “a contract” is meaningless unless it is clear what terms the contract will contain: see Kilcarne Holdings Ltd v Targetfellow (Birmingham) Ltd [2004] EWHC 2547 (Ch)*. Mr Cobbe had no more than an agreement to agree, an expectation that negotiations would continue to the stage of a binding contract. It is no more enforceable as an estoppel than it is as a contract. Either way, it cannot be fairly enforced. In this case, he said, significant and essential terms and elements of the bargain were unresolved.
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* Editor’s note: Reported at [2005] 2 P&CR 8
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[50] It is accepted by Mr Cobbe that the second agreement was not a legally binding and enforceable agreement, lacking in certainty and not containing all the necessary terms. The judge held that this was not fatal to the proprietary estoppel claim. I agree.
[51] As a general proposition, the assurance, arrangement or understanding relied upon to found an estoppel need not be sufficiently certain to be an enforceable contractual obligation. The crucial element is that the defendant has created or encouraged the belief on the part of the claimant that the defendant will not withdraw from the assurance, arrangement or understanding.
[52] Mr Seitler’s distinction between, on the one hand, a promise to give a contract and, on the other hand, a promise to grant an interest in property is unconvincing. There is no real difference between them, either in principle or on the authorities. The essence of proprietary estoppel is unconscionable conduct in inducing or encouraging another to believe that he will obtain an interest in, or right over, the defendant’s property. The particular means by which he will acquire the interest (via a formal exchange of contracts, by a transfer or some other means) are irrelevant so long as the assurance made by the defendant is not too vague or uncertain as to give rise to an expectation or to be made effective in practice. This assurance was not so vague as to nullify Mr Cobbe’s expectation.
3. Subject to contract point.
[53] Mr Seitler contended that there was nothing unconscionable in withdrawing from a promise where the party to whom the promise was made was not entitled to rely upon it in the first place. That, he said, is the position with a “subject to contract” promise, offer or understanding. He asserted that the second agreement was an “outline accord” that was obviously equivalent to “subject to contract”. This meant that, however certain and however much relied upon it was, each side was free to withdraw from it, that Mr Cobbe was not entitled to rely upon it as a basis for an estoppel and it was not unconscionable for YRML to withdraw from it: see, for example, London & Regional Investments Ltd v TBI plc [2002] EWCA Civ 355, in [41] to [44].
[54] In those circumstances, it was wrong for one party, in this case Mr Cobbe, to be able, without the formation of a binding contract and on the basis only of relatively modest expenditure, to hold the other party to the outline agreement and to obtain potentially a much greater gain than he could have achieved had the contemplated or promised contract actually been concluded and performed.
[55] The judge did not regard this as a “subject to contract” case. Nor do I. It is true that, as the judge held, neither side thought that the second agreement was a legally enforceable contract. They thought that such a contract would come into existence only after planning permission was granted and a formal agreement had been drawn up by lawyers. Additional terms would also have to be negotiated and agreed.
[56] The judge held (see [118] to [122]) that proprietary estoppel could be established even where the parties anticipated that a legally binding contract would not come into existence until after planning permission had been obtained, further terms discussed and agreed and formal written contracts exchanged. The judge made a useful summary of the points of principle apparent from the authorities on this point. I agree with his analysis of the position.
[57] The position might well be different in a “subject to contract” case, but, as the judge pointed out (see [66]), the second agreement was not expressly stated to be “subject to contract”, either by use of that well-known expression or by other language to the same effect. Where that well-understood expression is used, an intention has been expressed to reserve the right for either party to withdraw from the negotiations at any time prior to the exchange of formal contracts. It is made clear that there are no legally enforceable rights before that happens. Even the use of the expression “subject to contract” would not, however, necessarily preclude proprietary estoppel if the claimant established that the defendant had subsequently made a representation and had encouraged, on the part of the claimant, a belief or expectation that he would not withdraw from the “subject to contract” agreement or rely upon the “subject to contract” qualification: see Attorney-General of Hong Kong v Humphreys Estate (Queen’s Gardens) Ltd [1987] 1 AC 114, at pp127H-128B.
4. Unconscionability point
[58] Mr Seitler submitted that the judge wrongly found that YRML had acted unconscionably by continuing after Christmas 2003 to allow Mr Cobbe to expend time and money in pursuing the planning permission when it had already formed the settled intention to renegotiate the second agreement.
[59] He also sought to challenge the judge’s finding of fact (see [165] of the judgment) that YRML had induced and encouraged Mr Cobbe to believe that it would not withdraw from its terms if Mr Cobbe obtained planning permission. In my view, this was a fact that the judge was entitled to find from the evidence, including the evidence of Mr Cobbe.
[60] In my judgment, the findings of fact by the judge entitled him to conclude that the relevant conduct of YRML giving rise to the estoppel continued throughout the period to March 2004. YRML led Mr Cobbe to believe that it would honour the agreement and to continue to spend time, effort and cost in pursuing the application for planning permission in that belief. The same pattern continued after Christmas 2003 as before. At no time before the resolution to grant planning |page:112| permission did YRML alert Mr Cobbe to its intention to withdraw from the second agreement.
[61] In the light of the findings of primary fact by the judge, I am in no doubt as to the correctness of his conclusion of unconscionability on the part of YRML. The continued expenditure of time, effort and cost by Mr Cobbe throughout the period August 2002 to March 2004 in the belief induced and encouraged by YRML that it would honour the second agreement; the setting of Christmas 2003 as an aspirational date rather than a final cut-off date; the timing of the withdrawal from the second agreement to take place after and not before the resolution to grant the planning permission, which significantly increased the value of the property; and the retention of the entire benefit of that increase without any corresponding entitlement for Mr Cobbe, other than a tentative offer of reimbursement: all these findings support the conclusion reached by the judge on unconscionability.
5. Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (the 1989 Act)
[62] Finally, on the issue of liability Mr Seitler relied upon section 2 of the 1989 Act, under which a contract for the sale or other disposition of an interest in land can be made only by signed writing.
[63] The material parts of section 2 provide:
.— (1) 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.
(2) The terms may be incorporated in a document either by being set out in it or by reference to some other document.
(3) The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract.
(4) …
(5) … nothing in this section affects the creation or operation of resulting, implied or constructive trusts.
(6) …
(7) …
(8) Section 40 of the Law of Property Act 1925 (which is superseded by this section) shall cease to have effect.
[64] The judge said:
164. As I understood his submissions, Mr Seitler accepted that, if the Second Agreement was never an agreement of all essential terms and with all necessary certainty to give rise, subject to s2(1) of the 1989 Act, to a legally enforceable contract, then s2 has no relevance to Mr Cobbe’s claim to a proprietary estoppel.
[65] Mr Seitler submitted that the effect of the judge’s ruling against YRML was to reintroduce defects in the pre-1989 law that section 2 was designed to abolish, in particular the doctrine of part-performance and contracts for the sale of land coming about as a result of oral discussions. He cited passages from the Report of the Law Commission (Law Com No 164), which preceded the 1989 Act: see paras 1.7 to 1.11, 2.2 to 2.5, 2.9 to 2.13, 4.2, 4.3 and 4.13, 5.1 to 5.5. He added that if what was promised was a contract for the sale of land, it was a contract to which section 2 related and it was not in writing. Parliament could not have intended, he argued, that a person with an oral promise of an incomplete contract would be in a better position than a person with a complete contract that was not reduced to writing.
[66] It is, however, clear from the Law Commission report, especially paras 5.4 and 5.5, that the continued availability of proprietary estoppel was contemplated, as was explained by Beldam LJ in his judgment in Yaxley v Gotts [2000] Ch 162*, at pp188E-190H: see also Snell’s Equity (31st ed), in para 10-20. Its availability does not infringe the public policy underlying section 2(1) of the 1989 Act by either directly or indirectly enforcing the second agreement so as to frustrate the purpose of section 2.
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* Editor’s note: Also reported at [1999] 2 EGLR 181
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[67] The estoppel here did not rest merely upon the existence of the second agreement. It was founded on the fact that Mr Cobbe was induced and encouraged to believe that YRML regarded the second agreement as binding in honour and would not withdraw from its terms if Mr Cobbe obtained planning permission; that Mr Cobbe relied upon that inducement and encouragement; and that it was unconscionable for YRML to rely upon its strict legal rights.
[68] I agree with the judge that section 2 has no application to this proprietary estoppel claim. No concluded agreement was made. There can be no question of an action to enforce the second agreement. The section is irrelevant to an action to enforce a cause of action for proprietary estoppel that does not depend upon the existence of a concluded agreement for sale or upon the enforcement of it, but on the inducement and encouragement to get Mr Cobbe to apply for and obtain planning permission in the belief and expectation that he would get a binding contract for the sale of the property for £12m plus overage.
Relief for proprietary estoppel: discussion and conclusions
[69] Of the authorities cited, the case that I have found the most helpful was the judgment of Goff J in the Chancery Division in Holiday Inns Inc v Broadhead (1974) 232 EG 951, being the authority upon which Etherton J principally relied on the question of relief. It was considered in detail by Chadwick LJ in Banner Homes Holdings Ltd (formerly Banner Homes Group plc) v Luff Developments Ltd (No 1) [2000] 2 All ER 117, at pp130j-134h. It was strongly relied upon by Mr Ivory as a very similar case. It involved the promise of a lease and an application for planning permission. Since it discusses the various options for relief in a situation that bears similarities to the present case, it is worth examining in some detail.
[70] In 1967, there was a joint venture between the plaintiff, a major international hotel company, Holiday Inns Inc, and a financier, Mr Reginald Broadhead, and two companies held by him, for a hotel development. The company was encouraged to seek planning permission for an agreed site near London Airport by the expectation, induced by Mr Broadhead, that, if planning permission were obtained, it would construct a hotel on the site owned by him and have a lease on the standard terms. Expenses were incurred by the plaintiff company in obtaining planning permission, which increased the value of Mr Broadhead’s site. The company’s name and reputation were used to obtain permission for a development that might otherwise not have been allowed. Mr Broadhead had no real chance of obtaining planning permission himself. He needed the support of a hotel company and he encouraged the plaintiff company to lend its support.
[71] Mr Broadhead broke off the negotiations and caused a lease of the site to be granted to another hotel group, Trust Houses Group. The plaintiff company was held to have an equity giving it the right to participate in the profits made from the exploitation of the site by Trust Houses. The judge held that the plaintiff company was clearly entitled to relief for proprietary estoppel based upon the unconscionable conduct of Mr Broadhead, even though the company knew that there was no concluded agreement and thought that it was a “gentleman’s agreement” that would be honoured. The real question was what the equity should be. He considered no less than four possible answers to the question as to what the plaintiff should have to satisfy its equity.
[72] The first possibility, which was proposed by Mr Broadhead, was that the plaintiff company should receive no more than recoupment of its expenses, including a just allowance for the work done within its own organisation. The judge firmly rejected this possibility, commenting that he had no doubt that it could not be right and adding:
That would not be equity so much as a travesty of justice.
[73] Second, he considered an alternative proposal by Mr Broadhead that the yardstick was the difference in value between the reversion in the 15-acre site subject to and with the benefit of the lease to Trust House Group Ltd, on the one hand, and subject to and with the benefit of the lease on standard terms. That would then be divided so as to give the plaintiff company a share proportionate to the expenditure of the plaintiff company and Mr Broadhead, alternatively, an equal share. |page:113|
[74] The judge rejected that proposal as producing too small a benefit for the plaintiff. He also commented that, on this basis, he would not apportion at all, but give the whole to the plaintiff company. However, he felt considerable difficulty in accepting the yardstick at all, whether apportioned or not, because it ignored the fact that the plaintiff could have had its lease only on the terms of paying the cost of building the hotel, which it had escaped. He found that consideration “strange and difficult” because, on one view, it seemed right to ignore it because the hotel had been built at the expense of the lessee and not of Mr Broadhead and, on another view, it was difficult to see how anything could be taken into account in favour of Mr Broadhead in respect of the cost of building the hotel without giving him credit twice over.
[75] Third, the judge considered (and rejected) a suggestion of his own that what had to be recouped, so far as it could be calculated or estimated, was the total loss that the plaintiff company had suffered by not having the premises at well under rack-rent and one geared to the success or failure of the particular enterprise where it could carry on its business, less a proper allowance for the cost of construction.
[76] He rejected this possible solution, as the ascertainment of the loss of profit would involve an inquiry of a “most speculative and uncertain nature” while there would be added uncertainty in discounting that to a present figure and a comparable difficulty in determining what should be allowed for the cost of construction, since the plaintiff would have borrowed and serviced and amortised the loan out of future profits.
[77] So, fourth and finally, the judge said that he was left with no other solution than the one that he adopted, namely to apply the principle of equal division, after allowing each party credit in respect of their actual expenditure. He justified this by reference to the joint nature of the venture: Mr Broadhead having the land that he was to buy greatly enhanced in value and the plaintiff getting a hotel where it wanted it at comparatively low rental. He also had recourse to the maxim that “equality is equity.”
[78] In his article, Dr Gardner comments that this is an instance of a case in which it is impracticable to make an “expectation award” because of the lack of clarity over the value of the claimant’s expectations. The assured interest was clear: a building lease for a hotel on a certain site and on the claimant’s standard terms, but the defendant was no longer able to grant the lease. The court substituted a monetary award based upon expectation. The monetary value of the lease was uncertain, since it was speculative how much profit the plaintiff would have made from the hotel. The judge in effect “plucked a formula from the air” based upon the claimant’s expectation rather than on the plaintiff’s reliance loss.
[79] Mr Ivory submitted that the relief granted by Etherton J was within his discretion and in accordance with authority and principle. It was the minimum relief necessary fairly to satisfy the equity arising from the facts that gave rise to the estoppel.
[80] It was the same as the relief granted in Holiday Inns, that is a 50% share of development value. It was the right order to make in order to reflect the spirit of the intentions and understanding of the parties that if planning permission for the property were obtained by Mr Cobbe, he would have the financial and commercial reward of the acquisition and development of the property.
[81] Mr Seitler submitted that Holiday Inns was of no real assistance in this case and sought to distinguish it on three grounds. First, there was a finding that Mr Broadhead had no real chance of securing planning permission for himself and needed the support of a hotel company. Holiday Inns contributed much more than time and effort. In this case, there was no finding that YRML could not have obtained planning permission on its own or that Mr Cobbe’s personal attributes were critical to achieving planning permission in the way that Holiday Inns was found to be. He contributed no more than he had lost in terms of time and expense.
[82] Second, Mr Seitler submitted that Holiday Inns is a joint acquisition case. The site purchased by Mr Broadhead was acquired for joint purposes because Holiday Inns said that it wanted that site for its hotel and the acquisition costs (£150,000) were credited to Mr Broadhead before the relief was determined. In this case, it would be impossible to give credit for YRML’s historic acquisition costs or for the work done in striking deals with various protected tenants in the property in order to make development a possibility.
[83] Third, in Holiday Inns, the profit made from the unconscionable conduct was there for all to see. Holiday Inns was replaced by Trust Houses Group and an income stream was being produced. The judge gave Holiday Inns a share of it in awarding 50% of the value of the reversion on the lease (not of the lease itself). In this case, no such income or profit had been realised from which a share can be ascertained.
[84] Mr Seitler then turned to the judge’s solution that he identified as the exercise of a discretion involving an error of principle. The judge had tied the relief to the enhancement in the site value of the property attributable to the grant of planning permission. However, Mr Cobbe had not granted the planning permission. The enhanced value of the property attributable to the planning permission was inherent in the value of the property acquired before Mr Cobbe was on the scene.
[85] Further, there was no finding that Mr Cobbe’s skills were essential to the grant of planning permission. The grant was the result of the acts of many people and of a combination of factors, not least the application of the relevant planning policy by the local planning authority. Mr Cobbe’s contribution was only one factor among many.
[86] The judge also erred in principle, Mr Seitler said, in taking the proportion of the increase in value as 50%. The percentage in the second agreement was 50% of gross end sales, not of site value. The gross end sales could be achieved only by raising finance to purchase the property and carry out the development at Mr Cobbe’s own cost and risk, which he has not done and will not do. The judge’s form of relief, he argued, is not equitable or proportionate because it produces an enormous sum for a person who risked no capital, carried out no development and spent only a fraction of the sum that he is claiming is due under the order. Mr Cobbe now put forward the figures that between £5m to £6m was due to him under the order of 25 February 2005, as varied. On this approach, he would be better off than if he had obtained specific performance. He would obtain a risk-free profit, without having to finance the purchase and development or carry out a two-year development. The claim based upon expectation was wholly disproportionate to the detriment that he claimed to have suffered in his expenditure in obtaining the planning permission: see the observations of Aldous LJ and Robert Walker LJ on proportionality in Jennings, in [111] and [116] respectively.
[87] Mr Seitler also referred the court to a case comment (Property Law Bulletin, 2005, Sweet & Maxwell), describing Etherton J’s judgment as a “developer’s charter” and as a “staggering extension” to Holiday Inns, taking “huge benefits” away from the landowner. Surprise was expressed at the court coming to the rescue of a developer against the landowner. There are a number of important respects in which the case summary does not accurately reflect the facts found by the judge or the legal basis of the decision.
[88] During the course of argument, there was discussion of another kind of relief in the form of a payment related to the measure of potential profit under the second agreement, subject to a discount for the chance that a contract would not have been made. Mr Seitler submitted that this relief, with or without the discount for the chance, was unworkable. The court would become involved in making the contract for the parties from oral discussions and then awarding damages for its breach. There would be problems in ascertaining what agreement the parties would have reached had they discussed terms that were not included in the second agreement. Assessing the discount for the chance of the second agreement not becoming a binding contract would also be fraught with difficulties.
[89] By this route, Mr Seitler came to his submission that there was no way of accommodating Mr Cobbe’s disappointed expectations of profit from development or lost opportunities and that the only principled basis for relief is a measure that reflects both the true benefit that YRML derived from the work by Mr Cobbe (that is, it was saved the trouble of doing the work itself or engaging someone else to do what Mr Cobbe had done, and the true loss suffered by Mr Cobbe (that is, the |page:114| time, trouble and expense on the work that he did for which he should be paid a fair and reasonable sum). The quantum meruit approach was not perfect, but it was at least workable, sensible and realistic.
[90] I agree that the judge was right to reject YRML’s argument that Mr Cobbe’s equity would be satisfied by an order for reimbursement of his planning costs: see [141] to [145] of the judgment. It ignores the effect of the planning permission obtained by Mr Cobbe on the value of the property that YRML would have obtained for itself as the result of its unconscionable conduct.
[91] On the other hand, I have had concerns that the order of the judge was perhaps too generous to Mr Cobbe. First, it has to be recognised that it is the act of the planning authority in granting the planning permission itself (an act of a third party, not the act of Mr Cobbe) that increased the value of the property. Mr Cobbe did not grant the planning permission. His contribution was in securing the grant of permission by the planning authority.
[92] Second, it also has to be recognised by Mr Cobbe that he will not incur the costs and risks of construction and development of the property since he would have had to under the anticipated bargain with YRML.
[93] Against that, it is said that he was willing and able to perform his obligations under the second agreement and that the only reason he was not able to buy the property and incur the costs of acquisition and development was because he was not allowed by YRML to do so. It is pointed out that, in Holiday Inns, the fact that the plaintiff had not constructed and was never going to construct a hotel on the agreed site was no bar to the relief granted by Goff J.
[94] It was agreed that it was correct to value the property for the purposes of the relief as at 18 March 2004. It is based upon the price that a developer would have paid for the property in its undeveloped state at that date. In deciding what to pay for the property in that state, the developer would take into account the costs and risks of development of the property
[95] Having initially been of the view that the order made by the judge was too generous to Mr Cobbe because it would place him in a more secure position than he might have been had he obtained the promised contract and gone ahead with the development with all its unknown risks on trusts and returns, I have reached the conclusion that this court ought not to interfere with it. I find myself in a similar position to that of Goff J in Holiday Inns: some solutions would be too stingy (reimbursement) and some too speculative (putting a value on the loss of the promised contract). The longer I have thought about it, the more the relief granted by the judge appears to be the least unsatisfactory of the various forms that relief might take.
B. Second judgment
[96] There was a surprising amount of litigation activity after the main judgment was given on 25 February 2005. On 11 March 2005, YRML appealed. On 13 June, YRML applied to withdraw its undertaking to enable the property to be sold. Mr Cobbe applied for the sale of the property. On 5 July 2005, Mr Cobbe’s application was dismissed. YRML’s application was stood over.
[97] On 15 July 2005, Mr Cobbe issued an application to vary the order of 25 February 2005. The order had been perfected. The application was made under the slip rule CPR 40.12 and/or under the inherent jurisdiction of the court to vary an order to give effect to the intention of the court. Two variations were sought. The first was that the property would be valued with vacant possession. The second was that the order should be amended to extend the property over which the lien operated to Mrs LM’s long lease of flat 50.
[98] Mr Cobbe’s concern was that a substantial part of the development value of the property might be attributable to the leasehold interest vested in Mrs LM rather than to the freehold vested in YRML and that he would be left without the financial compensation that the judge had intended by the main judgment that he should have.
[99] The amendments were made by the judge following a hearing on 12 August 2005, at which Mrs LM represented YRML and Mr Ivory appeared for Mr Cobbe. Etherton J, who was sitting as a vacation judge hearing other urgent applications, gave his reasons in the second judgment, which he delivered ex tempore. An appeal against the second judgment was brought by YRML on 23 August 2005.
[100] It is necessary for the court to decide the appeal against the second judgment if, as I would, the court were to uphold the basis of the relief granted to Mr Cobbe against YRML under the main judgment. His position is weaker if, as YRML and Mrs LM contend, the order is not varied: his lien is secured only on the freehold property of YRML, and the valuation of the freehold property subject to the long lease of flat 50 will be lower than the valuation of the entirety of the property with vacant possession.
[101] After summarising the submissions of the parties and reviewing the provisions and authorities on the slip rule and inherent jurisdiction, the judge recognised that the variations sought could not properly be described as “typographical or grammatical errors within the slip rule”.
[102] On the vacant possession valuation issue, the judge concluded that he had dealt with it expressly in his judgment (see [145] and [146]) and that he intended to provide and find the facts necessary to provide for a valuation of the property on the hypothesis of vacant possession. In order to deal with the doubt on the matter on the face of the order, he could clarify that aspect of it under the slip rule or the inherent jurisdiction of the court.
[103] Etherton J recognised that the position was “rather more difficult in relation to the issue of the extent of the lien” (see [32] of the second judgment), since he had dismissed the claims against Mrs LM. This was not a case of accidental slip or typographical error.
[104] On the other hand, the judge considered that the matter of the extent of the lien raised on the application was not “a new point of substance”. He said that, had the matter been pointed out to him at the trial or at the time he made the order, he would have made an order for a lien on the leasehold interest. His findings of fact extended to the conduct of Mrs LM in her dealing with Mr Cobbe, and it made no difference whether she was acting formally, as agent for YRML, or in any other capacity. The allegations in the pleadings were not limited purely to her acting as agent for the company. The main judgment contained the findings of fact necessary to support the relief sought by the application to vary the court’s order. He concluded as follows:
38. I take the view that there is a patent inconsistency in the judgment of 25th February 2005 between, on the one hand, my clear findings that the Claimant should be entitled to share in the increased value of the Property as a result of the Planning Permission on the basis of vacant possession and for a lien to secure that interest and, on the other hand, the dismissal of the claims against Mrs Lisle-Mainwaring on the hypothesis, which in fact was not correct, that the essence of the claim against her was limited to one of piercing the corporate veil of the First Defendant.
39. In those circumstances, and in view of that inconsistency, I have come to the conclusion that the court has power under the inherent jurisdiction of the court or, alternatively, under the wider arm of the slip rule to clarify that aspect of the judgment and to give effect to the intention of the court as to the extent of the relief to be granted to the Claimant.
[105] The judge made the variations to the order sought by Mr Cobbe.
Discussion and conclusion on variation point
[106] Mr Seitler had a string of strong criticisms of the second judgment. He described the imposition of a lien on the leasehold interest in flat 50 as allowing Mr Cobbe, long after the original order had been entered and after the service of an appeal notice, to make a case against Mrs LM personally that he had not previously made. The case pleaded against her at trial had been dismissed with costs. No claim in proprietary estoppel had ever been pleaded in respect of her personal leasehold interest in flat 50.
[107] He also criticised the introduction of the vacant possession valuation assumption as increasing the burden on the property of YRML in a way that had not been argued at trial and did not reflect the reasoning in the main judgment. |page:115|
[108] He contended that both variations, which were potentially substantial in financial terms, fell outside the slip rule and the inherent jurisdiction of the court.
[109] Mr Ivory explained, on behalf of Mr Cobbe, that it had emerged after the main judgment was given that Mrs LM proposed the sale of YRML’s freehold reversion that she contended was worth only £3.5m, its value being largely unaffected by the grant of planning permission. Her position was that most of the development value was attributable to the leasehold interest, which she contended was not covered by the lien in the order of 25 February 2005. The question therefore arose as to whether the order correctly reflected the judge’s intentions. Mr Cobbe’s application for variation of the order was made so that the judge could resolve the dispute that had arisen between the parties about the order. Mr Ivory submitted that the judge had had the power to order the variations and that he had been right to exercise the power to vary.
[110] As for the vacant possession point, all that the judge had done was to clarify the order by spelling out in the order what was clearly apparent from and intended by his judgment. He had jurisdiction under the slip rule and the inherent jurisdiction of the court to make the order compatible with the judgment.
[111] The whole case, he said, was about the arrangements for the redevelopment of the property, which was meaningless without vacant possession of all the flats, including flat 50. The judge intended Mr Cobbe to be compensated by a share in the increased value of the property by virtue of the planning permission. He had made findings of fact necessary to provide Mr Cobbe with that compensation. Mr Ivory referred to passages in the main judgment from which he said that it was clear that the judge had decided the case in favour of Mr Cobbe on the basis that vacant possession of the flats could be obtained and his finding that “Mrs Lisle-Mainwaring always led Mr Cobbe to believe that vacant possession of flat 50 would be given or procured by Mrs Lisle-Mainwaring as part of the implementation of the Second Agreement”: see [146] of the main judgment.
[112] As for the extension of the lien to the leasehold interest, Mr Ivory argued that this was “intimately connected” with the point on valuation of the property with vacant possession. The lien was, he said, secondary to, and consequential on, Mr Cobbe’s substantive entitlement to half the increase in the value of the property. The purpose of the lien was to secure and protect the sum due to Mr Cobbe and it was co-extensive with the whole of the property, freehold and leasehold, giving rise to his entitlement. There was, as the judge said, a “patent inconsistency” in his judgment in his finding as to what Mr Cobbe should be entitled to and his dismissal of the claim against Mrs LM. The judge had jurisdiction to correct the position by varying the order. If he did not, this court could correct the position on Mr Cobbe’s cross-appeal.
[113] Although I appreciate the force of Mr Ivory’s general point that the judge was the best person to know what his intention was and that he was quite sure what it was, I have serious difficulties with the judge’s variation of his original order to attach Mr Cobbe’s lien to Mrs LM’s leasehold interest in flat 50.
[114] The proceedings were against YRML as the registered owner of the freehold property. No separate relief was ever claimed against Mrs LM personally, either for proprietary estoppel or constructive trust or by way of a money claim or in respect of her long lease of flat 50 on the ground floor of the property. She featured in the case only as the individual director through whom YRML acted, and as “its guiding mind” in its negotiations with Mr Cobbe for the sale and development of the property and for obtaining planning permission, and should be made personally responsible for giving effect to the relief granted in favour of Mr Cobbe against YRML. The “guiding mind” case against Mrs LM was dismissed. (Mr LM, who had been joined as second defendant, was also dismissed from the case.)
[115] I agree with the judge that the negotiations were on the basis that Mr Cobbe would obtain vacant possession of the property for development and that, in the main judgment, he took that factor into account in deciding what form of relief was appropriate. It is reasonably clear from [145] to [147] of the main judgment that Etherton J decided that vacant possession of the property and of flat 50 was the hypothetical basis upon which the valuation of the property in recognition of Mr Cobbe’s expectation interest in it should be made. In my view, the judge was entitled, under the inherent jurisdiction, to make clear in the order what was clear in the findings and reasoning of the judgment. I do not accept Mr Seitler’s submission that it is irrelevant that the promised contract, which formed the basis of the proprietary estoppel claim, was for the purchase of the property with vacant possession for redevelopment. It is relevant to the form of relief, since that was the expectation created by YRML when Mr Cobbe was encouraged to apply for planning permission.
[116] The position on a lien to secure the amount due to Mr Cobbe under the order is, in my judgment, different. The difficulty in varying the lien was starkly highlighted at the hearing of the application to vary the order when Mrs LM appeared not for herself but for YRML, against whom the order had been made. No order had been made or even sought against her in relation to the lease of her flat or in respect of her alleged personal liability for the acts of YRML. There was no legal basis upon which the judge was entitled to make her property available to secure the sum due from YRML to Mr Cobbe for its proprietary estoppel as regards the property. The imposition of such a lien on the property of Mrs LM was not a matter within the discretion of the court under its inherent jurisdiction, the slip rule or any other rule. Since no cause of action for proprietary estoppel was pleaded or established against Mrs LM personally or in respect of her separate leasehold interest in the flat, Mr Cobbe was not entitled to any relief against her personally. In my view, the power of the court to satisfy Mr Cobbe’s equity arising from the unconscionable conduct of YRML in connection with the property did not extend, in the circumstances of this case, to making the separate personal property of Mrs LM stand as security for the liability of YRML.
Result
[117] I would dismiss YRML’s appeal against the order made by the judge in his main judgment. In view of the decision on the proprietary estoppel point, it has not been necessary to deal with the constructive trust point, which arose only if all else failed for Mr Cobbe.
[118] I would allow the appeal by Mrs LM to the extent of setting aside that part of the second judgment that extended Mr Cobbe’s lien to cover Mrs LM’s leasehold interest in flat 50.
[119] I would dismiss Mr Cobbe’s cross-appeal against the second judgment.
Giving the second judgment, Dyson LJ said:
[120] I agree with the judgment of Mummery LJ and wish only to add some words on the question of what relief was needed on the facts of the present case to satisfy the respondent’s equity. The general principle is that “the court must look at the circumstances in each case to decide in what way the equity can be satisfied”: Plimmer v Wellington Corporation (1884) 9 App Cas 699, at p714. The court has a wide discretion to fashion the remedy that achieves justice between the parties and properly satisfies the claimant’s equity. As Lord Denning MR said in Crabb v Arun District Council [1976] Ch 179, at p189F, in this area, “equity is displayed at its most flexible”. The many cases in this field illustrate this flexibility vividly. In some cases, the equity has been satisfied by the grant of an unqualified interest in land; in others, by the grant of a right to occupy land; in yet others, by the grant of monetary compensation.
[121] The courts often do not explain why one remedy is adopted rather than another. Like Robert Walker LJ in Jennings v Rice [2002] EWCA Civ 159, [2003] 1 P&CR 100, I have found the analysis of Mr Simon Gardner’s article “The Remedial Discretion in Proprietary Estoppel” (1999) 115 LQR 438 illuminating. As is explained in the article, there are two alternative theoretical bases of relief. These are often referred to as expectation relief and detriment-reliance relief. The former is based upon the premise that a proprietary estoppel claim requires to be met by the vindication of the claimant’s expectation interest, that is, by the award to the claimant of the interest assured to |page:116| him or her by the defendant. The latter is based upon the premise that the equity is satisfied by the vindication of the claimant’s reliance interest by granting relief that reflects the detriment suffered by the claimant in reliance upon the defendant’s assurance. Dr Gardner argues that the English cases tend to favour the expectation approach, but tempered, where necessary, to achieve a just result. In some circumstances, however, it has been held that the claimant is entitled to be compensated only for his detrimental reliance upon the defendant’s non-contractual assurances: see, for example, per Hobhouse LJ in Sledmore v Dalby (1996) 72 P&CR 196. The difficulty with this area of the law is that the two approaches are fundamentally different. The cases are replete with examples, but short on analysis of the reason why one approach is adopted rather than another.
[122] Jennings is a helpful authority. The plaintiff worked for the deceased part-time from 1970 until her death in 1997. In the late 1980s, the deceased stopped paying the plaintiff and told him that he need not worry about that since “he would be alright” and that “this will all be yours one day”. She became increasingly dependent upon him. The judge found that, in the belief that he was going to receive all or part of her property, he had given up his spare time to look after her. The judge awarded him £200,000 under the doctrine of proprietary estoppel, which was the estimated cost of full-time nursing care enjoyed by the deceased. He refused to award the plaintiff the value of the house and furniture (£435,000) because that would have been excessive. The plaintiff’s appeal was dismissed.
[123] Having reviewed a number of the authorities, Aldous LJ said, in [36], that the value of the equity would “depend on all the circumstances including the expectation and the detriment”. The task of the court was to do justice. The most essential requirement was that “there must be proportionality between the expectation and the detriment”. Robert Walker LJ said:
50. To recapitulate: there is a category of case in which the benefactor and the claimant have reached a mutual understanding which is in reasonably clear terms but does not amount to a contract. I have already referred to the typical case of a carer who has the expectation of coming into the benefactor’s house, either outright or for life. In such a case the court’s natural response is to fulfil the claimant’s expectations. But if the claimant’s expectations are uncertain, or extravagant, or out of all proportion to the detriment which the claimant has suffered, the court can and should recognise that the claimant’s equity should be satisfied in another (and generally more limited) way.
51. But that does not mean that the court should in such a case abandon expectations completely, and look to the detriment suffered by the claimant as defining the appropriate measure of relief. Indeed in many cases the detriment may be even more difficult to quantify, in financial terms, than the claimant’s expectations. Detriment can be quantified with reasonable precision if it consists solely of expenditure on improvements to another person’s house, and in some cases of that sort an equitable charge for the expenditure may be sufficient to satisfy the equity (see Snell’s Equity, 30th ed, para 39-21 and the authorities mentioned in that paragraph). But the detriment of an ever-increasing burden of care for an elderly person, and of having to be subservient to his or her moods and wishes, is very difficult to quantify in money terms. Moreover the claimant may not be motivated solely by reliance on the benefactor’s assurances, and may receive some countervailing benefits (such as free bed and board). In such circumstances the court has to exercise a wide judgmental discretion.
[124] In [56], he expressed his agreement with the view expressed by Hobhouse LJ in Sledmore that the principle of proportionality between remedy and detriment is relevant. He concluded that the judge had not made any error of law in his approach to the exercise of his discretion or that it was otherwise flawed.
[125] The importance of this decision is that it shows that, if an award of what the claimant expected to receive if the assurances had been met is disproportionate to the detriment suffered by him in reliance upon those assurances, it is unlikely to be just to make an award on that basis.
[126] However, the fundamental question for the court in each case is to decide what relief justice requires to satisfy the equity. Relevant factors include: the nature of the expectation created by the defendant’s conduct; the detriment suffered by the claimant in reliance upon the defendant’s representations; the degree to which the defendant’s conduct can properly be said to be unconscionable; and the need for some proportionality between the claimant’s expectation and his or her detriment.
[127] Etherton J concluded (in [139]) that the minimum equity to do justice to the respondent would be to give him a share in the increased value of the property attributable to the grant of planning permission. He considered that to give him no more than reimbursement for his expenditure on the planning application would not suffice because: (i) he had incurred substantial cost; (ii) an order that merely entitled the respondent to reimbursement of his expenditure would not reflect the balance of the risks and rewards to him of pursuing the planning application and would leave YRML disproportionately advantaged by the grant of planning permission; and (iii) it was “at the core of the understanding of the parties… that, if planning permission was obtained by Mr Cobbe, he would enjoy the financial and commercial rewards of the acquisition and development of the Property”: see [136] and [137]. He also took into account the conduct of the parties: see [140].
[128] The judge was clearly influenced by Holiday Inns Inc v Broadhead (1974) 232 EG 951. Mummery LJ has already analysed the judgment of Goff J in some detail. Mr Seitler has identified a number of factual differences between Holiday Inns and the present case. There plainly are factual differences. However, there are also striking similarities. Of these, perhaps the most important are that: (i) the claimant used his skill to obtain planning permission to develop the defendant’s site; (ii) he did so encouraged by the defendant’s conduct, which included his failure to inform the claimant that, should planning permission be obtained, he would press for better terms than had been the subject of the parties’ gentleman’s agreement, conduct that the judge described as “deceitful and unconscionable” (see p1089); and (iii) the arrangement agreed between the parties was in the nature of a “quasi-partnership or joint venture” (see p951), pursuant to which both parties would enjoy the benefit of the planning permission.
[129] In the present case, the respondent had spent considerable time and effort over a period of approximately 18 months between September 2002 and 17 March 2004 pursuing the planning application. As the judge found, this reflected the facts that neither the proposed development nor the planning application was straightforward. His expenditure was not less than £69,000 and may have been considerably more: the second appellant now admits a sum of £81,000. In her evidence, Mrs LM said that she believed that around £100,000 had been spent by the respondent, making no allowance for the value of his own time. In addition, the respondent incurred out of pocket expenses. Further, the expenditure includes no allowance for the value of the respondent’s own time. According to paras 51 and 52 of his witness statement, he spent some 550-600 hours travelling in connection with the planning application, and turned away other work during the period.
[130] He did all this work encouraged by the second appellant’s assurances that if he obtained planning permission the second agreement would proceed. The judge found that some time before Christmas 2003, Mrs LM decided not to abide by the terms of the second agreement because she had become convinced that the proceeds of sale of the redeveloped property would be far greater than had originally been contemplated. However, she deliberately refrained from telling the respondent of this change of heart “in order to ensure that Mr Cobbe continued unabated his efforts to obtain planning permission”: see [78]. As soon as he had obtained planning permission, she told him that the second agreement was “no longer relevant”: see [80]. In these circumstances, it is hardly surprising that the judge concluded that she “took an unconscionable advantage of him”: see [123].
[131] The second agreement was “in the nature of, or reflected, a commercial joint enterprise between Mr Cobbe and the First Defendant, acting through Mrs LM. The securing of planning permission was for the benefit of both of them, as would be the subsequent development of the property, giving rise to a profit for Mr Cobbe and overage for the First Defendant.”: see [218].
[132] In these circumstances, I consider that the judge was right to conclude that it would be unjust to the respondent to grant relief |page:117| limited to a reasonable sum to reflect his expenditure. I would reject Mr Seitler’s submission that the proper relief was a full or generous quantum meruit, equivalent to what the first appellant would have had to pay a third party to do all the work that had been done by the respondent. In my judgment, to use the language of Goff J in Holiday Inns, “that would not be equity so much as a travesty of justice”. It would be a travesty of justice because relief limited to a quantum meruit would leave out of account as irrelevant the facts that: (i) the respondent obtained the planning permission pursuant to a joint venture, under which he would enjoy the financial rewards of the development of the property; and (ii) he was denied the satisfaction of this expectation by Mrs LM unconscionably taking advantage of him. In a word, the first appellant would “be disproportionately advantaged by the grant of the Planning Permission”: see [136].
[133] Having rejected relief based upon a quantum meruit, the judge had to fashion a remedy that best achieved justice between the parties in all the circumstances, namely some form of expectation relief that, inter alia, would not yield a benefit that was disproportionate. He concluded that the minimum equity to do justice to the respondent would be to give him a share in the increased value of the property attributable to the grant of planning permission. In my judgment, his solution lay well within the margin of discretion accorded to the court.
[134] It is true, as Mummery LJ pointed out, that it was the act of the planning authority in granting planning permission that increased the value of the property and that the respondent did not grant planning permission. However, in my view, this is irrelevant. As between YRML and the respondent, it was the respondent who had done the substantial work that was the precondition for the obtaining of the permission without which the joint venture could not proceed.
[135] In my judgment, the formula adopted by the judge was carefully crafted to take account of all the circumstances of the case and produced a result that satisfied the respondent’s expectation interest without conferring on him a benefit that was wholly disproportionate to the detriment he suffered.
[136] The judge adopted as his base figure the difference between the value of the property with the benefit of planning permission and its value without it. This was a sensible approach. If there were a real risk that planning permission would not be obtained or that it would be particularly costly to obtain, that would no doubt be reflected in the price that a developer would be willing to pay for the property without the benefit of planning permission. Conversely, if the grant of planning permission were little more than a formality, that too would be reflected in the price that a developer would pay. Either way, the difference between the value of the property with the benefit of planning permission and its value without it would reasonably reflect the value of the respondent’s work.
[137] Mr Seitler placed a great deal of emphasis upon the fact that the relief awarded to the respondent meant that he had the benefit of a half-share in the increase in the value of the property attributable to the grant of planning permission without being exposed to the risks of carrying out the development. However, the open market value of the property with the benefit of planning permission would take account of the risks and costs of development.
[138] Furthermore, the solution adopted by the judge rightly gave YRML credit for the value of the property without the benefit of planning permission, since the respondent had made no contribution to its acquisition.
[139] The question of relief presented a considerable difficulty to the judge in this case, as it did to Goff J in Holiday Inns. In my judgment, the solution that he devised was rational and one that was reasonably open to him. It has not been demonstrated that he took into account irrelevant factors or failed to take into account factors that were relevant. I would go further. If relief based upon a quantum meruit is rejected (as it must be for reasons that I have explained), no other solution has been suggested that better meets the justice of the case than that fashioned by the judge.
[140] For these reasons as well as those given by Mummery LJ, I would uphold the judge’s decision on the issue of relief.
Sir Martin Nourse said:
[141] I agree with both judgments.
First appellant’s appeal dismissed; second appellant’s appeal allowed in part; respondent’s cross-appeal dismissed.
