Agricultural holdings — Case B notice to quit — Whether landlords estopped from serving notice to quit relying on planning permission
The plaintiff
tenant held an agricultural tenancy of a 130-acre farm, which included certain
farm buildings. In 1990 the farmhouse and other buildings were badly damaged in
a storm and the repairs were estimated to cost £65,000. Because the buildings
(although not the house) were uninsured and the landlords were of modest means,
the parties agreed to explore the possibility of selling the existing buildings
and using the proceeds to erect new farm buildings and a new bungalow. The
proposal required planning permission for: (a) the conversion of the existing
buildings to a dwelling-house; (b) the erection of new farm buildings; and (c)
the erection of a new bungalow. Planning permission was granted on April 16
1991 for the conversion of the farm buildings to a dwelling-house, and on July
23 1991 for the erection of new buildings. But planning permission was not
forthcoming for the new bungalow. On November 5 1991 the then landlords, Mr and
Mrs Charles George, conveyed the reversion to that part of the holding
consisting of the farm buildings to the defendant trustees on trust for their
infant daughter, Lucinda, upon attaining 18 years or finishing full time
education. On January 30 1992 the defendants served notice to quit the farm
buildings on the tenant relying on Case B of Schedule 3 to the Agricultural
Holdings Act 1986. In the court below, the tenant’s contentions that: (1) the
defendants were estopped from serving the notice to quit and relying on the
planning permission having regard to the conduct of Mr Charles George; and (2)
that the deed of gift did not sever the reversion for the purposes of section
140(1) of the Law of Property Act 1925, that provision being given a narrow
interpretation by the Court of Appeal in Persey v Bazley (1983)
47 P&CR 37, were dismissed by Judge Hywel Moseley QC: see [1995] 1 EGLR 9.
The plaintiff appealed in respect of the first of those contentions.
common assumption between the parties that the plaintiff would remain in
occupation of the farm as a dairy farm using for that purpose the old buildings
unless or until he had been provided, without cost to himself, with the new
ones. There was detriment on the part of the plaintiff in not opposing the
application for planning permission. It would be unconscionable for the
defendants to recover possession of the buildings.
The following
cases are referred to in this report.
Amalgamated
Investment & Property Co Ltd (in liquidation) v
Texas Commerce International Bank Ltd [1982] QB 84; [1981] 3 WLR 565;
[1981] 3 All ER 577; [1981] Com LR 236, CA
Crabb v Arun District Council [1976] Ch 179; [1975] 3 WLR 847;
[1975] 3 All ER 865, CA
James v Heim Gallery (London) Ltd (1980) 41 P&CR 269; [1980] 2
EGLR 119; 256 EG 819, CA
Lokumal
(K) & Sons (London) v Lotte Shipping Co Pt
(The August Leonhardt) [1985] 2 Lloyd’s Rep 28, CA
Persey v Bazley (1983) 47 P&CR 37; [1983] 2 EGLR 3; 267 EG 519,
CA
Ramsden v Dyson (1866) LR 1 HL 129
Taylors
Fashions Ltd v Liverpool Victoria Trustees Co
Ltd [1982] QB 133; [1981] 2 WLR 576; [1981] 1 All ER 897; [1979] 2 EGLR 54;
(1979) 251 EG 159
This was an
appeal from the decision of Judge Hywel Moseley QC, sitting as a judge of the
High Court, who dismissed the claim of the plaintiff, Edward Thomas John, for
declaratory relief in relation to arbitration proceedings, as to the validity
of a notice to quit, against the respondents, Peter Andrian Owen George and
Roger Walton.
Anthony De
Freitas (instructed by Thrings & Long, of Bath) appeared for the plaintiff;
Paul Morgan QC and Janet Bignell (instructed by Burges Salmon, of Bristol)
represented the defendants.
Giving the
first judgment at the invitation of Simon Brown LJ, Morritt LJ said: On January 30 1992 the respondents, Mr
George and Mr Walton, as the landlords of an agricultural holding served on the
appellant, Mr John, as the tenant a notice to quit on the ground set out in and
described as Case B, Schedule 3 to the Agricultural Holdings Act 1986. They
relied on a grant of planning permission dated April 15 1991. Mr John claimed
that they were precluded by estoppel from doing so. Judge Moseley QC, sitting
as a judge of the High Court, by his judgment given on October 6 1994 rejected
that contention.* This is an appeal by Mr John against that decision.
*Editor’s
note: Also reported at [1995] 1 EGLR 9.
At all
material times Mr John has carried on the business of a dairy farmer at Allt
Isaf Farm, Peterston Super Ely, South Glamorgan. The farm comprises about 130
acres and includes a large traditional farmhouse and a range of stone and
slated farm buildings. The relevant tenancy agreement was made in 1956 between
the then landlord, Radcliffe Glamorgan & Monmouth Estates Ltd, and Mr
John’s father. Clause 27 provided that it was the obligation of the landlord to
repair the structure of the farmhouse and buildings.
In due course
the freehold reversion vested in Mr and Mrs Charles Owen George, and Mr John
succeeded his father as the tenant from year to year. The effect of the
Agricultural Holdings Act 1986, and its predecessors, is to confer limited
security of tenure on the tenant. If the landlord serves a notice to quit then,
if the tenant serves a counternotice, the notice to quit may only take effect
if either the Agricultural Land Tribunal consents or the matter falls within
one or other of the cases set out in the Third Schedule to the Act. Case B,
which is the case relevant to this appeal, is in the following terms:
The notice to
quit is given on the ground that the land is required for a use, other than for
agriculture —
(a) for which
permission has been granted on an application made under the enactments
relating to town and country planning, or
(b) for
which, otherwise than by virtue of any provision of those enactments, such
permission is not required, and that fact is stated in the notice.
Due to the damage
caused by storms in 1987, the rates for insurance against that risk were
increased substantially and to a figure for the farm buildings on this farm
which Mr George considered that
January 25 1990 the farm buildings, though not the farmhouse, were uninsured.
That storm did such damage to the buildings as would, according to a rough
contemporary estimate obtained by Mr George, have cost about £65,000 to repair.
Some limited and temporary repairs were carried out, but Mr and Mrs George did
not have the money necessary to enable them to comply in full with their
repairing obligation to Mr John.
Mr George
quickly realised the predicament he was in. Having inspected the damage in the
company of Mr John on January 26 1990 he proposed, and Mr John concurred in, a
scheme whereby if planning consent could be obtained for the conversion of the
old farm buildings into a dwelling-house and for the construction of a range of
new buildings instead of repairing the old buildings, Mr George would put up a
range of modern buildings (including a milk parlour). The idea was that the old
buildings with the benefit of planning permission would be sold to finance the
construction of the new. This scheme was soon enlarged, in the light of advice
received by Mr George, so as to include the old farmhouse, which was to be sold
also, and a new farm bungalow, which was to be constructed.
From February
to June 1990 the scheme was worked out by Mr George’s architect and ADAS Farm
Services (the Agricultural Advisory Service). From July to November 1990 there
were discussions between the parties and their respective agents as to the
details of the scheme regarding, for example, the size of the bungalow and the nature
of the milking equipment. Thus on December 21 1990 Mr George’s agent wrote to
Mr John’s agent: ‘With one minor exception we appear to have reached
agreement’. On January 16 1991 Mr George’s solicitor was instructed to prepare
a formal agreement.
The scheme, to
be workable, required planning permission in three separate respects, namely:
permission to erect the new range of buildings on another part of the farm;
permission to erect a bungalow on another part of the farm; and permission to
convert the old range of buildings into residential accommodation. On January
18 1991 two applications for planning permission were submitted to the local
planning authority by Mr George’s architect, Mr Evans; one of the two
applications combining the new range of buildings with the new bungalow. Mr
George was informed that there was opposition to the proposal to put up a new
bungalow and, at his request, on February 14 1991 Mr John wrote to the local
planning authority in support of the application. On April 15 1991 the local
planning authority granted permission for the conversion of the old farm
buildings into a dwelling-house, but refused permission for the new farm
buildings and the new bungalow. On April 29 1991, without further reference to
Mr John, Mr George submitted a further application for permission for the new
farm buildings alone.
In the
meantime, since January, the parties’ solicitors had been engaged in ‘subject
to contract’ correspondence for the purpose of producing a draft agreement to
give effect to the scheme. This was achieved by March 27 1991. On April 5 1991
the engrossment was sent to the solicitors for Mr John for his execution. At
about the same time it was executed by Mr and Mrs George; but it was never
executed by Mr John. The agreement provided in some detail for the surrender of
the old buildings and the grant of an annual tenancy of the new buildings and
the new bungalow to take effect on the completion of the construction of the
new buildings and bungalow.
On July 23
1991 the local planning authority granted permission for the construction of
the new farm buildings. But by then the parties were drifting apart. On May 23
1991 Mr John’s solicitors had written to the solicitors for the Georges stating
that:
our clients
are not prepared to allow this matter to drag on indefinitely whilst your
client appeals refusal of planning permission and we must therefore insist that
repairs are carried out immediately.
This prompted
the response from the Georges’ solicitors:
we are
wondering when you last took instructions from your client as the tone of your
letter comes as something of a surprise to our clients.
On October 10
and 30 1991 the Georges purported to serve notice to quit the old buildings. As
the solicitors for Mr John pointed out both these notices were invalid as the
planning permission only covered the old buildings and the landlord was not
entitled to serve a notice to quit part only of the holding. On November 5 1991
the Georges executed a deed of gift by which the land on which the old buildings
stood and the old buildings themselves, identified as the land which enjoyed
the benefit of the grant of planning permission dated April 16 1991, were
conveyed, subject to the existing tenancy, to the landlords in fee simple as
trustees for the Georges’ infant daughter. Notice of this severance of the
reversion was given to Mr John by a letter from the Georges dated December 16
1991. Subsequently on July 10 1992 the Georges executed a supplemental deed
dealing with a reverter in the event of their daughter’s death before attaining
the age of 18. The notice to quit on which the landlords now rely was served on
January 30 1992. It was given in respect of the old buildings and the land on
which they stand on the ground that that land was required for a use other than
agriculture for which permission had been granted by the grant dated April 15
1991.
On February 10
1992 Mr John demanded a reference to arbitration. An arbitrator was appointed
and stated a case for the opinion of the county court. The hearing in Cardiff
County Court was settled on the basis that Mr John would take proceedings for a
declaration. This action was accordingly commenced by a writ issued on April 5
1993.
Mr John relied
on two points. First he contended, as indicated by the indorsement of the writ,
that the landlords were estopped from relying on the planning permission for
the conversion of the old buildings or on any notice to quit based thereon
without replacement buildings first having been provided without cost to Mr
John. Second, he claimed, in reliance on Persey v Bazley (1983)
47 P&CR 37, that the deed of gift did not sever the reversion so as to
entitle the landlords to give notice to quit part of the holding. Judge Moseley
QC rejected the second contention, there is no appeal from his decision in that
respect and I need say no more about it.
The trial of
the action took place in Bristol over seven days in June and July 1994.
Extensive oral evidence was given by Mr John and his wife and son and on his
behalf by two representatives of his solicitors, Miss Newman and Mr Cheal, and
an expert in town and country planning, Mr McDonic. For the defendants,
evidence was given by Mr and Mrs Charles George and their land agent Mr Hall.
The case originally pleaded was to the effect that if Mr John did not object to
the planning applications Mr George would provide him with modern buildings. On
the fifth day Judge Moseley allowed an amendment to plead in the alternative
that the understanding was that if new buildings were not provided Mr John was
to be enabled to remain at the farm using the old buildings. In the light of
this amendment Mr John, Mr George and Mr Hall were recalled and gave further
evidence on the sixth day of the hearing.
Judge Moseley
QC gave judgment on October 6 1994. He recorded that it was common ground that
the landlords could not be in any better position than Mr and Mrs Charles
George. He noted that there was no evidence of any representation of an
existing fact by Mr George so that in the circumstances only promissory
estoppel or estoppel by convention was in issue. With regard to the evidence he
said:
I was
satisfied that both the main witnesses (Mr John the tenant and Mr George the
person against whom the estoppel is alleged) are honourable men who are
unfortunately in dispute in consequence of events which were largely outside
their control. Both men gave a truthful account of the facts within their
knowledge and with one exception I accept the evidence of both of them. The
exception relates to a conversation which Mr John alleges he had with Mr Hall …
[in respect of which] the recollection of Mr John, concerning that conversation
is faulty and I prefer the evidence of Mr Hall. With that exception the dispute
between the parties is not one of fact but of law and of the application of the
legal principles to the facts which are largely not in dispute.
The judge
recorded that the reason for the breakdown in the relations between the two
parties was due to the fact that the local planning authority would not grant
permission for the new bungalow.
I am
satisfied that it was Mr George’s intention to try again for the bungalow by
making a third application based on the argument that the bungalow would be
infilling between the converted farm buildings and the new farm buildings; but
the application was never made because relations between the parties broke
down.
The judge
considered that it was not necessary to analyse the evidence in detail and
proceeded to set out his conclusions in seven numbered paragraphs. In summary
they were as follows. First, the negotiations between Mr John and Mr George
were at all times subject to contract and no enforceable agreement resulted
from them. Second, though it did not matter, it was the fault of Mr John that
agreement was not reached. Third, both parties knew that the scheme was only
viable financially if all three permissions were granted. Fourth, both parties
co-operated with each other to obtain the requisite planning permissions; in
particular Mr John co-operated with the drawing up of the ADAS report
commissioned by the Georges and did not object to the planning applications. In
the case of Mr John the judge added:
He gave his
co-operation because, despite his initial reservations and despite his failure
to sign the engrossment, he appreciated that the project was for his benefit.
Para 5 of the statement of claim goes considerably further than the facts
warrant by alleging that Mr John was encouraged in the belief that if he did
not oppose planning permission certain advantages to himself would follow. I am
satisfied that he did not oppose the granting of planning permission because he
considered that the project as a whole was beneficial to himself and his
family.
The fifth,
sixth and seventh conclusions were as follows:
(5) Both
landlords and tenant were optimistic that the requisite planning permissions
would be granted. They remained in that state of optimism until the meeting of
the planning committee on April 15 1991 which resulted in the refusal of
planning permission for the bungalow the following day. Mr George in particular
never applied his mind at any material time to the question what would be the
position if all three planning permissions were not granted. He assumed, rather
unrealistically in the light of the evidence, that they would be granted, that
the outcome of the negotiations would be successful and that consequently Mr
John would continue to be the tenant farming the holding as a dairy farm. The
thought that the granting of planning permission to convert the old farm
buildings into a dwelling-house would enable him to serve a notice to quit
under Case B did not occur to him until the project had foundered and until
relations had broken down.
(6) There was
no promise by Mr George to Mr John that he would not rely on the grant of
planning permission for the conversion of the buildings as grounding a notice
to quit under Case B; that thought did not occur to him until well after that
planning permission had been granted. It was only after consulting planning
experts with a view to resubmitting an application for the construction of the
bungalow that he first appreciated that the grant dated April 16 1991 enabled a
Case B notice to quit to be served.
(7) There was
only one disagreement on the facts between the parties that being in relation
to the evidence of Mr John that during the course of his dealings with Mr Hall
he discussed what would happen if the plan did not succeed. His recollection is
that it was agreed between them that if the project did not succeed he would
remain in possession of the old buildings. As I have already mentioned, I
reject that evidence. It was contradicted by Mr Hall, whose recollection I
preferred. If Mr John ever gave any thought to the repercussions of not
obtaining all three planning permissions, it was only that the project would
not then proceed.
The judge then
proceeded to apply the law to the facts which he described as ‘more
straightforward than the very thorough legal argument of both counsel would
suggest’. First, he considered the case of promissory estoppel. He directed
himself by reference to the judgment of Oliver J in James v Heim
Gallery (London) Ltd (1980) 41 P&CR 269* at p280 that:
*Editor’s
note: Also reported at [1980] 2 EGLR 119.
In order to
found a promissory estoppel, there has first to be found some clear and
unequivocal representation, either by words or conduct, that the party claimed
to be estopped will not rely upon his strict contractual rights. Secondly, the
representation must be made with the intention, or at least the knowledge that
it is to be acted upon by the other party by altering his legal position; and
thirdly, he must so alter his legal position in reliance upon the
representation in such a way that it would be inequitable, or unfair, to permit
the party claimed to be estopped from departing from the representation.
As far as the
first requirement is concerned he said:
the landlords
are prima facie entitled to serve a notice to quit, determining the
contractual tenancy and are only precluded from doing so if there is a clear
and unequivocal promise that they will not do so. There was no such promise in
words and, in my judgment, nothing in the conduct of Mr George clearly or
unequivocally amounted to a promise by conduct that he would not rely on the
planning permission to ground a notice to quit. Putting Mr John’s case at its
highest the strongest complaint he could possibly make about Mr George’s
conduct was that Mr George gave no clue as to his attitude concerning the
service of a notice to quit based on the planning permission to convert the old
buildings. That is hardly surprising because Mr George gave no thought to the
matter at any relevant time. An objective onlooker considering Mr George’s
conduct and addressing himself to the question whether the planning permission
might eventually be utilised to ground a notice to quit would, in my judgment,
have no idea what Mr George’s attitude on the matter was. In those
circumstances there was no unequivocal promise.
He considered
that the second requirement was not satisfied either because, as Mr George made
no promise, he could not have had the necessary knowledge or intention. As to
the third he said:
By calling a
planning expert (Mr McDonic) Mr John persuaded me that any objection by him to
the granting of planning permission would have been taken into account by the
planning authority and might have persuaded the planning authority to refuse
planning permission for the conversion of the farm buildings. That, however, is
a far cry from evidence that Mr John altered his legal position.
His overall
conclusion in respect of promissory estoppel was that it was not unconscionable
or unfair to allow Mr George to rely on the planning permission to ground the
notice to quit in that:
Mr John’s
case appears to me to have been a belated attempt to shut the stable door after
the horse had bolted. The appropriate time to stop Mr George relying on the
planning permission was before it was granted and the appropriate method was to
incorporate a term in the contract between landlords and tenant preventing the
landlords from relying on any planning permission that might be obtained. Such
a term was not negotiated because neither party applied their minds to the problem,
and in any event no contract was ever concluded, that being as I have mentioned
already, largely Mr John’s fault. One can easily sympathise with Mr John who,
having given his co-operation to the obtaining of the planning permission
without protecting his position, now finds himself in receipt of a notice to
quit; the circumstances causing one to feel sorry for Mr John do not however
suffice to establish that it would be inequitable or unfair to allow Mr George
to rely on the planning permission. So, in my view, the landlords as successors
to Mr and Mrs George are not precluded by promissory estoppel from proceeding
with the notice to quit.
The judge then
proceeded to consider the claim to an estoppel by convention. He assumed that
the principle would cover cases of a common assumption as to future conduct but
decided that the facts did not establish a common assumption at all. He said:
Mr George did
not apply his mind to the question whether he could serve a notice to quit
under Case B on the planning permission granted on April 16 1991. So there was
no convention upon which an estoppel could be founded. Mr John’s argument based
on estoppel by convention fails therefore in limine.
Finally, on
the assumption that he was entitled to take the wider view urged on him by
counsel for Mr John, by reference to the decision of Oliver J in Taylors
Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] QB 133*, to
the effect that the question was whether in all the circumstances it was
unconscionable for the defendants to seek to take advantage of the planning
permission, he found that there was nothing unconscionable in Mr George’s
conduct. He said:
*Editor’s
note: Also reported at [1979] 2 EGLR 54.
To summarise
the position he did not apply his mind to the question whether he could rely on
the planning permission, made no promise to Mr John, did not encourage him to
believe he would not rely on the planning permission, made
judgment, there are no grounds for equity stepping in to prevent Mr George’s
successors in title from relying on the planning permission.
For Mr John it
is contended that the judge took too limited a view of the facts. Mr John
claims that the evidence established beyond doubt that it was the common
assumption of both landlord and tenant that Mr John would remain in occupation
of the farm as a dairy farm using for that purpose the old buildings unless and
until he had been provided without cost to himself with the new ones. The new
buildings were to be provided by means of a single scheme put to Mr John by Mr
George which included, but was not confined to, obtaining planning permission
for the conversion of the old buildings. It was necessarily implicit in the
common assumption that no part of the scheme should be used to falsify the
underlying common assumption. If, and in so far as it might be contended that,
there was no common assumption to this effect then it is argued that there was
ample evidence to establish that this was the assumption of Mr John created or
encouraged by Mr George.
It is claimed
that Mr John acted in reliance on that assumption and in furtherance of the
scheme by actively supporting the grant of planning permission, which, in all
probability, would have been refused if he had opposed the application and by
not insisting on his strict legal rights to have the old buildings fully and
promptly repaired.
It is
submitted that he thereby acted to his detriment for he forwent the opportunity
of opposing the scheme and the grant of planning permission gave to Mr George
the means whereby to evict Mr John from the old buildings without either
repairing them or providing new buildings. It is claimed that, in those
circumstances, it would be unconscionable to allow the landlords to use those
means by giving to Mr John an incontestable notice to quit those buildings
based on the planning permission for their conversion which was only obtained
pursuant to the overall scheme which has not and cannot be implemented in full.
This is
disputed by the landlords. They contend that there was no relevant assumption
as to the future conduct of the landlords, for Mr John relied, not on any
assumption, but on his existing legal rights. They submit, in any event, that
the assumption, if made by Mr John, must be shown to have been created or
encouraged by Mr George, which it was not. They contend that Mr John did not
act to his detriment because Mr George would have got the planning permission
for the conversion of the old buildings whatever the attitude of Mr John. It is
suggested that when, in May 1991, Mr John indicated by the letter from his
solicitor that he wished to rely on his strict legal rights there was nothing
unconscionable in the landlords doing so as well, even though such rights had
changed since January 1990 because of the grant of planning permission for the
conversion of the old buildings.
Both parties
relied on the decision of Oliver J as he then was in Taylors Fashions Ltd
v Liverpool Victoria Trustees Co Ltd [1982] QB 133. The facts of that
case so far as relevant to this were that Taylors Fashions were the assignees
of a term of 28 years granted by Liverpool Victoria. The lease included an
option to renew for a further 14 years if a lift was installed by the tenant.
Liverpool Victoria consented to the assignment of the term to Taylors Fashions
and approved plans regarding the installation of a lift. Both parties assumed,
wrongly, that the option was valid. Taylors Fashions sought a declaration that
Liverpool Victoria was estopped from relying on such invalidity. Oliver J
found, at p139F, as facts:
(1) that
Taylors did the work and incurred the expenditure in the expectation that
(subject to the performance of the condition of complying with the lessees’
covenants) they would be able, if they wanted to, to obtain a further 14-year
term at a rent calculated as provided in the lease; (2) that the fact that
Taylors had this expectation must have been known to the defendants as also it
must have been known to them that the expectation was at least one factor which
would have been taken into consideration by Taylors in determining whether or
not to insure the expenditure; (3) that the doing of the work was known to and
acquiesced in by the defendants (who in fact had no right to object to it) and
that they co-operated to the extent of ascertaining that their other tenants,
Olds, did not object and of taking part in discussions regarding the siting and
construction of the lift; (4) that, at the time of the discussions and when the
work was done, the defendants did not suspect and had no reason to suspect that
they might have any reason for challenging the validity of the option; and (5)
that, if Taylors had known that there were grounds for challenging the option
they might (but not certainly would), have taken a different course of
action.
Taylors’ claim
to an estoppel was clearly based on the proposition exemplified in Ramsden
v Dyson (1866) LR 1 HL 129, that if an expectation is created or
encouraged by B that A shall have an interest in land in reliance on which A to
the knowledge and without objection from B incurs expenditure or otherwise acts
to his detriment then the court will compel B to give effect to such
expectation and belief. The dispute was whether it was a necessary condition
that B should know that A was mistaken and that he B was under no obligation to
grant such an interest. It was in the light of the submissions addressed to him
that Oliver J stated the propositions on which Mr John relies. The first is at
p148E and is as follows:
The fact is
that acquiescence or encouragement may take a variety of forms. It may take the
form of standing by in silence whilst one party unwittingly infringes another’s
legal rights. It may take the form of passive or active encouragement of
expenditure or alteration of legal position upon the footing of some unilateral
or shared legal or factual supposition. Or it may, for example, take the form
of stimulating, or not objecting to, some change of legal position on the faith
of a unilateral or a shared assumption as to the future conduct of one or other
party. I am not at all convinced that it is desirable or possible to lay down
hard and fast rules which seek to dictate, in every combination of
circumstances, the considerations which will persuade the court that a
departure by the acquiescing party from the previously supposed state of law or
fact is so unconscionable that a court of equity will interfere.
In the second,
at p151H, Oliver J said:
Furthermore
the more recent cases indicate, in my judgment, that the application of the Ramsden
v Dyson LR 1 HL 129 principle — whether you call it proprietary
estoppel, estoppel by acquiescence or estoppel by encouragement is really
immaterial — requires a very much broader approach which is directed rather at
ascertaining whether, in particular individual circumstances, it would be
unconscionable for a party to be permitted to deny that which, knowingly, or
unknowingly, he has allowed or encouraged another to assume to his detriment
than to inquiring whether the circumstances can be fitted within the confines
of some preconceived formula serving as a universal yardstick for every form of
unconscionable behaviour.
For the
landlords it is contended that notwithstanding the first passage in which
references are made to ‘some unilateral or shared assumption’ and ‘some
unilateral or shared legal or factual supposition’ the assumption or
supposition must be created or encouraged by the person alleged to be estopped.
In support of this submission reliance was placed on the passage at p155 where
Oliver J held that as the mistake as to the enforcibility of the option was
shared by both Taylors Fashions and Liverpool Victoria but that
the latter had done nothing to encourage that belief in the former that was a
difficulty in the way of establishing the estoppel claimed.
I do not
accept the submission. The question to which Oliver J addressed the passage at
p155 was ‘whether in all the circumstances of the case it was unconscionable
for the defendants to seek to take advantage of the mistake which at the
material time everybody shared’. If the principle is correctly stated it cannot
be the law that the answer to that question must depend on the factual
circumstance that the shared assumption was created by the person sought to be
estopped. No doubt that is a circumstance to be considered but it is not an
essential one. In my view, it is plain that Oliver J was dealing at p155 with
the facts of the case and was not seeking to reintroduce categories he had
earlier sought to dissolve.
Further, in my
view, the submission for the landlords is necessarily inconsistent with the
decision of this court in Amalgamated Investment & Property Co Ltd (in
liquidation) v Texas Commerce International Bank Ltd [1982] QB 84.
The argument in that case, as recorded by Lord Denning MR at p120, was to the
effect that there could be no estoppel for the mistaken belief was not created
or encouraged by the
of the court though on slightly different grounds. Thus at p122A Lord Denning
MR said:
The doctrine
of estoppel is one of the most flexible and useful in the armoury of the law.
But it has become overloaded with cases. That is why I have not gone through
them all in this judgment. It has evolved during the last 150 years in a
sequence of separate developments: proprietory estoppel, estoppel by
representation of fact, estoppel by acquiescence, and promissory estoppel. At
the same time it has been sought to be limited by a series of maxims: estoppel
is only a rule of evidence, estoppel cannot give rise to a cause of action,
estoppel cannot do away with the need for consideration, and so forth. All
these can now be seen to merge into one general principle shorn of limitations.
When the parties to a transaction proceed on the basis of an underlying
assumption — either of fact or of law — whether due to misrepresentation or
mistake makes no difference — on which they have conducted the dealings between
them — neither of them will be allowed to go back on that assumption when it
would be unfair or unjust to allow him to do so. If one of them does seek to go
back on it, the courts will give the other such remedy as the equity of the
case demands.
At p126E
Eveleigh LJ said:
Estoppel
operates so as to prevent a party from denying a representation or an assumed
state of facts in relation to the transaction supported by that representation
or assumed state of facts. The estoppel does not go beyond the transaction in
which it arose. The representation or assumed state of facts are not to be held
irrefutable beyond the purpose for which the representation or assumption was
made. In the present context the representation is not made for the purpose of
establishing its own truth but as part of the whole transaction. An assumption
is not to be treated as having the effect of an assumpsit.
At p130
Brandon LJ quoted with approval the passage from Spencer Bower on Estoppel
as to estoppel by convention that:
This form of
estoppel is founded, not on a representation of fact made by a representor and
believed by a representee, but on an agreed statement of facts the truth of
which has been assumed, by the convention of the parties, as the basis of a
transaction into which they are about to enter. When the parties have acted in
their transaction upon the agreed assumption that a given state of facts is to
be accepted between them as true, then as regards that transaction each will be
estopped as against the other from questioning the truth of the statement of
facts so assumed.
It would, in
my judgment, be quite inconsistent with that decision to conclude that it was a
necessary ingredient in the case for Mr John that the assumption was created or
encouraged by Mr George. No doubt the assumption if not created or encouraged
by one party must be shared in the sense that each is aware of the assumption
of the other for otherwise there may be nothing which crosses the line as
explained by Kerr LJ in The August Leonhardt [1985] 2 Lloyd’s Rep 28.
But there is no doubt that any such requirement is satisfied in this case.
The landlords
also contended by reference to Taylors Fashions that it was necessary
for Mr John to establish that his reliance on the assumption was to his
detriment and that proof that it might have been was not enough. This
submission was made in the context of the contention that Mr George would have
obtained planning permission for the conversion of the old buildings whatever
the attitude of Mr John to such an application. Accordingly, it is convenient
to deal with that contention at this stage.
The old buildings
were traditional 19th-century farm buildings built of stone and with slate
roofs. They were considered by Mr Hall, the land agent for Mr George, to be
outdated and obsolete by modern standards. ADAS considered that they were too
low and narrow for the convenient use of machinery and sited on a part of the
farm which made compliance with new control of pollution legislation difficult
to achieve. By contrast Mr John thought that if properly repaired they were
adequate for the job and did not think that there would be any real problem
complying with the new pollution regulations.
The
applications for planning permission were preceded by a letter to Mr George
from his architect, Mr Evans, informing him that the local planning policy was
to be ratified by the full council on March 12 1990, and, that the main point
on which planning permission would hinge would be policy item 1, which
basically stated that barn conversion buildings should be redundant farm
buildings not in present use. He also stated that, in his view, it was
necessary to have the support of ADAS. The ADAS report dated July 2 1990
referred to Welsh Office Circular 49/73, which required the department to
provide an assessment of the viability of the farming enterprises. In that
context the ADAS report was generally supportive of the scheme ‘to resite the
farmstead’.
The planning
officer in his recommendation to the local planning authority described the
buildings as moribund though still in use and recommended approval for the
conversion of the old, but rejection of the application for the erection of the
new buildings and bungalow as contrary to the policy of restricting residential
development. It is plain that the planning officer was aware that the
applications had the support of the tenant, Mr John. Evidence given by Mr
McDonic, an expert on town and country planning practice, on behalf of Mr John,
was to the effect that if Mr John had objected to the applications on the basis
that the old buildings were not moribund that would have affected the result.
He also pointed out that it would have been open to Mr John to seek the
imposition of a condition for the permission to convert the old buildings that
permission to erect new ones should first have been implemented.
The judge
recorded that, in his view, if Mr John had objected he might have persuaded the
planning authority to refuse permission to convert the old buildings. But he
did not consider that there had been any alteration in the legal position of Mr
John. In my view, these conclusions are far too restricted. First, it was the
evidence of Mr McDonic that the opposition of Mr John would have affected the
outcome. That evidence is clearly consistent with the requirement that the
buildings, even if redundant, should no longer be in use and the requirement
for the farming business to be viable. At the time of the application the old
buildings were an integral part of the dairy farm. Second, it is clear from the
evidence of Mr George that the scheme would not have gone ahead at all if Mr
John had not been agreeable. Not only would the opposition of Mr John have
jeopardised the outcome but, as Mr George said in cross-examination:
The essence
of it was that I would provide new buildings, he would get out of the old
buildings. I would then be in a position to sell those once I had the new
buildings up and I was able to do it, so the whole thing had to be done very
quickly since I was at the financial exposure for the whole of the time in the
interval, and the whole operation of the agreement was to get it to run
smoothly and quickly and I wasn’t prepared to do anything until I was satisfied
that he would get out of what I had to sell.
Third, whether
or not the scheme would have gone ahead without Mr John’s concurrence it is
plain that his legal position was altered in that he lost forever the
opportunity to oppose the grant of permission for the conversion of the old
buildings, or to secure that any grant had a condition attached as to the
provision of new buildings.
It follows
that, in my judgment, the second point on which the landlords relied by
reference to Taylors Fashions Ltd v Liverpool Victoria Trustees Co
Ltd cannot be made out on the facts. First if Mr John had not concurred in
the scheme there would have been no application for permission to convert the
old buildings but, if there had been, on a balance of probability, the
opposition of Mr John would have ensured its refusal. Second, Mr John’s legal
position was altered by foregoing the opportunity to oppose the application. In
so far as detriment is required, as opposed to a change of position, in my
view, it was amply demonstrated.
So it is
necessary to return to the original question of the basis on which Mr George
dealt with Mr John. Was there any such assumption as Mr John claims, or was Mr
John merely contemplating reliance on his legal rights, whatever they might
then be, if the scheme did not proceed to its conclusion. I think that the
answer emerges clearly from the following extracts from the evidence. Thus on
day six in his cross-examination the following occurred:
Q But you
were perhaps more cautious than Mr George and you had
not go through? —
A Yes, I
assumed we would be back to square one.
Q Yes, you
would be back to the state of affairs …
A Back to
repairing the old buildings, yes.
Q You would
be back to the state of affairs on the day of the storm itself.
A On the day
of the storm itself.
Q Before this
question of the proposal ever came up.
A Yes, that
is right, yes.
Q The
situation you would have been in was you were a tenant and you had security of
tenure and you had a repairing right against the landlord.
A Yes.
In his
re-examination the following exchange took place:
Q If it had
been suggested to you ‘look’, by joining in this scheme and not opposing
planning permission for the conversion of the old farm buildings, one of the
things that may happen is that the landlord gets the right to get possession of
the old farm buildings, without providing new’; if you had thought that, would
you have agreed to the scheme?
A Certainly
not, no, certainly not.
Q Would you
have supported any application for planning permission?
A No, we
would not.
On the same
day the following passages occur in the cross-examination of Mr George:
Q In fact in
cross-examination to me I have a note taken not by myself but my instructing
solicitor that I asked you whether you understood the position to be that the
basis on which both of you were proceeding was that Mr John was able to
continue dairy farming on the holding one way or another, and you answered
‘Yes’. Do you agree with that?
A Yes, I
would have agreed with that. I was being entirely fair to my tenant …
Q The one
thing that was never addressed in any of the written agreements was the
question of the planning permission independently for the conversion of the old
farm buildings.
A It was all
one scheme. As far as I was concerned it was a single scheme. The fact that the
architect put it forward as two was merely for his own convenience.
Q If someone,
an officious person, had been standing next to you and Mr John discussing this
matter and said ‘look, you say it’s all one scheme but really it might be two
and what if planning permission had been granted for the old farm buildings
only?’
A I would
have said ‘Nonsense, it’s a single scheme’.
The earlier
evidence referred to in the first of those passages was on day three when in
the original cross-examination of Mr George the following exchanges took place:
Q If he had insisted
that you complied with the obligations either you would have had to have found
the money somehow.
A I’d have
had to sell the property or sell the farm as it stood. There was nothing else I
could do. We went into this as a joint venture. Previously when walking the
farm with him in 1985 I had suggested several joint ventures we might have
entered into, planting trees to improve some of the land, amenity ponds, but he
wasn’t interested. I was prepared to put the capital up but he wasn’t
interested.
Q You
understood the position to be that the basis on which both of you were
proceeding was that Mr John was to continue dairy farming on this holding.
A Yes.
Q And you
understood the position to be that one way or another he would be having no
obligation to provide the dairy buildings which it was envisaged that one way
or another he would have.
A That’s
correct.
Q The whole
scheme proceeded throughout on that basis and assumption.
A Yes. The
essence of it was that I would provide new buildings, he would get out of the
old buildings. I would then be in a position to sell those once I had the new
buildings up and I was able to do it, so the whole thing had to be done very
quickly since I was at the financial exposure for the whole of the time in the
interval, and the whole operation of the agreement was to get it to run
smoothly and quickly and I wasn’t prepared to do anything until I was satisfied
that he would get out of what I had to sell …
Q What you
had essentially agreed was that one way or another and the underlying
assumption was that he would continue to be dairy farming with dairy buildings
which he did not have to expend upon and also it was fundamentally agreed that
if you tried to do it by way of this scheme he would give his support.
A Yes.
Further the
evidence of Mr Hall in cross-examination on day six includes the following:
Q You
expressly accepted that the position was that that was what ran through the
whole of the discussion and proposals, that if the planning permission failed
Mr John would not have to get out of the old buildings or the farmhouse.
A I can only
repeat, there were never any discussions that I can recollect with the tenant
concerning the position if the planning consent was refused.
Q But you
assumed that that was the position, because that was the answer you gave last
time. You assumed that was the position.
A Yes.
In my
judgment, the evidence established far more than the judge accepted. Both Mr
John and Mr George shared the assumption that Mr John would continue to carry
on the business of a dairy farm with the use of the old buildings unless and
until Mr George provided new buildings. The provision of the new buildings was
the object of the single scheme proposed by Mr George and accepted by Mr John.
One ingredient in the scheme was the grant of planning permission for the
conversion of the old buildings; but that was for the purpose of implementing
the scheme as a whole and was not an end in itself. Planning permission for the
conversion of the old buildings was obtained unconditionally by means of the
support, both active and passive, of Mr John rendered at the request of Mr
George and on the basis of the assumption they shared that Mr John would
continue to operate a dairy farm. In consequence the legal position of Mr John
was altered and to his detriment.
Mr John was
not relying merely on his strict legal rights, whatever they might be, if the
scheme was not implemented but on the assumption that they would not be altered
in consequence of the scheme unless the scheme was implemented in full. This
was the basis on which Mr George sought his support and this was the basis on
which it was given. Thus, both parties assumed that he would remain in
possession of the old buildings unless and until he was provided with the new.
The partial implementation of the scheme afforded to Mr George the means
whereby to evict Mr John from the old buildings which he would not otherwise
have had. By the service of the notice to quit the landlords seek to use the
means so obtained for a purpose foreign to that for which they were obtained
and contrary to the assumption on the basis on which the parties dealings had
proceeded. In my judgment, such a result would be unconscionable.
I do not find
it necessary to consider all the different forms of estoppel referred to by the
judge. The principle to be applied seems to me to be the broad principle
expressed by Oliver J in Taylors Fashions Ltd v Liverpool Victoria
Trustees Co Ltd [1982] QB 133 at pp148 and 151. The ingredients which
persuade me that the landlords falls within those principles and are estopped
are five-fold. First, the parties started in a certain legal relationship
(landlord and tenant of an agricultural holding) which the party alleged to be
estopped (the landlord) could not unilaterally have altered in the manner now
sought (the eviction of the tenant from the old buildings). Second, at the
request of the party sought to be estopped (the landlord) the other party (the
tenant) concurred in and supported a single scheme for the alteration of the
pre-existing relationship in one particular manner (the substitution of the new
buildings for the old). Third, both assumed that the pre-existing relationship
would continue unaltered unless and except to the extent that the scheme
succeeded and was implemented in full. Fourth, in furtherance of that scheme
and with the support of the other party the party sought to be estopped
obtained the means to alter the pre-existing relationship in a manner to which
the other party had not and would not have agreed and which he could not have
obtained without such support. Fifth, when the scheme failed the party sought
to be estopped tried to use those means for the purpose of altering the
pre-existing relationship in a way which to his knowledge the other had not and
never would have agreed.
The question
of unconscionability has to be determined at the last, fifth, stage cf Crabb
v Arun District Council [1976] Ch 179 at p195. In my view, such
unconscionability is clear for the landlords seek to use for their own benefit
and to the detriment of the tenant an advantage which they could not have
obtained alone, and which to their knowledge was obtained with the support of
the tenant for a different purpose and for their joint benefit.
If one returns
to the statements of principle of Oliver J in Taylors Fashions Ltd v Liverpool
Victoria Trustees Co Ltd [1982] QB 133 at pp148 and 151 it may fairly be
said that Mr John altered his legal position on the footing of the assumption he
shared with Mr George that he would remain in possession of the old buildings
unless and until the scheme was fully implemented and he was provided with the
new. It is unconscionable to permit the landlords now to gainsay that which Mr
George encouraged Mr John to assume, namely that he would continue in
possession of the old buildings until he was provided with the new for the
means of doing so was and could only have been obtained by them from the
partial rather than the complete implementation of the scheme.
In my view,
the judge took too narrow a view of the facts and was led into error in
consequence. I would allow this appeal.
Agreeing, Evans LJ said: The central issue is
this. A farm landlord applied for planning permission to convert the existing farm
buildings into a private dwelling-house and to construct new buildings on a
different part of the farm. Its tenant supported the applications and agreed
that he would give up possession of the old buildings when he could move into
the new. The planning permissions were granted. The landlords’ successors in
title, who are trustees for their infant daughter, now demand possession of the
existing buildings without constructing new ones for the tenant to use. This
may be their statutory right; are they entitled to exercise it in circumstances
such as these?
The farm
buildings were damaged in a severe storm in January 1990. The landlords were
liable for the cost of repairs, which they were unable to afford. The plaintiff
(tenant) and the landlord were on friendly terms and they met at the farm on
the following day. In the landlord’s words, it was a calamity for both of them.
A forced sale of his reversionary interest might even be necessary if the
necessary funds were to be found. So the landlord made a proposal and enlisted
the plaintiff’s help. If planning permission could be obtained to convert the
farm buildings into a private house, those buildings could then be sold with
the benefit of that permission, and the proceeds might cover the cost of new
farm buildings elsewhere on the farm. The plaintiff readily agreed that this
should be tried. He thought that it was an excellent idea and he had nothing to
lose. In fact he would gain, because he would have new buildings in place of
the old. So they agreed that the landlord would see whether the scheme could be
implemented.
Over a year
later, in April 1991, permission was granted to convert the existing farm
buildings (‘the barn conversion’) for residential use, and in July 1991 a
separate application to construct new farm buildings was also granted. At this
time, the reversionary interest in the whole of the farm was vested in the
landlord, Mr Charles Owen George and his wife. By a deed of gift dated November
5 1991 they conveyed to trustees for their daughter Lucinda the freehold
reversion in the part of the land where the existing farm buildings are
situated, in respect of which the change of use planning permission had been
granted.
These trustees
are the defendants in this action. They find themselves in this position
because they proceeded to serve notice to quit on the plaintiff in respect of
the land which they now own, meaning the existing farm buildings, and neither
they nor the landlord are willing to construct the new farm buildings for which
permission has also been given.
If the notice
is valid, which counsel for the plaintiff does not dispute, and can be
enforced, then the result will be that the plaintiff is left with the farm and
farmhouse but with no farm buildings. It is a dairy farm and so suitable
buildings which are maintained as such are essential to the operation of the
farm. He claims in this action that the defendant trustees are estopped from
relying upon the notice to quit unless new farm buildings are provided for him,
which he says was the agreement or understanding reached between him and the
landlord when the proposal was first made.
I agree with
Morritt LJ’s analysis of the authorities regarding estoppel by convention, in
particular that the broad principle stated by Lord Denning MR in Amalgamated
Investment & Property Co Ltd (in liquidation) v Texas Commerce
International Bank Ltd [1982] QB 84 applies when the parties have acted on
the basis of a shared and communicated assumption which has proved to be
incorrect. Likewise the passage from Spencer Bower cited with approval
by Brandon LJ in the same case.
Like him, I
have no doubt that there was such an assumption in this case. Neither party
contemplated for a moment that if the requisite planning permissions were
granted — the two were linked together in both their minds — then Mr George
would evict Mr John from the existing buildings without providing him with the
new. They were naturally unaware that the relevant statutory provisions appear
to permit this to be done, by the device of transferring the existing buildings
with the benefit of planning permission to a third party, in the event persons
who are trustees for the infant daughter of Mr and Mrs George.
The fact that
this assumption involved, first, the extent of the landlord’s statutory rights
and, second, the landlord’s intentions as to his future conduct, do not mean,
in my judgment, that the principle cannot apply in circumstances such as these.
As to
unconscionability, I further specifically agree with Morritt LJ’s judgment in this
respect.
In the event,
of course, the whole scheme for which planning permissions were sought was more
extensive than Mr George’s original idea. The likely sale proceeds of the
existing farm buildings, even with planning permission, were apparently not
enough to finance the construction of new buildings. For this or some other
reason, Mr and Mrs John were asked if they would vacate their farmhouse and
move into a new bungalow to be built conveniently close to the proposed new
farm buildings. They were reluctant to do this but they agreed to do so, though
never formally. But these further applications were refused. The permissions
which were granted were those which were necessary for the original scheme.
Thus the situation arose which Mr George and Mr John had envisaged as providing
a possible solution to the difficulties which they faced.
Notwithstanding
the later expansion of the scheme, the relevant conversations, in my judgment,
were those which took place when the original scheme was suggested by Mr George
and assented to by Mr John. All of the significant evidence given on the sixth
day of the trial related to those conversations, and it was not suggested that
whatever assumptions existed then were subsequently modified or displaced.
I confess that
I listened to this appeal with increasing sadness. The dispute has had to be
litigated for eight days in the High Court and now on the hearing of this
appeal. The original lease was in 1956 to the plaintiff’s father. It is a small
farm and the existing buildings are old and ill-suited to modern farming
methods. The plaintiff and his father before him had good relations with the
landlord’s parents, and, until this dispute arose, with the landlord himself.
Now, the storm of January 1990 and what began as a joint effort to face its
consequences has led to a situation where both parties insist upon their legal
(and equitable) rights and these proceedings have been necessary in order to
establish what their rights are. The storm damage might have given an opportunity
to improve the property for the benefit of both parties. Instead, the buildings
remain in their damaged state, having received only temporary repairs, and the
cost of these proceedings must have imposed a heavy burden on both parties,
financial and otherwise, regardless of the final outcome.
Also agreeing,
Simon Brown LJ said: The landlord of an agricultural holding can
recover possession of any part of it for which he obtains planning permission
for a non-agricultural use. This he can achieve by the simple expedient of
severing the reversion to that part and then serving on the tenant an
incontestable notice to quit in
‘the landlord’ can recover possession; I mean that whoever has the benefit of
the reversion can recover possession (here the defendant trustees, subject only
and always to the estoppel argument upon which this appeal turns).
That seems to
me a curious state of affairs, providing as it does a mechanism for escaping
the apparent intention of section 31 of the 1986 Act. I am nevertheless
satisfied that such is the law and certainly this appeal has been conducted on
that basis.
It is hardly
surprising, however, that neither side in this dispute was aware of that legal
position and that both of them plainly acted on wholly different assumptions
until months after issue was joined between them. Had they appreciated from the
outset what the true legal position was, doubtless both would have acted
differently. Certainly the tenant would: he would plainly not have supported
his landlord’s application for planning permission to convert the old farm
buildings — at any rate not without seeking some contractual safeguard to
ensure that the landlord could not benefit from such a permission in the way he
now seeks to do. But the landlord too, quite apart from reacting differently to
the crisis presented by the storm damage, might perhaps, depending no doubt
upon the advice he received as to the prospects of obtaining planning consent
even in the face of the tenant’s opposition, have sought that planning
permission in any event.
One way of
putting the question raised by this appeal is therefore this: who is to forfeit
the benefit of what might have been? Must the landlord suffer the lost
opportunity of possibly achieving planning permission and thereby possession
without his tenant’s co-operation, or must the tenant suffer the lost
opportunity of thwarting him in that aim?
Reason and
justice suggest that that question be answered by reference to two central
considerations. First, the extent to which the respective parties brought about
the situation in which that opportunity came to be lost. Second, the likelihood
that, but for the mistake which they both made, the end result would have been
different.
Unless the
landlord was, at least to some degree, responsible for bringing about the
situation in which the tenant came to lose the opportunity of objecting to the
grant of unconditional planning permission, then it is difficult to see why he
should be prevented from relying on his legal rights when finally he learned of
them. Similarly, the less likely it is that things would have turned out
differently even had both parties been alive to the true legal position and
acted accordingly, the more difficult it is to see why the landlord should be
estopped from exploiting the legal potential of its planning permission once it
came to be granted. Indeed, if it was clearly demonstrated that no objection by
the tenant would in any event have denied the landlords the benefit of a
planning permission, it would seem unjust to deny the landlord his right to
exploit it, even assuming that his conduct had contributed to the tenant’s
misunderstanding.
Within those
parameters, however, the question who should suffer from the mistake and the
lost opportunities it occasioned should surely be answered according to where
the justice of the case lies in the light of those two central considerations.
The greater the landlord’s responsibility for the tenant supporting rather than
objecting to the grant of planning permission, the less necessary should it be
for the tenant to demonstrate that his objection would have been effective.
Equally, the more clearly it can be demonstrated that but for the mistake, the end
result would have been different, the less responsible and therefore culpable
need the landlord has been for the tenant having acted to his prejudice under
the mistake.
Certainly
those, to my mind, are the guiding principles in this situation for which reason
and justice call. Do the authorities support such an approach?
Difficult
though I confess to having found certain aspects of their analysis, I believe
they do.
We are here
concerned with estoppel by convention. That is described in Spencer Bower
& Turner, Estoppel by Representation, 3rd ed (1977) at p157, as
follows:
This form of
estoppel is founded, not on a representation of fact made by a representor and
believed by a representee, but on an agreed statement of facts the truth of
which has been assumed, by the convention of the parties, as the basis of a
transaction into which they are about to enter. When the parties have acted in
their transaction upon the agreed assumption that a given state of facts is to
be accepted between them as true, then as regards that transaction each will be
estopped as against the other from questioning the truth of the statement of
facts so assumed.
Professor
Treitel, the editor of the relevant chapter of Chitty on Contracts, 27th
ed, puts it thus at paras 3–080 to 3–081:
Estoppel by
convention may arise where both parties to a transaction have acted on the
agreed assumption as to the existence of a state of facts, or as to the true
construction of a document. The parties are then precluded from denying the
truth of that assumption, if it would be unjust to allow them (or one of them)
to go back on it. Such an estoppel … can arise where the assumption was based
on a mistake spontaneously made by the party relying on it, and acquiesced in
by the other party.
To give rise
to an estoppel by convention, the mistaken assumption of the party claiming the
benefit of the estoppel must, however, have been acquiesced in by the party
alleged to be estopped; and both parties must have conducted themselves on the
basis of such a shared assumption: the estoppel ‘requires communications to
pass across the line between the parties. It is not enough that each of two
parties act on an assumption not communicated to the other’ [a reference to The
Captain Gregos (No 2) [1990] 2 Lloyd’s Rep 395]. Such communication
may be effected by the conduct of one party, known to the other. But no
estoppel by convention arose where each party spontaneously made a different
mistake and there was no subsequent conduct by the party alleged to be estopped
from which any acquiescence in the other party’s mistaken assumption could be
inferred [a reference to The August Leonhardt [1985] 2 Lloyd’s Rep 28].
Turning to the
cases, a convenient starting point is the pithy statement of general principle
found in Lord Denning, MR’s judgment in Amalgamated Investment &
Property Co Ltd (in liquidation) v Texas Commerce International Bank Ltd
[1982] QB 84 at p122:
When the
parties to a transaction proceed on the basis of an underlying assumption —
either of fact or of law — whether due to misrepresentation or mistake makes no
difference — on which they have conducted the dealings between them — neither
of them will be allowed to go back on that assumption when it would be unfair
or unjust to allow him to do so.
The principle
there stated, of course, embraces all estoppels rather than merely estoppel by
convention — note in particular the reference to ‘misrepresentation’. But once
it is understood that the phrase ‘on which they have conducted the dealings
between them’ necessarily presupposes that ‘the line has been crossed’ in the
sense referred to by Professor Treitel, ie that the party to be estopped has at
the very least communicated to the other that he is indeed sharing his (ex
hypothesi mistaken) assumption, Lord Denning’s dictum, I believe,
enshrines all that is absolute in the principle of estoppel by convention; the
many other expositions of the doctrine are, it seems to me, no more than
elaborations of the particular circumstances in which it can apply — one
classic such exposition being found in Oliver J’s oft-cited judgment in Taylors
Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] QB 133,
which Morritt LJ has already set out in full.
It follows
that for estoppel by convention to apply there must be, first, an assumption
(shared and communicated between the parties) underlying the transaction and,
second, unfairness or injustice in allowing the party seeking to benefit to go
back on that assumption.
How then does
one determine when it is unfair or unjust to allow the party to be estopped to
go back on the common mistaken assumption?
As I have
already suggested, it is a precondition of establishing such unfairness that
the party to be estopped must be in some way responsible for the other party
acting to his prejudice under the mistaken assumption. This point is well
illustrated by The August Leonhardt [1985] 2 Lloyds Rep 28 — the
decision referred to in the final passage I have cited from Chitty. Kerr
LJ there said at p35:
There cannot
be any estoppel unless the alleged representor has said or done something, or
failed to do something, with the result that — across the line
expectation in the mind of the alleged representee, so that, depending on the
circumstances, it would thereafter no longer be right to allow the alleged
representor to resile by challenging the belief or expectation which he has
engendered. To that extent at least, therefore, the alleged representor must be
open to criticism.
Once, however,
that precondition is satisfied so that in that sense at least the representor
(a term here used loosely to encompass also the party putatively estopped under
the principle of estoppel by convention) is open to criticism (or at any rate would
be if he then held to his rights), what else is required before it will be held
unconscionable for him to go back on the common assumption?
The answer
seems to me to be this: sufficient in the way of prejudice to the party who has
acted to his detriment in reliance upon the mistake to tip the overall balance
of justice in favour of an estoppel.
I am not, let
me make plain, suggesting that the only relevant considerations in play are,
first, the relative responsibility of the parties for the action taken pursuant
to their shared mistake and, second, the prejudice to their respective
positions thereby occasioned. On the contrary, within the parameters indicated,
it is right that this quintessentially equitable doctrine should remain
sufficiently flexible to respond to the demands of justice in a wide variety of
situations. But those two considerations, to my mind, are likely in the great
majority of cases to be determinative.
Applying that
approach to the circumstances of the present case, I unhesitatingly share my
lords’ conclusion that the case for an estoppel here was amply made out. The
common assumption underlying the conduct of both parties (based on their shared
mistake of law) was that the grant of planning permission for conversion of the
existing farm buildings would not enable the landlord thereafter (by a device
such as severing the reversion) to recover possession. The landlords
communicated the fact that they shared this assumption both by their general
reaction to the storm damage and more particularly by their continued
encouragement of the tenant to support the overall scheme for planning
permissions rather than invoke their contractual right to have the damaged
buildings repaired. This conduct ‘crossed the line’ between the parties. Indeed
I regard the landlords as substantially more responsible than the tenant for
the latter having acted as they did under his mistaken assumption.
On the second
point I conclude that the tenant thereby suffered grave prejudice. Indeed, for
the reasons given by Morritt LJ, I, too, believe that, but for the tenant’s
support, the landlord’s application for permission to convert the farm would
probably have failed and moreover that, by taking prompt action to enforce the
repair covenant, the tenant could have thwarted the application ever being
made.
Rejecting as I
do Mr Paul Morgan QC’s criticisms of the tenant for failing to continue to
support the overall scheme for planning permissions after the April 1991
refusal of planning consent for a new bungalow, there appear to me no
countervailing considerations of fairness operating in favour of the landlords.
Justice therefore demands that the respondents be estopped from relying on the
planning permissions.
It follows
that I, too, would allow this appeal. There is no dispute as to the form of
declaration which follows from the judgment. The appeal is allowed in the form
of para 1 of the writ. As to the costs there is no dispute but that the costs
of the appeal proceedings themselves should be the appellant’s. As to the costs
below, including the costs reserved to the High Court in respect of the prior
county court proceedings, we conclude that broad justice will be done by
allowing the appellant three quarters of his costs in regard to those matters.
The costs
before the arbitrator must, we apprehend, as a matter of jurisdiction be left
to be dealt with by the arbitrator. We merely indicate that had we been seised
of that matter we would have thought it right, similarly, to have granted the
plaintiff three quarters of his costs of those proceedings, and suggest that
our view be put before the arbitrator unless the parties can reach agreement
upon it.
The
application for leave to appeal to the House of Lords is refused. It must be
for their lordships to determine whether the time has come for their lordships’
House to review this area of the law.
