Negotiations aimed at joint venture refurbishment and operation of public house acquired by plaintiffs – Defendant operators going into occupation and effecting works while important element of agreement left unresolved – Whether plaintiffs estopped by having allegedly induced defendants to incur substantial expenditure of money time and effort
In December 1994 the plaintiffs laid out £45,000 on the purchase of the then derelict Lion Inn, Basford, Nottingham, with a view to refurbishing and eventually operating it as a public house. In August 1995, after spending some £100,000 on part refurbishment, they received and discussed a joint venture proposal from the first defendant, which was owned by the second and third defendants, H and M. In a letter from H dated September 22 1995 the defendants set out certain "Draft heads of agreement for discussion", proposing: (a) that the defendants would immediately carry out works to fit out the premises as a public house while the plaintiffs completed the outstanding work of refurbishment; (b) that the public house would be operated by a new company in which the plaintiff and defendant companies would have 26% and 74% shareholdings respectively; (c ) that on completion of those works the new company would either buy the pub outright or take a 10-year lease at a rent of £18,000 with an option to purchase the freehold at a later date. As all parties were anxious not to miss the forthcoming Christmas trade the plaintiffs allowed the defendants to occupy the premises to have them ready for trading as soon as possible. Over the remaining autumn months the plaintiffs and defendants laid out some £67,000 and £20,000 respectively on outstanding works thus enabling H and M to open for business on November 24. However, in meetings and correspondence over the same period increasing anxieties were expressed: on the plaintiffs’ part, over the as yet unresolved question of their future protection as minority shareholders in the new company; on the defendants’ part, over their expenditure of money, time and labour on premises in which they had no proprietary interest. In a letter of October 4 the plaintiffs emphasised that the premises were in the ownership of Pridedean Ltd until various outstanding points were resolved. At a meeting on November 9 the parties canvassed the possibility of a lease, with option, being granted to Forest Taverns Ltd, thus dispensing with the need for a new company; but they were unable to come to terms. Relations swiftly soured during December and on January 4 1996 the plaintiffs served a notice on the defendants requiring them to leave the premises forthwith. After abortive summary proceedings, dismissed for procedural reasons, the plaintiffs obtained a county court order for possession in July 1996. The defendants appealed and having conceded that their claim in contract was bad for non-compliance with the requirements of the Law of Property (Miscellaneous Provisions) Act 1989, section 2, contended that the judge was wrong to dismiss their defence so far as it was based on the doctrine of proprietary estoppel as formulated and applied in Inwards v Baker [1965] 2 QB 29 and JT Developments v Quinn [1991] 2 EGLR 257.
Held The appeal was dismissed
The doctrine of proprietary estoppel applied where the claimant had spent money or acted otherwise to his detriment having been induced to do so with the encouragement of the owner of the land in dispute. In selecting the appropriate remedy the court endeavoured to fulfil the expectation generated by the statements or conduct of the owner. With no need to prove a concluded contract, the defendants might have succeeded if the major heads of the intended joint venture had been agreed before they incurred the alleged expenditure. However, that was not the case as the all important question of minority shareholder protection, the very question which caused the final rupture, had never been resolved; hence the only inducement had been the hope, albeit shared by both parties, that they would reach a joint venture agreement one way or another. Nor could the defendants claim that they had acted in the expectation of a lease being granted to Forest Taverns Ltd as that possibility had been mooted at far too late a stage in the negotiations.
Stephen Jourdain (instructed by NR Cheetham, of Penkridge) appeared for the plaintiffs; Guy Fetherstonhaugh (instructed by Eversheds, of Nottingham) appeared for the defendants.
