Estoppel – Property development – Understanding between parties as to profit share – Claimant investing in and assisting project – Defendants estopped from denying claimant’s entitlement to share in profits – Minimum equity necessary to do justice
The first defendant obtained options to purchase two development sites through a company, N Ltd. He secured the participation of the claimant, who was an experienced developer and project manager, on the understanding that each party would own half of N Ltd, invest equally and share equally in the profits of the development. In the event, one of the sites (Willes Rd) was transferred instead into the ownership of the second defendant, which was a company controlled by the first defendant. The parties proceeded with the plans for developing only the Willes Rd site. No formal contract was entered into with regard to that project. The claimant invested substantial sums and took numerous steps to aid the development, resulting in planning permission being obtained for a development of nine two-bedroom flats with underground parking, a more ambitious development that might have been expected without his input.
In early 2003, relations between the parties broke down before building commenced. The claimant brought proceedings to establish his rights in respect of the project. The judge held that: (i) the respondent was entitled to relief pursuant to the doctrine of proprietary estoppel on the basis of an understanding between the parties, which it would be unconscionable for the appellants to deny; (ii) the respondent would participate in the profit of the development of the Willes Rd site; and (iii) the equity that thereby arose in the claimant’s favour was to be satisfied by the second defendant and, if need be, by the first defendant personally. An appeal by the defendants from that decision was dismissed: see [2007] EWCA Civ 153; [2007] 2 EGLR 13; [2007] 22 EG 162
A further hearing was held to determine the nature and extent of the equity in the claimant’s favour. By the time of that hearing, the development had been completed by a third-party contractor in accordance with amended plans produced by the first defendant, at greater cost and over a longer period than originally anticipated, and four of the flats remained unsold. The claimant contended that he should be awarded around £220,000, as one-half of the difference between the option price for the Willes Rd site and its enhanced value in March 2003. The defendants submitted that nothing should be awarded since the second defendant was probably insolvent and so there was no profit to share.
Held: The sum of £25,000 was awarded to the claimant.
When deciding how the equity arising in the claimant’s favour was to be satisfied, the principle was that the court should identify the minimum equity to do justice. The equity fell to be satisfied by the owner of the relevant property. Where a company was the creature of an individual and realistically was to be regarded as a mask held up to avoid recognition by the eye of equity, the equitable remedy would be granted directly against that individual: Gilford Motor Co Ltd v Horne [1933] Ch 935 applied.
The claimant was not entitled to any share in the enhanced value of the Willes Rd site. The “property” to which the equitable obligation attached was the profit earned on the development, not the land itself; the promise from which the first defendant had resiled was a promise to allow the claimant to participate in that profit, not to give him a half-share in the site. However, the claimant should not be denied an award merely on the ground that there was, in the event, no development profit, since that state of affairs had substantially resulted from the way in which the first defendant had proceeded with the project, with a longer and more expensive build to a specification shaped by his inexperience.
Although the claimant had lost the expectation of participating in the profits of the development, he had also been relieved of the obligation to invest several more months’ work in the project, thereby enabling him to undertake other profitable work. The detriment that he suffered was that of devoting his time, skills and knowledge to promoting the second defendant’s Willes Rd project rather than his own individual project, with the result that the Willes Rd development had been increased to nine flats from the six that would otherwise had been more likely, and of investing money in N Ltd when he was not in the business of lending money and could make substantially better returns from investing in his own projects. Any equity had to be proportionate to that detriment.
It was not possible, on the available material, to make a securely grounded assessment of what the claimant’s return would have been had the project proceeded as planned. Accordingly, the detriment to the claimant should be assessed in a broad way, by reference to the provision of his skills and the opportunity cost of his funding, and then charged as an expense in the company’s accounts. The appropriate award was £25,000, to be supported by the personal guarantee of the first defendant. That was not unfair on the first defendant, given his ability to influence the ultimate development profit and his effective control of the second defendant; it was appropriate that he should have an incentive to ensure that the second defendant met its liabilities.
Simon Clegg (instructed by Coodes Solicitors, of Launceston and Walker Morris, of Leeds) appeared for the claimant; David Taylor (instructed by Varley Hibbs LLP, of Coventry) appeared for the defendants.
Sally Dobson, barrister
