In Yalcinkaya v Hassan and another [2022] EWHC 2516 (Ch); [2022] PLSCS 155, the High Court had to determine a case with a factually gnarly matrix. In giving judgment, the court provided a useful review of the interplay between the doctrine of proprietary estoppel and section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.
Key points
- Proprietary estoppel can apply in certain circumstances to prevent a party from relying on the strict terms of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989
Gnarly facts
Jennifer Yalcinkaya issued a claim against Metin Hassan for breach of trust and fiduciary duty. Yalcinkaya was the legal and beneficial owner of three properties: 226a Devonshire Road, 33 Kashmir Road and 38 Highcombe.
She alleged that Hassan acted as her managing agent in respect of those properties. Yalcinkaya claimed Hassan had failed: (a) to properly account to her in respect of his management of those properties; (b) to pay her the amount due in respect of rents and profits from those properties; and (c) to pay her the proceeds of sale of in respect of numbers 226a and 38.
Additionally, Yalcinkaya alleged that in exchange for payment of a sum of money she had acquired a 50% beneficial interest in two properties legally and beneficially owned by Hassan: 26 Charlton Dene and 14 Kashmir Road. This was not disputed by Hassan. Yalcinkaya alleged that Hassan, in his management of numbers 26 and 14, had failed to: (a) provide her with any accounts in respect of his management of those properties; (b) pay her share of the rents and profits from those properties; and (c) pay her share of the proceeds of sale from number 26.
Hassan contended that he and Yalcinkaya entered into a joint business venture whereby she would remortgage number 226a and monies from the same would be used by her to purchase half of the beneficial interest in numbers 26 and 14. Further, it was agreed that he would refurbish number 226a with his own monies and manage the same. The rental income received from number 226a would be used to purchase additional properties and the beneficial interest in number 226a would be held by them equally. He further contended that in 2006/2007 the parties agreed to terminate their agreement.
In unpicking the difficult factual matrix, the High Court placed little weight on the oral evidence of the parties due to a finding that each lacked credibility. The court finding was based “on inference drawn from the documentary evidence and known probable facts”.
The High Court found the parties had agreed in 2006/2007 to dissolve their business venture. Under that agreement, numbers 226a and 26 were sold. Hassan owed Yalcinkaya the balance of £7,000 from the proceeds of sale of number 26. Hassan was to keep the remaining properties.
Constructive trust
The general principle is that the beneficial interest in property follows the legal interest. Hassan had to prove the general principle did not apply to succeed in defeating the claim. Further, he faced the hurdle that there was no written documentation that fell within the scope of section 53(1) of the Law of Property Act 1925 to show either the creation of his beneficial interest in number 38 or the transfer of Yalcinkaya’s admitted beneficial interest in number 14.
Based on the findings of fact, the High Court found that a common intention constructive trust had been created. It was possible that the effect of the oral agreement in 2006/2007 was that Yalcinkaya would hold numbers 14, 33 and 38 on trust for Hassan. There was no reason why section 53(2), which excluded section 53(1) from affecting the creation or operation of resulting, implied or constructive trusts, would not apply to such an agreement. Such an agreement would also not fall foul of section 2 of the 1989 Act, which required contracts for the sale of land to be in writing, due to section 2(5) which excluded the creation or operation of resulting, implied or constructive trusts from the ambit of section 2.
The interplay
Even if section 52(1) of the 1925 Act or section 2 of the 1989 were otherwise to apply, the High Court determined that Hassan could rely on the doctrine of proprietary estoppel. The High Court noted this ran contrary to the obiter comments of the House of Lords in Cobbe v Yeomans Row [2008] UKHL 55, that proprietary estoppel could not be relied on to render enforceable an agreement that statute has declared to be void.
Commenting on the interplay between section 2 and the doctrine of proprietary estoppel and relying on Farrer v Miller [2018] EWCA Civ 172 and Howe v Gossop [2021] EWHC 637 (Ch), the High Court commented that this was not a case where estoppel was being used to obtain an order enforcing a contract for the sale of land that did not comply with section 2. Section 2 did not inhibit the use of proprietary estoppel provided the equitable relief sought did not amount to enforcing a non-compliant contract.
In the present context, the necessary requirements of a constructive trust were very similar, if not identical, to those of proprietary estoppel. There was no reason why the exception in section 2(5) could not apply. Nevertheless, the High Court determined that section 2 did not apply to the present case, rather it involved the effect of section 53 of the 1925 Act and Hassan could rely on the rule in Rochefoucauld v Boustead [1897] 1 Ch 196 in circumstances where his interest in numbers 14, 33 and 38 had been acquired pursuant to the 2006/2007 oral agreement.
To rely on the doctrine of proprietary estoppel, Hassan was required to pay Yalcinkaya the £7,000 he owed, even though her contractual claim to the same would have been statute barred.
Elizabeth Dwomoh is a barrister at Lamb Chambers
