Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 imposes strict requirements in respect of contracts for the disposition of interests in land. All such contracts must be made in writing and must be signed by or on behalf of the parties. But section 2(5) excepts implied, resulting and constructive trusts from the requirements.
Are claims based on proprietary estoppel exempt too? In cases where a strict application of the rules would cause injustice, the courts used to invoke the doctrine to prevent parties who were in the wrong from exploiting section 2. But, in Yeoman’s Row Management Ltd v Cobbe [2008] UKHL 55, Lord Scott noted that section 2(5) does not mention proprietary estoppel and suggested that the law of equity should not be allowed to contradict a statute. Lords Hoffman, Brown and Mance agreed.
In subsequent cases, the courts have sought to mitigate the severity of Lord Scott’s “obiter dicta” by distinguishing between the “commercial context” and the “domestic or family context”. But, if the doctrine can be applied in a family context, then it would seem logical to be able to apply it in a commercial context too.
Kensington Mortgage Company Ltd v Mallon [2019] EWHC 2512 (Ch); [2019] PLSCS 190 concerned a dwelling house. The occupiers had paid for it by instalments but, once the purchase price was paid, asked the registered proprietor to transfer the property into the name of a third party as security for a trade debt. The agreement between the occupiers and their creditor was that, when the debt was paid, the creditor would transfer the property to them. But the agreement was never reduced to writing and the creditor did not keep his part of the bargain – even though the occupiers discharged their debt to him. In fact, he had even used the property as security for personal borrowing of his own – and, to make matters worse, defaulted on the loan.
When the lender issued proceedings for possession, the occupiers invoked the doctrine of proprietary estoppel and tried to avoid arguments about the application of section 2 by claiming that they were seeking to apply the doctrine in a domestic context. But the court was having none of it, ruling that the context was clearly commercial because the property had been transferred to a trade creditor as security for a trade debt.
The High Court went on to decide that any equity based on proprietary estoppel would not have come into existence until the debt was repaid. The creditor ought then to have transferred the house to the occupiers and his refusal to do so appeared unconscionable. But the mortgage was already in existence – and the occupiers had never registered a restriction against the title, which would have put the lender on notice that they had an interest in the property. And, although they were in occupation, the trial judge had been satisfied that the mortgage company believed that it was the creditor who was in occupation and that the company had made all such inquiries as were reasonable before lending.
Consequently, it was not appropriate to grant relief – which made it unnecessary for the court to decide whether section 2 would have prevented it from doing so. But the judge suggested that the law is fact-sensitive and that section 2 would not have prevented the court from using the doctrine of proprietary estoppel in this particular case, had it been appropriate to do so.
Allyson Colby, property law consultant
