Informal agreement for rent-free lease of part of defendant’s premises inducing claimant to carry out valuable conversion work on entire premises – Defendant relying on non-compliance with requirements of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 – Claimant alleging estoppel – Whether claim tantamount to allegation of constructive trust and thus within saver provisions of subsection (5) – Defendant’s appeal dismissed
The claimant was a self-employed builder who, until 1995, was a good friend of the defendant’s father, BG, for whom he had carried out work on various investment properties. In or about August 1991, the claimant approached BG for a loan to buy a house in Cromer, with a view to converting it into flats for letting. After viewing the house, BG proposed that he would buy the house, that the claimant would construct two flats on each of the three floors and thereafter act as managing agent, and that in return the claimant would become owner of the ground floor. The claimant agreed, but, unknown to him, the purchase was carried out, not by BG but by the defendant, who was duly registered as proprietor. The claimant performed his side of the bargain, but in February 1995 the parties fell out and the defendant excluded the claimant from the property. The claimant took proceedings and obtained a county court declaration, based upon the doctrine of proprietary estoppel, that he was entitled to a rent-free lease of the ground floor for a 99-year term, commencing 29 January 1992, the judge having found, inter alia, that the defendant had adopted and knew full well about the agreement made by his father.
Taking a point not advanced in the court below, the defendant appealed, contending that, on the facts found by the judge, the doctrine of proprietary estoppel could not give effect to an agreement that for want of signed writing was rendered void by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. In particular, it was argued that the saving made in subsection (5) for the operation of constructive trusts could not apply to a situation where, under the repealed section 40 of the Law of Property Act 1925, a party to an otherwise binding oral contract could have relied on the (repealed) doctrine of part performance.
Held: The appeal was dismissed
The construction urged by the defendant of subsection (5) was too narrow, and, if upheld, would: (a) place a party who had a remedy under the old law in a worse position than one who did not; (b) require the courts, when deciding upon the applicablity of subsection (5), to analyse the agreement in terms of the old law of part performance, which, though having much in common with estoppel, was not concerned with void contracts but with contracts that were merely unenforceable; and (c) run counter to the Law Commission recommendations (Law Com No 164) on which the 1989 Act was based.
An area of overlap between estoppel and constructive trust had been judicially acknowledged: see per Sir Nicolas Browne-Wilkinson V-C in Grant v Edwards [1986] Ch 638 at p656 and per Lord Bridge in Lloyds Bank plc v Rosset [1991] 1 AC 107 at p132. Accordingly, and with little guidance from recent decisions on other aspects of the 1989 Act, the court took the view that a party alleging an estoppel could rely on the subsection provided that the same facts would ground a constructive trust of the kind recognised in Rosset (supra); that is to say, where the party who had acted to his detriment had done so in reliance on an agreement based on evidence of express discussions.
Conversely, to give effect to an estoppel not covered by the subsection would conflict with the public policy underlying the section, which was to meet the need for certainty as to the formation of contracts for the sale or other disposition of land. Accordingly, the doctrine was unlikely to assist outside the area of joint enterprise, as where for example the alleged estoppel was based on convention or on no more than the acquiescence of the defendant in the claimant’s conduct.
Since the primary facts would undoubtedly have led to a finding of a constructive trust of the Rosset type (if the same had been pleaded in the court below), it was unnecessary to remit the case to the county court in order to ascertain the precise facts that led to the conclusion that the defendant had “adopted” the agreement.
United Bank of Kuwait plc v Sahib [1997] Ch 107; McCausland v Duncan Lawrie Ltd [1997] 1 WLR 38; Godden v Merthyr Tydfil Housing Association 15 January 1997 [[1997 PLSCS 7]; Bankers Trust Company v Namdar 14 February 1997 [[1997] EGCS 20; [1997] PLSCS 36]; and King v Jackson (t/a Jackson Flower Co) [1988] 1 EGLR 30 considered.
George Laurence QC and Louise Davies (instructed by Bircham & Co) appeared for the appellant defendant; Anthony Allston (instructed by Hansel Stevenson, of Norwich) appeared for the respondent claimant.
Alan Cooklin, barrister
