FACTS
In Yeoman’s Row Management Ltd & anor v Cobbe [2008] Lord Scott gave the principal judgment, with which three of the other four Law Lords agreed. He described the essence of the problem in Yeoman’s as follows, where Yeoman’s Row Management Ltd is A and Mr Cobbe (described as an ‘experienced property developer’) is B:
‘A is the owner of land with potential for residential development and enters into negotiations with B for the sale of the land to B. They reach an oral “agreement in principle” on the core terms of the sale but no written contract, or even a draft contract for discussion, is produced. There remain some terms still to be agreed. The structure of the agreement in principle that A and B have reached is that B, at his own expense, will make and prosecute an application for the desired residential development and that, if the desired planning permission is obtained, A will sell the land to B, or more probably to a company nominated by B, for an agreed up-front price, £x. B will then, again at his own expense, develop the land in accordance with the planning permission, sell off the residential units, and when the gross proceeds of sale received by B equals £2x, any further gross proceeds of sale will be divided equally between A and B. Pursuant to this agreement in principle B makes and prosecutes an application for planning permission for the residential development A and he have agreed upon. B is encouraged by A to do so. In doing so B spends a considerable sum of money as well, of course, as a considerable amount of time. The application is successful and the desired planning permission is obtained. A then seeks to renegotiate the core financial terms of the sale, asking, in particular, for a substantial increase in the sum of money that would represent £x. B is unwilling to commit himself to the proposed new financial terms and A is unwilling to proceed on the basis of the originally agreed financial terms. So B commences legal proceedings. The question for the Court is what relief, in the circumstances described, B should be granted.’
Without going into more detail, that sets out the essential facts of the case.
WHAT IS PROPRIETARY ESTOPPEL?
According to Halsbury’s Laws of England the traditional formulation of proprietary estoppel is based on the principle that when the owner of land knowingly allows its rights to be infringed by another, who spends money on what it mistakenly believes is its own land, the actual owner cannot afterwards assert its own title to the land. Lord Scott stated in Yeoman’s:
‘An “estoppel” bars the object of it from asserting some fact or facts, or, sometimes, something that is a mixture of fact and law, that stands in the way of some right claimed by the person entitled to the benefit of the estoppel. The estoppel becomes a “proprietary” estoppel – a sub-species of a “promissory” estoppel – if the right claimed is a proprietary right, usually a right to or over land but, in principle, equally available in relation to chattels or choses in action.’
He quoted what he referred to as a ‘well-known and often cited’ passage in Taylor Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982]:
‘If A, under an expectation created or encouraged by B that A shall have a certain interest in land, thereafter, on the faith of such expectation and with the knowledge of B and without objection by him, acts to his detriment in connection with such land, a Court of Equity will compel B to give effect to such expectation’.
In this quotation B is a landlowner and A is a person doing work on that land, whereas in Yeoman’s the developer who did the work was B and the landowner was A.
Did the developer have a claim in proprietary estoppel? Lord Scott was of the view that one has to be clear as to what the landowner is to be estopped from denying and what interest in land is affected. In Yeoman’s B had never fully pleaded the basis of his proprietary estoppel claim. He had merely sought ‘such interest in the property and/or the proceeds of sale thereof as the court thinks fit’. B could not specify the interest in land to which he was entitled. There was no ‘certain interest in land’. B could only refer to his verbal discussions with A, which related to an intended contract that was never put in writing and some detailed terms of which were never mentioned.
THE DECISION
All the judges at all levels of the case concluded that A had acted unconscionably and that relief for B was appropriate. However, it was only in the House of Lords that the relief was stated not to be that arising from proprietary estoppel.
The House of Lords decided that in the circumstances of Yeoman’s B was not entitled to any interest in the property of A.
The court accepted that B was entitled to the common law remedy for unjust enrichment, but was not entitled to a substantial proportion of the value of the property.
All that B was entitled to was a quantum meruit payment for services in obtaining planning permission. The sum of £150,000 had been offered by A but rejected by B as a quantum meruit and that, some of the Law Lords considered, was some indication of the appropriate amount.
The order was given for the payment of a quantum meruit for services in obtaining planning permission, including the repayment of all expenses reasonably incurred in making and prosecuting the planning application. There was also an order for B to repay the sum of £2m that had been paid pursuant to the order of the court at first instance. Interest from the date of receipt of payment of that amount also had to be repaid. This decision, therefore, proved extremely expensive for B.
SECTION 2 OF THE LAW OF PROPERTY ACT 1989
In the course of his judgment Lord Scott commented on the connection between proprietary estoppel and s2 of the Law of Property (Miscellaneous Provisions) Act (LPA) 1989. Subsection 1 provides that a contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms that the parties have expressly agreed in one document or, where contracts are exchanged, in each. This statutory provision was not relevant in Yeoman’s because it was accepted by both parties that agreement on all terms had not been reached. Lord Scott, however, did raise a question as to whether a complete agreement for the acquisition of an interest in land that does not comply with the formalities prescribed by s2, but would be specifically enforceable if it did, can become specifically enforceable by proprietary estoppel. His view was that proprietary estoppel cannot be sought in order to render enforceable an agreement that statute had declared void. This opinion is potentially significant, as a cursory consideration of cases involving proprietary estoppel might lead one to the conclusion that if s2 does invalidate the contract then the party wishing to enforce it might claim proprietary estoppel so as to circumvent statute and almost re-introduce the part-performance claim that was relevant under s40 LPA 1925 (now repealed).
However, one part of s2 LPA 1989 was potentially relevant, and that was subsection 5, which states that nothing in the section affects the creation or operation of resulting, implied or constructive trusts. However, Lord Scott concluded that there was no basis on which to hold that there was such a trust benefiting B.
LESSONS TO BE LEARNT
- When dealing with complex property matters, ensure that negotiations lead to the exchange of legal and binding contracts containing all agreed terms.
- Do not assume that the other party will continue negotiations or ultimately conclude a satisfactory contract.
- Do not rely on verbal assurances or passive encouragement from the other party and incur or continue to incur costs in pursuing what is not an agreed deal.
- Do not assume that the court will, under the doctrine of proprietary estoppel or other equitable remedy, ensure substantial or even any payment for work done or expertise applied.
By Michael Copestake, partner, Cobbetts LLP. E-mail: michael.copestake@cobbetts.com.
For more information please visit www.cobbetts.com.
