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Yeoman's Row Management Ltd V Cobbe

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Yeoman's Row Management Ltd V Cobbe Promises, Promises… Proprietary Estoppel after Yeoman’s Row Management Ltd v Cobbe Ben McFarlane (Reader in Property Law, University of Oxford) 1. Summary 1.1 The reasoning of the House of Lords in Yeoman’s Row Management Ltd v Cobbe [2008] UKHL 55, [2008] 1 WLR 1752, if accepted by lower courts, will have a very significant impact on the operation of proprietary estoppel. In particular, it seems that in a case where B relies on a non-contractual promise by A that A will give B a right in the future, it will no longer be possible for B to invoke the doctrine of proprietary estoppel. B’s protection, if any, will instead depend on constructive trust principles or unjust enrichment. After setting out the background to the decision of the House of Lords, this paper examines: (i) the reasoning of the House of Lords in Yeoman’s Row and its potential impact; and (ii) the questions which may arise where B relies on constructive trust principles or unjust enrichment rather than on proprietary estoppel. For further discussion see McFarlane & Robertson [2008] LMCLQ 445 (forthcoming) and the updates page of the companion web-site to McFarlane, The Structure of Property Law (Hart, 2008): http://www.hartpub.co.uk/companion/propertylaw/updates.html. 2. Background to the House of Lords Decision The facts and claims 2.1 The appellant company (YRML) was the registered proprietor of a freehold of land in Knightsbridge with redevelopment potential. The company was controlled by Mr and Mrs Lisle-Mainwaring, who held a long lease over one of the 13 flats on the property. Mr Cobbe (Cobbe), an experienced property developer, entered into lengthy negotiations with Mrs Lisle-Mainwaring (L- M) who acted on behalf of YRML. Those discussions culminated in an oral agreement, the substance of which was as follows: Cobbe, at his own expense, would apply for planning permission to demolish the existing block of flats and to erect, in its place, a terrace of six houses; upon the grant of planning permission and the obtaining of vacant possession, the property would be sold to Cobbe, or to a company nominated by him, for an up-front payment to YRML of £12 million Cobbe, or the nominee company, would develop the property in accordance with the planning permission, sell the six houses and pay to YRML 50 per cent of the amount, if any, by which the gross proceeds of sale exceeded £24 million. 2.2 The trial judge, Etherton J, found that neither Cobbe nor L-M thought that their oral agreement was legally binding. They intended that if planning 1 permission was granted then YRML would enter into a formal agreement with Cobbe or a company nominated by him. That agreement would include not only the core terms forming the oral agreement but also further terms, yet to be negotiated (including for example, some form of security for Cobbe’s duty to pay YRML the agreed overage). Although Cobbe believed that that oral agreement was binding in honour on both parties, he envisaged that if L-M decided not to proceed before planning permission was granted, he would be reimbursed his reasonable expenditure. On that basis Cobbe spent considerable time and effort and incurred considerable expense between late 2002 and March 2004 in applying for planning permission. By late 2003 L-M had formed an intention not to comply with the oral agreement, but to negotiate for a higher up-front purchase price. Nonetheless, she continued to assist and encourage Cobbe’s efforts to obtain planning permission, intentionally giving Cobbe the impression that, if planning permission were obtained, she would enter into a binding contract based on the parties’ oral agreement. 2.3 In March 2004, as a result of Cobbe’s efforts, planning permission was granted. L-M then informed Cobbe that she would proceed with the sale only at a purchase price of £20 million plus overage. Cobbe originally agreed in order to salvage the transaction, but later decided to insist on performance of the oral agreement. He instituted the present proceedings and also refused to allow YRML or L-M access to the architects’ plans used in the successful application for planning permission. Cobbe initially sought specific performance or damages for breach of contract, but later amended his pleadings to seek relief on the basis of: proprietary estoppel; a constructive trust; restitution. The decisions of Etherton J and the Court of Appeal 2.4 At first instance, Etherton J found for Cobbe on the basis of proprietary estoppel and also indicated that, if necessary, he would have found that a constructive trust had arisen in Cobbe’s favour: [2005] EWHC 266 (Ch). As to proprietary estoppel, his Lordship held that the parties’ oral agreement covered “all points of principle which were at the core of the commercial deal”. When Cobbe began to perform his side of the deal, both parties regarded their agreement as binding in honour and contemplated that a subsequent formal contract was needed only to take care of “legal mechanics”. Etherton J held that Cobbe’s estoppel equity was to be satisfied by a lien over YRML’s freehold securing payment to Cobbe of one-half of the increase in the value of the property caused by the grant of planning permission (the sum 1 due was later assessed to be £2m). 1 Etherton J’s order was conditional on Cobbe allowing YRML access to the architect’s plans. Etherton J later extended the lien so that it also covered L-M’s leasehold interest in her flat. However, the Court of Appeal reversed that extension, as Cobbe’s proprietary estoppel claim was against YRML, not L-M. 2 2.5 Etherton J’s decision, both as to the presence of proprietary estoppel and the extent of Cobbe’s resulting right, was upheld by a unanimous Court of Appeal: [2006] EWCA Civ 1139. As a result, the Court of Appeal did not address the constructive trust argument. Some concern was however expressed as to the absence of clear principles to be used in deciding the extent of the right acquired by a successful proprietary estoppel claimant: see e.g. per Dyson LJ at [121]. Indeed, Mummery LJ at [95] described the judge’s finding as to the extent of Cobbe’s right as “the least unsatisfactory of the various forms that relief might take”. Evaluating the position before the appeal to the House of Lords 2.6 The decisions of Etherton J and the Court of Appeal appeared to give rise to three key questions. First, when, if at all, can a party who acts in reliance on an anticipated contract acquire a right through proprietary estoppel? Second, if Cobbe had acquired such a right, how should a court determine the extent of that right? Third, what impact, if any, should the formality rule imposed by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 have on each of those two questions? 2.7 As to the first question, it could be argued that a party who acts in reliance on an anticipated contract acts at his own risk. That view may lie behind the condemnation of Etherton J’s decision (noted but rejected by Mummery LJ in the Court of Appeal’s decision at [87]) as a “developer’s charter” and a “staggering extension” of the pre-existing law. However, the decisions of the Court of Appeal in Crabb v Arun District Council [1976] Ch 179 and Lloyd v Dugdale [2002] 2 P & CR 13 recognise the possibility of a proprietary estoppel claim for a party acting in reliance on an anticipated contract. It seems that such a claim could arise in the pre-contractual context if: there was an agreement in principle between the parties; and A led B reasonably to believe that the agreement in principle would be honoured by A (see McFarlane, Proprietary Estoppel and Failed Contractual Negotiations [2005] Conv 501). On this view, the first question in Yeoman’s Row depended on two further questions: was the parties’ agreement sufficiently clear to count as a relevant agreement in principle? could YRML’s acquiescence in Cobbe’s work in preparing and making the application for planning permission suffice as conduct leading Cobbe reasonably to believe that YRML would indeed honour the agreement in principle? 2.8 As to the question of the extent of any right acquired by Cobbe, the Court of Appeal expressed a concern about the absence of clear principles governing the extent of a right arising through proprietary estoppel. This issue has been thoroughly examined by commentators, who have suggested a variety of 3 2 On any view, following the decisions of the Court of Appeal in Jennings v Rice [2003] 1 P & CR 100; Ottey v Grundy [2003] EWCA Civ 1176; and Powell v Benney [2007] EWCA Civ 1283, it was clear that the right acquired by a successful proprietary estoppel claimant may not necessarily match the right he thought he had or expected to acquire. 2.9 As to the third question, the tendency was for courts to reconcile the availability of a proprietary estoppel claim with the s.2(1) formality rule by relying on s.2(5) of the 1989 Act, with its exemption for “resulting, implied and constructive trusts”: see e.g. the decisions of the Court of Appeal in Yaxley v Gotts [2000] Ch 162 and Kinane v Mackie-Conteh [2005] EWCA Civ 45. However, this approach rests on an expanded definition of a “constructive trust”. For example, in Yaxley, proprietary estoppel imposed a duty on A to grant B a lease (or to pay B a sum of money equal to the value of that lease): as a result, A held no right on trust for B.
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