What causes proprietary estoppel claims to fail in commercial disputes?

James Castle examines why proprietary estoppel claims often fail in commercial disputes. This article explores the core elements of the doctrine and discusses how the commercial sophistication of the parties can undermine a claim, drawing on principles from key cases such as Cobbe v Yeoman’s Row Management Limited [2008] UKHL 55. It looks at the challenges posed by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, and considers the development of the principles to be applied when determining the appropriate remedy for proprietary estoppel and the likely need to revisit the guidance set out in Guest v Guest [2022] UKSC 27 in cases involving the sale of land.

The core elements

The core elements that make up a proprietary estoppel claim are well-settled: assurance, reliance and detriment. In the case of an estoppel by representation, these manifest as A making a representation to B, which B relies on, in a way that would cause detriment and therefore injustice to B if A were permitted to resile from the representation.

When the court comes to approach these elements, often it takes a holistic view rather than proceeding with each element sequentially. This was summarised well by Robert Walker LJ in Gillett v Holt [2001] Ch 210 at page 225:

“the quality of the relevant assurances may influence the issue of reliance, that reliance and detriment are often intertwined, and that whether there is a distinct need for a “mutual understanding” may depend on how the other elements are formulated and understood. Moreover the fundamental principle that equity is concerned to prevent unconscionable conduct permeates all the elements of the doctrine. In the end the court must look at the matter in the round.”

Once these elements have been found, the next step for the court is determining the equity in the estoppel. The principles the court should apply to determine the appropriate remedy (if any) to award B were the subject of much ‘lively controversy’ until the Supreme Court settled the debate, by a 3:2 majority, in Guest v Guest [2022] UKSC 27.

The majority took the view that the expectation-based approach should be adopted. Lord Briggs SJC, with whom Lady Arden and Lady Rose SCJJ agreed, set out the approach at paragraphs 75 and 76 of Guest v Guest. In summary, the court will begin by assuming that the unconscionability should be remedied by holding A to the full extent of their representation or promise. But if A can prove specific enforcement to that full extent would be out of all proportion to the cost of the detriment to B, then the court may limit the extent of the remedy granted accordingly.

This is in stark contrast to the view of the minority (Lord Legatt and Lord Stephens SCJJ), who preferred the detriment-based approach. Under that approach, the court should instead aim to award a remedy that does all that is necessary, but no more than is necessary, to prevent B from suffering detriment as a result of having relied on a representation or promise A intends to resile from.

For reasons explored below, the minority’s detriment-based approach may yet still be relevant in commercial proprietary estoppel cases that involve the sale of land.

The trouble with commercial disputes

Those familiar with the history of proprietary estoppel will know that it was not developed in cases where the parties had an arm’s-length relationship. The case law that immediately springs to mind – Gillett v Holt, Jennings v Rice [2002] EWCA Civ 159, Thorner v Major [2009] UKHL 18 – all concerned dealings between friends and family.

In cases between more sophisticated commercial actors, proprietary estoppel claims have a strong track record of failing. Cobbe v Yeoman’s Row Management Limited [2008] UKHL 55 is often looked to for explanation as to why.

The essential facts were that C was a property developer, and Y a property owner. C and Y agreed orally that C would apply for planning permission on Y’s property at C’s own expense. Y would then sell the property to C for £12 million. C would develop the property and sell off residential units. C would pay Y 50% of the amount by which the gross proceeds of sale exceeded £24 million. After C expended the monies to obtain planning permission, Y sought to renegotiate the terms of their agreement. C pleaded aid of a proprietary estoppel to bind Y to their existing agreement.

There were a number of factors that defeated the claim. One was that the trial judge found that Y considered it was: “bound in honour to enter into a formal written contract if planning permission was granted” but that neither party “regarded herself or himself as legally bound. They were both very experienced in property matters and they knew perfectly well that was not the position” (Lord Walker at paragraph 71). Another was that because “the negotiations were carried on between experienced parties well versed in property law” (Lord Walker at paragraph 75), they both knew well that their negotiations were subject to contract, which meant both contemplated the very real possibility of future negotiations to come.

Given these factors, there could hardly be reasonable reliance by C on any representation or promise made by Y. The common theme in both of these reasons was not the arm’s-length nature of the deal, but the sophisticated level of understanding of the law that both parties enjoyed.

In Herbert v Doyle [2010] EWCA Civ 1095, Arden LJ at paragraph 57 examined Lord Walker and Lord Scott’s judgments in Cobbe v Yeoman’s Row and identified three factors, any of which can defeat a claim in proprietary estoppel:

“if the parties [(1)] intend to make a formal agreement setting out the terms on which one or more of the parties is to acquire an interest in property, or, [(2)] if further terms for that acquisition remain to be agreed between them so that the interest in property is not clearly identified, or [(3)] if the parties did not expect their agreement to be immediately binding, neither party … [can] utilise the doctrine of proprietary estoppel … to make their agreement binding”.

Of these, (2) may well come up as a practical issue in any proprietary estoppel claim. But (1) and (3) are far more likely to arise where the parties have a sophisticated understanding of the law, which is much more often the case in commercial disputes.

Ignorance of the law is bliss. Understanding the law can remove an entire equitable remedy from your toolkit.

This analysis bears out when looking at some recent commercial cases:

• In Howe and Howe v Gossop and Gossop [2021] EWHC 637 (Ch), the dispute was about an arm’s-length deal between homeowners and small businessowners next door, neither with a sophisticated understanding of the law. One of the two proprietary estoppel claims succeeded. The one that failed was because of issue (2), which can arise even where parties are unsophisticated.
• In Pathway to Relief v Ali [2024] EWHC 1284 (Ch), the dispute was between a religious organisation seeking to develop a property and its owner. The primary reason the claim failed was because the person responsible for negotiating on behalf of the religious organisation “was at all times aware that in order to acquire an interest in the Hotel he would first need to enter into a written contract” (at paragraph 46).
• In South Tees Development Corp v PD Teesport Limited [2024] EWHC 214 (Ch), the dispute was between a mayoral development corporation and the freehold owners of “the largest brownfield development in Europe” (at paragraph 2). The claim failed because “none of the participants to the meeting thought that binding obligations had arisen, and they all knew and expected that it would be subject to the drawing up and execution of a formal legal document. They also knew that until such an agreement was drawn up either side could withdraw from the agreement” (at paragraph 282).

So, the trouble with commercial disputes is usually the commercial clients.

Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (LP(MP)A 1989)

Sometimes though, it can be the sale of land.

Section 2(1) of the LP(MP)A 1989 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 which the parties have expressly agreed in one document…”.

Section 2(5) of the LP(MP)A 1989 then clarifies that “nothing in this section affects the creation or operation of resulting, implied or constructive trusts.”

In theory, the effect of this section could come up in any proprietary estoppel claim. But in practice non-commercial cases almost never seem to involve the sale of land, so the effect of this provision is seldom considered outside of a commercial context. In that context, Lord Scott in Cobbe v Yeoman’s Row at paragraph 29 made the following obiter observation:

“Subsection (5) expressly makes an exception for resulting, implied or constructive trusts … Proprietary estoppel does not have the benefit of that exception … proprietary estoppel cannot be prayed in aid in order to render enforceable an agreement that the statute has declared to be void.”

Since then, there have been several cases in which the court has sought to navigate around this interpretation, to stop section 2 of the LP(MP)A 1989 being a complete bar to proprietary estoppel cases involving the sale of land.

In Dudley Muslim Association v Dudley MBC [2015] EWCA Civ 1123, Lewison LJ gave his solution at paragraph 33:

“I will assume … that a claim in proprietary estoppel is capable of outflanking s.2. But that is because it falls within an express exception … Where a defence is raised based on promissory estoppel there is no question of a constructive trust of land arising.”

This analysis is somewhat unhelpful, because it essentially dodges the point altogether. And there are material differences in the way the court approaches the remedies available to the parties in proprietary estoppel and constructive trust cases.

More recently, Hugh Sims KC (sitting as a Deputy High Court Judge) offered up his own take in Thandi v Saggu [2023] EWHC 2631 (Ch) at paragraphs 137 to 138:

“…the party relying on an estoppel is not circumventing section 2(1). They are simply being put back into a non-contractual position…”.

“…proprietary estoppel … does not bring back the doctrine of ‘part performance’ but instead recognises the equity in reversing unconscionable conduct when it is present”.

“Nor does it undermine the policy behind Section 2(1) – the parties are not contractually bound by any contract. If the contract was enforceable, it could be enforced without any detrimental reliance…”.

However, this analysis came with strings attached. At paragraphs 137 and 139 he expanded that:

“…There should be no problem with using proprietary estoppel … provided the estoppel is aimed at doing the ‘minimum equity’ to prevent an injustice. Whist it may be said to be impermissible to allow the proprietary estoppel to fulfil expectations, as this might undermine the 1989 Act, there can be no objection to estoppel operating to reverse any detriment as a result of the invalid contract.”

“…There may be greater problems in a “contractually related” case where the relief sought and granted is the same as enforcing a contract which was rendered invalid by section 2(1) … But this … does not seem to preclude relief which is not enforcing the contract, or similar to enforcement (such as a transfer of the property), but instead some other or lesser relief in the form of a relief of some detriment”.

And so we return full circle to Guest v Guest. The Supreme Court decided, by a 3:2 majority, to endorse the expectation-based approach to determining the appropriate remedy. But that case did not involve the sale of land, so did not involve consideration of what effect, if any, section 2 of the LP(MP)A 1989 should have on said approach.

Thandi v Saggu was decided after Guest v Guest, and Hugh Sims KC specifically referred to the guidance set out therein at paragraph 144. Notwithstanding this, he determined that the expectation-based approach is defeated by section 2 of the LP(MP)A 1989. Rather than seek a middle-ground, such as the appropriate remedy being something that falls just short of specific performance but greater than the minimum equity to do justice, the language he uses at paragraph 139 favours adopting the minority’s detriment-based approach where section 2 of the LP(MP)A 1989 is in play.

Clearly, the development of the principles to be applied when determining the appropriate remedy to be awarded for a proprietary estoppel remains incomplete. In time, the Court of Appeal and/or Supreme Court will likely need to revisit the guidance set out in Guest v Guest in cases involving the sale of land.

Conclusion

In the meantime, it appears that the key dangers in commercial proprietary estoppel cases are twofold: the level of sophistication of the clients, and whether the dispute involves the sale of land.

Where the second of these bites, it is best (at least in the alternative) to seek a remedy falling short of specific performance of the full bargain. The wisdom in this was demonstrated in Howe and Howe v Gossop and Gossop. I mention above how the first proprietary estoppel claim in that case succeeded. One of the reasons for this was that, although the dispute involved the sale of land, the party pleading aid of proprietary estoppel did not seek the transfer of the land but an irrevocable licence, being something less than specific performance of the full extent of the bargain (at paragraphs 53 and 54). Conversely, in Pathway to Relief v Ali, the remedy sought was nothing short of specific performance of the bargain, and Zacaroli J would likely have dismissed the claim on that basis alone (at paragraphs 57 to 60).

This article was first published in the Property Litigation Column of Practical Law.