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Developer cannot use proprietary estoppel to claim millions from client

5 August 2008

The law lords have limited the scope of the equitable doctrine of proprietary estoppel, in their first significant ruling on the subject since 1866.

In a unanimous judgment, they overturned the decisions of the lower courts awarding a property developer millions of pounds in compensation for his work on a residential development in Knightsbridge.

Delivering the leading judgment in Yeoman’s Row Management Limited v Cobbe [2008] UKHL 55, Lord Scott said an oral agreement between Cobbe and Yeoman’s Row, under which he agreed to secure planning permission for the development in return for a share of the profits, was incomplete.

“The terms that had already been agreed were regarded by the parties as being “binding in honour”, but it follows that the parties knew they were not legally binding,” said Lord Scott.

He said that proprietary estoppel required clarity.

“Proprietary estoppel requ-ires, in my opinion, clarity as to what it is that the object of the estoppel is to be estopped from denying, or asserting, and clarity as to the interest in the property in question that that denial, or assertion, would otherwise defeat.

“If these requirements are not recognised, proprietary estoppel will lose contact with its roots and risk becoming unprincipled and therefore unpredictable, if it has not already become so.”

Lord Scott ruled that Cobbe could not rely on proprietary estoppel, or on the existence of a constructive trust. He said Cobbe should be entilted only to a “quantum meruit” (“as much as he deserved”) payment for the work he had carried out on the planning application.

Lord Scott said that, prior to assessment of this sum, he should be entitled to retain only £150,000 of the £2m awarded to him by the Court of Appeal.

In his opinion, Lord Walker referred to the “great case” of Ramsden v Dyson in 1866, where proprietary estoppel was used to protect the rights of tenants on a large, landed estate.

However, he said in this case the behaviour of Mrs Lisle-Mainwaring, a director of Yeoman’s Row Management, was unattractive but not unconscionable.

“If the other elements appear to be present but the result does not shock the conscience of the court, the analysis needs to be looked at again,” he said.

“In this case Mrs Lisle-Mainwaring’s conduct was unattractive. She chose to stand on her rights rather than respecting her non-binding assurances, while Mr Cobbe continued to spend time and effort, between Christmas 2003 and March 2004, in obtaining planning permission.

“But Mr Cobbe knew that she was bound in honour only, and so in the eyes of equity her conduct, although unattractive, was not unconscionable.”

Ian Brierley, head of property litigation at DLA Piper, acted for Yeoman’s Row.

He said he was pleased that the case had brought much needed clarity to confusion.

“The decisions by the lower courts introduced uncertainty into commercial negotiations, not only in the field of property development,” he said.

“This decision sets out when and how the courts will step in to regulate commercial life where no legally binding agreement has been made.

“Having to take this case all the way to the House of Lords to defend it has taken a long time and involved Yeoman’s Row in a great deal of effort and expense.

“It is fortunate for the real estate industry that Yeoman’s Row has been prepared to fight the case to re-establish the general principle that, until there is a property contract, parties to negotiations can discontinue them without any legal liability,” he added.

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Commercial Conveyancing Landlord & Tenant