The proposition that ‘equitable estoppel is a flexible doctrine... but it is not a joker or wild card to be used whenever the court disapproves of the conduct of a litigant who seems to have the law on his side’ was the starting point for Lord Walker’s judgment in the recent House of Lords decision Yeoman’s Row Management Limited v Cobbe [2008] UKHL 55.

In the same case, Lord Scott stated that proprietary estoppel requires ‘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 done so’.

Unfortunately, in Yeoman’s Row, the Lords have done little to clarify this difficult area. While subtle and perhaps artificial distinctions have been drawn in an attempt to confine the doctrines of proprietary estoppel and constructive trust, incautious dicta have now cast doubt on some well-established principles.

Yeoman’s Row owned a property and entered into an informal oral agreement with Mr Cobbe that Mr Cobbe would apply for planning consent for residential development. Once planning permission was granted, Yeoman’s Row would sell the property to Mr Cobbe for £12m, plus 50% of any gross proceeds of sale of the property achieved after development in excess of £24m. After Mr Cobbe obtained planning consent (at an alleged cost to himself of around £200,000), Yeoman’s Row refused to sell the property to him at the previously agreed price.

Both in the present case and in the Court of Appeal it was decided that, by relying on the informal agreement, and by making a substantial investment in the successful planning process, Mr Cobbe had established a proprietary estoppel. He was therefore awarded an equitable interest in the property and was entitled to 50% of the increase in value of the property resulting from the grant of the planning permission. The Lords, however, unanimously disagreed.

Where a defendant has received the benefit of a claimant’s enhancement of the defendant’s property, but the promised contract to sell, which encouraged the claimant to act for the defendant’s benefit, never materialises, what is the claimant entitled to expect from the court? As highlighted by Lord Justice Mummery in the appeal court, the question provokes different reactions. First, there are those who think that the claimant is not entitled to expect anything. The person who acts prematurely and imprudently without securing the protection of a prior contract takes the risk of getting nothing. Second, there are those who think the claimant’s entitlement should be limited, for example to reasonable payment for his efforts and reimbursement of his expenditure. Third, there are those who think that the court should not let off lightly the defendant who is culpable of unconscionable conduct: he should be made to behave decently, such as by satisfying the specific expectation of a right or interest in the property that he has raised in the claimant, and from which he has unconscionably derived a benefit which he seeks to retain.

According to the Lords, Mr Cobbe was not entitled to any proprietary remedy, whether claimed by proprietary estoppel or by constructive trust. Instead, he should merely receive an amount to compensate him for the time and expense incurred in obtaining the planning permission.

Lord Scott, with whom three of the other Lords agreed, gave the leading judgment. Lord Walker gave the only other detailed judgment and came to the same conclusions as Lord Scott.

Lord Scott placed emphasis on the need for a claimant bringing a proprietary estoppel claim to be acting under the expectation of acquiring a ‘certain interest’. Although Mr Cobbe and the landowner had informally agreed the core terms as to price and so forth, there were still detailed terms that were to be negotiated after the grant of planning permission. The court would not have been able to infer what the outcome of those negotiations would have been. Mr Cobbe’s expectation, being dependent on the conclusion of successful negotiations, was therefore held not to be a ‘certain interest’. In such circumstances, it was held that a proprietary estoppel could not arise.

Furthermore, in circumstances where negotiations are expressly made ­‘subject to contract’ a proprietary estoppel cannot ordinarily arise, because the would-be purchaser’s expectation of acquiring an interest in the property is subject to a contingency entirely under the control of the other party to the negotiations.

Such expectation is therefore purely speculative. Although Mr Cobbe’s dealings had not been expressed to be ‘subject to contract’, both parties were well aware that their informal oral agreement was legally unenforceable and only bound the parties ‘in honour’ and, according to the Lords, this had a similar effect to such a ‘subject-to-contract’ proviso.

Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 imposes requirements that contracts for the sale of land must be in writing and signed. The act makes an express exception to the formality requirements in cases of resulting, implied and constructive trusts, but makes no reference to cases of proprietary estoppel. The fact that Mr Cobbe had only an oral agreement and was relying on a proprietary estoppel argument meant that this statutory hurdle had to be overcome.

According to Yaxley v Gotts [1999] EWCA Civ 3006 the formality requirements of the 1989 act ought not to have been insurmountable. Here, the appeal court held that ‘the doctrine of estoppel may operate to modify (and sometimes perhaps even counteract) the effect of section 2 of the 1989 act. The circumstances in which section 2 has to be complied with are so various, and the scope of the doctrine of estoppel is so flexible, that any general assertion of section 2 as a "no-go area" for estoppel would be unsustainable’.

As some of the terms of Mr Cobbe’s intended agreement had not been agreed, Lord Scott held there was no prospect of an order for specific performance. Nevertheless, Lord Scott incautiously stated, without reference to Yaxley v Gotts or to any other authority, that: ‘My present view, however, is that proprietary estoppel cannot be prayed in aid in order to render enforceable an agreement that statute has declared to be void. The proposition that an owner of land can be estopped from asserting that an agreement is void for want of compliance with the requirements of section 2 is, in my opinion, unacceptable. The assertion is no more than the statute provides. Equity can surely not contradict the statute.’ Lord Walker did not consider it appropriate to express any opinion on the issue which is likely to be revisited in future cases. Lord Scott explained that a proprietary estoppel arises 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’. No authority was cited for this proposition either. However, taken at face value, this comment casts a serious doubt on the previously orthodox view that the doctrine of proprietary estoppel, which unlike other estoppels can give rise to a cause of action not merely a defence, is confined to claims over land. It should be noted, though, that the comment was obiter as the claim before the Lords concerned land. However, perhaps inadvertently, Lord Scott has opened the door to a much wider range of proprietary estoppel claims.

Mr Cobbe also relied on the doctrine of constructive trust. There are various authorities in which parties have informally decided to enter into a joint venture for which land needs to be bought, but after one party buys the land the joint venture does not proceed. The courts have concluded that in such cases the land purchased is generally held on constructive trust for the parties to the venture. There is no reason to doubt such conclusions. But the Lords were not prepared to impose a constructive trust in a situation where one party already owns land before entering into the joint venture, and the unconscionable behaviour was a failure to honour an informal agreement which the parties always knew was not enforceable.

The arguments as to a proprietary remedy having failed, the Lords addressed Mr Cobbe’s personal claims. Whether analysed in the context of unjust enrichment, or as a quantum meruit, or as restitution of consideration which has failed, Mr Cobbe was held only to be entitled to reimbursement of his outgoings and for his time. This payment would neither reflect any expectation of profit that he might have had when entering into the informal agreement, nor any proportion of the increase in the value of the land arising from his efforts.

Mr Cobbe, despite being an experienced businessman, deliberately ran the risk of obtaining the planning permission without first entering into a formal contract. In that context, the Lords’ decision is readily explicable. However, informality and oral agreements giving rise to successful proprietary estoppel arguments usually arise in a domestic context. In such cases, there is frequently a lack of clarity both as to the details of the representation being relied on and as to the expectation that results. The imposition by Lord Scott of requirements of certainty fits awkwardly with such cases, and in years to come this decision may be seen to turn on its own unusual facts.