Proprietary estoppel - Constructive trust

Crossco No 4 Unlimited and others v Jolan Ltd and others: Court of Appeal, Civil Division (Lord Justices Arden, Etherton and McFarlane): 21 December 2011

The parties to the appeal were shareholders in family-owned companies negotiating on a commercial basis about the terms of a demerger involving the division of the assets of those companies between the claimants and defendants. Neither party had agreed to act for the other in respect of the project.

They were not in any sort of pre-existing fiduciary relationship. There was pressure to complete the demerger transaction by the end of February 2009. The instant dispute concerned a building. By a lease dated 27 November 2007 (the lease) the building was demised to the second claimant, Piccadilly, an unlimited company, for a term of 15 years.

Clause 9 of the lease contained a landlord's break clause operable on three months' notice. Between 31 October 2007 and 9 April 2009, the landlord of the building was Crossco No 4 Unlimited, the first claimant. On that day, pursuant to the demerger, it was transferred to Jolan Piccadilly Ltd (Jolan), the second defendant. Piccadilly traded from the ground floor of the building, operating an amusement arcade. The upper floors were vacant. The lease was within the security of tenure provisions of the Landlord and Tenant Act 1954 (the 1954 act).

Jolan wished to carry out an extensive conversion and development of the building. It wished to convert the ground floor and basement into three retail or restaurant units and to convert the upper parts into a hotel. Jolan obtained planning permission for that development. It pre-let the ground floor and basement units to third parties. Jolan served a notice on Piccadilly to operate the break clause in the lease and also served a notice on Piccadilly pursuant to section 25 of the 1954 act.

Jolan opposed the grant of a new tenancy to Piccadilly on the ground that it intended to redevelop the building, relying on the ground of opposition in section 30(1)(f) of the 1954 act. The claimants issued proceedings claiming that various discussions that had taken place on 18 February 2009 and various communications between that date and the date of the demerger on 10 March 2009 prevented Jolan from seeking to operate the break clause in the lease in relation to the ground floor of the building.

They contended in the proceedings that a binding oral agreement had been reached on 18 February 2009 which had that consequence; alternatively that the formal contractual documents ought, if necessary, to be rectified to produce that result; alternatively that equitable principles as to estoppel and constructive trust could be relied upon so that Jolan was not able to rely on the break clause in the way it had sought to do. The Judge dismissed all those claims. The claimants appealed his decisions on estoppel and constructive trust.

The issues for determination were whether, on the evidence, the requirements for an estoppel and/or constructive trust had been met. The appeal would be dismissed.

(1) Although it was possible that, in the future, common intention constructive trusts might be limited to family cases, that position was not so clear for the court not to be bound by existing established caselaw (see [122], [129] of the judgment). In the circumstances, analysing the requirements for a constructive trust, the critical question was whether the conduct of the defendants had been unconscionable. In the circumstances, it had not been. Inter alia, the defendants had been unaware that the claimants had been unaware as to the existence of the break clause until after the demerger. The claimants’ mistake could not make the conduct of the claimants unconscionable. Furthermore, there had never been a sufficient agreement on the extent of Piccadilly’s demise of the ground floor. It had been the intention of the parties to reduce their agreement to a formal written contract, and it was clear that the mutual intention of the parties had been that they not to be bound until then (see [98]-[113], [123], [131] of the judgment).

Banner Homes Group plc v Luff Developments Ltd [2000] 2 All ER 117 applied; Pallant v Morgan [1952] 2 All ER 951 considered; Gissing v Gissing [1970] 2 All ER 780 considered; Yeoman's Row Management Ltd v Cobbe [2008] 4 All ER 713 considered; Stack v Dowden [2007] 2 All ER 929 considered; Herbert v Doyle [2010] All ER (D) 126 (Oct) considered; Jones v Kernott [2011] All ER (D) 64 (Nov) considered.

(2) So far as proprietary estoppel was concerned, it was common ground that the main elements of the doctrine were a representation or assurance made to the claimant; reliance on it by the claimant; and detriment to the claimant in consequence of his (reasonable) reliance. On the evidence, the judge had been entitled and right to conclude that none of those requirements were satisfied in the instant case.

Further, in view of the fact that the parties had never reached agreement as to the vital question of the physical extent of Piccadilly's continuing demise of the ground floor, and they had never discussed the duration of any leasehold interest that Piccadilly would continue to enjoy outside the terms of the lease, it was impossible to see that the claimants’ side had an expectation of ‘a certain interest in land’ which was a requirement of proprietary estoppel. At no time between 18 February 2009 and completion of the demerger had they expected to be entitled to remain in possession of the ground floor save pursuant to a lease, the vital terms of which as to area of the demise and duration had still to be negotiated and agreed (see [114] of the judgment).

Yeoman's Row Management Ltd v Cobbe [2009] 1 All ER (Comm) 205 considered.

Decision ofMorgan J [2011] All ER (D) 13 (Apr) affirmed; Michael Driscoll QC and Ciaran Keller (instructed by Pinsent Masons LLP) for the claimants; Romie Tager QC and Justin Kitson (instructed by Addleshaw Goddard LLP) for the defendants.