Last word on proprietary estoppel awards

The Supreme Court’s eagerly awaited decision in Guest v Guest provides the first top-level guidance practitioners have had for many years on how to calculate a proprietary estoppel award. 

The result is a split decision, yielding two judgments that analyse the principles involved in very different (but equally convincing) ways. Lord Briggs, Lady Arden and Lady Rose favoured an approach that yielded an award worth around £1.3m for the claimant (albeit with some of that deferred); Lord Leggatt and Lord Stephens favoured a different approach which would have given him £610,000 straight away.

This decision can be regarded as the last word on proprietary estoppel awards, at least for the foreseeable future. So where does it leave farming families and those trying to advise them?

Proprietary estoppel

The circumstances in which an estoppel claim can hit a farming family are only too familiar:

1.    a parent (usually) encourages their child to work with them on the family farm, suggesting that if they do, they will reap the reward for their hard work in the future;

2.    the child interprets this as a binding promise that they will inherit the farm (without anyone actually discussing the details) and spends the next 30+ years of their life working on the farm for very low pay;

3.    parent and child then fall out and the parent decides not to leave the farm to the child after all;

4.    the child says it is too late for the parent to go back on their promise (even though the parent did not realise they had made a binding promise in the first place).

In these circumstances, the court can intervene and force the parent to do right by their child.

This is a hugely powerful jurisdiction. It allows the court – in the pursuit of justice – to override statutory requirements that were introduced in order to give people certainty. For example, section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 requires any contract for the sale or disposal of land to be in writing. Estoppel allows the court to circumvent that and impose a binding commitment to dispose of land long after the event. If the parent who made the promise has died, the court can even circumvent the requirements of the Wills Act by using its powers to layer a trust over some of the parent’s assets so that they pass to the wronged child.

The Supreme Court considered the difficult question of how to calculate the award when a claim succeeds. Should the court be aiming to compensate the child for the detriment they suffered (usually with money); or to force the parent to keep their promise (usually by transferring some or all of the farm to the child)? The second approach generally results in a much larger award for the child.

The Supreme Court’s answer is neither: the aim is to do justice to the child. Compensating detriment or enforcing promises are merely different ways to achieve that end and it is up to the judge to decide which is appropriate in each case. Often, justice will require the parent to keep their promise, but if forcing them to do so seems disproportionate in any given case, the court can award something different, perhaps linked to the detriment they suffered.

Those are the principles but the Supreme Court’s split decision shows how difficult it is to apply them in practice. For Andrew Guest, the different approaches outlined in the judgment suggest that either an award worth £1.3m (made up of a partnership interest and a deferred interest in the farm, held on trust) or an award worth £610,000 (in cash) could have been justified.

For solicitors, that level of uncertainty is a problem. If you are trying to help clients make reliable, tax-efficient succession arrangements, the prospect of a court unpicking things later on is frightening. The court might slice through the arrangements you planned so carefully, scrambling your tax planning and potentially forcing a sale of the family farm your clients had been so keen to protect. Often, the court’s ruling will not extend to fine details such as when the claimant acquired an interest in the farm, or precisely what that interest is/was, but those details are vital to those who have to work out the tax consequences.

If you are a litigator trying to settle an estoppel claim, the idea that the outcome could be £610,000 or £1.3m, and either outcome would be perfectly justifiable, is a nightmare, especially if you also cannot predict the form that provision might take, when it will have to be raised and paid, or what impact it might have on the tax everyone has to pay. Anyone who recommends a settlement proposal to a client has no option but to think about those details.

And for farming families, it seems the only safe approach is to start planning very early on. If, as many do, you regard succession planning as something that can wait until you are in your 50s or 60s, the danger is that by then it will be too late and, although you did not realise it was happening, your hands have already been tied.

James Aspden is a partner at Wilsons Solicitors LLP, Salisbury and London