27 May 2014

Proprietary estoppel: when showing an interest can mean obtaining an interest

Michael Gouriet
Partner | UK

Establishing an equitable interest is an entirely alien concept in many jurisdictions, and the recent Court of Appeal decision, Davies & Another v Davies [2014] EWCA Civ 568, would probably also come as a surprise to many people in this country. The idea that a claim against a thriving family farming business could effectively be based on a promise, originally made by a father to his daughter 25 years ago, certainly takes some explaining. It is an established equitable principle that equity regards as done what ought to be done, but the difficult question is often what ought to be done? Possibly the most troubling aspect of equity at work is the lack of certainty. As family lawyers, we are used to the discretionary powers of the court and the wide range of decisions that a judge can make within the parameters of what is lawful.  Similarly, the Court of Appeal decision in Davies may make sense to those well versed in equitable principles and property litigation, but for some the outcome would be unthinkable. It was not necessary for Eirian Davies to establish that there was an agreement or even a common intention that she should have an interest in her parents' farm in order for her to have a successful claim in proprietary estoppel, but rather that she mistakenly believed that she had that interest. Given that it is seemingly fairly commonplace for farmers to keep hold of their farming business during their lifetimes, leaving their family working for them in the hope of an inheritance but without any security, this decision is likely to send ripples through the farming community. The principles In order to prove an entitlement to an interest in property, or other equitable relief, on the basis of the doctrine of proprietary estoppel there must be a representation, a reliance and detriment.  The detriment suffered need not be financial but must be substantial, and must be judged at the point when the person who gave the assurance seeks to renege on it. Importantly, these are not watertight compartments and the facts and circumstances of the case must be considered in the round. The question for the court is would it be unjust or inequitable to allow the assurance to be disregarded. The history Eirian was the only one of the Davies' 3 daughters who was interested in their farming business, and she has worked for them for most of her life. She has had a few brief interludes of living away from the farm (when she fell out with her parents), notably for 2 years from 1989-1991 when she left the farm after falling out with her parents over her then boyfriend, now her ex husband, and then again from 2001 and 2006. She left again briefly in 2007 and only returned in 2008 when her father promised she could live in the farm house rent free for life. Mr and Mrs Davies were clearly reluctant to formalise their arrangement with their daughter. There was an opportunity to create a Partnership Agreement in 1998, and Eirian signed the document, but her parents did not (although until 2001 she thought that they had signed it). Ten years later, in 2008, they drew up the documents necessary to transfer a 49% share in the business to Eirian, but again the documents were not signed — although the parties acted as though they had been. Interestingly,  they did not sign the documents in 2008 because Eirian was in the midst of divorce proceedings and did not want to have the shares, which raises questions about another equitable maxim ‘he who comes into equity must come with clean hands.' This point did not appear to have been raised in the Court of Appeal. Instead the case seems to follow the reasoning in Thompson v Humphrey [2009] EWHC 2576, when the fact that there was a draft agreement that the claimant did not have an interest in the property, proved helpful to the landowner. In that case, the Judge said that there was a heavy onus on the claimant to show that the intentions had changed from when the agreement was drafted. In 2012 their troubled relationship with their daughter reached breaking point, and they terminated her employment and sought to evict her on the basis that the gratuitous licence over the farm house had also been terminated. Nearly 2 years later, all three are embroiled in ongoing litigation as to what rights their daughter has over their farming business. In practice Eirian made a claim based on the doctrine of proprietary estoppel; she claimed that she relied, to her detriment, on assurances made by her parents that the farm would one day be hers, and/or that she could live in the farm house rent free for the rest of her life. The trial judge found she had an entitlement to an equity over the farm and/or the farming business, with the nature and extent of her claim to be determined at a further hearing. Her parents appealed, but the Court of Appeal found that the trial judge's decision was not perverse or plainly wrong. Now there will be further litigation to establish whether she has a financial claim, a share in the property or the business, a licence to occupy the farm house, or any other equitable solution that a judge considers appropriate. There are a broad range of remedies available, and the uncertainty as to how her claim will be met, surely means that for this family more litigation is almost inevitable. Detriment One of the most interesting aspects of the judgement relates to establishing that Eirian has acted to her detriment. The idea that their daughter has suffered a detriment must be a difficult concept for Mr and Mrs Davies to accept; for all intents and purposes they provided for their daughter Eirian, now aged 46, for most of her life. Save for a few short spells of independence, she has worked on their farm in return for staying in the farm house and receiving payment (perhaps not at commercial rates) for most but not all of the work she did. However, the trial judge found that the alternative career path that Eirian could have pursued would have offered significant advantages that were denied to her by remaining on the family farm. She enjoyed the job she had during one of her interludes away from the farm, and although she may not have been better off financially, she would have had a better work life balance — leaving time to spend time with her daughters after school, and working with people with whom she did not have a difficult relationship. As in Gillett v Holt & Anor [2000] 2 FLR 266 ** detriment was not defined as a narrow or technical concept; there was a broad enquiry as to whether repudiation of an assurance was or was not unconscionable in all the circumstances.  However, the facts of this case were not as unambiguous as in Gillett v Holt, where the assurances were repeated over a long period and usually before an assembled company. The Court of Appeal found that the judge did not restrict his decision on detriment to financial detriment and that ‘Once it is appreciated that the detriment to Eirian was not purely financial, the judge was not bound to quantify the benefit of free accommodation at Henllan.' Furthermore it was not necessary for the judge to make positive findings at every stage — the Court of Appeal found that the judgment implies that there were operative representations at the relevant times. The evaluation exercise which the judge performed was not flawed and there was no justification for interfering with it. Lessons to learn? From a practitioner's perspective it is helpful to have a further Court of Appeal decision on proprietary estoppel. However, it demonstrates that each case turns on its particular facts, and the judge's understanding of those facts, which makes it difficult to appeal. When applying esoteric equitable principles of trust law that are based on case law precedent not statute, uncertainty is inevitable. As Carnwath LJ said in Stack v Dowden [2005] EWCA Civ 857: 'To the detached observer, the result may seem like a witch's brew, into which various esoteric ingredients have been stirred over the years, and in which different ideas bubbled to the surface at different times.  They include implied trust, constructive trust, resulting trust, presumption of advancement, proprietary estoppel, unjust enrichment, and so on.  These ideas are likely to mean nothing to laymen, and often little more to the lawyers who use them'. This sentiment offers little comfort to any member of the Davies family. Michael Gouriet, Partner, and Jemma Thomas, Professional Support Lawyer, Withers' Family Law team. * * * *

Michael Gouriet Partner | London

Category: Blog