What claims are available when you expend money in the expectation of entering a contract which ultimately fails to materialise? This thorny issue arose in the context of real property before the House of Lords in Cobbe v. Yeoman's Row Management Ltd. [2008] UKHL 55; [2008] 1 W.L.R. 1752.
Mr and Mrs Lisle-Mainwaring lived along Yeoman's Row in Knightsbridge. With an amateur eye for property development, they bought a lacklustre row of flats along their street, aiming to sell the site on for conversion into swanky town-houses. The success of their business plan depended on obtaining planning permission. They agreed orally with Mr Cobbe, an experienced property developer, to sell him the site for £12 million on condition that he managed to secure the relevant planning consents. After the sale, Cobbe was to develop and sell the new residences himself. If the sale proceeds exceeded £24 million, he would divide the excess equally between himself and the Lisle-Mainwarings. Spurred on by this potentially lucrative opportunity, Cobbe drafted in expert advisers to ensure the planning application succeeded. Permission was eventually granted, but the day after the planning decision, the Lisle-Mainwarings, having realised that the site was worth significantly more than they had initially expected, “ambushed” Cobbe by withdrawing from the deal. He sought a remedy. The Lisle-Mainwarings offered to cover the cost of his work (£150,000). That was not enough for Cobbe, who wanted to share in the development potential of the project. He clearly had no cause of action in contract as the agreement was not in writing (Law of Property (Miscellaneous Provisions) Act 1989, s. 2(1)). He therefore tried to squeeze his claim under one or other of constructive trust, proprietary estoppel or restitution.
First, Cobbe's constructive trust claim was argued to have arisen out of a joint venture relating to land (see Pallant v. Morgan [1952] Ch. 43). However, he would only succeed on this basis if the Lisle-Mainwarings had bought the land after agreeing to a joint venture, which they had not done. That claim rightly failed.
Secondly, Cobbe claimed an equity by proprietary estoppel, arguing that the traditional requirements of an estoppel claim were met: (i) the Lisle-Mainwarings had represented that they would contract with him; (ii) he had detrimentally relied on their representation; and (iii) it would be unconscionable for them to renege on their undertaking, having constantly liaised with him during the planning application process. Although this argument convinced the trial judge and the Court of Appeal, the House of Lords disagreed. Lords Scott and Walker, giving the only reasoned judgments, were concerned by what they perceived to be increasing judicial reliance on subjective notions of “unconscionability” in estoppel cases (see e.g. Gillett v. Holt [2001] Ch. 201, 225), and rightly wished to guard against proprietary estoppel being used as an unprincipled “joker” card ([46], per Lord Walker). Their respective methods for imposing a tighter framework on the doctrine differed subtly as regards the language they employed.
Lord Scott adopted a technical analysis, designed to take estoppel back to its “roots” ([28]). He explained that estoppel as a matter of principle should operate by barring a party from making or denying particular assertions. For proprietary estoppel to succeed, the claimant must first bring a “proprietary claim” against the defendant's property; secondly, the defendant must be estopped by his conduct from denying the claimant's assertion (see [14]–[16]). On the facts, Cobbe made no claim to a particular proprietary right; to the contrary, he accepted that, without invoking estoppel, he had no rights to the land, merely a hope of entering a contract. This proved fatal: without a specific proprietary claim being brought against them, there was nothing which the Lisle-Mainwarings needed to be estopped from denying.
Lord Walker offered a slightly different framework, placing emphasis on the claimant's state of mind. He seemed to require proof that the claimant believed that he had been irrevocably promised a proprietary right. On the facts, Cobbe knew that the agreement was non-binding. His mere hope that the Lisle-Mainwarings would stick to their promise was insufficient ([65]–[66]) and ([91]).
Although couched in different language, the two approaches are similar in their substance: the estoppel claimant must assert that he has been promised a particular and irrevocable right over the defendant's property. Imposing such a distinct requirement is significant and novel. Indeed, Lord Walker himself, when sitting as Robert Walker L.J. in the Court of Appeal, had previously suggested that there is no need for the estoppel claimant to point to an irrevocable promise because it “is the [claimant's] detrimental reliance on the promise which makes it irrevocable” (Gillett v. Holt [2001] Ch. 210, 229). There is no doubt that Cobbe has considerably narrowed the doctrine of proprietary estoppel.
On the one hand, the decision provides a welcome injection of certainty into commercial dealings. Commercial claimants typically know when an agreement is non-binding, which will preclude recourse to an estoppel claim ([68] and [81], per Lord Walker). It seems right as a matter of principle to deny such claimants estoppel rights. Cobbe was a knowing risk-taker who could have ensured that the initial agreement was reduced to writing before relying on it. Proprietary estoppel should be reserved for those who, through no fault of their own, have failed to acquire a formal interest in property.
On the other hand, the decision may go too far in excluding worthy claimants, outside the commercial context. In particular, it will be difficult for anyone to argue that he or she truly believed an inter vivos testamentary promise was irrevocably binding. Yet previous cases, such as Gillett v. Holt [2001] Ch. 210 and Jennings v. Rice [2002] EWCA Civ 159, have allowed recovery in such circumstances. Lord Walker opined that the claimants in these cases must be taken to have mistakenly believed that the promise was irrevocable ([66]). However, this is artificial because no such specific findings of fact were ever made. The House of Lords has a timely opportunity to revisit such issues, as it is due to give judgment on the appeal from Thomas v. Major [2008] EWCA Civ 732, a case concerning estoppel in the testamentary context. It is to be hoped that the Lords proceed with caution when adapting the Cobbe formulation to non-commercial cases of this nature.
Thirdly, having failed to establish a proprietary interest in the land, Cobbe resorted to a personal claim in unjust enrichment. This time, his claim succeeded – on the ground of failure of consideration. Two tricky issues merit discussion. First, what was the value of the Lisle-Mainwarings enrichment? Was it “the difference in market value between the property without the planning permission and the property with it”; or merely the value of Cobbe's services (roughly £150,000)? Deciding in favour of the latter, Lord Scott (giving the only reasoned judgment on the point) explained that the development potential was an incident of the land itself, belonging from the outset to the Lisle-Mainwarings. By securing planning permission, Cobbe merely unlocked that potential. This principled finding brings welcome clarity to a previously uncertain area of the law (see e.g. the discussion in Virgo, The Principles of the Law of Restitution (2nd ed, 2006), pp 70–71). The second issue is more problematic. It is increasingly clear that risk-takers cannot bring a successful unjust enrichment claim (see e.g. Deutsche Morgan Grenfell v. I.R.C. [2007] 1 A.C. 558). Surely Cobbe, knowing that the agreement was non-binding, took a commercial risk that the deal might fall through? Cobbe presented an ideal opportunity for the Lords to undertake a much-needed analysis of risk as a bar to restitution. It is very disappointing that they failed to do so.
With hindsight, Cobbe should have snapped up the Lisle-Mainwaring's initial £150,000 settlement offer. Being a commercial risk-taker he was lucky that the Lords awarded him anything at all.
