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Promises, promises, promises… Guest v Guest and proprietary estoppel

Posted: 04/07/2022


The issue of proprietary estoppel has come to the fore again in the case of Guest v Guest which was heard in the Supreme Court in December 2021 and on which judgment is eagerly anticipated.

Proprietary estoppel may arise where a promise is made to someone who relies upon it to their detriment, and where failure to keep that promise results in an unacceptable or unconscionable outcome. If a proprietary estoppel is found, this promise may be binding. If so, the question boils down to the extent to which said promise is binding and determining the amount of any award or remedy to the claimant.

The Guest case involves a family run dairy farm, owned by parents David and Josephine Guest, and worked on by their eldest son, Andrew Guest. Andrew had worked hard on the farm for over 30 years for modest reward. Based on his parents’ assurances, he had the expectation that he would inherit a significant proportion of the farm after their deaths. Following a breakdown in family relations, Andrew left the farm and was subsequently disinherited entirely. He brought a claim of propriety estoppel against his parents, unusually, while they were still living. He was successful. The Court of first instance made an award based on Andrew’s expectations to inherit which, given the deterioration in family relations, required selling the farm; the so-called “clean-break” solution. The appeal, made by the parents on the grounds that the award had been assessed incorrectly, was dismissed by the Court of Appeal.

Important factors in the Guest case include:

  • The fact there is a living testator;
  • How the remedy awarded was assessed; and
  • The “clean-break” solution, accelerating the inheritance, so as to be granted within the testator’s lifetime.

The key issue before the Supreme Court is how the level of relief for a successful proprietary claim is assessed, i.e. determining the amount of any award or remedy due.

In this article we look at the case in more detail, and proprietary estoppel (answering questions such as when is a promise binding) in general.

When is a promise binding?

As is the case with many legal questions, the answer is, it depends. Whilst there are occasions when promises are clearly binding and easy to prove, such as those contained in contracts or other legal agreements, however, promises that are less clear may also be binding and enforceable. One of the ways in which this is possible is through establishing a Proprietary Estoppel.

What is an estoppel? What is a proprietary estoppel?

An Estoppel is a function of the law that “estops”, or in other words, stops, a party from going back on a promise made. A Proprietary Estoppel is simply an Estoppel that relates to property, including objects, chattels, and land.

A Proprietary Estoppel may arise where someone (the “Promisor”) promises a right to property (including land) to someone else (the “Promisee”) that does not actually end up being granted to the Promisee.

The requirements for a Proprietary Estoppel to arise are that the promise made by the Promisor is relied upon by the Promisee to their detriment, in such a way that results in an unacceptable or unconscionable outcome.

As you can imagine, Proprietary Estoppel often arises following someone’s death, where the Deceased (Promisor) has promised that an inheritance or right to property would be left to someone (the Promisee). However, Proprietary Estoppel can arise in other situations, and in some rare cases, where a testator/Promisor is still alive.

This particular situation was the subject of dispute in the ongoing case of Guest and another (Appellants) v Guest (Respondent), which this article explores in greater detail further below. The case was heard by the Supreme Court (on appeal from the Court of Appeal) on 2 December 2021 and we are awaiting judgment.

How does estoppel work?

Estoppel and Proprietary Estoppel form part of the law known as Equity and with the latter forming one of the remedies available, known as Equitable Remedies. Equitable Remedies exist to give the Court a means of granting rights and righting wrongs to deliver outcomes that the Court sees as correct, based on principles of justice, fairness, and unconscionability. These remedies exist separately to legal rights and remedies. Because of this distinction, equitable remedies will only be granted where legal remedies (which primarily take the form of compensatory damages) fail or are insufficient.

Proprietary Estoppel neatly highlights this distinction, as it arises in situations where the legal owner of property makes a promise (the Promisor) to someone who has no legal interest in that property (the Promisee), that they will gain some legal interest in that property, causing the Promisee to act on that promise to their detriment, in circumstances that would make it unconscionable for the Promisor to renege on that promise.

When all these criteria are established, a Proprietary Estoppel will arise, meaning that, whilst the strict legal ownership of that property does not change, the Promisee gains an equitable interest or receives some form of equitable relief.

Equity and Proprietary Estoppel, therefore, can broadly be described as the Court’s way of ensuring that it is able to deliver fair outcomes where the strict application of the law does not.

The idea of unconscionability underpins Equitable Remedies, as explained by Robert Walker LJ in Gillet v Holt [2000] 2 All ER 289, “the fundamental principle that equity is concerned to prevent” is “unconscionable conduct”, but what does unconscionable actually mean in practice?

Oliver J in Taylor Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] QB 133 noted that “it would be unconscionable for a party to be permitted to deny that which, knowingly or unknowingly, he has allowed or encouraged another to assume to his detriment

In Cobbe v Yeoman’s Row Management Limited [2008] UKHL 55, Lord Walker defined unconscionability as a term to describe how unfair a situation would be when the other elements of Proprietary Estoppel are established, stating:

it does in my opinion play a very important part in…estoppel, in unifying and confirming, as it were, the other elements. If the other elements appear to be present but the result does not shock the conscience of the court, the analysis needs to be looked at again

Essentially, Lord Walker describes unconscionability as a set of circumstances that shocks “the conscience of the court”, and that this would almost inevitably arise when the other factors are present.

What factors make a promise binding? What factors create an estoppel?

Lewison LJ succinctly summarised the factors relevant to giving rise to a Proprietary Estoppel in Davies v Davies [2016], noting that there must be:

  • (a) an assurance of sufficient clarity
  • (b) reliance by the claimant on that assurance; and
  • (c) detriment to the claimant in consequence of his reasonable reliance

Once these are established, the Court will make an overall assessment of how unconscionable an outcome is and award a remedy to right that wrong.

What is an assurance?

Proprietary estoppel broadly covers three distinct situations: a “representation”, meaning a description of an existing state of affairs made by one party to another; a “promise”, made by one party to another; or an “assurance” made by one party to another over the latter party’s rights, regardless of whether that party actually had any rights as a matter of law. For simplicity and for the purposes of this section, the term “representation” will be used to mean any representation, promise or assurance. The estoppel operates to hold the party who made the representation to their word.

The Courts have taken a fairly broad interpretation of what constitutes a representation, even in cases where it is hard to find a specific occasion on which it was given.

One element of the assurance that must be satisfied is clarity and certainty over what was promised, the asset that is being promised must be identifiable. In Layton v Martin [1986] 2 FLR 227, “financial security” was not specific enough to give rise to an estoppel, whilst in Re Basham (Decd) [1986] 1 WLR 1498, “the whole of A’s estate” was sufficient.

The broad approach of the Courts is perhaps best illustrated by the House of Lord’s (now the Supreme Court) judgment in Thorner v Major [2009].

Facts

In Thorner v Major, the appellant (D) sought to enforce a representation made by his deceased uncle (P). At the time of his death in 2005, P had a substantial estate including a valuable farm. P had made a will in 1997, leaving the residue of his estate to D, however, P later destroyed this will and died intestate (without a will). D had worked on the farm since 1976 and had come to believe that he would inherit the farm. Whilst no specific or express representations, promises, or assurances were made by P, however, P had hinted and made passing remarks to this effect over the years. The trial judge found an estoppel in favour of D on the basis that D had reasonably understood P’s words and acts to mean that he would inherit the farm. On appeal, the Court of Appeal reversed this decision, saying that there was no “clear and unambiguous” promise.

D appealed this ruling to the House of Lords, arguing that the standard required was not for a promise to be clear and unambiguous.

The House of Lords agreed with D and the trial judge, ruling that a promise needs only be “clear enough” and that this standard would be “hugely dependent on context”. In this case, the Court paid particular attention to D’s work for no remuneration and that in 1990, P handed over to D an insurance policy, stating “that’s for my death duties”. In all the circumstances and context, the Court concluded that these conducts and “other oblique remarks which indicated that Peter intended David to inherit the farm” made it reasonable for D to have taken P’s words and acts as a promise.

Whether the asset promised was certain and specific enough was another issue of contention discussed by the Court in this case. It was argued that, as bits of land were bought and sold as part of the farm over the years, there was insufficient certainty over what P was promising. Lord Neuberger opined that it would be a “substantial emasculation of the beneficial principle of Proprietary Estoppel” if what was required was “the precise extent” of the property being promised “to be strictly defined in every case” and that “focusing on technicalities can lead to a degree of strictness inconsistent with the fundamental aims of equity”. As such, the Court found sufficient certainty in what had been promised to D.

What does this mean?

The result of the Court’s broad approach means that one must be careful when making comments that could be construed as a promise. Even if the comments are not specific or explicit, if they could be reasonably understood by someone else to be akin to a promise, they may be enforceable. The Court’s approach to defining the subject of a promise shows how equity operates in a broader sense, seeking to deliver just outcomes and, where possible, avoiding being too bogged down in technicalities that undermine the principles of justice, fairness and unconscionability.

What is detriment, reliance, and consequence?

The simple existence of a representation does not make it binding or enforceable in and of itself. The other key elements of reliance, detriment and unconscionability must also be present, and these must be as a result of the Promisee’s actions following the promise.

The requirement of a Claimant’s (C) reliance on the representation made by the Promisor (P) means that C must have had a “change of position”, as per ER Ives Investments Ltd v High [1967] 2 QB 379, or acted differently to how they otherwise would have, as a result of that promise.

The reason for this is that equity seeks to provide a remedy for wrongs that otherwise would have none. It cannot realistically be said that someone has suffered a wrong when nothing has happened to them, and they haven’t changed their position. In Wayling v Jones (1993) 69 P & CR 170, Balcombe LJ stated “there must be a sufficient link between the promises relied on and the conduct which constitutes the detriment”.

C must also demonstrate that they subjectively understood the promise to be true, as equity is underpinned by the principles of justice and fairness. If C is seeking to enforce a promise that they did not know to be true, or worse yet, knew to be untrue, this would be neither just nor fair.

C’s reliance on the promise must also be reasonable, however, this will be interpreted in line with all of the relevant facts, not just those known at the time of the reliance. In Thorner v Major, Lord Hoffman noted that reasonableness can be found “even if it required later events to confirm that it was reasonable”.

Once C has established that there was a promise that they reasonably relied on, they must then show that they suffered a detriment, as a result of relying on that promise. In Wayling v Jones (1993) 69 P & CR 170, Balcombe LJ stated “there must be a sufficient link between the promises relied on and the conduct which constitutes the detriment”. Again, the reason for this is the equitable principle of fairness and seeking to right wrongs. It cannot be said that C has been treated unfairly or has been wronged by relying on a promise that has benefited them, or where a detriment they have suffered was not as a result of relying on the promise they’re looking to enforce.

How detriment works in practice

Thorner v Major is again a very helpful illustration of how this principle operates in practice.

The House of Lords made reference to the trial Judge’s analysis of D’s reliance on the promise that he would inherit the farm, with the trial Judge stating “I find that this remark and conduct on Peter’s (P) part strongly encouraged David (D), or was a powerful factor in causing David, to decide to stay at Barton House and continue his very considerable unpaid help to Peter at Steart Farm”. The Judge also noted that D had other options available to him that he had been considering.

Lord Walker made further reference to the trial Judge’s analysis that D’s unremunerated contribution was substantial, in excess of the efforts of others and was encouraged to do so by P’s words and actions, further noting that “There is a clear and sufficient link between the encouragement from Peter and what David did for him on his farm”.

The House of Lords further noted that the Promisor’s knowledge of the Promisee’s reliance is not a factor to be considered, reasoning that “It is not necessary that Peter should have known or foreseen the particular act of reliance”.

What does this mean?

In this case, it was fairly easy to establish that D had both relied on P’s promise and suffered a detriment as a result of his reliance, as D had worked for free for many years and ignored other opportunities available to him, in the expectation that he would inherit the farm. Alternatively, it is even clearer when the question of whether D reasonably relied on P’s promise and suffered detriment is flipped. Would it have been reasonable for D to work for free for many years, rejecting other opportunities, with no belief that he would inherit the farm, or gain any benefit?

Despite this, detriment is interpreted widely, as per Watts v Storey (1983) 134 NLJ 361, “the categories of detriment [are] not closed” and Robert Walker LJ in Gillett v Holt it is not a narrow or technical concept” not needing to be “the expenditure of money or other quantifiable financial detriment as long as it is something substantial” and must be considered “as part of a broad inquiry” regarding whether not enforcing “an assurance is or is not unconscionable in all the circumstances”.

What if the person making the promise is still alive? What if there’s a living testator?

Usually, the promise relates to an inheritance, so the fact it has been broken is only discovered after the Promisor dies. Accordingly, a remedy is sought and applied after the Promisor/ testator dies. However, this doesn’t always apply…

Guest v Guest

Guest v Guest concerns Tump Farm, a family run dairy farm, owned by David and Josephine Guest. Their eldest son, Andrew Guest, had worked on the farm for over 30 years; living rent-free in one of the cottages and receiving a basic wage. He had made various operational improvements and taken over the running of certain elements, with the expectation that, based on his parents’ assurances, he would inherit a significant proportion of the farm. His siblings would inherit the rest. Following a breakdown in family relations, Andrew left the farm. He was subsequently disinherited and brought a claim of propriety estoppel against his parents while they were still living.

Judgment at first instance:

The Judge found that a clear enough assurance was given by the parents to the son through conversations over the course of nearly 40 years, which were supported by the terms of early wills and partnership agreements. Although the exact details of the inheritance were left open and it was to be split between the siblings, Andrew’s share was clearly going to be significant. It was argued by the parents that they did not know of the son’s expectations and so had no cause to correct them. This was rejected by the Judge on the basis it was clear that the parents had encouraged Andrew in his belief that he would benefit substantially from Tump Farm.

Reliance on the assurance and detriment suffered as a result were taken together by the Judge and were deemed to be obvious on the facts. The son’s hard work on Tump Farm for nearly 40 years for basic pay demonstrated a reliance on the promise that he would take over the running of certain elements, which he would eventually inherit. The benefits of accommodation and expenses were not considered to have off-set the low pay. The Judge determined that Andrew would not have worked as he had for little financial reward, without the encouragement that he would one day inherit.

The Judge highlighted that a conclusion of unconscionability does not automatically follow from the conclusion on assurance and detriment. Although he considered the son’s role in the breakdown in relations, he determined this did not adversely impact Andrew’s claim or “proprietary expectation”. He decided it would be unconscionable to conclude that the son was wrong to expect to inherit.

On this basis, the claim for proprietary estoppel was established; there was equity to be satisfied. The main issue in this case (and which was the subject of appeal firstly to the Court of Appeal and now the Supreme Court) is how to satisfy the equity that arises, or put another way, what should the court award?

The Remedy:

Given the breakdown in family relations, the Judge at first instance decided a “clean break solution” would be necessary, which meant the farm had to be sold in order for a lump sum to be paid to the son. The lump sum was calculated based on 50% after tax of the market value of the farming business and 40% after tax of the market value of the farmland and buildings on the farm.

Key Points:

How is the remedy calculated?

How the remedy was calculated is a key point as it underlines how the minimum award to avoid an unconscionable outcome is determined.

To quantify the remedy, the Judge turned firstly to the son’s expectation, namely that he would take over the running of elements of the farm and businesses and eventually inherit those elements. This needed to be in proportion to the value of detriment he had suffered and also not be too extravagant. The court needed to also take into account the parents’ continued interest in the property and the interests of others who may have claims to it.

After consideration of all of the elements, the court based the remedy on Andrew’s expectation.

Accelerated award

The fact there was a living testator is significant as the consequences of their broken promise were faced during their lifetime.

A particular aspect of the Guest case is that the son’s expectation was to inherit only after the death of both of his parents. However, family relations had deteriorated so badly, that the Judge deemed there was a need for a so-called “clean break solution” and for the remedy to be applied before the deaths of the parents. Therefore, the Judge decided that the Farm must be sold. This had the effect of accelerating the entitlement to be granted within the testator’s lifetime.

The Court of Appeal decision

Unsurprisingly the parents appealed on the grounds that:

  • Relief based on son’s expectation to inherit was wrong. It was submitted that the remedy should have been based more on what the parents had intended. However, it was held that the trial court was correct to take account of all circumstances, including treating Andrew’s expectations as a strong factor.
  • The relief went beyond what was necessary to avoid an unconscionable result. It was submitted that the minimum award should have been by way of a charge on the farm or farming business. One suggestion was that Andrew should have been awarded a sum reflective only of the improvements he had made to the farm which had resulted in an increase in its value. This was rejected on the basis that the assurances his parents had made, namely that he would inherit a proportion of the farm, had been sufficiently clear. It would be unconscionable to limit the award to an increase in the value of the farm.
  • Relief should not have been granted whilst the parents were still alive, but on the second death. It was submitted that Andrew’s expectation was only ever to inherit upon the deaths of his parents; and that “current equity” could be satisfied by a declaration and “anticipatory equity” could be addressed at the time of the deaths. However, the court highlighted that clean break solutions have been found to be necessary in a number of farm cases, and that given the extent of deterioration in relations, the trial court was deemed correct to have ordered a clean break solution here.

The Court of Appeal dismissed the appeal.

Supreme court

The parents have appealed again this time to the Supreme Court. The matter was heard on 2 December 2021 and was asked to decide:

  1. whether a successful claimant’s expectation was an appropriate starting point when considering remedy
  2. whether the remedy granted, namely payment of a lump sum which would in effect result in the sale of the farm, went beyond what was necessary in the circumstances.

Conclusion

The Supreme Court will hopefully provide some clarity on how the level of relief for proprietary estoppel is assessed. In the meantime: Be careful what you promise!


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