Proprietary estoppel claims – lessons from recent case law

• 12 April 2019
• News

Promises are often made and later broken. Often there is very little anyone can do about this.  However, in certain circumstances, and specifically in relation to land or property, it may be possible to bring a claim to enforce a broken promise, known as a "proprietary estoppel" claim. As established by the case of Thorner v Major [2009], in order to bring a successful proprietary estoppel claim a claimant must be able to establish three main elements, as follows:

• that a representation or assurance has been made to the claimant
• that the claimant has relied on it
• that the claimant has suffered a detriment as a result of the reliance.

If these elements are established, the court will consider whether fairness demands a remedy, and, if so, what that remedy should be.

Such claims often arise in a farming and/or family context, and 2018 was a bumper year for proprietary estoppel claims. No fewer than twelve claims relying on the equitable doctrine found their way to the High Court over the same number of months (seven of which related to farms or farming businesses). However, this spike in cases did not translate into a high success rate, with only three claimants managing to satisfy the court in relation to the three elements required to establish an estoppel.

So, what reminders and lessons should we take from the recent cases?

Representations: what will suffice?

Nearly a decade after Thorner v Major [2009], the recent case of Habberfield v Habberfield [2018] confirmed that, to establish a proprietary estoppel, the relevant assurance must simply be “clear enough” in the context. In this case, the claimant, Lucy Habberfield, had worked on the family farm in Somerset from the 1980s until her father's death in 2014.  When he left his entire estate to her mother, Lucy brought a claim on the basis that her parents had assured her on numerous occasions that she would take over the farm within their lifetime. Although the various representations were in themselves ambiguous, the judge found that, taken together and in context, they were sufficiently clear to convey the idea that there would be a transfer of freehold property.

The claimant, Raymond Allen James, known as "Sam", in another recent case (James v James [2018]) was less fortunate. He had worked on his father's farm in Dorset for all of his adult life and was a partner in the business, until a falling out saw the partnership dissolved and the claimant disinherited. Despite what he had understood, Sam was unable to present sufficiently clear and reliable evidence of an assurance that he would inherit the farm, as the judge differentiated between a "statement of current intentions as to future conduct" and "a promise of that conduct" (emphasising that "saying that it is your intention to do a thing is not at all the same as promising to do it"). This is a subtle but important distinction, which may prove to be a stumbling block in many cases, particularly those which centre around representations as to the deceased's testamentary intentions. A similar approach was adopted in Shaw v Shaw [2018], a claim brought by Clive Shaw, the son of a dairy farmer, where it was held that statements by Clive's parents about the provision made in their wills were insufficient to give rise to an estoppel.

Although Thorner v Major [2009] was regarded by many as relaxing the criteria for representations (requiring only that they be "clear enough"), it is nevertheless important to  think carefully about whether a representation has actually been made and identify the difference between a statement of current intention and a promise, where relevant.

Context is not only relevant – it could be critical

Proprietary estoppel claims aim to achieve fairness in all of the circumstances, and so the court has great discretion. As such, the outcome of a proprietary estoppel claim will be heavily shaped by the context. James v James [2018] is a good reminder of this, as the judge considered the personalities of those involved when finding that statements made by the father (that his son Sam would be "farming [the father's land] one day") did not amount to assurances, noting that the father was generally reluctant to make any commitments, and that Sam was overly keen to inherit his father's property.  Consideration will always need to be given to all of the facts of the case, including the characters involved and the dynamics between them.

You must satisfy all of the elements

Claimants must satisfy the court in relation to all elements for a claim to have any prospect of success. The majority of claims fell on at least one of the hurdles last year. For example, Smyth-Tyrrell v Bowden [2018] (where tenants tried to establish an interest in land in Cornwall which they had rented for many years on the mistaken belief that they could eventually acquire the freehold) failed as there was simply no promise or assurance that they would be entitled to the land. Similarly, in Dobson v Griffey [2018] (where the claimant, Jacqueline Dobson, asserted an interest in her former partner's farm, after leaving her job to work there full-time and carrying out significant renovation work), the judge found that there was no estoppel in circumstances where the "expectation did not spring from any assurance or other conduct of the defendant", even where the defendant, Matthew Griffey, was aware of Jacqueline's expectation. In that case, the judge also found that there had been no true reliance as Jacqueline had not undertaken work for the purpose of receiving financial gain but instead to make a home with Matthew. In Shaw v Shaw [2018], it was found that Clive had not acted solely on his parents' assurances or suffered any real detriment. As discussed above, the claimant, Sam, in James v James [2018] failed because he could not establish an assurance, but also because he had received good remuneration for his work and could not be said to have suffered any detriment.

A pragmatic view must be taken in relation to each claim; solicitors must give clear advice as to the likely weakness of any action, and potential claimants should not seek to proceed with a claim in circumstances where their expectations have simply not been fulfilled.

Evidence is key

The success of a proprietary estoppel claim will regularly turn on the witness evidence and whose version of events is preferred by the judge. This, as well as the fact that a key witness will often have died, leaves much scope for uncertainty, particularly as those on the stand are asked to relay reliably their recollection of a story which will have unfolded over many years. Against this background, any documentary evidence which is available may prove determinative. This was the case for at least two of the successful claimants in 2018. In Thompson v Thompson [2018] (where the claimant, Gilbert Thompson, left school aged fifteen to work full time on his father's farm, and continued to do so until he fell out with his mother following his father's death) the judge was able to rely on the documentary evidence obtained from the files of professionals who had advised the family over many years. Likewise, in Habberfield v Habberfield [2018] there was independent documentary evidence of an intention that Lucy would one day assume ownership of the relevant property. Conversely, in James v James [2018], documentary evidence that the deceased had taken advice as to potential inheritance issues proved extremely unhelpful (particularly in the absence of any documentary evidence to support Sam's position). 

When no documentary evidence exists, a measured approach is often preferred when witnesses take the stand (as was the case in Thompson v Thompson [2018] where the judge was highly critical of Mrs Thompson's “attempted character assassination” of her son).

The appropriate remedy: "An equitable doctrine, and therefore tempered by conscience"

Where a claim is successful, the court has broad discretion as to how to compensate the claimant. However, judgments continue to be divided upon the question of whether the court should aim to give effect to the claimant’s expectation, or to compensate the detriment suffered.

Unfortunately, the Court of Appeal passed up the opportunity to provide clarity in the farming case of Moore v Moore [2018], where the unsuccessful defendant's (Roger Moore) appeal was rejected, and the question of the appropriate award was returned to the court of first instance. However, some relevant guidance was given, as it was held that the trial judge had wrongly attempted to give effect to the son's (Stephen Moore) expectation of future entitlement, by replicating what would have happened had no dispute arisen.  The court felt that the judge should have instead focused on the minimum provision required to achieve a fair outcome. Speaking more generally, the Court of Appeal appeared to accept that it was not necessary to be limited by Stephen's expectation, with one of the three judges acknowledging that it was "logically attractive" to compensate Stephen for the detriment suffered. The court also noted that it was possible to order a solution which accelerated a claimant's entitlement (which could be particularly desirable where relations between the parties have broken down irreparably, and a clean break is appropriate).However, in this case, an order was also made to reflect the need for proper provision for the defendants during the remainder of their lifetime.

The judge in James v James [2018] also commented on this issue,  favouring the approach of giving effect to the claimant’s expectation (instead of compensating the detriment, as one of the judges seemed to favour in Moore v Moore [2018]).  However, he did acknowledge that there may be exceptional cases where such a remedy is disproportionate.

Whilst there is some benefit to the continuing ambiguity, in that a good argument can be made for either approach, the uncertainty also makes it more difficult for potential claimants to decide whether to pursue a claim. Accordingly, it seems likely that the Court of Appeal will have to grapple with the question and give further guidance at some stage. In the meantime, it is expected that judges will continue to take a cautious approach, aiming to make the minimum award needed to do justice.

Conclusion

With two of the three successful claims of 2018 currently subject to appeal, the recent cases demonstrate that proprietary estoppel is as relevant today as it has ever been. Whilst there is certainly room for further development and clarification, particularly in relation to the appropriate award following a successful claim, the three main principles of proprietary estoppel are sufficiently clear and form a good base from which to identify the initial strengths and weakness of a potential claim. However, building a true picture of the merits will require a much deeper analysis, as the likely outcome of any matter will be heavily dependent on context.

As well as providing a potential solution to some, these proprietary estoppel cases should also act as cautionary tales, discouraging empty promises and encouraging thoughtful wealth planning and good communication with loved ones. A failure to take a considered and consistent approach may result in costly litigation and the breakup of family assets and/or relationships, keeping the courts busy in 2019 and beyond.

Ashleigh is an associate in our Dispute Resolution team.

I spent all my years believing you, but I just can’t get no relief

• 1 April 2019
• News

Entrepreneurs’ relief is a valuable tool for business owners to minimise their tax payable on a disposal of the business or an interest in it. Applying to the first £10m of qualifying capital gains it reduces the rate of CGT to just 10%.

Pre budget 2018 the requirements for claiming the relief were that there was disposal by an individual (or in some cases a trust) of

• Shares in a trading company where the seller was:
  • an employee or officer of the company
  • and in which they had owned at least 5% of the ordinary share capital
  • and with the ability to exercise at least 5% of the voting rights
  • each for at least 1 year ending on the date of disposal;
• The transfer of all or part of a business the seller had owned for at least a year ending on the date of disposal;
• Assets used for the purposes of a business at the time when the business ceased; and
• Disposal of personally owned assets (assets the seller owns but is use used by the business) alongside a disposal of at least 5% of the sellers interest in the business and other related conditions.

The relief is commonly claimed for the sale of shares, or the transfer of all or part of the business and it is these areas that are considered below.

The 2018 budget has made some minor but significant changes to the requirements, which will take effect on any disposals from 6 April 2019 and which could catch out those who are planning on selling their business, or shares in the business.

The most significant change is the increase of the period from one year to two, both for the holding of shares and the ownership of the business.

Further changes include two new tests for the sale of shares. The seller must meet one or both of the following two tests: (1) have at least a 5% interest in the company’s distributable profits and be entitled to at least 5% of the assets available to equity holders on a winding up, and/or (2) be entitled to 5% of proceeds in the event of a disposal of the whole of the company’s ordinary share capital. For this proceeds test there are three assumptions – firstly that the whole of the ordinary share capital is disposed at its market value on the final day of the period, secondly that the sellers share of the proceeds is the amount that the seller would reasonably expect to be beneficially entitled to at that time and thirdly the effect of avoidance arrangements is disregarded.

There is some good news however, a new Chapter 3A has been introduced, which is designed to allow business owners who, by an issue of new shares, would cease to be eligible for the relief. The new chapter allows the owner to determine the amount of gain they had made on the period they were entitled to the relief by a deemed disposal and reacquisition. The owner can then defer that gain until they actually dispose of the shares, so not incurring a “dry” tax charge.

The new rules take effect from 6 April 2019. On this date, individuals who would have qualified for the relief by holding their shares for over a year may suddenly find that they do not qualify as they have not met the new two year requirements, so care must be put to ensure that sllers are aware of the updated holding periods. Extra care will also need to be taken that sellers meet the new interest tests, and that there are no rights granted to other shares that take them below the 5% threshold for distributable profits or assets at a winding up.

Oliver is an associate in our Corporate team.