The relationship between section 2, proprietary estoppel and constructive trusts remains unclear
Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 imposes strict requirements in respect of contracts for the sale or disposition of interests in land. All such contracts must be made in writing and must be signed by or on behalf of the parties.
In cases where a strict application of the rules would cause injustice, it was sometimes possible to invoke the doctrine of proprietary estoppel to prevent parties who were in the wrong from exploiting the requirements for their own benefit. But, in Yeoman’s Row Management Ltd v Cobbe [2008] UKHL 55, the House of Lords doubted whether the doctrine of proprietary estoppel could ever be used, in a commercial context, to sidestep section 2. However, the Court of Appeal’s decision in Farrar v Miller [2018] EWCA Civ 172, permitting a claimant relying on an oral joint venture agreement to pursue a claim for proprietary estoppel and/or a Pallant v Morgan constructive trust, suggests that the law is still far from settled.
The parties, who had been in business together, fell out over a piece of land owned by a company in which they shared an interest. They had – it was claimed – agreed that the land would be transferred into a new joint venture entity directly or indirectly owned by themselves and a third party and, once planning permission had been obtained, that the land would be sold so that the parties could share the profits. But the land ended up in the hands of a company in which the claimant had no interest, as a result, seemingly, of transfers made without his knowledge or consent – and was eventually sold for a sum believed to be in excess of £5m.
Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 imposes strict requirements in respect of contracts for the sale or disposition of interests in land. All such contracts must be made in writing and must be signed by or on behalf of the parties.
In cases where a strict application of the rules would cause injustice, it was sometimes possible to invoke the doctrine of proprietary estoppel to prevent parties who were in the wrong from exploiting the requirements for their own benefit. But, in Yeoman’s Row Management Ltd v Cobbe [2008] UKHL 55, the House of Lords doubted whether the doctrine of proprietary estoppel could ever be used, in a commercial context, to sidestep section 2. However, the Court of Appeal’s decision in Farrar v Miller [2018] EWCA Civ 172, permitting a claimant relying on an oral joint venture agreement to pursue a claim for proprietary estoppel and/or a Pallant v Morgan constructive trust, suggests that the law is still far from settled.
The parties, who had been in business together, fell out over a piece of land owned by a company in which they shared an interest. They had – it was claimed – agreed that the land would be transferred into a new joint venture entity directly or indirectly owned by themselves and a third party and, once planning permission had been obtained, that the land would be sold so that the parties could share the profits. But the land ended up in the hands of a company in which the claimant had no interest, as a result, seemingly, of transfers made without his knowledge or consent – and was eventually sold for a sum believed to be in excess of £5m.
The litigation kicked off with a claim for breach of contract, which was struck out because it was based on an oral agreement for the disposition of an interest in land, which fell foul of section 2. Consequently, the claimant sought to substitute claims in proprietary estoppel and constructive trust instead.
In Cobbe, the claim to a constructive trust failed because there was no pre-acquisition agreement to which Pallant v Morgan could be applied. The parties already owned the land in dispute in this case too – albeit through a corporate structure. But the Court of Appeal took the view that the House of Lords’ decision must be seen in the context of the circumstances of that case and rejected the notion that the doctrine in Pallant v Morgan was so limited. Furthermore, any joint venture agreement between the parties preceded the transfer to the new joint venture entity.
Did the 1989 Act bar claims based on proprietary estoppel? Section 2(5) excepts implied, resulting and constructive trusts from the requirements for written and signed contracts, but makes no mention of proprietary estoppel. And, in Cobbe, Lord Scott suggested quite forcefully that the law of equity should not be allowed to contradict a statute. Lords Hoffman, Brown and Mance agreed – but the Court of Appeal was not convinced that actions based on proprietary estoppel would frustrate the statutory policy or that the legislature had intended to exclude the application of equitable remedies in appropriate cases when it enacted section 2. The facts and law will now need to be fully considered at trial, leaving us to wait and see what happens next.
Allyson Colby, property law consultant
