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In what circumstances can proprietary estoppel defeat an express declaration of trust?

11th May 2022

This was the question before Recorder Midwinter QC on a recent application for permission to appeal in which James Hamerton-Stove acted for the successful respondent.

A decision on whether to give permission to appeal should not ordinarily be cited unless it clearly indicates that it purports to establish a new principle or to extend the present law – so said Lord Woolf CJ in Practice Direction (Citation of Authorities) 2001 1 W.L.R. 1001. To specialist practitioners, however, permission applications remain of interest in dynamic areas such as proprietary estoppel.

A claim was brought for possession of a property on the grounds of trespass. The alleged trespasser had previously been a registered proprietor of the property. In 1991 he divested both his legal and beneficial interests by way of a conveyance containing an express declaration of trust. Nevertheless, he had remained in occupation. He defended the possession claim on the grounds that the 1991 transfer had not represented the parties’ intentions, despite the fact that he himself had signed the transfer document. He claimed that he and the new owners had had conversations around the time of the conveyance to the effect that despite the transfer of legal title out of his name, the beneficial interest in the property would remain vested in him. He raised arguments based on both common intention constructive trust and proprietary estoppel. First, he argued that there had been an understanding between the parties such that a common intention constructive trust had arisen and the new legal owners held the property on trust for him absolutely. Alternatively, he argued that a proprietary estoppel had arisen preventing the new owners from reneging on the assurances they had allegedly made at the time of the conveyance.

At the first hearing, the court focussed on the express declaration of trust contained within the conveyance. The defendant’s arguments were dismissed summarily and an order for possession was made. The defendant appealed.

Recorder Midwinter QC heard the application for permission to appeal. The court was referred to the line of authority (Pettitt v Pettitt, Goodman v Gallant, Pankhania v Chandegra) which decided that an express declaration of trust is conclusive as to ownership except where there are vitiating factors such as fraud, mistake or undue influence; or where there is a subsequent variation of trust. The appellant conceded that, in line with those authorities, the argument for a common intention constructive trust was bound to fail. However, the appellant maintained the argument based on proprietary estoppel.

Although the courts have been reluctant to give a precise definition of proprietary estoppel, it is commonly accepted that the necessary elements are (i) an assurance made by the property owner, (ii) on which a party reasonably relied (iii) to his detriment. The assurance must be clear enough in the circumstances of the case (Thorner v Major). There is a strong overlap between the elements required to make out a claim in each of proprietary estoppel and common intention constructive trust. The main difference is that where a common intention constructive trust requires a common understanding between the parties, proprietary estoppel requires only an assurance. In both cases, the claimant must have relied on the understanding or assurance and suffered detriment as a result of that reliance.[1]

The interesting feature of the instant case was that the alleged proprietary estoppel was said to have arisen from exactly the same facts as the alleged common intention constructive trust. The appellant argued that the Pettitt line of authority was confined to the proposition that where there was a properly made express declaration of trust, a common intention constructive trust could not succeed. But those authorities did nothing, he said, to preclude the possibility of a proprietary estoppel arising, even if based on the same facts. He relied on Stack v Dowden, in which it was said (obiter dicta) that No-one now doubts that [such] an express declaration of trust is conclusive unless varied by subsequent agreement or affected by proprietary estoppel…”

Therefore, the question before Recorder Midwinter QC was: what sort of proprietary estoppel could succeed where there was an express declaration of trust? More specifically, where there was such a declaration, and the two arguments were based on the same facts, was it possible for proprietary estoppel to succeed where common intention constructive trust must fail?

The respondent invited the court to scrutinise the Pettitt line of authority. These authorities held that an express declaration of trust is conclusive as to ownership absent vitiating factors or subsequent variation. This proposition was the reason that the courts had determined that a common intention constructive trust must fail where there was an express declaration of trust. The respondent argued that the focus in those authorities was on the certainty provided by the express declaration of trust, rather than any particular feature of common intention constructive trusts that meant that they should fail where there was an express declaration. It was correct that these authorities did not explicitly state that proprietary estoppel must also fail where there was an express declaration of trust: indeed, the House of Lords in Stack had explicitly kept this door open. But if arising out of the same facts, there was no material difference between the two doctrines that meant that proprietary estoppel should succeed where a constructive trust was bound to fail. The dicta in Stack had merely been an observation that an express declaration of trust did not forever thereafter render ownership of a property immune to any argument for proprietary estoppel. Proprietary estoppels might arise that had nothing to do with the express declaration of trust. By way of illustration, a farmer such as the one in Thorner v Major should not to be denied his equity in proprietary estoppel simply because the property’s actual owners had happened to enter into an express declaration of trust some years earlier.

Recorder Midwinter QC agreed with the respondent and refused to grant permission to appeal. Although the court found that the assurance lacked sufficient clarity, so the substantive point did not require formal determination, it considered that the appellant’s argument would have failed in any event. Where both arguments are run on the basis of the same facts, therefore, it seems unlikely that proprietary estoppel will be treated any differently from common intention constructive trust: an express declaration will probably defeat them both.

 

By James Hamerton-Stove

 

[1] Although it seems that the courts have adopted a less stringent approach to the requirement for detrimental reliance in joint names cases in a domestic context – see e.g. the recent case of Hudson v Hathway [2022] EWHC 631 (QB), Kerr J.

 

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