Court of Appeal dismisses appeal against cohabitee's share of equity based on proprietary estoppel

Practical Law UK Legal Update Case Report 0-585-0528 (Approx. 6 pages)

Court of Appeal dismisses appeal against cohabitee's share of equity based on proprietary estoppel

Background

Proprietary estoppel is a means by which property rights may be affected or created. It arises from the courts' equitable jurisdiction to intervene in cases where the assertion of strict legal rights is found to be unconscionable. Proprietary estoppel arises most commonly where a property owner encourages another to act to his detriment in the belief that he will obtain an interest in the property. A claimant seeking to rely on proprietary estoppel should establish the following:

Assurance. The property owner induces, encourages or allows the claimant to believe that the claimant has or will have some right or benefit over the property. The assurance can take a number of different forms, including express representation, passive or active encouragement, expenditure or alteration of legal position.
Detrimental reliance. The claimant relies on this belief and in doing so acts to his detriment to the knowledge of the property owner. There must be a sufficient link between the assurances relied on and the conduct that causes the detriment (Wayling v Jones (1993) 69 P&CR 170).
Unconscionability. The property owner tries to take unconscionable advantage of the claimant by denying the claimant the right or benefit that the claimant expected to have.

If the claimant establishes that assurances were made and he behaved in a way that was detrimental to him, there is a rebuttable presumption that the claimant behaved in that way in reliance on the assurances. The burden of proof then shifts to the defendant to establish that the claimant did not rely on the assurances (Coombes v Smith [1987] 1 FLR 352 at 366C).

If a representation is to found a claim based on proprietary estoppel, it must be clear and unequivocal (Thorner v Majors & others [2009] UKHL 18). For more information, see Legal update, House of Lords allows proprietary estoppel claim (detailed report).

The remedy is an equitable one and if proprietary estoppel is established, the court has a wide discretion regarding how to give effect to the equity.

Facts

The parties met in 2000. The defendant (D) was 40, divorced with two daughters, and worked as a teaching assistant. She had limited financial resources and rented a house from a housing association in Manchester which she spent £15-20,000 fitting out and furnishing. The appellant (A) was a 41 year old claims manager living in Portsmouth.

In 2002, A and D moved in together in Worcestershire. The property was purchased in A's sole name, financed solely by A, with a mortgage of approximately £100,000 and equity of approximately £140,000 from his previous home.

The relationship began breaking down in 2009. D and her daughters became homeless following A changing the locks at the property when D was absent from the house. D applied to the court for an equal share of the property.

D asserted that the couple intended to purchase the house together and that she would be an equal owner. The only reason the documents did not reflect that was because it was inconvenient for her to travel from Manchester to sign the documents. The understanding was that the property would subsequently be transferred into joint names. A denied that and said the property was always intended to be purchased in his sole name. He agreed to provide D with a home for as long as their relationship lasted.

The first instance judge found as follows:

The decision to purchase the house was made jointly with the intention that it would become the parties' home where they would live together, effectively as husband and wife.
A did not envisage marriage as he was aware that as a wife, D might have a substantial claim against him in the event of marital breakdown.
It was unlikely that A made any clear promise to D that she would become an equal owner of the property.
The parties discussed the move and the consequences for D. A thought he was taking on a long term commitment to provide A with a secure home and gave her reassurances to this effect. He made promises to persuade her to move and give up her independence and security, with the intention she would rely on those assurances.
D was taking a big risk, moving from a secure rented home on which she had spent a lot of money, leaving her job and moving her children. Without A's assurances, she would not have moved.
Documents D saw at the time, providing for her to receive a lump sum and pension in the event of A's death, suggested a real commitment from A and encouraged and reassured D.
The parties' discussions were not specific as to ownership of the home, but specific as to the nature and extent of A's commitment to D and the provision of secure accommodation for her. He promised her secure rights of occupation at the house that they were in effect buying together, although in his sole name.
A led D to believe that she would have the sort of security that a wife would have, in terms of accommodation at the house and income.

The judge rejected D's claim to be a beneficiary of a constructive trust, but upheld her alternative claim to an enforceable equity by way of proprietary estoppel. He valued that equity at £28,500 and ordered A to transfer that amount to D. A appealed to the Court of Appeal.

Decision

A's appeal was dismissed.

Tomlinson LJ emphasised that an appellate court should be slow to interfere with findings made by a judge who has heard witnesses giving evidence.

Assurance

The Court of Appeal did not disturb the judge's findings about A's assurances to D.

The judge's findings were inconsistent with the notion that A's assurance was of accommodation for only so long as the relationship lasted. Effectively, the judge found that D would have an entitlement that would be recognised in the event of the relationship breaking down in the same way as a wife on marital breakdown. Just because A avoided any assurance regarding equal ownership of the property, it did not follow that he could not have given an assurance as to security of rights of occupation in the house that they were in effect buying together.

Detriment

Detriment need not be financial, so long as it is something substantial. It is part of a broad inquiry into whether repudiation of an assurance is unconscionable in all the circumstances (Gillett v Holt [2000] EWCA Civ 66).

The first instance judge recognised that assessing detriment must include consideration of the benefits which accrued to D as a consequence of the relationship. These included rent-free accommodation for herself and her two daughters and the financial assistance received from A to enable her to complete a three year degree course which enhanced her earning ability. However, A was also assisted and supported by D in the successful pursuit of his career in which he achieved a significant promotion during the course of the relationship. His earnings increased and the property, which D contributed to in terms of housekeeping activities, increased in value from £240,000 to £320,000. Detriment should be assessed and evaluated over the course of the relationship (Walton v Walton [1994] CA Transcript No 479).

Whether the detriment is sufficiently substantial is to be tested by whether it is inequitable to allow the assurance to be disregarded: this is the essential test of unconscionability (Jones v Watkins, 26 November, 1987).

Quantifying detriment

The court did not interfere with the quantification of D's claim. Cases involving couples living together as husband and wife do not lend themselves to an arithmetical accounting exercise. The range of activities and mutual support involved is impossible to quantify financially.

The essence of the promise on which the proprietary estoppel was based was that D should have a home for life, on the strength of which she gave up her own secure home in which she had invested approximately £15,000 and then invested approximately £5,000 setting up her new home with A. The first instance judge concentrated on the causal link between the assurance relied on and the detriment asserted. The various benefits, flowing in both directions, were the incidents of the relationship while it successfully subsisted rather than direct consequences of reliance on the promise as to security.

Unconscionability

The unconscionability found by the judge was A resiling from his promise and failing to put D back in a similar position to the position she was in before giving up her own house.

Unconscionability is not a separate element in proprietary estoppel, but a feature that permeates all its elements. A's submissions mistakenly focused on the relationship, but lost sight of the nature of the promise he made and D's detrimental reliance. That detriment was not that D embarked on a relationship with A, but that she abandoned her secure home in which she had invested, and invested what little else she had in a home to which she had no legal title. It is the detrimental reliance that makes the promise irrevocable and leads to the conclusion, at the end of a broad enquiry, that repudiation of the assurance is unconscionable.

Comment

This case is significant as it warns clients of the potential liability they could face if their relationship with a cohabitee breaks down, even if the property they are both living in is purchased in their sole name and the other party has not made any significant contribution to the purchase price or outgoings. Clients should be advised of the benefits of entering into a cohabitation agreement or declaration of trust recording the parties' intentions and providing each party with clarity about their respective interests in the property should the relationship break down in the future. A cohabitation agreement can also focus both parties' minds on how their finances can be effectively managed during their relationship as well as on relationship breakdown.

Property owning clients should be warned that without a cohabitation agreement, they are at risk of a later equitable claim, particularly if they have made assurances to the other party about his or her security of living arrangements. Parties in a romantic relationship can often make these assurances without considering the later consequences of doing so. If the other party relies on these assurances to his or her detriment, there may be a claim. As this case makes clear, detriment is a dangerously wide concept in proprietary estoppel cases and is not confined to pure financial detriment. While cases in this area will be highly fact specific, it is easy to see how relationships could involve some form of detriment based on reliance, whether this is giving up a job, uprooting children, moving away from family members or moving from a property formerly owned or even rented, if significant funds were spent on it, as in this case.

For a precedent cohabitation agreement, see Standard document, Cohabitation agreement and for guidance on using these in practice, see Practice notes, Cohabitation agreements: what they are and when to use them and Cohabitation agreements: drafting considerations.

Case

Southwell v Blackburn [2014] EWCA Civ 1347, 16 October 2014 (Bailii).

Court of Appeal dismisses appeal against cohabitee's share of equity based on proprietary estoppel | Practical Law