Kinane v Mackie-Conteh [2005] EWCA Civ 45

Case No A3/2004/1120[2005] EWCA Civ 45
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
(CHANCERY DIVISION)
Mr Michel Kallipetis QC
(Sitting as a deputy High Court judge)
HC02 CO2842
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate Tuesday, 1 February 2005
Before
LORD JUSTICE THORPELADY JUSTICE ARDENLORD JUSTICE NEUBERGER
Between
David KinaneRespondentAlimamy Mackie-ContehAppellantDavid Kinane Respondent / Cross Appellant- and -Alimamy Mackie-Conteh Appellant / Cross Respondent
(Transcript of the Handed Down Judgment ofSmith Bernal Wordwave Limited, 190 Fleet StreetLondon EC4A 2AGTel No: 020 7421 4040, Fax No: 020 7831 8838Official Shorthand Writers to the Court)
Adrian Jack (instructed by T.G. Baines) for AppellantAngus Macpherson (instructed by Phillips) for Respondent
JudgmentLady Justice Arden :
[1]This is an appeal from the order dated 27 April 2004 of Mr Michel Kallipetis QC giving judgment in this action in favour of the claimant, Mr David Kinane. By his order, the judge made a declaration that Mr Kinane was an equitable chargee under an equitable charge of 141 Willersley Avenue, Sidcup, Kent (“the property”) in the sum of £100,000 and made an order for the sale of the property.[2]Mr Kinane bought this action against the appellant, Mr Alimamy Mackie-Conteh, and a company, of which Mr Mackie-Conteh was managing director, called Almack Marketing Services Limited (“Almack”) to recover a loan of £50,000 made by Mr Kinane to Almack. As appears this was to be repaid with a return of 100 percent.[3]Almack needed this loan in order to discharge the fees of a third party, Mr George Maxwell-Brown, who had helped it to find a bank willing to open a letter of credit for US$2m. in its favour, and also the fees of that bank. The letter of credit was required so that Almack could take advantage of a valuable opportunity to purchase rice from a company in India. The bank which Mr Maxwell-Brown found was First Merchant Bank of Cyprus (“FMBC”). Mr Maxwell-Brown then introduced Mr Mackie-Conteh to Mr Kinane as a person willing to take an investment in this venture.[4]The judge found that there was a meeting between Mr Mackie-Conteh, Mr Maxwell-Brown and Mr Kinane on 8 November 2001. At this meeting, Mr Kinane and Mr Mackie-Conteh agreed that Mr Kinane should make a loan of £50,000 to Almack and that the return on this sum would be 100 per cent, namely a further £50,000, which would be paid within 120 days of the transaction being completed. However, Mr Kinane required security for his loan. Mr Mackie-Conteh offered a second charge on the property. He said that this property was registered in the name of himself and his wife, Mrs Hawah Mackie-Conteh. He was wrong in this. The property was registered in his sole name, but nothing turns on this misstatement now. Mr Kinane asked for confirmation in writing that Mrs Mackie-Conteh agreed to the charge.[5]Mr Maxwell-Brown then typed up the following draft letter (omitting addresses and details of attestation):
“Alimamy Conteh 8 November 2001 Hannah [sic] Laura Conteh ... To: David Kinane ... Dear David Kinane, In respect of the financial assistance you have provided we are happy to offer our home as security. We agree that you may place a charge in the sum of £100,000.00 (ONE HUNDRED THOUSAND POUNDS ONLY) over the property shown above which is our home. We fully understand as a result of this action our home may be at risk. Because of our knowledge and expertise in our areas of business and our current contractual commitments we are totally confident in being able to pay to you, or your nominees, the sum of £100,00 within the next 120 days in order to have this charge removed. Please arrange for the charge documents to be produced as soon as possible so that we can bring this matter to a swift conclusion. Please also ask the Solicitor acting for you to send us an invoice for the work he does on you[r] behalf in arranging this charge over our property. Yours sincerely, ...”
Yours sincerely, ...”[6]Mr Mackie-Conteh took this letter away with him when he left the meeting. He and Mrs Mackie-Conteh later signed it and Mr Mackie-Conteh returned it by post to Mr Kinane. Their signatures were witnessed by a Mr Graham Baldock and the date of their signature was recorded as 8 November 2001. I refer below to the letter dated 8 November 2001 as “the security agreement”. The judge found that, subject to section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (“the 1989 Act) (set out below), the security agreement constituted an equitable charge over the property, and there is no appeal on this point.[7]There were disputes of fact on many issues at trial (with which this appeal is not concerned). The judge found that Mr Kinane was not prepared to advance the money until the security was in place. But the transaction was urgent. Mr Mackie-Conteh gave Mr Kinane details of Almack’s account with FMBC. He also gave Mr Kinane his personal cheque for £15,000 because the amount that Mr Kinane had agreed to lend was not enough to discharge the bank’s fees and to pay the fees of Mr Maxwell-Brown.[8]Once the cheque for £15,000 was cleared, Mr Kinane asked his bank to transfer US$80,000 from his account to the account of Almack of which Mr Mackie-Conteh had given him details. This sum was duly transferred and the whole amount was applied by FMBC in meeting their costs of issuing the letter of credit, as agreed by Almack. Indeed, a further letter of credit was subsequently issued. In fact, both letters of credit were rejected by the seller. The proposed purchase of the rice thereupon fell through.[9]The loan was not repaid and Mr Kinane started proceedings against Mr Mackie-Conteh and Almack for repayment of his loan and, in the case of Mr Mackie-Conteh, specific performance of the agreement for security. The judge found that the amount lent, and agreed to be lent, was £50,000. Mr Kinane based his claim against Mr Mackie-Conteh on the agreement reached at the meeting on 8 November 2001 and on the security agreement. At the trial, the judge also gave judgment against Almack for the amount of the loan (£50,000), and there is no appeal from that part of his order.[10]One of the defences raised by Mr Mackie-Conteh was that there was no enforceable agreement. Mr Mackie-Conteh denied that the security agreement was enforceable. At the trial, Mr Kinane submitted that, although the security agreement did not comply with section 2 of the 1989 Act, it fell within the exception to that section provided by Section 2(5), namely a constructive trust, that this constructive trust had arisen by virtue of the common intention between Mr Kinane and Mr Mackie-Conteh that Mr Kinane would be granted a change on the property and that in any event the security agreement complied with section 53(1)(c) of the Law of Property Act 1925 (“the 1925 Act”).[11]The judge accepted that the security agreement was unenforceable because of section 2(1) of the 1989 Act applied but, applying the decision of Lightman J in Murray v Guinness, 29 April 1998 (unreported), he held that the disposition did not have to be in writing because of the provisions of section 53(1)(c) of the 1925 Act. Mr Mackie-Conteh appeals against the judge’s order on this basis that this conclusion was wrong in law.[12]In the circumstances the judge held that it was unnecessary for him to determine whether a constructive trust had arisen Mr Kinane cross-appeals from the judge’s order on the grounds, inter alia, that the judge ought to have found that a constructive trust had arisen by virtue of Mr Kinane making his advance upon receipt of the security agreement. Mr Kinane also contends that the judge ought to have found that the security agreement was enforceable by virtue of section 53(1)(a) of the 1925 Act.

Section 53 of the 1925 Act

[13]Section 53(1) of the 1925 Act provides:- “(1) Subject to the provisions hereinafter contained with respect to the creation of interests in land by parol – (a) no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by his agent thereunto lawfully authorised in writing, or by will, or by operation of law; ... (c) a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same or by his agent thereunto lawfully authorised in writing or by will.”[14]As to section 53(1)(c), Mr Adrian Jack, for Mr Mackie-Conteh, submits that this only applies to a disposition of a subsisting interest: see Vandervell v IRC [1967] 2 AC 291 and in particular the judgment of Lord Upjohn at pages 311-2. At an earlier point in his speech, Lord Upjohn explained that section 53(1)(c) could be traced back to section 9 of the Statute of Frauds Act 1677, which provided that: “All grants and assignments of any trust or confidence shall likewise be in writing, signed by the party granting or assigning the same ...” but that section had been materially amended by the Law of Property Act[15]Mr Jack also relies on Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669at 706, where Lord Browne-Wilkinson held that there is no separate equitable interest in property until the legal and equitable estates have been divided. In the present case, the effect of the security agreement was to create a new interest in land. Therefore, section 53(1)(c) could not apply. Mr Jack submits that the decision of Lightman J in Murray v Guinness is distinguishable.[16]Mr Angus Macpherson, for Mr Kinane, seeks to uphold the judgment of the judge on section 53(1)(c). Mr Macpherson relies on the decision of Lightman J in Murray v Guinness. He accepts, however, that Mrs Mackie-Conteh had no interest in the property and that Mr Mackie-Conteh was solely entitled to it.[17]In my judgment, section 53(1)(c) cannot apply because it is well established that it only applies to this position of subsisting equitable interest.[18]In Murray v Guinness, there were two separate documents under consideration, executed by two separate individuals, A and B, (and relating to different properties). Lightman J held that both documents contained separate provisions creating respectively equitable charges and equitable mortgages constituted by a promise to execute a legal mortgage, over the same property. (A) had only a half interest in the property, and this Lightman J held meant that the document executed by him could create an equitable mortgage or charge over that interest only. Lightman J held that section 2 of the 1989 Act did not apply to the equitable charges on the basis that (as was common ground in that case) section 2 requires disposition of an interest in land and none was involved in the case of an equitable charge (“the first issue”). Lightman J also held that section 53(1) [sic] applied to both documents (“the second issue”). The transcript is very short, although it is stated to be an approved judgment. Taking the second issue first, in my judgment, if and in so far as Lightman J was relying on section 53(1)(c), reliance on that provision would only have been in accordance with that subsection in the case of the document executed by A. It is not necessary to express a view on the first issue. It is, of course, well-established that, under the 1925 Act, an equitable chargee has to obtain an order of the court to enforce his security unless it is created by deed, and that there is no conveyance of the property to the chargee as in the case of a legal mortgage. Nonetheless the equitable chargee acquires a security interest in the property. In addition, the basis of the charge, where it is constituted by a deposit of title deeds, is that there is a contract to create a mortgage: see United Bank of Kuwait plc v Sahib [1997] Ch. 107, which was not cited in the Murray case. A contract to create a mortgage or charge is clearly a contract for the “disposition” of an interest in land. Section 2(6) of the 1989 Act incorporates the definition of this term from section 205(1)(ii) of the 1925 Act, where it includes a “conveyance”, which in turn is defined as including a charge. However, in the Murray case, A and B purported to create immediate charges over their respective properties. It is unnecessary on this appeal to decide whether an immediate charge would, like a deposit of title deeds, now fall within section 2 of the 1989 Act. There has not been full argument on the point. The question does not arise in the present case because the security agreement was clearly an agreement to create a charge. It was not, therefore, an immediate charge as in the Murray case.[19]Accordingly, I accept the submission that the judge in this case should not have relied on the Murray case.

Constructive trust

[20]The material parts of section 2 of the 1989 Act are as follows:- “(1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document, or where contracts are exchanged, in each ... (5) ... nothing in this section affects the creation or operation of resulting, implied or constructive trusts.”[21]As explained above, the judge did not decide whether there was a constructive trust in this case. If a constructive trust exists, then it is not affected by section 2(1) of the 1989 Act: see section 2(5) of the 1989 Act and Yaxley v Gotts [2000] Ch 162. In that case this court held that an oral agreement whereby the purchaser of a house promised to grant to another, in exchange for materials and services, an interest in property was on the facts of the case enforceable on the basis of a constructive trust under section 2(5) for the 1989 Act, even if it was unenforceable under section 2(1) of that Act.[22]Mr Macpherson submits that the security agreement contained an agreement to execute a legal charge. Mr Kinane would not have made the loan without security, and accordingly that it would be unconscionable for Mr Mackie-Conteh now to contend the security agreement is unenforceable: see Yaxley v Gotts.[23]Mr Jack submits that the only representation upon which Mr Kinane can rely is that arising out of the unenforceable security agreement itself and that that is insufficient. In Actionstrength Ltd v International Glass Engineering SpA [2003] 2 AC 541, the House of Lords held that where a guarantee was not in writing as required by section 4 of the Statute of Frauds Act 1677 (“the 1677 statute”) the beneficiary of the invalid guarantee could not set up an estoppel simply on the basis of the giving of the guarantee. The Actionstrength case shows that the courts will not allow the statutory policy to be undermined. The effect of allowing Mr Kinane to rely on a constructive trust is to undermine section 2(1) of the 1989 Act. In this case there was a misunderstanding as to whether the agreement was enforceable or not. Moreover, Mr Kinane knew that he had not got the mortgage for which he had stipulated. Furthermore, the making of the loan was a “one-off” act of reliance, not a series of acts as in the Yaxley case.[24]In reply, Mr Macpherson submits that the Actionstrength decision does not apply because of section 2(5) of the 1989 Act.[25]I have summarised the facts in Yaxley v Gotts in paragraph 21 above. Those facts gave rise to proprietary estoppel, which is in point where a person acts to his detriment in reliance on a belief permitted or encouraged by the defendant that he is to obtain an interest in land in circumstances where it is unconscionable for the defendant to refuse to confer that interest. Robert Walker LJ held that, where constructive trust and proprietary estoppel overlap, the claimant can rely on section 2(5). The overlap exists where the claimant, to the knowledge of the legal owner, acts to his detriment in reliance on the belief that he has or will obtain an interest in property (see page 177 of the judgment of Robert Walker LJ, citing Grant v Edwards [1986] Ch.638, 656 per Sir Nicolas Browne-Wilkinson VC).[26]In Yaxley v Gotts this court recognised that the doctrine of estoppel may not be invoked to render valid a transaction which the legislature has, on the grounds of general public policy, enacted is to be invalid. However, it held that that principle was not violated where the circumstances giving rise to proprietary estoppel also gave rise to a constructive trust as the legislature has specifically made a saving for constructive trusts in section 2(5) of the 1989 Act.[27]Mr Jack submits that where a party relies on proprietary estoppel he may not rely on the agreement which is invalidated by section 2(1) of the 1989 Act. For this proposition, he relies on the Actionstrength case referred to above. However, there is no saving in the 1677 statute which is comparable with section 2(5) of the 1989 Act. Furthermore, the courts have never permitted an exception to section 4 as regards guarantees in the same way that (from the early eighteenth century) they allowed part performance to be used as a means of enforcing a contract for the sale of land which did not comply with the formalities in section 4 of the 1677 Act. Parliament confirmed the doctrine of past performance when it re-enacted section 4 of the 1677 statute as respects contracts for the sale of land in section 40 of the 1925 Act, as it expressly preserved the doctrine of past performance in section 40(2) of that Act. Part performance was abolished by section 2 of the 1989 Act, but the presence of section 2(5) clearly demonstrates that Parliament intended a party to be relieved from the consequences of section 2(1) in the circumstances specified in section 2(5).[28]In my judgment, therefore, a party seeking to reply on proprietary estoppel as a basis for disapplying section 2(1) of the 1989 Act is not prevented from relying in support of his case on the agreement which section 2(1) would otherwise render invalid. Thus, the requirement that the defendant encouraged (or allowed) the claimant to believe that he would acquire an interest in land may (depending on the facts) consist in the defendant encouraging the claimant (by words or conduct) to believe that the agreement for the disposition of an interest in land (here a security interest) was valid and binding. Here, Mr Mackie-Conteh gave Mr Kinane that encouragement. Mr Kinane made it clear that he required security for his loan. Mr Mackie-Conteh responded by providing the security agreement and persuading him that, once he had got that letter (and the cheque for £15,000 had been banked), he should make the loan to Almack. By his conduct, Mr Mackie-Conteh thereby encouraged Mr Kinane to believe that the security agreement was valid and binding. He must stand by that conduct even if he himself misunderstood the effect of section 2(1) on the security agreement. Accordingly, the requirement for encouragement by Mr Mackie-Conteh of Mr Kinane in the erroneous belief that he would obtain a security interest over the property is satisfied.[29]It is to be noted that, even on this scenario, reliance on the unenforceable agreement only takes the claimant part of the way: he must still prove all the other components of proprietary estoppel. In particular, the requirement that the defendant encouraged or permitted the claimant in his erroneous belief is not satisfied simply by the admission of the invalid agreement in evidence. In this sort of case, the claimant has to show that the defendant represented to the claimant, by his words or conduct, including conduct in the provision or delivery of the agreement, that the agreement created an enforceable obligation. The cause of action in proprietary estoppel is thus not founded on the unenforceable agreement but upon the defendant’s conduct which, when viewed in all relevant respects, is unconscionable.[30]There were two relevant difficulties for the appellant in the Actionstrength case, first, the absence of a saving for guarantees which did not comply with section 4 of the 1677 statute, and, second, the absence of any representation that the guarantee was valid and binding apart from the communication of the terms of the guarantee. For the reasons given above, the first difficulty does not apply under section 2 of the 1989 Act. The second difficulty may, depending on the facts, arise in proprietary estoppel though it need not necessarily do so because the encouragement may (as in Yaxley v Gotts itself) take some other form altogether. In this case, the second difficulty would have prevented proprietary estoppel arising if Mr Mackie-Conteh had returned the security agreement to Mr Kinane with a note saying words to this effect:
“Here is the security agreement you asked for but you must take your own advice on it.”
[31]Accordingly the issue here is whether the circumstances justify a finding of proprietary estoppel overlapping with constructive trust in the manner explained above. I have dealt with the question of encouragement above. Did Mr Kinane act in the belief that he had or would obtain a valid security? Did he act thereon to his detriment? The security agreement demonstrates an intention to create a security interest. Mr Kinane made it clear in his witness statement and when giving evidence that he was not prepared to make a loan without security. Having obtained the security agreement, he made a loan which, to his detriment, is now irrecoverable. In my judgment, the fact that he knew that the formal documentation had not been executed does not mean that proprietary estoppel cannot be established. The fact is that he drew no distinction between the security agreement and the formal document. He assumed that the security agreement was enforceable and thus he acted in the belief that he would be given a formal security. Thus I would reject Mr Jack’s argument that it is fatal to Mr Kinane’s case that the security agreement had not been executed. Likewise, in my judgment, it is immaterial that the reliance consisted in the single act of making the loan. That act had significant consequences on its own, and is thus of itself sufficient to give rise to proprietary estoppel.[32]As I see it, the policy of section 2(1) of the 1989 Act is to protect the public by preventing parties from being bound by a contract for the disposition of an interest in land unless it has not been fully documented in writing. However, in section 2(5) Parliament has acknowledged that under section 2(1) there is a risk that one party will seek to take advantage of the sanction provided by that subsection when it is unconscionable for him so to do. To that extent, section 2(5) plays a role similar to that of part performance, although it operates more flexibly than that doctrine. Unconscionability on the part of the party seeking to rely on subsection (1) is the touchstone giving rise to a constructive trust. It will arise where a party led another party to believe that he would obtain an interest in property to another and then stands by while that other party acts to his detriment in reliance on that promise. The knowledge of the disadvantaged party is of less significance. Here Mr Mackie-Conteh induced Mr Kinane to make the loan before the formal documentation was executed. Even though the venture was abortive, Mr Mackie-Conteh benefited therefrom to the extent that he did not have to find another lender to get to the stage where FMBC could produce a letter of credit. The risk of the letter of credit at that stage not meeting the seller’s requirements was one which, under the parties’ agreement, Mr Mackie-Conteh and not Mr Kinane, had implicitly agreed to bear.[33]In proprietary estoppel, the court awards a remedy appropriate to satisfy the expectations that the defendant has indeed. This need not be an interest in land. However, in my judgment, that is the appropriate remedy in this case and neither counsel has suggested otherwise.

Section 53(1)(a) of the 1925 Act

(a) of the 1925 Act

[34]As to section 53(1)(a), Mr Jack submits that this matter cannot now be raised on appeal as it was not raised below. Had it been raised below, there would have been more investigation at trial as Mr Mackie-Conteh contends there was no intention to grant an equitable charge. Mr Macpherson accepts that section 53(1)(a) was not raised at trial.[35]In view of my conclusion on constructive trust, this issue does not arise. It would arise only if the security agreement was not a contract to create a charge within section 2 of the 1989 Act but simply the immediate creation of security. This point was not, however, investigated at trial and I do not, therefore, consider that it could properly have been raised on this appeal in any event.

Disposition

[36]For the reasons given above, I would dismiss this appeal and allow the cross-appeal in part.

Lord Justice Neuberger:

[37]The issue in this appeal is whether as the Judge found, the security agreement of 8 November 2001 was enforceable notwithstanding Section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989. In my view, the judge reached the right conclusion and accordingly, this appeal should be dismissed. However, as Arden LJ has explained, the ground upon which the judge found in favour of the claimant, namely that the security agreement satisfied section 53(1)(c) of the Law of Property Act 1925, cannot be sustained. Nevertheless in agreement with Arden LJ, it appears to me that the judge’s decision can and should be upheld on a different ground, namely on the basis of a constructive trust.[38]I do not consider that Actionstrength Ltd v International Glass Engineering SpA [2003] 2 AC 541 calls that conclusion into question. The difference between section 4 the Statute of Frauds Act 1677, the statutory provision under consideration in that case, and section 2 of the 1989 Act is that the former contains no equivalent to the latter’s subsection (5).[39]In these circumstances, it appears to me that the only real question in the present case is whether, in the light of the facts found by the judge, it can be said that a “constructive trust”, within the meaning of section 2(5) of the 1989 Act, was created.[40]When considering that question, one must, I think, avoid regarding the subsection as an automatically available statutory escape route from the rigours of section 2(1) of the 1989 Act, simply because fairness appears to demand it. A provision such as section 2 of the 1989 Act was enacted for policy reasons which, no doubt, appeared sensible to the legislature. Accordingly, just as with section 4 of the 1677 Act, the Court should not allow its desire to avoid what might appear a rather harsh result in a particular case to undermine the statutory policy.[41]Accordingly, when considering whether section 2(5) is engaged, the court should consider whether, on the particular facts, it can fairly be said that a resulting, implied or constructive trust has been created. It would be contrary to legal principle, and inconsistent with the statutory purpose, if the court were to hold that a particular set of facts fell within section 2(5) if, as a matter of extra-statutory law, the facts could not properly be said to give rise to “the creation or operation of [a] resulting implied or constructive trust”. In other words, in my view, it would be wrong to give an artificially wide (or indeed an artificially narrow) meaning to the words of section 2(5) of the 1989 Act.[42]In the present case, it seems to me that there are two possible points which may be raised on behalf on Mr Mackie-Conteh. The first is that, on the evidence before the judge, it was not sufficiently clearly established that the facts could give rise to a proprietary estoppel in favour of Mr Kinane. The second argument is that the nature of any proprietary estoppel established by Mr Kinane was not, in any event, such as to fall within the ambit of a constructive trust.[43]So far as the first argument is concerned, we were not taken to any passage in the written or oral evidence of Mr Kinane in which he stated, in terms, that, had he not received the security agreement duly signed, he would not have advanced the US $80,000 to Mr Mackie-Conteh. Nonetheless, looking at the evidence as a whole, and in particular the Judge’s finding that Mr Kinane was not prepared to advance the US $80,000 until the security was in place, it appears to me clear that both parties regarded the letter of 8 November 2001 as the giving of security, and that it was only because Mr Kinane believed this, that he advanced the money.[44]In those circumstances it seems to me that the classic requirements for some sort of equitable right in favour of Mr Kinane are established. There was a common understanding between the parties that a certain relationship existed between them (namely that of mortgagor and mortgagee), payment of money by the assumed mortgagee in faith of the existence of that relationship, and receipt of the money on the part of the assumed mortgagor, who must have appreciated that the money would not have been forthcoming unless the assumed mortgagee had believed that the relationship existed.[45]The other question is whether Mr Mackie-Conteh can contend that the equity is satisfied by a mere estoppel, or whether as Mr Kinane contends, it is an estoppel which can also properly be said to amount to a constructive trust. If it is merely a proprietary estoppel, then section 2(5) may well not assist Mr Kinane, and his case would run into the same difficulties as that of the party seeking to enforce the guarantee in Actionstrength.[46]There are observations in the speeches of Robert Walker and Beldam LJJ (with both of whom Clarke LJ agreed) in Yaxley v Gotts [2000] Ch. 174, to the effect that facts giving rise to an estoppel, could be sufficient (even if they do not give rise to a trust) to enable a claimant to avoid the rigours of Section 2(1) of the 1989 Act: see at 174F-G and 188F-9G. It is unnecessary to decide in this case whether those observations can survive in light of the reasoning of the House of Lords in Actionstrength. For the purposes of this appeal, I am content to assume, in favour of Mr Mackie-Conteh, that it would not be open to Mr Kinane to avoid the consequences of Section 2(1) of the 1989 Act if he could only establish a proprietary estoppel, and not a trust.[47]There are clearly circumstances which can give rise to an estoppel, but not a trust. This point was made clear by Robert Walker LJ in Yaxley at 176D where he said this of “estoppel and the constructive trust”:
“Plainly there are large areas where the two concepts do not overlap: when a landowner stands by while his neighbour mistakenly builds on the former’s land the situation is far removed (except for the element of unconscionable conduct) from that of a fiduciary who derives an improper advantage from his client.”
He then went on to explain at 176E that, in light of cases such as Gissing v Gissing [1971] AC 886, it was well established that “the two concepts coincide” “in the area of a joint enterprise for the acquisition of land”.[48]It initially appeared to me well arguable that the nature of the estoppel which could be established by Mr Kinane may not be such as to amount to a constructive trust. There is obviously a conceptual similarity between a person building on another’s land in the false belief that he owns it, thereby conferring a benefit on the true owner, and a person who lends money to the owner of land, in the false belief that he has a mortgage over the land. In each case, the true owner of the land receives a benefit at the expense of a person who has spent money in the mistaken belief that he has an interest in the land.[49]However, I am persuaded that the reasoning, and the authorities cited, in Yaxley do lead to the conclusion that a constructive trust was created in the present case. First, there are the observations of Sir Nicolas Browne-Wilkinson V-C in Grant v Edwards [1986] Ch. 638 at 656 (cited by Robert Walker LJ in Yaxley at 177C-E) to this effect:
“I suggest that, in other cases of this kind, useful guidance may in the future be obtained from the principles underlying the law of proprietary estoppel which in my judgment are closely akin to those laid down in Gissing v Gissing. In both, the claimant must to the knowledge of the legal owner have acted in the belief that the claimant has or will obtain an interest in the property. In both, the claimant must have acted to his or her detriment in reliance on such belief. In both, equity acts on the conscience of the legal owner to prevent him from acting in an unconscionable manner by defeating the common intention. The two principles have been developed separately without cross-fertilisation between them; but they rest on the same foundation and have on all other matters reached the same conclusions.”
[50]Secondly, there in this summary of the law by Robert Walker LJ himself in Yaxley at 180B-C:
“To recapitulate briefly: the species of constructive trust based on ‘common intention’ is established by what Lord Bridge in Lloyds Bank plc v Rosset [1991] 1 AC 107 at 132 called an ‘agreement, arrangement or understanding’ actually reached between the parties, and relied on and acted on by the claimant. A constructive trust of that sort is closely akin to, if not indistinguishable from, proprietary estoppel. Equity enforces it because it would be unconscionable for the other party to disregard the claimant’s rights. Section 2(5) expressly saves the creation and operation of a constructive trust.”
[51]As I see it, at least for present purposes, the essential difference between a proprietary estoppel which does not also give rise to a constructive trust, and one that does, is the element of agreement, or at least expression of common understanding, exchanged between the parties, as to the existence, or intended existence, of a proprietary interest, in the latter type of case. That requirement is plainly satisfied in the present instance, and accordingly it seems to me that Section 2(5) can properly be invoked by Mr Kinane.

Lord Justice Thorpe :

[52]I agree with both judgments.

ORDER

Appeal dismissed with the cross-appeal allowed. Respondent receive 80% of the costs of appeal. Permission to appeal refused; subject to a detailed assessment. (Order does not form part of approved Judgment)

Cited in 13 later judgments

and 4 more of the most senior