Analysis
This claim concerned a property. The freehold had belonged legally and beneficially to J who had run a business of a pub and restaurant from the property in partnership with her husband B. J died in 1997. On her death the property passed by her will to her executors and trustees, essentially for the benefit of B for his life and, subject to B’s interest, for J’s three children in equal shares (the will trust).
The claimants were the current trustees of the will trust and hence the legal owners of the freehold of the property. The first defendant was J’s son (one of the beneficiaries) and the second and third defendants were companies which he owned or with which he was associated.
Following J’s death, B continued the business at the property, assisted by the first defendant. In 1999-2000, the first defendant paid £200,000 for the refurbishment of the ground floor of the property and in 2003, he paid a further £100,000-140,000 for the refurbishment of the first floor. The first defendant ultimately took over the day to day running of the business from B and B sold his share in the business to the second defendant.
B died on 1 February 2013. The claimants sought an order for possession of the property against the defendants, who were carrying on the pub and restaurant business at the property. The defendants defended the claim upon the basis that the first defendant had a right to stay in occupation of the property on the basis of a proprietary estoppel equity. The proprietary estoppel claim was based upon an alleged agreement between the first defendant and one of the two trustees at the time (T1) that any money that the first defendant put into the business and into renovating the property would be paid out of the proceeds when the property was sold or was refinanced and that until the first defendant was repaid, he would be entitled to occupy the property.
The general principles of proprietary estoppel were not in dispute. However, in addition to the factual dispute as to whether an agreement had been reached, two points of law arose. First the extent to which one co-owner trustee, T1 could, by words or actions, bind the other co-owner trustee, T2 and whether a promise by T1 to the first defendant relied upon by the first defendant could give rise to the equity of proprietary estoppel. Secondly, how far the trustees could create a proprietary estoppel which would be binding on the beneficiaries.
Held, granting judgment for the claimants:
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- 1. The trustees at the time and the two beneficiaries other than the first defendant (the other beneficiaries) knew about the refurbishments, funded by the first defendant, and did not object to these (at [83], [115] and [126]).
- 2. However, no promises were in fact made by T1 to the first defendant about rights to remain in the property and there was no agreement between them to the effect that the first defendant could continue to occupy the property and run the business for as long as he wanted or at least until he was repaid (at [103], [117] and [126]).
- 3. Even if the court was wrong about this, T2 made no such promise or agreement nor was he aware of or acquiesced in any promise that T1 had made. T1 had no authority to bind T2 in any respect of any such promises, nor did T2 stay silent after realising that T1 had made such a decision or otherwise acquiesce in it. Where only one of two beneficial co-owners makes a representation or promise in which the other does not join or acquiesce, the innocent co-owner who had done nothing to put his or her interest at risk should not be bound. The question was whether, on the ordinary principles of agency, one trustee had the authority to bind the other, whether by actual, implied or ostensible authority. The court did not accept that the ‘casual way’ in which the trustees separately dealt with third parties was sufficient for ostensible authority, such as to bind the other, to arise. There is a world of difference between relatively trivial matters clearly within the scope of trustees, such as operating a bank account, on the one hand, and making promises (outside the scope of the powers conferred) intended to bind the land subject to the trust, on the other. It was not safe to infer from the way that the trustees dealt with the bank that T2 was thereby representing to the first defendant that T1 was authorised to bind him in matters relating to the trust land. T2 had no authority to bind T2 as trustee of the will trust at the times of the alleged promised by T1 (at [41], [42], [43], [104] and [126]).
- 4. Further, the other beneficiaries did not promise, or acquiesce in the promise of others about such rights. Where, as here, the legal owners of property were not beneficial co-owners but trustees for others, with limited powers to bind their beneficiaries’ interests, the court failed to see how it could be unconscionable for trust beneficiaries, innocent of any conduct putting their beneficial interests at risk, to assert those interests against a person to whom a representation or promise even inside the trustees’ limited powers had been made by only one of those trustees. At best the equities were equal. Further, a representation or promise outside the trustees’ powers would be a fortiori. In principle the trustees as trustees of land had the power under the Trusts of Land and Appointment of Trustees Act 1996 as against the beneficiaries, to sell, lease, mortgage (and so on) the trust land though only for the purpose of exercising their functions as trustees. They did not however have the power as against the beneficiaries to give it away for nothing to a person not otherwise entitled to it. A power to give away the trust property is dispositive. But the powers conferred by s6(1) of the 1996 Act are administrative and not dispositive. The proper protection of the beneficiaries demands that the words of s6(1) be confined to formally and substantively complete transactions. Those which do not meet the requirements of valid contracts of sale, lease, mortgage and so on are simply outside the scope of s6(1). So a bargain for an interest in land which fails as a contract because of lack of formality is not within s6 and does not bind the beneficiaries as an exercise of the trustees’ powers (at [42], [47] and [48], [103], [117] and [126]).
- 5. On the other hand, a contractual licence could be potentially binding on the trust estate and therefore on the beneficiaries. Such a transaction would be within s6(1) of the 1996 Act. However, no such contractual licence had been granted (at [53] to [55] and [126]).
- 6. Further, such a transaction could still be binding on the beneficiaries through the separate principle that where a trustee acts outside his powers and confers a benefit on the beneficiaries, the beneficiaries may ratify the transaction and take the benefit if they wish (at [49]).
- 7. The fundamental problem for the first defendant was that he had paid for the refurbishments without securing a clear commitment from the trustees or the other beneficiaries as to whether any of them and if so who should repay him for them. The funds provided for refurbishment were in effect loans to the business not the trust. It was the business that was to repay, the business initially being B, then B and the first defendant and finally just the first defendant. The first defendant’s attempts to found a claim on proprietary estoppel and latterly on contractual licence foundered on the need for promises or at least expectations created or acquiesced in by the persons whom he seeks to make liable. Whilst the first defendant may have believed in those promises or expectations, the claimants and the other beneficiaries were not responsible for them (at [127]).
- 8. Whilst pursuant to ss12-13 of the 1996 Act beneficiaries of a trust of land have an entitlement to occupy the land, this was irrelevant where there was a dispute between co-owners who were together absolutely beneficially entitled. Any of the co-owners could ask the court for an order for sale under s14 and if the trustees attempted to exercise s13 powers in favour of one of them, no doubt one or more of the others would do so. In any event, in this case far from the trustees seeking to exercise s13 powers in favour of the first defendant, they had decided to seek possession against him. Further, the mere fact that trustees might have a theoretical power to exclude the other beneficiaries until the court ordered a sale is not authority for trustees to be able to create proprietary estoppel equity binding on the beneficiaries. Section 13 is essentially a power of management of land that does not take away a beneficiaries’ interest in it. Proprietary estoppel however is a doctrine which alters beneficial interests (at [51] and [52]).
9. Where a pleaded case has been exceeded by formal statements, the court should not simply consider the pleaded case but the evidence adduced against the wider case expressed. If the evidence justified the wider case it would be open to the party to apply to amend their case even at trial and the court would assess the strength of any objections of the other side based on unfairness, inability to prepare properly, to call and adduce relevant evidence, to cross-examine properly and so on (at [29]).
Introduction JUDGMENT MASTER MATTHEWS: [1] In these proceedings, the claimants, as freehold owners of The Albert Arms Public House, High Street, Esher, Surrey (‘the property’), seek an order for possession of the property against the defendants, who (or some one or more of whom) are carrying on the pub and restaurant business at The Albert …Continue reading "Preedy & anr v Dunne & ors [2015] EWHC 2713 (Ch)"