Meg Edwards, Solicitor in the Contested Wills, Trusts and Estates team discusses the recent Guest and another v Guest [2022] UKSC 27 case, where theSupreme Court handed down its long-awaited judgment, concluding that in claims of proprietary estoppel, an award will be based on the ‘prevention or undoing of unconscionable conduct.’
The correct basis on which to value an award under the doctrine of proprietary estoppel (i.e. claims to enforce a broken promise usually in the absence of any formal contractual relationship) has long been a subject of contention. Many have argued that the starting point should simply be to compensate for the detriment suffered by a claimant in relying on the promise, whereas others believe that to take such a seemingly objective view, external of the considerations, hopes and understandings of the parties, in particular the promise, is unfair. They argue that an award should be based on the claimant’s expectation and making the ‘promise’ right.
Further still, others have argued that either option works provided that the relief ought to be “the minimum equity to do justice” citing what Lord Briggs sitting in the Supreme Court calls the “often misunderstood dictum of Scarman LJ” in the case of Crabb v. Arun District Council [1976] Ch 179, 198; misunderstood because some have interpreted this to mean that any award to a claimant ought to be the minimum of the two possible awards, while Lord Briggs takes the view that this only means that the award should reflect the unconscionability and so the focus is on the “equity to do justice” part of Scarman LJ’s comment.
The Supreme Court has clarified the position having handed down its judgment following the hearing which took place on 2 December 2021.
Background
The appellants were the owners of Tump Farm, David and Josephine Guest. The respondent was their son, Andrew.
Andrew left school aged 16 in 1982 in order to work the farm full time, having helped sporadically throughout his childhood. He regularly worked 60-hour weeks, overseeing the first milking shift at 6am and the second at 3.30pm, often not returning home until 6pm. He worked hard on the basis and understanding that he would inherit a “sufficient stake” in the farm after his parents’ death.
Andrew is one of three children. He has a brother, Ross and sister, Jan. In 1981, David wrote a will. The will left Tump Farm and the associated dairy farming business to his sons, jointly, on the basis that they would raise a sum of money to pay a legacy to their sister, to the value of 1/5 of the residuary estate. In 1989, Andrew moved into Granary Cottage, a property located on the farm. This eventually became his family home where he lived with his wife and children.
In 2014, relationships broke down between Andrew and his family. At this point, Andrew had worked the farm for over 30 years. As a result of the breakdown, David made a new will excluding Andrew entirely. He left the farm and his share in the farming business to Ross and left £120,000 plus 2.5 acres of farmland to his daughter, Jan. He wrote a letter of wishes citing his reasons for excluding Andrew, one of which was that he had ‘lost all trust in him’.
In 2015, the appellants offered Andrew the option to carry on farming at Tump Farm by way of a farming business tenancy (“FBT”), but Andrew did not consider the terms of the FBT affordable. In 2017, the respondents gave Andrew notice to leave the cottage in which he had resided for 28 years. As a result, Andrew brought proceedings under the doctrine of proprietary estoppel and sought:
- an entitlement to occupy Granary Cattage; and
- the entire beneficial interest in Tump Farm and the farming business, or alternatively, any such equity or interest over the farm and farming business as the court saw fit.
HHJ Russen QC sitting at the High Court considered that the elements of proprietary estoppel had been established and concluded that Andrew should be granted an expectation-based reward. As such, Andrew was awarded:
- 50% of the market value of the farming business; and
- 40% of the market value of Tump Farm.
However, the award was such that Tump Farm would need to be sold in order to satisfy the judgment (and to provide the parties with a ‘clean break’ from each other given the breakdown of relations). As such, the respondents appealed to the Court of Appeal. The appeal was dismissed. They therefore sought leave to appeal to the Supreme Court who were required to consider:
- whether the claimant’s expectation was an appropriate starting point when considering an award; and
- whether the remedy granted (i.e. payment of a lump sum which would require the sale of the farm) went beyond what was necessary in the circumstances.
Supreme Court judgment: the authorities
In a detailed judgment, Lord Briggs, with whom Lady Arden and Lady Rose agreed, recited the key cases from the past 150 years, most of which historically seemed to favour an expectation-based reward, at least until the 21st century when courts have started to lean towards a “detriment-based” award.
They referenced cases as early as Hammersley v. De Biel (1845) in which it was established that a person who induces another to act based on a promise, must be compelled to make that promise good. This case, from the outset and establishment of the doctrine, insinuated that the expectation-based reward was the most appropriate.
Lord Briggs also made reference to E R Ives Investments Ltd v. High [1967] stating that there was “no mention of compensation for detriment” at any point during this judgment. The more recent case of Habberfield v. Habberfield [2019] was also cited, which provided that the doctrine of proprietary estoppel is based on the concept that promises are to be kept.
Lord Briggs explained that it is only since the case of Dodsworth v. Dodsworth (1973) that compensation of detriment rather than reliance had been considered a potential award. However, he noted that in this specific case, an expectation-based award would have gone above and beyond the claimant’s expectations, which is why the detriment-based approach was more appropriate.
Interestingly, he also noted that although the detriment-based approach is often considered more easily quantifiable, detriment may extend to matters such as foregoing of education or career-based advancements, which cannot be easily quantified. Furthermore, the detriment-based approach fails to account for the fact that land and property are unique and therefore cannot always be compensated for by a monetary sum.
What view did the Supreme Court take?
Essentially, the Justices were keen to emphasise that the key factor was to avoid “unconscionability” or unfairness, rather than to focus purely on expectation. However, to place a value on detriment was incorrect and detriment should only be considered insofar as it is a necessity to establish that an equity has arisen.
In short, the principles established by the Supreme Court were that:
- rather than being expectation or detriment-based, a reward should centre around “preventing or remedying” the unconscionable conduct of the promissor;
- any reward should, in general, not be vastly disproportionate to the detriment suffered by the claimant unless there is good reason for this;
- in the event that a ‘clean break’ is necessary between the parties, there should be discount for early receipt of inheritance. In other words, where the promise is for the claimant to inherit on death but due to breakdown of relations, the inheritance is accelerated, a discount should be applied; and
- there should be no ‘expectation plus’, i.e. a claimant should never receive more than they had expected to receive as this would go beyond the scope of the promise relied on.
How did these principles apply to the facts?
The Supreme Court allowed the appeal but only to the extent that the appellants were provided with an alternative remedy to that provided by the High Court judge. The alternative provided would prevent the immediate sale of the farm.
Based on the principles outlined above, Lord Briggs considered that providing Andrew with 40% of the farm value was an appropriate award to make good his parents’ promise. However, consideration had to be given to the fact that he would be receiving his inheritance now, rather than on his parents’ deaths, i.e. it was being accelerated.
The Supreme Court was also mindful of the fact that his parents had never agreed to sell or part ways with the farm which had been in the family since 1938. As such, the parents were provided with a choice of either:
- providing a reversionary interest under a trust of the farm to Andrew with David and Josephine having a life interest in the farm, i.e. Andrew receiving it absolutely on the death of his parents; or
- providing a monetary value to Andrew (in line with HHJ Russen QCs order) but subject to an early discount receipt, such discount, if not agreed by the parties, to be remitted to the High Court for consideration.
Though a choice to be made, it will be surprising if the appellants choose not to take the former.
What impact will this judgment have on future cases?
The judgment is “claimant-friendly” and provides a stark warning to defendants that courts will seek to either prevent or undo any “unconscionable conduct” of a promissor. The ‘starting point’ will be to enforce the promise, i.e. to provide the claimant with what they expected to receive based on the representations made to them.
In cases where the promissor is still alive but a clean break is needed, the court will be minded to discount the sum awarded to the promisee in order to account for its acceleration. However, the court will also consider whether it is possible to provide a clean break by alternative means, e.g. by placing property on trust in the meantime.
It will be interesting to see whether the approach taken will encourage settlements of proprietary estoppel claims and reduce the number of cases which reach trial. However, the judgment is, understandably given the almost infinite number of variables between any two cases, far from providing an exact science to the issue in question and the subjectivity in determining the extent of ‘unconscionability’ and the discount for early inheritance remains very much open.
