Yaxley v Gotts

An oral bargain for an interest in land may be invalid as a contract under section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, while the circumstances independently establish a common intention constructive trust. An agreement, arrangement or understanding to share the property beneficially, accompanied by detrimental reliance, can establish such a trust. Section 2(5) expressly preserves its creation and operation. The saving extends to circumstances in which proprietary estoppel and a constructive trust coincide, including sufficiently performed informal bargains where restitution alone would fail to satisfy the claimant's equitable entitlement.

The decision does not establish that proprietary estoppel outside that overlap can invariably overcome statutory formalities. Its availability depends on the statutory purpose and the circumstances.

Keith Yaxley, a self-employed builder, agreed orally with his friend Brownie Gotts, a property owner, that he would refurbish a converted house and manage its lettings in return for ownership of its ground floor. The property was instead purchased and registered in the name of Brownie's son, Alan Gotts. Yaxley carried out substantial work at his own expense, converted the ground floor into two flats and managed the lettings. Alan knew of and encouraged Yaxley's expectation and paid him the ground-floor rents.

After Alan excluded him from the property, Yaxley commenced proceedings in the High Court. The proceedings were transferred to Norwich County Court. Judge Downes accepted Yaxley's evidence and upheld his proprietary estoppel claim. He ordered Alan to grant a rent-free 99-year lease of the ground floor or pay its equivalent value, and directed an account of rents.

The defendants appealed without challenging the factual findings. They raised section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 for the first time, contending that proprietary estoppel could not give effect to an invalid oral contract and that Yaxley was confined to a quantum meruit. The central issues were whether the findings established an agreement with Alan and whether the constructive trust saving preserved Yaxley's proprietary entitlement.

1. The appeal was dismissed unanimously. Robert Walker, Clarke and Beldam LJJ agreed that the established facts entitled Yaxley to a long leasehold interest under a constructive trust. Section 2(5) of the Law of Property (Miscellaneous Provisions) Act 1989 preserved that entitlement despite any contractual invalidity under section 2(1).

2. Per Robert Walker LJ, with Clarke LJ expressly agreeing and Beldam LJ reaching the same conclusion, a common intention constructive trust could arise from an agreement, arrangement or understanding to share land beneficially, followed by detrimental reliance. The bargain and conduct found by the trial judge met the test in Lloyds Bank v Rosset [1991] 1 AC 107. In this area, proprietary estoppel and constructive trusts were closely related. The findings supporting the estoppel equally supported a constructive trust.

3. Per Robert Walker LJ, with Clarke LJ agreeing, section 2(5) bore its natural meaning. Its protection was not restricted to exclude circumstances in which the claimant might formerly have relied on part performance. It permitted a limited exception where a supposed bargain had been sufficiently performed and the circumstances made it inequitable to disregard the claimant's expectations or confine him to restitution. Lloyds Bank v Carrick was distinguishable: there a specifically enforceable contract already generated a trust, and the dispute concerned protection against a third-party mortgagee. Here no specifically enforceable contract displaced the independent constructive trust.

4. Beldam and Clarke LJJ also supported dismissal on the narrower basis that the findings did not establish an agreement between Yaxley and Alan for the disposition of an interest in land. Adoption and encouragement of the father's promise did not necessarily establish such a contract. A new appellate point required careful scrutiny where its factual foundation had not been investigated at trial. They declined to remit the matter for further findings. Robert Walker LJ instead proceeded on the assumption that an intended binding bargain had been invalidated by section 2.

5. The wider operation of proprietary estoppel outside the constructive trust saving remained open. Robert Walker and Clarke LJJ emphasised the need to respect statutory public policy. Beldam LJ considered that the saving protected cases equally supportable through constructive trust or proprietary estoppel. The Law Commission materials assisted in identifying the mischief and policy, but could not conclusively determine statutory construction.

6. The order for a rent-free 99-year lease, with the alternative of payment of its equivalent value and an account of rents, stood. The appeal was dismissed with costs. Permission to appeal to the House of Lords was refused, with a stay pending a petition.

• Court of Appeal: Dismissed the defendants' appeal unanimously on 24 June 1999 in [2000] Ch 162 . Hutchison LJ had granted an extension of time for appealing on 20 March 1998. The substantive order remained in force.
• Norwich County Court: Judge Downes gave judgment for Yaxley on 1 September 1997. He upheld proprietary estoppel and ordered a rent-free 99-year lease of the ground floor or payment of its equivalent value, together with an account of rents.
• High Court, Chancery Division: Proceedings commenced on 24 April 1996 and were transferred to Norwich County Court on 19 March 1997.