Gonthier & Anor v Orange Contract Scaffolding Ltd.

A party seeking proprietary estoppel or other equitable relief must come with clean hands. Where the asserted equity depends upon expenditure and the claimant knowingly presents fabricated or materially misleading documents to support and exaggerate that expenditure, the court should refuse equitable relief. The issue is not whether misconduct causes a proportionate loss of an existing equity. It is whether the claimant's conduct prevents the equity from arising.

The ordinary effect of a subject to contract qualification is that either party may withdraw, and the qualification persists unless expressly or necessarily removed. The court left open whether exceptionally strong assurances and reliance could nevertheless make withdrawal unconscionable.

The appellants owned a commercial yard and negotiated a five-year lease, with an option to purchase, with the respondent scaffolding company. The respondent's solicitors described the negotiations as subject to contract and subject to lease. The respondent entered the yard, carried out works and later claimed proprietary estoppel after the appellants declined to grant the proposed option.

The Cardiff County Court awarded the appellants rent arrears but awarded the respondent £19,500 for expenditure on the premises, secured by a charge over the property. The appellants appealed. They contended that the respondent could not obtain equitable relief because it had relied on fabricated and misleading documents, and that the subject to contract qualification prevented the alleged estoppel.

1. The appeal was allowed unanimously. The award of £19,500 and interest to the respondent, and the charge securing it over the appellants' property, were set aside. The respondent's counterclaim was dismissed.

2. Per Lindsay J, with whom Kay and Waller LJJ agreed, the Recorder had misdirected himself on clean hands. The respondent had pursued an equity founded on expenditure while knowingly advancing a substantially exaggerated account of that expenditure. It had produced fabricated or misleading documents and concealed the true position until cross-examination. A party unable to prove the truth of its case cannot fabricate documents to portray what it says is broadly true.

3. Applying Willis v Willis [1986] 1 EGLR 62, the relevant question was not whether bad conduct caused a proportionate forfeiture of an equity. It was whether the misconduct meant that equity had never arisen. The respondent's conduct, described as hopelessly muddied, required refusal of equitable relief. Singh v Singh [1985] Fam LR 97 was distinguishable because there was neither protection of an innocent third party nor a timely confession of the deception.

4. The court therefore did not determine the subject to contract issue. It considered that the Recorder's four stated reasons did not displace the ordinary effect of the qualification: both sides may withdraw, and the qualification endures unless expressly or necessarily removed. Nevertheless, the court left open whether, in an exceptional case of sufficiently strong and sustained assurances and reliance, the reasoning in Gillett v Holt [2001] 1 Ch 210 might overcome that ordinary effect. The apparent tension with Attorney-General of Hong Kong v Humphreys Estate (Queen's Gardens) Ltd [1987] 1 AC 114 was left for a case in which it required decision.

• Court of Appeal (Civil Division): allowed the appellants' appeal in [2003] EWCA Civ 873, set aside the monetary award and charge in favour of the respondent, and dismissed its counterclaim.
• Cardiff County Court: on 12 September 2002, Mr Recorder Thom awarded the appellants arrears of rent and awarded the respondent £19,500 and interest for expenditure on the premises, secured by a charge over the appellants' property.