Lloyd v MGL (Rugby) Ltd & Anor

Proprietary estoppel may arise while commercial parties anticipate a formal contract, although such cases are exceptional. The claimant must establish an assurance or understanding of a right or benefit, detrimental reliance, and unconscionability in its withdrawal. The promisor need not say that the assurance is irrevocable or enforceable. It is enough that words and conduct convey that it will not be withdrawn; reliance then makes it irrevocable in equity. An entire-understanding clause excludes extraneous prior arrangements only where they concern matters actually dealt with. It does not prevent reliance on a later reiteration. Where assurances began before a company acquired property and continued through a controlled company, the equity may in principle be enforceable against both, subject to the profit available and the later remedy inquiry.

The claimant, a builder and developer, alleged that he had agreed with an entrepreneur and his controlled company to participate in the profits of a residential development. The High Court dismissed claims for breach of contract and quantum meruit but upheld proprietary estoppel, declaring that an equity had arisen in the claimant’s favour and would primarily be satisfied by the company, with possible liability for the entrepreneur.

The defendants appealed. The principal issues were whether an entire-understanding clause excluded reliance on the alleged arrangement, whether the equity could bind the individual as well as the company, whether the arrangement had been adequately attributed to the company, and whether it was unconscionable to recognise the equity.

Appeal dismissed unanimously. Wilson LJ delivered the leading judgment, with Sir Peter Gibson agreeing. Maurice Kay LJ agreed with the result and reasoning except on one aspect of the construction of the entire-understanding clause.

1. Entire-understanding clause. The clause operated only in relation to matters actually dealt with by the agreement. The agreement dealt with the operation of Nimega and the Dunchurch Road project, but did not dispose of the central arrangements for developing Willes Road or sharing its profits. The clause was therefore not engaged. In any event, it could not exclude an understanding reiterated after the agreement’s date. The reference in the appended plan to work at Willes Road being charged at cost was consistent with a profit-sharing arrangement.
2. Liability of the individual and company. The judge was entitled to hold that the company was primarily responsible and that the individual might also be liable to the extent that development profits had vested, or might vest, in him and could not be recovered from the company. The individual had made the original assurances before the company was incorporated and later reiterated them without making his capacity clear. There was no arbitrary rule that a promisor must own the relevant property when the promise is made. The court distinguished Cobbe v Yeoman’s Row Management Ltd [2006] 1 WLR 2964 on its facts and pleadings, and relied on In re Basham Decd [1986] 1 WLR 1498 as illustrating the flexible nature of the doctrine.
3. Assurance and irrevocability. It was misconceived to suggest that a proprietary estoppel required the promisor to state that the promise was irrevocable or enforceable. The relevant assurance is that the promise will not be withdrawn. Detrimental reliance gives it irrevocability in equity. The court applied the reasoning in Gillett v Holt [2001] Ch 210 and Cobbe v Yeoman’s Row Management Ltd [2006] 1 WLR 2964.
4. Commercial context and remedy. Although proprietary estoppel in continuing negotiations towards a possible contract will arise only exceptionally, floodgates concerns do not justify refusing relief. The extent of the claimant’s acts was principally relevant to the later inquiry into the minimum equity required. A quantum meruit based on the objective value of work would not reflect the essence of the shared-profit understanding.

Maurice Kay LJ considered that the agreement did deal with Willes Road by providing for its future ownership, so that the clause was engaged. He nevertheless agreed that subsequent conduct firmly established the equity.

1. Court of Appeal (Civil Division): in [2007] EWCA Civ 153, the appeal was dismissed.
2. High Court of Justice, Chancery Division, Birmingham District Registry: H.H. Judge Norris QC dismissed the contractual and quantum meruit claims, upheld proprietary estoppel, and declared that an equity had arisen in the claimant’s favour.