McGuane v Welch

Where proprietary estoppel gives rise to an equity, the remedy is flexible. The court must assess all the circumstances, including the claimant’s detriment, the parties’ expectations and their conduct. It should grant the minimum equity to do justice; fulfilment of an expected transfer of property is not automatic.

Where detriment is readily quantifiable, reimbursement secured by a charge may be sufficient. This is particularly so where the proposed transfer would enforce a non-binding transaction at a substantial undervalue, without independent advice for the transferor, and after misleading information was given to that transferor’s solicitor.

A council tenant exercised his statutory right to buy a long lease of residential property. He entered an oral arrangement under which the respondent would provide money, meet mortgage liabilities and obtain the lease after three years. The tenant executed an unstamped declaration of trust and transfer, and the respondent later paid the mortgage, improved the property and received rent from it.

The Recorder held that the tenant held the lease absolutely for the respondent under constructive trust and proprietary estoppel, and directed a transfer. The tenant appealed. The principal issues were whether secondary evidence of the unstamped documents was admissible and whether equity required transfer of the lease rather than a more limited remedy.

1. Appeal allowed. The Recorder’s declaration that the respondent was the beneficial owner of the lease, and the direction requiring its transfer, were set aside.

2. Under Stamp Act 1891, section 14(4), the unstamped declaration of trust and transfer could not be given in evidence or used for any purpose. This prohibition extended to secondary evidence of their contents. The Recorder therefore erred by treating the documents and evidence of their contents as admissible on beneficial ownership. The documents could not establish the respondent’s beneficial interest.

3. A constructive trust could not be inferred or imposed consistently with the parties’ express arrangement that the tenant would hold the lease for three years before a transfer. That arrangement covered the subject matter and left no room for a constructive trust. The absence of a written land contract did not itself prevent reliance on proprietary estoppel: see Yaxley v Gotts [2000] Ch 162.

4. Proprietary estoppel nevertheless gave the respondent an equity because he had acted to his financial detriment in expectation of acquiring the lease. The Recorder erred in treating that equity as requiring a transfer. As recognised in Jennings v Rice [2003] 1 P & CR 100, relief is discretionary and must reflect the minimum equity required to do justice.

5. The relevant detriment was quantifiable. The transaction also involved a substantial undervalue, no independent legal advice for the tenant, and inaccurate information from the respondent to the solicitor acting for the tenant. Those matters meant that the tenant’s refusal to transfer the lease was not unconscionable. The appropriate remedy was reimbursement, not fulfilment of the respondent’s expectation.

6. The tenant remained beneficial owner, subject to a charge securing the respondent’s cash payments, mortgage repayments and refurbishment expenditure. The matter was remitted for an inquiry into the sums due, an account of rent received, and any disputed interest.

Lady Justice Arden and Sir Peter Gibson agreed. Lady Justice Arden additionally held that equitable relief should not permit the respondent to benefit from an arrangement implemented without fair treatment of the tenant.

• Court of Appeal (Civil Division): Allowed the appeal in [2008] EWCA Civ 785, set aside the declaration of beneficial ownership and substituted a charge securing reimbursement.
• Central London Civil Justice Centre: Mr Recorder Dight, on 3 October 2007, declared that the appellant held the lease on trust for the respondent and directed transfer of the lease.