Smith v Bottomley & Anor

A court should not determine a distinct, unpleaded claim where the defendant objected and the omission created a real possibility of material prejudice. A witness statement does not substitute for a properly pleaded case.

A personal promise concerning beneficial ownership does not bind a company as a separate legal person. An equitable claim against the company requires a promise attributable to it and serious detrimental reliance clearly and distinctly related to that promise. Where the company acquired property with its own funds, an equitable claim against its controller does not pass to the company’s property merely because he controlled the transaction.

An unmarried couple separated after a lengthy relationship. The respondent claimed beneficial interests in properties owned by the first appellant or his company, relying on promises of shared ownership and detrimental reliance. She also sought an additional £21,000 from the sale proceeds of a jointly owned property, although that distinct claim had not been pleaded.

After trial, the Huddersfield County Court declared that the respondent owned half of a barn legally owned by the company and ordered the first appellant to pay £21,000. The appellants challenged both orders. The principal issues were whether the unpleaded monetary claim could fairly be determined and whether the personal assurances and alleged detriment established an equitable interest against the company.

1. The appeal was allowed on both issues. The respondent consequently failed in her claims against both appellants.

2. The £21,000 claim should not have been determined. The respondent knew about the claim before trial and had a fair opportunity to amend her particulars of claim, but did not do so. The first appellant’s counsel clearly objected to the absence of a pleaded claim. The trial judge neither required an amendment nor made a reasoned case-management decision permitting the claim to proceed.

   The omission caused a real possibility of material prejudice. Although the amount and treatment of the sale proceeds were investigated, the evidence did not address whether the additional money had been spent for the respondent’s benefit on family expenses. That issue might have generated further evidence and disclosure if the claim had been pleaded. Lloyd LJ agreed that a claim stated in a witness statement was not an acceptable substitute for a pleading in litigation of this kind. The exceptional course discussed in Lombard North Central plc v Automobile World (UK) Ltd [2010] EWCA Civ 20 did not apply because the parties had not both come to trial ready to determine the unpleaded issue.

3. The declaration concerning the barn could not stand. The company was a distinct legal person and had used its own funds to acquire and renovate the property. Any equitable claim against the first appellant personally did not pass to, or become enforceable against, the company. There was no basis for piercing the corporate veil or inferring that the company held the barn on trust for him. Prest v Petrodel Resources Ltd [2013] UKSC 34; [2013] 3 WLR 1 was distinguishable.

4. The promise found by the trial judge had been made before the company existed. It therefore could not have been made on the company’s behalf, and the judge found no later repetition attributable to it. Moreover, neither agreeing to marry nor giving up rented accommodation was clearly and distinctly related to any alleged later promise by the company. Giving up rented accommodation to receive rent-free shared accommodation was not, in the circumstances, material detrimental reliance sufficient to found an equitable claim against the company.

5. Whether a promise to marry can in principle amount to sufficient detriment was left open. The answer was likely to depend upon the particular facts. The alternative allegation that the first appellant committed a breach of trust also failed because the respondent agreed that the company should complete the barn’s purchase.

1. Court of Appeal (Civil Division): The appeal was allowed on both issues. The orders declaring a half beneficial interest in the barn and requiring payment of £21,000 were set aside.
2. Huddersfield County Court: His Honour Judge Shaun Spencer QC declared that the respondent beneficially owned half of the barn and ordered the first appellant to pay £21,000 from the proceeds of sale of another property. Her remaining property claims were rejected.