Ghazaani v Rowshan

An oral agreement concerning land may exceptionally support proprietary estoppel or a constructive trust despite non-compliance with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. The exception is narrow. It is important that the parties intended the agreement to be immediately binding, had agreed all material terms, and did not intend to execute a later formal contract. Possession, improvements and performance may make it unconscionable for the legal owner to refuse completion. Relief is discretionary and should avoid the unconscionable result. It may include an order putting the parties in the position they would have occupied had the agreement been completed.

Dr Ghazaani claimed that Mr Rowshan held a Leeds property on constructive trust for him, or was estopped from denying his entitlement to it. The parties had orally agreed to exchange the Leeds property for an apartment in Tehran, with an additional payment of 500 million Iranian rials and responsibility for a further 400 million rials payable under the apartment tenancy.

The claimant alleged that he transferred the Tehran apartment, paid the additional sum, entered possession of the Leeds property and carried out substantial improvements. The defendant disputed the agreement’s terms, the transfer and payments, and denied that proprietary estoppel or a constructive trust arose. The central issue was whether the oral arrangement justified equitable relief notwithstanding section 2 of the 1989 Act.

1. Findings and disposition. The court accepted the claimant’s case, rejected the defendant’s and his solicitor’s evidence as unreliable and dishonest, and found that the Tehran apartment had been validly transferred and that the 500 million Iranian rial payment had been made. The defendant was ordered to transfer the Leeds property to the claimant. Future rent was to be paid to the claimant.
2. Proprietary estoppel and constructive trust. The ordinary elements of proprietary estoppel require an inducement, encouragement or allowance leading the claimant to believe that he will obtain a right or benefit, reliance causing detriment, and unconscionable conduct in denying the expected right. A commercial oral agreement may nevertheless generate an equity despite section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989, but only exceptionally.
3. The relevant circumstances included that the parties did not intend to execute a formal written agreement, had agreed all material terms by at least November 2011, and intended to proceed immediately. The claimant had obtained possession, undertaken improvements with the defendant’s approval, transferred the Tehran apartment and paid the agreed equality money. In those circumstances, refusal to complete was unconscionable. Section 2(5) preserved the possible creation and operation of a constructive trust.
4. Relief is discretionary and aims to avoid an unconscionable result. The appropriate relief was to put the parties in the position they would have occupied if the agreement had been completed in November 2011. The court therefore ordered transfer rather than monetary compensation, taking account of rent, rates and the unpaid 400 million rial obligation.
5. The late jurisdiction objection was refused. The court had jurisdiction because both parties were resident in the United Kingdom, the principal relief concerned the Leeds property, and part of the counterclaim concerned the unilateral notice. An equity arising by estoppel was capable of binding successors in title and could be protected by unilateral notice under sections 116 and 32 of the Land Registration Act 2002.