Muhammad & Ors v ARY Properties Ltd & Ors

At an interlocutory stage, a defence based on proprietary estoppel should not be struck out merely because the alleged security interest failed to comply with statutory formalities. The court must distinguish enforcing a void contract from giving effect to equities arising after an assurance has been relied on to a claimant’s detriment. The elements of proprietary estoppel are an assurance or representation, reliance and detriment. Where those elements are capable of being pleaded, the issue may require determination at trial. Summary judgment is inappropriate where the outcome depends on disputed facts or unresolved questions of legal principle. A unilateral notice may be vacated under the court’s inherent jurisdiction, independently of the statutory procedure, but the court should ordinarily await findings of fact where the merits of the underlying equitable claim remain unresolved.

The claimants alleged that money had been lent to the defendants and that documents relating to a legal charge over property in Wembley secured repayment. The first defendant counterclaimed for declarations that an altered 2009 charge was invalid or non-binding and for vacation of a unilateral notice entered on the register.

The first defendant applied to strike out the defence to counterclaim, obtain judgment on the counterclaim, or alternatively obtain summary judgment. The claimants relied, among other matters, on a possible equitable security interest arising through proprietary estoppel. The issues were whether the pleading complied with the procedural rules, whether it disclosed reasonable grounds of defence, whether summary judgment was appropriate, and whether the unilateral notice should be removed before trial.

1. Strike-out and pleading. The defence and clarification failed adequately to answer material allegations concerning the authenticity and execution of the altered charge and the allegations of dishonesty. The proposed amendment substantially addressed one omission but remained deficient in other respects. An immediate strike-out was disproportionate because the defects appeared capable of correction. The claimants were therefore given 14 days to serve a fully compliant amended reply and defence under CPR rule 16.5 and the Practice Direction. Failure to comply would result in refusal of permission to amend and strike-out.
2. Proprietary estoppel. The court treated the established elements as an assurance or representation, reasonable reliance and detriment. The proposed case contained allegations of assurances but did not adequately plead reliance or detriment against the first defendant. It was therefore presently defective, but the defect was capable of amendment.
3. The relationship between proprietary estoppel and section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 was an important and unsettled question. The court preferred the view that proprietary estoppel is concerned with equities arising from subsequent conduct, rather than enforcement of the informal contract itself. However, the issue was unsuitable for final determination on the pleadings because its resolution depended on findings of fact and the full context. The defence was not struck out on that basis.
4. Summary judgment. Under CPR rule 24.2, a real prospect means more than an illusory or theoretical prospect, but the court must not conduct a mini-trial or weigh probabilities. The summary judgment application was adjourned, with liberty to restore it after compliance with the unless orders.
5. Unilateral notice. The court confirmed that it had an inherent jurisdiction to vacate a unilateral notice, notwithstanding the statutory framework in section 77 of the Land Registration Act 2002. Neither vacation nor rectification was appropriate summarily. The unilateral notice was left in place pending trial.
6. The strike-out application was dismissed subject to the unless orders. The summary judgment application was adjourned.