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Cite as: [2013] EWCA Civ 239

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Neutral Citation Number: [2013] EWCA Civ 239
Case No: B5/2012/1891

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
Sitting at THE MAYOR'S AND CITY OF LONDON COURT
Mr Recorder Hill-Smith
1CL10224

Royal Courts of Justice
Strand, London, WC2A 2LL
26th March 2013

B e f o r e :

LORD JUSTICE PATTEN
LORD JUSTICE KITCHIN
and
LORD JUSTICE McCOMBE

____________________

Between:
SABRINA SOON DUCK PARK KIM
(2) JAI KYUNG KIM
Appellants/Defendants
- and -

CHASEWOOD PARK RESIDENTS LIMITED
Respondent
/Claimant

____________________

(Transcript of the Handed Down Judgment of
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)

____________________

Edwin Johnson QC and Piers Harrison (instructed by Ashley Wilson Solicitors LLP) for the Appellants
Paul Letman (instructed by Mellins Garson Law) for the Respondent
Hearing date : 25th February 2013

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    Lord Justice Patten :

    Introduction

  1. The appellants, Mr and Mrs Kim, are the tenants of flat 26, Chasewood Park, Sudbury Hill, Harrow ("the Flat") under a lease granted on 7th December 1988 for a term of 125 years from 29th September 1987. They purchased the leasehold interest on 5th October 2001. Under the lease, the tenants covenant to pay an annual ground rent together with a service charge. The ground rent is set at £100 per annum for the first 33 years of the term but then becomes £200 per annum and doubles to £400 after a further 33 years.
  2. Chasewood Park comprises some 97 residential flats with ancillary parking. Until 2007 the reversion (which consisted of a long superior lease) was vested in the Nationwide Building Society. In 2006 they indicated an intention to dispose of the reversion and an opportunity therefore arose for the residents to acquire it. Before taking the matter any further the Residents' Association needed to gauge the level of support for any purchase. On 24th August 2006 they therefore sent a letter to each of the tenants asking them to indicate on the form attached to the letter whether they would or would not like to participate in the acquisition of what was described as the freehold. It is common ground that this was inaccurate, although the length of the leasehold reversion was such as to make it a virtual freehold. The error may, however, have contributed to Mrs Kim's misunderstanding of what was being offered to her. I shall return to that a little later.
  3. The first part of the letter itself read as follows:
  4. "Dear Chasewood Resident,
    As many of you already know, from the previous two Residents' Meetings, your Committee has been keen to pursue the acquisition of the Freehold of Chasewood Park.
    The benefits of owning the freehold can be summarised as follows:
    The situation is that Nationwide has informed us that they are going to sell the Freehold. Their remaining interest of 17 flats in Chasewood Park are also currently up for sale. Allsops have been engaged by Nationwide to dispose of their interests in Chasewood Park. The Committee have been informed by Allsops that in order to establish a price for the Freehold it will be put into auction in February or March of next year.
    ….."
  5. The letter went on to explain that the price of the freehold would be based on the capitalised value of the ground rents and that the cost per tenant would obviously depend upon how many of the tenants wished to participate in the acquisition. The Residents' Association had calculated that at least 50% of the tenants needed to participate in order to make the purchase affordable. On that basis, the cost to each tenant ought not to exceed £4,000. The letter went on:
  6. "If we do manage to acquire the Freehold, those owners that have not participated will continue to pay ground rent to a Company formed to acquire the freehold. In addition when lease extensions are required by non participators, they will need to be paid for, again to the Company owning the freehold. These collected sums will be distributed back to the original freehold acquisition participators, who will have equal shares in the holding company.
    Whilst February/March next year seems a long way off there is much to do before then in preparation. Can we therefore please ask that as a matter of urgency you reply using the second page attached to give us an initial indication of your interest in pursuing the Freehold acquisition."
  7. Although there was nothing in the letter to indicate the existence of such a disagreement, Mr Abe Tibbett, the chairman of the Residents' Association, said in evidence that the reference in the second bullet point to "No ground rent to pay" was not something which had been agreed to by the committee. The circular had been drafted by one of the committee members, Mr Stavronidis, and sent out before its contents could be further considered.
  8. Having read the circular letter, Mrs Kim returned the form indicating that she and her husband would like to participate. The next document which she received was a circular letter of 9th February 2007 headed "Freehold Purchase Update". Copies of this letter were sent to each of the tenants who had previously expressed an interest in participating in the purchase of the "freehold". By this time events had moved on. The Residents' Association had set up the respondent company ("the Company") to acquire the reversion and, if successful, to act as the managing agent for the block. Mr Tibbett was one of the first directors and Mr Stavronidis became the company secretary. The 9th February letter (although in the name of the Residents' Association) was sent with the authority of Mr Tibbett and the other directors and they accept that the Company is responsible for its contents.
  9. The letter began as follows:
  10. "Dear Freehold Purchase Participator,
    We are progressing well with the Freehold purchase. We lodged our formal interest in acquiring the Freehold with the Freeholder's solicitor in a timely manner. We have formed a company called 'Chasewood Park Residents Limited' in which all participators will hold one ownership share. Directors and a Company Secretary have been appointed. A few more participators have joined us so we are now at a total of 56 people who have submitted their completed forms and contributed the £50. As a reminder we actually need more than 40 participators in order to be able to proceed, which we clearly have. …"
  11. It then referred to the auction date being set for 29th March 2007 and what the arrangements for the payment of each tenant's share would be if the price set was affordable. The remainder of the letter was concerned with the possible participation of Talbot Residential Investment Partnership (the owners of 13 flats) in the purchase and how this should be managed in terms of voting rights at an EGM of the Company. None of this is relevant to the issues on this appeal.
  12. The Company was ultimately successful in acquiring the reversion from Nationwide and Mr and Mrs Kim paid £3,095 (later reduced to £2,887.16) towards the cost in return for which they received a share in the Company. On 12th June 2007 the participating tenants had each received a further circular letter containing an update of the position following the purchase. The letter explained that, in the end, some 82 tenants contributed to the purchase and that other tenants were being allowed to join in late but at an increased cost. The Company now proposed to grant extended leases to the participating tenants for a one-off fee of between £250 and £750. Most of the fee would relate to the cost of preparing a new lease. Although the circular letters had all referred to the tenant being granted an extension of their existing terms, this in fact necessitated the surrender of their existing leases and the re-grant of a new lease for the longer term.
  13. The most significant aspect of the letter for present purposes was the third paragraph. This read:
  14. "For the moment we have decided to continue to charge the £100 per annum ground rent from everyone in order to build up a fund within the Company to cover accountancy fees, legal fees etc. Please note that the Directors and the Company Secretary will not receive any remuneration."
  15. At an EGM of the Company held on 26th June the directors explained that the ground rent was to remain at £100 per annum for the time being in order to build up funds to deal with any eventualities.
  16. Mr and Mrs Kim have refused to pay the ground rent due since the purchase by the Company of the reversion. They have been offered, but have also declined to accept, the grant of a new long lease at the current ground rent. In correspondence and in her witness statement in these proceedings Mrs Kim says that she was told in the letter of 24th August that ground rent would not be payable following the acquisition of the freehold. In a letter of 8th November 2007 to the Company she wrote:
  17. "after I have become part of the commonhold and a member of [the Company] the previous lease is therefore no longer applicable. However you have no proprietary or contractual claim against me."

    In paragraph 11 of her second witness statement she says that she noticed the references to "freehold" in the letters of 24th August 2006 and 9th February 2007 and drew the following conclusions:

    "I am of the clear view that this statement was intended to induce me into the acquisition of the head-lease without spelling out to me the implications of my participation. I was of the understanding that my participation in the transaction was on a common-hold basis. This was of my understanding stemming from the Chasewood Residents newsletter dated 24th August 2006 which refers to the acquisition of the freehold. As there is such references it was my understanding that the lease would no longer be in existence, and hence my obligation to pay ground rent no longer required."
  18. Despite the service of demands for the ground rent in 2008, 2009, 2010 and 2011, no payments have been received. In October 2007 the Company issued proceedings in the County Court for the recovery of the arrears of rent and service charges. These have now been amended to include the ground rent falling due in subsequent years. Mrs Kim (with the assistance of her son who is a lawyer) prepared a draft defence in which she alleged that her lease had been extinguished by the acquisition of the freehold and that no rent is therefore payable. But that has now been superseded by an amended defence and counterclaim settled by Mr Johnson QC which admits the continued existence of the lease but alleges that the Company is estopped from seeking to recover the ground rent as a result of the statements (1) that there would be no ground rent to pay following the purchase of the reversion and (2) that participating tenants would be able to extend their existing leases at no additional cost apart from a small fee. This is said to carry the implication that any new extended lease would be at no more than a peppercorn or nominal ground rent.
  19. It is therefore pleaded that the letter of 24th August contained two representations: that in exchange for contributing to the cost of acquiring the reversion:
  20. (i) existing tenants would have the ground rent payable under their leases extinguished (the First Representation); and

    (ii) the participating tenants would be granted new long (999 year) leases of their flats at no cost beyond a small fee (the Second Representation).

  21. The representations are alleged to have been confirmed by the second circular letter of 9th February 2007 which conveyed the message that the Company was progressing the proposals contained in the letter of 24th August. It is pleaded that they therefore remained unchanged and were adopted by the Company as its own. It is alleged that as a result, the Kims were induced to pay the £3,095 towards the cost of acquiring the reversion and that the Company is bound by the representations which it made. The primary relief sought (by way of proprietary estoppel) is the grant of a new 999 year lease at no ground rent. In the alternative, the Company is said to be estopped from seeking to recover the ground rent payable since 2007 under the existing lease. The basis of this defence is promissory estoppel.
  22. At the time of commencing the proceedings the Company offered to refund the £3,095 paid by the Kims for their share. But the offer was refused and Mr Johnson confirmed during the appeal that his clients do not want to be restored to the position they were in prior to the making of the representations and the purchase of the reversion. They want to retain an interest as a shareholder in the Company and to take advantage of the grant of a new long lease. But they require it to be free of the £100 per annum ground rent.
  23. At the trial of the claim, the judge (Mr Recorder Hill-Smith) accepted Mr Johnson's formulation of the two representations contained in the letters of 24th August and 9th February but held that Mrs Kim had not relied upon the statement that there would be no ground rent to pay because she had fundamentally misunderstood the effect on her existing lease of the acquisition of what was described as the freehold. She treated the statement in the letter of 24th August about no ground rent being payable as re-inforcing her view that the legal effect of the purchase of the reversion would be (and was) to make her the freehold owner of her flat and to put an end to the lease by it being merged in the freehold. She therefore interpreted the First Representation as a statement of the effect of purchasing the reversion rather than as a statement of what the Company itself intended to do in respect of her liabilities under the existing lease:
  24. "… It is therefore said that the promise about the ground rent ceasing to be payable made no difference to her because that was her assumption in any event as a result of her mistaken view of the consequences of acquiring the "freehold".
    47. I do not accept this argument as formulated because I think that the statement about ground rent not being payable reinforced her view that the lease was going to disappear and contributed to her misinterpretation of the circular. Indeed, she clearly did, as a matter of fact, focus on the statement that no ground rent was going to be payable because she made frequent reference to this thereafter and she referred to it in the telephone conversation with Mr Tibbett on 23rd October 2007. However, on the other hand, it is clear that she did misunderstand the effect of the statement that no ground rent was to be paid because she thought she was not going to pay ground rent because her lease was going to disappear rather than because, which was intended to be the case and which the circular means, the company was going to cease demanding ground rent under her existing lease."
  25. On this basis, the judge held that Mrs Kim had not materially relied upon the First Representation in such a way as to establish a promissory estoppel binding on the Company:
  26. "48. Does the misunderstanding of Mrs Kim in this respect mean that she cannot be said to have relied upon the ground rent benefit for the purposes of establishing a promissory estoppel? I think it does. In order to found an estoppel, it is well established that the promise said to give rise to a promissory estoppel must be unequivocal; Woodhouse AC Israel Cocoa v Nigerian Produce Marketing [1972] AC 741. Now, I find that the promise of the ground rent benefit as correctly understood was unequivocal – its meaning is clear. However, the reason for the rule in order to give rise to a promissory estoppel the promise must be unequivocal, must be that in order for a promise to give rise to a promissory estoppel there must be certainty in what is being promised. If there is no certainty, the risk is that a promise may be relied upon by the recipient of the promise in a different sense to that which was being promised. It follows that in order to give rise to an estoppel there must be clarity as to what is being relied upon. A mismatch between the promise and what is being understood, i.e. relied upon, is sufficient to negative an estoppel. In order to give rise to a promissory estoppel, there must be a correlation between what is being promised and the reliance that is placed upon it. Here Mrs Kim relied on the promise, but she gave it a different effect and meaning to that which in fact it actually has so her reliance was different in quality from what was being promised. This is sufficient to prevent her from relying on a promissory estoppel.
    49. Mr Johnson QC says the misunderstanding of Mrs Kim as to the effect of the circular does not prevent the Defendants from relying upon a promissory estoppel; he argues that it is irrelevant whether the ground rent obligation was to cease because the lease was no longer going to exist or because the lease was going to continue to exist but the Claimant was thereafter not going to demand ground rent. However, as I say, in order to give rise to a promissory estoppel there must be clarity about the promise being made and there must be reliance on the promise in the terms that that promise is put forward. I think that a mismatch does vitiate reliance for the purposes of giving rise to promissory estoppel and that for that reason there was no relevant reliance on the ground rent promise and this means that no promissory estoppel can arise because of the misunderstanding by Mrs Kim of the effect of the circular."
  27. He also held that any promissory estoppel created by the First Representation was suspensory only and could be withdrawn by the Company on giving reasonable notice. In this particular case, it has gone so far as to offer to restore Mr and Mrs Kim to their status quo ante but, as explained earlier, they are unwilling to accept that offer. Mr Letman for the Company maintains the position that some form of restitutio in integrum is not a pre-requisite to his client resiling from the First Representation because the payment of £3,095 was attributable to the acquisition of the reversion which facilitated the grant of a longer lease. It was not in any real sense a payment for the extinction of the ground rent. But, if required to do so, the Company stands by its offer to return the money and to take back the share.
  28. The judge treated his decision on the defence of promissory estoppel as determinative of the counterclaim for the grant of a new lease without a ground rent. Although he does not say so in terms, I infer that his treatment of the First Representation as not being relied on and as being revocable was regarded by him as conclusive of the ground rent issue in relation also to the claim for proprietary estoppel. If the promise that there would be no ground rent is not enforceable as part of the counterclaim then there is nothing left in it. The Company has always been willing to grant a new lease to the Kims at the current ground rent. Mr Johnson, however, put his case on the basis that the no ground rent promise merged with the Second Representation as part of the claim for a new lease thereby giving it a permanence which it might not have when considered alone. This disparity in effect is challenged by Mr Letman both on the evidence and as a matter of law and I shall return to it later. If Mr Johnson is correct about this and can otherwise establish a claim in proprietary estoppel then we are required to consider whether that claim fails for non-compliance with s. 2 of the Law of Property (Miscellaneous Provisions) Act 1989. On the judge's reasoning, this point did not require to be determined.
  29. In opening the appeal Mr Johnson helpfully reduced the issues to four questions and I propose to address them in this way. They are:
  30. (i) did the letter of 24th August 2006 make an unequivocal promise to abolish the ground rent or was it simply a list of the potential benefits which would come from a purchase of the reversion?;

    (ii) was there a mismatch between what the two circular letters said and what Mrs Kim understood them to mean so that it can be said that she placed no reliance upon the First Representation?;

    (iii) was the First Representation (if otherwise capable of founding a promissory estoppel) suspensory only as the judge found or permanent?; and

    (iv) is any claim based on proprietary estoppel invalidated by s.2 of the 1989 Act?

    Issue (i): the nature and terms of the First Representation

  31. The first issue arises as part of the Company's cross-appeal. Both sides accept that this is essentially a question of construction. It is relevant to the outcome of the appeal because both parts of the appellants' case: the defence based on promissory estoppel and the counterclaim based on proprietary estoppel: rely upon the First Representation as a statement of intention or promise as to what the participating tenants would receive. If it was no more than a statement of the potential benefits available in the event that the reversion was acquired, Mr Johnson accepts that no basis for the estoppel is made out. The Company had promised nothing and remained free to decide post-incorporation and post the purchase whether it wished to waive payment of the existing ground rents and whether payment of the £100 ground rent should be a term of any new lease.
  32. There is no doubt that in order to found a promissory estoppel (in the same way as any other estoppel based on a representation of fact) the representation or promise must be clear and unambiguous. But this principle raises a number of subsidiary questions. Does it mean that the estoppel cannot arise unless there is only one possible meaning of the words used or is the existence of other possible (but perhaps less probable) meanings not fatal to the creation of an estoppel where the Court can say that it was reasonable for the representee to have interpreted the words used in the way he did? There is also an issue about the test to be adopted by the Court. Few, if any, statements are not capable of being interpreted in more than one way. The Court's usual role in construing, for example, a contract is to arrive at the legally correct meaning of the words. Their construction is a matter of law and the Court's function is to resolve any ambiguities in reaching its conclusion. But it is arguable that in the case of estoppel it should not go any further than to identify the existence of any real ambiguities in the language. If the statement is open to more than one reasonable interpretation (one of which is fatal to the estoppel defence) then the representee was not entitled to rely on what was said without further clarification and there is no basis for an estoppel.
  33. The Courts have tended towards a relatively strict application of the requirement that the two representations should be unambiguous. In Low v Bouverie [1891] 3 Ch 82 Bowen LJ said (at p. 106) that:
  34. "an estoppel, that is to say, the language upon which the estoppel is founded, must be precise and unambiguous. That does not necessarily mean that the language must be such that it cannot possibly be open to different constructions, but that it must be such as will be reasonably understood in a particular sense by the person to whom it is addressed."
  35. In the same case Kay LJ (at p. 113) said that:
  36. "where no fraud is alleged, it is essential to shew that the statement was of such a nature that it would have misled any reasonable man, and that the Plaintiff was in fact misled by it."
  37. The same issue was addressed by the House of Lords in Woodhouse AC Israel Cocoa v Nigerian Produce Marketing [1972] AC 741. The parties had contracted for the sale and purchase of cocoa with payment to be made in Lagos in Nigerian pounds. The buyers asked the sellers "if you can arrange to accept payment against documents in sterling in Lagos as a temporary alternative?" To this question they received the reply:
  38. "I write to confirm that payment can be made in sterling and in Lagos with the following provisos: (1) That the buyer will be responsible for the transfer charge; (2) that documents be made available in Lagos. If you are agreeable to these conditions, you are at liberty to make payment in sterling not only with contracts already entered into but also with future contracts."
  39. When sterling was subsequently devalued in November 1967 the buyers contended that, as a result of this exchange of correspondence, they were entitled (and only obliged) to pay to the sellers the same amount in sterling as had been payable prior to devaluation. The proper construction of the agreement was that the sellers had consented to a variation of the purchase price and not merely to a change in the currency of payment. The exchange of letters was said to have varied the contract or to have created a promissory estoppel in the same terms. Both required the court to construe the meaning of the words used which the House of Lords treated as a question of law. Lord Hailsham of St. Marylebone L.C. at p. 755 C-F resolved it in favour of the sellers:
  40. "As I have already said, I regard the meaning of the exchange of communications of September 20 and 30, 1967, as a question of construction for the court and not a question of fact. No doubt the letters must be construed in the light of the surrounding circumstances. But, in my opinion, these are stated in the award, and the decisive context is the previous correspondence which is attached to and forms part of the award. In my view, the letters do not bear the construction sought to be put upon them by the appellants. They refer to payment of the purchase price in sterling and not measurement of the purchase price in sterling. I must and do accept that both parties honestly believed in their respective constructions from the first. But I must point out that, in so far as there may be any ambiguity, and I do not myself think there is any, it originated in the letter of September 20 which came from the buyers and not in the reply originating from the sellers. I regard this as an important consideration, since at a given moment of the hearing their Lordships intimated to the appellants' counsel that in their Lordships' view he should address their Lordships on the assumption that on the most favourable construction for himself the effect of the crucial exchange of letters was ambiguous. I do not myself think there was ambiguity. But, on the assumption that there was, I agree with the Court of Appeal that such cases as Low v. Bouverie [1891] 3 Ch. 82 and Canadian and Dominion Sugar Co. Ltd. v. Canadian National (West Indies) Steamships Ltd. [1947] AC 46 are authority for the proposition that, to give rise to an estoppel, representations should be clear and unequivocal, and that, if a representation is not made in such a form as to comply with this requirement, it normally matters not that the representee should have misconstrued it and relied upon it."
  41. He then referred to the passage from the judgment of Bowen LJ in Low v. Bouverie quoted above (in paragraph 24) and said this:
  42. "I am satisfied that, in the second sentence of the above quotation, the meaning is to exclude far-fetched or strained, but still possible, interpretations, whilst still insisting on a sufficient precision and freedom from ambiguity to ensure that the representation will (not may) be reasonably understood in the particular sense required. I do not regard this second sentence as any authority for general qualification of the first. On the contrary, the first sentence governs the second and contains the very proposition for which Low v. Bouverie is rightly cited as an authority."
  43. The judge did not really address the issue of construction which the Company has raised on this appeal because, on his analysis, Mrs Kim never relied upon the statement about ground rent. But the Company has cross-appealed the acceptance made by the judge that the First Representation was capable of founding an estoppel. Mr Letman submits that the contents of the 24th August letter have to be read very much in the context of when it was sent and in what circumstances. The letter was an attempt by the committee of the Residents' Association to gauge the level of support amongst existing tenants for a possible acquisition of the freehold (as it was described). There was no certainty of any such bid succeeding or any certainty as to whether the acquisition would be affordable. Still less was the committee able to predict some nine months in advance of the actual purchase what financial constraints it would face once it had become the landlord. Mr Letman says that the letter must therefore be read as no more than a summary ("The benefits of owning the freehold can be summarised as follows") of the potential benefits which could flow from owning the reversion rather than an unqualified promise of what the committee would do if successful in the purchase. These were all matters for future decision and any reasonable reader of the circular would have regarded them as, at most, stated aims rather than promised outcomes.
  44. Mr Johnson does not say that the timing and background circumstances are unimportant. But he places emphasis on the unqualified terms of the First Representation particularly when read in conjunction with the penultimate paragraph quoted earlier in paragraph 4. This, he says, contains the clear inference that tenants who do participate in the purchase will not continue to pay ground rent. The point is re-inforced by the fact that the letters were sent out for the purpose of inducing tenants to support the purchase. As the judge said in paragraph 40 of his judgment, they set out the reasons why the residents should participate in the acquisition of the freehold and were promissory in nature. The only sense in which they were potential or conditional was that they depended for their realisation on the purchase being successful. Otherwise they were unqualified. They set out in clear terms what any participating tenant should expect to receive once (and if) the purchase was completed.
  45. I am not persuaded by this. It seems to me that the letter of 24th August did not promise anything. Even putting aside its obvious conditionality on the successful completion of the purchase, the fact that it was written well in advance of any possible acquisition and without the benefit of detailed knowledge of the financial position that would obtain once a purchase had taken place points overwhelmingly in my view to this being little more than a list of possible potential benefits rather than a guarantee or promise of what would be done. My view is not altered by the penultimate paragraph which does no more than to contrast the potential benefits to participators with the position of those tenants who remain outside the scheme.
  46. That paragraph does, however, highlight what the First Representation was in fact about. It is clear from the Second Representation that the real purpose of acquiring the reversion was to enable the leases of the participating tenants to be replaced by new leases for significantly longer terms. As Mr Johnson explained, this was something of real value to all the tenants. The letter of 24th August therefore describes what could be the benefits to a participating tenant. The first part of the letter is directed not to the position of a tenant who stays out of the scheme, but rather to the position of one who joins the scheme and is granted a new long lease as part of it. The penultimate paragraph makes clear that non-participating tenants will continue to pay ground rent as before. In the First Representation the Residents' Association was not therefore promising that a participating tenant who chose for some unpredictable reason not to take a lease would have his existing ground rent waived. They were referring to what could be the terms of the new lease.
  47. Mr Johnson has recognised this by relying on the First Representation as part of the claim based on proprietary estoppel for a new lease with no ground rent. But the fact that the issue of ground rent relates to the terms of the new leases makes it less probable in my view that the 24th August letter should be read as promising that the terms of any new lease would be in that form. That was something with long-term implications which would obviously have to be considered by the Company and the Residents' Association once they were in charge of the estate.
  48. For these reasons, it would not have been reasonable for Mrs Kim to have relied on the contents of the 24th August letter as promising her and her husband a new lease with no ground rent even had she done so. In fact (as the judge has found) she did not read and understand it in that way. Therefore, even if the judge is right and these pre-incorporation representations were carried forward by the 9th February 2007 letter so as to bind the Company, they are incapable in my judgment of forming a safe foundation for any kind of estoppel, whether promissory or proprietary. For the reasons explained earlier, that is decisive of the appeals.
  49. In these circumstances, I propose to deal with the remaining issues comparatively shortly.
  50. Issue (ii): Reliance

  51. The judge reasoned that because Mrs Kim believed from the circular letters that she would become the owner of part of the freehold and would cease to be a lessee she cannot be taken to have relied on the statement that she would be relieved of her ground rent as a promise by the Company to waive the rent. The only belief induced by her reading of the circulars was that if she participated she would cease, as a matter of law, to be a tenant at all. There was therefore a mismatch between the promise or representation made and what Mrs Kim understood it to mean.
  52. Mr Johnson submitted that what matters is whether the letters had a causative effect upon Mr and Mrs Kim by inducing them to participate in the acquisition. The fact that Mrs Kim may have misunderstood the process by which she and her husband would be relieved of the obligation to pay ground rent is irrelevant. The equity is raised by their actual reliance on the end result which was promised.
  53. Mrs Kim's misunderstanding of the contents of the letter of 24th August goes, of course, beyond the question of reliance on the First Representation. If, as the judge found, her belief was that she would become a freehold owner then it is arguable that she was not induced to believe either that her existing ground rent liabilities would be waived or that she would receive a new lease with no ground rent provisions. Her evidence was that she was not to be a lessee at all. Whether this state of affairs amounts to there having been no reliance depends, I think, on whether it can be said that the Kims relied on a different promise from the one which was in fact made. If they did then there is no basis for holding the representator in equity to the promise which he in fact made. If, on the other hand, the promise made is relied on but with an imperfect understanding of the legal or other mechanisms involved in producing that state of affairs then a sufficient nexus exists to raise the equity.
  54. The present case seems to me to be closer to the first type of case mentioned above than to the second. Mrs Kim thought that she was signing up to a personal acquisition of the freehold. What she was promised was very different. But a clearer analysis is the one offered by the Company in its respondent's notice. On the judge's findings, there was no real factual reliance by the Kims on either the First or the Second Representations. They were taken as no more than corroboration of Mrs Kim's understanding that she was being offered a share in the freehold. Her decision to go ahead and participate in the scheme was not the result of any desire to be rid of the ground rent and to have a new longer lease. It was based on what she read as an offer of the freehold.
  55. There was therefore no material reliance on the First and Second Representations in this case.
  56. Issue (iii): was any promissory estoppel based on the First Representation only suspensory?

  57. The generally accepted view is that promissory estoppel is usually only suspensory and that the representor may resile from his promise on reasonable notice unless it would be unconscionable for him to do so. Mr Johnson does not argue with this proposition but he submits that it would be inequitable for the Company to resile in this case.
  58. The judge considered this issue largely (if not exclusively) in relation to the separate defence of promissory estoppel based on the First Representation. In relation to that, I cannot see how his conclusions can be faulted. He accepted that there were good financial reasons why the Company needed to retain the payment of ground rents and held that there was nothing on the Kims' side which made it unconscionable for the promise of no ground rents to be withdrawn. The latter point has to be considered against the background of the Company's willingness to restore the status quo ante by refunding the money which the Kims paid. In these circumstances, there is nothing which makes it inequitable for the Company to rely upon its contractual rights.
  59. The more difficult point concerns the counterclaim based on proprietary estoppel. As explained earlier, the First Representation is relevant to this as well and is relied on as supporting the claim for a new lease at no ground rent. Mr Johnson submits rightly that the effects of proprietary estoppel are permanent in that they result in the Court ordering the representor to transfer property or make compensation in order to satisfy the equity which has arisen in the representee's favour. In the present case, the Kims say that this requires the Company to grant a new lease at no ground rent thereby making it impossible for the Company to resile.
  60. It seems to me that the permanent nature of the equitable relief to be granted requires the Court to consider (for the reasons which appealed to the judge) whether it is necessary to omit a ground rent provision from the new lease in order to satisfy the equity. Mr Johnson submits that this question has to be answered without taking into account the Company's offer to refund the £3,095 paid by the Kims as their contribution to the cost of the reversion because the refund of that money would remove the Kims' right to a new lease on any terms. But I think that the matter has to be looked at more broadly.
  61. The Company's position is that it remains willing to grant the lease but on terms that it contains the £100 ground rent. Alternatively, it is willing to refund the money paid, in which case the Kims will continue as tenants under their existing lease. If equity does not require the Company to be held to any promise to waive payments of the ground rent under the existing lease, I find it difficult to see why the same consequences should not follow in relation to the claim based on proprietary estoppel. The Kims would therefore be granted a new long lease on the same terms as to rent as the old one or have the option of being repaid their money and continuing on the same terms as before. In relation to the defence of promissory estoppel, the judge took into account the Company's offer to refund the money. But in my opinion his conclusions should have been the same even without that offer. The Kims have made it clear that they do not want their money back. They place more value on continuing to have their share in the Company and, with it, the right to participate in the Company's affairs. It is also clear that the real value which they obtained from participating in the scheme was in obtaining a new lease regardless of whether it was still at a ground rent. The amount of the ground rent is, on any view, small. I therefore conclude that the detriment suffered by the Kims in paying the £3,095 does not require them to be treated as a special case different from any of the other tenants who have participated in the scheme. The Company is in my view required to do no more than to grant a new lease on its current standard terms.
  62. Issue (iv): Section 2

  63. Although Mr Johnson suggested in opening the appeal that the law on this point is straightforward, that is not my view and, given my conclusions on the other issues on this appeal, I do not propose to enter into a detailed analysis of the relevant authorities. I therefore prefer to express no view on this point.
  64. Conclusion

  65. I would dismiss this appeal.
  66. Lord Justice McCombe :

  67. I agree.
  68. Lord Justice Kitchin :

  69. I also agree.


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