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||Neutral Citation Number:  EWHC 1698 (Ch)
||Case No: HC-2014-001664
IN THE HIGH COURT OF JUSTICE
||Royal Courts of Justice
Strand, London, WC2A 2LL
B e f o r e :
|| Abdul Majid Ali Muhammad
Afzal Majid Ali Muhammad
Shabir Majid Ali Muhammad
||- and -
||ARY Properties Limited
The Estate of Hajji Abdel Razzaq Yacoob
Abdel Razzaq Hajji Yacoob Trading Company
Mohammad Iqbal Yackoob
Gideon Roseman (instructed by Newhall Solicitors LLP) for the Claimants
Aidan Casey QC (instructed by Gresham Legal) for the Defendants
Hearing dates: 3 May 2016, 1 June 2016
HTML VERSION OF JUDGMENT
Crown Copyright ©
Master Matthews :
- This is my judgment on an application by the First Defendant by notice dated 12 January 2016, by which it seeks orders for:
a. The Claimants' defence to the First Defendant's counterclaim to be struck out;
b. Judgment for the First Defendant on the counterclaim;
c. Costs of the application on the indemnity basis;
d. Alternatively, summary judgment for the First Defendant on the counterclaim;
e. Costs of the counterclaim.
- The application is supported by the witness statement of Smeetesh Kakkad dated 11 January 2016, with one exhibit. It is, in part at least, opposed by a witness statement of Michael Baxendale, dated 27 April 2016. The application was heard by me on 3 May 2016, but the time allowed was not sufficient, and it had to be adjourned to 1 June 2016. Aidan Casey QC appeared for the First Defendant, and Gideon Roseman for the Claimants. At the hearing I referred to a published lecture by Lord Neuberger which I considered might be relevant to a point which had arisen, and after the hearing I emailed the parties to give them the opportunity to make a written submission in relation to it. As a result Mr Roseman made a written submission dated 8 June 2016. However, Mr Casey was not instructed to do the same.
- The application arises in the context of a claim begun by claim form dated as long ago as 29 August 2014. The Claimants claim, amongst other things, (1) payment of AED 5 million (£846,134.60) pursuant to a judgment of the Dubai Court of First Instance dated 29 July 2013 or alternatively by way of informal loan contract, (2) rectification of the register of title to the property known as 2 Atlip Road, Wembley, Middlesex HA0 4LU ("the Property"), of which the First Defendant is the registered proprietor, and (3) possession of the Property pursuant to a legal charge dated in 2009. There are in fact two versions of this legal charge in evidence. Neither contains a more detailed date then "2009". For convenience, I will call them the "original 2009 charge" and the "altered 2009 charge".
- The Particulars of Claim were not served with the claim form, but are dated 29 October 2014. The First Defendant made a request for further information, to which the Claimants responded on 27 January 2015. The amended defence and counterclaim of the First Defendant were filed and served on 9 September 2015. The First Defendant is in fact the only party to have filed a defence, and hence this application does not directly concern any other defendant. The counterclaim seeks a declaration that the altered 2009 charge is not valid or binding on the First Defendant, and an order that a unilateral notice registered on 28 July 2014 against the title of the Property be vacated. The Claimants filed a reply and defence to counterclaim on 9 October 2015. The Claimants also provided a voluntary clarification of the reply and defence to counterclaim on 3 November 2015. I will come back to these.
- A brief summary of the background facts is as follows. The Claimants are a father and two sons who carry on business in this country. The First Defendant is a company formed by and bearing the initials of the late Abdel Razzaq Yacoob ("ARY"), who died on 21 February 2014. His estate is the Second Defendant. His brother and his brother's son are the Fourth Defendant and the Fifth Defendant respectively, the Third Defendant is the partnership of which the First Defendant, the Fourth Defendant and the Fifth Defendant were formerly members, and of which only the Fourth Defendant and the Fifth Defendant remain. The Third Defendant used a number of corporate vehicles to carry on business in various countries, including the First Defendant. It is suggested in the papers before me (but there is nothing in evidence) that the First Defendant is the only defendant to have assets within this jurisdiction.
- The Claimants' case is that they made loans in significant amounts of money to ARY from 2007 onwards. In September 2008 ARY asked for a further (short term) loan of AED 5 million (then about £850,000), and offered the Property as security. The Claimants agreed, and lent the money in September 2008. In summer 2009 the First Claimant met ARY at the Third Defendant's offices in Pakistan. The Claimants say that ARY produced a copy of a legal charge (the original 2009 charge) of the Property, which was in favour of an unrelated Seychelles company, Turquoise Holdings Ltd, and he and the First Claimant added the Claimants' names and the First Claimant's passport number to the document, as well as the sum of AED 7.4 million (in two places). Moreover, they say that ARY contacted a director of Turquoise Holdings Ltd, who consented to the alteration of the original 2009 charge to enable the Claimants also to take the benefit of it.
- In January 2011, the Claimants not having been repaid, the First Claimant met ARY again in Pakistan and obtained the execution of a fresh charge of the Property in their favour ("the 2011 charge"). This charge however does not appear to have been registered against the title of the Property. In fact, the only charge that has been so registered is an apparently quite different charge, dated 20 August 2010, in favour of Turquoise Holdings Ltd, registered on 10 September 2010.
- However, on 24 July 2014 the Claimants applied on Form UN1 for a unilateral notice to be entered on the register. The Form UN1 attaches a copy of the altered 2009 charge and relies on this to support the entry of the unilateral notice. It says (in box 12, para 5):
"In the premises the document herewith which was signed on behalf of the company [ie the First Defendant] by [ARY] grants a legal charge over the property to the Applicants."
The entry on the register reads:
"(28.07.2014) UNILATERAL NOTICE in respect of a charge dated in 2009 made between (1) Haji Abdul Razzak Haji Yacoob (2) Ary Properties Limited and (3) Turquoise Holdings Limited."
- It appears from the papers that the Claimants began this claim to try and obtain payment of the sums it says are outstanding, including by rectification of the register of the Property. In this application I am not concerned with the Claimants' claims. The counterclaim of the First Defendant (signed by Mr Casey) pleads that the original 2009 charge was a genuine instrument, but that the alterations made to it by the Claimants to give rise to the altered 2009 charge were not, and accordingly the altered 2009 charge was not a genuine instrument (para 55). There are allegations of dishonesty (para 56), but I can ignore those for the purposes of this application. The First Defendant also pleads (para 57) that the altered 2009 charge has not been executed by or on behalf of, and is not a valid instrument binding on, the First Defendant.
- Para 59 of the counterclaim (so far as material) needs to be set out verbatim:
"In the premises:
a. [the First Defendant] is entitled to a declaration that the altered 2009 charge is not a valid instrument and/or is not binding on [the First Defendant];
b. [the First Defendant] is entitled to an order that the unilateral notice be vacated;
c. Without prejudice to the generality of the foregoing:
i. The Claimants had no reasonable cause to apply for the entry of the unilateral notice;
ii. The Claimants acted contrary to, and/or in breach of the duty imposed by section 77 of the Land Registration Act 2002 in seeking and obtaining the entry of the unilateral notice;
d. The entry of the unilateral notice acts as a blight on the Property (which [the First Defendant] wishes to sell), and/or as a clog on its marketability, and the Claimants will be liable to [the First Defendant] for any loss and damage that may be caused thereby pending its vacation … "
- In the prayer, the First Defendant claims both a declaration that the altered 2009 charge is not a valid instrument and/or is not binding on the First Defendant, and an order that the unilateral notice be vacated, as well as "further or other relief" and costs.
- The Claimants' Reply to the amended Defence and defence to counterclaim of the First Defendant is dated 9 October 2015. It was not signed by counsel, and was evidently drafted by the Claimants' solicitors. It consists of eight short paragraphs, four for the Reply, and four for the defence to counterclaim. The latter read as follows:
"5. Paragraph 54 of the counterclaim is admitted, in that the Claimants sought and obtained the entry of the unilateral notice, but not that the Claimants had in any sense improperly altered the 2009 Charge.
6. The express and implied implications of dishonesty made at paragraphs 55 and 56 of the counterclaim are strenuously denied.
7. Paragraph 58 of the counterclaim is admitted, in that the Claimants do not agree to vacate the unilateral notice, but is denied as to the balance of that paragraph.
8. The entitlement to relief claimed at paragraph 59 of the counterclaim and in the Prayer to the counterclaim is denied."
It will be noted that there is no pleading as to para 57 of the counterclaim (altered 2009 charge not executed by or on behalf of, and not a valid instrument binding on, the First Defendant).
- The Claimants' solicitors subsequently provided what they called a "Clarification" of the reply and defence to counterclaim, dated 3 November 2015. It is six paragraphs long. It says in para 1 that it is to provide voluntary clarification of the Claimants' case in relation to paras 55-57 of the Amended Defence and counterclaim of the First Defendant. In summary, the remainder says that during a meeting in Pakistan between the First Claimant and ARY, the latter produced a copy of the original 2009 charge and offered the Claimants the benefit of it. It was then altered in the way already described, and the director of Turquoise was asked for and gave his consent. It does not however plead to para 57 of the counterclaim.
- In the application notice issued on 12 January 2016, the First Defendant in the first instance seeks orders
"1. That the Claimants' Defence to the First Defendant's counterclaim be struck out;
- That Judgment be entered in the First Defendant's favour on the First Defendant's counterclaim for the relief sought in that counterclaim, because the defence to counterclaim served by the Claimants on 9 October 2015 (whether or not supplemented by the "Clarification" served on 3 November 2015)
a. Fails to comply with the requirements of CPR Part 16.5 in that it fails to respond to material allegations raised by the counterclaim at paras 55 and/or 56 and/or 57, does not explain denials set out in the defence to counterclaim and does not set out the Claimants' version of events in respect of matters raised by the counterclaim; and
b. Discloses no reasonable grounds for defending the counterclaim."
In the alternative the First Defendant seeks summary judgment. I will come back to that. For the moment I will concentrate on the striking-out part of the application.
- CPR rule 3.4 provides:
"(1) In this rule and rule 3.5, reference to a statement of case includes reference to part of a statement of case.
(2) The court may strike out a statement of case if it appears to the court –
(a) that the statement of case discloses no reasonable grounds for bringing or defending the claim;
(b) that the statement of case is an abuse of the court's process or is otherwise likely to obstruct the just disposal of the proceedings; or
(c) that there has been a failure to comply with a rule, practice direction or court order."
CPR rule 16.5
- By the application notice, the First Defendant seeks to strike out the defence to counterclaim on two bases. The first is a failure to comply with CPR rule 16.5. The second is that there are no reasonable grounds for defending the counterclaim. As to the first of these, rule 16.5 so far as material provides as follows:
"(1) In his defence, the defendant must state –
(a) which of the allegations in the particulars of claim he denies;
(b) which allegations he is unable to admit or deny, but which he requires the claimant to prove; and
(c) which allegations he admits.
(2) Where the defendant denies an allegation –
(a) he must state his reasons for doing so; and
(b) if he intends to put forward a different version of events from that given by the claimant, he must state his own version.
(3) A defendant who –
(a) fails to deal with an allegation; but
(b) has set out in his defence the nature of his case in relation to the issue to which that allegation is relevant,
shall be taken to require that allegation to be proved.
[ … ]
(5) Subject to paragraphs (3) and (4), a defendant who fails to deal with an allegation shall be taken to admit that allegation.
[ … ]"
- In addition, the Practice Direction to CPR Part 16 provides (again, so far as material):
"10.1 Rule 16.5 deals with the contents of the defence.
10.2 A defendant should deal with every allegation in accordance with rule 16.5(1) and (2).
10.3 Rule 16.5(3), (4) and (5) sets out the consequences of not dealing with an allegation.
[ … ]."
- The First Defendant says that the defence to counterclaim does not comply with these rules. In particular, it says that:
1. In relation to para 55 it does not deal with the allegations as to the parties to the original 2009 charge, nor the allegation that the altered 2009 charge was not a genuine instrument; nor (if they are denied) does it give reasons;
2. In relation to para 56, no reasons are given for the denial;
3. Para 57 is not pleaded to at all.
In consequence, it says it "is left in the dark as to the case it will have to meet at trial". It also says that the Claimants have had "every opportunity" to put things right.
- In my judgment there is some force in these criticisms of the pleading, and if it were to remain in this form there would be a basis for granting at least some relief (eg an unless order giving the party an opportunity to put the matter right). However, between the original and the adjourned hearing of this application, the Claimants prepared and served a proposed Amended reply and defence to counterclaim, settled by Mr Roseman. It is a much longer and more detailed document than the current version, some ten pages against less than two. In my judgment this sufficiently deals with the criticism set out above at no 3 in paragraph 18.
- But in my judgment it does not sufficiently deal with no. 1 or no. 2. As to no. 1, it is still not clear what the Claimants say about the allegations as to the parties to the original 2009 charge, or the allegation that the altered 2009 charge was not a genuine instrument, and nor (if denied) is it explained why. The claim that the averment is "embarrassing" is not enough. If the Claimants wished more information about this allegation they could have asked for it. As to no. 2, it is simply unclear whether the Claimants are proffering paragraphs 8 and 11 as reasons or not. If they are not, they need to give reasons. If they are, it is unclear what the reasons actually amount to.
- Whilst it appears that the First Defendant has no objection in principle to this amendment being permitted, but has something to say about the costs, I do not think I can leave the matter once raised in this state. But given the willingness of the Claimants to amend to put right pleading defects, it would not be right for me to strike out immediately when there is no reason at this stage to suppose that these problems cannot be put right. What I propose therefore to do is to make an unless order giving the Claimants 14 days to produce a draft amended reply and defence to the First defendant's defence and counterclaim, which complies fully with CPR rule 16.5 and the Practice Direction para 10, in default of which I will refuse permission to amend and strike out the existing defence to counterclaim.
No reasonable grounds to defend
- The other basis for the application to strike out is that there are no reasonable grounds for defending the counterclaim. Originally this was put on the basis that the altered 2009 charge could not support the unilateral notice, being based on the grant of a legal charge to the Claimants. This was said to be both because the altered 2009 charge was not a charge in favour of the Claimants, and also because it did not comply with the relevant formalities rules so as to amount to a legal charge. The arguments are set out in detail in paras 27-44 of the First Defendant's undated skeleton argument prepared for the first hearing. In my judgment, there was substance in both these points. The altered 2009 charge, even if effective to alter anything, did not alter the original 2009 charge so as to make the Claimants a lender to whom monies were owed. Even if it did, the alterations did not make a new deed signed by or on behalf of the First Defendant sufficient to grant a legal charge to the Claimants.
- In the Claimants' skeleton argument dated 28 April 2016 and prepared for the first hearing, these criticisms were, perhaps surprisingly, not even addressed, let alone dealt with. Indeed, at the hearing the Claimants' counsel was constrained to accept that the altered 2009 deed could not have given rise to a legal charge in the Claimants' favour. But that skeleton at paras 14 and 15 did pave the way for a submission that a charge might subsist in equity by way of proprietary estoppel, referred to explicitly in para 21. Moreover, in a letter dated 3 November 2014 from the Claimants' solicitors to the Land Registry, which was in the bundle before me at both hearings, the solicitors asserted a claim to an equitable charge in the Property, on the basis of the loan, the altered 2009 charge document and (unspecified) other documents. This is amplified in the Claimants' skeleton argument prepared for the second hearing, at paras 23 and 24, and in the draft amended reply and defence to counterclaim, primarily at para 5 but also elsewhere.
- I was not addressed at any length on the elements of proprietary estoppel. But for present purposes I can take them as clear at least since the decision of the House of Lords in Thorner v Major  1 WLR 776, where Lord Walker said ():
"… most scholars agree that the doctrine is based on three main elements, although they express them in slightly different terms: a representation or assurance made to the claimant, reliance on it by the claimant, and detriment to the claimant in consequence of his (reasonable) reliance…"
- The Claimants' supplemental skeleton argument at paragraph 24 says this:
"In terms of legal analysis, as set out in C's earlier skeleton argument, the basis of the Unilateral Notice is either proprietary estoppel and/or constructive trust:
(i) Turquoise, by its director Mr Dada, represented that C were to take benefit of 2009 legal charge in relation to the monies C lent the Partnership;
(ii) Further or alternatively, Turquoise acquiesced to ARY, on behalf of D1, persuading C to grant the Partnership and/or ARY additional time to repay monies due under the September 2008 Loan Agreement on the basis that C believed they would obtain the benefit of the 2009 legal charge;
(iii) C reasonably relied on Turquoise's said representation and/or acquiesced to their detriment by:
(a).granting the Partnership and/or ARY further time to repay the outstanding loan and/or by not immediate bringing proceedings seeking repayment of the time;
(b) not seeking any interest during the said extension for repayment;
(c) not demanding any formal or valid assignment from Turquoise of the 2009 legal charge or not demanding D1 to grant a formal and/or valid (c) legal charge ranking in priority to the 2009 legal charge;
(d) Turquoise subsequently obtaining a registered legal charge, being 20 August 2010 legal charge, which, prima facie, takes priority over the 2009 legal charge;
(iv) Therefore, it would be unconscionable for Turquoise and/or D1 to deny and/or they are estopped from denying C are entitled to the security afforded by the 2009 legal charge and/or for Turquoise to seek to rely on the 20 August 2010 charge;
(a) Turquoise holds any interest in the 2009 or 2010 legal charges on constructive trust for C to the extent necessary to afford them with security in relation to the September 2008 Loan;
(b) C entitled to an order Turquoise assigns the 20 August 2010 legal charge to C;
(vi) In the further alternative:
(a) C have the right to be granted a legal charge that ranks in priority to or alternatively subject to the 2009 legal charge;
(b) D1 holds such remaining equity on constructive trust for C to extent necessary to provide the equivalent amount of security."
- This of course is not a statement of case. In any event, what is argued for here would be a claim in substance against Turquoise Holdings Ltd, and not (except marginally) against the Defendants. But this claim is against the Defendants and not against Turquoise Holdings Ltd. In the context of the present application, therefore, it is of little assistance.
- As to the draft amended reply and defence to counterclaim, this is a little closer to the mark. In summary form, the relevant parts aver and rely on the allegations in section 12 of the Form UN1, that is, that ARY beneficially owned both the Property and the First Defendant, that the directors of the First Defendant agreed to ARY acting on its behalf, and that ARY agreed to give a first legal charge on the Property for monies borrowed by ARY in the form originally executed in 2009 in favour of Turquoise Holdings Ltd, whose directors consented to the Claimants obtaining a first legal charge.
- The draft goes on to allege and rely on further matters, including that ARY sought to borrow AED 7.4m from the Claimants, to be secured on the Property, that he assured them that the 2009 Charge would give them a valid security, and that the Claimants are entitled to an equitable charge over the Property.
- These allegations (of assurances by ARY, acting on behalf of the First Defendant and on his own behalf) are certainly not as clear as they might be. This is the consequence of not pleading facts directly, but of bringing in the allegations set out in the Form UN1. But the allegations are at least there. However, what there is not, in this draft amended statement of case, is any allegation of action taken by the Claimants in reliance on any assurances given by ARY, or of any detriment suffered in consequence. In paragraph 24(iii) of the supplemental skeleton argument, the Claimants do set out allegations of acts and omissions said to have been carried out in reliance on, and detriment suffered in consequence of, the "representation" of Turquoise Holdings Ltd. But there is nothing similar in the existing or draft amended statement of case as against the First Defendant. As it stands, therefore, the case on proprietary estoppel as against the First Defendant seems to me to be defective, and (unless further amended) bound to fail.
- From a procedural point of view, I could take the view that I should strike it out now. But since I propose to make an "unless" order in relation to the pleading defects in the same statement of case identified above, I have decided that I should do the same in relation to this point also. So I will make an order giving the Claimants 14 days to produce a draft amended defence to counterclaim which makes factual allegations sufficient to justify a claim in proprietary estoppel to a security interest against the First Defendant, in default of which I will strike out the existing defence to counterclaim on the basis that it does not disclose reasonable grounds of defence.
- If and when an appropriate amendment were made, the factual basis for the claim by the Claimants to an equitable charge by way of proprietary estoppel would be made tolerably clear. There would perhaps still be arguments about whether these allegations should be in the Reply or in the Particulars of Claim, and whether there were issues on which a request for further information might be appropriate. But, in my judgment, it would then for the first time be clear what the Claimants said had happened to justify their claim, and, subject to one important point, the case would then be suitable to take forward.
- The one important point is this. The proprietary estoppel asserted in this case arises in circumstances where the parties are said to have made an agreement for the grant of a security interest in land, but the formalities for the creation of that interest have not been complied with. Although proprietary estoppel is an established doctrine, the First Defendant says that, as a matter of public policy, it simply cannot apply where it arises out of what is in essence a contract which is void for failure to comply with statutory formalities. And that, it says, is this case.
- The First Defendant founds on the dictum of Lord Scott in Cobbe v Yeoman's Row Management Ltd  1 WLR 1752, :
"Section 2 of the [Law of Property (Miscellaneous Provisions) Act 1989] declares to be void any agreement for the acquisition of an interest in land that does not comply with the requisite formalities prescribed by the section. Subsection (5) expressly makes an exception for resulting, implied or constructive trusts. These may validly come into existence without compliance with the prescribed formalities. Proprietary estoppel does not have the benefit of this exception. The question arises, therefore, whether a complete agreement for the acquisition of an interest in land that does not comply with the section 2 prescribed formalities, but would be specifically enforceable if it did, can become enforceable via the route of proprietary estoppel. It is not necessary in the present case to answer this question, for the second agreement was not a complete agreement and, for that reason, would not have been specifically enforceable so long as it remained incomplete. My present view, however, is that proprietary estoppel cannot be prayed in aid in order to render enforceable an agreement that statute has declared to be void. The proposition that an owner of land can be estopped from asserting that an agreement is void for want of compliance with the requirements of section 2 is, in my opinion, unacceptable. The assertion is no more than the statute provides. Equity can surely not contradict the statute."
In passing, I note that the judge puts the point in terms of rendering a void contract enforceable by estopping the owner from asserting that the contract is void.
- The First Defendant further prays in aid the decision of Peter Smith J in Hutchison v B&DF Ltd  L&TR 12. The landlord of an industrial estate claimed that an existing tenant had orally agreed to take a 5 year lease of a new unit at a certain rent. The tenant went into occupation and paid the rent but no lease was ever executed. Subsequently the tenant wished to leave and contended that there was no lease of that unit because the contract not being in writing did not comply with s 2 of the 1989 Act. The landlord argued that the tenant was estopped from denying that the agreement was void. The landlord had relied on the tenant's oral and written assurances before letting it into possession and acted to its detriment in not insisting that the lease be executed.
- On the s 2 point Peter Smith J made two crucial holdings. First, he decided that, just as in Cobbe v Yeoman's Row Management Ltd Mr Cobbe knew the agreement he had was binding in honour only, so too the landlord and its advisers in this case must have known that its agreement with the tenant was not valid in law (see at ). So there was no promise intended to be acted upon as binding, and the proprietary estoppel claim could not get off the ground. Second, he held (at ) that Lord Scott had been right in Cobbe to say that "an estoppel cannot be used for asserting that an agreement void for want of compliance with s 2 of the 1989 Act". However, the judge ultimately decided in favour of the landlord on a different point, which was that by entering into possession and paying rent a periodical tenancy had been created, which had not been validly determined by notice (see at ).
- There is also the earlier decision of Briggs J (as he then was) in Anderson Antiques (UK) Ltd v Anderson Wharf (Hull) Ltd  EWHC 2086 (Ch). The claimant sued to obtain (inter alia) the cancellation of notices registered by the first defendant against the title to the claimant's land. The second defendant was the sole shareholder and director of the first defendant. The first defendant sought to justify the notices on the basis of an alleged oral agreement to purchase the land, and subsequent detrimental reliance on that agreement by the first defendant, sufficient to give rise to a proprietary estoppel or constructive trust, so that the exception in s 2(5) of the 1989 Act applied. The claimant applied for summary judgment against the defendants, on the basis, first, that the defendants' factual assertions were incredible, and second, that even if they were believed there was no real prospect of the court holding that a proprietary estoppel or constructive trust had been created in the first defendant's favour.
- The application for summary judgment succeeded, on the basis that the evidential case for the alleged oral agreement was not credible (see at -). In addition, the judge held (at -) that, even if it had been, there was no real prospect of the court at trial holding that the actions of the claimant were so unconscionable that a proprietary estoppel or constructive trust should be imposed. However, the judge also briefly discussed the relationship between proprietary estoppel and s 2 of the 1989 Act. He referred to Yaxley v Gotts  Ch 162 and Yeoman's Row Management Ltd v Cobbe  EWCA Civ 1139 (in the Court of Appeal).
- In particular, the judge said this:
"31. In the present case, a pure enforcement of an oral agreement is precisely what the first defendant seeks, as is apparent from the statutory declaration which I have already read. The first defendant performed no promise beneficial to the claimant, such as the obtaining of planning permission or the conversion of a house into flats, for which a sale of the site to him was to be the quid pro quo. The first defendant merely claims to have acted in detrimental reliance on an oral agreement by doing things which he needed to do before buying the property. The quid pro quo was, on the first defendant's case, simply the purchase price of £2 million, and that lay entirely in the future.
32. While, in theory, detrimental reliance of that kind is, in an appropriate case, sufficient to give rise to a proprietary estoppel, even where the reliant acts do not themselves benefit the defendant, it is very far removed from the full performance of a bargain described by Walker LJ in Yaxley and in relation to the obtaining of planning permission exemplified by the Yeoman's Row case, although there the Court of Appeal made it clear that full performance was not a necessary condition.
33. The difficulty with the present claim is that if the defendant's case here was unaffected by section 2, it is hard to see how any oral contract for the sale of land cannot be enforced by way of proprietary estoppel once the promisee spends some time or money in reliance on the oral agreement, such as, for example, instructing solicitors to investigate title or surveyors to carry out a survey.
34. As a consequence, I have grave reservations whether this case, even if credible, and ignoring for the moment the defendant's participation in the tender process, really avoids the difficulties created by section 2 as a matter of law. But the precise boundaries of the proprietary estoppel or constructive trust exception to section 2 are still are matter of uncertainly. The boundaries have widened in Yeoman's Row by contrast with Yaxley v Gotts and the matter may shortly be reviewed in the House of Lords. Accordingly, I do not decide this case upon the basis that, as a matter of law, the defendant's case is bound to fail, but I express grave reservations as to whether, in particular, when the law as to the relationship between proprietary estoppel and section 2 has been clarified, it would, after careful analysis at trial, be proved to be maintainable in law."
Again, in paragraph 33 the judge treats proprietary estoppel as simply a means of enforcing a void contract.
- As against that there are two other High Court cases. One is the decision of Mark Herbert QC, sitting as a deputy High Court judge, in Herbert v Doyle  EWHC 1950 (Ch). The claimant wished to carry out development works at his property, but needed the co-operation of his neighbours, the defendants, and in particular the giving up by them of three car-parking spaces which they owned in exchange for other land of the claimant's. The parties had met and agreed, but there was disagreement about what they had agreed, and it was never implemented. The agreement between the parties did not comply with s 2 of the 1989 Act, and a question arose as to whether it could be enforced in some other way. The claim led to three separate judgments, plus a further ruling. The claimant was largely unsuccessful. There was then an equally unsuccessful application to the Court of Appeal for permission to appeal:  EWCA Civ 1095.
- The judge referred to the dictum of Lord Scott cited above, and commented in these terms:
"Lord Scott's statement of his present view was avowedly obiter, and in my view it remains the case that, if all the requirements are otherwise satisfied for a claim based on proprietary estoppel to succeed, the claim will not fail solely because it also consists of an agreement which falls foul of section 2. The analysis of such a case may be that the court gives effect to the proprietary estoppel by recognising or imposing a constructive trust, and it is this which enables section 2(5) to apply."
- The other High Court decision is that of Bean J (as he then was) in Whittaker v Kinnear  EWHC 1478 (QB). That was actually an appeal against a decision of a county court judge, rather than a decision at trial. Mrs Whittaker sold her freehold house and land to Mr Kinnear (a developer), but continued in occupation under a tenancy agreement at a nominal rent. The sale included a pre-emption right if Mr Kinnear sold within three years and an overage clause in case the development value of the property increased over a base value. Mr Kinnear defaulted on the mortgage agreement with a bank which had lent him the money to buy the property, and the bank appointed LPA receivers, who as his agents gave notice to quit to Mrs Whittaker. She did not leave and they brought possession proceedings against her. A defence and counterclaim was filed, asserting that Mrs Whittaker had a claim to remain based on a proprietary estoppel. At a hearing before the claim had been allocated to a track, the county court judge held that the claim to proprietary estoppel was defeated by s 2 of the 1989 Act, and (since that was the only defence) made an order for possession. Under the relevant rules, an appeal from this decision lay to the High Court and not the Court of Appeal.
- Bean J, following Forcelux Ltd v Binnie  HLR 20, CA, held that this kind of hearing in a possession claim was not a trial but more akin to a summary judgment application. On the question of the argument about proprietary estoppel and s 2, the judge referred to Yaxley v Gotts (to which I refer below), Thorner v Major, and Cobbe v Yeoman's Row Management Ltd. As to the last mentioned case, the judge set out the dictum of Lord Scott already referred to, noting that it was clearly obiter. He also referred to the dictum in Yaxley of Beldam LJ, a former chairman of the Law Commission, that it had been the Commission's
"intention that the proposals [for what became s 2 of the 1989 Act] should not affect the power of the Court to give effect in equity to the principles of proprietary estoppel and constructive trusts."
Ultimately, Bean J concluded that
"notwithstanding Lord Scott's dicta in Cobbe, proprietary estoppel in a case involving a sale of land has survived the enactment of s 2 of the 1989 Act".
The judge accordingly held that the appeal against the possession order should be allowed, and that the case should be remitted for a trial including on the proprietary estoppel counterclaim. Permission for a second appeal was refused by Stanley Burnton LJ, as there was no basis for impugning Bean J's assessment that this was a case that should proceed to trial:  EWCA Civ 1609.
- I was also referred to the decision of the Court of Appeal in Yaxley v Gotts  Ch 162. There the Claimant (a builder) made an oral agreement with the Second Defendant under which the Claimant would convert a house which the Second Defendant intended to buy into two flats and in return obtain the ground floor flat. In fact it was the First Defendant, who was the son of the Second Defendant, who actually bought the house. The Claimant did the work, but the First Defendant refused to perform the Second Defendant's obligations which he was held to have adopted. The judge held that the claim succeeded through proprietary estoppel. The defendants appealed on the basis that s 2 of the 1989 Act prevented such a claim. The Court of Appeal disagreed, and the appeal failed.
- Robert Walker LJ considered the saving in s 2(5) of the 1989 Act for the creation or operation of constructive trusts, and said this (at p 180):
"I cannot accept that the saving should be construed and applied as narrowly as Mr Laurence contends. To give it what I take to be its natural meaning (comparable to that of s. 53(2) of the Law of Property Act 1925 in relation to s. 53(1)) would not create a huge and unexpected gap in s. 2. It would allow a limited exception, expressly contemplated by Parliament, for those cases in which a supposed bargain has been so fully performed by one side, and the general circumstances of the matter are such, that it would be inequitable to disregard the claimant's expectations, and insufficient to grant him no more than a restitutionary remedy."
On the same subject, Beldam LJ said (at p 193):
"In my view the provision that nothing in Section 2 of the 1989 Act is to affect the creation or operation of resulting, implied or constructive trusts effectively excludes from the operation of the section cases in which an interest in land might equally well be claimed by relying on constructive trust or proprietary estoppel."
Clarke LJ added some remarks of his own, but also agreed with both judgments (see at 182).
- In addition, as I mentioned at the hearing, I am aware that Lord Neuberger has stated a view extra-judicially which is at odds with that of Lord Scott. In a lecture to the London Common Law and Commercial Bar Association on 9 June 2009 Lord Neuberger said
"I suggest that section 2 has nothing to do with the matter. In cases such as those in Crabb v Arun and Thorner v Major, the estoppel rests on the finding that it would be inequitable for the defendant to insist on his strict legal rights … where there is the superadded fact that the claimant, with the conscious encouragement of the defendant, has acted in the belief that there is a valid contract. I suggest that section 2 offers no bar to a claim based in equity."
- On a recent occasion I had to consider whether a master was bound by the decision of a High Court judge: Coral Reef Ltd v Silverbond Enterprises Ltd  EWHC 874 (Ch), now under appeal. Here I have the luxury of four such decisions, though unfortunately pointing in opposite directions, two one way and two the other. I also have the obiter dictum of one Lord of Appeal in a House of Lords decision, and the considered but extra-judicial view of another Lord of Appeal (now Supreme Court justice). Even more unfortunately, they also point in diametrically opposed directions. There is also the decision of the Court of Appeal in Yaxley v Gotts, the scope and ambit of which is not entirely clear, but which certainly supports the notion that at least in some cases s 2 does not bar a claim based on proprietary estoppel.
- For what it may be worth, my own preference would be for the view espoused by Lord Neuberger, Bean J and Mark Herbert QC. In my respectful opinion, there is a world of difference between seeking to enforce a contract immediately it has been made and before anyone has relied on it, to the would-be enforcer's detriment or otherwise, and seeking to make good a promise, assurance or understanding made or objectively speaking intended by a property owner, but only once the promise, assurance or understanding has been relied on to the would-be enforcer's detriment. A valid contract has legal effects (eg as to repudiatory or anticipatory breach), and is enforceable (eg by quia timet injunction), immediately it is made, and even before any attempt has been made to implement it. A proprietary estoppel, on the other hand, has legal effects and is enforceable, if at all, only after the promise or assurance has been relied on to detriment, so that any resultant unconscionability can be judged retrospectively: see Hoffmann LJ in Walton v Walton, unreported, 14 April 2994, cited with approval in Thorner v Major  1 WLR 776, , , and Davies v Davies  EWCA Civ 463, .
- It is true that, where the parties intend to make a formal contract and do not intend to be bound until that occurs, there can be no proprietary estoppel if no formal contract is entered into. But this is because in such a case it is clear that the assurances given are not intended to be relied upon: see eg Ramsden v Dyson (1866) LR 1 HL 129, 145-6; cf Cobbe, Thorner v Major  1 WLR 776, , Herbert v Doyle  EWCA Civ 1095, . Pace Lord Scott in Cobbe and Briggs J in Anderson, in a claim in proprietary estoppel, the defendant is not sued on any contract between the parties. Nor does the proprietary estoppel arise at the same time as any contract. Instead the defendant, just as Lord Selborne LC pointed out in Maddison v Alderson (1883) 8 App Cas 467 in relation to the analogous doctrine of part performance, is sued on the equities arising from the conduct of the parties thereafter.
- It therefore does not seem to me obvious that the public policy which led to the enactment of the general rule in s 2 of the 1989 Act should have no impact in proprietary estoppel cases where the parties did not think they had made a contract, but on the other hand should prevent such a claim being made when they thought that they had, assuming (in either case) that the necessary elements of the proprietary estoppel are made out. As for s 2(5) of the 1989 Act, providing for cases where the parties' agreement (ex hypothesi informal) creates a constructive trust, in my respectful view this too appears to be a red herring, because proprietary estoppel is not about enforcing a contract at all.
- Nevertheless, I recognise that this is not the best forum for determining these important matters of principle and public policy. In my view the better course is for this matter to be left over until trial, when the facts are determined and the entire context in which it arises can be seen. As Stanley Burnton LJ said in refusing permission to appeal from Bean J in Whittaker v Kinnear (at ),
"It is better the question of law is decided, if it arises, on the basis of findings of fact, rather than on the basis of the pleadings."
- I consider therefore that, subject to the "unless" orders which I propose to make, it is not appropriate to strike out the defence to counterclaim or to give judgment for the First Defendant on the counterclaim on the grounds that there are no reasonable grounds for defending the counterclaim.
- The second part of the application notice seeks summary judgment on the counterclaim. It asks:
"4. That summary judgment be entered in the First Defendant's favour on its counterclaim; and
5. That the Claimants do pay the First Defendant's costs of the counterclaim and of this application because the First Defendant believes that the Claimants have no real prospect of successfully defending the First Defendant's counterclaim and the First Defendant knows of no other reason why the disposal of the counterclaim should await trial."
- CPR rule 24.2 so far as material reads:
"The court may give summary judgment against a claimant or defendant on the whole of a claim or on a particular issue if –
(a) it considers that –
(i) that claimant has no real prospect of succeeding on the claim or issue; or
(ii) that defendant has no real prospect of successfully defending the claim or issue; and
(b) there is no other compelling reason why the case or issue should be disposed of at a trial."
It is well known that "real prospect" merely means "not unreal or illusory prospect". A prospect of success does not have to be high to be real. It just has to be more than illusory or theoretical.
- Whereas striking out under CPR rule 3.4 concerns formal, procedural or legal defects in a case, summary judgment under rule 24.2 concerns its merits. But, although the court may disregard evidence which is inherently improbable, it is not to conduct a mini-trial, or try to weigh up the probabilities of one party succeeding. Instead, it must decide whether (if the claimant makes the application) there is a real prospect of successfully defending the claim or (if the defendant makes the application) of successfully prosecuting it, or whether there is some other compelling reason for a trial to take place. On this issue, however, the burden rests on the applicant for summary judgment. If a short point of law arises on which the court has all the evidence it needs to decide it, then the court should hear argument on it and decide it.
- As I have already said above, if the Claimants satisfy the "unless" orders, the factual basis for their claim to a security interest by way of proprietary estoppel will be made reasonably clear. It will involve allegations of assurances made and relied on to alleged detriment. Those allegations will no doubt be drawn so that it becomes unlikely that the Court can regard the possibility that this claim succeeds as fanciful or unreal. In that case this will not be a case for summary judgment. If on the other hand the Claimants fail to comply with the "unless" orders the defence to counterclaim will be struck out anyway.
- There is however the possibility that the Claimants plead sufficient to prevent a striking out, but the allegations are so weak that the Court could properly say that there is no real prospect of successfully defending the counterclaim. In order to deal with this eventuality, therefore, I propose to adjourn the First Defendant's summary judgment application to await compliance by the Claimants with the "unless" orders, giving the First Defendant liberty to apply to restore that application if so advised when matters become clearer, and giving the Claimant liberty to apply for it to be dismissed if it is not restored.
The unilateral notice
- There is then the question of what to do about the unilateral notice. The First Defendant seeks its vacation now, as a summary matter. The unilateral notice as entered on the register is stated to be "in respect of a charge dated in 2009 made between" ARY, the First Defendant and Turquoise Holdings Ltd. There is no mention of the Claimants. The reference in the entry on the register is clearly to the actual document, the altered 2009 charge, at that time wrongly believed to create a legal charge in favour of the Claimants. It is not a reference to any kind of equitable charge.
- Looking at the application for the unilateral notice in Form UN1, some of the same facts as are now relied on in support of the proprietary estoppel claim are set out in box 12. For example, it says that ARY "agreed to give a first joint Legal Charge in the form of the copy herewith dated 2009 to the Applicants and also to Turquoise Holdings Ltd. This was with the consent of the Directors of the company…" But there is no mention there of any reliance by the Claimants on the First Defendant's promise or assurance, or of detriment suffered as a result, both of which are essential ingredients of proprietary estoppel (see para 24 above).
- There are essentially three courses which the court could take now. One would be to vacate the unilateral notice straight away, as the First Defendant seeks in its counterclaim. The second would be to alter/rectify the register now so as to make the unilateral notice refer to an equitable charge by way of proprietary estoppel, as the Claimants ask. The third would be to do nothing now, but to leave the position as it is pending trial or further order.
- As to the first course, there is no doubt that the court has the power to vacate a unilateral notice on the land register as a summary matter, on application, even though there is a parallel statutory procedure in the LRA 2002. The still subsisting inherent jurisdiction of the court in this respect, which existed under the previous registered land regime, was discussed and confirmed by Morgan J in Nugent v Nugent  EWHC 4095 (Ch). As explained by the judge, it is rather like imposing an interim injunction. The court has to balance the parties' interests in maintaining the status quo and in changing it now.
- The Claimants however take a point on jurisdiction. They say that the First Defendant has pinned its colours to the mast of Land Registration Act 2002, s 77 (which creates a statutory duty, inter alia, to avoid applying for a unilateral notice without reasonable cause), and cannot rely on the inherent jurisdiction of the court: see the Claimants' original skeleton argument, , relying on the First Defendant's original skeleton, . They also say that s 77 does not apply on these facts: see the Claimants' further skeleton argument,  ff.
- But in my view what matters here is not the skeleton arguments but the statements of case. In the First Defendant's counterclaim, para 59(a) says the First Defendant is entitled to a declaration about the altered 2009 charge, para 59(b) says it is entitled to an order vacating the unilateral notice, and para 59(c) says that the Claimants breached s 77 of the LRA 2002. The s 77 argument is quite separate from the argument that the First Defendant is entitled to an order vacating the unilateral notice. If I thought it was otherwise appropriate to order the vacation of the UN, I would not be deterred by the fact the First Defendant referred in its skeleton argument to s 77. It is clear that the court has an inherent jurisdiction, regardless of s 77.
- My view on both the first and second courses however is that it is not appropriate in this case to make a decision on the question of removing the notice or of altering or rectifying the register, and thus the unilateral notice, until the facts have been properly established, ie at trial. There is no case made out on the materials before me for taking either course summarily. In my view the best course for the court to take here at this stage is to leave the unilateral notice as it is until trial, when the trial judge having found the facts will be able to decide what is best in all the circumstances.
- Accordingly, I will make "unless" orders in respect of the amendment to the reply and defence to counterclaim, and, subject to those, dismiss the application for strike-out. I will adjourn the application for summary judgment, to be restored or dismissed on application. I invite the parties to agree a memorandum of order giving effect to this judgment, subject to the question of costs, on which I will hear submissions when I hand down this judgment, unless of course that too can be agreed.
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