In October, the Supreme Court handed down its decision in Guest v Guest where clarity has been provided on how the level of relief for a proprietary estoppel claim should be assessed. The answer is that there should be fulfilment of the expectation, but the remedy cannot provide anything more than the minimum to do justice, or give more to the Claimant than what was originally promises or expected.
But what is Proprietary Estoppel? This is an equitable remedy which is flexible and discretionary. All the following elements must be present:
- An assurance of sufficient clarity;
- Reliance by the Claimant on that assurance; and
- Detriment to the Claimant in the consequences of his reasonable reliance.
These are not divided into watertight compartments, and all elements are considered together and in the whole. There has been much debate in how a claim for proprietary estoppel should be satisfied? Should the promise or expectation be enforced, or the detriment compensated.
Background to Guest v Guest
David Guest and Josephine Guest had three sons, Andrew, Ross and Jan.
David owned Tump Farm in Monmouthshire (a dairy farm) and he lived there with Josephine. David, Josephine and Andrew were in a partnership together called Ladysmith Farming Partnership. Andrew worked on the Farm for 33 years for a basic wage and lived in one of the cottages, rent free. Andrew held the expectation that he would inherit a significant proportion of the farm after their deaths, with Ross and Jan inheriting the rest. After a breakdown in the family relationship, David and Josephine changed their wills disinheriting Andrew.
Usually claims of this nature are brought when a person has died and it becomes apparent that the promise has not been fulfilled. In this case, Andrew brought his claim whilst his parents were still alive.
The first decision…
At first instance, Andrew was successful with his claim on the basis that there was clear evidence that assurances had been given by David over a substantial period of time, which Andrew had reasonably relied upon to his detriment. This was supported by the terms of the early wills and the partnership agreement. The Judge held that Andrew would not have worked for as long as he had, with little financial reward, without having had encouragement to do so by his parents that he would one day inherit.
Having decided that Andrew was successful with his claim, the Judge then had to determine the remedy to award him. The Judge considered Andrew’s expectations including his expectation that he would take over running certain parts of the farm and businesses, and that one day would inherit them. This needed to be taken into account when valuing the detriment Andrew had suffered. The Judge also wanted to take into account David and Jocelyn’s continued interest in the Farm itself and others who may have claims to it. When taking everything into account, the Judge made an award to satisfy Andrew’s expectation. Andrew was awarded a lump sum based on 50% of the net market value of the dairy farm business, and 40% of the net market value of farm (to include the land and buildings). The judge accepted that this might involve the sale of the farm but felt it was best to ensure a clean financial break given the breakdown in the parties’ relationship. The Judge decided that this award was the minimum award to avoid an unconscionable outcome. The clean break solution awarded by the Judge has effectively accelerated Andrew’s inheritance even though his expectation was that he would only inherit on his parents’ death.
The Appeal
David and Josephine appealed the decision and asserted that the remedy had been assessed incorrectly. They said that the amount awarded went beyond what was necessary to do justice in the case, and that this relief should not be granted whilst David and Josephine were still alive. The appeal was rejected and the original award upheld.
Supreme Court
David and Josephine referred their case to the Supreme Court and has asked for two issues to be determined:
- whether a successful claimant’s expectation was an appropriate starting point when considering remedy; and
- Whether the remedy grant, namely the payment of a lump sum which would in effect result in the sale of the farm, went beyond what was necessary in the circumstances.
The hearing took place on 2 December 2021 after a long wait, the judgment was delivered.
The awarded granted to Andrew provided for an acceleration of his inheritance because his parents were still alive, and would have forced the sale of the farm. This did not balance the interests of Andrews’ parents or perhaps others who would have a claim on their bounty. The Supreme Court therefore allowed the appeal but only in a limited manner either by paying Andrew the lump sum or to set up a Trust whereby Andrew’s interest is protected but would prevent the need for the Farm to be sold. The Supreme Court has now directed the parties’ to agree the terms of the Trust and if they are not able to do so, then directions would need to be sought from the High Court.
The outcome appears to strike a balance between meeting Andrew’s expectations and ensuring equity does justice in this case, but ensuring that it is only his expectation that is fulfilled and that he is not placed in a better position. Andrew’s expectation was of inheritance and therefore to receive a lump sum during his parents’ lifetime and forcing the sale of the farm would result in him receiving more than what was promised.
How to avoid a Proprietary Estoppel Claim?
The main method in safe-guarding against a proprietary estoppel claim is not to make any promises or create expectations where you do not intend to fulfil your side of the bargain. This includes leaving property on your death.
If you believe you may have made promises that someone will expect you to fulfil, then you can take the following steps:
- Consider your succession planning at an early stage, and that all your assets are considered as part of that process. Be open and honest your advisors about any conversations you may have had with others which could lead them to have an expectation to your bounty on your death. Where possible, it is recommended that all family members are included in that decision making process (particularly those who might have an expectation of inheritance) to ensure that decision are made openly.
- Legal documents can be drafted now to reflect arrangements and agreements which may already be in place. This includes partnership agreements, declarations of trust and letters of wishes (to supplement and support trust arrangements and any will you have in place).
If you wish to discuss a proprietary estoppel claim please contact the Inheritance and Trust Disputes team on 0345 450 5558 or email enquiries@stephens-scown.co.uk