Yaxley v Gotts [2000] Ch 162

Mr Yaxley carried out building works on a property based on an oral agreement that he would receive the ground floor. The Court of Appeal held that section 2 of the 1989 Act did not prevent relief through proprietary estoppel or constructive trust.

Facts

Mr Keith Yaxley, a self-employed builder, wished to purchase a converted house at 15 Vicarage Road, Cromer, for conversion into flats. Unable to fund the purchase alone, he approached his friend Mr Brownie Gotts for a loan. Mr Brownie Gotts instead orally offered a bargain: he would buy the property, and in return for Mr Yaxley carrying out refurbishment works on the upper floors and acting as managing agent, Mr Yaxley would receive the ground floor (which he would convert into two flats). Mr Yaxley accepted.

Unknown to Mr Yaxley, the property was actually purchased by Mr Brownie Gotts’ son, Mr Alan Gotts, who became registered proprietor on 29 January 1992. Mr Yaxley carried out extensive works (valued at approximately £9,346) and managed the property, collecting rents and receiving £105 per week in respect of the ground floor flats. In February 1995, after the parties fell out, Mr Alan Gotts excluded Mr Yaxley from the property.

His Honour Judge Downes in the Norwich County Court accepted Mr Yaxley’s evidence and, applying the three-stage test from Crabb v Arun District Council [1976] Ch 179, held that a proprietary estoppel arose. He ordered that Mr Yaxley was entitled to a 99-year lease of the ground floor, free of ground rent.

Issues

Although not argued below, on appeal the appellants contended that the oral agreement was void under section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, and that the doctrine of proprietary estoppel could not operate to give effect to an agreement rendered void by that section. The central issues were:

• Whether proprietary estoppel could be invoked to enforce what would otherwise be a void agreement under section 2;
• Whether the saving in section 2(5) for ‘resulting, implied or constructive trusts’ applied to the facts; and
• The proper scope and public policy significance of section 2.

Arguments

Appellants (Gotts)

Mr Laurence QC submitted that the oral agreement was void under section 2(1) and that estoppel could not be deployed to enforce a transaction which Parliament had declared invalid. He relied on the public policy principle that estoppel cannot validate what statute renders void. He argued that the section 2(5) saving preserved constructive trusts only in factual situations where such trusts would have arisen under the old law, not where a purchaser might previously have relied on part performance. He conceded that Mr Yaxley was entitled to a quantum meruit for his work.

Respondent (Yaxley)

Mr Allston contended that the case rested on proprietary estoppel, and, if necessary, constructive trust. He did not rely on an enforceable contract with Mr Alan Gotts.

Judgment

The Court of Appeal (Beldam, Robert Walker and Clarke LJJ) unanimously dismissed the appeal.

Robert Walker LJ

His Lordship accepted that the doctrine of part performance had not survived the 1989 Act. However, he held that the doctrine of estoppel could operate to modify, and sometimes counteract, the effect of section 2, because the circumstances in which section 2 applies are so varied and the scope of estoppel so flexible. The public policy principle, as articulated by Viscount Radcliffe in Kok Hoong v Leong Cheong Kweng Mines [1964] AC 993, had to be applied consistently with the express saving in section 2(5).

He held that proprietary estoppel and the ‘common intention’ constructive trust overlap substantially in the context of joint enterprises to acquire land, citing Lord Diplock in Gissing v Gissing [1971] AC 886 and Lord Bridge in Lloyds Bank v Rosset [1991] 1 AC 107. The facts found by the judge provided a basis for a constructive trust, which was expressly preserved by section 2(5). He rejected the narrow construction of section 2(5) urged by the appellants, holding that it naturally allowed a limited exception, analogous to section 53(2) of the Law of Property Act 1925, where a supposed bargain had been so fully performed that it would be inequitable to disregard the claimant’s expectations.

Beldam LJ

Beldam LJ examined the Law Commission Reports (Nos. 163 and 164) underlying the 1989 Act, observing that the Commission had expressly contemplated the continuing availability of proprietary estoppel and constructive trusts. He held that section 2(1) was not aimed at prohibiting agreements of a specific kind; it merely rendered non-compliant agreements void. That alone was insufficient to raise a public interest sufficient to exclude estoppel. He held that the plaintiff had established facts upon which a court of equity would impose a constructive trust, satisfied by the grant of a 99-year lease, and that the judge was also entitled to find a proprietary estoppel.

Clarke LJ

Clarke LJ agreed that the facts gave rise to a constructive trust preserved by section 2(5), and that it was not necessary to find an agreement between the plaintiff and Mr Alan Gotts. Whether estoppel could be invoked depended upon the mischief at which the statute was directed; estoppel by convention would likely fail, but proprietary estoppel might well succeed on facts like these.

Implications

The decision is significant for several reasons:

• It confirms that section 2 of the 1989 Act does not create a ‘no-go area’ for estoppel, and that proprietary estoppel may operate despite non-compliance with the statutory formalities.
• It gives a broad reading to the section 2(5) saving for constructive trusts, which the court held may operate where an agreement has been substantially performed and it would be inequitable to disregard the claimant’s expectations.
• It reaffirms the close kinship between proprietary estoppel and the common-intention constructive trust, consistent with Gissing v Gissing, Grant v Edwards, and Lloyds Bank v Rosset.
• The court emphasised that the outcome will depend upon the facts of the individual case and on whether giving effect to the estoppel or trust would subvert the statutory policy of certainty in land contracts.

The decision is important to practitioners advising on informal land arrangements, particularly where one party has carried out substantial works or expenditure in reliance on an oral promise. It preserves equity’s traditional role in preventing unconscionable conduct while respecting Parliament’s policy of requiring written contracts for land. However, the court did not decide that proprietary estoppel can always circumvent section 2; the judgments recognise that the public policy principle may yet defeat estoppel claims in other factual contexts.

Verdict: Appeal dismissed. The Court of Appeal upheld the grant to Mr Yaxley of a 99-year lease of the ground floor of the property, free of ground rent, on the basis of both proprietary estoppel and constructive trust, the latter being expressly preserved by section 2(5) of the Law of Property (Miscellaneous Provisions) Act 1989.

Source: Yaxley v Gotts [2000] Ch 162