Yeoman’s Row Management Limited (Appellants) and another v Cobbe (Respondent), (2008)

 
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HOUSE OF LORDSSESSION 2007-08[2008] UKHL 55 on appeal from: [2006]EWCA Civ 1139 OPINIONSOF THE LORDS OF APPEALFOR JUDGMENT IN THE CAUSEYeoman’s Row Management Limited (Appellants) and another v Cobbe (Respondent)Appellate CommitteeLord HoffmannLord Scott of FoscoteLord Walker of GestingthorpeLord Brown of Eaton-under-HeywoodLord ManceCounselAppellants:Nicholas Dowding QCTimothy Morshead(Instructed by DLA Piper UK LLP)Respondent:Thomas Ivory QCMyriam Stacey(Instructed by Bird & Bird)Hearing dates:4 and 5 JUNE 2008ONWEDNESDAY 30 JULY 2008HOUSE OF LORDSOPINIONS OF THE LORDS OF APPEAL FOR JUDGMENTIN THE CAUSEYeoman’s Row Management Limited (Appellants) and another v Cobbe (Respondent)[2008] UKHL 55LORD HOFFMANNMy Lords,1.  I have had the advantage of reading in draft the speech of my noble and learned friend Lord Scott of Foscote. For the reasons he gives, with which I agree, I too would allow this appeal. LORD SCOTT OF FOSCOTEMy Lords,Introduction2.  The essence of the problem to be resolved in this case can be quite shortly stated. A is the owner of land with potential for residential development and enters into negotiations with B for the sale of the land to B. They reach an oral “agreement in principle” on the core terms of the sale but no written contract, or even a draft contract for discussion, is produced. There remain some terms still to be agreed. The structure of the agreement in principle that A and B have reached is that B, at his own expense, will make and prosecute an application for the desired residential development and that, if the desired planning permission is obtained, A will sell the land to B, or more probably to a company nominated by B, for an agreed up-front price, £x. B will then, again at his own expense, develop the land in accordance with the planning permission, sell off the residential units, and, when the gross proceeds of sale received by B equals £2x, any further gross proceeds of sale will be divided equally between A and B. Pursuant to this agreement in principle B makes and prosecutes an application for planning permission for the residential development that A and he have agreed upon. B is encouraged by A to do so. In doing so B spends a considerable sum of money as well, of course, as a considerable amount of time. The application is successful and the desired planning permission is obtained. A then seeks to re-negotiate the core financial terms of the sale, asking, in particular, for a substantial increase in the sum of money that would represent £x. B is unwilling to commit himself to the proposed new financial terms and A is unwilling to proceed on the basis of the originally agreed financial terms. So B commences legal proceedings. The question for your Lordships is what relief, in the circumstances described, B should be granted, for, I believe, none of your Lordships considers that he would not be entitled to any.3.  A number of possible bases for the grant of relief to B need to be considered. (i) First, there is proprietary estoppel. B has, with the encouragement of A, spent time and money in obtaining the planning permission and has done so, to the knowledge of A, in reliance on the oral agreement in principle and in the expectation that, following the grant of the planning permission, a formal written agreement for the sale of the property, incorporating the core financial terms that had already been agreed and any other terms necessary for or incidental to the implementation of the core terms, would be entered into. In these circumstances, it could be, and has been, argued, A should be held to be estopped from denying that B had acquired a proprietary interest in the property and a court of equity should grant B the relief necessary to reflect B’s expectations. (ii) Second, there is constructive trust. In circumstances such as those described, equity can, it is suggested, give effect to the joint venture agreed upon by A and B by treating A as holding the property upon a constructive trust for himself and B, with A and B taking beneficial interests calculated to enable effect to be given to B’s expectations engendered by the agreement in principle.(iii) Third, there is unjust enrichment. The grant of planning permission, obtained by B at his expense and through the deployment of his time and planning expertise, has increased the value of the property. So A has been enriched at the expense of B and, since it was A’s repudiation of the oral agreement in principle that frustrated the basis upon which B had been relying, perhaps unjustly enriched.(iv) Fourthly, there is the question of a quantum meruit. B has supplied valuable services to A in obtaining planning permission for the benefit of A’s property. There is no question of the services having been provided gratuitously but no fee for the services was agreed between A and B. B’s reward was supposed to have been the conclusion of an enforceable contract. In these circumstances a quantum meruit, taking into account the amount of B’s expenditure of time and money and the value of the services, can, it could be argued, be fixed by the court.(v) Fifthly, the arrangement between A and B for the sale of the property to B can be regarded as involving two stages. The first stage is the making and prosecution by B at his own expense of the application for the grant of planning permission. This stage constitutes, in effect, the consideration given by B to A in return for A’s promise, if planning permission is granted, to enter into a formal written contract of sale embodying, inter alia, the core financial terms that had already been agreed. A’s promise, being no more than an oral promise to enter into a written contract and, moreover, part of an incompletely negotiated agreement, is not contractually enforceable but A’s repudiation of that promise, after B had supplied his first stage consideration and the planning permission had been granted, would, it could be argued, constitute a complete failure of the consideration that A was to have given, and entitle B to a restitutionary remedy.(vi) Finally, in circumstances such as those described the possibility of a remedy in damages for the tort of deceit must be kept in mind. If A represented to B that he was willing to enter into a written agreement, or regarded himself as bound by an oral agreement embodying the core financial terms that had already been agreed, and so represented at a time when he, A, had already decided to repudiate those terms and demand better ones, B, if and to the extent that he had acted on those false representations and thereby suffered loss, would have an action in deceit for damages.4.  Two features of these possible remedies are worth noticing. First, both the proprietary estoppel claim and the constructive trust claim are claims to a proprietary interest in the property. The other remedies do not require proprietary claims but follow upon in personam claims for compensation or restitution. Second, a proprietary estoppel claim and a constructive trust claim would constitute, if successful, a means whereby B could obtain a remedy providing him with a benefit more or less equivalent to the benefit he expected to obtain from the oral and inchoate agreement; in effect a benefit based on the value of his non-contractual expectation. By way of contrast, an unjust enrichment remedy, a quantum meruit remedy and a consideration that has wholly failed remedy are essentially restitutionary in character, concentrating not at all on the value of the expected benefit of which B has been deprived but, as the case may be, on the extent of A’s enrichment at B’s expense, on the value of B’s services or on the amount or value of the consideration provided by B to A. And a tortious remedy for deceit would concentrate on the loss caused to B in acting on A’s false representation and would seek to restore him to the position in which he would have been if the false representation had never been made. One of the main issues for your Lordships to decide on this appeal is, in my opinion, whether B should be held entitled to a proprietary remedy based on the extent of his disappointed expectations or to an in personam remedy of, using the adjective fairly loosely, a restitutionary character. The question of a remedy in deceit does not arise, for no allegation of fraudulent misrepresentation has been made, but the conceptual possibilities of such a claim are useful to keep in mind. It is very well established that the remedy for a fraudulent misrepresentation inducing a contract is, besides rescission of the contract if the victim so elects, a tortious action in deceit for damages for any loss thereby caused; and that, unless the representation has become a term of the contract, the victim is not entitled to claim damages measured by the loss of the benefit he would have obtained if the representation had been true, i.e. he is not entitled to contractual damages.The Facts5.  A, in the present case, is the appellant company, Yeomans Row Management Ltd. B is the respondent, Mr Cobbe. He is an experienced property developer. The property in question consists of a block of, originally, thirteen flats, one of which has, since 1983, been the home of Mrs Lisle-Mainwaring and, until his fairly recent death, her husband. In about 1986 Mr and Mrs Lisle-Mainwaring, no doubt recognising the development potential of the property, decided to purchase it. They used the appellant company, of which they were the directors and shareholders, as the vehicle by means of which to do so. First, however, Mrs Lisle-Mainwaring acquired a long leasehold interest in her flat (and, later, two other flats with which her flat was then physically combined into one unit). Then, in April 1998, the property was transferred to the appellant company subject to Mrs Lisle-Mainwarings long lease and to the tenancies of the other flats, five of which were...

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