The Nature of Proprietary Estoppel - Essay Example

Historically, the purpose of proprietary estoppel is to provide a remedy for those who have acted in the belief that they would acquire some rights in or over land, having been led to this belief implicitly or explicitly by the owner of the land1. The court ultimately determines whether it is conscionable for the owner of the land to go back on their representations2. Unlike other estoppels, proprietary estoppel goes further and can be utilised as a tool to enforce or grant a property right de facto.3 However, whilst the equitable justification for the doctrine of proprietary estoppel is clearly meritorious, the ad hoc development of the doctrine has been attacked, with some commentators labelling it as a “loose cannon”. The enforcement of proprietary the estoppel doctrine clearly has ramifications for property transactions in context of third party interests, which is further compounded by the judicial blurring of the distinction between claims for beneficial interests in land under implied trust, which is inherently complex. The Land Registration Act 2002 (LRA) came into force on 13th October 2003 implementing an overhaul of the organisation of registered land system, repealing the Land Registration Act 1925. The Law Commission Report Number 271 highlighted the central objective of the LRA 2002 being to create a land registration system that is an accurate reflection of the true state of title to a registered estate of land at any time. As such, it is arguable that the narrow system implemented by the LRA 2002 limits the utility of proprietary estoppel to third party claims in unregistered land. Furthermore, one of the central purposes of the 2002 Act was “to reduce the number of overriding interests which are binding upon a purchaser of a registered title4”. However, Sexton argues that the “2002 Act achieves this purpose only to a very limited degree”5. Additionally, it is submitted that whilst the overall intention of the 2002 Act is to reduce the number of third party equitable interests which are binding on a purchaser, it is questionable how far the LRA 2002 has gone to achieve this. The focus of this analysis is to critically evaluate whether the interpretation of proprietary estoppel accord with the purpose of the principle and how far the LRA has gone to bring coherence to the complex area of law relating to enforceability of third party interests. Firstly, as a general principle with regard to registered land, legal interests are required to be registered unless they fall within the category of overriding interests6. Moreover, the system of overriding interests has been inherently complex, creating uncertainty for the purchaser vis-à-vis registered titles. Additionally, the wider scope for protection of proprietary interests both legal and equitable in registered title arguably goes beyond the scope of estoppel particularly in context of the wide range of proprietary rights falling within the ambit of overriding interests7. For example, with regard to registered land the general principle is that “all third party rights against a registered estate and all short term leases are either overriding or minor interests8”. With registered land, if a third party right is not overriding, then it will be a minor interest and will only bind purchasers if protected by an interest on the register, which is “roughly comparable to a registrable land charge in respect of unregistered land”9. As such, this would appear to negate the assumption that third party equitable rights are necessarily easier to protect with registered titles. Therefore, whilst the enforceability of a third party right on a purchaser will vary depending on whether the title is registered or unregistered, ultimately the determinant factor will be the nature of the right being protected irrespective of whether it is legal or equitable. For example, if we consider overriding interests in particular, these represent a major point of contention for purchasers of registered title10. Again, the general rule is that overriding interests will bind a purchaser of registered title regardless of notice11. The previous legislative framework governing registered land was the Land Registration Act 1925, which listed overriding interests in section 70(1). If we consider the previous system in context of the doctrine of proprietary estoppel, the principle was first recognised by the House of Lords in Ramsden v Dyson12, however, it was asserted that it should only be enforced in narrow circumstances to avoid floodgate claims based on oral promises.13 Moreover, in the case of Wilmott v Barber14 the Court of Appeal went further and established what has been coined the “Wilmot v Barber Probanda15”, which sets out five elements that must be present before an estoppel will be granted16. The set of guidelines were clearly intended to define the parameters of estoppel, however have been attacked on grounds that “it did not constitute a comprehensively applicable formula17”. Additionally, the principles set forward in the Wilmot case were extremely similar to the constructive trust format, thereby undermining the purpose of estoppel as a form of recourse. Moreover, the ad hoc and somewhat inconsistent application of the test has arguably rendered proprietary estoppel a “loose cannon”. For example, in the case of Crabb v Ann District Council18, Lord Denning further adopted the approach favoured recently by focusing on the concept of detrimental reliance. However, this was arguably confused by referring to both promissory and proprietary estoppel19. Alternatively, Lord Scarman relied upon the Willmott v Barber probanda and as such, the council was estopped from asserting their legal rights. Nevertheless, the divergence in judicial justification for ultimately reaching the same decision clearly begs the question as to whether proprietary estoppel is in fact a doctrine or a patchwork quilt of various ideas applied on a case by case basis in place of any adherence to an orthodox principle. Alternatively, the very nature of proprietary estoppel is clearly rooted in “unconscionability”, which arguably requires a case by case determination. As such, this clearly creates tension between justice and legal certainty, compounding the precarious position of purchasers. However, in the case of Taylor Fashions v Liverpool Trustees Co Ltd20, the courts took a broader and relaxed approach to the Wilmott v Barber probanda and introduced three interrelated elements; namely, representation, reliance and detriment. Arguably, the Taylor decision obfuscates the distinction between proprietary estoppel and constructive trusts, which perpetuates uncertainty regarding enforceability of third party interests. For example, the leading case of Lloyds Bank plc v Rosset21 highlighted the essential requirements for the imposition of a constructive trust asserting its foundation in the common intention of the parties to share the properties. Lord Bridge further asserted in this case that “intention” could be express or inferred from conduct22. However, it is difficult to see how the rationale in ReBasham23case regarding estoppel differs from the common intention constructive trust. On the other hand, whilst the judicial rationale has clearly blurred the distinctions with trust law principles, the doctrine of estoppel would appear to go further and acknowledge rights outside the narrow confines of proving “contribution” to the property again undermining any notion of an “orthodox” application. For example, in the case of Pascoe v Turner24, the doctrine of estoppel was utilised by the Court of Appeal to transfer the estate to the plaintiff. The second element of the Taylor proprietary estoppel test is that of reliance, which has created problems in practice in proving reliance. As Lord Denning commented in the case of Greasley v Cooke25, “once it is shown that a representation was calculated to influence the judgment of a reasonable man, the presumption is that he was so influenced.26” This undermines Taylor, where Oliver J indicated that it was for the claimant to establish reliance. This contrasts with constructive trust cases, as notwithstanding the widening interpretations of trust law to accommodate relationship breakdown, the constructive trust is limited by reluctance to acknowledge indirect contribution, which has worked primarily against women in practice27. Moreover, the courts’ approach has been positively inconsistent in relation to indirect contributions in constructive trust cases. As such, whilst the lines between proprietary estoppel and the common intention trust are clearly blurred, the doctrine of estoppel clearly goes further in widening the ambit of what constitutes “detrimental reliance” as evidenced in the case of Ottey v Grundy28. The practical ramifications of the widening of proprietary estoppel into implied trust principles further compounds the uncertainty in this area of law, which can bind legal purchasers on the basis of being overriding interests. Whilst the intention of the LRA 2002 was to reduce the number of overriding interests binding a purchaser of registered title, it has been commented that the 2002 provisions obfuscate matters by introducing two different lists of overriding interests29. Schedule 1 of the LRA provides for “unregistered interests, which override first registration”, and Schedule 3 of the LRA lists “unregistered interests which override registered dispositions”. As such, the protection of third party interests in registered title depends on whether the sale is a first compulsory registration or a disposition of a pre-existing registered title, which perpetuates uncertainty from the purchaser’s perspective. This is further compounded by the LRA’s transitional provisions regarding various types of overriding and minor interests regarding conveyances post 200330. The LRA 2002 abolishes “rights acquired or in the course of being acquired under the limitation acts” under the previous Section 70(1) f of the 1925 Act. With regard to easements, under the previous 1925 Land Registration Act, section 70(1) (a) provided the following: “a) A legal profit was an overriding interest. b) An equitable profit was an overriding interest. c) A legal easement was an overriding interest.” With regard to unregistered title, legal easements are binding under the general rule however this is comparable to the registered system, with the easement being an overriding interest. Accordingly, the system for protection of legal rights vis-à-vis the purchaser is the same whether title is registered or unregistered , which again suggests that the protection of rights whether legal or equitable ultimately depends on the nature of the right31, thereby clearly leaving open the exploitation of the uncertainty to ad hoc judicial enforcement of third party rights under the veil of ambiguous estoppel justifications. Whilst the 2002 Act intended to narrow the extent of third party interests binding on a purchaser, it has been argued that “perhaps the most difficult feature of the whole 2002 Act is its treatment of easements and profits”32. After 12 October 2006, easements are subject to certain specific rules and can potentially lose overriding status. However, these rules are inherently complex and obscure and it is questionable how effective these rules have been to reduce overriding interests binding on a purchaser33. Moreover, the distinction between easements existing in registered titles at the date of enactment and those created after the LRA 2002 further complicates the system by creating two systems of protection for enforceability overriding interests34. Conversely, easements created after the commencement of the LRA 2002 must be registered. If a dominant owner fails to register the right, the easement takes effect as an equitable interest, which “will only bind a purchaser if the dominant owner has entered a Notice on the register protecting his right”35. However, the widening ambit of proprietary estoppel could potentially be used as a tool to circumvent these provisions. As regards legal easements, these were only binding as overriding interests until 2006. In the consultation process leading up to the implementation of the LRA 2002, the Law Commission expressed concerns regarding purchasers who buy a piece of land and then discover that it is subject to easements or profits, which have not been exercised. As a result, Schedule 3, paragraph 3of the LRA 2002 now provides that a legal easement or profit is only binding if (a) purchaser had “actual knowledge” of the easement or profit on the date of the land and transfer in his favour or evidence of the easement or profit is (b)“apparent on reasonable inspection”. Whilst these provisions in Schedule 3 appear to redress the balance between third party rights and purchasers in registered land, the new rules are complicated and it has been argued that in reality only very few easements and profits will be excluded from being overriding interests and remain subject to enforcement under the extension of the estoppel doctrine36. Indeed, Sexton argues that “the new rules exclude from being overriding only an (undiscovered) legal easement or profit which has neither left physical evidence on the land of its existence; nor been exercised at least once in the year before the land transfer37. Therefore, in practice it would seem that LRA 2002 only plays lip service to redressing the imbalance faced by purchasers of registered title. Moreover, Sexton’s statement highlights that this is the position irrespective of whether the proprietary right is legal or equitable. As regards leases, under the previous law, legal leases not exceeding 21 years were overriding interests. Moreover this was an automatic overriding interest even if the third party did not occupy the property and even if they refused to disclose what rights they had at the time of purchase. Under the LRA 2002, Schedule 3, paragraph 1 makes overriding all legal leases not exceeding 7 years. Although the period is reduced to seven years, the lease itself is overriding in the same way as under the 1925 Act. However, leases not exceeding 21 years, which are already in existence are overriding. However, if not a legal lease, the lease may still be an equitable lease and overriding under Schedule 3, paragraph 2, (rights of person in actual occupation). Therefore, again whilst highlighting the complexities of the new LRA 2002 framework, the provisions relating to third party overriding interests are applicable to both equitable and legal interests and therefore indicate wider applicability of third party rights against purchasers in registered land. With regard to the LRA 2002 provisions regarding rights of persons in actual occupation, it has been argued that the previous section 70(1) (g) provision of the LRA 1925 should have been repealed without replacement38. However, the legislators opted for “simplification” of the law, in the form of Schedule 3, paragraph 2 which it is submitted is similar to the previous system yet more complex; again obfuscating the inherent uncertainties facing purchasers regarding enforceability of third party rights39. This is further highlighted by applicability of pre-LRA case law. For example, the decision in Webb v Pollmount40 further widened the ambit of third party rights in registered title by determining that rights of a person in actual occupation were not confined to the right by virtue of which the person occupied the land. As a result, the Webb decision meant that all property rights in land could be overriding if in actual occupation. The new rules on actual occupation under Schedule 3 paragraph 2 are applicable to all cases where land transfer is executed after 2003. Schedule 3, paragraph 2 maintains the core of section 70(1)(g) that potentially every type of property right can be overriding if actual occupation by the owner at the relevant time can be established, which is clearly wider than the scope for third party rights enforceable where title is unregistered. Schedule 3 fails to define actual occupation and as such, it would appear that existing case law, and the decision in the Webb remains applicable law. Moreover, Schedule 3 excludes overriding interests of those in actual occupation where the person failed to disclose the right when it was reasonable to have done so. Yet this clearly fuels further uncertainty in an inherently complex system of third party rights in registered land, which is further perpetuated by the ad hoc applicability of estoppel principles. It is unclear what circumstances will render it “reasonable” to have disclosed a proprietary right of a party in actual occupation, and Sexton argues that this is clearly likely to fuel further litigation again undermining the fundamental objective of the LRA 2002. . In conclusion, the system for protection of third party interests in both registered and unregistered land remains a potential minefield for purchasers. Moreover, whilst the equitable roots of the doctrine and the Wilmot probanda clearly demonstrate an intention to enforce a narrow and consistent legal framework to protect against unconscionable conduct, the very subjective nature of what constitutes unconscionable conduct does not clearly lend itself amenable to a regimented legal framework. Indeed strict adherence to a narrow framework could result in precisely the type of decisions the doctrine is intended to protect, which is arguably facilitated by the lack of certainty brought to this area of law by the LRA 2002. To this end, it is arguable that the very nature of proprietary estoppel intrinsically requires a case by case approach. Instead of acknowledging this however, the courts have instead continued to reshape and reformulate the doctrine of proprietary estoppel to ensure a just decision is reached in each case. Whilst the doctrine clearly goes further than the common intention constructive trust, the ad hoc judicial approach has been somewhat erratic and inconsistent, thereby blurring the distinction and clearly rendering the current status of the doctrine as a “loose cannon”. Ultimately, the ease with which a third party proprietary right can be protected against a purchaser depends on the nature of the right whether legal or equitable, which is further highlighted by the implementation of the LRA 2002. BIBLIOGRAPHY Robert M. Abbey (2002). Blackstone’s Guide to the Land Registration Act 2002. Oxford University Press. Blackstone’s Statutes on Property Law (2007-2008) 15th Edition Oxford University Press. Elizabeth Cooke, (2006). Land Law. Oxford University Press. Elizabeth Cooke, (2003). The New Law of Land Registration. Hart Publishing. M Dixon., (2005). Principles of Land Law. 5th Edition Routledge-Cavendish Publishing. K. Gray & S. F. Gray (2007). Elements of Land Law. 5th Edition Oxford University Press. Law Commission report no.271 (2001). Land Registration for the Twenty First Century. July 2001. Available at www.landregistry.gov.uk J MacKenzie& M Phillips (2005). Land Law. 10th Edition Oxford University Press. Megarry and Wade., (2007) The Law of Real Property. 7th Edition Sweet & Maxwell R J Smith (2003) Property Law 4th Edition, Longman R J Smith (2003) Property Law Cases & Materials 2nd Edition, Longman R Sexton (2006). Land Law. 2nd Revised Edition. Oxford University Press. Todd and Wilsons., (2007). Textbook on Trusts.8TH Edition. Oxford University Press. Land Registration Act 2002 Land Registration Act 1925. Read More