An Unwelcome Guest and a ‘lively controversy’ – Guest v Guest on the Essential Aim of Proprietary Estoppel

‘1. “One day my son, all this will be yours”. Spoken by a farmer to his son when in his teens, and repeated for many years thereafter. Relying on that promise of inheritance from his father, the son spends the best part of his working life on the farm, working at very low wages, accommodated in a farm cottage, in the expectation that he will succeed his father as owner of the farm, to be able to continue farming there, and in due course to pass on the farm to his own children.

2. Many years later, father and son fall out. It does not matter who is to blame for the falling out, but they can no longer work together or even live in close proximity. The son has no alternative but to leave, to find alternative work and rented accommodation for himself and his family elsewhere. Meanwhile the father cuts him out of his will. The facts of this case differ from the above common example only because the father David Guest has two sons, Andrew and Ross as well as a daughter Jan. Andrew was not promised the whole of the farm (“Tump Farm”) as an inheritance, but only a sufficient (but undefined) part of it to enable him to operate a viable farming business on it after the death of his parents.’

The opening paragraphs of Lord Briggs’ judgment in Guest v Guest [2022] UKSC 27 (above) sketch the basic facts of the dispute between Andrew Guest and his parents, David and Josephine Guest, as well as what has become the most pervasive theme of the proprietary estoppel case-law, namely succession disputes over family-run farms.

Claimants in the position of Andrew find themselves caught, as Lord Briggs goes on to note [4], between two foundational principles of English law: absent the intervention of equity, promises are not enforceable unless the ingredients for a binding contract are present (which they are usually not in the context of informally expressed promises between family members and relating to land), and wills are ‘ambulatory’ until the point of death and can be revoked or changed at any prior time.

The doctrine of proprietary estoppel has developed to fashion a solution for claimants such as Andrew. The doctrine is certainly not confined to the family farm. Nonetheless, farms, often asset-rich but cash-poor and typically reliant upon the collective efforts of successive generations of the family to keep running, offer particularly fertile territory for proprietary estoppel disputes.

Although Andrew Guest certainly found himself unwelcome on the family farm, and consequently disinherited by his parents, the Supreme Court decision in Guest v Guest is a welcome one that has settled the hotly debated issue of the correct approach to remedying a proprietary estoppel-based claim.

Detriment vs expectation – the controversy

This controversy stems from a divergence in the case-law and academic analysis concerning as the essential aim of the doctrine: where an equity is found to have arisen in favour of the claimant, is the object of the doctrine to fashion a remedy that gives effect to the promises made to the claimant, or, alternatively, to make an award focused on compensating the detriment they have suffered?

The controversy was summarised as follows by Lewison LJ in Davies v Davies [2016] EWCA Civ 463 at [39]:

‘There is a lively controversy about the essential aim of the exercise of this broad judgmental discretion. One line of authority takes the view that the essential aim of the discretion is to give effect to the claimant’s expectation unless it would be disproportionate to do so. The other takes the view that essential aim of the discretion is to ensure that the claimant’s reliance interest is protected, so that she is compensated for such detriment as she has suffered. The two approaches, in their starkest form, are fundamentally different … Much scholarly opinion favours the second approach … Others argue that the outcome will reflect both the expectation and the reliance interest and that it will normally be somewhere between the two … Logically, there is much to be said for the second approach. Since the essence of proprietary estoppel is the combination of expectation and detriment, if either is absent the claim must fail. If, therefore, the detriment can be fairly quantified and a claimant receives full compensation for that detriment, that compensation ought, in principle, to remove the foundation of the claim …’

Both approaches have their merits and their shortcomings. It is not an uncommon feature of these sorts of disputes that the quantifiable aspects of the detriment suffered by the claimant, usually in terms of many years of labour at less than the market rate, in so far as a figure can be attributed to them, are much less valuable than the land that has been promised to them. Viewed from this perspective, giving effect to the promise made to the claimant (the ‘expectation’-based approach) might be considered to overcompensate the claimant.

The alternative ‘detriment’ focused approach seeks to compensate the claimant, in so far as it is possible to do so, with a monetary award equivalent to the value of that detriment. The chief difficulty with this approach is that claimants in the position of Andrew often suffer detriment which is difficult if not impossible to quantify. How does one account for the largely unquantifiable detrimental consequences of a claimant positioning their whole life around the promises made to them, such as the missed opportunity to establish a different life for themselves?

Establishing the equity – the decision at first instance

The principles applicable to establishing that a proprietary estoppel has arisen are well established and were not the focus of the appeal. As set out by Lord Walker in Thorner v Major [2009] UKHL 18, [2009] 1 WLR 776 at [29], in order to establish that an equity has arisen in their favour, the following must be proven by the claimant:

  • a representation or assurance made by the promisor to the claimant;
  • reliance on the representations by the claimant; and
  • that the claimant has suffered detriment in consequence of their (reasonable) reliance.

At first instance in Guest, the trial judge, Judge Rosen QC, found those necessary elements to be made out in Andrew’s case ([2020] EWCA Civ 387). He concluded, in terms of the assurances made to Andrew, that, until the parties had fallen out in 2014, Andrew had been consistently led to believe by his father, with the tacit support of his mother, that he would succeed to the farming business, until about the late 1990s as the sole successor but thereafter on the basis (which was accepted by Andrew) that he would farm side-by-side with his brother, and that he would inherit a ‘substantial’ share of Tump Farm. The exact extent of Andrew’s promised inheritance was not specified, however, Judge Rosen concluded that, provided a long-standing promise or assurance existed, it did not matter that the expectation had changed over time or that there was uncertainty over the share to be given. The statements made to Andrew were considered to clear enough to amount to an assurance that he would inherit a sufficient stake in Tump Farm to enable him to carry on farming after his parents’ deaths.

Andrew was found by the trial judge to have reasonably relied on this assurance. His detrimental reliance consisted of working on Tump Farm full time over a period of over 30 years for little financial reward, even taking into account the provision of accommodation, which he would not have done if his father had not encouraged the idea of an inheritance. Whilst it was difficult to say exactly what would have happened if Andrew had gone to work elsewhere, he was a hard-working, accomplished and forward-thinking farmer, and his current situation, as a herdsman starting afresh in his 50s, provided no indication of his true worth in his 20s, 30s and 40s.

Remedy – the decision at first instance

The judge ordered David and Josephine Guest to make an immediate lump sum payment to Andrew, consisting of:

(1) 50% after tax of either the market value of the dairy farming business (as valued in an expert’s report) or the value realised by a sale of the business in consequence of the judgment; plus

(2) 40% after tax of either the market value of the freehold land and buildings at Tump Farm (again as valued in an expert’s report) or of the proceeds of sale in consequence of the judgment. In either case the farmhouse was to be treated as being subject to a life interest in favour of the parents;

(3) the amount payable to Andrew was to be net of any taxes payable (or which would have been payable) by the parents on the sale of the dairy business and/or Tump Farm.

Based upon the available expert evidence at trial, before the impact of taxation and the notional life interest, this would amount to a lump sum of c. £1.7m.

Leaving to one side the judge’s analysis of the preceding case-law, the following factual matters influenced his approach to remedy:

  • This was not a case where the assurance could have been described as being of ‘quasi-contractual’ character. The promised extent of Andrew’s inheritance was too uncertain for that. Further, Andrew had recognised his siblings’ expectations on their parents’ estate.
  • The relevant assurance was as to an inheritance on the second death of his parents, who may be expected to live for many more years yet at Tump Farmhouse. Although Andrew expected to take on the business at Tump Farm after his father’s retirement, he did not expect to acquire any interest in the land or buildings before his father’s death and Andrew had understood that the Farmhouse would remain their home for as long as his parents, or the survivor of them, wished.
  • Whilst the exercise of determining Andrew’s entitlement would involve an acceleration of his entitlement, that did not mean that the inchoate aspect of his expectation was immaterial. However, whilst the parents had dealt with the land, including leasing part of it so as to reduce the extent of the farm, the evidence supported the conclusion that it was the wish of the parents to retain the freehold, including leased parts, within their ownership and therefore the equity was to be measured against the current extent of the farm including the leased parts.
  • The falling out between the family favoured a clean break and it was not realistic to think that Andrew could continue farming at Tump Farm alongside his father or brother or return to the cottage he had previously occupied.
  • Since a clean break was required and it was likely to necessitate selling the farm or a substantial part of it to satisfy a financial award to Andrew, the opportunity for the mitigation of tax upon the death of the parents would be lost. In the circumstances of the case, Andrew should be treated as bearing his share of the taxes that would be incurred.

The decision on appeal

David and Josephine appealed to the Court of Appeal (⁠[2020] EWCA Civ 387), which granted permission only in relation to the question of the correct approach to remedy and dismissed the appeal on all grounds. Largely sidestepping the controversy around the essential aim of the doctrine, the Court of Appeal noted that in cases where there is a large but unquantifiable element attributable to loss of opportunity it will, in many cases, be just to make an award that is greater than the quantifiable aspect of the claimant’s detriment. On the facts, the Court of Appeal concluded that the trial judge had been entitled to treat this case one where, in circumstances where Andrew had largely performed his side of the bargain, it was fair to take what he had been promised ‘as a rough proxy for what he has lost’ and fashion a remedy based on his expectation. The submission that the judge had wrongly accelerated Andrew’s expectation and should not have devised a clean break solution, was also rejected.

The principle lines of attack upon the trial judge’s decision in the Supreme Court focused on the fundamental issue of whether or not the judge ought to have adopted a detriment-based remedy; the parents inviting the court to resolve the ‘lively debate’ between expectation and detriment as the aim of the remedy in favour of the latter. Secondly, the parents argued that the trial judge had in any event erred in the approach to the issue of the acceleration of Andrew’s expectation.

In a decision that speaks to the strength of that controversy, the Supreme Court by a majority (3:2 split) rejected the theory that the essential aim of the remedy for proprietary estoppel was detriment-based.

The following points of particular doctrinal importance can be distilled from the judgment of Lord Briggs (Lady Arden and Lady Rose concurring):

  • The true purpose of the remedy in proprietary estoppel cases is the prevention or undoing of unconscionable conduct. It is wrong to regard the issue of unconscionability as relevant only to the question of whether or not an equity arises, and then to leave it out of account when framing the equity [13].
  • The suggestion that the court should separately value the expectation and the detriment and then choose whichever is the cheaper remedy, referred to as the ‘minimum equity’ approach, following Scarman LJ’s famous observation about the ‘minimum equity to do justice’ in Crabb v Arun District Council [1975] EWCA Civ 7, [1976] Ch 179, is incorrect and Scarman’s dictum has been misunderstood. What Scarman LJ was concerned with in that case was how best to fulfil, but not exceed, the plaintiff’s expectation. The dictum had nothing at all to do with compensating detriment over expectation, still less choosing in any case the cheaper alternative between the two. What is meant by awarding the minimum equity to do justice, is awarding a remedy which would be sufficient to negate the unconscionability in the promisor’s repudiation of his promise (see [13], [25], [30], [33], [43] and [80]).
  • The logic of the detriment-based approach was faulty and fails to recognise that whilst detriment is necessary to engage the equitable relief in the first instance, and forms part of its moral justification, it is the repudiation of the promised expectation which constitutes the unconscionable wrong. The detriment approach to relief mistakenly treats the detriment, rather than the loss of expectation as the relevant harm. On analysis of the authorities, the notion that the aim of the doctrine is detriment-based had not taken root in the English case-law and, having concluded that it is wrong in principle, court should firmly reject the theory that the aim of the remedy for proprietary estoppel is detriment-based forms any part of the law of England (at [53] and [71]).
  • In contrast, the concept of a proportionality test, whereby the court looks at whether the proposed remedy is proportionate to the detriment suffered, has taken root as part of the assessment of whether a proposed remedy based on satisfying the claimant’s expectation works substantial justice. However, the proportionality test is no more nor less than a useful cross-check for potential injustice and is not to be applied by reference to detailed mathematical examination of, for example, wage rates or interest rates. The best summary of the test is that the remedy should not, without some good reason, be out of all proportion to the detriment, if that can be readily identified. If it cannot, as will be the case wherever the relevant detriment has had lifelong consequences, the proportionality test is unlikely to be of much use. Moreover, proportionality is not to be carried out on the basis of a purely financial comparison. Where, for example, a claimant has worked on the family farm for their whole life, working at low wages, in the promised expectation that they will inherit it, the question of proportionality is not to be answered simply by comparing the value of the farm with the value of the wage differential. Fulfilment of the expected inheritance will be proportionate in such a case where the claimant has fulfilled their side of the understanding, because it will be fair and proportionate that the parents should perform theirs (at [72] and [73]).

Pulling these strands together into helpful guidance for the courts and practitioners advising in this area, Lord Briggs posits a staged approach to assessing the remedy to be awarded (at [74]–[79]):

  • First, the court should determine whether the promisor’s repudiation of his promise was, in the light of the promisee’s detrimental reliance, unconscionable. Whilst it normally would be, there might be circumstances such as a promisor falling on hard times and needing to sell the property which would not make it unconscionable. A partial repudiation may or may not be unconscionable, depending on the circumstances.
  • The second (remedy) stage will normally start with the assumption (but not a presumption) that the simplest way to remedy the unconscionability of the repudiation will be to hold the promisor to the promise.
  • If the promisor asserts and proves (the burden being upon them) that specific enforcement of the full promise, or monetary equivalent, would be out of all proportion to the cost of the detriment then the court may be constrained to limit the extent of the remedy. This does not mean that the court will be seeking to precisely compensate the detriment, but simply to put right a disproportionality that is so large as to stand in the way of full specific enforcement. It will be a rare case where the detriment is equivalent in value to the expectation, and there is nothing in principle unjust in full enforcement of the promise being worth more than the cost of the detriment. The court is not constrained between a binary choice between giving effect to the promise or compensation based on an attempt to value the detriment.
  • Finally, the court must consider its provisional remedy in the round, against all the relevant circumstances, and ask itself whether it would do justice between the parties, and whether it would cause injustice to third parties. The yardstick for that assessment would always be whether, if the promisor was to confer that proposed remedy upon the promisee, the promisor would be acting unconscionably.

Lord Briggs acknowledged the force in the suggestion that cases consisting of a well-defined quasi-contractual promise are likely to generate the strongest case for full enforcement of the promise if the reliant detriment has been undertaken in full [77].

Cases involving future expectations, such as a promise of inheritance repudiated during the lifetime of the promisor were recognised to pose particular difficulties, particularly where a clean break is desired (at [78]). Where the remedy involves accelerated receipt, a discount may be required. This is required because a claimant can never be awarded more than their promised expectation, whether that is in terms of a simple amount or accelerated receipt. This remains the case even if the value of the detriment exceeds the value of the promised benefit, for the simple reason that it is not unconscionable for the promisor to give all that they promised but no more (at [98]).

On this latter point, the Supreme Court found that the trial judge had made an error. Whilst he had built in to his award an appropriate discount to reflect early receipt in relation to the valuation of the farmhouse, he had not done so in respect of the rest of the land and the business.

Therefore, the Supreme Court resolved that the parents would be given a choice between two alternative forms of relief. The could either settle upon Andrew a reversionary interest under a trust of the farm, with a life interest in favour of the parents, or make an immediate payment of compensation along the lines that the judge had ordered but with sufficient discount for early relief which should reflect a continuing notional life interest of the whole of the farm, not only the farmhouse. The judgment offered limited comment as to how the early discount should be calculated, but suggested that this could be undertaken on the same basis that the trial judge had considered in relation to the farmhouse. If the parties could not agree the figures or the terms of the alternative settlement, the matter would be remitted to the Chancery Division.

It is a striking aspect of the judgment that the choice of how to remedy the estoppel is effectively placed in the hands of the defendants. The right to elect between alternative remedies in most other areas of law is a matter for a claimant. Given that the Supreme Court considered that a reversionary interest under a trust would have satisfied Andrew’s equity equally as well as a clean break capital award, an approach which has the merit of avoiding the difficulties of discounting for accelerated receipt or the need for an immediate sale (subject to the issue of needing to raise funds to meet costs and any taxation potentially arising upon the settlement), it may be anticipated that such a solution is more likely to be adopted in subsequent cases involving the repudiation of a future expectation.

The dissent itself is interesting reading. Lord Leggatt (with whom Lord Stephens agreed) emphatically disagreed with the majority, being of the view that the fundamental purpose of the doctrine (which he suggested should be rebranded ‘property expectation claim’ on the basis that estoppels can only be a defence) was to avoid the detriment which would otherwise occur to the promisee based on their reasonable reliance on the promise (at [189]–[190]). He regarded the alternative approach, whereby the court must decided whether or not to enforce the promise and if not what alternative remedy to grant as arbitrary, and as replacing legal principle with ‘the portable palm tree’ [181].

Of likely greater interest to the practitioner, however, is the appendix in which Lord Leggatt sets out his assessment of what he would have considered to have been a just award of compensation in this case; a sum of £610,000. The analysis focuses on the value of Andrew’s lost earnings and also the correct approach to interest, which Lord Leggatt considered ought to be compounded to compensate Andrew’s lost opportunity to do something with those earnings.

Notwithstanding the Supreme Court’s emphatic rejection of detriment as the fundamental aim of remedying proprietary estoppel, in most cases, both sides of the dispute will still need to estimate the value of the quantifiable aspects of the claimant’s detrimental reliance. From the claimant’s perspective, establishing that there has been some sort of substantial detrimental reliance is an essential element of the doctrine. An attempt to assess the value of the detriment is also required when it comes to consideration of the question of proportionality, although now with the understanding that this is not merely a financial comparison, and there will be claims where it will not be appropriate to award the claimant’s expectation and where the value of the detriment will be likely to be the focus (but not necessarily the ceiling) in fashioning a remedy. Lord Leggatt’s methodology in the appendix provides a useful insight into how this might be approached.

There is no doubt that the decision in Guest v Guest represents the most important development in the law since the House of Lords considered the doctrine in Thorner v MajorThorner did much to clarify the essential elements required to raise a proprietary estoppel-based claim but offered slim pickings in terms of understanding the correct approach to relief. Whilst there remain areas of uncertainty and difficulty, Guest v Guest goes a long way to providing practitioners and the courts with a much clearer roadmap to assessing the correct approach to remedying proprietary estoppel claims.

An earlier version of this article appeared in the Spring 2023 edition of the Financial Remedy Journal