In this series of articles, we aim to highlight 3 of the most interesting cases in our field decided in the past month. This month, we’ve opted for cases on: cause of action estoppel, champerty, and the requirement for detrimental reliance for common intention constructive trusts.
However, some of our colleagues have highlighted some of the other important cases this month: Cecily Crampin and Thomas Rothwell covered Axnoller Events Ltd v Brake [2022] EWHC 459 (Ch) on the circumstances in which it is possible to obtain an order for possession forthwith; Greville Healey covered Quay House Admirals Way Land Ltd v Rockwell Properties Ltd [2022] EWHC 545 (Ch) about the Court’s inherent jurisdiction to remove restrictions from the register; and Oliver Radley-Gardner QC posted about The Counsel General for Wales, R (On the Application Of) v The Secretary of State for Business, Energy and Industrial Strategy [2022] EWCA Civ 181 and appropriate handling of embargoed judgments. Regular readers may remember that we covered another recent case on this topic last month.
Summary
The High Court struck out a claim on the basis that there was a cause of action estoppel between the parties.
The Patels were the owners of a GP’s surgery, which they leased to the Bhats; the parties were involved in a medical partnership. The Patels purchased a piece of adjoining land, and built an extension to the surgery primarily on that adjoining land. The Bhats contributed towards the cost of the extension.
The Bhats fell into arrears of rent and the Patels brought a claim for forfeiture. The Bhats brought separate proceedings, later consolidated as a counterclaim in the forfeiture proceedings, claiming they had an interest in the adjoining land on the basis of, among other things, a common intention constructive trust or proprietary estoppel. The Recorder at trial held that the Bhats’ lease did not extend to the adjoining land, and that they had no beneficial interest in that land. He ordered possession of the adjoining land and forfeiture of the lease, and refused relief from forfeiture.
An appeal against the Recorder’s order failed, other than in respect of relief against forfeiture. The appeal judge commented that the counterclaim had not been advanced at trial on the basis that the partnership would be entitled to occupy the extension for some period of time in return for contributing to the cost of it, be that on the basis of a contractual licence or otherwise.
The Bhats brought fresh proceedings, alleging that there was an agreement for the partnership to operate from the whole centre for at least 15 years, and seeking specific performance of that agreement and alternatively a refund of money contributed to the extension.
The High Court struck out the specific performance claim on the basis that there was a cause of action estoppel: the fact that the relief sought was different did not prevent a cause of action estoppel arising where the cause of action was the same as in the earlier proceedings (proprietary estoppel).
The claim for a refund was also struck out because, although no estoppel operated in relation to it, it would be difficult to separate out this allegation from the specific performance claim.
Why it’s important
This case is a useful illustration of cause of action estoppel and reminder of the differences between cause of action estoppel (where the cause of action relied upon is the same), issue estoppel (where the facts alleged are contrary to facts found in the previous proceedings) and an estoppel under the doctrine in Henderson v Henderson (where the issues could and should have been, but were not, raised in the earlier proceedings).
It also contains a salutary reminder of the value of careful pleading: the judge struck out the claim to a refund on the basis that the claim form and particulars of claim were ‘too much of a mess’ for it to be easily disentangled.
Summary
The Court of Appeal held that a firm of solicitors could not take an assignment of a cause of action from a client for whom it had been acting in litigation.
The appellant solicitors’ firm had been acting for a client in litigation about development land beginning in 2013, on the basis of a damages-based agreement under which the solicitors’ firm would receive a percentage of the proceeds instead of being paid on a time charge basis.
Against the background of an anticipated bankruptcy petition, the client executed an assignment of his causes of action against the defendant to the solicitors’ firm, and shortly thereafter unexpectedly died.
The solicitors’ firm applied to be substituted as the claimant in the development land litigation. The judge at first instance dismissed that application on the grounds that the assignment was champertous, and the Court of Appeal upheld that decision.
Why it’s important
The judgment of Arnold LJ, with whom Simler and Philips LJJ agreed, highlights 3 separate common law rules which were relevant: first, the rule that a bare cause of action can only be assigned where the assignee has a genuine commercial interest in enforcing the claim; secondly, there is a rule that a solicitor who has the conduct of litigation may not take an assignment of the cause of action prior to judgment; and thirdly, the rules against maintenance (supporting litigation in which they have no legitimate concern without just cause) and champerty (supporting litigation in return for a share of the proceeds). Here, the agreement fell foul of the second rule. It also fell foul of the third rule, which remained in full force save in so far as statute had abrogated it. Here, it was not suggested that this was a damages-based agreement as permitted under the Solicitors Act 1990. While these conclusions made it unnecessary to conclude whether the assignment was offensive to justice, as the judge below had done, the Court of Appeal indicated that it could see merit in the judge’s concerns relating to the purity of justice.
The unsuccessful appellant has stated an intention to apply for permission to appeal to the Supreme Court.
Summary
The High Court held that in a ‘domestic consumer’ context, for a party to demonstrate an increase in their beneficial share of a property under a common intention constructive trust, there is no need to show detrimental reliance on the agreement, nor to show an irrevocable change of position.
The parties had been an unmarried couple, and owned a house in their joint names. This gave rise to a presumption (which was not rebutted) of a beneficial joint tenancy at the time of purchase. Following the end of their 19-year relationship, they came to an agreement between themselves about the division of their various assets. Under that agreement, the respondent would receive all the beneficial interest in the house. However, the parties’ agreement did not meet formalities requirements; establishing a change in beneficial ownership therefore required a constructive trust or proprietary estoppel.
The appellant brought a claim under the Trusts of Land and Appointment of Trustees Act 1996 seeking an order for sale of the house and equal division of the proceeds. The respondent was successful at trial on the basis that she had relied on the parties’ common intention to her detriment and established a common
intention constructive trust under which she was entitled to 100% of the beneficial interest. The appellant appealed against that conclusion. The respondent cross-appealed, arguing that in the domestic consumer context, there is no need to show detrimental reliance in order to establish a common intention constructive trust.
Dismissing the appeal, Kerr J held that there is no requirement in a joint names “domestic” case for detrimental reliance in order to change the shares: the shares will vary if the common intention changes and it would be unconscionable for one party to deny the new arrangement. Unconscionability, it was said, can arise from the fact that an agreement which was not a gratuitous promise was broken, even if there was no detrimental reliance.
Why it’s important
This is an important decision interpreting the House of Lords’ decision in Stack v Dowden [2007] UKHL 17 and the Supreme Court’s revisiting of the principles in Jones v Kernott [2011] UKSC 53, the outcome of which will come as a surprise to some.
This was a ‘joint names’ case, i.e. where the property had been bought in the names of both partners. While the judge was of the view that in both ‘joint names’ and ‘sole name’ cases, the court’s task is to search for evidence to rebut the presumption that equity follows the law, the manner in which a constructive trust is established and the evidence needed to demonstrate that may differ across the two kinds of cases. Thus the precise “reach” of this case remains to be determined.
STEPHANIE TOZER Q.C