Suggested Answer to Exercise 12.4 (Part 3)
A Detailed Answer Plan
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Can Ajay enforce the arrangement against William? Only if there is a valid contract. The requirements for a valid contract for the sale of land are set out in s.2 Law of Property (Miscellaneous Provisions) Act 1989 (‘the 1989 Act’).
If there is a valid contract, the equitable interest in the house passed to Ajay on exchange. In such circumstances the court would normally be expected to order William to specifically perform the contract. William’s solicitors are wrong about needing a deed.
If the contract is void because it fails to satisfy s.2 of the 1989 Act, Ajay’s repairs cannot make it valid (see United Bank of Kuwait Plc v Sahib  Ch 107 and Yaxley v Gotts  Ch 162). However, it may be possible for Ajay to establish an interest in land using the equitable doctrines of estoppel and constructive trusts. There is some doubt, however, that estoppel is available in these circumstances.
Section 2(1) of the 1989 Act provides that a contract ‘for the sale or other disposition of land’ will only be valid if the conditions set out in section 2 are satisfied.
This is a contract for the sale of land to which the 1989 Act applies. Reference to contracts being exchanged suggests this was not a sale by public auction (exempt under section 2(5)(b)).
The question does not state whether the written contract contained all the expressly agreed terms, or whether the two parts of the contract are identical (as required by section 2(1)). More fundamental is that Ajay never signed his part of the contract. Was it signed by someone else on his behalf? If not, the contract is void as it fails to comply with section 2(3).
If there is no valid contract, Ajay cannot ask for specific performance (see Chadwick LJ in Bircham & Co Nominess (2) Ltd v Worrell Holdings Ltd (2001) 82 P&CR 427 at ) Neither does the old doctrine of part performance survive the 1989 Act see United Bank of Kuwait Plc v Sahib  Ch 107). However, Ajay may be able to rely on alternative doctrines to establish that William must still transfer legal title to the house. The Law Commission, in the report that preceded the 1989 Act, expected the remedy of proprietary estoppel to be available. Another possibility is for Ajay to establish that the events give rise to a constructive trust in his favour (see s.2(5)).
There are three man elements to establishing an estoppel:
- a representation or assurance
- upon which the claimant has relied
- to his or her detriment
(see Thorner v Major  1 WLR 776 at  and ). Consequently, ‘where one person, A, has acted to his detriment on the faith of a belief, which was known to or encouraged by another person, B, that he either has or is going to be given a right over B's property, B cannot insist on his strict legal rights if to do so would be inconsistent with A’s belief’ (per Edward Nugee QC, Re Basham  1 WLR 1498, at 1503).
Did Ajay expect an interest in the land? Yes – he believed he had an equitable interest and would receive legal title to the house.
Did Ajay act to his detriment in reliance upon this expectation – is there sufficient link (see Greasley v Cooke  1 WLR 1306). Almost certainly – there is no evidence to suggest that he was carrying out the repairs for any other reason.
Did William encourage Ajay – or acquiesce in Ajay’s error? Would it be unconscionable for William to refuse to honour Ajay’s expectation Provided that William knew that Ajay had begun repairs, this requirement seems to be satisfied.
Is Ajay entitled to a remedy? There is considerable doubt whether proprietary estoppel alone can provide a remedy in this type of situation – in Cobbe v Yeoman’s Row Management Limited  1 WLR 1752, Lord Scott expressed his concerns that the effect was to render effective an agreement that Parliament (in the 1989 Act) had declared void. In that case the House of Lord’s held that there could be no estoppel as the agreement was incomplete, and all the parties knew that it was not legally enforceable. This case differs from Yeoman’s Row in that both parties believed the contract to be valid. However, the concerns of Lord Scott remain. In Yaxley v Gotts  Ch 162 (where Robert Walker LJ expressed similar concerns to those of Lord Scott), the Court of Appeal was able to avoid the problem by holding that the estoppel gave rise to a constructive trust. Constructive trusts are specifically excepted from the requirements of section 2 of the 1989 Act by section 2(5).
In this case the court might be prepared to impose a constructive trust, subject to Ajay paying William the balance of the purchase price. However, this is an equitable remedy. The balance of unconscionability is not entirely in Ajay’s favour – Ajay (or his legal advisors) alone seems to be responsible for the invalidity of the contract. The court may feel that it would be more appropriate to allow Ajay to recover damages (to prevent William unduly benefiting from Ajay’s error) rather than giving a proprietary remedy.
Make sure that you have advised Ajay. There seems little doubt that the contract is invalid. The main issue, therefore, is what, if anything, he is entitled to receive to satisfy any equitable interest he may have acquired.