Proprietary estoppel: a review of the Supreme Court decision in Guest v Guest
The Supreme Court has now handed down its judgment in the case of Guest v Guest.
On 19 October 2022, the Supreme Court handed down its judgment in the case of Guest v Guest. This was a long-awaited decision for lawyers dealing with claims of this nature as there have been many conflicting opinions as to how the law should be interpreted.
The background to the case concerned the ownership of Tump Farm which was a working dairy farm that had been owned and run by members of the Guest family for many years. The farm was purchased by David Guest and his wife in the early 1960s. The couple had two sons (Andrew and Ross) and a daughter (Jan).
In 1981, David Guest, and his wife, Josephine Guest, prepared wills stating that their two sons would inherit Tump Farm in equal shares with a small pecuniary legacy left for Jan. This was in the expectation that the two sons would work on the farm after leaving school.
In 1982, Andrew (the oldest son) started to work full time at the farm and received a basic wage. Andrew lived in one of the cottages located on the farm and undertook a significant amount of training, which contributed to the development and success of the farm.
Andrew claims that he was told that he would inherit the farm and the farming business. When his younger brother later became involved in the farming business, he accepted that the farm would be shared with his brother.
There was a disagreement within the family and relations began to deteriorate. In 2014 David and Josephine prepared new wills removing Andrew as a beneficiary. The farming partnership was dissolved in 2015 and Andrew was asked to vacate the property which he lived in on the farm.
The result was an application to the High Court for proprietary estoppel by Andrew. By the time of the High Court action, Andrew had dedicated over 30 years of his life working at the family farm. Andrew alleged that the work was for a basic wage but he had an expectation of inheriting half of the farming business.
The High Court case
In the High Court, the judge found that an assurance was given by the parents through a series of conversations over the course of more than 30 years. The court found that there was a clear enough assertion that the inheritance for the farm would be split between Andrew and his younger brother and found that reliance on the assurance caused a detriment as Andrew worked hard to develop Tump Farm. It was found that he had not only carried out day to day tasks, but he had also developed the efficiency of the farming practices on the farm which he thought he would eventually inherit.
The judge found that the claim for proprietary estoppel was established and decided that a “clean break” remedy should be provided. This meant that the farm would have to be sold in order for a lump sum to be paid to Andrew. The lump sum calculated would be 50% of the farming business, and 40% of the farmland and buildings on the farm. This broadly reflected the terms of David’s 1981 will which had been revoked.
The Court of Appeal case
The remedy was appealed in the Court of Appeal with Andrew’s parents arguing that the relief provided should have been based on what the parents had intended, rather than Andrew’s expectation. The appeal submitted that the relief went beyond what was necessary to avoid an unconscionable result. It was also argued that the relief should not have been granted whilst the parents were alive and should be triggered on the death of the second parent. This was on the grounds that Andrew’s expectation was only ever to inherit upon the death of both his parents.
The Court of Appeal disagreed and found that a clean break solution had been found to be necessary in a number of farming cases, and given the extent of the deterioration in the relations between the parties, a clean break was the only reasonable solution that could be found. The Court of Appeal dismissed the appeal, and the issue was referred to the Supreme Court in December 2021 with a judgment being handed down on 19 October 2022.
The Supreme Court decision
Andrew’s claim was based on the equitable remedy of proprietary estoppel. To succeed in a claim based on proprietary estoppel there needs to have been:
- a promise, assurance or representation made by the defendant to the claimant;
- demonstration by the claimant that they relied on that promise to their detriment.
If the claimant can show that there was a promise, and that they placed reliance on it to their detriment, then they will have shown their entitlement to a remedy. The remedy is often an interest or share in the property the promise related to, holding the defendant to the promise they had made and making the necessary orders to achieve this. Practically, however, this is not always possible nor, necessarily on the facts of the case, seen as achieving fairness.
The principles behind the quantification of Andrew’s entitlement were one of the issues concerning the Supreme Court in this case; do you seek to compensate the claimant to the full value of the promise that was made, or would it be more equitable to put them back in the same position as if they had not relied on the promise to begin with? Depending on the facts, those two figures could be wildly different. Could both these approaches be flawed?
Another consideration was the fact that the promise Andrew relied on was a promise of receiving a share in the farm and farming business in the future i.e. when his parents’ died and how an award that was being accelerated, i.e. being received prior to anticipated under the promise should be adjusted. This would allow Andrew to receive a share in the farm that, for a plethora of reasons, might not be in his parents’ gift to give at the time of their death.
Lord Briggs found that the focus should first be whether going back on the promise made was unconscionable. If so, the simplest remedy was to enforce the promise unless this was not possible in the circumstances. The court should then consider whether this remedy was disproportionate to the detriment suffered by the claimant.
Lord Briggs did not find that compensation should be limited to the detriment suffered but it should be used as a cross check. He acknowledged that ‘acceleration’ should lead to a discount in the award made. The last question for the court was whether the remedy the court proposed served justice in the given set of circumstances.
The Supreme Court largely followed the Court of Appeal’s decision to provide Andrew with an immediate interest in the farm under a clean break settlement. The court decided that this could be achieved by putting the farm into trust for Andrew with a life interest in his parents’ favour, or by Andrew receiving an immediate payment of compensation (with a discount for the early receipt). Interestingly the court determined that the parents should choose which remedy they wanted to adopt.
The judgment may not resonate well with those keen to uphold testamentary freedom. The first remedy Lord Briggs proposed was putting the farm into trust (therefore fettering David’s discretion to dispose of his assets as he chooses under his will). However, the alternative approach in the form of an accelerated, discounted payment would probably result in the farm being sold but it would provide a clean break and a fresh start for each party.
The real question arising from the case, however, should be how to avoid the distress, cost and uncertainty of prolonged court proceedings where, even after establishing the claim, there is a complexity and discretionary element from which only lawyers will benefit.
How to avoid a dispute
In the case of family businesses, it is unfortunately always wise to provide for the unimaginable:
- ensure that expectations are clear and that there are frank, open conversations as to what is expected of family members within the business and how their remuneration is quantified and guaranteed;
- if part of the work you are undertaking for a family member is to be paid for by a future interest in the property or business and that this is taken into account within the actual pay being received, ensure all parties understand how that interest is quantified, protected in all scenarios;
- is it appropriate to enter into a partnership agreement;
- would a transfer of shares in the family business be appropriate and should there be a shareholders’ agreement relating to the same;
- should there be an outright transfer of residential property or real estate to reflect the agreement reached;
- could putting property into trust provide protection;
- should there be a formal employment contract making clear remuneration, hours, duties and responsibilities;
- are pre or postnuptial agreements required to protect the wider family interests;
- are the relevant family members’ wills up to date, with letters of wishes explaining the testator’s intentions and reviewed regarding the risk of claims under the 1975 Inheritance Act;
- has tax planning been fully considered in relation to the arrangement.
If you would like a better understanding of your own circumstances in relation to these issues, please contact Weightmans for specialist advice on bringing a claim for proprietary estoppel or mitigating the possibility of a claim arising in relation to your property or business.
For more information on this case or its implications, contact our will dispute lawyers.