England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CENTRAL LONDON CIVIL JUSTICE CENTRE
MR RECORDER DIGHT
CHY06467

		Royal Courts of Justice Strand, London, WC2A 2LL
		11/07/2008

Lord Justice Mummery :

1. This appeal is from a decision applying the doctrines of proprietary estoppel and constructive trust to dealings between the parties about a long lease of residential property acquired by a council tenant in the exercise of his statutory right to buy.
2. The order under appeal was made by Mr Recorder Dight on 3 October 2007 following a 3 day trial. He declared that the appellant council tenant, Mr John McGuane, has at all material times held the 125 year lease (the Lease) of 6A Hargrave Park London N19 (the Property) on trust for the respondent, Mr Christopher Welch. The order contained a direction that Mr Welch was obliged to indemnify Mr McGuane against all mortgage interest, expenses, council tax and other outgoings in respect of the Property since 11 March 2002, that being the date on which Mr McGuane signed a written declaration of trust of the Lease for Mr Welch and a deed of transfer of the Lease to take effect 3 years later.
3. Although the declaration of trust and the deed of transfer were not stamped, the judge admitted copies of them in evidence. He accepted an undertaking by Mr Welch to the court (by 3 February or such further time as provided for in the order) to lodge with HM Land Registry the deed of transfer (properly stamped) of the residue of the Lease in order that Mr Welch might be registered as proprietor. The time for compliance was extended pending this appeal.
4. Permission to appeal was granted on 25 January 2008.
5. On the hearing of the appeal, as in the court below, Mr Adrian Jack appeared for Mr McGuane and Mr Welch appeared in person.

Background

6. From about 1992 Mr McGuane was a secure tenant of the Property holding under a tenancy from the London Borough of Islington (the Council). He had not worked for 27 years. He received incapacity benefit continuously from 1980. Housing benefits paid the rent.
7. Mr McGuane executed in favour of Mr Welch, who was neither a relative nor a friend of his, a declaration of trust of the Lease and a deed of transfer (Land Registry Form TR1). The declaration of trust was dated 11 March 2002. The deed was undated. Both documents were witnessed by Ms Anderson with whom Mr McGuane then co-habited in her flat nearby. A month later (12 April 2002) he executed an enduring power of attorney, witnessed by Ms Anderson, giving Mr Welch general authority to act on his behalf in relation to all his property and affairs. It remained in force until revoked by Mr McGuane in April 2004.
8. What was going on? Like the judge, we have looked at the copies of the unstamped documents. According to the declaration of trust Mr Welch had provided all of the consideration (£47,000) for the purchase of the Lease from the Council. The parties agree that this statement was incorrect, as was the statement in the deed of transfer that Mr McGuane had received from Mr Welch the sum of £47,000 for the Property.
9. According to a manuscript attendance note dated 29 August 2000 a firm of solicitors, May & Co of Colindale, attended Mr Welch in conference. The heading of the note stated that Mr McGuane was the client. Mr McGuane never met anyone from the solicitors. They did not speak to him or advise him directly about any of these matters. Mr Welch told this court that he thought that the solicitors were acting for him (Mr Welch). The note states-

"Mr McGuane a close relative of Mr Welch's wife wished to purchase his Council property but as he was in Ireland at various addresses Mr Welch was to deal with the matter and any documents he would take out to Ireland for signature by McGuane.

Mortgage arranged with I Group. In addition Mr Welch lending McGuane £20,000. Declaration of trust and Power of Attorney and blank transfer deed in favour of Mr Welch.

Mr Welch known to Mr May as working in travel agents next door for 10 years. No previous transactions conducted for Mr Welch."

10. Most of the statements in that attendance note were untrue. Mr McGuane was not a close relative of Mrs Welch. Mr Welch and Mr McGuane met in quite different circumstances. After he lost his job with a travel firm, Mr Welch began working on a commission basis as National Sales Manager for a company called Mayfair Investments (UK) plc (Mayfair), which is not mentioned in the note. Mayfair assisted council tenants to exercise their right to buy by acting as an intermediary helping them to deal with the formalities. It also introduced them to mortgagees, who would pay commission if they got mortgage business through Mayfair. Mr McGuane received one of Mayfair's flyers about its services and contacted Mayfair about exercising his right to buy. That is how he came to meet Mr Welch.
11. Mr McGuane did not live in Ireland. He lived in Islington. Mr Welch did not lend him £20,000. Mr Welch's case at trial was that Mr McGuane agreed to sell the Lease to him, that he paid Mr McGuane a cash sum of £15,922.84 as part of the price and that he agreed to pay off the mortgage which he obtained for him. The judge rejected Mr Welch's explanation that the solicitors had either invented the information in the attendance note or, unknown to him, had been in contact with Mr McGuane. The judge inferred that the false information in the note came from Mr Welch "in an attempt to smooth the passage of the transaction as a misguided form of expediency."
12. What was the transaction involving Mr Welch and Mr McGuane, who, the judge found, was "under no illusions as to [its] true nature"? Although the solicitor's attendance note made no mention of an agreement for the sale of the Lease to Mr Welch, the judge found that Mr McGuane agreed to sell the Lease to Mr Welch for £27,000. Their intention was that "Mr McGuane would have a lump sum and Mr Welch was to have the new Lease and all the liabilities under it." Although, as the judge said, neither Mr McGuane nor Mr Welch had a complete understanding of what the documents meant or their precise part in the conveyancing transaction, they both intended and understood that Mr Welch was buying Mr McGuane's interest in the Property and that the documents were to give effect to that purchase within the framework of the "right to buy" legislation. The judge found that Mr McGuane's wish was to realise the value of his right to buy by selling his interest to Mr Welch. Before he met Mr Welch he had been comparing possible offers for his interest in the Property. He regarded Mr Welch as a potential investor in his interest in the Lease.
13. Mr Welch was to arrange the mechanics of the sale. Mr McGuane would buy the Lease from the Council at a discount in exercise of his right to buy. His purchase would be financed by a loan of £60,000 by IGroup Mortgages Limited. The loan was secured by a mortgage on the Lease and repayable over 300 months at the rate of £400 a month. Mr Welch would make an immediate cash payment to him for the Lease. Mr McGuane would, however, hold the Lease in his name for 3 years in order to avoid re-payment of the discount to the Council. Mr Welch agreed to assume the liability under the mortgage, though he did not enter into a covenant to that effect or give any guarantee of the mortgage to IGroup. The legal documents for the transactions were prepared by and on the advice of Mr May, on the basis of information supplied to him by Mr Welch. On Mr McGuane's behalf Mr May dealt with both the Council and IGroup.
14. On 1 February 2000 Mr McGuane exercised the right to buy the Lease under the provisions of the Housing Act 1985. Completion took place on 11 March 2002. The premium of £47,000 paid to the Council for the 125 year Lease commencing on 25 December 1985 was discounted by £38,000 from the price fixed by the Council at £85,000. According to a valuation obtained on behalf of the mortgagee the open market value of the Lease was estimated to be about £100,000 at the time of completion. The equity was therefore worth about £53,000. (We are told that the Lease is now worth around £200,000). On completion Mr McGuane received from the solicitors a cheque dated 18 March 2002 for £11,077.16. That was the balance of the sum advanced by IGroup after payment of the premium, costs and expenses. This was confirmed in May & Co's completion statement. At trial the judge rejected Mr McGuane's evidence that this was all that he received. The judge found that he had also received a cash sum of £15,922.84 from Mr Welch. In total Mr McGuane received £27,000 for a Lease, which was sold to him by the Council at a discounted price of £47,000 and was estimated to be worth £100,000.
15. On 20 May 2002 Mr McGuane was registered at HM Land Registry as the proprietor of the Lease. Mr Welch spent money on doing up the Property. A considerable amount of work was done to it at a cost of about £10,000. He did some of the work. He also paid builders to do work on the Property. From April 2003 Mr Welch let the Property for £700 a month to a Mr Dickenson, who taught at the school where Mrs Welch worked as an administrator. The tenancy agreement stated that Mr Welch was the landlord. Out of the monthly rent received by him Mr Welch paid IGroup £400 per month due under the mortgage. Mr Welch retained the monthly balance of £300.
16. On 15 July 2005 IGroup started possession proceedings against Mr McGuane on the ground that there were unpaid arrears of £1,572.60. Mr McGuane had revoked the enduring power of attorney in April 2004. He notified IGroup that it should no longer accept payment of instalments from Mr Welch, but from him. IGroup did not accept any further payments from Mr Welch, but the instalment payments were not kept up by Mr McGuane.
17. As Mr Welch has now fully paid off the mortgage IGroup has taken no further part in the proceedings. The Council were parties to the proceedings for a time, but were then dismissed from them. The Council have recently notified the parties that the discount is repayable if there was a disposal of the Lease within the meaning of clause 3(11) of the Lease. We are told that both parties dispute the Council's entitlement to a refund of the discount. This issue was not investigated at the trial or on this appeal. Nor was any question of the propriety of the arrangements entered into by the parties.
18. In IGroup's proceedings against Mr McGuane and Mr Welch the dispute shifted from the claim for possession to the issue of the beneficial ownership of the Lease raised in Part 20 claims and counterclaims. Mr McGuane denied receiving the cash payment of £15,922 from Mr Welch. He challenged signed receipts produced by Mr Welch. He sought to have the transaction set aside on the ground that he was "a poor and ignorant person" who did not understand what was going on and had been taken advantage of, and on the ground that the execution of the documents was procured by undue influence.
19. The judge rejected Mr McGuane's evidence and his case. He preferred and accepted the essence of the evidence given by Mr Welch and his witnesses, Mrs Welch and Mr Dickenson. He received secondary evidence of the unstamped documents. By application of the doctrines of constructive trust and proprietary estoppel to the facts found by him he held that Mr McGuane held the Lease on trust for Mr Welch.

The issues

20. There are two main issues on the appeal. The first is whether the judge was wrong in receiving secondary evidence of the unstamped documents. The second is whether the judge was wrong in holding that, by virtue of the doctrines of proprietary estoppel and constructive trust, Mr Welch was entitled to be registered as sole proprietor of the Lease in place of Mr McGuane. Mr Adrian Jack submitted that the judge was wrong on both issues.
21. Before turning to the arguments on those issues, other matters detailed in Mr Jack's skeleton argument should be mentioned. For reasons given below, it will not be necessary to express a concluded view on all of them.
22. First, Mr Jack accepted that Mr Welch was entitled to be indemnified for expenditure by him on the acquisition, refurbishment and maintenance of the Property, subject to giving credit for the balance of the rents received and retained by him.
23. Secondly, Mr Jack submitted that the judge wrongly rejected (1) the case for setting aside the declaration of trust and the deed of transfer as the acts of "a poor and ignorant man" entering into a sale at a considerable undervalue without independent advice relying on the judgments of Megarry J in Cresswell v. Potter (1968) [1978] 1 WLR 255n and of Balcombe J in Backhouse v. Backhouse [1978] 1 WLR 243; and (2) his client's evidence relating to the receipts produced by Mr Welch. Mr Jack challenged the findings of fact by the judge on the basis that he had not paid proper regard to the evidence. It was argued that he had discounted relevant documentary evidence, including medical evidence about Mr McGuane's health problems, ignored evidence of Mr Welch which suggested that he was lying, failed to draw inferences from Mr Welch's non-production of original documents and wrongly stated that Mr McGuane had accepted as genuine alleged signed receipts for cash payments by Mr Welch. The judge was criticised for not referring to an attempt by Mr Welch in 2004 to instruct another firm of solicitors (Simmons) to act on behalf of Mr McGuane to pay off the mortgage.
24. The attempts to set aside the declaration of trust and the deed of transfer on the grounds of vulnerability and undue influence failed on the facts found by the judge. Mr Jack's challenge to the judge's treatment of the evidence and his findings of fact faced formidable difficulties in view of the judge's views on the credibility of the witnesses. In my judgment, this appeal turns on whether the judge was wrong in holding that Mr McGuane held the Lease for the benefit of Mr Welch by virtue of the doctrines of constructive trust or proprietary estoppel and the criticisms of the judge's decision on that question can be dealt with on the basis of the facts found by the judge.
25. Additional claims by Mr Welch for rectification of the declaration of trust and the deed of transfer were rejected by the judge. There are no grounds for interfering with that part of his decision.

The documents

26. The original declaration of trust and deed of transfer were not produced to the court by Mr Welch. The judge was supplied with copies of the declaration of trust and the deed of transfer, which were included in the trial bundle. The judge was obviously entitled to look at the copy documents to see if the original documents had to be stamped and, if so, whether they were properly stamped. He found that they were not properly stamped, holding that the deed of transfer was the real instrument on sale on which Mr Welch relied to carry the terms of the declaration into effect and that would have to be duly stamped reflecting the total consideration of £75,922.84 before it could be used to effect registration of the Lease in Mr Welch's name at HM Land Registry.
27. In my judgment, the position is that the declaration of trust required to be stamped as an instrument by which an interest in property was, on being sold, vested in the purchaser or in another person on behalf of or at the direction of the purchaser: Finance Act 1999 Schedule 13 (Transfer on Sale) paragraphs 1(2) and 4. Ad valorem duty of 1% was payable, plus interest and penalties for late stamping. As Mr Welch had not paid the stamp duty on the declaration of trust or the deed of transfer and there was no undertaking to the court by a solicitor, as an officer of the court, to pay it (see Re Coolgardie Goldfields Ltd [1900] 1 Ch 475 on the established practice of the court) neither of the documents, though valid, could be "given in evidence, or be available for any purpose whatever..": section 14(4) Stamp Act 1891. These wide words have been construed as precluding secondary evidence of unstamped documents, whether in the form of copies or by reference to their recitals or by oral evidence of their contents: Re Brown & Root McDermott Fabricators Ltd [1996] STC 483; Parinv (Hatfield) Ltd v. IRC [1996] STC 933. The undertaking given by Mr Welch to the court did not make inadmissible evidence admissible in the proceedings. It follows that, as neither document was stamped, Mr Welch was unable to establish a beneficial interest in the Lease by means of them or of secondary evidence of them.
28. The judge's approach was that because both parties had given evidence as to the documents he was entitled to make findings of fact in relation to the transaction which underlay it without admitting in evidence the document itself. He said (paragraph 49):

"In my judgment the Deed of Trust and the evidence given in relation to it clearly demonstrate the truth of my principal factual finding that Mr McGuane intended to sell his interest in No 6A and in the Lease (once granted) to Mr Welch and divest himself of all interest in it."

29. As appears from this passage the judge treated the Deed of Trust and secondary evidence of unstamped documents as admissible on the issue of beneficial ownership of the Lease. This was wrong.

Equitable claims

30. The judge went on to hold that, even if the declaration of trust and the deed of transfer were not admissible in evidence, the doctrines of constructive trust and proprietary estoppel applied to the facts found by him on other evidence.
31. He found as a fact that they intended and agreed that Mr McGuane would sell his interest in the Lease, that he would divest himself of all interest in it and that Mr Welch should be the owner of the Lease. In reliance on that agreement and encouraged by the belief that he would own the Lease, Mr Welch took steps which he would not have taken, if he had not had that belief. Those steps were to his detriment: he paid a substantial sum of cash to Mr McGuane for the Lease; he agreed to pay Mr McGuane's mortgage and in fact did so; and he refurbished the Property at his expense. The judge said:

"In my judgment he should therefore be treated in equity as the owner of the Lease and to hold otherwise would offend the conscience of the court."

32. The judge cited the well known statement of the relevant legal principles from the judgment of Oliver J in Taylor Fashions Ltd v. Liverpool Victoria Trustee Co Ltd [1982] QB 133. He also cited the judgments of Robert Walker LJ in Yaxley v. Gotts [2000] Ch 162 and Jennings v. Rice [2003] 1 P & CR 100. He held that the estoppel did not defeat the purpose of the Stamp Duty legislation. He did not have to rely on the unstamped documents to reach his conclusions. The appropriate duty would be paid when Mr Welch sought to register the transfer, which was in accordance with the real purpose of section 14 of the Stamp Act 1891. He said that the detriment suffered by Mr Welch supported his conclusion that it would be "unconscionable for Mr McGuane to disregard Mr Welch's rights." Mr Welch was taking all the commercial risk and financial responsibility.
33. Mr Welch submitted to this court that the judge was right. Mr McGuane did not want the benefit of the Lease or the burden of the mortgage. He wanted money instead. Mr McGuane knew what the deal was: he got what he wanted money and he, Mr Welch, should now have what Mr McGuane knew he wanted - the Lease as an investment. As Mr Welch had done what he had agreed, he should have a transfer of the Lease. Mr McGuane had changed his mind. He now wanted to keep the Lease, though he was not living in the Property. He was exploiting the situation to get more money.
34. Mr Welch's point of view is fully understood, but I am unable to agree with him that the judge was right to order the transfer of the Lease to him, either on the basis of a constructive trust or by reason of proprietary estoppel.
35. As for the constructive trust claim, there was no basis for the judge's conclusion that, from the date of execution of the Lease, Mr McGuane held it on constructive trust for Mr Welch absolutely (see paragraph 52). A constructive trust could not be properly inferred or imposed by the court as, to do so, was inconsistent with the express agreement of the parties that the Lease would be held by Mr McGuane on an express trust for him for a period of 3 years after which the deed of transfer of the Lease to Mr Welch would take effect. The terms of the express agreement made by the parties covered the situation and left no space for the insertion of a constructive trust.
36. As for proprietary estoppel, the judge wrongly treated the doctrine as requiring him to order the transfer of the Lease to Mr Welch.
37. I agree that the absence of a written agreement for sale is not a problem. The fact that the agreement found by the judge was itself unenforceable by reason of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 would not, as a matter of public policy, preclude reliance on the doctrine of proprietary estoppel (or constructive trust): see Yaxley v. Gotts [2000] Ch 162.
38. A possible problem facing Mr Welch is that, on the facts found by the judge, the parties expressly agreed on and entered into an immediate declaration of trust by Mr McGuane with a deed of transfer to take effect 3 years later. In reliance on the doctrine of merger it could be argued, without reference to the contents of the unstamped documents that, the implementation of the agreement in an immediate express trust meant that there was no longer an oral agreement in reliance on which Mr Welch could act to his detriment in refurbishing the Property and in making the mortgage repayments. For merger of a contract into a deed see Chitty on Contracts (29 Ed) Vol 1 para 25-03. During the period of the alleged detriment there would be no agreement for Mr Welch to rely on. He would rely on the unstamped documents as governing the ownership and transfer of the Lease. They would supersede the oral agreement. In other words, there would no longer be any agreement for the transfer of the Lease from which Mr McGuane was estopped from resiling. On Mr Welch's case Mr McGuane would be bound by the documents executed by him.
39. I do not find it necessary to express a concluded view on the merger point, as I think that the appeal succeeds on the ground that the judge should have taken a broader view in deciding the nature and extent of any equity in Mr Welch and how it should be satisfied. He failed to take into account certain aspects of the circumstances which indicate that it was not unconscionable of Mr McGuane to refuse to transfer the Lease to Mr Welch.
40. First, Mr McGuane recognises that there is an equity binding on him, though not an equity to transfer the Lease. He accepts that Mr Welch is entitled to stand in IGroup's shoes by way of subrogation in relation to the repayment of the mortgage. He also accepts that Mr Welch should not be out of pocket for his expenditure on the Property. He is entitled to be reimbursed, subject to giving credit for the net rent received by him from the tenant in the Property.
41. Secondly, the judge did not take account of all the circumstances of the dealings between Mr McGuane and Mr Welch that are relevant to the alleged unconscionability of Mr McGuane's refusal to transfer the Lease to Mr Welch. Mr McGuane did not have the benefit of independent legal advice when he agreed to dispose of the Lease; the price paid for it was substantially less than its estimated market value; and the agreement was implemented in documents prepared by solicitors who, although acting as solicitors for him as vendor, received and acted on inaccurate instructions from Mr Welch as purchaser.
42. In determining the appropriate way of satisfying the equity acquired by Mr Welch's expenditure in respect of the Lease the judge thought that in the circumstances he was "required" to compel Mr McGuane to transfer the Lease to Mr Welch. The true legal position is that the remedies for proprietary estoppel are flexible, as recognised in Jennings v. Rice (see above). This is not a case of a binding contract for which the remedy of specific performance would normally be available, though I note that the judge said (paragraph 54) that :

"….there was in all but form an agreement for the sale of land the realisation of which was deferred for 3 years during which time the purchaser had to underwrite the financing and outgoings, whereas during that period the vendor had the purchase monies in his hand."

43. The judge went on to explain that the circumstances of the case seemed to him "to require giving effect to the bargain which they made and holding that Mr Welch is the sole beneficial owner of the Lease" on the basis of a constructive trust or proprietary estoppel. This ignores the wide judicial discretion as to how an equity resulting from an estoppel should be satisfied. The discretion is exercised by taking account of all the circumstances - the nature and extent of the detriment and the conduct, as well as the expectations, of the parties. The correct approach is that, having regard to the equity that has been established, its extent and all the circumstances, "the court adopts a cautious approach looking for the minimum equity to do justice": Snell's Principles of Equity (31^st edition) at page 285.
44. In my judgment, in all the circumstances of the acquisition and alleged dealing with the Lease, the minimum equity in this case is reimbursement of Mr Welch for his expenditure on the Property rather than ordering a transfer of the Lease. It is true that there are circumstances in which the equity arising from proprietary estoppel is satisfied by fulfilling the expectation and compelling the transfer of property which the party, who has acted to his detriment, had been led to expect would be transferred to him. It is not, however, necessarily the right response to every instance of expectation. In this case, for example, the detriment established by Mr Welch is quantifiable in financial terms and can, without complication or difficulty, be completely reversed by compensating him for expenditure of money on the Property. To order the transfer of the Lease to Mr Welch would enforce the performance of a transaction, which was not a binding contract for sale, at a price which was at a substantial undervalue and in respect of which the transferor had received no independent advice.
45. In favour of a transfer I agree that there is Mr McGuane's wish to turn his right to buy and the Lease acquired under it into money and the fact that he was only able to do this by reaching an agreement with Mr Welch, who helped him exercise the right to buy, obtained and paid off the mortgage, refurbished the Property and derived an income from letting it. Mr Welch would not have taken any of those steps if he had not been encouraged to believe that he was to become owner of the Lease. The judge concluded that

"52. ….he should therefore be treated in equity as the owner of the Lease and to hold otherwise would offend the conscience of the court. This is, in my view, a classic example of the sort of case falling within the well known dictum of Oliver J in Taylor Fashions …"

46. Against a transfer of the Lease there are unsettling features of the transaction which were not taken into account by the judge on this point. I would not regard this as a case of an agreement for the sale of land "in all but form": the lack of independent advice, the incorrect information given by Mr Welch, as purchaser, to the solicitors acting for Mr McGuane, the vendor and mortgagor, and the substantial undervalue all take this case out of the ordinary run of contracts for the sale of land. I think that the judge was wrong to hold that the circumstances of the transaction were such as "to require giving effect to the bargain" and to hold that Mr Welch was the beneficial owner of the Lease. The judge was not "required" to give effect to the bargain. He had a judicial discretion as to the form in which the equity should be satisfied. When all the circumstances are taken into account it is wrong to characterise Mr McGuane's refusal to transfer the Lease to Mr Welch as unconscionable and to hold that he is estopped from denying Mr Welch's right to a transfer of the Lease. A charge on the Lease compensating Mr Welch for his expenditure would, in my judgment, be a more appropriate way of satisfying his equity in this case.

Conclusion

47. I would allow the appeal, set aside the order of the judge and declare that Mr McGuane is the beneficial owner of the Lease, subject to a charge in favour of Mr Welch for the cash sums paid by him to Mr McGuane in relation to the Lease and the monies expended by Mr Welch on repayment of the loan to IGroup and on the refurbishment of the Property. The matter is remitted to the County Court for (1) an inquiry to determine the total amount to be credited to Mr Welch, and (2) an account of the rents of the Property received by Mr Welch. Disputed questions of interest may also arise for decision.

Lady Justice Arden:

48. As hereinafter explained, I also agree with the judgment of Mummery LJ, and I further agree with the supporting judgment of Sir Peter Gibson on the question of remedies for proprietary estoppel. However, I have come to a different view on certain points, though they make no difference to the overall result.
49. Mr Welch caused Mr McGuane to execute two documents, the declaration of trust and the transfer. The former document was required to be stamped and could therefore not be admitted in evidence until that had happened. I need not consider whether it would have been open to the judge to accept an undertaking from a litigant in person for this purpose because it was always open to Mr Welch to apply for an adjournment to enable him to get the declaration of trust stamped if he wished to adduce it in evidence. But the document has never been stamped, and, as Mummery LJ has demonstrated, the court must in those circumstances pay no regard to its contents and must not admit any secondary evidence to prove its contents.
50. Mr Jack submits that the oral arrangement made between Mr McGuane and Mr Welch was assimilated, and thus as a matter of law "merged", into the document rendered inadmissible and thus unenforceable by virtue of the absence of stamping. Mr Jack produced no authority to support the submission. I will assume in his favour that the doctrine of merger would have arisen if the declaration of trust had been duly stamped. But, as it had not been stamped, the question which arises on Mr Jack's submission is whether merger can take place if the document into which an arrangement is said to be merged is itself inadmissible in evidence. In order to apply the doctrine of merger, the court would need to know not only that the document had been executed, but also what the document contained. Where there has been a failure to stamp, as Mummery LJ has explained, the court cannot admit secondary evidence of the document which has not been duly stamped. Accordingly, my provisional view is that the doctrine of merger would not apply in this situation. In consequence of that, I must consider the position on the basis that there had been no merger, that is, on the basis that the oral arrangement was a subsisting arrangement between Mr McGuane and Mr Welch.
51. Even on that basis, in my judgment, for the reasons which Mummery LJ gives in [39] to [46] of his judgment and the further reasons given below, the judge was wrong in law to give effect to the arrangement between the parties by way of relief for proprietary estoppel. Relief is discretionary. There is a general principle that he who seeks the equitable relief must as a condition of obtaining relief do that which is equitable (see, for example, the decision of the Privy Council in Central Trust and Safe Deposit Company v Snider [1916] 1 AC 266). Likewise, in my judgment, he must do that which is equitable in the implementation of any transaction in respect of which he seeks discretionary relief. Mr Welch did not act fairly to Mr McGuane. In particular, in this case, he failed to ensure that Mr McGuane had separate advice and indeed, on the judge's findings, on his own initiative instructed the solicitor whom he appointed to act for Mr McGuane in a way which must have actively deterred the solicitor from taking steps to advise Mr McGuane as the ultimate client. Mr McGuane was no doubt in ignorance of this. Although the judge found that Mr McGuane understood what he was doing in making the arrangement, the point is that he did not have any independent legal advice. As Mummery LJ points out, the size of the discount on market value (25%) which Mr Welch obtained was very substantial. This would suggest that Mr McGuane would have fared better if independently advised on the transaction. Mr Welch has not shown the contrary. In my judgment, in the circumstances Mr Welch's conduct was unconscionable and the court should fashion any relief so that Mr Welch does not benefit from the arrangement save in so far as it can be shown to have conferred a benefit on Mr McGuane.
52. In the circumstances, I consider that the appropriate relief is that Mr Welch should be indemnified for the payments which he made to the mortgagee in discharge of Mr McGuane's liability to it and for the costs of improving and maintaining the flat, net of the rents received. Indeed he would be entitled to subrogation in respect of the monies paid to the mortgagee.
53. There is one further matter. The parties' arrangement was for an immediate sale of the entire beneficial interest in the lease with the transfer to be registered before the end of three years. The transaction was structured this way, as Mummery LJ puts it at [13] above, "to avoid repayment of the discount to the Council", pursuant to the terms of the lease. In the light of my conclusion above, it has not been necessary to consider the propriety of this transaction, on which I express no view.
54. In the circumstances, I agree with the order proposed by Mummery LJ.


 


Sir Peter Gibson:

55. I agree with the judgment of Mummery LJ and with the order which he proposes.
56. There is nothing which I would wish to add to what Mummery LJ has said on the first main issue or on the constructive trust limb of the second main issue.
57. On proprietary estoppel, there is no doubt that Mr McGuane wanted to sell his interest, enhanced as that interest would be by the exercise of his right to buy, in the Property and in consequence Mr Welch acted to his detriment on the basis that he had purchased that interest from Mr McGuane, that detriment consisting of the expenditure in respect of the Property. That gave rise to an equity and the question which arose for the judge was what was the minimum equity to do justice. In the type of case where parties have in effect agreed on a bargain, the court will usually give effect to the parties' expectation by making an order fulfilling that expectation. But the remedy remains a flexible one to be applied by the court looking at all the circumstances of the case in the round. Surprisingly and in my judgment erroneously, the judge does not appear to have recognised that a significant factor in the transaction was the giving by Mr Welch of false information to the solicitor, Mr May, including the fact that Mr McGuane was in Ireland at various addresses and so Mr Welch was to deal with the transaction. The solicitor's attendance note does not refer to any sale by Mr McGuane to Mr Welch: otherwise it is hard to envisage any solicitor being content to act for a vendor on the instructions of the purchaser without at least seeing and advising the vendor in person. The judge's view that Mr Welch's lies to the solicitor were in an attempt to smooth the passage of the transaction in no way alters the fact that the consequence was that Mr McGuane never received any independent professional advice about the transaction which involved the disposal by Mr McGuane of his interest in the Property at a significant undervalue. The omission by the judge of this highly relevant factor when he considered the appropriate remedy flawed his exercise of discretion and enables this court to consider the exercise of discretion afresh.
58. I agree with Mummery LJ that in all the circumstances justice is best done by granting Mr Welch the more limited remedy of a charge on the lease compensating him for his expenditure in respect of the Property.