MODERN STUDIES IN PROPERTY LAW
This volume is published under the auspices of THE CENTRE FOR PROPERTY LAW THE UNIVERSITY OF READING Patron Lord Nicholls of Birkenhead Board of Advisers Lord Millett Mr Justice Neuberger Judge Paul Baker, QC G Abbott (Clifford Chance) Professor W Cornish Dr S Cretney S Fogel (Titmuss Sainer Dechert) Professor M Grant C Harpum PD Orchard Lisle, CBE TD T Symes (Nabarro Nathanson) CJ West (The Solicitor to HM Land Registry) Emeritus Director Professor Paul Jackson Executive Committee Mrs EJ Cooke (Director) Ms BSL CRABB Mrs SE Murdoch
Modern Studies in Property Law Volume 1 Property 2000
Edited by ELIZABETH C O O K E Lecturer in Law The University of Reading
•HARTPUBLISHING
OXFORD - PORTLAND OREGON 2001
Hart Publishing Oxford and Portland, Oregon Published in North America (US and Canada) by Hart Publishing c/o International Specialized Book Services 5804 NE Hassalo Street Portland, Oregon 97213-3644 USA Distributed in the Netherlands, Belgium and Luxembourg by Intersentia, Churchillaan 108 B2900 Schoten Antwerpen Belgium
© The contributors severally 2001 The contributors severally have asserted their rights under the Copyright, Designs and Patents Act 1988, to be identified as the authors of this work Hart Publishing is a specialist legal publisher based in Oxford, England. To order further copies of this book or to request a list of other publications please write to: Hart Publishing, Salter's Boatyard, Folly Bridge, Abingdon Road, Oxford OX1 4LB Telephone: +44 (0)1865 245533 or Fax: +44 (0)1865 794882 e-mail:
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Freface " T) R O P E R T Y 2000" was the third biennial conference of the Centre for Property law J_ at the University of Reading. It drew together scholars from all parts of the United Kingdom, the European Community, and as far afield as Australia. Grateful thanks are due to the British Academy, whose generous provision of a British Research Conference Grant subsidised the travelling expenses of conference speakers from overseas. Most of the papers given at "Property 2000" are presented here. Papers from the earlier Reading conferences were published as: The Reform of Property Law, Paul Jackson and David C Wilde (eds), Ashgate Dartmouth Contemporary Property haw, and Property Law: Current Issues and Debates, Paul Jackson and David C Wilde (eds), Ashgate Dartmouth 1999 This volume marks a new departure. We have a change of publisher, and the title of the work enables publications from future events at Reading to form a series. Moreover, the publication has been refereed by a small team of distinguished, and anonymous, scholars. The refereeing process has been very stimulating and helpful; the contributors and the editor are most grateful to the referees for their hard work. The theme of property law in the new millennium was chosen to allow maximum flexibility to the participants; however, a number of subsidiary themes emerged, which present a snapshot of the current concerns of property lawyers, and are reflected in the arrangement of chapters here. We begin with a number of papers on issues of general interest. Charles Harpum's paper on the proposed changes to the Land Registration system formed something of a keynote to the conference, and provoked much excited debate. The chapters that follow—by Jonathan Hill on possession, David Wright on the equitable lien, Peter Luxton on the duties of trustees and Sarah Nield on estoppel—all demonstrate the continuing relevance of topics and concepts that have been the subject of many decades, or even centuries, of development. Chapters 6 to 9 represent a session devoted to the Human Rights Act 1998, an issue which recurred throughout the conference. Chris Wilmott's paper looks at the issue of deprivation of property, Gary Watt looks at forfeiture in a variety of contexts. Rod Edmunds and Teresa Sutton examine the use of restrictive covenants in attempts to restrict the development of group homes or community care facilities. Finally Jean Howell tackles the crucial issue of the "Horizontal Effect" of the Act. The section on mortgages begins with John Houghton and Lynne Livesey's paper prompted by consideration of the needs of today's borrowers, and continues with Martin
vi
Preface
Dixon's examination of the difficult concept of an occupier consenting to the postponement of his rights to those of a mortgagee; finally Caroline Sawyer demonstrates that the scintilla temporis will not rest easy in its grave. The 1998 conference included a number of papers on commonhold; the subject does not appear this time, consigned to the back burner to await developments (which have in fact taken place since the conference); that breathing space formed a good opportunity for Peter Sparkes' proposal for a new structure for the law of landlord and tenant; the startling case of Bruton v. London & Quadrant Housing Trust [1999] 3 WLR 150 provides a backdrop for Warren Barr's examination of the legal difficulties for charitable landlords. Papers by Sheena Grattan and Ross Macdonald examine aspects of succession law. The final section collects together contributions with an overseas flavour; David Carey Miller examines Scots and South African property law, Andrea Fusaro takes a fresh look at numerus clausus; Lars van Vliet's paper is a comparative study of the law of accession moveables. Matti Niemi's description of the electronic Land Registers in the Nordic countries is especially topical in this jurisdiction at the moment. Finally, Andrew Cartwright and Piotr Stec examine—from their respective positions as visitor and national—the difficult process of re-privatising property in the former communist countries of Eastern Europe. In all the contributions to the conference we have seen the vitality of property law, both in the continuing influence of old cases and in the capacity of the law—and the ingenuity of lawyers—to adapt to new challenges. The challenges continue, and the members of the Centre for Property Law at Reading look forward to fresh inspiration at future events, and in particular at the fourth biennial conference in March 2002. LIZZIE COOKE Reading, September 2000
Contents Notes Table Table Table Table Table
on Contributors of Cases of Statutes of Foreign Enactments of Statutory Instruments of International Legislation
ix xi xxix xxxvii xliii xliv
II Issues for a New Millennium 1. Property in an Electronic Age Charles Harpum
3
2. The Proprietary Character of Possession Jonathan Hill
21
3. The Place of the Equitable Lien as a Remedy David Wright
41
4. Trustee Exclusion Clauses: Lost in the Heather? Peter Luxton
59
5. Estoppel and Reliance Sarah Nield
77
II Human Rights 6. Of Missiles and Mice: Property Rights in the USA Christine Willmore
99
7. Property Rights and Wrongs: The Frontiers of Forfeiture Gary Watt
115
8. Who's Afraid of the Neighbours? Rod Edmunds and Teresa Sutton
133
9. The Human Rights Act 1998: the "Horizontal Effect" on Land Law Jean Howell
149
III Mortgages 10. Mortgage Conditions: Old Law for a New Century? John Houghton and Lynne Livesey
163
viii
Contents
11. Consenting Away Proprietary Rights Martin Dixon
181
12. A World Safe for Mortgagees? Registering a Scintilla of Doubt Caroline Sawyer
201
IV The Law of Landlord and Tenant 13. Towards a Structure for the Law of Landlord and Tenant Peter Sparkes
219
14. Charitable Lettings and their Legal Pitfalls Warren Barr
239
V Succession 15. Perpetuating Prejudice Beyond the Grave: Testamentary Conditions in Restraint of Religion 257 Sheena Grattan 16. Lapse of Legacies in Scots Law Ross Macdonald
275
VI Comparative and International Papers 17. Scots and South African Property: Problem Transplants DL Carey Miller
295
18. The Numerus Clausus of Property Rights Andrea Fusaro
309
19. Accession of Moveables to Land Lars van Vliet
320
20. The Public Trustworthiness of land Registers in the Nordic Countries Matti llmari Niemi
329
21. Reforming Property Law in Eastern and Central Europe Andrew Cartwright
341
22. Reprivatisation of Nationalised Property in Poland Piotr Stec
357
Index
373
Notes on Contributors Warren Barr is a lecturer in law and member of the Charity Law Unit, at the University of Liverpool Andrew Cartwright is a researcher at the Max Planck Institute for Social Anthropology, Halle/Saale, Germany DL Carey Miller is Professor of Property Law at the University of Aberdeen, and an Advocate of the High Court of South Africa Martin Dixon is a University lecturer at Cambridge University and a fellow of Queens' College, Cambridge Rod Edmunds is a senior lecturer in law at the University of Sussex Andrea Fusaro is Associate Professor of Comparative Legal Systems at the University of Genoa Sheena Grattan is a senior lecturer in law at the Queen's University of Belfast Charles Harpum is a Law Commissioner for England and Wales, and a fellow of Downing College, Cambridge Jonathan Hill is Professor of Law and Head of the Dept of Law at the University of Bristol John Houghton is a Senior Lecturer in the Lancashire Law School at the University of Central Lancashire Jean Howell is a Senior Lecturer in Law at the University of Manchester Lynne Livesey is a Senior Lecturer in the Lancashire Law School at the University of Central Lancashire Peter Luxton is Professor of Property Law at De Montfort University, Leicester Ross Macdonald is a lecturer in law at the University of Dundee Sarah Nield is a lecturer in law at the University of Southampton Matti Ilmari Niemi is Professor of Law and Dean of the Faculty of Law at the University of Lapland Caroline Sawyer is a lecturer in law at the University of Bristol and Research Associate at the Centre for Socio-Legal Studies, University of Oxford Peter Sparkes is a lecturer in law at the University of Southampton Teresa Sutton is a lecturer in law at the University of Sussex Piotr Stec is a lecturer at the Silesian University of Technology, Poland
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Notes on Contributors
Lars van Vliet is a lecturer in private law at the University of Maastricht Gary Watt is a lecturer in the Law School at the University of Warwick Christine Willmore is a lecturer in law at the University of Bristol David Wright is a Senior Lecturer in the Law School at the University of Adelaide
Table of Cases A Schroeder Music Publishing Co Ltd v. Macaulay [1974] 3 All ER 616 164 Abbey National Building Society v. Cann [1991] 1 AC 56 181,182,186,188, 204-215 Abbey National Mortgages pic v. Mostaga Salehi-Rad (18 December 1998, 98/NJ/1835) 183,186 Abbeyfield (Harpenden) Society Ltd v. Woods [1968] 1 WLR 374 245, 246 Abraham's Wills Trusts, Re [1969] 1 Ch 463 266 AG Securities v. Vaughan [1990] 1 AC 417; [1988] 3 All ER 1058, HL ....24, 243 Agins v. Tiburon 447 US 255 (1980) 103 AGOSI v. United Kingdom (1987) 9 EHRR 1 124 Air Canada v. United Kingdom (1995) 20 EHRR 150 124,128 Airlie v. Ogilvy (1857) 29 Scot Jur 169 282,283 Aitken's Trs v. Wright (1871) 10 M 275 283 Albany Homes Ltd v. Massey [1997] 2 All ER 609; [1997] 2 FLR 305...145, 155, 156, 159, 160,181 Alec Lobb (Garages) Ltd v. Total Oil GB Ltd [1985] 1 All ER 303 170 Alexander's Trs v. Paterson 1928 SC 371 279, 283, 286, 288 Allan v. Liverpool Overseers (1879) LR 9 QB 180 29, 32 Allan v. Thomson's Trs (1893) 20 R 733 287 Allan v. Thomson's Trs 1908 SC 483 282, 287 Allen, Re [1953] 2 All ER 898 266 Allhusen v. Whittell (1867) LR 4 Eq 295 72 America Economic Laundry Ltd v. Little [1951] 1 KB 400, CA 231 Anders Utkins Rederi A/S v. O/Y Lovisa Stevedoring Co A/B [1985] 2 All ER 669 48 Anello v. Zoning Board of Appeals of Village of Dobbs Ferry 678 NE 2d 870(1997) Ill Application 11194/86 (1988) 10 EHRR 149 152,156 Aquaculture Corporation v. New Zealand Green Mussel Co Ltd [1990] 3NZLR299 47 Armitage v. Nurse [1998] Ch 241, CA 60, 62-70, 72-74 301 Armour v. Thyssen Edelstahlwerke AG 1990 SLT 891, HL Armstrong v. United States 364 US 40 (1960) 103 Artesian Residential Investments Ltd v. Beck [1999] 3 All ER 113, CA 222,223 Arthur and Seymour v. Lamb (1870) 8 M 928 279 Ashburn Anstalt v. Arnold [1989] Ch 1; [1988] 1 All ER 147, CA....17,18, 22, 243 Ashby v. Tolhurst [1937] 2 All ER 837 38 Asher v. Whitlock (1865) LR 1 QB 1 29
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Table of Cases
Ashley Guarantee pic v. Zacaria [1993] 1 WLR 62 215, 216 A-G v. British Broadcasting Association [1981] AC 303 155 A-G v. Warren (1818) 2 Swan 291 240 A-G for Hong Kong v. Humphreys Estates (Queens' Garden) Ltd [1987] AC 114 78,84-86 A-G for Hong Kong v. Reid [1994] 1 AC 324 52 Axis West Developments Ltd v. Chartwell Land Investments Ltd (HL, 15 July 1999) 294 Babbitt v. Sweet Home Chapter of Communities for a Greater Oregon 515 US 687 (1995) 106 Baden, Delvaux and Lecuit v. Societe Generale pour Favouriser le Developpement du Commece et de l'lndustrie en France [1993] 1 WLR 509 67 Baker v. Baker [1993] 2 FLR 247 89 Baner v. Sweden, App No 11763/85, 60 DR 128 (1989), ECHR 16, 112 Bank of Baroda v. Dhillon [1998] 1 FLR 324 190 Bankers Trust v. Namdar (CA, 14 February 1997, CHANF/95/1255B) 183,190,193,195,196 Banque Financiere de la Cite v. Pare (Battersea) Ltd [1999] 1 AC 221; [1998] 2 WLR 475, HL; reversing CA 47, 55-57,183, 194-200 Barclays Bank pic v. O'Brien [1994] 1 AC 180, HL 65, 94, 171 Barclays Bank v. Taylor [1974] Ch 137 213 Barclays Bank v. Zavroovabli [1997] Ch 321 198, 205, 207, 211, 212 Barker v. Stickney [1919] 1 KB 121 36 Barrett v. Hilton Developments Ltd [1975] 1 Ch 237 215 Barry v. Butlin (1838) 2 Moo PCC 480 65, 66 Bartlett v. Barclays Bank Trust Co Ltd [1980] Ch 515 59, 65 Barton v. Keeble [1928] Ch 517 136 Basham, Re [1986] 1 WLR 1498 82, 87-90, 92 Basile v. Town of Southampton 678 NE 2d 489 (1997) Ill Bathurst City Council v. PWC Properties (1998) 157 ALR 414, High Ct of Australia 44, 48, 49, 55, 57 Baumgartner v. Baumgartner (1985) 2 NSWLR 406 52, 53 Baumgartner v. Baumgartner (1987) 164 CLR 137 44, 52, 53 BC Teachers' Credit Union v. Betterly (1975) 61 DLR (3d) 755 56 Bell v. General Accident Fire and Life Assurance Corporation Ltd [1998] 17 EG 144 251 Bell v. Town of Wells Beach 557 A 2d 168 (Me 1989) 110 Benjamins v. Chartered Trust Co (1965) 49 DLR (2d) 1 56 Bennett v. Spear 550 US 154 (1997) 106 Bertie v. Beaumont (1812) 16 East 33 28 Berton v. Alliance Economic Investment Co [1922] 1 KB 742 136 Beswick v. Beswick [1968] AC 58 47,48
Table of Cases xiii Bidaisee v. Sampath [1995] NPC 59, PC 122 Billson v. Residential Apartments Ltd [1992] 1 AC 494 116 Binning v, Binning (1767) Mor 13047 277 Biposo Pty Ltd (No 2), Re (1995) 124 FLR 385 44 Bird v. Luckie (1850) 8 Hare 301 259 Bird v. Syme-Thompson [1979] 1 WLR 440 204 Birmingham Midshires Mortgage Services Ltd (BMMS) v. Sudesh Sabherwal (17 December 1999,1999/0734/B3) 145,156,181-183,193, 196 24 Birrell v. Carey (1989) 58 P &C CR 184 Blair's Exors v. Taylor (1876) 3 R 362 277, 279, 283, 284, 286, 287 Blake, Re [1955] IR 89 272 Blathwayt v. Baron Cawley [1976] AC 397, HL 118, 125, 262-264, 266-268 Blomley v. Ryan (1956) 99 CLR 362 172 Bogg v. Raper, The Times, 22 April 1998, CA 60, 64-67, 69, 70, 71 Bogie's Trs v. Christie (1882) 9 R 453 285, 286, 288 Bond Worth Ltd, Re [1980] Ch 228 38 Borwick, Re [1933] 1 Ch 657 262, 267 Boscawen v. Bajwa [1996] 1 WLR 328 127,183, 194 Bowers v. Bowers (unreported, 3 February 1987) 193 Bradley Clare Estates Ltd's Application, Re (1987) 55 P & CR 126 141 Brent London Borough Council v. Botu [2000] EGCS 34 227 Brent London Borough Council v. Knightly (1997) 29 HLR 857, CA 227 Brice v. Stokes (1805) 11 Ves Jun 319 61 Bridgewater v. Leahy (1998) 158 ALR 66 49 Brier, Re (1882) 26 Ch D 238 61 Brikom Investments Ltd v. Seaford [1981] 1 WLR 863, CA 223 Bristol & West Building Society v. Henning [1985] 1 WLR 778 ....184-186,189, 192, 204, 209 Broome v. Pardess Co-operative Society of Orange Growers (Established 1900) Ltd [1939] 3 All ER 978 38 Brown, Re [1954] 1 Ch 439 260 Brown v. Brash [1948] 2 KB 247 25 Brown v. Heathlands Mental Health Services Trust [1996] 1 All ER 133 136,138-140 Brown v. Poura [1995] 1 NZLR 352 47 Brown v. Procurator Fiscal, Dunfermline, The Times, 14 February 2000 127 Brown's Trs (1882) 10 R 441 287 Browne v. Dawson (1840) 12 Ad & El 624 33 Brumridge v. Brumridge (1858) 27 Beav 5 61 Bruton v. London & Quadrant Housing Trust [2000] AC 406; [1999] 3 WLR 150, HL; reversing [1998] QB 834, CA vi, 24, 30, 223, 239, 245-247, 249-252, 254 Bryan v. United Kingdom (1996) .21 EHRR 342 179 Buckinghamshire County Council v. Moran [1990] Ch 623 26
xiv
Table of Cases
Burns v. Burns [1984] Ch 317 157-159 Burrows v. Brent London Borough Council [1996] 1 WLR 1448, HL 227 Burston Finance Ltd v. Speirway Ltd [1974] 1 WLR 1648 198 Burton v. Camden LBC [2000] 2 WLR 427, HL 225 Butler v. Countrywide Finance Ltd [1993] 3 NZLR 623 47 Butler v. Rice [1910] 2 Ch 277 183,193, 194 C & G Homes Ltd v. SoS for Health [1991] Ch 365, CA 134-137,140, 143 CA Paris, 30 April 1993, Dalloz, 1993, IR, 158 326 Cadbury Schweppes Inc v. FBI Foods Inc (1999) 167 DLR (4th) 577, Canadian Supreme Ct 45, 47 Cadorange Pty Ltd (in liq) v. Tanga Holdings Pty Ltd (1990) 20 NSWLR 26....53 Caledon & SWD Eksekuteurskamer Bpk v. Wentzel 1972 (1) SA270(A) 307 Camden London Borough Council v. Alexandrou (No 2) (1998) 30HLR534, CA 232 Campbell v. Hall (1774) 1 Cowp 204 (98 ER 1045) 305 Campbell's Tr v. Dick 1915 SC 100 281, 282 Capital Finance v. Stokes [1969] 1 Ch 261 196, 198 Caradon District Council v. Paton and another [2000] 35 EG 132 136 Carr Gomm Society v. Hawkins [1990] 4 CL 244 247 Carruthers v. Carruthers [1896] AC 659, HL 74 Carter's Trs v. Carter (1892) 19 R 408 282 Castle Phillips Finance Co Ltd v. Piddington [1995] 1 FLR 783 ....183,186,189, 193,194, 196-200 Castle Phillips Finance Co Ltd v. Williams [1986] CCLR 13 165 Catteris v. Cowper (1812) 4 Taunt 547 31 203, 204 Caunce v. Caunce [1969] 1 WLR 286 Celsteel Ltd v. Alton House Holdings Ltd [1985] 1 WLR 204 14 Chartered Trust v. Davies [1997] 2 EGLR 83 250 Chassagnou v. France (1999) 7 BHRC 151 (ECHR, judgment of 29 April 1999) 16, 111 Chelsea Yacht & Boat Co Ltd v. Pope [2000] 22 EG 147 322, 323, 325 184 Chetwynd v. Allen [1899] 1 Ch 353 Christie v. Christie (1681) Mor 8197 and 14849 278 Christie v. Paterson (1822) 1 S 543 (old ed)/498 277, 279-283, 285 Church of England Building Society v. Piskor [1954] Ch 553 207 City Motors (1933) Proprietary Ltd v. Southern Aerial Super Service Proprietary Ltd (1961) 106 CLR 477, High Ct of Australia 39 City of London Building Society v. Flegg [1988] AC 54; reversing CA 181, 204, 207, 208, 212 City of London Corporation v. Bown (1990) 60 P &C CR 42, CA 231 City of Melbourne v. Hamas Pty Ltd (unreported, Supreme Ct of Victoria, 20 February 1987) 47
Table of Cases xv City of Monterey v. Del Monte Dunes at Monterey 526 US 687 (1999) 103,105,106 Cityland Property Holdings Ltd v. Dabrah [1968] Ch 166; [1967] 2 All ER 639 168,169, 203 Clark v. School Board for London (1874) 9 Ch App 120 139 Clarke v. Clarke's Trustees 1925 SC 693 64 Clarke v. Palmer (1882) 21 Ch D 124 74 Clavering v. Ellison (1859) 7 HL Cas 707 265 Clayton v. Ramsden [1943] AC 320, HL 262-266, 273 Cleadon Trust Ltd, Re [1939] 1 Ch 286 193 Cockburn's Trs v. Dundas (1864) 2 M 1185 283-285 Colwill v. Reeves (1811) 2 Camp 575 38 Colyer v. Finch (1856) 5 HLC 905 74 Commercial Bank of Australia Ltd v. Amadio (1983) 151 CCR 447 172 Commonwealth v. Verwayen (1990) 170 CLR 394 92 Coombes v. Smith [1986] 1 WLR 808 81, 87, 90-92 Co-operative Insurance Society Ltd v. Argyll Stores Ltd [1997] 2 WLR 898, HL; reversing [1996] Ch 286, CA 46, 48 Copeland v. Greenhalf [1952] Ch 488 23 Coulls v. Bagot's Executor and Trustee Co Ltd (1967) 119 CLR 460 48 Cour de Cassation, 13 February 1834, Dalloz, 1834, 1; Sirey, 1834,1, 205 "Arret Caquelard" 311,312 Cour de Cassation, 16 December 1873, Dalloz, 1874,1, 249 313 Cour de Cassation, Civ Ire, 30 June 1964, JCP, 64, II, 14162 312 Cour de Cassation, Civ, 6 November 1970, Dalloz, 1971, J, 395 325 Cour de Cassation, Civ 3, 9 April 1974, Bull Civ, III, n 144,108 312 Cour de Cassation, Civ 3, 22 June 1976, Defrenois, 1977, 46 312 Cour de Cassation, Com, 15 July 1987, Dalloz, 1988, J, 360 312 Cour de Cassation, Com, 10 July 1990, Dalloz, 1990, IR, 192 326 326 Cour de Cassation, Com, 12 February 1991, Bull Civ IV, no 69 Cour de Cassation, Civ 3, 6 March 1991, Bull Civ III, n 84; JCP 1991.IV.172 313 Cour de Cassation, Civ, 26 June 1991, Dalloz, 1993, J, 93 326 Cour de Cassation, Civ 3, 4 March 1992, Dalloz, 1992, J, 386 313 Cour de Cassation, Civ 3e, 25 March 1992, Dalloz, 1993, J, 65 312 Cour de Cassation, Civ 3, 30 June 1992, Dalloz, 1993, J, 156 312 Cour de Cassation, Com, 15 March 1994, JCP 1994 II 22277 326 Cour de Cassation, Com, 2 March 1999, Dalloz, 2000, J, 69 326 Coverdale v. Charlton (1878) 4 QBD 104 27 Crabb v. Arun District Council [1976] 1 Ch 179 83, 86,117 Crago v. Julian [1992] 1 WLR 372, CA 232 Crancour v. De Silvesa (1986) P & CR 24 245 Crawley LBC v. Sawyer (1987) 20 HLR 98 225 Credit Lyonnais Bank Nederland NV v. Burch [1997] 1 All ER 144 171,172
xvi
Table of Cases
Crichton's Tr v. Howat's Tutor (1890) 18 R 260 Crosbie's Trs v. Crosbie 1927 SC 159 Crown Estates Commissioners v. Connor (1986) 19 HLR 35 Cruise v. Terrell [1922] 1 KB 664 Curtis v. London RAC [1999] QB 92, CA
279, 287 282, 287 228 27 228
Davies v. Directloans [1986] 1 WLR 823 165 Davies v. Littlejohn (1923) 34 CLR 174 42 Davy v. Garrett (1877) 7 Ch D 473 63 De Mattos v. Gibson (1858) 4 De G & J 276 36 Delaney v. TP Smith Ltd [1946] 1 KB 393 33 Derbyshire County Council v. Times Newspapers Ltd [1992] QB 770 155 Derry v. Peek (1889) 14 App Cas 337 63 Devlin's Trs v. Breen 1943 SC 556; 1945 SC (HL) 27 278, 279, 282, 283 Director General of Fair Trading v. First National Bank pic, The Times, 14 March 2000; affirming [2000] 1 WLR 98 173,175 Dixon v. Dixon (1836) 14 S 938; (1841) 2 Rob 1 277, 280 Dr Barnardo's Homes National Incorporated Association's Application, Re (1955) 7 P & CR 176 142 Dodsworth v. Dodsworth [1973] 228 EG 1115 89 Doe d Hughes v. Dyeball (1829) Mood & M 346 31 Doe d Bennett v. Turner (1840) 7 M & W 228 38 Doe d Henniker v. Watt (1828) 8 B & C 308 122 Dolan v. City Tigard 512 US 374 (1994) 105 Dolonay v. Southwark London Borough Council [1999] 12 CL414 227 Donoghue v. Stevenson 1932 SC (HL) 31; [1932] AC 562 308 Douglas's Exors (1869) 7 M 504 277, 285 Downsview Nominees Ltd v. First City Corporation Ltd [1993] AC 295 155 Doyle, Re (1972, unreported) 272 Du Plessis v. Strauss 1988 (2) SA 105 (A) 276, 304 Duke of Norfolk's Settlement Trusts, Re [1982] Ch 61 71 Dunlop Pneumatic Tyre Co Ltd v. New Garage and Motor Co Ltd [1915] AC 79, HL 120 Dunne, Re [1988] IR 155 260, 261 Earl of Dunfermling v. Earl of Callendar (1676) Mor 2941 275 Earl of Oxford's Case (1615) 1 Chan Rep 1 116 Eastern Enterprises v. Apfel 524 US 498 (1998) 106 Elitestone Ltd v. Morris and another [1997] 2 All ER 513, HL 322-324 Ellenborough Park, Re [1956] Ch 131 22 Elm Avenue, New Milton, Re [1984] 3 All ER 632 139 Enfield London Borough Council v. Devonish (1997) 29 HLR 691 227 182-189, Equity &C Law Home Loans v. Prestidge [1992] 1 WLR 137 191-194,196,198-200
Table of Cases xvii Erie Trust Co, Re 191 A 613 (Pa 1937) ". Errington v. Errington and Woods [1952] 1 KB 290 Esanda Finance Corporation Ltd v. Peat Marwick Hungerfords (1997) 188CLR241 Estate Kemp v. MacDonald's Trustee 1914 CPD 1084 Evans Marshall & Co Ltd v. Bertola SA [1973] 1 All ER 992 Every v. Smith (1857) 26 LJ Ex 344 Eves v. Eves [1975] 3 All ER 768
56 243 50 306 47 31 82
Falco Finance Ltd v. Gough [1999] CCLR 16 167, 174-176 245, 246 Family Housing Association v. Jones [1990] 1 WLR 779 Farquharson v. Kelly (1900) 2 F 863 277, 285 Ferrishurst v. Wallcite Ltd [1999] Ch 355, CA 4,17-19 First National Bank pic v. Thompson [1996] 2 WLR 293 29 Fisher & Gimson (Builders) Ltd's Application, Re (1992) 65 P & CR 312 ....141 Fitzgerald v. Firbank [1897] 2 Ch 96 23 Flinn v. Flinn (CA, Victorian Supreme Ct, 4 August 1999) 55 Forrester's Trs v. Forrester (1894) 21 R 971 282 Fortex Group Ltd v. Macintosh [1998] 3 NZLR 171, New Zealand CA 44 Foskett v. McKeown [2000] 2 WLR 1299, HL 48, 190,197 Four Maids Ltd v. Dudley Marshall (Properties) Ltd [1957] Ch 317 154,157 Fowley Marine (Emsworth) Ltd v. Gafford [1968] 2 QB 618 27 Franklin v. Neate (1844) 13 M & W 481 36, 37 Fredin v. Sweden App No 192 (1991), ECHR 272 Frogmorton d Fleming v. Scott (1802) 2 East 467 32 Frost v. King Edward VII Welsh National Memorial Association for the Prevention, Treatment and Abolition of Tuberculosis [1918] 2 Ch 1870 138 Fry v. Lane (1889) 40 Ch D 312 172 Gauld's Trs v. Duncan (1877) 4 R 691 282, 285 Gazza v. New York State Department of Environmental Conservation 679 NE 2d 1035 (1997) 110, 111 Ghana Commercial Bank v. Chandiram [1960] AC 732 193 Gillespie v. Mercer (1876) 3 R 561 287 Gillet v. Holt [2000] 2 All ER 289, CA; reversing [1998] 2 FLR 479, HC 77, 80, 81, 87-89,91, 93, 94 Gissing v. Gissing [1971] AC 886; [1971] 1 WLR 886 184,185, 206, 209 Giumelli v. Giumelli (1999) 161 ALR 473, Australian High Ct 43, 49, 53-55, 57, 87, 92 Glosa do uchwaly Sadu Najwyzszego z dnia 18 XI1992,1993 Przeglad Sadowy 5 365 Goldcorp Exchange Ltd, Re [1994] 2 All ER 806 302 Goldsmith-Grant Co v. United States 254 US 505 (1921) 119 Goodman v. Harvey (1836) 4 A & E 870 63
xviii
Table of Cases
Governor of Bank of Scotland v. Ladjadj &C Anor, The Lawyer February 2000 173 Gracegrove Estates v. Boateng (CA, 20 June 1997, CCRTF 96/1414/H) 182 Graham v. Estuary Properties Inc 399 So 2d 1374 (Fla 1981) 107,109 Graham v. Peat (1801) 1 East 244 32, 33 Grant v. Brooke (1882) 10 R 92 284 Grant v. Edwards [1986] Ch 638 78, 80-82, 87 Grant's Trs v. Grant (1862) 24 D 1211 rr 281-283 Gray v. Taylor [1998] 4 All ER 17 247-249, 253 Greasley v. Cooke [1980] 1 WLR 1306 78, 87, 89, 91, 92, 93 Greenwich Healthcare National Health Service Trust v. London Quadrant Housing Trust [1998] 1 WLR 1749 139, 140 Greig v. Malcolm (1835) 13 S 607 282, 285 Greig's Trs v. Simpson 1918 SC 321 279 Grill v. General Iron Screw Collier Co (1866) 35 LJ CP 321 63 H Clark (Doncaster) Ltd v. Wilkinson [1965] Ch 694 11 Hagee Ltd v. A B Erikson Ltd [1975] 236 EG 479 242 Hakansson and Suresson v. Sweden (1990) A171-A, ECHR Ill Hall v. Hall (1890) 18 R 690 277, 283, 284 Halliday v. McCallum (1869) 8 M 112 279, 282, 283 Hamilton v. Hamilton (1837) 16 S 478 279, 282, 285 Hammersmith & Fulham LBC v. Monk [1992] .1 AC 478 225, 245 Hammond v. Mitchell [1991] 1 WLR 1127 90 Hampstead Way Investments Ltd v. Lewis-Weare [1985] 1 WLR 164 225, 226 Handyside v. United Kingdom (1976) 1 EHRR 737 124,154 Harker v. Birkbeck (1784) 3 Burr 1556 32 Harper v. Charlesworth (1825) 4 B & C 574 32-34 Hawaii v. Hanapi 970 P 2d 485 (1998) 109 Hayim v. Citibank NA [1987] AC 730, PC 72 Hewettv. Court (1983) 149 CLR 639 42 Heydon and Smith's Case (1611) 13 Co Rep 67 39 38 Hibbert v. McKiernan [1948] 2 KB 31 Hill v. Tupper (1863) 2 H & C 121 22, 314 Hinton v. Dibbin (1842) 2 QB 646 63 Hobson v. Gorringe [1897] 1 Ch 182 323, 324 Hodgson v. Hall 11 Ch D 959 262 Hoge Raad, 5 January 2000, BNB 2000/83 320, 321 Holden v. Smallbrooke (1668) Vaughan 189 27 Holland v. Hodgson (1872) LR 7 CP 328 323, 324 Holy Monasteries v. Greece (1994) A301-A; (1986) 8 EHRR 1 I l l , 124 Houghton v. Immer (No 155) Pty Ltd (1997) 44 NSWLR 46, CA 53, 54 Howe v. Earl of Dartmouth, Re Earl of Chesterfield's Trusts (1883) 24 Ch D 643 72
Table of Cases
xix
Howe v. Smith (1889) 27 Ch D 89 122 Hughes v. Edwardes (1892) 19 R (HL) 33 279 Hunt's Application, Re (1997) 73 P & CR 126 141 Hunter v. Canary Wharf Ltd [1997] AC 655 24, 27, 30 Hunts Refuse Disposal Ltd v. Norfolk Environmental Waste Services Ltd [1997] 1 EGLR 16, CA 253 Hunziker v. Iowa 519 NW 2d 367 (Iowa 1994) 108 Hussein v. Mehlman [1992] 2 EGLR 87 250 Hussey v. Camden LBC (1995) 27 HLR 5, CA 226 56 Hussey v. Palmer [1972] 1 WLR 1286 Illinois Central Railroad Co v. Illinois 146 US 387 (1892) Innes v. Innes (1670) Mor 4272 International Corona Resources Ltd v. LAC Minerals Ltd (1987) 44 DLR (4th) 14, Ontario CA Inwards v. Baker [1965] 2 QB 29 JagShakti, The [1986] AC 337 James and Others v. United Kingdom (1986) 8 EHRR 123 Jessamine Investment Co Ltd v. Schwartz [1978] QB 264, CA Johnson v. Felton (1995) 27 HLR 265, CA Johnstone's Exors v. Johnstone (1902) 10 SLT 42 Jones v. Jones [1977] 2 All ER 231 Jones v. Roberts [1995] 2 FLR 422 Jones v. Sacramento Savings & Loan Association 56 Cal Rptr 741 (CalAppl967) JT Developments v. Quinn (1990) 62 P & GR 33
109 278 56 87, 91 38 124, 128, 153-155, 159 231 231 283, 286, 288 87 119 57 80, 83-86
K, Re [1985] Ch 85 123 K & K Construction Inc v. Department of Natural Resources 551 NW 2d 413 (Mich 1996) 109 Karlson v. Sweden App No 12356/86,157 DR 172, ECHR 271 Keeves v. Dean [1924] 1 KB 685 231 Keith's Trs v. Keith (1908) 16 SLT 390 282 Keppel v. Bailey (1834) 2 My & K 517 314 Ketley v. Scott [1981] 1 CR 241 166,173, 174 Keystone Bituminous Coal Association v. De Benedictis 480 US 470 (1987) 102,105 King v. David Allen & Sons Billposting Ltd [1916] 2 AC 54 22 Kirby v. School Board for Harrogate [1896] 1 Ch 437 139 Kleinwort Benson Ltd v. Glasgow City Council [1999] 1 AC 153 195 Knightsbridge Estates Trust Ltd v. Byrne [1939] Ch 441, CA 167, 168 Knox, Re 23 LR (Ir) 542 261, 273
xx
Table of Cases
Knox v. Maclcinnon (1888) 13 App Cas 753, Scotland 64, 74 Knox's Exor v. Knox 1941 SC 532 279, 281 Knusden v. Norway App No 11045/84, 42 DR 247, ECHR 271 Korkontzilas v. Soulos (1997) 146 DLR (4th) 214, Canadian Supreme Ct 46, 55 Kowell v. Ellis (1977) 76 DLR (3d) 546 38 Kreglinger v. New Patagonia Meat and Cold Storage Co Ltd [1914] AC 25 169,170 LAC Minerals Ltd v. International Corona Resources Ltd (1989) 61 DLR (4th) 14, Canadian Supreme Ct 45, 47, 56 Laimond Properties Ltd v. Al Shakarchi (1998) 30 HLR 1099, CA 225 Lambeth London Borough Council v. Rogers [2000] 03 EG 127, CA 227 Legione v. Hateley (1983) 152 CLR 406, Australian High Ct 121 Leigh & Sillavan Ltd v. Aliakmon Shipping Corporation Ltd "The Aliakmon" [1986] AC 785 302 Leonard v. Town of Brimfield 666 NE 2d 1300 (Mass 1996) 110 Lewisham Borough Council v. Roberts [1942] 2 KB 608 250 Lim v. Ang [1992] 1 WLR 113 78, 85 Linden Garden Trusts Ltd v. Lenesta Disposals Ltd [1993] 3 All ER 417 250 Lithgow v. United Kingdom (1986) A 102, ECHR Ill Llewellin's Will Trusts, Re [1949] Ch 225 72 Lloyd and Lloyd's Application (1993) 66 P & CR 112 141-144 Lloyds Bank v. Bundy [1975] QB 326 170 Lloyds Bank pic v. Carrick [1996] 4 All ER 630 17, 83 Lloyds Bank pic v. Rosset [1991] 1 AC 107, HL; reversing [1989] Ch 350 81, 82, 87,158,185, 204-206 Locabail (UK) Ltd v. Bayfield Properties Ltd (9 March 1999, CH 1998/L/2330) 182,183,186,193,196-198 Locabail (UK) Ltd v. Waldorf Investment Corporation (9 March 1999, CH 1997/L/4909) 182,183,188,189,193 Lock v. Bell [1931] 1 Ch 35 121 Lomax Leisure Ltd, Re [1999] 3 WLR 652 122 London & Associated Investment Trust Ltd v. Calow (1987) 53 P & CR340 233 London Borough of Camden v. Shortlife Community Housing (1992) 25 HLR 330 30, 243 London City Council v. Bown (1990) 60 P & CR 42, CA 225 London Wine Co (Shippers) Ltd [1986] PCC 121 302 Londonderry's Settlement, Re [1965] Ch 918, CA 67 Long v. Dennis (1767) 4 Burr 2052 261 226 Longford Properties Co Ltd v. Tweman [1949] 1 KB 29, CA Lopes v. City of Peabody 629 NE 2d 3121 (Mass 1994) 110 Lord Advocate v. University of Aberdeen and Budge 1963 SC 533 294
Table of Cases
xxi
Lord Napier and Ettrick v. Hunter [1993] AC 713; [1993] 2 WLR 42, HL 43, 47, 51, 52, 55, 57 Lord Strathcona Co Ltd v. Dominion Coal Co Ltd [1926] AC 108, PC 36 Loretto v. Teleprompter Manhattan CATV Corporation 458 US 419 (1982) 103 Lotan v. Cross (1810) 2 Camp 464 25 Loveladies Harbor Inc v. United States 28 F 3d 1171 (1994) 105 Lucas v. South Carolina Coastal Commission 505 US 1003 (1992) 101, 102, 104-110,112 Lucking's Will Trusts, Re [1968] 1 WLR 866 65 M, Re (Restraint Order: External Confiscation Order) [1998] 2 FLR 1035, CA 127 Macadam, Re [1946] Ch 73 72 McAlpine (1883) 10 R 837 287 McCall v. Dennistoun (1871) 10 M 281 281, 283, 285, 287 McCausland v. Young [1948] NI 72 262 McCausland v. Young [1949] NI 49 263, 266 McDougal's Tr v. Heinemann 1918 SC (HL) 6 278, 287 MacGown's Trs v. Robertson (1869) 8 M 356 279, 281, 283, 285 McGruther v. Pitcher [1904] 2 Ch 306 36 Mclntyre Dec'd, Re [1994] NZFLR 787 79 Macjordan Construction Ltd v. Brookmount Erostin Ltd [1992] BCLC350 36 McKenna, Re [1947] IR 277 266 McKenzie v. Holte's Legatees (1781) Mor 6602 279, 280, 285 Macleay, Re (1875) LR 20 Eq 186 260 Maddison v. Alderson (1833) 8 App Cas 467 87 Magistrates of Montrose v. Robertson (1738) Mor 6398 277-280 Maguire v. Makaronios (1997) 71 ALJR 781 48 Maharaj v. Chand [1986] AC 898 87, 90 Mair's Trs v. Mair 1936 SC 731 282 Manchester Airport pic v. Dutton [1999] 3 WLR 524, CA 33-35, 40 Manning v. Hill (1995) 126 DLR (4d) 126 270 Marchant v. Charters [1977] 1 WLR 1181 29 Marcroft Wagons Ltd v. Smith [1951] 2 KB 496 231 Marquis v. Prentice (1896) 23 R 595 279 Martin's Trs v. Milliken (1864) 3 M 326 277, 285 Mason v. Clarke [1955] AC 778 23 Matson v. Cook (1838) 4 Bing NC 392 31 Matthews v. Bay Head Improvement Association 471 A 2d 355 (1984) 110 May, Re [1917] 2 Ch 126 262 Mayhew v. Suttle (1854) 4 El & Bl 347 24, 28 Maynard v. Moseley (1676) Swanst 651 121
xxii
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Mehta v. Royal Bank of Scotland pic, The Times, 25 January 1999 253 Melluish (Inspector of Taxes) v. BMI Ltd (No 3) [1996] AC 454 323-325 Memory Corporation pic v. Sidhu [2000] 1 All ER 434 127 Midland Bank v. Cooke [1995] 4 All ER 562 185 Midland Bank Trust Co Ltd v. Green [1981] AC 513 17 Midland Bank Trustee (Jersey) Ltd v. Federated Pension Services Ltd [1996] PLR 179, Jersey CA 64 Mikeover Ltd v. Brady [1989] 3 All ER 618 243 Miller v.Eyo [1998] 2 CLY 3632 233 Mohammed v. Manek (1995) 27 HLR 439, CA 233 Monks v. Dykes (1839) 4 M & W 567 29 Moroney v. MayorOld Tappan 633 A 2d 1045 (NJ 1998) 110 Mortgage Corporation v. Shaire, The Times, 21 March 2000 153 Mucklow v. Fuller (1821) Jac 198 61 Multiservice Bookbinding Ltd v. Mardon [1978] 2 All ER 489 168-170 Murley, Re [1995] Newfoundland and Prince Edward Island Reports 271 271 Murray v. Grant (1662) Mor 10322 278 Murray v. Lloyd [1989] 1 WLR 1060 230 Muschinski v. Dodds (1984) 156 CLR 41 49 Muschinski v. Dodds (1985) 160 CLR 583 44 Nagle v. Feildon [1966] 1 All ER 689 273 National & Provincial Building Society & others v. United Kingdom (1997) 25EHRR127 180 National Carriers Ltd v. Panalpina (Northern) Ltd [1981] AC 675 250 National Provincial Bank Ltd v. Ainsworth [1965] AC 1175; [1965] 2 All ER 472 21, 22, 30,158, 314 National Schizophrenia Fellowship v. Ribble Estates SA [1994] 1 EGLR 181 137, 138, 140,143 Neilson v. Baillie (1822) 1 S 458 (old ed)/427 280, 282-284 Nestle v. National Westminster Bank pic (No 2) [1993] 1 WLR 1260, CA 59 Neville v. Shepherd (1895) 23 R 351 281, 283, 287 New Zealand Land Development Co Ltd v. Porter [1992] 2 NZLR 462 47 Newcastle-under-Lyme Corporation v. Wolstanton Ltd [1947] lCh92 23 Nicholls v. Ely Beet Sugar Factory Ltd [1936] 1 Ch 343 23 Nocton v. Lord Ashburton [1914] AC 932 63 Nollan v. California Coastal Commission 483 US 825 (1987) 103, 105 Norris, Re [2000] 1 WLR 1094, CA 127 Northern Counties of England Fire Insurance Co v. Whipp (1884) 26 Ch D 482, CA 74 Nynehead Developments Ltd v. RH Fibreboard Containers Ltd [1999] 1 EGLR 7 250
Table of Cases xxiii Ocean Estates Ltd v. Pinder [1969] 2 AC 19 Orakpo v. Manson Investments Ltd [1978] AC 95 Oregon ex rel Thornton b Hay 462 2d 671 (Ore 1969) O'Sullivan v. Williams [1992] 3 All ER 385 Overseas Investment Services Ltd v. Simcobuild Construction Ltd (1995) 70 P & CR 322
27 196 109 38 18
Paddington Building Society v. Mendelsohn (1985) 50 P & CR 244 189, 204 Pare (Battersea) Ltd v. Hutchinson [1999] 2 EGLR 33 232 Park Air Services pic, Re [1999] 2 WLR 396 122 Parkash v. Irani Finance [1970] Ch 101 194,195 Parker v. British Airways Board [1982] QB 1004 26 Parker v. O'Connor [1974] 1 WLR 1160, CA 223 Parochial Church Council of Aston Cantlow and Wilmcote v. Wallbank, The Times, 30 March, 2000 159,160 Pascoe v. Turner [1979] 1 WLR 431 80, 87, 90,124, 209 Pass v. Dundas (1880) 43 LT 665 62, 64 Paterson v. Paterson 1935 SC (HL) 7 282, 288 Pattinson's Trs v. Motion 1941 SC 290 281 Paul v. Speirway Ltd [1976] Ch 220 193 Pauling's Settlement, Re [1964] Ch 303 73 Pawlett v. A-G (1667) Hardres 465 116 Peachey v. Wing (1826) 5 LJ OS KB 55 39 Penn v. Bristol & West Building Society (CA, 16 April 1997, CHANF/95/1608/B) 183 Penn Central Transportation Co v. New York City 438 US 104 (1978) 103,104 Pennsylvania Coal Co v. Mahon 260 US 393 (1922) 102, 104-106, 111 Pettit v. Pettit [1970] AC 777 163, 202 Pettkus v. Becker 45 Phillips Petroleum v. Mississippi 484 US 469 (1994) 109,110 Phocas v. France (1996) 1996-11 519, ECHR 112 Pine Valley Developments Ltd v. Ireland (1992) 14 EHRR 319 154,159 Pinnacle Meat Processors v. United Kingdom App No 33298/96 (1998), ECHR Ill Poland. Judgment of the Supreme Administrative Court of 1 December 1995, II SA 1499/94. [1996/3] Wokanda 32 367 Polly Peck (No 2), CA 44 Port Line Ltd v. Ben Line Steamer Ltd [1958] 2 QB 146 36 Potter v. Edwards (1857) 26 LJ Ch 468 168 Potton Developments Ltd v. Thompson and another (Ch D, 16 March 1998, Lexis-Nexis) 322 Powell v. McFarlane (1978) 38 P & CR 452 25-27 Powrie v. Dykes (1667) Mor 11648 278
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Table of Cases
Prawo Rzeczowe. Zarys wykladu (Warsaw, Wydawnictwo Naukowe PWN, 1994)50 365 Presault v. United States 100 F 3d 1538 (1996) 110 Prudential Assurance Co Ltd v. London Residuary Body [1992] 2 AC 186 ...245 Public Access Shoreline Hawaii v. Hawaii County Planning Commission 903 P 2d 1246 (1995) 109 Public Trustee v. Wadley (1997) 7 Tas R 35, Tasmanian Supreme Ct 78, 80, 87, 89, 92 Purdie v. A-G 732 A 2d 442 (NH 1999) 110 Queensway Association v. Chiltern Thames & Eastern RAC (1999) 31HLR945
228
R. v. Benjafield, The Times, 28 December 2000 123 R. v. Delaney; R. v. Hanrahan (14 May 1999, CA, Crim. Div., unreported) 123 R. v. North Lincolnshire Council, ex p Horticultural Sales (Humberside) Ltd [1998] Env LR 295 Ill R. v. Secretary for the Environment, Transport and the Regions, ex p Spath Holme Ltd [2000] 1 All ER 884, CA 229 R.v. Stock (1810) 2 Taunt 339 28 R. v. Tower Hamlets LBC,exp Von Goetz [1999] QB 1019, CA 223 Rae v. Meek (1889) 14 App Cas 558, Scotland 64, 74 Rann v. SoS for the Environment (1980) 40 P & CR 113 134 Rawluk v. Rawluk (1990) 65 DLR (4th) 161, Canadian Supreme Ct 45, 46 Rayner v. United Kingdom (1986) A 106, ECHR Ill Reid's Trs v. Drew 1960 SC 46 282, 288 Remnant, Re [1970] 2 All ER 554 267 Remon v. City of London Real Property Co [1921] 1 KB 49, CA 231 Req, 6.3.1861, Dalloz, 18611,417 314 Reynolds v. Ashby & Son [1904] AC 466 323, 324 Rhind's Trs v. Leith (1866) 5 M 104 280, 283 Rhone v. Stephens [1994] 2 AC 310 22 Rich v. Aldred (1705) 6 Mod 216 36, 37 Richard and Others v. Surrey Hampshire Borders NHS Trust [1999] RVR28 139,140 Riches v. Hobden 2 Qd R 292 83 Roberts v. National Guardian Mortgage Corporation (CA, 8 November 1993, Lexis transcript) 183,193 Roberts v. Whyatt (1810) 2 Taunt 268 39 Robertson v. Houston (1858) 20 D 989 279 Robinson v. Robinson 429 NE 2d 183 (111 App 1981) 56, 57 Rochefoucauld v. Boustead 9 Roe v. Russell [1928] 2 KB 117, CA 231
Table of Cases xxv Romalpa Rooth v. Wilson (1817) 1 B & Aid 59 Ropaigealach v. Barclays Bank pic [1999] 4 All ER 235; [1999] 2 WLR17 Ross v. Matt [1951] 1 KB 810 Royal Bank of Scotland pic v. Etridge (No 2) [1998] 4 All ER 705 Royal Brunei Airlines v. Tan [1995] 2 AC 378 Royal Philanthropic Society v. County [1985] 2 EGLR 109
301 38 181,180 39 9, 94 67 247
S, Re [1996] 1 FLR 910 123 S v. United Kingdom App No 10741/84, 41 DR 226 (1984), ECHR 144, 146 Sackey v. Greenwich London Borough Council [1996] CLY 336 227 Salvation Army Trustee Co Ltd v. West Yorkshire Metropolitan Police (1980) 1 P & CR 179 84 Samuel, Re [1942] Ch 1 258 Sandeman and McLellan (1866) v. Scottish Law Magazine 53 301 Scandinavian Trading Tanker Co AB v. Flota Petrolera Ecuatoriana "The Scaptrade" [1983] 2 AC 694, HL 123 Sherrin v. Brand [1956] 1 QB 403 226 Schindler v. Pigault (1975) 30 P & CR 328 117 Sharp v. Thomson 1997 SLT 636, HL; reversing 1995 SLT 837 295, 297, 303, 308 Shelley v. Kraemer 334 US 1 269 Shetland Salmon Farmers Association and Others (Special Case) 1990 SCLR484 294 Shirlaw v. Taylor (1991) 31 FCR 222 44 Sigsworth, Re [1935] Ch 89 119 Simeon v. Isle of Wight Rural District Council [1937] 1 Ch 525 139 Simmons v. Midford [1969] 2 All ER 1269 324 Sinclair's Trs v. Sinclair 1942 SC 364 279, 285 SJC Construction Ltd v. Sutton London Borough Council (1975) 29 P & CR 322 141 Slade v. Slade [1802] 7 Ves 265 167 Sledmore v. Dalby (1996) 72 P & CR 196 89 Smith v. Milles (1786) 1 Term Rep 475 31 Smith v. Webster (1876) 3 Ch D 49 11 Snook v. London & West Riding Investments Ltd [1967] 2 QB 786 243, 246 Somma v. Hazlehurst and Sarelli [1978] 1 WLR 1014 242 Soon Duck Kim v. City of New York 90 NY 2d 1 (1997) Ill Sorochon v. Sorochon (1986) 29 DLR (4th) 1, Canadian Supreme Ct 49 Southwark London Borough Council v. Edem [1999] 07 CL 264, CCt 227 Spath Holme Ltd v. Greater Manchester & Lancashire RAC [1995] 2 EGLR 80 228 Speight v. Gaunt (1883) 9 App Cas 1, HL 61
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48 Spence v. Crawford [1939] 3 All ER 271 Sporrong & Lonnroth v. Sweden App No A/52 (1982) 4EHRR35 146,159 Stanowisko Rzecznika Praw Obywatelskich w sprawie Mienia poniemieckiego, Utracone majatki. Zwrot i odszkodowanie (Warsaw, Biuro Rzeznika Praw Obywatelskich, 1992) 44 363 Stapylton Fletcher, Re [1994] 1 WLR 1181 302 State Bank of India v. Sood [1997] Ch 276 181 State Transport Authority v. Apex Quarries Ltd [1988] VR 187 47 Stena Nautica, The (No 2) [1982] 2 Lloyd's Rep 336 48 Stevens v. City of Cannon Beach 854 P 2d 449 (1994) 109 Stockloser v. Johnson [1954] 1 QB 476 121 Stockport Waterworks v. Potter (1864) 3 H & C 300 314 Street v. Mountford [1985] AC 809 26, 28, 29, 239, 243-248, 251-254 Sturrock v. Binny (1843) 6 D 117 283 Sutton v. Dorf [1932] 2 KB 304 225 Swiss Bank Corporation v. Lloyds Bank Ltd [1979] Ch 548 36 Sykes, Re [1909] 2 Ch 241 72 Sympson v. Turner (1700) 1 Eq Cas Abr 220 116 Taddy & Co v. Sterious & Co [1904] 1 Ch 354 36 Tailby v. Official Receiver (1888) 13 App Cas 523 302 Tampa-Hillsborough County Expressway Authority v. AGWS Corporation 640 So 2d 54 (Fla 1994) 104 Taylor v. Dickens [1998] 1 FLR 806 87, 88 Taylor v. Midland Bank Trust Co Ltd (21 July 1999, CA) 67, 68 Taylor Fashions Ltd v. Liverpool Victoria Trustees Co Ltd [1982] 1 QB 133 78, 81, 85, 88, 94 Tegg, Re [1936] 2 All ER 878 267 Thames Water Utilities Ltd v. Oxford City Council [1999] 1 EGLR 167, HighCt 140 Thatcher v. Douglas (1996) 146 NLJ 282 14 Thompson v. Elmbridge Borough Council [1987] 1 WLR 1425, CA 227 Thomson's Trs Petrs 1963 SC 141 279 Thomson's Trs v. Robb (1851) 13 D 1326 279, 282, 283, 285 Thornhill v. McPherson (1841) 3 D 394 282 TI Pau, 3 October 1996, Dalloz, 1998, Somm, 55 327 Tilley's Will Trusts, Re [1967] Ch 1179 56 Tod-Heatley v. Benham (1880) 40 Ch D 80 137,138 Transag Haulage v. Leyland DAF [1994] 2 BCLC 88 121 Travers's Trs v. Macintyre 1934 SC 520 278, 288 Trib Civ Aix, 7.6.1949, JCP 1949, II, 5020 314 Trustees of Church Property of the Diocese of Newcastle v. Ebbeck (1960) 104CLR394 274
Table of Cases xxvii Tubantia, The [1924] P 78 Tucker v. Guardian Trust & Executor Co of New Zealand Ltd [1961] NZLR113 Tulk v. Moxhay (1848) 2 Ph 774
25, 26 79 22
Ujima H Ass v. Ansah (1998) 30 HLR 831, CA 225 Ungarian v. Lesnoff [1990] 1 Ch 206 87, 90 Unilever Australian Securities Ltd v. FCT (1994) 122 ALR 402 48 United States v. All Funds on Deposit in Any Accounts Maintained in the Names of Meza or de Castro 63 F 3d 148 (1995) 127 United States v. Bennis 516 US 442 (1996) 128 United States v. Lopez 115 S Ct 1624 (1995) 102 United States v. Montgomery (Montgomery, third party) [1999] 1 All ER 84 119, 127 Utracone majatki. Zwrot i odszkodowanie (Warsaw, Biuro Rzecznika Praw Obywatelskich, 1992) 22 367 Vatalaro v. Department of Environmental Regulation 601 So 2d 1223 (Flal992) 107 Venditelli v. Italy 18 July 1994, A 293-A, ECHR 128 Venus Investments Ltd v. Stcktop Ltd [1996] EGCS 173; affirmed CA, unreported 252, 253 Vernon v. Bethell (1761) 2 Eden 113 201 Verrall v. Great Yarmouth BC [1981] QB 202 33 Verseput v. De Gruchy 1977 (4) SA 440 (W) 306 Vickery, Re [1931] 1 Ch 572 60, 61, 64 Village of Euclid v. Ambler 272 US 365 (1926) 106 Vyse v. Foster (1872-73) 8 LR Ch App 309 121 Waddell's Trs v. Waddell (1896) 24 R 189 281-284, 286, 288 Wait, Re [1927] 1 Ch 606 302 Walker v. Linom [1907] 2 Ch 104 74 Walker v. Stones (25 March 1999, ChD) 67 Walker v. Walker (1744) Mor 10328 278 Wallace v. Wallace (1807) Mor Appendix "Clause" No 6 277, 279, 280, 285 Wallis v. Smith (1882) 21 Ch D 243 121 Walsh v. Lonsdale (1882) 21 Ch D 9 214 Walsh v. Wightman [1927] N I 1 , Northern Ireland CA 259 Walton Stores (Interstate) Ltd v. Maher (1987) 164 CLR 387, Australian High Ct 83-85,87 Waterman's Will Trusts, Re [1952] 2 All ER 1054 59 Wayling v. Jones [1995] 2 FLR 1029 78, 82, 87, 90, 92, 93 Webb v. CC of Merseyside Police [2000] 1 All ER 209 125 Webbs Fabulous Pharmacies Inc v. Beckwith 449 US 155 (1980) 101
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79 Welch, Re [1990] 3 NZLR 1 Welch v. United Kingdom (retrospective confiscation order) (1995) 20EHRR247 127 Wesley v. Clarke (1759) 1 Eden 357 61 West Wiltshire District Council v. Snelgrove (1998) 30 HLR 57 233 Westdeutsche Landesbank Girozentrale v. Islington LBC [1996] 2 All ER 961 43, 44 Westminster County Council v. Clarke [1992] 2 AC 288 244, 246 Wheeldon v. Burrows 315 Wheeler v. Mercer [1957] AC 416, HL 233 Whitbread & Co Ltd v. Watt [1901] 1 Ch 911 121 White v. Bayley (1861) 10 CB (NS) 228 28, 30 Wight v. Olswang, The Times, 18 May 1999 67 Wik Peoples v. Queensland (1996) 187 CLR 1 50 Wilkie v. Jackson (1836) 14 S 1121 283 Wilkins v. Hogg (1861) 31 LJ Ch 41; affirming (1861) 3 Giff 116 61, 62, 64 Williams, Re [1897] 2 Ch 12 118 Williams v. Stake [1979] Ch 291 89, 118 Williams & Glyn's Bank v. Boland [1981] AC 487 181-183, 186,189,192, 193,198,199, 204, 206, 209, 215 Williams Brothers Direct Supply Ltd v. Raftery [1958] 1 QB 159 25 Wills v. Wood [1984] CCLR7 165 82 Wilmott v. Barber (1880) 15 Ch D 96 Wilson v. Lombank Ltd [1963] 1 WLR 1294 27 Winter Garden Theatre (London) Ltd v. Millennium Productions Ltd [1948] AC 173 33 Wood v. Aitchison (1789) Mor 13043 279 Woolwich Building Society v. Dickman [1996] 3 All ER 204 182,190 Workers Trust and Merchant Bank Ltd v. Dojap Investments [1993] AC 573, PC 122 Wyman or Ferguson (Pauper) v. Paterson [1900] AC 271, Scotland 64 Yaxley v. Gotts [1999] FLR 941 Young v. Hichens (1844) 6 QB 606 Young v. Robertson (1862) 4 Macq 314 Yule v. Yule (1758) Mor 6400 Zealy v. City of Wakesha 534 NW 2d 917 (Wis 1995) Zwebner (Rita) v. Mortgage Corporation Ltd (CA, 18 June 1998, CHANF/97/0527 CMS3)
82, 85, 86 25 276 277 110 183
Table of Statutes Administration of Estates Act 1925 s34(3) Administration of Justice Act 1970 s 36 Administration of Justice Act 1971 Administration of Justice Act 1973 Agricultural Holdings Act 1986 Agricultural Tenancies Act 1995 Banking Act 1987 Building Societies Act 1986 Chancel Repairs Act 1932 Charities Act 1993 PtV.rr. s36 s36(5) s45(3) s48(2) Companies Act 1985 ss 192, 310 s 462(1) Companies (Floating Charges) (Scotland) Act 1961 Compulsory Purchase Act 1965 slO sl0(l) Consumer Credit Act 1974 ss 58, 61, 94,137 sl38 ss 139,173 Contracts (Rights of Third Parties) Act 1999 Counter Inflation Act 1973 sll County Courts Act 1959 sl91 Criminal Justice Act 1988 ss 71-75 Criminal Law Act 1977 s6
71 156, 157 154,155,180,181 202 202 221 221 164 163 160 240 240 240,241,251 70 70 198, 303 70 297 297, 303 140 139 176, 202 164 165 164 71 229 152 119 216
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Table of Statutes
Disability Discrimination Act 1995 ss 22, 23, 24 Family Law Act 1996 PtIV Fatal Accidents Act 1846 (9 & 10 Viet, c 62) Financial Services Act 1986 s84 Forfeiture Act 1870 (33 & 34 Viet, c 23) si Forfeiture Act 1982 Grantees of Reversion Act 1540 Housing Act 1980 ss 51-55 Housing Act 1985 PtV s32(3) s79 s80 s81 s81(l) s82(2) s82(3) ss83, 83A ss85, 86 s87 ss 91-95 Schedl Housing Act 1988 si sl(l) sl(l)(b) s5 s5(2) s8 sl5(l) sl7 ssl9A, 20 ss30,31 s35 s83 s 140(2) Sched 1, para 1 Sched 1, paras 4-7 Sched 2A
135,142 143 21 120 166 70 130 123,130 220 235 245 230 249 233 229 226 229 227 222 226 225 227 225,227 233 244 248 226,228 226 231 225 226 225 227 234 233 228,229 229 229 228 221 241
Table of Statutes xxxi Schedl8 229 Housing Act 1996 234 PtsVI,VII 227 ssl6,17 230 ss 124-143 228 ss 144,145 230 ss 147,151 226 Sched7 241 Housing Finance Act 1972 229 Housing Rents and Subsidies Act 1975 sll 229 Human Rights Act 1998 v, 99,100, 111, 115, 131, 135,142, 144-149, 155,159, 160,163,178,180,181, 258, 266, 268, 270-272 s2 151 s3 112, 149-152, 156, 158 s4 149 149-153,158, 179, 269, 270, 272 s6 s6(l) 144,151 s6(3) 269 s6(3)(a) 145,150 sl9 16 sl9(l)(a) 128 sl9(l)(b) 128,129 Sched 1, Arts 1, 8,14 150 Inheritance (Family Provision) Act 1938 264 Inheritance (Provision for Family and Dependants) Act 1975 264 Insolvency Act 1986 s53(7) 297 s283 225 Intestate Moveable Succession (Scotland) Act 1855 s6 275 Land Charges Act 1972 17 s2(4) 214 Land Registration Act 1925 4, 190 ss29,37 207 s49(l)(f) 214 s70(l) 203,214 s70(l)(c)-(e) 15 s70(l)(f) 31 s 70(l)(g) 14,16, 17, 158,182,191, 204, 206, 210, 211, 215 s70(l)(k) 211 117 Landlord and Tenant Act 1730 (4 Geo II, c 28) Landlord and Tenant Act 1927 sl8 223
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Table of Statutes
Landlord and Tenant Act 1954 Pt II s23(l) s24 ss 28-34
ss 32-35 s 38(1), (4) Landlord and Tenant Act 1985 ss 11-17 sll sl4(4) s31 Law of Property Act 1925 s2 s4(l) s30 s40 s49(2) s53(l)(a)-(c) s62 s84 s 84(l)(a), (aa), (c) ss 85-87 s85 s90(l) s98 slOl sll5(l)(b) sl46 s205(l)(ii) s205(l)(xxvii) Law of Property Act 1969 Law of Property (Miscellaneous Provisions) Act 1989 s2 s 2(1) s2(5) Law Reform (Parent and Child) (Scotland) Act 1986 si sl(2) s4 Leasehold Property (Repairs) Act 1938 Leasehold Reform Act 1967 Limitation Act 1980 Married Women's Property Acts 1880s
221, 241, 251 251 241,242 242
241 242 223 30,249,251 223 229 145, 198 203,204 314 153,196 83,86,213 117,121 12 188 142,144 141 201 214 216 208 180 207 117 9 243 142, 241 86 9,14, 84, 184, 213 83, 86, 87 86 277 285 285 223 124 24, 26, 31, 33 203
Table of Statutes xxxiii Moneylenders Acts 196 National Health Service and Community Care Act 1990 139 s46(3) 133 National Parks and Access to the Countryside Act 1949 99 Northern Ireland Act 1998 s76(l) 272 Pensions Act 1995 s33 70 Perpetuities and Accumulations Act 1964 sl2 259 Perpetuities and Accumulations Act (Northern Ireland) 1966 sl3 259 Proceeds of Crime Act 1995 119 Protection from Eviction Act 1977 241 si 216 Quia Emp tores 1290 260 Race Relations Act 1976 263 s21 143 Registered Homes Act 1984 sl(l) 136 Rent Act 1977 211, 222, 224-226, 228, 229, 231, 235, 242, 243-245, 247, 253, 254 PtVI ' 229 si 322 s2(l)(a) 225,231 s3 232 s3(4) 226 s3A 233 sl5 229 s21 227 s70(2) 228 s98(l) 182 Sched 1, para 13 225 Sale of Goods Act 1893 297, 298 Sale of Goods Act 1979 297, 302-304 PtII 298 Pt III 298,300 s2(l) 300,301 s2(5) 300
sl2 sl7 sl7(l) sl8(l) sl8(2)-(5)
300 299,300 298 298 298,299
xxxiv
Table of Statutes
sl9(l) 301 s23 300,301 Settled Land Act 1925 s29 240 sll7(l)(v) 9 Sex Discrimination Act 1975 s30 143 Statute of Marlborough 1267 220 Succession (Scotland) Act 1964 sll(l) 275,289 sl2 275 Supreme Court Act 1981 s38 117 Supreme Court of Judicature Act 1873 s25(5) 208 Tenures Abolition Act 1660 130 Torts (Interference with Goods) Act 1977 ...21 Trustee Act 1859 s31 61 Trustee Act 1893 s24 61 Trustee Act 1925 sl5 60 s23(l) 60 ss26,27 60 60, 61, 64 s 30 s30(l) 59 s41 71 60, 73, 74 s 61 s 68(1), (3) 9 59, 60, 73, 75 Trustee Act 2000 sl(l) 59 s28(3) 71 Sched 1, paras 1-4 59 Sched 1, para 5 60 Trusts of Land and Appointment of Trustees Act 1996 181, 208 s6 185,186 s6(l) 240 s8(l)-(3) 240 s9 248 s 14 152,153, 183, 190,197 s 15 152,153,159 sl5(l) 153 s22 248
Table of Statutes s25(2) Sched4 Unfair Contract Terms Act 1977 s2(2) Variation of Trusts Act 1958 Wildlife and Countryside Act 1981 s28 Wills Act 1837 sl5
xxxv 240 240 72 71 64 99 71
Table of Foreign Enactments Argentina Civil Code para 2502 Australia Strata Titles Act 1973 ss21,25 Canada Charter of Rights 1982
310
54 270,271
Denmark Lov om tinglysing 1926 (Registration Act, TL) §1 §27
330 337 336
Finland Maakaari 1995/540 (Code of Real Estate, MK) Ch7, s3 (7:3) 13:1 13:3 13:5,13:10 13:4.1 17:10 Title and Mortgage Register Act 1987/353
330,331 332 336 337 336 336 338 331
France Code civil arts 544, 546 art 551 art 552 art 686 art 1583 Code de la construction et de l'habitation art 251-1 to 251-9 Code rural art 431-1 art 451-1 et seq
310-312,315 311 325 311 312 298 325 325 325
xxxviii
Table of Foreign Enactments
Juris-classeur civil arts 551, 552 arts 553-555 Loi 16 December 1964 Loi no 67-1253 of 30 December 1967 art 48 et seq Loi no 85-98 of 25 January 1985 art 121 Loi 6 January 1986, n.86-1 Loi no 94-475 of 10 June 1994
325 326 313 313 325 326 312 326
Germany Biirgerliches Gesetzbuch 1896 (Civil Code, BGB) Grundbuchordnung 1897 (Registration of Real Estate Act)
310, 329 329, 330
Ireland Constitution 1937 Art 44.2.1
271,272
Jersey Trusts (Amendment) (Jersey) Law 1989 art 5 Netherlands Civil Code (BW) Art 3:3 subs 1 Art 3:237 New Zealand Law Reform (Testamentary Promises) Act 1949 Norway Loven om tinglysing 1935 (Registration Act, NTL) §20 §§27.1,27.2
74
320 321
79
330 337 336
Poland Civil Code 358,367 Dekret Polskiego Komitetu Wyzwolenia Narodowego z dnia 6 wrzesnia 1944 roku o przeprowadzeniu reformy rolnej, Journal of Laws of the Republic of Poland, entry 13 (Agricultural Reform) 359, 361, 367 Dekret Polskiego Komitetu Wyzwolenia Narodowego z dnia 12 grudnia 1944 roku o przejciu niektorych lasow na wlasnosc Skarbu Pantswa (1944) 15 Journal of Laws of the Republic of Poland, entry 82 (Nationalisation of Forests) 361
Table of Foreign Enactments
xxxix
Dekret z dnia 26 pazdziernika 1945 roku o wlasnosci i uzytkowaniu gruntow na obszarze m. St. Warszawy (1945) 50 Journal of Laws of the Republic of Poland, entry 279 (Use and Ownership of Immovable Property in Warsaw) 361 Dekret z dnia 8 marca 1946 roku o majatkach opuszczonych i poniemieckich (1946) 13 Journal of Laws of the Republic of Poland, entry 87 (Abandoned and Post-German Property) 359, 362, 363 Dekret z dnia 6 wrzesnia 1946 roku i ustroju rolnym i osadnictwie na obszarze Ziem Odzyskanych i bylego Wolnego Miasta Gdanska (1946) 49 Journal of Laws of the Republic of Poland, entry 279 (Regulation of Settlement in Western Provunces of Poland and in the Free City of Gdansk) 361 Dekret z dnia 25 pazdziernika 1948 roku o reformie bankowej (1950) 36 Journal of Laws of the Republic of Poland, entry 279 (Nationalisation of Banks) 359 Dekret z dnia 24 kwietnia 1952 roku o zniesieniu fundacji (1952) 25 Journal of Laws of the Republic of Poland, entry 172 (Liquidation of Foundations) 362 Dekret z dnia 25 lutego 1955 o przejeciu taboru zeglugi strodladowej na wlasnosc Panstwa (1955) 6 Journal of Laws of the Republic of Poland, entry 36 (Nationalisation of Ships) 360 Rozporzadzenie Ministra Rolnictwa i Reform Rolnych z dnia 1 marca 1945r w sprawie wykonania dekrety Polskiego Komitetu Wyzwolwnia Narodowego z dnia 6 wrzesnia 1944r o przeprowadzeniu reformy rolnej (1946) 10 Journal of Laws of the Republic of Poland, entry 51 ...367 Ustawa z dnia 3 stycznia 1946 roku o przejeciu na wlasnosc Panstwa podstawowych galezi gospodarki narodowej (1946) 3 Journal of Laws of the Republic of Poland, entry 7 (Nationalisation of Industry) 359 Ustawa z dnia 20 marca 1950 roku o przejciu przez Pantswo dobr martwej reki, poreczeniu proboszczom posiadania gospodarstw rolnych i utworzeniu Funduszu Koscielnego (1950) 19 Journal of Laws of the Republic of Poland, entry 87 (Acquisition of Mortmain Estates) 362 Ustawa z dnia 8 stycznia 1951 roku o przejeciu aptek na wlasnosc Panstwa (1951) 1 Journal of Laws of the Republic of Poland, entry 1 (Nationalisation of Pharmacies) 359 Ustawa z dnia 25 lutego 1958 roku o uregulowaniu stanu prawnego mienia pozostajacego pod zarzadem panstwowym (1958) 11 Journal of Laws of the Republic of Poland, entry 37 360 Ustawa z Dnia 14 czerwca 1960 roku—kodeks postepowania administracynego (1980) 9 Journal of Laws of the Republic of Poland, entry 26 (Code of Administrative Procedure) art 156(1) 364 art 158 364 art 160 365
xl
Table of Table of Foreign Enactments
Ustawa z dnia 17 maja 1989 o stosunku Panstwa do Kosciola Katolickiego w Rzeczypospolitej Polskiej (1990) 29 Journal of Laws of the Republic of Poland, entry 154 (relations between State and Roman Catholic Church) 365 Ustawa z dnia 13 lipca 1990 o prywatyzacji przedsiebiorstw panstwowych (1990) 51 Journal of Laws of the Republic of Poland, entry 289 (Privatisation Act) 358 Ustawa z dnia 4 lipca 1991 o stosunku Panstwa do Polskego Autokefaliczego Kosciola Pwawoslawnego w Rzeczypospolitej Polskiej (1991) 66 Journal of Laws of the Republic of Poland, entry 287 (return of immovables belonging to the Orthodox Church) 365 Ustawa z dnia 13 maja 1994 o stosunku Panstwa do Kosciola EwangelickoAugsburskiego w Rzeczypospolitej Polskiej (1994) 73 Journal of Laws of the Republic of Poland, entry 323 (return of immovables belonging to the Evangelical Church) 365 Ustawa z dnia 30 sierpnia 1996 o komercjalizacji i prywatyzacji przedsiebiorstw pantswowych, (1990) 51 Journal of Laws of the Republic of Poland, entry 561 (Privatisation and Commercialisation of State Enterprises Act) 358 Ustawa z dnia 20 lutego 1997 o stosunku Panstwa do gmin wyznaniowych zydowskich w Rzeczypospolitej Polskiej (1997) 29 Journal of Laws of the Republic of Poland, entry 155 (return of immovables belonging to Jewish religious communities) 365 Ustawa z dnia 20 lutego 1997 o stosunku Panstwa do Kosciola Katolickiego Mariawitow w Rzeczypospolitej Polskiej (1997) Journal of Laws of the Republic of Poland, entry 252 (Mariavites) 366 Ustawa z dnia 20 lutego 1997 o stosunku Panstwa do Kosciola Starokatolickiego Mariawitow w Rzeczypospolitej Polskiej (1997) Journal of Laws of the Republic of Poland, entry 253 (Polish Catholic Church) 366 Ustawa z dnia 20 lutego 1997 o stosunku Panstwa do Kosciola Zielonoswiatkowego w Rzeczypospolitej Polskiej (1997) 41 Journal of Laws of the Republic of Poland, entry 254 (Pentecostal Movement) 366 Ustawa z dnia 21 sierpnia 1997 roku o gospodarce nieruchomosciami (1997) 115 Journal of Laws of the Republic of Poland, entry 741 (Land Management Act) 365 art 34 365
Romania Code Penal Art 209 Constitution Art 10
345 345
Table of Foreign Enactments
xli
Decision of the Council of Ministers 1650, The Official Bulletin No 39,18 June 1953, providing for the model statute for the Collective Farm 344 Decree 183, The Official Bulletin No 1, 2 March 1949 345 Decree Law 42, The Official Monitor No 17, 29 January 1990 346 Decree Law 118, The Official Monitor No 50, 30 March 1990 355 Law 18, The Official Monitor No 37, 20 February 1991—The Fundamental Law on Agricultural Land Resources 347-354 Law on the Circulation of Agricultural Estates, June 1947 348 Arts 22, 37 349 South Africa Bill of Rights 1996 Constitution of the Republic of South Africa, Act 108 of 1996 s25 s 211(3) Deeds Registries Act 47 of 1937 General Law Amendment Act 1952 s24 Recognition of Customary Marriages Act 120 of 1998 Restitution of Land Rights Act 22 of 1994 si Sweden Jordabalken 1970 (Code of Real Estate, JB) 16:1 17:1,17:2 18:1.1 18:3 United States Constitution Fifth Amendment Fifth Amendment, Art 1 § 8, cl 3 Fourteenth Amendment Civil Forfeiture Reform Act 1999 Private Property Rights Protection Acts Florida Private Property Rights Protection Act (1995) §70.001(1), (2) Louisiana Civil Code
308 304 304 296,305 276 304 304
330 336 337 336 336
101 102, 105 102 269 128 106-108
107 276
Table of Statutory Instruments Civil Procedure Rules 1998 (SI 1998 No 3132) r24.2(a)(i) 67 r24.2(b) 67 Sched 1, RSC Ord 14 193 Sched 1, RSC Ord 113 33 Sched 2 232,234 Sched 2, Ord 49, r 6A 232, 234 Consumer Credit (Increase of Monetary Limits) (Amendment) Order 1998 (SI 1998 No 996) 164 Fair Employment and Treatment (Northern Ireland) Order 1998 art 29 260,273 Housing Act 1996 (Consequential Provisions) Order 1996 (SI 1996 No 2325) 229 Land Registration (Official Searches) Rules 1981 (SI 1981 No 1135) 214 Land Registration (Official Searches) Rules 1993 (SI 1993 No 3276) 214 r6 6 Land Registration Rules 1925 (SI 1925 No 1093) r72 -. 207 r83 207 r 83(11) 210 rr84,160 207 Sched 1, Form TR1 12 Property (Northern Ireland) Order Art 5 144 Rent Acts (Maximum Fair Rent) Order 1999 (SI 1999 No 6) 228, 229 Town and Country Planning (Use Classes) Order 1987 (SI 1987 No 764) 134 Unfair Terms in Consumer Contracts Regulations 1994 (SI 1994 No 3159) 172,174 Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999 No 2083) 172,180 reg5(l),(2) 174 reg6(l) 174 reg6(2) 173 Sched 2, para l(e), (1) 174 Sched 2, para 2(c) 175 Sched 3, para l(n) 175 Housing Act 1996 (Consequential Provisions) Order 1996 (SI 1996 No 2325) 229 Consumer Credit (Increase of Monetary Limits) (Amendment) Order 1998 (SI 1998 No 996) 164
Table of International Legislation Bilateral Agreements between Poland and other Countries 362, 363 European Convention on Human Rights 16,101,103, 128, 129,144, 151,258,263,270,271,274 Artl 153-155,157,158 Art 6 127 Art 6(1) 179 Art 7 127 Art 8 127,144-147,149,153,155-157,181 Art 8(1), (2) 178 Art 9 272 Art 9(1) .' 268 Art 14 125,146,147,268 Art 34 144 First Protocol 118,181 First Protocol, Art 1 15, 102, 111, 124,125,128,146,149,159,160,179, 272 Seventh Protocol, Art 4 128 German Unity Treaty 342 Dir93/13/EC Consumer Credit Directive
172 176
Parti
Issues for a New Millennium
1
Property in an Electronic Age CHARLES HARPUM*
INTRODUCTION
by which property is transferred are undergoing a revolution, namely, the move from paper-based to dematerialised dealings. This process has of course already begun. For example, shares have for some years been traded electronically in the London Stock Exchange under the CREST system, a fact that has attracted little attention amongst academic commentators. The concern of this essay is, however, with the move from a paper-based conveyancing system to one in which virtually the whole process can be conducted on-line. This change has itself already started (it is already possible to discharge mortgages electronically). Because of the time that the business of conveyancing takes and its expense, it has become a significant political issue. These fundamental changes in the ways in which conveyancing is conducted, remarkable though they are in themselves, will necessarily bring equally significant changes in substantive land law in their wake. The substantive law must be harmonised to fit the new conveyancing order. None of this should come as any great surprise. Changes in the manner in which conveyancing is conducted have in the past acted as a catalyst for much wider changes, both legal and otherwise. One of the most interesting and original contemporary scholars of property law, Dr Alain Pottage, has developed this theme. In a series of challenging articles, he has explored some of the ramifications of the introduction of a system of title registration in England and Wales,1 and has shown how it transformed our understanding of what was transferred and the way in which the title to land was proved. One of the most important events in the development of modern conveyancing, highlighted by Dr Pottage,2 was the introduction of postal searches of the register in 1930. Prior to that date, all searches of the register had to be made in person at HM Land Registry in Lincoln's Inn Fields. At that time there were no district land
T
HE MECHANISMS
* The author is indebted to Diana Faber, Law Commissioner for England and Wales, who provided invaluable assistance in relation to electronic signatures and their certification. 1 See "The Measure of Land", 57 MLR 361; "The Originality of Registration", 15 OJLS 371; "Evidencing Ownership" in S Bright and J Dewar (eds.), Land Law: Themes and Perspectives (Oxford, OUP, 1998), 129. 2 In "The Originality of Registration", supra n. 1.
4
Charles Harpum
registries. It needs to be recalled that it was against this extraordinary conveyancing background that the Land Registration Act 1925 was drafted.3 It is safe to predict that a move to a system of electronic conveyancing is likely to have an even more profound effect on conveyancing and how we regard property rights than the introduction of postal searches. Furthermore, as part of the systematic reform of the land registration system that is presently being carried out by the Law Commission and HM Land Registry,4 the relevant principles will be recast to create the appropriate environment in which electronic conveyancing can be developed. One important point to which Dr Pottage refers in one of his articles is the tension in the present system of land registration between what he calls "the logic of documentary proof" and the "logic of 'ocular' proof".5 His point is that the retention of overriding interests preserves the "traditional conveyancing theories of inspection and notice". 6 For everything else, there is documentary proof via the register.7 One of the unspoken premises of much modern academic writing on registered land is the fundamental antipathy of most writers to a system of title that depends upon registration, although they seldom articulate what they regard as unacceptable about the principle of title registration. The attention which academic writers lavish on overriding interests reflects their attachment to the traditional methods of proof of title. Any case that extends the scope of overriding interests and weakens the system of registration is likely to receive academic plaudits. 8 However, the goal of modern conveyancing reform is, as has been mentioned, that the whole process should be capable of being conducted from a computer. If that goal is to be achieved, the role of overriding interests must be reduced to the bare minimum. The role of the traditional methods of investigating title, including on-site inspections,9 will therefore become largely obsolete. Title will be investigated on-line, both by the direct access system at the Land Registry10 and, in relation to a range of local searches, through NLIS. 11 Indeed direct access has been operative for some years and has an increasing number of users. Local searches via the NLIS network have been tested on a pilot basis in Bristol. That Bristol pilot is impressive. It shows how all inquiries of officially held data relevant to land ownership12 can be accessed through a single entry point. 3 It influenced aspects of the Land Registration Act 1925, particularly the provisions on conveyancing. 4 See Land Registration for the Twenty-First Century (1998) Law Com No 254. 5 "The Originality of Registration", supra n. 1, at 400. 6 Ibid, at 397. 7 That is, of course, an oversimplification, particularly in relation to leasehold conveyancing. 8 For a recent example, see J Hill, "Overriding Interests: Occupation of Part of the Land", 63 MLR 113, commenting on Ferrishurst Ltd v. Wallcite Ltd [1999] Ch 355. 9 To the extent that these are still carried out. 10 Now called "Land Registry Direct". 11 The National Land Information Service. For the NLIS Website, see www.nlis.org.uk/. 12 It is even possible to discover if a property might be affected by radon gas.
Property in an Electronic Age 5
HOW MIGHT ELECTRONIC CONVEYANCING WORK?
HM Land Registry is developing a model of how electronic conveyancing might work. It is likely that the whole conveyancing process will be capable of being conducted on-line through an intranet system. Parts of the process will in time have to be conducted electronically. It needs to be stressed that the process is at present merely tentative. What will actually happen is likely to be different from what is presently visualised, at least in details. One likely feature of the new system is that either the Land Registry or some other body13 will be charged with responsibility for managing chain sales. Such chains are, of course, the bane of domestic conveyancing and one of the main causes of delay (and stress) in the house-buying process. Where there is a chain, all the transactions that are part of it move only as fast as the slowest link in it. If electronic conveyancing is to provide an effective means of expediting conveyancing, it must provide a mechanism for facilitating chain sales. To this end, as soon as any property was part of a chain, a "chain manager" would become responsible for managing it. The manager's task would be to monitor all the proposed sales in the chain and coordinate them. There would be a checklist of all the stages in the chain, and the solicitors or licensed conveyancers who were acting in the chain would be required to inform the chain manager of the completion of each and every one of those stages. The chain manager would therefore know where the delays in the chain lay and could take steps to encourage the offending party to remedy the matter expeditiously. The way in which domestic conveyancing might work might be as follows.14
Stage 1: Pre-Contract. The seller will ensure that all the information that should be in a "seller's pack" is available in dematerialised form so that it can be accessed by the buyer's solicitor or licensed conveyancer. This will include a survey (if that is indeed made a requirement of a seller's pack) and the usual pre-contractual information that is already commonly prepared. If that information generates any further enquiries, these will be dealt with, no doubt by e-mail between the relevant solicitors or conveyancers. All buyers in the chain would have to indicate that the means of financing the various transactions had been secured. Local searches would have to be carried out. Each buyer would of course inspect the seller's title on the register. 13
There is no reason why it could not be franchisee). Commercial transactions would not follow this model. The manner in which they were conducted would be likely to be far less prescriptive. The factors which require a prescriptive scheme for domestic chain transactions will not apply to most commercial ones. 14
6
Charles Harpum
Stage 2: The Contract The present methods of exchanging contracts could not be applied directly to a system where contracts are made electronically and are electronic documents. It will be necessary to devise some new mechanism for doing so, but that should not be unduly difficult. It should be possible to devise a system by which, when all the parties in the chain are ready to contract, the contracts can be made simultaneously. Indeed, it might be possible for this to happen automatically at a pre-ordained time. One feature of electronic conveyancing is likely to be that the contract will have no effect unless and until it is protected on the register by means of a notice. One of the fundamental objectives of electronic conveyancing is to ensure that where property rights are expressly created, the disposition will take effect only when it is entered on the register. However, an electronic system means that the making of a disposition and its registration, although in theory different acts, can in fact occur simultaneously. The entry of a notice on the register of the estate contract will also have another consequence. It will act as the trigger for priority protection—something which, at present, is achieved by the making of an official search. 15 Entries on the register will be made directly by the solicitor or licensed conveyancer, and not as now by the Registry. However, only those solicitors and licensed conveyancers who are authorised by the Land Registry because they meet specified requirements, will be able to conduct electronic conveyancing. Even so, no change to the register will be possible unless it has been agreed in advance with the Registry. It seems likely that some kind of "dummy register" will be set up in advance of any transaction, setting out what the register will look like when the transaction has been completed. It will be possible for the solicitor or licensed conveyancer only to make an entry on the register that is in conformity with this "dummy register".
Stage 3: Completion The final stage will, of course, be the completion of the transaction by making and registering the transfer. The transfer, like the contract that precedes it, will of course be an electronic document. Completion will commonly involve the discharge of a registered charge over the seller's property and the creation of a new charge over the property in favour of the buyer's mortgagee. The conveyancing technique will be the same as explained above. A "dummy register" will be agreed and completion will then occur in accordance with it. The transfer and its registration will occur simultaneously, so that there will be no registration gap. The notice of the prior estate contract will of course be deleted from the register on completion. It is essential to the scheme that payment of the various monies should be synchronised with completion. That is not a con15
See Land Registration (Official Searches) Rules 1993, r 6.
Property in an Electronic Age
7
veyancing question, but the mechanisms that are needed to achieve it will have to be resolved with the mortgage lenders and the banks.16 It is worth emphasising a number of features of this possible system. First, the electronic nature of conveyancing will be pervasive. Paper will be wholly absent from it. Both contracts and transfers will be electronic documents. Secondly, the "chain manager" will become involved even prior to the making of contracts. Clearly the mechanism that will trigger his or her involvement has yet to be devised. There will have to be some form of notification requirements for those solicitors or licensed conveyancers who are authorised to conduct electronic conveyancing. Thirdly, the parties' involvement with the Land Registry, as registering authority, will begin earlier than it does now, namely with the contract of sale. At present the Land Registry generally becomes involved only after completion when the transfer is submitted for registration. It is not uncommon for problems to arise at that stage, and, in very complicated cases, for registration to take a very considerable time to be completed.17 Indeed, in exceptional cases, it may even be refused. Under an electronic scheme all of the essentials of that process will take place before completion occurs, because completion will be simultaneous with registration.18 Fourthly, the Registry's role will necessarily change. It will not be concerned with the purely, mechanical task of effecting registration. It will be concerned to check and authorise transactions in advance of registration. Either itself or through its franchisees, it will also have an important continuing role in the provision of training for those solicitors and licensed conveyancers who are authorised to conduct electronic conveyancing. It goes without saying that the information technology side of the Land Registry's activities will become even more important than it is at present. However, it should be emphasised that there is nothing novel in the technology that will be employed in electronic conveyancing. It is all available now. Fifthly, the mystique of registration will disappear. It will be a straightforward task undertaken by a client's solicitor, in just the same way as he or she presently prepares deeds or contracts. Finally, it should be stressed that the model that has been explained is the typical domestic conveyancing transaction. That model is unlikely to be applied to other types of transaction. Different considerations apply to commercial leasehold conveyancing and to conveyancing transactions that are undertaken in pursuance of tax planning strategies.
16 Stamp duty would also be collected at this stage. Legislation will be necessary to enable stamp duty to be levied on electronic transfers of land, and such legislation is in preparation. 17 Obviously the problems usually arise in cases of first registration rather than on the registration of a disposition of registered land. However, disposals of part of a registered title can be troublesome. 18 Though it will almost certainly be necessary to devise a system of registration subject to the resolution of points of detail after registration. This is likely to be the case in relation to more complex transactions where, often for fiscal reasons, there is a need to complete a transaction by a certain date.
8
Charles Harpum
HOW WILL ELECTRONIC CONVEYANCING BE INTRODUCED?
As the law stands, electronic conveyancing is not possible because of the statutory requirements to use deeds or signed writing for the creation and disposition of estates, rights and interests in land. However, that is about to change, and the legal framework that will permit electronic conveyancing is likely to be in place in the fairly near future, possibly even before the end of 2000. That framework will not be created under a new Land Registration Act (though that is of course to come), but by an order made by the Lord Chancellor under section 8 of the Electronic Communications Act 2000. That clause makes provision for the modification of legislation to authorise or facilitate electronic communications or electronic storage. The Lord Chancellor made public his intention to employ section 8 in a press release dated 21 February 2000. The decision to proceed in this way should not come as a surprise. Even before the Law Commission and HM Land Registry published their blueprint for the reform of land registration, Land Registration for the Twenty-First Century,19 both bodies had been in discussion with the team at the Department of Trade and Industry that was working on the Instructions to Parliamentary Counsel for the Electronic Communications Bill. It was visualised then that the Electronic Communications Bill could be used to introduce electronic conveyancing in advance of the wider reforms of land registration. It seemed likely—as has indeed proved to be the case—that the Electronic Communications Bill would reach Parliament before the Land Registration Bill. Clause 8 of the Electronic Communications Bill was in fact amended during its passage through the House of Commons precisely so that it could be used as a vehicle for the introduction of electronic conveyancing. These amendments were tabled to meet points raised by the Law Commission and HM Land Registry with the Department of Trade and Industry as to what could be done under Clause 8 as it then stood. Section 8 will permit the Lord Chancellor to make an order by statutory instrument, which will prescribe electronic alternatives for the deeds and documents that are employed in conveyancing. The effect of section 8 is that the electronic version will not have to replicate all the features of the equivalent document if made on paper. In other words, it will be possible to create appropriate electronic equivalents that reflect what can be done with documents in dematerialised form. Three examples may be given. First, an electronic deed will have neither to be witnessed nor to comply with the requirement of delivery. Secondly, the requirement that a declaration of trust should be evidenced in writing will not apply to a declaration of trust made in an electronic form. Thirdly, it seems likely that a contract for the sale of an interest in land that is
19
(1998) Law Com No 254.
Property in an Electronic Age 9 made in electronic form will not involve any exchange of contracts 20 nor require the parties to "sign" one electronic document.21 The necessary orders under section 8 have, of course, yet to be drafted, although initial consideration has been given to them.22 Those orders will have to amend or offer electronic alternatives for a large number of statutory provisions that impinge on the way in which conveyancing is undertaken. Some of the provisions are comparatively easy to deal with. For example, where a statute defines words such as "disposition" or "conveyance" in terms of various forms of "instrument" or "assurance",23 it is not difficult to provide that an "instrument" or "assurance" can be in dematerialised form. It is much more difficult to construct electronic equivalents for the standard formal requirements for deeds, contracts and declarations of trust that will replicate the functions of those formalities. In an ideal world, each and every formal requirement would be subjected to a detailed analysis to determine its precise functions.24 There is unlikely to be time to conduct such an inquiry as regards many of the considerable number of statutory provisions that will be affected, in order to ensure that the function that they serve will be properly replicated. However, it is to be hoped that at least the most important will be considered. Formal requirements do of course fulfil a number of different functions. Of those functions, there are three that would seem to be relevant to conveyancing,25 namely— (a) a ritual or cautionary function, which is intended to encourage the maker of a document to consider its effect before he or she acts so as to be bound by it; (b) an evidential function, which, as its name suggests, is intended to provide a reliable means of verifying the transaction and its terms; and (c) a channelling function, which is intended to standardise particular types of transaction.
20
T h e notion of exchange of contracts makes no sense in a system of electronic conveyancing. Cf. Law of Property (Miscellaneous Provisions) Act 1989, s 2. A team from the Lord Chancellor's Department, H M Land Registry and the Law Commission is working to produce a draft order for consultation within the next few months. 23 See, e.g., Settled Land Act 1925, s 117(l)(v); T r u s t e e Act 1925, s 68(1)(3); Law of Property Act 1925, s205(l)(ii). 24 Something like this has been undertaken in some other jurisdictions: see in relation to draft legislation in the State of Victoria, M Sneddon, "Legislation to Facilitate Electronic Signatures and Records: Exceptions, Standards and the Impact of the Statute Book", 21 VNSVPL] 334. 15 See, e.g., T G Youdan, "Formalities for Trusts of Land and the Doctrine in Rochefoucauld v. Boustead" [1984] CLJ 306,314; J D Feltham, "Informal Trusts and Third Parties" [1987] Conv 246, 248—249. Feltham adds a fourth function, the protective function, which is intended to act as a guard against undue influence. This has never really had a role in the formal requirements in relation to dealings with land. It is, of course, important in cases where, say, one of two co-owners enters into a transaction (such as a mortgage or guarantee) that is to his or her disadvantage. For the steps which the creditor is now expected to take see Royal Bank of Scotland Pic v. Etridge (No 2) [1998) 4 All ER 705. 21
22
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These functions need to be considered in the context of electronic conveyancing as it is likely to be conducted in this country. The third function, the channelling function, is something with which users of the land registration system are already familiar. Over the last few years, the Land Registry has introduced a series of new forms which have been designed with electronic conveyancing very much in mind. That is a trend that will, inevitably, continue. However, it is not an issue that concerns statutory requirements of formality. It is the first and second functions—the cautionary and evidential functions—that are likely to be the ones that will require the most thought in making an appropriate order under the Electronic Communications Act. Before considering that issue in a little more detail, it is necessary to examine the way in which a person who is buying or selling property might become bound by an electronic document. As has been indicated, under the electronic system that is visualised, all conveyancing work, including the registration of dispositions, will be carried out by solicitors and licensed conveyancers. Furthermore, it will involve documents that are in dematerialised form. There are two possible ways in which the system might work. One method would be for the solicitor26 to obtain a client's electronic signature to the contract, transfer or charge and then certify it. The alternative would be for the solicitor to execute any electronic documents himor herself on behalf of the client with that client's express authority. Before looking at these two options, it may be helpful to say something in the barest outline about the meaning of the term "electronic signature". 27 There are a number of ways in which identity can be authenticated in relation to electronic documents. However, the one that is the most widely used commercially is what is called "dual key cryptography". This creates what is usually referred to as a digital signature. When this method is employed, there is no signature as such on the electronic document. In essence, it involves one party sending to the other some encoded text which the other can then decode by means of what is called a "public key" (which is usually downloaded from an internet directory but is more commonly to be found on an electronic certificate produced by an independent third party). 28 That key will decipher the cipher only if it has been encrypted by the sender using his or her "private key"—something that can be achieved by using a "swipe-card" for example. The recipient can also tell whether the message has been altered in transmission, as by a hacker. There are various levels of assurance that can be achieved in relation to software and hardware used in digital signatures, and these can now be tested against a number of internationally recognised standards. 29 26
O r licensed conveyancer. Electronic signatures (as defined) will be admissible in evidence "in relation to any question as to the authenticity of the c o m m u n i c a t i o n or data or as to the integrity of the communication ore d a t a " : Electronic C o m m u n i c a t i o n s Act 2000, s.7(l). Section 7(1) also makes provision for the admissibility of the certification by any p e r s o n of an electronic signature. For certification, see infra. 27
28 29
See infra. As, e.g., under the ITSEC scheme. See the UK ITSEC Website: www.itsec.gov.uk/.
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If digital signatures are to be secure there must be a means of linking the private key to an individual. The necessary link is provided by means of electronic certification by a certification authority. That certificate contains the identity of the person who has "signed" the electronic document and his or her "public key". It is also digitally "signed" by the certification authority. The certificate, once created, can be stored on a computer. It is sent electronically by or on behalf of the person signing the document together with the document that he or she has signed. If a solicitor30 wanted a client to affix a signature to an electronic document, the electronic deed or contract could be shown on a display unit at the solicitor's office. The client would, by using a mouse, click on an icon on the screen. This would be marked "sign", and would create a digital signature. The solicitor would be the certifying authority and would create a certificate, which would identify the signature as being that of his or her client. In submitting all or part of that deed or contract to another solicitor or to HM Land Registry, the solicitor would attach with it the certificate, thereby authenticating the document. The alternative method would be for a solicitor to set out for his or her clients in written form31 the main points of the contract, the transfer and any intended charge (to the extent that all or any of those were relevant). The client could then give the solicitor written authority to execute the various transactions on his or her behalf. Solicitors should, as a matter of elementary good practice, know their clients and verify their identity and other salient details about them. Under this method of proceeding, the only electronic signatures that would be employed on the conveyancing intranet system would be those of the authorised users, not their clients as well. That should make matters rather simpler. There are, however, certain drawbacks, though these are likely to be addressed in the forthcoming Land Registration Bill. Two of these deserve express mention. First, the authority of a solicitor32 to bind his or her client in a conveyancing transaction is limited. A solicitor has no implied authority to sign a contract for the sale or purchase of an interest in land on behalf of his or her client.33 It will, therefore, be necessary for a solicitor to obtain the express authority of his or her client to conclude a contract on that client's behalf. That is unexceptionable. The problem with it is that a solicitor acting for one party to the conveyancing transaction would be entitled to see that express written authority from the other party to his or her solicitor and vice versa. It rather defeats the point of electronic conveyancing if written authorities to act have to be exchanged before contracts can be concluded electronically. It may be hoped that, in practice, standard forms of authority will be taken from clients, and it will suffice for a solicitor to state that he or she has received such an authority. 30 31 32 33
O r licensed conveyancer. As he o r she commonly would in any event. And presumably a licensed conveyancer as well. Smith v. Webster (1876) 3 Ch D 49; H Clark (Doncaster)
Ltd v. Wilkinson
[1965] C h 6 9 4 , 7 0 2 .
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The second problem concerns the power of an agent to declare a trust on behalf of his or her principal. Under the Land Registration Rules 1925 as recently amended, where registered land is transferred to two or more persons, the trusts upon which the land is held must be set out in the transfer and executed by the transferees.34 This will satisfy the formal requirements of section 53(1) (b) of the Law of Property Act 1925, which, so far as is presently material, provides that "a declaration of trust respecting any land or interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust. . .". 35 This requirement in the Land Registration Rules ensures that, where registered land is transferred to co-owners, there will necessarily be a valid trust and the beneficial interests of the parties will be apparent from the transfer document. However, there is some controversy whether an agent can execute such a declaration of trust on behalf of his or her principal. This depends on a construction of section 53(1)(£>). Th6°se who say that an agent cannot make such a declaration 36 point to the fact that in section 53(l)(a) and (c), there is express provision for the particular formal requirements to be executed by an agent who has been authorised in writing. However, both paragraphs (l)(a) and (l)(c) of section 53 require that something is done in writing, and not merely that it should be evidenced in writing. It is therefore unsurprising that there should be an express requirement that, where an agent is to carry out the transaction, he should have to be authorised in writing. In other words, the reason for the express reference to agency in those paragraphs is to require that authority should be given in writing. Section 53(1)(£>) merely requires that any declaration of trust be evidenced in writing. The present writer therefore agrees with the view that an agent can declare a trust of land on behalf of his principal if authorised to do so. 37 That agent is "some person who is able to declare such a trust" within the paragraph. As the Land Registry and Law Commission work together over the next months to devise the elements of an Electronic Conveyancing Order under the Electronic Communications Act 2000, they will have to balance a number of objectives. In particular they will have to consider how the various functions that formal requirements fulfil, which were mentioned earlier, may be replicated in relation to electronic documents. To illustrate the sort of approach that may be adopted, the example may be taken of an electronic deed. First, any provision will have to be technology neutral. Secondly, it will be necessary to ensure that a person who enters into such a deed is aware that he or she is engaging in a formal act with legal consequences. This is unlikely to matter much where a solicitor executes an electronic deed on behalf of his or her client. The solicitor should explain to the client the consequences of what he or she is doing at the 34 35 36 37
See, e.g., Land Registration Rules 1925, Sched 1, Form T R 1 . Italics added. See, e.g., Lewin on Trusts (16th e d n , L o n d o n , Sweet & Maxwell, 1964), 25. See, e.g., Underbill & Hayton's Law of Trusts and Trustees (15th edn, London, Butterworths,
1995), 209.
Property in an Electronic Age
13
time when the client gives the solicitor written authority to act on his or her behalf. The matter will be different in cases where the client does append an electronic signature to an instrument. It seems likely that the solemnity and importance of the deed could be signalled by the use of appropriate forms of words, perhaps placed immediately above the icon which the client clicks to sign, which could be highlighted in some way that necessarily draws attention to them. Thirdly, as a result of section 8(2) (c) of the Electronic Communications Act 2000, there will be no requirement that an electronic deed must be witnessed. However, the solicitor's certification of his or her client's signature is likely to achieve much the same effect. Fourthly, also as a result of section 8(2)(c), it is not a requirement that an electronic deed should have to be delivered. Electronic deeds will be free of this arcane and artificial concept. More rational means can therefore be devised to ensure that the deed is to take effect at some time or date after it has been electronically signed. There is one important point about the Electronic Communications Act. Under section 8(6)(a), no order made under it can require the use of electronic communications or storage. It seems likely that there will in fact have to be some form of compulsion, direct or indirect, in the Land Registration Bill to ensure that, where it is necessary, electronic conveyancing has to be used. These powers may not have to be exercised, and are more likely to operate indirectly.38 A time will, however, come when all transactions with registered land have to be conducted electronically. The time scale for the move from the present largely paper-based system to a wholly electronic one is likely to be ten years. It should certainly be no longer.
WHAT EFFECT WILL THE INTRODUCTION OF ELECTRONIC CONVEYANCING HAVE ON THE SUBSTANTIVE DEVELOPMENT OF LAND LAW?
It is not appropriate to the theme of this essay to catalogue all the major substantive changes that are likely to be made by the Land Registration Bill. The concern here is only with conveyancing and proof of title. At the start of this essay, reference was made to the tension that exists in the present system of land registration. This tension is between what Dr Alain Pottage has described as the "the logic of documentary proof"—where proof of an incumbrance or interest is disclosed by the register—and the "logic of 'ocular' proof",39 which is relevant in relation to overriding interests. Overriding interests operate outside the registered system and are treated as being like unregistered land. They have to be ascertained by the traditional methods of investigation of inquiry and 38 Solicitors w h o are authorised t o conduct electronic conveyancing may, by the terms of their contract with H M Land Registry, be required to use electronic methods for certain types of transaction. 39 "The Originality of Registration", 15 OJLS 371,400.
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Charles Harpum
inspection. But they are not in all respects the same as the equivalents in unregistered land. In considering what is to happen to overriding interests, there are at least three relevant factors.
Make the register as far as possible an accurate reflection of the title First, there is a goal. The register should, so far as possible, be an accurate reflection of the state of the title at any given moment. This means that the investigation of title can be conducted for the most part on-line. It can, therefore, be undertaken more quickly and cheaply. That goal can be achieved only if overriding interests are eliminated as far as possible.
Make registration an essential element in the creation of most estates, rights and interests Secondly, under the present law, a high degree of formality is required to create proprietary rights. Deeds or signed writing are needed. The formal requirements for contracts for the sale or other disposition of land have in fact become more demanding since the enactment of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 than they were previously. In addition to that high degree of formality, it is necessary, as a quite separate and distinct matter, to register the right. There is a strong incentive to register many rights. If they are not protected on the register, they take effect only in equity as minor interests, and, as such, will be defeated by a disposition for valuable consideration. Some expressly created rights can, however, be protected as overriding interests without the need to enter them on the register. Thus, when a person having the benefit of any property right is in actual occupation of the land affected, that right will be ipso facto protected.40 Also, many expressly created easements will, it seems, be protected as overriding interests, without the need for registration.41 The many academic writers who are implicitly opposed to the land registration system presumably base their objection to it on the fact that creation and registration are quite separate acts, and that it may be unreasonable to expect people to undertake such registration. However, under the scheme put forward by the Law Commission and the Land Registry in Land Registration for the Twenty-First Century,'*2 it would be impossible to create expressly many estates, rights and interests unless they were entered on the register. In other words, creation and registration would become inextricably 40
Under Land Registration Act 1925, s 70(l)(g). See Celsteel Ltd v. Alton House Holdings Ltd [1985] 1 WLR 204; Thatcher v. Douglas (1996) 146 NLJ 282. W h y this should be so as a matter of policy is n o t apparent t o the present writer. 42 (1998) Law C o m N o 254. 41
Property in an Electronic Age 15 linked. The development of electronic conveyancing makes this viable. Under the scheme proposed, as a property right was expressly created or transferred, it would be simultaneously entered on the register. The objection to registration is, in other words, overcome. Registration becomes an integral part of the creation of the right. Indeed, there would be no proprietary right at all if it were not registered. There are significant and necessary exceptions to that general approach. What is proposed is restricted to proprietary rights that are created expressly and which either will be registered with their own titles as registered estates or charges, or will be protected by means of a notice. Rights and interests that can arise informally, such as an equity arising by estoppel, would not be affected. Nor would interests under trusts. Such interests are not capable of being protected by a notice be affected. They should be protected by a restriction in order to ensure that they are overreached. But the entry of a restriction is not a form of substantive registration of a right, as is the entry of a notice. Indeed, the object of a restriction is to ensure that an interest under a trust does not bind a purchaser of the land—the opposite objective of a notice.
Find ways of ensuring that existing overriding interests are protected on the register The strategy just outlined will significantly reduce the number of overriding interests that can be created for the future. But it will do nothing to ensure that existing overriding interests are brought on to the register. This was a subject that was addressed at some length in Land Registration for the Twenty-First Century.A3 One specific concern was whether it was possible to do anything to eliminate the overriding status of certain particular rights that could no longer be created, but which caused considerable conveyancing difficulties.44 We had in mind matters such as liability for the repair of a church chancel, 45 in respect of embankments, sea and river walls,46 and for corn rents.47 Ideally, we would wish to see all such rights protected by the entry of a notice on the register. The removal of overriding status would reduce the status of such rights to unprotected minor interests. This would undoubtedly encourage those having such interests to apply for their registration. However, we were concerned that there was some slight risk that the abolition of overriding status might conceivably contravene Article 1 of the First Protocol to the European Convention on Human Rights. That Article guarantees the right to peaceful enjoyment of property. Under that Article, a deprivation of property rights by a state can be 43
(1998) Law C o m N o 254, paras 4.27 et seq. T h e Report also made more general recommendations o n h o w existing overriding interests could be brought on t o the register, by requiring their disclosure, etc. 45 Land Registration Act 1925, s 70(l)(c). 46 Mid,s70{lUd). 47 Ibid, s70{l){e). 44
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Charles Harpum
justified only if it is in the public interest and, except in exceptional circumstances, it will be justified only on the payment of compensation. By contrast, a state can control the use of property in accordance with the general interest and, while compensation will, in some cases, be required if there is to be the necessary proportionality, 48 it is not an invariable requirement. It is not surprising that the Law Commission and the Land Registry adopted a rather cautious approach to this issue.49 Under the Human Rights Act 1998,50 the relevant Minister has to make a statement in Parliament before any Government Bill receives its Second Reading to the effect that the Bill is compatible with the European Convention. The imposition of a registration requirement on certain overriding interests would probably be regarded as the control rather than the deprivation of property. However, there is still a risk that such action might be regarded as disproportionate in the absence of compensation, given the uncertainties in the Strasbourg jurisprudence on this point. 51 It is not inconceivable that a more robust view may be adopted in the Land Registration Bill than was taken in Land Registration for the Twenty-First Century, particularly in the light of the responses on consultation. It may be that some overriding interests may be downgraded to the status of minor interests after a specified number of years have elapsed.
The strategies illustrated: the rights of occupiers The most notorious category of overriding interest is, of course, the rights of persons in actual occupation of the land or in receipt of its rents and profits.52 The impact of the reforms that the Law Commission and HM Land Registry have proposed can be well illustrated in relation to this category of interests by examining two matters. In two striking respects, this category of overriding interests provides better protection for the person having the overriding interest than would be the case if title to the land were unregistered. It is necessary to say something about each, because it is, on the face of it, very remarkable that in a system of registered title, a person can be better off not registering a property right than they would be were the title registered. First, a person in actual occupation can protect his or her property rights by actual occupation against any purchaser of the land even though such rights could be but are not registered. Where title is unregistered and a person is in 48
See Chassagnou v. France (European C o u r t of H u m a n Rights, j u d g m e n t of 29 April 1999). O n e c o m m e n t a t o r read a great m o r e into this c a u t i o u s a p p r o a c h t h a n it was intended to convey: see J Howell, "Land and Human R i g h t s " [1999] Conv 287. For a different approach t o a number of points raised by Dr Howell, see C H a r p u m , " P r o p e r t y L a w — t h e H u m a n Rights Dimension (Part 2)", 4 L & T Rev 29. •TO See s 19. 51 C o m p a r e Chassagnou v. France, supra n. 48, with the decision of t h e European Commission on H u m a n Rights in Baner v. Sweden, A p p N o 11763/85, 60 D R 128 (1989). 52 Land Registration Act 1925, s70(l)(g). 49
Property in an Electronic Age
17
actual occupation of the land, he or she will not thereby protect any property right over that land against a purchaser if it is registrable as a land charge under the Land Charges Act 1972 but has not been registered.53 The perceived wisdom is that, in this regard, registered land is fairer than unregistered, because many people do not appreciate the need to register their rights if they are in occupation of the land affected. There is, of course, something in that view. However, if a right over property will not take effect unless it is protected on the register, and registration necessarily becomes an integral part of the creation of any right, that objection falls away. As has been explained, that is exactly what the Law Commission and HM Land Registry proposed in Land Registration for the Twenty-First Century. The second matter only came to light recently in the decision of the Court of Appeal in Ferrishurst Ltd v. Wallcite Ltd.5* It is an ancient common law rule that anybody purchasing land is taken to know of the rights of any person who is in possession of that land.55 It has never been settled quite why this is so. Some cases suggest that where there is on the premises someone whose presence is inconsistent with the owner's title, that fact puts the purchaser on notice of the possessor's rights. That approach assumes that such possession is readily detectable, but that will not necessarily be so. Another explanation is more metaphysical. Possession is evidence of seisin and seisin will be protected against a purchaser, whether or not it is apparent. Whatever the explanation may be, the common law rule protects the rights of the person in possession only in relation to the land which he or she possesses. It has never been suggested that if X is in possession of Blackacre but also has rights over Whiteacre, X's possession of Blackacre puts a purchaser of both Blackacre and Whiteacre on notice of his or her rights over Whiteacre. The precise relationship between this ancient common law rule and the protection given to the rights of occupiers under section 70(1)(g) of the Land Registration Act 1925 was not articulated when the provision was introduced. However, paragraph (g) does seem to be the analogue of the common law rules even though it is not its replicate.56 In Ferrishurst, the Court of Appeal held that, where X was in actual occupation of part of a registered leasehold title as a sub-underlessee and had an option to purchase the whole of that title, his rights as occupier of part extended to the whole of the title. It is unnecessary to consider whether the Court of Appeal correctly interpreted section 70(l)(g) of the Land Registration Act 1925, or whether it acted in accordance with the rules of precedent in declining to follow its earlier contrary decision in Ashburn Anstalt v. Arnold57 But the result of the case 53 See, e.g. Midland Bank Trust Co Ltd v. Green [1981] AC 513; Lloyds Bank Pic v. Carrick [1996] 4 All ER 630. 54 [1999] Ch 355. 55 T h e effect of the authorities is summarised in C H a r p u m , "Overreaching, Trustees' Powers and the Reform of the 1925 Legislation" [1990] CLJ 277, 315. 56 See J Stuart Anderson, Lawyers and the Making of English Land Law 1832-1940 (Oxford, O U P , 1992), 274 etseq. 57 [1989] Ch 1.
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Charles Harpum
does need to be considered in the wider context of what the function of a land registration system should be. If one accepts the basic logic of a system of title registration the result is wholly unacceptable. First, it gives a protection to the unregistered rights of occupiers that goes substantially beyond the protection enjoyed at common law by someone in possession of unregistered land. This is odd, given the warnings in other appellate decisions that "the court should not be astute to give a wide meaning to any item constituting an overriding interest", 58 and that "it is desirable that overriding interests should be in a narrow rather than wide class". 59 Secondly, it can greatly increase the burden of inquiries that have to be made when a person is purchasing registered land other than with vacant possession. N o t only must he or she ascertain who is in actual occupation, but the inquiries made of that person must relate to the entirety of the land that is purchased. Those are quite distinct issues. Even when the purchaser knows that someone is in occupation, he or she still has to know the scope of the inquiries that must be made. 60 The extent of inquiries which a purchaser makes of any occupier is just as important as ascertaining the fact of that person's occupation. If the purchaser fails to make all the inquiries that a court subsequently holds to be necessary, he or she will be bound by the rights of the occupier. After Ferrishurst, lengthy and detailed inquiries will have to be made where the purchaser is acquiring a single registered title that comprises a number of parcels of land and where there are a substantial number of derivative interests affecting it, such as leases or underleases.61 Indeed the Court of Appeal acknowledged that the burden of inquiry on a purchaser was "now heavier than before".62 There is something badly wrong when the inquiries made under a system of registered title are heavier than under the previous unregistered system. That is a state of affairs that cannot continue in a world where all inquiries on title should, if possible, be capable of being made on-line. Land Registration for the Twenty-First Century was published some two months before the decision in Ferrishurst.63 It recommended that the rights protected by occupation should be confined to that part of a registered title that was occupied.64 That was hardly remarkable at the time: it was simply a statement of the law as it then stood on Court of Appeal authority.65 It will be apparent from what has been said that that the present writer considers that the view 58 Overseas Investment Services Ltd v . Simcobuild Construction Ltd (1995) 70 P & C R 322,327, per Peter Gibson LJ. 59 Ibid, a t 330, 3 3 1 , per Staughton L J . 60 Jonathan Hill fails to appreciate this distinction in "Overriding Interests: Occupation of Part of the Land" 63 MLR 113, 118. 61 Alternatively, purchasers will simply insist that, when they acquire titles of that kind, those titles are split. The purchaser will then take a series of transfers of parts of the land hitherto comprised in one title. " See [1999] Ch 355, 372. 63 T h o u g h it was n o t considered in Ferrishurst. 64 See Law C o m N o 254, p a r a 5.70. 65 Ashburn Anstalt v. Arnold [1989] C h 1 , 2 8 .
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19
expressed then by the Law Commission and HM Land Registry was correct. The effect of Ferrishurst must be reversed. By pursuing the full logic of title registration, something which is made possible by the introduction of electronic conveyancing, this widest of categories of overriding interest is likely to be significantly curtailed. The rights of occupiers will be confined to the land that they occupy. There will cease to be protection for those who are in receipt of the rents and profits of the land: only occupiers will be protected. Once electronic conveyancing is operative, it will not be possible to create many rights expressly except by registering them. That of itself will significantly confine the ambit of this category of overriding interest. All of these changes follow from and reflect the profound change in conveyancing practice that is about to occur.
The Proprietary Character of Possession JONATHAN HILL*
INTRODUCTION
of a "property interest" is that it confers on the owner the right to control access to the property in question and to exclude others from it1; or, to put the matter another way, it imposes on anyone other than the owner a duty not to interfere without the owner's consent (i.e., a duty in rem).z However, English law has never developed the idea of "interference with property" as such. Interests in tangible property benefit from "trespassory protection" 3 by virtue of a variety of torts, in particular trespass and nuisance (for land) and trespass, conversion and negligence (for chattels). Since there has never been any serious attempt—either judicially or legislatively—to reform or restate this area of the law,4 the boundaries of trespassory protection are to be gleaned from an examination of the details of the various torts as they have evolved through judicial development over the centuries. The term "property interest" is frequently used to describe an interest which not only is accorded trespassory protection if infringed, but also is capable of binding purchasers5; that is to say, an interest is proprietary in nature if it is "durable"—in the sense that a transferee of the property in which the interest subsists is, as a general rule, bound to give effect to the interest to the same extent as the transferor. Whether or not an interest is durable is also largely dependent on judicial developments.6 To be capable of binding a purchaser an
A
FUNDAMENTAL CHARACTERISTIC
* I am grateful to Stuart Bridge, Caroline Sawyer and Gwen Seabourne for their comments on an earlier draft of this essay. The usual disclaimers apply. 1 KJ Gray, "Property in Thin Air" [1991] CL] 252. 2 See JE Penner, The Idea of Property in Law (Oxford, Clarendon Press, 1997) ch. 4. 3 JW Harris, Property and justice (Oxford, Clarendon Press, 1996) 24-6. See also Penner, supra n. 2, 139-143. 4 Recommendations that, in relation to chattels, the various torts should be replaced by a unitary wrong based on "interference with goods" (Law Reform Committee's Eighteenth Report, Conversion and Detinue (1971) Cmnd 4774), led to partial, rather than comprehensive, reform (Torts (Interference with Goods) Act 1977). 5 See Lord Wilberforce in National Provincial Bank v. Ainsworth [1965] AC 1175,1248. 6 See, however, matrimonial home rights under Part IV of the Family Law Act 1996.
22 Jonathan Hill interest must fall within one of the judicially recognised categories of durable interest, the so-called numerus clausus.7 So, if the interest satisfies the requirements of, for example, a lease, an easement or a profit a prendre it is capable of binding purchasers of the property in question, but if the right does not satisfy the requirements of any such recognised interest it is not durable. Whether or not a right affecting property is recognised as a durable interest is as much a matter of history and judicial policy as principle or logic.8 In the context of rights affecting land, the courts have held that a restrictive covenant is durable, 9 but that a positive covenant, 10 a contractual licence,11 and the "deserted wife's equity" 12 are not. It is sometimes argued that the boundaries of trespassory protection and durability are different.13 For example, it is said that, notwithstanding the fact that a licence is not durable, certain categories of licensee of land can sue for trespass 14 and that, although a bailee can sue for trespass, his interest is not durable. 1S The purpose of the discussion which follows is to demonstrate that the supposed dichotomy between trespassory protection and durability is, on closer examination, illusory: the defining characteristic of a property interest is that it is enforceable against third parties. Whereas a property interest is enforceable both against strangers and, in principle, against a transferee of the property in which the interest subsists, a personal interest is enforceable against neither. So, a right which fails to satisfy the criteria established by the courts and summarised in Re Ellenborough Park16 cannot be an easement; such a right, which is no more than a licence, is denied the trespassory protection of the tort of nuisance17 and is not capable of binding a purchaser of the land in relation to which the right is claimed. 18 To avoid potential misunderstanding three points need to be added at this stage. First, trespassory protection must be distinguished from "transactional protection". Trespassory protection is the corollary of everyone's general duty not to interfere with the property of others; it does not depend on there being a pre-existing relationship between the holder of the right and the person infring7 See B Rudden, "Economic Theory v. Property Law: The Numerus Clausus Problem" in J Eeklaar and J Bell (eds), Oxford Essays in Jurisprudence (Third Series) (Oxford, Clarendon Press, 1987) 239 8 See S Bright, "Of Estates and Interests: A Tale of Ownership and Property Rights" in S Bright and J Dewar (eds), Land Law: Themes and Perspectives (Oxford, OUP, 1998) 529. 9 Tulk v. Moxhay (1848) 2 Ph 774. 10 Rhone v. Stephens [1994] 2 AC 310. 11 Ashburn Anstalt v. Arnold [1989] Ch 1. 12 National Provincial Bank v. Ainsworth [1965] AC 1175. 13 JW Harris, supra n. 3, 59; WJ Swadling. "The Proprietary Effect of a Hire of Goods" in N Palmer and E McKendrick (eds), Interests in Goods (2nd edn, London, LLP, 1998) 491; WVH Rogers (ed), Winfield and Jolowicz on Tort (12th edn, London, Sweet & Maxwell, 1984) 361. 14 Clerk & Lindsell on Torts (i7th edn, London, Sweet & Maxwell, 1995) para. 17-57. 15 Swadling, supra n 13. 16 [1956] Ch 131. 17 Hill v. Tupper (1863) 2 H & C 121. 18 King v. David Allen & Sons Billposting Ltd [1916] 2 AC 54.
The Proprietary Character of Possession
23
ing it. By contrast, transactional protection is a facet of the relationship established by the transaction creating the right in question. So, the fact that a contractual licensee of land may be able to invoke the court's jurisdiction to grant an equitable remedy to prevent the revocation of a contractual licence in breach of the terms of the contract is an aspect of transactional protection, rather than trespassory protection. Secondly, at common law a property interest is capable of binding a transferee of the property only if, and to the extent that, it enjoys trespassory protection vis-a-vis the transferor. So, if a person in possession of land belonging to another cannot sue the owner for trespass, he cannot maintain trespass against the owner's successors in title either. Thirdly, an interest which enjoys trespassory protection vis-a-vis the transferor may not be enforceable against a transferee (for example, because the transferee is a purchaser in good faith without notice of the interest). The first and second of these points are of crucial importance when considering the proprietary character of "possessory interests".19 The third is outside the scope of the current discussion.20 The basic thesis of the discussion is as follows: (i) a personal right is one which neither benefits from trespassory protection nor is capable of binding a transferee; (ii) a right in relation to property which benefits from trespassory protection is a property interest; (iii) an interest which benefits from trespassory protection is also capable of binding transferees, though only to the extent that it can be enforced against the transferor. If this basic thesis is correct, it follows (i) that, if a licensee can sue for trespass, he cannot do so qua licensee, but only on the basis of some property interest, and (ii) that on the sale of bailed goods by the bailor the bailee's interest, which is protected against strangers by the law of tort, must also be binding on a purchaser of the goods to the extent that it is binding on the seller. Before the discussion turns to consider these points in greater detail, something needs to be said about possession.
" For the purposes of the discussion which follows the term "possessory interest" is used to signify any interest under which a person has "possession" in the sense defined in the text at nn. 29—30. So, possessory interests include the interest of a tenant under a lease, the interest claimed by an adverse possessor and the interest of a hirer of goods, but not easements and profits a prendre which confer only a limited right to use another's property (see, e.g., Copeland v. Greenhalf'[1952] Ch 488). At common law the owner of a profit a prendre is treated as having a possessory interest which is protected both by trespass and nuisance, whereas an easement is protected only by nuisance: Fitzgerald v. Firbank [1897] 2 Ch 96; Newcastle-under Lyme Corporation v. Wolstanton Ltd [1947] 1 Ch 92; Mason v. Clarke [1955] AC 778. However, in Nicholls v. Ely Beet Sugar Factory Ltd [1936] 1 Ch 343 Lord Wright explained (at 347) that "there cannot be in the strict sense of the term a trespass to an incorporeal hereditament, but there may be an action in the nature of trespass". 20 See J Hill, "Competing Priority Principles" in F Rose (ed), Restitution and Insolvency (London, LLP, 2000) 21.
24 Jonathan Hill
POSSESSION
Problems Possession is a central concept in English property law.21 For example, the separation of possession from ownership is the foundation of certain types of legal relationship (such as where a chattel is bailed); the acquisition of title to land through the operation of the Limitation Act 1980 is dependent on the squatter having taken adverse possession; in the absence of a deed, the transfer of legal ownership of a chattel by way of gift inter vivos requires the donee to have possession of the subject-matter of the gift. One might imagine that, as possession is important in so many areas of the law, the concept of possession would be a clear one and there would be an established, conventional vocabulary surrounding it. However, nothing could be further from the truth. There is a high degree of terminological inconsistency within the English materials, both judicial and academic. It was pointed out over one hundred years ago both that it is "almost impossible to preserve a consistent terminology" 22 and that when the notion of possession is being discussed "careful attention must in every case be paid to the context". 23 The expressions used in the cases include, for example, occupation, custody, factual possession, de facto possession, possession in fact, legal possession, de jure possession, possession in law, adverse possession, actual possession, constructive possession and exclusive possession. From the contexts in which these terms are employed it is clear, first, that they do not all refer to the same concept, secondly, that some of them overlap and, thirdly, that very similar terms are given very different meanings in different contexts. Two simple examples are sufficient to illustrate these points. (i) Whereas it is not uncommon in cases involving land for judges to use "possession" and "occupation" interchangeably,24 there are specific examples where the distinction between these terms is important. For example, in Mayhew v. Suttle, which concerned the question whether a service occupier could sue his employer for trespass, when Wightman J said that "the occupation by the one as servant was the possession of the other as master"25 he was seeking to draw a meaningful distinction 21
See, e.g., L o r d Hoffmann in Hunter v. Canary Wharf Ltd [1997] AC 6 5 5 , 7 0 3 . F P o l l o c k a n d RS W r i g h t , An Essay on Possession in the Common Law (London, C l a r e n d o n Press, 1888) 3 . 23 Ibid,2S. 24 A m o n g t h e d o z e n s of cases in which the expressions "exclusive possession" and "exclusive o c c u p a t i o n " are u s e d indiscriminately see, e.g., the judgment of Fox LJ in Birrell v. Carey (1989) 58 P & C R 184, the speech of Lord Hoffmann in Bruton v. London & Quadrant Housing Trust [1999] 3 W L R 150 a n d , p e r h a p s most strikingly, t h e speech of Lord T e m p l e m a n in AG Securities v. Vaughan [1990] 1 A C 417. 25 (1854) 4 El &B1347,354. 22
The Proprietary Character of Possession 25 between "occupation" (which does not enjoy trespassory protection) and "possession" (which does). (ii) Two contrasting extracts from the case law show that very similar expressions which one might reasonably imagine would refer to the same concept are used to refer to different concepts. In Brown v. Brash Asquith LJ said: Apart from authority, in principle, possession in fact (for it is with possession in fact and not with possession in law that we are here concerned) requires not merely an 'animus possidendi' but a 'corpus possessionis'.26
However, in Powell v. McFarlane Slade J said: If the law is to attribute possession of land to a person who can establish no paper title to possession, he must be shown to have both factual possession and the requisite intention to possess ('animus possidendi').27
Although it might be expected that "possession in fact" and "factual possession" would be used to refer to the same basic notion, the concept which Asquith LJ labelled "possession in fact" Slade J simply called "possession" and the concept which Slade J referred to as "factual possession" is Asquith LJ's "corpus possessionis".
A suggested nomenclature However difficult the terminological problems may appear, an analysis of the law is difficult to undertake unless different forms of possession are distinguished. For the purposes of the current discussion, four different concepts need to be differentiated: "use"; "physical possession"; "possession"; and "the right to exclusive possession". A person cannot be regarded as having a "possessory interest" unless there is a relationship of effective factual control between the alleged possessor and the property in question. In the absence of such a relationship, a person cannot be regarded as being in possession at all.28 What constitutes effective factual control is contextual; it depends on the type of use and occupation of which the property is capable.29 For the purposes of the current discussion, a person with effective factual control of property can be regarded as having "physical possession", whereas a person who does not have effective factual control will normally have no more than "use". Because of the uncertainties surrounding the relationship between "occupation" and "possession", it is probably preferable 26
[1948] 2 KB 247, 255. (1979) 38 P & C R 452, 470. 28 See, e.g., Young v. Hichens (1844) 6 Q B 606; Lotan v. Cross (1810) 2 C a m p 464; Brothers Direct Supply Ltd v. Kaftery [1958] 1 Q B 159. 29 The Tubantia [1924] P 78, 89. 27
Williams
26 Jonathan Hill (though slightly artificial) to describe a person who occupies land without thereby acquiring possession (such as a lodger) as having "use" (rather than "occupation"). As indicated by the extract from Powell v. McFarlane considered above, there are contexts in which the courts stress that physical possession is not, without more, of legal significance. In order to be recognised as a property interest, possession involves two elements: a factual element ("physical possession") and a mental element (animus possidendi).30 Where a person has both physical possession and the required intention—namely, an intention for the time being of possessing the property to the exclusion of all other persons, including the owner31—he can be regarded as having "possession" (also referred to as "actual possession" or "exclusive possession"). Although a person who has possession of another's property will often do so with the consent of the owner (for example, where a chattel is held under a bailment at will), it is perfectly possible for someone to have possession of property notwithstanding the fact that the possession has not been acquired from the owner. For example, the finder of lost property will normally acquire possession of it, but this possession is not based on a grant from the owner,32 and a squatter, who has actual possession of land, has no formal title to it. In these circumstances, the possession is adverse vis-a-vis the owner. An owner or possessor of property may grant to another the right to possession of the property in question. A person who takes possession under a grant of this type has not only actual possession but also "the right to exclusive possession". In cases where the possessor is not also the owner, the key element of the right to exclusive possession is that the possessor has the right to exclude the world at large, including the owner. As Lord Templeman explained in Street v. Mountford, in the context of tenancies of land, a tenant, who has the right to exclusive possession, "can keep out strangers and keep out the landlord unless the landlord is exercising limited rights reserved to him". 33 Except in cases where a new title is created through the operation of the Limitation Act 1980, the right to exclusive possession must be derivative; that is to say, it comes into being because it has been granted by someone with a superior right to possession of the property in question.
Possession, exclusive possession and the right to exclusive possession The use of the phrase "exclusive possession" (for example, in the context of the law of leases) might suggest that in English law there is an important distinction 30
Buckinghamshire County Council v. Moran [1990] C h 623; The Tubantia [1924] P 78. Buckinghamshire County Council v. Moran [1990] Ch 623, 643. See also judgment of Slade J in Powell v. McFarlane (1979) 38 P & C R 452, 471-472. 32 See Parker v. British Airways Board [1989] Q B 1004. 33 [1985] A C 809, 816. 31
The Proprietary Character of Possession
27
to be drawn between "possession" and "exclusive possession". However, unless the phrase "exclusive possession" is used to mean "the right to exclusive possession", the reality is that any supposed distinction between possession and exclusive possession is entirely spurious. The reason for this is that possession, as a property interest which the law recognises and protects, involves, by its very nature, a relationship of exclusivity between the possessor and the thing possessed. The importance of exclusivity is stressed both in the cases and in the academic literature—though it has to be recognised that in assessing exclusivity the context is important. 34 For example, Pollock and Wright say: "Possession is single and exclusive . . . Physical possession is exclusive, or it is nothing". 35 Similarly, in Powell v. McFarlane36 Slade J, having referred to the two fundamental requirements which give rise to possession (i.e. physical possession and animus possidendi), went on to describe the appropriate degree of factual control in the following terms: what must be shown as constituting factual possession is that the alleged possessor has been dealing with the land in question as an occupying owner might have been expected to deal with it and that no one else has done so.37
Slade J concluded that "an owner of land and a person intruding on that land without his consent cannot both be in possession of the land at the same time". 38 Equivalent passages can be found throughout the case law and the academic literature. 39 The use of the phrase "exclusive possession" in the context of leases is entirely understandable and may be useful for emphasising that the tenant, by virtue of his right to exclusive possession, has a right to exclude not only strangers, but also the landlord.40 However, unless care is taken, use of the phrase "exclusive possession" runs the risk of causing unnecessary confusion if it is used as a synonym for "possession"—especially in other contexts (such as in relation to the law of adverse possession41). The danger is not simply that one may be confused into thinking that there is a distinction between "possession" and "exclusive possession". Use of the phrase "exclusive possession" to mean "possession" has the effect of making the phrase "the right to exclusive possession" capable of 34
See Willmer LJ in Fowley Marine (Emsworth) Ltd v. Gafford [1968] 2 QB 618, 638-639. Supra n 22, 2 0 - 2 1 . 36 (1979) 38 P & CR 452. 37 At 471 (emphasis added). See also Pollock and Wright, supra n 22, 30. 3S At 470. '» See, e.g., Holden v. Smallbrooke (1668) Vaughan 187; Ocean Estates Ltd v. Pinder [1969] 2 A C 19; Halsbury's Laws (4th edn Reissue London, Butterworth), vol. 28 para. 769. See also Coverdale v. Charlton (1878) 4 Q B D 104; Fowley Marine (Emsworth) Ltd v. Gafford [1968] 2 Q B 618. Possession, like other property interests, may be enjoyed jointly (such as by joint tenants). Also, possession is regarded as being shared between a bailee at will (who has "actual possession") a n d a bailor at will (who has a right t o immediate possession) a n d between a lessor at will and a t e n a n t a t will, both of w h o m can maintain trespass against a wrongdoer: Wilson v. Lombank Ltd [1963] 1 WLR 1294; Pollock and Wright, supra n 22, 92. 40 Cruise v. Terrell [1922] 1 KB 664. 41 See, e.g., the speech of Lord Hoffmann in Hunter v. Canary Wharf Ltd [1997] AC 655, 703. 35
28 Jonathan Hill bearing one of two meanings: it could mean either the right of a possessor (such as a squatter) to remain in possession (and to maintain trespass against an intruder, other than someone with a superior right to possession) or the right of an owner-occupier or tenant to exclude the world at large.42 Accordingly, when examining the cases one has to be alive to the possibility that the same words are used to describe different concepts. 43 A good example is provided by Lord Templeman's speech in Street v. Mountford.44 Having referred to "exclusive possession" as the hallmark of a tenancy, Lord Templeman stated: The tenant possessing exclusive possession is able to exercise the rights of an owner of land, which is in the real sense his land albeit temporarily and subject to certain restrictions. A tenant armed with exclusive possession can keep out strangers and keep out the landlord unless the landlord is exercising limited rights reserved to him by the tenancy agreement to enter and view and repair.45 In this passage Lord Templeman was using the phrase "exclusive possession" to mean the right to exclusive possession. However, his Lordship went on to say that: an occupier who enjoys exclusive possession is not necessarily a tenant. He may be owner in fee simple, a trespasser, a mortgagee in possession, an object of charity or a service occupier.46 In this passage, Lord Templeman cannot have been using the phrase "exclusive possession" to mean the right to exclusive possession. Although an owner in fee simple has such a right, a squatter 47 does not. A squatter has actual possession— as a consequence of which he can sue stiangers who interfere with his possession in trespass—but, unlike a tenant, a squatter cannot maintain trespass against the owner. A service occupier may have exclusive use and enjoyment of premises, but since he cannot maintain trespass against the owner of the land48 he cannot be regarded as having the right to exclusive possession. Indeed, it seems that a service occupier cannot be regarded as having possession at all, as he cannot maintain trespass even against strangers.49 Later in his speech Lord Templeman repeated that exclusive possession is not decisive: "an occupier who enjoys exclusive possession is not necessarily a
42
In the discussion which follows "the r i g h t to exclusive possession" is used in this second sense. See M C Cullity, " T h e Possessory L i c e n c e " (1965) 29 Conv 336-337. 44 [1985] A C 809. 45 At 816. 46 At 818. 47 Ie, a trespasser in actual possession of l a n d (as opposed to a "(mere) trespasser" who intrudes u p o n someone else's possession w i t h o u t a c q u i r i n g possession). 48 R. v. Stock (1810) 2 T a u n t 3 3 9 ; Bertie v. Beaumont (1812) 16 East 33; Mayhew v. Suttle (1854) 43
4E1&B1351. 49 See Byles J in White v. Bayley (1861) 10 CB (NS) 227, 235. But c o m p a r e Field (arguendo) Mayhew v. Suttle (1854) 4 El & Bl 3 4 7 , 3 5 1 .
in
The Proprietary Character of Possession
29
tenant" because "[t]he occupier may be a lodger".50 However, a lodger cannot be regarded as having possession of the land at all, let alone the right to exclusive possession. This was established in cases such as Allan v. Liverpool Overseers, one of the authorities relied upon by Lord Templeman in Street v. Mountford, in which Blackburn J said: A lodger in a house, although he has the exclusive use of rooms in the house, in the sense that nobody else is to be there, and though his goods are stowed there, yet he is not in exclusive occupation . . . Such a lodger could not bring ejectment or trespass quare clausum fregit, the maintenance of the action depending on the possession.51
Furthermore, in other parts of his speech Lord Templeman explicitly made the point that a lodger does not have exclusive possession; for example, he explained the case of Marchant v. Charters52 "on the grounds that the occupier was a lodger and did not enjoy exclusive possession".53 So, it can be seen that during the course of his speech Lord Templeman used the phrase "exclusive possession" to describe three different concepts: (i) the right to exclusive possession, which is enjoyed by both owner-occupiers and tenants; (ii) the actual possession of a squatter; and (iii) the use or enjoyment of a lodger or service occupier.
The relativity of rights to (exclusive) possession Although "possession" as a legal concept necessarily involves a relationship of exclusivity between the possessor and the thing possessed, it does not follow that a right to possession must also be exclusive: "A may have the right to possess a thing as against B and everyone else, while B has at the same time a right to possess it as against everyone except A".54 The relativity of rights to possession is well illustrated by cases involving squatters. Where B is in adverse possession of land belonging to A, B has a right to possession which the law protects against infringement by anyone other than A (or A's successors in title). If B grants a tenancy of the land to C, C then has the right to possession which is enforceable against B and strangers, but he does not have a right to exclude A, who as legal owner has a superior right to possession which is enforceable against everyone. The basic principle is that "[a] person in peaceable possession of land has, as against every one but the true owner, an interest capable of being inherited, devised or conveyed".55 This state of affairs is "merely the product of the relative character of title to land in English law". 56 50 51 52 53 54 55 56
[1985] AC 809, 823. (1874) LR 9 QB 180, 191-192. See also Monks v. Dykes (1839) 4 M & W 567. [1977] 1 WLR 1181. [1985] AC 809, 824. Pollock a n d Wright, supra n 22, 27. M a r k b y (arguendo) in Asher v. Whitlock (1865) LR 1 Q B 1, 2 - 3 . Millett LJ in First National Bank Pic v. Thompson [1996] 2 WLR 293, 297.
30 Jonathan Hill Recognition of the relativity of rights to possession is the key to the decision of the House of Lords in Bruton v. London & Quadrant Housing Trust.57 Lambeth Borough Council had granted a licence of premises to the defendant, a housing trust, which in turn purported to give a weekly licence of a flat within the premises to the plaintiff. The plaintiff claimed that he was a tenant and that the defendant was in breach of its implied repairing obligations under section 11 of the Landlord and Tenant Act 1985. There was no doubt that the arrangement between the council and the defendant was not a tenancy, because the council did not have the power to grant a tenancy to the defendant without the Secretary of State's consent (which had not been obtained). Nevertheless, it seems to have been assumed that the defendant had actual possession of the premises in question. 58 The defendant argued that, since it did not have an estate in the land, it was not capable of granting an estate to the plaintiff. The House of Lords held that, as against the defendant, the plaintiff had the right to exclusive possession and was, therefore, a tenant. The effect of the transaction was to confer on the plaintiff a right to possession which was enforceable against strangers and the defendant. However, the tenancy between the parties would not be binding on or enforceable against the council, whose right to possession was superior to that of the defendant and anyone claiming through the defendant. 59 So, although the plaintiff's possession of the flat was exclusive, his right to possession was not.
LICENSEES OF LAND AND TRESPASSORY PROTECTION
Although there are some cases which suggest that title to sue in trespass depends on the claimant having an estate in the land,60 the weight of authority supports the proposition that certain categories of licensee can sue for trespass.61 The argument that the range of durable interests is narrower than interests which enjoy trespassory protection is largely based on these authorities.
57 [1999] 3 W L R 150 (discussed by S Bright (2000) 116 LQR 7, M Dixon [2000] CL] 25 and D R o o k [1999] Conv 517), reversing the decision of the Court of Appeal [1998] QB 834 (discussed by S Bright (1998) 114 L Q R 345 and J M o r g a n [1999] C o m / 4 9 3 ) . 58 See Millett LJ at [1998] Q B 834, 846. 59 See Lord H o b h o u s e at [1999] 3 W L R 150, 159-160. See Millett J in London Borough of Camden v. Shortlife Community Housing (1992) 25 H L R 330, 347. 60 See, e.g., White v. Bayley (1861) 10 C B (NS) 227 in which Byles J said (at 235) that a person cannot sue for trespass unless he has " t h e possession of an estate of freehold or inheritance, or by lease for years, or at will". 61 See, e.g., the speech of Lord Upjohn in National Provincial Bank v. Ainsworth [1965] AC 1175, 1232. As regards title to sue in nuisance see Hunter v. Canary Wharf Ltd [1997] AC 655.
The Proprietary Character of Possession 31 Squatters and trespass
It is well established that a person in actual possession of land can sue for trespass even though he is not the owner of the land, nor derives title from the landowner.62 For example, in Catteris v. Cowper63 the plaintiff, without the consent of the landowner, mowed the grass and pastured a cow on waste land for two years. This was sufficient to enable the plaintiff to maintain trespass against the defendant who interfered with the plaintiff's use and enjoyment of the land. The headnote reads: Mere prior occupancy of land, however recent, gives a good title to the occupier, whereupon he may recover, as Plaintiff, against all the world, except such as can prove an older and better title in themselves.64
Although a squatter does not have a formally created interest, he has, at common law, title to an estate in fee simple by virtue of his possession. The squatter's actual possession is properly regarded as a property interest, notwithstanding the fact that, during the twelve-year limitation period, the squatter's title is subordinate to that of the owner, who is entitled to recover possession of the land and mesne profits. If the paper owner sells the land the purchaser acquires the land subject to the adverse interest of the squatter.65 To the extent that the squatter's interest is a burden against the vendor's title, it is equally a burden against the purchaser's. The purchaser cannot obtain possession against the squatter if, at the time of the sale, the vendor's title has been extinguished by lapse of time; if the vendor's title is not extinguished, the purchaser must commence an action to recover possession of the land within twelve years of the date when the squatter acquired actual possession against the vendor, rather than within twelve years of the purchase.
Licensees and trespass There is a series of cases from the eighteenth and nineteenth centuries in which the courts held that a person in possession of land with the permission of the owner could successfully maintain an action against a trespasser notwithstanding the fact that he did not have an estate in the land. In policy terms, it is difficult to see how the law could have adopted any other solution. Of course, a "mere licensee", who does not have possession of the land, must fall outside the 62 Clerk & Lindsellon Torts (17th edn, London, Sweet & Maxwell, 1995) para. 17-13. T h e position as regards chattels is the same: Smith v. Milles (1786) 1 T e r m Rep 475, 480. «•> (1812) 4 T a u n t 547. 64 Ibid. See also Doe d Hughes v. Dyeball (1829) M o o d & M 346; Matson v. Cook (1838) 4 Bing N C 392; Every v. Smith (1857) 26 LJ Ex 344. 65 In registered land, rights acquired or in the course of being acquired under the Limitation Acts are an overriding interest: Land Registration Act 1925, s 70{\){f).
32 Jonathan Hill protective ambit of the law of trespass.66 If, however, a licensee, who occupies land with the owner's permission, can establish that he has actual possession, he ought to be treated no less favourably than a squatter, whose possession is acquired without the permission of the landowner. The cases involving squatters reveal that actual possession, as a property interest, can be enforced against strangers notwithstanding the fact that, unless and until the limitation period has expired, it cannot be enforced against the owner who has a superior right to possession. There is no reason in principle why a licensee with actual possession (but without the right to exclusive possession) should not be in the same position. In Harker v. Birkbeck67 the sole right to extract lead from a plot of land was vested in M. R, M's agent, entered an agreement on M's behalf with the plaintiff. Under the terms of the agreement the plaintiff was granted the right to extract lead ore from the land in question. When the defendant interfered with the plaintiff's right litigation ensued. Lord Mansfield, who proceeded on the basis that the plaintiff's agreement was not a lease, held that the plaintiff was entitled to bring an action for trespass: "Whoever is in possession, may maintain an action of trespass, against a wrong-doer to his possession".68 In Graham v. Peat69 the plaintiff was in possession of glebe land, under a lease which had become void by the non-residence of the rector. It was held that the plaintiff had a sufficient possession to enable him to maintain trespass against a wrongdoer. In words which echoed those of Lord Mansfield, Lord Kenyon CJ said: "Any possession is a legal possession against a wrong-doer".70 Graham v. Peat is significant because it illustrates the relativity of rights to possession; although the plaintiff did not have the right to exclusive possession—the rector who had rendered the lease void by his non-residence could have recovered the land from the plaintifP1—he had a sufficient interest to bring an action for trespass against a stranger. The same points emerge from Harper v. Charlesworth72 in which land was granted by the Crown to the plaintiff under a purported lease which failed to comply with the necessary formalities. Again, the question was whether the plaintiff had title to sue the defendant, a stranger, for trespass. It was held that he did. So, even though the plaintiff could not have retained possession against the Crown, 73 he had a right to possession which was enforceable against the defendant. To describe these cases as supporting the proposition that certain categories of licensee can sue for trespass is potentially misleading. In Graham v. Peat the court did not analyse the plaintiff's interest (other than to decide that he was in 66 67 68 69 70 71 72 73
Allan v. Liverpool Overseers (1874) LR 9 QB 180. (1784) 3 Burr 1556. At 1563. (1801) 1 East 244. At 246. As in Frogmorton d Fleming v. Scott (1802) 2 East 467. (1825) 4 B & C 574. See Holroyd a n d Littledale JJ at 594.
The Proprietary Character of Possession
33
possession of the land in question) and it would seem that, if it had been necessary to classify the plaintiff's interest, it would have been a tenancy at will rather than a licence.74 Only in Harper v. Charlesworth did the court decide that the plaintiff was a licensee—though, had the land been owned by an individual (rather than the Crown), the plaintiff would have been a yearly tenant or tenant at will.75 Nevertheless, it is important to note that the outcome of the litigation turns on neither the terms of the licence nor, indeed, the existence of the licence itself. There was no question of the plaintiff in Harper v. Charlesworth enforcing the terms of the licence against the defendant. Where a licensee successfully sues for trespass he can succeed not qua licensee, but qua possessor of the land. The interest which justifies trespassory protection is not the licence, but the licensee's actual possession. In principle, cases such as Harper v. Charlesworth are very similar to those involving squatters. The licensee in actual possession can maintain trespass against a stranger, but—because he does not have the right to exclusive possession—he cannot do so against the owner of the land, who has a superior interest.76 It is important to distinguish, on the one hand, the licensee's actual possession, which, through the law of trespass, is protected against interference from strangers and, on the other, the licensee's contractual rights, which are enforceable only against the licensor. The licensee's actual possession is a property interest—notwithstanding the fact that, because it does not enjoy trespassory protection vis-a-vis the licensor, it cannot be enforced against the licensor's successors in title—whereas the licensee's contractual rights are personal. A failure to appreciate the significance of these fundamental distinctions lies behind the surprising decision of the Court of Appeal in Manchester Airport Pic v. Dutton.77 The owner of a wood granted a licence to the plaintiff to fell and lop some of the trees in the wood. A few days before the grant of the licence, the wood had been occupied by the defendants, who intended to obstruct the proposed works. The plaintiff applied for an order for possession under RSC, Order 113. The order was granted at first instance and the defendants' appeal was dismissed. Although it was accepted on all sides that a licensee in actual possession can sue 74 C H a r p u m , Megarry & Wade: The Law of Real Property (6th edn, London, Sweet & Maxwell, 2000) para. 14-075. 75 Holroyd J at 593. 76 Browne v. Dawson (1840) 12 Ad & El 624; Delaney v. TP Smith Ltd [1946] KB 393. T h e r e are, however, two ways in which the licensee's position differs from that of the squatter: (i) because the licensee has actual possession with the owner's consent, the licensee's possession cannot mature into full ownership by virtue of the Limitation Act 1980: (ii) whereas a squatter has no possible defence to the owner's action for possession (as long as the owner's title has not been extinguished), a contractual licensee may be protected against intrusion from the licensor as a result of the court's willingness to enforce specifically the terms of the contract; in appropriate cases, the court may grant an equitable remedy to prevent the licensor from revoking or terminating the licence in breach of the terms of the contract, whether the licensee has gone into occupation of the land (Winter Garden Theatre (London) Ltd v. Millennium Productions Ltd [1948] AC 173) or the licence is executory {Verrall v. Great Yarmouth BC [1981] Q B 202). 77 [1999] 3 WLR 524.
34 Jonathan Hill a third party for trespass (in the same way as a tenant or a squatter), 78 the point on which the Court of Appeal was divided was whether a licensee who is not in actual possession can bring an action for ejectment against a trespasser on the basis of his rights under the licence. Whereas Chadwick LJ considered that it has long been established that a licensee who is not in actual possession does not have title to bring an action for ejectment,79 the majority decided that, if a licensee in actual possession can sue for trespass, it should follow that a licensee not in actual possession but with a right to possession is able to bring an action for ejectment. There are various angles from which the decision of the majority can be questioned. 80 In terms of first principles, the premise on which the majority founded its decision—namely that, if a licensee in actual possession can sue for trespass, it follows that a licensee with the right to possession should be able to bring an action for ejectment—is false. Neither authority nor principle supports the view that licences are, in general, entitled to trespassory protection against strangers. Although Laws LJ thought that in the defendant's argument he could "hear the rattle of medieval chains",81 the distinction between a licensee in actual possession and a licensee with a right to possession, far from being arbitrary, is a crucial one from the point of view of the fundamental conceptual divide between property interests and personal rights. When a contractual licence is correctly referred to as conferring a personal right on the licensee, what this signifies is that its terms are enforceable only by and against the parties to the contract; that is to say, a licence to occupy land does not give the licensee rights which can be asserted against strangers (a term which includes, of course, a purchaser of the land to which the licence relates). It has been seen that, in a case where a licensee successfully sues for trespass, the plaintiff does not maintain trespass on the basis of his rights under the licence but on the basis of his actual possession of the land. (Since a squatter can sue a stranger for trespass, the existence of the licence in such a case is irrelevant.) However, by allowing the plaintiff in the Manchester Airport case to obtain possession against the defendants the majority of the Court of Appeal crossed the boundary between, on the one hand, property interests (a category which includes freehold and leasehold estates and actual possession) and, on the other, personal rights. The effect of the majority's decision was to permit the enforcement of the terms of the plaintiff's contractual licence against the defendants, notwithstanding the fact that the latter were not parties to it. This is made clear by Laws LJ who considered that "the true principle is that a licensee not in occupation may claim possession against a trespasser if that is a necessary remedy to vindicate and give effect to such rights of occupation as by contract with his 78 79 80 81
Laws LJ at 538; Chadwick LJ at 531 and 532. At 5 3 1 . See also the judgment of Holroyd J in Harper v. Charlesworth (1825) 4 B & C 574,594. See E Paton and G Seabourne [1999] Conv 535; WJ Swadling (2000) 116 LQR 354. [1999] 3 W L R 524, 537.
The Proprietary Character of Possession 35 licensor he enjoys".82 It is hard to see how the reasoning of the majority can be reconciled with the law's characterisation of contractual licences as giving rise only to personal rights.
THE DURABILITY OF A BAILEE S INTEREST
There is a conceptual link between trespassory protection and durability—in the sense that a possessory interest which enjoys trespassory protection vis-a-vis strangers is also, to the extent that it enjoys trespassory protection vis-a-vis the transferor, enforceable against a transferee. Any other solution would make nonsense of the distinction between property interests (which are enforceable against third parties) and personal rights (which are not). So, a licensee (or a squatter) in actual possession of land can maintain trespass against someone who intrudes on that land, other than the landowner or the landowner's successors in title. By contrast, a tenant, who has the right to exclusive possession, can maintain trespass against the landlord as well as strangers, including the landlord's successors in title. On the basis of this analysis, it would be reasonable to suppose when a chattel is bailed (as a result of which possession of the chattel is vested in the bailee) the bailee can enforce his possessory interest against a purchaser of the bailor's interest—though only if, and to the extent that, the bailee's interest enjoyed trespassory protection vis-a-vis the bailor. Not surprisingly, there is a body of opinion which suggests that this is, indeed, the law. For example, Holdsworth's opinion was that: It is obvious that if A has let... his chattel to B, and has transferred its possession to B, and if he then sells it to C, C can only take it subject to B's legal rights.83 This understanding is not, however, universally shared. For example, JW Harris has suggested that "rights conferred on bailees of chattels by contracts of bailment are not, in English law, usually protected against successors of the bailor"84 and Swadling has argued that "the rights of the hirer of goods, unlike those of the lessee of land, have never been admitted to [the list of property interests]". 85
The authorities The authorities which address the question whether a bailee's interest is enforceable against a purchaser of the bailed property are few and far between. 82 83 84 85
[1999] 3 W L R 5 2 4 , 5 3 8 (emphasis added). (1933) 49 LQR 576, 580. Supra n 3, 59. Swpra n 3 , 5 2 5 .
36 Jonathan Hill Many of the cases which are discussed in the relevant literature are of no more than limited significance to the question under consideration. For example, the dictum from De Mattos v. Gibson,86 which might be said to support the view that contractual rights in personalty are enforceable against a third party who has actual notice of them, was made in the context of a case in which the plaintiff did not have possession of the property in question. Similarly in neither Lord Strathcona Steamship Co Ltd v. Dominion Coal Co Ltd,87 (in which the De Mattos principle was approved by the Privy Council) nor Port Line Ltd v. Ben Line Steamers Ltd88 (in which Diplock J disapproved of the Lord Strathcona case and sought to reassert the principle that a purchaser of personal property is not bound by a third party's contractual rights) did the plaintiff have possession, as both involved a time charter, rather than a charter by demise. Moreover, in neither case was there any direct discussion of the enforceability of possessory interests against third parties. In the Port Line case Diplock J emphasised that "[t]he plaintiffs' charterparty . . . was a gross time charter, not one by demise. It gave the plaintiffs no right of property in or to possession of the vessel."89 To the extent that this passage casts any light on the durability of a bailee's interest, it might be thought impliedly to suggest that, had the plaintiffs been in possession of the vessel under a demise charter, Diplock J's view of the case might have been different. Furthermore, none of the more recent cases which have considered the De Mattos principle have involved a plaintiff in possession of personal property, 90 and none of the cases which might be thought to suggest that rights in personal property, other than ownership, are not capable of binding a purchaser involved a possessory interest.91 On the basis of these cases, it is impossible to construct a strong argument either for or against the proposition that the transferee of a chattel in the possession of a bailee is bound by the bailee's interest to the same extent as the bailor. There are, however, two significant cases involving possessory interests. The report of Rich v. Aldred92 includes the following passage: If A bail goods to C and after give his whole right in them to B B cannot maintain detinue for them against C because the special property that C acquires by the bailment is not thereby transferred to B. This dictum seems clear authority for the enforceability of a bailee's interest against third parties, including transferees of the bailor. It is supported by Franklin v. Neate,93 a case involving a pledge, which is generally regarded as 86
(1858) 4 De G 8c J 276. [1926] AC 108. [1958] 2 QB 146. 89 At 163. See also at 166. 90 See, e.g., Swiss Bank Corporation v. Lloyds Bank Ltd [1979] Ch 548. 91 See Taddy & Co v. Sterious & Co [1904] 1 Ch 354; McGruther v. Pitcher [1904] 2 Ch 306; Barker v. Stickney [1919] 1 KB 121; Mac-Jordan Construction Ltd v. Brookmount Erostin Ltd [1992] BCLC 350. 92 (1705) 6 M o d 216. 93 (1844) 13M& W481. 87 88
The Proprietary Character of Possession 37 authority for the proposition that the interest of the pledgee is binding on a purchaser of the pledged chattel from the pledgor. Arguably, the case is authority for more than this, since Rolfe B, after having referred to Rich v. Aldred, stated that "there does not seem to be any solid ground of distinction, in this respect, between a bailment by way of pawn and any other bailment".94 So, although the cases are not unequivocal, it is submitted that they support the proposition that a bailee's possessory interest is binding on a purchaser.
The relevance of the land law cases Swadling relies on the cases relating to the title of licensees to sue for trespass to attempt to establish that proprietary status is not connected to trespassory protection: It is all too easy to fall into the trap of thinking that because the [licensee] has possession and is thereby able to sue third parties who interfere with that possession he must have a proprietary right. That such a conclusion is false is demonstrated by the land law cases which show that while an occupational licensee of land can sue third parties in trespass he does not have a proprietary right in the land: that lesson must be carried over into the law of personal property.95 The problem with this passage is that it fails adequately to distinguish the licensee's contractual rights (which are irrelevant to the question of trespassory protection) and the licensee's actual possession (on which his claim to trespassory protection is based). As the previous section has endeavoured to show, the supposed dichotomy between trespassory protection and durability is a false one. An occupational licensee can sue third parties in trespass on the basis of actual possession and, as the adverse possession cases show, actual possession is a durable interest, because it is, in principle, capable of binding a purchaser. The fact that a licensee in actual possession cannot enforce his possessory interest against someone who derives title from the licensor does not prove that his possession is not a property interest; the licensee's possessory interest cannot be enforced against a transferee of the land for the simple reason that it does not enjoy trespassory protection vis-a-vis the licensor.
Analogy and principle Although different types of bailment serve different economic purposes their basic structure is the same—in the sense that the bailee has possession of the goods. Once it is accepted that a pledgee's interest is binding on a purchaser, arguments based on coherence and consistency suggest that, to the extent that it 94 95
At 486. Supra n 13,525.
38 Jonathan Hill benefits from trespassory protection vis-a-vis the bailor, the possessory interest of other classes of bailee should also be binding on a purchaser. Furthermore, although it would be a mistake to try to make too much of linguistic arguments, it is perhaps worth noting that the language of bailment is consistent with the idea that the bailee's interest is a property interest. The proprietary nature of a pledgee's interest is recognised by use of the label "special property" to describe it and, although there are dicta which draw a distinction between a pledgee's "special property" and a simple bailee's "possession" or "right to possession",96 it is not uncommon for the term "special property" to be applied, not only to a pledgee's interest, but also to the possessory interests of other types of bailee.97 While Swadling recognises that a pledgee's special property is enforceable against a purchaser of the pledged goods, he argues that it does not follow that the interest of other types of bailee has a similar impact on third parties. For example, no one can doubt that the interest of a bailee at will does not bind a purchaser, even though a bailee at will enjoys trespassory protection against strangers. 98 Swadling suggests that a hire of chattels "bears a greater similarity to a gratuitous loan than to a pledge. In fact, the only thing separating a gratuitous loan from a hire of goods is that the promise to allow the bailee possession of the goods for a certain term is given for consideration."99 This is a surprising statement for two reasons. First, it is at least arguable that a hire is more like a pledge than a gratuitous loan on the basis that hire and pledge are onerous transactions. Secondly, the suggested analogy between a hire of goods and a bailment at will overlooks a fundamental distinction between them. The defining characteristic of a bailment at will is that it can be terminated by the bailor at any time. Since, in proprietary terms, a purchaser of a bailed chattel cannot be in a worse position than the bailor, it goes without saying that a bailee at will cannot enforce his interest against a purchaser. In this sense, a bailment at will is very like a tenancy at will. Although a tenant at will can sue a stranger in trespass, his interest can be terminated by the landlord at any time and does not bind a transferee of the land. 100 Similarly, a bailee at will can maintain an action against anyone who interferes with his possessory interest,101 other than the bailor or someone who acquires the property from the bailor. Just as it does not follow from the fact that a tenant at will cannot enforce his interest against a transferee 96
See The Jag Shakti [1986] AC 337. See, e.g., Colwill v. Reeves (1811) 2 Camp 575, 576; Ashby v. Tolhurst [1937] 2 All ER 837, 841; Broome v. Pardess Co-operative Society of Orange Growers (Established 1900) Ltd [1939] 3 All ER 978, 984; Hibbert v. McKiernan [1948] 2 KB 142, 149; Kowall v. Ellis (1977) 76 DLR (3d) 546, 548; Re Bond Worth Ltd [1980] Ch 228, 247. See also Pollock and Wright, supra n 22, 5. For consideration of the relationship between "possession" and "special property" see N Curwen, "General and Special Property in G o o d s " (2000) 20 LS 181. 98 See, e.g., O'Sullivan v. Williams [1992] 3 All ER 385. 99 Swadling, supra n 13, 518. 100 Doe d Bennett v. Turner (1840) 7 M & W 226. A tenancy at will is brought to an end by the landlord alienating his interest (though termination occurs when the tenant at will has notice of the alienation): C o Litt 55b. 101 Rooth v. Wilson (1817) 1 B & Aid 59. 97
The Proprietary Character of Possession 39 of the land that other types of tenant cannot do so, it does not follow from the fact that a bailee at will cannot enforce his interest against a purchaser that other types of bailee cannot. Where goods are bailed under a contract of hire, the bailment cannot be terminated at the will of the owner; if the owner interferes with the bailee's possession of the bailed chattel, the bailee can invoke the trespassory protection provided by the law of tort. In this sense a hire of chattels looks very similar to a lease of land; a hirer of goods in possession, like a tenant in occupation of land, has not only actual possession, but also the right to exclusive possession. In City Motors (1933) Proprietary Ltd v. Southern Aerial Super Service Proprietary Ltdm2 the plaintiff acquired a new vehicle on hire purchase from the defendant. When the vehicle provided by the plaintiff in part exchange broke down the defendant took back the new vehicle. The High Court of Australia held that the defendant was liable for wrongfully interfering with the plaintiff's possession. In the words of Windeyer J: The special property . . . which a bailee has can . . . be asserted even against the owner. .. . Similarly, a bailee wrongfully dispossessed by the bailor can sue either for trespass to goods or in trover or in detinue.103 The fact that a hirer can sue the owner for trespass or conversion is significant because it emphasises that the basis of the bailee's action is his property interest in the goods, rather than his contractual rights. If the hirer's action against the owner were simply for breach of contract, the argument that the hirer's interest should be binding on a purchaser would be much harder to sustain; but the fact that the hirer can, through the law of tort, enforce his possessory interest against the owner in the same way as he can enforce it against strangers is the strongest possible indication that the interest is proprietary in nature.
CONCLUSIONS
The fundamental characteristic of a property interest is that it is enforceable against strangers. Since, from the point of view of the holder of the interest, a transferee of the property is no less a stranger than a mere trespasser the law would be inconsistent if it gave trespassory protection against strangers (generally) but not against purchasers (in particular). Although, in principle, any interest which benefits from trespassory protection is capable of binding a transferee, such an interest cannot be enforceable against a transferee if it is does not enjoy trespassory protection vis-a-vis the transferor. 102 (1961) 106 CLR 477. 103 A t 4 9 1 s e e a | s o Robert v whyatt (1810) 2 Taunt 268, Eagles {arguendo) in Peachey v. Wing (1826) 5 LJ OS KB 55, 56 and Heydort and Smith's Case (1611) 13 Co Rep 67, 69. For the criminal liability of a bailor who takes property in the possession of a bailee see Ross v. Matt [1951] 1 KB 810. See also Pollock and Wright, supra n 22, 165.
40 Jonathan Hill Although possession confers a right in the nature of property (rather than simply a personal right to be protected against wrongdoers),104 it is not enforceable against either the owner or the owner's successors in title unless it is coupled with the right to exclusive possession. It follows that a licensee or squatter in actual possession (but without the right to exclusive possession) cannot claim trespassory protection vis-a-vis the owner or the owner's successors in title. As a contractual licensee who is not in actual possession has only personal rights (which should be enforceable only against the licensor), the decision in Manchester Airport Pic v. Dutton is contrary to principle. Notwithstanding the relative absence of authority on the point, such authority as there is supports the proposition that the interest of a bailee (other than a bailee at will) is capable of binding the bailor's successors in title. Arguments of principle point in the same direction; by analogy with the land law cases, the possessory interest of a bailee, to the extent that it enjoys trespassory protection vis-a-vis the original bailor, is capable of binding a person to whom ownership of the bailed chattel is transferred.
104
Pollock and Wright, supra n 22, 93.
The Place of the Equitable Lien as a Remedy DAVID WRIGHT 5
INTRODUCTION
J has observed that "[t]he equitable W lien has been somewhat a Gummow mysterious creature". The focus of this essay RITING EXTRA-JUDICIALLY
1
will be on gaining an understanding of this "mysterious creature" when it has been employed remedially.2 This essay does not attempt to understand the equitable lien by attempting to discover a unifying basis of it. Attempting to understand it by striving to find what generates the equitable lien is a largely futile effort. This futility is most clearly indicated by the impressive attempt by Phillips.3 Rather than an attempt to clarify its genesis, it is much more productive to an understanding of the equitable lien to compare it to a closely related entity, the constructive trust.4 In this essay, this understanding will be based upon the examination of the contributions of various Common Law jurisdictions, particularly Canada. The increased role of the remedial equitable lien is part of a larger legal phenomenon of remedial flexibility. By appreciating the growth of remedial flexibility it is possible to gain a greater understanding of the remedial equitable lien. Following this the current use of the equitable lien in England and Australia will be established which will show the remedial place of the equitable lien. This will be followed by a section on the "tailorability" of the equitable lien in the United States and Canada which both is consistent with greater remedial flexibility and may permit the better use of the equitable lien. As such, it indicates how the equitable lien, used as a remedy, may develop. All of this will give a much better understanding of the use of the equitable as a remedy. * Valuable research was undertaken for this essay by two recent graduates of this university, Ms Jodie Bradbrook and Mr Jamie Darams. Special thanks to Jane Cox. 1 "Names and Equitable Liens" (1993) 109 LQR 159 at 162. 2 It is certainly possible to refer to remedial equitable liens as non-consensually created equitable liens. 3 J Phillips, "Equitable Liens-A Search for a Unifying Principle" in N Palmer and E McKendrick (eds), Interests in Goods (London, Lloyd's of London Press, 1993). 4 The connection with the constructive trust may also indicate the basis of the award of the equitable lien. That is, it may be employed in similar situations where the constructive trust is awarded.
42
David Wright
To begin with, it is best briefly to explain what is an equitable lien. Largely there are two varieties of equitable lien,5 the institutional and the remedial. The precise meaning of these two terms is not clear. Generally, the "institutional" label is attached to situations where a legal device, such as constructive trust, is usually awarded, whereas the label "remedial" is generally used to designate the awarding of such a legal device in a situation where that legal device is not usually awarded. Both varieties of equitable liens are secured equitable charges. The effect of declaring an equitable lien is to give to the plaintiff a security interest in the property so that the plaintiff has a preferred claim against the property without being entitled to ownership6 or a right to possession. The futility of discovering what generates the equitable lien is well appreciated. As Gibbs CJ noted in Hewett v. Court7 "[i]t would be difficult, if not impossible, to state a general principle which would cover the diversity of cases in which an equitable lien has been held to be created". There are numerous situations which have traditionally given rise an equitable lien. As Waters has noted 8 : As a consequence, the list of equitable liens, an obligation imposed by case law, not originating in agreement, is something of a themeless rag-bag. As has been stated, trying to find the genesis of all equitable liens is extremely difficult. It becomes easier to understand the equitable lien if they are divided into institutional and remedial equitable liens. This essay will examine the difficult case of the remedial equitable lien. The remedial aspect of equitable liens was stressed by Isaacs J in Davies v. Littlejohn9 where his Honour stated that equitable liens are "part of a scheme of equitable adjustment of mutual rights and obligations". 10 Consistent with this Waters has suggested that11: It is difficult to believe that a court today, given the ("unconscionability") principle underlying this and so many other equitable doctrines, would not seek to extend the precedents so as in appropriate circumstances to impose a lien, though the value judgment of society centuries or even decades ago did not recognise the need. Indeed, the •s Similar to the application of this division with constructive trusts, this division is not precise. But it is both a useful and well-known division. However, this division does carry with it intellectual "baggage", in that opposition to the remedial constructive trust, is based on a fear of the unprincipled and random award of proprietary remedies. It needs to be noted that proprietary remedies should be awarded only extremely cautiously. 6 J Dewar, "The Development of the Remedial Constructive Trust" (1982) 60 Can Bar Rev 265 at 277-278; Fratcher and Scott, The Law of Trusts (Boston, Little, Brown &C Co, 1989), v, 331; Restatement of Restitution, s 161. Note also the view of Deane J in Hewett v. Court (1983) 149 CLR 639 at 663 that "[t]hough called a lien, it is, in truth, a form of equitable charge over the subject property". 7 Ibid, 645. 8 "Where is Equity Going? Remedying Unconscionable Conduct" (1988) 18 UWALR 3 at 24. 9 (1923) 34 CLR 174. 10 Ibid, at 185. Gibbs CJ in Hewett v. Court (1983) 149 CLR 639 at 645 held that this statement had application to all equitable liens. 11 D Waters, "Where is Equity Going? Remedying Unconscionable Conduct" (1988) 18 UWALR 3 at 25.
The Place of the Equitable Lien as a Remedy
43
miscellaneous nature, as well as the questionable limits, of some of the equitable liens recognised by equity suggest this has always been the approach equity courts have taken. At the bottom of this issue has been the question of the jurisprudential basis of the equitable lien12 and, perhaps, this is an extremely difficult task to begin with. A more productive way may be to examine what the equitable lien resembles. Dobbs 13 has perceived the equitable lien as operating as a "special, and limited, form of the constructive trust" 14 and "it operates like the constructive trust in affording a preference over other creditors and in utilizing the rules for following property into its products". 15 Importantly, there is a strong connection between the so-called remedial constructive trust and the equitable lien. In an important review of a House of Lords judgment Gummow J has stated that16: One consequence of the speeches in Lord Napier may be the payment of greater attention to the equitable lien in those Commonwealth jurisdictions where there is a growing attachment to the so-called 'remedial constructive trust'. As the High Court of Australia has recently held17: Before a constructive trust is imposed, the court should first decide whether, having regard to the issues in the litigation, there is an appropriate equitable remedy which falls short of the imposition of a trust. However, while there has been great attention paid to the constructive trust, little attention has been paid to the equitable lien. As it can be an alternative remedy to the constructive trust this underexposure is unfortunate. Much can be learnt about the remedial equitable lien by examining the constructive trust. This is particularly true as the remedial equitable lien offers an alternative to the court awarding a remedial constructive trust and, in this way, it reduces pressure on the entire issue of the remedial constructive trust.
THE JURISPRUDENTIAL LINK BETWEEN CONSTRUCTIVE TRUSTS AND EQUITABLE LIENS
In Westdeutsche Landesbank Girozentrale v. Islington LBC*8 Lord BrowneWilkinson indicated the attraction of being able to tailor remedial proprietary orders by holding that:19 12
J Phillips, supra n 3, is devoted to this precise topic. Handbook on the Law of Remedies (2nd nd, St Paul, Minn, West Publishing Co, 1993), i. 14 In Giumelli v. Giumelli (1999) 161 ALR 473, para [32] also referred to the equitable lien as a "special and limited" form of constructive trust. 5 Handbook on the Law of Remedies, supra n 13, 601. 6 "Names and Equitable Liens" (1993) 109 LQR 159 at 163. 7 Giumelli v. Giumelli (1999) 161 ALR 473, para 10. 8 [1996] 2 All ER 961. 9 At 999. 13
44
David Wright the remedial constructive trust, if introduced into English law, may provide a more satisfactory road forward ... Since the remedy can be tailored to the circumstances of the particular case, innocent third parties would not be prejudiced and restitutionary defences, such as change of position, are capable of being given effect. However, whether English law should follow the United States and Canada by adopting the remedial constructive trust will have to be decided in some future case when the point is directly in issue.20
It has been suggested that the decision of the English Court of Appeal in Polly Peck (No 2) has killed off the potential for the remedial constructive trust in England.21 Although this has been shown clearly to be a false suggestion22 it must be admitted that there has been no decision explicitly recognising the remedial constructive trust in England. However, there has been such a recognition in Australia.23 In Bathurst City Council v. PWC Properties24 the High Court of Australia divided the constructive trust into two varieties. The first involved situations where there is intent to transfer property but the transfer fails for want of compliance with legal formalities.25 This has been referred to as the institutional constructive trust.26 The second variety of constructive trust that the High Court recognised was based on Muschinski v. Dodds27 and Baumgartner v. Baumgartner.28 It may be imposed by the court in disregard of intention in situations where this legal device has not been imposed previously. It may be referred to as the remedial constructive trust. Thus there are two varieties of the constructive trust. The equitable lien demonstrates the same dual characteristics. In their work the American academics Bogert and Bogert perceived the equitable lien as falling into two main classes that mirror the two varieties of constructive trust. According to the authors the first class is where the lien is the result of intention and the second main class of equitable liens consists of equitable liens imposed by the court.29 It is instructive to examine briefly Canadian jurisprudence at this point as it indicates the close relationship between the remedial equitable lien and the constructive trust. 20 It is unfortunate that "Counsel for the bank specifically disavowed any claim based on a constructive trust" ([1996] 2 All ER 961 at 990) as the court did not have to discuss this issue in detail. 21 E.g., Professor P Birks, " T h e End of the Remedial Constructive T r u s t " (1998) 12 Trust LI 202 and Birks, " T h e Law of Restitution at the End of an Epoch" (1999) 28 UWALR 13. 22 D Wright, "Professor Birks and the Demise of the Remedial Constructive T r u s t " [1999] RLR 128. 23 Also this is true for N e w Zealand, see the N e w Zealand Court of Appeal decision in Fortex Croup Ltd v. Macintosh [1998] 3 N Z L R 171. This case is discussed, in detail, in D Wright, " T h e Remedial Constructive T r u s t in New Zealand" (1998) 4 NZ Business LQ 225. 24 (1998) 157 ALR 414. 25 T h e High C o u r t discussed this variety of constructive trust at para [39] of Bathurst. 26 Although it might be m o r e accurate to refer to this variety as the failed intention constructive
trust. 27
28
(1985) 160 CLR 583.
(1987) 164 CLR 137. 29 The Law of Trusts and Trustees (2nd edn, St Paul, M i n n , West Publishing C o , 1977), 258-260. See also Shirlaw v. Taylor (1991) 31 FCR 222 a n d Re Biposo Pty Ltd (No 2) (1995) 124 FLR 385.
The Place of the Equitable Lien as a Remedy
45
CANADIAN CONSTRUCTIVE TRUST CASES AS THEY RELATE TO THE EQUITABLE LIEN
In LAC Minerals Ltd v. International Corona Resources Ltd30 Corona brought a suit against LAC claiming that there was a breach both of confidence and of fiduciary duty, resulting in a constructive trust. All the members of the Supreme Court held that there was a breach of confidence by LAC. Possibly the most important point of the case relates to the question of the remedy. A majority31 agreed that the appropriate remedy was that ordered by the Ontario Court of Appeal: the imposition of a constructive trust. 32 Importantly, the Supreme Court recognised that liability and remedy are two independent questions.33 The important question was whether the constructive trust was the appropriate remedy following this breach of obligation. La Forest J summed this position up by stating that34: The constructive trust does not lie at the heart of the law of restitution. It is but one remedy, and will only be imposed in appropriate circumstances. It is vitally important to remember this when considering the appropriate remedy. Other remedies, such as the equitable lien, may constitute the most appropriate remedy. In Rawluk v. Rawluk3S McLachlin J,36 writing for the minority,37 held38: The American law on constructive trusts . . . recognizes the panoply of remedies for unjust enrichment and the need for the court, in considering a claim for constructive trust, to select among them . . . . . . It follows that a constructive trust cannot be regarded as arising automatically when the three conditions set out in Pettkus v. Becker are established. Rather, the court must go on to consider what other remedies are available to remedy the unjust enrichment in question and whether the proprietary remedy of constructive trust is appropriate . . . A further inquiry must be made, namely, whether, given the presence of another remedy, the remedy of constructive trust is necessary or appropriate. This is clearly advocating the selection of the most appropriate remedy, which may be the equitable lien. Later her Ladyship held that39: 30
(1989)61 DLR (4th) 14. Consisting of La Forest, Lamer a n d Wilson J J . 32 T h e role of the equitable lien ordered by the Court of Appeal will be discussed later. 33 This separation of liability and remedy w a s utilised in Cadbury Schweppes Inc v. FBI Foods Inc (1999) 167 DLR (4th) 577. 34 (1989) 61 DLR (4th) 14 at 48. This may be relevant t o the use of the equitable lien. " (1990) 65 DLR (4th) 161. 36 N o w Chief Justice of Canada. 37 T h e division between the majority a n d the minority related t o the commencement date of the constructive trust. 38 (1990) 65 DLR (4th) 161 at 187-188. 39 (1990) 65 DLR (4th) 161 at 185-186. 31
46
David Wright The significance of the remedial nature of the constructive trust is not that it cannot confer a property interest, but that the conferring of such an interest is discretionary and dependent on the inadequacy of other remedies for the unjust enrichment in question .. . Thus, even where the tests for constructive trust are m e t . . . the property interest does not automatically arise. Rather, the court must consider whether other remedies to remedy the injustice exist which make the declaration of a constructive trust unnecessary or inappropriate. 40
The most recent Supreme Court of Canada decision on the constructive trust is Korkontzilas v. Soulos.41 According to the majority,42 the constructive trust is based on either wrongful acquisition of property 43 or unjust enrichment. McLachlin J identified four prerequisites for the imposition of a constructive trust based upon wrongful conduct. 44 The fourth prerequisite is that there must be no factors which would render imposition of a constructive trust unjust in all circumstances of the case, and it is here that the role of the equitable lien as the appropriate remedy may be most important. The comments regarding the remedial constructive trust in the Supreme Court of Canada have a great resonance with the comments of the High Court of Australia. Other remedies, such as the equitable lien, must be considered alongside the constructive trust. It is obvious that what is being advocated here is the selection of the most appropriate remedy. In a different context Lord Hoffmann has indicated clearly that the appropriate test to determine a particular remedy is the appropriateness of relief.45 Thus the remedial equitable lien may be selected instead of the remedial constructive trust, and in this way pressure is taken away from the selection of the remedial constructive trust. This is a particular valuable role for the equitable lien. All this is connected to increased remedial flexibility.46
REMEDIAL FLEXIBILITY
Remedial flexibility47 is an extremely difficult concept to deal with.48 However, the equitable lien discloses much more of its nature if remedial flexibility is 40
H e r Ladyship m a d e further c o m m e n t s stressing the remedial nature of the constructive trust, see (1990) 65 DLR (4th) 161 at 191. 41 (1997) 146 DLR (4th) 214. 42 Consisting of McLachlin, La Forest, G o n t h i e r , Cory a n d Major J J . 43 Or wrongful conduct. 44 These four prerequisites coincide with t h e four given by R G o o d e in "Property a n d Unjust Enrichment" in A Burrows (ed), Essays on the Law of Restitution (Oxford, Clarendon Press, 1991) for the generation of the remedial constructive trust. 45 Co-operative Insurance Society Ltd v. Argyll Stores Ltd [1997] 2 WLR 898 at 903. In the Court of Appeal decision in this case Millett LJ h a d e n d o r s e d the "appropriateness of relief" test for selecting a particular remedy: see [1996] C h 286. 46 It is i m p o r t a n t t o note t h a t this remedial flexibility is n o t limited t o proprietary remedies. 47 Very importantly, this can be u n d e r s t o o d t o be the new law of remedies. 48 It is a very contentious legal issue: see P B i r k s , "Rights, Wrongs, and Remedies" (2000) 20 O]LS 1 a n d P Birks, " T h r e e Kinds of Objections t o Discretionary Remedialism" (2000) 29 UWALR 1.
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addressed. Therefore, a brief discussion of remedial flexibility is needed at this point. The concept of the "appropriate" remedy, which is an application of remedial flexibility, has been emerging in cases recently. This has been very explicit in New Zealand cases, such as Aquaculture Corporation v. New Zealand Green Mussel Co Ltd,49 New Zealand Land Development Co. Ltd v. Porter,50 Butler v. Countrywide Finance Ltd,5^ and Brown v. Poura.S2 As has been indicated, movement towards greater remedial flexibility has been adopted in Canada in, amongst many other cases, LAC Minerals Ltd v. International Corona Resources Ltd53 and Cadbury Schweppes Inc v. FBI Foods Inc54 (where the Supreme Court applied the approach advocated by Davies55 of the crossfertilization of remedies, including proprietary remedies, across doctrinal boundaries). Increased remedial flexibility is also occurring in England, as evidenced by the House of Lords decision in Lord Napier and Ettrick v. Hunter56 and was also stressed in Banque Financiere de la Cite v. Pare (Battersea) Ltd,57 recognising remedial or non-consensual subrogation. Much earlier remedial flexibility, extremely important to understanding the remedial nature of the equitable lien, was noted. Rather than beginning the remedial question by looking to see whether damages are inadequate,58 another approach has emerged. Sachs LJ identified the traditional approach, as well as the transformation, in Evans Marshall & Co Ltd v. Bertola SA59 when he held that The standard question in relation to the grant of an injunction, are damages an adequate remedy? might perhaps, in the light of the authorities of recent years, be rewritten, is it just, in all the circumstances, that a plaintiff should be confined to his remedy in damages?
In the earlier case of Beswick v. Beswick60 Lord Hodson referred to deciding the most appropriate remedy,61 while Lord Pearce found that specific performance [1990] 3 N Z L R 299 at 301. [1992] 2 N Z L R 462, particularly at 468-469. [1993] 3 N Z L R 623 at 631-633. [1995] 1 N Z L R 352 at 368. (1989) 61 DLR (4th) 14. (1999) 167 DLR (4th) 577. 55 "Duties of Confidence and Loyalty" [1990] LMCLQ 4 at 5. See also D Davies, "Restitution and Equitable Wrongs" in Rose (ed), Consensus ad Idem (London, Sweet & Maxwell, 1996). 56 [1993] 2 WLR 42. See C Mitchell, "Subrogation and Insurance Law: Proprietary Claims and Excess Clauses" [1993] LMCLQ 192, especially a t 199-201. 57 [1998] 2 WLR 475. 58 This traditional approach involves the remedial hierarchy. T h e remedial hierarchy is that common law damages a r e the primary remedy that is ordered, and only if they are "inadequate" a r e equitable remedies ordered. 59 [1973] 1 All ER 992 a t 1005. This reformulation, which destroys the remedial hierarchy, w a s adopted in State Transport Authority v. Apex Quarries Ltd [1988] VR 187 at 193 by Kaye J and in City of Melbourne v. Hamas Pty Ltd (unreported, Supreme Court of Victoria, 20 February 1987) by
TadgellJ. 60 61
[1968] AC 58. [1968] AC 58 a t 83.
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was "the more appropriate remedy".62 Likewise, Lord Reid, with whom Lord Guest agreed, held that ordering specific performance rather than damages would produce a "just result".63 In The Stena Nautica (No 2j 64 May LJ stressed remedial flexibility by citing, with approval, the reformulation by Sachs LJ of the standard question whether common law damages are an adequate remedy. The general applicability of this reformulation was shown in the fact that the cases actually involved two different remedies. Also, in the later case of Anders Utkins Rederi AIS v. O/Y Louisa Stevedoring Co A/B65 Goulding J referred to selecting the remedy required by "good conscience". Also Lord Hoffmann in Co-operative Insurance Society Ltd v. Argyll Stores Ltd66 stressed the greater remedial flexibility that the legal system now possesses. In Australia the movement towards remedial flexibility is also occurring. The concept of greater remedial flexibility was considered by Windeyer J in Coulls v. Bagot's Executor and Trustee Co Ltd67 where his Honour held that the question seems to be the same, for when specific relief is given in lieu of damages it is because the remedy, damages, cannot satisfy the demands of justice. Recently, this statement, which downplays the importance of the remedial hierarchy by stressing the demands of justice, was quoted by Spender J in Unilever Australian Securities Ltd v. FCT.6S In Maguire v. Makaronios69 the joint judgment in Maguire, citing Spence v. Crawford,70 held that "[t]he nature of the case will determine the appropriate remedy available for selection by a plaintiff".71 The High Court's decision in Bathurst City Council v. PWC Developments72 also indicated that there is a transformation in the law of remedies. The remedial constructive trust was recognised by the High Court in Bathurst, which is to constitute a vital role in the law of remedies. It would be incorrect to assume that gaining an entitlement to an equitable proprietary remedy automatically results in an order for a constructive trust. Once it has been decided that there is an entitlement to an equitable proprietary remedy, the next question is how 62
[1968] AC 58 at 88. [1968] AC 58 at 77. [1982] 2 Lloyds Rep 336 at 348. 65 [1985] 2 All ER 669 at 674. S6 [1997] 2 WLR 898 at 903. In his note on this case, Jones indicates the greater remedial flexibility endorsed by this case, "Specific Performance: A Lessee's Covenant to Keep Open a Retail Store" [1997] CL] 488 at 490. T h e result in this case can be interpreted as simply indicating the cautious a p p r o a c h t o a w a r d i n g equitable remedies but it does not, in the slightest, deny the reality of remedial flexibility. This is perfectly consistent with the cautious approach adopted to equitable proprietary rights by a n a r r o w majority of the House of Lords in Foskett v. McKeown [2000] 2 WLR 1299. 67 (1967) 119 CLR 460 at 503. 68 (1994) 122 ALR 402 at 414. 69 (1997) 71 ALJR 781. 70 [1939] 3 All ER 271 at 288. 71 At 289, citing Spence v. Crawford [1939] 3 All ER 271, at 288 (emphasis added). 72 (1998) 157 ALR 414. See D Wright, " T h e Statutory Trust, the Remedial Constructive Trust and Remedial Flexibility" (1999) 14 ]CL 221. "
64
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to decide which particular proprietary remedy is appropriate. The High Court in Bathurst held that the difference between Deane J and Gibbs CJ in Muschinski v. Dodds73 concerned the appropriate remedy to award in the case.74 In the Canadian Supreme Court decision in Sorochan v. Sorochan75 Dickson CJC observed that the constructive trust constitutes only one judicially imposed remedy.76 Austin has commented that the constructive "trust arises, if at all, at the end of the analysis rather than at the beginning and is treated as one of the variety of remedial choices".77 In the United States there has been a consistent adoption of a remedial approach to the constructive trust.78 This approach of greater remedial flexibility is evident in the High Court's decision in Bathurst where the court held that:79 An equitable remedy which falls short of the imposition of a trust may assist in avoiding a result whereby the plaintiff gains a beneficial proprietary interest which gives an unfair priority over equally deserving creditors of the defendant. In Bridgewater v. Leahy90 the majority81 observed that 82 : In the course of argument on this appeal, there was discussion as to the appropriate form of equitable relief if the appeal was successful. In accordance with the authority referred to above, counsel for the respondents stressed the requirements of 'practical justice'. . . . [127] Once a court has determined upon the existence of the necessary equity to attract relief, the framing, or, as it often expressed, the moulding, of relief may produce a final result not exactly representing what either side would have wished. However, that is a consequence of the balancing of competing interests to which, in the particular circumstances, weight is to be given. It is interesting to note that the minority83 disagreed with this flexible approach. 84 Giumelli v. Giumelli85 is perfectly consistent with the earlier decision in Bathurst City Council, where the court divided the constructive trust into institutional and remedial varieties. The constructive trust in issue in Giumelli was remedial in nature. 73 74 75 76 77 78
(1984) 156 CLR 4 1 . (1998) 157 ALR 414, para [42]. (1986) 29 DLR (4th) 1. At 7. " T h e Melting D o w n of T h e Remedial T r u s t " (1988) 11 UNSWLJ 66 at 75. E.g., Fratcher and Scott, The Law of Trusts (4th edn, Boston, Little, Brown & C o , M a s s , 1987),
v. 79 (1998) 157 ALR 414, para [42]. T h a t is, whether t o a w a r d a remedial equitable lien o r a remedial constructive trust. 80 (1998) 158 ALR 66. 81 Which consisted of G a u d r o n , G u m m o w a n d Kirby J J . 82 (1998) 158 ALR 66, paras [126]-[127] (emphasis added). 83 Which consisted of Gleeson CJ and Callinan J. 84 (1998) 158 ALR 66, para [55]. 85 (1999) 161 ALR 473.
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However, it should not be concluded from these statements that the law regarding remedies is becoming unprincipled and undisciplined.86 The general judicial theory behind all of these changes has been recently articulated by Gummow J in Wik Peoples v. Queensland.87 Later in Esanda Finance Corporation Ltd v. Peat Marwick Hungerfords88 Gummow J discussed judicial methodology and made interesting observations which were perfectly consistent with the more flexible approach to remedies.89 In a recent extra-judicial article,90 McHugh J rejected the theory of pure legal formalism, which has been largely dominant in the language of the courts. Rather than defending pure legal formalism his Honour advocated replacing it with a composite approach, where matters such as precedent, logic processes based upon induction and deduction are joined by an evaluation of factors including the need for a change,91 relevant legal material outside the area of immediate legal concern92 and an examination of the social and economic consequences of the proposed change. According to McHugh J this approach should be adopted cautiously. His Honour quoted and approved Lord Devlin's observation that English judges spent 90 per cent of their time in the "disinterested application of known law". 93 Also McHugh J also indicated that the creative role of the judiciary increased further up the judicial hierarchy.94 All this is particularly relevant to the use of proprietary remedies,' such as the equitable lien.
CURRENT EMPLOYMENT OF THE REMEDIAL EQUITABLE LIEN IN ENGLAND AND AUSTRALIA
The place of the equitable lien as a remedy has been developing in England in recent years. For example, Tettenborn discusses the equitable lien in a chapter devoted to remedies.95 Likewise, Samuels and Rinkes also place the equitable lien in a chapter on remedies. 96 In their chapter concerning proprietary remedies 86 This is a fear t h a t Birks is always keen t o highlight. For example, see Birks, "Rights, Wrongs, and Remedies" 1 a n d Birks, " T h r e e Kinds of Objections t o Discretionary Remedialism", both supra n 48. In his i m p o r t a n t article "Rescuing R e m e d i a l i s m in Unjust Enrichment Law: Why Remedies Are Right" [1998] CLJ 301 at 315-318 Kit Barker addresses many of the concerns voiced about the undisciplined possibility of the law of remedies w i t h increased flexibility. 87 (1996) 1 8 7 C L R 1 . 88 (1997) 188 C L R 2 4 1 . 89 Ibid, at 29S. 90 "The Judicial M e t h o d " (1998) 73 ALJ 3 7 . 91 T h e change might be forbidden by s t a t u t e or as being inconsistent with established legal doctrine. 92 This material may include general legal principles and jurisprudential concepts. 93 " T h e J u d g e as L a w m a k e r " in The Judge (Oxford, Oxford University Press, 1979), 3 , cited by M c H u g h J, "The Judicial M e t h o d " supra n 9 0 , 4 0 . 94 Ibid. 95 A T e t t e n b o r n , Law of Restitution in England and Ireland (2nd edn, London, Cavendish Publishing Limited, 1996), 2, particularly 3 7 . 96 Law of Obligations and Legal Remedies (London, Cavendish Publishing Limited, 1996), ch 5, particularly 122.
The Place of the Equitable Lien as a Remedy
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Goff and Jones discuss the equitable lien in remedial terms. 97 A House of Lords decision in Lord Napier and Ettrick v. Hunter98 provides an illustration of the current use of the equitable lien. In that case, members of a syndicate ("the stop loss insurers") had written stop loss policies for Lloyd's Names ("the Names"). The managing agent of the Names negligently wrote large numbers of policies on behalf of the Names in relation to asbestos claims without sufficient reinsurance cover. When there were claims against the insurance which had been written by the Names, the Names recovered money from the stop loss insurers. Then the Names sued their managing agent for damages in respect of the failure to obtain adequate reinsurance. This action gained the Names £116 million. The fund was held by the solicitors of the Names. Fundamentally the issue in the case was whether the stop loss insurers had a proprietary interest in the fund equivalent to the payments they had already made to the Names under the policies of reinsurance. At trial the stop loss insurers were unsuccessful; this result was not altered by the Court of Appeal and so the stop loss insurers appealed to the House of Lords. The House of Lords allowed the appeal, and in the course of this decision the various judges made interesting observations on the nature of the equitable lien. Two observations are relevant here. The first concerns the interest of the stop loss insurers in the funds held by the Names' solicitors. Templeman LJ held that the stop loss insurers were entitled to an injunction restraining the solicitors from paying any of the Names without first paying the money to the stop loss insurers in accordance with the amount due from each Name by way of subrogation. Lord Templeman held that the Names would be guilty of "unconscionable conduct if [they did] not provide for the [stop loss insurers] to be recouped out of the damages awarded against the wrongdoer".99 His Lordship concluded100 that "[i]n order to protect the rights of the insurer under the doctrine of subrogation equity considers that the damages payable by the wrongdoer to the insured person are subject to an equitable lien or charge in favour of the insurer". Lord Browne-Wilkinson also found that the insurers held a proprietary interest and stated101: In my judgment, this proprietary interest is adequately satisfied in the circumstances of subrogation under an insurance contract by granting the insurers a lien over the moneys recovered by the assured from the third party. To employ the language of restitution, the House of Lords' decision to give the stop loss insurers a proprietary claim tells against the Birks requirement that for 97 R Goff a n d G Jones, The Law of Restitution (5th e d n , L o n d o n , Sweet & M a x w e l l , 1998), ch 2, particularly 86. 98 [1993] 2 WLR 42. See C Mitchell, "Subrogation a n d Insurance Law: Proprietary Claims a n d Excess Clauses" [1993] LMCLQ 192, especially 199-201. 99 [1993] 2 W L R 42 at 54. 100 Ibid, at 55. 101 Ibid, at 68.
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a proprietary claim there must be a continuing proprietary interest, as the stop loss insurers did not initially have such an interest.102 The second comment upon the House of Lords' judgment involves the choice of remedy. Lord Goff considered that the equitable lien was the most appropriate remedy. His Lordship stated that 103 "since the constitution of the assured as trustee of such money may impose upon him obligations of too onerous a character (a point which troubled Saville J 104 in the present case), I am very content that the equitable proprietary right of the insurer should be classified as a lien". To similar effect Lord Templeman held that "the practical disadvantages [of ordering a constructive trust] would be fearsome. Fortunately equity is not so inflexible or powerless." 105 In an important review of this case Gummow J has stated that 106 : One consequence of the speeches in Lord Napier may be the payment of greater attention to the equitable lien in those Commonwealth jurisdictions where there is a growing attachment to the so-called 'remedial constructive trust'. The comment involves the proposition that the court should maintain a flexible approach to each situation that comes before it and that regard must be had to the most appropriate remedy in the instant case, rather than being constrained by technical and legalistic edicts contrary to the spirit of equity. In recent years, there has been much discussion of the equitable lien by various courts in Australia. In Baumgartner v. Baumgartner^07 a de facto relationship lasted for a number of years. During this time the couple pooled their resources to live and pay off the purchase price of a house they shared together. The title to the land was placed in the man's name. The decision in the New South Wales Court of Appeal108 contained some interesting discussion of the equitable lien.109 Kirby P 110 observed that once the court found an equity "the Court's duty is to determine how in all the circumstances, justice requires that such equity will be satisfied"111 and sometimes this will occur only through the imposition of a constructive trust. It was said that the facts of the case lead to a finding that the partner was entitled to reside upon the property indefinitely. Thus it was decided that, if the common intention approach failed, then the respondent's equity would not be satisfied without
102 The restitutionary proprietary approach adopted by the House of Lords in Napier has a great resonance with A-G for Hong Kong v. Reid [1994] 1 AC 324. 103 [1993] 2 W L R 4 2 at 6 1 . 104 Who presided at the trial. 105 At 55. 106 "Names and Equitable Liens" (1993) 109 LQR 159 at 163. 107 (1985) 2 N S W L R 406. T h e r e w a s a later High C o u r t decision in this case, (1987) 164 C L R 137. 108 The bench consisted of Kirby P, Mahoney and Priestley JJA. 109 -[he use of the lien by Kirby P w a s obiter as his H o n o u r h a d found that a constructive trust existed and therefore the orders in the case reflected this fact. 110 Now in the High Court of Australia. 111 (1985) 2 NSWLR 406 at 419.
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having an equitable charge over the property to the extent of her contribution to it. Unfortunately the discussion on the extent of the lien was not in depth as the Court had already decided upon the imposition of a constructive trust. However two important points can be made regarding this discussion. Again one can witness the flexibility in the order of the lien. It is possible to use the remedy instead of a constructive trust. The award will be determined in all the circumstances of the case. As Kirby P said, it is the role of the court to decide how the justice of the case will determine what remedy is to be awarded. Significantly if the courts are trying to limit the awarding of constructive trusts, 112 then it is possible that this may lead to the awarding of equitable liens. The second is that again there was very little discussion on the extent of the award. What was said here was that she was to be awarded her contribution to the land with interest. Thus it reflects more of a reliance or expenditure approach to the value. In some situations this may lead to an injustice. For example the increase in value of the land may exceed the value of interest over the concurrent period, this could result in a windfall for the other party. However this may be just one "of the circumstances of the case" that will fall to be considered. Cadorange Pty Ltd (in liq) v. Tanga Holdings Pty Ltd113 was a decision of Young J in the New South Wales Supreme Court. Young J awarded a lien over the fund that was the subject of this case. The lien was awarded because it would be unconscionable for the liquidator to hold on to the whole of the funds without compensating the plaintiff.114 Further, Young J said that "it would be against the conscience of the company in liquidation to take advantage of the windfall without compensating the company which expended the money. Accordingly, in my view, an equitable lien exists".11S Thus it appears that one can conclude that the award here was based upon notions of unconscionability. Thus the case is a good one for the instance where one party proceeds into liquidation. Tanga received a secured interest over the sale proceeds, and as such it was more than likely that they would receive the full amount of their loss; the consequences for unsecured creditors would not have been favourable. The second point is that the value was measured at the money that had been expended.116 Tanga had expected to obtain the property. From the facts the property had risen in value to be sold for $100,000. If Tanga had received what it expected to get then it would have been in a better position. There was no discussion on what the appropriate level of relief should have been and there was no mention of a constructive trust being awarded, even a remedial one. The decision of the Court of Appeal of the Supreme Court of New South Wales in Houghton v. Immer (No 155) Pty Ltd117 is also relevant to equitable 2 3 4 s 6 7
As Giumelli did. (1990) 20 NSWLR 26. Ibid, 40. Ibid. That is, a measure of reliance loss. (1997) 44 NSWLR 46.
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liens. The court 118 held119 the award could not be made because to do so would involve a disposition of property contrary to section 25 of the Strata Titles Act 1973. That would still be the case even if a proprietary estoppel could be made out. The defendants also could not claim a charge or a lien for the improvements that they had carried out because this dealing was not authorised by the Act and is forbidden by section 21. The decision is not a very satisfactory one with regard to the use of the lien. The court declined to award one and did not extend knowledge concerning the equitable lien any further. It is possible that the award was declined not only because it would have been contrary to statute but also because it would have had the effect of giving the defendants an interest in the common property which they had sought to achieve by a resolution which was found to be a fraud on the minority; perhaps, therefore, a lien was not awarded because they had not come with clean hands to equity. At this point it is relevant to examine the important judgment of the High Court of Australia concerning equitable liens. In Giumelli v. Giumelli120 the High Court 121 substantially allowed the appeal from the decision of the Full Court of Western Australia, and by doing so firmly recognised the equitable lien as a remedy. The appellants had made three promises to their son, Robert,122 who claimed that at least one of these promises constituted the basis of an estoppel. The High Court, 123 found that there was an estoppel. The appeal primarily concerned the remedy for this estoppel. The Full Court had imposed a constructive trust. The appellants argued against this remedy upon two bases: the first, which failed, concerned the available remedies and the second was that the Full Court failed to consider all relevant considerations in determining the appropriate remedy. Unlike their first, the appellants' second argument against the imposition of a constructive trust was successful. The High Court held124 that there were matters which the Full Court should have considered in awarding the remedy. In considering these matters the High Court held that the appropriate remedy was an equitable lien125 and not a constructive trust. An extremely important facet of this judgment was the process adopted by the court. It clearly divided the case into two, interrelated, parts; the obligation and the remedy. The appropriate remedy will be partially determined by the nature of the obligation. The task of the court to find the appropriate remedy is facilitated by many recent decisions, such as those by the House of Lords in 18
The bench consisted of Mason P, Handley JA and Beazley JA. (1997) 44 NSWLR 46 at 54. 120 ( 1 9 9 9 j 1 6 1 A L R 473 21 T h e bench consisted of Gleeson CJ, M c H u g h , G u m m o w , Kirby and Callinan J J . 22 The respondent. 23 (1999) 161 A L R 473, p a r a 27. In a joint j u d g m e n t , Kirby J in a separate j u d g m e n t agreeing. 24 Ibid, p a r a 49. 25 The court referred to it as "a secured monetary remedy". 19
The Place of the Equitable Lien as a Remedy
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Napier v. Hunter126 and in Banque Financiere de la Cite v. Pare (Battersea) Ltd,127 recognising remedial or non-consensual subrogation, and the High Court's decision in Bathurst City Council v. PWC Properties Pty Ltd,128 recognising the remedial constructive trust. These decisions increase the range of remedies available. As such they constitute the proprietary components of the new law of remedies. The purpose of the High Court's discussion was simply to identify some of the possible remedies, particularly as the remedy ordered by the Full Court was a constructive trust and the High Court held129 that "the court should first decide whether, having regard to the issues in the litigation, there is an appropriate equitable remedy which falls short of the imposition of a trust". After discussing the possible remedies available, the High Court began to search for the appropriate remedy. An extremely important factor in determining the appropriate remedy is the basis of the obligation that has been breached. Other factors which the High Court held130 that the Full Court had failed to examine included other litigation between the parties, improvements to the property performed by others, and the impact upon relevant third parties of ordering a constructive trust. In Giumelli the High Court looked first at the obligation, then at the available remedies, and selected the appropriate remedy after examining various factors. 131
THE TAILORABILITY OF THE EQUITABLE LIEN
Closely connected to increased remedial flexibility is the concept of the "tailorability" of remedies. The "tailorability"132 of proprietary remedies is vital to property's role as a remedy. Constructive trusts are also relevant here. In a way, Goode's in rent and ad rem constructive trusts 133 are simply an example of this flexibility. The flexibility of the commencement date of the constructive trust is also evidence of its tailorability. With regard to the other main proprietary remedy, subrogation, tailorability has also been relevant. The House of Lords in Banque Financiere de la Cite v. Pare (Battersea) Ltd134 allowed the proprietary 126
[1993] A C 713. [1998] 2 W L R 475. See also D Wright, " T h e Rise of N o n - C o n s e n s u a l Subrogation" (1999) 63 Conv 113 for a discussion of this case. 128 (1998) 157 ALR 414. 129 (1999) 161 ALR 473, p a r a 10. 130 Ibid, paras 10 a n d 49. 131 Following Giumelli other important decisions have followed. E.g., the decision of the Victorian Court of Appeal in Flinn v. Flinn (Court of Appeal, Victorian Supreme Court, Brooking, Charles and Batt, JJA, 4 August 1999). 132 What "tailorability" means is the tailoring or minor modification of an existing remedy. 133 This division was endorsed by the Supreme Court of Canada in Korkontzilas v. Soulos (1997) 146 DLR (4th) 214. Goode proposed these terms in "Property and Unjust Enrichment", supra n 44. 134 [1998] 2 W L R 4 7 5 . 127
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remedy of subrogation to be modified so that it was effective only against certain parties. 135 In this way, the proprietary remedy was tailored. The same process of minor modification is also obvious with the equitable lien. English136 and Canadian 137 cases involving equitable liens have permitted proportional claims against surplus value of the sold asset exceeding the amount of the defendant's claim. However, an equitable lien will be ordered, but without such generous features, where the claimant has engaged in some relevant wrongdoing. The versatility of the equitable lien has been demonstrated in International Corona Resources Ltd v. LAC Minerals Ltd,138 where the Ontario Court of Appeal ruled that, despite the fact that the defendant held the property on constructive trust for the plaintiff, the defendant was entitled to an equitable lien related to the costs it had incurred in improving the land. The court so held "in light of the reality that the expenditure made by [the defendant] to make the property productive inevitably would have been required on the part of [the plaintiff] had there been no breach of the constructive trust". 139 In granting the constructive trust, the court held that it possessed the power to "relieve the constructive trustee from full liability where to refrain from doing so would, in all the circumstances, be inequitable". 140 In the United States context Laycock,141 echoing the sentiments of Dobbs, 142 has observed that the lien is an order imposed by the court in circumstances similar to those of a constructive trust. 143 In addition, there are cases which show some flexibility in the order of an equitable lien. In Re Erie Trust Co 144 the order of an equitable lien was limited to the amount of "actual losses" suffered by a plaintiff due to the fact that the defendant was insolvent. The Court was prepared to limit the amount, although misappropriated funds had been used to acquire property that had appreciated. The imposition of a constructive trust would lead to the plaintiff capturing the gains. In the case of an insolvent defendant this would lead to a smaller fund being available to unsecured creditors. Robinson v. Robinson145 held that the lien is a remedy and not a property right, 135 T h e i m p o r t a n c e of this tailorability w a s that its perceived absence w a s w h a t inhibited the C o u r t of Appeal from using this p r o p r i e t a r y remedy. In essence, it w a s this tailorability which explains t h e different results in t h e C o u r t of Appeal a n d the H o u s e of Lords. This tailorability of s u b r o g a t i o n is discussed by C Mitchell in "Subrogation, Unjust Enrichment and Remedial Flexibility" [1998] RLR 144 at 148-149. 136 Hussey v. Palmer [1972] 1 W L R 1286 and Re Tilley's Will Trusts [1967] Ch 1179. 137 BC Teachers' Credit Union v. Betterly (1975) 61 DLR (3d) 755 and Benjamins v. Chartered Trust Co (1965) 49 D L R (2d) 1. 138 (1987) 44 D L R (4th) 592. T h e O n t a r i o Court of Appeal's judgment was affirmed on this point by the Supreme C o u r t in (1989) 6 1 D L R (4th) 14. 139 (1987) 44 DLR (4th) 592 at 6 6 1 . 140 Ibid, 661. 141 Modern American Remedies Cases and Materials (2nd edn, Boston, Mass, Little, Brown and C o , 1994). 142 Handbook on the Law of Remedies (2nd edn, St Paul, Minn, West Publishing C o , 1993), i. 143 Supra, nl41, 582. 144 191 A 613 (Pa 1937). 145 429 N E 2d 183 (111 A p p 1981).
The Place of the Equitable Lien as a Remedy
57
in that one could not get a lien to secure other debts. 146 The case also supports the view that the equitable lien can be used to limit the claim of a plaintiff to the amount of his or her actual loss. The tailorability of the equitable lien can be clearly seen in Jones v. Sacramento Savings & Loan Association.™7 One of the most important features of the equitable lien is the ability to foreclose upon the property and recover the money due from those funds. However, in Jones where neither party was very culpable, the court tailored the equitable lien, so that it did not have this foreclosure feature. This feature was missing in order to avoid "undue hardship" to the party that owned the property.148
CONCLUSION
The main object of this essay was to gain a understanding of the equitable lien when it is used as a remedy. It seems, as in the United States and Canada, that three main proprietary remedies are appearing in England and Australia. They are subrogation,149 the equitable lien150 and the constructive trust. 151 The broadest varieties of these may be referred to as remedial. It has been shown that the equitable lien has a valid role to play as a remedy. Certainly the best way fully to understand the remedial equitable lien is to compare it to the remedial constructive trust. It gains much by way of comprehension from comparison with the remedial constructive trust. Much of this examination was undertaken by examining Commonwealth cases on the constructive trust. As has been shown, remedial flexibility has become pronounced in recent years. Part of this remedial flexibility has involved the cautious use of proprietary remedies, such as the constructive trust and the equitable lien. The tailorability of the equitable lien, as practised in the United States, may enhance its role as a remedy, and this may reduce some of the pressure upon the remedial constructive trust. Accordingly, the remedial equitable lien has a valuable role to play in the law of remedies. 146 Here the debts due to an estranged wife for maintenance were supposedly secured through the imposition of a lien over a husband's award in a proprietary estoppel case. The plaintiff, the estranged wife, was also awarded equitable relief in the same proprietary estoppel suit as the husband, the lien was imposed for debts other than those that arose in the present circumstances. This was held to be invalid. 147 56 Cal R p t r 741 (Cal App 1967). 148 Ibid, 747. Of course, this begs the question of how much tailorability should be permitted with proprietary remedies; in other words, is it permissible for them to have only some criteria associated with property? 149 Banque Financiere de la Cite v. Pare (Battersea) Ltd [1998] 2 WLR 475. This case is discussed in detail by Wright, supra n 127, where the remedial aspect of subrogation is canvassed. '"> Napier v. Hunter [1993] AC 713 and Giumelli v. Giumelli (1999) 161 ALR 473. 151 The High Court's decisions in Bathurst City Council v. PWC Properties Pty Ltd (1998) 157 ALR 414 and Giumelli v. Giumelli (1999) 161 ALR 473 recognised the remedial constructive trust. See also D Wright, Remedial Constructive Trust (Sydney, Butterworths, 1998).
4
Trustee Exclusion Clauses: Lost in the Heather? PETER LUXTON
INTRODUCTION HE TRUSTEE Act 2000, which essentially embodies proposals of the Law Commission,1 makes some of the most extensive changes for seventy-five years to the law relating to the duties and powers of trustees. It enables professional persons to receive reasonable remuneration for acting as trustees, subject to any provision in the trust instrument2; and it confers on trustees broad powers of investment and new powers enabling them to appoint agents, nominees and custodians, and to insure the trust property. The Act also subjects trustees who exercise their powers in these areas3 to a uniform statutory duty of care.4 The Law Commission5 considers that the duty of care is probably no different in substance from the general duty of care of trustees established by case law, under which a professional or paid trustee is supposedly subject to a higher duty of care6—though in practice this seems to have meant very little.7 The introduction of the statutory duty of care is not, however, purely codification, because the duty extends to a trustee's liability for delegation. Previously, section 30(1) of the Trustee Act 1925 excluded the liability of a trustee for the acts of a banker, broker, or other person with whom any trust money or securities were deposited, for the insufficiency of any securities, and
T
1 See Law Commission Report, Trustees' Powers and Duties, (1999) Law Com No 260 (hereafter Law Com No 260), and the Draft Bill appended thereto. 2 Remuneration of trustees of charitable trusts, however, depends upon the making of regulations by the Secretary of State. 3 The areas of application are specified in the Trustee Act (TA) 2000, Sch. 1, paras 1-6. 4 TA 2000, s 1(1). 5 Law Com No 260, supra n 1, para 3.24. 6 Re Waterman's Will Trusts [1952] 2 All ER 1054, 1055 (Harman J); Bartlett v. Barclays Bank Trust Co Ltd [1980] Ch 515, 534 (Brightman J). See also Law Reform Committee, The Powers and Duties of Trustees (1982) 23rd Report, Cmnd 8733, paras 2.15-2.16. 7 See Nestle v. National Westminster Bank pic [1993] 1 WLR 1260, where the trustee bank had misunderstood the investment clause and failed to review the investments periodically. See especially the judgment of Leggatt LJ, who observed (ibid, 1284): "No testator, in the light of this example, would choose the bank for the effective management of his investment". The Court of Appeal nevertheless held that the bank was not liable for breach of trust in failing properly to invest the trust fund.
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for any other loss "unless the same happens through his own wilful default" . 8 In Re Vickery,9 Maugham J held that, for this purpose, "wilful default" meant "either a consciousness of negligence or breach of duty, or a recklessness in the performance of a duty". 10 Although Maugham J's interpretation of the phrase had been criticised by commentators,11 the Court of Appeal recently said that it was in line with earlier authority.12 The repeal of section 30, so long overdue, has been effected by the Trustee Act 2000, which applies the uniform statutory duty of care to delegation of trust. Section 23 of the Trustee Act 1925 (subsection (1) of which excluded a trustee from liability in certain circumstances for the default of an agent "if employed in good faith") has also be repealed; but other provisions of that Act protecting trustees remain.13 Unfortunately, the Trustee Act 2000 provides that the statutory duty of care may, by a term in a trust instrument, be validly excluded.14 This is a serious weakness, since express exclusion clauses are commonplace, and it is now clear that the courts recognise them as valid, except in so far as they purport to exclude liability for breaches involving dishonesty.15 The Act's failure to restrict express trustee exclusion clauses was the main criticism voiced during its passage through Parliament by Lord Goodhart, 16 whose objections to such clauses are well known. Responding, Lord Irvine LC said that he was concerned lest potential first-class trustees be driven offshore; but he undertook to make a formal reference to the Law Commission.17 Whilst trustee exclusion clauses are therefore now firmly on the agenda, it is a pity that the opportunity to amend the Trustee Bill was not taken, especially as the efficacy of such clauses was examined recently by the Trust Law Committee. 18 The Lord Chancellor thought that the Trustee Bill was not one to set the heather alight;19 a fortiori there must be doubt whether future Parliamentary time will be made available for a measure devoted solely to trustee exclusion clauses.20 8
Emphasis supplied. [1931] l C h 5 7 2 . 10 Ibid, 584. 11 See especially G J o n e s , "Delegation of Trustees: a Reappraisal" (1959) 22 MLR 381. 12 Armitage v. Nurse [1998] Ch 241, 252 (Millett LJ). 13 See TA 1925, ss 15, 26 and 27. T h e power of the court to relieve a trustee under s 61 is also retained. 14 T A 2000, Sch. 1, para 7. 15 Armitage v. Nurse [1998] Ch 241 (CA); Bogg v. Raper, The Times, 11 April 1998 (CA). 16 H a n s a r d , H L , 14 April 2000 (Second Reading), col 383. This criticism was strongly supported by Lord Wilberforce: ibid, at col 392. 17 Ibid, at col 394; he later confirmed that reference would be made before the summer recess: H a n s a r d , H L , 7 J u n e 2000 (Committee), C W H 1 3 - 1 4 . 18 T r u s t Law C o m m i t t e e , Consultation Paper, Trustee Exemption Clauses, November 1998 (in T r u s t Law C o m m i t t e e , Report and Consultation Papers, in association with Society of Trust and Estate Practitioners and T r u s t Law International, June 1999). 19 H a n s a r d , H L , 14 April 2000, col 397. 20 See also A Kenny, " T r u s t Law Reform" (2000) 76 NL] Charities App Supp 15, 18, w h o considers that to deal with this issue later "seems a waste of time and money, and adds to the fragmentation of the law". 9
Trustee Exclusion Clauses: Lost in the Heather? 61
EXPRESS EXCLUSION CLAUSES
Early cases From the 1750s,21 there began to appear in trust instruments a form of exclusion clause which, by the early nineteenth century, was being inserted as a matter of course.22 A common form of such a clause, which excluded liability for "wilful default", was made applicable by the Trustee Act 185923 to every trust instrument, subject to a contrary intention. Until Re Vickery,24 it was thought that the statutory exclusion25 did not protect a trustee whose standard of care fell below that of the prudent man of business. In other words, it was considered that the reference to "wilful default" was not an exclusion of liability, but rather a statutory embodiment of the prudent man of business test,26 its effect being merely to throw the burden of proof on those seeking to make the executor or trustee liable.27 That this was the accepted interpretation of "wilful default" was evident at the time the Trustee Act 1859 was passed, it being observed shortly afterwards that the insertion of the standard form of exclusion clause "leads many in ignorance [of its effect] to accept a trust". 28 There was, however, little authority on the extent to which express exclusion clauses could go beyond the statutory provision. The question was left open in Brumridge v. Brumridge,29 decided shortly before the Trustee Act 1859, where the trust instrument excluded liability except for "wilful default". Three years later, in Wilkins v. Hogg,30 the court had an opportunity to consider an exclusion clause in a broader form. An indemnity clause in a will provided (inter alia) that any trustee who should concur in any act enabling his co-trustee to receive trust money should not be obliged to see to its due application, nor be subsequently rendered responsible by any express notice or intimation of actual misappropriation. The will appointed three trustees, one of whom, with the consent of the others, received insurance moneys for deposit, but immediately absconded with such moneys. At first instance, Stuart V-C thought the indemnity clause "extraordinary", but held that its plain language protected the other trustees.31 His judgment was affirmed on appeal by Lord Westbury LC, who challenged counsel for the appellants to cite a case where an 21 22
Wesley v. Clarke (1759) 1 Eden 357. Bricev. Stokes (1805) 11 V e s j u n 319; Mucklowv.
Fuller (1821) J a c 198. See Jones, supra n 11,
384. 23 24 25 26 27 28 29 30 31
S 3 1 . This was a statutory predecessor of T A 1925, s 30. [1931] 1 C h 572. Originally T A 1859 s 3 1 ; then T A 1893, s 24; and later T A 1925, s 30. Speight v. Gaunt (1883) 9 App Cas 1 (HL). Re Brier (1882) 26 Ch D 238, 243 (Lord Selborne LC, referring t o T A 1859, s 31). J W Smith, Smith's Manual of Equity (6th edn., London, Stevens & Son, 1861), at 190. (1858) 27 Beav 5, 7 (Romilly M R ) . (1861)31LJCh41. (1861) 3 Giff 116.
62 Peter Luxton indemnity clause freeing a trustee from his ordinary duty had been held to be so repugnant as to be rejected.32 No such citation was evidently forthcoming, and Lord Westbury LC dismissed the appeal without calling upon counsel for the respondents to reply. The only limitation that his Lordship evidently recognised was that no exclusion clause could protect a trustee from liability for permitting trust moneys to come into the hands of his co-trustee with the knowledge that it would be misapplied.33 The legal profession, perennial optimists in these matters, treated this decision as conferring a judicial blessing on such a clause; for, within twenty years,34 its use had become almost standard. It is nevertheless important to consider Wilkins v. Hogg3S in its context. First, the court was there dealing with a specific form of exclusion clause which, though broader than most others in use at that time, was very different from the very wide trustee exclusion clauses commonly seen today. Secondly, the mid-Victorian age was the heyday of the amateur trustee, and it may be inferred from the reports of Wilkins v. Hogg that the defendant trustees were indeed unpaid amateurs.36 The court was not there concerned with paid professional persons. Thirdly, on the facts, it appears that the co-trustees might have escaped liability for the misapplication even if the exclusion clause had not contained the unusual (italicised) addition: at first instance, Stuart V-C thought that the co-trustees had "certainly been guilty of no gross breach of trust, even if their conduct was strictly a breach of trust at all".37 For these reasons, it might have been hoped that, with the much broader exclusion clauses in modern trust instruments designed to shield professional and paid trustees, judicial attitudes to trustee exclusion clauses might have moved on since the 1860s. Indeed, before Armitage v. Nurse,38 most commentators considered that the validity of trustee exclusion clauses of the present age, which frequently purport to confer almost blanket immunity, could not be regarded as settled.39
Armitage v. Nurse The trust in question had been created in 1984 pursuant to a variation of trusts under which the property had been partitioned between the beneficiaries, Paula 32
(1861) 31 LJ Ch 4 1 , 42. lbid,43. 34 Pass v. Dundas (1880) 43 LT 665, applying Wilkins v. Hogg (1861) 31 LJ C h 41. 35 (1861) 31 LJ Ch 4 1 . 36 Such an inference m a y be safely made in respect of the female trustee defendant, Mary Banister. T h e trustees in Pass v. Dundas (1880) 43 L T 665, w h o were the testator's sons, were also evidently unpaid amateurs. 37 Wilkins v. Hogg (1861) 3 Giff 116,120. 38 [1998] C h 241 (CA). 39 For c o m m e n t a t o r s ' opinions before Armitage v. Nurse see particularly P M a t t h e w s [1989] Conu 42; Underbill and Hayton's Law of Trusts and Trustees (15th edn, London, Butterworths, 1995) at 5 6 0 - 5 6 1 ; H a n b u r y a n d Martin, Modern Equity (15th edn, London, Sweet & Maxwell, 1997) at 483-484. 33
Trustee Exclusion Clauses: Lost in the Heather? 63 (then a minor) and her mother, Paula's share being held in trust for her until the age of 40. In the action, Paula complained of several specific breaches of trust. More generally, it was alleged that the pleadings disclosed a deliberate course of conduct on the part of the trustees to disregard Paula's interests and to subordinate them to those of her mother or of other members of the family who were not objects of the trust, or at least a conscious indifference to Paula's interests. The trustees sought the shelter of an exclusion clause that stated40: No Trustee shall be liable for any loss or damage which may happen to Paula's fund or any part thereof or the income thereof at any time or from any cause whatsoever unless such loss or damage shall be caused by his own actual fraud . . ."41
It was argued for Paula that, this being a settlement, the word "fraud" ought to be given the extended meaning that it had in the Court of Chancery, so as to include breach of a duty in equity;42 but Millett LJ, with whose judgment the other members of the Court of Appeal43 simply agreed, held that the expression "actual fraud" did not include "constructive fraud" or "equitable fraud". Like common law fraud or deceit,44 actual fraud required proof of dishonesty: gross and culpable negligence was not enough. Millett LJ said that fraud in this sense must also be distinctly pleaded and proved;4S and he found that the allegations in the statement of claim were equivocal. Paula's appeal was therefore dismissed. In making the order, however, the Court of Appeal stated that Paula was to be given an opportunity to amend her statement of claim, to see the trust documents, and to investigate the manner in which the trustees had managed the trust's affairs. It had been argued in the case that there was an irreducible core of obligations owed by trustees to beneficiaries and enforceable by them, which obligations were fundamental to the concept of a trust. According to this argument, an exclusion clause could not exclude liability for gross negligence. Millett LJ said that he did not accept, however, that a trustee's core obligations included the duties of care and skill, prudence and diligence; and he rejected the notion that English law drew a distinction between ordinary and gross negligence: it was a difference not of kind, but merely of degree.46 He added: The duty of the trustees to perform the trusts honestly and in good faith for the benefit of the beneficiaries is the minimum necessary to give substance to the trusts, but in my opinion it is sufficient. 40 The exclusion clause was from Hallett's Conveyancing Precedents (1965), one of the standard conveyancing works. A longer but similar clause is contained in Key & Elphinstone's Precedents in Conveyancing (15th edn, 1953), also a standard work. 41 Emphasis supplied. 42 Cf Nocton v. Lord Ashburton [1914] AC 932, 953 (Viscount Haldane LC). Hutchison and Hirst LJJ. Derry v. Peek (1889) 14 App Cas 337. Davy v. Garrett (1877) 7 Ch D 473, 489 (Thesiger LJ). 46 Cf Goodman v. Harvey (1836) 4 A & E 870, 876 (Lord Denman CJ); Hinton v. Dibbin (1842) 2 QB 646 (Lord Denman CJ); Grill v. General Iron Screw Collier Co (1866) 35 LJ CP 321,330 (Willes
64 Peter Luxton Furthermore, in Millett LJ's view, the submission that it was contrary to public policy to exclude the liability of a trustee for gross negligence was not supported by the cases upon which reliance had been made.47 In view of the paucity of direct authority, it is pity that the Court of Appeal in Armitage v. Nurse did not adopt a more robust stance against very wide exclusion clauses. As it is, the consequences of the decision are startling. A broadly drawn exclusion clause can effectively provide a trustee with a "fool's charter", provided that he is at least an honest fool. The result is as unsatisfactory in this context as Maugham J's interpretation in Re Vickery48 of the phrase "wilful default" was in the context of section 30 of the Trustee Act 1925. A broad exclusion clause may rob the concept of trusteeship of much of its meaning. It is difficult to conceive that a few simple words in a trust instrument can have such a devastating effect.
Rejection of attempt to restrict Armitage v. Nurse In Armitage v. Nurse itself, the exclusion clause had been inserted in a variation of trusts under the Variation of Trusts Act 1958, in which the principal beneficiary, Paula, had been represented by counsel, and the variation had been approved by the High Court. In such circumstances, the integrity of the addition of such exclusion clause was unimpeachable. Armitage v. Nurse therefore left open the possibility that the position might be otherwise where the trust instrument was drawn up by the trustee himself. This means of escape was however blocked soon after in Bogg v. Raper,49 where a testator, who died in 1989, by his will gave his residuary estate upon trust for the plaintiffs (his wife and children) and appointed Raper (a solicitor) and Groves (an accountant) his executors and trustees. Raper had acted for the testator in drawing up the will, which contained a complex clause excluding the liability of the trustees (except a trust corporation) for various acts or omissions, and which finally excluded liability for: any other matter or thing except wilful or individual fraud or wrongdoing on the part of the trustee who is sought to be made liable. The testator's estate for probate purposes was more than £8 million, the most valuable asset of which was a controlling interest in a company called Hekla 47 These were the English cases of Wilkins v. Hogg (1861) 31 LJ Ch 4 1 , and Pass v. Dundas (1880) 43 L T 665; and the Scottish cases of Knox v. Mackinnon (1888) 13 App Cas 753; Rae v. Meek (1889) 14 App Cas 558; Wyman or Ferguson (Pauper) v. Paterson [1900] A C 271; and Clarke v. Clarke's Trustees, 1925 SC 693. See the review of the earlier authorities by the Jersey Court of Appeal in Midland Bank Trustee (Jersey) Ltd v. Federated Pension Services Ltd [1996] PLR 179 (Sir Godfray Le Quesne Q C ) , referred to by Millett LJ in Armitage v. Nurse [1998] Ch 241, 255-256. See also R N o b l e s , (1996) 10 Trust Law Int 66. 48 [1931] 1 Ch 572. 49 (1998) The Times, 22 April 1998 (CA).
Trustee Exclusion Clauses: Lost in the Heather? 65 Holdings Ltd (Hekla); yet, within two years of his death, nearly all the shares held by the estate in private companies, including Hekla, were worthless. The plaintiffs claimed that the trustees had been negligent in failing to meet the standard of care laid down for trustees who have a controlling interest in a company. 50 The defendants relied on the exclusion clause to have the statement of claim struck out. The plaintiffs argued that an exclusion of liability clause was in substance a benefit to the trustees, and so fell within the principle that, where the person who prepares a will also takes a benefit under it, a suspicion is raised which the court needs to have allayed before expressing its satisfaction that the document expresses the deceased's true will.51 The plaintiffs argued further that, in these circumstances, it was incumbent on the trustees to prove that the testator had received full and independent advice about the effect of the trustee exclusion clause, and of the wisdom of including it in his will. Millett LJ, with whose judgment the other members of the Court of Appeal merely expressed their agreement,52 rejected the plaintiffs' argument on four separate grounds. First, he noted that the exclusion clause did not discriminate between trustees who had advised the testator on the contents of his will and trustees who had not. This observation begs the question, however, whether such a clause should be capable of being relied upon by the former. Secondly, Millett LJ opined that the exclusion clause, unlike a trustee remuneration clause, did not confer a benefit on the trustees, but merely defined "the extent of their potential liabilities". One might beg to differ: an exclusion clause could be considered to confer an indirect benefit in the shape of reduced insurance premiums. That apart, it might be argued that Millett LJ was speaking only about exclusion clauses which exclude the trustee's duty in the first place; so that clauses which seek to exclude merely liability for breach might indeed be characterised as conferring a benefit. Even this line of reasoning, however, seems to be closed, since his Lordship was referring to the exclusion clause in the will, which was drafted in the latter form, beginning: In the professed execution of the trusts and powers hereof, no trustee (other than a trust corporation) shall be liable for any loss . . . Thirdly, Millett LJ said that the insertion of the exclusion clause was not a transaction in which the testator and those advising him had conflicting interests, and it was not one in which it would be expected that the testator would be represented separately. By this means, Millett LJ scotched the ready applicability to trustee exclusion clauses of the doctrine of undue influence.53 Positive evidence of undue influence will need to be brought. 50 See Bartlett v. Barclays Trust Co Ltd [1980] Ch 515, 532 (Brightman J); Re Lucking's Trusts [1968] 1 WLR 866, 874 (Cross J). 51 Barry v. Butlin (1838) 2 Moo PCC 480, 485 (Parke B). •« Waller and Chadwick LJJ. •" Barclays Bank pic v. O'Brien [1994] 1 AC 180 (HL).
Will
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Peter Luxton
Fourthly, even if the exclusion clause were treated as a benefit to the trustee who had procured it under the will, Millett LJ said that the trustee would not automatically be precluded from taking advantage of it: he would have to prove affirmatively the righteousness of the transaction. This was, however, a probate doctrine, so that even if probate were revoked, it would not affect the consequences of anything done by the executors after probate and before its revocation. Furthermore, the nature and the amount of the benefit were crucial. The fact that a person who prepares a will also takes a benefit for himself is only a suspicious circumstance according to the facts of each particular case, and in some cases the fact might be of no weight at all.54 On this footing, Millett LJ considered that no suspicion could attach to a solicitor's drafting a will for a client, even in the contemplation that he might be appointed an executor or trustee, which will includes an exemption clause similar to those found in many of the precedent books. It is submitted that the Court of Appeal in Bogg v. Raper took an unduly sanguine view of settlors' intentions. It is doubtful whether a solicitor's explaining to a client the effect of an exclusion clause would have any significant effect on the client's decision to go ahead with the trust or will on that basis. The client might assume, correctly, that such an exclusion is standard practice and so be unlikely to challenge it.55 A settlor's or testator's freedom of disposition when presented with a trustee exclusion clause might be equated with a consumer's contractual freedom when presented with a standard-form contract.
LIMITS ON THE SCOPE OF EXCLUSION CLAUSES
Dishonesty The only inherent restriction in trust law on the width of exclusion clauses in wills and trusts is that such clauses cannot exclude liability for dishonesty.56 In Armitage v. Nurse, Millett LJ explained what was meant by dishonesty for this purpose: 57 It is the duty of a trustee to manage the trust property and deal with it in the interests of the beneficiaries. If he acts in a way which he does not honestly believe is in their interests then he is acting dishonestly. It does not matter whether he stands or thinks he stands to gain personally from his actions. A trustee who acts with the intention of benefiting persons who are not the objects of the trust is not the less dishonest because he does not intend to benefit himself.
54 55
Barry v. Butlin (1838) 2 M o o P C C 480, 485 (Parlce B). See W G o o d h a r t , " T r u s t Law for the Twenty-First Century" (1996) 10 Trust Law lnt N o 2 , 3 8 ,
43. 56 57
Armitage v. Nurse [1998] Ch 241 (CA). Ibid, 251.
Trustee Exclusion Clauses: Lost in the Heather? 67 It is not necessarily dishonest for a trustee to breach a clause in the trust instrument which imposes an express duty or prohibition. Millett LJ states that an exclusion clause may exclude liability even where the trustee consciously acts beyond his powers, such as by making an investment which he knows to be unauthorised, provided that the trustee is in good faith and has the honest belief that he is acting in the beneficiaries' best interests.58 This subjective test for dishonesty is difficult to reconcile with Lord Nicholls' explanation of "dishonesty" in Royal Brunei Airlines v. Tan.59 In the Tan case, Lord Nicholls approved Peter Gibson J's view in Baden Delvaux60 that fraud includes "taking a risk to the prejudice of another's rights, which risk is known to be one which there is no right to take". 61 In the Tan case, the Privy Council was concerned with dishonesty in the context of a third party's assessorial liability as constructive trustee62; but there is evidence here of an important divergence of opinion. Most recently, in Walker v. Stones,63 Rattee J expressed a preference for Millett LJ's formulation. Even with the shade of meaning which Millett LJ gives to the word, it can in practice be extremely difficult for beneficiaries to prove dishonesty. Afindingof dishonesty will usually have to be based on the drawing of inferences from the trustees' actions and omissions. Claimant beneficiaries who are not themselves trustees are likely to have only limited information available to them on which to plead dishonesty. They are further handicapped by the'well-established rule that trustees are not obliged to give reasons for their decisions.64 Where the trust instrument contains an exclusion clause like that in Armitage v. Nurse, the trustees may seek to use it as a shield to defeat the claim before trial.65 Formerly, this might have been an action to have the statement of claim struck out on the basis that, even if the facts pleaded therein were true, it disclosed no sufficient cause of action.66 Now, under the Civil Procedure Rules, the court is empowered to give summary judgment in favour of the defendant if it considers (inter alia) that the claimant has no real prospect of succeeding on the claim or issue67 and there is no other reason why the case or issue should be disposed of at trial.68 This puts claimants at a disadvantage, since a hearing, in the course of which there is disclosure, might well reveal additional facts to support 58
Ibid. [1995] 2 A C 3 7 8 , 3 8 9 - 3 9 0 (PC). Baden, Delvaux and Lecuit v. Societe Generate pour Favouriser le Developpement du Commerce et de I'lndustrie en France [1993] 1 W L R 509. 61 Ibid, 574. 62 See N W a r r e n , " T r u s t e e Risk and Liability" (1999) 13 Trust Law Int 226, 236-237. 63 25 M a r c h 1999 (Ch D). 64 Re Londonderry's Settlement [1965] C h 918 (CA). 65 As in Bogg v. Raper, The Times, 22 April 1998; Wight v. Olswang, The Times 18 May 1999; Walker v. Stones, 25 March 1999 (Rattee J); and Taylor v. Midland Bank Trust Co Ltd, 21 July 1999 (CA). 66 See Bogg v. Raper, The Times, 22 April 1998. 67 CPR24.2(a)(i). 68 lbid,24.2(b). 59 60
68
Peter Luxton
their case. On the other hand, the court is rightly keen to prevent trials from turning into fishing expeditions. Much therefore turns on the preparedness of the court, when considering the facts in the statement of claim, to draw from them inferences of dishonesty. In Armitage v. Nurse, Milled: LJ appeared to require very cogent evidence, saying69: It is not necessary to use the word "fraud" or "dishonesty" if the facts that make the conduct fraudulent are pleaded: but, if the facts are consistent with innocence, then it is not open to the court to find fraud. Millett LJ might therefore be understood to be saying that the facts pointing to dishonesty must point to it unequivocally, so that the possibility of an alternative honest explanation must cause the claimants' case to fail. If this were so, it might be surmised that very few claimants would be able to plead a sufficient case. The decision of the Court of Appeal in Taylor v. Midland Bank Trust Co Ltd,70 however, indicates that the courts are prepared to be less strict. In that case, the trust owned the whole of the issued share capital of a company of which the settlors were the directors. The trustees had used the trust shares to vote payments to the directors of some £1.2 million, and had appointed more than half the trust funds to one of the beneficiaries, Jane. The claimants brought an action against the trustees for breach of trust, alleging that the trustees had effectively paid excessive sums to the settlors. It was also alleged that the appointment to Jane was made only in order to secure her acquiescence, and was therefore a fraud on a power. The claimants had previously asked the trustees for their reasons for making the appointment, which the latter had declined to give. Relying on an indemnity clause in common form that excluded the liability of individual trustees except for dishonest breaches of trust, the defendants sought to have the claim struck out as disclosing no cause of action. Although the facts did not point unequivocally to dishonesty, the Court of Appeal71 dismissed the application to strike out. Buxton LJ said that where the motives or knowledge of a party were at issue, it might often be necessary to rely on inferences rather than direct statements or admissions. He referred to Millett LJ's dictum in Armitage v. Nurse that "if the facts pleaded are consistent with innocence, then it is not open to the court to find fraud";72 but said that this was an observation about pleading, not about substance. Buxton LJ added that if, at trial, one party raises serious matters that call for an explanation from the opposite party, which the latter is in a position to give but does not provide, that failure does not stand neutral, but gives the allegations positive support. 69 70 71 72
[1998] Ch 241, 256. 21 July 1999 (CA). Stuart-Smith LJ dissenting. [1998] Ch 241, 256.
Trustee Exclusion Clauses: Lost in the Heather? 69 Rules of construction
In Bogg v. Kaper it was common ground that the exclusion clause was to be construed restrictively, so that anything that was not clearly within it should be treated as falling outside it.73 Despite this, Millett LJ rejected the argument that any doubt or ambiguity should be resolved against the party seeking to rely on it, and that the words should be construed more strongly against the party who seeks to rely on a document when he is also the party who made it. Such principles of construction are applied in the law of contract74 because, Millett LJ said, "it is assumed that the party responsible for the inclusion of the exemption clause is the party able to rely on it". 75 In the case of a will or settlement, however, Millett LJ said that the two principles point in different directions76: The document is the unilateral work of the testator or settlor through whom the beneficiaries claim. There is no inherent improbability that he should intend to absolve his executors or trustees from liability from the consequences of their negligence. They accept office on the terms of a document for which they are not responsible, and are entitled to have the document fairly construed according to the natural meaning of the words used.
The difficulty with this view is that, whilst most testators or settlors probably have a clear idea about which property they wish to be held for whom, they usually have very little to do with the administrative clauses (including any trustee exclusion clause) with which wills and trusts are inevitably encumbered. These are things which most clients are happy to leave to the lawyers. If a solicitor drafts a settlement containing a trustee exclusion clause, it seems unrealistic to treat its insertion as the responsibility of the settlor and, for this reason, not to subject the solicitor to the contra proferentem rule should he also be a trustee.
Other actions in equity and statutory duties An exclusion of liability clause, as its name suggests, excludes only liability; so that, as Millett LJ said in Armitage v. Nurse,77 the presence of such a clause would not affect the right of beneficiaries to set aside a purchase of the trust property by one of the trustees in breach of trust. If, however, a clause in the trust instrument expressly permits a trustee to engage in transactions which would otherwise give rise to a conflict of interest, such as a clause which permits him to purchase trust property, it seems that the transaction cannot be automatically upset. Similarly, no exclusion of liability clause could preclude the 73 74 75 76 77
See also Armitage v. Nurse [1998] Ch 241, 255-256. See Chitty on Contract (27th edn London, Sweet and Maxwell) i, para 14-009. Bogg v. Raper, The Times 22 April 1998. Ibid. [1998] Ch 241, 253.
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objects of a discretionary trust from having set aside an appointment which is a fraud on a power as being made in favour of a person outside the class, or even in favour of a person within the class if the appointment can be shown to have been motivated by improper considerations. Furthermore, a clause in a trust instrument can never relieve trustees from obligations imposed on them by statute as a matter of public law.78
Charitable trusts The Charity Commissioners have stated that, where a trustee of a charitable trust is remunerated for services given, they "scrutinise very closely" any clause that purports to exclude liability.79 An institution whose governing instrument contains a trustee exemption clause that does not satisfy this scrutiny will be denied registration as a charity. As the Commissioners cannot refuse to register as a charity an institution established for wholly and exclusively charitable purposes, their policy is based on the principle that an over-broad exemption clause is a personal benefit to the trustees, so that the trust is not wholly and exclusively charitable. This was certainly the Commissioners' argument in the past (since relaxed) for refusing the register as charities those institutions whose constitutions contained trustee remuneration clauses. Any continuing attempt to apply this argument to trustee exclusion clauses, however, seems to be unsustainable if, as Millett LJ construed them in Bogg v. Raper, they are to be considered, not as benefiting the trustees, but merely as laying down the extent of their potential liability. In any event, it is difficult to envisage that a trust contained in a will would be denied charitable status because it contains a wide trustee exclusion clause, since in such circumstances there is no possibility of redrafting, and denial of charitable status to such a gift will generally result in its passing to the residuary beneficiaries or next-of-kin.
Statutory restrictions on the validity of exclusion clauses Statute has restricted the validity of trustee exclusion clauses in particular types of trust, namely in respect of pension funds,80 unit trusts 81 and debenture trust deeds,82 and also in relation to the liability of officers or auditors of a company. 83 In each of these instances, the effect of the relevant statutory provision 78 E.g., the duties i m p o s e d by Charities Act 1993 on charity trustees of registered charities to file an a n n u a l report and an a n n u a l return with the Charity Commissioners: ibid, ss 45(3), 48(2). 79 [1989] C h C o m R e p 2 5 (para 90). 80 Pensions Act 1995, s 33. 81 Financial Services Act 1986, s 84. 82 C o m p a n i e s Act 1985, s 192.
83
Ibid, s 310.
Trustee Exclusion Clauses: Lost in the Heather? 71 is to invalidate any clause which purports to exclude liability even for simple negligence. More generally, it has been argued84 that trustee exclusion clauses might be subject to the Unfair Contract Terms Act 1977, and so subject to the "reasonable" restriction which that Act imposes.85 Under the Act, a contract term cannot exclude liability for negligence unless the restriction is reasonable; but the Act applies only to contract terms that restrict business liability. This would limit its application to professional persons who are trustees, but the objection to wide exclusion clauses is primarily in relation to such persons. On the footing that the Act does apply, the argument is that all trustee exclusion clauses that purport to exclude the liability of a professional person as trustee beyond that permitted by statute would be unreasonable and so void.86 On analysis, however, the attempt to apply contractual principles to trustee exclusion clauses seems doomed to failure.87 First, there is the difficulty in establishing whether the relationship between the settlor or testator on the one hand, and the trustee relying on the exclusion clause on the other, can properly be characterised as one of contract.88 If the trustee is, for instance, the solicitor who prepared the trust or will, a contract will usually have existed between the settlor and the solicitor. This is, however, a contract to prepare the will, not for the trusteeship. Any benefit that the trustee might receive under the trust itself (such as remuneration for professional services) is generally treated, not as a contract between the settlor and trustee, but as a gift by the settlor.89 Even if a contract could be found between the settlor and his initial trustees, it would be more difficult to apply a contractual analysis to the appointment of later trustees, and it would be impossible to apply it to trustees appointed by the court.90 To try to fit this aspect of the law of trusts into the straight-jacket of contract also looks distinctly artificial. Secondly, following Bogg v. Raper, an exclusion clause is not to be treated as benefiting the trustee (through excluding liability), but as merely defining the scope of the trustee's potential liabilities. On this basis, it is difficult to construe such a clause as excluding liability for negligence as the Act requires. A further problem, that the beneficiaries will not generally be parties to the contract but merely third-party volunteers, might now be surmounted by the Contracts (Rights of Third Parties) Act 1999; but the other difficulties with 84 See W G o o d h a r t , "Trustee Exemption Clauses a n d the Unfair Contract Terms Act 1977" [1980] Com; 333; criticised by R H a m , (1995) 9 Trust Law lnt, N o 1, 2 1 , 25. 85 UCTA 1977, s 2(2). 86 G o o d h a r t , supra n 84, 340. 87 Indeed, G o o d h a r t , the main proponent of the use of UCTA 1977 to tackle trustee exclusion clauses, has since recanted: W G o o d h a r t , "Trust Law for the Twenty-First Century" (1996) 10 Trust Law lnt N o 2, 3 8 , 4 3 . 88 See Re Duke of Norfolk's Settlement Trusts [1982] C h 61. 89 Under T A 2000, s 28(4), for the purposes of the Wills Act 1837, s 15 (gifts t o attesting witnesses to be void), a n d of AEA 1925, s 34(3) (order in which estate to be paid out), sums received pursuant to a charging clause are to be regarded, not as gifts, but as remuneration for services: see Law C o m N o 260, supra n 1, para 7.19. 90 I.e., under TA 1925, s 41.
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a contract-based analysis remain. It therefore seems that no assistance in invalidating trustee exclusion clauses is to be found in the Unfair Contract Terms Act 1977.
THE WAY FORWARD
The dismissal by the Appeal Committee of the House of Lords of a petition by the plaintiff in Armitage v. Nurse91 for leave to appeal suggests that, in the near future, the only hope for reform lies in statute. The scope of any statutory intervention will need to be considered carefully.
Defining an exclusion clause There is an initial problem of defining precisely what is meant by an exclusion clause. An express exclusion clause may exclude a trustee's liability either by excluding the duty in the first place92 or by reducing the trustee's standard of care in managing the trust. In substance, the result is the same: if the clause is effective, the trustee is protected from a liability to which, but for the clause, it would have been subject. These are the clauses at which legislation needs to be directed. In contrast to exclusion clauses proper, some clauses in wills or trusts merely modify trustees' duties essentially by reallocating them amongst the beneficiaries. The general duty of trustees to act even-handedly among beneficiaries, for example, may be modified by the will or trust itself. Thus the specific duties imposed on trustees of will trusts by the rules in Howe v. Earl of Dartmouth, Re Earl of Chesterfield's Trusts93 or Allhusen v. Whittell94 may be excluded by a contrary provision in the will. Such exclusion should not be characterised as a trustee exclusion clause since the sum total of the trustees' duties to the beneficiaries is in no way diminished. Careful legislative drafting will be needed to ensure that such clauses do not suffer the same fate as true exclusion clauses. An exclusion clause relates to an exclusion of personal liability for a loss. It is therefore to be distinguished from a clause that effectively excludes a personal liability to account for a profit or other benefit arising from a transaction in which the trustee might otherwise be in a position of conflict.9S
91
[1998] Ch 241, 264. E.g., Hayim v. Citibank NA [1987] AC 730 (PC); noted P McLoughlin, [1988] Corw 60. 93 (1883) 24 Ch D 643. 94 (1867)LR4Eq295. 95 E.g., a trustee remuneration clause; a clause permitting the trustee to retain director's fees (Re Uewellin's Will Trusts [1949] Ch 225, cf Re Macadam [1946] Ch 73); or a clause permitting a trustee to retain the profit made on supplying goods to the trust: Re Sykes [1909] 2 Ch 241. 92
Trustee Exclusion Clauses: Lost in the Heather? 73 Professional and amateur trustees A second issue is whether the validity of an express exclusion clause should depend upon the type of trustee seeking to rely upon it. There may be a case for treating a trust corporation or a professional person who charges for his services in relation to the trust differently from an unpaid amateur. For this purpose, a professional person is generally taken to refer to one who acts in the course of a profession or business which includes the provision of services in connection with the management of trusts.96 It would therefore, for example, include solicitors, accountants and stockbrokers. There is no reason in principle, however, why the concept of a professional trustee should not be extended to persons from other walks of life whose areas of expertise might be brought to bear on the administration of the trust. It is professional persons who generally insert, and obtain the benefit of, trustee exclusion clauses, and the need to restrict the validity of exclusion clauses in their favour is the most pressing. Since such persons will usually take advantage of a charging clause to remunerate themselves for their services, it seems unfair (as Millett LJ recognised in Armitage v. Nurse97) that they should also be able to exclude their liability as trustees, at least in the performance of acts within their own areas of expertise. To put it bluntly, they should not be permitted both to have their cake and to eat it. Furthermore, professional persons, such as solicitors, will generally have insurance to cover their personal liability for breach of trust.98 Statute could invalidate all exclusion clauses in favour of a trustee who is remunerated for his services as trustee. This would still leave the trustee with the possibility of seeking relief under section 61 of the Trustee Act 1925, but it is fairly clear that that section will not be used to relieve a professional trustee.99 On the other hand, statute could invalidate such clauses pro tanto, for example, only to the extent that they purport to exclude liability for acts or omissions within a trustee's own professed areas of expertise. Beyond those areas, it might be argued that paid trustees ought to have the same ability to exclude or restrict their liability as unpaid trustees. It is difficult to believe that trust corporations and professional persons would cease acting as trustees in England and Wales if their ability to rely on exclusion clauses were to be swept away: are they really so delicate a breed? In the case of amateur trustees, one possibility is to leave the law as it stands after Armitage v. Nurse, so that trust instruments can exclude the liability of 96
E.g., as in T A 2000. [1998] C h 2 4 1 , 256. 98 It has been suggested that liability for negligence might be validly excludable w h e r e the fund is so large that the liability might exceed any professional insurance cover reasonably obtainable: W Goodhart, (1996) 10 Trust Law Int, No 2, 38, 43. See also R Ham, (1995) 9 Trust Law lnt No 1, 21,35. 99 Re Pauling's Settlement [1964] C h 303, 339. 97
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unpaid trustees except for dishonesty. Unpaid amateurs are unlikely to be insured against any personal liability for breach of trust, and it might be unreasonable to expect them to have to pay for such insurance themselves. Any restrictions on the validity of exclusion clauses in their favour might also deter such persons from accepting office as trustees.100 At the other extreme, it might be argued that any statutory invalidity of exclusion clauses should apply even to unpaid amateurs, because such trustees might obtain relief under section 61 of the Trustee Act 1925. Under the section, the court may relieve a trustee, either wholly or partly, from breach of trust, where the trustee has "acted honestly and reasonably, and ought fairly to be excused". Amateur trustees, however, are likely to consider the mere possibility of relief being granted in an expensive and time-consuming application to the court a poor substitute for the protection afforded by an express exclusion clause. For this reason, the best solution might lie in an intermediate approach, that of partial invalidity only.
Complete or only partial invalidity? The third issue, therefore, is whether trustee exclusion clauses should be invalidated completely, or whether they might still be effective in respect of certain types of liability. Legislation could invalidate exclusion of liability for gross negligence, but permit the exclusion of liability for ordinary negligence only. The distinction between ordinary and gross negligence may not be one that equity has commonly drawn in the past 101 ; but statute can make such a distinction, and there is no intrinsic objection to drawing the line between the two sorts of negligence. In Scots law, it had been established since the nineteenth century that an exclusion clause cannot protect a trustee against gross negligence or culpa lata.W2 As Millett LJ mentioned in Armitage v. Nurse,103 it is also where the line is drawn in Jersey, following legislation there in 1989.104 The Trust Law Committee mooted the merit of permitting even paid trustees to exclude liability for ordinary negligence, so as to provide more "clear water", in the present more litigious age, between the trustees and any disgruntled 100 j \ w j [ | m a y m a k e a gift t o a person n a m e d as executor if he proves the will and accepts the trusteeship thereof. T h e legatee is likely t o b e an amateur, w h o cannot charge for his services, and a small legacy of this sort is generally treated a s a conditional gift rather than as remuneration. Normally, therefore, a gift in this form d o e s not make the legatee a paid trustee. 101 Although even equity appears t o h a v e made a distinction in some instances, notably (in pre1926 cases) that a prior legal mortgagee w h o is grossly negligent in failing to obtain (or to retain) the title deeds (or all of them), m a y lose p r i o r i t y to a later equitable mortgagee w h o exercises due diligence: Colyer v. Finch (1856) 5 H L C 905; Clarke v. Palmer (1882) 21 Ch D 124; Walker v. Linom [1907] 2 Ch 104; cf Northern Counties of England Fire Insurance Co v. Whipp (1884) 26 Ch D 482 (CA). 102 Knox v. Mackinnon (1888) 13 A p p C a s 7 5 3 , 7 6 5 (Lord W a t s o n ) ; Rae v. Meek (1889) 14 App Cas 558, 572 (Lord Herschell, with w h o m the other members of the H o u s e of Lords agreed); Carruthers v. Carruthers [1896] A C 659, 6 6 4 (Lord Herschell), 667 (Lord W a t s o n ) . 103 [1998] C h 2 4 1 , 256. 104 Trusts (Amendment) (Jersey) Law 1989, art 5.
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beneficiaries.10J The Committee's provisional view, however, was that an exclusion clause against even ordinary negligence should be ineffective against a paid trustee.106 Another possibility would be for exclusion clauses to be valid only in so far as they are fair or reasonable, but this could produce uncertainty and consequent litigation.107 There is more reason to permit an unpaid amateur to exclude liability for ordinary, but not for gross, negligence. This might be the best option, because it would afford unpaid trustees some degree of protection without reducing the notion of trusteeship to a level at which it ceases to be meaningful. A distinction between the validity of trustee exclusion clauses depending on whether the trustee is a trust corporation, a paid professional or an unpaid amateur, would parallel the corresponding difference in the standard of care established in the case law, which the Trustee Act 2000 has put into statutory form. Professional persons drafting trust instruments might, however, be less motivated to insert exclusion clauses that can protect only unpaid amateurs and not themselves.
Charities The case for restricting the validity of trustee exclusion clauses in charitable trusts is particularly strong, given that such trusts are for the public benefit. Charities, however, present a special problem, because increasing numbers of them exist, not as trusts but as incorporated bodies, and so would not be subject to legislation invalidating exclusion clauses in trusts. The problem of charitable companies was one which the Law Commission Report chose expressly to avoid.108 It is, however, difficult to see why the efficacy of such clauses should depend on the legal structure which the charity chooses to adopt. In relation to trustee exclusion clauses, as in so many other areas, it seems that charities need to be accorded separate treatment.
105 Trust Law Committee, Trustee Exemption Clauses, Consultation Paper, November 1998, at para 7.8. 106 Ibid. 107 Ibid, at p a r a 7.2. 108 Law Com No 260, supra n 1, para 1.20, including note 37 thereto.
5
Estoppel and Reliance SARAH NIELD
INTRODUCTION
ELIANCE is ONE of the essential elements required to establish estoppel. It is R .the causative link between the assurance made by the defendant and the claimant's action to his or her detriment. Whilst it is not difficult to focus individually on the elements of assurance and detriment, reliance is a different story. It is impossible to look at reliance without on the one hand casting an eye back to the assurance or inducement or, on the other hand, looking forward to the detriment that has resulted. The elements are interdependant and the link, which reliance provides, is indissoluble. As Robert Walker LJ observed in Gillet v. it is important to note at the outset that the doctrine of proprietary estoppel cannot be treated as divided into three or four watertight compartments . . . it repeatedly became apparent that the quality of the relevant assurances may influence the issue of reliance, that reliance and detriment are often intertwined and that whether there is a distinct need for a "mutual understanding" may depend on how the other elements are formulated and understood.
This interdependence means that reliance can be an elusive concept to extract. It is hoped to clarify the role played by reliance in estoppel by examining two particular situations; first, contractual negotiations and, secondly, imperfect gifts or rewards between family members or others between whom there is a close personal relationship. Both situations throw light on the link between assurance and reliance since neither is normally considered binding. Property dispositions between family members also test the link between detriment and reliance and the whole issue of mixed motives. However before examining these two contexts, it is important to make a number of general observations concerning reliance.
[2000] 2 All ER 289 at 301.
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GENERAL OBSERVATIONS
Proof or inference? Reliance raises questions of why the claimant acted as he or she did. What were his or her motives? Yet few judgments reveal an examination of the claimant's motives. He or she must have had motives, although there may not be contemporaneous, independent and corroborated proof of what those motives actually were. There is an understandable hesitation in seeking to determine motives after the event, say in the context of examination in chief or cross-examination. Such evidence might be self-serving, although when claimants have been prodded for their motives their responses have jeopardised their cases rather than proved them!2 The courts have thus tended to infer or presume reliance from provable facts. In Greasley v. Cooke3 Lord Denning MR suggested that reliance should be presumed once the claimant has established sufficient assurance and detriment. The burden of proving the claimant had not relied upon the assurances then shifts to the defendant, who must prove that the claimant had other motives for acting to his or her detriment. This approach was approved in Grant v. Edwards,4 but does it have universal application? The commercial cases of AG of Hong Kong v. Humphreys Estates (Queen's Garden) Ltds and Taylor Fashions Ltd v. Liverpool Trustees Co Ltd6 both contain clear statements that the claimant must prove reliance, 7 which suggests that a presumption of reliance will not arise in all cases. Where parties are dealing at arm's length and the transaction in which they are engaged defines their relationship, it is more realistic to expect the claimant to prove reliance. However, if the parties' relationship is personal and extends beyond the claim in question, it becomes difficult to disentangle their motives from their relationship. In these circumstances a presumption of reliance reflects reality.
The assurance The nature of the assurance must play a pivotal role in establishing reliance. Indeed it may be more helpful to talk of inducement, since the representation or assurance must induce the claimant to act as he or she has done. Jonathan Hill and Mark Howard have observed that inducements may be qualitatively and 2
See Wayling v. Jones [1995] 2 FLR 1029 and Public Trustee v. Wadley (1997) 7 Tas R 35. [1980] 1 WLR 1306. 4 [1986] Ch 638 at 657 per Browne-Wilkinson VC. 5 [1987] AC 114 at 124 per Lord Templeman. 6 [1982] 1 QB 133 at 156 per Oliver J. 7 Although that proof may be inferred from the surrounding circumstances—see Lim v. Ang [1992] 1 WLR 113. 3
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quantitatively strong and weak.8 For instance inducements may range from clear assurances to vague promises and from a single statement to repeated assurances. Obviously reliance is easier to establish where assurances are strong both qualitatively and quantitatively but a weak qualitative promise may be compensated by repetition. Furthermore, the weaker the assurance, particularly qualitatively, the more important the detriment suffered by the claimant becomes. In assessing the strength of the assurance it is important to consider how the parties communicated, which brings to the fore the nature of their relationship. In the commercial context strong qualitative assurances are to be expected, even if they are quantitatively weaker, for where the transaction defines the parties' relationship it is important that obligations are clearly understood. In the more personal context of domestic relationships the assurances may well be qualitatively weak but reinforced by repetition and considerable detriment over a long period. The parties' relationship will play an important role in how they communicate. A strong relationship may reduce the need for the parties to articulate their understandings clearly, since reliance springs from the strength and length of their relationship rather than from what is said. In a weaker relationship pressure for greater clarity may strain the relationship and the parties must balance their desire to preserve and strengthen the relationship with their desire for clearer statements of obligation. The inducement, particularly if it is active, inevitably looks not only to the conduct of the claimant but also the conduct and intention of the defendant. Thus reliance is as much about the actions and intention of the defendant as it is about the motives of the claimant. Indeed, it is interesting to compare the change of approach taken by the New Zealand courts to the enforcement of testamentary promises under their Law Reform (Testamentary Promises) Act 1949.9 The focus has shifted from the claimant's reliance on the promise to an examination of the testator's motives in making the promise, which must be made with a view to securing the claimant's services rather than because of the testator's affection for the claimant.10
The detriment The detriment must be weighed and considered in the context of the inducement. In contractual negotiations the detriment suffered by the claimant will generally be financial in nature and referable in some way to the property. It is likely to be agreed or at least contemplated by the parties. In the personal 8
"The Informal Creation of Interests in Land" [1995] LS 356. See S Nield, "If You Look after Me, I will Leave You My Estate: The Enforcement of Testamentary Promises in England and New Zealand" [2000] LS 85. 10 Tucker v. Guardian Trust & Executor Co of New Zealand Ltd [1961] NZLR 113, Re Welch [1990] 3 NZLR 1 and Re Mdntyre Dec'd [1994] NZFLR 787. 9
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context the issue of detriment may become far more complex. It need not be financial provided it is substantial, it may be incurred over a considerable period of time, it may not be referable to the property over which the assurance is made, nor agreed by the parties, it may be balanced by benefits or be of such an equivocal nature that what might seem a benefit to one person may be seen as a detriment to another. Gillet v. Holt11 and the reversal of the first instance decision by the Court of Appeal illustrate graphically some of these difficulties. What the Court of Appeal makes clear is that detriment "is not a narrow and technical concept" and "must be approached as part of a broad inquiry as to whether repudiation of the assurance is or is not unconscionable in all the circumstances." 12
Objective or subjective? If motives are to be inferred they will be based upon how a reasonable person would act. Even if the claimant is able to prove that he or she acted as he did because of a belief formed as a result of the defendant's conduct he or she must also establish that it was reasonable for him or her to hold that belief. Ralph Gibson LJ in JT Developments v. Quinn stated 13 : Mr Quinn's subjective belief cannot, however, be decisive: he must show that the assurance given was in the circumstances such that he could reasonably so regard it. The fact that the assurance is of a nature that is generally considered revocable will not necessarily be fatal.14 All will depend on the circumstances in which the assurance is made. Although such promises may be qualitatively weak, reliance upon them may be justified, for instance because there is an intention that they should be relied upon. Detriment too is objectively assessed. It must be conduct upon which the claimant could not reasonably be expected to embark unless he or she were to have the promised interest. 15 The detriment, however, will be assessed in the context of the claimant's particular position. In Pascoe v. Turner16 Mrs Turner's small monetary outlay was not so small when her whole financial position was considered. Furthermore, subjectivity may creep in where the parties envisage the detriment that is to be incurred, for instance, if they agree what the claimant is to do in return for the promise, the court is unlikely to ignore the agreed quid pro quo.17 It has been suggested that it does not matter if the 1 2
[1998] 2 FLR 479 (HC) and [2000] 2 All ER 289 (CA).
Ibid, 308. 3 (1990) 62 P & CR 33 at 50. 4 See Gillet v. Holt [2000] 2 All ER 289 at 303, overruling suggestions to the contrary at first tance. 5 Per Nourse LJ in Grant v. Edwards_[\986] Ch 638 at 648. 6 [1979] 1WLR431. 7 E.g. Public Trustee v. Wadley (1997) 7 Tas R 35.
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claimant feels that his or her conduct is prompted by his love and affection for the defendant, and is thus not sufficiently detrimental. It is for the court to assess the nature of the claimant's actions and to decide whether they cross the line into detriment.18 More commonly, of course, it is the claimant who feels that he or she has detrimentally relied upon the defendant's assurance and it is the court that disagrees.19 The need for objectivity is not surprising, given the overall need for unconscionability. It is not equity's role to protect the claimant's own expectations but to prevent equitable fraud.
The reliance tests There is little judicial guidance on how to approach the question of reliance and what guidance there has been has not been consistent. In the context of the constructive trust over domestic property, Browne-Wilkinson VC in Grant v. Edwards20 noted that "there is little guidance in the authorities on constructive trusts as to what is necessary to prove the claimant so acted to her detriment". He then expressed the view that once an express common intention had been established, any act done by the claimant to his or her detriment that related to the joint lives of the parties was sufficient and did not have to be referable to the property. However, his fellow judges formulated stricter tests. Nourse LJ adopted a traditional test of causation, namely conduct upon which the claimant could not be expected to embark unless they are to have the promised interest, while Mustill LJ adopted a consensual quid pro quo test. The parties needed to articulate, explicitly or in outline, both the interest to be granted and/or the detriment to be suffered. He left undecided whether reliance could be justified in the common estoppel context where there is a clear assurance but no agreement or understanding on the detriment to be incurred. The Court of Appeal in Gillet v. Holt21 has since rejected the need for an agreed quid pro quo. In commercial cases, where mixed motives are uncommon, the traditional causation test is unlikely to cause problems. Oliver J in Taylor Fashions22 advocated this approach by his "on the faith of" test, which the claimants in question failed to passed on the proof of other motives for their actions. There is less of a need to formulate a reliance test in the personal context where reliance will be presumed upon proof of assurance and detriment. What is of vital importance, however, is what evidence is necessary to rebut the presumption of reliance. But this question has received even less judicial attention 18
L Flynn and A Lawson, "Gender, Sexuality and the Doctrine of Detrimental Reliance" [1995] Fern LS 105 a n d A Lawson, "Things w e D o for Love: Detrimental Reliance in the Family H o m e " [1996] 1 6 L S 2 1 8 . 19 E.g. Coombe v. Smith [1986] 1 WLR 808 and Lloyds Bank v. Rosset [1991] 1 AC 107. 20 [1986] C h 638 at 656. 21 [2000] 2 All ER 289 at 306. 22 [1982] 1 Q B 133.
82 Sarah Nield than the positive proof of reliance. Some guidance is found in Wayling v. Jones23 where Balcombe LJ considered that the "only question that mattered" 24 was how the claimant would have acted if the assurance had been withdrawn. He appeared to reject, as hypothetical, the obvious causation test of how the claimant would have acted if the assurance had not been made.
Interface with constructive trusts The similarity between the essential elements required to establish a common intention constructive trust arid proprietary estoppel has been noted by the courts on several occasions, most recently in Yaxley v. Gotts.25 There is danger in drawing too close an analogy between the components of the two concepts, particularly in equating the common intention required to establish a constructive trust with the assurance needed to raise an estoppel.26 But do these dangers also relate to the question of reliance? There have been suggestions that the link may be less stringent for estoppel. 27 Nourse LJ's and Mustill LJ's tests look solely to constructive trusts and demand that the detriment either is referable to the property or is contemplated by the parties. Neither of these requirements is necessary for detriment sufficient to support an estoppel. Browne-Wilkinson VC's 'joint lives' test on the other hand is supported only by estoppel authorities but has not found favour in the context of constructive trusts.28 The burden of proof also may be different.29 As yet, there has been no explicit suggestion that a presumption of reliance may shift the burden of disproving reliance upon the common intention to the defendant. Nevertheless, it is apparent that the courts will infer reliance from the common intention and claimant's detriment rather than put the claimant to strict proof.30 What is clear is that comparison is appropriate only to a constructive trust that is based upon an express common intention rather than where the common intention is inferred from direct financial contributions to the acquisition of the property. 31 The detriment suffered by the claimant in making such contributions both infers the common intention and provides the necessary detriment so there is no need to establish the link between the two elements. It is only where the parties' common intention is established by express evidence that there is the 23
[1995] 2 FLR 1029. See also Re Basham [1986] 1 WLR 1498. Ibid, 1034. 25 [1999] FLR 9 4 1 . See also Grant v. Edwards [1986] Ch 638 and Lloyds Bank Pic v. Rosset [1991] A C 107. 26 N Glover a n d P T o d d , " T h e M y t h of C o m m o n Intention" (1996) 16 LS 325 and P Ferguson, "Constructive T r u s t s : A N o t e of C a u t i o n " (1993) 109 LQR 114. 27 L a w s o n , supra n 18. 28 Lloyds Bank Pic v. Rosset [1991] 1 A C 107. 29 Above at n 7. 30 E.g., Eves v. Eves [1975] 3 All ER 7 6 8 . 31 Such contributions could raise a n estoppel by acquiescence but the burden of establishing the Wilmott v. Barber (1880) 15 Ch D 96 five probanda makes such a claim unattractive. 24
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same need to link the detriment suffered by the claimant by proving reliance upon that common intention. The fact that this detriment need not be financial also draws closer the ties with estoppel.32 Thus, in the search for a clearer understanding of reliance, some assistance may be sought from those express common intention cases where reliance is also an essential requirement. Though there may be differences in proof, the role of reliance is the same.
CONTRACTUAL NEGOTIATIONS
In the commercial context a claimant may have to resort to estoppel because either a concluded agreement has not been reached or the concluded agreement that has been reached fails to satisfy the necessary statutory requirements, presently found in section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989 ("the 1989 Act").33 If there is a valid contract the parties' relations are governed by that contract.34
Agreements in principle It is at first sight surprising that estoppel may be relied upon when the parties are still in negotiations. It is generally well understood that negotiations do not give rise to enforceable obligations although the parties may expect that their negotiations will result in a valid contract. The fact that many parties are legally represented when buying or selling property reinforces this understanding. As Brennan J observed in Walton Stores (Interstate) Ltd v. Maker35: parties who negotiate a contract may proceed in the expectation that a term will be agreed and a contract made but so long as both parties recognise that either party is at liberty to withdraw from the negotiations at any time before the contract is made it cannot be unconscionable for one party to do so.
But there have been instances where both a seller36 and a buyer37 have been able to raise an estoppel as a result of mere agreements in principle. So when is a party entitled to rely on pre-contractual negotiations? Before embarking on this enquiry it is important to note that a claimant who is a buyer will be formulating his or her claim in terms of proprietary estoppel. 32
Lawson, supra n 18. Prior to 28 September 1989 the governing provision was s 40 of the Law of Property Act 1925. 34 Lloyds Bank Pic v. Carrick [1996] 4 AH ER 630. See also Riches v. Hobden, 2 Q d R 292 at 300 per McPherson J._ 35 (1987) 164 CLR 387 at 423. 36 Ibid. 37 Crabb v. Arun District Council [1976] 1 C h 179 and JT Developments Ltd v. Quinn (1990) 62 P & CR 33. 33
84
Sarah Nield
The expectation is that that he or she will be granted some interest in the seller's property. A seller by contrast will need to base his or her claim in promissory estoppel or estoppel by representation since there is no property over which the estoppel can be raised. The seller's expectation is that he or she will receive the price the buyer has agreed to pay or will be compensated for the detriment he or she suffered in satisfying the buyer's expected conditions. In this jurisdiction therein may lie a problem. Promissory estoppel operates in the context of an existing contractual relationship and, what is more, provides a defensive shield and not a cause of action. A seller will thus have difficulty in forcing the buyer to do anything. Estoppel by representation also presents difficulties where the representation upon which the party is seeking to rely is one of future intention rather than existing fact. For instance, where the belief is not that contracts have been exchanged (a representation of fact) but that contracts will be exchanged or that the other contracting party will not withdraw from the negotiations (a representation of future intention). These are issues which earned Walton Stores its landmark status as the Australian High Court formulated its unified estoppel doctrine but the courts in this jurisdiction have fought shy of following suit and the issue is still to be convincingly addressed.38 The determining factor for estoppel in the pre-contract context is not the degree of probability that a contract has or will come into existence but whether there was either an expectation encouraged by the defendants that they were bound to proceed or a duty on the defendants to inform the claimant that they no longer intended to proceed. The assurance thus relates more to the enforceability of the parties' dealings than the promise of any interest. The courts appear prepared to impose an element of good faith between negotiating parties at least to the extent that a party, who has induced the other party to believe that he or she will proceed, has a duty to inform the other party if he or she then wishes to withdraw. Moreover, a party will lose his or her unfettered right to withdraw if the claimant has already acted to his or her detriment in reliance on his or her induced belief of a positive outcome to the negotiations. It seems that in such circumstances the defendant may be estopped even though the claimant is still free to decide whether or not to contract. Although it was upon this point that Glidewell LJ dissented in JT Developments Ltd v. Quinn.39 Here we have a subtle mixture of an estoppel based upon common intention and unilateral mistake. The parties' negotiations form a platform of understanding but it is the claimant's mistaken belief that the negotiations have reached a point where they have legal consequences that raises the estoppel. It is vital that the mistaken belief is encouraged by the defendant and does not arise 38 See M Halliwell, "Estoppel: Unconscionability as a Cause of Action" (1994) LS 15 and L Bendy and P C o u g h l a n , "Informal Dealings with Land after Section 2", (1990) LS 325. T h e issue was sidestepped in Salvation Army Trustee Co Ltd v. West Yorkshire Metropolitan Police (1980) 1 P & CR 179 and AG of.Hong Kong v. Humphreys Estates (Queen's Garden) Ltd [1987] AC 114 which both involved exchanges of land. 39 (1990) 62 P & C R 33 at 54.
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because of the claimant's own hopes40 or a common misapprehension of enforceability.41 Of course the circumstances that lead to a high probability of exchange may raise an estoppel because they raise an expectation that the defendant is bound to proceed or had a duty to disabuse. There can have been fewer circumstances when exchange seemed more likely than in Walton Stores. Terms had been agreed, the lease engrossed, Mr Maher's part of the lease executed and forwarded to Walton Stores and Mr Maher had started the agreed redevelopment works. It was these factors which justified Mr Maher's belief that exchange was a formality and would take place. Once he had acted to his detriment upon that belief by commencing the redevelopment works Walton Stores were estopped from exercising their right to withdraw. An assumption by the claimant in which the defendant has played no more significant part than might be expected of any negotiating party will not be sufficient to justify a claimant's mistaken belief.42 Yet it can be very difficult to draw a line between what are mere negotiation tactics and inducements upon which the claimant is entitled to rely.43 The factors likely to justify reliance include not only the likelihood of exchange but also the relationship of the parties, the commercial experience and legal representation of the claimant and the degree of detriment incurred. For instance, in Yaxley v. Gotts44 the successful claimant was a friend of the defendant, having worked for him on previous occasions. He learnt of a house ripe for conversion but could not afford to buy it. He asked Mr Gotts for a loan, but instead Gotts bought the house and agreed that, if Yaxley did the conversion work and acted as Gotts's managing agent, he could have the ground floor flat. Although Yaxley asked for this arrangement to be formally recorded, Gotts suggested they leave it as a "gentleman's agreement". Yaxley relied on this agreement to such a degree that he performed all his obligations. By contrast in AG for Hong Kong v. Humphreys Estates (Queen's Garden) Ltd4S the unsuccessful claimant was the government, the negotiations were subject to contract and, whilst a number of contractual terms had been performed by both parties, there was clear evidence that the government knew that the defendant was not bound to proceed. But will it be reasonable for a party to rely on an agreement in principle when he or she knows that further negotiations will be necessary to finalise terms or that the finalised agreement will need to be committed to documentary form to comply with the legal formalities? The decisions in JT Developments Ltd v. 40
AG of Hong Kong v. Humphreys Estates (Queen's Garden) Ltd [1987] A C 114. Taylor Fashions Ltd v. Liverpool Victoria Trustees Co Ltd [1982] 1 Q B 133. 42 AG of Hong Kong v. Humphreys Estate (Queen's Garden) Ltd [1987] A C 114. 43 In JT Developments Ltd v. Quinn (1990) 62 P & C R 33 at 45 Ralph Gibson LJ noted his oscillating assessment of the facts. 44 [1999] FLR 941. See also in Lim v. Ang [1992] 1 WLR 113 where the parties were cousins and close friends. 45 [1987] A C 114. 41
86 Sarah Nield Quinn46 and Crabb v. Arun District Council47 suggest the answer is 'yes' but such cases are likely to be few and much will depend on the actions of the party against whom the estoppel is to be raised. In Quinn an assurance that a new lease would be granted on the same terms as that of another tenant was held to be a clear and unequivocal promise upon which Mr Quinn was entitled to rely. In Crabb an agreement in principle that Mr Crabb was to be granted a right of way was held a sufficient inducement when bolstered by the passage of time and the physical creation of the access. The parties may expressly preserve their right to withdraw from negotiations. Prior to the 1989 Act "subject to contract" was the time-honoured phrase used to preserve that right.48 For instance, in Humphreys Estates49 a "subject to contract" stipulation was effective to prevent reliance. Only in very rare circumstances did the Privy Council acknowledge that such a stipulation could be waived to admit an estoppel. This phrase is less likely to be used after 1989 since an agreement will be valid only if it complies with the provisions of section 2(1) of the 1989 Act. However, it must still be prudent for any party wishing to preserve his or her right to withdraw from negotiations to use the 'subject to contract' or similar warning.
Section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989 Estoppel has been put forward as an appropriate mechanism to avoid injustice where an understanding between the parties for the grant or sale of an interest in land has failed to satisfy section 2(1) of the Law of Property (Miscellaneous Provision) Act 1989.50 Yaxley v. Gottssi supports this view, but unfortunately not with reasoning that engenders particular confidence.52 The Court of Appeal acknowledged that section 2(1) was not "a no go" area for estoppel53 but stopped short of explicitly bringing estoppel within the saving provisions of section 2(5).54 Only an estoppel based upon the same elements as a constructive trust, i.e. common intention and detrimental reliance, will fall within the statutory saving. But will this formulation extend to where there is just an agreement in principle but not yet a complete understanding? There seems clear room for a distinction to be drawn. 46
(1990) 62 P & CR 33. [1976] Ch 179. 48 It was necessary for an enforceable m e m o r a n d u m to acknowledge the existence of the agreement under s 40 of the Law of Property Act 1925. 49 [1987] AC 114. 50 See Law Commission Report N o 164 following its Working Paper N o 92. 51 [1999] FLR 941. 52 T h e hesitations canvassed by L Bently and P Coughlan, "Informal Dealings with Land after s 2 ( l ) " (1990) LS 325 have not been fully dispelled. " Per Robert Walker LJ at 950. 54 Bedlam LJ is a little less cautious than his brethren. 47
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The Court of Appeal also explored the question whether the public policy behind section 2(1) excluded the operation of estoppel and the extent to which the Law Commission Reports and Working Papers could assist in that enquiry. "Whilst extensively and sympathetically discussed, frustratingly no consistent answer emerges to either question. Walton Storesss provides an alternative rationale for the use of estoppel in the face of statutory formalities. The equity raised by estoppel arises not out of the agreement but the circumstances of the case and in particular the detriment suffered by the claimant. After all the assurance upon which the claimant is relying relates not the enforceability of the agreement but to the defendant's right to withdraw without informing the claimant, a right which he is estopped from exercising freely once the claimant has acted to their detriment.
FAMILY AND PERSONAL DEALINGS
Another common context for a plea of estoppel arises where a family member, or other party to a close relationship, seeks performance of an imperfect gift or promised benefit where there has been either a failure to observe the necessary statutory formalities or a change of mind by the donor. For instance a parent,56 relative,57 lover58 or close friend and employer59 may have promised to give property, during his or her life or by will, and either failed to effect the necessary disposition or changed his or her mind, often as part of a deterioration of the relationship. Although it has been suggested that estoppel has a useful role to play in family home ownership,60 the reality has been that few cases have been argued solely on the basis of estoppel, perhaps because of the uncertainty of securing a beneficial interest.61 However, estoppel has played a role where there has been an assurance of residential security.62 A partner may have promised his partner that he will provide for her to promote the relationship and encourage her to change her existing lifestyle. If the partnership then breaks down, continued occupation of the home may then be the subject of dispute.
55
(1988) 164 CLR 387. See also Maddison v. Alderson (1833) 8 App Cas 467. Inwards v. Baker [1965] 2 QB 29, Jones v. Jones [1977] 2 All ER 231 and the Australian decisions of Public Trustee v. Wadley (1997) 7 T a s 35 and Guimelli v. Guimelli (1999) 161 ALR 473. 57 Re Basham [1986] 1 WLR 1498. 58 Wayling v. Jones [1995] 2 FLR 1029 and Pascoe v. Turner [1979] 1 WLR 431. 59 Taylor v. Dickens [1998] 1 FLR 806 a n d Gillet v. Holt [2000] 2 All ER 289. 60 See Grant v. Edwards [1986] C h 638 and Lloyds Bank pic v. Rosset [1991] 1 A C 107. 61 But see Coombes v. Smith [1986] 1 W L R 808 a n d Pascoe v. Turner [1979] 1 W L R 431. In Ungarian v. Lesnoff [\990] 1 Ch 206, the pleadings appear confused. 62 Coombes v. Smith [1986] 1 WLR 808, Pascoe v. Turner [1979] 1 WLR 431, Ungarian v. Lesnoff [1990] 1 Ch 206, Maharaj v. Chand [1986] AC 898 and Greasley v. Cooke [1980] 1 WLR 1306. 56
88
Sarah Nield
Assurance Estoppel is an attractive option in these circumstances because of the width of circumstances that may constitute the necessary assurance. Family relationships are characterised by a lack of objective certainty. Obligations are not articulated in clear contractual terms but by understandings that are likely to be verbal and equivocal in nature. Indeed pressure to articulate obligations more clearly may jeopardise the relationship itself. Another common feature of the assurance in this context is the length of time over which the assurance emerges, which reflects the length of the relationship that has prompted the assurance in the first place. Thus not only may the language of the assurance be uncertain but also its parameters may wax and wane with the ups and downs of the parties' relationship. In short assurances may well be qualitatively weak. However, such weakness may be compensated for by repetition of the assurance so it is quantitatively strong and/or by the substantial detriment that the assurance has prompted and which the defendant has accepted or witnessed. Thus again there may be a subtle mix of active encouragement and passive acquiescence. The first instance decisions in Taylor v. Dickens63 and Gillet v. Holt64 advocated a more restrictive approach to the assurance with demands for unequivocal and irrevocable assurances in which mutual obligations were contemplated and ascertainable,65 but these developments have been rejected on appeal in Gillet.66 The Court of Appeal has reasserted the need for a broad inquiry, which had marked earlier decisions, into whether the repudiation of the assurance was unconscionable in all the circumstances.67 The inherent revocability of an assurance as to testamentary benefit did not bar estoppel. Reliance upon such an assurance might still be justified where the quality and circumstances of the assurance demonstrated that the defendant intended the claimant to rely upon it. Other assurances of benefit in the family context may also be considered inherently revocable. For instance a promise of residential security may be dependent upon the continuance of the relationship or an assurance of financial benefit upon the continued prosperity of the defendant or the absence of other calls upon his or her wealth. Such qualifications might be understood between the parties but they should not be allowed to defeat the assurance if the qualifying circumstances do not transpire.68 Even if the qualifying circumstances do
63
[1998] 1 FLR 806. [1998] 2 FLR 479. 65 R Wells, "Restrictive Approach t o Proprietary Estoppel in the Testamentary C o n t e x t " [1999] Conv 462. 66 [2000] 2 All ER 289. 67 Taylor Fashions Ltd v. Liverpool Trustees Co Ltd [1982] 1 QB 133 and Re Basham [1986] 1 WLR 1498. 68 Gillet v. Holt [2000] 2 All ER 289. 64
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transpire they may affect the satisfaction of the equity rather than defeat its initial emergence.69 The Court of Appeal in Gillet also rejected the need for mutuality or an agreed quid pro quo between the parties that was mooted by Mustill LJ's test and taken up by the judge at first instance. Even so, they noted that it is easier to establish reliance where the parties have agreed, or at least contemplated, the detriment that the claimant would incur.70
Detriment Detriment in the family context need not be financial, but if non-financial the detriment must substantial, particularly where the assurance is weak.71 The detriment needs to go beyond normal displays of natural love and affection that may be expected from the nature of the relationship.72 Such a requirement inevitably highlights assessments of stereotypical behaviour with strong sexist overtones, which have been admirably explored by others in the context of the ownership of the matrimonial home but which have equal relevance to other family situations.73 A number of other factors have also been highlighted by the decisions. As a general principle detriment that is incurred before the assurance is made will be ignored - the detriment cannot have been suffered in reliance on the assurance. However in the family context, where the parties may have a long relationship, two points need to be made. First, the fact that the claimant continues to act the same way after the assurance as before does not necessarily rebut the presumption of reliance. The promise may be that the claimant will benefit if he or she continues to act as he or she has done. Furthermore once the representation is made it is presumed to have influenced the claimant's future actions.74 Secondly, the conduct of the parties, including detriment by the claimant, may colour the way in which subsequent events are assessed.75 In some cases emphasis has been placed upon relationships where love and affection may not be assumed. In both Re Basham76 and Gillet v. Holt77 the fact 69 See for instance Dodsworth v. Dodsworth [1973] 228 EG 1115, Baker v. Baker [1993] 2 FLR 247 and Sledmore v. Dalby (1996) 72 P & CR 196. Misconduct by the claimant may also affect the satisfaction of the equity: see Williams v. Staite [1979] Ch 291. 70 [2000] 2 All ER 289 at 306. 71 Ibid. 72 Although Browne-Wilkinson LJ's test would suggest otherwise the cases are not supportive. 73 M Halliwell, "Equity as Injustice: T h e Cohabitants Case" (1991) 20 Anglo-Am LR. 500, Flynn and Lawson, supra n 18, Lawson, supra n 18, S W o n g "Constructive Trusts over the Family H o m e : Lessons t o be Learnt from Other C o m m o n w e a l t h Jurisdictions?" (1998) 18 LS369. 74 Greasley v. Cooke [1980] 1 W L R 1306, R e Basham [1986] 1 W L R 1498 a n d Public Trustee v. Wadley (1997) 7 T a s R 35. 75 See for instance Gillet v. Holt [2000] 2 All ER 289 at 310. 76 [1986] 1 WLR 1498. 77 [2000] 2 All ER 289.
90 Sarah Nield that there was no blood relationship between the parties, although familial responsibilities were shouldered by the claimant, seems to have influenced the court. While in Pascoe v. Turner78 the fact that the parties were ex-lovers when the promises were made strengthened the assurances of residential security, and also affected the final remedy. Assistance with the defendant's business interests also appears to warrant greater consideration than support for the defendant's emotional wellbeing.79 This assessment appears to be another example of the greater consideration that is given to income generation and the continued reluctance of the courts to recognised domestic or other caring services in the same economic terms. Abandoning other opportunities or subordinating one's wishes to those of the defendant may also contribute to detriment, although again these opportunities are considered in career or economic terms rather than emotional attachments. Moving into the defendant's home on the promise of residential security is insufficient unless accompanied by some assumption of risk for instance abandoning existing security.80 It is interesting to compare the attitude of the courts in Maharaj v. Chand81 and Coombes v. Smith,82 decided in the same year. In Chand the plaintiff's partner of twelve years obtained a government grant of land for the express purpose of providing a house for himself and his family. Her partner told her that the house would be a permanent home for them and their child as well as Ms Chand's other children. The family had previously lived in Ms Chand's flat. The house was built and the family moved in, but after a couple of years the relationship broke down and Ms Chand remained in possession with the children. Upon a claim for repossession, the Privy Council held that Ms Chand had a right to remain for as long as the children required a home. Their lordships expressly stopped short of holding that whenever a de facto relationship came to an end the resident cohabitee could resist a claim for possession. Instead they emphasised Ms Chand's particular circumstances, namely the giving up of her previous accommodation, her support of the land grant application, her financial contribution to the household and her role as de facto wife and mother. In Coombes the parties, who were both married to other partners, became lovers. The defendant bought a house and when Mrs Coombes became pregnant she moved into the house and gave up her job. Although the relationship lasted for ten years the defendant never moved in, he visited regularly and financially supported Mrs Coombes. The defendant refused to put the house into joint names but he did assure Mrs Coombes that he would ensure that she had a roof over her head. When the relationship broke Mrs Coombes claimed own78
[1979] 1 W L R 4 3 1 . See ibid, Wayling v. Jones [1995] 2 F L R 1029, Re Basham [1986] 1 WLR 1498 and v. Mitchell [1991] 1 W L R 1127. 80 Ungarian v. Lesnoff'[1990] 1 C h 206. 81 [1986] A C 898. 82 [1986] 1 W L R 808. 79
Hammond
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ership of the house or a right to occupy it for life. The court rejected her claim, although upon acceptance of the defendant's undertaking to allow Mrs Coombes and their daughter to live in the house until their daughter was 17. The assurances had been limited to residential security, not ownership, and were made in the context of a continuing relationship and did not extend beyond the length of the relationship. The court also considered, obiter, the issue of detriment. Mrs Coombe claimed as detriment her pregnancy and the birth and care of the parties' daughter, the abandonment of her former marriage and moving to the defendant's house, her care of the defendant and lastly maintenance of the house. The court rejected all these acts. They were characterised as part and parcel of Mrs Coombes' role as mother, mistress and occupier. There was nothing exceptional about them, nor were they prompted by the assurances. The ultimate outcome in both cases is similar and there is the same caution in acknowledging any protected right of residential security beyond the life of the relationship, but the difference in reasoning is startling. The different assessments of what is or is not to be expected within a relationship are interesting and seem as much based upon how the court assessed the conduct of the individual parties as any norms of behaviour. Similar differences of attitude are evident in the High Court's and Court of Appeal's assessment of the facts in Gillet v. Holt.83 The Court of Appeal criticised the judge at first instance for taking "too narrowly financial a view of the requirement for detriment", he did "not stand back and look at the matter in the round". 84 Nevertheless the Court of Appeal acknowledge that there is often more than one way of assessing what is detrimental. In looking at Inwards v. Baker85 Robert Walker LJ observed: Viewed from one angle (which ignores the assurance implicit in the encouragement) the son suffers detriment of spending his own money in improving the land which he does not own. But viewed from another angle (which takes account of the assurance) he is getting the benefit of a free building plot. If and when the father .. . decides to go back on the assurance and assert an adverse claim then (quoting Dixon J)... "his own original change in position will operate as a detriment".86 The extent to which the courts will seek to balance benefits received against any detriment is also a murky question. However, where the claimant has taken the risk of linking his or her career and life with the defendant it does not seem that the courts will be much impressed by conjecture that the claimant may not have done so well without the defendant. The detriment lies more in the assumption of the risk and devotion to the defendant, although such a change of position is unlikely to succeed unless the detriment is sustained and substantial.87 83 84 85 86 87
[1998] 2 FLR 479 (HC) a n d [2000] 2 All ER 289 (CA). Ibid {CA), 309. [1965] 2 Q B 29. [2000] 2 All ER 289 at 309. E.g. Greasley v. Cooke [1980] 1 W L R 1306 and Gillet v. Holt [2000] 2 All ER 289.
92
Sarah Nield
Reliance Most cases have failed because they have failed to establish a sufficient assurance and/or detriment to give rise to a presumption of reliance. Rarely has the issue of rebuttal even been raised.88 In the family context motives are clouded by the existence of the relationship between the parties, which will have prompted the assurance in the first place. The feelings that found and surround the parties' relationship provide fertile ground for other motives, be that genuine love and affection or family obligation. The mere existence of such feelings will not of itself rebut the presumption for "the promises relied on do not have to be the sole inducement for the conduct: it is sufficient if they are an inducement".89 It would be cynical of the law if a claimant had to prove that he or she only acted as he or she did because of the expectation of benefit. The altruistic and charitable would be prejudiced and the mercenary and cold-hearted advantaged. Nevertheless the recognition that a lack of blood ties may weigh more heavily in the detriment scales does highlight the prejudicial impact of personal feelings. Other motives may not affect the equity arising but may they affect its satisfaction? The possibility that an award might be reduced where the claimant acknowledged that she was also motivated by her affection for the testator was considered by the Tasmanian Supreme Court in Public Trustee v. Wadley.90 Crawford J, under the influence of Commonwealth v. Verwayen91 and its call for proportionality between the remedy and the detriment, was minded to reduce the award by discounting the services that the claimant carried out because of her affection for the testator, but he was alone. The courts in this country have not shown themselves inclined to the detriment approach to remedies 92 and even in Australia Guimelli v. Guimelli93 has reasserted the primacy of the promised entitlement, subject to a consideration of all the circumstances of the case. It is thus hoped that the courts will not be tempted into hair-splitting distinctions between different motives when considering their remedial response. There remains the difficulty of establishing how the presumption of reliance may be rebutted. In Wayling v. Jones94 Balcombe LJ rejected as irrelevant the most obvious causative test, namely whether the claimant would have acted in 88
See Greasley v. Cook [1980] 1 WLR 1306, Re Basham [1986] 1 WLR 1498 and Wayling v. Jones [1995] 2 FLR 1029. T h e r e a r e also suggestions in Coombes v. Smith [1986] 1 WLR 808 that there was no reliance. 89 Per Balcombe LJ Wayling v. Jones [1995] 2 FLR 1029, at 1032. 90 (1997) 7 T a s R 35. 91 (1990) 170 C L R 394. 92 E C o o k e , "Estoppel a n d the Protection of Expectations" [1997] LS 258, M Pawlowski, "Proprietary Estoppel: Satisfying the Equity" (1997) 113 LQK 232 and A Robertson, "Reliance and Expectation in Estoppel R e m e d i e s " [1998] LS 360. 93 (1999) 161 ALR 4 7 3 . 94 [1995] 2 FLR 1029.
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the same way if the assurance had not been made. This response is initially surprising and difficult to reconcile with normal notions of reliance,9-5 but it does echo Denning MR's comments in Greasley v. Cooke96: It is no answer for the maker to say "You would have gone on with the transaction anyway". That must be mere speculation. No one can be sure what he would or would not have done in a hypothetical state of affairs which never took place. . .
Instead Balcombe LJ considered another hypothetical question: would the claimant have ceased acting to his or her detriment if the promise had been revoked? Where the detriment is part and parcel of the relationship between the parties this seems an equally implausible response to extract since the only acceptable response would be for the claimant to end the relationship itself. Indeed Mr Wayling said that he would have left in such circumstances but not every claimant might feel able or willing to do so. His or her choice to stay might indicate a change of mind and motives rather than a lack of initial reliance. Furthermore, this approach poses not only a hypothetical situation but also an unrealistic one. It still leaves open a possible claim based upon the detriment incurred before the claimant had any indication that the defendant did not intend to fulfill his or her assurance. The assurance would have to be withdrawn and communicated before any detriment was incurred to bar a claim successfully. The Court of Appeal in Gillet v. Holt97 was equally sceptical of conjecture. Yet it is difficult to see how motives can be established without conjecture or the posing of hypothetical questions where there is no independent source of evidence. The reality in the family situation is that it is impossible to extract motives or reliance from the relationship itself. There is a relationship because of the trust and confidence that the parties place in each other. Reliance is inherent in the relationship rather than jeopardised by it. The cases are replete with evidence of the type of relationships that existed between the parties. For instance in Gillet the Court of Appeal painted a vivid picture of the early relationship between Mr Gillet and Mr Holt, even before any of the assurances were made, that portrayed the Holts as "a sort of surrogate family"97 to Mr Gillet. Surely the purpose of this background is not to rebut the presumption of reliance but to establish an atmosphere in which reliance and trust are to be expected. It is to raise the presumption of reliance and to establish the context in which the actions of both parties are to be interpreted. Simon Gardiner, in his thought-provoking article "Rethinking Family Property",98 argues that concepts which are dependent upon the parties' thinking are inappropriate to determine the ownership of the family home, and that the focus should shift towards proof of trust and collaboration that in reality 95 96 97 98
See E C o o k e , "Estoppel a n d Reliance" (1995) LQR 389 and Flynn and Lawson, supra n 18. [1980] 1 W L R 1306 at 1311. [2000] 2 All ER 289 and at 310. (1993) 109 LQR 268. See also W o n g , supra n 7 3 .
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form the basis of family dealings." It is suggested that the same reasoning should colour the court's approach to reliance in the family context. Trying to extract reliance from the complex emotional web that constitutes any personal relationship by questioning the parties' motives is as unrealistic as searching for a fictional common intention. The formulation of a presumption of reliance on proof of assurance and detriment may be interpreted as judicial recognition of this fact, but there are difficulties in the present formulation. First, it is a presumption, yet there is no clear path to how it can be rebutted and, secondly, the presumption is raised by proof of matters that on their face ignore the parties' relationship but in reality are enmeshed within it. To meet these difficulties there is first a need to recognise the fact that the presumption may be irrebuttable in the absence of independent evidence and, secondly, the need for a patent acknowledgement of the role of the parties' relationship. The House of Lords' reformulation of the law relating to undue influence provides an example of how the courts can react to the complex issues raised by family dealings.100 A presumption that undue influence has been exerted, and of which a third party will have constructive notice, will be raised by proof of a relationship of trust and confidence between the parties and the manifestly disadvantageous nature of the transaction. That trusting relationship may be based upon emotional ties and/or dependence in financial affairs. The courts also have given detailed guidance on how such a presumption may be rebutted so third parties may avoid the infection of constructive notice.101 The law, after all, is not unused to founding obligations on relationships that are based upon trust and reliance. The law governing fiduciary relationships, although formulated largely in the commercial context, has such concepts at its core.
CONCLUSION
There is much to be gained from examining the concept of estoppel from the reliance perspective. Reliance draws the essential elements of inducement and detriment together to create a more accurate understanding of the operation of estoppel than any attempt to view each element independently. Assurance, reliance and detriment are so closely intertwined that there is a danger of creating a false picture unless a holistic assessment of the circumstances giving rise to estoppel is undertaken. It is not possible to draw up a list of predetermined circumstances in which either a particular form of assurance or type of detriment will be sufficient. "In the end the court must look at the matter in the round." 102 99 See also A Barlow a n d C Lind, " A M a t t e r of T r u s t : Allocation of Rights in the Family H o m e " , (1999) 19 LS 468. 100 See Barclays Bank pic v. O'Brien [1994] 1 A C 180. 101 Royal Bank of Scotland v. Etridge [1998] 4 All ER 705. 102 Gillet v. Holt [2000] 2 All ER 289 at 3 0 1 per Balcombe LJ echoing similar reminders by Oliver J in Taylor Fashions Ltd v. Liverpool Victoria Trustees Co Ltd [1982] 1 QB 133.
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Differences emerge in the proof of reliance in the context of contractual negotiations and domestic relations.103 Any presumption of reliance from proof of assurance and detriment operates more strongly in the domestic context. Indeed there must be doubt that the presumption operates at all in contractual negotiations where the burden of proof appears to remain with the claimant, although where the contracting parties are closely related reliance is more easily inferred from the surrounding circumstances. In the domestic context the presumption may be so strong that it is in fact irrebuttable. A significant factor in the proof of reliance must be an evaluation of the parties' relationship rather than trying to capture an accurate picture of their motives and thinking. It is against this relationship that both the assurance and detriment must be examined and weighed. In contractual negotiations this relationship is more likely to be confined to and defined by the assurance and detriment, but in the domestic context the relationship is the backdrop against which the assurance and detriment are assessed. The treatment of family dealings has proved one of the major challenges facing property law in recent times. Attempts to squeeze the issues raised by family dispositions into existing consensual concepts make poor logic unless the dynamics of family relationships are recognised and accommodated.
103
See also E Cooke, "Estoppel and Reliance", (1995) LQR 389.
Part II
Human Rights
Of Missiles and Mice: Property Rights in the USA CHRISTINE WILLMORE
state ownership of land plays a significant role in achieving environmental goals, but in England and Wales reliance has been placed almost exclusively upon regulatory control of the use of privately owned land. Compare for example the US National Parks system1 with the domestic one: the former relies upon state ownership of land, the latter relies upon regulatory control of private land.2 At one end of the spectrum such regulatory control 3 can impose substantial limitations upon the use of property by its owner, but much environmental legislation in England and Wales relies on a very light touch from regulators. In some instances, such as protection of SSSIs under the Wildlife and Countryside Act 19814 this is so light as to amount to little more than voluntarism. Whilst the degree of state influence varies, the common feature of much UK environmental law is its reliance upon state influence as opposed to state ownership. Protection through state ownership is rare, even as a last resort. Commercial and voluntary sector influence or ownership is more common.5 This reliance upon regulatory control of land use makes domestic environmental protection particularly dependent upon the approach taken towards such control over use by domestic courts pursuant to the property provisions of the Human Rights Act 1998. This essay explores recent experience of the use of property rights to challenge regulatory controls in the USA as a basis for
I
N SOME JURISDICTIONS
1 D Simon (ed.), Our Common Lands: Defending the National Parks (Washington, DC, Island Press, 1988). 2 Even though enacted at the high water mark of nationalisation: National Parks and Access to the Countryside Act 1949. 3 Definitions of regulatory control can vary. In this essay it is used to cover a wide spectrum of state influence, from those so light as to be tantamount to voluntarism, through to high levels of state restriction upon property use. 4
5
S28.
E.g., in relation to nature conservation, ownership through the National Trust, or Wildlife Trusts is more common than ownership by the State. The National Trust owns over 25% of the Lake District National Park., cf the USA Forest Service, Bureau of Land Management, US Fish and Wildlife Service and National Park Service which own 81 % of Nevada and 27% of the entire USA— L Kanamune, "An Old West War on the Range", USA Today, 3 April 1995.
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expressing concerns about one possible direction in which domestic human rights jurisprudence may develop. In searching for guidance on the likely interpretation of the Act, only passing reference has been made to the US Supreme Court jurisprudence in relation to property provisions, despite the long history of use in other areas of human rights jurisprudence.6 The US experience highlights how basic perceptions of "property" affect interpretation of such rights provisions, and illustrates the difficulties of developing a more specific jurisprudence than that developed by Strasbourg in the context of common law property understandings.
CONCEPTUALISING PROPERTY RIGHTS
In the USA several very clear strands of thinking exist which profoundly influence the approach of individual judges and legislators to the regulatory control debate. Tensions are apparent between four7 fundamentally different conceptions of property rights and the rationale for constitutional protection of existing property distribution.8
Property as economic opportunity This approach emerged in the nineteenth century. It is strongly espoused by a group in the Supreme Court, most prominently Justice Scalia. It sees property in terms of economic value—whether derived from the input of labour or market forces. Society can only intervene in the free use of that value to stop interferences which amount to a nuisance. Beyond that, market forces require the payment of compensation for any further restriction. Exponents tend to pursue a fragmentary normative version of the "bundle of rights" metaphor.
Libertarian autonomy This derives from a number of sources but essentially appeals to earlier doctrines of property. Locke and Madison9 are widely used as sources, although the key modern writing is by Epstein.10 Its rhetoric is used by the Property Rights 6 Lord Irvine, Constitutional Change in the United Kingdom: British Solutions to Universal Problems (1998) http://www.open.gov.uk/lcd/humanrighrs/speeches/speechfr.htm. 7 G Alexander, Commodity and Propriety (Chicago, 111, University of Chicago Press, 1997); E Freyfogle, "Owning the Land: Four Contemporary Narratives", 13 } Land Use & Envtl L 279 (1998) identifies these four approaches. 8 F Michaelman, "Property, Utility and Fairness, Comments on the Ethical Foundations of 'Just Compensation' Law", 80 Harv L Rev 1165,1239 (1967). 9 J Nedelsky, Private Property and the Limits of American Constitutionalism: The Madison framework and its Legacy (Chicago, III, University of Chicago Press, 1990). 10 Infra n 47.
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Movement and by a broad Republican coalition. It sees property as a fixed but fragmentary bundle of rights, which the state cannot redefine. No matter how the basic entitlements contained within the bundle of ownership rights are divided and no matter how many times the division takes place, if property rights are taken, then the duty to compensate the owner is triggered.11
Property is seen as the bastion of autonomy in the face of state interference. No state intervention in the free use of property is permitted, except to regulate nuisance. In practice this becomes a requirement for compensation at even quite modest levels of intervention. Community property This idea sees property as a concept which can change with time and place— according to the needs of the community. Its advocates trace it back to the early days of the Union and beyond.12 Regulatory intervention is acceptable, providing due process concerns are addressed. Academics such as Joseph Sax have espoused this approach. It has been used broadly in recent Supreme Court dissenting judgments, notably by Justice Blackmun, to criticise the results of the economic value approach and is used in a number of state courts. Rights and responsibilities This approach links ownership with responsibility. Property rights are limited to use which does not change the essential character of the land. Regulatory action is therefore not an infringement of property ownership unless it removes current land use practices. It is more a tool of criticism in the hands of Sierra Club and Third Way exponents than an ideology espoused by the courts or legislatures. US TAKINGS CLAUSE
This is applied through a very general constitutional provision. The US Constitution, as with the European Convention, assumes the existence of property. It confers no right to own property and only seek to delimit the boundaries of legitimate state intervention in existing distributions of those interests. Property is defined by states.13 The primary US property provision which has 11 N and R Marzulla, Property Rights: Understanding Government Takings and Environmental Regulation (Rockville, Md, Government Institutes, 1996) 158; see H Lindsay, "The Failure of Property Rights to Guard the Integrity of the Individual", 14 ] Land Use & Envtl L 149 (1996). 12 See Blackmun J in Lucas, infra n 27. 13 In the USA property is a state matter: Webbs Fabulous Pharmacies, Inc v. Beckwith, 449 US 155, 161 (1980). The Supreme Court cannot entirely sidestep the question (e.g. the Supreme Court
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been used to challenge regulatory action is the Fifth Amendment "Takings Clause": "Nor shall private property be taken for public use, without just compensation". At first appearance this seems very different from the European Convention in its impact upon regulatory control of land use.14 The European provision assumes taking is not acceptable unless in the public interest and makes all regulatory takings subject to a public/general interest test. In contrast, the US wording assumes taking is permissible, apparently without regard to the public interest, but requires compensation for any taking, however insignificant or meritorious. The Supreme Court has long recognised that such an interpretation would cause chaos: Government hardly could go on if to some extent values incident to property could not be diminished without paying for every such change in the general law.15 In practice therefore Strasbourg and US jurisprudence both address the questions of when compensation is required for control of land use: an essentially distributional argument about the extent to which individuals can be expected to bear the cost of collective provision. Until 1922 regulatory control of land use was not a focus for Takings Clause litigation,16 it was only when faced with the growth of regulatory action in the early years of the twentieth century that the Supreme Court applied the provision to the regulation of property use, as opposed to physical taking.17 In Mahon Justice Holmes recognised that if regulation of land use was not controlled to some extent; the natural tendency of human nature [would be] to extend the qualification more and more until at last private property disappeared.18 notion of an implied obligation that the "owner's use shall not be injurious to the community" (Keystone Bituminous Coal Association v. De Benedicts 480 US 470 (1987). J Humbach, "Evolving Thresholds of Nuisance and the Takings Clause",18 Colum J EnvtlL 1 (1993)), but federal property intervention is generally indirect e.g., via interstate commerce powers: Art I §8, cl 3 (but see US v. Lopez, 115 S Ct 1624 (1995); S Johnson, "US v. Lopez: A Misstep, but Hardly Epochal for Federal Environmental Regulation", 5 NYU Envtl LJ 33 (1996). 14
Art 1, First Protocol. Holmes J, Pennsylvania Coal Co v. Mahon, 260 US 393, 413 (1922). There is a convincing case for concluding that the authors of the Fifth Amendment believed the provision only applied to the physical seizure of property, e.g. J Hart, "Colonial Land Use Law and its Significance for Modern Takings Doctrine", 109 Harv L Rev 1252 (1996); W Treanor, "The Original Understanding of the Takings Clause and the Political Process", 95 Colum L Rev 782 (1995); Blackmun J in Lucas v. South Carolina Coastal Commission, 505 US 1003, 1036 (1992); Scalia J, ibid,1028. The point is acknowledged by many conservatives: see R Bork, Tempting of America: The Political Seduction of Law (New York, Simon & Schuster, 1991). For a history of US property jurisprudence see G Alexander, Commodity and Propriety (Chicago, 111, University of Chicago Press, 1997); J Ely, The Guardian of Every Other Right—A Constitutional History of Property Rights (2nd edn, (Oxford, Oxford University Press, 1998). 17 For a critique see J Byrne, "Basic Themes for Regulatory Takings Litigation", 29 Entl L 811 (1999). 18 Holmes } , supra n 15, 415. 15
16
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Thereafter, two approaches can be seen: in the case of physical deprivation, compensation was automatic; in the case of regulatory control compensation depended upon the facts.19 Debate centred upon the criteria for distinguishing between those regulatory interventions which found a compensation claim, and those which do not. It has been said the aim was: To bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.20 This balance was pursued through a case by case inquiry.21 The Supreme Court resisted pressure to be more specific, insisting that the taking must be judged on the merits of each case,22 having regard to whether the regulation serves any legitimate public interest, the degree of harm posed, the social value of the owner's activity, its suitability to the location and the ease of mitigating the harm feared. The formulation of the test in Agins v. Tiburon is much quoted: "[it] constitutes a taking if the ordnance does not substantially advance legitimate state interests or denies an owner economically viable use of his land". 23 As late as 1989 Curtis was able to conclude, with some justification, that US and ECHR jurisprudence delivered very similar conclusions about the limits to uncompensated regulatory control of property use, through a similar balancing of interests.24 There were some signs of an emergent change of approach in the Supreme Court, but these could still be ascribed to differing analyses of the case.25 However, whilst ECHR jurisprudence in the last decade has continued along these lines, the US scope for uncompensated regulatory control of land use has faced pressure from two routes: changing Supreme Court jurisprudence and the Property Rights Movement.26 Each must be considered, before looking at the defences being erected against these pressures and their implications for the UK.
" Except in a small body of cases where legislation required something to be present on private land—classified as a physical invasion and actionable per se—-see Loretto v. Teteprompter Manhatten CATV Corp, 458 US 419 (1982); Nollan v. California Coastal Commission, 483 US 825 (1987). 20 Black J, Armstrong v. United States, 364 US 40,49 (1960). 21 Loretto, supra n 19. 22 Initially as a question of fact and degree—Penn Central Transportation Co v. New York City, 438 US.104 (1978); latterly as a mixed question of fact and law—City of Monterey v. Del Monte Dunes at Monterey, 526 US 687 (1999); S Eagle, "Del M o n t e Dunes, Good Faith and Land Use Regulation", 30 Eni/tl L Rep 10001 (2000). 23 Powell J , 447 US 255, 261 (1980). 24 J Curtis, " C o m p a r i s o n of Regulatory Takings under the United States Constitution a n d European Convention on H u m a n Rights" (1989) 14 ELR 67. 25 See Nollan, supra n 19. 26 B Yandle, Land Rights: The 1990s Property Rights Rebellion (Lanham, M d , R o w m a n & Littlefield, 1995).
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ASSAULT ON REGULATORY CONTROL: TWO ELEMENTS
Supreme Court jurisprudence The ad hoc approach to regulatory takings proved sound in the USA in an era when state and federal activity broadly supported the growth aspirations of property owners, but came under challenge as states increasingly used regulation to restrain growth, particularly for environmental reasons. The 1992 Supreme Court decision in Lucas v. South Carolina Coastal Council27 proved something of a watershed, in that the majority used an economic value approach to conclude that regulation which "deprives land of all economically beneficial use" 28 is as good as a physical taking, and will require compensation without need for an ad hoc evaluation of the public interest.29 The fear is "that private property is being pressed into some form of public service under the guise of mitigating serious public harm". 30 The judgment was subject to extensive criticism.31 The dissenting judgments criticised the majority for seeing property purely as economic value, for overly fragmenting the bundle of rights and "launching] a missile to kill a mouse". 32 Justice Blackmun took a community property approach, arguing that society can from time to time redefine the content of the bundle of rights, and that excessive fragmentation of the bundle should be avoided.33 He felt Mahon34 had struck the right balance and was concerned that the majority seemed to think property "valueless" if not available for its most profitable use, ignoring other attributes of ownership, such as the right to exclude others and uses such as agriculture or recreation. 35 Academics were also concerned at the implications of 27
505 US 1003 (1992).
28
Scalia J giving the opinion of t h e court, ibid, 1016. These "confiscations" are to judged by reference to the "owner's reasonable investmentbacked" expectations: Brennan J, Penn Central, supra n 22. 30 Lucas, supra n 27, 1018. 31 See: S A b r a h a m , "Windfalls o r Windmills: T h e Right of a Property O w n e r to Challenge Land Use Regulation (a Call to Critically R e - e x a m i n e the M e a n i n g of Lucas)",13 J Land Use & Enut L 161 (1997); R Lazarus, " C o u n t i n g Votes and Discounting Holdings in the Supreme Court's Takings Cases", 38 Wm & Mary L Rev 1099 (1997); R Lazarus, "Restoring w h a t ' s Environmental a b o u t Environmental Law in the Supreme C o u r t " , 47 UCLA L Rev 703 (2000); H Babcock, " H a s the US Supreme C o u r t finally Drained the S w a m p of T a k i n g s Jurisprudence? T h e Impact of Lucas v South Carolina Coastal Council on W e t l a n d s and C o a s t a l Barrier Beaches", 19 Harv Envtl L Rev 1 (1995); M Blumm, "A C o l l o q u i u m o n Lucas: Property M y t h s , Judicial Activism, and the Lucas Case", 23 Envtl L 907 (1993); J Sax, " P r o p e r t y Rights a n d the Economy of Nature: Understanding, Lucas v South Carolina Coastal Council", 45 Stan L R 1433 (1993). Some have sought to downplay the significance of Lucas: W Fisher, " T h e T r o u b l e w i t h Lucas" (1993) 45 Stan L R 1393. 29
32
Blackmun J, Lucas, supra n 27, 1036. H e n c e the title of this essay. Florida c o u r t s have avoided excessive fragmentation by extending Lucas in favour of property owners, redefining the test as "substantially all beneficial use"—Tampa-Hillsborough County Expressway Authority v. AGWS Corp. 640 So 2d 54 (Fla 1994). 34 Supra n 15. 35 Lucas, supra n 2 7 , 1 0 4 4 . 33
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providing compensation without further consideration of the importance of the mischief the regulation seeks to address. And, whilst in Mahon the court had foreseen the theoretical possibility of regulation being equivalent to physical taking, many bridled at the use of economic value approaches to assess this. Lucas left open many questions, most importantly, how "all" economically beneficial use is measured.36 The answer determines how frequently Lucas can be invoked: a fragmentary approach would mean small aspects of ownership were frequently 'all' taken, a unitary approach would making takings findings less common.37 Thus, the attempt to be more explicit in defining confiscatory takings opens up a debate about the fragmentary nature of rights. Even in its most extreme manifestation this doctrine of confiscatory regulation does not permit recovery of compensation for every possible speculative use. Justice Scalia stressed that whether there has been a confiscatory taking will depend upon an evaluation of how the owner's reasonable expectations have been shaped by the state law of property and whether the "right" claimed was part of state property rights.38 This opened a second technical debate, requiring analysis of whether a state regulatory measure was merely making explicit background state law, in which case there was no taking. This gives rise to questions about the nature and mutability of background state law which go to the root of the constitutional understanding of property. As a third issue arising from Lucas, later courts have used varying formulations of the approach, depending upon the context. Thus in determine whether a planning condition is so onerous as to amount to a confiscatory taking, the Supreme Court seeks "rough proportionality", 39 but when considering refusals to grant planning consent at all, "rough proportionality" is explicitly rejected in favour of considering whether the refusal "substantially advances a legitimate public interest".40
3fi A question subsequent state and federal courts have answered with predictably inconsistent results—compare Mahon (supra n 15) with Keystone (supra n 13); See Rose, " M a h o n Reconstructed: Why the Takings Issues is still a M u d d l e " 57 S Cat L Rev 561 (1984). T h e most recent case, which seems to step back from Lucas to some extent by treating parcels as a whole is Loveladies Harbor Inc v. United States, 28 F 3d 1171 (1994). See L Schleich, "Takings:The Fifth Amendment, Government Regulation and the Problem of the Relevant Parcel", 8 Land Use & Envtl L 3 8 1 (1993). 37 Coursen's argument that the relevant denominator (i.e. the parcel within which to judge loss) is a question of fact merely serves as an argument for ducking the question: D Coursen, " T h e Takings Jurisprudence of the County of Federal Claims and the Federal Circuit", 29 Envtl L 821 (1999). •'" Scalia J, supra n 27, 1016. 39 Dolan v. City Tigard, 512 US 374 (1994): subject to the requirement for sufficient n e x u s between the requirement and the development proposal in the first place: cf Nollan, supra n 19. See D Huffenus, "Dolan meets Nollan: T o w a r d s a Workable Takings Test for Development Exactions Cases", 4 NYU Envtl L ] 30 (1995). 40 City of Monterey, supra n 22.
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The importance of Lucas cannot be underestimated.41 Justice Blackmun in his dissenting judgment 42 saw it as a critical redefining point in the US perception of property rights and of regulatory control. It represents a triumph of land as value rather than as possession, and of private over public interests. The decision has led to state and federal challenges to a range of regulatory measures—both long-established ones, such as land zoning43—and emergent environmental controls particularly wetland and species protections.44
Property Rights Movement The Supreme Court has consistently rejected invitations to go further and classify all requirements to use assets for the benefit of others as a "taking". 45 It has instead fallen to the Property Rights Movement to take the debate beyond the Supreme Court delimitation of regulatory action. The origins of the Property Rights Movement 46 are variously ascribed to the publication of Epstein's Takings: Private Property and the Power of Eminent Domain in 198547 or to western rural discontent with the management of public lands in the early 1980s48: a movement disconcertingly similar to the UK Countryside Alliance.49 The US Movement espouses a strong libertarian autonomy view, seeing property as the bastion against totalitarianism50— harking back to folk sentiments of early US property rights, in which the intermingling of a settler's labour with the land founded the justification for ownership. The Movement has spawned a series of state measures, the Private Property Rights Protection Acts, which go well beyond the Supreme Court approach in seeking to make any regulation of private property rights subject to compensation. Private Property Rights Acts adopt a fragmentary approach. Compensation is payable for the inability to use any stick or twig in the bundle 41 A few writers have dismissed Lucas as s i m p l y an example of pre-existing law applied to an extreme level of " t a k i n g " . T h e facts of Lucas, and reaction to it, make this difficult to sustain. Lucas purchased a plot of coastal wetland. A l t h o u g h o t h e r plots along the coast had been developed, increased ecological concerns led the authorities t o refuse Lucas permission to build on his plot. 42 Supra n 27. 43 A system considered subject only t o the Mahon test since Village of Euclid v. Ambler, 272 US 365 (1926). See City of Monterey, supra n 22. 44 For the latest cases see R Meltz, D M e r r i a m , R Frank, The Takings Issue: Constitutional Limits on Land-use Control and Environmental Regulation (Washington, D C , Island Press, 1999); Babbitt v. Sweet Home Chapter of Communities fora Greater Oregon, 515 US 687 (1995); Bennett v. Spear, 550 US 154 (1997), R N i x , "Justice Scalia Oversees the Latest 'Battle' in the ' W a r ' between Property Rights and E n v i r o n m e n t a l i s m " , 70 T e m p L Rev 745 (1997). 45 E.g. Eastern Enterprises v. Apfel, 524 US 498 (1998). 46 R e n a m e d "Wise U p " it is n o w a highly organised lobby with corporate backers. 47 R Epstein (Cambridge, M a s s , H a r v a r d University Press, 1985). 48 T h e so called Sagebrush Rebellion. R C a w l e y , federal Land, Western Anger: The Sagebrush Rebellion and Environmental Politics (Lawrence, K a n , University Press of Kansas, 1993). 49 See http://www.countrvside-alliance.org. 50 Senator Orrin H a t c h , Foreword to M a r z u l l a , supra n 11, at p ix.
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of rights, however small. The Florida measure,51 which is typical, seeks to restrict state regulation of property use and to provide compensation for any interferences which impose an "inordinate burden"52 which "unfairly affect[s] real property". 53 New54 restrictions which permanently eliminate "reasonable investmentbacked expectations" of the property or "unreasonably restrict the use of the land to the extent of imposing on the landowner a disproportionate share of the burden of discharging a public good" are considered inordinate burdens. Although these provisions still uphold noxious use restrictions, other limitations derived from the background property law of the state cannot provide a defence. So, not only do these provisions set a lower threshold for compensation than the Takings Clause, they also remove one of the major exceptions retained by the Supreme Court in Lucas: background state law. This can be significant. In Florida, for example, where the critical battleground for the Property Rights Movement is wetland drainage, the state Supreme Court has long taken the view that dredging and filling wetlands is not a right inherent in property title.55 All states have considered similar measures, although under half have gone on to adopt them. In the two states where measures were put to public vote, the proposals were rejected.56 Nonetheless, the movement continues to secure vociferous and powerful, if not majority, support. A strongly supportive Congress made strenuous efforts to enact a Property Rights Protection measure at federal level in the 1995 to 1997 sessions and regularly tabled a "holy trinity"57 of amendments to all environmental measures, in some cases with success. It is against this background that Bill Clinton's 1997 threat to veto legislation was made.58 51
Bert J Harris J n r , Private Property Rights Protection Act (1995) §70.001. See M Murphy, "Property Rights and G r o w t h M a n a g e m e n t in Florida: Balancing Opportunity and responsibility in a Changing Political Climate", 14 Pace Envtl L R 269 (1996); T Carreja, "Adding a Statutory Stick to the Bundle of Rights—Florida's Ability to Regulate Wetlands under Current Taking Jurisprudence and under the Private Property Rights Protection Act", 11 ] Land Use & Envtl L 423 (1996). 52 §70.001(2). •" §70.001(1). 54 Statutory control predating the 1995 Act is exempt, although the critical date is the date of refusal of the permit, not the date of the statute: Vatalaro v. Department of Environmental Regulation, 601 So.2d 1223 (Fla 1992); V Collins, "Vatalaro: T h e Mysterious Takings Rule", 8 ] Land Use & Envtl L 611 (1993). 55 Graham v. Estuary Properties lnc, 399 So 2d 1374 (Fla 1981). 56 Environmental groups initially backed some of these measures, hoping thereby to defuse the Property Rights Movement. T h e issue is also clouded by free market environmentalists w h o oppose regulatory intervention—see T Anderson and D Leal, Free Market Environmentalism (Boulder, Colo, Pacific Research Institution for Public Policy Westview Press, 1991); R Meiners and B Yandle (eds.), Taking the Environment Seriously (Lanham, M d , R o w m a n & Littlefield, 1993). 57 A nickname for: private property rights protection, risk assessment/cost benefit and unfunded mandate clauses. "Representatives Urged to Oppose Measures that Require Compensation for Takings", 24 Envtl Rep(BNA) 2039 (1994). 58 "President Promises Veto of C W A Rewrite if Senate Retains H o u s e Passed Language", 26 Envtl Rep (BNA) 270 (1995).
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More recently the Property Rights Movement focus has shifted to efforts to transfer federal lands to county control and the rejection of federal control of state lands: the County Supremacy argument.59
ROUTES TO SOLUTIONS IN USA
Joseph Sax, one of the prime academic exponents of a community rights approach to property law, has written in strong terms of the threat the Takings cases and Property Rights Acts pose to environmental protection,60 but not all writers paint such a bleak picture. Some have argued that property rights can be used to protect the environment, but the examples they draw upon are of limited scope.61 Certainly there is evidence that state courts are finding Lucas a difficult line to sustain because of its impact upon longstanding areas of regulatory control. The flow of cases at state level has led Mclntyre to refer to a "balkanisation" of Takings law, 62 with courts in different states focussing upon different mechanisms to reassert state regulatory practice.
Re-examining background prior property rights Justice Scalia's recognition in Lucas that no compensation could be payable for "taking" something the landowner never had, opened a rich vein of debate about the nature of background property rights in particular states. 63 The clearest example of this approach is perhaps Hunziker v. Iowa,64 in which the Iowa Supreme Court concluded that the basic property law of Iowa prohibited the development of any land containing significant human remains (in that case a Native American burial mound). Hunziker's title never contained that right: it was a hitherto unstated, but nonetheless basic, limitation upon the nature of property ownership in Iowa. However, such arguments must be tested in each state: there can be no assumption that background laws are the same. In Florida, for example, dredging and filling of wetlands is not recognised as a right
59
S H a r d t , "Federal Land Management in the Twenty-first Century: from Wise Up to Wise Stewardship", 18 Uarv Envtl L Rei/345 (1994). 60 Sax supra n 3 1 . 61 E Biber, "A H o u s e with a View", 109 Yale L J 849 (2000); R Gardner, "Invoking Private Property Rights for Environmental Purposes: the Taking Implications of Government Authorised Aerial Pesticide Spraying", 18 Stan Envtl L ] 65 (1999). 62 N M c l n t y r e , " T h e T a k i n g of Single Lots—How N e w York's Wetland Laws Violate the US Constitution", 15 NY Envtl L 4 (1995). 63 See F Bosselman, "Limitations Inherent in the Title to Wetlands at C o m m o n Law", 15 Stan Envtl L] 247 (1996). 64 519 N W 2 d 367 (Iowa, 1994).
Of Missiles and Mice: Property Rights in the USA 109 inherent in property title,65 but more recently in Michigan the Court of Appeal has rejected a similar claim.66 Whilst that approach is state specific, two arguments have emerged which could form the basis of general principles of background state law and would seriously limit the confiscatory taking doctrine using customary law and the public trust doctrine.67 Customary law has not had much of an historic track record in the USA,68 but at least in Oregon and Hawaii it has shown potential for limiting the confiscatory taking doctrine. In Oregon background law has been held to include customary public rights to use all beaches within the state—relying on the notion that the public have used the shores since state history began, and before that the "aboriginal inhabitants" had done so. 69 Modern title derives from people who acquired title subject to those prior rights. The use of such arguments, particularly when reliance is placed upon use by "aboriginal peoples" opens the route to wide reliance upon historic practice—as in Hawaii, where the courts have upheld the traditional rights of native Hawaiians to the exercise of rights of subsistence, culture and religion on any land where these rights were practised.70 Another ancient doctrine being pressed into service is the public trust doctrine.71 The courts have long used this to assert a ius publicum to use stateowned water and wetlands for recreation and commerce.72 It is a short step from this to conclude that when the state transfers land to a private owner, it cannot transfer that which it did not have. The transfer is therefore subject to the same ius publicum.73 With such a high percentage of property in the USA deriving title from a grant by the state, this is of wide application, but even land whose ownership predates the creation of the State can be deemed subject to a
" Graham v. Estuary Properties Inc, 399 So 2d 1374 (Fla 1981). 66 K & K C o n s t r u c t i o n Inc. v. D e p a r t m e n t of N a t u r a l Resources, 551 N W 2d 413 (Mich.1996). 67 D Callies, " C u s t o m and Public T r u s t : Background Principles of State Property Law?" 30 Envtl L Rep 10003 (2000). 68 Ibid. 6 * Oregon ex rel Thornton b Hay, 462 2d 671 (Ore, 1969); (1996).Federal Supreme Court confirmed: Stevens v. City of Cannon Beach, 854 P 2d 449 (1994); D Bederman, " T h e Curious Resurrection of Custom: Beach Access and Judicial Takings", 96 Colum L Rev 1375. 70 Public Access Shoreline Hawaii v. Hawaii County Planning Commission, 903 P 2d 1246 (1995); A limitation in the case of developed land w a s added in Hawaii v. Hanapi, 970 P 2d 485 (1998)— when native fishermen unwisely sought t o oppose the construction of a new pontoon by one of the state's leading property lawyers. P Sullivan, "Traditional and Customary Revolutions: The Law of Custom and Conflict of Traditions in H a w a i i " , 20 U Haw L Rev 99 (1999). 71 J Sax, " T h e Public Trust Doctrine in Natural Resources Law: Effective Judicial Intervention", 68 Mich L Rev 471 (1970); Coastal States Organisation Inc, Putting the Public Trust Doctrine to Work (2nd edn,Washington, D C , Coastal States Organisation, 1997); J Archer et al, Public Trust Doctrine and the Management of American's Coasts (Amherst, Mass, University of Massachusetts Press, 1994); P Sarahan, "Wetlands Protection Post-Lucas: Implications of the Public Trust Doctrine in Takings Analysis", 13 Va Envtl L J 537 (1994). 72 T h e doctrine derives from Illinois Central Railroad Co v. Illinois, 146 US 387 (1892). 73 Phillips Petroleum v. Mississippi, 484 US 469 (1994).
110 Christine Willmore public trust on the creation of the state. 74 New Jersey has used the doctrine to protect its beaches, 75 but not all states are as enthusiastic about the doctrine.76
A redefining concept of property: community property An alternative approach adopted by the courts has been to limit the rights acquired to uses which are lawful at the time of transfer. The prime motive behind this line of cases would seen to be a desire to prevent windfall gains. The paradigm case can be seen in Gazza v. New York State Dept of Environmental Conservation/7 where Gazza acquired wetland at a discount, knowing of controls over its drainage and use. When he later sought Takings Clause compensation for his inability to develop it, the court recognised the injustice that could result from a purchaser at a discount with notice then securing compensation for the "loss" of development rights. Two approaches have been used by state courts to avoid such injustice. Wisconsin Supreme Court 78 has argued that the value of land against which economic loss is judged is its current use value, i.e. the low value use. In deciding whether it has lost all economically beneficial use, uses which change the character of the land in a manner detrimental to public rights should be ignored. A more common approach has been to argue that the background property law of a state subjects the purchase to the state restrictions upon use in force at the date of acquisition. This shifting approach to background state law is not favoured by the majority in the Supreme Court, 79 and some states have been uncertain about such claims. Massachusetts initially rejected such a doctrine, on the basis that this would threaten free transferability of real estate - and lead to a "crazy quilt" pattern of enforceability of planning law,80 but more recently the state Supreme Court 81 has endorsed a continuous redefinition approach, concluding purchasers could not complain about the "loss" of rights the vendor did not have to sell. Some states have rejected the notion on the basis that the land transfer includes the vendor's right to compensation.82 Nonetheless, the approach has been pursued successfully in a number of states, notably New York, where 74
At least in Mississippi, supra. Matthews v. Bay Head Improvement Association, 471 A2d 355 (1984). Bell v. Town of Wells Beach, 557 A2d 168 (Me 1989); Purdie v. Attorney General, 732 A 2d 442 ( N H 1999). 77 679 N E 2d 1035 (1997). 78 Zealy v. City ofWakesha, 534 N W 2d 917 (Wis 1995). 79 Kennedy J , supra n 27, 1033; Presault v. United States, 100 F 3d 1538 (1996). 80 Lopes v. City ofPeabody, 629 N E 2d 3121, 1313 (Mass 1994) 81 Leonard v. Town ofBrimfield, 666 N E 2d 1300 (Mass 1996). 82 Moroney v. Mayor Old Tappan, 633 A 2d 1045 (NJ 1998); W Gulliford, " T h e Effect of Notice of Land Use Regulations upon Investment-Backed Expectations and Takings Challenges", 23 Stetson L Rev 201 (1993). 75 76
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courts have taken the view that property transfer is subject to the regulatory controls in force at the date of transfer, irrespective of purchaser knowledge.83 That leaves basic property law doctrines in a state of considerable uncertainty. Differences are not only about the detailed nature of background state law, but also about the underlying nature of property theory. Whereas the Mahon approach had permitted an ad hoc evaluation, the effort to provide a stronger test has resulted in a plethora of mechanisms to uphold state regulatory activity where compensation would preclude the continuation of that regulation.
DO THESE PROBLEMS HAVE ANY IMPLICATIONS FOR THE UK?
The Strasbourg jurisprudence avoids any particular conceptualisation of property,84 and largely accords supremacy to state law85 in determining the balance between quiet possession and public interest.86 Planning,87 rationalising agriculture and forestry,88 and public health legislation89 have been accepted as being in the public or general interest by the Strasbourg Court. Whether a domestic court will be as successful in avoiding fundamental questions about the nature of quiet possession or public interest can be doubted. US experience suggests that efforts to provide more specific guidance than the ad hoc public interest one rapidly give rise to difficult questions about the conceptualisation of property, the rationale for protection, fragmentation within the bundle of rights and discussions about limitations upon the bundle. Considerable uncertainty exists about the way the First Protocol will be applied by domestic courts under the Human Rights Act.90 A relative paucity of 83 See Anello v. Zoning Board of Appeals of Village of Dobbs Ferry, 678 N E 2d 870 (1997)—a "steep slope" ordinance prohibiting building on small plots; Basile v. Town of Southampton, 678 N E 2d 489 (1997)—a requirement for permission to build on wetlands; Soon Duck Kim v. City of New York, 90 N Y 2d 1 (1997) a duty of adjoining owners t o provide lateral support (for pavements in this case); Gazza v. New York State Dept of Environmental Conservation, supra n 77, wetland control; all held t o be prior limitations. 84 Although the relative stress placed on economic as opposed to environmental and aesthetic factors points towards an economic value approach: cfKayner v. UK (1986) A106. 85 Lithgow v. UK (1986) A102 para 122 defers t o the state view unless "manifestly unreasonable". But see recently Chassagnou v. France (1999) 7 B H R C 151. 86 Largely without addressing the theoretical difficulties of reconciling these: A M c H a r g , "Reconciling H u m a n Rights and the Public Interest: Conceptual Problems and Doctrinal Uncertainty in the Jurisprudence of the European Court of H u m a n Rights" (1999) 62 MLR 671. 87 For discussion of recent interpretation of "public interest" a n d "general interest" under Art 1 of Protocol l , s e e Y Winisdoerffer, "Margin of Appreciation and Article 1 of Protocol N o 1" (1998) 19 HRL] 18. 88 Hdkansson and Suresson v. Sweden (1990) A171-A; The Holy Monasteries v. Greece (1994) A301-A para 39. 89 Pinnacle Meat Processors v. UK App N o 33298/96 (1998). 90 Compare, e.g., J Howell, "Land a n d H u m a n Rights" (1999) 63 Conv 287 with N Stewart, "Protection of Property under the H u m a n Rights Act" (1999) 149 NLJ 1013; D H a r t , " T h e Impact of the European Convention o n H u m a n Rights on Planning and Environmental L a w " [2000] JPL 117. Citation in domestic courts is as yet t o o infrequent t o form a basis for assessment, e.g. R v. N Lincolnshire Council ex p Horticultural Sales (Humberside) Ltd [1998] Env L R 295.
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cases under the provision, coupled by the application of a particularly wide margin of appreciation by the Strasbourg Court leaves ample scope for state jurisprudence to develop in any manner no less protective of Convention rights than the Strasbourg approach. 91 Writers have sought to consider the parameters for domestic interpretation by reference to the Strasbourg92 or Privy Council jurisprudence, 93 but both lack the essentially domestic relationship between a court and the government of its state. Tom Allen has documented a stricter approach to interpretation in the domestic jurisprudence of commonwealth states, which may prove a better guide to domestic approaches. 94 As with the Strasbourg jurisprudence, domestic courts seem likely to uphold most schemes of environmental protection as being generally in the public/general interest—particularly the habitat and planning controls subject to attack in the USA. The challenge will come to specific exercise of powers within generally accepted regimes, as it has in the USA . Lucas, for example, was not a challenge to zoning as a whole, only to a particular application of the controls. How will domestic courts determine the limitations of the exercise of such powers without compensation? The public interest in environmental regulation may still triumph, but a new factor is available for the debate: the protection of quiet enjoyment of possessions. It is not for one moment suggested that a direct import of US jurisprudence will occur: it is difficult to see how the pervasive public/general interest element of Article 1 would be entirely sidestepped. However, a domestic court faced with pressure to provide further guidance about the limits of regulatory control may be tempted to offer something more specific than an ad hoc approach. The US debate has taken on the character of a distributional argument: focussed upon whether it is appropriate to address a public interest by placing the burden on individuals rather than whether there is a public interest in the regulatory control. This is fertile ground for domestic refinement within the Strasbourg jurisprudence, where the presence of compensation is an important factor in determining whether a convention breach has occurred.9S Legitimate expectation and proportionality offer a language for such a distributional debate in the UK. The public/general interest threshold, far from being a barrier to such debates, could become a weapon if courts pursue maximum economic exploita91 T h e requirement t o "have r e g a r d " t o S t r a s b o u r g jurisprudence (s 3 of the H u m a n Rights Act 1998) does n o t bind domestic courts t o follow Strasbourg—only views less generous to rights holders can be challenged in Strasbourg. 92 H o w e l l , supra n 9 0 . F o r discussion o f t h e Strasbourg jurisprudence see D Anderson, " C o m p e n s a t i o n for Interference with P r o p e r t y " [1999] EHRLR 543; J McBride, " T h e Right to Property" (1996) 21 ELRev HRC/40. 93 T Allen, " T h e H u m a n Rights Act (UK) a n d Property L a w " in J McLean (ed.), Property and the Constitution (Oxford, Hart Publishing, 1999). 94 T Allen, The Right to Property in Commonwealth Constitutions (Cambridge, Cambridge University Press, 2000). 95 See e.g., Phocas v. France (1996)1996-11 5 1 9 . Deprivation requires compensation; control does not, although t h e presence of c o m p e n s a t i o n influences t h e determination of the public interest: Baner v. Sweden, 60 D R (1989).
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tion of land as itself something in which there is a general public interest. The question is therefore not so much whether the UK courts will explore these issues as whether they will be tempted to adopt more specific definitions to structure the Strasbourg jurisprudence. In reaching a view, judges do not have carte blanche: "[t]he text itself provides, to some extent, a limit on the judges' freedom".96 However, within the parameters set by the text, judges can look to other countries for guidance: a phenomenon often described as a globalisation of rights jurisprudence. 97 If commonwealth courts are any guide, judges may adopt a "pick and mix" approach, which jurisdiction a judge looks towards depending upon the views and linguistic skills, of the particular judge and his perception of the judicial role in ensuring accountable government. Whilst there are cultural arguments against the pursuit of a US model, these may offer little protection. The model of a welfarist UK, resistant to US cornmodification, seems optimistic in the light of the changes of the last twenty years and the success of the libertarian autonomy rhetoric deployed by the Countryside Alliance. Lord Hoffmann's suggestion that the looseness of the US party system leads to government paralysis on key issues and "more scope for anti-libertarian populism" may reassure him, but few others.98 Whilst the underlying judicial approach may be more sympathetic to regulatory action in the UK—and less likely to take the narrow view of economic value with its growth-centred assumptions than certain members of the Supreme Court—one cannot simply rely upon courts to apply public interest to uphold regulatory action. US experience suggests that even if regulatory action is upheld, how this is done may be as important as whether it is done.
CONCLUSION
When regulatory control ceases to be used as a tool to manage and support economic growth and starts to become a force for articulating values which are contrary to net growth objectives, it is open to challenge. So far regulatory controls have been largely upheld in Strasbourg—but they have not yet been subject to domestic common law challenge, notably pressure to be more specific. This essay does not set out to argue that the UK will use property rights to restrict regulatory control of land use. The aim has been to highlight a hitherto neglected source of potential influence. A strong historic association with the "trumping" power of property arguments lays open a risk of the UK following elements of the US model in this, as in so much else. 96
Lord Irvine, 1999 Paul Sieghart
Memorial
Lecture,
www.open.gov.uk/lcd/humanrights/
97 E.g. Lord Irvine, supra n 96. Lord Hoffman, " H u m a n Rights a n d the House of L o r d s " (1999) 62 M L R 159 seems a lone voice in opposing globalisation. 98 Lord Hoffmann, supra n 97.
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One lesson from the US experience is that moving from a general principle to a more specific elucidation is not without difficulty. Whether judges experienced in judicial review will feel able to cede the degree of control over public or general interest to governmental bodies that the Strasbourg jurisprudence does seems unlikely. Control through an ad hoc test may present few problems, but there may be a temptation to move to a more specific or rigorous test—particularly if there is litigation pressure from a property rights lobby. The critical questions may be how this is done; the conceptualisation of property which underlies it: and the risk of pressure to resort to older principles of collective legal rights to subvert it. It seems inevitable that US-style arguments will be pursued here at some stage. What is our answer? As US environmental and property regulators found in the wetlands of Florida: alligators bite if you don't look out for them!
7
Property Rights and Wrongs: The Frontiers of Forfeiture GARY WATT 1
INTRODUCTION HE PRINCIPAL AIM of this essay is to consider the wide spectrum of legal contexts in which the idea of forfeiture is employed and to identify features connecting its employment from context to context. It has rightly been said that "if there is to be legal science, Rechtswissenschaft, there must be taxonomy". 2 The hope, therefore, is that the present study will identify where the forfeiture idea stands in relation to other legal concepts. We might even discover the foundations for a coherent and cohesive law of forfeiture hidden somewhere within the many and diverse laws of forfeiture which presently lie strewn across the fields of law. There are, then, certain perennial justifications for a study of the sort undertaken here, but there is also a particular reason for taking forfeiture as our subject at this point in time. Almost simultaneous with the passing of the Human Rights Act 1998, the Home Office proposed a greatly expanded "civil forfeiture" jurisdiction as a measure designed to strip persons of the proceeds, profits and potential instruments of crime.3 As part of our survey we will consider these proposals in some depth. There are two main reasons for so doing. First, the proposals raise significant human rights issues, which have hitherto received little in the way of academic attention. Secondly, and more central to the present study, because the concept of "civil forfeiture" proposed by the Home Office does not appear to correspond to existing ideas of forfeiture in law. In order to determine whether there is, in fact, a correspondence, we will need to reflect upon the unique position that forfeiture occupies at the border
T
1 The author wishes to acknowledge the helpful comments made at the conference by Warren Barr, Caroline Sawyer and Teresa Sutton in relation to leases, mortgages and deodand respectively. Consideration of earlier drafts by Hugh Beale, Graham Moffat and an anonymous referee is likewise appreciated. Any remaining errors are the author's alone. 2 GL Gretton, "Trusts Without Equity" (2000) 49 ICLQ 599 at 618. 3 Home Office Working Group on Confiscation Third Report, Criminal Assets, November 1998. The proposals were approved and adopted, with some minor variations, in Recovering the Proceeds of Crime, a report of the Cabinet Office Performance and Innovation Unit published in June 2000.
116 Gary Watt between property rights and legal wrongs. Indeed, it is the hypothesis of this essay that the essence of forfeiture is likely to be found in the link between wrongdoing and expropriation. The risk, of course, if the frontiers of forfeiture are too restrictively drawn, is that we will include only those cases where full proprietary rights are lost in direct response to the commission of legal wrongs. Many of the situations in which the term forfeiture is presently applied would thereby be excluded. If more of these cases are to be included we will need to reexamine our current conceptions of "wrongdoing" and "expropriation".
FORFEITURE AS A COMMON LAW IDEA
Before turning to consider "wrongdoing" and "expropriation" in detail, we should pause to note another characteristic that is a feature of forfeiture in every legal context in which that term is used; namely that forfeiture is a common law concept. Common law is used here in distinction to equity. All forfeitures occur at common law; equity never forfeits.4 According to orthodoxy, the common law enforces a right according to its form. It tends, therefore, to enforce a legitimate forfeiture regardless of the sometimes harsh consequences of so doing. Unlike the typical award of common law damages, 5 the forfeiture response is not intended to be proportionate to the loss suffered by the innocent party;6 still less does forfeiture correspond to the culpability of the wrongdoer. Forfeiture is an "all or nothing" response to wrongdoing; it is not tailored to meet the justice of the case. Equity, in contrast, exists, on the traditional view, "to soften and mollify the Extremity of the Law". 7 Where the common law recognises a right to forfeit regardless of the harshness of the outcome, equity seeks to introduce proportionality. In the mortgage context 8 it achieved this by recognising the mortgagor's equity of redemption, 9 and in the contractual and leasehold contexts equity introduced a jurisdiction to relieve against forfeiture. This equitable jurisdiction to relieve 4 Neither will equity "aid a forfeiture". See Sympson v. Turner (1700) 1 Eq Cas Abr 220 cited in JH Baker and SFC Milsom, Sources of English Legal History: Private Law to 1750 (London, Butterworths, 1986) at 132. 5 Punitive and exemplary damages are exceptions. 6 With the result that it may produce an "unjust enrichment" of the innocent party, as acknowledged by Lord Templeman in Billson v. Residential Apartments Ltd [1992] 1 AC 494 at 535A-B. 7 The Earl of Oxford's Case (1615) 1 Chan Rep 1, per Lord Chancellor Ellesmere. 8 Professor Gray was surely correct to describe the termination of the mortgagor's hope of redeeming the mortgaged estate as "absolute forfeiture of the mortgaged land". Even though, strictly speaking, the nature of the early mortgage was such that the estate had already been conveyed to the mortgagee prior to the "forfeiture". See K Gray, Elements of Land Law (2nd edn, London, Butterworths, 1993) at 937. 9 So effective was equitable intervention on behalf of the mortgagor that it even operated to protect a mortgagor whose lands had been forfeited on conviction for treason. See Pawlett v. AG (1667) Hardres 465 and JH Baker, An Introduction to English Legal History (3rd edn, London, Butterworths, 1990) 356.
Property Rights and Wrongs: The Frontiers of Forfeiture 117 against leasehold forfeiture became so well established that it now has statutory counterparts, 10 despite an early attempt to restrain it.11 Equity considers it wrong to assert a legal right if to do so would be unconscionable, but equity's response to unconscionability is quite different from the common law forfeiture response to wrongdoing.12 The equitable response is characterised by flexibility, restraint and proportionality, whereas the common law response is characterised by the lack of such factors. In fact, equity seeks to effect the minimum response required to do justice, as most clearly seen in equity's choice of remedies in satisfaction of proprietary estoppels.13 In the light of the foregoing it must be correct to conclude that forfeiture is an exclusively common law concept. This conclusion is, of course, perfectly orthodox. Far more problematic is the task of identifying the relevance to forfeiture of "wrongdoing" and "expropriation". To that we now turn.
WRONGDOING1*
The word forfeiture is now synonymous with the legal response to a wrongful act, but in its earliest form it also referred to the act itself. An alternative transcription of the Norman-French "for-feit" would be "foreign-fait", meaning to act outside the law, from the Latin: foris (outside) and facere (to do). Etymologically, therefore, the word describes a wrongdoing. However, even in Norman times it was synonymous with the legal response to the wrongdoing, and the response was often harsh. Thus, in the absence of pardon or defence, a convicted felon would forfeit not only his chattels15 and his lands16 but even his life or limbs.17 10 In addition to the general equitable jurisdiction, significant statutory counterparts are now to be found in s 38 of the Supreme Court Act 1981, s 146 of the Law of Property Act 1925 and ss 49(2) of the Law of Property Act 1925. Megarry J held the latter to be "akin to equitable relief" (Schindler v. Pigault (1975) 30 P & CR 328 at 336). 11 Landlord and Tenant Act 1730, 4 Geo II c 28. See A Clarke, "Property Law" (1992) 45 CLP 81 at 104. 12 The nature of the relevant wrongdoing is considered in the next section of the essay. 13 See, e.g., Crabb v. Arun DC [1976] Ch 179 at 198G. 14 Wrongdoing is used here in the sense of legal wrongdoing, as opposed to moral (or any other form of) wrongdoing. This is not intended to foreclose the possible interest or relevance of such distinctions, but merely to acknowledge that to do justice to the jurisprudence of wrongdoing is a task greater than the scope of this essay will allow. 15 To the Crown. 16 To the Crown in cases of High Treason, but otherwise to his lord by escheat propter delictum tenentis. In both cases the forfeiture related back to the date of the commission of the felony, except on appeal. See W Holdsworth, A History of English Law (5th edn, London, Methuen & Co, Sweet &C Maxwell, 1942) iii, 69 n 3. A felon's heirs forfeited their claim by "corruption of blood". For this reason the accused would sometimes suffer torture (peine forte et dure) rather than plead to the felony. See JM Beattie, Crime and the Courts in England 1660—1800 (Oxford, Clarendon Press, 1986) 337-338. 17 See, generally, J Hudson, The Formation of the English Common Law (Harlow, Addison Wesley Longman Ltd, 1996) at 77 and F Pollock and FW Maitland, History of English Law (2nd edn, Cambridge University Press, 1911) ii, 466-468.
118 Gary Watt Part of the present thesis is that even today forfeitures are a response to wrongdoing of some sort. In other words, that wrongdoing is one of the essential features of forfeiture. It should be stressed, however, that not every type of wrong can found a forfeiture, and this too is a clue to the distinctiveness of forfeiture. So, for example, commission of trespass or nuisance cannot give rise to forfeiture,18 because the purpose of such torts is to uphold proprietary and possessory rights, rather than to terminate them. In fact, we should expect the law to be more reluctant to found a forfeiture on a wrong, such as a tort, which is committed outside the system of property law (a system which has as its principal purposes the defining of property rights and the regulation of dealings with them) than it would be to found a forfeiture on a wrong committed within it.19 There are two reasons for this. First, property law is actually designed to reallocate proprietary and possessory rights, or, to put it another way, property rights are "at play" in property transactions. Thus forfeiture in relation to property transactions (perhaps because of a breach of a condition or a forfeiture clause) will appear less draconian than forfeiture in response to a wrong, such as a crime or tort, which is unrelated to any property transaction. Secondly, there is, as was noted earlier, a highly developed equitable jurisdiction within the English property law system which is designed to keep the harshness of forfeiture in check. Outside the property law system forfeiture is subject to no such restraint. The type of wrong which gives rise to forfeiture "within property law" will generally be a breach of a contractual term such as a covenant or condition. However, even where an estate is voluntarily transferred it may be forfeited if it is transferred subject to a condition that is breached. Thus in Blathwayt v. Baron Cawley,20 a clause of a trust provided that, in the event that one of the beneficiaries should "be or become a Roman Catholic . . . the estate hereby limited to him shall cease and determine and be utterly void". A life tenant of the trust became a Roman Catholic and the House of Lords confirmed the forfeiture of his interest. This is, of course, one instance of forfeiture within the property law system in relation to which equitable relief is not available. Equity will not enforce a condition such as that in Blathwayt,21 but it is not unconscionable to rely upon a legal right to forfeit arising upon breach of such a condition, with the result that there is no ground for equitable relief against the forfeiture. The only possibility is for the law to strike out the forfeiture provision on grounds of public policy or infringement of human rights, possibilities to which we will return below. 18 In a case where an equitable o w n e r of a n estate was causing a nuisance to the legal owner's neighbouring land, it was held t h a t "[e]xcessive user or bad behaviour towards the legal o w n e r cannot bring the equity to an end or forfeit i t " , per Goff LJ in Williams v. Staite [1979] C h 291 at 3 0 0 B - C . Lord Denning M R ' s suggestion (at 298B) that forfeiture might be permitted in an "extreme case" is surely ill-founded. N o such e x t r e m e case has been reported to date. 19 It is interesting t o note t h a t the First P r o t o c o l to the E C H R enshrines a form of "property law system" defence to forfeiture. See p . 124 infra. 20 [1976] AC 397. 21 Re Williams [1897] 2 C h 12 at 19.
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In cases of forfeiture consequent upon criminal conviction the wrong which triggers the forfeiture is inherent in the criminality. 22 Most forfeitures in criminal contexts require proof of criminal conviction. However, the same is not true of that "long-standing and well-established rule of public policy, known as the forfeiture rule, which precludes a person who has unlawfully killed another from acquiring a benefit in consequence of the killing". M The forfeiture rule does not depend upon criminal conviction, 24 but it does require proof of wrongful killing. Deaths caused accidentally do not bring about forfeiture under this rule. Historically, however, there were situations in which even accidental death gave rise to "forfeitures". One of the earliest, if not the earliest, forms of legal "forfeiture" was not dependent upon proof of wrongdoing. In the book of Exodus it says "And if an ox gores a man or woman to death, the ox shall surely be stoned and its flesh shall not be eaten; but the owner of the ox shall go unpunished".25 In ancient Jewish law the ox was destroyed, but in medieval Europe the ox (or other tainted chattel) was declared deodand ('a thing to be given to God') and as such was forfeit to the Crown or to the immediate lord, supposedly to be sold and distributed as alms. In fact, "from at least the early medieval period onwards, it appears that the deodand was normally commuted to a money payment representing the value of the item".26 It has been suggested that even the deodand was a form of forfeiture in response to wrongdoing, namely the negligence of the owner in failing to supervise a danger he had created.27 However, despite at least one early mediaeval attempt to appeal to a fault principle,28 the declaration of a deodand does not, in theory at least, appear to have turned upon the fault of the owner of the tainted asset.29 The recorded cases do suggest, on the other hand, that the fault of the owner was an important factor in determining whether the cash award made in lieu of actual forfeiture was nominal or realistic or even punitive.30 Furthermore, it seems certain that, following the advent of locomotive transport in the early part of the nineteenth century, it was the desire to hold railway companies accountable for their fault in causing deaths that prompted a brief rash of cases in which railways' rolling stock was declared
22
See the Criminal Justice Act 1988 ss 71—75, as amended by the Proceeds of Crime Act 1995 and
US v. Montgomery (Montgomery, third party) [1999] 1 All ER 84. 23 Jones v. Roberts [1995] 2 FLR 422 at 425. 24 Re Sigsworth [1935] C h 89. 25 Exodus 21:28. See, generally, E Cohen, " L a w , Folklore a n d Animal Lore" (1986) 110 Past and Present 6; J Finkelstein, The Ox that Gored (Philadelphia, Penn, 1981). 26 T Sutton, " T h e Deodand and Responsibility for Death" (1997) 18(3) Legal History 44-55 at 44. 27 See Goldsmith-Grant Co v. US 254 US 505 at 511 (1921). 28 Holdsworth (supra n 16,4th edn Vol.11 at 477) records a petition of 1377 that ships be not deodand "because it is n o t the fault of the master of the vessel": 50 Ed III no 133. 29 T h e wrongdoer in the case of deodand was the tainted asset, o r "bane", itself. See Pollock and Maitland, supra n 17, at 473. 30 For a detailed account see Sutton, supra n 26.
120 Gary Watt deodand.31 As a result of these cases deodand was finally abolished in 184632 and replaced by the provisions of the Fatal Accidents Act 1846. The deodand was an odd case, and if it is to be included within the class of forfeitures "properly-so-called" the price of its inclusion will be a rather unorthodox idea of wrongdoing. For, in the case of the deodand, the wrong lay not in the infringement of any legal rule, principle or right, but rather in a more general sense that the instrument of death was tainted and that some form of proprietary atonement was due to God. In practice this came to be a pecuniary contribution to the community, the church, the poor or even to the family of the deceased. If this notion of "civil restitution" appears strange to the individualistic modern mind, how much stranger is the discovery that there is a flavour of it in the recent Home Office proposals on "civil forfeiture", as we shall shortly observe.
IS FORFEITURE PENAL?
If the present thesis is correct, that forfeiture is a common law expropriatory response to wrongdoing, the question naturally arises: is it a penal response? This issue is another that is highly pertinent to the Home Office proposals for civil forfeiture of criminal assets, not least because the enforcement of a civil "penalty" in a criminal context raises the spectre of double jeopardy33 and other human rights concerns. The answer to the question, "is forfeiture penal?" is not easy to discern from the authorities. Consider contract law. Whereas the common law will, in an exceptional case, strike out penal "agreed damages" clauses in contracts if the agreed sum of liquidated damages does not represent a genuine pre-estimate of the loss that is likely to result from the breach,34 it has thus far resisted any overt extension of this "penalty rule" to the forfeiture of deposits and other contractual pre-payments. This is notwithstanding the fact that the defaulting party may be expected to feel the loss of his moneys just as keenly where they are passively withheld by the innocent party as where the innocent party actively recovers them under an agreed damages clause.35 It is hard to know what conclusion, if any, can be drawn from this. Is it that, in substance, forfeiture is not penal, and that therefore the penalty rule should not apply? Or is it that the forfeiture is penal in substance, but that there are other substantial distinctions between deposits and agreed damages clauses which might explain the courts' reluctance to apply the penalty rule to forfeitures? 31
See H o l d s w o r t h (n 16 supra Vol II p 4 7 n 1); S & B W e b b , English Local Government (London, Cass, 1963) ii, 75 n 3 a n d Sutton, supra n 26. 32 9 & 1 0 Viet c 62. 33 See the 2000 report, supra n 3 , a t §5.33. 34 Dunlop Pneumatic Tyre Co Ltd v. New Garage and Motor Co Ltd [1915] AC 79, (HL). 35 T h e L a w C o m m i s s i o n r e c o m m e n d e d such a n extension in its Working Paper N o 61 (1975) Penalty Clauses and Forfeiture of Monies Paid, p a r a s 5 7 - 6 7 .
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Equity provides some guidance on this question of substance, for it recognises that forfeiture of a contractual pre-payment may be penal where, as Denning LJ put it in Stockloser v. Johnson,36 the "sum forfeited" is "out of all proportion to the damage". 37 However, equity does not consider reliance upon a penal forfeiture to be unconscionable in every case, as the outcome in Stockloser itself demonstrates. This must be right. Equity does not exercise a penal jurisdiction,38 but it does not follow from this that equity should grant relief against every penalty enforceable at common law. As Lord Nottingham has said, "Chancery mends no man's bargain".39 Lord Denning's "disproportionate loss" approach to the recognition of the penal nature of forfeitures is helpful, but it should be applied only in contexts to which it is appropriate. It works well in any case where the forfeiture is of prepayments or instalments, and it works extremely well where the subject of the forfeiture is a sum representing agreed damages, because the principal aim of an agreed damages clause is to compensate. It is inappropriate, however, in relation to the forfeiture of a purchaser's estate contract (due, perhaps, to breach of a contractual condition). In this case the expropriation is a general feature of the law of vendor and purchaser. In no sense is a penalty imposed over and above the usual incidents of the transaction.40 It is equally inappropriate to determining the penal character of forfeitures of deposits.41 Pre-payments and instalments are, it is submitted, distinguishable from deposits. The latter, unlike the former, are usually unavailable to the vendor for his immediate use and thus it is by no means straightforward in the case of a deposit to determine whether the purchaser's immediate financial loss is disproportionate to the loss incurred by the vendor where a deposit is forfeited. The two types of loss are incommensurable. Agreed damages clauses should also be distinguished from deposits. The former are designed to compensate, the latter are not. Of course, a deposit may compensate fortuitously, but if it is inadequate to do so damages will be awarded to make up the shortfall.42 Thus compensation is functionally independent of the deposit. Similarly, a deposit may happen to be a part-payment,43 but its purpose is to 36
[1954] 1 Q B 4 7 6 . Ibid, 490. 38 Vyse v. Foster (1872-73) 8 LR C h App 309 at 333. 39 Maynard v. Moseley (1676) Swanst. 651 at 655. 40 See Legione v. Hateley (1983) 152 CLR 406, High Court of Australia, a t 445 a n d M P a w l o w s k i , "Relief Against Forfeiture: Contracts for the Sale of Land" (1995) 14 Litigation 135 at 139-140. Similarly, in one case there was held t o be no penalty when cars were repossessed a c c o r d i n g t o the terms of a hire-purchase agreement: {Transag Haulage v. Leyland DAF [1994] 2 B C L C 88 at 98h). 41 Equity has traditionally been reluctant t o grant relief against t h e forfeiture of deposits: see Jessel M R in Wallis v. Smith (1882) 21 C h D 243 at 258. Although t h e L a w of Property Act 1925 s 49(2) has overcome this reluctance in relation to transactions c o n c e r n i n g land. See AJ Oakley, "Deposits: Still a Guarantee of Performance?" [1994] Conv 41 at 100. 42 Lock v. Bell [1931] 1 Ch 35. 43 As such it is secured by means of an equitable lien on the subject matter of the transaction. See C Harpum, "Relief Against Forfeiture and the Purchaser of Land" [1984) Camb LJ 134 at 138, citing Whitbread & Co Ltd v. Watt [1901] 1 Ch 911 at 915. 37
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guarantee or to secure performance44 (or even to act as a symbol of goodwill).45 Conversely, whereas pre-payments, instalments and agreed damages may happen to secure performance, their purpose is to effect consideration or compensation. In the case of a deposit, therefore, a "disproportionate loss" approach is undesirable. Rather, forfeiture of a deposit should be regarded as penal only where the sum forfeited is out of all proportion to that sum reasonably necessary to secure performance of the principal obligation. One might refer to this as a "disproportionate security" approach. A somewhat similar approach was adopted by the Privy Council in Workers Trust and Merchant Bank Ltd v. Dojap Investments.46 In that case a 25 per cent deposit was struck out on the basis that it was unreasonable in comparison to the customary 10 per cent deposit and the "deposit" description was therefore really a sham attempt to disguise a penalty. Their lordships used the language of "relief" in coming to their decision, but it must be doubted that equitable relief would be so extreme as to render an entire deposit void (subject only to the vendor being compensated for losses actually incurred). It looks, rather, as if a version of the common law penalty rule is being applied under cover of equitable language. To conclude, then, it appears that there is nothing inherently penal in the legal idea of forfeiture as employed in the law of contract, and that even where forfeitures are penal there is a degree of judicial reluctance to strike them down or grant relief against them. There is only the authority of the Privy Council47 to suggest that the common law will strike down the forfeiture of an unreasonably large deposit, whilst it is clear that equity will grant relief only where, in addition to being "penal", the forfeiture is "unconscionable". In other contexts forfeitures are even more clearly distinguished from penalties. Thus forfeiture of a lease is not normally considered to be penal, for at least two reasons: first, because the forfeiture of a lease is an accepted aspect of the property law system provided that the instrument is conditional 48 or contains an appropriately worded forfeiture clause; secondly, because the law considers the forfeiture provision to be legitimate where it is acting as security for the protection of the landlord's reversion.49 Most surprising, perhaps, is the fact that even in the criminal context forfeiture is not considered to be "penal", at least so far as the word "penal" is used in 44
R Goff a n d G Jones, The Law of Restitution
(5th edn, L o n d o n , Sweet 8c Maxwell, 1998) at
536. 45 Perhaps the main function where t h e deposit is small: H Beale " U n r e a s o n a b l e Deposits" (1993) 109 LQR 524 at 525, citing Howe v. Smith (1889) 27 C h D 89. 46 [1993] A C 573, considered in Beale, supra n 45. 47 T h e Workers Trust case, supra n 46, w a s followed in a n o t h e r Privy Council case: Bidaisee v. Sampath [1995] N P C 59. 48 Doe d. Henniker v. Watt (1828) 8 B & C 308 at 315. 49 But n o t where it is acting as security for the p a y m e n t of rent. N o t e , incidentally, that where a leasehold forfeiture provision is acting as legitimate security, it is n o t security of the sort that would give priority in insolvency: Re Lomax Leisure Ltd [1999] 3 W L R 652 a t 660 F - G ; Re Park Air Services Pic [1999] 2 WLR 396.
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criminal law. Forfeiture is part of the sentencing process,50 but it is not "part of the punitive component of the sentence".51 Nor, indeed, should forfeiture under the "forfeiture rule" be regarded as a penalty. The effect of the rule can, of course, be "punitive" in an everyday sense,52 but neither the purpose nor the effect of the rule is penal in the legal sense, especially when one considers that those who feel the force of the rule are often the killer's innocent next-of-kin.53 The purpose of the forfeiture rule, and of the forfeiture of proceeds of crime generally, is not to penalise, but to remove unjust enrichment. It would bring the law into disrepute if the wrongdoer or the recipients of the wrongdoer's bounty were allowed to enjoy ill-gotten gains. We will return to some of these ideas when we consider the Home Office proposals for "civil forfeiture" in criminal contexts.
EXPROPRIATION
Property lawyers know intuitively that forfeiture has something to do with expropriation or dispossession, and contract lawyers know that the equitable jurisdiction to relieve against forfeiture is reserved to forfeitures "of proprietary or possessory rights".54 It is clear, however, that in some cases the subject of the forfeiture is not a proprietary or possessory right as such, but merely the hope that some future proprietary or possessory right may be acquired. Forfeiture of the opportunity to recover mortgaged property by reassignment is the classic instance of this (albeit one more relevant to medieval mortgages than to modern ones55), and another example appears from the case of a killer who forfeits the interest he would have had (but for his wrongdoing) as next-of-kin under his victim's estate.56 Of course, if an unlawful killing is not proven against the killer until after he has taken receipt of the assets "due" to him under his victim's estate, the effect of forfeiture will be fully expropriatory. Nevertheless, the crucial point is that the forfeiture response is the same regardless of whether the actual effect of the forfeiture is expropriatory or not. Therefore, although actual expropriation is frequently a feature of forfeiture, a more accurate indicator is the unrestrained nature of the legal response to the particular wrong. The converse is also true; namely that a proportionate, remedial and restrained 50 R. v. Delaney; R. v. Hanrahan, 14th M a y 1999 (Court of Appeal, criminal division, unreported, Smith Bernal transcript). 51 M Levi, " T a k i n g the Profit O u t of Crime: T h e UK Experience" (1997) 5(3) European Journal of Crime, Criminal Law and Criminal Justice 228. Contrast "Customs and Excise: Seizure a n d Forfeiture" T h e Australian Law Reform Commission Discussion Paper N o 43, April 1990, A p p . A at paras 6 and 23 and R v. Benjafield, The Times, 28 December 2000. 52 See Vinelott J in Re K [1985] C h 85 at 102. 53 In such a case, the application of the rule might be relieved against under the Forfeiture Act 1982: R e S [1996] 1 FLR 910. But see Re DWS (deceased) [2000] 2 All ER 83. 54 Scandanavian Trading Tanker Co AB v. Flota Petrolera Ecuatoriana, "The Scaptrade" [1983]
2AC694,702C(HL). 55 56
See supra n 8. See the "forfeiture rule", supra n 23.
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response to a wrong will not constitute forfeiture even if the outcome is in fact expropriatory. Thus, even where equity expropriates in response to unconscionability, as it does most clearly whenever it requires the transfer of a fee simple in satisfaction of an estoppel, 57 there is no forfeiture. From the preceding discussion we can conclude that one identifying characteristic of forfeiture is that it tends to deprive the wrongdoer of the entirety of his interest in the tainted arrangement or transaction, without regard to the extent of that interest. This lack of proportionality is more fundamental to the nature of forfeiture than any actual expropriatory outcome. However, given that it is often a matter of chance whether the outcome is expropriatory or not in any particular case, it hardly stretches the language too far to describe forfeiture as an expropriatory response even where it is not expropriatory in effect.
HUMAN RIGHTS CONSIDERATIONS 58
The ECHR does not condemn forfeiture per se. Article 1 of the First Protocol (hereafter "Protocol 1") sets out an entitlement to "peaceful enjoyment of possessions", but this does not "in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest". State forfeiture in response to crime has been upheld in the general interest,59 and so has "the compulsory transfer of property from one individual to another". 60 One commentator has described Protocol 1 as "the problem child of the European family of rights and freedoms",61 noting 62 that "[t]he Court has never yet rejected a submission by a State that a particular interference was in the public or general interest, even when it is the State itself which benefits financially from the impoverishment of the individual".63 Thus when UK Customs forfeited a £60 million aircraft belonging to Air Canada (which had been used by its employees to import drugs) and levied a £50,000 fine for its release, the court held by a bare majority of five to four that there had been no violation of Protocol 1 despite the fact that Air Canada had itself been innocent of any crime. 64 It seems that a violation of Protocol 1 will be found "only in the most extreme cases". 65 57
See, e.g., Pascoe v. Turner [1979] 1 W L R 4 3 1 . See, generally, J H o w e l l , "Land and H u m a n R i g h t s " [1999] Conv 287. 59 Handyside v. UK 1 E H R R 737 (1976); AGOSI v. UK (1987) 9 E H R R 1. 60 James and Others v. United Kingdom (1986) 8 E H R R 123. This was a failed attempt by landlords to resist compulsory enfranchisement u n d e r the Leasehold Reform Act 1967. «' D Anderson Q C , " C o m p e n s a t i o n for Interference with Property" [1999] 6 EHRLR 543. 62 Ibid, 547. 63 Referring to Holy Monasteries v. Greece (1995) 20 E H H R 1. T h e Court upheld laws raising a presumption of state ownership of land w h e r e o w n e r s h i p w a s disputed between the state and the monasteries. 64 Air Canada v. UK (1995) 20 E H R R 150. 65 Y Winisdoerffer, " M a r g i n of Appreciation a n d Article 1 of Protocol N o . 1" (1998) 19(1) HRLJ 18 at 19. 58
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In the Blathwayt case, considered above,66 their Lordships refused to strike out the anti-Catholic clause in the disposition. They held that the inclusion of the clause was not public discrimination, but rather an exercise of the donor's private dispositive choice. From what we have already observed of Protocol 1 we must conclude that it is unlikely to provide a challenge to this view.67 In fact, it is far from clear that such forfeitures will be struck down even in the light of Article 14, which requires that peaceful enjoyment of possessions "shall be secured without discrimination on any ground". Technically, one could argue that prior to breach of the condition one was permitted peaceful enjoyment of one's possessions, and that immediately upon breach one no longer had possessions to which the entitlement to peaceful enjoyment could attach. Against this it is surely fair to question whether enjoyment can ever be peaceful with the "sword of Damocles" suspended over one's head. These human rights considerations bring us inevitably to the Home Office proposals on "civil forfeiture".
THE HOME OFFICE PROPOSALS68
Civil forfeiture of criminal assets is not a wholly novel concept in English law, but instances have hitherto been limited, for the most part, to the seizure of cash at borders.69 The Home Office proposes a greatly expanded jurisdiction for the civil forfeiture of criminal assets. The proposals will be highly popular with law enforcement agencies, principally because forfeiture will proceed on the civil, rather than the criminal, standard of proof.70 In fact the Court of Appeal had recently to reject an attempt by a police force to forfeit property on the civil standard of proof, even prior to the proposals coming into force.71 If they are enacted we can expect to see a number of cases along the following lines. The innocent wife of a suspected drug "overlord"72 (he actually has convictions for violence offences) returns to her impressive Cheshire home to find forfeiture agents73 and police officers waiting at the door. (Acting in accordance 66
Atn20. See also S Grattan in this volume. 68 All references in this essay t o "the report" or to "the reporters" or "the proposals" are to the H o m e Office Working G r o u p on Confiscation, Third Report, Criminal Assets, N o v e m b e r 1998, unless otherwise stated to be references t o the more recent report of the Cabinet Office Performance and Innovation Unit, Recovering the Proceeds of Crime, published in J u n e 2000 ("the 2000 report"). 69 For a summary the existing scope of civil forfeiture in criminal contexts in the UK see paras 4.7-4.12 of the proposals a n d ch 4 of the 2000 report. 70 See M Frankland, "FSA Sharpens its C l a w s " (1999) 1(7) Legal Week 23 and I Smith, "Guilty Until Proven Innocent", 97(26) LSG 14, 29 J u n e 2000. 71 Webb v. CC of Merseyside Police [2000] 1 All ER 209. 72 Given the need for proportionality and given the anticipated heavy case-load of the enforcement authorities "it is appropriate that civil forfeiture should be directed at the suspected unlawful assets of the top tier of individuals associated with crime": the 2000 report, supra n 68, para 5.42. 73 A national confiscation agency is mooted (ch 5 of the report). 67
126 Gary Watt with their guidelines74 the agents had targeted her because of her association with a known criminal, namely her husband, and because her assets and lifestyle appear to be incompatible with the combined legitimate earning capacity of herself and her husband.) As she steps out of the new Mercedes sports car, registered in her name, she is informed that the car is to be impounded with immediate effect.75 The authorities now have an initial period of forty-eight hours 76 in which to apply without notice to the High Court for a "restraint order" 77 (equivalent to a freezing injunction) in relation to the car.78 They request that the order should also cover her bank accounts, her husband's car, her interest in a catering business she has established, and the matrimonial home. The order will be granted if there are "reasonable grounds" to suspect that she may have been in possession of criminal assets.79 Such an order will usually make allowance for the payment of legal fees to contest the forfeiture, subject to stringent conditions, but only exceptionally will allowance be made for living expenses.80 (An important provision designed to safeguard civil liberties is the availability of civil legal aid "to persons wishing to contest civil forfeiture".81) The order will be for a specified period, but can be renewed. During that period the husband and wife will be allowed to continue to use the car and the house, subject to immediate seizure if necessary to protect the assets.82 Meanwhile the authorities have up to two years in which to apply for forfeiture.83 To secure forfeiture they will have to prove, on the balance of probabilities, that the "property is the proceeds of crime or intended for use in crime".84 To demonstrate on normal tracing principles that assets represent the proceeds of specific crimes would be practically impossible in most cases. Accordingly, the authorities are required to prove only that the property is related to "any type of crime" 85 covered by the legislation. 74
Para 4.59. T h e r e will be n o civil forfeiture unless the combined value of assets subject to forfeiture is at least £10,000. See the 2000 report, supra n 68, para 5.24. Although designed to safeguard the civil liberties of the general public, the reporters acknowledged that £10,000 is not a great sum of money and " t h a t only proceedings relating to cash seizures by police a n d customs should be at this low level" (para 5.25). 76 Para 4.38. 77 Para 4.36. 78 T h e 2000 report, supra n 68, suggests, in somewhat vague language, that the restraint order will operate in personam: "In relation t o non-cash property, restraint could be ordered against the person a n d forfeiture against the assets" (Box 5.1). 79 Paras 4.36; 4.48. At least one commentator has pointed out, by analogy to "reasonable suspicion" as interpreted in cases concerning powers of arrest, t h a t t o require the authorities to establish "reasonable g r o u n d s " for suspicion will not be unduly onerous: I Smith, "Confiscating the Proceeds of Crime—is it legal?" (2000) 150 NLJ 967. 80 Para 4.64-4.67. 81 T h e 2000 report supra n 68, para 5.24. 82 Para 4.37. 83 Para 4.42. 84 Para 4.58. 85 Para 4.58. 75
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The proposals state that "any new powers should contain provision for the holders of legitimate interests in property to recover their interest".86 Presumably a bona fide purchaser (or even volunteer) defence is envisaged, but the required standard of innocence is likely to be a hard one to establish.87 Nevertheless, if, at the end of the process, no forfeiture order is made, the wife may be able to claim compensation,88 to include, for instance, lost business profits. The proposed new jurisdiction has one significant feature in common with the deodand, namely that the forfeiture is effective without putting in issue the wife's guilt. The Home Office hopes, therefore, that she cannot claim to have been penalised, nor to have been deprived of the presumption of innocence or tainted with guilt.89 The only criminals envisaged by the Home Office proposals are the assets themselves. They will be cited as defendants to the action,90 as is the case in civil in rent forfeiture in the USA.91 The "civil forfeiture" proposed by the Home Office does not extend to the instruments of past crimes.92 The reporters feared that forfeiture of this sort would be construed as a penalty. They were keen to stress that "civil forfeiture legislation is not intended to penalise",93 anticipating, no doubt, the threat of actions being brought under the ECHR, notably Articles 6,94 7,9S 896 and
86
Para 4.61. Consider, however, the potentially serious implications of the decision in Re Norris [2000] 1 WLR 1094 (CA). In that case a convicted drug dealer suffered a restraint order against his matrimonial home. His wife's application to have the order varied, on the ground that she alone was legally and beneficially entitled to the property, failed because she could have raised her objection in the C r o w n Court proceedings against her husband. She lacked independent legal representation and was not even a party t o the C r o w n Court action. 87 C o m p a r e Boscawen v. Bajwa [1996] 1 WLR 328. 88 Para 4.68—4.70. N o t e , however, the significant suggestion that awards of compensation will lie in the court's discretion (the 2000 Report, supra n 68, Box 5.1). It is a suggestion that does not appear anywhere in the main text of the 2000 report (note, in particular, its absence from para 5.28). 89 "Although civil forfeiture is not intended as a punitive measure, it can be expected to be keenly felt and strongly resisted by individuals w h o have grown accustomed to having possession of their unlawful assets": the 2000 Report, supra n 68, para 5.13). 90 Para 4.5. 91 See, e.g., US v. All Funds on Deposit in Any Accounts Maintained in the Names ofMeza or de Castro, 63 F 3 d 148 (1995), discussed in L Smith, "In R e m Forfeiture Proceedings and Extraterritorial Jurisdiction" (1996) 45 ICLQ 902. 92 Para 4.55. 93
94
Para 4.54.
T h e "right t o a fair trial" is infringed by enforced self-incrimination. See Brown v. Procurator Fiscal, Dunfermline, The Times, 14 February 2000, and Memory Corp. pic v. Sidhu [2000] 1 All ER 434. 95 Which prohibits retroactive increases in penalty (Welch v. UK (retrospective confiscation third party) [1999] 1 All ER 84 (see order) (1995) 20 E H R R 247). US v. Montgomery (Montgomery, also Re M (Restraint Order: External Confiscation Order) [1998] 2 FLR 1035 (CA)) confirms that where a third party is stripped of criminal profits (in that case through imposition of c o m p o u n d interest) by a civil process "collateral" t o a criminal action, there is n o penal aspect. T h e same is presumably true where the civil process is wholly independent of any criminal action. 96 T h e right t o respect for private and family life. In fact Art. 8 provides for a very wide margin of appreciation in favour of state agencies in the interests of "national security, public safety" etc.
128 Gary Watt Article 4 of Protocol 7.97 Protocol 1 may represent less of a threat. For, although proportionality is a key requirement of Protocol I, 98 the Air Canada case indicates that where a forfeiture by the State is justified in the general interest it will be condemned only where the means employed are grossly disproportionate to those required to secure that interest. This does mean, however, that forfeiture will be suspect if it comes after the public interest has already been satisfied on the facts of the particular case.99 Experience in the United States has led to the belief that constitutional restraints are generally inadequate to deter and control zealous use and abuse by the authorities of civil forfeiture of criminal assets. Thus in United States v. Bennis Justice Clarence Thomas of the US Supreme Court, whilst acknowledging that "[i]mproperly used, forfeiture could become more like a roulette wheel employed to raise revenue from innocent but hapless owners whose property is unforseeably misused, or a tool wielded to punish those who associate with criminals, than a component of a system of justice",100 nevertheless held that the solution to the problem would be found in legislation andYiot in existing constitutional safeguards. Some significant legislative steps have since been taken towards reform of the US system, steps designed to address a number of its features that were doubtful in principle and open to abuse in practice.101 It is clear from the form of the Home Office proposals that they have been drafted so as to take into account the lessons that the United States administration has had to learn from sometimes bitter experience. Given the danger of abuse that is inherent in any broad civil jurisdiction for the forfeiture of criminal assets, it is to be hoped that any legislation designed to implement the Home Office proposals will be in a form that will readily attract from the appropriate Minister of the Crown a "statement of compatibility" with the ECHR. 102 It is clearly the case that the Home Office reporters were most 97 Which prohibits double jeopardy (see Law C o m Consultation Paper 156 (1999), Double Jeopardy, part III). 98 See James, supra n 60, at 145: "a measure must be both appropriate for achieving its aim and not disproportionate thereto". The H o m e Office report takes this into account (para 4.55). 99 In Vendittelli v. Italy, 18 July 1994, A 293-A, para 38, sequestration of a flat was condemned because it came after the close of the criminal proceedings which prompted the sequestration. 100 516 US 442 at 456 (1996). 101 T h e Civil Forfeiture Reform A c t 1999, H R 1658, 106th Cong, w a s passed by the House of Representatives in J u n e 1999. It provides, inter alia, for an increase in the period of time within which property o w n e r s will be able t o challenge administrative and judicial forfeitures, for the abolition of the requirement that the property owner should post a bond p r o p o r t i o n a t e t o the value of the property subject t o the forfeiture prior t o challenging the forfeiture a n d for the appointment of counsel t o represent those w h o cannot afford t o pay for legal advice. H o w e v e r , the most significant reforms a r e the introduction of a requirement that the government must prove by clear a n d convincing evidence t h a t t h e property should be forfeited, a n d the introduction for t h e benefit of the property o w n e r of an innocent owner defence. See, generally, E A b r a m o w i t z , " T h e Civil Forfeiture Reform Act", September 7th 1999 222 NYLJ V N o . 48 at 3 . T h e reforms were p u t to congress by Senator Orrin H a t c h on M o n d a y , 27 M a r c h 2000 and the Senate passed the bill. Both in the House of Representatives and in the Senate the reforms attracted strong cross-party support. 102 S 19(l)(a) of t h e H u m a n Rights Act 1998. S 19(l)(fc) provides for t h e possibility that a statute may be enacted without a ministerial statement of compatibility, but in such a case it is a
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careful in their choice of words to avoid the use of language which might invite a charge of incompatibility with the ECHR. They even acknowledge the "presentational advantages" to be gained from adopting civil law in preference to criminal law terminology. 103 That said, their proposals could perhaps have been made all the more palatable by the simple expedient of using some word other than "forfeiture" to describe the essence of the proposed scheme. Not only would this be a presentational improvement (because of the draconian connotations of the word "forfeiture"), but it might also be a more accurate description of the substance of the proposals, as the next section seeks to demonstrate.
IS THE NEW "CIVIL FORFEITURE" REALLY A FORFEITURE?
We have seen that forfeiture is a common law expropriatory response to certain types of legally recognised wrongdoing, but it is no easy task to identify the wrongdoing to which the proposed in rern "civil forfeiture" is a response. It seems to respond, not to wrongful behaviour, but to an undesirable state of affairs, namely to the unjust enrichment of the person in possession of the criminal proceeds. Arguably the same could be said of the "forfeiture rule" where it operates against a killer's innocent next-of-kin, but there the forfeiture is at least a response to an identified individual's identified wrongdoing. Under the scheme proposed by the Home Office the specific crime and the specific criminal are unidentified, and may be unidentifiable. Thus if in rem "civil forfeiture" of criminal assets is truly a forfeiture, it is one that sits uneasily with other civil forfeitures that we have considered, and one that does not display those essentials of the forfeiture concept that it has been the purpose of this essay to identify. It would be possible to characterise it as an anomalous category of forfeiture, but it may be preferable to dispense with the "civil forfeiture" label entirely. "Civil restitution" may be a more accurate description of what is really being proposed. Implicit support for this view appears from the reporters' suggestion that the authorities' claim will be a form of derivative action, brought on behalf of the "community" collectively,104 and from the suggestion that the court will not be obliged to order a forfeiture where an individual victim "has instituted, or intends to institute, civil proceedings against the defendant in respect of any loss". los What is more, civil restitution seemed to figure in the Prime Minister's thinking when he stated (in his foreword to the 2000 Report) that "fl]eaving illegal assets in the hands of criminals damages society" and "we will return to requirement that the Minister should explain why, despite potential conflict with the ECHR, the government is of the view that the legislation should nevertheless proceed. It is difficult to conceive of any government seeking to take advantage of s 19(l)(b). 103
Para 2.25. Para 4.12. See the article by CM Convey, "Funding will Ensure that Crime Doesn't Pay", The Times (law supplement), 6 June 2000,19. 105 Para 4.61. 104
130 Gary Watt society the assets that have been unlawfully taken". The 2000 Report envisages that proceeds of criminal confiscation, criminal forfeiture and civil forfeiture will be pooled into a single "Recovered Assets Fund" and directed from there, not only to the enforcement authorities, but to drug rehabilitation programmmes, new law enforcement initiatives and, most significantly, to "provide seed funding for local crime reduction partnership and community regeneration initiatives".106 Restitution lawyers have, however, as yet to agree that "civil restitution" is even a theoretical possibility. So, for instance, Professor Burrows has argued that the reversal of unjust enrichment by forfeiture is not restitutionary if the reversal is in favour of the state. For Professor Burrows restitution necessarily entails reversal of unjust enrichment gained at the expense of an individual.107 In contrast, the learned authors of Goff& Jones108 do not accept that the scope of restitution must be limited in this way. On this point this author would be inclined to agree with Goff & Jones. However, restitution "to the state" may not be the same thing as restitution to "the community", and it is the latter that the Home Office appears to have in mind. If there is significance in the distinction between restitution to the state and restitution to the community, it will be interesting to note what restitution lawyers make of the distinction if and when the Home Office proposals become law.
CONCLUSION
The new "civil forfeiture" proposed by the Home Office sits uneasily alongside every other modern form of forfeiture. Indeed, not since the days of the deodand has an expropriation been based upon the tainted nature of assets without any requirement to prove that an identifiable individual has been in some way at fault. What is more, the Home Office proposals are inconsistent with the gradual retreat from forfeiture which can be observed in nearly every statutory enactment touching upon the subject since the Middle Ages. In spite of their titles, the Tenures Abolition Act 1660, the Forfeiture Act 1870109 and the Forfeiture Act 1982 all sought to reduce, rather than to expand, the frontiers of forfeiture. The reason for this, as we have seen in the course of this study, is that forfeiture is a common law response to wrongdoing, and that the expropriatory or "all or nothing" nature of the response can produce harsh results. Whether the essence of the Home Office proposals amounts to "civil restitution", as has been suggested here, or to an anomolous category of forfeiture, we can say for certain that the historical trend against the use of civil procedure to effect exproporiation (linked, however directly or indirectly, to wrongdoing) looks set to be 106 107 108 109
Para 12.9. A Burrows The Law of Restitution (London, Butterworths, 1993) 380. See supra n 44 at 802 n 1. 33—34 Viet c 23 § 1 abolished escheat propter delictum tenentis.
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reversed. That this reversal should appear at the same time as the Human Rights Act 1998 is the height of irony, for the Home Office proposals may struggle to attract a ministerial statement of compatibility with that Act. However that may be, the present study has demonstrated that the next step to legislation110 will be a step beyond the frontiers of forfeiture. If the anticipated community benefits are realised it will prove to have been a most welcome step in the right direction, but given the great potential for infringement of civil liberties it is a step which should be taken only with caution.
110
A draft Proceeds of Crime Bill was introduced in the Queen's Speech on 6th December 2000.
8
Who's Afraid of the Neighbours? ROD EDMUNDS and TERESA SUTTON *
INTRODUCTION
A MEANS of controlling the mode of occupation of land, freehold restrictive covenants represent an important and valuable incidence of ownership.1 Throughout the 1990s English courts were faced with a small number of cases in which typical covenants were disputed against the backdrop of one aspect of the so-called Community Care programme.2 Whilst the precise legal issues raised by these cases vary, in terms of social context they can be seen as flowing from the NIMBY—Not-In-My-Backyard—syndrome.3 Each case can be located by reference to an attempt to oppose the use of a metropolitan or suburban house either as a group home or some other community care facility (e.g. a day centre) for people with mental health problems. Although group homes come in different forms, offering differing levels of support and tenure to the occupants, they have become a common type of residential arrangement by which care in the community policy is implemented on both sides of the
A
* Our thanks go to Rebecca Probert and Charlotte Skeet for helpful comments. The usual caveats apply. 1 See, generally, GLNewsom, Preston and Newsom's Restrictive Covenants Affecting Freehold Land (9th edn, London, Sweet & Maxwell, 1998); C Harpum, Megarry & Wade's Law of Real Property (6th edn, London, Sweet & Maxwell, 2000), ch 16; RJ Smith, Property Law (3rd edn, London, Longman, 2000), ch 21. 2 Neither "community care" nor "care in the community" has statutory definition, but for "community care services" see s 46(3) of the National Health Service and Community Care Act 1990 and the other enactments mentioned therein. 3 Of the extensive literature investigating negative reactions to community-based care facilities, see, e.g., ground-breaking American work, M Dear and SM Taylor, Not on Our Street: Community Attitude to Mental Health Care (Pion, 1982); M Dear, "Understanding and Overcoming NIMBY syndrome", (1992) 58 Journal of the American Planning Association 288—300. UK academic studies include: G Moon, "Is There One Around Here? Investigating Reaction to Small-scale Mental Hostel Provision in Portsmouth, England" in CJ Smith and JA Giggs (eds), Location and Stigma: Contemporary Perspectives on Mental Health and Mental Health Care (London, Unwin Hayman, 1988); CJ Smith and RQ Hanham, "Any Place But Here! Mental Health Facilities as Noxious Neighbours," (1991) 33 Professional Geographer 326—34; P Huxley, "Location and Stigma: A Survey of Community Attitudes to Mental Illness Part II: Community Mental Health Facilities— Anonymity or Invisibility" (1993) 2 Journal of Mental Health 157—64; and I Weddle, A Sociological Investigation of Community Opposition Towards Ex-Psychiatric Patients (unpublished Ph D thesis), 2000.
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Atlantic. 4 Shifting the locus of care for the mentally ill from hospital-based to community-based provision has been a governmental policy throughout the latter half of the twentieth century that has provided many challenges and provoked a great deal of political controversy.5 One aspiration is to offer a home in stable surroundings as a means of enabling people who were formerly resident in hospitals to live in the community as independently as possible.6 There have been myriad problems in implementing community care including, underresourcing and lack of collaboration between agencies charged with coordinating health, support and housing in the community.7 Public and media reactions to high-profile killings may have partially influenced changes to governmental methods for the delivery of care in the community. However, as it seems unlikely that there will be any decline in the demand for mental health facilities in the community, it is imperative to overcome all forms of housing discrimination facing people with mental health problems.8 This essay explores the extent to which property law principles governing freehold covenants can impede the establishment of group homes for people with mental heath problems.9 Although there is no reliable evidence of the extent to which covenants have been invoked to oppose such facilities,10 if successfully invoked, covenants are a particularly potent vehicle for housing discrimination. They often protect those living closest to the group home, who may
4 Health Authorities, Housing Trusts, or specialist charities (e.g., National Schizophrenia Fellowship and the Richmond Fellowship) commonly establish group homes. See further N Trieman, "Residential Care for the Mentally 111 in the Community" in JP Leff (ed), Care in the Community: Illusion or Reality (London, Wiley, 1997); and C Perring, "The Experience and Perspectives of Patients and Care Staff of the Transition from Hospital to Community-based Care" in S Ramon (ed), Psychiatric Hospital Closure: Myths and Realities, London (London, Chapman and Hall, 1992). 5 For a stimulating account see P Bartlett and R Sandland, Mental Health Law Policy & Practice (London, Blackstone Press Ltd, 2000), chs 3 and 9. 6 Ibid, 65; and see DoE Circular 10/92, Housing and Community Care, para 4. 7 See D Cowan, Homelessness: The (In-) Appropriate Applicant (Ashgate Dartmouth, 1997) ch 3 and "Accommodating Community Care" (1995) 22 Journal of Law and Society 212—233; N Glover, "Mental Health and Housing: A Crisis on the Streets?" (1999) 21 Journal Social Welfare and Family Law 327—337. 8 On the nature and extent of such discrimination see J Repper and S Baker, Not Just Sticks and Stones (London, Mind, 1996). 9 Group homes may also benefit elderly people and people with physical or mental handicap. 10 In J Repper et al, Tall Stories from the Back Yard: A Survey of 'Nimby' Opposition to Community Mental Health Facilities, Experienced by Key Service Providers in England and Wales (London, Mind, 1997) reference is made (at 15) to "legal action in the planning phase"; see also Dear, supra, n 3, at 297. The Town and Country Planning (Use Classes) Order 1987 (SI 1987 No 764) introduced a new Class 3, whereby use as a "dwelling" extends to six residents living together where care is provided (removing uncertainty created by Rann v. SoS for the Environment (1980) 40 P & CR 113); see also DoE Circular 13/87, para 27. Whilst planning controls and covenants operate independently, a planning provision may be taken into account when construing covenants: C & G Homes Ltd v. SoS for Health [1991] Ch 365, at 380. More generally, see BJ Gleeson and PA Memon, "The NIMBY Syndrome and Community Care Facilities: A Research Agenda for Planning" [1994] Planning Practice and Research 105-118.
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be in a minority.11 Covenants also have the potential to go beyond merely delaying or modifying a planned facility, an injunction may have the permanent effect of closing it down or preventing it from being established. This is a particularly unfortunate and unnecessary deprivation where the hostility is temporary and based upon groundless fears and prejudice.12 It is argued that the common law is inherently unsuited to the challenge of accommodating a crucial dimension to the government's policy of providing housing and care within the community. To this end we first analyse five covenant cases concerning, variously, questions of interpretation, the relationship between covenants and statutory purpose, and an application to discharge or modify a covenant that would otherwise preclude the establishment of a group home. We then identify limitations in the reach of the Disability Discrimination Act 1995. Overall, it is contended that the existing law fails to strike the optimum balance between private benefits afforded by covenants and public policy; and that it therefore permits prejudice and discrimination. Consequently, we conclude the essay by asking how far, if at all, the Human Rights Act 1998 may improve the position of those deprived by covenants of the opportunity of living in a group home.
COMMUNITY CARE AND THE IMPLEMENTATION OF COVENANTS
Private or public: a matter of construction or policy? Construing the terms of a covenant can be a narrow, technical exercise that turns upon fine distinctions. Policy considerations, such as facilitating care in the community through the provision of ordinary housing, run the risk of being overlooked, sidelined or, far worse, distorted. These risks are borne out by an analysis of part of the reasoning behind the decision in C & G Homes Ltd v. SoS for Health.13 Bath District Health Authority (acting for the Health Secretary) wanted to use two houses on a newly developed residential estate of executivestyle houses to provide housing for a small group of former mental patients who previously had been living in the Mendip hospital. The plaintiff developer sought to enforce recently agreed covenants to prevent the continued occupation by the residents, including a prohibition against use of the land other than 11 See, further, Repper et al, supra nlO, at 23; and M Dear, S Martin Taylor and GB Hall, "External Effects of Mental Health Facilities" [1980] Annals of the Association of American Geographers 342—352. 12 Compare how the local backlash to C & G Homes Ltd v. SoS for Health, supra nlO (including withdrawal of funds in the linked Building Society), meant the residents remained in the group house: "Mentally ill to stay put", New Statesman & Society, 1 March 1991, 5. Opposition may be short-lived, averted or ameliorated: see Repper et al, supra nlO; but cf more tentative empirical findings of S Reda, "Public Perceptions of Discharged Psychiatric Patients: A Community Survey" (1996) 42 International journal of Social Psychiatry 320-329. 13 Supra nlO. See P Devonshire [1991] Conv 388-393; and R Edmunds (1992) 3 Journal of Forensic Psychiatry 343—349.
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as a "private dwelling house". 14 In construing this covenant the Court of Appeal placed great weight upon the single word "private". As the autonomy residents enjoyed was overshadowed by the Health Secretary's continuing statutory responsibility to supervise and support them, the use being made of the houses was seen as being more "public" than "private". 15 And yet Russell LJ acknowledged that the eight occupants might regard the properties as their home "just as much as any other house in the development is the home of the family residing there". 16 Moreover, Nourse LJ suggested that had the word "private" been omitted from the covenant the house might have readily been construed as the resident's dwelling house. 17 Both these judicial concessions highlight how a construction-driven approach may produce a hair-splitting and unwanted conclusion. It seems unsatisfactory that the success of the implementation of community care policy should depend on such subtle linguistic nuances. Even more problematic, however, is the fact that whilst the Court of Appeal acknowledges the policy, it is at pains to insist that the appeal is not about its merits. 18 This might imply that the court's construction is devoid of all policy considerations. Yet, paradoxically, it can be argued that by characterising the housing initiative as "public" this is not so. The group home was variously described as: "a residential care home", 19 a "small NHS home for people who have suffered from mental disability";20 and as a "hospital annex" or "mental health hostel". 21 Labels with such institutional overtones do not sit easily alongside claims that the court is solely engaged in construing the covenant's language without straying into the merits or demerits of the care in the community policy. Moreover, such descriptors serve to undermine the policy's aspiration of relocating care in the setting of an ordinary home on an ordinary housing estate for ordinary people. Victorian asylums may be closing their doors, but as long as the vestiges of such judicial labelling linger on, former patients may continue to find themselves tainted by association and susceptible to housing discrimination in the community. 22 14 The court also found no infringement of covenants against, first, using the land for any trade or business and, secondly, preventing use that might cause "detriment" to the plaintiff. 15 Ibid, 384-385 (Nourse LJ), 387 (Russell LJ) and 389-390 (Lord Donaldson MR). 16 Ibid. 17 Ibid, 384. An even more restrictive construction, preventing multiple occupation, might have been given had the wording been "a single private dwelling house": Barton v. Keeble [1928] Ch 517; and similarly Berton v. Alliance Economic Investment Co [1922] 1 KB 742. 18 Ibid, 379 (Nourse LJ) and 387 (Lord Donaldson MR and Russell LJ). Similar statements appear in all five cases analysed in this essay: see, e.g., Brown v. Heathlands Mental Health Services Trust [1996] 1 All ER 133, at 135 (Chadwick J). Cf. Caradon District Council v. Paton and another [2000] 35 EG 132. 1S Within the Registered Homes Act 1984, s 1(1) (Nourse LJ), ibid, at 379. 20 Ibid (Russell LJ). 21 Ibid, 389-390 (Lord Donaldson M R who saw the covenant's object as preserving the land as a normal residential estate). 22 See further P Barham, Closing the Asylum: The Mental Patient in Modern Society (2nd edn, London, Penguin, 1997), at 112-115; and E Murphy, After the Asylums: Community Care for People with Mental Illness (London, Faber and Faber, 1991), at 108-110.
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Annoying the neighbours Accommodating community care within a construction-orientated approach to a covenant designed to prevent a "nuisance", "annoyance" or other "detriment" to those entitled to its benefit may prove equally problematic. In National Schizophrenia Fellowship v. Kibble Estates SA,23 the Fellowship sought a declaration that its planned use of a property in Southport for twelve people who were leaving a local hospital's rehabilitation ward did not infringe restrictions designed to prevent any nuisance, annoyance or danger to those protected by the covenant. Judge Jules Sher QC found that there was no evidence to support the contention that the residents' occupation amounted to an annoyance because they posed a risk to the safety of the objectors and their children.24 However welcome in its outcome, there are at least two reasons why the ruling should not be seen as an unqualified triumph of care in the community policy over the legal technicalities associated with the interpretation of covenants. First, as a result of the local opposition that preceded the action the Fellowship abandoned part of its original plan to provide day centre facilities to give training and support to the residents and other daytime users.25 Secondly, the established test that Kibble adopts for the determination of what amounts to an annoyance is inherently unreliable and unpredictable in ensuring freehold covenants do not impede the use of ordinary housing as part of community care. It may even facilitate prejudice and housing discrimination. It proceeds from guidance in the leading Victorian case, Tod-Heatley v. Benham,26 in which the Court of Appeal indicated that an annoyance exists if the proposed use of land troubles the mind of the reasonable rather than the fanciful or skilled person. 27 The Court added that a reasonable person's perception of annoyance is to be assessed by expert evidence and argument. Of the expert's view Cotton LJ emphasised: Even if they do not make out there is really risk, yet the expression of their opinions shews that persons residing in the neighbourhood . . . might reasonably apprehend risk in consequence of those patients being brought there.28
23
[1994] 1 EGLR 181. This made it unnecessary to determine whether the annoyance caused depreciation in the value of the defendants' property. However, obiter, the judge found no evidence of any such depreciation. This is on a p a r with the unwillingness of the Court of Appeal in C & G Homes v. SoS for Health, supra, n 10, t o allow the plaintiff's claim t o have suffered a "detriment" because a purchaser o f a neighbouring house had successfully negotiated a reduction of £3,000 as a result of the group h o m e . See infra n 44. 25 O n the positive a n d negative impact local opposition can have see J Repper et al, supra n 10, 24
at 17-19. See also AB and G Moon, "Community Opposition to Hostels for Single Homeless Men" (1983) 15 Area 161. 26 (1880) 40 C h D 80. 27 Ibid, 98 (Bowen LJ). 28 Ibid, 94 (emphasis supplied); see also Lindley LJ, ibid, 96—97.
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This approach may have remarkable consequences for group homes. It accentuates the so-called reasonable person's perception of risk. Prominent amongst the fears opponents of group homes harbour is a perceived risk of violence (especially to their children). 29 Yet, in Kibble such fears were not the product of direct experience of the prospective residents or people like them. Negative media reporting may play a part in exacerbating fears, by portraying the mentally ill as killers.30 But, as Bartlett and Sandland point out, "attempting to unravel any precise relationship between homicide and community care is a complex operation". 31 Yet, if Cotton LJ's approach is followed, it may be sufficient if an expert supports an ordinary person's apprehension of annoyance, irrespective of whether or not the expert view is convincing. It seems to follow that only those housing initiatives where opponents' apprehensions are unsupported by expert evidence could be guaranteed.32 This specific point apart, it hardly seems appropriate that initiatives that implement important contemporary governmental policy should be put in jeopardy by an approach to interpretation that relies upon this version of a reasonable person test.
Restrictive covenants and statutory purposes: compensating the neighbours In Brown v. Heathlands Mental Health Services Trust33 the court proceeded from the premise that the covenant could be interpreted to preclude a group home. 34 The Trust wished to use an ordinary house in Frimley, Surrey, as a home in the community for former mental patients. Local residents argued that such use would be in breach of a binding restrictive covenant to use the property 29 O t h e r c o m m o n l y cited concerns include loss of amenity (such as parking and lowering the tone of the neighbourhood): see Repper et al, supra n 10, a t 20—22. 30 See, generally, G Philo (ed) Media and Mental Distress (London, Longman, 1996); and S Baker and J M a c P h e r s o n , Counting the Cost: Mental Health in the Media (London, M i n d , 2000). 31 Supra n 5, at 324. For the views t h a t (a) mentally ill people are more likely to be victims than perpetrators and (b) media coverage h a s the potential to promote feelings of social exclusion, see Creating Accepting Communities: Report of the Mind Enquiry into Social Exclusion (London, M i n d , 1999); and see M u r p h y , supra n 2 3 . A u s t r a l i a n findings suggest increased rates of criminal conviction for schizophrenics are consistent with t h e pattern of offending in the community: PE Mallen et al, " C o m m u n i t y Care a n d Criminal Offending in Schizophrenia" (2000) 355 The Lancet 614—617. Whilst American research posits t h e prevalence of community violence amongst those discharged from acute psychiatric facilities d e p e n d s upon diagnosis and "occurring substance abuse diagnosis or s y m p t o m s " : see H J S t e a d m a n et al, "Violence by People Discharged From Acute Psychiatric Inpatient Facilities and by O t h e r s in the Same N e i g h b o u r h o o d s " (1998) 55 Archives of General Psychiatry 393-MH; c f E W M i t c h e l l , " D o e s Psychiatric Disorder Affect the Likelihood of Violent Offending? A Critique of the M a j o r F i n d i n g s " (1999) 39 Medicine Science and Law 23—30. 32 Indeed, in Ribble it w a s fortuitous, first, that t h e withdrawal of legal aid meant that there was no expert testimony offered to counter t h a t p u t on behalf of the Fellowship; and, secondly, the judge recognised that the n e i g h b o u r s ' fears w e r e premised o n a misapprehension of the severity of the residents' medical condition. See, also, Frost v. King Edward VII Welsh National Memorial Association for the Prevention, Treatment, and Abolition of Tuberculosis [1918] 2 Ch 180, at 192. 33 [1996] 1 All ER 133. 34 It was assumed the covenant w a s b i n d i n g , and t h e proposed use amounted to breach.
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as a private dwelling or professional residence. The question was whether the neighbours were entitled to an injunction to prevent the proposed use. The court held that the restrictive covenant could not be allowed to obstruct use of property that had been purchased by the NHS Trust for use in discharging its statutory purposes under the National Health Service and Community Care Act 1990.35 Whilst the restrictive covenant continued in existence, the covenantees could not enforce it. This remained the case even though the land had not been the subject of compulsory purchase.36 It is interesting that in Brown the lack of availability of an injunction or damages is specifically linked to, and, at points, virtually justified by, the right to obtain compensation under the Compulsory Purchase Act 1965. Chadwick J explains that such private rights cannot be enforced "because the legislature has provided for an exclusive remedy by way of statutory compensation".37 Later he remarks that the right to compensation has been "given" "[i]n place of an action at law". 38 The strength of this link is curious because compensation is payable only where "injurious affection by execution of the works" can be established.39 In Brown it was held that this right to compensation could extend to injurious affection resulting from continuing use, including this continuing use of a house for the statutory purposes of a care in the community home.40 This wide interpretation of "execution of works" has not passed without criticism.41
Statutory purpose: compensation for market depreciation The Lands Tribunal dealt with the consequential compensation claim in Richard and Others v. Surrey Hampshire Borders NHS Trust.42 By the time of the hearing the Frimley property was home to five former in-patients from Brookwood Hospital. The Health Trust argued that no compensation was payable as the establishment of the community care home had not depreciated the market value of the neighbouring properties. However, it was acknowledged that concerns (genuine or not) existed about living in the vicinity of such a project, which concerns might impact upon property values.43 Nevertheless, 35
See Clark v. School Board for London (1874) 9 Ch App 120. See Kirby v. School Board for Harrogate [1896] 1 C h 437; Re Elm Avenue, New Milton [1984] 3 All ER 632; and Simeon v. Isle of Wight Rural District Council [1937] 1 Ch 525. Although the T r u s t had acquired the land voluntarily it had statutory powers of compulsory purchase. See also Greenwich Healthcare National Health Service Trust v. London Quadrant Housing Trust [1998] 1 WLR 1749, at 1754. 37 Supra n 33, at 137. 38 Ibid, and at 138, 139. 39 S 10(1) of the Compulsory Purchase Act 1965. 40 Chadwick J relied upon obiter dicta in Re Simeon, a n d Re Elm Avenue, supra n 36. 41 See L Rutherford, " C o m m u n i t y Care and Injurious Affection" [1996] Conv 260-273. At 272 he argues that whilst in broad terms it is "just" t o pay compensation in such situations, the provisions "do n o t . . . lend themselves to such an interpretation". 42 [1999] RVR 28. 43 Ibid, 33 and 34. 36
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the applicant's claim failed because depreciation in value could not actually be proved. Whilst Richard seems to leave open the possibility of compensation if proper evidence can be presented,44 subsequent developments suggest that similar future cases of this nature may not progress as far as the Lands Tribunal. Apart from Rutherford's criticisms of Brown,45 the case can be questioned in the light of the different approach to compensation taken in the High Court decision in Thames Water Utilities Ltd v. Oxford City Council.46 Having reviewed the earlier authorities, it was convincingly decided that, where no land is taken, "injurious affection" resulting from use is not compensatable under section 10 of the Compulsory Purchase Act 1965. Judge Rich QC noted that in Brown this issue "effectively went by concession" because the Trust's overriding priority was to avoid an injunction.47 Regrettably, this means that the relationship between restrictive covenants and the acquisition of land for public purposes in the context of community care is unclear. Brown is authority for arguing that, when acting in pursuance of its statutory duty, a Trust's purposes cannot be frustrated by an action for breach of a restrictive covenant. However, the second limb of Brown, that compensation can be claimed under section 10, must now be in some doubt. This could leave a neighbour of such a project without an injunction or a claim to compensation. Alternatively, if the two limbs of Brown really were perceived at the time as connected, even interdependent, as suggested by the judgment and supported in Thames Water,4S then the position concerning enforcing covenants in statutory function situations is really no clearer than pre-Brown. The case law singularly fails to offer satisfactory guidance to those whose attempts to establish group homes under the auspices of care in the community may become embroiled in similar legal disputes. Leaving aside these important intricacies, the public purpose and injunction perspective reflected in these cases illustrates 44 Similarly, in National Schizophrenia Fellowship v. Kibble Estates SA, supra n 23, at 182, Sher J remarked {obiter): " T h e r e is much surmise in this regard by non-expert witnesses on both sides, but not one scrap of admissible evidence on which I can reasonably make a finding". Cf C & G Homes Ltd, supra n 10, where the Court of Appeal, albeit for differing reasons, found that the word "detriment" could not encompass financial loss even if such was proved. It is therefore unclear whether the issue is ever one where evidence will (or should) be accepted. For literature suggesting no adverse (long term) effects upon the local property market see, e.g., Dear and Taylor, (1982), supra n 3; Weddle, supra n 3 (referred to in Richards, supra n 42, at 32 ); and KM Boydell, J N T r a i n o r and A M Pierri, " T h e Effect of G r o u p Homes for the Mentally III on Residential Property Values" [1989] Hospital and Community Psychiatry 957-958. 45
Supra n 4 1 . [1999] 1 EGLR 167. 47 Ibid, 173. 48 Ibid. Judge Rich Q C , commenting on Chadwick J's judgment in Brown, says: " I doubt that the e r r o r (as I find it t o be) invalidates his conclusion as to the availability of injunctive relief in that case, and so my respectful disagreement is with his reasoning and not with his decision in the case, although I suspect that he would have regarded this part of his reasoning as essential to his decision". However, this was not the approach reflected in Greenwich Healthcare National Health Service Trust v. London Quadrant Housing Trust, supra n 36. 46
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how ill-equipped the common law is to accommodate the needs of care in the community within the rules governing the protection of private property rights.
Covenants, policy and the lands tribunal: care before covenants? Re Lloyd and Lloyd's Application49 is a quite different case for two reasons. First, it is not concerned with the direct enforcement of restrictive covenants, but rather with an application to the Lands Tribunal to discharge or modify covenants. Secondly, because of the nature of the statutory provisions involved, which specifically refer to "public interest", there is a much more direct consideration of the policy of care in the community than in the cases so far discussed. The applicants decided that they wished to convert their property into a group home. Having extended it, they successfully applied for planning permission for the proposed change of use. The house was subject to 1930s covenants forbidding the use of the property for the purposes of a trade or business (other than a professional use or as a boarding house). At the Lands Tribunal hearing it was assumed that the proposed use would be in breach of covenant. The plans entailed providing a home for eight former patients of rehabilitation centres who would be ready to start living independently in the community. The application for discharge or modification relied upon three of the four possible grounds under section 84(1) of the Law of Property Act 1925; (a), (aa) and (c).50 The first ground failed, but the second two met with success, and the modification requested was permitted to allow the proposed change of use. Of the two successful grounds (aa) is the most interesting and relevant. Under this ground it was held that to impede the reasonable use of the house as a care in the community home (both parties agreed that this was a reasonable use) would be "contrary to the public interest". In the wider context of section 84 this is a surprising decision, given the reluctance of the Lands Tribunal to grant applications on this ground previously,51 this provision having been described as "only a snare and delusion" for potential applicants.52 In acknowledging that he was breaking new ground in Lloyd,53 Judge Marder's reasons specifically relate "9 (1993)66P&CR112. •"' "(a) that by reason of changes in the character of the property or the neighbourhood or other circumstances of the case which the Lands Tribunal may deem material, the restriction ought to be deemed obsolete"; "(aa) t h a t . . . the continued existence thereof would impede some reasonable user of the land for public or private purposes or, as the case may be, would unless modified impede such user"; "(c) that the proposed discharge or modification will not injure the persons entitled to the benefit of the restriction". 51 SJC Construction Ltd v. Sutton London Borough Council (1975) 29 P & CR 322; Re Fisher & Cimson (Builders) Ltd's Application (1992) 65 P & CR 312; Re Hunt's Application (1997) 73 P & CR 126; Re Bradley Clare Estates Ltd's Application (1987) 55 P & CR 126. 32 P Polden, "Private Estate Planning and the Public Interest" (1986) 49 MLR 195-213, at 209. 53 Supra n 49, at 122: "I am conscious that the Lands Tribunal in considering the public interest point on many occasions has never before modified or discharged a covenant on this ground in similar cases".
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to the policy of care in the community in general and the applicant's specific proposals. He recognised that: care in the community is a "government policy of long standing"; the policy requires proper provision of group homes; the "desperate" need for such homes in Worthing; the house provided very suitable accommodation; and the Lloyds were appropriately qualified to run the home. It is also relevant to note that in relation to the other part of ground (aa), the Lands Tribunal declined to find that the covenant provided any substantial benefit or advantage to those entitled to enforce it, observing that it was not the fact of multiple occupation that was being objected to but the "assumed character and characteristics of the potential occupants". 54 Judge Marder accepted that such objections were "groundless". 55 Lloyd has been welcomed as being of "considerable comfort" to those hoping to use property as care in the community homes. 56 But it has also been criticised for failing to address the "merits" or "underlying difficulties" of the care in the community policy.57 Apart from the significant way in which this case develops the rules for modification of covenants generally, it is definitely useful in providing another route through prejudice. However, the route is open only to those seeking to provide accommodation, not those seeking to make it their home. It has also been observed that the more recent covenants are unlikely to be modified in this way.58 Whilst it is true that Lloyd fails to address the wider issue of the debate over care in the community, arguably it may be an inappropriate forum for that debate. Moreover the decision may be seen as marking a slight, if perceptible, shift towards focusing more upon the policy of care in the community and less upon the technicalities of the rules concerning covenants. The inclusion of the provision in section 84 relating to public interest facilitated this approach. Before turning to examine how the Human Rights Act 1998 may allow care in the community policy considerations to figure more prominently in restrictive covenants cases, we briefly consider the failure of earlier disability discrimination legislation to address such cases.
54
Ibid, at 123. For an interesting contrast to Lloyd (pre-Law of P r o p e r t y Act 1969) see Re Dr. Barnardo's Homes National Incorporated Association's Application (1955) 7 P &C CR 176 (failed application in respect of covenant against "an asylum for the insane o r . . . a hospital for contagious diseases"). T h e perceived impact upon property values a p p e a r s to have been a key factor. It was noted (at 179) that "[t] he very act of imposing such a c o v e n a n t discloses t h e universal abhorrence felt by ordinary folk for the 'mental case' and while t h a t revulsion may d e r i v e from ignorance and be justly stigmatised as prejudice it is n o less poignant for b e i n g unjustified". 56 See J Howell, " C o m m u n i t y Care, Re Lloyd's Application" (1993) 5 Journal of Social Welfare and Family Law 338—341, at 3 4 1 . For a m o r e restrictive view of Lloyd and the phrase "public interest", see the Lands Tribunal decision, Re Milbury Care Services Ltd's, Application, 30 March 1999, 1999 LP/78/95 transcript, at 16-17. 57 L Leeder, "Re Lloyd and Lloyd's Application" [1994] Law and Justice 125-127, at 127. 58 Supra n 56, at 3 4 1 . 55
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COVENANTS AND THE DISABILITY DISCRIMINATION ACT 1 9 9 5
During its passage Lord Mackay, as Minister of State, described the Disability Discrimination Act 1995 as "the first comprehensive measure to tackle discrimination against disabled people ever brought before Parliament".59 The parliamentary debates certainly recognise the existence of NIMBY opposition to the provision of group housing in the community.60 Yet the Act does not offer a complete solution to discrimination through freehold covenants. Subject to specified exceptions,61 section 22 makes it unlawful, inter alia, to discriminate,62 either by refusing to sell (or lease) premises to a disabled person or in the terms on which the premises are disposed.63 Presumably this would extend to covenants in the sale of freehold property that attempt to preclude occupation by disabled people whether individually or in a group home.64 However the legislative provisions do not seem to prevent the inclusion of covenants such as those confining use to a "private dwelling" or preventing "annoyance". Nor does the Act apply to covenants that were imposed in sale transactions completed before the legislation entered into force. It follows that the 1995 Act does not affect those standard covenants which, as the five cases discussed above show, may indirectly allow discrimination against group homes.
59 See Hansard, H L , Vol 564, at col 800. See "Enabling Legislation of Dissembling Law? T h e Disability Discrimination Act 1995" (1995) 60 MLR 64-78. 60 Hansard, H L , Vol 566, at cols 271-274 (Lord Rix); and 969-972 (Lords Carter and Addington). 61 For "private sales" (1995 Act, s 22) and "small dwellings" (ibid, s 23). 62 Which, by s 24, broadly means treating a disabled person less favourably than others for a reason relating to his or her disability (less favourable treatment may be justified if it is reasonable to believe that the disabled person lacks capacity to enter into an enforceable agreement or give informed consent). 63 See, generally, A Lawson, "Selling, Letting and Managing Premises: N e w Rights for Disabled People?" [2000] Conv 128-152; and cfs 21 of the Race Relations Act 1976 and s 30 of the Sex Discrimination Act 1975 (see M MacEwen, Housing , Race and Law: The British Experience (London, Routledge, 1991) at 58-60; and JF Garner, "Racial Restrictive Covenants in England and T h e United States" [1972] Conv 478-488). 64 It is possible that such restrictions would n o t be upheld either on grounds of public policy or because they d o not confer a benefit on the land: see, further, K Gray, Elements of Land Law (2nd ed, London, Butterworths, 1993), at 1146; and J D A Brooke-Taylor, [1978] Conv 24-36; cf JF Garner, supra n 62, at 479. In this way it may be possible t o argue that t o be valid a covenant must constitute a control o n the mode of occupation of the land rather than the personal characteristics of the occupants: see National Schizophrenia Fellowship v. Ribble Estates SA, supra n 24, at 184—185; and Nourse LJ in C & G Homes Ltd, supra n 10, at 386. However attractive, such a dichotomy is easier t o state than apply. For, as the cases discussed in this essay indicate, covenants imposed t o provide restrictions on use can have the effect of preventing occupation by people with mental health problems.
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Application to private litigation: introductory considerations The past case law has turned upon the technicalities of covenants. Even allowing for Lloyd, the common law has been unable to accommodate properly the wider policy of facilitating the use of ordinary housing as part of delivering care in the community. As such it has been far removed from the broad statements of rights included in the European Convention on Human Rights (ECHR). Nevertheless, "bringing home" the Convention Rights to UK domestic law last October 65 demands consideration of the applicability of those rights to situations which involve important elements of governmental policy such as care in the community where there are live issues of discrimination within the realm of strict property rights. The Human Rights Act 1998 is intended to apply to public authorities. The ECHR facilitates individuals' complaints against the state (the so-called "vertical effect"). The general application of the Act to property law in the context of this "vertical effect" has been discussed elsewhere.66 This discussion has included coverage of past property cases that have reached the European Court of Human Rights (generally meeting with limited success) and the inherent considerations of proportionality, margin of appreciation and the need to show that the litigant is a "victim" under Article 34. There has also been speculation about future challenges under the Act with respect to planning and environmental law, leases, adverse possession and rights to roam. 67 All of this is extremely interesting and raises fascinating questions for the future; but they are beyond the scope of this essay. In the field of freehold covenants, there has been an unsuccessful claim that the extinguishing of a particular covenant under the equivalent of section 84 of the Law of Property Act 1925 constituted a breach of Articles of the ECHR. Again this was based upon the "vertical effect", an individual challenging the UK in Strasbourg over the outcome of a Lands Tribunal application.68 65 T h e H u m a n Rights Act 1998 ("the Act"); see White Paper, Rights Brought Home, C m 3782. Previously a UK citizen h a d n o direct UK remedy for breach of the Convention and could petition the European C o u r t of H u m a n Rights in Strasbourg only when other domestic remedies were exhausted. O n the Convention and Act generally, see S Grosz, J Beatson, P Duffy, Human Rights: The 1998 Act and The European Convention (London, Sweet & Maxwell, 2000); K Starmer, European Human Rights Law (London, LAG, 1999). 66 J Howell, "Land a n d H u m a n Rights" [1999] Conv 287-310; and " T h e Protection of Rights of Property in Land Under the Human Rights Act" in L Betten (ed), The Human Rights Act 1998— What it Means (Deventer, Kluwer, 1999); D H a r t , " T h e Impact of the European Convention o n H u m a n Rights o n Planning a n d Environmental L a w " [2000] JPL 171—202; T Allen, " T h e H u m a n Rights Act (UK) and Property Law" in J McLean (ed), Property and the Constitution (Oxford, H a r t , 1999) 147-169; P Sparkes, A New Land Law (Oxford, H a r t , 1999) 3 5 - 4 1 ; C Ricketts, " T h e H u m a n Rights Act 1998, A Planning Perspective" [2000] 2 PL] 12-14. 67 Howell, and H a r t , supra n 66. 68 S v. UK, Application N o . 10741/84, 41 DR 226 (1984) (challenging Art 5 of the Property (NI) Order which includes provisions equivalent t o s 84 of the Law of Property Act 1925); N D a w s o n , "Restrictive Covenants a n d H u m a n Rights" [1986] Conv 124—128; and Howell, supra n 66, at 294.
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This course remains a possibility for those involved (on both sides) in a case such as Lloyd.69 However, what is of greatest interest in our context is the possible "horizontal effect" of the Act or, in other words, the probability that it will have some (as yet undefined) impact upon litigation between private individuals. This partly flows from the fact that whilst section 6(1) of the Act provides that "[i]t is unlawful for a public authority to act in a way which is incompatible with a convention right", section 6(3)(a) includes courts and tribunals within the definition of "public authorities". The implications of any "horizontal effect" in property law may be wide-ranging. Discussion in the context of care in the community can be viewed as a mere example of the possibilities that abound.
The extent of any horizontal effect of the 1998 act Vigorous debate exists about the extent of the impact of the Act upon private litigation.70 It is unlikely that it will be easily or swiftly resolved before real cases with ECHR considerations come before the UK courts. The range of expectations is considerable; with this issue being described as "prima facie [the Act's] area of greatest obscurity".71 Leaving aside two extreme standpoints, it appears likely that where there is an already existing common law right of action, arguments relating to the ECHR will be received by the courts. The ECHR rights may then be regarded as "principles" that the court will have to consider,72 or much more significantly they may be regarded as rights for which the courts will have to provide.73 Indications of which approach will be followed are few and far between. Indeed it may be unrealistic to expect any uniform approach at the outset. In Albany Home Loans Ltd v. Massey Schiemann LJ found a "clue to the solution to the problems posed" in Article 8 of the ECHR.74 More recently, in Birmingham Midshires Mortgage Services Ltd (BMMS) v. Sabherwal (Sudesh),75 the Act was not found to provide assistance with the interpretation of section 2 of the Law of Property Act 1925. The Court of Appeal noted that the Act was not in force and BMMS was not a public authority. Although it is not clear which was the telling factor it has to be feared it was the latter. And 69 N o t e also the possible implication under Art 8 of a positive duty on the state: infra n78 a n d associated text. 70 See G Phillipson, "The H u m a n Rights Act, 'Horizontal Effect' a n d the C o m m o n Law: A Bang or a Whimper?" (1999) 62 MLR. 824-849; H W R W a d e , " Horizons of H o r i z o n t a l l y " (2000) 116 LQR 217-224; R Buxton, " T h e H u m a n Rights Act a n d Private L a w " (2000) 116 LQR 4 8 - 6 5 ; M Hunt, " T h e 'Horizontal Effect' of the H u m a n Rights Act" [1998] PL 423-443; a n d N Bamforth, " T h e Application of the H u m a n Rights Act 1998 to Public Authorities and Private Bodies" (1999) 58 CLJ 159-170. 71 G Phillipson, supra n 70, at 825. 72 Ibid, 843 and 848. 73 Hunt, supra n 70, at AAX-AAl. 74 [1997] 2 All ER 609, at 612. 75 (2000) 80 P & C R 256.
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yet, even if the courts do take a restrictive approach to the application of the Act, it appears to be generally accepted that there will be an additional imperceptible or creeping influence of its principles over the coming years in the best traditions of the common law. 7f>
Applying substantive rights to covenants The three Articles which may be expected to have some relevance to cases involving covenants and care in the community are Article 1 of the First Protocol (right to property), Article 8 (right to respect for private and family life) and Article 14 (prohibition of discrimination). Article 1 of the First Protocol provides that "[e]very natural or legal person is entitled to the peaceful enjoyment of his possessions". The interpretation of "possessions" has been a wide one and appears to be capable of including a mere licence which would be all that a member of a group home would be likely to have. The Article provides that "[n]o one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law". The right is qualified even further by the addition of the provision that "the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties" should not be impaired.77 Article 8 provides that "[ejveryone has the right to respect for his private and family life, his home and his correspondence". There would be no reason to prevent a group home from qualifying here. The Article further provides that a public authority may not interfere with the right save "in accordance with the law" and as "necessary in a democratic society" in specified circumstances which include "in the interests of... public safety or economic well-being of the country" and "the protection of the rights and freedoms of others". The potential for influence under Article 8 is greater because this is an area in which the ECHR has already recognised some positive duties that actually protect the rights in question, even where the dispute is between individuals.78 Finally, Article 14 provides that "enjoyment of the rights and freedoms set forth in this Convention shall be secured without discrimination on any ground" and proceeds to give illustrative examples of possible means of discrimination. Mental health is not a specified example but could be included under "national minority" or "other status". Article 14 is not "free-standing".79 It must be linked to the area of one of the other Convention rights but not necessarily to a breach of another right. In a care in the community situation it could be linked with 76
H a r t and Howell, supra n 66, at 119 and 309 respectively; Grosz et al, supra n 65, at 95. This Art has been interpreted restrictively: see Sporrong & Lonnroth v. Sweden (A/52), (1982) 4 E H R R 35; and Allen, supra n 66, at 149. 78 Grosz et al and K Starmer, supra n 65, at 265 and ch 5 respectively. 79 Starmer, supra n 65, at 145. 77
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Article 1 of the First Protocol and Article 8. Past cases under the ECHR show that it is common to proceed under more than one Article in any case. Whilst the possibility of the "vertical" application of the Act remains in relation to applications to modify or discharge freehold covenants,80 such a direct claim for a breach of a right is not going to be possible in most covenants and group homes cases. These typically involve private individuals attempting to enforce covenants against other individuals, charities or health trusts. Such cases are far removed from the ordinary claims made under the Convention. Neither can it be convincingly argued, at this stage, that the Act is likely to give those seeking to provide or benefit from care in the community any new separate cause of action. However, it is suggested that by virtue of the Act the voice of group homes' (prospective) residents81 should be taken into account in covenant disputes. Article 14 may protect such individuals from discrimination in respect of protected rights. If, by analogy with Albany, the courts prove able to look to the spirit of the rights, an effort to enforce a covenant motivated by groundless prejudice could be regarded as being a threat to "peaceful enjoyment" of possessions or to a private and family life or home. Such enforcement would be difficult to justify on the basis of being in the "public interest", "public safety", "economic well-being" or other qualifications left open by the Articles. The Act therefore provides impetus to incorporate considerations outwith the technical rules that have so far dominated cases concerning covenants and community care. CONCLUSION
It is surprising that freehold covenants may enable neighbours' fears, irrational and unconnected with personal experience, to frustrate the establishment of a group home for people with mental health problems. Yet case law indicates that this is and continues to be all too real a possibility. Although the five reported cases touch a variety of substantive points about covenants, taken together they predominantly favour a technical, property-orientated response that is supposedly neutral in terms of serving the key governmental aspiration of providing housing and support within the community. There is much in the cases that is disappointing. One major regret is that opponents that invoke covenants may permanently frustrate the provision of a group home in the heart of the community. Another, theoretical concern is the court's reluctance to be seen to engage with fundamental questions about the permissible nature and interpretation of covenants. These points lead to the unsatisfactory conclusion that success in challenging group homes depends less upon the intrinsic merits of the project and more upon the vagaries of litigation and the lines of technical argument canvassed. 80 81
As in S. v. UK , supra n 68. Under Art 8, " h o m e " does not extend t o a future or past home: Grosz et al, supra n 65, at 272.
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With the long-awaited advent of the Human Rights Act 1998 there is a real potential for a new approach to be taken to the problems posed by covenants being used in opposition to group homes. Whereas courts have largely ignored the care in the community policy, the new legislation presents the opportunity of promoting it to the forefront of such legal disputes. The new Act marks a turning point for English law in general. Its potential influence over property rights is in doubt. This uncertainty is entwined with wider issues about the applicability of the Act to private litigation. Clarification of this dimension will determine what, if any, impact the new legislation can have upon the use of covenants as a means of discriminating in terms of group housing for people with mental health problems. It is readily conceded that the prospect of radical change is uncertain. Although cases involving covenants and group homes involve private property rights, we argue the Act is highly relevant because of the issues of settled policy and discrimination they raise. As a minimum, it is to be hoped the ethos of the Act will provoke welcome judicial reflection, and inspire an improvement in the traditional approach to the determination of covenants disputes relating to neighbour hostility to care in the community initiatives.
The Human Rights Act 1998: the "Horizontal Effect" on Land Law JEAN HOWELL
THE PROBLEM OUTLINED
no doubt that the Human Rights Act will have an impact on all areas of law: how big that impact will be will depend on the extent to which practitioners are prepared to raise "convention points" and on the way in which the judiciary responds to those challenges.1 Unfortunately, but perhaps not surprisingly, the legislation leaves unanswered a number of questions.2 One question currently being debated is the extent to which the legislation has both a "vertical" and an "horizontal" effect.3 This is an issue which clearly has relevance for land law, through the application of Article 1 of the First Protocol4 (hereafter "Article 1") and Article 8 s which are incorporated in the Human
T
1
HERE CAN BE
Development of jurisprudence under the Human Rights Act is clearly in the hands of the judiciary. S 6 requires public authorities to act compatibly with the Convention: failure to do so will lead to challenge in the courts. S 3 imposes a duty on the courts themselves to interpret all legislation in accordance with the Convention, as far as this is possible. If legislation is not compatible with the Convention, the court may issue a declaration to that effect: s 4 of the Human Rights Act 1998. 2 Among the questions to be decided are the extent of a domestic margin of appreciation and issues of proportionality and compensation. See generally R Singh, M Hunt and M Demetriou, "Is There a Role for the 'Margin of Appreciation' in National Law after the Human Rights Act?" [1999] EHRLR 15, and for a discussion in relation to land, J Howell, "Land and Human Rights" [1999] Conv 287. 3 For an excellent and straightforward overview of the debate see M Hunt, "'The Horizontal Effect' of the Human Rights Act" [1998] PL 423. For more detailed accounts, see N Bamforth, "The Application of the Human Rights Act 1998 to Public Authorities and Private Bodies" [1999] CLJ 159, and I Leigh and L Lustgarten, "Making Rights Real: The Courts, Remedies, and the Human Rights Act" [1999] CLJ 509. 4 "Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by the law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties." 5 "(1) Everyone has the right to respect for his private and family life, his home and his correspondence. (2) There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others."
150 Jean Howell Rights Act.6 The high level of generality at which the issue is often discussed is inappropriate when dealing with specific areas of law, but the general nature of the problem needs to be considered before applying it directly to land.7
A VERTICAL AND.ALSO AN HORIZONTAL EFFECT?
At the one extreme, there is the view that the Human Rights Act will affect only public authorities and will have no application to disputes between individuals. Support for this extreme vertical view is found in the whole of the Strasbourg jurisprudence: only claims against the state and its various manifestations are within the jurisdiction of the European Court of Human Rights. Also, the terms of the legislation itself, in its reference in section 6 to "public authorities" and the exclusion from the effect of the section of public authorities acting in a private capacity clearly show the intended scope of the legislation,8 as do statements in Parliament in debates prior to the enactment of the legislation.9 There is also the perceived general undesirability of applying the legislation to private individuals. 10 At the other extreme, the "horizontal" view is that the legislation potentially affects all disputes: the courts will have complete jurisdiction over disputes between private individuals whether involving the common law or legislation. Distinctions between public, quasi-public (that is, essentially private bodies which have some public functions) and private bodies are artificial. Advocates of this view base their claim on an interpretation of section 3 and section 6.11 Section 3 requires that, so far as is possible, both primary and subordinate legislation, whenever enacted, must be read and given effect to in a way which is compatible with Convention rights. The wide terms in which the section is framed, without any limitation to its application to public bodies, mean that a court must apply the section even when the matter before it is a dispute between private individuals. Section 6 can also support a broad horizontal view: since the section makes it unlawful for a public authority to act in a way which is incompatible with a Convention right and section 6(3) (a) provides that "public 6
By Sched 1. Art 14, which prohibits discrimination, is often pleaded together with Art 1 and 8; it will not be separately discussed here. 7 The arguments in the next section are those put forward by human rights specialists: the writer, who has no specialist knowledge of human rights issues, gratefully adopts them. 8 Although the meaning of "public authority" is itself not clear: see Bamforth, supra n 3, at 160. 9 Lord Irvine LC, speaking in the debate on the Second Reading in the House of Lords, described the Bill as applying only to public authorities however defined, and not to private individuals:"the Convention has its origins in a desire to protect people from the misuse of power by the state, rather than from the actions of private individuals": HL Deb, vol 582,1231 (3 November 1997). 10 If claims against individuals are justiciable by the courts under the human rights legislation, there may be significant interference with freedom of contract: Hunt, supra n 3, at 424 and Bamforth, supra n 3, at 170. 11 See Hunt, supra n 3: "the whole scheme of the Human Rights Act is premised on the proposition that the only domestic law which is not to be subjected to Convention rights is legislation which cannot possibly be given a meaning compatible with Convention rights": 439.
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authority" includes a court or tribunal, a court must therefore interpret all law, whether common law or statute, compatibly with the Convention.12 Further support is found in Parliamentary debate,13 and, again, in general principles.14 Probably neither extreme is supportable. Section 6 certainly requires a court, as a public authority, to act in accordance with the Convention, an obligation which may cover disputes not themselves involving a public authority. Section 3 clearly applies to all legislation, so its use is not confined to claims against public authorities however defined. But equally clearly section 3 has no application to the common law. There is thus the danger of arbitrariness: it is a matter of pure chance whether an area of law is regulated by legislation or by the common law. It seems to be agreed that there will be no direct horizontal effect: where there is a claim against an individual, breach of the Convention cannot be pleaded directly (as it can if a claim is against a public authority), but only in the course of other proceedings.15 Where the line will be drawn will become apparent only as cases are decided by the courts. Interesting though the theoretical debate is, a generalised appeal to human rights must be translated into concrete terms and the place to start must be with the Strasbourg cases. Section 2 of the Human Rights Act 1998 requires that the courts "take into account" decisions of the European Court of Human Rights and opinions of the Commission where they are relevant to the proceedings. It is, however, doubtful whether these cases will be of any use when the courts are faced with claims against individuals. Certainly, the extreme vertical view, which a reliance on Strasbourg jurisprudence supports, would severely limit the use of the Human Rights Act in real property matters; disputes between individuals would no more be within the scope of an incorporated Convention than they are now. On the other hand, an extreme horizontal view potentially opens to judicial scrutiny all land law, whether common law or statute. The intention here is to consider the effect of some element of horizontal application on land law; how far the legislation may in fact apply to disputes between private individuals.
12 "Since the Act does not confine this duty [under s 6(1)] to cases involving public authorities, the logical implication is that section 6(1) requires a court to give judgment in a way which is compatible with Convention rights in all cases-whatever the nature of the bodies involved": Bamforth, supra n 3, at 163. 13 Speaking in the Committee stage, the Lord Chancellor said that "as a matter of principle . . . the courts have a duty of acting compatibly with the Convention not only in cases involving other public authorities but also in developing the common law in deciding cases between individuals. And why should they not?": HL Deb, vol 583, 783 (24 November 1997). 14 Hunt, supra n 3, 425. 15 So, e.g., a mortgagor defending an action against possession by a mortgagee may be able to invoke the Human Rights Act, n 34 below and text.
152 Jean Howell
HORIZONTAL APPLICATION: ITS POSSIBLE IMPACT ON LAND LAW
General principles Since section 3 requires all legislation, whether new or existing, so far as is possible, to be interpreted in a way that is compatible with the Convention, any area of land law which is regulated by statute may be open to challenge. To take a single example, all legislation that affects the landlord and tenant relationship could be scrutinised under section 3, so that a claim such as that to the European Court of Human Rights, reported as Application 1 1194/8616 would be within the scope of the section although it was not within the Strasbourg jurisdiction. The landlord of the claimant, a leaseholder under a long lease, had sought and obtained a forfeiture order against her in the County Court as he was required to do17. The tenant claimed that, in consequence, she had been deprived of her possessions by the state and the case was thus within the jurisdiction of the European Court of Human Rights. The court disagreed. Although the forfeiture order had been made by the County Court, an "arm" of the state, this merely implemented the private law contractual agreement between the landlord and the applicant. The deprivation was thus not "by the state" and the matter was not within its jurisdiction. It is the function of the courts to determine disputes between parties with the inevitable consequence that one party may ultimately be unsuccessful. This could not be compared with direct state action (such as, for example, that under the leasehold enfranchisement legislation or legislation which imposed control on development of privately owned land). Section 3 does not impose such a limitation on the domestic courts: if the matter can be brought within one of the Convention Articles, prima facie the court has jurisdiction to consider it.18 Thus any legislation affecting land which merely regulates private law agreements may be challenged under section 3, although the point may be raised only in the course of other proceedings19. As has been seen, the effect of section 6 on private disputes is very unclear. Take, for example, the question of the way in which the court should exercise its discretion under sections 14 and 15 of the Trusts of Land and Appointment of Trustees Act 1996. Where an application has been made under section 14, the court has power to make an order relating, inter alia, to the exercise of the functions of trustees of land, the most important of which is to order sale of the trust 16
(1988) 10 EHRR 149. Under s 191 of the County Court Act 1959. 18 Although it was made clear by the Home Secretary in the course of the parliamentary debates that the courts in interpreting legislation should not "contort the meaning of words to produce implausible or incredible meanings": Bamforth, supra n3, at 169. 19 E.g., legislation which prevents a landlord from recovering possession without the necessity for a court order or which regulates obligations between the parties would be susceptible to challenge under the Human Rights Act. Whether such an action will succeed will depend on other factors, discussed below. 17
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land. Section 15 sets out the criteria to be applied by the court in determining an application under section 14.20 The effect of section 6 of the Human Rights Act may simply be to put an obligation on the court to act in accordance with general Convention principles, in so far as it must ensure that all procedures are correctly followed and that it does not exercise its discretion arbitrarily. On the other hand, the section may put an obligation on the court to exercise its discretion under section 15 so as to give protection to substantive Convention rights. The court would need to consider the effect of Article 1 and Article 8 and make its decision compatibly with the rights protected by those Articles.21 Thus, for example, where the application was for an order for sale, if a beneficiary both entitled to and actually in occupation of the trust property were resisting sale, this could be an additional22 and possibly overriding factor which the court had to take into account in making its decision.
Problems of interpretation Much will depend on the way in which the courts approach the interpretation of the Articles of the Convention. The Articles, in contrast to the sections in the body of the Human Rights Act, have been subject to close judicial scrutiny by the court at Strasbourg. But all the decisions are, of course, in relation to claims against the state, and are thus of limited use in claims against individuals. Indeed when one examines, for example, Article 1, it is difficult to see how this can be interpreted in relation to claims against individuals whilst maintaining its integrity. Article 1 can be divided into three distinct rules or "limbs"23: but whilst these provide separate grounds of claim, the Court in Strasbourg has required that the Article be considered as a whole.24 Thus Article 1 starts with the broad statement that every natural or legal person is entitled to the peaceful enjoyment of his possessions—the first "limb". This is then qualified by the second and third limbs. The second limb provides that no one shall be deprived of his possessions "except in the public interest and subject to the conditions provided for by the 20 S 14 replaces s 30 of the Law of Property Act 1925, and s 15 consolidates a n d rationalises t h e c o m m o n law on s 30. 21 T h e beneficiary may claim that his peaceful enjoyment of his possessions is interfered with under Art 1, or there is an interference with his home under Art 8. 22 S 15(1) lists the matters to which the court is t o have regard b u t the use of the word "includes" suggests that the list is n o t prescriptive. In Mortgage Corporation v. Shaire, The Times, 21 M a r c h 2000, it was considered that it had been Parliament's intention to enable the court t o have wider discretion in favour of families and against banks and other chargees. 23 For an e x p l a n a t i o n , see H o w e l l , supra n 2. 24 James v. UK [1986] 8 EHRR 123 at 140: "the Court further observed that, before inquiring whether the first general rule had been complied with, it must determine whether the last two are applicable. The three rules are not, however, 'distinct' in the sense of being unconnected. The second and third rules are concerned with particular instances of interference with the right to peaceful enjoyment of property and should therefore be construed in the light of the general principle enunciated in the first rule."
154 Jean Howell law and by the general principles of international law", and the third permits the state to control the use of property "in accordance with the general interest and to secure the payment of taxes or other contributions or penalties". In deciding whether the interference is justified in the public or general interest,25 the court takes into account a number of factors: whether the action complained of is within the state's margin of appreciation and whether there has been a "fair balance" struck in the particular circumstances between the legitimate aims of the state and the rights of the individual (a question much influenced by the payment of compensation). 26 Thus in James v. UK27 it was held that the leasehold enfranchisement legislation which permitted leaseholders to acquire the freehold at a greatly reduced price was "in the public interest". It was within the UK's margin of appreciation since it was seeking to remedy a social injustice which was a legitimate aim, and in the circumstances the claimant was not asked to bear a disproportionate burden. Similarly in Pine Valley Developments Ltd v. Ireland,28 planning legislation which imposed control on development, although an interference with possessions, was legitimate both in principle and in the particular case. It is doubtful whether these tests can be used in relation to claims against individuals: it is difficult to frame a coherent argument which will satisfy the public and general interest limitations of the second and third limbs. There may, for example, be an argument that section 36 of the Administration of Justice Act 1970 is an interference with a mortgagee's possessions: the exercise by the court of its discretion to postpone the common law right to possession29 is "control" under the third limb. 30 It is difficult to equate this with the direct control by the state in Pine Valley Developments Ltd v. Ireland.3^ Nor can the "general interest" test be formulated in the same way. There may be an argument that the "general interest" (that is, the interest of the community as opposed to the individual) is that an order to stay possession by the mortgagee will prevent the mortgagor's losing his home and (possibly) being thrown on the state. Against this is the contrary argument that it is "in the general interest" not to put unnec25 T h e r e seems t o be n o distinction d r a w n by t h e courts between "public" interest in the second limb, a n d "general" interest in the third limb. Sir J a m e s Fawcett suggests that there is a distinction, in that "public interest" may be equated with " n a t i o n a l interest", and "general interest" is the interest of the c o m m u n i t y , national a n d local, as o p p o s e d to that of the individual: The Application of the European Convention on Human Rights ( O x f o r d , Clarendon Press,1987) at 409, b u t this is not a distinction m a d e in the cases. 26 T h e questions of the extent of the margin of appreciation and the issues of balance o r proportionality are closely linked. Indeed it is unclear h o w far these are separate questions: N Lavender, " T h e Problem of the Margin of A p p r e c i a t i o n " [1997] EHRLR 380 at 381. 27 (1986) 8 E H R R 123. 28 (1992) 14 E H R R 319 29 Four-Maids Ltd v. Dudley Marshall (Properties) Ltd [1957] Ch 317. 30 It is unlikely t o be "deprivation", a l t h o u g h t h e categories are not distinct. In Handyside v. UK (1979-80) 1 E H R R 737, the confiscation of o b s c e n e material was held t o be control, rather than deprivation. T h e r e is a separate, much m o r e difficult argument that the mortgagor is deprived of his possessions by the effect of the legislation: infra n 3 4 and text. 31 (1992) 14 E H R R 319.
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essary obstacles in the way of mortgagees, since these inhibit the free alienation of land and encourage borrowers to default. There is here clearly a balancing test, but is it a different one from that used in James v. UK32: there the question was directed to whether the particular claimant (making a claim against the state, it must be remembered) was asked to bear a disproportionate burden in pursuit of the specific social goal which the legislation was designed to achieve. It may be that the courts will wish to adopt a new balancing test, but it cannot, it is suggested, obtain its legitimacy from the cases decided in Strasbourg. In effect such an approach requires that the second and third limbs of Article 1 be ignored and the Article be read as if it gives an absolute right to peaceful enjoyment of possessions, qualified only by a test to be newly formulated by the judges. Such an approach may already be evident.
A broad discretionary approach The courts were already used to taking the Convention into account in the limited way that is possible before the Human Rights Act came into force.33 However the Convention was used as an aid in a more questionable way in Albany Home Loans Ltd v. Massey,34 where the Court of Appeal was referred to Article 8. The substantive question before the court was whether a mortgagee could obtain a possession order under section 36 of the Administration of Justice Act 1970 against one of two joint mortgagors, a husband and wife. An order for possession had been made against the husband but the wife subsequently claimed that the mortgage should be set aside as against her because of undue influence by the husband (an issue which had not been tried at the time of the Court of Appeal hearing). It was held that an order for possession against the husband was not appropriate where it could be of no benefit to the mortgagee; since the wife continued to live in the property, the order could not be enforced. The Court found that Article 8 reinforced its decision. According to Schiemann LJ: This [article 8], as it seems to me, whilst not enacted as part of our domestic law, provides a clue to the solution to the problems posed by this case. It is common ground that the making of this order for possession, at the time when it was made and at the present, was not necessary for the protection of the rights of the mortgagor.
He then cited Lord Templeman's opinion in Downsview Nominees Ltd v. First City Corp Ltd35 that "powers conferred on a mortgagee must be exercised 32 33
(1986)8EHRR123.
T h e courts could take the Convention into account t o resolve ambiguity in either legislation o r the common law: Derbyshire County Council v. Times Newspapers Ltd [1992] Q B 770 and Attorney-General v. British Broadcasting Corporation [1981] AC 303. 34 [1997] 2 All ER 609, [1997] 2 FLR 305. 35 [1993] AC 295 at 312.
156 Jean Howell in good faith for the purpose of obtaining repayment". As the ejection of one of the two mortgagors could be of no benefit to the mortgagee, it would not be in general right to make an order for possession. Whilst the decision may be correct, there are distinct difficulties in applying Article 8 to the case. The Article provides that there be no interference "by a public authority" with the rights protected, other than in accordance with the law and for specified purposes. There was here no interference by a public authority (unless, very doubtfully, the very presence of legislation, the Administration of Justice Act 1970, can imply an interference by the state). The application for an order for possession was purely a matter between the parties which, as the law stands, clearly does not bring the matter within the ambit of the Convention. Nor was there any ambiguity in the legislation which would justify use of the Convention as an aid to interpretation, the only way in which it can at present be used. Even conceding that the Convention could be of use, none of the criteria which justify an interference as "necessary" seem to be present. It is not at all clear what the court meant by the statement that the making of the order for possession "was not necessary for the protection of the rights of the mortgagor", and it is difficult to see how the making of an order for possession could ever be for the protection of the mortgagor. Most significantly the "interference" allowed by the legislation is designed for the benefit of the mortgagor, in that it restricts the mortgagee's common law right to possession; it increases rather than lessens the protection in the first part of the Article.36 The comments of the court are intelligible only on the assumption that it was proceeding on a principle that a person should not be deprived of his possessions unless this could be justified in the particular circumstances.37 The discussion, if such it can be called, of the specific limitations on the substantive right provides merely a rather doubtful justification. However doubtful the use of the Convention may have been in Massey, its general approach may now be sanctioned by section 3. The section requires that in disputes between private individuals the court must interpret legislation in a manner which is compatible with Convention rights. Thus, it could be argued, it should exercise its discretion under the Administration of Justice Act 1970 by not allowing possession, since to do so would be incompatible with a 36 T h i s w a s also the case in App. 11194/86, supra n l 7 . T h e statutory requirement that the landlord obtain a forfeiture o r d e r from the court was clearly for the benefit of the tenant. 37 T h e c o m m e n t s w o u l d be more intelligible if it were the rights of the mortgagee which were held not to be affected by the refusal to allow a possession order. T h e r e are, in fact, a number of difficulties with the j u d g m e n t : in t h e report in both the All ER and the Fam Rep, there are a number of occasions on which the term " m o r t g a g o r " is used when the sense demands "mortgagee", and viceversa. It m a y be t h a t Schiemann LJ indeed intended to refer t o the rights of the mortgagee, rather than the mortgagor, b u t since at o t h e r times the terms are used correctly it cannot be assumed that the learned judge w a s simply incorrectly reported. But even if the report is incorrect on this point, the other difficulties referred t o above remain. In an unreported case in the Court of Appeal, Birmingham Midshires Mortgage Services Ltd v. Sudesh Sabherwal, 17 December 1999 (Smith Bernal R e p o r t i n g Ltd) the reliance on Art 8 in the Massey case was doubted as no public authority was involved.
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Convention right. This can be done only by concentrating on the first part of Article 8 which gives a right to respect for one's home, and ignoring the remainder which permits interference in defined circumstances (since, as has been seen, it is not possible sensibly to argue that the interference would be by a "public authority" or that the interference was "necessary" in the way that Article 8 requires). Such an interpretation leaves a number of problems. If the court is faced with an action for a possession order under Article 8, it seems that it must start from an assumption that the mortgagor is to be protected in his home, in other words, there would be a presumption that the court would exercise its discretion in favour of the mortgagor. This is, however, contrary to the common law and the legislation itself. A mortgagee has a right to possession38 and the Administration of Justice Act 1970 simply gives the court power to postpone possession in certain circumstances. A similar argument could also be applied to Article 1. A mortgagor could claim that his possessions were interfered with (since the effect of a possession order would be to deprive him of his estate in the land) whilst ignoring the awkward questions raised by the limitations in the second and third rules. It may be argued that to interpret the Administration of Justice Act in this way is to "contort the meaning of words to produce an implausible or incredible meaning",39 but since the purpose of the legislation is to protect mortgagors, such an interpretation could be justified under the broad terms of section 3. But apart from these inherent difficulties, this is a double-edged sword: a claim by a defaulting mortgagor to protection under Article 8 or Article 1 can immediately be countered by a claim from the mortgagee under Article I. 40 Indeed, a counter claim will often be possible where there is an attempt to use the Convention in private matters: claims may effectively cancel each other out.41
An imaginary problem There is no doubt that advisers will raise Convention points wherever this is possible: until cases are argued before the courts, much will remain speculative. It may be that the Convention could be used in disputes where a person is seeking to establish a beneficial interest in the family home. Take, for example, the case of Burns v. Burns.42 Mrs Burns, a common law wife, had claimed a 38
Four-Maids Ltd v. Dudley Marshall (Properties) Ltd [1957] Ch 317. See supra n 18, and the comments of the H o m e Secretary there cited. A mortgagee would not be able t o sustain an argument under Art 8 since there would no interference with a " h o m e " as the Art demands. 41 As, e.g., where there is a dispute between landlord a n d tenant regarding possession of the leased property. Each can claim that his possessions are interfered with under Art 1, the landlord in his freehold reversion and the tenant in his lease. T h e tenant may have a stronger claim under Art 8 than the landlord, although he too may have a claim if he is a private landlord seeking repossession of his home. 42 [1984] Ch 317. 39
40
158 Jean Howell beneficial interest in the house she shared with Mr Burns. The parties had lived together unmarried for nineteen years and during that time had had two children. Mrs Burns did not work for the first fourteen years of the relationship and the house was solely in the man's name. Mrs Burns was unable to establish either a resulting or a constructive trust of the property in her favour (she had neither provided a part of the purchase price nor could she show a "common intention" that the house was to be held on trust). 43 Could her claim have been strengthened by arguing that she had a "right" under the Convention?44 It seems that, on a strict view, such an argument would be bound to fail as the court would have no jurisdiction in the matter: section 3 could not apply since there is no relevant legislation45 and reliance on section 6 would be problematic also for the reasons considered above. 46 Even if the court did have jurisdiction it is not obvious that any of the Articles would help Mrs Burns. She could not bring a claim under Article 1, since this covers only existing possessions, not those a person is seeking to acquire. 47 There might be a claim under Article 8 but that Article can give no substantive rights. It could only, it seems, give rise to a mere presumption of a right to remain, and then only if the court were willing to concentrate solely on the first part of the Article: in other words, the court would start from a presumption that Mrs Burns was to be protected in what was undeniably her home. There would be several difficulties with such a conclusion. Such an approach would effectively reverse the law that the parties must show a common intention that the property be owned by them, not merely that it be their "home". 48 But even if this were accepted, against whom would such a "right" be enforceable? If only against the legal owner, this could be categorised as licence,49 but of a new type since it would arise neither by contract nor by estoppel. If it were enforceable against a third party, for example a mortgagee, this would seem to be a new species of property right: a pre-existing right, arising under the Human Rights Act. It would be neither registrable nor overreachable but neither would it affect a third party with notice, or be overriding within section 70(1)(g) of the Land Registration Act 1925, since it would not be a "proprietary" right as this 43
Lloyds Bank pic v. Rossett [1991) 1 A C 107. It will be assumed for the present p u r p o s e t h a t t h e case is being decided after the coming into force of the H u m a n Rights Act. 45 T h e r e may in the future be legislation in this area, a possibility which underlines the potentially 44
arbitrary application of the h u m a n rights legislation. 46 See supra n 20, and text. 47 It is, of course, true t h a t w h e r e a beneficial interest is successfully claimed, the interest will usually be treated as having existed from the acquisition of the property and is thus in one sense an existing "possession". H o w e v e r it is m o r e p r o b a b l e that the Art 1 protection is intended for "possessions" which have an undisputed prior existence. See D J Harris, M O'Boyle and C Warbrick, Law of the European Convention ( L o n d o n , Butterworths,1995) 517 for examples of rights held to be "possessions". 48 49
Lloyds Bank pic v. Rossett [1991] A C 107. Provided that the claimant w a s n o t a wife: National
Provincial Bank v. Ainsworth
1175. 50
It would be a right s o m e t h i n g akin t o t h e o l d "Deserted Wife's Equity".
[1965] A C
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is presently understood.50 It can be seen that whilst the use of the Human Rights Act in a Burns-type situation may seem very attractive in human terms, it is fraught with difficulty in legal terms.
A PRINCIPLED OR AN AD HOC APPROACH?
It can be seen that introducing Convention arguments into private disputes in land is open to a number of objections.51 A primary purpose of land law is the regulation of priority of competing rights in land and a balance has been achieved which is based on known principles. Also, the rules which govern the creation and acquisition of interests in land and the principles upon which the courts will exercise a discretion to postpone rights or resolve a conflict are well established. Reliance on the Articles of the Convention could call into question all these established certainties. It is thus imperative that the courts be clear on what principles they will allow such reliance. In so far as it is used to support established judicial practice (as in the Massey case) the imprecise and unprincipled approach to the interpretation of the Articles of the Convention evident in that case causes no particular difficulty. Where, however, there is an attempt to challenge established law (if, for example, it were used to aid a person claiming a beneficial interest in property, as in the Burns example ) or to introduce a new factor in the exercise of the court's discretion (under, for example, section 15 of the Trusts of Land and Appointment of Trustees Act 1996) the court will need to explain very clearly the principles which are guiding it. The court would presumably be exercising its inherent equitable jurisdiction to do justice in a particular case, an approach which may be thought acceptable: appeal to the Human Rights legislation can be seen as a new weapon for the "little man" against the might of big corporations.52 However not only individuals can invoke Article 1 of the First Protocol—the rights of every natural or legal person are protected.53 Although one's sympathies may not be aroused by the claim of a large bank or building society that its possessions have been interfered with, the principles of the Convention must be applied by the courts regardless of the status of the applicant. There are signs that the courts will take a conservative approach to interpretation of the legislation in property matters. In Parochial Church Council of Aston Cantlow and Wilmcote v. Wallbank,S4 the High Court had to consider the effect of a claim by the Parochial Church Council against an owner of •" N o t least in that the courts would be interfering with freedom of contract. There will be an original agreement into which parties entered voluntarily, even if their bargaining p o w e r w a s not always equal. 52 Although in James v. UK (1986) 8 E H R R 123, it is hard to see the inhabitants of Belgravia w h o were able to take advantage of the leasehold enfranchisement legislation as "victims". 53 See e.g., Sporrong and Lonnroth v. Sweden (1983) 5 E H R R 35, where Sporrong estate h a d legal personality, and also Pine Valley Developments Ltd v. Ireland (1992) 14 E H R R 319. -'4 The Times, 30 M a r c h , 2000.
160 Jean Howell former glebe land for the cost of repairs to the chancel of the parish church. The defendant had argued that the claim was in contravention of Article 1 of the First Protocol. The court decided, as it had to, that since the Human Rights Act was not yet in force, the Convention could be considered only where there was ambiguity in the common law or in relevant legislation (the Chancel Repairs Act 1932): this was not the case here. Ferris J nevertheless considered the terms of Article 1 and held that there was no deprivation of possessions. The liability to pay for repairs was an incident of the ownership of the glebe land and as such could not be distinguished from the liability attaching to an owner of land which was purchased subject to a mortgage, restrictive covenant or other incumbrance created by a predecessor in title. This decision, must, it is suggested, be right. Indeed, one wonders why the argument was attempted at all. It was perhaps based on comments in the House of Lords in a debate on the recommendation of the Law Commission that the liability for chancel repairs be abolished. 55 The House of Lords noted that "although the continuing liability carries the risk of breach of ECHR, so does abolition". 56 It certainly seems that any attempt to abolish the liability could be a deprivation of possessions under Article 1 but its continuation would not.
CONCLUSION
There is no doubt that, initially, many claims will be made which have only the most tentative connection with human rights. Legal advisors need to be circumspect. It must not be presumed that every statute or common law rule which in some way restricts property rights is therefore a violation of the Convention. If the Convention is to have even a limited horizontal effect in land law, it is important that the principles by which the courts will proceed are laid down clearly and early: the time has long gone when equity can develop on an ad hoc, unprincipled basis. Establishing these principles will be difficult but it is important that the courts do not, in response to the emotive overtones of the legislation and to apparent cases57 of individual hardship, set the Human Rights jurisprudence on a course which leads to uncertainty in the law, without any real benefit to show in exchange.
55
L a w Commission Report N o 152, 1983. H a n s a r d H L , Vol 592, W A 202 (29 July 1998). In the Massey case, e.g., it was not obvious w h e r e t h e balance of fairness lay. T h e main reason why the court held that the original order for possession against the husband should n o t have been m a d e w a s that the wife w a s entitled t o remain in t h e m a t r i m o n i a l home and "invite whom she pleases", including her husband, t o stay with her. T h e c o u r t of first instance "ought so t o have disposed of the case that the husband was n o t required t o leave until his wife left". T h e result was that the h u s b a n d w a s protected by his wife's interest a n d could remain in possession although he w a s clearly in default. (The wife's claim t h a t she had been subject to u n d u e influence by her husband had not been tested in the court a n d may have been w i t h o u t substance.) 56
57
Part III
Mortgages
10 Mortgage Conditions: Old Law for a New Century? JOHN HOUGHTON andLYNNE LIVESEY
INTRODUCTION
v. PETTIT1 Lord Diplock described our society as "a real property mortgaged to a building society owning democracy".2 This is certainly the case today, but it is a totally different kind of mortgage scenario from that which existed or was contemplated as comparatively recently as 1970. We have all become familiar with the vast array of mortgage products now on the market and the competition between the various institutional lenders for a share of an increasing market. The purpose of this essay is to consider the protection available to consumer borrowers from common law, statute, consumer regulation and possible future developments from Europe and the implementation of the Human Rights Act 1998. With the expansion of building societies' investment and lending powers under the Building Societies Act 1986 and the increase in the number of former building societies converting to banks, the mortgage market has become less consumer driven and more concerned with the maximisation of profits for the benefit of shareholders. In the words of the Banking Ombudsman:
I
N PETTIT
Banks are public companies, necessarily sensitive to their share price. The consequent competition to enhance profitability . . . has fuelled a growing industrialisation of banking. This has led to an increased reliance on technology, concentration of many operations in limited . . . centres, greater pressure on staff. And competition for market share has seen a move away from a banking culture to a sales culture.3 Although it is not suggested that lenders fail to consider the welfare of the consumer borrower, we do contend that the array of mortgage products leads to confusion in the minds of borrowers and creates an imbalance between their interests and the interests of the lender. A borrower may be encouraged to take 1 2 3
[1970] AC 777. At 824. Annual Report of Banking, Ombudsman 1998-9 at 29.
164 John Houghton and Lynne Livesey out a mortgage on the basis of a fixed interest rate, at a discount, for a number of years, with penalties in the event of early redemption. The borrower may not receive any explanation of the consequences should he or she wish to move house or be unable to meet the commitments to the lender. This may occur, for example, because of the borrower's redundancy, divorce or relocation. In those circumstances, a borrower may be faced with losing his home or being caught in a negative equity trap. We submit that the law, either through the introduction of new legislation or through the courts taking a fresh approach to existing legislation and case law, ought to respond to the needs of the consumer borrower in the same way that it has responded to consumer contracts generally.4 We will first consider the adequacy of existing statutory and common law provisions and the extent to which these can be utilised to address the problems in the present market.
THE TRADITIONAL APPROACH: OUTDATED OR RIPE FOR DEVELOPMENT?
Consumer Credit Act 1974 This affords only limited protection to the mortgagor, as it applies where the credit does not exceed £25,000.5 The major lenders, including building societies, local authorities and institutions formed under the Banking Act, are exempt from its requirements except in limited situations, such as second mortgages. Clearly the vast majority of mortgage business falls outside its protection. Where a mortgage agreement is regulated, the form and content of the agreement must comply with the Act. Sections 58 and 61 provide for a copy of the agreement to be provided to the borrower, with a seven-day cooling off period during which the borrower must not be approached. The procedure on default, termination or early settlement of the loan is controlled by the Act, with the borrower entitled to redeem at any time. In so far as any term is inconsistent with these rights, it will be void under sections 94 and 173. Traders entering regulated agreements under the Act require a licence from the OFT and enforcement is through the local trading standards officers. It is submitted that some of the difficulties experienced by home buyers could be alleviated by increasing the financial ceiling for protection and extending the regulated agreement provisions to first mortgages, thereby giving some time for consideration of an offer with the opportunity of taking advice on its terms.6 Sections 137 and 139 of the Act, which apply to loans to all individuals, whether secured or not, allow a court to alter the terms of an agreement or 4 See the comments of Lord Diplock on standard form contracts in A Schroeder Music Publishing Co Ltd v. Macaulay [1974] 3 All ER 616 at 624. 5 SI 1998 No 996. 6 Interestingly the Law Commission has suggested that mortgages should be taken outside the Act altogether: see Land Mortgages 1991, Law Comm. No 204 HC5.
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relieve the borrower from payments in excess of what is fairly and reasonably due, where the bargain is extortionate. An extortionate credit bargain is one which requires the payment of a grossly exorbitant sum or which grossly contravenes the ordinary principles of fair trading.7 In deciding whether a term comes within the definition, the court is to have regard to all relevant circumstances, including the mortgagor's age, experience, state of health, business capacity and any financial pressure on him. The court will also take account of the degree of risk assumed by the lender, any relationship with the borrower and whether any colourable cash price has been quoted. In Davies v. Directloans, Nugee QC (sitting as a High Court judge) stated that the language of the legislation must be looked at separately from any equitable unconscionability rule.8 Regard must be had to the criteria within the legislation. Although extortionate credit bargains have generally been applied to higher risk loans rather than traditional mortgages, we would argue that there is sufficient in the Act, as interpreted by the courts, to allow application to normal borrowing. The jurisdiction seems to contemplate at least a substantial imbalance in bargaining power of which one party has taken advantage.9 In Davies v. Directloans an interest rate of 21.6 per cent over ten years was upheld, but the court found on the facts that the lender had assumed a very high risk. In the usual home purchase situation the interest rate will be much lower, but equally the risk to the lender will be much less, both in terms of ratio between the loan and the value of the property and the re-saleability of the property in the event of repossession. It may therefore be open to the courts to consider this section where they are perhaps dealing with a young first-time buyer with little experience of the financial markets and a high rate of interest is coupled with a heavy redemption penalty tie-in clause. The lender will be additionally protected by a mortgage guarantee policy usually paid for by the borrower. In such circumstances there is a greater chance that the loan will be repaid and the court would expect lower interest payments.10 Nevertheless the borrower must be able to show an element of unfair dealing since, as Megarry and Wade have pointed out, a transaction will not be set aside merely because it is unwise.11 As can be seen from examples in the Press, borrowers who obtained fixed term finance two or three years ago may initially have paid 4 per cent per annum interest rate on their loans which will now be moving on to a standard variable rate around 7.74 per cent per annum. Payment on a £100,000 loan will rise from £3,750 a year to £7,750 a 7
S 138. [1986] 1 WLR 823 at 831. 9 Per Donaldson MR in Wills v. Wood [1984] CCLR 7 at 15. 10 See Castle Philips Finance Co Ltd v. Williams [1986] CCLR 13 where the court referred a loan to OFT in the light of inflated and unexplained charges by the lender coupled with a high interest rate. 1 ' C Harpum, Megarry and Wade, The Law of Real Property (6th edn, Sweet & Maxwell, 2000), at 1242. 8
166 John Houghton and Lynne Livesey year.12 Such borrowers may well be tied in to the higher standard rate for a further five or six years, making the total charge for credit much higher than the APR quoted at the outset of the loan. Such redemptions may be forced by unforeseen changes in circumstances, for example redundancy, relocation of work, divorce or ill health.13 In Ketley v. Scott,™ the borrower took out a short-term loan at a rate of 12 per cent for three months, or an APR of 48 percent. The rate was held not to be extortionate, but in reaching its decision, the court took account of the fact that this borrower was an experienced businessman who was legally advised and wanted immediate finance. The court took the view that provided the lender is not guilty of sharp practice and the borrower is fully aware of what he is agreeing to, the court will be reluctant to disturb the bargain. We would argue that in the average domestic mortgage the borrower is rarely experienced and may be vulnerable to the initial attractive package without understanding its true nature. Independent advice is therefore very important to him, but we suggest that in reality the extent of truly independent advice may be very limited. Normally a solicitor will be instructed to act for both lender and borrower on the secured mortgage transaction. The solicitor's freedom to act is limited by Rule 6 of the Professional Conduct Rules and by the requirements of The Council for Mortgage Lenders Handbook.xs Rule 6 allows for joint representation where there is no conflict of interest. The CML Handbook allows for joint instructions and permits a solicitor to advise a borrower on any term of a document required by the lender to be signed by the borrower.16 However, the Handbook also states that a solicitor must not act for both lender and borrower if a conflict exists or arises. The Law Society's Guide to Professional Conduct stipulates that it considers a conflict will arise if the solicitor becomes involved in negotiating a term of the mortgage. As a result, if the borrower is unhappy with the mortgage offer, his solicitor will be able to assist only if he returns his instructions to the lender, who will instruct his or her own solicitors. The consequent delay and increase in costs may cause insurmountable difficulty for the borrower. Further, unless a solicitor is authorised to give investment advice under the Financial Services Act, he will be unable to comment on the appropriateness of a package that includes investment products. The jointly instructed solicitor appears to be confined to quoting the terms without advising on their suitability. The only other avenue of advice for the borrower will be the mortgage advisor. With an in-house advisor this will be limited to promoting the products of 12
S Tyler, "Chase de Vere Mortgage Management", The Times, 12 February 2000. The Banking Ombudsman cites an extreme case where redemption penalties had the effect of making the total charge for credit £42,000 on a £60,000 loan [annual report 1998 at 31]. 14 [1981] 1 CR241. 15 The CML Handbook was introduced after consultation with the Law Society in October 1999 and applies to practically all domestic mortgages where lender and borrower are represented by the same solicitor. 16 Condition 3c. 13
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that institution. An independent advisor has more freedom, but may be swayed by the level of commission available from the various products he recommends. In addition, it is becoming more common for institutions to make the advisor the agent of the borrower to avoid liability for advice given. There is also a danger that the Government's proposals for speeding up the conveyancing process17 could limit the time for advice, reflection and cooling off available in other credit transactions. We believe that a more liberal interpretation of the legislation and the existing case law could gi.ve relief from onerous conditions in the normal domestic mortgage situation. It is acknowledged that the courts have been reluctant to interfere with interest rates unless they are significantly higher than the prevailing rate, but we feel there is scope for finding contravention of the ordinary principles of fair dealing. Although the OFT has reported that in practice unfair dealing has been ignored by the courts, 18 the recent case of Falco Finance Ltd v. Gough^9 indicates that, at County Court level at least, the court is willing to consider unfair dealing. In that case Judge Elystan Morgan held that a provision whereby a higher rate of interest arose if a single repayment was late by so much as a single day contravened ordinary principles of fair dealing.
Common law The right to redeem the mortgage is a fundamental principle of common law. To repeat Lord Eldon's much-quoted phrase in Slade v. Slade, "once a mortgage, always a mortgage".20 Attempts to restrict or remove this right of redemption may be struck out by the court. We would argue that the current packages on offer in the domestic market could have the effect of removing or rendering illusory this basic right. The average domestic mortgage sets the legal date for redemption six months into the mortgage term, after which the borrower can redeem. It could be argued that a package which involves a lock-in period of a number of years coupled with a hefty redemption penalty, perhaps even taking the borrower into negative equity, renders the right to redeem illusory. In Knightsbridge Estates Trust Ltd v. Byrne2^ the Court of Appeal confirmed an agreement postponing the right of redemption for forty years, when it was challenged by the borrower who wished to redeem after six years. However, the Court stressed the fact that this was an agreement between two commercial entities in which there was no imbalance of bargaining power. This is far removed from the domestic loan scenario, where the borrower is in a much weaker position to assess the impact of 17 18 ls 20 21
See the seller's pack and the Bristol pilot scheme. Unfair Credit Transactions, Report by the Director General of Fair T r a d i n g (1999) para.1.7. [1999] CCLR 16. [1802] 7 Ves 265 at 273. (1939] Ch 441.
168 John Houghton and Lynne Livesey a package offered than the lender, with its financial experience and daily dealing in the financial markets. In Knightsbridge Estates, it was stated that postponement of the redemption would not be challenged provided the mortgage as a whole was not so oppressive and unconscionable that equity would not enforce it, or it rendered the right to redeem illusory. Coupled with the lack of independent advice, legal and financial, available to the domestic borrower, it can be argued that some of the fully secured, low risk to lender, packages accepted by domestic borrowers should be open to review under this head. The high interest rate tie-in or redemption penalty may be challenged as a clog on the right to redeem, or it could be argued that these form an unconscionable collateral advantage. In Cityland Property Holdings Ltd v. Dabrah,22 a loan of £2,900 without interest redeemable by paying a premium of £4,533 was held to be unfair as a collateral advantage. The court substituted a reasonable rate of 7 per cent for the premium. Goff J felt able to construe the agreement as unfair without the need for external evidence of sharp practice. No evidence was filed to show any harsh, unconscionable or unfair dealing beyond such, if any, as appeared from the terms of the mortgage itself.23 It is therefore open to the court to look at the agreement itself to see whether it is unfair or unconscionable, an approach which, it is submitted, should be taken to modern domestic mortgages. Many of the cases concern higher-risk lending. Collateral advantages are justified on the basis of the risk assumed by the lender. In Potter v. Edwards,24 the court did not interfere with payment of a premium of £300 on a loan of £700, because of the significant risk attached to the security. Kindersley VC commented: upon a loan of money on a risky security, it is legitimate between mortgagor and mortgagee, to deduct from the amount a very considerable bonus, and where that is deliberately done and the parties completely understand each other, the mortgagor cannot afterwards reopen it.25 Clearly the average domestic mortgage falls outside this limitation; the loan is low risk, the full impact of the conditions may not be "deliberately done", as the consequences may not be apparent until some unforeseen event occurs. At the same time the mortgagor is unlikely to have completely understood the package accepted. Multiservice Bookbinding Ltd v. Mardon26 appears to restrict the availability of the doctrine to the borrower. The Court held that a collateral advantage cannot be struck out just because it is unreasonable. It must be unfair and unconscionable, being imposed in a morally reprehensible way. However, if there is 22 23 24 25 26
[1967] 2 All ER 639. At 641. (1857) 26 LJ Ch 468. At 644. [1978] 2 All ER 489.
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inequality of bargaining power, which it is submitted will normally be the case in the domestic mortgage transaction, the Court may be more inclined to intervene. We will therefore review what is meant by unfair or unconscionable and morally reprehensible, in the context of the mortgage contract. First, an economic formula is required to assess the cost of any particular combination of financial terms. In a paper produced for the Office of Fair Trading, 27 Frank Skinner argues that it is possible to set up an objective economic model to assess whether a complex mortgage package is fair, in financial terms. The model envisages a redemption fee equal to the option sold plus a modest fee to cover the cost of administering the redemption, but does not provide for the impact of non-financial early repayments where borrowers are forced by circumstances beyond their control to refinance at higher rates of interest. In these circumstances this standard "fair" charge will penalise the borrower. Where the package is not fair in terms of the objective economic model, to challenge the contract at law it is established that the conditions must be imposed in a morally reprehensible way, with relaxation in the event of inequality of bargaining power. Skinner takes the view that most mortgagors are financially unsophisticated and vulnerable to being misled about the true value of the incentive offered by the complex package. In the absence of a scheme for independent and comprehensive consumer advice on mortgage terms, it is argued that inequality is inherent in each mortgage transaction. On the facts, the loan in Multiservice Bookbinding Ltd attracted a premium on redemption effectively equal to an interest rate of 33.3 per cent over ten years, but this was a commercial transaction in which, it was argued, the risk of changing interest and exchange rates formed part of the bargain. Much of the premium was attributed to exchange rate, not mere profit in the hands of the mortgagee. The court concluded that there is no general principle that collateral advantages in mortgages have to be reasonable.28 Browne-Wilkinson J placed particular reliance on the judgment of Lord Parker in Kreglinger v. New Patagonia Meat and Cold Storage Co Ltd.29 There, he was of the opinion that equity does not preclude a mortgagee from stipulating any collateral advantage, provided it is not unfair and unconscionable, in the nature of a penalty clogging the equity of redemption or inconsistent with or repugnant to the contractual or equitable right to redeem. In Multiservice Bookbinding Ltd Browne-Wilkinson J differentiates unreasonable terms from unconscionable and unfair terms, rejecting the approach of Goff J in Dabrah.30 The difference or the added element distinguishing the unreasonable term from the unfair and unconscionable seems at least in part to relate to the particular strengths of the parties. 27 28 29 30
F Skinner, Research Paper 18, O F T 2 8 , N o v e m b e r 1999, at 10. At 497. [1914] A C 25. Supra n 22.
170 John Houghton and Lynne Livesey The classic example of an unconscionable bargain is where advantage has been taken of a young, inexperienced or ignorant person to introduce a clause no sensible person or party would have accepted.31
Both Kreglinger and Multiservice Bookbinding Ltd involved mortgagors who were businessmen entering the agreements with open eyes and the benefit of independent legal advice. Each involved an element of business speculation and assumption of risk that worked out badly for the mortgagor. This scenario bears little relation to that of the domestic mortgage taken out to fund the purchase of the main dwellinghouse by a borrower unfamiliar with financial markets and lacking truly independent advice on the vast array of products available. In this sense we suggest that the average domestic borrower is within Browne-Wilkinson J's definition, taking into account the nature of the modern mortgage market. In Multiservice, Browne-Wilkinson J rejected an argument that a borrower in a normal case is in an unequal bargaining position and any unreasonable term would be unconscionable within Lord Parker's test. We would argue that this is indeed the case in domestic borrowing and reflects the approach taken in other mortgage situations. In Lloyds Bank v. Bundy,32 Lord Denning MR appeared to lay down the principle that where there is inequality of bargaining power, the contract would not stand if the weaker did not obtain separate legal advice. More recently, the courts have indicated that for a term to be unfair the stronger party must have abused its position of strength within the bargain. In Alec Lobb (Garages) Ltd v. Total Oil GB Ltd,33 the directors of Alec Lobb borrowed £15,000 from the defendant with a tie-in to purchase the defendant's products beyond the mortgage term, rendering it irredeemable. The conditions were held not to be unfair and unconscionable. Full legal and financial advice had been obtained and in fact the borrower had been recommended not to proceed. Notwithstanding, due to Alec Lobb's need for immediate finance, the transaction went ahead. Dillon LJ stated: any individual wanting to borrow money from a bank or building society or other financial institution in order to buy some property he urgently wants to acquire will have virtually no bargaining power, he will have to take or leave the terms offered to him.34 He went on to add: the courts will only interfere in exceptional cases where as a matter of common fairness it was not right that the strong should be allowed to push the weak to the wall.35 31 32 33 34 35
Multiservice Bookbinding [1975] QB 326. [1985] 1 All ER 303. At 313c. At313e.
Ltd, supra n 26, at 502b.
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Evidence of the financial institutions' current practices features regularly in the press. A comparison of fluctuations in interest rates for savers with major banks and building societies showed that fewer than half of all savings rate increases matched the base rate rise, but the full increase in lending rate was passed on to most borrowers.36 Even where savings rates were passed on, the rise usually occurs some weeks or months after the base rate change, whereas increases in mortgage rates were passed on immediately. Banks and building societies are increasingly adopting a sales culture, under pressure to maximise profits by any means. They are in a position of strength with a huge advertising machine at their disposal. The borrower may have advice, but it is questionable whether it is truly independent or communicated in such a way that the average individual will understand. The net effect of the package may leave the borrower tied into an interest rate higher than the available market rate, with the only alternative to pay a redemption penalty, possibly added to by cash-back and free survey/set-up charges being clawed back due to early redemption. It is suggested that there is scope to adapt the principles outlined in these commercial cases to assist the domestic borrower to prevent him being "pushed to the wall". One final way in which the common law may develop to assist the borrower is if the mortgage agreement can be set aside due to the mortgagee's unconscionable conduct. In Credit Lyonnais Bank Nederland NV v. Burch37 an employee, who was persuaded to provide her home as security for her employer's overdraft, had the agreement set aside on the principles of undue influence identified in Barclays Bank v. O'Brien.38 However, Nourse LJ was of the opinion that the mortgage terms were so harsh and unconscionable as to make it hardly necessary for the court to rely on O'Brien principles. The terms were drafted very widely and required the employee to guarantee all sums at any time owed by the employer to the bank. A standard mortgage form was used, and in such cases the court stressed that regard should be had to the impact on the individual mortgagor. Lenders who ignore this advice do so at their peril.39 Millet LJ agreed that the two separate equitable jurisdictions of undue influence and unconscionable conduct continue to be available to the courts, allowing them to set aside harsh or unconscionable bargains or transactions tainted by undue influence. He thought that in a proper case the court might infer the presence of impropriety from the terms of the transaction itself.40 It has been suggested by Capper41 that Credit Lyonnais opens the way for domestic borrowers to challenge some of the mortgage bargains entered into in recent years. He suggests that three elements must be proven: 36 37 38 39 40 41
Sunday Times, 13 February 2000, " M o n e y " at 3 . [1997] 1 All ER 144. [1994] 1 AC 180. [1997] 1 All ER 144 at 151f. Ibid, 153c. (1998) LQR 114.
172 John Houghton and Lynne Livesey 1. The familiar unequal bargaining position. Relevant circumstances include the borrower's infirmity, illiteracy, lack of education, poverty or need, age, sex, sickness or lack of assistance or explanation where these are necessary.42 2. Transactional imbalance, where one benefits exorbitantly and the other's disadvantage is manifest. This will depend on the overall package entered into by the borrower in the light of terms available at its commencement. 3. Unconscionable conduct may be necessary. Credit Lyonnais suggests its existence may be imputed from the terms themselves without any evidence of wrongdoing. In Fry v. Lane43 the court indicated that if the first two requirements exist, then the burden passes to the defendant to show that the bargain was fair. Capper argues that the true basis of the decision in Credit Lyonnais is the transaction's utter, substantive unfairness.44 Whether the courts will insist on morally reprehensible behaviour by the lender, or whether they will allow this to be inferred from the terms of the transaction and the standard to be applied, remains to be decided. If the courts are unwilling or unable to follow the latter course, then it is suggested legislation similar to that available to consumers of credit for purchase of other products should be introduced for domestic loans on a house purchase.
UNFAIR TERMS IN CONSUMER CONTRACTS REGULATIONS 1999 (REVOKING AND REPLACING THE 1994 REGULATIONS) SI 1999 NO 2083. CAN EUROPE HELP THE DOMESTIC MORTGAGOR?
The new Regulations came into force on 1 October 1999.45 They are broadly similar to the 1994 Regulations 46 and allow for unfair contract terms to be unenforceable between seller or supplier and consumer if a number of factors are satisfied. The first hurdle to be overcome by the borrower wishing to challenge a mortgage condition is to show that the mortgage agreement falls within the ambit of the Regulations. As these apply to "goods and services", it has been suggested that the mortgage, as an interest in immovable property, is neither. However, it is argued that, while the creation of the mortgage interest itself may not be covered, the underlying financial services agreement falls within the definition as a supply of services. Any term will be excluded from the fairness test imposed by the Regulations "in so far as it is in plain intelligible language" if it relates to "the adequacy of 42
Blomley v. Ryan (1956) 99 C L R 362 a t 403. (1889) 40 C h D 312. 44 At 502. For an interesting discussion of the Australian approach see Commercial Bank of Australia Ltd v. Amadio (1983) 151 C C R 447 where Fuller J accepted that modern conditions may require a new a p p r o a c h t o poverty, ignorance etc. 45 SI 1999 N o 2083, implementing E C D i r 93/13/EEC. 46 In force from 1 July 1995. 43
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the price or remuneration, as against the goods or services supplied in exchange".47 It has been suggested that the price of a mortgage contract may be the interest payment.48 However, we argue here that conditions relating to mortgage interest may be challenged under the Regulations. First, we contend that the majority of mortgage offers and agreements are not couched in plain intelligible language. Thus the premise is not satisfied and the terms should remain subject to the test of fairness. Typical mortgage offers require the lay borrower to interpret complex conditions often contained in a series of documents, at this stage without any legal assistance.49 Commonly, documentation sent direct to the borrower will comprise an offer document containing some conditions and details of payments. This will refer to a separate standard set of conditions that must be interpreted alongside any special conditions. The borrower will be required to execute a separate mortgage deed. It is also likely that the borrower will receive leaflets and quotations for life, buildings and contents insurance from the mortgagee. Commenting on the Bank of Scotland's mortgage documentation in the Court of Appeal, Robert Walker LJ said: to my mind it is deplorable that the defendant's right to their home should depend on the interpretation and combined effect of no fewer than four contractual documents, which do not use as they should, a clear consistent terminology.50 The question arises whether "plain and intelligible language" is an objective test, or whether consideration is given to the availability of truly independent advice in determining whether the mortgage terms can be challenged.51 However, we contend that independent advice, to the limited extent it exists, comes after the mortgage offer has been accepted. Secondly, where the condition subject to challenge relates to interest payments, the court will have to determine whether this is the price of the mortgage contract and therefore excluded from review under the Regulations. At first instance in DG Fair Trading v. First National Bank plc,S2 applying the 1994 Regulations to mortgage terms, Evans-Lombe J said, "it is accepted that the contractual interest provisions are a core term and so [are] not assessable for fairness". He did consider that a clause governing the extent of interest payable on default could be challenged under the Regulations as it did not relate to the adequacy of the price of the services supplied. The Court of Appeal confirmed that this clause did not define the subject matter of the contract, nor was it concerned with the adequacy of the price or the remuneration of the goods or services supplied.53 47
Cl 6(2) of the 1999 Regs, supra n 45. O m b u d s m a n ' s Annual Report, supra n 3. 49 This may be alleviated in future if mortgages are within the voluntary C A T marking scheme currently being introduced. It will not assist existing borrowers. 50 Governor of Bank of Scotland v. Ladjadj & Anor, The Lawyer February 2000. 51 Supra n 14. 52 [2000] 1 WLR 98 at 108. •" The Times, 14 March 2000. 48
174 John Hougbton and Lynne Liuesey Penalty redemption fees and ancillary terms governing ties in, charges, cash back, insurance guarantees, insurance ties and survey charges added to the loan appear to be subject to the fairness test following this decision. The Court of Appeal leaves open the question whether interest payments in the currency of the mortgage per se may be held to be unfair. In Falco Finance Ltd, three terms imposing a flat rate of interest, a dual rate of interest and a redemption penalty were reviewed by the court54 and held to be unfair contrary to the 1994 Regulations. The judge considered the basis of calculation of the rate of interest to be misleading and most clearly unfair. If the basis for calculating the interest rate is open to challenge under the Regulations, arbitrary increases in variable rates by the supplier may also be subject to review. Terms caught by the Regulations will be subject to a fairness test, in so far as they are not individually negotiated. This will be the case if terms are drafted in advance with the consumer unable to influence the substance of the terms.55 Since most mortgage conditions come as a printed standard non-negotiable package, it should not be difficult for the borrower to satisfy this element. Additionally, contrary to the requirement of good faith, the terms must cause a significant imbalance in the parties' rights and obligations under the contract to the detriment of the consumer.56 The test of fairness under clause 6(1) takes account of the nature of the goods or services and refers, at the time of the conclusion of the contract, to all the circumstances and all the terms of the contract and any document on which it is dependent. Schedule 2 to the Regulations provides a non-exhaustive list of terms which it is suggested will be unfair. These include the requirement for any consumer failing to fulfil his obligations to pay a disproportionately high sum in compensation. 57 It is suggested this may apply where a mortgagor is unable to meet payments under the mortgage, triggering redemption penalties on repossession or hidden charges. Similarly, terms allowing for a price increase without giving the consumer a corresponding right to cancel the agreement if the final price is too high in relation to the price agreed when the contract was concluded are unfair.58 This may apply to the mortgage reverting to a variable rate loan particularly where a redemption tie-in penalty is calculated with reference to the higher rate. As it has been estimated that up to 30,000 people per month are currently coming off fixed rate deals,59 the problem is potentially very large. Borrowers who took out a fixed-rate mortgage in 1998, moving on to the variable rate from 2000, are likely to find their monthly mortgage payments will 54 55 56 57 58 59
Supra n 14. Cl 5(2) of the 1999 Regs. Ibid, Clause 5(1). Sched 2 cl l(e). Sched 2 cl 1(1). Sunday Times, 13 February 2000.
Mortgage Conditions: Old Law for a New Century? 175 double. For consumers who are tied into their agreements forfiveyears, the only option may be to continue to meet the payments or pay a hefty redemption penalty, unless this final price of the contract can be shown to be too high in relation to the original price. However, a problem may arise in using the Regulations to challenge variable interest rates, because of the exception that exists for financial transactions where price is linked tofluctuationsin a stock exchange quotation or index or financial market rate that seller or supplier does not control.60 Does this exclude a review of the variable mortgage interest rate term, which is linked to base rates, either contained in an unclear document or used as a basis for calculating redemption penalties? It is suggested that the supplier is still free to set the level of its own rate above the basic rate and therefore terms may be caught by the Regulations.61 It is interesting that in a recent survey of the ten biggest banks and building societies,62 the standard variable rate applied to loans was shown to be higher now than it had been on three occasions in the past, when the base rate had been at its current level. Any condition limiting the seller's or supplier's obligations to respect commitments undertaken by his agents is also indicated as an unfair term.63 Many lenders include a standard term in the mortgage contract stipulating that they will not be responsible for the acts of intermediaries who have arranged or advised on the mortgage product. The contract endeavours to make the intermediary the agent of the borrower. We argue that this is inaccurate, as in reality the advisor promoting the lender's products, often for commission, acts as its agent. Enforcement of the Regulations falls to the Director General of Fair Trading. Some of the enforcement procedures are open to other "Qualifying Bodies", including the Consumers' Association. The Regulations allow the Director General to consider a complaint and obtain undertakings from suppliers of goods or services in connection with unfair terms. On 12 February 1998 the Director General announced that City Mortgage Corporation had agreed to remove unfair penalties from its loan agreements, following negotiations.64 The Director General may also apply for an injunction to restrain the use of an unfair term drawn up for general use, as he did successfully on appeal in Director General of Fair Trading v. First National Bank Pic. It appears that the courts can enforce the Regulations directly, where agreements become subject to their scrutiny. For example, in Falco Finance Ltd the terms were held to be unenforceable, not only as a clog on the right to redeem, 60 61
Sched 2 n 2(c). See Government C A T marking scheme, where rates of up t o 2 % above base rate are permit-
ted.
62 63 64
Sunday Times, 13 February 2000. Sched3cM(n). Quarterly Account, Issue N o 53 Autumn 1999: Legal Update.
176 John Houghton and Lynne Livesey but also because they were grossly unfair under the Regulations and grossly contravened the principles of fair trading. If Falco Finance Ltd indicates a new willingness in the courts to adapt the existing law to review unfair domestic mortgage terms, taking on board the inherent imbalance in bargaining power in the transaction, calls for reform65 may prove unnecessary. However, it is apparent that the current law comprises a complex sequence of overlapping doctrine that may or may not be used to assist the borrower. Unlike the law relating to consumer credit in supply of goods and services generally, mortgage credit is not subject to comprehensive statutory regulation, even though the house purchase probably represents the biggest single commodity purchase both in value and importance that most consumers will make. There is a strong argument for a thorough review and rationalisation of the existing law to make it comprehensible and accessible to the average domestic mortgagor. The limited regulation available is spread across a series of independent laws that have evolved largely in the context of bargains between commercial entities.
THE WAY FORWARD: GOVERNMENT PROPOSALS VOLUNTARY CODES OF PRACTICE, THE FINANCIAL SERVICES AND MARKETS BILL AND THE ROLE OF THE OMBUDSMAN?
In spite of campaigns by consumer groups and the recommendations in the report of the Law Commission, 66 the Government has shied away from statutory regulation of mortgage finance. It prefers to rely on the industry's voluntary codes of practice with a pivotal role for the banking and loans division of the Financial Services Ombudsman. 67 The UK voluntary mortgage Code of Practice applies to all mortgages to private residential owner-occupiers not covered by the Consumer Credit Act. From November 1999, the Mortgage Code Compliance Board monitors intermediaries and lenders subscribing to the Code. Subscribers must belong to a compulsory free independent consumer complaint scheme, under which monetary awards of up to £100,000 can be made. According to the Council of Mortgage Lenders, most lenders subscribe on a voluntary basis,68 although the proportion of intermediaries who subscribe is less clear. The European Commission also appears to favour the voluntary approach to regulation of the mortgage market. It considers that at national level consumer protection standards widely meet or exceed the minimal standards of the Consumer Credit Directive. 69 Most Member States have strict consumer pro65
L a w Commission R e p o r t N o 204. Ibid, recommending a n e w land mortgage subject to statutory regulation. Financial Services and M a r k e t s Bill. 68 Mortgages: Response by CML to HM Treasury, Discussion Document at 3. 69 Judith H a r t , Secretary General of the European Mortgage Federation, Annual Report 1999 referring to the 1996 EC Green Paper commissioned by DG XXIV. 66
67
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tection regulation covering mortgage agreements, the UK being one of the few countries with regulation of specialised lending only, supplemented by voluntary codes. The Commission proposed a European-wide voluntary code of conduct for mortgage credit, to be based on the UK Code. Responsibility for drafting the Code was delegated to groups representing mortgage lenders within Europe.70 To date it appears that agreement on the final form has not been reached and discussions between consumer groups and mortgage lenders' representatives have discontinued. In the absence of statutory control of this area of consumer credit, the Ombudsman provides a channel for consumers to raise complaints in connection with their mortgage agreements. The percentage of complaints to the Banking Ombudsman relating to house mortgages rose from 21.85 per cent of total investigations in 1997-8 to 32.74 per cent in 1998-9.71 Investigations relating to terms covering interest and charges rose from 2.56 per cent to 10.52 per cent of complaints during the same period. The Ombudsman's report recognises that the increased use of market rates to calculate penalties on redemption may result in a large end charge. The Ombudsman scheme can be effective in providing a remedy where complaints are made.72 It attempts to address the problems caused by the current "sales culture" within the lending industry by outlining standards of suggested good practice. For example, it recommends that the charge mechanism should be explained in a way understandable to the ordinary borrower, with clear examples of how large the penalty may be and an upper limit on such penalty. Advertisements should be clear, fair and reasonable. The charges and the lender's loss should be linked justifiably and the lender should be sympathetic to borrowers who redeem for non-financial reasons.73 The Ombudsman's attempts to introduce good practice are to be welcomed. However, it is argued the imbalance in bargaining positions and market knowledge of consumer and supplier provides a clear opportunity for exploitation in the market place. It is submitted that the only way to address the problem is through mandatory controls which have statutory force. Introduction of provision of compulsory information for borrowers, cooling-off periods, regulation of advertisements and advice along the lines of the legislation applicable to nonmortgage consumer credit is the only way to effect a culture change within the domestic mortgage industry. Every consumer then gains protection from potential exploitation when entering a mortgage contract, rather than the few who pursue a complaint through the Ombudsman. The Financial Services and Markets Bill currently before Parliament 74 70
European Mortgage Federation represents approximately 8 0 % of mortgage lenders within t h e Community; H a r t , supra n 69. 71 Annual Report of the Banking Ombudsman, 1998-9. 72 "In more extreme cases, the bank agreed to reduce the charge by eighty percent or more. In a few cases, the bank agreed t o waive the charge altogether": ibid, 32. 73 Ibid, 33. 74 House of Lords Committee Stage, 16 M a r c h 2000.
178 John Houghton and Lynne hivesey proposes to introduce a huge body of rules governing the financial services industry. One of its objectives is the protection of the consumer,75 taking into account the degree of risk with the transaction, the sophistication and experience of the parties to it and the need of consumers for advice and information, but requiring consumers to take responsibility for their own decisions. Unfortunately, however, it seems that the Bill will not extend to the regulation of mortgage advice. Lord Taverne has commented: We wholly accept that mortgages should be included in the Bill . . .However, the Government have made something of a dog's breakfast of their approach. First, they have included only first mortgages . . . Secondly, the provisions do not cover advice.76 The proposals include the new compulsory Financial Services Ombudsman with statutory powers for informal and speedy resolution of disputes between consumers and authorised suppliers of financial services. The Ombudsman would have power to adjudicate other types of dispute on a voluntary basis. This appears to be a further tinkering with the existing system, introducing yet another layer of partial control of the lending industry. It does nothing to rationalise and simplify the existing mass of overlapping doctrine, nor will it bring about a change in established practice within the industry which it is suggested is required to ensure consumers are not treated unfairly. It is anticipated that the Financial Services Authority (FSA) will oversee the Ombudsman's role and will have wide delegated powers to put in place additional regulations. This in itself raises the possibility that the FSA will come under the influence and control of the powerful lending institutions. Discussion in the Lords on the Bill highlights their concerns over this: The FSA will be the most powerful institution created in peace time Britain. It is in many respects legislator, prosecutor, judge, jury and executioner. If one begins with that proposition, one must then examine how one can hold such a body accountable for its actions.77 The final point we consider is whether the Human Rights Act 199878 may impact on mortgage lending practice. Under the Act, everyone has "the right to respect for his private and family life, his home and correspondence".79 Public authorities must not interfere with this right except in accordance with the law and when, inter alia, it is necessary in the interests of the economic well-being of the country or for the protection of the rights of others. 80 Further, everyone is entitled to the peaceful enjoyment of his possessions, except in the public interest and subject to conditions provided for by law and the general principles 75 76 77 78 79 80
as. H a n s a r d , H L Debs, 21 February 2000, col 2 6 . Lord Jenkin of R o d i n g , H a n s a r d , H L D e b s , 16 M a r c h 2000, col 1699. D u e t o c o m e into force in O c t o b e r 2000. Art8(l)oftheECHR. Art 8(2).
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of international law.81 In determining his or her civil rights and obligations, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law.82 It is possible that the onerous terms within some mortgage contracts, raising interest rates significantly during the course of the contract, imposing redemption penalties and other charges, may result in default by the borrower, as a result of which the home is repossessed. Potentially, the right to home and possessions may be breached. However, it is unlawful for public authorities to act only in a way that is incompatible with the Act.83 Public authorities include courts, tribunals and persons certain of whose functions are functions of a public nature. Clearly public authority mortgage contracts, such as local authority and housing association secured loans, would be subject to review. We also argue that the actions and determinations of the Ombudsman's office and the FSA may be challenged under Article 6(1) of the Convention, particularly if the UK domestic legislation limits the borrower's right of complaint to the Ombudsman scheme. It is arguable that the FSA will never be seen to be independent of the lending institutions.84 In Bryan v. UK85 the independence and impartiality of a planning inspector adjudicating an inquiry was questioned. It was submitted that the inspector was not an "independent and impartial tribunal" 86 in that his appointment as adjudicator could be revoked by the Secretary of State at any time.87 The decisions of the Ombudsman and bodies set up under powers delegated to the FSA may not be seen to be independent and impartial, if the state or the FSA can influence or control appointments to such bodies. There will be no direct duty on the ordinary non-public authority mortgage lender to act in accordance with the Convention. However, banks and building societies may be caught where they litigate over mortgage conditions or embark on repossession. There is an argument that, as domestic courts must ensure their decisions comply with the Human Rights Act 1998, this will effectively extend its ambit to all cases, including those between private individuals. If the common law must conform to the Act, adjudication of disputes concerning the mortgage contract will be subject to challenge, where the substance or procedure interferes with the rights embodied in the Convention. The Act provides that all UK legislation should comply with its terms. One limiting factor may be that a "margin of appreciation" exists within which the European Court of Human Rights will not interfere with a state's view of its 81
A r t 1 of Protocol 1 (20 M a r c h 1952). Art 6(1). 83 S 6 of the H u m a n Rights Act 1998. 84 Supra n 75. 85 (1996) 21 E H R R 342. 86 Art 6(1). 87 The claim failed because it was held that there was a right of appeal to the High Court from the inspector's decision, which satisfied Art 6(1). 82
180 John Houghton and Lynne Livesey national interest. This "margin" appears to be greater in relation to civil rights and obligations. 88 It is, therefore, doubtful whether the Human Rights Act will impact significantly on protection available to the domestic mortgage consumer, except where property is repossessed and the Act can be enforced indirectly by challenging the fairness of the procedure and substance of UK legislation and common law within the court hearing. It seems likely that the requirements for the lender to serve notice of default89 and the current practice of the court in exercising its discretion in domestic repossession cases will be capable of challenge under the legislation.90
CONCLUSION
The law protecting the consumer of the domestic mortgage is limited, piecemeal and confusing. It is in need of a comprehensive overhaul to rationalise it and provide an easily identifiable remedy for the consumer who has taken out a mortgage on his or her home with unreasonable or hidden charges and high penalty redemption fees. We argue that regulation by a voluntary system will be of arbitrary effect. Those who know their position may be able to challenge the rates and charges and obtain concessions, using the Ombudsman if necessary. However, the borrower who gives up the home voluntarily when in financial difficulty, or who pays an unfair redemption penalty, or who stays in the home paying over the market interest rate, will continue to suffer. Systems providing a culture and expectation of fairness in the mortgage contract, backed up by statute, similar to non-land credit transactions, are required. It is unacceptable that the credit transaction that is likely to involve the greatest cost over the longest time period for the consumer is the only one that is subject to voluntary rather than strict statutory control. Lenders have a legitimate interest in protecting their investment, but they cannot be relied on to act fairly, when under pressure to maximise profits and market share. The current law provides a remedy to borrowers sufficiently commercially aware to know how to challenge the unfair term. However the outcome of such retrospective challenges is by no means certain and relies on flexible interpretation of the common law and the 1999 Regulations.91 It does not provide an independent yardstick of fairness, so that the unwary or commercially unsophisticated may be trapped into signing up to onerous conditions. Legislation is needed to put in place a widespread raising of standards in mortgage lending. 88
National & Provincial Building Society & others v. United Kingdom, (1997), 25 E H R R 127. S 101 of the Law of Property Act 1925, w h e r e m o r t g a g e c o n d i t i o n s exclude obligation t o give notice of default to b o r r o w e r . 90 S 36 of the Administration of Justice Act 1970. See Ropaigealach v. Barclays Bank PLC [1999] 4 All ER 235, in which the borrower's property w a s repossessed w i t h o u t the bank first obtaining a possession order. 91 Unfair T e r m s in C o n s u m e r Contracts Regs, SI 1999 N o 2083. 89
11 Consenting away Proprietary Rights: Mortgagees and Co-owners: Subordination or Subrogation? MARTIN DIXON
T is APPARENT that the circumstances in which a legal or equitable owner of real property can defeat or defer a mortgagee's right to possession following default are relatively narrow. A court's power to act under the Administration of Justice Act 1970 section 36 is limited1 and, in any event, a successful application merely postpones the day of reckoning once it is clear that the mortgagee's rights are paramount. 2 Likewise, the confinement of William & Glyn's Bank v. Boland3 by City of London BS v. Flegg4 and Abbey National BS v. Canns is unlikely to be challenged judicially.6 Not surprisingly therefore, legal and beneficial owners facing repossession have sought other paths to protection, one of which is the simple assertion that they had not consented to the creation of the mortgage or the alleged priority of the mortgagee's interest over their own. In the normal case, a lender agreeing to advance money by way of mortgage will endeavour to ensure that all persons having an interest in the property either execute the charge as joint mortgagors or sign a consent form postponing such interest as they may have to the mortgagee. The completion of these consent forms is now standard practice where there is a sole legal owner of shared residential property and are common even in cases where overreaching is available
I
1 Ropaigealach v. Barclays Bank pic [1999] 2 WLR 17; M Dixon, "The Mortgagor in Chains" (1998)18 LS 279. 2 Note also the remote possibility of claiming protection under the Human Rights Act 1998, particularly Art 8 of the European Convention and Protocol 1. See Albany Homes v. Massey [1997] 2 All ER 609 and Birmingham Midshires Mortgage Services v. Sabherwal (Sudesh), Court of Appeal Transcript, 17 December 1999. 3 [1981] AC 487. 4 [1988] AC 73. 5 [1991] 1 AC 56. 6 See State Bank of India v. Sood [1997] Ch 276. The argument that the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA) inadvertently has overturned the effect of Flegg in respect of some dispositions of registered land (G Ferris and G Battersby, "The Impact of the Trusts of Land and Appointment of Trustees Act 1996 on Purchasers of Registered Land" [1998] Conv 168) has not been well received judicially: see M. Dixon [2000] Conv 267.
182 Martin Dixon because there are two trustees of land. 7 Despite Waite LJ's obiter dictum in Woolwich BS v. Dickman8 that in registered land such consent forms are not effective unless they are entered on the Register, this procedure is regarded rightly as a convenient and safe way to avoid any Boland-type problem.9 Indeed, in Gracegrove Estates v. Boatengw the defendant had given express consent to the mortgagee, who was then able to sell to Gracegrove with vacant possession under its power of sale.11 Of course, it will remain open to the consentor to claim that the apparent consent is vitiated by some extraneous factor, such as the undue influence/misrepresentation of the (other) mortgagor or a lack of prescribed form,12 but failing this the equitable owner's consent can provide an effective security blanket for the nervous mortgagee. In recent years, however, a particular problem has arisen in the context of what has been called "subordination of the equity".13 Equity & Law Home Loans v. Prestidge provides an example of the problem.14 A sole trustee holds legal title to land on the normal trusts for co-owners in equity and the property is charged by way of mortgage.15 Usually, this is the mortgage necessary to purchase the property and the equitable co-owner has given valid consent postponing her interest to the charge.16 At a later date, the legal owner re-mortgages the property without the express consent or knowledge of the equitable co-owner and redeems the original mortgage. This may be due to a genuine desire to obtain a better mortgage package,17 but often it is in order to generate extra funds for other purposes, either related to the property or not. 18 Clearly, over7 E.g., Birmingham Midshires, supra n 2, where the two legal owners' wives and mother signed consent forms. 8 [1996] 3 All ER 204. 9 Note that the Registry will not accept consent forms for registration. Dickman undercuts the value of mortgagees' securities taken in reliance on their effectiveness and, in fact, reveals a misunderstanding of s 70(l)(g). The effect of consent is that the claimant's rights no longer subsist in reference to the land viz-a-viz the mortgagee so cannot bind it irrespective of principles of land registration. The Law Commission proposes that Dickman should be "overruled": Land Registration for the Twenty-First Century (1998), Report No 254. 10 Court of Appeal Transcript, 20 June 1997, CCRTF 96/1414/H, noted at [1997] EGCS 103. 1 ' This also implies that the mortgagee could have assigned the benefit of the consent on transfer of the mortgage: e.g., should it sell or securitise its mortgages. 12 As in Dickman where the proper form of consent as required by the Rent Acts had not been obtained, supra n 8 and see Rent Act (RA) 1977 s 98(1). 13 See counsel's argument in Cann, supra n 5, at 63. 14 [1992] 1 WLR 137. 15 In fact, in Prestidge it is suggested that Mr Prestidge has no equitable interest at all (he later disclaimed such) and hence was a bare trustee for Mrs Brown. For present purposes, nothing turns on this. 16 Of course, if this is a purchase mortgage, following Cann it is very unlikely that an equitable owner will have priority to the "purchase-mortgagee" and consent will be irrelevant. 17 The author was unable to find any cases where a re-mortgage by a sole legal owner for the purpose of securing a better rate of interest on the same capital debt has led to the difficulties discussed below. 18 In Prestidge the legal owner pocketed the surplus; in Locabail (UK) Ltd v. Waldorf Investment Corporation, transcript, 9 March 1999, CH 1997/L/4909 and the related Locabail (UK) Ltd v. Bayfield Properties Ltd, transcript, 9 March 1999, CH 1998 /L/2330, the monies were used to finance
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reaching is not available to the "re-mortgagee" and the equitable owner appears to be a person with a proprietary interest in actual occupation of the land at the relevant time so as to claim an overriding interest under Boland.19 The solution provided by Prestidge, followed in Abbey National Mortgages pic v. Mostaga Salehi-Rad and Locabail (UK) Ltd v. Bayfield Properties Ltd,20 is to find that the equitable owner has "consented" to the re-mortgage up to the amount secured by the original mortgage on no less favourable terms. Consequently, the remortgagee may enforce the charge to the value originally secured and, it seems, need not rely on an application under section 14 of TOLATA. 21 This principle of subordination has been the subject of academic criticism,22 in particular that the imputation of consent in favour of the re-mortgagee is misplaced as a matter of principle, especially when the effect is to override the scheme of the 1925 property legislation in circumstances where the re-mortgagee could have ensured the priority of its charge by taking simple precautions: for example, by extracting a new express consent or insisting that money be paid to two trustees. In addition, there has been judicial and academic comment that the law of subrogation provides a firmer ground for finding in favour of the re-mortgagee. So, in Castle Phillips Finance v. Piddington23 Peter Gibson LJ, while disavowing any intent to cast doubt on Prestidge, preferred the Butler v. Rice24 line of authority that would subrogate the re-mortgage to the security that had been discharged and secure its priority. A similar approach was taken by the majority in Roberts v. National Guardian Mortgage Corporation25 and was assumed in Penn v. Bristol & West Building Society26 and Zwebner (Rita) v. Mortgage Corporation Ltd.27 In the Birmingham Midshires case, Robert Walker LJ favoured a subrogation-restitution approach,28 although recently in Locabail v. Bayfield, Lawrence Collins QC preferred Prestidge and subordination. the legal owner's business. In Abbey National Mortgages pic v. Mostaga Salehi-Rad, 18 December 1998, 98/NJ/1835 the reasons for the re-mortgage are not disclosed.
transcript,
19 T h e same apparent result arises in unregistered land if the re-mortgagee has notice of the rights of the equitable owner. 20 Supra n 18. In Waldorf, supra n 18, the judge held that there was a triable issue as t o the extent of the equitable owner's consent to the original mortgage. In the result, the mortgagee succeeded on other grounds. 21 T h a t is, the re-mortgagee may exercise its right of possession rather than be forced to apply for sale under s 14 of T O L A T A as a person interested w h o has no priority: Waldorf, supra n 18. 22 M P T h o m p s o n , [1992] Conv 206; M Dixon [1992] CLJ 223; RJ Smith (1992) 108 LQR 371. 23 [1995] 1 FLR 783. 24 [1910] 2 Ch 277. 25 Court of Appeal, 8 November 1993, Lexis transcript, per Dillon and Nolan LJJ. Roch LJ appears t o have decided that the attempted re-mortgage created an equitable mortgage ranking ahead of the Roberts' interest. 26 16 April 1997, Court of Appeal transcript, CHANF/95/1608/B. 27 18 J u n e 1998, Court of Appeal transcript CHANF/97/0527 C M S 3 . See also Bankers Trust v. Namdar, 14 February 1997, Court of Appeal transcript CHANF/95/1255B (noted at [1997] EGCS 20) where subrogation was pleaded but failed for other reasons: see infra text following n 62. 28 Supra n. 2, obiter and acknowledging the absence of argument. For subrogation-restitution see Boscawen v. Bajwa [1996] 1 W L R 328 and Banque Financiere de la Cite v. Pare (Battersea) Ltd [1999] 1 AC 221 a n d text following n.57.
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Academically, Roger Smith advanced the subrogation solution when commenting on Prestidge.29 Clearly, then, there is an issue here. Although successful reliance on either subordination or subrogation will lead to the re-mortgagee having priority over the interest of the mortgagor/equitable owner, there is no certainty about when either may be appropriate, whether they are in fact different and, if they are, whether they lead to different consequences.
SUBORDINATION OF THE EQUITY
Consenting to the original mortgage It is taken for granted that before any question of subordination can arise it must be demonstrated that the equitable owner has consented to the original mortgage. In this respect, it may be significant that all of the cases employing the Prestidge approach concern original mortgages granted to a sole legal owner where the equitable owner's "consent" is not such that he or she becomes a joint mortgagor or surety, but rather is a waiver of priority without the assumption of mortgage liabilities. This should be contrasted with those cases employing the subrogation approach where all but one concern a claimant seeking to escape a re-mortgage despite having undertaken liability as joint or sole mortgagor under the original mortgage.30 Secondly, given that the equitable owner in Prestidge-type cases is not dis- • posing of, or even charging, her share of the equity, it seems that the original consent may take any form and is not caught by the Law of Property (Miscellaneous Provisions) Act 1989 section 2. It may be in the form of a "deed of consent" or be found in unattested writing or be given orally. Importantly, the original consent may arise by implication from the circumstances surrounding the execution of the original mortgage. This has led to a certain amount of hesitation over the Prestidge principles. In Bristol & West BS v. Henning,31 on which much of the reasoning of Prestidge is based, the court appeared to impute to the equitable owner an intention to acquire a beneficial interest in the home subject to the original mortgage. This would be difficult to justify in the light of Lord Diplock's affirmation in Gissing v. Gissing that a court is not entitled to impute an intention based on 29 Supra n 22. T h o m p s o n , supra n 22, also discussed the possibility, although considered that Prestidge could not be justified on a subrogation basis because of the absence of the then required " m u t u a l intention". See also C H a r p u m , Megarry & Wade, on The Law of Real Property (6th edn, L o n d o n , Sweet & M a x w e l l , 2000) 558. 30 See the cases cited supra at text accompanying n 23. T h e relevance of this is explored more fully infra, see text following n 75. T h e exception is Chetwynd v. Allen [1899] 1 Ch 353 where the report suggests that M r s C h e t w y n d consented to a mortgage (executed by outright conveyance) without undertaking the liabilities of mortgagor. 31 [1985] 1 W L R 778.
Consenting away Proprietary Rights 185 what the parties "would have formed as reasonable persons if they had actually thought about it at the time". 32 Yet, although Browne-Wilkinson LJ in Henning does talk of finding "express or imputed intentions as to [Mrs Henning's] beneficial interest",33 he goes on to find that it is "impossible to impute to them any common intention other than that she authorised Mr Henning to raise the money by mortgage to the society".34 In other words, the imputed intention is not as to ownership but comprises an authority for the legal owner to act by raising money on the security of the property. This is not equivalent to the impermissible imputation of acquisitive intention.35 Consequently, the fact that the consent to the original mortgage is "imputed" does not per se invalidate the Prestidge argument that such consent can be effective in favour of a remortgagee. Thirdly, however, the more pertinent point is that the cases contain no compelling argument why the subordination of the equity should be at all dependant on the form or manner of the consent to the original mortgage. This means that Prestidge could be authority for a general proposition that consent to a first mortgage—however given—is automatically effective for the benefit of a remortgagee: for example, would the court have denied Equity & Law its priority if Mrs Brown had actually signed a consent form for the first mortgage? Alternatively, Prestidge could be of more limited effect: that is, that subordination of the equity to a re-mortgagee can arise if the equitable owner has consented (in whatever form) to the original mortgage, provided that there is nothing in the circumstances of the re-mortgage that allows the equitable owner to challenge the priority.
The nature of the original consent
Before examining the crucial question of when, if at all, consent to the original mortgage can generate an effective consent to a re-mortgage, it is important to consider briefly the limits of the original consent. This is because the scope of the original consent may be thought to determine the extent of the re-mortgagee's remedies against the equitable owner, assuming that such consent has not been varied on the occasion of the re-mortgage. (i) Authorising the legal owner.36 As indicated above, in Henning the original (imputed) consent was that the legal owner might act on behalf of the equitable 32 [1971] AC 886 at 904, and see also Lord Bridge in Lloyds Bank v. Rosset [1991] 1 A C 107 a t 132-133.
33 34
S«pran31,at782E.
Ibid, at782F-G. 35 T h e point is also made by Smith, supra n 22, and see Midland Bank v. Cooke [1995] 4 All E R 562 where the imputation of intention as t o q u a n t u m of beneficial ownership was permissible, even if imputation as t o acquisition was not. 36 T h e analysis below assumes that the equitable owner's authority is needed before the original mortgagee can take priority. Under T O L A T A s 6, a trustee has all the powers of an absolute o w n e r
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owner in securing a mortgage on the property. However, if the original "consent" takes this form, it may well extend to the raising of more money than is needed for the initial purchase unless the equitable owner can establish a clear limitation on the authority granted. For example, in Cann the mother clearly authorised the son to execute a mortgage and it was held that, at least in respect of the original mortgagee, this extended to raising a sum larger than was necessary to fund the difference between the selling and purchase prices of the respective properties. Consequently, if such a consent is operative in favour of a re-mortgagee without variation, the equitable owner may find herself subject to a re-mortgage for an amount greater than that secured by the original charge. Yet this was not the conclusion reached in Prestidge, Bayfield or Saiehi-Rad where the equitable owner's consent was operative only for the sums originally secured and on no less favourable terms. Saving a judicial reluctance to follow through the logic, the reasons for this circumspection are not articulated.37 (ii) Waiving priority A more straightforward analysis is that the consent to the original mortgage is in substance a simple waiver of priority in favour of the mortgagee. Again, as discussed above, the form in which the waiver is given is not relevant and difficulties associated with discerning the limits placed on the legal owner's authority are avoided. Thus, the "waiver of priority" analysis ensures that the consent extends only to the amount secured by the original mortgage, as was the result in Prestidge, Bayfield and Salehi-Rad. It follows, however, that Henning—which it has been suggested above is based on an "authority to act" approach—is not a precedent for Prestidge.3* Indeed, Mustill LJ in Prestidge is concerned to know "what intention must be imputed to the parties as regards the position which would exist if the mortgage which had been obtained to enable the purchase of the house, and which the parties intended to have priority over the second defendant's beneficial interest, should be replaced by another mortgage on no less favourable terms". 39
and it could be that any mortgage by a trustee carries with it the power to cast away the equitable o w n e r ' s priority. Of course, such a result would be to dismantle Boland, a point noted by T h o m p s o n , supra n 22, at 210. It seems unlikely that T O L A T A s 6 was intended to confer absolute dispositive p o w e r over the equitable interests of beneficiaries. 37 Perhaps the original consent in Prestidge et al manifestly was not an "authority to act"; or such authority was limited (unlike Cann); or such authority was varied on the occasion of the remortgage. 38 In Prestidge, the " a u t h o r i t y " argument is not raised. Note, however, that Peter Gibson LJ in Castle Phillips suggests that Prestidge can be explained on the basis of an authority given by one domestic partner to another: supra n 23, at 794B. 39 [1992] 1 W L R 137 at 143G, emphasis added.
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Why can the re-mortgagee rely on consent? The essence of the above analysis is that: (i) the form in which an equitable owner's consent to the original mortgage is given is immaterial in determining whether the consent can be operative for the advantage of a re-mortgagee; but (ii) the scope the original consent could be important in determining the consequences for a re-mortgagee if it is able to rely on that consent. How then is the re-mortgagee able to take advantage of the equitable owner's consent when that owner had no knowledge of the re-mortgage? (i) Is the re-mortgagee a bona fide purchaser without notice taking free of an equitable interest? One question arising from Prestidge is whether the re-mortgagee is a bona fide purchaser for value of a legal estate without notice.40 Although this may be a possibility in unregistered conveyancing, obviously it is of no avail in registered land where notice is immaterial. In fact, as Mustill LJ in Prestidge surmises, the answer is simpler. The re-mortgagee in such cases is not attempting to "override the equity" of the beneficial owner: rather, the re-mortgagee claims that the equitable owner has given an inter partes consent that her earlier right will not take priority. If the re-mortgagee could "override the equity", consent would not be needed. The consequence of this, however, is that //the reason why the re-mortgagee is entitled to rely on consent is that the benefit of the original consent has been "transferred" in some way, then the actions or omissions of the remortgagee in dealing with the equitable owner are irrelevant. On such an analysis, the re-mortgagee is not relying on its own conduct, but on the benefit of a consent that it now claims to enjoy. It is only if the re-mortgagee has so conducted itself as to raise an estoppel or constructive trust that it would be prevented from relying on the original, transferred consent and it is unlikely that mere knowledge of the existence of a person with a potentially adverse claim is sufficient to support such a plea. By way of contrast, if the re-mortgagee is not taking a "transfer" of the original consent, but is "deemed" to have the benefit of a new consent in its favour, then it is argued below that its conduct is very relevant in determining whether such a "deeming" can take place.41 (ii) Does the re-mortgagee benefit from "transferred consent"? Although the author is not aware of any case where the following analysis is made explicit, it is possible that a re-mortgagee takes priority on the ground that the benefit of the consent given to the original mortgagee has been transferred 40 Mustil! LJ considered whether the re-mortgagee, knowing of the presence of the equitable owner, was not without notice: ibid, 144. 41 See infra text accompanying n 45.
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to it. This transfer could occur either because the benefit of the consent has been assigned on the occasion of the re-mortgage or, more powerfully, because the consent is akin to a proprietary benefit in the land that passes with the conveyance of an estate to the re-mortgagee.42 Clearly, however, there are difficulties with this approach. First, this would provide an acceptable analysis of the Prestidge cases if there had been an assignment of the original mortgage to the re-mortgagee.43 Yet, in all the cases, the old mortgage is discharged and a new security executed by the legal owner in favour of the re-mortgagee. Even if we agree with Mustill LJ in Prestidge that there is no scintilla temporis between discharge of the original mortgage and its replacement,44 there simply is no transfer of the earlier interest to the re-mortgagee. Likewise, although it is possible, it seems unlikely that the benefit of the consent passes first to the legal owner/mortgagor, who then re-assigns it with the new mortgage to the new lender. In short, although these cases can be analysed on the basis that the consent generates a proprietary benefit in favour of the original mortgagee, that then passes with an estate in the land to the re-mortgagee (either directly on assignment or via the legal owner), the case law has no hint of this. Secondly, even if we could adopt this analysis on the facts, it is arguable that it would apply only where there was a mutual intention between legal owner and re-mortgagee that the old mortgage be redeemed. As explained below, if the new lender turns out to be a re-mortgagee because the legal owner has redeemed the prior mortgage without the re-mortgagee's knowledge, there is no justification for allowing a transfer of consent to be effective. Consequently, if a "transferred consent" analysis of Prestidge is preferred (and factually possible), the intentions of the re-mortgagee (i.e., to be a re-mortgagee) are relevant in determining whether the consent is effective to secure its priority. (Hi) Is there a new deemed consent in favour of the re-mortgagee? It has been argued above that the fact that the court is able to impute a consent to the original mortgage does not explain why the court should be able to find an intention to consent to the re-mortgage. Likewise, it seems that a transferred consent analysis does not work, even though it has the advantage (from the equitable owner's view) of requiring an examination of the lender's intentions. In fact, the true basis of Prestidge is made clear by Lawrence Collins QC in Waldorf: The decision in Prestidge is authority for the principle that a person who consents to a mortgage on the property is deemed to consent to a subsequent mortgage which 42 C o m p a r e a similar argument that estoppels are transmissible rights in land prior t o the crystallisation of the equity by a court. 43 Absent a separate express assignment of the benefit of the consent, it might pass under LPA 1925 s 62. 44 Supra n 14, at 144D, following (without citing) Cann.
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replaces the earlier mortgage (even if the later mortgage is obtained without consent) to the extent of the amount (plus accrued interest) secured by the first mortgage.45 So, the court can "deem" consent in favour of the re-mortgagee, irrespective of how the consent to the original mortgage was given. Unfortunately, there is nothing in Prestidge or the cases following to explain why or when this consent can be "deemed", save reliance on Henning and the belief that any other outcome would result in a windfall for the equitable owner. It has been argued already that reliance on Henning is misplaced and the "windfall" might be thought to be a consequence rather than a reason. Further, it is quite likely that it is precisely this absence of analysis, plus the possibility of a windfall, that has led to consideration of whether the subordination cases really should be analysed on a subrogation-restitution basis. However, as indicated above, all but one of the subrogation cases have concerned subrogating the rights of an existing (co-)mortgagor to a re-mortgagee, not a "mere" equitable owner, and it remains to be seen whether a subrogation-restitution analysis is appropriate for the latter. It is necessary, therefore, to consider just what might justify a "deeming" of consent and what consequences this could have for the equitable owner. The acquisition argument Putting aside objections based on the legitimacy of imputing intentions, it is clear why a court finds it appropriate to deem consent to a mortgage required for the purchase of property. The fact that the equitable owner would have no property out of which to claim an interest is reason enough and it is clear that this motivates the decision in both Henning and Paddington BS v. Mendelsohn.46 However, the fact that the property could not have been bought without the original mortgage does not mean that the equitable owner should be deemed to have consented to a re-mortgage that is not necessary to retain it. While it can be argued that the original mortgage is a sine qua non of the equitable owner's interest, the re-mortgage is not. Thus, an unknowing equitable owner does not lose the priority of her interest through deemed consent to a second mortgagee (Boland) even though such a mortgage may well be necessary if the property is to retain its value or its suitability as a dwelling (e.g., funds for roof repairs). In this sense, the re-mortgagee should have no greater claim as the re-mortgage is not essential to the acquisition or maintenance of the equitable owner's interest. As much has been recognised judicially by Peter Gibson LJ in Castle Phillips when holding that it would be inappropriate "to extend the ratio of the Equity and Law case to quite different circumstances of the raising of new money, not to replace an existing mortgage, but for a different purpose, in this case the roofing loan account". 47 45 46 47
Supra n 18. 50 (1985) P & CR 244. Supra n 23, at 794C.
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Dixon The "windfall" argument
A contest about the priority of interests in land always produces winners and losers. If the court does not deem consent to the re-mortgage, then the equitable owner wins. Yet, is this really a windfall? It is not as if the equitable owner has been gifted a share in land that he or she did not otherwise have. If there is a "windfall", it is that the equitable owner is now able to assert an existing right against a purchaser about whose existence he or she is are ignorant.48 Consequently, before deeming consent, it may be thought appropriate to examine more closely which of the contesting parties gains most by deeming or denying the consent. So, we may ask why the re-mortgagee should be able to take the "windfall" of increased security. After all, a re-mortgagee not gaining priority remains vested of a legal mortgage as well as an equitable mortgage over the beneficial share of the other co-owner.49 That mortgagee can apply under section 14 of TOLATA for an order for sale with vacant possession.50 Granted, the re-mortgagee may not be able to recover the total sum lent and may have to wait until the equitable owner is ready to sell, but it is quite likely that there will be some balance after first paying the equitable owner (e.g., 50 per cent of the sale price). Even then, the re-mortgagee has a personal remedy against the mortgagor and possibly the benefit of mortgage guarantee insurance. Again, if the remortgagee is given priority, it is more likely that there will be nothing (or very little) left for the equitable owner—because the consent is deemed to the value of the entire original mortgage. So, not deeming consent may well provide a more balanced financial outcome, especially if both re-mortgagee and equitable owner are innocent dupes of the mortgagor. Indeed, it may be thought that the scales should tip farther against the re-mortgagee if it ignored the opportunity to secure the priority it now claims. The policy argument Although not articulated, there is a general theme running through the cases since Boland: the need to protect mortgagees from "undeserving" claimants because of the importance of institutional lending to the housing market. Of course, there is something in this. The security of mortgages should not be undercut in favour of borrowers exploiting loopholes in the law, especially if the mortgagee has had no opportunity of protecting itself. If the law takes that path, lending will become scarcer and more expensive. Hence, Dickman is rightly crit48
In Foskett v. McKeown, 18 May 2000, Lord Browne-Wilkinson in a different context was not prepared to act against windfalls "enjoyed because of the rights which [the plaintiffs] enjoy under the law of property". Similarly, is it really a windfall to be able to exercise existing rights protected under statute (the LRA 1925) because the other party has failed to use the same statute to disapply those rights? A9 As in Namdar, supra n 27. 50 Ibid. See also Bank ofBaroda v. Dhillon [1998] 1 FLR 324.
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icised and the Law Commission is proposing to restrict LRA section 70 (l)(g) to interests apparent on inspection of the land.51 However, none of these considerations apply in Prestidge type cases. The mortgagee is not helpless: it can inspect the land; it can seek express consent; it can refuse to re-mortgage unless there are two trustees; it can even take an express assignment from the original mortgagee. Moreover, some of these options are available even if—unlike in Prestidge itself—the mortgagee is not aware of a potential co-owner. Undoubtedly it is more efficient—i.e. cheaper—for a re-mortgagee not to do these things—especially in an age of telephone and internet mortgages—but that is a risk it takes and for which it should bear the consequences. The finding of deemed consent serves only to pass the consequences of this risk to the equitable owner. In addition, there are policy factors tending towards a denial of deemed consent. We may think that it is no business of the courts to provide a lifeboat for mortgagees with sloppy lending practices, especially at a cost to unknowing equitable owners. Is it not desirable to uphold the integrity of the trusts of land regime and the principles of the Land Registration Act by forcing mortgagees to adapt their practices to fit in with the legislation? The "no worse off" argument Another reason it might be thought permissible to deem consent in favour of the re-mortgagee is the argument that the equitable owner is no worse off as a result. Indeed, although it may not be justified as a matter of logic,52 it is an article of faith that the equitable owner's consent is effective only up to the value of the original mortgage and on no less favourable terms. To some extent, of course, this is the counterpart to the windfall argument: if the equitable owner is no worse off, any other result would give her a windfall. Surprisingly, however, the cases contain very little analysis and it is simply assumed that the equitable owner is no worse off as a result of the re-mortgage. Certainly, before the property was re-mortgaged, the equitable owner's interest ranked behind that of a mortgagee who had first call on any funds arising on sale. Also, there is no doubt that the court can so structure its order that the terms of the re-mortgage correspond to those of the original mortgage. This must necessarily involve not only fixing the rate of interest but also the incidental terms, such as whether the mortgagee's consent is required for leasing, whether there are redemption penalties and whether there are compulsory insurances. What is more difficult is the matter of the identity of the lender. It may well be that the equitable owner was perfectly content to consent away her priority in favour of Friendly Bank—an institution renowned for its sympathetic attitude to the occasional missed repayment and, being run as a mutual, with bonus schemes for its members. What, however, if Friendly Bank has been replaced as mortgagee by 51
Land Registration for the Twenty-First Century (1998), Report N o . 254. See supra text accompanying n 36 that an "authority to act" might not be limited to sums originally borrowed. 52
192 Martin Dixon Commercial Profit Bank pic which is able to offer a lower rate of interest because of its very efficient debt recovery department? In other words, a consent given to lender X does not imply that the equitable owner would have been happy (i.e., can be deemed) to give consent to lender Y even if the legal framework of the remortgage is identical. There is more to being "no worse off" than the terms of the contract. Admittedly, this assumes a degree of interest and involvement in the original mortgage on the part of the equitable owner, but it does suggest that a court cannot be safe in applying the "no worse off argument" without enquiring into the circumstances surrounding both the original mortgage and its replacement. (iv) The accidental re-mortgagee Irrespective of whether the true basis of the Prestidge cases is "transferred consent" or, as this author argues, a "new deemed consent", there is no justification for launching the lifeboat to save a drowning "accidental re-mortgagee". If the re-mortgagee believed that it was providing an additional loan to be secured by a second security, but takes no steps to obtain priority over the equitable owner, it is submitted that the re-mortgagee should not be able to rely on subordination of the equity simply because the sole legal owner then chose (contrary to the intentions of the parties) to pay off the original mortgage instead of executing a second charge. In such cases, it is difficult to see why the re-mortgagee should be in any better position than the bank in Boland. The accidental re-mortgagee (but intended second mortgagee) failed to take those steps which it could have taken to defeat the equitable owner and should not be able to benefit from the happy chance that the legal owner's misuse of the monies gives it an unexpected priority. In fact, none of the Prestidge cases have gone this far as all involve loans where the common purpose of re-mortgagee and mortgagor was the discharge of an earlier mortgage. The above analysis has sought to establish that the reasons for the Prestidge approach to determining the priority of re-mortgagees as against equitable owners have not been articulated fully and depend on some unsafe assumptions. The Henning analysis supports the imputation of consent in respect of purchase mortgages, but does not explain why such consent should be deemed in respect of re-mortgages. The possibility that the original consent has been transferred in some way does not bear close scrutiny. The reasons for deeming consent found in the cases are valid in part, but are not fully explored and hence the counter-arguments are not considered. Consequently, it is not enough to regard the simple fact that consent was given to the original mortgage as a justification ' for finding consent to the re-mortgage. What is required is an assessment of the circumstances surrounding the re-mortgage including an analysis of the equitable owner's involvement in it and the actions of the re-mortgagee. Secondly, whatever view is taken on how the court is to determine whether the remortgagee may rely on consent, if the intention of the "re-mortgagee" was that
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it was to get a second charge, then it should not be able to rely on any notion of consent if the legal owner then chooses to redeem the first mortgage. In such cases, the new lender should get what it bargained for: a second charge that lacks priority unless specific efforts have been made to secure it (Boland).
SUBROGATION
The absence of a thorough explanation of subordination may have contributed to the argument that there is another, perhaps more solid, basis for these decisions. In Roberts v. National Guardian Mortgage Corporation and Bankers Trust v. Namdar, the court is concerned only with subrogation, and in Castle Phillips Peter Gibson LJ adopts the same approach, while also recognising the validity oiPrestidge on its own terms. In Birmingham Midshires, Robert Walker LJ acknowledges the possibility of a dual approach, while in Bayfield Lawrence Collins QC rejects subrogation on the facts, but goes on to decide in favour of the re-mortgagee on the basis of subordination.53 Necessarily, such duality raises the question whether subrogation (or indeed subordination) affords a sufficient justification for all these cases, irrespective of whether the co-owner is also a mortgagor, or whether there is a real difference between the two approaches that might have practical consequences for the co-owner.
The fundamentals of subrogation-restitution In Castle Phillips, Peter Gibson LJ expresses surprise that the Butler v. Rice line of authority was not utilised in Prestidge. The Butler cases were thought to stand for the principle that "where a third party pays off a mortgage he is presumed, unless the contrary appears, to intend that the mortgage shall be kept alive for his own benefit".54 Consequently, if the re-mortgagee fails to obtain any security (e.g., because the re-mortgage is not executed55) or only a partially effective security (e.g., because a joint legal owner does not execute the mortgage56), it can be subrogated to the discharged mortgagee and utilise its priority. While it was unclear whether the re-mortgagee had to prove an intention to "keep alive" the discharged mortgage in order to be successful, a definite intention to become an unsecured creditor would prevent subrogation from arising.57 53 In Waldorf, supra n 18, the parties accepted that subrogation raised issues not suitable for determination under the RSC, O r d e r 14 process. 54 Per Lord Jenkins in Ghana Commercial Bank v. Chandiram [1960] AC 732 at 745. ss As in Butler v. Rice (legal owner unaware of the re-mortgage and refusing to execute the new charge), supra n 24. 55 In Roberts, supra n 25, and Bowers v. Bowers (Hoffmann J, unreported, 3 February 1987, cited in Namdar) the signature of the joint legal owner was forged. 57 Re Cleadon Trust Ltd [1939] 1 Ch 286; Paul v. Speirway Ltd [1976] Ch 220.
194 Martin Dixon Now, of course, the language and landscape of subrogation have changed. Following Boscawen v. Bajwa and Banque Financiere de la Cite v. Fare (Battersea) Ltd, subrogation is properly to be regarded as a tool to reverse unjust enrichment. So, if a re-mortgagee is to benefit from subrogation, it must establish that the defendant (the person contesting the priority) has been enriched at the re-mortgagee's expense, that this is unjust and that there are no policy reasons for denying a remedy.58 So, in Boscawen, a lender providing money for the purchase of land under a failed mortgage was subrogated to the vendor's mortgage that had been discharged with the money.59 In Banque Financiere, a lender was subrogated to a discharged mortgage when it advanced funds on the basis that it was to have priority and those assurances turned out to be invalid. Obviously, these cases differ factually from the problems raised by the Prestidge and Castle Phillips cases, but given that the reversal of unjust enrichment is the raison d'etre for this type of subrogation, and that subrogation has been considered an alternative remedy in both types of case, we should be able to explain the two lines of authority using the Banque Financiere formula.
Re-mortgages and subrogation: the unknowing mortgagor and the re-mortgagee As stated above, all but one of the re-mortgage cases so far decided on a subrogation basis have involved an unknowing legal owner/existing mortgagor being subrogated to the re-mortgagee.60 The re-mortgage has been attempted by the partner of the unknowing mortgagor and without subrogation the re-mortgagee either would have no security at all61 (because the partner had no legal estate) or one with only partial priority62 (over the interest of the partner). Consequently, the effect of the subrogation is that the unknowing mortgagor may now owe mortgage obligations to the re-mortgagee as well as suffering a continued loss of priority. Applying the Banque Financiere subrogation-restitution analysis to these Castle Phillips type cases is relatively straightforward. First, it is apparent that the mortgagor pleading lack of consent could be enriched at the re-mortgagee's expense: not only would her interest be free when previously encumbered, but she would escape mortgage liabilities through a happenstance. In essence, her liability would be discharged. In order to show that this was "at the re58
Banque Financiere, supra n 28, at 2 3 4 C - D per Lord Hoffmann. In Parkash v. Irani Finance [1970] C h 101 a similar argument failed o n t h e ground that the lender could n o t p r o v e t h a t its money h a d paid off the vendor's mortgage. Although Parkash was not cited in Boscawen, it seems that, ceteris paribus, the former could n o w be decided differently. 60 N o successful case has involved the subrogation of a p u r e equitable owner: they are considered as s u b o r d i n a t i o n cases. Conversely, the author has found n o cases where a re-mortgagee takes priority over a mortgagor proper under subordination. 61 E.g., Butler v. Rice, supra n 24. 62 See t h e cases cited accompanying n 23 supra. 59
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mortgagee's expense", the cases suggest that it is necessary to trace the remortgagee's money into the hands of the original mortgagee. So, in Parkash v. Irani Finance a lender was denied subrogation in similar circumstances to those of the successful claim in Boscawen because Plowman J could not conclude that the lender's money had been used to pay off the prior charge. In Namdar, Bankers Trust provided a guarantee for the payment of funds by another bank (Bank X) to Mr Namdar. Mr Namdar used Bank X's funds to pay off an earlier Bankers Trust mortgage. When the guarantee was called in, Bankers Trust claimed to be subrogated to its own earlier charge on the basis that the provision of the guarantee had released Bank X's funds and enabled the earlier mortgage to be discharged. The Court of Appeal rejected this on the ground that it was Bank X's money which had paid off the mortgage and it was not relevant that Bank X was willing to provide the funds only because of Bankers Trust's guarantee.63 So, although it has been argued that a rigid application of tracing rules may be inappropriate in subrogation cases,64 if the essence is a reversal of unjust enrichment in favour of the party prejudiced, it is clear that there must be some causal connection between the payer and the enriched. Of course, in most re-mortgage cases there will be little doubt that the re-mortgagee's money has been used to discharge the earlier encumbrance. Secondly, it is clear that the enrichment of the unknowing mortgagor may be regarded as unjust. Mitchell suggests that the "unjust factor" can be found in a variety of circumstances.65 In the majority cases, it will be that the new lender makes a payment under mistake66: a mistake as to the priority of its re-mortgage over the interests of the unknowing mortgagor and a mistake as to the persons responsible for mortgage obligations.67 It matters not that the enriched party did nothing to encourage the mistake because subrogation is a tool for reversing unjust enrichment: it is for restitution not the allocation of responsibility. Importantly, this means that a lender who intends to take a second mortgage (or no mortgage at all)—rather than to discharge the original mortgage—cannot plead mistake if the borrower does then use the money to pay off a prior loan. In this way, the intentions of the re-mortgagee are relevant in subrogation cases.68 Thirdly, following Banque Financiere, the fact that the re-mortgagee is careless or omits to take those steps it could have taken to protect its security (e.g., 63 T h e refinancing of M r N a m d a r ' s businesses w a s more than a matter of form. Bankers Trust was able to remove a liability from its balance sheet (the original mortgage) and replace it with a contingent liability (the guarantee). 64 C Mitchell, The Law of Subrogation (Oxford, Clarendon Press, 1994) at 39-40. 65 Ibid, 12-14. 66 Whether of fact or law is n o w immaterial: Kleinwort Benson Ltd v. Glasgow City Council [1999] 1 A C 153. 67 Mitchell, supra n 64, at 144. T h e author agrees with Mitchell that even though a re-mortgagee gains a partial security—that is, over the interest of the co-owner w h o genuinely consents to the mortgage—these are not "failure of consideration" cases because the lender pays under a mistake as to its enforceability over the rights of others. 68 Per Lord Hoffmann in Banque Financiere, supra n 28, at 234D-E.
196 Martin Dixon by verifying the consent of the unknowing mortgagor) is not a ground for refusing subrogation. 69 As Robert Walker LJ said in Birmingham Midshires, he "cannot agree with the judge's view [at first instance] that the circumstances in which [the claimant] might have failed to obtain a valid security would require the court, or give the court a discretion, to withhold restitutionary relief".70 Indeed, even though subrogation has been refused on grounds of policy in other cases— for example, to ensure compliance with the raison d'etre of the Moneylenders Acts71 or because the claimant has failed to comply with registration requirements under companies legislation72—policy has not been a ground for refusal in Castle Phillips cases, even when the re-mortgagee has alternative remedies. So, in Roberts, the re-mortgagee would have had a charge over the share of the co-owner that had consented, but subrogation was permitted.73 This can be contrasted with a refusal to allow subrogation in Bayfield, a Prestidge-type case, where Lawrence Collins QC rejected the plea because the re-mortgagee had been deceived by the claimant into granting the re-mortgage (the claimant now having been assigned the re-mortgagee's rights) and subrogation could not be used to allow the claimant to achieve its objective.74 Of course, the evidence is too sparse to draw definite conclusions, but it seems that there is a general reluctance to refuse subrogation on policy grounds in re-mortgage cases, save for cases like Bayfield where there is an element of deception rather than simple negligence or inadvertence. In short, then, the re-mortgage cases involving subrogation of an unknowing mortgagor to the re-mortgagee are explicable by an unjust enrichment analysis. However, can this analysis be extended to the Prestidge-type cases, where the person resisting the re-mortgagee owes no obligations under the original mortgage but "merely" has allowed the original mortgagee to have a priority it would not otherwise enjoy?
Re-mortgages and subrogation: the unknowing equitable owner and the remortgagee As noted above, in Locabail v. Bayfield, a Prestidge case, Lawrence Collins QC rejected subrogation on discretionary grounds, but he made it clear that "the 69
Banque Financiere, supra n 28, at 235. Supra n 2, at para 37. 71 Orakpo v. Manson Investments Ltd. [1978] AC 95. 72 Capital Finance v. Stokes [1969] 1 C h 2 6 1 . See Mitchell, supra n 64, at 142. 73 In Namdar, Bankers Trust was forced to rely on an equitable mortgage over Mr Namdar's share and was able then to force a sale under the old s.30 of the LPA 1925. Note that Mitchell suggests that a refusal of subrogation may be justified when the claimant has a fully effective alternative remedy: supra n.64, at 10. This could justify a refusal of subrogation where the value of the consenting mortgagor's interest was sufficient to meet the re-mortgagee's charge. 74 Supra n 18, at para 163. This r a t h e r begs t h e question why the Prestidge consent argument should have succeeded, unless it is " a u t o m a t i c " , see below. Note also that the intention t o avoid Swiss banking regulations was not sufficient t o d e n y subrogation in Banque Financiere. 70
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application of the wider principles in Banque Financiere" can provide a basis for subrogation in such cases.75 How would this work? (i) Is there an enrichment of the equitable co-owner at the expense of the remortgagee? This might seem self-evident: after all, without subrogation the equitable owner would be able to assert priority over the re-mortgagee and the re-mortgagee might recover less than even that advanced under the original mortgage and have to wait until the co-owner is ready to sell. However, in subrogationmortgagor cases (Castle Phillips), the enrichment is not simply that the mortgagor gains an unencumbered interest, but also that the mortgagor is seeking to escape liabilities under a mortgage contract. In equitable owner cases, there is no liability under the mortgage and the equitable owner gains no enrichment simply because the legal owner has changed his own creditor. Consequently, before a subrogation analysis can be applied, the court must be confident that either in the particular circumstances of the re-mortgage the equitable owner obtains a quantifiable enrichment, or that gaining priority itself is an enrichment. In the former case, much will depend on the size of the re-mortgage advance, the value of the property and whether the re-mortgagee has sufficient security over the legal owner's interest. As such, subrogation cannot be presumed automatically. In the second alternative, it is essentially a policy issue whether the gaining of priority per se is a sufficient enrichment to found a restitution claim. In all probability it is, for it is the gaining of a legal advantage— just like that enjoyed by the mortgagor in Castle Phillips cases. However, whether there is real substance to the advantage will depend on the facts of each case: for example, whether the amount owed under the mortgage is covered by the beneficial share of the legal owner so making a successful application for sale under section 14 of TOLATA more likely. It is the author's view, therefore, that the "enrichment" exists only by examining the particular circumstances surrounding the re-mortgage and should not be presumed simply because the equitable owner has re-gained priority.76 It is possible that the absence of unequivocal enrichment explains why until now the equitable owner cases have rested on subordination rather than subrogation. (ii) Is any enrichment unjust? In so far as payments made by an intending re-mortgagee under a mistake as to priority qualify as an "unjust factor", any enrichment enjoyed by the equitable owner will be "unjust". In Banque Financiere itself, the claimant had bargained 75
Supra n 18, at para 163. See e.g., the strict approach to enrichment adopted by Lords Steyn a n d H o p e i n Foskett v. McKeown. Whether any enrichment was at the re-mortgagee's expense is once again a t r a c i n g issue: has the re-mortgagee's money discharged the original mortgage? 76
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for priority on the basis of a mistake as to the validity of a "postponement letter" issued in its favour and this is similar to the re-mortgagee bargaining for priority under a mistake as to the ability of the legal owner to execute a fully secure re-mortgage. Necessarily, much turns on the intentions of the remortgagee. So, once again, the absence of an intention to gain priority—for example, if the lender bargained for a second charge—will absolve the equitable owner from an "unjust" enrichment. On this basis, accidental re-mortgagees cannot be subrogated to the original mortgage and remain subject to Boland. Importantly, however, it seems that the true question is not whether the remortgagee intended to become a secured creditor, but whether he or she (mistakenly) bargained for priority. Hence, in Banque Financiere the claimant did not bargain for security, but for priority, and was subrogated only vis-a-vis those creditors who had been unjustly enriched by the formal absence of that priority. The claimant was not to obtain a secured charge over the land so as to defeat all of the defendant's creditors. 77 (Hi) Should subrogation be denied for policy reasons? We have seen already that subrogation was denied for policy reasons in Bayfield, but this had nothing to do with the fact the co-owner was not also a mortgagor. Likewise, as noted, there are strong dicta suggesting that the carelessness of the re-mortgagee is not a reason for denying subrogation, although these have arisen in different subrogation contexts. The tentative conclusion must be then that the re-mortgagee cannot be denied subrogation merely because it had the opportunity to secure its priority over the unknowing equitable owner by other means. It might be thought possible to draw a parallel with those cases where subrogation has been denied because of the lender's failure to register their charge under the Companies Act, 78 on the ground that the remortgagee has failed to avail itself of the overreaching mechanism of the Law of Property Act 1925. Yet while subrogation could be denied if a re-mortgagee failed to register their charge,79 it is not mandatory to overreach on mortgage. The law of subrogation might baulk at rescuing invalidity, but it does not punish inattention.
Subordination or subrogation or both An analysis of the cases where a re-mortgagee has sought priority over either an unknowing mortgagor {Castle Phillips cases) or an unknowing equitable owner (Prestidge cases) reveals a dual approach. The former are justified on a 77
Per Lord Hoffmann, supra n 28, at 236G. See the cases cited by Mitchell, supra n 64, at 142, including Capital Finance v. Stokes, n 72, and Burston Finance Ltd v. Speirway Ltd [1974] 1 W L R 1648. 79 C o m p a r e Barclays Bank v. Zavrooabli [1997] C h 3 2 1 . 78
supra
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subrogation-restitution analysis, with the latter being decided by reference to subordination (deemed consent). It is submitted that the reason is that the restitution rationale for subrogation is more apparent for the former category. The subrogation path is not so clearly lit where the "gain" of the equitable co-owner is the recovery of priority, rather than the release of obligations. Nevertheless, it is submitted that a comparison of the two approaches allows the following tentative conclusions. (a) While subrogation can be used to explain both types of case, subordination is restricted to Prestidge-type cases. (b) Subordination has been used in Prestidge-type cases in circumstances where the deeming of consent has been without consideration of the circumstances in which the re-mortgage was executed. It has been argued above that this is not justifiable and that it is not enough to deem consent simply because there was consent to an original mortgage. So, a court should subordinate the equity only after considering the consequences for the re-mortgagee and equitable owner and the circumstances surrounding the execution of the remortgage. To do otherwise would be tantamount to non-discretionary, non-restitution based "automatic subordination". However, if a subrogation-restitution approach is adopted as the appropriate model for Prestidgetype cases, it must be clear that the equitable owner has been unjustly enriched. This is clear in Castle Phillips-type cases where the original mortgagor would be released from liability under a mortgage, but in Prestidgetype cases should be supported by an examination of whether the recovery of priority gives a substantive enrichment. In this sense, a restitutionary approach is preferable to the current "automatic" effect of subordination. (c) An "accidental re-mortgagee", being a lender who intended to take a second charge but finds that the legal owner has paid off the original mortgage, should not be able to rely on subordination or subrogation in either Prestidge or Castle Phillips-type cases. As the cases now stand, there is little to prevent subordination being extended in this way in Prestidge cases, but this would be unwarranted. In subrogation terms, the intention to take a second charge, i.e., not to acquire priority, prevents the payment being made under mistake and the mortgagor/equitable owner's enrichment is not unjust. In fact, any other result would be to subvert Boland. (d) In both subordination and subrogation cases, there has been little scope for the argument that the re-mortgagee should be denied priority because of a failure to take available steps to protect itself. There is more scope for this argument within a restitution analysis simply because of the discretionary nature of the remedy. It remains to be seen whether equitable owners in Prestidge-type cases can attract the exercise of a similar discretion in their favour. (e) It is clear from Banque Financiere that subrogation operates "against" the person who has been unjustly enriched, but does not necessarily provide a
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remedy at large. Thus, in Banque Financiere the claimant's priority was effective against the defendant: it did not gain a secured charge so as to take priority over all creditors. In Castle Phillips-type cases, this could mean that the re-mortgagee does not actually acquire a secured charge at all, but rather a right to a priority call on the proceeds of sale before the unknowing mortgagor but possibly after other creditors. In the cases so far, subrogation has given the re-mortgagee the full priority of the original mortgage—possibly because the re-mortgage was intended to replace the original mortgage and this result gives rise to the parties mutual intentions. However, a remortgagee can no longer count on this outcome. If a subrogation analysis is applied in Prestidge-type cases, there is a similar possibility of a more personalised subrogation remedy. Although the consequences of the Banque Financiere analysis of subrogation have yet to be worked out fully, and even though the subrogation approach has not yet been applied successfully to a Prestidge-type case, the above comparison suggests that a restitution analysis actually provides more scope for protecting the unknowing co-owner. Even if there is little justification for the way the subordination principle is applied currently, it is no wonder that re-mortgagees would rather rely on it when the result seems to be an automatic deeming of consent without due consideration of the circumstances surrounding the remortgage. Of course, it may well be that the complication of finding an "enrichment" of the equitable owner in Prestidge cases means that subrogation is not available at all. If this is the case, it is submitted that the courts should develop and articulate a principled approach to subordination that recognises that the equitable owner's priority should not be discarded just because consent was given to the original mortgage.
12 A World Safe for Mortgagees?— Registering a Scintilla of Doubt CAROLINE SAWYER This court, as a Court of conscience, is very jealous of persons taking securities for a loan and converting such securities into purchase. . . . And there is great reason and justice in this rule, for necessitous men are not, truly speaking, free men, but to answer a present exigency will submit to any terms that the crafty may impose upon them. Lord Henley in Vernon v. Bethell (1761) 2 Eden 113
REALTY AND REALITY: THE POLITICS OF LAND LAW
of land law shows the ebb and flow of competing interests; their relative importance and legal construction reflect social and economic changes. The reconstruction of the law of mortgages in 1925 was a fundamental part of the policy of making available the capital value of land, and the provisions of sections 85-87 of the Law of Property Act 1925 that subsequently a mortgage of a freehold or leasehold should be made by a legal charge operating as a 3,000-year lease, rather than by outright conveyance, was designed to allow for second and subsequent legal mortgages of land.1 This apparently allowed for the release of the value of the mortgagor's equity of redemption on the first mortgage whilst providing for multiple lenders all the remedies of legal mortgagees. It thus appeared to benefit both lenders—who could maximise their market—and borrowers, who could make the fullest use of their land as a capital asset. Nevertheless serious problems have arisen with the implementation of this "new" mortgage system, which now appears to lack a cohesive rationale within the overall construction of property law. There are
T
HE MODERN HISTORY
' This was arguably a return to principle: it seems that in the 13th century the mortgagee obtained a term of years, which could be enlarged into a fee simple if the loan it secured were not repaid by the due date (Bracton, F 20). This practice fell out of use because of the problems even then associated with leaving the fee simple reversion in the mortgagor (AW Simpson, A History of the Land Law (2nd edn, Oxford, Oxford University Press, 1986) 243). The mortgage by outright conveyance was not really established until the 16th century (E Tyler, Fisher and Lightwood's Law of Mortgage (10th edn, London, Butterworths, 1988) 7), whereupon the Court of Chancery began to develop the equity of redemption.
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problems in the definition of what a "charge by way of legal mortgage" is, how it is created within the registered land system, and how it interacts with other interests. The mortgageable landscape must have looked very different in 1925. The number of landowners was much smaller and the size of their land holdings that much greater. The rise of Eden's property-owning democracy meant a much closer personal involvement of many landowners with their land holdings. Those land-holdings are likely to represent much more than investment opportunities; they are often people's homes. Mass residential conveyancing, especially the cut-price variety, cannot have been within the sights of the legislators. But there is yet a further element to the economic change for, as Lord Diplock famously pointed out, in reality this is a "real-property-mortgaged-to-abuilding-society-owning democracy". 2 The high value of land, especially of residential property, entails vesting capital and the power that goes with it not only in the middle-class home-owner but also in the institutional mortgagee. The residential mortgage industry now holds an immense wealth and power which in 1925 was surely unthinkable. The legal construction and protection of mortgages is a technical matter, but the form those legal technicalities take is grounded in an intensely political question which depends on the weight given to competing interests. There is no "natural" construction of property. Not only the political meaning of mortgages but also their legal treatment has changed fundamentally during recent decades. It has been suggested that "[t]he typical mortgage transaction of today is a means of providing residential utility for much of the population" 3 but the evidence of the large-scale repossessions of the late 1980s suggests that there was a greater priority, namely the easy operation of the professional mortgage industry.4 Institutional money interests were more important than individual interests in land. That policy is likewise reflected in the decisions on the legal construction of mortgages. The current rules were constructed in the 1980s, and are designed, often explicitly, to protect mortgagees. The legal structure of mortgages has undergone long-term conflicts over the resolution of the tension between the interests of mortgagees and residential mortgagors. In so far as equity may be said to have a history of protection of the mortgagor, 5 and modern statute law similarly has restrained the pursuit of usury,6 the attitude of the judiciary has been more equivocal. A change of heart 2
Pettitt v. Pettitt [1970] AC 777 at 824C. K Gray, Elements of Land Law (2nd edn, London, Butterworths, 1993), 949. 4 Although, eventually, mass repossessions might be seen as having become somewhat selfdefeating, leading in the short term to a collapse in house prices, in the medium term to probably unrecoupable negative equity and in the longer term perhaps to a greater public and even political hostility to professional mortgagees. 5 EF Cousins and S Ross, The Law of Mortgages (London, Sweet &C Maxwell, 1989) lOff. 6 Through the Administration of Justice Acts of 1971 and 1973, which allowed the courts to postpone the exercise of the mortgagee's right to possession where the residential mortgagor, though in arrears, might redeem himself given time, and through the Consumer Credit Act of 1974, which (building upon earlier legislation) controlled "extortionate credit bargains". 3
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was discernible in the 1970s, in tune with prevailing social and political concerns. The courts notably upheld their right to review mortgages through their inherent equitable jurisdiction where there was manifest inequality of bargaining power between mortgagor and mortgagee.7 The legislature began to control the powers of commercial lenders in relation to residential mortgagors in the 1970s; the courts began to develop further the equitable doctrine of undue influence to protect borrowers and sureties. But things have become harder for mortgagors. Mortgagees who take their mortgagors before the courts will habitually obtain an order for their legal costs to be added to the security, by virtue of the terms of the mortgage agreement, for example, even where they lose; courts have never been sympathetic to the argument that this is unfair (or inequitable).8 Fees charged to redeem mortgages have been upheld as reasonable despite the historical antipathy of equity to "collateral advantages" (on the basis of administrative relevance and a general view that they are relevant costs of the exercise). "Early redemption fees" are now commonplace. 9 It is an indication of the changing policy climate that the conditions of mortgage lending have recently begun to excite particular academic interest and analysis. 10 The reconstruction of the technical rules relating to mortgagees' priority is likewise open to both political and technical criticism. It focuses on the mortgagee's conflict with the equitable co-owner. That the draughtsmen of the 1925 legislation did not have this conflict in mind is demonstrated by the lack of connection between those areas of the rules which become all-important in that conflict, for they are physically far apart—overreaching under section 2 of the Law of Property Act 1925 and overriding interests under section 70(1) of the Land Registration Act 1925. There is no hint in the legislation that any connection or conflict was foreseen by the legislators, but that is to be expected, for theirs was not only a world in which owner-occupation was relatively scarce, but also one in which the classic late twentieth-century equitable co-owner—the wife—was barely regarded as more than a shadow of her husband, at least so far as property relationships with third parties were concerned. 11 7 Though not a new power, it has been particularly useful in the context of residential mortgage lending, where there is clearly potential for an agreement to be unconscionable and oppressive to the party with manifestly less bargaining power: see Cityland and Property (Holdings) Ltd v. Dabrah [1968] Ch 166. 8 See R Oughton, Supplement to Fisher & Lightwood's Law of Mortgage 10th edition (London, Butterworths, 1994) at A100. 9 Whilst it is regarded as defensible to levy a charge on a person leaving a scheme (such as a fixedrate mortgage) early, when it becomes disadvantageous, having taken the early advantages which were offered on the basis of acceptance of the future risk, nevertheless the scale of such charges and the failure to explain them to lay mortgagors, has excited calls for control of the mortgage industry and compensation for those who were, as lay persons, effectively misled as t o the potential disadvantages of the arrangement. 10 See S Bright, "Attacking Unfair Mortgage Terms" (1999) 115 LQR 360; L Whitehouse, "The Home-Owner: Citizen or Consumer?" in S Bright and J Dewar (eds) Land Law: Themes and Perspectives (Oxford, Oxford University Press, 1998) 183 and J Houghton and L Livesey, "Mortgage Conditions: Old Law for a New Century?" in this volume. 11 A perception, perhaps rooted some time before the Married Women's Property Acts of the 1880s, which continued until the individualist 1980s: perStampJ in Cauncev. Caunce [1969] 1 WLR
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It was established in Boland12 that an equitable co-owning wife's rights may be protected against the mortgagee's by section 70(l)(g) of the Land Registration Act 1925, which protects the rights of every person in actual occupation of the land. This decision has been described as "a landmark decision . . . which . . . represents the high water mark of protection for occupying family members against lenders".13 The subsequent case of Flegg14 showed the House of Lords reversing the Court of Appeal's decision that the equitable coowners' interest should prevail, where the mortgage money had been paid to two legal owners, because they were in actual occupation. Section 70(1) (g) of the Land Registration Act 1925 conflicted with the mortgagee's right to overreach that interest under section 2 of the Law of Property Act 1925.15 The decision in Flegg is quite arguable, 16 for those two parts of the legislation are unconnected and clearly conflict, and the policy decision to protect mortgagees does not break the basic structure of the legislation. The House of Lords' protection of mortgagees was subsequently consolidated by the decision in Cann}7 That allowed acquisition mortgagees to take priority over an equitable co-owner even where the legal title had been mortgaged by a sole legal owner, on the basis that the mortgagor never obtained an unencumbered estate, but only the equity of redemption. Through the parallel series of cases that includes Henning,'18 the judiciary also established a further mode of protection even for subsequent mortgagees and even where there is only one legal owner. But the justifications for mortgagees' priority were always subject to logical criticisms, are beginning to be undermined by subsequent cases, and are susceptible to falling with changes in public policy.
286 at 294: "the vendor being in possession, the presence of his wife or guest or lodger implies nothing to negative the title offered"; per Lord Templeman in Birdv. Syme-Thompson [1979] 1 WLR440 at 444: "when husband and wife are in occupation of premises and the legal title is in one of them, actual occupation for the purposes of section 70 [of the Land Registration Act 1925] belongs to that one and the other is not in actual occupation but only there as a shadow of the occupation of the owner". In the context of the construction of legal persons (or agglomerations—see below) whose claims to property are more readily entertained by the courts, it is noticeable that the tenor of Lord Bridge's judgment in Lloyds Bank pic v. Rosset [1991] 1 AC 107 entails a construction of property rights based at least in part on stereotypical roles—especially his well-known dictum that part of the reason for Mrs Rosset's failure was that her behaviour was the "most natural thing in the world for any wife or mother" (at 131). 12
Williams and Glyn's Bank v. boland [1981] AC 487. J Dewar, "Land, Law, and the Family Home" in Bright and Dewar (eds.), supra n 10. City of London Building Society v. Flegg [1988] AC 54. 15 By which such interests are transferred to the purchase price, provided it is paid to two trustees or a trust corporation. 16 At least if one overlooks the inconvenient fact that the mortgage in this case was only equitable. 17 Abbey National Building Society v. Cann and another [1988] AC 56. 18 Paddington Building Society v. Mendelsohn (1985) 50 P &C CR 244; Bristol and West Building Society v. Henning [1985] 1 WLR 778. 13 14
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CONVERSION AND REDEMPTION: A SCINTILLA OF DOUBT
The case of Cann received considerable attention in its day; that commentary has of course now subsided, but subsequent case law has indeed revealed that the controversy remains live.19 A property in Mitcham was bought in the sole name of George Cann, but Daisy Cann, his mother, had an interest in it, as well as living there. There had been a shortfall in funds; the House of Lords found that to be £4,000 plus conveyancing costs. George, without the involvement of Daisy, borrowed £25,000 from the Abbey National and mortgaged the house to them. When George defaulted on the mortgage instalments and the Abbey National sought a possession order, Daisy's argument was that her interest preceded theirs, on the basis that it was established immediately on George's acquisition of the legal title and then protected against the building society by virtue of her actual occupation during the scintilla temporis between the acquisition and mortgaging of George's title. Although the fact of such occupation was perhaps arguable, given that Daisy was in the Netherlands at the time, the House of Lords did not dismiss her case on that basis. On the same day as endeavouring to establish the priority of mortgagees over wives by reconstructing implied trusts in the case of Rosset,20 the House of Lords also decided to ensure total protection at least for the acquisition mortgagee—that is, a lender on security of a property purchased with the money thus secured—fundamentally by abolishing the scintilla temporis. The acts of purchase and mortgage were amalgamated, with the latter overwhelming the former. Effectively, the acquisition mortgagee obtained the kind of priority it had had before 1926, preceding even the interest of the mortgagor (Fig. 1). There are various problems with the House of Lords' reasoning in Cann, besides the question of the scintilla temporis. The Court of Appeal had decided against Daisy on the basis of her being aware that the premises would be mortgaged, and Lord Oliver's basic policy statement is worth repeating, for he said that it: makes good conveyancing sense and, speaking for myself, I should be extremely reluctant to overrule it unless compulsively driven to do so, the more so because it produces a result which is just, convenient and certain, as opposed to one which is capable of leading to manifest injustice and uncertainty.
19
See the discussion below of Zaroovabli. See the reconstruction of the nature of the "constructive trust" in order to avoid a wife's interest binding a mortgagee in Rosset supra (n 11). N o t e that argument in Cann w a s heard between 31 January and 7 February 1990 and in Rosset by the same court between 12 and 15 February. T h e judgments were given together on 29 M a r c h a n d refer t o each other. However the apparent interdependence of these cases may be influenced by the quirks of the reporters' methods, this can only reinforce the suggestion that the House of Lords in early 1990 had a policy agenda in favour of institutional mortgagees. 20
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VENDOR
ABBEY NATIONAL
FIG. 1
Yet the injustice would have been all against the Abbey National, and this decision rendered injustice to Daisy (unless one believes the unproven story that she authorised the mortgage) and the term "absurdity" seems to refer to nothing more than the idea of a mortgagee not having priority over a mere family member. This is not about conveyancing as a process, which is in any event not something with which Law Lords are generally much concerned, but about conveyancing as the transfer of property rights and the construction of the appropriate order. It is the same culture clash Gardner found in the treatment of different potential property-owners in Rosset.21 A particular conveyancing aspect of the decision in Cann, reinforced after being mentioned in Rosset in the Court of Appeal,22 was that, although the operative date of the protection of an interest under section 70(1) of the Land Registration Act 1925 was generally that of registration, in the case of paragraph (g) then exceptionally the relevant date was that of completion. There is no satisfactory doctrinal explanation of why paragraph (g) should be an exception and such an unexpected, ill-fitting and convenient discovery excites suspicions of making of it up as one goes along that the judgment fails to allay.23 The main argument was however that Daisy's interest could not precede the mortgagee's 21
S G a r d n e r , "Fin de Siecle chez Gissmg" (1996) 112 LQR 378. [1989] C h 350. 23 O n e notes t h a t in an a r t i c l e hostile to the policy inherent in Boland, the relevant date for s 70(l)(g) was identified as the p r o b l e m for conveyancers and mortgagees: S Freeman, "Wives, Conveyancers and J u s t i c e " (1980) 43 MLR 692. Given the unnecessariness and irrelevance of that date once the decision had been t a k e n to abolish the scintilla temporis, it looks as though the House of Lords may have simply declined t o discard this bit of policy reform of conveyancing even when they found s o m e t h i n g better. 22
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because, on completion, George never obtained an interest which preceded that of the mortgagee and, therefore, since Daisy's interest derived from George's, neither did she. This argument is usually described as the destruction of the scintilla temporis, since Daisy's interest, to bind the Abbey National, would have to be supposed to arise in the time-gap between George's acquisition and the Abbey National's mortgage. The court is usually said to have decided that the transactions of purchasing and mortgaging were simultaneous, so there was no gap in which Daisy could obtain priority. Discussing the logical argument that George could not mortgage an interest until it was acquired,24 the House of Lords looked at statutory provisions whilst asserting that they should not be considered to be a code, presumably to insure against any lack of cohesion in the statutory argument against Daisy's case.25 Yet to focus on the difference between unregistered and registered conveyancing is something of a diversion, for there is a substantive conceptual gap, not merely one of time. Whether or not the scintilla temporis exists, it cannot be logical to say that the acquisition mortgagor never obtains anything more than the equity of redemption.26 To do so is to deny the logical possibility of the second and subsequent legal mortgage, the establishment of which was one of the priorities of the 1925 legislation, itself aimed, ironically in this context, at making land more commerciable. One cannot have a legal mortgage of an equity of any kind. Even if that reference were considered as a metaphor, where the encumbering of a legal estate with a legal mortgage renders that estate conceptually incapable of bearing equitable co-ownership, it surely cannot then allow the conceptual space for another legal mortgage. There must be a scintilla conceptualis, a conceptual gap, in which resides the mortgagor's remaining interest. This need not be a time-gap; the transactions are all, according to the court, simultaneous. This simultaneity itself raises difficulties, since the court 24
Church of England Building Society v. Piskor [1954] Ch 553. T h e court's argument entailed, e.g., reading s 29 and 37 of the Land Registration Act 1925 on the assumption that they are intended specially to protect acquisition mortgagees. However, there is no indication of this. T h e first refers to the priority of registered charges as between each other, in terms decidedly reminiscent of that point in rr 83-84 of the Land Registration Rules 1925 (1925 N o . 1093 L. 28) (see also Land Registration Rules 1925 r 160, T Ruoff and R Roper, The Law and Practice of Registered Conveyancing (London, Sweet & Maxwell, looseleaf) at 9.15, and Land Registration in the Twenty-First Century (Law Com N o . 254, Cm 4027, 1998)) and so does not really appear to make it "entirely clear that the creation of a charge is not its registration"—it would surely be more of an "absurdity" if a legal mortgage could be effective as such before there was any legal interest available to be mortgaged, but perhaps the court was haunted by the ghost of the equitable mortgage problem in Flegg, which returned to such effect in Zaroovabli (see below). T h e second refers to the capacity of a person whose purchase has been completed (in the unregistered conveyancing sense—the purchase money paid and the deed delivered) but not registered to dispose of or charge the land, and looks rather more like the preservation by statute of the idea of feedable estoppel. T h a t reading is only reinforced by consideration of Land Registration Rules 1925 r 72 and Ruoff and Roper, above, para 2 3 - 0 3 . 25
26 Indeed it is a very controversial phrase in itself, used only once in the Law of Property Act 1925 (at s 115(l)(fc) and perhaps by oversight)—elsewhere, the phrase used is the "right to redeem". T h e meaning of the "equity of redemption" should now be the right to redeem which is attached to the mortgagor's legal estate (32 Halsbury's (4th edn Reissue) para 503).
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assumed, rather than explained, that where (on that reasoning) Daisy's interest and the mortgagee's interest arose simultaneously, the mortgagee's interest necessarily had priority. Even leaving aside that point, which the court did not acknowledge, if the first legal mortgage is so strong as to render the mortgagor's legal estate practically useless, it would surely be impossible to create any substantial legal interest out of it, especially an interest so substantial as that very legal mortgage that wiped out the mortgagor's interest in the first place. Second and subsequent legal mortgages would be logically impossible. Fundamental questions are thus raised about the nature of legal mortgages which the legislation that created them does nothing to answer, and the courts have so far not explained themselves on the point either. It seems to have been accepted since Cann that the courts now regard acquisition mortgages quite differently from second or subsequent legal mortgages, though with relatively little investigation.27 The idea of providing as much security for subsequent mortgagees as for first mortgagees, in order to make land maximally commerciable by making subsequent mortgages legally possible, conflicts with the nature of the mortgage. If, in essence, it provides a right to possession under the term of years the mortgage represents, so that one regards the equity of redemption as the minimal legal freehold to a subsisting 3,000-year lease, then any subsequent term is practically meaningless. In so far, however, as the subsequent mortgagee may be regarded as having the same security should it choose to exercise it first, then the mortgage is of the nature of a potential, remedial interest, not a current and proprietary interest.28 Such a perception obviously accords with the reconstruction of the legal mortgage which itself followed a line of retreat from the idea of mortgage by outright transfer that well predated the 1925 reforms that abolished it.29 It equally obviously conflicts with the courts' apparent attempts to revert to the mortgage as overwhelmingly strong and tantamount to a conveyance of the whole legal estate. It might be suggested that the scintilla conceptualis is fit only to provide conceptual space for the second and subsequent legal mortgage, not for the interest of the equitable co-owner. Clearly this however would be simply a basic change of policy, not merely elevating commercial interest but also devaluing "family" interests and disconnecting them from the land. Yet "family" interests are those to which the land itself is important; the commercial lender is interested only in financial value.30 27
See, e.g., Bright, supra n 11; J Dewar in Bright and D e w a r (eds.), supra n 11, p 327. As suggested, for other reasons, by M Dixon in this volume. 29 See, e.g., s 98 of the Law of Property Act 1925 replacing exactly Supreme Court of Judicature Act 1873 s 25(5) (repealed). 30 T h e m o v e t o w a r d s recognising the value of land itself is reflected in the provisions of the Trusts of L a n d a n d A p p o i n t m e n t of Trustees Act 1996, but the idea that the 1996 Act overruled Flegg (see G Ferris a n d G Battersby, " T h e Impact of the Trusts of Land and Appointment of Trustees Act 1996 on P u r c h a s e r s of Registered L a n d " (1998) 62 Conv 168-188) has, perhaps unsurprisingly, been disapproved by t h e judiciary (see M Dixon, "Overreaching and the Trusts of Land and Appointment of T r u s t e e s A c t 1996" (2000) 64 Conv 267-273, where authorities are offered for the assertion that the 1996 Act w a s not supposed to overturn Flegg, though not for the implication that the paramountcy of overreaching was always one of the "cornerstones" of the 1925 legislation). 28
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Where it was said that Daisy "must have known" that the property would be mortgaged, there is no evidence for this.31 In any event, even had she known of the loan, that would be notice not even that a particular body had a competing interest but that some unspecified body might have a competing interest. English property law does not generally allow anything so vague to give rise to enforceable property rights; registered conveyancing, it has been said, has nothing to do with notice anyway.32 It was suggested, secondly, that, since the property could not have been purchased without the mortgagee's money, then the mortgagee's interest must come first. This is obviously a weak argument, since it would also apply with equal or greater logic to Daisy's contribution.33 What underlies both these lines of argument is, however, interesting on a broader analysis, for these constructions can appear obvious, or even reasonable, only if mortgagees are regarded as a special and particular form of property-owning person. Not only do mortgagees have an agglomerate, overwhelming identity, but they are especially privileged. This privilege goes further than merely the interpretation of points of law in the commercial interest; here, the very structure of an area of law that ought to be particularly stable (because its first use is to construct the world as much as to provide remedies for things that go wrong) has been wrought out of shape and rendered questionable. The phenomenon of agglomerate identity is remarkable throughout recent developments in the law of mortgages, especially in that relating to subrogation (the process whereby a co-owner who is found to have consented to a mortgage with one institution, which then has formal priority over his or her equitable interest, is bound by the interests of a later mortgagee whose loan effectively repays and replaces the one secured by the original mortgage).34 Indeed, the 31 Lord Oliver stated that George had Daisy's authority t o raise money o n a mortgage, although "[t]here was no finding t o this effect by the judge, but I think, for my part, that it is a necessary conclusion". H e describes the thought that the money might have come from elsewhere as "fanciful" and that "the court was entitled to d r a w n the inference that it did d r a w " . T h o u g h this appears t o be a case of imputing states of mind without evidence (see infra n 33) the making up of useful facts by a higher court is however n o t without precedent in the context of policy-based property law: see B Sufrin, "An Equity Richly Satisfied" (1979) 42 MJLR 574 at 577 pointing o u t the inventiveness of the Court of Appeal in the estoppel case of Pascoe v. Turner (1979] 1 W L R 431. 32 Per Lord Wilberforce, much cited, in Boland (see supra n 12, at 503-504, 508) It might be pointed out generally that early attempts at establishing registered conveyancing systems in Yorkshire and Middlesex during the 18th century failed because of the courts' approach. Although they recognised that the date of registration, rather than completion, w a s the relevant one, their importation of the doctrine of notice was fatal (Cousins and Ross, supra n 5, p 344). 33 Greater because Daisy's contribution was greater, or even because George had only one mother but the Abbey National could have been replaced with another commercial lender. This line of reasoning may however appear familiar, as it is well established in the Henning cases (see supra n 18). In that context it involves something between notice (overcoming or ignoring any chronological questions around the creation and priority of the various interests) and the imputing to equitable co-owners states of mind they did not have. Trying t o find clarity in this rule is a well-established problem, for the decision in Henning purports to apply a dictum in Gissing v. Gissing [1971] 1 WLR 886 allowing imputation of intention when in fact what was said in Gissing was the opposite (per Lord Diplock at 904). 34 This area of law is explored in much greater detail by M Dixon in "Consenting A w a y Proprietary Rights" in this volume, as is that of the sort of deemed consent Lord Diplock discussed as impossible (see supra n 34).
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interest of the mortgage industry as a whole is almost invariably advanced to counter any suggestion that they have too many legal privileges.35 The fear is that, if their rights are restricted, so will their lending policies be more cautious, leading to a slowing in the market with all the economic results that would entail. Whatever the policy arguments 36 , yet the construction of mortgagees as a collective group whose interests are protected above others' does not fit easily within the otherwise very private and individual construction of English land law; it is a very foreign kind of special pleading. It makes far more sense, however, as the modern face of the pre-1926 mortgagee's ultimate power as outright transferee, and indeed this idea resurfaces elsewhere within the modern judicial construction of the mortgage. The perception of mortgage institutions as an agglomerate body may however have other ramifications in a changing policy climate. The relationship of financial institutions with consumers of their services currently reflects the changing perception of their role. There are pressures for them to accept moral and legal responsibility for the victims of domestic violence and to deal with their customers with a concern for their "best interests". The importance of institutional mortgagees changes the balance of power within society, now that society is not necessarily non-existent. Mortgagees now collectively have power, and the perception of their social power begins to bring with it a perception that they have responsibilities. A further structural difficulty with the House of Lords' discussion of what happened on the date of completion in Cann—not only their reassignment of section 70(1) (g) of the Land Registration Act (LRA) 1925 to that date but their close discussion of the timings of payments and furniture-moving—is that the date of completion is largely irrelevant to registered conveyancing. The equitable interest in the property passes on exchange of contracts. 37 Legal title does not pass until registration and it is not until registration that the legal mortgage is completed (Fig. 2). 38 If the passing of the equitable interests is viewed this way, the potential for a logical legal disaster for mortgagees becomes apparent. If Daisy Cann were to have claimed an equitable interest deriving from the interest George acquired on exchange—for example, if she had paid the deposit, a situation which is hardly 35 Expressed by Dixon in this volume as " t h e i m p o r t a n c e of institutional lending to the housing and commercial sectors". 36 T h e results a p p e a r p r o b a b l y to include a reduction in house-price inflation and perhaps even house prices in absolute t e r m s , which might h o w e v e r have a remarkably restorative effect on the British economy from the c o n s u m e r ' s point of v i e w in the longer term. 37 Described by K Gray as "trite l a w " : supra n 3 , p 143. "Contracts operate in personam: according to the o r t h o d o x y , then, estate contracts w o u l d too. T h a t is simply not the law: they are in fact rights in rem," says S G a r d n e r . This is one of t h o s e propositions which are so well known that it is difficult to find direct authority for t h e m . It is, h o w e v e r , assumed in many legislative and countless judicial t r e a t m e n t s . " ("Equity, Estate C o n t r a c t s a n d the Judicature Acts" [1987] OJLS60 at 65). 38 Ruoff and Roper, supra n 26, p a r a 2 - 0 9 ; the relevant date is that on which the Land Registry receives the papers and date-stamps t h e m ; all subsequent operations are backdated to that date (Land Registration Rules 1925 r 83(11) (as a m e n d e d and substituted)).
A World Safe for Mortgagees—Registering a Scintilla of Doubt exchange
legal title equitable interest
y v
completion
-^
G
FIG.
registration
V
V
211
DAN
G/AN G
DAN
2
unlikely—then the abolition of the scintilla temporis might not be enough. Lord Oliver discusses various sequences of the creation and protection of interests, but does not contemplate the question of an equitable co-owner's right which arises before completion. (He also appears to regard a mortgage as arising before completion only if money is already paid over.) If Daisy claimed an equitable interest acquired through paying the deposit, then the question of exactly what happened when on completion day might have to be addressed, since it is not clear from Cann whether, in a case where the ingenious abolition of the scintilla temporis did not work because the co-owner's equity predated completion, what the answer would be.39 It is moreover clear that there is space for such a question. In Zaroouabli,40 legal co-owners executed a charge to the bank and subsequently, before the charge was registered, granted a tenancy. By the time the bank registered the charge, some years later, the contractual tenant had become a statutory, Rent Act tenant. The bank claimed priority in accordance with the rule in Cann, for the tenant had not been in occupation at the time of completion of its mortgage and so did not have an interest that was overriding under section 70(l)(g) of the Land Registration Act 1925. But the tenant succeeded because the Court of Appeal held that the mortgagee's title was not "paramount" at the date the tenancy was originally granted, because of the failure to register it, and the tenancy bound the mortgagee under section 70(l)(&), for which the relevant date remains registration, not completion. This court had discovered that the time-gap between completion and registration ought to be minimal, because the date for registration is that of receipt of the documents at the Land Registry, and took the view that the bank had brought its problems upon itself by failing for over five years to register the charge. But the mere existence of a scintilla—a gap left after "completion" of the mortgage, within which 39 It might be suggested that the sole remaining relevance of the date of completion in registered conveyancing is in reality t o make that estate incontrovertible, s o that perhaps a George would n o t have a sufficient equity before completion—however, t o implement a pro-mortgagee policy in this way the House of Lords would have t o plough up yet another field mined with the risk of destabilising the overall structure of property law. 40 Barclays Bank pic v. Zaroovabli [1997] Ch 321.
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the mortgagor may create substantive interests—is enough to present problems. As one commentator has pointed out, an unscrupulous mortgagor might take advantage of this decision by granting a long lease in the interim period.41 Such presumably unforeseen consequences can be but one of the disadvantages of trying to reclassify specific aspects of a system to exclude certain types of interest only; one may assume that the Cann court would have regarded the Zaroovabli tenant's interest as just as worthy of subordinating to that of the mortgagee bank as would be an equitable co-owner's. Inherent in Zaroovabli, moreover, is a growing appreciation in the higher courts of how registered conveyancing functions. One might wonder whether the result in Flegg would have been different had it been taken strongly in argument that the mortgage was only equitable. 42 But viewing the creation and transfer of the equitable and legal interests in property structurally reveals a possible alternative solution, and one which would allow the previous structural anomalies created by the rule in Cann, and thrown into subsequent doubt by cases such as Zaroovabli, to be done away with, by fine-tuning the rules of conveyancing rather than demolishing the overall structure of property law.
SAVING PRIVATE PROPERTY: A SOLUTION TO THE PROBLEM OF COMPETING INTERESTS?
A structural look at the process of registered conveyancing demands that the relevant date for discussion of almost anything is not that of completion. It is settled law that the equitable estate passes on exchange of contracts, and clearly the case that the legal estate passes on the date of registration. The only available date for actual occupation to work is logically that of registration, for completion day is irrelevant to the registered system of title, although it remains the date on which, in accordance with the traditions of unregistered conveyancing, people move house. 43 The problem for the House of Lords was clearly that, because completion day is moving day, although "actual occupation" may well arise later during that day than the dispatch of the purchase money and the dating of the deeds of transfer and mortgage, it is almost inevitable that it will have come about by the date of registration, even if the solicitor does not wait a week 41
M R o b i n s o n , " T h e M o r t g a g o r ' s T e n a n t " (1997) 113 LQR 390. As so often, one w o u l d like t o know m o r e background, and indeed one would like to see the file. T h e question is raised w h y t h e City of L o n d o n Building Society, on discovering the failure to register its m o r t g a g e d u r i n g the p r i o r i t y period, did not sue its solicitor for negligence. W a s it an inhouse solicitor? Similarly, o n e w o u l d like t o see the file of whoever acted for the mortgagee in Cann—especially if t h a t person a l s o acted for George C a n n , to reassure oneself as to w h a t information was available t o w h o m , directly or by i m p u t a t i o n , before completion. 43 A simpler and possibly even better logical solution to the problems considered in this essay would be for people t o move h o u s e on registration day, rather than "completion" (money-transferring) d a y . H o w e v e r , with on-line conveyancing (see below) presumably everything will happen on the same day a n y w a y , subject only t o c o m p u t e r failures. 42
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for the Form 53 releasing the previous mortgage before dictating a letter to an overworked secretary about the dispatch of all the documents to the Land Registry. Moreover, whether the relevant date is that of completion or registration, Daisy's potential claim of an equitable interest deriving from the purchaser's equitable estate before completion remains. A little lateral thinking suggests that if a Daisy threatens a mortgagee's legal interest by virtue of a prior equity, then the mortgagee can regain priority by establishing its own equity prior to hers. This should not be hard to do, for in the sort of residential conveyancing which throws up this problem—the cheap, mass sort—it is axiomatic that contracts should not be exchanged on the purchase without a firm mortgage offer. Such an offer may not usually conform to the requirements of a contract for the sale or other disposition of land though it would probably have done so when George Cann exchanged.44 But it would be a relatively simple matter for mortgagees to fill in a computer precedent with the appropriate details, as a form of contract, and append some signature. If the same solicitor is acting for the purchaser and acquisition mortgagee, there should be no difficulty in having the purchaser sign the mortgage contract along with the purchase contract; if necessary, for speed, advantage could be taken of the leeway for identical contracts to be exchanged. An equitable mortgage would thus be created, arising on exchange of contracts. This does not, of itself, solve all the mortgagee's problems. Daisy's hypothetical interest, derived from her payment of the deposit, would also arise on exchange and (especially if one believes in the scintilla temporis, let alone the scintilla conceptualis) would precede any mortgage of the equitable estate from which it derived. Because of the rule, confirmed in Barclays Bank v. Taylor,AS that equities take priority in order of their creation, registration of the equitable mortgage could not overcome the problem of Daisy's prior equity. But that rule is surely another anomaly arising from the nature of the 1925 legislation, which Anderson describes as characterised by compromise and "anyway flawed".46 The usual rule with registered conveyancing is that priority is obtained, not through creation of an interest, but through its registration—the requirement that a legal freehold, long leasehold or charge be registered in order to be created is merely a logical further step. Abolishing the rule that equities take priority in their order of creation would be but a mere tweak of the existing system.47 44 The current requirements are that the contract should be in writing, signed by each party, and that it should incorporate all the agreed terms in one document or, where contracts are exchanged, in each (s 2 of the L a w of Property (Miscellaneous Provisions) Act 1989). Exchange in Cann took place in the summer of 1984, when the provisions of s 40 of the Law of Property Act 1925 were still in force. Under these, an oral contract in respect of land was valid, b u t actionable only if evidenced in writing; this requirement could be satisfied by grouping together a n u m b e r of documents. 45 [1974] Ch 137. 46 S Anderson, " T h e 1925 Property Legislation: Setting C o n t e x t s " in Bright a n d Dewar, supra n10,107. 47 Note that apparently soon all land formalities, including contracts, will operate through the register (see C H a r p u m ' s essay in this volume). T h u s such equities would be created a n d registered in the same process, a n d such a tweak would be swamped.
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Daisy could still potentially defeat the priority of the registered equitable mortgage by prior actual occupation (assuming that section 70(1) of the Land Registration Act 1925 applied at that stage, which it ought to), but if registration of the equitable mortgage were to take place on exchange, the likelihood of her being in actual occupation is remote. Later occupation would not gain priority over an interest registered earlier. Splitting up the transaction into its component parts offers a way to satisfy both the logic of property law and the policy of the House of Lords. It requires, of course, some finer tuning of the existing conveyancing system to allow for the registration of the purchaser's equitable interest and then the mortgagee's equitable mortgage deriving from it.48 As the purchaser's equitable interest is proprietary, there is no logical objection to its registration. The purchaser's estate contract is currently protected in registered conveyancing by a search in Form 94A. By this a prospective purchaser bespeaks an up-to-date print-out of the state of the title to be purchased from the Land Registry "with priority", and the Land Registrar will then not register any dealings with the legal title during the non-renewable thirty-day priority period.49 The search may be done on behalf of the prospective mortgagee rather that the purchaser; where the same solicitor acts for purchaser and mortgagee, as is often the case, this is usual practice. 50 Such a search is referred to in Lord Oliver's judgment in Cann,51 but, as he points out, it protects only against registered entries, not those protected by actual occupation.52 It is primarily a search, changing nothing. The situation in unregistered conveyancing was somewhat more substantive. An estate contract is registrable as a C(iv) land charge53 and if unregistered would be void against a purchaser. A sub-contract would also be registrable, 48 As t o w h e t h e r there is such an equitable mortgage, it would appear so. As K Gray says {supra n 3,990—991): "such an end result would represent an entirely sensible extension of the c o m m o n law position [in Walsh v. Lonsdale (1882) 21 Ch D 9 ] " . 49 Land Registration (Official Searches) Rules 1993 (SI 1993/3276). 50 T h i s practice p r e d a t e s t h e decision in Cann and appears, like the provisions on the mortgagee's entitlement t o the deeds (see , e.g., s 85 of the Law of Property Act 1925, odd in the context of the post-1925 m o r t g a g e , which is not a transfer, and odder still in the context of registered conveyancing, where w h a t m a t t e r s is w h a t the Land Registry thinks, and necessitating the invention of the Charge Certificate, s o m e t h i n g of a document of encumbrance, rather than title), to hark back to the mortgage as outright c o n v e y a n c e and the procedures of unregistered conveyancing generally. 51 At 8 3 H — L a n d R e g i s t r a t i o n (Official Searches) Rules 1981 (SI 1981/1135). 52 A similar objection applies t o the idea of protection of the equitable mortgage by caution, as suggested by G G o l d b e r g in " Vivit ac Vivat Scintilla T e m p o r i s " (1992) 108 LQR 380, in so far as that merely prevents future dealings and does nothing for the consolidation of the interest itself. In its Third Report on Land Registration, N o . 158 (London, H M S O , H C 269), the Law Commission suggests at p a r a 4.74 t h a t the m o r t g a g e of an interest under an estate contract can be protected by a notice under s 49(1) (f) of t h e Land Registration Act 1925, and in Land Registration for the TwentyFirst Century (Law C o m N o . 254, Com 4027 (1998)) the same point is made with reference to Ruoff and Roper (supra n 26) at n 2 5 at 220. It does not appear that mortgagees do this, however: at para 4.84 of Report N o . 158, the L a w Commission suggests that such interests do not require protection on the register " b e c a u s e they are at one remove from the legal estate affected". " Land Charges Act 1972, s 2(4).
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albeit against the legal owner.54 This more substantive process should have a clear, habitual equivalent in registered conveyancing. The estate contract could be noted on the charges register, together with the equitable mortgage deriving from it, and deleted upon the subsequent registration of the transfer of the legal estate and creation of the legal charge. The agreed date of completion should be stated, with the validity of the registration of the estate contract to expire, say, twenty-one days later (to allow for late completion and the inevitable delays between completion and registration whilst the documents mature on the solicitor's office floor) if the contract is not completed. Clearly any equitable mortgage of the purchaser's equitable estate would fall with it. A Daisy too could be allowed to make an entry on the register against a George's estate contract, on or as soon as possible after exchange. This would protect her against a subsequent mortgage by George, as well as alerting any existing equitable mortgagee to her possibly difficult interest before completion. The parties could then at least try to sort things out before the bulk of the money was paid over. An equitable co-owner may protect her interest against actions by a sole legal owner by caution; the same could be available for person claiming an equitable interest derived from an equitable estate.55 If Daisy failed to register but moved in before the relevant date for section 70(l)(g) of the LRA 1925, the mortgagee's rights under its equitable mortgage would prevail even if its legal rights did not—less convenient, but workable. 56
FORMALITIES FOR THE FUTURE
Changing perceptions raise questions for mortgagees, and the current law presents some risks. There could be several solutions to the current instability. The judiciary could make it clear that "the mortgagee wins because he is a mortgagee",57 but an admission that judicial conveyancing is a political endeavour 54
Barrett v. Hilton Developments Ltd [1975] 1 Ch 237. It could be released by the inclusion of an appropriate clause in the legal mortgage to w h i c h Daisy would no doubt then be a party in order for the prospective acquisition mortgagee to provide the necessary funds. Clearly this schema would require Daisy to be fairly clued-up on registration if she were to protect herself, but such a possibility ought to be available. Protection of co-ownership of this kind may reasonably be assumed not to be provided for in the 1925 legislation because it was not an issue then, but it is now. It has indeed been proposed before, with the caveat that a "determined campaign of education and publicity" would be necessary (paras 78, 83)—see Law Commission Report N o . 115, The Implications of Williams and Glyn's Bank v. Boland, Cmnd 8636 (London, H M S O , 1982). 56 T h e mortgagee, to realise its security, would have to seek a court order, as it remains uncertain whether an equitable mortgagee has a right to possession, and appears unlikely {Ashley Guarantee Pic v. Zacaria [1993] 1 WLR 62). Nevertheless, a court may vest in the equitable mortgagee a sufficient legal estate for him to assume possession (s 90(1) of the Law of Property Act 1925). However, court orders are usually obtained in respect of dwelling-houses anyway, because of t h e risk of criminal liability under s 1 of the Protection From Eviction Act 1977 or s 6 of the Criminal Law Act 1977. •" R Smith, "Mortgagees and Trust Beneficiaries" (1990) 106 LQR 545. 55
216 Caroline Sawyer might be unacceptable. The second and subsequent legal mortgage could be remitted to remedial status only, but that would require serious tampering with the system. The alternative is to hope that the question of a Daisy paying the deposit may never arise. Nonetheless registration of interests could offer a better solution, especially in the light of the coming on-line conveyancing revolution. Once registration is a necessary formality of the creation of a land contract, and communication with the Land Registry is a matter of habit in order to do anything in relation to land, no-one should turn a hair at the registration of a mortgage contract, along with that of purchase. One looks forward to the provision of Land Registry online inspection facilities in all good public libraries. Taken together with a publicity campaign featuring an animated Chief Land Registrar, who would become as familiar afigureas the Tax Return Man, exhorting family members to protect their rights, registration of property rights could become part of the popular culture. But on-line conveyancing can only make a system function more smoothly. It cannot, of itself, sort out the structural and political problems of property law. Those questions need to be addressed separately if they are to be resolved.
Part IV
The Law of Landlord and Tenant
13 Towards a Structure for the haw of Landlord and Tenant PETER SPARKES More than 400 years ago Montaigne stated his ideal as follows1: The most obvious laws are those that are fewest, simplest, and most general; and I even think that it would be better to be without them altogether than to have them in such numbers as we have at present.
What on earth would he make of our present law of landlord and tenant? It certainly does not meet his criteria and so we seem to face an overwhelming imperative to reduce the level of detail and to attain a higher level of generality. It is a remarkable feature of the year 2000 that there is no policy disagreement between the potential parties of government about the attitude to tenants; New Labour does not represent new housing law.2 This leaves us free to contemplate purely technical reforms, designed to deliver existing substantive rights in a more palatable form, which is likely to prove more enduring in character during a period of political consensus. In most legal subjects there is broad agreement among teachers and authots about a standard "roast beef" approach to the subject and in the field of landlord and tenant law it seems fair to adopt Woodfall3 as the standard bearer for "conventional" learning. Its structure can be summarised in this way: 1. a general part; and 2. specific statutory jurisdictions. The legislative structure proposed in this essay dispenses with the general part and places at its core a three-fold classification based on the legislative schemes: commercial leases are opposed to residential ones and the residential sector is divided into short tenancies and long leases. It proposes that the residential 1
JM Cohen (ed), Essays, "On Experience" (Harmondsworth, Penguin Books, 1958) 345. Publication of the Government Green Paper, Quality and Choice: A Decent Home for All (London, DETR, April 2000) since delivery of this essay cannot affect this basic judgment. The draft Commonhold and Leasehold Reform Bill (Cm 4843, August 2000) addresses long leasehold tenure rather than rented housing, and again does not propose radical reform, though implementation of commonhold would be welcome. 3 K Lewison et al (eds), Landlord and Tenant (London, Sweet & Maxwell). 2
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sector must now be divided into full and limited security arrangements, and that this distinction is much more fundamental than the regulated/assured/secure structure normally adopted. Finally it attempts to make the case for a full and true codification of the subject.
STRUCTURAL MODELS
Roast beef The basic premise of practitioners' texts like Woodfall4 or Hill and Kedman5 is that common law principles are treated first with the statutory regimes bolted on afterwards. Both texts are ideally suited to the need of specialists who already have a good overall picture of the subject, and who seek answers to questions of detail. It is extraordinary however that most of the dozens of student texts adopt some variation on this theme, since this approach is less than helpful to an innocent making a start in the subject. Intellectually it is also suspect, since the so-called "common law" principles are largely statutory; the Statute of Marlborough 1267 dealt with repair, the Grantees of Reversion Act 1540 created proprietary leases and dealt with the running of covenants, forfeiture was regulated by eighteenth century Acts and so too was distress. It is noteworthy that the classic texts predate the twentieth century, and would surely be structured differently if written afresh today. A less egocentric perspective requires that we see ourselves in the middle of a continuous process of statutory development of a single subject. Security of tenure regimes are concerned primarily with extending the duration of a tenancy (sometimes with superadded rent controls) and should logically be seen as an aspect of contractual duration.
Nouvelle cuisine The intellectual hegemony described above has been challenged most notably by Bright and Gilbert in their book, The Nature of Tenancies.6 Here the subject is treated as a unified whole, with this structure: Essential elements; Entering into the lease; Protecting the relationship; Property management; Rent; Change of tenant; 4 5 6
Ibid. M Barnes (ed), Landlord and Tenant (18th edn, London, Butterworths, 1988). (Oxford, Clarendon, 1995).
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Change of landlord; Ending the relationship; and Changing the tenant's interest. The Woodfall orthodoxy is challenged on an heroic scale with the basis being a comprehensive assimilation of common law and statutory principles. Another brilliant feature of the book is the early introduction of the statutory security of tenure regimes as, in the terminology of the book, an aspect of "Protecting the Relationship". Surely this is central to any proper understanding of the subject? However, the book does not provide a satisfactory model for legislative development, because the unit chosen—leases—is simply too vast for ready digestion. The volume of our law is such that some subdivision of the subject is called for. To take one simple example, all leases can be ended for rent arrears—fixed long terms by forfeiture and short residential leases by repossession—so that the clearest picture is obtained by an initial subdivision into long and short, with the termination procedures explained in each context.
How to classify commercial leases The primary focus of this essay is on residential tenancies, but commercial leases need to be slotted into any legislative scheme. Current legislation fails to define sufficiently broad categories or, to put this another way, an allocation scheme is required to replace the existing matching exclusions of each legislative scheme. For example the Housing Act 1988 excludes from the assured tenancy scheme any business tenancy under Part II of the Landlord and Tenant Act 1954, agricultural holdings and farm business tenancies,7 and corresponding exclusions are found in those schemes. What is to happen when a particular lease is excluded from business renewal rights—perhaps because it is short term, a court order has been obtained, or the tenant is not in business occupation? Clearly the intention is to put the tenant outside all statutory regimes, especially the residential codes, but the legislation does not quite say so. What is needed is two large categories—with any lease in the commercial category excluding the residential security codes and vice versa. It should then be much easier to deal rationally with mixed tenancies. The category called "commercial" is not uncontroversial. Until recently one would certainly have wanted to treat agriculture as a category equal in status to business, but a case can now be made for fusing these into a larger grouping. Agricultural holdings (granted before autumn 19958) were distinctive in their whole machinery, but the superstructure of the Agricultural Tenancies Act 1995 dealing with farm business tenancies is so slight that modern agricultural leases are really just a particular type of business lease. 7 8
Housing Act 1988 sched 1 paras 4-7. Agricultural Holdings Act 1986.
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All commercial leases are characterised by flexibility of term, with some very long and some very short, but most are formal in character. Hence it seems most appropriate to defy Parliamentary Counsel's inapt use of "tenancy" and to prefer Trevor Aldridge's renewable business lease9 which best reflects the formality and stability which are the usual characteristics of commercial lettings. Other diagnostic features are rent review clauses, qualified covenants dealing with assignment, running of covenants, authorised guarantee agreements and sureties, the availability of distress, the absence of protection from eviction, and full repairing arrangements. Seen in the light of these common aspects, the divergences between the security regimes seem relatively unimportant.
Termination procedures The forthcoming Termination of Tenancies Bill10 provides a significant opportunity to crystallise an important functional distinction between the three main sectors. Forfeiture is, of course, a familiar method of terminating a business lease where the tenant is in breach of covenant; but with a residential tenancy forfeiture is rarely a useful description of the act of terminating a lease for breach of a covenant, and is often positively inaccurate. It is true that forfeiture is available to end a fixed term Rent Act 1977 tenancy (a declining pool) but the procedure is essentially that for residential repossession, albeit sometimes laid over an underlying forfeiture. There may be a duplication of defences: the tenant may be able to claim a stay of forfeiture proceedings or (if he loses that) have the right to stay in his home under a suspended possession order because it is not reasonable to make an outright order. This seems an unnecessary duplication, and surely it is better to take the rule that termination of a fixed term assured tenancy11 is a repossession rather than a forfeiture?12 Equally significant is the proposal that the Way Forward for long residential leaseholders is to replace the unjust enrichment which occurs when a landlord successfully forfeits a lease with a capital value with a duty to account for any surplus after liabilities have been met, just as foreclosure of a mortgage has been replaced by sale.13 If all these elements do slot together, it should be possible to effect a functional division between the three main sectors in terms of the hostile termination procedure.
9 10 11 12 13
Leasehold Law (London, Sweet & Maxwell, 1999). Law Com No 221 (1992); a new Bill is expected in 2000. The public sector legislation is similar: Housing Act 1985 s 82(3). Artesian Residential Investments Ltd v. Beck [1999] 3 All ER 113 (CA). Leasehold Reform—The Way Forward (London, DETR, December 1999) paras 11-12.
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Long and short leases Books like Woodfall treat tenancies at will next to 999-year leases, but there is a difference of quality as well as quantity. Residential leases must be subdivided into long and short sub-sectors. The basic characteristic of a short residential tenancy is that the tenant is paying a rack rental to a landlord. Long residential leases create a totally distinct form of ownership, very similar to a freehold. A "leaseholder" is a much more satisfactory description than "tenant" of a person who pays a substantial capital sum to buy a lease, and who is required to pay only a minimal rent (a "ground rent") to retain his ownership. It is a pity that the present attack on this form of tenure through enfranchisement is so ineffective. At present the ground landlord is in a false position—with far more power than is justified by the value of his interest. Someone who wants to live in central London may have to pay more that £1 million to buy a lease of a flat, and having done so he does not then regard himself as a tenant. His credit rating will be high and he will receive short shrift at the local social security office. So he needs to be treated as an owner, and the subject needs to be structured so as to differentiate his position—substantively and linguistically—from a student renting a bed-sit for a few terms. The two extremes are clear. A long lease is freely saleable, has a capital value, is subject to full-cost repairing obligations (though with some restrictions on enforcement during the continuation of a long term14) and with a live threat of forfeiture, enfranchisement rights and rights of communal management. Short tenancies have restrictions on transfer, little capital value, protection against eviction, repossession rather than forfeiture, and limits on the grounds for repossession during good behaviour. Also of critical importance is the rule that the cost of major structural work to a dwelling held on a short tenancy is cast onto the landlord,15 even if the landlord does not own the building,16 though it might be much more useful to tenants as a group if public sector landlords were caught.17 The statutory cut-off point is seven years,18 with freedom of contract operating in the case of a lease of exactly seven years,19 for any longer period or for life.20 These rules have created a significant sub-sector of short residential tenancies where the initial contractual grant exceeds seven years.21 Hence one has two different tests. Normally a long lease is any one for an initial term exceeding twenty-one years or for life, and this remains the more fundamental division. Above it the tenant 14
Landlord and Tenant Act 1927 s 18; Leasehold Property (Repairs) Act 1938. Landlord and Tenant Act 1985 ss 11-17. Bruton v. London & Quadrant Housing Trust [2000] AC 406 (HL). Landlord and Tenant Act 1985 s 14(4). S13. Brikom Investments Ltd v. Seaford [1981] 1 WLR 863 (CA). 20 Parker v. O'Connor [1974] 1 WLR 1160 (CA) (death of landlord). 21 R. v. Tower Hamlets LBC, ex pane Von Goetz [1999] Q B 1019 (CA); Artesian Investments Ltd v. Beck [1999] 3 All ER 113 (CA) (10-year term). 16
Residential
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has enfranchisement rights, whereas below it a private sector tenant has no rights to get at the freehold. Coherence requires a single cut off point, probably shorter than the present twenty-one years.
Sub-schemes within the short residential sector Woodfall approaches full security tenancies through the operative security regime. Thus: Rent Act tenancies Assured tenancies Public sector tenancies
Chapter 23; Chapter 24; Chapter 25.
This schema asserts that a protected tenancy is more like a protected shorthold than it is like a secure tenancy. Parliament has inexorably increased the number of schemes and sub-schemes because of the human rights objections to the reduction of the rights of existing tenants, but this has created a serious problem of comprehension. A long list of types of tenancy must be enumerated before one even reaches the agricultural worker in his tied cottage—assured, protected, regulated, secure, assured shorthold, protected shorthold and introductory—with further confusion caused by the variety of tenancies at large in the social sector. There are more schemes than any person can reasonably manage. Often a tenant does not know whether he is an assured tenant or a regulated tenant, but what he probably does know is that he is having trouble paying his rent. It is like a botanical classification that starts the search for a dandelion by asking whether it is a monocotyledon or a dicotyledon, when a more helpful starting point is that one has a yellow flower spreading all over the lawn. Coherent exposition requires that the structure of the law is related to the real life problems it resolves and that any future legislative structure should be based on function rather than on security regime.
FULL SECURITY ARANGEMENTS
Modern law has evolved a single category consisting of full security arrangements, derived from the pre-1977 Rent Acts but now including the following: Rent Act tenancies (before early 1989); Social sector tenancies; Private sector assured tenancies (since early 1989) where full security is conferred by notice; Public sector secure tenancies; and Assured tenancies arising on the continuation of long tenancies.
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Core principle Case law now recognises that the security of tenure of a fully assured tenant is entirely comparable to that of a Rent Act tenant, so the one can be a suitable alternative to the other.22 Central to this core is the perception that security of tenure implies protection against contractual termination of an existing tenancy. As Lord Bridge said in Hammersmith & Fulham LBC v. Monk23: For a large part of this century there have been many categories of tenancies of property occupied for agricultural residential and commercial purposes, where the legislature has intervened to confer upon tenants extra-contractual rights entitling the tenant to continue in occupation without the consent of the landlord, either after the expiration of a contractual lease for a fixed term or after a notice to quit given by the landlord to determine a contractual periodic tenancy.
So security of tenure is essentially a lengthening of the contractual duration of a lease. Other features are: a requirement of residential occupation (of which more below), tight controls on dealings,24 the possibility of Monk25 style unilateral termination of a joint tenancy and forced family law assignments. The modern regime which prescribes the effect of the bankruptcy of a residential tenant 26 is an exemplar of what legislation should be: a trustee in bankruptcy has a clear structure within which to operate irrespective of the form of tenancy with which he is dealing. This is so much easier than the old law which differentiated non-proprietary tenancies (statutory tenancies under the Rent Act 197727 and more arguably secure tenancies28) from proprietary tenancies (including the contractual phase of a Rent Act tenancy and all assured tenancies29).
Unprincipled differences—residential occupation It is sensible to confine the right to a home at the expense of the landlord to a tenant who occupies a rented property as his home, but surely it is quite mad to have different tests for different residential regimes. The Rent Act 1977 refers to occupation "as a residence",30 which may31 or may not 32 be the same as the 22
Laimond Properties Ltd v. Al Shakarchi (1998) 30 H L R 1099 (CA). [1992] 1 AC 478, 483^184. Housing Act 1988 s 15(1) (assured); Rent Act 1977 sched 1 para 13; Housing Act 1985 ss 9 1 - 9 5 , Burton v. Camden LBC [2000] 2 WLR 427 (HL) (secure); Assured T e n a n t ' s Charter (Housing Corporation, 1998) s 7 (social). 25 As above. 26 Insolvency Act 1986 s 283 as amended in 1988. 27 Sutton v. Dorf[1932] 2 KB 304, Acton J. 28 Housing Act 1985 ss 85, 86, 9 1 ; London City Council v. Bown (1990) 60 P & CR 42 (CA). 29 Housing Act 1988 s 5(2). 30 Rent Act 1977 s 2(l)(a). 31 Hampstead Way Investments Ltd v. Lewis-Weare [1985] 1 WLR 164, 169B, Lord Brandon; Crawley LBC v. Sawyer (1987) 20 HLR 98, 101, Parker LJ. 32 Ujima H Ass v. Ansah (1998) 30 HLR 831 (CA). 23 24
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requirement of residence "as a home" adopted for assured33 and public sector34 tenancies. Another niggling difference is the exemption of the tenant during a contractual phase of a Rent Act 1977 tenancy, so that residential qualification comes into play only during a statutory phase. Assured tenancies (granted after early 1989) are defined to continue if, and so long as, the tenant occupies the dwelling-house as his only or principal home,3-5 and public sector secure tenancies operate in the same way.36 Security regimes again diverge about second homes. The Rent Act 1977 requires residence as a home, with emphasis on the singular "a", leaving open the possibility that the continued residence test may be satisfied by a home that is one of two. 37 Tenants seeking security of tenure in a second home protected by the Rent Act 1977 must satisfy the requirement by a "reasonably substantial number of occupation visits". The legislation for assured tenancies is framed in a more coherent form to take this point on board, since the requirement is residence as the tenant's only or principal home.38 Policy in the public sector is stated even more clearly, and rightly so, since every public sector tenant given a home is merely one from a pool of countless other deserving applicants. 39
Unprincipled differences—notice of repossession Tenants are entitled to a preliminary notice warning that the landlord is about to take repossession proceedings, under the more recent legislation covering assured tenancies40 and public sector secure tenancies.41 Curiously the Rent Act 1977 does not require any notice to quit or preliminary notice before repossession proceedings,42 and, in this regard, the Rent Act looks antiquated when set against the newer schemes.
Unprincipled differences—breach of a suspended possession order This is a startling illustration of the danger of unprincipled variations. In the private sector a tenancy ends only when the tenant gives up possession,43 usually because the landlord obtains and executes a warrant for possession. 33
H o u s i n g Act 1988 s H o u s i n g Act 1985 s 81. 35 H o u s i n g Act 1988 s 1(1). 36 H o u s i n g Act 1985 s 8 1 ; Hussey v. Camden LBC (1995) 27 H L R 5 (CA). 37 Longford Properties Co Ltd v. Tweman [1949] 1 KB 29 (CA); Hampstead Way Investments v. Lewis-Weare [1985] 1 W L R 164,169F, Lord Brandon. 38 H o u s i n g Act 1988 s 1(1)(6). 39 H o u s i n g Act 1985 s 8 1 . 40 H o u s i n g Act 1988 s 8 as substituted by Housing Act 1996 s 151. 41 H o u s i n g Act 1985 ss 83, 83A, as a m e n d e d by H o u s i n g Act 1996 s 147. 42 Rent Act 1977 s 3(4). 43 Sherrin v. Brand [1956] 1 QB403. 34
Ltd
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Unfortunately this is not the position in the public sector. The Housing Act 198544 defines the precise moment at which a secure tenancy ends as when the tenant is to give up possession under the order, and this is held to mean that a tenancy terminates automatically when the terms of a suspended possession order are breached. This is a matter of great moment, given that one third of all public sector tenants are involved in possession proceedings at any one time.45 When the wife involved in Thompson v. Elmbridge BC46 was in breach of a suspended possession order, it was too late for the husband to claim a matrimonial home right in a non-existent tenancy. If the tenant dies while in breach of a possession order there is no succession right.47 The effect of a breach of an order48 is that the tenant is a tenant no more and is incapable of taking action for disrepair during the period of limbo.49 In Burrows v. Brent LBC,50 Lord BrowneWilkinson considered that the old tenancy remained in force during a period when a variation of the order was agreed between the parties until actual execution of the order for possession, perhaps in a state of limbo, but in a state in which it was capable of revival if the court later varied the date for possession.51
PRINCIPLES VARIATIONS BETWEEN THE FULL SECURITY SCHEMES
General Parliament sometimes decides on substantive changes in the rights of residential tenants whereupon the role of technical reform is to give effect to that parliamentary decision in the most efficient manner possible. Examples are: Public sector allocation52; Restrictions on public sector dealings53; Succession rights54; and The right to buy. Legislators have felt constrained by the human rights objection to the removal of vested rights, but this has tended to create a new residential scheme for every legislative change—most notably on the switch to market rents (assured tenancies) and so as to allow authorities to require prospective tenants to serve a 44
S 82(2). S Bright, "Possession Orders a n d Rent Arrears" (1997) 113 LQR 216. 46 [1987] 1 WLR 1425 (CA). 47 Brent LBC v. Knightley (1997) 29 HLR 857 (CA); Enfield LBC v. Devonish (1997) 29 HLR 691 (CA). 48 Unless it is trivial: Southwark LBC v. Edem [1999] 07 CL 264 (CCt.). 49 Lambeth LBC v. Rogers [2000] 03 EG 127 (CA); Dolonay v.Southwark LBC [1999] 12 CL 414. 50 [1996] 1 WLR 1448 (HL); Brent LBC v. Botu [2000] EGCS 34. 51 Sackey v. Greenwich LBC [1996] CLY 336 (new tenancy if reinstatement o n different terms). 52 Housing Act 1996 parts VI, VII. 53 Housing Act 1985 ss 91-95. 54 Rent Act 1977 s 21; Housing Act 1985 s 87; Housing Act 1988 s 17. 45
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probationary period (introductory tenancies).55 This is the root cause of the mess that the residential sector legislation now finds itself in, because the choice of legislative scheme is placed at too high a level of generality. This is best explained in the context of rents.
Principled variations—rents A Rent Act tenancy is one granted by a private sector landlord before early 1989.56 The shift to assured tenancy in early 1989 made little difference to the security of tenure available, but it had a fundamental impact on the rent regime: a Rent Act tenant can insist on registration of a fair rent, a procedure which imposes a cap on the recoverable rent. At first, market rents under the new assured system were dramatically higher, but Rent Act fair rents have gradually increased since early 1989 so that the gap has narrowed. For assured tenancies, rents are fixed by the market, the only intervention with free market economics being to prevent excessive claims to housing benefit. However, when this Thatcherite settlement was reached by the Housing Act 198857 it was on the basis that pre-existing security would remain unaffected, and hence the vital significance of the watershed when that Act came into force on 15 January 1989. At present this is structurally a most significant division of residential tenancy law, though it is arguable that it may shortly become almost totally insignificant. Historically fair rents were far below market rents because they were discounted for scarcity value,58 but they have increased substantially since 1989. Spath Holme Ltd v. Greater Manchester & Lancashire RAC 59 ruled that market rents charged under assured tenancies were suitable comparables to use when assessing the market rent element of a fair rent, and Curtis v. London RAC60 went even further by holding that assured tenancies are the best comparables. A parallel development has been the virtual elimination of scarcity,61 moving fair rents close to market rents and causing even larger increases in fair rents. The Rent Acts (Maximum Fair Rent) Order 199962 attempted (belatedly) to deal with the surge in fair rents by restricting increases according to a mathematical formula linked to the rate of inflation since the last registration. However, the Court of Appeal dealt a devastating blow to the Order in R. v. "
H o u s i n g Act 1996 ss 124-143. H o u s i n g Act 1988 s 35. Ibid ss 1(1), 34, sched 1 para 1. ss Rent Act 1977 s 70(2); Crown Estates Commissioners v. Connor (1986) 19 HLR 35, M c C o w a n J. 59 [1995] 2 EGLR 80, 85E, Morritt LJ. 60 [1999] Q B 92 (CA). 61 Queensway Association v Chiltern Thames & Eastern RAC (1999) 31 HLR 945, 964-967, Richards J. 62 SI 1999/6. 56 57
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Secretary of State for the Environment, Transport & the Regions ex parte Spath Holme Ltd.63 The Government made the order under reserve powers in recent landlord and tenant legislation,64 but unfortunately for it this provision derives from the counter-inflation legislation,65 whereas the Order was designed to alleviate hardship for a small group of fair rent tenants. Hence the 1999 Order sought to achieve an unlawful purpose and was void.
The social sector as a case study Registered social landlords currently control property assets worth £22 billion and have 1.3 million tenants,66 and their role is ever increasing. Public grants are provided for new building and conversion of existing housing, but the Government also envisages large-scale transfers of derelict estates to the social sector. Housing association tenants never enjoyed full Rent Act security of tenure,67 but the Housing Finance Act 1972 imposed fair rent controls.68 In 1980 this was supplemented by public sector security of tenure, at which time tenants of housing associations became secure tenants. Tenancies remain secure if originally granted before 1989 with additional Charter rights.69 In early 1989 future grants of housing association tenancies were prohibited70 leaving a base of Yi million fair rent units, since substantially reduced by regrants in the social sector. Housing associations were shifted from the public to the private sector early in 198971 so that fresh grants are assured. This is because the "landlord condition"—which defines the public sector—now excludes any tenancy held from a registered social landlord. 72 The rights are significantly worse than in the public sector, but an attempt is made to provide comparable rights by the Assured Tenant's Charter, and in particular the Housing Corporation insists that registered social landlords should grant tenancies with a full assurance.73 The theoretical market rent regime74 is moderated by the expectation that social landlords should charge "affordable" rents—roughly 20 per cent below market rents—so as to be accessible to people on low income including those in low paid employment.75 63 64 65 66 67 8
s
[2000] 1 All E R 884 (CA). Landlord and T e n a n t Act 1985 s 3 1 . Counter Inflation Act 1973 s 11, re-enacted as Housing Rents a n d Subsidies Act 1975 s 1 1 . Regulating a Diverse Sector (Housing Corporation, October 1999) para 2.2. Rent Act 1977 s 15. N o w Rent Act 1977 Part VI. Secure Tenant's Charter (Housing C o r p o r a t i o n , 1998). Housing Act 1988 s 35; some successor tenancies are also secure. lbid,s 140(2), sched 18. Housing Act 1985 s 80 as amended by Housing Act 1988 s 83 a n d SI 1996/2325. Housing Applicant's Charter (Housing Corporation, 1998) s 4. Housing Act 1985 s 81(1) as amended by Housing Act 1988 s 83. Assured Tenant's Charter, section 3 .
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So, in essence, there has been an enormous amount of chopping and changing dictated by the needs of the right to buy legislation. Removal of housing association tenancies from the public sector early in 1989 did not affect the right of existing tenants who remain secure tenants and have the right to buy their homes. 76 When homes are removed from the public sector under a voluntary stock transfer, rights to buy are preserved. 77 There is also a right of acquisition conferred on a social tenant occupying a home newly built as from April 1997.78 It was a legislative folly to remove social landlords from the private sector simply to remove the right to buy; what should have happened was that the right to buy should have been restricted to the public sector minus the social sector. As it is, every time the public sector security regime is changed, it becomes necessary to make a corresponding change to the private sector assured regime—for example to allow repossession for domestic violence79 and to deal with nuisance neighbours.80 The exclusion of the social sector right to buy was a principled (that is a political) decision, but the legislative response to it took place at too high a level of generality; what was needed was some slight tinkering with the right to buy legislation rather than a wholesale shift of housing associations between sectors.
THE TECHNIQUE OF CONFERRING FULL SECURITY
Residential security regimes operate by permitting a tenant to remain in his home until his tenancy is terminated by a court order, and by restricting the grounds on which the court is able to make a possession order. The right to long-term accommodation is extremely valuable. 81 Unfortunately the exact mechanism by which security is conferred differs between each of the residential schemes. Detail is readily available in existing texts so the very briefest outline will suffice here—the detail will be familiar to specialists and will create a deep sense of ennui in any non-specialist. It is necessary here to analyse the three main residential security schemes separately.
The Rent Act 1977 A protected tenancy has a contractual phase, but when it ends the tenant can continue in occupation through the mechanism of a statutory tenancy, which springs into the place vacated by the former contractual tenancy provided that 76 77 78 79 80 81
H o u s i n g Act 1985 Part V; Secure Tenant's Charter, section 8. A preserved right to buy; Assured Tenant's Charter, section 8. A right of acquisition: H o u s i n g Act 1996 ss 16—17; Assured Tenant's Charter, section 8. H o u s i n g Act 1996 s 145. Ibid, s 144. Murray v. Lloyd [1989] I WLR 1060 (£115,000 depreciation in value of the freehold reversion).
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the tenant has a residential qualification.82 A statutory tenancy is not an estate and confers no more than a personal right to be free from disturbance by his landlord unless and until a court makes an order for possession.83 Proprietary characteristics that are included are the right to sue in trespass, power to sub-let parts, 84 entitlement to compensation after compulsory purchase of the home and endurability against purchasers and lenders.
Assured tenants Assured tenancies have been created in the private sector since early 1989. Again there are contractual and statutory phases, but the latter takes the form of a statutory periodic tenancy "arising by virtue of this section" (that is section 5 of the Housing Act 1988). So this is an estate in the land, saleable and with the possibility of sub-letting. Protection throughout the life of an assured tenancy is dependent upon continued occupation as the main home of the tenant.
Public sector secure tenants "Life-long" security of tenure for public sector tenants under the Housing Act 1985 is similar in its practical effect to that enjoyed in the private sector, with a periodic tenancy arising automatically at the end of any contractual tenancy which is not renewed. It has been held in the context of bankruptcy that the tenancy creates a non-assignable and personal right of occupation, 85 though the public sector legislation is less explicit than the Rent Act 1977.
The way forward Seneca said86 that: Anything that is divided into minute grains becomes confused. Surely the preceding discussion illustrates this truism? Unprincipled variations give all sorts of unprincipled consequences. Reformers should set themselves the task of sorting out the mess just described as a vital first step forward. The way 82
Rent Act 1977 s 2(l)(a). Remon v. City of London Real Property Co. [1921] 1 KB 49 (CA); Keeves v. Dean [1924] 1 KB 685, 694, Scrutton LJ; America Economic Laundry Ltd v. Little [1951] 1 KB 400 (CA); Marcroft Wagons Ltd v. Smith [1951] 2 KB 4 9 6 , 5 0 0 , Evershed M R ; jessamine Investment Co Ltd v. Schwartz [1978] Q B 264 (CA); Johnson v. Felton (1995) 27 H L R 265 (CA). 84 Roe v. Russell [1928] 2 KB 117 (CA). 85 City of London Corporation v. Bourn (1990) 60 P & C R 42 (CA). 86 Utters, LXXXIX. 83
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forward is not, it is submitted, to choose between the three available cultivars, since it is the inherent division between contractual and statutory phases that creates the problem, and tackling that must lie at the root of any cure. Really the position is quite simple. A residential landlord grants a home to a tenant for an indefinite period on set terms: that it will be used as a home, that it will not be assigned without consent and so forth. All parties are satisfied if a tenancy is only assignable with consent, but once that is forthcoming it is quite unfair to require formality in its assignment. 87 If a tenancy is continued against the wishes of the landlord, there clearly needs to be some procedure for increasing the rent, and more rarely it may be necessary to vary other terms of the tenancy as a result of its statutory continuation. The most satisfactory technique is to continue the existing terms since they almost always remain the same under a statutory tenancy. It is an unnecessary fiddle to introduce a machinery to transfer existing terms out of the contractual tenancy and into an almost identical statutory tenancy.88 Much better to introduce a machinery to vary the terms where the landlord is able to show that the statutory continuation calls for different terms, since this will rarely be called upon. If an attempt is made to match the legislation to the real agreement between the parties, one ends up with a completely new sort of tenancy which is granted for an indefinite duration. The parties would be free to agree a contractual date, and during that interim period the tenant would be safe from termination during good behaviour. Otherwise the tenancy could be ended only by notice of intention to quit by the tenant, by agreed surrender or by court order. The landlord would have to serve a pre-action notice, take proceedings, and establish a ground for possession. Service of notices would be greatly simplified if the law were to move away from the concept of the periodic tenancy89: the reality is that the grant is open-ended and the law should try to reflect that. In this way the problem of identifying "anniversary" dates would disappear and one could move to a straight period of notice. The Law Commission has already suggested the creation of a discrete form of overriding interest for residential tenancies90 and it would be useful to develop that idea as a wide-ranging solution to the problem of the statutory tenancy.
LIMITED RESIDENTIAL SECURITY
Basic categories Classification has always been bedevilled by the inadequate way in which legislation handles exceptions. Even when attention is concentrated on a single 87 Crago v. Julian [1992] 1 W L R 372 ( C A ) ; Camden LBC v. Alexandrou (No 2) (1998) 30 HLR 534 (CA); Pare (Battersea) Ltd v. Hutchinson [1999] 2 EGLR 33, Moore-Bick J. 88 E.g., Rent Act 1977 s 3 . 89 C o m p a r e , e.g., Civil Procedure Rules sched 2 and County Court Rules O r d e r 49 rule 6A. 90 Law C o m N o 254 (1998).
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security regime—say the assured tenancy scheme of the Housing Act 1988—one finds a conflicting mass of principles. There are some so-called exclusions which really operate to allocate a particular tenancy between security regimes—and which should be removed to a new statute dealing with such allocations. Then there is a category of arrangements which are so far beyond the pale that they do not even attract protection from eviction—called excluded tenancies and excluded licences.91 Particular categories are: — tenancies or licences involving resident landlords, including any arrangement to share living accommodation with a member of the landlords' family92; — accommodation granted as a temporary expedient to a trespasser; — holiday accommodation; — gratuitous leases and licences93; and — licences in some publicly funded hostels.94 Since early 198995 these categories have cut across the traditional lease/licence distinction—and this seems in every way the most basic category to work with. Given the right to protection from eviction, most texts treat licences as a selfstanding category—particularly since there are numerous judicial dicta to the effect that the lease/licence distinction is the same in the residential and commercial contexts. 96 However eminent the authors of these statements, this opinion is very difficult to accept. A single example is surely decisive. A tenancy at will is protected by the residential codes, whereas it is excluded from the commercial codes.97 In the residential codes, the function of lease/licence doctrine is to mark the boundary of tenancies that have statutory protection, whereas in commercial arrangement this function falls to the border between periodic tenancies and tenancies at will. This example could be multiplied endlessly. In particular, all the lease/licence litigation is being fought out in the public and social sectors (precisely because of the predominance of shortholds in the private sector) and the distinctive legislation98 calls for distinctive results. So, surely, one must conclude that the test to determine the nature of a licence is a response to a particular code of protection, and if the legislation changes so in time will the lease/licence test. For this reason licences need to be treated as an aspect of the exclusion or limitation of security of tenure in the context of each sector of the market.
91 92 93 94 95 96 97 98
S 3A inserted by H o u s i n g Act 1988 s 3 1 . Mohammed v. Manek (1995) 2 7 H L R 439 (CA); Miller v. Eyo [1998) 2 CLY 3632. West Wiltshire DC v. Snelgrove (1998) 30 H L R 57. Mohamed v. Manek (1995) 27 H L R 439. H o u s i n g Act 1988 s 30. London & Associated Investment Trust Ltd v. Calow (1987) 53 P & C R 3 4 0 , 3 5 2 . Wheeler v. Mercer [1957] A C 416 (HL). H o u s i n g Act 1985 s 79 and sched 1.
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At present it is not possible to create a coherent law out of the disparate parts—licences, exclusions, mandatory grounds for possession and so on—but the need to do so is pressing. This is because of the seismic effects of the latest round of reduction of tenants' rights in the Housing Act 1996. The most dramatic change is in the private sector, where assured shortholds are indisputably the core of the legislation, but there are equally significant changes elsewhere. Social landlords can grant starter tenancies, public sector landlords can decide to apply the introductory tenancy scheme to their area, and the changes to the homelessness legislation give much greater weight to shortholds and their public sector equivalents. In short we suddenly have an imperative to recognise a category of limited security arrangements that cuts across the traditional subsectors of the residential market. Few books to date have really tackled the issue of how to adapt to the default nature of the public sector shorthold, but the Woodfall orthodoxy simply has to change to reflect the similarity of assured shortholds, protected shortholds and public sector grants to the homeless, and the legislation needs to change too. Any new legislative scheme also needs to integrate cases like residential landlords and other mandatory repossession grounds.
Shortholds If New Labour accepts the basis of the section 19A assured shorthold, as it appears to do, fundamental reform must be taken to be unlikely, and it becomes important to consider the changes at the level of detail. First there seems to be general acceptance of the benefits of reducing the minimum duration in 1988 from one year to six months." This is a sufficiently short period to remove any incentive for landlords to evade the shorthold scheme. It is perhaps more questionable whether there are merits in re-imposing a maximum duration for any fixed term, but perhaps a twenty-year shorthold term is nothing more than an oddity. More open to challenge is the decision in 1996 to remove the need for a prior written warning. 100 In practice the effect of this change may be minimal, because, if a landlord is to take advantage of the accelerated repossession procedure,101 he must ensure that the initial grant is in writing, but at least in theory a tenant can take a shorthold without any warning that his rights are limited and without any written record of the terms on which he is to hold. The case for the creation of a new over-arching category of limited security arrangements is made above, but the one reform for which the need is beyond argument is the need to integrate protected shortholds (created under the Rent 99 100 101
H o u s i n g Act 1988 s 20. H o u s i n g Act 1988 s 19A. Civil Procedure Rules sched 2; County C o u r t Rules O r d e r 49 r 6A.
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Act 1977 between 1980 and early 1989102) into the assured shorthold scheme. It is submitted that tenants who have been of good behaviour should be entitled to a notice on a sliding scale—so that longer notice is required the longer that the tenant has been in his home, and this could be drafted so as to ensure that any protected shorthold tenant was not disadvantaged by being shifted into the modern scheme. It would then be possible to drop the "assured" from the "shorthold" and create a substantive divide between tenants with insecure occupation rights and those with long-term security. This would also enable the exclusions to be refined so that only those appropriate to insecure holdings were retained. There seem to be overwhelming advantages in the use of a warning period followed by an accelerated procedure for repossession, but the scheme can work satisfactorily only when the Woolf reforms are completed by extension to housing cases.
REFORM
It cannot be said that every issue has fitted comfortably into the structure adopted in this essay. No humanly devised system could reduce the law as it stands to order. But is it megalomania to believe, where the law does not fit this pattern, that it ought to do so? Reform is desperately needed so that simple answers can be given to simple questions. We deserve a code, and we need it to be simple. It would undoubtedly work best if all the existing materials (legislation, statutory instruments, procedural rules and forms) could be included in a single package. The Law Commission has proved not to be a suitable vehicle for the reform of landlord and tenant law, because of the inherent (or is it self-imposed) limitation to non-contentious reform. None of the reforms outlined in this paper are truly contentious—they would not alter the substantive rights of any landlord or any tenant—but it is a fair bet that any attempt to legislate would create an alliance of landlords and professionals opposed to any simplification of the system. However, there are numerous Government reports calling for systematic reform, including the First Programme of Reform proposed for itself by the Law Commission,103 the Royal Commission on Legal Services104 and Lord Woolf's paper on Access to Justice.ws An injection of political momentum is required and this can only be administered by the DETR. A summary of the suggestions contained in this essay may be helpful.
102 103 104 105
HA 1980 ss 51-55. L a w C o m N o . l (1966) Item VIII. Cmnd 7648 (London, HMSO, 1979) annex 21.1 para 13. (London, HMSO, July 1996) ch 16 paras 2[b), 7-8.
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Plain English The key to any reform has to be a simple linguistic structure which differentiates the main subsectors in readily comprehensible English. In particular it is necessary for the legislation to mark out the divide between long and short leases in the residential field.
Creation of three main sectors The existing categories are not suited to allocation of tenancies between the main sectors, and it follows that there need to be larger categories used for allocation purposes which would embrace both tenants with a security right and those excluded from it—the suggested categories are commercial, short residential and long residential.
Creation of a single category of full residential security tenancies Subdivision of the residential security codes has created a major problem of comprehension. There is a recognisable family resemblance between Rent Act tenancies, fully assured tenancies, social sector grants and public sector secure tenancies, and these should be moulded into a single form of full security arrangement. A distinction has been drawn between principled and unprincipled variations. Technical reform needs to take account of the former to avoid substantive alteration of the rights of existing parties, but where rights do diverge—for example in relation to succession rights—the distinction between the existing subsectors should take at a low level—that is within the succession code itself. A necessary adjunct of this reform is the development of a single technique of giving effect to a tenant's security of tenure, and this essay has suggested the abolition of the contractual/statutory divide and its replacement with an open-ended tenancy.
Limited security regimes This essay has argued the case for a rationalisation and categorisation of residential security regimes which offer less than life-long security. Categories which need to be included are those excluded arrangements where there is no protection from eviction, exclusions from security regimes, licences and cases where there are mandatory grounds for possession. In particular a new grouping needs to be formed of shortholds and shorthold-like arrangements which, it has been suggested, should be detached from the existing security subsectors and coalesced into a single whole.
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A code regulating the terms of short residential tenancies New security regimes need to be supplemented by a comprehensive statement of the rights of residential tenants. Likely features would be a procedure for increasing rents, but also for limiting rent increases, consolidation of the legislation on structural repairs, an outright bar on dealings without the consent of the landlord and a tailor-made unfair terms regime. Completion of the Woolf reforms is an urgent priority.
14
Charitable Lettings and their Legal Pitfalls WARREN BARR
INTRODUCTION
N THE LAST few years there has been something of a legal renaissance of the hallmark test in Street v. Mountford1 for distinguishing between a lease and a licence, especially in the context of charitable lettings. Charities themselves are also coming under increasing pressure to instigate and practise principles of good estate management in relation to their property holdings; viewing their property portfolios as assets rather than burdens. Charitable letting can be usefully split into distinct types. The first concerns lettings by charities which are in furtherance of the direct charitable objects, such as housing the homeless or the infirm—what might usefully be called residential lettings. The second category is letting as good estate management, and this encompasses generating income from surplus space, such as letting floor space above charitable trading outlets as offices. This may be termed commercial letting by charities. The purpose of this essay is to consider any legal problems facing charities seeking to let property under either category.2 It will be suggested that the Street test is ill-suited to charitable letting, as it does not allow charities freedom to grant licences when they are deemed desirable, and should not be applied. This necessarily involves a discussion of the "surprising observations"3 on the nature of tenancies by their Lordships in Bruton v. London & Quadrant Housing Trust,4 which is of wider interest.
I
1
[1985] AC 809. The following treatment is concerned primarily with charitable trusts, although charities can take other forms including corporate charities limited by guarantee, unincorporated associations and provident societies. 3 S Bright, "Leases, Exclusive Possession, and Estates" (2000) 116 LQR 7. 4 [1999] 3 WLR 150. 2
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LETTING BY CHARITIES: POWERS AND DUTIES
In common with other trustees, charitable trustees must derive their powers to manage and deal with a Charity's property from a definite source. If they do not exercise those powers according to their terms, or do what they are not empowered to do, the trustees will be personally liable for breach of trust. It is standard practice to include express provisions in the governing (trust) instrument, empowering the charitable trustees to, inter alia, let charitable land, and particular forms of powers have been approved from time to time by the Charity Commissioners.5 In the absence of express terms, trustees of charity land had a general power to lease at common law, if such a letting was beneficial to the charity.6 Statutory intervention meant that charity land was held under a strict settlement,7 and that charity trustees, while trustees of the settlement, also had the powers of a tenant for life, which included a limited power to let property. From 1 January 1997, however, all charity land is held under a trust of land,8 and the charitable trustees now have all the powers of an "absolute owner" in dealing with land.9 This includes a wide power to allow charitable property to be leased. In exercising their powers to lease, however, charitable trustees are not only subject to the general equitable duty of care, but also to the provisions of Part V of the Charities Act 1993. In the past, it was necessary for the trustees to get the consent of the Charity Commissioners for any proposed leasing of land, but this is no longer necessary in most cases, provided certain guidelines have been observed. Broadly, the purpose of these provisions is to ensure that a suitable market rent is obtained on the letting, and to limit the scope for abuse by the trustees in the transaction. Section 36 of the Charities Act 1993 provides that land can be leased without the consent of the Charity Commissioners provided that a written surveyor's report has been obtained from a qualified surveyor, the property has been advertised in the manner recommended by the report, the sale is not to a "connected person" 10 and, on the basis of all the evidence, the terms of the lease are the best that can reasonably be obtained. In leases for less than seven years, the charitable trustees need seek only the advice of someone they believe to be qualified to give it, and they need not advertise the property.11 Section 36 does not operate 5 Examples of appropriate clauses can be found in Cracknell, Charities: The Law and Practice (London, Sweet & Maxwell, 1998) passim. 6 AG v. Warren (1818) 2 Swan 291. 7 Settled Land Act 1925, s 29. 8 Trusts of Land and Appointment of Trustees Act 1996, s 25(2) sched 4. All existing strict settlements were converted to trusts of land, by contrast to the provisions for general trusts where the Act had prospective effect only. 9 Ibid, s 6(1). S 8(1)—(3) prevents the reduction of these powers by the trust instrument. 10 This includes the trustees themselves, their relatives and spouses, or any companies controlled by them. 11 S36(5).
Charitable Lettings and their Legal Pitfalls TAX to affect leases which are entered into in furtherance of the charitable objects, so that a lease by an almshouse to an almsperson at less than market rent is not caught.12
LEGAL FORMS OF LETTING
It is not the intention of the writer to remake old rope, but it has always been understood that the difference between a lease and a licence in principle is that the lease is a property right and the licence a contractual one. 13 The lease grants an estate in land and creates the relationship of landlord and tenant between grantor and grantee. It is a marketable asset and can bind third parties, and attracts statutory legislation. The licence is permissive, and binding only between the parties to it—it will not survive a change of grantor or grantee. It also does not attract much statutory intervention, with the notable exception of the Protection From Eviction Act 1977.
WHY IS THE LEASE/LICENCE DISTINCTION RELEVANT TO CHARITIES?
The introduction of the Housing Act 1988 and the subsequent expansion of the assured shorthold tenancy14 might have been thought to put an end to the necessity for granting licences as opposed to leases, as it largely removed the security of tenure and rent fixing under the Rent Acts, so loathed by landlords.15 Nevertheless, there are other statutory obligations which apply only to tenancies, which could make life inconvenient for charities, such as repairing obligations owed to temporary occupiers in almshouses. Recent case law, discussed infra, focuses on this element of the lease/licence distinction, and it is in this context that it will continue to be important. The distinction is also particularly relevant for charities seeking to make commercial use of vacant space. Part II of the Landlord and Tenant Act 1954, as amended by the Law of Property Act 1969, entitles tenants of tenancies occupying premises for business or professional purposes to new tenancies as of right16 (provided certain procedural steps are complied with), unless the landlord can establish one or more of the specified grounds of opposition. Until such time as the tenant's application for a new tenancy is determined the Act preserves the 12
Ibid. This distinction may have become blurred, following Bruton, discussed infra. 14 Sched 2A to the Housing Act 1988, inserted by Sched 7 to the Housing Act 1996, means that all tenancies granted on or after 28 February 1997 are assured shorthold tenancies. 15 An assured shorthold tenancy contains no rent-fixing provisions, and confers no long-term security of tenure—it may not be ended during the fixed term of letting, but at the end of that period one of the grounds for recovery is the expiry of the contractual term. 16 S 24 and ss 32-25. 13
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status quo by automatically continuing the tenant's existing tenancy.17 The machinery of the Act is inapplicable to licences, as no tenancy is created. Where a lease is granted, well advised charities may seek to contract out of the Landlord and Tenant Act 1954, which is possible only where there is a joint application by both the grantor and grantee, in a fixed term letting, which is approved by the court. 18 Approval is almost always going to be given,19 but not all charities will want to let on fixed terms, nor, especially in the case of smaller charities, will they be alive to the possibility that they can actually contract out of the Act.
LEASE OR LICENCE: THE CURRENT TEST
Why, then, should there be any difficulty in a charity granting a licence to occupy? It was comparatively easy for a charity to ensure that a licence to occupy land was granted. The touchstone for distinguishing between lease or licence was the expressed intention of the parties, which was manifest from the terms of the agreement. Only in exceptional circumstances, where the occupier could show that the agreement was a sham, would the courts depart from what was agreed: We can see no reason why an ordinary landlord . . . should not be able to grant a licence to occupy an ordinary house. If that is what both he and the licensee intend and if they can frame any written agreement in such a way as to demonstrate that it is not really an agreement for a lease masquerading as a licence, we can see no reason in law or justice why they should be prevented from achieving that object.20 However, this general rule was problematic in operation. The Rent Acts21 were very unpopular, due to the long-term security of tenure provided, and the fixing of rent levels below markets rents for the duration of the protected tenancy. Residential landowners sought profit and the way to guarantee that profit provided by an open market rent was to circumvent the statutory legislation by making sure that any agreement for occupation created a licence and not a lease. Landowners abused the principle of sanctity of contract, and the fact that it was the intention of the parties which was paramount. This led to the situation that the legal status of an occupancy would be dictated by the expressly imposed intention of the stronger party, and it became common practice for intending occupiers to be required to sign a declaration which expressly denied that their 17 18
S 24.
S 38(4). S 38(1) renders void any other attempt to contract out of the protection of the Act. Technically, only ss 28—24 of the Landlord and T e n a n t Act 1954 Part II are excluded, but practically it has the effect of 'contracting out' of the Act as it means that a tenant is entitled to neither security of tenure, nor compensation if the tenancy is not renewed. 19 See Lord Denning's comments in Hagee Ltd v.AB Erikson Ltd [1975] 236 EG 479. 20 Somma v. Hazlehurst and Sarelli [1978] 1 WLR 1014 at 1024 per Cumming-Bruce LJ. 21 Currently, Rent Act 1977.
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rights were anything other than those of a licensee. The courts were not looking at the substance of the transaction to see whether it conferred something equivalent to a right of property or not. It was contractual freedom gone mad. 22 Change came in Street v. Mountford,23 where Lord Templeman swept aside the old approach and said that it was the fact of a tenancy which was paramount, not the subjective intentions of the parties. A tenancy would be created if the agreement in fact conferred exclusive possession, for a term certain, at a rent. These were the three hallmarks of a tenancy.24 If there was no exclusive possession, then the occupier would hold under a licence. He pointed out that what the parties term the arrangement is no longer decisive,25 and that the courts should be alive to detect and frustrate sham terms or pretences, whose purpose is to disguise the grant of a tenancy.26 The only intention relevant is the intention to create legal relations and the coldly objective intention whether in fact exclusive possession has been granted.27 Lord Templeman did recognise that exclusive possession might not always be conclusive of a lease, as it could be explained by reference to some other relationship between the parties, following the categories outlined by Denning LJ in Errington v. Errington and Woods.28 There would be a licence where the relationship between the parties was referable to some other relationship such as an object of charity29; where the grantor had no power to grant a tenancy, and finally where the parties did not intend to enter into a legal relationship at all.30 In all other situations, if the three hallmarks of the tenancy were present, then a leasehold interest rather than a licence is the result.31 22
See J Dowling, "Have the Rent Acts become Irrelevant?" [1984] 270 EG 148. [1985] AC 809. 24 Rent is n o longer considered an essential element of the creation of a tenancy, although the absence of rental payments may need explanation—see Ashburn Anstalt v. Arnold [1988] 1 All ER 147; Law of Property Act 1925, s 205(l)(xxvii). 25 " T h e manufacture of a five-pronged instrument for manual digging results in a fork even if the manufacturer . . . insists that he intended t o make a n d has made a spade": per Lord T e m p l e m a n , supra n 23. 26 A term will be a " s h a m " if neither party intends it to be acted u p o n — S n o o k v. London & West Riding Investments Ltd [1967] 2 QB 786. There is considerable debate whether "pretence" has a different meaning from "sham"—see, e.g., P Sparkes (1989) 52 M L R 557; cf Mikeover Ltd v. Brady [1989] 3 All ER 618. 27 " T h e facts must prevail over the language in order that the parties may not contract out of the Rent Acts": per Lord Templeman in AG Securities v. Vaughan [1988] 3 All ER 1058 at 1068. 28 [1952] 1 KB 290. 29 Street, supra n 23, at 818E. 10 Ibid, 827H. 31 It is sometimes said that these special categories "negative" the finding of a tenancy. It is suggested that this is not the case, otherwise there would be a hopeless circularity in applying the test— they instead explain that the parties had no intention to grant exclusive possession: "There is no room for 'special circumstances' to negative the legal consequences of the transaction. That is not to say that 'special circumstances' in the wider sense are irrelevant. They may negative an intention to create legal relations, or an intention to grant a right to exclusive possession, but that is all. Were it otherwise, there would be no standard by which 'exceptional circumstances' could be evaluated, and no workable test to enable those which lead to the creation of a licence only to be distinguished from those which lead to the creation of a tenancy": London Borough of Camden v. Shortlife Community Housing (1992) 25 HLR 330 at 341 per Millet j . 23
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Street v. Mountford represents an inroad into the principle of sanctity of contract, as it expressly prevents landowners from simply contracting out of the protective legislation. There is, in effect, a presumption in favour of tenancy if the hallmarks are present. It is a striking example of judicial legal paternalism, and perhaps misplaced, given the enactment of the Housing Act 1988 which followed shortly thereafter. The genesis of the test also has little to do with the pattern of charitable letting, which did not seek to evade the Rent Acts.
THE RELEVANT FACTUAL MATRIX: TOO RESTRICTIVE FOR CHARITIES?
On a strict reading of the factual supremacy test adopted in Street v. Mountford, the factors to which the courts may have recourse in deciding the lease/licence question are severely curtailed. All evidence external to the particular agreement is not to be considered, unless it can be seen as explaining a finding of exclusive possession by one of the other means identified by Lord Templeman. In deciding whether the expressed terms which appear to take away exclusive possession are a pretence or not, the background to the agreement may be relevant, in so far as it concerns the validity of the terms. 32 This has attracted some general and forceful comment on the practical utility of making the distinction between the two forms of land letting: However, profound difficulties in practical application remain. As a result of Street v. Mountford the court faced with an occupation agreement whilst itself looking out for the proverbial coach and four [through the Rent Acts] must don blinkers, and consider only very limited factors. The parties description of the agreement, their actual subjective intention (unless they do not intend to enter into legal relations at all), the effects of the Rent Acts, are to be ignored . . . What, then, is left? The effect, the substance, of the agreement, is what we are told, looking ultimately to the central question: is the intention to confer exclusive possession for afixedperiod at a rent?33 The restrictive scope of this factual matrix, against which any letting agreement is to be judged, is potentially detrimental to charitable letting, in which any fervour to circumvent protective or other legislation arises from the trustees' need to safeguard the charitable purpose of the trust, rather than commercial dis-
32
See, e.g., Westminster County Council v. Clarke [1992] 2 AC 288, discussed infra. S Bridge, "Street v M o u n t f o r d — N o Hiding Place?" [1986] Conv 353. See also H Wallace, " T h e (1990) 41 N1LQ 143, w h o attacks the current test for focusing attenLegacy of Street v. Mountford" tion o n exclusive possession to the exclusion of other salient factors. M It is n o t suggested that charitable trustees are beyond reproach in their actions, simply that their office as trustees m e a n s that they must exercise their powers in furtherance of the charitable objects t o avoid liability for breach of trust, as opposed t o other landlords, w h o may seek to act in 33
their own best interests.
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Purpose and duration of letting are not relevant factors In many charitable lettings, the intention behind the agreement may be considered paramount between the parties, and of ultimate utility to the unfettered continuation of the charitable purpose. In Abbeyfield (Harpenden) Society Ltd v. Woods,35 a charitable company ran a home for old persons and one of the occupants claimed that he or she held under a Rent Act protected tenancy, as he or she had been granted exclusive possession of his or her particular room. The court, reading the agreement as a whole, found a clear and express (subjective) intention that the arrangement was intended to create a licence to occupy, rather than the proprietary interest of a leasehold tenancy. This is no longer a viable interpretation of a letting agreement. Any attempt to suggest that legislation which attaches to a tenancy is detrimental to the purpose of the letting is outside the factual matrix of the lease/licence test, as Lord Templeman said "I accept that the Rent Acts are irrelevant to the problem of determining the legal effect of the rights granted by the agreement".36 Similarly, the fact that a charity may refer to and justifiably intend a letting to be "temporary" is to be disregarded; the duration of the lease not being relevant to the question whether exclusive possession is granted.37 The dangers for charities are ably illustrated by Family Housing Association v. Jones,38 which concerned a "charitable motive"—a housing association helping a local authority discharge its duty under the Housing Act 1985 to temporarily house the homeless.39 The association, itself a licensee of the local authority, granted what was clearly described as a licence to occupy premises on a temporary basis. The Court of Appeal found that Mrs Jones was a tenant—she had exclusive occupation and, as intention was irrelevant, there was nothing to negative that finding.40 This was so, despite a clear understanding that this may well frustrate the purposes of the letting: 35
[1968] 1 WLR 374. Street, supra n 23, at 819H, affirmed in Bruton v. London Quadrant Housing Trust [1999] 3 WLR 150 at 155F per Lord Hoffman: " T h e meaning of the agreement, for example, as to the extent of the possession which it grants, depends upon the intention of the parties, objectively ascertained by reference to the language and relevant background . . . But the classification of an agreement as a lease does not depend upon any intention additional t o that expressed in the choice of terms. It is simply a question of characterising the terms which the parties have agreed. This is a question of law". 37 See Crancour v. De Silvesa (1986) P & C R 24, where it w a s said that mere effluxion of time does not convert a licence into a lease, and vice versa. Duration remains relevant t o deciding whether there is a certain term, in that a lease must have an objectively determinable minimum and maxim duration at the time it is granted—see Prudential Assurance Co Ltd v. London Residuary Body [1992] 2 AC 186; for application to periodic terms see Hammersmith LBC v. Monk [1992] 1 AC 478. 38 [1990] 1 WLR 779. 39 T h e housing association in question was itself non-charitable, b u t the reasoning is clearly applicable to charities letting under the same terms and conditions. * ) The issue concerning the services offered under the occupancy, which was raised in argument in the case, is considered infra. 36
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The result must be substantially to reduce the choice of methods available to bodies such as the FHA for dealing with their always limited supplies of housing stock. I am not sure that this result will necessarily inure to the benefit of a class of homeless persons in this country viewed as a whole. 41
Lord Slynn in Bruton v. London &" Quadrant Housing Trust,42 on similar facts, while also suffering "anxiety about the impact of such a result on the housing trust", said that "the essential function of the housing trust in providing accommodation for the homeless" did not amount to "special circumstances" to displace a finding of tenancy. 43
Supplying services: retaining exclusive possession Clearly, it is open to charities letting premises to avoid exclusive possession by the same methods as are open to general landlords. The provision of services, provided they are not struck out by the court as sham or pretence, would have the effect of conferring exclusive occupation rather than exclusive possession, as the occupier in such circumstances does not have the territorial right to exclude the grantor from the premises. 44 The validity of the provision is judged against the surrounding circumstances of the agreement, which include the course of negotiations, the nature and extent of the premises let and the actual and intended mode of user. 45 Charities which are dealing with people with special needs, such as those housing the elderly or infirm, will generally not have service provisions struck out, as the occupiers actually require attendant services.46 In other cases, the context of the letting arrangement is significant. In Westminster County Council v. Clarke,47 for example, the House of Lords upheld a mobility clause in a letting agreement in a hostel for single homeless men. The hostel reserved the power to move the occupiers from room to room and to enforce sharing. Their Lordships found that, as many of the occupants had severe behavioural disorders, this clause was necessary to allow the hostel to discharge its functions. The motive or purpose behind the letting is not decisive. In FHA v. Jones, the retention of a key was not sufficient to transform exclusive possession into 41 42
[1990] 1 WLR779at793.
Supra n 36. 43 Ibid, 152F, a p p r o v i n g the decision in FHA v. Jones, supra. 44 T h e provision m u s t operate s o as t o deprive exclusive possession—a right reserved to the grantor t o enter at certain times o r for limited purposes {e.g., repair) may actually bolster a claim for exclusive possession, as such reservation "only serves to emphasise the fact that the grantee is entitled t o exclusive possession a n d is a t e n a n t " {Street, supra n 23, at 818 per Lord Templeman). 45 Snook, supra n.26. 46 T h e decision in Abbeyfield v. Woods, supra n 33, is explicable on this basis, as the provision of services t o t h e occupiers of the old people's h o m e were extensive. 47 [1992] 2 A C 288.
Charitable Lettings and their Legal Pitfalls 247 exclusive occupation, as the intended services behind the retention of the key were not such as to deny exclusive possession to the occupier. This was so even though the grant of a tenancy worked against the effective continuation of the housing associations functions. The use of service provisions by charities is therefore not a failsafe to escape granting a tenancy.
"Object of charity": other legal relationships explaining exclusivity One of the exceptional categories in which exclusive possession may be explained, and a licence granted, is where the occupant is an "object of charity".48 This is a status, so that someone who is an occupier by virtue of a legally enforceable letting agreement with a charity is not an object of charity. The occupier must be someone who is there in an everyday "charitable" sense; whose only explanation for being in occupation is as an object of charity, not due to any other legal arrangement. The majority of charitable lettings will, therefore, fall outside this category, which explains the paucity of case law on this issue.49
CASE LAW: SOLUTIONS AND FURTHER PROBLEMS
Favourable decisions and their limitations A liberal approach by the judiciary to charitable lettings, particularly in the residential sphere, has surfaced in a number of decisions. This is to be welcomed, as the genesis of the Street v. Mountford test, rooted in Rent Act evasion, bears no relation to the pattern of charitable letting. Unfortunately, the reasoning in these pro-charity cases is open to criticism. The courts have used subjective intention outside the relevant factors highlighted in Street. In Carr Gomm Society v. Hawkins,50 the defendant was granted exclusive possession of a room in one of the plaintiff's homes, and there were no attendant services or clauses to dispute this exclusive possession. Nevertheless, the court recognised that the charity's aim was to provide accommodation and support for lonely single people and had a continuing need to move people on if necessary, and held that the defendant had a licence, not a lease. This can no longer stand in the light of Bruton. The latest example of a benignant judicial approach comes from Sir John Vinelott in Gray v. Taylor.si An almsperson occupying a flat in an almshouse 48
Street, supra at n 29. See Royal Philanthropic Society v. County [1985] 2 EGLR 109, where it held that a payment in the nature of rent for occupation would normally be taken as showing that there was a contract, depriving someone of status as an object of charity. 50 [1990] 4 CL 244. 51 [1998] 4 All ER 17. 49
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administered by the trustees of a charity sought to stop the trustees terminating her occupation for vexatious conduct contrary to the rules of the charity. She argued that she had exclusive possession and was an assured tenant under section 1 of the Housing Act 1988, with the consequence that her tenancy could not be brought to an end except by the order of the court. She failed at first instance. The Court of Appeal, dismissing the appeal, held that Mrs Taylor was a licensee. The ratio of the court's decision seems to be that, although Mrs Taylor had exclusive possession in fact from the agreement, exclusive possession could be explained by reference to a relationship other than tenancy—namely, that she was a beneficiary under a trust: A person who is selected as an almsperson becomes a beneficiary under the trusts of the charity and enjoys the privilege of occupation of rooms in the almshouses as beneficiary.52 This approach escapes the rigours of Street v. Mountford, as "trustee and beneficiary" is a recognised legal relationship)—it is not simply an excuse for exclusive occupation. Nevertheless, the reasoning is questionable. A beneficiary under a charitable trust is clearly not in the same position as a named beneficiary of a private trust, in that any duties owed are not owed to that beneficiary alone, but to a general class of beneficiaries and the public at large.53 Moreover, just because the occupant is a beneficiary, does that also stop them being a tenant? The two concepts are not mutually exclusive. The ratio also seems limited to charitable trusts—if a charitable housing association or a provident society wants to make use of the argument, or a charitable company, what legal relationship can they utilise to dispute an inference of exclusive possession? Sir John Vinelott also considered the powers of the trustees to grant a right of occupation as significant. He dismissed an allegation by counsel that the trial judge had incorrectly considered the purpose of the letting in deciding that there was a licence, and opined that the creation of a tenancy: would be inconsistent with the performance by the trustees of their duties as trustees of a charity, for the tenancy would impose a burden which might make it impossible for the trustees to ensure that occupation of an almshouse was restricted to almspersons who satisfied the qualifications set out in [in the trust instrument] .. . There is no need to resort to a tenancy to explain the almsperson's right to exclusive possession of the rooms; and, since the grant of a tenancy might obstruct or fetter the performance by the trustees of their duty to provide accommodation for deserving persons, it would be wrong for them to grant a tenancy.54
52
[1998] 4 All ER 17 at 2 1 . It is w o r t h noting t h a t , by s 22 of the T r u s t s of Land and Appointment of Trustees Act 1996, charities have n o beneficiaries for t h e p u r p o s e s of the Act, so that, e.g., the trustees' power to delegate functions (s 9) is not operative. 54 Gray, supra n 5 1 , at 22. 53
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This is very paternalistic reasoning. The court appears to be saying that, as the trustees should not have granted a tenancy, they would not have done so. This was not a question of ultra vires—the trustees clearly had the power to create a tenancy, and the result would have been that the trustees would probably have been liable for breach of trust. The court was, in effect, bending over backwards to ensure that a licence was granted.55 Not all judges will be as sympathetic to the plight of charities.
A non-favourable decision for charities (and others) One recent case threatens to throw the whole area of letting into disarray, and it comes from the highest court in the land—Bruton v. London & Quadrant Housing Trust.56 The Housing Trust gave Mr Bruton a right to occupy a flat "on a weekly licence . . . on a temporary basis", so that the property could be used to provide temporary housing accommodation pending redevelopment by Lambeth Council, which held the legal estate. The Housing Trust had no proprietary interest in the land as it held under a licence itself. This was pursuant to what is now section 32(3) Part II of the Housing Act 1985, which prevented Lambeth Council from granting any interest in property without the consent of the Secretary of State. Mr Bruton had been resident at the property for ten years by the time the dispute reached the House of Lords. The issue on appeal was whether the agreement was a lease, and thus subject to the repairing obligations imposed by Landlord and Tenant Act 1985, section 11, or was a licence, which escaped those provisions. The House of Lords, reversing both the Court of Appeal and the judge at first instance, held that the agreement created a lease. The argument in the lower courts had concerned whether a tenancy arose by estoppel, given that the Housing Trust had no estate out of which to grant a term of years.57 Lord Hoffman, in a now notorious leading speech,58 considered that there could be a tenancy on the facts, without resort to estoppel,59 as the 55 Sir J o h n Vinelott was also at pains to justify the presence of what looked like rent, even though the presence of rent is no longer a requirement in establishing a tenancy. The payment was distinguished from rent on the basis that any payment was required only because of the presence of Housing Benefit—historically, almshouses did not request any payment at all. An analogy to a beneficiary being asked to pay a charge for upkeep of property having exhausted the trust fund in having the property purchased for occupation was also used to illustrate that the payment was not rent under a tenancy. 56 [1999] 3 WLR 150. 57 Bruton [1998] 2 QB 834. See, in particular, J M o r g a n , "Exclusive Possession and the T e n a n c y by Estoppel: 'A Familiar Problem In An Unfamiliar S e t t i n g ' " [1999] Conv 493. 58 See, e.g., S Murdoch, "Of Carts and Horses" [1999] EG 9930 at 90; S Bright, supra n 3; D R o o k , "Whether a Licence Agreement is a Lease: T h e Irrelevance of the G r a n t o r ' s Lack of Title" [1999] Conv 517. 59 For comment on the dismissal of the estoppel element of this case, see particularly Bright, supra n 3, Murdoch, supra n 58; Rook, supra n 58, and M o r g a n , supra n 59.
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relationship of landlord and tenant could be contractual only, and need not arise out of, nor grant, a proprietary estate in land: [T]he term "lease" or "tenancy" describes a relationship between two parties who are designated landlord and tenant. It is not concerned with the question of whether the agreement creates an estate or other proprietary interest which may be binding upon third parties. A lease may, and usually does, create a proprietary interest.. . [but t]his will depend upon whether the landlord had an interest out of which he could grant it. Nemo dat quod habet. But it is the fact that the agreement is a lease which creates the proprietary interest. It is putting the cart before the horse to say that whether the agreement is a lease depends upon whether it creates a proprietary interest.60 On a literal reading, and to anyone familiar with the law of landlord and tenant in this country over the last few hundred years, this is an astounding proposition. It has been widely accepted for some time that the lease has a dual legal nature, that it is "a hybrid, part contract and part property",61 but it has never been viewed simply as a contractual relationship, without the estate.62- In maintaining a legal distinction between a lease and a licence as forms of occupying land, Lord Hoffmann's words are unhelpful and would seem to complicate matters further, as Bright has noticed, by adding a third, vague category of landholding: contractual rights of occupation will need to be classified as either proprietary leases giving an estate in land and enforceable against third parties, or as contractual leases conferring exclusive possession and giving rights against all who interfere with possession other than those who can show a better right to possession, or as licences. There will be consequential issues to be addressed.63 Whatever the limits of this contractual relationship of tenancy, if it does indeed exist,64 it is clear that it will attract legislation which applies to tenancies as 60
Supra n 56, at 156H. Linden Garden Trusts Ltd v. Lenesta Disposals Ltd [1993] 3 All ER 417 at 433 per Lord Browne-Wilkinson. Contractual remedies, such as frustration and rescission for repudiatory breach, have increasingly become applicable to leases, despite the presence of the estate interest— see National Carriers Ltd v. Panalpina (Northern) Ltd [1981] A C 675 (frustration); Hussein v. Mehlman [1992] 2 EGLR 87; Chartered Trust v. Davies [1997] 2 EGLR 83; Nynehead Developments Ltd v. RH Fibreboard Containers Ltd [1999] 1 EGLR 7 (repudiatory breach). 62 O t h e r c o m m o n w e a l t h countries have welcomed the "contractualisation" of leases t o a greater degree than English l a w , b u t in all cases t h e operation of these doctrines has been limited t o or otherwise connected with an estate in land—for a brief discussion of the principal cases o n this point see W Barr, "Repudiation of Leases—A Fool's Paradise" in P Jackson and D Wilde (eds.), Contemporary Property Law (Dartmouth, Ashgate Publishing, 1999), 331-334. 63 Bright, supra n 3, at 9. Bright raises three issues yet t o be resolved in relation to these contractual tenancies—the applicability of statutory legislation, informal creation and status as against third parties. T h e former will be discussed infra. 64 H o p e springs eternal (in the author's breast at least) that some gifted advocate may convince a n o t h e r court that Bruton be distinguished o r confined t o its facts, perhaps on the ground that something more concrete is required to overturn an established principle of law than the belief that the " n o estate, n o tenancy" was not something that previous judges "had in mind": Bruton, supra n 56, at 157E, where Lord Hoffmann comments o n dicta of Denning LJ in the somewhat obscure case of Lewisham Borough Council v. Roberts [1942] 2 KB 608. 61
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opposed to licences—if section 11 of the Landlord and Tenant Act 1985 applies, on what principled and certain basis may other statutory provisions be excluded? Is there any reason for excluding the operation of, say, the Landlord and Tenant Act 1954 Part II to a commercial letting which creates a contractual tenancy and fulfils the other requirements of that Act? Indeed, the argument may be stronger in this context, as by section 23(1), the 1954 Act applies to "any tenancy", which includes a tenancy by estoppel,65 in which, strictly, a full estate has not been granted.66 This would confuse all potential charitable lettings, but especially those seeking to make commercial lettings of surplus space in the interests of good estate management, as they could find that they have lost the right to reclaim the property on the contractual end date. Moreover, where charity trustees have made use of the relaxed rules under section 36(5) of the Charities Act 1993 in relation to leases of equal to or less than seven years' duration, the statutory extension of the term beyond the seven years might result in the trustees being liable for breach of trust. Is it possible to read Lord Hoffmann's words in a less damaging light? It is suggested that, with the greatest of respect, the decision was predicated upon a misunderstanding of the distinction between exclusive possession and exclusive occupation. His Lordship did not truly grasp the proprietary aspect which lies at the heart of the exclusive possession linchpin in Street. What makes exclusive possession separate from exclusive occupation, and therein the lease a distinct form of occupation from the licence, is the ability to exclude third parties, as well as the grantor, rather than simply the grantor himself. It is territorial control as opposed to a permissive right of occupation. Millett LJ was alive to this distinction in the Court of Appeal: A tenancy is a legal estate. The essence of a legal estate is that it binds the whole world, not just the parties to it and their successors. . . . In this context, therefore, exclusive possession means possession to the exclusion of the whole world, not merely of the grantor and those claiming through him.67 It is not a matter of "putting the cart before the horse" to say that the lease creates an estate in land—the presence of the term of years is the result of the agreement being a lease, in that not only is a contractual relationship begun between the landlord and tenant, which relates to any covenants contained therein, but there is also the conveyance of an estate in land. Otherwise, what is effectively being protected is a possessory interest, akin to a squatter's rights in property through adverse possession, but with a permissive, contractual element. This is a fundamental change in the law, and if that is what Lord Hoffmann was suggesting, it would have been better to do so through a Parliamentary reform committee. 65
Bell v. General Accident Fire and Life Assurance Corp Ltd [1998] 17 EG 144. A tenancy by estoppel, unlike a "full" estate, is n o t generally binding against third parties, the estoppel existing only between the landlord and tenant for the time being. 67 Bruton (CA), supra n 57, at 895F. 66
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Without the defining element of the estate, evidenced through the letting arrangement granting territorial control, the test to determine between a lease or licence becomes hopelessly circular. Lord Hoffmann is correct in one very real sense—exclusive possession alone is not a helpful tool to distinguish between the two forms of letting. He need not have made use of the test at all— this was really a case concerning lack of title. A preferable method of analysis was that adopted by the Court of Appeal—that the only way in which a tenancy could arise would be by means of estoppel, since the Housing Trust as grantor lacked more than exclusive occupation, and that an estoppel could not be raised on the facts of the case. 68 The applicability of the Street hallmarks test to a situation where there is a lack of title is the error precipitated by the House of Lords, and has, with respect, distorted established principles of law because of it. Pending further notice, English law is burdened by this decision, and charities, like others, can only hope that the principles contained within Bruton are given a very narrow interpretation in future.
ESCAPING THE LEGACY OF STREET V. MOUNTFORD: POSSIBILITIES?
Quite apart from the conceptual difficulties presented by Bruton, a benignant approach to charities and licences depends largely upon judicial sympathy for charitable purposes and a wish to construe an agreement for occupation so as not to conflict with those purposes, which is unpredictable. It has already been illustrated that the whole basis for the objective, fact-based approach of Street rings hollow in relation to charitable lettings to those in need. All that is required is a return, through this gateway, to the position where all relevant factors can be taken into account when construing an agreement reached between a charity and a recipient of charity, including the subjective intentions of the parties. Street v. Mountford should not be viewed as a universal test which must be followed slavishly.
Lip service: commercial lettings There are precedents for adopting a different factual approach from the one normally adopted in Street v. Mountford in the realm of commercial lettings. In Venus Investments Ltd v. Stocktop Ltd,69 Tyrell QC, sitting as a deputy judge, said that whilst the principle of Street v. Mountford applied equally to com68 This conforms with the principle "nemo dat quod habet" much more convincingly than in the sense in which Lord Hoffmann employs it. Lord Hoffmann did comment on the element of estoppel, obiter, and refused to view it in the same way as Millett LJ in the Court of Appeal—see further supra n 62. «» [1996] EGCS 173 (affirmed by CA, unreported).
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mercial property, no inference of exclusive possession could be made as regards commercial premises, although such an inference might more easily have been drawn had the premises been residential. On the facts, it was held that, in the absence of a reference to possession or to exclusive possession, or a reservation to the landlord to enter or inspect, or of a right of re-entry, a licence has been created, as that was the intention of the parties. In Hunts Refuse Disposal Ltd v. Norfolk Environmental Waste Services Ltd,70 the Court of Appeal had to consider the grant of a so-called "exclusive licence" to use a site for waste disposal, granted for a term of twenty-one years. Hutchison LJ opined that, whilst the general principles of law on whether an agreement constitutes a licence or a tenancy were the same, the terms of the agreement were not to be considered in a vacuum. The Court found, as a matter of construction of the agreement, that the occupier's right over the site was a limited one, and that the grantor retained a right to enter the site. The proper inference was therefore that the grantee had merely a licence. The presence of other clauses in the agreement was equivocal, in that they were consistent with either a licence or a tenancy, and they were therefore insufficient on their own merits to displace the inference of licence. Clearly, it is possible by analogy of reasoning to mould the concept of charity in this way, which is arguably what the courts have been doing in the pro-charity decisions like Gray v. Taylor, albeit on a less transparent basis.
Actively distinguishing Street v. Mountford The boldest step has come from Mr Richard Southwell QC, sitting as a deputy judge in Mehta v. Royal Bank of Scotland pic.71 On first glance at the facts, this decision seems unsurprising, in that an occupier in a hotel was held to be a licensee. However, the reasoning is very appealing for charitable letting institutions. The agreement, which was outside the terms and conditions of the hotel's normal contract, conferred exclusive possession.72 Nevertheless, Street % v. Mountford was actively distinguished in the residential sphere. Mr Richard Southwell QC said that the three hallmark test was important where the landlord had deliberately set out to exclude the Rent Act protection for the tenant. These observations could not be applied indiscriminately, and particularly not in a case in which there were other equally significant factors to be taken into account in addition to the three hallmarks. He opined that there was no simple, all-embracing test for deciding between lease or licence. The search for such a test would be the search for a chimera. What each court, faced with the need to make a distinction, had to do was weigh 70
[1997] 1 EGLR 16 (CA). The Times, 25 January 1999. 72 In reality, the agreement conferred no more than exclusive occupation, as the territorial control necessary for exclusive possession was lacking. T h e case was not decided on this basis, h o w e v e r . 71
254 Warren Barr all the relevant and significant factors and to decide in the light of them on which side of the line the particular case fell. The relevant factors in this case included the intention of the parties in entering into the agreement and the purpose of the agreement. How much weight should be attached to this decision is questionable. Its precedent value is low, although the reasoning is compelling and may provide a later Court of Appeal with the necessary impetus to alter the application of the difficult criteria of Street, without doing damage to their efficacy in areas where they are clearly needed.
CONCLUSIONS
Though Street v. Mountford has been welcomed in other spheres, in relation to charitable letting it has complicated matters by focusing attention on the orthodoxy of the factual matrix, thereby disallowing important relevant factors such as the charitable purpose behind the letting to be considered. This is prejudicial to charitable letting, as evasion of the Rent Acts for commercial gain has never been an issue which has troubled the charitable brow. It would be misleading to suggest that every charity will encounter difficulties with the current state of the law. There may well be many situations in which charities will not care about the legal status of the letting arrangement and any attendant advantages or disadvantages. There may well be situations in which the presumption of lease is in a charity's interest, as it may want to avoid vacancies or to retain occupiers to prevent slum housing. That said, as landowners the charities have always been in the position to grant a lease when that has been their intention. Is that any reason to preclude them from granting a licence to occupy just as easily, through the express terms of the letting arrangement, which the current legal position may well do? While the distinction remains between permissive interests to occupy land (licences) and occupation growing from a proprietary estate in land (leases), charities, and especially charity trustees, will need to take care in their letting arrangements, especially in the polluted conceptual waters post-Bruton. At the very least, where a charity is providing services as part of the letting arrangement, the drafting of those provisions must be carefully considered. In realising the value of their property assets, charities will also have to take care if letting office space. Relying on the judiciary to take or continue a benignant approach to charitable letting is a dangerous road to travel. However, if the application of Street v. Mountford can be distinguished from general residential lettings, then happily Bruton goes with it, and charitable letting returns to the sensible position it was in before the distortion caused by judicial paternalism. The gauntlet has been thrown down; it is now time to wait to see if anyone will pick it up.
PartV
Succession
15 Perpetuating Prejudice Beyond the Grave: Testamentary Conditions in Restraint of Religion SHEENA GRATTAN
INTRODUCTION
[devise of lands and a house to X] but if [X ]sells the land and the house it must be sold to a Protestant and he can only hold it so long as he remains a Protestant and the Purchaser cannot buy it for anyone but a Protestant. The house and land must not be given or willed or sold to anyone but a Protestant forever. (From the will of a testator from Drumcree, Portadown, County Armagh, 1 admitted to Probate in Belfast in 1967)
x TOTWITHSTANDING THE inroads which the family provision jurisdiction X >l has made into the principle of free testamentary disposition, a property owner in both England and Northern Ireland can still exercise considerable power over the distribution of his or her assets on death, and that innate human impulse to taste something of immortality ensures that will-makers often crave much more extensive control than the mere power to designate the immediate successors to their bounty. Indeed much of the history of our property law can be analysed in terms of how both legislature and judiciary have sought to reconcile the potentially conflicting interests of the living and the dead. However, this is a conflict which is not confined to history, but continues to throb at the heart of the succession law of every liberal property system. When the freedom of a will-maker to control and dispose of his or her property as he or she desires conflicts with the freedom of the donee to do the same, whose freedom should the law protect? And from this question stems another: what should be the position where the donor seeks to control not only the property, but also the behaviour and lifestyle, of the individual who receives it? A comprehensive assessment of such fundamental issues relating to the function(s) of our law of succession is clearly beyond the scope of a single essay. Our objective is more modest and discussion is restricted to just one of the legal mechanisms whereby a will-maker 1 Drumcree Parish Church is at the centre of the ongoing "Right to Walk" dispute between members of the Orange Order and the Nationalist residents of the Garvaghy Road.
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may seek to impose his wishes upon both his property and future generations, namely the testamentary condition, 2 and, even then, to one particular species thereof, the so-called "condition in restraint of religion". 3 A propos this nomenclature, it may be helpful to underline at this juncture that, as with any testamentary condition, the element of restraint is artificial rather than real—the intended recipient is under no legal compulsion to, say, convert to or eschew a particular religion, and he or she can choose whether to accept the gift with the conditions, or disclaim and retain complete freedom in respect of the restriction. Religious conditions have been singled out for a variety of reasons. Their interest to a Northern Ireland succession lawyer should not be unexpected, but an unrelated research project in which the author has been involved would indicate that they have featured (and, indeed, continue to feature) with considerable frequency, especially in the wills of those who live in rural parts of the jurisdiction. A random selection of illustrations have been included, as appropriate, throughout this essay. In addition, the selection of the subject-matter was influenced by the incorporation into United Kingdom law of the European Convention on Human Rights, with its familiar guarantees of freedom of conscience and religion. The publicity which heralded the coming into force of the Human Rights Act 1998 (the HRA) in October 2000 has been such that even the most traditional of property lawyers can have been left in no doubt that the Act will impinge upon them, and one of the issues which is addressed below is the impact which it may be expected to have on testamentary conditions in restraint of religion. Finally, just as it is the Northern Ireland testator who takes the dubious credit for inspiring this essay, it is he who remains its primary focus, and the recent extensions of statutory anti-discrimination provisions in that jurisdiction must provoke some consideration of their effect, direct or otherwise, on "discriminatory" clauses in "private" documents such as wills. It is hoped, however, that such discussion will be of interest beyond the unique and unfortunate problems of one small jurisdiction, in that it raises the much broader issues of the increasing public regulation of private property rights, and the appropriate role for private law reform in a conflict resolution process. Before, however, any assessment is offered of what the future may hold for the testamentary condition in restraint of religion, both in Northern Ireland and farther afield, it may be helpful to outline the current jurisprudence. In the past
2 Other not dissimilar legal devices which may achieve the same effect {e.g., the determinable interest, the trust and the power) are not within the scope of this essay. However, many of the general comments made later in the essay would apply equally to them. 3 The phrase "condition in restraint of religion" was first coined by Lord Greene in Re Samuel [1942] Ch 1 at 30. The term is most typically associated with clauses in wills which require a beneficiary to continue with, convert to or become involved with a particular religion on threat of forfeiture of the gift. However, conditions in partial restraint of marriage and in partial restraint of alienation, and those which seek to influence the religious upbringing of children, also have a "religious" aspect and they, too, will be discussed below.
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judicial approaches have differed little between Northern Ireland and England and these two jurisdictions are generally discussed together.
CONDITIONS IN RESTRAINT OF RELIGION
THE CURRENT POSITION
Sir Henry Sumner Maine once described testamentary freedom as "the greatest latitude ever given . . . to the volition or caprice of the individual",4 an observation which is certainly endorsed by the law reports, which abound with both illustrations of malevolent and spiteful testators and judicial dicta which proclaim that: . . . no man is bound to make a will in such a manner as to deserve approbation from the prudent, the wise or the good. A testator is permitted to be capricious and improvident . . . 5 Moreover, to "bribe" one's nearest and dearest with the family patrimony is also within the prerogative accorded to will-makers, for the common law raises no objection per se to the concept of the testamentary condition, recognising both the condition precedent and the condition subsequent. Similarly, it has been no bar to such conditions that they are unreasonable, foolish or absurd, or that their motivation is unadulterated vanity, malice or spite. However, the principle of freedom of testation has never been so sacrosanct to the English common law that it has been totally without limit, and it would be more accurate to qualify the above statement as follows: . . . [a] testator may impose any condition that his whim and caprice may dictate, however unreasonable, unless it be contrary to law or public policy.6 Essentially a condition is "contrary to law" if it is repugnant to the estate granted or insufficiently certain or impossible to perform.7 The first two may be relevant to the present subject matter and are discussed more fully below, but it is that nebulous concept "contrary to public policy"—in the succession context an umbrella term for those social ideals which the law considers paramount to testamentary freedom— which is of particular interest. 4 H Maine, Village Communities, at 42 cited in M Rheinstein, Cases on Decedents' Estates (Indianapolis, Ind, Bobbs-Merrill, 1954) at 126. 5 Per Knight Bruce VC in Bird v. Luckie (1850) 8 Hare 301 at 306-307. 6 "Conditions on Testamentary Gifts as a Device of Control" (1936) Columbia Law Review 439 at 439. 7 In addition, it must not breach the rule against perpetuites. In England at common law if a right of re-entry (the right to repossess property which arises on the breach of a condition subsequent) could arise at the end of the perpetuity period it was ineffective, so the gift was absolute. However, the "wait and see" principle has been applied to such rights (s 12 of the Perpetuites and Accumulations Act 1964). In Walsh v. Wightman [1927] NI1 the Northern Ireland Court of Appeal held that the rule against perpetuties did not apply to a right of re-entry for condition broken, but the position has now been amended by statute and is the same as in England (s 13 of the Perpetuties and Accumulations Act (NI) 1966).
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REPUGNANCY
.. . but if circumstances require [X] to sell the lands, they must be sold to a person professing the Protestant faith. (Will of County Fermanagh farmer, admitted to probate in 1967)
While the principle that land should be freely alienable has been enshrined in our law since Quia Emptores in 1290, so that a total restraint on alienation is void as being repugnant to the estate given, the validity of the partial restraint is equally well-established8 and: Where the condition is not a total restriction, it is a question for the court as a matter of policy whether it is so restrictive as to be void.9 That "as a matter of policy" the nineteenth century courts favoured a willmaker's freedom of testation over a legatee's freedom of alienation is exemplified by the refusal of Sir George Jessel MR in Re Macleay10 to void a clause which precluded the beneficiary selling the land which he had been devised "out of the family". Not only did this case demonstrate how the concept of freedom of testation was revered by the common law during an era which has become known as "the golden age of individualism", it provided the basis for the subsequent contention that a restraint forbidding alienation outside a particular racial or religious group, obviously much larger in number than a family, must also necessarily be valid. It is also rather ironic, in that Sir George Jessel was the first Jew to hold judicial office in England.11 Neither the subsequent retreat from unfettered freedom of testation during the twentieth century nor Harman J's narrowing of the ratio of Macleay in Re Brown,12 which shifted the balance in favour of the legatee's freedom of alienation, has as yet persuaded an English court that testamentary conditions in restraint of alienation to a particular religious (or racial) group are void—for being either repugnant to the estate given or contrary to public policy for promoting or harnessing intolerance.13 However, Re Dunne,14 a relatively recent first instance decision from the Republic of Ireland provides some evidence that the courts in that jurisdiction may be prepared to take a less sympathetic approach to such conditions, 8
Were the doctrine of repugnancy to be applied in its purest form, it would preclude any restriction on alienation: see generally Glanville Williams, "The Doctrine of Repugnancy" (1943) 59 LQR 543. 9 J Wylie, Irish Land Law (3rd edn, Dublin, Butterworths Ireland, 1997) at 210. 10 (1875) LR 20 Eq 186. 11 A point noted by DAL Smout in "Racial and Religious Restraints on Alienation" (1952,) 30 Canadian Bar Review 863 at 866. 12 [1954] 1 Ch 439. 13 Compare the position with contracts for the sale of land—art 29 of the Fair Employment and Treatment (NI) Order 1998—discussed infra p 273. 14 [1988] IR 155.
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especially where their motivation is the perpetuation of old resentments. In the case in question a will-maker had devised his property to one Samuel Le Blanc and his wife: subject only to the condition that my dwelling house and lands or any part thereof shall not be sold or otherwise conveyed or transferred by them . . . their successors or assigns, to any member of the Meredith families of O'Moore's Forest, Mountmellick.15 The Land Registry refused to register the restraint on alienation in the absence of a court order, but when such an order was sought O'Hanlon J ordered that the devise be registered without the condition. His first ground was that in the context the word "family" was uncertain. In addition, however, the learned judge had doubts about: . . . the consistency with public policy of incorporating conditions in the grant or devise of freehold property, the obvious purpose of which is to perpetuate old resentments and antagonisms and bind the grantee or devisee to bear them in mind when contemplating any further disposition of the property.16
PUBLIC POLICY
[Farm to daughter] on condition that she does not marry a member of the Roman Catholic Church or one who has previously been a member of the Roman Catholic Church. [will of County Armagh farmer who died in 1997]
In general the common law has sought to override testamentary freedom on the ground of public policy in a relatively limited range of circumstances, one of which could broadly be described as "protecting or preserving the family". Under this rubric the judiciary has been prepared to override both total restraints on marriage and certain conditions which tend to interfere with a parent's duty to bring up and educate his or her children. However, the judiciary's revulsion for a total restraint of marriage17 has not extended to partial restraints which have been repeatedly held valid (including those framed in terms of a religious denomination18)—unless they attach to personalty, in which case they will be invalid as being in terrorem in the absence of a gift over.19 Some 15
Ibid 157. Ibid. "Conditions in restraint of marriage are odious, and are therefore held to the utmost rigour and strictness. They are contrary to sound policy": per Lord Mansfield in Long v. Dennis (1767) 4 Burr 2052 at 2055. 18 "Conditions . . . requiring a legatee . . . to marry persons of a particular religious denomination and forfeiting their interest if they did not, have repeatedly been held valid, and it is now too late to question their validity.": per Naish LJ in Re Knox 23 LR (Ir) 542. " See generally O Browder, "Conditions and Limitations in Restraint of Marriage" (1941) 39 Mich LR 1288. 16
17
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conditions by which a will-maker has required someone else's child to belong to a particular denomination have been voided as tending to interfere with the parent's duty, 20 but neither the English nor Northern Irish judiciary has taken this approach consistently, and on other occasions they have construed the offending clause as being postponed until either a reasonable time after the beneficiary reaches majority,21 or the age of discretion.22 The result is that the law is uncertain, but in light of dicta in Blathwayt v. Cawley,23 the most recent pronouncement from the House of Lords, there is a strong possibility that lower courts would limit the parental interference principle to non-religious clauses. However, leaving aside the peculiar difficulty relating to infants which, in any event, raises rather different policy considerations, the English and Northern Irish judiciary have consistently refused to void a condition in restraint of religion as being per se contrary to public policy, in that, for example, it interferes with the donee's freedom of conscience, or discriminates against members of the will-maker's family on grounds of religion. Indeed there exists a plethora of older case law in which such public policy objections were apparently never raised. In Hodgson v. Hall, one of the first reported decisions in which they were, Hall VC was emphatic that he could not: . . . in the absence of authority say that a parent or appointor . . . disposing by will either of his own property or that over which he has a power of appointment, is not perfectly justified in making a provision in favour of such of his children shall not embrace a particular faith—Christian, Roman Catholic, Mahemmedan or any other. 24
Over half a century later, when the will of one Barnett Samuel came before the highest tribunal in the country in Clayton v. Ramsden,2S more than one member of the House of Lords made no attempt to hide his contempt for will-makers who exercised their power "to control from the grave the choice in marriage of their beneficiaries".26 Barnett Samuel, observed Lord Romer, was: . . . one of those testators, of whom I venture to think there have been far too many, who, by means of a forfeiture clause, have sought to compel a person to whom benefits are given by the will to act or refrain from acting in matters concerned with religion, 20 Re Borwick [1933] 1 Ch 657. The condition subsequent in this case, which provided for the forfeiture of the beneficiary's interest if he should before the age of twenty-one "become a R o m a n Catholic or not be openly or avowedly Protestant" was also voided on the grounds that it was uncertain. See the further discussion at infra 265. 21 See the views expressed by Lords Simon and Wilberforce in Blathwayt v. Cawley [1976] AC 397 and by Black J of the Northern Ireland High Court in McCausland v. Young [1948] NI 72. 22 Re May [1917] 2 Ch 126. 23 [1976] AC 397. " T o say that any condition which in any way might affect or influence the way in which a child is brought u p , or in which parental duties are exercised, [is void] seems to me to state far too wide a rule": per Lord Wilberforce at 426. 24 11 Ch D 959. 25 [1943] AC 320. T h e case involved a partial restraint on marriage—a beneficiary was required to marry a person "of the Jewish faith". The facts are discussed in more detail at n 43 infra. 26 Ibid, per Lord Atkin at 325.
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not in accordance with the dictates of his own conscience, but in accordance with the religious convictions of the testator himself.27 Yet notwithstanding this obvious distaste for the type of clause they were asked to adjudicate upon, neither Lord Romer nor any of his fellow Law Lords was prepared to invoke public policy as a ground for voiding it. "That a testator may do this should he desire is beyond question" was how his Lordship concluded the above dictum which had, until then, hinted at a more radical approach— although, in fact, the discontent did manifest itself in their Lordships establishing an alternative channel through which to render the offending restriction void.28 It was not surprising that just six years later the Northern Ireland Court of Appeal29 refused to depart from the reasoning of the House of Lords to pioneer a more radical approach to the application of public policy, when it had to determine the validity of the forfeiture clause "become a Roman Catholic or profess the Roman Catholic religion".30 By 1976, however, when the House of Lords was asked to pronounce on the validity of the similar condition, "be or become a Roman Catholic" in Blathwayt v. Cawley,31 there seemed some possibility that the political and legal developments of the intervening quarter century might justify a difference in approach. The developments in question were the European Convention on Human Rights, drafted in 1950 in the aftermath of the Holocaust, originally to prevent the re-emergence of other dictatorial and oppressive governments, but already the driving force for the new culture of Human Rights which was prevading western legal systems, and the Race Relations Act 1976, which prohibited racial (but not religious) discrimination32 in the public sphere. Counsel duly submitted that, although neither of these provisions was directly applicable to the private document before the court, together they exemplified prevailing attitudes, in light of which the clause in question should be voided as discriminating against persons on religious grounds. However, their Lordships unanimously held the condition valid. Lord Wilberforce, who gave the leading judgment, summed up the relevance of these anti-discrimination provisions as follows: I do not doubt that conceptions of public policy should move with the times and that widely accepted treatises and statutes may point the direction in which such conceptions, as applied by the courts, ought to move. It may well be that conditions such as this are rare, or at least are becoming inconsistent with standards now widely 27 28
Ibid, per Lord Romer at 332. I.e., that it was insufficiently certain. This part of the decision is discussed more fully at infra
265. 29 McCausland v. Young [1949] NI 49—although the court consisted of t w o rather than three judges. 30 In fact the clause was contained in an inter vivos settlement. 31 [1976] AC 397. 32 T h e Race Relations Act 1976 did not extend to Northern Ireland.
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accepted. But acceptance of this does not persuade me that we are justified . . . in introducing for the first time a rule of law which would go far beyond the mere avoidance of discrimination on religious grounds. To do so would bring about a substantial reduction of another freedom, firmly rooted in our law, namely that of testamentary disposition. Discrimination is not the same thing as choice: it operates over a larger and less personal area, and neither by express provision nor by implication has private selection yet become a matter of public policy.33
In a similar vein, Lord Cross of Chelsea remarked: It is true that it is widely thought nowadays that it is wrong for a government to treat some of its citizens less favourably than others because of differences in their religious beliefs; but it does not follow from that that it is against public policy for an adherent of one religion to distinguish in disposing of his property between adherents of his faith and those of another .. . 34 while Lord Fraser was in no doubt as to what the paramount consideration before him was: One must remember also the public policy that a testator should be free, subject to the rights of his surviving spouse and children, to dispose of his property as he pleases.35
Indeed, the entire tenor of their Lordships' judgments were extremely protestamentary freedom—much more so, in fact, than those of their predecessors in Clayton v. Ramsden. In particular, Lord Wilberforce's obvious sympathy for those from "landed estates" where "family attitudes and traditions . . . may often involve close association with one or another Church" 36 is in stark contrast to the judicial exhortations made in Clayton v. Ramsden about the abuse of paternal power which should have had Samuel Barnett blushing in his grave. One wonders whether this concerted effort to re-establish testamentary freedom as a central tenet of English property law was at least in part a reaction to the considerable enlargement just the previous year of the family provision jurisdiction37—a development which had faced significant resistance in the House of Lords.38 Professors Davina Cooper and Didi Herman have, however, recently offered a different analysis,39 namely that the members of the House of Lords simply felt more distaste for an attempt to influence someone to marry a fellow Jew than they did for an attempt by a non-Catholic to ensure that his family were not tempted to embrace Roman Catholicism after his death. 33
[1976] A C 397, per Lord Wilberforce at 426. Ibid, 429. 35 Ibid, 441. 36 Ibid, 425. 37 T h e Inheritance (Provision for Family and Dependants) Act 1975 which extended the previous jurisdiction contained in the Inheritance (Family Provision) Act 1938 considerably by widening the range of eligible applicants, including anti-avoidance provisions, and by not limiting surviving spouse applicants to a claim for maintenance. 38 See generally R O u g h t o n , Tyler's Family Provision (3rd edn, London, Butterworths, 1997), ch 2. 39 D C o o p e r a n d D H e r m a n , "Jews and O t h e r Uncertainties: Race, Faith and English L a w " (1999) LS 339. 34
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UNCERTAINTY
While the obvious disfavour with which the judiciary has sometimes regarded conditions in restraint of religion (or, at least, those of a particular nature) has not persuaded it to resolve the competing conflict of interests openly in terms of public policy, the English courts have been prepared on occasions to invoke the narrower doctrinal ground that such restraints are insufficiently precise to constitute legally acceptable conditions: That a testator may . . . [insert a condition in restraint of religion] should he so desire is beyond question, but in such a case it behoves him to define with the greatest precision and in the clearest language the events in which the forfeiture of the interest given to the beneficiary is to take place.40 This jurisprudence on conceptual certainty is arguably the best known of all litigation relating to testamentary conditions, so it is proposed not to rake over the entire debate again here.41 In brief, from the mid-1930s there were several cases in which English courts voided religious conditions subsequent for being uncertain, a trend which culminated with the decision of the House of Lords in Clayton v. Ramsden,42 where four of the five Law Lords held the expression "of the Jewish faith" void for uncertainty43 because it was not such that a court could see: . . . from the beginning, precisely and distinctly, upon the happening of what event it was that the preceding vested estate was to determine . . .44 in that whether a person was "of the Jewish faith" was a matter of degree and the testator had failed to give any indication of what degree of faith was required to prevent forfeiture. The decision in Clayton v. Ramsden has been the object of considerable academic criticism,45 primarily for failing properly to distinguish between certainty of expression and certainty of application.46 In addition, the case emphasises the "subtle and . . . artificial"47 distinctions which characterise the law relating to the validity of conditions, not least of which is the differing certainty tests for 40
Per Lord Romer in Clayton v. Ramsden [1943] AC 320 at 332. See, e.g., P Butt, "Testamentary Conditions in Restraint of Religion" [1977] Syd L R a n d N Parry, "Uncertainty a n d Conditional Gifts" [1982] Solicitors' Journal 518. 42 [1943] AC 320. 43 T h e testator had given his daughter a legacy conditional upon her marrying a person "of Jewish parentage and of the Jewish faith" and, in fact, the decision o n "the Jewish faith" is strictly obiter, because their Lordships construed the clause as a single condition of forfeiture and not as t w o alternative conditions. T h u s the condition was void as a whole if one limb of it were void, and all five Law Lords held that the phrase "of Jewish parentage" was void. 44 Quoting Lord C r a n w o r t h in Clauering v. Ellison (1859) 7 H L Cas 707 at 725. 45 See Butt and Parry, supra at n 4 1 . 46 See in particular Butt, supra n 4 1 , at 411. 47 Parry, supra at n 4 1 , at 518. 41
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conditions subsequent and conditions precedent,48 which can result in the absurdity of exactly the same clause being void as the former, but valid as the latter. 49 In fact, however, the decision is of relatively limited interest for present purposes for two reasons. The first is that both Irish jurisdictions50 have expressly declined to apply its reasoning and declare either of the two religious denominations which feature most frequently before them to be conceptually uncertain. The Irish judiciary has repeated eschewed theological and canon law definitions of what constitutes membership of a particular church, in favour of a more practical approach, and has refused to allow the possible evidential difficulties of determining whether a particular individual is a member of that church to be confused with the question whether the testator has used sufficient certainty of expression: I am confronted by a familiar expression, used by a Protestant farmer in his will; I know what he meant and practically every citizen in every walk of life, be he Catholic or Protestant, knows the meaning conveyed by the words "marry a Roman Catholic". I . . . do not concern myself with any theological definition of membership of the Church: I have only to construe the plain words used by a plain man in a sense plain to all of us: and I shall not make the law justlyridiculousin the eyes of persons of common sense by declaring a common expression, which the People knows and understands, to be unintelligible in the High Court of Justice of Ireland. I think that it would be hard tofindan expression that conveys more clearly exactly what it means throughout this country. We say that a man is a good Catholic or he is not; if he is, then in ordinary parlance whether he be a good or bad Catholic is an indifferent one, a Catholic he remains. On the other hand, if a litigant undertakes to prove that a man who was a Catholic has actually given up the faith, so that he is no longer in ordinary parlance a Catholic, he may or may not succeed in Court, because his proofs of the fact that he set out to establish may or may not be adequate, but his success or failure will not be due to any doubt about the accepted meaning of the expression "Roman Catholic"'.51 The second is that even in England Clayton v. Ramsden has been virtually distinguished out of existence by the more recent decision of the House of Lords in Blathwayt v. Cawley. Their Lordships' refusal to accede to the public policy objections to a forfeiture clause which precluded beneficiaries being or becoming Roman Catholics has already been discussed above. In addition, they refused to hold the condition "be or become a Roman Catholic" void for uncertainty. Clayton v. Ramsden was, said Lord Wilberforce: 4S T h e certainty test for a condition precedent is that a condition will not be void for uncertainty "unless the terms of the condition or qualification are such that it is impossible to give them any meaning at all or such that they involve repugnancies or inconsistencies in the possible tests they postulate": per Evershed M R in Re Allen [1953] 2 All ER 898 holding sufficiently certain the clause " w h o shall be a member of the Church of England and an adherent to the doctrine of that Church". 49 See, e.g., the clauses in Re Abraham's Wills Trusts [1969] 1 Ch 463. 50 In N o r t h e r n Ireland McCausland v. Young [1949] NI 49; in the Republic Re McKenna [1947] IR 277. 51 Per Gavan Duffy P in ibid, 285.
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. . . a decision on a condition expressed in a particular way about one kind of religious belief or profession. I do not think it right to apply it to Roman Catholicism.52 In sum, therefore, the judiciary in England and in Northern Ireland has to date refused to extend the relatively limited spheres in which "public policy" considerations have operated in the context of testamentary conditions to void those in restraint of religion. Its attitude to such conditions has varied from time to time, but the most recent pronouncement from the highest judicial forum (admittedly now a quarter of a century ago) was unashamedly sympathetic to the interests of the late will-makers who inserted them. The artificial nature of the restriction and the element of choice have been emphasised—beneficiaries cannot expect to have their cake and eat it—and the point has often been made that the truly spiritual (or those who are truly in love) will not allow themselves to be bribed by testamentary conditions. Now only the smallest remnant remains of the brief flirtation by the English courts with the indirect doctrinal approach to circumventing undesirable conditions on the ground that they are conceptually uncertain. Thus, so long as a will-maker has taken a modicum of care with the precision of his drafting53 (and, possibly, endeavours to avoid controlling someone else's children while they are still minors), he can go to the grave content that there exists virtually nothing in the current jurisprudence which would inspire confidence in those who might be minded to challenge a condition in restraint of religion.54 A wiser, more perceptive will-maker may, however, feel some unease that so much of the case law on which he relies is of considerable antiquity, and that even Blathwayt v Cawley is now rather dated. In this next section we assess whether such caution is well-founded, in light of the HRA and, in relation to Northern Ireland, recently enacted anti-discrimination legislation.
CONDITIONS IN RESTRAINT OF RELIGION
WHAT DOES THE FUTURE HOLD?
The incorporation of the european convention on human rights Everyone has the right to freedom of thought, conscience and religion; this right includes freedom to change his religion or belief and freedom . . . to manifest his religion or belief, in worship, teaching, practice and observance.
52 [1976] AC 397 at 425. See also Cooper and H e r m a n , supra n 39—it is only the Jewish faith which the English judiciary has considered to be insufficiently certain. While other religious restrictions have been voided for uncertainty they have turned on the actual drafting used by the willmaker {conform to Church of England as in Re Tegg [1936] 2 All ER 878, and avowedly Protestant—Re Borwick [1933] Ch 1 657) and not on the fact that the actual religion or denomination was uncertain. 53 Northern Irish will-makers have a tendency to refer to "loyal Protestant"—which would not be conceptually certain. •54 Although note the position under the variation of trusts jurisdiction—see Re Remnant [1970] 2 All ER 554.
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(Article 9.1 of the European Convention on Human Rights—Freedom of thought, conscience and religion) The enjoyment of the rights and freedoms set forth in the Convention shall be secured without discrimination on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status. (Article 14—Prohibition of discrimination)
It has already been noted that, when Blathwayt v. Cawley was before the House of Lords, Lord Wilberforce acknowledged that the European Convention on Human Rights had some relevance to the issue before him because: . . . conceptions of public policy should move with the times and . . . widely accepted treatises . . . may point the direction in which such conceptions, as applied by the courts, ought to move.55
Yet his Lordship was in no doubt how the English courts should resolve any clash between the values protected by the Convention and those prioritised by the common law, for although he was prepared to concede that the forfeiture provision before him was "becoming inconsistent with standards now widely accepted", he was unprepared to allow this to override another policy "firmly rooted in our law"—that of testamentary freedom. The fundamental question which must be addressed now, following the incorporation of the European Convention on Human Rights into United Kingdom law, is whether our courts retain the right to weigh these competing values in the same manner, should a clause similar to that in Blathwayt v. Cawley come before them again. The answer, it seems, is "yes" (albeit a rather qualified yes), which raises an obvious supplementary question—is it probable that they would continue to weigh them in this manner? The answer this time, it is submitted, is a qualified "no". Neither answer, however, can be asserted with any degree of confidence, in light of the controversy which continues to rage about the impact which the Human Rights Act will have in litigation between private individuals, and the analysis of it which can be offered here is necessarily limited by restraints of space. While some commentators56 have argued forcefully that the HRA, being concerned purely with the relationship between the state and the individual, has only "vertical" effect,57 and therefore no application whatsoever to a private dispute, especially one which is governed exclusively by the common law, there are those at the other extreme who consider that the HRA has direct "horizontal" effect, creating an independent cause of action between private parties for breach of Convention rights.58 Yet others 55
[1976] AC 397 at 426. M o s t notably Buxton L J — R Buxton, " T h e H u m a n Rights Act and Private L a w " (2000) 116 LQR 4 8 . 57 T h e terms "horizontal" and "vertical" effect have been borrowed from European Union law, but have been used by most commentators in the recent debate. 58 E.g., H W a d e , " H o r i z o n s of H o r i z o n t a l l y " (2000) 116 LQR 217. 56
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have argued in favour of some sort of hybrid position which denies direct horizontality, but allows for an indirect horizontal effect.59 The problem of determining the extent to which constitutional norms should be binding upon the private sphere is not novel and has arisen in every jurisdiction which has sought to adopt a charter of fundamental rights. Comparative illustrations may be cited of jurisdictions at both ends of the spectrum, and of those somewhere in between.60 As far as the United Kingdom is concerned, the textual debate has surrounded section 6 of the HRA, which provides that it is unlawful for a public authority to act in a way which is incompatible with a Convention right, and "public authority" by section 6(3) includes a court or tribunal. Does the express inclusion of a "court" as a public authority merely require the courts to apply the ECHR in their own sphere, say, in ensuring the right to a fair trial?61 Or will it introduce to the United Kingdom courts a similar principle to that adopted by the United States Supreme Court in the famous case of Shelley v. Kraemer,62 namely that a private restrictive covenant which discriminated on racial grounds was not itself illegal, but once judicial enforcement of it was sought the discrimination which it contained could no longer be described as a "private choice" and would have violated the Fourteenth Amendment to the United States Constitution which guarantees equal treatment before the law?63 After all, the status "valid but unenforceable" is already familiar to our property law in the form of the trust of imperfect obligation. Not surprisingly when the text of the HRA itself has generated such divisions of opinion, clarification has been sought from the parliamentary debates which preceded its enactment. During the Second Reading the Lord Chancellor seemed to reject emphatically the idea that the Act should apply between private parties: [section 6] should only apply to public authorities, however defined, and not to private individuals . . . The Convention had its origins in a desire to protect people from the misuse of power by the state, rather than from actions of private individuals.64 However, although Lord Irvine made it clear that the HRA did not create private rights, if one looks again at Hansard, one finds the following comments, made in reply to an amendment proposed by Lord Wakeham which would have
59 See, e.g., D Oliver, Common Values and the Public-Private Divide (London, Butterworths, 1999); A Clapham, Human Rights in the Private Sphere (Oxford, Clarendon, 1993) and M Hunt, "The Horizontal Effect of the H u m a n Rights Act" [1998] Public Law 423. 60 See generally ibid. 61 As suggested, e.g., by S Kentridge Q C , "Lessons from South Africa" in BS Markesinis (ed.), The Impact of the Human Rights Bill on English Law, Clifford Chance Lectures, vol iii (Oxford, Oxford University Press, 1998) at 28. 62 334 US 1. 63 Note that the case was not about a testamentary condition. There is n o US authority directly on testamentary conditions in restraint of race o r religion, but while there is no guarantee that the Shelley principle would be applied, it is certainly arguable that judicial enforcement of religious and racial conditions in wills also violate the Fourteenth Amendment by analogy with Shelley. 64 582 Hansard, H L Debs, 1231-1232,13 November 1997.
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specifically provided that a court had no duty to act compatibly with the Convention in a case where neither party before it was a public authority: We . . . believe that it is right as a matter of principle for the courts to have a duty of acting compatibly with the Convention not only in cases involving other public authorities but also in developing the common law in deciding cases between individuals. Why should they not? In preparing this Bill, we have taken the view that it is the other course, that of excluding Convention considerations altogether from cases between individuals, which would have to be justified. We do not think that it would be justifiable, nor indeed do we think it would be practicable.65
Thus the debates do little to resolve the difficulty, although it seems that the Lord Chancellor clearly envisaged that the HRA would have some effect on private litigation. No doubt much of this uncertainty will be removed in time as the jurisprudence on section 6 begins to develop, but it would be surprising, however, in light both of the express inclusion of the courts 66 and of what Professor Wade has referred to as the "spirit of the Act",67 if the HRA were not to have at least a "spill over" effect on the development of the common law. Only time will tell, but it is possible that this effect will be not dissimilar to that which the Canadian Charter of Rights has had on the common law, summarised as follows by the Supreme Court of that jurisdiction: Private parties owe each other no Constitutional duties and cannot found their cause of action upon a Charter right. The party challenging the common law cannot allege that the common law violates a Charter right because, quite simply, Charter rights do not exist in the absence of state action. The most that the private litigant can do is argue that the common law is inconsistent with Charter values.6*
In the same case the Supreme Court described the obligation to interpret the common law consistently with Charter principles as: . . . simply a manifestation of the inherent jurisdiction of the courts to modify or extend the common law in order to comply with prevailing social conditions and values.69 A similar approach by the United Kingdom judiciary would undoubtedly be in keeping with the traditional, incremental development of the common law. But, returning to the present subject-matter, what, if any, consequences might this have for testamentary conditions in restraint of religion? A useful starting point might be Canada's experience with the 1982 Charter of Rights. In the past, like its English counterpart, the Canadian judiciary 65
583 H a n s a r d , H L Debs, 783,24 November 1997, emphasis added. M u r r a y H u n t argues that the inclusion of the word "court" must be intended "to ensure that all law, other than unavoidably incompatible legislation, is to be subjected to Convention rights": supra n 59, at 440. 67 Supra at n 58, at 224. 68 In Manning v. Hill (1995) 126 DLR (4d) 126 at 157, emphasis added. 69 Ibid, 156. 66
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upheld conditions in restraint of religion, and at first seemed unprepared to depart from this approach, leading the author of the standard work on succession law to write, five years after the Charter became effective: It cannot be assumed that conditions attached to will gifts that require the beneficiary to discriminate against persons on the basis of race, creed or nationality are void as contrary to public policy . . 7°
More recently, however, in Re Murley7i the Newfoundland Supreme Court voided the following clause which had been inserted in his will by a retired clergyman: in order for [his son] to become heir to my Estate he must remain in one or other of the mainstream Christian churches . . . [he then set out a list of these, which clearly demonstrated that it was Jehovah's witnesses and Mormons that he wished his son to avoid, and added] . . . I make these rules following Old Testament holy men who ordered that their sons or relatives never become part of lesser religious organisations. I want him to be a real Christian.
The issue, said Riche J, could be "disposed of without lengthy reasoning"72 in that he was satisfied that such a provision "which restricts the religious affiliation of any person is, in Canada, contrary to public policy". It is unfortunate, however, that such an important decision did not warrant fuller reasoning or even a passing reference to the Charter of Rights, but it is the first indication that the Canadian courts are gradually moving towards the principle that conditions in restraint of religion are incompatible with Charter values. It may well be that the UK courts will come to regard such conditions as similarly incompatible with Convention values. One note of caution which should, however, be sounded is that the element of choice which is inherent in all testamentary conditions has in the past proved persuasive with the Commission when the issue of whether an individual has been denied freedom of religion has been before it.73 It would still be legitimate for UK courts to argue, based on this Commission jurisprudence, that the artificial nature of the restraint does not actually infringe a legatee's freedom of religion. Finally, it may also be of interest to note the effect which Article 44.2.lof the 1937 Constitution, which guarantees freedom of conscience and profession of faith, has had on such conditions in the Republic of Ireland. Unlike Canada the Republic recognises an independent cause of action between private parties for breach of certain constitutionally protected rights,74 so it might be expected that 70
T Feeney, The Canadian Law of Wills ( T o r o n t o , Carswell, 1987) at 253. [1995] Newfoundland and Prince Edward Island Reports 271. 72 Ibid,274. 73 Knusden v. Norway, A p p N o 11045/84,42 D R 247; Karlson v. Sweden, A p p N o 12356/86,157 DR 172. See D Harris, M Boyle and C Warbrick, Law of the European Convention on Human Rights (London, Butterworths, 1995). 74 See generally M H u n t , " T h e Horizontal Effect of the H u m a n Rights Act" [1998] Public Law 423 at 428. 71
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the judiciary would take a more proactive role in ensuring that the common law was Constitution-compatible. A practical difficulty, of course, is that appropriate litigation is a necessary prerequisite, but there is a lone unreported first instance Irish case which suggests that a condition in restraint of religion is void as being contrary to Article 44.2.1. The condition in Re Doyle75 required the donee to be a Roman Catholic at the testator's death and to give an undertaking to her parish priest that she would remain one. Kenny J held the condition void as being impossible to perform—but added that it was also void for being unconstitutional. 76 The above discussion on the relevance of the HRA focused exclusively on the fundamental value of freedom of religion which is enshrined in Article 9 of the ECHR, and it should not be forgotten that Article 1 of the First Protocol provides that no one shall be deprived of his possessions except in the public interest and subject to the conditions provided by law. However, it is submitted that any attempt to use this provision to challenge the validity of a condition subsequent (in that it divests an interest which has already been vested) is unlikely to succeed, since acts in accordance with the condition upon which property is held are not interferences with or deprivations of that property.77
Northern Ireland legislation In contrast to England, where there are still no statutory provisions outlawing discrimination on grounds of religion, Northern Ireland has had anti-discrimination legislation (primarily relating to employment) for some years. However, the current political climate and continuing peace process have resulted in the recent enactment of more extensive provisions. Section 76(1) of the Northern Ireland Act 1998 provides that: It shall be unlawful for a public authority carrying out functions relating to Northern Ireland to discriminate, or to aid or incite another person to discriminate, against a person or class of person on the ground of religious belief or political opinion. In contrast to section 6 of the HRA, "public authority" does not expressly include a court. The extent to which the Northern Irish judiciary will allow the spirit of this provision to develop the common law in disputes between private individuals must be a matter of speculation, but there is a strong possibility that this legislative trend will precipitate a change in the courts' policy to the validity of religious restraints in wills.
75
1972, unreported, Kenny J. See also Re Blake [1955] IR 89 in which a condition which required the testator's grandchildren t o be brought u p as R o m a n Catholics w a s held void as being contrary to Art 42 of the Irish Constitution (parents recognised by the state as the natural and primary educators of their children). 77 Fredin v. Sweden A 192 (1991). See Harris, Boyle and Warbrick, supra n 73, at 527. 76
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Back in 1943, in defence of such conditions (and those who insert them), Benas wrote: Restraints [of this kind] are not necessarily attributable to a negative attitude of intolerance but can be envisaged as directly or indirectly a positive urge in favour of limitation to the testator's own fold and this is probably one of the main factors when determined the Courts to hold that such provisions were valid as not being contrary to public policy.78 The context was an article aimed at the legal profession, instructing it how to circumvent the "unsatisfactory" outcome in Clayton v. Ramsden79 and the description of a "positive urge" may well then have been appropriate to clauses inserted by a Jewish minority to prevent its children "marrying out". As regards Northern Ireland, however, a good number of the conditions which the author has encountered have been unquestionably inserted out of the very negative urges of blatent bigotry and sectarianism and involve a "discrimination which goes beyond an attempt to impose a particular form of ideology on another person". 80 The second statutory provision of interest, which may well sound the death knell in Northern Ireland for the restraint on alienation to persons of a particular religious denomination, is article 29 of the Fair Employment and Treatment (Northern Ireland) Order 1998, which makes it unlawful for a person to discriminate against another on grounds of religious belief or political opinion when selling premises. While devises (and inter vivos gifts) are outside the remit of article 29, which preserves an element of the public/private divide by expressly excluding "private" sales (those which are not effected through an estate agent or which have not been advertised), it is submitted that it would be highly improbable that the courts would remain untouched by this legislative indicator of current public policy.
CONCLUSION
The welfare of society demands that the law should set limits to the power of the hand of the dead to control human affairs.81 It is trite law that "public policy cannot remain immutable . . . [and] must change with the passage of time". 82 But, equally, every lawyer knows that public policy is: a very unruly horse; it is also "a treacherous ground for legal decision"; "a very unstable and dangerous foundation on which to build until made safe by decision"; 78
B Benas, "Conditions in Restraint of Religion" [1943] Conv 6 at 10. [1943] AC 320. A Lyall, Land Law in Ireland (Dublin, Oaktree Press, 1994) at 451, commenting on the condition in Re Knox which was reproduced supra at n 18. 81 AW Scott, "Control of Property by the D e a d " (1917) 65 U Pa LR 527 at 527. 82 Per Danckwerts LJ in Nagle v. Feildon [1966] 1 All ER 689. 79
80
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"slippery ground"; "a vague and unsatisfactory term and calculated to lead to uncertainty and error when applied to the decision of legal rights" and much else.83 While it is prudent that the malleable concept of "public policy" is not changed lightly (especially in the realms of property law where the virtue of certainty is particularly valued), it is surely tolerably clear that the policies applied by the courts in the case law discussed in the first part of this essay no longer reflect prevailing attitudes and values. At present it is unclear what impact the newly incorporated ECHR will have in relation to discriminatory and/or offensive clauses in private documents, or, more specifically, to testamentary conditions in restraint of religion. It is hoped, however, that all UK courts will be persuaded that in any civilised society, discrimination, even when confined to private affairs, is contrary to human dignity and equality. Of course, this is particularly so where the society has been torn apart by thirty years of sectarian violence and is currently in the midst of a conflict resolution process. There exists enough religious prejudice in Northern Ireland, without our law condoning its perpetuation from beyond the grave. Few, especially those who have experience of the jurisdiction, are naive enough to believe that the outlawing of these clauses will of itself precipitate the necessary change in the attitudes or behaviour of property owners, but as a preliminary step towards this transformation it is surely imperative that such restraints are no longer accorded the force of law. Finally, it should be remembered that while discussion here has been confined to one illustration of undesirable posthumous control, it forms part of a much broader debate about how the law of succession should most appropriately balance the potentially conflicting interests which may exist between a deceased individual, his or her family and society itself. The development and extension of the family provision jurisdiction in the second half of the last century have seen the emphasis shift from the individualism which undergirded the law of succession for generations, better to protect the interests of the surviving family and dependants. It is submitted that the succession law as exemplified by the conditions under discussion in this essay is still unjustifiably weighted towards the individualistic interests of the dead, and it is time that the balance be redressed better to serve the interests of the living members of wider society. To quote Professor Rheinstein: In no branch of our law has its individualistic character been more strikingly exhibited than in that relating to testamentary disposition . . . if in an uncontrolled right of private ownership there lurk many dangers threatening the welfare of society, much more do such dangers lurk in an uncontrolled power of testamentary disposition. It is bad enough when the power conferred by the possession of property is exercised by a living man who is wicked or foolish; it is worse if it is exercised by the wicked or foolish dead; the living are at least open to the influence of the world beyond them; the dead are beyond our reach.84 83 Per Windeyer J in Trustees of Church Property of the Diocese of Newcastle v. Ebbeck (1960) 104 CLR 394 at 415. 84 M Rheinstein, The Law of Decedent's Estates (Indianapolis, Ind, Bobbs- Merrill, 1954) at 124.
16
Lapse of Legacies in Scots Law ROSS MACDONALD
INTRODUCTION
A is entitled to inherit from B. A dies, leaving children. What happens Sto the legacy? This chapter attempts to discuss the development of the releUPPOSE
vant Scots law. In principle the legacy lapses. The asset falls into the residue or intestacy as appropriate. However, the will may prevent lapse by redirecting the legacy to an alternative legatee. Typically there may be a destination-over ("to X whom failing to Y" or similar words) or, where there were multiple legatees, a survivorship clause ("to X and Y and the survivors"). On the face of it such provisions will prevent A's children taking the legacy. There are however at least three ways to protect the children. First, Scots law does not recognise total freedom of testation. The deceased's child may claim legal rights—legitim—of half or one third of the moveables depending on whether the deceased left a surviving spouse. This provides a minimum protection which cannot be overridden by will. However, this protection was minimal in our context until relatively recently. The parents could discharge it by marriage contract.1 More importantly, legitim used to lapse if the child predeceased A. In modern law, by contrast, it passes to the child's own offspring by the doctrine of representation.2 Secondly, the destination-over may be expressly conditional on A dying without leaving children. In the older Scots law this express conditio si sine liberis decesserit was paralleled by a rule—"courtesy"—whereby A's property reverted to the surviving spouse if A died without children within a year and a day of the marriage. These rules feature prominently in the law of the 1600s and 1700s.3 Thirdly, the law may deem the destination-over to be conditional on A dying without leaving children. This implied conditio si institutus sine liberis decesserit—a condition "if [and only if] the legatee shall have died without [surviving] children"—is the subject of this essay. Words are in effect implied into 1
They lost this power by the Succession (Scotland) Act 1964 s 12. Introduced by the Succession (Scotland) Act 1964 s 11(1). 3 See, e.g., Earl of Dunfermling v. Earl of Callendar (1676) Mor 2941; Balfour, Practicks (Edinburgh, 1754) 1.98. This type of courtesy was abolished by the Intestate Moveable Succession (Scotland) Act 1855 s 6. 2
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the will to this effect. For this to occur, the predeceased legatee must be a close relation of the testator, and it must be clear that the legacy was not intended as purely personal to that legatee so that transmission to the legatee's offspring would be inappropriate; otherwise the legacy lapses. This rule actually embodies two sub-rules: first, that if the legatee left offspring the destination-over is ineffective; secondly, that in that event the legacy goes instead to the offspring. As it happens the Scots law conflates both subrules without making that clear. However, one should not assume that they both need necessarily co-exist. The first might logically operate without the second: if so, the legacy would pass, not to the offspring, but to the testator's general heirs. That, broadly, was the form of the analogous South African rule until the courts relatively recently recognised4 the second sub-rule and achieved a result similar to that in Scots law. Whether the rule operates depends on when the legatee died. If he died after acquiring a vested right to the legacy, there seems to be no place for the conditio in modern Scots law. This is because the legacy will pass as part of the legatee's estate under his will or intestacy. The destination-over was conditional on the legatee perishing: the alternative legatee was a conditional institute and his right lapsed totally by the legatee's survival. By contrast, South Africa also applies the conditio where there was a substitution rather than conditional institution 5 : where the legacy was "to X and then Y" so that the asset was to pass to Y after X's death. In that situation the substitution would also be defeated if X leaves offspring. Scots law is loath to recognise substitutions—they unduly limit owners' rights—and in modern law the conditio does not occur in that context. In Scots law it does not matter when the legatee dies, provided it is before the legacy vests. He need not predecease the testator.6 Very often the death occurs during the surviving spouse's liferent, vesting having been postponed7 because the legacy is to a class of legatees (e.g., "my children") "and the survivors". Analogous rules operate in a number of jurisdictions. Louisiana recently introduced one during its revision of the Civil Code rules on succession.8 The South African and Scots rules share a common name and origin but have diverged widely, and interaction has been slight.9 Scots law recognises another, related and similarly titled, doctrine: the conditio si testator sine liberis decesserit, whereby a will may be revoked if the testator subsequently has a child. Early cases, like some writers,10 sometimes fail to 4
In Du Plessis v. Strauss, 1988 (2) SA 105 (A); see DP Visser and DB Hutchison at (1988) 105 SALJ 619. 5 In South African terms, a fideicommissary substitution rather than a direct substitution. Direct substitutions are now governed by statute: General Law Amendment Act 1952 s 24. 6 Contrast the South African rule (for direct substitutions): General Law Amendment Act 1952 s24. 7 Young v. Robertson (1862) 4 Macq 314. 8 See the discussion by HA Johnston in (1996) 57 Louisiana Law Rev 190. 9 For a rare example see (1901) SALJ 177 where the differences are discussed. 10 E.g., Bell, Principles of the Law of Scotland (10th edn, Edinburgh, 1899) para 1776. On the relationship of the condictiones and their Civilian roots, see W Gordon, 1969 JR 108.
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distinguish the two doctrines. The conditio si testator is not discussed further in this chapter.
THE ROMAN SOURCES
Roman law recognised the conditio si institutus in three texts: a response of Papinian and two rescripts of Justinian. The first dealt with a legacy to a grandchild; a substitution in favour of an uncle was invalid if the grandchild left issue: considerations of duty [conjectura pietatis] meant that the condition of the fideicommissum failed, because less was expressed than was intended.11 The rescripts extended Papinian's opinion and applied it to all descendants of the testator and in favour of illegitimate children.12 The Scots courts have frequently recognised that the conditio si institutus is "a doctrine borrowed from the Roman law, but carried by us further than in the law from which we borrowed it".13 Thus in Dixon v. Dixon14 it was stated that: as to the doctrine of the conditio si sine liberis, we go upon its principle, but it is absurd to suppose that the rule itself could be adopted into our law, as it was expressly adapted to the Roman Fideicommissa.15 Such dicta, relatively rare, usually serve to justify the Scots "analogical application of [the Roman law] principles"16 in extending the conditio to collateral legatees and cases where the will provided for no substitute legatee17 (and where the property might therefore fall into intestacy). After the initial reception of the doctrine—up to Wallace v. Wallace18 in 1807—they totally eschew detailed commentary on the Roman law. Citation of later Civilian authority is even rarer.19
11
D. 35.1.102 (ed Mommsen / Krueger/ Watson; Penn 1985). C. 6.25.7(6) and C.6.42.30. Douglas's Exors (1869) 7 M 504, per Lord Justice-Clerk Patton at 508. 14 (1836) 14 S 938. 15 Per Lord Glenlee at 944, a view approved by the other judges (Lord Justice-Clerk Boyle and Lords Medwyn and Meadowbank). 16 Hall v. Hall (1890) 18 R 690 per the consulted judges at 698. 17 Dixon v. Dixon, supra n 14. In one respect Scots law was until recently narrower than Roman, disapplying the conditio where the legatee was illegitimate: Martin's Tr v. Milliken (1864) 3 M 326, Farquharson v. Kelly (1900) 2 F 863. The status of illegitimacy was abolished for most purposes in the Law Reform (Parent and Child) (Scotland) Act 1986 s 1. 18 (1807) Mor Appendix "Clause" No 6. The Roman texts were cited by counsel in Magistrates ofMontrose v. Robertson (1738) Mor 6398, Binning v. Binning (1767) Mor 13047, and in Wallace; the judges' opinions are unreported. 19 E.g., Voet, Commentarius ad Pandectas (Leiden, 1698-1704) 36.1.18, cited in Yule v. Yule (1758) Mor 6400; Wallace v. Wallace (1807) Mor Appendix "Clause" No 6; Christie v. Paterson (1822) 1 S 543 (old ed) / 498; Blair's Exors v. Taylor (1876) 3 R 362. 12
13
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Ross Macdonald
THE EARLY SCOTS CASES
Modern authorities trace the introduction to Scotland of the conditio si institutus to Magistrates of Montrose v. Robertson.20 That is accurate, in so far as it was apparently the first case in which the Roman doctrine and texts were expressly cited. However, it oversimplifies the development. It seems clear from the authorities that, in some circumstances at least, Scots law had already achieved a similar result. Magistrates of Montrose was a case, not of a will, but a loan. The Magistrates undertook to repay the sum to the lender's four named children "equally amongst them in fee; and, in case of the decease of any of them, that the same should be equally divided amongst the surviving bairns". The lender died, predeceased by three children. The sole surviving child claimed, and received, the whole sum. Subsequently the son of one of the predeceasing children claimed his father's share. The Court of Session upheld his claim. Arguably the facts fell outwith the scope of the Roman texts. As counsel for the Magistrates pointed out, there was no substitution in favour of someone outwith the testator's family. The grandchild successfully argued that Roman law simply exemplified universally applicable principles of "natural equity": as the only end and design he can have in giving thereof to his children, is, to enable them to set out in the world, support their families, and give provisions to their children after them; a doctrine clearly founded on the principles of the civil law, as appears from [D.35.1.102, C.6.257(6)]. The grandchild's argument also rested independently on Scots practice: "it is always understood, that the substitution is only to take place, in case the institute die without children". He cited a passage in Stair's Institutions11 to that effect and three cases cited there. Of those, the most important was Innes v. Innes.22 There the question was whether the child of a predeceased substitute legatee (rather than of the original legatee) could claim in place of his parent. The court "found, by our law and practique" (which they contrasted with the Roman law) that he could. In one respect Magistrates of Montrose was atypical of later conditio cases. It concerned a contract rather than a will. The applicability of the conditio to deeds other than wills has caused difficulties in later law. It has been applied to
20 (1738) M o r 6398, discussed as such in McDougal's Tr v. Heinemann 1918 SC (HL) 6 , 1 ravers's Trs v. Macintyre 1934 SC 520, and Devlin's Trs v. Breen 1943 SC 556, 1945 SC (HL) 27. 21 Institutions of the Law of Scotland (2nd edn, Edinburgh, 1693) III.5.5. 22 (1670) M o r 4272; the same result was later reached in Walker v. Walker (1744) M o r 10328. Stair's other authorities were Murray v. Grant (1662) M o r 10322 and Powrie v. Dykes (1667) M o r 11648. See also Christie v. Christie (1681) M o r 8197 and 14849 where a similar argument was raised in relation to the birth of a child to the testator.
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279
marriage contracts. 23 It does not apply to destinations in conveyances.24 In Thomson's Trs Petrs25—a case of an inter vivos trust—it was said not to apply to inter vivos deeds generally. In that case Magistrates of Montrose was cited in support of the unsuccessful argument for the conditio. The court did not discuss that point. Marriage contracts were distinguished as being "a deed of a peculiar nature . . . [as] it may be partly contractual and partly testamentary".26 It is possible that consequently Magistrates of Montrose might be decided differently in modern law. Three subsequent decisions between 1781 and 1822 saw a major extension in the type of legatee to whom the conditio applied. In McKenzie v. Holte's Legatees27 the legatees were related by affinity— through the testatrix's husband—rather than by blood. The report does not make that clear. Nor may it really have been decided on the conditio: it may have turned on the exact terms of the will. For those reasons the court was to refuse, in Alexander's Trs v. Paterson28 and Sinclair's Trs v. Sinclair29 to follow McKenzie as an authority on the conditio. Meanwhile, though, it was regarded in several other cases as having applied the conditio to near relations of the testator. 30 In Wallace v. Wallace31 the residuary legatees were the testator's nephew and his grandnephews. There was a gift over to their survivors. A predeceasing grandnephew's children were held entitled to inherit under the conditio. Besides the matter of the relationship, the pleadings discussed the criteria for determining the testator's intention. The child argued "from various circumstances in the state of the family"; the surviving legatees, that: as to the presumed will of the testator, which has been [thus] conjectured, it is a very unsafe and fallacious mode of construction. The will of the testator must be discovered only from the terms he has used in his settlement.
23
Wood v. Aitchison (1789) M o r 13043, Robertson v. Houston (1858) 20 D 989, Halliday v. McCallum (1869) 8 M 112, Arthur and Seymour v. Lamb (1870) 8 M 928, Hughes v. Edwardes (1892) 19 R (HL) 33. 24 Crichton's Tr v. Howat's Tutor (1890) 18 R 260. While there were other factors against the conditio in that case (e.g., the deed dealt with one specific asset rather than the whole estate), the view that the conditio cannot in any event apply t o lifetime deeds was stated strongly in Devlin's Trs v. Breen 1943 SC 556 (per Lord J - C Cooper at 569) and 1945 SC (HL) 27 (per Lord T h a n k e r t o n at 35). 25 Thomson's Trs Petrs 1963 SC 141 (an inter vivos trust). In Marquis v. Prentice (1896) 23 R 595 the conditio was held not t o apply to a lease: one reason was said t o be "the character of the deed", but other factors were relevant; in particular, it was not granted by a relation. 16 (1963) SC 141 per Lord Guthrie at 151. 27 (1781) M o r 6602. 28 1928 SC 371. 19 1942 SC 364. 30 Christie v. Paterson (1822) 1 S 498, Hamilton v. Hamilton (1837) 16 S 478, Thomson's Trs v. Robb (1851) 13 D 1326, MacGown's Trs v. Robertson (1869) 8 M 356, Blair's Exors v. Taylor (1876) 3 R 362, Greig's Trs v. Simpson 1918 SC 321, Knox's Exor v. Knox 1941 SC 532. 31 (1807) Mor Appendix "Clause" No 6.
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Christie v. Paterson32 extended the scope of the conditio further. In that case residue was left to the testator's cousins "who shall be in life at the time of my death". Nevertheless the children of predeasing cousins were allowed to inherit. All the judges felt obliged to follow McKenzie and Wallace unless those decisions could be distinguished on their facts. They differed in explaining why. Some of the judges were content to apply the conditio to a wide range of relations; others did so reluctantly, feeling they must follow McKenzie and Wallace; yet others succeeded in distinguishing those cases on the facts. Thus Lord Hermand thought that "the presumption si sine liberis is applicable to all cases of provision to children"; but to Lord Balgray, dissenting, "these principles of equity are only extended to cases of ascendants and descendants, and where, ex pietate, one of the parties is in loco parentis", and Lord Succoth felt likewise. Lord Gillies, basing the doctrine on "the presumed intention of the testator", felt unable to distinguish between different collateral relationships or between the settlements in Wallace and Christie. Lord President Hope considered the testator's intention quite clear—only survivors should inherit—but felt bound by Wallace (not a case of cousins) to allow the conditio.33 His reasoning, as part of a bare majority in favour of the conditio, was to help later courts34 to doubt the authority of Christie. The final major extension came in Dixon v. Dixon.35 In previous cases there was a gift over to an alternative legatee. In Dixon there was none; the child was competing with the heirs on intestacy (who, as it happens, were the testator's surviving children). Neither the Court of Session nor the House of Lords found any difficulty in allowing this in principle: indeed it was considered a stronger case for the conditio than where there was a gift over.36 In the Court of Session Lord Glenlee considered the claim of the surviving children "very unconscionable". 37 Christie and Dixon mark the high point of the conditio in Scots law. It applied whether the legatee was a descendant or a collateral relation of the testator; and whether or not there was a gift over to an alternative legatee. But disquiet at its scope and imprecision is evident even in Christie, and in textbooks of the period: it would seem [from Wallace and Christie] that there is an implied substitution, or rather conditional institution, in all legacies, in behalf of the children of the legatee. 32
(1822) 1 S 498. T h e Lord President h a d taken a similar attitude t o the effect of a survivorship clause a month earlier in Neilson v. Baillie (1822) 1 S 458 (old ed) /427; in that case he felt bound by Magistrates of Montrose. H e h a d also considered Papinian w r o n g t o apply the doctrine t o grandchildren—"I w o u l d n o t have given the same decision as Papinnian [sic], had I been in his place". 34 Particularly in Rhind's Trs v. Leith (1866) 5 M 104 (another case of cousins; obiter as their claim failed in any event as the cousin had died before the will was made). 35 (1836) 14 S 938, (1841) 2 Rob 1. 36 (1841) 2 R o b A p p 1 p e r Cottenham L C at 19. 37 (1836) 14 S 938 at 943. T h e main difficulties were whether the conditio was excluded because the testator k n e w of the grandchildren, o r because other clauses referred t o heirs; in the circumstances it was n o t . 33
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281
This, however, would deserve to be seriously reconsidered; for it would introduce a strange exception to the general rule, that legacies lapse by the legatee predeceasing the testator.38 Subsequent case law has been largely concerned to clarify its scope within those potentially wide bounds.
ANALYSING THE COND1T1O: THE UNDERLYING PRINCIPLES
Two main difficulties are evident in trying to determine what common rationale, if any, unites the case law. There is a problem of terminology. The conditio never rigidly reproduced its Roman counterpart. With its extension the Roman parallel has become increasingly remote. Consequently there has been a rather sterile discussion whether certain cases fall within the conditio, so called, or some other doctrine. The difficulty here has been said to be the distinction, if any, between the conditio, implied conditional institution, and implied will. The terms are used in varying senses. "Implied conditional institution" has been used as a shorthand way of explaining the effect of the conditio: this is the sense in Waddell's Trs v. Waddell.39 Conversely it may denote a conditional institution which is based not on the conditio but on the terms of the will: if for instance there was an express gift over in the event that the legatee died without children, that would imply that if he dies leaving children then they would take the legacy.40 There has been a tendency at times also to restrict the term conditio si sine liberis to situations which fall within the original Roman scope, but again inconsistently expressed. So in Christie v. Paterson Lord Succoth regarded collaterals as "regulated by a different principle".41 In McCall v. Dennistoun,42 conversely, Lord Deas thought that "the condition si sine liberis comes more properly into operation in the case of nephews and nieces than in the case of direct descendants". In particular the extension of the conditio to wills which lack a gift over (so that the legacy may fall into intestacy) has been regarded as based on "the principle of implied will, rather than that of the conditio si sine liberis".43 Given the inconsistency it would be better if the Latin terminology were abandoned altogether. 18
Stair, Institutions of the Law of Scotland (5th edn, Edinburgh, 1832), Note JJ, Legacies at
cccxlv. T h e 4th edn (Edinburgh, 1826) at 601 noted the development without comment. 39 (1896) 24 R 189 per Lord McLaren at 196: "the principle of implied conditional institution should be liberally applied". See also MacCown's Trs v. Robertson (1869) 8 M 356 and Knox's Exor
v.Knox 1941 SC532. 40
This is the sense in Neville v. Shepherd
(1895) 23 R 351 and Pattinson's
Trs v. Motion
1941 SC
290. 41
(1822) I S 498 at 499. (1871) 10 M 281 at 284-285. 43 Campbell's Tr v. Dick 1915 SC 100 per Lord Mackenzie at 108, referring to Grant's Trs v. Grant (1862) 24 D 1211. It might be more accurate to call the conditio a technique of interpretation rather than a principle. 41
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Ross Macdonald
There is a problem of defining one clear unifying principle. The early cases are ill reported and their reasoning poorly known. The early extension to cover collateral relations means that a wide range of family relationship was covered. Later judges have therefore attempted to enunciate different and sometimes inconsistent explanations. The most general formulation speaks of "equity", "a natural and equitable principle", or similar words.44 The explanation is said to be that the testator overlooked the possibility of the legatee dying and leaving children. To Lord Kames in his Principles of Equity45 "it is the duty of a court of equity to supply omissions, in order to make the rights created effectual". References to the testator's overlooking the occurrence are commonplace.46 That makes clear that the conditio is a "default rule" which the testator can opt out of. But it does not explain why the presumption of overlook applies to some legatees but not others. It has been criticised: It is said that the doctrine proceeds on the assumption of the testator having overlooked the contingency of issue in the particular case. This is not a satisfactory exposition. It is difficult to suppose the possibility of issue being overlooked in almost any case. In some of the reported cases issue actually existed at the time of the deed.47 The logic of that dictum was criticised in Paterson v. Paterson. It is not the birth of children that is overlooked, but the death of the legatee survived by children. That said, the presumption may sometimes be something of a fiction. Suppose a codicil, made after the death, refers to it, redirects one legacy to someone else but expressly leaves other legacies unaltered. They may remain subject to the conditio. There may be good arguments for that, but the idea of overlook is surely strained in that situation.48 Behind the idea of overlook lies an assumption concerning the psychological tie between testator and legatee. This is variously phrased. The Digest,49 followed in Christie v. Paterson,so spoke of "conjectura pietatis": considerations of duty. More common, but restricted to cases of descendants, is "paterna 44 As in Thornhill v. McPherson (1841) 3 D 394; Airlie v. Ogilvy (1857) 29 Scot J u r 169; Thomson's Trs v. Robb (1851) 13 D 1326; Halliday v. McCallum (1869) 8 M 112; Gauld's Trs v. Duncan (1877) 4 R 691; Carter's Trs v. Carter (1892) 19 R 408; Campbell's Tr v. Dick 1915 SC 100. 45 3rd edn, (Edinburgh, 1825) at p 159. 46 T h e classic statement is in Creig v. Malcolm (1835) 13 S 607: approved in Carter's Trs v. Carter (1892) 19 R 408, Forrester's Trs v. Forrester (1894) 21 R 971, Keith's Trs v. Keith (1908) 16 SLT 390,
Allan v. Thomson's Trs 1908 SC 483, Campbell's Tr v. Dick 1915 SC 100, Crosbie's Trs v. Crosbie 1927 SC 159, Mair's Trs v. Mair 1936 SC 731, Devlin's Trs v. Breen 1943 SC 556,1945 SC (HL) 27. Similarly see Lord Balgray's earlier words in Neilson v. Baillie (1822) 1 S 427: "the principle adopted by Papinnian [sic] is founded on a mere presumption, and therefore circumstances may take the case o u t of it". 47 Grant's Trs v. Grant (1862) 24 D 1211 per Lord Kinloch at 1221. 48 See Forrester's Trs v. Forrester (1894) 21 R 971; Waddell's Trs v. Waddell (1896) 24 R 189; Reid's Trs v. Drew 1960 SC 46. 49 D.35.1.102. 50 (1822) 1 S 498 per Lord Succoth at 499. T h e term is also used in Hamilton v. Hamilton (1837) 16 S 478 (a case of nephews a n d nieces): see the interlocutor of the Lord Ordinary (Lord Jeffrey) at 482 a n d counsel for the nephews at 483.
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283
pietas"'.51 Other formulations speak of "a presumption, founded in nature itself",52 "human nature" and a "duty to provide",53 "natural feelings" or "affection",54 a "natural obligation"55 and a "moral duty". 56 This assumption in turn rests on a value judgement as to what the reasonable testator ought to provide for his family. This is not precisely defined. Case law speaks of a "reasonable provision": thus while a bequest to the deceased's issue may exclude the conditio, in order for that to happen (and suggest that the bequest was meant to replace what would be due under the conditio) it must be "reasonable".57 Lord McLaren in Waddell's Trs said that "the moral duty cannot reasonably be stretched further than the extent of a reasonable provision sufficient to keep the legatee from want". 58 Further guidance is given by judicial references to legitim. Thus in Wilkie v. Jackson59 the fact that a legacy direct to the child was expressed as "in lieu of legitim" allowed the court to conclude that the conditio was excluded, while in Devlin's Trs v. Breen it was pointed out that: the pietas paterna does not merely rest on sentimental affection, but on natural obligation, which the law recognises and will enforce voce legitim if the parent fails to discharge the obligation.60 Both the terminology and the argument from moral (or legal) obligation are by their nature confined to the testator's descendants.61 They cannot explain the extension of the conditio to other relations. That extension—or the limits to it—has been a central difficulty in the development of the Scots law.
•sl O r materna pietas: there is n o legal distinction (see Devlin's Trs v. Breen 1945 SC (HL) 27 at 34 per Lord T h a n k e r t o n , Hall v. Hall (1890) 18 R 690 at 706 per Lord Young). T h e phrase (or a variant) also occurs in, e.g., Neilson v. Baillie (1822) 1 S 427, Airlie v. Ogilvy (1857) 29 Scot J u r 169, Grant's Trs v. Grant (1862) 24 D 1211, Cockburn's Trs v. Dundas (1864) 2 M 1185, Rhind's Trs v. Leith (1866) 5 M 104, Blair's Exors v. Taylor (1876) 3 R 362, McCall v. Dennistoun (1871) 10 M 281, and Alexander's Trs v. Paterson 1928 SC 371. 52 Erskine, Institute of the Law of Scotland (10th edn, Edinburgh, 1871) III.8.46. 53 Sturrock v. Binny (1843) 6 D 117. " Thomson's Trs v. Robb (1851) 13 D 1326, Aitken's Trs v. Wright (1871) 10 M 275. •" Halliday v. McCallum (1869) 8 M 112, Aitken's Trs v. Wright (1871) 10 M 275, Devlin's Trs v. Breen 1943 SC 556,1945 SC (HL) 27. 56 Waddell's Trs v. Waddell (1896) 24 R 189. 57 £.g., Neville v. Shepherd (1895) 23 R 35\,Johnstone's Exors v. Johnstone (1902) 10 SLT 42. 58 (1896) 24 R 190 at 196. See also MacGown's Trs v. Robertson (1869) 8 M 356 at 358 per Lord J-C Moncrieff, approving "a natural wish t o give the preference t o those w h o stand naturally most in need of assistance". 59 (1836) 14 S 1121. 60 1945 SC (HL) 27 at 34 per Lord T h a n k e r t o n . 61 Though there are rare exceptions: Lord Young spoke of "pietas materna, the mother-like feeling which the testatrix has t o her sister twenty years younger than herself": Hall v. Hall (1890) 18 R 690 at 706. But then he was attempting (unsuccessfully: he was in the minority) t o argue for extending the conditio t o brothers and sisters.
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Ross Macdonald
RELATIONSHIP OF LEGATEE TO TESTATOR
It has proved impossible to identify logically defensible boundaries. Thus there has been a constant underlying tension between generalising and widening the doctrine, and narrowing its scope. Following Christie the courts were unwilling to extend the conditio beyond nephews and nieces, and Christie itself was doubted. The unfortunate corollary was a resigned acceptance that their inclusion was anomalous, and that it was pointless to seek rational limits to an arbitrary doctrine. 62 The tension was well illustrated in the major case of Hall v. Hall63 where, following Blair's Exor v. Taylor,64 the court refused to extend the conditio to brothers and sisters, even though in Hall the testatrix's relationship with her much younger half-siblings was probably at least as "parental" as many aunts'. There were strongly worded dissents from Lord Justice-Clerk Macdonald and Lord Young: Once it is recognised that some relatives may by will put themselves in loco parentis to those not their own children, on what conceivable principle can it be held that the will of so near a relative as a brother or sister, though in every respect the same as that of the uncle or aunt, is not held to carry the same advantages to the children of predeceasing beneficiaries?... I do not think that the question, Where are you to stop? is to be an excuse for retrogression when no ground of equity, or even expediency, can be stated for going back.65 I confess it appears to me to be a startling result that we shall impute to a father the same affection for his daughter's child as he had for his daughter, and [likewise with nieces' children], but that we shall not impute to a sister the same affection for a sister's child that she had for the sister herself. I think it is irrational.66
Descendants, however remote, caused few problems—despite some initial qualms: The argument is conclusive as to the case of a man's posthumous children, but I am not so clear that the presumed pietas extends to the case of grandchildren; and as to them, I think it is carried too far by Papinnian [sic], particularly in the case of grandchildren by a daughter, who are of another house, and there is no obligation on the grandfather to provide for them.67
62 An "artificial rule": so described in Cockburn's Trs v. Dundas (1864) 2 M 1185 per Lord J-C Inglis at 1190, Hall v. Hall (1890) 18 R 690 per the consulted judges at 698, and Waddelfs Trs v. Waddell (1896) 24 R 189 per Lord McLaren (referring to the in loco parentis test) at 196. 63 (1890) 18 R 690 (Whole Court of 13 judges). 64 (1876) 3 R 362. 65 Per Lord J - C M a c d o n a l d at 701 and 703. 66 Per Lord Y o u n g at 706. 67 Neilson v. Baillie (1822) 1 S 427 per Lord Pres H o p e at 427. Grant v. Brooke (1882) 10 R 92 suggests that descendants (in that case a greatgrandchild) may claim, however remote.
Lapse of Legacies in Scots Law
285
By contrast, the doctrine is inapplicable if the legatee was not related to the testator—a "stranger in law".68 That is the rule irrespective of the social relationship (is it quasi-parental?) between testator and legatee. It is for that reason that illegitimate descendants were—unlike in Roman law—excluded. 69 The problem area, as a result of Wallace v. Wallace and Christie v. Paterson, has been the position of nephews and nieces. Those cases pointed to their inclusion. If so, did the conditio apply automatically as a result of the relationship, or need additional criteria be met? It was said in Christie that an uncle—but not, by implication, a cousin—was "in loco parentis" to his nephew. The dicta suggest that this was felt to result automatically from the genetic relationship.70 In Greig v. Malcolm71 it was assumed without discussion that the conditio could potentially apply. In Hamilton v. Hamilton72 the in loco parentis theory was mentioned in terms similar to those in Christie, but one judge spoke simply of "a bequest made to a whole family".73 It was also stated, without elaboration, in MacGown's Trs v. Robertson.74 In other cases the court seems to have thought the factual background of the relationship relevant in deciding whether the conditio applied: The essential character of children is, speaking generally, always the same. But the position of a collateral may vary from that of the closest intimate to that of the merest stranger. A man's niece may have lived with him from infancy, and managed his household, and been to him as a daughter, or she may have resided [elsewhere]. Hence it is especially necessary . . . to consider very carefully the circumstances of the case, and the terms of the settlement, in order rightly to determine whether it shall be held the implied will of the testator that the bequest should go to children.75 The in loco parentis requirement was reformulated at length by Lord President Inglis in a much-cited passage in Bogie's Trs v. Christie76: 68
Sinclair's Trs v. Sinclair 1942 SC 362. Farquharson v. Kelly (1900) 2 F 863; Martin's Trs v. Milliken (1864) 3 M 3 2 6 (illegitimate nephew). Illegitimate children are n o w treated like legitimate: L a w Reform (Parent a n d Child)(Scotland) Act 1986 ss 1(2), 4. 70 (1822) 1 S 498 per Lords Balgray and Succoth at 499: "the p r e s u m e d intention of t h e testator was taken into consideration [in Wallace], as an uncle is in loco parentis". 71 (1835) 13 S 607. T h e conditio was in fact excluded by the will m a k i n g specific reference t o survival by issue. 72 (1837) 16 S 478 per Lord M e a d o w b a n k at 486; Lord Glenlee at 4 8 7 , w h o also c o m m e n t e d that "in one sense, indeed, an uncle is in loco parentis, as he cannot marry h i s niece any m o r e than he can his daughter". T h e claim failed because the nephews and nieces were n a m e d a n d t h e legacies varied. 73 Ibid, per Lord Medwyn at 485. 74 (1869) 8 M 360 per Lord J - C Moncrieff at 358, Lord C o w a n at 3 5 9 , Lord N e a v e s a t 360. See similarly Douglas's Exors (1869) 7 M 504 at 508 (Lord J - C Patton), 5 0 9 (Lord Benholme), a n d 510 (Lord Neaves). See Cockburn's Trs v. Dundas (1864) 2 M 1185: " t h e r e must be a n institution of a class w h o stand in loco liberorum to the testator" (Lord Neaves at 1193). T h e conditio was allowed in Thomson's Trs v. Robb (1851) 13 D 1326, applying McKenzie, Wallace a n d Christie. 75 McCall v. Dennistoun (1871) 10 M 281 per Lord Kinloch at 2 8 8 - 2 8 9 . In Gauld's Trs v. Duncan (1877) 4 R 691 at 694 Lord Gifford said that "an uncle holding t h e position which this testator did to all his sister's children has always been held as in loco parentis". 76 (1882) 9 R 453 at 455—456. T h e main question was whether o m i t t i n g relations excluded the conditio; it was held not to. 69
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Ross Macdonald
It is necessary to consider what is meant by placing themselves in loco parentis. It does not mean that the uncle has during his life occupied such a position, or treated his nephews and nieces with that kindness which a parent would shew to his children; what is meant is, that in his settlement he has placed himself in a position like that of a parent towards the legatees—that is to say, that he has made a settlement in their favour similar to what a parent might have been presumed to make . . . It is by her settlement alone that she can . . . put herself in loco parentis towards a certain class."
Lord Inglis's guidelines in Bogie were unsatisfactory. They gave no guidance what features should be present in the settlement, other than referring back to those found in bequests to descendants. The court in Waddell's Trs v. Waddell77 recognised the defects of the in loco parentis formula and relaxed the test: the phrase in loco parentis ceases to be a limitation and expresses only the reason of the extension of the conditio to nephews and nieces. I confess that this consequence does not alarm me. I think it is much better that, the relationship being defined, the principle of implied conditional institution should be liberally applied, than that its application should be determined according to the impression which a judge may form as to the assumption by a testator of a character which probably never entered his mind at a l l . . . I cannot help thinking that the true rule, and the only workable rule, is that in the case of a testator who has no children of his own the benefit of the conditio will be given to the issue of his legatees, being nephews and nieces and their descendants, unless it appears from the will itself that the nature of the bequest was personal favour to the legatee rather than relationship.
To all intents the formula was deprived of meaningful content. Henceforth the conditio applied unless displaced.78 Waddell's Trs, highly influential, has been the basis of the modern law.
FACTORS WHICH FAVOUR OR HINDER THE
CONDITIO
It is relatively easy to determine whether a legatee's child falls within those eligible to claim under the conditio: that is a question of relationship and institution. It is much less easy to state whether a particular legacy lapses or not. The wide range of factors considered by the courts can make this unpredictable and the decisions inconsistent. The classic modern treatment stems from Blair's Exors v. Taylor79: The application of the conditio si sine liberis has been made the subject of decision under a great variety of circumstances. The conditio has been held to apply where the settlement is universal, where the beneficiaries are a class, and the provision is of the nature of a family settlement, and where the testator, if not a parent, is at all events in 77
(1896) 24 R 189 per Lord McLaren at 196. See comments in Johnstone's Exors v. Johnstone Paterson 1928 SC 371. 79 (1876) 3 R 362 per Lord J-C Moncrieff at 364. 78
(1902) 10 SLT 42 and Alexander's
Trs v.
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loco parentis to the beneficiaries. Where all these elements concur, the conditio will be applied. The effect given to these elements depends on two principles, first, that the delectus personae implied in a nominatim bequest is excluded when the provision is to a class; and secondly, that when the provision is of the nature of a family provision, and where the granter is in loco parentis to the beneficiaries, there is a presumption that the granter prefers the issue of a predeceasing beneficiary to any substitute named in the deed. On the other hand, it has been held that where the subject is a special legacy, where the legatees are called nominatim and not as a class, and where the testator is not in loco parentis, neither a parent literally, nor in the position of a parent, the conditio will not apply, upon this manifest principle, that a bequest to A, whom failing, to B, without mention of A's heirs, is presumed, ex figura verborum, to go to B in the event of A's death before the testator.
This statement is of limited help. The relative importance of the factors has changed over time. It is possible to cite decisions involving any of these factors which go either way. What often matters is the way they interrelate in aggregate. Ultimately the question is whether the legacy was intended for the legatee alone to the exclusion of his children. Most of the decisions relate to nephews and nieces, where the courts have tended to be more cautious in allowing the conditio; however, even in that situation the great majority of claims by legatees' offspring have succeeded. Identifying the factors which have at one time or another defeated conditio claims is relatively straightforward. These have been: — a separate legacy as opposed to the whole estate, residue or a share thereof. In each case the beneficiaries' legacies differed in amount 80 ; — the type of item: the cases involved specific moveable items, as opposed to monetary legacies81; — the legatee being a conditional institute82; — the legatee not having been instituted (having died before the will or being ineligible to inherit for some other reason)83; — accrescing shares: the conditio carries only the share which the parent was originally due to inherit, but not what he or she would have taken by accretion from other predeceasing legatees84; — another separate legacy being left to the legatee's child directly85; — the legatees being named86;
80 McCall v. Dennistoun (1871) 10 M 281, Allan v. Thomson's Trs (1893) 20 R 733, Allan v. Thomson's Trs 1908 SC 483. 81 Brown's Trs (1882) 10 R 441 (child), McAlpine (1883) 10 R 837. 82 Crichton's Tr v. Howat's Tutor (1890) 18 R 260, Allan v. Thomson's Trs 1908 SC 483. 83 E.g., in McDougal's Tr v. Heinemann 1918 SC (HL) 6. 84 Neville v. Shepherd (1895) 23 R 351, Crosbie's Trs v. Crosbie 1927 SC 159 (both children). 85 Allan v. Thomson's Trs (1893) 20 R 733. 86 Gillespie v. Mercer (1876) 3 R 5 6 1 , Crichton's Tr v. Howat's Tutor (1890) 18 R 260, Allan v. Thomson's Trs (1893) 20 R 733.
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— the legacy going only to selected members of a class, other members being excluded87; — there being other beneficiaries from outside the testator's relations88; — the legacy being subject to a survivorship clause89; — the presence of an express destination-over to issue of other legatees (but not the claimant), or one which applied in other circumstances than those which actually occurred 90 . The case law is consistent enough where the legatee was not instituted, or where the dispute concerned an accrescing share rather than the original legacy. Otherwise, however, the factors just listed have also featured in the cases which have allowed the conditio.91 The difficulty is then to determine how the court in each case weighed up the factors in allowing or barring the conditio. Two features are particularly prevalent in cases where a claim has succeeded; other factors, while perhaps relevant in confirming the court's overall impression of the scheme of the will, appear to carry relatively little weight in the decisions after Waddell's Trs. First, it is important that, taken as a whole, the will provides mainly for the testator's relations. If so, that is likely to outweigh any selection within those relations, or any variation between legacies. Conversely, even substantial nonfamily legacies may not matter provided members of the relevant class of relations have all been provided for.92 In either case the will can be treated as a family settlement. Secondly, if there is within the will another destination-over to issue, that in principle suggests that the conditio will not apply in respect of a legacy which has no such destination-over. However, there may be reasons which explain the difference: a destination-over might for instance logically be inserted in a residue clause (to prevent intestacy) but omitted in a prior legacy (because—for instance—the residue clause will take care of lapsed assets, or because the legatees are different). If so the conditio will not be excluded.93
CONCLUSION
It will be clear that one cannot easily succinctly state when the conditio will apply. That said, the more recent case law has made the position relatively 87
E.g., in Johnstone's Exors v. Johnstone (1902) 10 SLT 42. Again a feature of Johnstone's Exors v. Johnstone (1902) 10 SLT 42. E.g., in Travers's Trs v. Macintyre 1934 SC 520. 90 E.g., in Paterson v. Paterson 1935 SC ( H L ) 7. 91 In the leading case of Bogie's Trs v. Christie (1882) 9 R 453, for instance, some members of the class were excluded. 91 As in Waddell's Trs v. Waddell (1896) 2 4 R 189 (£16,000 in total left a m o n g all the close relations, £40,000 to distant relations and strangers, £100,000 to charities). 93 Reid's Trs v. Drew I960 SC 46 per Lord Pres Clyde at 52, applying Alexander's Trs v. Paterson 1928 SC 371. 88
89
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simple. Within the specified range of relatives, the conditio applies unless displaced by the will. In practice that will require pretty clear evidence that that legatee was to be specially privileged. In any event the will can make the matter plain by a well drafted reference to the legatee's offspring. There has been little case law now for forty years. That may suggest that there are no pressing problems in practice. This chapter has not discussed models for law reform. For that to be of value, the experience of other jurisdictions would need detailed analysis. Leaving aside policy issues—most obviously, must the legatee be related to the testator, and if so, how?—the main practical problem may be how exactly the will can exclude the operation of the conditio. How would a test of "clear implication" (to use the Scottish Law Commission formulation94) be determined? Should a survivorship clause (as it proposes) exclude the rule? That would reverse the current position and thus considerably limit the applicability of the rule. More radically, one might ask whether the rule any longer really serves much useful function at all. Perhaps, to the extent that it reflects a common sense view of testators' intentions. But as a means of protecting descendants against inadvertent95 disinheritance—a clear motive in some of the early case law—it may be outdated. They can now claim their predeceased parent's legitim by representation.96 Another level of protection is arguably superfluous. When the longdelayed reform of Scots succession law finally occurs, such points will deserve reconsideration.
*4 Scot Law C o m Report N o 124, Succession (1990), para 4.65. T h e Commission would introduce a statutory rule restricted t o the testator's descendants. 95 It has never protected against deliberate disinheritance, since the testator can override it in his will. 96 Succession (Scotland) Act 1964 s 11(1).
Part VI
Comparative and International Papers
17
Scots and South African Property: Problem Transplants D L CAREY MILLER* INTRODUCTION HE SCOTTISH AND South African systems of property law are kindred to the extent of a common, albeit different, factor of Romanist influence in their respective make-ups. The legal systems of both jurisdictions have been generally subject to a measure of influence of English law but differing in intensity and destination in the respective developments.1 The nature and extent of this influence differ between the two systems of property law but in neither have they been sufficient to affect basic character. The present essay investigates aspects of the influence of English law on the property systems concerned. More attention will be paid to Scotland because the influence of English law has been greater in respect of Scots property than in the case of South African property. After seeking concisely to identify the common civilian factor in the two systems the essay will consider selected examples of the instances of English law influence on, respectively, Scots and South African property law and finish with an attempt to draw conclusions from the differences.
T
COMMON CIVILIAN FACTOR
Scots property law is complex in make-up compared to its essentially civilian South African counterpart. The Scottish system reflects, to a significant extent, * Professor of Property Law, University of Aberdeen, Advocate of the High Court of South Africa. Professor Roderick RM Paisley, School of Law, University of Aberdeen, Anne Pope, Senior Lecturer in Private Law, University of Cape Town and W David H Sellar, Honorary Fellow in Law, University of Edinburgh, made valuable comments on preliminary drafts of this essay but the author alone is responsible for the position taken and form of the final version. 1 In Scots law the extent of the influence is controversial; see now WDH Sellar's comprehensive assessment, "Scots Law—Mixed from the Very Beginning? A Tale of Two Receptions" (2000) 4 Edinburgh Law Review 3. Regarding the modern position a recent study indicates the domination of English case law as external source material: see E Orucii, "Comparative Law as a Tool of Construction in Scottish Courts" (2000) 112 juridical Review 27. In South Africa the influence of English law is well understood, a point of controversy having been its desirability; see HR Hahlo and E Kahn, The South African Legal System and its Background (Cape Town, Juta, 1968) 575-596.
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the influence of both civilian and feudal law. This factor caused the perpetuation of an attitude which sought to identify the law relating to moveable property as civilian but that applying to immoveable (Sc: "heritable") property as feudal. The extent to which this thinking became entrenched has been demonstrated by Professor Kenneth GC Reid, who noted that "[t]here is no modern work giving a systematic and unitary exposition of the law of property, and in its absence the general principles of the subject have tended to be lost sight of, where they have not been disregarded altogether".2 Regarding the perceived civilian/feudal dichotomy it should be noted that feudal land law—of declining significance3 and about to be finally laid to rest4— is primarily concerned with the basis under which land is held rather than with the means by which it is acquired.5 My chapter in a general work on the historical development of Scots private law6 sets out to identify the true basis of derivative acquisition of rights in land and concludes that the process—commonly known as "conveyancing"—is essentially civilian.7 The complexity of Scots property is reflected in the fact that the law relating to servitudes8—an important aspect of the basis under which land is held—is strongly Romanist.9 2 The Laws of Scotland: Stair Memorial Encyclopaedia (Edinburgh, The Law Society of Scotland/Butterworths, 1993) xviii, para 1. 3 But as recently as 1961 TB Smith in his Hamlyn Lectures, British justice: The Scottish Contribution (London, Stevens, 1961) 182 commented: "In short the land law of Scotland remains perhaps the most feudal in the world". 4 At time of writing see Scottish Law Commission, Report on Abolition of the Feudal System, Scot. Law Com. No. 168, February 1999 and the Abolition of Feudal Tenure (Scotland) Bill, 2000: developments on the basis of a manifesto commitment which became a political priority in the context of Scottish devolution. 5 The feudal rule which vests all unowned but previously owned things in the Crown has significant implications for finds of treasure or antiquities: see Lord Advocate v. University of Aberdeen and Budge 1963 SC 533; DL Carey Miller and A Sheridan, "Treasure Trove in Scots Law" 1996 Art, Antiquity and Law 393. Regarding the application of this principle to land see Shetland Salmon farmers Association and Others (Special Case) 1990 SCLR 484. 6 "Transfer of ownership" in KGC Reid and R Zimmermann (eds), A History of Private Law in Scotland (Oxford, Oxford University Press, 2000) i, 269. 7 In this regard it is significant that Scottish institutional writer on feudal law, Thomas Craig, identified the feudal title right by reference to the division of ownership in terms oidominium directum, dominium Mile rather than in terms of usufruct. See Sir Thomas Craig of Riccarton, Jus Feudale (3rd edn, Edinburgh, J Baillie, 1732, translated by Lord Clyde, 1934) 1.9.11. JM Halliday ("Feudal Law as a Source" in DH Walker (ed), Stair Tercentenary Studies, (Edinburgh, Stair Society Publications, 1981), 136-137.), a distinguished modern authority, commented that "the notion of a vassal's right, transmissible to his heirs, being a mere usufruct was unacceptable to Scottish landowners who regarded themselves as proprietors of their estates". See also WM Gordon, Studies in the Transfer of Property by Traditio (Aberdeen, Aberdeen University Press, 1970) 190—209 and GL Gretton, Stair Memorial Encyclopaedia, supra n 2, paras 47—52. 8 See the definitive work: DJ Cusine and RRM Paisley, Servitudes and Rights of Way (Edinburgh, W Green, 1998). 9 In Axis West Developments Ltd v. Chartwell Land Investments Ltd (House of Lords, 15 July 1999, publications on the Internet), regarding the interpretation of a clause constituting a servitude (Eng: easement) of access, Lord Clyde noted an affinity between Scots and South African law; see also CG van der Merwe and RRM Paisley on a shared tradition relating to servitudes and rights of way ("From Here to Eternity", forthcoming in Stellenbosch Law Review). One may note an increasing tendency to compare aspects of Scots and South African property law; see, e.g., CC Campbell, "The Ownership of Corporeal Property as a Separate Tenement" (2000) 112 Juridical Review 39,54-56.
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With regard to the system of transferring property, it is significant that what evolved in the long history of the development of the civil law in fact represents the natural and rational form of derivative acquisition. This is acknowledged by a leading authority on Scots property law, David Hume, 10 who occupied the Chair of Scots law at Edinburgh from 1786 to 1822. n The Court of Session in the recent case of Sharp v. Thomson11 sought to clarify the basis on which title passes in the context of the sale of heritable property—a "conveyancing" transaction involving the sale of land. Although the House of Lords reversed the Edinburgh court's decision, it is significant for present purposes that it sought to do so without challenge to the fundamental conclusions concerning principles of property law arrived at by the court a quo. Lord Clyde articulated the point of "no challenge" to "basic concepts of Scottish law which apply in the area of heritable property" in a dictum consistent with the narrow and technical basis under which the Lords decided the case: A basic distinction between real rights and personal rights was not questioned. It was not suggested that there is any kind of hybrid right somewhere between a real right and a personal right. It was accepted that Scottish law holds a unitary theory of ownership by which only one real right of ownership can exist in respect of any one thing at any one time.13
The opinion of Lord President Hope in the Court of Session is particularly instructive on the fundamentals of Scots property law. The learned Lord President, referring to Professor Reid's Stair Memorial Encyclopaedia text,14 emphasised the strength of the civilian factor in Scots property giving a clear and well-understood distinction between real and personal rights. As enunciated by the institutional writers of Scotland15 "it is not until the transaction is completed by delivery that the real right is transferred" and pending this event there is no support for the existence of "an intermediate, or incomplete, right which lies between the personal right on the one hand and the real right on the other". 16 In modern doctrinal writing, the Scottish system's civilian credentials controlling the passing of property were first articulated in Professor WM Gordon's seminal Studies in the Transfer of Property by Traditio.17 As indicated, the Stair
10 See GCH Paton (ed), Baron David Hume's Lectures 1786-1822, (Edinburgh, Stair Society Publications, 1952) iii, 245. 11 On Hume's contribution to thinking on Scottish property law see the comments of Professor KGC Reid, supra n 2. 12 1995 SLT 837. For a brief summary of the facts see infra n 67. 13 1997 SLT 636, 645. 14 n 2, supra paras 1—3. 15 The Lord Pres refers to: Stair, Institutions of the Law of Scotland (Edinburgh, 1681; 6th edn DM Walker, 1981); Erskine, An Institute of the Law of Scotland (Edinburgh, 1773; 8th edn JB Nicholson, 1871, reprinted 1989). 16 n 12 supra 844. 17 n 7, supra especially 210-235.
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Memorial Encyclopaedia volume, under the principal authorship of KGC Reid18, presents the complete picture of civilian influence in Scots property.19 South African property law is very much representative of the civilian character which is the most prominent feature of the entire edifice of private law through the system's seventeenth-century Roman-Dutch roots. 20 In terminology, concept and mechanics, an essentially civilian property law was developed in the courts and reflected in controlling legislation.21 African customary property law functioned only in a subsidiary context.22 The reform of land-holding and property law in 1990s democratic South Africa reflects major new policy considerations to redress an unequal and unfair position; but while the reforms introduce some innovative concepts they do not depart, in any structural or fundamental way, from the established system.23
ENGLISH LAW INFLUENCE ON SCOTS PROPERTY
Although the original feudal element was Anglo-Norman, 24 it is generally accepted that the modern development of Scots property law has been subject to minimal English influence. Regarding the relevant sources of Scots law, Professor KGC Reid, having noted the overriding feature of Romanist influence and the decline, in modern times, of the feudal factor, comments on an affinity with English law essentially limited to the few aspects, such as easements (Sc: servitudes) and fixtures, in which a common Roman influence has prevailed: A lawyer trained in Scotland can without difficulty (other than linguistic difficulty) read and understand a book about the law of property in Germany or, indeed, in Japan (where the law is based on German law). But he is likely to be perplexed and bewildered by a book on the law of property in England.25 Despite fundamental differences some English influence cannot be denied.26 In the circumstances of ptesent limits, however, only two aspects will be 18
Supra n 2. See also DL Carey Miller, Corporeal Moveables in Scots Law (Edinburgh, W Green, 1991) and, by the same author, "Systems of Property: Grotius a n d Stair" in D L Carey Miller a n d D W Meyers (eds), Comparative and Historical Essays in Scots Law: A Tribute to Professor Sir Thomas Smith QC (Edinburgh, Butterworths/The Law Society of Scotland, 1992) 13; "Derivative Acquisition of Moveables" in R Evans-Jones (ed), The Civil Law Tradition in Scotland (Edinburgh, Stair Society Publications, 1995) 128; "Stair's Property: A Romanist System" (1995) 107 Juridical Review 70. 20 N o t e the extent of reference to civilian sources in C G van der Merwe's definitive Sakereg (2nd edn, D u r b a n , Butterworths, 1989). 21 T h e Deeds Registries Act 47 of 1937 being the most important example. 22 See, generally, T W Bennett, The Application of Customary Law in Southern Africa: The Conflict of Personal Laws (Cape T o w n , Juta,1985). 23 See the concluding overview chapter of D L Carey Miller and A Pope, Land Title in South Africa (Cape T o w n , J u t a , 2000) 555-589. 24 See W D H Sellar, "A Historical Perspective" in SC Styles (ed), The Scottish Legal Tradition " Supra n 2, para 2. (Edinburgh, T h e Saltire Society, 1991) 37. 26 Even in aspects subject t o doctrinal difference; see, e.g., n 2, para 20 regarding joint and common property. 19
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examined27; the property provisions of the Sale of Goods Act 1893 (now 1979) and the decision of the House of Lords in Sharp v. Thompson,28 a matter which arose from the adoption by Scots law of the English law floating charge form of security.29
The Sale of Goods Act (i) Perception of Anglicisation A significant sector of modern thinking sees the Sale of Goods Act 1893 (now 1979) as a major inroad into the principles of Scots property law identifiable in terms of the imposition of English law upon Scotland in a United Kingdom context. The late Professor Sir Thomas Smith, who led the twentieth-century postwar revival of Scots law,30 observed that the legislation facilitated the transfer of real rights by agreement—a doctrine revolutionary to Scots law—"which had long been accepted in English law".31 Professor JJ Gow referred to the "avowed purpose" of draftsman Sir Mackenzie Chalmers "to reproduce as accurately as possible the existing English law". 32 More recently, attention has been drawn to the interest of the Scottish commercial community—an important part of the British Victorian commercial empire—in a uniform commercial law.33 In this regard it is significant that the contemporary edition of a major text supported the view that Scots law's traditional insistence upon possession as "the true and proper badge of transferred property" 34 was no longer viable, in the context described in another contemporary text as "the greatly increased complexity of commercial interests".35 27 Other relevant areas are fixtures—see supra n 2 para 578, K G C Reid—and nuisance—see The Laws of Scotland: Stair Memorial Encyclopaedia, (Edinburgh, T h e L a w Society of Scotland/ Butterworths, 1988) xiv, paras 2016-2017, Niall R Whitty. 28 1997 SLT 636. 29 By the Companies (Floating Charges) (Scotland) Act 1961; this form of security being n o w provided for by s 462(1) of the Companies Act 1985 and s 53(7) of the Insolvency Act 1986. 30 See the foreword of Lord Pres H o p e in D L Carey Miller and D W Meyers, supra n 19, xi: "For Professor Emeritus Sir T h o m a s Smith w a s without doubt the outstanding Scots lawyer of his generation." 31 Property Problems in Sale (London, Sweet & Maxwell, 1978) 39; see also supra n 3,178, where Sir T h o m a s observed: " T h e Sale of G o o d s Act, 1893, has left a legacy of unsolved and virtually insoluble problems". Professor J M Halliday, Conveyancing Law and Practice in Scotland (Edinburgh, W Green, 1985) i, 251 noted that the legislation "altered the Scottish c o m m o n law and substituted the English rules whereby the property in specific o r ascertained goods passes when the parties t o the contract of sale intend it to pass". 32 The Mercantile and Industrial Law of Scotland (Edinburgh, W Green, 1964) 75. 33 See especially AF Rodger, " T h e Codification of Commercial Law in Victorian Britain" (1992) 108 LQR 570. 34 G J Bell, Commentaries on the Law of Scotland and the Principles of Mercantile Jurisprudence (7th edn, Edinburgh, J McLaren, 1870) i, 178; note also the comment that "any adherence to this plain a n d simple rule is utterly impossible amidst the complicated transactions of modern trade". 35 R Brown, Sale of Goods (2nd edn, Edinburgh, W Green, 1910) 115.
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But is the system of the transfer of property introduced by the Sale of Goods Act 1893 fundamentally different from the common law of Scotland?36 The system under the Act, as one would expect, accords with Scots common law in respect of the basic requirements that the parties are in a position to pass and acquire ownership and that they both intend that it should pass. Derivative acquisition necessarily involves these essentials. But the Act departs from Scots common law in not requiring a separate act of delivery as such. As a legal act effecting the transmission of property, delivery is an optional requirement—rather than a prerequisite in the manner of the requirements of entitlement and intention. Property passes under section 17(1) of the Act, "at such time as the parties to the contract intend it to be transferred", the relevant intention being ascertained by reference to "the terms of the contract, the conduct of the parties and the circumstances of the case". 37 Arguably, the Act in section 17(1) envisages a separately identifiable legal act supported by the specific mutual intention that property should pass at a particular time. The system operates in terms of the distinction between personal and real rights in separate treatment of, on the one hand, the formation of the contract—creating correlative rights and duties—and, on the other hand, the proprietary consequences. This latter aspect is divided between the "transfer of property as between seller and buyer" and issues of "transfer of title", concerned with the nemo dat quod non habet principle and exceptions to it.38 Under the Act property passes to the buyer at a particular identifiable point in time. 39 The relevant provisions are directed towards this in a set of rules which aims to bring a measure of uniformity, at least in the more common commercial situations, in ascertaining the intention of the parties as to when property in the goods sold should pass.40 The required identification of a point in time at which the buyer's personal right becomes a real one, on the basis of the passing of property, is significant; indeed, probably of greater significance than the fact that the relevant time is established by reference to the parties' intention rather than an act of delivery. Arguably the respective delivery and intention bases are in fact interchangeable as criteria in the critical matter of determining the time of transmission of a proprietary right.41 36 R Z i m m e r m a n n , The Law of Obligations: Roman Foundations of the Civilian Tradition (Cape T o w n , J u t a , 1990) 271—272 considers the analogous differences between traditio in R o m a n law and the position under the French Code Civil (art 1583) in terms of which ownership passes on the conclusion of a contract of sale. 37 S 17 of the Sale of G o o d s Act 1979. 38 See Parts II and III of the Sale of Goods Act 1979. See DL Carey Miller, supra n 1 9 , 1 4 0 - 1 4 1 . 39 PS Atiyah's leading text, The Sale of Goods (9th edn, by J W Adams, London, Pitman, 1995) 271 is entirely clear: " T h e exact moment [my emphasis] at which the property passes depends upon whether the goods are specific or unascertained . . ." 40 S 18 of the Sale of G o o d s Act 1979 (Rules 1-5). 41 See the Stair Memorial Encyclopaedia c o m m e n t of section author AJ Gamble, supra n 2, para 628: " T h e distinction between the timing of the passing of property based on delivery or equivalent
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It is of no significance that in a particular case under the Act property may pass on the basis of the agreement of sale, as provided for in Rule 1 under section 18.42 In this case the legal act of tranfer is inferred as what the parties intend. Professor FH Lawson, in a famous article, recognised that although, under the Act, "the perfection of a contract of sale passes the property" this happens on the basis of a presumption as to the intention of the parties and, as the learned writer observed, citing section 17: "that intention being decisive as to the moment at which property is to pass". 43 In this case, as in other situations in which the disposal and acquisition of property are the aim of a contract, the coming into being of a personal right and its transition to a real right involve two separate legal acts. Even though the transaction is unitary, a proper analysis must necessarily recognise a legal act passing property following immediately from and actuated by the legal act on the basis of which the contract is concluded. With the proprietary intention factor—rather than a delivery requirement—controlling, the elapse of a period of time between the conclusion of the underlying contract and the acquisition of the subject sold by the buyer can be avoided.44 When this occurs, the legal analysis perspective of the coincidence of contract and conveyance must be the simultaneous occurrence of two separate acts rather than the notion of a unitary transaction. That the parties' unitary mutual intention drives both acts is unexceptionable and, of course, this also happens in a system which requires delivery when the analysis relates to the concurrence of purchase and acquisition, as in the common supermarket context. The Sale of Goods Act maintains a clear distinction between contract and property in a form and structure in which a personal right is replaced by a proprietary right on the basis of the identification of an intention-derived legal act occurring at a particular point in time; to this important extent, the Act is in conformity with Scots common law.45 The better view is that this conformity is more important than the departure from a delivery requiment and the adoption of coincident intent as the identifying factor of conveyance. In various situations under the Act the question must be asked whether property has passed on the basis of an act constituted by the parties' agreement in the same way as, under in possession and a timing based on intention, is the key to the difference of approach between the Act and Scots common law. It is, however, possible to exaggerate the practical difference between the Scots common law a n d the approach of the Act." 42 Rule 1, s 18 reads: "Where there is an unconditional contract for the sale of specific goods, in a deliverable state, the property in the goods passes t o the buyer when the contract is made, and it is immaterial whether the time of payment o r the time of delivery, or both, be postponed". 43 FH Lawson, " T h e Passing of Property a n d Risk in Sale of G o o d s — a Comparative Study" (1949) 65 LQR 352. See also W W Buckland and AD M a c N a i r , Roman Law and Common Law (2nd edn, by F H Lawson, Cambridge, Cambridge University Press, 1952) 291. 44 In the everyday situation of the purchase of consumer goods, the coincidence of contractual and proprietary intentions provides a more workable analysis than the delivery basis. 45 There may be a tendency t o overrate the role of delivery—Grotius, de jure Belli ac Pads (Paris, 1625) 2.12.15 did not regard it as essential t o the transfer ownership in sale; on this see A Watson, Legal Transplants (Edinburgh, Scottish Academic Press, 1974) 83.
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Scots common law, the issue would be whether, other things being equal, property would have passed by act of delivery.46 (Hi) Labels not determinative of the Act's system The analytical position of the Act must, of course, be determined by reference to its actual system dealing with the coming into being and transmission of rights between the parties. In this regard the labels applied are not necessarily controlling. 47 The Act distinguishes a "contract of sale" by which "the seller transfers or agrees to transfer the property in goods to the buyer"48 and an "agreement to sell" where "under a contract of sale the transfer of the property in the goods is to take place at a future time or subject to some condition later to be fulfilled".49 While the wording used in this distinction may be taken to indicate that sale transfers property the substance of the position provided for by the subsections envisages the transfer of property as a separate legal act. These preliminary definitional provisions do not gainsay the critical feature, provided for in section 17, that property passes when the parties so intend50— necessarily pointing to a subsequent legal act driven by the parties' intention which, of course, must always be, at least to some degree, in anticipation of the actual transfer. (iv) Causal/'abstract issue Is the passing of property under the Act controlled by the parties' contract or by reference to the legal act of transfer itself—in other words is the system under the Act "causal" or "abstract"? 51 The relevant terms relating to the passing of title in any given transaction under the Act derive from the contract of sale.52 This feature may point to a causal system. However, where the seller of goods has a voidable title "but his title has not been avoided at the time of sale" then the buyer "acquires a good title to the goods, provided he buys them in good faith and without notice of the seller's defect of title". 53 This provision is 46 See Atiyah, supra n 3 9 , 267: "once again the same result would follow if property passed on delivery instead of by mere agreement". 47 Regarding the use of the phrase "transfer of property between seller and buyer" in Part III of the Act see Atiyah, supra n 39, 265—271. 48 S2(l). 49 S2(5). 50 See Lawson, supra n 4 3 . •" See R Z i m m e r m a n n , " T h e Civil Law in European Codes" in DL Carey Miller and R Z i m m e r m a n n (eds), The Civilian Tradition in Scots Law (Berlin, Duncker & Humblot, 1997) 274-276 and L P W van Vliet, Transfer of Moveables (Nijmegen, Ars Aequi Libri, 2000), 24-25; 169-199. See also supra n 2, para 608 (WM Gordon) and DL Carey Miller, supra n 19,106-114. •" S 12. See supra n 2, p a r a 625 (AJ Gamble): "Essentially the seller is contracting to pass title to the goods. T h u s one of the vital contractual provisions of the Act, which cannot be excluded, relates to the implied warranties o n title, freedom from encumbrance and quiet possession. That provision [s 12] is the link between t h e t w o aspects of sale." *> S 2 3 .
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consistent with the common law of Scotland.54 Its significance lies in the fact that the act of transmission of title—based on a concordance of the parties' intention—is effective despite the existence of a defect which makes the basis voidable. The independent role of the act of transfer is confirmed by the prerequisite of good faith on the buyer's part. 55 As argued above, a rational analysis of "a contract by which the seller tranfers or agrees to transfer the property in goods to the buyer"56 necessarily involves two separate stages of contract and conveyance—because the buyer must acquire a personal right before a real right can be acquired. On this analysis section 23 operates in the second stage to preclude acquisition because of the buyer's knowledge of the defect. (v) internal compatibility Arguably, an intention-based approach to the passing of property is more flexible and can better accommodate other aspects of the law of property. The better view is that the common law of Scotland in fact represented such a model. The device of reservation of title—recognised in the common law57—in which seller and buyer agree that property shall not pass on delivery but only on full payment, is more readily accommodated in an analysis which identifies the relevant stage by reference to what the parties intend rather than one which puts the emphasis upon an actual act of handing over. The difficulty which modern Scots law had with the Romalpa variant of reservation of title58 reflects an undue emphasis upon delivery with insufficient attention to intention.59 That "delivery and passing of title can be separated"60 is unexceptional under the system of the Act.61 As indicated, under the common law of Scotland this result is also possible but, of course, is only achieved by giving the intention factor precedence over the delivery requirement. 54
See supra n 2, para 601 (n 4) where KGC Reid refers to s 23 as "declaratory of the c o m m o n
law". 55
See DL Carey Miller, "Good Faith in Scots Property L a w " in Angelo D M Forte (ed), Good Faith in Contract and Property Law (Hart, Oxford, 1999) 106-107. 56 S2(l). 57 See Stair, supra n 15, 1.14.4 (quoted and applied in Sheriff Court appeal Sandeman and McLellan reported in (1866) V Scottish Law Magazine 53); see also DL Carey Miller, supra n 19, 276-278. 58 See KGC Reid and GL Gretton, "Retention of Title in Romalpa Clauses" 1983 Scots Law Times (News) 77. 59 Regarding this development see DL Carey Miller, supra n 19, 275—281. T h e device was eventually received on the basis of the technical distinction between security and reservation of title: see Armour v. Thyssen Edelstahlwerke AG (HL) 1990 SLT 891, 895 (Lord Keith): "Such a provision does in a sense give the seller security for the unpaid debts of the buyer. But it does so by way of a legitimate retention of title, not by virtue of any right over his property conferred by the buyer." T h a t there can be no retention of a real right of security by a seller when property has passed, while there is no difficulty with the seller retaining title pending full payment, even when the subject concerned has been delivered to the buyer, is best explained on the basis of a policy limitation upon the scope of a controlling intention factor. 60 Supra n 2, para 626 (AJ Gamble). «' See s 19(1); on this see supra n 2, para 638 (AJ Gamble).
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On one view the Sale of Goods Act represents a shift from the English common law position to the Scottish one. This is true to the extent that the Act leaves behind the technical English law/equity dichotomy—unknown to Scots law— which produced a qualification of the notion of the unitary passing of property as described above. In English law prior to the Sale of Goods Act there was support for equity having a role in relation to unascertained goods through the transfer of an equitable interest in future property in circumstances in which the common law, insisting upon identification, denied the passing of property.62 Even if such a role had existed prior to the Sale of Goods Act, a possible role in the context of the Act was authoritatively denied by Atkin LJ in 1927: It would have been futile in a Code intended for commercial men to have created an elaborate structure of rules dealing with rights at law, if at the same time it was intended to leave, subsisting with the legal rights equitable rights inconsistent with, more extensive, and coming into existence earlier than the rights so carefully set out in the various sections of the Code. The rules for the transfer of property as between seller and buyer, performance of the contract, rights of the unpaid seller against the goods, unpaid seller's lien, remedies of the seller, remedies of the buyer, appear to be complete and exclusive statements of the legal relations both in law and equity".63
The Sale of Goods Act may be a codification of late nineteenth-century English commercial law but its property provisions happen not to reflect an aspect which would have been incompatible with Scots law. However, although the Act does not introduce English equity into Scots law, on one view it precludes scope for the Scottish common law concept of good faith.64 As Professor Sir Thomas Smith65 noted: "sale is the only bilateral contract in Scots law, except compromise, which is not in theory governed by general principles of good faith".66 But whatever the assessment regarding the absence of equity and good faith in the Act, the better view appears to be that the much criticised abandonment of a delivery requirement is an inroad into Scottish legal principles 62 Atiyah, supra n 39, 298 refers t o a dictum of Lord Watson in Tailby v. Official Receiver (1888) 13 A p p Cas 523,533 a n d c o m m e n t s that "[i]t seems t o have been thought that physical identification o r ascertainment might n o t be required in equity s o long as the thing sold belonged t o an identified bulk o r w h o l e " . 63 R e Wait [1927] 1 C h . 606, 635-636. Atiyah, supra n 39, 299, n 154 comments that "this point w o u l d appear t o be settled beyond d o u b t " a n d cites the following: London Wine Co (Shippers) Ltd [1986] P C C 121; Leigh & Sillavan Ltd v. Aliakmon Shipping Corp Ltd (The Aliakmon) [1986] A C 785; Re Goldcorp Exchange Ltd [1994] 2 All E R 806; Re Stapylton Fletcher [1994] 1 WLR 1181. 64 O n good faith in Scots c o n t r a c t law see n o w H L M a c Q u e e n , "Good Faith in the Scots Law of Contract: An Undisclosed Principle?" in Forte, supra n 55, 5. 65 See supra n 3, 179. 66 SC Styles, in a section headed "Equity: a less certain principle than good faith?", compares the English developed technical doctrine of equity a n d the general civilian concept of good faith in " G o o d Faith: A Principled M a t t e r " in A D M Forte, supra n 55,174-176.
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only in a relatively minor degree because it represents a change which is more apparent than real.
Sharp v. Thompson Detriment which the much maligned Sale of Goods Act did not cause for Scots law may, unfortunately, have been done by the House of Lords decision in Sharp v. Thompson.67 As indicated in the previous section the sale code avoids any role for the English law dichotomy between equitable ownership and ownership proper; indeed, the legislation maintains a clear distinction between contract and property in a system in which, on a correct analysis, property is acquired on the basis of a separate unitary act. To this extent the legislation is compatible with Scots law. In Sharp, early in Lord Jauncey's opinion, the concept of "beneficial interest" is brought into the reckoning in an interpretation of authority leading to the conclusion that, in the circumstances, such an interest had passed from the sellers before the legal act of conveyance.68 There has been much learned comment on this decision69; for present purposes, however, two associated observations appear to be especially relevant. In the first place, while the decision of the First Division of the Court of Session70 proceeded from the premise that fundamental considerations leave no room for a blurring of contractual and proprietary rights in Scots law71, the decision of the House of Lords allowed this to happen, albeit on a basis which the court sought to ring-fence in terms of the factor of a floating charge under the Companies Act—seen to be the cause of difficulty.72 My second observation arises from this apparent aim of the House of Lords to limit the scope of the decision as a precedent. Arguably, the decision of the case necessarily required a legal finding concerning the issue of the passing of property—in circumstances analogous to the familiar dispute between an 67
1997 SLT 636. This case involved the competing interests of the buyer of a flat a n d a b a n k , holding a floating charge security interest. O n delivery of a disposition by the seller, the buyer had paid the price and taken possession but, pending registration, the selling property company went into liquidation a n d the floating charge "crystalised". T h e issue was whether property in the flat remained with the seller—subject to the bank's floating charge—or whether it had passed t o the buyer. 68 See at 639 B - C and 643 K-L. 69 See especially the following: K G C Reid, "Jam T o d a y : Sharp in the House of Lords" 1997 Scots Law Times (News) 79, "Equity T r i u m p h a n t : Sharp v Thomson" (1997) 1 Edinburgh Law Review 464, "Obligations and Property; Explaining the Border" 1997 Ada Juridica 225; R Evans-Jones "Receptions of L a w " (1997) 114 LQR 228. 70 1995 SLT 837. O n this decision see K G C Reid "Sharp v Thomson: Property Law Preserved" (1995) 1 Scottish Law and Practice Quarterly 53. 71 See supra nn 12-16, relevant text. 72 Some 30 years before Sharp v. Thomson, WA Wilson warned of the possible incompatibility of this importation from English law with Scots conveyancing: see "Floating Charges" 1962 Scots Law Times (News) 5 3 , 5 5 a n d " T h e Companies (Floating Charges) (Scotland) Act" (1962) 25 M L R 445, 448; see also H L M a c Q u e e n (ed), Scots Law in the 21st Century: Essays in Honour ofWA Wilson (Edinburgh, W Green, 1996) 1.
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insolvent transferor's creditors and a transferee—as to whether or not property has passed from the insolvent estate. In this regard it is significant that the role of a case as precedent is determined by what the court has to decide. British courts have not accorded themselves with the capacity to prescribe the scope of a precedent in terms of how it will impact on subsequent matters—in the manner of the American device of "prospective overuling"73—and, indeed, it may well be that any attempt to assert such a power would breach the principle of separation of powers. 74 It accordingly appears that the decision does have major implications for Scots property law; as already indicated, with greater potential detriment than the abandonment of delivery by the Sale of Goods Act.
SOUTH AFRICAN ASSIMILATION OF ENGLISH PROPERTY INFLUENCE
General Attitude and Position The circumstances of colonial history have brought into existence a predominantly European system of law in modern democratic South Africa. Although the vast majority of the population is African, the limited role of customary law, 75 in mainstream legal development, is continued in the constitutional provisions76 of democratic South Africa.77 Moreover, while the Constitution pays considerable attention to property rights, 78 it does so primarily from the perspective of the Roman-Dutch based common law79 rather than from any African customary law position. 80 The initial period of an extended colonial epoch, from the mid-seventeenth century, was dominated by Roman-Dutch law—specifically the variant of Holland, the provincial jurisdiction of the Dutch East India Company which settled the Cape. 81 Following the Napoleonic Wars, Britain acquired control of 73 See A G L Nicol "Prospective Overruling: A N e w Device for the English C o u r t s " (1976) 39 M L R 542. 74 This, of course, is n o t t o deny t h e latitude o p e n t o a court in giving effect t o a binding precedent; a matter which differs between English a n d Scots law: see Smith, supra n 3 , 84—85; R Cross, Precedent in English Law (Oxford, C l a r e n d o n , 1968) 16. 75 See, generally, Bennett, supra n 22. 76 In ch 12, " T r a d i t i o n a l Leaders", u n d e r " R e c o g n i t i o n " s 211(3) provides that "The courts must apply customary law w h e n that law is a p p l i c a b l e , subject t o the Constitution a n d any legislation that specifically deals with customary l a w " . 77 But the Recognition of Customary Marriages A c t 120 of 1998 represents an important exception. 78 See s 25 of the Constitution of the R e p u b l i c o f South Africa Act 108 of 1996; on the constitutional provisions see, generally, Carey Miller a n d P o p e , supra n 23, 282—312. 79 See T W Bennett, "African L a n d — a H i s t o r y of Dispossession" in R Z i m m e r m a n n and D Visser (eds), Southern Cross: Civil Law and Common Law in South Africa (Oxford, Oxford University Press, 1996) 71 where the a u t h o r notes t h e p r e c a r i o u s nature of customary land rights. 80 N o t e , however, that s 1 of the Restitution of L a n d Rights Act 22 of 1994 defines "right in land" for t h e purposes of restitution t o include " a c u s t o m a r y law interest"; see Carey Miller and Pope, supra n 23, 297-298; 324. 81 See Du Plessis v. Strauss 1988 (2) SA 105 (A) 150; R Z i m m e r m a n n , " R o m a n Law in a Mixed Legal System: T h e South African Experience" in Evans-Jones, supra n 19, 4 1 , 68.
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the Cape and was a dominant force in the destiny of the developing nineteenthcentury state. But while the administration of justice came to acquire a form and substance reflecting English law, British colonial policy82 left in place the established system of Roman-Dutch substantive law. In the property context the system was markedly civilian and very much distinguishable from English law.83 The greater complexity of English property law—particularly land law—was a factor in the recommendation of a commission, appointed in 1826 by Cape Governor Lord Charles Somerset, to retain the Roman-Dutch law of property.84 In twentieth-century South Africa a private law developed strongly with a definite emphasis upon the retention of its civilian identity. This was partly associated with the rise to power of the Afrikaner national group and a perception of Roman-Dutch law as an aspect of European cultural heritage. Not without some justification, a purist mentality tended to see English law influence as potentially damaging to the integrity of an established ius commune form of private law, but this attitude did not go unchallenged.85
The property position The dominant Roman-Dutch factor in property is reflected in the fact that the pivotal land law legislation, the Deeds Registries Act 47 of 1937, derives from sixteenth-century Holland.86 The essence of conveyancing as a prescribed formal act reflects the common law requirement of an act of delivery to convey a real right. In principle, defects potentially applicable at common law are equally applicable in the land registration context, but in practice the process largely protects against defective title.87 The significantly increased volume of title registrations resulting from land reform88 may, however, necessitate some form of guarantee that registered title is good title.89 Despite the historical proximity factor South African property law has avoided direct substantive influence from the English system, but, at the same time, some reception of English ideas has almost certainly occurred. The conclusion of OD Schreiner, a distinguished Judge of Appeal (1945-1960), that 82
See Campbell v. Hall (1774) 1 C o w p 204 (98 ER 1045). Reflecting the far-reaching structural and conceptual differences identified in Buckland a n d MacNair, supra n 43, 60-126. 84 See B Beinart, " T h e English Legal Contribution in South Africa: T h e Interaction of Civil a n d C o m m o n Law" 1981 Ada Juridica 7, 30. 85 O n this "bellum juridicum" see H R H a h l o and E Kahn, The South African Legal System and its Background (Cape T o w n , J u t a , 1968) 578—596; see also "Introduction" in Z i m m e r m a n n a n d Visser, supra n 79, 24. 86 See C G van der M e r w e , supra n 2 0 , 3 3 3 - 7 . 87 See Carey Miller and Pope, supra n 23, 63-65. 88 T h e role of registration is a c k n o w l e d g e d in a White Paper: South African Land Policy (April, 1997) paras 4.19, 6.15. 89 See Carey Miller and Pope, supra n 2 3 , 6 4 - 6 5 . 83
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"[o]ur law of property owes little to English law" 90 is true to the extent that technical property law as such has hardly been touched by English law. However, this is not to deny the influence of English legal thinking in the wide context of property. The trust is probably the prime example of the adaptation of an English idea not fitting the Romanist property structure. In strict civilian terms it might not even be classified as property law 91 even though its proprietary role is a significant one. 92 While South African law has studiously avoided the English dichotomy of a separation between common law and equitable ownership93 it appears that the trust has been adopted as a self-contained device.94 This means that its restricted application does not include access to English law's flexible constructive trust, a device open to wide application on the basis of the concept of a beneficial (or equitable) interest as a form of ownership. 95 While it may be problematical to explain the trust in terms of the well understood dogmatics of South African property law the self-contained nature of its exceptionality causes no real difficulty. Under British nineteenth-century administration a system of freehold landownership developed from the dominant earlier pattern of limited, if not precarious, forms of land-holding 96 ; but this did not bring with it a shift to English property law. A British-inspired motivation for freehold and a RomanDutch capacity to provide the necessary legal form were probably the primary ingredients in the development of the property regime which came to exist. In Roman-Dutch legal form the ultimate legal right of ownership is distinguishable in kind from possession and unitary in nature. In a quite different structure English ownership is determined as a matter of right to possession with distinct and sometimes competing legal and equitable forms.97 The development of rights and obligations pertaining to ownership in South African law has proceeded on the basis of the Roman-Dutch form even where the aim has been an English law outcome. The development of the law of nuisance—on the basis of 90
The Contribution of English Law to South African Law; and the Rule of Law in South Africa, H a m l y n Lectures (London, Stevens, 1967) 4 0 . 91 See Buckland a n d M c N a i r , supra n 4 3 , 1 7 6 - 1 7 9 92 See, generally, R Helmholz a n d R Z i m m e r m a n n (eds), Itinera Fiduciae: Trust and Treuhand in Historical Perspective (Berlin, D u n c k e r a n d H u m b l o t , 1998). 93 See H R H a h l o , " T h e T r u s t in South African L a w " (1961) 78 South African Law Journal 195: " A m o n g the fundamental civil law c o n c e p t s which South African law has retained in its pure form,
perhaps the most important one is the Roman dominium. There cannot be two ownerships or two kinds of ownership in one and the same thing at one and the same time, with the result that the English form of trust is ruled out." 94 See, generally, A H o n o r e and E C a m e r o n , Honore's South African Law of Trusts (4th e d n , C a p e T o w n , Juta, 1993). See also A H o n o r e " T r u s t s " in Z i m m e r m a n n and Visser, supra n 79,
849-872.
95 See Estate Kemp v. MacDonaW's Trustee 1914 C P D 1084; Verseput v. De Gruchy 1977 (4) SA 440 (W). N o t e also the c o m m e n t of H o n o r e , supra n 9 4 , 8 5 8 : "Constructive and resulting trusts have not in fact taken root in South African soil". See n o w also E C a m e r o n , "Constructive Trusts in South African Law: T h e Legacy Refused" (1999) 3 Edinburgh Law Review 341. 96 See J R L Milton, " O w n e r s h i p " in Z i m m e r m a n n and Visser, supra n 79, 664, 670. 97 See Buckland a n d M a c N a i r , supra n 4 3 , 5 5 - 7 6 ; 176-178.
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the importation of "the right to personal welfare and comfort as an incident of land ownership"98—is an example. The extent of this particular influence has recently been noted: "[j]udicial definitions of nuisance in English law were adopted and applied by South African judges, and English case-law was a constant and comprehensive source of inspiration".99 South African lawyers have appreciated the technical differences between English property law and their own civilian form—if not initially, at least over the course of a particular development. Professor CG van der Merwe has shown how the English law concept of "adverse user" came to have a role in the context of acquisitive prescription which was eventually recognised to be superfluous.100 Another example is the adaptation of the English law doctrine of "attornment" in the commercially important context of delivery of goods held by a third party on behalf of the owner.101 In a case in 1972 the Chief Justice observed that there had to be a limit to this doctrine because in South African law, unlike English law, ownership could not pass by mere agreement.102 The 1990s South African land reform laws have introduced two concepts— initial ownership103 and beneficial occupation104—which might be taken to presage the possible adoption of a divided concept of ownership along the lines of English laws. These innovations necessitate the development of the concept of property; it seems likely, however, that the courts will seek to interpret them in accordance with established principles.105
CONCLUSION
English property law influence over the Scottish mixed system has been greater than that over South African law. However, differences in the chemistry of development between these two loosely related systems make comparison an inexact process.106 The indigenous dimension and complexity of development of Scots law remains subject to debate, 107 while the much shorter and simpler 98
See M i l t o n , supra n 96, 678. D van der M e r w e , "Neighbour L a w " in Z i m m e r m a n n a n d Visser, supra n 79, 760. 100 "Original Acquisition of O w n e r s h i p " in Z i m m e r m a n n a n d Visser, supra n 79, 702—714. 101 See D L Carey Miller, "Transfer of O w n e r s h i p " in Z i m m e r m a n n a n d Visser, supra n 79, 745-747. 102 Caledon & SWD Eksekuteurskamer Bpk v.Wentzel 1972(1) SA 270 (A); see DL C a r e y Miller, The Acquisition and Protection of Ownership (Juta, Cape T o w n , 1986) 152-157. 103 See Carey Miller and Pope, supra n 23,434—443. 104 Ibid., 4 6 3 - 4 6 4 . 105 See DL Carey Miller, "A N e w Property?" (1999) 116 South African Law journal 749. toe Yhe extent of difference between the systems appears from the recent companion works of Zimmermann and Visser, supra n 79, and Reid and Zimmermann, supra n 6. At a more impressionistic level, see E Attwool, "Scotland: A Multi-dimensional Jigsaw" and DL Carey Miller, "South Africa" in E Orucu, E Attwool and S Coyle (eds), Studies in Legal Systems: Mixed and Mixing (London, Kluwer, 1996) 17; 165. 107 See Sellar, supra n 1. See also the following earlier works on the controversial issue of the civil law influence in the development of Scots law: R Evans-Jones, "Civil Law in the Scottish Legal 99
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internal history of South African law is well understood and appreciated. In South Africa, English property influence is almost non-existent at the technical substantive level because the incompatibility problem has been recognised and the focus has been on an effective Roman-Dutch based system. However, the thinking of English law has influenced aspects of property, although largely in terms of ends rather than means. In being conversant with its historical identity, South African law can embark on development with confidence.108 The system's capacity in this respect now faces the challenge of a new social order in which the delivery of rights will override any preoccupying concern with doctrinal compatibility. 109 Any comparative evaluation must consider relevant domestic considerations. A judgment that Scots law somehow failed because of the sale code's radical revision of its Romanist system of acquisition is flawed if it ignores the compelling unification of commercial law factor. That the South African Roman-Dutch property transfer model, isolated in the southern African subcontinent, provided for satisfactory development without departing from a civilian structure is irrelevant to the Scottish position understood in context. The endemic factors of Scotland have affected legal development in property in both positive and negative ways but perceptions, possibly involving value judgements, tend to advise evaluation. That certain views concerning the sale code are open to challenge demonstrates this. A notion of civilian purity is pervasive in this particular context but why not emphasise the system's capacity for successful assimilation deriving from its mixed character? The House of Lords' decision in Sharp v. Thompson,110 however, does not seem open to any such sanguine interpretation; rather, it represents a certain absence of control in its apparent preoccupation with the party hardship factor over and above the integrity of the law. The decision casts doubt upon a fundamental aspect of Scots property law— doubt likely to prevail until the highest court has an opportunity to rectify matters. Professor Sir Thomas Smith QC, in his 1961 Hamlyn Lectures,111 noted the contributions to English jurisprudence of Scottish Lords of Appeal in decisions in Scottish appeals;112 Sharp, it appears, is an "own goal" in the sense of a negative contribution to Scots law by Law Lords from north of the border. Tradition" in Evans-Jones, supra n 19, 3—12; NR Whitty, "The Civilian Tradition and Debates on Scots Law" 1996 Tydskrift vir die Suid-Afrikaanse Reg, 227-239 and 442-^57; HL MacQueen "Mixture or Muddle?—Teaching and research in Scottish legal history" (1997) 5 Zeitschrift fur Europdisches Privatrecht 369—384; R Evans-Jones, "Receptions of Law, Mixed Legal Systems and the Genius of Scots Private Law" (1998) 114 LQR 228-249. See also now HL MacQueen, "Scots Law and the Road to the New lus Commune" in M Hesselink et al (eds), lus Commune Lectures on European Private Law (Maastricht, Metro, 2000) 1. 108
T h e major land reform developments of t h e 1990s s u p p o r t this; see Carey Miller, supra n 105. Testifying t o a new order is the fact t h a t the definitive text on the 1996 Bill of Rights is already in its third edition: see J de Waal, I Currie and G Erasmus, The Bill of Rights Handbook (3rd edn, Cape Town, Juta, 2000). 110 1997 SLT 636. 111 Seeswpran3, 51. 112 The example given is Donoghue v. Stevenson 1932 SC (HL) 31. [1932] AC 562. 109
18 The Numerus Clausus of Property Rights ANDREA FUSARO*
OBJECT AND SCOPE
area of study in civil law is that of numerus clausus of property rights, even though the common law does not in terms recognise that concept. Trusts are a typical, if not distinct, feature of common law systems, or more strictly of equity. A trust has been described as a method of fragmentation of property, with the result that some have concluded that numerus clausus is a serious barrier to the adoption of trusts by civil law systems. We first analyse the current meaning of numerus clausus in civil law systems, taking the French regime as our paradigm. We then turn to English law, looking for rules which may perform the same function as numerus clausus. Our conclusion from this brief study is that there is much less of a contrast between civilian and common law systems than might be supposed. Numerus clausus exists (in effect) in both systems; both exhibit hostility to the fragmentation of property, even though they use different devices to achieve this aim. It is of considerable importance to see trusts as a major device in this context. There are other serious barriers to the adoption of trust by civil law countries: numerus clausus ought not to be one of these. In this context it is important to note that "property" and the French concept of propriete are not identical, neither are property rights and real rights, and we have to be aware of the differences between them. Questions of land registration are not here discussed. These issues are substantive, as indeed is the system of notice.
A
WELL-ESTABLISHED
IS NUMERUS CLAUSUS OF PROPERTY RIGHTS A RULE LIMITED TO CIVIL LAW?
In a classical textbook on comparative law, we read that the idea of a numerus clausus of property rights is foreign to the English legal mentality, according to * Professor Fusaro, and the editor, are grateful to Peter Smith, Reader in Property Law at the University of Reading, for his assistance with the preparation of the text of this essay.
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which ownership may be fragmented without restriction; by contrast, numerus clausus is assumed to be a concept known only to civil law systems, where there is a more weighty legacy of Roman legal tradition.1 On this assumption, any fragmentation of ownership derived from a trust would be impossible in the latter systems. This belief is quite widespread, in particular among trust lawyers. Thus, Fratcher regards trusts as being incompatible with civil systems. He states that "the European codes contain a numerus clausus, an exclusive list of recognized real rights or property interests, which prevents recognition and, in the case of land, registration, of the peculiar property interests of the trustee and beneficiary".2 The view that numerus clausus is the greatest doctrinal barrier to the civil law reception of the idea of trust has subsequently been adopted by others. 3 This view of the approach of civil law systems cannot be derived from statute, since there is no civil code currently in force making any relevant provision. There is one exception to this: the Argentine civil code, whose paragraph 2502 states that "no real right can be created except by statute. Any contract or testamentary disposition which constitutes or modifies real rights otherwise than as recognized by this Code is valid only, if at all, as a constitution of personal rights." There is no corresponding provision in either the French or the German civil code. However, theory agrees with the principle posed in Argentina. We would expect to find this in any legal systems which have Roman roots. It now appears that in Roman law numerus clausus was unknown to the "ius Romanorum"4: it was conceived in the nineteenth century for ideological and economic reasons. As it does not relate to classical Roman law, it cannot be assumed to have any derivation from the Roman basis of civil law, nor with the Roman influence on specific parts of the common law, such as, most notably, the field of easements.
THE HISTORICAL PERSPECTIVE
Most scholars approaching the problem, in a civilian context, from a historical perspective take the French Revolution as their starting point. They traditionally refer to the drafting of the Code Civil5; there is, however, no specific 1 R David and C Jauffret-Spinosi, Les grand systemes de droit contemporaine, (10th edn, Paris, Dalloz, 1992) n 310. 2 W Fratcher, International Encyclopedia of Comparative Law, (Tubingen, JCB Mohr (Paul Siebeck) 1973) vi, ch 11, n 109. 3 DWM Waters, The Institution of the Trust in Civil and Common Law (Dordrecht, Academy of International Law 1995), 344. 4 V Giuffre, L'emersione dei "iura in re aliena" ed ildogma del "numero chiuso" (Naples, Jovene, 1992). 5 Treilard, "Expose des motifs: "il ne peut exister sur les biens aucune autre espece de droits", in JG Locre (ed), Esprit du Code Napoleon (Paris, Imprimerie Imperiale, 1805-7) viii, 51.
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provision in the Code Civil which positively affirms the existence of numerus clausus. In a decision of 1834—known as the "arret Caquelard"—the Cour de Cassation denied that the list of real rights was fixed.6 The Cour de Cassation admitted the fragmentation of ownership in order to recognise "proprietes simultanees" (concurrent ownership) in relation to the same thing. 7 That should have been the starting point and direction of French development. Here we encounter two meanings of the expression "property", one that includes all that common lawyers call property rights, and the other comprising only the civilian "real rights" which do not include ownership or "propriete".8 The distinction is more familiar to legal systems with Roman roots, as these have clear demarcation zones within the relevant civil codes, between ownership on the one hand and real rights on the other. It is, on the contrary, unknown to the feudal pattern of ownership which allowed fragmention into many titles, none of which amounted to complete, undivided ownership. 9 The "Caquelard" case spoke of numerus clausus of real rights. In reality, it dealt with ownership. It refused to follow the Romanist thinking, as officially adopted by the Code Civil. It is well known that France up to the end of the eighteenth century was not legally homogeneous, but in part subject to customary laws, and in part to written law. The former was derived from Germanic customs, the latter from Roman law. Most scholars believe that the Code Civil made a choice between the two different ideas of ownership, adopting the Roman one as more suited to support the beliefs initially asserted by the Phisiocratics, and afterwards by the French Revolution and the struggle against feudalism. The absolutist approach of Rome to ownership was mirrored in paragraph 544 of the Code Civil. French doctrine as a result dispensed with the Germanist or feudal legacy. Later on, facing new difficulties, some authors have tried to make the pattern more abstract, in order to adapt it to incorporeal wealth.10 In this evolution, some scholars recognize the resurrection of a Germanist pattern of ownership. 11
6 Cass, 13.2.1834, Dalloz, 1834,1,218; Sirey, 1834,1,205: "les articles 544,546,552 du Code civil sont declaratifs du droit commun relativement a la nature et aux effets de la propriete, mais ne sont pas prohibitifs; ni ces articles, ni aucune autre loi, n'excluent les diverses modifications et decompositions dont le droit ordinaire de propriete est susceptible". 7 An analisys is drawn by AM Patault, Introduction historique au droit des biens (Paris, PUF, 1989), 141. 8 Beekhuis, "Structural Variations in Property Law" in International Encyclopedia of Comparative Law (JCB Mohr, Tubingen-Paris, 1972), vi, 2. 9 JH Merryman, "Ownership and Estate (Variation on a Theme by Lawson)" (1974) 48 Tulane L Rev 916. 10 L Josserand, "Essai sur la propriete collective" in Le Code Civil 1804—1904 (liirre du centenaire), (Paris, PUF, 1969), i, 358; F Zenati, Les biens, (Paris, PUF, 1988), 56. " This has been suggested by A Candian, "Propriete", in A Candian, A Gambaro and B Pozzo, Property-Propriete-Eigentum (Padua, Cedam, 1992) 246.
312 Andrea Fusaro
FRENCH EVOLUTION
The "Caquelard" case occured too early to receive proper doctrinal analysis. It is, therefore, often quoted as a melancholy return to the past, to the "droit comtnun", which was taken to be unsuitable once the French Civil Code had been promulgated—indeed, some doctrine holds that the best way to escape from numerus clausus is the corporation, as with time-sharing in accordance with L. 6.1.1986, n.86-1. 12 French authors repeat that the "Caquelard" principle has on several occasions not been followed, when new real rights have been rejected by the courts. 13 They reiterate this approach when dealing with "servitudes reelles". These are held by jurisprudence (the trend of cases) t o relate strictly to land, so that they always need a dominant and a servient tenement. 14 They cannot benefit only persons, with no reference to any adjoining land, in contrast to a right to hunt, where such is possible.15 All servitudes must respect this particular limitation. However, as stated by paragraph 686 of Code Civil, the content of servitudes is a matter of free negotiation. Thus, even restraints on competition are admitted, 16 as are restrictions on the use of land. 17 If the benefit is intended for an adjoining land, a servitude is created. Hence, in relation to a scheme of development, French courts recognise mutual servitudes concerning both the lands benefited and burdened,18 in so far as they belong to different owners. 19 Beyond this limit, however, judges dare not venture. Hence, they have refused to recognise a servitude if the servient tenement is in co-ownership.20 This idea is not isolated: the French approach prefers to broaden ownership, which is a familiar concept to civil lawyers, rather than making use of the concept of real rights in the manner familiar to common lawyers. The first and 12
C Atias, Droit Civil. Les biens (3rd edn, Paris, Litec, 1999), 45. F C h a b a s in H L J Mazeaud, Lefons de droit civil, ii: Biens. Droit de propriete et ses demembrements (8th edn, Paris, Montcrestien, 1994), 4. 14 C o u r de Cassation, Civ.3e, 25.3.1992, Dalloz, 1993, J., 65, o n the "droit de seconde herbe" which cannot be a servitude as it "represente une charge pour le fonds sur lequel il s'exerce, ne beneficiant pas a un fonds dominant mais profitant seulement aux habitants d'une entite territorial considered. et n'impliquant pas d'etre proprietaire fonder a I'endroit 15 C o u r d e Cassation, Civ 3 , 22.6.1976, Defrenois, 1977, 46: "/a concession d'un droit de chasse ne saurait avoir le caractere d'une servitude reelle, le fonds en faveur du quel il est accorde n'en recueillant aucune utilite et le profit ou I'agrement que ce droit peut amener ne concernant que la personne du proprietaire du fonds et non le fonds lui-meme". 16 C o u r d e Cassation, C o m . , 15.7.1987, Dalloz, 1988, J , 360: "/'interdiction faite a I'acquereur d'un fond de I'affecter a un usage determine peut revetir le caractere d'une servitude etablie par le fait de I'homme attachee au fonds dans I'interet d'une autre fonds et est valable pourvu que ce service n'ait rien de contraire a I'ordre public". 17 T h e so-called clause " d'habiter bourgeoisement": C o u r de Cassation, C i v . Ire, 30.6.1964, J C P , 64, II, 14162. 18 J L Bergel, Les Servitudes de lotissement a I'usage d'habitation (Paris, Librairie Generale de Droit et de Jurisprudence, 1973), 181. 19 Cass, Civ.3, 9.4.1974, Bull.Civ., Ill, n . 1 4 4 , 1 0 8 . 20 Cass, Civ.3, 30.6.1992, Dalloz, 1993, J, 156. 13
The Numerus Clausus of Property Rights
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easiest device - regarding land—has always been the "droit de superficie": to split the ownership of the building from that of the land over or under which it has been built, which may belong to different owners.21 Two recent cases confirm that this method, which conti
