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Conscience, discretion and the creation of property rights

Published online by Cambridge University Press:  02 January 2018

Nicholas Hopkins
Nicholas Hopkins*
Affiliation:
University of Southampton
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Abstract

This paper considers the utility of the concept of conscience or unconscionable conduct as a contemporary rationale for intervention in two principles applied where a person seeks to renege on an informal agreement relating to land: the principle in Rochefoucauld v Boustead; and transfers ‘subject to’ rights in favour of a claimant. By analysing the concept in light of our current understanding of the nature of judicial discretion and the use of general principles, it responds to arguments that unconscionability is too general a concept on which to base intervention. In doing so, it considers the nature of the discretion that is actually in issue when the court intervenes through conscience in these principles. However, the paper questions the use of constructive trusts as a response to unconscionability. It argues that there is a need, in limited circumstances, to separate the finding of unconscionability from the imposition of a constructive trust. In these limited circumstances, once unconscionability is found, the courts should have a discretion as to the remedy, modelled on that developed in the context of proprietary estoppel. The message underlying this paper is that many of the concerns expressed about unconscionability that have led to suggestions of alternative rationales for intervention can in fact be addressed whilst retaining an unconscionability analysis. Unconscionability remains a preferable rationale for intervention as it provides a common thread that links apparently separate principles and can assist our understanding of their scope.

Type
Research Article
Information
Legal Studies , Volume 26 , Issue 4 , December 2006 , pp. 475 - 499
Copyright
Copyright © Society of Legal Scholars 2006

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References

1. Plucknett, T and Barton, J (eds) ‘Christopher St German’s Doctor and Student’ (1974) 91 Seldon Society 36.Google Scholar

2. Westdeutsche Landesbank Girozentrale v Islington London Borough Council[1996] AC 669.

3. See, in particular, Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] 1 QB 133 and Gillett v Holt [2001] Ch 210.

4. Meagher, R, Heydon, D and Leeming, M Meagher, Gummow & Lehane’s Equity Doctrines & Remedies (Chatswood: Butterworths, 4th edn, 2002) p xii.Google Scholar

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6. See, in particular, Bright, S The third party’s conscience in land law 2000 Conv 398 Google Scholar and

7. Birks’ objections to remedial discretion are further discussed below n 93 and associated text.

8. [1897] 1 Ch 196.

9. Cf Mason, A The place of equity and equitable remedies in the contemporary common law world’ (1994) 110 LQR 238 Google Scholar at 255 referring to difficulties in defining unconscionability.

10. (1988) 164 CLR 662 at 673.

11. Virgo, G The Principles of the Law of Restitution (Oxford: Clarendon Press, 1999) pp 8–9.Google Scholar

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13. Ibid, pp 9–10.

14. K Barker ‘Understanding the unjust enrichment principle in private law: a study of the concept and its reasons’ in Neyers, J, McInnes, M and Pitel, S (eds) Understanding Unjust Enrichment (Oxford: Hart, 2004) pp 82–90.Google Scholar

15. Ibid, p 87.

16. Ibid, pp 92–95.

17. M Bryan ‘Unjust enrichment and unconscionability in Australia: a false dichotomy?’ in J Neyers, M McInnes and S Pitel (eds), above n 14, p 47, at p 57. He notes, ‘[it] is not a closely-knit family, nor is it introverted. New members will be made welcome’. The category is drawn as a contrast to situations where unconscionability relates to the manner in which a transaction has been procured.

18. See, eg, Dworkin, R Taking Rights Seriously (London: Duckworth, 1977).Google ScholarPubMed He excludes equitable relief from his theory (see his discussion, p 71). Other key general discussions on the nature of discretion include and

19. One particular focus has been remedial discretion and the concept of the remedial constructive trust. See, eg, P Birks ‘Property rights as remedies’ and S Gardner ‘The element of discretion’ in Birks, P (ed) The Frontiers of Liability Vol II (Oxford: Oxford University Press, 1994);Google Scholar Broader discussions of discretion in property law include and

20. These different types of discretion are outlined by Dworkin, above n 18, pp 31–34 and Gardner, S The remedial discretion in proprietary estoppel’ (1999) 115 LQR 438 Google Scholar at 441–442.

21. C Schneider ‘Discretion and rules – a lawyer’s view’ in K Hawkins (ed), above n 18, p 47 at p 51.

22. Ibid.

23. Loughlin, P No right to the remedy? an analysis of judicial discretion in the imposition of equitable remedies’ (1989) 17 Melb ULR 132.Google Scholar

24. See, eg, Evans, S Defending discretionary remedialism’ (2001) 23 Syd LR 463 Google Scholar at 482–483.

25. The concept of ‘rule building discretion’ is discussed by Schneider, above n 21, p 64 and Gardner, above n 19, p 198.

26. [1897] 1 Ch 196 at 206.

27. See, eg, Nocton v Lord Ashburton [1914] AC 932 at 954; Semiahmoo Indian Band v Canada (1977) 148 DLR (4th) 523 at 551–552.

28. [1897] 1 Ch 196 at 208.

29. [1948] 2 All ER 133.

30. Oakley, A Constructive Trusts (London: Sweet and Maxwell, 3rd edn, 1997) pp 53–54.Google Scholar

31. Youdan, T Formalities for trusts of land and the doctrine’ in Rochefoucauld v Boustead (1984) 43 CLJ 306 Google Scholar at 328. Intervention has consistently been linked solely to the defendant’s fraud in reneging on the agreement.

32. [1948] 2 All ER 133 at 136.

33. Ibid, at 136.

34. A rationalisation founded on unjust enrichment is forwarded by J Ames ‘Constructive trusts based upon the breach of an express oral trust of land’ (1906–07) 20 Harv LR 549 and, in his authoritative analysis of the Rochefoucauld v Boustead principle, by Youdan, above n 31. More recently, this rationalisation has been adopted by Worthington, S Equity (Oxford: Clarendon, 2003) pp 186–188.Google Scholar

35. Youdan, above n 31, at 328.

36. Ibid, at 328.

37. Above n 34, p 187.

38. Bright, above n 6, at 402. The other private law interests referred to by Bright are expectations and reliance, interests generally seen in property law as linked with intervention through estoppel.

39. Birks, P An Introduction to the Law of Restitution (Oxford: Clarendon, 1985) pp 55–64.Google Scholar

40. Ibid, pp 55–56.

41. Millett, P Restitution and constructive trusts’ (1998) LQR 399 Google Scholar at 399–400.

42. Ibid, at 415.

43. Ibid, at 400 and 408. Claims within Rochefoucauld v Boustead are not necessarily capable of analysis as involving restitution for wrongs. Such a claim relates to the breach of a primary duty, such as a fiduciary duty. A transferee may have no existing duty towards the transferor. Such duties would arise on the creation of the express trust, but it is the failure of this trust (through want of formalities) that leads to the application of Rochefoucauld v Boustead.

44. This example is drawn from Lord Browne-Wilkinson’s criticism of Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch 105 in his judgment in Westdeutsche [1996] AC 669 at 714–715.

45. It should be noted that in this context ‘consideration’ is used in a broader sense than it is in relation to the law of contract. Birks explained, above n 39, p 223, ‘[it] means that the state of affairs contemplated as the basis or reason for the payment has failed to materialise or, if it did exist, has failed to sustain itself’.

46. Virgo, above n 11, pp 336–341.

47. Chambers, R Resulting Trusts (Oxford: Clarendon, 1997).CrossRefGoogle Scholar

48. Ibid, p 113.

49. Ibid, pp 115–116.

50. Ibid, p 116.

51. See, eg, Bannister v Bannister [1948] 2 All ER 133. There, the trustee was intended to benefit from the transfer with the trust operating to qualify the extent of that benefit by conferring a life interest on the transferor (the settlor).

52. This extension to the paradigm retains a narrow interpretation of the scope of Rochefoucauld v Boustead. Youdan, above n 31, at 328–330 draws the scope much more broadly as incorporating agreements relating to the purchase of land from a third party. This would now include, eg, commercial joint ventures for the acquisition of land within the ‘equity’ derived from Pallant v Morgan[1953] Ch 43 in Banner Homes Group plc v Luff Developments Ltd[2000] Ch 372. That doctrine is undoubtedly derived from Rochefoucauld v Boustead, as is demonstrated by Nield, S ‘Constructive trusts and estoppel’ (2003) 23 LS 311.Google Scholar However, once we move outside the paradigm of an agreement between the parties to the transfer, additional requirements for intervention may arise. Eg, intervention through the Pallant v Morgan equity (and establishing unconscionability within that doctrine) is explicitly linked to a requirement of reliance on the agreement by the claimant to the trust.

53. (1968) 19 P&CR 836.

54. Below n 123 and associated text.

55. Worthington, above n 34, pp 187–188 uses an unjust enrichment analysis in the context of supporting intervention in favour of the transferor. Youdan, above n 31, at 335 supports the claim of the third party despite his own adoption of an unjust enrichment rationalisation. On his view, the fact the oral trust is valid, though unenforceable, precludes the transferor from seeking restitution, as the transferee can uphold the trust if he or she chooses to do so. In its narrow sense, however, unjust enrichment cannot be used to support a claim by the third party. A transferee who reneges on an agreement for a trust in favour of a third party obtains an enrichment (the beneficial interest) that was intended to belong to the third party, but the enrichment is not ‘at the expense of’ the third party. Birks’ suggestion, above n 39, pp 135–136 that such cases fall within a principle of interceptive subtraction is refuted by Smith, L ‘Three-party restitution: a critique of Birks’s theory of interceptive subtraction’ (1991) 11 OJLS 481 CrossRefGoogle Scholar at 511–514.

56. Above n 6.

57. Ibid.

58. Ibid, at 402.

59. Ibid, at 403. The principles developed prior to the enactment of the Contract (Rights of Third Parties) Act 1999. The extent to which that Act provides a means of enforcement for the intended beneficiary in three-party Rochefoucauld v Boustead cases (and also in ‘subject to’ cases which invariably involve third-party claimants) remains uncertain. Bright, at 416, outlines some of the difficulties in applying the Act and McFarlane, above n 6, at 683–684, highlights the difference in the analysis between the Act and the constructive trust solution adopted in the case-law.

60. Founding liability on contract will, on appropriate facts, raise additional issues of formalities. If the contract is for the creation of a proprietary right, then its validity is dependent on compliance with the Law of Property (Miscellaneous Provisions) Act 1989, s 2(1). The exceptions (in s 2(5)) would assist only if intervention is through a constructive (or resulting or implied) trust. I am grateful to Sarah Nield for bringing this point to my attention.

61. Above n 6, at 402–403.

62. Ibid, at 403–404.

63. Ibid, at 668.

64. Ibid, at 668.

65. Ibid, at 694.

66. Ibid, at 694.

67. See, eg, the basic form of cases he identifies; ibid, at 668.

68. Ibid, at 676–677.

69. Cf McFarlane’s formula for the common principle he advocates; ibid, at 668.

70. See, eg, Thompson, MP Registration, fraud and notice’ (1985) 44 CLJ 280 CrossRefGoogle Scholar at 288–289.

71. The Law Commission Land Registration for the Twenty-First Century: A Consultative Document (Report No 254, 1998) para 3.48. The ‘unexpected level of attention and approval’ now afforded to the ‘much-maligned’ decision in Lyus v Prowsa Developments[1982] 1 WLR 1044, where a constructive trust was imposed on the basis of a ‘subject to’ provision, is noted by Cooke, E and O’Connor, P ‘Purchaser liability to third parties in the English land registration system: a comparative perspective’ (2004) 120 LQR 640 Google Scholar at 662–663.

72. Bright, above n 6, and McFarlane, ibid.

73. [1972] 1 Ch 359.

74. Ibid, at 368.

75. The majority considered the defendant to have a beneficial interest under a settlement within the Settled Land Act 1925, which bound the transferee as a purchaser with notice (the ‘subject to’ clause evidencing notice). Lord Denning MR’s preferred solution was that the defendant had a contractual licence at the time of the transfer, which was itself a property right binding the transferees through notice. The personal status of contractual licences was subsequently established in Ashburn Anstalt v Arnold [1989] Ch 1.

76. [1982] 1 WLR 1044.

77. Ibid, at 1054. Harpum, C Constructive trusts and registered land’ (1983) 42 CLJ 54 CrossRefGoogle Scholar at 54 criticised the decision as ‘another example of judicial unwillingness to come to terms with the Land Registration Act 1925’. The far-reaching consequences of the decision he raised, at 56, of using the constructive trust to assign the burden of a contract relating to land have not come to fruition as the operation of the doctrine has developed.

78. [1989] Ch 1.

79. See, eg, Lloyd v Dugdale [2002] 2 P&CR 13 at [52] per Sir Christopher Slade.

80. [1989] Ch 1 at 25–26.

81. This is evident in the discussions of the principle in Lyus v Prowsa Developments Ltd [1982] 1 WLR 1044 and Ashburn Anstalt v Arnold [1989] Ch 1. See further the summary of the principle in Lloyd v Dugdale [2002] 2 P&CR 13 at [52](3).

82. Cf Ashburn Anstalt v Arnold [1989] Ch 1 at 26.

83. Hopkins, N The Informal Acquisition of Rights in Land (London: Sweet and Maxwell, 2000) pp 49–51.Google Scholar The difference between constructive trusts imposed to enforce existing rights and those imposed to recognise new rights is discussed by McFarlane, above n 6, at 669–674.

84. [1982] 1 WLR 1044 at 1053.

85. [1989] Ch 1 at 22.

86. Ibid, at 25–26.

87. [2002] 2 P&CR 13 at [52](3).

88. Birks, above n 5.

89. See Bright, above n 6, at 406. She acknowledges that the discretion applied in ‘subject to’ cases is of the weak/background type, but still seeks an alternative rationale for intervention in part through concern that the appearance of strong/foreground discretion is open to ‘aberrant decision making’.

90. Halliwell, M Equity and Good Conscience in a Contemporary Context (London: Old Bailey Press, 1997).Google Scholar

91. [1999] 1 All ER 400 at 409.

92. Cf O'Connor, P Happy partners or strange bedfellows: the blending of remedial and institutional features in the evolving constructive trust’ (1996) 20 Melb ULR 735 Google Scholar at 738–739. She discusses the separation of the remedial constructive trust from the underlying principle of liability (unjust enrichment) in the USA and Canada. In those jurisdictions, liability is dependent upon a finding of unjust enrichment, but the imposition of a constructive trust does not follow automatically from that finding.

93. Birks, P Rights, wrongs, and remedies’ (2000) 20 OJLS 1.CrossRefGoogle Scholar

94. Ibid, at 23. Birks’ objections to discretionary remedialism are summarised by Evans, above n 24, at 464–467.

95. Ibid, at 23.

96. Above n 24 and associated text.

97. Barker, K Rescuing remedialism in unjust enrichment law: why remedies are right’ (1998) 57 CLJ 301 CrossRefGoogle Scholar at 316.

98. As the discretion advocated in this paper arises only in those situations where a constructive trust is not appropriate, constructive trusts that do arise remain institutional, not remedial, in nature. This initially appears paradoxical: questioning the appropriateness of the constructive trust implicitly suggests its recognition is discretionary. However, as is seen in the discussion that follows, the constructive trust is considered to be appropriate whenever land is transferred on an express trust that fails. The remedial discretion is confined to ‘subject to’ cases where the agreement concerns rights that do not generally take effect under a trust.

99. Evans, above n 24, at 482–489.

100. Zakrzewski, R Remedies Reclassified (Oxford: Oxford University Press, 2005).CrossRefGoogle Scholar

101. Ibid, p 96.

102. Ibid, p 102.

103. [1982] 1 QB 133.

104. This distinction between the principles is drawn by Nield, above n 52, at 321.

105. [2001] Ch 210.

106. Gillett v Holt[2001] Ch 210 at 225 per Robert Walker LJ. For a full analysis of this development see Hopkins, N Understanding unconscionability in proprietary estoppel’ (2004) 20 JCL 210.Google Scholar

107. It was in the context of discussing the nature of this discretion that Gardner forwarded his division between foreground and background discretion, above n 20. The nature of the discretion is further discussed by E Cooke Estoppel, Discretion and the Nature of the Estoppel Equity, presented at the Second Biennial Conference on the Law of Obligations, University of Melbourne, July 2004.

108. McFarlane, B Proprietary estoppel and third parties after the Land Registration Act 2002 2003 CLJ 661 CrossRefGoogle Scholar.

109. Bright, S and McFarlane, B Proprietary estoppel and property rights’ (2005) 64 CLJ 449.CrossRefGoogle Scholar

110. Ibid, at 477. Applying Zakrzewski’s analysis, this would make the remedy replicative rather than transformative. Zakrzewski favoured classifying estoppel remedies as replicative, while acknowledging that if (as is advanced here) the view is taken that estoppel involves remedial discretion, then the remedy would need to be classified as transformative: above n 100, pp 132–133.

111. Cf Gardner, above n 19, at 201–203.

112. Cooke, E The Modern Law of Estoppel (Oxford: Oxford University Press, 2000) p 157.CrossRefGoogle Scholar

113. The alternative views are forwarded by Cooke, E Estoppel and the protection of expectations’ (1997) 17 LS 258 Google Scholar and

114. Robertson, A The statute of frauds, equitable estoppel and the need for something more’ (2003) 19 JCL 173 Google Scholar at 187.

115. Above n 109, at 453–454.

116. Such a shift may fall within what Gardner describes, above n 19, p 203 as the ‘irreducible minimum of discretion as to purpose’.

117. [2002] EWCA Civ 159, [2003] 1 FCR 501 at [36].

118. (1988) 164 CLR 387 at 419.

119. (1990) 170 CLR 394 at 413.

120. Ibid, at 411.

121. [2003] 1 FCR 501 at [36] (emphasis added).

122. [2003] EWCA Civ 1176 (unreported) at [61].

123. Above n 54 and associated text.

124. This type of discretion is noted above n 25 and associated text.

125. Bright, above n 6, and McFarlane, ibid.

126. Arguments in favour of the use of constructive trusts are discussed (and refuted) by McFarlane, ibid, at 691–694.

127. Above n 60 and associated text.

128. Bright, above n 6, at 415–419.

129. Eg, Lyus v Prowsa Developments Ltd [1982] 1 WLR 1044. There, the ‘subject to’ agreement was contained in a sale pursuant to a mortgagee’s power of sale. The claimant’s property right (an estate contract) post-dated the mortgage and therefore would itself be unenforceable against the purchaser.