Can you rely on promises made by someone who later loses mental capacity?

Vlad discusses the case of Moore v Moore [2016] EWHC 2202 (Ch) and the issue of promises made by a person who later loses mental capacity.

The case of Moore v Moore concerns Manor Farm, a large 650 acre arable farm in Wiltshire, run by four generations of the Moore family. Since 2008 it was run as a partnership between Mr Stephen Moore (“Stephen”), his father, Mr Roger Moore (“Roger”), and Till Valley Contracting Ltd (“the Company”). The company shares were held as to 51% by Roger and 49% by Stephen.

Stephen counterclaimed under the doctrine of “proprietary estoppel” on the basis that he had relied upon promises made by Roger that he would inherit the farm such that Roger could not now go back on those promises by seeking to dissolve the partnership.

In the mid 1960’s, Roger and his brother, Geoffrey, began to run the farm as partners, helped by their father who gifted them the farm. Ultimately, various adjoining parcels of land were purchased to create the farm as it is today.

Stephen was born in 1967 and worked on the farm from childhood, initially starting at weekends and evenings, to working full-time. He was paid £200 a week for 45-50 hours of work (up to 100 hours a week during harvest), although this increased to £590 per fortnight in 1998, when he was made a salaried partner. By 2004 he became an equity partner, sharing in the profits.

In 2008, Geoffrey retired from the business bringing his partnership with Roger to an end and he gave his half share to Stephen, in return for a payment from the partnership of £500,000. The partnership was, in fact, worth approximately £3 million at that time. It was agreed between the three of them that Roger and Stephen would continue to farm in partnership, albeit with a company set up on advice of their accountant, Mike Butler, for tax reasons. Thereafter, various farming assets were transferred to the company.

Ultimately, Roger and Stephen began to have a number of fallings out from 2008 onwards, which was said to be as a consequence of Roger having to take a backseat in respect of the business owing to the onset of the early stages of memory loss and Alzheimer’s. Given his health issues, Pamela issued the claim on behalf of Roger to dissolve the partnership and, therefore, essentially to “cash in” his 51% share.

Stephen countered to say that Roger had, from an early age, promised him the farm (and farming assets of the partnership) in return for working on the farm for low pay and that it would be unconscionable for him, through Pamela, to go back on that promise.

The judge noted that the key issues to decide were:

1. Were promises made by Roger to Stephen to the effect that Stephen would one day have Roger’s share of the Farm and the Assets?
2. Did Stephen rely on those promises?
3. If so, did he rely on them to his detriment?
4. If the promises were made, and there was detrimental reliance, would it now be unconscionable for Roger to resile from that position?
5. If so, how should Stephen’s interest be satisfied?

Before answering the questions, the judge set out the principles of law which he needed to consider, by quoting an extract from Lewison LJ’s judgment in the Court of Appeal case Davies v Davies [2016] EWCA Civ 463 (in which Hugh James acted for the successful at first instance claimant):

1. Deciding whether an equity has been raised and, if so, how to satisfy it is a retrospective exercise looking backwards from the moment when the promise falls due to be performed and asking whether, in the circumstances which have actually happened, it would be unconscionable for a promise not to be kept either wholly or in part.
2. The ingredients necessary to raise an equity (i.e. a right to enforce the promise) are (a) an assurance of sufficient clarity; (b) reliance by the claimant on that assurance; and (c) detriment to the claimant in consequence of his reasonable reliance.
3. However, no claim based on proprietary estoppel can be divided into watertight compartments. The quality of the relevant assurances may influence the issue of reliance. Reliance and detriment are often intertwined, and whether there is a distinct need for a “mutual understanding” may depend on how the other elements are formulated and understood. Detriment need not consist of the expenditure of money or other quantifiable financial detriment, so long as it is something substantial. The requirement must be approached as part of a broad inquiry as to whether repudiation of an assurance is or is not unconscionable in all the circumstances.
4. There must be a sufficient causal link between the assurance relied on and the detriment asserted. The issue of detriment must be judged at the moment when the person who has given the assurance seeks to go back on it. The question is whether (and if so to what extent) it would be unjust or inequitable to allow the person who has given the assurance to go back on it. The essential test is that of “unconscionability”.
5. Thus, the essence of the doctrine of proprietary estoppel is to do what is necessary to avoid an unconscionable result.
6. In deciding how to satisfy any equity the court must weigh the detriment suffered by the claimant in reliance on the defendant’s assurances against any countervailing benefits he enjoyed in consequence of that reliance.
7. Proportionality lies at the heart of the doctrine of proprietary estoppel and permeates its every application. In particular there must be a proportionality between the remedy and the detriment which is its purpose to avoid. This does not mean that the court should abandon expectations and seek only to compensate detrimental reliance, but if the expectation is disproportionate to the detriment, the court should satisfy the equity in a more limited way.
8. In deciding how to satisfy the equity the court has to exercise a broad judgmental discretion. However the discretion is not unfettered. It must be exercised on a principled basis, and does not entail what HH Judge Weekes QC memorably called a “portable palm tree”.

Further, the judge recognised, as per Lewison LJ’s observation, that all proprietary estoppel claims are fact sensitive and it is necessary to analyse the facts with sufficient rigour.

Ultimately, the judge found Stephen to be a truthful witness and that Pamela’s evidence was far less satisfactory.

Roger changed his will in 2012 to exclude Stephen as a beneficiary, which was used as evidence to show that Roger had changed his mind about the promises he had made. In addition, the judge found it doubtful that Roger could have been playing much of a part, if any, in driving forward the litigation from late 2012-early 2013.

Turning to answering the questions, the judge found as follows:

1. Roger had made promises to Stephen to the effect of “it will be all yours one day” when Stephen was young and about to go out to Young Farmers Association events. In addition, the judge noted “that everything points to an over-arching plan under which Stephen would inherit the whole farm and business in due course, and that Stephen was told that this was the case by both Roger and Geoffrey”. Further the judge found that 2009 was a key year in which there was a serious breakdown in relations between the two sides of the family. There was a growing feeling on Pamela’s part that the over-arching plan was unfair on their daughter, Julie. This appeared to the judge to be the impetus for Pamela’s decision to address the perceived unfairness by introducing Julie and her husband, Andrew, to the partnership.
2. The judge accepted that Stephen had relied on promises by basing his life on the farm without any consideration of alternative employment, as he truly believed that he would receive the farm in due course. He had positioned his whole life on the basis of the assurances given to him and which were reasonably believed by him.
3. The judge agreed with Stephen’s examples of detriment, including that he had waived the opportunity to find work elsewhere for better pay and with better accommodation, he did not have expensive holidays between 1991 and 2011, he did not have an expensive lifestyle other than purchasing a Nissan sports car, instead spending money on good farm equipment, he had no company car until 1999 despite being promised one in 1991 and he earned £590 per fortnight with £190 going to a pension amongst. These points were not challenged when giving oral evidence.
4. It was submitted that as Stephen had received Geoffrey’s share of the business in 2008 and his alleged bad behaviour, contained predominantly in Pamela’s witness statement, precluded him from receiving Roger’s share that he had promised. That is based on the equitable maxim that “one who comes to equity must have clean hands”. The judge found that as to those allegations of bad behaviour, beyond the purchase of a Nissan sports car in 2011, they were not put to Stephen in cross examination and so were not expressly relied upon. The judge also found that any alleged bad behaviour was so trivial that it could not defeat his claim.
5. Finally, in respect of how to satisfy the equity, the judge noted that he needed to ensure that the relief was appropriate and proportionate, as well as the minimum equity needed to do justice. Stephen submitted that the equity should be satisfied by mirroring, as closely as possible, the arrangements that would have occurred had the dispute not arisen. The judge agreed.

The judge therefore ordered that Roger and Pamela should continue to receive what they were intending and expecting, until their deaths, with Stephen to take over the farming for all practical purposes.

The assets were ordered to be transferred into his name, with an obligation to pay the agreed sums to Roger and Pamela going forward, to include £200 a week along with the ability to stay in the farm property and for the partnership to fund all reasonable healthcare and care costs for them.

The judge considered that it reflected what would have happened had the dispute not arisen and crucially allowed the next generation of the Moore family to farm, as had been intended, which was held to be proportionate to the detriment.

Whilst the judgment does not establish any new precedent or novel legal arguments, it confirms that, even if a person makes promises which are relied upon by another, their subsequent loss of capacity is not sufficient to extinguish those promises, assuming, of course, the key principles of proprietary estoppel are successfully made out.