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Cook & Ors (Isle of Man) [2001] UKPC 52 (27 November 2001)

Mr Justice Collins

Privy Council Appeal No. 51 of 2000

(1) Leslie Cook and

(2) Winifred Cook Appellants

v.

Norlands Limited Respondent

FROM

THE HIGH COURT OF JUSTICE OF THE

ISLE OF MAN

JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL,

Delivered the 27th November 2001

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Present at the hearing:-

Lord Nicholls of Birkenhead

Lord Browne-Wilkinson

Lord Hoffmann

Sir Andrew Leggatt

Sir Kenneth Keith

[Delivered by Sir Andrew Leggatt]

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1. For 23 years Mr and Mrs Cook worked for Norlands Ltd ("Norlands") and their predecessors in business, Johnny's Entertainments Ltd ("JEL") as managers of an amusement arcade called the Crescent Leisure Centre in Douglas, Isle of Man. Throughout that time they lived in an adjoining house called Lawn House ("the house"), which belonged to the owners of the arcade for the time being. But on 19th June 1998 Norlands summarily dismissed Mr and Mrs Cook and demanded possession of the house. By proceedings in the Chancery Division of the High Court of Justice of the Isle of Man ("the first action") Mr and Mrs Cook sought an order against Norlands for the conveyance of the house to them, basing themselves on proprietary estoppel, and alleging a representation made on behalf of Norlands to Mrs Cook at the outset, that "the house would be theirs". The pleading added, "and in seven years they acted on such representation". Norlands instituted separate proceedings against Mr and Mrs Cook for possession of the house. It was pleaded on behalf of Mr and Mrs Cook that their terms of employment included provision for "a low salary reflective of the other conditions of employment" and for ownership of the house "after the passage of approximately 7 years". Moving to strike out Mr and Mrs Cook's claim in the first action, counsel for Norlands submitted that an oral contract would not be sufficient to support an action in view of section 1 of the Law Reform (Enforcement of Contracts) Act 1956, and that the contract was void for uncertainty because there was no reference to "a particular time or to the consideration which would be payable". Counsel for Mr and Mrs Cook accepted these submissions but said that their claim was based on proprietary estoppel. The Deemster held that the elements of proprietary estoppel had not been pleaded, and so struck out the claim.
2. At this stage Mr and Mrs Cook amended their Defence and Counterclaim in Norlands' action to plead that it was a term of their original contract of employment ("the 1975 agreement") that in consideration of Mr and Mrs Cook working for low wages of £40 and £20 respectively they should be permitted to occupy the house, and that "after they had been employed for 7 years they should become the owners" of it. They claimed that by virtue of part performance of the 1975 agreement or by proprietary estoppel they were entitled to an order for the conveyance to them by Norlands of the legal estate in the house. In the alternative, they claimed damages for breach of contract.
3. Deemster Cain held that when Mr and Mrs Cook first came to the Isle of Man in 1975 a meeting took place between Mrs Cook and the three directors and shareholders of JEL, Claude Cooper, Kenneth Reader, and Joseph Lisle. Mr Cooper was the spokesman for JEL. He died in the late 1980s, but Mr Reader and Mr Lisle gave evidence at trial. The Deemster accepted Mr Lisle's evidence, finding (so far as relevant) that:-

"[Mr Cooper] said basically, 'if you take a reduction in wages, then in 7 years the house will be yours', meaning Lawn House. Mrs Cook was happy with this and ... we all shook hands on it."

4. Both Mrs Cook and Mr Lisle gave evidence that the reduction was to be calculated by reference to the wages paid to Mr and Mrs Cook's predecessors as managers, Mr and Mrs Ellis. But no evidence was given about what their wages had been. The Deemster found that initially Mr Cook was paid £40 a week, and Mrs Cook £20, with increases over the years. They also received annual bonuses, rent-free occupation of the house (with rates and electricity paid by the owners), and financial help with the purchase of a new car. On 15th May 1991 Mr and Mrs Cook as directors of Norlands signed several deeds, including a Deed of Conditional Bond, by which it charged its properties, including the house, to Midland Bank.
5. In support of their claim to a conveyance Mr and Mrs Cook argued that there were acts of part performance which rendered the 1975 agreement enforceable, or alternatively, that they were entitled to the house, or to remain in possession of it, on the basis of proprietary estoppel. The principal act of part performance upon which they relied consisted of improvements to the house over a quarter of a century. The other act of part performance relied on, namely giving up their residence in England and moving to the Isle of Man, was rejected by the Deemster, and has not been maintained before their Lordships. He found that substantial work on the house was carried out by Mr and Mrs Cook, the value of which he assessed at £25,000. He held that this sum was recoverable by force of proprietary estoppel, but not in contract because specific performance was not expressly claimed. He was satisfied that, relying on the 1975 agreement, Mr and Mrs Cook incurred expenditure on the house, "believing that they were improving a house that would become their property in due course". The Deemster was not satisfied that Mr and Mrs Cook had acted to their detriment in any other way. In particular, he said:-

"Mr and Mrs Cook claimed that they acted to their detriment in accepting lower wages than they would have received but for the 1975 agreement. However there is no conclusive evidence as to the actual reduction in the wages of Mr and Mrs Cook consequent upon the 1975 agreement, and I am unable to estimate the amount of the detriment suffered by Mr and Mrs Cook in this respect. Bearing in mind the bonuses and the free accommodation and other benefits provided by JEL, the detriment may have been only modest."

6. The Deemster found that when Mr and Mrs Cook signed the deeds in 1991 "they did not appreciate that this might affect their expectation that Lawn House would be transferred to them". He was also pressed with the argument that Mr and Mrs Cook can have had no such expectation, and therefore placed no reliance, in view of an enquiry that Mr Cook made of a chartered accountant called Allan James Patterson at some date between May 1991 and the summer of 1993. Mr Patterson was concerned with the transfer of the business from JEL to Norlands. He asserted in evidence that Mr Cook had asked him whether the company would ever consider selling the house to him. The Deemster said:-

"I accept Mr Patterson's evidence, but this suggests to me that Mr Cook was becoming anxious about his position in relation to Lawn House at that time. Mr Cook does not claim to be a businessman and his enquiry does [not] mean that he and Mrs Cook had not believed, on the basis of the 1975 agreement, that Lawn House would be their property in due course. Mrs Cook said that she expected 'to get' Lawn House when she retired."

7. The Deemster made an order for possession of the house in favour of Norlands, subject to the payment to Mr and Mrs Cook of the sum of £25,000 in compensation for their improvements to the house. Against this order they appealed to the Staff of Government Division. That Court upheld the Deemster's finding that a failure to plead specific performance precluded reliance on part performance. It also held that there was no such factual material as would justify interfering with his finding that Mr and Mrs Cook had suffered no actionable detriment except in respect of the improvements, and that he was entitled to assess their loss, as he did, in the sum of £25,000. The appeal was therefore dismissed. They now appeal to the Board by special leave, while Norlands cross-appeal by leave of the Staff of Government Division.
8. Before their Lordships Mr Moran for Mr and Mrs Cook argued that specific performance was pleaded and in any event it was the remedy sought; that Norlands failed to plead section 1 of the Law Reform (Enforcement of Contracts) Act 1956; and that there was part performance of the 1975 agreement.
9. Despite the deletion from the prayer of the Amended Defence and Counterclaim of express reference to specific performance, the remedy sought was nevertheless the remedy that was required to enforce a right to specific performance, and Mr Brettler for Norlands rightly conceded that at trial Norlands did not misunderstand the nature of Mr and Mrs Cook's counterclaim. In default of amendment Norlands' failure to plead the statute no doubt precluded the argument that the 1975 agreement was unenforceable because it was oral. But that was immaterial because Mr and Mrs Cook took their stand on part performance. It is, however, axiomatic that part performance can only be established in relation to a contract, the terms of which can be ascertained with sufficient certainty.
10. Mr Moran argued that the effect of the 1975 agreement was to enable Mr and Mrs Cook to pay off the purchase price of the house of £9,000 over a seven-year period by an appropriate reduction in their wages; and that there is an available inference that such a reduction was duly made, with the result that after seven years Mr and Mrs Cook enjoyed a right to conveyance of the house, even though they did not call for it until the circumstances of their employment changed. The Court should accordingly have concluded that Mr and Mrs Cook were in this way enabled to "work off" the price of the house. Mr Moran contended that whatever the exact amount of the reduction, it was regarded by the parties as having fulfilled the 1975 agreement.
11. Although reduced wages were to be paid to Mr and Mrs Cook over a seven-year period, no formula was agreed for determining their wages, whether with or without the reduction contemplated. To be satisfied that Mr and Mrs Cook received lower wages than they would have received but for the 1975 agreement, the Deemster would have had to conclude that the amount of the reduction was equal to the purchase price of the house, namely £9,000. Yet he held that "there is no conclusive evidence as to the actual reduction in the wages of Mr and Mrs Cook consequent upon the 1975 agreement", adding that he was "unable to estimate the amount of the detriment suffered by Mr and Mrs Cook in this respect", that is, the amount of the reduction. Because on Mr and Mrs Cook's case the reduction continued for 17 years, and not 7 years, it is impossible to infer that any part of it related to the 1975 agreement rather than, for example, to a service occupancy. Otherwise, they would have paid at least double the purchase price of the house. Their Lordships conclude that the 1975 agreement was void for uncertainty, and part performance of it does not arise. Accordingly they will humbly advise Her Majesty that Mr and Mrs Cook's appeal should be dismissed with costs.
12. By way of cross-appeal Norlands sought a re-trial on the ground that the Deemster's finding as to the formation of the 1975 agreement between the parties was incompatible with his acceptance of Mr Patterson's evidence that in 1991 Mr Cook had asked whether Norlands would ever consider selling the house to him. Their Lordships have already referred to the passage from the Deemster's judgment in which he considered the suggested incompatibility and had no difficulty in concluding, having seen Mr Cook give evidence, that his anxiety about his position sufficiently explained why he asked the question, and that "the enquiry did not mean that he and Mrs Cook had not believed, on the basis of the 1975 agreement, that Lawn House would be their property in due course". Like the Staff of Government Division, their Lordships are not persuaded that that conclusion of fact was not open to the Deemster, especially since Mr Cook made the enquiry not long after Norlands had taken over the business from JEL, the company with which the 1975 agreement had been made. Their Lordships will humbly advise Her Majesty that the cross-appeal should also be dismissed with costs.