Smith v Bottomley & Anor

This is an appeal in relation to an order made by His Honour Judge Shaun Spencer QC on 14 December 2012 after a three-day trial in May 2012 and written closing submissions in June and July 2012. The claim relates to the breakdown in the relationship of an unmarried couple, the Claimant (Ms Smith) and the First Defendant (Mr Bottomley), in 2010.

At first instance, Ms Smith claimed that she was beneficially entitled to a half share in three properties owned by Mr Bottomley or the Second Defendant (“the Company”, which is in effect a company wholly owned and controlled by Mr Bottomley), on the basis of a promise or promises made by Mr Bottomley as to the share she would have in those properties and detrimental reliance by her on such promise or promises. The three properties are The Coach House, 173A Huddersfield Road, Huddersfield (“the Coach House”, which is owned by Mr Bottomley); Upper White Lee Barn, Brier Hey Lane, Mytholmroyd (“the Barn”, which is owned by the Company); and 20 Bright Street, Sowerby Bridge (“20 Bright Street”, which is owned by the Company). In addition, in circumstances described below, Ms Smith claimed that she had been underpaid about £21,000 by Mr Bottomley in respect of her share in another property, a house called Cropredy in Mytholmroyd, which was jointly owned by them, when it was sold in 2007.

The judge found in favour of Ms Smith in relation to her claim to a half share in the Barn and her claim to payment of £21,000 in respect of the proceeds of sale of Cropredy. He rejected her claims in relation to the other properties. Mr Bottomley appeals to this Court against the orders made against him in respect of the Barn and for payment of £21,000.

Ms Smith and Mr Bottomley met in 1990. He was then aged about 40 and she about 25. At the time she was a newspaper sales manager working for the Halifax Courier newspaper. He persuaded her to go to work for him in his business, selling militaria.

In addition to his militaria business, Mr Bottomley has, over the years, engaged in property development transactions. In some cases he has acquired development properties in his own name, in others he has used the Company as the vehicle to make acquisitions. It is common ground that the Company was incorporated in April 2002. The date is important, for reasons which are explained below.

A little while after Ms Smith went to work for Mr Bottomley they struck up a relationship and began co-habiting in 1992 at the Coach House. At about this time they became engaged to be married. Ms Smith continued to work in the militaria business. The judge found that she was very personable, and constituted an asset for the business. On 27 August 1994 their daughter, Amy, was born. Ms Smith broke off the engagement because it seemed to be going nowhere.

In 1995, the parties had a falling out. Ms Smith and Amy moved out and went to live in rented accommodation, although she continued to work in the militaria business. After a while, she resumed a relationship with Mr Bottomley, but without co-habiting as before.

Some time later, Ms Smith formed a relationship with another man. This galvanised Mr Bottomley into seeking to win her back as his partner. Mr Bottomley offered her marriage and, as the judge found, they became engaged a second time in late 2001 or early 2002. According to Ms Smith’s first witness statement, it was at this time that Mr Bottomley promised her in conversation that from that time onwards he would “do everything right”. As a matter of chronology, it appears that this was said before the formation of the Company in April 2002.

Ms Smith agreed to move back to co-habit with Mr Bottomley. They moved in to a rented property called Treetops in Mytholmroyd. Mr Bottomley assured Ms Smith that when they found the right house to live in as a family they would buy it in their joint names. In late 2002 Cropredy came on the market. They decided it would be a suitable family home and bought it in November 2002 in their joint names. Mr Bottomley provided some of the funds and the balance was borrowed from Intelligent Finance under a mortgage.

Mr Bottomley had a formal declaration of trust in relation to Cropredy drawn up by solicitors and persuaded Ms Smith to sign it as a deed, along with himself. The trust deed, dated 28 November 2002, names Mr Bottomley and Ms Smith as the trustees in relation to Cropredy, which was conveyed to them to be held as tenants in common. It recorded that Mr Bottomley had paid £15,100 towards the purchase price of the property and referred to the mortgage over the property in favour of Intelligent Finance in respect of lending of £223,250. It included the following recitals:

“(4)

The Intention of the Trustees is that the Property shall be jointly occupied by them as their home for a maximum of three years from the date hereof and shall thereafter be sold promptly and the proceeds divided as hereinafter mentioned. In the event of the breakdown of the couple’s relationship before the three years has expired then it is intended that neither party should occupy the Property but that it should be sold as expeditiously as possible and the proceeds divided as hereinafter mentioned.

(5)

Mr Bottomley has agreed to bear sole responsibility for payment of the mortgage instalments.”

The deed included the following declaration of trust:

“1.

As from the date of the Transfer they hold the Property (subject to the Charge)

UPON TRUST for themselves to be paid as follows:-

(i)

Mr Bottomley shall be entitled to the return of the capital sum of seventeen Thousand One Hundred pounds together with a payment equivalent to all monies expended by him by way of interest or capital payments due in connection with the Charge

(ii)

Any other proceeds of sale shall be divided equally between Mr Bottomley and Ms Smith

(iii)

Until the Property is sold Mr Bottomley will pay all monies due in connection with the Charge …”

According to Ms Smith’s evidence at paragraph 30 in her first witness statement, it was approximately at this time that, because Ms Smith was (rightly) concerned about Mr Bottomley’s unwillingness actually to proceed to marry her, she and he spoke about ownership of properties apart from Cropredy which were owned by Mr Bottomley and the Company. On this timing, the conversation took place after the formation of the Company.

The properties owned by Mr Bottomley and the Company in late 2002 were the Coach House and a property called The Mill. Mr Bottomley owned the Coach House, which he had purchased in 1985. He had originally lived in it and continued to use it to carry on his business. In 1995 he purchased some adjoining land. In 2000 Mr Bottomley purchased The Mill for about £110,000, as a commercial investment. He obtained planning permission to convert it into a residential development, which increased its value. With a view to sheltering the increased value from capital gains tax, in April 2002 he created the Company and transferred The Mill to it for a consideration of £115,000. In November 2002 The Mill was sold by the Company for £526,000.

Ms Smith’s evidence in her witness statement was that Mr Bottomley agreed at this time that everything he owned in his sole name and in the Company’s name was jointly owned and that she could trust him; he said that he could not put all the properties into their joint names as a result of tax implications, but promised that eventually he would do so. The judge set out this evidence at para. [20] in the judgment, but without accepting it. He also referred, at para. [21], to her evidence in cross-examination that,

“When I agreed to move back in with him again he said he would put everything 50/50. The agreement covered everything. He said he wanted to give me peace of mind. Coach House Properties [the Company] was [Mr Bottomley]. He said everything we have is 50/50; he did not go into detail. The company was Mr Bottomley.”

This latter evidence was rather different as to the timing of the promise made regarding the ownership of property. Ms Smith agreed to move back in with Mr Bottomley in late 2001 or early 2002, before the Company was formed. However, her references to the Company in this passage suggested that she had forgotten the sequence of events.

The judge turned in a later section of the judgment to make his key findings of fact. At para. [36] he found that “at or about the time of the second engagement” Mr Bottomley was desperate to keep Ms Smith as his life time companion and to that end offered matrimony, albeit that may well have been a duplicitous offer. The judge went on, “I am satisfied also that he told the Claimant that they would share things 50/50; or something to similar effect.” This was the critical promise or assurance, the effect of which the judge then went on to analyse.

The judge did not refer in the judgment to the date of formation of the Company and so did not distinctly explain whether the promise was made before or after it came into existence. In my view, however, from the terms of para. [36] and from the fact that the finding that there was a promise to “share things 50/50” appears to be a conscious echo of Ms Smith’s evidence in cross-examination, as set out at para. [21] of the judgment, it is tolerably clear that the judge’s finding was that the promise was made before the Company was formed.

In that regard, it is relevant to point out that the judge did not accept Ms Smith’s evidence as to what was promised to her. Contrary to her suggestion that she was promised a half share in all properties owned by Mr Bottomley and the Company, the judge found that the words he used were that he would “do right” by her if she consented to be his “help-meet”, which would have been understood by all parties “as getting a half-share of the family home” (para. [37]). This again appears to me to be a deliberate echo by the judge of Ms Smith’s evidence in her witness statement about what she was promised to persuade her to become engaged to Mr Bottomley and move back in with him, i.e. at a point in time before the formation of the Company.

At para. [38] of the judgment, again rejecting the wider claim of Ms Smith regarding what was said to her, the judge found that “the offer which was made could only reasonably have been perceived as limited in its extent to whatever was the family establishment from time to time.” The judge held that no inference could be drawn from the parties’ conduct of any wider common intention to share property: para. [39] of the judgment. Ms Smith’s claim therefore depended completely on the express promise made to her by Mr Bottomley: see Lloyds Bank v Rosset [1999] 1 AC 107 at 132 per Lord Bridge, a passage set out by the judge at para. [22] of the judgment.

Shortly after moving into Cropredy in late 2002, Ms Smith and Mr Bottomley came across the Barn. It was an old and dilapidated structure. They decided to buy it and do it up as the new family home. Ms Smith and Mr Bottomley were concerned that the sellers might not be prepared to sell if they thought the barn was going to be developed for commercial purposes, since the sellers were going to continue to live in an adjacent property. Therefore the contract for sale, exchanged in February 2003, was in the name of Mr Bottomley personally and he paid the deposit; but in the event the conveyance, when the sale was completed, was to the Company, which paid the balance of the purchase price of £90,000. This was done even though Mr Bottomley’s intention was that the property would be renovated then used as a home for the family. Mr Bottomley caused the Company to spend about £250,000 to £300,000 on renovating the Barn to a high standard for use by the family, including sound-proofing part of it for Amy’s music practice. The Company used the proceeds of the sale of The Mill to acquire and renovate the Barn.

The renovation of the Barn was finished in about 2004 or 2005, but in 2005, instead of moving into the Barn, the family moved to live in a rented property in Spain. It seems that this was done because Amy wished to live in Spain and Mr Bottomley was able to carry on his business from there. The judge found (para. [34]) that this did not alter the intention of shared ownership regarding the Barn. They lived in Spain until the final separation in 2010, when Ms Smith returned to England. From time to time during this period, Ms Smith and Mr Bottomley would return to England for trade conventions in connection with his militaria business, staying at hotels in London. The family would also occasionally return to England for short periods, and when they did they stayed at the Barn, rent free. At other times, the Barn was let out on short holiday lets. In 2005, the Company put the Barn on the market, but it was not sold.

In 2007, Cropredy was sold. At the time, Mr Bottomley told Ms Smith that her share of the proceeds of sale was £20,000.

In 2010, Ms Smith separated from Mr Bottomley and returned to England. She lived at the Barn for a period, but vacated it when Mr Bottomley told her it was required for use for holiday lets. At the time of trial, the Barn was still owned by the Company.

These proceedings were commenced by Ms Smith in 2011. In them she claimed a half-share beneficial interest in the Coach House, the Barn and 20 Bright Street. She claimed that she had relied to her detriment on a promise or promises made by Mr Bottomley regarding her having a share in the properties, so as to establish a constructive trust or proprietary estoppel in her favour as against Mr Bottomley and the Company.

In advance of trial and at trial, Ms Smith also developed a claim against Mr Bottomley that he had not accounted to her properly for the proceeds of sale of Cropredy. This was not a claim which was included in her Particulars of Claim, even when they were amended and then (in February 2012) re-amended.

In the event, the judge upheld this claim. He found that Mr Bottomley had mis-construed the trust deed in relation to Cropredy and had made excessive deductions under it, by including as an additional deduction interest on the deposit and mortgage interest payments he had made. This was not something authorised by the trust deed. Without the unauthorised deductions, Mr Bottomley should have paid Ms Smith about £41,000 rather than only £20,000 out of the proceeds of sale of Cropredy. This was the basis of his order that Mr Bottomley pay Ms Smith £21,000.

As to the use of the £20,000 proceeds from the sale of Cropredy which Mr Bottomley did tell Ms Smith about, the judge did not accept Ms Smith’s evidence that she told Mr Bottomley that he could keep the money until the next property investment came along. Rather, he accepted the evidence of Mr Bottomley that she agreed that the money could be put into the family pot and used to meet the family’s living expenses in Spain at a time (in 2007 and following years) when Mr Bottomley’s business was doing badly and losing money.

The judge also made a declaration against both Mr Bottomley and the Company that Ms Smith was the beneficial owner of 50% of the Barn. He set out his reasoning in support of that part of his order at para. [44] of the judgment, as follows:

“Mr Bottomley having exchanged contracts and having paid the deposit obviously had an equitable interest in the property [the Barn]. I have already stated my conclusion that there was an agreement or understanding that any property intended to become the family home would be held by the parties in equal shares. Does the fact that Mr Bottomley directed the transfer to be made to the Second Defendant, the limited company, make any difference to the Claimant’s entitlement? It seems to me that the company would take subject to any equitable interest which the Claimant might have which was binding upon the first Defendant. It must follow that the Claimant is entitled as against the Second Defendant to a one half share in White Lee Barn. I so rule. Whether this creates any problems as between the two Defendants is not a matter with which I am concerned. Were I to be wrong in my conclusion that the Second Defendant is bound by the Claimant’s equitable interest, (and, indeed, in any event) the direction by the Defendant for the transfer to the company put the Defendant in breach of trust vis a vis the Claimant. The measure of damages would be a figure equivalent to one half of the net proceeds of sale in Upper White Lee Barn.”

As Mr Lander for Mr Bottomley and the Company emphasised, there appears to be an inconsistency between the way in which the judge formulated the relevant promise by Mr Bottomley in paras. [37] and [38] of the judgment (i.e. that the promise was “limited in extent to whatever was the family establishment from time to time”) and the way in which he treated it as covering the Barn in para. [44]. In Mr Lander’s submission, the Barn never did become the family establishment. The family establishment was Cropredy (which was jointly owned, subject to the terms of the trust deed) and then the property rented by the family in Spain. Against this, Mr Crossley for Ms Smith submitted that the proper interpretation of the judge’s finding in paras. [37] and [38] of the judgment fell to be informed by what he said in para. [44], where he plainly thought that the relevant promise did cover the Barn. He submitted that on a proper reading of the judgment as a whole, his finding at para. [38] was that the promise made was that Ms Smith was entitled to half of whatever was the family establishment or any property intended to be the family establishment from time to time, including the Barn.

It is very unsatisfactory that on such an important finding of fact there should be this element of confusion and inconsistency in the judgment below. For my part, doing the best I can to interpret what the judge meant, I think that the balance of the argument on this point is in favour of the construction of the judgment proffered by Mr Crossley. In the event, however, for other reasons, this does not assist Ms Smith on this appeal.

It is also a very unsatisfactory feature of the judgment that, despite receiving detailed submissions on both sides regarding the question of detrimental reliance by Ms Smith on whatever promise was made to her – a critical element of her claim to a beneficial interest in the properties in question, including the Barn, by way of constructive trust or proprietary estoppel – the judge made no findings about this one way or the other.

Rather surprisingly, although Mr Crossley had put in a Respondent’s Notice on behalf of Ms Smith, he did not in that document address this lacuna in the judge’s reasoning. After debate in the first part of the hearing, Mr Crossley drafted an amendment to the Respondent’s Notice over the short adjournment to address this point and sought permission to introduce it on the appeal. According to the amendment, Ms Smith acted to her detriment on the relevant promise or promises in that she (i) agreed to marry Mr Bottomley and (ii) gave up her independent accommodation, in which she had lived since the end of her first period of co-habitation with Mr Bottomley. Mr Lander’s only objection was to the introduction of point (i) on the appeal, because he said that it was possible that there was relevant commentary in textbooks which he had not had an opportunity of checking in the short time available to him to do so about whether an agreement to marry can constitute relevant detriment for the purposes of creating a constructive trust in relation to ownership of property.

I would allow the amendment to the Respondent’s Notice in full. I was not impressed by Mr Lander’s objection in relation to point (i). This was an issue which had been raised directly in Mr Crossley’s closing written submissions at trial and Mr Lander had had a full opportunity to research the point and answer it, as indeed he had sought to do in his own closing written submissions at trial. I do not consider that there is any material detriment to Mr Bottomley and the Company in allowing the entirety of the proposed amendments to the Respondent’s Notice.

The appeal in relation to the Cropredy proceeds of sale

The issue on this part of the appeal relates to a question of procedure. The submission of Mr Lander is that the judge fell into error in making this order, because it was never part of Ms Smith’s pleaded case against Mr Bottomley that he should make this payment to her and Ms Smith failed to seek to make it part of her pleaded case, even though the absence of a pleaded claim was pointed out in the skeleton argument of Mr Bottomley and the Company for trial and again in their written closing submissions. Mr Lander submits that Mr Bottomley has suffered material prejudice as a result of the absence of any pleaded case against him on this issue. He would have wished to submit further evidence on the point, had he known that it was to be a live issue, and Mr Lander would have wished to cross-examine Ms Smith in the light of such further evidence from Mr Bottomley. Mr Bottomley has not put in any evidence or explanation in this Court to explain exactly what evidence he would have wished to adduce at trial, had the issue been raised properly, in order to show that Ms Smith suffered no loss because the additional proceeds of sale were in fact used for her benefit. Mr Crossley submits that Mr Bottomley has not suffered any material prejudice as a result of the failure formally to plead the claim to the balance of the proceeds of sale of Cropredy which should have been paid to Ms Smith and that the judgment should be upheld on this point.

The claim issued by Ms Smith sought only a declaration and quantification of her beneficial interest in relation to the Coach House, the Barn and 20 Bright Street. The Particulars of Claim were confined to advancing that claim. They were amended in August 2011 and re-amended on about 22 February 2012, again without adding any claim in relation to the balance of the proceeds of sale in relation to Cropredy.

However, at paragraph 9.2.3 in the original Particulars of Claim (and the amended and re-amended versions), Ms Smith did plead that “in 2005/2006 the Claimant agreed to [Mr Bottomley] keeping her 50% share of the sale proceeds of a jointly held property to use to make future property investments,” as part of her case as to contributions she said she had made to acquiring properties held by Mr Bottomley and the Company. This was a reference to the £20,000 share in the proceeds of sale of Cropredy (in fact received in 2007) about which she was informed by Mr Bottomley. At the times of service of the original and amended versions of the Particulars of Claim, Ms Smith was not aware of the true facts in relation to the amount of the proceeds of sale of Cropredy, namely that, as found by the judge, she had been entitled to receive about £41,000 rather than only £20,000. She became aware of the fact that she had a claim to receive the balance of £21,000 only from the evidence and disclosure put forward by Mr Bottomley subsequently.

In his Defence, at paragraphs 7 and 10 (and as repeated in his Amended Defence served in August 2011), in answer to Ms Smith’s claim about the use of the £20,000 proceeds of sale from Cropredy, Mr Bottomley himself introduced a positive case in relation to what had happened in respect of the proceeds of sale of Cropredy. Paragraph 10 of the Amended Defence stated:

“As to paragraph 9.2.3, it is assumed that the property referred to is Cropredy. It is denied that the Claimant’s share of the net proceeds of sale was used to fund property investments. Upon sale of Cropredy in January 2007 the First Defendant asked the Claimant what she wanted to do with her share of the net proceeds of sale of approximately £20,000. The Claimant said that it should be kept in the family pot. As the First Defendant’s business did not make any profits for the next 3 years, the proceeds of sale were, with the knowledge of the Claimant, used as ‘the family pot’ towards meeting the family’s living expenses.”

No Reply was served. The effect of this is that Ms Smith was not to be taken to admit the matters raised in the Amended Defence: see CPR Part 16.7(1).

In Ms Smith’s first witness statement, dated 12 August 2011, she said that she had never seen any documentation relating to the sale of Cropredy and went on, “It may be that the proceeds of sale were greater than [the £40,000 that she was told by the Defendant]”, of which she was entitled to half.

In Mr Bottomley’s first witness statement, dated 28 July 2011, he made reference to Ms Smith’s allegation in paragraph 9.2.3 of the Particulars of Claim, correctly inferred that this was a reference to Cropredy and referred to and exhibited the trust deed. At paragraph 15 of that statement he said, “Cropredy was sold in January 2007 with a profit of around £40,000” and dealt in his evidence with what Ms Smith said she wanted him to do with her share, in line with what was said in the Amended Defence.

By the time of Ms Smith’s second witness statement, dated 15 February 2012, Mr Bottomley had given disclosure which revealed that the true net proceeds of sale of Cropredy were considerably more than £40,000. Ms Smith drew attention to this and emphasised that on the figures taken from the documents disclosed by Mr Bottomley, her true share from the proceeds of sale of Cropredy, after properly carrying into effect the terms of the trust deed, would have been about £41,000 rather than the £20,000 he told her about. In paragraph 2 of this statement, she now said that her application related both to declaration and quantification of her beneficial interest in relation to the Coach House, the Barn and 20 Bright Street, but also said that it included a claim in respect of the proceeds of sale of Cropredy, in relation to which she was entitled to a further £21,000.

However, the Re-amended Particulars of Claim served on her behalf on 22 February 2012 did not include any such additional claim. This was clearly the point at which a claim in relation to the £21,000 balance of proceeds of sale of Cropredy should have been pleaded. By this time, Ms Smith was aware that she had such a claim which could properly be advanced, and she had indeed set it out in detail in her second witness statement.

Mr Bottomley did not respond to the allegations in Ms Smith’s second witness statement about the proceeds of sale in relation to Cropredy in his second witness statement of 2 April 2012 (which was in fact exchanged with Ms Smith’s second witness statement), nor in his third witness statement dated 16 April 2012.

The trial was scheduled to commence on 9 May 2012. In Mr Crossley’s skeleton argument dated 8 May 2012 on behalf of Ms Smith, the main focus of the argument was in relation to Ms Smith’s claims for a half share beneficial interest in relation to each of the Coach House, the Barn and 20 Bright Street; but at paragraph 18(g) reference was made to the fact that the true profit in relation to Cropredy was higher than £40,000 and in the conclusion, at paragraph 32, it was alleged that Mr Bottomley had not remitted to Ms Smith the proper amount in respect of the sale proceeds of Cropredy. This was in line with what Ms Smith had said in her second witness statement.

In the skeleton argument dated 8 May 2012 filed for Mr Bottomley and the Company by Mr Lander, at paragraph 32, reference was made to Cropredy and it was stated that it was a property “in relation to which [Ms Smith] seeks no relief as such”. Reference was made to Cropredy in other parts of the skeleton argument in order to emphasise the terms of the declaration of trust in relation to it. The effect of Mr Lander’s skeleton argument was to point out that Ms Smith had no pleaded claim in relation to the proceeds of sale of Cropredy, and hence to throw down the gauntlet to her, if she wished to advance such a claim, to plead it. Mr Lander did not, however, draw attention to the parts of Ms Smith’s second witness statement where she said that she had such a claim and explained it in detail, in order to object to those parts of the witness statement being included in her evidence for trial.

It is an unfortunate feature of this case that none of Mr Crossley, Mr Lander nor the judge took any steps at the beginning of the trial to clarify whether Ms Smith’s claim for £21,000 in respect of the proceeds of sale of Cropredy could be pursued at trial or not. Had the matter been raised at that stage, the judge could have made a ruling requiring an application to be made to amend the Particulars of Claim, and the question whether Mr Bottomley would be prejudiced by a change in the pleaded case against him could have been addressed.

Although this Court does not have a full transcript of the proceedings below, it is clear from the judgment that Mr Bottomley’s evidence in relation to Cropredy and his treatment of the proceeds of sale from Cropredy was subject to thorough investigation in cross-examination. The judge referred to this at paras. [38] and [42] of the judgment. There was no suggestion by Mr Bottomley that he had told Ms Smith that the proceeds of sale were anything other than £40,000 and that her share in those proceeds of sale was £20,000. In his evidence he sought to advance an explanation how he came to those figures, but as a matter of proper construction of the trust deed the judge rejected his justification for making certain deductions and found that the true amount of the proceeds of sale, after allowing for proper deductions pursuant to the trust deed, was about £82,000, of which Ms Smith’s share should have been £41,000. The judge found that, as a result of what Mr Bottomley told her, Ms Smith was only aware of £20,000 being due to her in respect of the proceeds of sale and that she gave her permission to Mr Bottomley to use only that sum. There was, however, no investigation in the evidence of either Mr Bottomley or Ms Smith of how the balance of £21,000 had in fact been used, and whether it may in fact have been spent for Ms Smith’s benefit in payment of household expenses at a time when Mr Bottomley’s business was losing money.

At the end of the hearing, there was no time available for oral closing submissions and the judge directed that there be a sequential exchange of written closing submissions. At paragraphs 18-21 of Mr Crossley’s written closing submissions for Ms Smith, dated 1 June 2012, he set out Ms Smith’s final case in relation to the proceeds of sale from Cropredy, culminating in the submission that Ms Smith had been entitled to a sum of about £41,000 from the sale of Cropredy. This was relied upon in relation to seeking to bolster Ms Smith’s claims to a beneficial interest in relation to the three properties in issue. However, at paragraph 48 Mr Crossley said, “it is submitted that in any event [Ms Smith] is entitled to the remainder of the monies due to her from the sale of Cropredy under the terms of the declaration of trust, which are presently being held by [Mr Bottomley] on resulting trust for Cropredy”. Hence it was clear that, in line with what Ms Smith had said in her second witness statement, she was maintaining a distinct claim to the balance of £21,000 in respect of her share of the proceeds of sale of Cropredy. However, no application was made even at this point for an amendment to be allowed in relation to the Particulars of Claim to include such a claim.

Mr Lander’s written closing submissions for Mr Bottomley and the Company, dated 25 June 2012, did not deal with the claim or evidence in relation to the proceeds of sale from Cropredy other than to note at paragraph 4.3 that the claim before the court was not a claim for an account of the proceeds of sale of Cropredy, since the only relief sought concerned the other three properties. In this way, Mr Lander maintained the position for Mr Bottomley that Ms Smith could not maintain the claim for the £21,000 in relation to Cropredy because she had not pleaded it.

Mr Crossley filed written submissions in response, dated 2 July 2012. These did not refer to this part of Mr Lander’s submissions for Mr Bottomley.

The issue between the parties in relation to whether Ms Smith was entitled to include a claim to the additional £21,000 in respect of the proceeds of sale of Cropredy was clear from their main written closing submissions. Despite this, the judge did not require Ms Smith to make an application to amend her Particulars of Claim, on which application the question of prejudice (or not) to Mr Bottomley could have been addressed. Nor did the judge refer to this point of contention in his judgment, in order to give a reasoned ruling on it. He did not consider in his judgment whether there was any unfairness to Mr Bottomley in proceeding to consider a claim which had not been pleaded against him, albeit it had been set out in Ms Smith’s second witness statement. The judge simply entertained Ms Smith’s claim for the additional £21,000 in respect of Cropredy and found in her favour on that claim.

In my judgment, Mr Lander has made out a good case that the appeal against this part of the order made against Mr Bottomley should be allowed. The judge made no reasoned case management decision that the claim for the £21,000 could proceed notwithstanding the absence of a pleaded case in relation to it, so this Court is not limited to a review of a discretionary case management decision by a trial judge. The issue was properly raised by Mr Lander for Mr Bottomley, but went by default.

I am persuaded by Mr Lander that this is a matter on which a real possibility of material prejudice to Mr Bottomley by reason of the absence of a pleaded case against him cannot be ruled out. Although various aspects of his case in relation to the proceeds of sale were thoroughly investigated at the trial, including in particular the true amount of the proceeds of sale, what he told Ms Smith about them and the way in which he sought to justify accounting to her for £20,000 rather than £41,000, a further relevant issue – namely whether, despite not accounting to her for the proper amount, her share of the proceeds of sale were nonetheless spent for her benefit on family expenses in the lean period for his business in 2007 and following years – was not the subject of evidence or investigation, as it would or at least could have been had Ms Smith amended her pleaded case. In my judgment, Mr Bottomley cannot be held responsible for the failure to adduce evidence in relation to this issue at trial. He properly drew attention at the start of the trial to the absence of a pleaded case against him and in substance made it clear that, absent a pleaded case, he would not seek to advance a case of his own in reply to any such claim.

Nor do I think that a proper inference can be drawn from the failure of Mr Bottomley to provide this Court with a detailed account of the evidence he would have wished to introduce, had the issue been properly raised against him, that he would not have been able to defend himself in this way. The background circumstances as found by the judge (see para. [43] of the judgment) were that Mr Bottomley’s business was operating at a loss for some years after the sale of Cropredy, so it can fairly be said that there was a real possibility that Mr Bottomley could have adduced evidence to support such a defence.

In conclusion on this ground of appeal, Ms Smith had a fair opportunity to introduce a properly pleaded claim for the balance of the proceeds of sale of Cropredy which she failed to take, and as a result Mr Bottomley has suffered real prejudice, in that he was deprived of a real possibility of being able to introduce evidence to defend himself against such a claim. In my judgment, fairness requires that the appeal on this issue should be allowed.

The appeal in relation to the beneficial ownership of the Barn

The judge found that Mr Bottomley entered into a contract to purchase the Barn with a view to renovating it to become the family home, presumably to replace Cropredy at some stage. Mr Bottomley caused the Company to take over and complete the contract of purchase, using its own funds. He also caused the Company to expend considerable sums to renovate the property to a high standard, again with a view to its becoming the family home. However, although the renovation works were finished in about 2004 or 2005, the family did not move into it but instead moved to rented accommodation in Spain. The Barn was used as a place to stay on occasional family visits back to England, when it was not being used for short holiday lets. According to Ms Smith’s evidence in her first witness statement, “there was always the intention of it being a family home and placing it into joint names, as soon as it was tax efficient to do so. [Mr Bottomley] often reassured me that this was our family home and we owned it equally.”

Mr Lander was rightly critical of the judge’s reasoning in support of his conclusion that Ms Smith should be taken to be entitled to half the beneficial ownership of the Barn as against the Company or that Mr Bottomley was liable for a breach of trust, and Mr Crossley argued only faintly in support of it. The judge’s analysis was not one for which either side had argued at trial. In my view, unless it can be said that the Company shared responsibility with Mr Bottomley for the relevant promise regarding ownership of the Barn and that Ms Smith relied to her detriment in a serious way upon such promise by the Company, there is no good ground on which it can be said that Ms Smith has the benefit of an equitable interest which she can assert against the Company as the legal owner of the Barn. Mr Bottomley’s original interest in the contract of purchase was not one which had substantial value: absent releasing money from the Company to himself (which would have been inefficient and expensive from a tax point of view, and which he did not wish to do) he did not personally have the resources available to complete the contract, and if he had not assigned his interest in it to the Company he would simply have lost the deposit and the Barn. The Company used what were clearly its own monies, derived from sale of its own property at The Mill, to carry through the transaction. No equitable claim which Ms Smith had against Mr Bottomley personally carried though, or was converted into, an equitable claim against the Company, which is a distinct legal person.

Mr Crossley properly accepted that this is not a case where there is any scope for piercing the corporate veil, so as to identify the Company with Mr Bottomley. It is also not a case in which there is any scope for drawing an inference that, contrary to appearances, the Company really held the Barn as trustee for Mr Bottomley. By contrast with the sort of situation discussed in Prest v Petrodel Resources Ltd [2013] UKSC 34; [2013] 3 WLR 1, in particular at para. [52] per Lord Sumption JSC, the Company in the present case had paid a substantial sum of its own money to acquire the Barn and the family did not occupy it gratuitously as the family home (other than making use of it for minimal periods of time when visiting England, when it was standing vacant and not being used commercially for short term holiday lettings). Unsuccessful attempts were made to sell the Barn while the family lived in Spain, and it is clear that if a sale had been achieved the proceeds of sale would have gone to the Company beneficially rather than being held for the benefit of Mr Bottomley.

According to Mr Crossley’s primary submission in this Court and in line with the Respondent’s Notice, the proper analysis of the case is that Mr Bottomley had promised Ms Smith on behalf of himself and the Company, as its authorised agent, that she should have a half share beneficial interest in the Barn. For the purposes of application of the principle in Lloyds Bank v Rosset, therefore, the Company was a party to the relevant agreement. There was an agreement between all three parties (not just Ms Smith and Mr Bottomley) which was unenforceable for want of writing, but which could be treated by Ms Smith as the foundation for a constructive trust or proprietary estoppel by reason of her detrimental reliance upon it. Mr Crossley submitted that the agreement was first made in 2001 and was then repeated subsequently, including after the Company was incorporated, in particular at about the time it was proposed the Company should acquire the Barn.

In my judgment, this argument cannot be sustained, for two reasons. First, as explained above, the particular promise which the judge found had been made was one made by Mr Bottomley in late 2001 or early 2002, before the Company was formed in April 2002. There is therefore no basis on which Mr Bottomley could be said to have made that promise on behalf not just of himself but also on behalf of the Company. The judge made no finding of any repetition of promises after that time. On the contrary, it is clear from the judgment that he did not accept important parts of the evidence of Ms Smith in her first witness statement that there had been subsequent discussions about ownership of property and, as I read the judgment at para. [44], the judge specifically referred back to his earlier finding that there was an agreement or understanding that any property intended to become the family home would be held “by the parties” (sc. Ms Smith and Mr Bottomley, not the Company) in equal shares which had been made in late 2001 or early 2002. There was, therefore, no promise made which was properly attributable to the Company which could provide the foundation for a claim in equity by Ms Smith against the Company.

Secondly, even if (contrary to my view above) there was a promise by the Company given after it was formed in April 2002, I consider that the analysis proposed by Mr Crossley fails because the detrimental reliance on the part of Ms Smith on which he seeks to rely cannot be clearly and distinctly related to that promise in such a way as to justify the creation of a good claim in equity against the Company. As to the first element of detrimental reliance relied upon (Ms Smith’s agreement to marry Mr Bottomley), she so agreed before the Company was formed and did so primarily in reliance on the promise he gave at that time in his personal capacity. That promise was carried into effect by the acquisition of Cropredy in joint names, subject to the terms of the trust deed.

In these circumstances, there is no sound basis on which this Court could infer that Ms Smith distinctly relied on the alleged later promises in relation to the Barn to persist in an agreement to marry which had not been and was never carried into effect. Indeed, according to Ms Smith’s evidence in her first witness statement (admittedly in a part, paragraph 30, not accepted by the judge in certain respects) it was because of her concern about Mr Bottomley’s unwillingness actually to go through with the marriage that they had a conversation about property ownership at about the time of the acquisition of Cropredy in late 2002, before the Barn was identified as a possible acquisition. In light of Ms Smith’s position on that, it is not possible to say that her agreement to marry Mr Bottomley constituted some kind of continuing detrimental reliance which continued in relation to any later promise made in relation to the Barn. It is not necessary in this judgment to consider the distinct question whether, in any event, a promise to marry could in principle constitute sufficient detrimental reliance to found a claim to a constructive trust. The answer is likely to depend upon the particular factual circumstances: for instance, did acceptance of one offer of marriage preclude acceptance of another, competing offer which foreclosed the offeree from protecting his or her financial position more fully by accepting the competing offer? There was no detailed examination of this sort of issue by the judge on the facts in this case.

Similarly, the second element of alleged detrimental reliance set out in the Respondent’s Notice (that Ms Smith gave up her independent accommodation) is not related to the alleged promises by the Company in respect of ownership of the Barn. Ms Smith gave up living in rented accommodation in 2001 when Mr Bottomley promised to marry her and “do everything right”. That was all well before any suggestion that the Company made a promise to her about joint ownership of the Barn. The primary reason Ms Smith gave up her own accommodation was that she was provided with accommodation rent free by Mr Bottomley at Treetops, then at Cropredy, then in Spain. Further, I do not consider that Ms Smith’s giving up rented accommodation in her own name to move to shared accommodation with Mr Smith, for which she did not have to pay, could in the circumstances of this case constitute material detrimental reliance sufficient to generate any form of equitable claim against the Company.

My conclusion, therefore, is that the appeal by Mr Bottomley and the Company in relation to this aspect of the claim also succeeds. The judge’s reference in the last part of para. [44] of the judgment to the possibility that Mr Bottomley might himself be liable for a breach of trust in relation to the Barn was not the foundation for any part of the order which he made and was not the subject of any claim in the Respondent’s Notice. It is sufficient simply to say that I do not consider that any such case of breach of trust could be made out, because Ms Smith plainly agreed that the Company and not Mr Bottomley should complete the purchase of the Barn, so Mr Bottomley did not act in breach of any duty in arranging things in that way.

For the reasons given above, the appeal is allowed on both issues. The net effect is that Ms Smith has failed in her claims against Mr Bottomley and the Second Defendant.

I agree.

I also agree.

So far as the claim to £21,000 out of the proceeds of sale of Cropredy is concerned, it is much to be regretted that, although several opportunities existed to get the case onto a proper footing before or even at trial, none of them was taken. I find it difficult to understand how it came about that, on 22 February 2012, the Amended Particulars of Claim were re-amended so as to add a claim of relatively little significance to land adjacent to the Coach House, but that the re-amendments did not also advance the more substantial and entirely new claim which had been formulated, in a general sense, in Ms Smith’s witness statement a week earlier, to part of the proceeds of sale of Cropredy.

Mr Bottomley’s solicitors could have responded to the witness statement, taken with the limited re-amendment of the statement of case, to point out at that stage that there was no pleaded case to the proceeds of Cropredy and that if Ms Smith wished to pursue such a claim she ought to apply for permission for yet another amendment. But it does not seem to me that they can be fairly criticised for not doing so, when there was no reason to suppose, from the conduct of Ms Smith’s case, that her representatives were unaware of the need to formulate her case properly by way of pleading – the re-amendment itself showed that.

In my judgment it was sufficient, in the circumstances, for Mr Bottomley’s Counsel to take the point in the way that he did in his opening written submissions for the trial and thereby to put the issue firmly and clearly on the forensic table, showing that he did not consent to the issue being heard or determined. Again, I find it surprising that Ms Smith’s Counsel did not at once respond by formulating an amendment for the purpose and applying for permission to make it at the beginning of the trial. It seemed to me, from Mr Crossley’s submissions, that he sought to treat a claim clearly set out in a witness statement as being a sufficient substitute for a pleaded case. That is not acceptable in litigation of this kind. Ms Smith’s claim having been set out reasonably clearly in the Particulars of Claim, any additional claim should have been brought into line, in terms of procedure, by amending the Particulars of Claim so as to make all relevant allegations, thereby putting the matter firmly and clearly in issue, with the consequences as regards evidence and disclosure that this would have.

Mr Crossley cited a passage from the judgment of Rimer LJ in Lombard North Central plc v Automobile World (UK) Ltd [2010] EWCA Civ 20, at paragraph 79, in support of the proposition that it was fair and just for the judge to have allowed the issue of the proceeds of Cropredy to be advanced at trial and to have decided it, despite it not being pleaded. Rimer LJ made the point that there are some cases where that is the right course, in particular where both sides have come to court ready to deal with the point as an issue in the case despite it not appearing n the pleadings. That was not the case in Lombard North Central, which is an object lesson in the need to be careful about what allegations are pleaded. It was plainly not the case here either, given that Mr Lander took objection to the point being raised in his opening written submissions.

The procedural irregularity might not have mattered if it could be shown that Mr Bottomley suffered no prejudice from the failure. But I agree with Sales J that Mr Bottomley might have wished to adduce evidence as to what happened to the additional money, which would have involved close examination of financial records at the time. Therefore it cannot be said that the course of the trial, and in particular of the evidence adduced at trial, would have been no different if the point had been pleaded.

That is the critical factor which, in the light of all the circumstances, leads me to the same conclusion as Sales J on this aspect of the case.

I need not add anything to the discussion of the claim as regards the Barn set out in the judgment of Sales J.

Accordingly the appeal will be allowed.