Birmingham Midshires v Sabherwal [2000]

Birmingham Midshires v Sabherwal [2000]

1. Facts

• Background: Sabherwal (S) lived in a house with her two sons. The legal title to the property was held by the sons. When S defaulted on mortgages, the sons decided to sell the property to a third party.

• Claim: S claimed an interest in the property based on proprietary estoppel (PE), arguing that her right to the property should be recognised despite the sale.

2. Outcome

• Court Decision: The Court of Appeal held that S’s equitable interest based on PE was overreached when the property was sold. The court found that the sale to the third party was valid, and S's interest was extinguished due to the overreaching of the property.

• Reasoning: The decision was aligned with the principle established in City of London B Soc v Flegg. The court concluded that because S's right was a form of equity arising from PE, it was subject to overreaching when the property was sold, given that the sale involved payment to the two registered trustees.

3. Impact and Analysis

• Consistency with Common Intention Constructive Trust:

◦ Overreaching Principle: The Court of Appeal’s decision emphasised consistency with the common intention constructive trust principle. In both cases, the principle of overreaching was applied, meaning that equity arising from either a common intention constructive trust or proprietary estoppel is subject to overreaching if the property is sold with payment to two trustees.

◦ Alignment with Flegg: The court’s reasoning in this case was consistent with City of London B Soc v Flegg, which established that when property is sold and the purchase money is paid to two trustees, the beneficial interests are overreached. This consistency ensures that the treatment of proprietary estoppel aligns with established principles of overreaching in property law.

• Proprietary Estoppel and Overreaching:

◦ Equitable Interest: The decision reinforces that an equitable interest arising from proprietary estoppel is not immune from overreaching. If a property is sold and the purchase money is distributed to the registered trustees, the estoppel interest can be overreached just like other beneficial interests.

◦ Practical Implications: This case illustrates the practical effect of overreaching on interests arising from proprietary estoppel, emphasizing that such interests are subject to the same rules as other equitable interests when a property is sold with the correct payment procedures.

◦ Avoiding Inconsistency: The court aimed to avoid any inconsistency between the treatment of common intention constructive trusts and proprietary estoppel claims. By aligning PE with the established principles of overreaching, the court ensures uniform application of property law principles.