12
EQUITABLE ESTOPPEL
Introduction
12.1 In simple terms, an estoppel is an equitable claim that prevents someone from denying the existence of a state of affairs in circumstances where such denial would be unconscientious. This necessarily has an impact upon those legal rights which would otherwise be exercisable by the person estopped. A simple example would be a situation where A has induced B to believe that A will not insist upon his or her strict legal rights under a contract that exists between them. If B relies upon the assumption that B will not be exposed to liability should B fail to perform his or her obligations exactly, the law recognises that it is unconscientious to allow A to subsequently sue B for breach of contract.
12.2 While fairly simple to discuss in terms of broad principle, it must be understood that the word ‘estoppel’ raises a multiplicity of more precise meanings dependent upon the circumstances of the case. As the title of this chapter implies, estoppel exists under both the common law and equity. Within both jurisdictions, the concept has a number of specifi c forms so that one will come across references to estoppel by deed, estoppel by judgment, estoppel in pais, estoppel by conduct, estoppel by representation, High Trees estoppel, promissory estoppel and proprietary estoppel among others. There is a considerable degree of overlap between some of these forms of estoppel and confusion can arise.
Common law estoppel
12.3 While the basic notion of preventing parties from insisting on their actual legal rights is central to all forms of estoppel, the major difference between them is determined by the nature of the belief which has led to the compromise of those rights. Although it was originally not so confi ned, at common law the focus has been upon assumptions of fact. These could arise by means of judicial decision (estoppel by record or issue estoppel), agreement by both parties (estoppel by deed or estoppel by convention), and also by representation made by one to the other (estoppel by representation). The general principle of common law estoppel was stated by Dixon J in Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 at 674 as being that, ‘the law should not permit an unjust departure by a party from an assumption of fact which he has caused another party to adopt or accept for the purpose of their legal relations’.
12.4 It was due to the decision of the House of Lords in Jorden v Money [1843–60] All ER Rep 350 that common law estoppel was confi ned to assumptions and representations
of existing fact. This limitation was intended by their Lordships to apply to all forms of estoppel and should be understood in light of the development of contract law during this time. Representations of future intention (that is, promises) were to be governed by the presence of a contractual relationship between representor and representee with a price being paid for the promise in the form of suffi cient consideration.
12.5 Estoppel in equity, however, never really laboured under the restriction imposed by Jorden v Money. Parties who made representations of future intention were estopped from denying them in situations where they had been reasonably relied upon by others. This inconsistency with Jorden v Money was more covert than blatant at fi rst but the distinction between existing fact and future intention came to be that which defi ned the realms of estoppel under the common law and equity respectively.
12.6 The second distinction between estoppel under the two jurisdictions is that it is commonly said of common law estoppel that it is a rule of evidence, while estoppel in equity may confer substantive rights. By this it is meant that common law estoppel is a device used merely to determine the facts upon which the legal rights of the parties will then be determined by the court, whereas, in equity, rights fl ow directly from the operation of estoppel in equity. This classifi cation is a natural consequence of the fi rst distinction — if the scope of common law estoppel is confi ned to representations of fact, its true role is to establish which facts the court will adjudge. If the estoppel is successfully raised, then the representor will be precluded from denying the facts assumed by the representee.
12.7 The idea of common law estoppel as an evidentiary rule derives from the judgment of Bowen LJ in Low v Bouverie [1891] 3 Ch 82 at 105, and is a signifi cant barrier to attempts by some recent members of the High Court to fuse equitable and common law estoppel into one doctrine, despite their otherwise quite high level of similarity: see 12.56–12.60. The limited role of estoppel at common law was well conveyed by the metaphor that it was a shield but not a sword. Conversely, when estoppel in equity conferred substantive rights it was said to be a sword as well as a shield. However, it would be a mistake to see the analogy of common law estoppel as a shield as implying that its use was defensive only. As Mason CJ and Wilson J said in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 400; 76 ALR 513 at 521, ‘this does not mean that a plaintiff cannot rely on an estoppel. Even according to traditional orthodoxy, a plaintiff may rely on an estoppel if he has an independent cause of action’. The role of the estoppel in such a case is to establish the state of affairs from which the action arises.
12.8 In Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466 at 472, Priestley JA set out a series of enumerated points in order to clarify the law on estoppel. The fi rst three offer a concise summary of the ideas presented so far:
1. Common law and equitable estoppel are separate categories, although they have many ideas in common.
2. Common law estoppel operates upon a representation of existing fact, and when certain conditions are fulfi lled, establishes a state of affairs by reference to which the legal relation between the parties is to be decided. This estoppel does not itself create a right against the party estopped. The right fl ows from the court’s decision on the state of affairs established by the estoppel.
3. Equitable estoppel operates upon representations or promises as to future conduct, including promises about legal relations. When certain conditions are fulfi lled, this kind of estoppel is itself an equity, a source of legal obligation.
Modern equitable estoppel
12.9 Equitable estoppel is the result of bringing together the two signifi cant forms of estoppel that existed in equity — promissory estoppel and proprietary estoppel. Obviously, unlike the situation at common law since Jorden v Money, neither of these estoppels were limited to assumptions of existing fact but operated so as to hold a representor to a statement of future intention. The bringing together of these two estoppels refl ects the high incidence of doctrinal similarity between them. But before considering equitable estoppel in its recent form, it is worth noting the former roles of both promissory and proprietary estoppel and their attendant differences.
Promissory estoppel
12.10 The principles which underlie promissory estoppel were present in nineteenth
century case law, but they were given a modern formulation by Denning J in the case of Central London Property Trust Ltd v High Trees House Ltd [1947] 1 KB 130. In that case Central London Property Trust (CLPT) leased a block of fl ats to High Trees House (HTH) for a period of 99 years. In 1940, CLPT agreed to accept a reduced rent, which was paid for the next fi ve years by HTH. CLPT accepted the reduction because of the low occupancy rate for the fl ats during World War II. In 1945, with the fl ats all fully let, CLPT asserted a claim for the full rent thereafter. Denning J said that CLPT was entitled to the full rent as claimed, on the basis that the agreement for a reduced rent was only for as long as the fl ats were not fully let. The critical aspect of the case was the statement by Denning J that, if CLPT had claimed the full rent for the years 1940–45, it would have failed. Even though the promise to accept a reduced rent was not supported by consideration, the principle of promissory estoppel would have been raised against CLPT, preventing recovery of the forgone rent.
12.11 For many years the operation of promissory estoppel principles was subject to
two important limitations:
1. The promise had to be in the context of one intended to affect a pre-existing legal relationship between the parties: Combe v Combe [1951] 2 KB 215 at 220. In High Trees, this was satisfi ed in that the parties were in a lease relationship and the promise was in relation to terms agreed under that lease.
2. Promissory estoppel could only be used as a defence to an action brought by the promisor against the promisee. It was said that it could only be used as a ‘shield’ and not as a ‘sword’: Combe at 220. In High Trees, this was satisfi ed as it was HTH, the defendant/promisee, that would have used promissory estoppel as a defence to a claim for the forgone rent by CLPT, the plaintiff/promisor.
12.12 In Australia, the doctrine of promissory estoppel was fi rst authoritatively accepted
by the High Court in Legione v Hateley (1983) 152 CLR 406; 46 ALR 1.
Proprietary estoppel
12.13 In relation to proprietary estoppel, it always was able to act as a sword as well as a
shield and it is this feature that it has brought to equitable estoppel generally. Proprietary estoppel’s other major difference from promissory estoppel is its operation in the realm of real property law. This estoppel operates to restrict the legal rights of landowners if they have encouraged the belief in another, or at least acquiesced in that other’s belief, that he or she has some entitlement over the property and that belief has been acted upon; for example, by some alteration or improvement having been made to the land. However, no proprietary estoppel claim is available if the plaintiff and defendant have a legally enforceable contract relating to the property: Giumelli v Giumelli (1999) 196 CLR 101 at 121; 161 ALR 473 at 482; Riches v Hogben [1985] 2 Qd R 292 at 301. As Young CJ in Eq observed in Barnes v Alderton [2008] NSWSC 107 at [55], ‘contract and proprietary estoppel are mutually exclusive’.
12.14 Due to the two methods by which the assumption of an interest could arise,
proprietary estoppel was recognised as comprising two streams. Dillwyn v Llewelyn
[1862] All ER 384 is the classic example of estoppel by encouragement. In that case a father put his son into possession of land which he purported to voluntarily convey to his son. The conveyance was ineffective. With his father’s assent and approval, the son built and occupied a house on the land. After the father’s death, the son sought a declaration that he was the owner of the land in equity and that the trustees of the land be ordered to convey the land to him absolutely. The House of Lords made these orders.
12.15 The other stream of proprietary estoppel is estoppel by acquiescence, which
was succinctly explained by Cranworth LJ in Ramsden v Dyson (1866) LR 1 HL 129 at 140–1:
If a stranger begins to build on my land supposing it to be his own, and I, perceiving his mistake, abstain from setting him right, and leave him to persevere in his error, a Court of equity will not allow me afterwards to assert my title to the land on which he had expended money on the supposition that the land was his own.
12.16 For a proprietary estoppel claim to be successful, the plaintiff must have suffered
some detriment. In Barnes v Alderton at [42], Young CJ in Eq put it as follows:
No equity arises to raise a proprietary estoppel unless the person in whose favour it is being raised, has acted to their prejudice or detriment in some way whether in terms of direct expenditure or on some other basis. However, the detriment may not necessarily be expenditure of money, commonly a claimant leaves her job, moves in with the promisor and does his housekeeping for many years … However, … minor expenditure such as day to day living expenses or minor repairs will not qualify.
12.17 It is to be noted that there is not a great difference between estoppel by
encourage-ment or by acquiescence. Rather, they simply refl ect differing levels of passivity on the part of the landowner. The actions of the landowner, in either encouraging expenditure or acquiescing in expenditure, constitute fraud in equity. In Ward v Kirkland [1967] Ch 194 at 239, Ungoed-Thomas J observed as follows:
It was suggested before me that there was a distinction between an act which is acquiescing or encouraging a person in such circumstances to expend money and merely standing aside with the knowledge that such money was being expended in reliance on having the right which is claimed. I, for my part, fail to see any substance in this distinction. The fundamental principle of the equity is unconscionable behaviour, and unconscionable behaviour can arise where there is knowledge by the legal owner of the circumstances in which the claimant is incurring the expenditure as much as if he himself were requesting or inciting that expenditure. It seems to me that abstention as well as request or incitement can fall within the principle from which the recognition of the claimant’s equity arises.
12.18 A commonly cited statement of the relevant elements of proprietary estoppel is
that of Fry J in Willmott v Barber (1880) 15 Ch D 96 at 105–6, where his Honour said: A man is not to be deprived of his legal rights unless he has acted in such a way as would make it fraudulent for him to set up those rights. What, then, are the elements or requisites necessary to constitute fraud of that description? In the fi rst place the plaintiff must have made a mistake as to his legal rights. Secondly, the plaintiff must have expended some money or must have done some act (not necessarily upon the defendant’s land) on the faith of his mistaken belief. Thirdly, the defendant, the possessor of the legal right, must know of the existence of his own right which is inconsistent with the right claimed by the plaintiff. If he does not know of it he is in the same position as the plaintiff, and the doctrine of acquiescence is founded upon conduct with a knowledge of your legal rights. Fourthly, the defendant, the possessor of the legal right, must know of the plaintiff’s mistaken belief of his rights. If he does not, there is nothing which calls upon him to assert his own rights. Lastly, the defendant, the possessor of the legal right, must have encouraged the plaintiff in his expenditure of money or in the other acts which he has done, either directly or by abstaining from asserting his legal right.
12.19 Later cases indicated that one did not have to establish all these elements to
succeed in a proprietary estoppel claim, with the ‘real test’ being, as Buckley LJ said in
Shaw v Applegate [1978] 1 All ER 123 at 131, ‘whether on the facts of the particular case the situation has become such that it would be dishonest, or unconscionable, for the plaintiff, or for the person having the right sought to be enforced, to continue to seek to enforce it’. More recently, in Thorner v Major (2009) 3 All ER 945 at 957, Lord Walker of Gestingthorpe said that ‘the doctrine [of proprietary estoppel] is based on three main elements: … a representation or assurance made to the claimant; reliance on it by the claimant; and detriment to the claimant in consequence of his (reasonable) reliance’.
The consolidation of promissory and proprietary estoppels
12.20 In Waltons Stores v Maher, the High Court handed down its most signifi cant
decision on the topic of estoppel. The signifi cance of this case was that it consolidated promissory and proprietary estoppels into the single, and broader, principle of equitable estoppel.
12.21 In Waltons Stores v Maher, the Mahers owned commercial premises in Nowra which
Waltons was interested in leasing. Waltons wanted to relocate its business in Nowra to
new premises and the Mahers’ site was available. The agreement that was reached was that the Mahers would demolish the existing premises and erect a new building to meet the specifi cations of Waltons. A draft agreement for lease was sent to the solicitors for the Mahers. Some amendments were discussed. Waltons’ solicitors indicated that they expected their client’s agreement to the alterations and said they would let the Mahers know if the amendments were not acceptable. The Mahers’ solicitors sent the amended lease, duly executed by the Mahers, to Waltons’ solicitors ‘by way of exchange’. The letter was not acknowledged by Waltons’ solicitors until two months later. The Mahers began to demolish the existing premises, as time was critical if they were to complete the demolition and rebuilding in time for the start of the lease agreement. Waltons was found to know what the Mahers were doing. However, after receiving the letter and executed lease, Waltons reconsidered its position and a few months later wrote to the Mahers’ solicitors saying that the lease had not been executed by Waltons and that Waltons was not proceeding with it. The Mahers sued Waltons for damages for breach of contract on the basis that Waltons was estopped from denying the existence of the lease.
12.22 The majority of the High Court (Mason CJ, Wilson and Brennan JJ) found for
the Mahers on the basis of equitable estoppel. (The minority of Deane and Gaudron JJ found for the Mahers on the basis of common law estoppel.) In fi nding in favour of the Mahers on the basis of equitable estoppel, the majority did so in circumstances where there was no pre-existing contract between the parties and on the basis that the Mahers used estoppel as the basis for a cause of action and not merely as a defensive mechanism. In making their decision, the majority made it clear that promissory estoppel was but a species of the broader principle of equitable estoppel — the other major species being proprietary estoppel. The underlying rationale for equitable estoppel was fi rmly based in the notion of unconscionability or unconscientiousness: see 2.4–2.5. Mason CJ and Wilson J, at CLR 404; ALR 524, said:
One may therefore discern in the cases a common thread which links them together, namely, the principle that equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has ‘played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it’: per Dixon J in Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 at 675 … Equity comes to the relief of such a plaintiff on the footing that it would be unconscionable conduct on the part of the other party to ignore the assumption.
Elements of equitable estoppel
12.23 To establish a case based upon principles of equitable estoppel there needs to be
a promise or a suffi ciently clear and unambiguous representation. In Australian Crime Commission v Gray [2003] NSWCA 318 at [200], Ipp JA, speaking for the New South Wales Court of Appeal, said:
The underlying reason for the rule that, generally speaking, an ambiguous or unclear representation will not give rise to a promissory estoppel is that the foundation of promissory estoppel is unconscionability. Unconscionability is usually diffi cult to establish when the representation is ambiguous or unclear.
12.24 The promise or representation can be either express or implied. In Legione v Hateley, at CLR 438–9; ALR 1 at 23–4, Mason and Deane JJ said:
The requirement that a representation as to existing fact or future conduct must be clear … does not mean that the representation must be express. Such a clear representation may properly be seen as implied by the words used or to be adduced from either the failure to speak where there was a duty to speak or from conduct. Nor is it necessary that a representation be clear in its entirety. It will suffi ce if so much of the representation as is necessary to found the propounded estoppel satisfi es the requirement.
12.25 In relation to the statement by Mason and Deane JJ that the representation does
not have to be totally clear and unambiguous or free of any uncertainty, in Australian Crime Commission v Gray, at [205], Ipp JA proffered the following example:
Say, for example, a non-contractual representation was made whereby the representor orally promised to deliver a large quantity of produce specifi ed by a nominated tonnage. Assume that the promise did not specify imperial tons or metric tonnes in circumstances where it was not reasonably possible to infer whether tons or tonnes were promised. Assume that the [relying party] relied on the promise and altered its position to its detriment. Assume further that the representor made no delivery whatever and repudiated its promise. If, in these circumstances, the [relying party] sued on the grounds of a promissory estoppel, I suggest that it would be self-evident that the representor would be liable to pay equitable compensation even though it was not possible to determine whether the quantity promised was in metric or imperial quantities. The unconscionability of the situation would not be negated by the ambiguity. Equity would intervene by fashioning relief based on the concept of ‘minimum detriment’.
12.26 Futhermore, whether the relevant representation is suffi ciently clear and
unambiguous is, as Lord Walker of Gestingthorpe observed in Thorner v Majors [2009] UKHL 18 at [56], ‘hugely dependent on context’. Thus, in Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2008] VSCA 86 at [134], Dodds-Streeton JA said that, when construing a representation, the court must assess its meaning ‘by how it would be reasonably understood by the addressee in the context of the surrounding circumstances’. In Thorner v Major, at [971], Lord Neuberger of Abbotsbury said:
[I]t would be quite wrong to be unrealistically rigorous when applying the ‘clear and unambiguous’ test. The court should not search for ambiguity or uncertainty, but should assess the question of clarity and certainty practically and sensibly, as well as contextually … [N]ormally, it is suffi cient for the person invoking the estoppel to establish that he reasonably understood the statement or action to be an assurance on which he could rely.
12.27 In light of the above, it is understandable that in Cobbe v Yeoman’s Row Management
Ltd [2008] 1 WLR 1752 at 1763, Lord Scott of Foscote said that, in the context of an arm’s length negotiation between experienced businessmen, ‘[a]n expectation dependent upon the conclusion of a successful negotiation is not an expectation of an interest having [suffi cient] certainty’ to ground a claim in equitable estoppel. However, in Thorner v Majors, in the context of a family relationship, an expectation generated by somewhat oblique remarks was suffi ciently clear and certain.
12.28 For the suffi ciently clear and unambiguous promise or representation to lead to a claim based upon equitable estoppel, Brennan J in Waltons Stores v Maher set out what he saw as the elements that had to be satisfi ed, as follows:
In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfi lled; and (6) the defendant has failed to act to avoid that detriment whether by fulfi lling the assumption or expectation or otherwise: at CLR 428–9; ALR 542.
12.29 Although Brennan J’s statement has not been approved by the High Court as a
whole, it has been the formulation of principle most commonly cited and applied by lower courts in Australia. A closer examination of the six elements is therefore warranted. In this discussion, for convenience, the party making the promise or representation will be referred to as ‘the representor’ and the party to whom the promise or representation is made will be referred to as ‘the relying party’.
Assumption or expectation
12.30 The nature of the relying party’s assumption is important in relation to the type
of estoppel that arises. If the assumption is one of an existing fact, a case of common law estoppel arises. (In Waltons Stores v Maher the minority found for the Mahers on this basis, viewing the evidence as establishing that the Mahers believed that Waltons had completed the exchange of the lease.)
12.31 Equitable estoppel will arise if the assumption is that the representor will act in
a particular way in the future. According to Brennan J, the relying party needs to show that he or she assumed that a particular legal relationship existed or would exist between the parties. According to the majority in Waltons Stores v Maher, this was established on the facts of that case. A similar approach is detected in Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd (1998) 153 ALR 198 at 235, where the Full Court of the Federal Court said that ‘it is a necessary element of the principle that the [representor] has created or encouraged an assumption that “a particular legal relationship” or “interest” would arise or be granted’.
12.32 However, Brennan J’s requirement of a legal relationship would exclude equitable
estoppel from a promise or representation made where the relying party assumes that the representor will behave in a manner outside the context of a legal relationship. A broader view was taken by Priestley JA in Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 at 610, where his Honour indicated that it was enough if the relying party assumed that ‘a promise [would] be performed’. An example where the representor’s behaviour is outside any existing or expected legal relationship, and which might come within Priestley JA’s formulation, is where A promises to pay B $200 within 10 days.
12.33 It also appears to be the case that, in all the circumstances, the relying party’s assumption must be reasonable. A claim based upon equitable estoppel can fail if it was not reasonable for the relying party to have adopted the assumption. In Salienta Pty Ltd v Clancy [1999] NSWSC 916, a proposed purchaser of land had been in possession of the property and had had a contract to purchase it that was subsequently terminated by the vendor following the purchaser’s breach. The purchaser had spent money on improvements to the property on the assumption that the expenditure would be credited to the purchase price in a contract to be entered into at a price lower than that which had been set out in the earlier contract. Bryson J held that the assumption was unreasonable given that, at all relevant times, the terms upon which the vendor would sell the land had clearly been made out in writing. Thus, it was not unconscientious for the vendor to assert its title to, and possession of, the land.
Inducement
12.34 Initially, it needs to be stressed that it is the assumption that is induced by the
promise or representation, rather than the promise or representation itself, that forms the basis for a claim based upon equitable estoppel: Waltons Stores v Maher at CLR 413–14, 428–9, 458–9; ALR 531, 542, 564–5; Commonwealth v Verwayen (1990) 170 CLR 394 at 412–13, 444–5, 453–6, 500–2; 95 ALR 321 at 332–3, 356–7, 363–4, 396–8.
12.35 The assumption adopted by the relying party must have been induced by the
conduct of the representor. In most cases the conduct will be the making of the promise or representation. As already noted (see 12.24), the promise or representation can be express or implied. Silence can give rise to an implication of a promise, as is illustrated by
Waltons Stores v Maher, where the silence and acquiescence on the part of Waltons gave rise to an implication that it had promised to complete its transaction with the Mahers.
12.36 In relation to the types of conduct by the representor that could be said to induce
the assumption, Deane J said the following in Commonwealth v Verwayen, at CLR; ALR at 356: The cases indicate four main, but not exhaustive, categories in which an affi rmative answer to that question may be justifi ed, namely, where that party:
(a) has induced the assumption by express or implied representation;
(b) has entered into contractual or other material relations with the other party on the conventional basis of the assumption;
(c) has exercised against the other party rights which would exist only if the assumption were correct;
(d) knew that the other party laboured under the assumption and refrained from correcting him when it was his duty in conscience to do so.
Reliance
12.37 The relying party must act, or refrain from acting, in reliance on the assumption.
A causal link between the assumption and the action or conduct by the relying party must be established. The action or conduct undertaken must be reasonable in all the circumstances.
12.38 An important factor in assessing reasonableness here will be the characteristics
of the relying party, including whether he or she is advised by lawyers, and whether
he or she is well resourced and used to dealing in commercial transactions. In cases of substantial commercial enterprises that are legally represented, the court will carefully scrutinise whether the relying party’s actions are reasonable. If not, an estoppel claim will be denied: Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 at 585. In
Waltons Stores v Maher, although the Mahers were legally represented, the facts were such that both the Mahers and their solicitors were encouraged and induced to make the same mistake, thereby not precluding the fi nding of an estoppel.
Knowledge or intention
12.39 According to Brennan J, the representor must actually know, or intend, that the
relying party will act or refrain from acting in reliance on the assumption or expectation. In cases of assumptions based upon a promise or representation, knowledge is ‘easily inferred’. In cases where the assumption arises outside the context of a promise or representation, the requirement of knowledge or intention is more diffi cult to establish:
Waltons Stores v Maher at CLR 423; ALR 538. However, it can be established, as was the case in Waltons Stores v Maher, in cases where ‘the defendant encourages a plaintiff to adhere to an assumption or expectation already formed, or acquiesces in an assumption or expectation when, in conscience, objection ought to be stated’: Pazta Company Pty Ltd v Idelake Pty Ltd [2008] NSWSC 941 at [26].
12.40 Furthermore, according to Brennan J, it is not enough that the representor ought
to have known that the relying party would act or refrain from acting in reliance on the assumption or expectation. A contrary view was suggested by Deane J in Commonwealth v Verwayen at CLR 445; ALR at 356. In New Zealand Pelt Export Company Limited v Trade Indemnity New Zealand Limited [2004] VSCA 163 at [99], the Victorian Court of Appeal expressed a preference for the view of Deane J over that of Brennan J on this issue.
Detriment
12.41 The relying party must suffer, or stand to suffer, detriment if the assumption made
by it is not fulfi lled. There must be a link between the detriment and the assumption or expectation. In Thompson v Palmer (1933) 49 CLR 507 at 547, Dixon J said that the relying party must suffer detriment in the sense that, ‘as a result of adopting [the assumption or expectation] as the basis of action or inaction, [the relying party] will have placed himself in a position of material disadvantage if departure from the assumption is permitted’. In
Sullivan v Sullivan [2006] NSWCA 312 at [18], Handley JA said that ‘[t]he detriment that makes an estoppel enforceable is that which the party asserting the estoppel would suffer, as a result of his or her original change of position, if the assumption which induced it was repudiated by the party estopped’.
12.42 The notion of detriment conjures up the idea that the relying party will be
worse off in some way. It is not enough that the relying party merely acted upon the representor’s promise. In Je Maintiendrai Pty Ltd v Quaglia (1980) 26 SASR 101 at 106, the Full Court in South Australia held that it was necessary that the going back on the promise or representation would ‘result in some detriment and therefore some injustice’ to the relying party. The detriment suffered cannot be minor. It has been variously described as needing to be material or signifi cant or substantial. In Hawker Pacifi c Pty Ltd v Helicopter Charter Pty Ltd (1991) 22 NSWLR 298 at 307–8, Handley JA said:
While a single peppercorn may constitute valuable consideration which can support a simple contract it seems to me that the loss of such an item would not constitute a ‘material detriment’, ‘material disadvantage’, or a ‘signifi cant disadvantage’ for the purposes of the law of estoppel. It may seem strange that there should be such a distinction. However in the fi rst case the consideration has been accepted as the price of a bargain which the law strives to uphold. Promissory estoppels and estoppels by representation lack this element of mutuality, and the relevant detriment has not been accepted by the party estopped as the price for binding himself to the representation or promise.
12.43 In assessing the existence of detriment one must distinguish between expectation
and reliance loss. In the context of the facts of Waltons Stores v Maher, the expectation loss suffered by the Mahers was the loss of rent they expected Waltons to pay during the term of the anticipated lease. The reliance loss was the wasted expenditure incurred in demolishing and rebuilding the premises. It was the reliance loss, and not the expectation loss, that established detriment in that case.
12.44 The signifi cance of the established detriment is that it is this factor which makes it
unconscientious or unjust for the representor to depart from the promise or representation. In Waltons Stores v Maher, at CLR 404; ALR 524, Mason CJ and Wilson J said:
[E]quity will come to the relief of a [relying party] who has acted to his detriment on the basis of a basic assumption in relation to which the other party has ‘played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it’: per Dixon J in Grundt … Equity comes to the relief of such a [relying party] on the footing that it would be unconscionable conduct on the part of the other party to ignore the assumption.
Failure to avoid detriment
12.45 The representor must have failed to act to avoid the relying party suffering
detriment. One way in which action could be taken to avoid the detriment is by simply fulfi lling the assumption or expectation.
12.46 However, it must be understood that the object of equitable estoppel is not
to compel the representor to fulfi l the assumption or expectation, but rather to avoid detriment if the assumption or expectation goes unfulfi lled. Thus, this might be done by the representor advising the relying party that the assumption is mistaken before irreversible detriment has been incurred. In this respect, in Vella v Wah Lai Investment (Australia) Pty Ltd [2004] NSWSC 748 at [169], in a passage subsequently approved by the Victorian Court of Appeal in ACN 074 971 109 (as trustee for the Argot Unit Trust) v The National Mutual Life Association of Australasia Ltd [2008] VSCA 247 at [156], Campbell J said:
If one party, who has encouraged another to act on the basis that a particular state of affairs exists, gives notice that that state of affairs should no longer be regarded as existing then, unless the other party has already irretrievably prejudiced himself by acting on the assumption that that state of affairs exists, the estoppel will cease to bind, either immediately or after the other party has been given reasonable notice. This is the
result of the principle that the relief which is appropriate to give effect to an estoppel is the minimum relief which would prevent the injustice arising by the person estopped departing from the assumption or expectation which has been induced.
Relief based upon equitable estoppel
12.47 Establishing the elements of equitable estoppel gives rise to an equity in favour of
the relying party. This simply means that the relying party is entitled to some equitable relief. The relief is not based upon there being a promise or representation, but rather upon the expectation that the promise or representation generated: Giumelli v Giumelli
(1999) 196 CLR 101 at 121; 161 ALR 473 at 482.
12.48 In exercising its discretion to make an order in favour of the relying party, the
courts have made it clear that the orders to be granted are generally based upon avoiding the relying party from suffering detriment: WaltonsStores v Maher at CLR 427; ALR 540;
Commonwealth v Verwayen at CLR 411–12, 429, 501; ALR 331–2, 345, 397–8. In Mobil Oil v Lyndel Nominees, at 238, the court concluded, ‘It is intended to relieve against detriment suffered and not to make good an expectation’.
12.49 In ACN 074 971 109 v The National Mutual Life Association of Australasia at [168],
Dodds-Streeton JA said:
[The] doctrine [of equitable estoppel] … permits the court to do what is required in order to avoid detriment to the party who has been induced to act upon an assumed state of affairs … [T]hus … according to the circumstances of any given case, the relief required may be less than making good the assumption on the basis of which the plaintiff was encouraged to deal … [W]hat is required to satisfy the equity which arises against an estopped party depends on the circumstances.
12.50 It is thus often said that there needs to be proportionality between the relief
ordered and the detriment suffered, or that the court will, in making its orders, determine the minimum equity required to do justice to the relying party. Furthermore, relief may be structured to recognise practical considerations such as the need for a clean break. The court should also take into account the impact of its orders on relevant third parties and any hardship or injustice they would suffer: Giumelli at CLR 113–4, 125; ALR 476, 485.
12.51 However, it is now clear that, in proprietary estoppel cases in particular, a court
can frame a remedy on the basis of making good the assumption or expectation relied upon by the relying party, rather than on the avoidance of detriment: ACN 074 971 109 v The National Mutual Life Association of Australasia at [161]. That such an approach was possible was suggested in Commonwealth vVerwayen, at CLR 412; ALR 332, where Mason CJ observed that in some cases it may be that the only way to enforce the relying party’s equity would be by ordering an assessment of damages as would occur for a breach of contract. Gaudron J also said in Commonwealth vVerwayen, at CLR 487; ALR 387:
Where the nature or likely extent of the detriment cannot be accurately or adequately predicted it may be necessary in the interests of justice that the assumption be made good to avoid the possibility of detriment even though the detriment cannot be said to be inevitable or more probable than not.
12.52 More recently, a unanimous High Court in Giumelli said there was nothing in earlier cases that precluded a court from granting relief in equitable estoppel cases on the basis of making good the relying party’s assumption or expectation. In Giumelli, at CLR 123; ALR 484, Gleeson CJ, McHugh, Gummow and Callinan JJ cited with approval a statement by Deane J in Commonwealth vVerwayen where his Honour said:
[T]he question whether departure from the assumption would be unconscionable must be resolved not by reference to some preconceived formula framed to serve as a universal yardstick but by reference to all the circumstances of the case, including the reasonableness of the conduct of the [relying] party in acting upon the assumption and the nature and extent of the detriment which he would sustain by acting upon the assumption if departure from the assumed state of affairs were permitted: at CLR 445; ALR 356.
12.53 In Giumelli, parents promised their son that, if he continued to live on a property
owned by them, they would subdivide it and give him the portion containing the house in which he lived. On the basis of this the son stayed and gave up a career opportunity that would have taken him away from the property. The relationship between the parents and son broke down when the son married a woman of whom his parents did not approve, and they refused to transfer the property to the son. The High Court granted the son monetary relief to the value of the property that should have been transferred to him by his parents. The High Court did not order a transfer of the property to the son. However, the monetary compensation was nevertheless a remedy based upon the son’s lost expectation rather than reliance loss or any actual detriment suffered by the son.
12.54 As a result, in proprietary estoppel cases, a court is not restricted to providing relief
on the basis of avoiding detriment. In Donis v Donis (2007) 19 VR 577 at 582–3, Nettle JA said the following:
As the … decision in Giumelli v Giumelli shows … there is no such restriction in cases where the expectation which is encouraged is the acquisition of an interest in property. In such cases the remedy relates to the understanding of the parties and the expectation that has been encouraged. Prima facie the estopped party can only fulfi l his or her equitable obligation by making good the expectation which he or she has encouraged. The estopped party, having promised to confer a proprietary interest on the party entitled to the benefi t of the estoppel, and the latter having acted upon the promise to his or her detriment, is bound in conscience to make good the expectation … The prima facie position will yield to individual circumstances. Principle and authority compel the view that where a plaintiff’s expectation or assumption is uncertain or extravagant or out of all proportion to the detriment which the plaintiff has suffered, the court should recognise that the claimant’s equity may be better satisfi ed in another and possibly more limited way … [B]efore granting relief the court is required to consider all of the circumstances of the case, including the possible effects on third parties, and to avoid going beyond what is required for conscientious conduct or would do injustice to others. But that does not mean that the court is required to be ‘constitutionally parsimonious’ or that it is necessary for there to be substantial correspondence between expectation and the monetary value of the detriment suffered, or which but for the relief to be accorded would be suffered.
12.55 In ACN 074 971 109 v The National Mutual Life Association of Australasia, at [169], Dodds-Streeton JA summarised the current state of the law on relief for equitable estoppel as follows:
It is true that in Giumelli v Giumelli, Gleeson CJ and McHugh, Gummow and Callinan JJ said that Verwayen did not foreclose as a matter of doctrine relief making good the assumption in an appropriate case. But nothing which their Honours said in Giumelli suggests that there was any change from the view expressed in Verwayen that the doctrine of equitable estoppel enables a court to do what is required to avoid detriment to the party who has been induced to act upon an assumed state of affairs, and thus that the relief required in a given case may be less than making good the assumption. Accordingly, since Giumelli, in the majority of commercial cases not involving the acquisition of an interest in real property in which the doctrine of equitable estoppel had been invoked, the relief accorded it has been no more than was necessary to avoid detriment.
Fusion of equitable and common law estoppels?
12.56 The complexity attendant upon having so many varieties of estoppel makes
unifi cation an attractive prospect. The successful merger of promissory and proprietary estoppels in WaltonsStores v Maher has fuelled speculation as to the possibility of an even more challenging simplifi cation — the joining of common law and equitable estoppels. The leading advocates of this were Mason CJ and Deane J, neither of whom agreed with the model designed by the other and both of whom have now vacated the High Court bench. While the present members of the High Court have not dismissed the possibility of unifi cation they are yet to fi nd a suitable occasion for the implementation of such an innovation. It is clear, however, that the legacy left them by Mason CJ and Deane J is far from uncomplicated.
12.57 The principal diffi culty in fusing common law and equitable estoppel lies in
reconciling their very different origins and purposes so as to decide upon the form that a single doctrine would ultimately take. The different functions of the estoppels in the two jurisdictions are most apparent in the remedies they provide. The contrary positions adopted by Mason CJ and Deane J in Commonwealth v Verwayen refl ect the differing emphasis they placed upon the two jurisdictions when formulating their own particular model. Deane J’s unifi ed estoppel refl ected common law roots at the expense of equitable infl uences. He denied that it could act as a sword and limited its role to establishing the state of affairs by which the court was to resolve the dispute — in other words, his estoppel was to have the evidentiary quality so often referred to at common law. Consequently, his view that the ‘prima facie entitlement’ of a successful claimant is simply to have the assumption made good is a logical conclusion. However, he did admit that the availability of that remedy should be qualifi ed if such ‘relief would exceed what could be justifi ed by the requirements of conscientious conduct and would be unjust to the estopped party’:
Commonwealth v Verwayen at CLR 442; ALR 354. For a number of reasons, Deane J’s view has not attracted much support from commentators or his fellow judges. Its chief failure would seem to be the rejection of estoppel as a source of substantive rights — a position to which it would now seem quite diffi cult to return.
12.58 The proposal by Mason CJ is very different from that of Deane J. In Commonwealth v Verwayen, at CLR 413; ALR 333, Mason CJ said:
[I]t would confound principle and common sense to maintain that estoppel by conduct occupies a special fi eld which has as its hallmark function the making good of assumptions. There is no longer any purpose to be served in recognising an evidentiary form of estoppel operating in the same circumstances as the emergent rules of substantive estoppel. The result is that it should be accepted that there is but one doctrine of estoppel, which provides that a court of common law or equity may do what is required, but not more, to prevent a person who has relied upon an assumption as to a present, past or future state of affairs (including a legal state of affairs), which assumption the party estopped has induced him to hold, from suffering detriment in reliance upon the assumption as a result of the denial of its correctness. A central element of that doctrine is that there must be a proportionality between the remedy and the detriment which is its purpose to avoid. It would be wholly inequitable and unjust to insist upon a disproportionate making good of the relevant assumption.
12.59 The impetus for unifi cation seems to have lessened since the decision in
Common wealth v Verwayen. Writing extra-judicially in 2006, Justice Handley of the New South Wales Court of Appeal said:
Any single overarching doctrine [of estoppel] would be at such a high level of abstraction that it would serve no useful purpose. Each form of estoppel has its own elements, although some are common to others. The similarities warrant their recognition as a form of estoppel but the differences make each a distinct form with its own history and requirements. There is no more need for a single overarching doctrine for estoppel than there is for torts. Estoppel by deed, by grant, and by convention are common law doctrines which preclude contradiction but do not require a change of position induced by belief in the truth of facts. Estoppel by representation, developed in equity and borrowed by law, precludes contradiction if the representee’s belief in the truth of the representation induced a detrimental change of position and the rights of the parties are governed by the facts as represented. Proprietary and promissory estoppels are equitable. Proprietary estoppel by encouragement enforces proprietary expectations which the person estopped has created or encouraged when their repudiation would be unconscionable. Proprietary estoppel by standing by enforces an equity against the fraud of an owner who seeks to rely on his property rights to profi t from the known mistake of another. Promissory estoppel is a defensive equity which restrains the enforcement of positive rights by a person whose promise induced a change of position which makes such enforcement inequitable. The distinctly equitable estoppels change the rights of the parties, while the others change them indirectly by changing the facts. Each form has a separate history and a distinct source in law or in equity. The various rationales — recital, grant, convention, representation, positive promise or encouragement, fraud and mistake, and negative promise — are different. There is no single overarching principle.1
1. K R Handley, Estoppel by Conduct and Election, Thomson, Sweet & Maxwell, London, 2006, pp 20–21.
12.60 In a similar vein, also writing extra-judically in 2007, Justice Brereton of the Supreme Court of New South Wales said:
That there is no overarching doctrine of common principle is refl ected in the disparate operation of the different estoppels: some estoppels are founded on unconscionability, which is irrelevant to others; some estoppels alter the rights of the parties, others alter only the facts; some, once raised, are permanent, whereas others may be only temporary.2
2. P L G Brereton, ‘Equitable Estoppel in Australia: The Court of Conscience in the Antipodes’ (2007) 81 Australian Law Journal 638, p 643.
