Estoppel Assoc Prof Cameron Stewart

Estoppel
Assoc Prof Cameron Stewart
Definition
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 unconscionable to allow A to
subsequently sue B for breach of contract on those
grounds.
COMMON LAW ESTOPPEL
• 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’
COMMON LAW ESTOPPEL
• 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 flow
directly from the operation of estoppel in equity. This
classification is a natural consequence of the first
distinction — if the scope of common law estoppel is
confined 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.
Differences b/w CL and Eq
• 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 first 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 fulfilled, 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 flows 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 fulfilled, this kind of estoppel is itself an equity,
a source of legal obligation.
MODERN EQUITABLE
ESTOPPEL
• Equitable estoppel is the result of bringing
together the two significant forms of
estoppel that existed in equity —
promissory estoppel and proprietary
estoppel
Promissory estoppel
• 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 flats 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 five years by HTH.
CLPT accepted the reduction because of the low occupancy
rate for the flats during World War II. In 1945, with the flats 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 flats 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 1940–1945, 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.
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 satisfied in that the parties
were in a lease relationship and the
promise was in relation to terms agreed
under that lease.
Limitations
• 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 satisfied 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
Proprietary estoppel
• 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
• 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 she or he 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’.
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.
Two streams
• 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.
Detriment
• In Barnes v Alderton [2008] NSWSC 107, at [42], Yound
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.
Bringing Estoppel together
• In Waltons Stores (Interstate) Ltd v Maher
(1988) 164 CLR 387; 76 ALR 513, the
High Court handed down its most
significant decision on the topic of
estoppel. The significance of this case was
that it consolidated promissory and
proprietary estoppels into the single, and
broader, principle of equitable estoppel
Bringing Estoppel together
• 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.
Bringing Estoppel together
• Brennan J, in Waltons, at CLR 428–9; ALR 542, set out what he saw
as the elements that had to be satisfied, 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 fulfilled; and 6) the defendant has failed to act
to avoid that detriment whether by fulfilling the assumption or
expectation or otherwise.
Representation
• To establish a case based upon principles of equitable
estoppel there needs to be a promise or a sufficiently
clear and unambiguous representation. 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 Australian Crime Commission v Gray
[2003] NSWCA 318, at [200], Ipp JA, speaking for the
New South Wales Court of Appeal, said:
Representation
• 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 difficult to establish when the
representation is ambiguous or unclear.
Representation
• The promise or representation can be
either express or implied: Legione v
Hateley, at CLR 438–9
Assumption or expectation
• If the assumption is one of an existing fact,
a case of common law estoppel arises. (In
Waltons 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.)
Assumption or expectation
• 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, 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’
Inducement
• 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 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.
Inducement
• 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 affirmative answer to that question may be justified,
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
• 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
Knowledge or intention
• 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 difficult to establish: Waltons, at CLR
423; ALR 538. However, it can be established, as was
the case in Waltons, 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].
Knowledge or intention
• 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
• The relying party must suffer, or stand to
suffer, detriment if the assumption made
by it is not fulfilled. There must be a link
between the detriment and the assumption
or expectation
Detriment
• 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’
Relief
• 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. Prima facie, the equity is enforced by ‘the making
good of the relevant assumption on which the plaintiff
acted, although where that relief would be
disproportionate to the requirements of conscionable
behaviour, equity may, as a matter of discretion, decree
something less’: McKay v McKay [2008] NSWSC 177, at
[32].
Relief
• 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 1134, 125; ALR 476, 485.
Relief
• In Giumelli, parents promised their son that, if he
continued to live on a property owned by his parents,
they would subdivide it and give him the portion
containing the house that he lived in. 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 the 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.