Estoppel

1
Estoppel
2
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.

3
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

4
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.

5
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
  courts 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.

6
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

7
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 19401945, 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.

8
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.

9
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

10
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

11
Proprietary estoppel

• Proprietary estoppels 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 others
  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.

12
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
  fathers assent and approval, the son built and
  occupied a house on the land. After the fathers
  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.

13
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 1401
• 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.

14
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.

15
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

16
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.

17
Bringing Estoppel together

• Brennan J, in Waltons, at CLR 4289 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 plaintiffs
  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.

18
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

19
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.

20
Representation

• The promise or representation can be either
  express or implied Legione v Hateley, at CLR
  4389

21
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.)

22
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

23
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, 4289, 4589 ALR 531, 542, 5645
  Commonwealth v Verwayen (1990) 170 CLR 394, at
  41213, 4445, 4536, 5002 95 ALR 321, at
  3323, 3567, 3634, 3968.

24
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.

25
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

26
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.

27
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.

28
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

29
Detriment

• In Sullivan v Sullivan 2006 NSWCA 312, at 18
  Handley JA said that the 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

30
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.

31
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
  113-4, 125 ALR 476, 485.

32
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 sons lost
  expectation rather than reliance loss or any
  actual detriment suffered by the son.