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EQUITABLE ESTOPPEL


Equitable estoppel is the doctrine that is currently in place to protect and prevent a party from departing from an assumption encouraged by the other party's conduct, representations or promises, where to do so would be unconscionable and would cause loss and harm to the party who acted upon the assumption. It does not require consideration or an agreement on terms. The doctrine of equitable estoppel was originally designed in response to the detriment and injustice that would result from one of the party's breaking a promise that they had made. This doctrine applies to both future facts, future representations and existing legal facts. In the case of Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd (1998) it was held that main objective of equitable estoppel is actually to avoid detriment rather than enforcing promises. Estoppel is currently acknowledged in both common law and the law of equity. Some estoppels actually operate as substantive rules of law and other estoppels as evidentary rules of law.

The 3 Elements of Equitable Estoppel are;
  1. Representation
  2. Detrimental Reliance
  3. Unconscionability

Equitable estoppel is an “umbrella” heading that covers several different types of estoppel, recognised by equity. Equitable estoppel consists of several sub headings. These are:
• Promissory Estoppel
• Estoppel by encouragement
• Estoppel by acquiescence, and
• Proprietary Estoppel

The relationships between these different types of estoppel was examined in the case Walton Stores Ltd v Maher. From this case Mason CJ, Wilson and Brennan JJ drew several conclusions. They found that there was a common theme between the various estoppels that are recognised by equity, specifically the principal that equity will come to the relief of the plaintiff, if they acted (to their detriment) on an assumption from the defendant, where it would be unconscionable, or unjust for the defendant to ignore that assumption and it’s effects.

Justice Brennan perhaps summed up this “common theme” best by stating that “Although the equity created by estoppel had been differently expressed from time to time, its foundation, in all instances, was the recognition of unconscionable conduct by the party bound by the equity”.




Table of Contents

  • Common Law Estoppel
  • Common law example of Equitable Estoppel
  • The elements to Establish Equitable Estoppel
  • When Equitable Estoppel takes the appearance of contract.
  • Reliance
  • Unconscionability
  • Does Equitable Estoppel require consideration?
  • Promissory Estoppel and Proprietary Estoppel
  • Estoppel by acquiescence
  • Remedy
  • International Perspective
  • Is there a unified estoppel?
  • Examples of Applications of Estoppel
  • Cases Reference List




Common Law Estoppel
Rule of evidence where by a party is not permitted to deny facts that caused another party to adopt an understanding or a belief for the purpose of a legal relationship that they hold.

Three types of common law estoppel
  • Estoppel by deed
  • Estoppel by Record
  • Estoppel by Conduct

Estoppel by deed
Founded on the principles that a statement within a deed under seal, the facts stated in the deed cannot be denied and must be understood as binding by the party who makes it. As in the case of Greer v Kettle [1938] AC 156.

Estoppel by record
Once a court has decided an issue then it cannot be relitigated between the parties

Estoppel by Conduct
Estoppel by conduct includes within it various types of estoppels which can take place before a contract, during and contract and within a relationship. This type of estopel is sometimes broken down further into two subtypes. Estoppel by agreement/convention and Estoppel by represention.
· Estoppel by Agreement or Convention is when the parties involved agree on certain facts, though those facts may be incorrect. If they are both in agremenet, each is then estopped from deny this as an agreed fact. Eg. If they both agree that certain a car is valued at $10, though the car might actually be valued at $1000 , and both parties act on this agreed assumption, either party cannot after the act claim that the value is actually $1000. This can also be the case for a joint assumption by two parties even though they might have not mutually agreed.
· Estoppel by Representation is when one party (A) has made some representation to another party (B), B then act on that representation, however, A then denies the truth of that representation. A may be estopped from denying the truth.

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Common Law examples of Equitable Estoppel
Eg. http://www.nolo.com/definition.cfm/term/7F1E56D5-7EC1-4CEB-86B3943F6990FF77
This example illustrates the doctrine of equitable estoppel. If a landlord agrees to allow a tenant to pay the rent ten days late for six months, it would be unfair to allow the landlord to bring a court action in the fourth month to evict the tenant for being a week late with the rent. In this example the landlord would be 'estopped' from asserting his right to evict the tenant for late payment of rent.



The Elements to Establish Equitable Estoppel
The six elements to establish equitable estoppel were stated by Brennan J in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 406 per Mason CJ and Wilson J. “(1) The plaintiff must prove an assumed legal relationship between themselves and the defendant, or a particular legal relationship then existed between them; and in the latter case, the defendant would not be free to withdraw from the expected legal relationship. (2) The defendant 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 reaction or inaction will on occasion detriment if the assumption or expectation is not fulfilled. (6) The defendant has failed to act to avoid detriment whether by fulfilling the assumption or expectation or otherwise.”

The elements of estoppel must be conclusively proved and would exceptionally, if ever be deduced.


When can Equitable Estopel take the appearance of Contract
Equitable estoppel can sometimes be seen as not only a shield but also a sword, as it can in some cases enforce non-contractual promises. An enforcement of these promises, is usually made on the basis that if avoiding the enforced promise it will lead to an unconscionable conduct. So in some instance the estoppel can take the appearance of a contract. However Brennan J made the distinction between the two with the following three points

· A contractual obligation is created by the agreement of the parties whereas an equity created by estoppel may be imposed irrespective of any agreement by the party bound.
· A contractual obligation must be supported by consideration whereas an equity created by estoppel may not be supported by what is, strictly speaking, consideration.
· The measure of a contractual obligation depends on the terms of the contract and the circumstances in which it is applied whereas the measure of an equity created by estoppel varies according to what is necessary to prevent detriment resulting from the unconscionable conduct.



Reliance
While detrimental reliance is a necessary aspect of equitable estoppel that reliance must be formed on a reasonable1 basis as;

“Departure from an assumption or expectation that is unreasonably formed or unreasonably
relied upon will not normally constitute unconscionable conduct by the defendant”2

This can present a considerable encumbrance to plaintiffs seeking to demonstrate equitable estoppel in regards to a non-contractual promise due to the following appreciation " As a voluntary promise does not comprise part of a binding contract a promisee may be reasonably expected to appreciate that he or she can not rely upon it"3 . This argument is dependant upon the position of individuals within a dispute, as a promisee who is not familiar with contractual agreements or is at a distinct disadvantage in bargaining power to the promisor may reasonably rely upon a gratuitous promise despite this appreciation.


1 That being the appropriate standard or quality of decision making arrived at by a person who possesses the faculty of reason and engages in conduct in accordance with community standards. This however does not constitute the decision making of an average person but merely a reasonable person.
2 Australian Securities Commission V Marlborough Goldmines ltd (1993) 177 CLR 485 at 506
3 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387

Unconscionability
Consideration will be seen as unconscionable where one party is placed at a disadvantage in relation to another by reason of some condition or circumstance of their contract.
Unconscionable conduct occurs in instances such as where one party has acted to their detriment on the assumption that a contract will take place between them and the other party and for the other party to ignore this assumption would be unconscionable conduct.
For one to claim equitable estoppel they must prove that there has been unconscionability on the part of the defense as the basis of equitable estoppel is to prevent unconscionable conduct.
An example of this is if party A and party B were in negotiations of a contract where A was to buy B’s business from them. If A then relied on these negotiations and sold their current business in the belief that they would be acquiring B’s business, B then could not pull out of the contract as it would be unconscionable conduct.




Does Equitable Estoppel require Consideration?
Originally consideration was a necessary part of equitable estoppel. The “necessity” of consideration in equitable estoppel stems from the case of Central London Property Trust Ltd v. High Trees House Ltd [1947]. This case is noted as being the starting point in the development of promissory estoppel, and consequently equitable estoppel. The facts of the case are as follow; In January of 1940 the plaintiff who had leased a block of flats to the defendant, agreed to lower the annual rent due to a lack of available tenants during the second world war. During the following five years the defendant paid the reduced rental rate. At the conclusion of the war the flats were again at full occupancy.

Consequently the plaintiff decided to claim the original rental price for the remaining six months of the rental contract. The defendant refused to pay the increased rental rate and the plaintiff subsequently sued for payment of the full rental costs from June 1945 onwards. It is prudent to mention that although the plaintiff only sought the full rental amount from June of 1945 onwards, he/she believed that they were entitled to the full rent for the entire period. I.e. the full rental amount that was owed from 1940 to 1945.

Justice Denning held that the full rent was payable from the time that the flats became fully occupied in mid-1945, although he also stated that had the plaintiff tried to claim for the full rent from 1940 onwards, they would have been estopped from doing so.

In coming to this decision Denning J looked to dicta from two previous cases (Hughes v Metropolitan Railway Co and Birmingham & District Land Co v London and North Western Railway Co). These dicta supported the principal that where a promise is made, and the promisor knows that the promisee is going to act upon that promise, the promisor is not allowed to renege or act inconsistently on that promise.

Denning LJ (who was now a Lord Justice) stated this principal more fully in the case Combe v Combe (1951) 2 KB 215:

The principal… Is that, where one party has, by his words or conduct, made to the other a promise or assurance which was intended to affect the legal relationships between them…then, once the other party has taken him at his word and acted on it, the one who gave the promise or assurance cannot afterwards be allowed to revert to the previous legal relations… but he must accept their legal relations subject to the qualification which he himself has so introduced, even though it is not supported in point of law by any consideration…

Denning LJ also stated that:

Seeing that the principal never stands alone in giving cause of action in itself, it can never do away with the necessity of consideration when that is an essential part of the cause of action. The doctrine of consideration is too firmly fixed to be over thrown by a side-wind.

This statement clarifies that this form of equitable estoppel developed by Denning LJ was intended to be a form of defensive equity. Because it was intended to be defensive, and not offensive, there must be a contact in place prior to action being taken in court, thus consideration was necessary for equitable estoppel to be applied.

It was not until the case of Walton Stores Ltd v Maher (1988) 164 CLR 387 that equitable estoppel became on offensive means of litigation. Once it was established that equitable estoppel could be an offensive means of litigation, it subsequently became clear that consideration, in the form of a pre-existing contract, was no longer necessary.




Promissory Estoppel and Proprietary Estoppel
In Australian law, both promissory estoppel and proprietary estoppel are considered to be more specific forms of equitable estoppel. In other other words, promissory estoppel and proprietary estoppel are two different areas into which equitable estoppel can be categorized.

Proptrietary Estoppel

Proprietary estoppel relates to issues that arise surrounding land ownership. In particular, (disputed) transfers of land and the right to use the land of the owner. This doctrine aims to protect people who have relied or acted upon the promise of land but suffered detriment a change in position as a result of the promise being withdrawn.

An example of Proprietary Estoppel is as follows:
A promises B that he will give him a house. As a result of this promise, B spends an amount of money on renovating the house. A dies and does not give the house to B. The doctrine of Proprietary Estoppel aims to protect B, who has spent money as a result of A's promise. It is therefore likely that if B brought a cause of action, he would be entitled to the house.
A case example of Proprietary Estoppel is Dillwyn v Llwellyn (1862) 4 De G.F. & J. 517 C.A.

In the case Re Basham (dec'd) [1986] 1 W.L.R. 1498, Nugee J summarizes proprietary estoppel:

“Where one person, A, has acted to his detriment on the faith of a belief, which was known to and encouraged by another person, B, that he either has or was going to be given a right in or over B's property, B cannot insist on his strict legal rights if to do so would be inconsistent with A's belief.”

In the same case an example of proprietary estoppel is demonstrated:
The claimant had spent a lot of time and money looking after her stepfather and his business on the reliance that she would inherit his house. Following the death of the stepfather (a will was not left behind), a declaration was granted that the house belonged to her, since she had relied on her stepfathers promise.

Promissory Estoppel

Promissory estoppel prevents a party from forfeiting a promise, which has resulted in the other party relying and acting (usually but not always to their detriment) upon that promise.

Example of Promissory Estoppel:
If one party owes another party money, promissory estoppel cannot be used if the creditor promises to accept a lesser amount of money in payment of the debt unless the debtor pays a lesser amount at a sooner date than originally agreed. This is because in the first instance, the originial bargain must be kept. By accepting a lesser amount of money than owed, the party in debt is not providing any consideration to the creditor. However, in the second example, where the creditor agrees to accept a lesser amount of money at a sooner date, both parties are providing good consideration for the new agreement. The party in debt is paying less money and the party owed is getting a sum of money at a sooner date than previously anticipated.
The case responsible for this rule is Pinnel's Case (1602) 5 Co Rep 117a



Estoppel by acquiescence
The law doctrine of estoppel by acquiescence may come into play when a party gives another party a legal notice on the basis of a fact, and the second party fails to respond in a reasonable amount of time. As a result the second party is acquiesced and estopped from refuting the claim.

The elements of estoppel by acquiescence as stated in Markey v.Carney, 705 N.W.2d 13, 21.;

(1) A party “has full knowledge of his rights and the material facts”
(2) “remains inactive for a considerable time
(3) “leads the other party to believe the act has been approved


An example of Estoppel by acquiescence is as follows:
A is allowing B to store a car on his property without a contract. After a certain period of time, A sends B a letter stating that B has 40 days to collect the car from the property. The letter also states that if this is inconvenient for B, alternative arrangements can be made by contacting A within 30 days. In addition to this, A states that if he has not been contacted within 30 days, and the car has not been collected within 40 days he will take possession of the car. B does not contact A within the 30 days, nor collect the car within the 40 days. A then registers the car in his name. Under the doctrine of estoppel by acquiescence A’s conduct may be upheld in court, should B bring an action against him.


To put the facts to the elements of estoppel by acquiescence as shown above, B was given full knowledge of his rights and the material facts by the letter A sent him, notifying him that the car needed to be removed. By not responding B is remaining inactive for a considerable time. In addition to this, through not responding to the matter, B leads A to believe that he no longer wishes to possess the car, therefore that the act of taking the car has been approved.



Remedy
The remedy aims to uphold the principle of equitable estoppel by compensating the plaintiff for detriment as a result of his or her confidence in the assumption or expectation. The remedy and the detriment are comparative in accordance to the circumstances of the individual case; consequently, the remedy varies between cases at the discretion of the courts. The remedy is described as 'the minimum equity to do justice for the plaintiff' by Scarman LJ in the case Crabb v Arub District Council and aims to avoid detriment rather than enforce promises as stated earlier, but in some circumstances such as the case Walton v Maher the promise must be enforced to avoid detriment. In the case of Commonweath v Verwayen it was held that the court is allowed to order compensation as a remedy based on the plaintiff's reliance loss rather than on the plaintiff's expected loss. This case also tells us that the remedy provided by the courts must be proportional to the level of detriment suffered by the plaintiff and not the defendant.



International Perspectives

  • New Zealand
New Zealand takes a comparable view upon equitable estoppel as Australia does, recognising similar principles as in Walton Stores Ltd v Maher. Similarily New Zealand law recognises that unconscionable conduct is the fundamental basis of the doctrine, though they haven't supported equitable estoppel or given it relevant authority in the same way as Australian law has.

The seminal New Zealand case is P v P [1957] NZLR 854.

Upon separation a husband deeded a monthly amount of money to his wife. Then they divorced and the court ordered him to pay her one shilling maintenance per year. Her affairs were administered by the Public Trustee as she was insane. The administrator told her ex-husband both that the court order cancelled the provisions of his earlier deed, and that once he paid arrears owing on the terms of the deed he would have to make no more financial provision for her welfare.

Over four years later it came to the Public Trustee's attention that the advice it had given the ex-husband was incorrect. It sued him for back payments of the monthly amount that had been deeded. He pleaded estoppel on the basis of High Trees and Combe v Combe. McGregor J found for him on the grounds that the Public Trustee's false assurances had dissuaded him from going to court to set aside the deed of separation, as he would have been permitted to do. McGregor J said that the question was "whether it would be inequitable to allow the party seeking so to do to enforce the strict rights which he [here, the Public Trustee} had induced the other party to believe will not be enforced."


  • England
In the recent case of National Westminster Bank plc v Somer International (UK) Ltd [2002] 1 All ER 198 the English Court of Appeal distinguished between estoppel and change of position. In this case the respondent company was a customer of the appellant, which mistakenly credited its account with a large amount of money. As Somer was expecting to receive a similar sum from a different source, it went ahead and spent the money. When the bank demanded repayment upon discovering its error, Somer pleaded estoppel by representation on the grounds that it would suffer financial detriment if it repaid. The Appeal Court judges held that, as an equitable doctrine, estoppel should not be used to unjustly benefit one party, as that is the opposite of the intent of the doctrine.
Having lost only 13,000 pounds in comparison with its windfall gain of US $77,000, Somer should not be able to keep the larger amount by pleading estoppel. The judges held that the case was actually one of change of position.


  • United States
In contrast, the American perspective of equitable estoppel is quite different to that of Australia or New Zealand's approach. The US treats estoppel as the counterpart of consideration and it is subject to many limitations which differs to the relevant law in Australia.In the US there is no requirement that the reliance on a promise has to be detrimental to the promisee but in most cases this is assumed, where as in Australia the reliance must be detrimental. Also under the American law the circumstances of the case must be that injustice can only be avoided by enforcing the promise. The American law doesn't focus as much as Australia law on unconscionability.

Is there a unified estoppel?

In the case of Waltons v Maher (1988) 164 CLR 387 it was clear that equitable estoppel shares some elements with common law estoppel in pais. In Commonwealth v Verwayen (1990) 170 CLR 394 this linkage was further explored by two High Court Justices.

Mason CJ in argued in his judgements for one “overarching doctrine” of estoppel to protect against the detriment that may be suffered if a party changed its position if the assumption that led to that position was abandoned. This “overarching doctrine” would insist on proportionality between the remedy and the detriment to be avoided.

Deane J on the other hand, espoused a “general doctrine of estoppel conduct” that stopped a party from departing from an assumed state of affairs once they had been established. This “general doctrine” would have relief framed upon on the state of affairs that was assumed to exist, except in cases where this would be deemed to be inequitably harsh.

McHugh J was one of the Justices who did not accept the principle of a unified estoppel, noting: “the common law doctrine is concerned with the rules of evidence... while the equitable doctrines are concerned with the creation of new rights between the parties.” Also, representations and assumptions about the future can only be dealt with by the equitable doctrines, not by common law estoppel, leaving a number of issues to be resolved before the law develops to a point where a unified estoppel of both common law and equity exists.


Examples of applications of estoppel

Waltons Stores (Interstate) Ltd v Maher
Facts
  • Waltons negotiated a lease of land from Maher
  • Maher was to demolish and constuct new buildings to Waltons specifications
  • Waltons requested building was to be completed 15 January 1984
  • Walton's sent Maher a copy of the lease after negotiations were complete
  • Lease signed by Maher and Walton's unsure whether to enter into lease
  • Walton's delayed paperwork even as building demolition was in process
  • Walton's denied knowledge of demolition
  • In January as construction was 40% complete Waltons advised they did not want to proceed with a lease
Issues
  • Could Mayer claim construction costs from Waltons?
  • There was no contract
  • The construction agreement was separate from the lease
  • A contract cannot be enforced unless the parties are in agreement
Estoppel action requires
  • Assumption (existing or future legal relationship)
    • That a legal relationship did exist or would in the future
    • Discussions and agreement inferred a legal relationship between the partiesMayer assumed that Waltons would sign the paperwork
    • That a contract existed
  • Detrimental reliance (relying party would suffer if the promise was renege)
    • Mayer suffered as a result of demolishing buildings to rebuild and meet the requirments outlined by Walton's specifications
    • Could result in wasted expenditure, time, energy or loss of opportunity
In estoppel the detriment that is considered is the detriment suffered by the plaintiff, not by the defendant. An example is in the case of Waltons v Maher (1988) 164 CLR 387 at 407, Mason CJ and Wilson J found that Maher had suffered a detriment (in this case the cost of constructing a building) as a result of Waltons’ conduct. Thus Maher as the respondent won the appeal and was entitled to keep the earlier damages he had received.

To prove detriment, the plaintiff must show that he or she was induced into adopting an assumption as the “basis of action or inaction” and that they have suffered “material disadvantage if departure from the assumption be permitted.” (Thompson v Palmer (1933) 49 CLR 507 at 547 per Dixon J) In other words, the plaintiff must be worse off in some way. However, disadvantage would not be suffered if, for example, the plaintiff spent money they had always planned to spend, but at an earlier stage or in a different manner, with no other resulting effects.

  • Unconscionability (taking advantage of another's vulnerability)
    • Waltons knew that the demolition was in the process and did not discuss any issues about signing the contract
    • Walton's and Mayer discussed the pressure of completing the building by 15 January 1984





Cases Reference List
    • Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130
    • Combe v Combe [1951] 2 KB 215
    • Commonweath v Verwayen (1990) 170 CLR 394
    • Hughes v Metropolitan Railway Co (1877) 2 App Cas 439
    • Markey v.Carney 705 N.W.2d 13, 21.
    • Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd (1998) 153 ALR 198
    • National Westminster Bank plc v Somer International (UK) Ltd [2001] 1 All ER 198
    • Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
    • Australian Securities Commission V Marlborough Goldmines Ltd (1993) 177 CLR 485 at 506
    • Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641; 11 ALJ 272
    • Con-Stan Industries of Australia Pty Ltd v Norwich Winterhur Insurance (Aust) Ltd (1986) 160 226
    • Greer v Kettle [1938] AC 156; [1937] 4 All ER 396