Equitable Estoppel Notes PDF

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Wk 4 Equitable Estoppel Summary Notes...

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Week 4: EQUITABLE ESTOPPEL 1. Preparation 

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Willmott, Christensen, Butler and Dixon: [7.05]-[7.255]  Prescribed case Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 per Mason CJ and Wilson J, and Brennan J

2. Introduction In Australia up until 1988, the law would not enforce a gratuitous promise, i.e. a promise not supported by sufficient consideration. In 1988 a majority of the High Court held that a promise not supported by consideration could give rise to rights in circumstances where it would be unconscionable conduct for the promisor to renege on the promise. The doctrine that emerged from these judgments is known as ‘equitable estoppel’.

3. Unconscionability For equitable estoppel to apply there must be unconscionable conduct by one party. Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 

Equitable estoppel may apply in the absence of a pre-existing relationship of any kind: Waltons Stores (Interstate) Ltd v Maher.

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Requires more than a mere failure to fulfil a promise or a mere reliance on a promise to do something resulting in a promisee changing his or her position or suffering detriment.

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Unconscionable conduct denotes a creation or encouragement by the defendant in the other party of an assumption that a contract will come into existence or a promise will be performed and for the other party to have relied upon that assumption to his or her detriment to the knowledge of the first party: Waltson Stores (Interstate) Ltd v Maher.

4. Elements of estoppel The elements of equitable estoppel might be summarised as follows (Waltons v Maher): 

The second, fourth and sixth elements reflect the necessary unconscionable conduct

1.

A clear and unambiguous assumption or expectation by Party A that a

particular legal relationship existed between them from which Party B was not free to withdraw. If the assumption or expectation is ambiguous it is insufficient Legione v Hateley (1983) 152 CLR 406 

The assumption or expectation acted upon by the plaintiff must have been clear and unambiguous

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A promise or representation will generally be sufficiently certain to support an estoppel if it was reasonable for the representee to interpret the representation or promise in a particular way, even if words used may be open to different considerations: Crown Melbourne Ltd v Cosmopolitan Hotel; Sullivan v Sullivan

While a promise will not be clear and unambiguous if important information is omitted, it may be possible in an appropriate case to imply a reasonable requirement. Such an objective will not be uncertain. Wright v Hamilton Island Enterprises Limited [2003] QCA 36 Australian Crime Commission v Gray [2003] NSWCA 318 

It has been recognised that a promise may be definite in the sense that there is a clear promise to do something even though the something is not precisely defined: Flinn v Flinn

There may be some cases where reliance on an ambiguous representation, or a representation with an unclear or uncertain meaning could give rise to unconscionable conduct: Australian Crime Commission v Gray. Much will depend upon the circumstances in which the representation is made and the context in which it is to be judged: Galaxidis v Galaxidis. In an appropriate case, where the originator of an ambiguous document intends for it to be relied upon, he or she may be obliged to bear the consequences of the ambiguity for which he or she was responsible: Woodhouse AC Israel Cocoa Limited SA v Nigerian Produce Marketing Company Limited. A representation that is capable of more than one meaning might nevertheless be regarded as sufficiently clear and unambiguous if in the circumstances it is reasonable for the representee to have interpreted the representation in a particular way, being one of the possible meanings. By contrast, the representation may be regarded as uncertain if the circumstances it is not reasonable for the representee to rely on the meaning being asserted: Galaxidis v Galaxidis. 2.

Encouraged or induced by Party B (perhaps by way of a promise) to adopt that assumption or expectation. A clear and unambiguous representation may be implied from words used or be adduced from a failure to speak, where there was a duty to speak, or from conduct: Commonwealth v Verwayen. Sometimes silence may be sufficient Thompson v Palmer (1933) 49 CLR 507 at 547 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 

Silence will be unconscionable only where there is an attempt to

afterwards assert a legal relationship different from the one which, to the knowledge of the silent party, the other party assumed or expected. A person who knows or intends that the other should conduct his or her affairs on the basis of the assumption or expectation has two options open to him or her: 

Either to warn the other that he or she denies the correctness or assumption of the expectation when he or she knows that the other may suffer detriment by acting on the basis of the assumption or expectation; or

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To act so as to avoid any detriment that the other may suffer in reliance on the assumption or expectation

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It will be unconscionable to refrain from making a denial and then to leave the other party to suffer whatever detriment is occasioned by he non-fulfillment of the assumption or expectation: Waltons Stores v Maher

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It is essential that the defendant knows or ought to know of the mistake being made by the plaintiff: Ampol Ltd v Matthews. In this respect, the defendant cannot escape where he or she has wilfully shut his or her eyes to what should have been obvious: S&E Promotions Pty Ltd v Tobin Brothers Pty Ltd.

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It will be insufficient if the plaintiff orchestrates matters so that it appears that the defendant’s conduct allowed the plaintiff to adopt the assumption where the reality is otherwise: Skywest Aviation Pty Ltd v Commonwealth

Mere hope on the part of Party A will not suffice – Party B must play a part in the formation of the assumption or expectation Lorimer v State Bank of New South Wales (unreported, NSWCA, 5 July 1991) Chellaram & Co v China Ocean Shipping Co [1991] 1 Lloyd’s Rep 493 

The defendant must have ‘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’: Waltons Stores v Maher

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Neither hope nor ‘confident expectation’ is sufficient to give rise to an equitable estoppel: DHJPM Pty Ltd v Blackthorn Resources; Cobbe v Yeoman’s Row Management Ltd

Even an unauthorised representation may suffice in certain circumstances Corpers (No 664) Pty Ltd v NZI Securities Australia Ltd (1989) ASC 58,402 

No estoppel will arise if a representation is made by an agent who has no actual or ostensible authority to bind his or her principal, and this fact is known or ought to be known to the party claiming estoppel: State Rail Authority v Heath Outdoor Pty Ltd 

However, mere fact that a representation is unauthorised will not necessarily prevent an estoppel being established

3.

Party A acts or abstains from acting in reliance upon the assumption or expectation. The reliance must be reasonable. Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 

The plaintiff must act or abstain from acting in reliance on the assumption or expectation: Crown Melbourne Ltd v Cosmopolitan Hotel

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Departure from an assumption or expectation that is unreasonably formed or unreasonably relied upon will not normally constitute unconscionable conduct by the defendant: Australian Securities Commission v Marlborough Goldmines Ltd; Standard Chartered Bank Aust Ltd v Bank of China

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Reliance by the plaintiff which is unforeseen and unexpected or simply foolish, will usually indicate that it is not reasonable: Summer Hill Business Estate Pty Ltd v Equititrust.

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It has been suggested that when determining whether the plaintiff reasonably adopted and relied on an assumption or expectation, only the plaintiff’s actual knowledge is relevant: Standard Chartered Bank Aust Ltd v Bank of China. The defendant’s conduct needs to be a ‘significant’ or ‘contributing’ reason for the plaintiff acting as he or she did, and need not be the sole or dominant cause: Sidhu v Ban Dyke.

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Reliance must be proved by the plaintiff as a matter of fact – it cannot be presumed on the basis of evidence falling short of that: Sidhu v Van Dyke; Caringbah Investments Pty Ltd v Caringbah Business and Sports Club Ltd.

The plaintiff’s characteristics may be relevant. Austotel Pty Ltd v Franklins Self-Serve Pty Ltd (1989) 16 NSWLR 582 Capital Market Brokers Pty Ltd v Hamelyn UPC Ltd (unreported, NSW Supreme Court, Young J, 2 May 1989) 

In assessing the reasonableness of any reliance, the characteristics of plaintiffs – including whether they were being advised by solicitors at the time – are relevant: Dikos v Mason; Kirton Nethery

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In commercial matters the court should be careful not to lightly substitute lawyerly conscience for the hard-headed decisions of business people: Austotel Pty Ltd v Franklins Self Serve Pty Ltd; Summer Hill Business Estate Pty Ltd v Equititrust. Except for good reason, commercial parties do not usually conduct themselves in such a way as to forfeit their entitlement to exercise valuable legal rights. In such a case, it is necessary to scrutinise carefully the circumstances that are said to lead to the conclusion that an estoppel should be granted: Seven Network (Operations) Ltd v Warburton.

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The mere fact that the parties may have had the benefit of legal

advice or were contracting according to a customary practice will not, by itself prevent an estoppel from arising: Waltons v Maher. 4.

Party B knew or intended Party A to do so. The party who induces the adoption of an assumption or expectation must know or intend the other party to act or abstain from acting in reliance on the assumption or expectation: Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 423 per Brennan J

5.

Party A will suffer detriment if the assumption or expectation is not fulfilled. The relevant detriment is that of the plaintiff, not the defendant: Gobblers Inc Pty Ltd v Stevens. Further, there must be a link between the assumption or expectation created or encouraged and the detriment suffered: Gobblers Inc Pty Ltd v Stevens; Re Ferdinando; Australia and New Zealand Banking Group v PA Wright and Sons Pty Ltd. It is insufficient for the plaintiff merely to change his or her position in reliance upon the assumption or expectation. Instead, for both common law estoppel in pais and equitable estoppel, it is necessary that the party claiming estoppel suffer detriment in the sense that ‘as a result of adopting the assumption, as the basis of action or inaction, the plaintiff will have placed himself or herself in a position of material disadvantage if departure from the assumption be permitted’: Thompson v Palmer; Newbon v City Mutual Life Assurance Society Ltd ; Legione v Hateley; Lorimer v State Bank of New South Wales ; Hawker Pacfific Pty Ltd v Helicopter Charter Pty Ltd; Austral Standard Cables Pty Ltd v Walker Nominees Pty Ltd. The detriment is determined as at the date the defendant seeks to resile from the assumption or expectation he or she has encouraged or induced, and upon which the other party has acted: Lorimer v State Bank of New South Wales; Ashton Mining Ltd v Commissioner of Taxation; State Rail Authority (NSW) v Health Outdoor Pty Ltd The detriment required may be of any material disadvantage. Such material disadvantage must be substantial but need not be quantifiable in the same way that loss must be quantifiable for assessment of damages: Australian Financial Services and Leasing Pty Ltd v Hills Industries; Ashton v Pratt. There will be no estoppel if the plaintiff suffers detriment after learning that the assumption or expectation on which he or she relied was without basis: Milchas Investments Pty Ltd v Larkin. Further, any detriment must be suffered by the plaintiff himself or herself, and not by an associated party such as a related company: Milchas Investments Pty Ltd v Larkin. ‘Detriment’ has been described as a position of material disadvantage. Thompson v Palmer (1933) 49 CLR 507 at 547 per Dixon J

6.

Party B fails to avoid the detriment by fulfilling the assumption or expectation or otherwise. The object of the equity is not to compel the party bound to fulfil the assumption or expectation; it is to avoid the detriment which, if the assumption or expectations

goes unfulfilled, will be suffered by the party who has been induced to act or abstain from acting on it: Waltons v Maher. Depending on the circumstances, the defendant may be required to do no more than warn the plaintiff that the assumption or expectation is mistaken: Lorimer v State Bank of New South Wales; Waltons Stores v Maher. Or, give reasonable notice of intended departure from the assumption or expectation before the plaintiff incurs irreversible detriment: Commonwealth v Verwayen. Acting ‘otherwise’ might include Party B simply disabusing Party A of the assumption before detriment is incurred. Lorimer v State Bank of New South Wales (Unreported, NSWCA, 5 July 1991) per Kirby P Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 The elements of estoppel must be positively proved and will rarely if ever be inferred. Chellaram & Co v China Ocean Shipping Co [1991] 1 Lloyd’s Rep 493 There need not be a pre-existing contractual relationship, or a legal relationship of any kind between the parties before the estoppel can arise. Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 Equitable estoppel is a sword as well as a shield - it may be a cause of action in itself. Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387

5. Effect of estoppel Relevant Remedy The appropriate remedy is within the court’s discretion: Austotel Pty Ltd v Franklin’s Self Serve Pty Ltd. The remedy should be proportionate to the unconscionability. Commonwealth v Verwayen (1990) 170 CLR 394. 

There should be proportionality between the remedy and the relevant detriment: Birstar Pty Ltd v The Proprietors ‘Ocean Breeze’ Building Units Plan No 4745 ; Forbes and Bundock v Australian Yachting Federation Inc

The remedy varies according to the circumstances of the case; it will depend in each case on a close examination of the detriment occasioned to the party claiming estoppel: Waltons v Maher. The object of equitable estoppel is not to enforce promises but rather to avoid detriment: Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd. In some circumstances, however, the enforcement of a promise may be the only means of avoiding the detriment: Waltons Stores v Maher. The court may order compensation based on the plaintiff’s reliance loss rather than on his or her expectation loss: Commonwealth v Verwayen.

A court should only grant a remedy that is the minimum necessary to do justice between the parties, and that this ought to be in the nature of the reliance or loss: Commonwealth v Verwayen. This requires the assumption to be made good: Crabb v Arun District Council; Waltons Stores v Maher. HOWEVER, this is not the principle used in Australia. The correct approach to determining the proportionate relief seems to be to make good the assumption unless in the circumstances of the case that would be inequitably harsh to the defendant, in which case a lesser remedy will be appropriate. Giumelli v Giumelli (1995) 196 CLR 101 Since the court will prima facie enforce the reasonable expectation of a plaintiff who establishes an estoppel, the relevant inquiry is whether there is anything which in good conscience would diminish that entitlement: Sidhu v Van Dyke. The notion of proportionality of the remedy is best understand as assisting in an assessment of whether the claimed remedy would be unjust in the circumstances: Delaforce v Simpson-Cook. In framing the appropriate relief equity will look at all the relevant circumstances that touch upon the unconscionability of resiling from the encouragement or representation previously made, including the nature and character of the detriment, how it can be cured, its proportionality to the terms and character of the encouragement or representation, and the conformity with good conscience of holding a party to any relevant representation or promise made even if not contractual in character: Delaforce v Simpson-Cook.

You should now have sufficient knowledge and understanding to undertake the first module of The OO Files – An Enigmatic Experience, which covers Formation and Equitable Estoppel. You may in due course also find this module of assistance when you prepare for the on-line multiple choice exam in several weeks’ time....