Estoppel is a legal mechanism in common law whereby a court may prevent or “estop” a party from making assertions or from going back on their word.
A party may rely on a promise from the other party that, for instance, the first party will enter into a contract sometime in the future with the second party, or provide a benefit to them, or not enforce certain contractual rights against them.
In the case of Amalgamated Investment Property Co Ltd v Texas Commence International Bank [1982]QB 84, Lord Denning MR stated:
“The doctrine of estoppel is one of the most flexible and useful in the armoury of the law … When the parties to a transaction proceed on the basis of an underlying assumption ‑ either of fact or of law – whether due to misrepresentation or mistake makes no difference – on which they have conducted the dealings between them – neither of them will be allowed to go back on that assumption when it would be unfair or unjust to allow him to do so. If one of them does seek to go back on it, the courts will give the other such remedy as the equity of the case demands.”
In Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55, Lord Scott described the function of estoppel:
“An ‘estoppel’ bars the object of it from asserting some facts or facts, or, sometimes, something that is a mixture of facts and law, that stands in the way of some right claimed by the person entitled to the benefit of the estoppel”.
Equitable estoppel encompasses proprietary estoppel (related to an interest in land) and promissory estoppel (equitable estoppel not related to an interest in land).
Promissory estoppel will arise if six requirements are satisfied:
The relying party must have adopted an assumption that the other party would act in a particular way in the future.
The assumption does not necessarily have to relate to a legal relationship, as shown in W v G (1996) 20 Fam LR 49. A lesbian couple decided to have children, agreeing that the plaintiff would undergo artificial insemination and the couple would share responsibility for the welfare of the resultant children. The plaintiff and defendant later separated, and the plaintiff sought compensation for the loss of promised financial support for the children. The court found that the defendant had created or encouraged an assumption in the plaintiff that “the defendant would act with the plaintiff as parents of the two children, and would assist and contribute to the raising of these children for so long as was necessary”.
It held the plaintiff relied on this assumption when deciding to have the children and the defendant knew this.
The assumption may be induced by an express or implied promise.
In Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, Waltons negotiated to lease land from the Mahers on terms that required the Mahers to demolish then rebuild a building on the land. The Mahers signed the lease, and Waltons’ solicitors advised that if Waltons disagreed with any amendments, the Mahers would be informed the following day. The Mahers heard no more from the solicitors on the matter. After the Mahers began demolition, Waltons advised it did not intend to proceed with the lease. The court found it was Waltons’ inaction that had induced the Mahers to continue to act on their assumption, in that Waltons had made an implied promise to complete the contract.
This element can be satisfied in many ways, such as the wasted expenditure of money on such actions as contract preparation or improvements to land; or wasted expenditure of time and energy in the performance of services; or inaction when that inaction results in the loss of opportunity to obtain a benefit or avoid a loss.
Actual detriment does not have to be suffered at the time the estoppel claim is made; the prospect of detriment is sufficient.
This requires the court to allocate risk and responsibility to the parties, then judge what is acceptable behaviour. The relying party must first have acted reasonably in forming the assumption, then acted reasonably in taking detrimental action upon the assumption.
This element is based on the principle it is unconscionable for a party to depart from an assumption on which another party has relied detrimentally. It involves a broad inquiry, as Deane J in Commonwealth v Verwayen (1990) 170 CLR 394, explained:
“Ultimately, however, the 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 other 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”.
In most cases, an estoppel will not arise until the party that induced the assumption departs or threatens to depart from the assumption.
The remedies available to someone who has relied on a promise to their detriment are equitable. This means that the court has a discretion in deciding how to relieve the detriment suffered. The courts will not force a party to honour a promise unless this is the only way to serve justice.
The remedy for equitable estoppel is the minimum equity to do justice and avoid the detriment, although sometimes that will require making good the assumption or enforcing the promise.
A monetary remedy rather than a proprietary interest (constructive trust) may be awarded where making good the assumption would cause injustice to a third party or go beyond what is required for conscientious conduct by the defendant (where fulfilling the expectation would be disproportionate to the detriment).
Contact Gibbs Wright today about your promissory estoppel matter for a confidential consultation.
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