PAPER PRESENTED TO A SEMINAR OF THE AUSTRALIAN ITALIAN LAWYERS ASSOCIATION ON WEDNESDAY 27 AUGUST 2014

RECENT DEVELOPMENT IN THE DOCTRINE OF EQUITABLE ESTOPPEL

V A MORFUNI QC

I INTRODUCTION

The recent decision of Sidhu v Van Dyke provides a further salutary lesson that one should not promise what one does not intend to give and that promises bind both morally and legally. In Sidhu, the Court not only reaffirmed its willingness to enforce voluntary promises through the rules of equitable estoppel, but also corrected what it considered to be the heresy of inferring detrimental reliance evidenced in such cases as Flinn v Flinn and Donis v Donis. Sidhu is also important because it clarifies what action the promisor may need to take in order to fulfil his promise. It also cast further doubt on the adoption of a unified theory of estoppel that had been enunciated by Deane and Mason JJ.

Before analysing the case, it is necessary to say something about the development of estoppel.

II BRIEF HISTORICAL EXCURSES

The doctrine of estoppel was developed in order to mitigate the harshness of the common law. The essence of estoppel is that the promisor will be estopped from resiling from his promise even though the promise is not supported by consideration in circumstances where it would be unfair on the representee to allow the representor to do so.

The concept of keeping one’s promise has found expression in the law. In contract law, a promise given for valuable consideration is enforceable. However, the common law refused to enforce mere voluntary promises unless they were found in a deed.

To ameliorate the perceived harshness of the common law, there were developed a series of estoppels both at common law and equity. It is readily seen that the development of estoppel followed a similar process to the evolution of the law of torts. That is, that there was a legal response to a perceived need for a remedy in certain situations. There is still debate as to whether there is an underlying unifying concept of estoppel or merely different types of estoppel that apply in different situations. Lord Denning aptly described the separate estoppel theory by using the analogy of a house of many rooms:

The word “estoppel” only means stopped. You will find it explained by Coke in his Commentaries on Littleton ... It was brought over by the Normans. They used the old French “estoupail.” That meant a bung or cork by which you stopped something from coming out. It was in common use in our courts when they carried on all their proceedings in Norman-French. Littleton writes in the law-French of his day (15th century) using the words “pur ceo que le baron est estoppe a dire,” meaning simply that the husband is stopped from saying something.

From that simple origin there has been built up over the centuries in our law a big house with many rooms. It is the house called Estoppel. In Coke's time it was a small house with only three rooms, namely, estoppel by matter of record, by matter in writing, and by matter in pais. But by our time we have so many rooms that we are apt to get confused between them. Estoppel per rem judicatam, issue estoppel, estoppel by deed, estoppel by representation, estoppel by conduct, estoppel by acquiescence, estoppel by election or waiver, estoppel by negligence, promissory estoppel, proprietary estoppel, and goodness knows what else. These several rooms have this much in common: They are all under one roof. Someone is stopped from saying something or other, or doing something or other, or contesting something or other. But each room is used differently from the others. If you go into one room, you will find a notice saying, “Estoppel is only a rule of evidence.” If you go into another room you will find a different notice, “Estoppel can give rise to a cause of action.” Each room has its own separate notices. It is a mistake to suppose that what you find in one room, you will also find in the others.

A Common law Estoppel

The common law recognised the following estoppels:

1. estoppel by record, where there has been a judicial determination of an issue or cause; estoppel by deed, based on the rule that a promise given by way of deed did not require consideration to be enforced.

2. estoppell in pais (conduct) was expressed by Dixon J as “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.”

3. estoppel by conduct, which had two manifestations: estoppel by representation and estoppel by convention:

a. estoppel by representation operated to bind a representor where his representation about an existing fact induced the representee to alter his position. The law would prevent the representor from asserting contrary to the represented fact.

b. estoppel by convention was “a form of estoppel founded not on a representation of fact made by a representor and acted on by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying.” Later cases demonstrate that the assumption can include a question of law.
The above estoppels operated at common law.

B Equitable Estoppel

Equity developed doctrines of estoppel to give relief in cases where the common law would not. For present purposes the relevant instances are proprietary estoppel and promissory estoppel.

Proprietary estoppel operated to create proprietary rights where an owner of land behaved in such a way that he induced another or acquiesced in the other’s belief, that the other had an interest in the land. The history of proprietary estoppel indicates that there were two streams based on two House of Lords decisions in the 19th Century. The first is the line emanating from the case of Dillwyn v Llewellyn. That case was really a case of estoppel by encouragement. A father allowed his son to enter into possession of some land owned by the father and which the father purported to convey to the son. The conveyance was ineffective. With the fathers consent the son built a house and lived on the land for many years. After the father’s death, the son sought a declaration that he was the owner of the land in equity. He succeeded. The Court held that although equity would not assist a volunteer, the encouragement of the son by his father of to build the house was conduct which required that the son be granted a remedy. The remedy was the full estate in the land, which is what the father intended as evidenced by the ineffective conveyance.

The other stream is based on the decision of the House of Lords in Ramsden v Dyson. This was a case of estoppel by acquiescence. The case concerned a claim by a person who asserted that he had built a house on the land on the assumption that the owner would grant him a lease. The owner was aware that the claimant was building the house but said nothing to him. Cranworth LJ stated the rule thus:

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.

Lord Kingsdown, in dissent, stated the principle a little wider. He said:

If a man under a verbal agreement with a landlord for a certain interest in land, or, what amounts to the same thing, under an expectation, created or encouraged by the landlord, that he shall have a certain interest, takes possession of such land, with the consent of the landlord, and upon the faith of such promise or expectation, with the knowledge of the landlord, and without objection by him, lays out money upon the land, a Court of equity will compel the landlord to give effect to such promise or expectation.

To establish the estoppel, the claimant must have acted to his detriment. The rule was subsequently restricted by Fry J in Wilmott v Barber where he enunciated the five probanda required to be established by the person seeking to set up the estoppel. Justice Fry’s view was finally rejected in the case of Taylors Fashions Ltd v Liverpool Victoria Friendly Society [.

Promissory estoppel, operates where A has represented to B intending B to act on the representation and B does act in reliance on the representation to his detriment. A will be estopped from resiling from the representation to B if it is unconscionable to do so. The progenitor of the modern rule of promissory estoppel is to be found in a case in the 19th Century. In 1876, the House of Lords was required to decide whether a landlord could insist on his strict legal rights in circumstances where he had given his tenant a notice to repair. The repairs had to be carried out within 6 months. Upon receipt of the notice the tenant wrote to the landlord and asked whether the landlord was interested in purchasing a surrender of the lease. They entered into negotiations but did not ultimately agree. On the negotiations ending, the landlord served a notice to quit for failing to carry out the repairs. The court held that he could not. The Court found that the time limit had been suspended during the negotiations.

Lord Cairns CJ stated:

It is the first principle upon which all Courts of Equity proceed, that if parties who have entered into definite and distinct terms involving certain legal results - certain penalties or legal forfeiture - afterwards by their own act or with their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties.

In England, there was little further development until Lord Denning set about ameliorating the effect of Jorden v Money. In Central London Property Trust Ltd v High Trees House Ltd, he gave judgment which has proved to be the foundation of the modern law of equitable estoppel. The case concerned a claim by a landlord against its tenant. The parties had agreed to reduce the rent during the war. After the war the landlord sued to recover the full rental. Lord Denning held that the arrangement for reduced rent was intended to apply only during the period that the flats were not fully let. As the flats were now fully let the claimant could recover the amount claimed. In so holding he enunciated the following principle:

where a promise was made which was intended to create legal relations and which, to the knowledge of the person making the promise, was going to be acted on by the person to whom it was made, and which was in fact acted on … the courts have said that the promise must be honoured.

Later, in Combe v Combe, Denning LJ expanded on his view:

The principle, as I understand it, 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 relations between them and to be acted on accordingly, 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 as if no such promise or assurance had been made by him, 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 but only by his word.

In England, the doctrine suffered from two limitations. First, the promise had to be one intended to affect a pre-existing legal relationship between the parties. Second, it could only be used as a “shield” and not as a “sword”.

As presently understood equitable estoppel is the result of bringing together the two categories of promissory estoppel and proprietary estoppel.

C Difference Between Common Law and Equitable Estoppel

There were two main differences between common law and equitable estoppel: the insistence on the requirement that the representation must relate to existing fact; and the notion that common law estoppel was really a rule of evidence This rule was founded on the judgement of Bowen LJ in Law v Bouverie. In equity the estoppel may grant substantive rights, hence the description of common law estoppel as a shield and not a sword.

III EQUITABLE ESTOPPEL IN AUSTRALIA

In Australia the doctrine of promissory estoppel was accepted and followed by the High Court in Legione v Hateley and Waltons Stores (Interstate) Ltd v Maher. In Waltons, the Court accepted that equitable estoppel could found a cause of action. Deane J said:

Legione v Hateley must be seen as establishing that earlier decisions to the effect that the doctrine of estoppel by conduct could not be applied at all in relation to a representation or assumption of future fact (eg, Jorden v Money and Chadwick v Manning) are no longer good law in this country. The doctrine of estoppel by conduct must now be accepted as applying to preclude departure from a represented or assumed future state of affairs in at least some categories of case. There is much to be said for the view that this Court should, in the interests of clarity and simplicity of the law, immediately take the final jump to the conclusion, which Lord Denning MR informs us was reached by Sir Owen Dixon some forty years ago, that the doctrine of estoppel by conduct should be generally extended "to include an assumption of fact or law, present or future".

The Court fused the two strands of equitable estoppel. Mason CJ and Wilson J 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" 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.

It will be remembered that in Waltons there was no pre-existing legal relations between the parties. The contract being negotiated was not concluded. The Court enforced the assumption by the Mahers that it would be and prevented the defendant from denying it.

The requirements of such an estoppel were set out by Brennan J:

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. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs.

Post Waltons, the position of estoppel in Australia was summarised as follows by Priestley JA in Silovi Pty Ltd v Barbaro:

1. Waltons enables the statement of some relevant propositions more certainly and simply than was previously possible. The following can I think be distilled from the reasons in Waltons notwithstanding the somewhat different language used by different judges.

2. Common law and equitable estoppel are separate categories, although they have many ideas in common.

3. 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.

4. 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.

5. Cases described as estoppel by encouragement, estoppel by acquiescence, proprietary estoppel and promissory estoppel are all species of equitable estoppel.

6. For equitable estoppel to operate in circumstances such as those of the present case there must be the creation or encouragement by the defendant in the plaintiff of an assumption that a contract will come into existence or a promise be performed, and reliance on that by the plaintiff, in circumstances where departure from the assumption by the defendant would be unconscionable.

7. Equitable estoppel may lead to the plaintiff acquiring an estate or interest in land; that is, in the common metaphor, it may be a sword.
The remedy granted to satisfy the equity (which either is the estoppel or created by it) will be what is necessary to prevent detriment resulting from the unconscionable conduct.

Subsequently, in the Commonwealth v Verwayen, Mason CJ endeavoured to unify the various strands of estoppel:

In conformity with the fundamental purpose of all estoppels to afford protection against the detriment which would flow from a party's change of position if the assumption that led to it were deserted, these developments have brought a greater underlying unity to the various categories of estoppel. Indeed, the consistent trend in the modern decisions points inexorably towards the emergence of one overarching doctrine of estoppel rather than a series of independent rules….There is no longer any purpose to be served in recognizing an evidentiary form of estoppel operating in the same circumstances as the emergent rules of substantive estoppel. The result is that it should be accepted that there is but one doctrine of estoppel, which provides that a court of common law or equity may do what is required, but not more, to prevent a person who has relied upon an assumption as to a present, past or future state of affairs (including a legal state of affairs), which assumption the party estopped has induced him to hold, from suffering detriment in reliance upon the assumption as a result of the denial of its correctness. A central element of that doctrine is that there must be a proportionality between the remedy and the detriment which is its purpose to avoid. It would be wholly inequitable and unjust to insist upon a disproportionate making good of the relevant assumption.

In Giumelli v Giumelli different views were expressed by the Judges. In Sidhu the majority said that a common fundamental purpose did not support a single unifying doctrine of estoppel.

IV THE ELEMENTS OF EQUITABLE ESTOPPEL

A person who seeks to establish an equitable estoppel must prove:

1. A promise or sufficiently clear and unambiguous representation;

2. causing an assumption or expectation that a particular legal relationship did or would exist;

3. the expectation or assumption was induced by the representation;

4. detrimental reliance; and

5. that it would be unconscientious to allow the maker of the representation to resile form it.

In determining the case the court is obliged to take in to account all of the circumstances in determining whether the estoppel has been made out.

It is now proposed to analyse Sidhu’s case in relation to each issue.

V SIDHU V VAN DYKE

A The Facts

Sidhu and his wife lived on a rural property that they owned jointly. It was about 32 hectares. In 1996, Van Dyke married the brother of Sidhu’s wife. In that year they were allowed to move into Oaks Cottage, another house standing on the property and about 100 meters from the main homestead on which Sidhu lived. They paid rent to the Sidhu’s.

In 1997, Van Dyke and Sidhu commenced a sexual relationship. Van Dyke alleged (and the court accepted) that in about January 1998 Sidhu said to her:

I love you and can tell you love me too. I want you to have a home here with me. I am planning to subdivide Burra Station. As soon as this is done, I will make sure the Oaks [scil, Oaks Cottage] is put into your name ... Using my Indian family money to buy this place means I can make my own decisions as to what I do with it, and I want you to have it because I love you. You need a home of your own to raise [your child] in. I can provide it.

Mr Van Dyke learnt of the affair and separated from his wife and later divorced. The respondent asserted (and the court found) that when she told Sidhu that she needed a lawyer to get a divorce settlement he said words to her to the effect “you have the Oaks you do not need a settlement from him. You can do the divorce yourself, you don't need a lawyer.” In the divorce proceedings she did not seek a property settlement. She continued to live in the cottage. In about September 1998 she is alleged to have said to Sidhu that she should stop paying rent now that the “the Oaks is my property.” He suggested that she continue to pay what she could as that would help to keep things low key with his wife.

She also carried out unpaid work on the property. Whilst she worked part time she did not seek full time work. In 2000 and in 2005 the appellant again promised Van Dyke that the cottage would be hers.

An application to subdivide the land was lodged by Sidhu and got approval from the local council but he could not proceed because of financial constraints.

In 2006 the cottage burnt down. Sidhu gave Van Dyke a note to the effect that the house would be rebuilt and transferred to her.

In 2006, the relationship broke down and Van Dyke moved away from the property. Sidhu and his wife refused to transfer the cottage to her.

B Trial of the Action

The trial judge accepted that the promises were made and that it was reasonable for Van Dyke to rely upon them. However she found against Van Dyke on the basis that her evidence did not establish that she had relied to her detriment on the promises. She found that it was entirely possible that Van Dyke would have continued to live on the property whether or not the promises had been made. It was also found that whilst Van Dyke did refrain from seeking a property settlement induced by the promises, it was not objectively reasonable for her to do so because the transfer of the Oaks Cottage was dependent on subdivision of the land and consent of Sidhu’s wife.

Van Dyke appealed. The Court of Appeal allowed the appeal. In doing so it relied on a ground that Van Dyke had not argued either at trial or on the appeal. It followed some English decisions. It held that there was a presumption of reliance in this case such that the burden of displacing it shifted to Sidhu, and that Sidhu had failed to displace it.

By way of remedy the Court failed to order a transfer because of the adverse consequence on Mrs Sidhu but ordered that Van Dyke be compensated by a sum equal to the value she would have had if Sidhu’s promise had been fulfilled.

Sidhu appealed to the High Court. In relation to the elements of estoppel the making of the representations was not in issue.

C Certainty

The cases establish that certainty is not difficult to prove. Thus words to the effect, “I’ve bought you a house. This is your house”, followed by the representee being allowed into occupation, were held in the context of the case to be sufficiently certain. However, it was conceded that in isolation they could cover many situations besides that of a gift.

Similarly, the words “neither you nor your wife will be financially disadvantaged”, spoken to a person about to enter a witness protection programme, were held to be sufficiently certain. Further, the words “One of these days this property and this business will be yours I am not going to take it to my grave. When I retire I will give it to you” were held to be sufficiently certain. Justice Brooking, in Flinn v Flinn said that “[t]he plaintiff needs to show words or conduct by the prospective testator which go beyond mere statements of intention, and which, having regard to all the circumstances, he can reasonably claim to have regarded as amounting to an irrevocable promise by the prospective testator as to how his estate would be disposed of”.

The promise or representation may be express or implied, and is to be decided by examining all of the facts. It should be construed in context. In a case where the representation was that the investors were to invest “for the long term” and one of them subsequently sought to compulsorily acquire the units of the others, the Court said:

A representation which is insufficiently certain or complete to create a contract may found proprietary estoppel. Where necessary to inhibit unconscionability, equity will construe a representation robustly in context, to determine its meaning as reasonably understood by the addressee. In my opinion, the standard of certainty, clarity and completeness required of the representation cannot sensibly be determined in isolation from other elements of proprietary estoppel in the circumstances of each particular case. Moreover, ambiguity or indeterminacy generated by the representor in the context of unconscionable conduct should not confer immunity from equity’s ‘long arm’.

The Court of Appeal held that despite its apparent ambiguity, the representation was sufficiently certain to found an estoppel.
It may be that the result may depend on the nature of the case. Parties who are negotiating a business transaction may fare differently than parties who are in a familial relationship.

Thus, in Thorner v Majors, the plaintiff had provided unpaid work on his cousin’s farm for nearly 30 years on the assumption that the cousin would leave him the farm in his will. The cousin died without leaving a will. On the issue of the certainty of the representation Lord Neuberger of Abbotsbury said:

It would be quite wrong to be unrealistically rigorous when applying the "clear and unambiguous" test. The court should not search for ambiguity or uncertainty, but should assess the question of clarity and certainty practically and sensibly, as well as contextually. Again, this point is underlined by the authorities … which support the proposition that, at least normally, it is sufficient for the person invoking the estoppel to establish that he reasonably understood the statement or action to be an assurance on which he could rely.

That may be contrasted with the case of Cobbe v Yeomans Row Management Ltd. In that case, parties negotiated for the sale of land. The plaintiff was a developer, the defendant was the owner. They agreed that if planning approval could be obtained, the plaintiff could buy the land at an agreed price, develop it, sell off the units to be built on it, and after he had realised a particular sum, the owner would receive half of the further proceeds of sale.

The plaintiff proceeded to obtain planning approval. After the approval the owner refused to proceed on the basis of the original agreement. The House of Lords held that no estoppel arose because the expectation was uncertain. It went on to find that the plaintiff was able to recover the money expended in obtaining approval on the basis of a quantum meruit.

On the facts, it is difficult to see why an estoppel was not found in that case. The only explanation is that it concerned experienced business people negotiating a commercial contract and the Court took the view that in those circumstances they should have known that a party can resile from the negotiations at any stage before the concluded agreement.

Similarly, in Austotel Pty Ltd v Franklins Selfserve Pty Ltd, Franklins proposed to lease a supermarket from Austotel. After extended negotiations, the parties failed to reach an agreement that the Court considered to be binding. On the issue of whether relief by way of estoppel was available, Kirby P noted:

We are not dealing here with ordinary individuals invoking the protection of equity from the unconscionable operation of a rigid rule of the common law. Nor are we dealing with parties which were unequal in bargaining power. Nor were the parties lacking in advice either of a legal character or of technical expertise. The Court has before it two groupings of substantial commercial enterprises, well-resourced and advised, dealing in a commercial transaction having a great value. As has been found, they did not reach the point of formulating their agreement in terms which would be enforced by the law of contract. This is not, of itself, a reason for denying them the beneficial application of the principles developed by equity. But it is a reason for scrutinising carefully the circumstances which are said to give rise to the conclusion that an insistence by the appellants on their legal rights would be so unconscionable that the Court will provide relief from it.

A similar approach was taken in Attorney-General of Hong Kong v Humphreys Estate (Queen's Gardens) Ltd. In that case the parties had reached agreement but the agreement was stated to be subject to contract. An estoppel was denied. The reason given by the Privy Council was:
It is possible but unlikely that in circumstances at present unforeseeable a party to negotiations expressed to be 'subject to contract' would be able to satisfy the court that the parties had subsequently agreed to convert the document into a contract or that some form of estoppel had arisen to prevent both parties from refusing to proceed with the transaction envisaged by the document. But in the present case the government chose to begin and elected to continue on terms that either party might suffer a change of mind and withdraw.
Lord Scott of Foscote explained,

The reason why, in a 'subject to contract' case, a proprietary estoppel cannot ordinarily arise is that the would-be purchaser's expectation of acquiring an interest in the property in question is subject to a contingency that is entirely under the control of the other party to the negotiations…The expectation is therefore speculative.

On the state of the authorities, the representation made by Sidhu in this case was clearly certain. The real issue was whether it was conditional in the sense that nothing could flow from it until the subdivision had been registered and the wife’s consent had been obtained. The council approval had been given conditionally on the construction of roads. Sidhu was not in a financial position that enabled him to construct the roads.
The Court of Appeal dismissed the argument that the lack of financial resources by Sidhu meant that the promise was uncertain and that reliance on it was unreasonable. The point was not taken in the High Court.

The question is, what did Sidhu promise? If the promise was that he would subdivide the block and transfer the land on which the Oaks Cottage stood to Van Dyke, that must have meant that the actual registration of the subdivision was an essential requirement before any transfer could be effected. Unless there was wilful default on the part of Sidhu in failing to comply with the condition, how has he departed from his promise? Is this really any different to the person who says “if I can afford it I will buy you a house”?

What would be the situation if in 2005 Sidhu had become bankrupt and could not proceed with the subdivision? In that event it could hardly be said that he had resiled from his promise.

D Assumption

The Court found that Van Dyke had formed the necessary assumption. The cases indicate that what is required is that the relying party reasonably assumed that the promise would be performed. Sometimes a court will find a narrower assumption than the one relied upon by the plaintiff. Thus, in Milling v Hardie, a father allowed his daughter and her husband to live in a house on a farming property that he owned. He continued to farm the land and refused requests from his son-in-law to allow the son-in-law to farm it on his own behalf. The plaintiffs carried out works on the house. The plaintiffs alleged that in a number of conversations, the father had induced them to believe that he would transfer the entire farm to them on his retirement or that they would inherit it on his death.

The Court of Appeal rejected the claim on the facts. It found that the father’s conduct could not reasonably lead to the assumption that the plaintiffs would eventually assume ownership of the entire farm holding that in the circumstances of the case:

an assumption that Mr Milling was implicitly communicating that ownership of any part of the property would pass to the Hardies was unreasonable and not justified by his conduct. It may well be, as the evidence suggests, that the Hardies hoped, or indeed assumed, that Mr Milling would leave the whole or at least part of Weeraman to them by will. Whilst this may have been a reasonable expectation arising out of the relationship of father and daughter between Mr Milling and Mrs Hardie, the existence of their children who needed a home in which to live and a special connection to the home that may have developed out of their lengthy occupation of it, the expectation could not fairly be said to have arisen from Mr Milling's conduct described above and could not therefore be regarded as assisting the Hardies in their proprietary estoppel claim.

Nevertheless the Court found that the facts established that the plaintiffs had a reasonable belief that they could reside on the land during the father’s lifetime and made orders to that effect.

On the evidence in Sidhu, Van Dyke did form the assumption that she would be transferred the land on which the Oaks Cottage stood.

E Inducement

The cases establish that what is required is that the assumption is induced by the promise or representation. How does one decide this issue? Justice Deane suggested that an affirmative answer to any of the following may lead to the conclusion that there has been inducement:
Where the inducing 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.
In Sidhu, the Court found that the promise was an inducement for Van Dyke to remain on the property and perform the work that she did. Given the statements that were made by Sidhu to her, it is not surprising that the issue of assumption was decided in her favour. The real issue was the question of reliance.

F Reliance

Reliance was a difficult question in Sidhu, as it may be in many cases of this nature. It may be for that reason that the courts in England and Australia fell into the trap of relying on inference. Thus in Flinn Brooking J said, “[i]n considering inducement one should not forget the common sense and rebuttable presumption of fact that may arise from the natural tendency of a promise”.

There is a line of English authority that refers to a presumption of reliance. In Grant v Edwards Browne-Wilkinson VC said:

The holding out to the claimant that she had a beneficial interest in the house is an act of such a nature as to be part of the inducement to her to do the acts relied on. Accordingly, in the absence of evidence to the contrary, the right inference is that the claimant acted in reliance on such holding out and the burden lies on the legal owner to show that she did not do so.

That was a doubtful proposition, as it would have the effect of reversing the onus of proof. A proper reading of the case indicates that the acts of reliance in that case were accepted by the Court. That is she would not have acted in the way that she did had she not been relying on the promise.

In the Court of Appeal, the presumption of reliance was the path by which the court held that Van Dyke had established reliance. That was not a basis on which the parties had conducted the case.

The High Court accepted that there was no presumption of detrimental reliance:

In point of principle, to speak of deploying a presumption of reliance in the context of equitable estoppel is to fail to recognise that it is the conduct of the representee induced by the representor which is the very foundation for equitable intervention. Reliance is a fact to be found; it is not to be imputed on the basis of evidence which falls short of proof of the fact. It is actual reliance by the promisee, and the state of affairs so created, which answers the concern that equitable estoppel not be allowed to outflank Jorden v Money by dispensing with the need for consideration if a promise is to be enforceable as a contract. It is not the breach of promise, but the promisor's responsibility for the detrimental reliance by the promisee, which makes it unconscionable for the promisor to resile from his or her promise….. The approach suggested by Lord Denning should not be applied in Australia. The legal burden of proof borne by a plaintiff did not shift. To speak of a shifting onus of proof is both wrong in principle and contrary to authority. The respondent at all times bore the legal burden of proving that she had been induced to rely upon the appellant's promises.

The Court went on to find that Van Dyke had discharged the onus of proof. It did so because the trial judge’s finding that the promises “played a part in her willingness to spend time and effort in the maintenance and improvement of the Oaks Cottage and assisted on the Burra Station property” warranted the conclusion that the respondent had discharged the onus she bore on the basis that to establish estoppel by encouragement, it is not necessary that the conduct of the party estopped should be the sole inducement operating on the mind of the party setting up the estoppel. Counsel for the appellant disputed this proposition but did not cite any authority in support of their position.
In terms of causation, it sufficed if the promise was a reason for the plaintiff acting or refraining from acting as she did.

Gageler J agreed in the result but pointed out that what the plaintiff had to prove was not that she took the belief into account but that she would not have acted or refrained from acting if she did not have the belief.

He agreed with the majority that, on the whole of the evidence, the inference to be drawn was that were it not for the promise she would not have remained on the property and done what she had done.

In Milling v Hardie, a case decided by the NSW Court of Appeal some ten days after Sidhu, the Court had to deal with this issue. The father argued that since the plaintiffs had relied on alleged conversations which the court was not satisfied had taken place, there could not be reliance.

The Court rejected this argument holding,

the sources of the Hardies' beliefs can[not] be dissected as finely as Mr Milling seeks. The fact is that Mr Milling's conduct was, in an objective sense, calculated to lead the Hardies to believe that they had a right of residence and that the Hardies did come to so believe. The inference of a causal connection between the two can readily be made … The fact that the Hardies have broader expectations (extending to entitlements to ownership of Weeraman, or at least two of its three lots) which do not have a reasonable basis in Mr Milling's conduct does not in my view affect the inference that their core belief as to a right of residence flowed, at least in part, from conduct of his that was well able to give rise to that belief.

G Detriment

“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.” That is to say that equity, unlike contract, looks back not forwards. It has therefore been held that agreeing to bring forward a marriage and having children earlier than planned and living in outer Melbourne rather than closer in were all acts of detriment. So too, the conduct of a woman leaving her housing commission accommodation in reliance on her brother’s promise that she had a house for life.

Accordingly, the real detriment is the resiling from the promise. This was recognised long ago by Dixon J in Grundt, when he explained the principle in this way:

The principle upon which estoppel in pais is founded is 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. This is, of course, a very general statement. But it is the basis of the rules governing estoppel. Those rules work out the more precise grounds upon which the law holds a party disentitled to depart from an assumption in the assertion of rights against another. One condition appears always to be indispensable. That other must have so acted or abstained from acting upon the footing of the state of affairs assumed that he would suffer a detriment if the opposite party were afterwards allowed to set up rights against him inconsistent with the assumption. In stating this essential condition, particularly where the estoppel flows from representation, it is often said simply that the party asserting the estoppel must have been induced to act to his detriment. Although substantially such a statement is correct and leads to no misunderstanding, it does not bring out clearly the basal purpose of the doctrine. That purpose is to avoid or prevent a detriment to the party asserting the estoppel by compelling the opposite party to adhere to the assumption upon which the former acted or abstained from acting. This means that the real detriment or harm from which the law seeks to give protection is that which would flow from the change of position if the assumption were deserted that led to it. So long as the assumption is adhered to, the party who altered his situation upon the faith of it cannot complain. His complaint is that when afterwards the other party makes a different state of affairs the basis of an assertion of right against him then, if it is allowed, his own original change of position will operate as a detriment. His action or inaction must be such that, if the assumption upon which he proceeded were shown to be wrong and an inconsistent state of affairs were accepted as the foundation of the rights and duties of himself and the opposite party, the consequence would be to make his original act or failure to act a source of prejudice.

In Sidhu, the High Court found that Van Dyke had acted to her detriment. The acts of detriment found by the court were that not seeking full time work; doing work on the property and refraining from seeking a property settlement from her divorce in reliance on the promise. The Court concluded first that:

The appellant's assurances were integral to his proposal to the respondent to put their relationship on a firm long-term footing. It is unlikely that she would have thrown in her lot with the appellant and exerted herself as she did over a period of eight and a half years if he had not made the promises which he in fact made. To the contrary, it is likely that she would have sought to maximise her own income for the benefit of herself and her infant son by seeking the most gainful form of employment.

Secondly, the finding by the trial judge that the promise played a part in her remaining on the property warranted the conclusion that she had discharged her burden of proof.

Thirdly the evidence that Van Dyke had displayed concern from time to time that Sidhu honour his promise, and the fact that Sidhu sought to allay her concerns by giving her written assurances, tended to confirm that the promises were material in Van Dyke remaining on the property and maintaining her ongoing relationship with Sidhu.

Fourthly, it concluded that the main argument relied upon by Sidhu was not compelling.

H Unconscionability

This aspect almost follows inevitably from findings that the promise was made inducing detrimental reliance. There may be cases where the detriment suffered by the representee would be so much less than the detriment suffered by the representor if the equity were enforced but such cases are rare.

In Sidhu, the Court dealt with the issue of unconscionability by holding that

The extent to which it is unconscionable of the appellant to seek to resile from the position expressed in his assurances to the respondent may be gauged by reflecting on the likely response of the respondent if the appellant had told her in January 1998: "I am happy for you to remain at Oaks Cottage, but only for so long as it suits me and my wife to have you here; and, while you remain on the property, you must care for it as if you were the owner of the property and do unpaid work on parts of Burra Station other than the property. Until I make the property over to you, you must pay rent sufficient to content my wife. Should you choose to leave, you will leave with nothing in return for the value of your work here.
With respect, such an enquiry does not appear to be helpful in determining the unconscionability of Sidhu’s conduct. It appears to place too commercial an aspect on the relationship between the parties.

The answer may very well have been “depending on the degree of commitment, she may have been perfectly willing to stay and hope for the best.”

If the relationship had to be tested on the basis of its commercial advantage to Van Dyke, there may be questions as to whether estoppel had been made out. After all she knew that the promise was conditional on obtaining a subdivision of the land and that it was entirely possible that Sidhu may not have the financial resources to carry it out. In those circumstances, would she have been in any different position to the developer in Cobbe?

Indeed if the same question was asked of the plaintiff in Cobbe, that is, if he had been told at the time “you can expend time and money on obtaining planning approval but if you do I am not bound to sell to you and I can increase the price at which I will sell the land and if we do not agree you have to walk away with nothing”, I dare say that the developer would have said Keep your land I am not going to spend my money on that basis.

Indeed, every Plaintiff if asked “if you had not been promised the property and you could have been evicted at any time and you would not receive any benefit from staying on the property would you have nonetheless stayed” would answer in the negative. The plaintiff in Sullivan no doubt would have preferred her modest housing commission accommodation rather than risking having nowhere to live.

It is submitted that the proper test for establishing unconscionability is that stated by Deane J in Verwayen and approved by the majority Giumelli to the effect that:

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.

On that basis, as Gageler J pointed out, whilst it was possible that she would have stayed on and done the work if the promises had not been made, the probability was otherwise.

J Remedy

Prior to the decision in Giumelli, the rule was that the court had to devise the minimum remedy to satisfy the equity. That case recognised that the prima facie entitlement of the plaintiff was the performance of the promise.

In Sidhu, the Court affirmed the rule that the court is not restricted to providing relief on the basis of avoiding detriment. Giumelli had held that the court can frame a remedy requiring the making good of the promise.

In Sidhu, the Court affirmed the order made by the Court of Appeal to the effect that rather than a transfer of the land Sidhu should pay Van Dyke by way of equitable compensation a sum to be determined.

In contrast the remedy that the court granted In Milling was a right to occupy the premises until the death of the father.

VI UNIFYING DOCTRINE

In Verwayen, Mason CJ formulated a unified theory of estoppel (at least in so far as proprietary estoppel, promissory estoppel and estoppel by acquiescence were concerned) on the basis that they were all intended to serve the same fundamental purpose of protecting against the detriment which would flow from a party’s change of position if the assumption that led to it were deserted.

In Giumelli the Court said:

There is no occasion in this appeal to consider whether the various doctrines and remedies in the field of estoppel are to be brought under what Mason CJ called "a single overarching doctrine" or what Deane J identified as a "general doctrine of estoppel by conduct". These theses were advanced by their Honours in The Commonwealth v Verwayen but not accepted by Dawson J or McHugh J. Brennan J approached the subject on the footing that "equitable estoppel yields a remedy in order to prevent unconscionable conduct on the part of the party who, having made a promise to another who acts on it to his detriment, seeks to resile from the promise". Subsequently, in the joint judgment of Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ in Australian Securities Commission v Marlborough Gold Mines Ltd, reference was made to "an equitable estoppel of the kind upheld in Verwayen".

The views of Mason CJ and Deane J have been criticised by academics and by judges writing extra-judicially.

In Sidhu the Court referred to Mason CJ’s view and noted that “a common purpose does not support a single unifying doctrine of estoppel the existence of which has been the subject of different views in this Court.”

It can therefore be anticipated that the single theory of estoppel is not likely to be accepted by the current Court, at least in the short term.

VII CONCLUSION

Post-Sidhu, it is now confirmed that:

1. there is no presumption of detrimental reliance;

2. in an action for estoppel the plaintiff bears the onus of proof in establishing detrimental reliance but that in determining whether it has been established the full facts have to be taken into account;

3. in order to prove causation it suffices if the plaintiff establishes that the promise was a cause of acting or refraining from acting; and

4. whilst a plaintiff may be entitled to fulfilment of the promise, such relief will not be granted if such an order would cause hardship to third parties or it is otherwise impractical to grant such relief., in which event the court will award equitable compensation to reflect the plaintiff’s entitlement.

It is unlikely that the call for unification made by Mason CJ will be progressed whilst the composition of the High Court remains as it is.

V A MORFUNI QC
27 AUGUST 2014

OVERARCHING DUTIES: THE TIME BOMB THAT IS ABOUT TO EXPLODE?

Recent rulings by Dixon j in the case of Hudspeth v Scholastic cleaning and consultancy services Pty Ltd[2013]VSC 14 (4/2/2013 and[2013]VSC 159(9/4/2013 illustrate the need for strict compliance with the Overarching obligations under the civil Procedure Act 2010.

His Honour presided over a civil damages claim brought by the Plaintiff against the defendant. During the trial an expert gave evidence on behalf of the plaintiff. During the course of his evidence it was disclosed that there were three reports prepared by him but the third version of the report was not filed or served and its existence was not disclosed until he was cross examinded.His Honour summarised the facts relating to this issue as follows:

“During the trial there was evidence before the jury that:

(a) Mr Dohrmann was retained to provide an expert report. Mr Dohrmann is a professional consulting engineer with qualifications in mechanical engineering and ergonomics who professes to have expertise in the field of occupational health and safety.

(b) On instructions from Clark, Toop & Taylor, he produced a report(s) dated 9 April 2010 that was served on other parties pursuant to Order 44 and he gave evidence for the plaintiff before the jury of the opinions expressed in that report.

(c) It became clear during the trial that there were three versions of this report. Two versions were dated 9 April 2010 and the difference between them was that in one version (the first version) Mr Dohrmann assumed that the plaintiff had previously seen evidence of vandalism or missing soap dispensers and had reported such sightings to her supervisors. The other version (the second version) assumed that the plaintiff had not previously seen evidence of vandalism or missing soap dispensers. The third version of the report bears the date 12 November 2012 and it recounts assumptions of fact that are materially different from the April 2010 versions of the report, although the opinions expressed remain unchanged. In relation to the issue of prior evidence of vandalism, this latest version is in the same terms as the first version.

(d) Unexplained, the evidence at trial could support a finding that the third version of the report was written after 15 November 2012 and may have been backdated.

(e) There was evidence that Mr Dohrmann adopted the third version of the report as true and correct and sent it to his instructing solicitors Clark, Toop & Taylor.

(f) The third version of the report materially altered the sequence of events stated as the assumptions of fact upon which like opinions were expressed by Mr Dohrmann.

(g) By 15 November 2012, the plaintiff had been extensively cross-examined by counsel for the defendants about inconsistencies between her evidence of events and the assumptions recorded by Mr Dohrmann in the April 2010 versions of his report.

(h) The existence of the third version of the report was not revealed to the court until it was exposed in cross-examination. When giving his evidence in chief, Mr Dohrmann was initially invited to express opinions on the basis that the jury accept the evidence that had been
given by the plaintiff. On objection by the defendants, Mr Dohrmann continued his evidence on the basis stated in the April 2010 reports.

(i) While a number of aspects of the preparation of the reports by Mr Dohrmann and their disclosure by the plaintiff’s solicitors were explored in cross-examination before the jury, that cross-examination was not focussed on establishing whether there was a contravention of an overarching obligation under the Civil Procedure Act 2010 or contravention of any broader obligation, independent of the terms of the Civil Procedure Act 2010, that is owed to the court by Mr Dohrmann and the plaintiff’s solicitors.

(j) At trial, counsel for the plaintiff did not take the opportunity that was available, as they were yet to close their case, to respond with further or other evidence about the matters that were put to Mr Dohrmann in cross-examination.”

At the conclusion of the trial the Judge decided to embark on an inquiry to ascertain if there had been a breach of the Overarching obligations under the Act by the legal practiitoners and the expert. The power to do so was identified as the power given pursuant to section 29(2) (b) of the Act. He gave directions that the expert and the legal practitioners file affidavits addressing the matters of concern to the court identified thus:

1 “In summary, the matters on which the court seeks an explanation are these:

(a) What were the circumstances that resulted in the preparation of the third version of the report?

(b) When did those circumstances arise and when was the third version of the report prepared? Was the third version of the report backdated and if so, why? If the report was backdated without good cause, an inference of a want of honesty may be open.

(c) Why did the solicitors for the plaintiff not disclose the existence of the third report to the other parties?

(d) Why did the solicitors for the plaintiff not disclose the existence of the third version of the report to the court while attempting to lead evidence consistent with it?

(e) Why did the solicitors for the plaintiff not clarify with the court and the other parties the mistaken belief that the report of 9 April 2010 was the only expert report from Mr Dohrmann?

(f) Why did Mr Dohrmann not disclose the third version of the report to the court when giving his evidence? Was there compliance with the Expert Witness Code of Conduct in those circumstances?

(g) What was the form and terms of any agreement reached between Mr Dohrmann and the solicitors for the plaintiff for payment of his fee and were such circumstances relevant to the assessment of whether he was impartial and not advocating for the plaintiff?” Para [31] of ruling 4.

His Honour directed the material facts to which the affidavits would need to depose as including:

2 “In summary, the matters on which the court seeks an explanation are these:

(a) What were the circumstances that resulted in the preparation of the third version of the report?

(b) When did those circumstances arise and when was the third version of the report prepared? Was the third version of the report backdated and if so, why? If the report was backdated without good cause, an inference of a want of honesty may be open.

(c) Why did the solicitors for the plaintiff not disclose the existence of the third report to the other parties?

(d) Why did the solicitors for the plaintiff not disclose the existence of the third version of the report to the court while attempting to lead evidence consistent with it?

(e) Why did the solicitors for the plaintiff not clarify with the court and the other parties the mistaken belief that the report of 9 April 2010 was the only expert report from Mr Dohrmann?

(f) Why did Mr Dohrmann not disclose the third version of the report to the court when giving his evidence? Was there compliance with the Expert Witness Code of Conduct in those circumstances?

(g) What was the form and terms of any agreement reached between Mr Dohrmann and the solicitors for the plaintiff for payment of his fee and were such circumstances relevant to the assessment of whether he was impartial and not advocating for the plaintiff?” Para [33] ruling 4

By the time that matter came on for directions again on the 28 March 2013, the defendants had also made applications under sec.29 (1).

The expert and the solicitors had filed affidavits. On the directions hearing of the 28 March 2013 they sought the dismissal of the applications of both the court’s motion and the parties’ .His Honour refused to accede to the application without ruling on the facts and made further directions as follows:

“I will make the following directions, in part pursuant to ss 48 and 49 of the Act.

(a) I direct that John Bennett Richards SC and Andrew D.B. Ingram attend before the court on 20 May 2013 on the hearing and determination of whether the court ought to of its own motion make any order under s 29(1) of the Civil Procedure Act 2010 against them or either of them.

(b) I direct that the first defendant, by its solicitors, serve a copy of this order, the order made on 4 February 2013, my reasons delivered this day and my reasons delivered on 4 February 2013 on John Bennett Richards SC and Andrew D.B. Ingram.

(c) Any amended summons shall be filed and served by 22 April 2013.

(d) Provided that the deponent of each affidavit that has been filed and served is available at the hearing for cross-examination should leave be granted, evidence on the application shall be by affidavit.

(e) Any affidavit or further affidavit by, or on behalf of, Clark, Toop & Taylor Lawyers (a firm), Mr Dohrmann, Mr Richards, or Mr Ingram shall be filed and served by 6 May 2013.

(f) Any further or reply affidavit on behalf of any party to the proceeding shall be filed and served by 22 April 2013.

(g) Deponents of affidavits may not be cross-examined without leave.

(h) Each deponent of each affidavit that has been filed and served shall have in his or her possession on the hearing of the applications, to
produce to the court if called for, all original documents in his or her possession falling within the categories identified in r 29.08(3) of the Supreme Court (General Civil Procedure) Rules 2005 and relevant to the issues identified in the affidavits filed and served, including documents in electronic formats.

(i) The applications are fixed for hearing on 20 May 2013.

(j) I will reserve the costs of the directions hearing.”

The rulings demonstrate the danger of counsel dealing directly with expert witnesses and accepting reports directly from the expert without ensuring that the instructing solicitor is kept informed.

The construction of the provisions awaits the determination of the trial judge. However there are a number of issues that arise.

Section 29 of the Act enables the court to make an order that the person in breach of the overarching obligations compensate any person for any financial or other loss which was materially contributed to by the contravention.

That may entitle the plaintiff in this case to make a claim against the contraveners for the loss of her action.

The Defendants could also seek compensation for their losses.

Section 30(1) (b) requires such an application to be made in accordance with the rules of court. That presumably means that the loss should be particularised and the causal link between the contravention and the loss established.

It is also relevant to ask whether it is appropriate to conduct a judicial enquiry at the same time as dealing with an application for compensation by other persons.

The Act appears to require that the breaches first established and then the application is made or if no such application is made the trial judge can make whatever order he thinks is just having regard to the breach.

We await with interest the final determination of the matter by the trial judge.

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