1 ESTOPPEL in PROPERTY CASES PRINCIPLES and DEVELOPMENTS Dr Simon Blount* Equity is concerned with good conscience, not a sentimental urge to render sinners virtuous. 1 COMMON LAW AND EQUITABLE ESTOPPELS Despite the attempt of the High Court in Commonwealth v Verwayen 2 to unify the law of estoppel under a single overarching doctrine grounded in unconscionability, estoppels at common law and in equity continue to be governed by different doctrines and rules. Common law estoppels are essentially rules of evidence. They include estoppel by judgment; estoppel by deed; estoppel by convention; common law estoppel; and estoppel by representation. Estoppel by judgment is known to lawyers as res judicata or issue estoppel. Equity has also developed the Anshun estoppel, 3 preventing a party from raising an issue in subsequent proceedings that could and should have been raised in prior proceedings. Estoppel by deed prevents a party from denying representations set out in recitals to a deed. Estoppel by convention stops parties from denying the agreed or assumed state of facts which had formed the basis of their mutual relations. 4 Common law estoppel prevents a party from denying its conduct, whereas estoppel by representation prevents a party from denying its representations of fact. There is no bright line between common law estoppels operating as rules of evidence and equitable estoppels. Meagher, Gummow and Lehane s Equity Doctrines and Remedies 4 th takes the view that Dixon J was seeking to * Barrister, Adjunct Associate Professor, Notre Dame University, Australia, School of Law, Sydney. 1 Meagher R, Hayden D, Leeming M (2002) Meagher Gummow and Lehane s Equity Doctrines and Remedies Fourth Ed. at [17-075]. 2 (1990) 170 CLR 394 3 Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 4 Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Limited (1986) 160 CLR 226 at 244
2 establish a single doctrine of estoppel by conduct operating consistently at law and in equity: [17-025] In Dixon J s view the rules governing estoppel are based upon the principles that a party should not be permitted unjustly to depart from an assumption which he has caused another party to adopt or accept for the purpose of their legal relations and that the purpose of preventing such a departure is to avoid or prevent a detriment to the party who, by adhering to the assumption, has acted or abstained from acting and thus changed his position. 5 However, despite the efforts of Dixon J, estoppel by representation has continued to be limited by the decision in Jordan v Money 6 which held that an estoppel could not arise from a representation of future intention and is limited to representations of past or present fact. Equitable estoppels, variously described as estoppel by encouragement, estoppel by acquiescence, promissory estoppel and proprietary estoppel, 7 do not labour under the restrictions of Jordan v Money. The principles of promissory estoppel in particular have been considered and extended in a number of decisions in the High Court. In Legione v Hateley 8 the High Court accepted that promissory estoppel could ground a claim, as well as a defence, but found on the facts that the statement relied on by the plaintiff was not sufficiently promissory. In Waltons Stores (Interstate) Limited v Maher 9, the court made out a claim on the principles of promissory estoppel. The court did not reject Jordan v Money, but rather developed the equitable principle applied in Central London Property Trust Limited v High Trees House Limited, 10 which prevented a party from resiling from his or her representation as to the exercise of existing contractual rights, extended in Bank Negara Indonesia v Hoalim 11 (cited with approval in Saleh v Romanous 12 ), as applying to rights 5 (1937) 58 CLR 710 at 736 6 (1854) 5 HLC 185 7 Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466 per Priestly JA at 472. 8 (1983) 152 CLR 406 9 (1988) 164 CLR 387 10 [1947] KB 130, 11 (1973) 3 PCC 27 12 [2010] NSWSC 274 at [64]
3 which although not pre-existing, come into existence on the change of the position of the representee. It is often overlooked that the majority in Waltons Stores found different estoppels. Mason CJ and Wilson J, and Brennan J in a separate judgment, decided on the basis of promissory estoppel. Deane and Gaudron JJ decided on the basis of a common law representation by the appellant, or an induced assumption by the respondent, of the fact that the contract in dispute existed. The practical difference between common law and equitable estoppels may sound in the different remedies they support. Common law estoppels do not create a right. The right flows from the state of facts found by the court. Equitable estoppels create an equity which is itself a source of rights. 13 Because common law estoppel prevents the estopped party from denying a fact, such as the existence of a contract, the other party may theoretically be able to cross-claim on the contract for breach sounding in expectations damages. However, an equity giving rise to a remedy such as equitable compensation payable by the estopped party, is limited to making good the detriment. The limitations of the remedy on the making out of a promissory estoppel were made clear in Commonwealth v Verwayen 14 where the court characterised the appropriate relief as the minimum equity to do justice. PROPRIETARY ESTOPPEL Proprietary estoppel arises from a representation as to the future, has the capacity to create new rights between parties in respect of real property and is grounded in unconscionability. Mason CJ and Wilson J defined proprietary estoppel as:... a person whose conduct creates or lends force to an assumption by another that he will obtain an interest in the first person s land and on the basis that expectation another person alters his position or acts to his detriment, may bring into existence an equity in favour of that other person, the nature and extent of the equity depending on the circumstances. 15 13 Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466 per Priestly JA at 472. 14 (1990) 170 CLR 394 15 Waltons Stores v Maher (1988) 164 CLR 387 at [404]
4 There are two lines of authority in proprietary estoppel. Ramsden v Dyson 16 and Dillwyn v Llewelyn 17 are both exceptions to the rule that if A spends money on the property of B then A has not acquired a proprietary interest in the property. 18 The Ramsden v Dyson line of authority binds the owner of property who induces another to expect that an interest in the property will be conferred on him. The Dillwyn v Llewelyn line of authority binds the donor of property where, after the making of an imperfect gift, the donor induces the donee to act on the assumption that the imperfect gift is effective. The doctrine of proprietary estoppel is essentially based on three main heads: assurance; reliance; and detriment. There can be a wide range of variation in in the quality of the assurances necessary to give rise to an expectation, and the extent of the detrimental reliance needed to sound in a remedy. According to Meagher Gummow and Lehane s Equity: Doctrines and Remedies 4 th ed the evidence should establish the following propositions: (a) that A has given or will give B an interest in real property; (b) that A has knowledge of the expectation of B; (c) that B incurs detriment in reliance on this expectation by expenditure on the property or the giving up or non-enforcement of rights he or she may have in relation to the real property; (d) that A can lawfully pass the promise, interest or expectation to B; (e) (f) that A encourages B in, or at least has knowledge of, the detriment incurred by B; that A knows that he has property rights to enjoy, control and dispose of. 19 Although the heads of proprietary estoppel appear as a matter of precedent and logic to be reasonably settled, there is much less certainty about the 16 (1866) LR 1 HL 129 17 (1862) 4 DEG F & J 517 18 Meagher R, Hayden, Leeming M (2002) Meagher Gummow and Lehane s Equity Doctrines and Remedies Fourth Ed. at [17-100] 19 Meagher R, Hayden, Leeming M (2002) Meagher Gummow and Lehane s Equity Doctrines and Remedies Fourth Ed. at [17-105]
5 remedies that may be available on their proof. Where a proprietary estoppel has been made out in respect of an imperfect gift, the most likely remedy will be an order perfecting the gift by conveyance or transfer of the interest, although where no conveyance or transfer can effectively be made, the promisee may have to make do with a lesser remedy of an equitable charge or lien. Where a proprietary estoppel is made out on the basis of a representation to transfer an interest in land simpliciter the prima facie remedy is not the fulfilment of the promise by the conveyance or transfer of the interest in the land, as is the case under the Dillwyn v Llewelyn line of authorities, but the stripping of the profit made by the promissor on the strength of his or her unfulfilled promise. 20 Foundation decisions in proprietary estoppel In Inwards v Baker 21 a son built a house on his father s land at the invitation of his father. The son bore most of the expenses of construction although the father gave him some assistance. The father died leaving a will that had been made before the construction of the house leaving the son 400. Eventually the executrix, Ms Inwards, sought to eject the son from the land arguing that at most, he had no more than a licence to occupy. On appeal, Denning MR stated: It is quite plain that if the owner of land requests another, or indeed allows another, to expend money on the land under an expectation created or encouraged by the landlord that he will be able to remain there, that raises an equity in the licensee such as to entitle them to stay. He has a licence coupled with an equity.... Even though there is no binding contract to bind any particular interest to the licensee, nevertheless the Court can look at the circumstances and see whether there is an equity arising out of the expenditure of money. All that is necessary is that the licensee should, at the request or with the encouragement of the landlord, have spent the money in the expectation of being allowed to stay there. If so the Court will not allow that expectation to be defeated where it would be inequitable to do so... [should] the father... sell the land to a purchaser... any purchaser who took the notice would clearly be bound by the equity. So here, too, the present plaintiffs the successors in title of the father, are clearly themselves bound 20 Meagher R, Hayden, Leeming M (2002) Meagher Gummow and Lehane s Equity Doctrines and Remedies Fourth Ed. at [17-105] 21 [1965] 2 QB 29
6 by this equity. It is an equity well recognised in law. That arises from the expenditure of money by a person in actual occupation of land when he was led to believe that, as a result of that expenditure, he will be allowed to remain there. Crabb v Arun District Council 22 concerned the future acquisition of property. The respondent had led the appellant to believe that he would be granted an easement. Although there was no definite assurance the respondent erected gates at the point of the proposed easement leading the appellant to believe that it had agreed that he should have the easement. Further, the respondent knew that it was commercially necessary for the appellant to have the easement. On appeal, the appellant argued that his claim of proprietary estoppel limited or extinguished the legal title of the respondent and created new rights and interests in equity in the appellant by reason of what the respondent had led him to believe, even though the respondent had never intended it. Denning MR, again, held that it was inequitable that the respondent should subsequently insist on its strict legal title, taking the high handed action of pulling down the gates without warning and demanding that the appellant pay 3000 as the price of the easement. In Giumelli v Giumelli 23 a son worked without wages in the family orchard business on an assumption induced by his parents that he would be given a share in real property. He built a house on the property and bore most of the costs on an inducement that it would be his. He also rejected an offer of employment from his father in law on a further assurance from his parents that he would be given a subdivided lot of defined real property. The son left the property against his parents wishes, and his brother made substantial improvements to the lot that had been promised to the son. The decision is an example of a remedy for a Dillwyn v Llewelyn type promise. Because the rights of an innocent third party, the brother of the plaintiff who commenced living in the house when the son left, would have been adversely affected had the court made an order for a constructive trust over the land in dispute, the 22 [1976] CH 197 23 (1999) 196 CLR 101
7 court made an order for equitable compensation in lieu of a conveyance of the land. A party relying on proprietary estoppel must contend with considerable uncertainty in its application. Much of the uncertainty is doctrinal. Like promissory estoppel, proprietary estoppel relies on a representation supported by detriment. However, unlike promissory estoppel, the default remedy is in rem, not in personam. The most important in rem remedy is the imposition of a constructive trust on the promissor, making him or her trustee of the real property for the benefit of the promissee. The conflation of in personam and in rem principles may explain why proprietary estoppels have been spoken of as analogous to constructive trusts, or even as a form of constructive trust. Although it is reasonably plain that the equitable claim is the in personam liability and the constructive trust is the in rem remedy, it is arguable that the conflation of principles explains why remedies may vary so widely. 24 Further, uncertainty surrounds the relationship of proprietary estoppel to other equitable estoppels, particularly promissory estoppel. Following the significant development of promissory estoppel in Australia, it is an open question whether proprietary estoppel remains as an independent claim, or whether it has been subsumed into a single overarching doctrine of equitable estoppel. The question is not simply academic, as much may turn on whether the quality of the representation necessary to support a proprietary estoppel is the same as the promissory quality required to support a promissory estoppel. RECENT DEVELOPMENTS IN PROPRIETARY ESTOPPEL Two recent decisions, both concerning leases, have considered the doctrine of proprietary estoppel, its relationship to promissory estoppel, the quality of the representation needed to support the claim and whether equitable principles are fractured according to whether the relationship between the parties is commercial or domestic. In Crown Melbourne Limited v Cosmopolitan Hotel 24 Meagher R, Hayden, Leeming M (2002) Meagher Gummow and Lehane s Equity Doctrines and Remedies Fourth Ed. at [17-105]
8 (VIC) Pty Ltd, 25 Crown leased premises to Cosmopolitan. When the leases came up for renewal, the proposed five year leases were without options for renewal and Cosmopolitan was required to undertake substantial refurbishments at its own expense. Cosmopolitan was concerned that the refurbishment costs might not be recouped within five years, but an officer of Crown stated that Cosmopolitan would be looked after at renewal time. Cosmopolitan entered into the new leases in alleged reliance on this representation. However, when the new leases expired, Cosmopolitan was not offered new leases. At first instance, the Victorian Civil and Administrative Tribunal found that the representation gave rise to a collateral contract to the benefit of Cosmopolitan and that Crown was estopped from denying the existence of the collateral contract. On appeal to a single judge of the Supreme Court the court found that the representation was not sufficiently promissory to constitute a collateral contract. It followed that there was nothing that Crown was estopped from denying. The Court of Appeal allowed the promissory estoppel claim but because it did not operate as a rule of evidence estopping Crown from denying the existence of a contract, but operated as a substantive claim in its own right, the court remitted the matter to the tribunal for further consideration. On appeal to the High Court, Cosmopolitan sought leave to cross appeal from the finding that there was no collateral contract. A majority of the court found that the representation relied on by Cosmopolitan was insufficient to ground a collateral contract because it was either insufficiently promissory in nature or illusory. On the estoppel point, the plurality, French CJ, Keifel and Bell JJ, held that to ground an estoppel a representation must be clear, precise and unambiguous. The statement that the respondents would be looked after at renewal time was insufficient to raise an estoppel. Keane J agreed saying at [143]: It would tend to reduce the law to incoherence if a representation, too uncertain or ambiguous to give rise to a contract or a variation of contractual 25 (2016) 90 ALJR 770
9 rights and liabilities, were held to be sufficient to found a promissory estoppel. Nettle J disagreed at [211], [212]: What is determinative in cases of promissory estoppel is whether the party sought to be estopped has played such a part in creating an assumption or expectation in the mind of a claimant, in reliance on which the claimant has acted to the claimant s detriment, that it would be unconscionable for the estopped party to depart from the assumption or expectation before allowing the claimant reasonable time in which to revert to the status quo... Ultimately, the disagreement didn t matter, as the court found that the evidence of the director of Cosmopolitan did not amount to him having acted on an expectation that Cosmopolitan would be granted a further lease on terms acceptable to it. 26 The court did not give an opinion as to whether there is a single unified doctrine of estoppel as Cosmopolitan had only ever advanced its case as one of promissory, not proprietary, estoppel. 27 The issue could have arisen on an argument that the requirement of certainty of the representation was less stringent for proprietary estoppel than for promissory estoppel. 28 Keane J, however, did provide some clues as to the characteristics distinguishing promissory from proprietary estoppel. [145] The principal practical difference between promissory and proprietary estoppel arises from the circumstances in which each is deployed: the former operates in relation to contracts, whereas the latter is concerned with a recognition of interests in property by way of relief against unconscionable conduct. [146] Proprietary estoppel affords relief against unconscionable conduct where a departure from an assurance means that the representor s conduct is to be regarded as contrary to good conscience. In proprietary estoppel, it is necessary to consider both the subjective reliance of the representee and the extent to which the representor can, in good conscience, be held to be responsible for the representee s actions. The representors is not acting contrary to good conscience in refusing to conform its conduct to the 26 at [160] 27 at [37], [38] 28 at [76]
10 predicament produced by the representee s unreasonable misunderstanding of a representation made to it. [147] Where a contractual right or liability is to be altered, coherence in the law requires that the representation which is said to bring about that alteration should be no less certain in its terms than would be required for an effective contractual variation [149] The concern that estoppel should not operate incoherent with the law of contract does not arise where proprietary estoppel is invoked precisely because there is no charter of contractually based rights and obligations governing the parties relationship... [150] In Giumelli this Court explained the doctrinal basis of relief by way of proprietary estoppel as involving the recognition of a constructive trust and property whereby the legal title of the owner of property is subjected by order of the Court to limitations necessary to meet the requirements and good conscience. Nettle J again, at [215], [217] appeared to disagree that there is a difference in the certainty of the representation required to ground promissory and proprietary estoppels: [215]... whatever degree of certainty might be necessary to found a promissory estoppel of the kind considered in Legione... proprietary estoppels of the kinds exemplified and dealt with in Llewelyn and Ramsden v Dyson do not require any particular degree of objective certainty and proprietary estoppels of those kinds are a form of promissory estoppel... proprietary estoppel is a sub species of promissory estoppel. The estoppel becomes a proprietary estoppel - a sub species of promissory estoppel - if the right claimed is a proprietary right, usually a right to or over land but, in principle, equally available in relation to chattels or choses in action. [217] The foundational principle on which equitable estoppel in all its forms is grounded is that equity will not permit an unjust or unconscionable departure by a party following assumption or expectation of fact or law, present or future, which that party has caused another party to adopt for the purpose of their legal relations. Consequently, the notion that there is or should be some a priori distinction between the degree of objective certainty required to found a promissory estoppel compared to proprietary estoppel runs counter to principle.
11 The idea of one overarching doctrine of estoppel rather a series of independent rules may not have yet won general acceptance. But, and as much as the recognised categories of equitable estoppel or instances of the operation of the more general foundational principle, the determination of whether it is unconscionable for the charged party to part from an assumption or expectation created in the mind of the Claimant must always depend on the particular facts and circumstances of the case. The recognised applications of established categories of promissory estoppel are not necessarily exhaustive of the cases in which equity will intervene... Doueihi v Construction Technology Australia 29 also dealt with a five year lease. The first four appellants ( the owners ) purchased a property to accommodate their company, Marble Plus Pty Ltd and Construction Technologies Australia Pty Ltd ( CTA ), which was majority owned by Mr Hogan. The owners knew that the premises were designed and built to accommodate CTA s adhesive manufacturing plant, that it was expensive to install and it would be expensive and disruptive to CTA to remove. In the event, CTA spent nearly $1,000,000 installing its plant and equipment. Mr Hogan told the owners that CTA would need a five year lease with a five year option to justify its expenditure. Mr Doueihi negotiating on the other owners behalf said that sounded fair. Mr Hogan, who was married to one of the owners assumed, consistently with the owners family practice of not making formal tenancy agreements, that CTA did not need to make a formal agreement for lease. Mr Hogan and his wife separated, following which CTA attempted to formalise its lease. However, CTA was only offered a short term lease with a significant increase in rent. Following this, CTA was given notice to quit. CTA brought proceedings in the Supreme Court claiming there was a binding agreement for lease between it and either the owners or Marble Plus for five years at a rent of $12,000 per month with an option for renewal for a further five years. Alternatively, CTA claimed that it had the benefit of either a conventional or an equitable estoppel against the owners or Marble Plus estopping them from denying the existence of an equitable lease or sub-lease from Marble Plus. At first instance, White J rejected CTA s contract claim and the conventional estoppel claim but upheld the claim to an equitable estoppel 29 [2016] NSWCA 105
12 characterised as a proprietary estoppel by encouragement. His Honour found that although in oral negotiations the parties had reached a consensus on rent, the term of a lease, an option for renewal and the area to be occupied CTA there was no objective intent to form legal relations sufficient to support a contract. He then went on to consider the conventional estoppel claim that the parties had all adopted the same assumption as to the terms of their legal relationship. However, on the facts there was not sufficient commonality of assumption to support the claim. The judge decided the case under the doctrine of equitable estoppel by encouragement which he characterised as belonging to the lines of authority in Dillwyn v Llewelyn and Ramsden v Dyson. The appeal raised two main groups of issues. First, the quality or nature of the assumption required to found an equitable proprietary estoppel, the reasonableness of the assumption as found at first instance and reliance on it by CTA, and whether it was unconscionable for the appellants to depart from that assumption. The second issue turned on the completeness of the bargain between CTA and the appellants, particularly the absence of agreement as to rent over the entire term and as to all commercial terms and whether they rendered unreasonable reliance by CTA on an assumption that an interest in the premises would be granted to it. The court per Gleeson JA, Beazley P and Leeming JA agreeing, held that the assurance given to CTA created or encouraged an expectation or assumption that CTA would be granted an interest in the premises in circumstances where there was a consensus as to the essential terms of CTA s occupancy of the premises and the parties had no expectation that a formal lease would be entered into. Doctrinally, the court made observations about the quality of the representation that were similar to those of Keane J in Crown v Cosmopolitan: a. Although a promissory estoppel requires an expectation or assumption of a particular legal relationship, the same level of specificity is not necessary to establish a proprietary estoppel. A proprietary estoppel may be
13 established notwithstanding that a representation is insufficiently certain in the sense that it would be insufficiently certain to found a contract. For instance, in Giumelli v Giumelli the High Court held that a party should be estopped from denying its promise to give a portion of land even though the boundaries of the portion were not precisely defined. However, a mere hope is not sufficient to support an equity. b. The circumstances in which proprietary estoppel will arise include those in which assurances were given which created or encouraged an assumption that a particular enforceable relationship would be established, or an interest would be granted. However, the elements of promissory estoppel formulated by Brennan J in Waltons Stores were not formulated to take into account the different circumstances involved where representations are made in respect of interests in land. It follows that the first element enunciated by Brennan J of a promissory estoppel, that a particular legal relationship would come into existence, is not a necessary element of a proprietary estoppel claim; c. Finally, it made no difference that the dealing was domestic rather than commercial. Most claims for estoppel fall into one of two categories: commercial where the parties typically contemplate a legal relationship; and domestic where the parties usually have no intention of entering into a written contract or formalising the expectation. However, the commercial or domestic nature of the relationship between the parties is not determinative and every case is to be decided on its own circumstances. Tadrous v Tadrous 30 does not stand for the proposition that equitable principles are fragmented according to the commercial or domestic relationship of the parties. It is permissible to give greater weight to a domestic context than a commercial context in deciding where an equity should lie without having to rely on any different principle of equity applying to a domestic relationship. 30 [2012] NSWCA 16
14 CONCLUSION The law of proprietary estoppel has not yet been subsumed into a single doctrine of equitable estoppel. It remains as an independent equitable claim fixing on representations about future interests in land. As the law currently stands, the standard of a representation sufficient to support a proprietary estoppel is less than the standard of a representation sufficient to support a promissory estoppel. This may explain why a representation as vague as looked after at renewal time, made in Crown v Cosmopolitan, went all the way to the High Court. It is also not necessary that the representee should assume that a particular legal relationship would exist. In Doueihi none of the parties expected to enter into a legal agreement. Finally, equitable principles do not vary according to whether the parties are in a commercial or a domestic relationship. However, remedies for proprietary estoppel will vary from a constructive trust, to an equitable charge, to equitable compensation, depending on the justice of case, including the rights of third parties.