Published on 26/05/2007

The Conscience of Equity

(A)   Fiduciary Obligations
What is a fiduciary relationship?

The problem of definition:

A fiduciary relationship arises where one party reposes trust and confidence in another, who is expected to act in the interests of the former party rather than the interests of the latter. The fiduciary may not act in their own self-interest. Their principle duty is to look out for the interests of another. It is an obligation of loyalty.

•   A fiduciary cannot use his or her position, knowledge or opportunity to the fiduciary’s own advantage, or have a personal interest in, or inconsistent engagement with, a third party, unless fully informed and free consent is given: Chan v Zacharia
•   This is the “no conflicts” rule

•   Persons subject to a fiduciary duty are not permitted to profit from their positions (other than where expressly permitted): Hospital Products v USSC
•   This is the “no profits” rule

•   In acting for or in the interests of the other, the fiduciary acts in a representative capacity: Hospital Products v USSC

•   Status-based categories of fiduciary relationships:
o   Trustee/beneficiary
o   Solicitor/client
o   Agent/principal
o   Director/company
o   Employee/employer (“servant/master”)
o   Partners and some other commercial relationships of “utmost good faith”

•   Features in common with trustees:
o   The fiduciary often has control or management of property
o   The fiduciary’s title to the property is limited by the interests of the beneficiary
o   The fiduciary undertakes to act in the interests of the beneficiary

•   The categories of fiduciary relationships are not closed: Hospital Products v USSC

•   “The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person, who is accordingly vulnerable to abuse by the fiduciary of his position” (per Mason J in Hospital Products v USSC)

•   From this statement, we can see that three critical factors relevant to determining whether there is a fiduciary relationship are
i)   An undertaking on the part of the fiduciary to act in the interests of another person
ii)   The power or discretion on the part of the fiduciary to affect the interests of the other person
iii)   The person to whom the fiduciary duty is owed is vulnerable to the fiduciary’s abuse of his or her position

Note: It is possible that a person may be held to owe fiduciary duties, even where they have given no explicit undertaking. For example, a person held to be a constructive trustee because he or she has fraudulently come into possession of someone else’s property will be held to owe fiduciary duties in respect of that property to the person who has been defrauded. We consider this issue when we deal with constructive trusts.

•   Hospital Products v USSC (1984) 156 CLR 41
Facts: A US company (USSC) made surgical instruments. These products were sold in Australia under an exclusive distribution agreement with HPI. HPI terminated the agreement (breach of contract). HPI began manufacturing and supplying products assembled in Australia from its own manufacture. HPL took over HPI. USSC sued in equity for an account of profits (they wanted a constructive trust to be found, so that HPL owns the new business, but they hold that business on trust for USSC).

Held: The majority found that HPI did not owe any fiduciary duty to USSC, so there was no right to equitable relief against either HPI or HLP based on breach of fiduciary duty.

Here, the agreement was purely contractual and did not give rise to a fiduciary relationship.
This was a typical commercial relationship defined by the parties’ own agreement.

•   Hence, it is necessary to look at the relationship of the parties in its own factual matrix to determine whether there is a fiduciary relationship
•   It is necessary to look at the nature of the agreement between the parties and seek to find an undertaking to act in the interests of the other party

The nature and content of the fiduciary duty
The “no conflicts” rule

•   The fiduciary must not place themselves in a position of conflict between their duty and personal interest
•   The fiduciary must not place themselves in a position of conflict between duties owed to different parties

(see the position of solicitors: Maguire v Makaronis)

The “no profits” rule

•   The fiduciary is not permitted to profit from their position of trust (other than any agreed remuneration)

•   Consider the strict application of the rule (especially for trustees) in Boardman v Phipps and Keech v Sandford

•   Boardman v Phipps [1967] 2 AC 46
Facts:   Boardman was the solicitor to the trustees of a will (together, the appellants). The trust held a minority shareholding in a company. The trust deed disallowed the trust from launching a takeover of the company. Boardman bought extra shares, and together with the trustees, launched a successful takeover of the company on behalf of the trust. As a result of the takeover, the shareholders of the company (including the trust) received substantial profits. There was no ‘informed consent’ to the takeover from the beneficiaries.

Held:   The court held that there was a fiduciary relationship that had been breached. Despite acting in the best interests of the trust, the fiduciary (Boardman) was liable to account for profits.

The information and knowledge which caused Boardman to launch a takeover of the company had come to him in his position as a fiduciary.

The court held that the appellants were liable as constructive trustees of the profits they had made.

The court ordered an account of profits, but with an allowance for the ‘work and skill’ of the appellants in obtaining the shares and profits.

•   How ready should equity be to find fiduciary obligations between parties to commercial contracts?

•   We have already seen Hospital Products v USSC. Consider also the following cases:

•   United Dominions Corporation v Brian (1985) 157 CLR 1
Facts:   Three companies entered into a joint venture in a land development project. Two of the companies entered into an agreement, but had not told Brian about it. Brian argued that they owed him a duty of disclosure.

Held:   The court held that there was a fiduciary duty in this case, and it involved disclosure. UDC was in a position of trust and confidence with Brian with respect to the joint venture.

The court held that a fiduciary relationship can exist even before a partnership has been formed.
Here, a fiduciary relationship existed (even though the precise terms of the partnership were not agreed) since the conduct of the partnership had been embarked upon.

•   LAC Minerals (1989) 61 DLR (4th) 14
Facts:   The plaintiff was the owner of certain mining rights in Ontario and revealed to the defendant, with whom it was considering a joint venture project, the results of exploratory drilling. These showed that adjacent land was likely to be rich in minerals. The defendant outbid the plaintiff for those adjacent rights and developed its own mine.

Held:   The court held that there was no fiduciary relationship between the parties, but that the defendant had broken an equitable obligation of confidence to use the information only to decide whether to go into the joint venture using the plaintiff’s mining rights.

•   Consider a bank manager who also gives personal financial advice: Commonwealth Bank of Australia v Smith (1991) 102 ALR 453

•   Commonwealth Bank of Australia v Smith (1991) 102 ALR 453
Facts:   A bank manager gave personal financial advice to a long-standing customer (Smith) who wanted to buy a hotel from a vendor (who had a large overdraft with the Bank). The bank manager introduced Smith to the vendor and revealed that the vendor was a customer of the bank, but would not reveal confidential information. He discouraged Smith from getting independent legal advice. He wanted the vendor to sell the hotel in order to pay off the overdraft. The price paid by Smith was too high and he lost money.

Held:   The court held that the bank manager owed a fiduciary duty to Smith.

Normally, a bank can be expected to act in its own interests in ensuring security of its position as lender. However, it may have created in a customer an expectation that it would give advice in the customer’s interests as to the wisdom of investment. In this way, the bank became a fiduciary.

This is an example where an otherwise commercial relationship can be identified as fiduciary.

The scope of the relationship and the extent of the duty

•   Should all fiduciaries be subject to the same strict application of the “no conflicts” and “no profits” rules?
•   Consider the dissenting judgment of Lord Upjohn in Boardman v Phipps
•   He held that the scope or extent of the “no conflicts” rule was a “real sensible possibility of conflict”

•   See Chan v Zacharia (1984) 154 CLR 178 per Deane J:

“…the liability to account for a personal benefit or gain obtained or received by use or by reason of a fiduciary position, opportunity or knowledge will not arise in any circumstances where it would be unconscionable to assert it or in which…there is no possible conflict between personal interest and fiduciary duty and it is plainly in the interest of the person to whom the fiduciary duty is owed that the fiduciary obtain for himself rights or benefits which he is absolutely precluded from seeking or obtaining for the person to whom the fiduciary duty is owed.”

•   This quote indicates that where there is no conflict between personal interest and fiduciary duty, and the fiduciary obtains profit while furthering the interests of the plaintiff, there will be no need to account for profits

•   Chan v Zacharia (1984) 154 CLR 178
Facts:   There was a partnership between two doctors on leased premises. The partnership dissolved and the lease expired. One of the doctors (Chan) took up the new lease for his own benefit.

Held:   The lease was an asset of the partnership. Chan held the new lease on constructive trust for the partnership. Even though the partnership had been dissolved, it was not yet wound up. Fiduciary obligations of partners continue during the winding up of partnership.

In seeking to obtain the option personally, Chan had put himself in conflict with his fiduciary obligation to the partnership.

•   See also the former employee cases:

•   Green & Clara v Bestobell Industries [1982] WAR 1
Facts:   Green was the manager of BI, which installed ceilings. His job was to draw up tenders. In the course of his job, he found out tenders were being invited for a project in WA. He set up his own company, put in a tender below BI’s (knowing how BI would calculate their tender), and then resigned. He won the tender.

Held:   The court held that this was a breach of the “no conflict” and “no profit” rules. The placing of a competing tender breached the conflict rule, and the use of confidential information in a manner within the scope of his fiduciary duty to make profit breached the profit rule.

•   Warman v Dwyer (1995) 182 CLR 544
Facts:   Dwyer was the manager of Warman, which distributed gear boxes made by a manufacturer in Italy. The Italian company suggested that Warman enter into a joint venture to assemble gear boxes in Australia. Warman rejected this. Dwyer set up his own company. The Italian manufacturer terminated the agency agreement with Warman and went into business with Dwyer’s company.

Held:   The court held that the creation of a new business by Dwyer was a breach of fiduciary duty.

•   Prince Jefri Bolkiah v KPMG [1999] 2 AC 222
Facts:   The Prince employed KPMG. Some years later, the Brunei government appointed KPMG to investigate the Prince’s affairs. KPMG had confidential information, and the Prince did not want them involved.

Held:   The court held that a breach of fiduciary duty will only occur where the breach is simultaneous with the existence of the relationship.
As KPMG was no longer retained by the Prince, they no longer owed him a fiduciary duty, and hence could not breach it.

Remedies for breach of fiduciary duty

•   Rescission of a contract: see Maguire v Makaronis

•   Account of profits
o   Note that courts will sometimes make allowances for skill, effort or financial contributions of the fiduciaries or others
o   Consider Warman v Dwyer

•   Compensation for loss: Nocton v Ashburton

•   Proprietary remedies: constructive trusts, equitable charges, tracing (all of which will be covered later in the course)

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Defences to breach of fiduciary duty

•   A fiduciary may escape liability for conduct that amounts to breach of fiduciary duty if the party to whom the duty is owed gives their informed consent: See Boardman v Phipps

•   Equitable defences (eg laches, acquiescence, delay)

New categories of fiduciary obligations?

Does a doctor owe fiduciary obligations to patients? What is the scope of those duties (if any)? See Breen v Williams (1996) 186 CLR 71

•   Breen v Williams (1996) 186 CLR 71
Facts:   Williams was Breen’s consulting physician. The question was whether Breen had the right to access her medical records. Williams did not wish to surrender these records.

Held:   The HCA held that doctors do owe fiduciary obligations to patients, but this does not mean that they are trustees. Simply finding that there is a fiduciary relationship does not finish the inquiry. Here, even though there was a fiduciary duty, Breen could not get hold of those patient records.

Brennan CJ: The doctor was not a trustee of patient records. There was an obligation to keep the patient’s confidences, but this does not make him a trustee of the patient’s records.

Dawson & Toohey JJ: Purely contractual remedies could resolve any conflicts between doctor and patient. The doctor/patient relationship is adequately dealt with by contract and tort, and it is unnecessary to consider any additional benefits that could arise from finding a fiduciary relationship.

Gummow J: Contrary to Dawson & Toohey JJ, just because there is a contract does not preclude the existence of a fiduciary duty. Here, the fiduciary duty does not extend to handing over patient records, but it might do so in other circumstances.

•   Consider News Ltd v ARL. Did the individual football clubs owe an allegiance of loyalty (akin to a fiduciary duty) to the ARL? Note the novel and ultimately unsuccessful trust argument (i.e. that the clubs owned rights under player contracts, and held those rights on trust for the ARL)

•   News v ARL
Facts:   Media magnate set up Super League. The most attractive players were picked off. There was an argument that the clubs had contracts with their players and these contracts gave the clubs proprietary rights. The ARL argued that clubs should use the player contracts for the benefit of the football league (mutual partnership obligation argument).

Held:   The argument did not succeed.

Remember that to identify a fiduciary relationship is not enough.

“to say that A stood as fiduciary to R calls for the ascertainment of the particular obligations owed to R and consideration of what acts and omissions amounted to failure to discharge those obligations.”: Maguire v Makaronis

•   Always ask:
o   Is there a fiduciary relationship?
o   If there is, what is the extent or scope of the fiduciary obligations?

(B)   Breach of Confidence

“Confidence is the cousin of trust” – Megarry J, Coco v AN Clark

•   Obligations to maintain confidential information may arise in contract. If the contract is the source of the obligation, then contract will define its scope.

•   Obligations to maintain confidence may also arise in equity (e.g. where the parties have not entered into any contract): Saltman Engineering
•   This is part of equity’s exclusive jurisdiction
•   It reflects the idea of enforcing people’s solemn oaths

•   Equity does not suffer from the limitations of privity of contract (where only the parties to the contract are bound by the obligations under that contract)
•   An equitable duty of confidence can affect the conscience of a third party stumbling across confidential information, even if they are not a party to the contract

•   There are three requirements for an action for breach of confidence (from Coco v AN Clark)
1)   The information must have the necessary quality of confidence (it must be “secret” and not publically available information)

2)   It must have been imparted in circumstances importing an obligation of confidence (the person receiving the confidential information must know that the information is confidential and that he or she is required to keep it secret)

3)   There must be an unauthorised use (or threat of unauthorised use) to the detriment of the party communicating it

Note: It may be possible for contractual and equitable obligations to sit side by side. See for example Campbell v Frisbee, where Frisbee could be restrained in equity, whether or not there were obligations under contract

How has the action been used?

•   To protect claims to personal “privacy” from intrusion by the media
o   See the discussion in ABC v Lenah Game Meats per Gleeson CJ about the use of breach of confidence to prevent “gratuitously humiliating” disclosures

•   ABC v Lenah Game Meats (2001) 208 CLR 199
Facts:   Lenah Game Meats (plaintiffs) ran a factory which ‘processed’ live brush-tail possums for the export market. An unknown person gained access to their factory and installed cameras in positions which enable the most sensitive parts of this process to be observed. The film was offered to the ABC, who planned to broadcast the film. The plaintiffs sought an injunction to prevent the broadcast.

Gleeson CJ:   Discussed the evolution of the word “private” instead of the use of the word “confidential”.

This case shows that now, Australian law does protect privacy through the common law through an action for breach of confidence. Previously, we would only have brought an action for defamation.

We are now prepared to say that an action for breach of confidence action does protect our privacy or human dignity, by preventing our private matters from being exposed to public scrutiny.

This case illustrates that equity is still growing. An action for breach of confidence can protect this type of private information.

•   To prevent rivals from exploiting valuable commercial ideas or information
o   See LAC Minerals, Coco v AN Clark, Saltman Engineering
o   An action breach of confidence has been used to protect commercially sensitive information and trade secrets

•   The “hybrid” case: To control (and exclusively exploit) commercial publication of personal information: Douglas v Hello!

•   Douglas v Hello! [2001] 2 WLR 992
Facts:   The plaintiffs, actors Michael Douglas and Catherine Zeta-Jones, sold the exclusive rights to photograph their wedding to OK magazine. Someone surreptitiously got into the wedding and took some unofficial photos, selling them to Hello! magazine. An interim injunction was filed, but was overturned. Both magazines came out with the photos simultaneously.

Held:   The Court found that this was confidential information of a private kind. The plaintiffs had made it clear that this was a private affair and wanted to make it a special occasion.

This is a hybrid case. The information is of a private, personal nature, but it is also commercially valuable (it is information that could be sold). The plaintiffs wanted to control and exclusively exploit the commercial publication of their wedding, and they should be able do this.

•   To protect one’s business reputation from adverse publicity: ABC v Lenah Game Meats (the action failed)

•   ABC v Lenah Game Meats (2001) 208 CLR 199
Held:   The Court held that information about slaughtering possums was not confidential.

It is necessary to look at the quality of information. Just because somebody does not want certain information on television does not mean it is confidential. Here, the action for breach of confidence failed.

•   To prevent the dissemination of official government secrets: Cth v John Fairfax & Sons (note the public interest defence)
o   Fairfax demonstrates that even if the three requirements in Coco v AN Clark are satisfied, you may still be prevented from getting an injunction if there is a public interest in disclosure

•   To prevent solicitors and other professionals from acting in matters against former clients: Prince Jefri Bolkiah

•   Prince Jefri Bolkiah v KPMG [1999] 2 AC 222
Facts:   Prince Jefri had instructed KPMG to do work for him and his companies. He had a falling out with his brother. His brother decided to use the same accounting firm. KPMG argued that they could set up an effective Chinese wall. There was a perceived conflict of interest.

Held:   Even though the Court was prepared to concede that a Chinese wall could be effective, the onus of proof was very heavy on KPMG.

A fiduciary duty to a client ends on completion of the retainer, but they continue to owe the client a duty of confidence.

Is confidential information “property”?

•   Strictly speaking, confidential information is not property under Australian law. See Breen v Williams per Brennan CJ, who cited with approval the statement of Lord Upjohn from Phipps v Boardman:

“In general, information is not property at all. It is normally open to all who have eyes to read and ears to hear. The true test is to determine in what circumstances the information has been acquired. If it has been acquired in such circumstances that it would be a breach of confidence to disclose it to another, then courts of equity will restrain the recipient from communicating it to another. In such cases, such confidential information is often and for many years has been described as the property of the donor, the books of authority are full of such references; knowledge of secret processes, “know-how”, confidential information as to the prospects of a company or of someone’s intention or the expected results of some horse race based on stable or other confidential information. But in the end, the real truth is that it is not property in any normal sense, but equity will restrain its transmission to another if in breach of some confidential relationship.”

•   See also Moorgate Tobacco per Deane J:

“Like most heads of exclusive equitable jurisdiction, its rational basis does not lie in proprietary right. It lies in the notion of an obligation of conscience arising from the circumstances in or through which the information was communicated or obtained.”

•   Equity often grants very similar remedies to proprietary remedies (e.g. an account of profits, an injunction)

•   Third parties are bound to respect a confidence once they learn the information is confidential: see Wheatley v Bell

•   See Gleeson CJ in ABC v Lenah Game Meats. What is confidential extends to “a matter which a reasonable person would understand to be intended to be secret, or to be available to a limited group to which that person does not belong”

•   Wheatley v Bell [1982] 2 NSWLR 544
•   This is an example of the commercially valuable type of confidential information that gets into the hands of third parties
•   Is there a bona fide purchaser defence? No. Breach of confidence does not involve the legal acquisition of property encumbered by an equitable interest, so the bona fide purchaser without notice defence is inept.

Some practical guidance

•   How can information which is truly confidential be identified? Kirby P in Wright v Gasweld set out a list of considerations applicable in the context of business information disclosed to employees, including:

o   How much skill and effort was expended to acquire the information? A lot of skill and effort suggests confidentiality.
o   Has the employer jealously guarded the information? If not, it is unlikely to be confidential.
o   Did the employer communicate the confidential nature of the information to the employee? The obligation depends on a personal obligation to keep a secret, so it is important that the employee is made aware of that obligation.
o   Is there an industry practice in keeping this kind of information confidential?
o   Has access to the information been restricted only to senior staff? Wide dissemination suggests lack of any intention to keep information confidential.

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(C)   Relief from Undue Influence

When will equity set aside (allow rescission) of a contract or dealing?

Relief from Undue Influence

•   Distinguish between common law duress and equitable “undue influence”
•   The equitable doctrine of undue influence has been developed to “protect people from being forced, tricked or misled in any way by others into parting with their property”: Allcard v Skinner (1887) 36 Ch D 145 per Lindley LJ

•   This is equity acting in its auxiliary jurisdiction (acting as a gloss over the common law)
•   Equity asserts that the defendant is conscience-bound not to assert a legal right that they have obtained because it would be in bad conscience to assert that right

•   The courts reiterate that normally, people must be bound by their contracts. For instance, a court of equity will not normally assess the adequacy of consideration. It is not equity’s role to mend a bad bargain
•   Here, equity will only interfere if one party has exerted an undue influence over the other in bringing about a transaction. Equity is looking at the quality of consent of the weaker party
•   Relief from undue influence will be available where one person is in a position of ascendancy or dominance over the other, in the sense that the weaker party places trust and confidence in the stronger party

•   Persuasion alone is not going to be addressed by a court of equity. There must be undue, improper or illegitimate influence. Equity says that it is not proper for the law to enforce a bargain that has been obtained by this type of influence
•   This allows people to get out of an agreement that they have apparently consented to (i.e. to have the contract set aside)

•   Undue influence is based on the nature of the relationship between the parties
•   By contrast, unconscionable dealing is based on the circumstances of the particular transaction

‘Actual undue influence’ and ‘presumed undue influence’

•   The burden of proof is very important in this kind of case

•   The “classes” of undue influence:

•   Class 1: Actual undue influence – must be proven by the plaintiff
o   This is where a plaintiff (apparently bound by a contract) is able to show that another person actually unduly influenced them to enter into a transaction
o   The stronger party must have had some kind of a domineering control, so that the vulnerable person must have allowed the domineering person to make decisions for them. Now, the vulnerable person wants to get out of the bargain
o   The plaintiff has to prove that the undue influence actually occurred (that undue influence was exercised). The plaintiff who brings the action must establish their case

•   Class 2: Presumed undue influence – the defendant bears the onus of proving that the transaction was the result of the plaintiff’s independent will (i.e. that there was no undue influence)
o   Equity says that there are some relationships where we recognise that, in reality, some people are very influenced and under the domination of others
o   If a transaction has arisen in such a relationship, we are prepared to presume that the relationship has created the transaction
o   The weaker party’s consent to the transaction is flawed and they should have an option of getting out of the bargain
o   We presume undue influence if such a relationship exists. This just means that the stronger party must show that they did not exert any undue influence, and that the weaker party’s consent was willing

•   Class 2 is divided into Class 2A and Class 2B

•   Class 2A – established categories of relationships in which the presumption applies:
o   Parent / child. A parent necessarily has a position of influence over a child. This happens even when the child is of legal adult age (strange?). Equity says that there is something inherently suspect when a parent takes a benefit from a child. The parent must prove that the transaction was the result of the child’s independent will. All that needs to be said is, “I, the plaintiff, entered into the transaction with my parent”, and then the parent then bears the onus of proof.
o   Priest / penitent (Allcard v Skinner)
o   Doctor / patient. If an elderly lady who has been taken care of for a long time by a doctor leaves an awful lot of money to a doctor in a will, the family may allege that the particular transaction has been affected by the undue influence of the doctor over the patient.
o   Solicitor / client. An example is a solicitor buying a house from a client. Besides the conflict of interest / fiduciary duty problems here, there is also the problem of undue influence. This is a presumed relationship of influence. The plaintiff only needs to say, “I entered into this transaction with my solicitor”, and then the solicitor bears the onus of proving that he or she did not influence their client. The solicitor must tell the client to obtain independent professional advice regarding the transaction.

•   Class 2B – de facto relationships of influence (i.e. relationships where, on the facts, one party naturally assumes a position of influence over the other)
•   There is no automatic presumption of influence. The relationships show this influence, but the particular relationship does not fall into one of the established categories

•   In Class 2B, the plaintiff must first prove that there is a relationship of influence. Then, the burden (or onus of proof) shifts to the defendant, who must prove that despite this relationship, the plaintiff gave fully informed and free consent to the impugned transaction

•   Note the importance of independent legal advice: see Bester v Perpetual Trustee

•   Johnson v Buttress (1936) 56 CLR 113
Facts:   An elderly man (Mr Buttress) transferred his house as a gift to the defendant (Mrs Johnson), who was a friend of his deceased wife. Mrs Johnson had known him for 20 years, visited him regularly, supplied him with food and clothes, and sent him rent from the house. Mrs Johnson had taken Mr Buttress to her solicitor and helped him through the transaction. After Mr Buttress died, the transfer was challenged by his son. All the son had to do was prove that this was a relationship of influence. Then the onus transferred to Mrs Johnson to prove that there had been an independently arrived at decision to enter into this transaction.

Held:   The Court could not say whether Mrs Johnson did or did not exercise undue influence. It was not possible to prove actual undue influence (because Mr Buttress was dead).

Mrs Johnson was not able to prove that there was no undue influence, because she had used her own solicitor and she could not bring enough evidence to show that this transaction was the result of Mr Buttress’s independent will. Hence, the son could have the transaction set aside.

•   This case shows that you can prove a relationship of influence, even though it is not one of the established categories. If you can prove such a relationship, then the burden shifts from the plaintiff to the defendant

•   Bester v Perpetual Trustee [1970] 3 NSWR 30
Facts:   A young girl inherited money and it was decided, on the basis that she had no business experience, to settle it into a trust. Her uncle and the trustee decided to tie up the money and appointed themselves as managers. A deed of settlement was drawn up and signed by the plaintiff. The deed provided that the plaintiff was entitled to income, but could not have access to capital. There was no provision for revocation. Years later, the plaintiff wanted to be free of this settlement.

Held:   The Court held that she could have the transaction set aside. Even though this was not an established category of influence, it was a de facto relationship of influence.

This case illustrates what constitutes independent legal advice. At the time of execution, the deed was read to the plaintiff by an independent solicitor, who asked if she had any questions she wished to ask.

The Court held that simply reading the document and telling the plaintiff where to sign is not independent legal advice. Independent legal advice is explaining what the legal terms mean in the practical circumstances that the client finds themselves. The solicitor has to explain that she will not get money until she is thirty and that she will not be able to change her managers. He has to explain what she is giving up and what she is agreeing to. It is the meaning of the transaction and the prudence of entering into the transaction that has to be explained. We are looking at the quality of the legal advice. There has to be proper advice.

•   Bank of NSW v Rogers (1941) 65 CLR 42
Facts:   A 41 year old spinster lived with her uncle. She was an intelligent woman with a mind of her own, but in matters of business, she relied on her uncle’s advice without question. Her uncle was on the verge of bankruptcy and persuaded her to mortgage the whole of her estate in favour of the bank as security for his debts.

Held:   The Court held that she could have the transaction set aside.

The Court held that the Bank had notice of the probability of undue influence affecting this transaction. The Bank knew that they cohabited, and knew that this was a very imprudent transaction. The Bank did not deal with her directly and did not ensure that she obtain independent legal advice. The Bank was taken to have notice of her equity, so as to have the transaction set aside.

Third party liability:
•   A person who has notice of the plaintiff’s equity to have a transaction set aside cannot take the benefit of the transaction

The case of the spousal guarantee

•   The scenario
o   Wife owns home
o   Husband wants to borrow money from the Bank
o   Bank wants security for the loan
o   Wife gives a mortgage over the home as security for the loan by the Bank to her husband
o   Husband defaults on the loan
o   Bank seeks to enforce the security over the home
o   Wife resists the Bank’s claim

On what basis?

•   It is rarely necessary to have to prove undue influence in such a case (because the husband agrees that there has been undue influence, so they get to keep the house)

Four alternatives:

1.    Undue influence – the wife’s agreement to give her husband the benefit of the guarantee was obtained by his undue influence over her, of which the Bank has notice
o   This is how the English courts have dealt with the issue
o   This could be Class 1 – actual undue influence
o   Class 2B – presumed undue influence based on the proven relationship between the parties
o   NOT Class 2A – it is unpalatable these days to presume that there is a relationship of influence between husband and wife. If there is a presumption, it has to be proved on the facts

Note:   In some cases, it is argued in the alternative that the Bank has used the husband as its agent in obtaining the wife’s consent, so is infected by his undue influence, as a principal is responsible for the acts of the agent

•   The question is whether the Bank had notice (actual or constructive) that there was a relationship of influence

•   Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773

Held:   Whenever a bank sees that it is taking a guarantee from someone who is not going to get a commercial benefit themselves from a loan, the bank is on notice that there may be undue influence.

The onus will be on the bank to ensure that there is a private meeting with the person, that the person knows what they are doing, and that the person has obtained independent legal advice.

2.    Unconscionable dealing – the Bank has taken unconscionable advantage of a recognised weakness in the wife, on the Amadio principle

•   This takes the husband completely out of the equation. The question is whether the bank recognises a special weakness in the wife, and if so, whether they have taken unconscientious advantage of that weakness

3.    The “special equity of wives” – on the principle in Yerkey v Jones, confirmed in Garcia v NAB

4.    Statutory “unfairness” – Contracts Review Act 1980 (NSW) or Trade Practices Act 1974 (Cth) ss 51AA, 51AB, 51AC

Consider:
o   Barclays Bank v O’Brian
o   Royal Bank of Scotland v Etridge (No 2)
o   Yerkey v Jones
o   Garcia v NAB
o   CBA v Amadio

Continued on page 4

continued

(D)   The principle in Yerkey v Jones

•   Whenever a person (e.g. a bank) takes a surety from a wife where the wife is a volunteer, then the person taking that surety is taken to know that there is a serious risk that the wife has not given her full consideration to it

•   This is a special equitable kind of non est factum defence. It applies only to wives

•   Garcia v NAB (1998) 194 CLR 395
Facts:   This case involved a spousal guarantee.

Held:   The HCA said that that it is no longer tolerable to say that a husband will unduly influence his wife. Here, Mrs Garcia fronted up to the bank as someone who knew what she was doing.

The HCA held that the transaction could be set aside by Mrs Garcia on the basis of the principle in Yerkey v Jones.

It is unconscionable for the bank to enforce a guarantee where
(a)   the wife did not understand the purpose and effect of the transaction
(b)   the transaction was voluntary (in the sense that the wife obtained no benefit from the loan herself)
(c)   the bank is taken to understand that the wife may repose trust and confidence in her husband in matters of business, and that the husband may not fully explain the effect and purpose of the transaction to his wife
(d)   the bank did not take steps to explain the transaction to the wife or discover whether she had obtained independent legal advice

Where a person has reposed confidence and trust in another, and that is apparent to a third party, the third party cannot take the benefit of a contract, unless the third party can show that the wife has understood what she was doing, and has chosen to do it herself.

•   This case only decides the scenario for a wife. The HOL extends it to anyone who gives a guarantee (see Etridge).

(E)   Relief from Unconscionable Transactions

What is unconscionable dealing? (from Commercial Bank of Australia v Amadio per Deane J):

“The jurisdiction of courts of equity to relieve against unconscionable dealing is long established as extending generally to circumstances in which
i)   a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them; and
ii)   that disability was sufficiently evident to the stronger party to make it prima facie unfair or ‘unconscientious’ that he procure or accept the weaker party’s assent to the impugned transaction in the circumstances in which he procured or accepted it
Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable.”

•   It is clear from Amadio that two elements must be satisfied
i)   The weaker party must have suffered from some special disability that made them particularly vulnerable.

Simply being in poor financial circumstances (situational disadvantage) is not
enough. There has to be some special weakness or vulnerability.

ii)   The stronger party has to be aware of that weakness and must be taking unconscionable advantage of that weakness.

There has to be knowledge, notice, awareness.

•   As with undue influence, a person recognising some constitutional weakness must take steps to provide independent legal advise to the weaker party

How is unconscionability different from undue influence? (from Commercial Bank of Australia v Amadio per Deane J):

“The equitable principles relating to relief against unconscionable dealing and the principles relating to undue influence are closely related. The two doctrines are, however, distinct. Undue influence looks to the quality of the consent or assent of the weaker party. Unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so. The adverse circumstances which may constitute a special disability for the purposes of the principles relating to relief against unconscionable dealing may take a variety of forms and are not susceptible to being comprehensively catalogued.”

•   In many cases, both undue influence and unconscionability will run simultaneously. However, there are subtle distinctions
o   Undue influence can work even where the dominant party does not realise the influence that they have over the weaker party (e.g. one of the established categories of relationships of influence)
o   The focus of undue influence is on the consent or assent of the weaker party. In unconscionable dealing, we are focusing on the conduct of the stronger party. We are asking whether it is unconscientious for the stronger party to insist on keeping the benefit of the transaction when they were aware of the weaker party’s particular vulnerability

•   To establish unconscionability, you need weakness and knowledge of that weakness (unconscientious exploitation)
•   It is not necessary to establish any relationship of influence
•   There are similarities with undue influence where third parties have notice of a relationship of influence (as with bank guarantees; see Bank of NSW v Rogers)

Examples

•   Wilton v Farnworth (1948) 76 CLR 646
Facts:   This involved a gift from a “dull-witted, deaf and uneducated” gold miner to his stepson. The question for the court was what was the man’s special weakness?

Held:   The Court held that he did have a “special disability”. This disability was known to the stepson, who took unconscientious advantage of that weakness. The stepson knew that this was clearly an unfair gift. The donor did not have any real understanding of what it was he was surrendering.

Rich J:   “It has always been considered unconscientious to retain the advantage of a voluntary disposition of a large amount of property improvidently made by an alleged donor who did not understand the nature of the transaction and lacked information of material facts such as the nature and extent of the property, particularly if made in favour of a donee possessing greater information who nevertheless withheld the facts.”

•   Blomley v Ryan (1956) 99 CLR 362
Facts:   This case involved an older man, mentally and physically weak, who was known to have an addiction to rum. He was persuaded to sell a valuable piece of real estate at a substantial undervalue. He had been on a prolonged drinking spree for several days when the contract was signed. The purchasers had encouraged drinking by plying him with liquor (they came with a bottle of rum). He wanted to have the contract set aside.

Held:   The Court held that the contract could be set aside, because of the unconscionable conduct of the purchaser, in exploiting and taking unfair advantage of the old man’s weakness.

Here, we see unconscionable dealing being used as a defence to a claim for specific performance of the contract.

Three things can be taken from this case:

1)   It does not have to be just a gift that can been undone. It can be a contract
as well
2)   It was not actually necessary to establish inadequacy of consideration. The fact that the price was substantially undervalued did not matter. The transaction could be set aside, so long as he could demonstrate that the contract was induced out of his drunken state, and that the purchasers knew of his weakness. Just being a bad deal is not enough.
3)   The case set out a catalogue of “special disabilities”, including
o   Poverty or need of any kind
o   Sickness
o   Age
o   Sex (gender)
o   Infirmity of body or mind
o   Drunkenness. Simply being drunk on occasion does not allow you to get out of a contract (i.e. You cannot say, “I was drunk when I signed the contract so I can get out of it”). However, if your drunkenness is recognised and well-known by the person dealing with you, it would be unconscionable for them to take advantage of your weakness
o   Illiteracy or lack of education
o   Lack of assistance or explanation where assistance or explanation is necessary

•   CBA v Amadio (1983) 151 CLR 447
Facts:   This involved a bank taking a guarantee to secure existing debts from the elderly non-English speaking parents of the debtor.

Their special weakness was that they did not speak very much English, they did not have much knowledge of the kind of business transactions their son was involved in, and they were vulnerable and besotted with their son, whom they saw as a very successful young businessman.

Held:   The Court held that the guarantee could be set aside.

The bank had taken unconscientious advantage of the parents, because the bank manager knew of and took advantage of their special weakness. By visiting their house and talking to them, the bank manager became aware that they did not realise their son was in dire financial straits. The bank manager failed to take steps to secure independent legal advice.

The majority held that there was unconscionable dealing. However, two of judges did not find on this basis.

Dawson J:   Found for the bank. He said that there was nothing special about their disability or weakness.

Gibbs CJ:   Preferred to use a more conventional principle that applies with guarantees. If a contract for guarantee contains unusual clauses, there is a duty of disclosure. The Bank had misrepresented to the parents by silence the nature of the contract, so could not rely on it.

•   Louth v Diprose (1992) 175 CLR 621
Facts:   This was a case where an impecunious, weak young woman was held to have taken advantage of a besotted suitor. The suitor was so infatuated with the young woman that he was persuaded to buy the flat she was renting and give it to her as a gift. He was induced by her protestations of misery, complaints of insecurity and threats of suicide. The donor was not rich and could ill-afford the gift.

The Court found that the suitor’s weakness was
i)   his infatuation with her to such an extent that he was not thinking straight
ii)   the situation of crisis that she had managed to manufacture about her circumstances. She wanted him to buy her the flat she was renting. She had suggested to him that she was so depressed by her impecunious circumstances that she was going to commit suicide. He fell for this and foolishly paid for the unit. She manufactured an air of crisis. She played on his concern that she might kill herself.

Later on, he woke up to himself and decided that he wanted the money back.

Held:   The court held by majority that the transaction could be set aside on the basis of unconscionable dealing. The court found that she was a very conniving woman. Her conduct was dishonest and smacked of fraud.

•   This case shows that even a strong, well-educated person can have a transaction set aside if they can identify a weakness and show that the other party knew of that weakness and took unconscionable advantage of it.

•   Bridgewater v Leahy (1998) 194 CLR 457
Facts:   This involved an improvident (?) transaction between a nephew and a single-minded uncle. The uncle was an elderly farmer who had four daughters and no sons. He had a favourite nephew, and came to see this nephew as the son he never had. He wanted the nephew to have the property after his death. He sold most of the property to his nephew while he was still alive for a fraction of what it was worth. After his death, the farmer’s daughters sought to set the transaction aside. They had to show that while the uncle was alive, he had been demonstrating a special weakness, and that the nephew knew of that special weakness and took advantage of it.

Held:   The majority of the HCA held that the transaction should be set aside.
The difficulty in this case is locating the uncle’s special weakness. It appears that the special weakness was the uncle’s fondness for his nephew, whom he regarded and treated as the son he should have had. It was held that the nephew took unconscientious advantage of this weakness.

•   As you can see from these cases, much depends on the way you tell the story.

Statutory developments:

•   There may be statutory relief against unconscionable dealing
•   Statutory developments
o   provide a range of remedies that go beyond equity’s traditional jurisdiction
o   take the grounds for challenging a transaction beyond what equity has traditionally done

Contracts Review Act 1980 (NSW)

•   The Act cannot be excluded by agreement (s 17)
•   The general law is preserved, so this provides an additional alternative remedy (s 22)
•   The Act is limited to consumer contracts (s 6)
•   The Act gives a court the power to provide relief against “unjust” contracts, such as refusing to enforce a contract in whole or in part, declaring a contract void in whole or in part, or making an order varying the terms of the contract (s 7)
•   The court looks at a number of factors in determining whether to extend the equitable principles (s 9), including
o   whether there was inequality of bargaining power
o   whether independent advice was obtained
o   the economic circumstances and educational background of the parties
o   whether unfair tactics were used

Trade Practices Act 1974 (Cth)

•   s 51AA:   A corporation, in trade or commerce, cannot engage in any conduct that is unconscionable within the meaning of the unwritten law
•   s 51AB:   Deals with consumer protection
•   s 51AC:   Deals with small business

Continued of page 5

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(F)   Estoppel

•   Professor Patrick Parkinson encapsulates the essence of estoppel in this statement:

The object of estoppel is to preclude the unconscientious departure by a party from an assumption for which he or she bears some responsibility, and which has been adopted by another party as the basis of a course of conduct, an act or an omission which would operate to that other party’s detriment if the assumption were not adhered to.

•   Estoppel occurs when a person is prevented by law from acting inconsistently with his earlier representation

•   At common law, several “species” of estoppel developed, which acted as rules of evidence (e.g. issue estoppel)

The development of promissory estoppel as a cause of action: Early authority

•   Burrowes v Lock (1805) 10 Ves 470
Facts:   A trustee (the defendant) was holding a trust fund on behalf of a beneficiary (X). X assigned an interest under the trust to Y. X then purported to assign the same interest to the plaintiff. The plaintiff asked the trustee whether the interest was encumbered. The trustee carelessly and forgetfully answered “No”.

Held:   The defendant trustee was obliged to make good the representation by compensating the plaintiff.

•   Jordan v Money (1854) 5 HLC 185
Facts:   Money owed Marnell 1,200 pounds. Money gave Marnell a bond for this amount. Marnell died and Mrs Jordan inherited the bond. Money was contemplating marriage, but was concerned about his means. Mrs Jordan said that she would never enforce the debt, so he married. Five years later, she sought to enforce the debt, and Money claimed she should be estopped.

Held:   The HOL said that there was no estoppel in this situation.

The HOL said that estoppel can only work when the statement is about an existing fact, not a promise. As soon as it becomes a promise, it crosses into the territory of contract law.

Hence, this case has been held to be authority for the proposition that estoppel was limited to representations of present fact, and could not be extended to representations of intention.

“High Trees” (also “promissory” or “equitable” estoppel)

•   Central London Property Trust v High Trees House Ltd [1947] KB 130
Facts:   CLPT leased a block of flats to High Trees for 99 years in 1939 for a ground rent of 2500 pounds per year. During the war, CLPT agreed to reduce the rent to 1250 pounds. After the war, CLPT raised the rent to 2500 pounds and asserted a right to arrears of over 7000 pounds. This was a test case regarding whether arrears could be payable.

Denning LJ:   Held that the arrangement was intended to last only for the duration of the war, so the rent could be raised again. However, there was no entitlement to arrears.

Where one party has given a promise that he will not assert existing legal rights, and another party acts to their detriment in reliance of that promise, the party who gave the promise can be estopped from going back on that promise, but only for so long as the detriment runs.

Hence, even though CLPT could not claim any arrears, they could now give notice of their insistence to return to the formal rental status.

Here, High Trees was permitted to use estoppel as a “shield” against CLPT’s claim.

The HOL narrowed Jordan v Money down. They said that if you can demonstrate detrimental reliance, a person can be estopped on the basis of a promise, if the promise is not to enforce a pre-existing legal right. However, estoppel only applies for so long as the detriment runs. The remedies will only reverse the detriment, so the representation of intention is not a permanent change to the contractual relationship.

Acceptance by the Australian High Court

•   Estoppel in pais = estoppel by conduct

•   Dixon J in Thompson v Palmer:

The object of estoppel in pais is to prevent an unjust departure by one person from an assumption by another as the basis of some act or omission which, unless the assumption be adhered to, would operate to that other’s detriment. Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party. He may be required to abide by the assumption because it formed the conventional basis upon which the parties entered into contractual or other mutual relations, such as bailment; or because he has exercised against the other party rights which would exist only if the assumption were correct; or because knowing the mistake the other laboured under, he refrained from correcting him when it was his duty to do so; or because his imprudence, where care was required of him, was a proximate cause of the other party’s adopting and acting upon the faith of the assumption; or because he directly made representations upon which the other party founded the assumption. But, in each case, he is not bound to adhere to the assumption unless, as a result of adopting it as the basis of action or inaction, the other party will have placed himself in a position of material disadvantage if departure from the assumption be permitted.

•   Legione v Hately (1983) 152 CLR 406
Facts:   This was about a contract for the sale of land. A purchaser was not able to complete on the date of settlement. He asked the vendor’s solicitor for more time. The solicitor said it would be alright. When vendor asked for the balance of the purchase price, the purchaser relied on the solicitor’s statement to say that the money was not ready.

Held:   The HCA adopted the High Trees authority, and said that there can be estoppel if there is a clear representation, even if that representation is a promise.

The HCA accepted in principle that a clear representation made in the context of an existing legal relationship, that one party will not rely on its existing legal rights, will be binding in circumstances where the other party has relied to its detriment on that representation, and it would be unconscionable for the first party to resile from that representation.

•   The quantum leap in Waltons v Maher was that the court said there does not have to be a pre-existing legal relationship for you to establish estoppel

•   Waltons Stores (Interstate) v Maher (1988) 164 CLR 87
Facts:   The Mahers owned a building in Nowra. Waltons entered into negotiations with them to encourage them to develop a new modern-style shopping mall in place of this older shopping building that they had. It was arranged that the Mahers would demolish the existing premises and construct new premises which Waltons would lease back. The Mahers were a bit naïve and there were no formal executed agreements. The deal fell through in circumstances where the Mahers had a half demolished shopping centre and no tenants.

Held:   The majority of the HCA said that Waltons could be estopped from denying that there was a contract because they had deliberately and consciously remained silent. They had watched the Mahers demolish the existing building (they had seen that they were making a mistake). They had deliberately refrained from letting the Mahers know what the real situation was (that they did not intend to proceed with the lease).

This case is a proposition for the fact that even pre-contractual negotiations can found an estoppel. The important part of the case were the principles that came out of Brennan’s J judgment.

Brennan J:   The plaintiff must prove that
1)   the plaintiff assumed a particular legal relationship did, or would exist in circumstances where the defendant would not be free to withdraw
2)   the defendant induced the plaintiff to make that assumption
3)   the plaintiff acts, or refrains from acting, on the basis of the assumption
4)   the defendant knew, or intended the plaintiff to do so
5)   the plaintiff’s action (or inaction) will cause the plaintiff detriment if the assumption is not fulfilled
6)   the defendant failed to avoid that detriment

Question:   Are there limits to the application of the doctrine of promissory estoppel in the context of commercial negotiations? Consider: Austotel v Franklins. Note especially the comments of Kirby J.

•   Austotel v Franklins (1989) 16 NSWLR 582
Facts:   This was also about the lease of a shopping centre. Austotel were going to build a new shopping mall and Franklins were going to be the tenants. Franklins gave a lot of information to Austotel regarding the important specifications that a shopping centre must have. Austotel needed some financing. The banks wanted assurance that project had a confirmed tenant. Austotel asked Franklins to sign the lease now or write a letter committing themselves to the lease. Franklins refused to do so. Austotel became more agitated so they began negotiating with BiLo. Franklins became aware of this and claimed an estoppel. Franklins argued that Austotel should be estopped from denying that there is a binding agreement. Franklins won at first instance, but lost on appeal by majority.

Held:   The HCA said that Franklins must prove all the necessary elements of estoppel as well as that there is something unconscionable.

Here, Franklins had deliberately refrained from committing themselves to a firm lease. They had strategically and consciously delayed the signing of the lease for their own commercial advantage. Hence, there was nothing unconscionable in Austotel seeking to improve their position by negotiating with an alternative party.

Kirby J:   Said law and equity should be very careful in intruding into commercial matters. Courts should treat well-advised commercial parties differently to those in other relationships.

•   This case shows that not every time a contract is in the negotiation stages will there necessarily be an estoppel (this was a criticism of the decision in Waltons v Maher)

•   Waltons v Maher raises a question about what is the appropriate remedy is for an estoppel

•   In the end, the Mahers got compensation for what they had lost for relying on the representations made by Waltons and their advisors

•   Here, equity is reversing the detriment that is suffered. It is putting the parties back in the position they would have been if no-one had done anything wrong in the first place.

Note:   Under High Trees, estoppel was being used as a shield. The defendant was using estoppel as a defence (a shield). Under Waltons v Maher, estoppel was being used as a sword. The plaintiff was using estoppel as a cause of action to obtain an equitable remedy.

Continued on page 6

continued

Proprietary estoppel

•   This binds the owner of property who induces another person to assume or expect that an interest in that property will be conferred on that person, where that person relies on that assumption or expectation and alters their position to their detriment (Waltons)

•   Dillwyn v Llewellyn (1862) 45 ER 517
Facts:   This is the case of the imperfect gift. A father tells his son that he is giving him land (but the conveyance is not perfected). The son expends a considerable sum in building on the land. The father dies.

Held:   The son is successful in claiming that the father’s executors must complete the gift (i.e. the conveyance of the land should proceed to the son). Equity perfects an imperfect gift.

“Equity 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 or on the expectation that it will be made effective.” (MGL)

•   Ramsden v Dyson (1865) LR 1 HL 129

Per Lord Kingsdown:   Where a person improves land in the mistaken assumption that it is his own, and the true owner, being aware of the mistake, deliberately stands by doing nothing to correct the mistaken assumption, equity will prevent the true owner from profiting from the mistake.

“Equity binds the owner of property who induces another to expect that an interest in the property will be conferred upon him.” (MGL)

•   Morris v Morris [1982] 1 NSWLR 62
Facts:   At the invitation of his son and daughter-in-law, a father sells his unit and uses the proceeds to build a second story flat onto their home on the condition that he live there. They divorce. The daughter-in-law cannot handle the father being there and tells him he cannot live there anymore. He claims an interest in the house based on estoppel.

Held:   The court said that there is an estoppel. He is granted an equitable charge over the house obligating the couple to pay back the money owed to him. If they fail to pay him back, he could take steps to retrieve the property.

McLelland J:   “In some circumstances, the appropriate remedy may well be the imposition of a constructive trust.” (this case shows that an estoppel argument can be run in the same circumstances as a constructive trust argument).

•   Crabb v Arun District Council [1976] Ch 179
Facts:   Crabb subdivides a two acre block of land, and sells the block with established access to a council-owned road. He relies on an informal agreement with the Council that the remaining block can have its own access to the road, and does not reserve for himself a right of way over the first block when he sells it. The Council subsequently denies him access to the road.

Held:   Crabb was entitled to the right of way without paying for it.

The Council was estopped because they had given him an informal undertaking. He relied on that representation to his detriment, so the council was subsequently estopped.

He was entitled to have a right of way over the Council’s land without having to pay the Council any money for it.

Basis of the decision:

•   Denning LJ states that the ‘species of estoppel called proprietary estoppel…does give rise to a cause of action’ (although promissory estoppel does not). He goes on to describe the common basis of the two species, i.e., that equity “will prevent a person from insisting on strict legal rights…where it would be inequitable to do so having regard to the dealings which have taken place between the parties.”

•   Lawton LJ applies Ramsden v Dyson (proprietary estoppel)

•   Scarman LJ says “I do not find helpful the distinction between promissory and proprietary estoppel” and states general elements similar to those stated by Brennan J in Waltons v Maher

Is there a unified doctrine of estoppel?

•   In Australia, the law in this particular field continues to be in a state of flux (MGL)

•   Commonwealth v Verwayen (1990) 170 CLR 394
Facts:   A serviceman injured in the collision of the HMAS Voyager and Melbourne in 1964 took proceedings in 1984. He faced two potential obstacles: the statute of limitations on tort claims; and the “Groves defence” (governmental immunity against claims for military maneuvers). The Commonwealth initially stated that it would not claim these defences, but subsequently changed its policy. The question was whether the Commonwealth should be estopped from relying on its defence.

Held:   Verwayen won, 4:3, but only two of the majority based the result on estoppel.

There were seven judgments, so no legal conclusions

o   Deane J:       One “fused” doctrine – remedy is a prima facie right to
fulfill expectation
o   Mason CJ:       One doctrine, but remedy is reversal of detriment
o   Brennan and McHugh JJ:   This was equitable estoppel (but they did not find it
here) – remedy is reversal of detriment
o   Dawson J:       This was promissory estoppel (High Trees) – remedy is
fulfillment of expectations
o   Toohey and Gaudron JJ:   Found for Verwayen on the basis of waiver –
remedy is to fulfill expectations

•   Hence, it is uncertain from this case whether there is one unified doctrine of estoppel, and what the appropriate remedy is in a case of equitable estoppel

	The Cth waived its	The Cth is estopped from	Appeal allowed
	defence and the limitation	relying on its defence and	or dismissed
	period	the limitation period
Mason	N	N	allowed
Brennan	N	N	allowed
Deane	N	Y	disallowed
Dawson	N	Y	disallowed
Toohey	Y	N	disallowed
Gaudron	Y	?	disallowed
McHugh	N	N	allowed

•   Consider the most recent High Court case to consider this question: Giumelli v Giumelli (1999) 196 CLR 101

•   Giumelli v Giumelli (1999) 196 CLR 101
Facts:   This involved a family dispute. The older son wanted to move away, but his parents told him to stay in the business with them. Later, he married a girl who his parents disapproved of. He ended up leaving the business and going off with her, but he claimed the land that had been promised to him on the basis of estoppel. He wanted a subdivision which represented the piece of land that was promised to him. He had a younger brother who moved into the house and made further improvements after the older brother had gone off.

Held:   The Court found for the older brother. The parents’ statement were of a promissory nature, and he had relied on them. It would be unconscionable for his parents to deny him the benefit of these promises.

The Court made no comments as to whether there was a unifying doctrine of estoppel.

However, the Court did cite Deane’s J statement in Verwayen, and said that the appropriate remedy in any estoppel is a right to fulfill expectations.

The Court said that the correct approach is to start with the proposition that having found an estoppel, the right of the plaintiff is to have their expectations fulfilled. However, it is then necessary to examine whether that will do too much for the plaintiff (the court must examine whether that approach will bring an inequitable result). Here, the Court decided that to fulfill the older brother’s expectations and grant a subdivision would be doing too much, because a third party’s interest (the younger brother) had intervened.

Hence, the Court said that the older brother should have the value of what his parents had promised him, but not the land itself. It should be secured by equitable charge over the property (to make sure he got paid).