- Home
- Equity
- LPAB 2007-2008
- Estoppel in Equity and Confidential Information
Estoppel in Equity and Confidential Information
- By Student at Law
- Published 20/03/2008
- LPAB 2007-2008
- Unrated
5.1 Proprietary estoppel
Equity developed a jurisdiction to prevent a person from insisting upon strict legal right in property, usually land, in circumstances in which the person concerned had encouraged another to act in his or her detriment on the faith of a belief that he or she had some rights over the property in question.
The result of this estoppel is usually extinction, qualification or suspension of the rights of the legal titleholder, rather than the requirement to make good some representation made by that party. It does not necessarily rely on any expectation created or encouraged by the defendant. Acquiescence with knowledge in the plaintiff’s mistaken belief will also satisfy the doctrine.
Dillwyn v Llewelyn
Facts: a father put his son in possession of some land and signed an instrument of conveyance which proved to be ineffective. The son occupied the land and built a house on it, all with the knowledge and approval of the father. On the father’s death, the son obtained a declaration that he was the equitable owner of the land.
Held: The rule that if A puts B in possession of the land and tells him that he may build a house on it, and B – on the strength of that promise, with the knowledge of A – expends money in building a house, then B will acquire a right to compel A to complete the contract and perfect the imperfect donation.
The other line of authority Ramsden v Dyson places much stronger reliance on equitable fraud arising in circumstances where B improves the land of A, under the belief that he has some right to that land, and A, knowing of B’s mistaken assumption and of his work on the land, stands by and allows B to proceed with the improvements.
“If a stranger begins to build on my land supposing it to be his own, and I, perceiving his mistake, abstain from setting him right, and leave him to persevere in his error, a court of equity will not allow me afterwards to assert my title to the land on which he had expended money on the supposition that the land was his own.”
In Willmott v Barber, Fry J stated the elements of equitable estoppel:
1. Plaintiff must have made a mistake as to his or her legal rights;
2. the plaintiff must have expended money or done some other act on the faith of that mistaken belief;
3. the defendant must know of his or her own legal right, which is inconsistent with that claimed by the plaintiff;
4. the defendant must know of the plaintiff’s mistaken belief; and
5. the defendant must have encouraged the plaintiff in his or her expenditure or other actions, either directly or by abstaining from asserting his or her own rights.
The question will be whether the defendant can resile from the expectation fostered by the statements made and other conduct and which have led to the action taken by the plaintiff. If it is reasonable to expect that a normal person would respond to the act of encouragement, it should not matter whether the encouraging party also knew that the plaintiff was responding.
Proprietary estoppel, arising from encouragement rather than acquiescence, was also applied in qld in Riches v Hogben, preventing an elderly woman from denying her 64 year old son a proprietary interest in a house she had purchased in Brisbane in her name. The son had migrated from England with his family on the basis of an assurance by the mother that she would purchase a house in his name if he came out to look after her. Within a week of the son and his family moving in, the mother asked them to leave, following a disagreement.
Stevenson v Payne is authority commonly cited in support of the proposition that it would be essential for the party insisting on his or her rights to have known of them at the time of the acquiescence or encouragement in the expenditure by the other.
The relief awarded in proprietary estoppel has been described as the minimum equity required to do justice: Crabb v Arun District Council. In the ‘encouragement’ cases, this is held to require fulfillment of the expectation, while in the ‘acquiescence’ cases the concern has generally been to prevent A from enjoying the benefit conferred on him or her by B, or to compensate B for any exertions, sometimes by charging the property of A.
The principle which operates in determining the appropriate relief is one concerned to prevent unconscionable insistence upon strict rights. Relief will generally take the form of some qualification, suspension or extinguishment of the rights of A unless that has become impossible, in which case compensation for the detriment may be awarded. In extreme cases the court may go further.
Jackson v Crosby
A man was effectively awarded half the unencumbered, improved value of a block of land on which he built a house. The land was owned by a woman with whom he had been living, and was intended to be their home. The court considered half the value of the house and land, about $19,000, a more appropriate compensation in the circumstances than the value of the man’s labour, about $12,000.
Giumelli v Giumelli
HC dealt with the remedy that estoppel gives you. Specifically, what is the relationship between estoppel and a constructive trust.
Facts: Mr and Mrs Giumelli conducted a business as a partnership and encouraged their son to stay and work in the business by promising that he would be given an unspecified part of the block of the land they had acquired. Also told him that he could build a house on the land. Robert’s first marriage failed after his wife refused to live on the land, he remarried, and his parents disapproved. His parents disapproved and refused to subdivide the block of land and transfer a portion of it into robert’s name. Robert commenced proceedings that his parents held the land on trust to convey the promised lot to him.
Held: Full court were prepared to make an order in the nature of constructive trust to secure the conveyance to Robert Giumelli of the promised lot.
HC upheld the finding that Robert Giumelli had incurred detriment in acting in reliance on the promise to convey part of the land to him. However, overturned the Full Court’s decision to award the remedy of constructive trust. Instead, it made an order for the payment of a monetary sum representing the then present value of Robert’s claim to the promised lot. Their honours said that before making an order imposing a constructive trust, the court was obliged to consider all the circumstances of the case including the still pending partnership action, improvements to the lot by family members other than Robert, the breakdown in family relationships, and the continued residence on the promised lot of one of Roberts brothers and his family.
“in these cases, the equity which founded the relief obtained was found in an assumption as to the future acquisition of ownership of the property which had been induced by representations upon which there had been detrimental reliance by the plaintiff. This is a well recognized variety of estoppel as understood in equity and may found relief which requires the taking of active steps by the defendant.”
Before a constructive trust is imposed, it is outlined in Plimmer v Mayor of Wellington that ‘the court must look at the circumstances in each case to decide in what way the equity can be satisfied’ i.e. is there an appropriate equitable remedy which doesn’t require imposing a trust; court needs to also look at relevant third factors (including the impact
upon relevant third parties).
5.1 Waltons v Maher
The underlying principle of the common law doctrine of estoppel by representation is that it ‘prevents a person who, by representation of fact, has led another to alter his position, from denying that the fact is as represented’: Discount & Finance Ltd v Gehrig’s NSW Wines Ltd (1940)
In Jordan v Money the House of Lords confined estoppel by representation to representations of existing fact, rather than intention of some future matter. In Low v Bouverie stated that estoppel was a rule of evidence and would not itself support a cause of action. The result was that a party seeking to rely on and enforce some representation could not sue on estoppel. This destroyed estoppel by representation as a cause of action at common law.
The principle distinction between equitable estoppel and common law estoppel is the requirement that there be a representation as to an existing fact. Equitable estoppel will apply where the representation or assumption on which the plaintiff operates includes matters of future intention or conduct. Equitable estoppel can be used as a cause of action: a sword as well as a shield, at common law, it is only available as a ‘shield’.
The two strands of estoppel in equity, proprietary estoppel and promissory estoppel, have now been joined under the one doctrine of equitable estoppel.
The principle source of authority is Waltons Stores (interstate) Ltd v Maher (1988) Facts:
1. The respondents (lessors) negotiated with the appellant (lesee) for the lease of commercial premises in Nowra.
2. It was arranged that the respondents would demolish the existing premises and construct new premises which the appellant would lease.
3. Draft agreements were prepared, negotiated and ammended.
4. The appellant’s solicotor told the respondents’ solicitor that he had received verbal instructions from the appellant that the amendments were acceptable.
5. The appellant’s solicitor sent to the respondents solicitor (7 Nov) fresh documents incorporating the agreed ammendments.
6. The covering letter said ‘you should note that we have not yet obtained our clien’ts specific insturcitons to each amendment requested, but we believe that approval will be forthcoming. We shall let you know tomorrow if any amendments are not agreed to.
7. Having heard nothing (11 Nov) the respondents’ solicitor forwarded executed documents ‘by way of exchange’.
8. Thereafter, the respondents completed demolition of the old building, the appellant becoming aware of this fact (10 Dec).
9. Having been advised by its solicitor that it was not bound to proceed because contracts had not been exchanged, the appelant decided not to commit itself to the lease and instructed its solictor to ‘go slow’.
10. Pursuant to these instructions, the appellant’s socilitr made no response to the letter of 11 Nov until 19 Jan, and in the meantime, had retained possesion of the document executed by the respondents.
11. By letter dated 19 Jan the appellant’s solicitor informed the respondents’ solicitor that the appelnt did not intend to rpoceed with the matter.
12. At that stage the new building was approx 40 per cent completed.
13. The respondents’ instituted proceedings for specific performance or damanges, and obtained an award of damages.
14. Carney J found that the appellants were estopped from denying that a contract existed.
15. Problem with this is that it doesn’t really fit the facts: they said, here is our side of the contract by way of exchange, BUT, they never actually got the other half back. Thus difficult to say that there was an actual contract, as they knew they had never received the contract back grom the other side.
16. Problem was that if you don’t prove the contract, you are left arguing that there was a promise for a contract (this would be promissory estoppel). If it is an estoppel by conduct case (if you have found that there is an actual representation of a contract) then it is an easy case.
17. But the facts do not fit this, so difficult to argue that there was a factual contract existing.
Held: Gaudron and Deane JJ took this view in the HC.
Mason CJ and Wilson J
Note: the traditional conception of promissory estoppel
[T]rue it is that in the orthodox case of promissory estoppel, where the promisor promises that he will not exercise or enfroce an existing right, the elements of reliance and detriment attract equitable interveniton on the basis that it is unconscionable for the promisor to depart from his promise, if to do so will result in detriment of the promisee.
- Per Mason CJ and Wilson J
-Ratio:
[T]he doctrine extends to the enforcement of voluntary promises on the footing that a depature from the basic assumptions underlying the tranasaction between the parties must be unconscionable. As failure to fulfill a promise does not of itself amount to unconscionable conduct, mere reliance on an executory promise to do something, resulting in the promisee changing his position or suffering deriment, does not bring promissory estoppel into play. Something more would be required….this may be found, if at all, in the creation or encouragement by the party estopped in the other party of an assumption that a contract will come into existence or a promise will be perfromance and that the other party relied on the assumption to his detriment or the knowledge of the first party”.
- Per Mason CJ and Wilson J
-Held:
[T]he appellants inaciton in all the circusmtances consituted a clear encouragement or inducement to the respondents to continue to act on the basis of the assumption which they had made. It was unconscinoable for it, knowing that the repsondents were exposing themselves to detriment by acting the basis of a false assumption, to adopt a course of inaciton which encouraged them in the course they had adopted. To express the point in the language of promissory estoppel the appellant is estopped in all the circusmtances from retreating from its implied promise to complete the contract.
- Per Mason CJ and Wilson J
-Brennan J
[I]n my opinion, to establish equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintff assumed or expected that a particular legal relationship exists between the plaintiff and the defendant or that a particular legal relationship will exist between them and, in the latter case, that the defendant is not free to withrdraw from the expected legal relationship; (2) the defedant has induced the plaintiff to adopt the assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the asusmption or execptation; (4) the defendant knew or intended him to do so; (5) the plaintiffs aciton or inaciton will occasion detriment if the asusmption or expectation is not fulfilled; and (6) the defendat has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will neverthless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant’s porperty, a diminuition of his rights or an increase in his obligations and he, knowing that the plaintiff’s reliance on the assumption or expecation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or exceptation on which the plaintiff is conducting his affairs.
Equity developed a jurisdiction to prevent a person from insisting upon strict legal right in property, usually land, in circumstances in which the person concerned had encouraged another to act in his or her detriment on the faith of a belief that he or she had some rights over the property in question.
The result of this estoppel is usually extinction, qualification or suspension of the rights of the legal titleholder, rather than the requirement to make good some representation made by that party. It does not necessarily rely on any expectation created or encouraged by the defendant. Acquiescence with knowledge in the plaintiff’s mistaken belief will also satisfy the doctrine.
Dillwyn v Llewelyn
Facts: a father put his son in possession of some land and signed an instrument of conveyance which proved to be ineffective. The son occupied the land and built a house on it, all with the knowledge and approval of the father. On the father’s death, the son obtained a declaration that he was the equitable owner of the land.
Held: The rule that if A puts B in possession of the land and tells him that he may build a house on it, and B – on the strength of that promise, with the knowledge of A – expends money in building a house, then B will acquire a right to compel A to complete the contract and perfect the imperfect donation.
The other line of authority Ramsden v Dyson places much stronger reliance on equitable fraud arising in circumstances where B improves the land of A, under the belief that he has some right to that land, and A, knowing of B’s mistaken assumption and of his work on the land, stands by and allows B to proceed with the improvements.
“If a stranger begins to build on my land supposing it to be his own, and I, perceiving his mistake, abstain from setting him right, and leave him to persevere in his error, a court of equity will not allow me afterwards to assert my title to the land on which he had expended money on the supposition that the land was his own.”
In Willmott v Barber, Fry J stated the elements of equitable estoppel:
1. Plaintiff must have made a mistake as to his or her legal rights;
2. the plaintiff must have expended money or done some other act on the faith of that mistaken belief;
3. the defendant must know of his or her own legal right, which is inconsistent with that claimed by the plaintiff;
4. the defendant must know of the plaintiff’s mistaken belief; and
5. the defendant must have encouraged the plaintiff in his or her expenditure or other actions, either directly or by abstaining from asserting his or her own rights.
The question will be whether the defendant can resile from the expectation fostered by the statements made and other conduct and which have led to the action taken by the plaintiff. If it is reasonable to expect that a normal person would respond to the act of encouragement, it should not matter whether the encouraging party also knew that the plaintiff was responding.
Proprietary estoppel, arising from encouragement rather than acquiescence, was also applied in qld in Riches v Hogben, preventing an elderly woman from denying her 64 year old son a proprietary interest in a house she had purchased in Brisbane in her name. The son had migrated from England with his family on the basis of an assurance by the mother that she would purchase a house in his name if he came out to look after her. Within a week of the son and his family moving in, the mother asked them to leave, following a disagreement.
Stevenson v Payne is authority commonly cited in support of the proposition that it would be essential for the party insisting on his or her rights to have known of them at the time of the acquiescence or encouragement in the expenditure by the other.
The relief awarded in proprietary estoppel has been described as the minimum equity required to do justice: Crabb v Arun District Council. In the ‘encouragement’ cases, this is held to require fulfillment of the expectation, while in the ‘acquiescence’ cases the concern has generally been to prevent A from enjoying the benefit conferred on him or her by B, or to compensate B for any exertions, sometimes by charging the property of A.
The principle which operates in determining the appropriate relief is one concerned to prevent unconscionable insistence upon strict rights. Relief will generally take the form of some qualification, suspension or extinguishment of the rights of A unless that has become impossible, in which case compensation for the detriment may be awarded. In extreme cases the court may go further.
Jackson v Crosby
A man was effectively awarded half the unencumbered, improved value of a block of land on which he built a house. The land was owned by a woman with whom he had been living, and was intended to be their home. The court considered half the value of the house and land, about $19,000, a more appropriate compensation in the circumstances than the value of the man’s labour, about $12,000.
Giumelli v Giumelli
HC dealt with the remedy that estoppel gives you. Specifically, what is the relationship between estoppel and a constructive trust.
Facts: Mr and Mrs Giumelli conducted a business as a partnership and encouraged their son to stay and work in the business by promising that he would be given an unspecified part of the block of the land they had acquired. Also told him that he could build a house on the land. Robert’s first marriage failed after his wife refused to live on the land, he remarried, and his parents disapproved. His parents disapproved and refused to subdivide the block of land and transfer a portion of it into robert’s name. Robert commenced proceedings that his parents held the land on trust to convey the promised lot to him.
Held: Full court were prepared to make an order in the nature of constructive trust to secure the conveyance to Robert Giumelli of the promised lot.
HC upheld the finding that Robert Giumelli had incurred detriment in acting in reliance on the promise to convey part of the land to him. However, overturned the Full Court’s decision to award the remedy of constructive trust. Instead, it made an order for the payment of a monetary sum representing the then present value of Robert’s claim to the promised lot. Their honours said that before making an order imposing a constructive trust, the court was obliged to consider all the circumstances of the case including the still pending partnership action, improvements to the lot by family members other than Robert, the breakdown in family relationships, and the continued residence on the promised lot of one of Roberts brothers and his family.
“in these cases, the equity which founded the relief obtained was found in an assumption as to the future acquisition of ownership of the property which had been induced by representations upon which there had been detrimental reliance by the plaintiff. This is a well recognized variety of estoppel as understood in equity and may found relief which requires the taking of active steps by the defendant.”
Before a constructive trust is imposed, it is outlined in Plimmer v Mayor of Wellington that ‘the court must look at the circumstances in each case to decide in what way the equity can be satisfied’ i.e. is there an appropriate equitable remedy which doesn’t require imposing a trust; court needs to also look at relevant third factors (including the impact
5.1 Waltons v Maher
The underlying principle of the common law doctrine of estoppel by representation is that it ‘prevents a person who, by representation of fact, has led another to alter his position, from denying that the fact is as represented’: Discount & Finance Ltd v Gehrig’s NSW Wines Ltd (1940)
In Jordan v Money the House of Lords confined estoppel by representation to representations of existing fact, rather than intention of some future matter. In Low v Bouverie stated that estoppel was a rule of evidence and would not itself support a cause of action. The result was that a party seeking to rely on and enforce some representation could not sue on estoppel. This destroyed estoppel by representation as a cause of action at common law.
The principle distinction between equitable estoppel and common law estoppel is the requirement that there be a representation as to an existing fact. Equitable estoppel will apply where the representation or assumption on which the plaintiff operates includes matters of future intention or conduct. Equitable estoppel can be used as a cause of action: a sword as well as a shield, at common law, it is only available as a ‘shield’.
The two strands of estoppel in equity, proprietary estoppel and promissory estoppel, have now been joined under the one doctrine of equitable estoppel.
The principle source of authority is Waltons Stores (interstate) Ltd v Maher (1988) Facts:
1. The respondents (lessors) negotiated with the appellant (lesee) for the lease of commercial premises in Nowra.
2. It was arranged that the respondents would demolish the existing premises and construct new premises which the appellant would lease.
3. Draft agreements were prepared, negotiated and ammended.
4. The appellant’s solicotor told the respondents’ solicitor that he had received verbal instructions from the appellant that the amendments were acceptable.
5. The appellant’s solicitor sent to the respondents solicitor (7 Nov) fresh documents incorporating the agreed ammendments.
6. The covering letter said ‘you should note that we have not yet obtained our clien’ts specific insturcitons to each amendment requested, but we believe that approval will be forthcoming. We shall let you know tomorrow if any amendments are not agreed to.
7. Having heard nothing (11 Nov) the respondents’ solicitor forwarded executed documents ‘by way of exchange’.
8. Thereafter, the respondents completed demolition of the old building, the appellant becoming aware of this fact (10 Dec).
9. Having been advised by its solicitor that it was not bound to proceed because contracts had not been exchanged, the appelant decided not to commit itself to the lease and instructed its solictor to ‘go slow’.
10. Pursuant to these instructions, the appellant’s socilitr made no response to the letter of 11 Nov until 19 Jan, and in the meantime, had retained possesion of the document executed by the respondents.
11. By letter dated 19 Jan the appellant’s solicitor informed the respondents’ solicitor that the appelnt did not intend to rpoceed with the matter.
12. At that stage the new building was approx 40 per cent completed.
13. The respondents’ instituted proceedings for specific performance or damanges, and obtained an award of damages.
14. Carney J found that the appellants were estopped from denying that a contract existed.
15. Problem with this is that it doesn’t really fit the facts: they said, here is our side of the contract by way of exchange, BUT, they never actually got the other half back. Thus difficult to say that there was an actual contract, as they knew they had never received the contract back grom the other side.
16. Problem was that if you don’t prove the contract, you are left arguing that there was a promise for a contract (this would be promissory estoppel). If it is an estoppel by conduct case (if you have found that there is an actual representation of a contract) then it is an easy case.
17. But the facts do not fit this, so difficult to argue that there was a factual contract existing.
Held: Gaudron and Deane JJ took this view in the HC.
Mason CJ and Wilson J
Note: the traditional conception of promissory estoppel
[T]rue it is that in the orthodox case of promissory estoppel, where the promisor promises that he will not exercise or enfroce an existing right, the elements of reliance and detriment attract equitable interveniton on the basis that it is unconscionable for the promisor to depart from his promise, if to do so will result in detriment of the promisee.
- Per Mason CJ and Wilson J
-Ratio:
[T]he doctrine extends to the enforcement of voluntary promises on the footing that a depature from the basic assumptions underlying the tranasaction between the parties must be unconscionable. As failure to fulfill a promise does not of itself amount to unconscionable conduct, mere reliance on an executory promise to do something, resulting in the promisee changing his position or suffering deriment, does not bring promissory estoppel into play. Something more would be required….this may be found, if at all, in the creation or encouragement by the party estopped in the other party of an assumption that a contract will come into existence or a promise will be perfromance and that the other party relied on the assumption to his detriment or the knowledge of the first party”.
- Per Mason CJ and Wilson J
-Held:
[T]he appellants inaciton in all the circusmtances consituted a clear encouragement or inducement to the respondents to continue to act on the basis of the assumption which they had made. It was unconscinoable for it, knowing that the repsondents were exposing themselves to detriment by acting the basis of a false assumption, to adopt a course of inaciton which encouraged them in the course they had adopted. To express the point in the language of promissory estoppel the appellant is estopped in all the circusmtances from retreating from its implied promise to complete the contract.
- Per Mason CJ and Wilson J
-Brennan J
[I]n my opinion, to establish equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintff assumed or expected that a particular legal relationship exists between the plaintiff and the defendant or that a particular legal relationship will exist between them and, in the latter case, that the defendant is not free to withrdraw from the expected legal relationship; (2) the defedant has induced the plaintiff to adopt the assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the asusmption or execptation; (4) the defendant knew or intended him to do so; (5) the plaintiffs aciton or inaciton will occasion detriment if the asusmption or expectation is not fulfilled; and (6) the defendat has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will neverthless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant’s porperty, a diminuition of his rights or an increase in his obligations and he, knowing that the plaintiff’s reliance on the assumption or expecation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or exceptation on which the plaintiff is conducting his affairs.
Continued on page 2