Promissory Estoppel

Doctrine of Promissory Estoppel evolved to overcome the injustices of consideration - ‘estopped’ means ‘precluded’ or ‘prevented’ - the very essence of Promissory Estoppel is that the promisor is precluded from going back to his or her promise even though the promise is not supported by consideration moving from the promise.

Equity also developed other areas of estoppel including propriety estoppel, where, if X, the owner of property, induced Y to believe that Y had an interest in that property, equity would recognise and enforce Y’s interest in that property.

Waltons Stores (interstate) Ltd v Maher (1988) - recognized that the various forms of estoppel in equity all arose in situations where it would be unconscionable for a plaintiff’s against a defendant to be denied.

· The modern doctrine of equitable estoppel can provide relief in various other areas where contractual remedies are unavailable, including:

1. Where, during negotiations to enter into a contract, an offeree, believing that the offer will not be revoked proceeds to act to his detriment upon that belief;

2. Where there has been non-compliance with the statutory requirement of writing with respect to a contract involving land;

3. Where the rule in Hoyt’s Pty Ltd v Spencer (1919) precludes the finding of a collateral contract: Wright v Hamilton Island Enterprises [2003];

4. Where the doctrine of privity prevents a third party to the contract from enforcing it: Trident General Insurance Co Ltd v McNiece Bros (1988);

5. Where a contract is rendered illegal and thus unenforceable because a party to it is not licenced as required by legislation, but had stated to the other party that he or she was so licenced.

Development of Equitable Estoppel

An illustrative early case of promissory estoppel is Central London Property Trust v High Trees House Ltd [1947] - where it was found that even though the promise to accept a reduced rent was not supported by consideration, principle of promissory estoppel would have been raised, preventing recovery of forgone rent.

· For many years the operation of promissory estoppel principles were subject to two important limitations:

1. the promise had to be in the context of a pre-existing legal relationship. In High Trees, this was satisfied in that the parties were in a lease relationship and the promise was in relation to the terms agreed under that lease.

2. promissory estoppel could only be used as a defence to an action bought by the promisor to the promisee. It was said that it could only be used as a ‘shield’ and not as a ‘sword’. In High Trees, this was satisfied as it was HTH, the defendant/promise, that would have used promissory estoppel as a defence to a claim for the forgone rent by CTP, the plaintiff/promisor.

***In Australia, the doctrine of promissory estoppel was first authoritatively accepted by the High Court in Legione v Hateley (1983).

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* The most significant High Court decision on the subject was 5 years later in Waltons Stores (interstate) Ltd v Maher (1988) - the significance of this case was that it was a key case which has led to the removal of both of the above limitations on the operation of the doctrine of promissory estoppel - on finding in favour of the Mahers on the basis of promissory estoppel, the majority did so in circumstances where there was no pre-existing contract between the parties and on the basis that the Mahers used estoppel as the basis for a cause of action and not merely as a defensive mechanism - the underlying rationale for equitable estoppel was firmly based on the notion of uncnscionabiliy. 

Elements of Promissory Estoppel

To establish a case based upon principles of equitable estoppel there needs to be a promise or a sufficiently clear and unambiguous representation: Australian Crime Commission v Gray [2003].

6 elements noted by Brennan J in Waltons include:

1 - Assumption or Expectation:

If assumption is one of an existing fact, a case of common law estoppel arises.

If the assumption is that the promisor will act in a particular way in the future, equitable estoppel will arise - as in the case of Waltons, the promisee needs to show that he or she assumed that a particular legal relationship existed or would exist between the parties to the dispute.

However, Brennan J’s requirement of a legal relationship would exclude equitable estoppel from a promise made where the promise assumes that the promisor will behave in a manner outside the context of a legal relationship, e.g. A promises to pay B $200 within 10 days - A’s behaviour is outside ant existing or expected legal relationship between A and B.

Mobil Oil Australia Ltd v Lyndell Nominees Pty Ltd (1988), where full court of the Federal Court found that ‘it is a necessary element of the principle that the defendant has created or encouraged an assumption that “a particular legal relationship” of “interest” would arise or be granted’.

A broader view was taken in Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) where Priestley JA indicated that it was enough that the assumption was in relation to ‘a promise [would] be performed’. Some cases have held that the plaintiff’s equitable estoppel claim failed because it was not reasonable
for the plaintiff to have adopted the assumption: Salienta Pty Ltd v Clancy [1990].

2 - Inducement: The assumption adopted by the promisee must have been induced by the conduct of the promisor - in most cases the conduct will be an express representation or promise.

In Legione v Hateley, it was said that the promise must be clear and unequivocal.

However, Waltons makes clear, in some cases it can be implied; it stresses that it is the assumption that is induced rather than a promise or representation that establishes equitable estoppel. - In Waltons the inaction by Waltons, in the circumstances, induced the Mahers to act on the basis of the assumption they had made.

3 - Reliance: The promise must act or refrain from acting in reliance on the assumption. It is not clear whether the promisee’s action taken on the basis of the assumption has also to be reasonable in the circumstances.

4 - Knowledge or Intention: The promisor must know or intend that the promise will act or refrain from acting in reliance on the assumption or expectation; it can be actual or constructive knowledge.

In cases of assumptions based upon a promise or representation, knowledge is ‘easily inferred’: Waltons

In cases where the assumption arises outside the context of a promise or representation the requirement of knowledge or intention is more difficult to establish: Waltons, however as shown in this case, it can be established.

5 - Detriment: The plaintiff must suffer, or stand to suffer, detriment if the assumption made by the plaintiff is not fulfilled, there must be a link between the detriment and the assumption or expectation.

In Thompson v Palmer (1933), Dixon J said that the plaintiff must suffer detriment in the sense that ‘as a result of adopting [the assumption or expectation] as the basis of action or inaction, [the plaintiff] will have placed himself in a position of material disadvantage if departure from the assumption is permitted’.

The notion of detriment conjures up the idea that the plaintiff will be worse off in some way, it is not enough that the plaintiff acted upon the defendant’s promise.

In Je Maintiendrai Pty Ltd v Quaglia (1980), it held that it was necessary that the promise would ‘result in some detriment and therefore some injustice’ to the plaintiff.

The detriment suffered can’t be minor: Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1991) - it has been variously described as needing to be material or significant or substantial.

In assessing the existence of detriment one must distinguish between expectation and reliance loss. In context of the facts of Waltons, the expectation loss suffered by the Mahers was the loss of rent they expected Waltons to pay during the term of the anticipated lease. The reliance loss was the wasted expenditure incurred in demolishing and rebuilding the premises - it was the reliance loss and not the expectation loss that established detriment in that case.

The significance of establishing detriment is that it is this factor which makes it unconscionable or unjust for the promisor to depart from the assumption.

6 - Failure to avoid detriment: The defendant must have failed to act to avoid the plaintiff suffering detriment. One way in which action could be taken to avoid the detriment is by simply fulfilling the assumption or expectation.

However, the object of equitable estoppel is not to compel the plaintiff to fulfil the assumption or expectation, but rather to avid detriment if the assumption or expectation goes unfulfilled, this might be done by advising the plaintiff, before irreversible detriment is incurred, that the assumption is mistaken.

Similarly the plaintiff may be able to withdraw from the promise and the assumption that it has generated before any irreversible detriment is incurred.

Relief based upon Equitable Estoppel

· Estoppel is not an exception to the requirement of consideration - deeds represent a true exception to estoppel because the promise who has not provided consideration is entitled to sue for the contractual remedy of damages.

· A promisee who has not provided consideration, but is able to establish the elements of promissory estoppel, is not entitled to the contractual remedy of damages - establishing the elements of estoppel means the plaintiff is entitled to some equitable relief, court will enforce this equity but does not enforce the promise.

· Equity is enforced by the court making whatever order it deems to be appropriate to the circumstances - relief available at the discretion of the court. It may be that the only way to enforce the equity is to order the equivalent of what would have been damages assessed on the basis of a breach of contract.

· In exercising this discretion, the courts have generally made it clear that the orders to be granted are based upon avoiding the plaintiff from suffering detriment: Mobil Oil v Lyndell Nominees.

· There have been cases that suggest, in the appropriate case the remedy should be framed on the basis of making good the assumption or expectation relied upon by the plaintiff: Giumelli v Giumelli (1999) - High Court held, there was nothing in earlier cases that precluded a court from granting relief in equitable estoppel cases, on the basis of making good the plaintiff’s assumption or expecatation.

In the case, the court granted the son monetary relief to the value of the property that should have been transferred to him by the parents - High Court did not order a transfer of property to the son, the monetary compensation was a remedy based upon the expectation rather than any reliance loss or actual detriment suffered by the son.

* It appears that the court will initially seek to award a remedy on the detriment suffered basis where that can be readily determined and established - if it cannot, then a remedy based upon making good the plaintiff’s assumption or expectation is more likely.