Equity follows the Law

 

Following yesterday’s post I was asked about the basis of equitable estoppel; essentially it is to protect a person from the detriment that would otherwise flow from her change of position in reliance of the assumption if such assumption or expectation were resiled from.

For example if Donald represents to James that he will make a will in James favour. In reliance on that representation James acts to his own detriment. Donald then fails to make a will in the form represented.

“The law will not permit an unconscionable – or more accurately, unconscientious – departure by one party from the subject matter of an assumption which has been adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to that other party’s detriment if the assumption be not adhered to for the purposes of the litigation.”  (Waltons Stores (Interstate) Limited v Maher (1988)170 CLR 394, 444.)

The party creating the assumption or expectation is estopped from enforcing her strict legal rights or from not undertaking a certain position where it would be unconscionable to do so.

Proprietary estoppel which is an equitable estoppel dealing with expectations of legal relationship in relation to land are summarised as follows

“…[T]o establish an equitable estoppel, it is necessary for a plaintiff to prove that

(1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship;

 (2) the defendant has induced the plaintiff to adopt that assumption or expectation;

 (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation;

 (4) the defendant knew or intended him to do so;

 (5) the plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and

(6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.”  (Waltons Stores (Interstate) Limited v Maher (1988)170 CLR 387, 428.)

Proprietary estoppel is based on the inducement of an assumption by the legal titleholder, which leads to the relying party suffering a detriment. For proprietary estoppel to arise, the following conditions must be fulfilled:

1. The legal title owner must have requested or allowed the relying party to expend money on the land;
2. The legal title owner must have created or encouraged an assumption that the relying party would be entitled to remain in the land; and
3. The relying party must have suffered a detriment from relying on this assumption.

In a recent Australian case Margaret Mahoney died leaving two sons and four daughters. In her Will, she left her farm property to one son Graham and left the rest of her estate equally between her other five children. On the same day Margaret executed her Will, she transferred without payment the farm property, in consideration of ‘natural love and affection’ and in 2007 transferred the livestock and chattels to Brian.

Graham  claimed there was a “common understanding” within the family that, on the death of their mother, he and his brother Brian  would receive the farm, livestock and chattels with the residue of the estate, comprising money, being given to the four girls.

On this basis, Graham claimed that Brian held the farm, livestock and chattels on trust for him as one half or share thereof (‘the common intention trust’) and was estopped from denying his entitlement.

Alternatively, Graham claims the transfer of the farm, the livestock and chattels to the Brian was unconscionable or procured by undue influence; as a result Margaret was rendered incapable of carrying out the common understanding and exercising her freedom of testamentary disposition, in particular, her right to change her testamentary intentions at any time before her death.

Following the requirements for proprietary estoppel the Court found as follows:

1. Margaret made a promise to Graham that when she died she would confer an interest in the farm, the livestock and chattels to him;
2. Graham acted in reliance on that promise in working without wages on the farm for at least 20 years, in entering into the business partnership with Brian to ensure a continued stream of income for his parents and, when that partnership ceased and he could no longer work on the farm with Brian in doing contract shearing work to support his family with Margaret’s blessing;
3. Graham acted reasonably in so relying on the promise made to him by Margaret;
4. Margaret knew or intended that Graham would rely on her promise and would thereby act in the manner referred to above;
5. Graham suffered detriment as a consequence of the Margaret’s failure to adhere to her promise.

Alternatively, the Court also found that the transfer was unconscionable and procured by undue influence.

Graham was therefore successful in his claim, and the Court ordered transfer of half of the farm property, the chattels and the livestock to him.

In relation to estoppel the High Court has set out the following principles:

1. in Australia, there is no presumption of detrimental reliance: the onus always remains on the plaintiff;
2. in determining whether the promise or assumption induced the plaintiff, it is sufficient that the promise or assumption be a significant factor or contributing cause of the action undertaken by the plaintiff; and
3. where performance of the promise is not appropriate, then unless reasons are provided otherwise, the Court will generally grant relief which reflects the value of the promise.

I apologise if todays post seems  academic.  Equitable remedies have developed by courts for hundreds of years to provide more flexible responses than possible in common law.   In most cases Equitable remedies are granted only where common law remedies are inadequate.