Promissory Estoppel & Washing Unclean Hands

Promissory Estoppel is an equitable remedy that operates where a person has acted in reliance of a promise made. Where the promisor induces the promisee to believe that certain contractual rights within their contracts will not be enforced and the promisee changes their position in reliance on that promise, the promissor will not be allowed to enforce those rights.

One equitable maxim is that one who comes to equity must come with clean hands (alternatively, equity will not permit a party to profit by their wrong doing). If you seek an equitable remedy but have acted wrongly, then you do not have clean hands and you may not receive the remedy you seek.

In May 2009, Alf and Marilyn Plath consulted a solicitor, about transferring their house at Turkey Beach, for $315,000 to their son Ira. The contract acknowledged that a deposit of $15,000 had been received and the balance of the price to be paid, with interest, by yearly instalments of $30,000. The first instalment was to be paid a year from the completion of the contract, which was 1 June 2009. Ira also executed a mortgage in favour of his parents to secure this debt.

On 26 May 2009, the house was transferred to Ira and the mortgage was registered; Ira had never owned a house and became entitled to and with the solicitors’ assistance successfully applied for a first home owner grant, under the First Home Owner Grant Act 2000 (Qld).

Marilyn died in September 2010, and her property passed to Alf, who died in  June 2011. They were survived by seven children and named their daughters Alexis and Cheyenne Plath as executors (“legal personal representatives”) of their estate. In 2017, the legal personal representatives commenced proceedings in the District Court, claiming payment from Ira of the sum of $300,000 plus interest at the agreed rate, and recovery of the house.

Ira submitted that his parents told him out of gratitude for everything which he had done for them he would not have to pay any of the secured amount of $300,000 and that after 12 months he would be released from the mortgage debt. He relied upon his parents wanting to give the property to him, and acting in reliance on his parents representations, went ahead with the transaction; therefore his parents, and the personal representatives of his father’s estate, were estopped from enforcing the mortgage against him.

In the alternative, Ira claimed, calculated on a restitutionary basis, the reasonable value of the services which he said he provided to his parents, which he valued in a sum in excess of $800,000.

The District Court concluded that there was no basis for an estoppel, the documents were intended to have effect according to their terms and held the contract and mortgage enforceable.

On appeal, the Supreme Court accepted and it was sufficiently established that Ira signed these documents with the expectation, created by his parents, that he would never be required to perform the obligations within them. Alf, Marilyn and the respondents, as their successors, were estopped from enforcing the terms of the contract and the mortgage.

It is often stated that in order to enliven a claim for equitable relief, a party must come to equity with clean hands. In the ordinary course, this doctrine requires that there be a connection between the plaintiff’s unclean act and the rights he or she wishes to enforce. Ira’s actions in claiming the first home owners grant raises the question of whether a party which obtains a wrongly obtained grant merits equitable relief.

The Supreme Court accepted that equitable relief was conditional upon Ira repaying the grant in order that the appellant’s unclean hands may be “washed”. Ira undertook to repay to the State of Queensland the first home owners’ grant paid to him with any interest and penalty owed.

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