Estoppel is a principle in law that prohibits a party from taking a position inconsistent with their prior conduct or a court decision. It operates as a tool that prevents a party from reneging on their promise or imposes a penalty on them. In the past, estoppel was divided into different types, either as a cause of action or a defence against an action. However, the courts have recently adopted a more unified doctrine of equitable estoppel.
Historically, the courts have recognised promissory and proprietary estoppel as separate doctrines with distinct elements and remedies. Promissory estoppel is a remedy when someone has relied on someone else’s promise to their disadvantage. This estoppel can only arise when an existing legal relationship exists between the parties, such as an employer, an employee, a building contractor, and a client.
Promissory estoppel
Someone who makes a claim based on promissory estoppel must prove five elements to establish a legal interest. These include the existence of a legal relationship between the parties, usually established through a contractual agreement, a promise or assurance that was reasonably believable in the circumstances, reliance on the promise that was justifiable in the circumstances, detriment as a result of the person relying on the promise, and that it would be unconscionable for the person to be allowed to get away with reneging on their promise.
Proprietary estoppel
In contrast, proprietary estoppel occurs in more specific circumstances when someone asserts a proprietary interest in a property based on a promise. Proprietary estoppel requires the party seeking a remedy to prove that they have relied on the promise to their detriment and that it would be unconscionable for the property owner to renege on the representation. Unlike promissory estoppel, proprietary estoppel can be a cause of action in its own right, serving as both a sword and shield.
The primary principle in both estoppel doctrines is that a promisor cannot reneg on a promise if the promisee has relied upon it to their detriment. Recent case law has recognised that both doctrines serve a single purpose in protecting against inequity. As such, there has been a greater acceptance of a general merged doctrine of equitable estoppel.
Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7
Australia’s leading case on equitable estoppel highlighted that the Court should protect someone who relied on a promise and suffered detriment. Equitable estoppel is a legal principle that applies when certain conditions are met.
- Firstly, the plaintiff (P) must have assumed that a particular legal relationship existed between themselves and the defendant (D) or at least expected that it would.
- Secondly, D must have induced P to make this assumption.
- Thirdly, P must have acted based on this assumption or refrained from acting.
- Fourthly, D must have known or intended that P would act or refrain from acting this way.
- Fifthly, if the assumption is not fulfilled, P’s action or inaction will cause them to suffer detriment. Finally, D failed to act to avoid this detriment by fulfilling P’s expectation, for example.
Notably, the remedy for promissory estoppel should only go as far as necessary to prevent unconscionable conduct. The object of equity is not to compel D to fulfil P’s expectation or assumption but to avoid the detriment that P will suffer if this expectation is not fulfilled.
Subsequent estoppel cases have made the courts less concerned with distinguishing between proprietary and promissory estoppel.
However, some practical differences still exist between the two types of equitable estoppel. Proprietary estoppel only relates to claims against land interests, and a claimant may rely upon it even without clear evidence that the defendant made an explicit promise. On the other hand, relying on proprietary estoppel requires proof that the plaintiff’s reliance on the promise was detrimental to their interests.
The Court can order a range of remedies based on equitable estoppel, typically either fulfilling the plaintiff’s expectation or providing sufficient damages to compensate for any loss incurred due to the expectation. The courts may be more inclined to fulfil the plaintiff’s expectations if it is tough to calculate the plaintiff’s loss. However, establishing equitable estoppel is more complicated than proving that someone has broken their promise, as it is necessary to demonstrate that allowing the person to get away with breaking their promise would be unconscionable.
Common intention constructive trust
There is some doubt as to whether a common intention constructive trust survives in Australia as an independent cause of action, distinct from estoppel. A common intention constructive trust enforces a promise, a gift, or both. The promisee must demonstrate the following elements:
- There must be a common intention between the legal owner and the beneficiary regarding the beneficiary’s beneficial property ownership.
- This common intention can be inferred as a fact from the words or conduct of the parties involved.
- The beneficiary must prove that they have acted to their detriment based on the common intention regarding the beneficial ownership of the property.
- It would be considered fraud on the beneficiary if the legal owner asserted that the beneficiary did not have a beneficial interest in the property.
Saleh v Romanous [2010] NSWCA 274
The Salehs obtained the development consent for eight strata titled two-storey townhouses on both 163 and 165 Kissing Point Road. The Salehs made a deal with the Romanous couple to sell 163 Kissing Point Road for a specified amount on the basis that the property, along with the neighbouring one, would be developed into eight two-storey townhouses.
Following the exchange of contracts, it became evident that Edmond wasn’t interested in pursuing the plans to develop the properties. The Romanouses instructed their solicitors to rescind the contract. In a previous case, the Supreme Court of New South Wales found that the Salehs had made a pre-contractual promise to the Romanouses, assuring them that if the neighbour, Edmond, did not want to build, they would not have to purchase the property and would get their money back.
The Court of Appeal held that in Romanous v Saleh [2009] NSWSC 1166, Forster J was wrong when he held that the promissory estoppel entitled the Romanouses to rescind and recover their deposit. The Court of Appeal held that promissory estoppel prevented the Salehs from enforcing the contract and entitled the Romanouses to an order under s 55(2A) of the Conveyancing Act 1919 to recover their deposit.
“A promissory estoppel is a restraint on the enforcement of rights, and thus, unlike a proprietary estoppel, it must be negative in substance. In Hughes Lord Cairns LC in his classic statement of principle quoted by Lord Wilberforce in Bank Negara said:
“… the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which had thus taken place between the parties.”
In Birmingham Land, in the other passage quoted by Lord Wilberforce in Bank Negara, Bowen LJ said:
“… those persons would not be allowed by a Court of Equity to enforce the rights …”
The inherent limitations on the scope of promissory estoppel do not matter in this case because the purchasers can rely on the statutory remedy conferred by s 55(2A) of the Conveyancing Act to recover their deposit without the need to rescind the contract.”
Saleh v Romanous [2010] NSWCA 274 at 73-76
In NSW, the Court of Appeal has held that promissory estoppel is negative in substance – therefore not a source of rights – and restricted to restraining the defendant from exercising legal rights. As a result, there is a conflict of authority between intermediate courts of appeal in the country that requires resolution. Recent statements by courts have also added to the confusion as they suggest that it is still not finally resolved in Australia whether promissory estoppel can operate as a cause of action and that there is an open question as to whether the doctrine of promissory estoppel constitutes a foundation of legal rights.
The matter
Fiorenza v Fiorenza [2024] NSWSC 549 concerns a dispute between Irene Maria Fiorenza (the plaintiff )and her son, Matthew Luke Fiorenza (the defendant), over a property in Cammeray, New South Wales. The plaintiff owns 90% of the title, and the defendant owns 10%. The defendant lived in the property with his family. As a co-owner, the plaintiff seeks to have the property sold. The defendant resists the sale, changing the locks to exclude the plaintiff from the property.
The plaintiff initiated proceedings to have the property sold under s66G of the Conveyancing Act 1919 (NSW). By cross-claim, the defendant aims to enforce an alleged oral agreement with the plaintiff, whereby she agrees to transfer the whole property to him, and he seeks such a transfer. The plaintiff denies such an agreement.
When co-owners dispute the sale of a jointly owned property, section 66G of the Conveyancing Act of 1919 (NSW) has become a popular tool for property management as it offers an impartial solution for disputes between co-owners concerning the sale of a jointly owned property. By appointing a Trustee by the Court, s 66G allows for a fair sale process.
The defendant argued that the plaintiff had promised to transfer the whole of the Cammeray property to him if he sold another property at Willoughby and gave her the proceeds to fund family provision litigation regarding her mother’s estate. The plaintiff denied such conversations and said she had always been the actual owner of Willoughby. The Court did not accept that the alleged conversations took place.
The defendant had pleaded promissory estoppel, but there is considerable uncertainty in NSW as to whether, and if so, when, promissory estoppel can generate positive rights that didn’t otherwise exist.
The decision
The Court considered itself bound by the Court of Appeal’s decision in Saleh v Romanous [2010] NSWCA 274, which held that promissory estoppel is only a restraint on enforcing rights. Although the parties did not include the pre-contractual promise in the contract, the purchasers could still rely on it to avoid the contract.
No pre-existing contractual arrangements envisaged the plaintiff holding the property on trust for the defendant or specifying the terms of such a trust. Additionally, the defendant had not suffered a relevant detriment to be compensated in equity, as he was the owner of Willoughby in name only, and, on the evidence, the plaintiff had satisfied the Court that the defendant held the legal title on trust for her; defeating a proprietary estoppel claim.
In any event, the Court’s findings would defeat such a claim. Ultimately, the Court appointed trustees for the sale of the Property at 69 Amherst Street Cammeray and ordered the defendant and his wife to deliver possession of the Property to the Statutory Trustees for Sale within 28 days of these orders. In default of possession of the Property not being delivered up to the Statutory Trustees for Sale, a writ of possession is issued in respect of the Property upon production to the Registrar of an affidavit confirming that fact. Additionally the Court dismissed the defendants cross-claim.