High Court illuminates Detrimental Reliance re Equitable Estoppel

By 23/05/2014Estoppel
detrimental reliance

In Sidhu v Van Dyke [2014] HCA 19 the High Court has provided guidance on the degree of proof of detrimental reliance required to found an equitable estoppel arising from an assumption as to the future ownership of property.

Background ([3]-[22])

The appellant lived with his wife on Burra Station near Queanbeyan in New South Wales.  In 1996 the appellant’s wife’s brother married the respondent.  They moved into Oaks Cottage located approximately 100 metres from the main homestead on Burra Station, where they began to raise their newborn child.  The respondent and her husband paid rent to the appellant’s wife.

The main homestead and Oaks Cottage were located on unsubdivided land, which was owned by the appellant and his wife as joint tenants.

In 1997 a sexual relationship developed between the appellant and respondent.  In January 1998 the appellant said to the respondent:

I love you and can tell you love me too.  I want you to have a home here with me.  I am planning to subdivide Burra Station.  As soon as this is done, I will make sure the Oaks is put into your name …  Using my Indian family money to buy this place means I can make my own decisions as to what I do with it, and I want you to have it because I love you.  You need a home of your own to raise [your child] in.  I can provide it“.

Inevitably the respondent’s husband learned of the liaison and divorced his wife.

The appellant (who was a lawyer) told the respondent that she did not need a lawyer to handle her divorce or property settlement as “you have the Oaks”.  On that basis she did not seek a property settlement in her divorce.

In September 1998 the respondent asked the appellant whether she should stop paying rent “now that the Oaks is my property”.  He replied “How about you continue to pay what you can as this will help keep things low key with [my wife]”.

The respondent continued to live in the Oaks Cottage with her child, paid rent (at a lower than market rate) to the appellant’s wife, and carried out unpaid work on Oaks Cottage and Burra Station, and an adjoining property owned by the appellant and his wife.  The respondent was employed part-time off Burra Station, but did not seek full time employment.  Over the next 8 and a half years she lost the opportunity to earn wages that she might otherwise have earned in her profession.

In 2000 the respondent expressed concern regarding the security of her position.  In response the appellant gave her a signed note in which he confirmed that “during the years 1996 to 2000” he had “expressed to [the respondent] that [he] was willing to gift [her] the house in which she resided at the time (Oaks Cottage)”.

The primary judge and Court of Appeal found that the promises made by the appellant were, in substance, promises to give Oaks Cottage to the respondent once the Oaks Cottage site existed in subdivided form.

In 2005 the respondent again pressed the appellant, which resulted in an email proposing terms for a transfer of the property “at a price based on valuations by agent[s]” but with the appellant and his wife agreeing to bear the financial burden of defraying that price.

Later in 2005 the local council gave conditional approval to a subdivision which included a proposed lot on which the Oaks Cottage was located (the Oaks lot).

In February 2006 the Oaks Cottage was destroyed by fire and the respondent and her child moved into a nearby relocatable cottage.

In May 2006 the appellant gave the respondent a handwritten statement in which he said his wife had agreed to transfer the property on which the Oaks Cottage stood as soon as possible after it was rebuilt.

In July 2006 the respondent offered to purchase the relocatable cottage from the appellant and his wife but they said they could not as they did not own it.  The respondent then left Burra Station and the relationship between the appellant and the respondent ended.

Subsequently the appellant and his wife refused to convey the proposed Oaks lot to the respondent.

The subdivision of the Oaks lot did not proceed as conditions relating to the construction of roads were not met by the appellant.  Until the subdivision was complete the appellant could not lawfully transfer the Oaks lot as a separate property to the respondent.

The outcome

The High Court unanimously dismissed the appeal.

French CJ, Kiefel, Bell and Keane JJ (the plurality) observed that:

  1. Actual (rather than imputed or presumed) reliance of the representee induced by the representor is necessary for equitable intervention (at [58]).
  2. “It is not the breach of promise, but the promisor’s responsibility for the detrimental reliance by the promise, which makes it unconscionable for the promisor to resile from his or her promise” (at [58]).
  3. The representee (the respondent in this case) at all times bears the legal burden of proving that the representee has been induced to rely upon the representor’s (appellant’s) promises (at [61]).
  4. It is sufficient for the representee to show that the representation was a “significant factor” or a “contributing cause” to the representee’s conduct (at [73]).  Estoppel by encouragement does not require that the conduct of the party estopped be the sole inducement operating on the mind of the representee (at [71]).

The plurality found that the respondent had made a compelling case of detrimental reliance:

  • Firstly because it was objectively likely that the appellant’s promises would have had a significant effect upon the decision-making of a person in the respondent’s position.  It was unlikely that the respondent would have “thrown in her lot with the appellant and exerted herself as she did over a period of eight and a half years if he had not made the promises he in fact made” (at [69]);
  • Secondly because the appellant’s promises contributed to the respondent’s willingness to spend time and effort in the maintenance and improvement of the Oaks Cottage and Burra Station (at [70]);
  • Thirdly because the respondent from time to time displayed a concern that the appellant honour his promises (at [74]);
  • Fourthly because the evidence of the respondent was to the effect that “the promises of the appellant were a vital aspect of the security which the appellant plainly understood was of concern to her” (at [76]).

Interestingly the plurality engaged in a process of reverse analysis to assess the extent to which it was unconscionable for the appellant to resile from his assurances to the respondent “by reflecting on the likely response of the respondent if the appellant had told her in January 1998”

“I am happy for you to remain at Oaks Cottage, but only for so long as it suits me and my wife to have you here; and, while you remain on the property, you must care for it as if you were the owner of the property and do unpaid work on parts of Burra Station other than the property.  Until I make the property over to you, you must pay rent sufficient to content my wife.  Should you choose to leave, you will leave with nothing in return for the value of your work here.” (at [77]).

The plurality found that on all the evidence it was unconscionable for the appellant to resile from his assurances (at [78]).

As to relief the plurality observed that:

  1. The fundamental purpose of equitable estoppel is to protect a plaintiff from the detriment which would flow from the plaintiff’s change of position if the defendant were to be permitted to resile from his or her promise (at [82]).
  2. The relief granted may require the taking of active steps by the defendant including the performance of the promise and the performance of the expectation generated by the promise (at [82]).
  3. The requirements of good conscience may mean that in some cases the value of the promise may not be the just measure of relief (at [83]).
  4. This was a case where the “detriment suffered is of a kind and extent that involves life-changing decisions with irreversible consequences of a profoundly personal nature … beyond the measure of money and such that the equity raised by the promisor’s conduct can only be accounted for by substantial fulfilment of the assumption upon which the respondent’s actions were based” (at [84]).

The plurality held that in this case good conscience required that the appellant should be held to his express categorical assurances that he would ensure that the subdivision would proceed and that the consent of his wife would be forthcoming.

The plurality dismissed the appeal with the result that equitable compensation was awarded to the respondent by reference to the value of the respondent’s disappointed expectation (at [42]-[43] and [86]-[88]).

Gageler J agreed with the plurality and added that the question of causation is “ordinarily appropriately framed” as being:

Despite any other contributing factors, would the party seeking to establish the estoppel have adopted a different course (of either action or refraining from action) to that which [the party] did had the relevant assumption not been induced?” (at [93])

Comment

This case is unusual in that:

  • the relevant representations were sustained over a long period of time and a number of them were in writing;
  • departure from the assumptions induced by the appellant would have involved profound personal detriment to the respondent.

Many cases involving potential equitable estoppel are not so clear including in relation to evidence of the alleged representations, the relevant assumption or expectation, causation and actual detrimental reliance.  As in so many areas of the law careful factual analysis is essential to determine whether an equitable estoppel may arise.