Estoppel

Estoppel is a legal doctrine that holds that a party can be stopped from doing something that is inconsistent with their previous actions or with a judicial determination that has been previously made. It is a device that essentially prevents a party from or sanctions them for going back on their word.

Promissory estoppel

A typical example of where the principle of estoppel may apply is where there is a business contract in place (or some form of a contractual relationship that is not formally a contract). A party to this relationship then makes an assurance or “promise” in the context of the agreement. The party subsequently fails to fulfil that promise and the other party to whom they made the promise suffers a detriment or loss as a result. In some circumstances, the person or entity making the promise may be “estopped” from not fulfilling that promise. This particular type of estoppel is known as promissory estoppel. One of the cornerstone cases in Australia on the principle of promissory estoppel is Waltons Stores (Interstate) Ltd v Maher (1988).

Waltons

In the 1988 High Court of Australia decision of Waltons Stores v Maher, Waltons sought to lease premises from the Mahers. The Mahers completed demolition and other work on the property even though the parties had not signed a formal contract. They did this based on the behaviour of Waltons that indicated the contract was proceeding. Waltons then advised Mahers at a later date that they were not proceeding with the contract. As a result, the Mahers suffered a loss. The Mahers successfully won a court proceeding against Waltons based on the principle of promissory estoppel. The High Court held that Waltons were legally bound and could not deny the existence of a binding agreement despite no contract having been formally executed.

Another important Australian case about promissory estoppel is Commonwealth v Verwayen (1990).

Verwayen

In the 1990 High Court of Australia decision of Verwayen, some of the majority judges based their decision on the principle of promissory estoppel. Verwayen was an injured veteran. He sought damages from the Commonwealth for injuries he sustained during his service. There were two defences open to the Commonwealth – one relating to there being no duty of care and the other relating to the statute of limitations. The Commonwealth indicated they would not rely on these defences, however, ultimately it did plead them. Two of the majority judges found that promissory estoppel applied. The Commonwealth was required to pay some of the Verwayen’s legal costs to remedy the detriment caused by its failure to honour its promise.

Elements

So what needs to be established to successfully make a case for promissory estoppel? The following five elements need to be established:

1. Some form of legal relationship existed between the parties. This may or may not be contractual;
2. A promise, undertaking or assurance was made that one party will not strictly rely on its legal rights;
3. The party to whom the promise was made relied upon it. That is to say that that party acted upon the promise on the understanding that it would be kept.
4. A detriment or loss was suffered by the person to whom the promise was made and that was due to that party having acted upon it;
5. An element of unconscionability. The party pleading promissory estoppel needs to show it would be unjust or inequitable to allow the other party to break their promise, undertaking, or assurance.

What is available as relief?

A court will not necessarily force the party who gave a promise, undertaking or assurance to keep it. Rather the court will consider the detriment caused to the party who relied on it and seek to have the other party remedy that detriment. The relief may include damages or ordering the party who broke the promise, undertaking or assurance to pay legal costs. In some cases, the court may order the promise to be honoured where no other form of relief would ensure justice is done.

Limitations of the doctrine

There are some limitations to the doctrine of estoppel.

Estoppel is not an independent cause of action

A party seeking to plead the principle of estoppel cannot do so as its sole cause of action against another party.

A promise need not be forever

Where promissory estoppel is found to apply to a particular situation the relevant promise does not have to stand forever. The party making a promise can withdraw its promise by ensuring the following:

1. It gives notice to the other party of its intention to withdraw the promise;
2. The notice to withdraw the promise must be reasonable but does not have to be formal;
3. It must be possible for the party to whom the promise is made to return to the same position it would have been in before the promise was made.

Other forms of estoppel

As well as promissory estoppel, there are other forms of estoppel.

Judicial estoppel

This particular type of estoppel prevents a party to a legal proceeding from arguing a position that is contrary to what they had previously argued.

Collateral estoppel

This prevents someone from bringing the same civil action against someone in a court.

If you require legal advice or representation in any legal matter, please contact Armstrong Legal.