There are two species of so-called equitable estoppel, namely promissory estoppel and proprietary estoppel. Both involve a representation made by words or conduct on which a third-party relies and acts to his detriment. The person who makes the representation is not permitted to later act in a manner inconsistent with it, if this would be inequitable and unconscionable.
Promissory estoppel may arise where a person promises or implies that he will not rely on his strict legal rights, but the promise is not binding under contract law, due, for example, to lack of consideration. Where a promise is made, which is intended to create or affect legal relations, with the knowledge that the addressee is going to act on or rely on it, and this in fact occurs, the principle may apply. Promissory estoppel is generally only available as a defence.
Proprietary estoppel, arises in the context of property rights, generally with reference to land and buildings, but also in the context of other types of property. It is wider in scope than promissory estoppel and is not necessarily limited to being a defence. Where an assurance is given in relation to property or property rights and the person to whom it is given, acts to his detriment, in consequence, an equity arises in his favour. The holder of the property rights will not be allowed to insist on his strict legal rights, to the extent that it would be inequitable in the circumstances.
Representation and Detrimental Reliance
The assurance or representation given may be stated or implied. The person making the representation must have intended, or at least known, that it would be relied on. There will often be an encouragement by acts or deeds. Acquiescence or deliberate silence might suffice, but it is not clear if this is so. The majority view is that some type of express or implied promise or representation is required. Merely standing back and permitting something to happen is not generally enough.
Where an assurance is given which is intended to be relied on and is in fact relied on, it is not necessary to show that there has been an irrevocable, legally binding promise. The fact that the party to whom it is addressed has acted on it to his detriment is sufficient in itself. Reliance may be presumed where it is shown that a promise has been made expressly or by conduct and the plaintiff/claimant’s acts follow from it. There must be a sufficient link between what is relied on and the conduct by which the plaintiff acts to his detriment.
Detriment is what would be suffered if the other party is allowed to rely on a strict legal right. It may involve changing legal position, incurring expenditure, the building of premises on another’s land. It may involve providing labour and services for another for a length or period of time.
The detriment must be significant in nature. The extent of the equity granted to the plaintiff will depend on the extent of the detriment suffered.
Promises of Land I
Proprietary estoppel claims tend to fall into a number of broad categories. The categories are in no way exclusive and do not preclude the principles applying in other contexts.
Many cases of proprietary estoppel involve a gift which is not completed. It is a general principle that equity will not aid a volunteer. This means that where a person receives a gift and the relative formalities for transfer of that type of property is not being complied with the donee will not be in a position to compel completion of the gift.
If the supposed donee acts to his detriment in reliance on the failed gift, then the donor is likely to be estopped from denying effects of the gift where the donee has relied to his detriment on the apparent gift or apparent promise to give the gift.
A classic situation is where a parent or other relation promises particular land or buildings and the donee incurs substantial expenditure in reliance. If for some reason the property is not legally transferable due to a change of mind or debt or other circumstances proprietary estoppel may require that the gift is made effective.
Promise of Land II
Many of this category of cases involve a person moving in with another, a promise made to give a gift on death. One common example is where a person, sometimes a relative moves into a property and then works for the owner or looks after him on the expectation that the property (may be a farm or house) may be transferred to him on the other party’s death.
Another variant is where cohabiting couples move in together and a non-owning couple incurs capital expenditure and repairs on the expectation of the title being placed in joint name.
Another example is where a person is given an assurance that property will be transferred to him and he proceeds to construct for example a dwelling house on it in reliance on the assurance or promise.
In each of the above cases, there would not generally be a contract to which the person with the expectation is a party. A contract in relation to land would require written agreement or for acceptance and consideration. Something that has to be given in return. In many of the above cases, there would be a failure of consideration because the latter’s behaviour is not a result of the request and in return for the promise. It happens more as a consequence than as a bargained arrangement.
In each of the cases, the person who has acted to his detriment has no obvious legal remedy. The other party may or may not obtain a windfall, but the crux of the issue is the inequity of acting to his detriment in reliance on the assurance.
Another variation is where parties rely on a shared assumption that one or other will obtain rights in the land and act accordingly. An example might be where a tenant with a very short term interest who has been promised and extended term by his landlord spends money in expectation on the basis of; he assumes long-term interest the principle will apply most strongly where the person is requested to incur the expenditure. Where he is encouraged to incur expenditure, the principle will also apply. The expectation must result from the land titleholder’s action.
Error as to Property Rights
Where one person has made an error as to his rights to the knowledge of the titleholder and incurred expenditure in reliance that the title owner may be precluded from asserting a strict legal right. A classic instance of this is where a person commences to build on another’s land and that other stands by, allows him to expend money knowing that they believe the land to be theirs.
It is essential that the title owner knows that the other person is mistaken. Generally, if someone builds on one’s land the building belongs to the land owner and the person who has built the land has no claim for the benefit conferred. The above principle only applies if the third party did not believe he had rights and the true owner stood by and let him act to his detriment in reliance on this mistake.
The title owner in each of these cases must either encourage the person incurring expenditure to do so either by words or actions or in the latter case by refraining from asserting his legal right.
The above criteria have been applied less rigidly in more recent years. In the last 30 years, the courts have shown that in some cases they will take a broader approach which is directed at ascertaining whether in the circumstances it would be unconscionable for a party to be permitted to deny that which knowingly or unknowingly he has allowed or encouraged another to assume to his detriment. Different courts have taken slightly different views as to the extent to which the above principles are fixed or have elements of flexibility at the margin.
The classic older fashion view requires the following key elements.
- That the claimant has made a mistake regarding his legal rights.
- That he has expended money or done some act unsought of his mistaken belief.
- That the owner knew of his inconsistent rights and of the claimant’s mistaken belief as to his rights.
- That the owner must have encouraged the claimant in relation to the expenditure incurred either directly or indirectly by refraining to assert his legal rights.
The modern cases emphasise on conscionability. This will depend on the particular degree of assurance, reliance and detriment. The overall unconscionability will determine the, whether the remedy proprietary estoppel is available, and if so the particular remedies.
Equitable estoppel is flexible. The extent of the remedy will depend on the extent of unconscionability. The court is flexible as to the appropriate relief which may be granted.
This is in contrast to the position with strict legal rights. # rights are either established or not. However, with proprietary estoppel there is no automatic entitlement or right. It is a matter within the discretion of the court.
The view has been expressed that courts should at a minimum do justice having regard to the extent to which a person has altered their position and acted to his detriment.
In some cases, it may be required that title to a property is transferred. In other cases, some lesser intermediate position may suffice.
In recent years an emphasis has been placed on proportionality. The court may make an award of a certain amount proportionate to the expectation. The award is that which is sufficient to meet the minimum necessary to satisfy the equity.
This more flexible approach is more flexible than the all-or-nothing approach which may be involved for example in cases where a person expects to inherit an entire property.
The approach is based on fulfilling expectations and compensating for detrimental reliance. One approach or the other does not necessarily predominate. The court will take a flexible view as to what is required to do justice to the parties in all the circumstances having regard to the need for proportionality between the expectations and the detriment.
Sometimes the courts express proprietary estoppel in terms of a constructive trust. The trust is applied in relation to property to give a equitable position. Similar concepts underlie both remedies.
Promissory estoppel may only be used as a defence. In contrast, proprietary interest may, estoppel may found a claim… The principles are related but are distinct. In some cases, both principles apply simultaneously.