What is estoppel? When you enter into a contract in Australia, you state that you and the other party intend to formalise your agreement and prevent other parties from getting in the way of the agreement. By signing the contract you are acknowledging you understand and agree to the terms of the legal relationship.
In common law jurisdictions, contracts create a binding agreement. If one party doesn’t do their duties and responsibilities, the other party can take action to enforce the terms. It reduces risk and conflict by outlining what happens in different situations.
When does estoppel apply? A contracting party who later reneges on the agreement can put the whole transaction at risk. That’s where estoppel comes in as a powerful tool in Australian contract law. It’s a shield to prevent those unfair situations.
What Is Estoppel?
Estoppel is a legal principle that stops a party from going back on their word or actions if it would be unjust to the other party. In simple terms, if one party makes a representation (a promise or assurance) and the other party relies on it to their detriment (suffers a loss), the first party can’t deny that representation.
There are different types of estoppel in Australian contract law:
- Common Law Estoppel. This is about a misleading representation that causes the other party to suffer a loss. For example, if a seller says a property is a certain size and the buyer spends money on renovations based on that information.
- Promissory Estoppel. Here, a party makes a promise (often verbal) and the other party relies on it. If the other party changes its position, the other might suffer a loss if they break the promise. For example, a landlord promises a lease renewal and the tenant spends money on renovations only to have the renewal denied.
- Estoppel by Convention. This occurs when both parties act on an unstated assumption about the contract terms. For example, a long-term business partnership operates on informal practices that become binding because they are consistently applied.
- 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.
- File wrapper estoppel. This is an estoppel that prevents someone who applies for a patent from changing their mind later. If they originally applied for a broad patent but agreed to a narrower one for approval, they can’t then claim the narrower patent covers the same thing as the broader one they gave up on.
Estoppel Cases in Australia
Here are some Australian contract law cases to help illustrate:
Waltons Stores (Interstate) Ltd v Maher (1988)
Waltons engaged Maher to lease his property. Maher was to demolish a building and build one for Waltons. Both parties agreed upon the terms and rent.
Waltons’ solicitors sent Maher’s solicitors a draft lease in October for comments. Waltons got an amended lease back from Maher. Maher told Waltons in November that demolition had begun and that he needed to sign the lease quickly.
Later that month Waltons told their solicitors to ‘go slow’ on the lease. Maher built in January. Waltons told Maher later that month they wouldn’t proceed after 40% of the building work was done. Maher sued to enforce the agreement.
In this case, Maher was allowed to treat the exchange as formal even though formal contracts hadn’t been exchanged. Maher can rely on promises or representations about future behaviour, known as promissory estoppel.
Promissory estoppel has two uses in Australia: as a “sword and a shield”. It will apply to give a promisee a cause of action in the following situations:
- Promisor makes a promise
- Promisor creates or encourages an assumption that a contract will come into existence or a promise will be performed
- Promisee relies on this to his/her detriment; and
- (arguably) it is unconscionable, having regard to the promisor’s conduct, for the promisor to ignore the promise.
In this case, Waltons had a duty to tell Maher as soon as they found out about the demolition within a certain timeframe. They didn’t and given the circumstances, their silence was support or encouragement for Maher to keep going. Waltons was estopped from going back on their implied promise to complete.
Ashton v. Pratt [2015] NSWCA 12
Mr. Pratt asked Ms. Ashton to be his mistress and to get out of the escort business altogether. Mr. Pratt said he would give Ms. Ashton a car, set up a $2.5 million trust for each of her children, and pay her specific allowances.
Ms. Ashton sued the first respondent, Mr Pratt’s executor. Ashton claims that either the November conversation was a binding contract or the first respondent was estopped from denying the existence of a contract.
Now, the issue is whether the first respondent was estopped from denying the conversations were binding. The Court held that the party claiming estoppel has to show that if the assumption that led to it being disproved they would suffer harm that would amount to a material disadvantage as a result of their initial change of position.
But Ms. Ashton couldn’t prove that her detriment—that is, any material disadvantage—arose from Mr. Pratt breaking his word in a way that justified the remedy sought. It wasn’t detrimental to keep the escort relationship going which Ms Ashton saw as loving but not exclusive.
And she didn’t go back to the escort business even though she’d received large gifts while Mr. Pratt was her lover and there was no evidence she couldn’t work in the escort business.
Pipikos v Trayans [2018] HCA 39
In Pipikos v. Trayans, the Court considered the differences between equitable estoppel and part performance noting ‘discernible differences in the scope and operation of these doctrines’. The following are the differences:
- Firstly, equitable estoppel can only be used against a land vendor to protect the rights of a potential buyer, part performance can be used by a land vendor to enforce a parol contract.
- Secondly, the concern is that the plaintiff shouldn’t be left to suffer a disadvantage because of the defendant’s resiling from a promise that isn’t legally enforceable is the justification for equitable intervention through equitable estoppel not the existence of an unfulfilled or partially fulfilled promise.
- In some equitable estoppel cases, the relief might require the defendant to take active steps to honour the expectations created by the transaction; in other cases, the requirements of conscience might be that such an order would not reflect the extent of relief needed to protect the plaintiff from the anticipated harm.
Get Your Rights Protected with a Contract Lawyer
Contracts contain legal jargon that may be challenging to interpret. Get your interests protected and make sure the terms are fair and balanced. JB Solicitors’ contract lawyers can highlight the possible loopholes or hidden provisions that can work against you. We can also help with estoppel and other matters like:
- Whether a legal relationship existed after contract exchanges between two parties
- How to claim ownership of land via contract exchange
- Establishing a contractual relationship and making sure it is legally bound
- Providing legal representation if matters escalate to the local or supreme court
- Explaining our client’s legal rights on contract law matters
Moreover, contracts can have serious legal consequences when breached. We can help you work out how to minimise the risks in the agreement. If a contract issue or legal proceedings arise, call us.