Circumstances in which an equitable estoppel might arise
40In Waltons Stores v Maher an estoppel was enforced by a landowner against an intended tenant in circumstances where there was no dispute as to the terms of the proposed lease agreement. There was no binding agreement because there had not been any exchange of executed counterparts of the contract. The assumption or expectation relied on was directed to the completion of that exchange. In Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466 there also was no issue as to the terms of the lease under which the proprietors of the adjoining plant nursery occupied the owner's land. The leasehold interest could not be registered under the Real Property Act 1900, because the relevant land was not the subject of an approved plan of subdivision. Accordingly, although the lease was binding as between the parties, it was not enforceable at law against a third party purchaser of the owner's land. In each of these cases, the parties contemplated and intended that the proprietary rights which were sought to be enforced by an equitable estoppel had been or would be created by a binding contract and they had reached agreement as to the essential terms of that contract. In each case an equitable estoppel was upheld.
41The facts in Austotel Pty Ltd v Franklins Self-Serve Pty Ltd (1989) 16 NSWLR 582 were different. The estoppel was sought to be enforced by the intended tenant, a supermarket proprietor, against the owner, a property developer. Initially, they had reached agreement on the essential terms of a lease subject to a formal agreement being executed. They had then agreed to increase the size of the leased store area but had not reached agreement as to the rent to be charged for the larger area. They also contemplated and intended that the proprietary rights which were sought to be enforced would be created by a binding contract. There was no binding contract because no rent had been agreed for the larger area. It was also argued that there was no binding contract because of the absence of a formal executed agreement for lease. The claim to an equitable estoppel was rejected (Priestley JA dissenting).
42The present case is like Waltons Stores v Maher in that the equitable estoppel is sought to be enforced by the intended tenant against an intended sub-tenant except that here the dealings giving rise to the assumption or expectation occurred at a time before DHJPM had obtained its leasehold interest in the relevant premises. That estoppel is said to have arisen by reason of an assumption or expectation induced by the conversation of 13 May 2006 and DHJPM's act in reliance being the entry into the lease on 23 May. The present case is unlike Waltons Stores v Maher in that at the time of the relevant act of reliance, the parties had not reached agreement about a number of matters concerning AIM's right of occupation. Those matters included the rent or occupation fee to be paid, the commencement date and duration of the occupation and the extent to which AIM would bear any share of the outgoings or increases in the outgoings which may be charged under the head lease. DHJPM and AIM must be taken, however, to have contemplated and intended that any proprietary or other right of occupation would be created by a binding agreement. This much is implicit in Mr Hannon's position that he relied upon his belief that he had an agreement with AIM following the conversation on 13 May. It is also consistent with the fact that subsequently there were negotiations for a written contract.
43The judgments in Waltons Stores v Maher accept that common law and equitable estoppel are separate doctrines although they have many ideas in common: at 398-399, 415-416, 458-459. See also Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394 at 422, 454, 499-500; Silovi v Barbaro at 472 and S&E Promotions Pty Ltd v Tobin Bros Pty Ltd (1994) 122 ALR 637 at 652-653. They also accept that the "familiar categories" of promissory and proprietary estoppel identify different characteristics of circumstances in which equitable estoppels will arise: at 399-400, 404, 420, 458-459. See also Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406 at 432, 434-435 and Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 at [6], [7]. Those different characteristics were described by Brennan J (at 420):
"In cases of promissory estoppel, the equity binds the holder of a legal right who induces another to expect that right will not be exercised against him .... In cases of proprietary estoppel, the equity binds the owner of property who induces another to expect that an interest in the property will be conferred on him."
See also Mason CJ and Wilson J at 399, 404 and Gaudron J at 458-459.
44Because there are separate doctrines which apply to common law and equitable estoppel and because of the different characteristics which give rise to the different species of equitable estoppel, it is necessary, as the judgments in Waltons Stores v Maher , Silovi v Barbaro and Austotel v Franklins demonstrate, to attend carefully to the identification of the assumption or expectation which the object of the estoppel is said to be estopped from denying or asserting. This also directs attention to the relevant doctrine which must then be applied in a disciplined and principled way: Cobbe v Yeoman's Row Management Ltd [2008] 1 WLR 1752; 4 All ER 713 at [16], [28], [46].
45In Waltons Stores v Maher there were three assumptions or expectations which Mr Maher said had been made and relied upon. They were that an exchange would occur, that an exchange had occurred and that there was a binding agreement between the parties: at 398, 413, 443, 459. Mason CJ, Wilson, Brennan and Gaudron JJ agreed that the first assumption which concerned an expectation as to what Waltons would do could be supported upon principles of equitable estoppel: 399, 413, 459. As to the second assumption, Brennan and Gaudron JJ agreed that it was as to an existing state of affairs and could be supported, if at all, by a common law estoppel: 413, 460. As to the third assumption, Brennan J considered that it also rested on an existing state of affairs and could only be supported by a common law estoppel: 413. Gaudron J did not consider the third assumption to be in substance any different from the second: 460. Deane J dealt with the third assumption as an estoppel by representation or conduct which provided the factual foundation for an action to enforce the resulting "contract": 444-445.
46In Silovi v Barbaro the assumption or expectation was that the proprietors of the adjoining nursery had or would acquire an interest in the owner's land entitling them to occupation for an agreed period: 471, 473. In Austotel v Franklins the estoppel argument was also put in two ways. The first was that Austotel was estopped from denying an agreement in terms of an exchange of letters. The second was that Austotel was estopped from denying that it would grant a lease to Franklins in the event that Franklins executed a formal lease: 584, 602, 616.
47The primary judge sought to apply Brennan J's formulation of what is necessary to establish an equitable estoppel. Of particular importance to this appeal are propositions (1), (2) and (3) and whether any expectation induced by AIM was as to something AIM was "bound" to do. Two things should be noted about Brennan J's formulation. The first is that any general formulation of the relevant principles must necessarily, in its application in particular circumstances, be subject to qualification and refinement reflecting or giving effect to the broad equitable principles which underlie its application. Some of those qualifications may be found in the judgments in Waltons Stores v Maher and S&E Promotions Pty Ltd v Tobin Bros Pty Ltd at 653-654. The second is that it does not describe the characteristics of the different species of equitable estoppel and, in particular, promissory and proprietary estoppel. This is because Brennan J considered there was a difficulty in limiting the principle of equitable estoppel, in so far as it operated in relation to promises, to those which suspended or extinguished existing rights, or to those which created or conferred proprietary as distinct from non-proprietary interests: at 425-426. In this context I note that this Court said in Saleh v Romanous [2010] NSWCA 274, esp at [55], [62], [74], that a promissory estoppel operates as an equitable restraint on the exercise or enforcement of contractual and other rights and is negative in substance.
48The outcome of this appeal does not turn on whether the equitable estoppel relied upon is a proprietary estoppel or a promissory estoppel with respect to a promise to create new rights. The propositions stated by Brennan J are applicable to circumstances which would give rise to an orthodox proprietary estoppel. The estoppel claimed by DHJPM, if made out, could be supported as an orthodox proprietary estoppel, by which AIM created and encouraged an expectation that an interest by way of reversion on a sub-lease would come into existence.
49The reference in Brennan J's proposition (1) to an expectation that "a particular legal relationship would exist" and that the party said to be estopped "would not be free to withdraw" from it, draws attention to two essential aspects of the expectation. The first is that it must be as to a legal relationship which is expected to exist between the parties. The second is that the expectation be induced by a promise which is intended by the promisor and understood by the promisee to affect their legal relations with the result that it is treated between them as something which the party estopped is "bound to do or not to do". This appears from Brennan J's analysis at 421, 422.
50In their joint judgment in Waltons Stores v Maher , Mason CJ and Wilson J also emphasise this second aspect of the expectation necessary to justify a promissory estoppel. After referring to an observation of Robert Goff J (later Lord Goff of Chieveley) in Amalgamated Property Co v Texas Bank [1982] QB 84 at 107, they say (at 403):
"... The point is that, generally speaking, a plaintiff cannot enforce a voluntary promise because the promisee may reasonably be expected to appreciate that, to render it binding, it must form part of a binding contract."
When considering the Privy Council decision in Attorney-General of Hong Kong v Humphreys Estate (Queen's Gardens) Ltd [1987] 1 AC 114, they note (at 406):
"As a failure to fulfil a promise does not of itself amount to unconscionable conduct, mere reliance on an executory promise to do something, resulting in the promisee changing his position or suffering detriment, does not bring promissory estoppel into play. Something more would be required. Humphreys Estate suggests that this may be found, if at all, in the creation or encouragement by the party estopped in the other party of an assumption that a contract will come into existence or a promise will be performed and that the other party relied on that assumption to his detriment to the knowledge of the first party."
In Waltons Stores v Maher the expectation or assumption which was induced and acted upon and which was understood to affect their legal relations was that completion of the exchange of contracts would occur or had occurred: at 408, 430, 444, 464.
51In Silovi v Barbero , Priestley JA (Hope and McHugh JJA agreeing) offered a more succinct formulation of what could be distilled from the different judgments in Waltons Stores v Maher (at 472):
"(5) For equitable estoppel to operate in circumstances such as those of the present case there must be the creation or encouragement by the defendant in the plaintiff of an assumption that a contract will come into existence or a promise be performed, and reliance on that by the plaintiff, in circumstances where departure from the assumption by the defendant would be unconscionable." (italics added)
52In Austotel v Franklins , Priestley JA explained an aspect of this proposition and expanded it to take account of the different circumstances of that case. In speaking of "the creation or encouragement by the defendant in the plaintiff of an assumption that a contract will come into existence or a promise be performed" he made clear that proposition (5) was speaking "of a contract or a promise the content of which was known": at 604. Austotel v Franklins was not such a case. In Plimmer v Mayor of Wellington (1884) 9 App Cas 699, an equitable proprietary estoppel was upheld where there was no agreement which, although unenforceable, contained precise terms describing what was expected. To take account of cases like Plimmer , in Austotel v Franklins Priestley JA expanded proposition (5) (at 604, 610, 612). See at 610:
"(5) For equitable estoppel to operate there must be the creation or encouragement by the defendant in the plaintiff of an assumption that a contract will come into existence or a promise be performed or an interest granted to the plaintiff by the defendant , and reliance on that by the plaintiff, in circumstances where departure from the assumption by the defendant would be unconscionable." (italics added)
That formulation was cited with approval by a Full Court of the Federal Court in S&E Promotions Pty Ltd v Tobin Bros Pty Ltd at 653.
53The requirement that the promise or expectation be intended by the promisor and understood by the promisee to affect their legal relations applies equally to cases where a contract is not contemplated and the expectation is that some interest in land will be granted. That appears from the statement of Lord Kingsdown in his dissenting speech in Ramsden v Dyson (1866) LR 1 HL 129 at 170:
"If a man, under a verbal agreement with a landlord for a certain interest in land, or, what amounts to the same thing, under an expectation, created or encouraged by the landlord, that he shall have a certain interest , takes possession of such land, with the consent of the landlord, and upon the faith of such promise or expectation, with the knowledge of the landlord and without objection by him, lays out money upon the land, a Court of equity will compel the landlord to give effect to such promise or expectation." (italics added)
54That requirement does not mean that there must be certainty in the promise or representation said to give rise to the assumption or expectation in respect of which the proprietary estoppel operates. Such an equitable estoppel can be established notwithstanding that the expectation contains elements that would not be sufficiently certain to amount to a valid contract or is formed on the basis of vague assurances: Gillett v Holt [2001] Ch 210 at 226 (citing Slade LJ in Jones v Watkins ); Baird Textiles Holdings Ltd v Marks & Spencer PLC [2002] 1 All ER (Comm) 737 at [85]; Evans v Evans [2011] NSWCA 92 at [121]-[125] and cases there cited, esp. Flinn v Flinn [1999] 3 VR 712 at [80]-[81].
55In Giumelli v Giumelli Gleeson CJ, McHugh, Gummow and Callinan JJ (at [35]) cited with approval the observation of McPherson J in Riches v Hogben [1985] 2 Qd R 292 at 300-301 where the plaintiff son relied upon an oral agreement and in the alternative a proprietary estoppel by encouragement:
"A consequence of applying the principle may be to complete an otherwise imperfect gift, as in Dillwyn v Llewellyn ; ... or to give effect to an agreement that, for want of certainty or consideration or of some other essential element, falls short of constituting an enforceable contract. ... What distinguishes the equitable principle from the enforcement of contractual obligations is, in the first place, that there is no legally binding promise. If there is such a promise, then the plaintiff must resort to the law of contract in order to enforce it, it being the function of equity to supplement the law not to replace it. The second distinguishing feature is that what attracts the principle is not the promise itself but the expectation which it creates."
56Whether a representation or promise has created or encouraged an expectation which if relied upon will be sufficient to give rise to an equity obviously depends upon the circumstances including the nature of the relationship between the parties and whether they contemplate that any interest to be granted or promise to be performed is to be created by a binding contract. This is illustrated by the decisions of the House of Lords in Cobbe v Yeoman's Row Management Ltd and Thorner v Major [2009] 1 WLR 776. In the former, an equitable estoppel was relied upon in a commercial context. In the latter, the claimant sought to enforce an expectation of inheritance against the estate of his father's cousin.
57In Cobbe v Yeoman's Row Management Ltd the critical question was whether the conduct was such as to induce an expectation affecting legal relations which was binding and irrevocable. Having noted that it is "not enough to hope or, even to have a confident expectation, that the person who has given assurances will eventually do the proper thing", Lord Walker continued:
"[66] The point that hopes by themselves are not enough is made most clearly in cases with a commercial context, of which Attorney-General of Hong Kong ... is the most striking example. It does not appear so often in cases with more of a domestic or family flavour, from Inwards v Baker and Pascoe v Turner to Windeler v Whitehall , Gillett v Holt , Grundy v Ottey , Jennings v Rice and Lissimore v Downing . The son who built the bungalow in Inwards v Baker , the young farm manager in Gillett v Holt , the elderly country neighbour in Jennings v Rice and the female companions in the other three cases almost certainly did not take any legal advice until after the events relied on as creating the estoppel. They may not have had a clear idea of the quantum of what they expected to get .... But in those cases in which an estoppel was established, the claimant believed that the assurance on which he or she relied was binding and irrevocable.
...
[68] ... In the commercial context, the claimant is typically a business person with access to legal advice and what he or she is expecting to get is a contract. In the domestic or family context, the typical claimant is not a business person and is not receiving legal advice. What he or she wants and expects to get is an interest in immovable property, often for long-term occupation as a home. The focus is not on intangible legal rights but on the tangible property which he or she expects to get. The typical domestic claimant does not stop to reflect (until disappointed expectations lead to litigation) whether some further legal transaction (such as a grant by deed, or the making of a will or codicil) is necessary to complete the promised title."
58In Thorner v Major , the party resisting the estoppel argued that the assurances were not sufficiently certain and relied upon observations of Lord Scott in Cobbe v Yeoman's Row Management Ltd . Addressing that argument, Lord Neuberger said:
"[96] Secondly, the analysis of the law in Cobbe's case ... was against the background of very different facts. The relationship between the parties in that case was entirely arm's length and commercial, and the person raising the estoppel was a highly experienced businessman. The circumstances were such that the parties could well have been expected to enter into a contract, however, although they discussed contractual terms, they had consciously chosen not to do so. They had intentionally left their legal relationship to be negotiated, and each of them knew that neither of them was legally bound. What Mr Cobbe then relied on was "an unformulated estoppel" ... asserted in order to protect [his] interest under an oral agreement for the purchase of land that lacked both the requisite statutory formalities ... and was, in a contractual sense, incomplete: para 18.
[97] In this case, by contrast, the relationship between Peter and David was familial and personal, and neither of them, least of all David, had much commercial experience. Further, at no time had either of them even started to contemplate entering into a formal contract as to the ownership of the farm after Peter's death. Nor could such a contract have been reasonably expected even to be discussed between them. On the deputy judge's findings, it was a relatively straightforward case: Peter made what were, in the circumstances, clear and unambiguous assurances that he would leave his farm to David, and David reasonably relied on, and reasonably acted to his detriment on the basis of, those assurances, over a long period."