Reliance and expectation in estoppel remedies

Andrew Robertson Lecturer in Law, University of Canberra

INTRODUCTION

The word ‘estoppel’ had its origins in the old French word ‘estoup’, meaning plug or stopper.’ The principle of estoppel by representation of fact operates in a manner which is consistent with those origins. Where a representation of fact is relied upon by a representee, the effect of the estoppel is to stop up the mouth of the representor, and prevent him or her from asserting facts contrary to his or her own representation.’ The rights of the parties are then determined by reference to the represented or assumed state of affairs. An estoppel by representation of fact can be used defensively, where an action which would otherwise be available to the plaintiff is not available on the assumed state of affair^.^ It can also be used aggressively, to establish a state of affairs in which a cause of action exists, where that cause of action would not be available on the true state of affairs:

Promissory estoppel has also traditionally had a preclusionary operation: where a person promised that contractual rights would not be enforced, and that promise was relied upon by the promisee, the effect of the estoppel was to prevent the promisor from asserting those rights, either temporarily or

1. L Brown (ed) The New Shorter Oxford English Dictionary on Historical Principles (1993) vol I , p 854. 2. G Spencer Bower and A Turner The Law Relating to Estoppel by Representation (London: Butterworths, 3rd edn, 1977) p 1 12, cited with approval in Avon County Council v Howlett [1983] 1 All ER 1073 at 1087 (Slade LJ). 3. In Avon County Council v Howlett [I9831 1 All ER 1073, for example, a cause of action for moneys had and received would have been available to the plaintiff had it not represented to the defendant that he was entitled to the money in question. The effect of the plaintiff being held to the assumed state of affairs was that no action was then available. 4. In Waltons Stores (Interstate) Lid v Maher (1988) 164 CLR 387 at 463-464, for example, Gaudron J (like the trial judge and the Court of Appeal below) held that an estoppel arose at common law which prevented the defendant from denying that it had entered into an agreement with the plaintiffs. The rights of the parties were, therefore, determined on the basis of the assumed state of affairs and the plaintiffs were able to maintain an action on the agreement which would not otherwise have been available. Other prominent cases in which common law estoppel has been used to establish a cause of action include Seton, Laing, & Co 1’ Lafone ( 1887) 19 QBD 68 (conversion) and Laws Holdings Pty Ltd v Short (1972) 46 ALJR 563 (debt).

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~ermanently.~ The operation of proprietary estoppel has been more flexible: courts of equity have exercised a wide discretion in giving effect to the equity raised by proprietary estoppel. They have usually exercised that discretion by granting relief which has fulfilled the claimant’s expectations.6 There have, however, have been several prominent proprietary estoppel cases in which the courts have granted relief which has had the effect of compensating the claimant’s reliance loss, without fulfilling his or her expectations.’ There has also been at least one reported proprietary estoppel case in which restitutionary relief has been granted,8 but that choice of remedy has rightly been criticised?

In recent years, the courts have begun to examine the nature of the equity raised by proprietary estoppel, and to consider the way in which the courts should exercise their discretion in relation to remedy. This consideration of the effect of proprietary estoppel has led to a re-examination of the remedial operation of other forms of estoppel as well. The essential question which has emerged is whether the courts should adopt a reliance-based or an expectation-based approach to remedy. In the nomenclature of Fuller and Perdue, the question is whether the effect of an estoppel should be to protect the claimant’s reliance interest or expectation interest.’O The court can protect the reliance interest in an estoppel case by compensating the claimant for loss suffered as a result of his or her reliance on the relevant promise or representation. Alternatively, the court can protect the claimant’s expectation interest, by providing a remedy which puts the claimant in the position he or she would have occupied had the relevant promise been fulfilled. Analysis of the cases shows that it is not possible to grant one type of remedy in all estoppel cases: there. are cases in which the circumstances make it impossible to fulfil the claimant’s expectations, and cases in which the claimant’s reliance interest cannot be quantified.” Accordingly, the choice between the two approaches is a choice as to the starting point in the determination of relief, and the purpose to be pursued in fashioning a remedy.

5. See eg Hughes v Metropolitan Railway Co ( 1 877) 2 App Cas 439; Birmingham and District Land Co v London and North Western Railway Co (1 888) 40 Ch D 268; Central London Property Trust Ltd v High Trees House Ltd [I9471 1 KB 130; Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India Ltd [ 19901 1 Lloyd’s Rep 391 at 399; and Spencer Bower and Turner above n 2 pp 395-400; G H Treitel The Law of Contract (London: Sweet and Maxwell, 9th edn, 1995) pp 106-107. 6. See A Robertson ‘Satisfying the Minimum Equity: Equitable Estoppel Remedies after Venuayen’ (1996) 20 Melbourne University LR 805,809-820. 7 . Eg Unity Joint Stock Banking Association v King ( 1 858) 25 Beav 72,53 ER 563; Re Whitehead [I9491 NZLR 1066; Hussey v Palmer [1972] 1 WLR 1286; Morris v Morris [I9821 1 NSWLR 61. 8. Raffaele v Raffaele [I9621 WAR 29 at 33, in which damages assessed on a

restitutionary basis were awarded for breach of a contract or ‘notional contract’ arising by way of proprietary estoppel. 9. Two commentators have suggested that D’arcy J erred in awarding damages on a restitutionary basis in Raffaele, and that damages should have been assessed on a reliance basis or an expectation basis: D Allan ‘An Equity to Perfect a Gift’ (1963) 79 LQR 238, 239 (n 7); K C T Sutton Consideration Reconsidered (Brisbane: University of Queensland Press, 1974) p 67 (n 118). 10.L L Fuller and W R Perdue ‘The Reliance Interest in Contract Damages: 1’ (1936) 46 Yale LJ 52. 11.See Robertson above n 6.

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The debate as to remedy raises fundamental questions about the nature and purpose of estoppels by conduct. The essential question, which has been the subject of debate in England, Australia and the United States, is whether estoppels by conduct are essentially concerned with the enforcement of certain types of promises, with preventing a certain type of unconscionable conduct, or with providing protection against harm resulting from reliance on the conduct of others, when those others depart from assumptions induced by their conduct.’2 Logically, the approach to relief should be consistent with the philosophy of estoppel. If the purpose of estoppel is the enforcement of certain types of promises, then an expectation-based approach to relief is appropriate. If, on the other hand, the purpose of estoppel is to prevent harm resulting from reliance on the conduct of others, as I have argued elsewhere,I3 then a reliance-based approach to relief should be adopted.

THE RELIANCE-BASED APPROACH TO RELIEF

The notion that the courts should give effect to equitable estoppel by protecting against harm resulting from the claimant’s reliance emerged from Scarman LJ’s reference in Crabb v Arun District Council to satisfying the ‘minimum equity’ to do justice to the ~1aintiff.l~ In Commonwealth v Verwayen, five members of the High Court of Australia interpreted the minimum equity principle as requiring the court to grant a remedy which represents the minimum necessary to prevent detriment being suffered by the claimant, as a result of his or her reliance on the assumption induced by the conduct of the estopped p a r t ~ . ’ ~ The court should, in other words, grant the minimum relief necessary to protect the claimant’s reliance interest. That principle was held to be applicable in all equitable estoppel cases, whether the estoppel is characterised as a proprietary estoppel or a promissory estoppel. Mason CJ went even further, holding that the courts should give effect to all estoppels by conduct by means of reliance-based relief, including estoppels by representation of fact.16

Scarman LJ’s reference to the ‘minimum equity’ has not been interpreted by the English courts as a requirement that the courts adopt a reliance-based approach to relief.” Indeed, the minimum equity principle does not appear to be regarded by the English courts as a principle which must be taken into account in the determination of equitable estoppel remedies.I8 The reliance-based

12.See A Robertson ‘Situating Equitable Estoppel Within the Law of Obligations’ (1997) 19 Sydney LR 51. 13Jbid; A Robertson ‘Towards a Unifying Purpose for Estoppel’ (1996) 19 Monash University LR I . 14.[1976] 1 Ch 179 at 198. 15.(1990) 170 CLR 394 at 413 (Mason CJ), 430 (Brennan J), 454 (Dawson J), 475 (Toohey J), 501 (McHugh J). 1LIbid at 413-416. 17.See eg Baker v Baker (1993) 25 HLR 408 at 412 (Dillon LJ), 415 (Beldam LJ), 418 (Roch LJ). 18.See eg Wayling v Jones (1995) 69 P & CR 170.

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approach to relief has, however, received some support in England. Christine Davis has suggested that ‘[tlhe doctrine of proprietary estoppel is traditionally understood to give rise to a reliance-based remedy, rather than an expectation based one’.I9 R D Oughten has argued that relief in proprietary estoppel cases should be based on the protection of the claimant’s reliance interest, and has criticised the tendency towards the fulfilment of expectations.20 More recently, in Sledmore v D ~ l b y , ~ ’ Hobhouse LJ applied Mason CJ’s statement in Commonwealth v Verwayen22 that there must be proportionality between the remedy and the detriment.23 This indication that a principled, reliance-based approach to relief may be adopted in England has been welcomed by at least one English c~mmentator.’~

In a recent article in this journal, Elizabeth Cooke argued that the English courts should not follow the lead of the Australian courts in adopting a reliance- based approach to relief.25 Cooke advanced four principal arguments in support of her suggestion that the English courts should continue to give effect to equitable estoppel by fulfilling expectations wherever possible, and should not determine relief by reference to the claimant’s reliance loss. Each of those arguments will be addressed in turn below.

1. Confusion or coherence? The first argument made by Cooke against the reliance-based approach to relief is that protecting reliance loss would ‘confuse and emasculate the law of estoppel’.26 Far from confusing and emasculating the Australian law in this area, the adoption of a reliance-based approach to relief has made equitable estoppel far more coherent. Prior to Waltons Stores (Interstate) Ltd v Maher:’ neither the Australian nor the English courts had articulated the principles by which courts of equity should exercise their discretion in giving effect to an estoppel. The High Court of Australia has now provided a clear approach to remedy in equitable estoppel, putting an end to the remedial uncertainty associated with proprietary estoppel, which has been strongly criticised by English commentators?’ The High

19. C Davis ‘Estoppel - Reliance and Remedy’ [ 19951 Conveyancer and Property Lawyer 409, 415. A similar claim has been made by P S Atiyah ‘Contracts, Promises, and the Law of Obligations’ in P S Atiyah Essays on Contract (Oxford Clarendon Press, 1986) pp 10,55-56. 20.R D Oughten ‘Proprietary Estoppel: A Principled Remedy’ (1979) 129 NLJ 1193. 21.(1996) 72 P & CR 196. 22.(1990) 170 CLR 394 at 413. 23.Hobhouse LJ interpreted this to mean ‘little more than that the end result must be a just one having regard to the assumption made by the party asserting the estoppel and the detriment which he has experienced’ ((1996) 72 P & CR 196 at 208-209). 24.M Pawlowski ‘Proprietary Estoppel - Satisfying the Equity’ (1997) 113 LQR 232,

25.E Cooke ‘Estoppel and the protection of expectations’ (1997) 17 LS 258. 26.Ibid 280. 27.(1988) 164 CLR 387 at 429 (where Brennan J first articulated the reliance-based approach to relief). 28.See eg P Birks An Introduction to the Law of Restitution (Oxford: Clarendon Press, 1985) p 293; A S Burrows ‘Contract, Tort and Restitution - A Satisfactory Division or Not’ (1983) 99 LQR 217,243.

236-237.

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Court has resolved the question of remedy by reference to the principal purpose of estoppel, which is to prevent harm resulting from reliance on the conduct of others, when those others depart from assumptions induced by their conduct. If the English courts are to give effect to equitable estoppels by granting expectation relief wherever possible, as Cooke has proposed, then it is not at all clear when the courts should exercise their discretion to grant other relief. The increased emphasis on reliance in recent Australian cases has made the determination of questions of remedy more consistent with the approach to liability, which turns principally on and has made the operation of the doctrine far more coherent than that of its English c~unterpar t .~~

2. Inconsistency with the law of restitution

Cooke’s second argument is that the adoption of ‘reliance loss theory’ would lead to inconsistency with the law of restitution, because there would inevitably be cases in which the courts would grant restitutionary remedies.” It is not at all clear why the courts would grant restitutionary remedies under a reliance- based approach. Under the approach laid down by the Australian High C0urt,7~ the courts would only protect the claimant’s restitution interest where that interest happened to coincide with the claimant’s reliance interest. It is difficult to see how that occasional coincidence would undermine the law of restitution. A far stronger argument could be made that the law of contract is undermined by the common protection of the claimant’s expectation interest in equitable estoppel cases. A reliance-based doctrine of equitable estoppel is clearly distinguishable from the law of unjust enrichment: it serves a fundamentally different purpose and adopts fundamentally different approaches to questions of liability and remedy.j3

3. Estoppel and the law of contract

The third argument made by Cooke is that the acceptance of a broad doctrine of estoppel which protects the claimant’s reliance interest is not an appropriate way to supplement the doctrine of consideration. She argues that the law of contract is sufficiently flexible to cover reliance which has not been bargained for, and such reliance should be protected within the law of contract itself.34 If it is felt desirable to enforce relied-upon promises, Cooke argues, then the remedy for breach of such promises should be an expectation remedy. This argument raises two important issues. The first issue is whether equitable estoppel is wider than contract, given that it does not require a promise or, on most interpretations, an intention to be legally bound. Given the preparedness of the courts to imply

29.See Robertson above n 12 and above n 13. 30.See Robertson above n 6. 31.Above n 25 at 281-282. 32.For a detailed examination of that approach, see Robertson above n 6 at 820-846. 33.See Robertson above n 12 at 57-60. 34.Above n 25 at 283, citing in support B Mescher ‘Promise Enforcement by Common Law or Equity’ (1990) 64 AW 536, whose arguments are critically examined in Robertson above n 12 at 50-52.

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promises and to impute intentions to be legally bound, this is a difficult question to answer.35 It is, however, strongly arguable that equitable estoppel has a wider scope of operation than contract, justifying the continued development of a jurisdiction outside contract which provides protection against harm resulting from reliance on assumptions induced by the conduct of others.36

The second issue raised by the suggestion that reliance upon promises ought to be protected by the law of contract is whether the contractual remedy of expectation relief is appropriate in such cases. This question was addressed by Fuller and Perdue, who observed that the principal reasons for awarding expectation damages in contract (giving executory rights a present value for the purposes of trade and credit, facilitating reliance on business agreements, providing a simple means of compensating for the loss of opportunities to enter into other contracts, and providing an effective sanction against contract breach) do not apply in the case of relied-upon promise^.^' While the last three of those considerations might be argued to have some application to non-contractual promises relied upon by the promisee, it is clear that none of the considerations hold as strongly for reliance cases as they do for bargain contracts. The reason for the court’s intervention in the case of relied-upon promises is to protect against harm resulting from reliance on the conduct of others. Questions of remedy should accord with the approach to liability, and should be answered by reference to the claimant’s reliance.3s

Perhaps the most compelling reason to restrict the relief provided by equitable estoppel is that too generous an approach to relief is likely to inhibit the development of the doctrine. If the effect of an estoppel is similar to the enforcement of a contractual promise, then the courts may be reluctant to undermine the law of contract by upholding pleas of estoppel in new situations. If the courts are obliged to grant expectation relief, the courts might also be reluctant to find estoppels arising where the harm suffered by the claimant as a result of his or her reliance on the relevant promise is disproportionate to the value of the e~pectation.~’ If, on the other hand, the effect of an estoppel is simply to provide protection against harm resulting from reliance on a promise, then the courts are likely to be more willing to broaden the circumstances in which estoppels are available, and to uphold pleas of estoppel more often. This would allow estoppel to develop into a broad doctrine which provides protection against all harm caused by reliance on the conduct of others, where those others depart from assumptions induced by their conduct.

35.See H Collins The Law of Contract (London: Butterworths, 2nd edn, 1993) pp 7 1-72. 36.See Robertson above n 12 esp at 44-45 and 52. 37. Above n 25 at 59-64. 38. See P Parkinson ‘Equitable Estoppel: Developments after Waltons Stores (Interstate) Ltd v Maher’ (1990) 3 J Contract Law 50, 59; P D Finn ‘Equity and Contract’ in P D Finn (ed) Essays on Contract (Sydney: Law Book Co, 1987) pp 104, 122; Robertson above n 12 at 48-49. 39 .h Lyndel Nominees Pty Ltd v Mobil Oil Australia Ltd (1997) 37 P R 599, for example, Wilcox J appeared to regard expectation relief as the only relief which could be granted to give effect to a promissory estoppel, and found that no estoppel could arise in that case because the detriment suffered by the claimants was not proportional to the value of their expectations.

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4. Inconsistency with previous decisions

The final argument made by Cooke is that the meeting of reliance loss only would be inconsistent with decided cases in which claimants would have had difficulty in proving the value of their reliance. The adoption of such an approach would, therefore, cause undesirable ~ncertainty.~’ This perhaps reflects a misunderstanding of the Australian approach. The Australian courts are not required to protect reliance loss only, but to seek to provide a remedy which is the minimum necessary to prevent detriment resulting from reliance. In cases in which reliance loss is difficult to calculate, the only way to ensure that reliance is fully protected is to fulfil the claimant’s expectations. The result in Commonwealth v Venvayen itself reflects this approach. Mr Verwayen continued his action for damages against the Commonwealth on the faith of an assumption that the Commonwealth would not contest liability. As a result of doing so, he stood to suffer considerable stress, anxiety and ill-health if the Commonwealth was allowed to depart from the assumption and deny liability. The stress, anxiety and ill-health which Mr Venvayen would have suffered as a result of his reliance could not adequately be prevented by any means other than the fulfilment of his expectations. Accordingly, expectation relief was granted.

The reliance-based approach adopted by the Australian courts does not in fact affect the result in most cases, but operates at the margins to prevent injustice where the value of the claimant’s expectation is out of proportion to his or her reliance loss. In fact, so far as the writer is aware, there has not been a reported equitable estoppel case in Australia since Commonwealth v Venvayen, in which the court has granted less than full expectation relief.41 That is partly the result of the courts’ failure to apply the reliance-based approach but is principally a consequence of the fact that, in most cases, there is no adequate way to prevent the claimant from suffering detriment except by fulfilling his or her expectation^.^' The recent Australian experience shows that it is only in

40.Above n 25 at 280-28 1,285. 41.The cases reported up to the end of 1995 are surveyed in Robertson above n 6 at 829- 836. Expectation relief has since been granted in Blazely v Whiley (1995) 5 Tas R 254 (claimant granted specific performance of an anticipated contract of sale); W v G (1996) 20 Fam LR 49 (claimant awarded monetary compensation on an expectation basis for the loss of financial assistance from the estopped party in raising children); Giumelli v Giumelli (1996) 17 WAR 159 (promisors ordered to transfer the promised land to the promisee - the High Court has granted special leave to appeal this decision); Forbes v Australian Yachting Federation Znc (1996) 131 FLR 241 (representor ordered to compensate representees for expenses incurred in replacing promised equipment); Woodson (Salesj Pry Lrd v Woodson (Ausr) Pry Lrd (1997) 7 BPR 14,685 (Santow J proposed making an order which would have the effect of fulfilling the promisee’s expectation of a sale of trust property in a fair and equitable manner). There have been at least two unreported cases in which reliance loss has been compensated: Adore v Blenkinsop Nominees Pry Ltd (unreported, Supreme Court of Western Australia, Malcolm CJ, 1 September 1993), discussed in A Beech ‘The Remedy for Estoppel: Identifying and Preventing Detriment’ in R Carroll (ed) Civil Remedies: Issues and Developments (Sydney: Federation Press, 1996) pp 156, 179- 182 and Public Trustee, as Administrator ofthe Estate of Williams (dec’d) v Wadley (Full Court of the Supreme Court of Tasmania, Wright, Crawford and Zeeman JJ, 27 June 1997), discussed below. 42.For a discussion of three cases since Commonwealth v Venvayen in which a more limited remedy arguably ought to have been granted, see Robertson above n 6 at 830-833. 43.Ibid at 833-834.

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comparatively rare cases that relief can be granted which neatly reverses the claimant's reliance loss, without fulfilling his or her expectations.

Like Elizabeth Cooke, Marks J expressed concern in Commonwealth v Clark- that the application of a reliance-based approach would lead to results inconsistent with earlier cases such as Pascoe v Turner.45 As I have argued elsewhere, however, it is by no means clear that the reliance-based approach would produce different results in such cases.46 Although the financial expenditure by the defendant in Pascoe v Turner was modest, she relied on the relevant representation over a period of three years, expending personal effort on the house and arranging her affairs on the basis that the house and contents belonged to her. Accordingly, monetary compensation may not have been adequate to prevent her from suffering detriment as a result of her reliance on that representation. On that basis, the defendant's expectations may have been fulfilled even under a reliance-based approach to relief.

A recent unreported decision shows that a reliance-based approach to relief will produce different results from the expectation-based approach in cases where. the detriment suffered by the claimant can be quantified, and is disproportionate to his or her expectations. The decision of the Full Court of the Supreme Court of Tasmania in Public Trustee, as Administrator of the Estate of Percy Henry Williams (dec 'd) v W ~ d l e y , " ~ illustrates the significance of the reliance-based approach in such cases. The plaintiff was induced to believe that her father's house, which was worth $68,500 at the date of judgment, would be left to the plaintiff on her father's death. In reliance on that assumption, the plaintiff performed services for her father which she would not otherwise have performed. The father died intestate. The trial judge held that an equitable estoppel arose in favour of the plaintiff, but considered the detriment was not sufficient to justify a full proprietary interest in the property. He held that she was entitled to equitable Compensation of $34,250 in lieu of a half-interest in the property. The Full Court, by majority, allowed an appeal on the basis that the remedy was excessive. Crawford and Zeeman JJ found that the plaintiffs services should have been valued at a generous hourly rate, taking into account the fact that the compensation was not paid for her services at the time the services were performed. Accordingly, the plaintiff was held to be entitled to compensation in the sum of $15,000.

The decision in Public Trustee v Wadley shows that the reliance-based approach to relief will produce quite different results from an expectation-based approach in particular fact situations. The case also indicates a willingness to adopt a strict interpretation of the reliance-based approach to relief. The willingness of the Full Court to satisfy the plaintiffs equity by means of a reliance-based award of compensation was particularly remarkable in this case because of the great difficulty of valuing the work performed by the plaintiff over a period of years.

44.[1994] 2 VR 333 at 342. 45. [ 19791 2 All ER 945. 46.Above n 6 at 844. 47.Full Court of the Supreme Court of Tasmania, Wright, Crawford and Zeeman JJ, 27 June 1997 (available on the internet at http://www.austlii.edu.au/do/disp.pVau/cases/tas/ supreme-ct/unrep890. html).

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CONCLUSIONS

The Australian experience since Commonwealth v Verwayen has shown that the adoption of a reliance-based approach to remedy in equitable estoppel does not affect the results of most cases. Because the primary concern of the courts is to ensure that no detriment will be suffered by claimants as a result of their reliance, expectation relief remains the norm. As Fuller and Perdue have observed in relation to contract damages, fulfilment of the claimant’s expectations is the remedy which is most likely to reimburse the claimant ‘for the (often very numerous and difficult to prove) individual acts and forbearances’ which make up his or her reliance on the estopped party’s conduct!* Approaching the question of remedy on the basis of reliance, however, provides a more certain measure of the equity created by an estoppel. It is only in occasional cases that the choice between a reliance-based approach and an expectation based approach is a significant 0ne.4~ Where a claimant has suffered quantifiable, purely financial detriment which is disproportionate to the expected benefit, then the difference between the two approaches becomes crucial. In such cases, taking a reliance- based approach to the question of remedy is the only way of doing justice between the parties.

48.Above n 19 at 60. 49.For a particularly clear example, see Robertson above n 6 at 827.