Representees in equitable estoppel cases will get what they were promised … if they can prove it

Sidhu v Van Dyke [2014] HCA 19

The recent High Court decision in Sidhu v Van Dyke [2014] HCA 19 (16 May 2014) has clarified some key issues in relation to the law of equitable estoppel, specifically in relation to reliance and remedy.

The Facts

Sidhu (the appellant) and Van Dyke (the respondent) commenced a romantic relationship in late 1997. At the time, both were married to other people; in fact Van Dyke was married to Sidhu’s wife’s brother. Van Dyke and her husband lived in a house (Oaks Cottage) on an unsubdivided property belonging to Sidhu and his wife. In 1998, Sidhu told Van Dyke that he was planning to subdivide the block and would transfer the Oaks Cottage to her. Van Dyke and her husband separated in mid 1998.

Van Dyke made improvements to the Oaks Cottage and also performed unpaid work on other properties belonging to Sidhu and his wife. She also forewent the opportunity to obtain a property settlement on her divorce proceedings as Sidhu told her she did not need to. She also did not engage in full-time employment on the understanding that the Oaks Cottage would be hers and she could raise her son there.

In 2006, the Oaks Cottage burnt down and Van Dyke lived in another of the appellant’s properties. Sidhu represented that once the house had been rebuilt, the property would be transferred to her. When after a period of time Sidhu refused to transfer the property to her, Van Dyke claimed that Sidhu had made representations to her that he would transfer the Oaks Cottage to her, and that she acted in reliance on those representations to her detriment. She sought an order transferring the property on which the Oaks Cottage had stood to her, or alternatively a declaration that the property was held on constructive trust for her, or alternatively the payment of equitable compensation.

The trial judge found in favour of Sidhu, finding that Van Dyke had failed to make out detrimental reliance, as she may have carried out work on the properties and not sought out employment regardless of the promises. Although she had been induced by Sidhu’s promises not to seek a property settlement in her divorce proceedings, it was unreasonable for her to rely on his promises when they were dependent on the consent of Sidhu’s wife and subdivision of the land.

Van Dyke successfully appealed to the NSW Court of Appeal, which found in her favour that it had not been objectively unreasonable for her to rely on Sidhu’s promises and that she had suffered relevant detriment. In doing so, the Court of Appeal relied upon a line of English authority that had not been argued by the parties, to the effect that the plaintiff had the benefit of a ‘presumption of reliance’. Sidhu appealed to the High Court.

The High Court’s decision

The High Court found that the Court of Appeal had erred in basing its decision on a ‘presumption of reliance’. Based on a line of reasoning following Greasley v Cooke [1980] 1 WLR 1306 at 1311-1312; [1980] 3 All ER 710 at 713, Barrett JA (Basten JA and Tobias AJA agreeing) held that if inducement by a promise can be inferred from the plaintiff’s conduct, then the plaintiff is assumed to have relied on the representation unless the defendant establishes otherwise: Van Dyke v Sidhu (2013) 301 ALR 769 [77], [83], [93]. The High Court unanimously held that there is no such presumption, and it is for the plaintiff to establish reliance the same as the other elements of equitable estoppel [61] (per French CJ, Kiefel, Bell and Keane JJ, Gageler J agreeing.)

However, Sidhu’s appeal was still dismissed on the basis that the evidence established that the plaintiff had relied on his representations, in the sense that they were a contributing cause to her remaining on the property, carrying out works and not seeking full-time employment [67]-[78]. It was not necessary that the promise be the sole inducement for the plaintiff’s conduct [71]. The belief induced by the appellant’s representations need only be a ‘contributing cause’ to the reliance [73] (and per Gageler J at [90]-[91]).

In relation to remedy, Sidhu argued that the proper measure of compensation was not the fulfilment of the promise to Van Dyke, but equitable compensation, based on the amount of loss suffered by Van Dyke. However, the High Court held that although there will be cases where it would be inequitable to insist on the representor making good the promise, where the unconscionable conduct consists of resiling from a promise which has induced conduct to the other party’s detriment, the usual value of the relief will be the fulfilment of the promise [85].

Consequences for future equitable estoppel claims

The High Court’s decision means that a plaintiff who seeks to estop another from resiling from a promise will not be able to argue for a ‘presumption of reliance’ but instead will need to prove reliance on the representation in the ordinary way.

However, the court has also demonstrated a preference for making good on the representor’s promise as a starting point for determining remedy, where the unconscionable conduct comprises resiling from a promise that has induced the other party to act to its detriment.

A defendant who wishes to argue for an alternative remedy will need to establish a good reason why the usual rule should not apply. Such reasoning might be based on the disproportion between the damage that would flow to the representor by having to make good on the promise, and the detriment sustained by the representee.

Kylie Weston-Scheuber – CommBar profile