In an ideal world, everyone would say what they mean and do what they say they would do.
Unfortunately, sometimes a party (‘Party A’) will by words or actions imply one thing, which the other party (‘Party B’) relies on to its detriment, then Party A tries to renege, change position, or go back on its word.
For example, Party A might imply that it will enter into a contract with Party B, or if there is a contract, imply that it won’t require Party B to comply with the contract and won’t enforce its rights.
The legal principle of estoppel is designed to protect Party B in those sorts of circumstances – stopping Party A from asserting something contrary to what it implied by its previous action or statements, where Party B had relied on the earlier actions and statements to its detriment.
Essentially, it prevents a party from going back on their word. The purpose is to achieve equity and fairness, and ensure that one party does not ‘take advantage’ of the other.
This principle was explored in the High Court case of Waltons Stores Ltd v Maher [1988] HCA 7. Waltons’ and Maher spent several months negotiating a lease for a property owned by Maher, agreeing that Maher would demolish the existing building on the property and construct new premises for Waltons to occupy and lease. The parties agreed on the term of the lease and the rent for the new premises however as time was of the essence, Maher commenced demolition and construction prior to the lease being signed.
Several months after the agreement was reached verbally, Waltons decided to back out of the deal.
The High Court found in favour of Maher; whilst there was no signed written agreement, the Court determined that Maher had suffered a detriment and Waltons was ‘estopped’ from denying the contract as it would be inequitable to allow it to go back on their word. The High Court enforced the contract.
What are the Elements?
In order to succeed on an estoppel claim, the following elements must apply:
- A legal relationship between the parties, or the anticipation of a relationship (in the Waltons case, the relationship would have been landlord and tenant);
- A promise or a representation from one party to the other, to do something or to refrain from doing something. E.g., Waltons agreed to sign a lease for the newly constructed premises;
- Reliance on the promise or representation. In the Waltons case, Maher relied on the promise and commenced demolition of the existing building;
- Detriment suffered. Maher clearly suffered a financial loss by undertaking works on the promise of a new lease for a specific term and for a specific rent over the term of the lease; and
- The affected party must demonstrate that the other party shouldn’t be allowed to ‘go back on their word’.
Whilst estoppel has its complexities, compensation is often awarded to an aggrieved party.
You must take care with your conduct, actions, words, and any written contracts, to ensure that everyone clearly understands the true legal position, what has been agreed, and what are everyone’s legal rights and responsibilities, so there is no misunderstanding and no possible estoppel claim in your future.
If you find that you have a building contract dispute that may involve an estoppel, please contact our building and construction team on 4052 0703.