A promise to the share farmer that “one day all this will be yours,” never written down, made decades ago and ultimately reneged upon. Was it binding? Court says yes.

Mr David Stone helped Dame Leonie Kramer and her late husband maintain a share farm at Colo Vale. David was told, twice, by Dame Leonie‘s husband, and once by Dame Leonie herself, that he would inherit the farm. David stayed on the farm and continued to work it, very unprofitably, whilst rising to commendable prominence as a volunteer local firefighter.

Dame Leonie then made a will leaving him a cash sum only, not the farm, and died. David sued her estate to enforce the promise, claiming it was estopped from denying the agreement.

Between paragraphs 170-185 his Honour sets at an excellent summary of the authorities urging caution on a Court when making findings on the basis of uncorroborated oral assertions from a plaintiff, particularly where the maker of the statements is now dead. To succeed, the Court requires exceptional evidence. Happily for David, Robb J developed as severe a case of Judicial witness crush as I’ve recently seen, going so far as to include an approving exclamation mark at paragraph 97.

The Court reviewed and re-stated the NSW Court of Appeal‘s position on the law of estoppel between paragraphs 30 and 45. A highly fact-specific specific remedy, it is a doctrine evidently well-understood by all judges who canvas the jurisprudence, but very difficult to satisfactorily and succinctly express. Perhaps the best example (still) comes from Handley AJA in Delaforce v Simpson-Cook, concerning estoppel by encouragement, that “such an estoppel comes into existence when an owner of property has encouraged another to alter his or her position in the expectation of obtaining a proprietary interest and that other, in reliance on the expectation created or encouraged by the property owner, has changed his or her position to their detriment.”

After weighing all of the competing facts available, the Court found it not inconsistent with the balance of the evidence that the promise had in fact been made. The defendant executor, Dame Leonie’s daughter Hilary, raised several defences based on David’s actual or implied dishonesty or incompetence in carrying out the share farming activities, meaning he thus came to a Court of Equity without “clean hands” or that otherwise it was not unreasonable for Dame Leonie to resile from her representation that he would inherit the farm.

The Court found none of these defences relevant to the existence of the promise. David kept the farm. However, he was denied the additional gift of $200,000; which his Honour notes may be practically offset by the fact that he would now have a costs order for an eight day Supreme Court trial.

Kramer v Stone – the Appeal

This case was an appeal from a decision of Robb J in which his Honour found the estate of the late Dame Leonie Kramer was estopped from denying that certain property in her estate at Colo, which had been share-farmed by the Plaintiff/Respondent, Mr Stone, was held by her estate on trust for Mr Stone as a result of promises made by Ms Kramer in her life that Mr Stone would inherit it. Her last will gave Mr Stone $200,000, but not the property.

The case is about Estoppel, which seems to be a remedy judges can sense the need for before anything else. They then set about fashioning words to capture why it should apply, which fast become unwieldly and complex.

In this case the NSW Court of Appeal was comprised of noted Equity specialists Ward P and Leeming JA. The facts forced them to face down the issue of whether, in proprietary equitable estoppel by acquiescence or encouragement, the promisor (in this case Ms Kramer) must have actual, subjective knowledge that the promisee (here Mr Stone) was relying to his detriment on her promise before the doctrine bites. Crucially, Robb J at first instance did not make that finding – rather, his Honour found Ms Kramer “ought reasonably to have assumed” and “ought to have known” that Mr Stone was detrimentally relying on her promise by continuing to work the shabby and unprofitable bit of farmland in Colo for several decades after the promise was made. That is, she had constructive knowledge only, not actual knowledge, of Mr Stone’s detrimental reliance.

This in turn required an investigation as to:

• what Brennan J’s formulation of the fourth element of equitable estoppel in Walton Stores v Maher (ie that “the defendant knew, or intended him to do so“) meant;
• how that was relevantly different from what Deane J said in Commonwealth of Australia v Verwayen (“knew…or clearly ought to have known“);
• how the NSW Court of Appeal cases have applied each test since; and in particular
• whether the different tests matter, if what is sought to be established are different species of equitable estoppel – ie, proprietary estoppel by acquiescence; proprietary estoppel by encouragement; or promissory estoppel.

The concepts are rather dense and intersecting. The ‘estoppel by acquiescence’ path into the depths of the estoppel forest crosses over several times with the ‘estoppel by encouragement’ path. As Leeming JA puts it (at [292]) “there is similarity and overlap between the species of proprietary estoppel commonly known as estoppel by encouragement and estoppel by acquiescence…”.

However to get back to the point, what matters is the smell of the thing. That is, what is the underlying object equity would see done? As Meagher JA noted at [47] of DHJPM Pty Ltd (one of the NSWCA decisions to have grappled with this point) “…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.”

Or as Leeming JA states at [293], “both doctrines…are driven by the same purpose, namely, preventing unjust departures by the defendant of an assumption adopted by the plaintiff.”

Ward P squares the circle at [199], stating:

• knowledge is obviously necessary in proprietary estoppel by acquiescence (that is, estoppel by ‘standing by’ – the one in which a party acts to their disadvantage on an incorrect assumption which the other party fails to correct); but
• knowledge is not necessary in proprietary estoppel by encouragement. That is because a plaintiff’s detrimental reliance begins once the representation, or “encouragement“, is made by the defendant, which a defendant should know has occurred.

That is, a defendant in estoppel by encouragement need only be proved to know they have pushed the plaintiff towards detrimental reliance by their representation, not that detrimental reliance then happened. Estoppel by acquiescence, on the other hand, must necessarily involve proof of knowledge on the part of the defendant for their conscience to be bound.

At [291] Leeming JA observes that “I think the correct position is that the point is unsettled…“. If one of the authors of Meagher Gummow and Lehane thinks so, it’s probably right.

If you wish to stumble into the murky woods of a estoppel, Ward P’s exposition of the relevant law is at [76]–[105], and her Honour’s reasons dealing with the most contentious issue of knowledge, being ground 4 of the Appeal, is at [170]–[203].

As usual, I would commend Leeming JA’s briefer elaborative reasons in full, however his take on ground 4 is at [278]–[295].

The other point of interest arising from Leeming JA’s separate reasons is his Honour’s one-star review of the judicial practice of handing down reasons without orders and inviting parties to submit orders reflective of the reasons.

In this case, the first instance decision was reserved for close to a year. Robb J then delivered reasons only, inviting the parties to submit orders reflecting the reasons. A fight then ensued about not just the orders, but the scope of the promise Robb J had found to be upheld, which itself required new evidence and a new reserved decision. Final orders were only made some 15 months after the reasons were first delivered.

Leeming JA points out that UCPR 36.16(1) permits parties to apply by motion to vary orders at any time before they have been entered, and under subsection (3A) even up to 14 days after orders are entered. The amendment including (3A) was made in 2007, and constitutes “a basal departure from the traditional approach in equity, and requires changes to habits of thought.”

Leeming JA explains that the evils inherent in getting orders wrong, but getting them out quickly, are far lesser than the evils arising from the delay occasioned by allowing self-selectingly disputatious parties to continue to fight about the appropriate form of orders, or as occurred here, seek to reopen the case and lead new evidence before final orders are made. In a case such as this, where an appeal was clearly contemplated from the time reasons were first delivered, the parties were unable to lodge any appeal for a further 15 months. This is because the time for any such appeal runs not from the date of reasons but the date of orders. As his Honour says at [261]:

“It is to be borne in mind that reasons are not the objective of litigation. The parties go to court in order to obtain orders. Indeed, reasons are in fact reasons for judgment. It is a misconception to think that the reasons come first, from which orders then follow.”

So what was the outcome? Was Ms Kramer’s conscience bound? Ward P and Leeming JA, with Kirk JA agreeing, all found that it was. The appeal was dismissed and Mr Stone got to keep the property.

I think I spy the High Court on the horizon…

This article was written by Guy Moloney, Partner.