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Proprietary estoppel and the onus of proof

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By MST Lawyers

Equity has traditionally recognised a category of estoppel known as proprietary estoppel. Proprietary estoppel is a doctrine that applies where a person induces another to adopt an assumption or expectation that the other has or will obtain an interest in the first person’s property, and on the basis of this assumption the other person alters their position or acts to their detriment.

The onus of proof in establishing the estoppel has always been on the party who relied on the assumption or expectation.

The recent case of Sidhu and Van Dyke [2014] HCA 19 looked at this position and the High Court has rejected the notion that the onus of proof in relation to detrimental reliance can shift to the party said to be estopped. 

The relevant facts of the case, in brief are as follows:

Mr Sidhu and his wife lived in the main homestead of a property (“the Homestead Block”) which they owned as joint tenants. The Homestead Block was part of a larger property known as Burra Station. From 1996, Ms Van Dyke and her husband lived in a house on the Homestead Block known as “Oaks Cottage” which they rented from Mr and Mrs Sidhu.

A romantic relationship between Mr Sidhu and Ms Van Dyke began in 1997. In 1998, Mr Sidhu told Ms Van Dyke that he would transfer the title to Oaks Cottage to her after a subdivision of Burra Station had been carried out. When Ms Van Dyke’s husband learned of the affair he and she separated and later divorced. Ms Van Dyke did not seek a property settlement from her husband because of the promise made by Mr Sidhu.

In October 2005, the local Council provided a conditional approval for a subdivision of the Homestead Block into three lots, one of which included Oaks Cottage.

In February 2006, Oaks Cottage was destroyed by fire so Ms Van Dyke moved into alternative premises on the Homestead Block. Mr and Mrs Sidhu received fire insurance proceeds of $175,000.

In July 2006, Ms Van Dyke left Burra Station. Mr Sidhu said that he would not give Oaks Cottage (at that time effectively vacant land plus insurance proceeds) to Ms Van Dyke and Mrs Sidhu made a similar statement. The relationship between Ms Van Dyke and Mr Sidhu ended in mid-2006.

Ms Van Dyke commenced proceedings against Mr Sidhu for the transfer to her of the land plus compensation for the value of Oaks Cottage. Alternatively, she sought compensation for the detriment she had suffered in reliance on his promise to transfer the land to her (the detriment comprised other opportunities she had forgone including a potential property settlement with her ex-husband, non-payment for work she had performed at Burra Station and other employment opportunities she had forgone).

Supreme Court of New South Wales: the trial judge dismissed Ms Van Dyke’s claim on the basis that, amongst other things it was not reasonable for Ms Van Dyke to rely on a promise of a transfer of land when performance depended on the land being subdivided and on the consent of Mr Sidhu’s wife (i.e. Mr Sidhu’s promise involved conditions beyond his control).

New South Wales Court of Appeal: the Court of Appeal held that the onus of proof in relation to detrimental reliance shifted to the party said to be estopped (i.e. Mr Sidhu). The Court of Appeal also found that Ms Van Dykes’ reliance on Mr Sidhu’s promise was objectively reasonable and held that an award of equitable compensation measured by reference to the value of Ms Van Dykes’ disappointed expectation was the appropriate form of relief, being the value of the land at the date of judgment.

High Court: the High Court rejected the notion that the onus of proof in relation to detrimental reliance shifted. Ms Van Dyke at all times had the burden of proving that she had been induced to rely on Mr Sidhu’s promise. The Court also held that the evidence established reliance. As a result Ms Van Dyke was entitled to equitable compensation in the amount to be assessed by reference to the value of the Oaks Cottage.

In summary, parties need to be careful and aware that when making a promise or representation designed to induce another to adopt an assumption or expectation, that promise or representation, if relied upon to the other person’s detriment, may be enforced by a Court of law.

For more information, please contact our Property and Leasing team on +61 3 8540 0200.