Commonwealth v Verwayen

170 CLR 394
95 ALR 321

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(Judgment by: DEANE J)

Between: COMMONWEALTH
And: VERWAYEN

Court:

Judges: Mason C.J.
Brennan J.

Deane J.Dawson J.
Toohey J.
Gaudron J.
McHugh J.

Subject References:
Estoppel

Judgment date: 5 September 1990

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Judgment by:
DEANE J

The resolution of this case lies, in my view, in the application of the general doctrine of estoppel by conduct. In what follows, I explain in some detail why that is so. Subject to that, I am in general agreement with the analysis of the law and the facts contained in the judgment of Dawson J. and agree with his Honour's conclusion that the appeal should be dismissed.

THE RELATIONSHIP BETWEEN PROMISSORY ESTOPPEL AND ESTOPPEL BY CONDUCT

In Waltons Stores (Interstate) Ltd. v. Maher (1988) 164 CLR 387 at pp 447-453, and Foran v. Wight (1989) 64 ALJR 1 at pp 22-23; 88 ALR 413 at pp 448-449, I attempted to explain the reasons which induced me to conclude that promissory estoppel should be seen not as a separate and distinct doctrine which operates only in equity but as an emanation of the general doctrine of estoppel by conduct which had been explained by Dixon J. in Thompson v. Palmer (1933) 49 CLR 507 at p 547, and Grundt v. Great Boulder Pty. Gold Mines Ltd. (1937) 59 CLR 641 at pp 674-677. I do not regard myself as constrained to depart from that conclusion by what was said in other judgments in those two cases. The support to be found in some of those other judgments for insistence upon a difference in nature between promissory estoppel and estoppel by conduct has, however, caused me to reconsider the question of the relationship between the two. That reconsideration has not caused me to abandon the view that promissory estoppel is but one aspect of a general doctrine of estoppel by conduct which should, under a modern Judicature Act system with merged availability of remedies, be seen as operating indifferently in both law and equity. It has, however, made me more conscious of the force of contrary views. It has also made me conscious of the inadequacy of what I wrote in earlier judgments.

The principle of promissory estoppel can be traced, particularly through the judgment of Denning J. in Central London Property Trust Ltd. v. High Trees House Ltd. (1947) KB 130 at pp 133-135, and, in this country, through the majority judgments in Legione v. Hateley (1983) 152 CLR 406 to Hughes v. Metropolitan Railway Co. (1877) 2 App Cas 439 and Birmingham and District Land Company v. London and North Western Railway Co. (1888) 40 Ch D 268. Lord Cairns LC. in Hughes (at p 448) and Bowen LJ. in Birmingham (at p 286) referred to the relevant principle in terms appropriate to a doctrine of estoppel: a party who has induced another party to act on the assumption that contractual rights will not be enforced "will not be allowed to enforce" those rights "where it would be inequitable having regard to the dealings which have thus taken place between the parties" (per Lord Cairns L.C.) or "without at all events placing the parties in the same position as they were before" (per Bowen L.J.). In the High Trees Case (at p 134), Denning J., no doubt influenced by statements of high authority to the effect that the general doctrine of estoppel by conduct did not extend to assumptions of future fact or conduct (see, in particular, Chadwick v. Manning (1896) AC 231 at p 238), was at pains to distance the principle which he recognized from that general doctrine. He referred to four cases in which it had been held that the circumstances gave rise to an estoppel (see Fenner v. Blake [1900] 1 QB 426 at pp 428-429; In re Wickham (1917) 34 TLR 158 at p 159; Re William Porter and Co. Ltd. [1937] 2 All ER 361 at pp 363-364; Buttery v. Pickard (1946) WN 25 at p 26) and insisted that they were "not cases of estoppel in the strict sense" but "promises - promises intended to be binding, intended to be acted on, and in fact acted on". However, his Lordship went on to identify the operation of the principle in terms which acknowledged its essential similarity to the operation of the doctrine of estoppel by conduct: "The courts have not gone so far as to give a cause of action in damages for the breach of such a promise, but they have refused to allow the party making it to act inconsistently with it. It is in that sense, and that sense only, that such a promise gives rise to an estoppel." In Combe v. Combe [1951] 2 KB 215 at p 219, Denning L.J. took a firm step towards the assimilation of "the principle stated in the High Trees case" with the general doctrine of estoppel by conduct. In what could pass as a succinct statement of the operation of that general doctrine, he pointed out that the "principle does not create new causes of action" but "only prevents a party from insisting upon his strict legal rights, when it would be unjust to allow him to enforce them, having regard to the dealings which have taken place between the parties" (emphasis added).

A number of obstacles lay in the path of the acceptance of promissory estoppel as an emanation of estoppel by conduct. For one thing, there was, as has been indicated, strong authority for the proposition that the doctrine of estoppel by conduct did not extend to a representation about future facts or conduct. For another, the ancestry of old equity cases encouraged the perception that the principle of promissory estoppel was an exclusively equitable one, notwithstanding that investigation of the sentences immediately following the oft-quoted passage from Bowen L.J.'s judgment in Birmingham discloses that his Lordship expressly disavowed (at p 286) any suggestion that the principle enunciated by Lord Cairns L.C. in Hughes' Case was not "a principle that was recognised by Courts of Law as well as of Equity" (cf. Tool Metal Manufacturing Co. Ltd. v. Tungsten Electric Co. Ltd. [1955] 1 WLR 761 at p 766; [1955] 2 All ER 657 at p 662).

In so far as promissory estoppel relates to an assumption about future fact or conduct, it can, of course, be distinguished from other instances of estoppel, including equitable estoppel, based upon assumptions about existing facts or legal entitlement. That distinction no doubt explains the tendency in cases immediately following the High Trees Case to treat promissory estoppel as somehow different in principle from other instances of estoppel. It does not, however, of itself necessarily indicate any difference in nature or principle between promissory estoppel, other aspects of equitable estoppel and the general doctrine of estoppel by conduct. In that regard it is relevant to recall that Dixon J.'s classic expositions of the doctrine of estoppel by conduct in Thompson v. Palmer (an equity suit in pre-Judicature Act New South Wales) and Grundt (a claim in the Western Australian Warden's Court involving, inter alia, questions of trespass and conversion) would seem to have been predicated upon the assumption that the doctrine operated consistently at law and in equity and were worded in terms which, with the possible exception of one reference to "assumption of fact" (in Grundt, at p 674), are appropriate to encompass an assumption about future facts or conduct.

Obviously, the operation in equity of any doctrine of estoppel may be described in words which would be inappropriate to describe its operation at law. In particular, it is commonplace to speak of promissory estoppel as of itself giving rise to "an equity". Precisely the same comment could, however, be made about the operation of any form of estoppel by conduct (including representation and acquiescence) in equity. I turn to explain why that is so.

The phrase "an equity" can be used in the narrow sense of referring to an immediate right to positive equitable relief. The word "equity" was used in that sense in the standard pre-Judicature Act submission (as if it were a plea or demurrer) in equity in New South Wales to the effect that the plaintiff had "no equity" entitling him or her to invoke equitable jurisdiction (see, e.g., Miller and Horsell, Equity Forms and Precedents (New South Wales), (1934), p 132). Used in that sense, the phrase does not encompass the entitlement of a "promisee" under a promissory estoppel. A promissory estoppel does not, of itself, give rise to any right to traditional equitable relief at all, let alone a right to claim compensation under the statutes which conferred power upon equity courts to award compensatory damages. As has been seen, Denning L.J., in Combe v. Combe, stressed that promissory estoppel "does not create new causes of action where none existed before" but simply "prevents a party from insisting upon his strict legal rights". Subsequently in his judgment (at p 220), his Lordship pointed out that "(s)eeing that the principle never stands alone as giving a cause of action in itself, it can never do away with the necessity of consideration when that is an essential part of the cause of action" (emphasis added). His Lordship's statements in that regard accord with earlier and subsequent authority (see, e.g., Taylors Fashions Ltd. v. Liverpool Trustees Co. [1982] 1 QB 133 , at pp 151-155; Ajayi v. R.T. Briscoe (Nig.) Ltd. (1964) 1 WLR 1326 , at p 1330; [1964] 3 All ER 556 , at p 559; Amalgamated Property Co. v. Texas Bank [1982] 1 QB 84 , at p 105; Beesly v. Hallwood Estates Ltd. (1960) 1 WLR 549 , at pp 560-561; [1960] 2 All ER 314 , at p 324; Seton v. Lafone (1887) 19 QBD 68, at p 70).

The phrase "an equity" can, however, be used in a broader and less precise sense to refer to any entitlement or obligation ("the equities") of which a court of equity will take cognizance. In that sense, the phrase can be used to refer to a "defensive equity" such as "laches, acquiescence or delay" or a mere set-off or to an interest or entitlement which does not of itself found equitable relief. It is in that broader and less precise sense that it is permissible to speak of the operation of estoppel in equity as giving rise to "an equity". This use of the phrase "an equity" in relation to the operation of promissory estoppel can be illustrated by reference to cases in the Supreme Court of New South Wales where, until 1972 when a Judicature Act system was first introduced, old phraseology was preserved and the distinction between "an equity" which of itself founded a claim for relief and "an equity" which did not remained of critical importance in some circumstances.

In Perpetual Trustee Co. v. Pacific Coal Co. Pty. Ltd. (1953) 55 SR (NSW) 495, the plaintiff demurred to a number of pleas filed on behalf of the defendant in a common law action for rent and royalties allegedly due under a lease of a coal mine. One of the pleas was a plea of promissory estoppel which alleged that the plaintiff had induced the defendant to act to its detriment on the basis that the plaintiff would accept reduced rent and royalty payments during a particular past period of the lease. The Full Court of the Supreme Court approached the question of the validity of the plea on the basis that promissory estoppel was an exclusively equitable principle. On that basis, the plea was bad in proceedings at law unless it could be justified under then operative statutory provisions which allowed a plea on equitable grounds in some circumstances where the facts pleaded would found equitable relief against enforcement of a common law judgment. The plea was held to be bad for the reason that the equity to which promissory estoppel gave rise did not of itself entitle the promisee to any form of equitable relief. After referring to the judgment of Long Innes J. in Greater Sydney Development Association Ltd. v. Rivett (1929) 29 SR(NSW) 356, Herron J. said (at p 519):

"Even in light of the more modern decisions in England, including the High Trees Case, the correct view is, as Long Innes J. indicated, that a promissory representation not to enforce a legal right may be relied upon as a defensive equity to an attempt by the representor to obtain equitable relief in a court of equity in respect of such legal right. In other words it may constitute a defensive equity to a claim for equitable relief. Beyond this it cannot go."

Owen J. (at p 508) indicated that, in that regard, the High Trees principle of promissory estoppel operated in the same way in equity as did the ordinary doctrine of estoppel by conduct: "an estoppel, whether a promissory estoppel or a true estoppel, can never be used to found a cause of action whether in equity or at common law". The decision of the Full Court in the Pacific Coal Case was unaffected on this point by the subsequent appeals to this Court ((1954) 91 CLR 486 ) and the Privy Council ((1956) AC 165). In NSW Rutile Mining v. Eagle Metal (1960) SR (NSW) 495, the Full Court of the Supreme Court affirmed and applied its decision that promissory estoppel could not of itself give rise to anything more than a defensive equity.

The judgments of the members of the Full Court of the Supreme Court of New South Wales in the abovementioned cases need to be qualified or amended in the light of subsequent recognition of the extent to which estoppel generally, and promissory estoppel in particular, can establish an ingredient of an action, whether at law or in equity, for relief framed on the basis of the assumed state of affairs (see, generally, Waltons Stores, at pp 400, 444-445; Texas Bank, at pp 105, 131-132). However, the New South Wales judgments correctly identify the only basis upon which it can properly be said that promissory estoppel of itself gives rise to "an equity". That equity is, as the cases on promissory estoppel seem to me to make plain, an entitlement in equity proceedings to preclude departure by the other party from the assumed state of affairs if departure would, in all the circumstances, be unconscionable. The content of the estoppel will, of course, vary according to the nature of the assumption. In particular, the assumption may extend only to observance of the assumed state of affairs until after the expiry of reasonable notice of intended departure. Alternatively, the circumstances may be such that insistence upon strict adherence to the assumed state of affairs would go beyond, and even conflict with, what the requirements of good conscience would demand. In such a case, equitable relief may be available only on a more restricted basis (see below). Nonetheless, the point remains that promissory estoppel does not of itself give rise to any entitlement to relief in equity. In that regard, promissory estoppel conforms with "the true proposition of law, that, while a party cannot in terms found a cause of action on an estoppel, he may, as a result of being able to rely on an estoppel, succeed on a cause of action on which, without being able to rely on that estoppel, he would necessarily have failed" (per Brandon L.J., Texas Bank, at pp 131-132). The proposition may be further clarified by example.

Let it be assumed that the circumstances are such as to give rise to an ordinary proprietary estoppel precluding A from denying B's beneficial ownership of Blackacre (or B's beneficial ownership of rights of easement over Blackacre: cf. Crabb v. Arun District Council (1976) Ch 179). Let it also be assumed that other circumstances are such as to give rise to a promissory estoppel precluding A from departing from a promissory representation that A would transfer the legal and beneficial ownership of Whiteacre to B at a specified future time which has now been reached. If A is otherwise the legal and beneficial owner of Blackacre and Whiteacre, B can use the relevant estoppel to establish, as between himself and A, beneficial ownership of each property (or of rights of easement over Blackacre) in proceedings against A for equitable relief: e.g. for a declaration of trust and order for transfer (or grant of a legal easement) in the event that A denies, or deals or threatens to deal with the properties in a manner that is inconsistent with, B's assumed beneficial interest in them. In neither case would B be asserting that the estoppel of itself gave rise to a cause of action such as an action for injunction to prevent, or for compensatory damages for, departure from (or breach of) the assumed state of affairs. The cause of action in each case would be the ordinary one of a beneficiary against a trustee for actual or threatened breach of trust in which the estoppel was relied upon to establish the factual ingredient of B's beneficial ownership of the alleged trust property. If, on the other hand, A had no interest whatsoever in Blackacre or Whiteacre at any relevant time, the estoppel would, in the absence of other circumstances such as a dealing between A and B on the conventional basis of B's beneficial ownership, be irrelevant to any proceedings by B against A. The reason why that is so is that the estoppel of itself gives rise to no cause of action and the assumed facts which it would establish would not provide an ingredient of a cause of action against A. Indeed, the assumed state of affairs would, if established, be likely to be destructive of any action (e.g. for fraud or negligence) founded upon the conduct giving rise to the estoppel.

In Woodhouse Ltd. v. Nigerian Produce Ltd. (1972) AC 741, at p 758, Lord Hailsham of St. Marylebone L.C. expressed the view that "the time may soon come when the whole sequence of cases based on promissory estoppel since the war ... may need to be reviewed and reduced to a coherent body of doctrine by the courts". Lord Denning M.R. took up the challenge in Moorgate Ltd. v. Twitchings (1976) QB 225. In a passage which invoked the authority of Dixon C.J., his Lordship said (at pp 241-242):

"Estoppel is not a rule of evidence. It is not a cause of action. It is a principle of justice and of equity. It comes to this: when a man, by his words or conduct, has led another to believe in a particular state of affairs, he will not be allowed to go back on it when it would be unjust or inequitable for him to do so. Dixon J. put it in these words:

'The principle upon which estoppel in pais is founded is that the law should not permit an unjust departure by a party from an assumption of fact which he has caused another party to adopt or accept for the purpose of their legal relations.'

Sir Owen said so in 1937 in Grundt v. Great Boulder Proprietary Gold Mines Ltd. In 1947 after the High Trees case (Central London Property Trust Ltd. v. High Trees House Ltd.), I had some correspondence with Sir Owen about it: and I think I may say that he would not limit the principle to an assumption of fact, but would extend it, as I would, to include an assumption of fact or law, present or future."

In extending Dixon J.'s words to expressly include an assumption about future fact, that is to say promissory estoppel, Lord Denning was, in my view, propounding the preferable view of the relationship of the principle of promissory estoppel and the general doctrine of estoppel by conduct. To the extent that there was conflict between that approach and what had been said and decided in earlier cases, it was, for reasons explained in Legione v. Hateley (at pp 434-435), plainly preferable to recognize that the earlier cases were inconsistent with subsequent developments in the law. I have some difficulty, though, with one sentence in what followed the above extract from Lord Denning's judgment in Moorgate. His Lordship referred to some cases in which estoppel by conduct had operated at common law to preclude an assertion of ownership and added (at p 242):

"Those cases have their parallel in equity when the owner of land, by his conduct, leads another to believe that he is not the owner, or, at any rate, that the other can safely spend money on it. It is held that he cannot afterwards assert his ownership so as to deprive the other of the benefit of that expenditure: see Ramsden v. Dyson (1866) LR 1 HL 129. The Court of Equity will look to the circumstances to see in what way the equity can be satisfied: see Inwards v. Baker [1965] 2 QB 29 ."

I would prefer to read Lord Denning's statement that a court of equity will look to the circumstances "to see in what way the equity can be satisfied" (and to similar statements by his Lordship and others in other cases) as referring to the need to identify the minimum content of the assumed state of affairs from which the doctrine of estoppel precludes departure and the appropriate relief to which the relevant party is entitled pursuant to ordinary equitable principles operating on that assumed state of affairs. That construction of his Lordship's comment would make it consistent with his emphasis, in the High Trees and other cases, upon the proposition that promissory estoppel does not give rise to any cause of action. If, contrary to that reading of his Lordship's comment, Lord Denning was suggesting (as his and Scarman L.J.'s judgments in Crabb v. Arun District Council, at pp 187-190, 193, would seem to indicate) that estoppel by conduct of itself operates in equity to give rise to an equity in the form of some imprecise cause of action for whatever relief might seem fair in the circumstances, I am respectfully unable to accept that as an accurate statement of the operation of the doctrine. That is not, of course, to deny either the flexibility of equitable remedies when equitable principle entitles a party to relief framed on the basis of the assumed state of affairs or the need in an appropriate case to modify relief where the circumstances are such that it would represent a denial rather than a vindication of equity to preclude any departure at all from the assumed state of affairs. It is simply to recognize the basic proposition that estoppel does not of itself provide a cause of action either in law or in equity. a fortiori , estoppel does not of itself provide an independent cause of action in equity for non-traditional equitable relief in the form of compensatory damages, under Lord Cairns' Act or subsequent statutory provisions, for the detriment caused by a departure from an otherwise unenforceable promise as to future conduct. If it did, promissory estoppel could no longer be said to provide a basis upon which ordinary principles of law, including the doctrine of consideration, would operate (see Combe v. Combe, at p 220). To the contrary, it would directly confound the doctrine of consideration and, in a case of promissory estoppel where consideration had moved from the promisee but compensatory damages for detriment sustained exceeded damages for loss of bargain, simply override the law of contract.

Once it is accepted that the general doctrine of estoppel by conduct extends to representations about future facts (including conduct) and that the operation of promissory estoppel in equity conforms with the operation of estoppel by conduct in law and equity, there is no reason in principle for refusing to accept promissory estoppel as but an emanation of the general doctrine of estoppel by conduct. In pre-Judicature Act times when, to the "discredit (of) our jurisprudence", cases could arise in which courts of law and equity applied "different rules of right and wrong to the same subject matter" (see the Report of the Common Law Commissioners, etc., quoted in NSW Rutile Mining, at p 505), the confinement of a developing doctrine to one or other of law and equity may well have been unavoidable. It is not so, however, in a modern system where the law represents the fusion and interaction of both disciplines and is administered by courts of both law and equity. Oliver J. in Taylors Fashions and Robert Goff J. (at first instance) in the Texas Bank Case have convincingly explained why it is undesirable to seek to restrict equitable estoppel to certain defined categories such as promissory estoppel, proprietary estoppel and estoppel by acquiescence. For the reasons which I indicated in Waltons Stores (pp 447-453) when read in the context of what I have written above, it appears to me that the courts of this country should recognize a general doctrine of estoppel by conduct which encompasses the various categories of "equitable estoppel" and which operates throughout a fused system of law and equity.

UNCONSCIENTIOUS CONDUCT

The doctrine of estoppel by conduct is founded upon good conscience. Its rationale is not that it is right and expedient to save persons from the consequences of their own mistake. It is that it is right and expedient to save them from being victimized by other people (cf. Allcard v. Skinner (1887) 36 ChD 145, at p 182). The notion of unconscionability is better described than defined (see per Mahoney J.A., Antonovic v. Volker (1986) 7 NSWLR 151, at p 165; Taylors Fashions, at pp 151-152; and, generally, per Cooke P., Nichols v. Jessup (1986) 1 NZLR 226, at pp 227-229). As Lord Scarman pointed out in National Westminster Bank Plc. v. Morgan (1985) AC 686, at p 709, definition "is a poor instrument when used to determine whether a transaction is or is not unconscionable: this is a question which depends upon the particular facts of the case". The most that can be said is that "unconscionable" should be understood in the sense of referring to what one party "ought not, in conscience, as between (the parties), to be allowed" to do (see Story, Commentaries on Equity Jurisprudence, 2nd Eng. ed. (1892), par.1219; Thompson v. Palmer, at p 537). In this as in other areas of equity-related doctrine, conduct which is "unconscionable" will commonly involve the use of or insistence upon legal entitlement to take advantage of another's special vulnerability or misadventure (cf. Stern v. McArthur (1988) 165 CLR 489 , at pp 526-527) in a way that is unreasonable and oppressive to an extent that affronts ordinary minimum standards of fair dealing. That being so, the question whether conduct is or is not unconscionable in the circumstances of a particular case involves a "real process of consideration and judgment" (cf. Harry v. Kreutziger (1978) 95 DLR (3d) 231, at p 240) in which the ordinary processes of legal reasoning by induction and deduction from settled rules and decided cases are applicable but are likely to be inadequate to exclude an element of value judgment in a borderline case such as the present.

RELIEF IN A CASE OF ESTOPPEL BY CONDUCT

There could be circumstances in which the potential damage to an allegedly estopped party was disproportionately greater than any detriment which would be sustained by the other party to an extent that good conscience could not reasonably be seen as precluding a departure from the assumed state of affairs if adequate compensation were made or offered by the allegedly estopped party for any detriment sustained by the other party. An obvious example would be provided by a case in which the party claiming the benefit of an estoppel precluding a denial of his ownership of a million dollar block of land owned by the allegedly estopped party would sustain no detriment beyond the loss of one hundred dollars spent on the erection of a shed if a departure from the assumed state of affairs were allowed (cf., e.g., Ramsden v. Dyson (1866) LR 1 HL 129, at pp 140-141; Sheridan v. Barrett (1879) 4 LR Ir 223, at pp 229-230). In such a case, the payment of, or a binding undertaking to pay, adequate compensation would preclude a finding of estoppel by conduct. In other cases, particularly cases involving an assumption about a future state of affairs, the circumstances may be such that any significant detriment would be avoided altogether if the party affected were given reasonable notice of the intended departure. In such a case, the estoppel may only preclude departure from the assumed state of affairs otherwise than after such reasonable notice has been given (cf., e.g., Ajayi v. R.T. Briscoe (Nig.) Ltd., at p 1330; p 559 of All ER). Even in a case where an estoppel by conduct is established and would prima facie operate to preclude departure from the assumed state of affairs, the circumstances may be such that to grant unqualified relief on that basis would exceed any requirements of good conscience and be unduly oppressive of the other party. "Of all doctrines, equitable estoppel" - and, I would add, equitable relief based on the assumed state of affairs - "is surely one of the most flexible" (see Texas Bank, at p 103; Taylors Fashions, at p 153).

There is clear support in the cases and learned writings for the view that, in this as in other fields, equitable relief must be moulded to do justice between the parties and to prevent a doctrine based on good conscience from being made an instrument of injustice or oppression. That being so, it should be accepted that the prima facie entitlement to relief based on the assumed state of affairs must, under a doctrine which is of general application in a system where equity prevails, be qualified if it appears that that relief would exceed what could be justified by the requirements of conscientious conduct and would be unjust to the estopped party. In some such cases, an appropriate qualification may be a requirement that the party relying upon the estoppel do equity (see, e.g., Texas Bank, at pp 108-109). In other cases, the relief to which the party relying upon the estoppel would be entitled upon the assumed state of affairs will merely represent the outer limits within which the jurisdiction of a modern court to mould its relief to suit the circumstances of a particular case should be exercised in a manner which will do true justice between the parties (cf. Hamilton v. Geraghty (1901) 1 SR(NSW) Eq. 81, at pp 87-88). In some such cases the appropriate order may be one which places the party entitled to the benefit of the estoppel "in the same position as (he or she was) before" (cf. Birmingham, at p 286). In others, the appropriate order may be an order for compensatory damages .

To acknowledge the fact that the relief appropriate to a case of estoppel by conduct may vary according to the circumstances is not to suggest that relief is to be framed on an unprincipled basis. Prima facie, the operation of an estoppel by conduct is to preclude departure from the assumed state of affairs. It is only where relief framed on the basis of that assumed state of affairs would be inequitably harsh, that some lesser form of relief should be awarded. Moreover, while the relief awarded should be appropriate to the circumstances of the particular case, the courts should not adopt an arbitrary or idiosyncratic approach to the determination of what is in fact appropriate. In particular, it is permissible to recognize prima facie categories of cases in which it will not be inequitable to award relief framed on the basis of the assumed state of affairs. It is arguable that one such category should consist of cases in which an employer deliberately and with full knowledge of relevant circumstances induces an employee injured by the negligence of the employer or a co-employee to act to his or her detriment by pursuing an action for compensatory damages on the basis that the employer will not take advantage of unmeritorious technical defences to resist liability. It is not, however, necessary to pursue that question for the purposes of the present case.

THE CONTENT AND OPERATION OF THE GENERAL DOCTRINE OF ESTOPPEL BY CONDUCT

It is undesirable to seek to define exhaustively and in the abstract the content or operation of any general legal doctrine. Inevitably, there will be unforeseen and exceptional cases. Ordinarily, there will be borderline areas in which the interaction of the doctrine with other doctrines will be uncertain. Most important, it is part of the genius of the common law that development on a case-by-case basis enables its adaptation to meet changing circumstances and demands.

On the other hand, the conceptual foundations of a legal doctrine constitute an essential basis of judicial decision in a borderline case such as the present. Those conceptual foundations can only be identified by reference to the essential content and operation of the doctrine. It is, for that reason, desirable that I identify in a general way what I see as the conceptual foundation and essential operation of the doctrine of estoppel by conduct which has, during this century, emerged as a coherent body of substantive and consistent principle. To a significant extent, I do so in words taken (without specific acknowledgment) from the judgments of others in earlier cases (see, in particular, Thompson v. Palmer, at p 547; Grundt at pp 674-677, Moorgate, at pp 241-242; Taylors Fashions, at pp 144-157; Texas Bank, at pp 101-107; Waltons Stores, at pp 404, 458). For ease of subsequent reference (in this judgment) I shall use numbered paragraphs.

1.

While the ordinary operation of estoppel by conduct is between parties to litigation, it is a doctrine of substantive law the factual ingredients of which fall to be pleaded and resolved like other factual issues in a case. The persons who may be bound by or who may take the benefit of such an estoppel extend beyond the immediate parties to it, to their privies, whether by blood, by estate or by contract. That being so, an estoppel by conduct can be the origin of primary rights of property and of contract .

2.

The central principle of the doctrine is that the law will not permit an unconscionable - or, more accurately, unconscientious - departure by one party from the subject matter of an assumption which has been adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to that other party's detriment if the assumption be not adhered to for the purposes of the litigation.

3.

Since an estoppel will not arise unless the party claiming the benefit of it has adopted the assumption as the basis of action or inaction and thereby placed himself in a position of significant disadvantage if departure from the assumption be permitted, the resolution of an issue of estoppel by conduct will involve an examination of the relevant belief, actions and position of that party.

4.

The question whether such a departure would be unconscionable relates to the conduct of the allegedly estopped party in all the circumstances. That party must have played such a part in the adoption of, or persistence in, the assumption that he would be guilty of unjust and oppressive conduct if he were now to depart from it. The cases indicate four main, but not exhaustive, categories in which an affirmative answer to that question may be justified, namely, where that party:

(a)

has induced the assumption by express or implied representation;

(b)

has entered into contractual or other material relations with the other party on the conventional basis of the assumption;

(c)

has exercised against the other party rights which would exist only if the assumption were correct;

(d)

knew that the other party laboured under the assumption and refrained from correcting him when it was his duty in conscience to do so .

Ultimately, however, the question whether departure from the assumption would be unconscionable must be resolved not by reference to some preconceived formula framed to serve as a universal yardstick but by reference to all the circumstances of the case, including the reasonableness of the conduct of the other party in acting upon the assumption and the nature and extent of the detriment which he would sustain by acting upon the assumption if departure from the assumed state of affairs were permitted. In cases falling within category (a), a critical consideration will commonly be that the allegedly estopped party knew or intended or clearly ought to have known that the other party would be induced by his conduct to adopt, and act on the basis of, the assumption. Particularly in cases falling within category (b), actual belief in the correctness of the fact or state of affairs assumed may not be necessary. Obviously, the facts of a particular case may be such that it falls within more than one of the above categories.

5.

The assumption may be of fact or law, present or future. That is to say it may be about the present or future existence of a fact or state of affairs (including the state of the law or the existence of a legal right, interest or relationship or the content of future conduct).

6.

The doctrine should be seen as a unified one which operates consistently in both law and equity. In that regard, "equitable estoppel" should not be seen as a separate or distinct doctrine which operates only in equity or as restricted to certain defined categories (e.g. acquiescence, encouragement, promissory estoppel or proprietary estoppel ).

7.

Estoppel by conduct does not of itself constitute an independent cause of action. The assumed fact or state of affairs (which one party is estopped from denying) may be relied upon defensively or it may be used aggressively as the factual foundation of an action arising under ordinary principles with the entitlement to ultimate relief being determined on the basis of the existence of that fact or state of affairs. In some cases, the estoppel may operate to fashion an assumed state of affairs which will found relief (under ordinary principles) which gives effect to the assumption itself (e.g. where the defendant in an action for a declaration of trust is estopped from denying the existence of the trust).

8.

The recognition of estoppel by conduct as a doctrine operating consistently in law and equity and the prevalence of equity in a Judicature Act system combine to give the whole doctrine a degree of flexibility which it might lack if it were an exclusively common law doctrine. In particular, the prima facie entitlement to relief based upon the assumed state of affairs will be qualified in a case where such relief would exceed what could be justified by the requirements of good conscience and would be unjust to the estopped party. In such a case, relief framed on the basis of the assumed state of affairs represents the outer limits within which the relief appropriate to do justice between the parties should be framed.

The propositions contained in the second and third sentences of par.1 are framed in words taken from Pomeroy's Equity Jurisprudence, 5th ed. (1941), par.801, pp 177, 179 (see also, e.g., Spence, The Equitable Jurisdiction of the Court of Chancery, (1846), vol 1, p 550; Pickard v. Sears (1837) 6 Ad and E 469, at p 474 (112 ER 179, at p 181); Loffus v. Maw (1862) 3 Giff 592, at pp 603-605 (66 ER 544, at pp 548-549); Plimmer v. Mayor, etc., of Wellington (1884) 9 App Cas 699, at p 714; Brikom Investments v. Carr (1979) QB 467, at pp 484-485; In re Sharpe (1980) 1 WLR 219 , at p 223; [1980] 1 All ER 198 , at pp 201-202). As I have indicated in par. 2, I prefer the word "unconscientious" to "unconscionable" in this and other areas where equity has traditionally intervened to vindicate the requirements of good conscience. In deference to the generally accepted usage of "unconscionable" and "unconscionability" in this area by judges and writers however, I have thought it preferable to use those words in this judgment. The quotation in par.6 is from Lord Cranworth L.C.'s judgment in Jorden v. Money (1854) 5 HLC 185, at p 210 (10 ER 868 at p 880).

THE APPLICATION OF THE DOCTRINE OF ESTOPPEL BY CONDUCT TO THE FACTS OF THE PRESENT CASE

Dawson J.'s analysis of the facts of the present case, which falls within category (a) (and arguably (b) and (d) also) of par. 4 (above), leads, in my view, to the conclusion that, subject to any necessary amendments to the pleadings being allowed and made (as to which see the judgments of Dawson and Gaudron JJ.), the Commonwealth is estopped from disputing its liability to Mr. Verwayen for damages for the injuries he sustained while in its service. In so far as the above numbered paragraphs embody requirements on the path to that conclusion, the requirements of all but pars. 4 and 8 are clearly satisfied. The steps leading to that conclusion which are open to real dispute involve the answers to two related questions: (i) whether, in circumstances where Mr. Verwayen has obtained the benefit of a limited order as to costs, the Commonwealth would be acting unconscionably if it disputed its liability at this late stage (par.4); and, (ii) whether, in those circumstances, the unqualified operation of the doctrine of estoppel to preclude the Commonwealth from denying liability would be disproportionately burdensome to the Commonwealth and accordingly unjust (par.8). I add to Dawson J.'s analysis of the facts some supplementary comments of my own to make plain why I consider that those two questions should be respectively answered in the affirmative and in the negative, that is to say, favourably to Mr. Verwayen.

As I followed the argument, it is common ground that Mr. Verwayen's injuries were sustained by reason of the negligence of a person or persons in the service of the Commonwealth. He was, himself, also in that service. Indeed, it is the fact that he was a serving member of the Royal Australian Navy which the Commonwealth now seeks to invoke as a ground for denying that it owed him any duty of care. The other defence which the Commonwealth seeks to invoke is that Mr. Verwayen's action is statute-barred. It is not suggested that the Commonwealth was other than fully conscious of these possible defences when it induced Mr. Verwayen to assume that his action for damages for negligence would proceed against the Commonwealth and be determined on the basis that liability was admitted. With the encouragement of the Commonwealth, there was established between the Commonwealth and Mr. Verwayen the relationship of admitted wrongdoer (the Commonwealth) and wronged (Mr. Verwayen) for the express common purpose of enabling the expeditious assessment of the amount of compensation which the wrongdoer should pay. On the basis of that assumption and relationship, Mr. Verwayen proceeded with the preparation and prosecution of his action. He expended both time and money thereon. Far more important, he subjected himself to the stress, anxiety and inconvenience which were inevitably involved in the pursuit of the proceedings. It was only when the actual hearing was all but due to commence that the Commonwealth sought to depart from the induced assumption and to destroy the whole material relationship between the respondent and itself and the entitlement to just compensation which would result from it.

In the ordinary case where a party to litigation amends a pleading to raise a new defence or to assert a new claim, questions of estoppel do not arise. The effect of earlier pleadings will be merely to reflect the particular party's then intentions in relation to the conduct of the action and the other party will not be justified in assuming that subsequent amendment will not be made. Nor, in such a case, will amendment of the pleadings and subsequent conduct of the proceedings on the basis of the amendment give rise to any suggestion of unconscionable conduct on the part of the amending party. It will involve no more than the exercise of the right to seek to raise additional matters of claim or defence in accordance with the procedures laid down for that purpose. The present case is, however, far removed from the ordinary one. The claimed estoppel does not arise merely from the Commonwealth's failure to deny liability in the pleadings. It arises from the fact that other actions of the Commonwealth constituted an unambiguous representation to Mr. Verwayen that liability would not be contested, that is to say, that a limitations defence would not be relied on and that breach of a duty of care would not be denied. The assumption upon which Mr. Verwayen acted was knowingly and deliberately induced and the resulting material relationship of wrongdoer and wronged was deliberately established so that the action could proceed expeditiously to the assessment of damages. The evidence discloses that the Commonwealth had, to the knowledge of Mr. Verwayen, admitted its liability to pay damages to at least one other injured serviceman in comparable circumstances. The confinement of the dispute to the assessment of damages had, no doubt, the advantage, from the Commonwealth's point of view, that it avoided the public impression of a mean-spirited and technical approach to those injured in the performance of their duties as members of their country's defence forces.

Equity has never adopted the approach that relief should be framed on the basis that the only relevant detriment or injury is that which is compensable by an award of monetary damages. To the contrary, a major part of equity was founded upon a denial of that approach (see, e.g., Pomeroy's Equity Jurisprudence, par.116; Dougan v. Ley (1946) 71 CLR 142 , at p 150, per Dixon J.; Aristoc Industries Pty. Ltd. v. Wenham Pty. Ltd. (1965) NSWR 581, at pp 587-588; Doulton Potteries Ltd. v. Bronotte (1971) 1 NSWLR 591, at p 597). If the Commonwealth were now allowed to depart from the assumed state of affairs, the detriment which Mr. Verwayen would sustain could not be measured in terms merely of wasted legal costs. The past stress, anxiety, inconvenience and effort which were involved in the pursuit of the proceedings would be rendered futile. More important, Mr. Verwayen would be subjected to the potentially devastating effects of a last-minute denial of an expectation of just compensation for his injuries in circumstances where those injuries were sustained in the course of the service of the Commonwealth by reason of the negligence of another or others in that service and where that expectation of just compensation had been deliberately induced by the Commonwealth. In that regard, the learned primary judge was expressly informed, without objection or dissent, that the relevant detriment included "increased ill health" and that part of Mr. Verwayen's "problems are of a psychiatric nature and medical evidence is that this" - i.e. the Commonwealth's inducement of the assumption and attempt to depart from it ("take away the carrot") - "has had and will continue to have ... severe consequences upon the ill health produced by the defendant's negligence" (i.e. the original accident). It is true that the extent of the detriment which, in the absence of an estoppel, Mr. Verwayen would sustain by reason of the induced assumption has not been established or quantified with the precision which might be thought necessary to discharge an onus of proof in an action for pecuniary compensation for that detriment. That is not surprising however, since the issue of estoppel was resolved against Mr. Verwayen before he had an opportunity of leading detailed evidence. More important, the absence of such detailed evidence is not really to the point in circumstances where the relevant detriment to Mr. Verwayen would obviously extend far beyond any question of legal costs and be of such a nature and extent that it cannot properly be said that it exceeds the requirements of good conscience or is unjust to the Commonwealth to hold it to the assumed state of affairs upon the basis of which it deliberately induced Mr. Verwayen to act.

There are three further matters which I would mention. The first is, to some extent, a matter of semantics. It is that I do not see the case as one of "waiver". In Foran v. Wight (at p 22; p 447 of ALR), I expressed the view that the somewhat arbitrary doctrine of waiver is being increasingly absorbed and rationalized by the more flexible doctrine of estoppel by conduct and that, "in cases ... where the focus is upon action by one party 'upon' what was conveyed to that party by the other party, the applicable primary doctrine should be seen in a modern context as that of estoppel". Upon reflection, I should have omitted the qualification "primary" from that statement. In the context of the development of the general doctrine of estoppel by conduct in recent years, it seems to me to be preferable to confine the rubric of "waiver" within the area of the law in which, notwithstanding the absence of consideration, the act of the alleged waivor is of itself directly operative to "waive" a right or entitlement without there being any need to establish that the other party has acted upon the basis that the right or entitlement in question was no longer asserted. The principal examples of cases falling within that area are cases of true election (see, generally, the discussion in the judgment of Lord Goff of Chieveley in The "Kanchenjunga" (1990) 1 Lloyd's Rep 391 at pp 397-400). Where a case is said to fall within that area, estoppel by conduct may, if the claim of waiver fails, operate either directly to preclude enforcement of the right allegedly waived or indirectly to preclude departure from a representation that the right had been or would be waived. Even if I had (like Gaudron J.) seen the present case as falling within a category where, in the context of a change of relationship, detriment could be assumed, it would not, in my view, be one in which any particular act or acts of the Commonwealth of themselves operated as a waiver of the relevant defences. That being so, I have identified the applicable doctrine solely in terms of estoppel by conduct. The second further matter is that, as I followed the argument, the Commonwealth adopted the position that, if it fails (as I think it does) in its argument in this Court on the question of estoppel on the basis of the material at present in evidence, that question should be finally determined against it. The final matter which I would mention is that, if I had been of the view that the material presently in evidence was inadequate to found a conclusion that Mr. Verwayen's relevant detriment extended beyond his liability in respect of legal costs and outgoings, I would have considered that he should, in all the circumstances of the case, be given an opportunity to apply for an order that would enable him to lead further evidence in relation to that matter. As I have indicated, perusal of the transcript of argument before the learned primary judge discloses that the proceedings at first instance were conducted on the basis that, for the purposes of a consideration of the question of estoppel as a preliminary point, it was unnecessary that Mr. Verwayen lead evidence to establish the allegation (made in further and better particulars) that the relevant detriment extended beyond liability for costs and included "increased stress as a result of continued protraction of these proceedings leading to an aggravation of his psychiatric state of health". It also discloses that determination of the question of estoppel as a preliminary point was contrary to the wishes of Mr. Verwayen and that a somewhat informal approach was taken to the identification of what was and was not in evidence before his Honour for the purposes of that determination. In these circumstances, it appears to me that, if the material in evidence had proved inadequate to establish detriment beyond liability for legal costs, the interests of justice would have required that Mr. Verwayen be afforded an opportunity of applying for an order that would have allowed him to supplement that evidence either on further hearing of the preliminary point before the trial judge or, as the Full Court would seem to have thought appropriate in an earlier appeal from an interlocutory order made in the case, before the jury on the trial.