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01 July 2017

Estoppel. It seems like a funny word. But the equitable doctrine of a estoppel as a useful tool in a litigator’s tool box.

The rational for an estoppel is to "prevent a party from going back on his word (whether expressed or implied) when it would be unconscionable to do so."[1]

An estoppel arises where:

  • A belief or expectation is created or encouraged by one party to another;
  • To the extent an expressed representation is relied upon it is clearly and unequivocally expressed;
  • The party to whom the representation is made reasonably relies on the representation to that party's detriment;
  • It would be unconscionable for the party who made the representation to depart from the belief or expectation given.
  • A person who has the belief or expectation can get a remedy which is based on either the reliance or upon the expectation.  A reliance based remedy places the wronged party in the position it would have been in had there not been the representation. An expectation based remedy would fulfil the expectation relied upon by the wronged party.

When does an estoppel arise?

An estoppels most commonly occurs in a contractual situation where one party has a right but says or represents to another party that they will not exercise that right.

For example, assume parents own a farm and they want to ensure that their child takes over the farm and do so by a sale and purchase agreement with a debt back. If the parents promise the child that the debt would not be called up then an estoppel may arise.  It may arise if the child relied upon that representation, it was expressed clearly and equivocally, the child acted to his or her detriment (say by forgoing other opportunities in life) and it would be unconscionable for the parents to go back on the promise not to call up the debt.

There are numerous other examples in the commercial context. An estoppel is a remedy in equity and enables the Court to look at the justice of the case and balance competing interests.

While not all estoppel cases go to Court to be determined it does provide a useful tool to encourage parties to settle a dispute.

[1]  National Westminister Finance NZ Limited v National Bank of New Zealand Limited [1996] 1 NZLR 548 (CA) at [549].