Waltons Stores (interstate) Ltd v Maher

[1988] HCA 7

HIGH COURT OF AUSTRALIA

Mason C.J., Wilson, Brennan, Deane and Gaudron JJ.

WALTONS STORES (INTERSTATE) LTD. v. MAHER

(1988) 164 CLR 387

19 February 1988

Estoppel

Estoppel—Common law—Equity—Negotiations for lease—Exchange of parts requisite to concluded agreement—Terms agreed but parts not exchanged—Conduct of proposed tenant leading owner to believe exchange would occur—Act by owner to detriment in that belief—Whether proposed tenant estopped from denying lease—No signed note or memorandum of lease—Relevance—Conveyancing Act 1919 (N.S.W.), s. 54A(1).

Decisions

MASON C.J. AND WILSON J. The issue in this appeal is whether, in the light of the facts, the appellant is estopped from denying the existence of a binding contract that it would take a lease of the respondents' premises at Nowra and, if so, whether the respondents can support the order made by the primary judge (Kearney J.), affirmed by the New South Wales Court of Appeal, that the appellant pay to the respondent damages in lieu of specific performance of an agreement for a lease.

2. Kearney J. found that exchange was a prerequisite to the creation of a concluded contract between the parties. The respondents did not appeal against this finding so that its correctness is not an issue in this Court. However, the existence of the finding has some relevance to the question of estoppel, an issue on which the respondents succeeded at first instance and in the Court of Appeal. The primary judge found that the appellant was estopped from denying that a concluded contract by way of exchange did exist between the parties, whereas Priestley J.A., with whom Glass and Samuels JJ.A. agreed, found that the appellant was estopped from denying the existence of a binding contract.

3. The justification, if there be one, for finding an estoppel depends on a course of events which commenced with discussions and correspondence between the solicitors for the parties in the first two weeks in November 1983. In the two preceding months the appellant, which was bound to give up possession of its existing commercial premises in Nowra in January 1984, had been negotiating with the respondents with a view to taking a lease of their property in the business district of Nowra. The respondents proposed to demolish an old building on the site and to erect a new building having an area of 14,000 square feet. The appellant required that plans and specifications be prepared to suit its purposes and that the new building be completed by 15 January 1984. On 21 October 1983 Dawson Waldron, solicitors for the appellant, sent to Morton &Harris, solicitors for the respondents, a form of Deed of Agreement for Lease to which was annexed a form of Lease. By their covering letter Dawson Waldron reserved the right to make amendments to the Lease and pointed out that a Schedule of Finishes remained to be annexed to the Deed. The parties had already agreed on the term of the Lease and the rent.

4. Discussions then ensued between the solicitors. On 1 November Mr Elvy of Morton &Harris informed Mr Roth of Dawson Waldron that the respondents had begun to demolish the old building on the site. Amendments to the Lease were discussed. On 2 November Mr Elvy requested an extension of time for completion of the work. This led ultimately to an agreement that the building should be available for fitting out by 15 January and completed by 5 February 1984.

5. The critical conversation took place between Mr Elvy and Mr Roth on 7 November. The primary judge accepted Mr Elvy's account of that conversation because it was in greater detail, there being substantial agreement between the solicitors as to what was said. Mr Elvy pointed out that "the agreement must be concluded within the next day or two otherwise it will be impossible for Maher to complete it." Mr Elvy said that unless agreement was reached Maher would be unable to organize labour and order supplies within the next couple of days before suppliers stopped taking orders and shut down until late January. Mr Elvy also stated that Maher did not wish to demolish a new brick part of the old building until it was clear that there were no problems.

6. In response to Mr Elvy's inquiry Mr Roth said:

"I have received verbal instructions from Waltons that the amendments are acceptable, even the plate glass insurance. I'll do the amendments and send them down to you in the DX tonight. In the meantime I'll get formal instructions from Waltons."

7. On the same day Dawson Waldron sent to Morton &Harris fresh documents incorporating the agreed amendments. The covering letter stated:

"You should note that we have not yet obtained our client's specific instructions to each amendment requested, but we believe that approval will be forthcoming. We shall let you know tomorrow if any amendments are not agreed to.

We also believe a Schedule of Finishes should be annexed to the Deed prior to exchange."

At no time before the despatch of Dawson Waldron's letter of 19 January 1984 to Morton &Harris was there any indication by the appellant or its solicitors that the amendments or any of them were unacceptable or that the respondents would not exchange contracts.

8. On 11 November 1983 Morton &Harris forwarded to Dawson Waldron "by way of exchange" the documents executed by the respondents along with a Schedule of Finishes for approval and to be annexed to the Deed prior to exchange. The letter and documents were received by Dawson Waldron on or about 14 November.

9. Thereafter the respondents began to demolish the new brick portion of the old building. The primary judge found that the appellant became aware of this fact on 10 December, this finding being specifically affirmed by the Court of Appeal. As a result of a projected alteration in its retailing policy, having ascertained from Mr Roth that, as contracts had not been exchanged, it was not bound to proceed, the appellant decided not to commit itself to the proposed arrangements with the respondents and instructed Dawson Waldron to "go slow". In consequence of that instruction, Mr Roth made no response to the letter from Morton &Harris dated 11 November 1983 until 19 January 1984. In the meantime he retained possession of the documents executed by the respondent.

10. In early January the respondents commenced to build in accordance with the plans and specifications submitted to, and approved by, the appellant. By the time Dawson Waldron, in its letter dated 19 January, informed Morton &Harris that the appellant did not intend to proceed with the matter the building was complete as to 40 per cent approximately.

11. In the light of this history of events, especially the conversation on 7 November, Dawson Waldron's letter of the same day and Morton &Harris' letter of 11 November, it is impossible to sustain the finding that the respondents were labouring under a misapprehension that contracts had been exchanged when they embarked upon the demolition of the new brick portion of the building. At no time did Morton &Harris inform the respondents that the appellant had executed the documents or that exchange had actually taken place. On 14 November Morton &Harris wrote to the respondents stating that the amended Agreement for Lease duly executed by the respondents had been sent to Dawson Waldron for execution by the appellants and for exchange. The letter went on to note that the respondents would commence work in accordance with the Agreement immediately as it was to be completed on or by 5 February, the appellant having a right to rescind if it were not completed by 31 March. And that was where progress towards a completed agreement halted. Mr Elvy's evidence, as well as his correspondence, indicates that he regarded an exchange of contracts as an essential prerequisite to the creation of a binding contract between the parties and his letter of 14 November communicated his understanding to them. The evidence does not reveal precisely what the solicitors had in mind by the references to exchange of contracts.

12. As Dawson Waldron did not inform Morton &Harris on 8 November or immediately thereafter that the amendments discussed on 7 November were not acceptable to the appellant, Mr Elvy and the respondents were entitled to assume, in consequence of the statement in Dawson Waldron's letter of 7 November, that the appellant accepted the amendments and that exchange of contracts was a mere formality. The primary judge certainly took this view of the matter. After stating that the respondents "believed that they had an agreement", his Honour continued:

"They were entitled, in my view, to assume that the exchange would be duly completed by the (respondents) and in those circumstances properly considered that they were bound to proceed with the greatest expedition with the building project."

However, he went further when he said that when Morton &Harris sent the executed document "by way of exchange" on 11 November, the respondents:

"... were entitled to infer the acceptance of the document so forwarded so as to hold reasonably the belief that a contract by way of exchange had in fact been concluded" (our emphasis).

13. No evidence was led from the respondents that they believed that exchange had taken place. However, Mr Maher gave this evidence in cross-examination:

"Q. At the time you wrote that letter (a letter to the respondents' bank applying for finance), you were aware that it was important that Waltons should have signed the agreement, were you not? A. I thought it was a formality. I was under the impression that the leases were being registered by the Waltons people, and would be returned in due course.

...

Q. You knew that it was important that there be a lease signed by Waltons before the bank would lend you money, didn't you? A. Yes.

Q. Indeed you knew that if there was not a lease signed by Waltons the bank very well might not lend you money, didn't you? A. Quite right.

...

Q. As far as your understanding was, when you received this letter of 14th November, 1983, it was Mr Elvy telling you that it was all right to go ahead to commence work? A. That is how I read it.

Q. You thought that was the situation, even though in the same letter Mr Elvy told you that the agreement for lease had to be executed and exchanged? A. Yes that was being carried out by my solicitors, those salient points. There was a letter in evidence here from Waltons' solicitors that within 24 hours they would get back and everything would be okay. I have done everything as I set out and I have stuck by my guidelines.

Q. Would it be fair to say that after you received that letter of 14th November, 1983, you assumed that execution by the lessor and exchange of agreement, would take place? A. Most definitely.

Q. You knew that it was important that execution by the lessor and exchange of agreement should take place, didn't you? A. Yes everything would have to be tied up.

Q. You were assuming that that would be done? A. Yes.

Q. If you had been told that exchange of the agreement might not take place, if Mr Elvy had told you that, would you have gone ahead and done the work? A. Would I have started the work?

Q. Yes. A. Of course I would not."

In the light of these answers and the evidence to which we have referred, it would be difficult to sustain a finding that the respondents actually believed that contracts had been exchanged or that a binding contract had come into existence. There was no evidence that the respondents relied on Dawson Waldron's failure to notify amendments on 8 November as indicating that contracts had been exchanged. And, in any event, in the circumstances such a belief, if it existed, could scarcely be described as a reasonable belief in the absence of inquiry from, and confirmation by, Morton &Harris. The substance of the matter is conveyed in Mr Maher's answers to the first question and the last four questions set out above. The respondents thought that the signing of the Agreement, and for that matter exchange, was a formality, something that would occur as a matter of course.

14. Perhaps the difficulty of sustaining the passage in the primary judge's reasoning which we have underlined was a reason why Priestley J.A. concluded that the mistaken assumption adopted by the respondents was that there was a binding agreement between the parties. Be this as it may, the conclusion reached by the Court of Appeal, though not as specific as that of the primary judge, suffers from the same difficulty. The facts justify the weaker inference drawn by the primary judge that the respondents assumed that the amendments were acceptable to the appellant so that the exchange of contracts was only a matter of formality. This assumption was a reasonable assumption because the terms of Dawson Waldron's letter of 7 November coupled with the failure to communicate any refusal by the appellant to agree to the amendments justified the inference that the appellant agreed to the amendments with the result that exchange would follow as a matter of course.

15. Kearney J. and the Court of Appeal considered that the appellant was under a duty to inform the respondents that their assumption that contracts had been exchanged or that there was a binding contract was incorrect. Kearney J. thought that the appellant, acting as a reasonable person would honestly and responsibly have done in the circumstances, should have told the respondents that it did not intend to exchange at all or until it made a final decision on its retailing strategy, when it discovered on 10 December that the demolition was proceeding further. The Court of Appeal was of the same opinion.

16. The estoppel set up by the respondents and found by the primary judge was a common law estoppel in the form of a representation by the appellant constituted by its silence in circumstances where it should have spoken. Likewise, the Court of Appeal based the estoppel on common law principles as 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 674-676. Priestley J.A. regarded the present case as an instance of the third class of estoppel in pais enumerated by Dixon J. in Thompson, at p 547, that is, where a party is required to abide by an assumption made by the other "because knowing the mistake the other laboured under, he refrained from correcting him when it was his duty to do so".

17. Our conclusion that the respondents assumed that exchange of contracts would take place as a matter of course, not that exchange had in fact taken place, undermines the factual foundation for the common law estoppel by representation found by Kearney J. and the common law estoppel based on omission to correct a mistake favoured by the Court of Appeal. There is, as Mason and Deane JJ. pointed out in Legione v. Hateley (1983) 152 CLR 406, at p 432, a long line of authority to support the proposition that, to make out a case of common law estoppel by representation, the representation must be as to an existing fact, a promise or representation as to future conduct being insufficient: Jorden v. Money (1854) 5 HLC 185; 10 ER 868; Maddison v. Alderson (1883) 8 App Cas 467, at p 473; Chadwick v. Manning (1896) AC 231; George Whitechurch, Ltd. v. Cavanagh (1902) AC 117, at p 130; Craine v. Colonial Mutual Fire Insurance Co. Ltd. (1920) 28 CLR 305, at p 324; Yorkshire Insurance Co. Ltd. v. Craine (1922) 31 CLR 27, at p 38; Ferrier v. Stewart (1912) 15 CLR 32, at p 44. It was pointed out in Legione, at p 432, that, although in Thompson Dixon J. did not distinguish between an assumption founded upon a representation of existing fact and an assumption founded upon a representation as to future conduct, at the time the doctrine of consideration was thought to be a significant obstacle to the acceptance of an assumption founded upon a representation (or promise) as to future conduct as a basis for common law estoppel by representation. That this was so appears most clearly from the judgment of Isaacs J. in Ferrier, at p 44. There, his Honour observed that estoppel refers "to an existing fact, and not to a promise de futuro, which must rest, if at all, on contract." However, he went on to say "But a person's conduct has reference to an existing fact, if a given state of things is taken as the assumed basis on which another is induced to act".

18. Because estoppel by representation is often treated as a separate category, it might be possible to confine the distinction between a representation as to existing fact and one as to future conduct to that category. The adoption of such a course would leave an estoppel based on an omission to correct a mistaken assumption free from that troublesome distinction. However, the result would be to fragment the unity of the common law conception of estoppel and to confine the troublesome distinction at the price of introducing another which is equally artificial. And the result would be even more difficult to justify in a case where, as here, the mistaken assumption as to future conduct arises as a direct consequence of a representation.

19. If there is any basis at all for holding that common law estoppel arises where there is a mistaken assumption as to future events, that basis must lie in reversing Jorden v. Money and in accepting the powerful dissent of Lord St. Leonards in that case. The repeated acceptance of Jorden v. Money over the years by courts of the highest authority makes this a formidable exercise. We put it to one side as the respondents did not present any argument to us along these lines.

20. This brings us to the doctrine of promissory estoppel on which the respondents relied in this Court to sustain the judgment in their favour. Promissory estoppel certainly extends to representations (or promises) as to future conduct: Legione, at p 432. So far the doctrine has been mainly confined to precluding departure from a representation by a person in a pre-existing contractual relationship that he will not enforce his contractual rights, whether they be pre-existing or rights to be acquired as a result of the representation: Ajayi v. Briscoe (1964) 1 WLR 1326, at p 1330; 3 All ER 556, at p 559; Bank Negara Indonesia v. Philip Hoalim (1973) 2 MLJ 3, at p 5; State Rail Authority of New South Wales v. Heath Outdoor Pty. Ltd. (1986) 7 NSWLR 170, at p 193, per McHugh J.A. But Denning J. in Central London Property Trust, Ltd. v. High Trees House, Ltd. (1947) KB 130, at pp 134-135, treated it as a wide-ranging doctrine operating outside the pre-existing contractual relationship; see the discussion in Legione, at pp 432-435. In principle there is certainly no reason why the doctrine should not apply so as to preclude departure by a person from a representation that he will not enforce a non-contractual right: Durham Fancy Goods Ltd. v. Michael Jackson (Fancy Goods) Ltd. (1968) 2 QB 839, at p 847, per Donaldson J.; Attorney-General v. Codner (1973) 1 NZLR 545, at p 553.

21. There has been for many years a reluctance to allow promissory estoppel to become the vehicle for the positive enforcement of a representation by a party that he would do something in the future. Promissory estoppel, it has been said, is a defensive equity (Hughes v. Metropolitan Railway Co. (1877) 2 App Cas 439, at p 448; Combe v. Combe (1951) 2 KB 215, at pp 219-220) and the traditional notion has been that estoppel could only be relied upon defensively as a shield and not as a sword: Perpetual Trustee Co. Ltd. v. Pacific Coal Co. Pty. Ltd. (1953) 55 SR(NSW) 495, at pp 508, 518-519 (reversed on appeal on other grounds, (1954) 91 CLR 486; (1955) 93 CLR 479); Gray v. Lang (1955) 56 SR(NSW) 7, at p 13; N.S.W. Rutile Mining Co. Pty. Ltd. v. Eagle Metal and Industrial Products Pty. Ltd. (1959) 60 SR(NSW) 495, at pp 503, 510, 517. High Trees itself was an instance of the defensive use of promissory estoppel. But this does not mean that a plaintiff cannot rely on an estoppel. Even according to traditional orthodoxy, a plaintiff may rely on an estoppel if he has an independent cause of action, where in the words of Denning L.J. in Combe v. Combe, at p 220, the estoppel "may be part of a cause of action, but not a cause of action in itself".

22. But the respondents ask us to drive promissory estoppel one step further by enforcing directly in the absence of a pre-existing relationship of any kind a non-contractual promise on which the representee has relied to his detriment. For the purposes of discussion, we shall assume that there was such a promise in the present case. The principal objection to the enforcement of such a promise is that it would outflank the principles of the law of contract. Holmes J. expressed his objection to the operation of promissory estoppel in this situation when he said "It would cut up the doctrine of consideration by the roots, if a promisee could make a gratuitous promise binding by subsequently acting in reliance on it": Commonwealth v. Scituate Savings Bank (1884) 137 Mass. 301, at p 302. Likewise, Sir Owen Dixon considered that estoppel cut across the principles of the law of contract, notably offer and acceptance and consideration: "Concerning Judicial Method" (1956) 29 Australian Law Journal 468, at p 475. And Denning L.J. in Combe v. Combe, after noting that "The doctrine of consideration is too firmly fixed to be overthrown by a side-wind", said (at p 220) that such a promise could only be enforced if it was supported by sufficient consideration. Moreover, it has been suggested that the enforcement of a promise given without consideration is by no means consistent with Hoyt's Pty. Ltd. v. Spencer (1919) 27 CLR 133 and Maybury v. Atlantic Union Oil Co. Ltd. (1953) 89 CLR 507: see Finn, "Equitable Estoppel" in Finn, (ed.), Essays in Equity (1985), 59, at p 75, and Greig and Davis, The Law of Contract (1987), pp 146-149, 175; but cf. Seddon, "A Plea for the Reform of the Rule in Hoyt's Pty. Ltd. v. Spencer" (1978) 52 Australian Law Journal 372, and Law Com. No. 154 pars 2.35 and 2.36.

23. There is force in these objections and it may not be a sufficient answer to repeat the words of Lord Denning M.R. in Crabb v. Arun District Council (1976) Ch 179, at p 187, "Equity comes in, true to form, to mitigate the rigours of strict law". True it is that in the orthodox case of promissory estoppel, where the promisor promises that he will not exercise or enforce an existing right, the elements of reliance and detriment attract equitable intervention on the basis that it is unconscionable for the promisor to depart from his promise, if to do so will result in detriment to the promisee. And it can be argued (see, for example, Greig and Davis, The Law of Contract, p 184) that there is no justification for applying the doctrine of promissory estoppel in this situation, yet denying it in the case of a non-contractual promise in the absence of a pre-existing relationship. The promise, if enforced, works a change in the relationship of the parties, by altering an existing legal relationship in the first situation and by creating a new legal relationship in the second. The point has been made that it would be more logical to say that when the parties have agreed to pursue a course of action, an alteration of the relationship by non-contractual promise will not be countenanced, whereas the creation of a new relationship by a simple promise will be recognized: see D. Jackson, "Estoppel as a Sword" (1965) 81 Law Quarterly Review 223, at p 242.

24. The direct enforcement of promises made without consideration by means of promissory estoppel has proceeded apace in the United States. The Restatement on Contracts 2d 90 states:

"(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires."

This general proposition developed from the treatment in particular situations of promissory estoppel as the equivalent of consideration. Thus in Allegheny College v. National Chautauqua County Bank (1927) 246 NY 369, Cardozo C.J. said (at p 374):

"Certain ... it is that we have adopted the doctrine of promissory estoppel as the equivalent of consideration in connection with our law of charitable subscriptions."

See Farnsworth, Contracts (1982) 2.19; Gilmore, The Death of Contract (1974), p 129.

25. However, we need to view the development of the doctrine in the United States with some caution. There promissory estoppel developed partly in response to the limiting effects of the adoption of the bargain theory of consideration which has not been expressly adopted in Australia or England. It may be doubted whether our conception of consideration is substantially broader than the bargain theory (see Australian Woollen Mills Pty. Ltd. v. The Commonwealth (1954) 92 CLR 424, at p 456), though we may be willing to imply consideration in situations where the bargain theory as implemented in the United States would deny the existence of consideration: see Atiyah, Consideration in Contracts: A Fundamental Restatement (1971), pp 6-7, 27, fn 35; Treitel, "Consideration: A Critical Analysis of Professor Atiyah's Fundamental Restatement" (1976) 50 Australian Law Journal 439, at pp 440 et seq. It is perhaps sufficient to say that in the United States, as in Australia, there is an obvious interrelationship between the doctrines of consideration and promissory estoppel, promissory estoppel tending to occupy ground left vacant due to the constraints affecting consideration.

26. The proposition stated in 90(1) of the Restatement seems on its face to reflect a closer connection with the general law of contract than our doctrine of promissory estoppel, with its origins in the equitable concept of unconscionable conduct, might be thought to allow. This is because in the United States promissory estoppel has become an equivalent or substitute for consideration in contract formation, detriment being an element common to both doctrines. Nonetheless the proposition, by making the enforcement of the promise conditional on (a) a reasonable expectation on the part of the promisor that his promise will induce action or forbearance by the promisee and (b) the impossibility of avoiding injustice by other means, makes it clear that the promise is enforced in circumstances where departure from it is unconscionable. Note that the emphasis is on the promisor's reasonable expectation that his promise will induce action or forbearance, not on the fact that he created or encouraged an expectation in the promisee of performance of the promise.

27. Some recent English decisions are relevant to this general discussion. Amalgamated Property Co. v. Texas Bank (1982) QB 84 in the Court of Appeal and Pacol Ltd. v. Trade Lines Ltd. (1982) 1 Lloyd's Rep 456, are instances of common law or conventional estoppel. However, the comment of Goff J. in Texas Bank at first instance (at p 107) is significant. His Honour observed:

"Such cases are very different from, for example, a mere promise by a party to make a gift or to increase his obligations under an existing contract; such promise will not generally give rise to an estoppel, even if acted on by the promisee, for the promisee may reasonably be expected to appreciate that, to render it binding, it must be incorporated in a binding contract or contractual variation, and that he cannot therefore safely rely upon it as a legally binding promise without first taking the necessary contractual steps."

The point is that, generally speaking, a plaintiff cannot enforce a voluntary promise because the promisee may reasonably be expected to appreciate that, to render it binding, it must form part of a binding contract.

28. Crabb was an instance of promissory estoppel. It lends assistance to the view that promissory estoppel may in some circumstances extend to the enforcement of a right not previously in existence where the defendant has encouraged in the plaintiff the belief that it will be granted and has acquiesced in action taken by the plaintiff in that belief. There the defendants, knowing of the plaintiff's intention to sell his land in separate portions, encouraged the plaintiff to believe that he would be granted a right of access over their land and, by erecting gates and failing to disabuse him of his belief, encouraged the plaintiff to act to his detriment in selling part of the land without reservation of a right of way. This raised an equity in favour of the plaintiff which was satisfied by granting him a right of access and a right of way over the defendants' land. The Court of Appeal deduced from the circumstances an equity in the plaintiff to have these rights without having to pay for them. As Oliver J. pointed out in Taylors Fashions Ltd. v. Liverpool Victoria Trustees Co. Ltd. (1982) QB 133, at p 153, the Court of Appeal treated promissory estoppel and proprietary estoppel or estoppel by acquiescence as mere facets of the same general principle, a point also made by Lord Denning M.R. in Texas Bank, at p 122, and seemingly accepted by the Privy Council in Attorney-General of Hong Kong v. Humphreys Estate Ltd. (1987) 1 AC 114, at pp 123-124. In Taylors Fashions Oliver J. also remarked (at p 153) that what gave rise to the need for the court to intervene was the defendants' unconscionable attempt to go back on the assumptions which were the foundation of their dealings. Indeed, Scarman L.J. in Crabb saw the question in terms of whether an equity had arisen from the conduct and relationship of the parties (at pp 193-194), concluding that the court should determine what was "the minimum equity to do justice to the plaintiff" (at p 198). See also Pascoe v. Turner (1979) 1 WLR 431, at p 438; 2 All ER 945, at p 951.

29. The decision in Crabb is consistent with the principle of proprietary estoppel applied in Ramsden v. Dyson (1866) LR 1 HL 129. Under that principle a person whose conduct creates or lends force to an assumption by another that he will obtain an interest in the first person's land and on the basis of that expectation the other person alters his position or acts to his detriment, may bring into existence an equity in favour of that other person, the nature and extent of the equity depending on the circumstances. And it should be noted that in Crabb, as in Ramsden v. Dyson, although equity acted by way of recognizing a proprietary interest in the plaintiff, that proprietary interest came into existence as the only appropriate means by which the defendants could be effectively estopped from exercising their existing legal rights.

30. One may therefore discern in the cases a common thread which links them together, namely, the principle that equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has "played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it": per Dixon J. in Grundt, at p 675; see also Thompson, at p 547. Equity comes to the relief of such a plaintiff on the footing that it would be unconscionable conduct on the part of the other party to ignore the assumption.

31. Before we turn to the very recent decision of the Privy Council in Humphreys Estate, which was not a case of proprietary estoppel, but one, like the present, arising in the course of negotiations antecedent to the making of a contract, we should say something of equity's attitude to the enforcement of voluntary promises. So far equity has set its face against the enforcement of such promises and future representations as such. The support for the exercise of a general equitable jurisdiction to make good expectations created or encouraged by a defendant given by Lord Cottenham L.C. in Hammersley v. De Biel (1845) 12 Cl &Fin 45; 8 ER 1312, affirmed by the House of Lords in that case, was undermined by the insistence in Jorden v. Money on a representation of existing fact and destroyed by Maddison v. Alderson. See the discussion in Finn, "Equitable Estoppel", at pp 62 et seq.

32. Because equitable estoppel has its basis in unconscionable conduct, rather than the making good of representations, the objection, grounded in Maddison v. Alderson, that promissory estoppel outflanks the doctrine of part performance loses much of its sting. Equitable estoppel is not a doctrine associated with part performance whose principal purpose is to overcome non-compliance with the formal requirements for the making of contracts. Equitable estoppel, though it may lead to the plaintiff acquiring an estate or interest in land, depends on considerations of a different kind from those on which part performance depends. Holding the representor to his representation is merely one way of doing justice between the parties.

33. In Humphreys Estate the defendants representing the Hong Kong government negotiated with a group of companies ("HKL"), which included the respondent Humphreys Estate, for an exchange whereby the government would acquire 83 flats, being part of property belonging to HKL, and in exchange HKL would take from the government a Crown lease of property known as Queen's Gardens and be granted the right to develop that property and certain adjoining property held by HKL. The negotiations did not result in a contract, though the exchange of properties was agreed in principle but subject to contract. The government took possession of HKL's property and expended a substantial sum on it. HKL took possession of Queen's Gardens and demolished existing buildings and paid to the government $103,865,608, the agreed difference between the value of the two properties. HKL withdrew from the negotiations and sued to recover the amount paid and possession of the first property. The defendants claimed that HKL was estopped from withdrawing from the agreement in principle. The Privy Council rejected this claim on the ground that the government failed to show (a) that HKL created or encouraged a belief or expectation on the part of the government that HKL would not withdraw from the agreement in principle and (b) that the government relied on that belief or expectation (at p 124). Their Lordships observed (at pp 127-128):

"It is possible but unlikely that in circumstances at present unforeseeable a party to negotiations set out in a document expressed to be 'subject to contract' would be able to satisfy the court that the parties had subsequently agreed to convert the document into a contract or that some form of estoppel had arisen to prevent both parties from refusing to proceed with the transactions envisaged by the document."

34. The foregoing review of the doctrine of promissory estoppel indicates that the doctrine extends to the enforcement of voluntary promises on the footing that a departure from the basic assumptions underlying the transaction between the parties must be unconscionable. As failure to fulfil a promise does not of itself amount to unconscionable conduct, mere reliance on an executory promise to do something, resulting in the promisee changing his position or suffering detriment, does not bring promissory estoppel into play. Something more would be required. Humphreys Estate suggests that this may be found, if at all, in the creation or encouragement by the party estopped in the other party of an assumption that a contract will come into existence or a promise will be performed and that the other party relied on that assumption to his detriment to the knowledge of the first party. Humphreys Estate referred in terms to an assumption that the plaintiff would not exercise an existing legal right or liberty, the right or liberty to withdraw from the negotiations, but as a matter of substance such an assumption is indistinguishable from an assumption that a binding contract would eventuate. On the other hand the United States experience, distilled in the Restatement (2d 90), suggests that the principle is to be expressed in terms of a reasonable expectation on the part of the promisor that his promise will induce action or forbearance by the promisee, the promise inducing such action or forbearance in circumstances where injustice arising from unconscionable conduct can only be avoided by holding the promisor to his promise.

35. The application of these principles to the facts of the present case is not without difficulty. The parties were negotiating through their solicitors for an agreement for lease to be concluded by way of customary exchange. Humphreys Estate illustrates the difficulty of establishing an estoppel preventing parties from refusing to proceed with a transaction expressed to be "subject to contract". And there is the problem identified in Texas Bank (at p 107) that a voluntary promise will not generally give rise to an estoppel because the promisee may reasonably be expected to appreciate that he cannot safely rely upon it. This problem is magnified in the present case where the parties were represented by their solicitors.

36. All this may be conceded. But the crucial question remains: was the appellant entitled to stand by in silence when it must have known that the respondents were proceeding on the assumption that they had an agreement and that completion of the exchange was a formality? The mere exercise of its legal right not to exchange contracts could not be said to amount to unconscionable conduct on the part of the appellant. But there were two other factors present in the situation which require to be taken into consideration. The first was the element of urgency that pervaded the negotiation of the terms of the proposed lease. As we have noted, the appellant was bound to give up possession of its existing commercial premises in Nowra in January 1984; the new building was to be available for fitting out by 15 January and completed by 5 February 1984. The respondents' solicitor had said to the appellant's solicitor on 7 November that it would be impossible for Maher to complete the building within the agreed time unless the agreement were concluded "within the next day or two". The outstanding details were agreed within a day or two thereafter, and the work of preparing the site commenced almost immediately.

37. The second factor of importance is that the respondents executed the counterpart deed and it was forwarded to the appellant's solicitor on 11 November. The assumption on which the respondents acted thereafter was that completion of the necessary exchange was a formality. The next their solicitor heard from the appellant was a letter from its solicitors dated 19 January, informing him that the appellant did not intend to proceed with the matter. It had known, at least since 10 December, that costly work was proceeding on the site.

38. It seems to us, in the light of these considerations, that the appellant was under an obligation to communicate with the respondents within a reasonable time after receiving the executed counterpart deed and certainly when it learnt on 10 December that demolition was proceeding. It had to choose whether to complete the contract or to warn the respondents that it had not yet decided upon the course it would take. It was not entitled simply to retain the counterpart deed executed by the respondents and do nothing: cf. Thompson, at p 547; Olsson v. Dyson (1969) 120 CLR 365, at p 376. The appellant's inaction, in all the circumstances, constituted clear encouragement or inducement to the respondents to continue to act on the basis of the assumption which they had made. It was unconscionable for it, knowing that the respondents were exposing themselves to detriment by acting on the basis of a false assumption, to adopt a course of inaction which encouraged them in the course they had adopted. To express the point in the language of promissory estoppel the appellant is estopped in all the circumstances from retreating from its implied promise to complete the contract.

39. Also, as the other judgments demonstrate, there is no substance in the argument based on s.54A of the Conveyancing Act 1919 (N.S.W.).

40. We therefore think that the Court of Appeal was correct in its conclusion. We would dismiss the appeal.

BRENNAN J. In October and early November 1983, officers and agents of Waltons Stores (Interstate) Ltd. ("Waltons") were negotiating with Mr and Mrs Maher for the construction by the Mahers of store premises on land which they owned in Nowra to be leased to Waltons. Mr Roth of Dawson Waldron was the solicitor for Waltons and Mr Elvy of Morton &Harris was the solicitor for the Mahers. They adopted an unusual conveyancing procedure. A draft Deed of Agreement for Lease was to be drawn by the lessee's solicitor Mr Roth and, when the terms were agreed, an exchange of contracts was to be effected. Time was short. Waltons specified 15 January 1984 as the date by which the store building was to be available for fitting out and 5 February 1984 as the date by which the store building was to be completed. Waltons had sold their store premises in Nowra and were required to vacate those premises by mid-January 1984. The contract between Waltons and the Mahers needed to be concluded in time to allow Mr Maher to meet the specified dates for fitting out and completion. The work to be done by Mr Maher included the demolition of a substantial structure on the site before the erection of the store building could be commenced. On 7 November 1983, Mr Elvy told Mr Roth that "the agreement must be concluded within the next day or two otherwise it will be impossible for Maher to complete it". At that time, Mr Elvy was seeking some amendments to the draft Deed of Agreement for Lease. Although the amendments had been agreed as between the solicitors, Waltons had not then given its final approval. In addition, a schedule of finishes was required for annexure to the Deed. On 7 November, after Mr Elvy spoke to Mr Roth, Mr Roth wrote to Mr Elvy enclosing a redrafted Deed of Agreement for Lease which incorporated, to the extent necessary, all the amendments on which he and Mr Elvy had agreed. Mr Roth wrote:

" You should note that we have not yet obtained our client's specific instructions to each amendment requested, but we believe that approval will be forthcoming. We shall let you know tomorrow if any amendments are not agreed to.

We also believe that a Schedule of Finishes should be annexed to the Deed prior to exchange."

Mr Roth did not inform Mr Elvy, either "tomorrow" or at any later time, that the amendments had not been agreed to.

2. Mr Elvy accordingly had his clients execute the Deed and prepare and sign a schedule of finishes. He sent these documents to Mr Roth on 11 November under cover of this letter:

" We thank you for your letter of the 7th November and now return amended counterpart Deed of Agreement for Lease signed by our clients, by way of exchange. Would you kindly forward the original Deed executed by your client.

We enclose also Schedule of Finishes signed by our clients together with a copy thereof for approval and annexure to the Deed and two (2) copies of the floor plan for annexure to the copy lease annexed to the Deed, prior to exchange.

When returning the executed Deed you might forward to us a cheque in the sum of $2000.20 in order that we may attend to stamping of the Deed."

(It will be convenient hereafter to adopt the terminology of this letter, describing the document forwarded by Mr Elvy "by way of exchange" as the counterpart Deed and the document to be executed by Waltons as the original Deed). When Mr Elvy wrote this letter, he thought it was his responsibility to attend to the stamping of the original and counterpart Deeds. Subsequently he realized that that was Mr Roth's responsibility. If Mr Elvy had been responsible for stamping the original and counterpart Deeds, presumably both would have been sent to him after Waltons had executed the original Deed; if Mr Roth had been responsible for stamping the original and counterpart Deeds, presumably Mr Elvy would have had to return the executed original Deed for stamping after it had been delivered to him by way of exchange. The implications of the conveyancing procedure adopted by the solicitors were the subject of an important finding by the learned trial judge to which reference will presently be made. Mr Elvy's letter and the enclosures were received by Mr Roth on or about 14 November. Mr Roth did not deliver the original Deed executed by Waltons to Mr Elvy as he had requested. Waltons did not execute the Deed. Mr Elvy made no enquiry to find out when the executed original Deed would be delivered to him. Nor did Mr Roth return the counterpart Deed until it was sent accompanied by a letter dated 19 January 1984 which Mr Roth then wrote on his client's instructions. (He had not communicated with Mr Elvy since 11 November 1983.) The letter of 19 January 1984 read:

" We refer to your letter of 11th November 1983 and regret to inform you that our client has instructed us that it does not intend to proceed with this transaction.

We apologise for any inconvenience caused, and return the Deed of Agreement for Lease and Schedule of Finishes signed by your clients. The copies of the floor plan are also enclosed."

The contents of this letter reached Mr Maher on 22 or 23 January 1984. By that time, Mr Maher had demolished the structure which had been standing on the site, had poured two-fifths of the concrete slab and had laid sixty to seventy per cent of the brickwork required to build a store in accordance with Waltons' requirements. Mr Maher had put this work in hand shortly after he received Mr Elvy's letter of advice dated 14 November 1983:

" We refer to the writer's recent several attendances on Mr. Maher, and confirm that the amended Agreement for Lease duly executed by you both has been forwarded to the Lessee's Solicitors for execution by the Lessor and exchange of Agreement.

We note that you will commence work in accordance with the Agreement for Lease immediately as the work to be completed by you on the property is required to be completed on or by the 5th February 1984.

In the event that for any reason the Lessors work is not completed by the 31st March 1984, the Lessee may by notice in writing rescind the Agreement.

Following return of the exchanged Agreement we shall arrange for the same to be stamped."

3. Mr Elvy wrote this letter, as the text shows, without having received the original Deed executed by Waltons. In his evidence, Mr Maher said in reference to his solicitor's letter to him:

" In my thinking it confirmed that everything was proceeding correctly and on receipt of that I ordered the Kato Excavators to demolish the rather substantial building which was in very very good order."

The reason why Mr Maher commenced the work was his expectation that a binding agreement would be brought into existence. As he said:

" We took for granted they would complete their part of the bargain and we duly set all our efforts into motion to do the job for them, in the limited time that was available to us."

Mr Maher expected that execution and delivery of the original Deed would take place as a matter of course, as appears from the following passage of his evidence:

" Q. Would it be fair to say that after you received (Mr Elvy's) letter of 14th November, 1983, you assumed that execution by the lessor and exchange of agreement, would take place? A. Most definitely.

Q. You knew that it was important that execution by the lessor and exchange of agreement should take place, didn't you? A. Yes everything would have to be tied up.

Q. You were assuming that that would be done? A. Yes.

Q. If you had been told that exchange of the agreement might not take place, if Mr Elvy had told you that, would you have gone ahead and done the work? A. Would I have started the work?

Q. Yes. A. Of course I would not."

4. The evidence revealed why Waltons withdrew from the arrangement and why time had been allowed to pass before Mr Roth advised Mr Elvy of Waltons' decision. Mr Rose, a property consultant who was retained by Waltons, had given Mr Roth instructions "to go slow on the transaction". Mr Rose explained "that meant that we did not want to get ourselves into a legally binding position". The reason for these instructions lay in a marketing report which suggested a need for Waltons to change its retailing strategy in a number of country centres including Nowra. That report was under consideration by the directors of Waltons and, as no decision had been made on whether to proceed to lease the proposed building, Mr Rose "did not want anything done to jeopardize the potential contractual situation between Waltons and Mahers". He was seeking to keep the arrangements with the Mahers on foot until a decision was made by Waltons.

5. Waltons knew that Mr Maher was proceeding with the building. On 10 December 1983, the manager of the Waltons store in Nowra reported to his group manager that demolition work had commenced on the site. By 10 or 11 January 1984, Waltons' officers knew that Mr Maher was proceeding with construction. Nobody had told Mr Maher that Waltons had had a change of heart. Although Mr Gosling, who was the property manager for Waltons in New South Wales, gave evidence that he had doubts whether the building under construction was being built for Waltons, he admitted that he did not try to resolve those doubts. The only reasonable inference open on the evidence is that Waltons knew that Mr Maher was building the store in conformity with the terms of the Deed which he had executed.

6. After Waltons refused to proceed in the transaction, Mr and Mrs Maher commenced proceedings in the Supreme Court of New South Wales claiming:

" 1. A declaration that there is in existence ... a valid and enforceable agreement for the taking of a Lease ... in accordance with (the draft lease including the proposed amendments)

2. ...

3. An order for specific performance ...

4. Alternatively to 1-3 above ... damages for breach of agreement to take the said Lease."

7. The threshold difficulty which faced Mr and Mrs Maher was establishing the alleged agreement for the taking of a lease. Kearney J. made this finding:

" From the earliest conversation between Mr Rose and Mr Maher reference was made to their respective solicitors and to the necessity for the solicitors to carry out the necessary documentation in order to bring into existence a legally binding contract. It is plain from the solicitors' correspondence and telephone conversations that they proceeded upon both the express and implicit understanding that the preliminary agreement reached between the parties in broad terms would be consummated only through the medium of exchange."

His Honour therefore held that the parties did not intend to be bound contractually "at any stage prior to exchange effective between their solicitors". The finding that there was no binding contract was accepted on appeal.

8. However, Mr and Mrs Maher succeeded on the ground that, although there was no contract actually binding on Waltons, Waltons was bound by an estoppel which required that Waltons' liability to the Mahers should be determined as though there were a binding contract. Kearney J. made the declaration sought and gave judgment in favour of Mr and Mrs Maher for damages in lieu of specific performance, the assessment of the damages being referred to the Master. An appeal to the Court of Appeal was dismissed.

9. In the Courts below, the conclusion that Waltons was bound by an Agreement for Lease although it had abstained from executing and delivering the original Deed was put on somewhat different bases. Kearney J. found -

" that (Mr and Mrs Maher) believed that they had an agreement. They were entitled, in my view, to assume that the exchange would be duly completed by (Waltons) and in those circumstances properly considered that they were bound to proceed with the greatest expedition with the building project for (Waltons)." (Emphasis added.)

His Honour further held -

" that the circumstances do establish the requisite elements to create an estoppel against (Waltons) denying that a concluded agreement by way of exchange did in fact exist between the parties." (Emphasis added.)

10. In the Court of Appeal, Priestley J.A. (with whom Glass and Samuels JJ.A. agreed) founded his judgment on another basis. His Honour stated his opinion to be -

" that certainly by the time (Mr and Mrs Maher) began actual building in Berry Street at the beginning of January (Waltons) had caused the respondents to assume that the fact was that notwithstanding they had never been notified of the exchange of agreements (and notwithstanding that no exchange of agreements had occurred) the deal that had been agreed between Mr Maher and Mr Elvy on the one hand and representatives of the appellant on the other was an agreement binding both the respondents and the appellant." (Emphasis added.)

11. In these three passages there are three distinct bases advanced for holding Waltons estopped from denying the existence of the contract sued upon. The first basis is an expectation by Mr Maher that Waltons would duly complete the exchange; the second basis is an assumption by Mr Maher that Waltons had duly completed the exchange; the third basis is an assumption by Mr Maher that there was a binding contract in existence whether or not an exchange had been completed. An expectation that Waltons would exchange contracts - the first basis - is radically different from an assumption that contracts had been exchanged - the second basis. The relevant assumption of fact which Mr Maher must have made if he expected that Waltons would exchange contracts is that contracts had not been exchanged. The first basis rests on an expectation as to what Waltons would do; it could be supported, if at all, only upon the principles of equitable estoppel. The second and third bases rest on assumptions as to an existing state of affairs; they could be supported, if at all, upon the principles of estoppel in pais. Estoppel in pais and equitable estoppel address different problems, though there are elements common to both.

12. The nature of an estoppel in pais is well established in this country. A party who induces another to make an assumption that a state of affairs exists, knowing or intending the other to act on that assumption, is estopped from asserting the existence of a different state of affairs as the foundation of their respective rights and liabilities if the other has acted in reliance on the assumption and would suffer detriment if the assumption were not adhered to: Craine v. Colonial Mutual Fire Insurance Co.Ltd. (1920) 28 CLR 305, at pp 327-328 (affirmed on other grounds by the Privy Council - 31 CLR 27, at p 38); Thompson v. Palmer (1933) 49 CLR 507, at p 547; Newbon v. City Mutual Life Assurance Society Ltd. (1935) 52 CLR 723, at p 734; Grundt v. Great Boulder Pty. Gold Mines Ltd. (1937) 59 CLR 641, at pp 657, 674, 676. In Thompson v. Palmer Dixon J. said, at p 547:

" The object of estoppel in pais is to prevent an unjust departure by one person from an assumption adopted by another as the basis of some act or omission which, unless the assumption be adhered to, would operate to that other's detriment. Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party."

The effect of an estoppel in pais is not to create a right in one party against the other; it is to establish the state of affairs by reference to which the legal relationship between them is ascertained. A classical statement of the doctrine as it is understood at least in this country is to be found in the judgment of Dixon J. in Grundt v. Great Boulder, at pp 674-675:

" 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. ... (The rules governing estoppel) work out the more precise grounds upon which the law holds a party disentitled to depart from an assumption in the assertion of rights against another. One condition appears always to be indispensable. That other must have so acted or abstained from acting upon the footing of the state of affairs assumed that he would suffer a detriment if the opposite party were afterwards allowed to set up rights against him inconsistent with the assumption. In stating this essential condition, particularly where the estoppel flows from representation, it is often said simply that the party asserting the estoppel must have been induced to act to his detriment. Although substantially such a statement is correct and leads to no misunderstanding, it does not bring out clearly the basal purpose of the doctrine. That purpose is to avoid or prevent a detriment to the party asserting the estoppel by compelling the opposite party to adhere to the assumption upon which the former acted or abstained from acting. This means that the real detriment or harm from which the law seeks to give protection is that which would flow from the change of position if the assumption were deserted that led to it. So long as the assumption is adhered to, the party who altered his situation upon the faith of it cannot complain. His complaint is that when afterwards the other party makes a different state of affairs the basis of an assertion of right against him then, if it is allowed, his own original change of position will operate as a detriment. His action or inaction must be such that, if the assumption upon which he proceeded were shown to be wrong and an inconsistent state of affairs were accepted as the foundation of the rights and duties of himself and the opposite party, the consequence would be to make his original act or failure to act a source of prejudice."

13. The scope of estoppel in pais does not extend to compel adherence to representations of intention. The limitation which Jorden v. Money (1854) 5 HLC 185 (10 ER 868) placed on the doctrine of estoppel in pais was that it "does not apply to a case where the representation is not a representation of a fact, but a statement of something which the party intends or does not intend to do": pp 214-215 (p 882). See also Maddison v. Alderson (1883) 8 AppCas 467, at p 473; George Whitechurch, Limited v. Cavanagh (1902) AC 117, at p 130; Ferrier v. Stewart (1912) 15 CLR 32, at pp 44-45.

14. It has been said that estoppel in pais is merely a rule of evidence and not a cause of action (Seton v. Lafone (1887) 19 QBD 68; Low v. Bouverie (1891) 3 Ch 82; In re Ottos Kopje Diamond Mines, Limited (1893) 1 Ch 618) but that proposition needs some explanation. If the estoppel relates to the existence of a contract between the parties, the legal relationship between the parties is ascertained by reference to the terms of the contract which has been assumed to exist. If, in the assumed state of affairs, the contract confers a cause of action on the party raising the estoppel, the cause of action may be enforced. The source of legal obligation in that event is the assumed contract; the estoppel is not a source of legal obligation except in the sense that the estoppel compels the party bound to adhere to the assumption that the contract exists. Thus in Laws Holdings Pty.Ltd. v. Short (1972) 46 ALJR 563, a company which had led a supplier of goods to assume that it was the purchaser of goods in fact received by an associated company of similar name was held bound by a contract between itself and the supplier which its conduct had led the supplier to assume to exist. And in Spiro v. Lintern (1973) 1 WLR 1002; (1973) 3 All ER 319, a husband whose wife had made a contract in her own name for the sale of the husband's property without his authority was estopped from denying that she had made the contract with his authority. Specific performance was decreed against him. The assumed state of affairs to which a party may be bound to adhere may be more than a state of mere facts; it may include the legal complexion of a fact as well as the fact itself, that is, a matter of mixed fact and law. Thus in Sarat Chunder Dey v. Gopal Chunder Laha (1892) LR 19 Ind App 203 the subject of the estoppel was the validity of a conveyance, and in Yorkshire Insurance Co. v. Craine (1922) 2 AC 541 the subject of estoppel was the validity of a claim lodged out of time under a policy of fire insurance.

32. Where imprudence is "a proximate cause of the other party's adopting and acting upon the faith of the assumption" the justice of an estoppel is made out (emphasis added): (Thompson v. Palmer, at p 547; Grundt, at p 676). That test requires no knowledge as to the other's state of mind. Nor does that test require that imprudence should have caused the assumption to be made. It is sufficient that imprudence is "a proximate cause" of the assumption being adopted and acted upon.

33. Whatever may have caused the respondents to make their assumption that exchange had taken place, the evidence clearly supports the inference that the failure of the appellant to inform them that its attitude had changed was a proximate cause of their adopting and acting upon the faith of that assumption. Indeed such a finding is implicit in the finding of Kearney J. that "by the (appellant's) action in doing nothing to complete the exchange the (respondents) were lulled into a sense of false security".

34. It remains to be considered whether knowledge by the respondents' solicitor that exchange had not taken place renders it unjust or unfair that the appellant be estopped from asserting that exchange did not occur. Ordinarily (conventional estoppel aside) knowledge of the falsity of an assumption will be fatal to the success of an estoppel based on that assumption. In such cases knowledge of falsity will either result in failure to establish that action or inaction was based on the faith of the assumption, or the failure to establish that the person sought to be estopped played such part in the adoption of the assumption that departure therefrom is unjust or unfair.

35. The knowledge of an agent, particularly where the agent is a solicitor acting in the relevant transaction, may also be fatal to the success of an estoppel based on an assumption which the agent knows to be false. However, that is not because of the difficulty in establishing that the assumption was the basis of the relevant action or inaction but because the person sought to be estopped may escape a relevant duty to inform by reason of the agent's knowledge. However, that duty cannot be evaded if the conduct relied upon to establish the justice of the estoppel also has the consequence that the person raising the estoppel is shut out from the knowledge of his agent. In the present case enquiry by the respondents of their solicitor may have disabused them of their assumption. However, the sense of false security engendered by the imprudence of the appellant must have also operated to induce in the respondents a belief that enquiry was unnecessary. The conduct of the appellant thus caused the respondents to be shut out from any contrary knowledge had by their agent.

36. Accordingly, I am of the view that because of the appellant's imprudence in failing to inform the respondents that exchange might not occur, the respondents adopted and acted upon the assumption that exchange had taken place, and it would be unjust or unfair to allow departure from that assumption. The appellant is estopped from asserting any matter contrary to that assumption.

37. By reason that the appellant is estopped from denying that exchange had taken place, the rights and liabilities of the parties are to be determined on the basis that it had in fact taken place. An assumption that exchange had taken place necessarily also involves an assumption that the agreement was duly executed by the appellant, and the question of compliance with s.54A of the Conveyancing Act 1919 (N.S.W.) becomes irrelevant.

38. The appeal should be dismissed.

Orders

Appeal dismissed with costs.