“This farm will be yours one day” – High Court Lessons about proprietary estoppel

The recent High Court decision in Kramer v Stone [2024] HCA 48; 421 ALR 106 explores the principles of equitable estoppel, especially proprietary estoppel by encouragement.

Facts

The case concerned a promise made by Dame Leonie Kramer to Mr Stone that he would inherit her farm upon her death, upon the reliance of which Stone continued to work the farm under a farm share structure for what the Court found was very low level of income.

The respondent in 1975 begun share farming on a farm owned by Dr Harry and Dame Leonie Kramer (Dame Leonie) as joint tenants. Dr. Harry, Dame Leonie’s husband, made two promises to Mr. Stone in the 1980s, stating that he would inherit the farm. The second promise was that Dr Harry would leave the farm to Dame Leonie in his will, and she would then leave it to Mr. Stone in her will.

After Dr Harry’s death in 1988, Dame Leonie became the sole owner of the farm. Shortly thereafter, Dame Leonie made a promise to Mr. Stone “out of the blue” that he would inherit the farm and a sum of money upon her death. Mr Stone relied on this promise and worked on the farm for a further 23 years, despite only earning a meagre income and living in substandard accommodation.

Dame Leonie passed away in 2016. Dame Leonie in her 2011 will left the farm to her daughter, Hilary Kramer, and a gift of $200,000 to Mr Stone.

Earlier proceedings

The primary judge found that an estoppel arose where:

• Dame Leonie’s promise was a representation, in the form of encouragement, that she would leave the farm to Mr Stone;
• it was reasonable for Mr Stone to rely on that representation;
• Mr Stone had relied upon that representation to his detriment by continuing to share farm and not pursuing a more remunerative occupation; and
• Dame Leonie had “constructive knowledge” of that reliance in that she ought to have known that he continued to share farm partly in the expectation of inheriting the farm.

The NSW Court of Appeal dismissed an appeal which raised as a ground of appeal that, among other things, it was a necessary element of proprietary estoppel by encouragement that the promisor further encouraged, or had actual knowledge of, the detrimental reliance subsequent to the making of the promise.

Issues for the High Court

The questions on the appeal before the High Court were whether the owner’s liability arising from the estoppel required that:

• after the promise, the owner perform some act of further encouragement of the farm worker to continue to share farm; or
• the owner have actual knowledge that the farm worker was relying on the promise which would be to his detriment if the promise were not fulfilled.

Decision

By a majority, the High Court in the judgment of Gageler CJ, Gordon, Edelman, and Beech-Jones JJ, dismissed the appeal. Gleeson J dissented and would have allowed the appeal.

The decision included numerous important findings about the limits and elements required to find proprietary estoppel by encouragement:

1. Elements of proprietary estoppel by encouragement from a promise – The majority of the High Court refined the elements of an estoppel arising by reason of encouragement from a promise as being:

• A ‘clear and unequivocal’ promise made by the party estopped (the promisor) to the party who relies upon the promise (the promisee).
• A reasonable person in the promisor’s position having expected or intended (or the promisor actually having expected or intended) that the promisee would rely upon the promise by some action, omission or course of conduct.
• The promisee having relied upon the promise by acting or omitting to act in the general manner that would have been expected.
• The consequence of the promisee’s reliance being that the promisee would suffer detriment if the promise was not fulfilled, in the sense that the promisee would be left in a worse position as a consequence of reliance upon the promise, than if the promise had not been made.

2. Actual knowledge or Further Encouragement are not required – If a promise contains encouragement, in the sense that a reasonable person in the promisor’s position would expect that the promisee might rely upon the promise by some action or omission, there is no requirement for:

• any further subsequent encouragement; or
• actual knowledge of the acts of the promisee taken in reliance on the promise.

Takeaways

This decision highlights the importance of being mindful of making clear oral promises to prospective beneficiaries regarding the distribution of assets, particularly where such promises are not reflected in the promisor’s estate planning documents. A failure to do so can expose the promisor’s estate to lengthy and expensive court proceedings in the unfortunate event that the relevant promises are later relied upon for litigation purposes.

The decision also disentangled the elements of the two different equitable estoppels, being estoppel by acquiescence and estoppel by encouragement. Notwithstanding this, the High Court declined to answer whether there is a single overarching doctrine of estoppel. We await a High Court decision on this question in the future.

Contributors:

• Dylan Zhu, Senior Associate
• Angus Dowey, Lawyer