Two recent cases in the NSW Court of Appeal (NSWCA) highlight the circumstances where equity – the court of conscience – will step in to protect injured parties who did not have a contract to rely upon and acted to their detriment in reliance on a non-contractual promise in circumstances where the other party’s departure from that promise would be unconscionable.
While the facts of each of the cases are unique, both cases concern property interests brought about in a family context where it can be common place for parties to trust in, and depend upon, another party’s honour without the security of a binding or enforceable contract.
That’s my burial plot !
The first case of Arfaras v Vosnakis  NSWCA 65 involved a burial licence for two people for a burial plot that was held by the applicant, Mrs Arfaras. Following her daughter’s death:
- Mrs Arfaras made successive offers to her son-in-law, Mr Vosnakis, who was also the executor of her daughter’s estate, that he could use the burial plot to bury his late wife/her daughter (the Offer); and
- Mrs Arfaras promised to transfer the burial licence to Mr Vosnakis so that in the future he could also be buried with his wife/her daughter in the plot (the Promise).
Mr Vosnakis accepted the Offer unconditionally and relied on the Promise by nominating the burial plot as his wife’s burial place. However, after the burial Mrs Arfaras refused to honour her promise to transfer the burial licence to him.
At first instance
Mr Vosnakis was successful in his proceedings against Mrs Arfaras in the Supreme Court of NSW where it was ordered that the burial licence should be transferred to Mr Vosnakis.
The Court held that:
- The Offer was in effect a gift from Mrs Arfaras that was accepted unconditionally by Mr Vosnakis. The Promise was unsupported by consideration and there was no objective intention to create legal obligations. As a result, there was no legally binding contract between the parties, despite the serious nature of the subject matter; and
- Despite there being no legal binding contract, Mrs Arfaras was estopped from denying that Mr Vosnakis was entitled to the burial licence as all of the requisite elements for an equitable estoppel in the nature of a proprietary estoppel by encouragement were made out by Mr Vosnakis.
Mrs Arfaras the appealed the decision alleging that the primary judge had made an error in finding that the essential elements of equitable estoppel had been established. The NSWCA upheld the decision and confirmed that the elements of proprietary estoppel by encouragement had been satisfied as follows:
- Creation or encouragement of assumption: Mrs Arfaras made the Offer and the Promise to Mr Vosnakis, and then induced him to adopt an assumption that she would perform the Promise through her conduct. This included repeating the Promise in the presence of a funeral parlour representative and accompanying Mr Vosnakis to her home to collect necessary documents for Mr Vosnakis to follow through with the burial arrangements.
- Detrimental reliance: Mrs Arfaras made the Offer and the Promise to Mr Vosnakis with an intention that he would rely on the Promise when deciding where to bury his wife. Mr Vosnakis relied on the Promise to his detriment because once Mr Vosnakis buried his wife, he had no ability to nominate that his wife be buried in a different resting place. He also had no way of controlling the ‘second right of nomination’ for the burial plot and therefore did not have the the ability to be buried next to his wife.
- Unconscionability: While Mrs Arfaras argued that it would be open for Mr Vosnakis to not exercise the right to be buried in the grave, the NSWCA confirmed that “the question of unconscionability is to be determined at the time of departure from the promise.” It was also considered that the lengths to which Mr Vosnakis had gone to enforce the Promise indicated that he wanted to ensure that he would be buried in the same plot as his wife and the decision to require Mrs Arfaras to honour the Promise was not disproportionate relief in the circumstances.
A promise is a promise
The second case of Doueihi v Construction Technologies Australia Pty Ltd (CTA)  NSWCA 105 involved an appeal of a Supreme Court of NSW decision previously reported on by McCabes, where equity had also stepped in to aid a victim of a broken non-contractual promise (see http://www.mccabes.com.au/equitable-estoppel-aiding-victims-broken-non-contractual-promises/).
In considering the grounds of appeal, the NSWCA reinforced the findings of the primary judge that the elements of proprietary estoppel had been made out and that the appellants were bound by a proprietary estoppel requiring them to execute a written lease of the premises in favour of CTA.
Importantly, the NSWCA found that:
- An estoppel can be established even if a promise is lacking in detail;
- The primary judge had not erred in giving greater weight to the family context of the tenancy than its commercial nature when assessing the adequacy of the assurance given and the reasonableness of CTA’s reliance on the assumption that it would be granted an interest where the family’s practice was not to enter into formal leases; and
- The appellants were not assisted by the lack of any concluded agreement or intention to enter into a ‘particular legal relationship.’ Rather, it was the informality of the arrangements between the parties which in the circumstances of this case justified the intervention of equity.
- Never assume that a promise will be honoured based on verbal assurances or encouragement. Protect yourself by entering into a legally binding contract that clearly sets out each party’s rights and obligations. This is just as important in the context of familial relationships as it is in commercial arms-length transactions. A properly drafted contract will provide parties with protection and clarity about their rights and will hopefully avoid costly litigation.
- If a promise has been made and no contract exists, equity may come to your assistance. Equity may bind a party to their conduct if all the essential elements of equitable estoppel can be established. These are:
- creation or encouragement of an assumption by party A that ‘a particular legal relationship’ would be established or that an ‘interest’ would be granted;
- detrimental reliance by party B; and
- if it would be unconscionable for party A to depart from the assumption relied upon.