Mere disappointment not enough to give rise to estoppel

Statements made by contracting parties may give rise to enforceable rights. Where there is no contractual relationship, a party that has suffered detriment in reliance on statements made by another may still have remedies in equitable estoppel. In the latest decision dealing with assigned insurance claims, the High Court has clarified the meaning of detriment in this context.

Background

In Doig v Tower Insurance Limited [2017] NZHC 2997, the plaintiffs purchased an earthquake damaged property for $1.15 million and took an assignment of the vendor's insurance claim.

Under the Court of Appeal decision in Bryant v Primary Industries, new owners who are assigned the vendor's insurance claim are not entitled to the full cost of reinstatement. All that the plaintiffs were entitled to in this situation was the indemnity value. Tower and the EQC together paid the plaintiffs around $770,000 in late 2016, with Tower's contribution based on indemnity value.

The new owners in Doig did not challenge the Bryant principle. Rather, they claimed that while the agreement for sale and purchase was still conditional, Tower represented to them that they would be covered for full reinstatement. On this basis, the new owners argued that Tower now was estopped from changing its position to insist on paying only the indemnity value.

Requirements of estoppel

The High Court confirmed the well-established requirements of estoppel:

  • [That] Tower's representation had created or encouraged their belief or expectation
  • [That] Tower's representation was clear and unequivocal
  • The new owners reasonably relied to their detriment on the representation
  • It would be unconscionable for Tower to depart from the belief or expectation

Tower submitted that its statements were:

  • Not clear and unequivocal representations
  • Could not have been relied on by the new owners in purchasing the property, since the new owners were already bound by the agreement to purchase when the statements were made

The Court did not find it necessary to come to any conclusions on these points, but did express doubts over whether the representations relied upon were sufficiently clear and unequivocal.

Detriment

Most crucially, Tower argued that the new owners did not suffer any detriment as a result of their alleged reliance, and that this was fatal to the claim. Tower introduced valuation evidence showing that after taking into account the payments by EQC and Tower, the new owners had actually purchased an asset worth more than their net outlay.

The new owners argued that they expected they would be entitled to full reinstatement costs, and Tower's refusal to pay the claim on that basis was sufficient to constitute detriment. They offered no other evidence of loss suffered as a result of their purchase of the property.

The High Court accepted Tower's position that a mere failure to fulfil an expectation is not enough to constitute detriment so as to found an estoppel. The new owners had the onus of demonstrating detriment and they failed to do so.

Comment

The High Court has confirmed that the basis of an action in estoppel is to remedy detrimental consequences to the plaintiff arising from having acted upon the defendant's representation. It does not respond to those suffering mere disappointment from not having their expectations fulfilled.

Interest

The new owners also sought interest from the date of loss on the indemnity payment made by Tower in late 2016. Tower defended this claim on the basis that it was not liable to pay any amount to the new owners until EQC assessed the damage to be over its statutory cap.

The Court held that the four month delay between EQC assessing the property to be over its statutory cap and Tower's payment was not unreasonable in the circumstances and declined the new owners' claim for interest.

Postscript

The principles applying to the assignment of insurance claims in Bryant will be considered by the Court of Appeal in early 2018 in Xu v IAG New Zealand.