LAWS1150: Principles of Private Law

Contracts, Promises and the Law of Obligations

Fundamental distinction between voluntarily assumed obligations (the law of

contract)and obligations imposed by law (the law of tort)
Also an anomalous body of law known as the law of quasi-contract, which arose from
the positive rules of law alongside tort law, or in modern times, the law of
restitution
Law of obligations, right are exercisable in personam against another person/s
Property law, right in rem with respect to a thing
The paradigm of modern contract theory 1. Intentions rather than actions: concerned with intent not action, opposite with tort
and
restitution, time sequence
2. Contract as a thing: reify the concept of contract, contract as relationship within
defined
and limited parameters (fairness, justice, reasonableness)
3. The deterrent role played by the courts: courts encourage citizenry to comply with
socially desired standards of
behaviour, place to
settle disputes
4. A single model of contract: power of unity, cooperation
Defects in the classical model
1. The single model of contract: all based on commercial contracts, no such thing as
typical
Contract
2. The voluntary assumption of contractual obligations: involve much more than just
voluntary conduct
3. The importance of benefits rendered and detrimental reliance: give rise to
obligations
even when
there was no
promise
4. The use of objective tests: element of reasonable reliance
Part-executed contract may replace the executory contract as the centrepiece of
contract theory

Offer
For an agreement to be formed, there needs to be an identifiable offer made by one party,
and an acceptance of that offer by the other party.
An offer is an expression of willingness to enter into a contract on certain terms. It is an
unequivocal declaration that the Offeror will be bound immediately upon the Offerees
acceptance.
To determine whether an offer has been made, two elements must be satisfied:
1. Outward intent this means the intent of the Offeror to make an offer.
However, intent is measured objectively, which means the outward

manifestations of it rather than actual intent. In other words, would it appear

to a reasonable person that an offer has been made?

Carlil v Carbolic Smoke Ball Co

2. Finality that the offer is final and requires no further communication bar
acceptance. In other words, that the acceptance of the offer would initiate an
immediate binding agreement.

Brambles Holdings Ltd v Bathurst City Council

Gibson v Manchester City Council

Thus, the crucial issue in determining an offer is whether it would appear to a reasonable
person in the position of the Offeree that an offer was made, and that his acceptance of the
offer would entail a binding agreement.

Unilateral Contracts
Usually, a unilateral contract is a contract where there is a promise in return for an act,
whereas a bilateral contract is one where there is a promise in return for another promise.
A unilateral is one in which the Offeree accepts the offer by performing his or her side of the
bargain. By performing a specific act, the Offeree:

Accepts the contract.

Completely executes his consideration (his part of the bargain).

This means that by the time of the formation of the contract, one party has already fulfilled
all its obligations under the contract, and only the other party is now is under further
contract obligations. That is why it is called a unilateral contract.

Example: A promises to give $100 to whoever returns an ipod

B finds and returns the ipod, thus accepting the contract and fulfilling his
obligation simultaneously

A now has an outstanding obligation to pay B $100

This is distinguished from a bilateral contract, in which at the time of formation,
both parties still have to fulfil their obligations.

Example: A and B sign a contract regarding the transfer of property.

Both A and B now have obligations to fulfil (transfer the property, pay the agreed
price)

The nature of unilateral contracts is discussed further in Carlil v Carbolic Smoke Ball
Co and Australian Woollen Mills Pty Ltd v Commonwealth. The AWM case illustrates the holy
trinity of offer and acceptance, consideration, and intention to create legal relations.

Offers and Invitations to treat

A distinction is made between an offer, and an invitation to treat. An invitation to treat is
an invitation to another party to make an offer. There are no fixed rules about when conduct is
simply an invitation to treat and when the conduct can amount to an offer. There are general
rules and a sense of consistency with regards to general conditions, but the distinction must
be judged on a case to case basis.

Shop Sales
Items displayed for sale in shops are regarded as invitations to treat, not offers.
This issue was discussed in Pharmaceutical Society of Great Britain v Boots Cash Chemists
Ltd', in which the plaintiff claimed that the display of items for sale should be viewed as an
offer, which is then accepted when the Offeree takes them off the shelf.

Since customers are allowed to return items to the shelf, the mere display
cannot constitute an offer.

Rather, when the customer presents the item to the cashier, he makes an offer
which is then accepted when the cashier charges him money.

Ticket Cases
Ticket cases are examples of the need to ascertain when and where the contact has been
formed, for purposes of jurisdiction or whether written conditions are a part of the contract.
The problem with usual transport tickets is that the written conditions are viewed by the other
party only after he has bought the ticket. This defies the usual offer and acceptance rules:
since the immediate assumption is that the contract is made when the ticket is bought,
doesnt this entail that the conditions are not a part of the contract?
The view held after MacRobertson Miller Airline Services v Commissioner of State Taxation
(WA) is that the ticket only represents an offer made to the passenger, which he accepts by
presenting himself for travel. No contract is formed by the purchase of the ticket alone.

Rejection and counter-offer

If an offer is rejected, it is terminated and cannot be accepted again. A counter-offer also
terminates the previous offer.

Because of this counter-offer rule, a distinction needs to be made between a counter-offer to

an inquiry with regards to possible alternation of the terms. An inquiry is when the buyer has
not manifested an intention to reject the offer, merely to see whether there is room for
negotiation. Therefore, the offer is still open.

Unilateral contracts and revocation

A difficulty arises sometimes when an offer to enter into a unilateral contract is withdrawn,
especially when the Offeree has begun to perform the performance but has not finished (so it
does not constitute acceptance).

For example, A promises to pay B $100 to not eat for a whole day.

B doesnt eat for 18 hours, at which point A withdraws his offer

This seems unfair, as B already supplied partial consideration. The general rule is that an
offer cannot be revoked if the act made in exchange for it has been partly performed.

There is an implied condition in the agreement that the offer will not be withdrawn
once the Offeree begins to perform.

However, this general rule was not followed in Mobil Oil Australia Ltd v Wellcome International
Pty Ltd, in which it was established that an An offer made in return for performance of an act
is, like any other offer, revocable at any time.

Such an offer can only be secured against revocation when there is an implied
contract not to revoke, or an estoppel.

Revocation of offer also discussed in Goldsborough Mort & Co v Quinn where the
offer can be retracted if gratuitous but contractually bound because of
consideration

Acceptance
Acceptance is an unqualified assent to an offer.
There is a debate whether acceptance is dependent upon actual consensus between the
parties (a meeting of the minds or ad idem). In other words, if the Offeree accepted the
offer, but did not understand the terms of the offer, has he really accepted the offer and
entered the agreement?

Unilateral contracts (Consciousness of the offer)

With unilateral contracts, it is possible that a person would perform the act necessary to
accept the contract without actually being aware of an offer or contract.

For example, a person returning a lost dog without knowing there is a reward for
it.

The courts have decided in Crown v Clarke that the performance of a requested act will not
form a unilateral contract when it is clear that the Offeree was not performing the act on the
faith of the offer.

The court held that the Subjective approach should govern unilateral contracts in
which the communication of acceptance is dispensed with.

In these cases, the evidence of subjective intention should be taken into account.

Methods of acceptance
The Offeror is allowed to prescribe exclusive methods of communication of acceptance. If he
does so, acceptance can only be communicated via those methods. Similarly, the Offeror may
dispense with the communication, as is impliedly done in unilateral contracts.

Silence as acceptance
An Offeror cannot stipulate silence as a method of communication of acceptance. Similarly,
silence cannot constitute acceptance. This was decided in Felthouse v Bindley.

Acceptance inferred from conduct exception to silence rule

Silence can constitute acceptance when the Offerees conduct indicates that he has accepted
the offer. This was decided in Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd.

Since acceptance is measured objectively, it all comes down to whether the

Offerees conduct, which may include silence, signals that he accepted the offer.

When the Offeree takes the benefit of services which he knows are in accordance
to the offer, and had a reasonable time to reject the offer, it signals acceptance.

In Brambles Holdings v Bathurst City Council, it was held that there was no rejection in the
terms of negotiation of the contract, and therefore the contract cannot be revived if the offer
was rejected, constituting no acceptance.

Communication of Acceptance
The general rule
Acceptance has effect when it is received by the Offeror. This was established in Latec
Finance Pty Ltd v Knight:

A contract is not made until acceptance is received by the Offeror.

However, the Offeror may expressly or impliedly dispense with the need for actual
communication of acceptance. This can be done in two ways:

Offeror agreeing to treat the doing of a particular act as effective acceptance.

This is usually the case in unilateral contracts.

Offeror treats the dispatch of a particular method as effective regardless of

whether it reached him.

The postal rule

Where the acceptance is expected to be sent by post, the acceptance is effective as soon as it
is posted. This was decided in Adams v Lindsell and Henthorn v Fraser, and is an exception to
the general rule.

However, there have been judgments indicating that the postal rule only applies
when the Offeror intended that the offer could effectively be accepted by the act
of posting a letter of acceptance (Tallerman & Co Ltd v Nathans Merchandise (Vic)
Pty Ltd)

Scope of the postal rule

The postal rule does not extend to telecommunications. This means that the contract is
formed when and where the acceptance is received by the Offeror.

England, decided in Entores v Miles Far Eastern Corp, reaffirmed explicitly

in Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH.

Australia: Reese Bros Plastics Ltd v Hamon-Sobelco Australia Pty Ltd

In Brinkibon, the court admitted that exceptions may be made when:

The message is sent or received through a third party

The message is sent out of office hours

The message is not intended to be read immediately

It should be noted that the courts havent yet addressed the question of communication over
the internet (interactive websites/email). However, it follows from other instant
communications that the postal rule will not apply, and formation will take place when and
where it is received by the Offeror.

Regardless, in Australia, the Electronic Transactions Acts have been enacted to govern such
cases. The acts distinguish between:

Information systems expressly designated to receiving acceptance

In this case, acceptance is effectively communicated once it enters the

information system

Note: a general email inbox on a letterhead does not constitute an expressly

designated information system.

Information systems which are not expressly designated for such purposes.

In this case, acceptance is effectively communicated once it comes to the

attention of the Offeror.

Correspondence between offer and acceptance

Acceptance corresponds precisely with the offer. This means that the offer can only be
accepted or rejected by the Offeree. Negotiation will be viewed as a counter offer, which
means that the old offer was rejected, and a new offer exists.
A problem arises during complex negotiations where two parties exchange inconsistent
standard forms, and reach agreement on the principal terms without deciding whose standard
form should prevail. This is called the battle of the forms, and was discussed in Butler
Machine Tool Co Ltd v Ex-Cell-O-Corp (England) Ltd, where two approaches were identified:

Conflict approach:

Requires the courts to determine which set of terms has prevailed.

Either by who had the last shot (the last say), or the party who is most
persistent in insisting that their own set of terms should prevail.

Synthesized approach:

Make up a contract from consistent terms, along with terms from one set that
appeared to be accepted by the other party.

Any gaps in the synthesized contract could be filled with terms implied by the
court.

Consideration

The court examines consideration in order to decide which promises should be enforced.
The consideration requirement entails that something must be given in return for a promise
in order to make it binding. Namely, a person seeking to enforce a promise must show that
he has given consideration for that promise.

Example: A has made a promise which B wishes to enforce (paint a house).

If B wants to enforce that promise, he must have shown that he has given
consideration for that promise, for example, $200.

Promisor person making a promise

Promisee person seeking to enforce a promise

Essential Elements of Consideration

Consideration must be regarded by the law as valuable, and as given in return for (or
the agreed price of) the promise. The two tests for validating consideration are known as
the benefit/detriment requirement and the bargain requirement.

Benefit/Detriment
Valuable consideration must constitute of a detriment to the Promisee or a benefit to the
Promisor. This was discussed in Currie v Misa

Benefit reception of property or services (e.g. getting a car, money or having

your house painted)

Detriment giving something up or undertaking an obligation (e.g. giving away

your car, your money or painting someones house)

A Promise can also constitute consideration - receiving a promise to receive

such things in the future also constitutes a benefit/detriment respectively.

When a promise is given as consideration for a promise, its technically a

paradox, as a promise is only enforceable after consideration however this
is only academic and promises do constitute consideration by law.

A promise not to do something is also consideration (e.g. not to trade in

competition with A)

In most cases, consideration works both ways both a benefit to the Promisor and
detriment to the Promisee.

Bargain
The Benefit/Detriment must be given specifically in return for the promise or as
the agreed price for the promise. This is called the relationship of quid pro quo (this for
that), which means there needs to be an exchange. This requirement was discussed
in Australian Woollen Mills Pty Ltd v Commonwealth:

AWM bought wool and then said that was the consideration to enforce the
Commonwealths promise to pay subsidies.

This satisfies Benefit/Detriment requirement, however did not satisfy Bargain

requirement AWM did not buy the wool either at the request of the
Commonwealth, or in return for the promise.

the statements made by the Commonwealth were in the nature of policy

announcements and no request to purchase wool could be implied.

Therefore, the act of buying wool was not in return for a request or promise, and
therefore failed the bargain requirement and therefore could constitute
consideration.

Bargains and conditional gifts

Australian Woollen Mills Pty Ltd v Commonwealth demonstrated the concept of a conditional
gift.

A conditional gift is a promise to give something if the Promisee performs a

specific act.

This is to be distinguished for giving something in return for an act, which would
constitute a contract.

Lacking the necessary relationship of quid pro quo, merely a declaration of

intention to give a gift.

Bargains and reliance

There is a difference between an act performed in reliance on a promise, rather than as
the agreed price for a promise. An act performed in reliance will not constitute
consideration (however, may give rise to an Estoppel). This was held in Beaton v McDivitt.

Adequacy of Consideration

Adequacy of consideration refers to its intrinsic value. However, generally, the courts do not
inquire into the adequacy of consideration. Thus a nominal consideration will be adequate
consideration, as discussed in Woolworths v Kelly.

Sufficiency of Consideration
Consideration must be sufficient, but not necessarily adequate. This means it must be
something of value. However, consideration doesnt need to be proportionate value to the
promise. This is because:

The courts cant ascertain the value each person places on each
consideration/promise.

Requirements of adequacy would create difficulties and make enforceability

uncertain.

This stance promotes economic freedom

Economic efficiency is promoted through voluntary exchanges.

Rather, the courts only ensure that a bargain has been made. This means
that nominal consideration (i.e., $1 for a house) is legal, which means parties can avoid real
consideration.
Sometimes, courts take into account inadequate consideration when reviewing whether a
party has acted unfairly.

Discretion as to performance
If a party is not specifically bound to perform, or retains an unfettered discretion as to
performance, it will not constitute consideration and will be counted as illusory
consideration.
In other words, if the one party has the option to choose the extent to which he carries out
the promise, it is not consideration and there is no contract. This was established in Placer
Development Ltd v Commonwealth.

Past consideration
Past consideration is not sufficient. If something was given before the promise, it is therefore
not a part of the promise (not in return for) and is not consideration.

Example: A gives B an Xbox. Afterwards B says he will pay him $200.

A cannot enforce this promise on the basis that the Xbox was consideration and
therefore there was a contract. The Xbox was past consideration and was given
gratuitously and not in return for the $200.

This is also demonstrated in Roscorla v Thomas:

Thomas buys horse off Roscorla.

After the transaction, Roscorla promises that the horse will be well behaved.

The horse turns out to be ferocious.

Thomas cannot sue Roscorla for breach of contract, because the promise that the
horse is well behaved had no consideration (was made after the contract), and
therefore there was no a contract.

Executed Consideration
This is a promise to pay for a service after the service has been performed

Example: a promise to pay $50 for whoever finds a dog. When the dog is found
and returned, that is executed consideration, and now the promise to pay is
executory.

The request to find the dog gave rise to a unilateral contract, where the Promisee
returns the dog in return for $50.

Obviously, he can only receive his benefit after he performs the service; therefore
it is an executed consideration.

The Existing Legal Duty Rule

The General Rule
A promise to perform or the actual performance an already existing legal duty cannot
constitute sufficient consideration. It is an illusory consideration. Every new promise must be
accompanied by fresh consideration

Example: A undertakes to paint a house for B, for $1000. After the contract has
been made, A wants additional benefit (more money, $5000) to finish the
performance. B agrees. Despite the fact that B agreed, B is not obliged to give
that extra benefit, as A did not undertake to do anything it did not already have an
existing legal duty to do.

We label A the Beneficiary as it simply benefits from the new promise and
does not undertake any extra obligations it was not already bound to perform.

We label B the Modifying Party as it has to modify its own consideration and
incur further detriment.

The Beneficiarys promise to perform the already undertaken obligation does not
constitute consideration, and therefore the second contract does not exist.

This was decided in cases such as Wigan v Edwards and Stilk v Myrick, and extends to public
duties (e.g. giving evidence after being subpoenaed).
The Exiting Legal Duty Rule is often criticised because it doesnt accommodate for common
business situations.

Exceptions to the existing legal duty rule

The rule will not apply when:
1. The Beneficiary supplies new (fresh) consideration (do something more than
he undertook originally).

This means rule can be circumvented by a nominal fresh consideration.

2. The beneficiarys promise to perform entails a practical benefit to the

Modifying Party.

Could be extended to pretty much anything (not hiring a new person to do

the performance is a benefit according to Williams v Roffey Bros & Nichols
(contractors) Ltd.)

Highly criticised exactly opposite to Stilk v Myrick.

Applied in a modified form in NSW - Musumeci v Winnadell Pty Ltd.

Practical benefit doesnt apply to debt Re Selectmove

3. Where the promise to perform the existing duty is made to a third party.

Because the Promisor undertakes further obligations, and gives a new

benefit to the new Promisee (the third party) Pao On v Lau Yiu Long

4. A promise made by way of a bona fide compromise.

This means that the Promisor has a legal right not to consider themselves
bound to perform their consideration, and that this claim was honestly
made Wigan v Edwards

5. The original contract is terminated and a new one is entered.

Only applies when agreement is terminated and replaced, not modified.

Promises are now seen as new promises

Proposals for reform

The Sixth Interim Report poses 9 objectives to the doctrine of consideration.

Intention
The intention requirement indicates that the parties must manifest an intention to create legal
relations. (legal relations = be legally bound). This is determined objectively.

Objective approach: has the party manifested or appeared to have

manifested (as could be reasonably perceived) an intention to be legally bound,
not whether it actually had the intention to be so.

Presumptions
Commercial Context
Agreements made in a commercial context or of a commercial nature are automatically
presumed to be made with legal intention.

The burden falls on the person denying enforceability to disprove the intention.

It can be very hard to disprove/deny legal intention in commercial contexts.

Exceptions:

Letters of comfort, which are deliberately left unclear. In commercial

transactions, in Banque Brussels Lambert v Australian National Industries, the
letter of comfort was not a full guarantee and the terms of the contract were
unclear.

Non-Binding agreements (or Honour Clauses): this is where

parties expressly stipulated the agreement is not legally binding.

Non-Commercial Context
On the other hand, agreements made in other (non-commercial) contexts are
presumed not to be made with legal intention.

The burden falls on the person seeking enforceability to prove the intention.

It should be noted that in Ermogenous v Greek Orthodox Community of SA Inc, the court
decided that there should not be a general rule or presumption. Rather, each case must be
decided on its own facts.

Agreements in the Private Sphere

Agreements between family members or close relatives are usually presumed not to be made
with intention to create legal relations. The courts have said that the presumption is against
intention to be legally binding, reflecting their reluctance to intervene in private sphere.
Financial agreements between spouses are traditionally presumed to be
made without intention to enter legal relations. This is discussed in Balfour v Balfour.

Facts: husband promised his wife to pay her 30 per month while they were
separated due to her health conditions. Further on, they agreed to remain apart
and the husband subsequently stopped paying.

Held: the agreement was not intended to be enforceable, it was not intended to be
a contract.

Exceptions
An exception to this rule of thumb is an agreement between spouses who are separating or
are about to separate, in which case the courts have been willing to find legal intention. Part
VIII(A) Family Law Act 1975 (Cth) deals with financial agreements after separation.
Agreements are legally binding if:
1. The parties express that the agreement is made under this section.
2. The agreement is signed by both parties.
3. The agreement includes a certificate that both parties received independent
legal advice.
Another exception is made in cases involving a promise with relation to housing. This was
demonstrated in Todd v Nichol:
Facts: Nichol invited overseas family members to come live with her, promised them her
house would be theirs until they died. The Relationship broke down, Todd sought to enforce
the contract.

Held: the permanent nature of the arrangement meant a high degree of

reliance, therefore an intent to be legally binding.

This suggests that if there are serious consequences for the party taking invitation, then
the agreement could be viewed as being made with intent to be legally binding. Lastly, even if
a party cant seek remedy via contract law, he can try an Estoppel.

Government Agreements

To determine whether there was legal intention on behalf of a government in a government

agreement, the question is whether the transaction is a commercial contractual
agreement or an administrative arrangement involving the implementation of
policy. This was discussed in Australian Woollen Mills Pty Ltd v Commonwealth

A governmental statement of policy cannot on its own give rise to an intention to

enter into legal relations.

The Commonwealth sought no statutory authority for the making of the payments.

The Commonwealth had no commercial interest in the scheme.

The scheme was invoked by persons without the authority to obligate the Crown
into any expenditure.

The scheme expressly provided that the Commonwealth could vary the subsidy.

It was also discussed in Administration of Papua New Guinea v Leahy:

Facts: Leahy sought help from Administration of Agriculture to exterminate ticks

on his property. Their assistance did not completely exterminate the ticks and
Leahy sought damages in breach of contract.

Held: the Administration didnt enter into a contract, but was providing gratuitous
assistance the execution of its policy to exterminate ticks is a social service.

Preliminary Agreements
Parties who have negotiated the major terms of an agreement may write up a preliminary
agreement, with the intention of writing a formal agreement at a later date. If one of the
parties wants to withdraw before the formulation of the formal contract, it will be necessary to
determine whether the parties intended to be bound by the preliminary agreement, or if they
wanted to defer legal commitment until it was formalised.
As was discussed by the High Court in Masters v Cameron, there are three different categories
for cases involving preliminary agreements.
1. Parties have finalised everything and want to reiterate the terms in a clearer
way, but to the same effect.

Bound regardless of whether there is a formal document.

2. Parties have finalised everything, but want to make performance on a term, or
terms, conditional upon a formal document.

Bound to bring a formal document into existence.

3. Parties dont intend to enter a binding relationship unless a formal contract is
signed.

Not bound unless a formal document is signed.

In Masters v Cameron the court held that the effect of a preliminary agreement depends on
the intention displayed by the language of the parties. The case fits into the third category.

The purchaser ran into financial difficulties and backed out of the deal.

The vendor sought to enforce the agreement outlined in the preliminary document
(memorandum).

However, the memorandum stated the formal contract was to be written in a way
acceptable to the vendor's solicitors, suggesting that it was thought to be subject
to the preparation of a formal contract.

It was held that the language of the parties in the preliminary agreement could
not give rise to legally binding relations; the purchaser was free to withdraw from
the transaction prior to its formalisation.

Note that Masters v Cameron specifically refers to land.

A Fourth Category
A fourth category has been suggested: parties agree to be immediately bound on the
preliminary terms, although those terms are expected to be modified by a future formal
contract.

Certainty
An offer will only be effective if it spells out the terms of the contracts with sufficient certainty.
This doesnt mean that every detail needs to be identified so clearly that there is only one
possible interpretation. The contract simply needs to be sufficiently certain certain to a
degree.
When interpreting contracts, the courts attempt to give effect to the clauses rather than
interpret them in such a way that will declare them void.
Difficulties with certainty resolutions:

Resolution requires consideration of circumstances and nature of the agreement,

and deals with abstract principals.

Judicial opinion as to the extent of certainty required differs.

Judges are reluctant to write contracts (or fill in gaps). However, they are more inclined to do
so today than in the past.
Things to consider:

Intention of the parties

Subject matter

Relation of the parties

Social and economic contexts

3 aspects to certainty:
1. The contract must be sufficiently completethe parties must at least reach
agreement on all terms that they intended to fix by agreement, rather than
have someone else set for them, and also on all matters the court cannot
simply resolve by implication.
2. The agreed terms must be sufficiently certain and clear that the parties can
understand their rights and obligations and the courts can enforce them.
3. Promises must not be illusory a promise is illusory if it is an unfettered
discretion as to performance of a promise.

This means that if a party has a choice whether or not to perform a promise.
Questions of incompleteness, uncertainty and illusory depend on whether they
are integral to the contract.

If the problematic part can be severed, remaining part will remain binding

If the problematic part confers a benefit to one party, that party can waive it and
enforce the rest.

Completeness
No contract is made unless all the essential terms have been agreed upon. Factors that must
be taken into account are:
1. How important is the term?

2. Why has the term been left out?

3. Is the agreement still wholly executory, or has it been partly performed
already?

Essential Terms
An essential term, for the purpose of this area of contract law, is a term without which the
contract cannot be enforced and without which the parties would not have not intended to
enter the contract.

This doesnt consider importance

Depends on the nature of the contract, circumstances of the case

For example, commencement date and rental price are essential to lease
agreements

In transfer of land agreements, subject matter and price are essential, and
most other details can be filled in by the courts.

In transfer of goods, price isnt essential because reasonable price may be

imposed by Sales of Goods Acts.

In Trollope & Colls Ltd v Atomic Power Constructions Ltd, Megaw J said the parties
must agree upon terms which are essential in order to make the contract
commercially workable.

Australia and New Zealand Banking Group Ltd v Frost Holdings Pty Ltd.

The more complex the case is, the less likely the courts will fill in implied gaps.

Agreements to Agree
Usually, it makes no difference whether the agreement is silent on an essential term, or
provides that the essential term will be agreed upon in the future. In both cases the
agreement is incomplete.
The second type is an Agreement to Agree, which is important in a case where a court
might otherwise have implied a term. The court will only imply a term (namely, the obligation
to pay a reasonable price) in cases of a contract is silent in relation to an agreed term. This
rule will not apply to an agreement to agree.

May and Butcher Ltd v The King, the court established that when parties have
agreed to defer price negotiations, this indicates that they want to set the price

themselves, and the court imposing a reasonable price would be inconsistent with
their intentions.

Objective mechanism
Agreements to agree will also be valid if the parties provide an effective mechanism for
determining the term if they fail to reach an agreement. The court recognises mechanism for
the expediency of commerce.

i.e. providing an option for renewal at a price to be agreed, or to be determined by

a valuer or arbitrator.

However, if this mechanism fails, the agreement will be void George v Roach:

Valuer refused to carry out the task

Court held that the courts determining the price would be inconsistent with the
intention of the parties

Agreement void

Certainty
A term may be too vague' or imprecise so that the courts cannot attribute a meaning to
it. The courts cannot enforce an agreement if they are unable to discern the obligation with
sufficient certainty. Once again, the courts are less inclined to deem a contract incomplete if it
has been wholly or partly performed.

In Council of the Upper Hunter County District v Australian Chilling and Freezing,
courts will try to find certainty. Here, they provided an arbitrator to resolve
disputes, the objective mechanism.

Reasonableness
Standard of reasonableness can sometimes be applied in cases where there is no
completeness or certainty. However, the standard of reasonableness cannot extend to all
circumstances.

Biotechnology Australia v Pace terms were too uncertain, there was no scheme
in existence uncertain, illusory?

Hall v Busst - standard of reasonableness does not extend to land, protects the
vendor, price adjustment was unenforceable

Whitlock v Brew no specification of lease end, incomplete lease isnt finalised

Agreements to Negotiate
In England, agreements to negotiate or agreements to negotiate in good faith cannot be
binding they lack the certainty which is required to form an enforceable obligation.
The refusal to recognize an agreement in good faith has been criticised, as the law should
respect those intentions.

This is distinguished from agreements to agree merely to make an effort to

reach an agreement rather than actually reach one.

United Group Rail Services Ltd v Rail Corporation NSW nominated mediator from
a non-existent organisation, must negotiate in good faith

Illusory Promises
A promise will be illusory if the Promisor has an unfettered discretion in relation to
performance.

The Promisor has a free choice how much (if it all) to perform.

Placer Development Ltd v Commonwealth - Commonwealth had complete

discretion as to how much subsidy it pays Placer

Therefore, the Commonwealth has no obligation (can just determine it to be 0)

and the promise is illusory.

A promise which contains an exemption clause which effectively deprives the promise of
any force is also illusory.

MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) clause which allows Plaintiff to cancel flights without incurring liability entails that
the airline practically has no obligation.

Therefore, the promise to carry the passenger is illusory.

Effect of illusory promises on a contract

Illusory promises do not constitute good consideration.

If only illusory promises were made in return for another promise, the contract
will collapse for want of consideration

Contracts containing illusory promises are considered incomplete.

If an essential term has been left to be determined at the discretion of one

party, the whole contract will be considered as illusory.

Exemptions
Contracts will not be considered illusory if:

Important matters are to be determined by a third party

Godecke v Kirwan accepted that a contract can leave even essential terms to
be determined by a third party.

Matters to be determined by one of the parties are subsidiary.

The discretion relates to the fulfilment of a condition on which performance of the

contract depends

The discretion is to be exercised according to objective criteria.

Meehan v Jones fulfils the last two criteria.

A contract is illusory when one of the parties is given discretion as to whether

to perform the contract, but not where one of the parties has a discretion in
relation to the fulfilment of a condition on which the contract depends.

Severance
If the court can infer an intention that the agreement should be valid in the absence of the an
uncertain, incomplete, or illusory provision, than that provision can be severed and the
remaining agreement will still be enforceable.

Fitzgerald v Masters - problematic clause was merely an appendage. Parties

clearly intended for the agreement to remain intact if the problematic cause
should fail.

Whitlock v Brew - an example of how the problematic clause could not be severed
the parties had no intention of agreeing upon a sale which would entitle the
purchaser to a vacant possession without having to grant any lease to the Shell
Co.

Privity

The doctrine of privity of contract states that only a person who is a party to a contract can
enforce the contract (gain a benefit) or incur obligations (burdens) under it. Thus, a plaintiff
must be a Promisee and a party to the contract.

Rationale: only parties which agreed to the contract should be bound by it

Third-parties havent provided consideration

Described as fundamental in England

Greatly criticised since

Can be circumvented in numerous ways

Abrogated in numerous jurisdictions

Benefits
Privity is in place to prevent third parties from enforcing contractual promises that benefit
them. Applied in:

Coulls v Bagots Executor and Trustee Co Ltd - The court ruled against the ability
of a third party to enforce a contract.

Also ruled that simply signing a contract doesnt make you a party.

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd - The court allows
exception in insurance cases third parties can enforce contracts.

Burdens
Privity also prevents contracts from imposing legal burdens upon third parties.

For example, a manufacturer and wholesaler have an agreement. Manufacturer

cannot then impose contractual obligations on retailers who buy the goods from
the wholesaler, because the retailer isnt a part of the contract.

The exception to this is a restrictive covenants regarding land namely, contracts which bind
future owners of the land.

Non-application of the Privity Rule

Scenarios in which a seemingly third-party is still a party to the contract:

One of the parties to the contract acts as an agent for a non-involved party

One of the parties to the contract transfers contractual benefits for the noninvolved party by way of an assignment or novation of the contract

In these scenarios, the non-involved party is considered a party to the contract and the privity
rule does not apply.

Agency
An agent is a person who has power to enter into a contract on behalf of another person
If the non-involved party can prove that one of the parties to the contract acted as its agent,
it will be considered a party to the contract as well. To prove an agency relationship:

The non-involved party (the principal) needs to prove that it expressly or

impliedly consented to the party to the contract (the agent) acting on its behalf.

The agent needs to prove that, with respect to this particular scenario, it was
acting on behalf of the Principal as well (namely, that the agent relationship
applied to this particular case).

Alternatively, the contract can be subsequently ratified:

Ratification: adoption or confirmation of a contract by a person who was not

originally bound by it

Ratification is usually relied upon to circumvent privity rules with regards to

Himalaya clauses in contracts of carriage.

Contracts of Carriage and Himalaya clauses

Contracts of carriage usually include clauses which exempt or limit liability in the case of loss
or damage to the goods. In addition, they include Himalaya Clauses, which extend that
exemption to other non-involved parties, namely subcontractors and stevedores.
In order for a Himalaya clause to apply to stevedores, they must pass this four-stage test (laid
down in Scruttons Ltd v Midland Silicones Ltd:
1. Bill of lading states that stevedore is meant to be protected.

2. Bill of lading states that the carrier was acting as an agent for the stevedore.
3. Carrier had authority to enter contract as agent of the stevedore/ stevedore
ratified.
4. Stevedore provided consideration.
This test was discussed in Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aust) Pty
Ltd (The New York Star)

Assignment and novation

There are two ways for a party to transfer its contractual rights and obligations to a third
party:

Assignment
A party assigns its rights a under a contract to another party. The original party to the
contract now cannot enforce those rights.

Whether the contract can be assigned is a matter of construction.

Novation
A party assigns both its rights and obligations to another party. This is effectively the
termination of the original agreement and formation of that exact agreement with the new
party.

Requires an agreement between the original and substituted parties; unless

The contract authorises a party to substitute another without agreement.

Circumventing the Privity Rule

For the purposes of this section, the Beneficiary is a third party seeking to enforce a
contract.
The ways to circumvent the privity rule are:
1. Promisee holds a right under the contract on trust for the beneficiary
2. Beneficiary can press an estoppel against the Promisor

3. Beneficiary can claim damages in tort.

4. Beneficiary can claim damages for misleading or deceptive conduct

Trust
A contractual right is a form of property, which can be held on trust for a beneficiary.
The court may discern an intention on the part of the Promisee to hold on trust for the
beneficiary the contractual right to enforce a promise. This creates an obligation on behalf of
the Promisee to enforce the contractual right.

In practice, the beneficiary can then sue the Promisor if the Promisee joins as codefendant.

Court discerning intention to create a trust

There is no general rule whether the intention must be explicit or inferable. This was
discussed in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd:

Trust should be inferred if it clearly appears that the Promisee intended the third
party to insist on the performance of the promise; and

If trust appears to be the appropriate legal mechanism to this intention.

This uncertainty has invited criticism as to whether trust is an adequate tool to circumvent
the privity rule.

Estoppel
Equitable Estoppel
Equitable Estoppel will prevent injustice arising from the application of the privity rule when a
beneficiary relies (to its detriment) to an expected entitlement from the contract.
This doctrine also entails that it is possible for a non-involved party to incur a burden
(contractual obligation) under a contract.

Estoppel by convention

Operates where parties adopted a particular set of affairs as the basis of their relations. The
beneficiary needs to show that all parties shared an assumption that the beneficiary will gain
benefits under the contract, and that it relied on this assumption to its detriment.

Used to establish who the parties to the contract are.

Tort
Sometimes a beneficiary can enforce an obligation imposed on the Promisor by the law of
tort. This is possible when all of the following conditions are satisfied:

Contractual obligation in question is a duty to take care to avoid harm to the

beneficiary.

There is a relationship of proximity between the Promisor and the beneficiary

which gives rise to a duty of care under the law of negligence.

This issue came up in Hill v Van Erp:

High Court accepted that a Promisor may owe a duty of care to a non-involved
party.

In the breach of that duty of care, the non-involved party can sue for damages
under tort.

Misleading or deceptive conduct

Promises can sometimes amount to misleading or deceptive conduct, which are prohibited by
the Trade Practices Act 1974 (Cth) and the State and Territory Fair Trading Acts. A person who
suffered due to such conduct is entitled to receive damages from the person who engaged in
the misleading or deceptive conduct.
Thus, a beneficiary who suffered as a result of such conduct can claim damages under a
statutory right to damages (the enforcement of the contract is not necessary).
This was discussed in Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd:

Court ordered damages for the third party under statutory law.

the misleading conduct is found in the making of a contractual provision, and the
complainant does not have contractual privity with the defendant

The statutory rights to damages sometimes overlap with equitable estoppel in the case of
future conducts.

Remedies available to Promisee

Even when a Promisee decides to sue a Promisor to enforce a benefit upon a beneficiary, the
remedies available to the Promisee are often insufficient to ensure that the beneficiary
obtains the promised benefit. Whilst substantial damages and specific performance can be
given, there are situation in which they will be unavailable or doubtful.

Damages
Contract damages are in place to compensate the damages suffered by the Promisee. So
when the beneficiary is the one suffering the damages, and not the Promisee, the Promisee
will only receive nominal damages.

The Promisee will be able to obtain full or substantial compensation only when he
holds the relevant contractual rights on trust for the beneficiary.

Specific performance
Specific performance is the best remedy available for a beneficiary because it ensures he
obtains the promised benefit. However, specific performance is only available when:

The court agrees damages are inadequate

The Promisee is willing or obliged by a trust to sue on behalf of the beneficiary.

Specific performance will not be available when:

The case involves performance of personal services

Performance is required at a certain time

Defective executed performance

Reasons for abolishing the Privity Doctrine

The reasons as summarised by Law Commissioner Burrows:

1. Privity rule thwarts intentions of the parties. Third parties cant sue even if
parties manifested intention to allow this. Privity is a constraint on freedom of
contract.
2. Privity rule causes injustice to the third party.
3. Third party who suffered damages not allowed to sue, whilst Promisee who
suffered no damages is this is unfair. Remedies available to the Promisee
suing for a third party are limited and unjust.
4. Even when adequate compensation is possible, this depends on the will and
ability of the Promisee to sue.
5. The ways to circumvent privity demonstrate that it is unjust. None of them
really resolve the injustice though.
6. Those exceptions make the law uncertain and complex
7. Privity doctrine has been abolished by civil-law systems and increasingly
modified and eroded in many common-law jurisdictions too.
8. The inconvenience of this rule has been long recognised.
9. Creates difficulty in many particular commercial situations.

Reasons for retaining the Privity Doctrine

There are both practical and theoretical considerations to the retention of the privity doctrine.
Practical considerations The practical considerations were considered in Trident General
Insurance Co Ltd v McNiece Bros Pty Ltd:
1. If both the Promisee and he beneficiary can enforce the contract, double
recovery from the Promisor is possible

However, this can be easily solved by requiring joinder of all parties i first
action or creating a law against double recovery.

2. Privity doctrine protects Promisor from being sued by a large amount of

potential plaintiffs.

For example, imagine a government contract third party lawsuits would

be innumerable.

3. Allowing beneficiaries to sue would constrain the freedom of action of the

involved parties.

Promisee usually enjoys ability to modify the agreement etc. This would be
jeopardised by the abolition of the privity doctrine.

Theoretical Considerations
According to Kincaid, there are theoretical arguments against the abolition of the privity
doctrine:

Obligations are privately assumed, not imposed by the law.

The essence of a contract is a bargain an exchange between two people.

The third party has not participated in this bargain and has not given
consideration

Accordingly, no relationship between third party and Promisor

Accordingly, no enforceable obligation by the third party.

Contract law should balance private interests of the parties, not public interests.

Third party recognition would put public interests over private

Kincaid also refutes the reasoning of the English Law Commission:

Giving intention to parties intention does not in itself justify the imposition of an
obligation

Obligation is not only based on intention, but on bargain too

If reliance is the justification, then remedies lie outside contract law anyways
(estoppel)

Statutory Modification of the Privity Doctrine

The privity doctrine has been modified by statutes in some places. Burrows pointed out five
issues which need to be resolved:

The test of enforceability - When should a beneficiary be able to enforce a

contract?

Variation and rescission - to what extent should the Promisee still be able to
vary rescind or terminate the contract?

Defences, set-offs and counterclaims - Should the Promisor be entitled to

raise the same defences or counter-claims against the beneficiary as he can
against the Promisee?

Promisees right to sue - should the Promisee retain the right to sue, as well as
the beneficiary?

Preservation of the third partys other rights - should the other remedies
available to the beneficiary, namely, estoppel or trust, still be available?

Property

Introduction to Property
Property:
The distinction between ownership in a physical sense (I am holding a pen)

to legal ownership, whereby one has the bundle of rights.

1.

Right to use or enjoy.

2.

Right to exclude others.

3.

Right to alienate.

The distinction between personal rights and proprietary rights:

1.

Personal - enforceable against a specific person.

2.

Proprietary - enforceable against anyone in the world.

Licenses are contracts which allow a person to use another's land without
committing trespass. Licenses confer personal rights and not
proprietary rights (which are necessary to sue in others trespass).

Numerus Clauses principle - there is a defined list of what sort of

proprietary rights one can have (ie leaseholder, life tenant, fee simple).

The main dichotomy is between property as a physical thing to which various legal
rights are attached, and the legal interest pertaining to a physical object. The latter
is the current preferred view in legal academia.
The legal meaning of property has three aspects, which is known as the bundle of
rights. None of them are pre-requisites and all of them can be subject to qualifications:
1. The right to use or enjoy.
2. The right to exclude others.
3. The right to alienate.

Right to Use
This is very fundamental, but can be subject to restrictions such as:

Zoning laws and building regulations restricting the use of a fee simple.

Restrictions by agreement, such as negative covenants or easements:

Negative covenants: a contract between two bits of land (as opposed to

people) the owner of Block A will contract with owner of Block B not to do
something with his or her land; even if the land is sold later on, the new
owners are still bound by the covenant and cannot build on B until the
covenant expires.

Easements

Yanner v Eaton property as a relationship, right to fauna

Right to Exclude
In basic terms, the right to prohibit others from using something.

This right is protected/facilitated by property torts (i.e. claims for trespass,

conversion and detinue).

It applies even though a trespass does not interfere with the owners
enjoyment of his property

An exception to this rule is when planes fly over property (at a high enough
height).

This right is also restricted by agreements such as negative covenants or

easements.

Stow v Mineral Holdings (Australia) Pty Ltd personal v property, mining is

held as a proprietary right, warden does not have discretion

Right to Alienate
In basic terms, the right to sell, gift or otherwise assign proprietary rights (selling ones
right, not the thing itself).

The extent of ones right to alienate depends on the nature of ones interest:

Fee simple - biggest interest in land, can sell the rights completely.

Leasehold - a leaseholder can only sell the rights that he has (ie, he can
only sublet).

Life tenant (family & personal trusts: A gives property to B as life tenant;
when B dies, their interest in property extinguishes; passes to C

the remainderman; if B passes interest to D, when B dies, Ds interest

passes to C called a pur autre vie)

S 51 (xxxi) of the Constitution: the Commonwealth can take property on just

terms, as long as compensation has been adequate

Licences
3 types of licences:

Bare licence not associated with a contractual relationship, can be revoked at will

of licensor Wood v Leadbitter

Contractual Licence created by means of a contract
Coupled with interest grant of a proprietary interest, cannot be revoked

Licences and original parties

Cowell v Rosehill Racecourse Co Ltd:

Contractual licence consideration, payment

Held that he had a contractual right but not a proprietary right, therefore only received

damages
Not entitled to a remedy of injunction, which is a critical remedy

However, equity may treat a contractual licence as irrevocable and determine the rights of
the parties accordingly:

Heidke v Sydney City Council granted injunction as it wouldnt cause hardship to

council, licence beginning to look like property right, followed Verall v Great Yarmouth

Borough Council
NSW Rifle Association Inc v Commonwealth contractual licence in the form of a deed,
relocation notice, breached obligation of taking care of buildings revocation?,
granted injunction

Licenses and Third Parties

A license is a permission for the licensee (license holder) to do an act on the licensor's
(person giving the license) land which would otherwise constitute a trespass.

A license is really a contract - ie, buying a movie ticket means you enter a
contract, and receive a license to watch the movie and not be trespassing.

As mentioned, property rights are enforceable against the whole world whilst licenses are
contractual rights that are enforceable against specific persons. However, property rights
can often arise from such personal (contractual) rights.

Thus, the licensee has some limited property right in the contract.

However, this does not confer a full proprietary interest: the correct measure
is whether the proprietary interest is independently enforceable against third
parties.

If the license is so enforceable, it has assumed a concrete proprietary identity.

This is discussed in King v David Allen & Sons, Billposting Ltd:

A license does not qualify as a proprietary right. This is because it delivers

insufficient control over the land.

Only proprietary rights are enforceable against third parties. However, an

interest is not proprietary simply because it is enforceable against third
parties.

A proprietary interest could have been created through clear wording in the
contract as a lease shows importance of construing the document.

And in Georgeski v Owners Corporation Strata Plan 49833:

A licensee (as opposed to a lessee) does not have a right of possession.

Where the licence also has a grant of interest (e.g. a 'profit a prendre'),
then the licensee may because of the interest sue in trespass for direct
interference with the subject matter of the grant.

However, the remedy is based on that interest, not the contractual right.
In other words, a license only grants a right in personam which means a
licensee can only sue the person who gave him that right if his right is
breached. He cannot sue the rest of the world for trespassing etc, (he would
need to have a lease, or a right in rem to do that). If one wishes to exclude
others, he needs to do it on the basis of an interest.

Numerus Clausus Principle

Landowners cannot simply create new 'types' of rights - if a person receives a type of
right, it must be one of the (a closed list) of established categories (ie, lease, life
tenancy etc - cannot create any more 'types').

This is in contrast to contract law, which allows parties full freedom in

designing the contract per their purposes. Property law, by contrast, is very
restrictive, mostly because of its potential to affect third parties.

Categories of property law that qualify as an interest enforceable as property

include:
1. Possession: fee simple, the life interest, and the leasehold.
2. Servitudes: easements, profits, restrictive covenants.
3. Security interests: mortgages and other charges.

Notice that things like licenses do not fall within this ambit (no proprietary
rights).

Reasons for the restrictive approach to interests in land:

1. Maximise uses for land (a result of 19th century free market economic
climate).
2. Minimise difficulties for 3rd parties to purchase land (economic reasons).
3. Protecting the integrity of the science of the law and stopping whimsical
creation of property rights (systematisation of common law).

Property rights and the rights of persons

There is a fundamental idea that property rights are to be distinguished from personal rights.
This was discussed in Moore v Regents of the University of California:

Whether the cells were part of his property

Could sue in conversion and lack of consent, but had no proprietary right

Other things such as corpses have been discussed:

Doodeward v Spence there is no right of property in a dead body

Edwards skill and work was required to extract the sperm, therefore she had
entitlement to property

Property rights and privacy

Courts have refused to grant property rights to novel things.

In Victoria Park Racing and Recreation Grounds Co Ltd v Taylor, courts held that a
spectacle (horse race) cannot be claimed as property. Defendant would not have
caused nuisance to affect the enjoyment of land and therefore did not interfere with

property right.
In ABC v Lenah Game Meats Pty Ltd, the plaintiff was not entitled to an injunction. An
award of an injunction is not at large but can only be awarded in support of a

recognised legal, equitable or statutory right. While the plaintiff would be entitled to
obtain an injunction the trespasser, it had no such right exercisable against the ABC

which was not a trespasser and had not committed any other legal or equitable wrong.
In Grosse v Purvis, the defendant was liable in tort for the invasion of privacy.

Property and the right to work

There is also the question of whether qualifications and abilities are property rights:

Dorman v Rogers right to practise is a property right and work capacity value is a

property right however, valuable does not make it a property right

Forbes v NSW Trotting Club right to apply trade but no right of access to particular
racecourse

Classification of property
Traditional Classification and terminology
The basic and traditional distinction in property is as follows:
Real Property: Land. Divided into two sub-categories:

Corporeal hereditaments - rights of possession (tangible real property).

Incorporeal hereditaments - lesser rights to land (intangible real property, such

as an easement of way).

Personal Property: Chattels. Divided further into:

Chattels real - a hybrid between personal and real property. For example,
leaseholds (right in property, but not complete ownership).

Chattels personal - all other chattels. These can also be divided into:

Choses in Possession - tangible physical objects.

Choses in Action - Intangible things, such as patents, copyrights, deeds

etc. Choses in action are really a 'right to sue' (on the basis of copyright etc)

The legal ramifications of the distinction between real and personal property are:
Real property:

Can only enforce a contract of land if there is an agreement in writing.

Specific performance is a remedy: Land is recoverable in itself (and not

merely damages) if a claim succeeds.

Personal property:

Can enforce in the absence of a written agreement (can be oral etc)

No specific performance, damages only: The property itself is not

recoverable, the party will be compensated with damages.

The distinction shows how the law considers ownership over land as different to ownership of
other things (because land is immovable).
The above distinction between real and personal (land and chattel) are, as always, not fixed.
Often, the distinction between land and chattel is very difficult to distinguish. Thus, courts
tend to rely on policy arguments to make the distinction.

Doctrine of fixtures
The doctrine of fixtures provides that personal property may become real property if it is
annexed (attached) to land.

In other words, if a chattel is affixed to or placed on land, it may become a part of

the land, and even transfer ownership (to the owner of that land, without
compensation).

This means that the doctrine resolves disputes contesting title, in the
absence of an agreement.

It applies especially to tax and stamp duty law where ownership can determine
liability for stamp duty and tax payments.

In Belgrave Nominees v Barlin-Scott Airconditioning, the court was required to determine

whether an air-conditioning plant was a fixture, and ruled as follows:

In determining whether an object has become a fixture, one employs a two-step

process - examining degree of annexation and intention of the person who
affixed the chattel.
1. Degree of annexation: if the object is attached to the land by more than its
own weight, then it raises the presumption that it is a fixture. If it is not, then
it raises the presumption it is a chattel.

2. Intention: after the presumption has been raised, the party seeking to refute it
has the onus of proving that the intention (of the party which affixed/didn't
affix the object) was that the object be a fixture/chattel despite being
unattached/attached respectively.

In determining the intention of the parties, the court considers:

1.

(a) the nature of the chattel;

2.

(b) the relation and situation of the two parties;

3.

(c) the mode of annexation (how well attached was it); and

4.

(d) the purpose for which the chattel was fixed.

In the judgment of Belgrave, the court discusses Hobson v Gorringe:

Facts:
A gas engine was let out on a hire and purchase system. The agreement in
writing provided that the engine will not become the hirers property until the
payment of all instalments.

The engine was strongly affixed to the land of the hirer.

The hirer went into liquidation and defaulted on his instalments. He also
defaulted on his payment to his mortgagee, who came in and repossessed the
hirer's land, including the affixed engine (claiming it was a fixture).

The Plaintiff [Hobson] tried to get his engine back, since the agreement
specifies that it did not become the hirer's property, and therefore the mortgagee
[the Defendant, Gorringe], cannot repossess it as a fixture.

Held:
The hire-purchase agreement was an incidental agreement made without the
knowledge of the mortgagee. It is unfair for a third party (such as the Defendant)
with an interest in the land, and therefore does not bind a third party.

Since the engine was sufficiently annexed to the land to become a fixture, it is
therefore a fixture which can be repossessed by the Defendant.

It seems that both subjective and objective circumstances have to be examined in

determining the intention of the party removing the chattel or fixture. A subjective test was
used in Ball-Guymer v Livantes, but an objective test was used in Permanent Trustee Australia
v Esanda Corporation.
Other examples include:
1. A-G (Cth) v RT Co Pty Ltd (No 2)

In RT, two printing presses attached by bolts to the building were held not to
be fixtures, as the purpose of the bolts was merely for efficient operation of the
press.
2. Reid v Smith

In Reid, a lessee built a house that rested on its own weight on brick piers.
Upon termination of the lease, the landlord sought to restrain the lessee from
removing the house as he claimed it had become a fixture. The house was held to
be a fixture. Even though it was intended to be a temporary dwelling, the building
was held to be intended to be part of the freehold. However, Griffith CJ clearly
pointed out this was not to become a general rule. An unattached house was not
necessarily a fixture; in most other circumstances, a temporary dwelling might
remain a chattel.

Another case considering fixtures was May v Ceedive Pty Ltd:

Facts: A practice had developed in mining areas, that lessees would build and
inhabit houses on land. The houses would become their own property, while the
land remained the property of the original owner. In this case, May acquired a
mining house, and formed an arrangement with Ceedive to pay a weekly rent for
the land. Ceedive increased the rent, and May refused to pay.

Held: The house was a fixture on the land as per the objective standard of the law,
notwithstanding subjective intentions of the parties to the contrary.

Upon looking at all the surrounding circumstances, the presumption that the
house is a fixture has not been rebutted.

The agreement evincing an intention for the house to remain a chattel was
between the parties, and not the builder who affixed the house. The intention
which matters is not the parties', but the one who originally affixed the house.

The fact that the house would have to be demolished to be removed strongly
indicates that it is a fixture (chattels are movable!)

The purpose for which the house was built was a residential dwelling house
and it was affixed with the intention that it remain in position permanently.

Another case examined is Leigh v Taylor:

Facts: Ms Taylor was a life tenant. She affixed expensive tapestries to the wall.
After her death, the remainderman claimed the tapestries were a fixture, as they
were affixed to the wall with wood, nails and screws.

Held: The tapestries were fixed for the purpose of ornament in the only way
possible for their use and enjoyment. They could also be removed fairly easily,
without causing damage to the house. Thus, they did not become a fixture the
property of the remainderman, but were removable by the executor of the tenant
for life.

This case highlights the underlying rationale for the doctrine of fixtures: originally,
it was to prevent people from removing chattels from freehold that would
physically destroy part of the freehold. These days, it is possible to remove
chattels without destroying the actual realty. Thus, it makes it difficult to
determine cases that are at the margins of the rule.

It is thus apparent that recent authority strongly favours the objective standards of the law, as
opposed to subjective intentions. At any rate, courts are required to look at all the
surrounding circumstances in deciding whether a particular item is a chattel or a fixture.
Nonetheless, it is unclear where the line is to be drawn despite the statements in Ceedive, it
is apparent that cases are decided on their own facts.

Policy Decisions
The following are policy decisions with regards to what equipment is or isn't a fixture:

Mining equipment has been held to be a chattel due to the temporary nature of
mines and the transportability of the equipment.

Irrigation equipment has been held to be a chattel where damage is would not be
caused upon their irrigation. However, where its removal would cause damage,
irrigation equipment has been held to be a fixture.

Houseboats have been held to be a chattel, again because they can be moved
without damage. However, if moored securely on a permanent basis, a boat can
be a fixture.

Tenants Fixtures
In certain circumstances, affixed chattels can be removed by the affixer, despite the fact they
are fixtures. The most common example is tenants fixtures.

Tenants may install many fixtures on their leased property during their tenancy,
but it would be economically unjust to forbid them from taking it with them at the
end of their tenancy.

Tenants fixtures include shelves and counters and domestic and ornamental
fixtures.

The lease will generally specify such things.

DArcy v Burelli Investments Pty Ltd tenant can claim a right to remain under
colour of right

Today, if the tenant has installed (from his own pocket) any fixtures, he may remove them any
time up to termination of the lease. Upon termination, the situation is less clear.

Tenancy at Will
In cases of tenancy at will and where specified in the lease, the tenant usually has a
reasonable time to remove their fixtures. This right does not apply where the lease is
forfeited or surrendered.

If this lease ends and the tenant remains in possession because of a new lease, he
is still allowed to remove the fixtures.

Agricultural and Residential Tenancies

The common law forbade removal of agricultural fixtures under tenants rights of
removal. Legislation in NSW has modified this rule to allow them to remove certain fixtures in
specified circumstances - for more information, see Agricultural Tenancies Act 1990 (NSW), s
14 (also ss 5-7). Residential tenancies are likewise governed by legislation.

Chattels Annexed Without Permission

Generally, chattels annexed without the owners permission preclude recovery.

This was the case in Chateau Douglas Hunter Valley Vineyards Ltd v Chateau
Douglas Hunter Valley Winery and Cellars Ltd, where the owner of one vineyard
planted vines on a neighbouring vineyard without either partys knowledge. The
vines were held to be a fixture on the neighbouring property.

Similarly in Brand v Chris Building Society, the defendant mistakenly built a house
on the plaintiffs land. The plaintiff sought a restraining order to demolish the
house, but the defendant claimed that the plaintiff knew about the mistake at the
beginning of construction, but took no steps to stop it, and undertook to give the
plaintiff the choice to either (a) have the property removed, or (b) keep it for
2145p.

Hudson J entered judgment for the plaintiff, holding that in the absence of
something in the nature of fraud of the plaintiffs part, there was no equitable
principle upon which the defendant could rely to defeat his claim.

Doctrine of accretion
Land may have either artificial or natural boundaries. The doctrine of accretion governs where
the legal boundaries of a property of land will change after a period of being subject to the
natural processes of accretion and erosion.

South Centre of Theosophy Inc v South Australia the test for accretion covers
changes to natural change to boundaries over a period of time, '...accretion may also
occur where the deposits are carried by the wind, if they become settled and extend
the boundary of the land into the water...'

Title and Possession

When one has property rights over chattel (personal property), he may bring actions against
people who interfere with those rights. These actions are:
1. Trespass - where there is an interference with the plaintiff's actual
possession: Penfolds Wines Pty Ltd v Elliott.

Actual possession is necessary.

The right to immediate possession can be equated to actual possession
- when one has an immediate right to possession, he does not lose his possession,
it is continuing: Wilson v Lombank Ltd.

Actionable without proof of damage.

Remedy is damages.
2. Conversion - where the owner of goods is deprived from his right to
possession, or that right is impaired: Penfolds Wines Pty Ltd v Elliott.

Absolute ownership or actual possession is not required, only a right to

possession: Penfolds Wines Pty Ltd v Elliott.

The mere fact that one physically possesses chattel gives him sufficient
property rights to sue anyone in conversion except for someone with a superior
title: Jeffries v The Great Western Railway Co.

In case of a bailment, a wrongdoer must treat a bailee as the owner of

the goods for all purposes irrespective of the rights and obligation as between him
and the bailor: The Winkfield.

A finder can still sue in conversion. Although he did not have absolute
possession, he has a better right than all but the true owner: Armory v Delamirie.

Strict liability

Remedy is damages or, where damages are inadequate, specific restitution.

3. Detinue - where a defendant wrongfully retains the goods of the
plaintiff following the plaintiffs lawful demand their return (now
merged with conversion).

This chapter considers personal property (ie, chattel) and the remedies available for a
wrongful interference with personal property. The three main actions for such interference
are:
1. Trespass.
2. Conversion.
3. Detinue.
These actions will be discussed in detail below. In order to understand the explanations and
cases below, it is necessary to understand the following concepts:

A bailment - a bailment is a transaction where the owner of goods (the bailor)

hands over goods to another (the bailee) but without passing over the title
(rights of ownership).

Types of possession: there are three types of possession of goods:

1. Actual possession (also called 'constructive' possession).
2. A right to immediate possession.
3. A future or reversionary right to possession.

The jus tertii defence - a claim is barred if there is a third party with superior
rights.

1.

There is some confusion as to when one can plead jus tertii, because it failed in
all of the cases below.

2.

Maybe this is because of the principle that jus tertii will not aid a
wrongdoer - ie, a trespasser or a person who converts property cannot rely
on jus tertii to bar a claim.

Trespass
Trespass is where there is an interference with the plaintiffs actual possession, such as the
wrongful taking of goods.

Actual possession means that the goods were physically at the possession of the
plaintiff at the time.

Wilson v Lombank Ltd suggests that an immediate right to possession

constitutes actual possession and thus allows an action in trespass.

It is actionable without proof of damage.

Examples include damaging or seizing one's bag or pen etc.

The remedies include:

Damages.

In some cases, the equitable remedy of specific restitution (return of the chattel
itself).

Self-help is also available (ie, a person is allowed to use reasonable force and
retrieve the chattel itself).

Conversion
Conversion occurs where the owner of goods is deprived from his right to possession, or
that right is impaired.

For examples, a person taking and selling or modifying goods which belong to
another (he is thus depriving him from his right to possess the goods).

Theft is conversion.

A few important points about conversion:

Absolute ownership or actual possession is not required, only a right to

possession.

The plaintiff has to prove that the defendant was using or "employing
the goods as if they were ones own".

Conversion is decided on the basis of strict liability (ie, no proof of fault or

intention is required, only that the act has been committed).

The remedies for conversion are as follows:

Damages (the market value of goods at the time of conversion plus consequential
losses).

Where damages are inadequate, specific restitution might be granted.

Self-help.

Detinue
Detinue is where a defendant wrongfully retains the goods of the plaintiff following the
plaintiffs lawful demand their return (in other words, withholding one's goods).

Detinue and conversion may often overlap - detinue is simply conversion but
where the owner asked for the chattel back.

Detinue has been merged with conversion these days.

The remedies include:

Delivery up of goods - the return of the chattel.

This is the common law version of specific restitution - it means the goods are
still yours by right so you are entitled to receive them back.

Since this is a common law remedy, one does not have to prove that damages
are inadequate to receive delivery up of goods (as is required with the equitable
remedy of specific restitution) - it is a standard remedy.

Damages (assessed at the date of judgment and not the date of refusal to return).

Self-help is also available.

For example, in McKeown v Cavalier Yachts:

Facts: a yacht which was promised to the plaintiff was not delivered by the
defendant. Meanwhile, the defendant made several improvements to the yacht.

Held: granted specific restitution to the plaintiff and compensation to the

defendant for the improvements he had made.

A few points about detinue:

A plaintiff must have an immediate right to possession in order to succeed in an

action for detinue.

A future or reversionary right to possession is not sufficient (as a lessor would

have).

A mere contractual right to possession without actual possession or proprietary

interest is not sufficient to maintain detinue.

Cases concerning property torts

Jeffries v The Great Western Railway
An action for conversion is discussed in Jeffries v The Great Western Railway Co:

The mere fact that one physically possesses chattel gives him some property
rights.

These rights mean that he can still bring actions against anyone else trying to
dispossess him.

Of course, these rights originating from mere physical possession will yield
against the actual owner of the chattel in law (person with the title).

The law goes further to say that a person who steals goods can still bring
actions against subsequent thieves. A title arising from mere possession
(and even wrongful possession) is good against the whole world, save
someone with a better title.

The Winkfield
Conversion is also discussed in The Winkfield, which deals with whether bailee's are allowed
to bring an action in conversion:

A wrongdoer must treat a bailee as the owner of the goods for all purposes
irrespective of the rights and obligation as between him and the bailor.

Possession is absolute and complete title against a wrongdoer.

The chattel that has been converted or damaged is deemed to be the chattel of
the possessor and of no other, and therefore its loss or deterioration is his loss,
and to him, if he demands it, it must be recouped.

There are some strange issues raised by The Winkfield:

The bailees here could recover the full value of the chattel from the wrongdoer as
if they were the owner, even though (a) their personal loss fell short of the of the
full amount recovered, and (b) they were not liable to the bailor for the loss.

This is a big exception to the compensatory rule of tort and contract that the
function of damages is merely to restore the party to the original position.

It also appears that the wrongdoers, after paying the bailee, would still be liable to
an action by the bailor.

This was changed in the UK by statute. There, once either bailor or bailee has
recovered in full from the third party, the other is debarred from suing the third
party.

The rule in Winkfield does not apply where the plaintiff was not in actual possession of goods
at the time of the wrong and there exists a legal arrangement between the plaintiff and
defendant.

Damages in such a case are strictly compensatory. The plaintiff can only recover
the true loss sustained, not the full market value.

The proper question is always whether the plaintiff is being placed in the position
he would have been in had the tort not been committed.

The above was the topic of Butler v The Egg and Pulp Marketing Board:

Facts: Egg pulp was a single-desk marketing board. The Marketing Board got
property in the eggs as soon as they were laid. Instead of handing the eggs over
to the Board to be sold, Butler sold the eggs themselves. In essence, they
converted the property (by selling the eggs) of the Egg Board.

Prior proceeding: At trial, the Egg Board got the market value of the chattels at
the time of conversion. This wasnt satisfactory, as the Egg Board usually only got
nominal profits. This was gross over-compensation to the Egg Board.

Held: The High Court overturned the trial decision, giving the Egg Board the
difference between the retail price and the price they would have to repatriate to
the egg farms.

Others
Another case discussing bailments and conversion is Anderson Group Pty Ltd v Tynan Motors:

Facts: the appellant entered into a hire-purchase agreement with a third party
company to purchase a car. The appellant subsequently left the car with the
respondent to sell, in contravention of the hire-purchase agreement. The car was
stolen from the respondent. The appellant sued.

The respondent disputed the appellants right to sue, as the appellant was in
contravention of the hire-purchase agreement with the third party company. Thus,
they claimed, only the third-party company had immediate right to possession.

Held: As long as the appellants breach was not so serious as to amount to a

disclaimer of the bailment, the bailment still stands, giving them immediate right
to possession and to sue.

The breach in this case of the hire-purchase agreement was not serious
enough to amount to a disclaimer. The appellant had title to sue.

Detinue was and the bailee's title to possession was discussed in City Motors (1933) Pty Ltd v
Southern Aerial Super Service Pty Ltd:

Facts: the seller (defendant; appellant) reached an agreement with the buyer
(plaintiff; respondent), whereby the buyer would get a brand new vehicle in
exchange for trading in his old truck and 1250p under a hire-purchase agreement.
Whilst the hire-purchase agreement was ongoing (installments), the old truck
broke down. The seller retook possession of the new truck from the buyer against
its will. The buyer gave the seller the 1250p owing and demanded possession of
the new vehicle. This was refused. The seller was asked to return the new truck.

Held: The buyer was held to have an exclusive possessory right to the truck, which
could not be terminated except if he defaulted. This title of the buyer could found
an action in detinue against the seller.

Where a bailor reaches an out-of-court settlement with a third-party wrongdoer, the bailee is
precluded from claiming against the third-party wrongdoer. The bailee has to look to the bailor
for satisfaction.

Wilson v Lombank Ltd

An action for trespass was discussed in Wilson v Lombank Ltd:

The right to immediate possession can be equated to actual possession - when

one has an immediate right to possession, he does not lose his possession, it is
continuing.

Wilson was a controversial case: in support of the ratio mentioned above, the Court
quotes USA & France v Dollfus where it was held that where the bailor can at any moment
demand return of the object bailed, he still has possession.

However, in the very next sentence, Lord Porter (judge in Dolfus) confines this
statement to cases of 'gratuitous bailment.

The bailment from the plaintiff to Haven Garage was not gratuitous it is called
a bailment for reward.

Was Wilson then wrongfully decided?

Armory v Delamirie
The rights of a finder of an object were discussed in Armory v Delamirie:

Facts: the Plaintiff found an expensive jewel and went to the Defendant (a jeweler)
to have it valued. The Defendant (his apprentice actually) took out the stones from
the jewel and refused to give them back.

Held: A finder can still sue in conversion. Although he did not have absolute
possession, he had a better right than all but the true owner.
The Defendant was ordered to give back the stones, or else he has to pay the

price of a stone of the highest value that will fit the jewel.

Possession of Land
To bring a claim for the recovery of land, the plaintiff does not have to prove he has absolute
title, he only needs show that he has a better title than the defendant. This can be done in
various ways:
1. By showing title. This can be done by either:

Showing a registered Torrens title.

Showing documentation which traces ownership to the original land grant

from the crown.
2. By showing possession. Mere possession of land (even a wrongful one) is
sufficient to maintain an action against anyone in the world except someone
with a better title. If the defendant also has rights arising out of possession,
then:

Prior possession beats later possession.

Except for when the prior possessor is barred from claiming against

an adverse possessor. This will happen when the adverse possessor satisfies all
of the following conditions:

The adverse possessor must be in possession of land as its owner.

The adverse possessor must be exercising the ordinary rights

of ownership.

Both of these factors must be evidenced by the use of the land

(such as building something or cultivating it).

The adverse possessor has done the above for the time prescribed
by law without being challenged by the true owner (currently 12
years).

If the plaintiff successfully proves that his title is superior to the defendant's, he is allowed to
recover the land.
In order to understand the principles governing possession of land (and the remedies to those
who are dispossessed) it is necessary to first understand the legal history of this area of the
law.

The Seisin
In medieval times, 'Seisin' meant a freehold title (when one has seisin, he has ownership).

Having seisin allowed an owner to protect his rights to possession - he could bring
'real' actions (whereby the court allows specific performance and not just
damages).

Leaseholders did not have seisin and therefore could not bring real actions.

To protect the rights of leaseholders, the remedy of 'ejectment' was created.

Today, seisin means having a freehold title and possession.

Ejectment
Ejectment was an action which could be brought by leaseholders against a dispossessor
despite not having seisin. Ironically, the action of ejectment was much more efficient and
speedy in comparison to the complex 'real' actions allowed by the seisin.

Because of this, freeholders (who had seisin) also wanted to use ejectment.

They set up pretend leases just so they can have access to this remedy of
ejectment.

Today, ejectment has been abolished by the Civil Procedure Act 2005 (NSW), s
20. The action for those who have been dispossessed is a claim for possession
of land.

Recovery of the possession of land

The action of ejectment was discussed in McPhail v Persons Unknown:

A court cannot suspend an order for possession against a trespasser.

This is because this would put the owner in a worse position than if he was to
pursue self-help, which would allow him to eject them immediately with
reasonable force. Court actions should be preferable to self-help.

It should be mentioned that a significant aspect of Lord Dennings reasons in McPhail turned
on the Rules of Court RSC O 113 and CCR O 26 (in England). The outcome might well be
different in Australian jurisdictions.

Miscellaneous judgments
The following cases or observations flow on from McPhail:

Selwyn Bibby v Suintra Pratap:

An order may be suspended if owner acquiesces to trespassing in McPhail, the owner did not 'acquiesce' to the defendants trespassing (he
brought an action as soon as he found out). Where the owner allows the squatters
to stay on the land for a few weeks, the squatters may be successful in obtaining
a stay pending further appeal.

Warwick University v de Graff:

No need to identify the squatters - usually, a person has to be identified
before an action can be brought against him. However, in the case of squatters,
the owner does not have to name or identify every squatter to bring an action
against them. For obvious reasons, the courts are lenient with owners.

R v Wandsworth County Court:

Owners can evict anyone squatting on their land, even if not party to
the proceedings.

Hemmings v Stoke Poges Golf Club:

An owner can forcibly enter a premises as long as the degree of force

is reasonably necessary - Forcible entry is usually a crime. However, it cannot
be used as a defence by squatters against landowners when they enter their own
land, unless the land owner uses more force than is reasonably necessary.

Macintosh v Lobel:
s 18 of the Imperial Acts Application Act 1969 (NSW) does not
extinguish the CL remedy of self-help in regaining possession of land with the enactment of the Imperial Acts Application Act 1969 (NSW) (specifically,
ss 18-20), forcible entry became a statutory offence. Despite this, the above rule
regarding forcible entry remains - a landlord is entitled to self-help using
reasonable force.

Adverse possession
Adverse possession is where one occupies another's land with the intention of using it as his
own (ie, taking over someone's land). An adverse possessor can obtain full title (also called a
squatters title) over the land if he satisfies all of the following conditions:
1. The adverse possessor must be in possession of land as its owner.
2. The adverse possessor must be exercising peaceably the ordinary rights of
ownership.

Both of these factors must be evidenced by the use of the land (such as
building something or cultivating it).
3. The adverse possessor has done the above for the time prescribed by law
without being challenged by the true owner (currently 12 years, used to be
20).

Adverse possession, and how an adverse possessor may bring an action for the recovery of
possession of land is discussed in Asher v Whitlock:

Similarly to personal property, mere possession of land is sufficient to maintain an

action against anyone in the world except someone with a better title.

This applies even to adverse possession.

"Possession is good title against all but the true owner".

The concept of adverse possession was also discussed in Doe d Carter v Barnard:

Facts: the titleholder gave possession to his son in 1815. The son occupied the
premises until his death in 1834, upon which time the sons widowed wife
occupied the premises until her ejectment in 1848. The ejector claimed the land
under a mortgage from the titleholder.

Held: since more than 20 years had passed from 1815, the son had adverse
possession. This means that the ejector doesn't have title, but it also means that
the widow can't eject the ejector because she doesn't have title (the title rests
with the son's heir, who was not a party to the proceedings. The widow was only in
adverse possession for 13 years, so title has not moved to her.

Note: This case means that a jus tertii defence exists in relation to land despite the fact that she has possession of the land, the widow was barred from
bringing an action because there is a third party with superior rights (the son's
heir).

However, Doe d Carter v Barnard has been overruled in Australia, by the ruling in Perry v
Clissold:

A jus tertii defence does not apply to land. The existence of a third party with
superior rights has no effects on the ability of a party with only a possessor title to
bring actions against dispossessors.

In other words, an adverse possessor which satisfied the conditions of adverse

possession acquires title and can bring actions against others.

The debate dealing with the defence of a jus tertii is really a debate of what title is necessary
to bring a claim in ejectment/recovery of land (ie, does the existence of someone with a
better title bar one from bringing a claim). This is debate is discussed in the next section.

Relativity of titles
According to the theory of relativity of titles (advanced by Hargreaves), a plaintiff can bring a
claim for the recovery of land as long as he can prove that he has a superior title to that
of the defendant

The theory of relativity of titles is centred around the question of what sort of title
is required to bring a claim to recover land.

In one side (the wrong one) of the debate, Holdsworth argued that one needs to
show absolute ownership - ie, prove that he is the sole owner of the land
through documentation evincing an unbroken chain of ownership, or through
having been in adverse possession for 20 years (now 12).

Note that this view allows the use of a jus tertii defence - as long as a thirdparty has superior rights to the plaintiff, the plaintiff could not sue to recover land.

On the other hand, Hargreaves argued that what Holdsworth wants is very hard
to prove, and rather, titles are relative. Some titles are superior to others, and all
one has to do in order to maintain a claim is to prove that his is superior to his
opponents. The relativity of titles is the accepted position.

Relativity of titles is further discussed in Allen v Roughley:

Unless someone becomes barred by statute or documentation, any form of prior

possession allows him to bring an action in ejectment.

The Torrens system

The significance of the relativity of titles has now diminished because of the introduction of
the Torrens system in Australia.

The Torrens system is the establishment of a register which authoritatively records

who has title in the land.

The purchaser does not need to investigate the title beyond the register, because
the state guarantees the accuracy of the register.

This means that Hargreaves argument of the difficulty of determining true title
becomes less appropriate, since it is now possible to determine the true title with
ease.

However, the relativity of titles continues to apply because disputes may occur
between people who don't have the best title.

The Torrens system now also recognises adverse possession:

Under the Real Property Act 1900 (NSW), Part 6A, a person who satisfied the
requirements of adverse possession may apply to be registered as the proprietor
of that land in the registry of the Torrens system.

Mabo v Queensland (No 2)

The question of possession of land came up in the prolific case, Mabo v Queensland (No
2) (note: there is no need to read the dedicated case page right now, it is covered later on
in Native title):

Possession gives rise to rights, including the right to defend possession or to sell
or to devise the interest. A defendant in possession acquires seisin even if
possession is tortiously acquired.

Thus, all indigenous inhabitants in possession of their land on annexation are

presumed prima facie to have a fee simple estate. The Crown need to prove that it
has a superior title.

However, the Crown did not have a better claim to possession. Their claim of
possession rested on the fallacy of equating annexation with possession. Actually,
annexation only gave rise to radical title. Thus, they did not have possession.

The Crown argued that the Indigenous peoples occupation was by Crown grant in
1882, and they were thus not in possession. There is no documentary evidence to
prove this. Even if there was, this did not abrogate the Indigenous peoples
possession, as they still had enjoyment of the land and it remained with them.

Formalities and contracts for the sale of land

The usual way of transferring property is by purchase. There are different requirements for
the sale of different types of property
Personal property (chattel):

No formal requirement unless purchased on credit. In such a case, governed

by Consumer Credit Code.

Real property (land):

Agreement must be in writing, and signed by the parties: Conveyancing Act

1919 (NSW), s 54A, s 23C.

To be a sufficient agreement, an agreement must include the

description of the (:ANZ v Widin):

Subject matter (ie, the property).

The signature of the parties.

A reference to the transaction.

Documents may be combined together to constitute such an

agreement, so long as the document which is signed by the defendant

party makes a reference to the other document which the plaintiff seeks to
incorporate (it does not need to be signed): ANZ v Widin.
For the purposes of identifying an ambiguity relating to the

combination of these documents, parole evidence (oral) is allowed. However, it

cannot be used to incorporate terms: ANZ v Widin.
Agreement must be made with the use of an approved form: Real Property

Act 1900 (NSW), s 46.

Transfer is only effective once registered: Real Property Act 1900 (NSW), s

41.

An unregistered transfer (ie, contract for sale is made but not

registered) transfers an equitable fee-simple interest to the purchaser. Vendor
still has legal fee-simple interest, but it is held on a constructive trust for the
purchaser (as are any profits made from the property after the purchase): Bunny
Industries v FSW Enterprises
For this to apply, the contract must be capable of specific

performance.

This applies to lease agreement as well (limitations

apply): Walsh v Lonsdale.

The most common method to transfer a proprietary interest is by purchase from the previous
owner. The law in this regard has been codified by legislation; in its absence, equity may
determine the acquisition of an equitable interest in property.
There are different requirements for the sale of different types of property:
Personal property (chattel):

Delivery.

Deed (a document under seal, enforceable even without consideration).

Contract (governed by Sales of Goods Act 1923 (NSW) s 23).

Real property (land):

Under the old system - conveyance (use of a written instrument, usually a

deed).
Under the Torrens system transfer and registration (governed by the Real

Property Act 1900 (NSW), s 41)

The requirements to effect a transfer of property will now be discussed in detail.

Chattel
There are no formal requirements to transfer legal title in chattels (ie, simply to exchange
money and chattel, receive a receipt). However, all states have adopted a Consumer Credit
Code, which governs contracts for the sale of goods, when the chattels are bought on credit.

s 15 stresses the requirement of 'truth in lending'. This operates to restrict credit

providers (lenders) from preying on people, by obliging the credit providers to
disclose all material info (name, amount of credit, interest details, etc).

The code specifies maximum interest rates, and prohibits or caps other fees.

s 66 specifies that if a debtor has a reasonable cause for default (eg, illness) but
could meet modified terms, then they may apply to the credit provider to modify
the agreement.
s 68 specifies that if the parties cannot agree on the modified terms, then the

debtor may apply to the court to order the modifications.

s 70 specifies that a court may re-open any contract that is deemed 'unjust'.

Land
Due to the high value of land transactions, there is frequently a longer time lapse and greater
deliberation in the passing of title. At this stage, it is only necessary to be aware of the formal
requirements.

The main requirement is that sale of land can only be effected through a written
agreement or memorandum signed by both parties (ie, no oral agreements).

Other requirements include:

Interest in land must be transferred by the use of an approved form.

Transfer is only effective once registered. Upon registration, interest passes to

the transferee.

The question of what constitutes a sufficient 'memorandum' or contract is debated in ANZ v

Widin:

A memorandum must include the description of (a) the subject matter, (b) the
signature of the parties and (c) a reference to the transaction.

Documents may be combined together to constitute such a memorandum, so long

as the document which is signed by the defendant party makes a reference to the
other document which the plaintiff seeks to incorporate (it does not need to be
signed).

For the purposes of identifying an ambiguity relating to the combination of these

documents, parole evidence (oral) is allowed. However, it cannot be used to
incorporate terms.

Damage During the In-Between Period

Another topic for debate in this area is what happens if something occurs to the property
between the time of the time of sale and the time of settlement. According to Lysaght v
Edwards, the purchaser is entirely responsible once he acquires the equitable interest
(although the vendor is required to take reasonable care of the property so long as he is still
in possession). The following cases also discussed this issue:

A plaintiff cannot use the vendor's insurance to pay for damages after the vendor
no longer has insurable interest in the land: Ziel Nominees Pty Ltd v VACC
Insurance Co Ltd.

Note, this no longer applies - the Insurance Contracts Act 1984 (Cth), s
50 specifies that the purchaser is deemed to be insured under the vendors
contract of insurance.

Reaffirmation that a vendor has to take reasonable care whilst in

possession: Clarke v Ramuz: (a vendor was liable for damage caused by a
trespasser removing a large quantity of soil after contract made but before
settlement).

Where there is a conditional contract for purchase, the purchaser does not get an
equitable interest until condition is met: Shanahan v Fitzgerald.

The Conveyancing Act 1919 (NSW), ss 66J-66O offers protection in such cases where the
property has been damaged in that in-between period.

s 66K - The risk of damage to land should not pass to the purchaser until the
transaction is completed or until the time stipulated by the parties.

s 66L- In case of substantial damage to property after contract for sale, but before
passing risk to the buyer, the buyer may rescind the contract.

s 66M- If buyer wants to proceed despite the substantial damage, the purchase
price is to be reduced to such an amount as it just and equitable.

s 66N - court allowed to refuse to enforce the contract if it is deemed unfair in the
wake of damage in in the in-between period.

Passing legal interest in land

The requirements for passing a legal interest in land differ on whether the land is subject to
general law or Torrens title.

Torrens title: registration of a duly executed transfer is required to transfer the

legal interest in land.

This is the common way of transferring land today.

Old system: all conveyances or dispositions of legal interest in land (other than
will) must be made by deed. The relevant NSW legislation is the Conveyancing Act
1919 (NSW), ss 14, 23B, 23D (2).

Transfer of Land under the common law (old system)

At common law, a deed was a document that was signed, sealed and delivered. However,
these words are not in themselves indicative of a deed. The correct indication is that it was
intended to be a deed.

The formalities for deed transfer are now regulated by legislation. No particular
form of words is required to render an instrument a deed.

In NSW, the deed must be attested by a third party. All signatures must be
witnessed by the third party.

A deed may be delivered in escrow, in which case it will only take effect upon
satisfaction of a condition. Once delivered it cannot be recalled by the person
executing it, although if the condition on which the deed is to operate is not
performed it will never take effect.

Equitable Title
Whilst there is a requirement that land be conveyed/transferred and registered before title
passes in law, a contract for sale of land which doesn't abide by those standards still has
some effect - it passes equitable title to the purchaser.

The vendor holds the title on a constructive trust for the purchaser.

This gives the purchaser an equitable proprietary interest enforceable against

third parties.

The above principles were stated in Bunny Industries v FSW Enterprises:

Once a contract for sale of land is entered into, the purchaser acquires an
equitable fee simple. The vendor still has the legal fee simple title, but it is held on
a constructive trust for the purchaser.

For this to apply, the contract must be capable of specific performance (ie, if a
court may grant specific performance in such a case).

If the property has been transferred to a third-party, than the profits made by the
vendor (who is the trustee of the purchaser now) off that sale were therefore held
on trust for the purchaser, and belong to the purchaser.

Bunny Enterprises views the vendor-purchaser/mortgagee-mortgagor relationship as

essentially a trustee-beneficiary relationship. This view was contested in Tanwar Enterprises v
Cauchi, butTanwar is not accepted today. In Tanwar, the court held that if the contract is
breached, the vendor can terminate the contract with the natural consequence of the
termination of proprietary rights.

Equitable Leases
The idea that a contract for sale of land transfers an equitable fee simple interest to the
purchaser (before it is made a legal fee simple through registration) also applies to leases.
There are three types of leases:
1. A legal interest is conferred through the use of a deed.

2. A common law lease is conferred by taking possession and paying rent.

3. An agreement to lease confers an equitable leasehold
interest (equitable lease).
The subject of equitable leases, and the equitable transfer of less-than fee simple interests,
was discussed in Walsh v Lonsdale:

An equitable lease, where the court would grant specific performance on the
agreement, should be respected as if it a legal lease.

The lessee acquires an equitable interest in the property, and accordingly, the
lessor acquires some protections in return for that interest.

Limitations on Equitable Leases

Still, equitable leases are not the same as legal leases. The main difference is that they
probably less enforceable than legal leases. The holder of a legal lease would probably
triumph over the holder of an equitable lease (this is disputed in Hunt v Luck).
Another limitation is that although the court may have power to grant specific performance of
an agreement for a lease, it may decline to do so. This often happens in cases where the
tenant may have breached the terms of the agreement. Examples include:

The tenant had failed to carry out agreed repairs.

The tenant had sub-let without the head leases consent.

Example of a case where an equitable lease was distinct from a legal one are:

Chan v Cresdon, where a guarantor under an equitable lease was held to be free
of his guarantee, because the guarantee operated only in respected of a legal
lease.

McMahon v Ambrose:
Facts: Ambrose was under a lease, but assigned it orally to McMahon. When
the lessor was suing Ambrose for failure of payments, Ambrose tried to get
McMahon to indemnify him.

Held: Because the assignment was oral, McMahon was not liable at law to
indemnify Ambrose.

In Foster v Reeves, lower courts which had no equitable jurisdiction were held to be incapable
of enforcing equitable leases. However, this was eroded by later decisions, and reforms in

NSW have granted inferior courts jurisdiction to grant equitable

interests (ie, Foster doesn't apply).
It should be noted that equitable relief is only available where the common law remedy is
inadequate. However, common law remedy of damages are generally considered as
inadequate for breaches of contract for the sale of an interest in land.

Relationship between Law and Equity - History

To gain a proper understanding of the way equity operates today, it is sometimes necessary
to understand the history of equity, before the unification of the courts effected by the
Judicature Acts.

Traditionally, the common law was not allowed to recognise equitable rights and
titles as mentioned above. In the common law courts, the trustee, not the
beneficiary, was the owner of the trust property.

Actions could not be brought for breach of a purely equitable obligation.

There were several notable exceptions to this rule, but they had little effect.
The disadvantages of the separate administration of common law and equity far
outweighed the advantages.

Equity had could not decide disputed legal rights and titles.

Equity could not award damages (only specific performance and injunctions).

Common law courts could not grant interlocutory relief, specific performance,
injunctions or make declarations.

No power existed to transfer cases from one jurisdiction to the other.

The Judicature System Modern Equity

S 25(11) of the Judicature Act provided that wherever the rules of common law and equity
were in conflict, equity would prevail. This was re-enacted in NSW under the Law Reform
(Law and Equity) Act 1972 (NSW), s 6.

The Judicature Act fused only the administration of the principles of common law
and equity, not the principles themselves.

The main features of the judicature system include:

All branches of the court have the power to administer equitable remedies.

Equitable defences can be pleaded in all branches of the court and the
appropriate relief given.

All branches of the court must recognise equitable rights, titles and interests.

All branches of the court have a general power to determine legal rights and titles.

The common injunction is abolished.

Where the rules of equity and the rules of common law conflict, the rules of equity
shall prevail.

Fusion Fallacies
Some judges initially erroneously thought that the judicature act conferred a fusion of
the principles of common law and equity (ie, that the 'bodies of law have merged'), which
was not the case.

This is known as the fusion fallacy the fallacious notion that the fusion of the
administration of common law and equitable principles equates to a fusion of
common law and equitable principles themselves.

A good example of a court falling victim to the fusion fallacy is presented in Walsh v Lonsdale,
where Jessel MR states:

'There are not two estates as there were formerly, one estate at common law by
reason of the payment of the rent from year to year, and an estate in equity under
the agreement. There is only one Court, and the equity rules prevail in it'.

Taken literally, the judgment would remove all distinctions between common law and equity.
This is not the case trusts still exist.

The rules of equity only prevail in case of conflict not upon any consideration.

Decrees of specific performance are not automatic many discretionary factors

need to be taken into consideration.

The equitable estate, thus recognised, endures until the contract on which it is
founded is avoided or dissolved.

Cases in which damages have been awarded against mortgagees found to have breached
their duty to their mortgagors in exercising their power of sale (ie, the award of a common law
remedy for an equitable wrong) have also been categorised as examples of fusion fallacies.

Part Performance
According to the doctrine of part performance, a contract for sale of land which fails to meet
the requirement for written signed contracts (eg, an oral contract) will raise an equitable
title if it has been partly performed. When determining whether part performance applies,
the court examines (: McBride v Sandland):
1. Whether the acts imply the existence of an agreement?
2. If so, what are the terms of the agreement?
In this inquiry, the following requirements must be satisfied (: McBride v Sandland):

The acts relied on must unequivocally, and in their own nature, be referrable to
(indicative of) some agreement of the general nature of that alleged.
This requires that the acts could only have been done for the purposes of

fulfilling the alleged agreement - there can be no other reason why they were
performed.

The party performing the acts must have been doing so in reliance on the
alleged agreement (ie under the assumption that the agreement exists), and the
other party must have permitted the acts to be done also because of the
agreement.

The acts must have been done by a party to the alleged agreement.

The alleged agreement must have been complete.

The acts must have been done in compliance with the terms of the oral
agreement.

If these requirements are satisfied, the court may rule that, since the agreement has been
partly performed, it is binding despite the failure to meet the requirement that a contract for
sale of land must be in writing. This will transfer an equitable title to the purchaser.
Despite the requirement for written signed contracts for the sale of land, contracts that fail to
meet the requirements may still bind the parties in equity under the doctrine of part
performance.

This means that if there is evidence that an oral agreement to sell or lease land
has been partly performed, it may be enforced by the courts.
A quick example of how the doctrine of part performance is applied is the case
of Mason v Clarke:

Facts: An oral agreement to allow hunting rights and profit-aprendre a lessor and
an individual named Mason. The lessee (Clarke) tried to prevent Mason from
exercising these rights on the claim that there was no written agreement.

Held: Although there was no sufficient memorandum for the oral agreement, the
acts done by Mason (preparing and actually hunting rabbits) constituted acts of
part performance. He has thus acquired his relevant interest in the land, and can
take actions the lessee who tried to deprive him of them.

When do acts constitute part performance?

The proper course to determine whether acts of part performance are sufficient to attract the
equitable jurisdiction of the court is set out in McBride v Sandland:
1. Do the acts imply the existence of an agreement?
2. What are the terms of the agreement?

In this inquiry, the following requirements must be satisfied:

The acts relied on must unequivocally, and in their own nature, be referrable to
(indicative of) some agreement of the general nature of that alleged.

This requires that the acts could only have been done for the purposes of
fulfilling the alleged agreement - there can be no other reason why they were
performed.

The partying performing the acts must have been doing so in reliance on the
alleged agreement (ie under the assumption that the agreement exists), and the
other party must have permitted the acts to be done also because of the
agreement.

The acts must have been done by a party to the alleged agreement.

The alleged agreement must have been complete.

The acts must have been done in compliance with the terms of the oral
agreement.

Application
The test set out above in McBride is a pretty narrow approach - Australian courts are more
reluctant in determining that acts constitute part performance.
A good demonstration of the strict approach, and when acts do constitute part performance in
Australia is ANZ v Widin:

'The acts of the bank, seen in this context, lead to the conclusion that they are
unequivocally and in their own nature referable to a contract of the general nature
of that alleged by the bank; namely, that there was an oral agreement between
the bank and the bankrupt that the bankrupt would grant a mortgage to the bank
over the Bellevue Hill property to secure to the bank its right of indemnity. In
rendering itself liable on the bills, the bank altered its position on the faith of the
oral agreement'.

Another example of the strict approach is given in Ogilvie v Ryan:

Facts: Defendant claimed that she had orally agreed with testator that, in return
for her looking after him, shed be able to live in the house for as long as she
wished.

Held: The Defendant's actions of changing house and providing unpaid care were
not unequivocally referable to a promise to give her an interest in land. They were
also consistent with a voluntary association maintained through love and
affection, perhaps with an element of greed.

Part Performance in England

In England, a more liberal approach is adopted when examining whether acts constitute part
performance. This can be seen in Kingswood Estate v Anderson:

Facts: a life tenancy was created pursuant to an oral agreement. The landlord
supplied the tenants a weekly tenant rent book, and eventually gave the tenant
notice to quit as if they had a weekly tenancy. The tenants claimed that they had a
life tenancy according to the oral agreement.

Held: the sole fact of going into possession amounted to part performance. Once
there is some evidence of part performance, it is enough to allow the admission
of parole evidence to prove the exact terms.

And also in Steadman v Steadman:

Facts: a divorcing couple reached an oral settlement (one of the clauses stating
the husband makes a payment to the wife). When the agreement was drafted, the
wife refused to sign. The husband, who already made a payment, claimed part
performance; the wife countered that his acts could not be unequivocally referable
to an agreement of the kind alleged.

Held: the husbands actions of payment to his wife and forwarding the transfer
deed amounted to part performance of the oral agreement.

However, in ANZ v Widin, it was stated by the court that these cases are not followed in
Australia.

Examples of Acts Considered Part Performance

There are some acts which are generally considered good examples of part performance:

Deposit/taking possession of title deeds - a lender would usually take the

borrower's title deeds for security.

Equity views this transaction as effective to create a mortgage.

It sees the deposit as evidence of an agreement to create a mortgage. It is

considered to be part performance by both parties.

Improvements to the property by the lessor at the request of the lessee.

Payment of the purchase price and making improvements.

Taking possession of land.

Examples of Acts Not Considered Part Performance

There are some acts which are generally considered insufficient to constitute part
performance:

For contracts for sale of land, mere payment of purchase money is insufficient.

The making of an application for a planning permission is insufficient.

Estoppel
The principle of estoppel is in place to protect a person against a loss suffered as a result from
a reliance on a promise or representation.
The doctrine of Consideration fails to protect detrimental reliance. As long as there was no
consideration, there was no contract, and thus a person who suffered from a reliance on a
promise will not be able to receive remedies under contract law. Rather, he can seek remedies
in estoppel.

The nature of estoppel by conduct

Estoppel by conduct means an inconsistent conduct by one party that causes or threatens to
cause harm to another as a result of the second partys reliance on that conduct.

Representor party making a representation which induces another party

Relying Party party acting in reliance on the Representors promise

Estoppel will operate when the Relying Party has acted on assumption (or reliance) on a
representation made by the Representor, and will suffer detriment if the Representor will act
inconsistently with his representation.

For example, the Relying Party acts on the assumption that the Representor has
signed/will sign a contract for sale of goods.

He then makes arrangements (incurring expenditure) to transport and store those

goods.

It is then revealed that the Representor has not signed the contract, or will not do
so in the future.

The Relying Part has thus suffered a detriment by relying on a representation

made by the Representor, whose conduct proved to be inconsistent with his
representation.

There are two kinds of estoppel by conduct:

Common Law Estoppel

Common Law Estoppel or representation of fact occurs where the Relying Party acted upon
an assumption of an existing fact.

Namely, the Representor induced the Relying Party to believe he has signed a
contract.

The effect of Common Law Estoppel is to prevent the Representor from denying his
representation when in court. The contractual rights and obligations will be determined as if
the Representors representation was true.

This means that the Representor will be estopped from denying he has signed
the contract. For all intents and purposes, the contract will be deemed as signed,
and therefore enforceable.

Equitable Estoppel
Equitable Estoppel or representation of future conduct occurs where the Relying Party acted
upon an assumption as to the future conduct of the Representor.

Namely, the Representor induced the Relying Party to believe he will sign the
contract in the future.

The effect of Equitable Estoppel is to prevent the Representor from acting inconsistently with
his representation without taking steps to ensure the Relying Party does not suffer detriment
as a result of his inconsistent conduct.

This means the Representor will need to give reasonable notice of its intention to
act inconsistently with the representation, and in the case damages will still be
suffered by the Relying Party, compensate the Relying Party for those damages.

Equitable Estoppel can be divided into Proprietary Estoppel (representation deals with
interest in land) and Promissory Estoppel (all other Equitable Estoppel which doesnt relate
to land).

Proprietary Estoppel
Proprietary Estoppel operates where the Representor is an owner of land who induces the
Relying Party to believe that the Relying Party has or will have an interest in the land.

If the Relying Party then acted to his detriment in reliance of being granted that
interest in the land, the Representor will be required to either make good of that
assumption (give the Relying Party interest in the land) or compensate him
accordingly.

Promissory Estoppel
Promissory Estoppel operates where the Representor induces the Relying Party to believe that
certain contractual rights within their contracts will not be enforced.

If the Relying Party changed his position in reliance on that representation, the
Representor will not be allowed to enforce those rights.

This is a very narrow view of Promissory Estoppel. It has developed over the years:

Central London Property Trust Ltd v High Trees House Ltd:

Revival and broadening of Promissory Estoppel.

Where a Representor makes any representation which affects legal relations,

and that representation was both intended to be acted upon and in fact acted
upon, Promissory Estoppel will prevent the Representor from acting
inconsistently with that representation.

No cause of actions for damages, simply forcing Representor to make

good of his representation.

Requires pre-existing legal contract

Still Only operates as a defence from enforcing certain rights

Waltons Stores (Interstate) Ltd v Maher:

Promissory Estoppel can occur in pre-contractual negotiations no need of

pre-existing legal relationship.

Promissory Estoppel could be used to support a case of action in contract.

Landmark case, departure from the idea that consideration is needed and
reliance does not matter.

History of estoppel fact and future conduct

A decision was made in Jordan v Money that a promise or representation as to future conduct
could only be binding by way of contract this meant that Estoppel was now limited only to
reliance on existing fact and not future conduct.

This decision was made to promote sanctity of bargains and ideals of self-reliance.

This decision continues to apply within the Common-Law. However, Proprietary and
Promissory Estoppel are the two exceptions within equity.

Elements of estoppel
There is no universal agreement on the necessary elements to establish an estoppel.
However, three elements have been established as essential and a further three in some
cases should also be considered.
1. Assumption
2. Inducement
3. Detrimental reliance
4. Reasonableness
5. Unconscionability
6. Departure or threatened departure

Assumption
The Relying Party must have adopted an assumption.
Initially, it was held that it was necessary that the Representor encouraged an assumption
that a legal relationship would ensue. This was discussed in Mobil Oil Australia Ltd v Wellcome
International Pty Ltd:

it is a necessary element of the principle that the defendant has created or

encouraged an assumption that a particular legal relationship or an interest
would arise or be granted

However, this has since been expanded into a broader view, that the creation of an
assumption of a promise to be performed also satisfies the assumption element. This was
established in Austotel v Franklins Selfserve, and later held in W v G.
In conclusion, it is now not necessary that the defendant has created or encouraged an
assumption that a particular legal relationship would arise.

Inducement
The assumption adopted by the Relying Party must have been induced by the conduct of the
Representor.

Express inducement is not required. Implied promises to complete a contract will

constitute inducement

Waltons Stores (Interstate) Ltd v Maher

An estoppel can only arise from a clear or unequivocal promise or representation

Legione v Hateley

This is inconsistent with later decisions. High Court does not require
clear or unequivocal promises.

Preferred approach is to ask whether the Relying Party was induced to adopt an
assumption as to the future conduct of the Representor, rather than whether an
equivocal promise or representation

Murphy v Overton Investments Pty Ltd

Detrimental reliance
The relying party must have acted on the assumption in such a way that he or she will suffer
detriment if the Representor is allowed to depart from the assumption.
There are two types of loss:
1. Expectation loss - loss of the benefit the Relying Party expected to receive.
2. Reliance loss - loss suffered because of reliance on the assumption when the
Representor acts inconsistently with it.
In Australia, it is held that the Relying Party must have suffered a Reliance loss in order to
establish estoppel.

Types of detrimental reliance

There are different forms of detrimental reliance:

Expenditure of money (usually on improvements to land or in preparation for a

contract)

The entrance into a contract may prove a detrimental loss when the Representor
acts inconsistently (i.e. exclusivity agreement)

Expenditure of time or energy (i.e. painting a house, domestic services)

Inactivity resulting in the loss of an opportunity to gain a benefit (not using an

option/contractual right because relying on representation)

Inactivity wont count when the Relying Party couldnt have done anything
anyway

Detriment does not have to be financial. However it needs to be affirmatively

demonstrated. (Commonwealth v Verwayen)

Relying Partys circumstances

Whether an action is detrimental depends on the Relying Partys circumstance. A promissory
Estoppel could only arise if the Relying Party has altered its position on the faith of the
representation, and would suffer a detriment if the Representor would be allowed to assert his
original rights.
Sometimes the Relying Partys financial situation may play a role in whether they suffered a
detriment or not. Detriment will be assessed at the time that the Representor seeks to go
back on his representation. (Je Maintiendrai Pty Ltd v Quaglia)

Detriment must be material

Detriment suffered must be material, significant, or substantial. This is discussed
in Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd:

There is a clear distinction between the minimalistic valuable requirement for

consideration and the more substantial material requirement for detrimental
reliance.

This is because estoppels lack the bargain element (or the acceptance and
mutuality)

Rather, the detriment itself needs to justify the imposition of obligations

Thus, it needs to be substantial.

However, it should be noted that there is no requirement that the detriment has already been
suffered by the time the estoppel is sought. The prospect of a future detriment is sufficient.

Reasonableness
The scope of Estoppel is limited by the mechanism of reasonableness. The reasonableness
requirement is concerned with whether the Relying Party deserves protection. It is broken
into two parts:
1. Reasonableness of the assumption

Depends on the nature of the assumption, the conduct of the Representor

that induced the assumption, and the relationship between the parties.

Murphy v Overton Investments Pty Ltd.

2. Reasonableness of the action taken

This depends on the nature of the action taken by the Relying party, in the
context of the relationship between the parties and the other
circumstances of the case.

The Reasonableness inquiry

1. The type of conduct engaged in by the Representor
2. The nature of the assumption itself
3. Identity of the Representor
4. The context in which the assumption is induced
5. Whether the Representor encourages or knows of the reliance
6. Nature of the relationship between the parties.

Unconscionable conduct
The scope of Estoppel is also limited by the mechanism of unconscionableness. The
requirement of unconscionable conduct is concerned with whether the Representor deserves
blame.
Essentially, estoppel is sometimes seen as about stopping or granting relief for
unconscionable conduct. It is therefore sometimes seen as a positive requirement rather than
just a justification for granting relief. This was held in Silovi Pty Ltd v Barbaro.

Unconscionable conduct is identified through an examination of the role of the Representor in

inducing the adoption of an assumption, his knowledge of this assumption being adopted,
and his intention to induce reliance.
However, reasonableness is also considered. The courts hold that it is not unconscionable to
depart from an assumption which has unreasonably been adopted or relied upon.

Departure or threatened departure

Traditionally, it has been held that estoppel will only arise if the Representor departs or
threatens to depart from the assumption. It is this departure which constitutes the
unconscionable conduct.
However, there has been case law supporting the view that estoppel can come into effect
even before the departure, once an assumption has been induced and reasonably been relied
upon (to detriment).

Effects/Reliefs of estoppel
Common Law Estoppel
The effect of Common-Law Estoppel is to prevent the Representor from departing from the
representation/denying it. The rights of the parties are determined as if the representation
was true by reference to the assumed or represented state of affairs.
Common-Law Estoppel may be used both defensively and offensively:

Defensively: stops Representor from enforcing contractual rights, denies causes of

action

Aggressively: puts contract into effect, allows causes of action

Equitable Estoppel
Satisfying the equity
The effect of Equitable Estoppel is to raise equity in favour of the Relying Party. Equity in this
context means an entitlement to some equitable relief.

Reliance interest and expectation interest

The interests of the Relying Party can be seen as twofold:

Reliance interest:

Protection from harm resulting from his reliance on a representation

Protected through monetary compensation

Expectation interest:

Receiving the benefit he expected to receive or was led to believe that he had.

Protected through enforcing the promise through specific performance or

monetary compensation instead.

It is true that these interests usually overlap, and the protection of the expectation interest
will ensure the protection of the reliance interest since the Relying Party will receive the
benefit it was counting on when suffering the detriment.

Development of the approach

The remedy to Equitable Estoppel was initially held to be the minimum equity to do justice to
the plaintiff.
In Waltons Stores (Interstate) Ltd v Maher, the courts adopted a reliance interest based
approach the minimum necessary to prevent the detriment suffered by the Relying Party.
This means that the enforcement of promises was not available.
This was questioned in Commonwealth v Verwayen, where there was an opinion that
expected interest should be protected, and the enforcement of promises should be the
remedy available in order to fulfil the equity.
Finally, in Giumelli v Giumelli, it was accepted by the majority of the High Court that the
judgment in Commonwealth v Verwayen indicated a flexibility of the remedies available in the
case of Equitable Estoppel - the Relying Party has a prima facie (at first sight) right to relief
based on the assumed state of affairs, or in other words, to make-good or enforce the
promise made.

Recognises expectation interest

Where specific performance appears inappropriate, compensation will be

calculated as per the expectation interest.

Current approach - conclusion

The usual remedy for Equitable Estoppel is to ensure that the Representor makes good of the
representation. However, this remedy is sometimes substituted for monetary compensation
when:

It might be impossible, impracticable or inappropriate to enforce the promise (fulfil

the expectation of the Relying Party) expectation of the Relying Party may be

indefinite, a clean break between the parties is required or the enforcement of the
assumption may cause detriment to a third party

Principle of justice the minimum equity requirement, if the enforcement of the

promise would end up being inequitably harsh, unjust to the estopped party, or
would exceed what could be justified by the requirement of conscientious
conduct

That being said, the courts usually enforce the promise. This is because it is usually hard to
quantify the detriment with precision and replace it with a monetary compensation. McHugh J
noted in Commonwealth v Verwayen: Often the only way to prevent the promisee suffering
detriment will be to enforce the promise.
However, the minimum equity principle does play an important role in at least
three scenarios:
1. Where the detriment can be quantified accurately
2. When the detriment cannot be quantified, however it would be
disproportionate to the expected benefit.
3. When detriment can be prevented by other means.

Cause of Action
There is a question as to whether estoppel can create independently enforceable rights or
whether it can only be relied upon when it supports another cause of action, such as actions
in contract or tort law. In Commonwealth v Verwayen, there are conflicting opinions both
against estoppel as a cause of action (Deane J) and for it (Brennan & McHugh JJ).
There are three reasons why estoppel has been accepted an independent cause of action.
1. Previous cases - Equitable Estoppel has been accepted as a cause of action
frequently by the courts already.
2. Future conduct - Since Equitable Estoppel is not confined to assumptions of
fact (also extends to future conduct), it logically cannot simply establish an
assumed state of affairs.
3. Remedial flexibility - the discretion exercised by the court in granting relief
entails that it is the estoppel itself to which the court is giving effect.
These three reasons will be explained further below:

Previous acceptance of Estoppel as a cause of action

The leading examples of cases in which estoppel itself was the cause of action are proprietary
estoppel cases, where the Relying Parties were able to claim their interests solely on the basis
of their reliance on the assumption. There has been an artificial attempt to rationalise these
cases as actions for breach of trust by Deane J in Commonwealth v Verwayen, but this is not
supported by the other numerous cases in which proprietary estoppel constituted a cause of
action.
Since the unification of Proprietary and Promissory Estoppel in Waltons Stores (Interstate) Ltd
v Maher, it follows that both can serve as a cause of action. Equitable Estoppel has since
been accepted as a cause of action by the Supreme Court even in cases which did not
involve Proprietary Estoppel. This is exemplified by the decision in W v G.

Estoppels arising from future conduct

Those who oppose Estoppel as a cause of action contend that the effect of estoppel is simply
to prevent the Representor from denying the assumed state of affairs. However, an Estoppel
arising from reliance on an assumption as to future conduct cant logically prevent the
denial of an assumed state of affairs it must create rights. For example:

A promises to transfer a car to B but fails to do so.

The court cant logically prevent A from denying he transferred the car this
makes no sense.

Rather, the court either orders A to transfer the car or to provide monetary
compensation to B.

Thus, the estoppel is an independent source of rights, and a cause of action.

Remedial flexibility
If estoppel was simply a support to another cause of action, then the remedies provided
would be generated according to that cause of action. However, estoppel has its own remedy
and therefore is its own cause of action. Examples:

Waltons Stores (Interstate) Ltd v Maher - remedy generated according to estoppel

rather than breach of contract.

Commonwealth v Verwayen, Giumelli v Giumelli - Court recognised that the court

exercises discretion in giving effect to equitable estoppel. The discretion means
that it is the estoppel which generates the remedy.

Estoppel and contract law

The principle of Equitable Estoppel is not a part of contract law, and is not contractual in
nature. In Giumelli v Giumelli the court gave three reasons why Equitable Estoppel does not
undermine the law of contract, even without a strict reliance-interest based approach:
1. Courts discretion means that consideration is not being undermined breach
of contract gives rise to compensatory damages, Equitable Estoppel merely
gives rise to equity in favour of the Relying Party.
2. In contract, obligation is derived from the promise of the Promisor. Estoppel is
concerned with the assumption or expectation of the Relying Party (Promisee).
3. Estoppel doesnt arise because of an unperformed promise, but the
detrimental reliance.
Thus, the courts see Estoppel as a form of obligation which operates alongside contract
distinguishable in the determination of questions of liability and remedy. It is often pleaded as
an alternative to contract.

Estoppel in formation (pre-contract negotiations)

Estoppel may play a part in negotiations to enter into a contract and contract formation.
Examples include:

Representor induces the Relying Party to believe an offer will not be revoked, and
the Relying Party suffered a detriment in reliance on this assumption.

In Australian law, this offer will not become irrevocable. However, it will raise
equity, which may be satisfied through other relief.

Waltons Stores (Interstate) Ltd v Maher:

Common-Law Estoppel brings contract into effect.

Equitable Estoppel raises equity, which may be given effect by enforcing the
contract.

However, it is sometimes hard to establish Estoppel in pre-contract negotiations, for two

reasons:
1. Parties should reasonably expect that they cannot rely on representations until
a contract has been formally concluded.
2. Courts are reluctant to find an estoppel arising unless all terms have been
settled.

These problems are demonstrated in Austotel v Franklins Selfserve.

Privity (Estoppel)
Estoppel can be raised when a contractual right has been denied because of the privity rule.

A non-party who has been led to believe that they are a party (or will receive a
benefit under the contract) may be able to establish an estoppel

A Representor who is a non-party will become liable against estoppel if he induced

a Relying Party to believe he will abide by the terms of the contract.

Of course, the estoppel will only be raised if the Relying Party acted to its detriment on the
faith of this assumption as per the usual laws of estoppel.

Formalities
Equitable estoppel may also provide relief where a contract is unenforceable because it fails
to comply with formal requirements laid down by statute.

Contract Variations
Estoppel often operates when a Representor induces the Relying Party to believe that a
contract has or will be varied, or that a certain term will not be enforced.

Pre-contractual variations
Sometimes, a party only enters a contract under the assumption that a particular term will
not be strictly enforced (or be interpreted in a particular way), and will suffer detriment of the
other party is able to enforce the contract as per the written terms. In such a case, an
Equitable Estoppel will arise. For example, Anaconda Nickel Ltd v Edensor Nominees Pty Ltd.

Estoppel by convention
Estoppel by convention holds parties to the assumed facts agreed upon for the purposes of
the transaction in question. The estoppel may operate by virtue of an express term of a
contract (which indicates they take certain facts to be true), or sometimes merely on the
basis of a common assumption which has been adopted as to the factual basis of the
contract.

The parole evidence clause

The parole evidence rule prevents the admission of evidence that subtracts from, adds to,
varies or contradicts the terms of the written document. The parole evidence rule is justified
accordingly:

1. All discussion of terms during the negotiation state should be treated as

superseded by the written agreement.
2. A written agreement that appears to be final and complete should be granted
special status so that parties can regard it as secure and certain.
3. An investigation into what the parties have agreed or intended during
negotiations is often time consuming and inconclusive.
There is a debate whether this rule extends to the establishment of Estoppel in precontractual negotiations. Obviously, if external evidence cannot be taken into account, it is
very hard to establish Estoppel in pre-contractual variations.
The general rule is that external evidence of pre-contractual negotiations will not be taken
into account. This was established by the courts in decision such as Johnson Matthey Ltd v AC
Rochester Overseas Corp and Skywest Aviation Pty Ltd v Commonwealth.
However, if the external evidence is supported by clear and convincing proof, it can be
used and Estoppel can be established. This was decided in Whittet v State Bank of New South
Wales.

Entire agreement clauses

An entire contract clause provides that the written contract constitutes the entire agreement
between the parties, and that no promises or representations have been relied on.
An entire agreement clause thus prevents the establishment of an Estoppel by creating
Estoppel against the Relying Party.

A Relying Party, who has entered into the contract based on an assumption
induced by the Representor, is estopped from claiming it was relying on an
assumption, by virtue of the entire agreement clause.

Post-contractual variations (breach of contract as detriment)

Post-contract variations often involve a situation in which the Representor undertakes an
additional obligation or releases the Relying Party from a contractual right without receiving
anything in return. In Estoppel, the crucial issue is whether the Relying Party has acted on the
Representors promise in such a way that it a detriment if the Representor does not adhere to
the promise.
In these cases, it is possible that a Relying Party is better off breaching the contract and
paying damages instead of performing the contract. The question is then asked, whether the
Relying Party can claim to have suffered a detriment by performing the contract (in reliance
on the representation) rather than breached the contract and paid damages.

However, since breaching a contract is an unlawful act, a party is not entitled to breach it,
even on offering to pay damages. Therefore, there is no such thing as the opportunity to
breach the contract, and a party cannot claim to have suffered a detriment for forfeiting it.
This was established in Coulls v Bagots Executor and Trustee Co Ltd.

Termination of contracts (estoppel)

Estoppel with relation to post-contractual variations can apply to termination too. This means
that if the Representor induced the Relying Party to believe that he will not exercise his right
to terminate, and the Relying Party acts to his detriment on the faith of that assumption, the
Representor will be estopped from terminating the contract.

Estoppel as an alternative to contract

In Australia, Estoppel cannot be established if the reliance was made on an enforceable
contractual promise (that is, if the promise was legally binding within a legally binding
agreement). If a promise has been given valid consideration for, then there is a contract and
no Estoppel. There are two reasons for this:
1. A Relying Party cannot claim to have suffered a detriment if he now has an
enforceable contractual right.
2. Equity is a supplement to the Common-Law. If the Common-Law can supply a
remedy through contract, there is no reason for equity to intervene.
Thus, Estoppel comes in when no remedy can be given through contract.

Estoppel and misrepresentation

Estoppel is different from the principles of misrepresentation and the statutory prohibition on
misleading or deceptive conduct.
Estoppel is concerned with inconsistent conduct. Accordingly, Estoppel will only arise in a
case of a misrepresentation when there is harm caused from an attempt by the Representor
to depart from the assumption.

Why protect reliance?

The reason behind protecting reliance is that it is unconscionable for a Representor to act
inconsistently with an assumption which they have induced the Relying Party to rely upon.

It has also been said that reliance shows that the promise was serious, and
Estoppel is a way to enforce serious promises.

A third explanation is that estoppel is essentially concerned with protecting

against harm. This view sees estoppel as analogous to tort.

However, the courts tendency towards granting expectation-interest relief

weakens the power of the latter two arguments, which would favour relianceinterest based relief.

Other suggestions are that Estoppel provides is a deterrent against harm caused by
detrimental reliance on promises. The protection provided by Estoppels also encourages
efficient reliance on promises.
Promissory estoppel is justified because it encourages beneficial reliance on promises by
providing protection against the harm that can result from reliance.

How should reliance be protected?

Promise, unconscionability and reliance
These three theories (which underpin the principle of Estoppel) point as to how Estoppel
should operate:
1. Promise: the relief granted in Estoppel is usually the enforcement of the
promise
2. Unconscionability: an essential element
3. Detrimental Reliance: limiting test for the determination of liability

Economic efficiency
Economic efficiency is also used by commentators as a guide with regards to how Estoppel
should operate.

One argument is that economic efficiency justifies only the enforcement of

promises that further economic activity.

Another opinion is that liability should be imposed on the party who is best placed
to ensure that reliance occurs at the optimum time, in order to balance the
benefits of early planning against the pitfalls of relying too early.

Proprietary estoppel
Proprietary estoppel will operate to restrict the unconscionable assertion of legal title. It
is based on the inducement of an assumption by the legal title holder, which leads to the
relying party suffering detrimental reliance. For proprietary estoppel to arise, the following
conditions must be fulfilled (: Inwards v Baker):

1. The legal title owner must have requested or allowed the relying party
to expend money on the land;
2. The legal title owner must have created or encouraged an assumption that
the relying party would be entitled to remain in the land; and
3. The relying party must have suffered a detriment from relying on this
assumption.
There is clearly some overlap between proprietary estoppel and constructive trusts, as they
are both based on the notion of the unconscionable assertion of legal title.

Constructive trusts are a more severe form of remedy, and should be used
sparingly. Equity is supposed to do the minimum necessary to achieve
fairness: Crabb v Arun District Council

Thus, if proprietary estoppel is enough, there is no reason to use constructive

trusts: Inwards v Baker.

Proprietary estoppel seeks to prevent a party from unconscionably asserting legal rights over
property. It does not require a contract to be in place, and usually arises when the legal title
holder induced a belief in other party (which caused detrimental reliance).

Note that the doctrine of proprietary estoppel operates on a similar basis to

the constructive trust - the concept of unconscionability underpins both concepts.

The distinction is not clear. They are often argued as alternate grounds.

Proprietary estoppel was discussed in Inwards v Baker:

If the owner of land requests or allows another to expend money on the land
under an expectation created by the landlord that he will be able to remain there,
that raises an equity in the licensee such as to entitle him to stay.

A court should use proprietary estoppel rather than impose a constructive trust if
the situation doesn't necessitate such an extreme remedy as a constructive trust.

This was also discussed in Dillwyn v Llewelyn.

Facts: A father signed a memorandum letting his son could build a house on his
farm which the son did. He forgot to include that house in the will, and the son
sought conveyance of that house to him.

Held: if a donee relies upon a donors promise with the donors knowledge,
expending money in furtherance, the donee acquires a right to call upon the donor
to complete the imperfect donation. The son was just given a life estate, but a fee
simple.

The Inwards v Baker principle has been approved in Australia in Olsson v Dyson, although it
was not actually put to use there:

Facts: a husband had not satisfied the legal requirements for assigning a debt,
owed to him, to his wife before his death. The widow argued that she had not
taken certain money in reliance on the assignment, and therefore the Inwards v
Baker principle applied.

Held: The High Court recognised the principle as a part of Australian law, but
refused to apply it in this case. There was no evidence that the husband thought
the wife would not take money in reliance on the assignment. Further, she could
not establish that she acted in detrimental reliance on her expectation of the
effectiveness of the gift. Thus, the High Court decided against her.

Lastly, proprietary estoppel was discussed in Crabb v Arun District Council:

By erecting the gates and failing to correct his belief, the Defendants encouraged
the Plaintiff to act to his detriment in selling part of his land without reservation
over it, giving rise to an equity in the Plaintiffs favour.

Equitable estoppel
Equitable estoppel used to be split up into different forms (eg, promissory
estoppel and proprietary Estoppel). These were all merged into 'equitable estoppel' in the
prolific case Waltons Stores (Interstate) Ltd v Maher:

Considering both proprietary and promissory estoppel are based the

unconscionability of encouraging an assumption and that departing from it to the
detriment of another, they are now merged.

Estoppel is based on unconscionability and it must be proved.

When is conduct unconscionable? when an assumption was created, and, because

of reasonable reliance on that assumption, the relying party has suffered a
detriment (eg, by entering a contract, by not entering a contract etc).

These issues were also discussed in Austotel v Franklins Self-Serve:

Facts: Austotel was constructing a supermarket as per Franklin's instructions, but

they still couldn't agree on the price even when it was underway. Austotel finally
decided to lease it to someone else, and Franklins suffered a detriment because
they passed up other opportunities meanwhile.

Held: equitable estoppel is less likely to operate in a purely commercial

transaction, where both parties are two well-resourced commercial entities. This
was a case of hard-headed business decisions, and the court should not intervene
(ie, Franklin lost out because of their business decision not to compromise).

Despite the decision in Austotel against equitable estoppel in commercial situations, the court
showed in S & E Promotions v Tobin Brothers that it may still operate in some commercial
contexts (it did not address the issue directly or set any principles). Some other quick
examples of equitable estoppel are as follows:

In Angelopoulos v Sabatino, a plaintiff who made improvements to a hotel, while

negotiating for a lease, was entitled to restitution for the value of his work.

In Blazeley v Whiley, W moved onto Bs property and, based on Bs statements,

expected to purchase. W paid instalments on a bank loan and paid B for rent.
The court held there was no contract, but gave an equitable remedy.

In Tavita v Sovereign State of New Guinea, a landlord made oral representations

that surrender of a lease would be accepted in certain circumstances, but it was
impossible at law. The court nonetheless estopped the landlord from denying that
the lease had ended.

Remedies to Equitable estoppel

The remedies of equitable estoppel were discussed in the prolific case Commonwealth v
Verwayen:

Traditionally, the remedies of estoppel were aimed at making good of the

representation ('estopping' the party from departing from the promise).

However, equitable estoppel is aimed simply at avoiding the detriment, in

whatever way.

As mentioned previously, the minimum is done in order to achieve fairness

(minimal detriment).

The Problem with Minimal Detriment

The concept of minimal detriment has been mentioned a couple of time before but not in that
name - it is the principle that, when applying an equitable remedy, the court should apply the
minimal remedy necessary to achieve fairness or to avoid detriment.

This principle arises because, whilst the notion of equitable estoppel rests
on unconscionablility, it would sometimes be unconscionable to order specific
performance or such big equitable remedies in the scenario.

For example, where a person told another that he can have his million dollar
property, and the person expends a few hundred dollars fencing it.

Clearly, whilst the action of the first person was unconscionable and it brought
about loss to the other, it would be even more unconscionable to compensate the
expenditure of a few hundred dollars with a million dollar property.

In Verwayen, Deane J correctly noted that equity is a tool of flexibility, and it would
defeat its purpose if it were used to become an instrument of injustice and
oppression. Whilst the 'normal' remedy of estoppel is to 'estopp' rather than to
provide compensation, some cases call for the operation of the minimum of
equity idea (in the form of equitable compensation etc).

Interestingly though, Deane J still noted that 'estopping' is still the normal

These issues were discussed in Commonwealth v Clark:

The court estopped the Commonwealth from resiling on the agreement, because it
was deemed the normal function and the best possible way to avoid a
detriment (which Verwayen identify as the role of equitable estoppel).

In doing so, the court refused to define minimum equity.

The principle of minimal detriment was applied in Yeomans Row Management v Cobbe:

Facts: A property developed was encouraged to secure planning permission (at

great personal expense) on the basis of an expectation induced by the landowner
that he would be granted an interest in the property.

Held: the property developer was entitled to half the increase in value of the land
attributable to the grant of a permission.

Finally, these issues, and in particular Deanje J's discussion and the discretion of the court to
mold a suitable form of equitable relief, were discussed in Giumelli v Giumelli:

Facts: through a familial arrangement, Robert Giumelli was allotted a quarter

share in the family land to build a house. The family did not get on well, and
Robert was refused his land. He sued in estoppel, arguing that he acted to his
detriment in not going out into the real world, staying on the farm and performing
services for his parents.

Held: Before a constructive trust is imposed, the court should first decide whether,
having regard to the issues in the litigation, there is an appropriate equitable
remedy, which falls short of the imposition of a trust.

In this case, the family claimed that the Full Court should not have granted
relief going beyond the reversal of the detriment suffered, relying on Verwayen.
However, the court here said that sometimes the remedy is calculated according
to the expectation of the party and not just the detriment suffered. The court left
this fairly open, and said that different scenarios require different remedies.

Agency
Capacity required of principal and agent

Principal must have legal capacity to perform the act which he is performing through
an agent.

Whatever a person has capacity to do himself he may do by an agent

Infant can appoint an agent to do an act on his behalf which the infant could lawfully
do himself

A corporation has the capacity and powers of an individual

An agent does not need contractual capacity himself to act as the agent for another

Agents may be required to have certain qualifications or licences (solicitors, real

estate agent) and there may be restrictions which apply in acting as an agent. If this

occurs, the conduct will be unlawful and the solicitor/agent may incur statutory
penalty but the agents act will not be invalid.

The sources of an agents authority

There are a number of ways in which authority may be granted and an agency created:
1. P may expressly grant to A authority to do a particular act
2. The relationship between P and A may be such that P impliedly authorises A to do a
particular act: actual authority which is implied (as distinct from express)
3. By operation of law
4. By operation of statute
5. By ratification
Agency requires the consent, express or implied, of the principal and of the agent.

Actual authority
Actual express authority

May be conferred in writing or by words

May take the form of a written or oral contract, or a power of attorney or a scribble on
a piece of paper

If an agency has arisen by way of a contract then the scope of the agents authority
will be determined by construing the terms of the contract

It is prudent when addressing the issue of authority first to ask whether there is
actual, express authority

Actual implied authority

Actual implied authority may arise in a number of ways:
1. The act performed by the agent is necessarily or normally incidental to the acts
expressed authorised incidental authority
2. The act is one which the agent of the type concerned would usually have authority to
do usual authority
3. The act is in accordance with reasonable business practice applicable to the particular
transaction customary authority
4. Authority may also be implied from the conduct of the parties and the circumstances
of the case important if parties have a history of dealings between them

Actual implied authority in an agent to enter a particular transaction cannot exist where there
are express directions from the principle to the agent to the contrary.

Ostensible authority
Ostensible authority does not result directly from the consent of the principal, express or
implied, to the agent, but from the words or conduct of the principal towards a third party. It
involves the principal intentionally or negligently holding out (or representing) another to be
his agent. The words or conduct of the principal lead a third party to believe that the agent is
authorised when, in reality, the agent has no authority at all or the agent has exceeded his
authority. Where the third party acts to his detriment in reliance upon the holding out, the
principal will be bound notwithstanding the fact that the agent had no actual authority to
perform the act.

Ostensible authority arises where a person represents to a third party by words or

conduct that another is his agent

Extent of ostensible authority will depend upon the width of the representation made.
If the agent knows of an actual limitation of authority in the agent, there can be no
ostensible authority because the third party will not have relied upon the
representation

Principle underlying ostensible authority is estoppel: Freeman & Lockyer, Pacific

Carriers Ltd. Purpose of the ostensible authority concept is to remedy the injustice
that would flow if one person who represented another to be his or her agent were
able to resile from that representation. Contracting parties should also be held to the
objective appearances of intention they create: Reynolds

If the principal has defined with the agent the extent of that which the agent has
authority to do, this will not stand in the way of ostensible authority, it is irrelevant
that the extent of the authority represented to the third party conflicts with an actual
limitation of authority placed upon the agent where the principal knows that the agent
was acting as though their authority was unlimited

If a particular act is within the usual authority of a person occupying a particular

position, it is assumed that they have that authority

If a transaction is within the ostensible authority of the agent then it is irrelevant that
the agents purpose was to act for his own benefit and to defraud the principal unless
the third party had notice

This form of authority can be difficult at times to distinguish from actual implied authority,
particularly where the basis of the representation alleged is the conduct of the principal in
acquiescing to a particular course of dealing by the agent.

The elements of ostensible authority

1. A representation by the principal to the third party that the agent has the principals
authority to do a certain act
2. Reliance upon that representation by the third party
3. Detriment suffered by the third party as a consequence of such reliance

Representation by the principal

Issues that commonly arise:

The manner in which the representation was made: representation can be made by
words or conduct, may be made by the principal appointing the agent to a particular
position known to the third party or describing the agent in a particular way, course of
dealings between third party and principal, or by the principal standing by mute while
someone deals with a third party apparently on behalf of the principal. A
representation of ostensible authority will often flow from the principal equipping an
officer with a certain title, status and facilities: Pacific Carriers. The representation
itself must be fairly narrowly focused, must be directed to a particular person or class
of people

What conduct can constitute a representation of authority: a representation made

directly to the third party constitutes evidence of actual authority: International Paper
Co v Spicer, it may also form the basis for a representation as to ostensible authority.
If the communication of authority is not made directly to the third party then the issue
is whether the principal so conducted himself as to enable the agent to hold himself
out to be the principals agent.

Entrusting indicia of title to an agent does not itself create any ostensible
authority to dispose of or mortgage the land, neither does it prevent the true
owner from denying the supposed agents authority to do so, Egan v Ross:
held that principal had been negligent in giving signed memoranda in blank to
his agent

Possession of property for the purposes of sale whether a third party who
purchases goods in good faith from an agent should get good title
notwithstanding that the agent lacked express authority form the owner to
sell the property to the third party, mere possession of the property of another
will not in the event of a sale to a third party, divest the owner of his rights
against the third party. However, different if property is held for the purposes
of sale

Occupancy of a particular position if a person holds a position which would

usually entitle a person holding that position to do certain acts on behalf of the
principal, the third party is entitled to assume that the agent had that
authority: Robinson v Tyson

Within the ordinary scope of business or custom of the particular agent if it

can be shown that it is customary for an agent to do certain things within the
ordinary course of his or her business then this will provide the foundation for
the agents ostensible authority

Provision in articles authorising delegation of a power to an officer acting on

behalf of the company whether a third person dealing with a company could
rely on a provision in the companys articles of association which authorised
delegation of a power to the relevant officer acting on behalf of the company
when the third party was unaware of the provision was historically a matter of
controversy

Who can make the representation

To whom must the representation be made

Crabtree-Vickers Pty Ltd v Australian Direct Mail

Advertising & Addressing Co Pty Ltd

There was a breach of contract

Peter McWilliam (PM) was not an actual agent, there was no express delegation of
authority and no implied authority

No previous pattern of conduct

Question: does PM have ostensible authority?

Bruce Jnr (BJ) had ostensible authority because he was designated as managing
director

Can BJ confer actual or ostensible authority to PM? No, because only actual authority
can do that, ostensible authority cannot confer

Therefore contract was unenforceable against the company

Situating Equitable Estoppel within the Law of

Obligation Andrew Robertson

The central thesis of this article is that equitable estoppel is, and should be, a doctrine
which is organised around the concept of detrimental reliance and which is part of the
law of wrongs. The doctrine stems from a duty to prevent harm resulting from reliance
on one's conduct. A person who breaches that duty commits an equitable wrong.

Plaintiff from suffering loss as a result of his or her reliance or which compensates the
plaintiff for such loss. Equitable estoppel can, therefore, be seen as a reliance-based
doctrine which is properly situated within the equitable branch of the law of civil
wrongs

Historical Theories
Classical Contract Theory: Theory of Consideration does not take into
account Estoppel (Unbargained-for representation)

It is well accepted that the general common law principles of promise enforcement
through contract in existence today were mainly developed in the 19th century, under
the influence of free market economics and the philosophy of individualism. The
moral, political and social context in which modem contract law developed favoured
individualism and free will over government intervention and reliance on others.
Perhaps the most significant of the principles of contract law developed in the 19th
century was the bargain theory of consideration, which holds that a promise will
only give rise to contractual obligations if the promisee has provided a benefit or
suffered a detriment which can properly be regarded as the agreed price of the
promise. That theory of consideration denies any contractual obligations arising out of
detrimental reliance upon promises where such detrimental reliance cannot be seen
as the agreed price of the promise (no estoppel provision).

Why Bargain Theory of Consideration did not include Estoppel:

Greig and Davis have suggested that "[t]he Victorian age saw itself as the age of selfreliance. The logic of classical contract law required that reliance could never be
reasonable, and accordingly could never be actionable, unless the promisee had
actually concluded a bargain with the promisor by giving something in exchange for
the promise. For much of the 19th century, reliance was protected only "as part of the
general protection of expectations which was accorded by recognition of the executory
contract." Unbargained-for reliance, therefore, went largely unprotected.

Equitable Jurisdiction Existed in the case of unbargained-for reliance

While the law of contract failed to protect unbargained-for reliance on promises or

representations as to future conduct, the equitable jurisdiction to make good
representations provided a means by which such reliance could have been protected.
Equity was, however, subject to the same philosophical and economic influences as
the common law in the latter half of the 19th century.
First, the House of Lords in Maunsell v Hedges limited the jurisdiction to the
enforcement of contractual representations.
Secondly, in Jorden v Money, 23 a majority of the House of Lords held that a promise
or representation as to future conduct which was acted upon by the promisee could
not be binding except by way of contract. In other words, estoppel at common law and
in equity was limited to representations of existing fact.
Thirdly, in Willmott v Barber25 Fry J laid down five restrictive probanda for establishing
estoppel by acquiescence, including the requirement that the plaintiff had to act under
a mistake as to his or her legal rights in order to obtain relief.

Death of Contract Theory

The second important historical perspective on estoppel is that provided by members

of the "death of contract" school, who suggested in the 1970s that the emerging
reliance-based doctrines of estoppel could be seen as an encroachment of tort

principles into the domain of contract. An important indicator of that trend, according
to Gilmore, was the rise of liability under section 90 of the Restatement of Contracts,
based on detrimental reliance on a promise. Gilmore suggested that detrimental
reliance even threatened to overtake the bargain theory of consideration as the
primary basis on which promises were enforced.

Why and how did this Theory Develop?

Gilmore argued, in other words, that the demise of classical contract law and the rise
of a reliance-based promissory estoppel evidenced the "growth of a more
interdependent, community-oriented moral climate."
Atiyah points to the recognition of the independent tort of negligent
misrepresentation, the advent of consumer protection laws and developments in
estoppel as the principal areas in which the resurgence of reliance-based liability has
been manifested in England.

Suggestions of regrowth of Classical Contract

While equitable estoppel is enjoying a healthy period of growth in Australia, it has

been suggested that in the United States promissory estoppel is going through a
phase of contraction, and is being made more compatible with classical contract
theory. This may well be a consequence of the "laissez-faire revival" which, Metzger
and Phillips have suggested, threatens to "generate a return to something like
classical contract doctrine and a diminished role for promissory estoppel.

The Contemporary Debate Is Estoppel within Law of Contract or

Law of wrongs?

The fundamental question to be resolved is whether estoppel should be seen as part

of the law of contract, as part of the law of wrongs, or as an anomalous category,
which is neither contract nor wrong.

The Promise Theory Estoppel is part of Law of Contract; however,

author argues against this theory

In essence, the promise theory of estoppel holds that the doctrine is fundamentally
concerned with the enforcement of promises and should, therefore, be seen as, or
adapted to become, part of the law of contract.
Is Estoppel based on Promise?

Similarities between Contract and Estoppel:

The only connections between equitable estoppel and contract are: first, that liability
in estoppel can, like contractual liability, arise from a promise; and, secondly, that the
remedies provided by equitable estoppel and contract mirror each other in terms of
purpose and effect. Although the purpose of equitable estoppel relief is to protect the
representee's reliance interest, the relief granted to give effect to an estoppel will
often have the effect of protecting the representee's expectation interest. Conversely,
although the purpose of contractual relief is to protect the promisee's expectation
interest, the reliance interest will occasionally be protected instead.

Differences between Contract and Estoppel

Liability depends primarily on reasonable detrimental reliance on an assumption

induced by the conduct of another party, rather than on bargained for consideration
being given in return for the promise made by another party.
Grundt: One condition appears always to be indispensable. [The representee] must
have so acted or abstained from acting upon the footing of the assumed state of
affairs that he [or she] would suffer a detriment if the opposite party were afterwards
allowed to set up rights against him [or her] inconsistent with the assumption.
Rather than depending on the making of a promise, the Australian doctrine depends
on the representor's conduct inducing the representee to adopt an assumption as to
the representee's rights or the future conduct of the representor.95 Several different
types of conduct can be held to induce the adoption of such an assumption. An
equitable estoppel can be founded on a course of conduct which indicates that the
representor will act in a certain way or that the parties have certain rights, a
representation as to the representor's intention to act in a certain way or as to the
existing legal rights of the parties, or even silence in certain circumstances.
Relief in an equitable estoppel case is discretionary and is designed to satisfy the
representee's reliance interest, even though it will often coincidentally protect the
representee's expectation interest. That survey covered 24 reported decisions since
Verwayen in which relief was granted, and showed that expectation relief was granted
in all 24 of those cases. Reliance-based explanation for the regular awarding of
expectation relief is that reliance loss is often very difficult to calculate in an action for
breach of contract, on the other hand, the promisee has a right to an award of
damages which will satisfy his or her expectation interest.

Should the Doctrine of Consideration be abolished?

Barbara Mescher's solution to the intrusion of equity into the realm of contract is to
abolish the doctrine of consideration. The requirement of an intention to create legal
relations would then be left to perform alone the important task of determining which
promises to enforce. 134 Abolishing the doctrine of consideration, Mescher says,
would "place most of the fact situations found in equitable estoppel cases within the
province of contract."' Mescher argues that the abolition of consideration is necessary
to solve the problem of equity's intrusion into the area of promise enforcement, which,
she says, should belong exclusively to the law of contract.
A more fundamental problem with Mescher's proposal is that it leaves the central
question, which is when liability should be imposed, to be decided according to the
arbitrary criterion of whether the promisor intended to create legal relations. As Atiyah
has argued, the intention to create legal relations requirement is quite unsuited for
this role, since courts arrive at the conclusion that no such intention exists by means
of "fictitious reasoning". In most cases where the intention is denied, the courts are
really saying that the promise in question is one that ought not to be enforced. That
approach is inevitable because, as a reading of any estoppel case shows, parties
making informal promises or representations simply do not indicate whether they
intend to create legal relations or intend to assume any responsibility for their actions.
The essence of the problem, as Dalton has explained in some detail, is that a
subjective approach to determining the intent of a party leads us to basing
liability on an unreliable assertion of intention.

Conscience Theory Estoppel should operate with reference to concept

of unconscionability. However Author disagrees

According to Halliwell: It is now necessary to recognise that the organising concept of

estoppel is unconscionability because the function of estoppel is to restrain injustice
resulting from unconscionable conduct. Halliwell argues that proprietary estoppel is
conscience-based because the cause of action is not a response to the representee's

reliance, but to the type of conduct engaged in by the representor. Proprietary

estoppel, according to Halliwell, does not seek to compensate for reasonable reliance
because the concern of equity, as Lord Evershed has said, is not to do justice, but
rather to restrain injustice.
Authors view: Since the unconscionability question necessarily involves an
examination of the knowledge and conduct of the representor, 162 the essential
difference between a cause of action founded on unconscionability and one founded
on reliance must be that the former is essentially defendant-focussed (or concerned
with the position of the representor), while the latter is essentially plaintiff-focussed
(or concerned with the position of the representee). In the case of equitable estoppel,
questions of liability and remedy are clearly not determined by reference to the
position of the representor. Turning first to questions of liability, a consideration of the
conduct of the representor is essential for determining the threshold question whether
the representor bears responsibility for the adoption of the relevant assumption, but it
is then only regarded as unconscionable to depart from such an assumption if the
representee has relied on that assumption to his or her detriment. The question of
unconscionability is, therefore, dependent upon detrimental reliance.

Reliance Theory Authors view

Yorio and Thel describe as "reliance theorists" those commentators who hold that the
objective of promissory estoppel is to protect promisees from loss caused by reliance
on a promise, and that issues of liability and remedy should turn on reliance.
That discussion outlined three aspects of the Australian doctrine which clearly
establish its reliance basis: first, the strict requirement of detrimental reliance by the
representee in the establishment of liability; secondly, the relative weakness of the
requirement that the representee's assumption must be induced by the conduct of the
representor; and, thirdly, the recent adoption by the High Court of a reliance-based
approach to relief. To that list can be added the requirement that the representee's
reliance upon the relevant assumption must be reasonable.

Criticism of Reliance-based approach

Randy Barnett has criticised reliance theory as a basis for imposing promissory
obligations, on the basis that a focus on reliance does not present us with a clear
choice as to which promises should be enforced. 209 He draws on Morris Cohen's
comment that not all cases of reliance on the words or conduct of another are
actionable, and reliance theory offers no clue as to what distinguishes those that are
enforceable from those that are not. The way in which actionable reliance is
distinguished from non-actionable reliance is by reference to the question whether the
representee's reliance was, in the circumstances, reasonable.
Barnett does, however, show us that the reliance basis for equitable estoppel does not
tell us when reliance by one party on an assumption induced by another should give
rise to an obligation in equity to prevent detriment resulting from that reliance. By
focussing on reliance, we can determine whether an assumption has been induced by
the conduct of another party, we can establish the fact of reliance on that assumption,
we can determine what detriment has resulted from reliance, and we can fashion a
remedy accordingly. But the only answer to the question: "when should reliance be
protected?" is "when it is reasonable."

Advantages of Reliance-Based Approach

The advantage of a reliance-based doctrine of equitable estoppel is that it achieves a

balance between various competing factors. There are two clear benefits. The first is
that the reliance model achieves a balance between individual liberty and the

communitarian value of preventing harm resulting from reliance on the conduct of

others. As Hugh Collins explains, on the one hand the reliance model clearly "attaches
less weight to the value of personal autonomy than the classical exchange model."'2
19 On the other hand, the requirement that reliance must be reasonable "allows the
courts to preserve a realm of liberty within which parties enjoy room for manoeuvre
without incurring legal obligations."
The second advantage of the reliance-based approach is that it achieves a balance
between what Feinman has called "factual particularisation and normative
abstraction". On the one hand, the reliance based approach provides a clear basis for
determining questions of liability and remedy in estoppel cases. On the other hand,
the requirement of reasonableness in the determination of liability, and the discretion
retained by the court in the granting of relief, ensure that courts are not solely
concerned with abstracted questions. Under a reliance-based approach, liability turns
on a balanced combination of the abstracted question of detrimental reliance
(whether the representee has acted to his or her detriment on the faith of an
assumption induced by the representor's conduct) and the particularised notion of
reasonableness of reliance whether the representee's reliance was reasonable in the
circumstances). In the granting of relief, a balance is achieved by, on the one hand,
the exclusive focus on the consequences of the representee's reliance and, on the
other, the discretion which allows the court to do what is necessary to prevent or
reverse the detriment resulting from that reliance. Those finely balanced combinations
allow questions of liability and remedy to be clearly enunciated and consistently and
predictably applied, while retaining the flexibility necessary to do justice in individual
cases.

Reasonable Reliance in Estoppel by Conduct Andrew

Robertson

The aim of this article is to explore the nature of the requirement of reasonable
reliance, and the role it plays in common law and equitable estoppel. This article helps
to define the reliance-based theory of estoppel, which is based on the idea that the
founding principle of estoppel by conduct, and the essential element in the
establishment of an estoppel, is reasonable reliance.

Definition of Estoppel

An estoppel by conduct arises where one person (the representor) induces another
(the representee) to adopt and act upon an assumption of fact (common law estoppel)
or an assumption as to the future conduct of the representor (equitable estoppel).4 An
estoppel will only arise where the representee has acted on the assumption in such a
way that he or she will suffer detriment if the representor acts inconsistently with the
assumption. At common law, the estoppel prevents the representor from denying the
truth of the assumption in litigation between the parties, so the rights of the parties
are determined by reference to the assumed state of affairs. In equity, the estoppel
prevents the representor from acting inconsistently with the assumption, without
taking steps to ensure that the departure does not cause harm to the representee.
Those steps might include compensating the representee for any financial loss, or
giving the representee reasonable notice of the intention to depart from the
assumption, so that the representee can resume his or her original position. If the
representor acts inconsistently with the assumption without taking any such steps,
then the court must fashion relief by which to give effect to the estoppel.

Elements of Estoppel

In determining whether an estoppel has arisen, three essential elements must be

established: an induced assumption, detrimental reliance and reasonableness.
A fourth element, unconscionability may also be required. The threshold
issue is a factual question, albeit one that necessarily involves a value judgment: did
the representor cause the representee to adopt the assumption on which the estoppel
is based? Detrimental reliance also involves a factual question: did the representee
act on the assumption in such a way that he or she will suffer detriment if the
assumption is not adhered to? The requirement of reasonableness is more
complex. It raises for consideration issues of the blameworthiness of the conduct of
the representor and the representee, and whether the representee's reliance should
be protected in the circumstances. The requirement that it must be unconscionable
or unjust for the representor to depart from the assumption adds very little to the
other three elements. It can be argued that all it adds is a requirement that, in cases
where the assumption is induced by silence, the representor must reasonably expect
reliance.
Whether under the guise of reasonableness or the unconscionability requirement, the
court must make a normative judgment about the limits of estoppel. The question
which must be answered is whether the representee's reliance in a given situation
should be protected, given the circumstances in which the assumption was adopted
and the circumstances and nature of the action taken in reliance on that assumption.
There are two normative questions here which are really two sides of the same coin.
The first is: does the representor deserve blame? In other words, should responsibility
for the representee's loss be attributed to the representor? The second normative
question is: does the representee deserve protection? In other words, should the
representee bear responsibility for his or her own loss? Each of those questions
requires the court to make a judgment about 'acceptable' standards of behaviour, an
assumption as to the legal rights of the representee can give rise to either form of
estoppel by conduct, but is more likely to give rise to an equitable estoppel.

The Threshold Requirement Element 1 of Estoppel

The starting point in establishing an estoppel by conduct is that the representee must
show that he or she was induced by the conduct of the representor to adopt an
assumption.
Equally, it can be said that the movement has a tendency towards unifying common
law and equitable estoppel, since it renders less important the distinction between
promissory conduct and representational conduct. After Waltons Stores and Verwayen,
it is clear that both the equitable and common law doctrines are founded on the
adoption of an assumption by the representee, rather than on a particular type of
conduct being engaged in by the representor.

Reasonableness

The reasonableness requirement is closely linked to the threshold requirement in two

ways. First, it is an alternative means of limiting the availability of estoppel. If a
doctrine of estoppel required a particular type of conduct as the threshold
requirement, such as a clear promise or a clear representation, then there would be
less emphasis on the reasonableness requirement. Reasonableness could even, as
Michael Pratt has suggested, be dispensed with altogether if the threshold
requirement were sufficiently strong. The reasonableness requirement thus occupies
ground left vacant by the weak threshold requirement. Secondly, reasonableness
raises for re-consideration many of the factors considered at the threshold: the
reasonableness of adopting a given assumption will depend, inter alia, on the type of
conduct engaged in by the representor which is claimed to have induced that
adoption.

The Reasonableness Standard

A reliance-based doctrine of estoppel is founded on the principle of corrective justice.

The reasonableness requirement in estoppel must, therefore, require the courts to
determine the circumstances in which reliance on another person's conduct is socially
acceptable, and the extent of reliance that is socially acceptable in particular
circumstances. The reasonableness standard imposes responsibility on a representee
to take care to protect his or her own interests, and defines the standard of care that
must be taken. As Patrick Atiyah has observed, reliance on a promise alone cannot
justify the imposition of liability on the promisor; something extra is required. The
reasonableness standard provides that extra element, ensuring "compliance with
some socially acceptable values which determine when ... [reliance is] sufficiently
justifiable to give some measure of protection". 46 The application of the
reasonableness standard thus involves a sophisticated policy question which requires
the court, while taking into account community standards, to establish norms of
conduct.

Why Reasonableness is a better limiting factor than Unconscionability

There are two reasons why the reasonableness requirement should be preferred to
unconcionability as the limiting factor. First, estoppels by conduct are plaintiff-sided
doctrines which, although based on fault, are more concerned with the plight of the
representee than the misconduct of the representor 5 4 Consistent with this approach,
the limiting factor should be considered from the point of view of the representee,
rather than the representor. The reasonableness requirement focuses the court's
attention on the circumstances of the factual core of the estoppel, which is the
representee's detrimental reliance. Secondly, as will be explained below, the
reasonableness requirement is a more sophisticated and more precisely defined twopart inquiry than the question of unconscionability:
The distinction between the two aspects of the reasonableness requirement may well
be important. The first question involves a consideration of the conduct engaged in by
the representor, and the impression it would have on a reasonable person in the
representee's situation. The second question involves a consideration of the action
taken by the representee, and whether it was reasonable for the representee, having
adopted the relevant assumption, to have taken the (ultimately detrimental) action
which was taken.

Corrective Justice Ernest Weinrib

The earliest elucidation of private law is Aristotle's treatment of what he called

"corrective justice."' By Aristotle's day, the rectification of injury through the
recognition and enforcement of one party's claim against the other was a familiar
phenomenon. Aristotle, however, was the first to point to the distinctive features of
this process: its bipolar structure, its constrained standards of relevance, and its
relationship to adjudication. In the history of legal philosophy, private law was
Aristotle's discovery.
The fundamental task of private law theory is to account for this bipolarity. How can
we make sense of a single operation that links two separate parties? There is no point
to adducing considerations that apply unilaterally to each of the litigants, because
such considerations are necessarily incapable of capturing the bipolarity that makes
private law a distinctive juridical phenomenon. The private law relationship can be
explained only in relational terms. This is what Aristotle attempts to do.

Aristotles Account of Justice

Justice as Mean

Aristotle's conception of corrective and distributive justice as mathematical operations

arises out of his general treatment of ethics. For Aristotle, ethics is the study of virtues
considered as excellences of character. Just as nothing felicitously can be added to or
taken from an excellent work, so excellence of character involves the absence of both
excess and deficiency. Aristotle analyzes virtues as intermediate states, or means,
which lie between vices that are deficiencies or excesses relative to that mean.
Courage, for instance, lies between the deficiency of cowardice and the excess of
recklessness.
Whereas virtue is one's own good, 'justice seems to be the good of someone else."
Given this external focus, how is justice a mean? Justice so conceived is virtue
practised toward others. Because adding the external perspective of justice does not
change the nature of virtue, the analysis in terms of means is unaffected. Here, justice
is coextensive with virtue.
Aristotle identifies equality as the mean of justice. Equality is a relational concept,
because something is equal, not to itself, but only to something else.' 3 Aristotle
remarks that 'justice is a kind of mean, not in the same way that the other virtues are,
but because it belongs to the middle, whereas injustice belongs to the extremes. To do
injustice is to have, compared to the victim of injustice, too much of what is beneficial
or too little of what is harmful. Conversely, to suffer injustice is to have too much of
what is harmful or too little of what is beneficial. From this, Aristotle notes that
everyone has justice in holdings with equality, but this does not necessarily imply
that everyones holdings is the same value.

Distributive and Corrective Justice

Distributive justice divides a benefit or burden in accordance with some criterion. An

exercise of distributive justice consists of three elements: the benefit or burden being
distributed, the persons among whom it is distributed, and the criterion according to
which it is distributed. The criterion determines the parties' comparative merit for a
particular distribution. The greater a particular party's merit under the criterion of
distribution, the larger the party's share in the thing being distributed. Distributive
justice, in other words, consists in an equality of ratios.
In contrast, corrective justice features an equality of quantities. It focuses on a
quantity that represents what rightfully belongs to one party but is now wrongly
possessed by another party and therefore must be shifted back to its rightful owner.
Corrective justice embraces quantitative equality in two ways. First, because one party
has what belongs to the other party, the actor's gain is equal to the victim's loss.
Second, the holdings of the parties immediately prior to their interaction provide the
baseline from which the gain and the loss are computed. That baseline, accordingly,
functions as the mean of equality for this form of justice.
A violation of corrective justice involves one party's gain at the other's expense. As
compared to the mean of initial equality, the actor now has too much and the victim
too little. Because the actor has gained what the victim has lost, equality is not
restored merely by removing the actor's gain (which would still leave the victim with a
shortfall) or by restoring the victim's loss (which would still leave the actor with an
excess). Rather, corrective justice requires the actor to restore to the victim the
amount representing the actor's self-enrichment at the victim's expense

Link Between Corrective Justice (Aristotle Conception) and Private Law

Presenting corrective justice as a quantitative equality captures the basic feature of

private law: a particular plaintiff sues a particular defendant. Unjust gains and losses
are not independent but coincidental changes in the value of the parties' holdings. If

the gains and losses were independent, the losses and gains could be restored by two
independent operations. However, because the plaintiff has lost what the defendant
has gained, a single liability links the particular person who gained to the particular
person who lost.

Criticism of Aristotles View (Kelsen Critique)

This criticism exploits the fact that the corrective and distributive justice of Aristotle's
account are formal categories, not substantive prescriptions. Aristotle's outline of
distributive justice, for example, does not present an ideally just set of arrangements
against which all distributions can be measured. His representation of distributive
justice as an equality of proportions under a criterion of merit suggests neither the
relevant indicia of equality nor the optimal criterion of merit. As Kelsen rightly
remarks, given the inevitable existence of differences of age, sex, wealth, and so on,
"[T]he decisive question for social equality is: Which differences are relevant? To this
question Aristotle's mathematical formula of distributive justice has no answer.