What does promissory estoppel mean in Australian law?

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Have you ever been talking to someone, perhaps a friend or colleague and made plans, gotten ready for it, made preparations and at the last minute, the other party reneged on the plans? At law there is an avenue for redress when this occurs, called promissory estoppel. In this article, Business Kitz will walk you through what promissory estoppel is, how it works, and what needs to be proven to establish a cause of action. 

What is a promissory estoppel? 

Promissory estoppel is where one party, via their words or conduct, makes a promise to another which was intended to have a legal effect on both parties. The party to whom the promise was made acted upon the promise as they took the other party at their word, and then the promising party took back their word and subsequent promise. This has resulted in an action for promissory estoppel. This area of law is within the civil jurisdiction, so juries are usually not present.

Promissory estoppel can be used as a cause of action if a party acts inconsistently with the terms of their contract. In contrast, the action of equitable estoppel is used as a defense during a breakdown in a contract. Therefore, when a party intends to renege on a promise which affects someone’s legal status, the principle of promissory estoppel prevents this. It has been held in case law that promissory estoppel extends to future conduct, to assist in preventing departure from a promise in a pre-existing relationship. 

Other types of estoppel include estoppel by acquiescence, proprietary, fiduciary duties, equitable and breach of confidence. 

What must be proven to make a successful promissory estoppel cause of action?

There are a few things that are required to be present within a legal issue in order to have a successful legal action in promissory estoppel. These include: 

  1. A legal relationship between both parties: a legal relationship must exist between the parties for an action to be successful in court, such as an employment contract between an employer and employee. So long as there is some kind of legal relationship between the two parties, this element will be valid. 
  1. A promise which has been reasonably believed in the circumstances: a promise has to fulfill a certain number of prerequisites to be valid under the law. This includes the promise not being ambiguous and, it must be reasonably certain from a third party standpoint that the promise existed between the parties. Concepts such as mere hope will not be valid under law.
  1. Reasonable reliance on the promise: the reliance must be reasonable in the circumstances, so that a third party would not discount the reliance based on hope alone. In this case, the person who relied on the promise’s circumstances may be relevant; such as if they had a mental illness or disability which caused them to act differently to someone without.
  1. Detriment as a result of reliance: the plaintiff must have suffered a ‘material’ disadvantage, that is not an emotional or mental loss. Instead the loss must constitute a job, an opportunity or a large physical or financial debt. 
  2. It would be unconscionable for the other party to be allowed to retract their original position: would it be unconscionable in a legal sense for the other party to be able to take back their promise and allow the other party to suffer detriment? Concepts to consider here include the relative detriment suffered, and how much blame can be attributed to the party who took back their promise. 

What happens if I have a successful promissory estoppel case?

An estoppel case is much easier to be successful in a court setting today, than it has been prior, as courts used to only grant successful applicants the actual amount they lost in terms of material loss. Nowadays, the courts usually grant successful applicants the amount they expected to receive from the promise, which can be substantially more than what they actually lost. Notwithstanding, courts will only issue an amount they deem fair to both parties.

Legal Advice 

If you are not sure whether you have a case in estoppel or you have a legal issue regarding contracts, our sister company Legal Kitz provides a FREE 30 minute consultation where we can assess your legal issue and point you in the right direction. Book your free consult now.