Estate planning is not merely a task to be checked off; it is a dynamic process that evolves with life’s twists and turns. Reinforced by the Kramer v Stone case, the decision highlights how proprietary estoppel can challenge planned legacies when promises and reliance are involved.
This article delves into the doctrine of proprietary estoppel, and the recent High Court of Australia decision Kramer v Stone [2024] HCA 48 involving the estate of the late Dame Leonie Kramer AC DBE. We look at the circumstances of this decision and the landscape of proprietary estoppel in Australia, including how the doctrine of estoppel can affect the estate plans of business owners, farming families and other families.
Proprietary estoppel: a primer
Proprietary estoppel is a legal remedy that arises to prevent a party from unjustly resiling from a promise or representation they have made to another person regarding ownership of a property.
Promises to make a gift or transaction are usually not enforceable at law. The distinction between a mere promise to make a gift and a claim in proprietary estoppel is the detriment suffered by the party who acted in reliance on the promise, and is thereby ‘put out’ by the promise not being fulfilled.
In the 1998 decision of Walton Stores (Interstate) Ltd v Maher, the High Court of Australia set out the essential elements of a proprietary estoppel claim:
- There must be a clear and unequivocal promise (or representation);
- A reasonable person in the promisor’s position would expect or intend that the promisee would rely on the promise in some future conduct.
- The promisee has relied on that promise and directed their affairs in some way because of it.
- As a result of the promise not being fulfilled, the promisee is in a worse position than if the promise had not been made.
What impacts do estoppel claims have on family succession and wealth transfer?
Proprietary estoppel claims are becoming increasingly common in estates matters, particularly where a family farm is concerned.
In particular, we see proprietary estoppel claims arising prior to the death of the matriarch and patriarch of a farming family, as a combined result of:
- inadequate succession planning during life;
- the increased life expectancy of farming parents who require greater income and support into old age; and
- the prevalence of ‘inheritance impatience’ amongst the generation next in line.
A typical factual scenario is that the parents operate the farm, and a child (or equally a family friend or associate) works on the farm for little or no pay in the expectation that “one day this will all be yours”. If there is evidence of a positive representation, and detrimental reliance (in the form of giving up an alternative livelihood, or contributions to the property or the maintenance of the family), an estoppel claim may be made out.
A successful claim could mean that any property left under a will which is inconsistent with the representation made could be the subject of a constructive trust held in favour of the person that has relied on the representation. In that sense, proprietary estoppel “trumps” the express words of a person’s will, and therefore any potential claims must be carefully managed as part of a person’s estate and succession plan.
Interaction with family provision claims
Proprietary estoppel claims arising after death often are made in conjunction with claims for further provision from an estate (usually in the event that the proprietary estoppel claim is unsuccessful).
Bassett v Cameron [2021] NSWSC 207:
A son claimed he had undertaken work in developing a property owned by his father, and neglected his own consultancy business, in reliance on a promise from the father that he could inherit the property. The son was unsuccessful in establishing that the land was unequivocally promised to him. The son was successful at trial in obtaining further provision from the estate, which the trial judge attributed to the costs the son would be liable for resulting from the proceedings and the disadvantage the son would face if forced to sell the farming property.
The family provision claim was overturned on appeal (Bassett v Bassett [2021] NSWCA 320).
Some key distinguishing factors between proprietary estoppel claims and family provision claims are:
- Remedies in a proprietary estoppel claim are concerned with the appropriate equitable outcome to do justice between the parties, which may be a form of compensation or a constructive trust over a particular asset. Awards under family provision legislation are primarily concerned with making adequate provision for a person’s maintenance and welfare. The objects of the doctrines may clash – an award in the nature of a constructive trust to one person could adversely effect the adequacy of the provision left to the remaining family.
- Family provision claims may only arise after death in relation to a person’s estate. Proprietary estoppel claims are often made during the life of the owner of the property, many times after a fallout between the parties or a failure of the succession plan.
- A family provision claim can only be made in relation to assets of a deceased person’s estate (unless the notional estate provisions in NSW apply). Accordingly, steps can be taken during life to minimise the prospects of a claim against an estate by holding assets in particular structures or alternative forms of ownership.
- A family provision claim can only be made by a person eligible to bring proceedings under the relevant legislation, usually a relative such as a spouse or child. However, as is seen in Kramer, a proprietary estoppel claim can arise in favour of a party unrelated to the owner of the property.
Kramer v Stone [2024] HCA 48
Summary
The facts in Kramer
A rural property was owned by Dame Leonie Kramer. Dame Leonie made a final will in 2011, in which she left the property to one of her daughters (Hilary Kramer).
The respondent (David Stone) had farmed the property under an oral share farming agreement since 1975, at a time when the property was owned by Dame Leonie’s husband Dr Harry Kramer. In the 1980s, during a time of illness, Dr Harry made representations to Mr Stone that he would be leaving the farm to Dame Leonie but that she would leave the farm to Mr Stone in her will.
After Dr Harry’s death, Dame Leonie stated to Mr Stone “out of the blue” that she and Dr Harry had agreed on Mr Stone receiving the property on her death, with a sum of money.
Mr Stone claimed he relied on the representation to his detriment by continuing with the share farming agreement for 23 years after the representation was made, and in doing so receiving only an “irregular and meagre income” and living in “substandard accommodation”. This was done in circumstances where Mr Stone would otherwise have terminated the agreement and sought more remunerative work elsewhere if he had not believed he would be inheriting the property in the future.
Lower court decisions
At first instance, Mr Stone’s proprietary estoppel by encouragement claim was successful, with the result that the property was held on constructive trust for Mr Stone by the executors of Dame Leonie’s estate. It was held that Mr Stone relied on the representation to his detriment and that Dame Leonie ought to have known that Mr Stone continued in the share farming agreement on the expectation he would inherit the property, such that it was unconscionable for Dame Leonie to have resiled from it.
An appeal to the New South Wales Court of Appeal by the executor was dismissed. It was held that the representation was reasonably understood by Mr Stone to be an assurance (tantamount to a promise) rather than a mere statement of irrevocable intention, and that the reliance placed on it by Mr Stone was also reasonable.
The High Court’s decision
In a majority judgment (Gageler CJ, Gordon, Edelman and Beech-Jones JJ), with Gleeson J dissenting in part, the executor’s further appeal was dismissed by the High Court.
The majority confirmed well-understood elements of proprietary estoppel by encouragement (which are also in common with proprietary estoppel and promissory estoppel) – that there must be a clear or unequivocal representation from Party A, and there must be reliance on that representation by Party B to its detriment.
However, while the majority accepted that Party A (or a reasonable person in Party A’s position) must have expected or intended Party B to rely on the representation by some action, the majority rejected the executor’s submissions that:
- Party A must have engaged in conduct after the original representation which further encouraged Party B to act in detrimental reliance on the representation; and
- Party A must have actual knowledge that Party B in fact relied on the representation to its detriment.
In so finding, the majority held that actual knowledge is only required in cases of proprietary estoppel by acquiescence and not in cases of proprietary estoppel by encouragement.
Importantly, the majority also clarified another outstanding issue that had been the subject of conflicting lower court decisions in recent years: the appropriate remedy to be granted in a proprietary estoppel matter.
It was held that, despite comments from lower courts in the past, there is no prescriptive requirement to limit this to “the minimum equity to do justice”. Rather, the proper approach is simply to mould the relief to prevent the detriment incurred. This will not always mean fulfilling the expectation of Party B (in reliance on the representation). It may on some occasions – such as where Party B makes life-changing decisions with irreversible consequences. However, where the detriment is smaller (such as expending a small amount to improve a property), the appropriate remedy may be equitable compensation. In all cases, the court’s discretion is at large, and there is no prescriptive formula for the appropriate relief.
Matters left unresolved
As noted above, the courts have made a traditional distinction between the two forms of proprietary estoppel – estoppel by encouragement and estoppel by acquiescence. The Court explicitly stated that there was no occasion to consider whether:
- the necessary elements of estoppel by encouragement and estoppel by acquiescence are common and without distinction, so that they may be treated as a single doctrine; or
- as was alluded to in Commonwealth v Verwayen ([1990] HCA 39), whether a ‘single overarching doctrine’ of estoppel exists.
In the appeal at first instance, Leeming JA squarely raised that the contention of a unified doctrine of estoppel had not ‘gained currency’, and that it remains important to carefully recognise the distinctions between the different doctrines of equitable or proprietary estoppel based on their historical sources in judgments. The High Court did not see fit to respond to these issues, meaning the existing distinctions (particularly in light of the decisions of the NSW Court of Appeal) remain relevant.
Key takeaway
The decision clarifies important issues on proprietary estoppel that had been left unresolved at appellate court level in Australia for much of the last three decades – particularly relating to the nature of the alleged representation and the element of knowledge, and the appropriate remedy ordered by the court – and may widen the scope for equitable relief in future cases. In an estates context, this could present a material risk to dispositions left under a will, and may lead to an increase in estate litigation.
The High Court’s decision in Kramer is significant, and may expand the scope for relief in proprietary estoppel cases – particularly, in enabling a claim to be made out when a person makes a single representation to another party which is relied on to that party’s detriment and the reliance can be reasonably expected, even if there are no further acts of encouragement and there is no knowledge of actual reliance on the representation or the degree of detriment in fact incurred.
This could in turn see an increase in future estate litigation. It is therefore important to consider possible estoppel claims, and proactive steps to mitigate the risk of a successful claim, as part of an effective estate planning strategy for clients.
If this paper raises any questions or concerns, please contact the team at Hamilton Locke Private.
