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Estoppel - Estoppel by Convention

. Fram Elgin Mills 90 Inc. v. Romandale Farms Limited

In Fram Elgin Mills 90 Inc. v. Romandale Farms Limited (Ont CA, 2021) the Court of Appeal sets out the test for estoppel by convention:
(1) Governing Legal Principles

[144] At para. 59 of Ryan v. Moore, the Supreme Court states that the following criteria form the basis of the doctrine of estoppel by convention:
(1) The parties’ dealings must have been based on a shared assumption of fact or law: estoppel requires manifest representation by statement or conduct creating a mutual assumption. Nevertheless, estoppel can arise out of silence (impliedly). [Emphasis in original.]

(2) A party must have conducted itself, i.e. acted, in reliance on such shared assumption, its actions resulting in a change of its legal position.

(3) It must also be unjust or unfair to allow one of the parties to resile or depart from the common assumption. The party seeking to establish estoppel therefore has to prove that detriment will be suffered if the other party is allowed to resile from the assumption since there has been a change from the presumed position.
[145] On the first criterion – which the Court refers to as “Assumption Shared and Communicated” – the Court provides the following additional guidance, at paras. 61-62:
The crucial requirement for estoppel by convention, which distinguishes it from the other types of estoppel, is that at the material time both parties must be of “a like mind”. The court must determine what state of affairs the parties have accepted, and decide whether there is sufficient certainty and clarity in the terms of the convention to give rise to any enforceable equity.

While it may not be necessary that the assumption by the party raising estoppel be created or encouraged by the estopped party, it must be shared in the sense that each is aware of the assumption of the other. Mutual assent is what distinguishes the estoppel by convention from other types of estoppel. … Thus, it is not enough that each of the two parties acts on an assumption not communicated to the other. Further, the estopped party must have, at the very least, communicated to the other that he or she is indeed sharing the other party’s (ex hypothesi) mistaken assumption. [Citations omitted.]
[146] The court also offers further guidance on the second and third criteria, namely, reliance and detriment. It notes that the requirement of detrimental reliance lies at the heart of true estoppel and that detrimental reliance encompasses two distinct, but interrelated concepts: reliance and detriment: at paras. 68-69.

[147] Reliance requires a finding that the party seeking to establish the estoppel changed its course of conduct by acting, or abstaining from acting, in reliance upon the assumption, thereby altering its legal position: at para. 69.

[148] In terms of detriment, the Court offers this guidance, at para. 73 of Ryan v. Moore. Once the party seeking to establish estoppel shows that it acted on a shared assumption, it must prove detriment. For the plea to succeed, it must be unjust or unfair to allow a party to resile from the common assumption. A change from the presumed legal position will facilitate the establishment of detriment “because there is an element of injustice inherent within the concept of the shared assumption – one party has acted unjustly in allowing the belief or expectation to ‘cross the line’ and arise in the other’s mind”: at para. 73, citing Sean Wilken, Wilken and Villiers: The Law of Waiver, Variation and Estoppel, 2nd ed. (Oxford: Oxford University Press, 2002), at p. 228.

....

[151] The first criterion for estoppel by convention requires that the parties’ dealings were based on a shared assumption of fact or law: Ryan v. Moore, at para. 59. Thus, I must determine what state of affairs the parties accepted and decide whether there was sufficient certainty and clarity in the shared assumptions to give rise “to an enforceable equity”: Ryan v. Moore, at para. 61.

....

[173] Having established that the first criterion for estoppel by convention is met, I must now determine whether Fram and Kerbel acted in reliance on the Shared Assumptions. For the purpose of estoppel by convention, reliance requires a finding that the party seeking to establish estoppel changed its course of conduct by acting (or abstaining from acting) in reliance on the shared assumption, thereby altering its legal position: Ryan v. Moore, at para. 69.

....

[187] The third criterion for establishing estoppel by convention is detriment. As the parties seeking to establish estoppel by convention, Fram and Kerbel must prove that if Romandale were allowed to resile from the Shared Assumptions, they would suffer detriment since there had been a change from their presumed legal positions: Ryan v. Moore, at paras. 59, 69. To succeed in proving detriment, Fram and Kerbel must show that it would be unjust or unfair to allow Romandale to resile from the Shared Assumptions: Ryan v. Moore, at paras. 59, 73 and 74. A change from their presumed legal positions will facilitate the establishment of detriment: Ryan v. Moore, at para. 73.

....

[196] Before finally determining whether estoppel by convention applies, I must address Romandale’s overriding submission that Fram and Kerbel cannot avail themselves of the doctrine because there was no contract between it and either Fram or Kerbel based on the Shared Assumptions – only Fram and Kerbel were parties to the Settlement Agreement.

[197] It will be recalled that Romandale relies on para. 4 of Ryan v. Moore for this submission. For ease of reference, I set out para. 4 again, below.
Estoppel by convention operates where the parties have agreed that certain facts are deemed to be true and to form the basis of the transaction into which they are about to enter. If they have acted upon the agreed assumption, then, as regards that transaction, each is estopped against the other from questioning the truth of the statement of facts so assumed if it would be unjust to allow one to go back on it. [Citations omitted; emphasis as added by Romandale.]
[198] I accept that the language in para. 4 of Ryan v. Moore may be seen as suggestive of a contractual relationship among the parties. However, the facts of Ryan v. Moore show that the doctrine of estoppel by convention is not limited to such situations.
. Grasshopper Solar Corporation v. Independent Electricity System Operator

In Grasshopper Solar Corporation v. Independent Electricity System Operator (Ont CA, 2020) the Court of Appeal set out the test for estoppel by convention:
[16] The application judge applied the estoppel by convention doctrine as outlined by the Supreme Court in Ryan v. Moore, 2005 SCC 38, [2005] 2 S.C.R. 53, at para. 59. In that case, Bastarache J. reviewed the law and distilled the following criteria:
1. The parties’ dealings must have been based on a shared assumption of fact or law: estoppel requires manifest representation by statement or conduct creating a mutual assumption. Nevertheless, estoppel can arise out of silence (impliedly).

2. A party must have conducted itself, i.e. acted, in reliance on such shared assumption, its actions resulting in a change of its legal position.

3. It must also be unjust or unfair to allow one of the parties to resile or depart from the common assumption. The party seeking to establish estoppel therefore has to prove that detriment will be suffered if the other party is allowed to resile from the assumption since there has been a change from the presumed position. [Emphasis in original.]
Estoppel by convention

[54] I begin by reiterating an important concern. Although the doctrine of estoppel cannot vary the terms of a contract, it may operate to prevent a party from relying on the terms of the contract to the extent necessary to protect the reasonable reliance of the other party. Thus, the doctrine has the potential to undermine the certainty of contract and must be applied with care, especially in the context of commercial relationships between sophisticated parties represented by counsel. Estoppel is a fact-specific doctrine and the concern noted by Bastarache J. in Moore at para. 50 remains apposite: “estoppels are to be received with caution and applied with care”, citing Harper v. Cameron (1892), 2 B.C.R. 365 (Div. Ct.) at p. 383.

[55] Estoppel by convention is a relatively rare form of estoppel that may arise when both parties to a contract act based on a shared assumption concerning circumstances relevant to their contract. If it would be unfair to allow a party to resile from the assumption, the doctrine operates to provide a remedy for detrimental reliance on the assumption by the other party. In effect, the estoppel operates to “circumscribe the factual context in which the contract exists, thus affecting the obligations that the contract contains”: Bruce MacDougall, Estoppel, 2nd ed. (Toronto: LexisNexis Canada, 2019), at s. 1.14.

[56] As Bastarache J. explained in Moore, estoppel by convention requires a “manifest representation” of a shared assumption, which may arise out of a statement or conduct but may also arise from silence. But regardless of how an assumption arises, it must be clear and it must be shared. There is no room for doubt about the nature of an assumption that gives rise to the estoppel. The parties must be of “a like mind” at the material time: Moore, at para. 61, and this will not be so if the nature of the assumption is in doubt. Thus, English authorities describe a requirement that the shared assumption be “unambiguous and unequivocal”: G.H. Treitel, The Law of Contract, 11th ed. (London UK: Sweet & Maxwell, 2003), at s. 3-094; see also H.G. Beale, ed., Chitty on Contracts, 31st ed. (London UK: Sweet & Maxwell, 2015) vol. 1, at 3-107. This requirement is reflected in the purpose of the doctrine. Estoppel exists to protect reasonable reliance: it must be reasonable to adopt a particular assumption and reasonable to act in reliance on it. See N. Seddon, R. Bigwood, & M. Ellinghaus, Cheshire and Fifoot Law of Contract, 10th Australian ed. (Chatswood, Australia: LexisNexis Australia, 2012) at s. 2.14.

[57] The appellants argue that two of the three elements of estoppel by convention are satisfied in this case and that the application judge found that only “the remaining element” was not. This submission puts the cart before the horse. A shared assumption is not simply a remaining element; it is the thing that gives rise to the need for equitable relief. Without a shared assumption there can be no reliance and no detriment, and hence no need for equitable relief. In the absence of a shared assumption, the argument for estoppel by convention collapses.

[58] A shared assumption giving rise to estoppel by convention may concern fact or law, and may be based on a mistake. But whatever the assumption concerns, it typically involves existing as opposed to future circumstances. The assumption asserted by the appellants in this case is unusual in that it includes elements of both past practice as well as existing and future circumstances. Moreover, the assumption arises out of dealings not between the appellants and the respondent, but between the respondent and third parties. The appellants argued before the application judge that the parties assumed that the respondent would continue to follow its existing policy of not terminating FIT Contracts as a result of a supplier’s failure to meet the MCOD.
. Teixeira v. Markgraf Estate

In Teixeira v. Markgraf Estate (Ont CA, 2017) a later-deceased person gifted a cheque to a friend just before her death, but the cheque was refused by the bank for insufficient funds (though the payor had adequate funds with the bank in other accounts). The friend sued the estate on the cheque, giving rise to the following considerations, firstly respecting gifting and then re the obscure doctrine of 'estoppel by convention':
[53] Estoppel by convention is an equitable doctrine that holds parties to the facts or law or other assumption they have agreed to as the basis for a transaction to which they are parties: Halsbury’s Laws of Canada, “Estoppel”, 1st ed. (Toronto: LexisNexis Canada, 2016 Reissue), at HES-55. The nature of estoppel by convention was discussed by the Supreme Court in Ryan v. Moore. Bastarache J., at para. 4, said that:
Estoppel by convention operates where the parties have agreed that certain facts are deemed to be true and to form the basis of the transaction into which they are about to enter. If they have acted upon the agreed assumption, then, as regards that transaction, each is estopped against the other from questioning the truth of the statement of facts so assumed if it would be unjust to allow one to go back on it. [Citations omitted.]

[54] Bastarache J. set out the following criteria for the application of the doctrine, at para. 59: (1) the parties' dealings must have been based on a shared assumption of fact or law: estoppel requires manifest representation by statement or conduct creating a mutual assumption. Nevertheless, estoppel can arise out of silence (impliedly); (2) a party must have conducted itself, i.e. acted in reliance on such shared assumption, its actions resulting in a change of its legal position; (3) it must also be unjust or unfair to allow one of the parties to resile or depart from the common assumption. The party seeking to establish estoppel therefore has to prove that detriment will be suffered if the other party is allowed to resile from the assumption since there has been a change from the presumed position.


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