Estopped By A Shared Assumption: The Court Of Appeal Clarifies The Doctrine Of Estoppel By Convention

• Published date: 06 May 2021
• Subject Matter: Litigation, Mediation & Arbitration, Trials & Appeals & Compensation
• Law Firm: WeirFoulds LLP
• Author: Ms Megan Mah

On April 1, 2021, the Ontario Court of Appeal reviewed and clarified the equitable doctrine of estoppel by convention in its decision in Fram Elgin Mills 90 Inc. v Romandale Farms Limited, 2021 ONCA 201.

A landowner was estopped from resiling from certain assumptions it had shared with two other parties, as the landowner had caused the other parties to enter into a separate settlement agreement based on the shared assumptions.

This decision provides further clarity with respect to the relatively rare form of estoppel that may arise when parties act on the basis of a shared assumption relevant to the parties' dealings.

Background

This case involved four actions regarding undeveloped lands in Markham, Ontario. Romandale Farms Limited ("Romandale") owned two neighbouring farms, and subsequently sold interests in the farmland to two separate parties through multiple transactions.

In 2003, Romandale sold an undivided 5% interest in the lands to Fram. Romandale and Fram planned to obtain the necessary planning approval in order to develop the lands for residential use. Romandale and Fram entered into a number of agreements related to the lands, including co-owners agreements (the COAs), which provided that, subject to limited exceptions, neither party could dispose of its interest in the lands. The COAs also contained a buy-sell mechanism that was generally available only after secondary planning approval ("Planning Approval") had been obtained for the lands. Planning Approval was specifically required before the lands could be developed.

In 2005, Romandale entered into an agreement with a third party, Kerbel, which involved the sale of Romandale's 95% interest in the lands to Kerbel ("2005 Agreement"). The sale was to be achieved in two steps. In the first step, Romandale sold Kerbel 5% of its interest in the lands. In the second step, Romandale agreed to sell its remaining interest in the lands to Kerbel, conditional on either Fram's consent to the sale, or Romandale's exercise of the buy-sell provisions in the COAs with Fram.

The second step of the sale of the lands was at issue in the appeal. Among other things, Fram alleged that Romandale's sale of its interest to Kerbel was an impermissible disposition of Romandale's interest in the lands under the COAs.

In 2010, the parties attended judicial mediation and exchanged correspondence regarding a potential settlement. Fram and Kerbel later reached a settlement regarding the sale of the lands ("2010 Settlement...