Promissory or equitable estoppel has been developed by the courts for the purpose of ensuring that a party is faithful to a promise or representation made to another party who relies upon this promise or representation. This intervention by the courts prevents the party relying upon the promise from suffering injustice if the promise or representation is being fulfilled. Its need arose because the rigid adherence to the common law principle requiring all contracts to be accompanied by consideration led to several unjust outcomes. This led to the development of a principle in equity such that under certain circumstances parties could be held to promises which were unaccompanied by consideration. This is the principle of equitable estoppel. Lord Denning description of this principle of promissory estoppel is, “A remedy has been found. The harshness of common law has been relieved. Equity has stretched its merciful hand out to the debtor.”[1]
Although the principle was first referred to in the case of Hughes v Metropolitan Railway Co in 1877,[2] it became more formally established in law by Lord Denning in the case of Central London Property Trust Ltd v High Trees House Ltd,[3] and a full definition of the principle was given by Lord Denning in the case of Combe v Combe.[4]
The case which made giant strides in enabling the principle of estoppel to enforce voluntary understandings is the decision of the High Court of Australia in Waltons Stores (Interstate) Ltd v Maher.[5] In this case an agreement took place between the two parties whereby Maher would rent a piece of land to Waltons Stores. Before entering the lease agreement the Waltons required the demolition of the existing building and its replacement with a 14,000 square foot building which would serve as a major retail outlet for them. Maher was under the commonly held impression that such inaction and silence amounted to encouragement or assurance that something would happen, and in this case led Maher to rely on the belief that the finalisation of the lease would be a mere formality. Waltons withdrew and Maher commenced legal proceedings against them, eventually in the High Court of Australia, it was decided that equitable estoppel was applicable when one party to a relationship made a representation to another party that either something was going to take place or that it would take place in the future causing the other party to act accordingly. In case the other party decides not to carry out its part of the agreement, then equity allows the court to estop this infidelity. In their judgement Mason CJ and Wilson J stated that “The appellant’s inaction, in all the circumstances, constituted clear encouragement to the respondents to continue to act on the basis of the assumption which they had made. It was unconscionable for it, knowing that the respondents were exposing themselves to detriment by acting on the basis of a false assumption, to adopt a course of inaction which encouraged them in the course they had adopted.”[6] That this mistaken reliance could have had devastating effects for Maher had not the courts applied equity to assist him is abundantly clear and this judgment is very important as it enables the courts to intervene in certain situations to uphold a voluntary promise. This mistaken reliance could have had devastating effects for Maher had not the courts applied equity to assist him. Clearly, this is a very important judgment in that it enables the courts to intervene in certain situations to uphold a voluntary promise. To what extent the court will be prepared to intervene in this way will very much depend upon the circumstances of each particular case. A significant case in this area is that of
Crabb v Arun District Council,[7] in both these cases the plaintiffs were able to commence an action on the basis of estoppel. Prior to this according to Lord Denning J, promissory estoppel could be used only for defence. Another relevant case in the area of proprietary estoppel is that of Pascoe v Turner,[8] in this case also the cause of action was based on proprietary estoppel. From the time of these decisions the courts have started intervening in order to assist the plaintiff. As per Lord Denning J, the occasion for the intervention of the court will be when “Short of an actual promise, if he, by his words or conduct, so behaves as to lead another to believe that he will not insist on his strict legal rights – knowing or intending that the other will act on that belief – and he does so act, that again will raise an equity in favour of the other, and it is for a court of equity to say in what way the equity will be satisfied.” [9] The Walton Stores case is important in contract law because the doctrine that an indirect representation that strict legal rights will not be enforced can establish an equity in certain situations. Further, equity is created in the party’s favour based on the representation if it will be negatively affected by the representing party. In this fashion in the Walton Stores case has taken a revolutionary step in the path of contract law cases paving the way for security of the innocent and the weak promisees.
The principle of promissory estoppel is that if someone makes a promise, which another person acts on, the promisor is estopped from going back on the promise, even though the promise does not provide consideration. This modern doctrine of promissory estoppel is based on the dicta of Denning J. In Central London Property Trust Ltd V. High Trees House Ltd[10] and also on the decision of the House of Lords in Tool Metal Manufacturing Co Ltd V. Tungsten Electric Co Ltd.[11]This doctrine can be traced to Hughes V. Metropolitan Railway.[12]
There should be a contractual or legal relationship for promissory estoppel. In Walton’s Stores (Interstate) Ltd v Maher,[13] the plaintiffs’, relying on the defendant’s specifications and their discussions, commenced demolition. The plaintiffs were awarded damages by the court. “Before anyone can be estopped, he must have played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it.”[14] In the court of first instance Kearney J opined that the plaintiff believed that exchange had taken place. In the court of appeal it was opined by the judge that the plaintiffs believed that the arrangement was binding despite the lack of exchange and in the high court Mason CJ opined that Waltons promised exchange would take place. Even though a written contract is absent the defendant is bound by his conduct, because he induced the plaintiffs to believe that they had a contractual right.[15]
In the case The Commonwealth v Verwayen, the judges opined that “At common laws the principle of estoppel by conduct or representation estoppel in pais provided that protection by preventing the party estopped from unjustly departing from an assumption of fact which his conduct had caused another party to adopt or accept for the purpose of their legal relations”.[16]
Lord Denning J observed in the case Central London Property Trust Ltd v. High Trees House Ltd that an agreement to accept lower rent was a promise unsupported by consideration and hence was not binding.[17]
Second, there should be a clear and unambiguous statement by the promisor that his strict legal rights will not be enforced, i.e. one party must make a promise which is to be binding. In the case of Hughes v Metropolitan Railway, Lord Denning J’s observations led to the origin of the modern doctrine of promissory estoppel.[18]
Third, there should be reliance on the part of the promisee, i.e. he should have acted on the reliance of the promise. Lord Denning J ruled in Alan Co Ltd V. El Nasr Export & Import Co… that it was sufficient if the debtor acted on the promise by paying a lower sum,
“he must have been led to act differently from what he otherwise would have done.” [19] In the Walton’s Stores (Interstate) Ltd v Maher case, actual reliance by one party on the conduct of the other in respect of their promise, was discussed.[20]
Fourth, it is inequitable to revert. In other words, it is deemed unfair if the promisor goes back on his promise and reverts to his strict legal rights. A promise obtained by improper pressure can be broken.
Fifth, one party to a contract should not be placed in a worse condition due to acting on an assumption regarding the other party, which turns out to be false. The case of The Commonwealth v Verwayen illustrates this aspect of detriment.[21]
If the agreement or transaction was unconscionable at the time it was made or if it had been induced by unconscionable conduct,[22] or if one accepts the promise made by any other party without diligence, Hart v Young, the court may refuse to enforce the agreement and deem it to be not binding.
The High Court of Australia in Walton’s Stores (Interstate) Ltd v Maher, permitted an estoppel to create a cause of action on the basis of avoiding detriment to the representee resulting from the representor’s unconscionable conduct.[23]
However, the English Court of Appeal rejected an argument to establish a contractual commitment based on promissory estoppel, in Baird, as English law, Combe v Comb, could not create a cause of action based on such an estoppel. The dicta in Walton Stores and Commonwealth of Australia v Verwayen enabled the English courts to apply this principle in Combe v Combe. [24]
There is another doctrine of equitable estoppel known as proprietary estoppel. This applies to cases in which a party with right to some property deceives other people to believe that they have rights to that property or that they will be granted such rights in the future. For this principle to be applicable detrimental reliance, rather than mere reliance, is required on the part of the party gaining these rights. The result in such cases is that usually the court awards the full proprietary rights that were promised. In Pascoe v Turner, a man lied to a woman, stating that the house they had lived in was hers. Accordingly this woman incurred expenditure towards repairs and renovations to the property, as she believed in what this man told her, the court accepted her plea, and awarded her full title to the house.[25]
Similarly, in Guimelli v Guimelli, a son built a house on a piece of land, which had been promised to him by them. Later on he was engaged to a person whom his parents disapproved of. His parents asked him to break the engagement or in the alternative forsake all rights to that piece of land. He refused to comply with their wishes and so they gave this land to his brother. The court on appeal held that this land belonged to the son who had been dispossessed by his parents.[26]
In Waltons Stores v Maher the court concentrated upon the unconscionability of the circumstances as a way of justifying enforcement of the promise.[27] From this it follows that in Australia promissory estoppel is a well established and comprehensive way of enforcing promises. English law does not as yet recognise an extensive estoppel doctrine in which false promises are remedied by an award of damages according to the detrimental reliance, but such a doctrine is much easier to justify than a wide doctrine in which expectation damages are awarded or performance is ordered as in proprietary estoppel cases.
This discussion in respect of the development of the doctrine of estoppel in Australia can be concluded by noting that this doctrine as evidenced in the case of Central London Property Trust Ltd v. High Trees House Ltd met with some initial resistance. It was not until 1980 that it was applied to a South Australian case and then the High Court finally recognised the doctrine of promissory estoppel in 1983.[28]
In Legione v Hateley, the High Court for the first time recognised the doctrine of promissory estoppel, that is, an estoppel concerning future intention. In Australian law though recognised estoppel relating to a representation of existing fact was recognised, all the same it had not recognised estoppel concerning future intention or promises. The High Court limited the application of promissory estoppel to promises about existing contractual relations,[29]
Finally in the landmark case of Waltons Stores (Interstate) Ltd v Maher, the High Court made a major breakthrough in relation to the doctrine of estoppel, particularly promissory estoppel. In Legione v Hateley promissory estoppel was given recognition in terms of the High Trees principle. This was a limited doctrine, which prevented a party to a contract from insisting on their strict legal rights under the contract if they had made entered and agreement with the other party relieving it of contractual obligation. It could only be used as a shield and not as a sword. The High Trees promissory estoppel would be used when the person who made the detrimental promise or representation tried to insist on contractual performance and when the other party refused to comply with the terms of the contract, i.e. it was used as a defence. With the Waltons case promissory estoppel could be used as a sword and with this case promissory estoppel obtained the status of a general principle which could operate under all circumstances of legal relations and not just existing contractual relations.
Promissory estoppel is a shield and not a sword in respect of Canadian legal cases. This doctrine allows recovery on a promise made without consideration when the reliance on the promise was reasonable, and the promise was relied on to the detriment of one of the parties to the contract. From the legal point of view promissory estoppel is best used in defense, rather than as an offensive measure. Promissory estoppel as a defensive measure is much easier to implement and realize in Canadian cases than as a tool of offence because vital elements necessary for the fulfilment of promissory estoppel are often not met. Some of these elements are agreement of action, equity, unambiguous consensus and consideration.
However, in Canada the scope of the doctrine of promissory estoppel is not as wide as it is in Australia. In Canada its usage is limited, purely to defence. In Maracle v. Travellers Indemnity Co. of Canada, Sirois J. stated that the defence was failure to commence the action within one year after the loss as per statutory condition 14 of the policy, as set out in s. 125, Item 14 of the Insurance Act of Ontario. Additionally, the defence of failure to file a proof of loss was raised. From the above decision, there are two essential elements to the doctrine of promissory estoppel. First, there must be an expressed or implied admission of liability, and secondly, there must be an expressed or implied promise by the insurer not to rely on the limitation period. The insurer’s implied promise to pay respondent an amount yet to be determined could not create any contractual rights since there was no acceptance. Accordingly, the appeal was allowed in favour of the insurers.[30]
In conclusion we can state that the present position in Australia is that the promissory or proprietary estoppel directly gives rise to obligations. These doctrines have matured from their position as mere rules of evidence to that of rules of obligation, which states that the promisor is bound to ensure that the promisee’s position is not made worse by his promise. A new development in this regard is the moral obligation principle. The short term goal of this principle is the widening of judicial support. The long term goal is to expand the definition of this principle to cover cases like the accrual of benefit to a promisor’s family member rather than only to the promisor like at present, promise to recompense for near tortious harm caused by the promisor and promise to return the disproportionate part of an unequal exchange value received under a contract. In Australian Law, after the Waltons case, the doctrine of promissory estoppel emerged as a powerful instrument which could be used both for defense as well as offence. This tool or weapon can be used against unconscionable terms. In this manner in Australia, promissory estoppel can be used as the basis of an action on its own and it can be anticipated that in the future cases involving detrimental reliance, unconscionable contracts, and the like will be on the decline.
[1] D and C Builders (1966) 2 QB 617 (C of A). (Lord Denning).
[2] (1877) 2 App Cas 439 at 456.
[3] (1947) KB 130.
[4] (1951) 1 All ER 767.
[5] Waltons Stores ( Interstate) Limited v Maher (1988) 76 ALR 513(HC of A).
[6] (1988) 76 ALR 513 at 525. (Mason CJ and Wilson J).
[7] (1975) 3 All ER 865.
[8] (1979) 1 WLR 431.
[9] (1975) 3 ALL ER 865 (taken from summary of facts).
[10] (1949) 1 KB 130.
[11] (1955) 1 WLR 761.
[12] (1877) 2 APP CAS 437.
[13] (1988) 164 CLR 387.
[14] Grundt v Great Boulder Pty Gold Mines (1937) 59 CLR 641.29 (Dixon J).
[15] The Conveyancing Act 1919 (NSW) s 54A.
[16] (1990) 170 CLR 394 F.C. 90/036 (Grundt).
[17] (1947) KB 130 (Lord Denning).
[18] (1877) 2 APP CAS 437.
[19] (1972) 2 QB 189 (Lord Denning,).
[20] (1988) 164 CLR 387.
[21] (1990) 170 CLR 394 F.C. 90/036.
[22] Wood v Blinton (1885).
[23] (1988) 164 CLR 387.
[24] (1951) 2 KB 215.
[25] (1979) 1 WLR 431.
[26] (2000) Part 1 Case 12.
[27] (1988) 164 CLR 387.
[28] (1947) KB 130.
[29] 57 ALJR 152 CLR 406.
[30] (1987), 31 C.C.L.I. 42.
