3A Contractual Estoppel TF
3A Contractual Estoppel TF
3A Contractual Estoppel TF
Timothy Fancourt QC
Falcon Chambers
a. Identify the origins of different estoppel principles and show that they
were quite distinct and different;
b. Show how the view that there is but one underlying principle of equity
came about;
c. Consider the different remedies and requirements attached to different
types of estoppel;
d. Explain why unconscionability is not a key element in all estoppels.
2. I start with a case called Pickard v Sears, in 1837 1 . This is one of the
earliest cases of estoppel by representation, and demonstrates its origins
and underlying principle.
4. You can see from this that that estoppel is in substance an evidential bar.
A plaintiff may not assert in his pleading or in evidence facts contrary to
those which he has led the defendant to assume to be true, and on the basis
of which the defendant has acted to his detriment (changed his position).
In effect, Pickard made a representation of existing fact: that he had no
1
(1837) 6 Ad & El 439
prior title to the machinery, and then sought to assert that he did have prior
title, which he was estopped from doing.
“the rule of law is clear, that, where one by his words or conduct
wilfully causes another to believe the existence of a certain state of
things, and induces him to act on that belief, so as to alter his own
previous position, the former is concluded from averring against the
latter a different state of things as existing at the same time”.
2
upon the faith of such promise or expectation, with the knowledge of
the landlord, and without objection by him, lays out money upon the
land, a Court of equity will compel the landlord to give effect to such
promise or expectation. This was the principle of the decision in
Gregory v Mighell 5 and, as I conceive, is open to no doubt.”
9. This is both far reaching and modern in its approach. Note, in particular,
the words “an agreement for … a certain interest in land”, which proved to
be central to two recent House of Lords decisions on the scope of
proprietary estoppel, Cobbe v Yeoman’s Row 7 and Thorner v Major 8 ;
also, the indication that the remedy (“will compel the landlord to give
effect to such promise or expectation”) is one for which the innocent party
could bring a claim directly, but that the court had a discretion as to how to
satisfy the equity. Note too that the principle so expressed is broad enough
to cover the different types of proprietary estoppel, as we now recognise
them: acquiescence-based, promise-based, and representation-based.
10. You can see at a glance that, however much one may say that it would be
unconscionable in a case of estoppel by representation and in the case of
proprietary estoppel not to grant a remedy – or to say that in both cases the
party making the representation or giving the encouragement is not
permitted to deny that which he has induced the innocent party to believe
because the innocent party has relied on it – the principled basis on which
a court disallows a denial of the representation in one case and grants a
proprietary right in the other is quite different. The test is not, simply: has
the defendant acted or is he acting unconscionably?
11. Different again is promissory estoppel. This arises where the parties are
already in a legal relationship with rights and obligations, and one of the
parties agrees not to enforce his existing rights. It is a tricky area, in the
sense that to allow voluntary promises to be enforced by the promisee
would appear to drive the proverbial coach and horses through the doctrine
of consideration, which is a cornerstone of English commercial law. The
equitable doctrine of promissory estoppel arises of course out of the
famous, or perhaps notorious, decision in Foakes v Beer 9 , where it was
held that a promise to accept part of a debt in full satisfaction was
unenforceable for want of consideration, however much the promisee, to
the knowledge and in accordance with the intention of the promisor, had
changed his position to his detriment in reliance on the promise. So in
5
(1811) 18 Ves 328
6
Lord Cranworth LC in his speech also stated that the principle existed to prevent dishonesty. The
same was said by Fry J in the well-known case of Willmott v Barber (1880) 15 ChD 96 (quasi-estoppel
by acquiescence).
7
[2008] 1 WLR 1752
8
[2009] 1 WLR 776
9
(1883) 9 App Cas 605
3
what circumstances will a court hold a party to an agreement that is
otherwise not enforceable?
12. The origin of this type of estoppel can now be seen to be Hughes v
Metropolitan Railway Company 10 .
13. The facts were simple. A tenant held houses on a lease subject to repairing
obligations on notice. 6 months’ notice was given by the landlord to effect
repairs. After one month, the tenant offered to sell the lease to the landlord
and the landlord engaged in negotiations, remarking that the price first
requested by the tenant was rather unrealistic in view of the condition of
the houses, and asking for a better offer. No further offer was in fact
made. Just before the 6 months expired, the tenant said that, as
negotiations had ended, they would now get on with the works. On 6
months, the landlord re-entered and took possession.
15. Lord Cairns famously expressed the principle on which equity intervened
as follows:
“..it is the first principle on which all Court of Equity proceed, that if
parties who have entered into definite and distinct terms involving
certain legal results …. afterwards by their own act or with their own
consent enter upon a course of negotiation which has the effect of
leading one of the parties to suppose that the strict rights arising under
the contract will not be enforced, or will be kept in suspense, or held in
abeyance, the person who otherwise might have enforced those rights
will not be allowed to enforce them where it would be inequitable
having regard to the dealings which have thus taken place between the
parties.”
“even if the plaintiff himself did not intend to abandon the notice, yet if
his conduct was such as to put the defendants off their guard, and to
lead them to believe that the six months’ notice would not be insisted
on, there is ground for giving relief in equity.”
10
(1877) 2 App Cas 439
4
16. The decision is rather striking on its facts. The landlord had not in truth
done very much, other than show a willingness to negotiate and imply that
the price, if agreed, would reflect the current condition of the houses – i.e.
if the sale was agreed the tenant didn’t need to repair. I’m not sure it
would be decided the same way today, had it not been decided in 1877 –
and a very similar case in 1998 was not decided the same way. 11
b. The equity does not depend on any express promise not to enforce
them, only on exchanges that reasonably led one party to understand
that they would not be;
d. The effect was that the purported re-entry was invalid, because the
landlord could not prove that the tenant had failed to comply with the
notice to repair. Like estoppel by representation, therefore, the
estoppel operated by preventing the landlord from asserting certain
facts.
e. All of their Lordships recognised that the landlord might resume his
position by giving appropriate notice of intention to do so – in other
words, his rights were not extinguished, only suspended. This is a
central aspect of what we now call promissory estoppel.
19. Hughes was, perhaps, not recognised at the time as establishing a new and
separate equitable principle. This came later, in the era of Lord Denning,
11
Dun & Bradstreet Software Services (England) v Provident Mutual Life Assurance Society [1998] 2
EGLR 175
5
starting with the celebrated High Trees House case in 1946 12 , where he
held that in some circumstances a court will refuse to allow a party to act
inconsistently with promises that are intended to be relied on but which are
not supported by consideration. He suggested that equity should reach a
different conclusion from Foakes v Beer where a promise to accept
payment of part of a debt “is acted upon”: “a promise intended to be acted
upon and in fact acted on, is binding so far as its terms properly apply”.
How it had to be acted upon in order to cause equity to intervene was not
spelled out. In fact, in that case, the promise, on its true interpretation, was
held not to apply to the claim for rent that was made, but clear dicta were
expressed to the effect that if it had applied the landlord would not have
been permitted to go back on his promise. There is no evidence that the
lessee did anything other than pay rent at the reduced rate during the war,
and there was certainly no evidence of actual detriment, merely change of
position in not paying the full amount of the rent during the war years,
which was clearly not detrimental. So the only express requirement was
that it should be inequitable to allow the promisor to resile from his
promise, if it was clear, intended to be acted upon and was in fact acted
upon.
20. In later cases, Lord Denning further developed the principles of what had
become known as promissory estoppel. In particular, in Combe v
Combe 13 , it was decided that promissory estoppel creates no new cause of
action. A wife desisted from applying in her divorce proceedings for
maintenance on the basis of the husband’s assurance that he would pay her
£100 a year in maintenance. Since she did not desist at his request, there
was no consideration for the promise, and it was held that she could not
sue her husband for the maintenance. Lord Denning said that promissory
estoppel operates as a shield, not as a sword. No inroads have been made
into this principle, even though procedural complexities sometimes make it
unclear whether it is a shield or a sword that is being wielded.
21. In England in the late 1970s and early 1980s, a view began to take a firm
hold that all types of estoppel are essentially the application of a single
equitable principle, precluding one party from denying something that he
has induced another party to believe, where it would be unconscionable to
do so.
22. The first famous case of this kind was Taylors Fashions v Liverpool
Trustees Co 14 in 1979. In that case (to simplify the facts), a tenant spent
substantial sums on improving its demised premises in the belief that it had
a valid option to extend the lease. The existing lease still had 18 years to
run. Another tenant took an interest in the premises on the same
12
Central London Property Trust v High Trees House [1947] KB 130
13
[1951] 2 QB 215, 219
14
[1982] QB 133
6
understanding. The landlord had authorised the works. The option was in
law void for non-registration, however.
24. But that did not get in the way of Oliver J. He held that the principle in
Ramsden v Dyson relating to proprietary estoppel was broader, as follows:
25. So it did not matter in principle that a defendant had unknowingly allowed
another to make a mistake and act on it to his detriment: the test is whether
in the circumstances, where the claimant has acted by mistake to his
detriment, it would be unconscionable for the defendant to assert a state of
affairs contrary to what the defendant assumed. That leaves the
intervention of equity leaning heavily on the conclusion of what is and
what is not unconscionable, once it is established only that the defendant
was involved in some way in the mistaken actions of the claimant.
26. On the facts, Oliver J. held that no estoppel arose in one claimant’s case
(sc. it was not unconscionable to assert that the option was void) because
the defendant had done nothing to encourage the mistaken belief that the
claimant held: the tenant was mistaken for reasons that had nothing to do
with the landlord. In the case of the other claimant, however, although
both parties shared the mistake, the transaction between them had been
premised on the validity of the option. The documents drafted by the
landlord’s solicitors had referred to the option, implying its validity;
accordingly it would be unconscionable in those circumstances to allow
the defendant to deny the validity of the option.
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28. This later case was Amalgamated Investment & Property Co v Texas
Commercial International Bank 15 . You will recall that there was an
agreement in principle for the Bank to make a loan to a subsidiary of the
plaintiff and for the plaintiff to guarantee the debt. The guarantee was
executed and related to monies owed by the subsidiary to the Bank. The
loan was eventually made, but for exchange control reasons the Bank lent
the money to its subsidiary and that subsidiary lent the monies to the
plaintiff’s subsidiary. This was about 3 months after the guarantee had
been executed. The loan was made (and other security taken) on the
understanding that the loan was guaranteed by the plaintiff, though in fact
the guarantee said nothing about monies owing to the Bank’s subsidiary.
At the plaintiff’s request, the Bank through its subsidiary gave further time
for repayment. The Bank set off monies owed to the plaintiff against the
amount of the guaranteed debt, and the plaintiff sought a declaration that it
was not entitled to make the set-off. The Bank argued that the plaintiff
was estopped from contending that the guarantee did not cover monies
advanced by the Bank’s subsidiary. The plaintiff’s liquidator contended
that there was no equitable estoppel of any established type that could
avail the Bank.
29. Robert Goff J held that it was not right to restrict equitable estoppel to
certain defined categories. He referred to Oliver J’s approach and held
that the question he had to ask was whether in all the circumstances of the
case it was unconscionable for the plaintiff to seek to take advantage of a
shared mistake. The Judge found assurances made by the plaintiff that the
guarantee was valid in relation to the loan, which contributed to the Bank’s
error, and he held that it would be unconscionable for the plaintiff to take
advantage of the Bank’s error. Importantly (though strictly obiter in that
case, since the Bank was not suing on the guarantee), he expressed the
view (by reference to some proprietary estoppel or acquiescence cases)
that it was not an obstacle to an estoppel that it enabled a party to enforce
an obligation where, but for the estoppel, there would not have been a
cause of action. This distinction is referred to in some older Privy Council
authorities as enlarging a representee’s rights or a representor’s
obligations, rather than creating a cause of action.
15
[1982] QB 84
8
31. Lord Denning expressed the following general principle, “shorn of
limitations”, as he put it:
32. That is to say: any mistaken assumption on the basis of which parties have
proceeded cannot be denied if it would be unfair or unjust to allow that.
As a statement of the principle of estoppel by convention, that may be so,
and it throws considerable weight upon the evaluation of unfairness, or
injustice, on the particular facts of a case. In both the Taylors Fashions
and the Texas Bank cases, it was held to be material that the party estopped
was at least partly responsible (innocently) for the inducement of the other
party’s mistake and that the other party had changed its position to some
extent as a result. Clearly, if – as appears to be the case – neither
inducement nor detriment is an express requirement of estoppel by
convention, then the assessment of unconscionability or unfairness or
injustice, call it what you will, becomes in itself a substantial and very
important element.
34. Having looked at the four main types of estoppel – proprietary estoppel;
estoppel by representation of fact; promissory estoppel, and estoppel by
convention, it is now necessary to examine the differences between them.
What we shall see is that proprietary estoppel (including what used to be
called quasi-estoppel by acquiescence) is in many respects a different
creature from the other estoppels, and that while there are many
similarities between the other main types of estoppel there are important
differences too.
16
Lord Bingham of Cornhill and 2 others in Johnson v Gore Wood [2002] 2 AC 1 were prepared to
accept Lord Denning’s formulation as a single formula, but Lords Millett and Goff were not.
9
35. This analysis can be done under the following headings:
36. The classic statement that estoppel acts as a shield and not as a sword
applies with full force to estoppel by representation and promissory
estoppel, and to a large extent (though the position remains somewhat
unclear) with estoppel by convention. But it has no application at all to
proprietary estoppel, where a new cause of action based on entitlement to
an interest in land can be founded on knowing acquiescence,
encouragement or on promise of an interest in future.
39. In Baird, the claimant had supplied M&S for 30 years, and argued that
there was an implied term of its contract that M&S could not terminate it,
17
Low v Bouverie, above.
18
Waltons Stores (Interstate) v Maher (1988) 164 CLR 387.
19
[2002] 1 All ER (Comm) 737
10
except on reasonable notice, and alternatively that it was estopped from
terminating without reasonable notice (which notice period was suggested
to be 3 years, during which M&S had to continue to order goods from
Baird at reasonable prices). The Court of Appeal rejected both arguments,
accepting in terms that it was unarguable that either promissory estoppel or
estoppel by convention could create a right of action entitling Baird to
claim damages for breach of contract, or specific performance.
41. The orthodox view is that a promissory estoppel is suspensory only in its
effect. This can be seen by the Hughes v Metropolitan Railway case. The
landlord was not forever precluded from requiring the premises to be
repaired, nor from enforcing the notice: he could do so on giving
reasonable notice that repair was now required. The same is understood to
be the effect of the High Trees case, and has been asserted in numerous
cases since. 21 However, in many cases the issue doesn’t arise directly
because the promise will be interpreted in such a way as to define the time
during which the promisor’s rights are suspended. That was the actual
decision in the High Trees case.
42. In other cases, where the promise cannot be interpreted in a limited way,
and where the promisee has permanently lost an opportunity or a right as a
result of relying on the promise, it may be inequitable to allow the
promisor to resume his rights at all. This is an example of the flexibility of
20
This view is supported the by analysis of Longmore LJ in Triodos Bank NV v Dobbs [2005] EWCA
Civ 630 at [26] and that of Mance LJ in Baird Textile Holdings v Marks and Spencer plc at para [88].
21
See, e.g., Tungsten Electric Co v. Tool Metal Manufacture Co [1955] 1 WLR 761.
11
the doctrine, and it will be recalled that whether or not it is inequitable to
allow the rights to be asserted is one of the required elements that have to
be proved with promissory estoppel. There is no requirement as such for
detriment 22 , though detrimental reliance may well satisfy the requirement
that it be inequitable to allow the right to be enforced. In some cases, even
though there is a promise not to enforce rights, it may not be inequitable at
all to prevent the promisor from asserting his rights without limit, either
because no prejudice has been suffered by the promisee or because of
other extraneous reasons. 23
22
W.J. Alan & Co v El Nasr Import and Export [1972] 2 QB 189, 213.
23
Societe Italo-Belge pour le Commerce v Vegetable Oils (Malaysia) Sdn Bhd [1981] 2 Lloyd’s Rep
695; Orchard Central Pte v Cupid Jewels Pte [2013] SGHC 46.
24
See e.g. Troop v Gibson [1986] 1 EGLR 1, where the estoppel was spent once the parties realised
their mistaken understanding of what the alienation covenant in fact stated.
25
Low v Bouverie, above.
12
enforcement or reliance in future on existing rights. The promise is
generally said to be required to be clearly made, and unequivocal. 26
47. In relation to proprietary estoppel on the other hand the principles appear
to be different. Although the rights acquired must relate to a certain
interest in land, at least where the estoppel is based on a representation or
on a promise (Cobbe v Yeoman’s Row), in the case of a promise to confer
rights in future it was held that the promise need only be “clear enough”,
not necessarily explicit; and in the leading case in England now on
representation- and promise-based proprietary estoppel 27 (Thorner v
Major), the assurance of inheritance was not even made in words. And in
many cases the rights arise out of acquiescence, not language.
(4) Inducement
48. As I have already said, it seems to have been a very material fact in both
the Taylors Fashions and the Texas Bank cases that the assumed validity
of the option/guarantee, as communicated by the landlord/guarantor, at
least partially induced the counterparty to act. Where in the case of one of
the tenants in Taylors Fashions there was no inducement as a result of
anything the landlord had done, no estoppel binding the landlord was
found. Inducement can be seen to be a relevant and common issue in all
types of estoppel that I have considered, though it is not a primary
requirement of estoppel by convention.
13
50. Proprietary estoppel too has a clear requirement of detrimental reliance on
the acquiescence, representation or promise of the owner, in other words
that the conduct of the owner of the land induced the other person to act to
his detriment.
51. So far as estoppel by convention is concerned, it is not the case that the
mistake made by the party seeking to rely on the estoppel has to be created
or contributed to by the party estopped. There is no requirement of an
unambiguous representation or promise, and it can be enough that the
party seeking to rely on the estoppel makes a mistake, that the mistaken
understanding in some way “crosses the line”, and that the other party then
acquiesces in it, entirely innocently. Whether or not, in those
circumstances, it would be unconscionable for the party estopped to depart
from the convention is a question at large, and is likely to be highly fact
sensitive.
52. In Texas Bank, the fact that the communications from the guarantor played
a part in the conventional understanding of the bank was considered by the
trial judge to be highly material. Similarly, in Taylors Fashions, the fact
that Taylors were not in fact influenced by any communication of the
landlord proved to be significant in the judge’s conclusion that no estoppel
bound the landlord vis-à-vis Taylors. It seems to me that, in reality and
despite the fact that there is no requirement of inducement as such, in the
cases where estoppel by convention succeeds there is always some
causative link between the factors establishing the convention and the
change of position. So there would have to be some connection proved
between the acquiescence of party estopped and the party who made and
acted on the basis of the mistake, otherwise it would not be
unconscionable to deny the convention.
Unconscionability
29
[2002] 2 A.C. 1
30
Republic of India v India Steamship Co (No.2) [1998] AC 878, 914.
14
54. It is easy to describe a general approach to estoppel in terms such as: relief
is granted by the court to prevent someone, who has induced another to act
on one basis, from acting unconscionably in asserting inconsistent rights.
However, that is more in the nature of general description of a class of
cases, and no court grants a remedy simply on the basis that it considers
that a person is acting unconscionably. Indeed, in Cobbe v Yeoman’s Row,
Lord Scott of Foscote made it clear that he considered that the company
was acting in an unconscionable manner in resiling from its commitment
to share the profits of the development with Mr Cobbe, but that
nevertheless the claim fell a long way short of establishing any entitlement
to relief under a constructive trust or by way of proprietary estoppel. Lord
Walker of Gestingthorpe on the other hand considered that the company
was acting unattractively but not unconscionably. If the test had depended
on that criterion, the two Law Lords would not have agreed in the result in
that case, which in fact they did.
56. The answer, I suggest, is that in relation to some types of estoppel, as they
have been formulated over the years by the courts, inequitable or
unconscionable conduct is a substantive element of the estoppel, whereas
in others on a true analysis it is not. The estoppels that fall into the first
category are promissory estoppel and estoppel by convention. With
promissory estoppel, the court must be satisfied that in all the
circumstances it would be inequitable for the promisor to go back on his
promise. With estoppel by convention, the court must be satisfied that it
would be unjust or unconscionable in the circumstances to allow the
parties to go back on the convention. In neither of those types of estoppel
is there a required element that the promisee was induced by the promise
or convention to act to his detriment.
15
discretion has nothing to do with unconscionability. There is no need, in
these cases, for any separate assessment of whether or not the conduct of
the defendant is unconscionable. That question has already been
answered. 31
59. For that reason, in my view, unless one is to retreat to a kind of palm tree
justice, where everything depends on the judge’s view of what is in all the
circumstances unconscionable, it is essential to be clear about whether the
estoppel relied upon is a proprietary estoppel, an estoppel by
representation, a promissory estoppel or an estoppel by convention. The
dividing line between estoppel by representation and estoppel by
convention can be somewhat unclear, on the facts of many cases, and in
other cases there may be a promissory estoppel and an estoppel by
convention in play. But nevertheless, in analysing whether an equity is
established, it is necessary to consider each of the types of estoppel
separately, in order to avoid confusing the ingredients of each. 32
31
See per Sundaresh Menon JC in Hong Leong Singapore Finance v United Overseas Bank [2006]
SGHC 205 at [191,192]; but, apparently contrary to this, per Lai Siu Chiu J in Neo Hui Ling v Ang Ah
Siu [2012] SGHC 65 at [79, 80].
32
An approach endorsed by Chan Seng Onn J in Chng Bee Kheng v Chng Eng Chye [2013] SGHC 48
at [95, 96].
16
61. The answer is not and should not be, simply, whether there is an
underlying incorrect assumption from which, in all the circumstances, it
would be unjust to allow a party to resile.
fancourt@falcon-chambers.com
17