BetterLawNotes-5 (2)

CONTRACT LAW

It is helpful to identify the following requirements which a party will have to establish in order to rely on promissory estoppel:

A clear and unequivocal promise

For promissory estoppel to operate, there must be a ‘clear and unambiguous’ promise (Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd [1972] AC 741, 755 (Lord Hailsham LC)), either by words or conduct, by the promisor that he will not enforce his strict legal rights. Furmston cites (Cheshire, Fifoot and Furmston’s Law of Contract 17th edn (2017) at 136-137) as an illustration of this requirement, the Canadian case of John Burrows Ltd v Subsurface Surveys Ltd.

John Burrows Ltd v Subsurface Surveys Ltd (1968) 68 DLR (2d) 354

By a promissory note, the defendant company promised to pay the sum of $42,000 to the claimant company in nine years and ten months’ time. In the meantime, the defendant promised to pay interest on the first day of each month. The note further provided that if any interest payment remained unpaid after ten days, the principal amount would immediately fall due for payment. Subsequently, the defendant’s interest payments were paid more than ten days’ late on eleven occasions, but the claimant did not demand payment of the principal sum. The parties then fell out. When payment of interest was overdue for a twelfth time, the claimant sought payment of the entire debt.

The Supreme Court of Canada held that the evidence did not warrant an inference that the claimant had promised not to claim payment of the principal should the defendant fail to pay monthly interest as promised. On the contrary, the claimant’s conduct was more consistent with its having granted friendly indulgences to the defendant while reserving its right to insist on strict compliance with terms of the promissory note.

An intention that the promise be relied on

In his judgment in the High Trees case, Denning J makes it clear that the promisor must intend that the promise should act on the promise. How can such an intention be shown? In High Trees, the fact that the landlord intended that the tenant rely on its promise to reduce the rent by half could be shown by the fact that the landlord accepted half-payment and did not treat it as a breach of the terms of the lease.

Reliance on the promise by the promisee

It is also necessary that the promisee does in fact rely on the promise. However, there is no requirement that such reliance is of itself detrimental to the promise.

‘The fundamental principle is . . . that the representor will not be allowed to enforce his rights ‘where it would be inequitable having regard to the dealings which have thus taken place between the parties’. To establish such inequity, it is not necessary to show detriment; indeed, the representee may have benefited from the representation, and yet it may be inequitable, at least without reasonable notice, for the representor to enforce his legal rights.’

(Societe Italo-Belge pour le Commerce et l’Industrie SA v Palm and Vegetable Oils (Malaysia) Sdn Bhd, the Postchaser [1982] 1 All ER 19 (Robert Goff J at 26-27))

So, in High Trees, the tenant relied on the landlord’s promise to reduce the rent by paying only half, and not all, of the rent. The fact that doing so might be said to benefit the promisee is irrelevant at this stage.

Inequitable to enforce the promisor’s strict legal rights

The essence of promissory estoppel is that it would be inequitable to allow the promisor to enforce his strict legal rights. Note that it won’t necessarily be inequitable to allow the promisor to enforce his strict legal rights merely because he had promised not and the promisee relied on that promise: generally, something more will be needed. So in High Trees it might have been inequitable for the landlord to seek the unpaid balance of the rent for the war years because the tenant conducted its affairs during that period on the assumption that it would have to pay 50% of the rent: had it known that it might end up having to pay the rent in full, it would have acted differently, for example spent less money on other things, in the meantime.

On the facts of a particular case, it may not be inequitable for the promisor to enforce his strict legal rights despite having promised not to do so. This provides one ground for the decision of the Court of Appeal in D & C Builders v Rees [1966] 2 QB 617 (a case which is considered in more detail in the section on duress). For another example, see:

Societe Italo-Belge pour le Commerce et l’Industrie SA v Palm and Vegetable Oils (Malaysia) Sdn Bhd, The Postchaser [1982] 1 All ER 19

S agreed to sell a quantity of palm oil to B. B agreed to sell the consignment to T. The contract between S and B provided that S was to make a declaration of ship in writing as soon as possible after the vessel containing the consignment of oil set sail. S did not give the declaration until a month after the ship had sailed. B made no protest about the lateness of the declaration and requested S to deliver the consignment documents to T. T rejected the documents whereupon B too rejected them. Was B entitled to reject the documents in the first place? If so, had it lost that right by initially failing to do so? Goff J held that the delay in making the declaration of ship entitled B to reject the documents. B though had unequivocally represented to S that it had waived its rights to reject the documents by requesting S to hand them to T. However, while S had relied on this representation, given the time between the representation and the rejection, and the fact that S’s position had not been prejudiced by reliance on the representation, it would not be inequitable for B to rely on its strict legal rights to reject the documents.

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