Lecture 9 (Promissory Estoppel) PDF

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LLB Contract 1 Prof. FAN Kun, CUHK

Lecture 9 Promissory Estoppel Reading for Week 9: Introduction to estoppel The emergence of promissory estoppel Clear and unequivocal promise Alteration of position Inequitable conduct by promisee Suspension and extinction of rights Defensive character LCHKCC Core Cases: • Central London Property Trust Ltd v High Trees House Ltd [1947] 1 KB 130(KB). • Tye v Meadowsfreight (Asia) Ltd [1987] 1 HKC 191 (HKCA). • Attorney General of Hong Kong v Humphreys Estate (Queen’s Garden) Ltd [1987] HKLR 427, [1987] 1 AC 114, [1986] 1 HKC 592 (PC, HK). • Société Italo-Belge pour le Commerce et l’Industrie SA v Palm Oil and Vegetable Oils (Malaysia) Sdn Bhd (‘The Post Chaser’) [1982] 1 All ER 19 (QB). • Bestkey Development Ltd v Incorporated Owners of Fine Mansion [1999] 2 HKLRD 662, [1999] 3 HKC 275 (HKCA).

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LLB Contract 1 Prof. FAN Kun, CUHK

I. Introduction to the Doctrine An estoppel is a juridical device which forbids a party from resiling from a statement made or a position adopted where it would be inequitable to do so. In certain circumstances, a promise made without consideration can produce contractual effects; this is known as promissory estoppel. The doctrine, which was much later to be identified as promissory estoppel, was glimpsed in a decision of the House of Lords in 1877 (Hughes v Metropolitan Railway Co (1877) LR 2 App Cas 439). After falling into semi-obscurity which was to last for 69 years, Hughes was returned to centre stage by a landmark judgment of Denning J. • Central London Property Trust Ltd v High Trees House Ltd [1947] 1 KB 130 (KB). The doctrine which Denning J propounded is a distinctively flexible one. A contracting party who, with the intention to be legally bound, makes a promise which he knows the other party will act upon will have the promise enforced against him provided the other party has acted on it. No consideration is necessary, but because the doctrine of consideration remains in place the promise cannot give rise to a contractual obligation where none previously existed — it can serve only to modify extant contractual obligations. 1. Purpose: to remove inadequacies of doctrine of consideration especially for varying existing contracts. 2. Concepts: • Reliance—the promisee acted on the promise • Equitable Doctrine—based on equity in common law and inherently flexible • Shield, not sword—cannot give rise to a contractual obligation where non previously existed—can serve only to modify, suspend or extinguish extant contractual obligations II. Clear and Unequivocal Promise The promise made must be clear and unequivocal. A party will not be shut out from the enforcement of his contractual rights by making an unclear or equivocal statement which was misunderstood by the other party. Not every ambiguity in a promise will prevent it from forming the basis for an estoppel. Promises containing ambiguities which are the product merely of ‘far-fetched or strained, but still possible, interpretations’ will not preclude an estoppel from arising on their foundation (Woodhouse AC Israel Cocoa SA v Nigerian Produce Marketing Co Ltd [1972] AC 741 (HL)). Otherwise, an ambiguity in the promise will be fatal to the existence of an estoppel (Legione v Hateley (1983) 152 CLR 406 (HC, Australia); Bank of India v Surtani Murladhir Parmanand [1994] 1 HKC 7 (HKCA)).

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LLB Contract 1 Prof. FAN Kun, CUHK

Because a promissory estoppel may be employed to suspend or extinguish contractual rights, any ambiguity in the promise should be interpreted in such a way as to preserve enforceability of the contract according to its terms. • Tye v Meadowsfreight (Asia) Ltd [1987] 1 HKC 191 (HKCA). 1. Silence The requirement of a clear and unequivocal promise would appear to suggest that silence cannot provide a foundation for a promissory estoppel. As a general proposition this is correct, but silence may in exceptional circumstances create an estoppel binding on a contracting party (Victory Star Ltd v Ng Fung Ying [2004] 2 HKLRD 518, [2003] 4 HKC 677 (HKCA); Tradax Export SA v Dorado Compania Naviera SA (‘The Lutetian’) [1982] 2 Lloyd’s Rep 140 (QB)). 2. Conduct Conduct may also give rise to an inference capable of founding a promissory estoppel (eg Hughes v Metropolitan Railway Company (1877) LR 2 App Cas 439, [1874–80] All ER Rep 187). Where, however, the agreement between the parties is expressed to be ‘subject to contract,’ it is much less likely that the conduct of one party will give rise to an inference founding an estoppel. • Attorney General of Hong Kong v Humphreys Estate (Queen’s Garden) Ltd [1987] HKLR 427, [1987] 1 AC 114, [1986] 1 HKC 592 (PC, HK). It is likely that before silence or conduct can give rise to a promissory estoppel, the inference drawn from the silence or conduct which is said to found the estoppel must be the only one reasonably available. Such a requirement is consistent with the corresponding requirement for actual statements that, in order to found a promissory estoppel, they must be clear and unambiguous. III. Alternation of Position That the promisee must have altered his position in reliance on the promise is clear. What is not quite so clear, especially in Hong Kong, is whether that reliance must have been detrimental to the promisee. The critical point is not whether the promisee has acted to his detriment but whether, in all the circumstances, it would be inequitable to allow the promisor to revive his strict contractual rights. Among the factors that will be relevant in making such an assessment is whether the promisee has acted to his detriment in reliance on the promise. Detrimental reliance is not, however, essential in order to conclude that it would be inequitable to permit a revival of the promisor’s rights under the contract. This is the understanding that now appears to prevail in England.

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LLB Contract 1 Prof. FAN Kun, CUHK

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Société Italo-Belge pour le Commerce et l’Industrie SA v Palm Oil and Vegetable Oils (Malaysia) Sdn Bhd (‘The Post Chaser’) [1982] 1 All ER 19 (QB).

In apparent contrast to the current position in England as expressed by the divisional court in The Post Chaser, the Hong Kong Court of Appeal has much more recently reiterated a need for detrimental reliance in order to establish a promissory estoppel. • Bestkey Development Ltd v Incorporated Owners of Fine Mansion [1999] 2 HKLRD 662, [1999] 3 HKC 275 (HKCA). The dichotomy between ‘detrimental reliance’ (Bestkey) and ‘reliance resulting in prejudice if strict contractual rights are revived’ (The Post Chaser) is probably a distinction without a difference. Whichever formulation of the test is applied, in order to establish a promissory estoppel it is necessary to show that it would be inequitable in all the circumstances to revert to the promisor’s strict contractual rights because of the prejudice which would be occasioned to the promisee. In apparent contrast to Bestkey, a differently constituted Hong Kong Court of Appeal has since embraced the view that the promisee must demonstrate reliance on the promise but that detriment is not necessary (Dixie Engineering Co Ltd v Vernaltex Co Ltd t/a Wing Wo Engineering Co [2003] HKCU 136 (HKCA)). III. Defensive Character of Promissory Estoppel It is clear that a promisor may be estopped from enforcing his strict contractual rights against a promisee because those rights have been either suspended or extinguished. In practical terms, this means that the promise may raise the promise as a defence against a claim (or counterclaim) brought by a promisor seeking to enforce the contract according to its terms. To permit promissory estoppel to be used as a cause of action, however, would be arguably tantamount to abolishing the doctrine of consideration. According to this view, a promisee cannot bring an action to enforce an estoppel raised by the promisor’s undertaking. It is in this sense that promissory estoppel is sometimes said to be ‘a shield, but not a sword’ (Combe v Combe [1951] 2 KB 215 (ECA)).

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