2.2) Prerequisites of promissory estoppel
Promissory estoppel requires (1) there must be an existing legal relationship, (2) detrimental reliance; (3) the doctrine can only be used as a “shield not a sword”,
(4) Inequity for the promissory to go back upon his promise and (5) the doctrine is only suspensory in its effect.
2.2.1) The requirement of a pre-existing contractual relationship
It has been controversial over the issue of whether the requirement of pre-existing contractual relationship was necessary for the existence of promissory estoppel. The first element of promissory estoppel is that there must be a promise or a representation as to future conduct which is aimed to affect the legal relations between the parties and which shows that the promisor will not assist on his strict legal rights against the promisee. A clear and unequivocal or unambiguous promise must be made, thus the promisor does not lose their rights simply because he has failed throughout to assist upon strict performance of the contract by the promisee. This was clearly the case in High Trees House itself where it was a case of lease and hence the contractual relationship was present. However, where there is no pre-existing legal relationship between the parties, as in Combe v Combe where the wife had no basis for asserting a right against her husband other than the fact that she alleged that she had acted detriment in reliance upon his promise which was unsupported by consideration. Then, the promisee cannot invoke estoppel due to the reason that it would create a completely new cause of action. Sometimes a distinction is sought to be drawn between a 'contractual relationship' and a 'legal relationship'. In the Malaysian case of Cheng Hang Guan & Ors v Perumahan Farlim (Penang) Sdn Bhd & Ors , the court dismissed the landlord's contention that promissory estoppel should be confined to cases where the parties are contractually bound to one another.
In Durham Fancy Goods Ltd v Michael Jackson (Fancy Goods) Ltd, Donaldson J gave rise to a promissory estoppel because it would be inequitable to allow the plaintiff to enforce against the director personally. If the bill had been in the proper form, such liability would not have arisen. Therefore, promissory estoppel only arises where there is an existing contractual relationship. This case was proved by Lord Denning in Evenden v Guildford City FC . He held that promissory estoppel could apply only where there is no existing legal relationship at all between the parties. Browne LJ who was supported his view and also found for the plaintiff on the basis that continuous employment under Section 9 of the Redundancy Payments Act 1965 could not be rebutted relying on the statement made by the new employer. Nevertheless, Webster J stated in The Henrik Sif that the ‘legal relationship’ was necessary as to the background of promissory estoppel.
2.2.2) The doctrine can only be used as a ‘shield not a sword’
The second requirement of promissory estoppel is that the doctrine cannot act as a cause of action; in other words, it acts as a shield but not as a sword. The doctrine only applies as to variation or discharge of an existing contract and does not affect the requirement of consideration on formation of a new contract. The sword or shield dichotomy suggests that a distinction need only be drawn between two cases when in fact the reality is that ‘the use that can be made of an estoppel can be represented by a spectrum ranging from a defence to the creation of a new cause of action.’ At the end of this spectrum, the position is clear. Estoppel can be used as a shield to defend a claim as showed in the case of Avon County Council v Howlett The Court of Appeal upheld the defendant’s argument. The effect of the estoppel was to act as a shield and to defect a claim which would otherwise have succeeded.
2.2.3) There must have been (detrimental) reliance
The third element of promissory estoppel is that the promise or representation must have been relied upon by the promisee. In such a situation he may be deemed to have rejected the representation or simply ignored it -- which again shall amount to rejection by implication. Alternatively, the representation may be relied upon in consequence of which the promisee does some act or refrains from doing something which he could have lawfully done. Thus, promissory estoppel is applied in this situation of action or inaction on the part of the promisee. There are dicta which suggest that the promise, however, it was commented that it is sufficient to show that the promisee committed himself to a cause of action which he would not otherwise have adopted. Even though some form of reliance on the promise by the promisee is required, whether such reliance should be detrimental to the promisee is disputable. It was showed that there was an actual detrimental reliance in Hughes v Metropolitan Railway. However, the Privy Council held in Emmanuel Ayodeji Ajayi v RT Briscoe (Nigeria) Ltd that the reliance must be detrimental. In WJ Alan& Co v E L Nasr Lord Denning in the Court of Appeal refused to accept this as a necessary requirement for either waiver or promissory estoppel. Megaw LJ agreed that there had been a binding waiver although without dealing with the specific point on ‘detriment’. However, Stephenson LJ held that the party acting on the waiver had suffered a detriment anyway. Notwithstanding the presence of the element of detriment, generally, in cases where promissory estoppel has been applied or acknowledged, the representation relied on by the promisee may not always result in detriment to him. Conversely, the representee may, at times, have gained some advantage by acting in reliance on the promisor's representation. This is true of cases where the landlord, in view of the financial difficulties of the tenant, grants him the relief by promising to charge reduced rent in respect of the subject matter of the lease. The promisee is placed in a more advantageous position than he would have been prior to the representation or promise. This was specifically the position in the landmark case of High Trees. Lord Denning granted the claim in respect of future rents but opined in obiter that, had the landlord made a claim for the original rent of ₤ 2,500 in respect of the past, he would be estopped. Thus, the promisee was put to an advantage by acting in reliance on the representation of the promisor. Consequently, the element of detriment found a place in the notion of estoppel, probably as an alternative for the common law doctrine of consideration. Nevertheless, a change is apparent in later cases, where the element of detriment has either not been insisted upon or has been expressly rejected as a requirement for the application of promissory estoppel. Lord Denning, whose contribution to the development of estoppel in English law cannot be overemphasized, has no doubts in his mind that the modern developments to consideration show a slow disregard of the theory of 'benefit and detriment. Reacting to the trial judge's insistance on the requirement of detriment Lord Denning, at one time, retorted that the authorities in support of the requirement have been wrongly cited as they never supported such a view. His Lordship emphasized that it is not necessary for the other party (promisee) to show that he has acted to his detriment. All that is required is that one should have acted on the belief induced by the other party.
2.2.4) Detrimental alteration of the promisee's position
The fourth element is that it must be inequitable for the promisor to go back upon his promise. “This will usually be satisfied by demonstrating that the promisee had acted in reliance upon the promise. The common example would be the case of a tenant whose period of tenancy is nearing an end but receives representation from the landlord that he could continue to enjoy tenancy on the original terms and conditions. Relying on such representation the tenant continues the tenancy and gives up the idea of renting another place which could be beneficial to him in terms of rent and the quality of accommodation. The landlord would not be allowed to back out from the representation and ask the promisee to leave the premises as it would be inequitable for him to do so. The detriment would also result in such cases if in reliance on the landlord's representation the tenant incurs investment costs on the improvement of the premises.” This is clearly showed in the case of D&C Builders Ltd v Rees. The plaintiffs had carried out building work for the defendant for the value of ₤482. After months of pressing for payments, the defendant’s wife knowing of their financial difficulties, thus offered ₤300 in full settlement, saying that if they refuse to accept, nothing will be paid. The plaintiff accepted the cheque for ₤800 and gave a receipt ‘in completion of the account’. Later they brought an action to recover the remainder. The court held that promissory estoppel does not apply as the plaintiff’s promise was procured under pressure.
Furthermore, in the situation where the husband obtained an absolute decree of divorce and paid the arrears of maintenance to his divorced wife up to the date of the decree. “The husband refrained from proceeding under the Divorce and Matrimonial Causes Act to set aside or vary the post-nuptial Settlement effected by a deed of separation between the parties, on the representation of the public trustee (as administrator of the respondent wife's estate) that the maintenance order or decree absolute abrogated the maintenance provisions of the separation deed. The public trustee was estopped from going back on his representation and claiming maintenance under the separation deed.” However in the Post Chaser, the promise was made and withdrawn within a few days. Although the other side had relied on the promise, their position had not in fact been prejudiced by such reliance. Therefore, it was not inequitable to allow the promisor to withdraw the promise. To conclude, the promisee must have acted equitably. If the promise was extorted by threat, so it would not be inequitable to allow the promisor to go back on his promise.
2.2.5) Are rights of the promisor merely suspended or extinguished?
The final point to consider is whether the rights of the promisor merely suspended or extinguished. In Hughes v Metropolitan Railway Co, the landlord’s right to enforce the repairing agreement was not extinguished. It was suspended and could be revived by his giving reasonable notice. However, in High Trees the estoppel had permanent effects because Lord Denning was of the view that the lessors would not have been entitled to demand the rent waived between 1940 and 1945. Such a proposition is difficult to reconcile with Foakes v Beer. In this case, Dr. Foakes owed Mrs. Beer a sum of money and she agreed that Foakes could pay the debt in installments. However, when he had done so, Mrs. Beer sued to recover the interest on the debt. The House of Lords held that even if Mrs. Beer had promised to forego the interest, but the promise was unenforceable because Dr. Foakes had provided no consideration for it. To that extent, the effect of doctrine was simply suspensory.
Another case which supports this statement is that even if the promise is expressed to last indefinitely, it is likely that it will be able to be withdrawn by giving appropriate notice. In Tool Metal Manufacturing Co v Tungsten Electric Company there was a promise to accept a reduced royalty in relation to the operation of some patents. It was held that the promisor could withdraw the promise by giving reasonable notice, from which point the original terms of the agreement would coma back into operation. In conclusion, it is not true to say that promissory estoppel only operating in a suspensory way. In fact, the nature of the promise and the type of contract to which it applies will determine the precise effect of promissory estoppel.
3.0) Conclusion
After detail analyzing, I personally think that promissory estoppel is a fantasy due to the reason if it does not satisfy the requirements set out in the doctrine itself. However, promissory estoppel can be regarded as fantasy or fact depends on nature of promise and the type of contract to which it applies. In order for the doctrine to apply or function effectively, it must satisfy several requirements that are there must be a pre-existing legal relationship between the parties under which the promisor promises to give up some of his rights under that relationship. Furthermore, estoppel can act as a shield but not a sword. The effect of the estoppel is to prevent the promisor going back on his promise where the promise has acted in reliance upon it. The final point is that the effect of promissory estoppel is generally suspensory; it does not extinguish the promisor’s rights. To conclude, I would like to reaffirm my stand that promissory estoppel is a fantasy because most of the cases suggested that promissory estoppel did not applied in the fact of the cases. However, the cases of Tool Metal Manufacturing v. Tungsten Electric Co and Hughes showed the exceptions to this doctrine in which promissory estoppel did apply.
(3103 words)
Commonwealth of Australia v Verwayen (1990) 170 CLR 394 at p 410, per Mason CJ.
Amalgamated Investment & Property Co Ltd (In liquidation) v Texas Commerce International Bank Ltd [1982] QB 84 at p 103, per Robert Goff J.
(1993) 3 MLJ 352. The plaintiff family had been staying on the defendant's land for more than 100 years. He was given assurance by and on behalf of the landlord that his occupancy would not be disturbed as long as he desired and continued to pay the rent. The plaintiff had made huge investments by cultivating the land and constructing two houses thereon.
(1968) 2 QB 839 ; (1968) 2 ALL ER 987 This case concerned about a bill of exchange was drawn by the plaintiffs on the defendants.
(1983) 1 WLR 603 This case concerned about the defendant was overpaid by his employers, the claimants. They sought to recover the money as paid under a mistake of fact. The defendant argued that the claimants were estopped from pursuing their claim because they had made a representation of fact to him that he was entitled to the money and he had spent some of the money in reliance upon their representation.
Privy Council (1964) 3 All ER 556; (1964) WLR 1326.
(1972) 2 All ER 127. This case concerned a letter of credit which opened in sterling rather than Kenyan shillings as specified in a contract.
Supra 5. The lessee faced a financial pressurize on account of the vacancy of the flats. The lessor promised to reduce the annual rent from ₤2500 to ₤1250. When the flats were occupied again by tenants, the original rent was claimed by the lessor.
Denning AT, 'Recent Developments in the Doctrine of Consideration', at p 2. It was Sir Fredrick Pollock who, in his book on contracts (12th Ed, at p 142), first pointed out that 'the doctrine of consideration has been extended, with not very happy results, beyond its proper scope which is to govern the formation of the contract and has been made to regulate and restrain the discharge of contracts.'
WJ Alan & Co Ltd v El Nasr Export and Import Co [1972] 2 QB 189 at 213. His Lordship was referring to the case of Tool Metal, infra n 28 where Lord Viscount Simonds said that the promisee must have been led to alter his position, which has wrongly been understood to imply 'alter his position to his detriment'.
Ali Mohammad Matta, “Promissory estoppel: the unchained doctrine” [1999] 2 MLJ lxviii; [1999] 2 MLJA 68
(1981) 2 Lloyd’s Rep 695; (1982) 1 All ER 19. This case is concerned about the seller relying on the representation of his buyer arranges his affairs, tenders documents of goods to the buyer and by so doing misses the opportunity to dispose off the documents elsewhere for a price greater than that and the buyer later rejects the documents.
Richard Stone, “the Modern Law of Contract”, 5th Ed, Cavendish Publishing, p 101.
Ewan Mc Kendrick, Contract Law, 4th ed, Palgrave, 2000, p.108