Contractual negotiations and proprietary estoppel: the need for detrimental reliance

In Pakwell Investment Ltd v CRC Department Store ([2002] HKEC 112), Pakwell was negotiating for the grant to it of a lease of a large amount of space used as a department store. The negotiations were concluded and by mid-July 1999, the parties were preparing to exchange contracts. The final agreement had been prepared. All the correspondence until that time had been ‘subject to contract’ but on 13th and 14th July there was an exchange of correspondence (concerning the arrangements for concluding the contract) that was not expressly made subject to contract. There was a change in management at CRC and it decided not to proceed with the transaction. Pakwell sought damages for breach of contract or relief based on proprietary estoppel.

The contract claim failed. The subject to contract label had not been removed expressly or by necessary implication and it applied to the correspondence on 13th and 14th July. The judge seems to have been open to the possibility that an assurance had been given for the purposes of proprietary estoppel but said that even if there were an assurance CRC was not committed unless there had been detrimental reliance (para. 20). Pakwell had incurred expenditure linked to its project and the taking of the lease but the judge found that this was expenditure that it would probably have incurred anyway as it prepared for its hoped for and anticipated exchange of contracts. There was no evidence of extra expenditure specifically in reliance on any assurance that might have been given that the agreement would be concluded. The proprietary estoppel claim also failed.

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