Estoppel by deed

In Prime Sight Limited v Lavarello ([2013] UKPC 22, Privy Council) M assigned a long lease to Prime Sight (‘the company’) a company which was controlled by him. The deed of assignment acknowledged the payment and receipt of the consideration. No consideration had been paid. M’s trustee in bankruptcy sought payment of the consideration. When this was not forthcoming, L petitioned for the winding up of the company.

The company sought to have the petition struck out on the ground that the debt was disputed on substantial grounds.  The basis for the dispute was the company’s argument that M (and so the trustee) were estopped by the acknowledgement in the deed. The question was whether the company could rely on this acknowledgement when both parties knew it to be untrue.

The Privy Council concluded that the estoppel defence did amount to a substantial ground on which the debt was disputed and the winding up order that had been made at first instance was set aside.

First, it needed to be shown as a matter of construction that the statement was intended to bind either or both of the parties ([32]).

Lord Toulson approved this passage in in Spencer Bower on Estoppel by Representation 4th ed (2004) (at p. 197),

‘… an estoppel by convention need not involve any misleading of a representee by a representor, nor is it essential that the representee shall be shown to have believed in the assumed state of facts or law. The full facts may be known to both parties; but if, even knowing those facts to the full, they are shown to have assumed a different state of facts or law as between themselves for the purposes of a particular transaction, then a convention will be established. The claim of the party raising the estoppel is, not that he believed the assumed version of facts or law was true, but that he believed (and agreed) that it should be treated as true.’ (at [45]).

This statement also appled to estoppel by deed ([46]). The court may refuse to apply the convention in cases of fraud, illegality, mistake and misrepresentation or on the grounds that to apply it would be contrary to public policy ([47]). If the trustee wanted to argue that there was something illegal or contrary to public policy in the present case he would need to persuade the court that this was so ([51]).

Michael Lower

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