Archive for the ‘estoppel in pais’ Category

Common law estoppel: mortgagee not revealing his interest in the property

July 5, 2012

In Pickard v Sears (112 E.R. 179) P was the the mortgagee of property which the remained in the actual possession of M (the mortgagor). A writ of fieri facias was executed and the sheriff took the property mortgaged to P. P spoke to the sheriff about the sale of the property but never mentioned his own mortgage. The property was sold to S. P then claimed the property or payment of his debt from S. S refused. It was held that P was estopped from pleading his own mortgage having failed to mention it to the sheriff before the sale:

‘But the rule of law is clear, that where one by his words or conduct wilfully causes another to believe the existence of a certain state of things, and induces him to act on that belief, so as to alter his own previous position, the former is concluded from averring against the latter a different state of things as existing at the time.’ (Lord Denman CJ).

Recovering payments made voluntarily and with full knowledge that they may not be due. Estoppel in pais

July 3, 2012

Grundt v The Great Boulder Proprietary Gold Mines Ltd ((1937) 59 CLR 641) concerned a tribute agreement (the right to mine gold from a specified seam). The agreement allowed G to mine the ore. He was then to deliver it to the mine owner which would process it and account to G for half of the proceeds of sale. On 8 May 1935, the mine owner complained to G that he was mining in an area that was not covered by the agreement. At a meeting on 29 May 1935, G offered to stop all mining until the dispute as to the extent of the seam covered by the agreement could be settled by arbitration. The owner’s representative told him not to do this but it was still clear that there was a dispute and that the owner was not prepared to agree to G’s understanding as to the area covered by the agreement. Nevertheless, the mine owner continued to process all of the ore delivered by G and to account for a half share even though the owner was aware that G was still mining the disputed area as well as the area that was certainly covered by the agreement. There were no further discussions but in August 1936, the owner purported to cancel the tribute agreement.

The High Court of Australia held that G had indeed trespassed beyond the area covered by the Tribute Agreement and would have to account for all of the excess profit earned up to May 1935. It would not, however, have to account for the excess profit in respect of the period from May 1935 up until the time of the attempted cancellation. There was unanimity as to this outcome but a difference of opinion as to how it should be arrived at. The majority (Dixon and McTiernan J) did not think that there was any estoppel. Rather they were of the opinion that it would be inequitable to allow the mine owner to recover the excess for that period since it had continued to receive the extra ore, process it and account for the proceeds of sale. It was also relevant to note the speculative and hazardous nature of G’s work in mining the ore. Dixon J. said:

‘Payments made in respect of a disputed liability are voluntary and cannot be recovered either directly or as damages representing part of a loss.’ (679)

and a little later:

‘Equitable remedies are not available to parties who, though openly claiming a right at the time, so conduct themselves as to make it unfair and inequitable to go back and rip up a transaction or dealing in order to enforce the right against those who infringed it.’ (679)

The majority thought that there was no estoppel since the owner had always made it clear that it disputed G’s right to the ‘extra’ ore; thus there was no representation by the owners nor were the owners misled by them into an assumption that the ‘extra’ ore was covered by the agreement. Latham CJ, by contrast, thought that estoppel in pais was applicable and led to the same outcome. The judgments both of Latham CJ and of Dixon J devote a considerable amount of attention to the essential elements of estoppel in pais.

Latham CJ said:

‘Where a person obtains advantages by relying upon rights which can exist only upon the basis of an assumed state of facts, he is not permitted thereafter to rely upon other rights in relation to the same person which are inconsistent with the existence of the rights formerly asserted.’ (657)

Latham CJ thought that these requirements were met in the present case. The mine owner had rejected the offer to cease mining. G was accordingly induced to spend money to mine the ‘extra’ ore. The owners had represented that they were content ‘to regulate the relations between the tributers and itself upon the basis that the agreement applied in all respects to the ore produced from the western swing.’ (657)

Dixon J said:

‘The principle upon which estoppel in pais is founded is that the law should not permit an unjust departure by a party from an assumption of fact which he has caused another to adopt or accept for the purpose of their legal relations … One condition appears always to be indispensable. That other must have so acted or abstained from acting upon the footing of the state of affairs assumed that he would suffer a detriment if the opposite party were afterwards allowed to set up rights against him inconsistent with the assumption.’ (674)

But, in addition:

“Before anyone can be estopped, he must have played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it’ (675)

The parties can agree to withdraw or one party can waive ‘subject to contract’

April 17, 2012

In Law v Jones ([1973] 2 W.L.R. 994, CA (Eng)) the terms of an initial oral agreement to sell property for GBP 6,500 were recorded in two letters written by the defendant’s (the seller’s) solicitors to the solicitors acting for the plaintiff (the buyer). This correspondence was plainly covered by the ‘subject to contract’ label attached to the first of the two letters. Then the parties agreed to a price increase. In the meeting on March 13th at which the increase was agreed, the seller told the buyer, ‘I shall not go back on my word. My word is my bond. It is yours now: carry on and make all your arrangements.’ The seller’s solicitors wrote a letter on March 17th (not marked ‘subject to contract’ it seems) confirming the price increase and asking the buyer’s solicitors to amend the price recorded in the draft contract sent to them. The seller then purported to withdraw and the buyer sought specific performance.

The English Court of Appeal upheld the decision to grant specific performance. The majority of the Court of Appeal were of the view that the buyer had waived the ‘subject to contract’ label by his clear words on March 13th. Thus, it was possible to join the March 17th letter together with the earlier letters (now shorn of their ‘subject to contract’ status) to create a sufficient memorandum for the purposes of section 40 of the Law of Property Act 1925 (in the same terms as the current section 3(1) of Hong Kong’s Conveyancing and Property Ordinance but repealed in England and Wales).

Cohen v Nessdale had already made the point that the parties can expressly or impliedly agree to end the operation of ‘subject to contract’ so the idea that it can be waived is not surprising. Here, however, the buyer was relying on correspondence that had been labelled ‘subject to contract’ when written to provide the memorandum. The correspondence recorded the terms under discussion but, far from pointing to the existence of a contract, denied that a contract existed. Law v Jones therefore seems to rest on the proposition that a memorandum need only record the relevant terms and need not point to the existence of a contract. An alternative viewpoint is that the final letter, which was not subject to contract’ referred to the earlier correspondence for convenience (to avoid repetition) but pronounced them anew in a contractually binding way.

It may have been better if the court had been invited to look at the case as being one of estoppel by representation (akin to Walton’s Stores (Interstate) Ltd v Maher). The words used on March 13th seem to be a much stronger representation than that made in Walton’s Stores. Since the case was not looked at in this light the question of detrimental reliance was not discussed.

Russell L.J. (dissenting) was very anxious to preserve the use of  ‘subject to contract’ as a way of creating a safe haven in which negotiations can be conducted without fear of inadvertently creating a binding contract (at 120 – 121). In this sense, Law v Jones should be read in the light of Tiverton Estates Ltd v Wearwell Ltd).

It is unlikely that a Hong Kong court would have found that the oral discussions gave rise to a contract since it would be an ‘open’ contract (ie with no express completion date). In Kwan Sin Man Joshua v Yaacov Ozer it was held that failure to agree on a completion date in Hong Kong was a strong indicator that there was no intention to create legal relations.

Promissory estoppel as a sword?

August 10, 2011

In Walton’s Stores (Interstate) Ltd v Maher (164 CLR 387) the majority of the Australian High Court took the view that promissory estoppel could be used to found a cause of action. M and W were in negotiation for the grant of a six year lease by M to W of some business premises. The agreement was that once there was a binding lease agreement, M would demolish property on his land and erect a new building to W’s specifications. W’s solicitors submitted a draft lease and M’s solicitors made amendments. Time was pressing if the work was to be completed according to the envisaged schedule. M’s solicitors explained this and that their client did not want to carry out demolition works until the lease had been entered into. They asked whether their amendments were accepted. They were told that they could assume that the amendments were accepted unless they heard to the contrary. W’s solicitors sent M’s solicitors a form of lease incorporating their amendments. Since W’s solicitors did not come back to them with any objection to the amendments, M executed the lease and returned it to W’s solicitors. They got on with the demolition and construction work. In the meantime, W reviewed its commercial strategy and had second thoughts about proceeding. It told its solicitors to ‘go slow’. Even when it became aware of the work being done by M, it did nothing to warn him that there was no binding agreement or of its change of mind. It only revealed its change of heart when the works were nearly half complete.

The Australian High Court unanimously affirmed the order of the court below that W pay damages to M. The majority of the High Court took the view that W was estopped from reneging on an implied promise to complete. W had induced M’s belief that exchange was a mere formality, known of M’s reliance and detriment and done nothing to warn M of the true state of affairs. It was unconscionable for W to be allowed to retreat from the belief that it had induced. Promissory estoppel is invoked as the cause of action. An alternative route to the same conclusion followed by two members of the High Court relied on estoppel by conduct (estoppel in pais): W was estopped from denying that a contractually binding exchange had taken place.