Archive for the ‘Estoppel’ Category

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)

Implied licence

June 28, 2012

In Canadian Pacific Railway Company v The King ([1931] A.C. 414, PC) CPR had erected telegraph lines and poles on Government land next to a railway. This had largely been without any express licence but a licence was implied since the lines and poles had been present for many years and well-known to the Crown. In the case of some minor sections of line CPR had been given express licence to erect the lines and poles pending the exchange of formal agreements.

The implied licences were revocable but the notice period had to be long enough to allow the lines and poles to be removed and erected elsewhere. This was because CPR had obligations to third parties in respect of the system and because of the public interest in the existence of the system.

CPR failed to persuade the Privy Council that it had a permanent right to keep its system in place. It sought to invoke Plimmer v Mayor of Wellington and Ramsden v Dyson but failed since there had been neither active nor passive encouragement by the Crown that would encourage CPR to believe that it had or would obtain some permanent interest in the land. Nor was CPR mistaken as to its true legal position.

Estoppel by convention

June 26, 2012

In Amalgamated Investment & Property Co Ltd (In Liquidation) v Texas Commercial Bank Ltd ([1982] Q.B. 84) T (a bank) agreed to lend money to ANPP ( a subsidiary of A). In the end, the loan was provided through P (T’s subsidiary). This was part of a much broader set of arrangements under which T provided finance to A secured by mortgages over properties owned by A.  A gave a guarantee to secure all monies it owed to T. The parties both believed that the guarantee extended to cover the loan by P to ANPP (ie from the bank’s subsidiary to the guarantor’s subsidiary) though on a strict interpretation of the guarantee it arguably did not cover the indebtedness to P. T and A conducted their negotiations for the overall financing of A from time to time on the basis that the guarantee covered the loan by P to ANPP.

A went into liquidation and the question was whether the cash realised from the sale of A’s assets had to be applied partly to pay off the indebtedness to P. The English Court of Appeal found in favour of T on the basis of estoppel by convention.

Lord Denning M.R. put it this way:

‘So I come to this conclusion: when the parties to a contract are both under a common mistake as to the meaning or effect of it – and thereafter embark on a course of dealing on the footing of that mistake – thereby replacing the original terms of the contract by a conventional basis on which they both conduct their affairs, then the original contract is replaced by the conventional basis. Either party can sue or be sued upon it just as if it had been expressly agreed between them.’ (at 121 – 122).

Brandon L.J. adopted the definition of estoppel by convention in Spencer Bower and Turner, Estoppel by Representation, 3rd ed (1977):

‘This form of estoppel is founded, not on a representation of fact made by a representor and believed by a representee, but on an agreed statement of facts the truth of which has been assumed, by the convention of the parties, as the basis of a transaction into which they are about to enter. When the parties have acted in the transaction on the agreed assumption that a given statement of facts is to be assumed between them as true, then as regards that transaction each will be estopped as against the other from questioning the truth of the statement of facts so assumed.’

Lord Denning would have been prepared to reach the same conclusion by lifting the corporate veil and looking at all of the dealings (including the guarantees) as if they had all been only between A and T. Brandon L.J. would have been prepared to construe the guarantee so as to extend to the repayment of the loan to P.

Time of the essence for completion: the common law demands strict compliance

April 20, 2012

Where time is of the essence for completion even a short delay is a repudiatory breach. In the normal course of events, there is no reason for equity to relieve the buyer from this nor from the loss of his deposit (if the contract so provides).

In Union Eagle Ltd v Golden Achievement Ltd ([1997] A.C. 514, PC) the Privy Council heard an appeal from the Hong Kong Court of Appeal. A seller had agreed to sell a flat in Hong Kong. The buyer had paid a 10% deposit. The contract provided that time was of the essence in all respects. It also provided that the deposit would be forfeited if the buyer failed to complete. Completion was to take place by 5pm on the completion date but the buyer’s solicitors arrived 10 minutes after that with the completion monies. The seller rescinded on the grounds of the buyer’s failure to comply with the term of the contract stipulating the time for completion. The buyer sought specific performance. It argued that there was an equitable jurisdiction to relieve against the forfeiture of the equitable interest created by the contract. This failed in the Hong Kong courts and in the Privy Council.

Lord Hoffman gave the only judgment. Authority and policy combined to persuade him that there was no scope for equity to intervene to save the buyer from the breach of contract:

‘When a vendor exercises his right to rescind, he terminates the contract. The purchaser’s loss of the right to specific performance may be said to amount to a forfeiture of the equitable interest which the contract gave him in the land. But this forfeiture is different in its nature from, for example, the vendor’s right to retain a deposit or part payments of the purchase price. So far as these retentions exceed a genuine pre-estimate of damage or a reasonable deposit they will constitute a penalty which can be said to be essentially to provide security for payment of the full price. No objectionable uncertainty is created by the existence of a restitutionary form of relief against forfeiture, which gives the court a discretion to order repayment of all or part of the retained money. But the right to rescind the contract, though it involves termination of the purchaser’s equitable interest, stands upon a rather different footing. Its purpose is, upon breach of an essential term, to restore to the vendor his freedom to deal with his land as he pleases. In a rising market, such a right may be valuable but volatile. Their Lordships think that in such circumstances a vendor should be able to know with reasonable certainty whether he may resell the land or not.’ (at 520)

The case illustrated the need for commercial certainty and to resist the temptation to allow equity to rewrite contracts in the name of fairness (at 519). There was no useful distinction to be drawn for this purpose between ‘commercial’ and other cases, ‘Land can also be an article of commerce and a flat in Hong Kong is probably as good an example as one could find.’ (at 519). Lord Hoffman summed up his position:

‘The fact is that the purchaser was late. Any suggestion that relief can be obtained on the ground that he was only slightly late is bound to lead to arguments over how late is too late, which can be resolved only by litigation.’ (at 523).

The seller was entitled to know with certainty whether he could re-sell or not (at 520). It may be different if there were any question of unjust enrichment or estoppel (at 523).

Michael Lower

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.

Estoppel by representation is a rule of evidence

April 16, 2012

The common law doctrine of estoppel by representation is a rule of evidence. Where it is sucessfully invoked but there is a disproportion between the gain to the representee and the detriment suffered, equity can play a part and only allow the estoppel to be relied upon to the extent of the detriment suffered by the representee.

In National Westminster Bank plc v Somer International (UK) Ltd ([2001] EWCA Civ. 970, CA (Eng)) S told the bank that it was expecting to receive between US$70,000 and US$78,000 from M, a customer of S. Some time later the bank received just over US$76,000 from a different party intended for a different customer but, by mistake, told S that the expected payment from M had arrived. It credited this money to S’ account. As a result, S sent goods worth GBP 13,000 to M. The bank then realised its mistake and sought to recover the US$76,000 from S.

The English Court of Appeal decided that it was bound by authority to the view that estoppel by representation is a rule of evidence rather than of substantive law. This would appear to suggest an ‘all or nothing’ response to a case like the present; it appears that either S could keep all of the money or none of it, that the estoppel is either made out or not.  However, even though the doctrine was a creature of the common law, there was room for equity to play a part so that, in appropriate cases, the estoppel defence was only available to the extent of the detriment suffered (para 43 per Potter L.J.).

This was such a case: there was a clear disproportion between the amount received by S and the detriment that it had incurred. It would be unconscionable for it to be able to rely on the defence for any sum greater than the value of the goods sent to M after the bank’s representation. The balance was to be repaid to the bank.

No estoppel in relation to representations as to the law

April 13, 2012

A representation as to the law cannot give rise to an estoppel.

In Kai Nam v Ma Kam Chan ([1956] AC 358, PC) temporary one-storey shops were built on the foundations of a house that had been largely destroyed during the war. The question was whether the tenants of the shops could claim the protection of Hong Kong’s Landlord and Tenant Ordinance 1947. The landlord claimed that each shop was an ‘entirely new building’ for the purposes of the Ordinance and so fell outside the Ordinance. The tenants claimed that the landlord was estopped from making this argument. He had served notices of increase of rent under the terms of the Ordinance; this, it was claimed, meant that he was estopped from arguing that the Ordinance did not apply to the shops.

The estoppel argument failed since if this was a representation it was of law not of fact and there could be no estoppel (per Lord Cohen at 367).

Estoppel at common law

April 11, 2012

In Jorden v Money (1854) 10 E.R. 868, PC) J held a bond under which M agreed to pay her a sum of money. She often declared that she would not seek to enforce the bond because of her affection for M. Relying on this, M’s fiancee’s family settled property on him as part of the marriage arrangements. After the marriage, J brought proceedings against M to recover the money due. M argued that she was estopped (at common law) from doing so.

The House of Lords referred to a line of authorities such as Pickard v Sears in which Lord Denman had said:

‘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 same time.’

The majority of the House of Lords in Jorden v Money held that J was not estopped. The rule only operated with regard to representations of fact and in this case J had only made a representation as to her intention.

Estoppel and waiver in relation to the time established by statute for application to court

February 22, 2012

Kammins Balrooms Co Ltd v Zenith Investments (Torquay) Ltd ([1971] AC 850, HL) concerned the lease renewal procedure in Part II of England’s Landlord and Tenant Act 1954. At the end of its lease, the tenant had served a request for a new tenancy under section 26. The landlord served (in time) a counter-notice indicating that it would oppose the grant of a new tenancy. The tenant then sought to protect its rights by making the application to court envisaged by section 29(3) but did so earlier than the time specified in the section. Section 29(3) states that no application for a tenancy shall be entertained unless made not less than two nor more than four months after the tenant’s request. The tenant’s application was made earlier than this. There was some correspondence between the parties’ solicitors and between them and the court concerning the application. It was not until after the four month period had expired that the landlord told the tenant that it intended to take the point that the court could not entertain the application because it had been made too early.

The House of Lords held, by a majority, that despite the apparently clear wording of the statute, the landlord did have the power to waive its right to object to the early application and allow the court to entertain it. Lord Diplock based this conclusion on a purposive (rather than literal) interpretation of the provision. The provision regulated the rights of private parties inter se and the party who could benefit from the provision could waive it (at 881).

The House of Lords also held, however, that the landlord had not waived its right to object to the early application. Lord Diplock thought that this waiver would be a type of estoppel and said:

‘the party estopped by acquiescence must, at the time of this active or passive encouragement, know of the existence of his legal rights and of the other party’s mistaken belief in his own inconsistent legal rights. It is not enough that he shall know of the facts which gave rise to the legal right. He must also know that he is entitled to the legal right to which those facts give rise.’ (at 884).

The landlord knew the date of the application but there was no evidence to show that he had appreciated that the application had been made too early before the four month deadline had passed.

Estoppel: Clare Hall v Harding

January 30, 2012

In The Master or Keeper, Fellow and Scholars of Clare Hall v Harding ((1848) 6 Hare 273, 67 E.R. 1169) the plaintiff and defendant each claimed to be the owner of property in Scarborough. R was the tenant negotiating for a new lease under the terms of which R would carry out substantial works of improvement. R had to decide which party he would deal with as landlord. He chose to accept Clare Hall as the landlord on the basis that he would be indemnified by them should Harding prove to be the real owner. Harding was later able to recover possession. Clare Hall claimed to be entitled to relief in respect of Rowntree’s expenditure on the basis of estoppel. Harding had told Rowntree of his claim before the repair work but had not warned him of the consequences of proceeding. The claim failed:

‘If a party in possession of an estate, knowing that another claims the property, will with his eyes open, spend money upon it, I know of no case in which in which it has been held that he can, in the absence of special circumstances, keep the lawful owner out of possession, unless he will reimburse the party in possession the expenditure he has made. That would indeed be improving a man out of his own estate.’ (at 1179).