The doctrine of promissory estoppel
Promissory estoppel operates to prevent a party from insisting upon their strict contractual entitlement against another party where they have promised or represented that they would not do so. The equitable doctrine of promissory estoppel was introduced as one response to the problem of lack of consideration.
It has been largely applied in circumstances where no consideration has been provided for a promise, but the courts feel that it would be unjust to refuse to enforce the promise. In order to establish a promissory estoppel, it is necessary to show:
- A pre-existing legal relationship between the parties. This will typically be contractual, but the doctrine can apply to non-contractual relationships giving rise to rights and duties between parties.
- A clear and unequivocal representation or promise that rights would not be fully enforced (see Woodhouse AC Israel Cocoa Ltd v Nigeria Produce Marketing Co Ltd [1972] AC 741). This may be express or implied, but it is key that the guilty party intended for the promise or representation to affect the legal relationship between the parties.
- An intention on the promissor’s part that the promise would be binding and the other party would rely on it.
- The innocent party has altered its position in reliance upon that promise or representation such that it would be inequitable for the guilty party to renege on the promise. This requirement will be satisfied where the reliance would lead the innocent party to suffer detriment if the guilty party were to be permitted to withdraw from the promise. A typical example of this is when the innocent party refrains from taking certain action in reliance on the promise, for example not carrying out repairs (see Hughes v Metropolitan Railway Co (1877) 2 App Cas 614). One can say that the requirement essentially encompasses that “the innocent party can no longer be returned to the position that it was in before it relied upon the promise” (Maharaj v Chand [1986] A.C. 898).
- The party making the promise must act equitably. Promissory estoppel can only be used if it would be inequitable for a creditor to enforce their legal rights.
- The doctrine is only available for use as a shield not a sword - it does not create a cause of action and can only be used as a defence to an action brought by the party wishing to enforce its strict legal rights.
If the said requirements are met, the party that gave the relevant promise can be prevented from withdrawing such promise and strictly enforcing its contractual rights (see, for example, Hughes v Metropolitan Rail Co (1877) 2 App Cas 439 and Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 being leading cases on the application of this equitable doctrine). Promissory estoppel is generally only of retrospective impact. It suspends rather than extinguishes contractual rights. This, however, depends upon the terms of the promise and the nature of the innocent’s party reliance upon it. Where the promise was not expressly or impliedly temporary and it would be impossible for the innocent party to be returned to the position that it was in before reliance, then promissory estoppel can have an extinctive effect on contractual rights. Promissory estoppel has been used as a defence in transactions involving disputes between landlords and tenants, and in loan transactions. For example, the Court of Appeal has confirmed that, depending on the facts, the doctrine may be applied where a creditor's promise to accept part payment of a debt in full settlement is not supported by any consideration from the debtor.
