Promissory Estoppel

Nor Asiah Mohamad

 Estoppel
• A product of equity;
• Types of estoppel:
• Equitable – promissory or proprietary
 Intro
• the doctrine that prevents a party from acting
in a certain way because the first party
promised not to, and the second party relied
on that promise and acted upon it.
• provides a means of making a promise
binding, in certain circumstances, in the
absence of consideration.
• * Doctrine : from Latin doctrina , means "a
code of beliefs", "a body of teachings" or
"instructions", taught principles or positions,
as the body of teachings in a branch of
knowledge or belief system
 The function of the rule
• It is only one form of estoppel* which has been employed to
obviate(prevent) the necessity of consideration – in this
situation, the function of the rule is to make a subsequent
promise made by one of the parties without consideration
enforceable against the promisor- in cases where parties are
already bound contractually and one of them promises to
waive, modify, suspend, or hold in abeyance its strict legal
rights under such contract.
• The promisor is not allowed to go back on that promise when
it would be unfair/unjust to do so.
• *other types : proprietary & equitable
 Scope of discussion
• When applicable?  conditions for
application/features of the doctrine
• Scope  suspensory or extinctive?
• Use of estoppel  As a shiled or sword?
 When Applicable : Conditions for
Application
• Promissory estoppel was developed by Lord Denning
in Central London Property Trust Ltd v. High Trees
House Ltd [1947] K.B. 130
• Sometimes simply referred to as the High Trees case,
a decision of Lord Denning that helped established
the doctrine of promissory estoppel in the law of
England.
• In 1937 High Trees House Ltd. leased a block of flat
for a rate £2500/year from Central London Property
Trust Ltd.
• Due to the war and the resultant heavy bombing of
London, occupancy rates were drastically lower than
normal.
• In January of 1940, to ameliorate (improve)the
situation High Trees House Ltd. made an agreement
with Central London Property Trust Ltd. in writing to
reduce rent by half.
• However, neither party stipulated the period for
which this reduced rental was to apply.
• Over the next 5 years, High Trees paid the reduced
rate while the flats began to fill and by 1945 the flats
were full.
• In light of this, Central London sued for payment of
the full rental costs over the full period from 1940
and the future
 Held:
• Lord Denning held that the full rent was
payable from the time that the flats became
fully occupied in early 1945, but that Central
London could not go back on their promise of
reduced rent for the period of the war
because of High Trees reliance on the lower
rate.
 High Trees case can be traced to Hughes v
Metropolitan Railway (1877)2 App Cas 43
• In this case, a landlord gave his tenant six months’
notice to repair and in the event of failure to repair,
the lease would be forfeited.
• Within the six months, the landlord opened
negotiations with the tenant for the sale of the lease,
during which time the tenant carried out no repairs.
• Shortly after, negotiations broke down and at the
end of the six-months’ notice period, the landlord
claimed to forfeit the lease.
 Held (HOL)
• the landlord could not do so.
• The landlord had, by his conduct, led the tenant to
suppose that the landlord would not enforce
forfeiture at the end of the notice period and the
tenant had relied on this by not carrying out repairs.
• However, the six-month period would begin to run
again from the date of the breakdown of
negotiations.
 Q : How does the doctrine operate?
• The doctrine operates where there has been a representation
by one party (the promisor) that he or she does not intend to
enforce his or her strict legal rights, made with the intention
that the other party (the promisee) will rely on the
representation, and the other party does in fact rely upon the
representation without providing consideration.
• The party making the representation will be estopped from
enfrocing his or her strict legal rights, in so far as it is
inequitable to do so.
 Conditions for Application
• ●Inequitable to go back on promise
• The promisor is not allowed to go back on his
promise when it would be unfair or unjust to
do so.
• Refer to the case of Hughes v Metropolitan
Railway (1877)2 App Cas 439
• ●A change in position of the promisee as a result of
the promise (reliance but not necessarily to their
detriment)
• A promise intended to be binding, intended to be
acted on and in fact acted on, is binding, so far as its
terms properly apply.
• Refer to High Trees case.
• ●Not limited only to forfeiture cases but
applied to all variations of contractual rights.
• Refer to the case of Birmingham and District
Land Co v London and North Western
Railway Co (1888) 40 Ch D 268
Birmingham and District Land Co v London and
North Western Railway Co (1888) 40 Ch D 268
• A period of time laid down in a contract was held not to
apply, because there was a tacit *(unspoken but understood)
understanding that the period would not run whilst building
operations were held up.
• The court took the view that if persons who have contractual
rights against others induce by their conduct those against
whom they have such rights, to believe either that such rights
will not be enforced, or will be kept in suspense or abeyance
for some particular time, those persons will not be allowed to
enforce the rights until such time has elapsed.
 Scope of the doctrine
• Whether promissory estoppel is extinctive* or
suspensory ;
• Whether the one who relied on the promise
has altered his position
• Estoppel does not extinguish rights. It only serves to suspend,
and not wholly to extinguish the existing obligation, the
promisor may, on giving due notice, resume the right which
has been waived and revert to the original terms of the
contract.
• In High Trees the plaintiff company was able to restore
payment of full rent (although estopped back rent was lost)
from early 1945, but probably could have restored full rent at
any time after the initial promise provided a suitable period of
notice had been given.
• Q : What amounts to sufficient notice to
terminate the suspension of the legal rights?
• Case : Tool Metal Manufacturing Co Ltd v
Tungsten Electric Co Ltd [1955] 1 WLR 761
 Tool Metal Manufacturing Co Ltd v Tungsten
Electric Co Ltd [1955]
• In 1938, the appellant granted to the respondent a
licence to import, make, use and sell certain hard
metal alloys it had patented.
• The respondent was to pay royalties, and, if the
amount of material made exceeded a named quota,
‘compensation’.
• On the outbreak of war, the appellant agreed to
suspend its right to compensation, the parties
contemplating that a new agreement would be
entered into when the war ended.
• In 1945, the appellant claimed to have
revoked its suspension and to be entitled to
compensation from 1 June 1945.
• This claim failed on the ground that the
revocation was premature as no adequate
notice had been given to the respondent.
• In 1950, the appellant brought the present
action, claiming compensation from 1 January
1947, at which date the respondent was fully
aware that the appellant was determined to
revert to the original agreement.
 Held (HOL):
• the appellant had effectively revoked its promise to
suspend its legal right and that it was entitled to the
compensation claimed; the equitable principle
enunciated in Hughes v Metropolitan Railway Co was
applicable to the situation, but the promisor might,
on giving adequate notice to the promisee, resume
its rights under the original agreeement.
• Note : If the promise is such as unequivocally
to indicate the intention of the promisor
wholly to abandon all right to payment of the
money contractually due, whether
periodically or as a lump sum, there is no
reason why the estoppel should not be held to
have permanent effect.
• It is wrong for one to contract to give the
other the permission to commit a breach then
turn around and sue him for that.
• The obligations are suspended until sufficient
notice has been given to enable one to
assume his original obligations under the
contract.
Case : Sim Siok Eng v Government of Malaysia
[1978] 1 MLJ 15
• Appellant was a local contractor, entered into a
contract with the Government of Malaysia in respect
of one tender of construction.
• After signing the contract appellant discovered that
his office had made a serious error of calculation
involving $1,300,000.
• Appellant found difficulty in obtaining building
materials to complete the work because of the
insufficient budget.
• Appellant went to see the Director of Public Works
Department, Sarawak.
• As a result, the respondent orally agreed to supply
the appellant with certain building materials the cost
thereof to be deducted from the payment due to the
appellant.
• From then on whenever the appellant wanted such
building materials he would just write to the
Divisional Engineer.
• After some time, no building materials were supplied after
seizure of plywood by the Anti Corruption Agency.
• Consequently, appellant stopped work.
• After he stopped work his contract was terminated on the
understanding that following the October meeting he was
relieved from supplying the materials and the contract was
varied. The important thing is that he relied on the promise or
assurance given by respondent and altered his position
accordingly.
• Relying on the promise or assurance given appellant
had altered his position. His responsibilities to supply
those materials had been suspended or kept in
abeyance. For respondent to re-impose the
contractual provision adequate notice should be
given.
• By whatever name the promise was called -
concession or temporary arrangement - it was
binding on respondent but terminable by respondent
giving reasonable notice.
• Where it is not possible for the promisee who has
altered his position, upon reliance of the promise of
the promisor, to resume his previous position, the
benefit of the estoppel would continue in effect for
the promisee’s benefit.
• Case : Bank Negara Indonesia v Philip Hoalim [1973]
2 MLJ 3
• Appellants/plaintiffs claimed for possession of the
front room on the third floor of a building owned by
them.
• This room was occupied by the respondent as a
tenant.
• Appellants claimed that the tenancy was a monthly
tenancy and that it had been validly determined by a
notice to quit expiring on 28 February 1969.
• The respondent did not dispute the service of a
notice to quit but relied upon two defences.
• First, he claimed protection under the Control of
Rent Ordinance 1953;
• secondly, he set up an agreement, or understanding,
made or entered into in 1958 between himself and
one Lee Cheng Kiat, predecessor of the appellants,
and claimed that the appellants were estopped from
claiming possession of the premises against him.
• The court consider that, during the initial period after
the respondent had moved to the third floor as
requested by the appellants for the renovation works
to the building, he enjoyed the benefit of an estoppel
which would prevent the appellants from availing
themselves of their legal right to remove him so long
as he carried on his profession there.
• It is contended however that the respondent lost this
protection by reason of events occurring in 1961.
• On 4 March 1961 as appears from a letter of that
date, the appellants indicated their willingness to
grant a lease to the respondent for three years at the
rental of $280 per month, the lessee to have an
option to terminate the lease by three months'
notice in writing.
• The respondent accepted these terms and a lease
was drawn up and executed which, as already stated,
contained a covenant to yield up at the
determination of his tenancy.
• The question is, therefore, whether the estoppel, of
which the respondent theretofore had the benefit,
lapsed upon the execution of this lease of $280 per
month
• The court does find that the benefit of the estoppel
was not removed by the events of 1961. It continued
and continues in effect for the respondent's benefit.
Promissory Estoppel : “shield” or “sword” ie a
cause of action or a defence?
• Estoppel is 'a shield not a sword' - it cannot be
used as the basis of an action on its own.
• Rule : Promissory estoppel does not create
new causes of action where none existed
before. It is a defence and not a cause of
action.
 Case : Combe v Combe [1951] 2 K.B.
215 (CA)
• A husband, upon divorce, promised his wife ₤100 a
year as a permanent allowance. In reliance upon this
promise, the wife forbore to apply to the Courts for
maintenance. The husband failed to make the
payments, and the wife sued him on the promise.
• In other words, Mrs C. tried to argue that C legally
had to pay money to her, simply because he
promised to do so. She argued promissory estoppel.
 Held (CoA):
• there was no consideration for the promise as
the wife’s forbearance had not been
requested and was not in return for the
promise made to her;
• nor could the wife rely on promissory
estoppel which did not give rise to a cause of
action.
• Denning LJ held that promissory estoppel applied
only to variations or discharges of existing contracts,
not in the creation of new contracts. This is an
important limitation, as otherwise consideration
would cease to be relevant in our contract law
theory.
• Promissory estoppel is available only where there
has been an alteration to an existing contract. It
cannot be used to render unnecessary consideration
on the formation of a contract.
• Where a plaintiff’s cause of action is met by a
defendant’s defence and counter-claim, the
plaintiff may use promissory estoppel as a
defence to the defendant’s counter-claim.
• Case : Cheng Hang Guan v Perumahan Farlim
Sdn Bhd [1993] 3 MLJ 352
 Case : Cheng Hang Guan v Perumahan Farlim
Sdn Bhd [1993] 3 MLJ 352
• The plaintiffs claimed that they were and are lawful
and protected tenants and were entitled in law and
equity to possession of portion of land on which
were situated their two dwelling houses and their
vegetable farm
• The registered proprietors of the land are the
trustees of Khoo Kongsi. Plaintiffs had converted
what was once a swampy jungle land into a
productive farm.
• The visiting trustee of Khoo Kongsi had told Plaintiff
that it was not necessary to change the tenancy of
the vegetable plot to her name and that she could
continue planting vegetables as long as she wished
provided she paid rent.
• This is an assurance given by Khoo Kongsi that as
long as plaintiff continued to pay ground rent he
could stay and cultivate the vegetable plot as long as
he wanted.
• After the assurance given by the visiting trustee, the plaintiffs
invested RM12,000 in installing a sprinkler system.
• The assurance given to Plaintiffs is consistent with the
practice of Khoo Kongsi before the developers Farlim came on
to the scene in the late seventies.
• For more than 50 years, neither Khoo Kongsi or anyone else
had interfered with the farming activities of the plaintiffs’
family.
• Only after Khoo Kongsi had entered into a joint-venture
agreement was there any interference with the plaintiffs’
possession of the plot concerned.
• The court observed that the doctrine of promissory
estoppel provides a defence to an action on the
original contract for a defendant relying on a
voluntary variation. It does not provide a cause of
action for a plaintiff relying on a gratuitous promise.
Yet, its effect may be to enable a party to enforce a
cause of action which, without the estoppel, would
not exist.
• Here the plaintiffs and their forbears have been in
possession of the plot concerned for decades and
they have commenced these proceedings to protect
their rights to remain in possession relying on equity
or equitable estoppel.
• In the circumstances, the plaintiffs’ claim to the
alleged equity does not depend on the availability of
the remedy of specific performance.
• Plaintiffs’ claim was allowed by the court.
• A plaintiff may rely on an estoppel if he has an
independent cause of action. Estoppel may be
part of a cause of action, but not cause of
action in itself.
• Case : Hong Leong Leasing Sdn Bhd v Tan Kim
Cheong [1994] 1 MLJ 177
 Case : Hong Leong Leasing Sdn Bhd v Tan Kim
Cheong [1994] 1 MLJ 177
• Def bought some machines from a dealer who
requested the plaintiff to provide hire
purchase facilities to the def
• Dealer forwarded the HP agreement and
delivery receipt to the def. def signed.
• Machines did not in fact exist
 Claims
• P claims that it was entitled for the arrears
under the HP agreement; def is estopped
from denying that the machines do not
exist esp by signing the delivery receipt and
the payment of some installments
 High Court
• Held: The mere fact that the defendant has
signed the delivery receipt, with no intention
on his part to make any representation to the
P, and with no evidence that the plaintiff
acted upon the representation, was not
sufficient to raise an estoppel vs the def
Case : Teh Poh Wah v Seremban Securities Sdn
Bhd [1996] 1 MLJ 701
• The appellant’s husband had a mareva
injunction imposed against him.
• In order for the husband to be able to deal in
stocks, the appellant proceeded to open a
bank account with a cheque book, signed all
the cheques in blank, and handed the whole
cheque book to the husband.
• The husband then ‘entered’ into a written contract with a
stock-broking firm (‘the respondent’) using the appellant’s
name.
• Thenceforth, all of the husband’s share-transactions were
done in the appellant’s name as it was her name which
appeared on the contract.
• Eventually, the share-account with the respondent went bad,
and the respondent sued the appellant for the moneys due
and owing to it. The appellant delivered a defence and
counterclaim.
• The court held that the appeal could be satisfactorily resolved
by reference to the doctrine of estoppel. Through her actions,
the appellant would have led a reasonable man to believe
that she had given her husband a carte blanche to act on her
behalf.
• It would, therefore, be unjust and inequitable to suffer the
appellant to assert facts that would now contradict her earlier
conduct. It was no answer for the appellant to say that she
had not actually authorised the husband to enter into the
contract using her name.
 Per curiam:

• [1] The doctrine of estoppel is a flexible one

by which the Courts seek to do essential
justice between litigating parties. Indeed, the
circumstances in which the doctrine may
operate are endless. It is a doctrine of wide
utility and has been resorted to in varying fact
patterns to achieve justice.
• [2] It is wrong to apply the maxim that ‘estoppel may be used
as a shield but not a sword’ to limit the availability of the
doctrine to defendants alone. Plaintiffs, too, may have
recourse to it. The true nature of the doctrine in this context
is that…’Estoppel is not a cause of action. It may (if
established) assist a plaintiff in enforcing a cause of action by
preventing a defendant from denying the existence of some
fact essential to establish the cause of action, or (to put it in
another way) by preventing a defendant from asserting the
existence of some fact the existence of which would destroy
the cause of action.’..
• Detriment* : Is detriment an element in
estoppel?

• * Damage, harm, or loss

• High Court : In order to successfully raise an
estoppel, one has to prove that he has acted
on the other’s representation to his
detriment.
• Refer case of Hong Leong Leasing Sdn Bhd v
Tan Kim Cheong [1994] 1 MLJ 177
• Federal Court : The detriment element does
not form part of the doctrine of estoppel.
• Case : Boustead Trading Sdn Bhd v Arab-
Malaysian Merchant Bank Bhd [1995] 3 MLJ
331
Case : Boustead Trading Sdn Bhd v Arab-Malaysian
Merchant Bank Bhd [1995] 3 MLJ 331

• This was an appeal against the judgment of

the trial Judge ruling that under the terms of a
factoring agreement entered into between
the respondent and one Chemitrade, the
appellant was liable to pay the respondent
RM203,072.56.
• The facts were that Chemitrade was selling goods on
credit to the appellant.
• The credit terms had strained Chemitrade’s
cashflow, and to alleviate the problem Chemitrade
had entered into a factoring agreement with the
respondent.
• By the agreement the respondent would purchase
Chemitrade’s invoices in respect of the goods at a
discount and then claim its full value from the
appellant at the end of the credit period.
• Following the agreement, the respondent started to purchase
the invoices from Chemitrade and had them forwarded to the
appellant for payment. On each of these invoices the
respondent had endorsed the statement “any objection to
this bill or its terms must be reported within 14 days after its
receipt”.
• The appellant had not complained about any of the invoices
or the endorsement, and for some seven months had
continued to honour the endorsed invoices. The appellant
however refused to pay on about twenty of the invoices thus
submitted, and subsequently sought to challenge the validity
of the same.
• The appellant appealed and before the
Federal Court the main issue that arose was
whether, in the circumstances, estoppel
would apply to bar the appellant from
challenging the validity of the invoices or the
endorsement in question
 Held :
• ..Likewise, the requirement that the
representee should have acted to his
detriment is also not part of the doctrine. In
this respect, all that needs to be shown is that,
in the particular circumstances of a case, it
would be unjust to permit the representor or
encouragor to insist upon his strict legal
rights.
• Indian decision : It is not necessary to prove
any damage, detriment or prejudice in
invoking the doctrine of promissory estoppel.
• Refer case of The Delhi Cloth & General Mills
Ltd v Union of India [1987] 3 SCJ 328
• Australian decision : Detriment was not an
essential attribute of waiver, and that the
doctrine of estoppel did not require proof that
detriment would be suffered.
• Refer case of Commonwealth of Australia v
Verwayen [1990] 95 ALR 321
• It is not necessary to show detriment; indeed, the
representee may have benefited from the
representation, and yet it may be inequitable, at
least without notice, for the representor to enforce
his legal rights.
• Case : Societe Italo-Belge pour Le Commerce et
l’Industrie v Palm and Vegetable Oils (Malaysia) Sdn
Bhd (The Post Chaser) [1981] 2 Lloyd’s Rep 695
Case : Societe Italo-Belge pour Le Commerce et l’Industrie v Palm and
Vegetable Oils (Malaysia) Sdn Bhd (The Post Chaser) [1981] 2 Lloyd’s

Rep 695
• Sellers of palm oil failed for over a month to submit a
"declaration of sailing."
• When they finally did, the buyers did not initially
object and replied asking for more documents.
• The buyers then sent the declaration down the line
to their own sub-purchasers. When the sub-
purchasers rejected the overdue declaration, the
buyers tried to reject it as well. The seller pleaded
equitable estoppel.
• The court allowed the rejection of the declaration
and made two statements of principle on equitable
estoppel. 1. The person having made the
representation which gives rise to the claim of
estoppel "will not be allowed to enforce his rights
where it would be inequitable, having regard to the
dealings which have thus far taken place between
the parties.
• To establish "inequity," it is not necessary to show
detriment."