Estoppel

Estoppel works to prevent the unjust departure of one party from representations it has
made to another party that have the effect of enticing the other party to alter their
position to their detriment. Enforcement of an estoppel will prevent a party from acting in
a way that is inconsistent with the state of affairs that they have convinced another party,
by their representations, to think exists or will exist.

A fundamental weakness of the doctrine of consideration is that it fails to explicitly

recognise detrimental reliance. In this way it can often be seen as leading to injustice.
As a result, the equitable doctrine of promissory estoppel has been evolved to overcome
many of these injustices.

Promissory estoppel Proprietary estoppel

The very essence of promissory estoppel is
that a promisor is precluded from going
back on their promise even though the
promise is not supported by consideration
moving from the promisee.
With proprietary estoppel, if X, the owner
of property, induced Y to believe that Y
had or would have an interest in that
property, equity would recognize and
enforce Y’s interest in that property.

Dixon J in Grundt v Great Boulder Mines Pty Ltd stated that:

 ‘the basal purpose of the doctrine…is to avoid or prevent a detriment to the party
asserting the estoppel’

Emmet JA in Priestly v Priestly:

 ‘the purpose of the doctrine of estoppel is to avoid or prevent a detriment to the
party asserting the estoppel by compelling the opposite party to adhere to an
assumption upon which the former acted or abstained from acting’

Estoppel can arise under a variety of circumstances

 Where, during negotiations to enter into a contract, an offeree, believing that the
offer will not be revoked proceeds to act to his detriment upon that belief
 Where there has been non-compliance with the statutory requirement of writing
with respect to a contract involving land
 Where the doctrine of privity prevents a third party to the contract from enforcing it
(Trident v McNiece)
 Where a contract is rendered illegal and thus unenforceable because a party is not
licenced as required by legislation, but stated to the other party that he or she was
so licenced

Dixon J in Grunt v Great Boulder Pty Gold Mines Ltd:

 ‘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’

Thompson v Palmber:
  ‘Whether a departure by a party from the assumption should be considered unjust
and inadmissible depends on the part taken by him in occasioning its adoption by
the other party’

Structure of estoppel

There are fundamentally two types of estoppel

 Common law estoppel
 Equitable estoppel

The difference between these two types is that common law estoppel eschews the concept
of unconscionable conduct, whereas in equitable estoppel it is a base concept

Within equitable estoppel there are two further primary types of estoppel. These are:
 Promissory estoppel
 Proprietary estoppel

Common law estoppel Equitable estoppel

Often referred to as estoppel
by representation or
estoppel by convention
This is where one person
leads another to adopt an
assumption of fact, and the
relying party acts on that
assumption in such a way
that the relying party will
suffer detriment if the
representing party
subsequently denies it is
true
The rights of the parties need
to be determined on the
basis of an assumed state of
affairs
Common law estoppel has
been confined to
assumptions of fact as
opposed to assumptions of
future conduct
Equitable estoppel comprises both proprietary estoppel
and promissory estoppel.
 Proprietary estoppel occurs where the relying
party acts to his detriment on the faith of an
assumption that the relying party will be granted
an interest in land
 Promissory estoppel is any equitable estoppel not
relating to an interest in land (Walton stores)
Emmet JA in Priestly v Priestly:
 ‘…the fundamental purpose of equitable estoppel
is to protect a person who acts to his or her
detriment from the detriment that would flow
from resiling from a promise or representation.
Accordingly, the relief granted may require the
taking of active steps by the representor or
promisor, including the performance of the
promise ore representation…
An illustrative early case of promissory estoppel is Central
London Property Trust v High Trees House Ltd
In Australia, the doctrine of promissory estoppel was first
authoritatively accepted by the High Court in Legione v
Hateley

However the most significant High Court decision on the


Equitable estoppel cases
Commonwealth v
Verwayen
A representation by the
Commonwealth that it
would not plead the
limitations period in
response to an action for
negligence, on which it later
reneged, was alleged to
create an estoppel in favour
of the respondent.
The respondent had been a
sailor who was injured in a
naval collision in 1964. He
had not sued during the
limitation period as he had
assumed that no duty of
care was owed to him.
He commenced his action in
1984 in reliance of the
Commonwealth’s
representation as to the
limitation period.
The HCA held, that where
an action in negligence
against an employer was
barred by a statute of
limitations, but the
employer repeatedly
represented and gave
assurances over an
extended period that it
would not resist the
commencement of the
action out of time, and the
plaintiff employee
proceeded on the faith of
those representations, the
subject came in Waltons Stores (Interstate) Ltd v Maher
Central London Property Waltons Stores (Interstate)
Trust v High Trees House Ltd v Maher
Ltd
The plaintiffs leased a block Waltons Stores leased a
of flats in London to the shop in Nowra. The lease
defendants on a 99-year was due to expire in January
lease. 1984.
In 1940 the annual rent was In 1983 Waltons Stores
£2500 and due to World began negotiations with
War II the defendants were Maher, who with his wife,
unable to sublet many of owned a block in the Nowra
the flats. business district.
The plaintiffs agreed to a The parties agreed that
reduced rent of £1250 for Maher would demolish an
the duration of the War. existing building on the
block and erect another to
The flats began to fill, and Waltons’ specifications, to
were fully occupied by mid- be completed by 15 January
1945. After the War, the 1984, and that WS would
plaintiffs successfully sought lease that building.
full rent for the future and
the recovery of full rent for The rent, date of
the last six months of 1945. commencement and
duration of the proposed
However, Denning LJ lease was agreed.
commented obiter that if
the plaintiffs had 1st Jan 1984: Dawson
attempted to recover rent Waldron write to Mahers:
for the period from 1940 to “regret to inform you that
1945, they would have our client ... does not intend
been unsuccessful. to proceed .. We apologise
for any inconvenience
caused ...”
At this stage, building 40%
complete.
Issue: Assumption of the
existence of a particular
legal relationship which
employer could not later
claim the protection of the
statute.
Mason CJ, Deane and
Dawson JJ held that an
estoppel had arisen against
the Commonwealth.
Brennan J dissented.
Toohey and Gaudron JJ
held that the
Commonwealth had
waived its statutory rights
never existed
Deane and Gaudron JJ held
that the plaintiff assumed
that a particular legal
relationship then existed
between the plaintiff and
the defendant.
Mason CJ and Wilson J held
that the plaintiff expected
that a particular legal
relationship would exist
between them .

Deane J: Accordingly, the defendant

 ‘conduct which is would not be free to
unconscionable will withdraw from the expected
commonly involve legal relationship
the use of or
insistence upon The High Court recognised
legal entitlement to that the various forms of
take advantage of estoppel in equity all arose
another’s special in situations where it would
vulnerability or be unconscionable for a
misadventure in a plaintiff’s against a
way that is defendant to be denied, and
unreasonable and that accordingly they all fell
oppressive to an within a broader principle of
extent that affronts equitable estoppel.
the ordinary
minimum standards
of fair dealing

Deane J:
 ‘the question
whether such a
departure would be
unconscionable
relates to the
conduct of the
allegedly estopped
party in all the
circumstances. That
party must have
played such a part in
the adoption of, or
 persistence in, the
assumption that he
would be guilty or
unjust and
oppressive conduct if
he were now to
depart from it…
namely where that
party:
a) has induced the
assumption by
express or implied
representation
b) has entered into
contractual or other
material relations
with the other party
on the conventional
basis of the
assumption
c) has exercised against
the other party
rights which would
exist only if the
assumption were
correct
d) Knew that the other
party laboured
under the
assumption and
refrained from
correcting him when
it was in his duty in
conscience to do so

Elements of estoppel

Justice Brennan in his decision in Walton Stores set out the elements of promissory
estoppel:

1. The plaintiff assumed that a particular legal relationship then existed between the
plaintiff and the defendant or expected that a particular legal relationship would
exist between them and, in the latter case, that the defendant would not be free to
withdraw from the expected legal relationship;
2. the defendant has induced the plaintiff to adopt that assumption or expectation;
3. the plaintiff acts or abstains from acting in reliance on the assumption or
expectation;
 4. the defendant knew or intended him to do so;
5. the plaintiff’s action or inaction will occasion detriment if the assumption or
expectation is not fulfilled; and
6. the defendant has failed to act to avoid that detriment whether by fulfilling the
assumption or expectation or otherwise.

Or more simply:
1. Representation
2. Assumption (legal relationship or something else)
3. Inducement
4. Detrimental reliance
5. Knowledge
6. Reasonableness
7. Unconscionable conduct

1. Representation

The representation may be express or implied but must not be ambiguous or unclear.

Where there is a high level of ambiguity in the representation, this will not be sufficient to
give rise to an estoppel.

Mason and Deane JJ in Legione v Hateley

 ‘the requirement that a representation as to existing fact or future conduct must
be clear if it is found an estoppel in pais or a promissory estoppel does must mean
that the representation must be express…Nor is it necessary that a representation
be clear in its entirety’

See Cosmopolitan Hotel (Vic) Pty Ltd v Crown Melbourne Ltd [2014] VSCA 353, [197(a)]
and contrast that with Ashton v Pratt (2015) NSWCA 12, [139].
A majority of the High Court in Cosmopolitan Hotel has affirmed the position of Mason and
Deane JJ in Legione. French CJ, Keifel and Bell JJ in Cosmopolitan Hotel:
 It has long been recognised that for a representation to found an estoppel it must be
clear[47]. In Low v Bouverie, it was said[48] that the language used must be precise
and unambiguous. This does not mean that the words used may not be open to
different constructions, but rather that they must be able to be understood in a
particular sense by the person to whom the words are addressed.

2. Assumption

The relying party must have adopted an assumption.

The nature of the assumption will determine whether it gives rise to common law or
equitable estoppel.
 Common law estoppel can arise only from an assumption of fact
 Equitable estoppel can arise from a presumption that the representor will act in a
particular way in the future
The assumption must relate to a legal relationship – Walton Stores per Brennan J. Also
Mobil v Wellcome

3. Inducement
The assumption adopted by the relying party should have been induced by the representor.
Normally, the assumption will be induced by an express representation, but an express
promise is not required. It can be implied as in Walton stores.

Inducement satisfies the causation requirement (i.e. similar to ‘but for’ test.

Must an unequivocal promise or representation be made? – Legione v Hateley

 Secretary’s representation was that the transaction would be alright but that she
would need to get instructions
 Not unequivocal

4. Detrimental reliance

The relying party must have acted on the assumption in such a way that she/he will suffer a
detriment if the representing party is able to depart from the representation – this is at the
heart of estoppel by conduct.

There are two types of loss:

 Expectation loss
 Reliance loss

Reliance loss = the key to detrimental reliance

Dixon J in Thompson v Palmer:

 ‘the object of estoppel…is to prevent an unjust departure by one person from an
assumption adopted by another as the basis of some act or omission which, unless
the assumption be adhered to, would operate to that other’s detriment’

The High Court of Australia considered the equitable concept of ‘detriment’ in Australian
Financial Services and Leasing Pty Limited v Hills Industries Limited. Hayne, Crennan, Kiefel,
Bell and Keane JJ:
 ‘detriment has not been considered to be a narrow or technical concept in
connection with estoppel. So long as it is substantial, it need not consist of
expenditure of money or other quantifiable financial development’

The plurality referred to the concept of 'detrimental reliance' in cases of estoppel and both
French CJ and Gageler J referred to the possibility of a detrimental change of position in
this case being grounds for estoppel if other elements required for estoppel were present

Ashton v Pratt (No 2) (2015) 88 NSWLR 281 – money and other goods received in exchange
for service. Accordingly, there was no detriment.
Sidhu v Van Dyke (2014) 251 CLR 505 - Mrs Van Dyke had suffered detriment in that she did
not seek a property settlement in the divorce from her husband and, for about eight-and-a-
half years while she lived in the cottage, did not seek full-time employment thereby forgoing
the opportunity to earn wages that she might have earned.
5. Knowledge

In Walton Stores v Maher, Brennan J held that the representor must know that the relying
party has or will act to their detriment. Knowledge will be present in most situations where
a representation induces an assumption, due to the proximity of the parties. (1988) 164 CLR
387.

6. Reasonableness

The reliance must be reasonable, otherwise the doctrine would be inappropriately used.

Two questions arise:

 Did the relying party act reasonably in adopting the relevant assumption?
 Did the relying party act reasonably in taking the detrimental action?

Whelan CJ in Cosmopolitan Hotel (Vic) v Crown Melbourne Limited:

 ‘If there is a ‘grey area’ in what is represented or promised, but it was reasonable
for the representee to interpret it as extending at least to the lower limit of that
‘grey area’ and to act in reliance on it as so understood, the Court should regard
the representation or promise as sufficiently certain up to this lower limit.”

Hodgson JA in Sullivan v Sullivan:

 ‘Generally, a promise or representation will be sufficiently certain to support an
estoppel if it was reasonable for the representee to interpret the representation or
promise in a particular way and to act in reliance on that interpretation, thereby
suffering detriment if the representor departs from what was represented or
promised.”

7. Unconscionable conduct

Unconscionable conduct is the justification for granting relief.

McHugh J stated in Commonwealth v Verwayen:
 ‘the equitable doctrines result in new rights between the parties when it is
unconscionable for a party to insist on his or her strict legal rights’

Proprietary estoppel

 Giumelli v Giumelli: Parents made promises to a son that if he gave up his career and
moved onto their property that they would give him some of the property at a later
stage. The son later married a woman of whom his parents disapproved. The parents
retracted their promise. The son successfully sued.
  Sidhu v Van Dyke: A man made promises to his brother-in-law’s wife during their
affair. She relied on these promises to her detriment and later successfully sued him.
 Kevin John Lewis v Peter William Stewart by his tutor Peggy Lillian Mayhew [2018]
NSWSC 1186 (2 August 2018) Robb J:
o It appears to follow that the ultimate effect of a contract to leave particular
property by a will, or the consequences of estoppel by encouragement,
cannot always be known until after the death of the promisor or the person
making the assurance. …
o Even though any estate or interest in the property the subject of the
promise or assurance may be defeasible upon the occurrence of a relevant
contingency, it should not follow that the promisee or the person receiving
the assurance has no interest in the subject property capable of being
protected by equity before the death of the deceased…
 Priestley v Priestley [2017] NSWCA 155
 Waaka v Francois [2017] NSWSC 744
 Behman v Behman [2016] NSWCA 295
 ADM v FDGK [2018] NSWSC 442

Privity
The Doctrine of Privity of Contract

The privity of contract doctrine dictates that only persons who are parties to are contract
are entitled to take action to enforce it.

There are two fundamental ideas that are central to the doctrine of privity and underpin the
doctrine:
1. One who is a stranger to the consideration cannot be said to have accepted any
obligations
2. Nor can they be entitled to any of the benefits of the contract – Tweddle v Atkinson

Example
 A promises B, for consideration moving from B, to pay $ 100 to C.
 Here A and B are parties to the contract – privy to the contract – and can sue each other if
there is a breach by the other.
 C is not a party to the contract and cannot sue A if A fails to pay C the sum of $ 100.
 C is a stranger to the consideration.
 C bears no obligations to A, but likewise cannot impose an obligation on A.

In-class discussion question

 
Subway Inc has a franchise agreement with Steve. In turn, Steve contracts with a labour hire
company to have a group of university students doing part-time paid work in his Subway
shop.
Under the franchise agreement, Subway requires Steve to cap the hours worked by each
staff member.
After six months, Subway cancels its agreement with Steve and pays out his entitlements.
What remedy do the students have against Subway?
 Contract between Steve and Labour hire company has implications for his contract
between Steve and the students
 In this way privity can sometimes not make sense (quickly can be problematic once
contracts become interrelated and can therefore cause injustice vis-a-vis third
parties)

Privity

The doctrine of privity has the potential to cause serious injustices where third party
beneficiaries are concerned.

Those justifications that do exist with respect to the doctrine of privity relate primarily to
internal coherency within the doctrines of contract law, rather than to any social or
economic concerns.

Outside of the doctrinal concerns of contract law, the utility of the privity rule is of
dubious value.

This is particularly true in a commercial context where third parties are in existence and are
directly contemplated by the immediate contracting parties.

 Dutton v Poole – no privity rule. A brother owed an obligation to his sister even
though she was not a party to a contract between his father and himself
 Bourne v Mason – a third party was a ‘mere stranger to the consideration’
 Pigott v Thomason – third party beneficiaries succeeded
 Price v Easton – privity raised against third party
 Tweddle v Atkinson – privity rule fully established

A classic authority for privity is Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co
Viscount Haldane said:
 “My Lords, in the law of England certain principles are fundamental. One is that only
a person who was party to a contract can sue on it. Our law knows nothing of a jus
quaesitum tertio [third party right of action] arising by way of contract.”

See Coulls v Bagot’s Execturo & Trustee Co Ltd

Sir Anthony Mason: “The privity rule accordingly gives expression to the notion that the legal
conception of a contract is that it is a bargain between the parties to it and that it creates
rights and obligations only as between the parties to it. The rule rests primarily on a legal
conception rather than on any functional or policy consideration, the legal conception
itself embracing the idea that a person who makes a promise is accountable at law to the
person to whom it is made and not to anyone else.”

Privity and its relationship to the doctrine of consideration

When looking at the doctrine of consideration we observed the rule that consideration
must move from a promisee. That is, only a person who has provided consideration can
enforce a promise

Therefore
 Where A promises B that A will pay $100 to C in exchange for B working for A, one
could argue that C could not sue on the basis that C had not provided any
consideration for A’s promise to pay C the sum of $100
 C is therefore a stranger to the consideration

Coulls v Bagot’s executor:

 Mr Coulls entered into a contract with O’Neil Constructions which gave O’Neil the
right to quarry stone from Mr and Mrs Coulls’ property.
 Under the contract, O’Neil was required to pay both Mr and Mrs Coulls as joint
tenants.
 Eighteen months after the contract had commenced Mr Coulls died.
 O’Neil continued to pay Mrs Coulls, but the executors of Mr Coull’s estates queried
whether the payment was appropriate.
 Barwick CJ:
o “….. where A promises B for a consideration supplied by B to pay C then B
may obtain specific performance of A’s promise, at least where the nature of
the consideration given would have allowed the debtor to have obtained
specific performance. I can see no reason whatever why A in those
circumstances should not be bound to perform his promise. That C provided
no part of the consideration seems to me irrelevant. Questions of
consideration and of privity are not always kept distinct.”
 In Coulls, Barwick CJ tried to argue that Mr and Mrs Coulls were joint promisees.
 This involved a reasonably strained reading of the contract between Mr Coulls and
O’Neil.
 A majority of the High Court did not support the joint promisee argument.

Privity and remedies

What are the remedies that can be pursued against a promisor who is in breach of his or her
obligations to a third party?

In this example, who can sue A, and what remedies are available?
Because C is a third party and not privty to the contract, C has no right of action against A
However, B as the promisee under the contract and a party to the contract can sue A

Two possible remedies arise:

1. Damages at common law
2. Specific performance in equity

1. Damages at common law

Can C require B to sue A?

Windeyer J in Coulls:
 “[T]he case I have supposed, a contract by A with B that B will pay C $500, is a
transaction at law devoid of any equity in C. Yet I do not see why, if A sued B for a
breach of it, he must get no more than nominal damages. If C were A’s creditor,
and the $500 was to be paid to discharge A’s debt, then B’s failure to pay it would
cause A more than nominal damage.”

Because the remedy of common law damages for breach of contract will always be granted
to a plaintiff, B will always succeed. However, the critical issue is the measure of damages
that will be recovered.

A promises B, for consideration moving from B, to pay C $100

 Critical to the understanding of the position of B in this context is the basic principle for
the assessment of damages for breach of contract.
 As will be explored in more detail in the lectures on remedies, damages seeks to
compensate the plaintiff for the loss suffered as a result of the breach.
 If no loss is suffered then a nominal (or token) award of damages is made in favour
of the plaintiff.
 If real loss is suffered, an award of substantial damages is made in favour of the
plaintiff.
 In our example it is likely to be the case that the measure of damages to be
recovered by B would be nominal because B suffers no loss as a result of the
breach by A.
 Put another way, B’s position is the same irrespective of whether or not A pays the
sum of $ 100 to C.
 In special circumstances it may be that B will suffer a real loss, in which case
substantial damages which reflect the value of B’s loss – not C’s loss - will be
awarded. Coulls, at 501-502, per Windeyer J.
 Because in most cases the measure of damages recovered will be nominal, there is
little reason for B to pursue common law damages.
 The fact that B cannot sue to recover as damages the measure of C’s loss from A’s
breach of contract was recently confirmed by four members of the House of Lords in
Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518, at 522, 563, 575
and 580.
 The fifth Law Lord, Lord Goff was, at 538-539, 544, more skeptical, suggesting that it
was ‘an extraordinary defect’ in the law that B should have no remedy for common
law damages against A

Jackson v Horizon Holidays

 A man paid for a holiday to Ceylon with his family.
 The travel agent who arranged the holiday promised excellent accommodation.
 The accommodation was horrifically bad and the family incurred additional expense
booking another hotel.
 The man sued the travel agent. The question was whether he could obtain the entire
sum spent on the holiday or only a proportionate share.
 Denning MR:
 o “In this case it was a husband making a contract for the benefit of himself,
his wife and children. Other cases readily come to mind. A host makes a
contract with a restaurant for a dinner for himself and his friends. The vicar
makes a contract for a coach trip for the choir. In all these cases there is
only one person who makes the contract.”
o “Only the father, the host or the vicar can sue. He can, of course, recover his
own damages. But can he not recover for the others? I think he can. ……
o There is no one to recover for them except the one who made the contract for
their benefit. He should be able to recover the expense to which they have
been put, and pay it over to them. …….
o If he can recover for the expense, he should also be able to recover for the
discomfort, vexation and upset which the whole party have suffered by
reason of the breach of contract, recompensing them accordingly out of
what he recovers.”

2. Specific performance in equity

 Unlike common law damages, specific performance will not always be granted to a
plaintiff upon proof of a breach of contract.
 There are various grounds upon which a court will refuse specific performance.
 A particularly important one in the present context is that the remedy will be refused
if common law damages would be an adequate remedy.
 The critical decision in this respect is Beswick v Beswick [1968] AC 58
 
Beswick v Beswick
 Mr Beswick sold his coal business to his nephew.
 The sale took place on the condition that the nephew would employ Mr Beswick as a
consultant for the rest of his life and that the nephew would pay an annuity to Mr
Beswick’s wife after his death.
 After Mr Beswick died, the nephew failed to honour the promise to pay an annuity to
Mrs Beswick.
 The House of Lords was unanimous in its view that specific performance could be
awarded to Mrs Beswick
 Lord Hodson: “The peculiar feature of this case is that the plaintiff is not only the
personal representative of the deceased but also his widow and the person
beneficially entitled to the money claimed. Although the widow cannot claim
specific performance in her personal capacity, there is no objection to her doing so
in her capacity as administratrix, and when the moneys are recovered they will be
in this instance held for the benefit of herself as the person for whom they are
intended.”
 
Trident v McNiece
 
 The Case of Trident General Insurance v McNiece Bros
 The most significant High Court decision on privity has been Trident General
Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107.
 The HCA appeared to come very close to abolishing the doctrine in this case.
  Section 48 of the Insurance Contracts Act (Cth) 1984 enshrined this into law one
month later
 
Trident General Insurance v McNeice Bros
 Blue Circle Cement entered into a contract of indemnity insurance with Trident
 Premium based on the inclusion of coverage to subcontractors such as McNiece
 One of McNiece’s employees was injured but when McNiece made a claim, Trident
argued the contract was with Blue Circle and denied the claim based on privity
 HCA held that the rule of privity should not be applied to deny the right of
indemnity.
 The different views on the status of the doctrine of privity set out by the judges of
the High Court.
 Mason CJ and Wilson J called for a principled development of the law.
 Toohey called for the abolition of privity within insurance law.
 Deane J found that the promise was held on trust by Blue Circle for McNiece.
 Brennan and Dawson JJ dissented.
 Read the extract at pp447-453 to see what reasons Mason CJ & Wilson J give for
their ‘radical’ approach to privity
 Read the extract by Brennan J at pp454-458 of the text.
 Mason CJ and Wilson J:
o “Trident’s case in this Court is that the rules that only a party to a contract
can sue on it and that consideration must move from the promisee are
fundamental principles of the common law of contract.
o These principles evolved in the course of the nineteenth century in the
development in England of the law of contract and they have been
consistently applied, ……
o The argument is that the principles are so well accepted and so embedded
in our law of contract that they should not be overturned by judicial
decision, even if their application to contracts for the benefit of third parties
is not altogether satisfactory.”
 Brennan J:
o “….. the rule would lose much of its cogency if the final court of appeal were
to regard a principle embodied in its own decisions as settled only to the
extent that a majority of its members approve the principle for application
in each case falling within its scope.”
o “Unless the members of the final appellate court regard themselves as
generally bound by the court’s precedents, a precedent would tend to be
viewed …..like a restricted railroad ticket, good for this day and train only.”
 In Winterton Constructions Pty Ltd v Hambros Australia Ltd (1991) 101 ALR 363,
Gummow J, after a long analysis of Trident, concluded, at 368, with the following
observation:
o “At best ... there is support by three only of their Honours for the
proposition ... that the old rules do not apply in their full vigour.”
 Gummow J referred to the decision of Mason CJ, Wilson, Toohey JJ.
 
Privity and its exceptions
 
Agency
 The rule here is that if one of the contracting parties contracts as an agent, then
either the agent or the principal, but not both, can sue to enforce the contract.
 In our example, if B is C’s agent then either B or C can enforce the contract against
A.
 In these cases it is immaterial as to whether A knew that B was C’s agent.
 
Trusts
 The law of trusts can enable a third party beneficiary to initiate action that will
enforce the promisor’s obligation.
 Using the above example, if B had contracted with A in the capacity of trustee for C,
C as beneficiary under the trust has enforceable rights.
 These rights arise because the law of trusts gives a beneficiary certain rights against
a trustee.
 In the context of privity, if C is a beneficiary under a trust, C can bring an action
against B, the trustee, that has the effect of compelling B to sue A for breach of
contract.
 In formal procedural terms C sues in an action in which B and A are joined as
defendants.
 The use of trust law here does not give rise, in the strict sense, to an exception to the
doctrine of privity.
 In conceptual terms, the action against A is pursued by B, albeit at C’s insistence.
 
Estoppel
 Following the decision in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR
387, a third party may be able to seek relief against a promisor on the basis of
promissory estoppel principles.
 To succeed the third party would need to establish the elements of promissory
estoppel.
 See Trident, at 145, per Deane J.
 In Trident, Mason CJ, Wilson J, at 123-124, were of the view that it was likely that
estoppel could be established on the facts of the case, but it was not necessary for
them to determine the issue on the basis that they had decided the case on other
grounds.
 
Unjust enrichment
 When we examine the remedy of quantum meruit later in this course, we shall see
that the principle of unjust enrichment is the principle that underpins the remedy.
 The essence of the principle is that it requires a defendant ‘to make fair and just
restitution derived at the expense of a plaintiff’: Pavey & Matthews Pty Ltd v Paul
(1987) 162 CLR 221 at 256-257, per Deane J.
 See also: Benson v Rational Entertainment Enterprises Ltd [2018] NSWCA 111

Capacity
1. Minors
2. Persons with mental incapacity and intoxicated persons
Minors
 In Australia, a person under the age of 18 is a minor.
o This is set out in statutes in each state and territory in Australia: For example,
see statutes listed in Jeannie Paterson, Andrew Robertson and Arlen Duke,
Principles of Contract Law (Lawbook Co, 4th ed, 2012) 162 n 3.
 General common law principles regarding the contractual capacity of minors:
o If a minor enters into a contract, the contract will not be binding on the
minor. The contract cannot be enforced against the minor.
 Ryder v Wombwell (1868-9) LR 4 Ex 32, 38 (Willes J): ‘The general
rule of law is clearly established, and is that an infant is generally incapable
of binding himself by a contract.’
 A key exception: contracts for necessaries are binding on minors.
 ‘[A]n infant may bind himself to pay for the necessary meat, drinks, apparel,
necessary physicke, and such other necessaries, and likewise for his good teaching
and instruction whereby he may profite himself afterwards.’ Edward Coke, A
Commentary Upon Littleton (Luke Hansard and Sons, 16th ed revised and corrected by
Francis Hargrave and Charles Butler, 1809) 172A.
 Johnstone v Marks (1887) 19 QBD 509
o ‘It lies upon the plaintiff to prove, not that the goods supplied belong to the
class of necessaries as distinguished from that of luxuries, but that the
goods supplied when supplied were necessaries to the infant. The
circumstance that the infant was sufficiently supplied at the time of the
additional supply is obviously material to this issue, as well as fatal to the
contention of the plaintiff with respect to it.’ Johnstone v Marks (1887) 19
QBD 509, 511 (Lord Esher), quoted in Nash v Inman [1908] 2 KB 1, 6-7
(Cozens-Hardy MR)).
o ‘If an infant can be made liable for articles which may be necessaries without
proof that they are necessaries, there is an end to the protection which the
law gives him. If he has enough of such articles, more cannot possibly be
necessary to him.’ Johnstone v Marks (1887) 19 QBD 509, 511 (Lindley LJ),
quoted in Nash v Inman [1908] 2 KB 1, 7 (Cozens-Hardy MR).
 
Persons with a mental incapacity and intoxicated person
 
 The same rules apply to persons with a mental incapacity and intoxicated persons.
 Imperial Loan Co v Stone [1892] 1 QB 599
o ‘It seems to me that the principle to be deduced from the cases may be
summarised thus: A contract made by a person of unsound mind is not voidable
at that person's option if the other party to the contract believed at the time he
made the contract that the person with whom he was dealing was of sound
mind. In order to avoid a … contract on the ground of insanity, the mental
incapacity of the one must be known to the other of the contracting parties. A
defendant who seeks to avoid a contract on the ground of his insanity, must
plead and prove, not merely his incapacity, but also the plaintiff's knowledge of
that fact, and unless he proves these two things he cannot succeed.’ Imperial
 Loan Co v Stone [1892] 1 QB 599, 602-3 (Lopes LJ), quoted in Gibbons v Wright
(1954) 91 CLR 423, 441 (Dixon CJ, Kitto and Taylor JJ).
 Gibbons v Wright (1954) 91 CLR 423
o ‘The law does not prescribe any fixed standard of sanity as requisite for the
validity of all transactions. It requires, in relation to each particular matter or
piece of business transacted, that each party shall have such soundness of mind
as to be capable of understanding the general nature of what he is doing by his
participation.’ Gibbons v Wright (1954) 91 CLR 423, 437 (Dixon CJ, Kitto and
Taylor JJ).
 Hart v O’Connor [1985] AC 1000
o It could not be shown that the other party knew, or ought to have known, of
the mental incapacity. The contract was not set aside.
 
Masters v Cameron contracts
 
 In Masters v Cameron (1954) 91 CLR 353, the High Court stated that:
 “Where parties who have been in negotiation reach agreement upon terms of a
contractual nature and also agree that the matter of their negotiation shall be dealt
with by a formal contract, the case may belong to any of three cases.”
 
1. It may be one in which the parties have reached finality in arranging all the terms
of their bargain and intend to be immediately bound to the performance of those
terms, but at the same time propose to have the terms restated in a form which will
be fuller or more precise but not different in effect.
o Also, Verrocchi v Messinis [2016] VSC 490.
2. The second category refers to a situation in which the parties have completely
agreed on all the terms, intend no departure from the agreed terms, but have made
performance of one or more terms conditional upon a formal contract being
executed by the parties.
o Niesmann v Collingridge  (1921) 29 CLR 177 where it was agreed that part of
the deposit for the purchase of land which had been arranged orally was to be
paid “on the signing of the contract”. – [64] of Feldman.
3. The third category refers to a situation in which the parties do not intend to be
bound unless and until a formal contract has been signed.
4. A fourth ‘category’ of contracts, of the kind discussed in Masters v Cameron, have
been identified, namely cases in which the parties were content to be bound
immediately and exclusively by the terms which they had agreed upon, while
expecting to make a further contract in substitution for the first contract, containing,
by consent, additional terms. -- Baulkham Hills Private Hospital Pty Ltd v GR
Securities Pty Ltd (1986) 40 NSWLR 622.
 Also, Lucke v Cleary (2011) 111 SASR 134.
 Verrocchi v Messinis [2016] VSC 490, Riordan J:
o “I adopt the approach of Giles JA in Tasman Capital Pty Ltd v Sinclair [2008]
NSWCA 248, [26], who observed that ‘the categorisation does not greatly
contribute to the decision in the particular case’ because whether or not the
Court will find a contract is determined, in each category, by whether the
 parties intended to be legally bound to the informal agreement – such
intention being objectively ascertained.”
o However, if the contract is incomplete then intention does not matter
 
Agreements to negotiate in good faith
 Agreements to negotiate in good faith is not the same thing as an agreement to
agree.
 An agreement to agree is uncertain.
 However, an agreement to negotiate in good faith is a process contract.
 An agreement to negotiate in good faith covers the negotiation process – not the
substantive agreement.
 These might be void for uncertainty with regard to the substantive agreement –
Walford v Miles [1992] 2 AC 128.
 But in Coal Cliff Colleries v Sijehama (1991) 24 NSWLR 1 a majority, including Kirby
P, held that in some circumstances such an agreement could be enforced.
 The New Zealand Court of Appeal took issue with this view in Wellington City
Council v Body Corporate [2002] 3 NZLR 486 at 491
 
The debate
 
 In Hillas & Co Ltd v Arcos Ltd, Lord Wright said:
o “There is then no bargain except to negotiate, and negotiations may be
fruitless and end without any contract ensuing; yet even then, in strict theory,
there is a contract (if there is good consideration) to negotiate.”
 In Courtney & Fairbairn Ltd v Tolani Brothers (Hotels Ltd), Lord Denning, stated that
the: “tentative opinion by Lord Wright does not seem ... to be well founded.”
 In Walford v Miles, Lord Ackner stated: “the reason why an agreement to negotiate,
like an agreement to agree, is unenforceable, is simply because it lacks the necessary
certainty.”
 Lord Ackner asked: “how is a vendor ever to know that he is entitled to withdraw
from further negotiations? How is the court to police such an agreement?”
 In Coal Cliff, Kirby P stated that: “the law of contracts serves the marketplace. It
does not exist to satisfy lawyers’ desires for neat rules.”
 Kirby P: “the law should strive to uphold a contract wherever possible to avoid the
reproach of being the destroyer of bargains.”
 Lord Devlin in Walford stated: “commercial law should foster and support
commercial practice, not fight it.”
 United Group:
o “…. a promise to negotiate … genuinely and in good faith with a view to
resolving claims to entitlement by reference to a known body of rights an
obligations, in a manner that respects the respective contractual rights of the
parties, giving due allowance for honest and genuinely held views about those
pre-existing rights is not vague, illusory or uncertain.”
 
 AMCI (IO) Pty Ltd v Aquila Steel Pty Ltd [2009] QSC 139 ----Douglas J held that a
dispute resolution clause requiring that reasonable efforts in good faith be employed
to resolve any dispute was not illusory and could be performed.
  In Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd [2010] WASC 222 the West
Australian Supreme Court considered and applied an obligation to act in good faith
between two parties though in circumstances where good faith was confined to mean
‘honesty’ and excluded ‘bad faith dealings.’
 
 Trackcorp Adrenalin Pty Ltd v Bathurst Regional Council (No.3) [2014] NSWSC 690
 In assessing the content of the obligation it is, of course, necessary to consider it in
its particular contractual setting …..
 Here, the obligation arises in the context of the exercise of an option to renew an
existing contract, where the subject matter of the contemplated negotiations concerns
an important term which would need to be agreed before the renewed agreement
would come into existence.
 …… the obligation, so viewed, allows the negotiating parties to pursue their own
interests in relation to the subject matter of the term (the track hire fees) so long as
they continue to honestly and genuinely participate in the negotiation process.
 
 Baldwin & Anor v Icon Energy Ltd & Anor [2015] QSC 12
 [51] The essential difficulty identified by Lord Ackner remains: in an agreement of
the present kind (as distinct from that in United Group Rail Services), how can a
standard of reasonableness or good faith be measured and applied so as to give the
promise a sufficiently certain content? … there is no existing contractual relationship
to which that standard of reasonableness could be anchored.
 A duty to carry on negotiations in good faith or reasonably in a context such as the
present is, as Lord Ackner said, “repugnant to the adverserial position of the parties
when involved in negotiations”.
 “Outside the constraints upon negotiations in cases such as United Group Rail
Services, a standard of reasonableness is inconsistent with what Allsop P described as
the nature of negotiation, which is that it is “an essentially self-interested commercial
activity”.
 In other legal contexts (such as a common law duty of care) the standard of
reasonableness defines the way in which a party’s duty to act in the interest of
another is measured.
 But in the context of negotiations “about a myriad of commercial interests to be
bargained for from a self-interested perspective (as in Coal Cliff Collieries)”, the
standard is inapt and uncertain.”