Estoppel and waiver

Estoppel is a legal mechanism which prevents a party from departing from a promise or representation they have made to another party where to do so would cause that other party to suffer detriment. The concept embraces notions of fairness and reasonableness, as it is geared towards protecting a person who has relied upon an assumption or representation to either exist, or to come into existence. This is significant given that it provides an avenue for a party to seek relief outside the contract.

Estoppel can create new rights and be used as a cause of action in proceedings. It is also commonly used as a defence in the form of a ‘shield’.

Some ways that an estoppel can arise are as follows:

• Mutual assumption about existing facts – Where parties mutually adopt an assumption as to the existence of a state of affairs and where they conduct themselves in reliance on that assumption.
• Inducement to believe existing facts – Where one party makes a representation of fact about an existing state of affairs, which has the effect of inducing another party to rely on that representation, to their detriment.
• Promise about the future – Where a party makes a promise about the future to another party which is relied upon by that other party to their detriment. Depending on the jurisdiction, these circumstances can create a source of rights, and be an independent cause of action. However, it is questionable whether this also applies in NSW since 2010, given that the Court of Appeal decided in Saleh v Romanous [2010] NSWCA274 that this type of estoppel did not create an independent source of rights.
• Promiseto obtain interest in property – Where a person represents to another party that that they will obtain an interest in the first person’s property, where that other party proceeds upon this basis.

CASE STUDY

Facts

• The Saleh’s owned adjoining blocks of land, upon which they intended to combine and erect townhouses. The Saleh brothers had already obtained development consent to do so.
• They entered into an agreement with Ramanous for the sale of the combined site. The purchase price had been negotiated on the assumption that the two properties would be developed together in accordance with development consent.
• Saleh declined to include a contractual guarantee to this effect in the contract, stating “…If [the brother] doesn’t want to build, you don’t have to buy and you’ll get your [deposit] back”.
• The development failed and the Saleh’s brother refused to sell his land to Romanous. Saleh then purported to rescind the contract.

Result

• A promissory estoppel had arisen as a result of the pre-contractual negotiations.
• The estoppel was sufficient to override the parol evidence rule and the entire agreement clause incorporated within the contract.
• Saleh’s oral promise gave rise to a promissory estoppel that precluded the vendor from enforcing the contract of sale, as a result of which Romanous was entitled to rescind the contract, which in turn gave rise to a statutory right for Romanus to recover the deposit under s 55(2A) of the Conveyancing Act 1919 (NSW).
• So, although the court ultimately held that the trial judge erred when he held that the promissory estoppel entitled the Romanouses to rescind and recover their deposit because the court found that estoppel could only act defensively (like a shield) and therefore did not provide a basis on which the deposit could be recovered. The practical result was the same because of the operation of the Conveyancing Act 1919 (NSW)

Waiver by election involves the unilateral abandonment of a right or claim, and may occur where one party elects between two alternatives and inconsistent rights. Where one of those rights are satisfied, the other becomes no longer available for the party to assert. For waiver in this context to occur, there needs to be unequivocal words or conduct and knowledge of the right that is being waived.

CASE STUDY

McLachlan v Ryan (1987) 4 BCL 155

Facts

• The contract gave the principal the right to cancel the contract if the contractor did not complete its work at the rate the principal required.
• The contractor was unable to complete works according to schedule, and agreed to pay the principal $4,000 to fully compensate for any loss suffered.
• Despite the above payment, the principal later attempted to terminate the contract on the grounds that the contractor had not proceeded with the works at the required rate.

Result

• The principal had waived its right to insist upon timely completion by accepting the $4,000 compensation.
• Accordingly, the principal was not entitled to use delay as a grounds for terminating the contract and the termination was found to be wrongful.