‘What is clear is that the doctrine derived from High Trees – which has become known as the doctrine of “promissory estoppel” – has developed in a way that means that it has only a limited impact on the doctrine of consideration…’ per Stone, Devenney & Cunningham (2011)

Discuss the extent to which you agree with this statement. Your discussion should take account of both the origins of the doctrine and importantly, its subsequent development through case law.

The doctrine of promissory estoppel is an equitable doctrine that has arisen to mitigate the harshness of the rule that emanated from the case of Foakes v Beer[1] which states that part-payment of debt is never good consideration for a promise to discharge the entire debt. Though hard to define, promissory estoppel is the idea that one can be ‘estopped’ from going back on their word when they have made a promise that another party has relied or acted upon to their detriment, thus protecting individuals who have relied on a promise without giving consideration.

The origins of this doctrine are attributed to Lord Denning in the case of Central London Property v High Trees[2] the foundations of which historically derive from two pre-existing sources of common law estoppel, “a mechanism for enforcing consistency”[3] invoked to stop a person from going back on their promise when it would be inequitable, and the equitable doctrine of waiver, which developed in Hughes v Metropolitan Railway,[4] and acts as a means of temporarily suspending legal rights. Lord Cairns explained that if one party,  “by their own act or with their own consent enter[s] upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable.”[5] Subsequent case law shows the development of promissory estoppel and how it has narrowed the range of components necessary for promissory estoppel to be exercised, ultimately limiting its effectiveness.

George Appleby suggests that in High Trees Denning, J simply brought the already existing doctrines of estoppel and waiver together.  High Trees is the landmark case in the development for what has come to be known as ‘equitable’ or ‘promissory estoppel.’ In this case there was an agreement between landlord and tenant to reduce the rent payable by half in order to stop people leaving their flats during the war. Since the plaintiffs knew their promise would be acted on it was an enforceable promise, despite the absence of any consideration. Arguably the tenants did give consideration by staying in the flats and continuing to pay rent. By 1945 the flats were fully occupied again, but the landlord company had gone into receivership. The receivers wanted once again claim full rent from the tenants. Denning, J. recognised that the promise was understood by all parties to apply whilst the conditions giving rise to the promise were in force (the war), so the landlord (or as now, the receivers) could only claim full rent after the war had terminated. Their legal right to claim full rent, as part of their legal contract, was in ‘suspense’ during the prevailing conditions of the war. In his obiter dictum Denning, J.  sought to rely on the dictum of Cairns in Hughes “a promise to accept a smaller sum, in discharge of a larger sum, if acted upon is binding not withstanding the absence of consideration.”[6] Thus the equitable doctrine of promissory estoppel came into existence.

However, there are problems with High Trees.  Firstly, as a High Court case it is in direct contrast to the House of Lords precedent in Foakes and appears to undermine its authority. Lower courts are bound by the precedents set in the House of Lords, yet controversially, the High Court has departed from this rule and the House of Lords decision where they had no obvious grounds to do so.  Secondly, Denning, J. was only a first instance judge yet he had created a new doctrine despite the fact that he had no clear authority for do so. Denning, J. attempts to justify his departure from the House of Lords precedent by suggesting that the idea of promising to ‘accept a smaller sum, if acted upon is binding notwithstanding the absence of consideration’ was not considered in Foakes. Professor Treitel attempts to understand this by saying that it “was not thought to be relevant in Foakes because that case was concerned with argument that legal rights had been permanently extinguished while the Hughes principle was concerned with their temporary suspension.”[7] Although it is still not clear how this justifies the departure from the House of Lords precedent. Furthermore, estoppel usually applies to present or past issues, yet Denning, J. applied it to the future promise. Interestingly, either by design or by coincidence, Denning, J.  happened to be sitting in many of the cases where this new and emerging doctrine was subsequently considered, thus playing an important role not only in its inception, but also in its development.

Subsequent cases developed the doctrine and set the limitations to refine it. Firstly, the promise that gives rise to the estoppel must be clear and unequivocal. In Woodhouse v Nigerian Produce[8] the Lord Chancellor said the offer was not ‘clear and equivocal enough’ to found promissory estoppel in equity. More recently approved in Northstar v Maitland[9] Justice Ward held that for estoppel to arise there must be a clear unequivocal, unambiguous promise that was intended to affect the legal relations between the parties. Whilst this has narrowed the elements slightly, it is a rather obvious, common sense approach to promissory estoppel.

Secondly, Combe v Combe[10] established that there must be an existing legal relationship between the parties, which could be problematic where the relationship is social or domestic. A further reason why a wife could not sue in Combe was because the court felt that estoppel cannot found a cause of action; promissory estoppel can only be used to defend an action as a “shield not a sword.”[11] However, in other common law jurisdictions, this limitation has been rejected. The High Court of Australia in Walton Stores v Maher[12] rejected this deciding that in appropriate cases it could create a cause of action. Secondly, this maxim can be seen as controversial because in other estoppels, such as proprietary estoppel, it can be used as a cause for action and the reason why it is not the case in promissory estoppel is far from obvious. Professor Halson[13] suggests that promissory estoppel cannot give rise to a cause of action in his ‘estoppel spectrum’ because to do so would undermine the doctrine of consideration. However, the fact that it can only be used as a defence in contract law reinforces the notion that the doctrine of promissory estoppel is limited in its effects.

Ajayi v Briscoe[14] tells us that the promise must have been intended to be acted upon and in WJ Alan v El Nasr[15] Lord Denning (as he was by now) stated that the promise must be acted upon. Where the promise comes after an action there can be no promissory estoppel. In Ajayi the action that the defendant relied on came before the promise.  Estoppel thus functions, as an alternative to consideration as it renders a promise enforceable once there has been a detrimental reliance upon it. Professor Birks states that promises are contracts when “made by deed, supported by consideration or relied on to the detriment of the promise.”[16] This is yet another ingredient necessary for estoppel to arise. However, WJ Alan required that the action be detrimental to the promise. Lord Denning then altered his reasoning in Brikom Investments v Carr[17] by doubting whether the promise had to be acted on at all. It appears that this doctrine is open to developing through the common law and is dependent on the judges’ opinions.

As previously mentioned, an equitable doctrine it is at the discretion of the courts so it would not be applied if it were unfair for a person to rely on it. In DC v Rees[18] Mrs. Rees did not come to the courts with ‘clean hands’. Her unscrupulous treatment of the claimants in withholding a debt owed to them meant that equity in this case was best served by applying the common law rule in Foakes.

One of the most interesting aspects of the doctrine is the effect which it has upon the promisor’s rights and the question of whether a right is merely suspended or whether promissory estoppel can have the effect of permanently extinguishing an existing legal right. Implying that promissory estoppel might not only result in “complete extinguishment” but also that the only action necessary for the promisee to make it inequitable for the promisor to go back on his promise is that the promisee acts on it, even if it is “positively beneficial.”[19] This necessity shows that whilst the courts have developed particular ingredients for the doctrine to arise, they maintain the right to alter them where it would otherwise be unjust to do so.

In Collier v P & MJ Wright[20] Arden, L.J. argued if one is going back on their word and the effect is sufficiently inequitable a debtor may show that the right to recover debt is not postponed but extinguished. This hints that the effect of promissory estoppel may be permanent and not merely suspensory if it was so unfair to allow the legal right to start running again. However, Trukhtanov argues this is not a welcome development because it’s a ‘rigid rule’ which “drags equity to intervene in circumstances where there is nothing to warrant that intervention other than the desire to escape the rule in Foakes.”[21] It is noteworthy here that this criticism leveled by Trukhtanov is very similar to the criticism leveled at Denning, J.  himself when he developed promissory estoppel in order to avoid the rule in Foakes. Further, David Capper argues that there is no authority supporting the decision in Collier and they have over-looked the essential criteria that has developed for promissory estoppel to arise.[22] He suggests that reliance is the “basis for promissory estoppel”[23] where a debtor pays the part-payment and does nothing more, the doctrine cannot arise.

Professor Atiyah argues that the courts never set out to create the doctrine of consideration; they were concerned with deciding whether a particular promise should be enforced. The use of the word ‘consideration’ was just appropriate in that case.[24] In other jurisdictions consideration is not a necessary element in an enforceable agreement and is heavily criticised.  Thus the criticisms from an international perspective may undermine the efficacy of both doctrines. Trukhtanov criticises the doctrine since equity gives relief where justice requires relief to be given but none can be obtained under the common  law, “It is no function of equity to lend its doctrines to plug holes in the  common  law.”[25] Trukhtanov is highlighting that the equitable doctrine is available to mitigate the harshness of the law not to change the law itself and yet in Collier the courts are almost attempting to the exact opposite.

Ultimately, the case law following the case High Trees has narrowed the criteria necessary to use promissory estoppel making it considerably harder for the doctrine to arise. However, the criticisms mentioned, particularly regarding the case of Collier appear to show that critics and academics support the developments and encourage the application of them in promissory estoppel cases. Also, because Collier is a recent case the critical analysis reflects the current attitude towards the narrowed development. Austen-Baker refers to the principle as a “mere phantom” following the case of Collier and argues for it to be overruled.[26]

Bibliography

Journals and Books

• Professor Atiyah, (1986) Consideration: A Restatement, Essays on Contract. Oxford University Press.

•  Austen-Baker R.  (2008) “A Strange Sort of Survival for the Pinnel’s Case: Collier V P & MJ Wright (Holdings) Ltd.”  Vol. 71(4).  Modern Law Review 61.

• Professor Birks,  (1996) ‘Equity in the Modern Law: An Exercise in Taxonomy’. Vol. 26.  University of Western Australia Law Review 1.

• Capper, D. (2008)  ‘The Extinctive Effect of Promissory Estoppel’.  Common Law World Review 10.

• Cooke E, (2000) The Modern Law of Estoppel.  Oxford University Press.

• Halson, R.  (1999) ‘The Offensive Limits of Promissory Estoppel.’ Lloyd’s Maritime and Commercial Law Quarterly 257.

• Professor Treitel,  (2002) Some Landmarks of Twentieth Century Contract Law.  Oxford University Press.

• Trukhtanov, A.  (2008) “Foakes V Beer: Reform of Common Law at the Expense of Equity”.  Vol. 124.  Law Quarterly Review 364.