Concerning an expectancy based remedial theory of promissory estoppel.

Author:Rankin, W. David
  1. INTRODUCTION II. BACKGROUND ON PROMISSORY ESTOPPEL III. RELIANCE-EXPECTATION DEBATE i. Reliance Theorists ii. Expectation Theorists IV. EMPIRICAL STUDIES AND JURISPRUDENTIAL ANALYSES i. Empirical Studies ii. Jurisprudential Analyses a. England b. Canada c. Australia d. US V. JUSTIFYING EXPECTATION i. Proposition A: A right may be transferred donatively through a gratuitous contract ii. Proposition B: Promisor licences promisee to exercise her freedom unconstrained by the contract VI. CONCLUSION I. INTRODUCTION

    In a case comment on Central London Property Trust Ltd v High Trees House Ltd, (1) Cheshire and Fifoot wrote on estoppel: "few doctrines are at once so potentially fruitful and so practically unsatisfying. It is more often cited than applied, and more often applied than understood." (2) While promissory estoppel has been refined in the decades since High Trees, this statement continues to hold force. Perhaps in part due to the somewhat tortuous development of the doctrine, (3) it is often difficult to understand precisely what judges are attempting to do when they invoke promissory estoppel. This lack of clarity has given rise to a number of important debates in the literature, both with respect to the causative event and the legal response. The focus of this paper is on the latter debate.

    The question of the proper remedy when an estoppel has been raised has relatively recently found itself at the centre of much academic attention. (4) Prominent scholars in England, Canada, Australia, and the US have presented arguments in favour of limiting relief to the reliance loss of the promisee. (5) This view is not universal, however, and other leading academics have argued that, once raised, a promissory estoppel should prevent (estoupe) the promisor from acting inconsistently with the promise. (6) This debate is accented by the judicial reality that the courts in these four jurisdictions generally--or, in some cases, always--adopt the latter approach. (7) While there is very little explanation or justification for this position in the jurisprudence, numerous empirical and jurisprudential studies confirm the judiciary's proclivity toward treating gratuitous promises as binding in certain circumstances, thereby protecting the expectation interest engendered by them. (8) The purpose of this paper is to explain the latent reasons behind this judicial preference. My argument is that the cases identified in this paper that support expectation as a proper measure of relief are justifiable within a corrective justice framework.

    In the next part of this paper, I briefly set out the doctrine of promissory estoppel as it is currently understood in England, Canada, Australia and the US. Then, in Part III, I set out the reliance-expectation debate in more detail. In Part IV, I present the jurisprudence on the proper measure of relief in promissory estoppel cases, concluding that there are authoritative cases in England and the US in favour of the expectation theory. In Part V, I turn to justifying the cases that stand for expectation as a proper measure of relief. In this endeavour, I present two plausible justifications. First, I argue that a gratuitous promise can transfer an enforceable right to direct the outcome of one of the promisor's choices. I conclude that this may explain the cases in which promissory estoppel operates as a cause of action, namely in the US, and, to some extent, in Australia. Second, I suggest that a promisor may, through a promise, licence the promisee to exercise her freedom of choice unconstrained by some pre-existing contract. Once the subject choice is exercised, the promisor's original contractual right has no content. The result of this is equivalent to the protection of expectations, and I argue this proposition justifies the doctrine in those jurisdictions (Canada and England) in which promissory estoppel can never operate on its own to create a cause of action. Finally, in Part VI, I conclude. (9)


    Like many doctrines of the law, promissory estoppel is not defined uniformly between jurisdictions. Scholars and jurists operating in England, Australia, Canada, and the US identify different definitions and elements. The purpose of this section is to briefly set out the state of the law in these jurisdictions in order to lay the foundation for the discussion of the proper measure of relief found in the next section.

    In England, Canada, and Australia, promissory estoppel derives from the case of Hughes v Metropolitan Railway (10) In that case, the plaintiff and the defendant were landlord and tenant respectively. The lease contained a provision under which the tenant was required to make any repairs requested by the landlord within six months of the delivery of formal notice. On October 22, 1874, the plaintiff issued a formal notice of repair, and the defendant replied with the proposal of (a) a sale of the lease back to the landlord, and (b) the deferral of the repairs while the parties negotiated. The plaintiff responded that it was willing to negotiate for the purchase of the remainder of the leasehold; the reply did not mention, however, the deferral of the repairs. On December 30, 1874, the defendant made an offer, and, the following day, the plaintiff rejected it. No further negotiations took place. On April 22, 1875, the original six-month repair notice expired. Six days later, the plaintiff brought a writ of ejectment, and the defendant commenced the repairs. Repairs were completed in June of that year. In considering the writ, the House of Lords concluded that equity would not allow the plaintiff to assert its strict contractual right to eject the defendant. (11) The ratio as set out by Lord Cairns LC is as follows:

    [I]t is the first principle upon all Courts of Equity to proceed, that if parties who have entered into definite and distinct terms involving legal results--certain penalties or legal forfeiture--afterwards by their own act or with their own consent enter 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 having regard to the dealings which have thus taken place between the parties. (12) Stemming from this ratio, the English and Canadian courts have developed a doctrine of promissory estoppel with the following four component parts: (1) a promise not to enforce an existing legal (generally contractual) right; (13) (2) an intention of the promisor to affect binding legal relations through the promise; (14) (3) an intention of the promisor for the promise to be acted on; (15) and (4) the detrimental reliance of the promisee. (16) When these elements are met, a promissory estoppel is raised in favour of the promisee. The effect of this is discussed below.

    It is sometimes said of this doctrine of promissory estoppel that it operates as a "shield," but never as a "sword." (17) While this maxim is occasionally interpreted to mean that a plaintiff may never raise an estoppel, (18) this view has been criticized or rejected in both Canada and England. (19) It is more correct to say that the maxim means simply that--because the promise must have regard to the non-enforcement of an existing right--promissory estoppel cannot operate independently as a cause of action. (20) The cause of action must be based on some pre-existing right held against the defendant, and a promissory estoppel may either complete the plaintiff's case (say, by negating one of the defendant's contractual defences), or it may be invoked by a defendant to defend against the assertion of the plaintiff's strict legal rights. In other words, a promise can only raise an estoppel if the promisor and the promisee have a pre-existing legal relationship. (21) Without such a relationship, no cause of action can lie. The doctrine should not be considered as turning on whether the party seeking to raise the estoppel is a defendant or a plaintiff. (22)

    While this interpretation of the sword-shield maxim is good law in England and Canada, (23) it has been rejected in Australia. (24) In Waltons Stores (Interstate) Ltd v Maker, (25) the majority of the High Court of Australia rejected the requirement that there be a pre-existing contractual or legal relationship between the parties. In that case, the plaintiff conducted extensive work on his property in the anticipation that a lease would be formed between himself and the defendant. The timeline set out in the proposed lease was such that, if the plaintiff was to complete the required building operations on time, he had to start work under the contract in November 1983 at the latest. On November 7, 1983, the defendant's solicitor represented that the defendant would let the plaintiff know by the next day if it did not assent to any of the terms of the proposed lease; the defendant, however, was not prepared to execute the lease until it had finalized its retail strategy. On November 10, 1983, the defendant became aware that the plaintiff had begun the demolition and construction work contemplated under the unexecuted contract. On November 11, the plaintiff's solicitor sent an executed copy of the lease "by way of exchange" to the defendant. The defendant did not reply until January 19 when it finally informed the plaintiff that it would not be executing the lease. By this time, the buildings on the plaintiff's property had been entirely demolished, and the new building required under the terms of the proposed lease was 40% complete. While the plaintiff and the defendant were not in a contractual relationship, the High Court nevertheless found for the plaintiff. The Court reasoned that a promisee has an equitable cause of action or defence...

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