Promissory Estoppel, Election and Waiver

By Paul Taylor

A contract: Provides for the enforcement of promises

supported by consideration.

No consideration then prima facie a person is free to retract from that position.

Background

What about a change of position, such as variation to a contract or conduct by A leading to change in position by B where there is no consideration?

No contract – no remedies. Doctrine of estoppel/election or waiver may

prevent such an unjust departure.

Background

Estoppel: protection against the detriment which would flow from a party’s change of position if the assumption that led to it was deserted. 

Election: involves a party making a selection between inconsistent legal rights.  Choosing one right necessarily involves abandoning the other. 

Waiver: 'synonymous' to or 'overlapping' with election and estoppel. A party has waived one of its legal rights in favour of another.

Estoppel, Election and Waiver

The thread that links together the concepts of waiver, election and estoppel is the deliberate abandonment of legal rights. 

“Any discussion of the principles governing the circumstances in which a party’s words or conduct may preclude him from exercising a legal right…have their origin in the differences to be found in the various doctrines (election,waiver and estoppel)” – Sargent v ASL Developments Ltd (1974) 131 CLR 634, Mason J at 273

Abondonment of Legal Rights

An estoppel may arise:

(a) Where a promise or representation is made in the context of pre-exising contractual relationship.

(b) Where a promise or representation is made in a situation where there is no pre-existing legal relationship.

(c) In respect of a promise which is not supported by consideration.

Estoppel

‘Representations (or promises) as to future conduct.’(Legione v Hateley (1983) (HC))

In Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 428-9, Brennan J set out the essential elements of promissory estoppel.

Three elements at least are essential:1) Promise (representation or assurance);2) Reliance on the promise;3) Inequity or unconscionable conduct.

Promissory Estoppel

Usually in context of a contract between parties.Extended by Commonwealth v Verwayen (1990) 170 CLR 394 – pre-existing relation of plaintiff and defendant in the context of litigation.Example: where A promises B that he would not enforce his legal rights under the terms of a contract and B acted and relied on it without giving any consideration, equity would not allow A to renege on his promise to B.

Promissory Estoppel –Pre-Existing Legal Relationship

Up until Waltons –v- Maher, promissory estoppel could only be used in pre-existing legal relationships. The doctrine can now operate in the absence of

existing contractual relations. It can be used as a sword (offensively, as an

cause of action) as well as a shield (defensively, only if someone else sues you first).

Example: during the course of negotiations for a contract A makes a promise or representation to B that the negotiations will be completed in accordance with the terms agreed, A may be estopped by B from denying it has agreed to complete the negotiations.

Promissory Estoppel –Where no pre-Existing Legal Relations

Any promise or representation must be: Unequivical and unambiguous; May be express or implied. Legione v Hateley (1983) Mason and Deane

JJ

Promissory Estoppel

Reliance: must be definite or substantial. Detriment: the promisee must have ‘placed

himself in a position of material disadvantage if departure from the assumption be permitted.’

Unconscionability: dishonest behaviour by promisor. Satisfied if promisor encourages the promisee to create assumptions that lead to reliance.

All must be demonstrated to succeed either as a cause of action or a defence on the basis of promissory estoppel.

Promissory Estoppel -Detriment, Reliance and Unconscionability

Election consists in a choice between rights which the person making the election knows he possesses and which are alternative and inconsistent rights.

Example: Party A to a contract is entitled to terminate by reason of breach by B. Instead of terminating A (promisee) may elect to affirm the contract.

The election by A in not terminating is to say the alternative right to terminate has been ‘waived.’

Election

Sometimes the abandonment of a right may be described as waiver.

Waiver in the sense of election does not require consideration.

Election

There is no conclusive statement that waiver is a standalone principle and is unlikely to be favoured.

Kirby J, in a minority judgement in Agricultural and Rural Finance Pty Ltd v Gardiner (2008) (HC) held that  "waiver" constituted a stand-alone principle beyond instances of contractual variation, estoppel and election.

In the sense of election the concept of waiver has been used as merely an example of the operation of the wider doctrine of election, i.e. a party has waived one of its legal rights in favour of another.

Waiver

Waiver in the sense of estoppel occurs when : Party A has ‘waived’ its rights, by words or

conduct, conferred by the contract or by law.

The discharge or abondonment of a contract by reason of estoppel

Requirements of estoppel will need to be established.Waiver appears more apt as a description of an end result of promissory estoppel.

Waiver in the sense of estoppel

Promissory estoppel may not apply in the setting of corporations with equal bargaining power –Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) (NSW) – court held plaintiff acted in reliance of its own commercial interest.

Promissory estoppel may be:a) by way of defence in relation to a contractual right; orb) in the assertion of a positive right against the party

estopped.

The remedy, whether damages or some other equitable relief, granted on the basis of an estoppel must be proportionate to the detriment suffered.

What does this mean in the context of contracts in a commercial setting