Laws2111 Lecture6a 2011

Existing Duties as Consideration

  • If statute and/or the common law already require a particular duty, its performance cannot constitute good consideration (Collins v Godefroy)
  • Going above and beyond statutory duties CAN be consideration (Glasbrook v Glamorgan)
  • Important factor is the “extra benefit” above the duty (Denning in Ward v Byham)
  • Duties to third parties to not preclude consideration – only legal duties (Eurymedon)
  • Asking for more/paying less to do existing duty is NOT ordinarily good enough consideration (Stilk v Myrick) UNLESS they do more in return for more (Hartley v Ponsonby) or some kind of “practical benefit” can be demonstrated (Williams v Roffey)
  • Musumeci – NSWSC approved the ‘practical benefit’ approach, stating that if the benefit of accepting less is greater than the net benefit of exerting strict legal rights minus necessary costs of doing so, it can constitute good consideration.
  • Part payment of a debt is NOT good consideration (Pinnel’s Case, Foakes v Beer)
  • Economic Duress – being forced to pay more without being able to negotiate prevents a contract from being valid (Sundell)
  • Threat to break contract amounting to economic duress is held as preventing the party under duress from consenting – voiding the contract (North Ocean Shipping v Hyundai)
  • However, this only happens if the pressure is coercive/illegitimate, and not everyday business negotiations (Pao On v Lau Yiu)
  • Consideration is not universal – only a property of the common law system. Even there, courts have a long and storied history of finding means of circumventing the consideration requirement in the interests of justice.

High Trees (Estoppel returns)

  • 99 year contract from 1937 onward at a fixed price
  • London bombing during WW2 – agreed to reduce the rent to half price
  • Attempted to claim arrears and return to full rent after the war.
  • Lord Denning re-introduced ‘promissory estoppel’ – based on old cases that supported contractual rights not being enforceable if both parties believed they were suspended, or the plaintiff led the defendant to believe they were suspended
  • Requires belief in the suspension of rights, and detriment in reliance of that belief.
  • Allowed the restoration to original rent (no detriment in doing so) but estopped them from claiming the arrears.

Types of Estoppel

  • Common law: allowing one party to rely on something represented as a fact prevents them from being able to testify to the truth of the fact so represented.
  • Equitable estoppel: Promissory and propriety
  • Propriety estoppel – assumptions of ownership in land created or encouraged by another and acted on in reliance (Riches v Hogben)
  • Promissory estoppel – promise acted on detrimentally to the degree that it would be unconscionable to not make good that detriment.
  • Promise to accept a reduction in rent estops demanding arrears (High Trees, Quaglia)
  • Initially applied only to existing contracts – branched out in Walton Stores v Maher to allow it to act ‘as a sword instead of a shield’ and a cause of action in its own right
  • Uncertainty on exactly how it applies, as evidenced by the MANY different approaches discussed in Cth v Verwayen.
  • Remedies available for estoppel are flexible, and focused primarily on rectifying the detriment, rather than enforcing any perceived contract (Giumelli)
  • Equity > Common Law Doctrines such as the parol evidence rule (Saleh v Romanous)
  • If it would be unconscionable to allow a party to benefit from an assumed state of affairs they encouraged, they can be estopped from denying that state of affairs, even outside of a contract (Waltons)
  • Requires a clear and unambiguous promise (Legione v Hately) – an unclear promise with multiple potential meanings is not sufficient to warrant an estoppel.

Learning Guide Cases

Central London Property Trust v High Trees
Relevant To: Estoppel – origins, returning to original rights
Issue: Could the owners of a building they agreed to reduce the rent on during WW2 return to the original rent, and claim the ‘reduced rent’ arrears?
Held: Yes, they could return to the original rent (provided they provided reasonable notice that they were doing so) but could not claim the arrears, as people had relied on the promise and reorganised their finances.

Je Maintiendrai v Quaglia
Relevant To: Estoppel – returning to original rights
Issue: Could the owners of a shop they agreed to reduce the rent on claim the ‘reduced rent’ arrears after the tenant left?
Held: No, they couldn’t – majority held that it would be detrimental to require the repayment now (a lump sum payment being more of a burden than ongoing small payments) – minority found no detriment, as no financial hardship was ever established.

Legione v Hateley
Relevant To: Estoppel – clear and unequivocal
Issue: Was the statement “I think that will be alright, but I'll have to get further instructions” to a request for an extension sufficient grounds for an estoppel?
Held: No, it was not – did not clearly promise anything, not reasonable to rely on it.

*Waltons Stores v. Maher (1988) 164 CLR 387, especially , 397-408, 413-429, 434-454, 458-463 (leading case: using estoppel as a sword not a shield)
Relevant To: Estoppel – requirements, action in its own right
Issue: Could estoppel be used as a cause of action where no contract existed to give rise to obligations?
Held: Yes, it could – estoppel can act as a sword, rather than a shield.
Also set out the requirements for estoppel to arise:
1. An assumption that the other party knew they induced or intended to induce through action/inaction.
2. Action on that assumption.
3. Detriment will be suffered due to that action if the other party is permitted to depart from that assumption/promise.
4. Unconscionability (as it is an equitable doctrine).

Commonwealth v Verwayen
Relevant To: Estoppel – scope of remedy, potential unification
Issue: Could the government change policy and attempt to rely on valid defences after explicitly promising they wouldn’t?
Held: No, they could not – the cost in both time and money in bringing the action on reliance that they wouldn’t use those defences made it unconscionable to rely on them at such a late stage. As such, the minimum equity required to avoid that detriment/unconscionability would be to hold them to their original promise. (Also discussed potential ‘unified theory of estoppel’ attempting to combine the different branches into a single ‘equitable estoppel’)

Equititrust v Franks 2009 NSWCA 128 , paras 1-41, 68-74 (duration of detriment)
Relevant To: Estoppel – inability to exert strict legal rights after promising not to
Issue: Was reliance on the statement ‘Look, Phil, we are not going to break your balls if you get these houses finished and sold in a timely fashion’ sufficient to prevent them from charging the default rate of interest and consequently ‘breaking his balls’?
Held: Yes it was. However Equititrust COULD return to their strict legal rights and charge the default interest, but only after giving reasonable notice OR until a reasonable time after Mr Franks began to seek alternative credit – at which point the representation was no longer detrimental.

*Giumelli v Giumelli
Relevant To: Estoppel – scope of remedies
Issue: Was a series of promises to give one son land to build a house on if he continued working for the family trust sufficient to grant him title in the house, even though it was located in the middle of the family property and had been utilised and improved by his brother?
Held: No – the minimum equity required to extinguish the detriment/unsonscionability was merely the value of the house/a reasonable rental rate for the period it was used, not actual ownership.

*Saleh v Romanous
Relevant To: Estoppel – estoppel as a form of collateral contract, effect of parol evidence rule on estoppel.
Issue: Did a promise to ‘take care of Eddie’ prior to the contract being made create an equitable requirement that Eddie refusing to sell the adjacent property would constitute grounds for rescission?
Held: Yes, they did. The parol evidence rule has no effect on estoppel, as it is equitable and outside the scope of common law rules. The fact that the promise was inconsistent with the terms of the contract (which would have been fatal to a traditional collateral contract) was also held to not be relevant to estoppel.