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 be unfair, unjust or unconscionable. The concept of estoppel embraces notions of fairness and reasonableness that results in reliance upon strict legal rights being otherwise overridden. Estoppel in most cases is a defence, as opposed to a basis of a claim, and is used as a shield not a sword.

There are three essential elements to an estoppel:

  • one party acts in a certain manner (this is usually in the form of a representation, but it may also be by way of conduct);
  • the other party relies on that action in some way; and
  • the reliant party suffers some sort of loss or detriment as a result of relying on the action.

CASE STUDY



Saleh v Ramanous

[2010] NSWCA 274



Facts


  • The appellant and the appellant's brother owned adjoining blocks of land, upon which they intended to combine and erect townhouses. The brothers had already obtained development consent to do so.
  • The appellant entered into an agreement with the respondent 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.
  • The appellant 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 appellant's brother refused to sell his land to the respondent. The respondent subsequently purported to rescind the contract.

Result


  • The Court of Appeal upheld the trial judge's finding that a promissory estoppel had arisen as a result of the pre-contractual negotiations.
  • Notably, the estoppel was sufficient to trump the parol evidence rule and the entire agreement clause incorporated within the contract.
  • The appellant's oral promise gave rise to a promissory estoppel that precluded the vendor from enforcing the contract of sale, as a result of which the respondent was entitled to rescind the contract and recover the deposit.

Closely connected to the concept of estoppel is waiver. Waiver means the unilateral abandonment of a right or claim. It may apply where a party to a contract represents, by its conduct or inaction, that it will not enforce a right under the contract and the other party alters its position. Therefore, by express statement, one party may waive a term of the contract and can no longer effectively assert that right and demand its performance.

For a waiver to occur there needs to be unequivocal words or conduct, including a deliberate failure to assert a right up to the latest possible time.

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.

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