Promissory Estoppel

The common law does not acknowledge the concept of ‘good faith’ as part of the law
influencing contractual transactions. If the promisor makes a promise to the promisee, and the
promisee did not contribute any consideration in return, the promisor can with no concern break
his promise at any time without any legal consequences. The common law strictly enforces
only bargains and not gratuitous promises. This weakness in the law caused the courts of equity
to interfere in order to ensure impartiality and justice in the parties’ transactions. Equity will
not favour a party who has made a promise to relieve another of his legal duty, but subsequently
tries to break the promise. If the promisor promises not to impose his strict legal rights against
the promisee, and the promisee as intended acted on it, then the promise made by the promisor
can be a defence for the promisee in equity, regardless of the lack of consideration flowing
from the promisee to the promisor.

The doctrine of promissory estoppel sometimes known as quasi-estoppel or equitable estoppel,

is a flexible doctrine whereby courts attempt to carry out necessary justice between disputing
parties. The doctrine has been conveyed therefore if the promisor by his conduct causes the
promisee to believe that the strict legal rights deriving from the contract will not be insisted on,
intending that the promisee should act on that belief, and he does act on it, then the promisor
will not subsequently be permitted to insist on his strict legal rights when it would be
inequitable for him to do so. In other words, when a party conducts himself in such a manner
as to cause the other party to believe that he has been granted a unilateral waiver of performance
of a specified part of a contract, then the party who is depending on that conduct has the right
to claim such a waiver. This means that when there are undertakings or promises in which there
is no consideration, they may be enforced by the doctrine of promissory estoppel.

The doctrine of promissory estoppel may be applicable in a circumstance in which both parties
are in an existing legal or contractual relationship and one party, particularly the promisor
promises to relieve the other party, particularly the promisee of some previous obligations. In
this condition, the doctrine of promissory estoppel attempts to avoid the promisor from going
back on his promise to completely enforce the promisor’s previous rights against the promisee.
Therefore, the doctrine is considered as a defence and not as a cause of action. In order to apply
the doctrine, there are some elements must be present. Firstly, the promisor makes a promise
with the intention that the promisee should act in reliance on the promise. Secondly, the
promisee has acted in reliance on the promise. Therefore, it is inequitable to allow the promisor
to renege on his promise. Nevertheless, the doctrine is suspensory and not extinctive which
means it only suspends the promisor’s rights but does not take it away. The promisee who had
relied on it is given temporary relief until the promisor conveys further notice provided the
promisee can be put back to his original position, or else the promisor’s right may be denied to
avoid the detriment that the promisee may undertake.

The origin of the doctrine of promissory estoppel can be traced to an early case of Hughes v
Metropolitan Rly Co (1877) 2 App Cas 439. In this case, the plaintiff who was the landlord
of a house provided the defendant who was the tenant a six-month notice in October to perform
fixings to the house where the failure to comply would cause the tenancy to be terminated. In
November, the landlord commenced negotiations with the tenant for the sale of the house to
the tenant. The negotiations came to an end in December and the tenant had not perform fixings
to the house. Due to the expiration of six months, the landlord instituted a legal action to evict
the tenant from the house. The House of Lords ruled that the negotiations carried out by the
landlord amounted to a promise that provided the negotiations went on, he would not enforce
the notice for fixings to the house. The tenant had acted in reliance on the promise as he had
performed nothing to make fixings to the house when the negotiations were continuing.
Therefore, the period of the notice should be calculated from the date the negotiations came to
an end, and not six months from the date the notice was issued. In this case, the doctrine of
promissory estoppel suspended the landlord’s original rights. Lord Cairns stated that the first
principle on which all Courts of Equity begin an action is that if parties who have executed
definite and distinct terms involving certain legal consequences, particularly certain penalties
or legal forfeiture subsequently by their own conduct or with their own consent enter on a
course of negotiations which has the effect of causing one of the parties to presume that the
strict rights resulting from the contract will not be enforced or will be suspended, or held in
abeyance, the person who otherwise might have enforced those rights will not be permitted to
enforce them where it would be inequitable having regard to the transactions which have thus
occurred between the parties.

The case more frequently related with the doctrine of promissory estoppel is Central London
Property Trust Ltd v High Trees House Ltd [1947] KB 130. In this case, the defendant
rented flats from the plaintiff for 99 years, starting from 29 September 1937 at the rate of £2500
per annum. When World War II erupted, the plaintiff agreed to decrease the rent to £1250. The
defendant paid the rental in accordance with this updated rate from 1941 to 1945. At the end
of 1945, the plaintiff claimed for rentals as well as arrears based on the former rate of £2500.
In this case, Lord Denning set out the principle of promissory estoppel stating that when a party
makes a promise with the intention that the other party should act in reliance on that promise
and the other party performs so act, the promise must be carried out even though no new
consideration is made for the promise. Promissory estoppel can only be applied as a defence
on the ground that no consideration has been provided for that promise. The other party cannot
be deemed to enforce a new contract as there is no new contract for want of consideration.
However, the party who has undertaken a detriment for relying on the promise may raise the
promise as a defence to estop the promisor from instituting an action against him.

In both cases above, the promises were relied and acted on by the promisee. The promise must
be unequivocal, clear or unambiguous but may be implied and in appropriate cases, silence
may amount to a promise. The elements of reliance and detriment are less clear and it was
uncertain whether a party must have acted to his or her detriment. In Ajayi v RT Briscoe
(Nigeria) Ltd [1964] 3 All ER 556, the Privy Council stated that a promisee must have altered
his position which has generally been assumed that it is altered for the worse. In WJ Allan and
Co Ltd v EL Nasr Export and Import Co [1972] 2 QB 189, Lord Denning explained that
the meaning of ‘altered his position’ only means that a person ‘must have been led to act
differently from what he otherwise would have done’ if not for the promise. It is not necessary
that he had suffered detriment. In Legione v Hateley (1983) 152 CLR 406, the High Court of
Australia referred to the requirement that the promisee must be placed "in a position of material
disadvantage". In The Post Chaser [1982] 1 All ER 19, Robert Goff J (as he then was) held
that a representor will not be allowed to enforce his rights where it would be inequitable having
regard to the dealings which have taken place between the parties.

The above shows the various views on the consequences from the act of reliance suffered by
the promisee to raise an estoppel. The Malaysian courts have also adopted differing views on
this matter. In Cheng Chuan Development Sdn Bhd v Ng Ah Hock [1982] 2 MLJ 222, the
Federal Court referred to ‘disadvantage or prejudice’ whereas Wong Juat Eng v Then Thaw
Eu and Anor [1965] 2 MLJ 213 suggested that detriment was essential to raise an estoppel.
Lord Goff’s view on inequitability was also referred to in some cases. However, the Federal
Court’s decision in Boustead Trading (1985) Sdn Bhd v Arab Malaysian Merchant Bank
Bhd [1995] 3 MLJ 331 has rejected the need to show detriment and stated by way of obiter
that it is sufficient if a litigant shows that he was so influenced by the encouragement or
representation that it would be unconscionable to enforce his strict legal rights.
The case of Boustead Trading (1985) Sdn Bhd v Arab Malaysian Merchant Bank Bhd [1995]
3 MLJ 331 had followed the High Court of Australia’s decision in Waltons Stores (Interstate)
Ltd v Maher (1988) 164 CLR 387. Waltons Stores case is significant as the Court applied
promissory estoppel to prevent a party from denying that a binding contract existed. In this
case, Maher, the owner of a commercial property had negotiated with Waltons Stores, a retailer,
that Waltons Stores would lease a building to be built specially to suit its purposes and to meet
its timetable. This included the demolition of an old building together with a new portion which
Maher was reluctant to demolish unless it was clear that there were no problems with the lease.
Negotiations were detailed and a form of Deed of Agreement for lease was sent by Waltons
Stores' solicitors to Maher's solicitors stating that "[w]e shall let you know tomorrow if any
amendments are not agreed to". Three days later when no disagreement had been indicated by
Waltons Stores, Maher's solicitors forwarded the deed now duly executed by Maher "by way
of exchange" and Maher began to demolish the new part of the old building. Waltons Stores
became aware of this a short time later. Construction of the new building was 40% complete
when Waltons Stores informed Maher of its intention not to sign the proposed lease. Although
there was no pre-existing legal relationship between Waltons Stores and Maher, the High Court
held that there was a creation or encouragement on the part of Waltons Stores that a contract
will come into existence. The majority of the Court applied promissory estoppel and held that
Waltons Stores was estopped from denying that a binding contract existed or that the contracts
had been exchanged.

The doctrine of promissory estoppel has been applied by Malaysian courts. In Sim Siok Eng
v Government of Malaysia [1978] 1 MLJ 15, the appellant was assigned to construct a
building but he failed to complete it on time. The respondent had promised to supply the
appellant with construction materials which were difficult to obtain. The respondent had
stopped supplying these materials without notice to the appellant. The Federal Court held that
the respondent's promise to supply the construction materials was a variation of the original
contract. The appellant had relied on the promise and had changed his position in reliance of
it. Therefore, the original contract was suspended and if the respondent wanted the original
contractual position to resume, he should give notice to the appellant.

In Bank Negara Indonesia v Philip Hoalim [1973] 2 MLJ 3 PC (Appeal from Singapore).
the appellants sued for possession of the front room on the third floor of a building owned by
the appellants. This room was occupied by the respondent as a tenant of the appellants. The
appellants claimed that the tenancy was a monthly tenancy and had been validly determined by
a notice to quit. The respondent did not dispute the service of a notice to quit, but contended,
inter alia, that the appellants were estopped from claiming possession of the premises against
him. The respondent had previously occupied the first floor of the building.

Subsequently, he had moved to the third floor upon the request of the appellants, who had
promised him that they would not ask him to leave the premises as long as he was practising
his profession as an advocate and solicitor there.

The Privy Council held that this entitled the respondent to the benefit of an estoppel which
would prevent the appellants from availing themselves of their legal right to remove him so
long as he carried on his profession there, and that the estoppel was unaffected by the notice to
quit.

Promissory estoppel was also successfully argued in Tenaga Nasional Bhd v Perwaja Steel
Sdn Bhd [1995] 4 MLJ 673. In this case, the plaintiff supplied electricity to the defendant's
steel mill and informed that a 20% discount applied to all electricity bills from February 1,
1987. Thereafter, the plaintiff sent monthly electricity bills and credit notes for the 20%
discount to the defendant. The plaintiff also represented, reconfirmed and reassured the
defendant that the 20% credit notes issued from February 1988 to December 31, 1989 were
valid, accurate, binding and irrevocable. The plaintiff applied to claim back the 20% discount
for the said period.

The High Court held that the plaintiff was estopped from enforcing its claim as the defendant
was induced by the documents it received from, the plaintiff to make monthly payments in full
and final settlement of the electricity charges. Further, the defendant had relied on the
electricity charges to ascertain the price of steel billets it produced and which were already sold.

An important case on estoppel in Malaysia is Boustead Trading (1985) Sdn Bhd v Arab-
Malaysian Merchant Bank Bhd. [1995] 3 MLJ 331, which followed the Australian case of
Waltons Stores (Interstate) Ltd v Maher. In this case, the appellant bought goods from
Chemitrade Sdn Bhd (Chemitrade). Chemitrade entered into a factoring agreement with the
respondent whereby the debts owed by the appellant to Chemitrade were assigned to the
respondent. Chemitrade gave to the respondent copies of the invoices in respect of the sale and
delivery of goods to the appellant. The respondent then stamped the invoices with the
endorsement that any objection must be made within 14 days of receipt and sent the invoices
to the appellant. The appellant did not complain within the said period nor challenge the
respondent's imposition of the endorsement. After several payments on the invoices, the
appellant refused to make payment on 20 invoices. The respondent argued that since the
appellant did not protest about the validity of the endorsement, it was entitled to assume that
the appellant had accepted it.

The Federal Court applied estoppel and held that as the appellant, Chemitrade and the
respondent had proceeded upon the assumption that the factoring agreement was a valid
assignment, it would be unjust and unconscionable to allow the appellant to challenge the
document now. The Court further held that a reasonable person in the respondent's position
would be entitled to assume that the appellant had agreed to the endorsement by remaining
silent and making payment on the invoices.

This case is significant as the Federal Court clarified and restated two elements of the doctrine
of estoppel, the first as to the effect which the representation had upon the mind of the person
relying on the estoppel and the second, whether the person must have acted to his detriment.