Promissory Estoppel
There may be promises where there is no consideration but which may be given effect by the doctrine of promissory estoppels. The doctrine may apply in a situation where both parties are in an existing legal or contractual relationship and one party (A) promises to relieve another (B) of some previous obligations. In this situation, the doctrine of promissory estoppel seeks to prevent A from reneging on his promise to fully enforce A's previous rights against B. Thus, the doctrine is said to act as a defence and not as a cause of action ("as a shield but not as a sword").
For the doctrine to apply, these elements must exist:
(a) One party makes a promise with the intention that the other party should act in reliance on the promise;
(b) The promisee has acted in reliance on the promise;
(c) It is inequitable to allow the promisor to go back on his promise.
The doctrine only suspends the promisor's (A) rights but does not take it away (suspensory and not extinctive). The party who had relied on it (B) is granted temporary relief until A gives further notice provided B can be put back to his original position. Otherwise, A's right may be denied to avoid the detriment that B may suffer.
Common Law position
Hughes v Metropolitan Rly Co. (1877) 2 App Cas 439
In this case, the plaintiff, the owner of a house gave the defendant, the tenant, six months notice in October to carry out repairs to the house failing which the tenancy would be terminated. In November, the landlord carried out negotiations with the tenant with a view to selling the house to the tenant. The negotiations ended in December and the tenant had not carried out repairs to the house. After the six months, the landlord brought an action to evict the tenant from the house.
The House of Lords held that the negotiations commenced by the landlord constituted a promise that as long as the negotiations continued, he would not enforce the notice for repairs to the house. The tenant had acted in reliance on the promise as he had done nothing to make repairs to the house while the negotiations were ongoing. Thus, the period of the notice should be calculated from the date the negotiations ended, and not six months from the date the notice was given. In this case, the doctrine suspended the landlord's original rights.
Lord Cairns: “ It is the first principle upon which all Courts of Equity proceed, that if parties who have entered into definite and distinct terms involving certain legal results - certain penalties or legal forfeiture - afterwards by their own act or with their own consent enter upon a course of negotiations 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.”
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 for a certain rate. When World War II broke out, the plaintiff agreed to reduce the rent. The defendant paid rent according to this new rate from 1941 to 1945. At the end of 1945, the plaintiff claimed for rentals as well as arrears based on the old rate.
Lord Denning: “when one party gives a promise with the intention that the other party should act in reliance on that promise and the other party does so act, the promise must be fulfilled although no new consideration is given for the promise. The reason promissory estoppel can only be used as a defence is because no consideration has been given for that promise. The other party cannot be said to enforce a new contract because there is no new contract (for want of consideration). But the party who has suffered a detriment as a result of relying on the promise may, when the party who has given the promise brings an action against him, raise the promise as a defence to estop him.”
Malaysian position
Boustead Trading (1985) Sdn Bhd v Arab-Malaysian Merchant Bank Bhd [1995] 3 MLJ 331
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.
Gopal Sri Ram JCA: “The traditional view ... is that a litigant who invokes the doctrine must prove that he was induced by the conduct of his opponent to act in a particular way ... we are of the opinion that this requirement is not an integral part of the doctrine. All that the representee ... need to do is to place sufficient material before a court from which an inference may fairly be drawn that he was influenced by his opponent's actings. Further, it is not necessary that the conduct relied upon was the sole factor which influenced the representee. It is sufficient that "his conduct was so influenced by the encouragement or representation ... that it would be unconscionable for the representor thereafter to enforce his strict legal rights"…We take this opportunity to declare that the detriment element does not form part of the doctrine of estoppel. In other words, it is not an essential ingredient requiring proof before the doctrine may be invoked. All that need be shown is that in the particular circumstances of a case, it would be unjust to permit the representor or encourager to insist upon his strict legal rights.”
Sim Siok Eng v Government of Malaysia [1978] 1 MLJ 15,FC
In this case, 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.
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