#7296 - Estoppel And Waiver Casebook Component - Contracts 2

Casebook Component – Estoppel and Waiver

Estoppel

• The restriction of a right to terminate may also be by way of a equitable estoppel – where an aggrieved party is estopped from terminating the contract having induced the other party to believe that the contract will not be terminated in the circumstances, and the other party relies on that assumption to his/her detriment.

Waiver

Relief Against Forfeiture (RAF) – Casebok component

• Termination can result in another party suffering the deprivation (or forfeiture) of proprietary interest

  1. In equity a court may in its discretion provide relief against such forfeiture by ordering specific performance in favour of the party in breach (as below)

Textbook Component – Relief Against Forfeiture

• Termination brings to an end the right to expect further performance but it also may effect a forfeiture of an interest in property/a proprietary right.

• In appropriate cases the court may grant relief against forfeiture of the interest in property and decree specific performance of the contract

Property interest required

• While traditionally RAF was only available to protect interest in property (e.g. lessor determines a lease for default by the lessee in paying rent), in Australia the HCA has been prepared to grant relief against the loss of a purchaser’s interest in land under a contract for the sale of land notwithstanding a breach of a time condition entitling the vendor to terminate

• Though RAF may apply to protect interests in personal property, in England it has been held that it does not protect purely contractual rights – there is support for this view in Australia [FAC v Makucha Developments Pty Ltd (1993)]

The unconscientious exercise of legal rights or ‘unconscientious conduct’

• The court must grapple with depriving an aggrieved party of the right to terminate as well as its confidence that it can achieve the principal objects of the transaction – thus it does not extend to situations where the applicant is not in a position to complete their side of the bargain (Kastopoulos v GE Commercial Finance Australia Pty Ltd [2005] QCA 311

• In Shiloh Spinners Ltd v Harding [1973] AC Lord Wilberforce intimated that something such as “fraud, accident, mistake or surprise” was required to warrant RAF. While a broader view was adopted in Legione and Stern v McArthur in Tanwar Enterprises Pty Limited v Cauchi [2003] HCA, the court expressed a preference for Wilberforce’s view (noting that equity doesn’t intervene to reshape contractual relations in a form the court thinks to be more reasonable or fair.

  • Susequent cases (Romanos v Pentagold Investments Pty Ltd [2003] HCA follow this stricter approach

Legione

• The majority in this case noted that the purchaser’s breach was “inadvertent and not wilful” but didn’t consider estoppel

• Mason and Deane JJ considered that the intimation of the vendor’s solicitors contributed to the breach by creating the impression they would accept completion of the contract in a few days – but thought the representation was insufficiently clear to found an estoppel.

  • But at the same time they said this conduct could support RAF – hence there may be a difference between the unconscientious conduct that underlie these two doctrines.

• The majority also considered that RAF was potentially influenced by the fact that the purchaser’s house would accrue as a windfall to the vendors if the contract was terminated

Stern

• Involved a case where the sale of land where the price was to be provided for by instalments. The purchasers fell behind and the vendors terminated. While the vendors were prepared to allow the purchasers any benefit of improvements they made, they claimed the increase in the value of land.

• Deane and Dawson JJ held there was no distinction in principle between contracts of sale of land by instalments and vendor’s providing finance to the purchaser on security of mortgages (Brennan J did not accept this). The latter was something that equity was traditionally prepared to grant RAF without regards to stipulations as to time.

  • Deane, Dawson JJ and Gaudron J also indicated concern to avoid the vendors gaining a windfall because the purchasers had a reasonable expectation of benefiting from any increases in the value of land over time.

  • Their approach was based on unconscionable action and unjust enrichment

Tanwar

• Involved a case where the parties entered into a contract for sale of land, the deposit being already paid. The purchaser experienced difficulties in meeting the completion date specified. A new day was agreed upon (25/6) but the funds (from Singapore) did not arrive till 26/6. The HCA unanimously rejected the claim of Tanwar to RAF.

• In doing so they affirmed the narrow approach of Lord Wilberforce in Shiloh and supported the cautious approach of Mason CJ in Stern. While they did not limit RAF to cases of “fraud, accident, mistake or surprise” – they said it was “necessary to point to the conduct of the vendor as having in some significant respect caused or contributed to the breach of the essential time stipulation.”

• Furthermore they distinguished Legione because there the purchasers were in possession and any improvements they made were at risk of the operation of the contractual provisions for termination. Furthermore there was the fact that in Tanwar’s case no conduct “helped to lull the purchasers into the belief that they would accept completion provided it occurred in a few days”

• Tanwar’s attempt to...