Some promises are legally enforceable: for instance, the courts will compel someone to fulfil a promise contained in a valid contract. However, when there is no legal contract to prove a promise, both parties often assume that there is no recourse if a person reneges on a promise. On the contrary, the law will intervene when someone fails to follow through on a promise under certain conditions. Promissory estoppel provides a common law remedy if someone reneges on their promise to the detriment of another person. Learn more about the principles of promissory estoppel below.
What Is Promissory Estoppel?
The central tenet of promissory estoppel is that a promise can be enforced even in the absence of a contract or legal agreement. Promissory estoppel ensures that when an individual makes a promise, and someone relies on the promise in such a way that they suffer financial loss, the promise is enforceable under Australian law. Promissory estoppel is a concept that is used particularly in business, employment and the building industry to ensure equity and fairness.
In Waltons Stores (Interstate) Ltd v Maher (1988), the High Court of Australia considered the case of a builder who agreed to start work without a contract and suffered detriment when his client reneged on their representation. The builder, Maher, was told that the work was urgent and had completed demolition and 40% of the new building to the client’s specifications when Waltons Stores decided not to go through with leasing the premises. The High Court held that despite the absence of a contract, Maher was entitled to legal recompense from Waltons. The court found Maher was justified in relying on the preliminary negotiations even though Waltons never entered into a formal contract. The court ultimately decided that it would be unconscionable for Waltons Stores to be permitted to renege on their promise to Maher. This case was particularly notable because it extended the doctrine of promissory estoppel to include reliance on future conduct.
Elements Of Promissory Estoppel
A claimant must establish five elements in order to prompt the courts to intervene on the grounds of promissory estoppel.
- Legal Relationship
There must be a current or anticipatory form of legal relationship between the parties involved in the dispute. Typically, this is a contractual relationship formed through a legal agreement or during the course of contract negotiations.
One of the parties in the legal relationship must make a promise, assurance, undertaking or representation to the other person. A claimant must be able to prove that the promise was reasonable and believable in the circumstances.
A claimant must prove that they subsequently acted in justifiable reliance on the promise. It would not be reasonable to rely upon every promise that was made to you, but in circumstances where a reasonable person would have believed that the promise was reliable, then it is not unreasonable for the claimant to act in reliance on such a promise.
The claimant then needs to establish that, in relying on the promise, they suffered detriment or loss in some form. In other words, they must be worse off because they relied on the promise.
The last element that a claimant must prove is that if the party is not forced to uphold its promise, this will create an unequal relationship that is unconscionable in the circumstances.
Examples Of Promissory Estoppel
Not all examples of promissory estoppel involve big business. Sometimes this doctrine can be applied to everyday relationships.
For instance, an employer may offer someone a dream job in a different state, with the arrangement that the new employment contract would be signed on the first day of the new job. The person resigns from their current position, sells their house, packs their belongings and moves to the new location, all in reliance on the promise of a new position. They turn up as arranged on the first day only to be told that the employer has changed their mind, and there is no new job.
This is clearly a case where there has been a promise (offer of the job) and reliance (the person quit their job and moved), and detriment (cost of moving, loss of old job). The central question may be whether it was reasonable for someone offered a job in that manner to rely on the promise to their detriment. Many people do exactly this every year, and it would appear to be a reasonable act in the circumstances. This person, therefore, has legal recourse to sue the employer on the basis of promissory estoppel to prevent the employer from reneging on the promise without providing compensation for the person’s loss.
There is little coherence on the issue of remedy across Australian courts for promissory estoppel. The courts have discretion to decide what remedy is appropriate to relieve a claimant’s damages. The courts usually award monetary compensation, but they may order the defendant to honour their promise. Typically, the courts order that a claimant should be given an award in the amount commensurate to the promise or an amount sufficient to heal the financial damage incurred because of the reliance.
It is important to seek legal advice if you believe you have a claim to promissory estoppel. The team at Armstrong Legal can help you formulate a clear case and represent you during a court proceeding in order to recoup your losses. Please contact our offices on 1300 038 223 for advice on this or any other legal matter.