How did Lord Denning formulate the principle of ‘Promissory Estoppel’?

This is a true story. Read on …

Yesterday, we spoke of how tenants may use the principle of ‘promissory estoppel’ to defend themselves against a landlord’s claim: see here.

Today we speak of the man who activated that principle almost three quarters of a century ago.

This is his story –and that of Promissory Estoppel.

The Principle is easily stated

‘Where A makes B believe in a circumstance or state of things, and thus makes B act according to that belief, afterwards A cannot take an opposite position’.

Do you want an example?

Pre-war London

At the heart of London, a commercial tenant rented out a block of flats from its owner. It was for a fixed rate of £2500.00 per year.

The Second World War commenced shortly after that.

People fled for safety.

That reduced the number of sub-tenants occupying the flats.

The landlord and main tenant conferred: they came to an understanding.

The landlord agreed to reduce the rental rate by half. Both parties agreed to this – nothing passed hands.

Importantly, the parties did not stipulate how long this new understanding was to apply.

The war ended.1on Armistice Day, 14 August 1945

By the end of 1945 all the flats were fully tenanted out.

The landlord sued the main tenant.

They wanted the full rentals for the entire duration of the war.

But what about their subsequent understanding?

The landlord said, a well-entrenched principle of law blocked the tenant from taking the defence: he could not claim, said the landlord, that there had been a fresh understanding between the parties.

It was the old chestnut: the doctrine of ‘consideration’

That doctrine required both parties to do exactly what their original lease agreement said he had to pay the full arrears of the rentals – even for the duration of the War, during which the German Luftwaffe reduced parts of London to rubble.

Thus, under the lease, the tenant had no way out:

This is the celebrated case of Central London Property Trust Ltd v High Trees House Ltd. 2 (1947) KB130

So what about the subsequent understanding of the parties.

The legal concept of ‘consideration’ is at the heart of contractual relationships.

What is ‘consideration’?

‘Consideration’ is a legal term that deals with value. In a contract, one-party trades something of value for – what lawyers call – ‘consideration’.

The landlord gives up possession of his premises to the tenant.

The tenant pays rentals.

The landlord’s value is the rent.

The tenant’s value is the occupation of the landlord’s property.

Into the Time Tunnel – go back a couple of centuries

During the 19th century, common law courts laid down strict rules: the principle of ‘consideration’ was one such.

The social necessities of the twentieth century far outran the principles of law: the law could hardly keep up with it.

Now, ask this very question today: there is a nationwide panic, because of the coronavirus pandemic

Is the law to be construed according to the old laws of contract, or is the law to be made more flexible?

Enter Lord Denning

The case came before Tom Denning. He was quite unknown: he had been a judge for only six months.3Lord Denning: ‘The discipline of the Law’, p. 203, 1979 Ed., Butterworths

When Tom Denning was confronted with this problem in 1945, he had not thought up a solution there and then: he had been mulling over it long before that. It went back to the time he had been a pupil. Tom Denning realised that,

‘The old rules were capable of ‘causing injustice in many cases. There was a gap between those strict rules and the social necessities of the 20th century. The High Trees case helped to narrow the gap.… I would ask, how far is it acceptable? Do you favour its extension?’ 4Ibid, Part Five, ‘High Trees’, p. 197 et seq

Fences and Horses

In describing how he came to formulate the promissory estoppel principle, Denning uses two terms:

They are ‘fences’ and ‘horses’.

He complained,

‘One of the dominating ‘fences’ was: ‘No promise was binding unless there was consideration for the promise. (It) caused injustices of all kinds.’ 5Ibid, p. 200

Lord Denning recalls,

‘We used to resort to many subtleties to get around them.’

One weapon he had used was ‘estoppel.

What is ‘Estoppel’?

‘Estoppel’ stops a person from asserting a right that he had previously agreed to waive, e.g..

As a pupil, in 1920, Denning had come upon the case of Hartley v. Hymans.6 [1920] 3 KB 475 per Mr Justice McCardie

In his judgement, the judge in Hartley v. Hymans,  McCardie J had referred, but only in passing, to ‘the broad rules of justice’ cited in another case –Hughes v. Metropolitan Railway Co. 7 [1877] 2AC 439

That case spoke of estoppel.

After reading both cases, Denning made a manuscript note beside it: that ‘estoppel’ would have been a good reply to break the old chestnut.

Fifty years on from 1877, nothing had happened…

From 1877 up to the time Denning chanced upon in 1920, some 50 years had gone by, and no one had thought to use that weapon of ‘estoppel’.

Neither the judges nor the legal texts had noticed it. 8Ibid, Denning p. 201

The vague stirrings of estoppel in the womb

[Denning overlooks that 40 years before that, in Pickard v. Sears (1837), estoppel had come into full play. That would result in section 115 of the 1872 Indian Evidence Act, but we shall come to that in a moment.]

On with Denning’s own narrative

He recalls that the Hughes v. Metropolitan Railway Co case had determined this principle:

When parties to a contract enter into ‘a course of negotiation’, which leads one of the parties ‘to suppose that the strict rights of one of the parties will not be enforced, or will be kept in suspense’, then the person who would have been entitled to enforce those rights would not be allowed to do that, when it will be unfair, or inequitable.

By 1888 that principle has been expanded to include contracts.9Birmingham and District land Co versus London and NW Railway Company (1888) 40 Ch D 268

However, ‘estoppel’ had encountered various ‘fences’ along the way.10Ibid pp. 201, 202

In 1927 Denning was one of the contributing editors of ‘Smith’s Leading Cases’.

While working on this edition he came across several ‘fences barring the path’.

One was that, for ‘estoppel’ to work, someone had to make ‘a representation of fact – not one of intention’.11Jorden v. Money (1845) 5 HL Cas 185

Denning ‘needed a good horse’ – and one turned up

In 1937 the Law Revision Committee  published its Report on the Doctrine of Consideration. 12Ibid, p. 202. The Law Revision Committee comprised senior judges and leading lawyers. Lord Wright MR, Goddard J.; Asquith J.; and Professor Goodhart.

Denning got his hands on it.

He pored over it.

Denning relates that the Report,

‘[Exposed] injustices of the rule [on Estoppel] in that it only applied to statements of fact, and the Committee recommended its abolition’. 13Ibid p. 202

Denning – as lead counsel – uses the Report at the Court of Appeal

In a case called Salisbury (Marquess) Gilmore, Denning was appointed as leading counsel.14[1942] 2 KB 38

He argued the estoppel point before the Court of Appeal.  And he cited the Law Revision’s Committee’s Report, which had said:

We therefore recommend that a promise which the promisor knows … will be relied upon by the promisee, shall be enforceable with the promisee has altered his position to his detriment in reliance on that promise’.

Lord Justice McKinnon, who was attracted to the Committee’s Report, felt that ‘the fences were too high for him’. 15Ibid

This was because McKinnon LJ said the House of Lords were ‘voices of infallibility’ and that the Court of Appeal was ‘bound by the ruling in Jorden v. Money.16Ibid, p. 203

Denning’s argument was dismissed.

Denning is appointed a judge in 1944

Denning became a judge in 1944, during the Second World War. They sent him off to deal with divorce cases!

What Denning said in the High Trees judgement

In his judgement Denning recognised that the landlord’s promise had been ‘without consideration’.

He also accepted that the landlord’s ‘representation’ was not ‘a representation of an existing fact’.

It was Denning who said, it was ‘a representation… as to the future’.

He then asked this pivotal question so as to change the law:

‘But what is the position in view of the developments in the law in recent years? The law has not been standing still since Jorden v. Money.’

He concluded that,

‘The time has now come for the validity of such a promise to be recognised.’

On July 18, 1946 Denning delivered the judgement,

 ‘which … showed that a new judicial mind was at work – questioning, creative, unusual.’ 17‘Lord Denning: The Man and His Times’: RFV Heuston, former Regius Professor of laws, University of Dublin, ‘Lord Denning: the Judge and The Law,’ edited by JL Jowell, JP WB McAuslan, Sweet and Maxwell Ltd: editors and contributors, 1984: page 9

So Denning had modified the strict black letter law of the doctrine of consideration.

The case propelled him into prominence.18Ibid, page 33: P.S. Atiyah, ‘Contract and Tort’, Prof of English law, University of Oxford

‘Denning undoubtedly required courage to challenge the established doctrine of consideration in 1946. The prevalent legal attitude was that this was a doctrine so hardened by centuries of case law that further development was a matter for Parliament’.19Atiyah, Ibid., p. 33

Five Elements are necessary to succeed in Promissory Estoppel

For a defence (yes, defence – you cannot file a claim on it,20 see Coombe v. Coombe [1951] 2 KB 215) of ‘promissory estoppel’ to succeed five points are needed:

(1) a pre-existing contract;

(2) that contract is then modified,

(3) there must be a clear promise or representation by one party;

(4) the opposing side must have suffered ‘a change of position’; and

(5) it must be inequitable to allow the person who promised to go back on his promise’.

There was no appeal from Denning’s decision – it was a good thing

Denning says, ‘An appeal might have ruined everything’.21Ibid, p. 205

No warm reception

That principle became known as the principle of ‘promissory estoppel’.

Denning’s principle did not receive a warm reception.

In 1972 the Lord Chancellor attacked it, saying,

‘[The] time may soon come when the whole sequence of cases based on promissory estoppel… may need to be reviewed and reduced to a coherent body of doctrine by the courts.’22Viscount Hailsham of St Marylebone in Woodhouse Ltd v. Nigerian Produce Limited [1972] AC 741

Firm foothold

The principle floundered at first.

As late as 1978, Denning remarked that,

‘Some judges in the higher judiciary treated it with reserve. Others with suspicion, even with silent disapproval. To this day, there are still traces of it’, recalled Lord Denning.23Denning completed his ‘The Discipline of Law’ in November 1978

Although Denning’s judgement was ‘looked at somewhat dubiously by most lawyers in 1946, its principle is so well established that it is ‘unthinkable that it could today be uprooted even by the most conservative House of Lords’.24Ibid., page 33

And so it eventually found a firm foothold.

Aftermath – Denning’s attempt at unifying disparate estoppel principles into a single doctrine

Over the decades Denning tried ‘to fudge the distinction between the different types of estoppel – he attempted ‘to develop a very broad flexible [principle that placed a great of] discretion in the court’. 25DJ Hayton, a, pages 92, 93 [See also Lloyds Bank v Bundy (1975) QB 326, 339; and Amalgamated Investment Ltd. v. Texas Commerzbank Ltd [1980] All ER 577, 584.  Hayton states that ‘other judges have been moving towards such a broad position: Crabb v. Arun DC [1976] Ch 179, 193, per Scarman L.J.; Taylor Fashions Ltd v. Liverpool Victoria Trustees Co [1981] 1 ALL ER 897, 915 per Oliver L.J.; Amalgamated Investment Ltd v. Texas Commerce Bank [1981] 1 All ER 923, 936, 938 per Robert Goff J

In making such generalisations ‘Lord Denning did not cite, let alone analyse, any of the cases dealing with proprietary estoppel’.26 op. cit, p. 93. Hayton refers to ‘estoppel by convention, estoppel by representation of fact or promissory estoppel’. He complains that Denning did not, ‘consider any of the implications for the doctrine of consideration of the rules of perfecting gifts.’ Hayton protests that ‘such a general approach makes it easier to do justice between the [parties] but makes it much harder for lawyers to advise and assist clients would not want to go to court to find – at great expense – what is just or fair’.

A mystery…

It is said that the Indian Law of Evidence, penned by Sir James Fitzjames Stephen, came into force on September 01, 1872.

That was more than 70 years before Denning’s High Trees House case. There were many reasons why Denning could not have missed it, but leave that aside first.

Section 115 of that enactment, upon which countless Indian Supreme Court judges have poured their learning, reads as follows:

‘When one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding between himself and such person or his representative, to deny the truth of that thing’.

This was a simple codification of the 1837 case of Pickard v. Sears.27 (1837)[112 E.R. 179; 6 A & E 469, at 474

In Malaysia these exact words are repeated in our section 115, Evidence Act 1950.28In Public Textiles Bhd v Lembaga Letrik Negara [1976] 2 MLJ 58 Raja Azlan Shah FJ quotes Pickard and sec. 115 and as bringing home the  principle: ‘That, where one, by his words or conduct, wilfully causes another to believe in the existence of a certain state of things, and induces him to act on that belief, or to alter his own previous position, the former is concluded from averring (claim) against the latter a different state of things as existing at the same time.’

The Indian Act’s resemblance to Denning’s principle is nothing short of extraordinary.

That Lord Denning overlooked mentioning this section seems a great mystery.

And yet, that does not detract from his scholarship.

Farewell

In his ‘Farewell speech’ to Lord Denning on July 30, 1982, the Lord High Chancellor, Lord Hailsham of St Marylebone, said,

‘[In] 1945 Lord Denning had been a puisne judge29an ordinary judge for one year. It thus happened…  that his career spanned.. the next period of about 35 years… [During those 35 years]  Our Lady of the Common Law woke from her slumber and entered upon a period of renewed creativity…’.

The Chancellor continued,

‘[It] would be … wholly unjust to ascribe all of these changes to the Master of the Rolls 30meaning, Lord Denning who is now at length to doff his wig and lay aside the silken golden robe. But it would be equally wrong, in his presence and in this company, not to acknowledge the vast debt which this revival of the common law owes to his deep learning, his powerful legal intellect, and even to his telling and pungent English style.’31Ibid, JL Jowell and JPWB McAuslan, p. 475, 476

Denning passed away on 5 March 1999. He was 100 years of age.

Denning once asked: ‘What is the argument on the other side?’

These words of Lord Denning’s must, once again, echo through the hallowed halls of every court in this land:

‘What is the argument on the other side?

Only this, that no case has been found in which it has been done before.

That argument does not appeal to me in the least.

If we never do anything which has not been done before, we shall never get anywhere.

The law will stand still whilst the rest of the world goes on: that would be bad for both’.32This passage, recited at the flyleaf of his book, ‘The Discipline of the Law’ was a part of Denning’s own judgement in Packer v. Packer [1954] P 15, at 22

New circumstances need a new law.

Blind and unquestioning adherence to legal precedent never begets new law.

The Covid-19 pandemic has struck.

As a Great Being said:

‘And when the appointed hour is come, there shall suddenly appear that which shall cause the limbs of mankind to quake.’33Bahá’u’lláh, ‘Gleanings From the Writings of Bahá’u’lláh’, pp 118-119

And Lord Denning stands at the threshold, proffering a solution.

Will the courts take it?

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