(c)  A mixed legal system solution to wasted pre-contractual expenditure: liability from an implied assurance that a valid contract exists

principal judgment of the court, Lord Osborne classified the expenditure undertaken by Mr Khaliq as not made in reliance on any duty which he believed he was under in terms of a supposed contract between the parties, but rather as spent simply on the recommendation of the defender’s representative.66 This statement is somewhat controversial, as it suggests that, to trigger the equitable remedy established by Walker v. Milne, the expenditure must have been undertaken in the belief that it was made in fulfilment of such a contractual duty, yet prior to Khaliq none of the cases relating to this type of recovery have imposed such a requirement. All that hitherto has been insisted upon by the courts is that the wasted pre-contractual expenditure must have been undertaken in reliance on the existence of a contract, or, to put it another way, that the belief of the pursuer in the existence of the contract was the cause-in-fact of the expenditure. Lord Osborne’s amended requirement goes further than those prior authorities.

A further troubling aspect of the Khaliq decision are judicial remarks made by two of the judges which cast doubt on the very continued availability of the remedy for wasted pre-contractual expenditure. Both Lord Osborne and Lord Marnoch doubted whether, given various changes in the law, there remained any need for the availability of the equitable remedy for wasted pre-contractual expenditure.67 Yet the changes referred to would not have assisted Mr Khaliq, none of them being suitable to provide him with a remedy on the facts of his case. Mr Khaliq’s claim boiled down to the fact that various implied assurances made by Londis had led him reasonably to believe that the parties were in a contractual relationship, a belief which was erroneous. Only Londis could have appraised him of the correct position, but it did not do so until after he had undertaken substantial expenditure on the basis of the false belief which they had created in his mind. Such circumstances have traditionally constituted grounds for equitable recovery, and it would be regrettable if the established remedy permitting such were now to be deemed to have been superseded. Fortunately, the judges in Khaliq did not go so far as to declare the remedy

66Lord Osborne also added that Mr Khaliq, having had two neighbouring shops he owned refitted as part of the works he carried out, was continuing to derive a benefit from the refitting of one of those shops, from which he continued to trade, and that therefore it would be inequitable to allow recovery of the refurbishment costs of that shop (amounting to some £25,000 of the total expenditure).

67See Lord Osborne’s judgment at para. 26, and Lord Marnoch’s judgment at para. 37. The legal developments referred to by the court are the passage of s. 1 of the Civil Evidence (Scotland) Act 1988, ss. 1 and 2 of the Requirements of Writing (Scotland) Act 1995, and changes in the law relating to negligent misrepresentation.

superseded, and it is to be hoped that in a future case the courts will reaffirm its continued existence and desirability. To repeal the remedy would leave an equitable gap in the law and would deprive Scots law of a result achieved in both the Common law and German law.

Admittedly, some (though not all) of the Scottish cases which might previously have been solved using the Walker v. Milne common law action for wasted pre-contractual expenditure could now more advantageously be solved by the application of the statutory form of personal bar found in the Requirements of Writing (Scotland) Act 1995 to which Lord Osborne referred in Khaliq. This form of personal bar allows, inter alia, a party which has detrimentally relied upon a contract relating to a real right in land to prevent the other party to the contract from denying its validity on account of a want of proper form so long as that other party knew of and acquiesced in the reliance of the first party.68 What this means is that in cases where it is only a want of proper form which hinders the contract formation, a party may now seek to enforce the contract concerned, thereby protecting its performance interest, rather than simply falling back on the recovery of wasted expenditure undertaken in the belief that the contract existed. Though the point has not been specifically addressed by the courts, it would seem to follow from judicial statements that the equitable, common law remedy is an exceptional one, available only where the pursuer has no other avenue of legal redress – that a potential pursuer is now required to enforce the contract through use of the statutory personal bar, rather than claim its wasted expenses, in cases where the statutory remedy is available. In other words, in cases where the problem is a want of proper form, statutory personal bar now appears to have replaced the recovery of wasted pre-contractual expenditure.

68Section 1(3), (4). Interestingly, the provision says only that the party seeking to enforce the contract must have ‘acted or refrained from acting in reliance on the contract’. It does not say that such reliance must have been reasonable. There is, thus, no definitive position adopted by the statute in relation to the question of whether the particular claimant ought to have known that contracts relating to land but not in the written proper form are invalid, and ought therefore to be precluded from triggering personal bar on the premise that its reliance was unreasonable. By way of contrast, in Yeoman’s Row v. Cobbe [2008] UKHL 55, Lord Scott made a point of noting in his speech (at para. 27) that it ‘would be an unusually unsophisticated negotiator who was not well aware that oral agreements relating to such an acquisition are by statute unenforceable and that no express reservation to make them so is needed. [The claimant] was an experienced property developer …’, such a consideration seeming to add weight to Lord Scott’s decision not to permit reliance by the claimant on the doctrine of proprietary estoppel.

The Scottish approach has not been followed in other mixed legal ­systems. As discussed in Chapter 2, Louisiana already has a form of promissory estoppel69 inspired by the US Common law, which may explain the lack of any evident perception that recovery in this area requires to be expanded. Promissory estoppel was not received into South Africa, which recognises only estoppel by representation. In both of these jurisdictions it has been argued by some that there was (or is) no need for a doctrine of promissory estoppel,70 but this rather overlooks the point that no express acceptance of a promissory undertaking is required before promissory estoppel can apply, whereas such an acceptance (whether by word or conduct) would be required before a gratuitous contract might be concluded in either jurisdiction. On the circumstances prevailing in Red Owl, it seems unlikely that there would have been any liability in South African law for Hoffman’s wasted expenditure, whereas such liability would have arisen under Article 1967 of the Louisiana Code.

As for express but false assurances that a contract exists, the obvious answer is that such can be treated as an actionable misrepresentation in delict/tort. That solution is available in the Common law as well as in the mixed legal systems too. Such a claim evidently presupposes that the defendant has expressly held out to the claimant, either by words or conduct, that a contract exists between them, that such a statement is false, and that the defendant reasonably relied upon it to his loss. Such pre­ requisites will not be met in every case.71 Indeed, it does not seem clear from the reported facts of Red Owl that any of the representations made to Hoffman were false when made, albeit that Red Owl kept changing their requirements as time went on. If the case is simply one of a defendant who repeatedly changes its mind, then the facts will not give rise to any actionable misrepresentation.

69See CC Art. 1967. It has been argued that the application of this provision to solve facts such as those in Red Owl would be unnecessary, given that Louisiana law does not require consideration to enforce a promise and thus, it is said, does not need a doctrine of promissory estoppel: see Gordley, ‘Louisiana and the Common Law: Le jour de gloire, est-il passé?’. For a discussion of promissory estoppel as an alleged cause of action in Louisiana and comparative law, see Larroumet, ‘Detrimental Reliance and Promissory Estoppel’.

70See for Louisiana, Gordley, ‘Louisiana and the Civil Law: Le jour de gloire, est-il passé?’, 205; for South Africa, see Sonnekus, The Law of Estoppel in South Africa, p. 94.

71Though there may be the possibility in some cases of alleging other types of misrepresentation during the negotiating process: thus, in Walford v. Miles [1992] 2 AC 128, the one successful portion of the plaintiffs’ case was a misrepresentation claim (amounting to £700 for wasted expenditure) based upon the false statement of the defendants that they were not negotiating with a third party.