follows indicates, in Common law, civilian, and mixed systems alike, it has been thought equitable to allow recovery for wasted pre-contractual expenditure in some circumstances, though there is quite a divergence in specifying which circumstances and in the level of recovery, some systems having even proven willing to allow incomplete contracts to be perfected rather than simply compensating a party for wasted expenditure.

Where liability for pre-contractual losses is seen as arising voluntarily, the notion that the party incurring the liability has promised (perhaps impliedly) to compensate the other has been thought amenable to providing a conceptual explanation for its basis in some systems. On the other hand, it can be argued that the requirement of a promise is somewhat restrictive so far as pre-contractual expenditure is concerned, given that expenditure is sometimes reasonably incurred without any promise having been made by the other party. Promise certainly cannot explain the expansive recovery in German law under the doctrine of culpa in contrahendo (where the stress is upon fault rather than promise). A non-promissory basis for an obligation to compensate for wasted precontractual expenditure might be argued to lie in a tortious duty not to harm the other’s interests, or in the fact that negotiating parties are in a relationship which generates trust and good faith.

(a)  A Common law solution to the problem of pre-contractual expenditure: promissory and proprietary estoppel

One branch of the Common law capable of dealing with the problem of wasted pre-contractual expenditure is the law of estoppel. There are various forms of estoppel recognised in the Common law world, all of them being linked broadly by the idea that it is in some cases unconscionable to allow a party to adopt a position which is at odds with a position previously adopted by it. Though the English courts have been strongly against the view that a single doctrine of estoppel exists, of which the various types are merely subsets, it has nonetheless been judicially remarked that ‘it is unconscionability which provides the link between them’.3

Of the various forms of estoppel recognised by the Common law, some arise at common law, and some in equity. Not all can be conceived of in promissory terms. There is disagreement among the Common law

3In this respect there is, as will be seen in Ch. 7, a connection with the Scottish doctrine of personal bar, in which the idea of unfairness is a constant linking the various forms of personal bar.

jurisdictions as to whether various forms of estoppel can create rights or not, and whether or not they give rise to a cause of action or merely a defence. The summary which follows takes English law as the starting point, though differences of approach in other Common law jurisdictions will be noted at various points.

As to the types of estoppel recognised in common law and equity, at common law estoppel by representation provides a defence against a party seeking to deny a representation of fact which it has previously made.4 Equity recognises promissory estoppel and proprietary estoppel, both varieties preventing a party which has made a promise from acting inconsistently with that prior promise; proprietary estoppel concerns promises made by an owner of land, promissory estoppel any other type of promise (including a promise made by a prospective purchaser of land). The two varieties of equitable estoppel, being promissory based, are clearly of the greatest relevance to a discussion on the idea of promise within contract law. Proprietary estoppel is discussed later in this chapter; it is promissory estoppel to which attention is first given.

The doctrine of promissory estoppel holds that if A has made a clear or unequivocal promise (or an assurance tantamount to a promise) to B which has affected B’s position, and if it would be inequitable to allow A to go back on such promise, then A will be prevented from acting inconsistently with the promise.5 This may mean either, as in US Common law, that B is given a direct right to enforce A’s promise by raising a claim against A (thus, in effect, bypassing the requirement of consideration), or, as in England, that B is given a defence to any action by A to enforce a position contrary to A’s promise (or sometimes that A is prevented from relying on a defence which might otherwise be available to it, if that would be contrary to A’s promise).6 In England, the courts have restricted the doctrine to cases where the promise relates to a right stemming from a pre-existing

4Peel, Treitel on Contract, paras. 3–090–091.

5The requirement of a promise – a statement of future undertaking – distinguishes promissory estoppel from estoppel by representation, which proceeds from a statement of existing fact. As such, promissory estoppel has more in common with common law forbearance than with estoppel by representation, given that both promissory estoppel and forbearance ‘are concerned with the legal effects of promises rather than with proof of disputed facts’ (Peel, Treitel on Contract, para. 3–091).

6In cases where the doctrine deprives the promisor of utilising a defence which might otherwise be available to it, promissory estoppel has a more active character (see Peel, Treitel on Contract, para. 3–089). However, the cause of action against the promisor must have arisen independently of the promise, because in English law promissory estoppel does not itself create any new cause of action (see Combe v. Combe [1951] 2 KB 215, 219).

legal relationship between the parties,7 though that is not a requirement in all Common law jurisdictions (it is not so in the US, nor in Australia, where a belief that a legal relationship will exist in future may suffice).8 In jurisdictions where the promise made need not relate to a pre-existing right between the parties, this evidently opens the way for promissory estoppel to play a role in relation to liability for pre-contractual expenditure: if A has incurred expenditure on the basis of a promise by B that a contract will be entered into between the parties, then such a promise can be used to trigger the doctrine of promissory estoppel (as will be seen in the discussion below of the Hoffman v. Red Owl case). On the other hand, if, as in English law, a pre-existing legal relationship must exist between the parties, promissory estoppel has no obvious scope of application to promises made during contractual negotiations.

The need for promissory estoppel to deal with cases of unenforceable unilateral promises and gratuitous contracts which, in other jurisdictions, would give rise to valid obligations, means that the doctrine must do a great deal more legal work than, say, the doctrine of personal bar in Scots law, where, given a much wider enforcement of promises, the focus of personal bar can be the prevention of unconscionable, inconsistent conduct without the need for the presence of a promise. If English law were to abolish the requirement of consideration, such a development in the law of estoppel would seem a likely possibility.9

(i)  Promissory estoppel: promissory or reliance-based principle?

Promissory estoppel has been argued by some to be a clear example of the reliance rather than the promissory principle at work in the law, in

7See Beale, Chitty on Contracts, para. 3–088; Peel, Treitel on Contract, paras. 3–079, 3–088.

8In Waltons Stores (Interstate) Ltd v. Maher (1988) 164 CLR 387, 428, Brennan J stated: ‘to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise’ (italicised emphasis added). Brennan J does not use the word ‘promissory’ in this summary, and some have argued that Australian law is developing a more generalised doctrine of estoppel than exists under English law’s compartmentalised approach.

9As arguably is already happening in Australia, a development discussed below at p. 188.