Contractual Estoppel

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3.01 The principle of contractual estoppel is of great practical utility and has been widely applied. Its applications are not limited to enforcement of standard banking disclaimers in financial sector disputes, but may be found in contexts that are as diverse as commercial life itself.1 This chapter examines those which the courts have had occasion to consider, and there is little doubt that further applications will be developed as commercial parties take greater advantage of this particular aspect of their contractual autonomy. Practical benefits of the principle appeal not only to commercial parties: contractual estoppel has been applied in context of domestic arrangements of varying degrees of complexity.2


3.02 A defendant to an action in misrepresentation may respond by relying on contractual terms to estop the claimant from establishing facts on which the action is founded. Barring misrepresentation actions is one or more of the more widespread applications of contractual estoppel today. In the great majority of cases, estoppel is raised by an agreement that is aimed directly at one or more of the constituent factual elements of the cause of action, such as representation, or inducement, or reliance. Those agreements are called “non-reliance” clauses, employ standard drafting techniques and are examined in detail in ; statutory controls over their effect are considered in . An agreement might not be that specific in its objective, nor use conventional language of “non-reliance” or equivalent, but it will have the same conclusive effect so long as in substance the parties agree a state of affairs which is incompatible with the necessary factual elements of an action in misrepresentation.3 It is also possible for the parties to customise a representation by agreeing a limited basis and purpose for which it is made; contractual estoppel will then preclude the representee from pursuing an action on the representation by averring reliance on it outside the agreed basis or purpose.4

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Positive reliance

3.03 As well as disproving reliance, contractual estoppel can establish reliance positively. In BSkyB Ltd v HP Enterprise Services UK Ltd5 an acknowledgment that party A has relied on party B’s knowledge, ability and expertise raised an estoppel against party B showing that no such reliance had been placed.

Repudiatory breach of contract

3.04 A party to a contract may be contractually estopped from establishing repudiatory breach of that contract. In Aquila WSA Aviation Opportunities II Limited v Onur Air Tasimacilik AS6 an aircraft engine was delivered to the lessee on “as is, where is” terms set out in a lease agreement and unconditionally accepted as fully conforming to the delivery conditions to the satisfaction of the lessee, of which a certificate of acceptance was, by its own terms, “conclusive proof”. In an action by lessor for arrears of rent and compensation for the loss of engine, the court gave summary judgment in favour of the lessor on the basis that the lessee was contractually estopped by the terms of the lease agreement and certificate of acceptance from making out a defence and counterclaim that the engine had been delivered to the lessee with a major latent defect in repudiatory breach of the lease.7


3.05 Contractual estoppel may determine the outcome of an inquiry into the state of knowledge of a party and compel the conclusion that the party has or had no knowledge that would expose her to liability.8 It must follow that estoppel may also establish presence of knowledge where in fact there is or was none. In Dr Jones Yeovil Ltd v The Stepping Stone Group Ltd9 a clause in a building contract stated that the contract was not intended to benefit any third party. This was held to be “a contractual agreement as to the factual position which is sufficient to support a contractual estoppel against the existence of knowledge of any such benefit” and therefore precluded a claim for transferred loss (which requires a finding that the parties knew that a third party was to benefit from the proper performance of the contract and therefore likely to suffer loss in case of breach). It is worthy of note that in this case agreement on absence of intention to benefit was interpreted to constitute agreement on absence of knowledge of actual benefit, although the two are not coterminous.

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Duty of care

3.06 Outside protected contexts,10 contracting parties may define and determine what their relationship is (or is not), or agree on the presence or absence of certain factual or legal incidents to their relationship. Contractual estoppel will then defeat attempts by a party to argue that the relationship or an incident is not as agreed. Banking cases illustrate how this principle applies to liability for negligent advice. Where a contract states that no advice is or was given, or disclaims the existence of relationship necessary for the imposition of duty of care, the courts refuse to find any, even though the evidence might demonstrate that advice was in fact given and the duty would otherwise arise at common law.11 3.07 That these are cases of preclusion by estoppel is demonstrated by closer analysis of the underlying principle. Agreed terms do more than disclaim contractual intention to assume responsibility; they address the objective, factual foundation for the duty of care at law. The duty rests on identifiable “features of different specific situations which, on a detailed examination of all the circumstances, the law recognizes pragmatically, as giving rise to a duty of care of a given scope”, pithily put as the existence of the necessary factual proximity between the parties.12 The duty arises by operation of law quite apart from express volition to assume responsibility.13 From the proposition that

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a defendant’s assumption of responsibility may give rise to a duty of care ... either in relation to a particular transaction or a continuing relationship, the existence of duty and its extent being dependent on the particular facts14

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