Estoppel by convention

In this month’s potted guide, Jonathan Seitler QC guides practitioners through the basics of estoppel by convention What is the purpose of an estoppel by convention? In property litigation, the courts and tribunals have been increasingly willing to have recourse to estoppel, in particular estoppel by convention, to achieve justice. It is a doctrine designed to achieve fairness, especially in situations when a pedantic (but correct) legal point is being taken after years of operating on a different basis. What are the elements of an estoppel by convention? The key element is “unconscionability”. In Mears Ltd v Shoreline Housing Partnership Ltd [2015] EWHC 1396 (TCC), Akenhead J said that it was “unconscionability or unjustness on the part of the person said to be estopped [call that person “A”] to assert the true legal or factual position”. However, as this is a matter on which reasonable people can very easily differ, both in terms of whether the person who seeks to set up the estoppel by convention (who can be called “B”) has a valid claim and how that claim should be satisfied, it is necessary to have some more specific principles. It is therefore widely accepted that it would be very unlikely that B would be able to satisfy the test of unconscionability without also satisfying three “classic” requirements. These are: (i) That both parties, A and B, mutually adopted a shared assumption about some fact or matter, or at the very least, the assumption was made by B and acquiesced in by A: this usually arises out of a course of dealing between A and B which in some way or other involves a departure from strict legal rights under a lease or other property contract. The mutually manifest conduct must be evident to both A and B – it must “cross the line” so that B is basically “lulled into a false sense of security”. A more precise way of requiring the mutually adopted shared assumption to have crossed the line is to say that the adoption of that assumption by A must be such that A assumed a responsibility for transmitting to B, and did transmit to B, the belief that he expected B to rely on that assumption. In other words, A must have a responsibility not just for his own but also for B’s adoption of the mutually shared assumption. (ii) That the party claiming the estoppel, B, changed its position in mutual dealings between A and B in reliance not on its own independent purpose but on the belief that such shared assumption (the convention) has been adopted by A, as well as by himself. (iii) That B would suffer detriment if A were to be permitted to go back on the shared assumption: see Republic of India v India Steam Ship Co Ltd [1997] UKHL 40 and Commissioners for HM Revenue and Customs v Benchdollar Ltd  [2009] EWHC 1310 (Ch). What elements are not part of the requirements for an estoppel by convention? The key elements missing from those requirements – which do not therefore need to be satisfied – are: (a) A clear and unequivocal representation or promise by A – that is the hallmark of a different kind of estoppel (promissory). It is not needed for an estoppel by convention. Indeed, no words at all are necessarily required – the mutual adoption of the shared assumption can just as easily be inferred from conduct and even from silence if the situation is that, in all the circumstances known to the parties, a reasonable person in B’s position would expect A, acting decently and reasonably, to take steps to make his position plain: see Ted Baker plc v Axa Insurance UK plc [2017] EWCA Civ 4097. (b) Consideration or payment by B to A – that is the hallmark of a contract. (c) A disreputable intention or motive on the part of A. The honesty of A does not protect it from an estoppel by convention if B can show that elements (i), (ii) and (iii) above are present. What are the limitations on estoppel by convention? The main limitation on estoppel by convention is that it cannot form the basis of a positive claim in itself: the battlefield imagery usually deployed is that it can only be used as a “shield” and not as a “sword”. In legal terms, this is because estoppel by convention is, in its genesis, an evidential doctrine that does not therefore create substantive rights: it just stops someone maintaining that a particular state of affairs does not exist. B cannot found a cause of action on an estoppel by convention, but may, as a result of being able to rely on it, succeed on a cause of action in which, without being able to rely on the estoppel, it would have failed. The distinction, then, is a subtle one. Aristocrat Property Investments v Harounoff [1982] 2 EGLR 83, however, is an example of a landlord failing in its case because it had to make an estoppel by convention the foundation of a positive case for the recovery of rent. This you cannot do. All you can use an estoppel by convention for is to stop someone saying something which (although legally true) should not be said because it isn’t fair to say it. What relief is granted when an estoppel by convention is established? Estoppel by convention usually only has a retrospective effect because, once the mutually adopted shared assumption is the subject of a claim to an estoppel by convention by B, it is necessarily known to be an assumption out of line with what would otherwise have been the legal reality. It will usually not, therefore, apply into the future: see Hiscox v Outhwaite [1992] 1 AC 562. The court, however, has a wide discretion as to the relief which it will afford B as regards recognising the estoppel by convention having regulated dealings in the past. The court will take into account all the relevant conduct and circumstances to grant relief to B which is proportionate to such matters as B’s reasonable and legitimate expectations and the extent of B’s detrimental reliance: see Jennings v Rice [2002] EWCA Civ 159. But there will be no hard and fast fixed rules about relief. In Sledmore v Dalby (1996) 72 P&CR 196, CA relief was refused although the party setting up the estoppel by convention had spent a considerable sum on improvements because he had subsequently enjoyed 10 years’ rent-free occupation. Which property cases illustrate when an estoppel by convention will and will not be found to exist? There are four, which on the face of it are not easy to reconcile, although they show the principles in action: 1) In Clacy v Sanchez [2015] UKUT 387 (LC); [2016] EGLR 4, the Upper Tribunal (Lands Chamber) (the UT), overturning the First-tier Tribunal (the FTT), found that if there had been a precondition to a valid demand for service charges that relevant costs had been certified by an accountant (which, on the particular lease it was determined there was not) then there would have arisen an estoppel by convention against the tenant from taking the point as to non-fulfilment of that condition because, after a specific meeting from which the “convention” emerged and for many years thereafter, the service charges had been happily demanded and paid without anybody seeing a need for such certification. 2) In Admiralty Park Management Co Ltd v Ojo [2016] UKUT 421 (LC); [2016] PLSCS 258 the tenant had made payments on a basis which departed from those prescribed under his lease and sought a basis to be applied instead which was in accordance with his lease. In the UT, the deputy president Martin Roger QC found that an estoppel by convention prevented the tenant from relying on that point because, over a long course of dealing, the payments were demanded, apportioned and made on that basis, without objection. Indeed, the point had not been taken by the tenant even in previous proceedings; it would have been obvious to anybody who read his lease that this departure had been occurring; and there would be a substantial detriment to the management company to retrospectively put everything back on a basis strictly compliant with the precise terms of the lease. 3) In Bucklitsch v Merchant Exchange Management Co Ltd [2016] UKUT 527 (LC) the tenants said that sums which their lease required to be paid were not in fact payable because the management company had not, prior to making demand for service charge, first audited and certified the level of service charge, as required under the lease. The FTT found there to be an estoppel by convention against the tenants because they had been in a position to point out this omission for many years but had paid their service charges nevertheless, but the UT reversed that decision. The evidence was not sufficient to establish the mutual adoption of the necessary shared assumption because it was not particularly obvious in previous years that the right protocol in terms of audited accounts had not been followed. 4) In Jetha v Basildon Court Residents Co Ltd [2017] UKUT 58 (LC); [2017] PLSCS 49 an agreement at an annual general meeting (AGM) was a precondition to the ability to demand service charges in advance, but in fact service charges in advance had been paid by the tenants for a considerable period, notwithstanding the lack of such agreement at an AGM. The FTT held that the tenants were estopped by convention from taking the point about the absence of an AGM because the parties had mutually adopted the shared assumption that it was unnecessary. Again, however, the UT reversed the decision, and again on the basis that there had been no mutually adopted shared assumption, not least because the management company thought that an AGM was unnecessary while the tenants thought it would have occurred. There was no single mutually shared assumption across the line. Checklist What is the purpose of an estoppel by convention? What are the elements of an estoppel by convention? What elements are not part of the requirements for an estoppel by convention? What are the limitations on estoppel by convention? What relief is granted when an estoppel by convention is established? Which property cases illustrate when an estoppel by convention will and will not be found to exist?