Brikom Investments Ltd v Carr

Court of Appeal

Citations: [1979] QB 467; [1979] 2 WLR 737; [1979] 2 All ER 753; (1979) 38 P & CR 326; (1979) 251 EG 359; [1979] CLY 1598.

Facts

The claimant was the landlord of a block of flats. The roofs of those flats needed repair. They decided to offer 99-year leases of the flats for sale. The draft lease contained a clause obliging the claimant to maintain the roofs and charged tenants a maintenance fee. Tenants would contribute to a fund to cover the claimant’s excess expenses. The lease also contained a ‘entire agreement’ clause. This stated that all the terms of the agreement were contained in the document: no oral or written representation formed part of that agreement.

A group of people interested in acquiring the leases inquired as to the state of the roofs, since this affected whether they could get mortgages. The claimant orally assured them that they would repair the roofs at their own expense and not charge this to the tenants. This was confirmed in a letter to some tenants, but not all. The leases were sold.

Later, the claimant charged the tenants for the cost of repairing the roofs. The tenants refused to pay, so the claimant sued them for breach of contract. The tenants responded that the claimant was estopped by their oral promise. Some of the tenants argued that the promise also constituted a binding collateral contract.

Issue(s)

1. Did promissory estoppel prevent the claimant from charging the cost of repairing the roofs to the tenants?
2. Some of the tenants had been assigned their leases from other tenants. Could these tenants rely on the promise, given that the claimant did not make it to them?
3. Did the promise constitute a binding collateral contract?
4. What was the effect of the entire agreement clause?

Decision

The Court of Appeal held in favour of the defendants. The three judges’ reasoning for why the defendants should succeed was mixed:

• Lord Denning thought that the claimant was estopped from reneging on their oral promise. The original tenants changed their position in reliance on the promise by signing the leases, and it was inequitable for the claimant to go back on their word.
• Roskin LJ and Cumming Bruce LJ held that the promise constituted a waiver of the obligation to pay. The tenants who had been assigned their lease from other tenants received the lease free of the waived obligation.
• All three judges agreed that those tenants who had received the oral promise before signing the lease could establish a collateral contract. This was because agreeing to sign the lease in exchange for the promise to fix the roof without charge was good consideration. Lord Denning and Roskin LJ held that those tenants who were assigned the lease were implicitly also assigned the benefit of the collateral contract. As such, they could also rely on contractual rights.

All the judges agreed that it made no difference whether the claimant made the promise orally or in writing. Entire agreement clauses do not prevent waivers or the formation of collateral contracts or promissory estoppel, so the clause in this case made no difference.

This Case is Authority For…

A collateral contract, waiver or promissory estoppel can still arise where an agreement contains an ‘entire agreement’ clause.

According to Lord Denning, promissory estoppel ‘extends to all cases where one party makes a promise or representation, intending that it should be binding, intending that the other should rely on it, and on which that other does in fact rely – by acting on it, by altering his position on the faith of it, by going ahead with a transaction then under discussion, or by any other way of reliance.’

Lord Denning stated that it is ‘no answer for the maker [of the statement] to say: “You would have gone on with the transaction anyway.” That must be mere speculation. No one can be sure what he would, or would not, have done in a hypothetical state of affairs which never took place…Once it is shown that a representation was calculated to influence the judgment of a reasonable man, the presumption is that he was so influenced.’

This might indicate that a defendant can never defeat promissory estoppel by showing that the claimant would have gone ahead with the transaction anyway. In theory it is possible to show that a claimant did not rely on a promise (there are many misrepresentation cases which turn on this). It should, therefore, be possible for a defendant to rebut promissory estoppel if he had actual proof that the claimant would have proceeded with the transaction anyway. However, one defendant admitted in cross examination that she would have entered the lease anyway, and Lord Denning did not seem to think that this stopped an estoppel arising.

Other

Lord Denning argued that estoppel runs with assignments of contracts. Essentially, he treated estoppel as akin to a property right akin to a covenant – not a mere personal obligation. As such, he thought that the tenants with assigned leases could also rely on promissory estoppel even though the claimant did not make the promise to them. Roskill LJ disagreed. He preferred to rely on the waiver explanation, as he thought that promissory estoppel was too uncertain a doctrine.

Normally, promissory estoppel only suspends the claimant’s legal rights. It is usually possible for the claimant to revive those rights with reasonable notice. However, in this case, there was no way for the tenants to reverse their change of position: they were stuck in the leases. As such, Lord Denning treated the claimant going back on the promise as so inequitable that their legal rights were effectively permanently extinguished.