Doctrine of Equity

In some special circumstances the agreement will still be enforceable even though there is no ‘consideration’ in the strict sense of the term. In other words, a promise may at times be enforceable because there is a developing doctrine of equity. Take, for example a contract where the person to receive the money promises that he will not in fact collect the money and on the basis of this promise the promisee so arranges his affairs in such a way that he is no longer in a position to be able to pay it. Bear in mind that nothing was given in return for the promisor’s promise not to demand payment so that the new promise which is accepted by the promisee is not a contract but in fact a ‘mere agreement’. Nonetheless it would at this point be unfair and against good conscience to allow the promisor to retract his promise and insist upon his full legal rights to collect the money. Equity will, therefore, raise a defence to the claim on the grounds of fairness and prevent the promisor from denying his promise. This is the doctrine of Promissory Estoppel. The fundamental principle is that the promisor will not be allowed to enforce his rights where it would be inequitable having regard to the dealings which have taken place between the parties.  For this reason it is sad that equitable estoppel “is a shield rather than a spear”. An example closer to shipping business was the case of the Vistafjord (1988) where the courts applied the principle to estopp a shipowner from claiming the money kept by a broker which the broker quite fairly and reasonably thought would be due to him as commission. This, of course took place long before the introduction of the Contracts (Rights of Third Parties) Act 1999.  Prior to 1999, a broker, having no privity to the contract (the charter party) could not sue the owner directly for his commission. The only recourse at that time under English law was to persuade the charterer to sue the owner as trustee for the brokers. In the Vistaford case the broker deducted his commission when passing the collected freight to the owners.