Concept of Estoppel in English and Islamic law
CONCEPT OF ESTOPPEL IN ENGLISH AND ISLAMIC LAW
By M. Anum Saleem and Syed Sair Ali
Estoppel is a legal doctrine developed in the English Law in last two hundred years primarily as an equitable doctrine. While Islamic Law recognizes this doctrine in its book, there is very little available on it in the English language. Mejelle's English translation is available which has a chapter on this doctrine. However, another major Hanafi book from the fifteenth century remains un-translated limiting its access to the students of Islamic law who do not have competence in Arabic.
Estoppel in English Law:
An estoppel is a bar or impediment which prevents a party from asserting a fact or claim inconsistent with the position that the party had previously taken either by one's conduct or words, especially in the case where reliance has been placed and subsequent action taken because of a representation made by the first party. B.M Gandhi in his book "Equity, Specific Relief and Trusts" says that, "Estoppel is a principle which precludes a party from alleging or proving in legal proceedings that a fact is otherwise than it has appeared to be from the circumstances."
Two Main Types of Estoppels in English Law:
Broadly speaking there are two main kinds of estoppels, one being equitable estoppels and the other being common law estoppels. The major difference between the two is that where common law estoppel can only be used as to determine evidence and is not a cause of action in itself, equitable estoppels' scope is wider in that it can be a cause of action itself. An example of the application of common law estoppel would be a representation entailing that a contract has been signed. So here the party relying on this representation can use common law estoppel to say that the contract has been signed so that another action in contract may follow. An example of the application of the equitable estoppel would be in the representation that a party says, "I will sign the contract." The party that relies on this statement may bring an action on the basis of their detrimental reliance on it.
History of Estoppel in English Law:
Originally a promise or representation was considered binding only if it had been made in a contract. A prime example of this would be the case of Jorden V Money. In this case, Money was entitled to a bond against Jorden which she said she would never enforce. Relying on her promise Jorden married her. Later Money wanted the bond and went to court. In the judgment of the House of Lords, it was said that the representation about an existing intention is not binding. Only if something was specified in a contract, then it could have binding value. Abstract claims and intentions do not constitute legally binding promises that could be estopped, was the court's reasoning.
However two exceptions developed to this strict application of contractual theory. One was proprietary estoppel which dealt with interests to land and the other was promissory estoppel in which a party was prevented and denied from acting contrary to a representation.
Important Cases in English Law on Estoppel:
In Hughes v. Metropolitan Company, Hughes owned certain property which had been leased to the Metropolitan Company. Under the lease agreement, Hughes was entitled to compel the tenant to repair the building within six months' notice. During this six month notice period, the tenant railway company sent a letter to Hughes proposing to purchase the building. Negotiation began and continued for a certain period of time without any settlement being reached. After the six months had passed the landlord sued the tenant for breach of contract and tried to evict the company. The court of common pleas gave the judgment in favour of Hughes. However, it was reversed on appeal in the Court of Appeal and the House of Lords affirmed the Court of Appeal's judgment. The court said that once the negotiations began there was an implied promise by the landlord not to enforce his strict legal rights with respect to the six month time limit on the repairs, and the tenant had acted on this promise to their detriment. So here the concept of promissory estoppel was applied. In this case the suspension of the landlords strict rights were merely suspended, and a new notice period introduced.
In the case of Central London Property Trust Ltd V High Trees Ltd, Central London Property Trust Ltd (CLPT) owned a block of flats which it rented to High trees Ltd for 2500 pounds. However due to the prevailing conditions of second world war the demand was little and High trees negotiated a reduction in the cost of the lease to 1250 pounds for the period of five years from 1940 to 1945. After the war the demand increased and the flats were all rented out. Central London Property Trust Ltd attempted to recover the full cost of the lease, as per the original agreement, and said that there was no consideration from High Trees to support the agreement for the reduced rates. The absence of consideration was not in dispute, and under a strict interpretation of the common law on contracts Central London Property would have been able to enforce their rights to full lease value. However, Lord Justice Denning said that the agreement to reduce the rent was a promise which High Tree had acted upon. If Central London Property were allowed to enforce their rights then the fact that High Trees had acted on the promise would be to its detriment (because they would have to pay full price when most of the flats were not on rent), and Central London Property could be made subject to a promissory estoppel. High trees was asked to pay full rent from the last two quarters of 1945 as now the flats were rented out and it was implied from the agreement that full rent could be charged once the war time conditions subsided and flats started getting rented out.
The principle of equitable estoppel was elucidated in Walton Stores (Interstate) Ltd v. Maher, where Walton stores negotiated to lease lands from Maher upon which Maher was required to demolish buildings and complete new buildings by 15th January 1984 as per Walton stores requests. After these negotiations, Walton stores solicitors sent Maher a copy of the lease which incorporated certain amendments that had been requested by Maher. They also said that if the amendments were unacceptable they would inform the next day. However they didn't do so and Maher signed the lease on 11th November. After this, Walton stores became uncertain as to whether they wanted the lease or not and instructed its solicitors to go slow. They were aware that Maher was demolishing the building but still delayed signing the agreement. Once 40 percent of the new building was complete, Walton stores informed Maher that they didn't wish to proceed with the lease. The issue arising from the case was whether Maher could recover the costs of construction through an action in estoppel. The court reasoned that there was no contract as the construction wasn't an execution of the lease and unless the parties agreed there could be no enforceable contract. The court said that an estoppel should be granted in this case based on the common law estoppel as the ingredients of estoppel such as assumption; detrimental reliance and unconscionability were present in this case. The court said that for common law estoppel assumption, inducement and detrimental reliance were necessary whereas for an equitable estoppel remedy assumption, detrimental reliance and unconscionability were required.
Michael Evans in his book, "Outline of Equity and Trusts" says that there appears to be emerging a trend of doctrinal unity in estoppel. He says that the major feature of this trend so far is the emergence of the doctrine of equitable estoppel, "a seeming marriage of the earlier concepts of promissory and proprietary estoppel. This is perhaps what Justice Deane tried to convey in Waltons v Maher.
Justice Fry summarized the five elements for proprietary estoppel in Wilmott v Barber (1880) 15 Ch D 96 as under:
The claimant must have firstly made a mistake as to his legal rights and secondly have done some act of reliance. The defendant on the other hand must have known of the existence of a legal right which he possessed, and which was inconsistent with the right claimed by the claimant. Secondly he must know about the claimant's mistaken belief and thirdly he must have encouraged the claimant in his act of reliance.
In Indian Law estoppel has been defined in section 115 of the Indian Evidence Act 1872 as,
"When one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding between himself and such person or his representative, to deny the truth of that thing."
Some limitations of estoppel include, not being applicable against the state legislature or any Acts of Parliament. Similarly it cannot be evoked to give an overriding power which it does not possess. Similarly there is no estoppel in Income tax.
Promissory estoppel under the Pakistan Law
On the topic of promissory estoppel, the Honourable Supreme Court of Pakistan in Pakistan through Ministry of Finance Vs. Fecto Belarus Tractors held as follows:
"21. The doctrine of promissory estoppel was attended to in the judgment impugned. In fact, the judicial activism innovated the doctrine of promissory estoppel. One of the earliest judgments on the subject is the case of Collector of Central Excise and Land Customs and others v. Azizuddin Industries Ltd. (PLD 1970 SC 439). In respect of excise duty it was held that the appellant had set up cigarette factory at Chittagong. On the basis of Notification exemption was granted from the payment of whole excise duty leviable thereon in respect of all excisable goods produced or manufactured. It was held that an executive authority cannot in exercise of the rule-making power or the power to amend, vary or rescind an earlier order take away the rights vested in the citizens by law. This doctrine was reiterated and reinforced by this Court in Al-Samrez Enterprises v. Federation of Pakistan 1986 SCMR 1917 wherein it was held that the exemption Notification is the basic right to public-at-large and it will be inequitable and unjust to deprive a person who acts upon such assurance of the right to exemption and expose him unforeseen loss in the business transaction by suddenly withdrawing the exemption after he has made legal commitments. It is in this perspective that a right is created in his favour and a subsequent withdrawal of exemption cannot be given retrospective operation by an executive act 'to destroy this right'.
It will be necessary to touch the true concept of the doctrine of promissory estoppel. Before proceeding further this doctrine has been variously called 'promissory estoppel' 'requisite estoppel', 'quasi estoppel' and 'new estoppel'. It is a principle evolved by equity to avoid injustice and though commonly named 'promissory estoppel', it is neither in the realm of contract nor in the realm of estoppel. The true principle of promissory estoppel seems to be that where one party has by his words or conduct made to the other a clear and unequivocal promise which is intended to create legal relations or effect a legal relationship to arise in the future, knowing or intending that it would be acted upon by the other party to whom the promise is made and it is in fact so acted upon by the other party, the promise would be binding on the party making it and he would not be entitled to go back upon it, if it would be inequitable to allow him to do so having regard to the dealings which have taken place between the parties and this would be so irrespective of whether there is any pre-existing relationship between the parties or not. The doctrine of promissory estoppel need not be inhibited by the same limitation as estoppel in the strict sense of the term. It is an equitable principle evolved by the Courts for doing justice and there is no reason why it should be given only a limited application by way of defence. There is no reason in logic or principle why promissory estoppel should also not be available as a cause of action.
The Supreme Court of India in the said case reported as M.P. Sugar Mills v. State of UP AIR 1979 SC 621 went further to lay down "that it is not necessary in order to attract the applicability of the doctrine of promissory estoppel, that the promisee, acting in reliance on the promise should suffer any detriment. What is necessary is only that the promisee should have altered his position in reliance on the promise. But if by detriment we mean injustice to the promisee which would result if the promisor were to recede from his promise, then-detriment would certainly come in as a necessary ingredient. The detriment in such a case is not some prejudice suffered by the promisee by acting on the promise, but the prejudice which would be caused to the promisee if the promisor were allowed to go back on the promise".
- The doctrine of promissory estoppel was again debated by this Court in the case reported as PLD 1991 SC 546 Pakistan through Secretary, Ministry of Commerce and 2 others v. Salahud Din and others and it was held that doctrine does not extend to legislative and sovereign functions but executive actions are not excluded from its operation. This Court again discussed this principle and the following principles to elaborate this doctrine were laid: --
(1) The doctrine of promissory estoppel cannot be invoked against the Legislature or the laws framed by it because the Legislature cannot make a representation.
(2) Promissory estoppel cannot be invoked for directing the doing of the thing which was against law when the representation was made or the promise held out.
(3) No agency or authority can be held bound by a promise or representation not lawfully extended or given;
(4) The doctrine of promissory estoppel will not apply where no steps have been taken consequent to the representation or inducement so as to irrevocably commit the property or the reputation of the party invoking it; and
(5) The party which has indulged in fraud or collusion for obtaining some benefit under the representation cannot be rewarded by the enforcement of the promise."
Application of Estoppel in Islamic Banking and Financial Instrument:
Estoppel is an established concept in Islamic Law. An example of promissory estoppel is available in the case of interest free banking systems of Pakistan and some Middle Eastern countries. One of the instruments used for financing of raw material by these banks is called Murabaha. Murabaha is a shari'ah-compliant structure resembling to 'sale on deferred payment model'. It is a transaction in which asset is purchased by the bank through an agent. This purchase is made based on the reliance on a promise made by the client that later the client will purchase the asset from the bank.
Similar to Common Law, since this promise (made by client) is not substantiated with any consideration, the promise in usual circumstances would not be legally binding. Common law has 'consideration' as one of the basic requirements of a valid contract. On the other hand, Islamic law also creates a distinction between contracts and promises. While the contracts are known as 'aqd, promises are known as wa'ad. Promises or wa'ad in normal circumstances are not legally enforceable. Certainly there is a moral requirement to fulfil these promises. Even the promises made under the oath with God are not legally enforceable despite having attached a very strong religious and moral obligation to fulfil them.
This situation would expose banks to unnecessary risk where client enjoys option to back out from the transaction without any legal ramifications. In order to address this concern faced by the Islamic finance institutions, Islamic Fiqh Academy issued a ruling (fatwa) which protects these banks by making this promise legally enforceable. The ruling states that in the case of Murabaha, such a promise would not only be morally binding but also legally enforceable provided that a couple of conditions are met. The main condition set forth by the Academy is very similar to one of the requirements of estoppel i.e. detrimental reliance on the promise, which has caused the promisee to incur some liabilities, has to be established. Only then the claim would be successful.
While the ruling of the Academy is limited to the transaction of murabaha only, and they have refrained to extend it to the other shariah compliant financial instruments, yet it establishes not only the presence of the doctrine of estoppel in Islamic Law, but also establishes its modern widespread use, which is slightly different from the understanding of the classical jurists.
There are several occasions in the Quran where it is prescribed to fulfil promises. Likewise, a similar theme exists in Hadith, where Prophet has mentioned merits and virtues of fulfilling promises and demerits and punishments of not fulfilling promises. Drawing from the above primary sources of Shariah, scholars and jurists have adopted different positions in regard to the legal status of promises.
Estoppel in Islamic Law Recognized by International Centre for Settlement of Investment Disputes:
International Centre for Settle of Investment Disputes (ICSID) recognized the presence and application of estoppel in Islamic Law in one of its cases. In the leading judgement of the case Desert Line Projects LLC v. The Republic of Yemen (2008), Professor Pierre Tercier write that Islamic Law embodies the doctrine of estoppel for past 1200 years. He states the law of estoppel in the following words "Whoever tries to undo what he previously undertook, such act on his part shall be turned against him."
Comparative Analysis of Estoppel in English Law and Islamic Law:
There are some differences in the way the doctrine of Estoppel is applied in Islamic Law and the way it is used in English Law. The difference are can be explained by taking into account two factors. The first factor is the period in history in which the doctrine is emerging and developing. While the emergence of the doctrine of estoppel in English Law is not more than two hundred years old, the major development period for the doctrine in Islamic Law is the period between the 11th Century and 16th Century CE. The milieu in which the legal system is operating always have an impact on its nature.
The second factor which must be taken into account while discussing the differences between the doctrine in Islamic Law and English Law is the difference in the nature of the two legal system of which these doctrines are a small part. While Islamic Law is a religious law, well grounded in its 'immutable' primary text, English Law relies upon customs, legislation and judicial precedent for its sources. Customary practice and ijma, under Islamic Law might to some extent seem similar to English Law concept of customs and legislation, but these sources are secondary to the textual sources. Also, theology plays an important role in shaping Islamic Law, as could be seen in the case of exceptions.
The revealed texts are not meant to be law books, while Quran is fairly poetic and far from a typical law book in its stylistic form, Hadith also are the compilation of actions and words of the Prophet making it a set of incidences from a common rule has to be derived, thus often leading to more than one possibilities.