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What is Promissory Estoppel?

July 24, 2021   Liv ChumPhilip Evangelou

Promissory estoppel refers to a doctrine that aims to provide protection to party (A)  who acts in reliance of a promise made by another party (B) to their detriment. This remedy exists to prevent unconscionable conduct by party (B) and achieve ‘minimum equity’ for party (A). All in all, the doctrine exists to rectify the injustices that party (A) encountered

What are the elements of Promissory Estoppel?

  1. A pre-existing legal relationship must be present
    • There is generally some form of a pre-existing legal relationship
      • For example, this could be a contractual relationship between two parties – The promisee (a person to whom the promise is made to) and promisor (the person making a promise).
  2. A promise by one party 
    • A promise must be made by one of the parties. This promise made by the promisor should be reasonable and lead the promisee to believe that their contractual rights will actually be enforced. 
  3. Inducement 
    • There must be a direct link between the promise made by the promisor and the action of the promisee
  4. An adopted presumption and reliance by the other party on the promise
    • The promise made by one party was one that a reasonable and ordinary person would rely on 
  5. Reasonability and unconscionability
    • Reasonability: The reliance on the promise by the promisee must be justifiable. 
    • Unconscionability: It must be evident that if a party does not follow through with their promise that they have made, there will be an unfair and inequitable outcome between the parties – with one potentially having an unfair advantage. 
  6. An element of detriment 
    • A substantial detriment must have been incurred by one party
      • For example, a person may have suffered a major, economic loss from relying on the promise. 

Remedies for Promissory Estoppel

The relief provided by a promissory estoppel is equitable. Therefore, it is up to the court to decide what the appropriate relief would be depending on the context. Generally, the court awards an amount to the promisee that will offset the financial detriment suffered by the promise. 

Promissory Estoppel Example

Lets say your employer makes an oral promise to pay an employee a specific amount of money as a redundancy pay out as you and your job have been made redundant within the company. As opposed to finding taking an alternative job that they have offered, you believe the specified amount that your employer has agreed to give you is one that pays more to the alternative. Thus, you agree to the redundancy pay that they specified and rely on your employer’s promise to be paid that amount. Nonetheless, you don’t get the amount promised and your ex-employer pays you less than promised. This means that you could go to court and use the doctrine of promissory estoppel as the promise made by your employer has not been fulfilled. 

In Summary

A promissory promise is one that is designed to provide equitable relief – meaning that as opposed to other remedies which are created to enforce promises, the promisee is able to recover economic losses and detriments incurred by reliance of a promise through the court. Nonetheless, to utilise this doctrine, you must have an explicit case as there are elements such as inducement and unconscionability that need to be fulfilled. Need advice on promissory estoppels? Seek advice from one of our experienced lawyers at 1300 337 997. 

About Liv Chum

Liv ChumLiv is one of OpenLegal's paralegals. Liv is a passionate student of the law, with a real interest in the way that business and legal requirements intersect.

About Philip Evangelou

phillipPhil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.