The phrase “estoppel by convention” is not a phrase you hear very often in everyday conversation. Its legal implications can, however, make a big difference to the outcome of a claim, where relevant, when a dispute arises.
The legal concept of estoppel does not arise very often, but where applicable, it can potentially be crucial to the outcome.
As confirmed and clarified by the courts in a recent construction case, estoppel by convention means that a party is prevented, or is “estopped”, from arguing a point due to the way the parties have acted.
It can arise when parties to a contract act on an assumed state of the law or the facts. There need not be a binding contract on those assumed matters, but rather the actions/conduct of the parties could amount to a “convention”.
There are some key requirements. These can be summarised as follows:
- The parties must share the assumption in question, or at least one party must make the assumption, and then the other party accepts or agrees to it. Still, in any event, the assumption must be communicated between the parties.
- The party which is claiming the benefit of the convention in question must have relied upon the assumption. Reliance includes being influenced by the assumption.
- It must also be “unconscionable” or “unjust” for the party in question to act contrary to the convention so that he is “estopped” from departing from it.
- The estoppel argument can only be used as a defensive mechanism to a claim, rather than to found a claim in its entirety.
- Once the common assumption on the facts or the law is made known to the other party, then the estoppel comes to an end.
So why does it matter?
In the recent case mentioned above, which was Mears Limited –v- Shoreline Housing Partnership Limited, the court held that there was an estoppel both by convention and representation, as a result of which the employer to the NEC3 contract could not retain the deduction it had made of £300,000.00. So clearly, the estoppel argument does matter.
This case is a good example of how even apparently remote and unusual aspects of the law can have important implications, the implication here being that the claiming party was awarded £300,000 due to the estoppel argument.