We’ve all heard someone say, “Don’t worry, I’ll sort it out for you,” or “Leave it with me, I promise.”
But what happens if that promise is broken, especially when there’s no formal contract?
The law recognises that some promises shouldn’t be broken, even without a formal agreement. This principle, known as estoppel, prevents a person from going back on their word when someone else has reasonably relied on that promise and would suffer harm if it were withdrawn.
When does a promise become enforceable?
In a 2024 decision the Court of Appeal confirmed that four key elements must be proven:
- Words or conduct: Has a belief or expectation been created or encouraged by the “Promisor” to the “Promisee”? This promise can be either explicitly given or implied through conduct.
- Clearly expressed: To the extent a representation is relied upon, has it been clearly and indisputably expressed? “I’ll consider assisting financially” isn’t the same as “I will pay you $2,000.00”.
- Detrimental reliance: Did the other party reasonably rely on the representation to their detriment? This detriment may be financial loss, missed opportunity or another disadvantage.
- Unconscionability: Would it be unconscionable for the Promisor to renege on their promise after the Promisee has relied on it to their detriment?
If the person claiming the promise acted in a way that doesn’t match their belief that the promise would be fulfilled, they’re unlikely to succeed with an estoppel claim.
Sword or Shield
Historically, the principle of estoppel was used primarily as a “shield” – that being to assist someone in defending a claim made against them. Estoppel can now be used as a “sword” – ie, a cause of action — a promise can be enforced against parties outside of an existing legal relationship. As long as the above elements are present, a claim or defence/set-off can be maintained.
Why this matters
There are legal principles that serve as safeguards against unfairness. These include situations where one party has relied on a promise to their detriment. This ensures that promises made and accepted in good faith are honoured, even in the absence of a formal contract, upholding fairness and integrity in both contractual and pre-contractual dealings.
Although estoppel does not depend on formal documentation, it is still wise to record any assurances you rely on — an email, text message, or written note can be invaluable in proving what was said. Retain clear records of any representations made and any harm suffered as a result, so you have solid evidence to support any such claim.
If you are unsure about your rights or entitlements, seek legal advice early. Timely guidance can help you identify, protect, and if necessary enforce any rights you may have.
Chloe Wilson, Associate
E: Chloe.wilson@swlegal.co.nz
STEINDLE WILLIAMS LEGAL, Level 2, Suite 2.1, 18 Sale Street, T: 09 361 5563, www.swlegal.co.nz
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