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Contractual estoppel: is it time for it to go?

Richard Hooley

Contractual estoppel facilitates the enforcement of an agreement on the state of facts by precluding proof of facts that contradict that agreement. It was developed in the context of preclusion of liability for (non-fraudulent) misrepresentation by providing the legal explanation for the validity of ‘no representation’ and ‘non-reliance’ clauses, which contradict the true state of affairs and prevent a claim for misrepresentation arising.

The doctrine is justified on grounds of party autonomy, commercial certainty and allocation of risk, especially where the contract is between sophisticated commercial parties of roughly equal bargaining strength. However, there is unease when it is used against a less equally matched counterparty such as a small, family run company or a consumer (although the latter have greater statutory protection). In truth, contractual estoppel is not a form of ‘estoppel’ at all (because it does not require detrimental reliance or unconscionability). The representation of fact is enforceable only because it forms part of the contract: ‘contractual preclusion’ or ‘preclusion by agreement’ is a more accurate description.

Its critics say the doctrine creates a ‘virtual’ world dislocated from the real one and call for the Supreme Court to abolish it. The better approach is to accept the doctrine as commercially useful, but to take account of the characteristics of the parties when deciding whether a ‘no representation’, ‘non-reliance’ or other ‘basis’ clause, in substance, excludes or restricts liability, so as to fall within the reasonableness test of the Unfair Contract Term Act 1977. Christopher Clarke J hit the nail on the head in Raiffeisen when he asked ‘whether the clause attempts to rewrite history or parts company with reality’. The Court of Appeal will soon have to decide whether that is the right question when it hears the appeal of the High Court decision in Thornbridge v Barclays Bank.

Comments published on Compact Contract do not necessarily reflect the views of Allen & Overy or its clients.

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