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The point is that many relationships go through a sensitive phase in which there is no place for the explicit and earnest nature of requesting and offering promises. In many cases asking for guarantees against the holdup trap will undermine the very thing which the parties strive to build, namely, trust. For in asking for an agreement, R will effectively be saying to O ‘I do not really trust your representation enough to rely on it, and/or I suspect that you may exploit my decision to invest to gain an unfair advantage’—hardly a trust-building message. From the other direction, when O vows to R that she will compensate him for relying on her representation in case she chooses to withdraw from it, she is putting the option of withdrawal on the table. Surely, while the negotiations go on, the possibility that O will retreat is always in the background. But as it happens in the context of many interpersonal relationships, being explicit about the possibility of breakdown can be fatal. Some possibilities are better left unmentioned, even when the chances of them materializing is not negligible. If the law is to encourage the practice of precontractual investment it must help the parties create that ‘space for trust which [they] seek to establish’, and to do that it must enable them to solicit and offer reliance without being forced to discuss the eventuality of relationship breakdown.42 The default rule must therefore be that the party who withdraws from her representation has to compensate the other party for his reasonable reliance on it.

State enforcement of LPA obligations can also be justified as a direct application of the harm principle, that is, as a legitimate intervention in O’s affairs in order to prevent her from harming R.43 A contractarian would say that the legal enforcement of principle L is justified as it cannot be reasonably objected to. The ensuing liability would be similar to that which can be found in other tort doctrines such as fraudulent misrepresentation and deceit. In Section 4, I argue that PE can, and should be interpreted as the legal enforcement of LPA obligations which owners come under as a result of representations they make in regards to their property. The double justification for using the state coercive power to force O to oblige, namely, to facilitate efficient reliance as well as to protect unfortunate Rs, will play an important role in this interpretation; most importantly, it will help us to understand the proprietary (rather than tort-like) nature of the doctrine and the unusual care taken by the courts in making sure that R is fully compensated for his loss.

4. Proprietary Estoppel

In this section I argue that PE can be justified as the legal enforcement of LPA obligations which people come under in the context of property rights transfers.44

42Quote from McFarlane 2010, 103.

43See Scanlon 2001, 101, citing one of the landmark American cases in estoppel: Hoffman v Red Owl Stores Inc. 1965.

44In his book on estoppel, Michael Spence suggests that the Australian doctrine of estoppel can be ‘given a satisfactory basis in principle’ as the enforcement of a duty ‘to ensure the reliability of induced assumptions’ (pp. 1, 2) (Spence 1999). Relying on MacCormick’s work (see n. 10) Spence emphasizes the protective function of the principle, seeing it as a species of the general duty ‘not to cause

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In terms of the results in the relevant case law this is mostly an interpretive claim; namely, it is a claim about the principle that underlies the recent case law, and not a suggestion for major reform. That said, understanding PE in this light would have a profound influence on the way in which PE claims are made by R and discussed by the courts. This understanding of PE as enforcing LPA obligations would greatly help us to clear away some major ambiguities and incoherences that afflict the doctrine, and thus enhance its usefulness as an arbitrator of disputes over property.45

PE, by nature, works to disrupt the good order of property law. When a successful PE claim is made, the court may respond by transferring, changing the nature of, or altogether abolishing proprietary rights. This they do without requiring first that the parties abide by the strict formality rules that govern transactions in property rights. The doctrine also seems to fly in the face of another sacred principle of property law, namely, that interests in property should only be transferred in a consensual manner. The idea being that the function of the law of property is to protect individual property rights and that, in applying it, the court must not engage in distributive justice issues, as these should be left to the legislator.46 For some, this is a reason to embrace PE as breaking away from an obsolete perception of property law, and as one way in which equity allows the court to redistribute property rights without the consent of the owner.47 Others are alarmed by the unruly doctrine and call to limit its operation, claiming that ‘where the parties can reasonably be expected to regulate their relationship by a binding contract, if they want to do so, equity should fear to tread’.48

preventable harm’ (Spence 1999, 4). I certainly agree with him that estoppel and the remedy for it should be tailored to compensate reliance losses, but the justifying principle he suggests is partial. As this paper makes clear, I believe that an important part of the value, and hence the justification, of the moral obligation which is enforced by PE is the way it benefits both parties to the transaction. In portraying it as a duty not to cause harm Spence misses the voluntary mode of the duty, which, I argue, is crucial to understanding the way in which the doctrine is applied by the courts.

45 In his 1999 paper on the subject, Michael Pratt rejects what he calls the ‘reliance theory’ of PE, and argues instead that ‘estoppel gives effect to a duty not to disappoint certain induced expectations that have been relied on’. But when he comes to explain the harm done to R he says that ‘by omitting to perform the defendant defeats the plaintiff ’s expectations that his loss will be made good or worthwhile by performance of the promise’ (Pratt 1999, 214). This confuses expectations with hopes—R can indeed expect that his loss ‘will be made good’, but he can only hope that the promise will be fulfilled. Otherwise it is not clear how reliance can elevate an informal, and hence unenforceable, promise to a legally binding one. Pratt’s answer to this question is that ‘where a promisor’s conduct justifies an entitlement to rely on an expectation, it will also justify an entitlement to the expectation itself ’ (Pratt 1999, 218). This is a questionable move, and is hard to reconcile with the growing demand for ‘proportionality’ between reliance and expectation (see Section 4.2). On the interpretation suggested here, O’s ‘conduct’ lends itself to be interpreted by R as inviting reliance but not as a commitment to make R’s expectations true (Pratt 1999).

46For a critical exposition of this idea and its strong influence on the common law see Rotherham 2002, ch. 2.

47E.g. Rotherham 2002, 291–7.

48Neuberger 2009, 544, and sources cited there. The most dramatic attempt yet to limit the boundaries of PE is made by Lord Scott in his leading speech in Cobbe v Yeoman’s Row Management Ltd 2008. The supreme court has, however, reinstated much of PE’s power in Thorner v Major 2009, see McFarlane and Robertson 2009.

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PE is indeed not in the business of enforcing agreements to transfer property rights. This is the turf of contract law and the carefully tailored formal requirements of land law. But on the interpretation suggested here, PE can hardly be described as a tool for non-consensual transfer of property. True, to fulfil her duties, O may, and often does, have to part with a proprietary right (see Section 4.2). But the circumstances in which PE claims are embedded will be such that O communicated to R her willingness to take responsibility for his reliance on her representation. As we shall see, it may well be the case that a full compensation for the loss will indeed entail transfer of property rights to R, but this is a risk which O has taken once she pushed, or allowed, her relationship with him to go this far down the road towards a fully-fledged promise. Certainly, since the test for taking on the obligation is objective, some Os who never meant to assume an LPA obligation towards R, but behaved as if they did, will be caught by the net of PE against their will. This, however, can be readily justified as a necessary step to protect the valuable practice in which reliance is solicited in informal manner—R can hardly be expected to rely on O’s representation if she is allowed to claim that her intentions were different from what her words or conduct communicated.49

Importantly, this careful guard of R’s rights is accompanied by vigilance of no lesser degree not to enforce LPA obligations on O when her behaviour did not take her into its normative remit. To kick-off his PE claim, R must prove that his changed position was a response to O’s representation and not something he would have done anyway.50 R must then show that O’s representation could have reasonably be interpreted as inviting reliance. Indeed, ‘[i]t is not enough to hope, or even to have a confident expectation, that the person who has given assurances will eventually do the proper thing’, and R who works on the basis of hope or prediction, rather than a reasonable interpretation of O’s representation, is taking a risk.51 Yet, sometimes, this caution is overdone. Thus, one of the many highly

49For one of many examples see Thorner v Major 2009, at [5]). But that does not change the voluntary nature of the obligation PE is enforcing in principle (see Raz 1982, 935).

50Since it is of course impossible to bring direct evidence for such mental link (apart from the claimant’s testimony), once R proves that O has made a representation that could reasonably be interpreted as inducing reliance, there is a presumption that R’s response to it was indeed in reliance on the representation (Greasley v Cooke 1980, 1311). Thus in Haq v Island Homes Housing Association and another 2011 (CA) the defendant managed to show that R’s actions were not in reliance on O’s representation (from whom the defendant bought the land): R was allowed to enter the premises and carry out substantial building works prior to the final conclusion of an agreement for a new lease. Before the agreement in principle was duly signed O sold the land. The Court of Appeal found that the claimants did not rely on what they (unreasonably) perceived as O’s representation about the agreement in principle. This can be gleaned from the fact that they committed themselves to the building contract before the parties arrived at the agreement in principle, and before they obtained from O the keys that allowed them access to the new premises (82).

51Cobbe v Yeoman’s Row Management Ltd 2008, 66. See also Attorney General of Hong Kong v Humphreys Estate (Queen’s Gardens) Ltd 1987 PC: ‘there is no doubt that the government [R] acted in the confident and not unreasonable hope that the agreement in principle would come into effect . . .

But . . . HKL [O] did not encourage or allow a belief or expectation on the part of the government that HKL would not withdraw [from the negotiations]’, at 124; and Parker v Parker 2003 (Ch) HC: ‘Put shortly, it seems to me that the highest that Lord Macclesfield’s case can be put is that when he moved to the castle he believed that he might acquire the right to a life occupancy, not that he would obtain it.

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controversial restrictions on the scope of PE in Cobbe was Lord Walker’s requirement that R must believe that O has made a legally binding promise to him.52 This condition is surely in contradiction with the interpretation of PE as governed by LPA obligations and not by promises.

But Lord Walker’s condition can hardly be reconciled with much of the case law, especially with the numerous cases in which claimants who were expecting to inherit from the representor knew very well that wills are revocable (see discussion of ‘gifts’ below).53 And so in the subsequent HL case of Thorner v Major no evidence was adduced that R ever believed O to be making a legally binding promise to him, and it seems therefore that Lord Walker’s condition was not accepted as a statement of the law.54 The restriction is not really necessary to explain the result of Cobbe itself; instead, it can be understood as a paradigmatic case of a representation that was not meant, and should not have been interpreted as, implying that R can rely upon it. In the relationship between this particular O and R, it was legitimate (if not very kind) of O to have expected that R would bear the risk all on his own.55

Another aspect of the reasonableness requirement relates to the reasonableness of the action taken by the representee—was it reasonable of him to give up the alternative, to buy such expensive machines, or to invest in a training programme that would be worthless if the deal fails? This requirement is crucial for the proper function of the doctrine, as without it, R, who knows that O will be liable for his expenses if she withdraws her representation, may be tempted to make a big investment for whatever small chance of getting a benefit from it. As shown by Craswell and others, this moral hazard problem can be solved if the ‘courts can evaluate [R’s] reliance decisions and refuse to infer a commitment, whenever [R] has chosen an inefficiently high level of reliance’.56 Conditions of ‘reasonableness’ in tort, as well as here, enable the court to do that job, and protect the representor against this unfairness.57 Let us see then how the individual categories of PE cases can be successfully interpreted as enforcing LPAs.

In my judgment that is not enough.’ Lewison J at 218; and Crossco No. 4 Unlimited and others v Jolan Ltd and others 2011, 114.

52Cobbe v Yeoman’s Row Management Ltd 2008, 66, 68. In this case, Mr Cobbe, an experienced property developer orally agreed with a director of a management company which owned a block of flats that Cobbe would apply for planning permission to demolish the existing block of flats and to erect, in its place, a terrace of six houses. Upon the grant of planning permission, the property would be sold to Cobbe who would then develop the property, sell the six houses, and share the profits with the management company equally. Cobbe spent the next 18 months, engaging architects and other professionals, in applying for planning permission which was then duly granted; the defendants immediately withdrew from the agreement. In a controversial decision, the HL found that Cobbe had taken the risk that the joint venture would not materialize, and hence rejected Cobbe’s PE claim.

53A point that applies to various other CA cases as well, see Etherton 2009, 119–20.

54McFarlane and Robertson 2009, 538.

55Cobbe v Yeoman’s Row Management Ltd 2008: ‘the fact is that he ran a commercial risk, with his eyes open, and the outcome has proved unfortunate for him’, at 91. See also Neuberger 2009, 543 and Matthews 2010, 44.

56Craswell 1996, 494.

57Goetz and Scott 1980; Craswell 1996, 531–6. I do not have enough space here to detail the way in which the reasonableness requirement is applied in practice. For such an account see Robertson 2000.