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What is Promissory Estoppel?

What is Promissory Estoppel?

April 2, 2022

By Brian Babcock

Promissory estoppel is the legal system’s version of “no backsies”.

More formally, it is an equitable defence designed to protect you if another person attempts to back out of a promise after you have changed your legal position in reliance upon the promise.

In Trial Lawyers Association of British Columbia v. Royal & Sun Alliance Insurance Company of Canada,  The Supreme Court of Canada reminded us that in order to rely upon this doctrine you must show that:

  • the other party has, by words or conduct, made a promise or assurance;
  • which was intended to affect their legal relationship with you and to be acted on; and
  • in reliance on the promise, you acted on it or in some way changed your position.

This test is deceptively simple.

In the case before it, for example, the argument failed because the court held that the actions of the insurer did not constitute a promise, because at the time it indicated that coverage was being provided for the loss, it lacked knowledge of all of the facts.

So, not all actions or statements are promises.

The emphasis in this case was on the aspect of the test which requires the words or conduct to be intended to affect the legal relationship. What the Court clarified in this case is that what you know and what you intend are different but related things – you cannot promise to refrain from acting on knowledge you do not have.

When that knowledge later comes into your possession, you still have an opportunity to decide what to do. Your earlier statements or actions are not legally binding.

To balance the playing field, the Court is willing to impute knowledge of legal consequences where the representation is made after knowledge of  the full facts, whether you think about your intentions or not.

In the insurance context,  when an insurer defends a claim under a liability policy (somebody else suing an insured person), the Court says that the insurer is only saying that the claims made are the sort that fall within the available coverage. It is not a promise to pay the eventual judgment.

Even if a promise is made, the court says that merely continuing the law suit is not detrimental reliance, so the promissory estoppel claim would fail there as well.

In dissent, one judge disagreed with her colleagues, explaining that their decision was based on subjective knowledge – what a party says they actually know – versus an objective determination of what they appeared to know.

Why is this important?

Because if you decide to rely on someone else’s promise, it is likely that you do not know exactly what they actually know, but can make a pretty good guess what they probably or should know, since they are acting like they know.

The result is that the burden on you in deciding to rely on a promise becomes impossibly high. The unintended consequence of this decision may be to make every legal relationship, especially with insurers, more risky and complex.

This likely means that we will see more claims by injured parties against their own insurers for uninsured coverage, just in case. Other than making more work for lawyers, what is the good of that? It will make simple law suits slower, more expensive, and riskier. It will make complex lawsuits even more of a challenge.

This will apply in commercial or estate litigation just as much as insurance litigation; in Ontario as well as B.C.; in Thunder Bay as well as Toronto.

The Supreme Court may have made a technically sound decision here, but may have overlooked the law of unintended consequences.

Not every lawyer enjoys complex cases, or wants to face the risk of unintended consequences. At Weilers LLP, we love tough cases. We know about the importance of knowing the facts, as well as the law. Our litigation team includes the lawyer who teaches equity based courses at the Bora Laskin Faulty of Law, so we understand the complexities of the conflict between rules and fairness. Although we cannot protect every client from unintended consequences, if your case is complex, we may be the right lawyers for you.