Restitution where an Anticipated Contract Fails to Materialise
| Date | 01 January 1996 |
| DOI | http://doi.org/10.1111/j.1468-2230.1996.tb02069.x |
| Published date | 01 January 1996 |
Restitution where an Anticipated Contract Fails
to
Materialise
Justin
Mannolini”
The problem
Following
a
tendering process, two parties enter into negotiations for
a
contract
which they both confidently expect will materialise. One undertakes preparatory
work
or
incurs expenses at the request of the other. But negotiations, through no
fault of either party, break down, and a binding contract is never formed.
The expenses,
or
remuneration for the work, clearly cannot be recovered
as
a
matter of contract law. Even if there was mala fides, English law does not formally
recognise
a
principle of culpa in contrahendo,
or
a duty of good faith owed by
parties to pre-contractual negotiations. The common law courts have afforded
parties substantial freedom in this respect.’ The request for the work to
be
done
or
the expense to be incurred might ground an equitable promissory estoppel,* were it
not for English law’s reluctance to allow that doctrine to be used as a sword, not
merely
a
~hield.~ Neither party
is
guilty of tortious conduct. Must the party
performing the work or incurring the expenses therefore bear the
loss,
or
can the
law of restitution be called in aid of recovery?
This was the question which confronted Rattee
J
of the Chancery Division in the
recent case of
Regalian Properties plc
&
Another
v
London Docklands
Development C~rporation.~
The
facts
In
1986,
Regalian commenced negotiations with the London Docklands
Development Corporation (‘LDDC’) for the development of land owned by
LDDC. Regalian tendered and LDDC accepted a proposal under which Regalian
would pay
518.5
million for a licence to build on the land as and when LDDC
obtained vacant possession. The agreement
was
at all times expressed and
understood by both parties to be ‘subject to contract’. Long delays subsequently
ensued, mostly owing to LDDC’s insistence on particular design standards, and to
its difficulties in obtaining vacant possession. During this time, Regalian incurred
considerable expenses in formulating proposals for the development, despite the
fact that
(as
it conceded at trial) it was aware that either party was at liberty to
*
Barrister
and Solicitor of the Supreme Court of Western Australia.
The author wishes
to
thank Graham Virgo and Michael Skene for their comments on an earlier draft of this
note.
1
Farnsworth, ‘he-contractual Liability and Preliminary Agreements: Fair Dealings and Failed
Negotiations’
(1987) 87
Colum.L.Rev
217, 217-221.
2
cf
Attorney-General
for
Hong
Kong
v
Humphreys Estate (Queens Gardens)
Ltd
[
19871
AC
114
(Privy
Council).
3
Combe
v
Combe
[I9511 2
KB
215.
Chitry
on
Contracts
(27th edn,
1994)
at
3467, 3-075.
Cf
Walton
Stores (Interstate)
Ltd
v
Maher
(1988) 76
ALR
513.
4 [I9951
1
WLR
212.
111
0
The
Modern
Law
Review Limited
1996
(MLR
591.
January).
Published by Blackwell Publishers,
108
Cowley Road, Oxford
OX4
1JF
and
238
Main
Smer.
Cambridge.
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02142.
USA.
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