Most lawyers remember Central London Property Trust Ltd. v. High Trees House Ltd. [1947] 1 KB 130. It was the case that introduced ‘reliance’ into contract law. That is to say, it was where Denning J. ignored the old rule of common law (that an agreement under seal could not be changed by anything except another contract), and came to a perfectly reasonable decision on the exact facts he was dealing with.
High Trees was a closely held subsidiary of Central. Why is this fact important? Because a loose agreement entered into between two related corporations can be interpreted more liberally (i.e. an ideal place to impose ‘reliance’). It is easy to appreciate that the parent would relax the conditions upon the subsidiary. It is easy to appreciate that the subsidiary would immediately be prepared to snap back to attention when the parent called upon the subsidiary to do. no need for much paper.
Central built a housing block in London in 1937. High Trees leased the block from the parent on the premise of renting them out and paying the parent from the gross rent revenues.
The onset of the war meant that the houses were largely vacant. High Trees could not pay the lease to Central. The corporations had some discussions (1941) and agreed in a letter to require only half the rent from High Trees. This was not a new contract. This was not a new lease. There was no consideration coming from High Trees to Central. The previous contract was under seal.
Central itself went into receivership in 1941. By 1945, the receiver realized that High Trees had not been paying the proper lease amount. High Trees claimed estoppel. This was a shield which Denning erected against Central (notwithstanding that there had been no consideration).
Denning said more. He read into the 1941 relaxation letter the idea that the rent-waiver was merely for the period of the war and not for the full 99 years of the lease (which High Trees tried to brazen out).
High Trees comes to Canada
The most important supreme court of Canada case to apply High Trees is Conwest Exploration v. Letain [1964] SCR 20, where Conwest acquired certain mining options from Letain (1955), upon condition that Conwest carry out an incorporation by October 1 1958.
The plan was that Letain would own 50,000 shares in the new company in return for having granted the mining options to Canwest.
Between the time of acquiring the mining options (1955) and the required incorporation of a new company (to own the mining claims) (1958), Letain sought a loan from Conwest.
Conwest said yes, but Canwest wanted 13,000 of Letain’s 50,000 future shares on the yet to be incorporated company. Letain said, no problem and went further and offered a share purchase option to Conwest for the remaining 37,000 Letain shares in the yet-to-be incorporated corporation.
Conwest said yes,
So the state of the world was that there were two agreements:
Agreement #1: Conwest held mining options which were to be transferred to a newly created company of which Letain was to own 50,000 shares.
Agreement #2: Conwest held all of Letain’s shares in a share option agreement which was part of the loan that Conwest had provided to Letain.
On September 25, 1958 the new company was incorporated with letters patent. Conwest invited Letain to put his name on the company. Letain agreed. These instructions were communicated to the corporations registry for processing. Then Letain changed his mind and said no, he didn’t want his name on the company.
The name-issue caused a delay in getting the September 25 1958 letters-patent sealed and issued until October 25, 1958.
So did Conwest breach the contractual requirement of incorporation by October 1 1958?
The SCC majority used High Trees to say the following:
I am also of the opinion that Letain, by his intervention in the incorporation of the company before October 1, 1958, and continuing after that date, provided Conwest with an equitable defence against a claim for the re-transfer of the claims under option and the transfer of the claims staked by Conwest. By acting as he did in signing the consent to the use of his name and the declaration of substantial interest on October 7th, together with his retention of the $18,000 paid for the shares in this proposed company, Letain represented to Conwest that he was satisfied with what was being done as performance of the contract and he knew that Conwest would act and was acting upon his representation. But for this representation, Conwest could have given him the kind of performance to which he now says he is entitled. I think that this brings the case within the principle which appears to have originated in the judgment of Lord Cairns in Hughes v. Metropolitan Railway Co. [(1877), 2 App. Cas. 439.]. There was an unambiguous representation of intention made by Letain which was intended to be acted upon and was acted upon by Conwest, with the result that Conwest’s position in relation to Letain was prejudiced if Letain’s interpretation of what constituted performance under this contract is correct. The principle is stated in the following terms:
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- It is the first principle upon which all courts of equity proceed, that if parties, who have entered into definite and distinct terms, involving certain legal results — certain penalties or legal forfeiture — afterwards by their own act or with their own consent, enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable, having regard to the dealings which have thus taken place between the parties.
There was a recognition of this type of equitable defence in the judgment of Duff C.J. in Pierce v. Empey [ [1939] S.C.R. 247 at 252, 4 D.L.R. 672.], and without going into detail, it does not seem to me that the recent interest in England in this subject-matter, beginning with Central London Property Trust Ltd. v. High Trees House Ltd. [[1947] K.B. 130], has done anything more than to restate the principle.
Takeaway #1: the SCC identifies the High Trees shield principle already existing in Canadian law, predating High Trees.
Takeaway #2: as a matter of corporate law, Letain held no share interest in the new entity as of October 1 1958, having optioned away his entire interest. Having no interest can he complain about the October 1 1958 non-performance? No.
