In this case the Court of Appeal confirmed that estoppel by convention may arise in circumstances where the parties behaviour is the result of forgetfulness. The case concerned agreements covering pre-emption rights for the transfer of shares. However when shares were transferred, it appeared this was done without reference to the agreements. When a further transfer was proposed, this was then opposed by shareholders on the basis of the pre-emption rights under the agreements. The question thus arose as to whether there was a binding agreement in relation to the pre-emption rights.
At first instance, the court found that there was a binding agreement, but that Dixon could not enforce the rights because they were estopped by convention, based on a shared common assumption that there were no valid rights of pre-emption. The decision was appealed on the grounds that it was not possible to make an assumption of estoppel by convention where the parties were unaware that the rights in question existed. The appeal was dismissed, with the Court of Appeal stating that estoppel by convention was based on mutually manifest conduct based on a common but mistaken assumption of fact.
It confirmed that the principle was not confined to cases of mistake, and that a mistaken recollection was not legally different from a forgotten state of affairs. The essence of the principle was that the parties had behaved in a way that was different from the true basis, whether knowingly or unknowingly. It made no difference whether the true state of affairs had been misappreciated, misremembered or forgotten.
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