Reaction Engines Ltd v BNP Paribas Depositary Services (Jersey) Ltd

Where a contract gives a party a clear right to rescind after a long-stop date, continuing to engage in efforts to achieve late performance does not, without more, amount to an equitable promise to refrain from exercising that right. A representation relied upon for equitable forbearance must be clear and unambiguous. The same conduct will not establish estoppel by convention unless it manifests assent to a shared assumption of fact or law. Participation in performance discussions may be consistent both with hoping for eventual performance and with retaining the contractual right to rescind.

The claimant sought summary judgment on its claim that a notice validly rescinded an agreement for lease. The agreement required the defendants to use reasonable endeavours to complete construction works and gave the claimant a right to rescind if practical completion had not occurred by the long-stop date.

Practical completion had not occurred by either the long-stop date or the date of the notice. The defendants relied on equitable forbearance and estoppel by convention, based on the claimant’s continuing participation in efforts to complete the works. The central issue was whether those matters gave the defendants a realistic prospect of establishing that the claimant was precluded from exercising its contractual right.

1. Summary judgment. The claimant was entitled to summary judgment on the validity of the notice. The court applied the agreed summary judgment principles: the defence had to have a realistic prospect of success, the court must avoid a mini-trial, and a short point of construction should be decided where the evidence and argument were sufficient.
2. Equitable forbearance. The doctrine requires a legal relationship, a clear and unequivocal promise or representation that strict rights will not be enforced, an intention that it be relied upon, actual reliance, and circumstances making it inequitable to withdraw. The contractual structure deliberately gave the claimant flexibility to continue hoping for late completion while retaining an immediate right to rescind before practical completion. Conduct showing that hope or involvement in construction discussions was therefore insufficiently clear to vary that balance.
3. The alleged qualification requiring reasonable notice while the defendants remained seriously engaged was uncertain. The defendants were already contractually obliged to continue using reasonable endeavours, so the claimant obtained little apparent benefit by making such a promise. The claimant’s solicitors’ letters expressly reserving the right to rescind at any time were inconsistent with the alleged representation and materially reinforced the conclusion that no clear promise had been made.
4. Estoppel by convention. This requires a shared assumption as to fact or law, potentially concerning a future state of events. The defendants’ case identified an alleged assurance about future conduct rather than a shared assumption. In any event, the claimant’s conduct did not cross the line into assent to a common assumption that its right to rescind had been limited or deferred.
5. Both defences consequently had no realistic prospect of success. Summary judgment was granted for the claimant on the issue of whether the notice validly exercised the right under clause 6.3.2.