Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd: "Collateral Contract" "Promissory Estoppel"

Wednesday 20 July 2016 @ 11.16 a.m. | Torts, Damages & Civil Liability | Trade & Commerce

In Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd & Anor [2016] HCA 26 (20 July 2016), the High Court of Australia has, in a majority decision, allowed an appeal from a decision of the Victorian Supreme Court of Appeal (see [2014] VSCA 353 (22 December 2014)) holding that the Court of Appeal had erred in its finding that ". . . a claim in estoppel was made out and in remitting the matter to the Victorian Civil and Administrative Tribunal (the VCAT) for further consideration, but was correct to conclude that there was no collateral contract".

Background to the Case

The appellant (the Crown Melbourne Ltd -  Crown) operates the Melbourne Casino and Entertainment Complex. In the period 1997 to 2005 the respondents (the tenants) operated two restaurants at the Casino Complex. Crown had wanted the tenants to undertake significant refurbishment of the two restaurant premises, and to rent them for a period of five years. The tenants in return sought a longer period of tenancy in light of the substantial financial outlay involved in refurbishing the premises. Following from lengthy negotiations the tenants signed leases which set the length of each lease at five years. On the expiry of the two leases, Crown opted not to renew the leases and the tenants vacated the restaurant premises. The tenants then sued Crown in the VCAT claiming the non-renewal of the leases was a breach of a "collateral contract" and alleging that Crown had told them that, if they, the tenants, entered into the leases and completely refurbished the restaurants at their expense, they would be ". . . looked after at renewal time".

The VCAT and the Victorian Supreme Court

The VCAT (see Cosmopolitan Hotel (Vic) Pty Ltd v Crown Melbourne Ltd (Retail Tenancies) [2012] VCAT 225) in its decision held that Crown had breached a collateral contract with the tenants and Crown then sought leave from the Supreme Court of Victoria to appeal that decision (see Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd & Anor [2013] VSC 614 (18 November 2013)). Justice Hargrave granted leave, and allowed the appeal, on the basis of his finding that the statements made by Crown were "representational" and not "promissory".

On Appeal - Supreme Court Victoria Court of Appeal

The tenants’ appealed the decision to the Victorian Supreme Court of Appeal (see Cosmopolitan Hotel (Vic) v Crown Melbourne Limited [2014] VSCA 353 (22 December 2014) see the decision Warren CJ, Whelan and Santamaria JJA) where the appeal was upheld by the Court of Appeal despite the Court’s finding that the trial judge was correct in finding that the statement was not promissory. The Court found that Crown was "estopped" from denying the existence of a "collateral contract".

The relevant principles were identified by Whelan JA at paragraph [197] (Santamaria JA agreeing) as being:

(a) a representation which is too uncertain to constitute a contractual obligation may found a proprietary or promissory estoppel;

(b) it is essential to show that the statement was of such a nature that it would have misled any reasonable man and that the person to whom the statement was made was in fact misled by it;

(c) if there is a "grey area’ in what is represented or promised, but it was reasonable for the representee to interpret it as extending at least to the lower limit of that "grey area" and to act in reliance on it as so understood, the Court should regard the representation or promise as sufficiently certain up to this lower limit;

(d) particular care needs to be taken to ensure that business people pursuing their commercial interests, who are fully aware of what is contractually agreed and what is not, do not have judges’ views of what is required by good conscience imposed upon their negotiated bargains; and

(e) where a representation is made and relied upon so that it is unconscionable for the representor to resile, prima facie equity will give relief which compels the representor to perform or make good what was represented, but this prima facie position is subject to the qualification that it is also necessary to do justice to the representor and to third parties who might be affected."

Their Honours noted (see Whelan JA at [198] and [197] for example) that neither VCAT nor the trial judge had addressed estoppel on the basis of the factual findings which VCAT had made but by reference to the "lower limit" of what was meant by "looking after" the tenants at renewal of the leases. A claim couched in those terms was within the case that was pleaded and put at VCAT but ". . . had never been adjudicated upon". As no submissions had been heard upon the claim formulated in that way, their Honours ordered that the matter be remitted to VCAT for determination of what equitable relief, if any, should be granted in respect of the tenants’ estoppel claim. 

The High Court Appeal

On appeal to the High Court of Australia, the key grounds of appeal were:

That the Victorian Supreme Court of Appeal erred in finding:

  • A promissory estoppel can be made out merely by proving the making of and resiling from an ambiguous representation, without the need to prove the way in which the representation was understood by the representee, whether that understanding was reasonable and whether that understanding was relied upon;
  • The statement that the respondents would be "looked after" at the time for the renewing of their leases was sufficiently clear and unequivocal to found a promissory estoppel, though not the promissory estoppel pleaded by the respondents;
  • In treating the promissory estoppel as operating at an undefined and undetermined "lower limit" of what was meant by "looking after" the tenants at renewal.

In respect of the above the respondents filed a cross-appeal, the key grounds of which were:

  • The Court of Appeal erred in holding that the appellant stated and identified as the subject matter of its appeal from the Tribunal to the Supreme Court any question or questions of law pursuant to Victorian Civil and Administrative Tribunal Act 1998 (Vic) section 148.

The Decision of the High Court

In making their decision, the majority of the High Court, held that the statement relied on by the tenants ". . . was not capable of giving rise to a collateral contract" or ". . . founding a claim for estoppel". Further, in respect of the estoppel claim, the tenants did not act on the basis of an expectation in the terms identified by the VCAT proceedings, namely, that the tenants would be offered further five year leases at renewal time on terms to be decided by Crown and therefore, there was also no utility in the order for remittal made by the Court of Appeal. 

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Sources:

Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd & Anor [2016] HCA 26 (20 July 2016) and High Court Proceedings Summary

Cosmopolitan Hotel (Vic) Pty Ltd v Crown Melbourne Ltd (Retail Tenancies) [2012] VCAT 225

Cosmopolitan Hotel (Vic) v Crown Melbourne Limited [2014] VSCA 353 (22 December 2014) 

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