Blog

27Jul, 17

A roll of the dice in the High Court came up trumps for Crown in the decision of Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd HCA 26.

Background

Two Crown restaurant tenants entered negotiations to renew their leases in early 2005. A condition of the lease, signed in November 2005, was that the tenants would undertake extensive refurbishment. Despite this, Crown only offered a 5-year term without a guaranteed renewal.

The tenants agreed to lease, despite the refurbishment costs.  Subsequently, the tenants were given notice to vacate at the expiration of their lease in 2010.

Claim

At first instance, the tenant’s VCAT claim alleged that, in the course of negotiations in 2005, agents of Crown made oral representations that they would obtain a renewal in exchange for the renovations.

The tenants claim was based on two grounds. Firstly, that the representations gave rise to a collateral contract obliging Crown to offer a renewal, or alternatively, a promissory estoppel which prevented Crown from acting in a manner contrary to their representation.

Despite looking unfavourably on the tenant’s Director’s evidence, VCAT accepted that a collateral contract could arise based on a note by a bank manager in attendance during negotiations stating the tenants ‘would be looked after’.  VCAT made an order for damages in the region of $1.5 million.

On appeal, the primary judge and the Court of Appeal found that no collateral contract was formed. However, the Court of Appeal remitted the matter back to VCAT to determine what relief could be given on the ground of promissory estoppel.

High Court decision

Crown appealed against the finding of a promissory estoppel to the High Court, with the tenants cross-appealing to reinstate the collateral contract. In ruling for Crown, the majority found that, as a question of law, the representation that the tenants ‘would be looked after’ did not have the quality of a contractual promise to renew the lease when the time came. Similarly, the High Court found that that statement was not clear and unambiguous enough to give rise to the reliance claimed by the tenants.

What does this mean?

  • Particularly for experienced commercial operators, parties to a contract should not rely on oral representations, but rather ensure they are included in the contract.
  • Despite the ruling, the court found that if a proprietary estoppel, or a promise to grant a proprietary interest had been argued, it would have been given further consideration. As such, contracting parties in a strong bargaining position should ensure representations are not made during negotiations which might give rise to a claim.

If you require any further advice please contact our team on 03 5445 3333.

Written by Jay Chandramohan, Solicitor at Beck Legal

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