Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

JUDICIAL REVIEW AND APPEALS LIST

S CI 2013 01128

CROWN MELBOURNE LIMITED (ACN 006 973 262)	Applicant
v
COSMOPOLITAN HOTEL (VIC) PTY LTD (ACN 115 145 198)	First Respondent
and
FISH AND COMPANY (VIC) PTY LTD (ACN 115 145 134) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT)	Second Respondent

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JUDGE:	HARGRAVE J
WHERE HELD:	Melbourne
DATE OF HEARING:	18, 19 and 20 September 2013
DATE OF JUDGMENT:	18 November 2013
CASE MAY BE CITED AS:	Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd & Anor
MEDIUM NEUTRAL CITATION:	[2013] VSC 614

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APPEAL – Leave to appeal – Victorian Civil and Administrative Tribunal – Whether leave to appeal should be granted – Whether some appeal grounds questions of fact or law – Victorian Civil and Administrative Tribunal Act 1998 (Vic), s 148; Department of Premier and Cabinet v Hulls [1993] 3 VR 331; Roads Corporation v Dacakis [1995] 2 VR 508; Astvilla Pty Ltd v Director of Consumer Affairs [2006] VSC 298.

CONTRACT – Collateral contract – Whether collateral contract requiring landlord to offer to renew leases for a further term – Whether leases were in force prior to statements comprising alleged collateral contract were made – Whether statements were sufficiently promissory to found a collateral contract – Whether any collateral contract was illusory or too uncertain to be enforceable – Appeal allowed – Statements not promissory in character and any collateral contract illusory and void for uncertainty – York Air Conditioning and Refrigeration (A/sia.) Pty Ltd v Commonwealth (1949) 80 CLR 11; Thorby v Goldberg (1964) 112 CLR 597; Godecke v Kirwan (1973) 129 CLR 629; Powell v Jones [1968] SASR 394; Whitlock v Brew (1968) 118 CLR 445; Placer Development Ltd v The Commonwealth (1969) 121 CLR 353.

CONTRACT – Collateral contract – Whether alleged collateral contract inconsistent with main contract by limiting discretion conferred in main contract on one party – Appeal allowed – Collateral contract inconsistent and unenforceable – Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133; Maybury v Atlantic Union Co Ltd (1953) 89 CLR 507.

ESTOPPEL – Equitable estoppel – Whether tenants’ assumption as to offer of further lease terms was a reasonable understanding of the landlord’s statements – Appeal allowed – Assumption not the result of reasonable understanding by tenants of landlord’s statements – Lessor not estopped from denying existence of collateral contract – Walton’s Stores (Interstate) Ltd v Maher (1998) 164 CLR 387; Accurate Financial Consultants Pty Ltd & Anor v Koko Black Pty Ltd & Ors [2008] VSCA 86; Sullivan v Sullivan [2006] NSWCA 312.

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APPEARANCES:	Counsel	Solicitors
For the Applicant	Mr N Hopkins SC with Mr B Jellis	Minter Ellison
For the Respondents	Mr M Pearce SC with Mr R Haye	Mills Oakley

TABLE OF CONTENTS

Were the statements made?.............................................................................................................. 7

Were the leases in force before the statements were made?....................................................... 9

Were the statements promissory in character?............................................................................ 14

If promissory, what were the terms of any resulting collateral contract?.............................. 17

Was any collateral contract sufficiently certain to be enforceable?........................................ 18

If sufficiently certain, was the collateral contract consistent with the leases?...................... 31

If the collateral contract was otherwise valid, was it unenforceable by reason of s 126 of the Instruments Act 1958 (Vic)?................................................................................................................................... 32

If the collateral contract was unenforceable for any reason, was Crown nevertheless estopped from so contending?....................................................................................................................................... 32

If the tenants have established an entitlement to damages, what is the measure of their loss? 38

From what date should interest run?............................................................................................ 38

Conclusion......................................................................................................................................... 38

HIS HONOUR:

The applicant for leave to appeal, Crown Melbourne Limited, owns the Melbourne Casino and Entertainment Complex at Southbank. The Complex includes several restaurants. From the time the Crown Complex was opened in 1997 until 31 August 2010, companies of which Nicholas Zampelis was a director operated two riverfront restaurants at the Complex: ‘Café Greco’ and ‘Waterfront’.

From 1 September 2005, Café Greco was operated by Cosmopolitan Hotel (Vic) Pty Ltd, the first respondent, and Waterfront was operated by Fish and Company (Vic) Pty Ltd, the second respondent (collectively ‘the tenants’). Prior to that time, other companies controlled by Mr Zampelis had been the lessees of the two restaurants. Their leases had expired at the end of May 2005, and they then continued in occupation as overholding tenants from month to month until further leases to the respondents, for a period of five years each, came into operation.

The further leases were each constituted by a deed of lease expressed to operate from 1 September 2005. In fact, the leases were executed by the tenants in November 2005 and, although the tenants informed Crown that they had executed the leases, the original signed deeds were not delivered to Crown until 18 March 2006.

Neither lease contained an option to renew. Instead, clause 2.3(a) of each lease contained a provision in the following terms:

2.3At least 6 months, but no more than 12 months before the Expiry Date [31 August 2010], the Landlord must give notice to the Tenant stating whether:
(a)the Landlord will renew this Lease, and on what terms (this may include a requirement to refurbish the Premises or to move to different premises …);
(b)the Landlord will allow the Tenant to occupy the Premises on a monthly tenancy after the Expiry Date; or
(c)the Landlord will require the Tenant to vacate the Premises by the Expiry Date.

By clauses 3.1 and 3.2 of the leases, any offer to renew under clause 2.3(a) would remain open for a period of 60 days. There was no requirement in either lease that Crown should act reasonably, or in accordance with any agreed criteria, in stipulating the terms of any offer to renew the lease under clause 2.3(a). The terms were left entirely at Crown’s discretion, including as to the identity of the premises within the Crown Complex, the rent to be paid, and whether and to what extent the tenant was required to refurbish the premises.

Each of the leases also contained terms requiring the tenants to undertake major refurbishment works at their respective restaurants. Those refurbishment works were to be performed at the beginning of the leases, with a view to completion before the Commonwealth Games to be held in Melbourne during 2006. These refurbishment works were expensive, ultimately costing Cosmopolitan about $1.8 million and Fish and Company about $2.85 million to complete.

In the context of the requirement for major refurbishment works, the tenants contended in discussions with Crown, before and after they executed the leases, that they should have 10 year lease terms, or at least an option to renew the leases for a further five year period, so as to give them enough time to recoup the cost of the major refurbishments they were about to undertake. In this context, the tenants withheld physical delivery to Crown of the executed leases while seeking Crown’s agreement to, or assurances in respect of, an extended term or an option to renew the leases. They also delayed commencement of the refurbishment works.

The tenants contended that Crown gave them oral assurances concerning further terms before the tenants either delivered the executed leases to Crown or commenced the major refurbishment works. Crown denied that any such oral assurances were given.

In accordance with clause 2.3(c) of the leases, Crown delivered notices requiring the tenants to vacate the premises at the end of the leases. The tenants did so and are now in voluntary administration.

The tenants sued Crown in the Victorian Civil and Administrative Tribunal, relying upon its exclusive jurisdiction concerning disputes involving retail tenancies. In summary, they alleged that Crown stated to them in December 2005, before they had commenced the major refurbishment works or delivered the executed deeds of lease to Crown, that if they performed the major refurbishment works they ‘would be looked after with a further term’. On this basis, they alleged a collateral contract under which Crown promised them that, if they entered into the leases, Crown would exercise its power under clause 2.3(a) of the leases and offer to renew them for a further five year term on the same terms. In final submissions before the Tribunal, senior counsel for the tenants acknowledged that the collateral contract could not be to offer a renewed lease on precisely the same terms, and submitted that the collateral contract contended for should be understood as requiring Crown to offer renewed five year leases on the same terms mutatis mutandis to account for the change in circumstances – including, for example, a new commencing rental and other (less onerous) provisions concerning refurbishment.

Following a nine day trial in 2011, a senior member of the Tribunal decided in favour of the tenants. In summary, the Tribunal decided that a Crown employee, David Boesley, stated to Mr Zampelis on or about 6 December 2005 that: (1) the reason Crown had specified five year lease terms was to make the leases align with those of other tenants in the Complex; (2) Mr Zampelis should, on behalf of the tenants, spend money on refurbishment that would result in a high quality finish for the two restaurants; and (3) if that was done, the tenants ‘would be looked after when the time came for Crown to consider renewing the leases’.[1]
[1]Cosmopolitan Hotel (Vic) Pty Ltd & Anor v Crown Melbourne Ltd & Ors (Retail Tenancies) [2012] VCAT 225 [118](24 February 2012) (‘Reasons’).

On the basis of these factual findings, the Tribunal turned to consider whether the collateral contract contended for had been established and, if so, whether it was enforceable. The Tribunal concluded that the statements were promissory in character and were relied upon by the tenants in deciding to enter into the leases; that a collateral contract resulted, requiring Crown to give a notice under clause 2.3(a) of the leases offering to renew the leases for five years on whatever terms Crown saw fit to stipulate; that the collateral contract was sufficiently certain to be enforceable; that the collateral contract was not unenforceable by reason of inconsistency with the express terms of clause 2.3 of the leases or for want of compliance with s 126 of the Instruments Act 1958 (Vic); that if the collateral contract was unenforceable by reason of s 126, Crown was estopped from so contending; that the collateral contract was breached when Crown served its notices under clause 2.3(c) of the leases; and that the tenants were accordingly entitled to recover damages equivalent to the profits they would have respectively made under hypothetical renewed leases for five years. Losses were assessed at $467,505 for Cosmopolitan and $1,143,167 for Fish & Co, plus interest from the commencement of the proceedings in the Tribunal.

Crown seeks leave to appeal under s 148 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic), which allows appeals from the Tribunal on questions of law only – and then only with leave. In determining whether leave should be granted, the general principles to be applied were summarised by the Court of Appeal in Department of Premier and Cabinet v Hulls:[2]

There is an obvious danger in seeking to summarise the considerations which bear upon the granting of leave to appeal. Ultimately what must govern is the justice of the case as it appears to the court from which leave to appeal is sought, and that means justice to all parties, not just the applicant. As I said at the outset, it is not appropriate for us to do any more than lay down guidelines and any guidelines will sometimes be found inadequate; but with that rider, the foregoing might be summarised along the following lines. When leave is sought to appeal under s 148, it will be necessary for the applicant to identify a question of law which is relevant to the granting of the relief sought on appeal. The importance of the question, either generally or to the would-be appellant in the particular case, will probably be relevant. The applicant must show that there is a real or significant argument to be put on that question of law at least to this extent: that there is sufficient doubt about it to justify the grant of leave. Moreover, it may have to be shown that to allow the error to go uncorrected would impose substantial injustice, although, where the order below is final, that injustice will often be more readily discernible.[3]

[2][1999] 3 VR 331.

[3]Ibid 337 (Phillips JA, Tadgell and Batt JJA agreeing).

The tenants seek leave to cross-appeal. The parties agreed that the applications for leave and the appeals, if leave is granted, would be heard together.

By its draft notice of appeal, Crown seeks to challenge each of the Tribunal’s principal conclusions as summarised above. By their draft notice of cross-appeal, the tenants seek to challenge the basis on which the Tribunal assessed their damages; if that challenge fails, they seek to challenge a discrete factual issue in the Tribunal’s damages assessment; and, in any event, they seek to challenge the time from which interest should run on damages. The tenants also filed a notice of contention, seeking to uphold the Tribunal’s decision on grounds of equitable estoppel.

If leave were to be given on all grounds of appeal and cross-appeal, the following issues would arise for determination:

(1) Were the statements made?

(2) Were the leases in force before the statements were made?

(3) Were the statements promissory in character?

(4) If promissory, what were the terms of any resulting collateral contract?

(5) Was any collateral contract sufficiently certain to be enforceable?

(6) If sufficiently certain, was the collateral contract consistent with the leases?

(7) If the collateral contract was otherwise valid, was it unenforceable by reason of s 126 of the Instruments Act 1958 (Vic)?

(8) If the collateral contract was unenforceable for any reason, was Crown nevertheless estopped from so contending?

(9) If the tenants have established an entitlement to damages, what is the measure of their loss?

(10) From what date should interest run?

Were the statements made?

By their grounds of appeal, Crown contends that the Tribunal erred in law in finding that the statements set out in paragraph 11 were made by Mr Boesley to Mr Zampelis on or about 6 December 2005. Crown contends that there was no probative evidence led on which such a finding could be made, and that the Tribunal erred in finding, as a compromise between the witnesses’ conflicting evidence, that a version of words different from each of the witnesses’ accounts was said by Mr Boesley.

I do not accept Crown’s contention. It is only where there is no evidence to support a factual finding that the finding may amount to an error of law.[4] This is not such a case.
[4]Roads Corporation v Dacakis [1995] 2 VR 508, 517-8.

The Tribunal’s finding was based upon – and in largely the same words as – a handwritten note made by Zampelis’s banker, Mr Darren Craig, on a copy of the ‘Waterfront’ lease in the weeks after the meeting in December. Mr Craig’s note stated:

whilst this is a 5 year term this is standard for Crown and aligns with other venues. Have however been with Nick at several meetings when discussions have confirmed that further terms will be provided as they have in the past. David Boesley (Crown) was talking to Nick one time and intimated that fit out should be high quality as this would reflect well and not to worry as he would be looked after at renewal time. So he should complete fit-out with this in mind and not scrimp on finishing to save a few dollars just because of the lease term. Nick has also advised that he has had such conversation with Nick Wiliams and others so this should give bank comfort for longer term.

The Tribunal relied on the note as it was reasonably contemporaneous and thus likely to be a more reliable account of the conversation than an account given in a witness statement or in oral evidence by the participants in the December conversation.[5] The Tribunal also found that Mr Craig’s evidence about the conversation, to the extent that it was supported by the note, was broadly accurate.[6]

[5]Reasons [83].

[6]Ibid.

Crown sought to meet the probative value of Mr Craig’s note by the following contentions:

(1) The note recorded that Mr Boesley ‘intimated’, in contradistinction to ‘said’, that Mr Zampelis would be ‘looked after’. Crown contends that the word ‘intimated’ has a variety of connotations, such as using body language or gestures, and does not necessarily mean that Mr Boesley said the words ‘looked after at renewal time’.

(2) None of the participants in the December conversation, including Mr Craig, gave oral evidence in substantively the same terms as the note. In particular, Mr Craig’s oral evidence suggested a different set of words were used, namely ‘it will all be all right’.

(3) The Tribunal was critical of the evidence of Mr Zampelis and Noel Robertson, Mr Zampelis’s builder, regarding the conversation, and regarded Mr Boesley as an honest and careful witness. Notwithstanding this, it did not accept Mr Boesley’s denial of the statements.

These contentions undoubtedly have some real force, but they amount to no more than a challenge to a factual finding based on the weight of the evidence.

This case is analogous to that considered by Bell J in Astvilla Pty Ltd v Director of Consumer Affairs,[7] a case concerning an appeal against a Magistrate’s finding that certain misrepresentations were made by a real estate agent to the purchaser of a house. It was contended that the Magistrate made an error of law by finding that a representation, which was not within the pleading and did not conform or correspond with the evidence of the main witness, had been made. Bell J observed that, in such circumstances:

[t]he function of the Court is to determine whether there was any evidence upon which the magistrate could have made the finding, which excludes an appeal on the ground that the finding was against the evidence and the weight of the evidence.[8]

[7][2006] VSC 289.

[8]Ibid [70] citing Transport Accident Commission v Hoffman [1989] VR 197, 199.

Although Bell J found that there was no evidence corresponding with the precise terms of the Magistrate’s findings, his Honour found that the substance of the findings (including certain ‘reasonable inferences’) was supported by evidence and, therefore, that the findings were not made in error of law.

In my opinion, the Tribunal’s finding as to the statements made by Mr Boesley was open on the evidence and is therefore not amenable to appeal. The Tribunal weighed up the evidence of each witness, including their credibility, and took into account Crown’s various contentions as to the improbability that the statements were made.[9] Taking the evidence as a whole, the Tribunal found that the issue of a further lease term was discussed during the December conversation, and some sort of statement was made by Mr Boesley. Given that the conversation had taken place five years earlier, it was open to the Tribunal to place primary reliance on Mr Craig’s reasonably contemporaneous note as the most reliable account of the conversation.
[9]Reasons [70], [76], [80], [81], [83].

No question of law is involved. Leave to appeal on this ground is refused.

Were the leases in force before the statements were made?

Crown contends that the tenants were already bound by the leases before the statements were made. Crown contends that this is fatal to the tenants’ case, because the consideration for a collateral contract of the kind postulated is the making of the main contract – in this case, the leases. The collateral contract could, therefore, only arise if it was made before the leases became binding and enforceable.

The tenants contend that no legal error was made by the Tribunal concerning this issue and that, therefore, the Tribunal’s determination that the leases did not become binding and enforceable until after the statements were made was a question of fact which is not susceptible to appeal.

In order to consider the rival submissions, it is necessary to set out the Tribunal’s factual findings which are relevant to this issue. In summary, the Tribunal found the following facts:

(1) On 11 May 2005, Mr Boesley sent comprehensive summaries of the terms and conditions of the proposed new leases to Mr Zampelis, including proposed terms of five years and a requirement for major refurbishment. The summaries did not constitute an offer to lease.[10]
[10]Ibid [44].

(2) On 29 June 2005, Mr Boesley sent an email to Mr Zampelis, stating that he had approval in principle to Mr Zampelis’s concept proposals for major refurbishment works, that the new leases would commence on 1 September 2005, and that Crown required the refurbishment to be completed and trading to commence by 1 December 2005. Mr Zampelis was asked to confirm that he was ‘in full agreement with this conditional plan of action’. On 22 July 2005, Mr Zampelis sent an email to Mr Boesley confirming ‘our acceptance of your offer unconditionally’.[11]
[11]Ibid [46].

(3) During August, Crown sent formal offers to lease to the tenants.[12]
[12]Ibid [48].

(4) On 23 August 2005, Crown delivered rental invoices to the tenants for rent accruing in advance from 1 September 2005.[13] The rental notices were for the new rentals under the proposed new leases and were addressed to the tenants, rather than their predecessor companies who were at that time over-holding under the previous leases. The rent was paid by the tenants. So, by 1 September 2005, the previous tenants had ceased overholding and the tenants commenced occupation – even if only as monthly tenants.
[13]Ibid [47].

(5) On 1 September 2005, Crown delivered up possession to Fish & Co of the premises between Café Greco and Waterfront that had previously been occupied by a business called ‘La Perla’. Under the new leases, the La Perla premises would become part of the premises let to the tenants.[14]
[14]Ibid [47].

(6) On 2 September 2005, Crown’s solicitors sent unexecuted leases to the tenants for them to execute.[15]
[15]Ibid [48]. The Tribunal described these as ‘draft leases’, but they were in fact execution copies.

(7) During September, October and November 2005, there were discussions between Mr Zampelis and representatives or purported representatives of Crown, during which Mr Zampelis contended he was given assurances that the leases would be renewed when they expired.[16] The Tribunal did not accept Mr Zampelis’s evidence in this regard.[17]
[16]Ibid [49], [50], [96], [98]-[100], [104], [107]-[108], [111]-[112], [113], [119].
[17]Ibid [96], [106], [108], [112], [116], [120].

(8) Mr Zampelis signed the leases on behalf of the tenants on 3 November 2005 at latest, when Mr Zampelis’s personal assistant, Katherine Marmaras, emailed Mr Boesley and told him the leases had been signed.[18]
[18]Ibid [51].

(9) During November 2005, the tenants commenced refurbishing the La Perla premises.[19]
[19]This evidence is contained in paragraph [119] of Mr Boesley’s witness statement. It was not the subject of an express finding of fact by the Tribunal, but Mr Boesley was treated by the Tribunal as a witness of truth and there was no contrary evidence.

(10) In November 2005, the tenants forwarded the executed leases to their bank, National Australia Bank, to support the tenants’ or Mr Zampelis’s application for bank finance.[20]
[20]Reasons [157], [166].

(11) In late November 2005, there was an exchange of emails between Mr Boesley and Mr Zampelis’s personal assistant Katherine Marmaras. Mr Boesley demanded that the executed leases be returned immediately and threatened that Crown would lease the restaurants to other restaurateurs unless this demand was met. Ms Marmaras responded by stating ‘the lease documentation is with our Bank’.[21]

(12) On 3 March 2006, as the major refurbishment works neared completion and the re-opening of the restaurants approached, Mr Boesley gave Mr Zampelis an ultimatum. He would not be allowed to re-open the restaurants and trade unless the tenants signed and returned the leases. It was this ultimatum which prompted Mr Zampelis to hand the signed leases to Crown on 7 March 2006.[22]

(13) Mr Zampelis delayed handing over the signed leases in the hope that he could get written confirmation of a further five year term. Mr Boesley’s ultimatum caused him to hand them over when he did on 7 March 2006, but the December statements were ‘the reason for his having handed them over at all’.[23]

[21]Ibid [52].

[22]Ibid [90], [150].

[23]Ibid [152], [153].

In the context of these factual findings, the Tribunal considered when and how the tenants became bound by the leases. Crown contended before the Tribunal that the leases became binding as soon as Mr Zampelis signed them on behalf of the tenants, by 3 November 2005 at latest. In addition to the act of signing the leases, Crown relied upon the other factual matters listed above which support an inference that the tenants communicated their acceptance of the terms of the leases before the statements were made.

The Tribunal considered the law as to delivery of a deed, so as to make it binding. Crown does not contend that the Tribunal misstated the law. The Tribunal held that each of the leases had been properly executed as a deed by 3 November 2005,[24] and summarised the legal requirement for delivery as being ‘the time when the [tenants], by their acts or words, demonstrated that they intended to be bound by them.’[25]
[24]Ibid [163].
[25]Ibid [164], citing Xenos v Wickham (1866) LR 2 HL 296, 312; Vincent v Premo Enterprises (Voucher Sales) Ltd [1969] 2 QB 609, 619.

The Tribunal determined that the leases were not ‘delivered’ by the tenants to Crown until 7 March 2006, for the following reasons:

166The only evidence that might have pointed towards an intention to be bound earlier than the date of the handing over of the leases to Crown is the evidence of the applicants having sent the leases to National Australia Bank soon after Mr Zampelis had signed them. They did that for the purpose of supporting an application for finance. In my view the act of sending them for that purpose does not demonstrate that the applicants intended to be bound by them. The act is consistent with an intention merely to inform the bank of the liabilities that the applicants were going to incur once the leases were entered into. I add that it is not clear from the evidence whether what the applicants sent to the bank were the original executed instruments or merely copies of them. If the applicants had sent copies to the bank but had retained the originals, any argument that the applicants had thereby evinced an intention to be bound would be so much the weaker.
167In my opinion the proper conclusion from the evidence is that the applicants evinced an intention to be bound by the leases when, but only when, the executed leases were handed over to Crown on 7 March 2006. Delivery occurred on that date. There is no room for the operation of the rebuttable presumption because more evidence is available about the applicants’ relevant acts than simply evidence of the circumstances of execution of the leases.
168I find that the applicants entered the leases, by delivering them to Crown on 7 March 2006, in reliance upon the collateral promise that I have found that Crown made.[26]

[26]Reasons [166]-[168].

It was submitted on behalf of the tenants that, in the absence of any legal error being pointed to, this conclusion involved a finding of fact only, which cannot be challenged on appeal from the Tribunal under s 148 of the Act. Crown countered that submission by emphasising that the Tribunal limited its consideration of the relevant facts to the circumstance that the tenants sent the leases to their bank soon after Mr Zampelis had signed them. But it is clear from the Reasons as a whole that the Tribunal considered other matters relied upon by Crown, in particular that the tenants had taken possession of ‘La Perla’ on 1 September 2005, paid rent after 1 September 2005 under the terms of the leases and commenced refurbishment of the La Perla premises in November 2005, all of which occurred before the statements were made. [27] In my opinion, even though, in light of these other matters, I would probably not have reached the same conclusion, the Tribunal’s finding in this regard was a finding of fact open to it and is not amenable to appeal.
[27]Ibid [156].

Even if the Tribunal did not take every relevant fact into account in reaching its conclusion, this would not result in an error of law. For the Tribunal to have erred in law, there must have been no evidence upon which it could reasonably rely to support its conclusion.[28] Given that this Court has found that there was some evidence upon which the Tribunal could rely, the question whether the Tribunal had considered or attached insufficient weight to other relevant evidence is a question of fact upon which there is no appeal to this Court. As Batt J observed in Roads Corporation v Dacakis, Australian courts with appellate jurisdiction ‘have on the whole set their face against allowing questions of fact to be dressed up as questions of law, and have thus rejected appeals on such questions as whether a particular decision was against the evidence and the weight of evidence’.[29]
[28]Roads Corporation v Dacakis [1995] 2 VR 508, 517-8.
[29]Ibid [517].

Leave to appeal on this ground is refused.

Were the statements promissory in character?

Crown seeks to challenge the Tribunal’s finding that the statements constituted a promise. The Tribunal stated:

I think it is clear that the crucial statement that I have found that Crown, through Mr Boesley, made was promissory in character. In part, the statement was that Mr Zampelis would be looked after when the time came for Crown to consider renewing the leases. It was not a statement of present fact, or of present intention, or of opinion. It was a statement about what Crown would do in future. It was a promise.[30]

[30]Reasons [133].

The tenants accept that this ground raises a question of mixed fact and law, but submit that there was no error in the Tribunal’s approach.

The applicable law was summarised by Gibbs CJ in Hospital Products Ltd v United States Surgical Corporation,[31] where his Honour stated:

… the question whether the representation creates a binding contractual obligation depends on the intention of the parties. In J. J. Savage & Sons Pty. Ltd. v. Blakney and Ross v. Allis-Chalmers Australia Pty. Ltd., it was said that a statement will constitute a collateral warranty only if it was "promissory and not merely representational", and it is equally true that a statement which is "merely representational" — i.e., which is not intended to be a binding promise — will not form part of the main contract. If the parties did not intend that there should be contractual liability in respect of the accuracy of the representation, it will not create contractual obligations. […] The intention of the parties is to be ascertained objectively; it "can only be deduced from the totality of the evidence": Heilbut, Symons & Co. v. Buckleton. In other words, as Lord Denning said in Oscar Chess Ltd. v. Williams:
The question whether a warranty was intended depends on the conduct of the parties, on their words and behaviour, rather than on their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice.

The intelligent bystander must however be in the situation of the parties, for "what must be ascertained is what is to be taken as the intention which reasonable persons would have had if placed in the situation of the parties": Reardon Smith Line v. Hansen-Tangen. [32]

[31](1984) 156 CLR 41.

[32]Ibid 61 (citations omitted).

The ‘totality of the evidence’ in the present case required consideration of a number of factual findings made by the Tribunal, which do not appear to have been factored into the Tribunal’s finding that the statements were promissory. These factual findings include at least the following, some of which have already been referred to:

(1) In October and November of 2004, before the expiry of the previous leases, Mr Boesley wrote to the tenants to enquire about their intentions to enter new leases, and specifying terms on which Crown would allow a holding-over.[33]
[33]Reasons [42].

(2) When, by email in reply dated 8 November 2004, Ms Marmaras suggested that Crown had represented to the tenants that they would have a further term under the previous leases, Mr Boesley expressly denied any such representation by email dated 10 November 2004.[34]
[34]Ibid.

(3) On 11 May 2005, when the time came to negotiate terms of the leases, Mr Boesley sent ‘comprehensive summaries of the terms and conditions of proposed new leases’ to the tenants, including the five year term and major refurbishment clause.[35]
[35]Ibid[44]. The Tribunal expressly rejected Mr Zampelis’s allegation that he had a conversation with Mr Boesley at this time during which Mr Boesley promised that the tenants would ‘get the full ten years’: at [95].

(4) On 29 June 2005, Mr Boesley informed Mr Zampelis by email that his concept proposals for refurbishment of the restaurants had been approved ‘in principle’, and sought confirmation from Mr Zampelis that he would accept the proposed terms under the new leases.[36]
[36]Ibid [46].

(5) Mr Zampelis replied by email to Mr Boesley on 22 July 2005, confirming the tenants’ ‘acceptance of your offer unconditionally’. That offer was for two five year leases, with no right of renewal, each commencing on 1 September 2005, under which major refurbishment works were to be completed and trading was to commence by 1 December 2005. [37]

(6) By email dated 3 November 2005, Ms Marmaras advised Mr Boesley that the leases had been signed.[38]

(7) On 23 November 2005, Mr Boesley sent an email to the tenants demanding that the executed leases be returned to Crown and threatening to lease the restaurants to other restaurateurs if this was not done.[39]

[37]Ibid.

[38]Ibid [51].

[39]Ibid [52].

These and other findings disclose commercial negotiations between parties experienced in commercial leasing, where important matters were documented. Against that background, I do not consider that a reasonable person in the position of the parties would have understood Mr Boesley’s statements as a promise by Crown to take any particular action. In my opinion, as the Tribunal stated elsewhere with respect to other statements by Mr Boesley, these critical statements were merely ‘some vaguely encouraging words from Mr Boesley about the strength of the parties’ relationship and Crown’s willingness to see the restaurants prosper beyond the end of the five year term’.[40] In the context of hard-nosed commercial discussions, against the background of clear lease terms denying any option to renew, the statements were merely representational. They contained nothing which a reasonable businessman in Mr Zampelis’s position could reasonably understand as a promise to do anything certain.
[40]Ibid [96].

I would grant leave to appeal and allow this ground of appeal.

If promissory, what were the terms of any resulting collateral contract?

The Tribunal found that the statements would have been understood by a reasonable person in the position of the parties as a promise by Crown to the effect that Crown would make an offer to the tenants under clause 2.3(a) of the leases to renew each lease for a further five year term,[41] with Crown having complete freedom to dictate all other terms and conditions of the renewed leases; including, if Crown wished, ‘terms and conditions which, intentionally or unintentionally, were so onerous that the tenant would be compelled not to accept them’.[42]
[41]Ibid [135].
[42]Ibid [139], [141].

For the same reasons that Mr Boesley’s statements were not promissory, the Tribunal’s reasoning as to the terms of any collateral contract arising from those statements cannot be sustained. The words used by Mr Boesley were too vague to found any objectively reasonable understanding to the effect found, and Mr Zampelis did not give evidence that he understood the statements in that sense. If promissory, the statements meant no more than that Crown would act in good faith in exercising its discretion under clause 2.3 of the leases.[43] However, should that not be the case, I will proceed to consider the next issue in logical sequence - whether the collateral contract found by the Tribunal was sufficiently certain to be enforceable.

Was any collateral contract sufficiently certain to be enforceable?

[43]The tenants did not plead, or advance at trial, a case based on breach by Crown of an express or implied term of good faith.

Crown contends that a collateral contract in the terms found by the Tribunal was too uncertain to be enforceable. The Tribunal dealt with Crown’s arguments in the following way:

134Much more difficult is the question of whether what Mr Boesley said was sufficiently clear and coherent to create legal obligations and to be capable of contractual force. For I have not found that he expressly stated that Crown would renew the leases, or would give notice to the applicants that Crown would renew the leases. I have found only that he said that Mr Zampelis would be looked after at renewal time.
135Although the phrase “looked after”, considered in isolation, is vague, it should not be considered in isolation. Its context is the whole of the crucial statement and the leases about which it was made. What matters is how the phrase would be discerned objectively, in that context, by a reasonable person in the position of the party to whom the phrase was spoken, in the surrounding circumstances known to the parties.[44] The leases to which the applicants were being asked to bind themselves specified a fixed term of five years. Mr Boesley had explained the term by saying that Crown wished to align the leases with other tenants’ leases. The leases contained the “major refurbishment” clause that created a very significant obligation for the applicants if they committed themselves to the leases. The leases also contained clause 2.3, under which Crown was obliged to give a notice at the appropriate time stating whether it would renew or whether it would do something else. In my opinion, a reasonable person with knowledge of those facts and circumstances would conclude that a promise that Mr Zampelis would be looked after at renewal time meant a promise that Crown would give a notice, when the time came, that it would renew each lease. Accordingly, I consider that the crucial statement was sufficiently clear and coherent to be capable of giving rise to a legal obligation upon Crown.

[44]Toll (FGCR) Pty Ltd v Alphafarm Pty Ltd (2004) 219 CLR 451, 461-462; McMahon v National Foods Milk Ltd (2009) 25 VR 251, 273.
136Crown submitted nevertheless that the alleged collateral contract was too uncertain to be enforced because it was not possible to express with certainty what were the terms of the renewed lease that Crown was said to have promised to provide. What was to be the duration of the lease? What rent was the tenant to be required to pay? Did the lease contain a major refurbishment clause? What were the other obligations of the parties to be? The evidence, it was submitted, did not provide answers to those questions.
137The applicants submitted that the collateral contract was one whereby Crown promised to renew each lease on the same terms and conditions as applied to the existing lease. In his final address Mr Pearce moved somewhat from that position by submitting that the promise was to renew the lease on the same terms and conditions, mutatis mutandis. He did so to meet the objection that a contract to renew on the basis that the tenant was to pay the same rent as under the existing lease did not make commercial sense.
138In my opinion, neither submission put the matter correctly, because neither had sufficient regard to the wording of clauses 2.3 and 3.1 of the lease that each applicant was being asked to enter into. I set them out again:
2.3At least 6 months, but no more than 12 months before the Expiry Date, the Landlord must give notice to the Tenant stating whether:
(a)the Landlord will renew this Lease, and on what terms (this may include a requirement to refurbish the Premises or to move to different premises – see clauses 44 and 54);
(b)the Landlord will allow the Tenant to occupy the Premises on a monthly tenancy after the Expiry Date; or
(c)the Landlord will require the Tenant to vacate the Premises by the Expiry Date.
3.1If the Landlord gives the Tenant a notice under clause 2.3(a) and the Tenant wishes to renew this Lease, the Tenant must, within 60 days of that notice, give notice to the Landlord that the Tenant agrees to renew this Lease and accepts the Landlord’s terms.

139For present purposes the noteworthy thing about those clauses is the freedom that Crown had to dictate the terms and conditions of the renewed lease. It was out of the tenant’s power to agree to anything other than the terms and conditions that Crown specified in its notice stating that it would renew the lease. Crown would even have the right to stipulate terms and conditions which, intentionally or unintentionally, were so onerous that the tenant would be compelled not to accept them. No doubt that is an unrealistic scenario, because the stipulation of unreasonably onerous terms in notices of renewal would jeopardise Crown’s tenancies generally. One would expect a notice of renewal to stipulate terms and conditions that had reasonable correspondence with terms and conditions that had appeared in the lease that Crown was proposing to renew. The point, however, is that the way in which terms and conditions of a renewed lease could be ascertained with certainty was by Crown stipulating in its notice given under clause 2.3 what they were to be. There is only one qualification to the freedom that Crown would have in stipulating them. A notice that it would “renew” a lease, as clause 2.3 empowered it to give, implied as a matter of law that the renewed lease would be for the same term (five years) as the lease being renewed.[45]
140For those reasons I consider that it is wrong to say that the absence from the evidence of any agreement about terms and conditions of a renewed lease meant that a collateral contract that Crown would give a notice for renewal of the lease was too uncertain to be enforced. There would be “agreement” about those terms and conditions once Crown dictated in its notice what they were to be and once the tenant accepted them, if it did.
141For the same reasons I consider that it is also wrong to say that the collateral contract was for a renewal of the lease on the same terms and conditions as in the lease, or on the same terms and conditions mutatis mutandis. A reasonable person having knowledge of the terms of the lease and having listened to the crucial statement would have no reasonable basis for putting that gloss on it. That reasonable person would have concluded that the promise (to give a notice under clause 2.3 that Crown would renew the lease) carried with it the consequence that the terms and conditions of the renewed lease would be those specified in the notice, whatever they were.
142So I have concluded that a collateral contract obliging Crown to give a notice under clause 2.3 that it would renew each lease was sufficiently certain to be enforceable.[46]

[45]Lewis v Stephenson (1898) 67 LJ QB 296, 300.

[46]Reasons [134]-[142] (citations in original; emphasis added).

Central to Crown’s contentions in this regard was the submission that an agreement to offer a renewed lease for five years on whatever terms Crown saw fit to dictate or stipulate was uncertain, incomplete or illusory. In particular, reliance was placed on the fact that Crown could specify whatever rent it wanted, because there was no agreement as to either the amount or basis for determination of the rental payable under any renewed lease. It was submitted that this was sufficient to make any collateral contract illusory or void for uncertainty. Moreover, Crown relies upon the fact that the collateral contract found by the Tribunal takes no account of matters such as whether Crown could withhold making an offer under clause 2.3(a) if the tenants were in default under the leases at the time of expiry,[47] and that clause 2.3(a) expressly allows Crown to specify further refurbishment works or to require the tenants to move to different premises within the Complex.
[47]Compare clause 64.1 of the leases, which entitled Crown to terminate the leases by notice of termination to the tenant in the event that the tenant breached any term of the leases or did not pay rent or any other sums due to Crown by the due date for payment.

The tenants support the reasoning of the Tribunal. They rely upon a line of authority in the High Court which they contend is to this effect: that contracting parties may agree that one of them shall have the power to determine important, even essential, terms of their bargain without making the agreement void for uncertainty or incompleteness, or an illusory agreement, provided that nothing is left for further agreement between the parties. Crown submits that this contention is too broadly expressed.

In order to determine the rival submissions, it is necessary to consider the authorities in some detail.

Before embarking upon that analysis, it is necessary to record that I agree with the Tribunal that an agreement to ‘renew’ a lease which is silent as to the period of the renewed lease should be construed as an agreement to renew for the same period as the original lease. The Tribunal referred to Lewis v Stephenson[48] in that regard. I agree that this case stands for that proposition. Indeed, in the absence of any contrary provision, an express agreement or option to renew a lease should be understood as requiring renewal ‘for the same period and on the same terms’ as the original lease.[49] So the collateral contract, as found, is not uncertain by reason of it failing to specify the period of the renewed lease to be offered under clause 2.3(a). Clause 2.3(a) is, however, inconsistent with a requirement for Crown to offer to renew on the same terms as the original leases, as it expressly gives Crown the power to specify the terms, including as to rental, further refurbishment and moving to different premises within the Crown Complex. Accordingly, assuming the collateral contract was made, Crown remained at large in determining the rent which it would offer to accept for a renewed lease.
[48](1898) 67 LJ QB 296.
[49]Ibid 300 – approved by the High Court in Trade Practices Commission & Anor v Tooth & Co & Anor (1979) 26 ALR 185, 202.

Taking this as its starting point, the tenants rely upon a trilogy of High Court cases which they submit support the general proposition for which they contend.

In York Air Conditioning and Refrigeration (A/sia.) Pty Ltd v Commonwealth,[50] a defence supply contract specified a maximum price payable by the supplier to the Commonwealth. The maximum price was subject to adjustment by the Director of Finance if the profit margin, ascertained in accordance with ‘standard conditions’ concerning production costs, exceeded 10 per cent. The Commonwealth sought to recover from the supplier that portion of the payments made under the contracts which the Director assessed as yielding a profit margin exceeding 10 per cent. An issue arose as to whether the price adjustment clause was void for uncertainty, because the final price was to be determined by one of the contracting parties.
[50](1949) 80 CLR 11.

The case was tried by Williams J in the original jurisdiction of the High Court. His Honour held that many of the standard conditions as to the method of ascertainment by the Director of production costs were sufficiently described to enable the Court to determine the matter if the parties were in disagreement about it.[51] Paragraph 4(m) of the standard conditions was of a different kind. It gave the Director a discretion to exclude from the supplier’s production cost: ‘any expense that, in the opinion of the Minister, could have been avoided or reduced by the exercise of reasonable and usual care and diligence or the calling of competitive tenders by the contractor, to the extent that such could have been avoided or reduced’.[52] As to this discretion and other analogous provisions, Williams J stated that this did not make the price adjustment clause or the standard conditions void for uncertainty:

there is no reason why the parties to a contract should not agree that the determination of some of the incidents of the contract should be left to the decision of a third party or to one of themselves … there is nothing in these provisions to make the contracts too uncertain to be enforced.[53]

[51]Ibid 29.

[52]Ibid 20.

[53]Ibid 29 (emphasis added). Williams J mistakenly referred to paragraph 3(m) of the standard conditions, but obviously meant paragraph 4(m).

Counsel for the tenants relied upon this statement as supporting the general contention that even a complete discretion in one party as to the content of an important term of a contract does not render an agreement void, as long as there is no further matter to be agreed by the parties. As appears below, that submission does not take account of the emphasised words in the above quote – ‘some of the incidents of the contract’ – and does not give recognition to the fact that paragraph 4(m) of the standard conditions in that case, while granting a discretion to the Minister, contained criteria for the exercise of that discretion (‘reasonable and usual care and diligence or the calling of competitive tenders’).

An appeal was dismissed. Latham CJ (McTiernan J agreeing) rejected the contention that the standard conditions were in some respects uncertain because they did not fix a precise amount or provide a means for ascertainment of a precise amount. This was because the standard conditions contained sufficient criteria to enable the Court to determine any disputed items in the process of the Director’s ascertainment of production costs.[54]
[54]Ibid 53-4.

Dixon J agreed that the appeal should be dismissed but expressed his reasons differently. In his opinion, there was insufficient guidance in the standard conditions as to the method of apportioning the supplier’s administrative overhead expenses, which was a significant aspect of the production costs.[55] Any uncertainty on that issue did not, however, make the price adjustment clause uncertain, because the contract expressly made the ascertainment of the costs ‘the province of the Director’, for him to determine in accordance with the standard conditions.[56] That met the objection of uncertainty because the standard conditions provided ‘no more than a set of rules or directions for the guidance of the Director or his representatives in the performance of an accountancy task committed to them’.[57]
[55]Ibid 62.
[56]Ibid.
[57]Ibid 59.

The reasons given by Dixon J lend some support to the contentions made by the tenants in this case, because the standard conditions were treated by Dixon J as a mere ‘guide’,[58] but the fact remains that they were a detailed guide and the discretion was not at large.
[58]Ibid 60.

Rich J agreed wholly with the decision of Williams J as trial judge. Walsh J dissented.

Next, the tenants rely upon Thorby v Goldberg.[59] In that case, the defendants were the only shareholders in a company. They agreed with the plaintiffs on a corporate reorganisation. One of the provisions of the agreement required the defendants to:

cause the company to pass such resolutions and prepare and file such contracts and notices as should be necessary to effect alterations to the articles of association “substantially in accordance with the principles set out in the Third Schedule … with such other consequential alterations to the articles as should be necessary for conformity and clarity”.[60]

[59](1964) 112 CLR 597.

[60]Ibid 602.

One of the controversial provisions in the Third Schedule to the agreement required that the company’s articles on certain topics be ‘carefully reconsidered’ by the defendants ‘and alterations made in the light of the latest practices and of the size and importance of [the] venture, and alterations made after discussion where considered necessary or desirable’.[61] The principal judgment was delivered by Kitto J (McTiernan and Windeyer JJ agreeing). In his opinion, there was no uncertainty, because the task of carefully reconsidering and altering the articles was deliberately left to the defendants for them to perform in the exercise of their discretion in accordance with ‘agreed stipulations’.[62] There was nothing left for further agreement between the parties.[63]
[61]Ibid 604.
[62]Ibid 604-5.
[63]Ibid 604.

In Kitto J’s opinion, the case was distinguishable from cases where a party has a discretion ‘as to whether he will carry out that which purports to be the promise’.[64] As will be seen below, this language raises concepts of incomplete or illusory contracts, where an essential element of an enforceable contract has been left to one of the contracting parties to stipulate.
[64]Ibid 605.

Menzies J (Owen J agreeing) gave reasons to like effect.[65] In his view, this was a not a case where one party to a contract ‘is left to choose whether he will perform it’ (ie an illusory contract) but was an entirely different case imposing ‘an obligation to do a specified thing of a general description but [leaving] to the party who is to perform it to choose the particular thing that he will do in performance of it’.[66] In his opinion, an obligation of that kind is not uncertain unless it ‘is either impossible of performance or so uncertain that it cannot be regarded as specifying anything’.[67]
[65]Ibid 613-4.
[66]Ibid 613.
[67]Ibid 614.

The final case in the trilogy relied upon by the tenants was Godecke v Kirwan.[68] In that case, a contract for the sale and purchase of land contained specific agreement as to all of the essential elements of a contract of sale: the land was described and there was agreement as to the purchase price, the manner in which the purchase price would be paid, the time possession would be given to the purchaser, and as to both the general and special conditions to be incorporated. One of the special conditions obliged the purchaser, if required by the vendor, to execute a further agreement prepared by the vendor’s solicitors ‘containing the foregoing and such other covenants and conditions as they may reasonably require’.
[68](1973) 129 CLR 629.

The purchaser refused to complete the contract. In proceedings between the parties, the trial judge held that the contract was not binding because the parties were not to make a concluded bargain at all until they executed a more formal contract, and the case therefore fell within the third class mentioned in Masters v Cameron.[69] An appeal to the High Court was allowed.
[69](1954) 91 CLR 353, 360.

Walsh J (Mason J agreeing) held that the contract was binding because it set out all of the principal terms which were to govern the sale and purchase, and the agreement to execute a further contract was limited by the requirement that the further contract could only include conditions which were not inconsistent with those contained in the contract and which were objectively reasonable.[70]
[70](1973) 129 CLR 629, 642.

In reaching his conclusion in the case, Walsh J said that he gained ‘much assistance’ from the judgment of Bray CJ in Powell v Jones,[71] a case which had not been referred to in argument before the High Court. In that case, Bray CJ considered an agreement for lease, which included a provision that the lease to be executed was ‘to be in terms and to contain such special clauses as the landlord may require’. There was no requirement of reasonableness, as in Godecke v Kirwan. In that case also, the agreement for lease fixed all of the essential terms of a lease and other principal terms: the premises, the rent, the term of the lease, an option to the lessee to purchase the premises, and a clause that the lease was subject to the local council consenting to the lessee’s proposed use of the premises. In these circumstances, Bray CJ was of the view that the lack of any requirement of reasonableness in the terms to be specified by the landlord did not render the agreement for lease uncertain because all that the agreement left to the option of the landlord was the choice of the terms and special clauses of the formal lease agreement, which could not be inconsistent with the express provisions of the agreement for lease.[72]
[71][1968] SASR 394.
[72]Ibid 402.

Returning to Godecke v Kirwan,[73] Walsh J referred to authority which established that a binding agreement may be made which leaves some important matter, such as the price, to be settled by the decision of a third party.[74] Gibbs J also referred to authoritative statements to the same effect, that the parties to a contract may leave terms – even essential terms – to be determined by a third person.[75] Gibbs J cited May and Butcher v The King as authority.[76] Gibbs J noted that Viscount Dunedin went so far in that case as to suggest that a sale of land which left the price to be settled by the buyer himself would be good. His Honour expressly disagreed with that statement, because in such a case there would be no binding contract at all, as the case:

would fall within the principle that “where words which by themselves constitute a promise are accompanied by words which show that the promisor is to have a discretion or option as to whether he will carry out that which purports to be the promise, the result is that there is no contract on which an action can be brought”: Thorby v Goldberg (1),[77] citing Loftus v Roberts (2);[78] Placer Development Ltd v The Commonwealth (3).[79] It might be suggested that the same principle would not apply if the determination of the price were left to the seller, for then it would be the promisee, not the promisor, who was left with the discretion as to performance. However, in Beattie v Fine (4),[80] Cussen J drew no such distinction and held that an option for renewal “at a rental to be agreed upon by the lessor” did not give rise to any contractual obligation. He based his decision on the principle of Loftus v Roberts (5),[81] but the same conclusion might have been reached by holding that there can be no concluded bargain if a vital matter (such as price or rental) has been left to the determination of one of the parties … Perhaps it may be different where agreement has been reached on all essential terms but the determination of subsidiary matters has been left to one of the parties.[82]

[73](1973) 129 CLR 629.

[74]Ibid 642.

[75]Ibid 645.

[76][1934] 2 KB 17, 21.

[77](1964) 112 CLR 597, 605.

[78](1902) 18 TLR 532, 534.

[79](1969) 121 CLR 353, 359-61.

[80][1925] VLR 363.

[81](1902) 18 TLR 532.

[82]Godecke v Kirwan (1973) 129 CLR 629, 646-7 (citations in original; emphasis added).

Gibbs J then considered the decision of Bray CJ in Powell v Jones,[83] from which Walsh J said he had gained much assistance. In the opinion of Gibbs J, Powell v Jones may not have been correctly decided, because the ability of the lessor to specify terms was not limited by any requirement of reasonableness as in Godecke v Kirwan.[84] His Honour left this issue open as it was unnecessary to decide it given the express requirement of reasonableness in the case before the Court.
[83][1968] SASR 394.
[84](1973) 129 CLR 629, 647.

In addition to the trilogy of cases relied upon by the tenants, it is necessary to refer to two further High Court cases on the topic of uncertainty in circumstances where a contracting party is granted a discretion as to the content of an essential term of the bargain.

In Whitlock v Brew,[85] the High Court considered an agreement for lease contained in a contract for the sale of land. The purchaser covenanted that he would, immediately upon taking possession when the sale was completed, grant a lease to a petroleum company to enable it to sell petroleum products from the leased land ‘upon such reasonable terms as commonly govern such a lease’. It was possible to discern from the agreement the portion of the land to be leased and the commencing date of the promised lease, but none of the other essential terms of a lease agreement were contained in the agreement for lease. In particular, there was no agreement as to the term of the lease or the rent to be paid. In these circumstances, even if there had been evidence as to the content of reasonable terms as commonly govern such leases (which there was not), and notwithstanding an arbitration clause to resolve disputes as to the interpretation or operation of the agreement for lease, the agreement was held to be too uncertain to be enforceable.[86]
[85](1968) 118 CLR 445.
[86]Ibid 456-7 (per Kitto J), 460-1 (per Taylor, Menzies and Owen JJ).

In Placer Development Ltd v The Commonwealth,[87] the High Court considered a contractual obligation on the Commonwealth to pay a company a subsidy ‘of an amount or at a rate determined by the Commonwealth from time to time’ up to a specified limit. In the course of their reasons, Taylor and Owen JJ considered whether the Commonwealth’s discretion to fix the amount of the payment was unenforceable because it was an illusory promise.[88] They concluded that the promise was unenforceable on this basis:

Obviously there is a complete absence from the clause, and from the Agreement as a whole, of any identifiable criteria by which it can be said the parties intended the amounts or rates to be determined; this is left solely to the discretion of the Commonwealth. This being so the clause amounts to no more than a promise to pay what, in all the circumstances, the Commonwealth in its discretion thinks fit and, as such, is wholly unenforceable.[89]

[87](1969) 121 CLR 353.

[88]Ibid 359-61.

[89]Ibid 361.

This conclusion was based on a decision of this court by Cussen J in Beattie v Fine.[90] In that case, which was also approved by Gibbs J in Godecke v Kirwan as the above quotation from his Honour’s reasons demonstrates, Cussen J held that an express option for renewal contained in a deed of lease ‘at the rental to be agreed upon by the lessor’ was illusory and unenforceable.[91] The lessee had contended that the agreement contained two separate promises:

one of which gave the lessee the right to exercise the option without naming any rental, and that, in the absence of agreement by the lessor, the result would be that the lessee would be entitled to retain possession of the land and be under an obligation to pay as rent either (1) the amount which a jury or the Court should fix as reasonable, or (2) the amount which a jury or the Court should fix as that which the lessor, acting bonâ fide, would or ought to have agreed to.[92]

[90][1925] VLR 363.

[91]Ibid 368-9.

[92]Ibid 368.

This submission was rejected by Cussen J on a number of grounds. Taylor and Owen JJ expressly approved the final ground of rejection, based on the conclusion that the agreement to pay a rental ‘to be agreed upon by the lessor’ was an illusory one.[93]
[93]Placer Development Ltd v The Commonwealth (1969) 121 CLR 353, 360-1.

Kitto J agreed with Taylor and Owen JJ. In his Honour’s view, the general principle:

is that wherever words which by themselves constitute a promise are accompanied by words showing that the promisor is to have a discretion or option as to whether he will carry out that which purports to be the promise, the result is that there is no contract on which an action can be brought at all. The succinct statement of the principle in Leake on Contracts, 3^rd ed., p.3: “promissory expressions reserving an option as to the performance do not create a contract” was approved by the Lord Justice, as it was later by Lord Wright in Hillas and Co. Ltd. v Arcos Ltd.[94]

[94]Ibid 356 (citations omitted).

Based on my review of the High Court authorities, I am of the opinion that the general contention relied upon by the tenants is stated in terms which are too wide and is inconsistent with the authorities. I accept that a contract may give one of the parties a discretion as to the content of subsidiary terms, or as to how the contract is to be implemented, without necessarily rendering the contract unenforceable for uncertainty or incompleteness, or because it is illusory. But that principle does not extend to agreements which give one party a complete discretion as to one or more of the essential terms of the contract, at least in the absence of a contractual requirement that the discretion be exercised in accordance with criteria specified in the contract. In this case, there are no such criteria. It is no answer to say, as the Tribunal did, that it would have been a commercially ‘unrealistic scenario’ for Crown to have stipulated an unreasonable rent, or other unreasonable terms, which had no ‘reasonable correspondence’ with the rent and other terms of the existing leases.

Accordingly, even if there was a collateral contract requiring Crown to make an offer under clause 2.3(a) of the lease to renew it for five years on such terms as it specified in its complete discretion, that was an illusory collateral contract and is unenforceable. The tenants can be in no better position under such a collateral contract than they would have been if the leases had contained an express term giving them an option to renew for a period of five years at a rental to be agreed upon by Crown. If an option in those terms is unenforceable, as in Beattie v Fine, a collateral contract to the same effect must also be illusory and unenforceable.

In an effort to distinguish this case from these principles, the tenants contend that the collateral contract provided no more or less than that Crown agreed to make an offer to renew the leases for five years, on whatever terms it saw fit, and that the failure to make such an offer was a breach of the collateral contract of some value. On this basis, they contend that they are entitled to damages for loss of opportunity to receive such an offer and to exploit the opportunity it offered. I do not accept that submission. A finding that the collateral contract found by the Tribunal is illusory and unenforceable is a complete answer to the tenants’ claims in contract. They cannot avoid that consequence by characterising their claims as loss of opportunity claims.

I would accordingly grant leave to appeal and allow this ground of appeal. This makes it unnecessary to consider all but one of the remaining issues – that concerning estoppel. But I will nonetheless consider the next ground.

If sufficiently certain, was the collateral contract consistent with the leases?

Crown contends that the Tribunal erred in finding that a collateral contract in the terms determined by the Tribunal was consistent with the leases. Although it is unnecessary to determine this issue, it is in my opinion another complete answer to the contractual claims and I will state my views briefly.

The issue for determination by the Tribunal was whether, by requiring Crown to give a notice to the tenants under clause 2.3(a) of the lease offering to renew it, the collateral contract limited Crown’s discretion under clause 2.3 – which gave it the option to do one of three things in the requisite notice – and was inconsistent with the lease for that reason.

In Hoyts Pty Ltd v Spencer,[95] the High Court decided that a collateral contract which is inconsistent with the terms of the principal contract is unenforceable. In Maybury v Atlantic Union Oil Co Ltd,[96] the High Court applied Hoyts Pty Ltd v Spencer and found that an alleged collateral contract was inconsistent with the main contract, and thus unenforceable, because it purported to limit an absolute discretion conferred by the main contract on one of the parties. Crown contends that the Tribunal erred in attempting to distinguish Maybury v Atlantic Union Oil Co Ltd, which the Tribunal had identified as binding and relevant authority.
[95](1919) 27 CLR 133.
[96](1953) 89 CLR 507.

The Tribunal found that the collateral contract was not an attempt to limit any rights created by clause 2.3. The Tribunal reasoned that Crown, as landlord, had the right to elect any of the three options set out in clause 2.3 irrespective of that clause’s existence and, as such, clause 2.3 itself did not confer upon Crown any right or discretion to elect between the options.[97] The tenants support the reasoning of the Tribunal.
[97]Reasons [146].

In my opinion, the Tribunal erred on this issue also. By requiring Crown to give a notice under clause 2.3(a) offering to renew the leases, the collateral contract is inconsistent with the scope of Crown’s discretion under clause 2.3, and is therefore unenforceable. Such inconsistency is clearly demonstrated by the fact that Crown would be in breach of the collateral contract if it provided a notice under clause 2.3(b) or (c), as it was expressly entitled to do under those terms. It matters not that Crown also held those rights independently to clause 2.3. By attempting to fetter Crown’s discretion, the collateral contract was inconsistent with the leases, and therefore unenforceable.

I would grant leave to appeal and allow this ground of appeal also.

If the collateral contract was otherwise valid, was it unenforceable by reason of s 126 of the Instruments Act 1958 (Vic)?

The Tribunal held that s 126 of the Instruments Act did not apply to the collateral contract as found. I think that this conclusion was probably correct, but it is unnecessary to consider this issue as the collateral contract is unenforceable for the reasons given above.

If the collateral contract was unenforceable for any reason, was Crown nevertheless estopped from so contending?

The final issue for determination concerning the tenants’ entitlement to damages is whether the tenants can rely on equitable estoppel to avoid the Court’s conclusion that the collateral contract found by the Tribunal is unenforceable.

At trial, the tenants pleaded that Crown was estopped from denying its obligation to offer to renew the leases on the same terms. Although the Tribunal found that the collateral contract was enforceable, it considered the estoppel claim briefly in case it was wrong on that account. In brief reasons, the Tribunal held that an equitable estoppel would operate if it was incorrect in finding that the collateral contract was not subject to s 126 of the Instruments Act1958:

Should that conclusion be wrong, and should section 126(1) of the Instruments Act be applicable, I would accept the applicants’ alternative submission that Crown is estopped in equity from denying the existence of the collateral contract. The applicants have proved the matters which, in accordance with Brennan J’s well-known formulation in Waltons Stores (Interstate) Ltd v Maher,[98][70] must be proved before a promissory estoppel arises. The applicants expected that there would be an offer of a renewed lease, at renewal time, that they would be free to accept. Crown’s collateral promise induced them to expect that. In reliance upon the expectation created by the promise, the applicants entered into five-year leases with the “Major Refurbishment” clause. Crown intended that they should so rely, because Mr Boesley made the crucial statement in the course of urging Mr Zampelis to return signed leases to Crown. The applicants suffered detriment when the expectation was not fulfilled, because they were required to vacate the leased premises and the value of the refurbishment was minimised. Crown failed to act to avoid that detriment. Instead it required the applicants to vacate. [99]

[98][1988] HCA 7; (1988) 164 CLR 387, 428-429.

[99]Reasons [172] (citation in original; emphasis added).

From these brief reasons, it is apparent that the Tribunal would also have found an estoppel if it was of the opinion that the collateral contract was unenforceable for uncertainty or inconsistency. The tenants support the Tribunal’s reasoning. Their notice of contention filed 17 September 2003 was limited to the inconsistency issue, but they advanced very brief argument on appeal on the basis that their notice of contention covered an adverse result on the uncertainty issue also, or in any event that it was open to them to argue the issue because it was relevant to the Court’s discretion as to whether to grant Crown leave to appeal. As the estoppel issue is capable of supporting the result in the Tribunal, it is just to allow the tenants to raise the issue.

Senior counsel for the tenants submitted that the Tribunal’s reasoning was obviously correct and, in passing, referred to the decision of the Court of Appeal of this Court in Flinn v Flinn,[100] in which Brooking JA held that a representation that was too uncertain to create an enforceable contract does not ‘necessarily’ prevent a court from finding an equitable estoppel based on that representation.[101] Apart from referring to the case in these terms, and submitting that it supported the Tribunal’s reasoning, counsel provided no assistance to the Court on this important issue.[102]
[100][1999] 3 VR 712.
[101]Ibid [95].
[102]As to the requirement to assist the Court, see Accurate Financial Consultants Pty Ltd & Anor v Koko Black Pty Ltd & Ors [2008] VSCA 86, [192]-[195].

As the Tribunal recognised, the requirements for the establishment of an equitable estoppel were summarised by Brennan J in Walton’s Stores (Interstate) Ltd v Maher[103] in the following terms:

In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant’s property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff’s reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs.[104]

[103](1998) 164 CLR 387.

[104]Ibid, 428-9.

As counsel for the tenants appeared to acknowledge, the estoppel issue raises, once again, the reasonable meaning to be attributed to the only representations found by the Tribunal to have been made by Crown, comprising Mr Boesley’s statements in December 2005 that: the leases were for five years because Crown wanted them to be aligned with the leases of other tenants; Mr Zampelis should spend money on refurbishment that would result in a high quality finish for the two restaurants; and that, if Mr Zampelis did so, ‘he would be looked after when the time came for Crown to consider renewing the leases.’ For the reasons given above, I have found that: the Tribunal erred in deciding that these statements were promissory; that the meaning which the Tribunal attributed to the statements was not that which a reasonable person in the position of the parties in the relevant surrounding circumstances would have understood the statements to mean; and that, even if that is not so, the collateral contract as found is unenforceable because it is uncertain, illusory or inconsistent with the express terms of the leases. In these circumstances, counsel for the tenants was right to refer the Court to Flinn v Flinn as a relevant authority on the issue as to whether Mr Boesley’s statements were sufficiently certain to support an estoppel.

The authorities concerning this issue emphasise that each case must be determined on its own facts. In determining whether a representation is sufficiently precise to support an estoppel, the Court examines the sense in which the representee understood the representation and relied upon it, and then determines whether, in the context of the facts of the particular case, it was reasonable for the representee to understand and rely upon the representation in that sense.

The relevant principles and authorities, including Flinn v Flinn, were discussed by Dodds-Streeton JA in Accurate Financial Consultants Pty Ltd & Anor v Koko Black Pty Ltd & Ors.[105] Her Honour concluded that discussion with the following statement:

A representation which is insufficiently certain or complete to create a contract may found proprietary estoppel. Where necessary to inhibit unconscionability, equity will construe a representation robustly in context, to determine its meaning as reasonably understood by the addressee. In my opinion, the standard of certainty, clarity and completeness required of the representation cannot sensibly be determined in isolation from other elements of proprietary estoppel in the circumstances of each particular case. Moreover, ambiguity or indeterminacy generated by the representor in the context of unconscionable conduct should not confer immunity from equity’s ‘long arm’.[106]

[105][2008] VSCA 86.

[106]Ibid [178] (emphasis added). Further, at [135], her Honour noted: ‘from an early stage, a representation in estoppel was to be assessed by how it would be reasonably understood by the addressee in the context of the surrounding circumstances’.

To similar effect are the statements of Hodgson JA in the New South Wales Court of Appeal in Sullivan v Sullivan:[107]

83The first question I consider is that raised by the first ground of the Notice of Contention, that is, was the representation or promise sufficiently certain to support an estoppel?

84It has been said that in some respects at least more certainty is required for an estoppel than for a contractual variation (Woodhouse AC Israel Cocoa Limited SA v. Nigerian Produce Manufacturing Co. Limited, Legione v. Hateley); but it is also the case that a promise or representation may support an estoppel even though it is not sufficiently certain to operate as a contract (Australian Crime Commission v. Gray, Galaxidis v. Galaxidis).
85Generally, a promise or representation will be sufficiently certain to support an estoppel if it was reasonable for the representee to interpret the representation or promise in a particular way and to act in reliance on that interpretation, thereby suffering detriment if the representor departs from what was represented or promised. Generally, 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 the grey area and to act in reliance on it as so understood, I see no reason why the Court should not regard the representation or promise as sufficiently certain up to this lower limit. [108]

[107][2006] NSWCA 312.

[108]Ibid [83]-[85] (citations omitted; emphasis added).

Applying these principles to the facts of this case, the Tribunal was in my opinion in error when it concluded that the elements of an equitable estoppel had all been established. The Tribunal held that Crown was ‘estopped in equity from denying the existence of the collateral contract’.[109] That must mean estopped from denying the collateral contract in the terms formulated by the Tribunal, on the basis of its assessment of the objective meaning of Mr Boesley’s statements. To find an estoppel in those terms, the Tribunal needed to consider the sense in which Mr Zampelis understood Mr Boesley’s statements, and whether it was reasonable for him to so understand and rely upon them in deciding that the tenants should enter into the leases. But the Tribunal did not undertake that analysis.
[109]Reasons [172].

An analysis of the evidence and the Tribunal’s findings demonstrates that there was a disconformity between Mr Zampelis’s evidence of his understanding of the statements and the meaning which the Tribunal gave to those statements. The tenants did not plead or seek to prove that Mr Boesley’s statements induced them to assume or expect that Crown would make an offer to them to renew the leases for a further five years on whatever terms Crown saw fit to stipulate, and that they entered into the leases in reliance upon that assumption or expectation. The tenants’ case at trial was that Crown had represented and promised to offer to renew the leases on the same terms. In evidence, Mr Zampelis said simply that Mr Boesley told him he would be ‘looked after and will get the further lease term’.[110] Later, when dealing with reliance, Mr Zampelis said he understood Crown’s assurances were ‘about a further five year term’ and that he delayed handing over the signed lease documents in the hope of ‘written confirmation of the additional five year term.’[111]
[110]Witness statement, [25].
[111]Ibid [30].

Apart from expecting a further five year term, Mr Zampelis gave no evidence about the other terms and conditions of the renewed leases which he expected – for example as to rent or refurbishment. Nor was he cross-examined about that, as the pleaded case was that Crown represented and promised a renewed lease on the same terms. That case was not departed from until final submissions, when the tenants’ counsel changed the case from a promise to renew on the same terms to a promise to renew the lease for five years mutatis mutandis, with changed terms for rent and refurbishment at the very least. The Tribunal rejected this case, and thus Mr Zampelis’s evidence, as an unreasonable understanding of Mr Boesley’s statements.[112] In the Tribunal’s view, the statements meant that Crown was representing or promising that it would serve a notice under clause 2.3(a) of the leases in which it offered to renew them for five years on such terms as it specified in its absolute discretion.[113] For the reasons given above, I do not accept that Mr Boesley’s statements had that meaning for the purposes of determining the terms of any collateral contract. But, for present purposes, that does not matter. The sense in which Mr Zampelis said he understood the statements was wholly unreasonable – both for the reasons given by the Tribunal and for the reasons given above. So the estoppel case falls at the first hurdle.[114]
[112]Reasons [141].
[113]Ibid [139].
[114]Cf Di Pietro v Basjo Catering Pty Ltd [2008] VSC 326, [170]-[174]; on appeal [2009] VSCA 223, [45].

The position would be no different if the tenants had proved that they understood and relied upon the statements in the subjective understanding that the statements had the meaning attributed to them by the Tribunal in formulating the terms of the collateral contract. For the reasons given above, it would have been unreasonable for the tenants to understand and rely upon the statements in that way.

If the tenants have established an entitlement to damages, what is the measure of their loss?

There was much argument regarding the Tribunal’s approach to the assessment of damages for breach of the collateral contract which it found. Given the Court’s conclusions concerning collateral contract and estoppel, it is unnecessary for the Court to consider these issues.

From what date should interest run?

It is unnecessary for the Court to consider the interest issue.

Conclusion

Leave to appeal should be granted to Crown. The tenants are refused leave to appeal on their cross-appeal. The appeal should be allowed, the orders of the Tribunal set aside and, in lieu thereof, it should be ordered that the proceeding in the Tribunal be dismissed . I will hear counsel as to the precise form of the orders to be made, and as to costs.

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Citations

Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [2013] VSC 614

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18 November 2013