Palm Gardens Consolidated Pty Ltd v PG Properties Pty Ltd - [2009] SASC 311

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
PALM GARDENS CONSOLIDATED PTY LTD v PG PROPERTIES PTY LTD
[2009] SASC 311
Judgment of The Honourable Justice Kourakis
1 October 2009
REAL PROPERTY - TORRENS TITLE - CAVEATS AGAINST DEALINGS - WHO MAY LODGE AND WHAT INTEREST SUFFICIENT - OTHER CASES
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - INTERLOCUTORY INJUNCTIONS - SERIOUS QUESTION TO BE TRIED - PROBABILITY OF SUCCESS
ESTOPPEL - ESTOPPEL BY CONVENTION
ESTOPPEL - ESTOPPEL IN PAIS - EQUITABLE ESTOPPEL - PROMISSORY ESTOPPEL
The parties entered into negotiations for the sale of certain retirement villages by the defendant to the plaintiff - a collateral agreement was entered into which provided that in the event that all of certain recently constructed units in one of the retirement villages were licensed and occupied, either of the parties could require the other to effect the sale and purchase of those units - before all of those units were licensed and occupied, the defendant decided that there was no realistic prospect of licensing the remaining unlicensed units at an acceptable price - the defendant therefore sought planning approval to convert the remaining unlicensed units to domestic residences and contracted to sell some of those units as residences - the plaintiff caveated the Certificates of Title on which the remaining unlicensed units are built, claiming an equitable interest - the defendant lodged an application to remove the caveat - the plaintiff seeks an order that the time for removal of the caveat be extended until its claim to an equitable interest in the remaining units is determined - whether the plaintiff must establish a prima facie case that it has such an equitable interest - whether the defendant was obliged under the agreement to license the remaining units - whether the plaintiff has a caveatable interest over the remaining units - whether the plaintiff can establish a proprietary or promissory estoppel based on the defendant's representations that it would license the remaining units - whether the plaintiff can establish an estoppel by convention - whether plaintiff entitled to interlocutory injunction.
Held: it is not arguable that there is an obligation on the defendant under the agreement to license the remaining units - the plaintiff has not established a prima facie case that it has a caveatable interest over the remaining units - the plaintiff has no probability of success in establishing a proprietary or promissory estoppel based on the alleged representations because they are equivocal and referable to an earlier agreement which was terminated - the plaintiff cannot establish a prima facie case of estoppel by convention because there is no evidence of the mutuality required to support an estoppel by convention - the approach that should be taken to interlocutory applications with respect to caveats is the same as the approach that should be taken to interlocutory injunctions generally - the plaintiff has failed to show that it has any material likelihood of establishing an equitable interest in the land it has caveated - interlocutory injunction refused - the application should be dismissed .
Retirement Villages Act 1987 s 3, s 34, s 36; Real Property Act 1886 s 191, referred to.
Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537; Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57; Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57, applied.
Ovenden v Palyaris (1975) 11 SASR 65; Stern v McArthur (1988) 165 CLR 489; Re CM Group Pty Ltd’s Caveat [1986] 1 Qd R 381; Re Bosca Land Pty Ltd’s Caveat [1976] Qd R 119; Kuper v Keywest Construction Group Pty Ltd (1990) 3 WAR 419; GPT RE Ltd v Lend Lease Real Estate Investments Ltd [2005] NSWSC 964; Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; Foran v Wight (1989) 168 CLR 386; Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226; Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641; Waterman v Gerling Australia Insurance Co Pty Ltd (2005) 65 NSWLR 300; The August Leonhardt [1985] 2 Lloyds Rep 28; Troop v Gibson (1985) 277 EG 1134; Queensland Independent Wholesalers Ltd v Coutts Townsville Pty Ltd [1989] 2 Qd R 40; Moratic Pty Ltd v Gordon [2007] NSWSC 5; Johnson Matthey Ltd v AC Rochester Overseas Corporation (1990) 23 NSWLR 190; State Rail Authority (NSW) v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170; Whittet v State Bank of New South Wales (1991) 24 NSWLR 146, discussed.
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; Crabb v Arun District Court [1976] Ch 179; The Indian Grace [1996] 2 Lloyds Rep 12; Cini v Pets Paradise Franchising (SA) Pty Ltd [2008] SASC 287; Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42, considered.

PALM GARDENS CONSOLIDATED PTY LTD v PG PROPERTIES PTY LTD
[2009] SASC 311
KOURAKIS J:
Introduction

The plaintiff, Palm Gardens Consolidated Pty Ltd (Palm Gardens), is a member of a group of companies which operate retirement villages in this State and in other parts of Australia. The group is known as the Meridien Retirement Living Group (Meridien). Mr Mark Taylor is the Chief Operating Officer of Meridien.
The defendant, PG Properties Pty Limited, was at different times known as Palm Gardens Retirement Home Pty Ltd and Palm Gardens Retirement Villages Pty Ltd until it took on its present appellation on 30 June 2006, perhaps as a result of the proposed sale of its retirement villages. I shall refer to it as “PG Properties”. PG Properties with a number of other related companies operated retirement villages under the banner of Palm Gardens Retirement Villages at Magill, Broadview, Clearview and Salisbury in this State. The principal who controls PG Properties and its associated entities is Ms Pierce. I shall refer to those companies as “related entities” or “Pierce Group entities”.
At all relevant times Palm Gardens and PG Properties, and its related entities, acted as trustees for various unit trusts.
Negotiations between Palm Gardens and PG Properties for the sale of the retirement villages commenced in November 2006. The negotiations led to the parties subscribing to a Heads of Agreement (the HOA) on 12 February 2007. The HOA contemplated the transfer from Ms Pierce, PG Properties and related entities to Meridien of the shares and units in the entities which owned and operated the Palm Gardens Retirement Villages.
The share and unit purchase arrangement was later abandoned and instead the land and business assets comprising the retirement villages were sold by PG Properties to Palm Gardens on 1 September 2007 (the land and business sale).
The dispute before me arises out of a collateral arrangement to the land and business sale whereby put and call options were given over land adjacent to the Magill Retirement Village. The Magill Retirement Village is situated at 122 Reid Avenue Magill and comprises both higher dependency apartments and independent living units (sometimes referred to as ILUS). The dwellings comprising the Magill Retirement Village are not owned by the residents. They are occupied pursuant to licenses. The occupancy right is purchased by way of an initial premium and the payment of ongoing management fees.
Most of the independent living units at Magill were situated on land that fronts on to Reid Avenue. However, some of the independent living units, units 25 to 32 and 48 to 49, which were included in the land and business sale, are located on an adjacent neighbourhood block bounded by Eaton Avenue, Bricknel and Bertola Streets. I shall refer to that area as “Eaton Square”. Units 25 to 32 and 48 to 49 had been constructed and occupied well before the negotiations commenced and were accordingly included in the land and business sale. When the negotiations commenced a further 19 units, numbered 33 to 47 and 67 to 70, were still under construction in Eaton Square. I shall refer to them as the “additional units”. By the time agreement was reached on the land and business sale, units 33 and 35 had been occupied on retirement village licenses and, together with unit 34, which was part of the same block, were included in the land and business sale. I shall refer to the remaining 16 units which had not yet been occupied at the time agreement was reached on the land and business sale, as the “remaining units”.
The remaining units were the subject of an agreement described as the “Put and Call Option Deed” which was also executed on 1 September 2007. I will refer to it simply as the Option Deed. In short, the Option Deed provided that in the event that all of the remaining units were licensed and occupied, either of the parties could require the other to effect the sale and purchase of the units on the basis that PG Properties would remain entitled to the premium it had received on licensing them and a further payment calculated by reference to the Deferred Management Fee. It will be necessary to explain that term and the Option Deed in greater detail below.
Five of the remaining units were subsequently licensed and occupied as retirement village independent living units. However, late in 2008 PG Properties decided that there was no realistic prospect of licensing the remaining additional units at a price that would ensure that it recovered its costs and provide an acceptable return on its investment. PG Properties sought planning approval to convert the eleven remaining units which remained unlicensed to domestic residences on a community title scheme. It commenced marketing those residences in early 2009 and has now secured contracts for the sale of seven of them. Settlement on those contracts is dependent on the lodgement of its plan of community division. PG Properties is, or will soon be, in a position to deposit the plan. Under the terms of the sale contracts, settlement must take place within 14 days after the deposit of the plan.
Palm Gardens has caveated the Certificates of Title on which the remaining units are built. By that caveat, Palm Gardens claims “an equitable estate or interest as the grantee of an option to purchase an estate in fee simple in the land … under and by virtue of a certain Put and Call Option Deed dated 1 September 2007 made between (inter alia) the caveator and the caveatee”. PG Properties cannot lodge its plan of community division while the caveat remains in place. On 14 May 2009, PG Properties lodged an application to remove the caveat.
By these proceedings Palm Gardens seeks an order that the time for removal of the caveat be extended until its claim to an equitable interest in the remaining units is determined by this Court. Palm Gardens must establish a prima facie case that, on the proper construction of the Option Deed and the circumstances in which it and the land and business sale were agreed, it has an equitable interest in the remaining units. If it does, then, subject to the question of Palm Garden’s capacity to compensate PG Properties for the losses it sustains as a result of the prolonged presence of the caveat, in the ordinary course it can expect to have its interest in the land protected. For the reasons given below Palm Gardens has failed to satisfy me that it has, prima facie, an equitable interest in the remaining units.
It is necessary to refer briefly to the legal and financial context in which retirement villages operate to understand the negotiations between Palm Gardens and PG Properties which I summarise below. I will then deal with the terms of the Option Deed in the context of those negotiations before discussing the nature of the equitable interest which Palm Gardens claims in the remaining units.
Retirement Villages Act
Residents of retirement villages occupy their dwellings pursuant to a license bought by the payment of a lump sum sometimes referred to as a premium. In addition the resident pays recurrent management and service fees to the operator of the retirement village. When the resident vacates his or her dwelling, the dwelling is licensed to another occupier. The existing licensee, or his or her estate, is entitled to the license fee paid by the incoming resident less a fee described as a Deferred Management Fee (DMF). I assume it is so described to suggest that it is a payment for management services provided in the past, but not charged for, during the period of occupancy. The DMF is largely calculated as a percentage of the premium paid for the license. That percentage varies according to the age of the licensee at the time of occupation; the percentage is higher for relatively younger licensees.
For reasons which are not clear to me, but which do not need to be closely investigated for the purposes of this action, the Australian Taxation Office treats the premium as a loan made by the resident to the operator of the retirement village. The loan is “repaid”, less the DMF, by the operator of the retirement village with the premium/loan monies obtained on the re-licensing of the dwelling at the end of that resident’s occupation.
The Retirement Villages Act 1987 (the RVA) regulates the respective rights and responsibilities of residents and mangers of retirement villages. The RVA provides for the maintenance of a Register of the name and address of retirement villages (the Register). A retirement village is defined to mean a complex of residences occupied or intended for occupation under a retirement village scheme.[1] A retirement village scheme is in turn defined to mean a scheme established for retired persons under which residences are occupied pursuant to a lease or licence. It appears then that a retirement village comprises all of the dwellings occupied pursuant to the single retirement village scheme. The person by whom, or on whose behalf, the retirement village scheme is administered is recorded on the Register.
[1] Retirement Villages Act 1987 s 3.
Section 33 of the RVA provides that where land is, or is to be, used as a retirement village a note of that fact must be endorsed on its Certificate of Title. The Registrar-General, who administers the system of registration established by the Real Property Act 1886, may cancel an endorsement on a Certificate of Title if satisfied that no part of the land is still occupied under a retirement village scheme.[2] Section 34 of the RVA restricts dealing with land within a retirement village that is not immediately required for the purposes of the scheme. That land must not be leased or licensed for a term longer than five years unless the Minister approves.
[2] Retirement Villages Act 1987 s 34.
A retirement village scheme may be terminated by the Minister if, and only if, the Minister is satisfied that all residents of the retirement village wish to terminate the scheme.[3] Alternatively, a retirement village scheme can be terminated with the approval of the Supreme Court even where a person who has been admitted to occupation of a residence under the scheme remains in occupation of that residence.
[3] Retirement Villages Act 1987 s 36.
The purpose of the RVA is to provide the residents of retirement villages with a reasonable level of assurance that the nature and quality of the services they enjoy and the amenity of the village precinct is not adversely affected while they remain in occupation. However, the Registrar-General’s power to cancel an endorsement pursuant to s 33(4) of the Act does not, in my opinion, depend on any factor or circumstance other than his satisfaction that no part of the land comprised in the title is occupied under a retirement village scheme. A limited enquiry of that nature is well within the expertise of the Registrar-General. It is inconceivable that the Parliament intended, by s 33(4), to require the Registrar-General, without any statutory guidance, to weigh in some unspecified way the interests of retirement village residents on different allotments against the property rights of the owners of the fee simple of the land.
The negotiations
In the course of negotiations Mark Taylor was told that there were 51 existing units at Magill and that a further 32 were to be constructed. Nineteen of those units were due to be completed between 30 September 2006 and February 2007. Those units were the units in Eaton Square which brought the total proposed units for the Magill Estate Retirement Village to 70. A further 13 independent living units were to be constructed on other land close to Eaton Square. Mr Taylor’s understanding that there were seven units at Magill was based on his belief that only seven of the 19 additional units were in an advanced state of development. However during the negotiations he learnt that 19 units were complete or nearly complete and at all times thereafter believed that they would be sold to Meridien.
Mr Taylor deposed to the following:
It was my understanding, however, from this email, which was sent to Mountford and myself, that any ILU’s whether constructed but not yet occupied, or to be constructed in the area bounded by Bertola Street, Eaton Avenue and Bricknel Street, form part of the Magill Village. If I had understood at the time that there was a possibility that any ILU’s in this area would not form part of the village to be acquired, Meridien would not have proceeded with the purchase upon the terms it did. I would state, however, that during these negotiations there was no suggestion that any ILU within that area would not be part of the Magill Village.
In correspondence from Meridien to PG Properties in October and November 2006, Meridien offered to purchase the retirement village assets of PG Properties at a price that was essentially calculated by capitalising the DMF income stream. The price first offered by Meridien assumed that seven units, still under construction at Magill, would be transferred to Meridien but that PG Properties would be entitled to the premium paid on the initial licensing of those units in addition to the DMF value of that licence.
The negotiations which followed were directed towards reaching consensus on an HOA which would establish the essential structure of the more detailed transactions by which the transfer of the retirement villages would be effected. In those negotiations PG Properties was advised by Peter Pedler (Pedler) a solicitor in Adelaide and Meridan by Lucas Mountford (Mountford) a solicitor in Brisbane.
A draft of the HOA, which was sent to Pedler on 12 January 2007, proposed that Meridien would purchase the shares in entities related to PG Properties and the units of the trusts they administered (the share and unit transfer) and in that way assume control of the retirement villages. Clause 3 of that draft of the HOA provided that in addition to the purchase price for the shares and units, PG Properties would be entitled to the net sale proceeds of what was, at that stage, still assumed to be only seven additional units at Magill. The draft HOA provided for entities related to PG Properties to be engaged to develop further independent living units on the Clearview and Broadview sites after the purchase of the shares and units.
By letter dated 30 January 2007 Pedler commented on the draft HOA. He informed Mountford that PG Properties was the trustee of the Palm Gardens Unit Trust (the PGUT) and that in that capacity held the land on which the Magill Retirement Village was situated. The units in the PGUT were in turn held by another related entity Maitrix Pty Ltd as trustee for the Maitrix Trust. The Maitrix shares and the units in the Maitrix Trust were in turn held by Timu Pty Ltd which also owned the shares in PG Properties. Pedler advised Mountford that PG Properties also owned land at Magill which was earmarked for future development and that that land would be transferred out of the PGUT before the units were sold. The land to which he referred was the land close to Eaton Square. The letter suggested that the development of units on the land outside Eaton Square should be covered by a separate development agreement. With respect to Clause 3 of the draft HOA, Pedler informed Mountford that there were 19 additional units under construction in Eaton Square and that the proposed HOA should record that PG Properties was entitled to the gross proceeds, and not the net proceeds, of the sale of licences to occupy those units.

Clearly then at that point in time both parties were proceeding on the basis that ownership of the additional units would remain with the Pierce Group entities, which were to be transferred to Meridien. It was a necessary consequence of that arrangement that PG Properties would be bound to accept, as the purchase price of the additional units, whatever it could obtain as a premium on the licensing of those units plus the DMF value, which would also be calculated by reference to that premium.
In a response dated 1 February 2007, Mountford asked for clarification of the number of additional units. Mountford also proposed that the future development land be left in the trusts that were to be transferred but subject to a development agreement pursuant to which Palm Gardens would receive the premium and the DMF on the licensing of any additional units but then pay to PG Properties an equal amount by way of a development fee. The payment of the development fee was to be secured by a promissory note. Importantly, because the contemplated purchase price was calculated by reference to the DMF of occupied units and did not therefore include any value for the undeveloped land, Mountford added:
To address the fact that your client may ultimately decide not to proceed with these developments, your client could be granted options to acquire the land at a later date to be agreed, for nominal value.
It is of some significance that an option to purchase back the additional units in Eaton Square was not mentioned by either Pedler or Mountford. The inference to be drawn is, again, that, for so long as the additional units remained in the Pierce Group entities which were to be transferred, the purchase price would be whatever PG Properties could obtain on the licensing of the additional units plus the related DMF.
A further draft of the HOA was sent with Mountford’s letter. It included a new cl 5 which provided that the future development land, which was treated differently to the additional units in Eaton Square, could be dealt with either by leaving it in or transferring it out of the trusts that were to be transferred. Clause 3 of the HOA was also amended to provide that the parties would enter into an option agreement for the purchase of the Maitrix shares and units. It is not clear to me why it was decided to enter into a Put and Call option agreement prior to entering into a share and unit purchase agreement. The early entry into an option agreement may have been a response to concerns that the HOA itself was not sufficiently certain to be legally binding.
Pedler replied on the same day, informing Mountford that there were 19 independent living units which had been constructed in Eaton Square and were currently being marketed by it. He advised that only two of those units, units 33 and 35, were included in a schedule of the dwellings comprising the Magill Retirement Village provided to Palm Gardens shortly before Christmas 2006. He also informed Mountford that if the future development land were excluded from the transaction it would not be transferred out of the trust: instead the PGUT would be “split”. A trust is “split” by appointing a different trustee to hold some of the assets of the trust.
Yet a further draft of the HOA was sent by Mountford that night. It referred to the units nearing completion. That draft again differentiated between the units within Eaton Square and the future development land. Clause 3 provided that if the 19 additional units were not unconditionally licensed by settlement of the share and unit transfer agreement then the purchaser would pay to the vendor 93% of the agreed market value of those units. However, Mountford acknowledged, in an accompanying email, that the parties were to negotiate further over the price to be paid for additional units on the following day, Friday 2 February 2007. A later email from Pedler recorded that it was agreed in those negotiations that the licensees would pay PG Properties the gross licence fees and that Palm Gardens would pay PG Properties the DMF proportion.
On 5 February 2007, Mountford sent a further draft of the proposed HOA. The draft fixed the consideration for the share and unit transfer at $17,250,000. A schedule attached to the email listed the unit numbers and occupants of all the units in the several retirement villages which were to be the subject of the sale. With respect to the independent living units in Eaton Square, units 25-32 and 48-49 were listed on the schedule and shown to have been occupied for a number of years before negotiations for the sale of the villages had commenced. Units 33 and 35 were also included in the schedule. The schedule showed that licensing agreements for those two units had been entered into with named individuals but no occupancy date was recorded. A note on the schedule recorded that units 33 to 47 were not yet constructed. There was no reference at all to units 67 to 70.
The draft HOA proceeded on the assumption that some units on the land held in the trusts that were to be transferred were still to be licensed. It provided that entities related to PG Properties would receive the premium paid with respect to the additional units licensed before the share and unit transfer agreements were completed and 93% of the premium paid for licenses after that date.
The draft made special arrangements for the construction of units on the future development land outside of Eaton Square.
On 5 February 2007 Pedler made the following comments on the draft HOA insofar as it concerned the Magill Retirement Village:
With the 19 Magill Apartments of which 17 are not in the schedule, if not licensed at completion stage 2 the vendor is entitled to the gross licence fee as the units are licensed (not 93%) and in respect of 17 not in the schedule a DMF based on the formula in 5.7(b). Also for the two in the schedule a check must be made the DMF has been properly calculated. This does not need to be in the HOA.
The differential treatment of the additional units was necessary because the DMF for units 33 and 35, but not the other 17 additional units, was meant to have been included in the consideration agreed between PG Properties and Meridien and stipulated in the draft of the HOA. The DMF for the additional units could not be calculated until the proposed occupants and premium paid were known because the DMF, which varied according to the age of the resident, was calculated as a percentage of the premium.
The HOA was finally executed on 12 February 2007. Clause 2 provided that the parties would enter into a put and call Option Deed for the purchase and sale of shares and units in Maitrix Pty Ltd and the Maitrix Trust respectively. Those Pierce Group entities held the legal and beneficial ownership of the land and business assets which comprised the Magill Retirement Village. The purchase price stipulated in the HOA was calculated by reference to the DMF payable on all of the occupied units and units 33 and 35, which were, at that time, licensed but not occupied. For that reason the HOA provided that the Pierce Group entity which was the vendor of the shares in PG Properties which held the title to the additional units (Timu Pty Ltd) would be entitled, in addition to the agreed consideration, to receive the gross licence fee in respect of units 33 and 35 and both the gross licence fee and a payment reflecting the DMF with respect to the other 17 additional units in Eaton Square.
The HOA did not allow for a Pierce Group entity to buy back the additional units, or to receive compensation if the additional units were not licensed, and therefore under its terms the Pierce Group was bound to accept whatever it could obtain on the licensing of those units.
Pursuant to the executed HOA the future development land outside of Eaton Square was to be the subject of a separately negotiated agreement which could take two alternative forms. The first alternative contemplated by the HOA was that the PGUT, the trust that owned the land on which the Magill Retirement Village was built as well as the land in Eaton Square and the future development land, would be split. The trust left holding the development land would remain in the control of a Pierce Group entity. That Pierce Group entity would then enter into an Option Agreement under which Meridien could acquire the land once the development of each parcel was complete. The second alternative was that the future development land would remain within the Pierce Group entity that was to be purchased by Meridien.
In either case the HOA provided that Meridien would engage a Pierce Group entity to develop the land to the point of licensing the independent living units that were to be constructed. The HOA provided that under the negotiated development agreement the Pierce Group entity would receive the gross licence fee and a further amount reflecting the DMF payable by the licensee of each independent living unit. If the second alternative were to be adopted the HOA provided that the vendor would be given security over that land and an option to buy it back for a nominal consideration in the event that the parties did not proceed with the development of the land.
On 22 March 2007, Pedler sent Mountford copies of the statutory notification given by PG Properties to the Registrar of Retirement Villages of the prescribed particulars for the retirement villages. Palm Gardens relies on Pedler’s provision of that document as a representation that all of the additional units would be transferred to it.
PG Properties had notified the Registrar under the RVA in November 2006 that it administered a scheme with respect to the Magill Estate Retirement Village comprising 70 independent living units and 20 serviced apartments. The Magill Village could only be said to comprise 70 independent living units if all of the additional units in Eaton Square were included. The notification given to the Registrar included references to the Certificates of Title relating to the additional units in Eaton Square, including those units that PG Properties now proposes to sell as residences. The notification confirmed that all of the affected Certificates of Title were endorsed to the effect that they were part of a retirement village scheme. The relevant Certificates of Title had in fact been endorsed pursuant to the RVA. However for the reasons I have given that endorsement can be cancelled by the Registrar-General pursuant to s 33(4) of the RVA and therefore does not preclude the redevelopment of the additional units as domestic residences.
A number of versions of the option arrangement contemplated by clause 5 of the HOA were drafted. The draft developed by 30 March 2007 (the “30 March draft”) anticipated that the existing Magill Village, the future development land and the land within Eaton Square on which the additional units were constructed would be held by a trust referred to as the Meridien Retirement Living (Palm Gardens) Unit Trust or the PGUT-A. The 30 March draft option agreement gave to Palm Gardens an option to purchase the shares in the trustee of the PGUT-A trust and the PGUT-A units. The option was to be exercised in accordance with an annexed share and unit sale agreement.
The 30 March draft option was subject to Palm Gardens successfully negotiating a development agreement with a Pierce Group entity (the developer). Clause 6.2 of the 30 March draft contemplated that the developer would take a lease over and develop the future development land in accordance with the development agreement which was to be negotiated. The developer would then market the independent living units as they were completed and licence residents under contracts which were substantially the same or superior to the arrangements contained in the existing residents’ contracts in place at the Magill Retirement Village. Clauses 6.2(i) and 6.3 of the 30 March draft option agreement contemplated that the proposed development agreement would entitle the developer to retain the licence fee on each unit and to the payment of a further sum equal to the DMF payable by each licensee. Clause 6.4 also provided for the parties to negotiate compensation for the developer if “for any reason” it was unable to complete the development. That clause was necessary because the 30 March draft option agreement contemplated that the units in the PGUT-A would be transferred before the development was completed. If new independent living units were not constructed on the future development land and licensed the Pierce Group would have parted with the land for no consideration because, although the land remained within the PGUT-A trust, the consideration paid for the units in that trust was calculated by reference only to the DMF payable on units that were already licensed.
Importantly the approach taken to the additional units and the future development land changed after 30 March 2007. On that day Pedler wrote to Mountford and advised him that Ms Pierce was “concerned about transferring … the unsold units and development land at Magill”. The “unsold units” was of course a reference to the additional units within Eaton Square which had been constructed but had not yet been licensed and the reference to “development land” was a reference to the completely undeveloped land outside Eaton Square. Pedler informed Mountford that Ms Pierce wanted “to leave this land out of the transaction until it has been developed”. The reason for Ms Pierce’s concern disclosed in the email was the apparent inadequacy of the “the guarantee of the purchaser”. It may also have been related to the taxation implications of the transaction or even the commercial consequences of committing to a transfer of the future development land and additional units for a consideration that remained uncertain.
The following passages from the affidavit of Trevor Paul Edmond sworn on 13 July 2009 explain something of the possible taxation implications:
10.Mr Mountford informed me that the Pierce Group expressed the wish to ensure the transaction was effected in the most tax effective way for the Group, by the Defendant (or an entity within the Pierce Group) being the recipient of the first licence fee paid by a resident, rather than having the purchase price for the shares or units or, at some later stage, the purchase price of the land inflated to reflect the potential gain realised upon such licenses being entered into.
11.That accorded with my understanding of and was consistent with the Commonwealth Commissioner of Income Taxation’s Ruling TR2002/14 (‘the Tax Ruling’). In accordance with the Tax Ruling, subject to the terms of the documentation between a retirement village operator and a resident, the payment by a resident to a retirement village operator is a loan and thus the gain (the difference between the cost of building the unit and the first licence fee), is not assessable for tax either as a capital gain or as income. If the Pierce Group had sold the units unoccupied in consideration for an amount equal to the proposed loan, the amount would have been subject to Capital Gains Tax. Now produced and shown to me and marked ‘TPE5’ is a copy of the Tax Ruling.
12.I also recall during this period, discussing with Mr Mountford the possibility of the land on which the 19 units were situated upon, being part of the transaction and transferred at settlement with an entity within the Pierce Group acting as Developer and receiving a Fee. Clause 6.2 of the draft deed exhibited as ‘PDP-1’ to the Pedler Affidavit reflects this possibility and being told by him that, for taxation reasons, Pierce did not wish to proceed on that basis.
13.Once again, from my knowledge and understanding of taxation issues, this accorded with my understanding that the amount of the Development Fee would be treated as income to the Pierce Group and liable to income tax.
Attached to the email of 30 March 2007 was a document which set out the Certificates of Title which were said to comprise the existing village. The land described in each of those 11 Certificates of Title was eventually transferred on 1 September 2007 on settlement of the land and business sale. Under the heading “New Units/Development Land”, five Certificates of Title comprising land within Eaton Square were identified. One of those Certificates of Title comprised the land on which units 33, 34 and 35 were built; that land was ultimately included in the contract of sale executed on 1 September 2007 because units 33 and 35 were licensed by that time. The future development land outside of Eaton Square was not referred to in that list at all.
As a result, another draft of the option agreement for the purchase of the units and shares in the entities entitled to the land and business assets of the Magill Retirement Village was drawn. It was executed on 5 April 2007 and I will refer to it as the April agreement. The April agreement was subject to, and conditional upon, Palm Gardens being satisfied with the results of a due diligence investigation of the Pierce Group entities. The April agreement was to be preceded by, and operate on, a splitting of the PGUT. PG Properties was the trustee of the PGUT. The split was affected by a Deed of Appointment of a New Trustee dated 5 April 2007. By that Deed another Pierce Group entity was appointed trustee of the land and assets of the existing Magill Estate Retirement Village. That land and the assets of the Magill Estate Retirement Village were referred to as the affected property, and the trust as the PGUT-A trust. It was intended that the units in the PGUT-A would pass to Meridien pursuant to the share unit transfers contemplated by the HOA. PG Properties continued as trustee of the PGUT, which continued to hold the remaining property of the PGUT trust, including the additional units in Eaton Square and the future development land.
Clause 6 of the April agreement recited that the PGUT was the owner of the development land, which included the additional units, and that it would enter into a development agreement with the PGUT-A. The making of the development agreement was a condition precedent to the April agreement. The development agreement would give the PGUT-A an option to acquire the land once it had been developed. The option given by the development agreement contemplated by cl 6 would be exercisable after the additional units were licensed. The PGUT, as the developer, would be entitled to retain the premium obtained by it from the licensed residents and to an additional amount based on the DMF from the PGUT-A. The April agreement did not provide for the negotiation of compensation in the event that the additional units were not licensed because, unless and until the development was complete and the option exercised, the additional units would remain the property of the PGUT and therefore under the control of the Pierce Group. Although it is not completely clear, the April agreement appears to contemplate that under the development agreement the developer would be bound to license the additional units and the independent living units on the future development land because it provided that “the performance of the developer will be guaranteed by the vendors”. If the development, up to and including the licensing of the additional units, was intended to be no more than an event which would enliven the right to exercise the option, no guarantee would have been required. Other terms of the development agreement contemplated by the April agreement also appear to assume an obligation to develop the land.
However, by letter dated 17 April 2007, Mountford informed Pedler that Meridien was not satisfied with the results of its due diligence investigation of the Pierce Group entities and that it would not waive the due diligence condition precedent. According to Taylor, as a result of that investigation:
The form of the ultimate transaction changed from a sale of shares and units to a transfer of assets ‘because of concerns about taxation issues associated with the entities owning and operating the villages at Harwin and Clearview which were disclosed during due diligence’.

Mountford’s letter of 17 April 2007 effectively terminated the April agreement.
Thereafter the parties negotiated the sale, and prepared documentation, on the basis that the land and other business assets comprising the retirement villages would be transferred from PG Properties and other Pierce Group entities to Palm Gardens, which was to be the corporate vehicle through which Meridien would hold those assets.
Mr Taylor deposed that during the course of those negotiations Ms Pierce proposed that, in order for Ms Pierce to receive the benefit of the first licence payment from residents rather than a development fee from Meridien, the newly constructed independent living units at Magill Village be transferred only after each was occupied. Representatives of PG Properties advised Mr Taylor that there were taxation advantages to PG Properties in proceeding in that way. For its part Meridien preferred to acquire the remaining newly constructed independent living units together rather than on a piecemeal basis and for that reason the parties agreed to proceed by way of the Option Deed.
The land and business sale agreement was executed on 1 September 2007. By that time units 33 and 35 had been completed, licensed and occupied. The title upon which those units were built was included within the land sale transaction documents. Unit 34 is also included within that Certificate of Title. The land on which the remaining 16 units in Eaton Square were constructed was not transferred; it was the subject of the Option Deed which was also executed on that same day.
To allow for the fact that the remaining units would be licensed over time, Palm Gardens and PG Properties entered into an agreement for the provision of services to the occupants of the additional units as they were licensed. The terms of the agreement are contained in a letter referred to as the management letter. Pursuant to that agreement Palm Gardens was entitled to charge PG Properties an amount equal to the recurrent fee payable by the individual residents of the Magill Retirement Village under the terms of their licence. Five units have been licensed as retirement village units since that time and Palm Gardens has provided services pursuant to the terms of the management letter. The services provided include the provision of personal services to the residents, the calculation of the recurrent fee payable by them, the provision of routine repairs and maintenance and the grant of a licence to use communal facilities in the Magill Retirement Village.
Mr Taylor has deposed that he would not have agreed to enter into the management agreement and the provision of those services if he had understood that there was a potential that some or all of the 19 additional units which were being constructed in Eaton Square and marketed as retirement villages during the negotiations would not ultimately be incorporated in the Magill Village. Mr Taylor also deposes that Palm Gardens would not have bought units 48 and 49, which are located on an allotment in Eaton Square but are separated from the other independent living units transferred to Palm Gardens on settlement of the land and business sales by the additional units, if it had appreciated that all of the additional units would not be transferred.
The Option Deed
It is now convenient to set out the terms of the Option Deed executed on 1 September 2007 which bear most critically on the interest claimed by the plaintiff. The parties to the Deed are PG Properties, which was described as the landowner of the land subject to the option arrangement, and Palm Gardens, which is the purchaser. Another Pierce Group entity, PGRV, is also a party. PGRV was intended to be the administrator of the retirement village scheme to which the remaining units would belong from the time they were licensed and until such time as either of the options were exercised. It was necessarily a party so that the transfer of the residence licences could be effected. PGRV held the residence licenses as a trustee and for that reason the owner of the units in that trust, another Pierce Group entity, Timu Pty Ltd, is also a party. The units held by Timu were also subject to the options.
The Option Deed recites the following facts:
BACKGROUND
A. The Landowner owns the Land.
B.The Landowner intends to cause the Village to be developed on the land with the intent that the Landowner will carry on the Business on the Land.
C.PGRV will be the administering authority of the Village, once developed.
D.The Unit Vendor is the sole unitholder in the Trust.
E.The Landowner and the Unit Vendor (collectively, the Vendors) have agreed to grant to the Purchaser the Call Option and the Purchaser has agreed to grant to the Vendors the Put Option in respect of the acquisition of the Land, the Business, the Assets and the Sale units subject to the terms and conditions of this Deed.
The presently relevant operative clauses of the Option Deed provide:[4]
[4]    The meaning of defined terms is included in square brackets within the text of the clauses.
2.1Conditions Precedent
This Deed is subject to and conditional upon:
(a)the Purchaser becoming the operator of the Existing Village;
(b)     the Land being Fully Developed by the Sunset Date [3 years from the date of the Option Deed – 1 September 2010], with the intent that the Purchaser shall, upon exercise of the Put Option or the Call Option, acquire a registered Retirement Village Scheme;
(c)     the Residence Contracts being substantially the same or superior to the arrangements contained in the residence contracts in place at the Existing Village at the time that each of the Residence Contracts was entered into and, in particular, the DMF regime in the Residence Contracts being substantially the same or superior to the arrangements contained in the residence contracts in place at the Existing Village;
(d)     there being no material breach of any of the Warranties on the day immediately preceding the Option Commencement Date.
(Conditions Precedent).
2.2     Meaning of Fully Developed
For the purposes of this Deed, the Land shall be taken to be Fully Developed when:
(a)     the Landowner gives notice in writing to the Purchaser that no further buildings are to be constructed on the Land; and
(b)     all buildings constructed, on the Land, have reached Practical Completion [unit can be lawfully occupied by a resident]; and
(c)     PGRV (as administering authority of the Village) has entered into a Residence Contract in respect of each and every Unit constructed, or to be constructed, on the Land.
2.3     Waiver
The Conditions Precedent are for the benefit of the Purchaser and may only be waived by the Purchaser in writing.
2.4Deed Terminated
In the event that:
(a)     the Condition Precedent in clause 2.1(b) is not satisfied or waived by the Sunset Date; or
(b)     any of the other Conditions Precedent in clause 2.1 are not satisfied or waived by Option Commencement Date [date on which Notice referred to in 2.2(a) is given],
then:
(c)     this Deed shall be immediately terminated and no party shall be under any liability to the other;
(d)     without limiting the generality of paragraph (c), in the event that this Deed is terminated in accordance with paragraph (c), then:
(i)the Call Option shall be taken to have lapsed and expired and shall no longer be capable of being exercised;
(ii)the Put Option shall be taken to have lapsed and expired and shall no longer be capable of being exercised.
…
3.     CALL OPTION
Subject to clause 2, in consideration of the payment by the Purchaser to the Vendors of the sum of ten Australian Dollars ($A10.00), the receipt of which the Vendors hereby acknowledge, the Vendors hereby grant to the Purchaser, an option (the Call Option) exercisable by the Purchaser at any time during the Option Exercise Period [period of 30 days after option commencement date ie. date of cl 2.2(a) notice] to purchase from the Vendors (and to require the Vendors to sell to the Purchaser) the Land, the Business, the assets and the Sale Units for the Purchase Price determined in accordance with clause 6 and upon the terms and conditions contained in the Sale Agreements.
…
5.PUT OPTION
Subject to clause 2, in consideration of the payment by the Vendors to the Purchaser of the sum of ten Australian Dollars ($A10.00), the receipt of which the Purchaser hereby acknowledges, the Purchaser hereby grants to the Vendors an option (the Put Option) exercisable by the Vendors at any time during the Option Exercise Period to sell to the Purchaser (and to require the Purchaser to purchase from the Vendors) the Land, the Business, the Assets and the Sale Units for the Purchase Price determined in accordance with clause 6 and upon the terms and conditions contained in the Sale Agreements.
…
6.1Purchase Price
If:
(a)The Purchaser validly exercises the Call Option; or
(b)the Vendors validly exercise the Put Option,
the price (Purchase Price) at which the Vendor shall sell, and the Purchaser shall Purchase, the Land, the Business, the Assets and the Sale Units shall be equal to the percentage of future DMF in respect of each Unit at the Village having regard to the age of the resident in the Unit in accordance with the following scale:
Age%DMF
60-656.85%
66-708.25%
71-7516.00%
76-8021.75%
80+31.00%
8.1Deemed entry into Sale Agreements
If:
(a)the Purchaser validly exercises the Call Option; or
(b)the Vendors validly exercise the Put Option,
the parties (including the warrantor) shall, subject to clause 7, for all purposes be deemed to have entered into and be bound in all respects by the terms of the Sale Agreements and:
(c)the parties shall comply with their respective obligations under the Sale Agreements; and
(d)the Sale Agreements shall be enforceable by and against all of the parties,
as though the Sale Agreements had been duly executed by the parties.
…
13.11Entire Agreement
This Deed supersedes all prior representations, arrangements, understandings and agreements between the parties and represents the entire complete and exclusive understanding and agreement between the parties. The parties acknowledge and agree that they have not relied on any written or oral representation, arrangement, understanding or agreement not expressly set out or referred to in the Deed.
A number of features of the Option Deed can immediately be noticed. First, there is no express obligation on PG Properties or PGRV to license the dwellings on the land as retirement village units. Indeed the recital records that the grant of the mutual options anticipates the product of what is no more than the intention of PG Properties to develop the land. The absence of the obligation may well be related to the desire of the parties, and PG Properties in particular, to avoid the taxation consequences, referred to in the affidavit of Mr Edmond’s cited above, if the Option Deed were to be characterised as a development agreement.
Secondly, the conditions precedent on their face appear to be conditions precedent to the legal existence of the Deed and not just to some of its operative terms. However, the option clauses acknowledge the payment of a purchase price for the options and it is inconceivable that the parties contemplated that they could unilaterally withdraw from the arrangements before notice that the land was fully developed could be given. The effect of that construction would be that even if the units were fully developed by the Sunset Date the Option Deed would be ineffective. For those reasons the approach taken by Mason J in Perri v Coolangatta Investments Pty Ltd[5] should be applied here.
[5] (1982) 149 CLR 537 at 552.
Thirdly, the definition of “fully developed” is not satisfied merely when all of the additional units have reached practical completion; it is not satisfied until PGRV has entered into residence contracts and PG Properties has given notice that no further buildings are to be constructed on the land. I would accept that PG Properties could not frustrate the operation of the Option Deed by refusing to give the prescribed notice even after all of the remaining units were licensed. For that reason the notice requirement could be waived by Palm Gardens. However the same approach cannot be taken to the failure by PGRV to successfully negotiate licenses for the remaining units because unless the units are licensed the DMF, and therefore the consideration could not be calculated. It follows that on the express terms of the Option Deed the effectiveness of the Call Option granted to Palm Gardens was, by and large, controlled by the Pierce Group entities.
Fourthly, on the face of it the development condition precedent, including the Sunset Date, can be waived by Palm Gardens pursuant to cl 2.3 (the “waiver provision”). However, Mr Wells QC submitted that I should find that the Sunset Date could not be waived notwithstanding the terms of the waiver provision. I take that submission to mean that Palm Gardens accepts that it could not, by unilaterally moving the Sunset Date into the future, exercise its Call Option and oblige PG Properties to sell the additional units to it if they were all licensed after the Sunset Date of 1 September 2010. Palm Gardens could of course waive the Sunset Date for the purpose of binding itself to purchase the additional units if PG Properties exercised its Put Option after the Sunset Date, but that is quite a different question. Indeed if Palm Gardens chose to accept an offer put by PG Properties after the Sunset Date, the obligation it would thereby assume would not need to be found in the Option Deed to have legal effect. In my view, on a proper construction of the condition precedent and the waiver clause, the latter applies to the requirement of “full development” by the Sunset Date and not to the date itself. The effect is that if before the Sunset Date some but not all of the additional units were licensed, Palm Gardens could waive the development precondition and call for the sale of those units. Again I would accept that Palm Gardens could waive the requirement of notice if PG Properties failed to give one after all, or even some of, the remaining units were licensed.
Once it is accepted that the Sunset Date under the Option Deed cannot be extended by Palm Gardens for the purpose of it exercising its Call Option against PG Properties, the practical possibility that market conditions may not allow the licensing of all of the additional units within the option period must also be accepted unless PG Properties was bound by an implied term of the agreement to license the additional units by discounting its asking price as far as it was necessary, to achieve that purpose. There is no conduct oral or otherwise that would support such an implication. It is not necessary to imply such a term to give the Option Deed business efficacy. A term so one sided could not be reasonably inferred.[6] The parties subscribing to the Option Agreement must be taken to have recognised that in the event that the Pierce Group could not achieve an acceptable premium there would be no obligation on PG Properties to transfer the remaining units.
[6] Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Aust) Ltd (1986) 160 CLR 226; Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337.
Fifthly, it follows from the very nature of the Option Deed that Palm Gardens may decide not to exercise its Call Option and that PG Properties may decide not to exercise its Put Option. The options will not be exercised if it is not in the economic interests of either of the parties to exercise their rights under the Option Deed even if the land is fully developed before the Sunset Date. If neither party exercises the power available to insist on the sale of the remaining units, PG Properties would necessarily remain the owner of the land.
Sixthly, if the land is not fully developed and licensed by the Sunset Date, the Option Deed does not provide a formula by which the consideration for the transfer of the land could be ascertained. In this respect it must be remembered that the consideration payable by Palm Gardens is only part of the consideration that PG Properties was to receive; PG Properties is also entitled to retain the premium paid on the licensing of each unit. However, the Option Deed does not impose any obligation on PG Properties to license the additional units by reference, for example, to a minimum premium. Moreover, the requirement in the Option Deed that the terms of the licensing agreements made by PG Properties over the additional units not be less advantageous to the operator of the Magill Retirement Village than existing licenses potentially constrains the capacity of PG Properties to obtain a premium that gave it the return it desired. The parties must therefore have contemplated that the additional units might not be licensed by the Sunset Date and that therefore Palm Gardens would not acquire the land.
The competing constructions of the Option Deed may both be thought to lead to surprising results. On the one hand, in the absence of an implied term to develop the land by the Sunset Date, the option sold to Palm Gardens is of limited value. On the other hand, if an obligation to develop is implied, PG Properties is left to the mercy of the market and the standard residence contracts adopted by Palm Gardens in attempting to recover a reasonable price for the remaining units. In my view, however neither consequence is such as to require anything other than a construction which accords with the plain words of the Option Deed.
In particular, the Call Option bought by Palm Gardens is certainly not valueless. If the units are fully developed, in the sense of being licensed by the Sunset Date, Palm Gardens could insist on the sale to it of what would be in effect a competing retirement village on its doorstep. Moreover, if all of the additional units are not licensed by that date, it could waive the full development clause and insist on the sale of those additional units which had been licensed. Even though there was no obligation on PG Properties and PGRV to bring any of the additional units to that state of development, Palm Gardens could rely on PG Properties’ desire to profit from the licensing of the remaining units. Viewed objectively, the possibility that PG Properties might not be offered enough for the residence contracts to induce it to license some or all of the additional units by the Sunset Date is obvious enough. Nonetheless Palm Gardens was sufficiently protected by being able to call for the sale of such of the additional units as were licensed by that date. It follows that the call option purchased by Palm Gardens was of real value notwithstanding the contingency on which its exercise was dependent.
On the other hand, as far as PG Properties is concerned, the fact that on the construction urged by Palm Gardens it would be bound to license additional units by the Sunset Date for whatever premium it could get, would not be a reason to depart from the plain meaning of the Option Deed; parties to commercial contracts often take risks of that type.
However, here the plain words of the Option Deed accord with the construction contended for by PG Properties. There is no obligation on it to develop at all. That it would have been possible to include an obligation to license the units could hardly have escaped the attention of Palm Gardens which was at all times legally advised; its solicitors drew the Option Deed. The April agreement had at least hinted that the development option agreement it contemplated would impose obligations to develop. The express words of the Option Deed allowed PG Properties unfettered freedom of action as to the licensing of the additional units, in my view, on the assumption that the profit motive was sufficient to cause it to license the units. Moreover, it appears that the parties to the Option Deed may have been concerned to bestow that freedom on PG Properties lest the Option Deed attract adverse taxation treatment. It is not to the point that the taxation burden would have fallen on PG Properties; unless the burden could be avoided there may have been no deal at all. I cannot see any basis for the implication of a term requiring PG Properties to license the additional units by the Sunset Date. Palm Gardens has failed to make out a prima facie case for such an implied term.
No caveatable interest under the Option Deed

It is next necessary to address the issue whether, on the construction I would give the Option Deed, Palm Gardens has a caveatable interest over the additional units.
In Laybutt v Amoco Australia Pty Limited,[7] Gibbs CJ referred to the controversy over the proper characterisations of the nature of an option to purchase.[8]
[7] (1974) 132 CLR 57.
[8] (1974) 132 CLR 57 at 71-2.
Gibbs CJ then gave several reasons based in principle which supported the majority view in Carter v Hyde.[9] First, it is established that an option creates an equitable interest in the subject land and such an interest cannot be created by a mere offer even if it be irrevocable; but, on the other hand, a conditional contract to sell does create a contingent equitable interest. Secondly, it is established that a grantee may effectively exercise an option even if the grantor has revoked it. If an option were no more than a contract not to revoke an offer, one would expect that damages would be the only remedy for breach; specific performance could hardly be granted to prevent revocation of an offer after it had already been revoked. For those reasons Gibbs CJ considered:
… that an option to purchase (at least one in a form similar to that in the present case) is a contract to sell the land upon condition that the grantee gives the notice and does the other things stipulated in the option. An option to purchase, regarded in that way, is not an agreement which gives one of the parties the right to perform it or not as he chooses; it gives the grantee the right, if he performs the stipulated conditions, to become the purchaser.[10] (footnotes omitted)
[9] (1923) 33 CLR 115.
[10] Laybutt v Amoco Australia Pty Limited (1974) 132 CLR 57 at 76.
There is no doubt that the form of the option in this case is a conditional contract for sale in the sense that the land must be transferred on the exercise of the option; see cl 8.1. However, an issue remains whether an option, even in this form, which is subject to a condition precedent which can only be fulfilled by the action of a person, other than the prospective purchaser, confers on the purchaser an equitable interest in land which may be caveated.
Section 191 of the Real Property Act 1886 provides:
Any settlor of land or beneficiary claiming under a will or settlement, or any person claiming to be interested at law or in equity, whether under an agreement, or under an unregistered instrument, or otherwise howsoever in any land, may lodge a caveat with the Registrar-General forbidding the registration of any dealing with such land, either absolutely or unless such dealing shall be expressed to be subject to the claim of the caveator, or to any conditions conformable to law expressed therein.
The question is whether all rights related to property which might be protected by equity bring the holder within the terms “person … interested in law or equity … in any land”. In the case before me, the grantee of the option cannot unilaterally insist on the transfer of the land because the operation of the option is contingent, for the reasons I have given, on the licensing of the units by the grantor.[11]
[11] See also the discussion in Meagher, Heydon and Leeming, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (4^th ed, 2002) at [17]-[20].
In Ovenden v Palyaris,[12] the Full Court of this Court considered the nature of a purchaser’s interest under a contract for the sale of land which was “subject to the units being granted strata titles”. Bray CJ said:
I think after examining the contract here that the condition in question is a true condition precedent. The respondent, as far as I can see, is under no liability at all, apart from the payment of the deposit, before the grant of strata titles. The printed clause providing that the property shall be at the risk of the purchaser from the date of the contract is altered. The word ‘purchaser’ is struck out and the word ‘vendor’ substituted in handwriting. The condition in question appears as the second of three conditions. The first relates to the obtaining of finance and this is perhaps equivocal on the question of condition precedent or condition subsequent. The third, however, reads:
‘This contract is subject to the Purchaser's husband's approval, to be advised no later that (sic) 5 p.m. Friday 13th July 1973.’
Clearly enough that is a true condition precedent. Noscitur a sociis. I think the condition about the granting of strata titles is also a true condition precedent. Until that grant ‘the bargain was not absolute, but inchoate only’; Roach v Bickle, at p 671. The obligations of the parties were only potential until the fulfilment of the condition.
It may be said that if this is so there was no caveatable interest; the respondent did not on the execution of the contract become the equitable owner of the land; she could not at that date have obtained a decree of specific performance (Halsbury, 3rd ed. vol. 36, p. 310, par. 445). I think all these things are true and it may well be that she had no caveatable interest when she lodged the first caveat on the undivided title. But the present caveat was lodged after the strata titles had issued and the right which was formerly inchoate and potential had become crystallised and actual by the fulfilment of the condition. I take it that all the other conditions had been fulfilled also: at least it was not suggested otherwise.[13]
[12] (1974) 11 SASR 65.
[13] Ovenden v Palyaris (1974) 11 SASR 65 at 75-6.
It appears to me that, with respect, the decision in Palyaris may rest on the conclusion that the condition to the contract in that case was a “true condition precedent”. On that construction no legally binding agreement was yet operative and therefore no equitable interest in the property could be claimed through it.
A wider view of what might constitute an equitable interest appears to be supported by the following passage from Stern v McArthur:[14]
Any right to equitable ownership on the part of the purchaser is contingent only, being subject to the payment of the purchase money and being said to exist only so long as the contract remains specifically enforceable at his suit.
… it is not really possible with accuracy to go further than to say that the purchaser acquires an equitable interest in the land sold and to that extent the beneficial interest of the vendor in the land is diminished. The extent of the purchaser’s interest is to be measured by the protection which equity will afford to the purchaser. That is really what is meant when it is said that the purchaser’s interest exists only so long as the contract is specifically enforceable by him. Specific performance in this context does not mean specific performance in the strict or technical sense of requiring the contract to be performed in accordance with its terms. Rather it encompasses all of those remedies available to the purchaser in equity to protect the interest which he has acquired under the contract.[15]
[14] (1988) 165 CLR 489.
[15] (1988) 165 CLR 489 at 522-3.
In Re CM Group Pty Ltd’s Caveat,[16] Dowsett J followed the decision in Palyaris, and the Queensland decision of Re Bosca Land Pty Ltd’s Caveat,[17] even though he had some reservations about the correctness of those decisions, based in part on the passage I have just cited from Stern. Dowsett J found that the contingent nature of the equitable interest in that case meant that it could not be protected by a caveat.
[16] [1986] 1 Qd R 381.
[17] [1976] Qd R 119.
In Kuper v Keywest Constructions Pty Ltd,[18] Malcolm CJ considered the authorities and, relying on Stern, took a different view. The contract for the sale of land in that case was conditional on the registration of a strata plan. Malcolm CJ said:
In my opinion, in appropriate circumstances, a Court would be prepared to protect a purchaser’s interest under a contract such as that in the present case, at the so-called inchoate stage, both by granting specific performance in the sense of requiring the vendor to do all things necessary to be done to procure registration of the strata plan, as well as restraining the vendor by injunction from dealing with the land inconsistently with the purchaser’s right to specific performance of the contract, both in the special sense and, subject to fulfilment of the condition, in the ordinary sense: cf Parkenham Upper Fruit Co Ltd v Crosby (1924) 35 CLR 386 at 396-399, per Isaacs and Rich JJ.
In my opinion the estate or interest claimed by the purchasers under the contracts was sufficient to ground a caveatable equitable interest in the relevant land, notwithstanding the conditional nature of the contracts.[19]
[18] (1990) 3 WAR 419.
[19] Kuper v Keywest Constructions Pty Ltd (1990) 3 WAR 419 at 432.
In GPT Re Ltd v Lend Lease Real Estate Investments Ltd,[20] White J also took a wider view of the nature of an equitable interest but, in the context of a dispute over a contractual provision which prohibited the disposition or alienation of property, said:
Notwithstanding the criticism of this statement by Meagher JA in Chief Commissioner of Stamp Duties v ISPT Pty Ltd [1998] 45 NSWLR 639 at 654-5 noted by the High Court in Tanwar Enterprises Pty Ltd v Cauchi (2003) 77 ALJR 1853 at 1863, it is a considered statement of principle which, following Chan v Cresdon Pty Ltd, is binding on me. It is the basis of many decisions which have recognised that a purchaser under a contract, where the vendor's obligation to convey is subject to an unfulfilled condition, has an equitable interest in the property which is sufficient to support a caveat, notwithstanding that the purchaser is not then entitled to an order for specific performance of the vendor's obligation to convey, but is entitled only to equitable relief in the form of an order to compel the vendor to do that which is necessary on his part to be done to cause the condition to be satisfied, (Butts v O'Dwyer (1952) 87 CLR 267 at 282-283), and an injunction to restrain the vendor from dealing with the land inconsistently with the purchaser's contractual rights. (Kuper v Keywest Constructions Pty Ltd & Anor (1990) 3 WAR 419 at 432; Jessica Holdings Pty Ltd v Anglican Property Trust Diocese of Sydney [1992] 27 NSWLR 140 at 150-152; Re Henderson's Caveat [1998] 1 Qd R 632 at 637-638, 642; Forder & Ors v Cemcorp Pty Ltd [2001] 51 NSWLR 486 at 492; and see Sahade v BP Australia Pty Ltd (2004) 12 BPR 22,149 at [37]-[46]).[21]
[20] [2005] NSWSC 964.
[21] GPT Re Ltd v Lend Lease Real Estate Investments Ltd [2005] NSWSC 964 at [55]
However, White J confessed to:
… difficulties in conceptualising a proprietary interest in terms of the availability of equitable relief to enforce the contract, where the consent of a third party is required before an obligation to transfer the property can arise, and that consent cannot be compelled. (McWilliam v McWilliam's Wines Pty Ltd (1964) 114 CLR 656 at 660-661; Brown v Heffer (1967) 116 CLR 344 at 350, 351). Those difficulties become acute when I turn to the question whether it is a corollary of Westfield having acquired such a contingent equitable interest, that GPT has disposed of or parted with an interest in the Property.[22]
[22] GPT Re Ltd v Lend Lease Real Estate Investments Ltd [2005] NSWSC 964 at [57].
I am prepared to accept that a contract for the sale of land which makes settlement contingent upon the occurrence of an event, which one or both parties must endeavour to bring about may confer an equitable interest in the land on the purchaser. It may also be the case that a contract which, properly construed, precludes the vendor from dealing with the land in a way which would frustrate the occurrence of the event may also confer an equitable interest. However, in this case the legal freedom to develop or not develop the land, which in my view is so clearly given by the Option Deed, precludes a finding that an equitable interest in the land has been acquired under it.
Interest in equity
It is now necessary to consider whether the equitable basis on which the plaintiff puts its case. The plaintiff relies on proprietary or promissory estoppel and also estoppel by convention.
Proprietary estoppel (or estoppel by encouragement) is said to arise where the owner of property, by words or conduct, induces another to believe that he or she either has or will be granted an interest in that property.[23] The belief might be induced by encouragement to build upon land[24] or by analogous conduct.[25] I accept that there is a sufficient analogy between the act of purchasing adjacent, or otherwise related property, and improving the subject land itself to find an operative inducement or encouragement operative.[26] A proprietary estoppel will support an equitable cause of action which prevents the enforcement of the defendant’s legal rights and confers proprietary rights on the plaintiff.[27]
[23] The Laws of Australia at 35.6.260.
[24] Dillwyn v Llewellyn (1862) 4 De GF & J 517; Ramsdon v Dyson (1866) LR 1 HL 129.
[25] Hamilton v Geraghty (1901) 1 SR (NSW) Eq 81; Crabb v Arun District Court [1976] Ch 179.
[26] Crabb v Arun District Court [1976] Ch 179.
[27] KR Handley, Estoppel by Conduct and Election (2006) at 163, [11-001].
A promissory estoppel is based on a voluntary promise that the promissor will not enforce his strict rights against the promissee which induces the latter to change his position in a way that would expose him to detriment if the promissor were free to resile without notice from his promise.[28] A promissee must of course change his position in a meaningful way.[29] A promissory estoppel prevents the enforcement of legal rights where it would be inequitable to do so.[30] It is an equitable cause of action which entitles the promisee to an injunction to restrain enforcement of the right with the possibility of an award of equitable compensation.
[28] KR Handley, Estoppel by Conduct and Election (2006) at 197, [13-001].
[29] KR Handley, Estoppel by Conduct and Election (2006) at 208, [13-016].
[30] The operation of the estoppel is illustrated by Hughes v Metropolitan Railway Company [1887] 2 App Cas 439, where the House of Lords held that a landlord was properly denied an order for ejectment of his tenant for failing to repair within the time specified in a valid notice because the landlord had agreed to the tenants proposal to defer commencing the repairs whilst negotiations continued for the surrender of the lease. See also Central London Property Trust Limited v High Trees House Limited [1947] KB 130, where Denning J accepted that a landlord might be bound by its promise to accept rent at a reduced rate until the flats in its block of flats were fully let.
To support a promissory estoppel the promise must be unequivocal and it must be intended to affect legal relations. A casual conversation cannot support a promissory estoppel.[31] The promissor must be aware of the rights that he or she has promised not to enforce.
[31] KR Handley, Estoppel by Conduct and Election (2006) at 207, [13-015].
In Walton Stores,[32] the scope of promissory estoppel was extended to the imposition of a positive obligation on a prospective lessee, who was not yet contractually bound to take a lease over the subject land because there had not been an exchange of the leases. Promissory estoppel operated to deny the prospective lessee its liberty to refrain from finally executing the agreement and conferred on the owner of land an equitable right to the promised lease. In Walton Stores the elements of promissory estoppel were described by Brennan J in these 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.[33]
[32] Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387.
[33] Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 428-9.
In Foran v Wight,[34] Deane J warned of an important limitation on the operation of promissory estoppel:
In the area of estoppel by conduct, the essential distinction which must be observed if the doctrine is to be kept confined within what is justified by the notions of good conscience which inspire it is not the distinction between present and future fact or between fact and law. It is the distinction between a representation of fact and a representation of opinion. A representation can found an estoppel by conduct only to the extent that it is clear. It can, however be reduced to what is clear by discarding so much of its content as is equivocal or ambiguous. That being so, a representation of future fact and a representation of law will often, upon analysis, involve no more, for the purposes of the doctrine of estoppel by conduct, than a representation of present opinion. In a case where that is so any estoppel founded upon the representation will ordinarily be of no use to the representee since it will extend no further than precluding a denial that the represented opinion was truly held.[35]
[34] (1989) 168 CLR 385.
[35] Foran v Wight (1989) 168 CLR 385 at 435-6.
Palm Gardens relies on the following conduct in support of its submission that PG Properties is bound by a proprietary or promissory estoppel:
·references to the additional units in a written offer by Meridien on 14 November 2006;
·references to the additional units in the drafts of the HOA and the correspondence which accompanied those drafts;
·plans of the Magill Retirement Village which included the additional units as part of the existing village sent during the course of negotiations;
·the numbering of the units in the schedule of the Magill Retirement Village units provided in the course of negotiations which assumed the construction of further units;
·the terms of the executed HOA which referred to the additional units;
·the provision on 22 March 2007 of the registration details with respect to the Magill Retirement Village which described it as comprising 70 independent living units;
·the email notification of 30 March 2007 by which Pedlar advised Mountford that Ms Pierce “wants to leave this land out of the transaction until it has been developed”;
·certain diagrammatic representations of the Magill Retirement Village which include the additional units.
In my view, the insuperable difficulty which Palm Gardens faces in putting its case on promissory or proprietary estoppel arises out of one of the very documents on which it relies. The representations made up until the email of 30 March 2007 proceeded on the basis that the additional units would remain in the Pierce Group entities, which would be transferred to Palm Gardens. However, the email of 30 March 2007 made it clear that Ms Pierce no longer wished to proceed on that basis. Although not perfectly expressed, Mr Pedlar’s reference to leaving the land “out of the transaction until it has been developed” must, in my view, mean that the additional units were no longer to be transferred together with the independent living units that were already licensed and which comprised the Magill Retirement Village. Palm Gardens contends that the phrase “until it has been developed” implies a representation that the additional units would be licensed and then transferred. It might equally mean “until such time as the land may be developed”. The phrase does not clearly and unequivocally make the representation for which Palm Gardens contends.

There is difficulty enough in giving binding force to representations made in the course of protracted and complicated negotiations which are ultimately reduced to an apparently complete and comprehensive agreement. In the ordinary course, representations and assumptions made in the course of negotiations are superseded by the final expression of the terms of the agreement in the comprehensive written agreement that it executed. In this case, Palm Gardens faces an even greater difficulty. The form of the agreement contemplated at the time most of the representations on which it relies were made is that which is expressed in the HOA of 12 February. The form of the transaction therein contemplated was, as I have explained, that the additional units would remain within the Pierce Group entities that were to be transferred. That position changed with the email of 30 March 2007.
As a result of that email, the April agreement giving put and call options over the shares and units of the relevant Pierce Group entities proceeded on the basis that the additional units would not remain with the entities that were to be transferred. The April agreement contemplated instead that a development agreement would be entered into providing for the sale and purchase of the additional units after their development by a Pierce Group entity. However, no such development agreement was entered into; the April agreement was terminated by Palm Gardens because it was not satisfied by its due diligence investigation of the Pierce Group entities.
The transaction which the parties finally entered into with respect to the additional units is the Option Deed of 1 September 2007. Whatever the email of 30 March 2007 may have implied the parties clearly intended that the Option Deed would govern their respective rights and obligations with respect to the remaining units. There was no conduct by PG Properties referable to the Option Deed that clearly and unequivocably represented that it would proceed to develop the additional units to the point of licensing them notwithstanding the absence of such an obligation in the Option Deed.
The Option Deed was, as I have earlier observed, drawn by Palm Gardens’ solicitors. It was part of the land and business assets sale which proceeded in a very different way to the transactions contemplated by the executed HOA. By cl 13.11, the entire agreement clause of the Option Deed, the parties acknowledged that they had not relied on any written or oral representation, arrangement or understanding not set out in the Option Deed. In those circumstances, Palm Gardens carries a particularly heavy burden in establishing an overriding promissory or proprietary estoppel. In my view it has no probability of success in discharging that burden.
I turn next to consider Palm Garden’s case based on estoppel by convention.
In Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd,[36] Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ said:
Estoppel by convention is a form of estoppel founded not on a representation of fact made by a representor and acted upon by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying.[37]
[36] (1986) 160 CLR 226.
[37] Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Aust) Ltd (1986) 160 CLR 226 at 244. It is now accepted that estoppel by convention extends to assumptions about the law: Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 415-16; Foran v Wright (1989) 168 CLR 385 at 435; Commonwealth v Verwayen (1991) 70 CLR 394 at 413, 445.
Estoppels by convention prevent the parties to a transaction questioning the truth of a statement of fact, or of mixed fact and law, which they have made the conventional basis of their transaction.[38]
[38] KR Handley, Estoppel by Conduct and Election (2006) at 115, [8-001].
The relevant detriment that creates an estoppel may be the entry into the relationship which attracts the convention.[39]
[39] KR Handley, Estoppel by Conduct and Election (2006) at 122, [8-008]-[8.013]. Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR at 387-99; Commonwealth v Verwayen (1991) 170 CLR 394 at 455.
To establish estoppel by convention there must be some mutually manifest conduct by the parties with the intention of affecting their legal relationship,[40] but it is not necessary to show reliance on the truth of the conventional facts.[41] The relevant representation is not necessarily that the convention is true but that it has been mutually adopted. In Grundt v Great Boulder Pty Gold Mines Ltd,[42] Dixon J explained that:
… belief in the correctness of the facts or state of affairs assumed is not always necessary. Parties may adopt as the conventional basis of a transaction between them an assumption which they know to be contrary to the actual state of affairs. A tenant may know that his landlord's title is defective, but by accepting the tenancy he adopts an assumption which precludes him from relying on the defect.[43]
[40] In one sense estoppel by convention may be seen as an estoppel arising from mutual representations. Dr Rory Derham, ‘Estoppel by Convention’ (1997) 71 ALJR 976 at 976-77; Moratic Pty Ltd v Gordon [2007] NSWSC 5 at [46] per Brereton J.
[41] KR Handley, Estoppel by Conduct and Election (2006) at 115, [8-001].
[42] (1937) 59 CLR 641.
[43] Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 at 676.
In Waterman v Gerling Australia Insurance Co Pty Ltd,[44] Brereton J enumerated the elements which must be established in order to rely on an estoppel by convention thus:
In conventional estoppel, it is necessary for a plaintiff to establish (1) that it has adopted an assumption as to the terms of its legal relationship with the defendant; (2) that the defendant has adopted the same assumption; (3) that both parties have conducted their relationship on the basis of that mutual assumption. It is inherent in the idea of a mutually agreed or assumed convention that each party knew or intended that the other act on that basis. And it seems that a conventional estoppel will not arise unless departure from the assumption will occasion detriment to the plaintiff (M K & J A Roche Pty Ltd v Metro Edgley Pty Ltd (at [72]), and see the discussion below).[45]
[44] (2005) 65 NSWLR 300.
[45] Waterman v Gerling Australia Insurance Co Pty Ltd (2005) 65 NSWLR 300 at 322-3 per Brereton J.
An important distinction between promissory estoppel and estoppel by convention is that it is not fatal to the party setting up an estoppel by convention that he or she may have been the source of the mistake which resulted in the adoption of the assumption.[46]
[46] Amalgamated Investment and Property Co Ltd v Texas Commerce International Bank [1982] 1 QB 84 at 120
I return to the question of mutuality because of its importance in this case. In The August Leonhardt,[47] Kerr LJ said:
All estoppels must involve some statement of conduct by the party alleged to be estopped on which the alleged representee was entitled to rely and did rely. In this sense all estoppels may be regarded as requiring some manifest representation which crosses the line between representor and representee, either by statement or conduct. It may be an express statement or it may be implied from conduct, eg a failure by the alleged representator to react to something said or done by the alleged representee so as to imply manifestation of ascent which leads to an estoppel by silence or acquiescence. Similarly, in cases of so called estoppels by convention, there must be some mutually manifest conduct by the parties which is based on a common but mistaken assumption. The alleged representors participation in this conduct can then be relied upon by the representee as a basis for this form of estoppel.[48]
[47] (1985) 2 Lloyds Rep 28.
[48] The August Leonhardt [1985] 2 Lloyds Rep 28 at 34-35. See also V Vista Fjord [1988] 2 Lloyds Rep 343 at 350-351; Coghlan v Australia (Ltd) (1985) 4 NSWLR 158 at 167; CSR Limited Ltd v New Zealand Insurance Co Ltd (1993) 7 ANZ Insurance Cases 61-193 at 78, 188.
Similarly Purchas LJ in Troop v Gibson[49] described estoppel by convention as a relationship where “both parties engage upon a course of negotiations or transactions representing mutually the one to the other that a certain state of affairs is accepted as regulating their conduct”. Dr Rory Derham described how an estoppel by convention might arise out of the mutual dealing of two parties in this way:
An estoppel may still arise if the relations between the parties proceeded in a way which encouraged a belief in the party raising the estoppel that there was concensus or agreement between them as to something that he or she believed and that agreement influenced his or her conduct in relation to their dealings.[50]
[49] (1985) 277 EG 1134 at 1143.
[50] Dr Rory Derham, ‘Estoppel by Convention Pt 2’ (1997) 71 ALJ 976 at 977 and cases cited therein.
It is not sufficient that both parties proceeded upon the same false assumption if nothing crossed the line between them which manifested an assent to the assumption and which produced some belief or expectation in the party asserting the estoppel.[51] Nonetheless the forming of a consensus “need not be express and may be inferred from conduct or even from silence”.[52]
[51] The Captain Gregos (No 2) [1990] 2 Lloyds Rep 395 at 405; The Indian Grace [1996] 2 Lloyds Rep 12 at 20; Coghlan v SH Lock (Australia) Ltd (1985) 4 NSWLR 158 at 177.
[52] The Indian Grace [1996] 2 Lloyds Rep 12 at 20 per Staughton LJ.
The operation of estoppel by convention is well illustrated by Moratic Pty Ltd v Gordon.[53] At issue in Moratic was whether the landlord of a hotel was estopped from enforcing a term of a lease that required the tenant to pay additional rent calculated by reference to the hotelier tenants turnover. The covenant as to additional rent was intended to cover the landlord’s statutory liability to pay a licence fee for the poker machines operated within the hotel. The practice of the tenant who operated the hotel prior to Moratic was to pay the licence fee on behalf of the landlord. For that reason the landlord never demanded payment of the turnover portion of the rent. The statutory obligation to pay the licence fee was repealed prior to the assignment of the lease to Moratic. In the course of Moratic’s tenancy the landlord made no attempt to enforce the obligation to pay the additional rent, calculated as a percentage of turnover until Moratic sought to transfer a poker machine attached to the hotel licence. The landlord claimed an interest in the poker machine entitlement by reason of Moratic’s unpaid rent.
[53] [2007] NSWSC 5.
Brereton J found that an estoppel by convention arose from what was a mutual assumption that the landlord would not charge turnover rent other than to compensate for its statutory liability. Brereton J explained:
[30]Although Moratic relied primarily on equitable promissory estoppel, the analogous but distinct doctrine of common law conventional estoppel [MK & JA Roche Pty Ltd v Metro Edgley Pty Ltd [2005] NSWCA 39, [71]], which precludes either party from denying an assumption which has formed the conventional basis of a relationship between them [Legione v Hateley (1983) 152 CLR 406 at 430 (Mason and Deane JJ)], also operates alongside contractual variation and proprietary estoppel in the field of consensual departures from contractual rights, sharing some characteristics with each. The analogies and distinctions between contractual variation and conventional estoppel appear from the observations of Lord Denning MR in Amalgamated Investment and Property Co Ltd v Texas Commerce International Bank Ltd (in liq) [1982] QB 84 at 121, to the effect that if parties to a contract by their course of dealing put a particular interpretation on its terms, on the faith of which each to the knowledge of the other acted and conducted their mutual affairs, they are bound by that interpretation just as much as if they had recorded it as a variation of the contract. With reference to Grundt v Great Boulder Pty Gold Mines, his Lordship explained that such parties had by their course of dealing adopted a conventional basis for the governance of their relations and were bound by it — because, having regard to the dealings between the parties, it would be unjust to allow either to insist on the strict interpretation of the original terms. Nor is it necessary that the parties, in adopting their assumption, have adverted to the express terms of the contract. As Lord Denning MR said in Amalgamated Property Co v Texas Bank [at 121]:
There is no need to inquire whether their particular interpretation is correct or not — or whether they were mistaken or not — or whether they had in mind the original terms or not. Suffice it that they have, by their course of dealing, put their own interpretation on their contract, and cannot be allowed to go back on it.
…
[33]The similarities between the two doctrines should not be allowed to mask their differences, which reflect the disparate origins of promissory estoppel and conventional estoppel. Promissory estoppel, a creature of equity, is, typically, focussed on the conscience of the defendant: it operates when the defendant has induced or acquiesced in the adoption by the plaintiff of an assumption that the defendant will not assert its strict legal rights, so to prevent unconscionable (or unconscientious) insistence by the defendant on its strict legal rights. On the other hand, conventional estoppel, a creature of the common law, is focussed on the consensual basis of the parties’ relationship: it operates when both parties have adopted the same assumption as the basis of their relationship, often without appreciating that any departure from the strict legal position is involved, so as to hold both parties to their common understanding.
…
[37]Although I accept that detriment is an element of conventional estoppel [see Waterman v Gerling, [96]], and that each party must know or intend that the other act on the relevant assumption, there is no requirement that either have induced, or acquiesced in, the adoption of the assumption by the other, and in particular there is no requirement that either know that the other may incur detriment by reliance on the assumption. To the contrary — since the assumption is one common to both parties, and may involve a mistaken interpretation of the contract — the possibility that either party might incur detriment by reliance on it will usually not occur to the other.[54]
[54] MoraticPty Ltd v Gordon [2007] NSWSC 5 at [30]-[37].
Brereton J then considered and rejected the plaintiff’s claim based on promissory estoppel because he found that there was no unequivocal representation that the only rent payable was the base rent. However, he found that the landlord was precluded from claiming for turnover rent under the lease because the only explanation for the circumstance that the turnover rent was never tendered nor demanded was that the parties had, to each others’ knowledge, conducted their affairs on the basis that the turnover clause was a “dead letter”.
In this case Palm Gardens relies on the very entry by the parties into the Option Deed as the mutual conduct in which they engaged on the basis of the assumption that the additional units would in fact be transferred.
However, in my view caution should be exercised in finding an estoppel by convention in pre-contractual negotiations. In Johnson Matthey v AC Rochester Overseas Corp,[55] McClelland J held that the parol evidence rule operated to exclude evidence of pre-contractual negotiations from which it was contended an estoppel arose as to the construction of a term of a written agreement. In State Rail Authority of New South Wales v Heath Outdoor Pty Ltd[56] Kirby J said:
Too great a willingness by the courts to discern, in pre-contract negotiations, a basis for estoppel will have the effect of introducing a serious element of uncertainty into our law of contract. It may also encourage expensive litigation in which the terms of the writing are put to one side and the courts busily engaged … in a minute examination of the wilderness of pre contract conversations.[57]
[55] (1990) 23 NSWLR 190.
[56] (1986) 7 NSWLR 170.
[57] State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 at 177.
In Whittet v State Bank of New South Wales,[58] Rolfe J was prepared to accept that the parol evidence rule did not preclude reliance on pre-contractual negotiations to establish an estoppel by convention. However, Rolfe J applied a similar standard of proof to a claim that an estoppel by convention was created as that applied for rectification: namely that there must be clear and convincing proof that a convention had been established.
[58] (1991) 24 NSWLR 146.
It is undoubtedly the case that at the time the Option Deed was executed PG Properties intended, and was taking steps necessary, to license the additional units. It must also have been obvious to both parties that it was likely to be in their mutual interests to have the units “fully developed” and transferred. However, there is nothing to suggest that both parties proceeded on the assumption that PG Properties had bound itself to do so even if the premiums it could obtain for the licences fell to a level where it would not be able to recover the cost of the land and their construction. Even assuming, as I must for the purposes of this application, that Mr Taylor made that assumption, there is no evidence that his assumption was communicated to any representative of PG Properties. Nor is there any evidence to suggest that PG Properties entered into the Option Deed on the assumption that it was bound, or that such an assumption was communicated to Palm Gardens. There is no evidence of the mutuality required to support an estoppel by convention. There is certainly insufficient evidence to establish the high standard of proof applied by Rolfe J.
Conclusion
The principles governing the exercise of the discretion to grant an interlocutory injunction have been recently restated by the High Court.
In Australian Broadcasting Corporation v O’Neill,[59] Gummow and Hayne JJ explained those principles in this way:
The relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd. This Court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries and continued:
‘The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief ... The second inquiry is ... whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted’.
By using the phrase ‘prima facie case’, their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. That this was the sense in which the Court was referring to the notion of a prima facie case is apparent from an observation to that effect made by Kitto J in the course of argument. With reference to the first inquiry, the Court continued, in a statement of central importance for this appeal:
‘How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks’.[60] (footnotes omitted)
[59] (2006) 227 CLR 57.
[60] Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 at 81-2, [65].

Gleeson CJ and Crennan J expressed their agreement with the reasons of Gummow and Hayne JJ in this way:
The principles were discussed, for example, in Chappell v TCN Channel Nine Pty Ltd (a decision referred to by Crawford J in a passage quoted above), National Mutual Life Association of Australasia Ltd v GTV Corporation Pty Ltd, and Jakudo Pty Ltd v South Australian Telecasters Ltd. As Doyle CJ said in the last-mentioned case, in all applications for an interlocutory injunction, a court will ask whether the plaintiff has shown that there is a serious question to be tried as to the plaintiff's entitlement to relief, has shown that the plaintiff is likely to suffer injury for which damages will not be an adequate remedy, and has shown that the balance of convenience favours the granting of an injunction. These are the organising principles, to be applied having regard to the nature and circumstances of the case, under which issues of justice and convenience are addressed. We agree with the explanation of these organising principles in the reasons of Gummow and Hayne JJ, and their reiteration that the doctrine of the Court established in Beecham Group Ltd v Bristol Laboratories Pty Ltd should be followed.[61]
[61] Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 at 68, [19].
Notwithstanding the submissions to the contrary made by Mr Wells QC, that approach should also be applied to applications made pursuant to s 191 of the Real Property Act 1886 with respect to caveats.[62] There is obviously a strong analogy between the applications. There is nothing in s 191 which suggests a different approach. Indeed the approach outlined in Australian Broadcasting Corporation v O’Neill[63] accords with the considerations which appear to me to be relevant to an exercise of the discretion conferred by s 191 of the Real Property Act 1886. The caveat procedure allowed by s 191 is designed to ensure that interests in real property are not defeated by the registration of inconsistent dealings with the land. However, that convenient and summary remedy should not be allowed to deny the rights of a registered proprietor of land to deal with it as he or she sees fit without sufficient cause. The requirement to establish a prima facie case, in the sense explained in Australian Broadcasting, appears to me to provide an appropriate balance of the interests of the registered proprietor on the one hand and the caveator on the other.
[62] Cini v Pets Paradise Franchising (SA) Pty Ltd [2008] SASC 287 at [48]; Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42 at 48.
[63] (2006) 227 CLR 57.
For the reasons I have given above that test has not been satisfied. Palm Gardens has failed to satisfy me that it has any material likelihood of establishing an equitable interest in the land it has caveated. I refuse the plaintiff’s application for an extension of time. It follows from the reasons I have given that Palm Gardens’ application for interlocutory injunctive relief must also be rejected because it has failed to establish a prima facie case that the sale of the remaining units would contravene any contractual or equitable obligation.
In the circumstances it is strictly unnecessary for me to decide where the balance of convenience lies. It is however appropriate that I indicate how I would balance the competing interests. In the generality of cases the balance of convenience will fall on the side of protecting a claimed interest in lands. That approach reflects the historical, personal and commercial importance of the proprietary rights of an owner of an interest in land to deal with it as he or she thinks fit. However the only value to Palm Gardens of the remaining units is the income stream they would generate and the capital appreciation they might yield on sale. That value is readily capable of judicial assessment. Equally any prejudice suffered by PG Properties, if the caveats are not removed, is capable of remedy by monetary compensation. In my view the balance falls in favour of not extending the time for removal of the caveats. If the caveats were to remain, unnecessary further cost and expense would be caused as a result of the disruption to the contracts made for the sale of the units as domestic residences.
It is also unnecessary therefore for me to finally decide whether, if were I to extend the time for removal of the caveat, it would have been appropriate to require an undertaking as to damages. I would only express my preliminary view that the terms of s 191(j) of the Real Property Act 1886 do not suggest that an undertaking as to damages should not be required. Section 191(j) applies to compensation for damage sustained by reason of the lodgement of the caveat in the period before the caveat is discharged in those cases where the operation of the caveat does not depend on a Court order or where the liability to pay compensation has not been affected by a Court order. Where, however, in the exercise of the Court’s discretion, it allows a caveat to remain it appears to me that the Court may so order on such terms and conditions as the justice of the case requires. If I were called on to exercise that discretion I would require Palm Gardens to give the usual undertaking as to damages. I see no reason why PG Properties should be left to carry the losses caused by Palm Gardens’ lodgement of the caveat if it is ultimately found that Palm Gardens does not have an equitable interest in the remaining units. On the other hand there is sufficient certainty of recovery against Palm Gardens to obviate any need for that undertaking to be secured.