Misrepresentations over milk: director held liable for misleading and deceptive conduct

6 February, 2019

Earlier this year we published an article on the case of Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd & Anor, noting that there had been a grant of special leave to appeal to the High Court of Australia.

The matter was subsequently heard by a Full Bench of the High Court. On 20 July 2016, judgment was delivered. By a majority of 5:2 (French CJ, Kiefel and Bell JJ, Keane J, Nettle J – Gageler J and Gordon J dissenting), the High Court comprehensively rejected the argument that the representation made by Crown that the tenants would be “looked after” at renewal time gave rise to a collateral contract or an estoppel.

The judgment is an important one in the area of estoppel to the extent that it:

clarifies the meaning of the requirement that a representation must be ‘”clear” and “unambiguous” before it can found a promissory estoppel; and
confirms that a representor can only be estopped from departing from an assumption (or expectation) which the representee actually had as a result of the representation.

Background facts

The respondents (“the tenants”) held leases of two areas in the Crown Casino complex in Melbourne in which they operated restaurants. The leases expired in May 2005. In early 2005, negotiations commenced for new leases.

The new leases which were offered by Crown were for a term of 5 years. They did not contain an option for renewal and it was a condition that a major refurbishment of the premises be undertaken by the tenants.

Mr Zampelis, who controlled the tenants, expressed reluctance to carry out the refurbishment works for leases of 5 years only. He proposed that the leases should be for a term of 10 years or, alternatively, that they should contain an option in the tenants’ favour for to renew for a further 5 year period. This was rejected by Crown.

Mr Zampelis’ evidence was that in the course of urging him to return signed leases, a representative of Crown gave an assurance that the tenants would “get a further lease term” after the first 5 years had expired. However, this evidence was not accepted by the Victorian Civil & Administrative Tribunal (“VCAT”), which heard the matter at first instance.

VCAT found that the statement actually made to Mr Zampelis was to the effect that if he spent the money that, under the proposed leases, the tenants were required to spend to achieve a major refurbishment to a high standard, he would be “looked after” at renewal time (“the Statement”), and that the leases had been limited to a five year term only because they would thereby be aligned with other leases in the complex.

The tenants eventually handed over signed leases and completed the refurbishment works at a cost of approximately $4.65 million. At the expiration of the 5 year term, Crown gave notice that it would not renew the leases and required the tenants to vacate the premises. The tenants were not otherwise “looked after” and immediately became insolvent.

Decisions below

The tenants sued Crown in the VCAT. They claimed that:

Crown had breached a collateral contract under which Crown promised them that, if they entered the leases, Crown would offer to renew them for further 5 year terms on the same terms mutatis mutandis (with the necessary changes being made) to account for the change in circumstances; or in the alternative,
that Crown was estopped in equity from denying the existence or obligation of the collateral contract.

VCAT held that in context, a reasonable person in Mr Zampelis’ position would conclude that the Statement meant a promise that Crown would, when renewal time came, offer to renew the leases for 5 years on whatever terms Crown saw fit to stipulate.

VCAT therefore found in favour of the tenants but on the basis of a different collateral contract to that which had been claimed. It also stated that it would accept the applicants’ alternative submission that Crown is estopped in equity from denying the existence of the collateral contract (on the terms formulated by VCAT). It ordered Crown to pay the tenants a total of approximately $1.5 million in ‘expectation damages’, assessed by reference to the profits the tenants would have made under hypothetical renewed leases for 5 years.

Crown was successful on appeal to a single judge of the Supreme Court of Victoria. Hargrave J noted the disconformity between Mr Zampelis’s evidence of his understanding of the statements and the (reasonable) meaning which the Tribunal gave to those statements, before concluding that:

“The sense in which Mr Zampelis said he understood the statements was wholly unreasonable …. So the estoppel case falls at the first hurdle”.

However, the tenants were again successful on appeal to the Court of Appeal. Whelan JA (with whom Santamaria JA agreed) held that neither VCAT nor the primary judge had addressed estoppel on the basis of the factual findings which VCAT made but by reference to the ‘lower limit’ of what was meant by ‘looking after’ the tenants at renewal; and that accordingly, the matter must be remitted to VCAT to rule upon that issue and determine what equitable relief (if any) should be granted.

As mentioned above, by a 5:2 majority, Crown’s appeal to the High Court was allowed. The minority (Gageler J and Gordon J) dismissed the appeal on the basis that there was a collateral contract and did not consider the issue of estoppel. The focus of the balance of this article will be on what the majority had to say on that issue.

The requirement of certainty

For a promissory estoppel to be established, the defendant must have played such a part in the adoption of the assumption upon which the plaintiff has acted (or abstained from acting) to its detriment that it would be unconscionable for the defendant to be left free to ignore the assumption (Dixon J in Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR at 645 at 674-675). Equity will come to the aid of such a plaintiff, and the relief will be ‘fashioned’ or ‘moulded’ by the Court according to the particular facts and circumstances of the case.

As mentioned above, the way the tenants pursued their case, the basis upon which they acted was that Crown would offer to renew the leases on the same terms mutatis mutandis. VCAT found, however, that that a reasonable person would have construed the Statement as meaning that Crown would offer to renew the leases on whatever terms it might choose in its discretion.

Whelan JA noted in the Court of Appeal that the Statement “is open to different interpretations. It may have meant that Crown would offer a complete renewal, or that Crown would offer Mr Zampelis a smaller extension or even that Crown would offer compensation for fixtures and fittings left behind”. The Court of Appeal nevertheless ordered that the matter be remitted for VCAT to determine (amongst other things) what the ‘lower limit’ of the Statement was.

Before the High Court, Crown submitted that the tenants’ case in estoppel was bound to fail in light of the requirement that a representation must be ‘”clear” and “unambiguous” before it can found a promissory estoppel (Legione v Hateley (1983) 152 CLR 406 at 435-437 per Mason and Deane JJ).

In considering this submission, the majority clarified the meaning of the ‘clear and ambiguous’ test set down in Legione:

French CJ, Kiefel and Bell JJ said at [35] that the test “does not mean that the words used may not be open to different constructions, but rather that they must be able to be understood in a particular sense by the person to whom the words are addressed. … The words must be capable of misleading a reasonable person in the way that the person relying on the estoppel claims he or she has been misled”.
Keane J said at [149] that “the assurance or representation on which the party claiming the benefit of the estoppel relies must be sufficiently clear that the expectation which that party asserts was both actually, and reasonably, engendered by the assurance or representation”.
See also Nettle J at [218].

French CJ, Kiefel and Bell JJ, and Keane J were quick to dismiss the tenants’ case on the basis that the that the Statement could not reasonably be understood as meaning that Crown would offer to renew the leases on the same terms and conditions mutatis mutandis, as the tenants claimed to have understood it. In other words, those four (4) judges effectively agreed with the primary judge’s conclusion that the tenants’ promissory estoppel claim “falls at the first hurdle”.

Nettle J, on the other hand, adopted a different and more liberal approach, observing that it was not necessarily fatal to the tenants’ claim in estoppel that they had made an assumption that went beyond the meaning that could reasonably be attributed to the Statement.

Can a representor be estopped from departing from an assumption which the representee never actually had?

Four judges (French CJ, Kiefel and Bell JJ, and Keane J) in effect answered the above question as ‘No’:

French CJ, Kiefel and Bell JJ said at [39] that “Not only must the representation be such as to be able to create the assumption or expectation in question, it must be shown that that assumption was in fact acted upon”;
Keane J said at [158] that “In none of its manifestations does estoppel operate by imputing to the party asserting the estoppel an expectation or reliance which might be thought to be a proportionate or fair response to the statement of the opposite party”.

Nettle J, on the other hand, in effect answered the above question as ‘yes’. His Honour held that Crown could have been estopped from departing from such assumptions as might reasonably be attributed to the Statement, if it were established that the tenants would have been induced by those more limited reasonable assumptions to act as they did (i.e. to deliver the signed leases to Crown and to expend the funds necessary to complete the refurbishments). However, such findings of fact had not been made by VCAT as the tenants chose to advance an “all or nothing claim”. Accordingly, the Court of Appeal erred in ordering that the matter be remitted to VCAT.

Take home points

The test that a representation must be ‘”clear” and “unambiguous” before it can found a promissory estoppel is not as onerous as it might first seem. It will be satisfied if the representation is capable of being reasonably understood in the way that the plaintiff claim s/he understood and relied upon it.
In an estoppel case involving an inherently ambiguous representation, the central focus of inquiry should be on the assumption or expectation which the plaintiff in fact acted upon. As opposed to, for example, the objectively reasonable meaning (the proper focus in a contract case) or the ‘lower limit’ of the meaning of the representation.
The mere fact that a party has abandoned or failed to honour an assurance or representation, such as to “look after” someone, is insufficient to make out an estoppel. As French CJ, Kiefel, Bell and Keane JJ explained in Sidhu v Van Dyke (2014) 251 CLR 505 at 522-523 (and repeated by Keane J in the present case at [158]), “it is not the breach of promise, but the promisor’s responsibility for the detrimental reliance by the promisee, which makes it unconscionable for the promisor to resile from his or her promise”.

published by

Andrew Lacey

Managing Principal

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Litigation and Dispute Resolution

Canadian Court elevates thumbs-up emoji to signature status

In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract. Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed. Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)." Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter. Judgment At paragraph [36], Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship. Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the dictionary.com definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest. What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.

Published by Foez Dewan

29 August, 2023

Government

Venues NSW ats Kerri Kane: Venues NSW successful in overturning a District Court decision

The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane [2023] NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). Ultimately, regarding the primary question of breach of duty, the Court found that: The stadium contained hazards which were utterly familiar and obvious to any spectator, namely, steps which needed to be navigated to get to and to leave from the tiered seating. While the trial judge considered the mandatory requirements required by s5B(2) of the CLA, those matters are not exhaustive and the trial judge failed to pay proper to attention to the fact that: the stadium had been certified as BCA compliant eight years before the incident; there was no evidence of previous falls resulting in injury despite the stairs being used by millions of spectators over the previous eight years; and the horizontal surfaces of the steps were highly slip resistant when wet. In light of the above, the Court of Appeal did not accept a reasonable person in the position of VNSW would not have installed a handrail along the stepped aisle. The burden of taking the complained of precautions includes to address similar risks of harm throughout the stadium, i.e. installing handrails on the other stepped aisles. This was a mandatory consideration under s5C(a) which was not properly taken into account. As to the question of BCA compliance, the Court of Appeal did not consider it necessary to make a firm conclusion of this issue given it did not find a breach of duty. The Court did however indicated it did not consider the stepped aisle would constitute a "stairway" under the BCA. The Court of Appeal also found that there was nothing in the trial judge's reasons explicitly connecting the risk assessment she considered VNSW ought to have carried out, with the installation of handrails on any of the aisles in the stadium and therefore could not lead to any findings regarding breach or causation. As to quantum, the Court of Appeal accepted that the trial judge erred in awarding the plaintiff a "buffer" of $10,000 for past economic loss in circumstances where there was no evidence of any loss of income. The Court of Appeal set aside the orders of the District Court and entered judgment for VNSW with costs. Why this case is important? The case confirms there is no obligation in negligence for owners and operators of public or private venues in NSW to have a handrail on every set of steps. It is also a welcome affirmation of the principles surrounding the assessment of breach of duty under s 5B and s 5C of the CLA, particularly in assessing whether precautions are required to be taken in response to hazards which are familiar and obvious to a reasonable person.

Published by Leighton Hawkes

18 August, 2023