Litigation and Dispute Resolution

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 necessarychanges 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”.

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