24 August 2017

Did you get that in writing?

A recent High Court case reminds us that once a written contract is agreed, it is unlikely that other promises will be enforceable.  In Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd & Anor [2016] HCA 26, Crown leased two restaurant premises to Cosmopolitan Hotel (the tenant) for a term of five years.  The leases required the tenant to undertake significant refurbishment works on commencement but did not contain any options to renew.

The refurbishment works cost the tenant $1.8 million and $2.85 million respectively for each premises.  When the initial term of the leases came to an end and Crown issued notices to vacate, the tenant commenced proceedings in the Victorian Civil and Administrative Tribunal.  The proceedings were commenced on the basis that Crown had promised that the tenants ‘would be looked after at renewal time’ and they should be allowed further terms under each lease.

The tenant argued that:

  1. a collateral contract existed where they were entitled to a renewal of the leases; or
  2. they were entitled to a renewal because they had relied on the promise of Crown under the law of estoppel.

The High Court found (by majority) that a collateral contract did not exist and the statement made was not promissory in nature and could not support a claim of estoppel.  Accordingly the tenant was unsuccessful.

The majority of the High Court, agreeing with the findings of the Supreme Court of Appeal, considered that:

  • the statement was not promissory in nature and was no more than ‘vaguely encouraging’;
  • the parties did not intend the statement to be contractually binding;
  • the parties were experienced in leasing negotiations, and in the context of this type of commercial negotiation a reasonable tenant would not have relied on the statement, particularly because important matters are usually recorded in writing;
  • the prospect of a renewal under the lease was specifically rejected by Crown in the lease negotiations.  A prudent tenant would have sought confirmation if their position had changed by seeking to have the change reduced to writing; and
  • the statement was not sufficient to support a collateral contract as it did not adequately address other essential terms of the renewal.

It is important to note that the decision of the High Court was not unanimous.  There were two dissenting judgments, of Gordon and Gageler JJ, finding that a collateral contract regarding renewal did exist.

This decision highlights the difficulties involved in proving oral or implied promises or collateral contracts when a contract is otherwise reduced to writing.  If in doubt, you should make sure promises or other factors that are important to you are included in the contract in writing before any steps are taken in reliance on them.

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