The High Court has allowed an appeal against a decision of the Victorian Court of Appeal on collateral contracts and estoppel. Crown leased two premises to Cosmopolitan for five years on the understanding that Cosmopolitan would complete significant refurbishments and, allegedly, that in exchange for the refurbishment Cosmopolitan would receive an extension of the lease for another five years. After the leases expired, Crown did not renew and the tenants vacated. The Victorian Civil and Administrative Tribunal found that a statement by Crown that it would ‘look after’ the tenants regarding the renewal provided the renovations were of a high quality was enforceable as a collateral contract. Both the Victorian Supreme Court and Court of Appeal rejected that conclusion, holding that the statement was not a promise and was too vague to be enforceable. But the VCA also upheld Cosmopolitan’s appeal on the ground of promissory estoppel, holding that even though the collateral contract was void for uncertainty, promissory estoppel answered that defence. Before the High Court, Crown sought to challenge the VCA’s consideration of the requirements of promissory estoppel, and Cosmopolitan made a cross-appeal seeking to establish the existence of the collateral contract.

A majority of the Court (French CJ, Kiefel and Bell JJ, Keane J, Nettle J) allowed the appeal and dismissed the cross-appeal in three judgments. The plurality held that the VCA correctly concluded there was no collateral contract: Crown’s statement that the tenants would be ‘looked after at renewal time’ could not be understood to bind Crown to offer a further five year lease because ‘[i]t did not have the quality of a contractual promise of any kind’ (at [28]). For the plurality, enforcing this alleged obligation was not so much a problem of the uncertainty of the terms than the lack of any terms at all: Crown clearly retained discretion to decide new terms at the renewal, and there was no evidence about Crown’s future conduct (at [31]–[33]). The plurality also held that the VCA erred in remitting the estoppel issue to VCAT because the tenants could not succeed on the estoppel ground. Estoppel requires that a representation be clear, precise and unambiguous and understood in a particular sense by the person to whom it is addressed to ground an assumption on which that person acts to their detriment (at [35]). The phrase ‘looked after at renewal time’ could not convey to a reasonable person that the tenants would be offered a further lease (at [35]), and, in any case, the tenants had not shown that the assumption was acted upon (at [39]). Finally, the VCA erred in remitting the issue of estoppel to VCAT for further determination because there was no possibility of making out the estoppel arguments (at [41]ff).

Keane J also held that the collateral contract did not exist: Crown remained legally free to act in its own interests in negotiating a future lease, the terms of that future lease ‘could never be more than unresolvable speculation’, and even if the assurance of ‘looking after’ were in the terms of the signed leases, ‘it would not have been sufficiently certain to be enforceable as a promise of the grant of further leases’ (see at [126]–[132]). Noting that the taxonomical question of whether the estoppel arguments were promissory or proprietary need not be resolved (at [138]) and also noting their differences (at [141], [145]), Keane J focused on the tenants’ proprietary estoppel arguments (which the tenants submitted they had ‘always contended’ for: at [133]). In rejecting the tenants’ proprietary estoppel arguments, Keane J held that the expectation of Crown’s behaviour found by VCAT was not of the grant of an interest in land, ‘but of an offer on terms which [the tenants] would be “free” to accept’: again, because Crown was entitled to give effect to its own self-interest in deciding the terms of that offer, and the interest in land would depend only on agreeing to those lease terms (see at [155]).

Nettle J also allowed the appeal, upholding the conclusions of the primary judge and VCA that a reasonable person in Cosmopolitan’s position could not have construed Crown’s assurance to be a binding promise to offer a renewal: the parties did not ‘in intention nor even in appearance’ make or accept a promise about renewal (at [196] and see at [192]–[195]). On estoppel, Nettle J rejected Crown’s submission that the relevant representation must be of ‘contractual certainty’, because what is determinative is whether the party to be estopped created an assumption or expectation in the mind of the claimant (see at [211] cf Keane J at [147]). Nettle J instead emphasised what his Honour termed the foundational principle of all forms of equitable estoppel, ‘that equity will not permit an unjust or unconscionable departure by a party from an assumption or expectation … which that party has caused another party to adopt for the purpose of their legal relations’, and concluded that the idea of an ‘a priori distinction between the degree of objective certainty required to found a promissory estoppel compared to a proprietary estoppel runs counter to principle’ (at [217]). Nettle J allowed that while an objectively ambiguous representation would not be capable of forming a binding contract term, it could found a promissory estoppel; though the ambiguity would be an important factor in assessing whether or not the assumption or expectation could be fairly and reasonably attributed to the representation (see [218]). Nettle J then rejected Crown’s broader submission that the estoppel claim was bound to fail because of the differences between what VCAT found to be the objective meaning of Crown’s representation and Cosmopolitan’s subjective understanding of the assurance (at [219]ff). What was central instead was the level of assumption (at [222]):

In cases of proprietary estoppel, the approach which has been taken is that, where the court is satisfied that the level of a claimant’s assumption or expectation is genuinely derived from the subject representation but goes beyond what could reasonably be attributed to it, and it appears that it would be unjust or unconscionable if the party charged were free to depart from some lower level of assumption or expectation that may fairly and objectively be derived from the representation, relief may be limited accordingly

Nettle J accepted Crown’s submission that because the tenants before VCAT did not seek to show that (if they were not entitled to be put in the position they would have been in if the further lease had been granted) they would still be entitled to a lesser scale of relief based on the level of assurance, the tenants cannot now succeed before the High Court on a lesser measure of relief (at [225]). Nettle J saw this point as determinative of the appeal: VCAT did not make any findings on whether they would have been induced to a more limited reasonable assumption, or any finding of detriment (at [226]). Nettle J concluded by agreeing that the remittal order was incorrect and that there should be an end to the litigation (at [227]).

Gageler J and Gordon J, in separate judgments, would have dismissed the appeal and allowed the cross-appeal. Gordon J held that the collateral contract was formed in four steps: there was a promissory and sufficiently certain statement, relied upon by Cosmopolitan’s director, that was consistent with the leases, and not illusory but instead completed (at [247]). First, Crown’s statement was promissory and sufficiently certain because cl 2.3 of the lease was directed at ‘when Crown was to give notice of how it proposed to deal with its reversionary interest, as lessor, under the leases’ (at [249], and see at [250]). This term was a promise to give the tenants notice of the terms on which Crown would renew the lease; ‘in its terms and effect [it was] a promise to make an offer “to renew”‘ (at [253]). The phrase ‘looked after’ was not too vague because, as VCAT found, in the context of the statement as a whole, the negotiation history, and the terms of the agreement and especially cl 2.3, a reasonable person would conclude that it meant Crown would notify the tenants of the terms of the renewal, and of Crown’s three options on the expiration of the lease, only renewal on similar terms under cl 2.3(a) was consistent with the promise to ‘look after’ the tenants (at [257]). Secondly, Gordon J held that reliance was made out because the tenants delivered the leases after the promises were made, and did so in reliance on the promise on the basis of facts found by VCAT (see [259]–[263]). Thirdly, the collateral contract could ‘stand together’ with the leases and was not inconsistent with them (at [264]). Fourthly, the collateral contract was not illusory: it was an agreement to make an offer, and while Crown could decide the terms of that offer it could not refuse to make one at all (at [265]–[267]). Consequently for Gordon J VCAT was correct to conclude that a collateral contract had been created, but should have assessed damages on the basis of what value (if any) the offer had (see [268]ff).

Gageler J substantially agreed with the reasons of Gordon J and her Honour’s conclusion that a collateral contract existed, but made additional observations on his Honour’s understanding of the principles that informed his Honour’s support for that reasoning (at [51]), on contractual certainty (at [53]–[56]), completeness (at [57]–[59]), and illusoriness (at [60]–[64]).