To be ‘looked after at renewal time’: When is a promise contractual and binding?

Insights16 Aug 2016

The High Court of Australia has now had the final say in the ongoing saga of the restaurant tenant who leased premises at Crown and was told that if it carried out high quality refurbishments of the premises, then it would be ‘looked after at renewal time’.

Legal principles

In this case, the tenant made a claim based on promissory estoppel and collateral contract. Estoppel and collateral contracts are two legal doctrines that can establish enforceable rights in equity even where there is no written contract in place.

Promissory estoppel

The doctrine of promissory estoppel provides that a promise is enforceable by law when a person makes a promise to another person, and that other person relies on that promise to its detriment. If a promissory estoppel is found, then that party who relied on it can enforce the promise even though the essential elements of a contract are not present. To create a promissory estoppel, there are specific elements that must be present:

Party A made a promise significant enough to cause Party B to act on it.
Party B relied upon the promise, and in so doing incurred substantial detriment.
Party A knew that Party B was acting on the promise and did not put them straight.
Relief can only come in the form of Party A fulfilling the promise.

In this case, the tenant claimed that it had relied on Crown’s promise that it would be ‘looked after at renewal time’ and as a result it executed the leases and carried out the refurbishments. As such, the tenant suffered significant financial detriment when it was not offered a further term of the lease, but instead was required to vacate the premises.

Collateral contract

In general terms, a collateral contract is a contract where the consideration is the entry into another contract, and co-exists side by side with the main contract. It is a subsidiary contract which induces a person to enter into a main contract or which depends upon the main contract for its existence.

In this case, the tenant also claimed that a statement by Crown that it would ‘look after’ the tenant regarding the renewal provided the renovations were of high quality was enforceable as a collateral contract, the consideration for which was the tenant agreeing to sign the lease.

High Court decision

In the end, this case turned on its facts – the majority of the High Court of Australia (Chief Justice French, Justice Keifel, Justice Bell, Justice Keane and Justice Nettle) found in Crown’s favour, that there is no promissory estoppel and no collateral contract.

In relation to claim for promissory estoppel, the majority found that no reasonable person would have relied on Crown’s ‘promise’ that it would be ‘looked after at renewal time’ to establish an enforceable right to be offered a further lease. Attention was also given to whether the assumption was in fact acted upon by the tenant. The tenant submitted that it assumed there would be a renewal of the lease on the same terms and conditions as the 2005 lease, which is what lead it to hand over the executed leases. However no evidence for this was produced at trial and it was held that the tenant had not shown that the assumption was acted upon.

Further, the majority found that Crown’s promise to the tenant that it would be ‘looked after at renewal time’ was not sufficiently detailed and certain to constitute a collateral contract. It was held that there was a lack of terms, as opposed to uncertainty of terms, to create a collateral contract and Crown’s statement ‘did not have the quality of a contractual promise of any kind’.

Conclusion

This is a timely reminder for tenants and any parties entering into contractual arrangements – make sure all of the representations made to you, as well as your rights and expectations are sufficiently detailed in the contract. This case is a very practical example that it can be very risky to rely on promises, representations or statements made outside of the contract, which may be held to be unenforceable at law.