The decision of Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd  HCA 26 is important for the purposes of commercial leasing because it is a decision from the full bench of the High Court of Australia. However, it is not an especially useful authority. There is a lack of unanimity on key points and the correctness of some of the reasoning and conclusions of the justices is open to question.
In essence, there were two questions for the High Court to answer. Firstly, was the lessor bound by a collateral contract to offer to renew the lessees’ leases? Secondly, was the lessor estopped from resiling from a representation that it would offer to renew the lessees’ leases?
Concerning the first question, a majority of the justices thought that the alleged collateral contract failed due to uncertainty, incompleteness or the fact that it was illusory. They said that the lessor’s assurance was too vague to qualify as a binding promise to offer new leases to the lessees. And, even if it was sufficiently certain to qualify as a promise, it failed because the terms on which the new leases would be offered were unascertained. But did not the majority commit a conceptual error at that point? Why should a promise to make an offer fail because the terms of the offer were as yet unascertained? If the offer, when the time came for the lessor to make it, was lacking essential terms, then any purported acceptance would be incapable of giving rise to a binding lease. But why would that impugn the promise to make the offer? Surely the validity of the promise depended on the terms of the promise itself — not on the terms of the object of the promise (the making of the offer). And the terms of the promise itself were sufficiently certain and not incomplete or illusory. This was the point the dissenting justices made and arguably they were correct.
French CJ, Kiefel, Bell and Keane JJ seemed to recognise the conceptual difficulty and so contended that the alleged collateral promise was not to offer new leases but to grant new leases. That way, the failure to specify the essential terms of the grant impacted directly on the promise itself. Their Honours based that contention on the fact that the Tribunal assessed damages on the basis that the new leases would have been granted. If the grant of new leases was a certainty, then the Tribunal must have held that the promise was to grant and not merely to offer to grant (which may or may not have resulted in leases). However, the Tribunal did not hold that at all. It clearly held that the collateral contract consisted of a promise to serve the lessees with notices under clause 2.3(a) of the leases — that is, to offer new leases to the lessees.
There’s little doubt that the Tribunal erred in assessing damages on the basis that the lessees had lost the benefit of the leases. If the collateral promise was simply to offer new leases and the terms of the offer were completely at the lessor’s discretion, it was entirely possible that the lessees would reject the lessor’s offer and new leases would not eventuate. As Gordon J said, the true measure of damages for breach of the collateral contract was the loss of the opportunity to receive an offer. However, the Tribunal’s error in relation to damages was unrelated to its finding as to the meaning of the lessor’s assurance and there was no justification for thinking that the former was determinative of the latter.
Only one paragraph on from asserting that the promise was not to offer new leases, French CJ, Kiefel and Bell JJ betrayed that assertion when they said that the lessor’s assurance was “not capable of conveying to a reasonable person that the [lessees] would be offered a further lease [emphasis added]”. And Keane J also conceded that the Tribunal held that the collateral contract required the lessor “to give a notice to the [lessees]” and went on to say:
“It is to be noted that the Tribunal regarded the terms of any offer of renewal as a matter for [the lessor] … [The lessor] was entitled to set the terms of the new leases, and the [lessees] could take them or leave them [emphasis added].”
Were the majority justices even entitled to rule on the question of contractual certainty? And what of the Supreme Court and Court of Appeal, which also considered themselves free to review and overturn the Tribunal’s findings? The majority in the High Court said that the Tribunal’s construction of the lessor’s assurance was a finding of law. Therefore, it was reviewable at an appellate level. Had the Tribunal’s finding been one of fact, it would not have been appealable to the Supreme Court. Furthermore, unless the finding had not been reasonably open on the evidence, it would not have been appropriate for the appellate courts to disturb it.
Is the construction of a statement a finding of law? The dissenting justices, Gageler and Gordon JJ, did not think so. They said it was a factual enquiry. And, because the Tribunal’s finding was reasonably open on the evidence, it should not have been interfered with.
Construing statements and texts is something that all people — lawyers and non-lawyers alike — do every day. The process involves interpreting the words used in the light of all the surrounding circumstances. The process does not involve the application of legal principles and the outcome — a determination of the statement’s meaning — is not a legal outcome. There may well be a legal application or consequence of the statement’s meaning. If “would be looked after at renewal time” means “will be offered new five-year leases on terms of the lessor’s choosing”, then that may qualify as a binding contractual promise or found an estoppel. However, the construction or interpretation itself is not “legal”. If this is so, then the Tribunal’s construction was not a question of law but a question of fact, as the dissenting justices said. The Supreme Court, Court of Appeal and the majority in the High Court should not have seen fit to overturn it.
It is lamentable that even on the seemingly elementary question of whether the construction of a statement or text is a finding of law or fact, the High Court is divided on the answer.
If the majority view in the High Court is that a contract to make an offer will be uncertain, incomplete or illusory unless the essential terms of the offer to be made are known and agreed to at the outset, what might this mean for rights of pre-emption/first refusal? In another example of judicial disagreement in the High Court about what the law says, Nettle J said that “the requisite certainty [for a right of first refusal] is said to be provided by the terms on which the promisor is prepared to deal with a third party”. However, Gageler J, in dissent, said: “The agreement to make an offer is an agreement that is complete in itself. So much has been recognised in numerous cases in which a right of first refusal or pre-emption has been recognised as enforceable.” In the wake of this decision, perhaps it is no longer safe to create a right of pre-emption without specifying in the agreement the essential terms of the offer that the grantor may or may not make to the grantee.
Concerning the estoppel question, it is submitted that the requirement of contractual certainty for a representation in the judgments of French CJ, Kiefel, Bell and Keane JJ sits uncomfortably with the goal of estoppel and equity generally — to relieve against unconscionable outcomes. One of the core purposes of equity is to relieve against the strict application of common law rules when that will result in injustice and unconscionability. To impose a rule that representations must conform to common law requirements of certainty seems to subject equity to the kind of strictness it is designed to ameliorate. For these reasons, Nettle J’s position that a representation for the purposes of estoppel need not be contractually certain is preferable. If estoppel is about providing relief to someone who has reasonably relied on a representation to their detriment, then those matters should be the focus of the enquiry. Was there reasonable reliance? Did the claimant change their position? Has the representor acted unconscionably in not making good on the claimant’s assumption or expectation? Then relief should be forthcoming, regardless of whether the representation was made with contractual precision. On this broader, purposive approach, the question of contractual certainty seems rather sterile and somewhat beside the point.
Further to the High Court’s findings on estoppel, it is not clear why the “obvious problem” identified by Keane J — that the lessees could not have reasonably assumed that they would receive an offer when the offer could be made on whatever terms the lessor chose — was, in fact, a problem. The lessees may not have had a reasonable expectation that the offer would be acceptable and result in new leases, but that does not mean they could not have had a reasonable expectation of at least receiving an offer. Nor, it is submitted, was it necessarily unreasonable for the lessees to have acted in reliance on that expectation.
This case eloquently illustrates the point being made in ¶10-300 of Lang’s Commercial Leasing:
“It is strongly suggested that if the lessee requires an option for renewal for adequate security of tenure to conduct its business and for possible resale, an enforceable option should be negotiated and incorporated in the lease. Written or oral indications by or on behalf of the lessor that the lessor does not grant options for renewal, but its policy is to grant renewals for tenants who comply with their lease, should not be accepted as adequate by lessees and their solicitors, however reputable the lessor is considered to be.”
Of course, in this case the lessees had no hope of getting the lessor to include options for renewal in the leases themselves. The lessor repeatedly refused the lessees’ requests to that effect. However, the lessees at least should have written to the lessor, confirming that the lessor’s assurance was made, stating what they believed it meant and making it plain that they would be carrying out the refurbishments and returning the executed leases in reliance on, and in consideration for, the promise constituted by the lessor’s assurance. What effect that may have had is unknown. However, at least the parties would have been very clear about where the other stood and the very considerable amounts of money and time spent on the refurbishments and on four sets of court proceedings might have been avoided.