Advising Bertini Italian Restaurant On Lease Contract | Promissory Estoppel

Queston:

Discuss about the Central London Property Trust Limited and Decisions.

For this part of the assignment, advise as to be given to Bertini Italian Restaurant concerning the lease contract that has been created between the restaurant and Garland Properties Pty Ltd.Garland owns a large commercial property. The restaurant has been given on lease to Bertini on monthly basis but the restaurant wanted to have a long-term contract. As a result, Bertini asked them if the lease of the premises could be for a period of 10 years and an option to renew the lease for the next 5 years. But in this case, Garland did not agree for a lease of 10 years. When the negotiations for the lease were going on, it became clear that Garland was going to offer Bertini a lease for five years only. But in this regard, Garland had told Bertini that it is required to me considerable refurbishments on the property before the beginning of the lease and to the satisfaction of Garland. Garland said that this was being done in order to ensure that the restaurant is of the same standard when compared with the other restaurants that were open the same commercial complex. But Bertini was not sure if they were in a position to be the expenses for the refurbishments, especially if the lease for 10 years was not granted by Garland. It also needs to be pointed out that the cost for the refurbishment was nearly $2 million. Under these circumstances, Garland stated that although it was not going to give a lease for 10 years but if Bertini signed the lease for five years, and it also refurbished the restaurant in accordance with the wishes of Garland before the start of Melbourne Expo, Garland stated that it will certainly keep in mind the interests of Bertini when it was the time for the renewal of the lease. It was also mentioned by the representatives of Garland that they were allowing a lease for five years only to ensure that the lease aligns with the lease provided to the other tenants of the complex. However, in the lease agreement that there was no option for renewing the contract, but it has been stated that the landlord had been given notice to the tenant if the disease was going to be renewed by the landlord or if the landlord was going to allow the tenant who occupied the premises on monthly basis or if the landlord wanted the tenant to vacate the premises after the expiry of the lease. In the present case, then six months were left in the expiry of the lease, Garland informed Bertini that the lease was not going to be renewed and as a result, Bertini had to vacate the premises. Under these circumstances, the issue arises is in the present case, Bertini can rely on the statement of Garland when it had assured Bertini that it was going to keep in mind the interests of the company at the time of the renewal of the lease. Moreover, Bertini had relied on this promise and spent nearly $2 million for the refurbishment of the restaurant.

Legal Concepts of Estoppel and Promissory Estoppel

In Commonwealth v Verwayen (1990) and effort was made by the High Court to unify the law in this regard under the doctrine of unconscionability. On the other hand, Estoppel under the common law deals with the rules of evidence. Estoppel by judgment, common law estoppel, estoppel by representation and estoppel by convention are included in it. Estoppel by judgment is known among the lawyers as res judicata. In this regard, equity requires that a party cannot be allowed to raise an issue in the subsequent proceedings if it was possible to raise such an issue during earlier proceedings. Estoppel by deed, prevents the parties from denying a representation that was made by it in the recital of the deed. Similarly, estoppel by convention prohibits the parties from denying the agreed order to resume the state of facts on the basis of which, relations between the parties have been created. Under the common law estoppel, the parties are not allowed to deny their conduct while estoppel by representation imposes a prohibition on the parties that they cannot deny a representation affect that was made by them earlier (Bryan, 2012).

In Commonwealth v Verwayen (1990), the court had talked about the limitations placed on the promissory estoppel when the appropriate relief has been mentioned by the court as minimum equity to do justice.

Under these circumstances, it is clear that promissory estoppel is based on the representation that has been made by a party regarding future. It has the capability to create new rights for the parties relating to property. It also needs to be mentioned that this doctrine is based on unconscionability. Promissory estoppel arises in a situation where the conduct of a person has resulted in an expectation by the other person that such a person is going to obtain an interest in land from the first person. As a result of such an expectation, the person alters its position or acts to its detriment. In such cases the law provides that equity is in favor of such a person. However, the nature and extent of equity has to be decided on the basis of the circumstances of each case. Hence, it can be said that there are two main heads for the doctrine of estoppel. These are assurance, reliance and detriment. Wide variations may exist regarding the quality of assurance that is needed in order to give rise to expectation (Fitzpatrick at al., 2016). But it can be said that evidence is needed for establishing the following propositions:- that A has given or going to give an interest in the property to B and (ii) A nose regarding the expectation of B and (iii) A detriment has been incurred by B due to the reliance on such expectation and it is also great expenditure on the property or given up rights concerning the real property (iv) the expectation can be legally passed on by A to B and (v) B was interested by A or at least A was aware of the detriment that B was going to suffer.

Application of Promissory Estoppel to the Case

Although the heads of proprietary estoppel appeared to be a matter of president and logic that needs to be decided reasonably, not much certainty exists concerning the remedies that may be available to the other party. When promissory estoppel is proved, in most of the cases the remedy granted to the other party is an order made by the court affecting the gift by the conveyance or transferring the interest. When such conveyance or transfer cannot be made effectively, the law requires the promisee to make do with the lesser remedy of equitable charge. On the other hand, when proprietary stopper is established on the basis of a representation to transfer an interest in as a result of land, the main remedy is not to fulfill the promise by transfer on conveyancing the interest but stripping the profit made by the promisor as a result of its unfulfilled promise.

In view of the above mentioned discussion, in the present case it has to be considered if Bertini can be allowed to rely on the promise that was made by Garland. In this case, an interest in property was given by Garland to Bertini. The interest in land was in the form of a lease. Similarly, Garland also knew regarding the expectation of Bertini that the lease will be at least extended for the next 10 years. It has been clearly demanded by Bertini that the lease with the extended for ten years. As a result, Garland was well aware of the expectation of Bertini. On the basis of this expectation that the lease will be extended for the next five years after the first five years have expired, Bertini made an expenditure of $2 million for refurbishing the restaurant according to the expectations of Garland. Moreover, Garland also wanted to refurbish the restaurant before the start of Melbourne Expo so that it becomes comparable with the other properties. On the other hand, it was difficult for Bertini to spend $2 million for refurbishing the restaurant especially if the lease was not extended for 10 years. Under these circumstances, Garland at given an assurance to Bertini that after the expiry of the first five years, Garland will take care of Bertini's interests. As a result, Bertini had relied on the expectation that the lease will be extended for the next five years and made an expenditure of $2 million. Similarly, it can also be stated that the need to incur the detriment or to make the expenditure was encouraged by Garland. As a result, now Garland cannot claim that the did not knew regarding the expectations of Bertini. Consequently, Bertini can rely on promissory estoppel and made Garland extend the lease for the next five years.

In case of equitable estoppel, that is also known as the estoppel by acquiescence or promissory estoppel restrictions imposed by the court in Jordan v Money (1854) are not applicable. Especially the High Court had considered the effect of the doctrine of promissory estoppel in several cases. Therefore in Legione v Hateley (1983), the High Court had acknowledged that promissory estoppel can act as the basis of a claim and at the same time, it can also be considered as a defense. But keeping in view the facts of this case, the Court was of the opinion that the plaintiff was relying on the statement which cannot be considered as sufficiently promising.

Remedies for Proprietary Estoppel

Another important case related to these facts is Waltons Stores (Interstate) Limited v Maher (1988). In this case the court acknowledged a plane that was made on the basis of promissory estoppel. Although in this case, the had not rejected the decision given in Jordan v Money but it came up with equitable principle that has been used by the court in Central London Property Trust Limited v High Trees House Limited (1947). As a result, in this case, the party was not allowed to deny the presence of the representation regarding the exercise of existing contractual rights. These principles are further elaborated by the court in Bank Negara Indonesia v Hoalim (1973) and this decision was also approved by the court in Saleh v Romanous, 2010 as they applied to the rights of the parties which were not present in earlier but that have appeared as a result of the change in the position by the representee.

In Waltons Stores, the majority had come up with different estoppels. Mason CJ and Wilson J, and Brennan J had come up with a separate judgment in which they decided this case on the basis of promissory estoppel. However, in the judgment delivered by Deane and Gaudron JJ, the conclusion was based on the grounds of, what a presentation made by the appellant or, on the basis of the induced assumption that has been made by the respondent concerning the fact that the contract in dispute was in fact present (Cooke, 2000). The practical difference that is present between equitable estoppel and promissory estoppel may result in different remedies. It is worth mentioning at this point that according to the common law, a right is not created on the basis of estoppel. The right arises as a result of the state of facts that have been discovered by the court. But in case of equitable estoppel, equity is created that in itself is the source of rights. Under the common law, the estopped party is not allowed by estoppel to deny a fact, for example, the presence of a contract, theoretically the other party may bring your cross-claim concerning the contract for breach. However a remedy like equitable compensation is not provided by the equity. It can be paid by the estopped party and it is limited to compensating the detriment that the other party has suffered.

Advise Garland by focusing in particular on issues of collateral contract, promissory estoppel and remedies

A collateral contract arises between the parties when a promise has been made by one party that is independent from the main contract. The consideration for this promise is entering into the contract by the other party. A collateral contract needs to be established strictly. Similarly, a collateral contract is created only on the satisfaction of these two requirements. It should be promising in nature, the contract is made for the purpose of inducing the other party to enter the contract and it should be consistent with the terms of the main contract.

The standard bargain theory provides that a promise cannot be treated as binding unless the other party has paid a price in return. This price can be in the form of a promise or an act. Similarly it can be in the form of money also. However in some cases, even non-contractual promise may create binding obligations. The doctrine of promissory estoppel provides that like other equitable remedies, the grant of this remedy is also discretionary. Now proprietary estoppel is treated as a part of general equitable estoppel. In case of proprietary estoppel, there is doing or something, which is believed by a person to provide the right to land, for example by erecting a building or making some improvements, and the real owner of the land can be estopped from claiming that such person does not have any right over the property.

It also needs to be mentioned that as against other jurisdictions, estoppel can be used as a cause of action as well as a defense in Australia. Hence, in Australia, the promissory estoppel can be used as a sword, and also a shield. It is only in Australia where the concept of equitable estoppel can be found. It is due to this fusion of areas separate heads of estoppel that took place in Walton Stores v Mehar. When promissory estoppel is claimed, the party that has made the representation is estopped from enforcing the contract if doing so will be inequitable or unconscionable because the other party had relied on such representation (Handley, 2006).

In Walton Stores (Interstate) Ltd v Maher and Another (1988) 76 ALR 513, Mr. and Mrs. Maher owned certain commercial property. Walton stores had entered into negotiations Maher for the release of the property. For complying with the requirements of Walton's, Maher’s decided to demolish the old building and erect a new building on the property that was being made according to the specifications given by Walton's. Walton's also advised Maher's that they should try to complete the new building by 15 January, 1984. In this regard, the parties also agreed to extend the time for the completion of the building. The parties also decided the rent of the building and the terms of the lease. The solicitors of Walton's gave Maher's a draft agreement for the lease. Maher's solicitor told the other solicitors that Maher's wanted to complete the agreement within the next one or two days. But later on, Walton's decided that they do not want to lease the property of Maher's. Maher's initiating action in the Supreme Court of NSW while they sought a declaration that a binding contract is present. Between the parties and similarly they also wanted the specific performance of the contract or if this was not possible, damages. The court at the first instances decided the case in their favor. The court stated that as a result of the common law estoppel, Walton's cannot be allowed to deny that an agreement is present between them. Therefore the court order damages to be paid by the Walton's. An appeal was made to the NSW Court of Appeal, but it was also dismissed and as a result, an appeal was made to the High Court by the Walton’s.

The legal issue before the court was if the Walton's can be estopped from claiming that a contract has not been concluded between them regarding the lease of the property. The High Court also dismissed this appeal. Although the judges gave separate decisions, but with the exception of Mason CJ and Wilson J, all of them thought that the Walton's, cannot be allowed to deny the presence of an enforceable agreement related with the lease of the property even if they have not signed the formal contract.

In view of the legal rules mentioned above and relevant case law, in the present case, it can be concluded that Garland Properties Pty Ltd cannot be allowed to claim that a contract is not present between the parties for extending the lease of the restaurant for the next five years after the initial period of five years has expired. As a result, in this case, even if Bertini are not providing any consideration to support the promise made by Garland for extending the lease of the property for the next five years, still this promise can be enforced against Garland. However, Garland can claim that it is not liable to pay $200,000 that Bertini was going to earn as ordinary profit as well as the $100,000 as exceptional profits.

References

Bryan, M., (2012) ‘Almost 25 years on: some reflections on Waltons v Maher’ 6 Journal of Equity 131

Cooke, E., (2000) The Modern Law of Estoppel, Oxford University Press

Fitzpatrick J, Symes C, Veljanovski A, and Parker D 2016, Business and Corporations Law (3rd edition), LexisNexis Butterworths, Australia

Handley, KR, (2006) ‘Three High Court decisions on estoppel 1988-1990’ 80 Australian Law Journal 724

Handley, KR, (2010) ‘Further thoughts on proprietary estoppel’ 84 Australian Law Journal 239A

Bank Negara Indonesia v Hoalim (1973) 3 PCC 27

Central London Property Trust Limited v High Trees House Limited [1947] KB 130

Commonwealth v Verwayen (1990) 170 CLR 394

Legione v Hateley (1983) 152 CLR 406

Saleh v Romanous [2010] NSWSC 274

Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466 

Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387