In a recent application for leave to appeal to the High Court of Australia, the issue of when the doctrine of promissory estoppel will be applied was left open for reinterpretation by our highest Court.
Here, during negotiation over a series of commercial leases, the tenant (the applicant in the High Court case), sought lease terms of 10 years or, alternatively, five-year terms with an option of five years. The landlord, in response to such requests, advised the tenant that the leases had to be five years to align with others in the compound, but that as the expiration of the term approached, the tenant would be ‘looked after’.
What seemed like a throwaway comment has now come back to haunt the landlord. Ultimately, the landlord issued the tenants notices to vacate at the expiration of the five-year term – not really “looking after” them at all, in our opinion. This is where promissory estoppel intervenes. We look at what this means and its application in the case.
What is Promissory Estoppel?
Promissory Estoppel is a doctrine providing that Equity will grant a remedy to prevent unconscionable conduct by a party who makes a clear and unequivocal promise to another party, who relies on that promise to their detriment.
The doctrine is commonly invoked where an Agreement’s written terms do not reconcile with the pre-contractual assurances made. The remedy is not designed to enforce the promise (as in contract law) but, instead, is molded to achieve the ‘minimum equity’ required in a case’s particular circumstances.
How Was Promissory Estoppel Applied?
In this case, the tenant spent over $3 million on refurbishing the premises and so the grounds of application were clear. The claim of estoppel failed in the first instance where the Court held that the tenants’ interpretation of the landlord “looking after” them was unreasonable – namely providing for a further five years on similar terms.
The tenants’ have since challenged the first instance decision because although the interpretation may be unreasonable, the term ‘look after’ still implies some benefit, and they further argued, this benefit ought to form an award of damages such as to achieve the ‘minimum equity’. Here, the minimum equity may be less than the value of a further five-year term, but nonetheless, some value should be attributed.
Where to Next?
Counsel for the tenants Michael Pearce SC indicated in the leave application that the tenants intend to argue that the landlord can be estopped from departing from an assumption or expectation. They will appeal on the grounds that the landlord can be held to the reasonable terms of his representation that the tenants would be “looked after”. The High Court appeal is currently pending.
Questions? Get in touch with our disputes team on 1300 544 755.