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Loose Lips Sink Ships – Representations During Negotiations

By 27 September, 2016No Comments

Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26

This Victorian case illustrates the problem with talking loosely during negotiations.

The case worked its way from the Victorian Civil & Administrative Tribunal (VCAT), through the Victorian Court of Appeal and finally to the full bench of the High Court.

The Facts

The Landlord (Crown) in negotiations had stated that the Tenant (Cosmopolitan Hotel) would be “looked after at renewal time” if it undertook an expensive fit out.

The Tenant claimed that the Landlord’s statement estopped the Landlord from later denying any obligation to offer the Tenant a further five year lease on the same terms.

The Tenant ultimately failed on its claim that the Landlord was obliged to offer it a further lease on the same terms, however, the VCAT, Court of Appeal and at least one Judge of the High Court all considered that, had the Tenant’s case been less ambitious, it would have held that the representation resulted in a more limited obligation on the Landlord to offer the Tenant a further lease on terms, acceptable to the Landlord.

The Moral of the Tale

The decision sounds a cautionary note for those involved in commercial negotiations not to make statements as to future intent by way of ‘vague encouragement’ or at least to understand that in doing so, a Court may take the view that the statement may, if relied upon, give rise to rights in the party relying on it. The Tenant in Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd may well have succeeded in establishing a more limited estoppel had it based its claim on an assumption that the Landlord would grant a further lease on terms of its choosing.

Negotiations in Construction

Although Crown relates to a leasing matter, the principle is also relevant to the construction industry. An example of where this problem may occur is when a Contractor makes promises to a  Subcontractor, say, concerning the order of construction works or the movement of materials in a particular manner on site. If that promise is relied and acted upon by the Subcontractor (notwithstanding the contract clauses) then the denial of that right to the Subcontractor that was made during negotiations may be estopped by a Court.

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