Oral undertaking no contract

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by Mark Abernethy

It’s official – in Australia, an oral undertaking is about as good as the paper it isn’t written on.

The High Court of Australia yesterday allowed an appeal from a decision of the Court of Appeal of the Supreme Court of Victoria in which Crown Casino and Entertainment Complex challenged a decision from the Victorian Civil & Administrative Tribunal (VCAT).

Crown was in dispute with tenants at their property, who held leases of two areas in the Casino where they operated restaurants.

The 2005 leases were limited to a term of five years and did not contain an option for renewal. However, in the course of negotiations for the 2005 leases, Crown made a statement to the tenants to the effect that they would be "looked after at renewal time".

In December 2009 Crown gave notice, pursuant to terms in the lease, requiring the tenants to vacate the premises on the expiration of the leases on 31 August 2010. In July 2010, the tenants commenced proceedings in the VCAT where they alleged that Crown had represented they’d be given a further term of five years following the expiration of the 2005 leases.

The tenants claimed that the terms of the further leases that Crown was obliged to offer them were to be the same as the 2005 leases.

The VCAT did not find that Crown had made representations in the terms claimed by the tenants. However, it did find that the statement gave rise to a collateral contract obliging Crown to offer to renew the leases for a further five year term and that Crown was able to stipulate the other terms of the renewal. The VCAT concluded that Crown was estopped from denying the existence of the collateral contract. 

The Supreme Court of Victoria dismissed the tenants’ appeal save with respect to the estoppel issue, which it remitted to the VCAT for determination of what relief, if any, should be granted.

The High Court, by majority, held that the statement – they’d be "looked after at renewal time" – was not capable of giving rise to a collateral contract or founding a claim for estoppel.