The New South Wales Court of Appeal has confirmed that rectification of a contract is generally only available to redress a common mistake, and that estoppel is available in respect of pre-contractual representations, even in the face of an entire agreement clause.

Caringbah Investments Pty Ltd v Caringbah Business and Sports Club Ltd (in liq) [2016] NSWCA 165

Caringbah Investments Pty Ltd (the appellant, CIPL) owned property in Caringbah (near Cronulla in New South Wales), the site of a licensed sports and social club. Caringbah Business and Sports Club Ltd (the respondent, CBSC) was the previous owner of the property and thereafter a tenant, having negotiated a sale and lease back with CIPL in December 2012.

Those negotiations were central to the dispute.

The lease, which contained an entire agreement clause, provided for rent of $170,000 for the first year, $180,000 for the second year and $190,000 for the third year.

CBSC alleged, and the primary judge found, that in November 2012 certain of the directors of the respective parties had orally agreed that:

  1. CBSC could only afford rent of $150,000, $160,000 and $170,000 over the first three years; and
  2. CIPL’s directors stated that they needed the higher figures to go into the lease, but CBSC would only have to pay those higher amounts if its proposed merger with the Cronulla Sharks League Club took place (a merger which never occurred).

In accordance with the oral agreement, CBSC paid rent in the lower amounts. In December 2013, CIPL wrote to CBSC claiming, among other matters, a shortfall in rent and asserting rental amounts consistent with the written lease. Ultimately, CIPL served a notice of termination of lease for under-payment of rent.

The primary judge ordered that the lease be rectified to reflect the oral agreement. He also stated that, had rectification not been available, he would have found for the respondents on the basis of promissory estoppel.

CIPL appealed.

The central issues on appeal were:

  1. whether the remedy of rectification was available absent mistake; and
  2. whether the appellant was estopped from enforcing the higher rental amounts contained in the lease.

The Court (Bathurst CJ, McColl and Macfarlan JJA agreeing) dismissed the appeal, CIPL succeeding on the rectification point, but failing in relation to estoppel.

Rectification

The general rule is that rectification is available only to redress common mistake. That is, where parties reduce their agreement to writing, but fail to accurately record their common intention. The mistake may be as to either the words used or their legal effect. Its rationale is to avoid unconscientious departure from the common intention, but that is not an independent basis for relief.

In this case, no mistake had been made as to what the lease contained. Both parties knew that the written lease differed from the terms of the oral agreement and signed anyway.

Accordingly, the Court (per Bathurst CJ at [39]-[42], with whom McColl and Macfarlan JJA agreed) applied the reasons of the majority of the High Court in Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336. In that case, Mason J said:

[T]he court must be satisfied that the instrument does not reflect the true agreement of the parties. It cannot be so satisfied unless the writing was intended to record the earlier agreement and by mistake of the parties it fails to do so. If the plaintiff fails to establish these elements he does not displace the hypothesis arising from execution of the written instrument, namely, that it is the true agreement of the parties.

The respondent’s submission that rectification could be ordered, absent any relevant mistake, in circumstances where it was unconscientious for the appellant to rely on the lease in the face of the earlier agreement was rejected as having no support in the authorities ([44]). Further, the Court found, the law provides other remedies (such as the estoppel asserted in the present case) ([47]).

Estoppel

These days it is uncontroversial that pre-contractual representations may give rise to an estoppel (Franklins Pty Ltd v Metcash Trading Pty Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407 at [33], [554] applied; a good Victorian example being Anaconda Nickel Ltd v Edensor Nominees Pty Ltd (2004) 50 ACSR 679; [2004] VSCA 167, special leave to appeal to the High Court refused by majority: [2005] HCATrans 151). The appellant did not contend otherwise.

Nor does the existence of an entire agreement clause necessarily prevent estoppel arising. This is because it is difficult to see why “a remedy of equity based on unconscionability” should be defeated by an entire agreement clause, particularly when the representee has been induced by the representor’s conduct to enter into the agreement containing the clause: Branir Pty Ltd v Owsten Nominees (No 2) Pty Ltd (2001) 117 FCR 424, 544. Again, the appellant did not contend otherwise.

Nor was this a case concerning the elements necessary to establish an estoppel, universal agreement upon which has not been reached. The parties and the Court were content to adopt the list of elements proposed by Brennan J in Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, 428-9.

Instead, the focus was on the evidence brought by the respondent in relation to detrimental reliance:

First, it was submitted that at least one of the directors who was present at the meeting, Mr Collings, did not rely on the representation and second, even if the directors who were present relied on the representation in agreeing that the respondent enter into the lease, having regard to the absence of the evidence of the other directors, it was not open to conclude that the respondent itself did so. ([76]).

In this regard, the Court held that:

  1. “reliance is a fact to be found, not to be presumed…the real question is the appropriate inference to be drawn from the whole of the evidence including answers elicited in cross-examination” ([77], applying Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25, and Sidhu v Van Dyke (2014) 251 CLR 505; [2014] HCA 19); and
  1. reliance could be inferred on the basis of the evidence of the two CBSC directors who attended the relevant meeting and signed the lease, notwithstanding the absence of documentary evidence (there was no minute of board meeting authorising entry into the lease) and the failure by CBSC to call the other directors (who were no longer connected with CBSC) ([78]-[84]).

As a postscript, the decision in Caringbah was handed down only two days prior to the High Court decision in Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd & Anor [2016] HCA 26, which also considered an estoppel claim relating to a lease. In brief, in Crown, the plurality (French CJ, Kiefel and Bell JJ) held that the phrase “looked after at renewal time” was not sufficiently clear, precise and unambiguous to convey to a reasonable person that the tenants would be offered a further lease ([35]) and, in any event, the tenants had not shown that the assumption was acted upon ([39]).