Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) HCA 26
Undesirable business practices; unconscionable conduct; relevance of overall circumstances
Facts: Crown Melbourne Ltd (Crown) owned the Melbourne Casino and Entertainment Complex. In 2005 Cosmopolitan Hotel (CH) was interested in leasing two restaurants within this complex but needed leases long enough to recover the costs of refurbishing the restaurants. The leases, which were signed in November 2005 and were for a period of five years, did not contain any option to renew. However, during negotiations for the leases, a representative of Crown stated that CH would be “looked after at renewal time”. In 2009 Crown gave notice requiring CH to vacate the premises. CH claimed that the original statement, that they would be ‘looked after at renewal time’, was a contractually binding promise.
Issue: Although not a term of the lease, was the statement that CH would be “looked after at renewal time” a promissory statement which gave rise to a binding collateral contract?
Decision: There was no collateral contract.
Reason: It is possible for a statement made in the course of negotiations to create an agreement that is “collateral” to the main contract. For a collateral contract to exist, it must satisfy all the usual elements of contract formation. In particular, it must be shown objectively – based on the words and conduct of the parties – that the parties intended the statement to be a contractually binding promise rather than a mere representation.
In the present case, the statement made by Crown was not a promise because it was impossible to say what would be involved in ‘looking after’ CH at renewal time. A reasonable person would not have understood the statement to mean that Crown would offer CH a further five-year lease. If Crown was saying that it would offer CH another lease on new terms to be decided by Crown alone, then this was only an ‘illusory promise’, insufficiently certain to create a contract.