Supreme Court New South Wales

• Medium Neutral Citation: Construction Technologies Australia Pty Ltd v Doueihi & 4 Ors [2014] NSWSC 1717
• Hearing dates: 3-7 and 11 February 2014; 10 March 2014
• Decision date: 04 December 2014
• Jurisdiction: Equity Division
• Before: White J

Decision

1.Stand over the proceedings to a date to be fixed.

2.Direct the plaintiff's counsel to bring in short minutes of order to give effect to these reasons.

• Catchwords: ESTOPPEL - equitable estoppel - proprietary estoppel - estoppel by encouragement - when available - director of plaintiff company entered into discussions with defendants regarding acquisition of land by defendants and lease of portion of acquired land to plaintiff company - where defendants allowed director of plaintiff company to oversee design and construction of premises on land and were aware plaintiff intended to install expensive adhesives manufacturing equipment for its business which equipment would be costly to dismantle and remove - where director of plaintiff had familial and domestic connection to three of four owners of land - where defendants had practice of not documenting leases relating to their properties - where plaintiff's lease with defendants not documented - effect on reasonableness of reliance - whether essential for plaintiff's assumption to be as to legal relationship or legal rights - relevance of familial and domestic context - whether parties having not reached consensus on important terms of lease precluded estoppel arising - whether defendants estopped from relying on rights at law to determine tenancy at will; ESTOPPEL - estoppel by convention - where plaintiff adopted assumption that it would have exclusive occupation of certain area on defendants' premises for five-year term with further five-year option - where individual defendants made no assumption as to the period of plaintiff's exclusive occupation - parties' different assumptions fatal to conventional estoppel claim; CONTRACTS - general contractual principles - where one defendant co-owner of property given authority to negotiate terms of occupancy by plaintiff but no authority to enter into agreement on other defendant co-owners' behalf - agreement as to some essential terms reached but parties lacked intention to enter into binding legal relations - no binding contract formed; REMEDIES - equitable proprietary estoppel - power to order defendant to execute lease on certain terms - illegality - where defendants claimed grant of lease as sought by plaintiff would result in illegal use of property - relief conditional upon plaintiff obtaining regulatory approval from council
• Legislation Cited: Conveyancing Act 1919 (NSW); Environmental Planning and Assessment Act 1979 (NSW)
• Cases Cited: Attorney-General of Hong Kong v Humphreys Estate [1987] AC 114; Austotel Pty Ltd v Franklin Self-Serve Pty Ltd (1989) 16 NSWLR 582; Austotel Pty Ltd v Franklins Self-Serve Pty Ltd (1989) 16 NSWLR 582; Australian Crime Commission v Gray [2003] NSWCA 318; Barnes v Alderton [2008] NSWSC 107; (2008) 13 BPR 25,281; BBB Constructions Pty Ltd v Aldi Foods Pty Ltd [2012] NSWCA 224; Chalmers v Pardoe [1963] 1 WLR 677; [1963] 3 All ER 552; Commonwealth v Verwayen (1990) 170 CLR 394; Crabb v Arun District Council [1976] Ch 179; Crampton v Varna Railway Company (1872) LR 7 Ch App 562; DHJPM Pty Ltd v Blackthorn Resources Limited [2011] NSWCA 348; (2011) 285 ALR 311; Dillwyn v Llewelyn (1862) 4 De GF & J 517; 45 ER 1284; Duke of Devonshire v Eglin (1851) 14 Beav 530; 51 ER 389; East India Company v Vincent (1740) 2 Atk 84; 26 ER 451; EK Nominees Pty Ltd v Woolworths Limited [2006] NSWSC 1172; Flinn v Flinn [1999] VSCA 109; [1999] 3 VR 712; Franklins Pty Ltd v Metcash Trading Limited [2009] NSWCA 407; (2009) 76 NSWLR 603; Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101; Habib Bank Limited v Habib Bank AG Zurich [1981] 1 WLR 1265 at 1285; [1981] 2 All ER 650; Holiday Inns Inc v Broadhead (1974) 232 EG 951; Inwards v Baker [1965] 2 QB 29; Jackson v Cator (1800) 5 Ves Jun 688; 31 ER 806; Milling v Hardie [2014] NSWCA 163; Mobil Oil Australia Limited v Wellcome International Pty Ltd (1998) 81 FCR 475; Moratic Pty Ltd v Gordon [2007] NSWSC 5; (2007) ANZ Conv R 198; NSW Conv R 56-172; Aust Contract R 90-255; Pacific National (ACT) Limited v Queensland Rail [2006] FCA 91; Pilling v Armitage (1805) 12 Ves Jun 78; 33 ER 31; Plimmer v The Mayor of Wellington (1884) 9 App Cas 699; Powell v Thomas (1848) 6 Hare 300; 67 ER 1180; Ramsden v Dyson (1866) LR 1 HL 129; Riches v Hogben [1985] 2 Qd R 292; Rochdale Canal Co v King (No. 2) (1853) 16 Beav 630; 51 ER 924; Rockote Enterprises Pty Ltd v FS Architects Pty Ltd [2008] NSWCA 39; Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603; S & E Promotions Pty Ltd v Tobin Brothers Pty Ltd (1994) 122 ALR 637; Saleh v Romanous [2010] NSWCA 274; (2010) 79 NSWLR 453; Sidhu v Van Dyke [2014] HCA 19; (2014) 251 CLR 505; Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466; Stiles v Cowper (1748) 3 Atk 692; 26 ER 1198; Tadrous v Tadrous [2010] NSWSC 1388; Tadrous v Tadrous [2012] NSWCA 16; Taluja v Australian International Academy of Education Limited [2011] NSWCA 416; (2011) 16 BPR 30,319; Taylors Fashions Limited v Liverpool Victoria Trustees Co Limited [1982] QB 133; Thorner v Major [2009] UKHL 18; [2009] 1 WLR 776; Van Dyke v Sidhu [2013] NSWCA 198; (2013) 301 ALR 769; Walsh v Walsh [2012] NSWCA 57; Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387; Watson v Foxman (1995) 49 NSWLR 315; Willmott v Barber (1880) 15 Ch D 96; Yeoman's Row Management Limited v Cobbe [2008] UKHL 55; [2008] 1 WLR 1752
• Texts Cited: A Silink, "Equitable Estoppel in 'Subject to Contract Negotiations' (2011) 5 Journal of Equity 252; B McFarlane, "The Law of Proprietary Estoppel", Oxford University Press, 2014; K R Handley, Estoppel by conduct and election, Thomson Sweet & Maxwell 2006 ed; Young, Croft and Smith "On Equity" (Lawbook Co. 2009)
• Category: Principal judgment
• Parties: Construction Technologies Australia Pty Ltd (Plaintiff); Edward Doueihi (1st Defendant); Katrina Scott (2nd Defendant); Maria Vatselias (3rd Defendant); Nicole Hogan (4th Defendant); Marble Plus Pty Ltd (5th Defendant)
• Representation: Counsel: K Rees SC with R A Jedrzejczyk (Plaintiff); D W Elliott (Defendants); Solicitors: Fong D'Emilio Lawyers (Plaintiff); Takchi & Associates Solicitors (Defendants)
• File Number(s): 2012/367996

Judgment

1 HIS HONOUR: These proceedings concern the right of the plaintiff ("CTA" or as it was earlier called "MCB Products") to occupy a part of industrial premises in Prime Drive, Seven Hills ("the Seven Hills property"). The Seven Hills property is owned by the first to fourth defendants: Mr Doueihi, Ms Scott, Mrs Vatselias and Ms Hogan. CTA alleges that it is entitled to occupy the premises under an agreement for lease between it and those defendants that it could occupy a part of the premises known as Area B for a term of five years from 1 July 2010 at a rent of $12,000 per month plus GST with an option to renew the lease for a further five years. Alternatively, CTA contends that it is entitled to occupy the premises pursuant to an agreement between it and the fifth defendant, Marble Plus Pty Ltd ("Marble Plus") whereby Marble Plus would lease the premises from the first to fourth defendants and grant it a sublease for a period of five years from 1 July 2010 at a rent of $12,000 plus GST per month with an option for renewal for a further period of five years. The alleged agreements are not in writing, but are said to have been made orally or by conduct and to have been partly performed.

2 Alternatively, CTA contends that the first to fourth defendants, or all defendants, are estopped from denying the existence of such an equitable lease or sublease. CTA seeks an order for specific performance, an injunction to restrain the defendants from interfering with its possession or alternatively, damages. An alternative claim for misleading or deceptive conduct was pleaded, but not pressed in final submissions.

The parties

3 CTA manufactures tile adhesives, grouts and waterproofing membrane products. It was incorporated in 2007. On 9 September 2008 Mr Troy Hogan invested more than $1 million to acquire a majority shareholding in CTA. CTA operated a production facility in Brisbane. Mr Hogan was then married to the fourth defendant, Ms Nicole Hogan. The minority shareholders of CTA have no relationship to the defendants.

4 The second defendant, Ms Katrina Scott and the fourth defendant Ms Hogan, are the daughters of the third defendant, Mrs Maria Vatselias.

5 Mrs Vatselias' husband died in February 1995. He and Mrs Vatselias had established a company called Architectural and Structural Adhesives Pty Ltd ("ASA") which manufactured tile adhesives, grouts, waterproofing membranes and other products for the building and construction industry. One of ASA's customers was Marble Plus. Marble Plus commenced business in about November 1987 as an importer and wholesaler of tiles and natural stone products. Marble Plus was established by the first defendant, Mr Edward Doueihi and his brother. In about mid-1994 Mr Vatselias expressed interest in acquiring Marble Plus' business. A share sale was completed in October 1994. Members of the Vatselias family acquired the majority of the shares in Marble Plus. Mr Doueihi, his wife and family company own approximately 32.6 per cent of the shares in Marble Plus. Mrs Vatselias or companies associated with her own approximately 38.9 per cent of the shares, Ms Scott and Ms Hogan each own approximately 14.65 per cent.

6 Troy Hogan started working for ASA on a full-time basis in 1994. He became managing director of ASA in 1998 after his marriage to Nicole Hogan. In June 2000, Bostik Australia Pty Ltd ("Bostik") acquired 75 per cent of the shares in ASA from the Vatselias family. Troy Hogan continued to work in the business. He remained a director of ASA. From 2006 to April 2008 he worked in Hong Kong for Bostik. He returned to Australia in April 2008 having ceased to be an employee of Bostik. He was then subject to a six-month restraint on working for competitors of Bostik. In breach of that restraint he worked as a consultant for CTA, then known as MCB Products Pty Ltd, while he considered making an investment in that company.

7 In 1995 Marble Plus traded from premises at 108 Redfern Street, Wetherill Park that were owned by Mrs Vatselias following Mr Vatselias' death. Marble Plus paid rent to Mrs Vatselias but there was no formal lease. In 2001 (after the acquisition of ASA by Bostik, and after Marble Plus had outgrown its premises at Wetherill Park) Mr Doueihi, Mrs Vatselias, Ms Hogan and Ms Scott purchased a property in Long Street, Smithfield. The property was purchased in their joint personal names. Marble Plus then carried on its business from the Smithfield property paying rent and outgoings to the proprietors. There was no written lease and no agreement that the lease would be for a fixed term.

8 After Mr Hogan's return from Hong Kong, he proposed to Mr Doueihi that they should look to acquire new premises that could accommodate an expansion of Marble Plus' business and provide Sydney premises for MCB Products. Mr Hogan was then actively considering investing in MCB Products and was acting as a consultant for it. A suitable site was identified in Prime Drive, Seven Hills.

9 At this time Mr Hogan was working out of Marble Plus' offices at Smithfield. MCB Products was storing product at the Smithfield premises. Mr Hogan and Mr Fouhy (a director and financial controller of MCB Products) contended that MCB Products paid a rent of $50,000 per annum for its use of the Smithfield property, apparently as sub-lessee of Marble Plus. They said that this was another example of an informal lease arrangement, this time involving MCB Products. There was no corroboration of that evidence. The defendants denied any such lease. They said that MCB Products was allowed to use some of the space to store its product as a matter of grace and favour. No invoices for rent were raised by Marble Plus or the proprietors of the Smithfield premises. Mr Fouhy and Mr Hogan said that rent was paid either by cash payments to Marble Plus or by "contra payments", that is, by giving Marble Plus credit for adhesive products supplied by MCB Products to Marble Plus. No example of any such cash payment or contra payment was provided. Mr Fouhy accepted that the so-called payments of rent were not accounted for as such in the books of MCB Products. No reason was given as to why MCB Products would not maintain such accounting records for what would be a legitimate tax deduction for its business. I am not satisfied that MCB Products was a lessee or sub-lessee of the Smithfield premises.

Purchase of Seven Hills property

10 Mr Hogan told Mr Doueihi in early 2008 that he was interested in investing in MCB Products (T314), a company that manufactured adhesives. He told Mr Doueihi that he was thinking of setting up a business for MCB Products in Sydney that included setting up a production facility for adhesives (T315). In early 2008 Marble Plus was looking to relocate to larger and better facilities closer to where Mr Doueihi lived.

11 Mr Hogan suggested to Mr Doueihi that they look for a site that would accommodate both the business of Marble Plus and a business in Sydney for MCB Products (T317). He told Mr Doueihi that the MCB Products business would need about 1,000 square metres of space (T317). He suggested that a property be purchased in the same way that the Smithfield property had been bought, that is, in the name of the four individual owners and that there be a lease to Marble Plus (T317).

12 By the end of August 2008 Mr Hogan and Mr Doueihi had identified the property at Prime Drive, Seven Hills as the site they proposed be purchased. Mr Doueihi told Mrs Vatselias and her daughters that the Seven Hills property could accommodate both Marble Plus and MCB Products (T326). They voiced no opposition to that idea (T326).

13 At a meeting with the National Australia Bank on about 1 September 2008 Mr Hogan and Mr Doueihi told the bank manager, Mr Tony Vellacott, that it was proposed that the Seven Hills property be bought by the four individuals who were directors and shareholders of Marble Plus for $2.9 million and that a purpose-built building would be constructed on the property at an estimated approximate cost of $3.2 million for the occupancy of Marble Plus and MCB Pty Ltd. Mr Hogan and Mr Doueihi told the NAB that it was proposed that Marble Plus occupy part of the site for a rent of "say" $400,000 net per annum, and that MCB Products would occupy a surplus area for a rent of $100,000 net per annum (CB5/1647; T330-331).

14 Mr Hogan was also dealing with the Arab Bank. On 17 September 2008 he sent an email to the Arab Bank copied to Mr Doueihi in relation to proposed funding for the purchase of the Seven Hills property and the construction of a purpose-built facility. In that email he said:

"Upon completion the tenant will be Marble Plus Pty Ltd (they will have a sublease to another company) on 10 plus 5 plus 5 year lease with a commencement rental of $550K net." (CB 5/1661)

15 Mr Doueihi acknowledged (at T332) that the other company referred to could well have been MCB Products. It is clear that that was the company to whom Mr Hogan was referring. Mr Doueihi acknowledged (at T333) that this email accurately reflected the structure that was being contemplated as at September 2008. There was no other evidence that at any time it was contemplated that a lease would be given to anyone for a term of ten years with two five-year options for renewal. Mr Hogan's email of 17 September 2008 to the Arab Bank said nothing as to any term of the sublease.

16 Contracts for the purchase of the Seven Hills property were exchanged at some point prior to 25 September 2008. The purchase price was $2,900,000. It was common ground that the purchase contract was signed by the first to fourth defendants in their own names. That is to say, Mr Doueihi was not appointed as the agent of Mrs Vatselias and her daughters to enter into the contract of purchase on their own behalf. They relied on him to approve of the property to be purchased and to be satisfied with the terms of purchase. Mr Hogan was the driving force behind the purchase of the Seven Hills property.

Proposal to lease part of premises to CTA

17 On 22 September 2008 Mr Vellacott sent an email to the accountants for Marble Plus, copied to Mr Doueihi, seeking information in support of the application for funding for the purchase. Mr Vellacott noted that the deposit had already been paid on the property. Mr Vellacott recorded his instructions that the premises were to house Marble Plus at $400,000 net per annum with a new retail outlet (rent unknown) and another two tenants, being a coffee shop, and one other tenant at $100,000 net per annum (CB5/1671). This other tenant was clearly MCB Products. By this time Mr Doueihi and Mr Hogan had told the NAB that it was proposed that the other tenant (whom they knew to be MCB Products) would be paying a rent of $100,000 per annum net, that is, not including its contribution to outgoings. Mr Doueihi ultimately admitted (after first denying it) that as at September 2008 he was proposing that 25 per cent of the property would be used by MCB Products for which it would pay $100,000 a year (net) to Marble Plus (T335).

18 Mr Doueihi said that he told Mrs Vatselias and her daughters about that proposed structure (T335). None of them objected. Mr Doueihi had sworn in his affidavit that there was never any discussion about leasing a property to Marble Plus and subleasing part of that property to CTA, but he accepted that that part of his evidence was false (T336).

19 The building to be constructed on the site was designed to accommodate an adhesives manufacturing plant for MCB Products (CTA).

20 Mr Doueihi denied knowing that MCB Products proposed to carry on a business of adhesives manufacturing. He denied ever having agreed to CTA's manufacturing plant and equipment being installed on the premises. The other defendants also deposed that they did not agree to CTA's using the premises for the purposes of manufacturing adhesive products. The process of manufacture of adhesive products involves the mixing of different dry products.

21 Development consent was obtained for the construction of a factory that was designed to accommodate large silos used for the mixing of dry products that were then bagged by CTA as adhesives. Contrary to his denials in his affidavit and from time to time in his oral evidence, Mr Doueihi was well aware that the factory was constructed for this purpose. It is unnecessary to refer to the details of this matter, although they were gone into at length because of the defendants' contention that they did not agree to CTA's occupying the premises otherwise than for the purpose of storing products manufactured off-site. Ms Scott, Ms Hogan and Mrs Vatselias left these matters to Mr Doueihi. Mr Doueihi said in his affidavit that he supervised the construction of the new premises. I do not accept that evidence. Mr Hogan supervised the construction. Nonetheless, I am satisfied that Mr Doueihi was sufficiently aware of the details to know that the premises were designed and built to accommodate CTA's adhesive manufacturing plant. The significance of the issue is that it was obvious to Mr Doueihi, and to the other defendants, that the manufacturing plant installed by CTA was expensive, its installation was expensive, and it would be expensive and disruptive for CTA to remove it.

22 Mr Hogan became a director of MCB Products on 4 February 2009. At that time his company APAC Investments Pty Ltd acquired 64 per cent of the shares of MCB Products. The purchase was made with the assistance of a $500,000 loan from Mrs Vatselias. At what Mr Hogan described as a board meeting of CTA held on 12 February 2009, but which the minutes describe as a "shareholders' strategy meeting" Mr Hogan provided a report to the other directors of CTA. The minutes record:

"- Sydney factory project

TH advised that the new building at Seven Hills was in the council DA process.

DA was expected in this year. Then the building contract would be let.

Once the DA was out of council and the various conditions could be assessed, we could finalise the production equipment specifications/design.

Initial estimates have the cost at approx. $600 - 700k (in line with the Qld operation).

Plan to move early 2010 and install equipment soon after. Complete project mid/late 2010.

Rent will be approx. $10k [sic] pa for approx.. 1,000 sqm

Lease commitment will be 5+ years at a minimum. Plus options to expand.

We will have an option to buy also"

23 Mr Hogan gave no evidence of any conversations with any of the defendants about CTA's having an option to buy the site, or the area to be occupied by CTA. Nor was there any evidence of conversations with the defendants about CTA having an option to expand. Clearly, nothing had been agreed at this point. The minutes do not suggest that the other directors were told that any agreement had been made as to the terms on which CTA could occupy the site. Mr Hogan told Mr Fouhy that he had spoken to Mr Doueihi and told him that CTA needed at least five years initially, and that Mr Doueihi was "fine with that".

24 The defendants' requirements for finance included not only finance for the purchase of the property, but finance for the construction of the building which would house Marble Plus and CTA. Development consent was given by the council on 3 April 2009. Mr Doueihi and Mr Hogan then focused their attention on getting construction finance. Mr Hogan corresponded with a valuer retained by the NAB to try to get as high a valuation of the completed property as he could. In dealing with the valuer Mr Hogan and Mr Doueihi connived to create a false document that purportedly set out the terms of a sublease to be granted by Marble Plus to CTA. In an affidavit filed in proceedings in the Family Court, Mr Hogan admitted that he had prepared the document. In his affidavit in these proceedings he said that he believed that Mr Doueihi prepared the document. I am satisfied that Mr Hogan prepared the document, contrary to his affidavit made in these proceedings. It was he who was driving the process of obtaining the valuation for which the terms sheet was used. A signed copy of the document was later located. Mr Doueihi said he signed it without reading it but he knew it contained terms of a purported agreement. I do not accept Mr Doueihi's evidence that he did not read the document.

25 The valuer's report was completed on 22 May 2009. The report included a statement that:

"An unsigned and undated Letter of Offer has been provided by the applicant for a proposed lease of part of the premises (warehouse space comprising 25 per cent of total GLA) to CTA. The proposed lease is for 3 plus 3 years at a commencing rental of $158,550 pa net (150.M² pa net) which is considered to be well in excess of market rental value for this space ($105,700 pa net or $100M² pa net)." (CB 3/795)

26 A copy of the so-called Letter of Offer was signed purportedly by Mr Doueihi for and on behalf of the lessor and by an unidentified person on behalf of CTA. The mystery of the signature for CTA need not be resolved as it was not in dispute that the document did not record a true agreement, nor a true proposal. The stated rent was inflated to attempt to influence the valuer to provide a favourable valuation to assist with the provision of finance.

27 Mr Hogan deposed that in about mid-2009 he obtained a "soft copy" of the Letter of Offer from Mr Doueihi and modified it to reflect the terms of the lease which CTA wanted. Mr Hogan deposed that he gave the modified document back to Mr Doueihi with certain changes, including changes to the lease term to five years with an option of renewal for a further five years, a change of the rent to $120,000 and removal of the requirement for a bank guarantee and lease deposit. Mr Hogan deposed that when he gave the modified Letter of Offer to Mr Doueihi they had a conversation to the following effect:

"Hogan: The costs of CTA's plant are getting bigger. To justify this expenditure on the site, we need more than 3 plus 3 to make it worth doing. How about 5 plus 5?

Doueihi: That sounds fair to me."

28 Mr Doueihi denied the conversation and denied receiving a modified Letter of Offer from Mr Hogan.

29 The statement of claim does not plead an agreement for lease made in mid-2009. The pleaded agreement for lease is said to have been made in May 2010.

30 Nonetheless, CTA submitted that an agreement for lease came into existence in mid 2009 that was not "subject to contract". It submitted that Mr Doueihi had authority from the other defendants to enter into the agreement for lease and did so in the terms set out in the revised letter of offer subject to three passages in the letter of offer not being terms of the agreement because they did not accord with the parties' common intention. One of those terms was the requirement for execution of formal documents. Another, so it was submitted, was that the modified letter of offer (like the original letter of offer provided to the valuer) provided that the permitted usage of the premises by CTA was for "warehouse and distribution of adhesives, waterproofing grouts for the installation of tiles". The intended usage of the premises by CTA included manufacturing of adhesives. The third passage in the modified letter of offer that was said not to form part of an agreement for lease was a condition that the lease was subject to the lessee's obtaining the necessary development approval for the permitted use from the council. CTA submitted that Mr Hogan and Mr Doueihi had agreed in about December 2008 that the application for development consent would be made without reference to CTA and without reference to a manufacturing element as this would be a quicker process and later CTA could sort matters out with the council.

31 It is clear that even if Mr Hogan provided the modified Letter of Offer to Mr Doueihi and had a conversation to the effect to which he deposed, no agreement for lease or sub-lease would then have come into existence. On Mr Hogan's own evidence all that Mr Doueihi agreed to was that it sounded fair that CTA should have a lease for five years with a five-year option. There was nothing to indicate that the parties then intended to enter into binding legal relations. The modified Letter of Offer was purportedly an offer for the entry into a lease between Marble Plus as lessor and CTA as lessee for a lease term of five years with a five-year option and an annual rent of $120,000 per annum plus GST. Marble Plus was not the owner of the property. It did not have a leasehold estate which would enable it to give a sublease for such a term. The modified Letter of Offer was marked as a draft. It included a term that legal relations would not arise between the parties until a lease had been fully executed. It was unsigned.

32 Mr Hogan gave oral evidence, in response to a question from me, that he believed in mid-2009 that he had an agreement for lease with Mr Doueihi that was an enforceable and binding agreement.

33 I do not accept that evidence. As appears below it is inconsistent with Mr Hogan's later behaviour. Nor could any such opinion reasonably have been formed at the time. Mr Hogan and CTA had had no discussions about the terms of a lease with the other owners of the land. Mrs Vatselias, Ms Scott and Ms Hogan relied on Mr Doueihi to handle matters in relation to the site such as the terms of a building contract, negotiating the terms of finance and negotiating terms with CTA. But they did not give him authority to enter into any contract on their behalf. Nor did Mr Doueihi purport to enter into any contract either on their behalf or on behalf of Marble Plus even if he had the discussion to which Mr Hogan deposed.

34 In his affidavit Mr Doueihi denied the conversation to which Mr Hogan deposed. In cross-examination he was less dogmatic. Initially he denied that it was possible that he received the document, but that was because he did not have a copy of it. When it was pointed out to him that he did not have a copy of many of the emails that were in the court book which he undoubtedly received he accepted that that was not a sufficient reason for denying receipt of the document. At one point he accepted that it was possible and probable that Mr Hogan did give him the document (T410), but he later resiled from that evidence (T411).

35 Mr Doueihi gave the following evidence:

"Q. ... You said earlier that it would have been reasonable for CTA to request a term of lease of five plus five in light of the efforts that CTA was going to to set up its operations in the building in mid-2009; do you recall giving that evidence?

A. Yes.

Q. And, similarly, it would have been reasonable for Mr Hogan on behalf of CTA to set out in a document the precise terms which CTA wanted to define that occupancy, correct?

A. Yes.

Q. And you wouldn't have been shocked if he'd come into your office and given you this document and said this is what CTA would like in terms of its arrangements with Marble Plus, correct?

A. Probably could have because we didn't do that.

Q. You didn't document things; is that what you mean by that last answer?

A. What I mean is we never drew leases. Other than for the purpose of finance, yes, it would have surprised me for him to do that.

Q. And that's because, so far as you were concerned, you didn't need or expect to have any kind of formal lease for CTA's occupation of the warehouse; that's right, isn't it?

A. We've never had - no, that's right.

Q. And that, so far as you knew, was not how the Vatselias family worked either, correct?

A. Correct.

...

Q. And you gave evidence yesterday about how when you purchased the property in Smithfield and Marble Plus moved in there that there was no suggestion at any point in time that Marble Plus's occupation of that building be documented by a formal lease, correct?

A. Yes, that's correct.

Q. And that's because that's not how the Vatselias family works, correct?

A. That's correct.

Q. And that was an arrangement or an approach that was fine with you, wasn't it?

A. Yes.

Q. And so the only reason you would have been surprised if Mr Hogan came into your office with a letter of offer like this is because it was not something that you or the Vatselias family did in terms of documenting the arrangements that were proposed to be entered into, correct?

A. That's correct.

Q. And Mr Hogan, if he'd given this to you, and you accept it's possible that he did, would have been trying to put more definition and form around the arrangement than was customary for the Vatselias family or yourself; is that right?

A. That's correct.

Q. So whilst it would have been quite reasonable for CTA to ask for some certainty of occupation and a lengthy term, you would have been surprised if he had tried to document it; is that what you're saying?

A. That's right."

36 I accept this evidence of Mr Doueihi. I am not persuaded that the modified letter of offer was given by Mr Hogan to Mr Doueihi. I also do not think that Mr Doueihi would have said anything to indicate to Mr Hogan that he was intending or purporting to bind Marble Plus or his co-owners of the property or himself to a long-term lease on particular terms. Nor does the evidence given by Mr Hogan indicate that he purported to do so.

37 I accept Mr Hogan's evidence that he told Mr Doueihi that to justify its expenditure on the site CTA would need a lease for a five-year term with a five-year option. I accept his evidence that Mr Doueihi said words to the effect that that sounded fair to him. I do not accept Mr Hogan's evidence that he believed from this time that CTA had a binding agreement for lease for a long period. Rather, he assumed that consistently with the family's practice it was not necessary to make a formal agreement for lease. He expected that CTA would be allowed to remain on the site at a rent on which he and Mr Doueihi agreed for a long term, namely for five years from the time the premises were ready for occupation by CTA with an option for a further five years.

Construction of the factory/warehouse

38 In their evidence the defendants portrayed Mr Hogan as not having had a significant role to play in the design of the premises, the appointment of a builder or the supervision of the building work. The defendants ultimately admitted that their evidence in these respects was wrong. Ms Hogan, Ms Scott and Mrs Vatselias explained that on the basis that they were unaware until they attended the hearing of the case and heard the cross-examination of Mr Doueihi as to how extensive Mr Hogan's involvement was. It is unnecessary to refer to the detail of this evidence. Mr Hogan assumed primary responsibility for supervising the construction. Contrary to Mr Doueihi's evidence, the building was designed and built to accommodate CTA's manufacturing plant.

39 Construction of the warehouse and factory commenced in July 2009. Contrary to his denial Mr Doueihi knew that CTA would be installing a semi-automatic plant at the property. Ms Scott accepted (T463) that she understood in 2009 that when CTA moved into part of the warehouse it would engage in adhesives manufacture and distribution. (This was contrary to her affidavit.) Ms Hogan was also aware of CTA's intention to install a manufacturing plant. She gave evidence that in early 2010 she became aware that CTA intended to manufacture from the property (T513.41). She said that she told Mr Hogan that he needed to consult with Mr Doueihi about this.

40 The premises were specifically designed for occupation by CTA on one part of the premises and occupation by Marble Plus on the other, although there are some shared areas. The area to be occupied exclusively by CTA was defined in the plans and shown as Area B. Mr Doueihi agreed that from the very first time the plans for the building were drawn up they were drawn up in a way so that Marble Plus and CTA would each have separate office areas with some common facilities which both would use (T372).

41 I find that Mrs Vatselias was also aware that CTA intended to install a manufacturing plant. She raised an objection to an initial proposal that CTA's silos penetrate the roof (T228). The roof was raised to accommodate the silos.

Installation of CTA's plant

42 CTA entered into a contract on 16 October 2009 for the construction and installation of its plant and equipment on the Seven Hills property. The cost of CTA's manufacturing plant was $943,000 plus GST.

43 CTA raised its own finance for the construction and installation of its plant. Mr Hogan dealt with Belgravia Finance Pty Ltd. On 22 October 2009 Mr Hogan advised Mr Clarke of Belgravia Finance that CTA had come to an agreement with the supplier of the equipment and was ready to proceed. He asked Mr Clarke to provide a list of information Belgravia Finance would need to move the application for finance forward. Mr Clarke said that the information required would include a copy of the tenancy agreement for the site. Mr Hogan responded:

"There is no formal tenancy agreement as I will be the owner of the building (in another entity), the rental is based on a market rates [sic] for the sqm we will occupy and the term is circa 10 years. There will be 2-3 businesses operating from this facility."

44 This is a clear admission that in Mr Hogan's view there was no existing formal tenancy agreement. It appears also that Mr Hogan did not intend that CTA would enter into a "formal" tenancy agreement. Mr Hogan considered that he would not need such an agreement. In the absence of the appropriate formality he should have been aware, and I think was aware, that no consensus on terms would amount to a legally binding agreement for a long-term lease. Mr Hogan explained to Mr Clarke that the reason for the absence of a formal tenancy agreement would be that he would be the owner of the building "in another entity". That was potentially misleading. It suggested that another entity controlled by Mr Hogan would be the owner. A company of which he was the sole or, perhaps, majority shareholder could fit this description. But there was no proposal to change the ownership of the building. Mr Hogan's connection was that his wife was a one-quarter owner of the building. Nonetheless, the significant point is that Mr Hogan, who was acting for CTA, considered that no formal tenancy agreement was required because of his family connection with the owners. That was a close connection. Not only was Mr Hogan the husband of one of the owners, but he had worked in the family business. Mrs Vatselias had lent him the money he used to acquire his shares in CTA. His and his wife's property was mortgaged in support of the finance provided to the owners for them to acquire the Seven Hills property and construct the building on it.

Alleged conversations in May 2010

45 Marble Plus took possession of its area in the premises in March 2010. The Blacktown City Council issued an interim occupation certificate on 13 May 2010. On 17 May 2010 Mr Hogan provided a letter to the builder on the letterhead of Marble Plus confirming that the building had reached practical completion. On 18 May 2010 the builder handed over the site to Mr Hogan.

46 Mr Hogan deposed that in about May 2010 he had discussions with Mrs Vatselias, Ms Scott, Ms Hogan and Mr Doueihi as follows:

"73. In about May 2010, when the cost of construction of the whole building was being finalised, I had a discussion with Mrs Vatselias and Ms Scott to the following effect:

I said 'I'm going to propose to Eddie that CTA pay slightly higher rent as the building has cost a bit more and Marble Plus will be buying the furniture. This way, the cost of the furniture will effectively be included in the sub-lease.

Ms Scott 'Yes, we agree. As long as everything is fair and at market rate.'

I said 'Well, it's slightly above market but Marble Plus has also been flexible on CTA's commencement of the lease. So that all seems fair.'

Mrs Vatselias 'How are you affording all of this?'

I said 'CTA is financing the plant, not paying it out of cash.'

Mrs Vatselias 'Is it easy for a new business to get finance like that?'

I said 'No, it's not easy but we have a good business plan. But, you're right, it is a lot of money and that's why we need a long term lease on this site. The term I have been talking about with Eddie is 5 years with an option for another 5 years.'

Ms Scott 'We're OK with that.'

74. At about this time, I also spoke with Ms Hogan to the following effect:

Ms Hogan 'What is CTA proposing for rent?'

I said 'I'm going to propose to increase it from $10K a month because the building cost is more than we originally thought.'

Ms Hogan 'How long are you going to be on the site?'

I said 'We really need a 10 year commitment to pay off the equipment and make it worth our while to set up here. The finance company will want that anyway.'

Ms Hogan 'Fine. We're all here for the long term. It's good to have a secure long term rental stream.'

75. At about this time, I had a conversation with Mr Doueihi to the following effect:

I said: 'Due to some construction costs increasing and to be fair CTA is prepared to pay $12,000 per month plus electricity and any sundry outgoings such as coffee, lunch, and toilets to offset those costs.'

'The $12,000 rent per month would include any major site outgoings such as water, council etc.'

CTA needs to confirm a term of 5 plus 5 year lease as it will give both parties a fair outcome. Due to its significant investment, CTA gets the security of no relocation costs and Marble Plus gets the opportunity to ensure rental at market rates.'

Mr Doueihi 'I agree. But explain the bit about electricity to me again?'

I said 'CTA will pay for electricity to run the plant and equipment. I've installed meters to measure that and can work out what Marble Plus needs to invoice us from the electricity bills.'

Doueihi 'OK, that [sic] fair. I agree with all of that.'"

47 Mr Doueihi, Mrs Vatselias, Ms Scott and Ms Hogan denied having conversations with Mr Hogan to this effect.

48 An assessment of each witness' credit does not assist in deciding whether all or any of the evidence given by Mr Hogan about such conversations should be accepted. That is because I do not consider any of the witnesses to be reliable. Each gave evidence in his or her own interests that I do not accept.

Mr Hogan's credit

49 As noted at para [24] above, Mr Hogan gave evidence as to the authorship of the Letter of Offer provided to the valuer of the National Australia Bank. In Family Court proceedings he said that he prepared the document. In these proceedings he said that Mr Doueihi prepared the document. I have found that Mr Hogan prepared the document. Not only is that consistent with the evidence he gave in the Family Court, it is consistent with the pattern of each individual's conduct where Mr Hogan and not Mr Doueihi drove all the relevant processes including the obtaining of finance and valuations in connection with finance. Both Mr Hogan and Mr Doueihi were involved in an attempt to deceive the bank's valuer by putting forward, as purported terms of an agreement for lease, terms that did not reflect the discussions between them but inflated the rent that it was proposed that CTA pay. Secondly, I do not accept evidence that Mr Hogan gave in answer to questions that I asked to the effect that from the time of his discussions with Mr Doueihi in mid-2009 he believed that a binding agreement for lease had come into existence. That evidence was inconsistent with his email to Mr Clarke of Belgravia Finance referred to at para [43] above. As appears below, that evidence was also inconsistent with Mr Hogan's conduct and communications in 2011. Thirdly, as appears below, Mr Hogan provided false information to his consultant as to the quantity of product manufactured by CTA in the knowledge that it would be forwarded to the council, in order to attempt to avoid the need to obtain regulatory approval for CTA's manufacturing operation. I am satisfied that Mr Hogan knew that the information he provided was false.

Mr Doueihi's credit

50 Although I have accepted Mr Doueihi's evidence set out at [35] above, he was an unreliable witness. Except to the extent to which his evidence contained admissions, or was corroborated by other reliable evidence, or was consistent with objectively probable facts, I do not accept his evidence. The evidence I have accepted contains admissions and is consistent with objectively probable facts.

51 Mr Doueihi was repeatedly compelled to admit that evidence he gave in his affidavit was wrong and was known to him to be wrong at the time he swore his affidavit. For example, Mr Doueihi had deposed that, "there was never any discussions about leasing a property to Marble Plus and subleasing part to CTA ... The first I heard of this proposition was when Matthews Folbigg forwarded some draft documents in May 2012". In fact he and Mr Hogan had put to the National Australia Bank the proposal that the property be leased to Marble Plus and sublet to CTA. He agreed in cross-examination that his evidence in his affidavit was false. He then sought to retract that admission by saying that emails sent to the bank referring to that proposed structure were only sent to obtain finance and did not reflect discussions he had had with Mr Hogan. He said, "they are not negotiations that we have put into effect. They were there simply to get finance from the bank." (T401). Mr Doueihi's attempt to explain admissions that he was compelled to make in the face of contemporaneous emails by explaining that they were part of a subterfuge on the bank is clearly adverse to his credit.

52 Mr Doueihi repeatedly was compelled in cross-examination to retract evidence he had given in relation to Mr Hogan's involvement in the project, as to his asserted lack of knowledge of CTA's intention to use the premises to manufacture adhesive products, and as to the fact that the building was constructed to accommodate the silos that would be used by CTA in its manufacture of adhesive products. He was also compelled to admit that evidence given in his affidavit that he was not shown certain spreadsheets prepared by Mr Hogan was untrue (T309-310).

53 I am satisfied that Mr Doueihi also sought to procure the discharge of an interlocutory injunction restraining the defendants from acting on a notice to quit by procuring a third party to profess an interest in purchasing the property which he did not have. This was a serious attempt to deceive CTA and the Court. The attempt collapsed when CTA issued a subpoena to the purported potential purchaser. At that point the potential purchaser refused to have anything further to do with the matter and resisted Mr Doueihi's attempt to provide a plausible exit, such as by stating that he wished to withdraw the offer to purchase the property due to the litigation between the owners and CTA. The defendants withdrew their motion to discharge the interlocutory injunction. I accept the evidence in relation to this incident given by Mr Caner who was the director of the purported purchaser. The matter is seriously adverse to Mr Doueihi's credit.

Credit of Ms Scott, Ms Hogan and Mrs Vatselias

54 Ms Scott, Ms Hogan and Mrs Vatselias each stated in her affidavit that Mr Hogan in his affidavit had exaggerated his involvement in the decisions made to acquire the Seven Hills property and in the construction of the building. Ms Scott and Mrs Vatselias conceded that that evidence was wrong and attributed the error to their claimed lack of knowledge of what in fact Mr Hogan had been doing throughout the course of the development. That same lack of knowledge (if genuine) should have restrained them from comment. Ms Hogan was well aware of her husband's involvement in construction. In an affidavit in the Family Court she said that his work in developing the Seven Hills factory seemed to be all consuming (T501-502).

55 Ms Scott deposed (by necessary inference) that she was unaware that CTA intended to use the premises for the purposes of adhesives manufacturing. She deposed:

"[41] ... At the time the building was developed, CTA was manufacturing its product in Queensland and so far as I was aware from information from Troy [Mr Hogan], it intended to continue to manufacture in Queensland. Personally, had I been asked I would have been against the establishment of an adhesives manufacturing, as opposed to warehousing and distribution, plant at ... Seven Hills.

[42] I have grown up with adhesives and would rather have a clean environmentally friendly business. The adhesives business involves chemicals and dust and is generally dirty.

[43] Marble Plus carries lines of tiles and natural stone products which, to be displayed to their best advantage, should be shown in a clean location resembling the ultimate installation if possible. Presentation is most important and in my experience adhesives are messy dirty and smelly and generally incompatible with the aesthetic of decorator items such as tiles."

56 In cross-examination Ms Scott conceded that in 2009 she understood that when CTA moved into the premises it would engage in adhesives manufacture as well as distribution. She conceded that that was not a proposition that was "horrifying" to her, which in context I am satisfied was understood by her to mean that it was not a proposition that unduly concerned her. She said:

"Q. Because that was a very familiar idea to you, to have an adhesives company on site; is that right?

A. Yes, if it worked well with Marble Plus, yes."

57 Mrs Vatselias deposed that she was unaware that CTA or Mr Hogan intended to occupy the premises until CTA commenced its occupation. I do not accept that evidence. Mrs Vatselias' daughters knew of CTA's intended occupation of the premises. Of course, Mr Doueihi knew of its intended occupation. Mr Doueihi gave oral evidence (T335) that from September 2008, when it was proposed that 25 per cent of the property would be used by MCB Products for which it would pay $100,000 a year, he discussed the proposal with Mrs Vatselias and her daughters. I accept that evidence. It is the probable thing for Mr Doueihi to have done. Mr Doueihi also gave evidence, which I accept, that he showed the plans for the building to Mrs Vatselias and her daughters and explained that the area shown on the plan as Area B was intended for occupation by MCB Products. Mrs Vatselias and her daughters approved (T340). Mrs Vatselias objected to the initial plans for CTA's silos to penetrate the roof.

Conclusion regarding May 2010 alleged conversations

58 I am not satisfied that Mr Hogan specifically told Mrs Vatselias, Ms Scott or his wife of the lease terms he had discussed with Mr Doueihi. I am satisfied that he told Mr Doueihi that CTA wished to occupy Area B of the site for five years and have an option to do so for a further five years. I am not satisfied that that specific information was conveyed to Mrs Vatselias, Ms Scott or Ms Hogan by Mr Hogan or by Mr Doueihi. Mrs Vatselias and her daughters denied having such knowledge. The only specific evidence of their having such knowledge is Mr Hogan's evidence in the conversations quoted above. I bear in mind the warning in Watson v Foxman (1995) 49 NSWLR 315 at 319:

"Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions of self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience."

59 It is almost inevitable that Mr Hogan would have reconstructed in his own mind conversations with family members that, if they took place, would have occurred years before he was called on to recall them. I am not satisfied that words to the effect to which he deposed were said to Ms Scott, Mrs Vatselias or Ms Hogan.

60 On the other hand, I have accepted Mr Hogan's evidence that he told Mr Doueihi that to justify its expenditure CTA would need a term of five plus five (see [26] and [37] above). Mr Doueihi did not demur. He said it sounded fair. In cross-examination Mr Doueihi acknowledged that such a request would have been reasonable (T414). His objection was to anything being formalised.

61 Whilst there is no evidence that Mr Doueihi told Mrs Vatselias, Ms Scott and Ms Hogan that CTA was looking for a term of five years plus a five-year option, I consider that they each understood from the scale of CTA's investment that it would be expecting a long-term occupation of the site. They left it to Mr Doueihi to discuss the details with Mr Hogan.

August 2010: Better Build Kitchens

62 It is admitted on the pleadings that in about August 2010 Better Build Kitchens entered into possession of part of the land that was not occupied by CTA without a formal lease. This is corroborative of the fact as stated by Mr Doueihi that the defendants had a policy of not committing themselves to formal documentation. The defendants did not plead to that paragraph stating that it appeared to them not to be relevant to the claim made. By not pleading to the paragraph they are taken to have admitted it (Rockote Enterprises Pty Ltd v FS Architects Pty Ltd [2008] NSWCA 39 at [62]-[63]). Mr Doueihi agreed that Better Kitchens occupied a space for display of their kitchens and a desk in the showroom. He said that it was a complementary business to that of Marble Plus.

Agreement on rent

63 By about May-June 2010 Mr Hogan and Mr Doueihi had agreed on the rent that CTA would pay. I accept that a conversation substantially to the effect of that deposed to at para 75 of Mr Hogan's affidavit took place (see para [46] above). That is corroborated by subsequent events. On 2 June 2010 Mr Hogan received an estimate of market rental for the site from a real estate agent who estimated a figure in the vicinity of $115 per square metre. The rent that Mr Hogan agreed CTA would pay was $12,000 per month plus electricity, but inclusive of outgoings. Mr Hogan deposed that based on the estimate of market rent received on 2 June 2010 he considered that the rent which CTA agreed to pay was in excess of market rent, but as the rent would cover major outgoings it would be fair.

64 Mr Doueihi agreed that he and Mr Hogan had struck a figure of $12,000 per month for rent, but said that this figure was net of outgoings and that CTA was required to pay in addition a portion of outgoings. I do not accept that evidence. It is inconsistent with the parties' subsequent conduct.

65 CTA moved into the property in late June 2010. From 1 July 2010 invoices were raised in the names of the four owners of the property to CTA for rent of $12,000 per month plus GST. No invoice was raised by the owners for any contribution to outgoings.

66 Although invoices for rent were sent to CTA in the names of the four owners of the property, invoices were sent on the letterhead of Marble Plus to CTA for contribution to expenses such as cleaning, lawn maintenance, and consumables. Invoices rendered by Marble Plus for November 2010, January 2011 and April 2011 included a charge in respect of rates and council charges.

67 On 19 January 2011 Mr Hogan sent an email to the financial controller of Marble Plus with a copy to Mr Doueihi and also to Mr Fouhy of CTA in which he recorded the results of a conversation Mr Hogan had had with Mr Doueihi the previous day. Mr Hogan recorded that he and Mr Doueihi had agreed that Marble Plus would charge CTA rent of $12,000 plus GST per month that would include outgoings such as council rates, insurance, water rates, general electricity for the site, gas and land tax. Electricity for CTA's plant and equipment would be charged separately. Day-to-day consumables would be shared 50/50 as Marble Plus and CTA had similar staffing levels. Reference was made to other direct expenses if CTA used facilities of Marble Plus. Mr Doueihi did not respond to the email. In cross-examination he accepted that it accurately recorded his discussion with Mr Hogan at the time (T436). I think Mr Doueihi accepted CTA's position because it had earlier been discussed and agreed to.

68 On 27 May 2011 CTA asked the accounts staff of Marble Plus to reverse the charges. On 3 June 2011 Marble Plus provided CTA with a credit note reversing the charges. It was not until 20 December 2013, more than a year after these proceedings were commenced, that Marble Plus raised invoices (back-dated to 15 August 2013) raising charges for outgoings for the years 2011-2014. There was no proper basis for those invoices.

69 The defendants sought to raise a claim that CTA should pay what the defendants contended was a market rent for the area occupied (including common areas) of $135 per square metre from 1 December 2012. I rejected the evidence of a valuer on which the defendants sought to rely by reason of late service of his report. In any event, the rent agreed to by Mr Hogan and Mr Doueihi was a gross figure, not a rate per square metre. Evidence given by surveyors of the area occupied by CTA, either exclusively or in common with Marble Plus, does not go to any relevant issue.

70 On the evidence that was adduced the rent CTA has paid is in accordance with a market rent without any additional obligation to pay outgoings.

Did CTA deliberately leave its options open?

71 It was put to Mr Hogan in cross-examination that he made a deliberate decision to keep CTA's tenancy flexible because he was confident that he could prevail upon the family to continue to permit CTA to occupy the premises for an indefinite period and he wished to avoid CTA's being committed to occupy the site. Mr Hogan denied that that was his thinking. It was put to him that he had in mind that he might wish to sell CTA's business or move its business from Sydney to Melbourne. He said that he had no intention of selling the business and that although CTA planned to expand its business into Melbourne, it had no plan to move the business from Sydney to Melbourne. I accept that evidence. I do not think that Mr Hogan or anyone else for CTA made a conscious or deliberate decision not to seek to formalise the terms of a lease that would provide security of tenure in order to give the company maximum flexibility if it wished to leave the site. Had that been CTA's position I think it would be fatal to its reliance on an equitable estoppel (Austotel Pty Ltd v Franklin Self-Serve Pty Ltd (1989) 16 NSWLR 582 at 587, 619). But I think the explanation for CTA's position is simpler and is in accordance with Mr Doueihi's evidence extracted at para [35] above to the effect that the defendants simply did not formalise arrangements for occupation of properties owned by them.

Did CTA know the defendants wanted flexibility?

72 It was also put to Mr Hogan that he knew the reason that the defendants did not require formal leases was because they wanted to have flexibility so that they could require property to be vacated and sold as and when they liked. Mr Hogan gave evidence, which I accept, that that was not his understanding. It was purely how things were done (T141). That is consistent with Mr Doueihi's evidence. No-one gave evidence for the defendants to the effect that they had a policy of not formalising arrangements because they wished to preserve such flexibility to require an occupant to leave on short notice, or that this was made clear to CTA. Correspondence from Ms Scott quoted (at [75] and [78] below) demonstrates that the defendants had no such policy. Mr Doueihi, Ms Scott and Ms Hogan deposed that it was their intention to have available space to allow for the expansion of Marble Plus' business. Nothing was said to Mr Hogan to the effect that CTA could be required to leave if Marble Plus needed extra space or it otherwise suited Marble Plus or the owners.

Attempts to formalise relationship in 2011

73 Mr Hogan and Ms Hogan separated in July 2011. Mr Fouhy was anxious to have lease arrangements formalised. He told Mr Hogan that, "You need to get a lease document formalised for CTA just in case things go pear-shaped with Nicole". Mr Hogan said he would speak to the other owners.

74 On 1 December 2011 Mr Hogan talked to Ms Scott. He sent an email to Ms Scott the following day from which it appears that it was then his proposal that as part of a divorce settlement Ms Hogan would transfer her 25 per cent share of the Seven Hills property to him. In his email of 2 December 2011 Mr Hogan said:

"My intent in having equity in 7 Hills is to secure the future of CTA on this site. ... My intent is not to 'control' the site, in fact, I am happy with everything to stay as the same. It should really be irrelevant who owns the site as I will prepare a formal lease that protects both parties. ... I will make plans to draw up a lease and get the loose ends tidies [sic] up. CTA will make plans next year to expand into Melbourne with the liquids plant and leave the Sydney site as is with the security of a lease."

75 Ms Scott agreed with the need to provide CTA with protection. She replied:

"... we need to come to some sort of agreement for the benefit of both companies as we have always done in the past and try not to let either party down or create a major upheaval for anyone."

76 On 2 December 2011 Mr Hogan instructed Matthews Folbigg Solicitors, who were acting for him in his family law dispute with Ms Hogan, to prepare a formal lease for CTA. He said to his solicitor:

"I would like to prepare a formal lease for CTA from Marble Plus Pty Ltd at the Seven Hills property (see address below). I have attached some information on the site and the areas that CTA require, I will follow up with the key terms of the lease to get started. ..."

77 Mr Hogan sent a copy of his email to Matthews Folbigg to Mr Doueihi. Mr Doueihi responded on 2 December 2011 saying:

"Troy, don't proceed with lease yet. I need to talk to you about this first."

78 Later on 2 December Ms Scott sent an email to Mr Hogan, Mr Doueihi and Mrs Vatselias in which she wrote:

"I wanted to bring to every ones [sic] attention that I think we need to sort out some future plans of the Seven Hills sharing of the property. I do believe that its [sic] only natural that 2 different businesses obviously have 2 different intentions. Decisions needing addressing are only going [to] come up in the future and I think to possibly start to have a plan in place now will allow both parties a chance to prepare, give clarity and be beneficial for both. As we know circumstances can change over night and its [sic] really made me nervous about the fact that any of us (MP or CTA) could possibly not see things the same way. I just want things to run professionally and as smoothly as possible and be beneficial for all."

79 Mr Hogan replied on Monday 5 December 2011:

"I agree and [am] happy to meet to discuss the issues.

Whatever happens I think we should start to formalise any agreements, things change and the business/assets are not small any longer.

A simple agreement can save a lot of arguments in the future.

Let me know when you would like to catch up and any information you need from me regarding CTA?"

80 That email was sent to Mr Doueihi and Mrs Vatselias as well as Ms Scott.

81 Later that day Mr Hogan wrote again to Ms Scott saying:

"I am happy to participate in a meeting about the site, how it operates, any current issues and the 2 tenants [sic] plans.

With regards to the ownership, I am not going to push anyone into anything. I will let you guys have a chat about it and form your view. Regardless ...... it is not an issue I want to have a family fight over. It is really not that big a deal to me and I don't want this issue to cause any family problems.

I think formalising a lease is a good start (regardless of who owns the building) as it provides protection for all."

82 Mr Doueihi had obtained advice from Mr Tanna, a real estate agent, as to his estimate of then market rental for the site. Mr Tanna advised Mr Doueihi and Mr Hogan on 30 November 2011 that in his view an achievable rental would be in the vicinity of $115-$120 per square metre for the whole of the site.

83 On 7 December 2011 Mr Hogan sent an email to Mr Doueihi in which he wrote:

"Sorry to push you on this issue .......but I was wondering if you had any discussions with the girls with regard to the future and ownership?

The more I think about it the more I can see CTA is exposed without a formal lease. CTA has a significant investment on the site and no written document that says they have the right to occupy.

I know that you/Maria and Katrina would never do the wrong thing by me personally .......but Nicole is in the mix still and as we know things change!!! So.......as a company Director of CTA, I really need to think about CTA and protecting its best interests.

Even if I owned the property 100% (as Troy Hogan) or 0%, I would want a lease to CTA. It just provides protection for all.

Can you please let me know your view and the girls?"

84 It may be observed that in none of this correspondence did Mr Hogan assert that there was an existing binding agreement for lease.

85 Mr Hogan deposed that after sending the email of 7 December 2011 he spoke to Mr Doueihi about the terms of the lease. Neither he nor Mr Doueihi gave any evidence as to the content of that discussion, save that Mr Doueihi said that the discussions did not result in any agreement.

86 On 8 December 2011 Mr Hogan sent an email to Ms Scott, Mr Doueihi and Mrs Vatselias in which he wrote:

"If I cannot be a partner in the building, please understand that I would like to formalise our arrangement by entering into a lease with Marble Plus. Put down on paper all the terms and conditions that are in a normal lease. This will protect you as a land lord and CTA as a tenant. As it stands today you can ask CTA to leave and this creates a huge expense and problem for CTA, this is not fair to CTA, its shareholders and employees.

Eddie and I have had some early discussions about the terms of a lease and he can explain to you in more detail.

I think you guys need to get together and let me know either way." (Emphasis added)

87 Mr Hogan was not cross-examined about his statement that he and Mr Doueihi had had "some early discussions about the terms of the lease". He did not attempt to explain the statement in his evidence in chief. Counsel for CTA submitted that the early discussions referred to related to the discussions following the email of 7 December and were discussions about a possible renegotiation of the terms of a lease. In my view, and consistently with the whole tenor of the correspondence, Mr Hogan was referring to the discussions he had had in 2009 and 2010 with Mr Doueihi which would properly be characterised as early discussions about the terms of a lease. Again, there is nothing in the correspondence from Mr Hogan asserting an existing agreement for lease. Nor is Mr Hogan's correspondence consistent with his then believing that CTA was entitled as a matter of legal right to a five plus five-year lease. He gave evidence that it was his view at the time of writing the email that as things then stood the defendants could ask CTA to leave.

88 On 15 December 2011 Mr Hogan attended a meeting with Ms Scott, Mr Doueihi and Mrs Vatselias. Following the meeting Mr Hogan sent an email on 16 December 2011 in which, referring to the meeting on the previous day, he said:

"Following are the key elements of the deal as I understood it.......

1. The current owners will not consent to T. Hogan becoming a partner in the property.

2. CTA need to have some security over their location.

3. The owners need to have some security over the rental income.

4. We are going to formalise the current arrangements with a lease.

The Lease details will be as follows......

1. The owners will enter into a lease with MP.

2. MP will enter into a Sub Lease to CTA

3. Term will be 5 years with a 5 year option to CTA

4. The rent will be $12k per month with CPI adjustments annually.

5. CTA will pay 25% of the current site outgoings.

6. CTA (or nominee) has an option to buy the site via a First and Last right of refusal at any time through the lease.

7. MP have the right to terminate the lease after 2 years and will give CTA 12 months to relocate to a new premises (this could see CTA out in no later than 3 years).

8. If MP terminate the lease....... MP will indemnify CTA of all costs and ensure CTA is in no worse a position as they were while occupying the Seven Hills premises today.

9. If MP terminate the lease and CTA have to vacate all costs will be the subject of 2-3 independent quotations.

Please let me know if there are any other terms/conditions you would like added or if you have any comments?"

89 The email purported to record an agreement made between the participants on 15 December 2011. The defendants denied that any binding agreement was reached. CTA does not seek to enforce an agreement said to have been reached at a meeting on 15 December. The email and Mr Hogan's notes of the meeting of 15 December do not suggest that the parties were intending to vary the terms of an existing agreement. Mr Hogan said that at the meeting Mr Doueihi took the opportunity to try to renegotiate some points. Neither the email nor Mr Hogan's notes refer to the discussion as being a renegotiation of already agreed points.

90 Mr Hogan instructed his solicitor to prepare a lease to Marble Plus and a sublease to CTA. His solicitors prepared draft lease documents. Mr Hogan sent them to Mr Doueihi and the other defendants under cover of an email of 18 January 2012 in which he said:

"As you can see they are quite comprehensive documents but considering the situation and the value of the property......they are needed to protect all parties.

As you will see they reflect the deal as it is today, no real changes ......just formalising our arrangements and adding in the key terms we discussed......

1. Term is 5 years + a 5 year option

2. Rent is to increase by CPI annually

3. CTA have the first right and last right to purchase the property if the owners wish to sell

4. MP can terminate CTA's lease (make them leave) in 2 years if they wish.......and will cover all of CTA's moving costs.

5. CTA will start to pay a percentage of the sites [sic] Outgoings.

These are the key points and the rest is normal clauses you would find in a lease."

91 The attempt by Mr Hogan to reach a concluded agreement on the terms of the lease by which the parties agreed to be bound failed. On 6 February 2012 Mr Douehi advised Mr Hogan that the owners of the property were conducting a due diligence and would not be rushed. One matter said to not be negotiable was that the lessor would be the registered owners of the property and that Marble Plus would have its own lease with the owners. Mr Doueihi advised that the owners considered that negotiation and discussions were still on foot and were willing to continue discussions as to details of the lease.

92 On 14 June 2012 solicitors acting for Marble Plus and the four owners wrote to Matthews Folbigg for CTA advising that "our client" was prepared to offer CTA a lease for two years at a rental of $200,100 per annum plus GST plus outgoings, with an annual increase of rent of five per cent or according to CPI and other terms. No option for renewal was offered.

93 Unsurprisingly, the proposal was not acceptable to CTA. By this proposal the defendants sought to take advantage of CTA's vulnerable position in a way that does them no credit. They took the benefit of Mr Hogan's labour and skill in obtaining the site and constructing the factory. They encouraged CTA's occupation of and investment in the site. Through Mr Doueihi they had struck a much lower rent that was considered fair and was not lower than a market rent. They knew that CTA expected to be able to occupy the site for a long term. They had left it to Mr Doueihi to discuss terms with Mr Hogan and Mr Doueihi had encouraged Mr Hogan to assume that CTA could occupy its area for at least five years with an option for a further five years.

94 On 18 October 2012 the solicitor for the owners gave notice to CTA that as there was no lease in place CTA was a tenant from month to month. The solicitors gave notice to quit requiring CTA to vacate the premises by 30 November 2012.

95 CTA commenced these proceedings on 26 November 2012.

96 On 29 November 2012 an order was made by consent that the first to fourth defendants be restrained until further order from acting upon or implementing the purported notice of termination and notice to quit dated 18 October 2012.

Illegality or unclean hands

97 The defendants contended that CTA was disentitled to any equitable relief because the manufacturing plant was not the subject of development consent and the granting of the lease as sought by CTA would be an illegal use of the site. Counsel for the defendants said that this was not an allegation of unclean hands but was something more serious (T637-638). Counsel did not submit that the conduct complained of had a direct and immediate connection to the equity sought to be enforced so as to give rise to a defence of unclean hands. Counsel accepted that the alleged illegality would be appropriately dealt with by its being a condition of any grant of relief by way of specific performance of the alleged agreement for lease, that development consent (if required) be sought and obtained and that a grant of relief on principles of equitable estoppel could be subject to the same term (T639) (Taluja v Australian International Academy of Education Limited [2011] NSWCA 416; (2011) 16 BPR 30,319 at [77]-[81]).

98 On 3 April 2009 the Blacktown City Council granted consent subject to conditions for the following development, namely, "Construction of an industrial factory/warehouse building with associated offices, ancillary showroom, basement car park and landscaping". Section 81A(1) of the Environmental Planning and Assessment Act 1979 (NSW) provides:

"81A Effects of development consents and commencement of development

(1) Erection of buildings

A development consent that enables the erection of a building is sufficient to authorise the use of the building when erected for the purpose for which it was erected if that purpose is specified in the development application, subject to section 109M.

Note. Section 109M prohibits the occupation or use of a new building unless an occupation certificate has been issued for the building."

99 No issue has been raised about an occupation certificate. CTA did not submit that adhesives manufacturing was one of the purposes stated in the development application. After the dispute between the parties arose Mr Doueihi complained to the Blacktown City Council that CTA was manufacturing adhesives without his consent. This was disingenuous as Mr Doueihi and the other defendants well knew that CTA would be conducting adhesives manufacturing as well as distribution from the premises before it started to do so. They consented to its doing so. Mr Doueihi asked the council whether council approval had been given to adhesives manufacturing. On 29 July 2013 the council wrote to CTA stating that its records did not reveal any development consent sought or obtained for use of the premises for the purposes of an adhesive manufacturing facility. The council also advised that if the output of the adhesive manufacturing exceeded more than 5,000 tonnes per annum it was classified as designated development pursuant to Schedule 3 of the Environmental Planning and Assessment Regulation 2000 and a licence for the activity was required to be obtained from the NSW Environmental Protection Authority. The council advised that CTA must either cease to use the premises for the purposes of an adhesive manufacturing facility and remove all machinery and other related adhesive manufacturing equipment from the land or seek development consent for the activity. It advised that as a first step CTA should approach the NSW Department of Planning and Infrastructure to discuss their requirements if the activity was a designated development.

100 On 9 August 2013 CTA's lawyers, Storey & Gough, sent a letter to the Blacktown City Council on Mr Hogan's instructions. They advised that the manufacture by CTA of adhesives at the premises did not exceed 5,000 tonnes per year and hence the use was not designated development. Storey & Gough also contended that pursuant to s 81A(1) of the Environmental Planning and Assessment Act no further development consent was required because the premises were being used as an industrial factory which was specifically approved in the development consent and, I infer, was a purpose specified in the development application. Storey & Gough also argued that the use did not require consent as it was exempt development within Zone 4(a) of the Blacktown Local Environmental Plan 1988 ("the Blacktown LEP") as the manufacturing being carried out was not hazardous, nor offensive, nor potentially offensive.

101 CTA engaged a town planner, Mr Chris Young, to advise it on its use of the premises and to assist it in its dealings with the council. It was Mr Young's preliminary opinion that the use of Area B of the premises (that is, the area exclusively occupied by CTA) was an exempt development under clause 33 in Schedule 6 to the Blacktown LEP being a development limited to an industrial purpose only, not including hazardous development, offensive development, potentially hazardous development, potentially offensive development or designated development. Mr Young considered however that car parking was not in accordance with the approvals in regards to the numbers and use of internal spaces, the operation of the site in regards to storage, loading and unloading appeared to be in breach of a number of conditions and a machinery extension from the ground floor into the basement car park was not approved and required an application to be made under s 96 of the Environmental Planning and Assessment Act.

102 Storey & Gough also provided a letter to the council on 22 August 2013. Storey & Gough stated:

"We confirm our previous advice that despite your officer's observations of stored products, annual manufacture of the adhesive material does not exceed 5,000 tonnes. We attach a copy of the relevant company records confirming such annual output."

103 The documents attached reported production of between 78 and 461 tonnes per month. This was false. Mr Hogan deposed that for the calendar year of 2013 CTA had produced an average of 810 tonnes of adhesive per month. Mr Hogan said that he did not prepare the document that was provided by Storey & Gough purportedly showing monthly production figures. However, he proffered no explanation as to how Storey & Gough were provided with instructions that CTA's production was less than 5,000 tonnes per year. I am satisfied that he was aware of the statements that were made to Storey & Gough, was aware that the statements would be conveyed to the council and was aware that they were false.

104 Mr Hogan said in oral evidence that he had received further advice that even if production exceeded 5,000 tonnes per year the activity was not triggered as designated development. That was not the view of Mr Young. It is not necessary to resolve that question. If CTA is entitled to equitable relief it will be a condition of the relief that necessary approvals be obtained. The owners' consent is necessary for CTA to lodge any application that is required for council approval, such as s 96 approval to the internal premises, as well as any approval that might be required for the manufacturing use. The owners have not provided their consent. If CTA is entitled to equitable relief, the relief will extend to requiring the defendants to provide their consent to CTA's application for all necessary approvals.

CTA's detriment

105 CTA's expenditure was on its own plant and equipment. Whilst the silos installed would in all probability be classified as fixtures it was common ground that CTA could remove its plant when it was required to vacate.

106 The cost to CTA of installing its plant on the premises was $943,000 plus GST. CTA has a plant in Brisbane, but that plant did not have the capacity to produce more than about another 100 tonnes per month if needed.

107 It would cost about $622,000 plus GST for the Seven Hills plant to be dismantled and reassembled on a new site, if one were available. That figure could vary depending upon the physical characteristics of a new site, but it is unlikely to be lower (T229). In making that finding I prefer the evidence of the party responsible for installing the plaint to a quotation provided to the owners. But the difference in quotations ($622,000 plus GST or $420,500 plus GST but subject to some exclusions) is not material.

108 Dismantling and reassembling the plant would take approximately six to eight weeks. Mr Hogan estimated that approximately three months of additional stock would be required to ensure that CTA did not lose its client base during the period of disruption. This would result in the incurring of penalty labour costs and warehousing costs whilst the additional stock was stored off site. In addition, there would be costs of fitting out the offices of any new premises and other costs.

109 An accountant, Ms Bateman, assessed the cost to CTA if it were required to vacate the premises as amounting to $1,683,452 (being the cost of relocation of plant and equipment, penalty labour costs, warehousing costs, office fitout of new premises, rental bond and security deposit plus other costs of $100,000). In addition, she estimated that the cost of manufacturing three months' stock in advance, being the cost to purchase the stock plus normal labour costs, would come to $1,589,785. Presumably these costs would be offset by the sale of the stock to customers over the three-month period. Nonetheless, the costs that would have to be financed to vacate the premises in short order were estimated to be in excess of $3 million. Ms Bateman was of the view that those costs could not be financed through CTA's normal trading and that forecast annual profits of approximately $380,000 would not sustain the additional expenses of the move. Ms Bateman was not required for cross-examination and I accept that evidence.

Claim in contract

110 CTA submitted that an agreement had been reached either with all of the defendants or with Mr Doueihi, who had authority to act for the other defendants, on all essential terms of an agreement for lease and the parties intended those terms to be binding. The essential terms of the agreement for lease were agreement as to who should be the parties to the lease, the term of the lease, the rent and the area to be leased.

111 I do not accept this submission. No concluded agreement was made between Mr Hogan and Mr Doueihi or between Mr Hogan and the other defendants. Whilst Mr Hogan and Mr Doueihi reached a consensus on terms as to rent, the term of the lease and option for renewal, and the area to be occupied by CTA, there was no objective indication of intent by either of them to enter into binding legal relations. Consistently with this, there was no consensus as to whether Marble Plus or the four owners of the property would be CTA's landlord. Sometimes the discussions were in terms that CTA would take a sublease from Marble Plus. But Marble Plus did not have a leasehold estate which would entitle it to grant a sublease for a term of five years with a five-year option. The rent that CTA paid was charged by the owners of the property, but its agreed share of electricity consumption and consumables and contribution to services was paid to Marble Plus. Because of the informality of the arrangements no particular attention was paid to the question as to who the landlord might be, except that the parties by their conduct in raising invoices for rent in the names of the four owners indicated that it was the owners of the property and not Marble Plus who were CTA's landlord.

112 There was no evidence of discussion about an agreement on other terms which, although not essential to a binding agreement for lease, would be expected to be negotiated and agreed to if the parties intended to be bound by an agreement on terms. These include the topics of adjustments to rent according to changes in the Consumer Price Index, review of rent to market value if the option were exercised, CTA's right to remove tenant's fixtures on determination of the lease and its obligation to make good, obligations of repair, provision of a bond or bank guarantee, and duty to insure.

113 Mrs Vatselias, Ms Hogan and Ms Scott were content to leave it to Mr Doueihi to negotiate with Mr Hogan as to the terms on which CTA could occupy the premises. They did not give him authority to enter into an agreement for lease on their behalf or on behalf of Marble Plus.

114 For these reasons there was no contract for the grant of a lease to CTA by the owners of the property for a term of five years with a five-year option. Nor did Marble Plus purport to enter into an agreement for the grant of a sublease for such a term. The relations between the parties at law were that CTA occupied the premises as the owners' tenant paying rent monthly and with no agreement as to the duration of the term of the tenancy. Pursuant to s 127 of the Conveyancing Act 1919 (NSW) the tenancy is deemed to be determinable at the will of either party by one month's notice in writing.

115 The question then is whether the defendants are estopped from asserting their rights at law.

Conventional estoppel

116 CTA contended that the defendants were estopped from asserting their legal rights either on the grounds of a common law conventional estoppel or equitable estoppel.

117 In Moratic Pty Ltd v Gordon [2007] NSWSC 5; (2007) ANZ Conv R 198; NSW Conv R 56-172; Aust Contract R 90-255 at [32], Brereton J said that:

"32 ... In common law conventional estoppel, it is necessary for a plaintiff to establish (1) that it has adopted an assumption as to the terms of its legal relationship with the defendant; (2) that the defendant has adopted the same assumption; (3) that both parties have conducted their relationship on the basis of that mutual assumption; (4) that each party knew or intended that the other act on that basis; and (5) that departure from the assumption will occasion detriment to the plaintiff.

33 ... conventional estoppel, a creature of the common law, is focussed on the consensual basis of the parties' relationship: it operates when both parties have adopted the same assumption as the basis of their relationship, often without appreciating that any departure from the strict legal position is involved, so as to hold both parties to their common understanding."

118 This was referred to with approval by the Court of Appeal in Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603.

What assumptions did the parties adopt?

119 The assumption CTA made, through Mr Hogan, was that CTA could exclusively occupy Area B of the premises and use the shared facilities upon paying the agreed rent for a term of five years beginning from its commencement of occupation with an option to extend the term for a further five years.

120 Although I accept that Mr Hogan assumed that CTA could occupy Area B for five years and for a further five years if it elected to do so, I do not conclude that Mr Hogan assumed that the owners were under a legally-binding obligation to permit such occupation. His assumption was as to what would happen, not as to what the owners were legally obliged to do.

121 At the time CTA made its expenditure on installing its plant and equipment and when it took occupation of the site, and at all material times before then, I find that Mr Doueihi assumed that CTA could occupy the areas designated for it for a period of five years with an option to extend the term for a further five years on paying the agreed rent. I find that Mrs Vatselias, Ms Hogan and Ms Scott assumed that CTA could occupy the site on a long-term basis, provided that Mr Hogan had cleared the details of CTA's occupation with Mr Doueihi, but they otherwise made no assumption as to the period of CTA's occupation. The defendants did not turn their minds to whether this was a matter of binding legal obligation, nor to whether Mr Hogan was acting under a mistake as to CTA's legal rights.

122 Ms Scott deposed that her intention was that the site would provide sufficient room for Marble Plus to grow and to develop its tile-fixing business and that she understood that CTA would simply be warehousing and distributing its products on a temporary short-term basis so as not to interfere with the long-term plans for Marble Plus. I do not accept that evidence. I consider that Ms Scott was aware that CTA's plant was installed for the purposes of its manufacturing operations and that she must have known that its occupation would be for the long-term, having regard to the extent of its expenditure.

123 Mrs Vatselias deposed that she was entirely unaware that Mr Hogan was intending to move in as CTA, or in any capacity at all, until after his occupation had commenced. I do not accept that evidence. Mr Doueihi gave evidence that following discussions in September 2008 with the National Australia Bank and the Arab Bank he told Mrs Vatselias and her daughters that it was proposed to purchase the property in the name of four individuals and to lease the property to Marble Plus with a sublease of a portion of it to MCB Products (T335). Mrs Vatselias said that a proposal that another company could use about a quarter of the site was something about which Mr Doueihi would have to consult her (T535). I conclude that he did. Mr Doueihi also said that he discussed the plans of the building in December 2008 with Mrs Vatselias and her daughters and explained to them that Area B on the plans was the area intended for occupation by MCB Products. They approved (T340). That appears to me to accord with the objective probabilities. Mrs Vatselias had provided a loan of $500,000 to Mr Hogan in 2008 for the purposes of his investing in the shares in CTA. According to her oral evidence, she made the loan without asking a single question about Mr Hogan's intentions for the company. That is unlikely.

124 Ms Hogan gave evidence that she had a conversation with Mr Hogan "at some point" where she told him:

"You had better make sure that this lease for CTA is properly drawn up and its tenancy is secured if you can. You make sure Eddie [Mr Doueihi] is happy with it because we don't know half the people involved with you in this business. It is no longer a family matter, these people are strangers to us and I want Eddie, Mum and Katrina to be completely comfortable and secure."

She deposed that Mr Hogan replied, "Yes of course, I understand."

125 As with Mr Hogan, I think there has been reconstruction by Ms Hogan that makes it unsafe to accept that a conversation in those terms or to that effect took place. But Ms Hogan's evidence is consistent with her knowing that CTA would expect security of tenure, and her having expected Mr Hogan to sort out the details with Mr Doueihi.

126 The parties did not all have the same assumptions as to the terms of CTA's legal relationship with the owners. Accordingly, conventional estoppel is not established.

Equitable estoppel

127 Alternatively, CTA invokes principles of equitable estoppel in contending that it is entitled to an interest in the land by way of a long-term lease to secure its occupation, or, what amounts to the same thing, a final injunction restraining the defendants from interfering with CTA's possession of its area of the premises for a term up to five years from the time it commenced its occupation and a further five years thereafter if CTA elects to remain.

128 CTA submitted that an equitable estoppel arose because the defendants had induced in CTA an assumption that a lease would be granted, that CTA had acted to its detriment on that assumption and that to allow the defendants to depart from the assumption would be unconscionable. Reliance was placed on Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387.

129 The defendants submitted that equity does not create rights but recognises and assists with the enforcement of existing rights and cannot be relied upon to imply a relationship which CTA did not enter into when it had the chance. They submitted that equity will not aid a tenant in respect of its own folly in building on its landlord's land in the knowledge of its limited title, citing Ramsden v Dyson (1866) LR 1 HL 129 per Lord Cranworth at 141.

130 The first of the defendants' submissions is clearly incorrect. Although the Court of Appeal has controversially held that promissory estoppel operates only as a restraint on the exercise or enforcement of legal rights and is not a positive source of new rights (Saleh v Romanous [2010] NSWCA 274; (2010) 79 NSWLR 453 at [74], 462), the same limitation has never been held to apply to proprietary estoppel (e.g. Van Dyke v Sidhu [2013] NSWCA 198; (2013) 301 ALR 769 at [39]). CTA asserts a proprietary estoppel by encouragement. It claims to have been induced to expect that it would be granted a leasehold interest for a term of five years with a five-year option for renewal in the part of the Seven Hills property known as Area B with a non-exclusive right to enjoy the use of shared areas.

131 The correctness of the defendant's second submission is considered below.

132 In Waltons Stores (Interstate) Limited v Maher a majority of the High Court (Mason CJ and Wilson J in a joint judgment and Brennan J) held that the respondent was induced to adopt an assumption that contracts for the lease of land would be exchanged. The respondent acted to his detriment on the basis that assumption by demolishing an existing building and commencing the construction of a new one that would be the subject of the lease. Waltons encouraged the assumption. Deane and Gaudron JJ characterised the facts as giving rise to a common law estoppel in pais based on Waltons' having induced the respondent to adopt an assumption of fact, namely that a contract or binding agreement had been made (at 439-440, 460). The majority considered the case as raising an equitable estoppel which they characterised as a promissory estoppel. (It is unnecessary to pursue the question whether the estoppel should have been characterised as a proprietary estoppel, notwithstanding that the plaintiff was to give, not obtain, a proprietary interest in the land (see K R Handley, Estoppel by Conduct and Election, Sweet & Maxwell 2006 at [11-031]-[11-033] and [13-037]-[13-041]).

133 Mason CJ and Wilson J discerned a common thread linking cases of promissory estoppel and proprietary estoppel or estoppel by acquiescence being:

"... the principle that equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has 'played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it': per Dixon J in Grundt (1937) 59 CLR at 675; see also Thompson (1933) 49 CLR at p 547. Equity comes to the relief of such a plaintiff on the footing that it would be unconscionable conduct on the part of the other party to ignore the assumption." (at 404)

134 After discussing the decision of the Privy Council in Attorney-General of Hong Kong v Humphreys Estate [1987] AC 114 their Honours continued (at 406):

"As failure to fulfil a promise does not of itself amount to unconscionable conduct, mere reliance on an executory promise to do something, resulting in the promisee changing his position or suffering detriment, does not bring promissory estoppel into play. Something more would be required. Humphreys Estate suggests that this may be found, if at all, in the creation or encouragement by the party estopped in the other party of an assumption that a contract will come into existence or a promise will be performed and that the other party relied on that assumption to his detriment to the knowledge of the first party. Humphreys Estate referred in terms to an assumption that the plaintiff would not exercise an existing legal right or liberty, the right or liberty to withdraw from the negotiations, but as a matter of substance such an assumption is indistinguishable from an assumption that a binding contract would eventuate. On the other hand the United States experience, distilled in the Restatement (2d 90), suggests that the principle is to be expressed in terms of a reasonable expectation on the part of the promisor that his promise will induce action or forbearance by the promisee, the promise inducing such action or forbearance in circumstances where injustice arising from unconscionable conduct can only be avoided by holding the promisor to his promise."

135 Brennan J said (at 420) that:

"If cases of equitable estoppel are in truth but particular instances of the operation of the general principles of equity, there is little purpose in dividing those cases into the categories of promissory and proprietary estoppel which are not necessarily exhaustive of the cases in which equity will intervene. Like Scarman L.J. in Crabb v. Arun District Council, at p 193, I do not find it generally helpful to divide into classes the cases in which an equity created by estoppel has been held to exist. However, the familiar categories serve to identify the characteristics of the circumstances which have been held to give rise to an equity in the party raising the estoppel. In cases of promissory estoppel, the equity binds the holder of a legal right who induces another to expect that that right will not be exercised against him: see, for example, Hughes v. Metropolitan Railway Co. (1877) 2 App Cas 439, at p 448; Birmingham and District Land Company v. London and North Western Railway Co. (1888) 40 Ch D 268; Ajayi v. R.T. Briscoe (Nigeria) Limited (1964) 1 WLR 1326, at p 1330; (1964) 3 All ER 556, at p 559; Bank Negara Indonesia v. Philip Hoalim (1973) 2 MLJ 3. In cases of proprietary estoppel, the equity binds the owner of property who induces another to expect that an interest in the property will be conferred on him: see Ramsden v. Dyson (1866) LR 1 HL 129, at p 170; Plimmer v. Wellington Corporation (1884) 9 App Cas 699; Inwards v. Baker. In cases where there has been an imperfect gift of property the equity binds the donor of the property when, after the making of the imperfect gift, he does something to induce the donee to act on the assumption that the imperfect gift is effective or on the expectation that it will be made effective: see Dillwyn v. Llewelyn; Olsson v. Dyson, at p 376."

136 Brennan J formulated the following criteria as essential for the establishment of an equitable estoppel (at 428-429):

"In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs."

137 Mason CJ and Wilson J did not say that the party asserting an estoppel must have assumed that a particular legal relationship existed or that the defendant would not be free to withdraw from an expected legal relationship.

138 In Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466 at 472 and Austotel Pty Ltd v Franklins Self-Serve Pty Ltd (1989) 16 NSWLR 582 at 610, 612 Priestley JA distilled the following propositions from the reasons in Waltons Stores (Interstate) Limited v Maher:

"(1) Common law and equitable estoppel are separate categories, although they have many ideas in common.

(2) Common law estoppel operates upon a representation of existing fact, and when certain conditions are fulfilled, establishes a state of affairs by reference to which the legal relation between the parties is to be decided. This estoppel does not itself create a right against the party estoppel. The right flows from the court's decision on the state of affairs established by the estoppel.

(3) Equitable estoppel operates upon representations or promises as to future conduct, including promises about legal relations. When certain conditions are fulfilled, this kind of estoppel is itself an equity, a source of legal obligation.

(4) Cases described as estoppel by encouragement, estoppel by acquiescence, proprietary estoppel and promissory estoppel are all species of equitable estoppel.

5. For equitable estoppel to operate there must be the creation or encouragement by the defendant in the plaintiff of an assumption that a contract will come into existence or a promise be performed or an interest granted to the plaintiff by the defendant, and reliance on that by the plaintiff, in circumstances where departure from the assumption by the defendant would be unconscionable.

(6) Equitable estoppel may lead to the plaintiff acquiring an estate or interest in land; that is, in the common metaphor, it may be a sword.

(7) The remedy granted to satisfy the equity (which either is the estoppel or created by it) will be what is necessary to prevent detriment resulting from the unconscionable conduct."

139 Kirby P agreed with this analysis (Austotel at 585). In S & E Promotions Pty Ltd v Tobin Brothers Pty Ltd (1994) 122 ALR 637 the Full Court of the Federal Court (Neaves, Gummow and Higgins JJ) described Priestley JA's formulation of equitable estoppel in proposition 5 as being both succinct and cogent (at 653).

140 In Austotel Priestley JA did not include the first of Brennan J's criteria in Waltons Stores as a requirement for the operation of an equitable estoppel. No doubt this was because it did not have the support of Mason CJ and Wilson J. But Priestley JA did say of the "tests" of Brennan J (at 615-616) that:

"It may be that those tests do not represent the view of a majority of the Court, but even if not, they are useful as a check; if the facts of the case did not measure up to those tests, it would be necessary to think thoroughly about why not."

141 Applying proposition 5 as restated in Austotel to the facts of this case I would conclude that the defendants encouraged Mr Hogan, and through him, CTA, to assume that an interest would be granted to CTA, namely that it could have exclusive possession of Area B and the right to use the shared areas for five years with an option to extend that period for a further five years if it paid the rent that had been agreed. The defendants encouraged the adoption of that assumption by leaving discussions as to the terms of CTA's occupation of the premises to Mr Doueihi, and by Mr Doueihi's accepting that it would be fair for CTA to have such a right of occupation. CTA relied upon that assumption. It did so partly through Mr Hogan's expenditure of labour and skill in contributing to the design of the premises and supervising their construction. It also did so by installing its plant, which was expensive to install and would be expensive and disruptive of its business to remove. It would be unconscionable for the defendants to depart from the assumption that CTA was induced to adopt because they took advantage of Mr Hogan's efforts, they knew of CTA's expenditure, they accepted CTA as a tenant and accepted its rent being aware, at least, that CTA would expect to be able to occupy the premises for a long term. Further, although Mrs Vatselias, Ms Scott and Ms Hogan did not give Mr Doueihi authority to contract, they did allow and expect him to act for them in negotiating with Mr Hogan and are fixed with Mr Doueihi's knowledge as to Mr Hogan's assumption of a right to a five plus five-year term and Mr Doueihi's acquiescence in that.

142 Other well-known statements of general principle justify the same analysis. The most famous is that of Lord Kingsdown in Ramsden v Dyson at 170-171 that:

"The rule of law applicable to the case appears to me to be this: If a man, under a verbal agreement with a landlord for a certain interest in land, or, what amounts to the same thing, under an expectation, created or encouraged by the landlord, that he shall have a certain interest, takes possession of such land, with the consent of the landlord, and upon the faith of such promise or expectation, with the knowledge of the landlord, and without objection by him, lays out money upon the land, a Court of equity will compel the landlord to give effect to such promise or expectation."

Later authorities indicate that it is not necessary that the tenant lay out money on the landlord's land (Barnes v Alderton [2008] NSWSC 107; (2008) 13 BPR 25,281 at [42]-[43] and cases cited; Walsh v Walsh [2012] NSWCA 57 at [14] and [15] and cases cited.)

143 To like effect are passages from Inwards v Baker [1965] 2 QB 29 at 36-37, Holiday Inns Inc v Broadhead (1974) 232 EG 951 at 1087, Crabb v Arun District Council [1976] Ch 179 at 188 and 195, and Taylors Fashions Limited v Liverpool Victoria Trustees Co Limited [1982] QB 133 at 151 that were cited with apparent approval by the Privy Council in Attorney-General of Hong Kong v Humphreys Estate at 122-123.

144 In Riches v Hogben [1985] 2 Qd R 292 at 300-301 McPherson J said in a passage approved by the High Court in Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 at 121:

"A consequence of applying the principle may be to complete an otherwise imperfect gift, as in Dillwyn v. Llewelyn; (supra), or to give effect to an agreement that, for want of certainty or consideration or of some other essential element, falls short of constituting an enforceable contract. Many of the reported cases are concerned with imperfect gifts; but there is of course a sense in which all agreements made or promises given without consideration are imperfect gifts of the benefits they purport to confer. What distinguishes the equitable principle from the enforcement of contractual obligations is, in the first place, that there is no legally binding promise. If there is such a promise, then the plaintiff must resort to the law of contract in order to enforce it, it being the function of equity to supplement the law not to replace it. The second distinguishing feature is that what attracts the principle is not the promise itself but the expectation which it creates. In that respect it represents the precise converse of what was said by Jessel M.R. in Ungley v. Ungley, (supra), to be the basis for enforcing the contract in that case. Finally, the equitable principle has no application where the transaction remains wholly executory on the plaintiff's part. It is not the existence of an unperformed promise that invites the intervention of equity but the conduct of the plaintiff in acting upon the expectation to which it gives rise. That is why in Dillwyn v. Llewelyn (1862) 4 De G. F. & J. 517, 522; 45 E.R. 1285, 1287, where the son built on land promised but not effectively conveyed to him by a memorandum signed by his father, Lord Westbury L.C. said that the only inquiry was 'whether the son's expenditure, on the faith of the memorandum, supplied a valuable consideration, and created a binding obligation'. It may be added that a similar solution has been advanced for the analogous problem that arises in the law of contract when a promisor purports to revoke his offer in return for an act to be done by the promisee, and does so before the latter has fully performed the act in question: see Abbott v. Lance (1860) Legge 1283, discussed in Cheshire & Fifoot's Law of Contract, 3rd Aust. ed., pp. 52-53." (emphasis added)

145 There are, however, other considerations. The first is whether CTA needs to satisfy the first of the criteria formulated by Brennan J in Waltons Stores (Interstate) Limited v Maher quoted at para [136] above. This criterion was neither supported by Mason CJ and Wilson J in Waltons Stores, nor included in Priestley JA's formulation of principle in Austotel. Nonetheless, as Priestley JA said in Austotel, if the criterion is not satisfied one must ask why it is not. The question will be whether non-satisfaction of the criterion indicates that it would not be unconscionable for the defendant to depart from the assumption the plaintiff has adopted.

146 CTA did not assume that a particular "legal relationship" existed between it and the defendants when Mr Hogan did his work and CTA incurred its expenditure and moved onto the site. Mr Hogan's assumption that CTA could occupy its part of the premises for five years with a right of renewal for a further five years was not an assumption about what the defendants were bound to permit as a matter of legal right, but an assumption about what they would permit as a matter of likely fact. He made no assumption that a "particular legal relationship" would exist between them and that the defendants would not be free to withdraw from the expected legal relationship. His assumption was about what the defendants would do, not what they could do.

147 Brennan J's formulation of the first criterion is consistent with the decision of the majority of the House of Lords in Ramsden v Dyson, and in particular with the speech of Lord Cranworth LC at 140-141, 142 and 145-146.

148 In his recent work "The Law of Proprietary Estoppel", Oxford University Press, 2014 at [2.14] ff Professor McFarlane argues that in a case of proprietary estoppel based on acquiescence, or on a representation of fact or mixed law and fact, rather than on a promise, it is essential that the claimant must have acted on a mistaken view as to his or her current legal rights.

149 A second question is whether the terms on which CTA assumed it would occupy its part of the premises were sufficiently defined. Whilst there was agreement on area and initial rent between Mr Hogan and Mr Doueihi, and whilst Mr Doueihi acquiesced in the proposed term of CTA's occupation, there were many matters that were not addressed in the early discussions between Mr Hogan and Mr Doueihi which would be expected to be addressed if the parties were negotiating the terms of a formal agreement for lease. These would include whether there should be a CPI or other adjustment to the rent, whether there should be a review of rent to establish a market rent if the option to extend the term were exercised. It could include the parties obligations in relation to matters of repair or making good if and when CTA vacated the premises. (See para [112] above.) Whilst some of those matters were referred to in the lease terms provided to the valuer and in the modified lease terms prepared by Mr Hogan (which I have not found were sent to Mr Doueihi), there was no evidence of any discussions about those matters and I could not conclude that there was any agreement about them, given that the only document shown to have been provided to Mr Doueihi was a document that did not reflect the terms of the discussions between him and Mr Hogan in respect of other critical matters. The absence of agreement on other lease terms might arguably be fatal to a party's successfully relying on an equity arising from estoppel (Austotel Pty Ltd v Franklins Self-Serve Pty Ltd per Kirby P at 586-587; Yeoman's Row Management Limited v Cobbe [2008] UKHL 55 (reported as Cobbe v Yeoman's Row Management Limited [2008] 1 WLR 1752 ("Cobbe")) at [20], [28]; DHJPM Pty Ltd v Blackthorn Resources Limited [2011] NSWCA 348; (2011) 285 ALR 311 at [99] and [106]).

150 Thirdly, there is a question as to whether CTA must show that it reasonably relied on the assumption that it would be permitted the right of occupancy that Mr Hogan assumed it would have. The reasonableness of reliance is not expressly included as a necessary element of an equitable estoppel as formulated by Priestley JA, nor in the other formulations referred to above, but is referred to in other authorities and is a relevant consideration in deciding whether it would be unconscionable for a defendant to depart from the assumption that a plaintiff was induced to adopt.

Is it necessary for CTA to have been induced to adopt an assumption that the defendants were legally obliged to grant it a right of occupation?

151 The question whether a party claiming an equity arising by estoppel must have adopted an assumption about a matter of binding legal right can arise both in cases where commercial parties are negotiating the terms of a contract which they propose to enter into and in cases where a party to a domestic or familial relationship assumes that an interest will be granted without there being any negotiation as to the terms of a contract. This was a point made by Lord Walker of Gestingthorpe in Cobbe at [68] where his Lordship said:

"It is unprofitable to trawl through the authorities on domestic arrangements in order to compare the forms of words used by judges to describe the claimants' expectations in cases where this issue (hope or something more?) was not squarely raised. But the fact that the issue is seldom raised is not, I think, coincidental. In the commercial context, the claimant is typically a business person with access to legal advice and what he or she is expecting to get is a contract. In the domestic or family context, the typical claimant is not a business person and is not receiving legal advice. What he or she wants and expects to get is an interest in immovable property, often for long-term occupation as a home. The focus is not on intangible legal rights but on the tangible property which he or she expects to get. The typical domestic claimant does not stop to reflect (until disappointed expectations lead to litigation) whether some further legal transaction (such as a grant by deed, or the making of a will or codicil) is necessary to complete the promised title."

152 But the cases do not neatly fall into two such separate categories. This is a case involving commercial parties, but one where there was also a familial relationship between the parties through Mr Hogan's family relationship with three of the owners. Despite there having been early discussions about terms of an agreement for lease and although there was discussion and agreement about some terms of the lease, CTA did not expect to get a contract. Moreover, many cases between commercial parties where a plea of equitable estoppel has succeeded are cases where the plaintiff's focus was on intangible rights, such as a right to possession or a right of way.

153 Further, as Dr Silink argues in her article "Equitable Estoppel in 'Subject to Contract Negotiations'" (2011) 5 Journal of Equity 252, similar issues arise in cases of contractual negotiation which are "subject to contract" as in domestic proprietary estoppel cases including inter vivos testamentary dispositions. In both classes of case the parties are taken to be aware of the right of the other either not to proceed with a contract or to change his or her testamentary intentions.

154 Across the entire field of cases of promissory and proprietary estoppel there is support for both the narrower view reflected in the first of the criteria stated by Brennan J in Waltons Stores and a broader view reflected in the judgment of Mason CJ and Wilson J in Waltons Stores and the formulation of principle by Priestley JA in Austotel. Dr Silink concludes that:

"The broader view of the scope of equitable estoppel, both in relation to commercial negotiations and more generally is preferable to the narrower test with its rigid requirement for a belief as to legal entitlement. As has been developed, it is submitted that the broader view of the scope of equitable estoppel is not a weaker test, simply a less prescriptive one, and one that is consistent with the scope of proprietary estoppel as it has developed both prior to and since the development of equitable estoppel in Waltons v Maher."

155 I came to the same conclusion in EK Nominees Pty Ltd v Woolworths Limited [2006] NSWSC 1172. One issue is whether there is now binding Court of Appeal authority to the contrary.

156 Before Ramsden v Dyson there were authorities that required that a party asserting an estoppel have a mistaken belief as to his rights, take steps in reliance on the mistaken belief, and that the party estopped know of that mistake and belief as to rights (East India Company v Vincent (1740) 2 Atk 84; 26 ER 451; Pilling v Armitage (1805) 12 Ves Jun 78; 33 ER 31). There were other cases in which an estoppel by encouragement was found where there was no indication that the plaintiff was acting to his detriment in a mistaken belief as to his rights (Stiles v Cowper (1748) 3 Atk 692; 26 ER 1198; Jackson v Cator (1800) 5 Ves Jun 688; 31 ER 806; Powell v Thomas (1848) 6 Hare 300; 67 ER 1180). In Rochdale Canal Co v King (No. 2) (1853) 16 Beav 630; 51 ER 924, Sir John Romilly MR expressed the principle in terms that did not require a mistaken belief as to rights (at 633-634, 925). His Lordship said:

"The principle on which the Defendants rely is one often recognised by this Court, namely, that if one man stand by and encourage another, though but passively, to lay out money, under an erroneous opinion of title, or under the obvious expectation that no obstacle will afterwards be interposed in the way of his enjoyment, the Court will not permit any subsequent interference with it, by him who formally promoted and encouraged those acts of which he now either complains or seeks to obtain the advantage. This is the rule laid down in Dann v Spurrier (7 Vez 231), Powell v Thomas (6 Hare 300), and many other cases, to which it is unnecessary to refer, because the principle is clear." (emphasis added)

157 The same divergence appears in the reasoning of the majority of the House of Lords in Ramsden v Dyson and the speech of Lord Kingsdown in dissent.

158 In Ramsden v Dyson the plaintiff (Thornton) held two parcels of land as a tenant at will. He and his mortgagee (Dyson) contended that he was entitled to be granted a lease for 60 years with a right of perpetual renewal at the expiration of every 20 or 40 years on certain well-understood terms. He was successful before the Vice-Chancellor. No written lease had been entered into. Ramsden was the owner of land that was managed for him by his steward or agent who kept a book of tenants. A person desiring to take land for the purpose of building a house would apply to the agent for the land he wanted. The area of land was determined, a ground rent fixed and the name of the tenant entered on the roll. If the tenant wished to sell his house, he and the purchaser attended on the agent and the name of the purchaser was substituted for that of the original tenant. The same course was followed on the granting of a mortgage or on the death of a tenant where the legatee or the next of kin was substituted for the deceased. Persons holding land in this way from Ramsden were described as holding by "tenant right". There were other tenants who were given formal 60-year leases at higher rents. Thornton took possession of two parcels of land, one in 1837 and the other in 1845. His tenure depended on what was said to him, and what he assumed his rights to be, when he took and then built on the first parcel.

159 Thornton alleged that after the area and location of the first grant of land was agreed on and a ground rent fixed he commenced building his house. He alleged that whilst the building of the house was in progress and was nearly completed, he consulted an agent of Ramsden as to the prudence of taking a lease, but was told it would be folly to take a lease as he was equally safe without one and that he could get a lease whenever he wanted it (at 138).

160 The plaintiffs relied on two representations: first, that persons taking land without a lease would never be disturbed so long as they paid their rent, and secondly that persons taking land without a lease might have a lease whenever they chose to call for it (at 145). The second representation was not made to Thornton, but to other tenants from which Thornton may have been led to believe that he had a right to call for a lease whenever he should think fit (at 150).

161 The majority of the House of Lords held that the successor in title to Sir John Ramsden was not precluded from insisting on his rights at law and was not required to provide the perpetual lease as claimed. Lord Cranworth LC stated the general principle (at 140-141):

"If a stranger begins to build on my land supposing it to be his own, and I, perceiving his mistake, abstain from setting him right, and leave him to persevere in his error, a Court of equity will not allow me afterwards to assert my title to the land on which he had expended money on the supposition that the land was his own. It considers that, when I saw the mistake into which he had fallen, it was my duty to be active and to state my adverse title; and that it would be dishonest in me to remain wilfully passive on such an occasion, in order afterwards to profit by the mistake which I might have prevented.

But it will be observed that to raise such an equity two things are required, first, that the person expending the money supposes himself to be building on his own land; and, secondly, that the real owner at the time of the expenditure knows that the land belongs to him and not to the person expending the money in the belief that he is the owner. For if a stranger builds on my land knowing it to be mine, there is no principle of equity which would prevent my claiming the land with the benefit of all the expenditure made on it. There would be nothing in my conduct, active or passive, making it inequitable in me to assert my legal rights.

It follows as a corollary from these rules, or, perhaps, it would be more accurate to say it forms part of them, that if my tenant builds on land which he holds under me, he does not thereby, in the absence of special circumstances, acquire any right to prevent me from taking possession of the land and buildings when the tenancy has determined. He knew the extent of his interest, and it was his folly to expend money upon a title which he knew would or might soon come to an end."

162 His Lordship added (at 142):

"... and if I had come to the conclusion that Thornton, when he erected his building in 1837, did so in the belief that he had against Sir John an absolute right to the lease he claims, and that Sir John knew that he was proceeding on that mistaken notion, and did not interfere to set him right, I should have been much disposed to say that he was entitled to the relief he sought. But a full consideration of the evidence has not led me to any such conclusion. It has failed to satisfy me, first, that Thornton supposed that he had against Sir John any absolute right beyond that of a tenant from year to year; or, secondly, that Sir John knew or believed that Thornton was expending his money in the mistaken belief that he possessed such a right.",

and further (at 145-146):

"If any one makes an assurance to another, with or without consideration, that he will do or will abstain from doing a particular act, but he refuses to bind himself, and says that for the performance of what he has promised the person to whom the promise has been made must rely on the honour of the person who has made it, this excludes the jurisdiction of Courts of equity no less than of Courts of law.

...

What he is represented to have said to them is, that so long as they paid their ground rents, neither they nor their children after them would be molested; not that they could not, but that they would not be molested." (emphasis in original)

163 Lord Wensleydale gave a concurring speech and Lord Westbury also agreed. It was critical to the reasoning of the majority that the tenant in Ramsden v Dyson failed because he did not believe he had acquired an absolute right (that is, a legal right as distinct from an expectation) that an interest would be granted beyond that of a tenant at will or a tenant from year to year, but was depending on the family's honour.

164 It is Lord Kingsdown's dissenting speech in Ramsden v Dyson which has generally commanded acceptance. Lord Kingsdown stated the principle as follows (at 170-171):

"The rule of law is applicable to the case appears to me to be this: If a man, under a verbal agreement with a landlord for a certain interest in land, or, what amounts to the same thing, under an expectation, created or encouraged by the landlord, that he shall have a certain interest, takes possession of such land, with the consent of the landlord, and upon the faith of such promise or expectation, with the knowledge of the landlord, and without objection by him, lays out money upon the land, a Court of equity will compel the landlord to give effect to such promise or expectation.

...

If, at the hearing of the cause, there appears to be such uncertainty as to the particular terms of the contract as might prevent a Court of equity from giving relief if the contract had been in writing, but there had been no expenditure, a Court of equity will nevertheless, in the case which is above stated, interfere in order to prevent fraud, though there has been a difference of opinion amongst great Judges as to the nature of the relief to be granted ... but I do not understand any doubt to have been entertained ... that, either in the form of a specific interest in the land, or in the shape of compensation for the expenditure, a Court of equity would give relief, and protect in the meantime the possession of the tenant.

If, on the other hand, a tenant being in possession of land, and knowing the nature and extent of his interest, lays out money upon it in the hope or expectation of an extended term or an allowance for expenditure, then, if such hope or expectation has not been created or encouraged by the landlord, the tenant has no claim which any Court of law or equity can enforce." (emphasis added)

165 What is absent from this statement of principle is any requirement that the tenant believe that the landlord is legally obliged to confer an interest in the land on him. In Plimmer v The Mayor of Wellington (1884) 9 App Cas 699 the Privy Council said (at 711-712) that there was no disagreement among the judges in Ramsden v Dyson about the principles of law applicable to that case, only on the inferences to be drawn from the facts. That is not so. Critical to the reasoning of the majority was that the tenant never believed that he had any legal right beyond that of a tenant at will, but was relying on the honour of the landlord's family not to disturb his possession and did not suppose that he could compel the family to grant a lease as a matter of right (at 150). Not only was this distinction absent from Lord Kingsdown's statement of the general principles, but it was also absent from his analysis of the facts.

166 Lord Kingsdown accepted the respondent's evidence that:

"... those who built and entered on their land without leases, at lower rents, did so on the assurance that they might have leases whenever they required them, and that in the meantime they should not be disturbed in their possessions, or at all events, not without full compensation." (at 172)

Lord Kingsdown did not inquire whether the tenant considered that that assurance gave him legally enforceable rights, notwithstanding that it was an important part of the reasoning of the majority that the tenant did not have that belief and in any event, even if he did, Ramsden did not know that the tenant was building on the land in the belief that he had such legally enforceable rights.

167 In Cobbe Lord Walker said (at [64]):

"[64] On this point the language of Lord Kingsdown's much-quoted statement in Ramsden v Dyson at p 170 is not without ambiguity:

'. . . under a verbal agreement with a landlord for a certain interest in land, or, what amounts to the same thing, under an expectation, created or encouraged by the landlord, that he shall have a certain interest . . . .'

But an expectation of an interest is the same thing as a contracted interest only if it can be relied on. The rest of the speech indicates (at p 172) that Lord Kingsdown's reading of the facts was that the tenants believed (wrongly) that they had a legal right to a long lease, and that that was of critical importance. So he seems not to have differed, as to the law on this point, from Lord Cranworth (at pp 145-146, a passage I have already quoted) and the rest of the majority. Reliance on the Ramsden family's honour was not enough."

168 With respect, that is not correct. It is a misreading of Lord Kingsdown's speech that by an "expectation" he meant a belief in a legally enforceable right. As Dr Silink points out:

"... an expectation of an interest in land 'amounts to the same thing' as a verbal agreement for the disposition of an interest in land because neither can be relied upon in a legal sense, both being unenforceable at law. Hence the role for equity in the circumstances Lord Kingsdown described - creation or encouragement by the defendant of an expectation in the plaintiff that he shall have an interest and knowledge of the detrimental reliance."

169 This is even clearer from the last of the passages quoted at [164] above where Lord Kingsdown says that a tenant who has a "hope or expectation" will have no claim if such hope or expectation has not been created or encouraged by the landlord. Clearly if the hope or expectation has been so encouraged the tenant could have a claim.

170 Also, with respect, Lord Kingsdown did not say anything to indicate that on his reading of the facts the tenants wrongly believed they had a legal right to a long lease. Lord Kingsdown merely referred to the evidence of the giving of the assurance. He made no reference to the distinction which was critical to the reasoning of the majority. As that distinction forms no part of Lord Kingsdown's statement of principle, the better conclusion is that he did not regard it as relevant.

171 In Plimmer v The Mayor of Wellington, Plimmer constructed a jetty on public land. At the instance of the government he extended the jetty and subsequently allowed the government to cut away the shore end of the jetty in order to reclaim land, but at the same time permitted Plimmer to connect the remaining portion of the jetty with a new quay. The Privy Council held that Plimmer was entitled to a perpetual licence to use the land for the purposes of the jetty having been encouraged, indeed requested, by the government to incur expense on extending the jetty over the government's land for its benefit. It was argued that no such equity could be raised unless the occupant who improved the land believed it to be his own and the owner of the improved land knew of that mistake and belief (at 711). Of this argument the Privy Council said that:

"It is difficult to suppose that a person who is so using the seabed, and the Government who are its owners, can go on dealing with one another in the way stated in this case for a series of years except with a sense in the minds of both that the occupant has something more than a merely precarious tenure." (at 712)

172 This was not a finding that Plimmer mistakenly assumed that he had a legal right to a perpetual licence over the land. There was no finding that he had a belief as to his legal rights as distinct from an assumption that his licence to use the seabed for his jetty would not be revoked. As Oliver J said in Taylor's Fashions Limited v Liverpool Victoria Trustees Co Limited at 148, the stated case showed that Mr Plimmer knew the state of the title at the date when he incurred the expenditure and there was simply a common supposition that he would not be summarily turned out (see 9 App Cas at 701).

173 Other 19th century cases insisted on the party claiming the benefit of an estoppel to have been mistaken as to rights (Crampton v Varna Railway Company (1872) LR 7 Ch App 562 at 568). In Willmott v Barber (1880) 15 Ch D 96, Fry J listed five requirements for a proprietary estoppel as follows (at 105-106):

"A man is not to be deprived of his legal rights unless he has acted in such a way as would make it fraudulent for him to set up those rights. What, then, are the elements or requisites necessary to constitute fraud of that description? In the first place the plaintiff must have made a mistake as to his legal rights. Secondly, the plaintiff must have expended some money or must have done some act (not necessarily upon the defendant's land) on the faith of his mistaken belief. Thirdly, the defendant, the possessor of the legal right, must know of the existence of his own right which is inconsistent with the right claimed by the plaintiff. If he does not know of it he is in the same position as the plaintiff, and the doctrine of acquiescence is founded upon conduct with a knowledge of your legal rights. Fourthly, the defendant, the possessor of the legal right, must know of the plaintiff's mistaken belief of his rights. If he does not, there is nothing which calls upon him to assert his own rights. Lastly, the defendant, the possessor of the legal right, must have encouraged the plaintiff in his expenditure of money or in the other acts which he has done, either directly or by abstaining from asserting his legal right. Where all these elements exist, there is fraud of such a nature as will entitle the Court to restrain the possessor of the legal right from exercising it, but, in my judgment, nothing short of this will do."

174 Later cases show that these requirements need not always be met. In Inwards v Baker a son was encouraged by his father to build a house on the father's land. In contrast to Dillwyn v Llewelyn (1862) 4 De GF & J 517; 45 ER 1284 there was no promise from the father that the son would have any interest in the land. After building the house the son moved into it and remained there until after his father's death. The trustees of the father's estate sought the son's eviction. The Court of Appeal rejected that claim. The trustees argued (at 34) that it was not sufficient that the father encouraged an expectation by the son that he would not be turned out, but that there must be some expectation of the creation of some legal right rather than merely reliance on the father's goodwill, citing Ramsden v Dyson. The Court of Appeal applied the statement of law of Lord Kingsdown in Ramsden v Dyson that had been applied in Plimmer v The Mayor of Wellington in holding that it was sufficient that the son had been induced to give up his project of building a house on other land to build on the father's land on the expectation that he would be able to remain there (at 37, 38).

175 In Crabb v Arun District Council a landowner had discussions with his adjoining neighbour (the council) whereby it was agreed in principle that he would have access at a particular point on the boundary to then use a road on the council's land to obtain access to a public road. Whilst there was an agreement in principle, there was no firm undertaking. There was no promise. But the council encouraged the landowner in that belief by installing a gate at the agreed point and allowing the landowner to use the proposed right of way. In the belief that "he had or would be granted a right of access" the landowner sold off part of the land so that the balance of the land held was landlocked unless he could use the right of access for which there had been an agreement in principle. The council argued in reliance on Ramsden v Dyson that to found a proprietary estoppel, there has to be an encouragement of belief in a right, not in an expectation of a right in the future. That argument was rejected. Although at one point Lord Denning MR said that the plaintiff thought that he already had a right of access at the point where gates had already been erected (at 186), his judgment proceeded on the basis that the defendant's conduct led the plaintiff to believe that he had, or would be granted, a right of access at that point (at 188). This was sufficient to satisfy the equity explained by Lord Kingsdown in Ramsden v Dyson who spoke of "an expectation, created or encouraged" (at 188). Scarman LJ expressly stated that it was not a correct statement of the law that in order to establish an equity by estoppel there must be a belief by the plaintiff in the existence of a right created or encouraged by the words or actions of the defendant (at 193). His Lordship said that the law had developed and was correctly stated by Lord Kingsdown in his dissenting speech in Ramsden v Dyson (at 193-194).

176 The agreement in principle did not cover all of the terms on which a right of access would be given. Scarman LJ said (at 196):

"The nature of the legal right to be granted had to be determined. It might be given by way of licence. It might be granted by way of easement. Conditions might be imposed. Payment of a sum of money might be required."

177 This indefiniteness of the nature of the right did not prevent there being an estoppel. Scarman LJ said (at 198):

"There being no grant, no enforceable contract, no licence, I would analyse the minimum equity to do justice to the plaintiff as a right either to an easement or to a licence upon terms to be agreed. I do not think it necessary to go further than that. Of course, going that far would support the equitable remedy of injunction which is sought in this action. If there is no agreement as to terms, if agreement fails to be obtained, the court can, in my judgment, and must, determine in these proceedings upon what terms the plaintiff should be put to enable him to have the benefit of the equitable right which he is held to have ... Since Ramsden v Dyson the courts have acted upon the basis that they have to determine not only the extent of the equity, but also the conditions necessary to satisfy it, and they have done so in a great number and variety of cases."

178 Because the defendant's conduct in removing the gates and erecting a fence had sterilised the plaintiff's land for some years, the Court of Appeal held that the plaintiff was entitled to a right of way without being required to pay money. Otherwise, according to Scarman LJ, reasonable terms should be agreed, or if not agreed, determined by the court (at 199).

179 In Taylor's Fashions Limited v Liverpool Victoria Trustees Co Limited, Oliver J rejected an argument that to establish a case of proprietary estoppel by acquiescence the plaintiff must show an erroneous supposition of his legal rights and that the error was known to the other party. Oliver J did not accept that all of the five probanda enunciated by Fry J in Willmott v Barber were necessary applicable to every case of estoppel by acquiescence (at 151). His Lordship said (at 151-152):

"Furthermore the more recent cases indicate, in my judgment, that the application of the Ramsden v. Dyson, L.R. 1 H.L. 129 principle - whether you call it proprietary estoppel, estoppel by acquiescence or estoppel by encouragement is really immaterial - requires a very much broader approach which is directed rather at ascertaining whether, in particular individual circumstances, it would be unconscionable for a party to be permitted to deny that which, knowingly, or unknowingly, he has allowed or encouraged another to assume to his detriment than to inquiring whether the circumstances can be fitted within the confines of some preconceived formula serving as a universal yardstick for every form of unconscionable behaviour."

180 His Lordship said that there had been a "virtual equation of promissory estoppel and proprietary estoppel or estoppel by acquiescence as mere facets of the same principle" (at 153). The influence of these views is manifest in Waltons Stores v Maher.

181 Oliver J repeated these views as Oliver LJ in the Court of Appeal in Habib Bank Limited v Habib Bank AG Zurich [1981] 1 WLR 1265 at 1285; [1981] 2 All ER 650 at 666. Watkins and Stevenson LJJ agreed.

182 A similar approach was taken by Goff J in Holiday Inns Inc v Broadhead where the principle was stated thus:

"The authorities clearly establish that there is a head of equity under which relief will be given where the owner of property seeks to take an unconscionable advantage of another by allowing or encouraging him to spend money, whether or not on the owner's property, in the belief known to the owner that the person expending the money will enjoy some right or benefit over the owner's property which the owner then denies him. The authorities also establish that this relief can be granted although the agreement or understanding between the parties was not sufficiently certain to be enforceable as a contract, and that the Court has a wide, albeit of course judicial, discretion to what extent relief should be given and what form it should take."

183 This was cited with evident approval of the Privy Council in Attorney-General (Hong Kong) v Humphreys Estate at 122. The relevant principle of law stated by the Privy Council (at 124) was:

"Their Lordships accept that the government acted to their detriment and to the knowledge of HKL in the hope that HKL would not withdraw from the agreement in principle. But in order to found an estoppel the government must go further. First the government must show that HKL created or encouraged a belief or expectation on the part of the government that HKL would not withdraw from the agreement in principle. Second, the government must show that the government relied on that belief or expectation." (emphasis added)

184 Importantly, the principle as stated was that the party estopped must create or encourage a belief or expectation on the part of the other that it would not withdraw from the agreement in principle, not that it could not withdraw. This stands in contrast to what Lord Cranworth said in Ramsden v Dyson at 146 quoted at para [162] above.

185 On the other hand the Privy Council appeared to proceed on the basis that it was necessary for the government to show that it acted to its detriment on the basis of an assumption induced by HKL that HKL could not withdraw from the agreement in principle. But this was a factual finding made on the basis that because the government knew HKL asserted its right to withdraw from the agreement in principle and had asserted its own right to do so, HKL did not induce the government to believe that HKL would not do so.

186 In Waltons Stores (Interstate) Limited v Maher, Brennan J took the Privy Council in Attorney-General (Hong Kong) v Humphreys Estate to have decided that it was not sufficient to show that the government expected that, as a matter of probability, HKL would not withdraw from the agreement, but that it was necessary to show an expectation that HKL was bound to proceed (at 422). Brennan J said (at 422-423) that:

"... an assumption or expectation by one party which does not relate to what the other party is bound to do or not to do gives no foundation for an equitable estoppel, though the assumption or expectation relates to the prospect of the other party conducting himself in a particular way. The risk that the other party who, being free to conduct himself in whatever way he chooses, may choose to conduct himself in a way different from that assumed or expected rests with the party who adopts the assumption or expectation.

Parties who are negotiating a contract may proceed in the expectation that the terms will be agreed and a contract made but, so long as both parties recognise that either party is at liberty to withdraw from the negotiations at any time before the contract is made, it cannot be unconscionable for one party to do so. Of course, the freedom to withdraw may be fettered or extinguished by agreement but, in the absence of agreement, either party ordinarily retains his freedom to withdraw. It is only if a party induces the other party to believe that he, the former party, is already bound and his freedom to withdraw has gone that it could be unconscionable for him subsequently to assert that he is legally free to withdraw."

187 That was not the view of Mason CJ and Wilson J. Their Honours described Attorney-General (Hong Kong) v Humphreys Estate as turning on a finding that the Hong Kong Government had failed to show that HKL had created or encouraged a belief or expectation on the part of the government that it would not withdraw from an agreement in principle reached with the government.

188 EK Nominees Pty Ltd v Woolworths Limited was a case in which an owner of land was both encouraged and required by an intending lessee to incur considerable expenditure to obtain development consent for a proposed shopping centre. Its negotiations with the intending lessee were made subject to contract. It did not consider that the intending lessee was contractually bound to it or (if there is a difference) was legally obliged to enter into a contract with it. Nonetheless, I held that it was unconscionable for the intending lessee to deny its assumption that it would proceed to enter into the agreement for lease. In so concluding I applied the statement of principle of Mason CJ and Wilson J in Waltons Stores (Interstate) Limited v Maher and the formulation of the principle by Priestley JA in Silovi Pty Ltd v Barbaro at 472 and Austotel Pty Ltd v Franklins Self-Serve Pty Ltd rather than the first of the criteria stated by Brennan J in Waltons Stores. I said (at [258], [259] and [261]):

"[258] Nor, with respect to Brennan J in Waltons Stores, need it always be the case that 'so long as both parties recognise that either party is at liberty to withdraw from the negotiations at any time before the contract is made, it cannot be unconscionable for one party to do so.' Whether it is unconscionable for one party to withdraw will depend on what was the nature of the risk of his or her withdrawal which the other party was induced to assume, and the extent to which the other party acted to his or her detriment on the basis of that assumption, to the knowledge, or with the encouragement, of the first party.

[259] In Baird Textile Holdings Ltd v Marks & Spencer plc [2001] All ER (D) 352, where the parties were in a close and long-term business relationship and refrained from entering into legally binding contracts, Mance LJ said (at [96]):

'They must be taken to have been well aware of the legal significance of contracting or not contracting. [Counsel] accepted that the question was ultimately one of risk. In my view, these considerations indicate that the risk fell on [the appellant] in the present situation.'

However, it is not the law that parties cannot find relief on the principles of equitable estoppel merely because they have not entered into contractual relationships. The fact that a party might rely upon a non-contractual representation or promise to his detriment is the very reason for the doctrine of equitable estoppel. The doctrine affords relief against people acting to their detriment on unenforceable promises, if all of the circumstances make it unconscionable for the estopped party to resile from the assumption which he or she has induced the other to make. The fact that the parties have not entered a contractual relationship provides the occasion for considering the doctrine of estoppel. It is not the end of the inquiry. In Baird Textiles, the Court of Appeal found that the High Court's decision in Waltons Stores went beyond the limits of equitable estoppel provided for in English law. Their Lordships accepted that their decision in that case may have been different if it were open to them to apply the principles in Waltons Stores.

...

[261] ... the recognition by one party that the other party is not legally bound by a contract, or is not legally bound to enter into a contract, (if there is a difference), cannot in all circumstances mean that it is not unconscionable for the opposite party to withdraw if it has induced the first party to act to its detriment in the belief that a contract will eventuate. Whether the first party is relying on the other's contractual intentions, whether it is doing so reasonably, and whether it has accepted the risk of the allegedly estopped party not proceeding in any circumstance, are questions of fact depending upon particular circumstances."

189 EK Nominees Pty Ltd v Woolworths Limited was referred to with apparent approval in Young, Croft and Smith "On Equity" (Lawbook Co. 2009) at [12.290] who stated that as an element of promissory estoppel:

"It is not necessary that the assumption of the party seeking relief was that the other party was legally bound to do, or abstain from doing, something. It is enough that the party claiming relief was induced to act to its detriment on the basis that the assumption would be fulfilled: EK Nominees Pty Ltd v Woolworths Ltd (EK Nominees)."

This endorsement was in the context of a discussion of the principles of promissory estoppel. But in Waltons Stores (Interstate) Limited v Maher Brennan J, as well as Mason CJ and Wilson J, treated cases of proprietary and promissory estoppel as raising the same principles. In EK Nominees I saw no need to differentiate between promissory and proprietary estoppel. In my opinion, the view expressed in Young, Croft and Smith "On Equity" is equally applicable to proprietary estoppel.

190 In Barnes v Alderton Young CJ in Eq said (at [58]) that in the ordinary case of a testamentary promise it is very difficult to establish a proprietary estoppel because the circumstances must show that the promise was given and understood to be irrevocable. However, in Thorner v Major [2009] UKHL 18; [2009] 1 WLR 776 a claim of proprietary estoppel was upheld in the context of assurances about testamentary intentions with no stipulation of a requirement of irrevocability, that is, of an express or implied representation or belief that the deceased would not be entitled to withdraw from his assurances (at [5], [17], [26], [60], [89] and [97]). Dr Silink argues:

"It is suggested that the apparent move away from requiring 'irrevocability' of representations in testamentary cases in Thorner v Major lends further support to the argument against requiring a belief as to an absolute legal right in 'subject to contract' cases. It is undoubtedly true that there are significant contextual differences between domestic testamentary disposition cases and commercial negotiation cases. But should contextual differences warrant different tests for the nature of the assumption required? It is suggested that these differences are able to be accommodated in the assessment of the reasonableness of the reliance in the circumstances without the need for different requirements at law. Dealing with the contextual differences by way of assessment of the reasonableness of the reliance avoids what is arguably a risk to doctrinal clarity posed by requiring different tests for the nature of the assumption in relation to all different categories of proprietary estoppel."

191 In Cobbe the plaintiff was a property developer who reached an oral agreement in principle with the owner of property for its sale. In reliance on the agreement in principle the developer incurred considerable expense in pursuing planning permission. Whilst the House of Lords held that he was entitled to a quantum meruit for the value of the services provided, it rejected his claim to hold the owner to the agreement in principle. The relief granted at first instance on the basis of a proprietary estoppel was that the developer be awarded half the increase in value of the property brought about by the grant of planning permission. This was overturned in the House of Lords.

192 Lord Scott with whom Lords Hoffmann, Brown and Mance agreed, rejected the claim based on a proprietary estoppel on the ground that the plaintiff spent his money and time in the knowledge that he had no binding agreement with the property owner and that although she encouraged in him a belief that she would abide by an agreement in principle, he knew she was not legally bound (at [27]). Lord Scott also rejected the claim on the ground that there was insufficient clarity as to the claimed interest in the property (at [28]). Lord Walker, with whom Lord Brown also agreed, also held that the claim based on proprietary estoppel failed because the plaintiff did not make any mistake as to his rights, but understood that the agreement in principle would be binding in honour only, as distinct from being legally binding. His Lordship said that the Court should be very slow to introduce uncertainties into commercial transactions by the over-ready use of equitable concepts such as equitable estoppel and that this applied to commercial negotiations, whether or not they were expressly stated to be subject to contract (at [81]). Cobbe is consistent with the requirement that there be a mistake as to current rights for there to be proprietary estoppel, which is consistent with the narrower view of proprietary and promissory estoppel as formulated by Brennan J.

193 In Franklins Pty Ltd v Metcash Trading Limited [2009] NSWCA 407; (2009) 76 NSWLR 603 Campbell JA (with whom Allsop P and Giles JA agreed on this point) applied the first of the criteria stated by Brennan J in Waltons Stores (Interstate) Limited v Maher in rejecting the submission that a party to an agreement for the supply of products was estopped from relying on a contractual term by reason of precontractual representations. His Honour accepted that equitable estoppel potentially had a role to play in such a case, even though the parties had made a contract that could not be rectified and was not sought to be avoided for misrepresentation. His Honour held that on the facts the first of the stated criteria was not satisfied (at [557]-[564], 734-737). No question was raised as to whether the first of the criteria stated by Brennan J was a necessary requirement. The appellant accepted that it was a requirement that had to be satisfied.

194 In DHJPM Pty Ltd v Blackthorn Resources Limited [2011] NSWCA 348; (2011) 285 ALR 311 the plaintiff sought equitable compensation to vindicate an equity said to have arisen from the defendant's failure to fulfil an assumption or expectation which it induced the plaintiff to adopt. The plaintiff negotiated for the defendant to take a sublease of part of premises that the plaintiff proposed to lease. The plaintiff claimed that the defendant had given its assurance that it would take a sublease at a rent that had been agreed and promised that it was committed. In reliance on the assurance the plaintiff entered into the head lease. The head lease contained a term against a subletting or parting with possession or granting any licence without the owner's written consent. The defendant declined to proceed. The Court of Appeal rejected the claim for equitable compensation. Meagher JA with whom Macfarlan JA agreed held (at [48]) that the estoppel claimed, if made out, could be supported as an orthodox proprietary estoppel.

195 Meagher JA endorsed Brennan J's propositions in Waltons Stores (Interstate) Limited v Maher. His Honour expressed two qualifications. Relevantly, one qualification was that "any general formulation of the relevant principles must necessarily, in its application in particular circumstances, be subject to qualification and refinement reflecting or giving effect to the broad equitable principles which underlie its application" (at [47]). That suggests some flexibility in the application of Brennan J's propositions. Nonetheless, Meagher JA went on to describe its being "essential" that the plaintiff's expectation be as to a legal relationship expected to exist between the parties where the expectation is as to something which the party estopped is bound to do or not to do. His Honour said (at [49] and [67]):

"[49] The reference in Brennan J's proposition (1) to an expectation that 'a particular legal relationship would exist' and that the party said to be estopped 'would not be free to withdraw' from it, draws attention to two essential aspects of the expectation. The first is that it must be as to a legal relationship which is expected to exist between the parties. The second is that the expectation be induced by a promise which is intended by the promisor and understood by the promisee to affect their legal relations with the result that it is treated between them as something which the party estopped is 'bound to do or not to do'. This appears from Brennan J's analysis at 421, 422.

...

[67] The primary judge found that Mr Hannon himself was unclear as to what had been agreed following the conversation on 13 May 2006: [39]. Mr Hannon's evidence was that he believed that following that conversation he had a legally binding agreement for sub-lease. That belief provided a basis for an expectation that AIM would take a sub-lease. It was not, however, induced by any conduct of Mr Flory on behalf of AIM. In the conversation on 13 May 2006 he indicated that he was 'going ahead with the leasing arrangements' and was 'committed'. These were promises but there was not in the circumstances any objective basis for concluding that there was a binding contract. Nor was there any communication by which AIM indicated that it regarded itself as bound to proceed notwithstanding that there was no agreement as to all of the relevant commercial terms of any right of occupation. In the language of Mason CJ and Wilson J in Waltons Stores v Maher (at 406), the 'something more' was not present. To adopt the words of Lord Walker in Cobbe v Yeoman's Row Management Ltd (at [65]), all that AIM encouraged DHJPM to have was a 'hope' or 'confident expectation'. Neither was sufficient to give rise to an equitable estoppel."

196 In DHJPM Pty Ltd v Blackthorn Resources Limited Meagher JA said (at [91]) that he agreed with the reasons of Handley AJA for rejecting the appellant's claim formulated as one to a proprietary estoppel. Macfarlan JA must be taken also to have agreed. Handley AJA said (at [97]-[99]):

"[97] Mr Flory told Mr Hannon that the respondent was 'going ahead', and was 'committed'. However there was no oral contract, let alone one evidenced in writing which satisfied s 54A of the Conveyancing Act. The chief executives 'agreed on' a sublease of the area for 5 years at a rent of $10,000 a month plus GST, and left it at that.

[98] The other terms to be expected in such a sublease were not mentioned, let alone agreed. They would have to be settled by negotiation in due course.

[99] This 'transaction' fell outside the established boundaries of a proprietary estoppel by encouragement. What the respondent did was to create or encourage an expectation that an executory contract would come into existence on terms to be negotiated. The case is unlike Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 428-9 ; 76 ALR 513 at 542 ; [1988] HCA 7 (Waltons Stores) where the terms had been agreed and reduced to writing awaiting exchange.

...

[124] In these circumstances Waltons Stores is not binding authority for the recognition via proprietary estoppel of an executory contract where the content of that contract is not known."

197 The reference to an "executory contract" appears to be to a future contract. In Riches v Hogben at 300-301 McPherson J said that:

"... the equitable principle has no application where the transaction remains wholly executory on the plaintiff's part. It is not the existence of an unperformed promise that invites the intervention of equity but the conduct of the plaintiff in acting upon the expectation to which it gives rise."

198 It is not in that sense that Handley AJA was referring to an "executory contract". His Honour did not doubt that the plaintiff had already acted in reliance on its expectation that a contract would come into existence.

199 Handley AJA also said:

"[104] Estoppels by encouragement have been applied in a wide variety of factual situations. Most fall into one of two categories; those where the parties are in a domestic or family relationship, and those where the relationship is commercial. Parties in the latter category typically contemplate a legal relationship and frequently intend to enter into a contract or otherwise formalise their expectation.

[105] In domestic or family cases, the parties are not at arm's length and usually have no intention of entering into a contract or formalising their expectation. The party encouraged will frequently expect to receive a gift, inter vivos or testamentary.

[106] Estoppels by encouragement have a long pedigree and the cases have considered the problems created when parties in a commercial context act to their detriment before negotiations have been successfully concluded. There are only two such cases, to my knowledge, where an estoppel by encouragement has been held to create an executory contract: Waltons Stores and Metropolitan Transit Authority (Vic) v Waverley Transit Pty Ltd [1991] 1 VR 181; (1989) 10 MVR 361. As will be apparent from these reasons, I respectfully differ from the finding of the Appeal Division in the latter case that Waltons Stores could support by estoppel an executory contract for the supply of services where the terms had not been agreed.

[107] In some commercial cases the court has enforced an existing proprietary right. In Taylor's Fashions one of the plaintiffs enforced its option of renewal against a successor in title of the original landlord.

[108] In other commercial cases the court has enforced a new proprietary right. In Plimmer the plaintiff who had been encouraged to erect a wharf and warehouse on Crown land in Wellington harbour was held entitled to a perpetual, irrevocable licence equivalent to the fee simple. In Crabb v Arun DC [1976] Ch 179 ; [1975] 3 All ER 865 (Crabb) a land owner, in the belief encouraged by the council that it would grant him a right of way, sold the land over which he had enjoyed access, and was held entitled to the right of way.

[109] Where the court has enforced a new proprietary right it has not done so by making an executory contract for the parties. In some cases, such as Plimmer and Crabb, the owner was not entitled to compensation as a condition of the grant of relief."

200 This reasoning is similar to the reasoning of Lord Walker in Cobbe at [68] in distinguishing between cases where a party intends to obtain an interest and cases where a party expects to enter into a contract.

201 With respect, the cases do not fall so neatly into such separate categories. Crabb v Arun District Council was a case in which the parties expected that a contract for the grant of a right of way would be entered into. The reason the Court of Appeal granted the right of way without terms for the payment of compensation was because the defendant council's action in erecting the fence had deprived the plaintiff of the use of his land so that the council could no longer justly ask for appropriate compensation for the grant. But it is clear that the equity to which the council's conduct gave rise would have been enforced immediately after the plaintiff had acted to his detriment by selling the portion of his land that fronted the road. The Court if necessary would have settled the terms, including terms as to compensation.

202 EK Nominees Pty Ltd v Woolworths Limited was a case where the plaintiff was encouraged to expect that a contract would come into existence. In that case the terms of the agreement for lease had been substantially but not completely settled.

203 If the objection is that the Court cannot settle the terms of a contract for the parties, the objection would seem to be met by what was said by McPherson J in Riches v Hogben at 300-301 quoted at [144] above. As McPherson J said, what gives rise to the equity is the conduct of the plaintiff in acting upon the expectation induced by the defendant, even though there is no enforceable contract for want of certainty or absence of some other essential element.

204 For the reasons at [230]-[234] below the reasoning of Priestley JA and Rogers AJA in Austotel is not consistent with a requirement that terms of an expected contract must have been fully settled before rights can arise based on a proprietary estoppel arising from an expectation of entry into a contract.

205 Nonetheless, I am bound by the decisions in Franklins Pty ltd v Metcash Trading Limited and DHJPM Pty Ltd v Blackthorn Resources Limited.

206 There are two strands of reasoning in those cases. First, that where the plaintiff expects to enter into a contract, proprietary estoppel cannot be invoked unless all of the terms have been settled. Secondly, that the plaintiff's expectation must be as to the parties' current legal relationship or as to something which the party estopped is bound to do or not to do.

207 In this case although there were early discussions about an agreement for lease, the parties did not expect to enter into an agreement for lease. CTA expected that it would be granted a lease. Through Mr Hogan it expected that it could have exclusive possession of Area B and could use the shared areas for a period of five years with the option to extend the period. That amounts to an expectation that a grant would be made. But it did not expect to negotiate and settle the terms of the lease and formalise the relationship by entering into a contract. Accordingly, the reasoning of Handley AJA in DHJPM, although binding, is not determinative.

208 The question then is whether the estoppel claim must fail because Mr Hogan did not consider the defendants were bound to grant CTA a lease as distinct from assuming that they would do so.

209 In both Franklins Pty Ltd v Metcash Trading Limited and DHJPM Pty Ltd v Blackthorn Resources Limited the Court of Appeal applied the first of Brennan J's criteria for an equitable estoppel without analysis of relevant conflicting authorities. The Court of Appeal did not say that it was intending to depart from Priestley JA's formulation of the relevant principles in Silovi Pty Ltd v Barbaro and Austotel Pty Ltd v Franklins Self-Serve Pty Ltd, notwithstanding that Priestley JA did not adopt Brennan J's first criterion in Waltons Stores. A case is authority for what it decides, not what it assumes. But the endorsement of Brennan J's formulation went beyond mere assumption. Notwithstanding that that endorsement was given by default, as it were, I think it is binding, subject to any later binding authority.

210 In Tadrous v Tadrous [2010] NSWSC 1388 and [2012] NSWCA 16 two brothers were associated in property developments. They reached a consensus, that was not intended to give rise to binding legal relations, that one brother (Charlie) would contribute funding for a property development being undertaken by the other (Michael) on terms that the funds advanced would be repaid from sales of the developed properties and that one of the properties would be transferred at cost to Charlie and his wife. Charlie's widow as executrix of his estate sought to enforce the claim. Michael contended that the advances (of over $500,000) were provided by Charlie as a gift, the motive for which was said to be that Michael had made earlier similar gifts to Charlie. Charlie's widow's claim in contract was rejected because there was no intention to enter binding legal relations. Michael's allegation that the advances were a gift was also rejected. Charlie's widow would have been entitled to a claim on a common money count for money paid to the defendant's use and at his request. But she was held entitled to a greater remedy on the basis of a proprietary estoppel. Pembroke J at first instance held that she was entitled to repayment of the moneys advanced with compound interest secured by way of charge over the development. The Court of Appeal upheld this finding, save as to the award of compound interest, which was set aside only for lack of an evidentiary basis.

211 Pembroke J's reasons included the following:

"4. ... the essential bargain in relation to the development of the defendant's property was arranged between the two brothers, Michael and Charlie. The evidence made clear that the brothers had a close relationship, that each trusted the other implicitly and that the social customs and cultural characteristics to which they adhered included a strong ethic of mutual assistance between family members. ...

...

6. As the evidence proceeded, it became more and more apparent that whatever fraternal obligation there may have been between the brothers, neither intended it to result in a binding legal agreement. ... A witness called for the plaintiff ... remarked on how trusting Charlie was towards his brother and that 'he was kind of laughing at the suggestion that I would suggest that he would have a written contract'. Even the plaintiff was initially inclined to characterise the circumstances in which the arrangement was made as a 'discussion' rather than as an 'agreement'. This explains why neither brother saw the need for any written record of the arrangement. It also explains its loose and relatively informal formulation. In my view the arrangement was founded on trust, not on enforceable contractual obligation."

212 In rejecting the appeal Meagher JA (with whom Young JA and Handley AJA agreed) said:

"[37] The appellant argues that it follows from the primary judge's conclusion that the arrangement was 'founded on trust not on [an] enforceable contractual obligation' ([6]) that there was no sufficient expectation to give rise to an equitable estoppel. That argument must be rejected.

[38] One feature that distinguishes the equitable principle from the enforcement of a contractual obligation is the absence of a legally binding promise. What attracts that principle is an assurance or encouragement which creates an expectation that a interest will be granted and conduct in reliance upon that expectation: Giumelli v Giumelli [1999] HCA 10 ; (1999) 196 CLR 101 at [35] quoting McPherson J in Riches v Hogben [1985] 2 Qd R 292 at 300-301. It is sufficient to give rise to the equity that between the parties the expectation is created and acted upon on the basis that it will be made good: Ramsden v Dyson (1866) LR 1 HL 129 at 170 per Lord Kingsdown.

[39] An equitable estoppel can be established notwithstanding that the expectation contains elements that would not be sufficiently certain to amount to a valid contract or is formed on the basis of vague assurances: Gillett v Holt [2001] Ch 210 at 226 per Robert Walker LJ This is particularly so in circumstances, such as in the present case, where the estoppel arises in a domestic or family context."

213 Thus, the Court of Appeal did not say that it was necessary for Charlie to have assumed that he had a legal right to enforce Michael's promise to repay the money advanced and transfer a property at cost. It was enough that he expected that Michael would do so. It was enough that the promise was binding in honour.

214 The Court of Appeal did not apply Brennan J's first criterion.

215 What is it that distinguishes Tadrous v Tadrous and DHJPM Pty Ltd v Blackthorn Resources Limited as to the required expectation?

216 Professor McFarlane (The Law of Proprietary Estoppel) might say that in Tadrous v Tadrous the defendant made a promise that induced Charlie to alter his position to his detriment, and it was therefore sufficient that Charlie relied on his belief as to what his brother would do, not what he was bound to do, whereas if the estoppel were based on acquiescence, or representation of fact or mixed law and fact, then a mistaken belief as to current rights would be essential. DHJPM Pty Ltd v Blackthorn Resources Limited might be characterised by saying that by the defendant's representing it was committed to taking the sub-lease, it was merely representing its then intention and not making a promise.

217 A number of things may be said about that. First, it is not how the Court of Appeal has reasoned. Secondly, the analysis introduces refined distinctions that do not address equity's fundamental concern with conscionable conduct (e.g. Waltons Stores per Mason CJ and Wilson J quoted at [133] above). If A is induced to alter his position by B's encouragement and knowledge of the assumption on which A is acting, and A would suffer detriment from the change of position if the assumption is not adhered to, why should it matter whether B's encouragement is characterised as a representation or a promise? A statement that "we are committed" is as likely to encourage the other party to act to its detriment whether it is later characterised as a promise (unenforceable at law) or merely a representation of current intention. There is no clear reason why equity should grant relief in one case and not the other. Thirdly, whilst in England the result of Ramsden v Dyson may well be that it is only where the defendant has promised to give the plaintiff a proprietary right that it can be sufficient that the plaintiff relies simply on a belief as to how the defendant will act in the future, as distinct from having a mistaken belief as to his current rights, that is not consistent with the reasoning of Lord Kingsdown. It is Lord Kingsdown's dissenting judgment that commanded general acceptance, including in England before Cobbe. Fourthly, Professor McFarlane's analysis is not supported by Plimmer v Mayor of Wellington, nor Inwards v Baker, nor Crabb v Arun District Council. It is not consistent with the formulation of principle of Priestley JA in Austotel, nor that of McPherson J in Riches v Hogben approved in Giumelli v Giumelli that it is not the promise itself but the expectation created that attracts the equity.

218 Nor is it a point of distinction that in DHJPM Pty Ltd v Blackthorn Resources Limited the parties expected to negotiate and enter into a contract, whereas in Tadrous v Tadrous they did not. That was the ground of Handley AJA's judgment in DHJPM but not that of the majority.

219 The ground of distinction adverted to in the reasons of the Court of Appeal in Tadrous v Tadrous (at [39]) is that the estoppel there arose in a domestic or family context, albeit in the context of a commercial property development.

220 My own view as expressed in EK Nominees, and confirmed by Dr Silink's article, is that the broader formulation is to be preferred and a belief as to current rights, or as to whether the defendant is legally bound to proceed, should not be a separate requirement for the establishment of an equitable estoppel. Commercial cases are adequately dealt with by the requirements of reliance on the defendant's conduct as inducing an assumption that it would proceed, and that the reliance be reasonable. As Priestley JA said in Austotel (at 164):

"...the reason why it is in general unlikely that there will be an estoppel in circumstances where parties are negotiating by reference to a document expressed to be 'subject to contract' or 'subject to exchange', is that the circumstances are likely to show that neither party is relying on the contractual intention of the other, and thus the reliance element of any estoppel will usually be absent."

221 It was on this ground that the plaintiffs failed in Attorney-General (Hong Kong) v Humphreys Estate, Barnes v Alderton, Walsh v Walsh and BBB Constructions Pty Ltd v Aldi Foods Pty Ltd [2012] NSWCA 224.

222 A domestic or family context will be relevant to the establishment and reasonableness of reliance.

223 The reasonableness of reliance is relevant to, but not decisive of, the question whether permitting departure from the assumption would be unconscionable (Commonwealth v Verwayen (1990) 170 CLR 394 per Deane J at 445). In an oft-quoted passage, Deane J said:

"Ultimately, however, the question whether departure from the assumption would be unconscionable must be resolved not by reference to some preconceived formula framed to serve as a universal yardstick but by reference to all the circumstances of the case, including the reasonableness of the conduct of the other party in acting upon the assumption and the nature and extent of the detriment which he would sustain by acting upon the assumption if departure from the assumed state of affairs were permitted."

224 In Milling v Hardie [2014] NSWCA 163 it was only to the extent the defendant's encouragement reasonably gave rise to an expectation by the plaintiffs that they would acquire an interest in the defendant's property that the defendant was estopped from asserting his title. Reasonableness of reliance was directly related to whether it was unconscionable for the defendant to depart from the assumption the plaintiffs adopted.

225 In DHJPM Pty Ltd v Blackthorn Resources Limited the assurance given to the intending sublessor was that the proposed sublessee would go ahead with the leasing arrangements and was committed to them. But the proposed sublessor needed the owner's consent in writing to the grant of either a sublease or a licence and had not procured that consent when it signed its lease of the premises. It was the absence of the owner's consent that was the sticking point in the negotiations between the plaintiff and the defendant before the defendant decided not to proceed. It was not reasonable for the plaintiff in DHJPM Pty Ltd v Blackthorn Resources Limited to act in reliance on the assumption that the defendant would enter into the sublease, the terms of which save as to rent, were still to be negotiated, when it had no certainty that it could provide the proposed sublease. That lack of reasonableness went directly to whether it was unconscionable for the defendant to deny the assumption.

226 However, I do not think I am free to act on my own view. I must take the law as most recently stated by the Court of Appeal. I do not think that in Tadrous v Tadrous the Court of Appeal intended to depart from what had been said earlier in DHJPM Pty ltd v Blackthorn Resources Limited, except in a domestic or family context. (See also Milling v Hardie at [50]-[51] where, however, this issue did not arise.)

227 In my view, the differences of outcome in cases in a purely commercial setting and cases in a domestic of family setting are to be explained not by applying different principles to those different classes of case, but by the different application (in some, but not all, cases) of the same requirements of reliance and reasonable reliance that are applicable to all cases. I respectfully doubt that equitable principles should be fragmented in the way indicated in Tadrous v Tadrous. Nonetheless, I think I am bound by DHJPM unless the present case is in a domestic or family context.

228 Partly it is and partly it is not. Mr Hogan was related by marriage to three of the owners. But he had no familial connection with Mr Doueihi. He had no shareholding in or involvement in the business of Marble Plus and he was not the sole shareholder or director of CTA. There was no familial connection between the other directors and shareholders of CTA and any of the defendants. Nonetheless, as explained at [44] the family connection was close. It also explains the conduct of those who were not family. I infer that it was because of Mr Hogan's marriage to Ms Hogan and connection to Mrs Vatselias and Ms Scott that Mr Doueihi was content to allow Mr Hogan to take the lead in designing the premises and supervising the construction. The absence of formal documentation is not explained merely by the familial connection, because Marble Plus and Better Build Kitchens did not have formal documentation for their occupation. But I infer that Mr Hogan's familial connection with the owners is the reason the other directors of CTA permitted matters to proceed as they did. Mr Hogan's family connection over a considerable period also explains why not all terms that would usually be expected to be agreed upon were discussed between Mr Doueihi and Mr Hogan.

229 My mind has fluctuated on the question whether it is open to me to find that a proprietary estoppel could be established, notwithstanding that Mr Hogan did not believe that the defendants were bound to grant CTA the lease he expected. I conclude that this case falls within the "domestic or family context" and that means I am not bound to follow DHJPM, so that that conclusion remains open.

Incompleteness of terms

230 In Austotel Pty Ltd v Franklins Self-Serve Pty Ltd the order of the primary judge (Needham J) was that the defendant execute a lease on certain terms to which the parties had agreed and otherwise subject to conditions that work in excess of the original agreed requirements be compensated by the plaintiff making payment either of a capital sum or of increased rent in an amount which, in default of agreement, the court should determine, and also on terms that base rent to which the parties had agreed during their negotiations be increased by an amount to reflect an additional lettable area in an amount which the parties should agree, or, in default, as determined by an expert valuer or by the court (at 617).

231 Priestley JA upheld this order. As noted earlier, Kirby P considered that the Court should not "... step in and determine so crucial and disputable an element in the parties' commercial relationship as the rental to be paid and then to require the parties (one of whom is resisting) to proceed with the lease with all the opportunities for friction and variation in the ongoing relationship which a lease entails" (at 587).

232 On the other hand, Rogers AJA said (at 618):

"As Priestley JA has demonstrated, equity recognises that conduct may be such that it would be unconscionable not to require effect to be given to negotiations for agreement between the parties, even in circumstances where there had been no agreement on an important term or terms. Unfortunately, the plaintiff never stated, with any precision, just what it was that was claimed to constitute the conduct by the defendant which made it unconscionable to permit it to withdraw from the negotiations for lease."

233 Rogers AJA rejected the claimed estoppel because the plaintiff had made a deliberate decision not to negotiate with the defendant or seek to agree on a higher or additional initial rental once the area of lettable space was increased. This was a deliberate negotiating tactic. The plaintiff, in his Honour's view, had not identified that he made any particular assumption and was not entitled to believe that a lease "would be entered into" until the additional rent was agreed or otherwise determined (at 620). It was because the plaintiff deliberately, and in the hope of gaining an advantage, refrained from discussions on that question that Rogers AJA rejected the claimed estoppel (at 620), although he warned of the need for caution where important terms had not been agreed (at 621).

234 Austotel therefore does not stand in the way of upholding a claim for equitable estoppel because the parties had not reached consensus on important commercial terms.

235 In Flinn v Flinn [1999] VSCA 109; [1999] 3 VR 712 a proprietary estoppel was established notwithstanding uncertainty as to the extent of an interest the deceased and his wife promised to leave their nephew and his wife in reliance on which they moved onto and worked a farm and made considerable improvements to it. Brooking JA (with whom Charles and Batt JJA agreed) rejected the defendant's submission that the estoppel claim failed because it was based on a representation that was not "unambiguous" or "clear" or "unequivocal". His Honour said (at [80], 738):

"But a promise may be definite in the sense that there is a clear promise to do something even though the something promised is not precisely defined, and this has always been recognised in the cases."

236 His Honour also said (at [81], 738-739):

"Lord Kingsdown's speech has been relied on in support of the proposition that a proprietary estoppel may give rise to an equity even though 'the interest to be taken ... was unclear' (Smith, 'How Proprietary is Proprietary Estoppel?', Consensus at Idem, ed Rose, p239), or even though 'the promised or expected interest was uncertain' (Robertson, 'Satisfying the Minimum Equity: Equitable Estoppel Remedies after Verwayen', (1996) 20 MULR 805 at 813), or even though there is 'difficulty in quantifying in legal concepts the interest held out by the donor' (Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 3rd ed, para 1722) or 'the precise nature or quantum of the interest or right' is not formulated (Pawlowski; The Doctrine of Proprietary Estoppel, p15-p16; compare p23 and p111). Most recently, Lord Kingsdown has been invoked in support of the proposition that an equity may arise notwithstanding that it is not clear whether the promise is of a right of occupation for life or ownership (Gardner, 'The Remedial Discretion in Proprietary Estoppel', (1999) 115 LQR 438 at 450-1)... . "

237 Amongst other authorities that Brooking J considered was Chalmers v Pardoe [1963] 1 WLR 677; [1963] 3 All ER 552. His Honour noted that there the Judicial Committee:

"... would, but for the matter of illegality, have held that an equity had arisen where the respondent had agreed either to sublease certain land to the appellant or to surrender that land so that the surrenderee could lease it to the appellant. There does not appear to have been any agreement on any of the terms of the contemplated sublease or lease."

238 Another case considered was Duke of Devonshire v Eglin (1851) 14 Beav 530; 51 ER 389 where "the defendant ... consented to the plaintiff's making a watercourse through his land in return for 'a proper and reasonable sum'. The watercourse was made, but no grant was executed, and no sum arranged". Years later the defendant stopped up the water course. Sir John Romilly MR in granting a perpetual injunction referred it to a Master to ascertain a proper rent and settle a proper deed. Brooking JA said (at [95], 743):

"As the review of the authorities over the last 200 years shows, uncertainty preventing the creation of a contract has never been regarded as necessarily preventing the beneficial intervention of equity. Time and again an equity has been held to exist where no contract had arisen, the court often going a long way in giving effect to what the law of contract would ignore as an impossibly loose arrangement. The present case lies within the reach of the long and flexible arm of equity."

239 Ipp JA referred to this decision with approval in Australian Crime Commission v Gray [2003] NSWCA 318 at [190] ff in holding that a promise that "you will not suffer any financial disadvantage from going into witness protection" was not so ambiguous as not to satisfy the requirements for promissory estoppel. Mason P (with whom Tobias JA agreed) agreed with this part of Ipp JA's reasons (at [3]).

240 In Pacific National (ACT) Limited v Queensland Rail [2006] FCA 91 Jacobson J said (at [668]):

"(22) Subject to a qualification stated below, it is not necessary that the interest to the secured under the Ramsden v Dyson or Plimmer principle be expressly stated or that the terms of the arrangement or understanding to secure that interest be sufficiently certain to be enforceable as a contract. The Court must look at the circumstances of each case to determine the form of relief: Plimmer at 713-714, Inwards v Baker [1965] 2 QB 29 at 37, and Austotel at 607-610 per Priestley JA.

(23) The qualification is that where the parties have not reached agreement as to the contractual terms necessary to establish the interest in the land, the Court will exercise caution in coming to a conclusion that it would be unconscionable to prevent a party from insisting upon its strict legal rights: Austotel at 585-586 per Kirby JA and at 620-621 per Rogers AJA."

241 In Mobil Oil Australia Limited v Wellcome International Pty Ltd (1998) 81 FCR 475 an officer of an oil company made representations to the company's franchisees of its petrol stations that they would receive an extended tenure if certain performance levels were met. Two promises or representations were alleged. The first was that if a dealer achieved a certain level of performance in any one year, it would be give one additional year's tenure of its current franchise (the "one for one proposal"). The second was that if the dealer attained a certain level of performance over six years, it would receive a nine-year extension of its franchise (the "nine for six proposal"). The Full Court of the Federal Court held that no commitment was mentioned in reference to the nine for six proposal (at 515). The Court said (at 515):

"... A generalised commitment to find a way to implement an appropriate tenure for achievements scheme cannot, in the present context, give rise to an expectation of either a 'particular legal relationship' coming into existence or the grant of an identifiable 'interest' to use the language of Waltons and of Plimmer. The essential elements and details of the legal relationship are lacking as are any specific details relating to the duration or terms of any extension or renewal or of the period over which the franchisees would qualify ...

The 'less precise' approach identified in Plimmer by Priestley JA does not in our view, support a submission that there is 'sufficient' certainty in the 'promise' or 'encouragement' with respect to the 'finding a way' commitment, to attract the operation of the doctrine of equitable estoppel. The lack of information as to the contents of the proposal is too pronounced. In particular, there is a lack of information as to the period and qualifying performance and the duration, and extent of the interest to be granted."

242 The Court went on to compare a case where the plaintiff had made expenditure where it was possible with reasonable certainty to identify the amount or the value of the expenditure or the value of work done on property, so that some reasonably precise determination could be made of the relief called for to redress or remove the detriment.

243 The matter is one of degree. The insufficient definition of the proposal in Mobil Oil Australia v Wellcome International Pty Ltd was relevant to the reasonableness of the plaintiff's reliance upon the proposal and whether it was unconscionable for the defendant to deny an assumption which an indefinite proposal may have induced.

244 Mr Hogan and Mr Doueihi did not discuss details of the lease other than the areas of occupation, initial rent and term. That does not preclude the granting of equitable relief to give effect to CTA's expectations even though that could require the court to supplement the parties' agreement if the parties are unable to agree on additional terms.

245 For example, on the revised term sheet that Mr Hogan said he provided to Mr Doueihi, CTA indicated its agreement to clauses that rent be increased annually by reference to the Consumer Price Index and that on the exercise of the option rent would be increased by reference to a current market rent. He indicated his agreement to CTA's taking out the $10 million public liability and plate glass insurance and that the lessee on termination or expiry of the lease was to make good the premises subject to fair wear and tear to the standard at the commencement of the lease. Those could be terms to be included in a lease if CTA were entitled to enforce an equity arising by estoppel. The absence of agreement on all material terms would not be a sufficient reason to preclude an estoppel arising.

Reasonableness of reliance on the assumption

246 The reasonableness or unreasonableness of reliance by a plaintiff on an assumption it has been induced to adopt goes to the question of whether it is unconscionable for the defendant to deny the assumption. (See Commonwealth v Verwayen per Deane J at 445 quoted at [223] above and the cases discussed at [224] and [225].) The question is not one of negligence simpliciter. It can be said that the directors of CTA did not act reasonably in relying on Mr Hogan's assurance in February 2009 that there would be a lease commitment of five plus five years at a minimum and that Mr Doueihi was fine with that, without later pursuing the question as to whether an agreement for lease had been settled or a lease granted. Mr Hogan could be criticised by the other shareholders of CTA for not doing more to secure a lease.

247 In the present case, the unreasonableness of CTA's adoption of the assumption that it would have a lease of the premises that would give it long term security went only to its failure to protect its own interests. In contrast to DHJPM, CTA's unreasonableness does not go to the question as to whether a departure by the defendants from the assumption which they induced CTA to adopt would be unjust.

248 In any event, reasonableness of reliance has to be judged according to the milieu in which Mr Hogan was operating. That was that except for the purpose of preparing documents to be submitted to a prospective financier, leases were never drawn up (see the evidence of Mr Doueihi quoted at para [35] above). In that milieu, I do not think it was unreasonable for Mr Hogan to rely on the honour of the family to respect what he had agreed with Mr Doueihi.

Conclusion

249 For the reasons at [141] I consider that CTA is entitled to enforce an equity arising by estoppel. For the further reasons above, neither the absence of a mistaken belief as to legal rights, nor the incompleteness of agreed terms, nor what might be regarded as carelessness in protecting its own interest, militates against that conclusion.

250 The appropriate equitable relief is relief to make good the assumption that CTA was induced to adopt. That relief is not disproportionate. Nor is it precluded by intervening interests of third parties. Nor could a monetary award satisfactorily value the expectation. There is no evidence of available alternative premises (Giumelli v Giumelli at [48]-[50], 125; Sidhu v Van Dyke [2014] HCA 19; (2014) 251 CLR 505 at [82]-[85], 529-530). That may require the court to settle the terms of a lease for a term of five plus five years if the parties are unable to agree on the terms. But for the reasons given that is not an objection to the grant of relief.

251 It will be a condition of the relief that CTA undertake promptly to do all things necessary on its part to obtain all necessary regulatory approvals to its occupation of the site and its manufacturing facility. The costs of obtaining necessary approvals are to be borne by CTA. The first to fourth defendants will be ordered to do all that is necessary on their part for the obtaining of such approvals.

252 As indicated at [245] above, in its modified terms sheet CTA proposed adjustments of rent according to movements in the Consumer Price Index as well as a review to market if the option for renewal was exercised. The evidence is that the rent paid to date is a market rent notwithstanding the absence of CPI increases. However, the lease should provide for a review to market if the option is exercised. I also think that if the option is exercised there should be provisions for the rent for the renewed term to be increased in accordance with the CPI.

253 There was a dispute as to whether CTA has enjoyed exclusive possession of some of the shared facilities, such as the boardroom and an area of an amenities room. It has not claimed and is not entitled to a right of exclusive use of those areas.

254 The orders should provide that the first to fourth defendants execute a lease on terms that:

a. CTA have the right of exclusive possession of the area shown as Area B on the plans, being the areas totalling approximately 1,159 square metres as depicted on the survey plan of Mr Bromhead, with a non-exclusive right to use the current shared facilities;

b. the lease to be for a term of five years from 18 May 2010 with an option for renewal for a further five-year term, the option to be exercised by 18 May 2015;

c. the rent for the first five-year term to be $12,000 per month inclusive of outgoings, but that CTA pay for electricity and consumables and services in the same way as it has to date;

d. if the option for renewal is exercised, the rent for the renewed lease be the then market rent as agreed or determined by valuation and be subject to annual increases in accordance with the Consumer Price Index;

e. CTA have the right to remove its tenant fixtures at the determination of the lease and be obliged to make good;

f. that the lease otherwise contain usual lease covenants for factory premises that in default of agreement be determined by an expert to be appointed for that purpose.

255 The existing injunction should continue as a final injunction until the lease is executed.

256 The defendants filed a cross-summons without leave. It was dismissed during the hearing.

257 Prima facie the defendants should pay the plaintiff's costs. I will hear any argument on costs when short minutes are brought in to give effect to these reasons.

258 I stand over the proceedings to a date to be fixed and direct the plaintiff's counsel to bring in short minutes of order to give effect to these reasons.

Decision last updated: 04 December 2014