ACN 055 389 725 Pty Ltd, Pherhad, Pherhad & Winstream P/L v Hamilton Island Enterprises Ltd [1998] QSC 30

IN THE SUPREME COURT OF QUEENSLAND No. 8982 of 1996 [ACN 055 389 725 Pty Ltd & Ors v Hamilton Island Enterprises Ltd] BETWEEN: ACN 055 389 725 PTY LTD First Plaintiff AND: LOUIS PHERHAD Second Plaintiff AND: VIVIENNE PHERHAD Third Plaintiff AND: WINSTREAM PTY LTD Fourth Plaintiff AND: HAMILTON ISLAND ENTERPRISES LTD ACN 009 946 909 Defendant REASONS FOR JUDGMENT - THOMAS J. Delivered: 17 March 1998 CATCHWORDS: CONTRACT - Estoppel - Estoppel by representation - Oral representations - Estoppel by convention or common assumption - Collateral contract - Detriment - Original representee’s right to enforce estoppel if detriment continues - When third parties may sue to enforce an estoppel. Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 The Commonwealth v Verwayen (1990) 170 CLR 394 Waltons Stores (Interstate) Ltd v. Maher (1988) 164 CLR 387 Counsel: Mr M. Hinson for the plaintiffs Mr C. Hampson QC for the defendant Solicitors: O’Shea Corser & Wadley for the plaintiffs Minter Ellison for the defendant Hearing dates: 2-6, 9-13, 16-19 and 24 February 1998 -- 1 of 13 -- -- 2 of 13 -- IN THE SUPREME COURT OF QUEENSLAND No. 8982 of 1996 [ACN 055 389 725 Pty Ltd & Ors v Hamilton Island Enterprises Ltd] BETWEEN: ACN 055 389 725 PTY LTD First Plaintiff AND: LOUIS PHERHAD Second Plaintiff AND: VIVIENNE PHERHAD Third Plaintiff AND: WINSTREAM PTY LTD Fourth Plaintiff AND: HAMILTON ISLAND ENTERPRISES LTD ACN 009 946 909 Defendant REASONS FOR JUDGMENT - THOMAS J. Judgment delivered 17 March 1998 I incorporate the reasons stated in pp 1-36 of the reasons published in Grace & Ors v Hamilton Island Enterprises Ltd (Action No. 8976 of 1996). These contain, inter alia, the principal findings concerning dealings involving the present plaintiffs and my interpretation of the evidence as a whole. Additional facts Mr Pherhad is an experienced chef/restaurateur. Between 1974 and 1986 he worked in those capacities in restaurants in Melbourne and, for a time, in London. His interest in Hamilton Island was generated by an acquaintance (Mr Stefano) who offered him a position as executive -- 3 of 13 -- 2 chef of the Outrigger Restaurant for a period of twelve months. However, that offer was withdrawn because Mr Stefano’s relationship with Mr Williams had “fallen over”. In due course Mr Pherhad had a series of conversations with Mr Williams which ended in an offer being made to him of a concession for the restaurant. Various representations to Mr and Mrs Pherhad at this meeting and on other occasions are briefly summarised in the table in the Grace judgment 1 , and have already been to some extent discussed in those reasons. Mr Pherhad had other prospects available at the time, and indeed even after setting up business on Hamilton Island he received offers to go to other restaurants. His wife, Vivienne Pherhad, was a qualified schoolteacher who, in her own words had aspirations for her own career. I have no doubt that the assurance of an ongoing licence and of a long-term venture were instrumental in their decision to sell their Melbourne interests and commit themselves to a new career on Hamilton Island. I have no difficulty in accepting Mr Pherhad’s statement that he would not have done this except in reliance on the representation of secure tenure. In the result he was granted an oral licence by Mr Williams and reopened the Outrigger Restaurant on 25 April 1986. The Pherhads have continued to operate that restaurant to the present day. On the whole it has operated quite successfully, and with trivial exceptions there have been no complaints from HIE concerning the management of the restaurant over that lengthy period. There has been no default and no expressed dissatisfaction. On the contrary the evidence suggests that although the building is now relatively old, the restaurant operates 1 at p 34-35. -- 4 of 13 -- 3 effectively and continues to produce the best food on the island. The current management of HIE would however prefer that it be replaced with a Japanese restaurant. In late 1991 or early 1992 Mr Brown, consistently with his attempts to obtain written agreements with common renewal dates, presented a licence agreement to Mr and Mrs Pherhad. They sought to change it because it was for five years without renewal. Mr Brown responded that the licence was “in a standard form” and could not be changed. He however assured the Pherhads that Mr Williams’ promises of permanent tenure would be upheld and that the licence would be automatically renewed. This led to the execution of the 1992 licence agreement in favour of ACN, Mr and Mrs Pherhad’s company. It is unnecessary to pursue the structure of ACN beyond noting that there is a family trust, and one of its principal shareholders is Winstream, the fourth plaintiff (joined pursuant to amendment during trial). The joinder was made after cross-examination revealed a deal of confusion in the minds of Mr and Mrs Pherhad as to which company they were using as their trading entity. It would seem that Winstream (directed by the Pherhads) rather than ACN is the company that runs the business known as the Outrigger Restaurant and which makes the profits. That has occurred, I infer, with the permission and at the direction of the party entitled to the benefit of the licence, namely ACN. There is evidence from Mr and Mrs Pherhad’s accountant that the business is managed by Winstream on behalf of Mr and Mrs Pherhad. A good deal of attention was paid to these matters by HIE’s counsel during cross-examination, but not in final address. There is no suggestion that any necessary party is missing. After about four years on Hamilton Island, Mr Pherhad, with Mr Williams’ consent, established a second restaurant in Brisbane, to which he devoted a good deal of his time between 1990 and 1995. He had Mr Williams’ permission to do so and I infer that the requirement of his residence on Hamilton Island was waived. The Brisbane venture was a financial disaster, losing -- 5 of 13 -- 4 approximately $500,000. However the Hamilton Island business remained profitable, and since 1995 Mr Pherhad has returned his primary attention to the Outrigger Restaurant and resides principally on Hamilton Island. Mr and Mrs Pherhad received some further assurance from Mr Palmer concerning the security of their tenure, and I accept their evidence in this respect. I also accept that they asked Mr Taylor for confirmation that they would have an ongoing business to look forward to, and were reassured by his statement that he intended to keep the status quo. I mention in passing that I do not find it surprising that those statements were not included in Mr Kelly’s diary note. These plaintiffs were (along with many others) shocked when HIE made its demands for possession in July 1996. They protested in a number of ways, and fairly quickly articulated their case. They had meetings with Mr Tallent and Mr Kirkpatrick, but to no avail. At the meeting of 15 July 1996 Mr Pherhad asked Mr Kirkpatrick and Mr Tallent why they had not honoured Keith Williams’ agreement. He was informed that that time was a different era; that Mr Williams had gone; and that “We are here now. This is what we want to do”. Estoppel The plaintiffs assert an equitable estoppel and an estoppel by convention preventing the defendant from denying the existence of an agreement for renewal of the subject licence agreements. It is convenient to consider firstly the estoppel based upon representations. I am content to adopt the defendant’s submissions as to the applicable principles, namely that the necessary elements of such an estoppel are: “(a) 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 unexpected legal relationship; -- 6 of 13 -- 5 (b) the defendant has induced the plaintiff to adopt that assumption or expectation; (c) the plaintiff acts or abstained from acting in reliance on the assumption or expectation; (d) the defendant knew or intended him to do so; (e) the plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled; (f) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.” 2 The further need for unconscionability in permitting a defendant to depart from the necessary assumption is well stated in the following passage: “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”. 3 On the view I take of the evidence in this case there can be no doubt that elements (a), (b), (c) and (d) are fully established. Parties 2 Per Brennan J in Waltons Stores (Interstate) Ltd v. Maher (1988) 164 CLR 387, 428-429; cf. S & E Promotions Pty Ltd v Tobin Brothers Pty Ltd (1994) 122 ALR 637, 652-655. 3 Priestley JA in Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582, 610. -- 7 of 13 -- 6 For reasons given in the Grace action 4 I consider that in general a claimant who is not a party or privy to the principal transaction is not able to enforce an estoppel arising from a representor’s conduct, at least in the absence of some special nexus between claimant and representor. Although Mr Pherhad is no longer the concessionaire, having consented to the renewal of the concession under the name of his company ACN, he was the original concessionaire and the original representee. He was the original party to the original transaction, and the potential harm to him from his reliance on the representations continues. I would summarise Mr Pherhad’s position as follows. The original representations were made to him in his personal capacity; he was the original licensee who committed a substantial part of his personal life and fortune to this enterprise; and he has since 1992 continued to do this through his family company ACN. Having moved himself, his family and his company to Hamilton Island and having a continuing potential detriment if ACN is harmed by eviction, the representations continue to affect his life and fortunes. That effect would be detrimental were the defendant permitted to depart from the assumption that the defendant created, namely that the licence would be ongoing. I therefore consider that Mr Pherhad’s position is distinguishable from that of Mr Harrison, and he has the right to sue as a plaintiff in the present action. Mrs Pherhad’s position however is not so clear. Although a co-director of ACN and no doubt a business partner with her husband, she does not appear at any stage to have been a contracting party with HIE. It is possible that some case could be made for her as an undisclosed principal (see Mooney v Williams5 , and Siu Yin Kwan v Eastern Insurance Co Ltd6 ). However 4 At pp 40-43, under the heading “Status of licensee’s director as a plaintiff”. 5 (1905) 3 CLR 1, 8. 6 [1994] 2 AC 199, 207. -- 8 of 13 -- 7 her case does not appear to have been advanced on this basis. I was not aided by any specific submissions by counsel on either side concerning the position of specific plaintiffs. In this situation, I think it best to grant the parties leave to make supplementary submissions on this question if so advised. My present view is that Mrs Pherhad has no personal cause of action. The primary continuing party with the locus standi to insist on renewal of the licence is ACN, notwithstanding that for most of the relevant period it has not been used as the vehicle that actually runs the business and makes the profits. It is the current holder of the licence and in my view is now the primary party entitled to insist upon its renewal, and to claim that the defendant is estopped from denying such a right. The representations made by Mr Brown in 1991-1992 leading to the execution of the written licence should be taken to have been made to it through the Pherhads. Also, the earlier representations on behalf of HIE made to Mr and Mrs Pherhad should be taken to be part of a continuing stream of representations which were passed on to ACN at the time when it entered into the licence. -- 9 of 13 -- 8 Detriment Mr Manning’s evidence (in exhibit 49) is uncontradicted, and it demonstrates the loss of a very large sum of goodwill if the tenure is terminated. For the purposes of considering detriment on the part of ACN I shall disregard the direct disadvantages and lost opportunities of Mr and Mrs Pherhad personally were HIE to be permitted to resile from its assurance. It is appropriate however to take into account the fact that it could have been used as the vehicle for whatever economic pursuits Mr and Mrs Pherhad would have followed and still may be so used. In other words, leaving aside Mr and Mrs Pherhad’s personal disadvantage, the relevant detriment of ACN is to be measured having regard to its capacity in the hands of Mr and Mrs Pherhad. The lost opportunities and lost potential for other activity are similar to those of the Pherhads, which include the falsification of the basis upon which they had planned their business future. If the position were otherwise, the law concerning estoppel would be seriously unbalanced. For reasons stated in the Grace action, 7 I have taken the view that persons who were not parties or privies to the licence are generally unable to sue to enforce the estoppel. It would be extraordinary if all relevant detriment were to be held to have flowed to such persons (who cannot sue) and none to the company that represents the commercial potential of those persons. If that were the case, I should be inclined to review my prima facie opinion on the locus standi of such persons to sue to enforce the estoppel. 7 at p 42 of those reasons. -- 10 of 13 -- 9 In the event, even on the footing that ACN were the only relevant plaintiff to enforce an equity against HIE, I accept that ACN has suffered and will suffer detriment by acting, and by abstaining from acting, on the faith of promises that HIE now refuses to fulfill. 8 For reasons already stated, Mr Pherhad’s detriment is even more obvious than that of ACN. Unconscionable I have no doubt that in the circumstances, HIE’s termination of the licence was “unconscionable”. That is an awkward word, but I take it to convey something that is against conscience. In my view, for the company to go back on the expectations that it actively promoted would be dishonourable, even if HIE is now of the view that it would be economically advantageous. I find the unconscionable factor exists in this case. 8 Cf. test stated by Brennan J in The Commonwealth v Verwayen (1990) 170 CLR 394, at p 429.3. Conclusion on estoppel I am satisfied that all necessary elements to establish an estoppel in favour of ACN and Mr Pherhad against HIE are proved and that in the circumstances any departure by HIE from the assumption that the licence would be renewed would be unconscionable. The estoppel based on representations has been made out. There should be a declaration that the defendant is estopped from denying the existence of an agreement for renewal of the licence granted by HIE to ACN dated 3 April 1992. -- 11 of 13 -- 10 There remains however (for determination if necessary in the trial of the so-called “quantum” issues) the question whether the “minimum equity” needed to avoid the relevant detriment will be by continuation of an injunction, or by the payment of damages. 9 To use the phrases of McHugh J in Verwayen, should HIE be permitted to pay for the detriment, or should the detriment be avoided by enforcing the promise? 10 The pre-trial direction given on 19 December 1997 reserved this question to the quantum trial, as it seems desirable to have some notion of the likely quantum before finally determining the appropriate form of relief. The plaintiff ACN has succeeded in this trial in establishing its right to a declaration which entitles it to the enforcement of an equity by one or other of these means. Until such time as that question is resolved by the court or by the parties, there should be an injunction restraining HIE from terminating the licence or dispossessing the plaintiff. Estoppel by convention or common assumption For the reasons set out at pages 43-44 in the Grace action I consider that the evidence in the present case establishes an estoppel on this alternative basis. 9 Ibid, at 412, 417, 429, 441-442, 446-448, 462, 487, 500-501. 10 Ibid at 501. Rectification and collateral contract -- 12 of 13 -- 11 It is not necessary to discuss the alternative claims based on rectification and collateral contract. I simply mention my conclusions that I do not see rectification as an appropriate remedy in the present circumstance, but I consider that the case of collateral contract has been made out. The statements were promissory, and I reject the submission that the relevant statements are truly inconsistent with the main contract. A promise of renewal is not inconsistent with a five-year term; and clause 14 (the holding over clause) would only operate if the licence were not renewed. Clause 14 would operate, for example, when by reason of breach, or for some other valid reason a licence was not renewed. On the evidence before me the defendant was not entitled to decline to renew the licence. I would construe the assurances given on behalf of HIE as promises that HIE would renew the licence for further periods of five years for so long as the licensee wished to have it renewed provided that the licensee was not in breach at the time of renewal. Special defences HIE pleaded special defences such as laches, acquiescence, delay, and counter-estoppel. They depend however upon a view of the facts which I have rejected in the above findings. On the view I take of the evidence there is nothing in the conduct of the plaintiffs which should deprive them of any remedy to which they are entitled. Orders I shall hear submissions from the parties as to the orders that should now be made. -- 13 of 13 --