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[2021] QCA 293
In this significant case, the Court of Appeal considered three interesting issues relating to the State’s successful claim in debt for unpaid rent from the appellants. First, whether the appellants could rely on common law estoppel in circumstances where the estoppel may not prevent the State from enforcing its debt? Second, whether the Court can order an equitable estoppel that requires the State to make good its innocent misrepresentation? Third, whether the guarantor’s liability was contingent upon a demand being made or whether the guarantor suffered loss immediately upon becoming bound by the guarantees?
Sofronoff P and Morrison and Bond JJA
23 December 2021
In May 2008, Compass entered into an agreement for lease with the Port of Brisbane Corporation (POBC) (all of whose assets and obligations were transferred to the State on 1 June 2010) for the development of part of Scarborough Boat Harbour. [8]–[9]. There were two stages for the agreement: first, Compass was required to undertake preliminary construction works at the harbor site and apply for relevant government approvals. [9]. Second, once the first stage had been completed, Compass was obliged to enter into two leases, a “wet lease” for the construction of the marina, and a “dry lease” of adjacent land for the construction of supporting infrastructure, shops and restaurants. [9]–[10]. Mr Harburg guaranteed the initial agreement and the eventual leases. [9]–[10].
In August 2009, Compass advised POBC that it had not received all of the requisite approvals and that the agreement for lease was therefore cancelled. [12]. However, Compass also indicated that it was willing to proceed on the basis of an altered proposal. [12]. In a letter dated 15 September 2009 (“September Letter”), POBC represented to Compass that the rent to be charged under the leases “is not negotiable” and assured Compass that it was a commercial rent similar to other boat harbours in South-East Queensland. [13]. Compass would not discover that these representations were untrue until March 2011. [18]. The primary judge found the September Letter induced Compass to enter into a deed of variation with POBC which altered the agreement for lease to limit the works which Compass was required to undertake, but which did not change the provisions about rents or the guarantees. [14]. Compass obtained the relevant approvals and undertook the required work, and entered into the wet and dry leases in November 2010. [16]. Compass only made one payment of rent, in September 2011 and did not complete the development. [19].
In August 2017, Compass commenced proceedings against the State claiming damages for deceit or for deceptive or misleading conduct arising from the September letter. [20]. The State commenced separate proceedings in December 2017, claiming the unpaid rents as a debt. [21]. Compass and Mr Harburg argued that the State was estopped from claiming rent in any amount that exceeded rent calculated according to the representations in the September Letter, and that any rent should be set off against damages for deceit or misleading or deceptive conduct. [21]. The proceedings were heard together, and Dalton J found in favour of the State. [23]. Critically, her Honour rejected the estoppel defence and found that the deceit claim failed because the representation was made innocently and without intention to deceive. [23]. In any event, her Honour found that all of Compass’ claims for damages were statute-barred. [23].
After considering the differences between Compass’ case at trial and on appeal, Bond JA (with whom Sofronoff P and Morrison JA agreed) turned to Compass’ argument that it could use an estoppel as a complete defence against the State’s claims. To this end, Compass argued that a common law estoppel arose from the State (by its predecessor, POBC) making a false representation that the rent in the dry and wet leases was “substantially the same as the rent charged by POBC to other lessees in South East Queensland boat harbours”. [72(a)]. It argued that the State was therefore “estopped from contradicting the truth of that representation by enforcing the rental provisions in the leases” at rates which were significantly higher than those charged to other marina operators. [72(c)].
On Bond JA’s construction, even if the State were estopped from acting other than in accordance with its representation, “enforcing the rental provisions at the rates stated in the leases would not contradict the truth of the represented fact”. [74]. That is, the “fact which the State would be estopped from denying was not a fact which was relevant to the liability of Compass and Mr Harburg to pay the rent at the rates stated in the leases”. [74]. Accordingly, his Honour found that Compass was not able to rely on a common law estoppel by representation. [76]. In any event, his Honour noted that as the appellants had not run this argument before Dalton J, he would not have permitted them to argue it even if the State’s case had contradicted the representation relied upon by Compass. [77].
Bond JA then turned to the question of equitable estoppel. On this ground, Compass relied on a line of cases starting with Burrowes v Lock (1805) 10 Ves Jun 470 for the proposition that they were entitled to an estoppel by representation in equity which required the State to “make good the representation”. [81]. Bond JA considered that there were a number of issues with this:
a) Although Burrowes may not have been overruled it was in tension with Derry v Peek (1889) 14 App Cas 337. [83]. This tension was resolved by Lindley LJ in Low v Bouverie [1891] 3 Ch 82 by reading Burrowes strictly in terms of estoppel. [83]. That is, on its facts it does not necessarily stand for the principle that courts of equity have the jurisdiction to order compensation for innocent misrepresentation. [83]. Rather, it may merely be interpreted as recognising that a party may be estopped from deviating from its representation that it could transfer certain shares because they were unencumbered. [83].
b) Subsequent authorities to Burrowes “do not authoritatively recognise a continued equitable compensatory jurisdiction in respect of innocent misrepresentation of facts”. [84].
c) The absence of modern authority recognising the continued existence of an equitable compensatory jurisdiction for innocent misrepresentation could be justified by the expansion of the law of negligent misstatement, the recognition of promissory estoppel and statutory remedies for misleading or deceptive conduct. [85]. Bond JA thought it “may well be too late in the history of the law” to revive such a jurisdiction. [85].
d) In any event, this case was not a proper vehicle for determining whether such an equitable jurisdiction continued to exist, as this case was not advanced before Dalton J. [86]. Accordingly, Compass was not permitted to argue for this relief. [86].
It followed that Bond JA also dismissed this ground of the appeal. [87].
Finally, Bond JA turned to the question of whether Mr Harburg’s claims for damages for misleading or deceptive conduct under the Trade Practices Act 1974 (Cth) were out of time. [89]. Below, Dalton J had not separately dealt with Mr Harburg’s claims, and instead concluded that he could not make out his claim for the same reasons as Compass could not make out its claim. [91]. Bond JA considered that her Honour did not err in so treating the claims, as it was implicit in the parties’ pleaded case that if Compass’ claim were to fail, so would Mr Harburg’s. [93].
To avoid the time bar, Mr Harburg submitted that, as a guarantor, time did not begin to run against him until his contingent liability under the guarantees was crystallised by a demand from the State. [95]. No such demand was made until October 2017. [95]. Bond JA considered that the question of when Mr Harburg became liable under the guarantees turned on their proper construction. [96]. The guarantees under the two leases were not in materially different terms, and Bond JA found that, on their face, there was nothing “which expressly or impliedly makes the giving of a demand a condition precedent to the liability imposed on Mr Harburg by the clause”, even though the clause made reference to a demand. [97]–[98]. Rather, he was jointly and severally liable with Compass for all monies to be paid by it. [98]. It followed that he suffered loss immediately upon being bound by the guarantees – in November 2010. [99]. As such, the State could make good its defence relying on the statutory time limits. [99]–[100].
In the event, the appeal was dismissed with costs. [102].
M Paterson