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Saleh & Anor v Romanous & Anor [2010] NSWCA 274

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Saleh & Anor v Romanous & Anor [2010] NSWCA 274

by Paul Tuohy November 16, 2010 Categories: Cases Keywords: collateral contracts, contracts, Conveyancing Act 1919 (NSW), equity, pre-contractual promises, promissory estoppel, s 55(2A) New South Wales Court of Appeal | Giles JA, Handley AJA, Sackville AJA | 28 October 2010 Link to Judgment

What this case is about

Issues

Equity Whether the vendors of a property Contracts were estopped in equity from Promissory estoppel enforcing the contract of sale Collateral contracts because of a pre-contractual Pre-contractual promises promise. Entire contract rule Whether the purchasers gave Parol evidence rule consideration for the promise by Orders for the return of deposits entering into the contract of sale, Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) thereby 164 giving CLR rise 387 to a collateral Hoyt's Pty Ltd v Spencer [1919] HCA 64; (1919) 27 CLR contract. 133 Conveyancing Act 1919 (NSW), s 55(2A) Whether the purchasers were entitled to rescind the contract of sale and recover the deposit by virtue of the collateral contract. Whether the collateral contract was unenforceable because it was inconsistent with the contract of sale. Whether promissory estoppel was also unavailable because the Facts promise was inconsistent with the terms of the contract of sale. A married couple (the vendors) owned a property. The husbands brother (thethe brother ) owned the Whether purchasers were property next door. entitled to recover the deposit under s 55(2A) of the The vendors and the brother obtained development consent to build a townhouse complex on the two Conveyancing Act 1919 (NSW). properties. The vendors then sold their property to the purchasers, who intended to join with the brother
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Saleh & Anor v Romanous & Anor [2010] NSWCA 274

in developing the two properties in accordance with the development consent. The contract price for the vendors property reflected the propertys value as developed.
In negotiating the development, the purchasers did not deal directly with the brother. They dealt only with the male vendor, who represented himself as the brothers agent. The contract of sale stated that it constituted the entire agreement between the parties. Also, it was not conditional on the formation of a joint venture agreement between the purchasers and the brother or otherwise allowed the purchasers to rescind if the brother decided not to participate in the proposed development. However, before the contract of sale was exchanged, the male vendor allegedly told the purchasers that he was taking responsibility for [the brother]. If [the brother] doesnt want to build you dont have to buy and youll get your money back. The purchasers failed to secure an agreement with the brother for the proposed development and purported to rescind the contract of sale. They then commenced proceedings against the vendors in the NSW Supreme Court for an order that the vendors repay the deposit and certain other moneys. The Supreme Court (Romanous v Saleh [2009] NSWSC 1166) gave judgment for the purchasers, holding that:

1. the male vendor made the pre-contractual statement that, if the brother didnt want to build, the purchasers could
withdraw from the sale and recover the deposit;

2. the statement induced the purchasers to enter into the contract of sale; and 3. the purchasers failure to secure a joint venture agreement with the brother activated a promissory estoppel, based
on the statement, which prevented the vendors from enforcing the contract of sale and retaining the deposit and other moneys.

The purchasers had also sought damages for breach of a collateral contract, the contract consisting of the male vendors pre-contractual statement and the purchasers entry into the contract of sale in consideration for the statement. However, the trial Judge rejected the collateral contract claim on the authority of Hoyts Pty Ltd v Spencer [1919] HCA 64; (1919) 27 CLR 133, which states that a collateral contract cannot be inconsistent with the main contract. The collateral contract effectively made completion of the contract of sale conditional on the formation of a joint venture agreement between the purchasers and the brother, but the contract of sale itself was not conditional. The vendors appealed against the trial Judges decision to the NSW Court of Appeal.

Decision
The Court of Appeal (Handley AJA delivering the leading judgment) dismissed the vendors appeal.

Reasons
First, Handley AJA dismissed the vendors appeal against the factual finding that the male vendor made the pre-contractual statement. His Honour said that there was substantial evidentiary support for the trial Judges finding. Secondly, his Honour rejected the vendors contention that the parol-evidence and entire-contract rules prevented the receipt of extrinsic evidence to establish a pre-contractual estoppel by convention or promissory estoppel. His Honour said that common-law estoppel by convention, promissory estoppel and other equitable restraints on the enforcement of contractual rights trump the legal rules about parol evidence and entire contracts. His Honour also rejected the contention that if the pre-contractual statement could not be enforced as a collateral contract on the grounds of inconsistency, it could not be enforced as a promissory estoppel either. While agreeing with the trial Judge that the purchasers collateral contract claim fell foul of
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Saleh & Anor v Romanous & Anor [2010] NSWCA 274

Hoyts case, his Honour noted that the authorities, most notably Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387, establish that pre-contractual promissory estoppel is a ground on which equity will protect one contracting party from inequitable conduct by the other. Having said that, Handley AJA held that the relief available for a promissory estoppel was not the same as that available for breach of a collateral contract. A promissory estoppel is a restraint on the enforcement of rights; it is negative in substance. Therefore, the trial Judge had erred in holding that the purchasers were entitled to rescind the contract of sale and recover the deposit on that basis. Instead, the estoppel operated to prevent the vendors enforcing the contract of sale. The deposit, then, was not recoverable pursuant to a rescission, but pursuant to s 55(2A) of the Conveyancing Act 1919 (NSW). Under the second limb of s 55(2A), proceedings for the return of a deposit had been brought and, therefore, the courts wide discretion to order repayment of the deposit was enlivened. In the circumstances, it was just and equitable to deprive the vendors of the deposit and to make an order under the section.

Editorial comment
This is an instructive appellate decision about a pre-contractual promise that induced the promisees to enter into the contract in question. The male vendors statement was not a representation as such as Handley AJA put it, a re-presentation of existing facts but a promise about a future matter. Therefore, the equitable doctrine of promissory estoppel was attracted and the parol-evidence and entirecontract rules, which may have struck down a claim based on, say, fraudulent or negligent representation, were trumped and did not apply. As Handley AJA noted, the Waltons Stores case and other Australian decisions establish that promissory estoppel can apply to pre-contractual promises. The collateral contract point was also interesting. Arguably, the vendors had made a promise and the purchasers paid for that promise by entering into the contract of sale. However, a collateral contract supplements the main contract and, therefore, cannot contradict it. That is, if a person gives a promise to obtain the benefit of a contract, then they have paid for, and are entitled to, the benefit of the contract according to its terms. Therefore, a collateral contract is not enforceable if it effectively deprives the promisor of what they have paid for. Here, the vendors obtained an unconditional contract. However, the collateral contract presumed to make the main contract conditional on the joint venture agreement with the brother. Therefore, it was unenforceable. Of course, if the purchasers had insisted on: (1) dealing directly with the brother instead of the male vendor; and (2) making the contract of sale conditional on a joint venture agreement or the purchase of the brothers property, this complex, lengthy and expensive litigation may well have been avoided. The case makes for interesting law, but I dare say thats cold comfort to the parties. Share and Enjoy:

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