Plaintiff v Firstnamed Defendant

Supreme Court of Victoria|2010-02-23|Before: EMERTON J

ESTOPPEL - Conventional estoppel - Equitable estoppel - Whether mortgagee estopped from denying consent to a lease - Transfer of Land Act 1958 (Vic) ss 77(4)(b), 42(2)(e)

For the Plaintiff in proceeding 4775 of 2009 and the Defendants in proceeding 4491 of 2009 (Apollo parties)

For the Firstnamed Defendant in proceeding 4775 of 2009

For the Secondnamed Defendant in proceeding 4775 of 2009 and the Plaintiff in proceeding 4491 of 2009

For the Thirdnamed Defendant in proceeding 4775 of 2009

1 By further amended statement of claim filed on 7 December 2009, the plaintiff seeks declarations against the first and second defendants arising from its leasehold interest in land at 169 Great Ocean Road, Apollo Bay. It also seeks remedies against the second defendant on the grounds that the second defendant has engaged in misleading and deceptive conduct in breach of s 52 of the Trade Practices Act 1975 (Cth) and damages under s 82 and/or s 87 or, alternatively, equitable damages.

2 In the course of final submissions, the counsel for the plaintiff informed the court that the plaintiff could no longer maintain its claim against the first defendant. Accordingly, I made an order dismissing the plaintiff's claim against the first defendant. However, the plaintiff maintains the claims against the second defendant pleaded in the further amended statement of claim.

3 In the interests of expedition, I acceded to an application by the plaintiff under Rule 47.04 of the Supreme Court (General Civil Procedure) Rules 2005 to try part of the proceeding separately. On 11 December 2009, I ordered that the question of liability be tried separately from the question of damages. For the reasons that follow, it is now unnecessary to consider and decide questions of damage.

4 This judgment deals with the question of the liability of the second defendant arising from the matters pleaded against it in the further amended statement of claim. I have concluded that the second defendant did not make the representations or adopt or cause to be adopted assumptions having the effect alleged, and did not engage in misleading and deceptive conduct in breach of the Trade Practices Act 1975 (Cth). Accordingly, the plaintiff is not entitled to the relief that it seeks and the proceeding against the second defendant must be dismissed.

5 The owner of the land in which the plaintiff claims a leasehold interest is Apollo Resort Pty Ltd ("Apollo Resort"). The land in question is the land described in Certificate of Title Volume 10971 Folio 148 (known as 169 Great Ocean Road, Apollo Bay) ("the land"). Apollo Resort has been the registered proprietor of the land since 4 October 2006. The first and second defendants are mortgagees of the land.

6 On 15 December 2008, the first defendant obtained judgment for possession of the mortgaged land. In parallel proceedings, the second defendant now also seeks judgment for possession of the mortgaged land (proceeding No. 4491 of 2009).

7 The plaintiff claims to have a leasehold interest in part of the land, referred to as "Lot 15". Lot 15 comprises a swimming pool, a gymnasium, an outdoor deck, a lift, a lounge, a conference room, a bar, a reception area, a cleaner's storeroom, a maintenance room and ten car parking bays. Lot 15 forms part of a complex comprising 14 'dual key' apartments, which Apollo Resort intends to be sold to investors to be made available for holiday letting as part of 'motel' or 'resort style' accommodation managed by the plaintiff. Lots 1 to 15 are set out in a plan of subdivision (No. 548141A), which has apparently been certified by the local council for the purposes of the Subdivision Act 1988 (Vic), but has not been registered and separate titles have not been issued.

8 On 31 March 2008, the plaintiff entered into a lease for Lot 15 with Apollo Resort for a period of 10 years ("the lease"). It also entered into what is described as an "exclusive leasing and management authority" by which Apollo Resort appointed the plaintiff exclusively as manager and letting manager of the apartments. This agreement is expressed to have commenced on 1 November 2007. It is a long term arrangement, terminating on 31 March 2018, with an option for three further terms of five years each.

9 Apart from the mortgagees, all of the companies involved in the arrangements that are the subject of this proceeding are controlled by the developer, Mario Charisiou. Mr Charisiou is the sole director of the plaintiff and Apollo Resort. He is also a director of Christos Charisiou Building Group Pty Ltd, the builder of the development, and August (Vic) Pty Ltd, which is the vehicle used by Mr Charisiou to provide initial resources to development companies, such as Apollo Resort, that he establishes on a project by project basis to undertake particular developments. At all material times, August (Vic) Pty Ltd was the sole shareholder of Apollo Resort and the plaintiff.

10 The plaintiff alleges that the second defendant knew and approved of the fact that Apollo Resort (or a related entity or an entity nominated by Apollo Resort) intended to enter into a lease on the same or similar terms to the lease. It alleges that the second defendant represented to Apollo Resort and the plaintiff that it approved of and consented to Apollo Resort's intention to enter into a lease. Acting on the faith of these representations, Apollo Resort and/or the plaintiff expended over a million dollars on infrastructure for Lot 15 and throughout the development.

11 The plaintiff also contends that by reason of a number of communications, Apollo Resort - by itself and by its privy, the plaintiff - and the second defendant intended and assumed that -

(a) Apollo Resort would locate a qualified operator for the resort;

(b) the purchaser of each unit would grant the operator exclusive management and leasing rights in respect of each units; and

(c) a lease between Apollo Resort and the operator of Lot 15 would be entered into.

12 As a result, the plaintiff says that its leasehold interest is binding upon the second defendant as mortgagee and that the second defendant is estopped from -

• denying that it has approved and/or consented to the lease or, alternatively, a lease; or

• contending that it is lawfully able to convey the land to a purchaser otherwise than subject to the plaintiff's leasehold interests; or

• acting inconsistently with representations that are alleged to have been made.

13 The plaintiff says that its leasehold interest is binding on the second defendant as mortgagee by reason of the operation of s 77(4)(b) or, alternatively, s 42(2)(e), of the Transfer of Land Act 1958 (Vic).

14 Finally, the plaintiff contends that the conduct of the second defendant referred to was conduct in trade and commerce that was misleading or deceptive or likely to mislead or deceive in contravention of s 52 of the Trade Practices Act 1974 (Cth) and s 9 of the Fair Trading Act 1999 (Vic) and that the plaintiff is entitled to damages.

The understanding between Apollo Resort, the plaintiff and the second defendant

15 The relationship between Mr Charisiou and the second defendant commenced in late 2005, when the finance broker used by Mr Charisiou, Mr Stephen Sherman of CIC Financial Services Pty Ltd, approached the second defendant on behalf of Apollo Resort to raise finance for the development. The purchase of the land had been funded by a loan from AMP Bank. However, AMP Bank did not provide development finance. The proposal prepared by Mr Sherman sought approval for a $5.425M facility to assist to refinance the purchase of the land and to enable the construction of 14 residential units, 27 car parking spaces, and a conference centre, gymnasium and pool. The proposal stated that the pre-sale of seven units at an average price of $500,000 would reduce the proposed borrowings to about $2M.

16 A planning permit for the land had been obtained on 22 August 2005 for the use and development of 14 units, related conference and recreational facilities, and associated car parking in accordance with endorsed plans. The permit conditions refer to the use of the conference facilities and the need for the operator of the conference facility to keep a register of all attendees at conferences.

17 On 21 November 2005, Mr David Veal of the second defendant sent an email to Mr Sherman which commented that the funding application appeared to be "a solid application". He asked the following two questions:

Who is going to operate the conference centre?

Who is going to own the swimming pool?

18 On 2 December 2005, Mr Sherman wrote to the second defendant, apparently attaching a detailed package of financial information to support the formal approval process for the development. The letter stated that the client estimated that an initial $150,000 had been "expensed" on the project to that time.

19 On 21 December 2005, Mr Veal on behalf of the second defendant sent to Mr Sherman a letter entitled "Schedule of Indicative Terms and Conditions" which referred to the provision of finance to construct 14 units plus a conference centre on the land. The estimated loan amount would be 70% of valuation to a maximum amount of $5,426,928 inclusive of capitalised interest. The term of the loan was to be 18 months "estimated including 15 month construction period" and the security was to be a registered first mortgage over "DA permitted freehold property situated at 169 Great Ocean Road, Apollo Bay" given by Apollo Resort, a registered mortgage debenture charge over the assets and undertakings of Apollo Resort, unlimited guarantees from Christos Charisiou Building Group Pty Ltd, all directors and shareholders and a tripartite agreement between the second defendant, Apollo Resort and the builder of the project. Approval would be subject to a satisfactory valuation report and a report by a quantity surveyor. Prior to land settlement, the mortgagor would be required to provide evidence of not less than seven pre-sales with a value of not less than $3,430,000 on which a deposit of 10% had been paid. (PCB 16)

20 On 22 December 2005, Charter Keck Cramer provided a valuation report for the proposed development to the second defendant. Under the heading "Development Proposal", the valuation notes that in accordance with town planning approval, the site is to be redeveloped as a three-level apartment building containing 14 units, a conference room, gymnasium, external plunge pool and part-basement car park. It then states:

Discussions with the applicant's interests indicate that upon completion the property will be run as a resort-style operation, an operator is to be appointed to run this business. To our knowledge, this phase of the business plan has not been finalised, although it is likely that owners of the freehold apartment titles will participate in a share of pooled revenue. Our valuation is subject to there being no long term or adverse tenancy arrangements.

Discussions with the applicant interests, indicate that upon completion the property is to be operated as a resort style facility, with a permanent operator to be appointed. At the time of this assessment, to our knowledge no arrangements have been made in this regard, we understand the likely arrangement is to be a pooled revenue scenario whereby each freehold title owner receives a share. Our assessment is made on this basis and specifically excludes long term lease back arrangements. The long term lease over the apartment would affect value, should you become aware of any leaseback arrangements in this regard, we recommend this report be referred back to us for further comment.

22 Further into the valuation, under the heading "Value Upon Completion/Gross Realisation" the conference area was assessed as having a value of $110,000 (equivalent to just under $2,000 per square metre). The valuation states:

To assess this conference room on a commercial basis whereby a fair and maintainable net rental is capitalised at a market rate, we would require detailed knowledge of the proposed management structure of the resort and a business plan projecting revenues and/or a lease to be in place.

23 The valuation was therefore given recognising that there was uncertainty as to the management structure for the resort. It assumed that there would be "no long term or adverse tenancy arrangements", which I take to refer principally to units 1 to 14, given the lower valuation given to Lot 15.

24 In late January and early February of 2006, Apollo Resort as vendor entered into contracts for the sale of some of the units with a variety of purchasers. These contracts included a clause entitled "Exclusive Leasing and Managing Authority" in which the purchaser acknowledged and agreed that the relevant property was part of a complex intended to be run as a commercial accommodation business and agreed to grant "the Manager" exclusive management and leasing rights for the property and to give the vendor a signed and completed original "Exclusive Leasing and Management Authority" in favour of the Manager in the form set out in Annexure C. This would operate from settlement for a term of five years with options to renew for a further two periods of five years each. The "Manager" is defined as the vendor or any third party that the vendor nominates prior to settlement. In the particular example that was tendered in evidence (for Unit 1), the exclusive leasing and management authority has not been completed. Important details in the agent's schedule, including the leasing fee, the re-leasing fee and the management fee, have been left blank.

25 On 3 February 2006, Mr Veal wrote to Mr Sherman seeking clarification of a number of matters. Among the questions asked were the following:

Has there been an experienced conference centre operator appointed? Please give details of progress to date, including how Apollo Resort intends to locate a properly qualified operator. If one has been appointed, can you provide details of experience?

26 In response, by letter dated 9 February 2006, Mr Sherman advised as follows:

As mentioned previously, the client has not appointed an operator to manage the conference centre. He is not planning to commence this process until the project is nearing completion. The success of the development is not hinging the conference centre. It only represents a very small area of the overall project, which is expected to add value to the property in the medium to long term.

As stated previously, client realistically has the option to convert the conference centre to a unit, if the conference centre concept does not attract sufficient interest/return.

...

On the basis the conference centre has not been given a value, we believe that clients [sic] preference to defer appointment of the conference operator until project is completed, possesses a minimal risk in the overall scheme of the project proposed.

In respect to locating and appointing a qualified operator for the conference centre, client would employ a suitable [sic] qualified Melbourne firm to advertise and negotiate a lease arrangement.

27 Under the heading "Valuation", Mr Sherman also said:

Is [sic] should be noted that the valuation report has not taken into calculation the potential value of the conference centre given the client has not appointed an operator, so again the report must be deemed conservative.

In the circumstances where the client opted to retain all units and operate the completed project as say a resort/conference accommodation, then clearly the valuation would need to be undertaken on a different basis, as there would be a need for some form of management agreement, et cetera between the owner and operator. However, in this instance the client is not proposing such an arrangement. This was also commented on by the valuer in his report.

Similar to his previous development in Northcote, which was of a similar size (16 units and a ground office), client will complete development, settle the pre-sales and restructure the residual debt pending any further unit sales and move on the next possible development. Simply, he is a builder/developer, not a resort operator.

28 In response, the second defendant prepared a 'Development and Construction Commercial Loan Summary'. The version tendered in court is dated 4 August 2006. However, it is an amended version of a summary plainly prepared in respect of what is described as the "previously approved application dated 19 April 2006". The original summary still forms an identifiable part of the document. The 'loan snapshot' notes that the loan amount is $5,097,450. In relation to Lot 15, the summary says:

An added bonus in the design is the inclusion of a conference room. This may assist in multiple bookings, or could just as easily be used as a theatre. Income will be apportioned to the unit holders. Whilst there will be a nominal cost for body corporate fees for the maintenance of the conference facilities, this is not seen as impacting on the marketability of the property.

The client has not yet appointed an operator to manage the conference room and is not planning to commence this process until the project is nearing completion. The room only represents a very small area of the overall project, which is expected to add value to the property in the medium to long term. We believe the clients [sic] preference to defer the appointment of the conference operator until project is completed poses a minimal risk in the overall scheme of the project proposed. In respect of locating and appointment a qualified operator for the conference room, client would employ a suitable [sic] qualified Melbourne firm to advertise and negotiate a lease arrangement. We have deducted the valuation assigned to the conference room by the valuer ($110K) from our security figure.

29 On 6 March 2006, the second defendant sent to Apollo Resort an offer for finance. The amount that the second defendant stated it was prepared to lend on the security offered was $5,097,450. This included interest capitalisation of $375,000 and a fixed price building contract (excluding GST) of $3.9M. This document made no mention of any leasing or management arrangements in relation to Lot 15 or the 14 units generally.

30 On 28 April 2006 a further offer for finance was sent by the second defendant to Apollo Resort. This document is in largely the same form as the offer of 6 March. It contains amendments to the amounts to be derived from pre-sales that are not presently important. Mario Charisiou, on behalf of Apollo Resort, and Christos Charisiou Building Group Pty Ltd, signed an acceptance certificate of offer of finance and enclosed a cheque for $54,454.50 for the application fee (or part thereof).

31 On 14 July 2006, an email was forwarded to Mr Sherman by Mr Veal regarding items required prior to funds being advanced for construction. The second defendant requested copies of the seven unconditional pre-sale contracts totalling not less than $3.5M evidencing that 10% deposit moneys had been paid.

32 Mr Charisiou and Mr Sherman both gave evidence for the plaintiff about meetings they had with representatives of the second defendant during the period leading up to the creation of the mortgage and the first drawdown of the loan.

33 Mr Charisiou met with Mr Veal and a Mr Dean Holwill of the second defendant after the second defendant had forwarded the letter of offer to Apollo Resort in early March 2006. Mr Charisiou explained that he had already built serviced apartments in Apollo Bay and that the project in question was an extension of that model involving development of 'dual key' motel accommodation and the sale of the units under an investment scheme which would be managed by a company that would occupy and operate out of the conference area in Lot 15. Mr Charisiou said that they discussed that there would be an operator "at the front" that would lease Lot 15 and his intention was most likely to keep the balance of the units after the pre-sale. Mr Charisiou gave evidence that he described the leasing arrangement to Messrs Veal and Holwill as follows:

That the management company that will manage the apartments once the sale of the apartments, each individual owner will enter into an arrangement with the management company. That management company to be able to operate and do that job require premises which will be leasing the front section to be able to - to run its business and to manage those 14 apartments out of the Lot 15 front section.

Our discussion was in regards to the operation to the front that it had to be side by side with the management agreement with the lot owners, because without the lot owners having management you couldn't have the business at the front, and if you didn't have the business at the front you couldn't manage the accommodation, and that's what we discussed.

34 Mr Charisiou was then asked whether there was any objection from Mr Veal of Mr Holwill to his proposal that there would be a leasing arrangement with an operator involving Lot 15 or "the front section". He answered, "Not at all".

35 However, Mr Charisiou agreed that there was no discussion about the terms of the lease.

36 On 8 August 2006, the second defendant made a variation to offer for finance to Apollo Resort to include a special condition in relation to pre-sales. This offer was accepted by Apollo Resort and Mario Charisiou in writing on 18 August 2006. The offer was further varied by variation to offer for finance dated 13 October 2006, which was accepted by Apollo Resort and Mario Charisiou on 19 October 2006.

37 On 25 October 2006, Apollo Resort granted to the second defendant mortgage No. AE02111W (Volume 10971 Folio 148) along with a debenture charge, and a builder's side deed was entered into between the second defendant, Apollo Resort and Christos Charisiou Building Group Pty Ltd. Further, a guarantee was given by Mario Charisiou and Christos Charisiou Building Group Pty Ltd.

38 The mortgage incorporates a Memorandum of Common Provisions. The Memorandum of Common Provisions (retained by the Victorian Registrar of Titles as No. AA953) contains two provisions relevant to leasehold arrangements for the property. Clause 5, entitled "Your general obligations" says:

(e) (No dealing) not:

(v) give anyone a lease or similar right over the property (except for a lease of a year or less);

(vi) give anyone any other interest in, right over, or use of the property;

unless we first give our written consent. If in accordance with this clause you grant a lease of the property or grant a similar right, the provisions of part A of schedule 1 apply.

39 Schedule 1 concerns leases. Part A reads as follows:

If you grant a lease of the property or grant a similar right, the following provisions apply.

(a) That lease or other right and the right to receive any rent or other money payable under it will be subject to this mortgage.

(b) You must use reasonable efforts to make sure the lessee or other party complies with the lease or other agreement.

(c) If we ask you to, you must direct your lessees to pay the rent or other amounts to us.

(d) If you are in default we may give notice to the lessee or other person requiring the rent or other money to be paid to us directly.

(e) You must not extend, renew or end the lease or other agreement, or agree to the terms being changed, or consent to any assignment, sub-lease, licence or other right or interest to be granted by the lessee under the lease unless you have our prior written consent.

(f) You must give to us as soon as it asks you to, a copy of any lease or other agreement which creates the lease or other right.

40 On 17 August 2006, Mr Charisiou, a guarantor in his personal capacity and in his capacity as the sole director and sole company secretary of Christos Charisiou Building Group Pty Ltd, had signed a certificate to the effect that he had received explanations about the general nature and effect of the guarantee documents and the obligations and risks involved in signing those documents.

41 On that same day, Mr Charisiou, as director of Apollo Resort, had also made a statutory declaration for the benefit of the second defendant, which included the following statements:

The company has not created nor is the company aware of any unregistered or equitable interest in the property by Deed, Licences, Lease or in any other manner, written or otherwise.

The company has not sold, agreed to sell, offered for sale nor granted any option over the property or any part thereof and will not do so without first obtaining written consent from the Financier. The Company is not aware of the property being polluted or being contaminated with any substance in breach of any of the environmental legislation.

42 Pursuant to the builder's side deed dated 25 October 2006, the builder, Christos Charisiou Building Group Pty Ltd, covenanted with the second defendant that it would not vary the works to the value of more than $20,000 in respect of any one variation or more than $50,000 in aggregate in respect of more than one variation, without the prior written consent of the defendant (clause 2.1(d)).

43 On 2 August 2006, Apollo Resort had also received an offer of a second mortgage facility from the first defendant, Pinefield Nominees Pty Ltd. The loan principal was initially $200,000 and the loan was for a period of 15 months. In February 2007, the amount of the loan was varied to $400,000 repayable on 14 February 2008. This loan (the "Pinefield loan") was secured by a mortgage dated 25 October 2006 as varied by a variation of mortgage dated 14 February 2007 (the "Pinefield mortgage"). Like the mortgage given to the second defendant, the memorandum of common provisions for the Pinefield mortgage prohibits the creation of a lease without the written consent of the mortgagee.

44 On 27 October 2006 the second defendant confirmed that a drawdown amount of $369,012.50 was paid to the account of Christos Charisiou Building Group Pty Ltd. Further drawdowns were made throughout 2007, as the construction of the development progressed.

45 Mr Charisiou gave evidence about a meeting with David Veal in late October 2006, at about the time that construction commenced. He described this meeting as a "get together" based on the fact that the finance had gone through and the project was under way. Mr Charisiou said that he reassured Mr Veal that he was still going down the path of seeking an operator for the conference area "and just going through the process". He described a further meeting with Mr Veal in early 2007 when Mr Veal visited Apollo Bay to check progress on the site. When asked whether there was any discussion about looking for an operator for the site, Mr Charisiou replied:

I mean that was always the main discussion, the operator and the business model and how it was progressing and how and whether we were looking at selling further lots of the balance of the apartments and just reconfirm that we're progressing with the fit-out to accommodate the management company to each apartment being fitted out as a dual key, yes.

46 At that meeting, Mr Veal informed Mr Charisiou that he was leaving the second defendant's employ.

47 Mr Charisiou gave evidence that he had a number of meetings with Mr Veal's replacement, Ms Gabriela Pivato. He said that he first met her around May 2007. He walked her through the building site and explained to her how the 'dual key' arrangements would work. He explained that the front area (Lot 15) was going to be operated as a conference and reservation centre by a management company. He explained that the resort would be managed by the operator "at the front" and that the operator would be taking a lease. Ms Pivato asked him whether he was going to operate it himself and he said, "Well, at the moment we're going down the path of fitting Lot 15 out in anticipation of a separate operator, but we will decide further down [the track]".

48 It seems that the development did not progress as planned. Amongst other things, there were problems obtaining approval for the plan of subdivision, which prevented the registration of the plan of subdivision, the issuing of separate titles for the units and completion of the pre-sale agreements. This, in turn, led to delays in the reduction of the loan balance. There were other delays arising from planning and building approval requirements.[1]

49 In early 2008, Mr Charisiou sought to obtain further funds from the second defendant to complete the works on Lot 15. Ms Pivato told him he should make a proper application. However, when she got back to him she said that the second defendant would not advance any more money. According to Mr Charisiou, he was told that this was because the second defendant would not be able to realise sufficient value on the property on sale "because of the commercial element to it".

50 Nonetheless, Mr Charisiou felt it was necessary to complete the front part of the development (Lot 15), so "we made a commitment to just take the management ourselves, the lot, conference area and start injecting funds into that ourselves".

51 The plaintiff had been incorporated on 22 October 2007. In March 2008, Mr Charisiou caused a lease to be drawn up between the plaintiff and Apollo Resort for Lot 15, which he signed on behalf of both parties.

52 On 20 March 2008, the plaintiff obtained a business valuation report from Landlink Property Group Pty Ltd in order to assist with a funding application to the Bank of Western Australia ("BankWest"). The purpose of the business valuation was to assess the market value of the plaintiff's leasehold interest for mortgage security purposes. To this end, Landlink reviewed a lease it had been given between the plaintiff and Apollo Resort and draft budget projections for the development, along with Units 5, 10 and 15, Thompson Street and Units 1 and 2, 56 Pascoe Street, Apollo Bay.

53 The Landlink valuation describes the lease which the plaintiff provided to it. Lot 15 is described as comprising a convention room, breakout areas with associated amenities, a sundeck and pool area, a reception/office area and two smaller areas to accommodate a gymnasium. The rent is $125,000 per annum, with tenant installations given as "nil". The valuation observes that the leasing of Lot 15 enables the plaintiff to conduct its conference and restaurant business as well as provide office accommodation for the day-to-day management of the resort.

54 This is not the lease for which the plaintiff ultimately sought the second defendant's consent in October 2008. Indeed, the evidence reveals three leases between Apollo Resort and the plaintiff for Lot 15 -

(a) The first was a lease between Apollo Resort and the plaintiff signed by Mr Charisiou on behalf of each of the parties and undated, which specifies the rent as $200,000 per annum and the tenant's installations as "nil".

(b) The second is the lease referred to in the Landlink valuation with an annual rental of $125,000 and tenant's installations specified as "nil". The copy of this lease tendered as evidence had the figure of $200,000 crossed out and the new figure of $125,000 written in by hand along with the words "now as per advice from Mario".

(c) The third is the lease to which the second defendant was asked to consent. It shows an annual rental of $25,000, and tenant's installations as "all fit out items installed in the Premises after the lease commencement date." This version of the lease is not signed.

55 In his evidence, Mr Charisiou said that he, on behalf of both Apollo Resort and the plaintiff, initially set the rental of $200,000 per annum. The rent was ultimately reduced to $25,000 per annum, having previously been reduced to $125,000 per annum. Mr Charisiou explained that the first reduction (from $200,000 to $125,000) occurred because the income from a proposed day-spa in Lot 15 would no longer be forthcoming. Mr Charisiou's explanation for the subsequent (significant) rent reduction and the amendment to the tenant's fixtures was that the tenant (the plaintiff) had decided to do all the works on Lot 15. None of these reasons were communicated to the second defendant.

56 Mr Charisiou agreed that the amount of rent was a matter for him, as he controlled both Apollo Resort and the plaintiff and that it was fairly easy for him to decide to change the terms of a lease between those two companies. He was asked, "So it wasn't difficult for you to change it, for example, from $125,000 with nil tenant's fixtures to $25,000 with lots of tenant's fixtures?" He answered, "That's correct, yes."

57 Mr Charisiou that he believed that the first of the leases may have been provided to the second defendant by his manager, Mr Truong. An email from Mr Truong to Ms Pivato dated 28 February 2008 with the subject-matter "Commercial Lease and a PDF attachment titled "Commercial Lease" was tendered in evidence. Mr Charisiou said that the first time the second defendant was shown the version of the lease that it was asked to consent to (showing annual rent of $25,000) was after a meeting with Mr Lenehan of the second defendant in late October 2008.

58 The signing of the lease (in its first incarnation) in March 2008 coincided with financial difficulties experienced by the Apollo companies and Mr Charisiou. As discussed, Mr Charisiou had asked Ms Pivato for further funding to complete Lot 15, that request had been refused and Mr Charisiou had started to explore the possibility of obtaining further funding through BankWest. The loan account for Apollo Resort shows that the half-yearly interest instalment for the period up to and including 31 March 2008 was $228,000, but the amount available in the capitalised account was only $185,000, a shortfall of $43,872, which Apollo Resort was going to have to find elsewhere. Mr Charisiou agreed in cross-examination that he did not have the money to pay the shortfall. As a result, he took the amount of $43,872 from construction funds.

59 Mr Charisiou gave evidence that by May 2008, the loan facility had been drawn down to the total amount of $5,097,450. On 30 September 2008, interest of $293,627 was due. Capitalised interest had been exhausted earlier in the year and there were no more funds in the facility to pay interest. Apollo Resort was unable to pay the amount of $293,627 when it became due. Apollo Resort was in default under the loan agreement with the second defendant by 30 September 2008.

60 Apollo Resort was also in default under the Pinefield loan. On 12 September 2008, the first defendant served on Apollo Resort a notice of demand for repayment of the Pinefield loan.

61 Mr Charisiou met with Mr Sherman and Mr Lenehan and Ms Pivato of the second defendant on 24 October 2008. At that time, he believed subdivision approval was imminent, which would enable him to lodge the plans with the Titles Office and obtain registration of the plan of subdivision. It was just a matter of two things - execution of the agreement required to be made under s 173 of the Planning and Environment Act 1987 (Vic) by the first defendant (the second mortgagee) and the payment of the open space contribution of $42,000 to council.

62 Mr Charisiou gave evidence that at the meeting on 24 October 2008, Ms Pivato and Mr Lenehan asked a lot of questions. They wanted to know whether the council had issued a certificate of compliance for the development, whether the open space contribution had been paid, whether the section 173 agreement had been completed, whether council had approved the plan of subdivision and when it would be lodged. Furthermore, they wanted to know about the proposed refinancing of the debt by BankWest and what the situation was with both the second and third mortgagees. They said that they had "a bit of an issue" about lack of communication regarding the current status of the project.

63 Mr Charisiou told Ms Pivato and Mr Lenehan that BankWest would provide "take out finance" by the end of November, that while he did not have formal approval from BankWest, he expected it within two or three days. He also told them he was in discussion with an investor group to buy the remaining seven units and if that occurred, he would not require the BankWest finance. He told them the plan of subdivision had been approved by council, but that he had made a last minute change which was due to be approved by the council the following Wednesday. The public space levy of $42,000 had not been paid but he did have the funds to pay it. He told them that all seven purchasers of the pre-sold units were still ready to settle as soon as the titles were issued and that the second mortgagee was going to be paid out by the third mortgagee. He said that a lot of the delays had been caused by other people. In this context, he told them that there was a lease of Lot 15 which he was going to send that day to the second defendant's lawyers for the second defendant to consent to.

64 The second defendant has not given written consent to the lease.

65 By a Notice to Pay dated 26 November 2008, the second defendant demanded from Apollo Resort for the sum of $294,627.08 plus penalty interest and legal costs. Apollo Resort has not complied with this demand. On 22 January 2009, the second defendant commenced proceedings in this Court seeking an order for possession of the mortgaged land.

66 In cross-examination, Mr Charisiou confirmed that the plan of subdivision has still not been registered, titles have not issued and none of the pre-sale contracts have been completed. Apollo Resort remains in default under the loan agreement.

67 In relation to detriment, as well as loss and damage, the plaintiff says that prior to the registration of the plaintiff, Mario Charisiou entered into an agreement with August (Vic) on behalf of the plaintiff that upon its incorporation the plaintiff would become liable to August (Vic) for the costs incurred and to be incurred for the fit-out of the 14 units and Lot 15 of the development project and would pay to August (Vic) those costs upon completion and sale of the 14 units. It is alleged that August (Vic) incurred expenditure totalling approximately $905,000 on behalf of the plaintiff both prior to and after its registration. The expenditure was for fit-out costs for the 14 residential units and for Lot 15.

68 Limited evidence was put before the Court in relation to these expenditures. The documentary evidence comprised a purchase order on the letterhead of "Christos Building Group" dated 25 November 2007 signed on behalf of the plaintiff as "client" and four tax invoices relating to the purchase order dated 25 November 2007, 7 December 2007, 2 February 2008 and 25 April 2008 from Christos Building Group to the plaintiff for progress payments in amounts totalling $585,000. The purchase order describes the works as "Stage 2 fit out" to the conference centre and associated areas and gymnasium. There is also a certificate of currency for home and contents insurance for apartments 1-14 for the period of twelve months commencing on 28 February 2008. The insured are named as the plaintiff, Apollo Resort and August (Vic) Pty Ltd, and the sum insured is $520,000. Mr Charisiou gave evidence that the purchase of furniture for the units had been funded though an arrangement with a finance company.

69 Mr Charisiou gave evidence that he was not involved in the preparation of the purchase order or invoices and he could not say who had made the payments referred to in the invoices. He initialled the invoices as "paid" on the basis that he was told by his staff that they had been processed. His evidence was also that the plaintiff took on the responsibility for the Stage 2 fit out well before it entered into the lease with Apollo Resort.

70 The plaintiff contends that its leasehold interest in Lot 15 is binding on the second defendant as mortgagee by reason of s 77(4)(b) and 42(2)(e) of the Transfer of Land Act.

71 Section 77 concerns the power of sale under a mortgage or charge. Section 77(4) relevantly provides that upon registration of any transfer by a mortgagee under a power of sale, all of the estate of the mortgagor vests in the purchaser freed and discharged from all liability from any mortgage, charge or encumbrance recorded in the Register subsequent to the mortgage except -

(a) a lease easement or restrictive covenant to which the mortgagee ... has consented in writing or to which he is a party: or

(b) a mortgage charge easement or other right that is for any reason binding upon the mortgagee -

72 As it is common ground that no written consent was given by the second defendant to the lease, the plaintiff relies on s 77(4)(b), presumably on the basis that the lease or its leasehold interest constitutes some kind of "other right" referred to in that sub-section.

73 Section 42 of the Transfer of Land Act concerns the effect of registration on the estate of the registered proprietor. Subsection (2) provides that the land which is included in any folio of the Register or registered instrument shall be subject to -

(e) The interest (but excluding any option to purchase) of a tenant in possession of the land

74 In Commonwealth Bank of Australia v Baranyay,[2] Hayne J considered the operation of s 42(2)(e) of the Transfer of Land Act, along with s 77(4). In Baranyay, a company that was the proprietor of a property in North Melbourne mortgaged the land to the bank. The mortgage prohibited the mortgagor from leasing the property without the bank's prior written consent. Notwithstanding this prohibition, the company leased the property to the defendant. The company defaulted in its obligations to the bank under the mortgage, and the bank as mortgagee moved to sell the land and entered into a contract of sale with a purchaser. The defendant contended that the bank was estopped from denying that it gave consent to the lease and further submitted that its interest was protected by s 42(2)(e) of the Transfer of Land Act. In relation to the argument based on s 42(2)(e), his Honour said:

Independently of powers conferred by statute, a lease by a mortgagor in possession of general law land, if subsequent to the mortgage, was void against the mortgagee unless made under an express power in the mortgage deed. ... However, unlike a mortgage of general law land, a mortgage of Torrens Title land involves no transfer of the legal estate; only a charge is created over the land. Nevertheless, I consider that authority shows that the mortgagor's right to make a lease which binds the mortgagee of Torrens Title land is equally limited.[3]

75 After considering the antecedents of s 77(4), his Honour then said:

I consider that it is clear that the intent of the section [s 77(4)] is to enable a mortgagee exercising a power of sale to pass an unencumbered title to the purchaser. That being so, it follows, as Gobbo J noted in The Independent Order of Odd Fellows case, that the reference in s 42(2) to an interest of a tenant in possession of the land preserves (as against the mortgagee) interests of tenants in possession of the land at the time of the creation of the original interest of that mortgagee - not any interest of a tenant in possession at the time when the mortgagee exercises his power of sale.[4]

76 His Honour concluded that the bank, as mortgagee, was entitled to pass to a purchaser from it a title freed from subsequently created leases to which it had not consented. The title of the mortgagee prevails against the title of the lessee, the mortgagee not having consented to the lease.

77 The effect of the provisions of the Transfer of Land Act relied upon is that a mortgagee exercising a power of sale can pass title to a purchaser unencumbered by interests that did not exist at the time the mortgage interest was created. The lease or "a" lease in relation to Lot 15 did not exist when the mortgage was created in October 2006. The plaintiff was not incorporated until October 2007. Section 42(2) does not assist the plaintiff.

78 The plaintiff made no submissions on the operation of s 77(4)(b) of the Transfer of Land Act. However, nothing in s 77(4)(b) prevents an estoppel from arising where it is made out on the facts. I therefore move to consider whether the second defendant's case on estoppel is made out.

Is the second defendant prevented by its conduct from selling the land otherwise than subject to the lease?

79 The plaintiff pleads both forms of promissory estoppel and estoppel by convention against the second defendant in relation to the lease and, alternatively, "a" lease. It is pleaded that the second defendant knew and approved of Apollo Resort's intention to enter into a lease and that it represented to Apollo Resort and the plaintiff that it approved of and consented to Apollo Resort's intention to enter into a lease.[5] It is further pleaded that the second defendant knew or intended that a lease between Apollo Resort and the operator of Lot 15 would be required to be entered into.[6] According to the plaintiff, this entitles it to a declaration that the second defendant is estopped and precluded from denying that it has approved and/or consented to a lease or that it is lawfully able to convey the land or Lot 15 to a purchaser otherwise than subject to the plaintiff's leasehold interest in Lot 15.

80 In my view, there is an important difference between approving of an intention to enter into a lease and consenting to a lease. Moreover, it is not clear to me how consent could be said to be given to an intention to enter into a lease. It may well be that the second defendant approved of an intention to enter into a lease in that it shared the view that putting an operator into Lot 15 was a good business model, particularly as it had been informed by Mr Sherman that Mr Charisiou was an experienced developer, but not an experienced resort operator. Approval of an intention to enter a lease seems to me to be qualitatively different from consenting to (or "approving" as opposed to "approving of") or agreeing to consent to a lease.

81 However, the declaration sought by the plaintiff is that the second defendant is estopped from denying that it approved and/or consented to the lease or, alternatively, a lease. "Approved" in this context has the same meaning as "consented to". Even if the evidence established that the second defendant knew and approved of Apollo Resort's intention to enter into a lease and that it represented to Apollo Resort and the plaintiff that it approved of Apollo Resort's intention to enter into a lease, in my view this would not, in and of itself, support a declaration that the second defendant is estopped from denying that it approved and/or consented to the lease or a lease.

82 Likewise, the common assumptions that are pleaded in paragraphs 22B and 22C - that there would be a qualified operator for the resort and that a lease between Apollo Resort and the operator for Lot 15 would be entered into - do not, in and of themselves, support a declaration that the second defendant is estopped from denying that it approved and/or consented to the lease or a lease.

83 Despite these uncertainties in the pleadings, I propose to consider whether there was anything in the nature of the communications and dealings between the second defendant and Apollo Resort and/or the plaintiff, that would cause the second defendant to be estopped from relying on its legal rights under the mortgage and the fact that it has not given written consent to the lease. Specifically, is the second defendant estopped from denying that -

(a) it would not require written consent to be given to the lease or a lease (that is, it would forgo its right to require written consent to be given); or

(b) it would give written consent to the lease or a lease upon request?

84 Of relevance to these questions is whether the second defendant represented that or conducted itself so as to give rise to a common assumption that it had consented to or would consent to the lease, or a lease.

85 In order to found a conventional estoppel, the plaintiff must establish that:

• the plaintiff adopted an assumption as the basis of an act or omission;[7]

• the plaintiff, on the basis of that assumption, has acted or abstained from acting in a way that it will suffer a detriment if the second defendant exercises rights that are inconsistent with the assumption;[8]

• the second defendant played such a part in the adoption of, or persistence in, the assumption that it would be unfair or unjust to act otherwise than in a manner consistent with the assumption.[9]

86 Conventional estoppel, a creature of 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 for their relationship so as to hold both parties to their common understanding. The elements of promissory estoppel are very similar, although because it is an equitable rather than a common law estoppel, the focus is on the conscience of the defendant.[10] In Waltons Stores (Interstate) Ltd v Maher,[11] Mason CJ and Wilson J identified unconscionable conduct by the person against whom the estoppel is claimed as a prerequisite for equitable estoppel:

... 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". 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.[12]

87 It is necessary to commence by analysing what the plaintiff says that the second defendant actually said or did, or did not say or do, that could give rise to an estoppel by representation or an estoppel based on a common assumption of the kind alleged.

88 In relation to representations, paragraph 14 of the further amended statement of claim sets out the following -

(a) Conversations between Mr Charisiou and representatives of the second defendant in which Charisiou explained that an operator would occupy Lot 15 and would take bookings and manage the resort (paragraph 14(a)). It is alleged that representatives in the course of such conversations acknowledged and agreed to these matters on behalf of the second defendant;

(b) In particular, a conversation between Charisiou and Pivato in which Pivato told Charisiou that the second defendant ascribed little commercial value to Lot 15 because of the leasehold interest and Mr Charisiou explained that because of the second defendant's support and approval, "Apollo Resort and/or the Plaintiff or a related entity to Apollo Resort" would expend over $1M on infrastructure for Lot 15 and throughout the resort (paragraph 14(b));

(c) The seven pre-sale contracts which referred to the management role and contained a copy of a proposed management agreement (paragraph 14(e));

(d) Paragraph 8.4.1 of the valuation prepared by Charter Keck Cramer dated 22 December 2005 which referred to the "proposed management structure of the resort" and a possible lease (paragraph 14(f)).

89 Paragraph 22A describes the following bases for the common assumption alleged -

(a) The issuing of the planning permit by the council (paragraph 22A(a));

(b) The loan application prepared by Mr Sherman (paragraph 22A(b));

(d) The valuation report stating that the project would be run as a resort-style operation with an on-site operator appointed to run the business (paragraph 22A(d));

(e) The contracts for the sale of the units which included the grant of management and leasing rights (paragraph 22A(e));

(f) The inquiry on 3 February 2006 by the second defendant as to how Apollo Resort intended to locate a qualified operator for Lot 15 (paragraph 22A(f));

(g) Mr Sherman's advice on 9 February 2006, that a there would be a lease with the operator of Lot 15 (paragraph 22A(g));

(h) The loan approvals, acceptance certificate and the payment of application fees and costs (paragraphs 22A(h) - (k));

(i) The request for and the provision of the seven pre-sale contracts (paragraph 22A(l) and (m)).

90 In closing submissions, counsel for the plaintiff put the plaintiff's case more simply:

In my submission the only matter that needs to be considered is whether the parties agreed that there would be a lease, and that's quite apparent from the documentation that came from Mr Sherman, above all, it's admitted in the defence of the second defendant [refers to paragraph 22 of the defence of the second defendant].

So, it's always been aware and is conceding ... that it's aware there would have been a lease agreement. So, it's aware of that, it's the business plan and intention of Apollo 169 to have a leasing arrangement. Apollo Resort borrows $5.425m or thereabouts, constructs a resort with a plan to have an operator on the side. Now it's incredible that one could enter into an arrangement of that sort and then upon default to say, "Well, there's not going to be a lease whatsoever; there's no lease, get off the premises ...

91 The plaintiff submitted that that a mortgagee does not have a blanket right to refuse to consent to a lease. The mortgagee may only refuse to consent to a lease if the lease is not on reasonable terms to a reasonable and solvent tenant. It cannot avoid entering into negotiations to conclude the lease.

92 It was therefore submitted that if the mortgagee (the second defendant) had agreed at the outset that there was going to be a lease, there was no right to "back out" other than on reasonable grounds. The process was not a two stage process involving a separate agreement to consent to a lease. It was the one theatre of negotiation. When asked whether the default gave rise to reasonable grounds to refuse consent, counsel for the plaintiff answered:

Yes, but what it doesn't empower the mortgagee to do is to firstly and forever and a day not to consent to the lease and to entitle it to terminate all arrangements. What should be happening is the mortgagor should be allowed to rectify the default and perform further obligations. The refusal has been a refusal without any right to negotiate a lease; there's been a blanket refusal. In my submission it's not entitled to do that. It should have said, "We will consent to the lease on reasonable terms if you remedy the default." It should have given to the mortgagor the right to redeem the situation, to rectify the default.

93 Counsel for the plaintiff agreed that by the time consent to the lease was sought, a demand had been made under the mortgage, effectively serving as a notice to remedy the default. He said:

That relates to the mortgage, but it doesn't necessarily mean that the leasing arrangement is to be terminated. It's only as to part of that arrangement, that is the part of the arrangement relating to the consent of the mortgagee to a lease. So the whole edifice of the arrangements between Victorian Securities and Apollo Resort, that doesn't simply fall once there's a default. There is in my submission an obligation on the mortgagee to uphold the original arrangements where there would be a lease entered into between the parties.

94 The plaintiff also stressed that as a tenant, it would suffer irreparable harm if the second defendant refused to further negotiate a lease once there had been a default by the mortgagor. There is therefore an obligation towards the prospective tenant from the day that the second defendant learned about the proposal that there would be a tenant in possession by the end of the term of construction.

95 At the end of his closing submissions, counsel for the plaintiff put the plaintiff's case differently again. He said that in the loan facility was an effective agreement to lease. Specific performance of that agreement could be given. In this context, counsel said:

The facilities speak of a leasing arrangement. It talks about contracts of sale which have attached to them management agreements with the operator, so it's clear what premises are concerned, you have certainty of premises, the units, you have the gymnasium, you have the pool and the conference centre.

So what isn't specified is the term of the lease but what is absolutely certain is that this particular facility runs as serviced apartments with an operator on site. Now the whole arrangement depends upon its efficacy for a leasing arrangement, otherwise if you purchase a unit and move in, you're going to have no operator with whom you can deal concerning the leasing of the remainder of the term that you are not occupying the premises and the whole point of buying a unit is for investment purposes. So the whole facility won't operate without an operator. So it's axiomatic, in my submission, Your Honour, that you do need a lease with the operator and the operator needs to have leasing arrangements with the unit holders.

So in that sense, if a party came to court, in my submission, that party could say, "Well, I'm entitled to an order for specific performance because I have been refused the right to grant a lease when the whole purpose and objective of borrowing the funds was to create a facility where there would be an operator on site to manage the serviced apartments. I need that leasing facility otherwise the object of the project can't be fulfilled".

96 I reject this argument. The loan arrangements cannot be construed in this fashion. The mortgage, which forms an integral part of the loan arrangements, expressly provides for written consent to be given to any lease.

97 The evidence establishes that the second defendant was aware when it entered into the loan agreement that Apollo Resort and/or Mr Charisiou had a preferred business model for the operation of the units and conference centre that involved the appointment of a qualified operator at or near completion of the development. This would most likely result in a lease of Lot 15. The second defendant did not express any opposition to this model. It must be taken to have understood the broad intention to operate the development as resort or as motel style accommodation requiring the involvement of a manager, and that the proposal that Lot 15 be operated as a conference centre would most likely require a lease of the premises to the operator.

98 However, considerable uncertainty attached to the business model and its realisation. This uncertainty is referred to in the valuation by Charter Keck Cramer carried out in November 2005. In subsequent communications, including discussions with Mr Veal and Ms Pivato, the business model was only ever described in broad terms to the second defendant. Indeed, when more detail was sought by the second defendant, it was given information that only underscored the uncertainty. A good example is the letter from Mr Sherman of 9 February 2006, in which Mr Sherman told the second defendant that the question of an operator was one for another time. Success of the development did not depend on the appointment of the operator. In due course someone in Melbourne would be appointed to advertise and find a qualified operator and negotiate a lease arrangement. Both Mr Sherman and the Charter Keck Cramer valuation referred to the possibility that Lot 15 would be fitted out as another apartment. For his part, Mr Charisiou alluded to the possibility that Apollo Resort would retain ownership of several or possibly all of the units.

99 There is then the matter of the three different leases that were prepared and apparently executed. There are significant differences in the arrangements for the ownership of the fixtures in Lot 15 (which affects Apollo Resort's obligations under the builder's side agreement referred to below) and in the annual rental. The way in which the lease was amended - apparently at will - by Mr Charisiou raises the question which lease the second defendant is said to have consented to or agreed to consent to (or even to have approved of an intention to enter into).

100 Mr Charisiou gave evidence that he did not discuss the terms of any lease with representatives of the second defendant. Up until October 2007, when the plaintiff was incorporated, the second defendant could have had no idea who the lessee was likely to be.

101 Furthermore, the implementation of the business model was contingent upon securing from the unit owners agreement that they would enter into management arrangements with the operator. Mr Charisiou agreed that that was a matter upon which the business model hinged. However, in the pre-sale agreements, the details in the Exclusive Leasing and Management Authorities were left blank, leaving the question of unit owner agreement apparently unresolved.

102 Finally, while there are numerous references in the communications to the future role of an operator, only passing references are made to a lease. In my view, it is not "axiomatic" that the appointment of an independent operator for the units and conference centre would require the grant of a lease over part of the mortgaged property. Indeed, if - as appears to be the case - it was intended that the operator manage the other serviced apartments in Apollo Bay developed by Mr Charisiou, there was no compelling reason why the operator had to be located at the development at all. I do not accept that the whole arrangement depended for its efficacy upon a lease arrangement for part of the development.

103 I have accepted the evidence given by Mr Charisiou and Mr Sherman. The second defendant did not lead any evidence of its communications with Apollo Resort or the plaintiff, or of its or Apollo Resort's course of conduct. It led no evidence at all.[13]

104 However, I find that not all the matters relied upon are proven having regard to the evidence for the plaintiff. For example, the allegation in paragraph 14(b) concerning the substance of the discussion with Ms Pivato in about September 2007 was not made out. Mr Charisiou said:

We sought further funds to do works on Lot 15 or the front conference area. Gabriela at the time said, look, put forward what you want to do or how much and I'll put it to management. She did get back to me and said to me actually that they couldn't advance any more money because they didn't feel it was viable that if they were to sell - need to sell the property they wouldn't be able to realise a value because of the commercial element to it.

105 No evidence was given of Mr Charisiou explaining to Ms Pivato that because of the second defendant's support and approval, monies would be expended on infrastructure. Moreover, in my view, Ms Pivato's reference to "the commercial element" meant no more than that Ms Pivato was aware that Apollo Resort proposed to use Lot 15 as a conference centre and office for the management of the units. The valuation had ascribed a reduced value to Lot 15 as a result of this proposed use.

106 I have also struggled to find in the plaintiff's evidence any evidence that either Mr Veal, Ms Pivato or any other person employed by the second defendant expressly "agreed" to a management company (being an entity related to or nominated by Apollo Resort) occupying Lot 15 pursuant to a lease.

107 A representation must be clear and unambiguous to found an estoppel. In Legione v Hateley,[14] Mason and Deane JJ said:

It has long been recognised that a representation must be clear before it can found an estoppel in pais.[15]

108 Their Honours referred to Lowe v Bouverie,[16] in which Bowen LJ said:

An estoppel, that is to say, the language upon which the estoppel is founded, must be precise and unambiguous. That does not necessarily mean that the language must be such that it cannot possibly be open to different constructions, but that it must be such as will be reasonably understood in a particular sense by the person to whom it is addressed.

109 None of the representations relied upon in the pleadings for which there is evidence constitutes a clear and unambiguous representation that the second defendant -

(a) would not require written consent to be given to the lease or a lease (that is, it would forgo its right to require written consent to be given); or

(b) would give written consent to the lease or a lease upon request.

110 Nor do the matters relied upon in relation to the creation of assumptions founding an estoppel are sufficiently clear and unambiguous to give rise to a common assumption that the second defendant -

(a) would not require written consent to be given to the lease or a lease (that is, it would forgo its right to require written consent to be given); or

(b) would give written consent to the lease or a lease upon request.

111 For the sake of completeness, I also find that that the representations and assumptions relied upon do not constitute consent by the second defendant to the lease, or to a lease.

112 In Baranyay,[17] the lessee submitted that the bank was estopped from contending that it had not consented to the lease because it had known that a tenant was in occupation for some time. It submitted that from the time of delivery of a copy of the agreement for lease to the bank, the bank must be taken to have known of the terms of the tenancy asserted. It submitted further that it had paid rent to the receiver and manager appointed by the bank and, indeed, that the amount of the rent payable had been renegotiated. The receiver and manager reported his activities to the bank from time to time and the Court was asked to infer that the bank therefore knew of the receipt of rent and the increase in its amount.

113 Hayne J accepted all of this. Nonetheless, his Honour held that the bare fact of receipt of rent by the receiver did not create a tenancy by estoppel against the mortgagee. Moreover, the conduct of the bank did not prevent it from contending that it gave no consent to the lease. There was no conduct by the bank which would constitute a representation to the lessee, or encouragement to it to form a belief that the bank had consented to the tenancy. Even accepting that the bank knew that the premises were occupied by a tenant and knew the terms upon which the tenant purported to occupy the premises, the bank had done nothing which would lead to the conclusion that the bank should be estopped from maintaining that it had not consented to the lease.[18]

114 In the present case, there was knowledge of an intention to create a tenancy. There was also evidence from Mr Charisiou that he believed that the first version of the lease may have been provided to the second defendant by his manager, Mr Truong. An email from Mr Truong to Ms Pivato dated 28 February 2008 with the subject-matter "Commercial Lease" and an icon for a PDF attachment titled "Commercial Lease" was tendered in evidence. The lease in question was not attached to the copy of the email that was tendered. A lease or a version of the lease may well have been provided to the second defendant in support of Apollo Resort's application for further funds. The second defendant was not asked to consent to whichever lease was given to it at this point. In my view, the circumstances giving rise to the defendant's knowledge of an intention to create a tenancy, or its knowledge of an actual lease, are no more favourable for an estoppel than the circumstances referred to in Baranyay.

115 The first defendant drew my attention to the decision in AGC (Advances) Ltd v Crew,[19] which was an appeal from a decision of a Master to refuse summary judgment for possession by a mortgagee in circumstances where lessees claimed that the mortgagee was estopped from denying the existence and enforceability of a lease. The Supreme Court of Queensland dismissed the appeal on the basis that there was indeed an arguable case based on estoppel. The lease in question had not been given to the mortgagee and the mortgagee had told the mortgagor that consent to any lease would depend on it being given a copy of the lease and agreeing to it. Nonetheless, the factors which were held to preclude summary judgment against the lessees were that mortgagee knew that the mortgagor was carrying on negotiations for a lease and was informed that a prospective lessee was to take possession of the premises on a particular date and would be paying $30,000 as part of the consideration for the grant of the lease, which would in turn be used to make payments to the mortgagee. A representative of the mortgagee advised the mortgagor that as it knew of the existence of the lease and because of its conduct, it had technically approved the lease. It might be able to be inferred that the mortgagee intended or realised that this statement would be communicated to a lessee.

116 On its face, this case bears some resemblance to the one before me, although being an application for summary dismissal it can stand for no stronger proposition than that such a case is arguable and not 'foredoomed to fail'. On the authority of Baranyay, the second defendant's knowledge of the existence of a lease would not be sufficient to found an estoppel. In this case, the second defendant did not make any representation that it - formally or informally - approved the lease or a lease, and in fact had no knowledge of the lease that it was finally asked to consent to until the meeting of 24 October 2008.

117 As the second defendant pointed out, had it consented to or approved the entry into the lease by generally consenting to or approving a lease with an operator, there would have been no need for Apollo Resort to seek its consent to the lease, as it finally did in October 2008. Apollo Resort appears to have acted on the assumption that no consent had been given and that it remained necessary under the mortgage to seek the written consent of the second defendant to the lease.

118 The common assumption required by the plaintiff's case would have to be of a wide and unqualified nature. Given the uncertainties as to the parties to the lease and its terms, the assumption made by the plaintiff and the second defendant would have to have been that regardless of the identity of the lessor and the qualifications of the lessor as a resort operator, regardless of any terms of the lease as to rent, duration and so on, regardless of whether collateral management rights on favourable terms with unit holders had been secured, regardless of the state of construction of the project, regardless of compliance or default under the loan agreement, the second defendant would unconditionally agree to consent to any lease at any time. Even if the parties proceeded on an assumption that Apollo Resort would appoint a qualified operator for the resort and that there would be a lease of Lot 15, that does not involve the second defendant agreeing to forgo its right under the mortgage to require written consent to be given to the lease once the parties to the lease and its terms had been settled.

119 On the evidence before me, I find that while the second defendant was made aware of Mr Charisiou's proposal to appoint an operator to manage the units and conference centre, and that this would most likely involve a lease, it did not say or do anything that would make it unfair or unconscionable for it to insist on its legal right under the mortgage to require its written consent to be obtained for any lease. The second defendant heard what was said in general terms about the business model and waited to see what was forthcoming. This it was entitled to do. The fact that it was apparently shown or given a copy of the first incarnation of the lease by Mr Charisiou's project manager in March 2008 does not change this position.

120 The communications and dealings between Apollo Resort and the second defendant did not give rise to a common assumption that the second defendant had consented to or would consent to the lease or, alternatively, a lease, or would otherwise forgo its entitlement to require written consent to be sought for any lease proposed by Apollo Resort.

121 The plaintiff submits that the second defendant was not entitled to refuse to consent to the lease. It relies on the statement of Barker J in the High Court of New Zealand in Tu v Land Enterprises Ltd[20] that there was an argument for an implied term in the clause of the mortgage there in issue that the defendant would not object to the normal commercial letting of the property "on reasonable terms to a reasonable and solvent tenant". It is true that consent to a lease cannot be arbitrarily or capriciously withheld. However, it does not follow that the second defendant was bound to consent to any lease on reasonable terms to any reasonable and solvent tenant, irrespective of the circumstances. Baker J referred to a lease on "reasonable terms to a reasonable and solvent tenant" in the circumstances there prevailing.

122 In this case, the circumstances were that the mortgagor was in default under the mortgage when consent to the lease was sought. Apollo Resort was in deep financial trouble by October 2008. There were delays in the project from late 2007. It tried to borrow more money from the second defendant, but was not able to do so. It tried to refinance the project through BankWest in order to pay out the second defendant, but the refinancing was not in place. It was unable to get the plan of subdivision registered in a timely fashion, so the units could not be sold to reduce debt. Other planning and building approval requirements caused delays. Furthermore, as at 30 September 2008, Apollo Resort had defaulted on its loan from the second defendant because it could not pay nearly $300,000 in interest due on 30 September 2008. Pinefield was demanding repayment of its loan. In these circumstances, whatever common assumption might originally have existed as to the business model for the management of the units and the use of Lot 15 once construction had been completed, that assumption was no longer valid.

123 In Independent Order of Oddfellows of Victoria Friendly Society v Telford, [21] Gobbo J described the absence of default under the mortgage as the condition precedent to a mortgagor seeking a mortgagee's consent to a lease on reasonable grounds:

In any event, at the relevant time the mortgagor was in default under the mortgage and an absence of default would have been a condition precedent to any capacity on the part of the mortgagor to seek a reasonable ground of consent to any lease.

124 Given the financial difficulties associated with the development, and the fact that the plaintiff was another special purpose company established and controlled by Mr Charisiou for the purposes of the development, it is questionable whether the plaintiff could be described as a reasonable and solvent tenant in any event.

125 This is enough to dispose of the case based on estoppel.

126 However, there are other reasons why the case founded on estoppel must fail. No reliance has been shown by the plaintiff upon the alleged representations or assumptions. At no point in his evidence did Mr Charisiou say that he caused the plaintiff to spend money fitting out Unit 15 (or reimburse August (Vic) for the works to units 1 to 14) because he relied on an assumption that the lease would be granted to it without the need for written consent to be given by the second defendant.

127 Moreover, the evidence that the plaintiff incurred costs and suffered the detriment that is alleged was unsatisfactory. Mr Charisiou's evidence as to who paid the invoices for the fit-out was vague, at best. He could not say who had paid the invoices; he could only say that he assumed his staff had properly processed them. There was no documentary evidence of any pre-incorporation contract whereby the plaintiff would reimburse August (Vic) for the fitting out of the units or of any ratification by the plaintiff of the alleged pre-incorporation agreement, as required under s 131(1) of the Corporations Act 2001 (Cth). Again, Mr Charisiou's evidence on this question was extremely vague.

128 Furthermore, as the second defendant submitted, the detriment relied on by the plaintiff would arise out of conduct that arguably constituted a breach of the builder's side agreement between Apollo Resort and the second defendant. The fact that Apollo Resort permitted the plaintiff to take over works on Lot 15 with a value in excess of $50,000 may well have constituted a breach of that agreement. Because the asserted estoppel derives from an assumption by Apollo Resort, it would be inequitable for the plaintiff to rely on that detriment.

129 The second defendant also submitted that the plaintiff had failed to establish that the critical assumption - whatever it was - was held by the plaintiff. At best, it could only have been an assumption by Apollo Resort regarding the legal relationship between the second defendant and Apollo Resort. There was no common assumption about the legal relationship between the second defendant and the plaintiff. It is unnecessary to decide this question, given the findings I have already made.

130 These findings also dispose of the plaintiff's claims under the Trade Practices Act 1974 (Cth). As I have found that the second defendant did not make any representation that it would conduct itself other than as it did, the factual premise of this claim falls away. To be entitled to damages under s 82 or 87 the plaintiff would also need to have shown that it acted in reliance on the relevant conduct - the representations - to its own detriment.[22] For the reasons given, this has not been established.

131 This is an application for an order for possession of the land by Victorian Securities Corporation Ltd as mortgagee/plaintiff. In this proceeding, Apollo Resort as the mortgagor, is the first defendant. The second and third defendants are Mr Charisiou and Christos Charisiou Building Group Pty Ltd respectively, as guarantors.

132 The plaintiff holds a registered mortgage over the land by Instrument of Mortgage 0018735324/P001. A loan of $5,097,450 was given against the mortgage, guaranteed by the second and third defendants.

133 By amended statement of claim dated 2 March 2009, the plaintiff seeks judgment for possession of the land and damages arising from breach by the first defendant of the terms of the mortgage agreement.

134 It was a term of the mortgage agreement that the first defendant would pay interest on the principal debt at six monthly intervals. An interest payment of $293,627.08 was due on 30 September 2008. The first defendant failed to make the interest payment.

135 On or about 26 November 2008, the plaintiff sent the first defendant a demand for the sum of $293,627.08, plus penalty interest and legal costs ("the default sum"). The first defendant did not pay the default sum. Since then, the first defendant has made four repayments, totalling $27,500. As at 1 October 2009, the balance in the first defendant's loan account stood at $6,124,443.93.

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