Headway Global Pty Ltd v Golden Seeds Education Pty Ltd (No 2)

[2024] NSWSC 1197

Supreme Court

New South Wales

Medium Neutral Citation:

Headway Global Pty Ltd v Golden Seeds Education Pty Ltd (No 2) [2024] NSWSC 1197

Date of orders:

23 September 2024

Decision date:

23 September 2024

Jurisdiction:

Equity - Real Property List

Before:

Peden J

Decision:

At [36]

Catchwords:

CONTRACTS — Remedies — Breach of lease to pay rent and outgoings — Damages — After repudiation — Whether plaintiff entitled to loss of bargain damages

COSTS — Party/Party — Court’s discretion — Whether there should be apportionment of costs

Legislation Cited:

Civil Procedure Act 2005 (NSW) s 98

Uniform Civil Procedure Rules 2005 (NSW) r 42.1

Cases Cited:

Access Training Group Ltd v Jane [2024] NSWCA 204

Creak v Ford Motor Co of Australia Ltd (No 2) [2023] NSWCA 323

DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423

Headway Global Pty Ltd v Golden Seeds Education Pty Ltd [2024] NSWSC 1068

Luxer Holdings Pty Ltd v Glentham Pty Ltd (2007) 35 WAR 254

McHugh Holdings Pty Ltd v Newtown Colonial Hotel Pty Ltd (2008) 73 NSWLR 53

Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (2019) 99 NSWLR 317

Sharjade Pty Ltd v Commonwealth (2009) 15 BPR 28,443

Universal Publishers Pty Ltd v Australian Executor Trustees Ltd [2013] NSWSC 2021

Upside Property Group Pty Ltd v Tekin (2017) 19 BPR 38,137

Category:

Consequential orders

Parties:

Headway Global Pty Ltd (Plaintiff)
Golden Seeds Education Pty Ltd (Defendant)

Representation:

Counsel:
Y L R Chen (Plaintiff)
J Mack (Defendant)

Solicitors:
CMI Legal (Plaintiff)
Harris Freidman Lawyers (Defendant)

File Number(s):

2021/00263565

Publication restriction:

Nil

Judgment

1. This judgment concerns final orders in the matter. On 23 August 2024, I delivered the principal judgment: Headway Global Pty Ltd v Golden Seeds Education Pty Ltd [2024] NSWSC 1068. This judgment assumes familiarity with the principal judgment (Judgment).

2. The parties agree that a declaration ought to be made that the lease commenced on 12 January 2021. However, the parties are otherwise in dispute as to the appropriate final orders.

3. These are my reasons for the final orders to be made. Each of the disputed orders is considered below.

Substitution of “lessor” for “lessee” in Lease

4. Headway Global seeks an order rectifying the lease document such that the word “Lessor” is replaced with “Lessee” in the definition of the “commencing date” on the front page. Golden Seeds does not seek such an order and its submissions do not deal with this issue.

5. As I noted in the Judgment at [5], “[t]he parties accept that “Lessor” must be read as “Lessee”. It is immaterial whether such a correction ought to be made by way of rectification in equity or by construction: see eg McHugh Holdings Pty Ltd v Newtown Colonial Hotel Pty Ltd (2008) 73 NSWLR 53 at [39] (Brereton J, as his Honour then was); Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (2019) 99 NSWLR 317 at [6]-[11] (Leeming JA, Payne and White JJA agreeing).

6. It is appropriate to make an order rectifying the lease by substituting the word “Lessor” with the word “Lessee” in the definition of the “commencing date” at Item G2 on the front page of the Lease.

Damages for Golden Seeds’ repudiation

7. The main area of disagreement between the parties relates to whether Headway Global is entitled to unpaid rent and outgoings for the time from 27 April 2021, when Golden Seeds wrongfully repudiated the lease by vacating the premises, until 15 November 2021, when Headway Global entered into a lease with a new tenant.

8. The Judgment at [15] records that the parties agreed on a figure for unpaid rent and outgoings and pre-judgment interest. Further, at [90], I noted that:

The consequence of that conclusion [i.e. the conclusion that Headway Global did not repudiate the lease] is that Golden Seeds’ vacation of the premises and purported termination amounted to a repudiation. Headway Global accepted that wrongful repudiation and terminated the lease and has sought damages for the loss of bargain in the sum of 6 months’ lost rent and outgoings, being a reasonable time in which to mitigate its loss and source another tenant.

9. Golden Seeds submits that Headway Global is not entitled to “loss of bargain damages”, because it did not prove it was ready, willing and able to perform when it terminated the lease, said to be in September 2021, and therefore it must repay the bank guarantee.

Determination

10. Headway Global sought payment of unpaid rent and outgoings while the lease remained on foot, and also loss of bargain damages after the lease was terminated until a new tenant was found in November 2021. Because what is sought in both categories is unpaid rent and outgoings, practically it does not matter when the lease was terminated: see Luxer Holdings Pty Ltd v Glentham Pty Ltd (2007) 35 WAR 254 (Luxer) at [32]-[33] (Buss JA, Wheeler JA agreeing).

11. Had it been necessary to determine the date when Headway Global terminated the lease, I consider that on the evidence, on the balance of probabilities, it occurred on 8 September 2021, when Headway Global’s solicitor wrote to Golden Seeds’ solicitor, demanding the return of the garage key to the property. In this regard, I do not consider relevant Golden Seeds’ submissions on clause 12 of the lease, which deals with “Forfeiture and end of Lease”. That clause provides for circumstances, in which the lease may come to an end, but does not assist in the determination of when Headway Global terminated the lease agreement.

12. I do not accept Golden Seeds’ submission that Headway Global is not entitled to loss of bargain damages, because it failed to prove it was ready, willing and able to perform at the time it terminated the lease.

13. In DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 (DTR) at 433, Stephen, Mason and Jacobs JJ held that:

A party in order to be entitled to rescind for anticipatory breach must at the time of rescission himself be willing to perform the contract on its proper interpretation. Otherwise he is not an innocent party, the common description of a party entitled to rescind for anticipatory breach, and indeed could profit from his misinterpretation of the contract.

14. This passage has been the subject of controversy insofar as it suggests that “a party wishing to terminate a contract for anticipatory breach of a dependent obligation must be ready and willing to perform on its part at that time”: see Upside Property Group Pty Ltd v Tekin (2017) 19 BPR 38,137; [2017] NSWCA 336 (Upside) at [15] (Meagher JA, McColl and Macfarlan JJA agreeing); see also Sharjade Pty Ltd v Commonwealth (2009) 15 BPR 28,443; [2009] NSWCA 373 at [60]-[73] (Hodgson JA).

15. Golden Seeds’ submission does not engage that controversy, as it appears to rely on the passage for a different proposition, namely, that if a party “wants to obtain any relief on the basis of the termination [for repudiation], beyond mere discharge of future obligations, then as part of its cause of action it must prove readiness, willingness and ability” to perform: Sharjade at [68]; see also Upside at [16].

16. Consistent with my findings in the Judgment at [83] and [89], I do not accept Golden Seeds’ submission that Headway Global was not willing to perform at any time. Although Headway Global was acting on a mistaken construction of the commencement date of the lease from January 2021 by demanding rent since April 2020, nothing suggests that it was not ready, willing and able to carry out its obligations under the lease, or that it attempted to oust Golden Seeds from the premises: see Judgment at [78].

17. It follows that from 8 September 2021, Headway Global is entitled to damages in the sum of unpaid rent and outgoings under the lease until 15 November 2021, when Headway Global entered into a new 10-year lease for the property with annual rent payable of $96,525 including GST. The new rent was a higher amount compared to the rent that Golden Seeds was contractually obliged to pay, which was $82,500 per annum including GST. Therefore, from that time, Headway Global was in a better position than under the lease.

18. As noted above, the parties have agreed on the sum of $30,000 that Golden Seeds must pay Headway Global if Headway Global is entitled to damages, taking into account:

1. Rent and outgoings from 12 May 2021 (the date on which rent was payable under the lease commencing on 12 January 2021) to 14 November 2021;

2. Less the bank guarantee taken by Headway Global; and

3. Replacing pre-judgment interest with the benefit Headway Global obtained prematurely by calling in the bank guarantee.

The bank guarantee amount

19. Clause 16.3 conferred upon Headway Global the right to call on the bank guarantee, providing that “[t]he lessor is entitled to claim under the guarantee an amount equal to any moneys due but unpaid by the lessee to the lessor under this lease”.

20. In the Judgment at [37], I concluded that Headway Global did not establish that any rent was outstanding when Golden Seeds vacated the premises, or that the rent-free period was lost. It follows that in February 2021, Headway Global was not entitled under clause 16.3 to have recourse to the bank guarantee to meet the alleged unpaid rent for the period from April 2020 to April 2021, because no such rent moneys were owing for that period.

21. Golden Seeds submits that Headway Global should be ordered to return the $20,625 bank guarantee, which it “baselessly” called on when the lease was not in arrears. It relies on DTR at 434 for the proposition that the “abandonment and abrogation” of the contract means that a deposit paid under it is “returnable”.

22. Consistent with authorities such as Universal Publishers Pty Ltd v Australian Executor Trustees Ltd [2013] NSWSC 2021 (Universal Publishers), I consider that clause 16 contains an “implied negative stipulation” for the lessor to “not call on the security unless it was entitled to the payment of moneys under the contract”: Universal Publishers at [31] (White J, as his Honour then was).

23. By calling on the bank guarantee when Golden Seeds was not in arrears, Headway Global breached that implied negative stipulation. Golden Seeds is consequently entitled to damages, the loss being the $20,625 which Headway Global drew out from the bank guarantee on 19 February 2021: Universal Publishers at [61].

24. However, Headway Global always accepted that it must deduct from the amount of unpaid rent and outgoings it sought to recover the value of the bank guarantee, which has been accounted for in the agreed sum of $30,000.

Costs

25. The parties also disagree as to the appropriate costs order.

26. Headway Global submits that Golden Seeds should pay its costs, if it is awarded damages, but accepts that it should pay Golden Seeds’ costs if “the economic outcome is that [Headway Global] is ordered to pay money to [Golden Seeds]”.

27. Headway Global also submits that this case is not an appropriate one for the apportionment of costs, because “the issues raised were largely part of a logical series, and not logical parallels”. It contends that both parties made monetary claims that required the issues of construction, rectification, repudiation and quantification of damages to be determined.

28. Further, Headway Global lists what it claims are four “regrettable features of this case”, seemingly in an effort to suggest that the Court’s costs discretion should be exercised in its favour, while not seeking indemnity costs. Those features include:

1. Golden Seeds’ insistence for more than 600 pages of Mr Yang’s exhibit to his affidavit to be included in the court book until the first day of trial;

2. The late communication of the decision not to require Ms Liu for cross-examination, when she had already flown in from China;

3. The fact that it was only when Mr Sun was approaching the witness box that he was notified that he was not required for cross-examination; and

4. Golden Seeds’ reliance on Mr Coad’s expert report which did not disclose a basis for various material figures and did not apply a discount.

29. In contrast, Golden Seeds submits that Headway Global should pay its costs of the proceedings. It contends that the relevant “event”, from which costs should follow, is Golden Seeds’ success in establishing that the lease commenced on 12 January 2021. In Golden Seeds’ submission, the construction and rectification issues were the central issues in dispute and it was successful on both of them; hence, it should succeed on costs.

30. In the alternative, Golden Seeds submits that Headway Global should pay 75% of its costs to reflect that Global Seeds lost on its loss of profits case.

Determination

31. The principles governing the exercise of the Court’s discretion as to costs under s 98 Civil Procedure Act 2005 (NSW) and pursuant to r 42.1 Uniform Civil Procedure Rules 2005 (NSW) where a party is only partly successful are well known and cannot be in dispute: see eg Access Training Group Ltd v Jane [2024] NSWCA 204 (Access) at [182]-[192] (Ward P, Payne JA agreeing) and [217]-[220] (Basten AJA); Creak v Ford Motor Co of Australia Ltd (No 2) [2023] NSWCA 323 (Creak) at [24] (White JA, Gleeson and Kirk JJA agreeing).

32. Headway Global was unsuccessful on the construction and rectification issues. However, it was successful in establishing that Golden Seeds repudiated the lease and that it was entitled to lost rent and outgoings: see Judgment at [2], [37] and [90], and above at [17]-[18].

33. Golden Seeds was successful in relation to the lease commencement date, either as a matter of construction or rectification: see Judgment at [20] and [66]. Further, it was successful in establishing that it was entitled to damages for Headway Global’s breach of an implied negative stipulation to not call on the bank guarantee unless it was entitled to under the contract. However, that matter was always agreed by Headway Global: see above at [23]-[24]. In contrast, Golden Seeds failed to prove Headway Global repudiated the lease: see Judgment at [89]. Even if Golden Seeds had succeeded on repudiation, it would not have been awarded the amount of damages that it claimed to be entitled to ($550,000), as I preferred the expert evidence of Headway Global’s expert as to quantum ($107,757): see Judgment at [108].

34. Therefore, both parties were only partly successful in their proceedings and, in those circumstances, I consider that each party should bear their own costs.

35. For completeness, I note that I do not consider that the so-called “regrettable features of this case” raised by Headway Global amount to disentitling conduct on the part of Golden Seeds so as to have a bearing on the exercise of the Court’s discretion as to costs.

Orders

36. For these reasons, I make the following orders:

1. In the document known as the Lease (being a document dated 30 June 2019, signed between the parties, concerning the lease of the premises known as 51 Yanderra Street, Condell Park NSW), the word “Lessor” be substituted with the word “Lessee” in the definition of the “commencing date” at Item G2 on the front page of the Lease.

2. A declaration that the Lease commenced on 12 January 2021.

3. The defendant pay the plaintiff by way of unpaid rent and outgoings and pre-judgment interest, less the bank guarantee, the agreed sum of $30,000.

4. Each party to bear their own costs.

5. The plaintiff’s amended statement of claim filed on 22 November 2021, and defendant’s cross-claim filed on 31 January 2022, are otherwise dismissed.