Markham Real Estate Partners (KSW) Pty Ltd v Misan

[2022] NSWSC 733

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Markham Real Estate Partners (KSW) Pty Limited v Misan [2022] NSWSC 733

Hearing dates:

7 and 8 September 2021

Decision date:

03 June 2022

Jurisdiction:

Equity

Before:

Henry J

Decision:

Judgment for plaintiff on its claim. Orders to be made once parties have considered reasons.

Catchwords:

LEASES AND TENANCIES – whether landlord unlawfully re-entered into possession of retail tenancy – where administrator appointed to tenant company – whether tenant repudiated lease – whether changing of locks constituted re-entry and taking possession – whether administrator had given written consent to exercise property rights under s 440B of Corporations Act – held landlord lawfully terminated for repudiation and fundamental breach

GUARANTEE AND INDEMNITY – claim by landlord to recover unpaid rent, loss of bargain damages and other losses under guarantee and indemnity in sub-lease – whether guarantee and indemnity discharged by unlawful re-entry or splitting of debts on assignment of lease and guarantee – consideration of various heads of claims – held landlord entitled to recover from guarantor under sub-lease terms

Legislation Cited:

Conveyancing Act 1919 (NSW)

Corporations Act 2001 (Cth)

Uniform and Civil Procedure Rules 2005 (NSW)

Cases Cited:

Almond Investors Ltd v Kualitree Nursery Pty Ltd [2011] NSWCA 198

Ankar Pty Limited v National Westminster Finance (Australia) Ltd [1987] HCA 15; 162 CLR 549

Ashmore Developments Pty Limited v Eaton [1992] 2 QD R 1

CMC (Australia) Pty Limited v Sarantinos [2013] NSWSC 873

Consolidated Development Pty Limited v Holt (1986) 6 NSWLR 607

Dale Grove Pty Limited v Isles Parking Station Pty Limited (1988) 12 NSWLR 546

Foran v Wight (1989) 168 CLR 385

Goulston Discount Company Ltd v Clark [1967] 2 QB 493

Gumland Holdings v Duffy Bros [2008] 234 CLR 237

Hoy Mobile v Allphones Retail Pty Ltd (No 2) [2008] FCA 810

Idameneo (No 123) Pty Ltd v Ticco Pty Ltd [2004] NSWCA 329

Ingram and Knee v Patcroft Property Limited [2011] NZSC 49

Islam v South Sydney City Council (1998) 9 BPR 16,865

Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61

Langbein v Mottershead Investments Pty Ltd (No 3) [2020] FCA 1790

Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 16 CLR 623

Leda Commercial Properties Pty Ltd v DHK Retailers Pty Ltd (1992) 111 FLR 81

Luxer Holdings Pty Ltd v Glentham Pty Ltd [2007] ASCA 209; (2007) 35 WAR 254

Macquarie International Health Clinic Pty Limited v Sydney South West Area Health Service [2010] NSWCA 268

Molit (No 55) Pty Ltd v Lam Soon Australia Pty Ltd (1996) 63 FCR 391

Moschi v Lep Air Services Limited [1973] AC 331

Nina’s Bar Bistro Pty Limited v MBE Corporation (Sydney) Pty Limited [1984] 3 NSWLR 613

Permanent Trustee Australia Ltd v Stout [1999] VSC 252

Peter Turnbull and Co Pty Ltd v Mundus Trading Co (Australasia) Pty Limited (1954) 90 CLR 235

Re Java 452 Pty Ltd

RoadshowEntertainment Pty Ltd v ACN 053006269 Pty Ltd (1997) 42 NSWLR 462

Scott v Ennis-Oakes [2020] NSWCA 239

Shevill v Builders Licence Board 149 CLR 620; [1982] HCA 47

Silvia v FEA Carbon Pty Ltd [2010] FCA 515

The Progressive Mailing House Pty Limited v Tabali Pty Limited (1985) 157 CLR 17; [1985] HCA 14

Toll Holdings Ltd v Stewart [2016] FCA 256

Unity Finance Limited v Woodcock [1963] 2 All ER 270

Wash Investments Pty Limited v SCK Properties Pty Limited [2016] QCA 258

World Best Holdings Limited v Sarker [2010] NSWCA 24

Texts Cited:

Brendan Edgeworth, Butt’s Land Law (7th ed, 2017, Thomson Reuters)

Category:

Principal judgment

Parties:

Markham Real Estate Partners (KSW) Pty Limited (Plaintiff)
Paul Misan (Defendant)

Representation:

Counsel:
E Hyde (Plaintiff)
P Horobin (Defendant)

Solicitors:
Holding Redlich (Plaintiff)

File Number(s):

2019/197872

Publication restriction:

Nil

Judgment

1. These proceedings arise out of a 10-year sub-lease (Sub-Lease) of premises known as Shops 13 and 14 at King Street Wharf, Sydney (Premises) that was granted to Wayl Pty Limited (Wayl) and commenced on 28 November 2012.

2. The plaintiff, Markham Real Estate Partners (KSW) Pty Limited (Markham), is the head-lessee of the King Street Wharf and head-lessor under the Sub-Lease pursuant to a sale contract and assignment granted to Markham on 30 November 2018.

3. The defendant, Mr Paul Misan, was the sole director of Wayl and the guarantor under the Sub-Lease.

4. The Premises were used by Wayl to operate Kobe Jones, which was part of a Japanese restaurant chain. In early May 2019, the restaurant ceased trading and an administrator (and subsequently a liquidator) was appointed to Wayl, which is now deregistered.

5. On 16 May 2019, Markham purported to terminate the Sub-Lease on the basis of Wayl’s repudiation of it (which Markham accepted) and breaches of essential terms, including the payment of rent.

6. In the proceedings, Markham seeks to recover from Mr Misan under the guarantee and indemnity provisions of the Sub-Lease loss and damage which Markham claims to have suffered following Wayl’s purported repudiation and Markham’s purported lawful termination of the Sub-Lease. Markham’s claim comprises rental arrears to the date of termination, loss of bargain damages, make-good costs, interest and legal costs on an indemnity basis.

7. Mr Misan denies Markham’s claim. He contends that Markham unlawfully re-entered the Premises prior to the date on which it purported to terminate the Sub-Lease which had the effect of discharging Wayl’s future obligations and Mr Misan’s guarantee and indemnity under the Sub-Lease. Mr Misan also takes issue with the quantum of Markham’s claim in the event that he is found to be liable under the Sub-Lease.

8. At the hearing, Mr Misan did not press those aspects of his defence that had put in issue whether Markham was the sub-lessor and entitled to the guarantee and indemnity from Mr Misan under the Sub-Lease, subject to certain facts and legal arguments he advanced: (T24.46-48).

9. Accordingly, the issues for determination are:

1. Whether the Sub-Lease was lawfully terminated by Markham?

2. Whether Mr Misan is liable to Markham pursuant to the guarantee and indemnity provisions under the Sub-Lease?

3. If so, what is the quantum of Mr Misan’s liability?

10. Markham read the affidavits of Trevor Zhuang affirmed 10 October 2019, 13 February 2020 and 11 August 2021. Mr Zhuang is the Chief Financial Officer of Markham Investment Management Pty Limited, a private real estate investment group and Markham’s Investment Manager (CB690).

11. Mr Misan read his affidavit dated 19 December 2019.

12. Mr Zhuang and Mr Misan were both cross-examined. No issues of credit were raised.

Facts

13. Most of the facts are not in dispute and are based on the documents in evidence. Unless indicated otherwise, I am satisfied of the following matters.

The King Street Wharf Head Lease

14. The King Street Wharf is a waterfront precinct owned by the New South Wales Waterways Authority (Authority).

15. On 7 August 2000, the Authority granted a 99-year lease (Head Lease) of the Kings Street Wharf to W9 & 10 Stage 1 Pty Limited.

The Sub-Lease

16. The Sub-Lease was entered into by Brookfield W9 & 10 Stage 1 Pty Limited (Brookfield W9) [1] (as sub-lessor), Wayl (as sub-lessee) and Mr Misan (as guarantor). It was for a term of 10 years, commencing on 28 November 2012, with no option to renew.

    1. At the time the Sub-Lease was entered into, Brookfield W9 was the lessee under the Head Lease.

17. The Sub-Lease provided for Base Rent for the first year of $602,692.09 per annum and annual rent increases of 4% every even year and 3% every odd year. The permitted use was a Japanese and Teppanyaki restaurant.

18. Under the Sub-Lease, Wayl was obliged to pay the following:

1. Base Rent and the Turnover Rent plus GST on time by electronic funds transfer (EFT) by equal monthly instalments in advance, on or before each Rent Day: cll 1.1, 3.1, 4.1 and 5.1 and item 9(a);

2. the Tenant’s Share of the estimated Outgoings plus GST by EFT in equal monthly instalments in advance, on or before the first day of the month: cll 1.1, 3.1, 4.1, 7.1 and 7.4;

3. for Services provided to the Premises plus GST by EFT: cll 1.1, 3.1, 4.1 and 8.1;

4. a Promotion Levy plus GST by EFT monthly, and in advance on the first day of each month: cll 1.1, 3.1, 4.1 and 8.3; and

5. costs specific to the Premises plus GST by EFT on demand: cll 1.1, 3.1, 4.1 and 8.5.

19. In the event that Wayl was late paying monies due under the Sub-Lease, daily interest could be charged at 2% above a specified rate (being the standard overdraft customer rate at the Commonwealth Bank of Australia on the due date (the Specified Rate) on unpaid money on each day from the day the unpaid money was due until paid in full, with the interest on the unpaid money to be added to the unpaid amount on the last day of each month and interest to then be charged on that total amount: cll 3.2(a) and (b).

20. Under the Sub-Lease, Wayl was obliged to carry on its business and use the Premises to the best of its ability and keep the Premises open for business during the Centre’s trading hours (cll 11.1 and 11.2) and, on the earlier of the Expiry Date and the date the Sub-Lease ends, to vacate the Premises and to Make Good the Premises (cll 1.1, 11.11(a) and 11.11(b)).

21. Clause 17 of the Sub-Lease deals with the guarantee and indemnity. Pursuant to cl 17, Mr Misan, as Guarantor:

1. irrevocably and unconditionally guaranteed that Wayl would pay the “Guaranteed Money” on time and comply with its obligations under the Sub-Lease: cl 17.3(a)-(b);

2. agreed that, if Wayl did not pay the Guaranteed Money or comply with its obligations under the Sub-Lease, he would pay on demand that money to Markham or comply with the obligations or both, whether or not Markham demanded Wayl to pay or comply: cl 17.4(a)-(b);

3. agreed, as an additional obligation which may be separately enforced from the guarantee in cl 17.3, that he would irrevocably and unconditionally indemnify Markham against, and undertake as a principal debtor, to pay on demand any sum equal to all liability, loss, penalties, costs, charges and expenses directly or indirectly arising from or incurred in connection with: Wayl not paying the Guaranteed Money on time; not complying on time with its obligations under the lease or in connection with the occupation of the Premises; and, Markham not being able to recover all of the Guaranteed Money from the tenant or enforce all of its obligations under the Sub-Lease or in connection with Wayl’s occupation of the Premises for any reason (the indemnity): cl 17.5(a)-(c).

22. Clause 17.1 defines Guaranteed Money as follows:

Guaranteed Money means all money that the Tenant is or may at any time be liable (actually, prospectively or contingently) to pay to the Landlord under or in connection with:

(a)   this lease (including the Tenant's default); and

(b)   the Tenant's occupation of the Premises,

and includes money which the Tenant would be liable to pay but for its insolvency.

23. Clause 17.7 provides that Mr Misan’s liabilities as a guarantor, indemnifier and principal debtor are not affected by anything which might otherwise affect them, including: the transfer of any right, compromise or release of the tenant; Markham’s acquiescence, delay or mistake; any assignment of the Sub-Lease; or, if the tenant is wound up or resolved: cl 17.7(b), (c), (d) and (h).

24. The Sub-Lease also provided that Mr Misan was to pay on demand the sub-lessor’s costs, charges and expenses (including but not limited to legal costs, charges and expense on a full indemnity basis whether incurred by or awarded against Markham) in connection with the guarantee and indemnity but not limited to its enforcement and, if Mr Misan was late in paying any money, interest may be charged as a rate of equal to 2% above the Specified Rate: cll 17.10 and 17.11 and item 18.

25. Clause 19 relates to breaches of the Sub-Lease, and relevantly provides:

19.1   How the Tenant breaches this lease

The Tenant breaches this lease if:

(a)   the Tenant disobeys or otherwise fails to perform any term of this lease or any Related Agreement; …

(c)   the Tenant or any Guarantor is a corporation and: …

(iii)   an administrator, a receiver, a manager or an inspector is appointed in respect of the Tenant or any Guarantor of any of the assets of the Tenant or any Guarantor; …

19.2   If the Tenant breaches this lease

(a)   If the Tenant breaches this lease the Landlord may do any one or more of the following:

(i)   end this lease (see clause 11.11) and any Related Agreement;

(ii)   re-enter and take possession of the Premises;

(iii)   recover from the Tenant or the Guarantor any loss the Landlord suffers due to the Tenant's breach; …

(v)   exercise any of the Landlord’s other legal rights.

(b)   If the Landlord is required by law to give any notice to the Tenant before acting in accordance with clause 19.2(a)(i) or 19.2(a)(ii), to the extent permitted by law, the parties agree that 14 days is the period set for compliance with the notice by the Tenant.

19.3   What the Landlord may do if the Tenant breaches an essential term

(a)   If the Tenant breaches an essential term of this lease and the Landlord re-enters and takes possession of the Premises, the Landlord may recover all money payable by the Ten ant under this lease up to the Expiry Date. The Landlord must take all reasonable measures to minimise the landlord’s loss.

(b)    The essential terms for this clause are any obligation of the Tenant to pay money under this lease and clauses 9.1(a), 9.1 (b), 9.1(e), 10.1, 10.2, 10.4, 10. 8, 11.1, 11.2, 11.3(d), 11.4(a), 11.5, 11.10, 12.9, 16.1, 17.3 and 22.

26. The Sub-Lease provided that each provision that can be performed either before or when the lease ends will survive and must be performed even if the Sub-Lease had ended and that the expiry and termination of the Sub-Lease does not affect rights in connection with any breach: cll 21.11 and 21.14.

Incentive Deed

27. On 3 April 2014, Brookfield W9 (as landlord), Wayl (as tenant) and Mr Misan (as guarantor) entered into an incentive deed in relation to the Premises (Incentive Deed) (Court Book (CB) at 180).

28. By clause 2.3 of the Incentive Deed, Wayl was to be provided with a rent abatement of $9,312.64 of Base Rent per month for the period from 28 May 2013 to the Expiry Date of the Sub-Lease so long as Wayl was not in default under the Sub-Lease and had provided the Bank Guarantee and evidence of insurances as required by cll 9.1 and 16.1(a) of the Sub-Lease.

Transfer of Head Lease and NCAT Orders

29. On 9 June 2016, the Head Lease was transferred from Brookfield W9 to LAOF IV Kingstreet Pty Ltd (LAOF) and LAOF became the head lessee of the King St Wharf and sub-lessor under the Sub-Lease.

30. On or about 13 February 2018, Wayl applied to the Small Business Commissioner to mediate a dispute with LAOF under the Sub-Lease concerning refurbishment works at King Street Wharf. The dispute was resolved by way of consent orders made by the NSW Civil and Administrative Tribunal (NCAT) on 5 September 2018 (NCAT Orders) and amended by notice of order dated 12 September 2018.

31. The NCAT Orders provide that (CB351):

1. Wayl was to make payments to LAOF in accordance with an annexure to the orders referred to as the “Base Case Payment Plan”. The annexure to the orders indicates that, as at September, Wayl was in arrears of rent under the Sub-Lease of $125,712 and that the total arrears to be paid under the base case by 30 June 2019 was $152,594.28: Order (a);

2. from 1 December 2018, Wayl was to pay a monthly amount of Base Rent, promotional levy and outgoings in the sum of $78,447.08 inclusive of GST: Order (b).

3. Wayl was to replace part of the unconditional Bank Guarantee required by the Sub-Lease in the sum of no less than $183,325.98 on or before 31 December 2018, with the amount of that Bank Guarantee to be increased to $321,463.56 on or before 30 September 2019: Orders (d) and (e); and

4. if Wayl failed to make any payments referred to in the NCAT orders, LAOF was entitled to terminate the Sub-Lease and repossess the Premises on seven days’ notice and the amount of any arrears accrued would be calculated on the basis that the contractual abatement provided under the Sub-Lease and Incentive Deed would not apply for the months where the rent was not paid in full: Order (f).

Sale Contract and transfer of Head-Lease to Markham

32. On 1 November 2018, Markham entered into a contract to purchase the Head Lease from LAOF (Sale Contract).

33. Under the Sale Contract, Markham took title to the King Street Wharf subject to the Sub-Lease: cl 47.1.

34. Clause 50 of the Sale Contract deals with the NCAT Orders. The clause provides that:

1. LAOF and Markham agree that, to the extent that LAOF was legally able to do so, with effect on completion, LAOF assigned to Markham, the benefit of the parts of the NCAT Orders which provided that:

1. Wayl was to replace the Bank Guarantee by 31 December 2018 (NCAT Order (c)): cl 50(a)(i)(A);

2. Wayl was to increase the Bank Guarantee by 30 September 2018 (NCAT Order (e)): cl 50(a)(i)(B);

3. if Wayl failed to make any of the payments referred to in the NCAT Orders that were payable until 30 September 2019, LAOF may terminate the Sub-Lease and repossess the Premises on seven days’ notice: cl 50(a)(i)(C);

4. LAOF otherwise retained the benefit of the NCAT orders: cl 50(a)(ii); and

2. LAOF must use reasonable effort, at the direction and cost of Markham to enforce compliance by Wayl with the NCAT Orders but will have no further obligations to do so after 12 months from completion: cl 50(b).

35. Clause 54 concerns “Adjustments for Tenant Payments”.

36. Tenant Payments are defined in cl 32.1 and relevantly include all rents, levies, fees and other moneys which, under the terms of the Sub-Lease, Wayl was liable to pay or reimburse to LAOF as the landlord, whether payable before or after completion.

37. Under cl 54.1, it was agreed that LAOF and Markham would apportion the Tenant Payments, by way of an allowance at completion, with LAOF entitled to all Tenant Payments up to and including the adjustment date and Markham entitled to all those accruing thereafter.

38. Clause 54.4 provided that any Tenant Payments due but unpaid for any period ending on or before the adjustment date must not be apportioned between the parties on completion but are recoverable by LAOF under cl 54.8.

39. Clause 54 also included the following provisions:

54.8   Vendor may recover money

Despite section 117 of the Conveyancing Act 1919 (NSW), the vendor reserves the right after completion to recover money for the period up to and including completion in connection with any Tenancy, to the extent the amount is not apportionable to the purchaser under this clause 54. The right to recover that money does not pass to the purchaser. For the avoidance of doubt, nothing in this clause 54.8 limits the obligations of the vendor under clause 54.11.

54.9   Purchaser to assign

If clause 54.8 (“Vendor may recover money”) does not preserve the vendor’s right to recover that money, then, if asked by the vendor (including after completion), the purchaser must assign to the vendor the right to recover it and execute any document reasonably require by the vendor to give effect to that assignment. For the avoidance of doubt, nothing in this clause 54.9 limits the obligations of the vendor under clause 54.11.

40. Clause 67 concerns “Kobe Jones Rent Support”, which relates to the Sub-Lease and Wayl.

41. In summary, cl 67 provides that:

1. an amount of $476,576 (defined as the “Rent Support Amount”) would be held in an interest-bearing account established for the purposes of the clause (defined as the “Rent Support Account”) by the Escrow Holder: cll 35.5, 67.1, 67.2;

2. the Escrow Holder (defined as Perpetual Corporate Trust Limited or such other third party escrow holder as is agreed between the parties) would pay to Markham each calendar month during the Rent Support Period (defined as being the period commencing the day after completion and ending on the earlier of 2 November 2019, the date that the Rent Support Amount was exhausted or the date the Sub-Lease comes to an end), an amount that was the difference between the aggregate amount of the Tenant Payments (plus GST) that was due and payable under the Sub-Lease for the relevant calendar month and the amount actually received by Markham for that month: cl 67.2, 67.3(a). That payment was to occur on the last business day of each calendar month until the end of the Rent Support Period: cl 67.3(b); and

1. at the end of the Rent Support Period, the amount of the credit balance and interest in the Rent Support Account would be paid to LAOF unless the Sub-Lease was terminated by Markham due to Wayl’s default prior to 2 November 2019, in which case any interest that had accrued in the account would be paid to LAOF and the balance in the account would be paid to Markham: cll 67.2, 67.3(c).

42. On 30 November 2018, completion under the Sale Contract occurred, and the transfer of the Head Lease to Markham was registered on title and Markham became the lessee under the Head Lease and sub-lessor under the Sub-Lease.

43. According to Mr Zhuang’s evidence, on completion, the total amount of rental arrears under the Sub-Lease that was assigned to Markham was $162,543.93, of which, pursuant to the NCAT Orders payment plan, $152,594.28 was not due until 30 June 2019.

44. On 30 November 2018, Markham sent letters to Wayl and to Mr Misan notifying them of the transfer of the Sub-Lease from LAOF to Markham and the assignment of the guarantee provided by Mr Misan in the Sub-Lease to Markham.

Side Deed between LAOF and Markham

45. On or about 15 February 2019, LAOF and Markham entered into a side deed to the Sale Contract (Side Deed).

46. Under the Side Deed:

1. LAOF and Markham agreed that $376,000 of the Rent Support Amount was to be paid to Markham and the balance, of $100,576, paid to LAOF: cl 1;

2. LAOF assigned to Markham the right to recover the Kobe Jones Debt (defined to mean any Tenant Payments under the Sub-Lease due and payable to LAOF for any period up to and including completion of the Sale Contract that had not been paid to LAOF at the date of the Side Deed) and acknowledged Markham’s entitlement to recover all of that debt: cl 2; and

3. the parties agreed that their obligations under cl 67 of the Sale Contract and under the Escrow Deed had been fulfilled: cl 3.

47. The Side Deed was entered into in circumstances where Wayl had failed to pay all of the December 2018 rent, had not provided the Bank Guarantee by 31 December 2018 in accordance with the NCAT Orders. The evidence indicates that Mr James Markham (a director of Markham) was of the view that Wayl’s defaults entitled Markham terminate the Sub-Lease but preferred to try and get Wayl “back on track” (recognising that it came with a high chance of failure). He offered to release LAOF [2] from the “Retention Sum” of $476,000 (which would be payable to Markham if the Sub-Lease was terminated) in exchange for LAOF paying Markham $376,000 and LAOF forgiving all monies owed by Wayl, [3] which was estimated to be around $152,000 and unlikely to be recovered from “the tenant”. I understand that the reference to LAOF’s claim to monies from Wayl relate to the Base Case rent arrears to be paid by 30 June 2019 under the NCAT Orders which amounted to $152,594.28 (CB354).

    2. Referred to in the correspondence as “LIM”. See T41.6-9.

    3. Referred to in the correspondence as “Kobe Jones”.

48. Mr Zhuang, who was cross-examined about the rationale for the Side Deed, gave evidence to a similar effect and that Markham remained “entitled to arrears, essentially as part of the purchase of the property” (T35.43-36.17, T41.34-41).

49. On 22 February 2019, Markham received the sum of $376,000 from the Escrow Holder in accordance with the Side Deed (Exhibit 2).

50. Following completion of the Sale Contract, Jones Lang LaSalle (JLL) continued to manage the Premises on behalf of Markham. JLL issued monthly invoices to Wayl for rent and other moneys payable under the Sub-Lease for the period from December 2018 through to September 2019, although the invoice for December 2018 was issued in LAOF’s name as it was issued prior to completion. The invoices issued by JLL included the rent abatement amount provided by the Incentive Deed.

51. According to Mr Zhuang’s evidence, Markham received the amount of $72,727.10 from LAOF in respect of rent and other charges that were payable to Markham under the Sub-Lease (and had been paid to LAOF by Wayl) and the amount of $80,000 from Wayl, by way of four payments of $20,000 each made on 18 January, 26 January, 4 February and 18 February 2019.

52. Mr Zhuang’s evidence, which was not challenged by Mr Misan, is that Wayl made no payments of rent or other charges pursuant to the Sub-Lease (or in accordance with the payment plan under the NCAT Orders) from March 2019.

1 May 2019: Breach Notice

53. At 5.13 pm on 1 May 2019, Markham sent to Wayl a notice of breach of covenant under the Sub-Lease (Breach Notice) pursuant to s 129 of the Conveyancing Act1919 (NSW) (Conveyancing Act).

54. The Breach Notice refers to Wayl’s breach of the covenant to pay the Rent, Tenant’s Share of Outgoings, Promotional Levy and direct recoverables (Gross Rent) by failing to pay instalments due on 1 February, March, April and May 2019 and short payment of the January 2019 instalment, Wayl’s failure to comply with the NCAT Order in meeting the Base Case Payment Plan (as Wayl was $10,773.55 behind the scheduled instalments), and Wayl’s failure to provide a Bank Guarantee for the amount of $183,325.98 in accordance with the NCAT orders. The Breach Notice refers to an outstanding amount of Gross Rent and under the Base Case Payment Plan of $575,458.77 and attaches a statement of arrears that provides a breakdown of that amount (Arrears Statement). The Arrears Statement records the total NCAT Arrears as owing as $194,099.54, no amounts owing for December 2018, payment received in January 2019 (with $11,244 owing), no payments having been in respect of the February to May 2019 periods and that the Rent Abatement under the Incentive Deed was not applied.

55. The Breach Notice required Wayl to remedy the breaches by paying the outstanding Gross Rent amount and the instalments required under the NCAT Base Case Payment Plan and providing a Bank Guarantee within 14 days of the date of the Breach Notice and stated that Markham would be entitled to re-enter the Premises or forfeit the Sub-Lease if Wayl failed to comply.

56. At 5.09 pm on 1 May 2019, Markham sent a copy of the Breach Notice and the Arrears Statement by email to Mr Misan.

2 May 2019: Appointment of Administrator to Wayl

57. On 2 May 2019, Ms Shabnam Amirbeaggi, from the accounting firm Crouch Amirbeaggi, was appointed as the administrator of Wayl (Administrator).

58. According to Mr Misan, in his capacity as its director, he decided, to appoint the Administrator as Wayl was in financial difficulty and its negotiations with Markham (which had been ongoing since January 2019) to reach an accommodation to enable trading to continue had not been successful. He gave evidence in cross-examination that no further funding was pursued once the Administrator was appointed and that, as at 2 May 2019, he was personally unable to pay the outstanding rent or in a position to provide the Bank Guarantee of $183,000, and that his position did not change up until 9 June 2019. (T48.30 – T49.26).

59. A Notice to Creditors dated 2 May 2019 was issued by the Administrator and refers to Wayl as the “insolvent company” (CB415) (2 May Notice). It also states that during the administration period, Wayl would continue while its viability was considered but given the nature of company, there would “be no active trading during the administration period”, suppliers would be requested to “close off existing accounts” and the Administrator had refrained from adopting any pre-existing contract of Wayl, subject to written notice to the contrary.

60. Pausing here, the Administrator was not called to called to give evidence. Nor were any other people from her office. The contents of the 2 May Notice to Creditors, subsequent reports to creditors and emails from the Administrator and other staff from her office comprise unchallenged and contemporaneous statements made by the Administrator as to matters concerning Wayl and its operations and I see no reason to doubt their accuracy.

61. Mr Zhuang also gives evidence that Wayl had ceased trading a few days prior to the appointment of the Administrator. He also gives unchallenged evidence that from 2 May 2019, the Premises were not used and no rent was paid by the Administrator or Wayl.

6 – 13 May 2019: Communications between Markham and the Administrator

62. On 6 May 2019, the Administrator sent a notice to Markham advising that it was very unlikely that the accrued rental obligations under the Sub-Lease, estimated at $575,458.77 and detailed in the Breach Notice, would be paid from the sale of Wayl’s assets (Tender Documents (TD) at 22).

63. The 6 May notice stated that the Administrator believed it would be beneficial for Markham if Wayl continued to occupy the Premises for a period of approximately one month to enable her office to undertake a sales campaign to locate a buyer of the fit out and a new tenant on a “walk-in, walk-out basis” but there was insufficient funds to pay the rental obligations of approximately $25,000 per week during the sale process as the business was not profitable and has no cash reserves. The Administrator invited Markham to consider an arrangement to waive rental obligations for an agreed period while a “trade-on sale scenario” was explored. The Administrator informed Markham that if there was no sale or suitable offer made for the plant and equipment, the Administrator would have no option but to remove the realisable assets for the purposes of a sale by auction and, as with all liquidations, there would be no attempt to make good per the Sub-Lease obligation.

64. On 7 May 2019, the Administrator sent an email to Markham identifying the list of creditors for Wayl, which included ANZ as a first ranking secured creditor owed around $400,000 (TD19). The email referred to the possibility that a portion of the rent payable to Markham might be paid from the sale of assets ahead of ANZ if the fit out could be “sold as a going concern” (with a value of about $350,000) but value at a sale by auction would be immaterial. The Administrator indicated that she could not market the fit out as a going concern unless she was informed of the future rental for the new tenant and had an agreement from Markham for a rent-free period to attempt to sell the fit out. The email noted that Markham had already declined to offer a rent-free period, the Administrator was unable to actively advertise the business for sale until a rent-free period was available and, in the absence of a sale, it was likely that the business would close and the Administrator would “cherry pick” and remove assets that had a realisable value. The Administrator asked whether Markham wished to offer a rent-free period.

65. On 8 May 2019, Holding Redlich, on behalf of Markham, responded to the Administrator’s 7 May email (CB642-643). Holding Redlich’s letter refers to the rental arrears of $575,458.77 and discussions between Markham’s director (James Markham) and the Administrator which suggested that unless Markham was prepared to waive payment of rent for four weeks (during which time the Administrator would endeavour to find a buyer for the tenant’s business), Wayl would cease trading from the Premises which would also likely mean that the Administrator would recommend that Wayl be placed into liquidation as being hopeless insolvent. Holding Redlich’s letter states that Markham was not prepared to waive rent from 10 May 2019 and asked the Administrator to inform it of the following: whether Wayl would continue occupying the Premises on or after 10 May; if Wayl would not continue to occupy after that date, whether it would instead cease possession of the Premises; and, if Wayl would cease using the Premises from 10 May, whether Markham had the Administrator’s written consent to exercise its property rights in respect of the Sub-Lease and the Premises on and from 10 May 2019, including taking possession of the Premises due to Wayl’s breaches.

66. On 8 May 2019, Holding Redlich also wrote to Mr Misan in his capacity as the guarantor of Wayl’s obligations under the Sub-Lease (CB639). The letter noted that Wayl owed arears of $575,458.77, referred to discussions with the Administrator and asserted that if Wayl ceased trading and abandoned the Premises, it will have repudiated the Sub-Lease entitling Markham to terminate and claim damages from Mr Misan and Wayl. The letter also noted that Markham intended to pursue Mr Misan to recover its loss once any moratorium created by the administration of Wayl ended.

67. Also on 8 May 2019, the Administrator’s office sent an email to the facilities manager of King Street Wharf which notified that Ms Amirbeaggi had been appointed the Administrator of Kobe Jones Sydney Pty Limited (KJS) that day (KJS referred to as the company that operated the restaurant at the Premises), advised that the director (who was Mr Misan) had no authority to act, and requested that all swipe tags that allowed access to the Premises be immediately cancelled with only the Administrator or parties acting on her behalf being allowed access to the Premises (CB647). The next day, the Administrator sent a follow up email asking for urgent confirmation that the swipe cards had been cancelled. That request was forwarded to JLL, who then sent it to Markham noting that the request to cancel all access cards other than one swipe tag for the Administrator had been actioned (TD2-4).

68. On 9 May 2019, Markham lodged a Form 532 Appointment of Proxy form and a Form 535 Formal Proof of Debt form in the amount of $579,020.45 with the Administrator.

69. On 9 May 2019, the Administrator sent a letter to Markham giving notice of the Administrator’s intention not to exercise Wayl’s interests in the Premises with effect from close of business on 9 May 2019, as detailed in the attached Form 509B notice issued pursuant to s 443B of the Corporations Act 2001 (Cth) (Corporations Act), which also indicated that it was likely that any insurance policy maintained by Wayl would be automatically cancelled due to non-payment of the premium (s 443B Notice). The letter also stated that, pursuant to s 443B of the Corporations Act, the Administrator is not liable for rent or other amounts payable by the company under a lease for the period of five business days after the administration begins and where the company continues to use or occupy the premises, and referred to Markham’s Breach Notice as follows (CB658):

“I am aware that you issued a Notice of Breach of Covenant against the company on 1 May 2019, demanding payment of outstanding rent within 14 days. It appears that pursuant to the Notice, you are not entitled to take possession of the Property until the expiration of the 14-day period. Consequently, I am not in a position to provide you with my consent to take possession.”

70. The Administrator’s 9 May 2019 letter also confirmed that she had been appointed as the administrator of KJS on 8 May 2019, the plant, equipment and fit-out in the Premises were assets owned by KJS (and subject to a security interest registered by ANZ bank), and she was agreeable to leaving the plant, equipment and fit out in their current position to assist in the re-letting of the Premises as their immediate removal may impact the presentation of the Premises but at no cost to the Administrator of Wayl or KJS.

71. On 10 May 2019, Holding Redlich sent a letter to the Administrator referring to a conversation between the Administrator and the director of Markham and information received from the Administrator to the effect that Wayl and the Administrator had ceased to use the Premises and the Administrator had permitted Markham to re-enter them (CB663). Holding Redlich’s letter states that Markham regards itself as being entitled to enter the Premises and terminate the Sub-Lease due to Wayl’s repudiation and breaches of the Sub-Lease, that Markham is not agreeing to surrender the Sub-Lease and that Markham will regard Wayl as liable for loss of bargain damages. The letter also advises that Markham will proceed to reconfigure the locks of the Premises, including suspending all access cards so that access can only be obtained with Markham’s consent, and that the Administrator or Wayl would need to contact Markham directly if access was required.

72. At 10.21am on 10 May 2019, Markham sent an email to JLL that requested the cancellation of all cards for “Kobe Jones”, to take an inventory of what had been returned but to ensure that “in no way are we [Markham] inferring that the return of cards equates to a lease surrender” and to arrange to have the locks to the tenancy changed as it made “sense that Markham has a set of keys to the … tenancy” as “we are dealing with the leasing agents” (TD2).

73. There was then various communications exchanged between Holding Redlich and the Administrator on 10 May 2019, as follows.

74. At 12:07pm, the Administrator sent an email to Holding Redlich which referred to the Administrator’s comments in regard to possession of the Premises as detailed in her letter dated 9 May 2019 (CB666).

75. In an email sent at 1:49pm by Mr Markham to Holding Redlich, Mr Markham states that he spoke to the Administrator and “Nicholas” (presumably Nicholas Crouch from the Administrator’s office) on 8 May and was advised that Wayl had ceased trading that day, all staff had been sacked and the Administrator did not want the four-week moratorium on rent anymore. Mr Markham’s email also states that he said that, as they had ceased trading, Markham would want to take possession of the Premises immediately and would prefer the Administrator’s consent, and Nicholas confirmed that this “was fine” and offered to provide the keys on Thursday (namely, 9 May) but said it would be more likely on Friday (10 May) or Monday (13 May) (TD41).

76. At 2:02pm, Holding Redlich sent an email in which it was asserted that on the basis of the Administrator having informed them that Wayl does not intend to trade from the Premises, there was no proper basis for the Administrator to resist providing Markham with written consent to exercise its rights in respect of the Premises, and asked the Administrator to confirm whether or not there was any objection to Markham exercising its rights, including taking possession (CB668). In the email, Holding Redlich asserted that if the Administrator maintained that she could not provide consent to Markham exercising the rights it had to lawfully retake possession, Markham would consider Wayl to still be in possession of the Premises because the Administrator was purporting to exercise rights for the exclusive use of the Premises and Markham would issue and invoice for rent upon the expiration of the Breach Notice (CB668).

77. In an email sent at 2.16 pm, the Administrator advised that Markham had been provided with a notice of intention not to exercise property rights in respect of the Premises by the Administrator which was asserted to be clear as to the Administrator’s intention in respect of possession.

78. On 13 May 2019, the Administrator held a creditor meeting in relation to Wayl that Mr Zhuang and Mr Bede Haines from Holding Redlich attended.

79. Mr Zhuang’s evidence (to which no objection was taken) is that, at the meeting, the Administrator said words to the following effect:

“I have no objection to Markham exercising its property right, but I am not a legal expert to provide any views on whether or not the notice period under the s 129 notice needs to be complied with. I consent to Markham re-entering and I understood that my correspondence to Holding Redlich would be read this way.”

80. An email sent on 13 May 2019 by Mr Bede Haines of Holding Redlich to Mr Markham reported on the creditors meeting and referred to the Administrator having indicated that she had no objection to Markham exercising property rights but was not giving any views on whether or not the notice period under the Breach Notice needed to be complied with, and goes on to state (CB675):

“In other words, the administrator consents to you re-entering and said that she understood that her previous correspondence would be read this way (we regard it as being very confusing).”

81. On 13 May at 6.40pm, the Administrator sent an email to Holding Redlich that states as follows:

“In reference to our further discussions regarding access to the premises, I confirm that I do not object to your client entering into possession; but I note that I do not know whether I am in a position to consent as a result of the section 129 Notice issued on the company prior to my appointment. This may have the effect of limiting your client’s right to possession.

This is a technical/legal issue which has a degree of uncertainty and I do not have sufficient funds in the administration to seek clarity via legal advice.

However, I suggest that this is merely an academic issue, as we are not in conflict and both parties have a mutual benefit in leaving the property plant and equipment, including the fit out (‘Assets’), in place and the landlord entering into possession of the premises.”

14 May 2019: Locks changed

82. At 9:03pm on 15 May 2019, Ms Murphy from Markham sent an email to JLL asking whether the locks to the Premises had been changed (TD18). In an email sent at 9.26 pm that day, JLL advised that the locks had not yet been changed as they were waiting further instructions from Mr Zhuang as he had advised on Monday night (13 May) to “hold off until later today, as your team was awaiting further direction from your Solicitor / administrator” (TD17). The email from JLL asked whether the direction was now clear and indicated they would arrange for the locks to be changed over tomorrow, to which Ms Murphy responded that she would speak to Mr Zhuang in the morning for further instructions.

83. At 9.18am on 16 May 2019, Mr Zhuang instructed Ms Murphy that it was “Ok to instruct JLL to lock out the Premises (or replacing the locks)”. Shortly after, Ms Murphy sent an email to JLL to carry out the lock out/change the locks and to provide her with a key (TD15).

84. As events transpired, locks at the Premises appear to have been changed on 14 May notwithstanding Mr Zhuang’s instructions to JLL to hold off until further notice” (TD14). According to emails exchanged between JLL and the King St Wharf facilities manager on the morning of 16 May, it appears that Ameen’s Locksmiths had taken a reference by the facilities manager about a possible “install date” of Tuesday 14 May (following postponing the original “lockout date” that was communicated on 10 May) as “his instructions to proceed” but neither the facilities manager nor JLL had been informed that the locks had been replaced or that keys had been left onsite. My finding that locks were changed at the Premises on 14 May is also supported by a tax invoice issued by Ameen’s Locksmith and dated 14 May 2019 in the amount of $220 (inclusive of GST) that was accepted at the hearing to relating to the change of locks at the Premises.

16 May 2019: Termination of the Sub-Lease

85. At around 9.15 am on 16 May 2019, Holding Redlich sent a letter to the Administrator that purported to terminate the Sub-Lease (Termination letter). The letter stated (CB430):

“The administrator has stated the current status of the administration and the Tenant as follows:

1.   The Tenant has ceased trading from the Premises;

2.   The Tenant has no intention of using the Premises;

3.   The Tenant has abandoned the Premises;

4. The Administrator has given notice under s443B of the Corporations Act 2001 (Act);

5. To the extent that notice pursuant to s443B is not sufficient, the administrator has provided the Landlord with what she considers as being written consent pursuant to s440B(2) of the Act, meaning that the restrictions in Item 3 of the table to s440B do not apply to our client as Landlord;

6.   The Tenant is hopelessly insolvent with no ability to pay its current arrears and has no intention of doing so;

7.   The administrator considers that any payment to our client, including in a liquidation, is very unlikely;

8.   The administrator has asked that items left at the Premises be able to remain in place at no cost in case a buyer can be found.

If the above misstates the position of the Tenant or the administrator, please let us know.

Repudiation of the Lease

The above conduct constitutes a repudiation of the Lease by the Tenant. It also constitutes an anticipatory breach of essential terms of the Lease, including to operate from the tenancy and pay rent. In any case, the time for compliance with our client's breach notice has now lapsed without compliance.

Our client has accepted the Tenant's repudiation, further or alternatively its breach of lease, and has re-entered the Premises terminating the Lease.

…..

Loss to our client

In addition to the amounts specified in our client's proof of debt, it is now entitled to claim loss of bargain damages, which are likely to be substantial.

Our client is taking steps to locate a new tenant for the Premises.”

86. There is no written response from the Administrator to Holding Redlich’s 16 May letter in evidence.

Events post 16 May termination letter

87. On 29 May 2019, the Administrator issued a report to creditors that indicated that the only assets identified for sale were the trademarks relating to the restaurant group and recommended that creditors vote in favour of a resolution placing Wayl into liquidation at the forthcoming meeting of creditors (TD75). The report also notes that the Sub-Lease had been terminated by Markham since the Administrator’s appointment as a result of non-compliance with the Breach Notice issued by Markham.

88. On 6 June 2019, Wayl was placed into liquidation in accordance with a resolution passed at a meeting of Wayl’s creditors held that day.

Reletting of the Premises

89. On 8 July 2019, Markham entered into a leasing agency arrangement with Colliers International for the purposes of seeking a replacement tenant for the Premises for an initial three month period which was extended until the Premises were leased (CB30, CB434, T45.31-33).

90. The following steps were taken by Colliers International to relet the Premises:

1. advertising the Premises on

2. advertising the Premises on

3. emailing Colliers’ email database with details of the Premises;

4. contacting people in the hospitality industry to see whether they were interested in leasing the Premises; and

5. facilitating inspections of the Premises.

91. On 26 April 2021, Markham and GDR 1 Pty Limited (GDR) entered into a Sub-Lease for the Premises (GDR Sub-Lease) which commenced on 1 June 2021 and ends on 30 September 2032. Under the GDR Sub-Lease, the initial Base Rent is $606,081 (plus GST) per annum, with annual rent increases of 3.25% starting on 1 October 2023. The permitted use is as a Licensed restaurant serving Mexican cuisine.

92. Also on 26 April 2021, Markham, GDR and two individuals as guarantors, entered into an incentive deed in consideration for GDR entering into the Sub-Lease (GDR Incentive Deed). Under the GDR Incentive Deed, GDR is not required to pay Base Rent or its share of outgoings during the Fit Out Period (cl 4.1) and has a Base Rent free period during the 12 months immediately following the end of the Fit-out Period (cl 4.2).

93. According to Mr Zhuang’s evidence, the GDR Sub-Lease and Incentive Deed were negotiated by members of his team and by Markham (CB691, T46.1-3).

Was the Sub-Lease lawfully terminated by Markham?

94. Markham claims that it was entitled to and lawfully re-entered the Premises and terminated the Sub-Lease on 16 May 2019 as Wayl had repudiated the Sub-Lease, which Markham accepted in the 16 May Termination letter, and was in breach of essential terms in a number of respects (Statement of Claim (SOC) at [26] - [30], T14.14-18).

95. As to the basis of the claimed repudiation, Markham submits that, by 13 May 2019, Wayl’s conduct evinced an intention that it would not fulfil its obligations under the Sub-Lease relying on, amongst other things, Wayl’s continual failure to pay rent and other amounts due under the Sub-Lease, the appointment of the Administrator and the contents of her communications, particularly her 9 and 13 May letters (at [69]-[70] and [81] above).

96. Mr Misan denies that Wayl’s failure to pay rental arrears evinced an intention not to be bound or was a repudiation or breach of an essential term of the Sub-Lease. Although he admits that Markham re-entered the Premises and terminated the Sub-Lease, he claims that Markham’s re-entry and termination occurred on 14 May and was unlawful (Defence at [26] - [28], [30], T25.31-40).

97. At the hearing, Mr Misan advanced two reasons why Markham’s re-entry and termination was unlawful.

98. First, he said that Markham re-entered the Premises and terminated the Sub-Lease when the locks were changed on 14 May 2019, which had the effect of locking Wayl out of the Premises prior to the expiration of the 14-day remedy period provided under the Breach Notice. Mr Misan submits that, as Markham elected to issue the Breach Notice under s 129 of the Conveyancing Act (which he also submitted was required as a matter of law as the breaches relied upon by Markham were not limited to the non-payment of rent), it remained bound by the Notice and was not entitled to re-enter the Premises and terminate prior to the expiration of the 14-day remedy period, which ended at midnight on 15 May 2019 (T25.31-47; Defendant’s Outline of Closing Submissions at 1, 4 and 5).

99. Mr Misan submits that Markham’s (early) re-entry on 14 May amounted to a repudiation of the Sub-Lease as it brought the quiet enjoyment of the Premises by Wayl (through the Administrator) to an end, made it futile for Wayl or Mr Misan to fulfil the requirements of the Sub-Lease or those imposed by the Breach Notice and thus, prevented Markham from exercising its termination rights, relying on, in particular, Ingram and Knee v Patcroft Property Limited [2011] NZSC 49 at [41] (Ingram). Reference was also made in Mr Misan’s written submissions to Nina’s Bar Bistro Pty Limited v MBE Corporation (Sydney) Pty Limited [1984] 3 NSWLR 613 at 632-633 (Nina’s Bar Bistro); Idameneo (No 123) Pty Ltd v Ticco Pty Ltd [2004] NSWCA 329 at [97] and Peter Turnbull and Co Pty Ltd v Mundus Trading Co (Australasia) Pty Limited (1954) 90 CLR 235 at 633 (Peter Turnbull v Mundus Trading).

100. Mr Misan also submits that, as Wayl had been locked out of the Premises, the Administrator was required to accept the repudiation or approach the court for relief. He says that the court should conclude that the Administrator accepted Markham’s repudiation (relying on the fact that she did not seek to have the keys provided to her or take steps to re-possess the Premises (T79.24-29)) and, as a consequence, Mr Misan’s future obligations as surety under the Sub-Lease were discharged.

101. Second, Mr Misan contends that, irrespective of whether it occurred on 14 or 16 May 2019, Markham’s re-entry of the Premises was unlawful as it was in contravention of s 440B(1) and Item 3 of the Corporations Act as Markham did not have leave of the Court or written consent from the Administrator to re-enter and take possession.

102. Mr Misan claims that Markham’s premature and unlawful re-entry prevented the Administrator and creditors from having the breathing space to be able to decide Wayl’s future with its assets intact or to salvage its business, contrary to the statutory purpose and scheme of Part 5.3A of the Corporations Act, relying on Corporations Act, s 435A; Re Java 452 Pty Ltd; Permanent Trustee Australia Ltd v Stout [1999] VSC 252 at [37]-[45] (Re Java); Toll Holdings Ltd v Stewart [2016] FCA 256 at [55]-[56]; and CMC (Australia) Pty Limited v Sarantinos [2013] NSWSC 873 at [32]. He submits that, having re-entered without written consent from the Administrator, Markham cannot seek indemnity from Mr Misan for consequences resulting from Markham’s own unlawful act: Unity Finance Limited v Woodcock [1963] 2 All ER 270 (Unity Finance v Woodcock) and Goulston Discount Company Ltd v Clark [1967] 2 QB 493 (Goulston Discount v Clark).

103. At the hearing, Mr Misan also noted that the only pleading of repudiation related to Wayl’s failure to pay the amount of $526,457.59 in breach of the Sub-Lease (SOC at [26] and [28], T74.10-41). If by raising this, Mr Misan contends that the court cannot make a finding that the Sub-Lease was repudiated by Wayl for reasons other than the non-payment of the amount referred to in the Breach Notice and in respect of events after 1 May 2019, I reject that submission. In addition to the SOC referring to the appointment of the Administrator and the 16 May Termination letter (SOC at [29] and [30]), Markham’s written submissions served before the hearing made it clear that its case on repudiation was not limited to non-payment of the amount referred to in the Breach Notice and conduct after that notice was issued (Plaintiff’s Opening Submissions at [27] and [38]-[41]).

104. I should also record that both Markham’s and Mr Misan’s pleadings refer to Markham having re-entered and terminated the Sub-Lease on dates different to those asserted by each party at the hearing. Markham’s SOC at [30] refers to “on or about 15 May 2019” but it contends that this occurred on 16 May (T14.8-18). Mr Misan’s Defence at [30(b)] refers to 10 May or, alternatively 15 May, but he contends that re-entry and termination occurred on 14 May (T25.31-40; T78.47-T79.1). I have approached the case on the basis of the dates asserted by the parties in oral submissions rather than the pleaded dates. As already noted, Mr Misan also did not press the aspects of his pleaded defence which put in issue Markham’s standing to bring a claim under the guarantee and indemnity provisions under the Sub-Lease.

105. Markham contends that Mr Misan’s defences based on unlawful re-entry and termination should be rejected. Its submissions can be summarised as follows:

1. Markham was not obliged to issue a notice to Wayl under s 129 of the Conveyancing Act in circumstances where, as in this case, Markham relied on its common law right to re-enter, forfeit and terminate the Sub-Lease by acceptance of Wayl’s repudiation rather than failure to comply with the Breach Notice. Reliance was placed on Shevill v Builders Licence Board 149 CLR 620; [1982] HCA 47 (Shevill) and Wash Investments Pty Limited v SCK Properties Pty Limited [2016] QCA 258 (Wash Investments);

2. the evidence does not support a finding that Wayl was locked out and Markham re-entered and took possession of the Premises (and terminated the Sub-Lease) on 14 May 2019 as, even accepting that locks to the Premises were changed that day, they were changed without Markham’s authority, keys to the locks were left on site and, from 9 May to a date unknown, the Administrator had access to the Premises via a swipe card (T67.30-68.6);

3. even if Markham re-entered the Premises by changing the locks on 14 May prior to the expiry of the Breach Notice (which is not accepted), Markham was entitled to exercise its common law right to accept Wayl’s repudiation (which existed as at 13 May) and terminate the Sub-Lease that day without providing a notice under s 129 of the Conveyancing Act. As was put at the hearing, if the court finds there was a "lockout" on 14 May 2019, then Markham accepted Wayl’s repudiation by conduct rather than by way of written communication (T69.26-28). Further, and to the extent that changing the locks occurred prior to expiry of the Breach Notice (which is not admitted), Markham was still entitled to terminate the Sub-Lease notwithstanding it may have been in breach itself: JW Carter, Carter’s Breach of Contract (2011, Butterworths) at [10-35]; RoadshowEntertainment Pty Ltd v ACN 053006269 Pty Ltd (1997) 42 NSWLR 462; Almond Investors Ltd v Kualitree Nursery Pty Ltd [2011] NSWCA 198 (Almond Investors); Peter Turnbull v Mundus Trading at 246; Nina’s Bar Bistro; and

4. on the proper construction of the correspondence, the court should conclude that the Administrator gave her written consent to Markham re-entering and taking possession of the Premises on and from 13 May 2019. In any event, as the Administrator gave oral consent and did not object to re-entry, any breach of s440B(1) of the Corporations Act was “technical” (T65.1-11), and did not prevent Markham from accepting Wayl’s repudiation or have the consequence of discharging the future obligations under the Sub-Lease, as Mr Misan contends.

Repudiation, re-entry and termination

106. The ordinary principles of contract law, including that of termination for repudiation or fundamental breach, apply to leases: The Progressive Mailing House Pty Limited v Tabali Pty Limited (1985) 157 CLR 17; [1985] HCA 14 at 29 (Progressive Mailing House).

107. If a party to a lease repudiates the lease or commits a fundamental breach or breach of an essential term, the other party may accept the repudiation or breach and terminate the lease. Where the lessee repudiates or breaches the lease, the lessor may choose to re-enter and terminate the lease by exercising its contractual rights under the lease for breach or accept the repudiation and terminate under ordinary principles of general contract law: Brendan Edgeworth, Butt’s Land Law (7^th ed, 2017, Thomson Reuters) at [7.1680]; World Best Holdings Limited v Sarker [2010] NSWCA 24 (World Best Holdings) at [42].

108. The right to terminate following repudiation is separate to a right to terminate for breach of an essential term of a contract. Acceptance of the repudiation discharges the party not in default from further performance: Shevill at [622].

109. Section 129 of the Conveyancing Act requires that a notice be given by a lessor before seeking to enforce a right to re-enter or forfeiture under a lease for breach of any covenant or condition in the lease but does not apply in the case of re-entry or forfeiture for non-payment of rent: ss 129(1) and 129(8). The section does not create a right of re-entry or forfeiture but imposes a condition on the exercise of the right where it is conferred by a lease and is only engaged where the right of re-entry or forfeiture is to be exercised on the basis of a breach of the lease. Compliance with section 129 of the Conveyancing Act is not required where a lessor seeks to exercise their common law right to terminate for the lessee’s repudiation: World Best Holdings at [38] - [40]; Wash Investments at [26].

110. A party repudiates a contract when they evince an intention no longer to be bound by the contract or to fulfil it in a manner that is substantially inconsistent with their obligations. The test is whether the conduct of one party is such as to convey to a reasonable person in the position of the other party renunciation either of the contract as a whole or a fundamental obligation under it: Shevill at 625-626; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 16 CLR 623 at 647, per Brennan J; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61 at [44].

111. Repudiation may arise where there are actual breaches of a contract. It may also arise from an anticipatory breach if, prior to performance being due, a party manifests an inability or unwillingness to perform the contract at all or in substance: Foran v Wight (1989) 168 CLR 385 at 406, 423 and 441.

112. While it is open to parties to agree that a particular obligation under a contract is essential, in which case a breach of that obligation will be treated as a fundamental breach entitling the other side to terminate, a breach of such an obligation will not necessarily manifest an unwillingness or inability to render substantial performance of the contract such as to amount to repudiation. Where a landlord terminates for breach of an obligation agreed by the parties to be essential but that breach does not amount to repudiation, retaking of possession would be an exercise of a right under a lease for breach and require compliance with s 129 of the Conveyancing Act unless the breach is in respect of non-payment of rent: Macquarie International Health Clinic Pty Limited v Sydney South West Area Health Service [2010] NSWCA 268 at [296].

106. Whether a lessor or lessee has repudiated a lease will depend on the circumstances. Failure to pay rent may be a breach of an essential term but may or may not constitute a repudiation: see, for example, Progressive Mailing House; Shevill.

107. It was common ground that, as at 1 May 2019, Wayl had failed to pay rent, outgoings or other charges payable under the Sub-Lease for the months of February, March, April and May 2019 and provide a Bank Guarantee in accordance with the terms of the Sub-Lease (above at [54]; T24.48-50). Wayl’s defaults were breaches of essential terms of the Sub-Lease (cl 19.3) that entitled Markham to end the Sub-Lease, re-enter and take possession of the Premises (cl 19.2(a)) subject to, if required by law, giving a notice to Wayl that provided for 14 days for compliance: cll 19.2(a) and (b).

108. The existence of the contractual right to re-enter and take possession did not preclude the exercise of Wayl’s common law rights to terminate for repudiation under the ordinary principles of general contract law: Progressive Mailing House at [56]; Wash Investments at [25]. Clause 19.2(a)(v) provided that Markham could exercise any other legal right in the event of Wayl’s breach of the Sub-Lease which preserved Markham’s entitlement to exercise its common law right to terminate the Sub-Lease following repudiation in circumstances where the repudiation involved breaches of the Sub-Lease.

109. In response to Wayl’s defaults, Markham issued the Breach Notice, which it was required by 129 of the Conveyancing Act to do as the notice was in respect of a right of re-entry or forfeiture that included a breach of Wayl’s covenant under the Sub-Lease to provide a Bank Guarantee, in addition to the non-payment of rent. Compliance with s 129 of the Conveyancing Act and the 14 day notice period in cl 19.2(b) was not required if Markham sought to exercise its contractual right to re-enter and take possession of the Premises for Wayl’s non-payment of rent since March 2019, which were fundamental breaches of the Sub-Lease and breaches of an essential term, or by exercising its common law right to terminate for repudiation based on those fundamental breaches.

110. The issuance of the Breach Notice might have involved an election on the part of Markham to seek to exercise the power of re-entry and termination under the Sub-Lease if the breaches referred to in the Notice were not remedied within 14 days, rather than exercise its other rights that existed at that time (including those under the NCAT Orders to terminate and repossess on seven days’ notice), but that decision did not prevent Markham from seeking to exercise those other rights and any further right it might have in the light of the events which followed.

111. Between 2 and 13 May 2019, there were further breaches of the Sub-Lease by Wayl and other conduct which, together with the failure to make any rental payments under the Sub-Lease from March 2019, in my view, manifested a clear inability to substantially perform Wayl’s obligations under the Sub-Lease such as to amount to repudiation by Wayl.

112. The appointment of the Administrator on 2 May 2019 was in breach of the Sub-Lease: cl 19.1(c). The cessation of trading and use of the Premises for Wayl’s Business (which occurred sometime between 2 and 8 May) was also in breach of cll 11.1 and 11.2, which were essential terms of the Sub-Lease (cl 19.3(b)). On 2 May 2019, the Administrator advised that any insurance policy maintained by Wayl in relation to the Premises would be automatically cancelled due to the non-payment of the premium, which was an anticipatory breach of another essential term of the Sub-Lease, namely cl 16.1.

113. In addition, during the period 2 to 13 May 2019, the Administrator indicated that Wayl was an insolvent company and unable to pay the rental arrears (at [52]), there would be no active trading, restaurant operations at the Premises would be closed (at [59]), the plant, equipment and fit-out (which were assets of KJS, not Wayl’s) should remain in the Premises (at no costs to Wayl) to assist with re-letting the Premises (at [70]), the Administrator did not propose to exercise rights in respect of the Premises in accordance with the s 443B Notice (at [69]), and the Administrator did not object and consented to Markham exercising property rights and taking possession of the Premises (at [81]).

114. The s 443B Notice did not, of itself, amount to a repudiation, of the Sub-Lease: Silvia v FEA Carbon Pty Ltd [2010] FCA 515 at [18]. However, that notice together with the existing and further breaches by Wayl and the content of the communications from the Administrator made it clear that Wayl was unable to and would not substantially perform its obligations under the Sub-Lease and amounted to a repudiation of the Sub-Lease by Wayl: Molit (No 55) Pty Ltd v Lam Soon Australia Pty Ltd (1996) 63 FCR 391 at 396E. Relevantly, there was no suggestion that Wayl’s financial position might improve and the evidence from Mr Misan indicates that he was unable or unwilling to assist in that regard.

115. The failure to make rental and other payments under the Sub-Lease from March 2019 and provide a Bank Guarantee may or may not have constituted a repudiation of the Sub-Lease on 1 May 2019. But I am satisfied that, by 13 May 2019, the circumstances amounted to a repudiation of the Sub-Lease by Wayl.

116. It follows, in my view, that on and from 13 May 2019, Markham was entitled to exercise its common law right to accept Wayl’s repudiation, re-enter the Premises and terminate the Sub-Lease without giving notice to Wayl under s 129 of the Conveyancing Act. In addition, Markham also had a right to re-enter the premises and terminate for fundamental breaches of the Sub-Lease for failing to pay rent without giving notice under s 129 of the Conveyancing Act.

117. Markham’s choice to terminate for Wayl’s repudiation was made clear by the terms of its Termination Letter (at [85]), which referred to many of the matters identified at [119] and [120]. The letter advised that Markham was, in the alternative, terminating on the basis of anticipatory breaches of essential terms of the Sub-Lease, which, in my view, clearly existed at the time, and also noted that the time for compliance with the Breach Notice had lapsed, which at the date of the Termination Letter (16 May 2019) was correct. Markham was entitled to rely upon all the various grounds (for example, a contractual right and a common law right) for terminating the Sub-Lease at that time, rather than electing one of them: Progressive Mailing House at 55-56 (Deane J).

Changing of locks

125. To effect re-entry, the landlord must obtain possession to the exclusion of the tenant or anyone else properly claiming under the tenancy: Consolidated Development Pty Limited v Holt (1986) 6 NSWLR 607 at 619. A landlord locking out a tenant from leased premises after non-payment of rent will generally constitute re-entry and termination of a lease: Islam v South Sydney City Council (1998) 9 BPR 16,865 at 16,868. A lock out by a landlord prior to the expiration of remedy period may also amount to a repudiation of the lease: Ingram.

126. I have already found that the locks at the Premises were changed on 14 May 2019 (at [84] above).

127. In support of his submission that the changing of locks at the Premises that day involved unlawful re-entry and constituted repudiation of the Sub-Lease by Markham because it occurred prior to the expiration of the 14-day period under the Breach Notice, Mr Misan relied on Ingram, a case where re-entry was effected a day early, pointing particularly to the ultimate finding at [41] that:

“… because of its unretracted repudiation of the lease by its unlawful re-entry and exclusion of the lessees from the premises, the lessor was intimating that payment of the balance of the June rent would be futile, in the sense that it would not lead to the reinstatement of possession of the premises. Because of that continuing stance the lessor was precluded from cancelling the lease for non-payment of that rent. Its repudiatory attitude continued until this proceeding was issued and the repudiation was thereby accepted by the lessees.”

128. In Ingram, the tenants had failed to pay rent that became due on 1 June. On 14 June (one day prior to the expiration of the 14-day period provided for under the lease), the landlord re-entered and shut out the tenant by changing the locks to the leased premises and distrained for unpaid rent. The court found that the changing of the locks and early re-entry constituted a repudiatory breach as it prevented the tenants from carrying out their business: at [24]. The court considered that the landlord was not entitled to terminate for non-payment of rent until the expiration of the 14-day period provided for under the lease had expired (as the operation of the clause in the lease which provided that the obligation to pay rent was an essential term was suspended for that 14-day period). The court also held that the landlord’s ongoing repudiation in retaining possession of the premises prevented it from claiming a right to cancel the contract for non-payment as the conduct meant that the tenants could no longer operate their business and pay rent which the evidence indicated could have been paid on 14 June if the landlord had not terminated the lease: at [26] and [29]. The court also held that the tenants were justified in not paying that rent where the landlord’s termination and other conduct intimated that payment of the rent would be futile and the lease would not be reinstated: at [30].

129. Unlike the position in Ingram, the act of changing the locks did not prevent Wayl’s continued use and occupation of the Premises for the purposes of conducting its business nor interfere with its right of quiet enjoyment. That is because Wayl had already ceased trading and was not using the Premises for its business. Further, in this case, the Administrator had indicated that she had no objection to Markham exercising its property rights and that there was a benefit to Wayl in Markham taking possession, and arrangements had been put in place to enable third party creditors of KSJ to access the Premises to take possession of their plant and equipment.

130. The evidence also makes plain that, by the time the locks were changed, there was a history of not insubstantial default by Wayl under the Sub-Lease and Wayl (and Mr Misan) was not in a position to pay the outstanding rental arrears, make future payments or meet other essential obligations under the Sub-Lease. In that context, I do not accept Mr Misan’s submission that it was the changing of the locks by Markham that made it futile for Wayl or the Administrator to fulfil the requirements of the Sub-Lease or those imposed by the Breach Notice: Nina’s Bar Bistro at 633, citing Peter Turnbull v Mundus Trading.

131. In any event, I am not persuaded by Mr Misan’s submission that the locks to the Premises were changed at the behest of Markham on 14 May and that it re-entered and took possession on that day. Although the evidence indicates that Markham was keen to take possession of the Premises and had been contemplating changing the locks from around 10 May, in my view, the evidence also demonstrates that the locks were changed on 14 May without Markham’s authority and without the knowledge of relevant decision makers (namely Mr Zhuang, Ms Murphy and representatives of JLL) who, according to the evidence, did not identify that the locks had been changed until the morning of 16 May (at [84]). In those circumstances and where, as Markham submits, the evidence indicates that the keys to the changed locks were left onsite and the Administrator had access to the Premises via a swipe card (from at least 9 May), I am not satisfied that the changing of the locks on 14 May 2019 had the effect that Markham had re-entered and obtained possession of the Premises to the exclusion of Wayl and its Administrator on that day or prior to the morning of 16 May.

132. Even if the changing of the locks amounted to re-entry and taking possession of the Premises by Markham on 14 May, I do not accept Mr Misan’s submission that such conduct amounted to a repudiation of the Sub-Lease by Markham. Looked at objectively, in the circumstances of this case, as outlined above, in my view, the proper characterisation of Markham’s conduct is that the change of locks represented the act of Markham accepting Wayl’s prior repudiation of the Sub-Lease.

133. As I have found, Wayl’s repudiation of the Sub-Lease entitled Markham to accept that repudiation and terminate on and from 13 May 2019. Markham’s right to terminate on that basis, or on the basis of a fundamental breach for failing to pay rent since March 2019, did not require notice under s 129 of the Conveyancing Act or the Sub-Lease. Nor was lawful termination for repudiation reliant on the expiration of the 14-day remedy period in the Breach Notice. In my view, the fact that re-entry by Markham on 14 May for breach of covenants under the Sub-Lease other than non-payment of rent was not authorised by the Breach Notice did not preclude Markham from relying on the exercise of its additional and separate common law right to accept Wayl’s repudiation of the Sub-Lease or terminate for fundamental breach for non-payment of rent by changing the locks, re-entering and taking possession of the Premises on that day: Leda Commercial Properties Pty Ltd v DHK Retailers Pty Ltd (1992) 111 FLR 81 at 90-91.

134. For these reasons, I do not accept Mr Misan’s contention that the changing of locks at the Premises on 14 May involved unlawful re-entry and constituted a repudiation of the Sub-Lease by Markham. It follows that the other issues raised by the parties’ submissions do not arise for determination, namely, whether Markham remained entitled to terminate the Sub-Lease for Wayl’s repudiation if it was in breach of the Sub-Lease and whether the Administrator accepted Markham’s repudiation.

135. However, it is appropriate to record that I considered there to be force to Markham’s submission that it would have remained entitled to terminate for Wayl’s repudiation even if Markham was in breach of the Sub-Lease by changing the locks on the Premises prior to the expiry of the Breach Notice. This is for the reasons set out in Markham’s written submissions (at [42] – [55]). In particular, I am satisfied that there was no causal relationship between Markham’s alleged breach and its grounds for termination (being Wayl’s repudiatory conduct and fundamental breaches): Nina’s Bar Bistro at 614E, 620F and 632D; Peter Turnbull v Mundus at 246; Idameneo at [97]. While acknowledging that Markham’s breach was unlikely to be of a non-essential character (cf Almond Investors) and there is authority for the proposition that if both parties have repudiated then neither can terminate (Hoy Mobile v Allphones Retail Pty Ltd (No 2) [2008] FCA 810), in circumstances where the changing of the locks had no effect on Wayl and the Administrator had no objection to Markham taking possession and exercising its property rights, Markham’s “continuing breach” (on 14 and 15 May) should not, in my view, operate to preclude Markham from claiming that Wayl had repudiated the Sub-Lease (and committed fundamental breaches) and terminating on that basis.

136. As to Mr Misan’s submission that the effect of being locked out required the Administrator to accept the repudiation or approach the court for relief and that she chose the former (having not done the latter), based on the documents in evidence (at [87]), I infer that the Administrator accepted that the Sub-Lease was lawfully terminated by Markham with effect from 16 May 2019 as a result of non-compliance with the Breach Notice rather than treating the Sub-Lease as having been terminated on 14 May due to the change of locks and re-entry by Markham or acceptance as Markham had repudiated the Sub-Lease.

Section 440B of the Corporations Act

137. Section 440B(1) of the Corporations Act creates a moratorium during a corporate administration on the exercise of third party property rights. Amongst other things, the section restricts a lessor from taking possession of or otherwise recovering property used or occupied by, or in possession of a company, during the company’s administration. Those restrictions do not apply if the lessor’s property rights are exercised with the administrator’s written consent or with leave of the Court: Corporations Act, s 440B(2).

138. There was no dispute, and I am satisfied, that s 440B(1) of the Corporations Act is enlivened even though the evidence indicates that Wayl and the Administrator had ceased to use and physically occupy the Premises. For the purposes of that section Wayl was in possession of the Premises prior to 16 May 2019.

139. As was put by Mr Misan at the hearing, the contemporaneous documents show that there was never written consent given although “it comes perilously close” (T76.25-27). He relies, in particular, on the Administrator’s statement in the letter dated 9 May 2019 (at [69]) that “I am not in a position to provide you with my consent to take possession”, the email of 10 May 2019 (which Mr Misan says reiterated the statement in the 9 May letter), and the statement in the Administrator’s email dated 13 May 2019 that (at [81]):

I do not know whether I am in position to consent as a result of the section 129 Notice issued on the company prior to my appointment. This may have the effect of limiting your client’s right to possession.

140. Markham contends that the communications from the Administrator, in particular the letter dated 13 May, satisfy the requirement for written consent under s 440B(2) of the Corporations Act (T12.24-42). I agree.

141. The Administrator’s statements in her letters dated 9 and 13 May 2019 are somewhat qualified and do not, in terms, give unequivocal express written consent to Markham exercising its property rights in relation to the Premises by reference to s 440B(2) of the Corporations Act. I accept that there is a degree of ambiguity in what she wrote. That said, when regard is had to all of the communications in evidence, I am satisfied that by 13 May 2019, consent for the purposes of s 440B(2) had been given in writing by the Administrator, if not expressly then by implication.

142. In my view, when construed in the light of the Administrator’s statements at the 13 May creditors meeting that she “consent[s] to Markham re-entering” and she “understood that her previous correspondence would be read this way” (at [79] and [80] above), the statements in the 13 May letter that “I do not object to [Markham] entering into possession”, she and Markham were “not in conflict”, and there was a “benefit in [Markham] entering into possession of the Premises” (at [81]), can be taken as a written expression of the Administrator’s consent to Markham taking possession of the Premises from that day. To construe the communications otherwise would not be consistent with the Administrator’s apparent intent, nor what I consider a reasonable businessperson standing in the shoes of a lessor like Markham would understand them to mean.

143. On this issue of written consent, I also consider it to be relevant that the ambiguity in the Administrator’s letters arose from a perceived concern about a legal issue regarding the impact of consent on the timing under the Breach Notice (which she described as a “technical/legal issue” in the sense of having no practical impact), rather than any concern that Markham’s exercise of its property rights would interfere with the conduct of the administration of Wayl or its creditors. In other words, a finding that the Administrator’s communications amounted to written consent for the purposes of s 440B(2) in this case is not inconsistent with the purpose and context of that section.

144. Unlike the company in administration in Re Java, the Administrator had already taken steps to cease trading and shut the Premises down.

NCAT Arrears

177. Mr Misan’s contention that he is not liable for the NCAT Arrears relies on his submissions outlined at [162], [163] and [167].

178. In particular, he submits the following: the NCAT Arrears were not owed to Markham on the transfer of the Premises under the Sale Contract (because of cl 54.8); when they were subsequently assigned by LAOF to Markham under the Side Deed, that assigned debt in Markham’s hands did not (because of the reservation to LAOF) constitute “Guaranteed Money” for the purposes of cl 17.1 of the Sub-Lease as Mr Misan, as Guarantor, had not guaranteed debts of Wayl that had been assigned to the Landlord by a third party and were not referable to amounts owed to the Landlord, but to the occupation of the Premises or in connection with the Sub-Lease.

179. For the reasons set out at [166] above, I reject Mr Misan’s contentions. In circumstances where Mr Misan conceded that Markham has an entitlement to claim payment of the NCAT Arrears from Wayl, and having regard to the nature of those payments, being money that Wayl was or may at any time be liable to pay to Markham as the Landlord under or in connection with the Sub-Lease, I am satisfied that the NCAT Arrears is Guaranteed Money for the purposes of the Sub-Lease and recoverable from Mr Misan under cl 17.4 of the guarantee in the Sub-Lease as unpaid rent that accrued prior to the date of termination of the Sub-Lease.

Rent abatement

180. Mr Misan’s argues that the rent abatement amount of $9,312.64 (exclusive of GST) should be credited to the Rent Arrears claim for the month of January 2019 as the Gross Rent under the Sub-Lease had been paid in full for the month of 31 December 2018 (80.10-17).

181. Clause 2.3 of the Incentive Deed provided that Markham must grant Wayl the abatement in respect of the monthly Base Rent during the Base Rent Abatement Period (defined as the period from 28 May 2013 to the Expiry Date) for so long as Wayl is not in default under the Sub-Lease.

182. On 1 January 2018, Wayl was in default of its obligations under the Sub-Lease to pay Base Rent for January 2018 in full and on time (Base Rent was payable in advance on the first day of each month: Sub-Lease, cll 1.1, 5.1) and to provide, in accordance with the NCAT Orders, part of the unconditional Bank Guarantee on or before 31 December 2018. Those defaults were not remedied prior to termination on 16 May 2019. The NCAT Orders also provided that the amount of arrears accrued under the Sub-Lease would be calculated on the basis that the rent abatement amount did not apply for the months where the rent was not paid in full: NCAT Order (f)(ii).

183. Having regard to those matters and the terms of cl 2.3 of the Incentive Deed, I do not accept Mr Misan’s submission that Markham was obliged to provide a rent abatement amount for the month of January 2018 (or any of the months that followed).

Side Deed payment

184. Mr Misan submits that the payment of $376,000 received by Markham from LAOF pursuant to the Side Deed (referred to at [49]) should be brought to account and set-off against the claimed Rental Arrears for the months of February to May 2019 (Defendant’s Outline of Opening Submissions at [51]).

185. He argues that this is appropriate when regard is had to the purpose of the Rental Support Amount in the Sale Contract, which was, in essence, an amount paid by LAOF to cover losses to Markham from the shortcomings in Wayl’s rental payments in respect of the Premises and the nature of Markham’s claim against Mr Misan in this case, namely a claim for damages in respect of loss suffered and payable by Mr Misan pursuant to the guarantee and indemnity under the Sub-Lease (T83.5-29).

186. As was put by Mr Misan in oral submissions, Markham’s receipt of the amount of $376,000 on 22 February 2018 (which payment brought the Escrow Deed and Rent Support Account to an end) was a benefit to which it had no entitlement to under the Sale Contract in respect of the interest in the leasehold of the Premises) because it was just a payment for rent support (T83.18-23). While accepting that the payment did not remove Wayl’s obligation to pay rent, Mr Misan says that it must be brought to account because what Markham is effectively doing is saying, "We were owed this money by the tenant.  We received this money, effectively, to discharge it, but we'd like to claim the loss again, in which case we'll include it in the [Rental Arrears] amount of $575,000” (T83.26-29).

187. In oral submissions (T89.46-T90.3), Mr Misan referred to Moschi v Lep Air Services Limited [1973] AC 331, a case in which the Privy Council considered the measure of damages payable by a guarantor in circumstances where the creditor had accepted the debtor’s wrongful repudiation of the guaranteed contract. In particular, he referred to Lord Reid statement at 345-6:

“… when a contract is brought to an end by repudiation accepted by the other party all the obligations in the contract come to an end and they are replaced by operation of law by an obligation to pay money damages. The damages are assessed by reference to the old obligations but the old obligations no longer exist as obligations. Were it otherwise there would be in existence simultaneously two obligations, one to perform the contract and the other to pay damages. But that could not be right. The only legal nexus remaining is the obligation to pay the damages; so here when the respondents elected to end the company's contract by treating their fundamental breach as a repudiation and accepting it, their right against the company became a right to get damages. The respondents did not recover these damages from the company so they were part of the loss suffered by the respondents as a result of the company's breaches of contract. The appellant as guarantor had undertaken that the company would carry out its contract so the damages which the company have not paid were part of the loss flowing from the appellant's breach of contract for which the appellant is liable.”

188. In response, Markham submitted that the $376,000 represented a post-completion adjustment between Markham (as purchaser) and LAOF (as vendor) and, as Wayl continued to be obliged to pay rent under the Sub-Lease, there was no proper basis on which Mr Misan should obtain the benefit of that adjustment (T59.14-T60.26).

189. In addition, and also in reply to Mr Misan’s submission on this issue, Markham’s counsel made an oral application to amend the relief sought to include an order that Mr Misan pay to Markham the amount determined by the Court to be payable pursuant to the guarantee given by Mr Misan under the Sub-Lease (T91.1-25). The application was opposed by Mr Misan on the basis it was late and a concern about potential prejudice (T91.31-38). The parties agreed that the court should deal with the application as part of these reasons in circumstances where, after some further debate, there was, in my view, some doubt about whether the amendment was required.

190. Having reviewed the transcript, I have concluded that the amendment application should be refused as I am not persuaded that it is necessary or important to Markham’s case.

191. As Mr Misan’s counsel conceded at the hearing (appropriately in my view), he does not dispute that Markham’s claim against him was made pursuant to the guarantee and indemnity under the Sub-Lease. Nor does he take a pleading point that Markham’s claim was “for damages only” and not “under the guarantee” (T102.15-20). The pleadings of both parties in this case might not be a model of clarity. However, Markham’s claim to recover money from Mr Misan under or pursuant to the terms of the guarantee is apparent from the SOC at [34], which pleads that Mr Misan is liable for the loss and damage suffered by Markham “pursuant to the Indemnity and Guarantee”, rather than pleading that Mr Misan is liable to Markham for damages by reason of his breach of the guarantee. Markham’s opening written submissions also refer to Mr Misan being liable “under the Guarantee and Indemnity”, together with the costs associated with enforcing them (at [59]).

192. Turning to the substantive issue for determination, the guarantee given by Mr Misan provides that, if Wayl does not pay the “Guaranteed Money” on time, Mr Misan must pay that money to Markham, whether or not Markham has demanded that Wayl pay it: cl 17.4 of the Sub-Lease. That is, in my view, a covenant which continues to subsist and imposes a continuing obligation on Mr Misan notwithstanding termination of the Sub-Lease on 16 May 2019: see cll 17.7(d), 21.11 and 21.14 of the Sub-Lease.

193. Guaranteed Money is defined to mean all money that Wayl is or may at any time be liable to pay Markham under or in connection with the Sub-Lease and occupation of the Premises: cl 17.1 of the Sub-Lease. It is plain that rent, outgoings, promotional levy and direct recoverable charges that were payable by Wayl under the Sub-Lease prior to termination is Guaranteed Money for the purposes of that clause.

194. It is common ground that, in breach of the Sub-Lease, Wayl did not pay the Rent Arrears for January to May 2019 on time. As already noted, Mr Misan does not dispute that Wayl continued to have an obligation to pay those amounts, even though Markham received the $376,000 from LAOF in February 2018 (at [186] above).

195. Relevantly, the terms of the guarantee are independent of and in addition to any other “indemnity” Markham holds and are not discharged by any one payment: cl 17.6(a).

196. It follows, in my view, that Mr Misan is obliged by the terms of the guarantee to pay to Markham the Rent Arrears without adjustment as all of the Rental Arrears constitute “Guaranteed Money” for the purpose of cl 17.4. Put another way, irrespective of whether Markham received the $376,000 or not, Mr Misan is liable under the guarantee to pay to Markham all of the Rental Arrears that Wayl has failed to pay, representing the loss Markham suffered by reason of Wayl’s breaches of the Sub-Lease.

Conclusion on Rent Arrears

197. Accordingly, I find that, pursuant to the guarantee, Mr Misan is liable to pay to Markham the amount of $532,313.59 (including GST) representing the loss suffered by reason of Wayl’s failure to pay the Rent Arrears up to the date of termination.

Interest on Rent Arrears

198. Clause cl 17.11 of the Sub-Lease provides for interest to be paid on overdue amounts at an interest rate equal to 2% above the standard overdraft customer rate of the Commonwealth Bank of Australia (CBA) on the due date.

199. Mr Zhuang has calculated interest on the Rent Arrears at a rate of 11.31%, adopting the lower CBA overdraft rate of 9.31% as at October 2019 (CB692, CB801). He calculates interest on the Rent Arrears amount of $532,313.59 to be $158,266.81 for the period from 17 May 2019 (being the date he asserts that the Statement of Claim was lodged) to 7 September 2021, and calculates that interest will continue to accrue at a daily rate of $164.94 (CB692).

200. At the hearing, Mr Misan did not dispute the accuracy of Mr Zhuang’s interest calculations or his liability to pay interest in accordance with cl 17.11 of the Sub-Lease if he was liable to pay Rent Arrears or other amounts to Markham.

201. Based on Mr Zhuang’s evidence and Mr Misan’s position, I am satisfied that Markham is entitled to claim interest pursuant to cl 17.11 of the Sub-Lease at the rate of 11.31% on Rent Arrears to the date of judgment. I have however deferred making any order in relation to interest to enable updated calculations to be prepared having regard to my findings in these reasons.

Loss of bargain damages

202. Markham claims the amount of $3,057,010.42 as loss of bargain damages.

203. That amount claimed represents the total of the payments due to Markham under the Sub-Lease for rent, outgoings, promotion levy and “direct recoverables” during the period 16 May 2019 to 27 November 2022 (of $3,709,977.45), less the payments that Mr Zhuang estimates Markham will receive under GDR’s Sub-Lease during that period (of $652,967.03) less GDR’s estimated sub-lease. A table showing the breakdown of Mr Zhuang’s calculations is at tab 12 of Zhuang 3 (CB806).

204. Mr Zhuang’s calculations of what he estimates that Markham will receive from GDR are based on the GDR Sub-Lease, the GDR Incentive Deed and Markham’s estimate of GDR’s turnover. Mr Zhuang assumes that:

1. GDR is on a gross rent-free period from 1 June 2021 until 30 September 2021;

2. from 1 October 2021 until 30 September 2022, GDR is to pay Turnover Rent which is an amount equivalent to 10% of the Gross Sales above the Turnover Threshold, being nil for that period;

3. an estimate for GDR’s turnover for 1 October 2021 until 30 September 2021 to be $3 million based on Markham’s estimate for GDR’s turnover adopted in its internal operational budgets; and

4. a credit for a rent abatement incentive of $13,653.25 for GDR should be given, which is based on a rental rebate of $7,185.92 per month from 1 October 2022 until 27 November 2022.

205. Mr Misan did not take issue with Mr Zhuang’s calculations. However, in his opening written submissions, he contended that if loss of bargain damages were available, then Markham had acted unreasonably in failing to minimise its loss.

206. Mr Misan submitted that Markham’s evidence on the steps it took to find a new tenant was minimal, there was no actual evidence of what steps were taken to re-let the Premises or why they were left unoccupied for nearly two years following re-possession in May 2019, and that the terms of the GDR Lease appear to assume that Mr Misan will simply cover rent that has been waived or rebated for GDR. It was submitted that Markham’s loss of bargain damages claim is derived from the fact that it did not re-let the Premises for two years and has now re-let it on terms that mean that GDR will not pay any rent to November 2022 (which would have been the end of the Lease with Wayl) and, in doing so, Markham has acted unreasonably by seemingly maximising its loss rather than mitigating it in any way.

207. Mr Misan did not develop this argument at the hearing and did not lead any evidence in support of the propositions referred to in his written submissions.

208. Neither party made any reference to the principles to be applied when considering whether Markham had mitigated its loss (see, for example, Luxer Holdings Pty Ltd v Glentham Pty Ltd [2007] ASCA 209; (2007) 35 WAR 254 at [40] - [41] the principles referred to in Brendan Edgeworth, Butt’s Land Law (7^th ed, 2017, Thomson Reuters) at [7.1630] and the cases there cited), or to cl 19.3(a) of the Sub-Lease, which provides that, if Wayl breached an essential term and Markham re-entered and took possession of the Premises, Markham must take all reasonable measures to minimise its loss.

209. On its face, the fact that Markham took over two years to put into place a new tenant in the Premises, provided a rent-free period for four months and, what appears to be, some rental relief up to 27 November 2022 (the date that the Sub-Lease would expire), might suggest that Markham had not taken all reasonable steps to minimise its loss by installing a new tenant in the Premises.

210. However, Mr Zhuang’s evidence is that the COVID-19 pandemic and associated restrictions (which included shut-downs of non-essential activities and businesses and limits on the number of seated customers at restaurants) made it more challenging to identify suitable tenants from March 2020, particularly due to the size of the Premises (approximately 600 square metres), its permitted use and location in a dining precinct popular with overseas tourists. His evidence was that the GDR Sub-Lease and Incentive Deed was negotiated by Markham’s management and his team having regard to factors which included the effects of the pandemic, the size of the Premises and its access, the tenant’s covenant and terms of the lease and the period that the Premises had remained vacant due to lack of tenant interest.

211. Mr Zhuang’s evidence as to the steps taken to market and re-let the Premises (as set out at ([89]-[90]) or the evidence outlined at [184] above was not challenged in cross examination. Nor was any evidence led by Mr Misan (such as from an expert real estate agent) as to what other steps could and should have been taken or why the terms negotiated with GDR were unreasonable in the circumstances outlined above.

212. In the absence of any evidence to the contrary, I am satisfied that Mr Zhuang’s evidence is sufficient to establish that Markham suffered loss and took all reasonable measures to re-let the Premises and complied with its obligations to mitigate its loss under the Sub-Lease. In my view, the obligation to take “all reasonable measures” to minimise its loss required Markham to take all steps that would be regarded as ought reasonably be taken in the circumstances which, relevantly, would include retaining a third-party professional to market the Premises and negotiating terms for a new tenant that took account of the challenging circumstances at that time.

213. I am also satisfied that Mr Zhuang’s calculation of the amount of $3,057,010.42 equates to Markham’s loss of bargain of the Sub-Lease. His calculation quantifies the hypothetical position that Markham would have been in had the Sub-Lease remained on foot but takes account of the amounts properly payable by GDR under its Sub-Lease and the Incentive Deed. I find that the amount of $3,057,010.42 is recoverable from Mr Misan under the guarantee as money that Wayl would be liable to pay Markham in connection with the Sub-Lease (cll 17.1 and 17.3) or under the indemnity (cl 17.5), as loss incurred by Markham in connection with Wayl’s occupation of the Premises and being unable to recover guaranteed Money from Wayl.

214. I am also satisfied that Markham is entitled to recover the rent abatement incentive payment made to GDR in relation to the GDR sub-lease in the amount of $13,653.23.

Re-letting costs (leasing fees)

215. Markham claims an amount $117,540.11 for the leasing fees associated with the re-letting of the Premises.

216. Mr Zhuang gives evidence that the total fees paid was 14% of the estimated commencing gross rent (after the turnover rent period) and were allocated between three parties who were each involved in different stages of the re-letting process and who received different percentages of the total fee (CB692). SPG Leasing Services Pty Ltd received a 10% fee for introducing Markham to GDR which, according to M Zhuang, is in accordance with market practice for commercial landlords to pay. The bulk of the fee (70%) was paid to Markham Investment Management Pty Ltd for completing the sublease negotiations with GDR. Colliers International received the other 20% of the total fee.

217. No submissions were advanced by Mr Misan in relation to this amount. In the absence of evidence or submissions to suggest that the fee is unreasonable, I accept Mr Zhuang’s evidence.

218. I am also satisfied that this claim is recoverable from Mr Misan by Markham under the indemnity as loss, costs, charges or expenses that indirectly arise from or were incurred in connection with Wayl not complying with its obligations under the Sub-Lease: cl 17.5.

Make good costs

219. Clause 11.11(b)(i) of the Sub-Lease requires that on the date the Sub-Lease ends that Wayl must leave the Premises with all Make Good Works complete.

220. Markham claims the amount of $164,050.00 (excluding GST) in engaging a contractor, Colourful Solutions Painting and Maintenance Pty Limited, to carry out Wayl’s make good obligations under the Sub-Lease, including de-fitting the Premises and by engaging JLL for a site inspection and a practical completion letter (CB693). Mr Zhang’s affidavit includes a copy of the completion report by JLL dated 12 November 2019 and the invoices supporting the amount claimed.

221. No submissions were advanced by Mr Misan in relation to this amount. In the absence of evidence or submissions to suggest that the amount claimed is unreasonable, I accept Mr Zhuang’s evidence.

219. I am also satisfied that this claim is recoverable from Mr Misan by Markham under the indemnity as loss, costs, charges or expenses that indirectly arise from or were incurred in connection with Wayl not complying with its obligations under the Sub-Lease: cl 17.5.

Legal costs

223. Markham claims $100,085.08 (excluding GST) by way of legal costs, as at 30 July 2021. These legal costs are itemised in 21 invoices in tab [15] to Zhuang 3 that were issued to Markham during the period 22 August 2019 to 27 July 2021. The front pages of the tax file invoices are in evidence. They each refer to professional costs relating to the “Markham Real Estate Partners (KSW) Pty Ltd and Wayl Pty Ltd (in administration) t/as Kobe Jones - leasing dispute and administration advice”.

224. Mr Misan submits that the question of costs remains in the discretion of the court and the court should be informed by the usual considerations that govern the award of costs. He acknowledges that the basis on which costs are assessed (indemnity or otherwise) may be informed by contractual clauses but submits that the clauses do not give rise to any entitlement that supplants the discretion of the court.

225. Clause 17.10(a) of the Sub-Lease provides that Mr Misan, as Guarantor, must pay Markham’s costs, charges and expenses (including but not limited to legal costs, charges and expenses on a full indemnity basis whether incurred by or awarded against the Markham) in connection with the guarantee and indemnity.

226. While I accept Mr Misan’s submission that Markham’s ability to recover its costs of the proceedings from him as a defendant depends upon the exercise of judicial discretion, I see no reason why Markham should not be entitled to recover its legal costs pursuant to the guarantee and indemnity on an indemnity basis as provided for by the Sub-Lease which Mr Misan has signed as guarantor. In my view, an agreement between the parties that expressly provides for indemnity costs weighs in favour of the exercise of the Court’s discretion in that regard and I am satisfied that it is appropriate to award it on that basis.

227. Mr Misan did not take any issue otherwise in relation to the calculation of those costs.

Conclusion, costs and orders

228. For the above reasons, I am satisfied that Mr Misan is liable to Markham under the guarantee and indemnity provisions of the Sub-Lease and that Markham is entitled to judgment in its favour for Markham’s claims for Rent Arrears, loss of bargain damages, re-letting costs, make good costs, legal costs on an indemnity basis and interest at the rate of 11.31% pursuant to cl 17.11 of the Sub-Lease.

229. As Markham has succeeded in the proceedings, the usual order is that costs would follow the event and be paid on an ordinary basis by Mr Misan: Uniform Civil Procedure Rules 2005 (NSW), r 42.1.

230. In the SOC, Markham seeks an order that Mr Misan indemnify Markham for its legal costs, charges and expenses. As I understand it, this order seeks costs on an indemnity basis, relying on cl 17.10 of the Sub-Lease. I see no reason to depart from the terms of the Sub-Lease and the approach I have taken in relation to the legal costs incurred by Markham to 30 July 2021 and propose to make an order that Mr Misan pay Markham’s costs of the proceedings on an indemnity basis.

231. I have deferred making any orders at this stage, to enable the parties to confer about final orders and interest calculations, having regard to these reasons. The parties should confer and, within 7 days, provide agreed final orders that include interest calculations which reflect these reasons. The parties are at liberty to approach my Associate if agreement on final orders cannot be reached.

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Endnotes

Amendments

15 June 2022 - 15/06/2022 - [118] and [123]: changed "2018" to "2019"

15/06/2022 - [196]: changed "$376,00" to "$376,000"

15/06/2022 - [228]: changed "9.13%" to "11.31%"

Decision last updated: 15 June 2022