Oz International Investment Pty Ltd v Star Moon Investments Pty Ltd

[2023] NSWCA 148

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

OZ International Investment Pty Ltd v Star Moon Investments Pty Ltd [2023] NSWCA 148

Hearing dates:

29 May 2023

Date of orders:

30 June 2023

Decision date:

30 June 2023

Before:

Ward P at [1]; Davies J at [125]; Hallen J at [126]

Decision:

Appeal dismissed with costs.

Catchwords:

CONTRACTS – Construction – Interpretation –Meaning of the word “recommend” – Where the commercial context requires the recommendation of a tenant to involve more than finding or introducing one – Whether finding a witness unreliable affected the construction of the agreement

CONTRACTS – Termination – Repudiation of contract – Whether there was a breach of an essential term amounting to repudiation of a deed

Cases Cited:

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

DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; [1978] HCA 12

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7

Galafassi v Kelly (2014) 87 NSWLR 119; [2014] NSWCA 190

Heyman v Darwins Ltd [1942] AC 356

Impact Funds Management Pty Ltd v Roy Morgan Research Ltd [2016] VSC 221

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

Shevill v Builders Licensing Board (1982) 149 CLR 620; [1982] HCA 47

Sopov v Kane Constructions Pty Ltd (2007) 20 VR 127; [2007] VSCA 257

South Western Sydney Local Health District v Gould (2018) 97 NSWLR 513; [2018] NSWCA 69

Vardas v Coshott [2017] NSWSC 29

Vaswani v Italian Motors (Sales & Service Ltd) [1996] 1 WLR 270

Category:

Principal judgment

Parties:

OZ International Investment Pty Ltd (First Appellant)
Xinliang Yang (Second Appellant)
Star Moon Investments Pty Ltd (Respondent)

Representation:

Counsel:
TJ Morahan (Appellants)
J Foley (Respondent)

Solicitors:
Chen Shan Lawyers (Appellants)
Apex Lawyers Pty Ltd (Respondent)

File Number(s):

2022/00336893

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

District Court of New South Wales

Jurisdiction:

Civil

Date of Decision:

19 October 2022

Before:

Balla ADCJ

File Number(s):

2021/00130115

HEADNOTE

[This headnote is not to be read as part of the judgment]

The matter involves a dispute between the appellants (Oz International Pty Ltd and its sole director, Mr Xinliang Yang) and the respondent (Star Moon Pty Ltd) arising out of the arrangements under which the first appellant (OZ International), as the exclusive managing agent of property acquired by the respondent in Macquarie Park (the Property), had granted a rental guarantee in respect of the Property under a Deed of Rental Guarantee (the Deed) in February 2020. Those arrangements were entered into in the context of the respondent agreeing to acquire the Property. Under the Deed, OZ International undertook to cover any shortfall between the actual rent received by the respondent for leasing out the Property and a minimum guaranteed rental specified in the Deed. The rental guarantee period was from 1 July 2020 to 2 July 2025. After its acquisition by the respondent, the Property remained vacant until 1 August 2022.

In March 2021, the respondent demanded payment from the appellants of the minimum guaranteed rental under the Deed and when that demand was unsatisfied the respondent commenced proceedings in May 2021, claiming the rental shortfall under the Deed. The respondent’s claims were later expanded to include further amounts it alleged had become owing under the Deed, as well as claims for damages for breach of contract alleging that the appellants had wrongfully repudiated both agreements (among other things by purporting to terminate the agreements in August 2021).

The appellants denied liability and contended that the respondent was in breach of an express term of the Deed (cl 3) by failing to enter into a lease with a tenant who was recommended by OZ International. Clause 3 of the Deed required for the respondent to enter into a lease with a tenant “recommended” by OZ International. The appellants alleged that this amounted to a repudiation of the Deed, such that OZ International had validly terminated the Deed in August 2021. Further, the appellants alleged that the respondent had failed to mitigate its loss by rejecting tenants recommended by them and failing to take reasonable steps to find a tenant for the Property.

The appellants contended that a first (unidentified) tenant was recommended by OZ International in May 2020 during a phone call between Mr X Yang and the respondent’s director, Mr W Yang; and that a second (this time named) tenant was recommended in June 2021 in the course of a number of emails sent between the respondent’s solicitor and OZ International’s account manager (Mr Wang).

The primary judge found in favour of the respondent, holding that the appellants were required to pay the rental shortfall under the Deed to the respondent. In so doing, her Honour declined to find that OZ International had recommended either tenant to the respondent and held that it was therefore not open for OZ International to terminate the Deed as the respondent did not repudiate the Deed. The primary judge also found that Mr X Yang was an unreliable witness and did not accept his oral evidence where it was inconsistent with other evidence.

The principal issues before this Court were whether the primary judge: (i) erred in finding that OZ International failed to “recommend” any tenants to the respondent as pursuant to cl 3 of the Deed; (ii) erred in concluding that the finding of Mr X Yang as an unreliable witness affected the construction of the Deed; and (iii) erred in finding that the respondent did not repudiate the Deed, such that OZ International was unable validly to terminate the Deed.

Held (per Ward P, Davies and Hallen JJ agreeing) dismissing the appeal:

As to issue (i)

1. Whether OZ International recommended either the first or second tenant to Star Moon turns on the meaning to be attributed to “recommend” in the Deed. There is a clear distinction, in the natural and ordinary use of language, between finding or introducing a prospective tenant and recommending such a tenant; and it makes commercial sense for such a distinction to be reflected in the wording chosen by the parties in cl 3 of the Deed. As the exclusive managing agent for the Property, OZ International was in the position not simply to identify or put forward potential tenants to the respondent, but also to vet those tenants at least to the extent that it could then “recommend” them to the respondent: [72] (Ward P); [125] (Davies J); [126] (Hallen J).

2. It was not sufficient for OZ International to communicate, mention or inform the respondent of a proposed tenant’s lease proposal; there needed to be a recommendation of that tenant – something that the appellants and their solicitor studiously avoided making by not confirming (in the face of multiple requests) that they were making a “recommendation” within the meaning of cl 3 of the Deed: [74] (Ward P); [125] (Davies J); [126] (Hallen J).

As to issue (ii)

1. Mr X Yang’s belief as to the construction of the Deed (relevantly, that being that OZ International was not liable under the guarantee if it could not find a tenant) was irrelevant to the objective construction of the Deed: [101] (Ward P); [125] (Davies J); [126] (Hallen J).

As to issue (iii)

1. In obiter. An intention no longer to be bound by the relevant contract can be evinced by a refusal to perform (or, though this is not that case, an inability to perform) an essential term (or, substantial non-performance of an intermediate term) and repudiation can be by way of express words or implied from words and/or conduct: [117] (Ward P); [125] (Davies J); [126] (Hallen J). It is necessary to consider the conduct of the alleged defaulting party in all the surrounding circumstances in order to determine whether the words and/or conduct carries an implication of an intention to repudiate: [117] (Ward P); [125] (Davies J); [126] (Hallen J). Clause 3 of the Deed is not expressed as an essential term and, if breached, would be adequately remedied by way of damages: [118] (Ward P); [125] (Davies J); [126] (Hallen J).

   Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61; Galafassi v Kelly (2014) 87 NSWLR 119; [2014] NSWCA 190, applied.

2. In obiter. Given the recognised seriousness of a finding of repudiation, and the matters which the respondent has emphasised as to its acknowledgment of, and willingness to be bound by, the Deed (and the exclusive management agency agreement), even if OZ International had been found to have “recommended” a tenant for the purposes of cl 3 of the Deed so as to enliven the respondent’s obligation to enter into a lease with the proposed tenant, the respondent’s failure to do so did not in all the circumstances amount to a repudiation or renunciation of the relevant agreements and that its breach did not entitle the appellants to terminate the agreements as they purported to do in August 2021: [122] (Ward P); [125] (Davies J); [126] (Hallen J).

   Impact Funds Management Pty Ltd v Roy Morgan Research Ltd [2016] VSC 221, applied.

JUDGMENT

1. WARD P: This matter involves a dispute between the appellants, OZ International Investment Pty Ltd (OZ International) and its director, Mr Xinliang Yang (to whom I will refer as Mr X Yang, to avoid confusion with another Mr Yang who was involved in the relevant events), and the respondent, Star Moon Investments Pty Ltd (Star Moon), arising out of the arrangements under which the first appellant (OZ International), the exclusive managing agent of property acquired by Star Moon in Macquarie Park, had granted a rental guarantee in respect of the property (a retail premise) to Star Moon.

2. Relevantly, Star Moon brought proceedings (initially in the Local Court) claiming amounts it contended were due to it under a deed of rental guarantee entered into with the appellants on 26 February 2020. Those proceedings were ultimately transferred to the District Court and the claims made were expanded to include additional amounts allegedly due under the deed of rental guarantee and a claim for breach of contract. Star Moon alleged that the appellants had repudiated the deed of guarantee and the exclusive managing agency agreement by, among other things, purporting to terminate the deed and contending that they were no longer bound by the deed; delivering the keys to the property to Star Moon; failing to provide written confirmation that they intended to be bound by and to comply with the obligations under the deed and the exclusive managing agency agreement; and not computing or paying the amounts claimed as the shortfall amounts under the deed of rental guarantee (see [17H]- [17L] of the further amended statement of claim).

3. The appellants denied liability. In their defence to the further amended statement of claim filed in the District Court, they largely denied or did not admit the various allegations but they also alleged (see [11] of the defence) that Star Moon was in breach of an express term of the deed that it must enter into a lease with a tenant who was recommended by OZ International during the Rental Guarantee Period on the terms proposed by OZ International. It was alleged that “the defendant” (not identifying which) had recommended tenants to Star Moon (particularised by reference only to a series of dates: 15 May 2020, 11 June 2021, 8 July 2021, 23 July 2021 and 26 July 2021); that this was a breach of an essential term of the deed or a sufficiently serious breach of a non-essential term; or a repudiation or renunciation of the deed by Star Moon; and that OZ International had terminated (implicitly, validly terminated) the deed on or about 24 August 2021.

4. The appellants also pleaded in their defence, in answer to the whole of the claim, on an implied “force majeure” term, contending that the international Covid-19 Pandemic was an act of God which prevented OZ International from complying with its obligations (to recommend a tenant to Star Moon) and hence there was no breach (see at [19]). (On the appeal, counsel for the appellants noted that the force majeure/act of God defence had been abandoned by counsel for OZ International at the hearing at first instance in opening submissions but was then the subject of address in the closing submissions; but noted that this did not influence the determination by the primary judge in any way and no issue was taken about this on appeal – see AT 8).

5. Finally, it was alleged that Star Moon had failed to mitigate its loss (by rejecting “the tenant proposed by the tenant” ([sic]) and by failing to take reasonable steps to find a tenant for the Property (see at [20])).

6. The primary judge found in favour of Star Moon (see Star Moon Investments Pty Ltd v OZ International Investment Pty Ltd), ordering that the appellants pay the sum of $594,899.59 plus costs (on the ordinary basis up to 6 October 2022 and on the indemnity basis thereafter).

7. By notice of appeal filed on 18 January 2023, the appellants challenge the primary judge’s decision (on the grounds of appeal set out below). Not all of the grounds of appeal initially raised in the notice of appeal were pressed at the hearing of the appeal. In essence, the appellants challenge her Honour’s findings that OZ International did not recommend any tenants to Star Moon (see grounds 1, 3, 5-6); and the finding that Star Moon did not fail to comply with its obligations under the deed and consequently did not repudiate the deed of rental guarantee such that it was not open to OZ International to terminate the deed (following the alleged repudiation of it by Star Moon) (grounds 7 and 8).

8. Ground 4 (which complained about a factual finding to which the appellants in the hearing of the appeal could not point in the primary judgment) was not pressed (see at AT 30.28). As to ground 2 (which in terms challenged the finding that Mr X Yang “was not a reliable witness [and that this] affected the construction of the relevant parts of the Deed”), in oral submissions the appellants’ counsel disavowed that this was a credit challenge (see AT 10.35-48). Rather, the appellants wish to contest whether Mr X Yang’s reliability as a witness was something that should have affected the construction of the relevant passage of cl 3 of the deed of rental guarantee.

9. For the reasons set out below, the appeal should be dismissed with costs.

Background

10. As adverted to above, OZ International is a company which operates a real estate business. Mr X Yang is the sole director and secretary of OZ International. In January 2020, OZ International was the sales agent for a retail shop in Waterloo Road, Macquarie Park NSW (the Property). Star Moon was a potential purchaser of the Property.

11. On 26 February 2020, the appellants entered into a Deed of Rental Guarantee (the Deed) with Star Moon. Also on that date, OZ International entered into an Exclusive Management Agency Agreement with Star Moon with respect to the management of the Property. (It may be noted that Part 1, Item I of the latter agreement, as to the terms and conditions of tenancy, was not completed but nothing turned on this at first instance or in this Court.)

12. Relevantly, the Deed provided that:

2.   The Agent [OZ International] hereby undertakes to reimburse the Purchaser with any shortfall between the actual rentals and outgoings received by the Purchaser [Star Moon] before the deduction of any management fees and/or letting fees charged by the Agent pursuant to the said managing agency agreement compared to the Minimum Guaranteed Rental during the Rental Guarantee Period. The said shortfall is to be computed by The Agent within 7 days after the expiration of every six month period from the commencement of the Rental Guarantee Period and the said shortfall (if any) is to be paid at the end of the month following the completion of the said computation.

3.    The Purchaser must enter into a lease with a tenant who has been recommended to the Purchaser by the Agent during the Rental Guarantee Period in the terms proposed by the Agent.

13. The Rental Guarantee Period specified by cl 1 was from 3 July 2020 to 2 July 2025. Clause 1 set out amounts for the Minimum Guaranteed Rental by way of annual rent over five years. Any shortfall between the Minimum Guaranteed Rental and actual rentals received by Star Moon was to be reimbursed by OZ International (see cl 2 set out above).

14. On 2 March 2020, Star Moon entered into a contract to purchase the Property for a purchase price of $1,958,000 (GST inclusive). The purchase completed on 17 April 2020.

15. The Property remained vacant until 1 August 2022.

Alleged recommendations of tenants

16. The appellants contended at first instance (and maintain this position on appeal) that they made recommendations in respect of two tenants for the Property. (They say that no tenant ever proposed any rentals more than the Minimum Guaranteed Rental but the relevance of this to the issues here in question is moot.)

17. As to the first of the alleged tenant recommendations, this was said to be made in May 2020. The appellants relied at first instance on an alleged conversation between Mr X Yang, of OZ International, and the director of Star Moon (Mr Weiyang Yang, to whom I will refer as Mr W Yang). The primary judge did not accept the evidence of Mr X Yang that he recommended the first tenant to Mr W Yang and/or Mr Ronald Ma (Star Moon’s solicitor) for the reasons set out at [44] of the primary judgment and this is not challenged on appeal. Rather, what the appellants place weight on is the evidence Mr W Yang, who gave evidence of a telephone conversation between an employee of OZ International (Ms Winnie Su) and himself in May 2020 (see his affidavit affirmed 25 March 2020 at [6](c)). Mr W Yang was not cross-examined during the trial (see the primary judgment at [11]). Ms Su did not give evidence in the proceedings (see the primary judgment at [41]).

18. Mr W Yang’s evidence was that, in his telephone conversation with Ms Su, Ms Su told him that there was someone interested in leasing the shop for $100,000 a year and the proposed use of the premises (but did not inform him of the name of the prospective tenant, the term of the proposed lease, or any other proposed lease terms beyond an amount of rent); that he replied that this was “quite low, but we have a rental guarantee, so long as you are comfortable paying the shortfall in the rent its OK by me”; and that Ms Su said she would “get back to [him]”. Mr W Yang did not recall receiving the details of the offer, any proposal for the tenancy, or a draft lease. (Star Moon argues that at no point during the conversation did Ms Su “recommend” the unnamed prospective tenant to it and notes that the appellants did not contend at first instance that the call from Ms Su amounted to a recommendation.)

19. There is a reference in the primary judgment (at [44](8)) to another potential tenant having offered to pay a higher rent and not having yet made a final decision about whether to lease the Property (at that stage) (as something that made commercial sense of the appellants not wanting to recommend the first tenant to Star Moon).

20. On 22 March 2021, Star Moon, through its solicitors, demanded payment of the guaranteed amounts which it claimed were then owing under the Deed. As the primary judge noted, there was no response to the letter. Mr X Yang agreed that he did not inform Star Moon that the appellants were not liable for at least part of the claim because they had recommended the first tenant pursuant to cl 3 of the Deed (see at [44](4) of the primary judgment).

21. After that demand was not complied with, on 10 May 2021 Star Moon commenced proceedings in the Local Court against the appellants claiming the amounts allegedly then owing under the Deed.

22. On 10 June 2021, OZ International filed its defence to the statement of claim, in which it was alleged that OZ International was “prevented from complying with its obligations [to recommend a tenant] due to the Covid-19 Pandemic”, and that in those circumstances it was not in breach of its obligations and did not incur any liability to Star Moon. The primary judge noted that in that defence it was not suggested that OZ International had recommended the first tenant in May 2020 (at [44](5) of the primary judgment).

16. As to the second alleged recommendation, the appellants contended at first instance that, by a number of emails (the primary judge referred to five but it appears that this was a typographical error since the appellants rely only on four emails and her Honour only referred to four such emails), OZ International recommended a tenant to Star Moon in June 2021 (at [48]-[49]). Those emails (each of which was sent after the commencement of the Local Court proceedings) are: an email from Mr Frank Wang (the account manager of OZ International) to Mr Ma (as noted above, Star Moon’s solicitor) on 11 June 2021, the text of which is extracted in the primary judgment at [51]; an email on 8 July 2021 from Mr Wang to Mr W Yang, the text of which is extracted in the primary judgment at [65]; an email on 23 July 2021 from Mr Wang to Mr W Yang, the text of which is extracted at [69] of the primary judgment; and an email on 28 July 2021 from Mr Wang to Mr W Yang, extracted at [73] of the primary judgment.

17. In summary, in the first of those emails (the 11 June 2021 email), Mr Wang gave instructions to Mr Ma to prepare the lease for the Property, advising him as to the rent, outgoings, rent-free period, tenant (“BFF entertainment pty ltd”) and “opposing lawyer”. After an enquiry from Mr Ma, details of the commencement and termination date and term of the lease were also provided that day (see at [54] of the primary judgment). A draft lease was prepared and sent to Mr W Yang. The primary judge notes that Mr W Yang contacted Mr Ma’s office on 21 June 2021, asking who had instructed them to draft the lease, and that Mr W Yang subsequently contacted the solicitor acting for Star Moon in the proceedings (Mr Fanjie “Jason” Chen) asking him to confirm whether or not the tenant was recommended by OZ International (see at [56]-[57] of the primary judgment).

18. Relevantly, on 24 June 2021, Mr Chen (Star Moon’s solicitor) wrote to OZ International’s solicitor (Mr Wilson Shen) asking him to confirm “if the proposed tenant is recommended by OZ [International] pursuant to the Deed of Rental Guarantee … and your clients agree to reimburse our client with any shortfall between the actual rentals and outgoings received and the Minimum Guaranteed Rental (as defined in the Deed) pursuant to the Deed?” (see at [58] of the primary judgment). Mr Shen’s response on 28 June 2021 was that “it may be a mistake” and that his client would send “potential lessee offered relevant information” to Star Moon for its approval. Mr Wang on the same day wrote to Star Moon providing details of a “potential lessee who is interested in your property for lease” and of the offer that had been made. The letter stated that because the “Covid-19 epidemic was volatile” it was hard to find a lessee and that “if you miss this potential lessee, we do not know when can find one who is interested for [sic] the property to lease” (see at [60] of the primary judgment). The letter requested “Please take consideration of this offer”. Mr Chen wrote on 5 July 2021 to Mr Shen again asking him to confirm that the “purported lease offer” was made pursuant to the Deed and that Mr Shen’s client agreed to reimburse any shortfall from the Minimum Guaranteed Rental (and noted that Star Moon relied on and would continue to rely on the Deed).

19. Mr Shen’s response on 5 July 2021 did not provide the confirmation requested. Rather, Mr Shen asserted that Star Moon had an obligation to consider the potential lease “no matter whether under rental guarantee agreement” and referred to “stopping the mitigation of loss” (presumably a reference to an asserted obligation for Star Moon to mitigate loss). The email said that:

As the proposal lease from the potential lessee, before major terms and conditions determined, only can negotiate between your client, and potential lessee with our client, if anything through our legal practitioners, will miss the market change. It is a reasonable to allow the parties to discussing the lease, if you do not agree, may bring this issue to the court to be determined. However, if your client loss the opportunity in the market, your client may take a legal consequence. [sic]

27. Mr Chen confirmed to Mr Shen that his instructions were that his client was considering the lease proposed by OZ International, but that there were insufficient details provided and he requested that the managing agent (i.e., OZ International) provide full details of the lease negotiations, background check of the proposed tenant including the tenant and guarantor’s financial standing for consideration. (Pausing here, it seems clear from this that Star Moon regarded a “recommendation” of a tenant as more than a mere introduction.) Mr Shen’s response appeared to suggest that under the “current[] regime of lease” the property management agent was simply to find a potential lessee and that it was for the lessor (not the property management agent) who was to decide the lessee (which on one view appears to disavow any obligation to make a recommendation as such). The response also went into some detail as to the pandemic, the “God Act” (by which it appears Mr Shen is referring to the notion of an act of God relevant in the force majeure context), and the duty to mitigate loss (see at [64] of the primary judgment).

28. The second email (on 8 July 2021) referred to a “rental proposal … with tenant signature”, stating that the bond had been paid; said that it had been hard to find this potential tenant; “However, it is an opportunity for you”; and asked that, if Mr W Yang agreed the terms and conditions, he ask his lawyer to draft the lease. There were further communications from Mr Shen and Mr Chen (the former continuing to refer to Covid-19 as a God Act and raising the issue of mitigation). On 21 July 2021, Mr Wang again wrote to Mr W Yang referring to the proposal as “an opportunity” for him.

29. As to the third email (on 23 July 2021), Mr Wang wrote to Mr W Yang saying that they had not received any “feedback of this proposal” from him; and that the potential lessee had asked a number of times, pressing Mr W Yang for a response. Star Moon’s response was to request the documents/information sought in its solicitors’ email of 20 July 2021.

30. The fourth email (on 28 July 2021) was from Mr Wang to Mr W Yang stating that they were “waiting for your feedback” and again suggesting that the tenant might choose other shops. On the same day, Star Moon’s solicitor wrote to the appellants’ solicitor again asking for the provision of documents and information as to the tenant “as normal background check/market assessment” (which provoked a response that Star Moon’s requirements for a potential tenant were unreasonable in the particular circumstances such as Covid-19). Relevantly, in a subsequent communication that day, Mr Chen expressly noted that “your client [OZ International] has not recommended the proposed tenant” and complained that the appellants had not confirmed that they would honour their obligations under the Deed. Mr Chen noted that Star Moon would continue to require “a proper background and reference check” and asserted that Mr Shen’s client had a duty to obtain references and undertake the tenant selection process as a competent and diligent managing agent would have done. Mr Shen’s response to this made clear that the request was for approval by Star Moon of the lease and that he would not discuss the issue as to who was responsible for the rental payment (that issue being for the court to determine) (see the primary judgment at [73]-[76]).

31. Although the primary judge refers to Mr (W) Yang giving evidence at [80], this appears to be a typographical error and her Honour intended to refer to Mr Wang, as Mr W Yang did not give oral evidence. Proceeding on this basis, the primary judge noted that Mr Wang agreed that he was aware that, as at 28 July 2021, Star Moon had requested OZ International three times to confirm that the second tenant was recommended under the Deed (and that the appellants had not provided the confirmation requested; Mr Wang’s evidence being that his lawyer had told him that the second tenant was within the scope of the Deed so that he did not need to reply).

32. At [82], the primary judge referred to evidence of a conversation between Mr Wang and Mr W Yang on 9 August 2021 and preferred Mr W Yang’s evidence to the effect that he had asked Mr Wang to confirm that OZ International recommended the second tenant under the Deed and that Mr Wang did not do so (consistent, it would seem, with Mr Wang’s evidence the Deed was not within his scope of work and that it was handled by the solicitors) (see [81]).

Subsequent events

33. As noted above, after the amount claimed to be owing by the appellants to Star Moon under the Deed increased above the monetary threshold in the Local Court (by reference to the continued time in which the Property remained untenanted), the proceedings were transferred to the District Court.

34. On 23 August 2021, OZ International sent a letter to Star Moon purporting to terminate both the Deed and the Exclusive Management Agency Agreement (extracted at [86] of the primary judgment). The letter advised that the appellants had found a tenant for Star Moon on or about 11 June 2021, that Star Moon had failed to comply with cl 3 of the Deed and had failed to accept the tenant and the terms proposed; that the potential tenant had decided not to proceed with the lease; and that Star Moon’s non-compliance with the Deed amounted to a repudiation of the rental guarantee agreement created under the Deed, which the appellants accepted, thereby terminating “the rental guarantee agreement, the Deed and our managing agency agreement with you with immediate effect”.

35. On 26 August 2021, the solicitor for Star Moon wrote to the solicitor for the appellants, denying repudiation; asserting that OZ International did not at any time recommend a tenant to Star Moon pursuant to cl 3 of the Deed; not accepting the purported termination of the respective agreements; and confirming that Star Moon remained willing and able to perform its obligation under the Deed.

36. On 10 February 2022, the solicitor for Star Moon wrote to the appellants’ solicitor, noting that the shortfall for the six months to 2 January 2022 (payable on 31 January 2022) had not been paid; giving notice that this was a further breach of the Deed; noting that OZ International was continuing to evince an intention not to be bound by either of the agreements in failing to locate and recommend a tenant; and referring to other conduct as evidence of repudiation (returning the keys; filing a defence in the proceedings which did not admit that OZ International was the exclusive agent for the Property; and failing to pay amounts due under the Deed); and seeking confirmation that OZ International intended to be bound by, and to comply with, its obligations under the agreements. The appellants did not reply thereto.

37. On 21 February 2022, the solicitor for Star Moon wrote to the appellants’ solicitor terminating the Deed and the Exclusive Management Agency Agreement on the basis of repudiation by the appellants, which Star Moon accepted.

Primary judgment

38. The primary judge declined to find that OZ International recommended the first tenant to Star Moon in May 2020 (at [46]) and further declined to find that OZ International had recommended the second tenant to Star Moon within the meaning of cl 3 of the Deed, noting that the solicitor for Star Moon had asked the appellants three times to confirm that the lease offer was recommended pursuant to the Deed and that the appellants agreed to reimburse Star Moon with any shortfall between actual rentals and outgoings compared to the Minimum Guaranteed Rental as defined in the Deed (and that Mr W Yang had also asked for confirmation that the second tenant was recommended under the Deed) (at [83]). Her Honour noted that the appellants did not even assert in their letter purporting to terminate the agreements that they had recommended the second tenant.

39. At [84], the primary judge observed that, in the absence of the four requests for confirmation that the second tenant was being recommended under the Deed, the appellants’ submission (that, by introducing the tenant to Star Moon, repeatedly calling for a lease and accepting the deposit from the tenant, OZ International was recommending the tenant to Star Moon) might have had some force; but the primary judge considered that those four requests eliminated any ambiguity in this regard.

40. The primary judge held that, as OZ International did not recommend any tenant to Star Moon, Star Moon did not fail to comply with its obligations under the Deed (as per cl 3) (at [90]); that, as there was no failure by Star Moon to comply with its obligations under the Deed, it did not repudiate the Deed (at [91]); and that it was therefore not open to OZ International to terminate the Deed on the basis of Star Moon’s repudiation (as it had purported to do) (at [92]).

41. In the course of her Honour’s reasons, the primary judge concluded that (at [45]) Mr X Yang was not a reliable witness in relation to the construction of the Deed and did not accept his oral evidence where it was inconsistent with other evidence unless it was against the appellants’ interests.

42. The primary judge noted that there was an alternative pleading by the appellants that the failure to enter into a lease with the first or second tenants recommended by OZ International was a renunciation of the Deed by Star Moon but that no submission had been made in relation to this alternative pleading and in any event the primary judge had found that those tenants were not recommended by OZ International to Star Moon (at [93]).

43. The primary judge was satisfied that the conduct of the appellants made clear that they did not consider the Deed to be on foot, they were not bound by it and they would not be performing it (at [100]) and that this conduct was sufficiently serious to amount to a termination of the contract (citing Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61 (Koompahtoo) at [47] (per Gleeson CJ, Gummow, Heydon and Crennan JJ)) because an award of damages alone would not put Star Moon in the same position as if the contract had been performed (at [101]). The primary judge found at [102] that Star Moon accepted the repudiation and terminated both agreements by its letter dated 21 February 2022.

44. As to the defences that had been pleaded, the primary judge noted that the appellants did not rely on those parts of the defence which asserted breach of an implied term (at [103]); that the pleading as to failure to mitigate loss by rejecting the two tenants did not raise new issues and must (on the findings the primary judge had made) fail; and that the mitigation defence relating to failure to take reasonable steps to find a tenant for the Property was not pressed (at [104]).

45. From [105], the primary judge dealt with the claim for damages. There is no challenge to those findings (as opposed to the findings on liability) and it is not necessary here to set them out. The issue of costs was to be the subject of separate submissions after the reasons were published. As noted above, the costs were awarded for part of the proceedings on the indemnity basis. There is no challenge to the costs orders.

Appeal

46. As noted above, there are broadly two challenges to the decision at first instance: first, as to the proper construction of the Deed (this being identified in the appellants’ submissions as the “central error” of the primary judgment) and consequent challenges to the findings in respect of the alleged tenant recommendations (see grounds 1, 3, 5-6); and, second, the complaint as to the findings in relation to repudiation (grounds 7-8). They will be dealt with in turn.

Proper Construction of the Deed – Grounds 1, 3, 5 and 6

47. The issue as to the proper construction of the Deed arises, as noted, in the context of grounds 1, 3, 5 and 6 of the grounds of appeal:

1.   The primary judge erred, having found that the clear meaning of the Deed of Rental Guarantee was that if the First Appellant found a tenant which it recommended to the Respondent then the Respondent had to lease the premises to that tenant, then erred in failing to find that the First Appellant had recommended the First Tenant and the Second Tenant.

3.   The primary judge erred in declining to find, against the weight of the evidence, that the First Appellant had recommended the First Tenant to the Respondent in May 2020.

5.   The primary judge erred in declining to find that the First Appellant had recommended the Second Tenant to the Respondent in about June 2021 when:

a.   There was documentary evidence that the recommendation had been made;

b.   the solicitor for the Respondent confirmed that the recommendation has [sic] been made and had drafted a relevant lease;

c.   The Respondent did not deny in evidence that the recommendation in relation to the Second Tenant had been made.

6.   The primary judge erred in finding that, in order for Clause 3 of the Deed to be enlivened there was a requirement for the First Appellant to confirm that the relevant recommendation was made pursuant to Clause 3 when there was no contractual requirement for the First Appellant to do so.

Appellants’ submissions

48. The appellants point out that the Deed was drafted by the solicitor for Star Moon. (It is not clear that this is a contra proferentem submission but in any event, nothing turns on this.) They say that cl 3 is clear in its English meaning and submit that (in the absence of discussion at the hearing or submissions made as to the meaning of “recommend”, the dictionary meaning of that word should be accepted (namely, that it means “to communicate [a thing] to a person, to mention, to inform”, citing the Shorter Oxford Dictionary)). Pausing here, it is strictly not correct to say that there was no discussion at first instance as to the meaning of “recommend” in cl 3 of the Deed. The primary judge (at T 146.5) raised with Counsel then appearing for the appellants that “finding” a tenant was not the same as “recommending one”; a proposition implicitly accepted (at T 146.10-15) by the submission that the appellants “did more than just” find a tenant.

49. It is noted by the appellants that the primary judge at [29] was not persuaded that there was any reason to depart from the clear meaning of the words in the Deed. I interpose to note that this was in the context of consideration of the construction placed on the Deed by Mr X Yang, to the effect that the guarantee would not apply if he could not find a tenant (a submission by the appellants which the primary judge did not accept). The primary judge concluded that the clear meaning of the words in the Deed meant that OZ International’s role was to find a tenant for the Property and that if OZ International found a tenant which it recommended to Star Moon then Star Moon had to lease the shop to that tenant. The primary judge noted that, separately, OZ International undertook to reimburse Star Moon for any shortfall between the income received by Star Moon up to 2 July 2025 and the Minimum Guaranteed Rental as set out in the Deed. The primary judge was not there addressing in terms the meaning of “recommend”.

50. Pausing here, I do not consider that dictionary meanings are of much assistance in the present case (see Leeming JA, albeit in the context of considering the legal meaning of a statutory term not a commercial contract, in South Western Sydney Local Health District v Gould (2018) 97 NSWLR 513; [2018] NSWCA 69 at [77]-[83]).

51. The complaint made by the appellants in their written submissions is that the primary judge erred because her Honour ascribed to the word “recommend” in cl 3, qualifications that are not specified by the Deed, which led to the application of an unnecessarily high threshold to the “recommendation” within the meaning of cl 3. The appellants maintain that the evidence clearly established that OZ International did recommend the first and the second tenant.

48. The “qualifications” or requirements which the appellants complain were “imposed” by the primary judge in relation to the word “recommend” were identified (by way of “example” in their written submissions) as: an obligation on OZ International expressly to confirm that any tenant communicated to Star Moon was recommended pursuant to cl 3; an obligation requiring an additional notice to be given by OZ International notifying Star Moon of its reliance on cl 3; and a requirement for OZ International to prepare the terms for the lease.

49. None of the above is, in my view, a fair reading of the primary judgment. The primary judge did not make any finding that there were obligations of that kind on OZ International. Rather, in the context of reliance by the appellants (as sustaining their claimed entitlement to terminate the agreements for repudiation by Star Moon) on the assertion that OZ International had “recommended” two tenants to Star Moon, the primary judge was pointing to the fact that OZ International did not confirm (when requested on four separate occasions) that it was in fact “recommending” a tenant under the Deed (and would be liable under the Deed for any rental shortfall). There is also no basis for the complaint that the primary judge considered there to be a requirement that OZ International prepare the terms for lease.

50. As to the first alleged recommendation (the subject of grounds 1 and 3), the appellants point to the evidence of Mr W Yang (in his affidavit affirmed on 25 March 2020 at [6](b)-(c)) of his awareness in May 2020 that there was “someone interested” in leasing the shop and that this awareness had come through being told of it by an employee of OZ International. The appellants emphasise that Mr W Yang’s response, as set out in his affidavit, made specific reference to the rental guarantee, which they say indicates that Mr W Yang is aware that this information is being conveyed to him in the context of the Deed. Further, they say that it did not matter whether OZ International was comfortable paying the shortfall or not; it was obliged under the Deed to pay the shortfall.

51. Insofar as Mr W Yang deposes that Ms Su did not advise him of “all details of terms and conditions the prospective tenant was offering”, the appellants say that Ms Su did not have to provide all the details of the terms and conditions under the terms of the Deed. Similarly, insofar as Mr W Yang deposes that he did not recall receiving any draft lease around May 2020, the appellants say that he did not have to receive a draft lease for a recommendation to be made under the Deed.

52. The appellants maintain that, despite the rejection of the evidence of Mr X Yang (as to which see ground 2 below), on Star Moon’s evidence it was incumbent upon the primary judge to conclude that OZ International had “communicated, mentioned and informed” Star Moon (in May 2020) that there was a tenant for the Property.

53. As to the second alleged recommendation (the subject of grounds 1, 5 and 6), the appellants point to the emails referred to in the chronology above, noting that the email of 11 June 2021 sent by Mr Wang to Mr Ma, which requested Mr Ma to prepare the lease for the relevant property, it is noted that this specified: the rent and that the outgoings would be the same as for Shop 11 (the neighbouring retail shop to the Property); a rent-free period; the name of the tenant and the tenant’s ABN number; and the lawyer for the tenant (on the basis of which information together with other information provided that day Mr Ma drafted a lease). It is also noted that on 28 June 2021, Mr Wang sent an email to Mr W Yang with details of the rent, terms, and commencement date; and that on 8 July 2021, Mr Wang sent a further email to Mr W Yang providing: an Offer to Lease (Heads of Agreement); and an ANZ receipt which confirmed that payment of bond made by the potential tenant.

54. The appellants submit that the primary judge should have concluded that Star Moon was “fully aware” of the second potential tenant and the relevant lease proposal. (That, of course, begs the question as to whether there was a relevant recommendation.)

55. As to the requests for confirmation that the recommendation was made under the Deed, the appellants say that there was no requirement under the Deed for there to be confirmation that the recommendation was made “under the guarantee”. It is submitted that the primary judge erred in finding that the second recommendation had not been made based on the failure of OZ International to confirm that the tenant was recommended “under the [Deed]” and that this error affected the rest of her Honour’s reasoning relating to termination and repudiation.

Star Moon’s submissions

60. Star Moon argues that the appellants’ argument relies, at least to a large extent, on ascribing a meaning to the word “recommend” (i.e., “to communicate [a thing] to a person, to mention, to inform”), which is not commercially sensible, and which was not contended for by the appellants at first instance.

61. Star Moon points out that during closing submissions, the primary judge put to the appellants’ counsel that recommending a tenant must involve more than simply “finding” a tenant, as in some cases tenants could be found which were not of high quality and says (as I have already noted is my reading of the transcript) that that proposition was implicitly accepted by the appellants’ counsel. Star Moon submits that the appellants ought not be permitted to contend for a construction of the word “recommend” which was not put to the primary judge.

62. Star Moon argues in any event that the interpretation of “recommend” contended for by the appellants is not a businesslike or commercially sensible interpretation. It is noted that it was submitted at first instance by the appellants, and accepted by the primary judge, that the Deed should be given a commercially sensible interpretation (at [14] of the primary judgment, referring to Vardas v Coshott [2017] NSWSC 29 at [29]-[30], citing Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35] (per French CJ, Hayne, Crennan and Kiefel JJ)). Star Moon says that there is a clear and obvious difference between communicating or mentioning something and recommending something. It submits that, to recommend an action, or person (such as a prospective tenant), is not simply to communicate or mention that action or person. I agree.

63. Insofar as the appellants place reliance on a definition taken from the Shorter Oxford Dictionary, Star Moon points to more comprehensive dictionaries which contain definitions of “recommend”, namely: the Oxford English Dictionary (Second Edition) which defines “recommend” as meaning “to name or speak of (one) as fit or worthy to hold some position or employment; to mention or introduce (a thing) with approbation or commendation to a person, in order to induce acceptance or trial”; and the Macquarie Australian Dictionary (Eighth Edition) which defines “recommend” as meaning “to commend by favourable representations; present as worthy of confidence, acceptance, use etc.; to represent or urge as advisable or expedient; to advise (a person, etc., to do something)”. (I have already noted the caution to be placed on dictionary definitions.)

64. As to the challenge by the appellants to the finding that OZ International did not recommend a tenant to Star Moon in May 2020 (appeal grounds 1 and 3), Star Moon says that the telephone conversation with Ms Su could only amount to a recommendation by interpreting the word “recommend” as meaning no more than to inform or communicate (and, as noted above, it submits that such an interpretation should be rejected).

65. Moreover, Star Moon says that even if Ms Su had recommended the prospective tenant to Star Moon, it is not arguable that Star Moon breached its obligation to enter into a lease with that prospective tenant, given that: Star Moon was obliged to enter into a lease with a recommended tenant “in the terms proposed by the Agent”; no lease terms (beyond an amount of rent) were ever proposed by OZ International; Mr W Yang expressed a willingness to enter into a lease with the prospective tenant; Ms Su stated she would “get back to” Star Moon regarding the prospective tenant, and never did so; and, even on OZ International’s case, Mr X Yang stated that he would send the prospective tenant’s offer to Star Moon’s solicitor, and conceded he never did so. It is noted that findings to this effect were made by the primary judge (at [47]), and are not challenged on appeal.

66. Thus, it is submitted that the appellants’ challenge to the finding that OZ International did not recommend a tenant to Star Moon in May 2020 must fail.

67. As to the appellants’ challenge to the finding that OZ International did not recommend a tenant to Star Moon in June 2021 (appeal grounds 5 and 6), Star Moon says that the crux of the appellants’ argument is that the primary judge ascribed qualifications to the word “recommend”, such that the primary judge wrongly imposed requirements on OZ International in considering whether any recommendation had been made within the meaning of cl 3 of the Deed, Star Moon submits (correctly) that the primary judge did not impose additional qualifications or requirements upon OZ International in determining whether it had recommended a tenant to Star Moon under the Deed. Rather, it is said that the primary judge assessed whether any of the communications relied upon by OZ International (none of which Star Moon points out contained the words “recommend” or “recommendation”) constituted a recommendation within the meaning of cl 3 of the Deed.

68. It is noted that the primary judge considered the context in which those communications were made; part of that context being the unchallenged facts that: Star Moon, after first being informed of the prospective tenant, requested on four occasions that OZ International clarify that it was recommending the prospective tenant; and OZ International refused to state that the prospective tenant was recommended (and refused even to accept that the Deed was on foot).

69. Star Moon says that the primary judge was entitled to take into account Star Moon’s enquiries, and OZ International’s responses to those enquiries (emphasising OZ International’s refusal to state that it recommended the prospective tenant) in determining whether OZ International recommended a prospective tenant to Star Moon within the meaning of cl 3 of the Deed. It is submitted (and I accept) that in taking such communications into account, the primary judge did not impose “requirements” on OZ International. It is noted that the primary judge found that OZ International’s refusal to clarify or confirm that it was recommending the prospective tenant in June 2021, in the face of four requests for clarification and confirmation by Star Moon, clearly indicated that OZ International did not, in fact, recommend a tenant to Star Moon (at [83]-[84]).

70. Further, Star Moon argues that the communications in and of themselves do not contain any recommendation, and would not have come within the operation of cl 3 of the Deed even absent Star Moon’s requests for clarification and confirmation.

71. Thus, Star Moon maintains that the appellants’ challenge to the primary judge’s findings in relation to the second alleged recommendation must fail.

Determination

72. The crux of the complaint in relation to the findings that OZ International did not recommend either the first or the second tenant so as to enliven the obligation in cl 3 of the Deed turns on the meaning to be attributed to “recommend” in that clause. In my opinion, there is a clear distinction, in the natural and ordinary use of language, between finding or introducing a prospective tenant and recommending such a tenant; and it makes commercial sense for such a distinction to be reflected in the wording chosen by the parties in cl 3 of the Deed. OZ International was the exclusive managing agent for the Property and in the position not simply to identify or put forward potential tenants but also to vet those tenants at least to the extent that it could then “recommend” rather than just introduce those tenants to Star Moon.

73. Insofar as OZ International places weight on the conversation in May 2020 between Ms Su and Mr W Yang, this was hardly any kind of recommendation by Ms Su – as illustrated by the paucity of information as to the proposed lease terms. It is significant that Ms Su is reported to have said that she would get back to Mr W Yang and no one did so. No error is established in the finding that the first alleged recommendation was not made within the meaning of cl 3 of the Deed.

74. As to the second alleged recommendation, as the primary judge clearly recognised, this comes closer to being a “recommendation” at least to the extent that Star Moon was twice advised that this was an “opportunity” for it. However, the appellants did not confirm (in the face of multiple requests) that they were making a “recommendation” within the meaning of cl 3 of the Deed and (while there was no contractual obligation on them to provide such confirmation) the absence of confirmation is telling. It was not, in my opinion, sufficient for OZ International to communicate, mention or inform Star Moon of the proposed tenant’s lease proposal; there needed to be a recommendation of that tenant – something that the appellants and their solicitor studiously avoided making.

75. The fact that Star Moon was prepared to consider the lease proposal says nothing about whether it was a recommendation within the meaning of cl 3 of the Deed. Nor does the fact that the email communications were made after the commencement of proceedings (or that Mr X Yang said he was advised that he did not need to proffer that confirmation) alter the position. Similarly, although not much turns on this, the fact that the initial defence did not assert that there was a recommendation in relation to the first proposed tenant reinforces the conclusion that it was not perceived as such at the time. In that regard, the significance of the existence of another potential tenant who might have been prepared to offer an increased rent (see T 41.01-07; primary judgment at [44](8)) is not that this bears on whether there was objectively a recommendation of the first tenant but, rather, it provides a logical explanation for why such a recommendation might not have been made at the time.

76. The primary judge did not err in finding that the second alleged recommendation was not made. Nor did the primary judge (as contended by the appellants) impose additional or extraneous obligations on the appellants in relation to confirmation of the recommendation or the like; the primary judge simply considered all the facts and circumstances in determining whether a recommendation was made.

Rejection of Mr X Yang’s evidence – Ground 2

77. Ground 2 of the notice of appeal is that:

2.   The primary judge erred in concluding that the finding that the Second Appellant was not a reliable witness affected the construction of the relevant parts of the Deed.

78. The appellants make discrete submissions as to the rejection of Mr X Yang’s evidence (said to be referable to each of grounds 1-6, though as noted above in oral submissions the appellants abandoned ground 4). Also as noted above, the appellants maintain that this is not a credit challenge to her Honour’s findings but that some of the reasons that the primary judge listed for not accepting Mr X Yang’s evidence are relevant when considering whether the communications between OZ International and Star Moon constituted “a recommendation” for the purposes of cl 3 of the Deed.

79. Briefly, the appellants complain as to the following aspects of her Honour’s reasons for not accepting Mr X Yang’s evidence (see [44] of the primary judgment).

80. First, insofar as the primary judge noted (at [44](1)) that Mr X Yang’s evidence was contrary to Mr W Yang’s evidence (which the primary judge preferred), who said that they did not have the conversation recounted by Mr X Yang, the appellants say that, even if Mr X Yang’s evidence was disregarded, Mr W Yang’s evidence clearly indicated that Star Moon was provided with the information of the first tenant and the proposed rent; and that Mr W Yang considered the rent but thought it was low. The appellants say that the fact that Star Moon actually considered the proposed tenant is a strong indicator that the communication between OZ International and Star Moon was in the nature of a recommendation. (This last submission is in the nature of a non sequitur – the fact that Star Moon considered the proposal says nothing about whether it was “recommended” as such.)

81. Second, insofar as the primary judge noted at [44](2) the inconsistency in Mr X Yang’s evidence as to whether he had “strongly” recommended the first tenant (or simply “recommended” the tenant), the appellants say that under the Deed there is no obligation “strongly” to recommend (noting that cl 3 imposes on Star Moon an obligation to follow OZ International’s recommendation).

82. Third, as to the failure of Mr X Yang to include in his affidavit that he had recommended the tenant when he spoke to Mr Ma (as he said in cross-examination), (see at [44](3)), the appellants say that this was of no particular importance, as Star Moon accepted that the communications had all occurred.

83. Fourth, as to the fact (see at [44](4)) that Mr X Yang did not respond to Star Moon’s letter of demand dated 22 March 2021, nor did he inform Star Moon at that stage that the appellants were not liable for at least part of the claim because they had recommended the first tenant pursuant to cl 3 of the Deed, the appellants reiterate that Star Moon accepted that there was communication in relation to the “First Recommendation”.

84. Fifth, as to the terms of the defence filed on 10 June 2021 (see at [44](5)) not including an assertion that OZ International had recommended the first tenant, the appellants point to the subsequent defence to the further amended statement of claim which does assert that OZ International had recommended the “tenants” (plural); and which at [11](b) particularised the recommendation on 15 May 2020 (which is the “First Recommendation”).

85. Sixth, as to the fact that the termination letter dated 23 August 2021 did not mention that OZ International had recommended the first tenant (see at [44](6)), the appellants argue that OZ International “did not have to specifically mention the first tenant in the purported termination letter”.

86. Seventh, as to the primary judge’s observation (at [44](7)) that there is no explanation for Star Moon not leasing the shop to the first tenant on the basis that the rent was too low, in circumstances where it believed that any shortfall was covered by the Deed, the appellants maintain that it cannot be concluded from such a lack of explanation from Star Moon, that OZ International did not recommend to Star Moon the first tenant. The appellants say that Star Moon was well protected under the Deed to receive the Minimum Guaranteed Rental; and they argue that, from Star Moon’s perspective, it made no difference to lease the shop to any tenant (or not at all), as the maximum return it could expect was the Minimum Guaranteed Rental. It is submitted that consideration of Star Moon’s motive (or the lack of explanation for its refusal if it believed that there was a recommendation) interferes with the objective nature of the construction of cl 3.

87. Finally, as to the reference to another potential tenant who might offer more rent (see at [44](8)), the appellants argue that it is difficult to see how this would bear on an objective, factual finding of whether a recommendation was made when there was acceptance by Star Moon that the relevant communications had been made.

Star Moon’s submissions re credit findings against Mr X Yang

88. Star Moon maintains that there is no finding to the effect alluded to in appeal ground 2 (i.e., there is no finding that the fact that Mr X Yang was not a reliable witness affected the construction of the relevant parts of the Deed). I agree. Star Moon submits, and I accept, that the primary judge did not draw upon any adverse findings as to Mr X Yang’s credit in construing the Deed. (Rather, what the primary judge did at [44] was set out the reasons why she rejected Mr X Yang’s evidence as to his belief in the construction of the Deed, which belief would not inform its proper construction in any event.)

89. It is noted that the findings made in relation to the reliability of Mr X Yang’s evidence to which the appellants refer in their submissions are findings which were identified by the primary judge as supporting the ultimate finding that Mr X Yang did not recommend any tenant to Star Moon, in conversations between Mr X Yang and Mr W Yang, and Mr X Yang and Mr Ma in May 2020. Star Moon points out that the appellants do not challenge the finding that Mr X Yang did not communicate any recommendation of any tenant to Star Moon in May 2020; rather, the appellants contend that the primary judge ought to have found that the conversation between Ms Su and Mr W Yang constituted a recommendation of a tenant by OZ International to Star Moon.

90. Accordingly, Star Moon submits (and I agree) that the findings which led to the rejection of Mr X Yang’s evidence in relation to his alleged communication of a recommendation to Star Moon in May 2020 have no relevance to the appeal.

91. Star Moon submits that, in any event, the appellants’ challenge to the findings at [44] of the primary judgment ought be rejected for the following reasons.

92. In relation to the finding addressed at [44](1) of the reasons, that there is no error identified by the appellants and, insofar as it is submitted that the primary judge ought to have found that OZ International recommended a tenant in May 2020 notwithstanding the rejection of Mr X Yang’s evidence, that: it was not submitted by the appellants at first instance that the conversation between Ms Su and Mr W Yang constituted a recommendation; and, in any event, the conversation between Ms Su and Mr W Yang did not constitute a recommendation.

93. In relation to the finding at [44](2), that: the primary judge did not find that OZ International had any obligation “strongly” to recommend a tenant to Star Moon; and the primary judge identified the inconsistency between evidence given by Mr X Yang in his affidavit and Mr X Yang’s evidence under cross-examination (a matter said to be plainly relevant to determining the reliability and credibility of Mr X Yang’s evidence).

94. In relation to the finding at [44](3), Star Moon says that it did not accept that the communications had all occurred. It is noted that Star Moon (and Mr W Yang) specifically denied that the conversations relied upon by Mr X Yang, in relation to the May 2020 recommendation, had occurred; and the primary judge addressed that Mr X Yang’s affidavit evidence contained no reference to any recommendation being made to Mr Ma, whereas Mr X Yang’s evidence under cross-examination was that he had recommended the tenant to Mr Ma (again, a matter said to be plainly relevant to determining the reliability and credibility of Mr X Yang’s evidence).

95. In relation to the finding at [44](4), Star Moon says that it did not accept that Mr X Yang had recommended the first tenant, or that the alleged communications by Mr X Yang to Mr W Yang or Mr Ma in fact occurred; and the fact that OZ International did not respond to Star Moon’s demand in March 2021 was plainly relevant to determining whether a recommendation had, in fact, been made, and whether Mr X Yang’s evidence on this issue was credible or reliable.

96. In relation to the finding at [44](5), it is noted that: the defence filed 10 June 2021 asserted that OZ International had been “prevented from complying with its obligation” to recommend a tenant, and did not mention any purported recommendation; the appellants contended (at the hearing and in the defence to the further amended statement of claim filed 6 June 2022) that a recommendation had, in fact, been made in May 2020, in a conversation between Mr X Yang and Mr W Yang; the terms of the defence filed on 10 June 2021, and the inconsistency of that defence with the position adopted by OZ International and Mr X Yang (in a later defence, in evidence and at trial) were plainly matters which could be taken into account in determining whether Mr X Yang’s evidence was reliable or credible; and Star Moon says that it is no answer to the findings of the primary judge that the appellants included reference to the alleged May 2020 recommendation in its defence filed 6 June 2022 (since the absence of that matter in the 10 June 2021 defence was a matter which was not consistent with such a representation having been made).

97. In relation to the finding at [44](6), Star Moon says that the primary judge made no finding that OZ International was “required” to refer to the May 2020 recommendation in its letter purportedly terminating the Deed; and the absence of any such reference to the alleged May 2020 recommendation in the purported termination letter was plainly relevant to determining the credibility and reliability of Mr X Yang’s evidence (particularly given there was no credible explanation as to why that alleged recommendation had been omitted from the letter).

98. In relation to the finding at [44](7), Star Moon says that it had no reason not to enter into a lease with a tenant recommended by OZ International; and such a matter was plainly relevant in considering, objectively and on the balance of probabilities, whether (on the one hand) Mr X Yang had recommended a tenant to Star Moon in May 2020 and Star Moon had (for no rational reason) refused to enter into a lease with that tenant, or (on the other hand) such a recommendation was never in fact made.

99. In relation to the finding at [44](8), Star Moon says that: OZ International (by Mr X Yang) had given evidence that, at the time of the alleged May 2020 recommendation, there was another prospective tenant which might be willing to pay more in rent for the Property; the existence of another potential tenant which was willing to pay a higher rent, reducing the liability of OZ International and Mr X Yang under the Deed, was a potential reason why OZ International and Mr X Yang would not have wanted to recommend the $100,000 per year tenant in May 2020; and such a matter was plainly relevant in considering, objectively and on the balance of probabilities, whether Mr X Yang had recommended a tenant to Star Moon in May 2020.

100. For those reasons, Star Moon says that the challenges to the findings in relation to the credibility and reliability of Mr X Yang’s evidence are of no relevance to the appeal, and in any event must fail.

Determination

101. The submissions made by Star Moon as to the irrelevance to the present appeal of the challenges by the appellants to the findings as to the reliability of Mr X Yang’s evidence must be accepted. What the primary judge was addressing at [44] were the reasons for her Honour’s non-acceptance of Mr X Yang’s belief as to the construction of the Deed (relevantly that being that OZ International was not liable under the guarantee if it could not find a tenant – something clearly inconsistent with the notion of a rental guarantee itself). Mr X Yang’s belief was irrelevant to the objective construction of the Deed. Star Moon notes that it was not common ground at the hearing at first instance that if a tenant was recommended and no lease was entered into then Star Moon had the benefit of the rental guarantee; rather, the appellants’ primary position had been that once it was determined that no lease was entered into with a recommended tenant, irrespective of the reason, the Deed was entirely inoperative (see AT 33.10); hence the need to address Mr X Yang’s belief in this context.

102. In any event, the challenges to the findings are not themselves made good. The primary judge did not err in preferring Mr W Yang’s evidence as to the lack of the conversation to which Mr X Yang had deposed; her Honour did not find that there was any obligation on the part of OZ International “strongly” to recommend a tenant nor any requirement to refer to the purported recommendation in its purported termination letter or initial defence. The other aspects of the findings at [44] which the appellants challenge go to the credibility of Mr X Yang, not the construction of the Deed; and the appellants have disavowed any challenge to credibility based findings.

103. Ground 2 is not made good. The credit or reliability findings in relation to Mr X Yang did not on any view of the matter affect the findings as to the construction of the Deed.

Termination of the Deed by OZ International – Grounds 7 and 8

104. The final two grounds of appeal raise the issue of repudiation:

7.   The primary judge erred in finding that the Respondent did not fail to comply with its obligations under the Deed, and consequently did not repudiate the agreement governed by the Deed.

8.   The primary judge erred in finding that is [sic; it] was not open to the First Appellant to terminate the Deed following the repudiation of it by the Respondent.

105. The appellants, with commendable brevity, submit that the primary judge should have found that the recommendations were made by OZ International to Star Moon, and argue that it follows that the termination by OZ International was valid. The premise of this challenge to the primary judge’s findings (that the recommendations were made by OZ International) has not been made good and therefore these grounds necessarily fail with the conclusions reached on the earlier grounds. However, for completeness, I address below the second aspect of these grounds (as to whether a failure to enter into a lease with the tenants introduced by OZ International would have amounted to repudiatory conduct had those tenants been “recommended” by OZ International to Star Moon).

Star Moon ’s submissions

106. Star Moon submits that if (as I have concluded) the primary judge did not err in finding that OZ International did not recommend any tenant to Star Moon under the Deed then it follows that Star Moon did not repudiate the Deed and that OZ International’s purported termination of the Deed was not valid.

107. However, if (contrary to its submission) it were to be found that the primary judge did err in finding that OZ International did not recommend any tenant to Star Moon, then Star Moon argues that it does not follow that Star Moon repudiated the Deed nor does it follow that the termination of the Deed by OZ International and Mr X Yang was valid.

108. Star Moon says that in that event (i.e., if the findings as to recommendations were to be incorrect) it is necessary to determine whether any conduct of Star Moon amounted to repudiatory conduct and that this would involve a consideration of (among other things): whether any conduct by Star Moon was sufficiently serious as to amount to repudiatory conduct; whether any conduct by Star Moon went to the “root” of the Deed; and whether damages would be an adequate remedy.

109. Star Moon points to the recognition in the authorities that repudiation is not something lightly to be inferred and that what is required is a clear indication of the absence of a readiness or willingness to perform a contract (citing Shevill v Builders Licensing Board (1982) 149 CLR 620; [1982] HCA 47). It is noted that any words or conduct which are relied upon as repudiatory must satisfy the requirement of seriousness (i.e., a promisee must prove that the absence of readiness or willingness relied upon extended to all of the promisor’s obligations under the contract or that the promisor clearly indicated that it would breach the contract in a way that would give rise to a right to terminate).

110. It is noted that not all breaches of contract will amount to repudiation; rather, any breach which is alleged to be repudiatory must be a breach which goes to the root of the contract; and that, if a breach does not go to the root of the contract, then the injured party can claim damages and for that reason, the adequacy of damages may be a material factor in determining whether breach rises as high as repudiation (reference here being made to Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549; [1987] HCA 15).

111. Star Moon argues that, in the present case, if (contrary to its submissions) a tenant was recommended by OZ International to it, any failure by Star Moon to enter into a lease with a recommended tenant did not amount to repudiatory conduct, given that: there is uncontested evidence that Star Moon acknowledged it had an obligation to enter into a lease with a recommended tenant, indicated that it believed that no tenant had been recommended, and would have entered into a lease had a tenant been recommended by OZ International (referring to Mr W Yang’s affidavit affirmed 25 March 2022 at [6(c)], [17(b)]; Mr W Yang’s affidavit affirmed 7 October 2022 at [4]); Star Moon never evinced any intention not to be bound by the Deed (and at all times was insisting upon its rights under the Deed); damages would be an adequate remedy, in that the amount owing under the Deed would be reduced (not extinguished) by the amount of any rent which would have been paid under any recommended lease; and allowing OZ International to terminate the Deed would result in a windfall for OZ International, in circumstances where the amount of rent payable under all of the allegedly recommended tenancies was for an amount less than the guaranteed sum under the Deed.

112. Star Moon argues that, at its highest, any failure by Star Moon to enter into a lease with a recommended tenant on terms proposed by OZ International would constitute a breach of cl 3 of the Deed. It is noted that the appellants did not pursue any claim for damages for breach of the Deed at first instance; rather, the appellants confined their case to alleging that the Deed had been repudiated by Star Moon and terminated by OZ International; and that the appellants do not challenge any of the primary judge’s findings in relation to OZ International’s repudiation, and Star Moon’s termination, of the Deed.

113. Star Moon thus submits that, in the event that it is found that the primary judge erred in finding that OZ International did not recommend any tenants to Star Moon, any failure by Star Moon to enter into a lease with any recommended tenant did not amount to repudiatory conduct (and hence the appeal should be dismissed). Alternatively, it is said that the proceedings should be remitted to the District Court to determine the issue whether any failure by Star Moon to enter into a lease with a recommended tenant constituted a repudiation of the Deed (and what orders follow from that finding).

Determination

114. In Heyman v Darwins Ltd [1942] AC 356, Lord Wright described five different connotations of the term “repudiation”. His Lordship then stated (at 379) that:

… [b]ut perhaps the commonest application of the word “repudiation” is what is often called an anticipatory breach of the contract where a party by words or conduct evinces an intention no longer to be bound and the other party accepts the repudiation and rescinds the contract.

115. In Koompahtoo, the plurality (Gleeson CJ, Gummow, Heydon and Crennan JJ) said of the term “repudiation” (at [44]) that:

The term repudiation is used in different senses. First, it may refer to conduct which evinces an unwillingness or an inability to render substantial performance of the contract. This is sometimes described as conduct of a party which evinces an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with the party's obligations. It may be termed renunciation. The test is whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it. … Secondly, it may refer to any breach of contract which justifies termination by the other party. It will be necessary to return to the matter of classifying such breaches. … There may be cases where a failure to perform, even if not a breach of an essential term (as to which more will be said), manifests unwillingness or inability to perform in such circumstances that the other party is entitled to conclude that the contract will not be performed substantially according to its requirements. This overlapping between renunciation and failure of performance may appear conceptually untidy, but unwillingness or inability to perform a contract often is manifested most clearly by the conduct of a party when the time for performance arrives. In contractual renunciation, actions may speak louder than words. [footnotes omitted]

116. In the present case, the repudiatory conduct relied upon by OZ International when notifying Star Moon of its termination of the Deed and the Exclusive Management Agency Agreement (see its letter dated 23 August 2021) was the alleged non-compliance by Star Moon with cl 3 of the Deed. Assuming for present purposes that OZ International had “recommended” one or both of the tenants put forward in May 2020 and June 2021, the question is whether Star Moon’s failure to enter into a lease with the relevant prospective tenant amounted to a repudiation of the Deed (and Exclusive Management Agency Agreement).

117. An intention no longer to be bound by the relevant contract can be evinced by a refusal to perform (or, though this is not that case, an inability to perform) an essential term (or, substantial non-performance of an intermediate term) (see, for example, Koompahtoo at [43]-[49] per the plurality; Galafassi v Kelly (2014) 87 NSWLR 119; [2014] NSWCA 190 at [62]-[64] per Gleeson JA, with whom Bathurst CJ and I agreed (Galafassi v Kelly)); and repudiation can be by way of express words or it may be implied from words and/or conduct (see, for example, Galafassi v Kelly at [62]-[64] per Gleeson JA). It is necessary to consider the conduct of the alleged defaulting party in all the surrounding circumstances in order to determine whether the words and/or conduct carries an implication of an intention to repudiate (Koompahtoo at [44], [60] per the plurality).

118. In the present case, cl 3 of the Deed is not expressed to be an essential term of the Deed and a breach of the obligation to enter into a lease with a recommended tenant (if established) would be adequately remedied by way of damages (as Star Moon has submitted). Moreover, Star Moon was clearly acknowledging the binding nature of the Deed (and relying on its rights under that Deed) (see, for example, the conversation in May 2020 in which Mr W Yang made reference to the rental guarantee; and the communications in 2021 when Star Moon called for confirmation that the proposed tenants were “recommended” by OZ International and made clear that it acknowledged an obligation to enter into a lease with a recommended tenant). I accept the submission by Star Moon that it did not evince any intention not to be bound by the Deed (and instead was insisting upon its rights under the Deed).

119. The circumstances where a party mistakenly maintains an erroneous interpretation of a contract (i.e., whether this will amount to a repudiation) have been considered in a number of cases. In DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; [1978] HCA 12 (DTR Nominees), Stephen, Mason and Jacobs JJ said (at 432-433) that:

No doubt there are cases in which a party, by insisting on an incorrect interpretation of a contract, evinces an intention that he will not perform the contract according to its terms. But there are other cases in which a party, though asserting a wrong view of a contract because he believes it to be correct, is willing to perform the contract according to its tenor. He may be willing to recognise his heresy once the true doctrine is enunciated or he may be willing to accept an authoritative exposition of the correct interpretation. In either event an intention to repudiate the contract could not be attributed to him. …

In this case the appellant acted on its view of the contract without realising that the respondents were insisting upon a different view until such time as they purported to rescind. It was not a case in which any attempt was made to persuade the appellant of the error of its ways or indeed to give it any opportunity to reconsider its position in the light of an assertion of the correct interpretation. There is therefore no basis on which one can infer that the appellant was persisting in its interpretation willy nilly in the face of a clear enunciation of the true agreement.

… In any event, on the evidence this Court would not be justified in finding that the appellant acted otherwise than in accordance with a bona fide belief as to the correctness of the interpretation which it sought to place upon the contract. Consequently it is a case of a bona fide dispute as to the true construction of a contract expressed in terms which are by no means clear … In these circumstances the Court is not justified in drawing an inference that the appellant intended not to perform the contract according to its terms or that it repudiated the contract. [my emphasis]

120. In Sopov v Kane Constructions Pty Ltd (2007) 20 VR 127; [2007] VSCA 257 (Sopov), the Court of Appeal in Victoria (Maxwell P and Kellam JA) drew attention (at [15]) to the passage from DTRNominees in which a distinction was drawn between “persisting willy nilly” with an (erroneous) interpretation of the contract and engaging in genuine disputation with the other parties about the true construction of the contract (the latter being a situation where the inference of repudiation could not reasonably be drawn).

121. In Sopov, their Honours considered it to be immaterial whether the alleged repudiator acted in accordance with legal advice (see at [16]; relying on Vaswani v Italian Motors (Sales & Service Ltd) [1996] 1 WLR 270 at 277) (see the summary at [17] of the distinctions in this regard in the various cases).

122. Given the recognised seriousness of a finding of repudiation (see for example Impact Funds Management Pty Ltd v Roy Morgan Research Ltd [2016] VSC 221 per Croft J at [159]), and the matters which Star Moon has emphasised as to its acknowledgment of, and willingness to be bound by, the Deed (and Exclusive Management Agency Agreement), even if OZ International had been found to have “recommended” a tenant for the purposes of cl 3 of the Deed so as to enliven Star Moon’s obligation to enter into a lease with the proposed tenant, I would have concluded that Star Moon’s failure to do so did not in all the circumstances amount to a repudiation or renunciation of the relevant agreements and that its breach did not entitle the appellants to terminate the agreements as they purported to do in August 2021.

123. Grounds 7 and 8 are therefore not made good.

Conclusion

124. For the above reasons, the appeal should be dismissed with costs.

125. DAVIES J: I agree with Ward P.

126. HALLEN J: I agree with Ward P.

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Decision last updated: 30 June 2023