Misan v Markham Real Estate Partners (KSW) Pty Ltd

1. [1]

   WHITE JA: I have had the advantage of reading in draft the reasons for judgment of Griffiths AJA. I agree with his Honour’s reasons and the orders which his Honour proposes. I would add the following comments in relation to ground 6 of the appeal (see reasons of Griffiths AJA at [115]ff). These additional reasons assume familiarity with the reasons of Griffiths AJA.

2. [2]

   By ground 6 of the Amended Notice of Appeal, Mr Misan contended that the amount recoverable by Markham under his guarantee should take into account the payment of $376,000 received by Markham from LAOF pursuant to cl 67.3 of the Sale Contract and cl 1 of the Side Deed (see reasons for judgment of Griffiths AJA at [119]–[120] and [126]).

3. [3]

   If the obligations of the Guarantee were confined to indemnifying Markham against loss suffered as a result of Wayl’s breach of its lease, then it would be arguable that the loss suffered by Markham did not include loss of rent to the extent it had received payment from LAOF of $376,000 arising from Wayl’s failure to pay rent. It is not at all clear that Markham will be required to account to LAOF for the $376,000 if that sum is recovered from Mr Misan. As LAOF is not a party to these proceedings, it is not appropriate to express any opinion on that question.

4. [4]

   But Mr Misan’s liability under his Guarantee was not solely a liability to compensate or indemnify Markham against loss. Clause 17.4 of the Sub-Lease provided:

5. [5]

   “Guaranteed Money” meant:

6. [6]

   In other words, the obligation of Mr Misan under the Guarantee was not merely to indemnify Markham against loss. Rather, on demand being made, Mr Misan was liable to pay as a debt rent that Wayl had failed to pay.

7. [7]

   Considered as a claim in debt, rather than as a claim for damages, or as a claim to indemnify against loss or damage, the moneys received by Markham from LAOF do not affect Mr Misan’s liability under cl 17.4 of the Sub-Lease.

8. [8]

   Markham was entitled to recover two debts: one from LAOF and one from Mr Misan. The fact that both debts had their origin in Wayl’s failure to pay rent did not mean that there was a common debt (Farrow Finance Co Ltd v ANZ Executors and Trustee Co Ltd [1998] 1 VR 50 at 74). The agreement between Markham and LAOF did not contain a release, either express or implied, of Wayl’s or Mr Misan’s debt. The payment received from LAOF was a collateral payment to which the rule against double satisfaction does not apply (Farrow Finance at 81).

9. [9]

   For these reasons, which do not differ from the reasons of Griffiths AJA, and for the reasons of Griffiths AJA on the other issues on the appeal with which I agree, the appeal should be dismissed with costs.

10. [10]

    MITCHELMORE JA: I agree with Griffiths AJA.

11. [11]

    GRIFFITHS AJA: This appeal concerns the respondent’s right to recover from the appellant (Mr Misan) damages which the respondent (Markham) said it suffered following the sub-lessee’s purported repudiation and Markham’s purported lawful termination of a 10-year sub-lease (Sub-Lease) of premises at King Street Wharf, Sydney (Premises). The Premises were used by Wayl Pty Ltd (Wayl) under the Sub-Lease (Mr Misan is the sole director of Wayl and the guarantor under the Sub-Lease).

12. [12]

    The primary judge found that Mr Misan is liable to Markham under the guarantee and indemnity provisions of the Sub-Lease. Her Honour found that Markham was entitled to judgment in its favour in respect of 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. Her Honour gave detailed reasons for judgment in Markham Real Estate Partners (KSW) Pty Ltd v Misan [2022] NSWSC 733 (PJ1). After hearing further from the parties, her Honour then made final orders for reasons which are explained in Markham Real Estate Partners (KSW) Pty Ltd v Misan (No 2) [2022] NSWSC 809 (PJ2).

13. [13]

    I will summarise the primary judge’s reasons for judgment before identifying the grounds of appeal. Although the parties disagreed on the proper construction and application of various contractual provisions and correspondence, there was substantial (but not entire) agreement regarding the relevant facts.

PJ1 and PJ2 summarised

1. [14]

   The relevant background facts, as found by the primary judge and which are undisputed unless shown, may be summarised as follows.

2. [15]

   The 10-year Sub-Lease of the Premises was granted to Wayl and commenced on 28 November 2012, with no option to renew. The Sub-Lease was entered into by Brookfield W9 & 10 Stage 1 Pty Ltd (Brookfield W9) (as sub-lessor), Wayl (as sub-lessee) and Mr Misan (as guarantor).

3. [16]

   The Premises were used to operate Kobe Jones, a restaurant.

4. [17]

   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).

5. [18]

   By cl 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. This was conditional upon Wayl not being in default under the Sub-Lease and providing a Bank Guarantee and evidence of insurances as required by cll 9.1 and 16.1(a) of the Sub-Lease.

6. [19]

   In 2016, the Head-Lease was transferred from Brookfield W9 to LAOF IV Kingstreet Pty Ltd (LAOF) and LAOF became the head-lessee of the Premises and sub-lessor under the Sub-Lease.

7. [20]

   Around 13 February 2018, Wayl applied to mediate a dispute with LAOF under the Sub-Lease concerning refurbishment works at King Street Wharf. The dispute was resolved by consent orders in the NSW Civil and Administrative Tribunal (NCAT).

8. [21]

   The NCAT orders provided that:

   1. (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 indicated that, as at September 2018, Wayl was in arrears of rent under the Sub-Lease of $125,700.12 (erroneously stated to be $125,712 by the primary judge) and that the total arrears to be paid under the base case by 30 June 2019 was $152,594.28: order (a);

   2. (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. (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. (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 did not apply for the months when the rent was not paid in full: order (f).

9. [22]

   Markham became the head-lessor of the Premises and sub-lessor under the Sub-Lease pursuant to a sale contract and assignment (Sale Contract) granted to Markham on 30 November 2018.

10. [23]

    Clauses 35.5 and 67 of the Sale Contract between LAOF and Markham obliged these parties, before completion, to establish an escrow account into which LAOF was required to pay $476,576 (defined as the "Rent Support Amount") as an assurance to Markham for any anticipated shortfall in monies received from Wayl under the Sub-Lease after completion. LAOF's payment of the Rent Support Amount was to continue until the earlier of: 12 months after completion, exhaustion of the Rent Support Amount or the Sub-Lease ending.

11. [24]

    On 22 November 2018, in accordance with cll 35.5 and 67 of the Sale Contract, LAOF and Markham entered into the Escrow Deed and LAOF paid the Rent Support Amount.

12. [25]

    On or around 15 February 2019 (when Wayl continued to be in rental arrears and had failed to comply with the NCAT’s directive to provide a new Bank Guarantee) and before any drawing down under the Escrow Deed, LAOF and Markham entered into a side deed to the Sale Contract (Side Deed).

13. [26]

    Under the Side Deed, LAOF and Markham agreed to terminate the Rental Subsidy on terms that:

    1. (1)

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

    2. (2)

       LAOF assigned to Markham the right to recover the “Kobe Jones Debt” as defined, being the outstanding rental arrears owed to LAOF under the Sub-Lease as at completion (which LAOF had reserved to itself under the Sale Contract) and acknowledged Markham's entitlement to recover all of that debt: cl 2; and

    3. (3)

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

14. [27]

    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 Act 1919 (NSW).

15. [28]

    The Breach Notice required Wayl to remedy the breaches by paying the outstanding “Gross Rent” amount (defined as meaning rent, tenant’s share of outgoings, promotion levy and direct recoverables) and the instalments required under the NCAT Base Case Payment Plan (rent and other amounts payable under the Sub-Lease) and providing a Bank Guarantee in the amount of $183,325.98 within 14 days of the date of the Breach Notice. It stated that Markham would be entitled to re-enter the Premises or forfeit the Sub-Lease if Wayl failed to comply.

16. [29]

    On 2 May 2019, an administrator (Administrator) was appointed to Wayl. Markham relies upon the following additional matters which then occurred:

    1. (1)

       On 2 May 2019, the Notice to Creditors stated, amongst other things, that during the administration period, Wayl would continue while its viability was considered but, given the nature of the 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.

    2. (2)

       From 2 May 2019, the Premises were not used and no rent was paid by either the Administrator or Wayl: PJ1[61].

    3. (3)

       On 6 May 2019, the Administrator sent a letter to Markham, which, amongst other things:

    4. (4)

       On 7 May 2019, the Administrator sent an email to Markham which, amongst other things:

    5. (5)

       On 8 and 9 May 2019, the Administrator’s office sent emails requesting that all swipe card access to the Premises be immediately cancelled with only the Administrator, or parties acting on her behalf, being allowed access.

    6. (6)

       Also on 9 May 2019, the Administrator served on Markham a notice in accordance with s 443B of the Corporations Act 2001 (Cth) (s 443B Notice) which indicated her intention not to exercise Wayl’s interest in the Premises effective from the close of business on 9 May 2019.

17. [30]

    On 15 May 2019, Ms Murphy from Markham sent an email to Jones Lang LaSalle (JLL) asking whether the locks to the Premises had been changed. JLL (who managed the Premises on behalf of Markham) advised that the locks had not yet been changed. The email indicated JLL would arrange for the locks to be changed over the next day. Despite this, the locks had in fact already been changed on 14 May 2019 by the locksmith (Ameen’s Locksmith), Mr Misan contends, at the request of JLL (Markham's agent) (this being one day before expiration of the 14-day period specified in the Breach Notice).

18. [31]

    Markham disputes this last matter. It contends that the primary judge found that the locks were changed by Ameens Locksmith on 14 May 2019, but which occurred in error and without Markham’s authority and without the knowledge of relevant decision-makers either at Markham or JLL. Markham contends that Mr Misan does not challenge these particular factual findings.

19. [32]

    On 16 May 2019, Holding Redlich (solicitors for Markham) sent a letter to the Administrator that purported to terminate the Sub-Lease (Termination letter).

20. [33]

    The primary judge identified the following issues for determination as (PJ1[9]):

    1. (1)

       whether the Sub-Lease was lawfully terminated by Markham;

    2. (2)

       whether Mr Misan was liable to Markham pursuant to the guarantee and indemnity provisions under the Sub-Lease; and

    3. (3)

       if so, what was the quantum of Mr Misan’s liability?

21. [34]

    In brief, these issues were resolved by the primary judge as follows.

22. [35]

    Her Honour summarised the parties’ respective positions on this issue at PJ1[94] to [105]. Markham claimed that it lawfully re-entered the Premises and terminated the Sub-Lease on 16 May 2019 because Wayl had repudiated the Sub-Lease by its breach of essential terms, which was accepted by Markham in the Termination letter. The claimed repudiation was based on Markham’s claims that, by 13 May 2019, Wayl’s conduct demonstrated that it would not fulfil its Sub-Lease obligations, pointing to such matters as Wayl’s continuing failure to pay rent and other amounts due under the Sub-Lease, the appointment of the Administrator and her correspondence in two letters sent on 9 and 13 May 2019.

23. [36]

    Mr Misan denied 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. Mr Misan claimed that Markham’s re-entry and termination occurred on 14 May 2019 and was unlawful for the following two reasons:

    1. (1)

       The re-entry occurred on 14 May 2019 when the locks were changed, which had the effect of denying Wayl access to the Premises prior to the expiration of the 14-day remedy period provided under the Breach Notice. Mr Misan argued that Markham was bound by the Breach Notice and was not entitled to re-enter the Premises and terminate the Sub-Lease prior to the end of that 14-day period (ie prior to midnight on 15 May 2019). This amounted to a repudiation of the Sub-Lease which prevented Wayl from exercising its termination rights (citing, in particular, Ingram v Patcroft Properties Ltd [2011] NZSC 49 at [41]). Mr Misan claimed that, because Wayl had been locked out of the Premises, the Administrator was required to accept the repudiation or approach the Court for relief and the Court should infer that the Administrator had accepted Markham’s repudiation, with the consequence that Mr Misan’s future obligations as guarantor under the Sub-Lease were discharged.

    2. (2)

       Mr Misan claimed that, irrespective of whether Markham’s re-entry occurred on 14 or 16 May 2019, the re-entry was unlawful and in contravention of s 440B(1) and item 3 of the Corporations Act because Markham did not have the Court’s leave nor the Administrator’s written consent to re-enter and take possession of the Premises. Mr Misan argued that, in these circumstances, Markham could not seek indemnity from him for consequences resulting from Markham’s own unlawful conduct (citing Unity Finance Ltd v Woodcock [1963] 2 All ER 270 and Goulston Discount Company Ltd v Clark [1967] 2 QB 493).

24. [37]

    Markham’s submissions on this issue were summarised by the primary judge as follows (PJ1[105]):

    1. (1)

       Markham was not obliged to issue a notice under s 129 of the Conveyancing Act because it relied on its common law right to re-enter, forfeit and terminate the Sub-Lease by accepting Wayl’s repudiation of the Sub-Lease.

    2. (2)

       There was no evidence to find that Wayl was locked out of the Premises and Markham re-entered and terminated the Sub-Lease on 14 May 2019 because, even if the locks were changed on that day, this was done without Markham’s authority, keys to the locks were left on site and, from at least 9 May 2019, the Administrator had access to the Premises by using a swipe card.

    3. (3)

       Irrespective of any breach of the 14-day period required under the Breach Notice, Markham was entitled to exercise its common law right to accept Wayl’s repudiation from 13 May 2019 without providing a notice under s 129 of the Conveyancing Act (citing inter alia Almond Investors Ltd v Kualitree Nursery Pty Ltd [2011] NSWCA 198).

    4. (4)

       Properly construed, the Administrator’s correspondence indicated that she gave her written consent to Markham re-entering and taking possession on and from 13 May 2019 and, in any event, gave her oral consent which rendered any breach of s 440B(1) of the Corporations Act to be merely “technical”.

25. [38]

    At PJ1[106]ff the primary judge summarised some relevant legal principles applying to repudiation, re-entry and termination for breach of an essential term of a contract. Her Honour noted at PJ1[113] that whether a lessor or lessee has repudiated a lease depends upon the circumstances and that failure to pay rent may constitute a breach of an essential term but this may or may not constitute a repudiation, citing Shevill v The Builders Licensing Board (1982) 149 CLR 620; [1982] HCA 47 and The Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; [1985] HCA 14.

26. [39]

    Her Honour emphasised that the existence of a contractual right to re-enter and take possession did not preclude Markham from exercising its common law right to terminate the Sub-Lease if Wayl had repudiated the Sub-Lease by its breach of essential terms (see PJ1[107], [115], citing inter alia World Best Holdings Ltd v Sarker [2010] NSWCA 24).

27. [40]

    Her Honour noted at PJ1[117] that the Breach Notice might have involved an election by Markham to seek to exercise the power of re-entry and termination of the Sub-Lease if the breaches were not remedied within 14 days, rather than exercise its other rights which existed at that time (under, for example, the NCAT orders), but any such election did not prevent Markham from exercising any further rights it might have in the light of subsequent events. Her Honour found that between 2 and 13 May 2019, Wayl committed further breaches of the Sub-Lease and there was other conduct which, coupled with the rental arrears from March 2019, “manifested a clear inability to substantially perform Wayl’s obligations under the Sub-Lease such as to amount to repudiation by Wayl” (PJ1[118]).

28. [41]

    Breaches which occurred between 2 and 13 May 2019 were identified by the primary judge at PJ1[119]–[120].

29. [42]

    Although the primary judge concluded that the s 443B Notice did not of itself amount to a repudiation of the Sub-Lease, that notice coupled with the existing and further breaches by Wayl and the content of the Administrator’s communications made it clear that Wayl was unable to and would not substantially perform its obligations under the Sub-Lease, which amounted to a repudiation by Wayl (PJ1[121]). The primary judge’s ultimate conclusions on this matter are set out at PJ1[123] and [124]:

30. [43]

    As to the changing of the locks, the primary judge found that the locks were changed on 14 May 2019 (PJ1[84]). Her Honour explained why, unlike the position in Ingram, which authority was relied upon by Mr Misan, the changing of the locks did not prevent Wayl’s continued use and occupation of the Premises. That is because Wayl had already ceased trading and was not using the Premises for its restaurant business (see PJ1[129]). Her Honour also found that because, by the time the locks were changed, there was “a history of not insubstantial default by Wayl” under the Sub-Lease and neither Wayl nor Mr Misan were in a position to pay the outstanding rental arrears, the changing of the locks by Markham did not make it futile for Wayl or the Administrator to fulfil the requirements of either the Sub-Lease or the Breach Notice (PJ1[130]).

31. [44]

    The primary judge then made two further alternative findings. First, she rejected Mr Misan’s submission that the locks to the Premises were changed at Markham’s behest on 14 May 2019 and that it re-entered and took possession then. Rather, her Honour found that the locks were changed on 14 May 2019 without Markham’s authority and without the knowledge of relevant decision-makers in Markham or JLL. Her Honour also pointed to the fact that the keys to the changed locks were left on the Premises and the Administrator had access to the Premises via a swipe card from at least 9 May 2019 (PJ1[131]).

32. [45]

    The primary judge’s second alternative finding was that, even if the changing of the locks amounted to re-entry and taking possession of the Premises by Markham on 14 May 2019, she did not accept Mr Misan’s submission that this conduct amounted to a repudiation of the Sub-Lease; rather, that conduct represented Markham accepting Wayl’s prior repudiation (PJ1[132]).

33. [46]

    The primary judge set out her ultimate conclusions on this matter at PJ1[133] and [134]:

34. [47]

    As to s 440B of the Corporations Act and whether the Administrator had given her written consent to Markham taking possession of the Premises, the primary judge gave detailed reasons at PJ1[140]ff as to why she accepted Markham’s contention that the Administrator’s correspondence (particularly her letter dated 13 May 2019) satisfied the statutory requirement for written consent. Accordingly, her Honour concluded that Markham’s re-entry and taking possession of the Premises (whether on 14 or 16 May 2019) was lawful.

35. [48]

    Her Honour added at PJ1[147] that, even if the Administrator had not given written consent, this would not have meant that Mr Misan’s guarantee and indemnity obligations had been discharged. This was because her Honour stated that the evidence demonstrated that the Administrator did not object to Markham taking possession and there was no demonstrable prejudice in it doing so. Her Honour described any breach of the 14-day period as a “technical breach” in circumstances where a creditor acting in good faith relied on the Administrator’s oral statements that she consented to the re-entry.

36. [49]

    Her Honour explained at PJ1[149] to [151] why authorities relied upon by Mr Misan (Woodcock and Goulston) did not prevent Markham from obtaining indemnity from Mr Misan.

37. [50]

    It is desirable to reproduce a helpful table which summarises the amount of loss and damage claimed by Markham (see PJ1[155]):

38. [51]

    Her Honour described Mr Misan’s defence to the guarantee and indemnity provisions at PJ1[159] as raising the following issues:

    1. (1)

       whether the terms of the Sale Contract had the effect of discharging the guarantee and indemnity;

    2. (2)

       as to Markham’s claim for rental arrears, whether the pre-30 November 2018 rental arrears were recoverable under the guarantee and indemnity and whether adjustments should be made to take account of the rent abatement under (a) the Incentive Deed and (b) the Side Deed;

    3. (3)

       whether Markham had mitigated its damages; and

    4. (4)

       whether Markham was entitled to claim legal costs on an indemnity basis.

39. [52]

    The primary judge’s reasons in relation to each of these four issues may be summarised as follows.

40. [53]

    The primary judge noted that Mr Misan raised an additional argument to the effect that cl 54.8 of the Sale Contract operated such that the guarantee and indemnity he gave under the Sub-Lease were discharged (PJ1[162]). Her Honour accepted that cl 54.8 manifested a contrary intention to s 117(1) of the Conveyancing Act, such that LAOF was to retain the right to recover from Wayl for the pre-completion period in connection with the Sub-Lease and to oust s 117 of the Conveyancing Act (PJ1[163]). Her Honour found it unnecessary to address what she described as “an interesting legal question” whether cl 54.8 of the Sale Contract had the effect of ousting s 117 altogether (PJ1[165]).

41. [54]

    At PJ1[167], the primary judge noted Mr Misan’s submission that even though Markham was entitled to seek payment of the debts owed by Wayl under the NCAT orders, cl 54.8 of the Sale Contract split the liability as between Markham and LAOF and away from the guarantee. Consequently, Mr Misan became surety to two sets of debt – one to Markham and one to LAOF. He submitted that this splitting of liability amounted to a unilateral variation to the Sub-Lease and materially changed his contractual obligations as surety. This had the effect of discharging his obligations under the guarantee and indemnity (citing Langbein v Mottershead Investments Pty Ltd (No 3) [2020] FCA 1790 at [40]).

42. [55]

    The primary judge explained at PJ1[169] why she did not accept these arguments. In particular, she rejected Mr Misan’s contention that he was surety in respect of two different debts or to two different parties consequential upon the Sale Contract. Her Honour found that the relevant covenants as guarantor benefitted only the “landlord” and “touch and concern the land”, thus they were only to Markham’s benefit and it was only Markham who could enforce the guarantee and indemnity. Accordingly, Langbein was distinguishable. It may be interpolated at this point that, on the appeal, this finding is challenged by Mr Misan, who relies upon Hutchens v Deauville Investments Pty Ltd [1986] HCA 85; (1986) 68 ALR 367.

43. [56]

    Markham claimed loss and damage for rent arrears, outgoings, promotional levy and direct recoverable charges in the amount of $532,313.59 (including GST) comprising elements specified at PJ1[174].

44. [57]

    Her Honour noted at PJ1[176] Mr Misan’s submission that he had no liability under the guarantee and indemnity provisions for rent arrears nor was he liable for the NCAT arrears as guarantor. With respect to the first matter, her Honour noted at PJ1[180] Mr Misan’s argument 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 December 2018. Her Honour noted at PJ1[181] that cl 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 for as long as Wayl was not in default under the Sub-Lease. It should also be noted that, as at 1 January 2019, Wayl was in default of its obligations to pay base rent for January 2019 and to provide part of the unconditional bank guarantee on or before 31 December 2018 as required by the NCAT orders (see at [21] above).

45. [58]

    In the light of these matters, the primary judge rejected Mr Misan’s submission that Markham was obliged to provide a rent abatement amount for the month of January 2019 and onwards.

46. [59]

    As to the NCAT arrears, her Honour rejected Mr Misan’s claim on the basis that she was satisfied that these arrears were “Guaranteed Money” for the purposes of the Sub-Lease and were recoverable by Markham under cl 17.4 of the guarantee in the Sub-Lease, being unpaid rent which accrued prior to the date of termination of the Sub-Lease (PJ1[179]).

47. [60]

    Mr Misan claimed that the payment of $376,000 received by Markham from LAOF under the Side Deed should be brought to account and set-off against the claimed rental arrears. Although Mr Misan accepted that the payment did not remove Wayl’s obligation to pay rent, it nevertheless had to be brought to account (citing Moschi v Lep Air Services Ltd [1973] AC 331).

48. [61]

    The primary judge resolved this issue by referring to cl 17.4 of the Sub-Lease, which stated that if Wayl did not pay the “Guaranteed Money” on time, Mr Misan had to pay that money, whether or not it had been demanded by Markham. Her Honour found at PJ1[192] that this imposed a continuing obligation on Mr Misan notwithstanding that the Sub-Lease was terminated on 16 May 2019.

49. [62]

    After noting that “Guaranteed Money” was defined to mean all money that Wayl is or may be liable to pay to Markham as stated in cl 17.1, her Honour concluded at PJ1[193] that this included rent, outgoings, promotional levy and direct recoverable charges that were payable by Wayl under the Sub-Lease prior to termination. Her Honour then noted that Mr Misan did not dispute that Wayl continued to have an obligation to pay rent arrears for January to May 2019 on time, even though Markham received the $376,000 payment from LAOF in February 2019. After noting that cl 17.6(a) of the Sub-Lease provided that the terms of the guarantee were independent of, and in addition to, any other “indemnity” Markham held and was not discharged by any one payment, her Honour concluded at PJ1[196] that Mr Misan was obliged by the terms of the guarantee to pay the rent arrears to Markham without any adjustment because all of the rental arrears constituted “Guaranteed Money” for the purposes of cl 17.4. Her Honour also held at PJ1[201] that Mr Misan was obliged to pay interest under cl 17.11 of the Sub-Lease at the rate of 11.31% on rent arrears to the date of judgment.

50. [63]

    This issue was dealt with by the primary judge at PJ1[205] to [212]. Her Honour noted that, as required by cl 19.3(a) of the Sub-Lease, Markham had a contractual obligation to minimise its loss. Her Honour noted Mr Misan’s submission that Markham adduced only minimal evidence of the steps it took to find a new tenant (and that there was no actual evidence of what those steps entailed) or why the Premises were left unoccupied for nearly two years following Markham’s re-possession in May 2019 (see PJ1[206]). At PJ1[207], the primary judge stated that this argument was not developed by Mr Misan at the hearing nor did he lead any evidence in support of his written contentions to this effect.

51. [64]

    Her Honour acknowledged that some of the evidence might suggest that Markham had not taken all reasonable steps to minimise its loss by installing a new tenant in the Premises (PJ1[209]), but her Honour accepted the evidence of Mr Zhuang, the Chief Financial Officer of Markham’s investment manager, as providing an adequate explanation in relation to these matters. That evidence pointed to the COVID-19 pandemic and associated restrictions (which affected restaurants in particular) and the challenge this presented for identifying suitable tenants from March 2020, as well as the substantial size of the Premises and the decline in overseas tourist numbers. In addition, her Honour took into account the fact that Mr Zhuang was not cross-examined on these issues, nor did Mr Misan adduce any evidence (such as from an expert real estate agent) as to what other steps Markham could have taken.

52. [65]

    Accordingly, in the absence of any contrary evidence, the primary judge accepted Mr Zhuang’s evidence that Markham took all reasonable measures in the circumstances to re-let the Premises (PJ1[212]).

53. [66]

    Markham claimed $100,085.08 (excluding GST) by way of legal costs, as at 30 July 2021 (PJ1[223]). The primary judge noted that cl 17.10(a) of the Sub-Lease stated that Mr Misan, as guarantor, had to 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 Markham) in connection with the guarantee and indemnity. While accepting Mr Misan’s submission that Markham’s ability to recover its costs of the proceeding depended upon the exercise of a judicial discretion, her Honour concluded that there was no reason not to apply the terms of the Sub-Lease (PJ1[226]).

54. [67]

    The primary judge concluded at PJ1[228] that Mr Misan was liable to Markham under the guarantee and indemnity provisions of the Sub-Lease and that judgment should be entered in Markham’s favour 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.

55. [68]

    In PJ2, the following final orders were made:

56. [69]

    As will shortly emerge, Mr Misan’s challenge to the quantum of damages raises a claim that the primary judge erred in failing to take into account the $376,000 that was paid by LAOF to Markham under the Side Deed. Mr Misan complains that this amount should have been taken into account because it operated as a windfall for Markham.

57. [70]

    Two further sub-issues raised by Mr Misan on the appeal concerning damages are:

    1. (1)

       whether Markham mitigated its loss as required by cl 19.3 of the Sub-Lease; and

    2. (2)

       whether the primary judge failed to take into account the effect of COVID-19 in assessing damages, including the notoriety of the fact that restaurants were forced to close during that period and were unable to trade.

Grounds of appeal

1. [71]

   By an amended notice of appeal dated 4 October 2022, Mr Misan sought to raise the following grounds of appeal:

2. [72]

   Mr Misan required leave to raise grounds 4A, 6A and 6B. However, in the events that occurred ground 6B was not pressed, as was made clear by Mr Misan’s counsel after the luncheon adjournment.

3. [73]

   The Court indicated at the outset of the hearing that it would address the issue of leave to amend the notice of appeal in the Court’s final reasons.

Consideration and determination

1. [74]

   It is convenient to group some of Mr Misan’s grounds of appeal.

2. [75]

   These grounds all relate one way or another to the effect of the Breach Notice and whether the primary judge erred in finding that the 14-day period specified therein was breached when the locks of the Premises were changed. Given that the grounds are all inter-related and that Markham does not claim any prejudice, I would grant leave to amend to raise ground 4A. For the following reasons, however, I reject all three grounds.

3. [76]

   Mr Misan contended that, by issuing the Breach Notice on 1 May 2019, Markham elected not immediately to terminate the Sub-Lease. He further contended that the primary judge erred when she stated at PJ1[117] that the issuance of the Breach Notice might have involved an election on Markham’s part, because it did amount to such an election having regard to the principles stated in, for example, CIMIC Group Ltd v AIG Group Ltd [2022] NSWSC 999 at [586] per Peden J.

4. [77]

   Mr Misan also challenged the primary judge’s finding that, despite Markham’s election to keep the Sub-Lease on foot by issuing the Breach Notice, Markham was nevertheless entitled to rely on its common law rights arising from the Sub-Lease to terminate the Sub-Lease. Because Markham had made an election, Mr Misan argued that Progessive Mailing at 55 was distinguishable simply because Markham was bound by the election which it made.

5. [78]

   Mr Misan also contended that the primary judge had overstated the effect of World Best Holdings.

6. [79]

   Mr Misan challenged the primary judge’s finding that Markham was entitled from 13 May 2019 to exercise its common law right to accept Wayl’s repudiation in circumstances where Markham had re-entered by demanding possession from the Administrator prior to 13 May 2019. In support of this claim Mr Misan relied on correspondence, including Markham’s solicitor’s letter dated 10 May 2019, which Mr Misan claimed made clear Markham’s desire to retake possession of the Premises. Mr Misan also relied upon the Administrator’s letter dated 9 May 2019 in which the Administrator stated that she was not in a position to provide Markham with her consent to take possession of the Premises and the fact that on 10 May 2019 Markham instructed JLL to change the locks.

7. [80]

   With regard to the primary judge’s finding that the locks were changed without authority on 14 May 2019 (ie prior to the 14-day specified period specified in the Breach Notice), Mr Misan contended that this finding was inconsistent with the fact that instructions to change the locks were given on 10 May 2019. Mr Misan also challenged the primary judge’s findings that there was no re-entry because keys to the changed locks were left on the Premises and the Administrator could access the Premises by swipe card. Mr Misan claimed that the evidence was to the contrary.

8. [81]

   Mr Misan submitted that the primary judge erred in finding that Ingram was distinguishable and should have found that Markham’s conduct constituted a repudiatory breach of the Sub-Lease.

9. [82]

   As Mr Misan correctly pointed out in his written submissions in reply, a critical issue raised by grounds 1, 4 and 4A related to the circumstances in which the locks of the Premises were changed. I will now explain why I am not persuaded that the primary judge fell into appellable error in respect of her reasoning and/or findings concerning this issue.

10. [83]

    To succeed on this ground, Mr Misan must establish appellable error in respect of several alternative findings by the primary judge. First, the primary judge concluded at PJ1[130] that the evidence clearly established that, by the time the locks were changed, there was a history of not insubstantial default by Wayl under the Sub-Lease and neither Wayl nor Mr Misan were in a position to meet the essential obligations of the Sub-Lease. Accordingly, the changing of the locks did not per se make it futile for Wayl or the Administrator to meet those obligations or satisfy the Breach Notice. Those findings were well open on the evidence and I respectfully agree with them.

11. [84]

    Nor am I persuaded that appellable error has been demonstrated in the primary judge’s rejection of Mr Misan’s reliance on Ingram. I respectfully agree with her Honour’s reasoning at PJ1[129] that, in contrast with the position in Ingram, the changing of the locks in this case did not prevent Wayl’s continued use and occupation of the Premises because Wayl had already ceased trading and was not using the Premises for its restaurant business. In addition, the Administrator had made clear as at 13 May 2019 that she had no objection to Markham exercising its property rights in respect of the Premises.

12. [85]

    Secondly, there is her Honour’s finding at PJ1[131] that, although the locks were changed on 14 May 2019, this was done without Markham’s authority and without the knowledge of relevant decision-makers, being Mr Zhuang, Ms Murphy and representives of JLL. It was open to the primary judge to accept the evidence which established that these persons were not aware that the locks had been changed until the morning of 16 May 2019 (which evidence is summarised by the primary judge at PJ1[82]–[84]). Moreover, it was open to the primary judge to act upon the evidence which indicated that keys to the changed locks were left within the Premises and the Administrator had access via a swipe card from at least 9 May 2019 (those inferences can be drawn respectively from Mr Macklin’s email sent at 10:59AM on 16 May 2019, an email sent at 5:05PM on 9 May 2019 from Mr Garofano to Ms Murphy, an email sent at 2:17PM on 8 May 2019 from the Administrator’s office to Mr Foley and an email sent earlier that day from the Administrator’s office to Mr Foley which states that: “Only the administrator, or parties acting on her behalf, are allowed access to the premise (sic)”).

13. [86]

    These matters support the correctness of the primary judge’s conclusion at PJ1[131] that she was not satisfied that the changing of the locks on 14 May 2019 demonstrated that Markham had re-entered and taken possession of the Premises to the exclusion of Wayl and its Administrator prior to the morning of 16 May 2019. There was a sound evidentiary basis for this conclusion, notwithstanding that Markham pleaded at [30] of its statement of claim that it re-entered the Premises on or about 15 May 2019, which pleading was admitted in Mr Misan’s defence (adding that the date of re-entry was either 10 or 15 May 2019).

14. [87]

    Thirdly, I am not satisfied that appellable error has been demonstrated in the primary judge’s additional alternative finding which is to the effect that, even if the changing of the locks had the effect claimed by Mr Misan, such conduct did not amount to a repudiation by Markham of the Sub-Lease. Rather, as explained by the primary judge at PJ1[132], this conduct reasonably represented an acceptance by Markham of Wayl’s prior repudiation, manifested in its failure to pay rent.

15. [88]

    Finally, although expressed as obiter dictum, the primary judge said at PJ1[135] that she saw “force” in Markham’s submission that it was entitled to terminate the Sub-Lease based upon Wayl’s repudiation even if Markham changed the locks prior to the Breach Notice expiring. Her Honour explained why she held that tentative view. I am not satisfied that Mr Misan has exposed any appellable error in that reasoning.

16. [89]

    For these reasons grounds 1, 4 and 4A are all rejected.

17. [90]

    This ground turns on the correctness of the primary judge’s finding that the Administrator had given consent in writing as provided in s 440B(2) of the Corporations Act so as to create an exception to the restrictions on third party property rights imposed by s 440B(1). In particular, Mr Misan complained that no written consent was provided, nor was there consent in any other form. He contended that, properly read, the correspondence merely indicated that the Administrator neither consented to, nor opposed, Markham taking possession of the Premises. Mr Misan relied in particular on parts of the Administrator’s letters dated 9 and 13 May 2019, emphasising that the primary judge had reached her conclusion notwithstanding that she characterised these letters as being “somewhat qualified” and not having given “unequivocal express written consent”.

18. [91]

    If the primary judge erred in finding that there was consent, Mr Misan contended that Markham’s conduct in re-taking possession of the Premises was in contravention of s 440B of the Corporations Act. He argued that it made no difference whether re-entry occurred on 14 or 16 May 2019 because the prohibition imposed by the statutory provision operated until 6 June 2019 when Wayl was wound up.

19. [92]

    In support of his contention that Markham had sought to recover possession of the Premises from 10 May 2019 notwithstanding the Administrator’s protest against that course of action, Mr Misan relied upon the exchange of correspondence and emails between the Administrator and Markham (and its solicitors) during the period in and around 9 and 10 May 2019.

20. [93]

    Thirdly, Mr Misan contended that Markham’s breach of s 440B was unlawful and not “technical”.

21. [94]

    For the following reasons, I reject ground 2.

22. [95]

    As to the central issue of written consent, I am not persuaded that the primary judge fell into appellable error in finding that, having regard to all the relevant evidence, there was a “written expression” of the Administrator’s consent to Markham re-entering the Premises. The primary judge correctly acknowledged that the statements by the Administrator in her 9 and 13 May 2019 letters were qualified in part, but I see no error in viewing those letters in the context of the Administrator’s statements to creditors at the 13 May 2019 meeting. The Administrator said there words to the following effect: “I consent to Markham re-entering and I understood that my correspondence to Holding Redlich would be read this way”. She also made it clear on that occasion that she had no objection to Markham exercising its “property rights”. The Administrator was mindful of the need for compliance with the period specified in the Breach Notice. The Administrator’s previous reluctance to commit herself unequivocally on the issue of consent was presumably attributable to her lack of legal expertise and perhaps an understandable reluctance on her part to incur additional legal expenses as part of the administration. I respectfully agree with the primary judge’s observations on this matter at PJ1[143].

23. [96]

    For completeness, I should also add that no appellable error has been established in relation to the primary judge’s alternative finding at PJ1[147] to the effect that, even if it were the case that the Administrator had not given written consent within the meaning of s 440B(2) of the Corporations Act, this would not mean that Mr Misan was discharged from his guarantee and indemnity. It was well open to her Honour to note that any failure to provide written consent was merely “a technical breach” and in relation to which Mr Misan had not demonstrated any prejudice. The absence of any demonstrated prejudice was correctly viewed by the primary judge at PJ1[149] as providing a basis for distinguishing Woodcock. Nor did the primary judge err in her treatment of Goulston at PJ1[150]. Her Honour correctly pointed out that the Court distinguished the recourse agreement there from the agreement in Woodcock. In Goulston, the Court found that the indemnity (as opposed to a guarantee) could be called upon such that the plaintiff was entitled to recover the full amount of the unpaid hire purchase instalments notwithstanding that the contract had been terminated.

24. [97]

    Mr Misan challenged the primary judge’s finding at PJ1[151] that a breach of s 440B(1) of the Corporations Act would not have the effect of terminating the Sub-Lease or the guarantee and indemnity contained therein, nor produce a statutory release from liability. In this regard Mr Misan relied upon the principle in Black v Ottoman Bank (1862) 15 ER 573; 15 Moo PC 47, which he contended established that a surety may be discharged from its obligations where some positive act by the creditor has been “to the prejudice of the surety, or such degree of negligence as … to imply connivance and amount to fraud”. Mr Misan also contended that the term “fraud” meant unfair conduct towards a surety arising from an affirmative act.

25. [98]

    Mr Misan submitted that his reliance upon Woodcock and Goulston needed to be viewed in the light of this principle because those cases demonstrated how statutory breaches could constitute unfair conduct prejudicial to a surety which led to the discharge of future obligations.

26. [99]

    Mr Misan submitted that the contemporaneous documentary evidence demonstrated that Markham was not acting in good faith in seeking to recover possession of the Premises and that, having unsuccessfully pressured the Administrator to give her written consent, Markham re-entered and took possession of the Premises rather than seeking leave from the Court. This was said to amount to “carefully considered conduct, or negligent conduct of the requisite degree”, citing O’Day v Commercial Bank of Australia Ltd (1933) 50 CLR 200; [1933] HCA 37.

27. [100]

    It is self-evident that ground 3 is related to ground 2. That is because ground 3 relates to the legal consequences of a breach of s 440B of the Corporations Act. I have explained above why ground 2 is rejected. Accordingly, it is unnecessary to consider and determine the legal issues raised by ground 3 because they do not arise. It is preferable to defer determination of those issues until it is essential to do so.

28. [101]

    Relying upon Hutchens, Mr Misan claimed that he was discharged as surety because of the splitting of liability which resulted in Wayl owing obligations to pay both LAOF and Markham. The primary judge rejected this claim at PJ1[169] because she did not accept that Mr Misan had become surety in respect of two separate debts or to two different parties consequential upon the Sale Contract. Mr Misan challenged this reasoning on the basis that the primary judge had not given proper effect to various provisions in both the Sale Contract (cl 32.1 and the definition of “Tenancy” therein and cl 54.8, which expressly excluded the operation of s 117 of the Conveyancing Act) and the Sub-Lease (in particular cll 17.7(b) and (d) which stated that Mr Misan’s surety obligations continued whether LAOF assigned any rights or the Sub-Lease).

29. [102]

    While acknowledging that he was given a notice of assignment dated 30 November 2018 (being the same day as completion of the Sale Contract), in which he was informed that LAOF had assigned the guarantee provided by Mr Misan to Markham, Mr Misan claimed that the notice did not accurately describe the true effect of the transaction the subject of the Sale Contract, which was that the guarantor under the Sub-Lease became liable to LAOF and Markham.

30. [103]

    In addition, Mr Misan claimed that the effect of the reservation of the debt to LAOF materially changed the terms of the contract with Mr Misan and had the effect of discharging him from the guarantee and indemnity obligations under the Sub-Lease, citing Langbein at [40] per Stewart J (which the primary judge found to be inapplicable at PJ1[170]).

31. [104]

    For the following reasons, ground 5 should be rejected. First, Hutchens does not assist Mr Misan. The relevant passage in that case is at 372–373 which, despite its length, should be set out in full as it makes clear that the issue there is not the same as the position here (emphasis added):

32. [105]

    The position here is different from that in Hutchens because cl 17.7(d) of the Sub-Lease expressly stated that Mr Misan’s liability as guarantor under cl 17.3 was not affected by an assignment of the Sub-Lease (see [106] below for the terms of cl 17.3). The effect was that Mr Misan’s liabilities as guarantor were owed to LAOF as the landlord and then to Markham after the Sub-Lease was assigned to it. While it may be accepted that Wayl remained liable to LAOF for any rent arrears under cl 54.8 of the Sale Contract, the combined effect of cll 54.8 and 54.11 is that any such obligation fell on the tenant alone and could only be recovered from the tenant upon the tenant assigning its rights in respect of the tenancy or the expiry of the tenancy.

33. [106]

    It is desirable to describe the relevant contractual clauses in both the Sub-Lease and the Sale Contract. Clause 17 of the Sub-Lease dealt with the guarantee and indemnity. “Guaranteed Money” was relevantly defined in cl 17.1 as meaning all money that the tenant is or may be at any time liable to pay to the landlord under or in connection with the Sub-Lease (including the tenant’s default) and the tenant’s occupation of the Premises, and as including money which the tenant would be liable to pay but for its insolvency. The guarantee is set out in cl 17.3:

34. [107]

    The indemnity is set out in cl 17.5:

35. [108]

    Relevantly, cl 17.7 of the Sub-Lease (which is headed “Liabilities and rights not affected”) stated that Mr Misan’s liabilities as guarantor, indemnifier and principal debtor under cl 17 were not affected by anything which otherwise might affect them, including but not limited to:

36. [109]

    Clause 54.8 of the Sale Contract stated:

37. [110]

    Clause 54.11 of the Sale Contract relevantly stated:

38. [111]

    “Tenant” is defined at cl 32.1 of the Sale Contract as a person “entitled under a Tenancy to use or occupy any part of the property”. Relevantly, “Tenancy” is defined in the same clause as meaning a Sub-Lease and any other agreement in connection with the use or occupation of the property which is identified in Schedule 3 to the contract (which included an express reference to LAOF). “Tenant Payments” is defined in cl 32.1 as meaning “all rents, levies, fees and other money which under the terms of the Tenancies a Tenant is liable to pay or reimburse to the vendor as landlord or licensor, whether payable before or after completion”, with various specified exclusions.

39. [112]

    It is well to set out the primary judge’s reasoning at PJ1[169] and [170] in which her Honour rejected these particular claims by Mr Misan:

40. [113]

    I respectfully agree with her Honour’s reasoning as to why Markham could enforce the guarantee and indemnity provisions in the Sub-Lease against Mr Misan in respect of Wayl’s obligations under that Sub-Lease.

41. [114]

    Accordingly, ground 5 is rejected.

42. [115]

    In simple terms, this ground raises the question whether the amount of $376,000 received by Markham on 22 February 2019 should be taken into account in assessing Mr Misan’s liability, as guarantor, for Wayl’s rental arrears. If that payment is not taken into account in assessing Mr Misan’s liability to pay damages to Markham, Mr Misan contends that Markham stands to benefit from what might be described as “double recovery”. The resolution of this seemingly simple question turns on the proper construction of provisions in several contractual agreements, namely the Sub-Lease, the Sale Contract, the Escrow Deed and the Side Deed.

43. [116]

    At the risk of some repetition, it is desirable to outline the relevant background facts and identify some relevant provisions of those agreements.

44. [117]

    The terms of Mr Misan’s guarantee and indemnity are set out at [106] and [107] above. Relevantly, the focal point of his obligations under both cll 17.3 and 17.5 of the Sub-Lease is on Wayl’s obligation to pay the “Guaranteed Money” on time. As has been noted, “Guaranteed Money” is defined in cl 17.1 of the Sub-Lease as meaning all money that Wayl, as tenant, is or may be at any time liable to pay to the landlord under or in connection with the Sub-Lease (including the tenant’s default). This plainly included rent.

45. [118]

    It was made clear in cl 17.7 of the Sub-Lease (see [108] above) that Mr Misan’s liabilities as guarantor and indemnifier were not affected by anything which otherwise might affect them, including (without limitation) various matters specified therein.

46. [119]

    I turn now to relevant parts of the Sale Contract. In November 2018, LAOF and Markham entered into the Sale Contract. Clause 35.5 obliged LAOF to pay the “Rent Support Amount” into the “Rent Support Account”. Both those terms are defined in cl 67.2 of the Sale Contract. The Rent Support Amount is defined as the amount of $476,576 (cl 67.2(e)) and the Rent Support Account is defined as an account to be established by the “Escrow Holder” (cl 67.2(d)).

47. [120]

    Clause 67.3 dealt with “Disbursement of Rent Support Amount”. The broad effect of cl 67.3(a) was to assure Markham (as purchaser) that it would be paid any monthly rent shortfall up to a cap of $476,576 for the duration of the “Rent Support Period”. “Rent Support Period” is defined in cl 67.2(f) as meaning the period commencing on the day after completion and ending on the earlier of 3 dates, namely the date 12 months later, the date the Rent Support Amount was exhausted or the date that the Sub-Lease came to an end. Clause 67.3(b)(ii) states:

48. [121]

    As noted above, “Tenant Payments” is defined in cl 32 of the Sale Contract as meaning inter alia all rents payable by Wayl to LAOF (being the vendor under the Sale Contract and the landlord under the Sub-Lease). Tenant Payments accruing after completion of the Sale Contract were to be directed to Markham pursuant to cl 54.1 of the Sale Contract.

49. [122]

    The broad effect of these provisions is that the Escrow Holder would pay to Markham in each calendar month during the Rent Support Period the difference between the aggregate amount of Tenant Payments (plus GST) that were due and payable under the Sub-Lease for that calendar month and the amount actually received by Markham for that month.

50. [123]

    At the end of the Rent Support Period, any remaining balance was to be paid to LAOF unless Markham terminated the Sub-Lease due to a default on Wayl’s part prior to 12 months and one day after the date of completion, in which case any interest that had accrued would be paid to LAOF and the balance in the Rent Support Account would be paid to Markham.

51. [124]

    To give effect to this agreement, on 22 November 2018 Markham and LAOF entered into the Escrow Deed.

52. [125]

    Significantly, on or about 15 February 2019, LAOF and Markham changed their agreement concerning the payment of rent support by entering into the Side Deed. The Side Deed was entered into in circumstances where Wayl had failed to pay all of the December 2018 rent and had not provided a Bank Guarantee by 31 December 2018 in accordance with the NCAT orders.

53. [126]

    At that point in time, there was estimated to be around $152,000 in rent owing to LAOF which was unlikely to be recovered from Wayl. Markham therefore considered that it was entitled to terminate the Sub-Lease, one consequence of which would be that the Rent Support Amount would become payable to it (excluding any interest earned thereupon, which would be paid to LAOF). Markham decided, however, not to terminate. Instead, LAOF and Markham agreed to the following terms in the Side Deed:

    1. (1)

       $376,000 of the Rent Support Amount was to be paid to Markham and the balance of $100,576 be paid to LAOF;

    2. (2)

       LAOF assigned to Markham the right to recover 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 as at the date of the Side Deed, and acknowledged Markham’s entitlement to recover all of that debt; and

    3. (3)

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

54. [127]

    As noted above, Markham received the $376,000 payment on 22 February 2019.

55. [128]

    In the proceeding below, Markham sought a total sum of $532,313.59 for rental arrears (PJ1[155]). That sum comprised arrears of Gross Rent up to 30 November 2018 in the amount of $194,099.54 and arrears of Gross Rent in the period December 2018 to 16 May 2019 in the amount of $338,214.05 (PJ1[174]). However, Mr Misan submitted that, overall, he had no liability under the guarantee and indemnity clauses of the Sub-Lease for rental arrears. That contention was based partly on the premise that Markham’s claim for rental arrears failed to account for the $376,000 paid to it pursuant to the Side Deed. Mr Misan argued that this payment should be brought to account and set-off against the claimed rental arrears (see PJ1[184]). Mr Misan contended that Markham was effectively submitting: “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” (PJ1[186]).

56. [129]

    The primary judge found against Mr Misan on the following bases:

    1. (1)

       The guarantee given by Mr Misan provided that, if Wayl did not pay the “Guaranteed Money” on time, Mr Misan was required to pay that money to Markham. Her Honour found that this was “a covenant which continues to subsist and imposes a continuing obligation on Mr Misan notwithstanding termination of the Sub-Lease on 16 May 2019”: PJ1[192].

    2. (2)

       “Guaranteed Money” is defined in cl 17.1 of the Sub-Lease 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. Rent, outgoings, promotional levy and direct recoverable charges that were payable by Wayl under the Sub-Lease prior to termination was plainly “Guaranteed Money”: PJ1[193]. It was common ground that, in breach of the Sub-Lease, Wayl did not pay rent arrears for January to May 2019 on time despite having a continuing obligation to do so: PJ1[194].

    3. (3)

       Significantly, the terms of the guarantee were independent of and in addition to any other “indemnity” Markham held and were not discharged by any one payment: PJ1[195]. Consequently, her Honour concluded at PJ1[196] (emphasis added):

57. [130]

    At PJ1[197] the primary judge allowed Markham’s entire claim of $532,313.59 for rental arrears.

58. [131]

    On appeal, Mr Misan complained that the primary judge erred in not discounting from the quantum of damages the amount of $376,000 which was paid to Markham by LAOF under the Side Deed. He again contended that if this payment was not brought to account Markham would be in a better position than if the Sub-Lease had been faithfully performed and the rent had been duly paid. He described the $376,000 payment under the Side Deed as a “Windfall Amount”.

59. [132]

    In its written submissions on the appeal, Markham submitted that this ground could be dealt with “swiftly” because it submitted that it ignored Markham’s obligation to account to LAOF for any rent that is received by Markham in the Rent Support Period, referring to cl 67.3(b)(ii) (extracted at [120] above).

60. [133]

    I consider that Mr Misan has failed to establish any error in the primary judge’s conclusion or reasoning for rejecting his double recovery argument. As has been emphasised, his obligations as guarantor and indemnifier operated with respect to the “Guaranteed Money”, which included the timely payment of rent by Wayl.

61. [134]

    The parties to the Side Deed were LAOF and Markham. They were also the parties to the Sale Contract. The Side Deed affected that part of the operation of the Sale Contract relating to disbursement of the Rent Support Amount in the manner summarised at [125] and [126] above.

62. [135]

    The Side Deed varied the rights and obligations of LAOF and Markham under the Sale Contract. It did not (and could not) vary Mr Misan’s obligations as guarantor and indemnifier under the Sub-Lease. Nor did the Side Deed vary Wayl’s obligation to pay rent. As the primary judge noted at PJ1[186] and [194], Mr Misan did not dispute that Wayl continued to have an obligation to pay rent because of Markham’s receipt of $376,000 on 22 February 2019 under the Side Deed. Wayl’s obligation to pay rent was an obligation to which Mr Misan’s obligations and guarantor and indemnifer attached. His obligations were unaffected by the Side Deed.

63. [136]

    In these particular circumstances no double recovery arises from Markham’s receipt of $376,000 under the Side Deed and its right to recover all of Wayl’s rental arrears (amounting to $532,313.59, including GST) from Mr Misan under his guarantee and/or indemnity. In substance Markham received a collateral benefit from its arrangements with LAOF. The primary judge was correct to reject Mr Misan’s claim regarding double recovery, for the reasons given by her Honour.

64. [137]

    As an aside, it might be noted that Mr Misan did not contend, either below or on appeal, that the Side Deed should be viewed as arising from active mitigation, having regard to its timing and Wayl being in breach of the Sub-Lease at that time (see, for example, British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673 and James Edelman, McGregor on Damages (21st ed, 2021, Sweet & Maxwell) [9-120ff]). Markham’s decision not to accept Wayl’s repudiation of the Sub-Lease and terminate the Sub-Lease, as opposed to entering into the Side Deed when it did, could present some difficult questions in this regard (see, for example, White & Carter (Councils) Ltd v McGregor [1962] AC 413). It is both inappropriate and unnecessary to take these matters any further having regard to the conduct of Mr Misan’s case.

65. [138]

    For these reasons, ground 6 is rejected.

66. [139]

    Under this proposed ground, which relates to Markham’s contractual obligation to minimise its loss as required by cl 19.3(a) of the Sub-Lease, Mr Misan submitted that the primary judge erred in finding that he was required to, and failed to, lead evidence which rebutted Markham’s evidence of the steps it took to minimise its loss. Mr Misan submitted that Markham carried the onus and that Mr Zhuang’s evidence was inadequate and failed to offer any explanation as to why Markham could not or would not procure a new tenant during the period May 2019 to March 2020. Nor was there any explanation why the new tenant was given a rent-free period of four months and rental relief up to 27 November 2022 (ie what would have been the expiration date of Wayl’s Sub-Lease), which Mr Misan contended amounted to an indulgence to the new tenant at his expense.

67. [140]

    I would grant leave to permit Mr Misan to raise ground 6A, but for the following reasons this ground is rejected.

68. [141]

    The primary judge’s reasoning in respect of this matter is summarised at [63]–[65] above. In my respectful view, it was open to the primary judge to determine the issue of mitigation in the way that she did, noting in particular that the obligation to mitigate arose contractually under cl 19.3(a) of the Sub-Lease. Mr Zhuang’s evidence concerning the practical difficulties presented by the COVID-19 pandemic in attracting a new tenant to the Premises may have been brief, but the primary judge was entitled to act upon it, particularly in circumstances where Mr Misan provided no contrary evidence. This part of Mr Zhuang’s evidence (which was not challenged in cross-examination) also accords with both practical common sense and is consistent with the notorious adverse commercial effects of the pandemic.

69. [142]

    As noted above, this proposed ground was not pressed.

Conclusion

1. [143]

   For these reasons, the appeal should be dismissed, with costs.