Smart Dollars Tamworth Pty Ltd v Corpique No.18 Pty Ltd

Background

1. On 4 October 2014, Corpique entered into a lease with a third party. On 21 December 2016, the lease was novated to Smart Dollars. Mr Lin (and Mr Rongtao Pang, the former third cross-defendant) agreed to be bound by the guarantee and indemnity clauses in the lease.
2. On 21 May 2021, Corpique served on Smart Dollars a breach notice under s 129(1) Conveyancing Act 1919 (NSW), alleging multiple breaches of the lease, relying upon an expert building report of Edwards & Froud Building Services Pty Ltd, that identified substantial repair work said to be needed for compliance with the lease.
3. On 29 June 2021, Corpique retook possession.
4. On 16 July 2021, Smart Dollars commenced proceedings seeking relief against forfeiture.
5. On 23 July 2021, Smart Dollars sought an interim order entitling it to re-enter. Darke J heard that application and made various findings, including; 1. "It is clear… that [Smart Dollars] has breached the lease in a number of respects. These include the carrying out of works without the prior approval or consent of the defendant." 2. "The plaintiff, by its Summons and now Amended Summons seeking relief against forfeiture, apparently accepts that there are at least some breaches of the lease that would justify the re-entry and termination of the lease by [Corpique]." 3. "I therefore consider that even if the Court on a final hearing came to the conclusion that there were numerous breaches of a serious nature, and even if some of the breaches were considered to be wilful, the ability of the plaintiff to remedy the breaches might provide a proper basis for the grant of relief." 4. "In order to justify an injunction which would require the defendant to allow the plaintiff to resume possession of the premises, it would I think be necessary for the plaintiff to give appropriate undertakings over and above the usual undertaking as to damages, and such undertakings would need to be undertakings to the effect that various matters would be promptly attended to and that a mechanism be put in place whereby required repairs were identified by an independent person and promptly effected by the plaintiff. The plaintiff has, through its senior counsel, indicated a willingness to give undertakings of that character."
6. With the benefit of his Honour's findings, the parties then agreed to orders by consent, including order 3, which granted Smart Dollars possession of the motel, upon Smart Dollars and others providing undertakings to the Court, including to "attend expeditiously to works, repairs and attention to matters of air-conditioning, gutters and asbestos set out in the Notice of Breach of Covenant … dated 20 May 2021".
7. The undertakings also required inter alia: 1. Within one week, for Ms Bingqin Lu (the fourth cross-defendant and Mr Lin's wife), Mr Lin and Smart Dollars to appoint one of two named independent experts to identify necessary works (including those in the Notice of Breach), and determine whose responsibility they were to repair, and to prepare a scope of works; 2. Within one week of the preparation of the scope of works, Smart Dollars was to identify three possible builders for the expert to approve as builder; 3. Within two months of the appointment of a builder, Smart Dollars was to complete the scope of works "that are its responsibility under the Lease as identified by the Independent Expert" (undertaking 7), such work then to be checked by the expert (undertakings 8 to 10); 4. Smart Dollars was to pay the independent expert's costs (undertaking 13).
8. By cross-claim filed 9 May 2022, Corpique sought orders against Smart Dollars and Mr Lin, inter alia: 1. An interim order vacating the repossession order made on 23 July 2021; 2. A final order that Smart Dollars pay Corpique damages for "its breaches of the Lease" and Mr Lin pay damages because of Mr Lin's guarantee of Smart Dollars' obligations under the lease; 3. A final order that Smart Dollars and Mr Lin pay "compensation … pursuant to undertaking 1."
9. Neither the cross-claim nor the amended cross-claim filed in court on 25 September 2024 quantified the damages for breaches of the lease sought. However, in its written submissions and evidence, Corpique has quantified its loss at $1,885,406.22. However, orally that was amended to $2,065,307.52 because there had been a failure to calculate GST on some components.
10. On 12 May 2022, Mr Lin filed a joint defence with the other cross-defendants who had been served, namely Smart Dollars and his wife, denying liability. The defence did not engage meaningfully with the breach of lease claim.
11. At no point has there been any pleading or evidence from the cross-defendants to suggest that the undertakings were void or ought not otherwise operate as an agreement between the parties.
12. On 27 January 2023, the expert completed the scope of works contemplated in the July 2021 undertakings.
13. On 12 May 2023, the Court made a consent order: On or before 16 June 2023, [Smart Dollars] is to engage [Waycott Builders] to perform the Scope of Works determined by the Expert pursuant to the undertakings to the Court entered into by [Smart Dollars] on 23 July 2021 (Scope of Works).
14. Further, the Court noted: 1. The expert has been appointed, and the parties have agreed to the appointment of Waycott to perform the scope of works; 2. Waycott has provided a preliminary quotation to perform the scope of works in the amount of $1,463,169.53; 3. Waycott intends to commence performing the scope of works on or about 12 July 2023.
15. As noted, Corpique agitated for interim relief in its cross-claim revoking the order permitting Smart Dollars to re-enter because of the significant delays by Smart Dollars and Mr Lin in performing the undertakings and May 2023 consent order to appoint a builder. Corpique moved for that interim relief on 9 August 2023.
16. As recorded in a judgment dated 9 August 2023, Stevenson J found that Smart Dollars had not, as at that date, engaged the builder. Stevenson J revoked earlier orders that prevented Corpique from re-entering the premises: see Smart Dollars Tamworth Pty Ltd v Corpique No 18 Pty Ltd [2023] NSWSC 936.
17. On or about 12 August 2023, Smart Dollars abandoned the premises. Corpique retook possession and terminated the lease. It found more damage to the premises than recorded in the expert's scope of works and it incurred further costs rectifying the issues.
18. On 24 April 2024, without notice to the cross-claimant, Mr Lin applied for the voluntary deregistration of Smart Dollars. The company was deregistered on 30 June 2024. This was even though, pursuant to s 601AA(2)(f) Corporations Act 2001 (Cth), a company may not apply for voluntary deregistration while a party to legal proceedings. Mr Lin has not explained his actions in this regard. Nevertheless, the proceedings are a nullity to the extent that Smart Dollars is a plaintiff or cross-defendant, and the Court should make no further order: see United Service Insurance Co Ltd (in liquidation) v Lang (1935) 35 SR (NSW) 487 at 497 (Jordan CJ); Amcus Pty Ltd v Hurst Rentals Pty Ltd (No 2) [2010] NSWSC 239 at [14]-[23] (Slattery J).
19. Despite filing a motion to have Smart Dollars reinstated for the purposes of seeking declarations or orders against it, Corpique no longer seeks to follow that course.
20. As part of an application to file an amended statement of cross-claim during the hearing, Corpique sought leave to discontinue its proceedings against Mr Peng, the third cross-defendant, who (with Mr Lin) had also signed a guarantee in favour of Corpique. Mr Peng was not served with the cross-claim in time. An application to extend the time for service was dismissed by Williams J on 6 September 2024. Proceedings may be discontinued by a plaintiff under r 12.1(1)(b) Uniform Civil Procedure Rules 2005 (NSW) (UCPR) by filing a notice of discontinuance with leave of the Court.
21. However, pursuant to r 12.1(4) UCPR, an affidavit is necessary where the originating process has not been served on a party. Even though Corpique has not filed such an affidavit, I consider it appropriate to grant leave to Corpique to discontinue the proceedings against Mr Peng in circumstances where the Court is aware of the fact that he has not been served and there is no obvious prejudice to Mr Peng, who has not appeared in the proceedings.
22. Corpique also orally indicated that it did not seek relief against the fourth cross-defendant pleaded in its cross-claim. This judgment, therefore, only concerns Corpique's cross-claim against Mr Lin. I also note that Corpique abandoned a pleaded claim for damages for lost profit.
23. At all times until 12 September 2024, Mr Lin had legal representation in these proceedings. On 12 September 2024, he terminated the retainer with his original solicitor, Mr Jeffrey Wong, who had represented the plaintiff and fourth cross-defendant also. By 20 September 2024, Mr Lin had engaged a new solicitor and counsel. By 24 September 2024, Mr Lin had terminated his new solicitor's retainer and on 25 September 2024 that solicitor sought and was granted leave to be removed as solicitor on the record. On 25 September 2024, Mr Lin appeared for himself with the assistance of a NAATI interpreter. He did not seek an adjournment of the hearing and made oral submissions in his defence.
24. The issues to be determined are: 1. Whether Smart Dollars breached the lease by carrying out works not permitted under the lease and/or by failing to carry out works required to repair and maintain the premises; 2. Whether Mr Lin is liable under the guarantee and indemnity provisions of the lease for any breaches of lease by Smart Dollars; and 3. The proper quantification of any damages claim against Mr Lin.

Did Smart Dollars breach the lease?

1. Corpique submits that Smart Dollars breached the lease and there is no real defence to that claim. Corpique relies upon: 1. The findings of Darke J; 2. The undertakings given to the Court, including by Mr Lin, which can be seen as evidencing an agreement between the parties that Corpique agreed that Smart Dollars would be entitled to re-enter if it rectified admitted breaches of the lease through the agreed process of expert determination and the appointment of a builder: see eg Meijer v Zabusky [2014] QCA 40 at [30] (Mullins J, Fraser and Gotterson JJA agreeing); Fylas Pty Ltd v Vynal Pty Ltd [1992] 2 Qd R 593 at 601 (McPherson SPJ). 3. The consent orders made on 12 May 2023 which recorded an agreement that Smart Dollars accepted liability to engage a builder to carry out the rectification works based on the expert's scope of works.
2. I further note that on 8 August 2023, in written submissions concerning Corpique's application to vacate the order entitling Smart Dollars to possession of the premises, senior counsel for Smart Dollars submitted to the Court: The tenant is ready, willing and able to pay such repair costs as are not structural and properly the responsibility of the tenant.
3. At the hearing of that application on 9 August 2023, Smart Dollar's senior counsel further submitted orally: I cannot put any submission that justifies the failure to engage with the … quote [for building work].
4. These submissions clearly indicate that Smart Dollars accepted responsibility for the scope of works and its responsibility to engage the builder to carry out those works. No suggestion was raised that Smart Dollars was not in breach of the lease.
5. For completeness, I note that no cross-defendant has at any stage made an application to set aside the undertakings given to the Court in July 2021 or the 12 May 2023 consent orders.
6. Therefore, I consider that the evidence and conduct of the parties demonstrates that Smart Dollars accepted it was in breach of the lease, the undertakings and consent orders. For all of those reasons, I find that Smart Dollars breached clauses 6 and 7 of the lease as pleaded and identified by the independent expert's scope of works.
7. I further note that clause 8.6 of the lease provides for a continuing indemnity by Smart Dollars. Clause 8.6 provides that "the tenant indemnifies the landlord against any liability, loss or damage to the motel caused by the act, negligence or default of the tenant".
8. To the extent that Smart Dollars caused the issues in the scope of works that can be identified as "damage to the motel" within the meaning of clause 8.6 or loss to the motel, Smart Dollars promised to indemnify Corpique and it has failed to do so.
9. Further, there is no evidence or pleading by any cross-defendant demonstrating that: 1. The scope of works does not accurately reflect the works which are necessary by reason of Smart Dollars' breaches of the lease requiring repair and maintenance; or that 2. The methodology of the expert was flawed or there is any other basis, upon which to set aside the expert's determination.
10. I do not understand Mr Lin (as apart from Smart Dollars) to challenge the expert's determination of the scope of works necessary to rectify Smart Dollars' breaches of the lease.
11. Therefore, the only remaining issue is the appropriate quantum of the cost of the scope of works and any other losses suffered by Corpique. The builder that Smart Dollars was ordered by consent to engage had provided a "preliminary quotation" of $1,463,169.53. However, Corpique relies on the expert quantity surveyor report of Mr Adrian Jamieson dated 10 November 2023 to quantify its loss due to the default of Smart Dollars in performing the works identified in the scope of works. Mr Jamieson quantifies the cost of the performance of the scope of works in the amount of $1,799,013 excluding GST.
12. Mr Jamieson was not required for cross-examination. Mr Lin did not lead any evidence that Mr Jamieson's expert evidence is inaccurate, nor did he provide an alternative figure. The only submission Mr Lin made was that some of the figures were "self-evidently unreasonable." In the circumstances, I do not accept it is open to Mr Lin to challenge Mr Jamieson's opinion with his lay opinion given from the bar table. I accept the quantification of Mr Jamieson.
13. Further, Corpique claims $86,393.22, being sums it expended for the further damage found after it retook possession in August 2023, as evidenced by Ms Glenda Burke, the sole director of Corpique. Ms Burke was not required for cross-examination. There was no evidence led contradicting her evidence and, in the circumstances, I do not consider there is any reason not to accept her evidence of these additional costs, which are supported with third party documentary evidence.
14. Therefore, I accept that Corpique has proved that its loss suffered by reason of Smart Dollars' breaches of the lease concerning damage and failure to repair the leased premises is the amount claimed, being $2,065,307.52 inclusive of GST.

Is Mr Lin liable for the loss caused by Smart Dollars?

1. As noted above, Mr Lin personally provided the 23 July 2021 undertakings to the Court with others and was a party to the consent orders made on 12 May 2023. Further, at all material times, he was the sole director of Smart Dollars and therefore its controlling mind, including in relation to the agreement to the orders and undertakings and Smart Dollars' failure to comply with them and the lease. Mr Lin was therefore at all times aware of the breaches of the lease by Smart Dollars.
2. Irrespective of that, I accept that Mr Lin is liable to Corpique by reason of his agreement to provide Corpique a guarantee and indemnity pursuant to clause 17 of the lease, which relevantly provides: 17.1 Guarantee (a) The guarantor guarantees the … performance by the tenant of the covenants and provisions contained in this lease. (b) The guarantor must on demand by the landlord if the tenant is in default of this lease, pay, observe and perform the obligations of the tenant under this lease. 17.2 Indemnity The guarantor indemnifies the landlord from any loss caused by the default of the tenant. … 17.6 Principal obligations The obligations of the guarantor are principal obligations.
3. On that basis, and because I am satisfied that Smart Dollars breached the lease as considered above, Mr Lin is liable to indemnify Corpique for its loss caused by Smart Dollars' breaches. I do not accept Mr Lin's bare denial unsupported by evidence.
4. For completeness, I note that Mr Lin's only oral submissions made to the court resisting orders being made against him were: 1. The lease was not reasonable; 2. His wife is very unwell; and 3. To require him to pay close to $2 million was unreasonable and akin to "robbery".
5. There is no principled reasoning for those submissions and I reject them. The court must apply legal principles and does not have a discretion to make a decision contrary to legal principles applicable to a contract, even where a party may face a hardship as a result.
6. I find Mr Lin liable to indemnify Corpique as alleged.

Conclusion and orders

1. In these circumstances and for the reasons given, it is appropriate to make the following orders. 1. The second cross-defendant to pay the cross-claimant damages in the sum of $2,065,307.52 inclusive of GST; 2. The second cross-defendant to pay the cross-claimant's costs as agreed or assessed.

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