Zhu v Wang

Leave to Amend

1. The respondents opposed the proposed amendment. They point out that there has been no satisfactory explanation for the delay in applying for leave to file the Amended Notice of Appeal, much less the Revised Notice of Appeal. Ms Zhu proffered the lockdown associated with the Covid-19 pandemic as an explanation for the lateness of the application to amend. Ms Zhu also said that the delay was due to the priority of other matters. That, however, is not an adequate reason for the delay in making the application. Ms Zhu did not explain why it took more than five months, or approximately two months after the lockdown began, to make the application.
2. Further, when the appellants' submissions of 5 July 2021 were filed, a forensic decision was made by them to abandon three of the four grounds in the Notice of Appeal. No evidence has been adduced to explain why the appellants have had a change of heart in relation to that forensic decision such as to justify the appellants' resiling from the forensic decision to abandon grounds in the Notice of Appeal.
3. Amendment was also opposed on the basis that the lateness of the application to amend may result in an adjournment of the hearing of the appeal, which would cause procedural injustice to the respondents. On 16 July 2021, this Court granted a stay of the enforcement of the judgment directed by the primary judge. [2] The respondents contended that if the amendment were allowed, the hearing day may be lost, resulting in further delay in the final determination of the appeal. It appears that the appellants are impecunious, since they cannot afford legal representation, and a costs order in favour of the respondents would not protect them from the prejudice of allowing the amendment.
4. The respondents also contended that the additional grounds of the Amended Notice of Appeal did not disclose an arguable case. However, as will appear, there is some substance in certain of the grounds and, ultimately, the respondents were able to meet the grounds in the Revised Notice of Appeal and the oral argument proceeded on the basis of those grounds. In the circumstances, the appellants should have leave to rely on the Revised Notice of Appeal. However, the costs thrown away by the amendments should be borne by the appellants in any event.
5. Ms Zhu sought to rely on an affidavit sworn by her on 25 August 2021 and written submissions dated 20 August 2021 that annexed a number of documents, which Ms Zhu asserted were intended, amongst other things, to clarify the evidence before the primary judge. No case has been made out for adducing further evidence on the hearing of the appeal and, accordingly, the affidavit and further documents will be ignored, except to the extent that they explain or support the application for leave to amend the notice of appeal.
6. The hearing has proceeded on the basis that the submissions of 25 August 2021 supersede the submissions of 5 July 2021. Because the submissions of 5 July 2021 abandoned three grounds, the submissions of the respondents of 6 August 2021, which were filed on 10 August 2021, respond only to the one ground that remained from the Original Notice of Appeal. However, brief submissions of 17 August 2021 were filed on behalf of the respondents on 18 August 2021 in opposition to the motion for leave to amend. Those submissions addressed the grounds of the Amended Notice of Appeal. The respondents have not had the opportunity of responding in writing to the submissions of 25 August 2021. However, the respondents have had the opportunity of responding orally.

Factual Background

1. Before addressing the proposed grounds of appeal, it is necessary to set out the arrangements that have given rise to the disputes presently before the Court. That task has been complicated by the fact that Ms Zhu has no legal qualifications and had difficulty in taking the Court to the evidentiary material before the primary judge. In particular, Ms Zhu appears to have had some difficulty in comprehending precisely what material was in evidence, as distinct from certain affidavit material that was treated by his Honour as submission.

The Lease

1. By lease dated 21 July 2015 (the Lease), Supacenta Pty Ltd as Landlord (Supacenta) granted to Singways as Tenant a term of five years commencing on 1 March 2015 and terminating on 29 February 2020. The demised premises were described as Shop GF 05 in the Supacenta at Moore Park, New South Wales (the Moore Park Shop).
2. Part 9 of the Lease dealt with "Bank Guarantee". Clause 9.1(a) relevantly provided that, if item 16 of the reference schedule that formed part of the Lease (the Reference Schedule) provides for a bank guarantee, on the date that was the earlier of the date of execution and the commencement of the term of the Lease, the Tenant was required to give Supacenta an unconditional bank guarantee for the due and punctual observance of the Tenant's obligations under the Lease in a form and on terms acceptable to Supacenta. Item 16 of the Reference Schedule provided for a bank guarantee in the sum of $103,601.
3. Part 11 of the Lease dealt with the obligations of Singways, as Tenant, in relation to the Moore Park Shop. Clause 11.1(a) provided that the Tenant may only use the Moore Park Shop for the purpose specified in item 19 of the Reference Schedule. Item 19 specified the following use: "Retail sale of furniture and homewares. The display of mattresses and bedroom settings will be limited to no more than 6 in total."
4. Clause 11.1(e) provided that the Tenant must not, without the approval of Supacenta, trade from the Moore Park Shop under a name other than the name specified in item 4 of the Reference Schedule. Reference to item 4 was a mistake and it should have been a reference to item 7, which specified that the trading name was "HQ Living".
5. Clause 11.1(c) relevantly provided that the Tenant must carry on "the Tenant's business" and use of the Moore Park Shop:

• to the best of the Tenant's ability;
• in a professional and competent way;
• properly and efficiently and in accordance with best industry practices; and
• to Supacenta's satisfaction (acting reasonably). Clause 11.1(d) provided that the Tenant must do all that is necessary to carry on the Tenant's business in the Moore Park Shop to the best advantage.

1. Clause 12.1 of the Lease provided that, subject to cl 12.2, the Tenant would not sublease, assign, license, share or otherwise part with possession of the Moore Park Shop or any part thereof. Clause 12.2 provided that the Tenant may assign its interest in the Lease subject to satisfaction of all of the prerequisites set out in cl 12.2.
2. The leasehold interest under the Lease was assigned by Singways to HQ Living, with the consent of Supacenta. While the circumstances in which the assignment took place are somewhat obscure, it appears to be common ground that the assignment occurred after 20 October 2016, when the Management Agreement was entered into between De Rucci International and Singways.
3. A deed of consent to the assignment of the Lease (the Deed of Consent), which is undated, recited that Supacenta and Singways had entered into the Lease in respect of the Moore Park Shop and that Supacenta had agreed to permit Singways to assign the lease to HQ Living. Clause 4 provided that, at least three days prior to the date when the assignment was to take effect, HQ Living was required to provide Supacenta with "the Bank Guarantee". Clause 8 of the Deed of Consent provided that, in consideration of Supacenta consenting to the assignment of the Lease by Singways to HQ Living, HQ Living acknowledged and agreed to provide: "…a Bank Guarantee during the term and the period of holding over or extension of the Lease in respect of liabilities arising under the Lease after the Transfer date." The term "Transfer date" was defined as the date that the assignment of the Lease takes effect as specified in cl 5.2. Clause 5.2 had a provision for specifying the Transfer Date. However, the provision is blank.
4. If "the Bank Guarantee" required by cl 9.1 and item 16 of the Lease had been provided, it might be expected that HQ Living would have been able to rely on it for the purposes of the Deed of Consent, since Ms Zhu appears to have controlled both Singways and HQ Living. Of course, it is possible that "the Bank Guarantee" had not been provided by Singways when the Lease was granted. The matter does not appear to have been explored before the primary judge.

The Management Agreement

1. Mr Jeff Jia is the general manager of De Rucci International. Mr Jia said in an affidavit of 20 November 2019 that, in 2016, Ms Zhu approached him about re-establishing a previous arrangement whereby De Rucci International would manage the Moore Park Shop on behalf of Ms Zhu. In an affidavit of 10 March 2020, Mr Jia said that De Rucci International initially requested the transfer of the Lease to it or that a sublease or licence be created but that Ms Zhu refused on the basis that Supacenta, as Landlord, would not agree and said that the arrangement would have to be called "a management arrangement".
2. Mr Jia said that Ms Zhu told him that she could not "afford the bank guarantee" and that, if De Rucci International could pay the bank guarantee amount and pay her $5,000 per month, she would continue to sell the products of De Rucci International. Mr Jia said that he told Ms Zhu that De Rucci International would pay the bank guarantee but would only pay her $5,000 per month when she paid back the bank guarantee to De Rucci International.
3. On 23 July 2016, Ms Zhu sent an email in Chinese to Mr Jia. A translation of the email into English in evidence was as follows: "The proposal for the co-operation for the 4th store [Ms] Zhu hereby agrees to sub-lease the shop under the name of her company, being HQ Living at Moore Park Supa Centre in Sydney, to DeRucci International Co., Ltd to be operated as the specialised store for DeRucci products (the 4th store). To avoid a breach of contract and the consequential termination of the lease of the shop by the owner, it is hereby suggested that the parties should cooperate and operate the 4th store as the following: [Ms] Zhu will provide a bank guarantee. The 4th store will resume the DeRucci business model implemented in 2015 and will be managed by DeRucci. [Ms] Zhu will not participate in the management of the store, but will assist Chief Manager Jia of DeRucci to communicate with the owner in relation to the administration of the lease agreement and ensure the terms of the lease agreement are adhered to, so the lease can be maintained. DeRucci will pay [Ms] Zhu a monthly lease administration fee of $5000+GST. If DeRucci provides the takeover of the shop, in the first few months DeRucci may be required to obtain finance and provide a bank guarantee in advance. During the period that DeRucci provides the bank guarantee, there will be no need to pay the monthly lease administration fee of $5000+GST. This fee will become payable by DeRucci since the the [sic] day that [Ms] Zhu provides the bank guarantee. The administration of HQ Living at Moore Park Supa Centre will be hand over to DeRucci International Co., Ltd. on 1 November 2016. If, due to the reasons on the side of [Ms] Zhu, DeRucci International Co., Ltd. was unable to move into HQ Living at Moore Park Supa Centre on 1 December 2016, [Ms] Zhu will compensate DeRucci International Co., Ltd. AUD 100,000."
4. On 9 August 2016, Mr Jia sent an email to the solicitors for De Rucci International instructing them to draft a contract on the basis of the proposal set out in Ms Zhu's email of 23 July 2016. Thereafter, successive drafts of a proposed management agreement were prepared and considered by the parties.
5. The Management Agreement was ultimately signed on 20 October 2016. In the Management Agreement, De Rucci International was described as "the Manager" and Singways was described as "Singways". It contained the recitals to the following effect:

• Singways conducts business as a retailer of furniture, bedding and associated items at the Moore Park Shop (the Business);
• The manager has expertise in marketing and retailing similar items to Singways;
• Singways intends to engage the services of a manager on the terms and conditions set out in the Management Agreement;
• Singways has offered to contract the management of the Business to the manager on the terms set out in the Management Agreement;
• The manager has agreed to accept Singways' offer; and
• Singways is required to deliver a banker's guarantee to the lessor of the Business under the terms of the Lease on or before 30 October 2016.

1. The reference to 30 October 2016 in the recital is unclear. As I have said, cl 9.1 and item 16 of the Lease required a bank guarantee. There seems to be no reason why that would not have been required on grant of the Lease. As indicated above, if there had been a bank guarantee in place, one might expect that it could have been assigned. The likely inference is that, for some reason, the Lease had been granted without compliance with cl 9.1 and it was still necessary for the Tenant to provide the Bank Guarantee.
2. Clause 1(1) of the Management Agreement is not felicitously expressed. It provided as follows: "In consideration of [De Rucci International] providing a bankers guarantee to Singways on or before the 30 of October 2016 as required by its lease to the lessor in relation to its performance of the lease of the business aforesaid. Singways appoints [De Rucci International] as its manager in all respects of the marketing of the business. [De Rucci International] accepts the appointment subject to the terms and conditions hereof." In cl 1(2), the term "management" was defined as including:

• operating the Business of selling and marketing such items of stock for retail within the uses permitted by "the lessor of Singways' business" using the best of its expertise and ability;
• engaging such staff as may be necessary for such purpose;
• selecting for sale any brand of goods considered by the parties to be the most saleable and profitable for the Business;
• advertising in any manner the saleable stock in order to increase the profitability of the Business;
• managing the turnover of the Business and paying thereout all of Singways' obligations both commercial and statutory required to maintain the Business.

1. Clauses 5 and 6 of the Management Agreement dealt with "Manager's Commission". The syntax of cll 5 and 6 is less than perfect. Their intended effect appears to be as follows in the following paragraphs.
2. By cl 5(1), Singways agreed to pay to De Rucci International a "commission" as consideration for the management services to be provided by it. The commission was to be calculated as the "remaining net profit" after the payment, out of the proceeds of all sales from the Business, of certain expenses. The expenses were as follows: 1. Singways' essential outgoings of the Business, rental, wages to staff, repairs for damage, insurances for damage, public risk, loss of profit or any other insurances held for Singways in relation to the Business; 2. any other expense required for Singways to maintain its obligations either statutory or contractual in relation to the Business; 3. payments to suppliers for stock and any charges in relation to delivery of stock in relation to the Business; and 4. GST, payroll tax and any other tax liability in relation to the Business.
3. By cl 6, the "commission" was to be paid to De Rucci International from "gross earnings actually received by or held by" De Rucci International on behalf of Singways. The term "gross earnings" was to include any and all payments of money or any other form of value paid to or applied from the sale of stock in the Business, directly or indirectly, and derived from the Business, prior to the deduction of any commissions or expenses. However, De Rucci International was to be solely responsible for paying any and all of its own expenses, including those relating to: 1. the conduct and maintenance of its office and facilities; 2. telephone and facsimile costs; 3. wages and ancillary costs of office personnel; and 4. travel costs.
4. The term of the Management Agreement was expressed to be for the remaining period of the Lease. Clause 9 of the Management Agreement provided that it was to commence on 1 November 2016 and that, if De Rucci International could not start the management by 1 December 2016 because of default on the part of Singways, Singways was to pay $100,000 to De Rucci International for damages.
5. Clause 10 of the Management Agreement, which dealt with "Termination", is critical for these proceedings. Clause 10(1) relevantly provided that De Rucci International would manage the Moore Park Shop pursuant to all terms and conditions of the Lease and the terms of the Management Agreement. It also provided that, if De Rucci International breached any terms of the Lease, Singways could terminate the Management Agreement by giving 28 days' notice in writing. Clause 10(2) relevantly provided that, if Singways terminated the Management Agreement before the Lease expired and De Rucci International had not breached the terms of the Lease, Singways was required to give three months' written notice to De Rucci International but was to pay $100,000 to De Rucci International for compensation and damages within 10 business days from the date of termination. Clause 10(3) relevantly provided that, if De Rucci International wished to terminate the Management Agreement before the expiration of the Lease, it must give three months' written notice to Singways and was to pay $100,000 to Singways for compensation and damages within 10 business days from the date of termination.

The Co-operative Distribution Agreement

1. In the meantime, on 21 September 2016, while negotiations concerning the Management Agreement were progressing, an agreement in Chinese (the Co‑operative Distribution Agreement) was signed on behalf of Dongguan De Rucci Bedding Co., Ltd., as "Party A" (Dongguan De Rucci), and De Rucci Queensland Pty Ltd, as "Party B" (De Rucci Queensland). De Rucci Queensland is controlled by Ms Zhu. An English translation of the Co-operative Distribution Agreement indicates that it provides that, in order to develop the market in Queensland, both parties had reached a co-operation agreement regarding the export and overseas sales of Party A's products in accordance with the contract law of the People's Republic of China. Party A agreed to authorise Party B to become a distributor of Party A's products in Queensland. The Co-operative Distribution Agreement was to take effect from the date of signing by both parties and was to be valid for five years. Party A guaranteed that, during that period, it would not authorise other customers in Queensland to set up De Rucci stores or any other form of retail stores. Party B guaranteed that, during that period, it would not sell similar products of other brands within Queensland.

The Bank Guarantee

1. On 20 October 2016, Mr Jia arranged for a bank cheque payable to Supacenta in the sum of $107,317.90 to be delivered to Ms Zhu. On 21 October 2016, Ms Zhu arranged for the bank cheque to be credited to an account of Supacenta. On 27 October 2016, the proceeds of the bank cheque were paid by Supacenta to HQ Living and, from that time until, at the earliest, 25 March 2020, the amount of the proceeds stood to the credit of an account in the name of HQ Living, as security for a bank guarantee provided by HQ Living to Supacenta either in accordance with the provisions of the Lease or the Deed of Consent.
2. Shortly after Mr Jia delivered the bank cheque to Ms Zhu, Ms Zhu provided to Mr Jia an undated document in Chinese, entitled "Loan Agreement" (the Loan Agreement). An English translation of the Loan Agreement relevantly provided as follows: "This is hereby to confirm that I owe De Rucci International Pty Ltd 107,317.90 Australian dollars. I will repay this money as soon as possible but no later than 31 December 2016. If I am unable to assist De Rucci to sell its products at HQ Living at Moore Park Supa Centa, De Rucci International will consider to give an extension to the payment. De Rucci International also affirms that if I assist De Rucci International to sell its products at HQ Living of Moore Park Supa Centa after I repay this money a management fee of $500,000+GST will be paid." On 7 November 2016, Ms Zhu sent an email to De Rucci International's solicitors, with a copy to Mr Jia, saying as follows: "We have to defer the management handover of the Moore Park store to De Rucci to 31/12/2016. Therefore Mr Wang and [Mr Jia] has asked me to prepare the attached agreement for your review. Feel free to let me know if you have any concerns. I have enclosed a signed copy if all is ok. You may confirm in writing to all of us to finalise the case."
3. Attached to the email of 7 November 2016 was a document signed by Ms Zhu entitled "Loan Agreement Confirmation" expressed to be made on 7 November 2016 between De Rucci International and Ms Zhu (the Loan Agreement Confirmation). The Loan Agreement Confirmation relevantly provided as follows: "Under mutual agreement, the commencement date of the subject management agreement has been deferred to 31/12/2016. Accordingly, [Ms] Zhu agrees that the bank guarantee funds of $107,317.90 provided by De Rucci [International] are converted to an interest free personal loan from De Rucci [International] to her. [Ms] Zhu is responsible to repay this loan as soon as possible. Accordingly De Rucci [International] further agrees to make a monthly interest payment of $5000 to [Ms] Zhu provided that both of these conditions are met: 1. [Ms Zhu] has made full payment of $107,317.90 to De Rucci [International]. 2. De Rucci [International] has commenced the management of HQ Living Moore Park store as per the Management Agreement dated 20/10/2016. Furthermore De Rucci [International] agrees that it will waive the penalty cost of $100,000 for Singways as a result of the delayed business commencement date from 01 November 2016 to 31/12/2016 specified under Clause 9 in the above mentioned Management Agreement."

The Queensland Shops

1. Between 2016 and 2018, various entities controlled by Ms Zhu owned and operated furniture businesses selling De Rucci products from three shops in Queensland. The shops were located at Fortitude Valley, Brisbane (Shop 1), Logan (Shop 2) and Bundall, Gold Coast (Shop 3).
2. The amended cross-claim alleged that, in oral discussions at the Gold Coast at the time of the Chinese New Year in 2018, Ms Zhu reached an agreement with Mr Wang whereby Mr Wang would, through a friend, provide additional financial investment and company stock credit facilities of $500,000 to support the three Queensland shops. Ms Zhu also alleged that Mr Wang promised an additional stock credit limit of $400,000.
3. The amended cross-claim then alleged that, in June 2018, Mr Wang and Ms Zhu met with Mr Wang's friend, Mr Jin Pei Wang, to discuss the financial investment of $500,000 to support the three Queensland shops and that Mr Jin Pei Wang offered to lend the sum of $500,000. The amended cross-claim alleged that, in July 2018, Mr Wang visited Sydney to discuss with Ms Zhu the proposed takeover of the Queensland shops by Mr Jin Pei Wang. Mr Wang said that Mr Jin Pei Wang would take over the management of the three Queensland shops and would take over the leases of the three shops from entities controlled by Ms Zhu.
4. A document in Chinese entitled "Acquisition Agreement for The Three De Rucci Stores in Brisbane and Gold Coast" was signed by Ms Zhu and Mr Jin Pei Wang (the Acquisition Agreement). The document bears the day 27 July 2017. However, Ms Zhu asserted that that date was erroneous and the Acquisition Agreement was signed on 27 July 2018. The primary judge appears to have accepted that assertion by Ms Zhu. There has been no challenge to that finding.
5. An English translation of the Acquisition Agreement shows that it was agreed that Mr Jin Pei Wang would acquire the three Queensland shops from Ms Zhu on the following terms:

• The transfer fee for Shop 1 was $100,000 plus GST, including fit out costs, with the price for office equipment and display products being calculated and paid for separately. Ms Zhu was to apply for the landlord's approval and a new company of Mr Jin Pei Wang was to consider signing a new lease agreement;
• The lease of Shop 2 was to be assigned or transferred to Mr Jin Pei Wang, with a transfer fee of $120,000 plus GST, including fit out costs, with the price for office equipment and display products being calculated and paid for separately;
• The lease of Shop 3 was to be assigned or transferred to Mr Jin Pei Wang, who was to pay $150,000 plus GST for the shop fit out. Mr Jin Pei Wang was also to pay for a bank guarantee and display products;
• The value of warehouse trucks and other furniture, delivery tools and equipment was to be calculated with depreciation of five years and the transfer prices were not to be lower than "the balance of the truck loans"; and
• The cost for all warehouse stock and display stock was to be calculated on the ex-factory price plus the local cost.

1. On 19 September 2018, Ms Zhu was provided with a document in Chinese entitled "Summary of the Handover in Brisbane" (the Settlement Summary). An English translation of the Settlement Summary indicates that it relevantly provided as follows: Total value of goods and decorative goods in Shop 3 $199,354.93 Total value of the transfer fee and fittings for Shop 3 $150,000 Offsetting the debts to "De Rucci" -$199,354.93 Amount to be paid by Sydney to Brisbane $150,000 Total value of goods and decorative goods in Shop 2 $172,861.62 Total value of transfer fee and fittings for Shop 2 $120,000 Total value of stock $167,999.42 Offsetting the debts to De Rucci -$340,861.05 Amount to be paid by Sydney to Brisbane $120,000 Total value of goods and decorative goods in Shop 1 $199,042.42 Total value of the transfer fee and fittings for Shop 1 $100,000 Offsetting the debts to De Rucci -$168,864.46 Amount to be paid by Sydney to Brisbane $130,177.95

1. The translation of the Settlement Summary shows that it set out "Terms of the Handover" as follows:

• All debts incurred by the previous Brisbane distributor are not relevant to Sydney;
• The previous Brisbane distributor will be responsible for making arrangements for the staff of the shop and Sydney will not accept all staff of the shop;
• The order of the handover is: Shop 3, Shop 2 and the warehouse, Shop 1;
• Come into effect after the lawyers acting for both parties sign the contract;
• Payment conditions: 1. receive GST invoice; 2. lawyers sign the contract; 3. sign the contract for the shop; 4. Sydney acquire the right of management and control of the shop without the debts.
• To protect the basic interests of the previous Brisbane distributor, Sydney should pay a deposit to the trust account of the lawyer in accordance with the amount due. Before finalising the transfer of the control of the shop, Sydney will not accept the handover of the next shop;
• When the shop is operated by the previous Brisbane distributor, all debts shall be borne by the previous Brisbane distributor. After the date of the transfer, the debts and the risks resulting from the operation will be borne by Sydney;
• The lawyer for Sydney will follow the normal procedure under Australian law to conduct the transfer of the shop. The interests of the party who hands over the shop should be protected. The recipient should not propose any terms detrimental to the party who hands over the shop; and
• The terms of the handover protect the basic interest of the recipient and if any change occurs the receiving will be terminated.

1. The intended meaning of the Settlement Summary is not entirely clear. References to "the previous Brisbane distributor" appear to refer to the entities controlled by Ms Zhu who operated the Queensland shops. The references to "Sydney" and "the recipient" appear to be references to Mr Jin Pei Wang or his relevant entity, as transferee of the Queensland shops. The Settlement Summary appears to contemplate that the sum of $400,177.95 was to be payable to entities controlled by Ms Zhu.
2. The language of the Settlement Summary appears to make clear that there was no binding agreement until lawyers had prepared an agreement that was to be signed by the parties. Further, it is significant that there is no mention in either the Acquisition Agreement or the Settlement Summary of the Management Agreement or the Moore Park Shop.
3. On 26 October 2018, a document entitled "Agreement for sale and purchase of a business" was signed by De Rucci Bundall, as Vendor, and De Rucci International, as Purchaser (the Bundall Sale Agreement). By the Bundall Sale Agreement, the Vendor agreed to sell and the Purchaser agreed to buy:

• the goodwill of a business described as "De Rucci Bundall", being a furniture retail business conducted in Bundall, Queensland;
• the assets of the business set out in a schedule to the Bundall Sale; and
• stock and office equipment at valuation. The business was sold as a "going concern on a walk in walk out basis". Clearly, the Bundall Sale Agreement related to Shop 3 as referred to in the Acquisition Agreement.

1. The purchase price under the Bundall Sale Agreement was to be the total of the value of the goodwill and assets shown in a schedule, being "goodwill" of $1,000 and an "installing fee" of $149,000, together with stock "at valuation". The deposit was shown as $1 and the balance of $149,999 was, under cl 4, to be paid at settlement. The Vendor was to direct the proceeds to be paid as follows:

• all rents payable for the Bundall shop (that is Shop 3);
• all rents payable for the Fortitude Valley shop (that is Shop 1); and
• all rents payable for the Logan shop (that is Shop 2). The Bundall Sale Agreement contained various other provisions consistent with an agreement for the sale of a business as a going concern.

1. On 30 October 2018, Ms Zhu sent a message to Mr Jia indicating that the landlord of Shop 2 refused to consent to the assignment of the lease for that shop because of outstanding rent. On 1 November 2018, Ms Zhu received communications from the landlords of the three Queensland shops indicating that they refused to consent to the transfer of leases because of outstanding monies owed to the landlords. Ms Zhu also received a formal breach notice dated 1 November 2018 from the landlord of Shop 3 indicating that the landlord refused to consent to the transfer of the lease because Ms Zhu failed to erect signage in accordance with the lease. On 3 November 2018, Mr Wang sent a message to Ms Zhu confirming that he would only transfer the sum of $150,000 in connection with the Bundall Sale Agreement once the landlord had consented to the transfer of the lease and not before.
2. On 20 November 2018, Ms Zhu and Mr Jia attended a meeting with representatives of the landlord of Shop 2. Mr Jia asserted that, during that meeting, the landlord asked him whether he would pay for Ms Zhu's outstanding rent. Mr Jia said that he told the landlord that he would not. On 20 November 2018, a representative of the landlord of Shop 3 sent an email to Ms Zhu and Mr Jia saying that the landlord agreed to the assignment of the lease to De Rucci International if certain conditions were satisfied. The email said that the landlord would not consent to the assignment of the lease unless correct signage in accordance with the existing lease was installed.
3. On 20 December 2018, the solicitors for De Rucci International sent an email to Ms Zhu's solicitors. After referring to the Bundall Sale Agreement, the solicitors said that, since the vendor was unable to settle the matter by the date fixed for possession and settlement because the vendor had breached the essential terms of the lease of the shop premises, they were instructed to give notice that the purchaser rescinded the Bundall Sale Agreement. On 21 December 2018, Mr Jia received an email from representatives of the landlord of Shop 3 indicating that De Rucci International had secured a lease of the Bundall premises.
4. On 24 December 2018, Ms Zhu received an email from Dongguan De Rucci in relation to the Co-operative Distribution Agreement entitled "Notice of Terminating Co-operation". The email, which was in Chinese, said, relevantly, as follows, according to an English translation: "Since the commencement of the co-operation in distribution in September 2016, your company has accumulated and owed us a large sum of overdue payments for goods. Our company has received a large amount of complaints from the clients. Your company is unable to provide normal services to the clients, and negatively affects the service quality and image of the company. Our company decides to terminate the cooperation with your company." The email then gave instructions concerning "handover". Effectively, Party A (Dongguan De Rucci) gave notice of termination to Party B (De Rucci Queensland).
5. On or around 20 December 2018, the landlord of Shop 2 called on a bank guarantee in the amount of $96,380 and the lease was either forfeited or surrendered. On 26 December 2018, the landlord of Shop 1 changed the lock, thereby preventing Ms Zhu and her related entities from gaining access to the premises. The lease was forfeited and a penalty charge in the sum of $150,000 became payable to the landlord.

Termination of the Management Agreement

1. Ms Zhu said in cross-examination that, on 18 June 2019, she met with Mr Wang in Dongguan, China, when Mr Wang said that he still wanted to operate the Moore Park Shop and sell De Rucci products. She said that she responded: "No. Our arrangement is over. What's the new arrangement? This is your last chance to talk about it." It is not clear what Ms Zhu meant by those remarks. Ms Zhu accepted that De Rucci International was still operating the business at the Moore Park Shop at that time and that there had been no change in how the business was operating after 24 November 2018. She asserted, however, that after 24 December 2018, the Management Agreement was terminated.
2. Ms Zhu said in her affidavit of 9 December 2019 that, on or about 25 June 2019, she had a meeting with Ms Annette Saunders, a representative of Supacenta. Ms Saunders said that she was concerned about a breach of the Lease "in relation to over 10 bedding settings displayed on the floor". Ms Saunders said that, under the Lease, the Tenant was only allowed to display six bedding sets and told Ms Zhu "you may end up losing your store and your lease. Please take urgent actions to rectify your position."
3. Ms Zhu asserted in her affidavit that that was not the first time that De Rucci International "did this" and that she had told De Rucci International on many occasions that displaying more than six bedding settings was a breach of the Lease and that Supacenta took such breaches very seriously. Ms Zhu said that she warned Mr Jia immediately about the breach and that he promised to rectify the issue straight away.
4. On 5 July 2019, Ms Zhu sent a message to Mr Jia in Chinese, in which she said, according to an English translation: "[B]efore Monday, when can someone help me adjust the floor shop decoration? There are ten beds in it. The lease stipulates that we can only afford six sets of beds." She also said: "The key is to remove the 4 beds". Mr Jia responded that he would "take care of it" as soon as he could.
5. On 31 August 2019, Ms Zhu caused the locks on the Moore Park Shop to be changed. However, from 1 September 2019, she opened and closed the Moore Park Shop, allowing De Rucci International's employees to work there and to continue to collect revenue from sales of stock made from the Moore Park Shop. However, on 7 September 2019, Ms Zhu changed the EFTPOS machine in the Moore Park Shop so that revenue from sales no longer went into a bank account of De Rucci International. From that time the proceeds of the sale of stock at the Moore Park Shop have been paid into a bank account in the name of HQ Bedding.
6. Also on 7 September 2019, Ms Zhu sent a message to Mr Wang in Chinese, saying, according to an English translation, as follows: "I haven't heard back from Mr Jia about paying my management fee. I went to see Mr Jia yesterday. They say it's a corporate action and that no one is in charge. I heard it's waiting for your final approval. Based on the communication in recent months, we ended the existing Moore Park [sic] in Sydney with our store HQ Living. I started taking the store back today. I manage it myself. Store exhibits we can do a good job for me to deal with, in accordance with the ex-factory price to join the Brisbane store delivery account settlement. At the same time, when it is convenient for you, we can have a face-to-face talk about a new way of cooperation. Thanks for understanding."
7. On 12 September 2019, Ms Zhu sent an email to De Rucci International's solicitor saying relevantly as follows: "On the morning of 7th September, I informed with a message on [W]eChat to Mr Wang, the Director of De Rucci [International], that the management agreement for HQ Living Moore Park was terminated immediately. I took over the store management. I did advise his General Manager Jeff Jia of the same. I have replaced the EFTPOS machine to take over the payments from the trading in order to offset the debt owed by De Rucci [International] to our group of companies. They are aware that I have not had any income since 07/02/2019 due to their mismanagement of our business sale and settlement in Queensland. … In order to achieve an amicable resolution for the settlement and ongoing relationship and comply with our lease obligations, I have made sure that the store has been operated for both trading and customer services as usual. If your client takes any actions to disturb the trading, or affect my personal safety, or damage my credibility or our group of companies of such nature, we reserve our right to claim compensation from your client."
8. From 13 September 2019, De Rucci International has been denied access to the Moore Park Shop, except for the purposes of conducting a stock take and obtaining sales information pursuant to orders of the Court. Since 12 September 2019 at the latest, HQ Living has sold De Rucci branded display stock at the Moore Park Shop and has applied the proceeds of that stock to the expenses of running the Business.
9. On 27 September 2019, Ms Zhu received an email from Ms Saunders saying as follows: "As previously discussed, having more than 6 bed settings in your store is in breach of the current lease and as such I give you fourteen (14) days to remedy this before further action is taken". Ms Zhu said that she managed to reduce the number of bedding settings to six within a week, as required by Supacenta.
10. The Lease expired by effluxion of time on 29 February 2020 and the bank guarantee secured by the deposit of $107,317.90 has been released. It is not clear whether the funds that were deposited as security for the bank guarantee remain extant.

The Issues in the Appeal

1. The grounds in the Revised Notice of Appeal may be summarised as follows: 1. The primary judge erred by failing to afford procedural fairness to the appellants by advising Ms Zhu that she could file further submissions on the first day of the hearing on 20 April 2020 and the fourth day of the hearing on 23 April 2020, but then rejecting submissions filed on 28 April 2020; 2. The primary judge erred by failing to find that there was a connection between the arrangements in relation to the three Queensland shops and the Management Agreement, in that his Honour failed to find that all agreements between the appellants, on the one hand, and the respondents on the other hand, were collateral, including the Cooperative Distribution Agreement, the Management Agreement, the Loan Agreement, the Acquisition Agreement, the Bundall Sale Agreement and Ms Zhu's personal guarantee to return the bank guarantee for the Moore Park Shop in exchange for her payment from the sale of the three Queensland shops. 3. Alternatively, the primary judge erred by failing to find that the conduct of the respondents intentionally broke the agreement to install lighting for Shop 3 in order to meet the preconditions for the assignment of the lease of that shop, interfered with the Bundall Sale Agreement and unreasonably terminated the Bundall Sale Agreement; 4. The primary judge erred by finding that HQ Living repudiated the Management Agreement and should have decided that there was an overarching agreement to the effect that repudiation or termination of the collateral contracts would immediately cause the Management Agreement to be repudiated or terminated. 5. Alternatively, his Honour erred in failing to find that the respondents breached the Management Agreement by displaying more than six bedding sets at the Moore Park Shop contrary to the provisions of the Lease and thereby repudiated the Management Agreement; 6. The primary judge erred in assessing damages for repudiation of the Management Agreement:

• by finding that De Rucci International was entitled to an additional month's commission of $30,789; and
• by finding that De Rucci International was entitled to damages for three months of $92,367; 1. The primary judge erred by finding that De Rucci International was entitled to recover the sum of $107,317.90.

1. Thus, the issues raised by the Revised Notice of Appeal may be stated as follows: 1. whether Ms Zhu and the other appellants were denied procedural fairness by the primary judge in so far as his Honour declined to have regard to further written submissions lodged on their behalf; 2. whether HQ Living repudiated the Management Agreement; 3. whether De Rucci International repudiated the Management Agreement; 4. whether the primary judge erred in assessing damages for repudiation of the Management Agreement; 5. whether Ms Zhu had personal liability for any damages for breach of the Management Agreement; 6. whether Ms Zhu had a liability to De Rucci International in respect of the sum of $107,317.90; and 7. whether the primary judge erred in dismissing the cross-claim.

Denial of Procedural Fairness

1. Further submissions were filed by the defendants on 28 April 2020, in the week following the hearing. The appellants assert that the primary judge "failed to recall his earlier permission" given on day four of the hearing for things to be done in writing "after the conclusion today". However, as events transpired, that "permission" was superseded by events and further clarified by his Honour. The "permission" that was foreshadowed on day four was superseded in circumstances where the appellants were given the benefit of an adjournment overnight to prepare for closing submissions on a fifth day. At the end of the appellants' closing submissions on day five, his Honour confirmed that the grant of leave for further written submissions was confined to reply submissions. His Honour then allowed the appellants further time to provide reply submissions. The material produced went well beyond the scope of that leave. There was no denial of procedural fairness.

Repudiation of the Management Agreement

1. The primary judge held that there had been no repudiation of the Management Agreement by De Rucci International and that, accordingly, the Management Agreement could be brought to an end by HQ Living, as successor of Singways, only in accordance with cl 10. Under cl 10, a distinction was drawn between a situation where De Rucci International, as manager, had breached terms of the Lease, on the one hand, and the situation where De Rucci International had not breached the terms of the Lease, on the other. Thus, if the manager breached any terms of the Lease, Singways could terminate the Management Agreement by giving 28 days' notice in writing. On the other hand, if the manager had not breached the terms of the Lease, Singways could terminate the Management Agreement by giving three months' written notice.
2. It is clear enough that no notice in writing of termination of the Management Agreement was given by HQ Living to De Rucci International before HQ Living peremptorily brought the Management Agreement to an end. Thus, from 13 September 2019, De Rucci International has been denied access to the Moore Park Shop. From 7 September 2019, De Rucci International was denied the revenue from sales at the Moore Park Shop. From 1 September 2019, De Rucci International was denied control of the Moore Park Shop, although its employees were afforded access and De Rucci International continued to collect revenue from sales of stock.
3. However, it is clear that, prior to all of those dates, there had been breaches of cl 11.1(a) of the Lease in so far as there were displays of mattresses and bedroom settings in excess of six, as specified in item 19 of the Reference Schedule. There were in fact displays of up to 10 mattresses and bedroom settings. Those breaches continued until after 27 September 2019. Thus, at each of the three dates in question, there was a current breach of the Lease.
4. As the primary judge observed, it may not much matter whether De Rucci International sued for breach or repudiation. A repudiation is a breach. The question is what loss or damage was suffered by De Rucci International as a consequence of the termination of the Management Agreement otherwise than in accordance with the contractual entitlement under cl 10.
5. While the breaches, of themselves, could not be said to amount to a repudiation of the Management Agreement on the part of De Rucci International, they were not insignificant. Contrary to the conclusion reached by the primary judge, there is no warrant for considering that cl 10 did not apply to such a breach of the Lease.
6. Thus, the references in the Management Agreement to the Lease are significant. They indicate that, so far as Singways was concerned, the standing of the Lease was of the essence for the purposes of the Management Agreement. Thus, the Management Agreement was to operate only for the balance of the term of the Lease. Breach by De Rucci International of the terms of the Lease was a ground for early termination, albeit upon giving 28 days' notice in writing. The entitlement of De Rucci International to compensation of $100,000 was conditional upon it not having breached the terms of the Lease. There was an express covenant by De Rucci International to adhere to the terms and conditions of the Lease and a promise to indemnify Singways for any breach or default occasioned by reason of the conduct of De Rucci International in the Moore Park Shop.
7. Having regard to the importance of the Lease, I consider that cl 10(1) was triggered and HQ Living was entitled to give 28 days' notice of termination. It was not required to give three months' notice of termination. In the circumstances, it would have been open to HQ Living to give 28 days' written notice of termination of the Management Agreement. It did not do so but terminated peremptorily without written notice. That was a breach of the Management Agreement. To the extent that it was clear that HQ Living evidenced an intention no longer to be bound by the Management Agreement, that was a repudiation of the Management Agreement, which was accepted ultimately, by De Rucci International.

Liability for Breach

1. Ms Zhu was not a party to the Management Agreement. The only entity against whom judgment should be entered, if there is to be a judgment for damages for repudiation or breach of the Management Agreement, would be HQ Living.

Quantum of Damages

1. The question is what loss or damage De Rucci International suffered as a consequence of HQ Living's repudiation. Having regard to the breach of the Lease in relation to the number of bed settings, HQ Living was entitled to terminate by giving 28 days' notice in writing to De Rucci International. Had it done so, it would have been entitled to terminate without penalty. The loss to De Rucci International, therefore, is the loss of one month's "profit" from the conduct of the Moore Park Shop. However, the primary judge concluded that De Rucci International was entitled to damages equivalent to three months' "profit" in lieu of the three months' written notice of termination that would have been required under cl 10(2). His Honour erred in that regard. The loss suffered by De Rucci International was the loss consequent upon the failure to give 28 days' notice of termination. The damages, therefore, should have been limited to the sum of $30,789.
2. Further, the primary judge erred in concluding that the manager was entitled to an extra month by way of damages. If it be the fact that the manager did not receive the profit for the month of August, it was entitled to recover that amount as an accrued right notwithstanding any repudiation or breach of the Management Agreement. However, De Rucci International did not claim that amount and did not ask for an extra month. His Honour erred in awarding an extra month's profit by way of damages.

The Bank Guarantee

1. Recital "F" of the Management Agreement stated that Singways was required to deliver a banker's guarantee to the landlord of the Business under the terms of the Lease, on or before 30 October 2016. Clause 1(1) provided that, in consideration of the manager providing a banker's guarantee to Singways on or before 30 October 2016, as required by its lease to the lessor in relation to its performance of the lease of the Business, Singways appointed De Rucci International as its manager in all respects of the marketing of the business. HQ Living succeeded to the rights and obligations of Singways under the Management Agreement. De Rucci International claims that there was an implied term that, once the Lease expired, and the bank guarantee was returned by the lessor, the amount advanced by De Rucci International should be returned. There is no difficulty in finding such an implication.
2. Relevantly, however, Ms Zhu acknowledged on several occasions that the funds of $107,317.90 provided by De Rucci International for the bank guarantee were converted into an interest free personal loan from De Rucci International to her and that she is responsible to pay that loan as soon as possible. In the circumstances, where there was evidence of reliance upon that acknowledgement, Ms Zhu would be estopped from resiling from the undertaking and acknowledgement unless she compensated De Rucci International for the detriments suffered from its reliance. Since it appears that De Rucci International cannot recover that amount from HQ Living, that is the quantification of its detriment. There was no error on the part of the primary judge in ordering Ms Zhu to pay the sum of $107,317.90 to De Rucci International.

Overarching Agreement

1. A substantial part of the oral argument was occupied by the question of whether or not there was an overarching agreement, as alleged by the appellants, that breach of the arrangements in relation to the Queensland businesses would entitle HQ Living to terminate the Management Agreement on the basis that such a breach or repudiation was a repudiation of the Management Agreement. However, the appellants were unable to point to any evidence of any alleged oral discussion from which any such agreement could be found.
2. In their amended cross-claim, Ms Zhu, HQ Living and De Rucci Bundall alleged that on 21 September 2016, Mr Wang and De Rucci International agreed with Ms Zhu and HQ Living, and entered into an agreement, in respect of furniture importation and business co-operation (the First Syndicate Agreement). The agreement was said to be partly in writing, partly oral and partly "in performance". The writing was said to be the Co-operative Distribution Agreement and the Management Agreement. The oral parts of the agreement were alleged to be meetings held in March 2016. The terms of the First Syndicate Agreement were said to include the following: 1. Dongguan De Rucci and De Rucci International would export and supply or procure exportation and supply of furniture products to HQ Living and its associated entities as demanded; 2. Ms Zhu would be appointed as the retail manager of the Queensland shops, including the one in Fortitude Valley; 3. Ms Zhu and her associated entities, including De Rucci Queensland, would be exclusive distributor to sell Dongguan De Rucci's products in Queensland; 4. HQ Living, Singways and any of their successors would appoint De Rucci International as the manager to operate the business of HQ Living at the Moore Park Shop; 5. De Rucci International would account for any profits from the operation of the Moore Park Shop under a management agreement; and 6. A bank guarantee would be provided as consideration and Ms Zhu and HQ Living would give up their profit for the Moore Park Shop.
3. The amended cross-claim also alleged that, on or around 27 July 2018, Mr Wang and De Rucci International entered into another agreement with Ms Zhu and HQ Living (the Second Syndicate Agreement). The Second Syndicate Agreement was said to be partly in writing, partly oral and partly "in performance". The written part was said to be the Acquisition Agreement and the Bundall Sale Agreement. The Second Syndicate Agreement was said to include the following terms: 1. De Rucci International would acquire the three Queensland shops and associated stock from Ms Zhu and her associated entities; 2. Mr Wang and De Rucci International would pay the aggregate of the outstanding fees, fit out cost and trading stock for the acquisition; 3. before settlement, Mr Wang and De Rucci International would pay Ms Zhu a monthly management fee of $5,000; 4. upon settlement of the acquisition, De Rucci International would continue to be the manager to operate the business of HQ Living at the Moore Park Shop; 5. upon settlement of the acquisition, Dongguan De Rucci may elect to terminate the Co-operative Distribution Agreement with Ms Zhu and HQ Living without penalty; 6. upon settlement of the acquisition, Mr Wang and Ms Zhu would commence co-operation in managing the three Queensland shops and developing De Rucci's [sic] hotel business in Australia; and 7. all the settlement funds will be paid to De Rucci International, who was the importer of all stock for the three Queensland shops.
4. There is some difficulty in the pleading of the two syndicate agreements. For example, written agreements brought into existence after the syndicate agreements were alleged to have been made were said to evidence the syndicate agreements.
5. A significant hurdle for the appellants is that entities alleged to be parties to the two syndicate agreements were not joined as parties in the proceedings. Mr Jin Pei Wang, who was a party to the Acquisition Agreement, was not a party to the proceedings. Dongguan De Rucci and De Rucci Queensland, who were the parties to the Co-operative Distribution Agreement, were not parties to the proceedings. A finding could not be made about the effect of the Co-operative Distribution Agreement and the Acquisition Agreement without the parties to those transactions being joined as parties to the proceedings. It follows that there could be no claim for breach of those agreements in proceedings brought by Ms Zhu, HQ Living and De Rucci Bundall. Any claim for breach of the agreements in relation to the Queensland businesses must necessarily be rejected. Whether there were breaches of the arrangements might be the subject of other proceedings involving the entities that were parties to the arrangements. That is not a question into which this Court can inquire.
6. Ms Zhu asserted that, under Chinese culture, the principals made agreements that were binding upon themselves, irrespective of the legal entities that might be involved in the particular transactions. However, there was no evidence of any such culture.
7. Much more significantly, there was no evidence of any discussion that could constitute an overarching agreement made between Ms Zhu and Mr Wang. There is simply no evidence of oral communications giving rise to enforceable and binding agreements beyond the written agreements described above. Specifically, there is no evidence of any communication between Ms Zhu and Mr Wang to the effect that the agreements relating to the Queensland businesses were interconnected in some way with the Management Agreement such that repudiation of the agreements relating to the Queensland businesses was in some way to be taken as a repudiation of the Management Agreement. There was therefore no error on the part of the primary judge in reaching a conclusion that there was no overarching agreement as alleged.

Conclusion

1. It follows that the appeal must be allowed in part. There remains an outstanding question about the costs of the appeal and of the trial. I propose the following orders: 1. Grant leave to the appellants to file a further amended notice of appeal in the form of the Revised Notice of Appeal and direct the appellants to do so within 7 days of these reasons; 2. Set aside Order 6 (the order for a stay) made by Payne JA on 16 July 2021; 3. Appeal allowed in part; 4. Set aside Orders 3, 4, 6, 7 and 8 made by the primary judge on 2 December 2020 and in lieu thereof, order: 1. HQ Living pay De Rucci International the sum of $30,789; 2. Ms Zhu and HQ Living are jointly and severally liable to pay De Rucci International the sum of $107,317.90. 1. By 14 October 2021, the appellants file with the associate to Gleeson JA submissions in writing as to the appropriate orders for costs at first instance and of the appeal; 2. By 21 October 2021, the respondents file with the associate to Gleeson JA submissions in writing as to the appropriate orders for costs at first instance and of the appeal; 3. By 28 October 2021, the appellants file with the associate to Gleeson JA submissions in reply in writing as to the appropriate orders for costs at first instance and of the appeal; 4. The Court will consider those submissions on costs on the papers.

Endnotes

1. See De Rucci International Pty Ltd v Zhu [2020] NSWSC 374; De Rucci International Pty Ltd v Zhu [2020] NSWSC 1720.
2. See Zhu v Wang [2021] NSWCA 149. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 October 2021