Cheng v Chan

[2022] NSWLC 25

Local Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Cheng v Chan [2022] NSWLC 25

Hearing dates:

9 and 10 December 2021, further written submissions

Date of orders:

08 July 2022

Decision date:

08 July 2022

Jurisdiction:

Civil

Before:

Crompton LCM

Decision:

Dismiss the claim, Judgment for Defendant

Catchwords:

CONSUMER LAW — Misleading or deceptive conduct — Representations — Silence or non-disclosure

Legislation Cited:

Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law, s 18

Cases Cited:

Addenbrooke Pty Ltd (ACN 055 973 576) v Duncan and Others (No 2) (2017) 348 ALR 1

Briginshaw v Briginshaw (1938) 60 CLR 336

Helton v Allen (1940) 63 CLR 691

Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357

Watson v Foxman (1995) 49 NSWLR 315

Category:

Principal judgment

Parties:

Brenda Choy Fong Cheng (Plaintiff)
Roy Chan (Defendant)

Representation:

Counsel:
Mr Goodyear (Plaintiff)
Mr Philips (Defendant)

Solicitors:
Ma & Company Solicitors (Plaintiff)
Keypoint Law (Defendant)

File Number(s):

2019/00366808

Publication restriction:

Nil

JUDGMENT

BACKGROUND

1. The plaintiff, Brenda Choy Fong Cheng, and her husband, Kwai Tak Cheng (also known as Denny) reside in Hong Kong, China. Their son Nelson Cheng resides in Woolloomooloo, Sydney. The plaintiff asserts that Mr Cheng (Denny) was her agent in relation to this matter.

2. The defendant is Roy Chan. Nelson Cheng and the defendant met each other at St Joseph’s College in 1996. In 2003, the defendant ran into Nelson who is a chef.

3. On 1 April 2010 the company the subject of these proceedings, The Rice Den Pty Ltd, was incorporated, then named Rice The Experience Pty Ltd. In August 2010 the company ran a business of a restaurant from premises in Chatswood.

4. During 2010 and 2011 Nelson Cheng would visit the Chatswood premises. Every now and then on a Monday, Nelson and Roy would catch up at the Woolloomooloo premises. During this time Roy offered Nelson a job at the Chatswood premises and on 11 February 2013 Nelson commenced working there.

5. In about the middle of 2014 the company was looking at ceasing operations from the Chatswood premises and commencing operations at premises in St Leonards. Nelson and Roy discussed Nelson investing an amount of $80,000 in the company. Prior to September 2014 Nelson informed Roy that, due to Nelson going through a divorce, the investment of $80,000 would be done in the plaintiff’s name.

6. On 3 September 2014, in Hong Kong, before departing for Australia the plaintiff, by written General Power of Attorney, appointed Mr Cheng (Denny) as her Attorney to liaise and negotiate with relevant parties and enter into any agreements, instruments or relevant documents in relation to acquiring shares in the company.

7. On 29 September 2014 the plaintiff, Mr Cheng (Denny) and the defendant met at the Elbow Room Café in Chatswood in relation to the investment, for the first and only time. That meeting lasted for approximately 30 minutes with 15 minutes of the time being spent on the issue of the investment. What was or was not said during the course of the meeting is the subject of the only substantial factual dispute between the parties.

8. Apart from attending the meeting and exchanging some text messages with Denny in 2015, the defendant had little contact with the plaintiff or Denny. Mr Cheng (Denny), admitted that this was not his first time in business, and that he had legal representation and the ability and resources to carry out due diligence. Prior to the investment being made neither the plaintiff nor Mr Cheng (Denny) asked for a document in relation to the company.

9. Between 10 November 2014 and 30 April 2015, the plaintiff paid $80,000 in eight instalments to the company. On 26 January 2015 the plaintiff was provided with 14 shares in the company.

10. On 28 January 2015 Mr Cheng (Denny) sent an email to the defendant (copying in Nelson) in which he sought a better provision of shares in the company, stated that “we have advised that we do not wish to take advantage in the profit and loss on the present operation in Chatswood” and stated “I understand that legitimately it is unlikely to be lawfully bound. However I hope that we can respect this gentleman agreement among all partners”.

11. On 22 March 2015 the company ceased operating from the Chatswood premises and on 5 June 2015 the company commenced operating from premises located at St Leonards.

12. On 2 September 2015 Nelson resigned from working for the company and at about the same time Mr Cheng (Denny) began making demands for the return of the investment. After his resignation, Nelson commenced proceedings for unfair dismissal against the company which went into liquidation on 8 October 2016.

13. The company did not make a profit at either the Chatswood premises or the St Leonards premises.

14. On 21 October 2016 the first meeting of creditors was held. The plaintiff was represented at that meeting. The plaintiff lodged a Proof of Debt in the sum of $80,000 plus legal fees for “an unpaid shareholder’s loan”. The plaintiff’s Proof of Debt was admitted on that basis, for $80,000.

15. On 12 May 2017 the second meeting of creditors was held. The plaintiff was represented at that meeting. On 30 September 2018 the liquidator’s appointment ended and on 12 January 2019 the company was deregistered.

PLAINTIFF’S CASE

16. The plaintiff claims that at the coffee shop meeting and in relation to her investment of $80,000 that the defendant engaged in conduct that was misleading or deceptive or likely to mislead or deceive within the meaning of s 18 of the Australian Consumer Law (which is contained in Schedule 2 to the Competition and Consumer Act 2010 (Cth)).

17. Pursuant to s 236, the plaintiff seeks to recover $80,000 in damages for the loss caused by what is asserted to be the defendant’s misleading conduct.

18. The plaintiff asserts misleading or deceptive conduct by the defendant in two ways, being that Mr Chan in fact made certain verbal representations that were misleading, and that the defendant failed to disclose financial losses and shareholder loans and that his failure to disclose them was misleading.

19. The plaintiff asserts that at the coffee shop meeting the defendant made four key representations, each of which was misleading, and each of which induced her to invest in the Rice Den.

Profit representation

20. The plaintiff asserts that the profit representation was made at the coffee shop meeting (affidavit of 15 June 2020) and so does her agent Mr Cheng (Denny) (affidavit affirmed 24 March 2020). The representation is said to be that the defendant said that the Rice Den “was doing fairly well and had been profitable between 2012 to 2014”. The defendant denies making any such representation.

Debt representation

21. The plaintiff asserts that the defendant represented that the Rice Den “owed no money to any creditor with the exception of food suppliers”. The plaintiff asserts that the debt representation was made at the coffee shop meeting (affidavit affirmed 24 March 2020) and so does her agent Mr Cheng (Denny) (affidavit affirmed 24 March 2020).

Tax representation

22. The plaintiff asserts that the defendant represented that the Rice Den “complied with all requirements to lodge taxation documents and reports with the Australian Taxation Office”. Mr Cheng (Denny) gives evidence of what he asserts was said by the defendant to give rise to the tax representation (affidavit affirmed 24 March 2020), being that “records were done by [the defendant] and a part time girl” and “all taxation documents and reports of the company were prepared by a certified public accountant, the documents were filed on time”. The defendant denies making the tax representation.

Fit-out representation

23. The plaintiff asserts that the defendant made a representation that all shareholders of the Rice Den would be required to contribute in proportionate shares towards the fit out and set up costs of the premises where the Rice Den would operate its new restaurant at St Leonards. The plaintiff’s agent Mr Cheng (Denny) gives evidence of what he asserts was said to him by the plaintiff (affidavit affirmed 24 March 2020). The defendant admits there was an agreement between all shareholders that each would contribute towards the fit-out of the Rice Den’s new restaurant at St Leonards, in the proportions to which they held shares in the Rice Den, however he denies making the fit-out representation to the plaintiff.

PLAINTIFF'S FURTHER CASE – MISLEADING OR DECEPTIVE CONDUCT BY SILENCE 

24. The plaintiff also pleads misleading or deceptive conduct by silence, in the event that the court does not find that the defendant made at least one of the representations as above and accepts that it was misleading, and accepts that the plaintiff suffered causally connected and compensable loss.

25. The plaintiff alleges that it was, in all of the circumstances, misleading for the defendant to fail to disclose the financial losses and their extent, and to fail to disclose the shareholder loans and their extent. It is claimed by the plaintiff that if she had been told about the financial losses or the shareholder loans she would not have invested $80,000.

26. The plaintiff alleges that the defendant represented that the Rice Den “was doing fairly well and had been profitable in between 2012 to 2014”. And further that the defendant represented that the Rice Den “owed no money to any creditor with the exception of food suppliers”. It is pleaded that both matters are examples of the defendant painting an overly rosy (and misleading) picture of the state of the Rice Den’s financial position.

DEFENDANT’S CASE

27. The defendant submits that the plaintiff has not, on the evidence, established that any of the six pleaded representations were made by the defendant or that any, if made, were false or misleading and deceptive.

28. Further it is submitted that the plaintiff has not established either at all, or to the necessary level of “actual persuasion” that there was a reasonable expectation of disclosure of facts which were known to the defendant but were not disclosed and, therefore, that there was any misleading and deceptive conduct by silence by the defendant.

29. The defendant submits that the plaintiff has not, on the evidence, established that she relevantly relied upon the pleaded representations or that they caused her to make the investment, because she and her husband had already decided to invest in the company before the coffee shop meeting took place.

30. Lastly it is submitted by the defendant that he has no personal liability for the alleged misrepresentations (because the conduct was within the scope of his authority as a director and agent of the company and the plaintiff has not established the necessary elements required for the court to find personal liability on his part) and that the plaintiff has not established that she has suffered any relevant loss.

LEGAL PRINCIPLES, FINDINGS AND CONSIDERATION

31. To establish a case of misleading or deceptive conduct the court must be persuaded that at least one of the representations as above was made and that it was misleading. Each element of the cause of action must be proved to the reasonable satisfaction of the court, and as was stated in Watson v Foxman (1995) 49 NSWLR 315, which means that the court “must feel an actual persuasion of its occurrence or existence”. Such satisfaction is “not…attained or established independently of the nature and consequence of the fact or facts to be proved” including the “seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding”: Helton v Allen (1940) 63 CLR 691 at 712.

32. The court went on to say that “considerations of the above kinds can pose serious difficulties of proof for a party relying upon spoken words as the foundation of a causes of action based on s 52 of the Trade Practices Act 1974 (Cth) [now s 18 of the Australian Consumer Law]…in the absence of some reliable contemporaneous record or other satisfactory corroboration.”

33. In accordance with the principle in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-363, when the law requires proof of any fact, the court must feel an actual persuasion of its occurrence or existence before it can be found.

34. In order for the plaintiff to succeed on her positive case the court must be actually persuaded that the pleaded representations were, as a matter of fact, actually made. The plaintiff herself gave scant evidence that the four positive representations as pleaded were made to her, but relies almost entirely on the evidence of her husband (Denny) to establish that they were in fact made.

35. The defendant denies and gave evidence denying that he made each of the pleaded representations. That being so, the only basis upon which the court could be actually persuaded that the representations were made is by preferring and accepting the evidence of Denny over that which was given by the defendant.

36. Denny was the primary witness for the plaintiff, as her agent (and attorney) and the person from within the plaintiff’s family who conducted discussions and communications with the defendant, both at the coffee shop meeting and subsequently. It is difficult to accept the evidence of Denny Cheng in circumstances where it is uncorroborated by other witnesses or relevant documents. In his oral evidence he was unconvincing. He did not make appropriate or obvious concessions and at times gave evidence which was inconsistent with a rational or obvious explanation, or his own affidavit evidence. He refused to accept even the possibility that he and his wife had made the decision to invest in the Rice Den business before he attended the coffee shop meeting, even when attention was drawn to the terms of the Power of Attorney which was prepared nearly a month before the coffee shop meeting, which strongly indicates that a decision to invest had already been made.

37. It appears to me on balance and I find that the Power of attorney was prepared and signed in Hong Kong several weeks before the meeting with Mr Chan in Chatswood because Denny and his wife the plaintiff had already decided to invest in the Rice Den business before they left Hong Kong, because they were both happy with the prospect of their son Nelson becoming involved as a part owner of a business and having an opportunity to be a head chef.

38. In his oral evidence Denny gave evidence that he had made notes about the coffee shop meeting soon afterwards, in December 2014, on a Palm Pilot which had since “died”. He could not remember when the device had died and eventually agreed that he did not have those notes available to him in 2020 when he prepared his affidavits. His evidence that the “dropped” notes about the coffee shop meeting on his Palm Pilot when he returned home, and used those notes to remind himself of what was said during the meeting, even though he did not have them available when he prepared his affidavit, is implausible and I reject it. He ultimately said that he did not rely on the dead Palm Pilot notes because he remembered the meeting “very well”. Without having a contemporaneous record at hand, he could not accurately remember, either when preparing his affidavit in 2020 or giving his oral evidence in late 2021, precisely what was said at that brief, informal meeting in a coffee shop which took place about seven years earlier.

39. It is apparent that his evidence about the meeting must be assessed with circumspection, and I am led to conclude that his evidence was somewhat fanciful and likely given in an attempt to bolster his wife’s case.

40. There is also the fact that he was taken to his own email of 28 January 2015, part of which reads:

“Regarding to our conversation in last October 2014, we have discussed that we do not wish to take advantage in profit or loss on the present operation In Chatswood.”

41. The contents of this email, sent by Denny himself, convince me and I find that it is inherently improbable that Mr Chan did represent during the coffee shop meeting that the business was making a profit. To the contrary, the contents of the email demonstrate that as at February 2015 and therefore also in September 2014, Denny did not know, and had not been told by the defendant, whether the business was making a profit or a loss. The email establishes, on the balance of probabilities, that the defendant did not represent to Denny during the coffee shop meeting that the Chatswood restaurant was making a profit. If he had in fact done this, then Denny would not have been unsure when he sent the email of 28 January 2015, whether or not the Chatswood business was making a profit or a loss, in that he would not have referred to there being any possibility of the business making a loss.

42. In cross examination Denny refused to accept the possibility that he did not, during the coffee shop meeting, expressly request that the defendant provide him with financial documents relating to the business. This was maintained despite that he did not, in his affidavit in chief, give any evidence that he made such a request. I find that it is more probable than not that Denny did not chase up Roy for the financial records because he did not wish to see them. He and the plaintiff had already decided to make the investment before the coffee shop meeting took place, and in any event making the investment was never conditional upon or subject to the provision of financial documents. This is apparent by the fact that the plaintiff and Denny proceeded to make eight instalment payments of $10,000 each starting in November 2014, even though they had not then nor subsequently been provided with the financial documents which they claim to have requested.

43. The plaintiff confirmed her affidavit evidence that she was not involved in the discussions between Denny and the defendant. She confirmed that she had been careful to make sure that she included everything she could remember about the coffee shop meeting in her affidavit in chief. In that affidavit, the extent of the evidence which she gave in relation to the acquisition of the shares in the Rice Den was as follows:

“I did not involve too much for acquiring the shares of Rice Den. I delegated the powers to Husband to deal with it.

I and husband attended a meeting with the Defendant at the Elbow Room Café in Chatswood on 29 September 2014, but I did not involve too much of their discussions.”

44. She gave evidence that she could not remember how long the coffee shop meeting took. In cross examination as to why she had provided Denny with a Power of Attorney before they left Hong Kong - because she was a housewife who had no experience in business - was at odds with the more probable explanation that she and her husband Denny had already decided to make an investment in the Rice Den to enable Nelson to be a partner in the business.

45. I am not convinced that the plaintiff had an actual, accurate recollection of what was in fact said during the coffee shop meeting (the very length of which she could not even remember) and accordingly her evidence is to be given little weight.

46. The plaintiff bears the evidentiary onus of establishing that the court feels an “actual persuasion” that an alleged representation was actually made. As explained in Watson v Foxman, where there is no reliable contemporaneous record or other satisfactory corroboration of spoken words relied upon as the foundation for a claim of misleading and deceptive conduct, a plaintiff making such a claim will face serious difficulties proving their case.

47. The plaintiff stakes her claim entirely upon words spoken at a meeting more than seven years ago and does not offer any contemporaneous record or corroboration as to those words.

48. On balance I prefer the evidence which the defendant gave in his oral evidence, which was candid and open. He made appropriate concessions and did not attempt to obfuscate or embellish his answers. I find the defendant to be a witness of truth and there is nothing which emerged in his cross examination to lead me to not accept him as being a witness of credit. He denies having made the representations to Denny at the coffee shop meeting and I accept his evidence over the evidence of Denny which was evasive, disingenuous and lacking in reliability.

44. In circumstances where the defendant gave cogent and persuasive evidence which is inconsistent with the making of the pleaded representations I am not “actually persuaded” that any of them were in fact made, and therefore the claim of positive misleading and deceptive conduct must fail.

45. As to the conduct by silence case, as a general proposition s 18 does not require a party to commercial negotiations to volunteer information which will be of assistance to the decision-making of the other party and it does not impose on a party an obligation to volunteer information in order to avoid the consequences of the careless disregard, for its own interests, of another party of equal bargaining power and competence – see Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 at [96].

46. Mere silence without more is unlikely to constitute misleading and deceptive conduct, although remaining silent will constitute misleading and deceptive conduct if the circumstances are such as to give rise to a reasonable expectation that, if some relevant fact does exist, it will be disclosed, and the existence of such a reasonable expectation is to be determined objectively: Addenbrooke Pty Ltd (ACN 055 973 576) v Duncan and Others (No 2) (2017) 348 ALR 1 at [482].

47. The plaintiff alleges that the defendant made at least the statements set out in paragraph 41 of his affidavit, in which he gave evidence that he disclosed to Denny and Brenda the following:

“the business is not great, but it’s not bad”; “the business has overheads”; “the Chatswood premises are too small” and “the rent is high”; “the business isn’t making money”; “the company still has outstanding debts such as monies owed to suppliers, owed for superannuation, BAS, PAYG and old for directors’ loans”.

53. The plaintiff alleges and accepts that the defendant disclosed at least those matters, which included specifically disclosure of the fact that the company had outstanding debts, including monies owed to superannuation, PAYG, BAS, and debts for directors’ loans. This is in stark contrast to the fact that these are some of the very matters with respect to which the plaintiff alleges that the defendant was silent. On the one hand the plaintiff accepts that during the coffee shop meeting the defendant disclosed certain matters, all of which indicated that the Rice Den business was “not great, but it’s not bad” (such as that the business wasn’t making money, that it had outstanding debts including to suppliers and for superannuation, BAS, PAYG and for directors’ loans), however on the other hand the plaintiff alleges that the defendant was silent in relation to the true extent of the losses and loans, and that if the true extent of those matters had been disclosed she would not have invested in the company.

54. As the authorities make plain, mere silence, without more, will not be enough to amount to misleading and deceptive conduct. The defendant gave evidence in his affidavit that the plaintiff and Denny did not seem to be that interested in the financial performance of the company but rather seemed keen to invest so that Nelson could be part of the business. I accept that evidence having assessed the defendant as a witness of credit and reliability, and having regard to the surrounding circumstances that I found, that the plaintiff and Denny had already decided to invest in the Rice Den to enable their son to become a partner and head chef in the business, before they met with the defendant.

55. I do not find, on the whole of the evidence, that there was a reasonable expectation on the part of the plaintiff that the precise extent of previous losses and shareholder loans would be disclosed. That is because I accept the evidence of the defendant that Brenda and Denny did not seem to be that interested in the financial performance of the company, they did not make any specific request to be provided with details of or documents relating to the financial performance of the company, in which case there cannot have been any reasonable expectation on their part that further disclosure should have been forthcoming.

56. The whole of the evidence establishes that the defendant did in fact caution Denny (and the plaintiff) in relation to the financial health on the company. On the defendant’s evidence, which I accept, he told Denny that the “business is not great but it is not bad”, that the business had overheads, that the company had cash flow but it still had outstanding debts, such as moneys owed to suppliers and for superannuation, BAS, PAYG and director’s loans, and that “we are busy but the business is not making any money”. I find that these cautions were sufficient and reasonably accurate as to the financial circumstances of the company as at September 2014.

57. It cannot be inferred on the evidence that the plaintiff relied on what was said by the defendant during the coffee shop meeting. Rather, the evidence I find points to a conclusion that the plaintiff and Denny had decided to make the investment well before the coffee shop meeting occurred. It cannot then be established by the plaintiff that she relied on any representations or that they were causative of any loss to her. The fact that they had attended to the execution of a Power of Attorney which authorised Denny to enter into agreements on Brenda’s behalf before they left Hong Kong supports the finding that they had already decided to make the investment in the Rice Den before the coffee shop meeting occurred.

58. I do not need to consider whether the defendant is liable having acted in dual capacities as both an individual and a director of the company, as is submitted by the plaintiff, as I have determined that the plaintiff has not established, on the evidence, either at all or to the necessary level of “actual persuasion” that there was a reasonable expectation of disclosure of facts which were known to the defendant but which were not disclosed, and therefore that there was any misleading or deceptive conduct by silence by the defendant. That claim therefore must also fail.

ORDERS

1. Plaintiff’s claim is dismissed

2. Judgment for the defendant

3. I will hear the parties as to costs

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Amendments

12 September 2023 - Typographical error in coversheet amended.

Decision last updated: 12 September 2023