Elegant Australia Pty Ltd v Chen and; Chen v Elegant Australia Pty Ltd - [2020] NSWDC 7

District Court

New South Wales

Medium Neutral Citation: Elegant Australia Pty Ltd v Chen and; Chen v Elegant Australia Pty Ltd [2020] NSWDC 7
Hearing dates: 6, 7,14 and 15 November 2019
Decision date: 28 January 2020
Jurisdiction: Civil
Before: Hatzistergos DCJ
Decision:
The orders will be as follows:

(1) There will be a verdict and judgment in favour of the Plaintiff in the sum of $50,690.64

(2) Pre judgment interest on the said sum is to be awarded from pursuant to s 100 of the Civil Procedure Act 2005 from 4 December 2018 at the rates provided in District Court Practice Note 15

(3) There will be a verdict for the Cross Defendants on the Further Amended Statement Cross Claim

(4) Subject to any application to my Associate within fourteen day for any further or other order as to costs the Defendant/Cross Claimant is to pay the Plaintiff/Cross Defendants’ costs.
(5) Exhibits may be returned to the parties
Catchwords:
CONTRACTS — Construction — Extrinsic evidence

CONTRACTS — Breach of contract — Failure to pay business expenses and liabilities — Consequences of breach — Right to damages

CONTRACTS — Mistake of law — Whether plaintiff acted under a mistake of law from legal representative — Whether defendant unjustly enriched

CONTRACTS — Misleading conduct under statute — Misleading or deceptive conduct as to future matter
EMPLOYMENT LAW — Whether employer-employee relationship existed
Legislation Cited: Competition and Consumer Act 2010 (Cth), s 18
Contracts Review Act 1980 (NSW), s 7
Fair Trading Act 1987 (NSW), s 27
Fair Work Act 2009 (Cth), Part 2-2; ss 44, 45, 90, 325, 326, 545, 546, 547
Cases Cited: ACE Insurance ltd v Trifunovski [2013] FCAFC3
Ansett Australia Holdings Ltd v International Air Transport Association [2006] VSCA 242; (2006) 60 ACSR 468
BP Refinery (Westernport) Pty Ltd v. Hastings Shire Council [1977] HCA 40; (1977) 52 ALJR 20
Cherry v Steel-Park [2017] NSWCA 295
Codelfa Construction Pty Ltd v. State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337
David Securities Pty ltd v Commonwealth of Australia [1992] HCA 48; (1992) 175 CLR 353
Dylan Mann and Co Pty ltd as trustee for the Man Family Trust v Tiejag Pty Ltd as trustee for the Sheihy Khoury Family Trust [2018] NSWSC 1334
Fair Work Ombudsman v Quest South Perth Holding Pty Ltd, (2015) 228 FCR 346
Foran v Wight, (1989) 168 CLR 385; 1989 HCA 51
Gallagher v Pioneer Concrete (NSW) Pty Ltd (1993) 113 ALR 159
Harrington v Harrington Services Pty Ltd,[2016] NSWCA 369
Hotel Management Pty Ltd v KOP International Pty Ltd [2018] NSWSC 102
Massart v Blight (1951) 82 CLR 423
Phoenix Court Pty Ltd v Melbourne Central Pty Ltd [1997] FCA 1101
Rowe v Capital Territory Health Commissions [1982] FCA 4; 39 ALR 39
Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359; [1931] ALR 194; (1931) 5 ALJR 109 [1931] HCA 21
State of Western Australia v Bond Corp Holdings Ltd (1990) 99 ALR 125
Taouk v Assure (NSW) Pty Ltd, [2017] NSWCA 227
Tolhurst v Associated Portland Cement Manufactures (1900) Ltd [1902] 2 KB 660
Category: Principal judgment
Parties: Elegant Australia Pty Ltd (Plaintiff/First Cross Defendant)
Michelle Chen (Defendant/Cross Claimant)
Guchao Zhou (Second Cross Defendant)
Representation:
Counsel:
Mr J.C. Lee (Plaintiff/Cross Defendants)
Ms L Andelman (Defendant/Cross Claimant)
Solicitors:
Herald Legal (Plaintiff/Cross Defendants)
MacKellars Lawyers (Defendant/Cross Claimant)

File Number(s): 2018/372594
Publication restriction: Nil

Judgment

INTRODUCTION

The dispute concerns the operation of a restaurant from 15 December 2015 to 30 March 2018 after the Defendant had executed a Deed with the Plaintiff which inter alia enabled her to derive the profits but required her to bear the losses.
By Amended Statement of Claim filed 5 September 2019, the Plaintiff brings proceedings against the Defendant claiming various sums of monies pursuant to the Deed totalling $74,453. [1] A further claim is made in the sum of $36,500 advanced by the Plaintiff in circumstances it is asserted that the Defendant was unjustly enriched by reason of payments advanced to her by mistake of law.
1. The total in fact comes to $74,491. 19 (see [12] Amended Statement of Claim and Exhibit A at [72]-[73])
In total the Plaintiff has claimed the sum of $110,991.05 plus interest. [2]
2. Should be $100,991.19
The Defendant resists the claim and has relied on a Cross Claim asserting that she is entitled to the sum of $89,273.30. This is based on entitlements that it is said would flow to her were she to be found to be an employee of the Plaintiff during the period covered by the Deed.

PROCEDURE

On Day 1 of the proceedings, the Defendant proposed to proceed by way of a proposed amended defence seeking to add a claim pursuant to s 7 of the Contracts Review Act 1980 (NSW). After some discussion, the application to amend was not proceeded with. [3] Thereafter the Plaintiff made it clear that it was holding the Defendant to the Defence and the Cross Claim it had pleaded. This was in circumstances where the Defendant had submitted a Schedule of Issues which went outside the pleaded case. [4] The Defendant appeared at that point to accept as much. [5] There was no application for adjournment or to further amend at that point. [6]
3. D1 T 3.9-8.50
4. D1 T 21.44-22.3
5. D1 T 34.13-.18
6. The pleadings at that point were the Amended Defence (filed 18 September 2019) and the Amended Cross Claim (filed 1 August 2019).
On Day 2 of the trial, after evidence had commenced, I raised with the Defendant the fact that the Statement of Issues were in some respects clearly outside the pleadings. [7] A lengthy discussion took place. Notwithstanding the outcome of that discussion, the Defendant advanced submissions based on some non-pleaded issues. These reasons will identify where that has occurred.
7. D2 T 1-28.
Thereafter on Day 3 of the proceedings, after The Plaintiff’s sole director Mr Guchao Zhou was part way through cross examination, the Defendant moved on a motion to further amend its defence and cross claim. For reasons given on 15 November 2019 I allowed some amendments. An engrossed Further Amended Defence and Further Amended Cross Claim were filed the same day.

WITNESSES

Apart from documentary evidence, the Plaintiff’s director Mr Guchao Zhou and the Defendant gave oral evidence. In the course of carefully examining that evidence I have had cause to have significant reservations as to the Defendant’s evidence. In particular as these reasons will indicate, I found her at times evasive and less than candid as to her knowledge and dealings.

EVIDENCE

Guchao Zhou

Guchao Zhou was at all relevant times the sole director of the Plaintiff. [8] He did not speak or understand English. He gave evidence that on 19 November 2012 the Plaintiff had been incorporated [9] and as at 5 April 2013 it had registered the business name Tokyo Ramen Erina Fair. [10]
8. Exhibit A at [1]
9. Exhibit A; exhibit GZ1 tab 1
10. Exhibit A; exhibit GZ1 tab 2
On 20 May 2013 the Plaintiff entered into a lease with GPT Limited, Lend Lease Real Estate Investments Limited and Lend Lease Funds Management Limited [11] to lease Shop TE09 at Erina Fair Shopping Centre. [12] That lease commenced on 22 March 2013 and terminated on 31 March 2018. [13]
11. Hereinafter ‘the lessors’
12. Hereinafter ‘the premises’
13. Exhibit A; exhibit GZ1 tab 3
On 20 May 2013, the Plaintiff entered into a further agreement with the lessors entitled “Deed Concerning Fitout Contribution Erina Shopping Centre” which concerned the fitout for the premises. [14]
14. Exhibit A; exhibit GZ1 tab 4
On or about 11 April 2013, the Plaintiff commenced operating a business of providing hospitality services from the premises under the name Tokyo Ramen. [15] It was not in issue that this was a Japanese noddle restaurant. Mr Zhou gave evidence that between April 2013 and December 2016 he was responsible for managing the Tokyo Ramen business. He described his responsibilities as managing staff (including hiring, calculating wages and paying them), managing the till, ordering stock, assisting with the cooking, cleaning and waiting on customers, payment of expenses and managing accounts including providing documents to his accountant.” [16] The Defendant stated that she didn’t recall Mr Zhou ever telling her that he was responsible for cooking. She recalled being told words to the effect that in a conversation with the Defendant sometime between September 2016 and early December 2017

“Because my English is not good, Ms Loulou manages the business and I pay her $500 a week. [17]
15. Exhibit A at [10]
16. Exhibit A at [11] and [23]
17. Exhibit 2 at [8]

In the period of April 2013 to December 2016, the Plaintiff engaged Ms Maggie Hu of Leaderson Pty Ltd as its accountant. [18] Ms Hu prepared financial reports, business activity statements and income tax returns for each financial year in that period. [19] Those reports show: [20]
18. Exhibit A at [14]
19. Exhibit A at [18]
20. Exhibit A at [18]

Year

2013

2014

2015

2016

Sales Revenue

113,051.81

505,766.55

501,855.42

490,043.63

Cost of Sales

(76,716.45)

(185,686.08)

(180,375.01)

(182,405.23)

Expenses

(85,001.98)

(305,921.96)

(309,576.63)

(307,566.45)

Other income

1,143.80

1,893.98

865.59

6,509.79

Yearly profit/loss

(47,522.81)

16,053.06

12,769.37

6,581.74

Previous year profit/loss

0

(47,522.81)

(31,469.75)

(18,961.98)

Profit/loss

(47,522.81)

(31,469.75)

(18,961.98)

(12,380.24)

Mr Zhou stated that during that period he would regularly calculate the sales made by cash and card daily and would reconcile the same. According to his estimates, 65% to 80% of sales achieved by the business were by cash and 20 to 35% were by card. [21]

Proposal to Sell

21. Exhibit A at [12]

Mr Zhou gave evidence that as at August 2016 he intended to sell the business and spoke to a friend of his, referred to as Felix, about it. Mr Zhou indicated that he wanted someone to take over the business completely and that he did not want anything further to do with it. Felix was said to have told him that he could find someone to take over the business and he would advertise it online. [22]
22. Exhibit A at [19]

Defendant

The Defendant permanently relocated from China to Australia on 2 April 1998. She could speak English, having attended a language course at TAFE between 1998 and 2000. Thereafter, she operated a mobile VIP cleaning service from 2001-2. From 2002 to 2008 she managed a massage shop in Gosford. In 2008 she had time off to care for her new born son. Thereafter she worked at an aged care facility in Erina from 2014 to 2015. In April 2015 she went to Yokohama Japan to learn how to make Ramen noodles. She gave evidence of completing an online food safety course in or around September 2016. [23]
23. Exhibit 1 at [2]-[12]

Approach by the Defendant

On or about 24 September 2016, Mr Zhou said that he received a call from the Defendant enquiring as to whether the Plaintiff was looking to transfer its business free of charge. Mr Zhou confirmed that he indicated that he no longer wished to work, running a business was demanding and that he had recently obtained his permanent residence. He said arrangements were then made for the Defendant to inspect the business later the same day. [24]
24. Exhibit A at [20]
The Defendant for her part could not remember if the phone call was on the same day as she met Mr Zhou face to face or earlier. [25]
25. Exhibit 2 at [4]
In any event, on the occasion of the meeting Mr Zhou says that he told the Defendant, “It makes on average between $8,000 to $9,000 gross per week which is the turnover in sales. Majority of the sales is made by cash.” He also said that he told the Defendant, “The expenses are payment to supplier, rent, electricity, insurance, wages, gas, pest control, cleaning and phone.” Mr Zhou said the Defendant replied “standard.” [26]
26. Exhibit A at [21]
Mr Zhou was cross examined extensively on his account. It was put to him in various forms that he told the Defendant that the business was profitable. He maintained that he only mentioned turnover not profit, [27] although at one point said “I can’t remember anything else”, [28] and “in terms of profit I don’t remember mentioning about it or not.” [29]
27. D3 T 38.16-40.34
28. D3 T 39.48
29. D3 T 40.36-38
The Defendant gave evidence that she heard from her accountant Ms Lucy Sun that the Tokyo Ramen noodle shop in Erina Fair was up for sale. She says that on or about September 2016, she went to the restaurant and sat in the food court and had a look around to observe. After an hour of sitting she approached one of the staff members described as “Kenny” and obtained the number of “the boss.” She then called Mr Zhou and arranged to meet in the Erina Fair Food Court outside the Tokyo Ramen on the following day. [30]
30. Exhibit 1 at [16]-[18]
At the meeting, which was also said to have occurred on or about September 2016, Mr Zhou was said to have confirmed that the shop was for sale for free. The Defendant says describes the exchange that followed:

Defendant: How much is rent cost, and what is your weekly income?
Zhou: Rent is roughly $9,000 a month, and income is about $9,000-10,000, which is more than enough to pay wages, rent and expenses and still have profit. If you do better than that, you will also get that extra amount.
Defendant: Wow, that sounds good I am interested if the shop is making money. I will take away one worker which is working at the front counter, so I can do that and make extra money for myself.”
Zhou: If you really want to go ahead with it you will have to apply to transfer the lease in your name.
Defendant: Ok, no worries. [31]
31. Exhibit 1 at [19]

The Defendant denied that Mr Zhou stated that the majority of sales were in cash. [32]
32. Exhibit 2 at [5]
The Defendant was cross examined on her account. It was put to her that Mr Zhou said that the business income turned over $8000 to $9000 per week. The Defendant maintained that she was told $9000 to $10,000 per week. When it was put to her that Mr Zhou never mentioned whether or not the business made a profit, she reiterated that she believed Mr Zhou told her that the income was more than enough to cover all the expenses and more payments for a salary. [33]
33. D3 T 66.27-44

Proposal to Assign Lease

Following this meeting Mr Zhou gave evidence that he exchanged a number of WeChat messages with the Defendant between 24 September 2016 and early December 2017. Those messages reveal that on 26 September 2016 the Defendant requested the Plaintiff’s solicitors detail and proceeded to speak to the manager of Erina Fair Centre Management [34] regarding the assignment of the lease from the Plaintiff to herself. On 27 September 2016, the Defendant informed Mr Zhou following communications with a Mr Matthew McMahon from EFCM that she could not take over the Tokyo Ramen business until all procedures have been carried out properly. [35] Thereafter, between 28 and 29 September 2016, the Defendant requested Mr Zhou provide her with documents recording the tax revenue of the Tokyo Ramen business for the previous 2 to 3 years. [36] On 30 September 2016 the Defendant confirmed receipt of the financial records. [37]
34. Hereinafter EFCM
35. Exhibit A; tab 8 p 196
36. Exhibit A; tab 8 p 199-210
37. Exhibit A; tab 9 p 212
In her affidavit evidence, the Defendant stated that:

Regarding financial documents provided by Mr Zhou to me and my accountant, I recall looking at the 2016 financial report. I understand that there was about $25,000 profit. [38]
38. Exhibit 2 at [6]

After visiting her accountant Ms Sun the Defendant arranged for the preparation of a business plan. [39] The Defendant gave evidence that this was submitted to the EFCM on or about 30 September 2016. [40]
39. Exhibit 1; exhibit MC1 p 47-63
40. Exhibit 1 at [24]
The Defendant was cross examined about the fact that in the business plan she represented that she had worked in the Tokyo Ramen shop for a short time as a shop assistant as at 30 September 2016. She admitted that this was incorrect. She also admitted that the reference in the business plan to her working as a business assistant in a building company was incorrect. She could not explain the errors other than as a misunderstanding by her accountant with whom she stated that she conversed in Mandarin. [41] The Defendant denied adding reference to having worked in the Tokyo Ramen business because she wanted to paint herself in a more favourable light with the lessors. [42]
41. D3 T 62.31-64.49
42. D3 T 64.24.49
Mr Zhou gave evidence that in September 2016 the Plaintiff engaged McQiu Lawyers as solicitor to deal with the sale of the Tokyo Ramen business to the Defendant. [43]
43. Exhibit A at [26]
On 6 October 2016, the Plaintiff provided the lessors with permission to assign the Tokyo Ramen Lease to the Defendant. [44] On 18 October 2016, the Defendant met with EFCM to discuss the transfer application of the Tokyo Ramen lease and to review the business plan. Following some further correspondence, [45] Mr McMahon from EFCM wrote to the Defendant advising:

The lessor has considered your application for consent to assignment however, unfortunately the Lessor does not consent to your proposed assignment as it considers that the proposed Assignee has retailing skills which are inferior to the Assignor. [46]

44. Exhibit A at [33]; exhibit GZ1 tab 17

45. Exhibit 1; exhibit MC1 p64

46. Exhibit 1; exhibit MC1 p68

Entry into Deed

According to the Defendant she called Mr Zhou on or about November 2016 and asked “What do we do now that they won’t transfer the lease to me”. Mr Zhou is said to have replied “Don’t worry, we can make an agreement so you can still get it, You can work her but you need to sign as a trainee.” The Defendant states that she replied “That sounds ok.” [47]
47. Exhibit 1 at [30]
Mr Zhou had a different version of the conversation. According to his evidence the words to the following effect were spoken:

Defendant: They won’t transfer the lease to me but I really want you to transfer this business to me. What is the best way you can transfer it to me?
Mr Zhou: I spoke to my solicitor and she said that we can enter an agreement for you to take over the business. She said that we can enter an agreement for you to take over the business. She said that you will receive all the profits and be responsible for all the liabilities. She said that we should keep trying to transfer the lease to you but technically the business will be all yours and I will not be involved any further.
Defendant: That sounds great. Thank you very much. [48]
48. Exhibit B at [12]

Thereafter on 16 November 2016, Mr Zhou, on behalf of the Plaintiff, signed a form with Energy Australia nominating the Defendant as an authorised contact person under the title of “Manager of Tokyo Ramen Erina.” [49] Mr Zhou denied preparing the form recalling that the Defendant provided it to him saying “please sign it. It is for the electricity for the business.” Mr Zhou admitted to signing the form. He said that he did not take note of or consider the words “Manager of Tokyo Raman Erina”, and reiterated that he did not speak or understand English. [50]
49. Exhibit 1; exhibit MC1 p 69 (this has also been referred to in submissions as an Agreement)
50. Exhibit B at [14]
On 9 December 2016, a Deed was signed by the Defendant. [51]
51. Exhibit 1 at [35]
Prior to entering into the Deed, Mr Zhou also gave evidence that on behalf of the Plaintiff that he commenced to provide the Defendant with training on how to operate the Tokyo Ramen business. He described the training overall as follows:

On or about 9 December 2016, he contacted the head chef Ken by telephone and requested him to give the Defendant a proper rundown of the entire business particularly how to clean the dishes, how to wait on customers, how to clean the table before and after the customers leave. Also, to show her the storage room and tell her which goods are required and how much of those goods are required. Mr Zhou said the head chef agreed to do this.

On or about 10 December 2016, he contacted the head chef and requesting that he teach the Defendant how to operate the cash register. Mr Zhou said the head chef agreed.

On 11 December 2016, he sent two WeChat messages to the Defendant providing her with a list of suppliers and advising her to contact each of those suppliers and request for them to update their contact details to record her as the point of contact. At the Defendant’s request he further provided telephone numbers, and details of the kind of goods each supplied.

On 11 December 2016, he sent the Defendant pictures through WeChat regarding the Tokyo Ramen Business’ Insurance policy. Mr Zhou added a message;

“This insurance policy [for the plaintiff] matures in January next year. If you don’t plan to use this company [the plaintiff] next year], you need to call him to terminate the contract and stop deducting the premium payments (automatic deduction form the account every month).”

On 15 December 2016, he sent Defendant sent a WeChat message advising that the floor of the cooking area was very slippery and to wear appropriate shoes or else she could injure herself by slipping.

Between 16 December 2016 and 19 December 2016, he said that he and the Defendant exchanged WeChat messages regarding the manner by which he calculated wages and prepared payslips for the staff of the Tokyo Ramen business. [52]
52. Exhibit A at [30]-[31]; exhibit GZ1 at tabs 11 to 15.

The Defendant gave evidence that in about December 2016, she recalled Mr Zhou providing her with the Tokyo Ramen ANZ business account passwords. She stated that she never changed these passwords. [53]
53. Exhibit 1 at [54]
The Defendant also gave evidence that on 11 December 2016 Mr Zhou had called her on the phone and said “Come in and check the stock before you start working here.’” She stated that on or about 12 December 2016, she attended the restaurant premises in the morning and saw Mr Zhou counting food stock before being told by the head chef that there was “about 6 to 6.8 thousand worth.” She was then introduced to the workers. Her evidence was that she was told by Mr Zhou that she had to pay for the left over stock. An arrangement was agreed whereby the Defendant would pay for the rent for the whole of the month in order to cover the stock costs. [54]
54. Exhibit 1 at [36]-[37]
Mr Zhou agreed that he had a conversation with the Defendant but said that it could have been on anywhere between 12 to 15 December 2016. He referred to clause 2 (e) (iii) of the Deed which set out that the Defendant is liable for payment of all the existing stock which he agreed was about $6,800 worth. He said that when he informed the Defendant about this, she asked if she could get a discount and he agreed that he she would pay the entire month’s rent for December. He said that if this didn’t happen then the Defendant would have paid $11,793 being $6,800 for the existing stock plus $4,999.59 for half the month of December rent. [55]
55. Exhibit B at[15]
After her second meeting with Mr Zhou the Plaintiff stated that she did not recall ever seeing him again and never received any training from him. [56]
56. Exhibit 1 at [44]
The Defendant further gave evidence that on or about 13 and 14 December 2016, she recalled attending Tokyo Ramen to get some experience before her role formally commenced. She stated that Mr Zhou was not present and she recalled working from 9am to 5 pm both days.
On or about 15 December 2016, the Deed was exchanged between the parties. [57] The text of the Deed provided inter alia:
57. Exhibit A at [27]; exhibit GZ1 at tab 9 also at Exhibit 1 at [39]

Objective of the training
A. The Company shall provide Chen with training to acquire the retailing skill and competence for her to register the assignment of lease within the duration of the training.
The Company’s obligations
B. The Company agrees to train Chen with the skills and competence necessary to run the business independently with the training period.
C. The Company agrees to provide free of charge the materials. In particular tools, machinery and other equipment, that are necessary for the training received at the training premises
D. The Company agrees to entrust Chen with only such tasks that serve the purpose of the training
Chen’s obligations
E. Chen agrees to use her best endeavour to have the Lease assigned under her name upon the Lessor’s consent to the assignment of Lease.
F. Chen agrees to extend the training period until consent is granted by the lessor for the assignment of Lease or the agreed end date.
G. Chen agrees to make every effort to acquire the retailing skills and competence to achieve the objective of her training and perform carefully the tasks entrusted to her as part of the training;
H. Chen agrees to follow instructions given to her by the Company, instructions or other persons entitled to issue instructions insofar as their authority to issue instructions has been made known;
I. Chen agrees to handle tools, machinery and other equipment with due ,care an use them appropriately for the work she has been assigned
J. Chen undertakes not to reveal any trade or business secrets;
K. Chen shall notify the Company, citing reasons, in the event of absence from training for more than three calendar days due to illness. Chen shall submit on the following working day at the latest medical certificate confirming that she is unable to work.

The Deed further stated:

Operative Provisions
a) The Company and Chen agree that the training will be provided free of charge with the prospect that Chen is to succeed in the registration of the assignment of the Lease to Chen during the training period.
b) The Company and Chen agree to extend the training period until consent is granted by the Lessor for the assignment of lease or the agreed end date.
c) The Company and Chen agree that Chen shall be entitled to all profits generated within the training period.
d) The Company and Chen agree that Chen shall be responsible for all losses and damages incurred by the business within the training period;
e) Chen agrees that from the date of execution of this agreement she is liable for the following;
(i) Payment of all rent in accordance with the existing Lease agreement;
(ii) Payment of all outgoings under the existing Lease agreement;
(iii) Payment of all existing business stock;
(iv) Payment of any staff salary and all their legal entitlement who are working as employees of the business;
(v) Payment of all utilities related to the business, including any leasing equipment;
(vi) Payment of all and any other fees associated with the company business and the Lease, including but no0t limited to insurance policy, workers compensation policy and pest control costs

f) Chen acknowledges that the Company has provided the existing Lease and disclosed the terms and conditions of the Lease to her;
g) Chen agrees that, in the event of a successful registration of the assignment of the Lease before the Lease end date, Chen is to refund the current holding deposit on the Lease in the sum of $52,038 plus interest in full to the Company;
h) Chen agrees that in the event of an successful registration of the assignment of the Lease before the Lease end date, Chen is to refund the current holding deposit on the Lease in the sum of $52,038
i) Chen agrees that in the event of an unsuccessful registration the assignment of the Lease before the Lease end date, Chen is to refund the amount of any of the current holding deposit being deducted by the Lessor as a result of the conduct of the trainee (if any).

Events from 15 December 2016

On 15 December 2016, the Defendant sent Mr Zhou a WeChat message stating that the Tokyo Ramen business made $3136 as turnover for the day and that it was “extremely busy” and “legs are soft now.” [58] Mr Zhou observed that the Plaintiff’s statement for that day indicated that $1468 was deposited from the sales achieved by card meaning that of the total sales, 53% was in cash and 47% was by card. [59]
58. Exhibit A at [32]; exhibit GZ1 at tab 16
59. Exhibit B at [28 (d)] and exhibit GZ2 tab1
On 16 December 2016 the Defendant sent a WeChat message to Mr Zhou stating:

Today they say the shop has been losing money and it was Michelle who was so courageous to take over the business.

Mr Zhou is recorded as responding:

It is mainly because my goal is to immigrate to Australia; I don’t understand English and has no way to manage and control it; I can only rely on them to operate the business freely but the managers only want to get paid for no effort. [60]
60. Exhibit 1 at [45]; MC1 at p3; see also Exhibit 1; exhibit GZ1 tab 10.

On or about 16 December 2016, the Defendant stated that she drew a cheque for her personal account in the amount of $9,987.16 which was made out to “Lend Lease Erina Fair”. This was said to be payment for rent for Tokyo Ramen for the month of December 2016, on that basis that it covered payment for the stock. [61] There is some suggestion that it was paid from the refund of the Defendant’s deposit upon entry into the Deed.
61. Exhibit 1 at [41]-[42]
Mr Zhou conceded that there was no express term in the Deed as to who was to be responsible for lodging documents with the Australian Taxation Office on behalf of the Plaintiff. [62] He gave evidence however that in January 2017 he had the following conversation with the Defendant:

Zhou: Since you are operating the Tokyo Raman business, you will need to provide all the relevant financials to the accountant. Since I am not involved in the business any further, I have no idea of the profits or expense of the business
Defendant: Leave that with me. I will use my own accountant.
Zhou: That is up to you. You are responsible for payment.
Defendant: I know. [63]
62. Exhibit A at [74]
63. Exhibit A at [75]

Mr Zhou stated that he was aware from his conversations with the Defendant that for the first month she was providing the relevant information to her own accountant. He said that in about February 2017 he had a conversation with the Defendant in which the following was said:

Defendant: I want the use your accountant to prepare the financial reports of the business. I am not happy with my accountant
Mr Zhou: Sure. You have my accountant’s number, you can call her. [64]
64. Exhibit A at [76]-[78]

The Defendant denied that her accountant ever performed work for the Tokyo Ramen business. [65] She stated that in around December 2016 by way of phone call Mr Zhou provided her with the phone number of his accountant Ms Maggie Hu of Leadersen Accountants and said words to the effect of “use Maggie, she looks after the company finances.” [66] She stated that she would provide Ms Hu with bank statements, stock invoices, employee wages information and rental invoices from December 2016 to December 2017. [67]
65. Exhibit 2 at [24]
66. Exhibit 1 at [55]
67. Exhibit 1 at [56]
The Defendant admitted for the first nine months sending documents to the accountant, however, she stated that she had no responsibility for taxation, had no access to the Plaintiff’s tax file number or any passcodes and never dealt with the ATO. [68] She was not trained to pay superannuation or to make or keep documents recording wages other than payslips. [69]
68. Exhibit 2 at [25]
69. Exhibit 2 at [27]
The Defendant gave evidence that the business expenses of the restaurant were on average $33,300 per month. She stated that the sale of goods for the restaurant were $19,000 to $19,500 per month being $16,000 in EFT and $3000 to $3,500 in cash. The cash payments were applied by her to wages and equipment maintenance and repairs. On the basis of her observations, the Defendant stated that she observed that 8 out of 10 customers would pay by way of EFT and 2 out of 10 customers would pay in cash. [70]
70. Exhibit 1 at [67]-[77]
Mr Zhou himself stated that between about late January 2017 and March 2018, at no time was he involved in the operation of the Tokyo Ramen business and was not aware of its actual financial position. He stated that he was not aware of what sales the business achieved or how much profits the Defendant was making and retaining per week. [71]
71. Exhibit 2 at [78]
On 8 March 2017 the Defendant said that there was a WeChat exchange as follows:

Zhou: Have you paid for staff work-related injury insurance: today I have received the reminder letter form the GIO company
Defendant: the company’s account almost has no money and it is not enough for tomorrows” salary payment. I paid so many bills this week (outstanding payment for meat, supplies and seafood is $1045). After salary payment we only have $26 in our account this week. I will pay for insurance right after we have the money next week. The rent starts to increase by 5% this month. [72]
72. Exhibit 1 at [79]; exhibit MC1 p4

In cross examination the Defendant accepted that when she took over the business on 15 December 2016 the Plaintiff’s bank account had no more than nominal funds. She conceded that from January 2017 she did not deposit any of her own money into the Plaintiff’s account nor use any of her own funds to discharge any of the Plaintiff’s liabilities. The Defendant also conceded that the expenses of the business on a monthly basis were “pretty much exactly the same.” It was put to her that on the basis of the income that she deposed to would mean that the shortfall would be around $14,000 after expenses were paid. She responded “maybe.” When it was put to her that the cash sales that she deposed to receiving were grossly underestimated in her evidence she stated “Not every month.” When it was put to her that the business was earning more than $33,200 a month she stated “We got some cash income and EFTPOS.” When it was put to her that it was more than she had deposed to in her affidavit she stated “… maybe one month. I didn’t say the whole year around with that…” When asked what the cash sales were per month the Defendant stated:

A. Cash sales, it depends on the month’s income. Every month is different. As I said, December, like, Christmas time, holiday time, we’re busy. We make enough money to pay the wages or the expenses, but other months, but February, March, April, May is dead. [73]
73. D3 T 74.46-49

The Defendant was next asked as to how the shortfall was paid. The transcript records:

Q. If you were receiving less money than what your expenses were, who was paying the bill? That’s the question that you were being asked.
A. Yeah, I paid the bills because every month we got different income. Sometimes we have more; sometimes we’ve got less. If we’ve got more, we’ve got enough to pay all the wages and the rates. If not, we just, like, you know, put in more - put next month or something, just delay payment.
LEE
Q. But eventually those bills had to paid, didn’t they?
A. Have to. By end of the two months, I didn’t pay it because the company don’t have any money.
Q. And you weren’t putting in any money, were you?
A. I didn’t.
Q. Neither was Mr Zhou, was he?
A. He did.
Q. He did, did he?
A. He did after I resigned the job later. I said to him, “I don’t want”--
Q. You know that is not what I was asking you, don’t you?
A. Well, keep asking.
Q. You think it’s funny, do you?
A. No.
Q. No?
A. No, not funny at all. I ask you - I answer you the best I can and the - you know, truthful.
Q. You never made any complaint to Mr Zhou in January 2017 to July 2017 that the business income couldn’t cover the expenses, did you?
A. I didn’t make before July, but I did make after.
Q. What do you say you said after July?
A. I want to resign the job. I don’t want to run anymore.
….
Q. In July 2017, you didn’t say to Mr Zhou that the income wasn’t enough to cover the expenses, did you?
A. I can't remember. [74]
74. D3 T 75.13-76.25

The Plaintiff, for its part, issued a notice to produce on 1 May 2019 but Mr Zhou stated that the Defendant did not produce the following documents:

Cash records including cash receipts, bank deposit books, cheque butts, cash payment journal and petty cash books for the period between 16 December 2016 and 31 March 2018 (the Relevant Period)

Aside from one page, documents recording wages and superannuation payment during the relevant period

Documents recording expenses during the Relevant Period;

Cash register records including pint of time sales lists during the Relevant Period;

Stock listing during the Relevant Period; and

Sales/debtor records during the Relevant Period. [75]
75. Exhibit A at [84]

Mr Zhou stated that without the aforementioned documents he was unable to ascertain whether the Plaintiff’s financial records and Business Activity Statements for the period of the Deed are accurate. He stated that he was also unable to ascertain what profits over which periods the Defendant earned for the Tokyo Ramen business. [76] However he acknowledged that according to the “financial records” supplied the sales achieved by the Tokyo Ramen business since December 2016 had “purportedly decreased significantly.” [77]
76. Exhibit A at [85]
77. Exhibit A at [86]
The Defendant stated that she was never trained in how to keep business records, or how to recover the cash register records and therefore, did not tally up from the taking from day to day or at all. She stated that she did not prepare any financial records for the business and she did not know how to do this. She further stated that she was not trained to pay superannuation or to make or keep document recording wages other that payslips. She recalled keeping various records from the business she said the Plaintiff did not ask for and after six months she cleaned out her home office and the records must have been disposed of. [78]
78. Exhibit 2 at [26]-[28]
In cross examination, Mr Zhou admitted that he did not teach the Defendant how to do reconciliation of sales made by cash and those made by card on a daily basis, stating that the Defendant did not request it. [79]
79. D1 T 31.46-.49

Defendant seeks to Terminate

On 16 July 2017 the Defendant sent Mr Zhou a WeChat message which stated:

Hello Brother Hao. I have considered this for long that I decide to stop running this restaurant by the end of September. Nobody is buying this restaurant either. I have made no money in the past seven months and my son has nobody to look after him. I have talked to my lawyer and he said according to our agreement I can quit this with no legal consequences. Can you come up with a plan for the period to the end of September ? I can work as an employee for you to March next year; I have been working very hard, which is ok if I can make money; Please reply to my message when you have time. Sorry I have tried my best. [80]
80. Exhibit 1 at [86]; MC1 p5

In cross examination she conceded that she wasn’t saying that she had lost money but rather that she hadn’t made any profit. [81] She also asked if she could work as an employee for him until March the following year. [82] She accepted that up until that point he was not an employee and never was an employee of the Plaintiff. [83]
81. D3 T 76.46-7
82. Exhibit 1 at [86]; exhibit MC1 p5 and Exhibit A
83. D3 T 76.49-77.29
On 19 July 2017 Mr Zhou informed the Defendant that he was in China to tend to his mother after her operation and that he would deal with the issues raised by her upon his return. [84] The Defendant replied:

Alright then, I will see if it is possible to sell it off and not cause you any trouble. I have hardly made any profit for 7 months. The business has been very steady but the rent is just too high. I will try my best to think of other ways. You don’t have to worry about this and just take care of your mother. We will see how it goes when you are back. [85]
84. Exhibit A at [36]; exhibit GZ1 tab 19 and Exhibit 1; exhibit MC1 p5
85. Exhibit A at [37]; exhibit GZ1 tab 20

Mr Zhou then sought legal advice from Ms Leung solicitor on or about 20 July 2017. He gave evidence that Ms Leung informed him that the Defendant could terminate the Deed and he had no legal remedy. [86]
86. Exhibit A at [38]; exhibit GZ 1 tab 21 and Exhibit 1 at [87]; exhibit MC1 p6

On 25 July 2016, the Defendant sent a WeChat message complaining about the state of the Plaintiff’s account. Mr Zhou responded stating that he was responsible for anything before the 13th and from the 14th “it is all yours.” [87]
87. Exhibit 1; exhibit MC1 p6
On 31 July 2017, the Defendant informed Mr Zhou by WeChat that she would stop running the business at the end of September 2017. [88]
88. Exhibit A at [40]; exhibit GZ1 tab 21 Exhibit 1 at [37];exhibit MC1 p6
Thereafter, the parties had discussions regarding the Defendant finding a new purchaser for the Tokyo Ramen business and what would possibly occur should that not happen. [89]
89. Exhibit A at [41]; exhibit GZ1 tab 22
On 1 August 2017 Mr Zhou sent a WeChat message in which he said to the Defendant, “nobody would buy the lease for the remaining few months; people will only be interested if it is free. You can find if there is anyone who wants to take it over.” The Defendant responded “I am looking but I really cannot continue any more. After 9 months I have made no money; I am lucky that I have not lost big money.” [90]
90. Exhibit 1 at [88]; exhibit MC1 p7 also at Exhibit A at [41]; exhibit GZ1 tab 22 p274
The same day the Defendant sent an email to Mr Zhou stating:

As discussed on the phone early July 2017, I resign from Tokyo Ramen Erina fair effective on 30 September 2017. [91]
91. Exhibit A at [43]; exhibit GZ1 tab 24 and Exhibit 1 at [89]; exhibit MC1 p93

In a further exchange that day the Defendant advised Mr Zhou that she was prepared to continue to run the Tokyo Ramen business up until the expiry of the lease on the condition that she is paid a salary. The Defendant also wrote an email reiterating that it will soon be September and he needed to have discussions with the Centre about the rent. [92] Mr Zhou responded:

the rent is high and customer traffic low is small; the labour cost is also very high. I am still in China and you may send an email to him first. We will decide what to do next step depending on his reply. Send him an email first to see if we can bring forward the lease termination, try to find more reason and sent it directly to him I don’t know English and have not contacted him for long. [93]
92. Exhibit A at [43]; exhibit GZ1 tab 24 and Exhibit 1 at [89]; exhibit MC1 at p9
93. Exhibit 1, exhibit MC1 p10 and Exhibit A; exhibit GZ1 tab 20.

Between August 2017 and early October 2017, both Mr Zhou and the Defendant attempted to find a new purchaser and to reduce the rent. A number of WeChat messages were exchanged and the matter was raised with EFCM. [94]
94. Exhibit A at [44]; exhibit GZ1 tab 25
On 25 September 2017 the Defendant sent Mr Zhou a WeChat message stating that “I sent my resignation letter to you long time ago, I cannot hold out by myself.” [95]
95. Exhibit 1 at [94]; exhibit MC1 p18
The Defendant stated that on or about 30 September 2017, she recalled Mr Zhou was unresponsive to her phone calls and messages and she thought that she had no option but to continue working as she did not want to abandon the shop. [96]
96. Exhibit 1 at [95]

Extra Payment Support

Mr Zhou gave evidence that on 5 October 2017, there was an exchange of WeChat messages to the effect that he was to pay the defendant $4000 for rental for the Tokyo Ramen business which he confirmed was transferred into the Plaintiff’s bank account. [97] That appears to have been recorded in the Plaintiff’s bank statement on 6 October 2017. [98]
97. Exhibit A at [45]; exhibit GZ 1 tab 26
98. Exhibit A at [50]; exhibit GZ1 tab 29 p298
On 6 October 2017, Mr Zhou said that he sent the Defendant what he described as mistake of law email stating as follows:

Due to low season and imbalance in the income and expenditure of the business, following negotiation, it has been agreed that rent allowance of $4000 will be given form October 2017 onwards. Michelle Chen will continue to fulfil the contracting agreement [Deed], which was signed by both parties in December 20126, until someone takes over or the end of the period of lease with the shopping centre. [99]
99. Exhibit A at [46]; exhibit GZ1 tab 27

The Defendant stated that on about 17 October 2017 she recalled sending a WeChat message to Mr Zhou stating;

I have applied to transfer it to my own company earlier but the shopping centre disapproved it, which was not my problem. I have helped you so much over the past year. Although it is me who has been running this business, you know this restaurant is losing money right from the start. You told me at the time it was making money. I have been doing this like idiot till now. If the shopping centre refuses to cut the rent, I will leave in September. I stay only because they say rent is going to be decreased. I didn’t expect the it was disapproved due to that guy’s application. Now I really need the rent reduced so it won’t be as bad as getting nothing for the past year. [100]
100. Exhibit 1 at [96]; exhibit MC1 p21

It was put to Mr Zhou in cross examination that if he had not told the Defendant that the business was not making money at the meeting on 24 September 2016, he would have corrected her following the contrary statement she made in the WeChat message of 17 October 2016. The Plaintiff reiterated that he only mentioned turnover and some expenses. He said whether it made a profit or not was up to her to investigate and so she could come to understand what the situation was. [101]
101. D3 T 44.45-45.42
In response to the Defendant’s request for more money to continue operating the business, Mr Zhou responded on 17 October 2017 in a WeChat message stating, inter alia, that the business should have been transferred to the Defendant in its entirety within 3 months of the effective date of the Deed; nevertheless agreed to increase the monthly payment from the Plaintiff to the Defendant from $4000 to $6,500 (being the same amount as a rent deduction proposed by the shopping centre). [102] Mr Zhou explained this in his evidence as follows:

INTERPRETER: Elegant’s bank account, okay. “Let me explain about the 2500. At that time, the shopping centre to reduce the rent to 12,500, and Michelle indicated that she didn’t want to continue with the shop. I have, I have put up another ad, therefore, so the person - the next person would speak to the shopping centre in the hope that”--
HIS HONOUR: Say that again? I have?
INTERPRETER: “Put up another ad in the hope that someone else would take over the shop. And these people, when they approached the shopping centre management, the 12,500 was not granted. Michelle required me to return her this money, and I agreed to that and I was to repay her this - was to pay her this money in five months and each month I paid her 2500.” [103]
102. Exhibit A at [47]; exhibit GZ1 tab 28 also see Exhibit 1; exhibit MC1 p20-1
103. D3 T 47.4-16

Thereafter the Defendant continued to operate the Tokyo Ramen business until the lease came to an end on 31 March 2018.
The Plaintiff’s claim is in respect of various sums expended by Mr Zhou on behalf of the Plaintiff.
Mr Zhou asserts that, on behalf of the Plaintiff, he transferred into the Plaintiff’s account:

$4,000 on 6 October 2017;

$2,000 on 23 October 2017;

$6,500 on7 November 2017;

$6,500 on 4 December 2017.

$6,500 on 3 January 2018. [104]
104. Exhibit A at [50]

On 1 February 2018, Mr Zhou paid into the Plaintiff’s account the sum of $36,000, of which $6500 was for the Defendant to continue to perform her obligations.
On 28 February 2018, Mr Zhou paid into the Plaintiff’s account the sum of $31,285.90, of which $4000 was for the Defendant to continue to perform her obligations.
Mr Zhou stated that the payments of $36,000 and $31,286.90 were intended to cover:

the electricity bills for the period prior to December 2016;

the Defendant to continue to perform her obligations under the Deed, being $6,500 for February 2018 and $4000 for March 2018. [105]
105. Exhibit A at [52]

Mr Zhou asserted that in late January 2018 he learnt that the Plaintiff had an outstanding electricity account of which $56,785.90 (including interest) related to the period prior to the Deed. [106] He gave evidence that he exchanged WeChat messages with the Defendant and made hand written calculation regarding these amounts. [107]
106. Exhibit D showed $58,753.27
107. Exhibit A at [53]-[56]; exhibit GZ1 tab 31 and 31 (not translated0
In short, the Plaintiff has claimed a return of the sum of $36,500 which he says the Defendant was obliged to pay. The Plaintiff asserts that these payments were made under a mistaken belief in law that the Defendant was entitled to terminate the Deed without any legal consequences; being a mistake induced by oral representations made by Tak Yu Marthea Leung of McQui Lawyers the then legal representatives of the Plaintiff in or about early October 2017. [108]
108. Amended Statement of Claim at [16]
The Defendant stated that she made sure to pay all staff and insurances however; she could not pay 2 months’ worth of rent and electricity bills as there was no money in the company account. [109]
109. Exhibit 1 at [99]-[100]
The Defendant for her part agreed that in the months of October 2017, November 2017, December 2017 and January 2018, Mr Zhou transferred the sum of $26,000 into the Tokyo Ramen Business account to assist as the business was losing money. The Defendant maintains that the money totalling $26,000 was only deposited by Mr Zhou to assist as the business was losing money. In her first affidavit, she stated that she recalled that money was used to pay rent, stock and general running costs. [110] In her second affidavit she stated that the money was transferred to pay the rent and none of the money was for her salary. [111]
110. Exhibit 1 at [101]
111. Exhibit 2 at [17]-[18]
The Plaintiff also claims sums in the nature of liabilities of the Tokyo Ramen business that it is asserted that the Defendant has not paid as follows:

Leaderson Pty Ltd in the sum of $550 for business services between 1 July and 30 September 2017 and $550 for business services between 1 October and 31 December 2017. [112] The Defendant says she was not seen these invoices. [113]
112. Exhibit A at [68]-[69]; exhibit GZ1 tab 42-4
113. Exhibit 2 at [23]

Telstra issued an invoice in the sum of $72.63 (billing period 14 March 2019 to 13 April 2018). [114] The Defendant recalled Mr Zhou sending some phone bills which were paid from the bank account but did not recall him sending her telephone bills in 2018. [115]

Energy Australia issued an invoice in the sum of $7,914.42 (billing period 1 March to 31 March 2018). [116] The Defendant stated that she did not recall seeing a bill for electricity. [117]

Australian Taxation Office issued a notice in the sum of $3,913; [118] and Collection House on behalf of the Australian Taxation Office in the sum of $7,663. [119] The Defendant states that she had no responsibility for taxation had no access to the Plaintiff’s tax file number or any passcodes and never dealt with the ATO. She admitted however sending documents to the accountant. [120]

Central Coast Council issued a notice in the sum of $1,790 for council rates for the Tokyo Ramen Business for 25 September 2017 to 17 January 2018. [121] The Defendant stated that she did not recall ever receiving an invoice. [122]

Loss of bond money totalling $52,038.14 comprising rent arrears of $28,237.65 and $23,800.49 to pay for the shop defit cost. [123]
114. Exhibit A at [61]; exhibit GZ1 tab 34-5
115. Exhibit 2 at [21]
116. Exhibit A at [62]; exhibit GZ1 tab 36
117. Exhibit 2 at [19]
118. Exhibit A at [63]- [64]; exhibit GZ1 tab 37 and tab 39.
119. Exhibit A at [65]- [66]; exhibit GZ1 tabs 39-40.
120. Exhibit 2 at [25]
121. Exhibit A at [67]; exhibit GZ1 tab 41
122. Exhibit 2 at [22]
123. Exhibit A at [70]-[72]; exhibit GZ1 tabs 45-7

The above sums total the Plaintiff’s claim against the Defendant at $74,491.19 [124]
124. Exhibit A at [73]
The Defendant stated that she recalled Mr Zhou telling her sometime in 2016 that he was required to pay a $52,000 bond.
On 6 November 2018, the Plaintiff issued a letter of demand on the Defendant for the unpaid expenses which it said had accrued between 15 December 2016 and 31 March 2018.

CLAIM/CROSS CLAIM

Nature of the Relationship

Plaintiff’s Submissions

The Plaintiff submitted that it was entitled to judgment as sought in reliance on the Deed.
First, it contended that the starting point is for the Court to make a finding as to the nature of the Deed.
It argued that it was a commercial contract and that its terms must be construed as such. It contended that the task of identifying the real meaning is identifying the imputed intention of the parties by reference to the contractual text construed in light of its context and purpose. [125]
125. Cherry v Steel-Park [2017] NSWCA 295 at [46], citing Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [46]-[51] and [108]-[109]; Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 90 ALJR 392 at [51]-[75]; Simic v New South Wales Land and Housing Corporation [2016] HCA 47; (2016) 91 ALJR 108 at [18] and [78].
It was contended that the Defendant accepted that it was her intention, even after the refusal of the assignment of the lease, to take over the business and that there was never any conversation about the Defendant being an employee of the Plaintiff.
Accordingly it maintained that there should be a finding that the Deed is one to lease a business or an arrangement analogous thereto. It submitted that such a construction was said to be consistent with clause 2 (a) –(l) as well as the schedule thereto. It was further supported by the surrounding circumstances known to the parties at the time of entry into the Deed being:

The Plaintiff and Defendant were in negotiations to be transferred the business

The transfer did not occur only because the Lessors would not consent to the assignment of the lease; and

Following the refusal of the transfer of the lease, Mr Zhou and the Defendant had a conversation whereby the Defendant requested that the business still be transferred to her and Mr Zhou in reliance upon his solicitor’s advice told the Defendant that an agreement could be entered into for the Defendant to be entitled to all the profits and responsible for all the liabilities. The Defendant accepted in cross examination for that conversation occurred.

The Plaintiff argued that ambiguity of the provisions of the Deed is not a precondition to admissibility of evidence, going to the consideration of the surrounding circumstances which existed at the time of entry into the Deed.
The Plaintiff maintained that apart from the word “trainee”, which is clearly a reference to the Defendant being “trained” to take over the lease, there is nothing in the terms of the Deed which would lend any support to the conclusion that its effect is that the Defendant was an employee.
In oral submissions, the Plaintiff submitted that the description of the Plaintiff as a trainee was in the context of her obtaining an assignment of the lease, not as a trainee in the workplace. [126]
126. D4 T 12.25
Secondly, Clause 2 (e) of the Deed was said to have clearly imposed an obligation on the Defendant to make payment for the liabilities incurred by the Plaintiff during the course of the operation of the business.
Thirdly, it was said that there was no challenge to the quantum of the first part of the claim and, fourthly, Mr Zhou gave evidence as to his state of mind in making the relevant payments totalling $36,000, including his mistaken belief was causative of the payment being made.

Defence Submissions

The Defendant argued that the relationship between the parties was one of employer-employee.
It was conceded that there can be no employment without a contract but stated that it was common for contracts of employment to be partly oral and partly in writing particularly in industries that are covered by Modern Awards such as the fast food industry. This was said to be said to be so as generally speaking employees are paid no more than the minimum entitlements set out in the Award and the National Employment Standards [127] set out in the Fair Work Act 2009 (Cth). [128] It noted Mr Zhou’s evidence that he engaged four employees without the provision of a written contract and was aware of the requirement to comply with the terms of the Fast Food Industry Award 2010. [129] In this sense the legal relationship between employees and employers can be determined in part by a contract and in part by and award, however, an employer cannot contract out of the minimum terms and condition set out in Modern Awards and the FWA. [130]
127. Hereinafter ‘NES’
128. Hereinafter ‘FWA’
129. Hereinafter ‘the Award’
130. Sections 44 and 45 of the FWA
The Defendant argued that in so far as the Deed sought to describe the Defendant as a “trainee”, it required her to follow instructions given to her by the Plaintiff, instructors or other persons entitled to issue directions insofar as their authority to issue instructions has been made known and other obligations in Recitals I, J and K (such as the requirement to provide notice when she is sick and unable to work). These were said to be the written terms of the contract of employment.
It noted that the Plaintiff “pleaded” that the Defendant was not an “employee” but that she was a volunteer. [131] However, the Plaintiff also pleaded that the Defendant repudiated the Deed because she did not comply with the terms and claims that the Plaintiff could have lawfully required the Defendant to continue to be responsible personally for, such as the payment of rent and expenses associated with its business. In particular the WeChat communications between the Defendant and Mr Zhou demonstrated that he expected her to run the business and he represented the Defendant to a third party as the Manager. The Defendant drew attention to [29] of Exhibit A where Mr Zhou stated “I deny that Ms Chen resigned or could resign from the Plaintiff or Tokyo Ramen business. I say any threat to resign would only amount to a repudiation of her obligations und the Deed.” This, it was said, crystallised the Plaintiff’s claim that she was forced to work at the business without wages because she signed the Deed. Not only is such a legal characterisation plainly wrong, but it clearly explained the fundamental error that the Court would uphold words in a contract without enquiring as to their legality.
131. Exhibit 3
The Defendant maintained that volunteering was not a substitute for paid work. A volunteer is a person who engages in an activity to the benefit of the community it there on their own free will and without coercion for no financial payment and in a designated volunteer role. The Defendant said she was not volunteering at the business for some altruistic reason; she was there to earn money and learn skills and develop experience.
The Defendant argued that she was entitled to a wage and other entitlements to the extent that the Deed attempted to require her to pay wages and entitlements to herself, as the Plaintiff as alleged at [18] of the Amended Statement of Claim, it would be unenforceable as it would be contrary to ss 44 and 45 of the FWA.
The Defendant contended that clause 2 (e) of the Deed is consistent with the Defendant’s role as manager if the word “liable” is interpreted to mean liable for the physical act of payment as opposed to being personally liable for the payment of expenses.
If the Court were to find that the clauses 2 (d), (e) and (f) of the Deed required the Defendant to be personally liable for her employer’s rent and expenses associated with its lease the it was argued those clauses are not valid or enforceable (see clause 10 of the Deed) as they were prohibited by section 326 of the FWA.

The Defendant submitted that the following oral terms comprise the contract of employment:

The Defendant and Mr Zhou on behalf of the Plaintiff agreed that the Defendant would work at the Tokyo Ramen Shop form 15 December 2015;

The Defendant was responsible for all facets of the day to day management of the business including but not limited to:

Management and payment of all employee’ wages, salaries and statutory entitlements;

Taking orders from customers pursuant to a set menu;

After payment of salaries and bill, deposit money into the employees bank account;

Orders of supply of stock in trade and payment of supplies;

Ensuring compliance of the employees obligations under the lease including payment of rent and outgoing; and

Management and payment of any additional outgoings from time to time as directed.

Secondly, the Defendant contended that the contract must involve the performance of work pursuant to a contractual obligation. It drew attention the her evidence that she performed work, [132] which was said to be the equivalent of a Fast Food Employee Level 3 (in charge of 2 or more employees) pursuant to the Award.
132. Exhibit 1 at [46]-[66]
Thirdly, the contract must be for personal service. In this case, the Defendant was said to perform the services personally and could not delegate her tasks to another person who was not an employee. It stated in support of this that all staff were provided by the Plaintiff, the Defendant could not change the menu and continued to carry out the work pursuant to the systems and processes developed by the Plaintiff.
Fourthly, the Defendant maintained that if the first three preconditions were satisfied, the legal assumption unavoidably arises that the Plaintiff was obliged to pay the Defendant, pursuant to the Award and the FWA in accordance with the terms and conditions of employment. As to payment of wages and superannuation, those set out in the Award; as to annual leave entitlements, as set out in the NES in Part 2-2 of the FWA.
The Defendant submitted that the legal nature of the relationship must be that of employment as the term “trainee” cannot be a volunteer. Pursuant to the Deed she was to be provided training by the Plaintiff, she was required to follow directions, use the Plaintiff’s tools and account and manage the Plaintiff’s employees. All of the indicia were said to point to the relationship of being one of employment. The parties it was said could not label a position as a “trainee” if in fact the person performing that role is not performing duties consistent with that liable. The duties performed by the Defendant are a matter of fact to be determined based on the evidence. [133]
133. Defendant’s written submissions at [69]
Reference was made to the comments in Fair Work Ombudsman v Quest South Perth Holding Pty Ltd,[134] where North and Bromberg JJ referred to the concept of “disguised employment” and the need to ensure that form and presentation do not distract the court from identifying the substance of what has been truly agreed. Their Honours there emphasised the need to focus on the real on the real substance, practical reality or true nature of the relationship [135] in question before proceeding to state at [150]:

…
Ultimately, the search for the reality or truth of what has been agreed, is a search for the common intention of the parties. That common intention is to be determined by what a reasonable person would have understood the parties to mean and, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction: Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ). Whilst well known contractual principles are to be applied, an overly technical approach to contractual analysis is to be avoided. As McHugh JA (with whom Hope and Mahoney JJA agreed) said in an often cited passage from Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117–118:
It is often difficult to fit a commercial arrangement into the common lawyers’ analysis of a contractual arrangement. Commercial discussions are often too unrefined to fit easily into the slots of “offer”, “acceptance”, “consideration” and “intention to create a legal relationship” which are the benchmarks of the contract of classical theory. In classical theory, the typical contract is a bilateral one and consists of an exchange of promises by means of an offer and its acceptance together with an intention to create a binding legal relationship
Moreover, in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may by reason of the parties’ subsequent conduct become sufficiently specific to give rise to legal rights and duties. In any dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed.
134. (2015) 228 FCR 346 (reversed in Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd [2015] HCA 45, 256 CLR 137, 326 ALR 470, but not on this point of law).
135. at [142]

The Defendant contended that an agreement of the parties as to “the kind of contract by which services are to be provided” and a declaration in the contract to that effect was “not determinative of the parties’ relationship. [136] The parties to a contract “cannot alter the truth of that relationship by putting a different label on it” even if the label is added in good faith and with the desire that it should be effective. [137]
136. Relying on ACE Insurance ltd v Trifunovski [2013] FCAFC3 at [11]; 209 FCR 146 at 149 per Lander J
137. Ansett Australia Holdings ltd v International Air Transport Association [2006] VSCA 242 at [88]; (2006) 60 ACSR 468 at 491 per Nettle JA citing Massey v Crown Life Insurance Co [1978] 1 QLR 676 at 679 per Lord Denning
The Defendant contended that to the extent the parties sought to create legal obligation contrary to the FWA, these legal obligations are unenforceable in law or void, and to find otherwise would be to condone an exploitative model or arrangement where parties would become liable for their employer’s obligations such as payment of rent, bills and staff expenses. Such an approach, it was said, was contrary to public policy. Whilst the Plaintiff could have sold its business or transferred or assigned or sublet its lease lawfully, it explicitly chose not to do so.
The Defendant sought to reinforce its argument relying on the outcome in Rowe v Capital Territory Health Commissions,[138] where Keely J found that that the conduct of the respondent in purporting to establish a scholarship system for the training of nurses was ultra vires and illegal.
138. [1982] FCA 4; 39 ALR 39; 62 FLR 383; 1 IR 133

Consideration

In Taouk v Assure (NSW) Pty Ltd, [139] Sackville AJA summarised applicable principles in relation to contractual interpretation stating:
139. [2017] NSWCA 227

“[101] The approach to the construction of contracts was authoritatively stated by the High Court in Electricity Generation Corporation v Woodside Energy Ltd (Woodside):
‘[35] Both [parties] recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption ‘that the parties … intended to produce a commercial result’. A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience".’

[102] This statement of principle was endorsed by the High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (Mount Bruce). In that case, French CJ, Nettle and Gordon JJ explained that:
‘[50] Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations.’

[103] In Mainteck Services Pty Ltd v Stein Heurtey SA (Mainteck), Leeming JA rejected the proposition that the question of whether a contractual provision is ambiguous can and should be resolved before regard is had to the surrounding circumstances and the commercial purposes or objects of the contract. Leeming JA pointed out that the proposition was inconsistent with the reasoning of the High Court in Woodside. His Honour observed that the words of a contract do not have a “natural” meaning that can be determined in isolation from the context in which they are used. Accordingly, a conclusion that language has a plain meaning reflects the outcome of a process of interpretation that has regard to context (emphasis in original).” [140]
140. [2017] NSWCA 227 at [101] – [103] (Sackville AJA with whom Beazley P and White JA agreed)

In the course of submissions, the Defendant asserted that the Plaintiff had pleaded that she had worked pursuant to the Deed as a volunteer, based on a reply to a request for particulars dated 29 August 2019 as to [1 (a)] of the Defence as it then stood. It is important to read the reference to volunteering in its context. It was as follows:

As to paragraph 1 (a) of the Defence:
(1) We repeat our response in our letter dated 28 August 2019;
(2)The context of the Deed concerned the sale of the Tokyo Ramen Business from our client to your client. Our client was no longer to be involved in the Tokyo Ramen business including but not limited to, managing the same, hiring employees to be involved in the Tokyo Ramen business including, but not limited to, managing the same, hiring employees to work or manage the same and receive any profits or pay any expenses of the same. To this , we note We Chat communications between our client and your client where your client had originally intended to use had originally intended to use her own company to conduct the Tokyo Ramen Business, of which your client was agreeable;
(3) The Purpose of the Deed was for the Tokyo Ramen Business to be transferred to your client in its entirety upon the Lessor assigning the Lease to your client and , in the meantime, to allow for your client to obtain the benefit of the transfer of the Tokyo ramen Business to her without any actual transfer;
(4) Your client performing any work at the Tokyo Ramen business was, in so far as her obligations were concerned ie seeking to assign the lease, that payment of expenses etc, in performance of those obligations, and not as an employee of the Tokyo Ramen Business or our client. Further, any work that she did perform in addition to her obligations (if any) did not concern, nor was it related to, our client. If your client did perform work as an employee of the Tokyo Ramen Business (which is denied and a matter for your client to prove), that work was completed by her voluntarily and is not, and cannot be, linked to our client. [141]
141. Exhibit 3

I do not see anything in that particularisation which asserted that in performing work under the Deed, the Plaintiff was asserting the Defendant was a volunteer. The particularisation was that in performing obligations under the Deed, the Defendant was not an employee.
In the course of submissions, the Plaintiff categorised this as a lease of the business relying on Hotel Management Pty Ltd v KOP International Pty Ltd [2018] NSWSC 102 at [10]. In that case Pembroke J described the concept as “unusual” but said that the parties’ agreement should if possible be given effect to. His Honour followed Palmer J’s decision in Harrington v Harrington Services Pty Ltd,[142] where it was held:

[7] Throughout the case both parties have used the expression "lease of the nursing home business". I do not think that there is any difference between the parties as to what is meant by that concept although, as a concept, it sounds a little strange to a black-letter property lawyer. In strict legal usage, the subject matter of a lease is confined to land and interests in land, in the earlier cases referred to as corporeal and incorporeal hereditaments: see eg The Sheffield Wagon Company Ltd v Stratton (1878) 40 LT(NS) 86, at 87; Jones v Commissioner of Inland Revenue [1895] 1 QB 484, at 493. But there had been even earlier cases in which the Courts saw nothing remarkable in speaking of "leases" of chattels or "reversionary interests" in chattels: see eg Spencer's Case (1583) 5 Co Rep 16a, at 16b; Gordon v Harper (1796) 7 TR 9 (101 ER 828) per Lord Kenyon at 11, and per Ashurst J ibid; Jenkins v Cooke 1 Ad&E 372, at 374 (110 ER 1248, at 1250).
[8] The later cases recognise that in popular and commercial parlance what might be more properly called a bailment or a hiring of chattels is sometimes referred to as "a lease": see eg Halsbury's Laws of England Vol.27(1) para17 fn.11. A "lease" of a business, however, would encompass more than a bailment of the chattels used in the conduct of that business. It would often include a lease of the premises in which the business is conducted, and it would always include a lease of the goodwill attached to the business since the goodwill of a business is inseverable from the business itself: Geraghty v Minter (1979) 142 CLR 177, at 193; Hepples v Federal Commissioner of Taxation (1992) 173 CLR 492, at 542; Federal Commissioner of Taxation v Murry (1998) 193 CLR 605, para23 and para30. I do not see why the term "lease" should not be applied to an agreement the subject matter of which is a business rather than a corporeal or incorporeal hereditament if all the essential hallmarks of a lease are to be found in that agreement. The essential hallmarks are well known: the lessee is granted exclusive possession of the subject property for a term certain or capable of being made certain; the lessee pays rent during the term and at its expiration is required to redeliver possession of the property to the lessor.
[9] So, in the present case what Mr and Mrs Harrington claim as "a lease of the nursing home business" would have to be an agreement whereby the "lessors", ie Mr and Mrs Harrington, grant to the "lessee", ie Harrington Services, the exclusive possession of all that bundle of rights and interests called "the nursing home business" for a term certain or capable of being made certain by the giving of notice, the "lessee" during the term of "the lease" being entitled to retain the profits of the business while paying a "rent" to the "lessors", and the "lessors" having during that time a "reversionary interest" in the business.
[10] The "bundle of rights and interests" which constituted the nursing home business, and of which Mr and Mrs Harrington would have to grant exclusive possession and enjoyment to Harrington Services, would have to include: possession of the Sydney Street land and the improvements thereon, use of the name "Trentham", use of all chattels, fixtures, fitting, plant and equipment owned by Mr and Mrs Harrington and used in the conduct of the nursing home business and, most importantly, the goodwill of the nursing home business. Was such an agreement made?
142. [2016] NSWCA 369

In the instant case, the background into entry into Deed was not in issue. Both parties were legally represented when it came into being. The context to its formation has been earlier described. The parties sought to transfer the business but were unable to do so as the lessors was not prepared to agree. I bear in mind the factors summarised in Taouk v Assure (NSW) Pty Ltd. The Deed here sought to address those circumstances by giving the Defendant the benefit of occupation of the business premises, a capacity to acquire additional experience as a trainee as a means of qualifying her to obtaining an assignment of the lease, the right to use machinery and equipment, the benefit of all the profits, and the liability for the losses. The Deed provided for a specified period as provided in Clause F, being a training period of 6 months or until consent is granted by the lessor for the assignment of the lease or the agreed end date. [143]
143. Exhibit A; GZ-1 tab 9, p226
When the issue of the Deed being analogous to a lease of the business was raised, the Defendant stated that a lease of the business could not be made out as the Plaintiff never acquired any ownership of the business. [144] That response misstates the Plaintiff’ contention as to the nature of the Deed.
144. D4 T 31.41-7
The Defendant drew attention to a number of the features of the relationship described in the Deed which it asserted were indicia of employment. These included a requirement to follow instructions, undertake not to reveal trade or other business secrets, handle tools, machinery and other equipment with due care, and report when sick for more than three days. Reference was also made to the fact that the business corporate structure remained the same as did the business bank account.
In my view, however, these do not detract from the identified purpose of the Deed being to train the Defendant (in the sense earlier described) with a view to qualifying to succeed in obtaining registration of the assignment of the lease. Plainly what was contemplated gave the Defendant significant flexibility in the operations of the business including staffing and her role personally. It did not specify supervision and it was not inconsistent with a lease of the business. It follows I do not accept that the effect of the relationship the Deed established was one of employer employee.
Nor do I consider the factual finding in Rowe v Capital Territory Health Commission is instructive. At most that case, determined on its own facts stands for the proposition that a person described as a “trainee” may at the same time be an employee.

CROSS CLAIM

It is convenient at this point to deal with the substance of the Further Amended Cross Claim
The Defendant/Cross Claimant made a number of claims in a Further Amended Cross Claim brought against the Plaintiff/First Cross Defendant and Mr Zhou as Second Cross Defendant.
To the extent the claim was based on an underpayment of wages the Cross Defendants did not dispute the hourly rates pleaded in [7] of the Amended Statement of Cross Claim [145] being $21.20 an hour from 15 December 2016 to 30 June 2017.
145. D4 T 18.41-9
The Cross Defendants also advanced no submissions in relation to the other components of the claim which were based on the Cross Claimant’s evidence as to her working hours, days and leave. Indeed those aspects of the Cross Claimant’s evidence were not challenged. [146]
146. Exhibit 1 at [46]-[50]

The maintenance of Plaintiff’s obligations to the Lessors under the Deed was properly conceded. [173] In any event, a breach of covenant not to assign without the consent of the lessors does not make any assignment nugatory but merely exposes the lease to forfeiture which would, if the lessors take action deprive the assignee of the estate or interest. [174] It is unnecessary in the circumstances to address the matter further.

Is the Defendant is liable for the Plaintiff’s fitout costs?

173. D4 T 7.12.

174. Massart v Blight (1951) 82 CLR 423 at 440

Plaintiff’s Submissions

The Plaintiff contended that it was entitled to be indemnified for this amount pursuant to clause 2 (h) and (i) of the Deed.
The Plaintiff contended that the conduct of the Defendant in not paying for the de-fit caused the Plaintiff to lose that part of the deposit. The Plaintiff conceded that there was no specific obligation to meet the de-fit costs however argued that when one construes the entire purpose of the Deed which was that the Defendant take over and assume the responsibilities of the business, it could be incorporated pursuant to clause 2 of the Deed by which the Defendant agreed that from the date of execution she is liable for inter alia:

Payment of all outgoings under the existing Lease agreement.
Payment of all and any other fees associated with the company business and the Lease, including but not limited to insurance policy, workers; compensation policy and pest controls costs

Defence Submissions

The Defendant submitted that the Plaintiff was liable to the lessors for the $23,800.49 paid to the lessors on cessation of the lease for de-fitting the premises.
The Deed Concerning Fitout Contribution provided

1.1 If you have completed your works to fitout the premises as required by the Lease (“Your works”) and you are not in breach of the lease, subject to clause 1.4 we will pay or have paid to you $50,000 (excluding GST) as a contribution to the cost of your works.
1.2 …
1.3 …
1.4 We may deduct form the contribution any payment that you are required to pay us under the Lease that are due and unpaid at the time of payment of the contribution
1.5 If You:
(a) Cease to be the lessee of the Lease or cease to occupy the Premises (other than as a result of granting a license of the Premises to a franchisee that has entered into a franchise agreement with you to conduct the franchise in the Preemies without prior consent); or
(b) Are a company and there is a change in the majority shareholding.

You must promptly repay to us the whole or part of the amount paid under this clause as set out in the following formula.

It was not in issue that pursuant to the formula referred to in clause 1.6 of the said Deed Concerning Fitout Contribution the de-fit contribution was calculated in the sum claimed.
In my view, the de-fit costs cannot be described as outgoings of Lease in circumstances where they could have been avoided had the term of clause 29.1 of the lease been complied with which obliged the Defendant, if required by the lessors, to de fit the premises and where in default, clause 29.2 enabled reimbursement of the costs incurred by the lessors.
As a matter of legal obligation, the refund of the deposit was a matter for the lessors to account to the Plaintiff not the Defendant. Within the terms of clauses 2 (i) of the Deed, there was in fact no “unsuccessful registration of the assignment of the Lease” as there was no attempt to do so during its currency. Leaving that matter aside the Deed did not specifically require the Defendant to de fit the premises or to make any contribution in this regard. Whilst the Deed did require the Defendant to observe all the terms and conditions of the lease, there is no evidence that any request to de fit was passed on to her. The fact that a deduction was actually made presupposes that the Plaintiff did not attend to its obligation under clause 29.1 of the lease to de fit the premises on the lessors’ request. As such the deduction cannot be said to have “as a result of the conduct of the trainee.”
It follows that this aspect of the Plaintiff’s claim fails.

Did the Defendant enter into the Deed based on misrepresentation pursuant to s 18 of the Australian Consumer Law [175]

175. Hereinafter “ACL”

Defence Submissions

The Defendant pleaded that Mr Zhou, on behalf of the Plaintiff, said words to the following effect in a face to face conversation between them at the site of the Tokyo Ramen business in or about October 2016:

“The Tokyo Ramen business income is about $9000 to $10,000 a week which is more than enough to pay wages, rent and expenses and still have profit. If you do better that that, you will also get that extra amount.”

The Defendant pleaded that:

The representation was that Tokyo Ramen traded at a particular income and that the income was greater than the liabilities;

The representation concerned the future income of the Tokyo Ramen business;

It relied on and was induced to enter into the Deed (Agreement) because of the representation. [176]
176. Further Amended Defence at [20 (d),(e) and (f)]

The Defendant contended that said representation was misleading and deceptive because the weekly income of the Tokyo Ramen business was less than $9000 to $10,000 a week and the representation was made contrary to s 18 of the ACL, as referred to in s 27 of the Fair Trading Act 1987 (NSW). [177]
177. Further Amended Defence at [20 (g) and (h)]
The Defendant gave evidence and referred to content of the conversation she said she had on or about September 2016. She says that she entered into the Deed with the Plaintiff because she believed what he told her about the income of the Tokyo Ramen business was more than enough to cover expenses and have additional amounts for a salary. She stated that she would not have entered into the Deed if she knew that the profits were less than the expenses, and that she would have to pay expenses out of her own savings or that she would not have a salary. [178]
178. Exhibit 1 at [31]-[32]
In cross examination the Defendant conceded that prior to entering into the Deed, she had occasion to read a tax return for 2016. Whatever return or returns she was given, she said that she read them and read that Mr Zhou had an income of $28,000 or $25,000 a year, [179] plus the income have some profit every year” as well as the 2016 financial report which showed a profit. [180] The Defendant stated:

A. Yeah, he made a profit for 25 to 28,000 roughly and then that’s why I thought, you know, if he has made 25,000, if I work in there as a casual I can make my own profit, I mean, wages, I mean, for myself
179. D3 T 68.20-30
180. D3 T 69.12-25

The Defendant says that I would not accept the Plaintiff’s version of what occurred at the first meeting as it is illogical that a potential buyer would not inquire about whether the business was making also or profit. It was further contended that it would be irrational that Mr Zhou would list every expense but would fail in any way to disclose the amount of the expense. Further it was submitted that it is unbelievable that Mr Zhou would tell the Defendant that that the turnover is mostly in cash when the question was not asked and the statement was clearly self-serving. [181]
181. Defendant’s written submissions at [37]
The Defendant argued that it was unbelievable that Mr Zhou, following receipt of the WeChat message of 17 October 2017 asserting “you know the restaurant is losing money from the start”, would just would stand by and allow the Defendant to say a lie without correcting her if he in fact made no mention of profit as claimed. The Defendant maintained that the assertion that the Defendant should have made her own enquiries and not relied on the representations is unsustainable.
The Defendant further asserted that she had pleaded in her Further Amended Defence that the representations were than the business traded at a particular income and that the income was greater that the liabilities and that the representation concerned the future incomes of the business. It was argued that this was a representation as to the future income within the terms of s 4 of the ACL.

Plaintiff’s Submissions

The Plaintiff pointed out that there is no claim for damages based on the ACL claim and the only claim is for the rescission of the Deed. It also asserted that there was no claim that the representation was made in relation to a future matter and accordingly the only relevant evidence is the financial position of the Plaintiff at the time the representation was made.
To that end, it stated that the Defendant needed to establish the representation as pleaded was made; that it was misleading and deceptive in contravention of s 18 of the ACL, and that the Defendant reasonably relied upon the representation to enter into the Agreement and pay monies pursuant to her obligation in relation to the Deed.
The Plaintiff argued that the Court would not accept the Defendant’s version of the conversation that occurred although it was acknowledged that the Defendant made concessions which were starkly against her interest. However, it drew attention to her claims about the income that she received from the business asserting that if was false. Furthermore, it contended that the evidence was largely if not wholly inconsistent with the objective communications and other documents which passed between the parties between 24 September 2016 and March 2018. By way of example it was submitted:

There is no example of any complaint by the Defendant between 15 December 2016 and 16 July 2017 as to the income generated by the business;

The Defendant’s own evidence even at 16 July 2017 was that the business was” stable”;

Even when complaint was made, it was not that the Defendant Mr Zhou had misled the Defendant on any matter at all, and in fact, the Defendant informed Mr Zhou that the business was steady;

There is no evidence of complaint by the Defendant between 15 December 2016 and 31 March 2018 the Defendant was not remunerating herself whilst working; and

The Defendant’s own evidence that by July 2017 the business “had made hardly any profit” is entirely inconsistent with her apparent assertions at this trial. [182]
182. Plaintiff’s written submissions at [109]

Secondly, the Plaintiff argued that even if the Court were to find that the representation was made as alleged, it was not misleading and deceptive. This is so as the ACL claim was not pleaded to have been made in relation to a future matter, Further the tax returns for the 2015 and 2016 income tax years show that:

Gross turnover was $9000 to $10,000 per week; and

The business was making a profit. [183]
183. Plaintiff’s written submission at [110]

Accordingly, as the pleaded representation was factually correct there was no contravention of s18 of the ACL.
Thirdly, the Plaintiff argued that even if the submission above is rejected the Defendant did not reasonably rely upon the pleaded representation and her own evidence establishes that, on 16 December 2016 prior to making any payment at all, she was of the view that the business was making a loss. In circumstances where her own evidence is that prior to making any payment in relation the Agreement she had known or believed the business was making a loss objectively her reliance cannot have been reasonable. [184]
184. Plaintiff’s written submissions at [112]-[114]
Fourthly, the Plaintiff argued that the Deed contained an entire agreement reference in clause 4 such that in the factual circumstances of the proceeding the Defendant’s reliance was not reasonable. [185] This was said to be particularly since both parties were of equal bargaining power and represented. [186]
185. Dylan Mann and Co Pty ltd as trustee for the Man Family Trust v Tiejag Pty Ltd as trustee for the Sheihy Khoury Family Trust [2018] NSWSC 1334 at [76]-[77], citing IOOF Australia Trustees (NSW) Ltd v Tantipech (1998) 156 ALR 470 at 480 per Lee, Nicholson and Sundberg JJ; Campbell v Backoffice Investments (2009) 238 CLR 304 at [31] per French J.
186. Plaintiff’s written submissions at [115]-[116]
I do not accept the Defendant’s account of the conversation that she had with Mr Zhou as to the earnings of the business. In general, her account of the earnings of the business from 15 December 2016 until she wrote her email of 15 July 2017 would entail a significant income shortfall. Such a shortfall is implausible in the absence of any complaint by her or plausible account as to how shortfall was made up.
Moreover I cannot accept the Defendant’s evidence as to the declining proportion of the cash earnings to EFTPOS earnings for the business after 15 December 2016. Whilst it can be accepted that generally in the community EFTPOS payments compared to cash payments have increased there in no specific evidence of the impact on the business in question beyond that of the Defendant. Despite her previous experience in keeping records she stated that she did not prepare any financial records for the business [187] despite later saying that she kept various records from the business but after “six months” she cleaned out her home office and the records must have been disposed of at that time. [188]
187. Exhibit 2 at [26]
188. Exhibit 2 at [28]
Beyond that the statement as to sales revenues said to have been stated by Mr Zhou correspond with a gross turnover of between $9,000 and $10,000 in the Plaintiff’s tax returns for the 2015 and 2016 years. The financial reports of the 2014- 2016 years show that the Plaintiff traded at a profit. The Defendant furthermore gave evidence that she cited a tax return showing that Mr Zhou had drawn an income of between $25,000-28,000 in 2016. There was no suggestion that any such entries did not accurately reflect the Plaintiff’s financial position. Whilst the Defendant argued that the position would be different if the preceding taxation losses were taken into account there is nothing that indicates those losses should be carried forward for the purposes of assessing the profitability after the Deed was entered. [189]
189. D4 T46.36-.45
I am also not satisfied that the Defendant has established that it relied on the asserted statement of Mr Zhou in entering into the Agreement in light of her other evidence as to the action she took to satisfy herself. [190] It is unnecessary in these circumstances to address the Plaintiff’s argument based on clause 4 of the Deed constituting the entire agreement.
190. D3 T 67.16-69.25.
As to the assertion that the representation was a representation of a future matter, I accept the Plaintiff’s argument the Defendant’s pleading is inadequate. A party seeking to invoke s 4 of the ACL is required to make clear that it is doing so as to alert the other party to the need to plead and call other evidence as to reasonable grounds. In my view, the Defendant’s pleading, in particular at [20(e)] of the Further Amended Defence, does not indicate that it seeks reliance on the evidentiary burden on the Plaintiff to establish reasonable grounds for making the representation. [191] Furthermore, it did not seek to identify any such reliance in its Statement of Issues. [192]

Unjust Enrichment

191. State of Western Australia v Bond Corp Holdings Ltd (1990) 99 ALR 125 at 129 and Phoenix Court Pty Ltd v Melbourne Central Pty Ltd [1997] FCA 1101

192. MFI C.

Plaintiff’s Submissions

The Plaintiff argued that as Zhou deposed to his state of mind in making the payments totalling $36,500 including that his mistaken belief was causative of the payment. This was said to make it prima facie recoverable in accordance with the principles discussed in David Securities Pty Ltd v Commonwealth Bank of Australia. [193]
193. David Securities Pty ltd v Commonwealth of Australia [1992] HCA 48; (1992) 175 CLR 353 at 369 and 374
The basis of the contended mistake is that Mr Zhou was given mistaken advice by his former solicitor Ms Leung that the Defendant could in effect repudiate the Deed without any legal consequence. The Plaintiff argued that Mr Zhou’s evidence in this regard was not challenged. It has drawn attention to the evidence supporting the payments of the amount in question and the effect is that the Plaintiff disgorged its own liabilities during a period which the Defendant was expressly obligated to meet those liabilities herself pursuant to clause 2 (e) of the Deed. Accordingly it was argued that the Defendant has been unjustly enriched at the expense of the Plaintiff and is liable to make restitution in the amount of $36,500.
The Defendant contends that Mr Zhou was advised by his solicitors at the time that he could not stop the Defendant quitting. In these circumstances, the reason why he deposited funds into the Plaintiff’ account for the payment of rent and bills was because he was in China and required someone to run the business and he had to negotiate with the Plaintiff who was demanding a salary and threatening to stop work in the business.
The construction of the payments said to have been made on 1 February 2018 and 28 February 2018 has not been able to be verified from the hand written documents in Exhibit A tabs 31 and 32 which were not translated. Neither party cross examined on the amount said to have been advanced by Mr Zhou although the Defendant maintained it was $26,000.
Regardless of the amount involved, it was for the Plaintiff to establish that there was in fact a mistake and furthermore that the mistake was a factor that led it to enter into the transaction that enriched the Defendant. The Plaintiff’s evidence at [58] of Exhibit A that had he been aware that he could not have accepted the Defendant’s action he would not have paid the said sum of $36,000 was limited as to his explanation for taking such action. [194] It did not address the question of whether there had in fact been a mistake of law. Nor did the Plaintiff argue that the notice given in the circumstances was not reasonable assuming termination was open to the Defendant.
194. D 1 T 14.35-15.44.
Ultimately, the Plaintiff needed to demonstrate that the Defendant could not terminate on reasonable notice without consequence in circumstances where there was no express provision for it in the Deed. Such would be the case in the event that a term could be implied into the contract a term enabling termination on reasonable notice in order to give business efficacy to the contract. [195] An outcome to that effect occurred in Gallagher v Pioneer Concrete (NSW) Pty Ltd. [196]
195. BP Refinery (Westernport) Pty Ltd v. Hastings Shire Council [1977] HCA 40; (1977) 52 ALJR 20 at 26; Codelfa Construction Pty Ltd v. State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at 347
196. (1993) 113 ALR 159 at 190
The Defendant drew specific attention to the statement by Mr Zhou that the in his view the Defendant could not resign or threat to resign and this would only amount to a repudiation. It argued that this was extraordinary in circumstances where she did not receive remuneration. [197] The Defendant asserted that she was not required to work for free but rather under a commercial deal to derive profits. [198]
197. D4 T 53.40.47
198. D 4 T 58.44-59.4
Irrespective of remuneration the Plaintiff’s interpretation would have required the Defendant to run the business continuously without any necessity for the Plaintiff to initiate any action to transfer of the lease. This was despite this being the very purpose of the Deed. When this was drawn to the Plaintiff’ attention it submitted that although not pleaded there's an implied term in every contract, whether there's an express term or not, that both parties have to do all things reasonably necessary to allow the other party to have the benefit of it. If you don't do that, there's a breach. [199]
199. D 4 T 62.40-.46 and T 59.15-.17

As I have indicated mistake of law was for the Plaintiff to establish. It is not established simply by asserting it when the Defendant specifically put it in issue. [200] It is suffices for present purposes to state that I am not satisfied that in the circumstances the Plaintiff has demonstrated that the Plaintiff acted under a mistake of law as it asserts.
200. Further Amended Defence at [16]

CONCLUSION

Despite the Defendant’s claim that payment of taxation was not otherwise embraced by the Deed it did not maintain this in argument. Beyond the arguments addressed in these reasons it did not challenge the other amounts that the Plaintiff claimed. I accept that the Defendant does not bear responsibility for the de-fit costs nor is required to refund the sums advanced by Mr Zhou.
The Defendant/Cross Claimant fails on her Further Amended Cross Claim.

ORDERS

Accordingly the orders will be as follows:

There will be a verdict and judgment in favour of the Plaintiff in the sum of $50,690.70

Pre judgment interest on the said sum is to be awarded from pursuant to s 100 of the Civil Procedure Act 2005 from 4 December 2018 at the rates provided in District Court Practice Note 15

There will be a verdict for the Cross Defendants on the Further Amended Statement Cross Claim

Subject to any application to my Associate within fourteen day for any further or other order as to costs the Defendant/Cross Claimant is to pay the Plaintiff/Cross Defendants’ costs.

Exhibits may be returned to the parties

Endnotes

Decision last updated: 07 February 2020

Medium Neutral Citation:	Elegant Australia Pty Ltd v Chen and; Chen v Elegant Australia Pty Ltd [2020] NSWDC 7
Hearing dates:	6, 7,14 and 15 November 2019
Decision date:	28 January 2020
Jurisdiction:	Civil
Before:	Hatzistergos DCJ
Decision:	The orders will be as follows: (1) There will be a verdict and judgment in favour of the Plaintiff in the sum of $50,690.64 (2) Pre judgment interest on the said sum is to be awarded from pursuant to s 100 of the Civil Procedure Act 2005 from 4 December 2018 at the rates provided in District Court Practice Note 15 (3) There will be a verdict for the Cross Defendants on the Further Amended Statement Cross Claim (4) Subject to any application to my Associate within fourteen day for any further or other order as to costs the Defendant/Cross Claimant is to pay the Plaintiff/Cross Defendants’ costs. (5) Exhibits may be returned to the parties
Catchwords:	CONTRACTS — Construction — Extrinsic evidence CONTRACTS — Breach of contract — Failure to pay business expenses and liabilities — Consequences of breach — Right to damages CONTRACTS — Mistake of law — Whether plaintiff acted under a mistake of law from legal representative — Whether defendant unjustly enriched CONTRACTS — Misleading conduct under statute — Misleading or deceptive conduct as to future matter EMPLOYMENT LAW — Whether employer-employee relationship existed
Legislation Cited:	Competition and Consumer Act 2010 (Cth), s 18 Contracts Review Act 1980 (NSW), s 7 Fair Trading Act 1987 (NSW), s 27 Fair Work Act 2009 (Cth), Part 2-2; ss 44, 45, 90, 325, 326, 545, 546, 547
Cases Cited:	ACE Insurance ltd v Trifunovski [2013] FCAFC3 Ansett Australia Holdings Ltd v International Air Transport Association [2006] VSCA 242; (2006) 60 ACSR 468 BP Refinery (Westernport) Pty Ltd v. Hastings Shire Council [1977] HCA 40; (1977) 52 ALJR 20 Cherry v Steel-Park [2017] NSWCA 295 Codelfa Construction Pty Ltd v. State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 David Securities Pty ltd v Commonwealth of Australia [1992] HCA 48; (1992) 175 CLR 353 Dylan Mann and Co Pty ltd as trustee for the Man Family Trust v Tiejag Pty Ltd as trustee for the Sheihy Khoury Family Trust [2018] NSWSC 1334 Fair Work Ombudsman v Quest South Perth Holding Pty Ltd, (2015) 228 FCR 346 Foran v Wight, (1989) 168 CLR 385; 1989 HCA 51 Gallagher v Pioneer Concrete (NSW) Pty Ltd (1993) 113 ALR 159 Harrington v Harrington Services Pty Ltd,[2016] NSWCA 369 Hotel Management Pty Ltd v KOP International Pty Ltd [2018] NSWSC 102 Massart v Blight (1951) 82 CLR 423 Phoenix Court Pty Ltd v Melbourne Central Pty Ltd [1997] FCA 1101 Rowe v Capital Territory Health Commissions [1982] FCA 4; 39 ALR 39 Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359; [1931] ALR 194; (1931) 5 ALJR 109 [1931] HCA 21 State of Western Australia v Bond Corp Holdings Ltd (1990) 99 ALR 125 Taouk v Assure (NSW) Pty Ltd, [2017] NSWCA 227 Tolhurst v Associated Portland Cement Manufactures (1900) Ltd [1902] 2 KB 660
Category:	Principal judgment
Parties:	Elegant Australia Pty Ltd (Plaintiff/First Cross Defendant) Michelle Chen (Defendant/Cross Claimant) Guchao Zhou (Second Cross Defendant)
Representation:	Counsel: Mr J.C. Lee (Plaintiff/Cross Defendants) Ms L Andelman (Defendant/Cross Claimant) Solicitors: Herald Legal (Plaintiff/Cross Defendants) MacKellars Lawyers (Defendant/Cross Claimant)
File Number(s):	2018/372594
Publication restriction:	Nil

Year	2013	2014	2015	2016
Sales Revenue	113,051.81	505,766.55	501,855.42	490,043.63
Cost of Sales	(76,716.45)	(185,686.08)	(180,375.01)	(182,405.23)
Expenses	(85,001.98)	(305,921.96)	(309,576.63)	(307,566.45)
Other income	1,143.80	1,893.98	865.59	6,509.79
Yearly profit/loss	(47,522.81)	16,053.06	12,769.37	6,581.74
Previous year profit/loss	0	(47,522.81)	(31,469.75)	(18,961.98)
Profit/loss	(47,522.81)	(31,469.75)	(18,961.98)	(12,380.24)