H & Q Cafe Pty Ltd v Melbourne Cafe Pty Ltd

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SUPREME COURT OF VICTORIA

COURT OF APPEAL
S EAPCI 2022 0073
H & Q CAFÉ PTY LTD (ACN 624 852 179) Applicant
v
MELBOURNE CAFÉ PTY LTD (ACN 605 627 487) First Respondent
JIANG ZHANG Second Respondent

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JUDGES: NIALL, KENNEDY JJA and J FORREST AJA
WHERE HELD: Melbourne
DATE OF HEARING: 13 July 2023 
DATE OF JUDGMENT: 25 August 2023
MEDIUM NEUTRAL CITATION: [2023] VSCA 200
JUDGMENT APPEALED FROM: [2022] VCC 1017 (Judge A Ryan)

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CONSUMER LAW – Application for leave to appeal – Appeal – Contract for sale of café business – Applicant acquired business in reliance on financial records provided by respondents – Applicant’s director discovered that business operated at loss – Trial judge found that representations in financial records constituted misleading or deceptive conduct – Judge held that measure of damages was difference between purchase price and true value of business at time of sale – Judge concluded that applicant failed to prove true value – Whether judge erred in assessing loss and damage under s 236 of Australian Consumer Law – Whether judge erred in treatment of evidence of applicant’s director – Leave to appeal granted – Appeal allowed.

Australian Consumer Law (Competition and Consumer Act 2010 (Cth) sch 2) s 236.

Keys Consulting Pty Ltd v CAT Enterprises Pty Ltd [2019] VSCA 13; Masters Home Improvement Pty Ltd v North East Solution Pty Ltd [2017] VSCA 88; Golden Eagle International Trading Pty Ltd v Zhang (2007) 229 CLR 498; HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281; Potts v Miller (1940) 64 CLR 282; Ratcliffe v Evans [1892] 2 QB 524.

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Counsel
Applicant: Ms G Costello KC with Ms A Carruthers
Respondents: Dr P Vout KC with Mr L Virgona

Solicitors
Applicant: Verge Legal Pty Ltd
Respondents: Alderuccio Solicitors

NIALL JA
KENNEDY JA
FORREST AJA:

Introduction

  1. In April 2018, H & Q Café Pty Ltd (‘H & Q’) entered into a contract with Melbourne Café Pty Ltd (‘Melbourne Café’) to purchase a café business (the ‘business’) which operated from leased premises at the Royal Children’s Hospital.

  2. On 2 October 2019, H & Q commenced a proceeding in the County Court seeking damages from Melbourne Café comprising the purchase price for the business, together with lost profits, trading losses and interest on a loan used to fund the purchase. H & Q alleged that Melbourne Café and/or its director, Jiang Zhang, had:

    •engaged in misleading and deceptive conduct contravening s 18 of the Australian Consumer Law (‘ACL’);[1] and/or

    •breached a term of the contract by which it warranted that information about the business provided to H & Q was true and correct. 

    [1]Competition and Consumer Act 2010 (Cth) sch 2. The text of the ACL as in force from time to time operates as a law of…

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Details
Case
[2023] VSCA 200
Decision Date

CaseChat Overview and Summary

H & Q Cafe Pty Ltd sought leave to appeal against the decision of the Supreme Court of Victoria, which dismissed their claim for damages against Melbourne Cafe Pty Ltd for misleading or deceptive conduct under the Australian Consumer Law. H & Q Cafe Pty Ltd had purchased the business of Melbourne Cafe Pty Ltd in reliance on financial records provided by the respondents, which showed the business to be profitable. After acquiring the business, H & Q Cafe Pty Ltd discovered that the business had been operating at a loss, and sought damages for the misrepresentation. The Supreme Court found that the representations in the financial records constituted misleading or deceptive conduct, but dismissed H & Q Cafe Pty Ltd’s claim for damages because they had failed to prove the true value of the business at the time of sale.

The legal issues before the Court of Appeal were whether the trial judge erred in assessing loss and damage under section 236 of the Australian Consumer Law, and whether the trial judge erred in the treatment of evidence of the applicant’s director. The Court of Appeal held that the trial judge erred in his assessment of loss and damage under section 236 of the Australian Consumer Law. The Court held that the trial judge should have accepted the evidence of the applicant’s director, which was the least speculative and most current admissible evidence available, and which was consistent with the other evidence before the court. The Court of Appeal also held that the trial judge erred in his treatment of the evidence of the applicant’s director, as he failed to acknowledge the peculiar difficulties facing the applicant’s case as a result of the conduct of the respondents.

The Court of Appeal granted leave to appeal and allowed the appeal. The Court held that the applicant was entitled to damages for the difference between the purchase price and the true value of the business at the time of sale, and that the applicant had discharged the onus of proving the true value of the business. The Court remitted the matter to the Supreme Court for the assessment of damages. The Court further held that the trial judge’s failure to acknowledge the peculiar difficulties facing the applicant’s case as a result of the conduct of the respondents was a significant error, which had the effect of undermining the applicant’s case.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

The High Court in Golden Eagle International Trading Pty Ltd v Zhang said as follows:Despite criticism of it, the ‘best evidence rule’ has not fallen completely into desuetude. Subject to the exigencies of litigation, the circumstances of the parties, and the other settled and statutory rules of evidence, it has vitality. An aspect of the rule is that courts should act upon the least speculative and most current admissible evidence available.[125][125](2007) 229 CLR 498, 500 [4] (Gummow, Callinan and Crennan JJ) (emphasis added) (citations omitted). Accepting that the 2017 tax return was a completed document that had been lodged with the ATO and bore the taxpayer’s (or his agent’s) declaration as to its accuracy — and notwithstanding Mr Zhang’s evidence as to its inaccuracy which we reject — we consider that this document in the context of the shifting sands of this case provided a reasonable factual basis upon which Mr Smith could form an opinion. In circumstances where there was limited available evidence, the judge ought to have concluded that the 2017 tax return, together with the 2016 and 2017 financial statements within the hidden financials, were of sufficient probative value upon which to reach a conclusion as to the true or real value of the business at the time of sale. In other words, this was the best available evidence as to the true or real financial position of the business for the 2016 and 2017 financial years and was critical in assessing its value at sale. Moreover, Melbourne Café and Mr Zhang chose not to challenge Mr Smith’s opinion based on these documents. Mr Smith’s evidence in general as to the existence of a substantial loss in the two financial years (and particularly that of 2017) preceding the sale of the business should have been accepted. It was cogent, consistent with the evidence of Ms Cui and unchallenged. Moreover, it was the least speculative and most current admissible evidence available. It was a sufficient basis for the opinion expressed by him. Fourth and finally, the judge did not acknowledge the peculiar difficulties facing H & Q’s case as a result of the conduct of Melbourne Café and Mr Zhang. The evidence to which we have just referred should have been evaluated in that light, notwithstanding the judge’s rejection of the evidence of Ms Qiu and Mr Zhang. If it had been, it would have fortified the reliance on the 2017 tax return and the hidden financials in determining whether a loss had been proved and, if so, to what extent. The judge found that Mr Zhang behaved deceitfully and had destroyed documents relevant to the business’ performance pre‑acquisition.[126][126]Reasons, [40]. Once it could not rely upon post-acquisition evidence to prove its loss, H & Q was constrained, as we have seen, to relying upon evidence solely within the control of Melbourne Café and Mr Zhang — the wrongdoers. As mentioned earlier, the burden of proof will be discharged ‘by adducing evidence of some fact the existence of which, in the absence of further evidence, is sufficient to justify the drawing of an inference that it is more likely than not that the event occurred or that the state affairs exists’.[127] This process of inferential reasoning is informed by the fundamental principle established in Blatch v Archer that ‘all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted’.[128] [127]Henderson v Queensland (2014) 255 CLR 1, 27 [89] (Gageler J). [128](1774) 98 ER 969, 970 (Lord Mansfield). See also Henderson v Queensland (2014) 255 CLR 1, [91] (Gageler J); BCI Finances Pty Ltd (in liq) v Binetter (No 4) (2016) 348 ALR 227, 249–50 [125] (Gleeson J) (‘BCI Finances’); Coshott v Prentice (2014) 221 FCR 450, 468–9 [80] (the Court).

Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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