He v Huang
[2016] VCC 1658
•11 November 2016
pl
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-14-04469
| WILLIAM JINGCHEN HE JC INTERNATIONAL PTY LTD | First Plaintiff Second Plaintiff |
| v | |
| LIANGPING HUANG | First Defendant |
TOP UNION BUSINESS PTY LTD (IN LIQ) Second Defendant
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JUDGE: | HIS HONOUR JUDGE MACNAMARA | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 4, 5, 6, 7, 8, 11, 12, 13, 14, 15, 18, 19, 20, 21, 22, 28, 29 April, 6 May, 14 June, 19 October 2016 | |
DATE OF JUDGMENT: | 11 November 2016 | |
CASE MAY BE CITED AS: | He v Huang | |
MEDIUM NEUTRAL CITATION: | [2016] VCC 1658 | |
REASONS FOR JUDGMENT
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Subject: Tort; Contract
Catchwords: Tort; conversion; no conversion where stock sold by plaintiff but price remaining unpaid; liability of director for conversion effected on behalf of company; Contract; arrangement whereby one party may qualify for permanent residence; term of contract; whether one party entitled to trade his company on in competition with company owned by the other venturer; misleading or deceptive conduct; whether certain representations made; whether conduct engaged in where requirements were laid down by counterclaimant and no response made by defendant to counterclaim and no claim of misleading or deceptive conduct by silence; employment contracts breach by employees being concerned in an enterprise competing with their employer; measure of damages; whether employees liable for the counterclaimant’s deficiency upon liquidation.
Legislation Cited: Corporations Act 2001; Personal Property Securities Act 2009; Section 48(1)(c) Evidence Act 2008; S22 Goods Act 1958; Ss 4, 18(1), 236 Australian Consumer Law
Cases Cited:Apple and Pear Australia v Pink Lady America [2015] VSC 617; Regreen Asset Holdings Pty Ltd v Castricum Brothers Australia Pty Ltd [2015] VSCA 286; R v Butera (1987) 164 CLR 180; Dasreef Pty Ltd v Hawchar [2011] HCA 21; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266; Commonwealth Bank of Australia v Barker (2014) 253 VLR 169; Attorney-General (Belize) v Belize Telecom [2009] 1 WLR 1988; 2 All ER 1127; Reigate v Union Manufacturing Co [1918] 1 KB 592; Hawkins v Clayton (1988) 164 CLR 539, 573, Byrne v Australian Airlines Limited (1995) 185 CLR 410; Rainham Chemical Works Ltd (in liq) v Belvedere Fish Guano Company Ltd [1921] 2 AC 465; Associated Newspaper Ltd v Grinston (1949) 66 WN (NSW) 211; Johnson Matthey (Aust) Ltd v Dascorp Pty Ltd (2003) 9 VR 171; Body Bronze International Pty Ltd & Ors v Fehcorp Pty Ltd [2011] VSCA 196; Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470; Demagogue Pty Ltd v Ramensky (1992) 110 ALR 608; Hospital Products Ltd v The United States Surgical Corporation (1984) 156 CLR 41; Chan v Zacharia (1984) 154 CLR 178; Digital Pulse Pty Ltd v Harris (2002) 40 ACSR 487; Warman International Ltd v Dwyer (1995) 182 CLR 544; Lifeplan Australia Friendly Society Ltd v Woff [2016] FCA 248; John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; The United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157; Barnes v Addy (1874) LR 9 Ch App 244; Dintv Hales & Anor [2009] QSC 63; Hodgson v Amcor Ltd [2012] 264 FLR 1
Judgment: Within 14 days of this day parties must bring in short minutes to give effect to these Reasons for Judgment. Costs reserved.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr A.W. Sandbach | Katherine Moorhouse-Perks |
| For the First Defendant For the Second Defendant | Mr R.E.T. Wodak Mr C.H. Truong | Wharton Legal Wharton Legal |
HIS HONOUR:
Background
1 Mr Huang, the first defendant in this proceeding, was born in the People’s Republic of China in 1956. He was a Red Guard during the Cultural Revolution. As part of this process, in common with high school students in the country generally, he was required to move away from home to the countryside and labour in the fields for about three years. (Transcript “T” 857−858) One of his comrades during this time was Mr He He, who is the father of Mr He, the first plaintiff in this case.
2 Mr Huang is senior partner in an architectural firm based in the People’s Republic known as Dalian Top Union Construction Consultant Ltd. The firm has approximately 50 employees. (T856) Mr Huang is now resident in suburban Sydney. He has limited skills in written and spoken English. He gave his evidence at trial with the assistance of an interpreter and had an interpreter at his side during other times to interpret proceedings as they unfolded.
3 Mr Huang is in Australia where he has resided with his wife since 2010 on a temporary visa arrangement known as a “163 Visa”. He said that he and his wife had wished to live in Australia permanently. He said “We found Australia a very good place, the air was very fresh”. (T859, Lines “L” 21−22) Mr Huang says he has now given up any plan to obtain residence in Australia. (T1289, L21-23)
4 Mr Huang applied or contemplated applying for a visa which would entitle him to permanent residency known as a “Business Owner Visa (Subclass 890)”. This visa required applicants to establish that they had managed their own business in Australia for “the past two years”. Applicants were required to establish, amongst other things, “ownership of a main business” which entailed an interest of 30 per cent in an Australian enterprise with a turnover of $400,000 or more Australian dollars and employing at least one full-time employee or equivalent who is an Australian citizen or permanent resident or a New Zealand passport holder, and not a member of the applicant’s family.
5 Mr Huang said he spoke to his old friend, Mr He He, in November 2013. According to Mr Huang, Mr He He told him, “My son has been in Australia for a while, his English [is] quite good. If you consider setting up business in Australia, perhaps he would be able to help you because he has got the language advantage.” (T861, L8−11) Mr He He gave Mr Huang his son’s telephone number.
6 Following a brief telephone conversation with Mr He, during which Mr Huang learned that Mr He’s business involved the sale of trailer parts and accessories, he arranged to call on Mr He in person. Mr Huang and his wife travelled by air to Melbourne on 13 November 2013. Mr Huang stayed in a CBD hotel. Following dinner with Mr He in Chinatown, Mr Huang returned to Sydney the following morning. There was an abortive discussion about a franchise arrangement with an Indian supplier whose company was known as Trek. Mr Huang said Mr He described his own enterprise as having a million dollar turnover per annum “plus the cash component [leading to a turnover of] around $2 million …” (T865, L3−6) Mr He does not admit to having made any assertions about a cash component. Mr Huang said that Mr He had told him that his company had some taxation issues. Again, Mr He denied having said that.
7 According to Mr He, having been born in the People’s Republic of China, he travelled to Australia and obtained the degree of Bachelor of Accounting from Victoria University and the degree of Master of Financial Management from the Australian National University, Canberra. He said that he incorporated JC He International Pty Ltd, the second plaintiff, in December 2010 and that it sells “trailer parts, like trailer accessories: axles, wheels, brakes, couplings and … a little bit on caravan accessories and some auto electricals … like micro-lights, tail-lights, interior RV lights.” (T108, L11-16) According to Mr He, in 2013 his company “reached one million [dollars] for turnover”. (Ibid, L 22-23)
8 In the course of Mr Huang’s visit to Melbourne in November, Mr He showed him his company’s premises which were in Rodeo Drive, Dandenong. (T113)
9 Mr Huang paid his next visit to Melbourne on 4 December 2013. He asked Mr He’s assistance to find him an apartment in Melbourne, and he took one in Clayton. (T114, T865, L12−17) With the franchising arrangement coming to nothing, the next proposal discussed was one whereby Mr Huang invested capital in Mr He’s business “and help me to grow my business, so he can still get the visa but I grow my business”. (T115, L8−11) On Mr He’s narrative, this idea was suggested by Mr Huang. On Mr Huang’s account, the idea came from Mr He ─ “He told me that in this sort of business that if you were to invest $150,000, then that can start to get the ball rolling.” (T866, L19−21) Mr Huang continued: “If I were to invest $150,000, I can carry on similar sort of business.” (T866, L26−27) Mr Huang said he decided to become involved in the business of selling trailer parts and accessories. He was conscious that he did not speak or write English well and would need assistance in this respect. He wished to employ Mr He “as my general manager on a full-time basis”. According to Mr Huang, “the pre-condition is that he needs to stop his current business. … I told him.” (T867, L11−16) According to Mr He, he would be entitled to continue carrying on JC He’s business during employment by Mr Huang’s company. (T420, L23-27)
10 Mr Huang had already incorporated a company, Top Union Business Pty Ltd, which, as we will see, is now in liquidation. It was originally a defendant in this proceeding, but the liquidation has stayed the proceeding against it. Nevertheless, under the control of the liquidators, it is the plaintiff by counter claim.
11 According to Mr He, Mr Huang’s proposal entailed him requiring 10 per cent interest each year upon any money that he invested, “…And the business actually belongs to me. All the profit belongs to me. He don’t worry about any profit and he don’t worry about how I spend the money. He not in charge of the business.” (T115, L23−30) Mr He said, “He [that is, Mr Huang] really rushed, because I heard, like, the visa will be expired on 2017 [that is, the temporary 163 Visa] ─ I can’t remember exactly but I think that was April. So also that visa condition needed two years period, so he has to reach 400,000 and make sure that’s turnover for every single year and last two years, so he don’t have enough time and he want to go straightaway.” (T116, L1−7) He said that Mr Huang stressed the visa requirement that the applicant for the visa “must attend the business, must show the immigration department [Mr Huang] operate the business”. (T116, L11─14) Mr He suggested that he and his wife should be employed by Top Union. He also suggested a Mr Peter Cochrane, who was “a sales rep of one of my suppliers before but quit his job on December”, as well as Ms Lucas Zhang, another one of JC He’s existing employees. (T116, L18−27)
12 The intention was, according to Mr He, that once the visa requirements were met, subject to repayment of the loan monies and interest, Mr Huang would “put everything under my name [that is, Mr He’s name]”. (T117, L14−15) Mr He said, “one idea is what Top Union business or JC International or another business name, it’s all your business.” (T117, L18−20) Mr Huang, according to Mr He, wanted the enterprise which would be the basis for his obtaining the 890 visa to be conducted by Top Union. (T119, L13−17) Short form employment contracts were signed between Top Union Business Pty Ltd and Mr He, as general manager, designating him as a full-time employee, (Defendants’ Court Book (“DCB”) 1690−1691), and his wife, Ms Liu, as online store manager. (DCB 1692−1693) These contracts were dated 6 February 2014 and provided for salaries of $45,000 and $40,000 per annum respectively. Mr Cochrane was apparently also engaged at an annual salary of $50,000, though no form of contract seems to have been produced in relation to him. Mr Huang signed on behalf of Top Union in the contract for Mr He and Mr He signed on behalf of Top Union in the contract for his wife.
13 After 4 December 2013, Mr He investigated premises for Top Union. He made online inquiries and eventually identified a property at 22A Princes Highway, Doveton. (T191, L28−T192, L4) This property was of 2,000 square metres and was located on a main road, namely Princes Highway, “and that’s next to all the main car dealers like Holden, Toyota, Nissan, and is a big open area”. Mr He reported his identification of this property for Top Union’s leased premises and Mr Huang approved. Top Union entered into a written lease. (Plaintiffs’ Court Book (“PCB”) 99 and following, T192−193) The lease provided for a security deposit of $32,490. Mr He said, “So I used my own money from JC He International to pay that [that is, the security deposit]; not only include that, plus the first month’s rent.” (T193, L22−24) Mr Huang signed the lease on behalf of Top Union. (T193, L31)
14 The Doveton premises tenanted by Top Union opened for business in February 2014. Mr He arranged for JC He’s stock to be transported from its former premises at Rodeo Drive to the Doveton premises. (T195) Mr Huang made advances by way of loan to Top Union in January 2014 and Top Union repaid JC He the $47,575.33 it had outlaid as the security deposit and first month’s rent on the Doveton premises. (T196−197) According to Mr He, he and Peter Cochrane spent several nights painting the new premises. (T197) Mr He also arranged for accounts and credit with a range of suppliers. Mr Huang signed as guarantor. In some cases, Mr He also signed as guarantor and, on one or two occasions, Ms Liu signed as well as a guarantor. (T198−202). Orders were placed accordingly.
15 Top Union operated with two “MYOB” systems, one which dealt with stock ordering and inventory and was known as “Retail Manager” and the other was known as “Accounting Plus” or “Account Right” and provided financial accounts. (T202) All employees had the capacity to operate the “Retail Manager” system, including Mr He himself, his wife Ms Liu, Mr Cochrane and Ms Lucas Zhang. The company’s internal accountant was Mr Anatole Kabov, who controlled the “Accounting Plus” system. (T203, L1−4)
16 Mr He was initially in control of Top Union’s bank accounts from the time its business commenced at Doveton in mid February 2014, but in late March or early April of that year, he was deprived of the relevant password and therefore lost control of the bank accounts. (T205−206) Mr Huang told Mr He “he want to control the banking accounts, and all – every single payments we had to hand in paper, in documents, and he has to approve it. So it’s been changed as what we agreed before.” (T206, L15−18)
17 Sales through the online system “eBay” were from mid-February 2014 until mid-April 2014, operated through an account in the personal name of Mr He. (T207, L9−13) The payments for eBay purchases were operated through the personal account of Mr He with the PayPal system. (T207, L14−20)
18 According to Mr He, relations between him and Mr Huang began to sour. Mr Huang said he attended the premises a couple of hours a day. According to Mr He, the souring proceeded as follows: “It start from late March, like, we start argue. I can’t say every day but quite often, and include everything: the way we run the business and all the other parts. I’m not – Mr Huang just keep complain, like, I didn’t ask him to do all the paperwork, which he need to show the immigration agency to get a visa. And that – we started from argue, then we feel like we lose our trust, so we ask a letter from Mr Huang to put that oral agreement in writing, which Mr Huang keep reject that.” (T209, L8−17)
19 Mr Huang said he told Mr He that Top Union’s bank accounts had to be operated “based on the financial regulation, and also to work within the legal parameters, … In the operation of this financial account not allowed to do anything that would be detrimental to the interests of [Top Union].” (T877, L12−18) Mr Huang said, “…in regard to the cash sales, the cash sale needs to be put into the bank account the following day, and then in term of the account it has to be, like, fully documented.” (T878, L1−4) Top Union was open for business at Doveton for the first time on 16 February 2014. (Ibid, L6) According to Mr Huang, whilst he had instituted a rule that all cheques had to be signed by him, whilst Mr He controlled the bank accounts, he was able to make disposals of money from the bank account using the online banking system. (T879, L13−21) Mr Huang said that once the Top Union bank account was open and operating, he and his wife visited the bank regularly to monitor the inflow of money. For the first few days “no money came into the account”. (T881, L8−13) Mr Huang said he challenged Mr He, who explained that there had been a problem with an application for a Top Union EFTPOS facility and, temporarily, the JC He EFTPOS facility would be used. Mr Huang accepted this, but said “the money that has gone into your company, you need to transfer back in to Top Union”. (T881, L18−29) Mr Huang said he then inquired about eBay, though at that time he did not understand the operation of the eBay system. He inquired why no money had gone into the Top Union bank account.
20 According to Mr Huang, Mr He said that two weeks was required before the arrangements could be changed. Mr Huang continued checking the bank account and noted no inflow of money. (T882, L15−18) Again, he challenged Mr He. When Mr Huang demanded a change in the payment system for eBay, he said Mr He replied that “the transfer of this eBay system will at least require two weeks and that would affect the operation of … the business.” (T883, L9−12)
21 Eventually, a Commonwealth Bank EFTPOS system was established solely for Top Union. (T885)
22 Mr Huang said that before Top Union commenced trading at Doveton, Mr He told him that JC He had stock which could no longer be stored at the Rodeo Drive premises because of the expiry of the lease. According to Mr Huang, he told Mr He, “You could for free put the stock on the premises of Top Union. If Top Union, in the future, ever require those stock then Top Union will purchase [them] from you and so, therefore, the stock can be resolved.” Mr Huang said, “Also, his stocks cannot be sold higher than the market value. This is the case.” (T890, L12−21)
23 Mr Huang said that he terminated Mr He’s control of the Top Union bank account because by early April, even after the establishment of a Top Union EFTPOS account, “the income coming in is still minimal.” (T890, L26−28)
24 In April, Mr Huang advanced a further $80,000 of his personal money into the Top Union bank account. (T891, L18−19) According to Mr Huang, Mr He “wasn’t that happy and in those few days that he and his wife had a quarrel on the premises”. (T891, L29−31) Mr Huang said, “Then I criticised him and I requested him to continue to put back the money that belongs to the company [viz Top Union]. At that time, he told me, ‘The stock that I’ve sold are my own stocks’. I was very surprised because in the past we had agreement saying that, ‘You cannot sell your own stocks. If you were to sell the stock, it has to be sold to Top Union, of course. The Top Union has to agree to purchase.” (T892, L1−8) Mr Huang then also told Mr He “that his wife not to continue to work in the company”. (T893, L5−7) Mr Huang believed that Ms Liu’s presence affected Mr He’s emotions and interfered with the performance of his duties. Nevertheless, Mr Huang wanted Mr He to continue running Top Union “because in regard to this business, I cannot run it. I needed William [viz Mr He] to run it. I only want to more strict implement this aspect.” (T893, L15−17)
25 Mr He then offered to purchase the Top Union business for $300,000 with Mr Huang ceasing involvement. (T895, L7−9) Mr Huang said, “…I did agree. If this were to proceed, then perhaps a solicitor will be involved. We only express our thinking, only on that occasion for a very short period of time we exchanged what we were thinking.” (T895, L12−16) Mr Huang said that after the short discussion, Mr He announced to the staff that he was the new owner, which incensed Mr Huang, who then decided not to sell. (T895, L22−30)
26 This led to a meeting between Mr Huang, Mr He and Ms Liu, which it emerges was surreptitiously recorded by Mr He. According to Mr Huang, “The conversation was quite chaotic and, I mean, on one hand I want us to keep him, asking him not to leave. Then I discuss about his wife, how she were to go home.” (T896, L12−15)
27 The discussion reached an impasse. The result was that Mr He and Ms Liu ceased working at Top Union. In the wake of this parting of the ways, according to Mr Huang, he turned his attention to Mr Cochrane. “Peter was his [that is, Mr He’s] good friend and I wasn’t quite satisfied with Peter’s performance as well. It was either on the second day or the third day I also dismissed Peter, correct, and it was 20-something, I think it was on the 22nd that I told the employee by the name of Lucas [that is, Lucas Zhang] – I ask him [sic, Lucas Zhang is in fact a woman] to send a letter to all the suppliers saying that William [that is, Mr He] and Peter are no longer working for this company. Later on, in the running of this trial, I discovered the letter said that they were dismissed, that I do not accept because I did not dismiss them.” (T898, L21−31) The email from Ms Zhang is at DCB 597.
28 On 23 April, Mr He sent an email “to accounts, reps and business owners”, stating that as of 17 April Mr He and Mr Cochrane had “ceased working for Top Union Business Pty Ltd (City to Outback)”. The email continued, “Please note they were not dismissed but have chosen to take a different path due to organisational disagreements.” The email suggested that queries relative to Top Union should be referred to Mr Huang and then included in bold letters “Please note: Big Man Trailers (JC He International Trade Pty Ltd) will no longer be a reference or a guarantee for Top Union Business Pty Ltd. Accounts may need to perform credit checks again for Top Union Business Pty Ltd.” The email was over the signature of Mr He. It included a statement “Please note JC He International Trade Pty Ltd will continue to trade (location/details tba at a future date)”. (DCB 1850-1851)
29 In fact, JC He has not resumed trading. Mr He now owns a company called Jingcheng Group Pty Ltd (which appears to have been named after his given name). A company search shows him to be the sole director and shareholder. (T447)
30 JC He has entered into a lease of premises at 1100 Frankston-Dandenong Road, Dandenong in much smaller premises than the Doveton premises of Top Union. JC He has simply ceased trading. (T449, L1-10) The trailer parts business formerly operated by JC He is now operated by Jingcheng Group Pty Ltd at these new premises.
31 Meanwhile, Mr Huang was seeking to trade Top Union on. With his lack of spoken and written English skills, he was unequal to the task of running the business himself. He engaged a recruiting agency named Hay, incurring fees of $20,000. Four people were provided for interview but none proved satisfactory. (T899, L19-21) The salary offered was, according to Mr Huang’s recollection, about $150,000 per annum (T899, L24), though documents suggest it was $142,000 per annum plus superannuation. During this period, Ms Lucas Zhang provided management services. (T900, L19-23)
32 At one point, Top Union simply ceased trading for approximately two weeks. (T901, L1-3)
33 At some stage, a temporary bookkeeper was engaged. Mr Huang said that she was a friend’s wife. (T901, L27-29) At another point, an individual identified as “Tiger” took on the bookkeeping role. (T1063) According to Mr Huang, he and the employees could not “find any records of the past, that particular file, including the sale records”. (T902, L16-17) Mr Huang complained that, despite a promise from Mr He to provide the eBay password “in a few days’ time”, it was never provided. (T904, L29–T905, L1)
34 By letter dated 24 July 2014 solicitors acting for Mr He and JC He recited what they said was the substance of the arrangement between Mr He on the one hand and Mr Huang of Top Union on the other, and continued alleging that Mr Huang and Top Union breached the agreement “by dismissal of our client due to your interference in the conduction (sic) of the business leading our client to be unable to continue to manage the business properly”. The letter demanded that Top Union “stop selling our client’s stock/inventory” and demanded return of “the entire stock/inventory, any receives (sic) of selling the stock/inventory, stationery/office supplies, documentation left in the office”. (DCB 1848-1849) They sent a follow-up letter dated 4 August 2014 noting a lack of response and threatening legal proceedings. (DCB 1847)
35 Mr Huang responded in a letter dated 10 August, which began by asserting “that what you have mentioned in your letter is untrue”. Mr Huang noted that Mr He had been employed by Top Union “as a store manager since 14 January 2014 and later left us on 16 April 2014. Because of his unauthorised leave, my company has suffered great economic losses. We have told him what we requested to settle this matter since then”.
36 Mr Huang said that he repeated his requests:
(i) “Require Jingcheng He to attend the relevant costs to run his own business in my premises during his employment period in my company.
(ii) Require Jingcheng He as the store manager to make the necessary transition since he left my company and accept the auditing from my company.
(iii) The economic losses suffered by my company due to his unauthorised leave, we will retain the authority to take further legal actions.” (DCB 1845-1846)
37 The letter is rendered on the first page in Mandarin and on the second page in English, which I have quoted.
38 On 11 September 2014 solicitors acting for Mr He and JC He filed the Writ which commenced this proceeding. The matter came before her Honour Judge Kennedy (as she then was) on 7 October 2014 when she made standard directions and referred the matter to a judicial resolution conference on 22 October 2014. Presumably the conference was unavailing.
39 The matter was again before the court on 30 October 2015 when his Honour Judge Cosgrave made elaborate orders requiring Mr He and JC He to provide an extensive range of documents. There were then directions requiring the defendants to provide another range of documents to the plaintiffs. On 19 November 2014, his Honour directed that there be “a supervised inspection of the premises of the defendants at 22A Princes Highway, Doveton”. Amongst those required to attend the inspection were “the first defendant, his wife and their legal advisers”.
40 The purpose of the inspection was to:
· Finalise the preliminary list of assets referred to earlier in his Honour’s orders.
· Download the information from the MYOB system.
· Collect the paper eBay records relative to the period 1 February 2014 to 30 April 2014.
41 Nothing appears to have been resolved at the on-site meeting.
42 Mr He complained that he and his team (which included the former accountant for Top Union, Mr Kabov, who gave evidence both as a lay and expert witness) were obstructed because of the failure to provide them with the necessary passwords to access the accounting records.
43 Mr Huang could give no account of what occurred because he said he was feeling indisposed and remained in the car throughout, relying upon his solicitors and Top Union employees to deal with the matter. (T919)
44 On 5 December 2014, Messrs JS Andrews and A Juzva, were appointed joint liquidators of Top Union as part of a creditors’ voluntary liquidation. (DCB 898-899) This was done in pursuance of a meeting of members of Top Union, being Mr Huang and his wife on 5 December 2014. Subsequently, at a meeting of creditors, the appointment of the liquidators was confirmed. (DCB 900-917)
45 The Report as to Affairs relative to Top Union showed total unsecured creditors in the sum of $619,597.15 with an estimated realisable value of assets on a liquidation basis of $64,155.31, leaving a deficiency of liability of assets of $559,540.53.
46 The major liabilities were to Mr Huang’s wife of $145,000; to Mr Huang himself of $469,235.82; legal practitioners and consultants of approximately $4,600. There was only one trade creditor, AL-Ko International Pty Ltd of $676.98.
47 It appears that the suppliers to Top Union had all been paid before the company was put into liquidation. As previously noted, Top Union was a defendant in the proceeding but no leave has been granted to proceed against it and so the plaintiffs’ claim against Top Union remains stayed by operation of law. Top Union in liquidation has, however, brought a counterclaim against Mr He and his company.
48 According to Mr Juzva, when the liquidators took control of the company on 5 December 2014, they were told that liquidation was mandated by Top Union’s continuing losses and Mr Huang’s unwillingness to provide further funds to support the company. (T1346, L14-16)
49 The liquidators decided to try and realise the company’s assets before Christmas. (Ibid, L23-30) The liquidators were assisted by Mr Lockwood of Lockwood Auctioneers and Valuers. (Ibid, L20-22) Mr Lockwood undertook a stocktake, presumably entailing the preparation of an inventory. (T1347, L23) One of the liquidators’ staff, Mr Jamie Clayton, collected all the books and records of Top Union that were on the premises. (Ibid, L13-15) Mr Lockwood valued the assets on a `going concern’ basis at approximately $275,000 and on an `auction realisation’ basis at $59,545. (T1348, L18-20, 29)
50 No auction was ultimately held. The assets were sold to a company known as PX Wholesales associated with Mr Peter Cochrane, who, it will be recalled, was previously employed by Top Union. (DCB 792, T1349, L28-T1350, L7) A trailer that was under lay-by was sold by arrangement to the lay-by customer, Mr John Larosa. (T1350, L8-10)
51 Whilst there was no auction conducted, the sale was made following an informal tender process where a number of industry players were approached to register their interest in purchasing some or all of the assets. (T1352, L1-17)
52 The liquidators were concerned to vacate the leased premises before Christmas because, were they to remain in possession, they would have to fund rental at the rate of $14,400 per month. (T1352, L26-T1353, L9)
53 The landlord noted that rent had been made for the month of December and therefore he was agreeable to the company in liquidation remaining in possession until 19 December 2014 to enable liquidators to remove all goods and to conduct an on-site auction. (DCB 850-853, T1353, L12-24)
54 A number of trailers were sold to a variety of nearby operators in the industry, that is, apart from the trailer sold to Mr Larosa. (T1354, L24-T1355, L9)
55 Mr Cochrane of PX Wholesales arranged for skip bins to be on-site to dispose of all the residual assets which he or his company did not want. (T1355, L28-31)
56 The liquidators have not called for proofs of debt at this stage. (T1358, L14-15)
57 The Report as to Affairs named JC He as a contingent creditor. (T1359, L24-25) In the new year of 2015, the liquidators carried out further investigations and identified a transaction whereby Mr Huang purchased a BMW motor vehicle from Top Union, satisfying the price of $121,866 by a decrease in the balance of his director’s loan to the company. The liquidators determined that since this transaction took place shortly before liquidation, it was potentially voidable under the terms of the Corporations Act 2001. The issue is nevertheless “parked” on the basis that Mr Huang would only be required to disgorge the value of the apparent preference if there were a change in external creditor claims or the claim by Mr He or JC He were proven. (DCB 935-938, T1361)
58 It appears that the landlord will be seeking to prove in the liquidation for amounts referable to unpaid rent whilst the Doveton premises remained vacant and a deficiency in rent payable by the new tenant relative to what Top Union had contracted to pay. (T1365, L19-27) This is subject to the effect as a matter of law of a disclaimer by the liquidators of the lease as an onerous contract pursuant to powers in the Corporations Act made in March 2016.
59 The liquidators received a letter of demand from a solicitor acting for Mr He and JC He (DCB 811), making claims to ownership of a list of assets including stock and plant and, in particular, a forklift. The liquidators took the position that since no interest was registered against Top Union under the Personal Property Securities Act 2009, none of these claims was binding on the liquidator. (T1398, L17-21)
Plaintiffs’ claim
60 The plaintiffs’ Statement of Claim has gone through many transformations. A further version was the subject of lengthy argument at the outset of the trial. I gave leave for the plaintiffs to file a further Amended Statement of Claim on 6 April 2016. For reasons already explained, this claim now goes forward against the first defendant, Mr Huang, alone. The claim noted that Mr and Mrs He were directors and shareholders of JC He until 2 June 2014, with Mr He continuing thereafter as sole director from 3 June 2014 and sole shareholder from 25 June 2014. Mr Huang was said to be the holder of a subclass 163 visa, entitling him to residence in Australia until 23 April 2017. JC He was said to have been in the business of purchasing and sale of parts and accessories for motor vehicles including trailers, caravans and marine craft operating from Unit 6, 120 Rodeo Drive, Dandenong South. Mr Huang and Mr He’s father were acquainted as a result of their lives in the People’s Republic of China.
61 It was said that Mr He and Mr Huang agreed to go into business together until Mr Huang qualified for his subclass 890 visa. The business was to be the same as carried on by JC He and would be conducted by Mr Huang’s company, Top Union Pty Ltd. JC He would move its stock to premises leased by Top Union, together with its other assets, including a forklift, joinery including shelving, etc. JC He would provide contact details of suppliers and customers and its staff would be offered employment by Top Union. Mr He and his wife would manage the business and Mr He would control the bank accounts.
62 New and larger premises would be required. JC He would continue to use its PayPal, eBay and banking facilities to continue trading at the new premises. Mr Huang would provide a capital injection to the business and would otherwise play no role in managing the business.
63 After Mr Huang obtained his visa, the business would be made over to Mr He by transfer of the shares in Top Union to him. Mr He would procure the repayment to Mr Huang of the value of his capital injection plus interest at the rate of 10 per cent per annum. The agreement, including these terms, was said to be oral.
64 Further, it was alleged that if Mr Huang’s application for the visa was unsuccessful or if there was non-compliance with the alleged terms, or the agreement could not be completed, Mr Huang would return to JC He the assets which it moved to the new premises, including the forklift, joinery including shelving and office furniture and the stock. JC He’s customer information and supplier information, manuals and catalogues would also be returned. This last term was said to be implied “to give business efficacy to the agreement”.
65 On 1 February 2014, Top Union entered into a lease of premises at 22A Princes Highway and Mr He and JC He provided a guarantee. In accordance with the agreement, it was said that JC He moved stock to the value of $293,253.54 “with a potential revenue received of $505,610 and a gross profit made of $212,356”. Existing staff of JC He commenced working for Top Union from and after February 2014. Mr He and his wife began to manage Top Union’s business and Mr He controlled the business’ bank accounts.
66 Mr Huang paid $300,000 into the business bank account of Top Union, it was said, but in or about March 2014 in breach of the agreement, Mr Huang terminated Mr He’s access to the bank account. A further breach of the agreement was alleged on 15 April 2014 when it was said Mr Huang purported to dismiss Mr He, he excluded Mr He and his wife from the premises, retained all stock transferred by JC He to the new premises, retained JC He’s assets, including the forklift, joinery, etc and retained JC He’s customer details and that of its suppliers. Thereafter, it was said Mr He and JC He had no access to the premises and, by reason of these matters, it was said Mr Huang had repudiated the agreement and Mr He “accepts” the repudiation.
67 Next, it was said that on 15 April 2014 Mr Huang represented that to resolve the dispute he would transfer back to JC He the assets and the stock to enable JC He to resume its business. Then, “relying on the representation and induced thereby JC He entered into a lease for premises within which to conduct its business” at 18-20 Frankston-Dandenong Road at a monthly rental of $7,700. Mr Huang, it was said, was estopped from departing from the representation.
68 Next, it was alleged that each of the representations made by Mr Huang was false, misleading or deceptive in that he refused to transfer or otherwise return the assets, including the stock, which Mr Huang was said to have possessed and retained. Mr Huang, it was said, had departed from the representation.
69 Next, the letter of demand of 24 July 2014 was referred to describing it as demanding return of stock and assets. Mr Huang refused by the letter of 10 August 2014. Therefore, it was said, Mr Huang converted the stock and assets and Mr He and JC He were deprived of the benefit of those assets.
70 It was said that by reason of these breaches and the departures from representations, JC He was deprived of the opportunity of carrying on its business at the Frankston-Dandenong Road premises in May 2014 and thereafter.
71 Mr He and JC He were said to have suffered loss and damage “in the sum of $343,721”. Further, it was alleged that in relying on the representation, JC He had suffered loss and damage by incurring rent of $23,100 until transfer of the lease, being required to lodge a security deposit, being required to purchase shelving for $30,000 and requiring a forklift.
72 The plaintiffs sought by way of relief return of JC He’s contact details and customer and supplier material, manuals and catalogues, damages, equitable damages and compensation interest, costs and further or other relief.
Defence
73 In his defence to the Second Further Amended Statement of Claim, Mr Huang denied the allegations about the visa but said “at times he has wished to obtain permanent residence in Australia but he has not made any final decision as to whether he intends to seek permanent residency in Australia”.
74 As to the alleged agreement, the parties to it were Mr He, JC He, Mr Huang and Top Union. It was agreed:
(a) That Top Union would commence and operate a new business in new premises near JC He’s premises.
(b) Top Union would employ each of Mr He and Ms Liu and Mr Cochrane on a full-time basis of $45,000 for Mr He, $40,000 for Ms Liu to manage the business and the online store respectively, and $50,000 to Mr Cochrane “to act as operations manager”. Mr He and Ms Liu would “manage the new business, with the limited involvement of Mr Huang and his wife”. Top Union would sell the same products or similar products to those then sold by JC He. Mr He and JC He would transfer to Top Union “control and ownership of the eBay account then operated in the name of the second plaintiff”. Mr He and JC He would transfer to Top Union “any account” Top Union “required in order to conduct the new business, or if this was not possible then it would arrange for a new account”. Mr He and Ms Liu were not to conduct or be involved in any other business, including the business conducted by “JC He”. Mr Huang would make capital available to Top Union to enable it to conduct the business. If he were granted a subclass 890 visa and, at the time of such grant, Mr He remained an employee of Top Union, then once Mr Huang decided to retire, Mr He would have the right of first refusal to buy the business at a price calculated as the amount which Mr Huang had injected plus interest at 10 per cent per annum. All receipts from sales would be paid into a bank account in the name of Top Union. Mr He would not pay any money out of the bank accounts of Top Union other than to meet expenses of Top Union.
As to certain terms of the agreement alleged in the Statement of Claim, it was said that those terms were so vague as to be unenforceable and therefore not part of the agreement or, alternatively, render the entire agreement void for uncertainty.
75 The terms of the agreement, as alleged by Mr Huang, were said to be “oral or to be implied”. Insofar as they were to be implied, they were to be implied to give business efficacy to the contract.
76 Mr Huang said there was a further agreement arising out of a meeting “on or about 14 February 2014” between Mr Huang and Mr He. He said the parties to that agreement were JC He and Top Union. JC He would relocate its stock to the new premises and provide to Top Union an inventory of the relocated stock. Top Union would permit JC He to store its stock at the new premises at no charge and any stock of JC He suitable for sale by Top Union would be purchased by Top Union from JC He at cost, provided that the purchase price to Top Union was no more than the price at which JC He could purchase the stock through another supplier. The terms of this agreement were said to be oral and implied.
77 As to the further terms alleged by the plaintiffs to have been agreed on 4 December 2013, Mr Huang denied them and said that he has not applied for a subclass 890 visa and, in any event, the alleged terms were so uncertain that they could not have been implied to give business efficacy to a contract.
78 Next, Mr Huang denied that the Doveton premises were leased in pursuance of the December agreement. He admitted that Top Union leased the premises in February 2014 and Mr Huang and Mr He guaranteed the lessee’s obligations. As to the relocation of stock, he denied this and did not admit that any particular stock or assets were relocated.
79 As to staffing issues, Mr Huang denied the plaintiffs’ allegation, admitting that Mr He, Ms Liu and Mr Cochrane became Top Union employees, and that Mr He and Ms Liu had “the day-to-day management of the new business”. Mr He had access to and controlled the Top Union bank accounts. He said that he paid $330,000 into Top Union’s bank account. As to the alleged breach in terminating access by Mr He to Top Union’s bank account, he said he terminated that on or about 8 April 2014 and breached no agreement.
80 As at 16 April 2014, Top Union’s account “had a balance of $111,500.13”. As to the events of 15 April 2014, he said that Mr He abandoned his employment without notice and did not return. If Mr He’s employment were terminated, the termination was effected by Top Union and was justified by reason of Mr He’s wrongful conduct, as alleged in Top Union’s counterclaim.
81 If Mr He and Ms Liu were excluded from the premises, they were excluded by Top Union as the tenant and not by Mr Huang. Mr Huang did not admit any retention of JC He’s stock but contended that any retention of it was effected by Top Union on whose premises the stock was located. The same was said about other assets of JC He and supplier details, manuals, catalogues and so forth.
82 As to the allegation of the plaintiffs being deprived of access to the Doveton premises, Mr Huang said that Mr He attended those premises in early May 2014. He had abandoned his employment with Top Union and it was “nonsensical” to speak of JC He as a company being excluded. Mr Huang denied that he had repudiated any contract with the plaintiffs.
83 As to the lease of new premises at Frankston-Dandenong Road by JC He, Mr Huang did not admit it but said that if it had occurred it was not done “in reliance on any representation or in order to conduct business or trade at those premises”.
84 Mr Huang denied making the representations alleged against him by the plaintiffs and denied that JC He was induced by any representation to enter into a lease of the premises in Frankston-Dandenong Road. If it did enter into a lease of those premises “it did not do so in order to conduct its business from those premises”.
85 As to the stock and assets, he said that they were held by Top Union and not by him.
86 Mr Huang denied allegations that he had retained stock and assets of JC He. Any retention was, it was contended, by Top Union. If anyone declined to deliver up the items, it was Top Union.
87 Mr Huang denied that he sold or disposed of any stock owned by JC He or used any asset of JC He to operate a business. Mr Huang denied breaches of an agreement, repudiation, conversion or departure from any representation, stating generally that if there were, contrary to his denial of breaches or failures to deliver up, then it was Top Union and not Mr Huang involved. He said the award of compensation in respect of the non-return of the stock was inappropriate because the detriment which, if the estoppel were proved, would have been suffered by the plaintiffs and is incapable of being a loss suffered by reason of the departure from the representation. He repeated these defences specifically in responses to claims relative to vouchers relating to freightage and customer refunds.
88 Next, he said that Mr He could not suffer loss and damage by reason of departures from the alleged representation because any stock or assets not returned were stock or assets of JC He and not Mr He. Likewise, Mr He did not enter into a lease of the new premises, but JC He did. Mr He did not trade from new premises and did not intend to trade at the new premises.
89 The costs associated with the new premises were borne by JC He or Jingcheng Pty Ltd. JC He, he said, did not trade at the new premises, not because its stock was not returned but because Mr He decided to conduct the business through a new entity. JC He incurred costs to benefit Jingcheng Pty Ltd and thereby made a gift to that company or was entitled to reimbursement from Jingcheng Pty Ltd.
90 Mr He caused the benefit of the expenditure in relation to the new premises to accrue to Jingcheng Group Pty Ltd rather than JC He, “so that in all of the circumstances it would be inequitable for the court in determining whether loss has been suffered by JC He to have regard to the position of JC He without also having regard to the benefits accruing to Jingcheng Group Pty Ltd”. Therefore, it would “not be unconscionable for Mr Huang to resile from the representation…where JC He had carried on a business in competition with Top Union at Top Union’s premises while Mr He and Ms Liu were employed [on a full-time basis] by Top Union and using [its] resources and JC He was and is incapable of identifying the stock it brought to the premises”.
91 Any award to the plaintiffs, it was said, ought to be reduced by any amount by which Mr He and Jingcheng Group Pty Ltd benefitted by the use of the Doveton premises during the period they were leased by JC He and the use of the shelving supplied by JC He.
Counterclaim
92 Top Union, by its counterclaim, seeks relief against Mr He, Ms Liu and JC He.
93 The counterclaim first alleged Top Union’s employment of Mr He as full-time general manager. This employment was said to have taken effect from “on or around 14 January 2014” with the employment contract being partly written (reference made to the document of 6 February 2014), partly oral and partly to be implied. The oral portions of the contract were said to derive from conversations between Mr Huang and Mr He in late 2013 and early 2014. The matter said to give rise to the implication of employment was the fact that Mr He worked as general manager from early January 2014 to 17 January 2015 and that on 23 April 2014 he circularised suppliers to Top Union stating that he had ceased to work for that company.
94 Next, the counterclaim alleged that Ms Liu entered into an employment agreement for the role of full-time online store manager. This contract was said to be partly written and partly to be implied. Reference was made to the document of 6 February 2014. The grounds for implication were Ms Liu’s employment as online store manager from mid-January 2014 to 17 April 2014 and her payment of salary for that role.
95 According to the counterclaim, Mr He’s employment agreement with Top Union provided for him to act as general manager of Top Union be paid a salary of $45,000 and have authority to operate Top Union’s bank account. It was said further that he was required to cease to operate the business of JC He and close it down upon commencement of his employment with Top Union and transfer the JC He eBay account and the JC He online store to Top Union.
96 It was said to be a term of his contract that he would not “otherwise engage in any activities in competition with Top Union upon commencement of his employment with Top Union”. The provisions as to role and salary were said to derive from the written contract, the other terms were said to be oral and “constituted by a number of meetings between He and Huang in around 2013”.
97 In the case of Ms Liu, it was said that her employment contract provided for her to be online manager of Top Union and to be paid a salary of $40,000. These terms were contained in the written employment contract. It was said that there were further implied terms of the employment contracts of both Mr He and Ms Liu whereby they would:
“(a) owe a duty to Top Union to perform their work in good faith and fidelity during the period of employment (the duty of fidelity);
(b) not derive or obtain any income, profit or property by reason of their employment without Top Union’s approval;
(c) obey all lawful and reasonable orders and instructions of Top Union;
(d) not engage in misconduct during the course of their employment, including abandoning their employment and/or engaging in dishonest acts;
(e) act in Top Union’s best interests rather than their own interest during the continuance of their employment;
(f) act with reasonable and appropriate care and skill during the period of employment.”
98 These terms were said to be implied by law “as a necessary incident of the employment relationship”.
99 Next, it was said that Mr He received specific instructions from Top Union:
“(a) to only use Top Union’s funds for the proper purposes of the company and not to use such funds for his own personal use or benefit;
(b) if He wanted to use Top Union’s funds for any non-company purpose, he needed to obtain Huang’s express prior permission to do so;
(c) He must not carry on any unlawful activities or any improper or other activities which could cause harm to the company whilst employed by Top Union;
(d) He must record all cash sales each day and deposit cash receipts to the bank the next day.”
100 These instructions were said to have been given by Mr Huang to Mr He and, in the case of the instruction relative to banking cash daily, also in the presence of Ms Liu. It was alleged Ms Liu was given the same direction as to the banking of cash sales, with cash to be banked the next day. Again, these instructions were said to have been given orally “in around mid-February 2014 by Mr Huang”.
101 Next, it was said that Mr He, in breach of his agreement, did not cease to operate JC He or close it down. Mr He, or Mr He and Ms Liu:
“Continued to conduct the JC He business trading as ‘Big Man Trailer’ in competition with Top Union by sourcing, promoting and selling parts and accessories of motor vehicles on behalf of JC He at Top Union’s premises”.
102 At the time, it was said, Mr He had control over all stock purchases by Top Union and customer sales and the Top Union bank account. Mr He and/or Ms Liu:
“Promoted JC He to customers at Top Union’s premises and caused JC He to sell stock to Top Union’s customers or to persons who could have become Top Union’s customers had He directed his efforts to Top Union’s interests…”.
103 Mr He and/or Ms Liu were said to have diverted and solicited Top Union’s customers to become customers of JC He. Mr He thereby “derived profits and profits for his own benefit and the benefit of Liu and JC He to the exclusion of Top Union and without Top Union’s approval…”.
104 JC He was said, by reason of this wrongful activity, to have generated sales receipts of $261,366 (excluding unknown cash receipts) consisting of PayPal receipts of $138,000; EFTPOS receipts of $35,153; and unaccounted cash sales of $38,213 from stock purchased by Top Union “in the relevant period totalling $278,839”.
105 It was said that Mr He had utilised the resources and equipment of Top Union “whereby it incurred $107,998 in expenses to generate the sales for the benefit of JC He”. Mr He was said not to have obeyed the instructions he was given by Mr Huang on behalf of Top Union with the result that he did not direct his efforts for the sole benefit of Top Union, and abandoned his employment on or around 17 April 2014, thereby engaging in misconduct, and did not act with reasonable or appropriate care and skill during his employment and acted in his own interest.
106 Likewise, Ms Liu was alleged to have breached her employment contract and her duty of fidelity by continuing to conduct the JC He business and diverting Top Union customers to JC He. Ms Liu’s activities, as alleged, were said to have been causative of the same losses allegedly inflicted on Top Union as a result of Mr He’s action. Ms Liu was likewise alleged to have derived income profits and property for her own benefit and to the benefit of JC He to the exclusion of Top Union and without it approval on the same basis alleged against Mr He.
107 Therefore, it was alleged that she failed to direct her efforts for the sole benefit of Top Union, engaged in misconduct during her employment by abandoning it on or around 17 April, did not act in its best interests, but rather in her own interest in JC He’s interest during her employment with Top Union, and did not act with reasonable or appropriate care and skill during her employment by Top Union.
108 Next, it was said that by reason of Mr He’s breaches of his employment contract and his duty of fidelity, Top Union had suffered loss and damage by reason of loss of sales revenue of $261,366 and further unknown cash sales diverted to JC He. Alternatively, net profit of $30,057 from the alleged sale revenue together with expenditure of wages, rental insurance, fleet cards and other expenses of $107,998 for the relevant period.
109 Alternatively, there was a claim for “the going concern value of stock, plant and equipment held by Top Union after the relevant period totalling $275,820 less auction realisation of $62,300, loss of $213,520 inclusive of GST. Further, it was said that Mr He’s misconduct:
“Resulted in Top Union as a business being unviable, suffering trading losses, being unable to pay its creditors including suppliers, and lease liability of over $300,000 and, ultimately, resulted in Top Union going into voluntary liquidation”.
110 Further, it was said Top Union had lost the opportunity of generating future profits as well as a loss of goodwill. Credit was given for “an amount totalling $78,691.16 from random deposits (which cannot be reconciled with any sales) made by He during the relevant period into Top Union’s Westpac bank account…”.
111 Similar allegations of loss were made against Ms Liu.
112 It was further alleged that Mr He owed a fiduciary duty to Top Union:
(a) to act in good faith and fidelity towards Top Union;
(b) to avoid conflicts of interest;
(c) to not profit, or gain from his position, or to use his position to obtain a profit or gain for another.
113 Similar duties were said to have been owed by Ms Liu. Both were said to have breached those duties and equitable compensation was sought against them.
114 It was alleged that Ms Liu knowingly received funds properly belonging to Top Union in the sum of $261,366 because she had actual knowledge of Mr He’s breaches of fiduciary duty or wilfully shut her eyes to obvious facts or because she wilfully or recklessly failed to make enquiries. As a result, she was obliged, it was said, to pay equitable compensation to Top Union or to be accountable as a constructive trustee “with respect to any funds received from Top Union” including with respect to the property which was acquired from such funds.
115 JC He was said to have knowingly received funds properly belonging to Top Union, being the same amounts alleged against Ms Liu, namely, $261,366 on similar grounds. Claims were likewise made against JC He for equitable compensation or that it can count as a constructive trustee for those funds.
116 There was also a claim for misleading or deceptive conduct made against JC He and Mr He whereby it was said that they represented to Top Union:
(a) the JC He business was generating about $2 million worth of sales each year;
(b) He would cause JC He to close down the business and He would not compete with Top Union, upon commencement of his employment with Top Union;
(c) He would cause JC He to transfer for JC He eBay account to Top Union;
(d) the business of Top Union would be able to generate about $7 million to $8 million in sales each year;
(e) he would not do anything to harm Top Union.
117 These representations were said to have been made orally at face-to-face meetings in December 2013, either Mr Huang’s apartment in Clayton or at the premises of a business known as “CARAC” at 21 Frankston Road, Dandenong. These representations were said to have been made in trade and commerce and, insofar as they refer to future matters, Top Union relied upon s4 of the Australian Consumer Law. The representations were false and misleading in that JC He was not generating $2 million worth of sales a year. Mr He did not close down JC He or cause it to be closed down. He did not cause JC He to transfer, and had no intention of causing JC He to transfer, the eBay account to Top Union. Top Union’s business would not be able to generate $7 million or $8 million of sales each year and there was no basis for any such representation.
118 Finally, it was said that Mr He “intended to, do harm to Top Union following the commencement of employment with Top Union by continuing to operate the JC He business…”. Top Union, it was said, relied on the representations, conducted its business from January 2014 to December 2014, engaged Mr He and Ms Liu under employment contracts, borrowed money from Mr Huang and his wife, entered into a three year lease of premises at Doveton, and engaged suppliers and service providers and thereby incurred liability.
119 By reason of the misleading or deceptive conduct alleged, it was said Top Union had incurred liabilities totalling $623,695.84, as shown in its Report as to Affairs, including $614,235 in director’s loans from Mr and Mrs Huang. It also lost the opportunity of generating future profits as well as loss of goodwill.
120 The counterclaim therefore sought damages generally or damages under s236 of the Australian Consumer Law or, alternatively, equitable compensation or an account of profits. Statutory interest costs and further or other relief were also sought.
Defence to counterclaim
121 Aside from denials and non-admission, the defendant to counterclaim asserted that the agreement relative to the Top Union business was as alleged in the plaintiffs’ Statement of Claim.
122 Mr He contended that Top Union was “the corporate vehicle used by Mr Huang to give effect to the agreement and the means through which the business could be conducted in the manner agreed”. Mr He said that he and JC He “performed their respective obligations under the agreement”.
123 The defendant contended that the allegations in paragraphs 23-29 of the counterclaim constituted “an abuse of process” on the basis that:
Quantum - Breaches of duty – Mr He
289 The principle identified by Mr Truong, said to derive from the status of Mr He as an employee of Top Union, appeared to be engaged in the present case. He promoted a company in competition with his employer, Top Union. I have rejected any contention that there was any contractual arrangement, express or implied, which would have relieved him of the usual responsibilities of an employee in this respect, or immunised him against liability either for breach of contract or breach of fiduciary duty.
290 Mr Truong based his claims in this respect by reference to the volume of sales said to have been derived by JC He by reason of its competition with Top Union. He put this figure at some $370,000 derived by reference to a Business Activity Statement (“BAS”), prepared under the Goods and Services Tax legislation, produced during the trial and covering the period being the first quarter of 2014 and identifying JC He’s sales for that period. This seems to me to be an inappropriate base for a number of reasons.
291 First and most obviously, the period covered by the BAS does not cover the precise period of Mr He’s time at the helm of Top Union, namely, from 14 February 2014 to 16 April 2014. It covers the period 1 January 2014 to 31 March 2014. (T1425, L5‒15) Given that the BAS relied upon by Mr Truong for the purposes of his final submissions, does not exactly correspond with the relevant trading period for which Top Union claims to have sustained losses, I believe I should be guided by the findings made by Mr Smith from other sources at DCB 2446. In this third report he said that, by reason of JC He’s competition with it, Top Union lost revenue of $261,396. He amended this in his viva voce evidence to $276,396 (T1425, L1-6).
292 Accepting this as a figure for revenue lost by Top Union, this would not be a proper figure for the payment of damages or compensation, since it makes no allowances for expenses incurred. In Dintv Hales & Anor [2009] QSC 63, a case relied on by Mr Truong, Philippides J, of the Supreme Court of Queensland, awarded damages against an employee who promoted another enterprise competing with this employer by reference to the profits derived by the competing enterprise and not its revenue or turnover. Mr Truong submitted that, in the circumstance, I should find that the sales made by JC He in the period February to March 2014 had, as their subject matter, the same stock that was invoiced to Top Union by JC He in the relevant period which, by force of the intercompany sale, was Top Union’s stock, and not JC He’s.
293 Mr Truong conceded that this factual scenario was not put to Mr He in cross-examination. The most that he could point to was the passage quoted above, in which Mr He agreed with him that JC He’s sales in the period February to April, came predominantly from the stock which it brought across to Top Union’s premises. Acceptance of this view of things would, in effect, hold JC He and Mr He and Ms Liu responsible for sale of former JC He stock claimed by Top Union, where Top Union never paid for the stock and its directors, apparently, do not even disclose it as a liability in the company’s Report as to Affairs for the purposes of its liquidation. Nevertheless, if the factual finding urged by Mr Truong is justified, legal analysis based upon the law of sales of goods would appear to have the consequence for which he contends; but there are factual difficulties in reaching the conclusion urged by Mr Truong. For instance when, in his report, Mr Kabov seeks to calculate the value of stock held by JC He at various points he calculates purchases of stock for the period 1 July 2013 to 14 February 2014 at $610,082.83. His figure for purchases of stock for the period 1 July 2013 to 16 April 2014, the end of Mr He’s time at the helm of Top Union, puts these purchases at $772,771.58, that is, stock in the value of $162,688.75 was brought by JC He in that period from 14 February 2014 to 16 April. This led to Mr Kabov’s conclusion that, as at the later date, 16 April 2014, JC He had stock of $317,847 on hand. Since JC He was buying more stock as it was continuing to sell in competition with Top Union, Mr Truong’s suggested conclusion is an oversimplification.
294 One of the joint liquidators, under cross-examination, conceded that his investigations could not have established with certainty examples of stock items purchased by Top Union but sold in the proceeds appropriated by JC He, except perhaps for one item (T1382-1383). In re-examination, Mr Juzva was taken by Mr Truong to a transaction where a purchase was made from a supplier known as Dumbier by Top Union with the relevant items sold by JC He (T1407-1408). Mr Truong referred to certain other items. On this basis, I am not prepared to make the broad-brush finding advocated by Mr Truong.
295 Mr Truong noted that in the period February to April, all overhead expenses for both Top Union and JC He were met by Top Union (DCB 2536). He noted that, in the recorded conversation, so much was conceded by Mr He to Mr Huang (DCB 780-782). Mr Truong submitted that if his contention that the whole turnover should not be the subject of the damages award, then the profit should be calculated by reference to the Australian Taxation Office benchmarks, which Mr Kabov and Mr Smith were guided by in reaching their conclusion. I accept that submission. Forty-two percent (being the relevant cross profit margin) of $276,396 equals $110,558.40, being the appropriate award under this head.
296 Parity of reasoning requires that Mr Smith’s conclusion (at DCB 2446) that the actions of Ms Liu led to some $138,000 worth of online sales going through the PayPal system, being lost to Top Union, must also be accepted. Ms Liu was, of course, operating under the authority of her husband and, in the circumstances, he would appear to be similarly responsible. Forty-two percent of that figure is $57,960.
297 The next question is whether Mr He and Ms Liu should be held responsible, as Mr Truong submits he should be, for the whole of Top Union’s trading losses on the basis of breach of contract or fiduciary duties.
298 The unsecured creditors disclosed, aside from a number of miscellaneous items, including law firm, Wharton Legal, $550 and some claims by architects and consultants, Ms Song (Mr Huang’s wife), $145,000 and Mr Huang, himself, $469,235.82. There are employee claims of $4,097.69 (DCB 863-865). Mr Sandbach submitted that these liabilities and, therefore, the losses and deficiencies reflected in the balance sheet as a result of that, were too remote for any liability to attach to its client, Mr He. He submitted that the liquidation of Top Union was as a result of the decision of Mr Huang and his wife, they being both the controllers of the company and its major creditors. It was a tactical step, he submitted, to better the position of Top Union and Mr Huang as defendants to the proceeding brought against them by Mr He and JC He. It would be unjust, he said, for liability to be extended so far.
299 The deficiency which is the subject of the present claim would appear to be the result simply of unprofitable trading subject to a proviso which I will come to presently. To put it another way, the deficiency disclosed in the statement of affairs does not seem to have been caused by heavy costs of liquidation. I venture to think that if the present litigation had not been on foot or in contemplation with external creditors paid off, Mr Huang and his wife would have chosen a less elaborate and less costly mode of wrapping up Top Union’s venture into the trailer parts business. The decision to take the formal step of liquidation was, perhaps, litigiously prudent but it constitutes a step breaking the causation between any wrongs which Mr He may have committed and the costs of the liquidation.
300 The same must be said for the advance of some $90,000 by way of directors’ loan by Ms Song – $20,000 on 25 October 2014, $20,000 on 11 November 2014 and $50,000 on 25 November 2014 which, an analysis of the bank accounts shows, were injected into Top Union’s account for the purpose of meeting its legal costs associated with the present proceeding. (T1325-1326) The same would apply for any other items forming part of the directors’/shareholders’ liabilities to Mr Huang and his wife, which analysis may show were made for a similar purpose.
301 No doubt, when the victim of the civil wrong incurs costs to vindicate his or her position, the incurring of the costs will be seen to be a consequence of the commission of the relevant civil wrong and therefore causally related. Nevertheless, it is customary in our legal system to deal with the issue of costs separately rather than as heads of damages. Recovery of losses sustained by Top Union by reason of its venture into the trailer parts business must necessarily subsume any losses sustained by the company by reason of breaches of contract or fiduciary duty by Mr He and Ms Liu. Award of both corporate losses generally and the latter heads of damage would entail double recovery.
302 Mr Truong said that the damage done to Top Union in the period February to April 2014 left it `fragile’. So much may be accepted; but it had access to liberal financial support from Mr Huang and his wife. The inability of Top Union to establish a profitable business thereafter seems to derive from Mr He’s departure. Mr Huang by all accounts is an astute businessman, but his lack of English language skills meant he needed assistance. Mr He’s departure is not complained of as a legal wrong by Top Union. The accumulated losses, apart from the loss of turnover in February to April 2014, were not caused by Mr He’s and Ms Liu’s breaches of duty. The unprofitable trading after April shows that Top Union’s business would have failed even if JC He had not competed with it in the period February to April 2014. Parity of reasoning must also exclude recovery by Top Union of the damages for the loss of possible future profits and loss of goodwill.
Disposition
303 Mr Truong submitted that insofar as the same heads of damage may be recoverable under different causes of action, his client should not be required to elect between them until the point of entry of judgment. He referred to Hodgson v Amcor Ltd [2012] 264 FLR 1, 249-252 [1629]-[1642]. I accept that submission. In the circumstances, therefore, I will publish these Reasons for Judgment and direct that short minutes be brought in to give effect to them.
Costs
304 Whilst I have received some submissions on the subject of costs, given the mixed outcome of this proceeding, it is appropriate that the parties be given an opportunity to make a final submission on the question of costs before it is determined. Costs will be reserved at this stage.
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