Kang v Degani Airport West Pty Ltd
[2018] VCC 922
•28 June 2018
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-17-06118
| NING KANG | Plaintiff |
| v | |
| DEGANI AIRPORT WEST PTY LTD | First Defendant |
| YANG LU | Second Defendant |
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JUDGE: | HIS HONOUR JUDGE MACNAMARA | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 21,22, 23, 24, 25, 28, 29, 30, 31 May, 1, 6 June 2018 | |
DATE OF JUDGMENT: | 28 June 2018 | |
CASE MAY BE CITED AS: | Kang v Degani Airport West Pty Ltd & Anor | |
MEDIUM NEUTRAL CITATION: | [2018] VCC 922 | |
REASONS FOR JUDGMENT
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Subject:Contract; Misleading or Deceptive Conduct
Catchwords: Character of outlay of $300,000; whether a loan; whether transaction affected by misleading or deceptive conduct; whether plaintiff’s claim governed by Australian Consumer Law or Australian Securities and Investments Act 2001; whether order by way of rescission may require repayment of moneys advanced to company by a director where director a principal contravener relative to misleading or deceptive conduct
Legislation Cited: Migration Act 1958; Wrongs Act 1958; Competition and Consumer Act 2010 (Cth); ASIC Act (Cth) 2001; Corporations Act (Cth) 2001; Limitation of Actions Act(SA) 1936-1975; Australian Consumer and Fair Trading Act (Cth) 2012
Cases Cited:Taylor v Johnson (1983) 151 CLR 422; Salt v Marquess of Northampton [1892] AC 1; Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79; Re Brookers (Australia) Limited (in liquidation); Brooker v Pridham (1986) 41 SASR 380; Ogilvie v Adams [1981] VR 1041; Young v Queensland Trustees Limited (1956) 99 CLR 560; Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; Lobo v The Minister for Immigration & Multicultural & Indigenous Affairs [2003] FCAFC 168; Jiang v Minister for Immigration [2018] FCCA 929; Re Tian [2015] MRTA 533; Re Mera [2002] MRTA 4507; Re Meng [2002] MRTA 2841; Sun v Minister for Immigration, Multicultural & Indigenous Affairs [2015] FCCA 1266; Re Cai [2017] AATA 416; Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217; Briginshaw v Briginshaw (1938) 60 CLR 336; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; Houghton v Arms (2006) 225 CLR 553; Rafferty v Time 200 West Pty Ltd (2010) 87 IPR 593; Rafferty v Madgwicks [2012] FCAFC 37
Judgment:(1) Order that within 14 days the parties must bring in short Minutes to give effect to these reasons.
(2)Costs reserved.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr T Clarke | Canaan Lawyers |
| For the Defendants | Mr P Booth | FCG Legal |
HIS HONOUR:
Background
1 The Migration Regulations 1994 of the Commonwealth of Australia made pursuant to the Migration Act 1958, make provision for the grant of a number of different types of visa, one of which is designated “Subclass 888 – Business Innovation and Investment (Permanent)”. This visa, subject to the conditions in Schedule 2 to the Regulations, provides an entitlement to permanent residence for business migrants.
2 Amongst the requirements for the grant of this visa in the Business Innovation stream is that the applicant:
“(a) had an ownership interest in at least one actively operating main business in Australia during the 2 years immediately before the application was made; and
(b) continues to have the ownership interest in the actively operating main business.”
3 According to Regulation 1.11:
“… a business is a main business in relation to an applicant for a visa if:
(a) the applicant has, or has had, an ownership interest in the business; and
(b) the applicant maintains, or has maintained, direct and continuous involvement in management of the business from day to day and in making decisions affecting the overall direction and performance of the business; and
(c) the value of the applicant's ownership interest, or the total value of the ownership interests of the applicant and the applicant's spouse or de facto partner, in the business is or was:
(i)if the business is operated by a publicly listed company--at least 10% of the total value of the business; or
(ii)if:
(A)the business is not operated by a publicly listed company; and
(B)the annual turnover of the business is at least AUD400 000;
at least 30% of the total value of the business; …”
4 The Regulations provide for another subclass of business migrant visa designated 188, which provides temporary residence only for a period of some four years.
5 The effect of these two subclasses of visa is to enable, subject to particular conditions, business migrants to enter Australia for a temporary period of four years under the Visa Subclass 188 and qualify for permanent residency under Visa Subclass 888 during that four year period.
6 Where business migrants travel to Australia from non-English speaking societies, such as the People’s Republic of China, it may be thought that those arriving on temporary 188 Visas would most easily qualify for the permanent 888 Visa by investing in businesses conducted by members of their own ethnic group, thereby easing the difficulties inevitably encountered by migrants whose ability to read, write and speak English is limited.
7 It would be advantageous to migrants from the People’s Republic of China seeking permanent residence to be put in contact with Chinese-speaking entrepreneurs already holding permanent residency status. Likewise, it would be advantageous for the latter group to be put in contact with recent arrivals seeking permanency as a source of investment capital.
8 The plaintiff, Ning Kang, travelled to Australia on a 188 Visa from his home in Guangzhou on 3 July 2016. (Transcript (“T”) 50) According to Mr Kang, “The whole family came and with the introduction of friends we were searching for some business that will make us suitable to have a 888 visa”. (T51, Line(s) (“L”) 6-7) In seeking suitable investments to enable him to qualify for permanent residence, he searched “a WeChat group set up by the global – in Global Migration company”. (Ibid, L12-13) He continued:
“on this platform, there were migration agents. There were also some experienced people who have obtained their permanent residency. There are also people like us who are the … 188[A] visa applicant visa holders. We communicate and exchange ideas in this – on this platform to obtain information we needed. (Ibid, L21-25)
9 According to Mr Kang,:
“there were some staff from migration agent companies. They were talking about Mr Lu as a successful application. That’s how I got to know some information about Mr Lu’s business.” (Ibid, L29-31)
10 Mr Lu is the second defendant in this proceeding.
11 Mr Lu had travelled to Australia in 2013 (T320, L44-46). He migrated to Australia on the basis of a Subclass 188A Visa and made an investment in an Australian enterprise so as to qualify for permanent residency under a 888 Visa. That enterprise was Degani Airport West Pty Ltd, which conducted the Hangar Café Airport West, the first defendant in this proceeding. The café served not as one might have expected Chinese cuisine, but Italian. (T323, L33-34)
12 The WeChat group therefore could be regarded as “an introduction site: [where] there are people who are looking to invest and people who have investment opportunities, and the idea is to put the two of them together”. (T 474, L3-5)
13 Mr Kang added Mr Lu as a “contact” (T52, L1-2) (presumably the equivalent of a “friend” on Facebook). Mr Kang made this contact after he arrived in Australia. (Ibid, L14) According to Mr Kang, Mr Lu suggested that they meet at his café situated in the Melbourne suburb of Airport West on 15 July 2016. (Ibid, L22-25) Mr Kang was accompanied by his wife, his two children and his mother. (Ibid, L30-31) Mr Lu was unaccompanied. (T53, L1-5) They spoke in Mandarin not in English nor in Cantonese (the language of southern China where Guangzhou is situated). (Ibid, L15-23)
14 According to Mr Kang, he said “I am a new arrival from Guangzhou and I wish to seek a business which would satisfy the requirements for 888 visa”. (Ibid, L9-10) According to Mr Kang, Mr Lu “said the turnover of his café was – was very big. It would be very suitable for me to apply for my visa”. (Ibid, L34-35) Mr Kang continued, “He told us at least more than $1 million”. (T54, L17) According to Mr Kang, Mr Lu said “he used this café and obtained his visa”. (Ibid, L34)
15 Again, according to Mr Kang, he told Mr Lu that “if I joined the business” he would not be able to communicate with the staff because of his poor English, and Mr Lu replied, according to Mr Kang:
“firstly, management is very easy when I – after I invested, he can make arrangements. Secondly, at the time – at that time, he said – he promised to me if I made that investment in business and later on if I feel pressured if I found myself am not suitable to this business or if this business does not qualify the visa application criteria, I can raise it to him any time and he can refund the money to me and I can return the shares to him. (T54, L36 – 55, L4)
16 Mr Lu said that, on that day, there was no detailed discussion as to how Degani’s business was managed at that time. (T55, L18-21)
17 At the conclusion of this meeting on 15 July 2016, no agreement or commitment had been entered into. (Ibid, L37-38)
18 Mr Lu remembered this initial meeting as being at a much more general level. He said Mr Kang:
“wanted to know more details about this café, operating details, such as how to order food for the customer and do services. During that time, I had Chinese nationality staff. He or she can speak Chinese and English. Then I ask him or her to come over and introduce the operating details of this business to Mr Kang. Then I went away to be busy with some other things. I didn’t involve in the conversation between them. I thought that he – which means Mr Kang – was just a very general friend that come – coming over to chat.” (T342, L10-16)
19 The Chinese-speaking staff member was Mr Zhu Feng. (Ibid, L47)
20 Mr Lu agreed that Mr Kang had expressed concerns as to his limited abilities with the English language and had spoken to him solely in Mandarin. According to Mr Lu, “he told me that his English was not very good. But I didn’t pay much attention that he mentioned problems as such, because for myself, my English was not good as well”. [Mr Lu gave evidence with the assistance of a Mandarin interpreter as did Mr Kang] (T344, L1-4)
21 Mr Lu did not remember the meeting as lasting more than half an hour. (Ibid, L11-12)
22 According to Mr Kang, at the first meeting Mr Lu told him that “he used this café and obtained his visa”. [viz the 888 permanent residency] (T54, L34) Mr Lu agreed that he had told Mr Kang that he had applied for his permanent residency 888 Visa based upon his involvement with Degani. He denied that he told Mr Kang that he had, as at the date of the first meeting, already obtained that permanent residency visa. (T488)
23 In fact, Mr Lu obtained his permanent residency visa on 28 July 2016 (Exhibit 1).
24 Mr Lu said of the first meeting, “it was not in my mind that they would invest this business. They were more like tourists”. (T479, L42-43)
25 Following this first meeting, Mr Kang and his family investigated three other businesses as potential investments “a bottle shop, a small motel and also a milk bar”. (T55, L44 – 56, L5)
26 On 18 July the Kangs returned to China, maintaining contact with Mr Lu via WeChat. (T56, L9-19) During these communications, according to Mr Kang, Mr Lu:
“mainly asked me the questions about how was I considering about the business. I also asked him some questions but he wouldn’t answer me either by email or by WeChat. He asked me to have telephone conversation.” (Ibid, L36-39)
27 According to Mr Kang, Mr Lu asked whether “I was considering his business and whether I would invest into his business”. (T57, L5) Mr Kang said Mr Lu “said to invest in the shop on the higher – on a higher part, one could invest $800,000, on the lower mark one could invest $150,000” (Ibid, L16-18).
28 Mr Kang and his family remained in Guangzhou for about six weeks, returning to Australia on 18 September 2016. (Ibid, L33-40) Mr Kang said that he was invited to meet Mr Lu at a café in Box Hill on 26 September. (T58, L17-18) [This was apparently the “Blue Jamaica”]
29 Mr Kang said that Mr Lu asked him if he wanted to invest in Degani and Mr Kang raised some concerns, the main one of which was “after I invest in the business what position or what role would I be having and what kind of management will I be performing?” To which, according to Mr Kang, it was said “after I invested into the business, he would make arrangements to do some work”. There was no elaboration. (T58, L34 – 59, L8)
30 Asked what else transpired at the meeting on 26 September, Mr Kang said:
“Not much else was discussed. I think mainly he addressed my concern. He – he said to me – he re-emphasise his successful case. He – he used it as an example, and, secondly, he promised to me if I cannot – if I’m not suitable for that business or if the business was not suitable for my AAA [sic] visa application, he could at any time refund the money and I can return the shares to him. And then I said I need to discuss with my family.” (T59, L17-22)
31 According to Mr Lu, he had informed Mr Kang (either by phone or via WeChat) before the second meeting that he had successfully obtained his permanent residency visa. (T344, L39-42) Mr Lu said that, at the second meeting, Mr Kang told him that his budget for the investment was $300,000. (Ibid, 345, L16-18) According to Mr Lu, Mr Kang told him that he wanted to learn from Mr Lu how to operate a café. (Ibid, L24-27) Mr Lu said he then suggested to Mr Kang that he acquire shares (presumably in the capital of Degani). Its shareholding at that time had 80 per cent of the shares held by Mr Lu and 10 per cent by each of two minority shareholders, Mr Devcota and Mr Makoul. (Ibid, 345, L32-46)
32 Mr Lu said he told Mr Kang that while he (Mr Lu) owned certain franchise cafés:
“there was no other shops which was suitable for his $300,000 investment amount … Because this amount is not suitable. Most of the cafés’ value would be far in excess to this A$300,000 … And I didn’t have any shares in other shops at that time.” (T346, L15-36)
33 Mr Lu said that, as to the migration consequences of Mr Kang buying shares in the Airport West café, he suggested that Mr Kang obtain advice from a migration agent. (Ibid, L38-45) Mr Lu continued:
“In the first – in the second meeting and before the acquisition, our main focus were on how we would operate this café instead of the language problems – how we would start this business or how he would acquire the shares.” (T347, L36-39)
34 As to discussions relative to possible refunds, Mr Lu said “there’s no such thing”. (Ibid, L44)
35 There, matters were left. Mr Kang had made no commitment and, therefore, Mr Lu had no discussions with his minority shareholders or “partners”. (T348, L39-43)
36 Mr Kang denied that there was any suggestion that he obtain advice from a migration agent at the time of this second meeting. (T135, L37-38)
37 There then followed a third meeting between Messrs Kang and Lu. Mr Kang says he was invited to this meeting by Mr Lu, which took place on 2 October 2016 at a café or restaurant known as “Food Republik”. (T59, L31-44)
38 Mr Kang says he was asked by Mr Lu if he was proceeding with the investment in Degani. Mr Kang said he replied that:
“I had discussed with my family and our concern – the biggest concern was just like I mentioned before. It was due to my poor English, I could not communicate well and I could not control the business or control the management part of the business”. (T60, L17-20)
39 Mr Kang said that Mr Lu brushed aside these concerns, saying “after I have invested into the business, he will make arrangements for me to do those management things.” (Ibid, L29-30)
40 Mr Kang said he was assured by Mr Lu that Degani, as an investment, was suitable for his visa application and he [Mr Lu] “was the successful example”. Mr Kang said that Mr Lu then made “a solemn promise”.
“after I invested into the business, if I am not suitable to do the business, or if the business was not suitable for the visa application, he would refund money, and I can return the shares to him. At that time, he also said to me he has – all the time has $1.2 million in his personal account and he can return the money at any time. So at the time, I considered this condition he raised is a guarantee for me. So agreed – so I agreed verbally on that occasion I would invest $300,000 and he would give me the 70 per cent of the shares.” (T60, L40 – T61, L4)
41 Mr Kang said that Mr Lu then made an appointment and took him to a meeting with a migration agent, Mr Cao, whose office was on Level 6 of a building in Collins Street, Melbourne. (T61, L8-39) The meeting was attended by Messrs Kang, Lu and Cao, who conferred in Mandarin. (Ibid, L41-47)
42 Mr Kang said that Mr Lu explained Mr Kang’s situation. Mr Cao had been the one who had successfully obtained Mr Lu’s 888 Visa. He was therefore familiar with the café business conducted by Degani, which had been the basis for that successful application.
43 Mr Kang said that he raised concerns as to his lack of English, and Mr Cao responded that these were matters which he had to discuss with Mr Lu. Mr Cao agreed to act as Mr Kang’s migration agent, and there followed a discussion as to fees. (T62)
44 Mr Cao sent an email to Mr Kang copied to Mr Lu on 10 October 2016, which he said summarised the discussions at a meeting held at his office with those gentlemen. He referred to the background matters already discussed, and referred in particular to Regulation 888.222(2) of the Migration Regulations relative to 888 Visas, quoting the following:
“If the current applicant acquired the ownership interest from another person who was an applicant for, or held, a Business Skills (Permanent) (Class EC) Visa or a Business Skills (Residence) (Class DF) Visa at the time of the acquisition, the current applicant must have held the ownership interest with that person as a joint interest for at least one year before the applicant’s application was made.”
45 According to the approved translation of Mr Cao’s email, he continued:
“That is, if you chose to purchase Mr Lu’s business, both you and Mr Lu must hold such visas for at least one year to be able to meet the above requirement.”
46 He quoted a further passage from the Regulations, and continued:
“That is, if the applicant decides to purchase such a business, the previous vendor must hold the ownership interest in the business together with the applicant for at least one year. And the respective shares held by both parties should be no less than 30%.” (Court Book (“CB”) 491-2)
47 Mr Cao described the reuse of the Degani café business as a basis for a permanent residency application by Mr Kang following its successful use for that purpose by Mr Lu as “recycling of business”. He gave detailed and repeated advice on this point.
48 Mr Cao said that in providing his advice, he was guided by a government publication known as the Procedure Advice Manual known by its acronym “PAM”. (T665-666)
49 Mr Cao said, as to the percentage of share capital to be the subject of the investment, “I don’t know whether or not they come to a final commercial decision on the percentage … how much they’re going to invest”. (T666, L40-41)
50 Mr Cao said that involvement in management of the subject business was “one of very important issue they need to be aware of, especially in this case, both of them, they need to participate in the business”. (sic) (T667, L10-11)
51 Given the effect of Regulation 888.222(2), it would not have been sufficient for a successful application on Mr Kang’s part that Mr Lu, having succeeded in his permanent residency application, should thereafter simply be a “sleeping partner” in the business. (Ibid, L5-26)
52 Asked if Mr Kang had raised concerns as to his ability to speak English, Mr Cao said he did not specifically remember Mr Kang raising this matter. He continued:
“as a migration agent, as my background, I mainly deal with people from mainland China. Almost all come from mainland China. And I should say almost none of them speak English. Even if they do, they speak very, very little English. But I don’t think it has been a problem for those people to be success in Australia. So my point is if he does raise this concern, I think I will be able to help him, because I do have many resources which will be able to help.” (sic) (Ibid, L28-35)
53 By this he meant English language tuition. He said that the 188 Visa required a second instalment of $9,000, which entitled an applicant to 510 hours of English studies in Australia. (Ibid, L37-43)
54 Mr Cao said that if an applicant for an 888 Visa was successful in meeting the investment and management requirements by, for instance, acquiring or establishing a business employing Mandarin speakers, with perhaps one or more able to speak English as well so as to interface with the wider business world, the applicant’s lack of English language skills would not be a bar to success in obtaining an 888 Visa. (T668, L30-34)
55 Mr Cao said that Mr Kang retained him as his migration agent in October 2016, and paid $4,000 plus GST on 28 October, for which Mr Cao issued him a receipt on 31 October. (T669, L36 – T670, L2)
56 Mr Cao sent Mr Kang another email dated 20 October 2016, once again copied to Mr Lu. In this email, he stated inter alia:
“If you choose to purchase the café at AIRPORT WEST from Yang Lu, you must jointly hold the ownership interest in the business with him for at least one year, with each of you hold around 50% of the total shares of the business. This is because he has applied for the nomination of subclass 888 visa as the owner of this business. There is no requirement for the visa types you and him hold during the period of your joint ownership of that business.” (sic) (CB 488)
57 The email fixed Mr Cao’s fee for acting as a migration agent upon Mr Kang’s application at $8,000 plus GST (viz $8,800). (CB 488)
58 Mr Lu said “after meeting with Mr Cao, we have already reached an agreement … he were about to use $300,000 to acquire 50 per cent of the shares of this company, of this café. (T354, L8-10)
59 Despite contentions of the opposite by Mr Kang, Mr Lu said there was never a discussion of Mr Kang’s acquiring 70 per cent of the share capital of Degani, and the decision for the acquisition to be of 50 per cent “was an advice from Mr John Cao”. (T507, L26-34) This seems to be a reference to Mr Cao’s letter dated 20 October 2016 already referred to.
60 Mr Kang and Mr Lu attended another meeting in October 2016, this time at the offices of Mr Gu of TST Partners, who, it seems, was at this stage the accountant for Degani. According to Mr Kang, the meeting was conducted predominantly in Mandarin though, from time to time, Mr Gu and Mr Lu exchanged words in English which Mr Kang could not follow. Mr Kang said:
“Mr Lu said to Mr Cao [presumably this should be a reference to Mr Gu] – he said I was to invest into Mr Lu’s business. I would invest $300,000 and Mr Lu would give me 70 per cent of the shares initially, but … he change his mind. He changed to 50 per cent.” (sic) (T65, L28-30)
61 Mr Kang said:
“I was a bit angry. Because in the past we had agreed for me to invest $300,000 for 70 per cent of the shares. But without negotiating with me he single-sidedly changed the incentives the to 50 per cent. I was a little bit angry.” (sic) (Ibid, L42-45)
62 Mr Yang said that if his share was decreased to 50 per cent, so his investment would decrease. According to Mr Yang:
“He kept saying to me 50 per cent of the share will satisfy the requirements for the application for 888 visa. Plus he had promised – he had made promises to me in the past and at the end I compromised.” (sic) (T66, L6-8)
63 As Mr Kang described it, it was in fact a capitulation.
64 Mr Gu, of TST Partners, which advertised itself as carrying on practices as accountants, lawyers and corporate advisers, suggested some six steps that were required:
“to restructure the business in the name of the company and dissolve the partnership:
1. Sale of Business contract from Partnership to Nominees Cost $2,200 (TST Partners - Lawyers).
2. Transfer of shares of 50% of Nominee company to Kang Ning Cost $550 (TST Partners – Accountants).
3. Apply for ABN, TFN, PAYG, GST…etc. Cost $110 TST Partners – Accountants).
4. Open new bank accounts. N/A.
5. Inform merchant banking, suppliers, Super. N/A.
6. MYOB – file setup. TBA – ask MYOB to quote.” (CB 72)
65 The explanation for all this seems to be that before Mr Kang made his investment, the Degani business was owned by a partnership consisting of Messrs Lu, Devcota and Mr Makoul. The first defendant, Degani, was the manager of that business. The first step in achieving the situation where a sale of shares to Mr Gu would give him an ownership interest, was to transfer the business from the partnership to the company, Degani. (T379, L1-12)
66 In the event, the proposed agreement to transfer the business from the partnership to the company was never documented. This seems to be because neither side wished to incur the outlay of $2,200. (T364, L15-45)
67 On 6 December 2016, Mr Kang delivered a bank cheque drawn by ANZ Bank in the sum of $300,000 payable to the first defendant, Degani. (CB 84) On 2 December he had executed a share transfer as transferee of some 36 ordinary shares in the capital of Degani. The transferor was Mr Lu, and the consideration was $36, that is $1 per share. On 6 December he executed, as transferee, two further share transfer forms, each for 12 ordinary shares for a consideration of $12. The transferors being Mr Makoul and Mr Devcota.
68 The evidence did not disclose whether the sums of money referred to in the share transfer forms were in fact paid by Mr Kang to the transferor or were to be regarded as part of the $300,000 in the cheque payable to Degani, or whether those sums were paid at all. (CB 82, 83, 83A)
69 At this time, Mr Lu was the sole director of Degani. He signed what was described as “circulating resolutions of the directors” on 2 December 2016, which approved the share transfers and authorised the issue of share certificates to Mr Kang. It was further resolved that Mr Kang be appointed as a director. (CB 76)
70 Mr Kang signed a consent to act as director dated 6 December 2016. (CB 75) A Form 484 records these changes lodged with the Australian Securities and Investments Commission. (CB 78-81)
71 On 8 December 2016, the $300,000 bank cheque was credited to a business transaction account kept by the Commonwealth Bank of Australia for Degani. (CB 85) By later transfers, this amount was separately credited to the account designated “Hangar APW” by the partnership of Messrs Lu, Devcota and Makoul. (CB 85A-85G)
72 In the ensuing months, according to viva voce evidence and documents in the Court Book, Mr Kang was made the contact person for the café’s supplier. He opened a new bank account for Degani with the Commonwealth Bank of Australia in replacement of the café’s former banker, National Australia Bank. He appointed a new accountant to Degani in place of Mr Gu, a Mr Zhang, known by the English given name of “Ross”.
73 As to this appointment, Mr Kang said:
“It’s like this: at that time, Mr Lu said Mr Gu had been the company’s accountant for a long time, but he charges quite a lot. Therefore he said to me, ‘We should change accountant’.” (T75, L39-41)
74 According to Mr Kang, Mr Lu suggested he appoint a new accountant on the recommendation of migration agent, Mr Cao. (T76, L5-7) [Mr Cao is referred to in the transcript as Mr Toh]
75 Immediately afterwards, Mr Kang appeared to suggest that it was Mr Lu who recommended the appointment of this gentleman. (Ibid, L17-23) Mr Lu denied this. He said of this description of the changeover in accountant “It was my first time in court hearing that”. (T385, L35)
76 The change in accountant, according to Mr Lu, occurred because Mr Kang “said he would want to do the bookkeepers job he needs his own accountant and this accountant was more familiar with his visa application and requirements, so I agreed.” (sic) (Ibid, L27-29)
77 According to Mr Lu, Business Activity Statements (“BAS”) were done every three months. The first BAS for GST purposes covered only a few days in December following the changeover in proprietorship of the business. (T387, L19-20)
78 Mr Lu said that this statement was prepared both by Mr Kang and himself. (Ibid, L9-10) The BAS for the quarter ending March 2017 likewise. (Ibid, L24-29, CB 148)
79 For the most part, it seems that Mr Lu “ghost wrote” emails to suppliers and other organisations to be transmitted by Mr Kang in his name. An email to the Commonwealth Bank of Australia with respect to the replacement at Degani of the National Australia Bank point of sale machine with one from the Commonwealth Bank of 14 December 2016. (CB 86, T380) Mr Lu said “later on, he [Mr Kang] would copy or learn how to write those emails by himself”. (Ibid, L39-40)
80 There was some debate and cross-examination by opposing counsel of Mr Kang and Mr Lu as to precisely who wrote particular communications but, broadly, the pattern is as I have described it. In some cases, according to Mr Kang, emails were sent by Mr Lu in Mr Kang’s name without Mr Kang’s intervention at all.
81 Mr Cao said that, according to his file, on 20 January 2017 he received an email from Mr Kang with the documents which effected the transfer of shares to him, Minutes of Directors Meeting and so forth. (T672, L32-36)
82 This compendium of documents, however, did not include a sale of shares agreement. (Ibid, L40) Mr Cao said:
“I believe it is necessary, for Mr Kang Ning’s 888 visa application in the future. That’s why I asked Lu – Mr Lu Yang and Mr Kang Ning whether or not there’s a sales-of-shares agreement in place. And both of them – they advised there is – no such agreement exist or in place. And then I explained to them I think it’s a very important piece of document I should have in prepare for Mr Kang Ning’s future 888 visa application, and both of them – they agreed …” (sic) (Ibid, L42-47)
83 Mr Cao recommended a Mr Meng of Nevile & Co to deal with this issue. (T673, L4-5)
84 Eventually, a meeting at Mr Meng’s office was appointed for 12 April 2017. (T708, L40-41) Mr Kang and Mr Lu said that they attended this meeting but not Mr Cao. Mr Cao was uncertain. (T708, L43 – 709, L8)
85 Mr Kang gave a somewhat different account of these events. He had described the demand which he had made of Mr Lu to be given a more active role in management and continued:
“After I had communicated with Mr Lu and expressed my intention to truly manage this business, one day Mr Lu suddenly said to me – he said the share transfer agreement I had entered into with him could not be considered valid, we need to engage a lawyer to provide a document to prove that – to prove this transfer of shares before that could be considered satisfactory.” (T89, L4-8)
86 Mr Kang continued, “Mr Lu had make agreements with Mr Meng already and he took me to Mr Meng’s office”. (Ibid, L13-14) According to Mr Kang, “There was no discussion. Mr Lu simply told Mr Meng that he needed to prepare a document but I did not know the details of that document”. (Ibid, L36-37)
87 According to Mr Lu, however, the meeting with Mr Meng was arranged by Mr Kang. (T411, L38-40)
88 According to Mr Lu, Mr Meng was a Cantonese speaker, and he (Mr Lu) does not speak Cantonese. Therefore, the discussions were “mainly … between the lawyer and Mr Kang”. (T412, 14-15)
89 Mr Lu continued, “They mainly had this conversation because Mr Kang’s migration agent told him something. Basically, it has nothing to do with me.” (Ibid, 15-16) Since Mr Kang and Mr Meng were speaking in Cantonese, Mr Lu could not understand. (Ibid, L22-24) Mr Lu denied Mr Kang’s account that he [Mr Lu] “did most of the talking”. (Ibid, L39-42)
90 The document resulting from the consultation, however the consultation took place, was styled “Deed of Acknowledgment”. (CB 256-262) The Deed was expressed to be between Degani, Mr Lu and Mr Kang. It recited Mr Kang’s acquisition of 50 per cent of the shareholding in Degani and his appointment as “co-director” of Degani, and stated “the parties wish to set out in writing [Mr Kang’s] involvement in the business and company and to commit the terms of their intentions to writing in the manner hereinafter set out”.
91 Clause 1 included definitions for the purposes of the Deed. Clause 2 was constituted by representations and warranties as to the events constituting Mr Kang’s share acquisition and the entitlement and legal capacity of the counter party to transfer shares to him. Clause 3 was to similar effect, referring to a scheduled copy of Mr Kang’s share certificate. Clause 4 referred to his appointment as a director and included a warranty by Degani and Mr Lu that Mr Kang was “validly appointed as a director of the company as at 6 December 2016”. Clause 5 provided:
“By virtue of his position as a shareholder and director of the company, [Mr Kang] shall be involved in the direct operation and management of the business Hangar Café Airport West.”
92 Clause 6 precluded the parties from taking any actions inconsistent with their obligations under the Deed. Clause 7 imposed confidentiality. Clause 8 prohibited assignment of rights and Clause 9 provided for further assurances.
93 The Deed had been emailed to Mr Kang by Mr Meng, who said in the covering email “you can print and sign with Yang Lu”. He noted that “A witness has to be present and sign the Deed where indicated”. He asked that the date be inserted “on top of page 2”. (CB 255)
94 Mr Kang brought the deed to Mr Lu for his execution. Mr Lu did not sign. He explained:
“Because in the email that Mr Kang sent – forwarded to me from Mr Meng, it mentioned we need a witness to sign this document. And this document has no date on it. I was not quite sure for the date – do I need to put the date that he bought the shares or do we need to put the date of that day when we sign it? I’m not quite sure – I was not quite sure if it is legal. So I said, ‘I need some – I need to consider about it’. Then Mr Kang was a bit angry.” (T413, L38-43)
95 This immediate refusal appeared to be a request for further time for consideration. The refusal was ultimately persisted in. (T415, L24-31)
96 There was a further discussion between Mr Kang and Mr Lu at the café held in Mandarin and therefore unintelligible to the café staff. (T416)
97 According to Mr Lu:
“He [Mr Kang] suddenly mentioned that – asking me to buy his shares. Then I asked him what was the reason that him to do so. Was it related to other people? He said it was not, “It has nothing to do with other people. I just want to withdraw from this business.” Then I requested him to give me a rational reason. The best way is to put it down in writing.” (sic) (Ibid, L8-12)
98 At this time, Mr Lu was also in conflict with another individual, Mr Liu Peng. The dispute was with or through one of Mr Lu’s other franchise companies, not Degani.
99 Mr Kang sent an email to Mr Lu dated 19 July in Mandarin. The agreed English translation is as follows:
“Hi Mr Lu,
I have consulted with the lawyer and accountant on investing 300,000AUD in buying 50% shares of the DEGANI AIRPORT WEST (HANGAR CAFÉ), both the lawyer and the accountant thought the investment was not suitable for my permanent residency application. Therefore, I want to withdraw my 50% shares of the café. Please repurchase the shares and return the money (300,000AUD) to me according to our previous agreement. I will be responsible for cost of engaging the lawyer and accountant. Please give me your reply as soon as possible so that I can make the arrangement. I hope that we can settle this dispute amicably. As for the dispute between you and others, it is not suitable for me to get involved. I really appreciate your understanding.
Ning Kang.” (CB 264)
100 Meanwhile, on 17 July, Mr Kang had a telephone conversation with Mr Cao, where he told Mr Cao that he was considering withdrawing his investment and ceasing the partnership relative to the Airport West café. (T709, L10-30) Accordingly, he might not use that café business as the basis for his visa application.
101 At this stage, Mr Cao said he was concerned that he might be involved in a conflict of interest and might have to cease acting, and Mr Kang should consult his “own immigration lawyer”. (Ibid, L27-41) Thereafter, Mr Cao was unable to make contact with Mr Kang. (T710, L10) Mr Cao spoke to Mr Lu and recommended that he obtain advice from immigration lawyer, Mr Rodger Fernandez. (T711, L16-19) Despite his concerns as to a conflict of interest, Mr Cao continued to send emails to Mr Kang for some months seeking to re-establish contact with him. (T 712, L17-21)
102 Mr Lu replied to Mr Kang’s emailed request for a share repurchase in an email dated 21 July 2017, which he copied to Mr Cao and accountant, Mr Zhang. That letter stated inter alia:
“Hi Ning Kang,
Sorry for the late reply. I have consulted an immigration lawyer about your reason to withdraw the investment in Degani APW P/L. Your lawyer and accountant advised that the investment was not suitable for the permanent residency application. Please forward the professional advice that you get from your lawyer and accountant to my lawyer and me. Your shares are bought from the three shareholders of the café, so I need a legitimate reason to let the shareholders consider the buy-back of their 20% shareholding. Thank you for the cooperation.
I have consulted a lawyer. Please see his information below.” (sic) (CB 267)
103 There then followed a photograph and CV of Mr Rodger Fernandez. (CB 267)
104 The letter concluded:
“In addition, I have checked the correspondence with all relevant parties prior to and after the shares purchase. There was no written or verbal agreement on repurchasing your shares and returning the 300,000AUD to you, anyway, I will still consider your claim. I will engage a lawyer to take care of this matter after the immigration lawyer makes a judgement on it. Please advise that you (Ning Kang) shall be responsible for cost of engaging the immigration lawyer and labor cost of buying shares.” (sic) (CB 268)
105 Mr Kang received a letter dated 31 July 2017 from Adam Wong & Associates. The firm describes itself as “Professional National Accountant of the Institute of Public Accountants Australia”. Mr Wong thanked Mr Kang for his appointment as migration agent relative to Mr Kang’s 888 Visa application. He summarised, in a series of bullet points, the eligibility criteria and concluded:
“After our initial assessment of your nominated business, Hangar Café Airport West, based on the nature of the business, your current management roles and involvement in day to day operations and decision making power, your limited English ability and staff structure, in our opinion, your business will not be able to meet the requirement of a direct and continuous management role in an actively operation main business in Australia for two years immediately before you apply for Subclass 888A.” (CB 270-271)
106 Mr Booth for the defendants said that this letter could be considered solely as proof that Mr Kang received advice to this effect but not as to the correctness or reliability of such advice.
107 Mr Kang’s solicitors, Canaan Lawyers, wrote a letter of demand to Mr Lu dated 16 August 2017. The letter set out what it described as “the chronological timeline” of the transactions referred to above and continued:
“Our client hereby demands that you provide an undertaking to repay the $300,000.00 AUD owing to him in exchange for a transfer of his shareholding by 4.00pm 23 August 2017 AEST. This demand is made on a purely commercial basis, with a view to avoiding costly litigation. If we do not receive a response from you by that date, we shall immediately seek instructions to commence court proceedings against you without further notice for:-
A. The return of $300,000.00 AUD;
B. Interest; and
C. Costs.” (CB 273)
108 The letter alleged that Mr Lu had made a false representation to the effect that Mr Kang “would be sufficiently involved in the management of the Business to satisfy the requirements of a subclass 888A visa”. This representation, it was said, was unrealistic because of Mr Kang’s “limited English ability”. (CB 272)
109 Mr Kang’s solicitors filed the Writ commencing this proceeding on 21 December 2017.
The proceeding
110 In his Amended Statement of Claim, Mr Kang alleged that “between about July and October 2016” Mr Lu represented to him that the first defendant’s business, Degani, “was a business appropriate to support a migration application and meet the requirements in obtaining a subclass 888A Visa”. This was described as the “appropriate business representation”.
111 Further, it was said that Mr Lu had represented to Mr Kang that Mr Kang “would have sufficient involvement in the operation and management of Degani on a daily basis”. This was said to be the “management representation”.
112 Next, it was said that it was represented by Mr Lu to Mr Kang that Mr Lu would return all monies paid by Mr Kang for the investment if “the Degani business does not support [Mr Kang’s] application to obtain a subclass 888A Visa”. This was described as the “refund representation”.
113 The final alleged representation described as the “shareholding representation” was that “the shareholding of 50% of the share capital in [Degani] would meet the requirements in obtaining a subclass 888A Visa”. These were representations said to have been made orally.
114 According to the Amended Statement of Claim, in reliance on those representations, Mr Kang “entered an agreement with [Degani] and/or [Mr Lu] to purchase 60 shares in [Degani] being 50% of the share capital in [Degani]”. This agreement was said to have the following provisions:
(a) Mr Kang would transfer the sum of $300,000 to Degani;
(b) Degani and Mr Lu “would facilitate the transfer [of] 60 shares in [Degani] to [Mr Kang];
(c) the representations described above “were terms of the Agreement”.
115 It was said that the shares were transferred to Mr Kang, and Mr Kang became a director of Degani. In accordance with the terms of the agreement, and relying on the representations, Mr Kang deposited $300,000 “to [Degani’s] bank account on 6 December 2016”.
116 The $300,000 paid to Degani was said to have been “advanced as a shareholder loan” to Degani. In the absence of a stipulated time or condition as to repayment, it was said “the loan has at all times been repayable on demand by the plaintiff”. Mr Kang, by the Statement of Claim and by a letter of demand dated 17 May 2018 (Exhibit A) demanded repayment.
117 Alternatively, Degani did not meet the requirements for a Subclass 888A Visa and was not appropriate because it turned over less than $400,000 per annum “and in those circumstances [Mr Kang] was required to own 51% of the share capital in the business”. Also, that “Mr Kang was unable to carry out a continuous or direct management role due [to] the breach of the management term by [Mr Lu]”.
118 Mr Kang, it was said, was unable to work or have any management role in Degani because, first, Mr Lu had not advised him “that the majority of the staff members at Degani were English speakers who could not speak Mandarin”. Mr Lu was aware that Mr Kang had limited English-speaking ability and, upon attending Degani on 18 December 2016, Mr Kang “became aware that the majority of staff members were English speakers with limited or no Chinese speaking ability”.
119 It was said that in late January or early February, Mr Lu told Mr Kang that he was “not needed at Degani”. The manager and executive chef were responsible for Degani’s management, and “If [Mr Kang] attended Degani [Mr Kang] would just be washing dishes”.
120 The defendants, it was said, refused to return the $300,000 despite a request, as a result of which Mr Kang suffered loss and damage.
121 Further, the Amended Statement of Claim “relied on misleading and deceptive conduct”. The pleading referred to s4 of the Australian Consumer Law and s12BB of the Australian Securities and Investments Act 2001. It was said that Mr Lu and Degani “did not have reasonable grounds to make the said representations with respect to future matters”.
122 Insofar as the “management representations” were as to present existing facts, it was said they were false and untrue since “the majority of the staff employed by Degani spoke only English”.
123 Mr Lu knew, or ought to have known, that Mr Kang would be unable to have a direct and continuous management role in the business. “Consequently the Degani business was not appropriate to support the Subclass 888A Visa application”.
124 Alternatively, it was said that Mr Lu did not intend Mr Kang to undertake a direct and continuous role in the management of the business. It was said that insofar as the shareholding representation was to an existing fact, it was false because at the time the Degani business turned over less than $400,000. Therefore, Mr Kang would have been required to purchase 51 per cent of the share capital to meet the requirements of the 888A Visa.
125 As to the refund representation, it was said that they were false as to present existing facts, either because Mr Lu did not intend to refund the $300,000 in the stipulated event, or did not know that he could refund it.
126 For similar reasons, the appropriate business representation was said to be false as to existing fact. The making of the representations were said to be in trade and commerce and in contravention of the quoted statutory provisions as misleading or deceptive. They were also said to have been made in trade or commerce “in relation to financial services that was in contravention of s12DA of the ASIC Act”, or in trade and commerce in relation to a financial product or service and therefore in contravention of s1041H of the Corporations Act 2001.
127 Accordingly, Mr Kang was entitled to damages in the sum of $300,000, either under s236 of the Australian Consumer Law, s217 of the Australian Consumer Law and Fair Trading Act 2012, s12GF of the ASIC Act, or s1041I of the Corporations Act 2001.
128 As a further alternative, it was said that the letter of demand from the plaintiff’s solicitors to the defendants demanding the return of $300,000 constituted a rescission of the agreement and restitution of $300,000 was sought.
129 The prayer for relief sought damages or payments of sums of money in accordance with the statutory provisions referred to, together with interest and costs.
130 In their Amended Defence to the plaintiff’s Amended Statement of Claim, the defendants denied the making of any of the representations alleged. Further, they said that the transaction between the parties was an oral sale of shares agreement for the purchase of 50 per cent of the issued shares in Degani by Mr Kang for $300,000. They referred to the various documentation evidencing and effecting that transaction. According to the terms of that agreement, they said that Mr Kang was obliged to make his own enquiries as to whether the investment would qualify him to obtain a Subclass 888A Visa and undertake a “due diligence” regarding the business of Degani.
131 They admitted that the transaction whereby Mr Kang would acquire 50 per cent of the shares in Degani, but denied that the alleged representations formed any part of that agreement.
132 They admitted that $300,000 was paid to Degani “in consideration for the shares”. They denied that there was any loan to Degani or that any such loan was repayable on demand, or that by the Statement of Claim Mr Kang was demanding repayment of it.
133 The defendants denied Mr Kang’s allegations of breaches of agreement, saying that the Degani business did have an annual turnover in excess of $400,000. They said that Mr Kang did assume a management role in the business, as evidenced by his appointment of new accountants and taking possession of books and records, and thereby his assumption of control over the financial affairs of the Degani business.
134 As to linguistic issues, the defendants said that Mr Kang should have been aware of his own linguistic limitations, identified the languages spoken by Degani employees, appointed a manager who spoke both Chinese and English to be a liaison person, and otherwise taken appropriate steps to ensure he could communicate with staff. He should have undertaken “proper due diligence”.
135 The defendants admitted they did not return the $300,000 as demanded, and said they were under no obligation to do so. They denied the various allegations as to misleading or deceptive conduct and said that, in any event, Degani’s business did have an annual turnover in excess of $400,000.
136 The defendants did not accept Mr Kang’s “purported rescission”. They said, “the agreement admitted by the defendants … remains on foot”. They said there was “no legal basis for restitutionary remedies on the facts pleaded by [Mr Kang].”
137 The defendants denied that there had been any total failure of consideration in the performance of the agreement between the parties and said, therefore, there was no “legal basis for institutionary remedies on the facts pleaded by the plaintiff”.
138 By way of fall-back, they said that even if there were any misrepresentation by the defendants, which they denied in any event, “there was no causal relationship between any such alleged misrepresentation and any loss or damage as alleged …” because of Mr Kang’s failure to conduct a due diligence, failure to obtain legal advice as to visa requirements “prior to entering into the sale of shares agreement”, failing to take heed of legal or other advice relative to the 888 Visa, and failure to take steps to ensure that he could communicate with Degani employees, such as the appointment of a manager or other person who could speak both Chinese and English “so he [Mr Kang] could communicate with the employees”.
139 Further, the defendants said that if there were any liability for misleading and deceptive conduct, it was “suffered or contributed to” as a result of Mr Kang’s failure to take reasonable care, and any damages entitlement “must be reduced by 100% with the result that the claim for damages is defeated”. They referred to s63 of the Wrongs Act 1958, s137B of the Competition and Consumer Act 2010 (Cth), s12GF(1B) of the ASIC Act (Cth) 2001, and s1041I of the Corporations Act (Cth) 2001.
140 Alternatively, they said, any damages “must be reduced to such an extent as the court thinks just and equitable having regard to the plaintiff[‘s] [role] in the responsibility of the loss and damage”. They referred to s26(1) of the Wrongs Act, s87CB of the Competition and Consumer Act and s1041L of the Corporations Act.
141 I will now turn to a consideration of the various causes of action relied upon by Mr Kang.
Loan
142 By letter dated 18 May 2018, responding to a request for particulars, the plaintiff’s solicitor said (as to the allegation of a $300,000 loan by Mr Kang to Degani):
“a The loan agreement was implied, from [Mr Kang] having advanced funds to [Degani] that were not share capital. The funds advanced therefore invested as debt, rather than equity, capital of [Degani].
b The implied loan agreement arose on 6 December 2016 upon [Mr Kang] advancing the funds to [Degani].
c There were no express terms of the implied loan agreement. In particular, there was no express or implied term or other condition for repayment of the loan. As a consequence, the loan was repayable at any time upon demand.”
143 The defendants’ counsel, Mr Booth, stressed the lack of evidence from Mr Kang or any other person as to the making of a loan. He said there was no written loan agreement and the written correspondence in evidence made no mention of the loan and was inconsistent with its existence. He noted the demand by Mr Kang, in his letter of 19 June 2017, for Mr Lu to repurchase shares and return money. There was no reference to the loan. He said the solicitor’s letter of demand mentioned no loan and the unexecuted Deed of Acknowledgment made no reference to it. The allegation of loan was added to the Statement of Claim only a few days before trial. According to Mr Booth, it was only in cross-examination that Mr Kang mentioned for the first time that the price of the shares which he acquired was AUD $60.
144 According to Mr Booth, the evidence therefore in no way supported the existence of a loan transaction and, in many respects, gave direct contra-indications as to any loan having been made.
145 In closing submissions for the plaintiff, Mr Clarke stressed that the $300,000 payment was made, not to the transferors of the 60 shares acquired by Mr Kang, but, rather, to Degani. There was no suggestion that this $300,000 had in some way become part of Degani’s share capital. It was not a gift. Accordingly, said Mr Clarke, the only available characterisation of this payment to Degani was that it was a loan. Degani had no shares to dispose of. The $300,000 could not have been consideration for any share subscription or sale.
146 He referred to a series of questions which I asked Mr Lu along those lines. (T378, L37 – T379, L23) Mr Lu’s response to this series of questions was:
“This amount was used by him to purchase the 50 per cent of the shares of that business. As to how it was reflected in the financial statement, I am not quite sure.” (T379, L25-27)
147 Mr Booth said, in closing viva voce submissions, it was well-established that money could be regarded as paid to a person where that person directed the payer to disburse the money to a third person. So, when the purchaser of a house directs his bank to pay the vendor, as between vendor and purchaser, the payment is regarded as having been made by the vendor to the purchaser even though its immediate source is the bank.
148 To make good this analogy in the present case, one would expect that Mr Lu, as the seller of most of the shares and the “procurer” of the rest, would be the person directing Mr Kang to pay the $300,000 to Degani. Mr Booth asked Mr Lu if he had given such a direction to Mr Kang, and he replied “No”. (Ibid, L33) Mr Lu said the direction was given by Mr Gu. (Ibid, L35-37)
149 Mr Clarke relied upon the accounting treatment given to the $300,000 “outlay” by Mr Kang (to use a neutral term). He referred me to Degani’s balance sheet as at 30 June 2017, as prepared by Mr Zhang on 6 March 2018. This showed the transaction as a “non-current liability” by way of loan from Mr Kang in the sum of $300,000. (CB 385-393) He noted that Mr Lu admitted receiving this financial statement from Degani’s accountant, Mr Zhang, and then passing it on to his solicitors. (T546)
150 What then are we to make of all this? It is clear from the viva voce evidence and the contemporary correspondence (with the exception of the financial statements just referred to) that, subjectively, neither Mr Kang nor Mr Lu saw the transaction as one of loan. Nevertheless, the prevailing contractual theory calls for an objective analysis of contracts. (Carter on Contract [01-090] 2121 Service 35; Taylor v Johnson (1983) 151 CLR 422, 429 per Mason ACJ, Murphy and Deane JJ.)
151 There are a number of well-established circumstances in which the law sees fit to impose characterisations and consequences on contractual transactions despite the subjective intentions of the parties. If a transaction is regarded as being, in truth, a loan or financing arrangement rather than an outright sale, an equity of redemption will be implied whether it is to be found expressed in the documentation or not. (Salt v Marquess of Northampton [1892] AC 1) This has been described under the maxim “once a mortgage always a mortgage”.
152 Again, if parties enter into an arrangement with one another which the law regards as a partnership, a clause stating “nothing in this agreement shall be regarded as constituting a partnership” will not be effective to exclude the operation of the law of partnership (Lindley & Banks on Partnership (20th ed) [5 – 30] 104 – 5).
153 If parties characterise a liquidated damages clause as being, in their view, a true pre-estimate of the losses which a breach of contract or a class of breach of contract will inflict, even if both parties subjectively believe this, if in fact a court regards the clause as extravagant, it will be struck down as a penalty. (Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79, 86 – 8) What these instances show is that parties, by virtue of the doctrine of freedom of contract, are not at liberty effectively to impose a characterisation on a transaction which it cannot bear.
154 For the reasons already explained, the $300,000 outlay by the plaintiff cannot be characterised as a transaction by way of share purchase. Mr Booth offered no convincing explanation as to how, for instance, a payment of $300,000 or part of that sum to Degani could be regarded as having been directed either by Mr Lu or by Messrs Devcota and Makoul. It will be recalled that Mr Lu specifically denied giving any such direction.
155 In my view, the parties, despite their subjective intentions, must be regarded as having entered into a transaction in which Mr Kang advanced the sum of $300,000 by way of loan to Degani. Degani used that money to purchase the café business from the partnership.
156 Having submitted that no loan transaction should be found to have occurred here, Mr Booth made no fall-back submissions as to what the terms of any loan arrangement which might be found to exist might be, despite his submissions to the contrary, might be. According to the Amended Statement of Claim, the loan of $300,000 made by Mr Kang to Degani should be regarded as repayable on demand.
157 In support of this contention, Mr Clarke relied on the decision of the Full Court of the Supreme Court of South Australia in Re Brookers (Australia) Limited (in liquidation); Brooker v Pridham (1986) 41 SASR 380. In that case, a long-established family company fell into financial difficulty and entered into an arrangement with its bank restricting the ability of family members to withdraw deposit accounts which they had entered with the company. When the company was placed in insolvent liquidation, the liquidator declined to accept proofs of debt from the family members on the basis that the loan had become irrecoverable by virtue of the South Australian Limitation of Actions Act 1936-1975.
158 The trial judge had relied on authorities such as Ogilvie v Adams [1981] VR 1041, to hold that where loans are made by persons other than financial institutions and expressed to be repayable on demand, the cause of action to recover such monies accrues when the initial loan is made and is not postponed until the making of a “demand” for repayment. The Full Court on appeal reversed that finding.
159 King CJ said:
“It is trite to say that where there is a simple loan of money, the debt is due and payable immediately and from day to day from the time of the making of the loan, and that the cause of action therefore arises immediately upon the loan of the money. This position is unchanged by the fact that there is an express agreement making the loan repayable on demand, on request or on call; the debt is nevertheless due and payable immediately.” (1986) 41 SASR 380, 382
160 His Honour referred to a decision of the High Court of Australia in Young v Queensland Trustees Limited (1956) 99 CLR 560, 566. Later in his judgment, King CJ said:
“It is, of course, common enough for proprietors of a business who have formed a company to take over a business or who have constituted a family or other trust, to leave funds on loan for use as working capital. The intention is usually that such funds, subject to withdrawals from time to time, will remain for an indefinite period of time for use in the business. … Where however there are no express terms, an agreement as to the circumstances in which liability to repay arises will be implied from the surrounding circumstances and the conduct and relationship of the parties. It becomes a question of whether the parties, if they had applied they minds to the issue, would reasonably be expected to have agreed to depart from the general rule of immediate liability to repay and to have agreed that some notice would be a prerequisite of such liability. I feel no doubt that in the generality of cases in which loan moneys are provided as working capital following the incorporation of a company to take over a business or the establishment of a trust, those concerned would assume that some notice of demand was a necessary prerequisite of liability to repay.” ((1986) 41 SASR 380, 383.)
161 Here, Mr Clarke submitted, the analysis adopted by his Honour should be applied and, given that demand has now been made for repayment, the amount of the loan by Mr Kang to Degani should be regarded as payable and recoverable in this proceeding. I accept that submission.
162 The analogy between the facts described by King CJ is close. Degani was not, so far as the evidence would appear to indicate, incorporated for the express purpose of acquiring the café business. It had already been incorporated and was fulfilling the role of manager of that business. However, the outlay of the $300,000, as the narrative above discloses, was for the purpose of putting Degani in funds to acquire the business from the partnership. The designation in Mr Zhang’s balance sheet (or draft balance sheet, however it is to be described) of this loan as a “non-current liability”, does not alter this analysis.
163 In Brookers’ case, the loans in question were characterised as deferred liabilities, but the court nevertheless treated the monies as payable on demand. [(1986) 41 SASR 380, 385, per King CJ].
164 Mr Kang is entitled to judgment against Degani in the sum of $300,000 by way of repayment of his loan to that company.
Misleading or Deceptive Conduct
165 In considering the allegations of misleading or deceptive conduct it is necessary first to determine which statutory regime applies. There are provisions granting relief for misleading or deceptive conduct in both the Australian Consumer Law, being the second schedule to the Commonwealth Competition and Consumer Act 2010, and applying as a matter of State law by virtue of the Australian Consumer and Fair Trading Act 2012 on the one hand, and on the other hand, under the Australian Securities and Investments Act 2001. The answer to this question seems to be somewhat complex and was the subject of extensive argument, especially by Mr Booth on behalf of the defendants.
166 Mr Clarke, aside from responding to Mr Booth’s arguments and contending that of the two sets of provisions, both of which are relied upon in the Amended Statement of Claim, it is those in the ASIC Act which apply, contended that the question of which set of provisions applies is a “false conflict” of the type which sometimes arises in private international law, where much effort and analysis may be devoted to the question of which territory’s law governs the particular event or transaction in circumstances where there is no material difference in the law applying, no matter which law is identified as the governing law. In the present case, Mr Clarke submitted, and I did not understand Mr Booth to deny, that the two regimes do not differ materially and are both modelled upon the provisions originally to be found in the Trade Practices Act 1974. Nevertheless, it seems to me to be essential, if only as a matter of form, to identify which statutory power the Court is contemplating exercising. Accordingly, I propose embarking on the resolution of the “false conflict”. Section 131A(2) provides as follows:
“Without limiting subsection (1):
(a)Part 2-1 of Schedule 2 and sections 34 and 156 of Schedule 2 do not apply to conduct engaged in in relation to financial services; and
(b)Part 2-3 of Schedule 2 does not apply to, or in relation to:
(i) contracts that are financial products; or
(ii) contracts for the supply, or possible supply, of services that are financial services; and
(c)if a financial product consists of or includes an interest in land--the following provisions of Schedule 2 do not apply to that interest:
(i) section 30;
(ii) paragraphs 32(1)(c) and (d) and (2)(c) and (d);
(iii) paragraphs 50(1)(c) and (d);
(iv) section 152;
(v) subparagraphs 154(1)(b)(iii) and (iv) and (2)(b)(iii) and (iv);
(vi) subparagraphs 168(1)(b)(iii) and (iv); and
(d)sections 39 and 161 of Schedule 2 do not apply to:
(i) a credit card that is part of, or that provides access to, a credit facility that is a financial product; or
(ii) a debit card that allows access to an account that is a financial product.”
Part 2-1 of Schedule 2 includes s18 which is the fundamental provision in the Australian Consumer Law creating liability for misleading or deceptive conduct.
167 Section 12DA of the ASIC Act provides as follows:
“(1)A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.
(1A) Conduct:
(a) that contravenes:
(i)section 670A of the Corporations Act (misleading or deceptive takeover document); or
(ii)section 728 of the Corporations Act (misleading or deceptive fundraising document); or
(iii)section 738Y of the Corporations Act (other liabilities relating to CSF offer documents); or
(b) in relation to a disclosure document or statement within the meaning of section 953A of the Corporations Act; or
(c) in relation to a disclosure document or statement within the meaning of section 1022A of the Corporations Act;
does not contravene subsection (1). For this purpose, conduct contravenes the provision even if the conduct does not constitute an offence, or does not lead to any liability, because of the availability of a defence.
(2)Nothing in sections 12DB to 12DN limits by implication the generality of subsection (1).
168 It will be seen that the criterion for the application of this subsection is that the conduct be “in relation to financial services”. If this section applies, then by virtue of the provision quoted above, the Australian Consumer Law does not. Mr Booth noted that the Competition and Consumer Act does not define the phrase “financial services”, though the phrases “financial product” and “financial services” are defined in section 2 of the Australian Consumer Law by reference to their meaning in s12BAB of the ASIC Act. Section 12BAB is headed “When does a person provide a financial service?” Subsection (1) of s12BAB of the ASIC Act provides as follows:
“(1)For the purposes of this Division, subject to paragraph (2)(b), a person provides a financial service if they:
(a) provide financial produce advice (see subsection (5)); or
(b) deal in a financial product (see subsection (7)); or
(c) make a market for a financial product (see subsection (11)); or
(d) operate a registered scheme; or
(e) provide a custodial or depository service (see subsection (12)); or
(f) operate a financial market (see subsection (15)) or clearing and settlement facility (see subsection (17)); or
(g) provide a service (not being the operation of a derivative trade repository) that is otherwise supplied in relation to a financial product (other than an Australian carbon credit unit or an eligible international emissions unit); or
(h) engage in conduct of a kind prescribed in regulations made for the purposes of this paragraph.
169 Of the classes of transaction which, according to this definition, entail the provision of a financial service, one may readily exclude paragraphs (c) to (g); because it has not been suggested that there is any conduct prescribed by regulation that would constitute the provision of a financial service, so this paragraph too, namely paragraph (h), may be disregarded. Subsection (5) elaborates upon the circumstances in which a person may be regarded as providing financial product advice and thereby providing a financial service. The subsection provides as follows:
“(5)For the purposes of this section, financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that:
(a) is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or
(b) could reasonably be regarded as being intended to have such an influence;
but does not include anything in:
(c) a document prepared in accordance with requirements of Chapter 7 of the Corporations Act, other than a document of a kind prescribed by regulations made for the purposes of this paragraph; or
(d) any other document of a kind prescribed by regulations made for the purposes of this paragraph.”
170 Whether the facts as found in the present case fall within the concept of the provision of a financial service turns on paragraphs (a) and (b) of s12BAB of the ASIC Act. Subsections (7) and (8) deal with what constitutes dealing in a financial product. I refrain from setting those sub-sections out to avoid unduly lengthening this judgment, but I conclude that they have no application to the present facts. Therefore, we are left to consider whether the defendants or any one of them were, in the circumstances, providing financial product advice. I have already quoted subs(5) of s12BAB. Its application turns crucially upon what constitutes a financial product. Mr Booth referred to the definition of financial product in s12BAA(1) of the ASIC Act, which states:
“Subject to subsection (8), for the purposes of this Division, a financial product is a facility through which, or through the acquisition of which, a person does one or more of the following:
(a)makes a financial investment (see subsection (4));
(b)manages financial risk (see subsection (5));
(c)makes non-cash payments (see subsection (6)).”
171 The application of this definition to the present facts depends upon whether the facts described above entail Mr Kang making a financial investment. This is elaborated upon in s12BAA(4), which provides as follows:
“For the purposes of this section, a person (the investor) makes a financial investment if:
(a)the investor gives money or money's worth (the contribution ) to another person and any of the following apply:
(i) the other person uses the contribution to generate a financial return, or other benefit, for the investor;
(ii) the investor intends that the other person will use the contribution to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated);
(iii) the other person intends that the contribution will be used to generate a financial return, or other benefit, for the investor; and
(b)the investor has no day-to-day control over the use of the contribution to generate the return or benefit.
Note 1:Examples of actions that constitute making a financial investment under this subsection are:
(a)a person paying money to a company for the issue to the person of shares in the company (the company uses the money to generate dividends for the person and the person, as a shareholder, does not have control over the day-to-day affairs of the company); or
(b)a person contributing money to acquire interests in a registered scheme from the responsible entity of the scheme (the scheme uses the money to generate financial or other benefits for the person and the person, as a member of the scheme, does not have day-to-day control over the operation of the scheme).
Note 2: Examples of actions that do not constitute making a financial investment under this subsection are:
(a)a person purchasing real property or bullion (while the property or bullion may generate a return for the person, it is not a return generated by the use of the purchase money by another person); or
(b)a person giving money to a financial services licensee who is to use it to purchase shares for the person (while the purchase of the shares will be a financial investment made by the person, the mere act of giving the money to the licensee will not of itself constitute making a financial investment).”
172 Mr Booth’s submission was that paragraph (b) of subs(4) excludes the present state of facts. Here, since the effect of the relevant transaction was to make Mr Kang a director and 50 per cent shareholder in the café enterprise, it necessarily excludes the definition of provisions of subs(4) because it cannot be said that, in the circumstances described, he had “no day-to-day control over the use of the contribution to generate a return or benefit.” He said this transaction would “only be caught by the ASIC Act if the investor is not involved in the day-to-day control of the corporation.” Mr Booth continued:
“The second basis upon which the ASIC Act does not apply is contained in s12BC(1). The Division only applies to the acquisition of financial services as a consumer. If the financial services acquired exceed $40,000 or were not of the kind ordinarily acquired for personal, domestic or household use or consumption (s12BC(1)(a) and (b); 12BC(3)(a)(i)…”
173 The definition provisions upon which Mr Booth relied for this proposition are to be found in Division 2 of Part 2 of the ASIC Act entitled “Unconscionable conduct and consumer protection in relation to financial services”. Insofar as Mr Booth says that the concept of misleading or deceptive conduct, as prohibited by s12DA, is controlled by whether the victim of such conduct is or is not a consumer, that conclusion does not appear to be warranted by the text. There is nothing in s12DA which restricts it to dealings with consumers. In this respect, it resembles its progenitor, s52 of the Trade Practices Act, which was located in the Consumer Protection part of that statute. With some hesitation, however, I conclude that the balance of Mr Booth’s analysis is correct, with the result that the “misleading or deceptive conduct” regime which governs these facts is the one to be found in the Australian Consumer Law. I need hardly observe that it is a scandal to the law that such abstruse analysis is demanded by the structure of the statutes in their application to what is fundamentally a relatively straightforward transaction. Whether or not these provisions are to be regarded as “plain English”, in avoiding legalese and archaisms and expressions such as “notwithstanding”, the very interlocking complexity of the definitions renders any aspiration to “plainness” a nullity.
174 The relevant provision as to misleading or deceptive conduct applicable here is s18 of the Australian Consumer Law which provides as follows:
“(1)A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
(2)Nothing in Part 3-1 (which is about unfair practices) limits by implication subsection (1).”
The Australian Consumer Law is Schedule 2 to the Competition and Consumer Act 2010 (Cth). As long ago as 1982, Gibbs CJ, in the High Court of Australia, said that conduct would be misleading or deceptive if it had a tendency to lead the representee into error. (Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191, 198)
175 Despite the terms of the Amended Statement of Claim, Mr Clarke, on behalf of the plaintiff, specifically abandoned any reliance upon an entitlement to damages under s236 of the Australian Consumer Law. He relied solely on rescission as the remedy for the alleged misleading or deceptive conduct. The remedy under s243(a) of the Australian Consumer Law, which in the case of a contravention of Chapter 2 of the Australian Consumer Law (which includes s18), empowers a court to make —
“… an order declaring the whole or any part of a contract made between the respondent and a person (the injured person) who suffered, or is likely to suffer, the loss or damage referred to in that section …
(i) to be void …”
As to future matters, the plaintiff relied on s4 of the Australian Consumer Law, which states:
(1) If:
(a) a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and
(b) the person does not have reasonable grounds for making the representation;
the representation is taken, for the purposes of this Schedule, to be misleading.
(2) For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by:
(a) a party to the proceeding; or
(b) any other person;
the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.
(3) To avoid doubt, subsection (2) does not:
(a) have the effect that, merely because such evidence to the contrary is adduced, the person who made the representation is taken to have had reasonable grounds for making the representation; or
(b) have the effect of placing on any person an onus of proving that the person who made the representation had reasonable grounds for making the representation.
(4) Subsection (1) does not limit by implication the meaning of a reference in this Schedule to:
(a) a misleading representation; or
(b) a representation that is misleading in a material particular; or
(c) conduct that is misleading or is likely or liable to mislead;
and, in particular, does not imply that a representation that a person makes with respect to any future matter is not misleading merely because the person has reasonable grounds for making the representation.
176 I turn now to the various items by way of representation, which, according to the Amended Statement of Claim, should be regarded as misleading or deceptive.
Appropriate business representation
177 The first representation alleged by the plaintiff was that “Degani was a business appropriate to support a migration application and meet the requirements in obtaining a subclass 888A Visa”. Mr Booth, on behalf of the defendants, said that the making of this alleged representation was denied. Mr Clarke submitted that the representation was made. He relied, for instance, upon Mr Kang’s evidence that at the third meeting (at Café Republik), Mr Lu had said that his was a successful example of obtaining permanent residency in reliance upon the café, with Mr Lu saying, according to Mr Kang, “There’s no need for you to worry that the business may not be suitable”. (T60, L43-44). In the circumstances in which these gentlemen were negotiating — viz, brought together by a chat room which, amongst other things, acted as a clearing house for eligible investments for business migrants which might lead to permanent residency — Mr Kang’s account on this point seems eminently plausible. I accept that the representation alleged was made. Nevertheless, the evidence did not disclose that representation to be misleading or deceptive. It cannot in itself be the basis for any relief to be granted to the plaintiff.
The management representation
178 According to clause 7(b) of the Amended Statement of Claim, Mr Lu represented to Mr Kang that [Mr Kang] “would have sufficient involvement in the operation and management of Degani on a daily basis”. This was said to be the “management representation”. In context, the sufficiency alleged to have been represented must mean sufficient for the purposes of satisfying the requirements of an 888 Visa for Mr Kang to obtain permanent residency. In closing submissions, Mr Booth, on behalf of the defendants, denied the making of this “management representation” as well. According to Mr Kang’s evidence, this representation was made. Mr Lu did not, as in the case of the “refund representation”, to which I will turn next, distinctly deny this alleged representation.
179 At the first meeting, for instance, Mr Lu agreed that Mr Kang had expressed concerns as to his own limited English, but Mr Lu said he did not pay much attention to that — see [20] above. As to the second meeting, Mr Lu did not deny that the issue of Mr Kang’s limited English was not discussed. Rather, he said this was not “our main focus”, implying, one would have thought, that it was a subsidiary focus. In a sense, the management representation can be seen as a subset of the appropriate business representation. To be “appropriate”, a business must be such as would enable Mr Kang to satisfy the 888 Visa requirements. If the business were not such as to enable him to satisfy the management criterion in the regulations, it might be thought not to be appropriate. Again, at a third meeting, on his account, Mr Kang told Mr Lu, “the biggest concern was just like I mentioned before. It was due to my poor English, I could not communicate well and I could not control the business or control the management part of the business.” (T 21 May 2018, 60, L18-20) Mr Lu’s response, according to Mr Kang, was “after I had invested into the business, he will make arrangements for me to do those management things”. (Ibid, L29-30)
180 Mr Kang’s narrative on this point is, in my view, plausible. The language barrier between a migrant from the People’s Republic and local English-speaking Australian business people must be the main, if not perhaps the sole, reason why persons such as Mr Kang might seek their investment with members of the expatriate Chinese community in Australia. Mr Kang was quite definite in his evidence and, as previously noted, in contrast to other elements of the narrative, Mr Lu was not downright in his denials. On the balance of probabilities, I believe the management representation was made.
181 Considered as a representation relative to future matters, this was a prediction which was not borne out. The parties were at odds as to why this might have been. Mr Lu said that he had arrived in Australia in the relatively recent past with poor English and had been able to surmount that difficulty to exert effective management control over his enterprise — see [20] above. Mr Booth referred to the evidence from Mr Cao as to the availability of English tuition available to holders of 188 temporary visas, such as Mr Kang, and to the availability of other sources of English tuition. Mr Kang gave a rather unconvincing explanation that in late 2016 and early 2017, he was unavailable to attend such classes because of the responsibilities which he had in keeping house for his elder daughter who was attending school in Australia. [T178, L16]
182 Mr Booth also referred to the possibility of Mr Kang’s engaging a bilingual employee who could speak to Mr Kang in Mandarin, and to other employees and third parties in English. He also drew attention to Mr Kang’s concessions in cross-examination of his having received instruction in the English language at both the primary and secondary levels of his education and in the course of his post-secondary studies. If the linguistic issue were the only matter which was said to “give the lie” to the management representation, the matters urged on behalf of the defendants would be very convincing. Mr Kang, however, in seeking to involve himself in management, faced a more fundamental problem than the linguistic one.
183 Mr Clarke noted that the evidence disclosed no instance in which Mr Kang made any significant decisions as to the management of the Degani. During his period of involvement, there seemed to have been no meetings of Degani’s directors. The only relevant resolutions pertained to Mr Kang’s appointment as a director and the transfer of 60 shares of the company’s capital to his ownership. The only management decision that he seems to have been a part of was the appointment of Mr Zhang as the company’s accountant. The defendants’ case stressed the involvement of Mr Kang in Degani’s bookkeeping. No doubt in proper cases an involvement in bookkeeping and administration can be regarded as meeting the management criteria of the migration regulations. Mr Booth referred to the leading judicial authority upon this criteria in a decision of the Full Federal Court in Lobo v The Minister for Immigration & Multicultural & Indigenous Affairs [2003] FCAFC 168, where he said the Court held:
“There is a variety of ways in which a person might maintain direct and continuous involvement in the management of a business and in making decisions affecting its overall direction and performance.”
He said that involvement in management of a business, according to this criterion and for these purposes, did not require any visa applicant to manage the whole business. He referred to Jiang v Minister for Immigration [2018] FCCA 929. He referred to other tribunal decisions such as Re Tian [2015] MRTA 533 [62], Re Mera [2002] MRTA 4507 [28], Re Meng [2002] MRTA 2841 [22], and the decision of the Federal Circuit Court in Sun v Minister for Immigration, Multicultural & Indigenous Affairs [2015] FCCA 1266 [11]. Finally, he referred to Re Cai [2017] AATA 416 [29].
184 These authorities establish, to my mind, that a person significantly involved in a role such as a company’s financial controller could be regarded as meeting the management criterion in the migration regulations to qualify for the 888 Visa. But the quality and nature of that involvement is key. So, for instance, in Re Tian, according to the tribunal’s findings at the quoted paragraph:
“…the applicant established separate systems relating to matters such as administration, accounting, production and development, purchasing, storage and sales. The applicant was himself involved in all these different aspects of the business … The applicant was responsible in particular for the accounting, which included collection of receipts and other financial documentation to present to the accountant engaged by the business.”. ([2015] MRTA 533 [62])
In contrast, here Mr Kang established no systems and was not empowered to do any such thing. Mr Lu ghost-wrote his correspondence with outside parties for him. The steps which he undertook were purely ministerial and in no way managerial. Mr Lu said that he was “training” Mr Kang to take full control of the bookkeeping role. The direct evidence disclosed only the “ghost-writing” process, which Mr Lu believed would enable Mr Kang to “pick up” the necessary expertise. He referred to other training imparted via WeChat in the period from late 2016 until June 2017, the text of which had been deleted and was therefore unavailable for submission as evidence. He conceded, however, that the individual WeChat communications were of the same general type as those placed in evidence in the period June 2017 which, in my view, were too brief and perfunctory to be regarded as realistically constituting “training”. Mr Booth said that these first seven months were only the beginning of Mr Kang’s involvement with the management of Degani and it was Mr Kang’s own voluntary decision to abort the process. Had he continued, he would have been able to become more fully involved in management than he had been during those seven months, even if his involvement during that initial period were, contrary to the defendants’ contention, to be regarded as inadequate for the purposes of the regulation.
185 The evidence, as I saw it, established that Mr Kang’s status as a half-owner and co-director of the Degani enterprise was nominal, only. The matters that he was involved in were purely ministerial and involved the exercise of no discretion. With his communications ghost-written for him by Mr Lu, he was no more involved in management than is a stenographer. When, upon the advice of Messrs Cao and Meng, Mr Lu was asked to execute the Deed of Acknowledgement which included a provision, being clause 5, expressly bestowing management entitlements upon him, Mr Lu refused to execute; the reasons which he stated at the time and in his evidence-in-chief were, in my view, frivolous — see [94] above — and could not have been genuine. In re-examination, Mr Lu gave further reasons, saying of the Deed of Acknowledgement:
“… it didn’t mention that he spent 300,000 and it didn’t mention the previous partnership was involved. I suggested him the better way for him is to consult with his lawyer again if this document was relevant to his migration documents.” (T660, L10-13)
There was no explanation as to why these matters were not mentioned in-chief or in cross-examination, or why those matters were of any concern to Mr Lu. Neither set of explanations is, in my view, convincing as a genuine reason for Mr Lu’s refusal, particularly since, on his own evidence, the refusal led to Mr Kang’s becoming angry. Why would one “dig in” on what appear to be, at best, drafting quibbles, thereby incurring the wrath of one’s business associate and a rupture which has ultimately led to these proceedings?
186 These considerations lead me to the view that Mr Lu did not grant to Mr Kang the management role which would have met the management criterion in the migration regulations for the grant of permanent residency under an 888 Visa to Mr Kang. He never intended to grant him such a management role. I see no reason to think that he intended any more than what actually occurred, namely, that a set of steps should be carried out which would falsely give the appearance that Mr Kang was involved in the day-to-day management of Degani so as to meet the criterion in the regulations. The representation was to the effect that he would truly be involved in management, not merely that an illusion would be created.
187 In Futuretronics International Pty Ltd v Gadzhis, Ormiston J (as he then was) said:
“It would seem on the authorities that, at the least, a contractual promise would amount to an implied representation that the promisor then had an intention to carry out that promise. If it can be shown that he had no such intention he would be guilty of misleading or deceptive conduct. Likewise it would seem that such a representation connotes a present ability to fulfil that promise which, if shown to be untrue at the time of making, would likewise characterise the implied representation as misleading or deceptive.” [1992] 2 VR 217, 239
188 The principle stated by his Honour is engaged by the finding which I have just made. Insofar as the management representation might be thought to refer to future matters, the finding likewise necessarily negatives the existence of any reasonable grounds for the making of the representation. Despite Mr Booth’s contention that the events described were all in the early days and things might have changed, I saw nothing to indicate there would be any change. Subject to the issue of causation and damage, to which I will return later, the cause of action for misleading or deceptive conduct with respect to the management representation has been made out.
The refund representation
189 In Clause 7(c) of the Amended Statement of Claim, the refund representation is stated to be that “if the Degani business does not support [Mr Kang’s] application to obtain a subclass 888A Visa, [Mr Lu] would return all monies paid by [Mr Kang] for the investment...” According to Mr Clarke’s closing submissions, the evidence supported a representation to this effect in either a wider or a narrower form. The narrower form was “that Lu would repurchase Kang’s shares and refund his investment if Kang felt that his investment in the business would not meet the requirements for the 888A permanent visa”. The wider form was that Mr Lu would repurchase Kang’s shares and refund his investment “if Kang felt that the business was not suitable for him.” I have set out Mr Kang’s assertions in evidence that he received such representations and assurances, and Mr Lu’s denial.
190 Making findings of fact relative to this conflict of evidence is an unenviable task. Broadly, the competing narratives depend upon the evidence of two witnesses, neither of whom I found to be reliable, in the sense that I did not feel confident in accepting their evidence. Both gave their evidence through the medium of interpreters, and this made judgments as to credibility even more difficult than they usually are. There were some elements of the accounts of both protagonists which I found unreliable.
191 The involvement of Mr Meng, and the circumstances in which the unexecuted Deed of Acknowledgment were prepared, remained largely unintelligible until, as an afterthought, the defendants called Mr Cao to give evidence and to put that set of events into proper context. Ultimately the evidence seemed to show, based on elements which I have no reason to doubt, that Mr Meng was engaged by Mr Kang and acted for him.
192 Mr Clarke successfully relied upon Mr Kang’s client legal privilege so as to exclude a range of documents from Mr Cao’s file from evidence, on the basis that they arose out of the giving of legal advice to the client, Mr Kang, by his legal adviser, Mr Meng. Yet, in his own evidence, Mr Kang declined to admit that Mr Meng was acting for him. Despite the fact that Mr Meng, according to other evidence that I heard, was a Cantonese speaker, and not a Mandarin speaker, and Mr Lu does not speak Mandarin, Mr Kang sought to say that Mr Lu had done most of the talking. As far as the reliability of Mr Lu’s evidence is concerned, I have already commented upon his version of the reasons for his refusal to execute the Deed of Acknowledgment and why I cannot accept them.
193 If we turn to matters other than credibility, which are frequently regarded as better guides to determining conflicts of evidence, oath against oath (or in this case affirmation against affirmation), we find a lack of any written record of the alleged refund representation. Mr Booth correctly observed that one might have expected it to be referred to and recorded in the Deed of Acknowledgment. Mr Clarke, however, said that, given the rationale for the Deed of Acknowledgment, viz Mr Cao’s requirement that the sale of shares agreement be documented for submission to the Immigration Department, this point is not conclusive against the representation having been made.
194 As to the inherent probability, one would have thought that a person in Mr Lu’s position, being receptive to investment from a visa applicant, would wish to receive investments upon the basis that investors might make their own enquiries and judgements as to the efficacy of the investment for migration purposes. There would be no advantage to Mr Lu in taking on that responsibility unless he were pressed to do so by Mr Kang as a condition of Mr Kang’s making the investment. Yet, Mr Kang gave no account of the assurances being brought forth by any objection on his part.
195 Again, it might be that Mr Lu might have been induced to offer assurances of refund in the face simply of a reluctance on the part of Mr Kang to “close the deal”. The extended period of negotiation and meetings involved in the closing of this deal could perhaps be indicative of such a scenario. The first contact and meeting was made in July, and the investment was not made until September 2016. As Mr Kang described events they are open to this interpretation, but he gave no very explicit description indicating such an interpretation.
196 In a well-known passage in the famous case of Briginshaw v Briginshaw (1938) 60 CLR 336, Sir Owen Dixon famously said:
“The truth is that, when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found. It cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality.” ((1938) 60 CLR 336, 361)
197 Sir Owen appears to have been laying down this as a general proposition, not as one restricted to situations where, in a civil proceeding, a finding of the commission of a crime is to be made, as later analysis of his judgment considers. In the present case, I am unable to reach an actual conviction that the refund representation was made.
198 In reaching that conclusion I have not overlooked the evidence of Mrs Kang, who described the giving of assurances constituting the refund representation at the first meeting. I believe there was a great deal of force in Mr Booth’s observation, first, that the manner in which Mrs Kang gave that evidence was formulaic, and even although given through the medium of an interpreter in the same manner in which her husband’s evidence was given, seemed to follow generally the same words. This leads one to be sceptical. The scepticism is reinforced by the fact that Mrs Kang had sat at the back of the court listening to her husband’s evidence-in-chief, in which he canvassed the events at the same meeting.
199 Finally, there is the consideration that, whilst the issues of business seem to have been dealt with by Mr Kang and Mr Lu to the exclusion of other family members, and the other family members were, at the first meeting, simply “along for the ride”, it is remarkable that Mrs Kang would be able to remember individually this single aspect of the meeting. For these reasons, Mrs Kang’s evidence does not, when added to the other evidence, lead me to have the actual conviction of the occurrence of the refund representation.
200 This part of the plaintiff’s case, therefore, fails. This finding negates not only the claim as to misleading or deceptive conduct based upon this alleged representation but also the contractual claim based upon it.
Relief
201 I have already explained why the plaintiff has a valid contractual claim for repayment of $300,000 by Degani.
202 As far as Degani is concerned, if my finding as to the existence of a loan of $300,000 by Mr Kang to it stands, a finding of misleading or deceptive conduct relative to the management representation would appear to have no effect on its monetary liability. The significance of such a finding for Mr Kang, however, is the prospect of being able to hold Mr Lu liable for that contravention.
203 In his final submissions, Mr Clarke said that the plaintiff did not seek award of any damages for misleading or deceptive conduct. Rather, he sought rescission.
204 Mr Booth, on behalf of the defendants, had made detailed submissions based upon the contributory negligence and apportionment provisions of both the Australian Consumer Law and the ASIC Act. His contention was that the various matters which he urged, including the failure by Mr Kang to undertake any due diligence investigations before outlaying his money, his failure to undertake training to acquaint him with the English language, failure to appoint a Mandarin/English speaker as an employer of Degani and so on, meant that if, contrary to his submissions there had been misleading or deceptive conduct on the part of the defendants, such conduct could not be shown to be causative of any damage for Mr Kang.
205 Alternatively, he said Mr Kang should be judged responsible for 100 per cent, or almost 100 per cent, of any loss or damage which he had suffered. One may infer that Mr Clarke’s reliance on the remedy of rescission by statute was intended to outflank these arguments, though Mr Clarke was not willing to accept this characterisation.
206 Nevertheless, to be entitled to relief by way of rescission, it must be proven that Mr Kang has suffered, or is likely to suffer, loss or damage “because of” the misleading or deceptive conduct. (Australian Consumer Law, s237(1)(a)) It is sufficient to establish this causal connection that the misleading or deceptive conduct is a cause rather than the cause or the predominant cause of damage. (I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109, [57])
207 Mr Kang’s inability to avail himself of his entitlements as a shareholder and a co-director of Degani were a result of his linguistic limitations and were also based upon the findings which I have made of Mr Lu’s intention held from the start, that Mr Kang should not be given a management role. He should be left to a nominal involvement in management calculated to create the correct impression for visa purposes upon the Department of Immigration.
208 Both of these matters can be seen to be elements of misleading or deceptive conduct relative to the management representation. Whilst the issue of Mr Kang’s English skills, or lack of them, was capable of amelioration by Mr Kang himself by, for instance, undertaking English studies or using a liaison person, Mr Lu’s attitude was not. The necessary causal link to entitle Mr Kang to relief by way of rescission pursuant to s243 of the Australian Consumer Law was established. The conduct being the management representation was, according to the Amended Statement of Claim, conduct engaged in by Mr Lu. (Clause 7)
209 In paragraphs 57 and 58 of his outline of closing submissions, Mr Clarke said:
“When Lu engaged in the conduct that induced Kang to invest in the company, he was acting on behalf of the company within the scope of his actual or apparent authority. … As such, Lu’s conduct is deemed also to have been engaged in by the company: … CCA [Competition and Consumer Act], s84(2).”
210 Paragraph 22 of the Amended Statement of Claim stated:
“Further and alternatively, by reason of the matters referred to above, the Second Defendant [viz Mr Lu], as a director of Degani, was involved in the contraventions within the meaning of s2 of the ACL and the ACLV; alternatively, were knowingly concerned in and party to the said contraventions within the meaning of section 79 of the Corporations Act.”
211 Mr Clarke correctly submitted that where a director of a company is the instrument of misleading or deceptive conduct, the fact that the company might be regarded as a principal contravener of the Australian Consumer Law by the principles of vicarious liability, does not preclude the director from being liable as a principal contravener, himself. (Houghton v Arms (2006) 225 CLR 553)
212 Insofar as I have found that the management representation constituted misleading or deceptive conduct, it was therefore misleading or deceptive conduct which can be regarded as engaged in by Mr Lu as a principal contravener. Subject to the causation and apportionment issues raised by Mr Booth, Mr Lu might therefore be regarded as liable in damages for the consequences of the conduct. However, as previously noted, the plaintiff is not seeking damages.
213 I have concluded that the outlay of the $300,000 by Mr Kang took the form of a loan to Degani. The purchase of the shares for some $60 each could be regarded as an incidental and “petty cash” transaction with no evidence that the money in fact changed hands. Can it be right, therefore, to render any person liable to make payments to give effect to a rescission under s243 of the Australian Consumer Law, other than the parties to the relevant transaction who appear to be (upon the analysis I have adopted) Mr Kang and Degani?
214 Mr Clarke submitted that it would be proper to render Mr Lu liable to repay the $300,000. He relied upon the judgment of Besanko J in Rafferty v Time 2000 West Pty Ltd (2010) 87 IPR 593. In that case, his Honour had, in his principal reasons, concluded that some three agreements had been affected by conduct in contravention of the Trade Practices Act (See No 4 [2010] FCA 725). The successful applicants sought orders that a number of respondents, including a Mr Donovan, should be jointly and severally liable to the applicants to repay the sum of $1.7 million, being the amounts paid by the applicants under the three agreements. His Honour concluded that the applicants were “entitled to have the three agreements set aside and to be repaid or compensated for the monies paid under the agreement”. (2010) 87 IPR 593, 596 [12]
215 Mr Clarke submitted that his Honour’s determination acceding to the applicants’ request for orders for repayment against Mr Donovan of the sum of $1.7 million established the proposition that s87 of the Trade Practices Act, the predecessor of s243 of the Australian Consumer Law, empowered a court, on setting aside or rescinding an agreement resulting from misleading or deceptive conduct, to require persons other than the parties to that agreement to repay money. Besanko J made such an order in Rafferty’s case against Mr Donovan because he controlled the relevant company and he was therefore one of the “true beneficiaries” of the impugned transactions. (Ibid, [13]-[14])
216 His Honour’s judgment must be read in light of the principal findings which he made (Rafferty v Time 2000 West Pty Limited (No 4) [2010] FCA 725). At [22], his Honour described the three agreements. He said:
“…First, there was a Heads of Agreement which was executed on or about 5 October 2007 (‘HOA’). The parties to this agreement were T2SA, Embleton, Mr Donovan and Mr Rafferty. Secondly, there was a Joint Venture and Shareholders’ Agreement. The JVSA which were executed on or about 23 November 2007 (‘JVSA’). The parties to this agreement were T2OA, Santora, Mr Rafferty and T2W. Thirdly, there was a Rights Agreement executed on or about 19 December 2007 (‘RA’). The parties to this agreement were T2SA, T2W, Embleton, Mr Rafferty, Santora and Karaville.”
217 It will be seen that Mr Donovan was party to one of the three agreements but not the other two. Nevertheless, his Honour made the order sought by the applicants against Mr Donovan relative to all three agreements.
218 His judgment was appealed in the Full Court of the Federal Court. The court’s Kenny, Stone and Logan JJ dismissed the appeal. (Rafferty v Madgwicks [2012] FCAFC 37) Amongst the issues for consideration on appeal, according to their Honours, was:
“3. Whether the trial judge erred in holding that s87 of the TPA would support an order for repayment of monies by the appellants [viz the Donovan parties including Mr Donovan] jointly and severally …” ([2012] FCAFC 37 [2])
219 Their Honours dealt with this ground of appeal at [222]-[237]. Their Honours considered that Besanko J was justified in finding that the companies party to the relevant agreements were owned and controlled by Mr Donovan and this justified the order which he made against Mr Donovan. (Ibid, [231]
220 Here, the entire tenor of Mr Lu’s evidence was that he made all the decisions relative to Degani. He was the sole director before the transaction in December 2016. Despite the nominal position of Mr Kang as shareholder and director, that situation did not alter thereafter.
221 Mr Clarke submitted that, beyond disclosing that the $300,000 outlaid by Mr Kang was paid to Degani and then paid out of its account to the partnership account, the evidence did not disclose the ultimate recipient of the funds. He invited me to conclude that the funds in their totality were received by Mr Lu. Whether in fact Mr Lu received the totality of those funds is a matter peculiarly within his knowledge. If the evidence is deficient on this point, the risk should lie with Mr Lu.
222 Unless the evidence already admitted discloses some different factual situation, I would infer that the benefit of the $300,000 in its entirety has been received by Mr Lu and, therefore, pursuant to s243 of the Australian Consumer Law, he should be rendered jointly and severally liable to refund that money upon the setting aside of the arrangement between Mr Kang and Degani.
223 I would reconsider that order to the extent of reducing it to a joint and several liability for the amount actually received by Mr Lu if my attention be drawn, prior to authentication of orders, to evidence adduced at trial disclosing that Mr Lu received some lesser amount than $300,000.
Disposition
224 I will order the parties within 14 days to bring in short Minutes to give effect to these reasons. I have heard no argument on the subject of costs and so I will reserve them.
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