Lonique Beauty Pty Ltd v Zhao
[2022] VCC 867
•14 June 2022
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL CASES LIST
Case No. CI-20-01821
| LONIQUE BEAUTY PTY LTD (ACN 624 333 295) and LOREN HODGES | First Plaintiff Second Plaintiff |
| v | |
| NIKI ZHAO | Defendant |
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JUDGE: | HIS HONOUR JUDGE COSGRAVE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 30 May 2022 | |
DATE OF JUDGMENT: | 14 June 2022 | |
CASE MAY BE CITED AS: | Lonique Beauty Pty Ltd & Anor v Zhao | |
MEDIUM NEUTRAL CITATION: | [2022] VCC 867 | |
REASONS FOR JUDGMENT
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Subject: ASSESSMENT OF DAMAGES – HEADS OF LOSS
Catchwords: Self-executing order – absence of defence – breach of fiduciary duty – damages – objections to evidence – failure to cross-examine – cash not accounted for
Legislation Cited: Evidence Act 2008 (Vic)
Cases Cited:Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation [1983] 1 NSWLR 1; Browne v Dunn (1893) 6 R 67
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr G Lubofsky | Duxton Hill |
| For the Defendant | Mr G McCormick | Goldsmiths Lawyers |
HIS HONOUR:
Introduction
1This trial concerns an assessment of damages in relation to a judgment granted on 9 May 2022 against the defendant, Niki Zhao (“Zhao”) in favour of the first plaintiff, Lonique Beauty Pty Ltd (“Lonique”). On the same day, the second plaintiff, Loren Hodges (“Hodges”), obtained judgment against Zhao in the sum of $10,650 plus interest of $2,174.68.
Background
2Hodges and Zhao became friends at the age of 15 when they attended Lilydale Heights Secondary College.
3After finishing school, Hodges became an employee of Emika Hair & Beauty (“Emika”) based at Switchback Road, Chirnside Park and became a qualified hairdresser. Around early 2018, the owner of Emika approached Hodges to ask if she wanted to buy the business.
4Hodges approached Zhao to see whether she was interested in becoming an equal partner in the business by contributing $27,500 being half of the purchase price.
5Zhao said that she agreed to purchase the business with Hodges on the basis that they:
(a) created a new company called Lonique and bought the business under that name;
(b) had an equal shareholding in Lonique;
(c) were both registered as the directors of Lonique; and
(d) the capital they each invested in Lonique was paid back in due course.
6Hodges agreed with these conditions and so each of Hodges and Zhao contributed $27,500 to purchase the business.
7At the time of purchase, Zhao worked at Gramac Excavations Pty Ltd as a manager handling material supplies, staff and factory maintenance. Zhao worked there until November 2018, when the company closed down.
8Between 2018 and 2019, Zhao suffered financial problems. At some point around then, Hodges spoke with Zhao about this and asked if she could help in any way. Later, they had a discussion to the effect that Zhao could use Lonique’s bank account at the Commonwealth Bank of Australia (“CBA”), namely BSB 063167, Account Number 10923249 (“the CBA account”), to assist in getting herself out of difficulty.
9There was a difference of opinion between Hodges and Zhao about the details of their discussion. According to Zhao, Hodges personally agreed to lend her some money. Further, Zhao was allowed to withdraw from the CBA account as much as she required to get herself out of financial difficulty provided there was enough funds in the account to pay rent and wages. Any funds which Zhao withdrew from the CBA account, or borrowed from Hodges, were to be repaid when she had the capacity to do so.
10Hodges agreed that she made personal loans to Zhao. From her perspective, Zhao’s entitlement to take money from the CBA account was limited to emergency situations. Hodges did not accept that the withdrawals at Crown Casino constituted an emergency.[1]
[1]I note that there were other withdrawals at ATMs at The Star in Pyrmont, Sydney and the Berwick Springs Hotel in Melbourne.
11Zhao repaid Lonique and Hodges some of the monies which she borrowed.
12The relationship between Hodges and Zhao deteriorated in the period around December 2019 to March 2020. On about 13 March 2020, Hodges removed Zhao as a director of Lonique. Until about 20 March 2020, Zhao had online access to the CBA account and also had a debit card which was linked to the CBA account.
13Hodges effectively removed Zhao from the business in March 2020 and began this proceeding shortly after. The reason for Hodges’ actions was her belief that Zhao had taken a substantial sum of money from the business and failed to repay it. Zhao used the money for her own benefit or purposes unrelated to the business of Lonique. Further, Zhao caused Lonique’s Telstra account to incur charges for a mobile phone with a number unconnected to Lonique’s business. Hodges alleged that by acting as she did, Zhao breached her fiduciary duties to the company. In addition, Hodges sued Zhao for personal loans which she had advanced and which Zhao did not repay.
14The history of this proceeding shows that the Court has made a number of orders trying to have the parties complete the interlocutory steps needed to prepare the case for trial. Zhao’s conduct in complying with orders has been unsatisfactory. She had a poor record and her inactivity and non-compliance slowed the progress of the case.
15The initial trial date was 7 July 2021. On about 23 June 2021, Zhao informed the Court that she was in a reasonably advanced state of pregnancy and would be unable to attend the trial. As a result, the trial had to be adjourned. There was no dispute that this was the first occasion upon which Hodges and the Court had been informed of Zhao’s pregnancy and the likely impact it would have on the hearing.
16In September 2021, the plaintiffs sought further and better particulars from Zhao about aspects of her defence. When no particulars were forthcoming, the plaintiffs sent additional letters in October 2021, January and February 2022, and then made an application which came before the Court in March this year. It was at this time that Judicial Registrar Muller made orders which adjourned the trial from its then second hearing date to a date in May, and ordered the provision of further and better particulars by 5 April 2022. The Judicial Registrar also made an order that, if Zhao failed to provide those particulars, then the defence would be struck out and the defendant would pay the plaintiffs’ costs on an indemnity basis.
17The matter came before me in the duty court on 9 May 2022. Zhao failed to file and serve the further particulars as required by the order of Judicial Registrar Muller and sought an extension of time to comply with the order so as to avoid the effect of the self-executing order. For the reasons given in my oral ruling at the conclusion of Zhao’s application, I refused Zhao’s request for an extension of time and the plaintiffs entered judgment – Lonique entered an interlocutory judgment with damages to be assessed, while Hodges obtained final judgment for a liquidated sum.
18Lonique seeks damages under three heads:
(a) the difference between money taken from Lonique and money repaid to Lonique;
(b) cash payments taken from customers which ought to have been banked in Lonique’s account; and
(c) Telstra charges for a phone number which was not part of Lonique’s business.
Evidence
Lonique’s affidavit
19Lonique relied upon an affidavit sworn by Hodges on 17 May 2022. In it, she addressed a number of matters. Hodges said that she and Zhao started the business together and, until 13 March 2020, they were both directors and shareholders. Hodges said that she was responsible for the hairdressing side of the business and Zhao, who had an accounting background, was responsible for the financial and accounting side of the business. Zhao said that she managed the administration at Lonique and both of them shared responsibility for the financial aspects of the company. According to Hodges, Zhao set up the MYOB accounting program when the business began. Hodges said that, although she had a log-in and access to the program, she did not understand it. Hodges worked in the business full-time, but Zhao only attended as the demands of her role required. Primarily, Zhao attended to collect the envelopes holding the cash payments received by the business.
20Hodges said that between 12 February 2018 and 20 March 2020, Zhao withdrew $487,123.13 from the CBA account and deposited $371,494.86 into the account. This meant that Zhao withdrew $115,628.27 more than she repaid.
21Hodges said that she did not use the CBA account for her personal expenses and that other than Zhao, no one else had access to the account. In order to compile the list of withdrawals and deposits in the CBA account, Hodges went through the bank records of Lonique. She identified the withdrawals which did not reflect a business expense. She noted also that the descriptions on some withdrawals were false. Zhao was responsible for the descriptions.
22Hodges said that the deposits Zhao made were generally ones ending in a round number and often had “Niki” in the transfer description. Lonique’s business takings were almost never round numbers. The data which Hodges compiled formed the basis of a spreadsheet which the plaintiffs’ solicitors prepared and annexed to a Notice to Admit, which was served on Zhao in June 2021. Zhao did not file a notice taking issue with any of the matters in the Notice to Admit.
23Hodges’ affidavit explained that while most customers of the business paid electronically, some used cash. Lonique used a software called “Simply Salon” to manage its finances including the cash payments for services and goods supplied. Each night, the cash from the day (except for a float of $200) would be collected by the person last at the salon and put in an envelope with that day’s total. The person would count the cash and then enter that into the software and would then obtain a printout.
24Hodges said that Zhao would often collect the cash at the end of the day from the salon, and it was her responsibility to manage the cash and to bank it with the CBA. However, Zhao did not bank all the cash as she should have. Hodges said that a review of the Simply Salon software showed that between 12 February 2018 and 17 March 2020, Lonique received $47,806.62 in cash takings from customers. Hodges identified, through examining the bank statements of Lonique, the cash deposits which Zhao made. Over the same period, these amounted to $21,599.50.
25Hodges agreed that Lonique used cash takings of $4,444.40 to pay for various expenses incurred by the business.
26The total amount of cash that Zhao should have, but did not, bank in the CBA account during the relevant period was $21,762.72. This was said to be calculated as follows:
| Transaction | Amount |
| Cash received in Simply Salon | $47,806.62 |
| Cash deposited into CBA Account | -$21,599.50 |
| TOTAL | $26,207.12 |
| Cash expenses paid | -$4,444.40 |
| TOTAL cash not banked | $21,762.72 |
27Hodges said that Zhao was responsible for paying Lonique’s phone bill with Telstra. Hodges said that she did not look at the Telstra bills and simply left this matter to Zhao.
28After Zhao ceased at the business, Hodges examined the Telstra bills and found that since January 2019, Lonique had paid the bill for telephone number 0447 115 564. Hodges did not recognise the number as having any connection with Lonique or its business. On 21 March 2020, Hodges sent a text message to that phone number asking who had been using the phone. A person replied that Niki had given it to her “as a gift”. Based on this, and some other text messages exchanged about the use of the phone, Hodges believed that Zhao used Lonique to pay the phone bills of an acquaintance of hers.
29Hodges took steps to disconnect that mobile phone from Lonique’s Telstra service. Between January 2019 and March 2020, Lonique paid a total amount of $2,809.88 in respect of the telephone number. That comprised an initial monthly charge of $230.84, 13 monthly charges of $164, and a disconnection fee of $447.04.
Zhao’s affidavit
30Zhao filed an affidavit in opposition to Lonique’s application. Zhao canvassed a range of issues. She said that Hodges took a wage of $650 per week from the business plus a further sum of $350 per week, which represented the repayment of Hodges’ contribution of $27,500 to the purchase price of the business. Zhao said she received no income from the business but she should have. Zhao said that she repeatedly asked for a wage, but Hodges said that the salon did not make enough money.
31Hodges denied this allegation and said that, given Zhao’s limited involvement in the business, Zhao was content to receive one or two free blow waves per week at the salon and for her family to attend at the salon free of charge for blow waves or having their hair done (including colouring).
32Zhao agreed that she took money from the CBA account and from Hodges. She said that she made numerous repayments.
33Zhao rejected the allegation that she was responsible for the financial and accounting aspects of the business. She agreed that she was a qualified bookkeeper, but said that both she and Hodges attended to paying the bills of the business.
34Zhao said that Lonique’s day-to-day expenses were paid not only from the CBA account but from cash takings and Zhao’s own personal account. Zhao said that Hodges agreed that Zhao could set-off her personal payments on behalf of the company against any debt owed to Lonique. Zhao accepted that she could have withdrawn $487,123.13 from the business, but denied the suggestion that this amount formed part of her loan from Lonique.
35In relation to cash, Zhao said that cash transactions were never paid into the CBA account – rather, when a customer paid cash, Hodges would put it in an envelope in the till. Zhao said that Hodges deleted transactions from the Simply Salon software to reduce earnings and tax. These funds were put in an envelope and later split equally between Hodges and Zhao. Zhao said they followed the same procedure when using the rental paid by Toni Maree for her room. Zhao said that, rather than it being her responsibility to bank the cash, it was always the case that it was not to be banked.[2] She said the two women divided the cash every quarter or so.
[2]I note that this proposition sits oddly with Zhao’s claimed entitlement to wages. It appears that her primary role in the business was to collect envelopes containing cash for banking.
36Hodges acknowledged that she and Zhao agreed not to declare all the cash which the business earned. Hodges said that, during the first six months of the business under Zhao’s direction, she deleted cash receipts and cash expenditures out of the Simply Salon software. Hodges said that after that time, she didn’t bother deleting transactions because Zhao was taking most of the cash. Hodges agreed that she took two cash payments from the business. The payments were in 2018 and were $2,000 and $4,000 respectively. Text messages in the evidence suggest that she spent most of the latter acquiring a boat.
37Zhao said that she and Hodges both managed the Telstra phone account. As directors, each of them was entitled to a business phone through Lonique. The amount regarding the Telstra phone bill was not disputed by Zhao, just the liability.
Objections to Evidence
38In the submissions filed before the damages hearing, the plaintiffs objected to parts of the Zhao affidavit. They produced a table which set out the allegedly offending paragraphs, the ground of objection and a short supporting submission regarding each objection. At the hearing, the plaintiffs did not explicitly address the particular paragraphs said to be inadmissible. Nor did Zhao’s counsel make any response to this aspect of the plaintiffs’ submissions or any oral submissions about the topic at the trial. After the conclusion of the hearing, I contacted the parties for clarification about the issue. The email sent from my chambers on 1 June 2022 said:
“Dear all,
His Honour has noted that, although there was no specific mention made in oral submissions about the matter, the first plaintiff’s written submissions referred to the inadmissibility of some of Zhao’s evidence (see paragraph [3], [14] and [19] of the written submissions) and contained a list of objections to the evidence in the affidavit sworn by the defendant on 25 May 2022.
Unless advised to the contrary, His Honour has assumed that as part of the judgment, he needs to address the various evidentiary objections.
If His Honour’s understanding of the situation is incorrect, could the parties please advise as soon as possible.”
The plaintiffs’ counsel responded by email later that day to say that he and the defendant’s counsel were liaising and that he hoped to inform the Court on the following day of a joint position or the parties’ respective positions.
39The Court sent both counsel a reminder email on the morning of 3 June 2022, because it had received no notification from the parties. Later that morning, the defendant’s solicitors sent an email attaching a covering document headed “Defendant’s Response to First Plaintiff’s Objections to Evidence” and a table. The table was the one forming part of the plaintiffs’ submissions but with an added column which set out the defendant’s response to each objection. The covering document said:
“The Defendant had assumed that as the Plaintiffs did not pursue the objections at the hearing on 30 May 2022, they were not in fact being pursued.
However, in the light of His Honours indication that he intends to deal with them, the Defendant’s Response to the First Plaintiff’s Objections to evidence is in the additional column to the Plaintiff’s table of objections attached hereto”
40Given that:
·the plaintiffs relied upon their written submissions (which included the objections) at the hearing and gave no indication that I was to ignore the objections;
·the defendant had notice of the plaintiffs’ objections before the Court hearing and was therefore aware of the plaintiffs’ position;
·the plaintiffs made no reference in court to the objections being abandoned;
·the defendant sought no clarification during the hearing about the status of the objections; and
·even now, the defendant raises no concern of serious prejudice if the objections are dealt with;
I propose to address the evidentiary objections which the plaintiffs raised. In doing so, I use as the framework for this part of the judgment the table prepared by the plaintiffs and annexed to the submissions which they filed and served.
41Paragraphs 13 and 14 of the affidavit dealt with the question of the salary which Hodges earned and which Zhao did not earn from the business. It also referred to the repayment of capital contributions by the two original directors of Lonique. The question of whether Zhao was entitled to payment of a wage and the repayment of capital contributed, was not something which could be raised in the absence of a defence and/or counterclaim.
42I agree with the plaintiffs that this issue was irrelevant. It could not be addressed at the hearing for the assessment of damages. Zhao sought to expand the scope of the liability issue beyond that which the judgment established. I uphold the plaintiffs’ objection to the last two sentences of paragraph 13, and the whole of paragraph 14.
43Paragraph 23 of the affidavit comments on Zhao’s removal, without any notice, as a director and shareholder of Lonique. I agree with the plaintiffs that the question of removal is irrelevant to the assessment of damages. Further, the question of the legality of the plaintiffs’ actions in this regard will be examined in the Supreme Court oppression proceedings which Zhao foreshadowed in her affidavit. Whether Hodges or Lonique acted improperly can be examined elsewhere. I find that paragraph 23 of the affidavit is irrelevant.
44In paragraph 24, Zhao speaks of an offer received from Hodges to settle the disputes between them. She exhibited the offer. The plaintiffs were correct to object to this evidence on the basis that any settlement offer is subject to privilege. For that reason, the whole of paragraph 24, together with the exhibit, is inadmissible. I note that Zhao agrees that the paragraph and exhibit should be excluded.
45Paragraphs 25-27 inclusive of the affidavit deal with both Zhao’s removal from the business and the new entity which is conducting the business formerly owned by Lonique. Zhao refers to the oppression proceeding to be instituted in the Supreme Court of Victoria. It is unhelpful for Zhao to say that such conduct is part of the factual background. Any admission by Hodges that she acted in the manner alleged is similarly irrelevant. The matters raised in these paragraphs are not relevant to the assessment of damages in the current proceeding and are not admissible.
46Zhao states in paragraph 29 that, with one exception, there were no BAS statements lodged or taxation returns lodged while she was a director or shareholder of Lonique. Nor were there any financial statements prepared until late 2020, when Grant Lawrence (“Lawrence”) prepared them for the financial years ending 30 June 2018, 2019 and 2020. Zhao contends that the preparation of the accounts by Lawrence and the failure to call him are relevant to the quantification of the loss and whether Lonique has discharged its burden of proof.[3] While I accept that Lawrence and not Hodges prepared the accounts, it does not affect the quantification of Lonique’s loss. It was Hodges who examined the company’s banking records to compile the list of withdrawals and deposits from the CBA account. It was this list which was part of the Notice to Admit and formed the basis of the calculation of monies taken or borrowed from Lonique and not repaid.
[3]Zhao also referred to a forensic accountant whom the plaintiffs possibly engaged but who did not give evidence.
47In my opinion, it does not matter that neither Lawrence nor another accountant was called. Hodges undertook the essential activity of examining the payments received and the expenses incurred by Lonique. Hodges knew and understood the daily workings of the business better than any external accountant. She was best placed to identify those payments which were referrable to the normal and ordinary course of the business. As a director of Lonique who worked in the business on a daily basis, Hodges was entitled to give evidence about the financial affairs of the company. She had personal knowledge of the business and how it ran. Moreover, the banking records and Simply Salon software, which recorded the financial dealings of the business, were part of Lonique’s business records as contemplated in section 69 of the Evidence Act 2008 (Vic). The same point probably applies to the financial statements prepared by Lawrence.
48While I am not persuaded by the evidence Zhao puts forward in this paragraph, taking a generous view of it, I am prepared to allow paragraph 29 as admissible.
49In paragraph 32, Zhao said that Lonique sublet a room at its business to Ms Toni Maree. She paid $1,000 per month rental. Zhao said that she and Hodges divided the cash payments equally between themselves. The point of this evidence seemed to be that not all cash payments went into the CBA account and that Zhao was not exclusively responsible for cash which was not properly accounted for in the books of the company.
50The problem with this evidence is that, even if it had been pleaded in a defence and/or counterclaim, by reason of the orders of Judicial Registrar Muller made on 21 March 2022 and Zhao’s failure to comply with the order regarding further and better particulars, there is no extant defence or counterclaim. To that extent, the evidence seeks to raise new issues in the case and, from one perspective, is inconsistent with the judgment already given. That judgment made no allowance for any set-off or counterclaim and such a claim cannot be raised now. I agree with the plaintiffs’ submission that paragraph 32 is irrelevant and inadmissible.
51However, in her evidence Hodges acknowledged that she and Zhao did split some cash receipts in the early days of the business. As I understand Hodges’ evidence, there were cash receipts and cash expenditures which were removed from the Simply Salon software for the ultimate purpose of reducing tax. So it appears that the $47,806.62 recorded in the Simply Salon software as cash received from customers is the residual amount of cash recorded in Lonique’s books of account. Given Hodges and Zhao extracted and split some cash between themselves, Lonique’s actual cash receipts in the relevant period were presumably higher than this recorded amount.
52Lonique objected to the third and fifth sentences of paragraph 33 on the basis that they were irrelevant to assessing damages because they sought to argue a set-off or counterclaim. Zhao contends that the Court should take into account payments of $14,524.30 which she made from her own funds to meet Lonique’s day-to-day expenses, including wages, rent and hair supplies. She said that Hodges agreed that these expenses could be set-off against monies which Zhao owed to Lonique.
53The purpose of the paragraph seems to be to raise a set-off or counterclaim amount in relation to the payments which Zhao made for the benefit of Lonique. Zhao did not plead or particularise this claim, but raised it in her affidavit. The essence of Zhao’s point is that, unless these payments are taken into account, Lonique will receive excessive compensation for the monies taken.
54Again, the problem for Zhao is that there is no defence and/or counterclaim on foot to provide a proper basis for the claim. Also, there is the question of inconsistency between this claim and the judgment already given, which assumes a breach of fiduciary duty. I recognise that Zhao does not seek to avoid responsibility for all the monies owing to Lonique. I nonetheless consider that the plaintiffs are correct to contend that the third and fifth sentences of paragraph 33 are strictly irrelevant.
55Whilst it is not possible for Zhao to raise a defence and counterclaim at this point, I consider it appropriate to recognise the effect of Hodges’ own evidence where she did not dispute that Zhao met from her own funds obligations of Lonique in the sum of $14,524.30. This amount should be credited to Zhao in determining the amount of damages payable. Otherwise Lonique is likely to be overcompensated at Zhao’s expense.
56I find that paragraph 35 is irrelevant and inadmissible because it repeats the earlier issue regarding Zhao’s claimed entitlement to wages for work performed at Lonique. This point was addressed earlier.[4]
[4] See paragraph 41 and 42 above.
57Zhao refers in paragraph 37 to the cash received in the business and says it was not always the case that it was to be banked. She says that some cash was retained by Hodges and divided with Zhao “every quarter or so”. She sets out text messages between Hodges and herself in early December 2018 where Hodges speaks of a boat which she and Sam bought, apparently with cash which was not banked.
58The plaintiffs object to the entirety of the paragraph because the Court has already given judgment on paragraph 7 of the Further Amended Statement of Claim, whereby it found Zhao failed to bank all the cash and used some for her own personal benefit. The evidence in Zhao’s affidavit seeks impermissibly to question that judgment and is objectionable. I accept that, in the absence of any defence and/or counterclaim, the Court should proceed as if the claims alleged in the Further Amended Statement of Claim were established. It follows that Zhao committed a breach of fiduciary duty by not banking all the cash and diverting some for the benefit of herself or third parties.
59But I regard the evidence as arguably relevant. While the breach of fiduciary duty is assumed, the question of resultant loss is disputed. This evidence could be relevant insofar as there is an argument that Lonique should not now seek to recover from Zhao monies which it previously allowed her (and Hodges) to take.
60Finally, paragraph 42 of Zhao’s affidavit says that Hodges was aware that Zhao’s friend, Taya, had the SIM card from 10 September 2019. The inference from Zhao’s evidence was that because Hodges knew that a third party had the SIM card and knew that Lonique paid for all items on its Telstra account, Hodges could not complain about the costs associated with this mobile phone.
61The plaintiffs contended that the Court has already given judgment on the basis that paragraph 8 of the Further Amended Statement of Claim has been established and hence, Zhao has caused Lonique’s Telstra account to incur charges for a mobile phone unrelated to Lonique’s legitimate business activities. They say that, in the absence of a defence which pleads knowledge (and presumably acquiescence or waiver), then Zhao cannot now raise the point at this time. I agree.
Failure to cross-examine
62At the damages hearing Lonique filed and served an affidavit from its director dated 17 May 2022. Then Zhao filed and served her affidavit dated 25 May 2022. I infer that Zhao’s affidavit was meant to not only set out her case in relation to damages but to respond to the matters raised in Lonique’s affidavit.
63Zhao’s counsel cross-examined Hodges who swore the affidavit on behalf of Lonique. However, Lonique’s counsel did not cross-examine Zhao. Counsel for Zhao argued that by failing to cross-examine, Lonique accepted Zhao’s evidence.
64I do not consider that the situation is as simple as Zhao contends. The rule in Browne v Dunn[5], upon which I assume Zhao relies, is an important and long-standing rule of practice. Hunt J in Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation[6] neatly summarised the position as follows:
“It has in my experience always been a rule of professional practice that, unless notice has already clearly been given of the cross‑examiner’s intention to rely upon such matters, it is necessary to put to an opponent’s witness in cross‑examination the nature of the case upon which it is proposed to rely in contradiction of his evidence, particularly where that case relies upon inferences to be drawn from other evidence in the proceedings. Such a rule of practice is necessary both to give the witness the opportunity to deal with that other evidence, or the inferences to be drawn from it, and to allow the other party the opportunity to call evidence either to corroborate that explanation or to contradict the inference sought to be drawn.”
[5] (1893) 6 R 67
[6] [1983] 1 NSWLR 1 at 16
65In its evidence, Lonique put forward a version of events which was materially different from Zhao’s. Zhao should have appreciated that the parties disagreed about some facts and that each would ask the Court to make findings in accordance with what they propounded. Because Lonique filed its material first, it effectively put Zhao on notice that she could expect to be challenged if she had a different version of events. This gave Zhao notice of what to expect and also afforded her the opportunity to confront the case presented against her and to present such evidence as she saw fit in support of her case. To that extent, the purpose of the rule was satisfied.
66The rule does not operate against a party where a witness is on notice that the witness’s version of events is in contest.[7] The notice can stem from the pleadings or the party’s evidence or opening.
[7] Heydon JD, Cross on Evidence (11th ed, LexisNexis Butterworths, 2017) at [17445]
Repayment shortfall
67As observed earlier, Hodges has examined the financial records of Lonique and established the instances where Zhao either withdrew money from, or paid money into, the CBA account. Her work identified that Zhao withdrew $487,123.13 between 12 February 2018 and 20 March 2020.
68This outcome was reinforced by two matters. The first was a Notice to Admit which the plaintiffs’ solicitors sent to Zhao. The notice included a table which listed all the payments made on the CBA account. The document listed all the withdrawals from and payments credited to the said account. Zhao did not file and serve any response to the Notice to Admit and is thereby deemed to have admitted the accuracy of the table.
69Secondly, Zhao acknowledged in her affidavit that the amount withdrawn from the CBA account could be the sum contended for by the plaintiffs, namely $487,123.13.
70Zhao did not challenge that she repaid only $371,494.86, which left a shortfall of $115,628.27. Zhao contended that the quantum was wrong insofar as it failed to take account of the money which she advanced on behalf of Lonique to discharge its liabilities. She raised no such claim in any defence or counterclaim even before her pleading was struck out. Nor did she dispute that she controlled certain bank accounts and a credit card into which payments were made from the CBA account.
71In the circumstances, I find that it is necessary to deduct from the amount claimed by Lonique $14,524.30 being the amount which Zhao paid from her own funds to meet obligations of Lonique. The total amount owning to Lonique under this head is $101,103.97.
Cash takings
72Hodges searched the business software program Simply Salon, in order to determine how much cash the business took between 12 February 2018 and 17 March 2020. Hodges also examined the Lonique bank statements to calculate the cash which was deposited into the CBA account. This amounted to $21,599.50. I accept these figures subject to my observation that they are probably the residual amounts left in the Simply Salon software after income and expenditure transactions had been removed.[8] Accordingly, the figures might not be precisely accurate because the evidence does not disclose the exact amount of either the cash taken during the operation of the business or the cash expenses paid by the business. However, I am satisfied that, with the financial records as they are, the Court is not likely to get better evidence.
[8] See comment in paragraph 51 above.
73Hodges acknowledged that during the relevant period, Lonique spent $4,444.40 from its own cash receipts in paying business expenses.
74Accordingly, the total amount of cash not banked in the Lonique accounts was $21,762.72, calculated as follows:
Cash received in Simply Salon $47,806.62
LESS
Cash deposited into the CBA account $21,599.50
$26,207.12
LESS
Cash expenses paid $ 4,444.40
Total cash not banked $21,762.72
75In her evidence, Zhao did not assert that she made additional cash deposits or that there were further expenses paid from Lonique’s cash receipts.
76Parts of Zhao’s evidence about the cash were not admissible. She referred to:
(a) Hodges allegedly deleting transactions from the company’s Simply Salon software to understate the revenue earned;
(b) Hodges paying Lonique’s usual business expenses with cash earned by the business;
(c) Zhao making payments on behalf of Lonique from her personal funds – this was part of the claimed set-off or counterclaim raised by the affidavit; and
(d) Hodges and Zhao dividing the cash receipts between them to show that it was not the case that all cash earned by Lonique was paid into the CBA account.
77Hodges agreed that she deleted cash receipts and cash expenditure from the Simply Salon software.
78Hodges agreed that Lonique used cash on occasion to pay its expenses. The sum of $4,444.40 reflects this acknowledgement.
79I have already addressed the issue raised by matter (c) and taken it into account in assessing the amount of damages payable.
80As to (d), I referred earlier to my concern that Lonique should not now seek to recover from Zhao only and not Hodges amounts of cash which the two women agreed to take from the company’s earnings in the early days of the business. Hodges stated that she took $6,000 in cash. The detail of the evidence is confusing and unclear. The evidence led at trial indicated that, generally speaking, Zhao benefited more than Hodges in what she took from the company whether in the form of cash or loans. In order that Lonique is seen to act fairly as between the two initial directors, I consider that an amount of $6,000 should be deducted from the amount repayable to Lonique.
81If Hodges obtained $6,000 in cash from Lonique’s business, it is likely, given their equal financial contribution to the purchase of the business, that Zhao received the same amount on the same basis – namely, the women could take and spend the money as they chose. Hodges revealed that she spent a major part of her cash allocation on a boat. Zhao did not reveal how she spent her cash but, again, it is most likely that she has spent all of it. In those circumstances, where the two people controlling Lonique agreed to take and share the cash, it seems unjust that the single remaining director now seeks to recover part of what Lonique lost from the former director. Having in effect previously agreed through its directors to the cash distribution, it seems to me that Lonique cannot now seek to change its mind. Accordingly, I deduct a sum of $6,000 from the amount which Zhao owes Lonique.
82In the circumstances, I find that Lonique is entitled to $15,762.72 under this head.
Telstra charges
83There appeared to be no dispute between the parties that:
· Lonique had a Telstra phone account;
· Lonique paid the charges in respect of the phone numbers on that account;
· one such number was 0447 115 564;
· that number related to a phone used by Taya, a person who was not an employee of Lonique but was a friend or someone known to Zhao; and
· Zhao enabled Taya to have access to a mobile phone and for Lonique to meet the expenses associated with that phone.
84Zhao did not deny in her affidavit that she arranged the use of the phone for Taya. The only issue she sought to raise was to assert that Hodges knew about the situation with Taya. I have addressed earlier in the judgment the problem for Zhao in seeking to raise matters of defence, set-off or counterclaim in the absence of a current pleading.
85In the circumstances, I find that Lonique is entitled to $2,809.88 for damages sustained under this head.
Conclusion
86For the reasons set out, I find that:
(a) Lonique is entitled to $101,103.97 damages in relation to the repayment shortfall;
(b) Lonique is entitled to $15,762.72 in relation to the cash not accounted for; and
(c) Lonique is entitled to $2,809.88 damages in relation to the Telstra charges.
87I direct the parties to confer about the form of final order and costs in an effort to agree upon orders giving effect to this judgment. If they cannot agree, then by 4:00pm on 20 June 2022, each party is to file with my chambers and serve a written submission setting out the orders sought and the reasons therefor. The submissions are not to exceed five A4 pages, a minimum 12 point typeface, and 40mm margins on either side of the page. By 12:00pm on 23 June 2022, each party may file a reply submission limited to no more than three A4 pages. Unless I deem a further hearing necessary, I shall decide these remaining matters on the papers.
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