Mikkelsen v Li

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2022 0022
S EAPCI 2022 0029

ZOEY MIKKELSEN & ANOR (ACCORDING TO THE ATTACHED SCHEDULE)	Applicants/Cross-Respondents
v
ZHIREN LI & ANOR (ACCORDING TO THE ATTACHED SCHEDULE)	Respondents/Cross-Applicants

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JUDGES:	FERGUSON CJ, BEACH and McLEISH JJA
WHERE HELD:	Melbourne
DATE OF HEARING:	18 April 2023, 10 August 2023
DATE OF JUDGMENT:	26 October 2023
MEDIUM NEUTRAL CITATION:	[2023] VSCA 255
JUDGMENT APPEALED FROM:	[2021] VCC 2027 (Judge Burchell)

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CONSUMER LAW – Share sale agreement – Misleading or deceptive conduct – Negligent misstatement – Applicable law – Australian Consumer Law (‘ACL’) as law of Commonwealth inapplicable in respect of sale of shares – Trial judge erred in applying ACL as law of Commonwealth – No contributory negligence reduction available under ACL as law of Victoria – Both parties at fault for failing to plead specific provisions – Leave to cross-appeal granted – Cross-appeal allowed – ACL as law of Victoria applies – Contributory negligence available for negligent misstatement claim only.

CONSUMER LAW – Reliance – Misrepresentations regarding net profit of business – Prima facie inference of reliance where representations objectively likely to induce entry into contract – Representees relied on misrepresentations – Failure of representees to undertake due diligence not breaking chain of causation – Leave to appeal refused.

CONSUMER LAW – Negligent misstatement – Contributory negligence – Reduction of damages for contributory negligence of 15 per cent – Failure by trial judge to evaluate relative culpability of parties – Failure by trial judge to consider causal link between failure to take reasonable care and loss or damage – Repeated and unequivocal false representations – Highly misleading documents falsely represented as authoritative – Negligible causal link between failure to undertake due diligence and entry into contract – Leave to cross-appeal granted – Cross-appeal allowed – No reduction of damages for contributory negligence.

CONSUMER LAW – Sale of shares – Misleading or deceptive conduct – Quantum of damages – Respondent retains shares and awarded damages for the purchase price – Whether respondent over-compensated – Finding at trial that shares had no value – Leave to appeal refused – Order for return of shares made by consent.

PRACTICE AND PROCEDURE – Appeal – Bare terms of exclusion clause pleaded – No specific claim pleaded – Ground not pursued at trial – Point properly considered abandoned – Leave to appeal refused.

WORDS AND PHRASES – ‘financial product’, ‘financial service’.

Competition and Consumer Act 2010 (Cth) ss 130, 131, 131A, 137B, sch 2 ss 236, 237, 242; Australian Consumer Law and Fair Trading Act 2012, ss 7, 8; Wrongs Act 1958, ss 25, 26; Australian Securities and Investments Commissions Act 2001 (Cth) ss 12BAA, 12BAB, 12DA; Corporations Act 2001 (Cth) ss 761A, 764A, 766C, 1041H, 1041I, referred to.

Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279, distinguished – Stav Investments Pty Ltd v Taylor [2022] NSWSC 208; Viterra Malt Pty Ltd v Cargill Australia Ltd [2023] VSCA 157, referred to.

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Counsel
Applicants/Cross-Respondents:	Mr P Cawthorn KC with Mr L Howe (18 April 2023)
Mr D Connors with Mr L Howe (10 August 2023)
Respondents/Cross-Applicants:	Mr DV Aghion KC with Mr PH Caillard
Solicitors
Applicants/Cross-Respondents:	VMC Legal Pty Ltd
Respondents/Cross-Applicants:	XR Consulting Pty Ltd

TABLE OF CONTENTS

Introduction

Background

The sale

The misrepresentations

The conduct

The misleading or deceptive nature of the representations

Findings of the judge as to matters now in issue

Cross-appeal ground 4A — applicable law

Pleadings

Contributory negligence provisions

Parties’ submissions

Analysis

Ground 3 — reliance on misrepresentations

Parties’ submissions

Analysis

Ground 4 — purported exclusion clause

Parties’ submissions

Analysis

Ground 5 — assessment of loss and damage

Parties’ submissions

Analysis

Ground 6 and cross-appeal grounds 1–4 — reduction for contributory negligence

Parties’ submissions

Analysis

Conclusion

SCHEDULE OF PARTIES

FERGUSON CJ
BEACH JA
MCLEISH JA:

Introduction

In 2016, the respondents, Zhiren Li and Baotong Liu, agreed to purchase shares in Forever Exotic Pty Ltd.
Forever Exotic was a small business that sold ‘natural products’ such as Himalayan salt lamps, candles, essential oils and soaps. Zoe Mikkelsen founded Forever Exotic in about 2005 and operated the business together with her husband Jan Mikkelsen (‘the applicants’). They are the directors of Forever Exotic Pty Ltd, which was incorporated on 29 August 2016 to facilitate the sale to the respondents.
Some time after the sale, a dispute arose as to representations made by the applicants before the sale about the profitability of the business.
At trial, the judge found that the applicants had made misrepresentations that amounted to misleading or deceptive conduct under the Australian Consumer Law[1] and satisfied the requirements of the tort of negligent misstatement.[2] She found that, without these misrepresentations, the respondents would not have entered into the sale.[3]
[1]Competition and Consumer Act 2010 (Cth) sch 2 (‘Australian Consumer Law’).
[2]Li v Mikkelsen [2021] VCC 2027 [9], [71] (Judge Burchell) (‘Reasons’).
[3]Ibid [208].
The trial judge assessed damages at $535,500 plus interest. This sum was arrived at by taking the amount that the respondents had paid for the shares and reducing it by 15 per cent for what the judge identified as the respondents’ contributory negligence in relation to the transaction.[4]
[4]Ibid [225].
The applicants seek leave to appeal. They do not now contest that they made the representations, nor that they were misleading or deceptive and made negligently in breach of a duty of care in tort owed by them to the respondents. They seek to raise issues of reliance and damages. In brief, the applicants contend that:
(a)the representations were not an operative cause of the respondents’ decision to invest (ground 3);
(b)the share sale agreement excluded the applicants’ liability for the representations or, alternatively, had the effect that the respondents did not rely on them or it was not reasonable for them to have done so (ground 4);
(c)the trial judge erred in assessing the quantum of damages without considering the value of the shares the respondents acquired in Forever Exotic and the difference between that figure and the amount they paid (ground 5); and
(d)the respondents’ damages should have been reduced for their contributory negligence by an amount in the order of 50 per cent (ground 6).
Two other proposed grounds of appeal were abandoned before the hearing.
In addition, the respondents seek to cross-appeal the trial judge’s reduction of damages for contributory negligence. They say that the trial judge applied the Australian Consumer Law as a law of the Commonwealth, which was wrong in this proceeding as the impugned conduct was in respect of a sale of shares, which amounts to a supply of financial services and therefore falls outside the statute.[5] The respondents submit that the case should have been decided under the Australian Consumer Law as a law of Victoria,[6] which does not provide for a reduction for contributory negligence. In the alternative, they submit that no reduction should have been made in any event.
[5]See below [58]–[62].
[6]Australian Consumer Law and Fair Trading Act 2012, ss 7–8.
For the reasons that follow, leave to appeal will be refused. Leave to cross-appeal will be granted and the cross-appeal will be allowed. The result is that the orders of the judge will be set aside and in their place there will be judgment for the plaintiffs in the sum of $630,000, plus interest.

Background

The sale

Forever Exotic primarily operated through kiosks in shopping centres and pop-up shops. In early 2016, a group approached Jan Mikkelsen at a Forever Exotic kiosk in Parkmore shopping centre and bought various products. This group relevantly included Mr Li and the daughter of Mr Liu, to whom we will refer as Scarlett to avoid confusion.[7]
[7]Scarlett is also known as Sijia.
Mr Liu wished to invest in a small business in Australia with stable income in which Scarlett could work. However, as he did not speak or understand English, Scarlett made inquiries and negotiated on his behalf. Generally, Scarlett was the key person involved in discussions with the Mikkelsens as her English language skills were the strongest of the group.
Scarlett and Mr Liu gave evidence that, in the course of Scarlett updating him on the sale process, she would translate communications between herself and the Mikkelsens after the event. Mr Li also gave evidence that he would have meetings with Scarlett and her husband Liang Yang to discuss emails and documents received from the Mikkelsens.
After the initial meeting at the kiosk, the group returned to ask further questions about Forever Exotic and inquired whether Mr Mikkelsen had considered selling the business. From July 2016 to September 2016, discussions proceeded and the idea developed into a commitment to sell part of the business. On 8 September 2016, a share sale agreement was executed between Forever Exotic Pty Ltd and the respondents, with Ms Mikkelsen signing as ‘guarantor’ but not named as a party (nor did the agreement feature a guarantee).
Under the agreement, the parties agreed that the business was valued at $1,750,000. They agreed that Ms Mikkelsen would sell 12 per cent of the business to the respondents ‘on the basis that it will increase to 50% shareholding at current valuation in 2 instalments, one being 20% shares no later than 30 June 2017 and the [other] is 18% of shares no later than 30 June 2018 to reach the required total of 50%’. There was also an option to go to 70 per cent thereafter. The respondents paid $210,000 for 12 of the 100 shares held by Ms Mikkelsen in September 2016, and the second respondent, Mr Liu, paid $420,000 for the acquisition of a further 24 shares on 3 April 2017. Their combined interest did not rise above 36 per cent.

The misrepresentations

The misrepresentations found by the trial judge were that:
(a)Forever Exotic had consistently achieved a net profit margin of approximately 30 per cent (‘the 30 per cent net profit representation’);
(b)Forever Exotic had achieved net profit of approximately $400,000 in the financial year ended 30 June 2016 (‘the $400,000 actual net profit representation’);
(c)Forever Exotic had achieved, excluding cash receipts, net profit of $293,850.67 in the financial year ended 30 June 2016 (‘the $290,000 net profit (excluding cash) representation’);
(d)Forever Exotic had stable net profit with a bit of growth (‘the stable net profit representation’); and
(e)the respondents would recoup their investments within four years if they purchased an interest in Forever Exotic (‘the four-year break-even representation’).[8]
[8]Reasons [3].
The first four representations, dealing with net profit, were ultimately the basis upon which the business was valued for the purposes of sale, using a calculation of four times the net profit, plus the agreed value of stock (which was $150,000).
The four-year break-even representation built upon the net profit representations, in so far as the use of a multiplier of four in the valuation exercise indicated that the break-even point would occur after four years (assuming a stable net profit of the business into the future). In this way, the representations collectively underpinned the valuation of the business, upon the basis of which the sale price had been determined.

The conduct

Assessing the proposed grounds of appeal and cross-appeal requires an identification of the conduct that was found to be misleading or deceptive. That conduct is described below.
In a meeting in July 2016 at the Forever Exotic Knoxfield showroom, Mr Mikkelsen said to Mr Liu, Scarlett, Mr Yang and Mr Li words to the effect that:
(a)the business had a net profit of 30 per cent per annum;
(b)the net profit in the financial year ended 30 June 2016 was approximately $400,000;
(c)the net profit was growing every year and the business could return an investment in four years; and
(d)the business was very stable.
Mr Mikkelsen thereby orally conveyed all of the representations except the $290,000 net profit (excluding cash) representation.
Later, Mr Mikkelsen said that there had been approximately $100,000 in cash sales in the financial year ending 2015. Assuming these cash sales were not included in the actual net profit figures, this representation was consistent with the $290,000 net profit (excluding cash) representation, which was later articulated more explicitly.
On 5 August 2016, Mr Mikkelsen sent a profit and loss statement to an email account shared by Scarlett and Mr Yang, attaching the ‘unadulterated figures’ (‘the first profit and loss statement’). The first profit and loss statement recorded a profit of $392,401.47 for the financial year ended 30 June 2016. This conveyed the $400,000 actual net profit representation and, on sales of $1,402,159, was consistent with the 30 per cent net profit representation.[9]
[9]The expert evidence of Ms Wheeler, to which reference is made below, was to the effect that the first profit and loss statement indicated a net profit margin of approximately 28 per cent.
The first profit and loss statement was prepared by Paul Pavlou at the request of Mr Mikkelsen. Mr Mikkelsen gave evidence that he thought that the figures contained in the document were generally right and that he was happy to send the document. Mr Pavlou was the Mikkelsens’ accountant and Ms Mikkelsen’s brother. Scarlett and the respondents were not aware that Mr Pavlou was Ms Mikkelsen’s brother until after the share sale agreement had been signed.
On the same day, about three hours later, Mr Mikkelsen sent the first offer, which included a business proposal. It provided that the applicants’ first offer was valued on a multiple of the net profit figures:
The business value we place on the business is valued real net profit for year 2015-2016. Normally the formula is between 3-5 times. So that would value the business at between $1,177,204.41 and $1,962,007.35.
It was Scarlett who had originally made the suggestion of using a multiple of net profit to value the business.
On 9 August 2016, Mr Mikkelsen sent the group two further offers by email. Both offers repeated the above comment. The third offer stated: ‘50% equity in forever exotic for $875,000 which is 50% of the agreed value of forever exotic’. This reflected 50 per cent of the agreed valuation of the business ($1,600,000) together with stock and equipment ($150,000). The valuation of the business was within the range of the initial valuation, ‘between $1,177,204.41 and $1,962,007.35’. These three offers containing business proposals therefore relied upon and repeated the $400,000 actual net profit representation and the four-year break-even representation.
On 31 August 2016, in response to a request from Scarlett for an ‘official’ financial annual report (being one without cash sales), Mr Mikkelsen provided a second profit and loss statement (‘the second profit and loss statement’). It disclosed a profit of $293,850.67 in the financial year ended 30 June 2016. This conveyed the $290,000 net profit (excluding cash) representation and, on sales of $845,905, the 30 per cent net profit representation.[10]
[10]The expert evidence of Ms Wheeler was to the effect that the second profit and loss statement indicated a net profit margin of approximately 34 per cent.
On 1 September 2016, following a request by Scarlett on 31 August 2016 that an accountant sign the second profit and loss statement, Mr Mikkelsen emailed Scarlett, attaching a ‘letter to go with [the] statement of account’. That letter was on Hejaz Accounting letterhead and signed by Mr Pavlou as the Mikkelsens’ accountant. In it, Mr Pavlou stated that he enclosed a profit and loss statement for the financial year ended 30 June 2015 (rather than the financial year ended 30 June 2016, as requested). The letter was not accompanied by any enclosure, let alone a signed version of the second profit and loss statement. Hakan Ozyon of Hejaz Accounting gave evidence that Forever Exotic and the Mikkelsens were not clients of Hejaz Accounting and that any services provided by Mr Pavlou to the Mikkelsens were provided in Mr Pavlou’s personal capacity.[11]
[11]Reasons [144].
On 3 September 2016, Mr Mikkelsen emailed Scarlett three business activity statements (‘BAS statements’) for the financial year ended 30 June 2016, stating that they were the most up-to-date BAS statements at the time.[12] Each reflected total sales for the relevant quarter in the realm of roughly $200,000. This was roughly consistent with the second profit and loss statement provided. To that extent, the BAS statements supported the making of the $290,000 net profit (excluding cash) representation and the 30 per cent net profit representation.
[12]Ibid [24], [187]. The BAS for the remaining quarter had also been provided by Mr Mikkelsen to another prospective purchaser, Mr Zhang, on 30 August 2016, who then forwarded it to Scarlett.
These BAS statements had been provided by Mr Pavlou and were different to those filed with the Australian Taxation Office (‘ATO’). Mr Mikkelsen said he was surprised to learn of this discrepancy and only discovered that the BAS statements were ‘hugely in error’ when the documents as filed were subpoenaed.
In summary, the relevant conduct was repeatedly making the five representations, specifically through Mr Mikkelsen’s oral statements in July 2016, and the provision of:
(a)the first profit and loss statement on 5 August 2016;
(b)the three offers on 5 August 2016 and 9 August 2016;
(c)the second profit and loss statement on 31 August 2016;
(d)the letter on Hejaz Accounting letterhead signed by Mr Pavlou on 1 September 2016; and
(e)the false BAS statements on 3 September 2016.
The issue with the available documents
At trial, the respondents relied on the expert evidence of Victoria Wheeler, director of Munday Wilkinson, chartered and forensic accountants. In addition to the documents described above,[13] Ms Wheeler was also provided with the income tax returns of Ms Mikkelsen and Forever Exotic Pty Ltd following incorporation and BAS statements for Forever Exotic for the year ended 30 June 2016. Ms Wheeler gave evidence, relying on these documents, that the four representations relating to net profit were false.
[13]Excluding the three offers sent on 5 August 2016 and 9 August 2016.
It was impossible for the trial judge to determine exactly what Forever Exotic’s net profit for the financial year ended 30 June 2016 was because, despite repeated discovery orders, the applicants failed to discover the underlying records of the business. There were no MYOB records, receipt books, daily sales records or EFTPOS receipts.[14]
[14]Reasons [139].
The applicants did discover three ‘red books’. They gave evidence that receipts were tallied in these books, which recorded cash sales. Mr Mikkelsen gave evidence that the handwritten books were the only correct representation of the turnover of the business. Pages of these books were missing and, given the applicants’ failure to discover source documents and the fact that none of their initial affidavits referred to the red books, the trial judge inferred that the red books were an unreliable record of the summary of sales for each kiosk.[15] This finding is unchallenged.
[15]Ibid [173].

In another unchallenged finding, the trial judge concluded that the applicants could have obtained access to the MYOB records because, although their accountant Mr Pavlou was incarcerated, they gave evidence that they had been in contact with him in the lead‑up to the hearing. The applicants’ failure to retrieve the MYOB records from him justified an inference that the documents could not have assisted them.[16]
[16]Ibid [139].
With regard to the reliability of the documents, Mr Mikkelsen conceded that in the financial year ended 30 June 2015, the business had not declared all cash receipts. He gave evidence that the BAS statements given to the ATO underestimated the sales, seemingly for tax minimisation reasons. He did not correct the BAS statements with the ATO. The official BAS statements reveal sales figures significantly lower than the sales claimed in the second profit and loss statement. The official BAS statements therefore contradict the $290,000 net profit (excluding cash) representation, even though the figure of $290,000 purportedly already excluded cash sales.[17]

The misleading or deceptive nature of the representations

[17]Ibid [185].

Working with this incomplete picture of Forever Exotic’s finances, the trial judge found that all four net profit representations were false and there was no reasonable basis to make the four-year break-even representation.
In short, the judge found as follows:
(a)The 30 per cent net profit and stable net profit representations were entirely inconsistent with the relevant tax returns. According to Ms Wheeler, Forever Exotic’s net profit ranged between 6 per cent and a net loss of 40 per cent over the financial years ending 30 June 2011 to 2016. The business incurred losses in the financial years ending 30 June 2012, 2014 and 2015.[18] These findings falsified the 30 per cent net profit representation and demonstrated that the business did not have ‘stable net profit with a bit of growth’.
(b)The $400,000 net profit representation was false on the same basis. It was also inconsistent with Ms Mikkelsen’s tax return for the year ending 30 June 2016, which showed a net profit of only $22,391.[19]
(c)The $290,000 net profit (excluding cash) representation was likewise false and inconsistent with Ms Mikkelsen’s tax return for the year ending 30 June 2016.[20]
[18]Ibid [110], [167], [188]–[190].
[19]Ibid [110], [189]–[190].
[20]Ibid [191].
The four-year break-even representation was a representation with respect to a future matter. The question was therefore whether Mr Mikkelsen had reasonable grounds for making the representation in late 2016.[21] The judge held that the evidence of Ms Wheeler showed that there were no reasonable grounds to claim that the respondents would recoup their investment in four years.[22]
[21]Australian Consumer Law s 4.
[22]Reasons [203]–[204].

Findings of the judge as to matters now in issue

The judge rejected a submission on behalf of the applicants that the sale price had been negotiated without reference to the representations, such that the respondents had not entered into the transaction in reliance on the misleading or deceptive conduct of the applicants.[23] The judge found that the only change in the three proposals put forward by the applicants concerned the value of the stock, not the business.
[23]Ibid [206]–[210].
The judge found that the respondents would not have entered into the share sale agreement and purchased the shares if the representations had not been made. The representations were material in relation to the value of the shares. In particular, the value of the shares was determined based on the consistent representation of the applicants that the net profit for the year ending 30 June 2016 was $400,000, which was false.
In relation to the negligent misstatement claim, the judge accepted the submissions of the respondents, which she summarised as follows:
(a)the applicants owed the respondents a duty of care because they knew or ought to have known that they were being trusted to give information that they knew, or ought to have known, the respondents intended to rely upon;
(b)Mr Mikkelsen was the manager of the business and Ms Mikkelsen delegated all financial matters and sales negotiations to him;
(c)the respondents were particularly vulnerable because the applicants knew of the language difficulties within the group and that a ‘proper due diligence was not being performed’;
(d)the respondents trusted the applicants and relied on the financial information provided being correct;
(e)even in the final days before execution of the agreement, the applicants were providing false information in the form of the BAS statements, the second profit and loss statement and the letter from Mr Pavlou that was misrepresented as verifying the information that Mr Mikkelsen had provided;
(f)the misrepresentations were ‘clearly material’ and the respondents relied on them in deciding to sign the agreement and purchase the shares;
(g)the standard of care owed by the applicants was the standard of reasonable persons in the position of the applicants, who had knowledge of the affairs of the business and its financial information;
(h)the evidence of Ms Wheeler showed the representations to have been false.[24]
[24]Ibid [211]–[220].
The judge’s treatment of the question of damages was succinct. It is convenient to set it out in full:
Damages
The defendants submit that in the event that the Court determines that there has been a breach of s18 of the ACL, the lack of due diligence, the failure to engage legal accounting and independent business valuers to assist the plaintiffs in dealing with the purchase of shares in this matter contributed to their loss.
I accept the defendants’ claim that there is no evidence before the Court that the plaintiffs undertook any due diligence in relation to the purchase of the shares. As such, the defendants submit that any amount awarded pursuant to s 236(1) of the ACL to the plaintiffs should be reduced by reason of s 137B of the ACL.
I agree that due diligence and professional external advice ought to have been sought by the plaintiffs in this case and a prudent purchaser acting reasonably would have done so, particularly given the quantum involved and the vulnerability of the investors. It is just and equitable that there be a reduction of the amount of loss or damage to reflect the plaintiffs’ failure to take reasonable care.
In my view, the amount of the loss or damage that the plaintiffs may recover under s 236(1) of the ACL is to be reduced by 15%, being the plaintiffs’ contribution to the loss and damage by failing to take reasonable care.
Conclusion
For the forgoing reasons, I conclude that the plaintiffs would not have purchased the shares had the defendants not made the Share Sale Representations. The loss and damage suffered by the plaintiffs in respect of the purchase of the shares was $630,000.00 and ought to be discounted by 15%. The defendants must refund the sum of $535,500.00 (plus interest) to the plaintiffs with costs.[25]
[25]Ibid [221]–[225].
Although the above reasons are expressed in terms of the Australian Consumer Law, it appears that they were intended to apply also to the negligent misstatement claim which the judge upheld in the previous section of the judgment. The claim appears therefore to have been upheld on each of the alternative bases advanced, with the same damages being awarded in respect of each.
The orders made by the judge took account of the different shareholdings acquired by each of the respondents. As such, the applicants were ordered to pay $59,500 plus interest to the first respondent and $476,000 plus interest to the second respondent.

Cross-appeal ground 4A — applicable law

It became clear when this matter first came on for hearing in this Court that there was confusion as to the statutory basis for the Australian Consumer Law claims. This was significant because, seemingly due to legislative oversight, the State and Commonwealth versions of the Australian Consumer Law make different provision regarding contributory negligence.[26] In the circumstances, the Court adjourned the hearing to enable the parties to make further written submissions.
[26]This oversight has been recognised for some time: see N Seddon and S Fridman, ‘Misleading Conduct and Contributory Fault: Inconsistency under the Uniform Australian Consumer Law’ (2012) 20 Australian Journal of Competition and Consumer Law 87.
This led the respondents to amend their application for leave to cross-appeal, adding a ground 4A asserting that the judge erred in applying the Competition and Consumer Act 2010 (Cth) (‘the Commonwealth ACL Act’) in finding contributory negligence.[27]

Pleadings

[27]We use the language of contributory negligence in these reasons, reflecting s 26 of the Wrongs Act 1958 and the language used in the judge’s reasons. The expression does not appear, of course, in the other statutory provisions to which we refer.

The problem that arose in the trial started with the pleadings.
The respondents in their further amended statement of claim alleged that by making the representations, the applicants ‘engaged in conduct in contravention of section 18 of the Australian Consumer Law’. They alleged loss and damage, together with an entitlement to recover loss and damage ‘pursuant to section 236 of the Australian Consumer Law’. In their prayer for relief, they sought damages and such further order as the court thought appropriate ‘pursuant to sections 237, 242 and 243 of the Australian Consumer Law’.
The problem with this formulation (which is only significant to the extent that the relevant provisions may differ) is that the ‘Australian Consumer Law’ is a shorthand description for a collection of provisions that only have statutory force by virtue of specific State and Commonwealth legislation.
So, s 6 of the Australian Consumer Law and Fair Trading Act 2012 (‘the State ACL Act’) provides that ‘Australian Consumer Law’ means the ‘Australian Consumer Law text’ as described in s 7. That phrase is in turn defined to mean, relevantly, ‘Schedule 2 to the Competition and Consumer Act 2010 of the Commonwealth’. Section 8 then provides that the Australian Consumer Law text applies as a law of Victoria and, as so applying, is a part of the State ACL Act and may be referred to as the ‘Australian Consumer Law (Victoria)’.
At the same time, s 130 of the Commonwealth ACL Act provides that ‘Australian Consumer Law’ means ‘Schedule 2 [of that Act], as applied under Subdivision A of Division 2 of [pt XI]’. Section 131 then applies sch 2 as a law of the Commonwealth to ‘the conduct of corporations’ and ‘contraventions of [relevantly, ch 2] of Schedule 2 by corporations’. Chapter 2 includes s 18, the misleading or deceptive conduct provision.
Section 131A(1) provides that, with immaterial exceptions, div 2 of pt XI of the Commonwealth ACL Act does not apply to the ‘supply, or possible supply, of services that are financial services, or of financial products’. By s 131A(2)(a), pt 2-1 of Sched 2, which includes s 18, also does not apply to ‘conduct engaged in in relation to financial services’.
The expressions ‘financial product’ and ‘financial services’ in these provisions have the meanings given by ss 12BAA and 12BAB respectively of the Australian Securities and Investments Commission Act 2001 (Cth) (‘the ASIC Act’).[28] It will be necessary to return to those definitions.
[28]Commonwealth ACL Act, s 130A, read with sch 2 s 2(1).
To this point, it is relatively clear that, in circumstances where no claim was made against a corporation, the ‘Australian Consumer Law’ to which the further amended statement of claim referred was only applicable to this case if it was the Australian Consumer Law as applied by virtue of the State ACL Act. That follows from the limited terms in which sch 2 of the Commonwealth ACL Act applies the law as a law of the Commonwealth. The case was not about ‘the conduct of corporations’ or a contravention of s 18 by a corporation. The allegations were made only against the applicants, as natural persons.[29]
[29]While some of the representations were made in part by the sending of emails (as to the possible relevance of which, see Australian Competition and Consumer Commission v Kaye [2004] FCA 1363 [36] (Kenny J)), no submissions were made to the judge or in this Court that s 6(3) of the Commonwealth ACL Act applied so as to extend the application of that Act to the applicants as individuals.
The introduction of questions of contributory negligence, however, complicated the picture. By their further amended defence, the applicants pleaded, in response to the allegation of an entitlement to recover loss and damage pursuant to s 236 of the ‘Australian Consumer Law’, that the loss and damage should be reduced to the extent the Court thought just and equitable, having regard to the respondents’ share in the responsibility for the loss and damage. Although no statutory basis was pleaded, as it ought to have been, this wording reflects, among other things, the language of s 26 of the Wrongs Act 1958, and is apt, at least, to apply to the claim for negligent misstatement.
The applicants also pleaded to the same effect, specifically in relation to the Australian Consumer Law allegations. In that context, they purported to rely on ‘section 1378’ of the Commonwealth ACL Act. It is agreed that this was understood to be a typographical error for ‘137B’.
Section 137B makes provision for contributory negligence. It has no equivalent in the State ACL Act. It applies where a person ‘makes a claim under subsection 236(1) of the Australian Consumer Law’ for conduct in contravention of s 18. As indicated, the ‘Australian Consumer Law’ is relevantly defined as sch 2, as applied under the Commonwealth ACL Act. On that basis, because sch 2 did not apply as a law of the Commonwealth, s 137B had no application to the present case.
Despite that position, the case proceeded on the basis that contributory negligence was in issue in respect of both the common law claim of negligent misstatement and the statutory claim under the Australian Consumer Law. The respondents now seek to argue, however, that the judge erred in applying s 137B of the Commonwealth ACL Act.
As it emerged in argument, there is a further complicating factor. Section 12DA of the ASIC Act prohibits a person, in trade or commerce, from engaging in conduct in relation to financial services that is misleading or deceptive or likely to mislead or deceive. A person who suffers loss or damage by conduct in contravention of that provision may recover the amount of that loss or damage from any person involved in the contravention: s 12GF(1). These provisions therefore replicate ss 18 and 236 of the Australian Consumer Law, in its application to conduct in relation to financial services.
The application of this provision depends on the meaning given to the expression ‘financial services’. At this point one is driven into a legislative labyrinth of extraordinary complexity. It would be odious to set out the constituent provisions. It is an elaborate enough exercise to describe the path itself. The end point is that the disposal of a share in a corporation is the provision of a ‘financial service’. The steps leading to this result are as follows:
(a)Section 12BAB(1)(b) of the ASIC Act relevantly provides that a person provides a financial service if they deal in a financial product.[30]
(b)Section 12BAB(7)(e) clarifies that ‘dealing’ includes ‘disposing of’ a financial product.
(c)Section 12BAA(7)(a) of the ASIC Act provides that a security is a financial product.
(d)Section 5(2) of the ASIC Act provides that an undefined expression in the ASIC Act that is defined in s 761A of the Corporations Act 2001 (Cth) has that meaning for the purposes of the ASIC Act.[31]
(e)The definition of security in s 761A of the Corporations Act provides that ‘a share in a body’ is a security.
(f)There is no definition of ‘body’, which must plainly include a corporation registered under the Corporations Act.
[30]There are exceptions in s 12BAB of the ASIC Act that are not presently relevant.
[31]Unless the contrary intention appears.
Therefore, the disposal of a share in a corporation is the provision of a financial service, as defined, attracting s 12DA of the ASIC Act to the facts of the present case.
As if the statutory position were not already complicated enough, the same outcome applies under the Corporations Act. By s 1041H(1), a person must not engage in conduct in relation to a financial product or a financial service that is misleading or deceptive or likely to mislead or deceive. Such conduct expressly includes dealing in a financial product: s 1041H(2)(a); and a person who suffers loss or damage by conduct in contravention of that provision may recover the amount of that loss or damage from any person involved in the contravention: s 1041I. Again, a ‘financial product’ includes a ‘security’: ss 761A, 764A(1)(a); and a dealing in a financial product includes disposing of it: ss 761A, 766C(1)(e).
In coming to the above conclusions, we note that the same result was reached by Ward CJ in Eq in Stav Investments Pty Ltd v Taylor.[32]
[32][2022] NSWSC 208 [300] (‘Stav Investments’).
These various legislative paths are only relevant in the present case because of the different ways the State and Commonwealth statutes treat contributory negligence. Before turning to the parties’ arguments in that respect, it is convenient to identify the specific provisions in issue.

Contributory negligence provisions

The first provision is s 137B of the Commonwealth ACL Act, which reads:
137B Reduction of the amount of loss or damage if the claimant fails to take reasonable care
If:
(a)a person (the claimant) makes a claim under subsection 236(1) of the Australian Consumer Law in relation to economic loss, or damage to property, suffered by the claimant because of the conduct of another person; and
(b)the conduct contravened section 18 of the Australian Consumer Law; and
(c)the claimant suffered the loss or damage as result [sic]:
(i)partly of the claimant’s failure to take reasonable care; and
(ii)partly of the conduct of the other person; and
(d)the other person did not intend to cause the loss or damage and did not fraudulently cause the loss or damage;
the amount of the loss or damage that the claimant may recover under subsection 236(1) of the Australian Consumer Law is to be reduced to the extent to which a court thinks just and equitable having regard to the claimant’s share in the responsibility for the loss or damage.
The second provision, in similar terms, is s 12GF(1B) of the ASIC Act, which provides:
(1B) Despite subsection (1), if:
(a)a person (the claimant) makes a claim under subsection (1) in relation to:
(i)economic loss; or
(ii)damage to property;
caused by conduct of another person (the defendant) that was done in contravention of section 12DA; and
(b)the claimant suffered the loss or damage:
(i)as a result partly of the claimant’s failure to take reasonable care; and
(ii)as a result partly of the conduct referred to in paragraph (a); and
(c)the defendant:
(i)did not intend to cause the loss or damage; and
(ii)did not fraudulently cause the loss or damage;
the damages that the claimant may recover in relation to the loss or damage are to be reduced to the extent to which the court thinks just and equitable having regard to the claimant’s share in the responsibility for the loss or damage.

The third, in the same terms except for the statutory cross-reference, is s 1041I(1B) of the Corporations Act.
The fourth provision, which is apt to apply to the claim for negligent misstatement, is s 26(1) of the Wrongs Act, which provides:
26 Liability for contributory negligence
(1)If a person (the claimant) suffers damage as the result partly of the claimant's failure to take reasonable care (contributory negligence) and partly of the wrong of any other person or persons—
(a)except as provided in section 63, a claim in respect of the damage is not defeated by reason of the contributory negligence of the claimant; and
(b)the damages recoverable in respect of the wrong must be reduced to such extent as the court thinks just and equitable having regard to the claimant's share in the responsibility for the damage.
It will be noted that this provision differs from those set out earlier. In particular, it contains no reference to intentional or fraudulently caused loss or damage.
A final possibility is that no contributory negligence provision applies to the statutory claims at all, as a result of the absence of any relevant provision in the State ACL Act.
We note, for completeness, that s 26 of the Wrongs Act is not available for a claim of misleading or deceptive conduct under the Australian Consumer Law, as misleading or deceptive conduct is not a ‘wrong’, which is defined in s 25 of the Wrongs Act as follows:
wrong means an act or omission that—
(a)gives rise to a liability in tort in respect of which a defence of contributory negligence is available at common law; or
(b)amounts to a breach of a contractual duty of care that is concurrent and co-extensive with a duty of care in tort.

Parties’ submissions

Ground 4A of the proposed cross-appeal reads:
The learned primary trial judge made an error of law in finding that the amount of loss or damage awarded in favour of the Cross-Applicant pursuant to section 236 of the Competition and Consumer Act 2010 (Cth) schedule 2 ‘Australian Consumer Law’ (Cth ACL) — being in relation to a ‘financial service’ — should be reduced by reason of section 137B of the Cth ACL.
The respondents submit that the further amended statement of claim did not distinguish between the Australian Consumer Law as applied by the State ACL Act or the Commonwealth ACL Act. They also say that the further amended defence did not plead contributory negligence in respect of the negligent misstatement claim. In the circumstances, the applicants’ pleaded defence relying on s 137B of the Commonwealth ACL Act was ‘wrong at law’ and the judge ought not to have upheld it. The respondents submit that their own pleaded claim is to be regarded as one under the State ACL Act. On that basis, and because no claim was pleaded under s 26 of the Wrongs Act, the applicants should not have been permitted to rely on contributory negligence at all.
The respondents further submit that, if the Court was persuaded to treat the case as having involved a claim under the ASIC Act, contributory negligence would still not be available because the applicants intended to cause the loss or damage suffered by the respondents. That was said to be inherent in the sale by them of a business which they knew was not worth what they had represented. Alternatively, if the matter were to be remitted to the County Court in order to determine whether the applicants’ conduct was intentional in the relevant sense, the respondents would seek leave to amend their statement of claim so as to make it clear that they relied on the State ACL Act.
In their further written case, the applicants assert that the respondents had ‘rightly concede[d]’ in their written case that the pleadings engaged the Commonwealth ACL Act. We do not accept that characterisation of the respondents’ submissions. But in any event, the applicants go on to submit that the trial was run on the shared assumption that a reduction for contributory negligence was available and that the Commonwealth ACL Act was the relevant legislation. They submit that it would be unfair for the respondents now to be permitted to rely on the State ACL Act.
Alternatively, in respect of the claim for negligent misstatement, the applicants submit that although the pleading of contributory negligence referred specifically to the Commonwealth ACL Act, the drafting of the pleading was wide enough to include contributory negligence under the Wrongs Act.
The applicants submit that applying the ASIC Act would be unfair as, if they had known it was relied upon at trial, they would have led evidence and made submissions as to whether there was an intention to cause loss or damage or whether the loss or damage was caused fraudulently. In any event, this Court should not find that the applicants had an intention to cause loss or damage, nor did they fraudulently cause loss or damage, when evidence was not led on the point and the proposition was never advanced by the respondents.

Analysis

For the reasons set out earlier, we consider that, as a matter of law, s 137B of the Commonwealth ACL Act did not apply to the claim made in this proceeding. On the other hand, we do not accept the respondents’ submission that the pleaded defence did not include a claim of contributory negligence in relation to the negligent misstatement claim. In our view, the reference to the reduction of loss and damage according to what the court considered just and equitable, made in response to an allegation that the respondents had suffered loss and damage ‘and/or [were] entitled to recover such loss and damage pursuant to s 236’ was broad enough to cover the claim in tort as well as the statutory claim.
Both parties were at fault in failing to specify the statutory provisions that were applicable, as the rules of pleading specifically require for good reason.[33] The respondents ought to have made it clear that the State ACL Act was the source of their rights under the Australian Consumer Law, and to have pleaded in reply that the Commonwealth ACL Act had no application. The applicants ought to have pleaded the Wrongs Act in respect of the claim for negligent misstatement. Instead, the case was run on the apparent assumption, which was mistaken, that the Commonwealth ACL Act applied.
[33]County Court Civil Procedure Rules 2018, r 13.02(1)(b).
We do not accept that any reliance on the ASIC Act (or the Corporations Act) would now be unfair to the applicants. Section 137B of the Commonwealth ACL Act, upon which they relied at trial, only applies if the respondent to the claim did not intend to cause the loss or damage and did not fraudulently cause the loss or damage: s 137B(1)(d). The question of the applicants’ intention was therefore live at trial on the case as the parties understood it. The applicants’ own pleaded contributory negligence claim raised the issue whether they intended to cause the loss or damage or acted fraudulently, and they had the opportunity of leading evidence on those matters if they wished to do so.
Application of the misleading or deceptive conduct provisions of either the ASIC Act or the Corporations Act, even at this late stage, would reflect the issues that were in fact raised and argued at trial. Those statutes contain a provision relevantly in the same terms as s 18 of the Australian Consumer Law, and make provision for contributory negligence which the parties understood to be a live issue. However, the respondents do not seek to amend their pleading to bring about that result, and the applicants also oppose this course. These provisions must therefore be put to one side.
This Court is therefore left with two alternatives. If the respondents’ pleading is understood as relying on the Commonwealth ACL Act, it should have failed at the threshold because s 131 of the Commonwealth ACL Act does not apply the Australian Consumer Law as a law of the Commonwealth in the circumstances of this case and, even if it did, s 131A would exclude that operation because the case is about the supply of a financial product or is about conduct engaged in in relation to a financial service. The applicants were instrumental in causing the case to be treated as one under the Commonwealth ACL Act, by specifically pleading that legislation. Even though the respondents acquiesced in that course, it would be unfair now to hold that the respondents’ claim ought to have failed in so far as it depended on the Australian Consumer Law. Nor do the applicants advance any argument to that effect. Were they to have done so, the respondents would have been able to argue that they should be permitted to amend their pleading to rely on a different statutory basis (including the State ACL Act). This points to the Commonwealth ACL Act not being the correct basis on which the matter should now be decided.
On the other hand, if the respondents’ pleading is understood as relying on the State ACL Act, no defence of contributory negligence was available. That was not pleaded by the respondents, and was not the basis on which the parties ran the trial, albeit that the respondents now seek to advance that position. There is an element of unfairness about that as well because the failing in the respondents’ pleading contributed to the parties proceeding on the basis that contributory negligence was open as a defence.
In the end, however, it was the respondents’ case to run, and it could have been advanced under any of three bases: the State ACL Act, the ASIC Act or the Corporations Act. The pleading is capable of being understood as relying on the State ACL Act, but not those other statutes. It is clear that this is the approach the respondents would have taken if these matters had been raised at trial. In our view, that is how the pleading should now be understood.
The result is that contributory negligence was available under the Wrongs Act in relation to the common law claim, but not under the Australian Consumer Law claim; the Commonwealth ACL Act was inapplicable; and the State ACL Act had no equivalent of s 137B. On that basis, the respondents must succeed in their challenge to the reduction of damages on account of contributory negligence under s 236 of the Commonwealth ACL Act. No such defence was available to the applicants under the Australian Consumer Law as it applied in this case.
There remains, of course, the defence to the common law claim, albeit that it could not have any effect on the damages awarded under statute for the same loss in this case. We will return to consider the substantive grounds regarding contributory negligence at [129]–[146] below.

Ground 3 — reliance on misrepresentations

Parties’ submissions

Ground 3 of the proposed appeal addresses the issue of reliance, in these terms:
The learned trial judge erred in finding that the plaintiffs/respondents relied on the representations found to have been made. She should have found that the representations were not a real operative cause of investing in Forever Exotic Pty Ltd (Forever Exotic).
The applicants submit that the operative cause of the respondents entering into the transaction was their desire to buy into the business, not the representations. The applicants point to the fact that Scarlett had made a counter-offer of $300,000 at a point when other potential investors had pulled out. They submit that this reflected what the respondents believed the business to be worth. Further, the purchase price was agreed upon through a process of negotiation rather than because the respondents were relying on the representations as true indicators of the value of the shares.
In addition, the applicants rely on the fact that the agreement provided for the sale of shares by instalments. It is submitted that this arrangement had been relied upon by the respondents as giving them an opportunity to see how the business was performing and that they relied on this rather than the representations in deciding to proceed. The second instalment of the purchase price was not due until 30 June 2017, more than nine months after the agreement was signed.
The applicants also refer to things the respondents had not done, which are said to form part of the overall factual matrix within which the question of causation fell to be considered. These included their failure to rely on lawyers to conclude the agreement, or to engage expert valuers, and a failure to carry out appropriate due diligence. Reliance is placed also on the position of Scarlett as an intermediary, which is said, in effect, to cloud the picture.
Finally, the applicants point to a clause in the agreement that they submit amounted to a disclaimer of reliance. That clause is the subject of ground 4, and we will deal with it in that context.
The respondents submit that the misrepresentation does not need to be the sole cause of the loss.[34] It simply needs to be a material cause. The respondents’ valuation of the business was based on the misrepresentations, which were made repeatedly, both orally and through financial documents the respondents had requested. Scarlett conveyed the representations that Mr Mikkelsen made to both the respondents. Their beliefs regarding past net profit and their assessments of the future profitability of Forever Exotic, and subsequently their decision to enter into the share sale agreement, were ultimately based on the misrepresentations.
[34]Travel Compensation Fund v Tambree (2005) 224 CLR 627, 640 [32] (Gleeson CJ) (‘Tambree’).
The respondents submit that the representations formed part of a course of conduct by which the applicants represented the value of the shares they were offering to sell. The representations were made repeatedly between July and September 2016. Mr Li gave evidence that he decided to invest after being told by Mr Mikkelsen that the net profit margin was 30 per cent every year, that he could pay by instalments, that the dividends of the business would pay for the balance of the purchase price, and that the purchase price would be paid back within four years. Mr Liu gave evidence that he agreed to the purchase based on what Scarlett had told him, and he felt ‘quite satisfied’ after learning that the net profit was over $400,000 per annum, the net profit margin was ‘quite high’ and that the investment could be recouped in four years.
The respondents further submit that, as a matter of principle, a failure to obtain professional advice does not break the chain of causation, relying on Stav Investments.[35]

Analysis

[35]Stav Investments [2022] NSWSC 208 [462]–[466], [544]–[545] (Ward CJ in Eq).

The respondents correctly observe that it is not necessary for the misleading or deceptive conduct to be the sole cause of the loss or damage.[36] It is enough that it play some part as a real inducement.[37]
[36]Tambree (2005) 224 CLR 627, 640 [32] (Gleeson CJ); Henville v Walker (2001) 206 CLR 459, 469 [14] (Gleeson CJ).
[37]Lord Buddha v Harpur (2013) 41 VR 159, 197 [159] (Vickery AJA) (‘Lord Buddha’).
This Court has previously adopted the reasoning of Wilson J in Gould v Vaggelas[38] as a practical guide to the way in which inferences as to reliance can be drawn in cases where misrepresentations bear on the entry into a contract.[39] The question of reliance involves an objective inquiry.[40] If a material representation is calculated (in the sense of being objectively likely) to induce a person to enter into a contract and they do enter into that contract, there is a prima facie inference that the misrepresentation played some part in inducing them to do so.[41] This is an inference of fact that can be rebutted on the facts of the case.[42]
[38](1985) 157 CLR 215 (‘Gould’).
[39]Lord Buddha (2013) 41 VR 159, 188 [129] (Vickery AJA, Weinberg JA agreeing at 162 [1], Tate JA agreeing at 162 [2]).
[40]Ibid 190 [135], citing Hanave Pty Ltd v LFOT Pty Ltd [1999] FCA 357 [45] (Kiefel J) (‘Hanave’).
[41]Lord Buddha (2013) 41 VR 159, 189 [135], 197 [159(1)] (Vickery AJA), citing Hanave [1999] FCA 357 [45] (Kiefel J).
[42]Lord Buddha (2013) 41 VR 159, 197 [159(2)] (Vickery AJA), citing Gould (1985) 157 CLR 215, 238–9 (Wilson J).
Here, the net profit misrepresentations, which were explicitly used to value the business, were clearly of such a nature that they were objectively likely to have played at least some part in inducing the respondents to enter into the agreement.[43] The same is true of the four-year break-even representation. The documentary evidence and the testimony of the witnesses strengthen rather than undermine the inference that the respondents entered into the agreement in reliance on these representations.
[43]Lord Buddha (2013) 41 VR 159 [159(4)] (Vickery AJA), citing Hanave [1999] FCA 357 [45] (Kiefel J).
Mr Li and Mr Liu both separately gave evidence that they relied upon the net profit representations in entering into the contract. They were cross-examined on that subject and the trial judge concluded that there was no reason to doubt their evidence.[44] This is consistent with the documentary record. The three offers provided to the respondents valued the business using a calculation based upon the asserted net profit. The respondents, through Scarlett, repeatedly queried the net profit figures and asked for documentation to confirm the position.
[44]Reasons [11].
The argument that Scarlett’s role as an intermediary broke the causal nexus between the representations and the respondents’ decision to enter into the contract has no merit. There is no basis for any finding that, in conveying Mr Mikkelsen’s statements to the respondents, Scarlett misrepresented, mistranslated or omitted any relevant details. The argument rises no higher than mere speculation. Moreover, the documents speak for themselves.
The argument that the respondents’ desire to enter into the transaction, and their lack of rigour in doing so, sufficed to deny any causal connection between the representations and their entry into the agreement is simply untenable. The applicants conveyed the misrepresentations repeatedly, both in person and in writing. They provided financial documents, including net profit statements and false BAS statements, to support the claims. These documents were highly misleading and cloaked in a false appearance of authority. The respondents squarely focused on net profit and queried Mr Mikkelsen about it repeatedly. The false misrepresentations struck at the heart of the profitability of the transaction and were clearly material to the decision to enter into it. In these circumstances, pointing to the respondents’ desire to enter into the transaction is circular and does nothing to undermine the causal nexus.
The applicants’ reliance on the timing of the second payment is also without merit. Even if the offer to purchase by instalments gave the respondents comfort in being able to see how the business was faring in the meantime, by that point it would be too late to withdraw from the transaction. In any event, the timing of payments was only one aspect of the transaction and could not suggest that the representations somehow lost their power to influence the respondents. There was no evidentiary basis for arguing to that effect.
We reach the same conclusion in respect of the failure to engage appropriate professional advice. The extent to which the respondents acted carelessly is properly a question to be asked in relation to reduction of damages for contributory negligence. But given how instrumental the misrepresentations plainly were to the decision to invest, the failure of the respondents to engage legal or valuation expertise could not have broken the causal connection between the representations and their entry into the agreement.
Finally, the counteroffer of $300,000 made by Scarlett did not point to any break in the chain of causation. A counteroffer is simply representative of what a party is prepared to pay. It is not, without more, a basis for inferring that the proffered figure is the party’s perceived valuation of the business. Further, the offer was refused. The ultimate figure that was agreed upon was consistent with the trajectory of the negotiations — negotiations which centred on the assertions that Forever Exotic had an annual net profit of $400,000 and that the business should be valued on the basis that the respondents should recoup their investment over four years.

We refuse leave to appeal on ground 3.

Ground 4 — purported exclusion clause

Parties’ submissions

Ground 4 relies on a clause in the agreement said to have played the role of an exclusion clause. The ground is as follows:
The learned trial judge erred in failing to find that clause 13 of the Deed of Agreement dated 8 September 2018; (a) excluded any liability of the defendants/applicants; (b) alternatively, excluded any liability of the first defendant/applicant; (c) meant that in all the circumstances the respondents did not rely on or it was not reasonable for them to rely on the representations.
The clause in question was in the following terms:
Each party, as the shareholder of FOREVER EXOTIC PTY LTD, shall not make any claims against the other for any damages, financial losses, liabilities, misleading and misrepresentation arising from its respective company for any previous business operation unless the other party is found to be in breach of the terms of this agreement.
Clause 13 was not raised during the course of the hearing at trial but was pleaded as a term of the agreement in the applicants’ further amended defence.
In this Court, the applicants rely on the case of Banque Commerciale SA (in liq) v Akhil Holdings Ltd to submit that, as cl 13 was referred to in their pleadings, it should have been addressed by the judge.[45] The applicants submit that cl 13 operated to exclude liability for misleading or deceptive conduct and for negligent misstatement. They say that the conduct in this case arose from the operation of Ms Mikkelsen’s business and that the clause was for the benefit also of Mr Mikkelsen, for whom she is said to have been acting as agent.
[45]Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279, 284 (Mason CJ and Gaudron J) (‘Banque Commerciale SA’).
The applicants also submit that the respondents’ agreement to cl 13 meant that, in all the circumstances, they had not relied on the representations when they entered into the agreement.
The respondents submit that the applicants cannot rely on cl 13 by way of appeal because it was not raised during the trial and the applicants should be bound by the way in which they conducted the trial. Moreover, the ground is said to be misconceived in so far as the present case is not brought in contract, and the applicants were not parties to the agreement.
In any case, applying contractual interpretation principles, the applicants say that the clause would not apply to exclude liability. Further, and in any event, they submit that exclusion clauses cannot be relied upon to exclude liability for misleading or deceptive conduct[46] and cl 13 could only be effective at most in respect of the negligent misstatement claim.

Analysis

[46]Oliana Foods Pty Ltd v Culinary Co Pty Ltd (in liq) [2020] VSC 693 [535] (Connock J).

A party is only permitted to raise an argument for the first time on appeal when it is expedient in the interests of justice to allow the point to be raised.[47] This test will only be satisfied in exceptional circumstances.[48]
[47]Water Board (1988) 180 CLR 491, 497 (Mason CJ, Wilson, Brennan and Dawson JJ).
[48]Coulton v Holcombe (1986) 162 CLR 1, 8 (Gibbs CJ, Wilson, Brennan and Dawson JJ); Sambucco v Sambucco [2023] VSCA 199 [29]–[30] (McLeish and Walker JJA and Gorton AJA).
Clause 13 was never raised during the course of the trial. The only reference to it in the court below was in the further amended defence, in which the applicants pleaded the bare existence of cl 13, alongside three other clauses. The pleadings did not contain any allegation regarding the operation of cl 13, as an exclusion clause or otherwise, with respect to the claims.
The applicants have failed to advance any reason why it would be expedient in the interests of justice for them to be permitted to advance arguments based on cl 13 which they did not advance at trial. If it had been submitted that the clause had a contractual operation by which liability was excluded, evidence could have been led as to the circumstances surrounding the parties’ entry into the agreement and its proper construction, bearing in mind that neither of the applicants was identified as a party to the agreement. If it had been submitted that the presence of the clause in the agreement bore on the respondents’ reliance on the representations, that too could have been the subject of evidence and ought to have been put to them in cross-examination.
The applicants sought to rely on Banque Commerciale SA to make good the proposition that, as the matter had been raised in the pleadings, the applicants could now rely on it on appeal.
Banque Commerciale SA does not assist the applicants. In that case, Banque Commerciale SA was one of multiple defendants at trial. It filed pleadings alleging that the action was statute-barred, but otherwise did not appear at the trial. The plaintiff did not file a reply to the bank’s defence but filed a reply to another defence, alleging that the statute of limitations did not apply due to fraud. The High Court held that the bank was entitled to rely on its pleaded defence, which had not been withdrawn.[49]
[49]See Banque Commerciale SA (1990) 169 CLR 279, 287 (Mason CJ and Gaudron J).
Here, in contrast, the further amended defence contained no pleading as to the effect of clause 13. It merely pleaded it in bald terms as a term of the agreement. It was by no means evident from the pleadings that the applicants sought to rely on it as a substantive response to the respondents’ causes of action, or as a circumstance relevant to the question of reliance. In any event, the conduct of the trial, in which the clause appears to have received no mention whatsoever, makes it obvious that even if the applicants had initially sought to rely on it, any such point had been abandoned.
To suggest that the judge ought to have addressed the clause simply because it featured in the defence, bereft of any indication of its relevance, misconceives the function of pleadings. That function is to identify the issues in dispute, so that they may be determined under the adversarial system of litigation. It is not served by blandly mentioning facts or circumstances without articulating any allegations being made in respect of them as part of the party’s case.
We therefore refuse leave in respect of ground 4. We note, however, that we seriously doubt whether cl 13 would have operated as an exclusion clause in the circumstances of this case in any event. The provision is confusing and poorly worded, its scope is not readily understood but appears to be limited, it is far from clear that it could be relied on by the applicants who were not parties to the agreement, and on its face it is neither a disclaimer, nor a no-reliance clause. We also note in respect of the misleading or deceptive conduct claim that this Court has recently affirmed that parties cannot contract out of the prohibition on misleading or deceptive conduct as doing so is contrary to public policy.[50]
[50]Viterra Malt Pty Ltd v Cargill Australia Ltd [2023] VSCA 157 [450] (Sifris, Walker and Whelan JJA). See also Collins Marrickville v Henjo (1987) 72 ALR 601, 613 (Wilcox J); [1987] FCA 556.

Ground 5 — assessment of loss and damage

Parties’ submissions

Ground 5 is a short point about damages:
The learned trial judge erred in awarding the quantum of damages she did. She should have assessed damages on the basis that what had been lost was the difference between the amount(s) paid and the value of the shares (and assets) in Forever Exotic, of which there was no evidence.
The applicants submit that damages in this case should be assessed on the same footing as an award of damages for deceit. The respondents continue to hold the shares despite having recovered the amount they paid for them (subject to the deduction for contributory negligence). At the very least, they say that the judge found that the company owns stock of an agreed value of $150,000 and equipment valued at $50,000.[51] The applicants submit that the measure of damages should have been the difference between the amounts paid, less the value of the shares.
[51]While the Reasons (at [147]) state that the equipment was valued at $50,000, the arithmetic indicates that the agreed value of combined stock and equipment factored into the purchase price was $150,000. The discrepancy is in any case not material.
The respondents submit that this is a no-transaction case, so that they should be compensated for their investment and returned to the position in which they would have been had the misrepresentations not been made.[52] They point to the expert evidence of Ms Wheeler to the effect that a prudent investor would be unwilling to invest in the business and the respondents’ 36 shares in Forever Exotic Pty Ltd were unlikely to be sold to other investors. As such, they say the shares have no value. The respondents indicated, however, that they would not object to orders that the shares be returned to Ms Mikkelsen.
[52]Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, 512 [42] (McHugh, Hayne and Callinan JJ).
Counsel for the applicants initially resisted an order for the return of the shares on the basis that rescission of the contract was not argued at trial. He also submitted that the respondents received dividends of roughly $42,000, which would be a complicating factor and would need to be accounted for if returning the parties to their original positions.
In response, the respondents pointed to a separate payment of $60,000 made by them in working capital contributions. On a no-transaction case, factoring in the $42,000 they had received in dividends, the respondents had a net loss of roughly $17,000. The respondents did not press for an order for payment of this amount.
In reply, the applicants modified their position, submitting that if the shares might have any value, it would be more efficient to order their return to Ms Mikkelsen than to remit the matter for further hearing.

Analysis

In our view, this ground is also without merit. In her expert report dated June 2020, which the judge accepted, Ms Wheeler expressed the opinion that a prudent investor would be unwilling to invest in a business that had generated losses in the financial years ending 2017 and 2018, and for which the financial statements for the financial year ending 2019, and current financial information, were not available. She concluded that the 36 shares acquired by the respondents were unlikely to be sold to other investors.[53]
[53]Reasons [112].
Ms Wheeler went on immediately to state that the loss and damage suffered by the plaintiffs was $690,000 plus interest. Plainly, she regarded the shares as having no market value.[54]
[54]The figure of $690,000 includes an additional amount of $60,000 by way of working capital contribution, which was the subject of a separate claim which the judge rejected and which is no longer pursued.
The judge was entitled to act on this evidence, which was not contradicted. The result is that the assessment of damages was justified and this ground fails.
We accept that it is possible, none the less, that the shares may now have some value (notwithstanding that all parties in the matter before us seemed to lack enthusiasm to own them). Since the parties ultimately agreed that the shares should be returned to Ms Mikkelsen if there was a prospect of them having any value, we will make an order to that effect.

Ground 6 and cross-appeal grounds 1–4 — reduction for contributory negligence

It is convenient to deal with the remaining grounds together.
Ground 6 of the proposed appeal is as follows:
The learned trial judge erred in her assessment of the reduction or discount of damages of 15% under section 236(1) of the ACL and contributory negligence. She should have assessed the reduction or discount as of the order of 50%.
The remaining grounds of the proposed cross-appeal are:
1.The learned primary judge made an error of fact in finding at [222] and [223] of the reasons that there was no evidence that the Cross-Applicants undertook any due diligence in relation to the purchase of the shares.
2.The learned primary judge made an error of fact in finding at [223] of the reasons that the Cross-Applicants did not seek professional external advice before purchasing the shares.
3.The learned trial judge made an error of law in failing to assess the relative culpability of the Cross-Applicants and the Cross-Respondents as representee and representor respectively.
4.The individual and/or cumulative effect of the errors set out at grounds [1] to [3] above, was that the learned primary judge erroneously reduced damages by 15% under section 137B of the ACL when there was no proper basis for that reduction.

Parties’ submissions

In short, the applicants contend that the appropriate reduction for contributory negligence was in the order of 50 per cent, whereas the respondents submit that there should have been no reduction at all. Since we have already upheld ground 4A of the cross-appeal, these issues strictly arise only in respect of the claim for negligent misstatement. We will assume, however, in the alternative, that s 137B of the Commonwealth ACL Act may have application if our conclusion as to ground 4A is wrong.
The applicants submit that a reduction of 15 per cent was out of all proportion to the comparative culpability of the parties, examining the whole of their conduct.[55] They rely on the respondents’ failure to engage legal, accounting and business valuation experts to assist before the sale, and their failure to conduct due diligence in light of their own vulnerability and the amount involved.
[55]Podrebersek v Australian Iron and Steel Pty Ltd (1985) 59 ALR 529, 532 (Gibbs CJ, Mason, Wilson, Brennan and Deane JJ); [1985] HCA 34 (‘Podrebersek’).
The respondents submit, in the context of ground 6 at least, that a question of apportionment is not lightly to be reviewed.[56] In any event, carelessness in not making other inquiries is no answer to a claim when the plaintiff has done that which the defendant intended they should do.[57]
[56]Ibid.
[57]Stav Investments [2022] NSWSC 208 [544] (Ward CJ in Eq).
The respondents challenge the judge’s finding that they did not conduct due diligence, pointing to the fact that Scarlett had a commerce degree and asked detailed financial questions, including about the cost price of stock, profit margins, depreciation and stock value. Scarlett pressed requests for financial statements and other verified documents. The respondents therefore made ‘due diligence’ inquiries and trusted the applicants to answer them honestly.
Further, the respondents say the judge was wrong to find that, while they engaged a lawyer, that person only pointed out the figures, how many shares were bought, what the instalments involved and when payment was due.[58] Scarlett gave evidence that the lawyer explained these matters, but without confining her answer or offering a precise recollection. The respondents declined to go further into the legal advice they received, claiming privilege.
[58]Reasons [19].
The respondents finally submit that the judge failed to evaluate the relative culpability of the parties. The applicants made repeated misrepresentations to vulnerable parties who relied on them as the applicants intended them to do — the very risk the legislation was intended to prevent. There was no evidence as to what additional inquiries the respondents should have undertaken, what professionals they should have engaged, or what outcome might have resulted had those things been done. The respondents submit that the judge’s failure to assess the relative culpability of the parties was a legal error that reopens the discretion as to what is just and equitable by way of reduction for contributory negligence, for this Court to exercise afresh.[59]

Analysis

[59]House v The King (1936) 55 CLR 499, 504–5 (Dixon, Evatt and McTiernan JJ).

The question of contributory negligence involves a three-stage inquiry.[60] The first is whether the respondents failed to take reasonable care. The second, which arises if the respondents did not take reasonable care, is whether their loss or damage was ‘as [the] result partly’ of that failure to take reasonable care.[61] Thirdly, the question is what reduction in damages, if any, is just and equitable having regard to the parties’ respective shares in the responsibility for the loss and damage.
[60]Section 137B of the Commonwealth ACL Act of course involves a fourth stage, addressing the question whether the defendant intended to cause the loss or damage, or did so fraudulently.
[61]Commonwealth ACL Act, s 137B; Wrongs Act, s 26(1).
It is implicit in the respondents’ first and second grounds of cross-appeal that they accept that they were under an obligation to take reasonable care by undertaking due diligence and seeking professional external advice before purchasing the shares. Their challenges to the judge’s finding of fact that they failed to do those things have little merit. The judge was entitled to find that the respondents failed to undertake due diligence. As the applicants correctly identify, the standard of due diligence is a question of fact dependent on all the circumstances of the case. Given the amount of money involved, it was open for the trial judge to consider that Scarlett’s inquiries, directed to the applicants themselves, were not adequate ‘due diligence’ and that a reasonable buyer would have done more. In particular, the respondents appeared prepared to accept the non-responsive and self-contradictory letter signed by Mr Pavlou, rather than press for a proper response to their request for a signed profit and loss statement for the correct financial year. For these reasons, we reject the first proposed ground of cross-appeal.
It was also open for the trial judge to conclude that the respondents did not seek professional external advice. It is not disputed that they did not seek professional accounting or valuation services. In respect of the legal advice provided, Scarlett gave evidence that the respondents’ solicitors drafted the contract and explained the key terms in a general way. This was hardly germane to the wisdom or otherwise of entering into the agreement or relying on the representations. It was at this point that counsel for the respondents intervened on the basis of legal professional privilege. Given the decision not to waive privilege on any legal advice, the respondents cannot now assert that they were provided with such advice. We therefore reject the second proposed ground of cross-appeal.
However, we are not convinced that the judge properly assessed whether the respondents’ loss or damage was ‘as [the] result partly’ of the failure to take reasonable care. This language requires there to be a causal link between the failure to take reasonable care and the loss or damage suffered. This does not involve a ‘but for’ test of causation,[62] but does raise the question whether the failure to take reasonable care was a factor in the subsequent loss or damage suffered. The judge did not explicitly address this question.
[62]Tambree (2005) 224 CLR 627, 638 [25] (Gleeson CJ). This is additionally made clear by the statutory language requiring that the claimant suffered the loss or damage ‘as [the] result partly’ of the failure to take reasonable care and ‘partly’ of the misleading or deceptive conduct: Commonwealth ACL Act, s 137B.
In our view, in circumstances where the applicants repeatedly made false representations, using documents that were highly misleading and gave the false appearance that the figures they put forward were authoritative (in particular the false BAS statements and the letter signed by Mr Pavlou in relation to the profit and loss statements), it is not clear that a failure on the part of the respondents to conduct due diligence or obtain further advice contributed to their loss at all. The focus of the respondents’ argument was on the level of apportionment (the third stage of the inquiry), even assuming the causal connection was established. But in truth these issues are intertwined. The question of apportionment looks at culpability for the loss and the relative importance of the acts of the parties in causing the loss.[63] Without causation, no question of culpability for the loss arises.
[63]Podrebersek (1985) 59 ALR 529, 532 (Gibbs CJ, Mason, Wilson, Brennan and Deane JJ); [1985] HCA 34.

In any event, in our view, the judge did not assess the relative culpabilities of the parties. Instead, she identified what a prudent purchaser acting reasonably would have done and stated the result she considered just and equitable as a result.[64] A comparative analysis required her to have regard to the actions of both parties and identify their relative importance in causing the loss.
[64]Reasons [223]–[224].
When that is done, we think it is clear that there should be no reduction on account of contributory negligence. The applicants’ representations were unequivocal. They were made repeatedly and in oral and written form, including in documents giving the false appearance that the figures were authoritative. The representations bore directly on the question what the shares the subject of the transaction were worth. They were central to the respondents’ decision to enter into the contract and the applicants were encouraging the respondents to enter into the agreement on the basis of the representations. To the knowledge of the applicants, the respondents were vulnerable as a result of language difficulties and trusted what the applicants told them about the business. The respondents, through Scarlett, pressed repeatedly for evidence supporting the representations and were provided with documents which seemed, falsely, to achieve that purpose. In these circumstances the respondents’ failure to undertake due diligence or engage other advisers was of negligible significance, if any, in causing their loss.
Rather similarly, as noted by the applicants, in Stav Investments,[65] Ward CJ in Eq rejected a claim for contributory negligence in relation to misrepresentations in the context of the sale of a business. She said:
Of relevance in determining whether reliance upon a misrepresentation was negligent is whether a due diligence process was undertaken; whether there was an obligation (or indeed an ability) to ‘double guess’ the representation given; and whether there was exhibited a lack of care in performing the actions induced by, and consequent upon, the misrepresentation. Where the information available to the plaintiffs did not identify with sufficient clarity the risks of the investment, where the defendants failed to disclose those risks which they themselves knew about, and where instead the defendants made repeated representations as to the lack of risk, the plaintiffs were entitled to accept the defendants’ words and deeds at face value, particularly in light of their repeated inquiries as to the possible risk, and the defendants repeated assurances that the risk had been ‘dealt with’ in response.[66]
[65][2022] NSWSC 208.
[66]Stav Investments [2022] NSWSC 208 [544] (citations omitted).
We find those observations applicable to the present case.
We therefore grant leave to appeal on the cross-appeal and allow the appeal on grounds 3 and 4.

Conclusion

In the result, we refuse the applicants leave to appeal. We grant the respondents leave to cross-appeal in respect of grounds 3, 4 and 4A and allow the cross-appeal. We otherwise refuse leave to cross-appeal.
The judge’s orders should be set aside and in their place there will be judgment for the first plaintiff (respondent) in the sum of $70,000 plus interest, and judgment for the second plaintiff (respondent) in the sum of $560,000 plus interest.
As we have indicated, we will also make orders for the return of the shares to Ms Mikkelsen.
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SCHEDULE OF PARTIES

S EAPCI 2022 0022

ZOEY MIKKELSEN	First Applicant
JAN MIKKELSEN	Second Applicant
v
ZHIREN LI	First Respondent
BAOTONG LIU	Second Respondent

S EAPCI 2022 0029

ZHIREN LI	First Cross-Applicant
BAOTONG LIU	Second Cross-Applicant
v
ZOEY MIKKELSEN	First Cross-Respondent
JAN MIKKELSEN	Second Cross-Respondent

[2023] VSCA 255

26 October 2023