Shao v Zhang; Zhang v Shao - [2022] NSWDC 38

District Court

New South Wales

Medium Neutral Citation: Shao v Zhang & Anor; Zhang & Anor v Shao [2022] NSWDC 38
Hearing dates: 27 – 30 July, 2 – 5 August, 29 September, 02 and 17 November 2021
Date of orders: 28 February 2022
Decision date: 28 February 2022
Jurisdiction: Civil
Before: Gibson DCJ
Decision:
Orders:
(1)   Judgment for the defendants on the statement of claim.
(2)   Judgment for the defendants/cross-claimants on the cross-claim in the amount of $269,237.46.
(3)   Costs and interest reserved, with liberty to apply.
(4)   Exhibits retained until further order.

Catchwords:
CONTRACT – purchase of beauty business not completed – whether misleading or deceptive conduct arose from silence about the transfer provisions in the lease – claim for restitution – cross-claim for loss of the bargain – significant credit issues - no issue of principle

Legislation Cited:
Evidence Act 1995 (NSW) s 128

Cases Cited:
Amalgamated Television Services Pty Ltd v Marsden [2002] NSWCA 419
Caprice Property Holdings Pty Ltd v McLeay [2015] 1 Qd R 206
Carpenter v McGrath (1996) 40 NSWLR 39
Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64
Demagogue Pty Limited v Ramensky (1992) 39 FCR 31 at 32
Du Buisson Perrine v Chan [2016] WASCA 18
Eastern Garden Pty Ltd v Stone and Another [2005] SASC 157
El Ali v Tritton (2019) 19 BPR 39447
ET-China.com International Holdings Ltd v Cheung [2021] NSWCA 24
Goodrich Aerospace Pty Ltd v Arsic [2006] NSWCA 187
Holland v Wiltshire (1954) 90 CLR 409
Lam v Ausintel Investment Australia Pty Ltd (1989) 97 FLR 458
Mallegowda v Sood [2019] NSWCA 37
Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560
McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457
Morvatjou v Moradkhani [2013] NSWCA 157
Ogle v. Comboyuro Investments Pty Ltd (1976) 136 CLR 444
Pacific Shoji v Xia [2018] NSWCA 290
Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537
Prothonotary of the Supreme Court of New South Wales v Mallegowda [2016] NSWSC 1087
Prouten v Chapman [2021] NSWCA
Terrex Resources NL v Magnet Petroleum Pty Ltd and Others [1998] 1 WAR 144
Thornton v Telegraph Media Group Ltd [2011] EWHC 1884 (QB)
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
Woods v Woods (2000) NSWSC 851

Category: Principal judgment
Parties: Plaintiff/cross-defendant:
Mr Woquan Shao
Defendants/cross-claimant:
First defendant/ First cross-claimant:
Ms Liying Zhang
Second defendant/ Second cross-claimant:
Oceania Investments Group Pty Ltd
Representation:
Counsel:
Plaintiff/cross-defendant:
Ms F Ashworth with Ms E Beljic
Defendants/cross-claimant:
Mr A Harding with Mr B Cameron
Solicitors:
Plaintiff/cross-defendant:
Brightstone Legal
Defendants/cross-claimant:
Concisus Legal Pty Ltd

File Number(s): 2020/00135051

Table of Contents (Paragraph)

Judgment

The claim and cross-claim 1
The issues in the case 6
Case management issues 12
Mr Shao, Ms Zhang, Mr Yan and Oceania 16
An overview of the events leading to the three contracts 22
The first agreement (“the Licence agreement”) 33
The second agreement (“the July agreement”) 40
The third agreement (“the Purchase agreement”) 42
The terms of the lease 49
The plaintiff leaves the Coco beauty business 50
Facts which are not in dispute 55
The “permitted representation” 56
Credit issues for the plaintiff: 81
An overview of the challenges to the plaintiff’s credit 82
The $20,000 cash payment 84
Summary of findings about the $20,000 cash payment 127
Attempting to get Mr Yan to change his evidence 130
The 16 January 2020 conversation 136
Did the parties agree to terminate the purchase agreement on 16 January 2020? 137
Was the plaintiff an unsophisticated businessman? 152

Credit issues for the first defendant and Mr Yan: 166
The credit of Ms Zhang 171
The credit of Mr Yan 175

The claim for misleading or deceptive conduct 188
The defendants’ “tenant” argument 202
Did the plaintiff rely upon the “permitted licence representation”? 208
Repudiation 213
The plaintiff’s claim for restitution 220
Conclusions concerning liability 226
The cross-claim and the defendants’ claim for damages 227
Loss of bargain damages 231
The value of the business name 242
The lease bond 246
Loss of opportunity to license credentials 249
Failure to plead contractual entitlement 255
Loss of licence fees – is there a double recovery? 256
Damages for breach of the purchase agreement 261
Agents’ fees, solicitors’ fees and assignment of the lease 268
Customer debt 270
Summary of items claimed in the cross-claim 271
Orders

Judgment

The claim and cross-claim

These proceedings are claims by both parties arising from three agreements they entered into concerning the proposed purchase of a beauty business (“Coco”). The plaintiff’s lease of the business and premises failed to be completed by him.
The plaintiff, by second further amended statement of claim filed on 2 August 2021, brings proceedings for sums calculated as totalling $157,954 and the AUD equivalent of RMB515,000 (as well as an amount equivalent to any assessment of liability on the cross-claim). In very general terms, the defendants’ argument is that the plaintiff was in repudiatory breach of the contract and that his claims of misleading or deceptive conduct must fail because the representation, if made, was neither deceptive nor relied upon and had no causal connection with the plaintiff’s decision to abandon the beauty business leasing contract.
The defendants, by amended statement of cross-claim filed on 29 July 2021, seek damages for expectation losses, outgoings, agents’ fees and other outgoings, and calculate the losses identified in the cross-claim as totalling $329,000. The plaintiff disputes any entitlement to claim for these losses and outgoings.
As much of the fact-finding requires the acceptance or rejection of the evidence of Mr Shao and Ms Zhang, credit issues loom large. In determining those issues I have, however, been guided by Court of Appeal observations as to the correct approach when making findings of credit: Prouten v Chapman [2021] NSWCA at [4] – [17] and [32] – [51]; Pacific Shoji v Xia [2018] NSWCA 290 (in particular, as to conduct designed to minimise or evade customs duties: at 8(4), [34]ff and [93]). Tugendhat J’s summary of the relevant principles in Thornton v Telegraph Media Group Ltd [2011] EWHC 1884 (QB) also provides useful guidance.
Another important factor to take into account is the role that a different cultural or ethnic background may make to demeanour and credit findings, especially where the relevant background facts may have been a factor in the parties’ approach to the transaction in question: Goodrich Aerospace Pty Ltd v Arsic [2006] NSWCA 187. One example of this factor in these proceedings is the reference by both the plaintiff and the first defendant to the Chinese concept of “chengbao” (承包) in terms of the nature of the contract.

The issues in the case

The principal issue, according to the plaintiff, is whether the plaintiff relied upon an alleged misrepresentation by the defendants that the licence and subsequent lease for the premises at which the Coco beauty business traded was permitted by the terms of the lease. The plaintiff’s case is that the defendants, by omission, represented to the plaintiff, in terms that were misleading or deceptive, that there were no difficulties with the licence or transfer of the lease, and that the loss suffered by the plaintiff (including a contested payment of $20,000 in cash) when the sale of the business could not proceed entitles him to restitution of the instalment payments as well as payments under the licence agreement. As the first defendant was the sole director of the second defendant and made the representation, she is directly liable, with the second defendant, for its misleading or deceptive nature.
The second major factual issue for determination is whether the defendants agreed with the plaintiff to end the purchase agreement by mutual consent in a discussion on 16 January 2020.
The plaintiff’s financial claims may thus be summarised as follows:

The claim for return of the payments totalling $185,000 made by the plaintiff which is referred to above, on the basis of misleading or deceptive conduct, or restitution.

A claim for overpayment of business expenses (paragraphs 25A – 25H of the current statement of claim)(“the business expenses paid claim”). The disputed item here is the cash payment of $20,000 which the plaintiff says he made on 25 June 2019.

Adjustment of expenses and income for the business (“the net loss claim” based on an agreed figure of $174,911.38 business income and $203,978.78 business expenses, which the defendants estimate at $29,066.90. the defendants acknowledge an overpayment of $18,133 recoverable by way of set-off (but against the second defendant only, and not Ms Zhang, as she was not a party to the licence agreement).

According to the plaintiff’s submissions of 11 September 2021, the total sum claimed for the loss or damage suffered by the plaintiff (by reason of the permitted licence representation) is $157,954 and RMB 515,000. The plaintiff is also entitled to be repaid amounts paid under the licence agreement which were in excess of his liability to do so, being the total of $27,674.98 and RMB 140,000.
For the defendants/cross-claimants, Mr Harding SC and Mr Cameron, in their extensive written submissions of 24 September 2021 at paragraph 4, submit that a third essential issue is whether or not the plaintiff paid the sum of $20,000 in cash to the first defendant on 25 June 2019. The defendants’ case is that there was no representation made, that any such representation was not misleading and that there was in any event no reliance. The defendants/cross-claimants argue that the purchase agreement between the plaintiff and the second defendant remained in force after 16 January 2020, that the plaintiff was in repudiatory breach of that agreement by failing to continue to make payments, and that the second defendant accepted that repudiation by its sale of the business to a third party in December 2020.
The issues in the cross-claim arise if the plaintiff’s claim fails. The quantum of the cross-claim ($311,125.46) is the quantum of loss arising from, principally, loss of the bargain (the business having been sold for a reduced amount) and adjustment of outgoings and the like, less certain deductions in favour of the plaintiff for over-contributions totalling under the licence agreement. The cross-claim is predicated upon the amounts already paid by the plaintiff being retained.

Case management issues

These proceedings were set down for hearing for four days but took more than twice that time, and the consequential delays created court management difficulties (in terms of adjournments and readiness of the parties) as well as problems for the parties themselves.
The hearing was conducted entirely through AVL by reason of the pandemic. This contributed, to a degree, to the proceedings taking longer than anticipated, as did the fact that all the evidence had to be translated which, on occasion, led to arguments about the translation.
The principal reason for the delay, however, was the redrafting of the claims on both sides in the two weeks prior to the commencement of the hearing. The degree to which these changes to pleadings and additional affidavit material contributed to delay and subsequent adjournments of the hearing will be relevant to the issue of costs.
There were also delays in relation to the plaintiff’s written submissions, although largely attributable to the causes set out above. I note, however, that the defendants’ submissions were both timely and comprehensive.

Mr Shao, Ms Zhang, Mr Yan and Oceania

Mr Shao (hereafter referred to as “the plaintiff”), although born in China, is a resident of New Zealand, where he has had some business activities. As well as being the director of several companies in New Zealand, he is a qualified electrician. It was in fact in his capacity as an electrician that he came across the Coco Beauty business, after he was asked by a Mr Min Yan, a friend of Ms Zhang, to come to the Coco Beauty shop premises to mend a broken light fitting. (I note that, according to a letter dated 3 March 2020 from his solicitors attached to his first affidavit, the plaintiff first became aware of the Coco business being available for sale when he noticed an advertisement on the website of SBX Business Brokers and that the plaintiff confirmed this at T 84; nevertheless, he agreed that he did go to the shop to repair the light). The plaintiff’s affidavits provide very little other background about his prior education and work history.
As there are two defendants, I have referred to these as “Ms Zhang” and “Oceania”. There is more information available about the Ms Zhang’s background than about the plaintiff’s, although it, too, is limited. She was born in China and came to Australia to live in 2009, where she obtained qualifications as well as employment in a beauty salon. She wanted to open her own beauty business, so she borrowed from family members as well as contributing her own savings.
On 6 August 2012, the second defendant (“Oceania”) was incorporated to serve as the corporate owner of her business. In about April 2014, after Ms Zhang had moved to New South Wales, the second defendant was granted a lease for the premises at which Coco has maintained its activities ever since. Ms Zhang, who had completed several courses in beauty therapy and remedial massage, worked as a cosmetologist as well as being the manager of the business.
For health reasons, Ms Zhang decided to sell the business in or about May 2019, and this led her, through an agent, to place the advertisement for sale of Coco seen by the plaintiff. The text of that advertisement is as follows:

“SBX          Coco Beauty         Price:       $450,000
Net profit:   $6,130
Shop 5, Sky view shopping plaza, 537 George St Sydney NSW
Business code: M 2061
Key Feature: upmarket equipment
State: NSW
Location: Situated in very busy shopping town in Sydney CBD Centre
Description
Beauty salon – licensed medical centre specialising in anti-ageing of cytokines focusing on face, body and life beauty acne and freckle removal, micro plastic, plastic surgery and cooperation with Australia medical scientist – Private medical insurance cover – New technical microelectronics practice – upmarket equipment at a cost of $500k. – 5 treatment rooms. – Regular and high income customers mostly professional females.
Summary Features: top location –well known by industry – New advance practice – large number of loyal customers – low rent – very high margins – great potential – well priced
Potential: Setup own website – promote social medial – A full time working and motivated owner could boost the business to a new and high level.
Premises: Modern premises with an area approx. 110M2.
Trading Hours: 7 days -11:30a.m.- 8:30p.m.
Lease: 5 year lease+5 years option commence April 2015 4% increase – 4 months bond
Employees: Under management – 3 staff and appointment cosmetic Surgeon
Comments: Misc-1- Refers to accountant fee, bank fee, advertising, motor vehicle and travel fee etc. – The figures are based on FY 2017 profit & loss statement – This is a well located business with high profit in the centre of Sydney CBD- The sale price includes all expensive shop equipment – keen vendor – Full training will be provided – Please don’t speak to anyone when visiting the shop.- Inspection must be through broker.
Weekly Summary
Weekly Taking (Inc GST)      $14,000
Cost of Goods            $200
Gross profit             $13,800
Rent               $1,846
Wages               $2,112
Outgoings             $88
Telephone            $74
Insurance            $130
Electricity            $190
Misc1               $3,230
Total Expenses         $7,670
Net Profit            $6,130
Price                $450,000”

Mr Yan, who introduced the parties and attended contractual meetings, played a role of an unusual kind. He told the court he had worked in real estate before he retired (T 375) and that his involvement came about because he knew both parties prior to the plaintiff expressing an interest in the Coco Beauty Business. He swore an affidavit stating that he had known the plaintiff since 2019 because they were both involved in “the Chinese cinema industry” (affidavit of 13 July 2021, paragraph 4) and also that he had known Ms Zhang for some time longer (since 2015), apparently as the owner of the Coco Beauty Business, although in what capacity (since he seems unlikely to have been a client in a female beauty shop) he had dealings with her is uncertain.
Mr Yan provided advice and assistance to both parties in the course of their negotiations. The reasons why both the plaintiff and Ms Zhang reposed so much trust in him were not the subject of cross-examination.

An overview of the events leading to the three contracts

Although he had no prior experience in beauty salon work or management, the plaintiff became interested in purchasing the business and met Ms Zhang on 15 June 2019 at the salon to discuss this. The reason for his interest in the shop appears to have been that he thought it was a profitable business and that a chain of beauty shops could be built up from it (as Ms Zhang notes in her account of the conversation at paragraph 43 of her affidavit of 23 February 2021). The plaintiff said that he was looking for a business to invest in, and that he was struck by the name of the business, for the following reasons, and accordingly arranged to meet Ms Zhang for dinner, with Mr Yan also being present:

“That [meeting] was actually two or three days after and me and Mr Yan made appointment with Zhang, because at that time I was trying to do some online business, and I saw advertisement, which the name brought my attention. It was very particular. It was very unique. It is called Coco Beauty, because my it was also my wife's name. I was actually trying to locate some online business.
HARDING Q. All I'm trying to understand is whether you had dinner with Mr Yan and Ms Zhang?
A. INTERPRETER: Yes, it was in that few days two or three days after we fix up the lighting. So, yeah, we did - we went out for - we went to go out for dinner - for meal.” (T 84)

At that meeting, according to the instructions the plaintiff gave his solicitors, Ms Zhang proposed that the plaintiff either purchase the business outright the $200,000 or alternatively that he obtained the right to operate the business for a limited period for a fee of $100 per day.
This is different to the evidence given by Ms Zhang, who sets out that the plaintiff said he wanted to purchase the Coco business but did not have the asking price she was seeking ($450,000) and instead asked to run the business on a contracted management or “chengbao” basis (Exhibit A, affidavit of Ms Zhang affirmed 23 February 2021, paragraphs 40 – 49). She described the plaintiff as having said:

“Sister Zhang, I don’t have $450,000 right now. But I hope you can consider letting me run the business on a “contracted management” basis temporarily. I am raising funds and I believe I will come up with the money for the purchase soon.”

Ms Zhang asked how the arrangement would work, to which the plaintiff replied “I can continue to run all of the income through your business’ current bank account so that you can monitor and ensure that I will pay all of the businesses expenses.”
Ms Zhang said that she was prepared to accept this arrangement as it would give the plaintiff time to familiarise himself with the business as well as to raise money in the shop. She described this as being a business run on “contracted management” principles once again (affidavit, paragraph 43). I include these quoted excerpts from the translated affidavit because this is as close as the parties get to describing what they mean by a “chengbao” agreement, and this is the explanation offered by Ms Zhang in paragraphs 44 - 45, which follows the paragraph setting out the conversation above. The plaintiff never provided any definition to the contrary.

Absent from this discussion was an agreement as to the final price, and this is reflected in the first of the three contractual documents entered into by the parties. This would be of some significance if these arrangements were to be viewed in terms of traditional contractual principles, as price is generally regarded as one of the essential elements for there to be a contract. It is notable, however, that, whatever other issues of law raised in these proceedings, there is no submission made on either side to the effect that the parties failed to agree, or that they merely had an agreement to agree, or that the essential elements for a concluded contract were not present.
Two factors are relevant to the circumstances in which the parties entered into this “chengbao” agreement. The first is that the parties both understood what each other meant, and were drawing upon common cultural business practices, which included the role played by Mr Yan, who was acting as a kind of “go-between” on the transaction. The second is that neither of them consulted a lawyer. According to Ms Zhang, the plaintiff said that “lawyers in Australia are just a waste of money. They’re too expensive and they don’t do enough work for the money we pay them” (paragraph 43). The plaintiff suggested that he draw up a contracted management contract himself or, if she would prefer to do so, Ms Zhang could do this.
In his evidence, the plaintiff denied that his conversation with Ms Zhang had been in the terms set out in her affidavit (T 84 – 85). However, as Mr Harding SC pointed out, he had not challenged the relevant parts of the conversation set out by Ms Zhang in her affidavit. His response to this being pointed out to him was as follows:

“Q. You said to Ms Zhang at the meeting at the Chinese restaurant the following? Can you translate that please? "Sister Zhang I was impressed when I was at your shop the other day. I am interested in buying your business. Although I have not run a beauty clinic before I am greatly experienced in different businesses and I feel confident I can make Coco Beauty a well known brand." You don't disagree, do you, Mr Shao, that's what you said to Ms Zhang?
A. INTERPRETER: No, I didn't say that. That's not correct, I didn't say that.
Q. Well, in your affidavit of June you did not dispute or disagree with this conversation?
A. INTERPRETER: Okay, okay. As a man I have no idea I have no clue of how to operating [sic] a beauty business. How can I possibly run that kind of business?
Q. Well, that's exactly why you signed a licence contract to run that kind of business, isn't it, Mr Shao?
A. INTERPRETER: Well, the first time I - in our first meeting we didn't really talk about anything about a licence contract. I'm just trying to get some information. I'm trying to get some information to know about or what the beauty business is.” (T 84 – 85)

It is clear from the WeChat messages which followed this meeting, the contents of Mr Yan’s evidence and the behaviour of the parties that Ms Zhang’s account of the conversation must be correct. This was no mere discussion of generalities.
This extract from the plaintiff’s cross-examination is one of a number of examples of the plaintiff challenging or denying evidence which had not been put in dispute, followed by an implausible explanation for doing so (in this case, the fact that he was a man who knew nothing about beauty shops). In the section of this judgment on the credit and reliability of witness evidence, I have set out other examples. For the reasons set out more fully in that part of the judgment, where there is disagreement as to the factual events, I have preferred the evidence of Ms Zhang unless otherwise indicated.
The evidence points to the parties having a series of discussions including not only over dinner in Mr Yan’s presence, but also in an exchange of correspondence on WeChat. The plaintiff decided to take the second option Ms Zhang proposed, namely a licence for a limited period, which was recorded in a contract, written in Chinese, dated 21 June 2019 prepared this document in triplicate so that not only the plaintiff but also Mr Yan (described as the “guarantor”) could sign and retain an executed copy.

The first agreement (“the Licence agreement”)

The first agreement was signed on 21 June 2019 (CB 1, 43-44), and the parties agree it remained on foot until it was terminated by the plaintiff as at 8 March 2020. The text was as follows:

“Coco Medical Cosmetology Centre License Agreement
Party A: Coco Medical Cosmetology Centre
Address: shop 5 Skyview Shopping Plaza 537 George Street, Sydney 2000 Telephone: [redacted] Mob: [redacted]
Email: [redacted]
Party B:
Name: SHAO WO QUAN SAM
Address: [redacted]
Passport number: [redacted] Telephone: [redacted]
Email: [redacted]
Upon amiable negotiation between party A and party B, on the basis [sic] mutual good faith, the parties agree to the following:
1. on agreement:
a. Party A licenses the business known as Coco Medical Cosmetology Centre located at 537 George Street to Party B for the period of half a year, from 1 July 2019 to 1 January 2020.
b. During the period of the contract, Party B will be responsible for payment all rents, outgoings and employee wages.
c. Party B will pay wages In accordance with the relevant employment law, or work hour as per agreement between the parties. Party B will be responsible for all industrial dispute during the contract period.
d. Upon signing of this agreement, party B wilt pay $30,000 into party A's account, for the purpose of paying the rent for the next one month, the remaining, being $20,000, is to be reserved as advance security payments (the current rent and utility bill is approximately $10,000, refer to bank statement for specific figure. On the first day of the month after the next month, payments for the following month becomes due, so on and so forth).
e. During the licensing period, party B need to pay Party A $100 per day as collaboration fee, payable on the date of signing of this Agreement, totalling $18,500.
f. During the licensing period, party B is entitled to all profits and is responsible for all expenses.
g. During the licensing period. Party B must maintain standard of service, and the image of the business.
h. Employee's wage are payable on every Thursday, Party B must calculate and send a record of each employ's wage to Party A latest by 5:00pm, Wednesday every week, to allow party A to pay the employees.
NOTE: party B should also ensure that there is at least $20,000.00 reserved in the business' bank account at all times.
i. All other expenses are payable by party B, Party A will only help party B with transferring rent payment, utility payment and employee wage. The
j. Refer to accountant for GST and tax.
k. During the licensing period, if there is any party who expresses interests to purchase, or invest in shareholdings of the business, party B is not allowed make decisions on his own, but must refer such interests to party A.
l. During licensing period, party B is allowed to use alt equipment in the business, but must exercise care and carry out maintenance regularly. Party B is responsible for any damages causes. Should any equipment be lost at the end of the contracting period, Party B must repay party A In full.
m. During the contracting period party A will assist party B with wage payment and marketing.
n. Party B is not allow [sic] to carry out the same business within 10KM of COCO BEAUTY within 5 years.

2.   Default
During the term of this agreement, if either party defaults on their obligations pursuant to the agreement, the defaulting party is to pay $50,000 to the other party. Examples include if party B withdraws from the agreement without proper cause, or party A terminates the agreement without property cause, unless a new buyer agrees to enter the agreement.
3.   Upon completion of the agreement, parties agree to stop the contracting relationship, party B did not violate any operation guideline, and did not cause any damage to company property, including equipment and etc.
4.   Post-termination procedures:
a. Party B must clear all debts incurred during the contracting period.
b. Check company Inventory and stocks.
c. Party A refund the remaining security payments to Party B if there are no debts or damages to any equipment.

5.   Should any dispute arise during the licensing period, the parties shall, with principles of cooperation and progress in mind, negotiate and settle the dispute.
6.   If there are outstanding matters, the parties could amend or add such matters to this agreement. Such amendments or additions shall have the same agree to engage in dispute resolution
7.   To guarantee COCO BEAUTY’S property, reputation, safety of all equipment and the performance of the agreement, Min YAN agrees to be Party B's guarantor, and witness for both parties.
8.   The parties agree to the terms set out above, and this agreement shall come into effect upon the signatures by party A, B and witness. There are three counter copies of this agreement.”

According to the letter from the former plaintiff’s solicitors dated 3 March 2020, the first agreement payments were made in the following ways:

“(i)   RMB60,000 (approximately $12,000) by way of WeChat Pay to Ms Zhang’s personal WeChat Pay account from our client’s WeChat Pay account on 25 June 2019, 13 July 2019, 15 August 2019 and 17 August 2019.
(ii)   $5,000 by way of bank transfer to the Oceania Bank Account from our client’s personal bank account on 26 June 2019,
(iii)   $10,000 by way of bank transfer to Ms Zhang’s nominated NAB bank account (BSB [redacted]; Acc No: [redacted]) from our client’s personal bank account on 13 July 2019,
(iv)   RMB205,000 (approximately $41,000) by way of bank transfer to Ms Zhang’s nominated Bank of China bank account (Acc No: 621660 0400000597346) from our client’s personal bank account on 26 June 2019 and 13 July 2019,
(v)   $20,000 transfers to Ms Zhang’s personal account from the Oceania Bank Account on 17 August 2019, and
(vi)   $20,000 in cash payments made by our client to Ms Zhang in person on or about 25 June 2019.”

The payment identified in (vi) above is the subject of challenge; the defendants say no such cash payment was ever made.
This letter from the plaintiff’s solicitors sets out that the amount payable was approximately $98,500, comprising a $20,000 deposit to be held by the defendants’ pending completion of the first agreement, $18,500 for a collaboration fee and approximately $10,000 per month for six months to cover rent and other outgoings. Only $5000 was paid into the company bank account; the rest was paid to the first plaintiff personally.
Confusingly, this letter does not refer to the second agreement entered into by the parties. Instead, according to the letter from the plaintiff’s solicitors of 20 March 2020, unauthorised transactions by the first defendant led him to suggest to her that he should purchase the business outright in order to obtain full control over the business, including the bank account, and this resulted in the 4 November 2019 agreement which is called the second agreement.
It is in the context of the making of the second agreement that the plaintiff’s solicitors made the following statements in this letter about the plaintiff:

“Our client is not a commercially sophisticated person. He has had no previous experience as a business owner in Australia. He has been in Australia for only approximately three years. In addition, he trusted Ms Zhang and assumed she would deal with him fairly and honestly. All these matters were known to Ms Zhang.”

As is set out in more detail in the section of this judgment on credit and reliability, I do not regard this as being an accurate description of the plaintiff’s business acumen.

The second agreement (“the July agreement”)

The second agreement was signed on 14 July 2019 (CB 1, 48-49). In practical terms, it had little impact as it was overtaken by the third agreement. Its contents were as follows:

“Contract for the Transfer of Coco Beauty Medical Cosmetic Centre
Party A: Coco Beauty Medical Cosmetic Centre
Address: Shop 5 Skyview shopping plaza 537 George St, Sydney 2000
Phone: [redacted]
Mobile: [redacted]
Email: [redacted]
Party B:
Name: SHAO WO QUAN SAM
Address: [redacted]
Passport number: LK771964
Phone: [redacted]
Email: [redacted]
Through friendly consultation between the two parties, an Agreement has been reached on the following transfer matters:
I. The two parties have determined the following after consultation:
1. From 30 September 2019, Party A will transfer Coco Medical Cosmetic Centre located at No. 537 George Street, to Party B (SHAO WO QUAN SAM). The transfer fee is $200,000 Australian dollars. The first payment of $30,000 shall be paid to Party A on 13 July 2019, and the remaining balance of $170,000 shall be paid in full on 15 October 2019/30 September 2019¹ in a lump sum.
2. After negotiation between the two parties, Party A agrees to transfer all the equipment, devices, products and all customers, including the customers who have made the payments and those who have not paid in full, to Party B. From the date of entering the contract, Party B takes full responsibility for discretionary management, without involving Party A in any way.
3. Party B will continue to use Party A's credentials, at a cost of $20,000 annually, for a period of two years. Party B will settle the annual fee for the first year on 30 September 2019², and the second annual fee shall be settled on 30 May 2020.
4. During the period of using the credentials. Party B must respect and abide by the law, and strictly use the credentials and manage the business in accordance with Australia's laws and standards.
5. This agreement is a supplementary agreement to the Agreement of Contracted Management entered into on 21 June 2019. It has the same legal effect as the Agreement. This agreement shall take effect once the full payment is made on 1 September 2019.
II. Liability for breach of contract:
During the transfer period, if any party breaches the terms of the contract, the breaching party shall pay a breach fee of $50,000 Australian dollars to the other party. The specific examples for breach include Party B's failure to complete the transfer and does not return the payments made prior, or Party A’s termination during the transfer period without sufficient causes or reasons.
III. If Party A and Party B have no objection to the above clauses, the agreement will take effect from the date of signature by both parties and the guarantor. This agreement is made in triplicate, one for each party and one for the guarantor.
Place of signing: Coco Beauty
Date of signing: 14/07/2019
Signature of Party A: (signature)
1 The initial date, “1 September 2019”, was crossed out by hand on the original document.
2 The initial date, “1 September 2019”, was crossed out by hand on the original document.”

Like the first agreement, the text of this document was in the Chinese language. It was signed by the plaintiff and by the first defendant (as representative of the second defendant) and also by Mr Yan as “guarantor”. According to the plaintiff, he signed this agreement as a gesture of goodwill, but the binding nature of this agreement is not in dispute on the pleadings.

The third agreement (“the Purchase agreement”)

The third agreement was signed on 4 November 2019 and remained on foot up until a variety of dates postulated by both parties (in terms of repudiation and the like) but for the purposes of this outline of facts I note that there can be no doubt that, whether terminated earlier or not, the agreement may certainly be regarded terminated by the defendants in December 2020 when they effected a sale to another purchaser. The terms of this agreement were as follows:

“COCO BEAUTY TRANSFER AGREEMENT
Party A: COCO BEAUTY
Address: shop 5 Skyview Shopping Plaza 537 George Street, Sydney 2000
Telephone: [redacted]
Mob: [redacted]
Email: [redacted]
Party B: Name: SHAO WO QUAN SAM
Address: [redacted]
Passport number; LK771964
Telephone: [redacted]
Email: [redacted]
Party A and Party B have agreed, through friendly negotiation, the following:
1.   In order to facilitate the smooth transfer from Party A to Party B, Party A will retain the lease with the lessor, and add Party B’s name at an appropriate time, after which Party A will exit the lease.
2.   After Party B takes over COCO BEAUTY, all matters regarding Coco Beauty before and after are the responsibility of Party B, and Party A is no longer liable (including but not limited to; any debt employment dispute, customer dispute, marketing, product quality, product price, legal issues).
3.   Party B. for the duration of using Party A's operational standard and legal responsibilities (licence), must strictly comply with Australia's industrial standards, and operate in accordance with the requirements set out by the licence. At the same time. Party B must strictly obey and execute Australia legal and regulatory system. At the same time, if Party A suffers any damage to its reputation as a result of Party B's action. Party B needs to pay $100,000 to Party A in the form of compensation.
4.   COCO BEAUTY had, in the past few years, worked hard and paid off to earn a good reputation and influence, in a series of government and community activities, not only in Sydney (in events such as Voice of China, Carnival of China, International Supermodel competition, Wulin Babe etc), but also is the only organization in Australia appointed fay the Asia International Cosmetology Association (Asia International Cosmetology Association includes more than 20 nations in the world, and more than ten thousand large cosmetology and plastic surgery organizations).
5.   In an effort by Party A to help Party B reduce operation costs and overheads. Party A will, upon Party B's request, transfer COCO BEAUTY'S brand name to Party B during the transfer of the business, for a brand transfer fee of $50,000. The Business transfer price is $200,000. The 2019 licence is $20,000. Lease bond is $41,888. In total $311,888.
6.   Except sums already paid. Party B now owes Party A a total of $145,088, which is to be paid in 3 instalments. The $20,000 licence fee needs to be paid to Party A before 30 June 2020.
Time for payments are:    31 Dec 2019 $20,000       . .
29 Feb 2020 $70,000
10 May 2020 $55,088
7.   If Party B is unable to repay the last payment on 10 May 2020, Party A will allow Party B two weeks extension to arrange for payment on or before 25 May 2020, if Party B is still unable to make payment. Party A is entitled to retain all prior payment made by Party B as a result of Party B's operation of the business over the past year causing inconvenience and loss to Party A.
8.   All abovementioned payment must be paid punctually by Party B. If unpaid, Party A has the right to list the Business on sale in market, and the price is determined by Party A. Once sold. Party A is entitled to collect the unpaid debt owed by Party B, and if insufficient Party B needs to pay the difference. If the payment exceeds the sale price, the Parties shares the exceeded part equally. Before the transfer Party B is responsible for all rent payable.
9.   Licence fee is $20,000 per annum, and needed to be paid in full before 30 June every financial year,
10.   The parties agree to the above terms, and will comply with the terms of this agreement upon execution.
11.   There are three counter copies of this agreement, Party A and Party B each retain a copy, and the guarantor retains a copy.
Address of execution; Coco Beauty
Date of execution: 4 Nov 2019
Party A signature
Party B signature
Guarantor's signature”

This agreement required the outstanding sum of $145,088 to be paid by the plaintiff in three instalments as follows:

$20,000 by 31 December 2019;

$70,000 by 29 February 2020; and

$55,088 by 10 May 2020.

As set out in the above agreements, the license agreement was to operate from 1 July 2019 until 1 January 2020. Between 1 January 2020 and 1 March 2020, the plaintiff continued to operate the Coco business in accordance with the terms of the license agreement.

Although there was considerable cross-examination about the degree of honesty shown by Ms Zhang in terms of the true income of the business, the parties agree that the business income over the period of the plaintiff’s management was approximately $174,911.88.
The parties do not agree as to the expenses of the Coco business during the period of the plaintiff’s management. The plaintiff claims that these expenses were $195,436.90, consisting of rent, wages, other costs of $13,242.41 and omitted debits of $13,105.34. The defendants’ position is that the total admitted debts figure should be $21,647.22 and relates to business expenses for which the plaintiff should be liable. The other sounds however are agreed to. This means that the parties agree that the business expenses are at least $195,973.78, although the defendants submit that the total amount is $203,978.78.
As is set out above, it is common ground that the plaintiff made payments totalling $53,400 and RMB 140,000. The only disputed item is the cash payment of $20,000 which the plaintiff claims he made on 25 June 2019. If this disputed payment is excluded, the parties agree that the business expenses paid by the plaintiff total $81,400. It is also common ground that the plaintiff made the nine payments listed above between 13 July and 31 December 2019 for the purpose of purchasing the Coco beauty business. This means that as at 4 November 2019, taking account of payments made after that date, out of the total sum due of $311,888, an amount of $145,088 remained to be paid. The payment on 31 December 2019 of $20,000 was the first of the three instalments required under the purchase agreement, but the remaining two payments were never made.
There was also a payment made by the first defendant is not in dispute. That is the sum of $9000 which she agreed would be a contribution towards running costs. This was achieved by transferring an additional $5000 into Oceania’s account on 2 July 2019, adding to the existing balance of $4000 in that account.

The terms of the lease

The relevant terms of the lease in relation to assignment and subletting are set out in paragraph 43 of the lease, the terms of which are as follows (CB 4, 168 -170):

“PART 8 — ASSIGNMENT AND SUBLETTING
43.   Prohibition against assignment, subletting and mortgage over lease Prohibition of dealings
(1)   The Tenant shall not
(a)   assign, transfer, sublet, deal with, hold on trust, or grant any interest in, this Lease;
(b)   mortgage, charge or encumber this Lease;
(c)   part with possession of whole or any part of the Premises;
(d)   grant a licence, or share the right of occupation, in respect of whole or part of the Premises;
(e)   grant any franchise or concession over the Tenant’s business conducted at the Premises which would entitle any other person to use, occupy or trade from whole or part of the Premises.

Consent to assignment
(2)   The Tenant may apply to the Landlord for consent to the assignment of this Lease, which shall not be unreasonably withheld if the following conditions are satisfied:
(a)   the Tenant shall make a written application to the Landlord for consent and furnish complete copies of all written documents entered into between the Tenant and the proposed assignee relating to the Tenant’s business and the premises, written personal and business references and financial statements relating to the assignee and any proposed new guarantors;
(b)   the Tenant shall establish to the reasonable satisfaction of the Landlord that
(i)   the proposed assignee is respectable, responsible and solvent;
(ii)   the proposed assignee has adequately performed its obligations as the lessee or former lessee of other business premises;
(iii)   in respect of the business or profession intended to be conducted by the assignee at the Premises the assignee has sufficient financial resources and business experience to be capable of adequately complying with the Tenant’s obligations under this Lease and of efficiently conducting the assignee’s business at the Premises;

(c)   the Tenant shall have paid to the Landlord all money due under this Lease up to the date of the assignment (and, in respect of any liability which can not be accurately determined, will secure it to the Landlord’s reasonable satisfaction at the date of the assignment);
(d)   there are no unremedied breaches of the Tenant’s obligations under this Lease at the date of the assignment;
(e)   any other consents which are required to the assignment, by head lessors, mortgagees or others, are obtained before the assignment;
(f)   when the assignee is a company, other than a company whose shares are listed on an Australian Stock Exchange, personal guarantees for performance of lease covenants for the duration of the lease term by the assignee be provided, in a form reasonably acceptable to the Landlord and prepared on behalf of the Landlord at the Tenant’s expense, by two of the assignee’s directors or principal shareholders chosen by the Landlord;
(g)   the execution by the Tenant and the assignee of a transfer of this Lease, which shall be duly stamped and which the assignee or the assignee’s solicitor shall undertake to have registered promptly after completion of the assignment;
(h)   the execution of a deed in a form reasonably required by the Landlord, by the Landlord, Tenant, assignee, continuing guarantors and new guarantors, in which
(i)   the Tenant confirm its liability under this Lease for the balance of the current lease term;
(ii)   the Landlord is released from liability to the Tenant under this Lease;
(iii)   the assignee shall observe the Tenant’s obligations under this Lease during the Tern;
(iv)   continuing guarantors confirm their consent and continuing liability, unless that is adequately covered in their guarantee;
(v)   new guarantors execute guarantees under this Lease for the assignee or the assignee provides a bank guarantee as the Landlord may require;

(i) the payment by the Tenant to the Landlord of the Landlord’s reasonable costs and disbursements in accordance with clause 14.

Change in control of Tenant
(3)   (a) When the Tenant is not a company whose shares are listed on an Australian Stock Exchange, any proposed
(i)   transfer in the legal or beneficial interest in shares of the Tenant if a company;
(ii)   allotment of shares in the Tenant company; or
(iii)   changes in the Tenant company’s articles of association,

which alters or would have the consequence of altering the effective control of the Tenant company, is considered to be an assignment of this Lease and requires the Landlord’s consent in accordance with clause 43(2) as if the parties which would acquire control over the company were assignees of the Lease.
Consent to mortgage over Lease
(4)The Tenant may apply to the Landlord for consent to the grant of a mortgage over this Lease, which shall not be unreasonably withheld if each of the following conditions precedent are satisfied;
(a)   the Tenant shall make a written application to the Landlord for consent, and furnish a copy of the proposed mortgage and any other documents between the Tenant and the mortgagee;
(b)   the mortgagee is a bank or financial institution;
(c)   the purpose of the loan is to enable the Tenant to acquire the business conducted at the Premises or to continue or expand the Tenant’s business;
(d)   the Tenant is not in default under this Lease;
(e)   the execution of a deed of consent, in a form reasonably required by the Landlord, and to be prepared on behalf of the Landlord, by the Landlord, Tenant and mortgagee;
(f)   the payment by the Tenant to the Landlord of the Landlord’s reasonable costs and disbursements in accordance with clause 14.”

The plaintiff leaves the Coco beauty business

The plaintiff gave very little notice of his intention not to proceed with the purchase of the business. On 3 March 2020, he informed employees that he would no longer be involved and on that same day his solicitors wrote to the defendants’ solicitors stating that the plaintiff gave written notification that his last day of work with the business would be Sunday, 8 March 2020, after which he would no longer be working for the business. This was a matter of days after the date for the second instalment, namely 29 February 2020.
The plaintiff’s explanation for not making these payments is that there was an agreement between the plaintiff and defendants to end the purchase agreement. The evidence in relation to this asserted agreement is set out in more detail below.
After the plaintiff left the business, the defendants discovered that there were debts to customers of amounts in addition to fees paid by customers. The plaintiff has now admitted liability for such debts and the question for determination is the quantification of the amount and the consequences of his failure to comply with this obligation under the agreement to clear all debts incurred during the contracting period.
Notwithstanding the correspondence exchanged between the solicitors about the termination of the agreement, on 22 May 2020, the defendants notified the plaintiff that the date for payment of the outstanding sums due on 29 February and 10 May 2020 would be extended to 25 May 2020. However the plaintiff did not pay these outstanding amounts, either by that date, or at all. Instead, he commenced proceedings by statement of claim filed on 6 May 2020.
The defendants’ cross-claim, filed on 24 June 2020, stated that it was endeavouring to mitigate its losses by reason of loss of the sale to the plaintiff. It is not in dispute that, on 10 December 2020, Oceania entered into an agreement to sell the Coco business to a third party, Zero Degree Group Pty Ltd, for $91,000.

Facts which are not in dispute

The defendants’ submissions of 24 September 2021 (paragraphs 20 – 61) helpfully summarise the facts agreed between the parties, which I broadly note are as follows:

The three agreements and their terms.

The period of time during which the plaintiff managed the business (1 July 2019 to 8 March 2020).

The income of the business during this management period ($174,911.88).

The expenses during this management period: rent ($86,480.85); wages ($82,608.30), other costs ($13,242.41), “omitted debts” ($13,105.34 plus $536.88).

The payments made by the plaintiff as listed in paragraph 42 of these submissions; the only disputed item is the asserted cash payment of $20,000 on 25 June 2019.

The payments made by the plaintiff as purchase instalments, which are set out at paragraph 45 of these submissions.

The amounts contributed by the defendants ($9,000).

The date of the plaintiff’s exit from the management of the beauty business and the manner in which he notified the defendants of this.

The plaintiff’s failure to pay the second and third instalments required by the purchase agreement.

The incurring of customer debts, in terms of credits for treatment and the like, and their quantum.

The sale of the Coco business to a third party on 10 December 2020 for the sum of $91,000 (I note that paragraph 1 of the particulars of the cross-claim filed on 24 June 2020 referred to the company seeking to mitigate its losses by seeking an alternative purchaser).

The “permitted representation”

The plaintiff claims that the defendants represented to him that entry into the licence agreement was permitted under the lease with Meriton (which Ms Ashworth, in her submissions of 11 September 2021, defines as “the permitted licence representation”). This representation, asserted to have been implied in the course of negotiations and/or in the written agreement of 21 June 2021 and to have been relied upon by the plaintiff in relation to each of the successive contracts, was misleading or deceptive in trade or commerce in contravention of s 18 of the Australian Consumer Law (“the ACL”), principally by reason of Clause 43(1) of the lease.
What was that “representation” (or series of representations)? It appears to be acknowledged by the plaintiff that the representation was not express; the submissions of 11 September 2021 (paragraph 8) describe the representation as having been implied by “the grant of a licence of the kind contemplated” by the licence agreement, namely that the agreement being entered into was permitted by the lease. Was it the same representation for each of the three contracts, or did it differ? Was it relied upon by the plaintiff?
The “permitted license representation” is set out at paragraph 25A of the second further amended statement of claim and as follows:

“On or around 21 June 2019, the second defendant represented to the plaintiff that the grant of a licence of the kind contemplated by the License Agreement was permitted under the lease (“Lease”) in respect of the premises (“Permitted Licence Representation”).

The plaintiff states (at paragraph 25E of the statement of claim) that this was misleading or deceptive on the basis that the representation was false, in that the licence contemplated by the license agreement was prohibited by Clause 43(1) of the lease.
As Clause 43(1) prohibited the granting of a licence, this first licence agreement was prohibited by, and in breach of, Clause 43 of the lease. That much is clear from the contents of the lease itself. What, then, did Ms Zhang say (or imply) that overrode or otherwise altered the terms of the lease in this regard?
The submissions for the plaintiff (paragraph 15 of the plaintiff’s submissions of 11 September 2021) are that the court “would accept the plaintiff’s evidence that he relied” upon the permitted licence representation in entering into all of the agreements and in making the instalment payments. The submissions go on to add that “reliance is also to be inferred from the fact” that the purchase of the business was to include the transfer of the lease, which was clearly essential to the conduct of the business.
The question of what representation was made, and when, is central to the findings of fact.
The first question is to determine what was said about the lease prior to the parties entering into the first agreement. Did the plaintiff see the lease before he entered into the agreements and if so, did he read and understand the restrictions on licence agreements and the requirement for approval by the Lessee if the business were to be acquired by a new owner?
The plaintiff sought to portray himself as an unsophisticated businessman and claimed variously either not to have read the lease at all prior to entering any of the agreements and to having not really been given an opportunity to inspect it. Ms Zhang’s evidence was that at all relevant times the lease was in the shop and that the parties discussed its terms on the understanding that, when the full purchase price was paid, the landlord would be asked to transfer the lease conformably with the procedure set out in the lease. This position is reflected in the following two paragraphs from his fourth affidavit of 26 July 2021, which was affirmed at the commencement of these proceedings:

“At no time before or during my management of the Business (1 July 2019 – early March 2020) did I know that the License Agreement was in breach or potential breach of the lease of the premises, and that the fact that I was managing the Business from the Premises would have allowed the lessor to terminate the lease.
Had I known that the lease was at risk of being terminated, I would never have agreed to enter into the License Agreement, July agreement, or the November agreement, or made any payments under any of these agreements, as the termination of the lease would have meant that all monies I pay to the defendant’s would need to be recovered through legal proceedings or, worse, become unrecoverable.”

Mr Harding SC put it to the plaintiff that not only was this incorrect, but he would still have entered into the contract in any event even if he had known about this asserted problem issue (T 189 - 190):

“Q. You said the following, "At no time before or during my management of the business (1 July 2019 to early March 2020) did I know that the licence agreement was in breach or potential breach of the lease of the premises." That evidence is not correct, is it?
A. INTERPRETER: That evidence is correct.
Q. Then I want to ask you about paragraph 3, and I'll read it out:
"Had I known that the lease was at risk of being terminated, I would have never agreed to enter into the licence agreement July agreement or the November agreement or made any payments under any of these agreements, as the termination of the lease would have meant that all the moneys I had paid to the defendants would need to be recovered through legal proceedings or, worse, become unrecoverable."
A. INTERPRETER: Yes.
INTERPRETER: I need to rephrase that to Mr Shao again. I just try to read my own notes, Mr Harding, if you don't mind.
Q. That evidence in your affidavit is not correct, is it?
A. INTERPRETER: That evidence is correct.
Q. You, on your own evidence, wanted to proceed with the purchase, even though you knew there was a risk that Meriton might terminate the lease for breach of clause 43?
ASHWORTH: I object.
HER HONOUR: On what basis?
ASHWORTH: That wasn't the witness's evidence so the question is unfair.
HARDING: I just put to the witness. I'm trying to make sure what the witness's evidence, that's why I want to put it to him.
HER HONOUR: I agree.
HARDING Q. It's the case, isn't it, Mr Shao, that on your evidence you wished to proceed with the purchase of the business, even though you knew there was a risk that Meriton would or might terminate the lease, because of breach of clause 43?
A. INTERPRETER: If there is a risk that Meriton will do it, of course, I wouldn't sign that contract that agreement.
Q. But you were perfectly happy to proceed with the agreement even knowing that fact, weren't you?
A. INTERPRETER: I was not aware before that prior. Before.
Q. Even if you had known of it before, you still would've entered into the licence agreement, wouldn't you, Mr Shao?
A. INTERPRETER: I'm not aware of that. Of course I have no other choice, that would have to be part of my contract.
Q. And even if you were aware of that, Mr Shao, you still would have entered into the purchase agreement, wouldn't you?
A. INTERPRETER: I would not entered”.

In the plaintiff’s submissions 20 October 2021 (at paragraphs 17 – 35), the paragraphs from the plaintiff’s fourth affidavit set out above are put forward as the effective answer to the question of both the making of the representation and reliance upon it. However, as the contents and the plaintiff’s implausible denials in cross-examination readily demonstrate, these self-serving statements of the plaintiff’s understanding are themselves redolent with doubt, as the references to “potential breach” and “risk” in his affidavit demonstrate. This evidence is, furthermore, contrary to the plaintiff’s own stated position even after he received advice about Clause 43 of the lease, namely that he still wish to proceed with the purchase of the business if the lease could be transferred.
It is necessary to set out that evidence in some detail. As Ms Zhang is the person who is asserted to have made the relevant representation (either expressly or by implication), it is helpful to set out her evidence on this issue first.
Ms Zhang said in paragraphs 71 – 72 of her affidavit of 23 February 2021 (CB2, Tab 6):

“On or around 1 July 2019, Sam officially assumed control of the Coco Beauty Business.
On this day, I went over the books of the Company, which remained on the premises, with Sam, and said words to the effect:
Sam, here are the Company’s important records. The lease, client files, bank records and many more. If you are not clear about anything, please call me and we can discuss them.”

If the lease was kept on the premises, it would have been easy for the plaintiff to check its contents. His claim was that it was not there, and that he had to telephone Ms Zhang to ask for it. Ms Zhang was asked about this conversation and where the lease was kept:

“Q. When Mr Shao called you for a copy of the lease on 9 December 2019, why didn't you tell him where it was?
A. INTERPRETER: I have told him and, in fact, I have told him when he took over the business.
Q. If it was stored in the shop, you wouldn't have had to go in, would you, to show him where it was? You could have just told him where it was? INTERPRETER: Can you repeat, Ms Ashworth.
Q. If the lease was stored in the shop, you wouldn't have had to go in to give it to him, would you?
A. INTERPRETER: He asked me on 9 December and I told him and I went back to the shop on the 10th.
Q. Why didn't you just tell him over the phone, like you had for other documents, where it was located in the shop?
A. INTERPRETER: I don't know why you have to keep repeating your questions. I have told him about it before already.
HER HONOUR
Q. You're not being asked that question, Ms Zhang. You are not answering the question, that is why you keep being asked the questions. The thing, he asked about the lease, you said, on the 9th so you went on the 10th. Ms Ashworth's question was why not just tell him where the lease was over the phone?
A. INTERPRETER: Because I have told him before already and I don't know why he had to ask that again. So I just told him I will just come into the shop. ASHWORTH Q. The lease belongs to the company; correct?
A. INTERPRETER: Yes.
Q. You were a personal guarantor under it; correct?
A. INTERPRETER: Yes.
Q. You weren't willing for such an important document to be stored in the shop, were you?
A. INTERPRETER: No, I have told Sam about this document together with other documents when he took over.
Q. That's not my question. My question was you weren't willing for such an important document to be stored in the shop, were you?
A. INTERPRETER: No, I did keep it in the shop.
HER HONOUR Q. You kept it where? Did you say in the shop or in your home? What did you just say, I didn't hear that.
INTERPRETER: In the shop.
ASHWORTH Q. It could get lost in the shop, couldn't it, Ms Zhang?
A. INTERPRETER: Well, there's so many equipments in the shop that have not been lost. Why would this paperwork would have been lost? ASHWORTH: Sorry, could you just repeat the answer.
INTERPRETER: There are so many equipments in the shop and they have not been lost. Why would this paperwork have been lost.
ASHWORTH Q. Ms Zhang, the lease wasn't stored at the shop, was it?
A. INTERPRETER: Incorrect.” (T 299 – 300)

Ms Zhang agreed that the parties discussed the terms of the transfer of the lease, although stating that this was not to happen until the purchase price was paid in full:

“Q. Ms Zhang, around this time Mr Shao was wanting to transfer the lease, didn't he?
INTERPRETER: So around this time Mr Shao transferred the lease, didn't he, is that what you said?
Q. No, around this time Mr Shao wanted to sort out, transfer the lease, didn't he?
A. INTERPRETER: I think he asked me one time in October, ..(not transcribable).. about that ..(not transcribable)..
Q. So you're agreeing with my question, correct?
A. INTERPRETER: Can you repeat your question?
Q. Around the time, that is the end of October, around the end of October, Mr Shao wanted to sort out the transfer of the lease, didn't he?
A. INTERPRETER: No. I think he asked me, I think he may have asked me in October. But I can't remember very clearly.
Q. If he asked you about the lease in October, you would agree that around that time he wanted to sort out the transfer of the lease, didn't he?
A. INTERPRETER: He has to pay me out before I can transfer it to him.” (T 302).
Ms Zhang may be correct to say that there was no requirement for transfer of the least prior to the contract for purchase, but why was there no provision for transfer of the lease in the third contract? She answered as follows:
“Q. The question is you didn't think to include a clause for the transfer of the lease in the second contract; is that right?
INTERPRETER: No, I haven't thought about it.
ASHWORTH Q. Did you speak to anyone about the lease around October or November 2019?
A. INTERPRETER: The lease? No.
Q. You at least spoke with Mr Shao, didn't you?
A. INTERPRETER: The discussion about the second contract was done between us together.
Q. Please don't think about why I'm asking you a question. Please just focus on the question I'm asking. The question I'm asking here is not about the second contract. It's just about the lease. You at least spoke with Mr Shao in around October or November 2019 about the lease, didn't you?
A. INTERPRETER: Yes.
Q. Mr Shao was eager for the lease to be transferred as soon as possible, wasn't he?
A. INTERPRETER: I don't know what he was thinking.
Q. What was your impression of Mr Shao in relation to his eagerness for the lease to be transferred?
A. INTERPRETER: My impression at that time - my impression was he was at that time.” (T 304)
The context in which the lease was discussed was as follows:
“Q. What questions, then, did he raise in relation to the rent adjustment transaction?
A. INTERPRETER: He asked me about this, but it has been explained to him on 6 December. I gave him the details and I explained to him on WeChat as to why and how Meriton ask us to pay more to pay up the rent.
Q. Ms Zhang, we might be able to go a little bit more quickly if you just focus on the question. He then raised the transfer of the lease issue, didn't he?
A. INTERPRETER: The lease transfer. You've asked me about the lease transfer at the end of November already, and this is unrelated to this one here.
Q. Ms Zhang, the judge has read your affidavits. We all have. Can you please just focus on answering my question.
A. INTERPRETER: Okay.
Q. After you had been discussing the rent adjustment, Mr Shao raised the issue of the transfer of the lease, didn't he?
A. INTERPRETER: No.
Q. He'd already been asking about when the transfer could be done, before you signed the November agreement. Correct?
A. INTERPRETER: No, he had not been asking ..(not transcribable)..
Q. And he asked you about it again on 16 January 2020, didn't he?
A. INTERPRETER: No, he did not ask me.” (T 309)

One of the conversations Ms Zhang had with the plaintiff is set out at paragraph 241.4 of her affidavit of 23 February 2021 as follows:

“In the course of discussions for the Second Agreement between 25 October 2019 and 4 November 2019, Sam and I had a conversation in Mandarin using words to the following effect:
Sam:      Have you spoke to Meriton about transferring the lease to me?
Me:   No, is it time to ask them? Sam, we’re not quite there yet, because I will need to receive the balance of the money before I transfer everything to you.
Sam:   I think you should ask them, to see what their initial response is, because if they do not agree after I have paid the money, then it will be troublesome.
Me:   Sam how about this, if we run into trouble, I will continue to hold the lease for you just like we are doing now, until Meriton accepts you as a tenant, and then we’ll put it in your name.
Sam:    That’s one way.”

It was put to Ms Zhang that she knew there would be likely to be problems in the transfer of the lease, which she denied, and that this caused her to agree to “pause” the contract, which she also denied:

“Q. By 16 January 2020, you knew that there was a likely problem in the transfer of the lease, didn't you?
INTERPRETER: No.
Were you worried that you wouldn't be able to transfer the lease?
A. INTERPRETER: I was not worried.
Q. You agreed in that conversation to renegotiate the purchase, didn't you? INTERPRETER: Sorry?
Q. You agreed in that conversation to renegotiate the purchase of the business?
INTERPRETER: Sorry, from, you agreed?
Q. To renegotiate the purchase of the business during that conversation you had with him?
A. INTERPRETER: Which conversation, sorry ..(not transcribable).. can you remind me which conversation ..(not transcribable)..
Q. At 5.30pm on 16 January 2020?
A. INTERPRETER: In conversations then about lease intentions. He asked me questions ..(not transcribable)..
Q. And after that you had a discussion about the lease in which you agreed to pause the purchase, didn't you?
INTERPRETER: Pause the purchase?
Q. Pause the purchase, yes?
A. INTERPRETER: That's not right, I disagree, we did not have such conversation.” (T 310)

Ms Zhang agreed that the consent of the landlord to transfer the lease had never been sought or obtained (T 309 – 310) but repeated that no transfer would have been sought until the purchase price was paid.
The plaintiff gave the following explanation in paragraphs 9 - 15 of his affidavit of 1 December 2020:

“Second business transfer agreement
9 On or about 4 November 2019, I signed another business transfer agreement with Zhang. Annexed to this affidavit and marked with the letters ‘WS-3’ is a copy of this agreement and its translation.
10 On the same day Zhang told me words to the effect that ‘the lease will be transferred once the lessor is ready, hopefully around the time of the 2020 New Year".
11 In or around early January 2020, Zhang had not approached me with regards to the transfer of lease. On or around 16 January 2020, I had a conversation with Zhang in Mandarin Chinese in words to the following effect:
I:    When will the lease be transferred? I can’t purchase the business if the lease is not transferred.
Zhang:   There will be some difficulties because Meriton, the lessor, is very strict. I think Meriton may not approve the lease transfer because of your lack of business experience.
I:   But you said it could be done around New Year. How can I continue with this purchase if the lease is not transferred? Why don’t we call off the purchase for now, so you can speak to Meriton to sort out the lease? Once the lease issue is resolved, we can proceed with the purchase again.
Zhang:   OK then let’s do that. I will find a way to solve the transfer of lease issue. Once that is solved, we enter into a new agreement for the purchase of the business. Meanwhile you can still operate the business in accordance with the first agreement.
I:   Okay.
12   Between January 2020 to March 2020, Zhang did not approach me with regards to the transfer of lease.
13   Between 4 November 2019 and March 2020,1 continued to manage and operate the Business from the Premises in accordance with the terms of the license agreement.
Cessation of licensing of the Business
14   Notwithstanding the license agreement, Zhang and I continued to manage and operate the business in accordance with the license agreement up to and until March 2020.
15   In or around early March 2020, I ceased managing and operating the Business, as I was not sure if the transfer was lease was possible, and did not wish to expend furth energies into the Business if I was not going to be able to purchase it.”

The plaintiff acknowledged that he did not become concerned about the asserted breach of the lease until he spoke to his lawyers, which he did shortly before notifying the defendants that he would no longer be running the business:

“Q. Mr Shao, is it your understanding that the licence agreement that you entered into was in breach of the lease between the second defendant and Meriton?
A. INTERPRETER: I have no idea at that time.
Q. Is it now your understanding that that's the case?
A. INTERPRETER: Yes, I'm aware now.
Q. When do you say that you first became aware that the licence agreement was in breach or potential breach of the lease?
…
A. INTERPRETER: When I discussed the evidence with my lawyer and I realise that it was actually too risky.
Q. The first time that you ever made this allegation was on 24 July 2021; that's right, isn't it?
A. INTERPRETER: When was the date?
Q. The first time you ever made the allegation that you do in paragraph 2 of your affidavit was on 24 July 2021, wasn't it?
A. INTERPRETER: Yes.” (T 183 – 184)

What, then, was the plaintiff’s understanding of the lease clauses, and had he in fact read this document contrary to his claims? He made the following admissions at T 184:

“Q. The fact is that you read the lease in December 2019, didn't you? A. INTERPRETER: I saw the lease, but I don't know what is inside it. They only just show me that, but I really don't know the detail. I'm not clear with the detail.
Q. You asked Ms Zhang in December 2019 to show you where the lease was, didn't you?
A. INTERPRETER: Yes, I did.
Q. She did show you where the lease could be found, didn't she?
A. INTERPRETER: My recollection was she did show me the lease, but there's so much content in there, I don't understand it at all.
Q. You didn't understand the lease when you tried to read it? INTERPRETER: Sorry, Mr Harding ..(not transcribable).. been cut out again.
Q. Did you try to read the lease?
A. INTERPRETER: I tried my best to read it, but I don't I didn't understand it. There are a lot of legal I mean, very professional team, which I don't understand what they were.”

The plaintiff claimed that this event in December 2019 was the first time he had ever seen the lease, and that it had not been kept in the shop, either in terms of the original, or a copy of the document in question. He referred to Ms Zhang showing him a “copy” of it, rather than the original:

“Q. You said a moment ago that Ms Zhang gave you a copy of the lease in December 2019. Is that correct?
A. INTERPRETER: She didn't give me a copy. She showed me. After I read it, then she took it away.
Q. That's false, isn't it, Mr Shao?
A. INTERPRETER: It was true.
Q. A copy of the lease was always on the premises, at the shop?
A. INTERPRETER: If the copy of the lease were at the premises, in the shop, why I have asked, why I had to ask the lawyer to write to, to get it?” (T 186)

Whether the plaintiff had had access to the lease all along, or had first read it in December 2019 but not been given a copy, or not read it properly or at all until his legal representatives obtained a copy (which was 21 February 2020: T 185), the fact remains that after his own lawyers advised him about the contents of Clause 43 of the lease, he still wanted to go ahead with the purchase of the business. He explained that although his solicitor had told him about Clause 43, “I didn’t really pay much attention to it” (T 188) and agreed that despite this advice, and despite his earlier claims that the contract had been “paused” because of the lease problems, he still wanted to continue with the purchase:

“Q. Your solicitors in this letter writing to Ms Zhang's solicitors didn't make any reference at all to the contract having been paused, did they?
A. INTERPRETER: Because I still want to give her a chance to transfer the lease to me, and I've been always trying to complete the contract, that's why I didn't mention that, but at that time, I have paid $185,000.
Q. This letter doesn't make any reference to obtaining a transfer of the lease, does it?
INTERPRETER: Sorry, Mr Harding, I think I thought Mr Shao didn't get the question, but look like he did.
HER HONOUR: He did and he answered it.
INTERPRETER: Yes, he said, "Yes. Yeah, that's right."
HARDING Q. In fact, in this letter, your solicitors on your instructions were threatening to commence proceedings against Ms Zhang, weren't they?
A. INTERPRETER: The threatening really means that I want her to know that my consistency, my resilience of that of completing the contract. I'm just trying to get her to cooperate to transfer the lease to me.
Q. That's not true, is it, Mr Shao?
A. INTERPRETER: This is what I want.”

He agreed that his solicitors were threatening legal proceedings if his money was not returned, but said that his real purpose was “trying to get things going ahead” and that he had been constantly wanting to settle and complete the purchase:

“Q. They were threatening legal proceedings unless she paid that money?
A. INTERPRETER: That's not wrong, but my purpose was to try to trade try to settle, and I know that if we do not go ahead, things were getting very serious, but my purpose was trying to get things going ahead.
Q. For that purpose, you were perfectly happy for your solicitors to write out in this letter all the reasons why you would be entitled to get back 283,000; that's right, isn't it?
A. INTERPRETER: I have constantly wanting to settle, complete the purchase, and the 283,000 was actually the penalty pay, "If you keep going ahead", so there won't be any of that kind of issue.”

In other words, despite being told definitively by his own legal representatives on or after 21 February 2020 about Clause 43 of the lease, he continued to operate the business under the licence agreement until early March 2020 (T 188). What is more, his evidence in these proceedings up until shortly after the trial commenced was that he was still keen to do so, despite the business having been sold to another purchaser. He then changed his mind and commenced these proceedings two months later.

Credit issues for the plaintiff:

The parties agreed that issues of credit are central to fact-finding. The issues for determination fall into the following categories:

The credit of the plaintiff.

Credit issues arising from the assertions of the $20,000 cash payment.

Credit issues arising from the plaintiff’s attempt to get Mr Yan to change his evidence.

Credit issues arising from the different versions of the 16 January 2022 conversation.

Credit issues arising from the plaintiff’s claim to be an unsophisticated businessman.

The impact of certificates under s 128 of the Evidence Act 1995 (NSW).

The credit of Ms Zhang.

The credit of Mr Yan.

An overview of the challenges to the plaintiff’s credit

The plaintiff’s credit is unsatisfactory in relation to a number of the transactions between the parties. The most significant of these is the circumstances in which he claims to have given the first defendant $20,000 in cash. The plaintiff’s attempts to persuade Mr Yan to change his testimony on this issue are also of significance.
However, there are other issues on which the plaintiff’s evidence was misleading or frankly untruthful. One example is his claim to have been an unsophisticated businessman. Another is his claim that he was never shown (or read) the lease, which suffered from a series of qualifications which ranged from being told what was in the lease, being shown a copy in December 2019, being given a copy by his lawyers and then not reading it at all and reading but not understanding it.

The $20,000 cash payment

The plaintiff sets out, in his affidavit of 4 June 2021 (which I note was one of the documents prepared and served just before the hearing commenced), the circumstances in which he paid $20,000 cash to the plaintiff. He says at paragraphs 38 – 42:

“38 I have read Zhang’s affidavit dated 23 February 2021, who in paragraph [64] says that ‘[a]t no time during this meeting on 25 June 2019 did [I] physically had over any sums of money to’ Zhang.
39 This is untrue.
40 On 25 June 2019, I caused $20,000.00 to be withdrawn from my bank account for the purpose of giving it to Zhang. These withdrawal records can be found in Annexure WS-D to this affidavit. I had done so because clause 1.d. of the license agreement required me to pay Zhang $20,000.00 as security deposit, that is refundable according to clause 4, and I felt that this was the best way to isolate this refundable deposit, so that it did not become comingled with the funds I was otherwise going to transfer to the business bank account, which may be depleted over time due to the operation of the Business.
41 The rest of the monies I had to pay Zhang, being $18,500.00 in license fees, and $10,000.00 in accordance with clause 1.d. were paid to Zhang through my Chinese bank and WeChat transfer of RMB140,000.0 (or $28,000.00), and my Australian bank transfer of $5,000.00. I had paid a little in excess because I wanted some buffer for the Business.
42 I refer to paragraph [72.3] of Zhang's Affidavit. During our oral discussions prior to us signing the license agreement, Zhang made it very clear to me and told me words to the effect that 'you will only be allowed to manage the Business after you have made full payments in accordance with my requirements'.”

“[W]here P confers a benefit on D pursuant to a contract, the valuation of that work is a matter of contract, which ... respects the parties' valuation. Valuation is in a sense part of risk allocation: P is taking the risk of market rises and D of falls in the market. To allow P to recover anything other than the contract value – such as the objective value, the market value, or a reasonable value – would be to reallocate that risk.””

Clause 7 of the purchase agreement specifically addressed how any sums paid by the plaintiff prior to default on final performance was to be addressed. The plaintiff’s answer to this is that this clause is a penalty clause. This has been neither pleaded with the subject of evidence or, for that matter, cross examination even if it had been, I’m satisfied on the evidence before me that Clause 7 was a pre-estimate of risk, and it is in fact the risk which turned out to be the correct risk.
For the above reasons, in circumstances where the parties had an agreed contractual regimes specifically allocating risk between the parties, I am satisfied that the plaintiff has no entitlement to seek the return of the moneys paid in any event.

Conclusions concerning liability

The plaintiff has failed in his claims in their entirety, and there will be judgment for the defendants.

The cross-claim and the defendants’ claim for damages

The defendants set out a table of total losses on the cross-claim at paragraph 347 of their submissions of 24 September 2021. That table is as follows:

Item

Amount

From section N1 above - expectation

loss on sale of the Coco Beauty Business following Mr Shao’s repudiation, pursuant to general law principles or alternatively pursuant to cl. 8 of the Purchase Agreement.

$35,088.

(This amount takes account of the Defendants retaining the $185,000 paid by Mr Shao under the July Agreement and Purchase Agreement; if those funds were to be returned to Mr Shao, the amount of damages would increase by that sum).

From section M above - expectation

losses, being foregone recurring licence fees of $20,000 pursuant to cl. 9 of the Purchase Agreement – calculated over 9 years on the basis of the 4 years remaining on the current lease of the Premises and an assumed further 5 year lease being entered into.

$180,000.

Additional rent required to be paid by

the Second Defendant between April and December 2020.

$53,840.46.

Additional costs (including for wages)

incurred by the Defendants to maintain

the Coco Beauty Business following

Mr Shao’s breaches of the Purchase

Agreement.

$27,600.

Agent fees to sell the Coco Beauty

Business following Mr Shao’s breaches of the Purchase Agreement.

$24,200.

Contribution to lease assignment cost

upon sale of the Coco Beauty Business on 18 December 2020.

$1,650.00.

Solicitor Fees incurred in the sale of the Coco Beauty Business.

$1,980.00.

From section L above - costs incurred in relation to customer debts.

$8,530.

Total

$329,258.46

This figure must be adjusted because the plaintiff contributed $18,133 more than he was in fact required to pay during the period of the license agreement. This is calculated as follows:

Item

Amount

Amount contributed by Mr Shao

$81,400

Amount contributed by Ms Zhang

-$9,000

License fee required under the License Agreement

-$25,200

Business expenses

-$195,436.90

Omitted Debit conceded in letter of 28

July 2021

-$536.88

Omitted Debits conceded during cross examination

-$8,005

Business income

$174,911.80

Total

$18,133

This error appears to have arisen due to back rent charges calculations errors, probably made by the landlord. The defendants accept that the plaintiff is entitled to this allowance. This means that the defendants would be entitled to damages in the reduced sum of $311,125.46.
As the table above demonstrates, this sum represents “loss of bargain” damages (Items 1 and 2) to which Oceania is entitled, namely the contract price under the purchase agreement, less the amounts actually paid ($185,000) and the sale price to the third party ($91,000). Clause 8 of the purchase agreement provided for punctual payments and, in the event that monies were “unpaid”, the defendants had the right to list the business for sale as well as determine the price; with any shortfall being paid by the plaintiff. In those circumstances, given the terms of Clause 8, the defendants admit there was an entitlement to retain the $185,000 paid and to bring it to account in calculating the amount of the ultimate loss. Items 3 – 7 are damages for breach of the purchase agreement and item 8 is for breach of the licence agreement.

Loss of bargain damages

The defendants’ claim for damages consists largely of the financial difference between the original sale price with the plaintiff and the subsequent sale price. In those circumstances, the issue of the financial performance of the business is largely irrelevant.
The plaintiff (submissions of 29 September 2021, at paragraphs 6 – 9) submits that the loss of bargain damages claim must fail because the measure of damages for loss of bargain is a difference between the contract price of what is sold and the market value. The existence of such a loss must be assessed on a like-for-like basis by leading evidence of market value, and not merely relying upon the price paid by the new purchaser. The market value of the business cannot be established by the price paid on new purchaser. For that evidentiary reason alone, the second defendant’s claim for loss of bargain damages must fail in limine.
This is a misstatement of the relevant legal principles. There is no one “right way” (or “only way”) to demonstrate loss. It is permissible for a party claiming such a loss to put it on the base of the market value as being the amount at which a resale has been or could be made. In Carpenter v McGrath (1996) 40 NSWLR 39 Sheller JA, referring to McGregor on Damages, specifically stated that the amount of damages the vendor was entitled to recover for loss of bargain is the full contract price less the net market value of the property left on the vendors hands, “that is to say the amount at which a re-sale has been or could be made deducting therefrom the costs of re-sale”.
Where a party has resale property which is the subject of a claim, not only is evidence of the resale price admissible, but it may be regarded as the best evidence of the market value of the property. In El Ali v Tritton (2019) 19 BPR 39447 at [55], Payne JA stated:

“Finally, even if it were true, as the appellant submitted, that the respondents had “turned their back” on the Third Contract in February 2016 by purchasing another property instead, the best evidence of the market value of the property at that date was $800,000. The suggestion that the offer made by the respondents of $775,000 was a better indication of market value as at February 2016 should be rejected. In the absence of any evidence about the terms upon which that offer was made, the mere fact that the amount offered was less than $800,000 provides no sufficient guide to market value. The submission that a difference of two months between the February date and the April date is not, in the circumstances here, persuasive.”

The defendants’ written submissions of 24 September 2021 draw the attention of the court to the observations of the High Court in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83:

“The settled rule, both here and in England, is that mere difficulty in estimating damages does not relieve a court from the responsibility of estimating them as best it can: Fink v. Fink (1946) 74 CLR 127, at p 143; McRae v. Commonwealth Disposals Commission (1951) 84 CLR 377, at pp 411-412; Chaplin v. Hicks (1911) 2 KB 786, at p 792. Indeed, in Jones v. Schiffmann (1971) 124 CLR 303, Menzies J. went so far as to say that the "assessment of damages ... does sometimes, of necessity involve what is guess work rather than estimation": at p 308. Where precise evidence is not available the court must do the best it can: Biggin and Co. Ltd. v. Permanite Ltd. (1951) 1 KB 422, per Devlin J. at p 438. And uncertainty as to the profits to be derived from a business by reason of contingencies is not a reason for a court refusing to assess damages: see McGregor on Damages, 15th ed. (1988), pars 357-359.”

The plaintiff next submits (paragraphs 11 ff) that the claim for loss of sale of the business fails as a matter of law and fact for the following additional reasons. It is submitted that the court would have no confidence that the purchase price paid by the new purchaser (which is described, curiously, as “purported”) is not a figure in which the court can have any confidence as it bears no relationship to the true market value of a business which was primarily cash based. There are no complete records of cash receipts for the business and it is submitted that the court should be highly suspicious of the “entirely unsatisfactory nature” (at paragraph 19) of the evidence which is asserted to reveal “substantial disparities in the potential value of the business or the inputs upon which market value would depend such as profitability and turnover” (at paragraph 19).
The tax returns (Exhibit F) show that, for the financial year ending 2017, the business made a $137,000 loss. For the financial year ending 2018, the business made a $139,000 loss. For the financial year ending 2019, the business made a $136,000 loss and, although not reflected in a tax return, the evidence discloses that, in the financial year ending 2020, the financial year ending 2020, the business made a $3,320 loss. Ms Ashworth’s submission is that, far from the defendants incurring any loss in connection with the plaintiff's operation of the business, the plaintiff had in fact saved the defendants money, Ms Ashworth submitted that I should not accept that a fluctuating and unfixed amount represented a genuine estimate of loss on the part of the second defendant for a business that had been loss making for a number of years.
What this evidence suggests, if anything, is at the actual market value of the business is less than the amount for which was sold, in which case the loss of bargain damages would be higher.
These submissions carry little weight where there is evidence of an actual sale to a bona fide purchaser. It was a matter for the plaintiff to lead expert evidence as to value or alternatively to have required the purchaser to be cross-examined on the affidavit he swore for the purpose of these proceedings. It was not put to Ms Zhang that the subsequent sale of the business in December 2020 was a sham.
Another relevant factor is that part of the problem in terms of selling the business is that Ms Zhang was obliged to tell the business broker that the business was encumbered with $90,000 worth of customer debts following the plaintiff’s unsatisfactory running of the business. This meant that the subsequent purchaser, who had originally offered to pay $200,000 before this disclosure, paid only $91,000. This was not a mere subtraction of this sum, but an indication of the impact on the market value of the business consequent on the plaintiff’s breaches of contract in terms of his management of the business.
What the plaintiff does not do is to challenge the value of the stock upon which the purchase price is made. Although I expressed interest in seeing the depreciation schedule (T 279), and was surprised that it only refers in the most generic way to beds and computers, Ms Zhang not only put the astounding value of $300,000 on equipment costs (T 227 – 228) but later increased this to $460,000 – $470,000 (T 270). This does not include the shop fit-out, which was an additional amount. However, Ms Zhang was not cross-examined about these purchases, and there is no expert evidence (either on this topic or the value of the business name). To the contrary, there is evidence from Ms Sabrina Xia of Link NSW to the effect that the equipment is “in good condition” and worth “at least $150,000” (CB 2, Tab 6, affidavit of Ms Zhang, paragraph 221). I propose to accept the defendants’ evidence on this issue without further comment.

The value of the business name

Coco had been in business at the premises since 2015. As the plaintiff himself noted in his evidence, the name “Coco” was a catchy and attractive name. He said it was also his wife’s name. Although not expressly stated by any of the witnesses, I think it reasonable to infer that, to the predominantly Chinese clientele of the business, this was an attractive (and thus memorable) name.
Under Clause 5 of the purchase agreement with the plaintiff, there was an agreement to transfer Coco Beauty’s brand-name to the plaintiff during the transfer of the business for a transfer fee of $50,000. Under the subsequent sale of this business, this goodwill was valued at zero, and the $91,000 sale price consisted solely of the value of the equipment. For this reason, part of the company’s claimed loss is the loss of this business name.
In her submissions of 20 October 2021 (at paragraph 105), Ms Ashworth submits that the transfer of the business name occurred after completion of the contract for sale and therefore did not form part of the purchase price relied upon by the defendants as having been paid by the new purchaser in connection with the business. She also submits that there is no evidence of negotiations between the new purchaser and the second defendant about fixing a price (or not having any price), asserting that the first defendant’s evidence that there was no amount paid meant that either any asserted breach did not cause any loss or “that any loss was avoidable”.
I do not accept that the loss was “avoidable”. The value of the business and its name had been impact by the way in which the plaintiff had managed it, with the result that it was lumbered with client debt. The sale was being managed by a business broker, Ms Xia, who said that the equipment was in good condition and worth $150,000 as part of the purchase price (CB 2: Tab 6, affidavit of Ms Zhang, paragraph 221).

The lease bond

Under the purchase agreement, Oceania was to receive a “lease bond” (see items 9 and 19(1)(b) of the lease) of $41,888, which could have been used, for example, to fund back payments of rent so as to avoid Ms Zhang’s guarantee being called upon. Due to the termination of the plaintiff’s purchase, this amount was never received.
Ms Ashworth submits that what was to be provided was a bank guarantee, which did not provide for any actual payment by the lessor. The defendants have suffered no loss as the first defendant supplied the bank guarantee under the lease through her own bank, and there is in fact no further guarantee in connection with the lease.
While technically this may amount to part of the loss of the bargain, in the sense that it was not paid, it is not an actual loss suffered by Oceania. The “economic reality” (to use the description in the defendants’ submissions of 1 November 2021) is that it was a bond, not a payment. Accordingly, no allowance will be made for this item.

Loss of opportunity to license credentials

The licence fee was for use of the credentials of the plaintiff, who had a Diploma of Beauty Therapy, a remedial massage certificate, membership of the Chinese Medicine and Acupuncture Society of Australia and credentials regarding laser therapy.
Clause 3 of the purchase agreement provided that there must be strict compliance with industrial standards and the Australian “legal and regulatory system”. The defendants submit that the plaintiff was effectively licensing Ms Zhang’s credentials.
The plaintiff’s argument is that, as she had no connection with the business, that would have amounted to misleading or deceptive conduct and no amount should be awarded because of “the statutory prohibition of misleading or deceptive conduct in s 18 of the ACL”, which is therefore “illegal or contrary to public policy” (submissions of 20 October 2021, paragraph 111).
I consider that the terms of Clause 3 of the purchase agreement meant, by implication, that the parties intended Ms Zhang to have a continued association with the business and that in those circumstances no misrepresentation arose. It was clearly the parties’ intention that there be ongoing product activities and marketing of the name Coco, hence the payment of $50,000 for this. The nature of the relationship between the parties, had the agreement they signed been successfully put in place, clearly contemplated such activity.
Another difficulty for the plaintiff is that this claim was neither pleaded nor particularised in the defence.
In any event, the purchase price negotiated by Ms Xia of Link NSW appears to have related to the value of the equipment only.

Failure to plead contractual entitlement

The plaintiff complains that, insofar as the defendants support their claim for loss of sale of the business pursuant to Clause 8 of the purchase agreement, the asserted contractual entitlement has not been pleaded. I agree with the submissions of the defendants that this claim merely reflects the terms of the purchase agreement and do not consider this was necessary to plead.

Loss of licence fees – is there a double recovery?

The licence fee set out in the purchase agreement was $20,000 per annum (see Clauses 5, 6 and 9). The lease runs from 2019 to 2024, which is five years. The defendants calculated the loss of the licence fee on the basis of payment for nine years, as there were four years remaining on the lease at the time of the plaintiff entering into the purchase agreement.
The likelihood, given the settled nature of the business, was that the lease would be renewed at least one or more times, hence the allowance for one full five-year period and one lesser period of 4 years. For the first year of the lease (2019), the $20,000 fee is captured under the loss of bargain damages for the purchase price; for the remaining years (from 2020 onwards) the $20,000 licence fee is claimed.
This is not a double recovery as claimed by the plaintiff.
The plaintiff also argues that there is no evidence of this; this is an extension of the general argument in relation to the cross-claim that some form of expert evidence is necessary in order to establish economic loss. What the defendants are claiming here is the loss of a chance for a licence in terms of a deprivation of any commercial opportunity, whether arising from breach of contract or some other cause of action. Mr Harding’s submissions of 1 November 2021 helpfully set out these principles as follows:

The law awards damages for deprivation of any commercial opportunity, whether arising from breach of contract, tort or statutory contravention;

Damages have been recognised as available for loss of an opportunity, such as to prosecute a litigious claim;

In a loss of chance case, whether arising under contract, tort or statutory contravention, the plaintiff must first prove on the balance of probabilities that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value);

It is not necessary to establish that the chance would probably have been realised; loss of a chance is compensable even if its realisation is unlikely on the balance of probabilities, and even as low as 1 per cent;

Once the existence and loss of a chance have been established, damages are to be assessed by reference to the court’s assessment of the degree of likelihood that the commercial opportunity would have yielded success had it been pursued;

Although in this process there is a need to weigh various factors, there is no requirement of a mathematical appraisal of the likelihood of every possible occurrence

The value of an opportunity that has been lost is to be ascertained by reference to the “degree of probabilities or possibilities”;

Uncertainty in quantification does not prevent an assessment provided some broad estimate can be made or a broad-brush approach taken;

Damages need not be proved with mathematical exactitude and the court will use its best endeavours to arrive at a fair figure;

Where precise evidence is not available, the Court must do the best it can;

In a loss of chance case, the inquiry is thus an imprecise and indeterminate one to be carried out within very broad parameters. The trier of fact may have to form conclusions on slender materials.

I have adopted and applied this helpful summary of the principles in terms of the calculation of damages in the cross-claim.

Damages for breach of the purchase agreement

I note Ms Ashworth’s statement that the defendants and plaintiff agree on the methodology for quantification of the loss (plaintiff’s submissions, 20 October 2021, paragraphs 129 – 130). While this is challenged by the defendants (defendants’ submissions, 1 November 2021, paragraph 140), I agree that, even on the basis of the plaintiff’s own approach, the damage caused by this breach of contract would be compensable.
As to additional rent and additional costs, I accept the defendants’ evidence that from the date the plaintiff ceased involvement with the business (his last day of work being 8 March 2020) until completion of the sale on 18 December 2020, the Coco Beauty Business made a loss, in circumstances where that loss is entirely due to the combined impact of the incompetent way the business was being run (with the result that customer credits were incurred) and the sudden and unexpected withdrawal of the plaintiff from the business, in circumstance where the unchallenged evidence of Ms Zhang was that she could not work in the business for health reasons.
I note the following evidence supporting this finding:

The customer records for the period March to December 2020 (CB1 Tab 6, pp 617 – 962) demonstrate that during this period the Coco Beauty Business received only $1,451 in cash.

The ANZ statements for Oceania over the same period show withdrawals exceeding deposits in a total sum of $82,900.

Ms Zhang’s personal CBA account for the period 9 November 2020 to 8 February 2021 shows merchant deposits and HICAPS receipts totalling $7,417 for the period 9 November 2020 to the date of completion of the sale to the new owner (19 December 2020).

These figures add up to a loss of $74,000.
An important adjustment has to be made, however, for the impact of the pandemic. The business was receiving relief payments as well as not paying rent (which accumulated as a debt to be payable on the sale of the business). The plaintiff did produce one page from his own bank account, but it is of little assistance. I am satisfied that, independently of the pandemic, the Coco Beauty Business was losing significant sums of money,
The plaintiff sought to argue that the Coco Beauty Business was cash-based and that cash payments had to be allowed for, noting Ms Zhang’s statement in her first affidavit that the business was “primarily” cash based which, by inference, meant that the takings were much higher. Ms Zhang said in cross-examination (T 238) that this was an error. I accept that this is an error because, if the business were indeed cash-based, nobody would have better evidence of this than the plaintiff himself, from his own experience running the business, and that was not his evidence. In addition, the customer records for the period March to December 2020 corroborate this.
It is hard to see how the plaintiff can refute the pleading in the cross-claim that the plaintiff breached Clauses 2, 6 and 7 of the purchase agreement, since he failed to make the payments in question by the due date (see paragraphs 40 – 46 of the cross-claim). Not only was he in breach of these provisions of the purchase agreement from 29 February 2020 but he committed further breaches from 3 March 2020 by failing to meet expenses of the business for which he was liable under Clause 2. For these reasons, he is liable for the additional costs and losses claimed by the company as a consequence of all these breaches.

Agents’ fees, solicitors’ fees and assignment of the lease

It is not in dispute that the company incurred $24,200 in agent fees (see CB2, Tab 6, paragraph 234 of Ms Zhang’s affidavit and Tab 7, p. 347) which, since I am satisfied these are the direct result of the repudiation, are payable by the plaintiff. The sole basis for the plaintiff’s challenge is that these fees are not reasonable (submissions of 20 October 2021, paragraph 127). There is, however, no evidence (including no expert evidence) to support any such submission.
The same is the case for the $1,650 payable by the company for its contribution to lease assignment costs and $1,980 for legal fees. I do not understand Ms Ashworth’s submission that either or both of these would have been payable in any event (submissions of 20 October 2021, paragraph 128).

Customer debt

As noted above, there appears to be a degree of consensus in relation to the quantum of customer debt. I propose to allow the sum calculated by the defendants.

Summary of items claimed in the cross-claim

The defendants/cross-claimants claimed the sum of $311,125.46. The following amount should be deducted from that calculation:

Claim for “Lease Bond” of $41,888.

All other items claimed have been proved, and there will accordingly be judgment for $ 269,237.46.
As I do not propose to make any costs orders until I have heard from the parties and it will be necessary to restore the proceedings for the purpose of interest calculations, I have granted liberty to apply in respect of each of these matters.

Orders:

Judgment for the defendants on the statement of claim.
Judgment for the defendants/cross-claimants on the cross-claim in the amount of $269,237.46.
Costs and interest reserved, with liberty to apply.
Exhibits retained until further order.

**********

Decision last updated: 01 March 2022

Medium Neutral Citation:	Shao v Zhang & Anor; Zhang & Anor v Shao [2022] NSWDC 38
Hearing dates:	27 – 30 July, 2 – 5 August, 29 September, 02 and 17 November 2021
Date of orders:	28 February 2022
Decision date:	28 February 2022
Jurisdiction:	Civil
Before:	Gibson DCJ
Decision:	Orders: (1) Judgment for the defendants on the statement of claim. (2) Judgment for the defendants/cross-claimants on the cross-claim in the amount of $269,237.46. (3) Costs and interest reserved, with liberty to apply. (4) Exhibits retained until further order.
Catchwords:	CONTRACT – purchase of beauty business not completed – whether misleading or deceptive conduct arose from silence about the transfer provisions in the lease – claim for restitution – cross-claim for loss of the bargain – significant credit issues - no issue of principle
Legislation Cited:	Evidence Act 1995 (NSW) s 128
Cases Cited:	Amalgamated Television Services Pty Ltd v Marsden [2002] NSWCA 419 Caprice Property Holdings Pty Ltd v McLeay [2015] 1 Qd R 206 Carpenter v McGrath (1996) 40 NSWLR 39 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 Demagogue Pty Limited v Ramensky (1992) 39 FCR 31 at 32 Du Buisson Perrine v Chan [2016] WASCA 18 Eastern Garden Pty Ltd v Stone and Another [2005] SASC 157 El Ali v Tritton (2019) 19 BPR 39447 ET-China.com International Holdings Ltd v Cheung [2021] NSWCA 24 Goodrich Aerospace Pty Ltd v Arsic [2006] NSWCA 187 Holland v Wiltshire (1954) 90 CLR 409 Lam v Ausintel Investment Australia Pty Ltd (1989) 97 FLR 458 Mallegowda v Sood [2019] NSWCA 37 Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 Morvatjou v Moradkhani [2013] NSWCA 157 Ogle v. Comboyuro Investments Pty Ltd (1976) 136 CLR 444 Pacific Shoji v Xia [2018] NSWCA 290 Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 Prothonotary of the Supreme Court of New South Wales v Mallegowda [2016] NSWSC 1087 Prouten v Chapman [2021] NSWCA Terrex Resources NL v Magnet Petroleum Pty Ltd and Others [1998] 1 WAR 144 Thornton v Telegraph Media Group Ltd [2011] EWHC 1884 (QB) Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 Woods v Woods (2000) NSWSC 851
Category:	Principal judgment
Parties:	Plaintiff/cross-defendant: Mr Woquan Shao Defendants/cross-claimant: First defendant/ First cross-claimant: Ms Liying Zhang Second defendant/ Second cross-claimant: Oceania Investments Group Pty Ltd
Representation:	Counsel: Plaintiff/cross-defendant: Ms F Ashworth with Ms E Beljic Defendants/cross-claimant: Mr A Harding with Mr B Cameron Solicitors: Plaintiff/cross-defendant: Brightstone Legal Defendants/cross-claimant: Concisus Legal Pty Ltd
File Number(s):	2020/00135051

Item	Amount
From section N1 above - expectation loss on sale of the Coco Beauty Business following Mr Shao’s repudiation, pursuant to general law principles or alternatively pursuant to cl. 8 of the Purchase Agreement.	$35,088. (This amount takes account of the Defendants retaining the $185,000 paid by Mr Shao under the July Agreement and Purchase Agreement; if those funds were to be returned to Mr Shao, the amount of damages would increase by that sum).
From section M above - expectation losses, being foregone recurring licence fees of $20,000 pursuant to cl. 9 of the Purchase Agreement – calculated over 9 years on the basis of the 4 years remaining on the current lease of the Premises and an assumed further 5 year lease being entered into.	$180,000.
Additional rent required to be paid by the Second Defendant between April and December 2020.	$53,840.46.
Additional costs (including for wages) incurred by the Defendants to maintain the Coco Beauty Business following Mr Shao’s breaches of the Purchase Agreement.	$27,600.
Agent fees to sell the Coco Beauty Business following Mr Shao’s breaches of the Purchase Agreement.	$24,200.
Contribution to lease assignment cost upon sale of the Coco Beauty Business on 18 December 2020.	$1,650.00.
Solicitor Fees incurred in the sale of the Coco Beauty Business.	$1,980.00.
From section L above - costs incurred in relation to customer debts.	$8,530.
Total	$329,258.46

Item	Amount
Amount contributed by Mr Shao	$81,400
Amount contributed by Ms Zhang	-$9,000
License fee required under the License Agreement	-$25,200
Business expenses	-$195,436.90
Omitted Debit conceded in letter of 28 July 2021	-$536.88
Omitted Debits conceded during cross examination	-$8,005
Business income	$174,911.80
Total	$18,133