Xuan v Xu

Case [2022] FCA 508

FEDERAL COURT OF AUSTRALIA

Xuan v Xu [2022] FCA 508

File number(s): NSD 1174 of 2019
Judgment of: HALLEY J
Date of judgment: 6 May 2022
Catchwords:

CONSUMER LAW – application pursuant to ss 12DA and 12DB of Australian Securities and Investments Commission Act 2001 (Cth), or in the alternative s 18 of Australian Consumer Law – allegations that respondent misled applicant by making various representations as to complex and unregulated investment scheme – where majority of representations found to be made – whether representations made in trade or commerce – whether investment scheme a financial product – whether representations conduct in relation to financial services – whether representations misleading or deceptive, or false or misleading – whether representations materially contributed to loss suffered by applicant – application allowed

EVIDENCE – respondent opposed admission of audio recordings on basis he had not consented to or otherwise authorised their making – whether making of recordings gave rise to contravention of s 7 of Surveillance Devices Act 2007 (NSW) – evidence on voir dire – where certificates issued pursuant to s 128 of Evidence Act 1995 (Cth) – evidence admitted

DAMAGES – where loss and damage suffered by applicant at time of investment into investment scheme – no relevant contingency – discretion to award pre-judgment interest under s 51A of Federal Court of Australia Act 1976 (Cth)
Legislation:

Australian Securities and Investments Commission Act 2001 (Cth) ss 5, 12BAA, 12BAB, 12BB, 12DA, 12DB

Competition and Consumer Act 2010 (Cth), Schedule 2, Australian Consumer Law ss 4, 18, 236

Evidence Act 1995 (Cth) ss 128, 138

Federal Court of Australia Act 1976 (Cth) s 51A

Surveillance Devices Act 2007 (NSW) s 7
Cases cited:

Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd (2014) 317 ALR 73; [2014] FCA 634

Australian Securities and Investments Commission v Dover Financial Advisers Pty Ltd (2019) 140 ACSR 561; [2019] FCA 1932

Australian Competition and Consumer Commission v Employsure Pty Ltd (2021) 394 LR 205; [2021] FCAFC 142

Australian Securities and Investments Commission v Citrofresh International Ltd (2007) 164 FCR 333; [2007] FCA 1873

Australian Securities and Investments Commissions v MLC Nominees Pty Ltd [2020] FCA 1306

Australian Securities and Investments Commission v Narain (2008) 169 FCR 211; [2008] FCAFC 120

Australian Securities and Investments Commission v Westpac Banking Corporation (No 2) (2018) 266 FCR 147; [2018] FCA 75

Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592; [2004] HCA 60

Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45; [2000] HCA 12

Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31

Domain Names Australia Pty Ltd v .au Domain Administration Ltd (2004) 139 FCR 215; [2004] FCAFC 247

Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 821

Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435; [2013] HCA 1

Harvard Nominees Pty Ltd v Tiller and Others (2020) 282 FCR 530; [2020] FCAFC…

Continue reading Xuan v Xu

Sign in free to access the full text

Details
AGLC
Xuan v Xu [2022] FCA 508
Case
[2022] FCA 508
Decision Date

CaseChat Overview and Summary

In the matter of Xuan v Xu, the Federal Court considered the applicant's claims against the respondent for misleading and deceptive conduct under the Australian Securities and Investments Commission Act 2001 (Cth) and the Australian Consumer Law. The applicant alleged that the respondent misled her about the operation and profitability of an investment scheme known as the MFC Platform, leading to significant financial loss. The court was required to determine whether the respondent made specific representations to the applicant, whether those representations were made in the course of trade or commerce, whether the investment scheme constituted a financial product, and if the representations were misleading or deceptive. The court also had to assess whether the recordings of the meetings between the parties, made without the respondent's knowledge, could be admitted as evidence.

The court found that the majority of the representations alleged by the applicant were indeed made by the respondent. It determined that the representations were made in the course of trade or commerce, that the investment scheme could be considered a financial product, and that the conduct of the respondent in relation to financial services was misleading or deceptive. The court concluded that the recordings of the meetings were admissible as they were necessary for the protection of the applicant's lawful interests and the probative value of the evidence outweighed any potential prejudice to the respondent. The court awarded the applicant damages for the loss of her investments, together with pre-judgment interest, and ordered the respondent to pay the applicant's costs of the proceedings.

Orders

Orders of the court

1. Judgment be entered in favour of the applicant in the amount of $208,316.80, plus pre-judgment interest, pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), in the amount of $47,709.15.

2. The respondent pay the applicant’s costs of and incidental to the proceedings, as taxed or agreed.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

The transcript of the 16 July Recording provides considerable corroborative support for the applicant’s evidence that the respondent made the representations pleaded in the statement of claim. I have reproduced extracts from the transcript later in these reasons in addressing whether the representations alleged by the applicant have been established. For present purposes it is sufficient to note the following statements that the respondent is recorded as making to the applicant and Ms Chen:[Respondent]: Last year. I focused on team building. After almost a year to now. I have more than 100 fans. Those 100 plus fans are not those who only buy 100 or 200. They all bought 21 points if they could. Some were forced by me as they only trust me. Those who bought 21 points, I took them to Malaysia immediately. I forced them to go. I also force you to go. Some really had no time. I waited for him, I go there once a month. I take them to classes. After the class, sister, they changed completely.…[Respondent]: I’m telling you: first, for this project, I can personally guarantee you that you will not lose money. Secondly, I also personally guarantee that you will be worry free in my team. Thirdly, the money you will make this time will surpass what you could imagine in your past few decades of life so far. …FACTUAL BACKGROUNDThe MFC Platform Neither the respondent nor any other witness was able to provide a coherent explanation of how the MFC Platform was intended to operate in a manner that would provide any tangible or meaningful returns to investors. The respondent described the MFC Platform as a “loyalty reward system” and claimed that it was an “emerging business” based on:Fans economy, Internet +, integrated O2O (Online to Offline), Online :Similar to Uber, Airbnb, Alibaba. Offline: restaurant, beauty club, health & fitness, transport /logistics, Asia Culture, etc… The following description of the purported operation of the MFC Platform is taken from the respondent’s evidence and submissions. It is unfortunately largely incomprehensible. It was apparent in the course of the respondent’s evidence and submissions that he was not able to describe or explain important aspects of the alleged operation of the MFC Platform, in particular how the platform generated revenue and how investors could obtain returns on their investment. Alleged operation of the MFC Platform The respondent claimed that an investor would purchase what was described as an “advertising package”, but usually referred to as “Advertising Points” or “AP”, which would give the investor credit to advertise on “MMall” or “MFace”. The respondent gave evidence that, by way of example, if a sum of USD5,000 was invested, an investor would receive 2000 AP. The investor would also receive what were described as “trading points” or Game Redemption Credits (GRC). The respondent referred to these trading points as GRC1 and GRC2. He claimed that the investor would receive USD1,000 of GRC1 and USD2,000 of GRC2.

Evidence

Evidence Before The Court

The purpose of this method was to ensure that should the respondent, as a self-represented litigant, wish to give evidence on the voir dire consistent with his submissions that he had not given his consent, and if Ms Chen gave evidence consistent with her affidavit, I would not have to make a credit finding prior to the final judgment. This would be undesirable in circumstances in which the respondent is self-represented and had not yet given evidence. In those circumstances a risk of apprehended bias may well have arisen. Evidence on the voir dire The respondent gave evidence on the voir dire that he did not know that the recordings were being made, and at no time had the applicant nor Ms Chen asked his permission to make any recordings of any of the meetings that they attended with him. The respondent stated that he told the applicant and Ms Chen that they were not allowed to make any recordings of any of the meetings they had had with him “quite a long time ago” when they first came to the warehouse, by saying: “Don’t take photos. Don’t record.” In the course of his cross-examination, the respondent gave evidence that the 16 July Recording was made when he was giving a “very basic outline” of the MFC platform, but repeated that Ms Chen had not asked permission to make the recording. Ms Chen gave evidence on the voir dire that she had made the 15 July Recording on her mobile phone to assist her mother, as she and her mother couldn’t “take notes all the time” due to having to assist her father to the bathroom multiple times during the meeting. She stated that she didn’t share the Audio Recordings with anyone other than her mother. Ms Chen gave evidence that her mobile phone was approximately 15 cm away from the respondent when recording, and that she did not think it was obscured in any way. Further, Ms Chen stated that the respondent had encouraged people at the meetings to take photographs, and that he said: Take a photo so you can, you know, look at it later and study hard, because MFC is really good platform and post the photos to the WeChat Eagle Team so let other members know how good our team is. In relation to the 16 July Recording, Ms Chen gave evidence that the respondent was showing her and the applicant the MFC website, and that she said: Maybe I should record it so that my mother can understand later, because she’s not so computer, you know, literate. She stated that respondent replied “Yes, of course, no problem”, or something to that effect. Ms Chen gave evidence that the recording was made on her mobile phone while it was placed first in her hand, then on the table. When asked why she made the recording, Ms Chen stated that she thought it was better to make the recording so that her mother would know how to navigate the MFC website in the future. In cross-examination, the respondent challenged Ms Chen’s evidence that her mother was not computer literate by stating that the applicant had been a “senior engineer”. Ms Chen responded that the applicant had ceased being an engineer and had retired between 15 and 17 years ago, and that the applicant used a laptop computer that used to belong to Ms Chen to watch Chinese programs on YouTube and to check her emails with the assistance of Ms Chen. Ms Chen stated that she was not aware of her mother using the laptop for any other purposes. Ms Chen stated that it was possible that she had asked a couple of questions during the meeting the subject of the 15 July Recording, but would not have made any substantive comments.

Decision

Reasons for decision

More specifically I find that:(a)each of the 15 July Seminar Representations (other than the Advertising Points Representation and the Rewards Representation) and the Promotion Representation materially contributed to the applicant’s decision to make the First Investment;(b)each of the 15 July Seminar Representations (other than the Advertising Points Representation and the Rewards Representation), the Promotions Representation and the Expiry Representation materially contributed to the applicant’s decision to make the Second Investment; and(c)each of the Representations materially contributed to the applicant’s decision to make the Third Investment.Conclusion I am satisfied that the applicant has established that in making each of the Representations the respondent, in trade or commerce:(a)engaged in conduct in relation to financial services that was misleading or deceptive or was likely to mislead or deceive in contravention of s 12DA of the ASIC Act and the applicant has suffered loss or damage by reason of that conduct of the respondent and the applicant is thereby entitled to damages pursuant to s 12GF of the ASIC Act;(b)made false or misleading representations that financial services were of a particular quality or value and had particular performance characteristics and benefits in contravention of s 12DB of the ASIC Act and the applicant has suffered loss or damage by reason of the respondent making those representations, and the applicant is thereby entitled to damages pursuant to s 12GF of the ASIC Act; and(c)engaged in conduct that is misleading or deceptive or is likely to mislead or deceive in contravention of s 18 of the ACL and the applicant has suffered loss or damage because of the conduct of the respondent and the applicant is thereby entitled to damages pursuant to s 236 of the ACL. DAMAGES The applicant seeks damages for the loss of her investments on the MFC Platform, together with interest. The First Investment was in an amount of $60,000. The Australian dollar equivalent of the RMB amounts transferred by the applicant into the respondent’s bank account, using the exchange rates at the dates of the respective investments identified in the affidavit of Mr Xia, were $86,303.37 for the Second Investment (RMB455,000/5.2721) and $62,013.43 for the Third Investment (RMB325,000/5.2408). The Australian dollar equivalent therefore of the total investments made by the applicant, calculated as at the date of each investment, was $208,316.80. Section 51A of the Federal Court of Australia Act 1976 (Cth) relevantly provides that the Court shall on the application of a party in proceedings for the recovery of damages, unless good cause is shown to the contrary, include in the sum for which damages is awarded a sum for interest at the rates prescribed in the Federal Court Rules 2011 (Cth) if it thinks fit for the whole or any part of the period between the date when the cause of action arose and the date on which judgment is entered.

Ratio Decidendi

Legal Principle Established

In Kanjian Holdings No 1 Pty Ltd v Kanjian; Kanjian v Kanjian (No 3) (2020) 155 ACSR 230; [2021] NSWSC 839 at [498]-[502], Henry J stated that the Court should not be too ready to find that the desirability of admitting secret recordings of private conversations outweighs the undesirability of receiving it, but in that case found that due to the seriousness of the dispute, the best evidence of what occurred should be admitted. Consideration I am satisfied that the Audio Recordings and the Transcripts fall within the exception in s 7(3)(b) of the SD Act because:(a)the applicant was a principal party to the conversations the subject of the Audio Recordings and she had provided her consent to the use of Ms Chen’s mobile phone to make the Audio Recordings; (b)the making of the Audio Recordings was reasonably necessary for the protection of the lawful interests of the applicant, namely her understanding of the MFC Platform which was a potential investment opportunity that was being promoted to her by the respondent; and(c)neither of the Audio Recordings was published and I accept Ms Chen’s evidence that she only intended to only share them with the applicant, who was in attendance at both meetings, and neither Ms Chen nor the applicant was considering bringing proceedings. Rather, the applicant was considering whether she should invest in MFC, and did so two days later. In respect of the 15 July Recording, given that Ms Chen and the applicant had to assist the applicant’s husband to the bathroom due to his disabilities, and therefore they were not able to be present for the whole of the presentation, I am satisfied that the recording was consistent with protecting their lawful interests in seeking to understand the nature of the investment opportunity that was being promoted to them in the course of the 15 July Seminar. Further, I am satisfied that the 16 July Recording and the transcript of that recording fall within the exception in s 7(3)(a) of the SD Act. The only persons present and the principal parties to the conversations recorded in the 16 July Recording were the applicant, Ms Chen and the respondent. I accept Ms Chen’s evidence that she asked for and was given permission by the respondent to record the conversations at the meeting on 16 July 2017; it is inherently plausible, given the novelty of the MFC Platform, the complexity of the explanations being provided by the respondent and the express purpose of the meeting to explain the MFC Platform, that such a request was made and that it was agreed to by the respondent. Further, given the meeting was only between the respondent, the applicant and Ms Chen, it is inherently implausible that the respondent was not aware that Ms Chen was recording the conversations on her mobile phone. I am satisfied that each of the applicant, Ms Chen and the respondent expressly or impliedly consented to Ms Chen using her mobile phone to record their conversations during the meeting on 16 July 2017. In any event, I am satisfied that even if, contrary to my finding above, the Audio Recordings did not fall within the exceptions in s 7(3)(a) or (b) of the SD Act, the desirability of admitting the Audio Recordings and the Transcripts outweighs the undesirability of not receiving them because:(a)the probative value of the evidence is “very high”, as the Recordings and the certified English translations in the Transcripts are an objective record of oral communications involving the applicant, Ms Chen, the respondent and others prior to the applicant’s decision to invest in the MFC Platform;(b)the evidence is “significantly important” to the proceedings as the admissions made in the recordings are largely conclusive of whether the representations denied by the respondent were made and the role of the respondent in the applicant’s decision to invest in the MFC Platform;(c)the causes of action are primarily concerned with oral representations made by the respondent that are alleged to have materially contributed to her decision to invest in the MFC Platform;(d)the gravity of the contravention of Ms Chen (if any) was not significant as no covert actions were taken to obtain the evidence and the recordings were made in plain sight of the respondent on a mobile phone in situ during meetings in which complicated information was being given to those in the meeting;(e)the contravention (if any) was not deliberate nor reckless, and should be a neutral consideration because at the time that Ms Chen made the recordings, she could not have contemplated the need for evidence for legal proceedings;(f)the recordings do not constitute an infringement of the respondent’s rights under art 17 of the International Covenant on Civil and Political Rights, opened for signature on 16 December 1966, 999 UNTS 171 (entered into force 23 March 1976);(g)no proceeding is likely to be taken in relation to the alleged contravention, which should therefore be a neutral consideration; and (h)where the contravention is neither deliberate nor reckless, the difficulty of obtaining the evidence without a contravention of the law is a neutral consideration. OTHER EVIDENTIARY ISSUESAffidavit of Professor An