Yeh Chuk v Permeatex Australia Pty Limited

[2005] FCA 493

FEDERAL COURT OF AUSTRALIA

Yeh Chuk v Permeatex Australia Pty Limited
[2005] FCA 493

TRADE PRACTICES – Trade Practices Act1974 (Cth) s 52 – misleading and deceptive conduct – where applicant agreed to advance money to Permeatex upon representations made by the director of Permeatex – new company with similar name incorporated without notice to applicant – applicant’s moneys placed into account of Permeatec without notice – where representations were made prior to the incorporation of Permeatec – whether any representations were made regarding interest payable on moneys advanced – where the respondents did not attend the hearing or give any evidence or submissions – it is incumbent on the applicant to prove the elements of his or her case

Trade Practices Act 1974 (Cth) s 52

Microsoft Corporation v TYN Electronics Pty Ltd (in liq) (2005) 63 IPR 137
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514

YEH CHUK v PERMEATEX AUSTRALIA PTY LIMITED, PERMEATEC AUSTRALIA PTY LIMITED, LEETEX TECHNOLOGIES CO. LIMITED, CHAO LING CHIANG, CHI HENG LEE, YVONNE LINGTON AND GLORIA LEE

NSD1064 OF 2004

BENNETT J
29 APRIL 2005
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD1064 OF 2004

BETWEEN:

YEH CHUK
APPLICANT

AND:

PERMEATEX AUSTRALIA PTY LIMITED
FIRST RESPONDENT

PERMEATEC AUSTRALIA PTY LIMITED
SECOND RESPONDENT

LEETEX TECHNOLOGIES CO. LIMITED
THIRD RESPONDENT

CHAO LING CHIANG
FOURTH RESPONDENT

CHI HENG LEE
FIFTH RESPONDENT

YVONNE LINGTON
SIXTH RESPONDENT

GLORIA LEE
SEVENTH RESPONDENT

JUDGE:	BENNETT J
DATE:	29 APRIL 2005
PLACE:	SYDNEY

REASONS FOR JUDGMENT

Background

1. This application, filed on 7 July 2004, claims damages flowing from representations and conduct which are alleged to be in contravention of s 51A, s 51AC and s 52 of the Trade Practices Act1974 (Cth) (‘the Act’).

2. On 29 July 2004, a notice of appearance was filed by solicitors on behalf of the first, second, fourth, sixth and seventh respondents (‘the served respondents’) and those respondents were legally represented at a directions hearing.

3. On 29 July 2004, the fourth respondent (Mr Chiang), the seventh respondent (Ms Lee) and the sixth respondent (Ms Lington) filed affidavits.  On 30 August 2004, the solicitor for the served respondents filed in Court a notice of ceasing to act.  Thereafter, there was no appearance by the served respondents despite their being notified by the applicant of directions and hearing dates and despite their being served with the applicant’s supporting affidavits.

4. On 29 October 2004, I ordered substituted service on the fifth respondent. That was effected on 21 December 2004. On 7 December 2004, I ordered substituted service on the third respondent.  That was effected on 21 December 2004.

5. The applicant, through his solicitors, provided written notice to each of the respondents of all interlocutory applications, subpoenae and orders, including orders listing the proceedings for hearing on 9 March 2005.

6. None of the respondents attended the hearing on 9 March 2005.  The affidavits of Mr Chiang, Ms Lee and Ms Lington were not read.  The evidence of the applicant, Mr Chuk, as contained in his affidavits, was unchallenged. I note and adopt, however, the following observation of Stone J in Microsoft Corporation v TYN Electronics Pty Ltd (in liq) (2005) 63 IPR 137 at 140:

   ‘In the absence of the respondent, an applicant has the burden of proving the claims made in so far as they are not admitted, for example on the pleadings or by a failure to dispute a fact specified in a notice to admit facts issued under O18 r 2 of the Federal Court Rules. In doing so it is necessary for the applicant to call sufficient admissible evidence to discharge the evidentiary burden raised by the pleadings: MY Distributors Pty Ltd v Omaq Pty Ltd (1992) 36 FCR 578. In making its case, the applicant must be confined strictly to the claims made in the pleadings: Barker v Furlong [1891] 2 Ch 172 at 179. An applicant who has proved those claims is entitled to the relief claimed (so long as it is appropriate to the claims) and “to such other relief as is incidental hereto”: Stone v Smith (1887) 35 ChD 188 at 189. It follows that an applicant whose evidence does not support the claims made, either in whole or in part, will to that extent be unsuccessful.’ (emphasis added)

7. The case made against the respondents is not clear from the application and statement of claim, nor is the connection between the allegations and specific provisions of the Act. The pleadings raise claims of unconscionable conduct and unjust enrichment. They were abandoned during the course of the hearing.

8. The statement of claim also alleges breach of contract and “breach of personal guarantee”.  Claims were made as against the first and fourth respondents for repayment of the sum of $402,800 ‘either pursuant to the loan agreement or the Guarantee respectively’.  As against the first, second, third, fourth, fifth, sixth and seventh respondents, there are claims for ‘restitution in the amount of $402,800’.  During the hearing, the applicant abandoned the claims against the third respondent, Leetex Technologies Co Limited (‘Leetex’).  Dr Keogh, counsel for the applicant, also conceded that the evidence did not establish any appropriate connection between Ms Lington and Ms Lee and the first or second respondents.  It was conceded that no action lay against them.

9. Accordingly, the case as pressed relied upon representations by and conduct of Mr Chiang and the fifth respondent (Mr Lee) on their own behalf and on behalf of the first respondent, Permeatex Australia Pty Limited (‘Permeatex’) and the second respondent Permeatec Australia Pty Limited (‘Permeatec’).

   Factual matters

10. The salient relevant facts as taken from the evidence before me are quite straightforward:

    (a)Mr Chuk is a professional violinist and says that his ‘life was entirely devoted to music’.  He gives private tuition to many students in Sydney.

    (b)On 4 January 2001, he agreed to give violin lessons to the two daughters of Mr and Mrs Chiang and also to the three children of Mr and Mrs Lee.

    (c)He was often invited to share meals with Mr and Mrs Chiang after the completion of the lessons.

    (d)Mr and Mrs Chiang showed him their possessions and spoke of their wealth.

    (e)Mr Chiang often said to Mr Chuk words to the effect: ‘If you have money to put into our company, we will make easy money for you and you do not need to teach’.  He also said ‘you have no worries to put your money into our company.  You can believe me I will make you rich’.

    (f)Mr Chuk also met Mr and Mrs Lee when they were in Australia.  Mr Lee said to him ‘I want to have an Australian as a director.  Teacher Chuk you work too hard for such a small amount of money.  Why don’t you lend your money to our business or invest in our business, we will make you a director and make you a lot of money and you don’t have to work so hard to teach violin’.

    (g)Mr Chuk was given Mr Chiang’s business card which described him as the Managing Director of Permeatex.

    (h)On 19 August 2001, Mr Chiang said: ‘Teacher Chuk, are you willing to invest in my company?  Otherwise, you can lend money to me…Any time you want your money back I will pay you back even it has to be from my own pocket’.  He also said ‘You should put money into this project instead of leaving it in the bank or at home.  I guarantee that you will earn more money than what the bank is paying you.  Here, take this brochure.  It tells you more about the product, what it does and the company’.  The brochure was published by Leetex, a company operating in Taiwan.

    (i)The conversation continued:

    Mr Chuk:

    ‘I don’t know anything about business.  You have been very kind to me giving me dinners, desserts and gifts.  You have showed me your big house and expensive car.  I feel confident that you are people of substance and are telling me the truth.  Mr Chiang, if you need money I can lend it to you.  But when I want my money back, I want you to pay me back.’

    Mr Chiang said:

    ‘Thank you Teacher Chuk, you have also been very kind to us.  You always give extra violin lessons to my children and nieces, I will give you a 25% interest in my company and make you a director.  Please be assured when you want your money, I will give it back to you, from my own pocket if necessary.’

    Mrs Chiang added:

    ‘Teacher Chuk, you don’t have to worry about your money.  My husband is an honest man.  He will pay you from his own account.’

    (j)On each of 10, 11 and 12 September 2001, Mr Chiang called Mr Chuk to invite him to dinner.  Over the course of these three dinners, which usually lasted for about an hour, Mr Chiang said words to the effect:

    ‘Teacher Chuk, our company is doing very well and is making lots of money.  The membrane is very good, we have participated in exhibitions in Germany, Austria and China.  We decided to start a factory in Sydney and should have it operational within 3 months.  We will use the process currently used by LeeTex in Taiwan. We will manufacture golf gloves using LeeTex membrane. We will need $500,000 to get the factory going.  If you are happy to invest, we will treat the money as a loan but ¼ of my company will belong to you and we will also make you a director of my company.  If you do not want to invest then you can lend me the money and I will pay you better interest than what you are getting from the bank.  However, if you lend the money to my company, you will get dividend[s] from your shares and you will also get interest on your loan.  Your loan to my company will be a good investment as the membrane process has been very successful in Taiwan.  You can withdraw your loan money at any time.  You can trust me.  I will not lie to you or cheat you of your money.  Mr Lee will be returning to Sydney soon you will need to decide before he comes.’

    In the presence of Mr Chiang, Mrs Chiang said words to the effect,

    ‘Teacher Chuk, you should listen to Mr Chiang.  The business is very good and will make lots of money.  You can trust us, we will not cheat you.  Mr Chiang will pay you even if from his own pocket whenever you want your money back.’

    (k)       On 12 September, a conversation took place as follows:

    Mr Chiang:

    ‘Are you seriously considering to lend the money to my company?  This matter must be finalised quickly because Mr Lee is coming in the next two weeks.  I hope to finalise the matter before he comes.  Can you do a cheque tomorrow?’

    Mr Chuk:

    ‘Yes, but I don’t have $500,000, I only have $400,000.  My money is in term deposits.  I will have to see when they expire.  I have about $300,000 with HSBC Bank and another $100,000 with Westpac Bank.’

    Mr Chiang:

    ‘Then do a cheque for $400,000.’

    Mr Chuk:

    ‘Good, whom shall I make the cheque to?’

    Mr Chiang then wrote a name onto a piece of paper and tore off the part with the name written on it and handed it to Mr Chuk.  He glanced at the paper and saw that there was a name beginning with the letter “P” and took it to be Mr Chiang’s company as shown in his calling card but otherwise could not recall the exact words written.  He put the paper in his pocket.

    (l)On 14 September 2001, the company Permeatec was incorporated.  Permeatec’s majority shareholders are Mr Chiang and Mr Lee.  Mr Chiang is the sole director and secretary.

    (m)The directors of Permeatex are Mr Chiang and Mr Lee.  The majority shareholders of Permeatex are Mr Chiang and Mr Lee.

    (n)On 16 September 2001, while Mr Chuk was teaching the children, Mr Chiang showed Mr Chuk a document and said:

    ‘This is for 250 shares in my company equal to 25% interest in the company for you as I promised.  Please sign here to agree to take these shares before I forget.’

    Mr Chuk’s evidence is that he was busy teaching and signed with the understanding that he would be a 25% owner of Permeatex the only company known to him as Mr Chiang’s company.

    (o)On 28 September 2001, Mr Chiang went with Mr Chuk to the HSBC Bank, Castle Hill where Mr Chuk obtained a bank cheque for $296,300 and gave it to Mr Chiang.  On 3 October 2001, Mr Chiang went with Mr Chuk to Westpac, Castle Hill where Mr Chuk closed his account at that branch.  Mr Chuk then went to Westpac, Baulkham Hills and obtained a bank cheque for $106,500 and gave it to Mr Chiang.  In each case, the cheque was made payable to the company name written on the piece of paper that was handed to Mr Chuk by Mr Chiang.

    (p)Two or three weeks later, Mr Chiang gave Mr Chuk apiece of paper which he did not read. It said: ‘Teacher Chuk, you have 250 shares in my company.  This is for your record’.  It was only later that Mr Chuk looked at the papers and saw that he was a shareholder in Permeatec and not Permeatex.  That was the first time he became aware that the money was lent to a company, or that he was the shareholder of a company, that was not Permeatex.  Mr Chuk did not become a registered shareholder and director nor did he receive any dividends from Permeatex.

    (q)The Permeatec statement of account for the period 28 September 2001 to 27 October 2001 commences with an opening balance of zero and has a closing balance of $12,826.06.  Apart from minor entries for withholding tax and credit interest the statement of account records the deposit of Mr Chuk’s two cheques.  Two withdrawals are recorded.  One of the withdrawals, on 4 October 2001, represented a transfer in the sum of $290,000.  The other withdrawal by cash cheque on 9 October 2001 was in the sum of $100,027.  That is, within two weeks of receiving the moneys from Mr Chuk, $390,027, approximately 97% of the deposited funds were removed from the Permeatec account.

    (r)Mr Chuk’s two bank cheques totalled $402,800.

    (s)In about October 2002, Mr Chuk asked Mr Chiang about the amount of interest and dividend to be paid on the moneys he had lent.  Mr Chiang said that he would calculate the interest and return all the money together.  That has not occurred.

    (t) On 28 November 2003, without advising Mr Chuk, Mr Chiang attempted to de-register Permeatec.

    (u)On numerous occasions since the money was advanced, Mr Chiang represented that he would personally pay Mr Chuk the money that had been advanced by him.  That has not occurred.

    Consideration

11. The conduct said to contravene s 52 of the Act was particularised in the statement of claim as follows:

    (i)Permeatex and Leetex represented to the applicant that he would become a director and shareholder of Permeatex and receive dividends.

    (ii)Permeatex and Leetex represented to the applicant that they would borrow the loan amount from the applicant for investment in Permeatex and use the loan amount on the basis of agreed terms.

    (iii)Permeatex and Leetex, with the involvement of Mr Lee and the complicity of Ms Lington, and Mrs Lee represented to the applicant that they would establish a manufacturing plant in Sydney and manufacture golf gloves using a Leetex fabric. 

    That is not the conduct presently relied on other than (ii) insofar as it alleges conduct by Permeatex. Dr Keogh changed the representations relied upon during the hearing.

12. The case has been recast, although there has been no amendment of the statement of claim.  I take the case, as presently pressed, to be against Permeatex, Permeatec, Mr Chiang and Mr Lee.

13. As finally presented, the case for Mr Chuk is that Permeatex, by its directors Mr Chiang and Mr Lee, engaged in conduct that misled and deceived Mr Chuk in contravention of s 52 or s 51A of the Act. As a result, Mr Chuk gave his life savings to, he thought, Permeatex. That money was deposited into the account of Permeatec., Mr Chiang was a director of both companies.

14. At the hearing, a number of matters were clarified.  Dr Keogh, who appeared for Mr Chuk, characterised the transaction as moneys advanced by way of a loan and not as an investment in Permeatex.  He was unable to characterise the basis of the shareholding in Permeatec that was given to Mr Chuk.  Mr Chuk became a shareholder of Permeatec but not of Permeatex.  However, he was not made a director and there is no suggestion that he received any moneys by way of dividend.  There is no evidence of any profit made by Permeatec.

15. Irrespective of the characterisation, the evidence establishes that the money was advanced by Mr Chuk on the basis that, as represented by Mr Chiang, it would be repayable on demand and that repayment was guaranteed by Mr Chiang.  The conduct of Mr Chiang, a director of the company within the scope of his authority, is the conduct of Permeatex.

16. I am satisfied that the conversations took place as alleged.  I am satisfied that Mr Chiang represented that the moneys advanced would be advanced to Permeatex and would be repayable on demand, personally guaranteed by Mr Chiang.

17. The representations were made prior to the incorporation of Permeatec. However, in the circumstances and as the recipient of the moneys, Permeatec adopted and is bound by the representations made by its director, Mr Chiang. I was not directed to any case law on this point however it seems to me that s 52 of the Act should apply in the instant case where some of the representations were made after the incorporation of Permeatec and where those representations made before incorporation were implicitly adopted by Permeatec. The money was given by Mr Chuk on the same conditions, namely it was to be repayable on demand and personally guaranteed by Mr Chiang.

18. Dr Keogh identifies the representation as to a future event, within the meaning of s 51A of the Act, as one made by Permeatex and Mr Chiang that the moneys borrowed from Mr Chuk would be used to establish a manufacturing plant in Sydney where they would manufacture golf gloves using a fabric produced by Leetex. The evidence is that Mr Chiang said that, ‘we will need $500,000 to get the factory going’.  This conversation took place prior to the advance of the moneys and not at a final stage of the negotiations.  It was in the context of discussions as to whether Mr Chuk would provide the moneys as a loan to the company or as an investment in the company.  There was no evidence as to the timing of the commencement of “getting the factory going” or what, precisely, that meant.  Further, Mr Chuk did not provide $500,000.  He provided $402,800.  There is no evidence as to the impact of this shortfall on the proposed factory.

19. The evidence does not establish that this representation as presented by Dr Keogh was in fact made.  The evidence does not establish that it was represented to Mr Chuk that his money would be applied to that specific end.  Rather, there were conversations about lending the money to the company generally.  In any event, there is simply no evidence as to whether such a manufacturing plant was or was not established.  There is insufficient evidence to establish that any representation as to the establishment of a manufacturing plant in Sydney was false or misleading.

20. That leaves the case as one based on the representations of Mr Chiang and Mr Lee with respect to the terms of the advancement of Mr Chuk’s money.

21. The applicant asserts that the representations were ‘often made in the company of [Mr] Lee and were supported by [Mr] Lee’.  However, the evidence is that the representations as to the conditions of the loan were not made in Mr Lee’s presence.  The evidence is that Mr Lee had conversations with Mr Chuk but those conversations related to an investment in the business that Mr Chiang and Mr Lee were engaged in, that they would make him a director of an unspecified company and would make him a lot of money.  The evidence is insufficient to establish that Mr Lee was a party to the representations as to the terms of the loan.

22. Dr Keogh points out that there is no evidence that Permeatex told Mr Chuk that the money was going into any company other than Permeatex.  It is the case that the bank cheques were made out by Mr Chuk to Permeatec.  I note the similarity of the two names, the evidence that Mr Chuk did not notice the different name and the absence of any evidence to the effect that the difference or the existence of a new company with a similar  were drawn to Mr Chuk’s attention.  There is no suggestion that Mr Chuk had Mr Chiang’s business card with him (showing the name of the company as Permeatex) at the time that he arranged the bank cheques.  Mr Chuk’s evidence is that he thought the money was advanced to Permeatex. 

1. The actions of the Permeatex and Mr Chiang were said to be misleading and deceptive in so far as the applicant’s loan monies were not utilised in accordance with the representations made to the applicant and in fact were deposited in the account of Permeatec and thereafter dispersed.

2. I accept that Mr Chiang represented to Mr Chuk that the loan moneys would be advanced to Permeatex.  The circumstances of the bank cheques being made out to Permeatec at the direction of Mr Chiang, in the light of the previous discussions and representations, reflects misleading and deceptive conduct on the part of Mr Chiang.  The only order sought in respect of this contravention is for damages. There is simply no evidence, however, of any damages that flow from that conduct, other than the payment of the moneys.

3. I accept that the evidence establishes that ‘the terms agreed’ were that the money would be repayable on demand and, if not paid by Permeatex, would be paid by Mr Chiang personally.

4. As submitted by Dr Keogh, in order to recover damages Mr Chuk must prove that the loss or damage claimed to have been suffered was ‘by’ conduct in breach of the Act (Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525 per Mason CJ, Dawson, Gaudron and McHugh JJ). The conduct in breach of the Act was the representation to Mr Chuk that, if he lent money, that money would be advanced to Permeatex and would be repaid on demand by him. Further, if no such repayment were made by the company, it would be made personally by Mr Chiang.

5. That representation was false and misleading.  Mr Chuk advanced the money on those terms.  The money was not advanced to Permeatex but to Permeatec.  Mr Chuk has demanded repayment.  Neither Permeatex nor Permeatec have repaid the money.  Despite numerous requests Mr Chiang, who undertook and acknowledged personal liability to repay the moneys, has not done so.

6. Further, in the circumstances outlined, Mr Chiang aided, abetted and procured the contravention of s 52 and was knowingly concerned in that contravention, within s 75B of the Act.

7. Mr Chuk is entitled to payment of the sum advanced, the amount of his loss, of $402,800 pursuant to s 82 of the Act and orders against Permeatex, Permeatec and Mr Chiang for such payment.

8. Dr Keogh submits that Mr Chuk was induced to provide the loan on the expectation that he would receive a high interest rate on his loan and that the loan would be repayable on demand and would be personally guaranteed by Mr Chiang.

9. There is no evidence of any agreement as to any interest payable on the moneys advanced as a loan.  The only reference to the terms on which loan moneys may be treated was, initially, ‘I guarantee that you will earn more money than what the bank is paying you’.  However, Mr Chuk then said that, if Mr Chiang needed money, he would lend it.  Mr Chuk had previously lent money to another friend, without interest.  Further, this conversation preceded the discussion of Mr Chuk receiving shareholding in the company.

10. On a later occasion, Mr Chiang said to Mr Chuk ‘if you lend the money to my company, you will get dividend[s] from your shares and you will also get interest on your loan’.  In the absence of any evidence as to Mr Chuk’s understanding of what that interest would be or, indeed, that the promise of interest was in any way part of his understanding of the terms of the advance, I am not satisfied that the passing reference to interest was relevant to terms of the advance as proposed by Mr Chiang and as understood by Mr Chuk.

11. It is submitted that an interest rate to be paid on the damages should be ‘at a reasonable rate above the current cash management rate offered by banking institutions.  The applicant proposes that a rate of 9% per annum would be a reasonable rate of return and such interest should be applied from 3 October 2001 being the date when the loan funds were fully advanced to the respondents’.

12. Those moneys were held in interest bearing deposits.  Mr Chuk is entitled to interest on those moneys.  I have no evidence of the interest that was to be paid but there is evidence that it was represented to Mr Chuk that the interest would be in excess of the interest that he was receiving on the moneys as then held with HSBC and Westpac.  There is no evidence before me of any interest rates that would be payable by any institution or, indeed, of the interest rate that Mr Chuk was receiving with respect to his moneys as held prior to their withdrawal by him.

13. In the circumstances, I propose to award interest at the rate that the $296,300 was earning at HSBC and at the rate that the $106,500 was earning at Westpac, as at 28 September 2001. That represents the minimum of the interest lost by reason of the withdrawal of the moneys and their payment.

14. I will permit the applicant to adduce evidence of those rates of interest prior to making of orders.

I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bennett.

Associate:

Dated:            29 April 2005

Counsel for the Applicant:	J Keogh
Solicitor for the Applicant:	The Argyle Partnership
Counsel for the Respondents:	No appearance
Solicitor for the Respondents:	No appearance
Date of Hearing:	9 March 2005
Date of Judgment:	29 April 2005