Zong v Wang

1. [1]

   LEEMING JA: I agree with Brereton JA.

2. [2]

   WHITE JA: I agree with Brereton JA.

3. [3]

   BRERETON JA: Between December 2017 and April 2018, the respondent Mr Zhengshun Wang, the first appellant Mr Jason Zong, and two associates Mr Demin Lyu and Mr Qi Zhang, discussed entering into a business venture involving the acquisition of a yacht for hire to tourists to generate profits. Following those conversations, the second appellant Australian Yacht Club Pty Ltd (“AYC”) was incorporated on 6 April 2018 to implement the venture. AYC purchased a large motor cruiser named “Dreamtime”, for $805,000. To fund this, Mr Wang subscribed a total of $315,000 to AYC – $60,000 on 13 April 2018 and $255,000 on 15 May 2018 – to acquire a 35% shareholding; Mr Lyu also acquired a 35% shareholding, and Mr Zong acquired 30%. [1]

4. [4]

   The business was unsuccessful, and the shareholders fell out. Mr Wang brought proceedings in the District Court, against Mr Zong for damages for misleading and deceptive conduct under s 18 of the Australian Consumer Law (Cth) (“ACL”); and alternatively against Mr Zong and AYC to recover the sum of $315,000 as a loan or as damages for breach of contract. Mr Wang succeeded on his claim under the ACL, and recovered a judgment against Mr Zong in the sum of $203,000 plus $30,185.27 interest, for a total judgment of $233,185.27, plus costs, including indemnity costs from 15 April 2021. Mr Wang’s claims against AYC were dismissed, but no costs order was made in favour of AYC. Mr Zong appeals from the judgment against him, and AYC seeks leave to appeal from the trial judge’s refusal to make a costs order in its favour.

The ACL claim

1. [5]

   Mr Wang alleged that between late 2017 and April 2018, Mr Zong made representations to him to the effect that:

   1. (1)

      it is, and will continue to be, very easy to rent yachts to Chinese tourists (“the Tourist Representation”);

   2. (2)

      he would find sponsors for the business of renting a vessel out (“the Sponsorship Representation”);

   3. (3)

      he knew how to, and would, promote the business (“the Promotion Representation”);

   4. (4)

      he would operate the business in compliance with relevant laws and regulations (“the Operation Representation”);

   5. (5)

      it was a good business opportunity, and would be a good business (“the Business Success Representation”); and

   6. (6)

      if Mr Wang and Mr Lyu each contributed the funds he needed, he guaranteed they would receive a return of at least 40% annually (“the Return Representation”).

2. [6]

   At the trial, it was not in dispute that Mr Zong made the Tourist Representation, the Promotion Representation, the Operation Representation, and the Business Success Representation. There was no evidence that the Sponsorship Representation was made, and the trial judge did not find that it was made. The trial judge also did not accept that the Return Representation was made in the terms alleged; in this respect, his Honour concluded: [2]

3. [7]

   It was also not in dispute that, in respect of the four representations that were admittedly made, the following were representations with respect to future matters: [3]

   1. (1)

      the Tourist Representation, insofar as it was to the effect that it will “continue to be” very easy to rent yachts to Chinese tourists;

   2. (2)

      the Promotion Representation, insofar as it was to the effect that Mr Zong “would” promote the business;

   3. (3)

      the Operation Representation; and

   4. (4)

      the Business Success Representation, insofar as it was to the effect that it “would be a good business”.

4. [8]

   On behalf of Mr Zong, it was accepted that no evidence had been adduced to show that he had reasonable grounds for making any of those representations with respect to future matters. In those circumstances, those four representations, to the extent that they related to future matters, were, by operation of s 4(1) of the ACL, taken to be misleading. It followed that Mr Zong engaged in conduct that contravened s 18 by making representations to the effect that (a) it will continue to be very easy to rent yachts to Chinese tourists; (b) he would promote the business; (c) he would operate the business in compliance with relevant laws and regulations; and (d) it would be a good business (“the four future representations”).

5. [9]

   By his appeal, Mr Zong challenges the conclusions of the trial judge that those representations were made “in trade or commerce” (Ground 1); complains that his Honour acted on representations other than those that were pleaded in finding that Mr Zong had engaged in misleading and deceptive conduct (Ground 2); challenges the finding that Mr Wang relied on the relevant representations and suffered loss and damage as a result (Grounds 4, 5, 6 and 7); and disputes his Honour’s assessment of damages (Ground 8). [4] AYC appeals from the judge’s refusal to make a costs order in its favour (Ground 9), but only if Mr Zong’s appeal succeeds. [5] By Notice of Contention, Mr Wang seeks to uphold the judge’s assessment of damages, on alternative bases.

Trade or commerce (Ground 1)

1. [10]

   Appeal ground 1 is that the trial judge erred in determining that the representations made by Mr Zong were made in trade or commerce. On this issue, the trial judge concluded: [6]

2. [11]

   The appellant accepted that the mere fact that the representations were made in a social context was not decisive. However, it was submitted that as AYC was not an existing enterprise in which Mr Zong was seeking investors, but a new company that Wang, Lyu and Zong together caused to be incorporated as a joint enterprise, not as a result of Mr Zong acting as a promoter but as a result of their discussion on social occasions, there was no commercial activity at the time when the representations were made, and their discussions were anterior to, rather than “in”, trade or commerce.

3. [12]

   It is not necessary, for conduct to be in trade or commerce, that there be an extant commercial operation at the time of the impugned conduct. What is required is that the conduct have a commercial character, and the requisite commercial character may attend statements directed to the establishment, financing and operation of a commercial enterprise. In Taylor v Crossman (No 2), [7] the Full Federal Court concluded that representations made by an individual to his fiancé for the purpose of encouraging her to invest in a proposed marina business were made in trade or commerce. As Cowdroy and Flick JJ said: [8]

4. [13]

   Here, the discussions between the prospective investors were negotiations between potential participants in a commercial venture, as to the terms on which they might participate and invest in that commercial enterprise. Such negotiations are commercial in character, even if they are conducted in a social setting. In my opinion, these negotiations between potential participants in a joint commercial venture were “in trade or commerce”.

5. [14]

   His Honour did not err in finding that the four future representations were made in trade or commerce. This ground fails.

Extraneous representations (Ground 2)

1. [15]

   Appeal ground 2 contends, in substance, that the trial judge erred in determining whether Mr Zong’s conduct was misleading and deceptive, by not confining consideration to the four future representations, but instead including other unpleaded representations.

2. [16]

   The trial judge’s essential findings were stated as follows: [9]

3. [17]

   The gravamen of this ground is that in determining whether the appellant engaged in contravening conduct, the trial judge had regard not only to the four future representations, but to other (unpleaded) conduct (in particular, that referred in [82]).

4. [18]

   I do not accept that the trial judge found the case of misleading and deceptive conduct to be established other than by reference to the four future representations. Relevantly for present purposes, his Honour found that (a) the future matter component of the Tourist Representation was misleading (at [81] (2)-(3)); (b) the future matter component of the Promotion Representation was misleading (at [81] (7)-(8)); (c) the Operation Representation (which was wholly futuristic) was misleading (at [81] (10)-(11)); and (d) the future matter component of the Business Success Representation was misleading (at [81] (15)-(16)). Those conclusions were inevitable, given the concession that no evidence had been adduced to the contrary.

5. [19]

   The findings made by his Honour (at [82]) as to the “context” in which the representations were made provided the background against which his Honour concluded (in [83]) that, in that context, the “statements which I have found Mr Zong did make (see par 81 above) were misleading within the meaning of s 18 of the ACL”. The reference back to [81] makes plain that the finding of misleading and deceptive conduct was confined to the matters already found (in [81]), namely the four future representations. The reference to context simply acknowledged the well-established proposition that in judging whether conduct is misleading, the conduct must be viewed in context and as a whole. [10] It was a finding that in the context in which they were made, the four future representations were misleading. It did not involve any finding that any other conduct was misleading. It was not, as the appellant submits, a determination that “other representations which the Respondent had not pleaded that he relied upon” were misleading.

6. [20]

   His Honour found only the future components of the four proved representations to be misleading and deceptive. This ground fails.

Reliance and causation (Grounds 4, 5, 6, 7)

1. [21]

   Grounds 4, 5, 6 and 7 challenge in various ways his Honour’s conclusion that Mr Wang relied on Mr Zong’s representations in investing in AYC, and suffered loss as a result. It is important to bear in mind that the ultimate issue is causation and not reliance; reliance is not a substitute for the essential question of causation. [11] Thus the ultimate question is whether Mr Wang suffered loss because of Mr Zong’s contravening conduct. This requires identification of the contravening conduct and of the claimed loss, and the establishment of a causal connection between them, which may be provided by reliance.

2. [22]

   The trial judge concluded: [12]

3. [23]

   Ground 4 contends that the trial judge erred “by failing to determine whether the misleading future representations contained within the Tourist Representation, the Promotion Representation, the Business Success Representation and the Operation Representation were relied upon or caused loss or damage to the Respondent, but instead made a determination of reliance and causation of loss in relation to a set of representations [including] both the present and future components of the Tourist Representation, the Promotion Representation, the Business Success Representation and the Operation Representation, as well as many other representations that the Respondent did not plead that he relied upon”. The gravamen of this complaint, which is related to Ground 2 discussed above, is that the trial judge had regard not only to the four future representations, but to other (unpleaded) conduct. The appellant submits that the conclusion in [86], in the light of [85], is not to the effect that the four future representations or any of them caused Mr Wang to invest, but only that many representations made by Mr Zong did so. It is said that the trial judge’s conclusion that Mr Wang decided to invest in AYC because he trusted Mr Zong, “as a result of what Mr Zong said to him and the context in which things were said”, the trust being “engendered not just by the four pleaded representations ... but also by the admitted "background" statements referred to in pars 20, 21, 22, 23, 47, 48 and 50 above”, fails to address whether the four future representations were relied upon and causative, and does no more than find that Mr Wang had been influenced to invest by the four future representations and numerous other “background” representations. This ground, which is essentially a challenge to his Honour’s reasoning process, is concerned with the identification of the contravening conduct found to have caused loss to Mr Wang.

4. [24]

   Ground 5 complains that the trial judge erred by failing to determine that the future representations contained within the Tourist Representation, the Promotion Representation, the Business Success Representation and the Operation Representation had “no significant causative effect in relation to the Respondent’s investment in the Second Appellant, and that hence the Respondent had not (to any relevant extent) relied upon those future representations”. Ground 6 contends that the trial judge erred by failing to find that it was not reliance on the Tourist Representation, the Promotion Representation, the Business Success Representation and the Operation Representation that caused Mr Wang to invest in AYC but rather the analysis by Mr Wang of potential turnover figures in relation to the proposed business. Ground 7 contends that the trial judge erred by failing to dismiss the misleading and deceptive conduct claim on the basis of lack of reliance by Mr Wang on such representations that were found to be made which had been proved to be misleading or deceptive. In distinction to Ground 4, these three grounds are essentially challenges to his Honour’s findings of fact as to reliance and thus causation.

5. [25]

   As to Ground 4, I do not accept that his Honour impermissibly referred to conduct of Mr Zong other than the four future representations in concluding that Mr Wong relied on them in deciding to invest in AYC. In referring (at [85]) to “the context in which things were said”, and the “trust … engendered not just by the four pleaded representations … but also by the admitted “background” statements”, his Honour was explaining that the context and the “background” representations supported a finding of reliance on the four future representations. Context informs a judgment as to reliance, including because it can show the extent to which a person is dependent on the information conveyed by the representation. Here, the context included that Mr Wang had been in Australia for only a few months, that he spoke limited English, that before coming to Australia in late 2017 he had operated a business in China in the energy sector, and that his interest in yachts appeared to have arisen from his having seen boats on the Parramatta River, so that there was no reason to think that he had any experience in or knowledge about the market for renting yachts in Sydney; whereas Mr Zong, on the other hand, presented as someone who did have such experience and knowledge. In those circumstances, Mr Zong had information and knowledge which Mr Wang did not have, so that Mr Wang was reliant on Mr Zong for it. The context provided by the “background” representations is relevant to ascertaining, for example, whether the impugned representations were confirmatory or reinforcing of, or consistent with, them, or otherwise likely to engender trust in the representor. Reliance on false representations may be contributed to by true representations as to the status and experience of the representor. The finding that trust was engendered by the “background” statements is not a finding that those “background” statements were misleading conduct that caused Mr Wang’s loss, but a finding that they contributed to Mr Wang trusting Mr Zong, and thus in being prepared to place reliance on what he said - including, inter alia, the four future representations.

6. [26]

   His Honour did not find that any statements other than the four future representations were misleading conduct that caused Mr Wang to suffer loss: the ultimate finding with respect to causation was that “the misleading conduct of Mr Zong” caused Mr Wang to suffer loss. [13] That “misleading conduct” was the making of the four future representations, and it did not include any conduct other than the four future representations. [14] Thus, the only finding of misleading conduct causative of loss was the making of the four future representations. Appeal ground 4 fails.

7. [27]

   Whether that finding was factually correct is the subject of Grounds 5, 6 and 7, which challenge the findings of fact as to reliance and through it causation of loss. Here, the contravening conduct was constituted by the four future representations. Mr Wang’s claimed loss was his expenditure of funds to acquire a shareholding in AYC. For there to be a causal connection between them, there is no requirement that the contravening conduct be the sole cause of the loss or damage; [15] it suffices that it make some non-trivial, [16] material, [17] or substantial, [18] contribution to the decision of a claimant to act in a particular way. Thus the requisite causal link will be established if the making of the four future representations materially contributed to Mr Wang’s decision to invest. The “causative threshold” beyond which liability attaches to a misrepresentation which is one of a number of factors inducing a decision that produces loss, is a question of judgment. [19]

8. [28]

   The appellant complains that in concluding that “Mr Wang consistently said that he relied upon the representations and that they caused him to pay $315,000 to AYC at the request of Mr Zong. There is no reason to doubt this”, [20] the trial judge overlooked that the main emphasis of Mr Wang’s case was not that he relied specifically on the four future representations, but rather that he was influenced by the (unestablished) Return Representation and the (unpleaded) provision by Mr Zong of various figures from which Mr Wang, Mr Lyu and Mr Zhang then made their own calculations of profitability.

9. [29]

   His Honour’s causation findings are underpinned by acceptance of the testimony of Mr Wang with respect to reliance. It is therefore necessary to examine just what Mr Wang said: if he said no more than that he relied on the “misrepresentations” generally, that might not support a finding of fact that he relied on the four future representations, especially where he consistently said that it was the Return Representation, which was of particular importance to him.

10. [30]

    Mr Wang’s evidence undoubtedly gave emphasis to his reliance on the Return Representation (which he called “the Investment Guarantee”). He deposed (emphasis added): [21]

11. [31]

    In cross-examination, although he explained that he had performed his own calculations, he maintained that it was the information provided by Mr Zong that provided the basis for those calculations (emphasis added): [22]

12. [32]

    Thus reliance on the projected return was clearly of importance to Mr Wang. However, that is not inconsistent with his also relying on other matters, including the four future representations. Mr Wang gave evidence in respect of each of the four future representations. In respect of the Tourist Representation, he deposed that Mr Zong said to him: [23]

13. [33]

    He said that he was impressed by this statement (among others made to him by Mr Zong), and that he believed Mr Zong, [24] and that those statements (albeit, “especially the Investment Guarantee”) convinced him to invest in AYC. [25] His cross-examination referable to reliance on the Tourist Representation was as follows (emphasis added): [26]

14. [34]

    Objectively, for a person in the position of Mr Wang contemplating investing in a business that was to have as its core the renting of yachts to Chinese tourists, who had no background in such a business, information from someone who apparently had such a background that it would be easy to do so would have been relevant and important, and calculated to influence him to invest.

15. [35]

    As to the Promotion Representation, the effect of Mr Wang’s evidence was that Mr Zong’s statement “I know how to do business. I know about business promotion and sponsorship”, was one of those which he believed and which, among others, convinced him to invest. [27] The appellants submit that Mr Wang agreed in cross-examination that he would have just taken it for granted that Mr Zong would promote the business and that this meant the Promotion Representation “clearly was not any significant cause of Wang’s investment”.

16. [36]

    The relevant cross-examination was as follows (emphasis added): [28]

17. [37]

    In that passage, read as a whole, Mr Wang did not accept that the Promotion Representation did not matter to him. It is not self-evident why, absent such a representation, it would be assumed that Mr Zong, as distinct from the other investors, would be responsible for promotion. Again, objectively, to a person in his position, it was information that would have been relevant and important, and calculated to influence him to invest.

18. [38]

    In respect of the Business Success Representation, Mr Wang deposed that Mr Zong said to him: [29]

19. [39]

    In substance, this was corroborated by Mr Zhang’s evidence that Mr Zong said to Mr Wang, Mr Zhang and Mr Lyu: [30]

20. [40]

    Mr Wang’s evidence was to the effect that these were among the statements of Mr Zong which he believed and which convinced him to invest in AYC. [31] The relevant cross-examination was as follows: [32]

21. [41]

    Although Mr Wang agreed that it was ultimately his checking over of the numbers in relation to the business that persuaded him to invest, in the wider context of his cross-examination, other excerpts of which have been set out above, this did not involve his eschewing reliance upon the Business Success Representation. In contrast to the approach taken by the cross-examiner in respect of the other three admitted representations, it was not distinctly put to Mr Wang that the Business Success Representation was not one that mattered to him or made any difference to his decision to invest. Again, objectively, to a person in his position, it was information that would have been relevant and important, and was calculated to influence him to invest.

22. [42]

    As Mr Wang explained in his evidence in chief, the Operation Representation was made in the context of discussion about reporting to the shareholders: [33]

23. [43]

    The relevant cross-examination was as follows (emphasis added): [34]

24. [44]

    Thus, Mr Wang rejected the proposition that he would have assumed Mr Zong would operate the business “in compliance with the relevant laws and regulations”. [35] Although, had it stood alone, one might have wondered about his answer (which was not further explored) that until Mr Zong made the Operation Representation, he thought Mr Zong would not comply with the relevant laws and regulations, [36] read as a whole, his evidence was to the effect that that assurance contributed to his confidence in Mr Zong, and thus to his decision to invest. Objectively, to a person in his position, such an assurance – where the question arose in the context of the holding of meetings and the provision of financial statements etc – would have been relevant and important, and was calculated to influence him to invest.

25. [45]

    Thus there was evidence of Mr Wang, which his Honour saw “no reason to doubt”, to the effect that he believed each of the four future representations, and that they, in combination with each other and other matters, convinced him to invest. Objectively, this was far from implausible. Mr Wang was dependent on Mr Zong, who alone had the relevant knowledge and experience, for the relevant information. He trusted Mr Zong and had confidence in him, and thus was disposed to believe and rely upon what he represented. The four future representations contributed to the creation of an impression that the business had very good prospects. Separately and together, they were calculated to influence Mr Wang to invest. That he believed the four future representations, and their materiality, can be seen by postulating what would have been his decision had he not believed that it would continue to be easy to rent yachts to Chinese tourists; that Mr Zong would promote the business; that he would operate the business in compliance with relevant laws and regulations; and that it would be a good business.

26. [46]

    That they were not the only influences does not detract from their causative potency. Undoubtedly, on Mr Wang’s evidence, the Return Representation was also a significant influence. Although the trial judge did not accept that the pleaded Return Representation was made, his Honour accepted Mr Zhang’s evidence that Mr Zong had said that the business “could” earn a 40% return, and that Mr Wang was more interested in the development potential of the business than in a particular return. [37] However, while Mr Wang clearly placed considerable reliance upon the revenue figures and projections provided by Mr Zong and his own calculations derived from them, that does not mean that they were the only factors that influenced him, nor that other factors – and in particular the four future representations – did not contribute, in a material or non-trivial way, to the decision.

27. [47]

    Accordingly, the evidence given by Mr Wang that he relied on the four future representations was objectively plausible and probable, and not undermined by his admitted concurrent reliance on admitted matters. There is no basis for differing from the trial judge’s acceptance of Mr Wang’s evidence in this respect – which his Honour, although not specifically relying on demeanour, had the advantage of hearing and seeing.

28. [48]

    It follows that the trial judge did not err in concluding that the four future representations influenced Mr Wang to invest in AYC and that, to the extent that he incurred loss by making that investment, he did so because of the contravening conduct, within the meaning of s 236 of the ACL. Grounds 5, 6 and 7 fail.

Damages (Ground 8; Contentions 1 and 2)

1. [49]

   Mr Wang’s case at trial was that his damages were $315,000, on the basis that it could be seen, in the light of subsequent events, that the shares he acquired in AYC were worthless when he acquired them. [38] His Honour did not accept this, and found that the shares had and still had a value, and that the measure of Mr Wang’s damages was the difference between the price he paid for them of $315,000, and their value at the date of hearing of $112,000, namely $203,000. His Honour dealt with Mr Wang’s claim for damages as follows: [39]

2. [50]

   By Ground 8, the appellant complains that the trial judge erred in the assessment of the damages, in that the correct comparator was the value of the shares at the date of the transaction in 2018, when it is said that they were worth the $315,000 that was paid for them, rather than at the date of the hearing, or alternatively that the respondent having adduced no evidence of value as at that date, the judge should have awarded no damages. By a Notice of Contention, the respondent seeks to uphold the award of damages on the grounds that Mr Wang’s loss or damage could legitimately be assessed in the sum of $203,000 as at the date of the transaction having regard to subsequent events showing that the price paid by Mr Wang for his shares did not reflect their real or true value; and alternatively that instead of awarding damages in the sum of $203,000 under s 236 of the ACL, the judge could have awarded the same sum as compensation under s 237 of the ACL.

3. [51]

   His Honour’s statement that “The position Mr Wang would have been in, had there been no contravention of the ACL, is that his shares would have still been worth the $315,000 he paid into the venture”, is problematic. Mr Wang’s case was a “no transaction” case – that is, he contended that but for the contravening conduct, he would not have entered into the transaction and invested in AYC at all; he would have retained the $315,000. However, he did not by way of remedy seek statutory rescission (as he could have under ss 237 or 243 of the ACL). Thus, he retains his shareholding. The trial judge rightly recognised this in observing that in return for his investment of $315,000, he received 35% of the shares in AYC, and he retained those shares at the date of hearing; thus, his loss was to be measured as the difference between the price he paid and the true value of that shareholding.

4. [52]

   In assessing damages on the basis of the difference between the price paid and the value of the shareholding at the date of hearing (as distinct from the date of acquisition), his Honour effectively adopted what was referred to by the High Court in HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd as the plaintiff’s alternative approach of “price minus benefits ‘left in its hands’”. [40] It is often said that in an action for damages for deceit – and in the closely analogous action for damages for contravention of the statutory prohibition on misleading and deceptive conduct – where the plaintiff has been induced to purchase property, the proper measure of damages is the difference between the real value of the thing acquired as at the date of acquisition and the price paid for it. [41] That will be so “if the asset acquired is a readily marketable asset and there is no special feature (such as a continuing misrepresentation or the purchaser being locked into a business that he has acquired)”. [42] However, the fundamental rule is that the plaintiff should be compensated; the rule which turns on an assessment of value is only a means of giving effect to that overriding compensatory rule; the valuation of assets as at the date of the transaction is “simply a second order rule applicable only where the valuation method is employed”; and whenever the overriding compensatory rule so requires, the court is entitled to assess the loss flowing directly from the transaction, without any reference to the date of transaction or indeed any particular date. [43]

5. [53]

   Thus, the deduction of true value at the date of the transaction from the price paid is no more than a guide to the assessment of damages under s 236, [44] and it will generally not be appropriate where the misrepresentation has continued to operate after the date of the acquisition of the asset so as to induce the plaintiff to retain the asset, or where the circumstances of the case are such that the plaintiff is, by reason of the contravening conduct, locked into the property, in which cases it will often be appropriate to deduct from the cost of acquisition not the value at the date of acquisition, but “whatever was ‘left in [the plaintiff’s] hands’”. [45] The latter exception was explained by Ipp JA, with whom Giles JA and Hodgson JA agreed, in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Market Ltd: [46]

6. [54]

   The value at the date of hearing may also be appropriate where there are no losses resulting from extraneous factors to separate out, as was explained in HTW Valuers (citations omitted): [47]

7. [55]

   In Wyzenbeek v Australasian Marine Imports Pty Ltd (In Liq), in which the appellants had been induced by misleading conduct to purchase a particular motor yacht from the respondent which was not an ocean-going vessel as represented, the Full Federal Court held that the primary judge ought to have found that the expenditure of the purchase price and the additional costs of remedying defects in the yacht, less the yacht’s current value, was loss resulting from or caused by the misleading conduct. [48] Having earlier referred to the discussion in HTW Valuers of the “left in hands” approach, the Court said: [49]

8. [56]

   In the present case, neither party favoured the trial judge with expert evidence of the value of Mr Wang’s shareholding, either as at the date of acquisition, or as at the date of hearing. His Honour was left to do the best he could with the available evidence of the financial condition of AYC. As at the transaction date, [50] AYC owned the yacht Dreamtime which it had purchased for $805,000, and had working capital of a further $95,000, producing total net assets of $900,000; a 35% shareholding equated to the $315,000 Mr Wang had invested – if no discount is allowed for minority interest and lack of transferability. At the date of hearing, his Honour found (and this finding is not challenged) that AYC’s total net assets were $320,000, and Mr Wang’s 35% shareholding was worth $112,000. [51] Again, this involved no discount for minority interest or lack of transferability, nor provision for the costs of liquidation; application of any such discount or provision would have reduced the value of Mr Wang’s shareholding, and increased the quantum of the difference, and his damages.

9. [57]

   The appellant submits that the date of acquisition ought to have been adopted as the comparator, in accordance with the prima facie rule, because the subsequent deterioration in the value of the company – and thus the shares in it – did not “arise from the nature or use of the thing itself”, but rather from supervening events, including, in particular, the pandemic. In my view, however, for the reasons that follow, this was a case in which it was entirely permissible to adopt value at the date of hearing as the appropriate comparator.

10. [58]

    First, at least to a very substantial extent, the deterioration in the value of the company was “inherent”. Part of the deterioration was attributable to the depreciation of AYC’s principal asset, the yacht Dreamtime. It is notorious that a new yacht, like a new motor vehicle, depreciates. Dreamtime was sold in early 2021 for $670,000, a significant loss on the $805,000 for which it had been purchased in April 2018. Moreover, the company’s business was never profitable, even before the pandemic. In the 2018 financial year, AYC had revenue of $14,540 and made a loss of $17,070, and in 2019 revenue was $7,466 and the loss of $117,481. [52] Between May 2018 when the business commenced operations and 31 December 2019, while Australia’s international borders remained open, total revenue was only $25,806, while annual running expenses included $30,000 for marina fees, $30,000 for lease of the office, $9,000 for insurance, and $60,000-$70,000 per year for the maintenance, service and repair of the yacht. There was also a one-off cost of $10,000 to obtain a commercial licence for the boat. [53] Thus Mr Wang’s investment was in an enterprise which from the outset incurred losses, and the principal asset of which was depreciating. These were not supervening events, but characteristics of the venture in which he was induced to invest.

11. [59]

    Secondly, AYC was a closely held proprietary company in which the shares were not readily transferable. It was not practically possible for Mr Wang to dispose of his shares. In December 2018 and January 2019, Mr Wang invited Mr Zong to buy him out; Mr Zong declined to do so. [54] Although he could have sought to have the company wound up, Mr Wang was, in the relevant sense, “locked in”.

12. [60]

    Thirdly, insofar as the deterioration in the company’s condition might have been attributable in part to the pandemic, this is not a case in which that component must be “separated out” – because, as just explained, Mr Wang was “locked in”, and also because the performance of the company prior to the pandemic provides faint basis for supposing that it would have been more successful but for the pandemic.

13. [61]

    Accordingly, I do not accept that his Honour erred in principle in assessing damages by reference to the residual value of Mr Wang’s shareholding as at the date of the hearing. But even if that approach had resulted in Mr Wang being to some extent inappropriately compensated for the impact of “extraneous” factors, that would be offset by the circumstance that no discount was applied to the value of his shareholding on account of its being a minority interest and for non-negotiability, nor any provision made for the costs of liquidation. There was no valuation evidence as to the appropriate discounts or provision, and the respondent makes no complaint about the failure to allow them. [55] However, any such discounts or provision would have reduced, to that extent, the value of his shareholding, and increased his damages. In that light, even if I were of the view that the approach adopted by his Honour resulted in Mr Wang being, to some extent, inappropriately compensated for the consequences of the “extraneous” pandemic, I would not be persuaded that the assessment of damages was so wrong as to cause injustice – for reasons analogous to the following observation of the High Court in HTW Valuers: [56]

14. [62]

    Ground 8 therefore fails. It is not necessary further to consider the Notice of Contention.

AYC’s costs (Ground 9)

1. [63]

   Ground 9 complained that the trial judge erred in failing to award costs to AYC, despite its complete success in the proceedings below. It was submitted that if the trial judge had dismissed the claim against Mr Zong, then a costs order ought to have been made against Mr Wang in favour of AYC, which was completely successful in the proceedings, though the claims against it “took up very little time at the hearing”. [57] This ground was pressed only if Mr Zong’s appeal were substantially successful. As Mr Zong’s appeal fails, Ground 9 does not arise and requires no further consideration.

Conclusion and disposition

1. [64]

   My conclusions may be summarised as follows:

2. [65]

   The trial judge did not err in finding that the four future representations were made in trade or commerce.

3. [66]

   His Honour found only the four future representations to be misleading and deceptive, and did not erroneously find the appellant’s conduct to be misleading by reference to unpleaded or unproven conduct.

4. [67]

   His Honour did not err in concluding that the four future representations influenced Mr Wang to invest in AYC and that, to the extent that he incurred loss by making that investment, he did so because of the contravening conduct, within the meaning of s 236 of the ACL.

5. [68]

   In the circumstances of this case, his Honour did not err in assessing damages by reference to the residual value of Mr Wang’s shareholding as at the date of the hearing.

6. [69]

   The appeal therefore entirely fails. There was a single appeal, in which both appellants were joined as appellants, with common representation. AYC’s complaint that the trial judge erred in failing to award costs to it, despite its complete success in the proceedings below, involved and was predicated upon the success of a challenge to the substantive judgment against Mr Zong. AYC thus had an interest in Mr Zong’s success on grounds other than Ground 9. There is no reason why it should not be jointly and severally liable with Mr Zong for the respondent’s costs of the appeal.

7. [70]

   The order I therefore propose is that the appeal be dismissed, with costs against both appellants.