Supreme Court New South Wales Medium Neutral Citation: Ng v Chan [2020] NSWSC 954 Hearing dates: 25, 26 & 29 July and 18 September 2019 Date of orders: 27 July 2020 Decision date: 27 July 2020 Jurisdiction: Equity Before: Slattery J Decision: Misleading and deceptive conduct made out. Fraud found. Damages awarded to the plaintiff. Defendant ordered to pay the plaintiff's costs. Catchwords: CONTRACTS – Misrepresentation – Fraudulent misrepresentation – the plaintiff paid the defendant two tranches of payments to acquire shares in an incorporated law firm – the law firm has since ceased to conduct practice due to the intervention of the Law Society of NSW – the plaintiff alleges the total of both tranches was $430,000 and the defendant argues it was only $300,000 – the plaintiff alleges he was induced to make both tranches through fraudulent, misleading and deceptive conduct by the defendant and an intermediary – the plaintiff seeks relief that the defendant repay the $430,000 purchase price of the shares – the defendant argues that he did not misrepresent the law firm's prospects and the intermediary was not his agent. Legislation Cited: Australian Securities and Investment Commission Act 2001 (Cth), ss 12BB, 12DA, 12GF Civil Procedure Act 2005, s 100 Evidence Act 1995, s 140 Cases Cited: Cargill Australia Ltd v Viterra Malt Pty Ltd (No. 9) [2018] VSC 433 Flexirent Capital Pty Ltd v EBS Consulting Pty Ltd & Ors (2007) 14 ANZ Ins Cas 61-732 Fox v Percy (2003) 214 CLR 118 Gould v Vaggelas (1985) 157 CLR 215 Haynes v Top Slice Deli Pty Ltd (1995) ATPR (Digest) 46-147 Jones v Dunkel (1959) 101 CLR 298 Neat Holdings Pty Limited v Karajan Holdings Pty Ltd (1992) 110 ALR 449 Perpetual Trustees Australia Limited v Schmidt & Anor [2010] VSC 67 Watson v Foxman (1995) 49 NSWLR 315 Texts Cited: Peter G. Watts, F.M.B. Reynolds, Bowstead and Reynolds Law on Agency, (21st edition, 2019, Sweet & Maxwell Ltd, UK) GE Dal Pont, The Law of Agency (3rd ed, 2013, LexisNexis Butterworths) Category: Principal judgment Parties: Plaintiff: Cedric Ng Defendant: Josh Chan Representation: Counsel: Plaintiff: A. Coombes Defendant: G.D. McDonald Solicitors: Plaintiff: See-Yoon Kim, KWL Lawyers Defendant: Atticus Busby, Mackellars Lawyers File Number(s): 2017/287984 Publication restriction: No Judgment 1. In July 2016 and May 2017 the plaintiff, Mr Cedric Ng, agreed with the defendant, Mr Josh Chan to purchase two tranches of shares in an incorporated law firm, SHS Law Pty Ltd ("SHS Law") for a total consideration of $430,000. Mr Chan was the majority shareholder and Chief Executive Officer of SHS Law. 2. An intermediary, Mr Bao (Jackson) Ming Xian was also involved in the negotiations. He promoted Mr Ng's acquisition of the shares. Mr Xian was also the manager of SHS Law. All the parties to the proceedings called Mr Xian "Jackson" and he will therefore, without intending any disrespect to him, be so described in these reasons. Jackson did not give evidence. 3. Mr Ng has legal qualification although he was not practising at the time of these negotiations. Neither Mr Chan nor Jackson is legally trained. The principal lawyer of SHS Law was Mr Selwyn (Sam) Hegney, who was also a shareholder and director of the company. Mr Hegney was not involved in the negotiations between Mr Chan and Mr Ng but he gave evidence about the operations of SHS Law. 4. Mr Ng claims that in these negotiations both Mr Chan and Jackson made fraudulent, misleading and deceptive statements about the profitability, operations and business prospects of SHS Law, which induced him to purchase the shares. Mr Chan denies that any statements that he made were misleading or deceptive and denies that Jackson was acting on his behalf in the negotiations. 5. As to the first tranche of shares, Mr Ng claims that in July 2016 Mr Chan agreed to sell 5.25% of SHS Law for a consideration of $250,000. Mr Ng claims he paid this consideration with a deposit of $10,000 on 22 July 2016 and a further payment of $105,000 in August 2016 when a written share purchase agreement was signed between Mr Ng and Mr Chan. Mr Ng also says that Jackson loaned him another $120,000 to pay the balance of the purchase price, by allegedly advancing this sum directly to Mr Chan on Mr Ng's behalf. Mr Ng says that his father on his behalf repaid the loan to Jackson in full on 9 February 2017 and the shares were transferred to him. This means that Mr Ng claims a total of $235,000 (not $250,000) was paid as consideration for the first tranche of shares. 6. Mr Chan's account of the first tranche is quite different. He says that he was unaware of any loan arrangements between Mr Ng and Jackson. Further he says that Jackson did not pay the sum of $120,000 onto him in February 2017 and that this part of the alleged purchase price was never paid. Mr Chan claims that by a written agreement made in July 2016, Mr Ng agreed to acquire 5.25% of SHS Law for $105,000, which Mr Chan agrees Mr Ng paid to him. But Mr Chan says that Jackson did not pay him the $120,000, that he accepts may have been advanced to Mr Ng. Thus in summary, in relation to the first tranche, both parties agree that Mr Ng acquired 5.25% of SHS Law from Mr Chan. Mr Ng says he paid $235,000 for the first tranche but Mr Chan says he received only $105,000, the amount expressed in the written share agreement of 8 August 2018. The difference between the parties is $145,000. 7. As to the second tranche of shares, Mr Ng says that on or about 22 May 2017 he paid $195,000 directly to Mr Chan for a further 9.75% of SHS Law. Both parties agree that this amount was paid for this second tranche. 8. The issue with both tranches is whether Mr Ng's acquisition was induced by Mr Chan's fraudulent, misleading and deceptive conduct. 9. In around June 2017, SHS Law ceased providing professional services. The Law Society of NSW appointed a manager to SHS Law, following allegations that Mr Chan withdrew funds from SHS Law's trust and general accounts without authority. 10. Mr Ng commenced these proceedings in September 2017. He claims that the shares he acquired in SHS Law have nil value, or, alternatively, that they have a value significantly less than the $430,000 he paid for their purchase. Mr Ng seeks relief that Mr Chan repay to him the $430,000 purchase price of the shares. 11. Mr Chan's case is: that Jackson did not pay him $145,000 of the alleged purchase price of the first tranche of shares; he did not misrepresent SHS Law's prospects; and Jackson was not his agent either to make representations or to receive any part of the purchase price. 12. These proceedings were heard on 25 and 26 July and 18 September 2019. Mr A. Coombes of counsel, instructed by KWL Lawyers appeared for the plaintiff, Mr Ng. Mr G. D. McDonald of counsel, instructed by Mackellars Lawyers appeared for the defendant, Mr Chan. 13. A narrative of the relevant history follows shortly. This narrative represents the Court's findings on the matters covered, except to the extent that the context indicates that only the parties' allegations are being recorded in these reasons. For reasons of economy, this narrative does not include reference to versions of the facts that have been rejected. But the credibility of the witnesses appearing in the narrative should be considered first. 14. The narrative of facts involves findings of oral representations, which are said to form a case of misleading and deceptive conduct. The Court is mindful in making these findings that the words said to be spoken must be proved with a degree of precision sufficient to enable a court to be reasonably satisfied that they were in fact misleading in the proved circumstances: Watson v Foxman (1995) 49 NSWLR 315 at 318-9. 15. The plaintiff has also pleaded a case in fraud. The Court is mindful in civil proceedings where such a serious allegation is made that the Court should take into account the gravity of the matters when deciding whether or not it is satisfied that the plaintiff's case has been proved on the balance of probabilities: Evidence Act 1995, s 140. The strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove; and a Court should not lightly make a finding that a party to civil litigation has been guilty of fraudulent conduct: Neat Holdings Pty Limited v Karajan Holdings Pty Ltd (1992) 110 ALR 449; (1992) 67 ALJR 170; [1992] HCA 66. 16. And the defendant, Mr Chan, through counsel has appropriately submitted that the Court should reason to its conclusion not just in relation to witness credibility but "as far as possible on the basis of contemporary materials objectively established facts and the apparent logic of events": Fox v Percy (2003) 214 CLR 118; (2003) 197 ALR 201; [2003] HCA 22 at [31]. Credit of Witnesses 1. Mr Ng. Mr Ng was a reasonably credible witness. Cross-examination did not show any major inconsistency in his testimony. He was able to give reasonably detailed and consistent accounts of the conversations and transactions in which he was involved. He was a little hard to follow at times but the court generally formed a favourable impression of his honesty and reliability. He was prepared to acknowledge gaps in his recollection but he was someone who clearly did his best to answer questions in cross-examination. Most of his testimony is accepted. At times his testimony did not accord with the objective facts or the logic of events and is not accepted. But on the whole the Court found his evidence far more credible than that of the defendant, Mr Chan. 2. In final submissions Mr McDonald, on behalf of Mr Chan, criticised Mr Ng's credibility on several grounds. It was said that Mr Ng stubbornly adhered to a claim for $445,000 when Mr Coombes had clearly modified the claim to $430,000 to accord with the evidence and that he adhered to other evidence which had not been read. But none of these criticisms fundamentally affected Mr Ng's credibility. 3. Mr Chan. Mr Chan was a witness in whom the Court had little confidence. In contrast to Mr Ng, Mr Chan exuded an air of supreme confidence, deflecting all criticism directed at him. But his explanations often made little rational sense. Mr Chan has a strong sense of self-belief, which was accompanied by the barest understanding of how others actually perceived him. Some of his answers showed only a passing acquaintance with the truth. He has a poor commitment to the virtue of trying to give reliable account of history supported by relevant facts. Rather, his natural testimonial style was fact-averse and blame-shifting. And it involved credulity-testing evidentiary puzzles. His evidence was approached with the greatest caution. 4. Mr Chan was prepared to blame others for procedural mistakes that occurred at SHS Law. Despite the fact that he was the CEO of the company, he was quite prepared to deny any responsibility for decision-making within SHS Law, especially any decision making that he regarded as potentially embarrassing to his case. 5. To avoid responsibility for decision-making within SHS Law, Mr Chan attempted to draw a distinction between the firm's legal work and its administrative/managerial work. He said he had nothing to do with the legal work of the firm. But the distinction he was trying to draw quickly broke down. He was quite prepared to allow the firm's website to display him as having the title "senior partner", being quite conscious that the title brought with it the overtones of being an experienced lawyer. He was happy for this term to be used about him on the firm's website because he appreciated that it gave him status among and was attractive to potential Chinese clients. The website can only very indirectly be construed as implying he was not a lawyer. 6. But when challenged, he was not prepared to take responsibility for being a decision-maker approving the content of SHS Law's website. He seemed to be mystified that he could have any influence over the content of the website. Although CEO of SHS Law he wanted to give the impression that he had little influence on SHS Law's internal management. According to Mr Chan, quite surprisingly the structure of SHS Law allowed junior employees, such as those who designed the website, to decide matters with little oversight from him. 7. Mr Chan is very intelligent. He listens closely to and scrutinises the questions asked of him; and then he gives the answer that suits him. Mr Chan's remarkable self-assurance is unsupported by any fidelity to the truth or grounded attachment to facts. Several times Mr Chan said "I couldn't understand your question", when the question was clear and plainly within his intellectual competence. I do not regard many of his answers as genuine. Mr Chan was prepared to divert the questioner at times but not very cleverly. His answers demonstrated a well-developed skill in avoiding answering difficult questions. 8. This style was evident in his principal affidavit as well. It does not give a detailed account of his version of conversations. Rather, it disputes Mr Ng's account and gives away very little about what Mr Chan said passed between them. 9. Mr Chan's LinkedIn profile was very problematic for him. He is listed as the "senior partner" at a SHS Law. The implication behind that title that he was a senior qualified lawyer, was plainly false. Although he tried to distance himself from knowledge of how the LinkedIn profile was created, the Court does not accept his denials. He must have known about this profile. He was quite prepared to allow false information about him to be promulgated by others. 10. Mr Chan's LinkedIn profile is even more misleading to conceal some discreditable information about him. His LinkedIn profile is available by way of a link from the SHS Law webpage. It describes Mr Chan's work history as including "Managing Director, Royal Finance Corporation Pty Ltd, March 2005 to June 2013" a period of eight years and four months. But Royal Finance Corporation Pty Ltd was deregistered in August 2010. Between June 2010 and June 2013 Mr Chan was serving time in prison for an offence involving violence. The form of the LinkedIn profile hides any reference to a gap in Mr Chan's employment history or that he served a period in prison. Whilst it might not necessarily be expected that he would wish to confess in his profile that he had been to prison, the honest thing to do in such a profile would be to at least leave a gap in the employment history about which someone might need to ask privately if it came to be an issue. 11. Mr Chan sought to explain away this entry in his profile as something which was done by others that he was unaware of. But it is so directly linked to his profile as the CEO of SHS Law that he must have been aware of it. Indeed, he is the only person who logically could have provided his own work history for others at SHS Law to publish. The work history covers a period long before he was CEO of SHS Law. The Court infers that he was well aware that the LinkedIn profile was misleading and was content for it to be continued to be published in a misleading form to his advantage. 12. Mr Hegney. Mr Hegney was a reliable witness who gave his own independent perspective on the negotiations. He had a reasonably good memory and his evidence is mostly accepted. Mr Hegney was a frank and impartial witness, who was prepared to concede gaps in his knowledge and to make admissions against interest. The Court generally prefers the evidence of Mr Hegney over that of Mr Chan, on matters where their testimony differs. Mr Ng, Mr Chan, Jackson and SHS Law - 2016 to 2017 1. SHS Law Pty Ltd was incorporated in January 2015. It was the corporate entity through which a legal practice by the name of "SHS Law" was conducted in the Sydney CBD. The company's issued capital consisted of three Founders' shares and 1,950,000 ordinary shares. 2. Mr Ng has qualified in law and has practised as a lawyer. But at the time of these events he had put his legal practice on hold and was working in the real estate industry. He was nevertheless looking for investments and opportunities that might return him to the legal profession. Early Negotiations and the Deposit – July 2015 1. In June 2016, Mr Ng was introduced to Jackson, at a social event conducted by the Chinese Business Association. Jackson was a Vice President of the Association. Jackson said to Mr Ng that he was aware of an opportunity to invest in SHS Law, which Jackson explained to Mr Ng is "a very large law firm – and one of the biggest Chinese law firms in Australia". Mr Ng understood Jackson to be referring to the legal practice conducted by the company, SHS Law. Jackson gave Mr Ng a business card which described Jackson as a "Senior Project Manager" for SHS Law. Mr Ng was left with the impression that Jackson had a senior position at SHS Law. 2. Mr Chan denies that Jackson was an employee or agent of SHS Law. Mr Chan also denies that Jackson had any particular role as a "project manager" for SHS Law, or had any other senior role with the firm. But he did have a firm business card which must have been produced with the knowledge of the firm. It is a basis to infer that SHS Law had clothed him with some authority on its behalf. Mr Chan says that Jackson was just a person who introduced investment opportunities and development projects to the lawyers at SHS Law and that he would receive a commission, if his referrals led to SHS Law writing a costs agreement with a client. This may well have been the relationship, with SHS Law issuing the card to Jackson to improve his authority to speak on behalf of the firm. But the inference that he was acting as an agent on behalf of Mr Chan in negotiations with Mr Ng are far more limited. This issue will be analysed later in these reasons. 3. Jackson came around to Mr Ng's office in early July 2016 to confirm his interest in proceeding with the investment and a meeting was arranged at the offices of SHS Law in the MLC Centre in Martin Place a few days later. 4. When Mr Ng arrived at SHS Law's offices, Jackson was there and told him that "the CEO is not available to speak but he told me to give you some information". He repeated his earlier statement, "[w]e have an opportunity for you to buy into SHS Law, a very large law firm and one of the biggest Chinese law firms in Australia". Jackson also said the following to Mr Ng about SHS Law: "We have been awarded as the number one best immigration law firm in Australia. We have employed over 100 staff members and we are a big law firm established over 150 years ago." 1. Jackson explained that one of the directors of SHS Law was retiring and that this was therefore a good time to invest in the firm. Jackson gave Mr Ng a profit and loss statement of SHS Law and then invited Mr Ng to have a look at it on a confidential basis, emphasising that this was "a great opportunity". After going through the profit and loss statements Jackson said to Mr Ng: "After deductions and expenses we are making over $2 million. If you obtain 5% of the shares you will get $100,000 every year for from your share of the profit without doing anything". 1. Jackson concluded the meeting, emphasising that "This is a very secure and risk-free investment". 2. In about mid July 2016, a further meeting was organised at the offices of SHS Law in the MLC Centre in the city. This time Mr Chan was present. Mr Ng and Mr Chan disagree about what was said at this meeting. Mr Chan has only a general recollection of a conversation at the meeting where they were first introduced. But the Court accepts Mr Ng's version of what occurred. 3. Mr Chan explained that Mr Ng could buy 5.25% of the shares in SHS Law for $250,000 and that this opportunity was available because someone was retiring from the company. In answer to various questions that Mr Ng asked him, Mr Chan said: "The company profit is $2 million per year after deduction of all expenses. You can work on the company receive a salary package which is hourly based. 1. Mr Chan explained that if he invested in SHS Law that Mr Ng could have the title of Business Development Manager or a title as a Lawyer. Mr Ng explained that his father, a dentist, Dr Kevin Ng, would be funding his investment in the firm. Jackson offered to provide an interest-free loan in the sum of $100,000 until Mr Ng was able to pay the full purchase price. Mr Chan went on to make the following statements: "100 people are employed here. We mainly do migration, section 457 visas. We have property, personal injury, civil litigation and commercial law teams. We are trying to expand into the area of criminal law. The firm has been running for over 100 years and we are the number one migration firm. We have offices in Melbourne and also starting one in Brisbane. We are also finalising our arrangements to expand into China. I cannot provide you with any further details. You receive 5.25% of revenue per year. If we make $2 million you will get $100,000 per year. Review the profit and loss statement. You will see that we can make you a rich man quickly." 1. Mr Ng accepted these statements at face value. Mr Chan then showed Mr Ng bank statements covering the present and previous financial years' cash flow of the firm. Mr Chan explained that the bank statements did not show the true worth of the firm because, "there is a lot of money which is still not processed and is in trust". Mr Chan talked more about the investment in response to Mr Ng's questions, saying: "It is a safe investment. It is the best thing you can do. The firm is very stable, there is lots of business. We cannot handle the workload, we need more staff, so you should come and help us. The company is on track to make a profit of $3 million next year. If you pay $250K you will get 5.25% of shares and profit after expenses which will be $100K. You will also receive the title of Lawyer or Business Development Manager." 1. Mr Ng was not given a copy of the bank statements shown to him that day. But he was encouraged to look at the website to find out more about SHS Law, which he did. Nothing on the website alerted him to any inconsistency with what Mr Chan or Jackson had told him. 2. Mr Chan's recollection of the first meeting in which he met Mr Ng is more limited. He says that a conversation to the following effect took place: "Jackson: Josh, this is Mr Ng. Mr Chan: Hello Cedric, my name is Josh Chan and I am CEO of SHS Law. Mr Ng: How is the company going? Mr Chan: Business is good. We are looking to sign leases for offices in Melbourne and Brisbane. We are also looking to purchase a firm in Shanghai, China" 1. But Mr Chan does not recall much more than this being said at what appears to have been the first meeting with Mr Ng, according to Mr Chan's evidence. Mr Chan was not able to give a coherent account of any wider conversation before Mr Ng purchased the first tranche of shares. Apart from the Court's preference for Mr Ng's evidence, this conversation sounds stilted and improbable and is unlikely to have been all that was said before the first tranche was acquired. Unlike Mr Ng's account of the conversations, Mr Chan's version does not account for the terms on which Mr Ng might acquire shares. Mr Ng was interested in investing and it is likely that he did want to gain knowledge about the profitability of the business, rather than just to accept vague assurances about the future opening of offices. 2. Another meeting was organised on 22 July 2016 between Mr Ng and Jackson at SHS Law's offices. Mr Ng indicated to Jackson that he had consulted his father, Dr Ng, and that he had explained to his father what Mr Chan had said and showed him the firm's website. 3. Jackson asked Mr Ng for a deposit of $10,000, refundable if the investment did not proceed. Jackson gave Mr Ng a receipt which recorded the details of their agreement. The receipt dated 22 July 2016 gave Jackson's address, drivers licence number and date of birth and said the following: "I, Bao Ming Xian received $10,000 AUD (cash) from Cedric Ng for the holding deposit for the sale of the share of SHS Law Pty Ltd on 22 July 2016 for 5.25% of the company. The total purchase price for the share is $250,000 AUD. The purpose of the $10,000 is to ensure the confidential information of the financial report for SHS Law proprietor limited finances between 1/7/15 to 30/6/16. In the event, where Cedric Ng does not proceed with the purchase of the share, the holding deposit of $10,000 will be fully returned to Cedric Ng within a week." 1. At this meeting Jackson also provided Mr Ng with the financial statements for SHS Law for the period 1 July 2015 to 30 June 2016. The statements were unsigned but were apparently dated 7 July 2016 and provided a signature block for Mr Hegney. Accepting them as accurate, Mr Ng read these financial statements, which impressed him. They showed gross turnover of just under $13 million and a net profit of $1.83 million. Mr Ng Executes a Share Purchase Agreement – August 2016 1. Mr Ng turned over in his mind whether or not to proceed with this share purchase. The Court accepts that the statements that Mr Chan had made were at the forefront of his consideration. Mr Ng explains his thought processes in deciding whether or not to proceed, evidence which the Court accepts. He believed he had no reason to doubt Mr Chan who was an "older man who exuded confidence and professionalism". Mr Ng thought that the SHS Law offices were "impressive" and he believed what Mr Chan had told him about the firm having 100 employees. The website seemed to confirm that there were even more than this, including solicitors paralegals and attorneys in Brazil, Australia and China. Mr Ng also looked at Mr Chan's curriculum vitae which also looked impressive to Mr Ng. 2. Mr Ng says that he did not have enough money to pay the whole $250,000 at that point. So he turned to Jackson who reiterated his promise of lending him $120,000 interest-free to facilitate the transaction. 3. Mr Ng decided to proceed. He arranged to meet Mr Chan at SHS Law's officers on 8 August 2016. Mr Ng was accompanied by a friend of his, Mr John Xu. Mr Chan had prepared a document for Mr Ng's and his signature entitled "Purchasing Shares Agreement". The document provided that the purchase price was $105,000 instead of $250,000. This puzzled Mr Ng and he asked Mr Chan to explain the discrepancy. Mr Chan explained it thus: "Because that is how it works out on the share register. The value of the shares on the register is because each share is worth only one dollar but the actual price you pay me is the $250,000. We are so profitable the shares have doubled since 2015." 1. Mr Chan and Mr Ng executed the August 2016 Purchasing Shares Agreement. The agreement was between Mr Chan as vendor and Mr Ng as purchaser. It recited that Mr Chan is the registered holder of 950,000 ordinary shares in the company (Recital A) and that the vendor had agreed to sell and the purchaser had agreed to buy 105,000 shares in the company on the terms of the agreement. The principal purchase clause in the agreement provided as follows: "The Vendor hereby agrees to sell and the Purchaser hereby agrees to buy 105,000 ordinary shares representing the Vendor's part shareholding (5.25% of the current shareholding in the company) for the purchase price of $105,000.00 which sum shall be paid on the Settlement Date." 1. The agreement defined the settlement date as 2 August 2016, which by that time had passed by almost a week. The share purchase agreement says nothing about the payment of $250,000 for the purchase of these shares. The parties otherwise agreed to do all things necessary and execute all documents required to give effect to the agreement. 2. But it is common ground between the parties that Mr Ng paid Mr Chan $105,000 at the time that the Purchasing Shares Agreement was signed. 3. The agreement is odd for reasons other than its failure to mention the $250,000. As the issued capital of the company was 1,950,000 ordinary shares, 105,000 shares is not 5.25% of the issued capital. Correctly calculated 5.25% of the issued capital was 102,375 shares. 4. After the Purchasing Shares Agreement was signed, the "Loan Agreement" between Jackson and Mr Ng was presented to Mr Ng for signature. The loan agreement recorded Jackson as lender and Mr Ng as borrower of the principal sum of $120,000, with interest only payable if the principal was not repaid by 1 January 2017. Jackson and Mr Ng executed the loan agreement. After The First Tranche - August 2016 to October 2016 1. Mr Ng was soon welcomed as a shareholder. Soon after executing the documents, he attended the SHS Law offices at which Mr Chan announced his investment to the company's employees. Jackson then showed Mr Ng around the offices and introduced him to the firm's staff. 2. Mr Ng brought some of his own clients to the firm. When he did so he would usually meet with Mr Chan. And Mr Ng would arrange private meetings with Mr Chan to glean further information about the firm's operations. When he asked, Mr Chan reassured him saying the following: "The firm is doing really well. Your investment is safe with us. We have so much money in a trust account and so many clients. We are so busy, we have a lot of business. So much, we cannot handle. You will need to come into the office more often. We are expecting to make more than last year. We are very busy now because we are expanding into China. Everything is looking good." 1. Mr Ng was largely left to his own devices when visiting the firm. Mr Chan did not introduce him to many of the employees. But Mr Ng made his acquaintance with about 10 of the employees of the firm to whom he more commonly referred legal work, including the team leaders in the firm's migration, personal injury and commercial teams. 2. But Mr Ng heard Mr Chan misrepresent himself to some of these clients. On occasions he would quite incorrectly say to them, "I am a lawyer and I am here to advise you on your options." Mr Chan was never legally qualified. 3. Mr Ng's father visited Australia from Hong Kong in October 2016. He came to the offices of SHS Law on 11 October 2016. During this visit Mr Chan said to Mr Ng and Dr Ng: "We are a very big law firm. We do a lot of migration work, as you can see, everyone is working really hard. I can assure you that your son has made a very good investment. We promise you will receive a good return. This is a risk-free investment with a guaranteed good return." 1. Statements such as this tended to reaffirm Mr Ng's confidence in his investment and in the accuracy of the statements that had previously been made to him. 2. Mr Ng did repay the loan from Jackson in February 2017. Mr Ng arranged for his father to transfer the sum to Jackson. But the loan amount of $120,000 was converted into Hong Kong dollars and was paid by Dr Ng into Jackson's bank account in Hong Kong on 9 February 2017. But the amount so paid was HK$719,200, which at the applicable exchange rate at the time was the equivalent not of AU$120,000 but AU$124,000. The parties seem content to treat the difference as an immaterial currency conversion anomaly and Mr Ng's claim remained as one for $120,000. The difference of $4,000 is not explained by the accrual of interest at 15% per annum on the loan agreement, as $4,000 had not accrued by 9 February 2017. 3. Mr Ng's father confirmed the payment of $124,000 by a WeChat message on 9 February 2017, as follows: "Aud5.8x124,000=hk$719,000 is deposited into your account today to pay for Cedric's purchase of 5% shares of SHS Law Sydney" 1. Mr Chan denies that he ever received this offshore payment from Jackson, or that he was expecting to receive it. But as will be seen whether or not he actually received this sum the later WeChat evidence suggests that he was aware of the payment to Jackson and was expecting to be paid by Jackson. A Meeting in Hong Kong – May 2017 1. Mr Ng was in Hong Kong in May 2017. Mr Chan was in Hong Kong at the same time. He telephoned Mr Ng and proposed that they meet to "discuss something". But Mr Ng was travelling to Singapore that same day. There was a sense of urgency in Mr Chan's request. He offered to compensate Mr Ng $1000 for his wasted plane ticket to Singapore if he stayed on in Hong Kong. 2. They met up later that day in Hong Kong. But they disagree about the place of this meeting and what was said. Mr Ng says they met in the lobby of the Westin Hotel in Hong Kong. Mr Chan says they met at the Hong Kong Shangri-La Hotel. According to Mr Ng, his father, Dr Ng, was also present. Mr Chan agrees that Dr Ng was there. Mr Ng recalls that Mr Chan also brought a lawyer with him. Mr Chan does not mention any lawyer being there with him. But the Court accepts Mr Ng's version and that Mr Chan described the lawyer with him as "a business partner at one of the biggest Chinese law firms". 3. Mr Chan's recollection of this conversation in Hong Kong is quite limited. He says that the conversation was to the following effect: "Mr Chan: The principal at SHS Law wants to retire and sell his shares off. Are you interested in buying his shares and becoming a partner and a principal? Dr Ng: Why is he retiring? Mr Chan: He is currently 70 years of age and it is too much stress for him in our busy office. Mr Ng: Ok let me speak to my father and we will speak to you soon. Mr Chan: Ok but please let me know as soon as possible." 1. But such a limited conversation is hardly worth the effort of Mr Chan organising a special meeting in Hong Kong. And why was it necessary for Mr Ng to say "let me speak to my father", when Dr Ng was there. Although not the most astute and enquiring of potential investors, Mr Ng impressed the Court as someone who was interested in finding out more about his investments in SHS Law. It is highly likely that the conversation in Hong Kong travelled well beyond Mr Chan's limited version of what happened. 2. The Court accepts Mr Ng's version. In it, Mr Chan outlined a proposal to Mr Ng in the following terms: "The principal of SHS Law wants to retire and he wants to sell off his shares. Are you interested in buying his shares in becoming the partner and principal in charge? I will pay you a salary of $100,000 per year to be in charge. We are expanding and doing really well. We have so many Chinese clients coming in and we are now in cooperating with Chinese law firms. We are also signing leases in Melbourne and Brisbane. This lady is my new business partner." 1. Mr Chan offered an alternative financial option for Mr Ng to purchase the shares he was offering from the retiring partner. Dr Ng asked why the partner was retiring and Mr Chan said, "[h]e is currently 70 years of age. It is too much stress for him in our busy office." Then Mr Chan proceeded, "actually we are planning to be listed on the ASX and going to incorporate with Chinese law firms". When Mr Ng enquired "how do you plan on doing that?", Mr Chan replied: "If I tell you I have no value for you anymore. You must trust me when I say to you that we are going public. All I can say to you is, we are incorporating with Chinese law firms and we are going to be listed on the Shenzhen Stock Exchange." 1. Mr Chan asked Mr Ng to get back to him as soon as possible. There are clearly some elements of what Mr Chan recalls in this conversation. But it was a much broader conversation then Mr Chan's version. Mr Ng returned to Australia shortly afterwards. Mr Ng Invests Again in SHS Law, the Second Tranche – May to June 2017 1. On his way back to Australia, Mr Ng thought about what Mr Chan had said to him. On the basis of what he had heard, he decided to invest more funds in SHS Law. He attended the firm's offices on 22 May 2017 and indicated to Mr Chan that he would like to buy the shares on the basis that he would have a salary of $100,000 per year. Mr Chan replied: "Okay, it is going to cost you $195,000 and I will transfer you 9.75% of the company's shares. We are in this together, I am running this company with you." 1. Mr Ng prepared a bank cheque for $195,000 and transferred this sum into Mr Chan's bank account. Mr Chan acknowledges that Mr Ng paid him $195,000 in consideration for the sale of the further 195,000 of Mr Chan's shares in SHS Law. 2. There was extensive traffic about preparing for and completing the second tranche on a WeChat account to which Mr Ng, Dr Ng and Mr Chan all had access. There was confusion as to whether the percentage of SHS Law that was being purchased was 10% or 9.75% and there was difficulty in formulating a written agreement to reflect the purchase of the second tranche. At one stage of these exchanges, on 22 May 2017, when Mr Ng was asking for a signed agreement to be made available to him and to his father before the $195,000 would be paid, Mr Chan replied: "It all happens in the same day. Please trust me as your partner, this is a multi-million-dollar business. We must trust each other and work together to reach our goal – IPO/listing." 1. The email exchanges that follow confirm that the $195,000 was paid. Mr Chan indicates that the agreement to be signed and a share transfer and receipt for the $195,000, were ready and waiting at the SHS Law office ready to be signed. The evidence does not include any written agreement about the second tranche of shares. SHS Law Collapses – June 2017 1. In the first few days of June 2017, Mr Ng attended at the offices of SHS Law to meet with the firm's principal lawyer, Mr Hegney. Mr Ng wanted to have the additional shares formally transferred to him and to be given authority to operate the trust account of the firm as a principal of the company. The share transfer form was ready and was signed. 2. But Mr Hegney advised Mr Ng that because he did not hold an unrestricted practising certificate, he would not be able to take the principal in charge position. He was advised he would first need to undertake a practice management course with the Law Society. 3. Mr Hegney showed Mr Ng the firm's trust account that same day. Mr Ng noticed there was only $5,000 in the trust account. Mr Hegney arranged with him to meet two days later to obtain a bank authority to operate the trust account. 4. But when the day came, Mr Ng received some surprising news. Mr Hegney told him that Mr Chan had resigned as CEO that very day by email. Disbelieving, Mr Ng asked to see the email and Mr Hegney showed it to him. The email dated 1 June 2017 was addressed to Mr Hegney and said: "I am writing to inform you that I am resigning from my position as Chief Executive Officer of SHS Law Pty Ltd due to the very serious personal health reasons. My resignation will be effected on the 14 of June 2017, giving the firm the required two weeks notice". 1. Mr Ng was told there was no money in the firm's accounts and that the business could no longer continue to operate. This alarmed Mr Ng. He wanted to inform his father as soon as possible, as his father was a source of his investment funds. So he contacted Mr Chan on WeChat. Mr Ng set up a three-way WeChat conversation for Mr Chan, Dr Ng and himself. Records of a conversation that took place between this trio on 4 June 2017 are available in the evidence. The following was part of the WeChat conversation: "Mr Chan: Sorry for the late reply due to the very busy schedule. I was dealing with the consequences caused by Sam [Mr Hegney] over last few days and nights, about 2 hours sleep a night. I will WeChat you tonight to discuss the matter. Trust me, we will get through the crisis and your investment is safe, it is not being touched, still sit in my personal account@ Cedric. Dr Ng: Thank you for your kind reply, Josh. We trusted you! It really scared me since this are my retirement money that I lent to Cedric. Hope you will keep your proposal and don't let us down. I could not afford to loose [sic] any more. Mr Chan: Not to worry. Dr Ng: I trusted you!" 1. Mr Chan is acknowledging the crisis and seeking to reassure Mr Ng and Dr Ng that their money was safe and inviting their continued trust. Mr Ng and Dr Ng were clearly close. Mr Ng was part of this WeChat group and the sentiments of trust expressed by his father can be inferred to be his as well. This material shows reliance by Mr Ng on Mr Chan's words about SHS Law. 2. Another three-way conversation pursuing the same subject took place among the same parties on WeChat the following day, 5 June 2017. In this text Dr Ng's method of writing of the amount of $250,000 and $125,000 are slightly confusing and what he means has been placed in square brackets below: "Dr Ng: Josh, we have totally paid you Aud 450,000 in these few months to purchase shares in your company. Now you are resigning and closing the company. How could you still secure our money? Mr Chan: There are 2 payments have been deposited in my Account, for purchasing my shares, it's safe. I have no idea about the third payment, please check and let me know if you have deposited to my Account or someone else. Dr Ng: 1. Aud25,000 [$250,000] to purchase 5% of SHS was paid half (ie. aud 12,500 [$125,000]) last year to you. 2. Second payment (aud12,500 [$125,000]) was transfer to Mr Xian B.M while he was in hk on SHS behalf. (deposit slip enclosed) 3. Another 195,000 was paid in May, 2017 to you to purchase 10% shares from you. Mr Chan: Noted with thanks. However you have to check the 2nd payment with Mr Xian as there is no official record in My account or SHS LAW account for this transaction. Dr Ng: That's good. I case chase him for refund. Mr Chan: Please do it ASAP for safety reasons. Dr Ng: Thanks! So you have revived payment 1 & 3 and keep them for us? Total aud 125,000 & 195,000. Mr Chan: Yes." 1. There is a degree of confusion in the evidence as to just how much purchase money for the two tranches of shares was received by Mr Chan. This conversation appears to clearly acknowledge that Mr Chan received $320,000 (being $125,000 plus $195,000) directly from Mr Ng or Dr Ng. It is consistent with Mr Chan's denial that he was paid any funds by Jackson in respect of the sale of his shares in SHS Law. But it is not consistent with what Mr Chan now says he received for the first tranche of shares, namely $105,000. 2. Whether Jackson paid any purchase money for the first tranche to Mr Chan is an open question. The Court does not accept Mr Chan's denial of payment. But that does not prove that Jackson did pay Mr Chan. And there is no other reliable evidence that he did. Jackson has not been called to support the inference that more than $300,000 ($105,000 + $195,000) was paid by him to Mr Chan. 3. Mr Chan's statement "it's safe", about the two payments that he did acknowledge receiving, was misleading. He had not kept this money secure. Mr Ng has since discovered, through documents produced in these proceedings, far more about what was happening behind the scenes with Mr Chan and SHS Law between August 2016 and June 2017. Mr Chan had no basis for making these statements on WeChat to Mr Ng and his father about the safety of their investment. Account statements for Mr Chan's personal bank account held with the Commonwealth Bank of Australia Ltd ("CBA") show that the amounts of $105,000 and $195,000 were paid into Mr Chan's personal bank account for the acquisition of the first and second tranches of shares in SHS Law. 4. But these monies had been quickly dissipated. The payment of $105,000 was wholly disbursed from Mr Chan's CBA account between 15 and 17 August 2016. After Mr Chan received Mr Ng's payment of $195,000 on 22 May 2017, he disbursed approximately $80,000 from his CBA account over the period 25 May to 30 June 2017, leaving a balance of $128,777.68. Mr Chan's assurances that the funds paid by Mr Ng were safe, and were sitting untouched in the defendant's personal account, were plainly false. Mr Chan controlled his own bank account and must have known that they were false at the time that he made them. 5. But these WeChat messages on 5 June 2017 continued in a way that strongly indicates Mr Chan was aware that Jackson was acting as some kind of intermediary to receive and pass on purchase money for the first tranche of shares that was destined for SHS Law or Mr Chan. The messages continued: "Dr Ng: Jackson told us he represented SHS to receive Aud 125,000 from us to purchase SHS shares. So this is NOT true!! He lied to us? Mr Chan: He may plan to do, but I have reminded him since late last year. However nothing done yet. Dr Ng: So he has stolen the money!! Mr Chan: I can't say that. However he should transfer the funds as soon as he received to the proper Account for the purpose of purchasing shares. Dr Ng: Yes, since Feb 9th, 2017. Mr Chan: Here are the copy of some conversations for your information." 1. It is not at all easy to interpret these WeChat conversations. Indeed Mr Chan's case was that the words attributed to Mr Chan in some of these conversations were not his. But that submission is not persuasive. 2. Mr Chan appears to be keeping Jackson at arms' length, but still acknowledging Jackson owes Mr Chan some money and that Mr Chan is expecting Jackson "should transfer the funds as soon as he received" to what is described as "the proper account for the purpose of purchasing shares". This is very vague language possibly intentionally. But at the minimum it means that Jackson is invested with some role in receiving and transferring funds concerning the purchase of the shares. But it is not clear that that role necessarily makes him Mr Chan's agent. The language is perhaps consistent with Jackson acting as a facilitator of this transaction on behalf of SHS Law. But both parties knew SHS Law was not issuing new shares and that Mr Chan was the vendor. So a logical interpretation of "proper account" here is that in this role Jackson was going to transfer the funds to Mr Chan's account when he received them. 3. But the copy of the conversations that Mr Chan sent to Dr Ng on June 2018 throw more light on the nature of the relationship between Jackson and Mr Chan in these purchase arrangements. The copy WeChat messages that Mr Chan then forwards to Dr Ng and Mr Ng, had taken place on 10 April 2017 and 17 April 2017: "[10 April, 2017] Mr Chan: I am still waiting for the other half payment which should be paid by 31/12/2016. Jackson: May we talk via WeChat. Mr Chan: Please contact me. [17 April, 2017] Mr Chan: Please call in regards to Cedric Share." 1. This is an important exchange. It clarifies that Mr Chan is expecting purchase money, "the other half" from Jackson. The date 31 December 2016 is the repayment date in the loan agreement between Mr Ng and Jackson. Mr Chan's nomination of 31 December 2016 as the date for the "other half payment" which "should be paid" is a strong indication that Mr Ng's loan agreement with Jackson is related to Mr Ng's share purchase. It also indicates Mr Chan thought that he was going to be paid by the time the loan agreement expired. It also indicates that Mr Ng was to repay the loan to Jackson. But the impression Jackson had given to Mr Ng was that he was going to pay Mr Chan at the time of the loan money was advanced under the loan agreement. But the text messages are a basis to infer that Jackson did not in fact pay Mr Chan to complete the purchase at the time of the loan agreement on 8 August 2016. Mr Chan is clearly asserting that he has not been paid by Jackson, despite expecting to be paid: he says, "I am waiting…". These WeChat messages also allow the Court to infer that Mr Chan is well aware that only half the purchase moneys have been received by him to that point and that the total purchase price is $250,000, not $125,000 or $105,000. Otherwise, why use the expression "half payment"? 2. But the role Jackson is revealed as playing here is consistent with his being a closely involved intermediary, who was well understood by Mr Chan to be receiving on his behalf about half of the purchase money for the first tranche. 3. After the 5 June 2017 exchange on WeChat, Mr Chan became increasingly difficult for Mr Ng and Dr Ng to contact. Dr Ng's final and futile attempts to contact Mr Chan on WeChat occurred on 13 and 19 June 2017: "[13 June 2017] Dr Ng: Josh, I could not find Jackson, he is not replying my message. Do you have his address? Josh, what is your plan regarding my money in your account?? [19 June 2017] Dr Ng: Josh, why you are NOT answering? Are you hiding to avoid all responsibilities and liabilities? I heard that you have resigned as director, took all the money in company and disappeared?? You lied to us about putting out investment money into our personal account and run away!!! You should know deception is a criminal offend [sic]. You must return our money at your custody immediately!!" 1. Mr Chan stopped communicating back to them. The Ngs seem initially to have looked to Jackson for some degree of satisfaction concerning the funds they had lost. But apparently that had not worked by mid-June. These conversations reveal much about Dr Ng's reaction to what had happened by then. Dr Ng is clearly involved this closely because he had advanced money to Mr Ng to assist him in the purchase of the shares. The concerns expressed in Dr Ng's messages here were undoubtedly shared by Mr Ng. 2. Mr Hegney advised Mr Ng towards the end of June that the firm had ceased operating and its employees were being made redundant. At the same time, the Law Society appointed a manager to control the affairs of the firm. 3. Soon afterwards, on 22 August 2017 Mr Ng's solicitors, KWL Lawyers, issued a letter of demand to Mr Chan outlining various representations that Mr Chan was alleged to have made, contending that they were made fraudulently, rescinding the purchase agreements for both tranches of shares, demanding back the alleged total consideration of $445,000, and threatening to commence proceedings. The money was not repaid. Mr Chan says he did not get the letter until 22 January 2018 because he was in China. In any event these proceedings were commenced shortly afterwards. Analysis of the Factual and Legal Issues Based Upon the Narrative of Facts 1. Mr Ng brings two actions against Mr Chan. The first is under the Australian Securities and Investment Commission Act 2001 (Cth) ("ASIC Act"), s 12DA for misleading and deceptive conduct. The second is for the tort of deceit: Mr Ng claims that the misleading deceptive conduct was also fraudulent to the knowledge of Mr Chan. 2. Before the Court deals with the truth or otherwise of the representations, the scope of the contest is to a considerable degree narrowed by determining whether or not Jackson was Mr Chan's agent in relation to these various transactions, a matter which was in contest. Was Jackson Mr Chan's Agent? 1. Mr Chan submits that Mr Ng had his own dealings directly with Jackson, who was acting in his own right, or on behalf of SHS Law, but not as the agent of Mr Chan. Mr Chan submits that Jackson was not authorised to receive money on his behalf from Mr Ng and that Jackson had no authority to make representations on Mr Chan's behalf. 2. A number of circumstances point against the inference that Jackson was Mr Chan's agent. The written loan agreement by which Jackson agreed to lend $120,000 to Mr Ng does not mention Mr Chan, SHS Law or any of the other share purchase transactions in which Mr Ng was involved with Mr Chan. The loan agreement recites (Recital A) the agreement to advance the sum of $120,000 was "for the purpose of a personal matter". Moreover, curiously the loan agreement does not contain any term to the effect that Jackson is going to pay to Mr Chan the $120,000 being loaned to Mr Ng. If that was the purpose of the loan transaction it would have been quite simple to include it in the loan agreement. 3. Mr Ng says that he did not need to borrow money from Jackson, because his father, who was funding the share purchase transaction, had quite sufficient funds to be able to pay the full amount of $250,000 to Mr Chan. 4. Moreover, evidence does not indicate that Mr Ng took identifiable steps to ensure that Jackson paid Mr Chan the $120,000 that was being loaned. It might be expected that, if this were the arrangement, some timing for payment or mechanism of payment would have been agreed and laid out between Mr Ng and Jackson, and that following the loan transaction Mr Ng would have made enquiries to check that the arrangement had been followed. 5. And some of the evidence suggests that Jackson was something of a free agent, was pursuing his own interests and was not particularly closely bound to Mr Chan. The first contact about SHS Law was between Mr Ng and Jackson in around June/July 2016. In the course of this Jackson made his own statements about SHS Law to Mr Ng without quoting or referring to Mr Chan or with Mr Chan been directly involved. And at this first meeting, Jackson discussed a range of business ventures with Mr Ng apart from SHS Law. 6. The evidence supports the inference that Jackson may have had an agency role for SHS Law. Jackson was a consultant hired by SHS Law in the role of Senior Project Manager and he was authorised to act on behalf of SHS Law, as a sales agent on commission. SHS Law issued a business card in his name as senior project manager, pointing more to his agency for SHS Law than Mr Chan. That made Mr Ng appreciate that Jackson probably had access to marketing and promotion information from SHS Law. 7. And Mr Chan did not expressly hold out to Mr Ng that Jackson was his agent. The communications between the parties at times acknowledge Jackson's agency on behalf of SHS Law. In the WeChat exchanges between Dr Ng, Mr Ng and Mr Chan on 5 June 2017, Dr Ng says "Jackson told us he represented SHS to receive AUD25,000 from us to purchase SHS shares." But as has been seen earlier this statement is followed by indications that Jackson was handling purchase money for Mr Chan. 8. And finally, the written agreement governing the holding deposit of $10,000 was made between Mr Ng and Jackson without any mention of Mr Chan as the vendor of the shares. This document is consistent with Jackson being the agent of SHS Law. 9. The elements of a principal/agency relationship are stated thus in GE Dal Pont, The Law of Agency (2nd ed, 2008, LexisNexis Butterworths), stated the elements of a principal/agency relationship (at 4.3): "There are at least two essential elements of an agency relationship: the consent (or assent) of both principal and agent; and the authority given to the agent by the principal to act on the principal's behalf. A third element found in some conceptions of an agency relationship is the principal's control over the agent's actions." 1. Consent to the relationship of principal and agent may be implied from words or conduct, as may any contract be between parties. In Peter G. Watts, F.M.B. Reynolds, Bowstead and Reynolds Law on Agency, (18th ed, 2006, Sweet & Maxwell Ltd, UK), it was said (at 2–030): "Agreement between principal and agent may be implied in a case where one party is conducting himself towards another in such a way that is reasonable for that other to infer from that conduct assent to an agency relationship." 1. The authorities establishing these principles are more fully discussed for example in Perpetual Trustees Australia Limited v Schmidt & Anor [2010] VSC 67, [119] to [125] and can also be found at [203] in Flexirent Capital Pty Ltd v EBS Consulting Pty Ltd & Ors (2007) 14 ANZ Ins Cas 61-732; (2007) Aust Contract R 90-266; [2007] VSC 158 at [203] ("Flexirent"). 2. But agency may arise by estoppel by the principal holding out another as the principal's agent. The relevant principles in relation to holding out that are potentially applicable are conveniently discussed by Whelan J in Flexirent as follows: "The principles which I draw from this analysis of the authorities having particular relevance here are the following: Apparent authority operates as an estoppel preventing a principal from asserting that the principal is not bound by a contract where the principal has held the agent out as having authority. The holding out may be of a general character, arising for example out of an office or position in which the principal places the agent, or it may be specific to a particular transaction. The holding out may take the form of the setting up of an organisation or structure which presents to outsiders an appearance of authority in the agent. The holding out must be conduct by the principal, not the agent. A third party cannot rely upon the agent's own representation as to authority. But this does not mean that the agent's conduct is to be ignored. The principal may hold out the agent as having authority by permitting the agent to act in a certain way or to make representations about himself or herself, or the principal may hold the agent out by equipping or arming the agent with a document or thing which enables the agent to assert authority with the hallmark of authenticity. The holding out may also result from permitting an agent to act in a certain manner, or by equipping or arming the agent, or by a failure to take proper safeguards against misrepresentation by the agent. The principal's conduct is to be assessed as a whole and in its totality. …" 1. There was a contest between the parties about what inference under Jones v Dunkel (1959) 101 CLR 298; [1959] ALR 367; [1959] HCA 8; could be drawn against Mr Chan because of his failure to call Jackson in his case. The inference that Jackson was in Mr Chan's camp is not particularly strong. Jackson was promoting the idea of a sale of shares to Mr Ng and was present at a number of the conversations. But because Jackson's role is also consistent with agency on behalf of SHS Law, it is not possible to infer that he was a witness, who should naturally have been called by Mr Chan. 2. But whether or not Jackson was an agent for SHS Law there are indications that Jackson was acting as Mr Chan's agent both to make representations on Mr Chan's behalf and to receive the purchase money. Mr Chan was cross-examined by Mr Coombes about Mr Chan's knowledge of what Jackson was saying in relation to the sale of the first tranche of shares. Mr Chan agreed: that he knew that Jackson was going to speak to investors who might be interested in purchasing Mr Chan's shares; and, that he knew that Jackson was going to provide those investors with information about SHS Law. Mr Chan also agreed that he thought he would leave it up to Jackson to make the decision about what information he would provide to those investors. Mr Chan said that he did not check on what Jackson said to potential investors but left it up to him. The Court infers that Mr Chan really thought that Jackson's knowledge of SHS Law was sufficient for him to make up his own mind what he would say in order to sell Mr Chan's shares. 3. In the Court's view, Mr Chan clearly gave Mr Jackson the task of generating investor interest in Mr Chan's shares and Mr Chan expected that Jackson would make up his own mind, based upon his knowledge of SHS Law, what he would say to the potential investors who would be buying Mr Chan's shares. The Court infers from Mr Coombes' cross-examination of Mr Chan that Mr Chan gave his consent to fulfilling this role. And in the result, that is the role that Jackson actually performed. 4. In the Court's view, Jackson was an agent of Mr Chan to make representations on behalf of Mr Chan to generate interest in selling these shares, and Jackson accepted that role. 5. In the end, this aspect of Jackson's agency is moot, because the Court does not regard any representations that Jackson made as widening the representations that were made by Mr Chan himself. But Jackson's representations reinforce the representations made by Mr Chan and for that reason the issue of whether Jackson is Mr Chan's agent to make representations is still important. 6. Mr McDonald argues to the contrary: that Jackson's role was merely one to introduce Mr Ng to an opportunity which was consistent with a role merely as an agent for SHS Law, where he already fulfilled a role of finding investment opportunities for potential migrants to Australia to invest here, to increase their prospects of being accepted for migration to Australia. Mr McDonald submitted that all that Jackson was doing was acting as an introduction agent and the negotiations would always take place between Mr Chan and Mr Ng. 7. But the answer to this analysis is Mr Coombes' cross-examination of Mr Chan which shows that Mr Chan was well aware that Jackson would be making statements about SHS Law to induce potential purchasers to buy Mr Chan's shares. 8. But the other question is whether Jackson is Mr Chan's agent to receive the purchase price for the first tranche. In the Court's view, Mr Chan was well aware that part of the purchase price for the first tranche of shares was being paid through Jackson. The WeChat exchange on 10 April 2017 referred to above, "I am still waiting for the other half payment" is a clear indication of this. If Mr Chan had really thought that Jackson was a genuine intermediary, even providing his own finance to facilitate the transaction, he would not have expressed himself in this way. And if Jackson was fulfilling an independent role, funding to assist Mr Ng to complete the transaction, then he probably would have paid the money to Mr Chan much closer to the Purchasing Shares Agreement on 8 August 2016. 9. Mr McDonald suggested that Jackson was on a frolic of his own, taking a cut of the transaction in which Mr Chan was always willing to sell Mr Ng 105,000 shares for $105,000. But that analysis is not persuasive: it is not consistent with Mr Chan saying "I am still waiting for the other half payment". Jackson had not paid Mr Chan but Mr Chan well understood that Jackson was the channel through which his payment of the balance of his consideration was being received. The Court does not accept Mr Chan was unaware that Jackson had taken a deposit on a sale of Mr Chan's shares for a price of $250,000. 10. This analysis reveals a curiosity about this case. So far as the documentation onshore in Australia is concerned, the first tranche of shares was apparently sold for par value of $105,000 for 105,000 shares. But offshore in Hong Kong the other half of the consideration was being paid in the form of a loan repayment. No questions were asked in the proceedings as to why the transaction was structured this way and so the Court will not draw any inferences about that issue. The Representations Mr Chan Made in July 2016, Their Truth and Reliance 1. Mr Ng contends that Mr Chan made the following representations to induce him to acquire the first tranche of shares: 1. the deal on offer was 5.25% of the shares in SHS for $250,000; 2. shares in SHS were available for purchase because someone was retiring from SHS; 3. SHS Law was "expanding" to Melbourne, Brisbane and China; 4. SHS Law was "going to be listed on the Australian Securities Exchange and become public"; 5. SHS Law's profits were $2 million per year after deduction of all expenses; 6. SHS Law employed 100 people; 7. SHS Law had been established for over 100 years, had an office in Melbourne, was opening an office in Brisbane and was "finalising … arrangements to expand into China"; and 8. SHS Law was "on track" to make a profit of $3 million in the 2017 financial year. 1. Mr Ng also contends that Jackson made additional representations upon which he also relied. But these representations to a large extent replicate the representations made by Mr Chan and it is not necessary to consider them separately. 2. The parties are in contest both as to whether the representations attributed to Mr Chan were made and if made, whether they were false, misleading or deceptive. The Court first analyses whether each of the July 2016 pleaded representations is supported by the evidence and whether the evidence supports an inference either way as to the truth or falsity of the representation. Issues of reliance are dealt with subsequently. 3. (1) 5.25% of the Chares in SHS for $250,000. Mr Ng contends that Mr Chan represented that the deal on offer was 5.25% of the shares in SHS for $250,000. This representation was substantially true and need not be considered further. 4. (2) Shares Freed up for Sale because of a Retirement. Mr Ng contends that Mr Chan represented that shares in SHS were available for purchase because someone was retiring from SHS. The Court's findings show that this representation was made. Mr Chan agreed in cross-examination that Mr Hegney's alleged retirement did not explain Mr Chan's sale of the first tranche of shares to the plaintiff. Nor indeed did anyone's retirement from SHS Law account for the availability of the shares in the company for sale to Mr Ng. Mr Chan was selling his shares in SHS Law to Mr Ng. They were not Mr Hegney's shares and he was not retiring. Nor were they the shares of anyone else who was retiring. The idea of a senior partner retiring gives the impression of continuing financial stability at the firm, that the shares were in demand, and that they were only becoming available because of the natural cycle of retirement. This representation was false and misleading. 5. (3) Expanding to Melbourne, Brisbane and China. Mr Ng contends that Mr Chan represented that SHS Law was "expanding" to Melbourne, Brisbane and China. The Court's findings show that this representation was also made. This representation implies, by the use of the word "expanding" in the present tense, that steps were being actively taken to establish SHS Law in Melbourne, Brisbane and China. But there is no evidence that, as at July 2016, SHS Law had taken any steps to expand to any of these locations. That this representation was false and misleading can be seen by analysis of the evidence relating to each of the three locations. 6. SHS Law was not "expanding" to China in July 2016 in any sense of that word. The word implies that SHS Law had by then taken concrete steps to do business in China. Indeed this representation can be considered with a later representation that the firm was "finalising… arrangements" to expand into China, thereby indicating a well advanced expansion plan. But there is no such evidence. Mr Chan gave vague evidence of some "strategic partnerships" with Chinese law firms. But he could not name any of them. The Court does not accept any such strategic partnerships existed between SHS Law and Chinese law firms either in July 2016 or later. Had any concrete steps been taken to form partnerships, it is to be expected that Mr Chan would have remembered at least one or two names of the Chinese law firms in question. 7. And Mr Chan should be the one who would know these names if they existed. He was the CEO of SHS Law, was fluent in Mandarin and Cantonese, and was allegedly responsible for negotiating the strategic partnerships with Chinese law firms. And if any such strategic partnerships had been formed, Mr Chan did not share knowledge with Mr Hegney, who was ignorant of any strategic partnerships in China. 8. The company, SHS Law, never opened an office in Brisbane. The evidence does not support the conclusion that it made any attempts to open a Brisbane office. SHS Law was not expanding there. But there was another company by the name of SHS Law Brisbane Pty Ltd that Mr Chan, not SHS Law, set up in December 2016 and subsequently controlled. But it did not exist in July 2016. SHS Law Brisbane opened an office in Brisbane and purported to carry out some kind of legal work in Brisbane after December 2016. But Mr Hegney had no knowledge of this company or its plans. And there is no evidence that its shares were held on behalf of SHS Law. Moreover, SHS Law Brisbane was not an incorporated legal practice compliant with having a right to carry on legal practice in Queensland. 9. SHS Law took some very limited steps towards establishing itself in Melbourne. In February 2017, SHS Law signed a lease for Melbourne office space. But this was well after the July 2016 representations. There is no evidence of SHS Law taking any earlier steps with regards to expansion to Melbourne. This representation was false and misleading. 10. (4) To be Listed on the ASX. Mr Ng contends that Mr Chan represented that SHS Law was "going to be listed on the Australian Securities Exchange and become public". The Court's findings show that this representation was also made. This representation implies, in fairly clear language, a confident prediction about the future, namely that SHS Law was "going to be listed on the Australian Securities Exchange and become public". It readily brings with it the implication that there were plans in place for this to be done. But this was misleading. Any kind of public listing of SHS Law, whether in Australia or China, was, according to Mr Hegney, only a "goal" rather than a "plan". It can be accepted that there had been talk between Mr Chan and Mr Hegney about a possible listing in the future, but this blue sky idea never progressed beyond the conceptual to something that looked more like a concrete plan. This representation was false and misleading. 11. (5) Current Financial Year Profits of $2 million. Mr Ng contends that Mr Chan represented that SHS Law's profits were $2 million per year after deduction of all expenses. The Court's findings show that this representation was made. And the representation was untrue and misleading. The financial statements for SHS Law for FY2016 (incorporating the financial statements for FY2015) in Exhibit B were compiled by SHS Law's external accountant (Prospectus Business Advisory Pty Ltd) by April 2017 and were signed by Mr Hegney on 27 April 2017. The Court accepts that these financial statements present the best available information about the financial performance of SHS Law in FY2015 and FY2016. 12. These accounts show that for FY2016, the financial year just concluded at the time the July 2016 representations were made, SHS Law had total revenue of $3,531,596 and after the deduction of expenses made a profit before income tax of $353,390 and an after-tax profit attributable to members of $259,025. SHS Law's profits were not $2 million per year after the deduction of all expenses. In fact they were barely 13% of $2 million. This representation was false and misleading. 13. Mr Chan said that he had little knowledge of the financial performance of SHS Law. The Court does not accept that evidence. It is not consistent with Mr Chan discharging the functions of the CEO of SHS Law. Moreover, it was in his own financial interest as SHS Law's major shareholder (900,000 of 1,950,000 shares or 46.2%) to have a good working knowledge of SHS Law's financial affairs. The Court accepts Mr Hegney's evidence that Mr Chan controlled SHS Law's office bank account and was generally aware of SHS Law's financial position. This representation was false and misleading. 14. (6) SHS Law Employed 100 people. Mr Ng contends that Mr Chan represented that SHS Law employed 100 people. The Court's findings show that this representation was made. The claim that SHS Law employed 100 people was a misleading exaggeration. The website for the firm suggests that the most that SHS Law employed or engaged in a contract capacity was 88 people who are listed under "Our Team" and who appear to be working in Australia. But it may be that the website did not mention every one of the employees. The Court has no hard payroll evidence, on which to infer that SHS Law certainly had less than 100 employees. The Court therefore cannot conclude that this representation was misleading. 15. (7) Established over 100 years with Interstate Offices. Mr Ng contends that Mr Chan represented that SHS Law had been established for over 100 years, had an office in Melbourne, was opening an office in Brisbane and was "finalising … arrangements to expand into China". Mr Chan represented verbally that SHS Law had been established for over 100 years. A similar representation appears on SHS Law's website. But SHS Law had not been established for a century. Mr Chan incorporated SHS Law only in January 2015. By July 2016, SHS Law had attempted to acquire another law firm of some longevity but it had been unsuccessful in this enterprise. 16. SHS Law's website declared on its homepage, that it was "formerly Foott Law & Co", which was "one of Australia's oldest legal firms (Est 1868)" and that it was "an amalgamation of several old and established legal firms which have come together under the same banner". But none of this was true. SHS Law had attempted to acquire Foott Law & Co Pty Ltd, the corporate vehicle through which an old legal firm, Foott Law & Co, conducted legal practice. But that purchase was never completed. A search of the share register of Foott Law & Co Pty Ltd shows that no change took place in its shareholding or corporate structure that would provide a basis to infer that SHS Law ever acquired it. This representation was false and misleading. 17. (8) A 2017 Profit of $3 million. Mr Ng contends that Mr Chan represented that SHS Law was "on track" to make a profit of $3 million in the 2017 financial year. The Court's findings show that this representation was made. The accounts in Exhibit B for FY2016 give no basis to infer that SHS Law was "on track" to make a profit of $3 million in FY2017. Profitability would have needed to expand tenfold to achieve that result. Much more would be required to provide any reasonable basis to accept such a profitability leap could occur in one year from FY2016 to FY2017. 18. In summary, a number of the pleaded representations are made out and a number of them have been found to be misleading and deceptive. The representations are all directed at showing SHS Law to be profitable, to have a stable history and to be expanding. The Court accepts Mr Ng's evidence that he relied upon these representations. The representations were all made with the intention of inducing him to enter into the transaction. He knew little about SHS Law when he first encountered Mr Chan and he was entitled to assume that Mr Chan was speaking from a position of knowledge about the firm which made his statements about SHS Law likely to be authoritative. The Representations Mr Chan Made in May 2017 and Their Truth 1. Mr Ng contends that Mr Chan made the following representations to induce him to acquire the second tranche of shares in the course of their meeting in Hong Kong, shortly prior to Mr Ng's purchase of the second tranche of shares: 2. (1) Mr Hegney to Retire. Mr Ng contends that Mr Chan represented that Mr Hegney wanted to retire and sell off his shares in SHS Law. On the Court's findings, this representation was made. Mr Chan knew that the shares he was proposing to sell to the plaintiff in May 2017 were his own shares. There is no evidence that in 2017 Mr Hegney wanted to retire and sell his shares in SHS Law, or even that he told Mr Chan that he did. In fact, quite different conversations were taking place between Mr Hegney and Mr Chan. Mr Hegney was impressing upon Mr Chan that he (Mr Hegney) would have to cause SHS Law to cease trading, if Mr Chan did not inject further funds into the company. Mr Hegney was willing to stay on and was not threatening to retire: all he wanted was for the company to be properly capitalised. This representation was false and misleading. 3. (2) Expanding and Doing Really Well. Mr Ng contends that Mr Chan represented that SHS Law was expanding and doing really well. The Court's findings indicate that this representation was made. SHS Law was not doing "really well" when Mr Chan, Mr Ng and Dr Ng met in Hong Kong on 19 May. By that time, Mr Hegney was concerned about the lack of funds for ordinary working capital in SHS Law' office account and as the senior qualified lawyer within the firm, he was threatening to withdraw his support and cause SHS Law to cease trading. Only 10 days earlier on 9 May 2017 Mr Chan had advanced $50,000 to SHS Law to maintain the firm's cash flow. And just before the meeting in Hong Kong, on 18 May 2017 Mr Chan had advanced a further $20,000 for the same purpose. Mr Chan agreed that by that stage the firm had "cash flow trouble". This representation was false and misleading. 4. (3) Cooperating with Chinese Law Firms. Mr Ng contends that Mr Chan represented that SHS Law was "cooperating with Chinese law firms". The Court's findings justify the conclusion that this representation was made. The Court's earlier findings concerning the July 2016 representations about the firm's contacts with China also continue to apply. There is no basis to infer SHS Law was cooperating with Chinese law firms. The Court does not accept that any discussions were taking place with any Chinese law firms or that any "strategic partnerships" with Chinese law firms existed or were in contemplation in May 2017. In addition to the doubtful evidence in July 2016, by May 2017 SHS Law had cash flow problems and was unlikely to be in an expansionary position to make such contacts in China. This representation was false and misleading. 5. (4) Signing Leases in Melbourne and Brisbane. Mr Ng contends that Mr Chan represented that SHS Law was signing leases in Melbourne and Brisbane. Mr Chan did make this representation. SHS Law had not itself signed any leases in Brisbane by May 2017, as these reasons have earlier explained. But the firm had signed a lease for office space in Melbourne in the Rialto building in Collins Street in February 2017. But by May 2017 SHS Law had done nothing to open an office there. To the extent that the representation concerning a lease in Melbourne implies that SHS Law was taking steps to set up there and its business would soon be opening there, there was no basis for that representation. Mr Chan could not give any reliable evidence as to what else had happened to progress the opening of a Melbourne office other than the signing of the lease. This representation was false and misleading. 6. (5) Listed on the ASX. Mr Ng contends that Mr Chan represented that SHS Law was planning to be listed on the ASX. This representation was made. No evidence of any plan for an ASX listing that existed in May 2017 has been advanced. The situation was much the same as was analysed in relation to the public listing of SHS Law in the context of the July 2016 representations. This representation was false and misleading. 7. (6) Incorporate with Chinese Law Firms. Mr Ng contends that Mr Chan represented that SHS was incorporating or going to incorporate with Chinese law firms. This representation was made. The situation was unchanged since the July 2016 representations. This representation was false and misleading. 8. (7) Listed on the Shenzhen Stock Exchange. Mr Ng contends that Mr Chan represented that SHS Law was going to be listed on the Shenzhen Stock Exchange. The Shenzhen Stock Exchange is one of the independently operated stock exchanges in the People's Republic of China. The other one is the Shanghai Stock Exchange. This representation, "going to be listed", implies that there was some plan in place for a listing on the Shenzhen Stock Exchange and a plan would have needed to be relatively sophisticated in order to achieve listing upon such a stock exchange. No evidence was been advanced of any such plan. The Court infers there was none. This representation was false and misleading. 9. In addition to their face-to-face meeting in Hong Kong, Mr Ng alleges Mr Chan made the following representations in the WeChat messages before, and allegedly inducing, the purchase of the second tranche of shares: 1. A Multi-Million Dollar Business. Mr Ng contends that Mr Chan represented by text message that SHS Law was a "multi-million dollar business". There is no doubt that a WeChat message to this effect was sent. The issue with this, and the other text messages, is whether the representation was untrue or misleading. In the Court's view, it was too vague to be misleading. 2. An IPO Goal. Mr Ng contends that Mr Chan represented by WeChat message that SHS Law had a "goal" of an "IPO/Listing". Again, this WeChat message was sent. The only issue is as to its truth and whether it was misleading. In the Court's view, it only identifies an IPO/Listing as a "goal". It does not imply that the goal could be achieved in the near term or in the medium term or that it was a goal that would ever be achieved. Is merely "a goal". The evidence does not support the conclusion that SHS Law did not have such a goal. 3. Mr Hegney was the Problem. Mr Ng contends that Mr Chan represented by WeChat message that Mr Hegney was leaving SHS Law but Mr Chan was staying put – "I am always on his side. But Sam is not. He is leaving. I am stay". Again, this text message was sent. The only issue is as to its truth and whether or not it was misleading. To the extent that it implies that Mr Hegney was going to leave SHS Law, it is misleading. Mr Hegney's evidence was clear that he was not intending to leave SHS Law. All that he wanted was Mr Chan to invest more capital into the firm so that it could keep trading. In one sense this representation was dismissive of Mr Hegney and might not be thought to induce Mr Ng to invest by acquiring more shares in the firm. But its real main effect was (by comparison) to bolster the reputation of Mr Chan as loyal to SHS Law and someone who could be relied upon to preserve Mr Ng's investment. In that sense it was effective to induce Mr Ng to commit to a greater shareholding in the firm. 1. A number of the representations made concerned future matters and as such the onus of proof shifts to Mr Chan to establish that there were reasonable grounds for the making of the representations: ASIC Act, s 12BB. Among the July 2016 representations, the Court identifies representations (3), (4), (7) and (8) as being about future matters. Among the May 2017 representations, the Court identifies representations (5), (7) and (8) as being about future matters. Nothing advanced by Mr Chan shows there were reasonable grounds for making those representations. Mr Ng has the benefit of the presumption that those representations were misleading and deceptive in contravention of ASIC Act, s 12DA. The Court infers on this additional ground that they were misleading and deceptive. Reliance and Fraud 1. Therefore, a number of the pleaded representations are made out and a number of them have been found to be false, misleading or deceptive. The Court accepts Mr Ng's evidence that he relied upon the July 2016 and May 2017 representations. These representations were all made before he entered into the acquisition of the second tranche of shares. He still believed he knew far less about SHS Law than Mr Chan concerning the operations of the firm and he was entitled to assume that Mr Chan was speaking from a position of knowledge about the firm which, from Mr Ng's perspective, made Mr Chan's words about the firm as worthy of reliance. 2. Mr Ng also pleads fraud. For that cause of action to be made out, it is necessary for a plaintiff also to establish a number of matters in addition to the fact of the representations, their falsity and reliance upon the representations by the plaintiff. A plaintiff in an action in the tort of deceit must establish the following further matters: that the defendant was aware of the falsity of the representations or was reckless as to their truth; and, that the defendant intended the plaintiff to rely upon the representations. 3. In final submissions Mr McDonald on a number of occasions sought to contend that the fraud alleged by Mr Ng was insufficiently pleaded. But in the Court's view it was sufficiently well pleaded to be maintained. 4. Both those matters are established here to the requisite standard of proof. As to knowledge of the falsity of the representations or recklessness as to their truth, in his position as CEO of SHS Law, Mr Chan was in a position to know everything about the firm's financial position, expansion plans, listing goals, staff numbers and practice history. Apart from the Court's preparedness to draw this inference generally, Mr Hegney's evidence generally supports the conclusion that Mr Chan was well aware of the firm's financial position and was personally involved closely in its day-to-day administration. Mr Hegney's evidence on such matters is preferred to that of Mr Chan. 5. And Mr Chan intended Mr Ng to rely upon the representations. The fact that so many of them were made and were false indicates a real determination to induce Mr Ng and his father to invest money in SHS Law. Mr Chan's anxiety to organise a meeting at short notice in Hong Kong and his preparedness to push the sale of shares to Mr Ng in May 2017, so close to the collapse of SHS Law, indicates a real determination to have Mr Ng take the shares of his hands. Mr Chan wanted Mr Ng to rely upon what he said. Although that inference will commonly be drawn in relation to material misrepresentations calculated to induce a representee to enter into a transaction and where the representee does so: Gould v Vaggelas (1985) 157 CLR 215, at 236 per Wilson J. 6. The inference that the defendant engaged in intentional conduct to mislead Mr Ng is assisted by the material over which Mr Chan exercised some control on SHS Law's website and his LinkedIn profile. Mr Chan was content to permit SHS Law's website to present falsely that it was one of Australia's oldest law firms, that it had offices in cities in China, and that he was the firms "senior partner". And his LinkedIn profile makes false claims regarding his employment history and omits time he spent in prison between June 2010 and June 2013. Someone such as Mr Chan, who was willing to permit SHS Law to make false claims to the general public is more likely to make false claims to the plaintiff, Mr Ng. 7. Mr McDonald submitted on behalf of Mr Chan that Mr Ng was careless in entering contracts for the first and second tranche. Indeed so careless it is said, as to exclude misleading deceptive conduct as a cause of his loss: Haynes v Top Slice Deli Pty Ltd (1995) ATPR (Digest) 46-147; [1995] FCA 374. It can readily be accepted that there are steps which Mr Ng and Dr Ng could have taken to make more enquiries about the operations of SHS Law before purchasing the shares in question. And it is true that Mr Ng was partly motivated by a desire to take a role within SHS Law, because that is what his father expected of him. But the latter motivation, together with the misleading and deceptive conduct, is the reason why Mr Ng and his father to a degree dropped their defences, trusted Mr Chan and did not make more enquiries than they did. It is impossible, in the Court's view, to look at the absence of full enquiries by Mr Ng on its own. Mr Ng thought he was dealing with the CEO of the firm, Mr Chan, and could trust him when he made statements about SHS Law. Damages and Other Issues 1. Mr Ng claims back the amounts that he paid both to Mr Chan and to Jackson in respect of the purchase of both the first and second tranche of shares in SHS Law. Combined Mr Ng, or his father at his request, paid out the following amounts for the purchase of the two tranches of shares in SHS: 1. $10,000 paid in cash by Mr Ng to Jackson on 22 July 2016 as a deposit on the first tranche; 2. $105,000 paid by Mr Ng to Mr Chan around 8 August 2016; 3. $120,000 paid by Dr Ng for Mr Ng to Jackson on 9 February 2017; and 4. $195,000 paid by Mr Ng to Mr Chan the plaintiff on 22 May 2017. 1. These payments total $430,000. There is no issue that sums of $105,000 and $195,000, which total $300,000, were paid. Mr Chan disputes the payment and certainly his receipt of the balance of $130,000 (being the amounts of $10,000 and $120,000 paid to Jackson). 2. But the Court has found that both payments comprising the $130,000 were paid to Jackson and that Jackson was an agent to receive them on Mr Chan's behalf. The Court accepts Mr Ng's evidence that the deposit of $10,000, was paid as it is supported by Mr Ng's evidence and the signed receipt from Jackson. The Court accepts that Dr Ng paid the sum of $120,000 (in an equivalent amount of HKD). 3. The Court is therefore satisfied that Mr Ng, or his father at his direction, paid the whole of the $430,000 as a result of Mr Chan's representations, inducing the acquisition of the first and second tranches of shares in SHS Law. 4. But it does not much matter whether the $430,000 was paid to Jackson or to Mr Chan in terms of Mr Ng's recovery in these proceedings. All this money was paid away in reliance on fraudulent and misleading representations to acquire shares in SHS Law, which is no longer in business. Mr Ng would not have paid or directed his father to pay any of these amounts but for Mr Chan's fraudulent and misleading representations. 5. The Court infers that SHS Law's shares were worthless at the time of trial and were worthless at the time of the second tranche (because of the proximity of the purchase of the second tranche to the collapse of SHS Law). 6. The shares comprising the first tranche are not established to have had any value at the time of transfer of the first tranche and were certainly worthless at the time of trial. But it is not clear what they were worth at the time of the purchase of the first tranche of shares. 7. Mr Chan argues that Mr Ng has not proved that the relevant shares have nil value or have a value significantly less than the purchase price to sustain a claim for damages. It is true that Mr Ng did not adduce evidence of the value of the shares at the time that he acquired the first or second tranches. Mr Chan submits that the plaintiff must, to obtain a verdict, provide cogent evidence of the true value of the shares: Cargill Australia Ltd v Viterra Malt Pty Ltd (No. 9) [2018] VSC 433 at [43] - [45]. This criticism is true of Mr Ng's claim for damages in relation to the first tranche of shares but not the second. SHS Law was still apparently actively trading in August 2016 and its shares probably had some value. It is impossible for the Court to work out on the evidence adduced what that value might have been and the Court cannot speculate. 8. Therefore, the claim for damages for fraud or misleading and deceptive conduct in relation to the first tranche fails on this ground. But it can readily be inferred that the shares had no value at the time of the second tranche. The firm had cash flow problems and was susceptible any impulsive decision by Mr Chan to close the business down, which he did in early June. But damages for fraudulent misrepresentation or for misleading and deceptive conduct under the ASIC Act are not the only remedy sought. 9. Mr Ng also claims rescission for fraudulent misrepresentation at general law, or as a remedy under the ASIC Act. Mr Ng's solicitors' letter of 22 August 2017 sets out many of the misrepresentations alleged in these proceedings, declares them misleading, deceptive or fraudulent and then says that Mr Ng "has now rescinded the contracts between the parties" and claims back the full purchase price. The letter misstates the purchase price for the shares as as $250,000 plus $195,000, totalling $445,000. Whereas on Mr Ng's case at trial, he did not pay $250,000 for the first tranche but only paid $235,000 (being $10,000 plus $105,000 plus $120,000) to make a total claim of $430,000. 10. The letter of 22 August 2017 was a valid notice of rescission. And there is ample power under the ASIC Act treat these agreements as in effect rescinded for misleading and deceptive conduct and for the Court to order the repayment of the monies paid to Mr Chan. The applicable statutory power is not in the exact language of rescission but is found under ASIC Act, s 12GM(7), which allows the Court to declare a contract made as a result of misleading and deceptive conduct to be void, and the Court will so declare. 11. Consequent upon the declaration, Mr Chan will be ordered to repay the sum of $430,000 to Mr Ng. The sum that would be awarded as damages for fraudulent misrepresentation and under ASIC Act, s 12GF, were the other s 12GM remedy not available, would be the amount of the second tranche, $195,000. 12. An order for interest should be made. Mr Ng shall have an award for interest up to judgment under Civil Procedure Act 2005, s 100 from the time that each of the sub-components of $430,000 was paid out. Interest should be calculated from the date of payment of each capital sum as follows: 1. From 22 July 2016 interest on the sum of $10,000; 2. From 8 August 2016 interest on the sum of $105,000; 3. From 9 February 2017 interest on the sum of $120,000; and 4. From 22 May 2017 interest on the sum of $195,000. 1. The parties should bring in agreed calculations of interest and the Court will make orders in chambers for interest up to today's judgment. 2. If any other matter arises in the implementation of the Court's orders, or otherwise arising out of the Court's reasons, then the parties can take advantage of the liberty to apply within the next 28 days. Conclusion and Orders 1. For these reasons the Court makes the following declarations, orders and directions: 1. Declare that the contracts for the plaintiff's purchase of shares in SHS Law Proprietary Limited from the defendant made in July 2016 and in May 2017 are void. 2. Order that the defendant pay the plaintiff $430,000. 3. Order that the defendant pay the plaintiff interest on the sum of $430,000 up to the date of judgment. 4. Direct the parties to bring in and provide to the associate to Slattery J agreed interest calculations in accordance with order (3) for the making of orders for interest in chambers. 5. Grant liberty to apply for 28 days after the making of these orders. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 27 July 2020