Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Zong v Wang [2022] NSWCA 80 Hearing dates: 14 March 2022 Date of orders: 1 June 2022 Decision date: 01 June 2022 Before: Leeming JA at [1]; White JA at [2]; Brereton JA at [3]. Decision: Dismiss the appeal with costs against both appellants. Catchwords: CONSUMER LAW – Misleading or deceptive conduct – Whether conduct is "in trade or commerce" – Requirement that conduct is commercial in character – No requirement of an extant commercial operation – Negotiations may be commercial even though the setting is social CONSUMER LAW – Misleading or deceptive conduct – Whether primary judge erroneously considered effect of unpleaded or unproven representations – Held that other representations may be contextually relevant to meaning and effect of pleaded representations CONSUMER LAW – Misleading or deceptive conduct – Remedies – Damages – Where shares acquired because of misleading representations – Whether loss should be measured by reference to residual value of shares at date of transaction or at date of hearing – Held appropriate to use date of hearing where deterioration of value inherent and not caused by supervening events, or where purchaser "locked in" to business Legislation Cited: Competition and Consumer Act 2010 (Cth), Schedule 2, Australian Consumer Law (Cth), ss 18, 236, 237, 243 Cases Cited: Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60 Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 Como Investments Pty Ltd (In Liq) v Yenald Nominees Pty Ltd [1997] FCA 12; 19 ATPR 41-550 Gould v Vaggelas (1985) 157 CLR 215; [1985] HCA 75 Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54 I and L Securities v HTW Valuers (2002) 210 CLR 109; [2002] HCA 41 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Market Ltd (2008) 73 NSWLR 653; [2008] NSWCA 2 Kizbeau Pty Ltd v WG&B Pty Ltd (1995) 184 CLR 281; [1995] HCA 4 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; [1982] HCA 44 Ricochet Pty Ltd v Equity Trustees Executors & Agency Co Ltd [1993] FCA 9; (1993) 41 FCR 229 Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254; (1996) 22 ACSR 656 Wyzenbeek v Australasian Marine Imports Pty Ltd (In Liq) [2019] FCAFC 167; (2019) 272 FCR 373 Taylor v Crossman (No 2) [2012] FCAFC 11; (2012) 199 FCR 363 Texts Cited: W Lonergan, The Valuation of Businesses, Shares and Other Equity, 4th ed (2003) Category: Principal judgment Parties: Jason Zong (first appellant) Australian Yacht Club Pty Ltd (second appellant) Zhengshun Wang (respondent) Representation: Counsel: MW Young SC (appellants) NE Furlan (respondent) Solicitors: Dixon Holmes (appellants) Prudentia Legal (respondent) File Number(s): 2021/165193 Publication restriction: None Decision under appeal Court or tribunal: District Court of New South Wales Jurisdiction: Civil Citation: [2021] NSWDC 181 Date of Decision: 19 May 2021 Before: Russell SC DCJ File Number(s): 2020/159292 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] HEADNOTE [This headnote is not to be read as part of the judgment] The appellant, the respondent, and two other associates established a business ("AYC") for the purpose of hiring yachts to tourists to generate profits. The business was unsuccessful, and the shareholders fell out. The respondent brought proceedings in the District Court and succeeded in his claim against the appellant for damages for misleading and deceptive conduct under s 18 of the Australian Consumer Law, recovering a judgment in the sum of $233,185.27 plus costs. The respondent also brought a claim against AYC which was unsuccessful but in relation to which no costs order was made. On appeal by the appellant from the judgment against him, and by AYC from the trial judge's refusal to make a costs order in its favour: Held, per Brereton JA, Leeming JA and White JA agreeing, dismissing the appeal [1] (Leeming JA), [2] (White JA), [70] (Brereton JA): As to the relevant representations being made "in trade or commerce": 1. The primary judge did not err in finding that the relevant representations were made in trade or commerce. The discussions between the prospective investors had a commercial character, even if they were conducted in a social setting at a time when there was no extant commercial operation: [12]-[14] (Brereton JA). Taylor v Crossman (No 2) (2012) 199 FCR 363, applied. As to whether the judge erroneously considered extraneous representations: 2. The primary judge found only the four future representations to be misleading and deceptive, and did not consider unpleaded or unproven conduct in an impermissible way. The findings regarding the context of the representations were made only in considering, as was required, whether in the context in which they were made, the four future representations were misleading: [18]-[20] (Brereton JA). Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592, cited. As to causation: 3. His Honour did not err in concluding that the four future representations influenced the respondent to invest in AYC and that, to the extent that he incurred loss by making that investment, he did so because of the contravening conduct, within the meaning of s 236 of the ACL. It was permissible to consider the context of the representations to inform the judgment as to reliance: [25]-[26]; [48] (Brereton JA). As to damages: 4. His Honour did not err in assessing damages by reference to the residual value of the respondent's shareholding as at the date of the hearing, as compared with the date of the acquisition. The respondent's losses were not due to supervening events, but to the characteristics of the venture in which he was induced to invest: it incurred losses from the outset and its principal asset was depreciating. Any deterioration in the company's condition that might have been attributable to the pandemic need not be "separated out", both because the company's prior performance did not indicate it would have otherwise been successful, and because the respondent was "locked in" to the venture in the sense that it was a closely held company and his shares were not readily transferable: [57]-[61] (Brereton JA). Judgment 1. LEEMING JA: I agree with Brereton JA. 2. WHITE JA: I agree with Brereton JA. 3. BRERETON JA: Between December 2017 and April 2018, the respondent Mr Zhengshun Wang, the first appellant Mr Jason Zong, and two associates Mr Demin Lyu and Mr Qi Zhang, discussed entering into a business venture involving the acquisition of a yacht for hire to tourists to generate profits. Following those conversations, the second appellant Australian Yacht Club Pty Ltd ("AYC") was incorporated on 6 April 2018 to implement the venture. AYC purchased a large motor cruiser named "Dreamtime", for $805,000. To fund this, Mr Wang subscribed a total of $315,000 to AYC – $60,000 on 13 April 2018 and $255,000 on 15 May 2018 – to acquire a 35% shareholding; Mr Lyu also acquired a 35% shareholding, and Mr Zong acquired 30%. [1] 4. The business was unsuccessful, and the shareholders fell out. Mr Wang brought proceedings in the District Court, against Mr Zong for damages for misleading and deceptive conduct under s 18 of the Australian Consumer Law (Cth) ("ACL"); and alternatively against Mr Zong and AYC to recover the sum of $315,000 as a loan or as damages for breach of contract. Mr Wang succeeded on his claim under the ACL, and recovered a judgment against Mr Zong in the sum of $203,000 plus $30,185.27 interest, for a total judgment of $233,185.27, plus costs, including indemnity costs from 15 April 2021. Mr Wang's claims against AYC were dismissed, but no costs order was made in favour of AYC. Mr Zong appeals from the judgment against him, and AYC seeks leave to appeal from the trial judge's refusal to make a costs order in its favour. The ACL claim 1. Mr Wang alleged that between late 2017 and April 2018, Mr Zong made representations to him to the effect that: 1. it is, and will continue to be, very easy to rent yachts to Chinese tourists ("the Tourist Representation"); 2. he would find sponsors for the business of renting a vessel out ("the Sponsorship Representation"); 3. he knew how to, and would, promote the business ("the Promotion Representation"); 4. he would operate the business in compliance with relevant laws and regulations ("the Operation Representation"); 5. it was a good business opportunity, and would be a good business ("the Business Success Representation"); and 6. if Mr Wang and Mr Lyu each contributed the funds he needed, he guaranteed they would receive a return of at least 40% annually ("the Return Representation"). 1. At the trial, it was not in dispute that Mr Zong made the Tourist Representation, the Promotion Representation, the Operation Representation, and the Business Success Representation. There was no evidence that the Sponsorship Representation was made, and the trial judge did not find that it was made. The trial judge also did not accept that the Return Representation was made in the terms alleged; in this respect, his Honour concluded: [2] "While Mr Wang said that Mr Zong guaranteed a 40% return, Mr Zhang's oral evidence was that Mr Zong said that the business "could" earn a 40% return. This is a not a guarantee. Further, Mr Zhang said that both Mr Wang and Mr Lyu seemed more interested in the development potential of the business than in a particular return. Because Mr Zhang is the only independent witness, I prefer his evidence to that of both Mr Wang and Mr Zong, and find that Mr Zong did not make the pleaded Return Representation." 1. It was also not in dispute that, in respect of the four representations that were admittedly made, the following were representations with respect to future matters: [3] 1. the Tourist Representation, insofar as it was to the effect that it will "continue to be" very easy to rent yachts to Chinese tourists; 2. the Promotion Representation, insofar as it was to the effect that Mr Zong "would" promote the business; 3. the Operation Representation; and 4. the Business Success Representation, insofar as it was to the effect that it "would be a good business". 1. On behalf of Mr Zong, it was accepted that no evidence had been adduced to show that he had reasonable grounds for making any of those representations with respect to future matters. In those circumstances, those four representations, to the extent that they related to future matters, were, by operation of s 4(1) of the ACL, taken to be misleading. It followed that Mr Zong engaged in conduct that contravened s 18 by making representations to the effect that (a) it will continue to be very easy to rent yachts to Chinese tourists; (b) he would promote the business; (c) he would operate the business in compliance with relevant laws and regulations; and (d) it would be a good business ("the four future representations"). 2. By his appeal, Mr Zong challenges the conclusions of the trial judge that those representations were made "in trade or commerce" (Ground 1); complains that his Honour acted on representations other than those that were pleaded in finding that Mr Zong had engaged in misleading and deceptive conduct (Ground 2); challenges the finding that Mr Wang relied on the relevant representations and suffered loss and damage as a result (Grounds 4, 5, 6 and 7); and disputes his Honour's assessment of damages (Ground 8). [4] AYC appeals from the judge's refusal to make a costs order in its favour (Ground 9), but only if Mr Zong's appeal succeeds. [5] By Notice of Contention, Mr Wang seeks to uphold the judge's assessment of damages, on alternative bases. Trade or commerce (Ground 1) 1. Appeal ground 1 is that the trial judge erred in determining that the representations made by Mr Zong were made in trade or commerce. On this issue, the trial judge concluded: [6] "Senior counsel for the defendant pointed to the fact that most of the conversations, including those in which representations were made, occurred on social occasions. Be that as it may, Mr Zong accepted that he said to Mr Wang that Mr Wang might be interested in putting money into Mr Zong's business, and that they could "all do this business together". The business was that of yacht hire for profit. These were not conversations about buying a boat to use just for recreational purposes. The boat bought was a large commercial vessel, and all the discussions concerned hiring it out to make a profit. I find that any representations which were made, were made in trade or commerce, as required under s 18 of the ACL." 1. The appellant accepted that the mere fact that the representations were made in a social context was not decisive. However, it was submitted that as AYC was not an existing enterprise in which Mr Zong was seeking investors, but a new company that Wang, Lyu and Zong together caused to be incorporated as a joint enterprise, not as a result of Mr Zong acting as a promoter but as a result of their discussion on social occasions, there was no commercial activity at the time when the representations were made, and their discussions were anterior to, rather than "in", trade or commerce. 2. It is not necessary, for conduct to be in trade or commerce, that there be an extant commercial operation at the time of the impugned conduct. What is required is that the conduct have a commercial character, and the requisite commercial character may attend statements directed to the establishment, financing and operation of a commercial enterprise. In Taylor v Crossman (No 2), [7] the Full Federal Court concluded that representations made by an individual to his fiancé for the purpose of encouraging her to invest in a proposed marina business were made in trade or commerce. As Cowdroy and Flick JJ said: [8] "…the person who makes the representation need not be engaged in trade or commerce at the actual time when the representations are made. Rather the inquiry is whether the representations were made in such context and in such circumstances as to render them statements having a commercial character. That character will include statements directed to the undertaking of a commercial enterprise including the establishment, financing and operation of that enterprise." 1. Here, the discussions between the prospective investors were negotiations between potential participants in a commercial venture, as to the terms on which they might participate and invest in that commercial enterprise. Such negotiations are commercial in character, even if they are conducted in a social setting. In my opinion, these negotiations between potential participants in a joint commercial venture were "in trade or commerce". 2. His Honour did not err in finding that the four future representations were made in trade or commerce. This ground fails. Extraneous representations (Ground 2) 1. Appeal ground 2 contends, in substance, that the trial judge erred in determining whether Mr Zong's conduct was misleading and deceptive, by not confining consideration to the four future representations, but instead including other unpleaded representations. 2. The trial judge's essential findings were stated as follows: [9] "[81] I find the following facts in relation to the pleaded representations: (1) Mr Zong did say that it is, and will continue to be, very easy to rent yachts to Chinese tourists. (2) The representation that it will continue to be very easy to rent yachts to Chinese tourists, was a representation as to a future matter. (3) Mr Zong had no reasonable grounds for such representation and thus it is taken to be misleading - s 4 ACL. (4) There was no evidence that it was or would continue to be very easy to rent yachts to Chinese tourists. (5) Mr Zong did not say that he would find sponsors for the business of renting a vessel out. (6) Mr Zong did say that he knew how to, and would, promote the business. (7) The representation that he would promote the business was a representation as to a future matter. (8) Mr Zong had no reasonable grounds for such representation and thus it is taken to be misleading - s 4 ACL. (9) There was no evidence that Mr Zong did promote the business. (10) Mr Zong did say that he would operate the business in compliance with relevant laws and regulations. (11) The representation that he would operate the business in compliance with relevant laws and regulations was a representation as to a future matter. (12) Mr Zong had no reasonable grounds for such representation and thus it is taken to be misleading - s 4 ACL. (13) There was evidence that Mr Zong did not operate the business in compliance with the corporations law, in that he did not conduct annual meetings or observe the rights of Mr Wang as a shareholder in AYC. Mr Zong has operated AYC as his own fiefdom, and has deliberately shut Mr Wang out of the company and the business. (14) Mr Zong did say that it was a good business opportunity, and would be a good business (Business Success Representation). (15) The representation that it would be a good business was a representation as to a future matter. (16) Mr Zong had no reasonable grounds for such representation and thus it is taken to be misleading - s 4 ACL. (17) There was no evidence that it was a good business after Mr Wang invested. The financial statements of AYC show only modest income, losses each year and the sale of the major asset at a significant loss. (18) Mr Zong did not say that if the plaintiff and Mr Demin Lyu each contributed the funds he needed, he guaranteed they would receive a return of at least 40% annually (Return Representation). Were the Representations Misleading or Deceptive? [82] I make the following findings in relation to the context in which the representations were made: (1) Mr Wang was introduced to Mr Zong by their mutual friend Mr Zhang. (2) The men met at the Woolwich marina where Mr Zong showed Mr Wang his office and explained that he had a small yacht which he rented out to tourists on a commercial basis. (3) Mr Wang, Mr Zong, Mr Zhang and Mr Lyu commenced discussions about going into business together to buy a much larger boat to rent out to Chinese tourists for commercial gain. (4) Mr Zong made the admitted statements set out in pars 20-23 and 47-48 above. (5) Mr Zong made the statement set out in par 50 above. (6) Nothing was documented. (7) The four men went out on Mr Zong's yacht, went fishing, went to restaurants and had drinks together. [83] In that context, the statements which I have found Mr Zong did make (see par 81 above) were misleading within the meaning of s 18 of the ACL." 1. The gravamen of this ground is that in determining whether the appellant engaged in contravening conduct, the trial judge had regard not only to the four future representations, but to other (unpleaded) conduct (in particular, that referred in [82]). 2. I do not accept that the trial judge found the case of misleading and deceptive conduct to be established other than by reference to the four future representations. Relevantly for present purposes, his Honour found that (a) the future matter component of the Tourist Representation was misleading (at [81] (2)-(3)); (b) the future matter component of the Promotion Representation was misleading (at [81] (7)-(8)); (c) the Operation Representation (which was wholly futuristic) was misleading (at [81] (10)-(11)); and (d) the future matter component of the Business Success Representation was misleading (at [81] (15)-(16)). Those conclusions were inevitable, given the concession that no evidence had been adduced to the contrary. 3. The findings made by his Honour (at [82]) as to the "context" in which the representations were made provided the background against which his Honour concluded (in [83]) that, in that context, the "statements which I have found Mr Zong did make (see par 81 above) were misleading within the meaning of s 18 of the ACL". The reference back to [81] makes plain that the finding of misleading and deceptive conduct was confined to the matters already found (in [81]), namely the four future representations. The reference to context simply acknowledged the well-established proposition that in judging whether conduct is misleading, the conduct must be viewed in context and as a whole. [10] It was a finding that in the context in which they were made, the four future representations were misleading. It did not involve any finding that any other conduct was misleading. It was not, as the appellant submits, a determination that "other representations which the Respondent had not pleaded that he relied upon" were misleading. 4. His Honour found only the future components of the four proved representations to be misleading and deceptive. This ground fails. Reliance and causation (Grounds 4, 5, 6, 7) 1. Grounds 4, 5, 6 and 7 challenge in various ways his Honour's conclusion that Mr Wang relied on Mr Zong's representations in investing in AYC, and suffered loss as a result. It is important to bear in mind that the ultimate issue is causation and not reliance; reliance is not a substitute for the essential question of causation. [11] Thus the ultimate question is whether Mr Wang suffered loss because of Mr Zong's contravening conduct. This requires identification of the contravening conduct and of the claimed loss, and the establishment of a causal connection between them, which may be provided by reliance. 2. The trial judge concluded: [12] "[84] Section 236 of the ACL provides a remedy in damages if a person suffers loss or damage "because of" the conduct of another person. This means that the common law practical or common sense concepts of causation and remoteness apply: March v Stramare E & MH Pty Ltd [1991] HCA 12; (1991) 171 CLR 506; Henville v Walker [2001] HCA 52; (2001) 206 CLR 459. [85] Mr Wang consistently said that he relied upon the representations and that they caused him to pay $315,000 to AYC at the request of Mr Zong. There is no reason to doubt this. While Mr Wang had an interest in boats, he knew nothing about them or about the boating business. He developed trust in Mr Zong, both as a successful man in a boating industry and also as a businessman generally, as a result of what Mr Zong said to him and the context in which things were said. This trust was engendered not just by the four pleaded representations which I found were made, but also by the admitted "background" statements referred to in pars 20, 21, 22, 23, 47, 48 and 50 above. [86] I find that Mr Wang relied upon the truth and accuracy of what Mr Zong told him and that the misleading conduct of Mr Zong caused Mr Wang to suffer loss. To put the matter in terms of s 236 of the ACL, I find that Mr Wang suffered loss or damage because of the misleading conduct of Mr Zong." 1. Ground 4 contends that the trial judge erred "by failing to determine whether the misleading future representations contained within the Tourist Representation, the Promotion Representation, the Business Success Representation and the Operation Representation were relied upon or caused loss or damage to the Respondent, but instead made a determination of reliance and causation of loss in relation to a set of representations [including] both the present and future components of the Tourist Representation, the Promotion Representation, the Business Success Representation and the Operation Representation, as well as many other representations that the Respondent did not plead that he relied upon". The gravamen of this complaint, which is related to Ground 2 discussed above, is that the trial judge had regard not only to the four future representations, but to other (unpleaded) conduct. The appellant submits that the conclusion in [86], in the light of [85], is not to the effect that the four future representations or any of them caused Mr Wang to invest, but only that many representations made by Mr Zong did so. It is said that the trial judge's conclusion that Mr Wang decided to invest in AYC because he trusted Mr Zong, "as a result of what Mr Zong said to him and the context in which things were said", the trust being "engendered not just by the four pleaded representations ... but also by the admitted "background" statements referred to in pars 20, 21, 22, 23, 47, 48 and 50 above", fails to address whether the four future representations were relied upon and causative, and does no more than find that Mr Wang had been influenced to invest by the four future representations and numerous other "background" representations. This ground, which is essentially a challenge to his Honour's reasoning process, is concerned with the identification of the contravening conduct found to have caused loss to Mr Wang. 2. Ground 5 complains that the trial judge erred by failing to determine that the future representations contained within the Tourist Representation, the Promotion Representation, the Business Success Representation and the Operation Representation had "no significant causative effect in relation to the Respondent's investment in the Second Appellant, and that hence the Respondent had not (to any relevant extent) relied upon those future representations". Ground 6 contends that the trial judge erred by failing to find that it was not reliance on the Tourist Representation, the Promotion Representation, the Business Success Representation and the Operation Representation that caused Mr Wang to invest in AYC but rather the analysis by Mr Wang of potential turnover figures in relation to the proposed business. Ground 7 contends that the trial judge erred by failing to dismiss the misleading and deceptive conduct claim on the basis of lack of reliance by Mr Wang on such representations that were found to be made which had been proved to be misleading or deceptive. In distinction to Ground 4, these three grounds are essentially challenges to his Honour's findings of fact as to reliance and thus causation. 3. As to Ground 4, I do not accept that his Honour impermissibly referred to conduct of Mr Zong other than the four future representations in concluding that Mr Wong relied on them in deciding to invest in AYC. In referring (at [85]) to "the context in which things were said", and the "trust … engendered not just by the four pleaded representations … but also by the admitted "background" statements", his Honour was explaining that the context and the "background" representations supported a finding of reliance on the four future representations. Context informs a judgment as to reliance, including because it can show the extent to which a person is dependent on the information conveyed by the representation. Here, the context included that Mr Wang had been in Australia for only a few months, that he spoke limited English, that before coming to Australia in late 2017 he had operated a business in China in the energy sector, and that his interest in yachts appeared to have arisen from his having seen boats on the Parramatta River, so that there was no reason to think that he had any experience in or knowledge about the market for renting yachts in Sydney; whereas Mr Zong, on the other hand, presented as someone who did have such experience and knowledge. In those circumstances, Mr Zong had information and knowledge which Mr Wang did not have, so that Mr Wang was reliant on Mr Zong for it. The context provided by the "background" representations is relevant to ascertaining, for example, whether the impugned representations were confirmatory or reinforcing of, or consistent with, them, or otherwise likely to engender trust in the representor. Reliance on false representations may be contributed to by true representations as to the status and experience of the representor. The finding that trust was engendered by the "background" statements is not a finding that those "background" statements were misleading conduct that caused Mr Wang's loss, but a finding that they contributed to Mr Wang trusting Mr Zong, and thus in being prepared to place reliance on what he said - including, inter alia, the four future representations. 4. His Honour did not find that any statements other than the four future representations were misleading conduct that caused Mr Wang to suffer loss: the ultimate finding with respect to causation was that "the misleading conduct of Mr Zong" caused Mr Wang to suffer loss. [13] That "misleading conduct" was the making of the four future representations, and it did not include any conduct other than the four future representations. [14] Thus, the only finding of misleading conduct causative of loss was the making of the four future representations. Appeal ground 4 fails. 5. Whether that finding was factually correct is the subject of Grounds 5, 6 and 7, which challenge the findings of fact as to reliance and through it causation of loss. Here, the contravening conduct was constituted by the four future representations. Mr Wang's claimed loss was his expenditure of funds to acquire a shareholding in AYC. For there to be a causal connection between them, there is no requirement that the contravening conduct be the sole cause of the loss or damage; [15] it suffices that it make some non-trivial, [16] material, [17] or substantial, [18] contribution to the decision of a claimant to act in a particular way. Thus the requisite causal link will be established if the making of the four future representations materially contributed to Mr Wang's decision to invest. The "causative threshold" beyond which liability attaches to a misrepresentation which is one of a number of factors inducing a decision that produces loss, is a question of judgment. [19] 6. The appellant complains that in concluding that "Mr Wang consistently said that he relied upon the representations and that they caused him to pay $315,000 to AYC at the request of Mr Zong. There is no reason to doubt this", [20] the trial judge overlooked that the main emphasis of Mr Wang's case was not that he relied specifically on the four future representations, but rather that he was influenced by the (unestablished) Return Representation and the (unpleaded) provision by Mr Zong of various figures from which Mr Wang, Mr Lyu and Mr Zhang then made their own calculations of profitability. 7. His Honour's causation findings are underpinned by acceptance of the testimony of Mr Wang with respect to reliance. It is therefore necessary to examine just what Mr Wang said: if he said no more than that he relied on the "misrepresentations" generally, that might not support a finding of fact that he relied on the four future representations, especially where he consistently said that it was the Return Representation, which was of particular importance to him. 8. Mr Wang's evidence undoubtedly gave emphasis to his reliance on the Return Representation (which he called "the Investment Guarantee"). He deposed (emphasis added): [21] "40 The statements by Mr Zong that I have referred to above, especially the Investment Guarantee, convinced me to invest some money in his yacht business and that I would make a good return on my money. To the best of my recollection, I made this decision by about late March or early April 2018. … 60 I decided that I would contribute the $60,000 towards the deposit for the new yacht. I did this because I trusted Mr Zong and I believed the statements he made to me that I have referred to above, especially the Investment Guarantee." 1. In cross-examination, although he explained that he had performed his own calculations, he maintained that it was the information provided by Mr Zong that provided the basis for those calculations (emphasis added): [22] "Q. You're not seriously suggesting to this Court, are you, sir, that the three of you then took the approach, "Oh Mr Zong had mentioned the 40% return figure, I guess we'll just accept that without making any checks whatsoever as to whether that's realistic"? You're not seriously suggesting that, are you? A. INTERPRETER: After hearing from Mr Zong, who introduced to us – who also explained to us that there was the projection there were to be over 50% of ROI after that. Then he made it a guarantee that 40%, there would be no problem. Q. But you're not seriously suggesting are you, sir, that you just accepted some 40% figure that Mr Zong said without making any checks yourself as to whether that was achievable? A. INTERPRETER: In his presentation slash introduction he made calculations in relation to both the revenue and the investment cost. We were convinced or we believe in his presentation slash introduction. Q. What presentation slash introduction are you talking about, sir? A. INTERPRETER: He - so, he showed us calculations that, for example, each time when we go all of the sea and if we leave for three hours, for each time the earnings would be more than $1,000, and on a weekly basis, we could go all of the sea for three to five times. Q. Sir, did you go through the figures yourself? A. INTERPRETER: We - at that time, we also did our own calculations. Q. I see. What - when you say we did our own calculations, you mean you and Mr Liu and Mr Zhang? A. INTERPRETER: Yes, yes. Q. What calculations did you personally do, or you personally do with one of those other two people? A. INTERPRETER: So, based on the figures provided by Jason Zong, the revenue per each time going out at the sea, it would be - it's quite high. So, on the basis of that, then taking into account the investment and also the cost of running the business, in regard to the - each time we go out to the sea, we found his numbers were convincing. Q. So, when you say you found his numbers convincing, you say you found it convincing on the numbers that there would be a 40% return per annum. Is that right? A. INTERPRETER: Yes. Q. So, you're saying that you reached the conclusion yourself that on the assumption of a certain number of trips and the - a certain revenue for each trip and a certain cost, that 40% per annum would be obtained. Is that right? A. INTERPRETER: Yes. Q. So, in short, you didn't need to rely on anything that Mr Zong said about a 40% return, because you did the sums yourself. Is that right? A. INTERPRETER: We could not make such - we could not have made such - those calculations without being provided those numbers, those information by Mr Zong. Q. But it was the underlying information about the number of trips, the duration of the trip, the amount of money earnt per hour and the costs, it was that information that you were working on to determine a 40% return per annum. Is that right? A. INTERPRETER: Yes. Q. And - so, it was that information you were relying on to determine there might be a 40% return, rather than any promise that Mr Zong had made of any 40% return. Is that right? A. INTERPRETER: It was impossible for - sorry, it was impossible for us to have belief in those figures without Jason Zong's promise. Q. But it was your belief in those underlying figures that lead you to believe that there was a 40% return, not because Mr Zong had said there'd be a 40% return. Isn't that right? A. INTERPRETER: Incorrect." 1. Thus reliance on the projected return was clearly of importance to Mr Wang. However, that is not inconsistent with his also relying on other matters, including the four future representations. Mr Wang gave evidence in respect of each of the four future representations. In respect of the Tourist Representation, he deposed that Mr Zong said to him: [23] "Yachting is very popular with Chinese people in Sydney, especially Chinese tourists, and it will be easy to rent yachts for them." 1. He said that he was impressed by this statement (among others made to him by Mr Zong), and that he believed Mr Zong, [24] and that those statements (albeit, "especially the Investment Guarantee") convinced him to invest in AYC. [25] His cross-examination referable to reliance on the Tourist Representation was as follows (emphasis added): [26] "Q. Now do you say that Mr Zong said it is and will continue to be very easy to rent the [yachts] to Chinese tourists? A. INTERPRETER: Yes, he did. Q. Now, that wasn't a statement that you considered was particularly important in your decision to invest in the company, was it? A. INTERPRETER: Incorrect." 1. Objectively, for a person in the position of Mr Wang contemplating investing in a business that was to have as its core the renting of yachts to Chinese tourists, who had no background in such a business, information from someone who apparently had such a background that it would be easy to do so would have been relevant and important, and calculated to influence him to invest. 2. As to the Promotion Representation, the effect of Mr Wang's evidence was that Mr Zong's statement "I know how to do business. I know about business promotion and sponsorship", was one of those which he believed and which, among others, convinced him to invest. [27] The appellants submit that Mr Wang agreed in cross-examination that he would have just taken it for granted that Mr Zong would promote the business and that this meant the Promotion Representation "clearly was not any significant cause of Wang's investment". 3. The relevant cross-examination was as follows (emphasis added): [28] "Q. Do you say that Mr Zong said to you that Mr Zong knew how to and would promote the business? A. INTERPRETER: Yes. Q. You would have just taken for granted that Mr Zong would promote a business that he was involved in. Isn't that right? Even if he hadn't said it. A. INTERPRETER: Yes. Q. It didn't matter whether he said that or not to you, did it? A. INTERPRETER: Yes. Sorry, can you repeat the question? Q. It didn't matter to you whether he said that or not, did it? It's something you would have assumed, in any event. A. INTERPRETER: No. It was all based on, sorry, it was based on my belief in him. Q. The fact is, you just had some general belief in him and in the other people you were going into business together. That was the real reason for you to invest, wasn't it? A. INTERPRETER: I made the decision to invest after I placed, after I place great faith, great belief in him." 1. In that passage, read as a whole, Mr Wang did not accept that the Promotion Representation did not matter to him. It is not self-evident why, absent such a representation, it would be assumed that Mr Zong, as distinct from the other investors, would be responsible for promotion. Again, objectively, to a person in his position, it was information that would have been relevant and important, and calculated to influence him to invest. 2. In respect of the Business Success Representation, Mr Wang deposed that Mr Zong said to him: [29] "It is a great opportunity." "We do not need to worry about a lack of customers. I used to work in the tourism industry and I still have a lot of contacts. They will refer customers to me." "The investment prospects of the yacht business in Australia are very good." "The yacht business is booming, and it is a good business to invest in." 1. In substance, this was corroborated by Mr Zhang's evidence that Mr Zong said to Mr Wang, Mr Zhang and Mr Lyu: [30] "I will run the business and this business will be successful." 1. Mr Wang's evidence was to the effect that these were among the statements of Mr Zong which he believed and which convinced him to invest in AYC. [31] The relevant cross-examination was as follows: [32] "Q. Now, further, you say that Mr Zong said to you, in relation to the proposed yachting business, that it was a good business opportunity and would be a good business. A. INTERPRETER: Yes. Q. You and Mr Liu and Mr Zhang all did the numbers yourself to determine whether or not it would be a good business. Isn't that right? A. INTERPRETER: Yes. Q. And, ultimately, it was your checking over of the numbers in relation to the business that persuaded to invest. Isn't that right? A. INTERPRETER: Yes." 1. Although Mr Wang agreed that it was ultimately his checking over of the numbers in relation to the business that persuaded him to invest, in the wider context of his cross-examination, other excerpts of which have been set out above, this did not involve his eschewing reliance upon the Business Success Representation. In contrast to the approach taken by the cross-examiner in respect of the other three admitted representations, it was not distinctly put to Mr Wang that the Business Success Representation was not one that mattered to him or made any difference to his decision to invest. Again, objectively, to a person in his position, it was information that would have been relevant and important, and was calculated to influence him to invest. 2. As Mr Wang explained in his evidence in chief, the Operation Representation was made in the context of discussion about reporting to the shareholders: [33] "A. INTERPRETER: His exact words were, "A new company could be set up or established, which can be in legal operation." Each month he would provide to the shareholders financial statement. Each quarter shareholders' meeting will be held." 1. The relevant cross-examination was as follows (emphasis added): [34] "Q. Now you say that Mr Zong said to you, don't you, that Mr Zong would operate the business in compliance with the relevant laws and regulations? Correct? A. INTERPRETER: Yes. Q. But you just would have assumed he would do that anyway, even if he hadn't said that. Isn't that right? A. INTERPRETER: Incorrect. Q. You thought, until he said that he would operate the business in compliance with the relevant laws and regulations, you thought that he wouldn't comply with the relevant laws and regulations. Is that right? A. INTERPRETER: Correct. Q. So, there was a big surprise for you then when he suddenly said that he would operate the business in compliance with laws and regulations because you previously thought he wouldn't. Is that right? A. INTERPRETER: No. Q. Why were you dealing with someone who you thought would not operate a business in compliance with the relevant laws and regulations? A. INTERPRETER: Before he said any of those, my understanding would be very shallow. It was after he said those things, the belief in him would start to develop. Then, on multiple occasions, he made a promise to comply, to operate the business in compliance with the law. Which solidify my belief in him. Q. Any statement that Mr Zong made that he would operate the business in compliance with relevant laws and regulations had absolutely zero to do with your investment in that business. Isn't that right? A. INTERPRETER: Incorrect." 1. Thus, Mr Wang rejected the proposition that he would have assumed Mr Zong would operate the business "in compliance with the relevant laws and regulations". [35] Although, had it stood alone, one might have wondered about his answer (which was not further explored) that until Mr Zong made the Operation Representation, he thought Mr Zong would not comply with the relevant laws and regulations, [36] read as a whole, his evidence was to the effect that that assurance contributed to his confidence in Mr Zong, and thus to his decision to invest. Objectively, to a person in his position, such an assurance – where the question arose in the context of the holding of meetings and the provision of financial statements etc – would have been relevant and important, and was calculated to influence him to invest. 2. Thus there was evidence of Mr Wang, which his Honour saw "no reason to doubt", to the effect that he believed each of the four future representations, and that they, in combination with each other and other matters, convinced him to invest. Objectively, this was far from implausible. Mr Wang was dependent on Mr Zong, who alone had the relevant knowledge and experience, for the relevant information. He trusted Mr Zong and had confidence in him, and thus was disposed to believe and rely upon what he represented. The four future representations contributed to the creation of an impression that the business had very good prospects. Separately and together, they were calculated to influence Mr Wang to invest. That he believed the four future representations, and their materiality, can be seen by postulating what would have been his decision had he not believed that it would continue to be easy to rent yachts to Chinese tourists; that Mr Zong would promote the business; that he would operate the business in compliance with relevant laws and regulations; and that it would be a good business. 3. That they were not the only influences does not detract from their causative potency. Undoubtedly, on Mr Wang's evidence, the Return Representation was also a significant influence. Although the trial judge did not accept that the pleaded Return Representation was made, his Honour accepted Mr Zhang's evidence that Mr Zong had said that the business "could" earn a 40% return, and that Mr Wang was more interested in the development potential of the business than in a particular return. [37] However, while Mr Wang clearly placed considerable reliance upon the revenue figures and projections provided by Mr Zong and his own calculations derived from them, that does not mean that they were the only factors that influenced him, nor that other factors – and in particular the four future representations – did not contribute, in a material or non-trivial way, to the decision. 4. Accordingly, the evidence given by Mr Wang that he relied on the four future representations was objectively plausible and probable, and not undermined by his admitted concurrent reliance on admitted matters. There is no basis for differing from the trial judge's acceptance of Mr Wang's evidence in this respect – which his Honour, although not specifically relying on demeanour, had the advantage of hearing and seeing. 5. It follows that the trial judge did not err in concluding that the four future representations influenced Mr Wang to invest in AYC and that, to the extent that he incurred loss by making that investment, he did so because of the contravening conduct, within the meaning of s 236 of the ACL. Grounds 5, 6 and 7 fail. Damages (Ground 8; Contentions 1 and 2) 1. Mr Wang's case at trial was that his damages were $315,000, on the basis that it could be seen, in the light of subsequent events, that the shares he acquired in AYC were worthless when he acquired them. [38] His Honour did not accept this, and found that the shares had and still had a value, and that the measure of Mr Wang's damages was the difference between the price he paid for them of $315,000, and their value at the date of hearing of $112,000, namely $203,000. His Honour dealt with Mr Wang's claim for damages as follows: [39] "[87] Counsel for Mr Wang submitted that Mr Wang had lost his entire $315,000 once it was paid over, or at least within a short period of time. I reject that submission. Mr Wang was not getting what he expected as a result of the proven misleading representations of Mr Zong. However, he did receive 35% of the shares in AYC. In its early days AYC purchased and owned Dream Time which had a value of $805,000. There was a further $95,000 in working capital available when the business started. [88] Mr Wang still owns those shares and AYC is still operating, even though his rights as a shareholder have been ignored. … [90] In several cases in the High Court, including Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 and Gates v City Mutual Life Assurance Society Ltd 1986 [HCA] 3; (1986) 160 CLR 1 it has been said that in quantifying the amount of damages, a comparison must be made between the position which the person who suffered loss or damage is in and the position the person would have been in had there been no contravention. However this is not an exclusive test. General principles of the assessment of damages must give way, in particular cases, to solutions best adapted to give the injured plaintiff that amount in damages which will provide fair compensation: Johnson v Perez 1988 [HCA] 64; (1988) 166 CLR 351. [91] The position Mr Wang would have been in, had there been no contravention of the ACL, is that his shares would have still been worth the $315,000 he paid into the venture. The position of Mr Wang now is that he still owns 35% of the shares in AYC. The evidence about the value of those shares is scanty. I could send the question of the valuation of those shares to a referee under Part 20 Division 3 of the Uniform Civil Procedure Rules 2005 (NSW), but the parties have already incurred a considerable amount of costs in this litigation (and I fear have more to come elsewhere). I will therefore do as best I can with the evidence presented. [92] At the end of April 2021 the company had approximately $248,000 in two bank accounts (PX 3, pp 707 and 709). It still has a workboat, for which it paid about $80,000 in total. There is no evidence about the present value of the workboat. I will estimate $40,000 as its value. The company has paid $65,000 towards the purchase of a boat from China. The evidence about this is very opaque. I will estimate $32,000 for the value of that potential asset, being 50% of the amount paid to date, rounded down to the nearest $1,000. The total of these figures results in a finding that AYC still has $320,000 in assets. It has no debts, as Mr Zong said that AYC had paid back all of the money borrowed from his father-in-law. [93] On this approach Mr Zong was misled into paying $315,000 for shares in AYC which have a present asset backing of $112,000, being 35% of $320,000. Thus his loss is $315,000 - $112,000 = $203,000. [94] In addition he has lost the use of his money since it was paid away a bit over three years ago. …" 1. By Ground 8, the appellant complains that the trial judge erred in the assessment of the damages, in that the correct comparator was the value of the shares at the date of the transaction in 2018, when it is said that they were worth the $315,000 that was paid for them, rather than at the date of the hearing, or alternatively that the respondent having adduced no evidence of value as at that date, the judge should have awarded no damages. By a Notice of Contention, the respondent seeks to uphold the award of damages on the grounds that Mr Wang's loss or damage could legitimately be assessed in the sum of $203,000 as at the date of the transaction having regard to subsequent events showing that the price paid by Mr Wang for his shares did not reflect their real or true value; and alternatively that instead of awarding damages in the sum of $203,000 under s 236 of the ACL, the judge could have awarded the same sum as compensation under s 237 of the ACL. 2. His Honour's statement that "The position Mr Wang would have been in, had there been no contravention of the ACL, is that his shares would have still been worth the $315,000 he paid into the venture", is problematic. Mr Wang's case was a "no transaction" case – that is, he contended that but for the contravening conduct, he would not have entered into the transaction and invested in AYC at all; he would have retained the $315,000. However, he did not by way of remedy seek statutory rescission (as he could have under ss 237 or 243 of the ACL). Thus, he retains his shareholding. The trial judge rightly recognised this in observing that in return for his investment of $315,000, he received 35% of the shares in AYC, and he retained those shares at the date of hearing; thus, his loss was to be measured as the difference between the price he paid and the true value of that shareholding. 3. In assessing damages on the basis of the difference between the price paid and the value of the shareholding at the date of hearing (as distinct from the date of acquisition), his Honour effectively adopted what was referred to by the High Court in HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd as the plaintiff's alternative approach of "price minus benefits 'left in its hands'". [40] It is often said that in an action for damages for deceit – and in the closely analogous action for damages for contravention of the statutory prohibition on misleading and deceptive conduct – where the plaintiff has been induced to purchase property, the proper measure of damages is the difference between the real value of the thing acquired as at the date of acquisition and the price paid for it. [41] That will be so "if the asset acquired is a readily marketable asset and there is no special feature (such as a continuing misrepresentation or the purchaser being locked into a business that he has acquired)". [42] However, the fundamental rule is that the plaintiff should be compensated; the rule which turns on an assessment of value is only a means of giving effect to that overriding compensatory rule; the valuation of assets as at the date of the transaction is "simply a second order rule applicable only where the valuation method is employed"; and whenever the overriding compensatory rule so requires, the court is entitled to assess the loss flowing directly from the transaction, without any reference to the date of transaction or indeed any particular date. [43] 4. Thus, the deduction of true value at the date of the transaction from the price paid is no more than a guide to the assessment of damages under s 236, [44] and it will generally not be appropriate where the misrepresentation has continued to operate after the date of the acquisition of the asset so as to induce the plaintiff to retain the asset, or where the circumstances of the case are such that the plaintiff is, by reason of the contravening conduct, locked into the property, in which cases it will often be appropriate to deduct from the cost of acquisition not the value at the date of acquisition, but "whatever was 'left in [the plaintiff's] hands'". [45] The latter exception was explained by Ipp JA, with whom Giles JA and Hodgson JA agreed, in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Market Ltd: [46] "[177] In my opinion, particularly bearing in mind the scope and purpose of s 1005, the rule in Potts v Miller will not ordinarily apply in cases where a plaintiff becomes "locked in" to property acquired as a result of contravening conduct. In circumstances where it is not practically possible or it is unreasonable for plaintiffs to dispose of assets acquired on the strength of contravening conduct on the part of others, that conduct may be regarded as causing the entire loss even if, after the acquisition of the assets in question, other causes contribute to the loss. [178] The rationale for such an approach (which is applicable at common law, as well) was given in Smith New Court Securities Ltd v Citibank NA [1997] AC 254 at 266 by Lord Browne-Wilkinson: "In many cases, even in deceit, it will be appropriate to value the asset acquired as at the transaction date if that truly reflects the value of what the plaintiff has obtained. Thus, if the asset acquired is a readily marketable asset and there is no special feature (such as a continuing misrepresentation or the purchaser being locked into a business that he has acquired) the transaction date rule may well produce a fair result. The plaintiff has acquired the asset and what he does with it thereafter is entirely up to him, freed from any continuing adverse impact of the defendant's wrongful act. The transaction date rule has one manifest advantage, namely that it avoids any question of causation. One of the difficulties of either valuing the asset at a later date or treating the actual receipt on realisation as being the value obtained is that difficult questions of causation are bound to arise. In the period between the transaction date and the date of valuation or resale other factors will have influenced the value or resale price of the asset. It was the desire to avoid these difficulties of causation which led to the adoption of the transaction date rule. But in cases where property has been acquired in reliance on a fraudulent misrepresentation there are likely to be many cases where the general rule has to be departed from in order to give adequate compensation for the wrong done to the plaintiff, in particular where the fraud continues to influence the conduct of the plaintiff after the transaction is complete or where the result of the transaction induced by fraud is to lock the plaintiff into continuing to hold the asset acquired." [179] Gibbs CJ in Gould v Vaggelas (1985) 157 CLR 215 at 221–222 made a similar point. His Honour said: "This rule, is, with all respect, not quite as inflexible as Potts v Miller might suggest. There may be cases in which the purchaser continues to trade, either because he has no real alternative or because he has not become aware of the nature of the fraud, and in those circumstances incurs losses which are not represented by the difference between the price and value of the business. There is no reason in principle why the defrauded purchaser should not recover damages for all the loss that flowed directly from the fraudulent inducement (unless, possibly, the loss was not foreseeable). If the purchaser, besides paying more for the business than it was worth, has suffered additional losses which resulted directly from the fraud he ought to be compensated for them." [180] So also in HTW Valuers (Central Qld) Pty Ltd the court would have been prepared to assess loss by regard to the value of the shopping centre at the date of trial because it "increasingly came to be perceived to be of declining utility and value and so was not a readily marketable asset". There may be questions of degree, but ultimately it must be determined whether departure from the rule in Potts v Miller will provide a proper assessment of the loss suffered "by conduct" in contravention of s 995 or s 996." 1. The value at the date of hearing may also be appropriate where there are no losses resulting from extraneous factors to separate out, as was explained in HTW Valuers (citations omitted): [47] "There is certainly no reason why an approach of that kind is not open under s 82 of the Act. The deduction of true value at the acquisition date from the price paid is no more than a guide to the assessment of damages under s 82. Section 82 does not in terms refer to that method, and the width of s 82 permits other approaches to the assessment of damages so long as they work no injustice. The alternative approach advocated by the plaintiff has particular appropriateness in the present circumstances. That is because a primary reason for the common adoption, in assessing damages in deceit, of the test of comparing the price paid for an asset with its true value when acquired is the desirability of separating out losses resulting from extraneous factors in the later history of the asset. Here, the trial judge found that the decline in value of the Plaza had no cause other than the completion of the Beach Rd Shopping Centre. The present case is from that point of view an unusually pure one. Since there are no losses resulting from extraneous factors to separate out, there is correspondingly less need to look to a comparison of purchase price and real value on acquisition as the appropriate approach." 1. In Wyzenbeek v Australasian Marine Imports Pty Ltd (In Liq), in which the appellants had been induced by misleading conduct to purchase a particular motor yacht from the respondent which was not an ocean-going vessel as represented, the Full Federal Court held that the primary judge ought to have found that the expenditure of the purchase price and the additional costs of remedying defects in the yacht, less the yacht's current value, was loss resulting from or caused by the misleading conduct. [48] Having earlier referred to the discussion in HTW Valuers of the "left in hands" approach, the Court said: [49] "Likewise, in a no transaction case, if the court finds that the injured party would not have entered into the transaction, this enables the court to use its remedial powers available under ss 80, 82 and 87. Those powers are extensive enough to make orders appropriate to place that party in the position where, although he, she or it may still hold property the subject of the impugned transaction, the wrongdoer will be ordered to pay compensation or damages in a sum that, together with the value of what the innocent party still holds (or is "left in hand"), will "do what is practically just between the parties" so as to, in effect, restore him, her or it to the position that he, she or it would now obtain had the transaction not occurred: cf: Alati at CLR 223–4. 1. In the present case, neither party favoured the trial judge with expert evidence of the value of Mr Wang's shareholding, either as at the date of acquisition, or as at the date of hearing. His Honour was left to do the best he could with the available evidence of the financial condition of AYC. As at the transaction date, [50] AYC owned the yacht Dreamtime which it had purchased for $805,000, and had working capital of a further $95,000, producing total net assets of $900,000; a 35% shareholding equated to the $315,000 Mr Wang had invested – if no discount is allowed for minority interest and lack of transferability. At the date of hearing, his Honour found (and this finding is not challenged) that AYC's total net assets were $320,000, and Mr Wang's 35% shareholding was worth $112,000. [51] Again, this involved no discount for minority interest or lack of transferability, nor provision for the costs of liquidation; application of any such discount or provision would have reduced the value of Mr Wang's shareholding, and increased the quantum of the difference, and his damages. 2. The appellant submits that the date of acquisition ought to have been adopted as the comparator, in accordance with the prima facie rule, because the subsequent deterioration in the value of the company – and thus the shares in it – did not "arise from the nature or use of the thing itself", but rather from supervening events, including, in particular, the pandemic. In my view, however, for the reasons that follow, this was a case in which it was entirely permissible to adopt value at the date of hearing as the appropriate comparator. 3. First, at least to a very substantial extent, the deterioration in the value of the company was "inherent". Part of the deterioration was attributable to the depreciation of AYC's principal asset, the yacht Dreamtime. It is notorious that a new yacht, like a new motor vehicle, depreciates. Dreamtime was sold in early 2021 for $670,000, a significant loss on the $805,000 for which it had been purchased in April 2018. Moreover, the company's business was never profitable, even before the pandemic. In the 2018 financial year, AYC had revenue of $14,540 and made a loss of $17,070, and in 2019 revenue was $7,466 and the loss of $117,481. [52] Between May 2018 when the business commenced operations and 31 December 2019, while Australia's international borders remained open, total revenue was only $25,806, while annual running expenses included $30,000 for marina fees, $30,000 for lease of the office, $9,000 for insurance, and $60,000-$70,000 per year for the maintenance, service and repair of the yacht. There was also a one-off cost of $10,000 to obtain a commercial licence for the boat. [53] Thus Mr Wang's investment was in an enterprise which from the outset incurred losses, and the principal asset of which was depreciating. These were not supervening events, but characteristics of the venture in which he was induced to invest. 4. Secondly, AYC was a closely held proprietary company in which the shares were not readily transferable. It was not practically possible for Mr Wang to dispose of his shares. In December 2018 and January 2019, Mr Wang invited Mr Zong to buy him out; Mr Zong declined to do so. [54] Although he could have sought to have the company wound up, Mr Wang was, in the relevant sense, "locked in". 5. Thirdly, insofar as the deterioration in the company's condition might have been attributable in part to the pandemic, this is not a case in which that component must be "separated out" – because, as just explained, Mr Wang was "locked in", and also because the performance of the company prior to the pandemic provides faint basis for supposing that it would have been more successful but for the pandemic. 6. Accordingly, I do not accept that his Honour erred in principle in assessing damages by reference to the residual value of Mr Wang's shareholding as at the date of the hearing. But even if that approach had resulted in Mr Wang being to some extent inappropriately compensated for the impact of "extraneous" factors, that would be offset by the circumstance that no discount was applied to the value of his shareholding on account of its being a minority interest and for non-negotiability, nor any provision made for the costs of liquidation. There was no valuation evidence as to the appropriate discounts or provision, and the respondent makes no complaint about the failure to allow them. [55] However, any such discounts or provision would have reduced, to that extent, the value of his shareholding, and increased his damages. In that light, even if I were of the view that the approach adopted by his Honour resulted in Mr Wang being, to some extent, inappropriately compensated for the consequences of the "extraneous" pandemic, I would not be persuaded that the assessment of damages was so wrong as to cause injustice – for reasons analogous to the following observation of the High Court in HTW Valuers: [56] "Conclusion: a just assessment. Let it be assumed in favour of the defendant that the true value in April 1997 was above $130,000, and that, to that extent, the plaintiff's preferred approach does not go far enough to support the trial judge's verdict. Just as the estimation of market value must be an inexact process, so must the assessment of damages based on an estimate of true value. The verdict of the trial judge, on the present approach, can only be upheld if the true value in April 1997 was about $130,000. But even if it was above that figure, so that that component in the award was wrong, the total sum for which the trial judge ordered judgment has not been shown to be so wrong as to have caused an injustice to the defendant. That is particularly so when it is remembered that in certain other respects the trial judge appears to have made errors in calculating damages which are adverse to the plaintiff." 1. Ground 8 therefore fails. It is not necessary further to consider the Notice of Contention. AYC's costs (Ground 9) 1. Ground 9 complained that the trial judge erred in failing to award costs to AYC, despite its complete success in the proceedings below. It was submitted that if the trial judge had dismissed the claim against Mr Zong, then a costs order ought to have been made against Mr Wang in favour of AYC, which was completely successful in the proceedings, though the claims against it "took up very little time at the hearing". [57] This ground was pressed only if Mr Zong's appeal were substantially successful. As Mr Zong's appeal fails, Ground 9 does not arise and requires no further consideration. Conclusion and disposition 1. My conclusions may be summarised as follows: 2. The trial judge did not err in finding that the four future representations were made in trade or commerce. 3. His Honour found only the four future representations to be misleading and deceptive, and did not erroneously find the appellant's conduct to be misleading by reference to unpleaded or unproven conduct. 4. His Honour did not err in concluding that the four future representations influenced Mr Wang to invest in AYC and that, to the extent that he incurred loss by making that investment, he did so because of the contravening conduct, within the meaning of s 236 of the ACL. 5. In the circumstances of this case, his Honour did not err in assessing damages by reference to the residual value of Mr Wang's shareholding as at the date of the hearing. 6. The appeal therefore entirely fails. There was a single appeal, in which both appellants were joined as appellants, with common representation. AYC's complaint that the trial judge erred in failing to award costs to it, despite its complete success in the proceedings below, involved and was predicated upon the success of a challenge to the substantive judgment against Mr Zong. AYC thus had an interest in Mr Zong's success on grounds other than Ground 9. There is no reason why it should not be jointly and severally liable with Mr Zong for the respondent's costs of the appeal. 7. The order I therefore propose is that the appeal be dismissed, with costs against both appellants. ********** Endnotes 1. Although the Financial Statements of AYC treat the subscriptions as shareholder loans rather than equity, this does not reflect the arrangements between the parties. 2. Primary judgment at [78]. 3. Tcpt 7 May 2021, pp 132-133. 4. Appeal ground 3 was not pressed. 5. AYC conceded that it required leave to appeal, on the basis that its appeal was on a question of costs alone. I am unconvinced that this is so: AYC was joined as an appellant in a single appeal, and its success on Ground 9 was predicated on the other grounds succeeding. However, it is unnecessary to resolve this question. 6. Primary judgment at [74]. 7. [2012] FCAFC 11; (2012) 199 FCR 363. 8. [2012] FCAFC 11; (2012) 199 FCR 363 at [44], see also [49]; Lander J agreeing at [6]-[8]. 9. Primary judgment at [81]-[83]. 10. Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 199 (Gibbs CJ) [1982] HCA 44; Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60 at [39] (Gleeson CJ, Hayne and Heydon JJ), [109] (McHugh J). 11. Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 at [143]. 12. Primary judgment at [84]-[86]. 13. Primary judgment at [86]; see above at [22]. 14. Primary judgment at [83], referring back to [81]; see above at [16]. 15. Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 at [14] (Gleeson CJ); see also I & L Securities v HTW Valuers (2002) 210 CLR 109; [2002] HCA 41 at [33] (Gleeson CJ), [57] (Gaudron, Gummow and Hayne JJ), [210] and [216] (Callinan J); Gould v Vaggelas (1985) 157 CLR 215 at 250 (Brennan J); [1985] HCA 75. 16. Ricochet Pty Ltd v Equity Trustees Executors & Agency Co Ltd [1993] FCA 9;(1993) 41 FCR 229 at 235 (Lockhart, Gummow and French JJ). 17. Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 at [60]-[61] (Gaudron J). 18. Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 at [109] (McHugh J) quoting Como Investments Pty Ltd (In Liq) v Yenald Nominees Pty Ltd (1997) 19 ATPR 41-550 at 43,619. 19. Ricochet Pty Ltd v Equity Trustees Executors & Agency Co Ltd [1993] FCA 9; (1993) 41 FCR 229 at 235 (Lockhart, Gummow and French JJ). 20. Primary judgment at [85]; see above at [22]. 21. Affidavit, Zengshun Wang, 18 September 2020 at pp 45-47. 22. Tcpt 6 May 2021, pp 47(49)-50(42). 23. Affidavit, Zengshun Wang, 18 September 2020 at par 29. 24. Affidavit, Zengshun Wang, 18 September 2020 at par 30. 25. Affidavit, Zengshun Wang, 18 September 2020 at pars 40, 60 and 70. 26. Tcpt 6 May 2021, p 49(19-25). 27. Affidavit, Zengshun Wang, 18 September 2020 at par 29. 28. Tcpt 6 May 2021, p 49(27-47). 29. Affidavit, Zengshun Wang, 18 September 2020 at pars 19 and 32. 30. Affidavit, Qi Zhang, 18 September 2020 at par 22. 31. Affidavit, Zengshun Wang, 18 September 2020 at pars 30, 40, 60 and 70. 32. Tcpt 6 May 2021, p 50(31-42). 33. Tcpt 6 May 2021, p 36(16-19). 34. Tcpt 6 May 2021, pp 49(49)-50(29). 35. Tcpt 6 May 2021, p 50(04-06). 36. Tcpt 6 May 2021, p 50(08-11). 37. Primary judgment at [78]. 38. Tcpt 7 May 2021, pp 145(37)-146(03). 39. Primary judgment at [87]-[94]. 40. HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54 ("HTW Valuers") at [63] (Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ). 41. Kizbeau Pty Ltd v WG&B Pty Ltd (1995) 184 CLR 281 at 291 (Brennan, Deane, Dawson, Gaudron and McHugh JJ); [1995] HCA 4. 42. Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254 at 266; (1996) 22 ACSR 656 at 662; HTW Valuers at [66]. 43. Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254 at 284; (1996) 22 ACSR 656 at 678–9 (Lord Steyn); HTW Valuers at [63]. 44. HTW Valuers at [65]. 45. [1997] AC 254 at 267; (1996) 22 ACSR 656 at 663; HTW Valuers at [66]; see also Wyzenbeek v Australasian Marine Imports Pty Ltd (In Liq) [2019] FCAFC 167; (2019) 272 FCR 373 at [72]-[73] (Rares, Burley and Anastassiou JJ). 46. (2008) 73 NSWLR 653 at 685-686 [177]-[180]; [2008] NSWCA 206. 47. HTW Valuers (2004) 217 CLR 640; [2004] HCA 54 at [65] (Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ). 48. [2019] FCAFC 167 at [120]; (2019) 272 FCR 373 (Rares, Burley and Anastassiou JJ). 49. [2019] FCAFC 167 at [108]; (2019) 272 FCR 373 (Rares, Burley and Anastassiou JJ). 50. Mr Wang contributed $60,000 to the deposit for Dreamtime on 13 April 2018, followed by $255,000 for the balance of the price of his shares on 18 May 2018. 51. Primary judgment at [92]-[93]; see above at [49]. 52. Primary judgment at [64]. 53. Primary judgment at [61]. 54. Affidavit, Zengshun Wang, 18 September 2020 at pars 111-112; Exhibit ZW-1: translation of WeChat messages between Mr Wang and Mr Zong dated 8 January 2019. 55. It appears from W Lonergan, The Valuation of Businesses, Shares and Other Equity, 4th ed (2003), pp 136-139, that a combined discount for minority interest and non-negotiability might well exceed 40%. 56. (2004) 217 CLR 640; [2004] HCA 54 at [50] (Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ). 57. Primary judgment at [107]. 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: 01 June 2022