H & Q Cafe Pty Ltd v Melbourne Cafe Pty Ltd [2022] VCC 1017

1. Melbourne Café was incorporated on 4 May 2015. Melbourne Café acts as trustee for the Melbourne Café Unit Trust. Mr Zhang was appointed director on 12 June 2015. Melbourne Café began operating the Parkville Café business on or around August 2015. Mr Zhang paid $1,800,000 for the business and spent a further $200,000 replacing equipment, including coffee machines.
2. In the early 2000s, Mrs Qiu met Mr Raymond Hu (former co-director of H & Q). Mr Hu had previously owned a pizza shop and ran a Muffin Break outlet in Southland Shopping Centre for about eight years, while Mrs Qiu operated a post office business for five years in Pinewood Shopping Village.
3. On 28 February 2017, Mr Zhang signed a trustee's declaration on behalf of Melbourne Café regarding the financial accounts for the Melbourne Café Unit Trust for the 2016 Financial Year.[2] The financial accounts report inter alia a net loss of $69,033.
4. In late 2017, Mrs Qiu and Mr Hu decided to go into business together. Mrs Qiu stated in her evidence-in-chief that they were looking for a profitable business that was generating a profit of at least $400,000 a year to cover two families financially. Mr Hu also accepted in cross-examination that profitability was a high priority when assessing businesses.
5. Mrs Qiu and Mr Hu considered several businesses in early 2018 including a liquor shop, a café in Dandenong Hospital and a café in a Sunshine shopping centre. They elected not to purchase these businesses either because of unsatisfactory profitability, or lengthy trading hours on Sundays.
6. In mid-February 2018, Mrs Qiu and Mr Hu made inquiries about the Parkville Café business. Mr Hu stated in his evidence that it was Mrs Qiu's idea to purchase the Parkville Café as it was very profitable.
7. On or about 19 February 2018, Mr Hu received from a Melbourne Café agent Melbourne Café's Profit and Loss Statement for the 2016 Financial Year ("First Represented Financial Statements"), which he subsequently emailed to Mrs Qiu on 19 February 2018.[3] The statement reports inter alia a net profit of $231,928.06, addbacks of $270,535 and an actual profit of $502,463.
8. On or about 5 March 2018, Mr Hu received from a Melbourne Café agent Melbourne Café's Profit and Loss Statements for both the 2017 Financial Year and the July to December 2017 period ("Second Represented Financial Statements"), as well as a copy of Melbourne Café's lease with the Royal Children's Hospital. On 5 March 2018, Mr Hu emailed these documents to Mrs Qiu.[4] The 2017 Financial Year Profit and Loss Statement reports inter alia a net profit of $541,789.90. The July to December 2017 Profit and Loss Statement reports inter alia a net profit of $264,807.02.
9. On 7 March 2018, Mrs Qiu emailed the First and Second Represented Financial Statements to H & Q's tax accountant, Chen Cui of Mary Cui and Associates.[5] Ms Cui gave evidence that she told Mrs Qiu that the Parkville Café was a good business, but that she would need to see the business activity statements ("BAS") and Melbourne Café's tax accountants' financial statements to verify the income and figures. In cross-examination, Ms Cui said she did not discuss the additional wages information or gross profit provided in Melbourne Café's Profit and Loss Statement for the 2016 Financial Year with Mrs Qiu.
10. On 7 March 2018, H & Q was incorporated, and Mr Hu and Mrs Qiu were appointed directors of the company. Mrs Qiu accepted in cross-examination that Mr Hu was H & Q's director most involved in the negotiations with Melbourne Café and paying attention to the financial documents provided by Melbourne Café.
11. In early March 2018, Mrs Qiu, Mr Hu, Mr Zhang and another owner of Melbourne Café attended the Parkville Café to negotiate the sale price of the business. Mrs Qiu gave evidence that when she asked Mr Zhang why they were selling the business, he said that they had purchased another café at the Ballarat Hospital and needed finance. She attempted to get Mr Zhang to agree on a reduction of the advertised price of $2,500,000. Mrs Qiu asked if it was possible to do the deal for $2,000,000, but Mr Zhang was not agreeable. The price ultimately agreed upon was $2,400,000.
12. On 8 March 2018, H & Q and Melbourne Café entered into a binding heads of agreement. The heads of agreement states that H & Q is to purchase the Parkville Café business for $2,400,000 subject to H & Q's bank finance approval, due diligence, Royal Children's Hospital approval and lease transfer, and food premise licence transfer by the council.[6]
13. On 13 March 2018, H & Q paid a $10,000 part deposit to Melbourne Café. On 4 April 2018, H & Q paid the $230,000 balance of deposit to Melbourne Café.
14. On 27 April 2018, Mr Zhang emailed to Mr Hu Melbourne Café Unit Trust's unsigned financial accounts for both the 2016 and 2017 Financial Years ("Third Represented Financial Statements").[7] The 2016 Financial Year Profit and Loss Statement reports inter alia a net loss of $69,033. The 2017 Financial Year Profit and Loss Statement reports inter alia a net profit of $264,598.
15. On 30 April 2018, Melbourne Café, Mr Zhang, as vendor's guarantor, and H & Q entered into a Contract of Sale of Business Agreement ("the Agreement") for the sale of the Parkville Café business for $2,400,000 with the due date for settlement being 8 June 2018.[8] The terms of the Agreement include, inter alia:[9]

(a) Melbourne Café warrants the written information about the Parkville Café business provided by Melbourne Café or its agents is materially true and correct (Schedule 6, Vendor's Warranty 3); and

(b) Zhang:

(i) guarantees the due and punctual performance and payment by Melbourne Café of its obligations;

(ii) separately indemnifies and agrees to keep H & Q indemnified against all loss suffered or incurred by H & Q as a result of any failure by Melbourne Café to perform any obligation or failure to pay any money; and

(iii) separately promises to perform Melbourne Café's obligations without demand if Melbourne Café fails to promptly do so. (Clause 19.2)

1. On or around 1 May 2018, Mrs Qiu forwarded the Third Represented Financial Statements to Ms Cui. Ms Cui gave evidence that she told Mrs Qiu she could rely on these figures, but that she would still need to see the BAS lodged with the Taxation Office to verify the income.[10]
2. On 14 May 2018, Mr Zhang signed a trustee's declaration on behalf of Melbourne Café regarding the financial accounts for the Melbourne Café Unit Trust for the 2017 Financial Year. The financial accounts report inter alia a net loss of $265,402.
3. On 30 May 2018, the Melbourne Café Unit Trust's 2017 Financial Year Tax Return was lodged with the Australian Tax Office, recording a net business loss of $265,402.[11]
4. H & Q's loan application was delayed due to the bank's vetting process, and settlement which was set for 8 June 2018 under the Agreement was postponed.
5. On 30 October 2018, Mr Hu ceased to be director of H & Q. Mr Hu's evidence was that Mrs Qiu forced him to withdraw as a director, on the premise that he would run the operations side of the business and she would run the financial side. Mr Hu subsequently worked at the café, making coffees and serving customers.
6. Shortly before H & Q commenced operating the Parkville Café, Mrs Qiu and Mr Hu undertook a training session with Mr Zhang to understand the operations of the business including financial processes and machine operation. Mr Zhang gave evidence that he told Mr Hu and Mrs Qiu about a book recording cash payments, and that he paid some staff members' wages half in cash. Mr Hu gave evidence that during this training period he heard Mr Zhang tell Mrs Qiu that some staff members' wages were paid in cash. Conversely, Mrs Qiu gave evidence that she found out on the first day after H & Q took over that Melbourne Café "paid half of the wages in cash and then only half of that was taxed".
7. On 8 November 2018, H & Q and Melbourne Café settled the purchase of the Parkville Café business.
8. H & Q made a number of changes to the Parkville Café business following settlement, including changing the breakfast, lunch and catering menus, sourcing alternative suppliers for packaging, coffee and drinks, and extending opening hours. Mrs Qiu gave evidence that there was increased staff turnover, as some former Melbourne Café employees were not content with H & Q's change to paying all staff "on book" and not partly in cash.
9. Around February 2019, Mrs Qiu discovered on the computer server at the café profit and loss statements, BAS and other business records relating to Melbourne Café's operation of the Parkville Café. Mrs Qiu gave evidence that these documents were never provided to her prior to settlement. These documents include:

(a) a Profit and Loss Statement for the 2016 Financial Year reporting inter alia a net loss of $174,004.58;[12]

(b) a Profit and Loss Statement for the 2017 Financial Year reporting inter alia a net loss of $265,401.65;[13] and

(c) a Profit and Loss Statement for the 2018 Financial Year reporting inter alia a net profit of $95,023.21,[14]

1. Around mid-June 2019, Mr Hu ceased working for H & Q, but remained a shareholder in the business.
2. On 3 September 2019, H & Q's solicitors sent a letter of demand to Mr Zhang, as director of the first defendant, seeking the return of the purchase price, loss of profits, interest and costs.
3. On 2 October 2019, H & Q commenced proceedings in this Court.
4. Around December 2019, H & Q, through a business broker, received an offer to purchase the Parkville Café business for $250,000. H & Q did not accept this offer.[15]

1. Mrs Qiu and her accountant, Ms Cui, were the lay witnesses called on behalf of H & Q. Mr Zhang and Mr Hu, formerly a director of H & Q, were the lay witnesses called on behalf of the defendants.
2. It is necessary to make some preliminary remarks about the evidence of the two principal witnesses, Mrs Qiu and Mr Zhang. This is particularly so when the resolution of some of the issues in dispute will turn upon whose evidence I prefer in circumstances where there is conflicting oral evidence.
3. Mrs Qiu gave evidence through an interpreter as her English was said to be limited. However, I formed the view whilst observing her that she had a better understanding of oral and written English than she was prepared to acknowledge. Despite the fact that Mrs Qiu gave evidence through an interpreter, I formed the view that she was at times an unsatisfactory witness given the following:

(a) She was often evasive and frequently gave non-responsive answers to straightforward questions, even to her own counsel.

(b) Whilst her counsel submitted that Mrs Qiu's evasiveness was more a reflection of confusing questions being subsequently interpreted to her, it was clear that she had a better understanding of English than she was prepared to admit. This was demonstrated on a number of occasions when she would correct an answer given by the interpreter in English on the basis that it did not reflect what she had said.

(c) Her evidence that she knowingly provided inaccurate financial information, including an overstated profit and loss statement to the CBA when responding to requests for information by the bank in August 2019.[16] Mrs Qiu provided a profit and loss statement to the CBA for October 2018 to June 2019.Sales income was said to be $1,098,524.64 and net profits $175,308.38. In cross-examination, she denied the figures were taken from her records and said that she had made the figures up.

(d) Mrs Qiu submitted financial information to her expert witness, Mr Michael Smith, to prepare his first report which was based on information that did not disclose a number of cash sales and cash wage payments. This was only rectified when amended BAS which showed the correct level of cash sales were lodged. The first Smith report recorded the Parkville Café business' income of $945,000. This figure was increased by some $300,000 in his second report.[17] It was put to Mrs Qiu by counsel for the defendants that the correction to her financial records only occurred following the receipt of a letter from the defendants' solicitors dated 2 June 2020 which pointed to there being a discrepancy.[18] This suggestion was said to be overcome on the plaintiff's case by reason of the fact that Mrs Qiu instructed her accountant to amend and correct the financial statements in April 2020 well prior to the letter sent by the defendants' solicitors. However, it was clear that the information that Mrs Qiu initially provided to Mr Smith provided sales figures that were lower than those actually received by the business by some $300,000. Mrs Qiu's evidence that Mr Smith's first report, which was filed and served in this proceeding, was only a "draft" cannot be accepted. This evidence showed a willingness on the part of H & Q to mislead the Court, Mr Smith, and the defendants as to the true state of the financial affairs of H & Q post settlement.

(e) Mrs Qiu admitted in cross-examination to lodging BAS returns which she knew contained inaccurate information.[19]

1. Accordingly, I have treated Mrs Qiu's evidence with some caution, particularly where there are no contemporaneous documents or other objectively demonstrated facts which would corroborate her evidence. I did not regard her as a witness of truth.
2. Nor was I satisfied that Mr Zhang was a reliable witness. In terms of Mr Zhang's credit, it is of concern that his defence to the misleading or deceptive conduct claim was to say that amended tax returns, which were prepared during this litigation but have never been lodged, in fact showed the correct financial position of Melbourne Café.[20] The figures in the amended tax returns if accepted, would be in line with the initial financial representations made to the plaintiff. Assuming the amended tax returns show the true position, it then follows that the lodged tax returns for 2016 and 2017 and profit and loss statements, which were prepared by Mr Zhang's accountants on his instructions and signed off by him were filed in circumstances where he knew that the information contained in those documents to be untrue. So much was admitted by Mr Zhang during his evidence.
3. Mr Zhang's defence, in summary, is that he did not mislead H & Q but was willing to provide inaccurate information to the authorities. Further, his evidence that the accuracy of the figures in the amended tax returns were based on his memory and source documents that he examined was highly implausible, particularly given his evidence he deliberately destroyed documents relating to the payment of cash expenses to avoid getting caught. His reliance on an aide-memoire he produced in the witness box to support the figures claimed was self-serving. The figures in the aide-memoire were not the subject of any proper proof.
4. I did not find Mr Zhang to be a particularly impressive or truthful witness. I therefore treat his evidence with a degree of caution in the absence of contemporaneous documents or other demonstrative facts.
5. Having regard to these credit issues, I can have little confidence that any of the financial information presented by either of the parties is an accurate reflection of the true state of the financial affairs of Melbourne Café or H & Q.
6. Although the defendants criticised H & Q's accountant, Ms Cui, as not being an impartial witness, I do not share that opinion. I regard Ms Cui as being a reliable and credible witness. As for Mr Hu, both parties in their closing submissions described him as being an honest witness; an observation with which I would agree.

1. The plaintiff relies on an expert witness statement of Mr Michael Smith of CFAS Advisory dated 23 July 2020 ("Mr Smith's report").[21] Mr Smith's report supersedes an earlier report prepared by Mr Smith on 30 March 2020, as Mr Smith was provided with additional financial statements and tax returns on 26 June 2020.[22]
2. The defendants rely on an expert witness statement of Ms Victoria Wheeler of Munday Wilkinson dated 11 August 2020 ("Ms Wheeler's report").[23]
3. Mr Smith was asked to provide his opinion in respect to various questions. He was asked to value the business based on the Represented Financial Statements. Having regard to those figures, stock on hand and the lease at the Royal Children's Hospital, he estimated the value of the Parkville Café business at the time of sale to H & Q at between $1,750,000 and $2,000,000. This was based on an EBITDA of $500,000 and a capitalisation rate of 3.5 to 4.0 times EBITDA.[24]
4. Mr Smith also provided a valuation based on the Hidden Financials. This included reviewing the lodged tax returns for the 2016 and 2017 Financial Years. Having regard to these documents, his assessment of the value of the Parkville Café business at the time of sale to H & Q was nil. This was due to the business making a loss before and after depreciation, and the fact that any buyer would be taking over an ongoing lease obligation.
5. In cross-examination, however, Mr Smith conceded that there might have been some value to the business based on the Hidden Financials when he said:[25]

"You would consider a starting point at the updated EBITDA. Part of that would then come back to whether you would ultimately see it has value, given the lease obligations you're taking on, over a longer period of time and whether the outlook for the business is substantial enough to indicate that's maintainable. Certainly we received some additional information beyond that point. There may be considered to be some value there, albeit fairly small.

[If there was some small value], certainly you wouldn't be applying a four times multiple to something that's making $35,000 a year or making - the four multiple assumes that you're making $500,000 a year. That's a substantial enough business. When you start to go down to lower levels, the risk increases that even a small gain might go to a loss. So if anything, yes, there could potentially be some value but it would be fairly small."

1. The next assessment undertaken by Mr Smith was to value the business as at the date he prepared his report, based on the actual financials of H & Q from October 2018 to May 2020. He assessed the value of the H & Q business as of 31 May 2020 to be nil. This was due to the business trading at a loss. It had no foreseeability of making profits and any purchaser would have to take over the lease obligations of the lease at the Royal Children's Hospital until 30 November 2026.
2. Ms Wheeler's relevant findings were that, based on the Represented Financial Statements, the value of the Parkville Café business as of 30 April 2018 was between $2,284,000 and $2,569,500. This was based on an EBITDA of $571,100 and a capitalisation rate of 4.0 to 4.5 times EBITDA.
3. Ms Wheeler then also did an alternative valuation based on the draft amended tax returns for the 2016 and 2017 Financial Years. She estimated the value of the Parkville Café business as of 30 April 2019 was between $1,809,800 and $2,036,025. This was based on an EBITDA of $452,450 and a capitalisation rate of 4.0 to 4.5 times EBITDA. Ms Wheeler did not conduct, nor was she asked to, an assessment based on the Hidden Financials.
4. Ms Wheeler also conducted an assessment of the H & Q business at the time that she provided her report. She found, based on the H & Q's Café profit and loss statement for November 2018 to 30 June 2019, and BAS from July 2019 to March 2020, the H & Q business was valued between $92,000 and $103,500. This is based on an EBITDA of $23,000 and a capitalisation rate of 4.0 to 4.5 times EBITDA. She calculated that the operating losses for H & Q for the period between 8 November 2018 and 31 March 2020 was $401,494.
5. By contrast, Mr Smith found the total operating loss for H & Q between 8 November 2018 and 31 May 2020 totalled $623,428.
6. Mr Smith, in his evidence-in-chief, said that having received a Melbourne Café BAS from April 2017 to June 2017 the day before he gave evidence, the BAS lodgements for the 2017 Financial Year accorded with the Hidden Financials and the original tax return.[26] The plaintiff tendered a table prepared by Mr Smith, and provided by him to the Court during the course of his examination-in-chief, as Exhibit P3. Mr Smith gave evidence that he prepared this table as an aide-memoire to assist the Court by setting out the various financial figures contained in the documents referred to by the experts in their reports.[27]
7. Ms Wheeler conducted a review of the plaintiff's level of costs expenditure in its financials and how it related to industry practice. Her report made the following findings:

(a) H & Q's costs of sales are marginally higher than the industry benchmark, 36 per cent compared to 35 per cent. That was not unreasonable given the plaintiff took over the business in November 2018.

(b) H & Q's depreciation of 5 per cent is higher than the industry benchmark range of between 1.5 and 3 per cent.

(c) H & Q's rent and outgoing expenses of 17-18 per cent of sales are higher than the industry benchmark range of between 9-13 per cent. It was noted that the Royal Children's Hospital premises may cause a higher rental for a prestige location.

(d) H & Q's wages and oncosts (40-43 per cent of sales) are greater than the industry benchmark of 24-30 per cent.

(e) H & Q's other costs of about 15-16 per cent of sales are in line with the 2020 industry benchmark of 17 per cent, but below the industry benchmark for 2018 of 23 per cent. Ms Wheeler gave evidence-in-chief that she believed H & Q's wages were quite high compared to the ATO benchmarks as well.

1. In calculating the value of the Parkville Café business based on the Represented Financial Statements, both experts relied upon the Melbourne Café Unit Trust financial accounts (the Third Represented Financial Statements), but only Mr Smith was provided with the First and Second Represented Financial Statements (notably, the Melbourne Café Profit and Loss Statements for the 2016 and 2017 Financial Years). This contributes to a discrepancy of $71,100 between the two experts' EBITDA value (Mr Smith calculates a value of $500,000, while Ms Wheeler calculates a value of $571,100).
2. The experts relied on different financial records in calculating the value of the H & Q business at the time of their respective reports. Mr Smith employs H & Q's Profit and Loss Statements from 1 October 2018 to May 2020, while Ms Wheeler relies on H & Q's Profit and Loss Statement for November 2018 to June 2019 and H & Q's BAS from July 2019 to March 2020. Mr Smith concludes that the business is operating at a loss of $623,428, and the business has a value of nil due to the company incurring losses with a significant ongoing lease obligation. Ms Wheeler contrastingly concludes that the business is operating at a profit of $23,370 and has a value of $92,000 to $103,500.
3. Similarly, the experts relied on different H & Q financial documents in calculating the plaintiff's operating profit or loss since settlement. Mr Smith calculates the total operating loss from 8 November 2018 to 31 May 2020 to be $623,428, while Ms Wheeler concludes the company has incurred a loss of $401,494 from 8 November 2018 to 31 March 2020.
4. Both experts concluded that H & Q has incurred a trading loss since taking over the business, albeit with differing figures.[28] This loss is contributed to significantly by expenses (notably wages and associated costs), some of which were agreed to be underrepresented in the Represented Financial Statements.
5. Ms Wheeler's report identifies that H & Q's wages and associated expenses are significantly higher than industry standard for a café business (between 40% to 43% compared to industry standards of 24% to 30%).[29] The defendants also point to Mr Smith's report which could not explain a sum of expenses totalling $132,895 since H & Q commenced operations at the Parkville Café.[30]

1. H & Q brings the ACL claim for misleading or deceptive conduct under ss18 and 29,[31] and seeks damages under s236. H & Q claims it relied on the accuracy of the "false" Represented Financial Statements in entering into the Agreement, and, as a result, it has and continues to suffer loss and damage. A claim for relief is brought against Mr Zhang on the basis that he is also primarily liable for a contravention of s18 of the ACL or, alternatively, liable as a person knowingly involved in Melbourne Café's contraventions of that provision.
2. Section 18 of the ACL provides as follows:

(1) A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive."

1. "Engaging in conduct" is defined in s2(2)(a) of the ACL as:

"(a) a reference to engaging in conduct is a reference to doing or refusing to do any act, including:

(i) the making of, or the giving effect to a provision of, a contract or arrangement; or

(ii) the arriving at, or the giving effect to a provision of, an understanding; or

(iii) the requiring of the giving of, or the giving of, a covenant..."

1. The defendants assert that neither sections 18 nor 236 apply because the plaintiff was provided with sufficiently clear financial information that was not misleading or likely to mislead. They note that reliance requires an erroneous assumption on a represented set of facts and that in this case, where the represented financial statements variously differ, it is difficult to see how H & Q can say it was misled.
2. The plaintiff relies on representations made by the defendants through the provision of financial documents to the plaintiff before their purchase of the Parkville Café business. These documents were provided in three tranches, as follows:

(a) on 19 February 2018, Melbourne Café's Profit and Loss Statement for the 2016 Financial Year (the First Represented Financial Statements);

(b) on 5 March 2018, Melbourne Café's Profit and Loss Statement for the 2017 Financial Year and July to December 2017 Profit and Loss Statement (the Second Represented Financial Statements); and

(c) on 27 April 2018, Melbourne Café Unit Trust's Trust Statement for the 2016 Financial Year and Trust Statement for the 2017 Financial Year (the Third Represented Financial Statements)

(collectively, "the Represented Financial Statements").

1. The plaintiff submits these documents were deliberately disseminated to it by the defendants to mislead H & Q as to the true financial situation and performance of the business, particularly in relation to profit and employee expenses, in breach of both s18 of the ACL and contractual vendor warranties.
2. The defendants rely on discrepancies between the figures provided in the Second and Third Represented Financial Statements. Notably, the Second Represented Financial Statement reports a profit for the 2016 Financial Year of $231,928.06,[32] or $502,463 after addbacks,[33] while the Third Represented Financial Statement reports a loss of $69,033.[34] The Second Represented Financial Statement also reports a profit for the 2017 Financial Year of $541,789.90,[35] while the Third Represented Financial Statements report a lesser profit of $264,598.[36]
3. The defendants claim that the representations made in the documents were materially true and correct and therefore neither false nor misleading. For example, Mr Zhang gave evidence that the 2017 Financial Year Profit and Loss Statement accurately reports staff expenses at $565,237.11,[37] and the discrepancy with the 2017 Financial Year Melbourne Café Unit Trust Profit and Loss Account's salary and wages total of $411,520.00 is due to a failure to report cash wages in the Melbourne Café tax return.[38]
4. The defendants suggest that even if the Court does find that the Represented Financial Statements were not materially true, the evidence established that the true value of the business was close, if not the same, to the value which H & Q ascribed to it, purportedly in reliance on the Represented Financial Statements. As such, any loss or damage suffered by the plaintiff is negligible at best.
5. Although the plaintiff initially relied on the Hidden Financials discovered on the computer server after acquiring the Parkville Café business to suggest that the Represented Financial Statements were misleading & deceptive, it has since resiled from this position and agrees with the defendants that these financial statements were merely in "draft" form.[39] However, the plaintiff maintains that as the Hidden Financials largely reflect tax returns lodged by Melbourne Café, they are most likely to be a true representation of the business' financial position. H & Q argues that if the Court accepts that the Represented Financial Statements were misleading or deceptive, it does not need to prove that one set of financial documents over another set are true, or most likely to be accurate. The defendants disagree, submitting instead that the provision of the totality of the various financials made it sufficiently clear to prevent any information which may have been inaccurate from being misleading or likely to mislead.

1. The plaintiff describes the critical factual question for the purposes of s18 as whether the impugned conduct, considered as a whole and in context, was misleading or likely to mislead or deceive.[40] It suggests such conduct is misleading or deceptive if it induces (or is capable of inducing) error,[41] and that there is therefore an element of "cause and effect" between the impugned conduct and the plaintiff's state of mind.[42] It further notes that the conduct does not need to be the sole inducement, submitting it need only be a substantial, non-negligible component.[43]
2. The plaintiff proposes that given the provision of the Represented Financial Statements is not in dispute, and there can be no real contention that they were not (and were not intended to be) relied upon, the Court can have no confidence as to what the true financial performance of the business was, prior to the Agreement. It submits that the Court can however be satisfied that the Represented Financial Statements were false, and that falsity was not addressed or corrected at any time prior to entry into the Agreement.
3. The defendants counter this argument by claiming that although there were inconsistencies in some of the financial information provided to H & Q, that information - when read together - provided a materially accurate depiction of the historical financial performance of the Parkville Café business. They submit that the provision of the totality of the various financials made it sufficiently clear to prevent any information which may have been inaccurate from being misleading or likely to mislead.

1. The plaintiff notes that there is no requirement for the reliance to be reasonable and that "relief is not restricted to the protection of the astute".[44] It cites the Victorian Court of Appeal's decision in SF Cosentino as support for the proposition that a "casual connection between the contravention and the loss and damage" is all that is necessary to show reliance in the relevant sense.[45] It submits that its reliance on the Represented Financial Statements is clear, as any sensible purchaser would not purchase a business based on false financial representations, much less H & Q which was specifically seeking a business with a profit of around $500,000 per annum.
2. The defendants claim that the inconsistent nature of the information provided to the plaintiff precludes a finding that the plaintiff relied on those documents when it decided to purchase the business. The defendants further suggest that the plaintiff has not shown what exactly it was relying on the financial information provided to them, and the reliance element of the claim is therefore not made out. They note that it is well-established that no conduct can mislead or deceive unless the representee labours under some erroneous assumption,[46] quoting extensively from McHugh J's finding in Butcher v Lachlan Elder Realty Pty Ltd including that the Court "must have regard to all the conduct of the corporation in relation to the document".[47]

1. Whether relief be sought under s236, s237 or s238 of the ACL, the claimant must prove that the breach caused the loss complained of. That being so, there is a potential for considerable overlap between the sections regarding monetary orders. Sections 237 and 238 of the ACL involve the exercise of a discretion whereas s236 does not.[48]
2. Section 236(1) of the ACL provides:

(a) a person (the claimant) suffers loss or damage because of the conduct of another person; and

(b) the conduct contravened a provision of Chapter 2 or 3;

the claimant may recover the amount of the loss or damage by action against that other person, or against any person involved in the contravention."

1. Section 2 of the ACL defines the term "involved" as follows:

"involved: a person is involved, in a contravention of a provision of this Schedule or in conduct that constitutes such a contravention, if the person:

(a) has aided, abetted, counselled or procured the contravention; or

(b) has induced, whether by threats or promises or otherwise, the contravention; or

(c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or

(d) has conspired with others to effect the contravention."

1. It was not dispute before me that Mr Zhang's conduct in negotiating and facilitating the sale of the business was performed within his actual or apparent authority as the sole director of Melbourne Café.
2. The Court's power to make a compensatory order pursuant to s238 of the ACL is more extensive than the more limited power to award damages pursuant to s236. Under s238, the Court may also award compensation in respect of loss or damage that the plaintiff has suffered, or is likely to suffer.
3. In terms of assessing compensation for the difference in the value of an asset between the purchase price paid and the true value of the asset in question, the principles to be applied are set out clearly in summary form in Keys Consulting Pty Ltd v CAT Enterprises Pty Ltd.[49] The Court of Appeal considered the principles relevant to the claims for damages available under s236 of the ACL and the nature of the burden of proof that the plaintiff bears to establish its loss. At paragraphs 68 to 71, the Court of Appeal observed (citations omitted):

"68. In claims for damages, the plaintiff must prove both the fact of loss and the amount of that loss before he or she can recover substantial damages. If a plaintiff fails to prove either of those elements, he or she may recover nominal damages only where the claim is in contract, or the action fails altogether, where it lies in tort.

1. However, it is well established that a mere difficulty in quantifying damages does not necessarily defeat the plaintiff's entitlement to a remedy against the wrongdoer. In appropriate circumstances, where some sort of actual loss has been established, the court must estimate the damages as best it can. Addressing a claim for damages for breach of contract, Street CJ in Howe v Teefy said:

'The question in every case is: has there been any assessable loss resulting from the breach of contract complained of? There may be cases where it would be impossible to say that any assessable loss had resulted from a breach of contract, but, short of that, if a plaintiff has been deprived of something which has a monetary value, a jury is not relieved from the duty of assessing the loss merely because the calculation is a difficult one or because the circumstances do not admit of the damages being assessed with certainty.'

1. However, there is a distinction to be drawn between a situation that does not permit damages to be assessed with certainty, and one in which the plaintiff has simply failed to produce evidence that was otherwise reasonably available. The plaintiff is entitled to have the court do the best it can in the former case, but not in the latter. Where a party is able to produce evidence about loss and damage, they must do so with as much certainty and particularity as is reasonable in the circumstances. This principle is long established.
2. 71. Put succinctly, Devlin J said in Biggin & Co Ltd v Permanite Ltd:

'where precise evidence is obtainable, the court naturally expects to have it, [but] where it is not, the court must do the best it can'."

1. At paragraph 88, the Court of Appeal helpfully distilled the various principles, having analysed the authorities in the preceding paragraphs, as follows:

"- the plaintiff bears the onus of proving both the fact of loss and the amount of loss before being entitled to recover substantial damages;

- a plaintiff must establish both elements with as much certainty and particularity as is reasonable in the circumstances;

- while difficulty in quantifying damages may permit a court to estimate them as best it can, that principle will not avail a plaintiff who has simply failed to produce evidence which it could have produced, and failure to do so in that situation will ordinarily mean that it has failed to prove its case on damages;

- the measure of loss caused by misleading and deceptive conduct in breach of s18 of the ACL is the measure of loss for the tort of deceit;

- where the impugned conduct has induced the purchase of an asset, the ordinary measure is the difference between the price paid and the true value of the asset at the date of its acquisition;

- it follows that the fact and amount of loss is established by the proof of both constituent elements, namely the price paid and the true value at the date of acquisition; and

- in ascertaining the true value at the date of acquisition, the court is to take into account (and the plaintiff must prove with as much certainty and particularity as is reasonable) events after the sale that arise from the nature or use of the asset that illuminate the value of the asset as at that date (subject to due allowance for any changes in relevant conditions)."

1. It can be seen from the summary of the principles, when valuing the purchase of a business, the Court must consider, and the plaintiff must prove with as much certainty and particularity as is reasonable, events after the sale that arise from the nature or use of the asset that illuminate the value of the asset at the date of the acquisition. At paragraph 92 of Keys Consulting, the Court of Appeal found that the trial judge should have reviewed the value of the business at the date of acquisition by taking into account its post-sale performance. The Court noted at paragraph 97 that it considered the post-sale financial performance of the business probably did illuminate its true value at the date of acquisition but was not adequately taken into account, resulting in an artificial nil value being assigned to it. The onus had remained upon the plaintiff to provide evidence with as much certainty and particularity as was reasonable as to the post-sale performance of the business in order to prove its true value at the date of acquisition.
2. It is also helpful to note the observations set out by the High Court in Kizbeau Pty Ltd v WG & B Pty Ltd ("Kizbeau"),[50] where the Court said at paragraph 16 (citations omitted):

"In an action for damages for deceit for inducing a person to enter a contract of purchase, which is an action that is closely analogous to an action for damages for breach of s52, the courts have consistently held that 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. Nevertheless, although the value is assessed as at the date of the acquisition, subsequent events may be looked at in so far as they illuminate the value of the thing as at that date. A distinction is drawn, however, between subsequent events that arise from the nature or use of the thing itself and subsequent events that affect the value of the thing but arise from sources supervening upon or extraneous to the fraudulent inducement. Events falling into the former category are admissible to prove the value of the thing, those falling into the latter category are inadmissible for that purpose. Thus, the takings of a business subsequent to purchase are generally admissible, not only to prove that a representation concerning the takings was false but also to prove the true value of the business as at the date of purchase. Even when some difference exists between the conditions under which the business was conducted before and after purchase, evidence of subsequent takings may be admissible, 'subject to due allowance being made for any differences in relevant conditions'. But if it is established that the decline in takings has been caused by business ineptitude or unexpected competition, evidence of subsequent takings is not admissible to prove the value of the business as at that date, events such as ineptitude and unexpected competition being regarded as supervening events. In some cases of deceit, it may also be proper to compensate the defrauded party not only for the difference between the value of the thing acquired and the price paid for it but also for losses induced by the fraud and directly incurred in conducting the business. All of these principles are appropriate to the assessment of damages under s82 where a breach of s52 of the Act has induced a person to purchase a business."

1. The most appropriate measure of damages in most cases of misleading or deceptive conduct is the measure of damages for the tort of deceit. In Rozenblit v Vainer,[51] the Court of Appeal noted that the principles regarding the assessment of damages in cases under this section had been recently analysed in Keys Consulting.[52] The Court of Appeal noted the emphasis in Keys Consulting that a mere difficulty in quantifying damages did not necessarily defeat a plaintiff's entitlement to a remedy against the wrongdoer. But it was then said that in appropriate circumstances where some sort of actual loss has been established, the Court must estimate the damages as best it can.
2. The key issue to be determined is whether the Represented Financial Statements were misleading or deceptive or likely to mislead or deceive H & Q as to the financial position of the Parkville Café business prior to entering into the Agreement.
3. H & Q submits that it does not need to prove that one set of financial documents over another set are true, or more likely to be accurate. Rather, it submits it only needs to satisfy the Court that the Represented Financial Statements were misleading or deceptive.
4. While H & Q's original pleadings suggested the Hidden Financials reported the true financial position of the Parkville Café, it no longer pleads these to be the true position of the business. It does not, however, point towards one financial record as being a record of the "true" financial position of the company (though still relies on Mr Smith's expert evidence that the Hidden Financial Records largely reflect the lodged tax returns, and are therefore more likely to be a true representation). Rather, it now pleads:

(a) The Final Financial Statements revealed that the historical performance of the business was in fact at least $256,402 in net loss for the year ending 30 June 2017; and

(b) only that the true financial position of the Parkville Café in the 2016, 2017 and 2018 Financial Years was significantly less than that reported in the Represented Financial Statements for those financial years.[53]

1. The defendants submit H & Q must establish that the true financial performance of Melbourne Café was not as represented in the Represented Financial Statements, but rather as was recorded in the signed Profit and Loss Statements for Melbourne Café for the 2016 and 2017 Financial Years (collectively, the "Final Financial Statements").
2. The defendants submit that H & Q relies on the Represented Financial Statements collectively for each financial year, therefore the documents for each year cannot be read separately from each other. The plaintiff, they contend, cannot cherry pick information out of one of the documents that may have inconsistencies or different figures in another one of the documents. The defendants point to Ms Cui's evidence that she considered the totality of the Represented Financial Statements and therefore assessed the financial position of the Parkville Café business on the totality of the documents.
3. The defendants submit that, in order for the plaintiff to establish its entitlement to damages, it must first show that the true financial performance of Melbourne Café was not as represented in the Represented Financial Statements, but rather, as was suggested in the Final Financial Statements. They assert that while there are inconsistencies in the financial information provided to the plaintiff, it overall provided a representation of the financial performance of the business which was materially true and correct and that any loss or damage suffered is negligible at best.
4. They further suggest that even if liability is found, the appropriate principles regarding loss and damage in a proceeding such as this do not support the damages claimed by the plaintiff.

1. The plaintiff submits that a causal connection between the contravention and the loss and damage is all that is required to warrant the award of damages as relief for misleading & deceptive conduct under the ACL. The plaintiff refers to the finding of the Court of Appeal in Lord Buddha Pty Ltd (in liq) v Harpur [54] that causation is a "common sense question of fact" to be "determined by examining the alleged conduct in light of the relevant surrounding facts and circumstances"[55] to support its assertion that causation may be established by a complainant showing it would have acted differently if it had known that the representation was false.
2. The plaintiff therefore says that the Court should conclude that if before the Agreement was entered into the defendants had revealed what the defendants now claim is the true state of affairs, the plaintiff would not have bought the café because it was embroiled in fraudulent and illegal financial dealings in respect of tax, wages and superannuation.
3. The defendants cite the Federal Court decision in Sanguine Technology Pty Ltd v Abacus Calculations (WA) Pty Ltd [2010] FCA 279 as authority for the proposition that if a false representation is made to a party but corrected before that party acts to its detriment in reliance upon the representation, that party cannot claim that the party who has made the representation has caused that party loss or damage.[56] The defendants submit that the information conveyed by the Represented Financial Statements viewed in the context of the totality of the information provided to the plaintiff was such that the erroneous assumption on a represented set of facts required to make out the element of reliance does not arise here.

Financial performance for the 2016 Financial Year

1. The defendants contend that the 2016 Financial Year materials (the Profit and Loss Statement which included addbacks and information about staff wages, and the Melbourne Café Unit Trust Financial Accounts) provide a largely consistent indication of the financial position of the Parkville Café business. While the Unit Trust Financial Accounts report a net loss of $69,033, the difference to the reported net profit of $231,928.06 in the Profit and Loss Statement (prior to the addbacks) was accepted by Mrs Qiu to roughly match up because of the big amount of depreciation reported in the former and not the latter.
2. The defendants submit that the only apparent basis in which H & Q could argue the 2016 Financial Year Represented Financial Statements could be considered an inaccurate representation of the true financial performance of Melbourne Café for that period is the Hidden Financials. The plaintiff has departed from its pleading that the Hidden Financials reflect the true financial position of the business. The Third Represented Financial Statements and Final Financial Statements for the 2016 Financial Year are identical and both report a net loss of $69,033.[57] The First Represented Financial Statements included a Profit and Loss Statement recording a net profit for the 2016 Financial Year of $231,928.06 (prior to addbacks). The defendants' submission is that H & Q cannot bring a claim for a false representation made to it which was corrected before it did any act to its detriment in reliance upon the representation.[58] Further, the evidence of Mrs Qiu referred to above showed that she had considered the loss figure of $69,033 but that did not cause her concern for the reasons identified.

Financial performance for the 2017 Financial Year

1. It is accepted by both sides that there are inconsistencies in the information provided in the Represented Financial Statements in relation to the 2017 Financial Year.
2. The defendants submit the Second Represented Financial Statements are an accurate representation of the Parkville Café's financial position, and rely on the bank statements and cash records discovered by Melbourne Café as the most compelling evidence. Mr Zhang gave evidence that the bank records show an amount of $1,577,952.08 in bank sales and cash sales for the period of 1 July 2016 to 16 May 2017 of $679,640.30. Extrapolating the cash sales for the remaining six weeks, the defendants submit that the total sales income for the 2017 Financial Year is approximately $2,173,937.92. This amount sits between the represented income in the 2017 Financial Year Profit and Loss Statement of $2,216,651.10 and Melbourne Café Unit Trust Financial Records of $2,002,777.
3. The defendants conceded in closing submissions that the Represented Financial Statements did not record withholding tax. However, they submit that the Court should find that any discrepancy would be negligible in light of the substantial employment and superannuation expenses reported in the 2017 Financial Year Profit and Loss Statement provided to H & Q.
4. The 2017 Financial Year Profit and Loss Statement and Melbourne Café Unit Trust Financial Accounts report different wage and salary expenses ($511,520.18 for the former[59] and the latter $411,520[60]) and superannuation expenses ($47,055.66[61] and $35,118.00[62] respectively). Mr Zhang's evidence is that the Profit and Loss Statement accurately records the wages and salary expenses, as the Unit Trust Financial Accounts exclude the cash transactions which were concealed from the Australian Tax Office.
5. The plaintiff submits that the defendants are unable to prove whether the Second Represented Financial Statements are true and correct, because Mr Zhang (as he admitted in his evidence) has destroyed the original source documents. It is submitted that Mr Zhang's deliberate act of destroying the documents means that the strongest possible presumption ought arise that if they had been produced, they would have told against him.

Financial Performance for the 2018 Financial Year

1. H & Q submits that the Court should place importance on the July to December 2017 Profit and Loss Statement provided in the Second Represented Financial Statements, particularly the extrapolated profit of approximately $500,000. It relies on Mr Smith's evidence that its proximity in time to the sale makes it more important.
2. The defendants submit that the figures extrapolated from the July 2017 to December 2017 Profit and Loss Statement cannot be an accurate assessment of the financial position of the business because each month is not going to be identical to the corresponding month six months earlier.[63] No tax return for the year ending 30 June 2018 has been lodged.

1. As has been seen from the above, the relevant test is that a person must not, in trade or commerce, engage in conduct that is misleading or deceptive, or is likely to mislead or deceive. There was no dispute that the written representations were made in trade or commerce and that the representations set out above do constitute conduct.
2. In Campbell v Backoffice Investments Pty Ltd,[64] French CJ observed at [25], that characterisation of conduct as misleading or deceptive "generally requires consideration of whether the impugned conduct viewed as a whole has a tendency to lead a person into error" and that test is necessarily objective.
3. Whilst the true figures relating to the Parkville Café will never be known (absent an independent audit), I am satisfied that the written representations provided by the defendants to H & Q prior to purchase were misleading or deceptive or likely to mislead and deceive. This is particularly so in respect of the figures provided for the 2017 Financial Year. I am fortified in that view by the following admissions made by Mr Zhang in cross-examination:

(a) that the written information provided in the Represented Financial Statements was not true and correct;[65]

(b) that he excluded cash transactions in the Represented Financial Statements to avoid exposing himself to the authorities;[66] and

(c) that the profitability for the Parkville Café would have been much lower for the 2016 Financial Year, the 2017 Financial Year and the July to December 2017 period if he had included the true figures including money owed in taxes.[67]

1. The defendants' counsel conceded that his clients faced a significant hurdle in assessing the true financial position for the 2017 Financial Year. It was accepted that there were inconsistencies in the Represented Financial Statements for the 2017 Financial Year.[68] These include differences in excess of $200,000 as to total income, $50,000 as to cost of sales, $100,000 in wages and salary expenses, and $277,000 in net profit.
2. The figures stated in the Represented Financial Statements for the 2017 Financial Year were patently inaccurate and gave a false impression of the profitability of the business.
3. I find that Melbourne Café therefore contravened s18 of the ACL. I also find that Mr Zhang was primarily reliable for the contravention of s18 of the ACL. Mr Zhang was the alter ego of Melbourne Café. In my view, the elements of contravention of s18 are made out against both Melbourne Café and Mr Zhang. Mr Zhang stood to gain from the fact of the sale at the highest possible price and as the sole shareholder of Melbourne Café stood to benefit personally. I find he was primarily liable for the contraventions made. In the alternative, I would also be satisfied that he was a person who aided and abetted the contravention on behalf of Melbourne Café.
4. Under s236 of the ACL, it is necessary to determine the causal connection between the contravening conduct and the loss and damage that H & Q alleges it has suffered.[69] H & Q's case is that if the directors had been informed of the true financial position of the business, they would not have agreed to purchase it. Accordingly, it is said that this is causative of the loss claimed by H & Q. Both Mrs Qiu and Mr Hu gave evidence as to the importance of the profitability of the business and that, had they known the true position, they would not have bought this business and would have bought another business instead. The evidence showed that they had been looking at other businesses prior to deciding to purchase the Parkville Café. It is clear, given the representations that were made, being the written representations, that this information was relied upon by H & Q when the decision was made to purchase the café business. It is accepted by both parties that there were no oral representations made. I find that H & Q relied upon the written representations when deciding to purchase the business.
5. The plaintiff notes that while it is accepted that s 236 of the ACL operates to put the injured party in the position it would have been in if it had not acted on the representation or conduct there is no mandated method for assessing damages.[70] Citing the decision in Alt Option Pty Ltd v Flightdeck Geelong Pty Ltd, it further claims that it is entitled to recover its ongoing trading losses.[71] It notes that, while to be eligible for damages under s236 the representations which they claim breach s18 must be a cause of the loss or damage, they do not need to be the sole cause.[72]
6. The plaintiff suggests the following three methodologies whereby the Court may approach the award of damages:

(a) by putting H & Q in the position it would have been in, had the impugned conduct not occurred, and the sale of the Parkville Café had subsequently not transpired (i.e. refund of the purchase price, and interest on the loan used to fund the purchase and compensation for trading losses); or

(b) by awarding damages for the difference between the "real value" of the Parkville Café business as at the date of its acquisition, and the price paid for it (the business was worth nothing at the date of acquisition, so the difference is $2,400,000); [73] or

(c) by awarding damages for the difference between the purchase price and the "left in hands" amount, that is the value of the Parkville Café business at a later date, such as an on-sell date, or the date of Trial (the business is still trading at no profit and so its value now is nil, or at most $250,000 given the offer made for it). [74]

1. H & Q claims it is entitled to damages equal to the difference between the purchase price paid for the business and the real value of the business as at the date of sale. H & Q needs to show that the losses incurred are because of the contravention of s18 by the defendants and not from a supervening cause such as the "folly, error or misfortune" of H & Q.[75]
2. H & Q relies on the evidence of its expert Mr Smith to demonstrate the value of the business is exceedingly less than the purchase price, and likely of no value. It submits that Harvard Nominees Pty Ltd v Tiller,[76] a recent Full Court decision of the Federal Court applies to this proceeding because not only has the plaintiff suffered substantial financial loss, but the act of entering and being bound by the Agreement itself is of a "disadvantageous character or effect."[77] It also cites Harvard Nominees as authority for the position that there is no impediment under the ACL to the Court awarding damages under s236 for losses actually incurred, and an order under s243 to avoid other losses which have been, or may be, incurred.
3. The defendants submit that Mrs Qiu's viva voce evidence was that the plaintiff valued the business at $2,000,000 based on the Represented Financial Statements. They therefore suggest that the price ultimately paid by H & Q was not the value it had ascribed to the business on the basis of the Represented Financial Statements, but that the plaintiff made a commercial decision to pay over that value, and that the value of damages (if awarded) should be reduced. According to the defendants there is no evidentiary basis to find the business held no value at the time of sale. They suggest that their expert's valuation of the business as worth $1,923,000 at the time of sale should be accepted, and if the Court awards damages, that figure should only be the difference between what H & Q thought the business was worth ($2,000,000), and the amount of $1,923,000: $77,000.00.
4. Different figures were provided in respect of the operating losses said to have been suffered by H & Q whilst operating the business. Mr Smith has assessed the losses from November 2018 to May 2020 in the sum of $623,000. Ms Cui, H & Q's accountant, gave evidence that she had assessed the operating losses from November 2018 to the date when she gave her evidence in the sum of $940,000. By contrast, Ms Wheeler had assessed the operating losses from 8 November 2018 to 31 March 2020 in the amount of $401,494.
5. For the period October 2018 to June 2019, H & Q claimed to have suffered a loss of $260,000.Yet the profit and loss statement provided to the CBA by Mrs Qiu in August 2019 revealed a profit of $175,308.38 for the same period.
6. As can be seen from the financial documents provided by H & Q, the level of sales from 8 October 2018 to 31 May 2020 are in the order of $2,549,849.43.[78] There was some difference in the evidence about the basis upon which the various expenses were included, and some of these were alluded to by Ms Wheeler. This included that the wages appeared to be high, as were various other expenses claimed. Mr Smith, for example, is unable to identify what was claimed as an operating expense of $123,000. The figure for expenses provided to Mr Smith for the preparation of his second report had increased by the sum of $300,000 which matched the increase in increased sales. No explanation was given for the increase in the amount of expenses claimed in the first report. That being so, then there must be some debate as to the correct amount of the expenses which have been paid and, in particular, whether these expenses were unusually high.
7. There is conflicting evidence about the operation of the business. Mr Hu said that the business was operating well. This evidence was not challenged in cross-examination. There was evidence that both he and Mrs Qiu were for some time paid shareholder distributions and wages. In the first few months, Mr Hu and Mrs Qiu were paid over $13,000 which Mrs Qiu said were shareholder distributions. There was also evidence that Mrs Qiu's husband was paid the sum of $1,000 weekly, although it was said that he had not been working in the business. This was denied by Mrs Qiu who said he had been employed in the business and did so until JobKeeper payments ceased.
8. A significant piece of evidence was the email that Mrs Qiu wrote to the CBA bank in response to an email from the bank dated 29 August 2019.[79] This correspondence was produced in answer to a subpoena served on the CBA by the defendants. Mrs Qiu was responding to an inquiry from the bank as to why the sales were not as high as expected. In her response, Mrs Qiu sets out a number of reasons why sales and profits were not as high as had been expected which included the following:

(a) She had changed the menu, and hired more qualified chefs;

(b) The fact that suppliers' costs had gone up;

(c) She had spent lots of money changing the furniture such as tables in the shop and fixing kitchen appliances and plumbing problems;

(d) The rent had increased since she took over the business;

(e) The fact that the hospital had imposed a regime whereby a certain percentage of food sold had to be of a healthy variety which had adversely restricted the types of products the business could sell; and

(f) Cutthroat business competition had occurred quite a few times already, including a competitor in the same building who had undercut H & Q's business by dramatically reducing their prices to take away business from H & Q.

1. It was not raised in this letter that the reason why the figures were not as good was because H & Q had been induced to buy a worthless business (Mrs Qiu later did tell the bank about these proceedings and outlined the alleged failures of the vendor). The letter goes on to note that Mrs Qiu was hoping to turn matters around, particularly, with proposed outsourced catering clients but great things take time. Mrs Qiu also gave evidence in the witness box that she had undertaken a number of steps upon taking over the business, including improving the menu, expanding catering operations outside the perimeters of the building to other businesses nearby and purchasing various new items, such as coffee machines.
2. In another email to the bank dated 14 July 2020, under the subject line "Key changes in the business", Mrs Qiu stated, "because Victoria Lockdown again, less staffs and visitors in hospital again" and later noted "no new clients".[80]
3. The evidence shows that the sales made by H & Q were not insubstantial post settlement. Mrs Qiu gave evidence that catering income had increased by 30 per cent and that in eight months from November 2018 to June 2019, sales income was $1,200,000 compared with Melbourne Café making $1,400,000 over 12 months. The comparison made was with the figures contained in the tax returns lodged by Melbourne Café for 2016/2017. The position was that for a time the directors were able to draw down dividends, were paid wages and there was sufficient cash left over to pay $1,000 a week to Mrs Qiu's husband. All of this points to the fact that the business appears to have operated with some level of success, leaving aside the question of the correctness or otherwise of the level of operating expenses.
4. For the reasons already stated about the credit of Mrs Qiu, I cannot be satisfied that H & Q's claimed operating losses are necessarily accurate, particularly having regard to the matters raised about the correctness of the level of expenses claimed in the experts' reports. The figures in the accounts provided by H & Q are at variance with the profit and loss statement Mrs Qiu gave to the CBA in August 2019. Self-evidently, one or other of those documents is wrong.
5. It is difficult or near impossible to find that if the operating losses alleged by H & Q are in fact true and correct, the reason why it was not able to operate at a profit was because it was induced to buy a worthless business. There seem to be a myriad of reasons why the business was not operating as successfully as it had been hoped, several of which Mrs Qiu identified to the CBA. I am not persuaded that the operating losses claimed are in fact attributable to the conduct of the defendants and not due otherwise to the manner in which H & Q conducted the business and/or to supervening events or misfortune, such as the pandemic, for which the defendants cannot be held liable. In the circumstances, I am not satisfied that there should be an award of damages in favour of H & Q for any trading losses alleged to have been suffered.
6. H & Q also sought recovery of the amount paid to the CBA for interest on the loan. Mrs Qiu gave oral evidence that she had paid some $150,000 in interest to the bank, but this figure was not proved by reference to any documentary evidence or with any greater precision. As I have found that the defendants should not be held liable for any trading losses, I am not prepared to find that the defendants should pay interest on a loan on a business which has seemingly failed due to reasons other than the defendants' conduct. Nor could I be satisfied that the amount of interest claimed was indeed paid based solely on the oral evidence of Mrs Qiu.
7. As the case law makes clear, in order to recover the purchase price paid, as is sought, the Court needs to assess the difference, if any, between the price paid and the true value of the business. The fact that Mr Smith valued the business at nil as at the date of purchase based on the Hidden Financials and Melbourne Café's lodged tax returns is not the end of the enquiry. The evidence needs to be examined post acquisition to illuminate the true value of the business as at the date of acquisition. Mr Smith said in his oral evidence that Parkville Café could have had some value at time of acquisition based on the Hidden Financials, but did not say what that value could be.
8. The fact is that the Court simply does not have sufficient information before it to assess with any degree of certainty what was the true value of the business as at the date of purchase. Whilst the Court can estimate damages as best it can, it is not permitted to guess. No independent audit has been done. It can be readily accepted that any figures produced by either side cannot be relied upon with any degree of certainty in circumstances where I have found that the principal witnesses are not witnesses of truth. I am not satisfied that the figures put forward by H & Q are a true and correct representation of the trading position since November 2018. The onus is on the plaintiff to prove with sufficient particularity and certainty the events after sale that arise from the nature or use of the asset, subject to due allowance for any changes in relevant conditions. In my view, the plaintiff has failed to discharge its onus of proof on this issue.
9. For all these reasons, I find that the plaintiff has failed to prove its claim for damages. Given this finding, it is not necessary to determine the defendants' submission on mitigation. But if I had to determine the issue, it was said by the defendants the plaintiff had an opportunity to mitigate its trading losses when it received an offer to sell the business on 4 December 2019 for $250,000. By December 2019, H & Q had already commenced proceedings against the defendants claiming it was unable to meet its expenses. Mrs Qiu agreed in cross-examination that she had an opportunity in December 2019 to sell the business for $250,000 and put an end to her losses. The offer appears in an "activity timeline" apparently between brokers. The plaintiff noted that the issue of mitigation was not pleaded, which it said it ought to have been done. Given the informal state of the offer and its low quantum, I am not persuaded that H & Q acted unreasonably and failed to mitigate its losses by not accepting this offer.

"The vendor makes the vendor Warranties (if any) to the purchaser... as set out in schedule 6."[81]

1. Schedule 6 provides eight vendor warranties, notably warranty 3:

"The written information about the Business provided by the vendor or its agents is materially true and correct."[82]

Schedule 6 further provides that the vendor must disclose any "fact which made any warranty incorrect or misleading" before settlement.[83]

1. Mr Zhang acted as guarantor for Melbourne Cafe, including in respect of these warranties.
2. Clause 15.3 of the Agreement provides that:

"A party who breaches the contract must pay the other party on demand:

(a) compensation for any reasonably foreseeable cost, loss or damages incurred or suffered by the other party resulting from the default; and

(b) interest on any money overdue during the period of default at a rate 2% higher than the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 (Vic) as at the date of default

without affecting the rights of the offended party."

1. The defendants accept that the Represented Financial Statements provided to H & Q were written information for the purposes of the warranties. Therefore, the question for determination is whether the information was "materially true and correct".
2. The plaintiff submits that if the Court finds that the financial representations were false, then the warranty has unequivocally been breached, and the defendants (under the Agreement and the guarantee) are liable for damages for breach of contract.
3. The defendants submit that because the information provided was materially true, it was not in breach of the warranty. The defendants quote at length from the Queensland Court of Appeal decision in Keeley v Horton,[84] including the following summary regarding the award of damages for a breach of contractual warranty (citations omitted):

"In a contractual setting, the application of what is often referred to as the 'ruling principle' requires that an award of damages for breach of contract should put the promisee in the same situation, so far as money can do it, as the promisee would have been in had the broken promise been performed.[85] Damages are usually assessed at the date of breach of contract and, in this way, 'captures for the purchaser the benefit of the bargain and so compensates the purchaser for the loss of that benefit'."

1. The defendants note that even if it is found that the warranty is breached, the evidence in this proceeding established that the price ultimately paid by H & Q was not the value it had ascribed to the business on the basis of the Represented Financial Statements. They suggest that the Court reduce the amount of damages awarded, if any, to reflect the fact that the plaintiff made a decision as to what value it ascribed to the business, but ultimately made a commercial decision to pay over that value. They claim on the basis of their expert and viva voce evidence that while the plaintiff thought it was purchasing an asset worth $2,000,000, there is simply no evidentiary basis to find that the Hidden Financials were an accurate depiction of the historical trading figures of the business, and no evidentiary basis to find the business held no value at the time of sale. On that basis, they submit that if the plaintiff succeeds in making out their claim either in contract or under the ACL, the Court should find that H & Q has not established it is entitled to any award of damages.
2. I am satisfied that the Represented Financial Statements, in particular for the 2017 Financial Year, were not materially true and correct. Mr Zhang accepted in cross-examination that the written information provided to H & Q prior to entry into the contract (i.e. the Represented Financial Statements) was not true and correct.[86]
3. There are irreconcilable differences between the Represented Financial Statements. Mr Zhang's aide-memoire for the 2017 Financial Year manifests a sales total of $2,379,644.83 (GST inclusive), notably higher than the $2,002,777 total income reported in the Melbourne Café Unit Trust Financial Statement,[87] or $2,216,651.10 reported in the Profit and Loss Statement.[88] Conflicting net profits were provided in the 2017 Financial Year Profit and Loss Statement ($264,598, with depreciation of $230,934) and the Melbourne Café Unit Trust Financial Statement ($541,789.90).
4. The defendants were obliged to provide written information to H & Q which were true and correct. While the Third Represented Financial Statements might correct some falsities in the First and Second Represented Financial Statements, I cannot find the 2017 Financial Year statements to be materially true and correct where the represented statements are irreconcilably inconsistent and record contradictory financial performances.
5. By the Further Amended Statement of Claim dated 23 June 2021, it is alleged that the written information, comprising the Represented Financial Statements, was not materially true and correct within the meaning of vendor's warranty 3 in Schedule 6. The basis for that claim is the performance of the business was significantly less than the represented performances depicted in a table at paragraph 14, which shows the discrepancies and figures regarding net profit and loss for the financial years ending 30 June 2016, 2017 and 2018. The other basis alleged is that the true financial performance of the business was significantly less than the Represented Financial Performance, including because Melbourne Café had been paying less-than-legally-required withholding tax with respect of employee salaries, and less-than-legally-required superannuation payments in respect of employee salaries. In respect to the latter, there was a concession by Mr Zhang that he had not been paying proper PAYG tax for employees and the required superannuation payments. Accordingly, I accept that the information provided by the vendor was not materially correct, as was required under warranty 3. I find that that the first defendant breached warranty 3 under Schedule 6 of the Agreement.
6. Mr Zhang, via an indemnity under clause 19 of the Agreement, agreed to indemnify and keep H & Q indemnified against all loss suffered or incurred by H & Q as a result of any failure by Melbourne Café to perform any obligation. I am satisfied that this included Melbourne Café's obligation under Warranty 3 under Schedule 6 of the Agreement. That being so, I find that Mr Zhang is also liable for the breach of warranty pursuant to clause 19 of the Agreement.
7. The plaintiff seeks to be awarded damages to put it in the same position as it would have been in had the agreed warranty been performed. It claims that the appropriate remedy in the circumstances would be for the Court to put H & Q in the position (as far as money can do it) had the broken promise been performed by requiring the defendants to pay damages equal to the financial position H & Q Café would be in, had the representations as to financial performance been true,[89] amounting to compensation for the represented profit of approximately $500,000 per annum for four or five years.
8. The Court is to award damages such as to put the plaintiff in the position as if Melbourne Café met its warranty. However, H & Q is not entitled by an award of damages for breach of contract to be placed in a superior position to that in which it would have been had the contract been performed.[90]
9. It being established there was a breach of warranty, then the question is how should damages be assessed as a result of the breach. Where an asset is purchased, if a vendor of a business breaches a warranty as to the true value/profitability of a business, damages are assessed by determining the difference between the value as warranted, as opposed to the real value.[91] The time for assessment of damages must be made at the date of the breach of the contract. The damages are assessed by reference to the loss of the value of what the plaintiff would receive if the promise had been performed.[92] In the case of a warranty, one compares the plaintiff's position as a result of entering into the transaction with what it would have been if the information had been accurate.[93]
10. For reasons already identified, I am unable to determine, with any precision, the real value of the café business had the warranty been met as at the date of purchase. Accordingly, I am not satisfied that the plaintiff established its claim for damages for breach of contractual warranty. But as I was satisfied the warranty was breached, then the plaintiff is entitled to nominal damages from the defendants, which I assess at $100.

1. H & Q made out its claim for misleading or deceptive conduct against both defendants and is entitled to a declaration to that effect. However, H & Q failed to prove its claim for damages for the reasons given above.
2. Given H & Q established a breach of contractual warranty, I consider it is entitled to an award of nominal damages only, which I assess at $100.
3. Subject to hearing from the parties, I propose ordering the defendants pay H & Q's costs of the proceeding on the standard basis, to be taxed in default of agreement.

I certify that these 47 pages are a true copy of the Reasons for Judgment of Her Honour Judge A Ryan delivered on 8 July 2022.

[1] Schedule 2 of the Competition and Consumer Act 2010 (Cth)

[5] CB 2802-22; Transcript ("T") 131-132

[17] Expenses also went up from $693,000 to $990,000 in the second report.

[20] An objection to the admissibility of documents relating to the amended tax returns was initially taken by the plaintiff's previous counsel at the initial hearing. The objection was not subsequently renewed. The amended tax returns were both the subject of evidence-in-chief and cross-examination of Mr Zhang, such that the documents were received into evidence.

[24] "Earnings before interest, tax, depreciation and amortisation"

[28] CB 119 (Mr Smith's report); CB 1327 (Ms Wheeler's report).

[30] Defendants' outline of closing submissions 28, [164]; T496.18-28

[31] The claim under s29 of the ACL was not pursued at trial

[39] Further Amended Statement of Claim [12]-[14]

[40] Citing Google Inc.v ACCC [2013] HCA 1; (2013) 249 CLR 435

[41] Citing ACCC v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640

[42] SAP Australia Pty Ltd v Sapient Australia Pty Ltd [1999] FCA 1821; (1999) 169 ALR 1 at [51]

[43] Citing I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109

[44] Henville v Walker (2001) 206 CLR 468 [13], cited in SF Cosentino Pty Ltd v Glendining [2020] VSCA 149 at [98] ("SF Cosentino")

[45] SF Cosentino Pty Ltd v Glendining [2020] VSCA 149 at [98]

[46] Citing Taco Co of Australia Inc v Taco Bell Pty Ltd [1982] FCA 136; (1982) 42 ALR 177; Campomar Sociedad Limitada v Nike International [2000] HCA 12; (2000) 202 CLR 45 at [104]

[47] [2004] HCA 60; (2004) 218 CLR 592 at [103]

[48] Oliana Foods Pty Ltd v Culinary Co Pty Ltd (in liq) [2020] VSC 693 at [759]- [760] (Connock J)

[49] [2019] VSCA 136 ("Keys Consulting")

[50] [1995] HCA 4; (1995) 184 CLR 281

[51] [2019] VSCA 283

[52] [2019] VSC 136 at [43]

[53] Further Amended Statement of Claim dated 23 June 2021, 13B (a) and (b)

[54] [2013] VSCA 101; (2013) 41 VR 159

[55] Citing Lord Buddha Pty Ltd (in liq) v Harpur [2013] VSCA 101; (2013) 41 VR 159 at 202 [189]- [191] (Vickery AJA; Weinberg and Tate JJA)

[56] Sanguine Technology Pty Ltd v Abacus Calculations (WA) Pty Ltd [2010] FCA 279

[58] Citing Sanguine Technology Pty Ltd v Abacus Calculations (WA) Pty Ltd [2010] FCA 279

[63] T453.21-30; see defendants' outline of closing submissions 15-16 [84]-[86]

[64] [2009] HCA 25; (2009) 238 CLR 304

[69] Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 at [34] per Gummow, Hayne, Heydon and Kiefel JJ

[70] HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640 at [35]- [40]

[71] All Options Pty Ltd v Flightdeck Geelong Pty Ltd [2019] FCA 588 at [128], [132]-[133] (Steward J), approved by the Full Court in Flightdeck Geelong Pty Ltd v All Options Pty Ltd [2020] FCAFC 138

[72] I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 at 128 [57] (Gaudron, Gummow and Hayne JJ); see also 119 [25] (Gleeson CJ)

[73] Citing Potts v Miller [1940] HCA 43; (1940) 64 CLR 282, 297-298; HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640 at [35]

[74] Citing HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640 at [35]- [40]

[75] All Options Pty Ltd v Flightdeck Geelong Pty Ltd [2019] FCA 588 per Stewart J at [128]

[76] [2020] FCAFC 229

[77] Marks v GIO Australia Holdings Ltd [1998] HCA 69 at 527, cited in Harvard Nominees Pty Ltd v Tiller [2020] FCAFC 229 at [79]

[78] This amount being the sum of the total sales recorded in H & Q's Profit and Loss Statements for October 2018 to June 2019 ($1,100,141.09; CB 3116) and July 2019 to May 2020 ($1,449,708.34; CB 2623).

[84] [2016] QCA 68; [2017] 1 Qd R 414 at 426

[85] Clark v Macourt [2013] HCA 56; (2013) 253 CLR 1, 31 [106] per Keane J; Robinson v Harman [1848] EngR 135; (1848) 1 Ex 850, 855: [1848] EngR 135; 154 ER 363; Wenham v Ella [1972] HCA 43; (1972) 127 CLR 454, 460, 471; Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272, 286 [13]

[89] Citing Clark v Macourt [2013] HCA 56; (2013) 253 CLR 1 at [7] per Hayne J, [26] per Crennan and Bell JJ and [106] per Keane J; Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272 at [13]

[90] Clark v Macourt [2013] HCA 56; (2013) 253 CLR 1 at [27], citing The Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 82

[91] Radferry Pty Ltd v Starborne Holdings Pty Ltd [1998] FCA 1689

[92] Clark v Macourt [2013] HCA 56

[93] See South Australia Asset Management Corporation v York Montague [1996] UKHL 10; [1997] AC 191 at 261 (Lord Hoffman)