The world of commercial law is complex. Rarely will you find the clarity that one might expect in a commercial arrangement. Problems often arise when commercial arrangements are not documented or when not documented correctly. If you are planning on embarking on a commercial venture, ensure that you consult a lawyer early to establish a clear legal framework.

Today we look at a dispute involving a Central Coast business. The New South Wales District Court decision of Elegant Australia Pty Ltd v Chen and; Chen v Elegant Australia Pty Ltd [2020] NSWDC 7 is a good example of the complexities of commercial litigation. We’ve examined this judgement as it relates to parties in the Central Coast of New South Wales.

The dispute giving rise to the judgement concerned the operation of a restaurant, Tokyo Ramen Erina Fair. Tokyo Ramen Erina Fair is in the New South Wales Central Coast.

The Plaintiff in this matter had executed a Deed with the Defendant which, inter alia, enabled the Defendant to derive the profits and obliged the Defendant to bear the losses of operating the Central Coast restaurant. The Plaintiff’s claim totalled $110,991.05 plus interest. The Defendant cross claimed for $89,273.30 based on entitlements she said she would have received had she been an employee of the Plaintiff during the period covered by the Deed.

The Business

During the proceedings, the Plaintiff’s director Mr Guchao Zhou and the Defendant gave oral evidence. Mr Zhou gave evidence that between April 2013 and December 2016 he managed the Tokyo Ramen business. He described his responsibilities as managing staff (including hiring, calculating wages and paying them), managing the till, ordering stock, assisting with the cooking, cleaning and waiting on customers, payment of expenses and managing accounts including providing documents to his accountant. The Defendant stated that she didn’t recall Mr Zhou ever telling her that he was responsible for cooking. She recalled being told words to the effect that in a conversation with the Defendant sometime between September 2016 and early December 2017. From 2013 until 2016 the Central Coast business ran at a consistent loss ranging between $12,000 and $47,000.

On or around 24 September 2016 Mr Zhou received a phone call from the Defendant enquiring whether or not the Plaintiff was looking to transfer its business free of charge. Arrangements were then made for the Defendant to inspect the business later the same day. The Defendant was told that the business made on average between $8,000 and $9000 gross per week. Following a further meeting the parties exchange messages by WeChat. On 26 September 2016 the Defendant requested the Plaintiff’s solicitors detail and speak to the manager of the Central Coast Erina fair centre management.

The Deed

On 9 December 2016 a Deed was signed by the Defendant. The text of the Deed provided inter alia for the provision of training to the Plaintiff and the provision of various materials. In return, the Defendant agreed to use best endeavours to have the lease assignment under her name, to make every effort to acquire the retailing skills and competency required and to follow instructions given to her by the company. Further, the Deed provided that the Defendant would be entitled to all profits generated within the training period and would be responsible for all losses and damages incurred by the business within the training period. Mr Zhou himself stated that between about late January 2017 and March 2018, at no time was he involved in operating the Tokyo Ramen business and was not aware of its actual financial position. He stated that he was not aware of what sales the business achieved or how much profits the Defendant was making and retaining per week.

On 16 July 2017 the Defendant sent Mr Zhou a WeChat message which stated:

Hello Brother Hao. I have considered this for long that I decide to stop running this restaurant by the end of September. Nobody is buying this restaurant either. I have made no money in the past seven months and my son has nobody to look after him. I have talked to my lawyer and he said according to our agreement I can quit this with no legal consequences. Can you come up with a plan for the period to the end of September ? I can work as an employee for you to March next year; I have been working very hard, which is ok if I can make money; Please reply to my message when you have time. Sorry I have tried my best.

Mr Zhou then sought legal advice from Ms Leung solicitor on or about 20 July 2017. He gave evidence that Ms Leung informed him that the Defendant could terminate the Deed and he had no legal remedy. On 25 July 2016, the Defendant sent a WeChat message complaining about the state of the Plaintiff’s accounts. Mr Zhou responded stating from the 14th “it is all yours.”

The Outcome

One of the key issues pleaded by the defendant was that Mr Zhou, on behalf of the Plaintiff, said words to the following effect in a face to face conversation between them at the site of the Tokyo Ramen business in or about October 2016:

“The Tokyo Ramen business income is about $9000 to $10,000 a week which is more than enough to pay wages, rent and expenses and still have profit. If you do better that that, you will also get that extra amount”

The defendant pleaded that the statement was a representation contrary to s 18 of the ACL, as referred to in s 27 of the Fair Trading Act 1987 (NSW). There was no claim for damages pursuant to the misrepresentation by the defendant only for a rescission of the deed, noting:

“A party seeking to invoke s 4 of the ACL is required to make clear that it is doing so as to alert the other party to the need to plead and call other evidence as to reasonable grounds. In my view, the Defendant’s pleading, in particular at [20(e)] of the Further Amended Defence, does not indicate that it seeks reliance on the evidentiary burden on the Plaintiff to establish reasonable grounds for making the representation. [191] Furthermore, it did not seek to identify any such reliance in its Statement of Issues. [192]”

There was judgment in favour of the Plaintiff in the sum of $50,690.70

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