The recent New South Wales Court of Appeal decision of Zong v Wang [2022] NSWCA 80 is a salient reminder that the courts will have regard to the context of any representation to determine whether it constitutes misleading or deceptive conduct.
In this case, the parties were shareholders of an unsuccessful company in the yacht rental business. One shareholder, Mr Wang, commenced proceedings against another, Mr Zong, for damages for misleading and deceptive conduct under section 18 of the Australian Consumer Law.
Are the Representations made “in trade or commerce”?
For a representation to be made “in trade or commerce”, it is not necessary to have an existing commercial operation at the time the representation is made. What is required is that the conduct have a commercial character.
This commercial character may be present even where statements are directed to the establishment, financing, and operation of a commercial enterprise in a social context. For instance, statements made by an individual to his or her fiancé for the purpose of encouraging them to invest in a proposed business will be considered “in trade or commerce”, notwithstanding there is no existing commercial relationship between the parties.
In essence, the person making the representation does not need to be engaged in trade or commerce at the time the representation is made. The relevant inquiry is whether the representations were made in such context and circumstances as to render them statements having a commercial character.
In Zong v Wang, the representations were made during negotiations between individuals looking to become potential investors in a commercial venture. Mr Zong argued that the statements had been made anterior to trade or commerce as no commercial enterprise existed at the time the representations were made, and further, that they had been made in social settings. The Court was not persuaded by this argument, and found that the negotiations were commercial in character, notwithstanding they were conducted in a social context.
Trial judge’s reliance on unpleaded conduct
Each of the four representations considered in this case, were representations as to future matters. These were pleaded representations said to have been made by Mr Zong to the effect that:
Mr Zong did not deny making each of the representations at trial, but disputed whether they were made in trade commerce and constituted misleading and deceptive conduct. Mr Zong also argued that when determining whether each of the pleaded representations constituted misleading and deceptive conduct, the trial judge, erroneously, had regard to unpleaded conduct.
The Court of Appeal found that the trial judge, when referencing the context in which the representations were made, was simply acknowledging the well-established proposition that in assessing whether conduct is misleading, the conduct must be viewed in context as a whole.
Causation
The Court of Appeal also found it was permissible to have regard to the context, or the background of the representations in supporting a finding of reliance. In that regard, context can show the extent to which a person is dependent on the information conveyed by the representation. For example, in this case, it was found that Mr Wang was reliant on Mr Zong for information, knowledge and experience in the industry. This was because Mr Wang had only been in Australia for a few months, spoke limited English and had little experience or knowledge about the yacht market.
Damages
Having found that the trial judge did not err in concluding that the representations were misleading and deceptive and made in contravention of section 18 of the Australian Consumer Law, the Court of Appeal went on to assess the damages suffered as a result of that conduct by reference to the residual value of Mr Wang’s shareholding as at the date of the hearing (and not as at the date of the acquisition).
This manner of assessment represented a departure from the prima facie rule, which suggests that the date of acquisition ought to be adopted as the relevant date. However, in this matter, the Court of Appeal found that the depreciation in the value of the company (and subsequently, Mr Wang’s shares) was inherent, in that the company incurred losses from the outset, and its principal asset (being a yacht) was depreciating. Further, the Court of Appeal noted that Mr Wang was, for all intents and purposes, “locked in” as it was not practicably possible for Mr Wang to dispose of his shares.
The courts will have regard to the context of any representation to determine whether it constitutes misleading or deceptive conduct.
For a representation to be made “in trade or commerce”, it is not necessary to have an existing commercial operation at the time the representation is made.
What is required is that the conduct have a commercial character. Commercial character may be present even where statements are directed to the establishment, financing, and operation of a commercial enterprise. Further it may be present where representations are made in a social context. Ultimately, in assessing whether conduct is misleading, the conduct must be viewed in context as a whole.
If you have any concerns in relation to misleading or deceptive conduct, or the Australian Consumer Law generally, please contact Cinzia Donald, Partner, Litigation and Dispute Resolution Team.
