Betterway Health Care International Group Pty Ltd v Ferngrove Pharmaceuticals Pty Ltd
[2023] SADC 107
•11 August 2023
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
BETTERWAY HEALTH CARE INTERNATIONAL GROUP PTY LTD v FERNGROVE PHARMACEUTICALS PTY LTD
[2023] SADC 107
Judgment of his Honour Judge Slattery
11 August 2023
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS
Application by the applicant for orders that the respondent make discovery of two particular classes of documents and for other orders.
Held:
1. Orders that the respondent make the discovery sought by the applicant.
Observations about the protection of commercially confidential information in the discovery process.
Uniform Civil Rules 2020 (SA), referred to.
Mobil Oil Australia Ltd v Guina Developments Pty Ltd [1996] 2VR 34 ; Cadbury Pty Ltd v Amcor Ltd (No.2) [2009] FCA 663 ; Toskas v Waldron [2020] SADC 76, considered.
BETTERWAY HEALTH CARE INTERNATIONAL GROUP PTY LTD v FERNGROVE PHARMACEUTICALS PTY LTD
[2023] SADC 107
The applicant corporation is a developer, distributor and supplier of milk formulae for infants and young children. These are described as: step 1 formula (infants to age 6 months); step 2 formula (infants 6-12 months); and step 3 formula (infants of ages 12-36 months).
The respondent is a Therapeutic Goods Administration Licenced Contract Manufacturing Facility, particularly in the instant case, for the Peoples Republic of China (PRC).
In order to sell infant formula to the PRC overseas producers of infant formula must have their manufacturing facility accredited with the certification and accreditation administration of the PRC (for convenience here called the CNCA). This is generally referred to as ‘the Accreditation’. Upon accreditation, a producer is allocated three brand slots with infant formula and for each brand which may be produced at the producer’s facilities. Overseas producers are also required to obtain registration by the China Food and Drug Administration (CFDA) of the specific formulations and ingredients of each infant formula which are to be produced in accordance with the allocation of the brand slots at the facility of the manufacturer. This is described as ‘Registration’ and it requires a producer to comply with three regulations:-
(a) ‘Regulation for inspection, quarantine and supervision of dairy products import/export’ (decree number 152, administration of quality supervision, inspection and quarantine (AQSIQ);
(b)‘Regulations for Management of Overseas Food Producer Exporting Products to China’ (decree number 145, AQSIQ); and
(c)‘Public Notice on List of Overseas Food Producers Exporting Products to China to be Registered’ by AQSIQ (decree number 62, 2013 AQSIQ).
These regulations are applicable to the accreditation and registration process.
This scheme of registration was introduced by the PRC on 6 June 2016 to become effective from 1 January 2018. A limited number of Australian Producers have obtained this accreditation.
The respondent corporation is the owner of premises in Granville NSW (the Premises). It is a licenced contract manufacturing facility for the Chinese Therapeutic Goods Administration.
In November 2016, the applicant and the respondent executed a Deed which contemplated that the respondent would apply for and obtain accreditation of the premises and registration of the applicant’s formulations to facilitate export and distribution of those formulations to the PRC. At the same time, the respondent and applicant entered into an agreement entitled the ‘Nutritional Powders and Supply Agreement’ for the respondent to supply formulations from the premises for export and distribution to the PRC.
The relevant terms of this supply agreement included the following obligations and undertakings:-
1. The respondent will do all things necessary to apply for and obtain accreditation of the premises to enable the formulations to be manufactured on the premises. This is described as the accreditation obligation.
2. Upon the fulfilment of this accreditation obligation and therefore the accreditation of the premises, the respondent would apply for and obtain registration of the formulations as soon as possible. This is described as the registration obligation.
3. The respondent would apply for the CNCA accreditation and so that the formulations would be included in the product formulae sought to be registered for brand slots.
4. The applicant provide full details and specifications to enable the respondent to make applications for accreditation of premises and registration of formulations.
5. After accreditation of premises and registration of formulations, the respondent would manufacture and supply the formulations of the applicant.
6. Any amendment of the Deed must be in writing.
7. Only the parties could amend the Deed in writing.
8. The parties could waive a breach of the Deed in writing signed by the parties.
Separately, the supply agreement required the following:-
9. The respondent supply the formulations to the applicant.
10. The term of the supply agreement was to be three years from the date the respondent obtained registration of the formulations.
11. The respondent agreed to supply the formulations to the applicant which agreed to pay to the respondent in accordance with an established formula.
The applicant alleges a breach by the respondent of the Deed for failing to satisfy the registration obligation by not obtaining registration of the formulations of the applicant. The applicant also alleges that the respondent has breached the brand slot obligation as the formulations were not included in the product formulae for which the respondent sought registration. The applicant alleges that it has suffered loss as a result of a loss of opportunity, damages are assessable and payable by the respondent.
The respondent pleads a number of defences which do not specifically challenge the pleas of the applicant about the terms of the Deed and the supply agreement. The respondent pleads the reasonable endeavours clause (clause 14.5, second defence paragraph 10A (a)) and a Force Majeure Clause 1.1; (second defence paragraph 10A (b)). The respondent pleads that parties who could not meet contractual obligations under a supply agreement due to a Force Majeure were deemed not to be in breach.[1]
[1] (Agreement clause 8.1; second defence paragraph 10A (c)).
The respondent pleads that in breach of warranty, the formulations did not meet Australian law, the law of the ultimate destination of the formulations and did not conform with specifications and so the respondent was not obliged to accept the formulation considered to be not conforming.
The respondent also pleads that it requested the applicant to provide assistance to enable it to progress the CNCA and the CFDA applications. It is said that this assistance was generally not provided. It is unclear what ‘…generally…’, means in this context. It appears from the particulars that three batches of formulations and raw materials, cans and logos and testing reports were requested but not supplied. This allegation is denied by the applicant in its Reply (paragraph 12) and the applicant asserts that it always complied with its obligations under the Deed and the supply agreement (Applicants Reply, September 2020 FDN 16).
The respondent also alleges that as a result of the failures of the applicant, it considered attempts to advance the CFDA futile and it was never able to complete its application to the CFDA which has never been lodged. At a number of levels, this is a pleading which is difficult to fully analyse and comprehend. It pleads that the application to the CFDA has never been lodged. This was the fundamental obligation of the respondent under the Deed and under the supply agreement. It appears that in paragraph 12 (e) of its defence, the respondent pleads that because of the applicant’s lack of cooperation, it considered attempts to advance the CFDA application to be futile. It is then pleaded that because the process became harder (viz defence paragraph 12 (c)) and the absence of cooperation of the applicant, including the provision of its assistance (viz defence paragraph 12 (d)) it did not complete the testing required to finalise the application which was then not lodged.
These are all questions of fact which include whether objectively assessed, the terms of the contract required the applicant or the respondent to do any more than was done to fulfil the terms of their bargain. By its pleading, the respondent has alleged a breach by the applicant justifying it in failing or refusing to lodge the application to the CFDA. This was after the respondent has obtained approval of the premises by the CNCA (defence paragraph 13).
Objectively this is a quite peculiar position to take when it is known that the applicant sought these approvals for the purpose of exporting and selling infant formula in the PRC. The defence alleges (defence paragraph 12 (h), (i)-(v)) that the applicant was obliged to cooperate in the lodgement of the application and breached that obligation by failing to comply with the respondent’s request for assistance.
It is unclear how this plea can sit with the pleas of an inability to complete an application which had obviously commenced and which was partially complete. It would be unusual for the process to be commenced without all of the appropriate information. It is foreseeable that there will (generally) be occasions when further information is required by the authorities to supplement that provided or to address a general or specific enquiry. So much is usually to be expected. But that is not the pleaded case of the respondent which contends that despite repeated requests over the period of more than a year (October 2016 - October 2017), the applicant breached the Deed obligations in the contract by failing to provide requested assistance (defence paragraph 12 (d)). This sits in the background that it is agreed by the respondent that the premises accreditation was obtained.[2] I consider that there is an apparent and obvious inconsistency in these positions.
[2] Letter Juris Cor Legal to Johnson Withers, Lawyers, 23 March 2023; exhibit TJG6 to the affidavit of Mr Graney of 23 March 2023; FDN 42).
By interlocutory application dated 23 March 2023 (FDN 40) the applicants seeks the following orders:-
1)This Application be made specifically returnable to the hearing on 27 March 2023 at 10.20 am.
2)The proceedings be assigned to the Commercial List to be case managed by a judge of the District Court.
3)The Respondent make specific discovery of the following categories of documents (in their possession custody or power):
The Accreditation Application
(a)Any documents recording or evidencing the Respondent’s application for accreditation of its manufacturing facility (Accreditation Application) with the General Administration of Customs of the Peoples Republic of China including: -
(i) Any documents lodged, received or considered as part of the application process;
(ii) Any documents in respect of the application process requirement for the Respondent to clarify the types and brands of dairy products the Respondent planned to export to the PRC;
(iii) Any document in respect of any site audit contained as part of the application process;
(iv) Correspondence with any regulatory authorities in the PRC including the CNCA, its agents and employees;
(v) Correspondence with any regulatory authorities in Australia including the Department of Agriculture, Fisheries and Forestry;
(vi) The approval received by the Respondent in or around December 2017.
Brand Slot Registration
(b)Any document recording or evidencing the allocation of the 3 brand slots that the Respondent may produce as a consequence of its Accreditation Application, including but not limited to:
(i) Any proposal or decision by the Respondent to seek subsequent registration by the State Administration for Market Regulation (formerly the China Food and Drug Administration (CFDA)) of the specific formulation and ingredients of each infant formula produced pursuant to the producer’s allocated brand slots at their facility (Brand Slot Registration);
(ii) Any application for Brand Slot Registration in respect of any product to be sold under a brand owned by the Respondent or any of its affiliates;
(iii) Any application for Brand Slot Registration in respect of any product to be sold under a brand owned by a third party;
(iv) Any agreement by the Respondent to allocate a brand slot to any third party or an affiliate
(v) Correspondence with any regulatory authorities in the PRC including the CNCA, its agents and employees;
(vi) Correspondence with any regulatory authorities in Australia including the Department of Agriculture, Fisheries and Forestry;
(vii) Correspondence with any third party who was allocated a brand slot in respect of these matters.
4The Respondent’s disclosure pursuant to Order 3 to be verified on oath by a director of the Respondent.
5The Respondent pay the Applicant’s cost of and incidental to the application.
In support, the applicants read the affidavits of Timothy John Graney sworn 23 March 2023 (FDN 42), the affidavit of Laura Kate French sworn 31 May 2023 (FDN 46) and the affidavit of Timothy John Graney sworn 13 June 2023 (FDN 50). The applicants have also filed written submissions (FDN 47) and supplementary written submissions of 14 June 2023 (FDN 51). The respondents have filed written submissions (FDN 49).
It is necessary to summarise a number of issues arising upon the affidavit materials. I will later address the written submissions.
In FDN 42, Mr Graney avers that it is common ground in the proceedings that in order to sell and import infant formula into the PRC overseas producers must obtain regulatory approvals and registration.[3] The first is the accreditation of their manufacturing facility with the general administration of customs of the PRC (the CNCA). This is the accreditation process. Once accredited, a producer is allocated three brand slots with three infant formulae for each brand that a producer may produce as its facility.
[3] See FDN 21, Statement of agreed facts.
The second step is what is called registration. That is an application for registration by the China Food and Drug Administration (CFDA) of the specific formulations and ingredients of each infant formula produced pursuant to the producer’s allocated brand slots at the facility. The producer is required to comply with the regulations of the PRC. These facts are not put in contention.
On 24 February 2023, the applicant’s solicitors Johnston Withers Lawyers, sent a letter to the respondent’s solicitor challenging the adequacy of the discovery made by the respondent. The first request was for documents recording or evidencing the application for accreditation of the manufacturing facility (the CNCA Accreditation). The respondent does not challenge the existence of its CNCA Accreditation.
The letter also seeks documents recording or evidencing the allocation of the three brand slots that the respondent may produce as a consequence of its accreditation, including the following documents:-
(a) Any proposal or decision by the respondent to seek subsequent registration by the CFDA of specific formulations and ingredients of each infant formula produced pursuant to the producers allocated brand slots at their facility.
(b) Any application for registration in respect of any product to be sold under a brand owned by the respondent or its affiliates.
(c) Any application for registration in respect of any product to be sold under a brand owned by a third party.
(d) Any agreement by the respondent to allocate a brand slot to any third party or an affiliate.
(e) Correspondence with any regulatory authority.
(f) Correspondence with any regulatory authorities in Australia.
(g) Correspondence with any third party allocated a brand slot.
The letter of the applicant’s solicitors indicates that the material is relevant to the failure by the respondent to satisfy the registration obligations and supply obligations because of the failure by the respondent to obtain registration of the formulations which were then to be supplied to and for the applicant under the supply agreement. Second, the documents are said to be relevant to the respondent’s failure to satisfy the brand slot obligations as the formulations were not included in the product formulae for which the respondent sought registration.
The letter contends and it is not in dispute that the regulatory requirements of the PRC imposed an obligation upon the respondent at the time of the initial application for accreditation to advise of the brands proposed to be exported to the PRC, that the respondent did not include the applicant’s brands in the initial application and chose to progress with other brands after it obtained its accreditation.
The timing of these events is unclear. It is also unclear whether these events are said to be contemporaneous until the CNCA accreditations connected with the applicant’s product. This factual position is uncertain and the documents annexed to the second Graney affidavit suggest that there has been accreditation and registration of other products through the respondent.
The applicant refers to documents 33, 37, 41 and 42 from the applicant’s list of documents. The material contained within these documents indicates that, having obtained accreditation, the respondent chose to make applications for other brands and not the brands supplied by the applicant. Reference is also made in TJG ‘3’ to the first Graney affidavit to a letter from Juris Cor Legal, the solicitors for the respondent to the applicant’s solicitors dated 23 March 2023. On the first page of the letter, the solicitors confirm that the documents sought relate to the respondent’s successful registration of formula brands other than the applicant’s brand. It is contended that these are not relevant to either establishing or disproving the applicant’s non-cooperation in the registration process. However, that is not obviously a complete answer to the applicant’s claim. Then, the solicitors contend that the documents sought could not be relevant to the product registration failure of the applicant’s product. Again, this does not appear to be a correct summation of the position given that there is no evidence of a failure of the product registration of the applicant’s product.
It is then contended that the documents cannot be relevant to the applicant’s alleged non-cooperation in the process of obtaining product registration. It is known that this allegation by the respondent is strongly rejected by the applicant. It is to be recalled that the applicant’s application is in respect of an alleged loss of opportunity. If it be the case that the court accepts that, as the applicant contends, it did everything necessary for the purpose of obtaining registration, then the applications by the respondent in relation to other products are relevant. The same position pertains to the alleged ‘comparative reference to … other projects’ in which the respondent was engaged and their relevance to establishing or disproving the applicant’s noncooperation or any other material fact or issue in the proceedings. I consider that this approach by the respondent fails to take into account the relevance of the material associated with the activity of the respondent after a decision was made by the respondent not to proceed with the registration of the applicant’s formulations. That is the basis of the claim for loss of opportunity.
A further affidavit by the solicitor Laura Kate French (FDN 46) sworn 31 May 2023 was filed and relied upon. Paragraph 3 of that affidavit provides as follows:-
There is some contention in relation to the above paragraph 3 (c) of the French affidavit. However, as the letter from Juris Cor Legal of 23 March 2023 discloses, the respondent has made successful registration applications of formula brands other than those brands of the applicant. An issue is the breadth of meaning of that contention.
Paragraph 4 of the French affidavit refers to documents 35, 37, 41 and 42 of the applicant’s list of documents. The first document of 10 October 2017 includes an email from the CEO of the respondent, Mr Russell Scott to the applicant dated 10 October 2017. This is a contemporaneous record from which the Court may discern the decision by the respondent, once it had decided that the applicant was not ‘acting in good faith to fulfil their obligations…’ to engage with a Chinese customer to work on formulations and to lobby the CNCA. Document 37 from the applicant’s list of documents is to the same effect. It is a contemporaneous record of an email from the respondent to the applicant of 17 November 2017 alleging that when the applicant acted in a disengaged way, the respondent ‘understandably wanted to ensure it had real customers. It states that the respondent has gone down that track with other customers.
Document 41 is a further email from the respondent to the applicant dated 8 March 2018 indicating that the respondent accepted that it had made a ‘…reasoned business decision…’ about the registration process. That decision was to progress with brands where ‘…the commitment from both sides to an ongoing relationship was clear and positive…’. It goes on to state that the applicant’s brand was not one of those which was included in the initial application but despite that, the email expresses the willingness of the respondent to work with the applicant and to submit one of its brands for manufacture. The fourth email, document 42 is a further email from the respondent to the applicant dated 12th March 2018 which states that the key to the issue is the ‘approval for FPA (the respondent) to manufacture a fourth brand…’. The email seeks help from the applicant.
The affidavit of Mr Graney of 14 June 2023 (FDN 50) discloses in exhibit TJG7, an extract obtained from the general administration of customs of the PRC of 13 June 2023 that the respondent has thirteen current registration including a number in respect of infant formulae. It also exhibits the document entitled ‘Administrative Measure on Inspection, Quarantine and Supervision of Imports and Exports of Dairy Products’. Under chapter 2, there is a requirement in the following terms:-
‘Overseas producers shall be familiar with and ensure that its dairy products exported to China will be complied with China’s National Standard of Food Safety and Requirements and be able to provide test report of items regulated by the national standards. Overseas producers shall clarify the types and brands of dairy products it plans to export to China when applying for registration.’
Therefore, under chapter 2 article 6 AQSIQ, the respondent was required to clarify the types and brands of products it planned to export to China when applying for registration. The applicant contends that if these did not include the applicant’s brands then other brands were included. The applications in relation to those other brands, will, it is contended, inform the assessment of damages for loss of opportunity. I consider that this argument of the applicant has particular merit.
Dealing with the parties’ arguments, it is necessary to refer again to the second defence of the respondent. I have earlier made reference to the respondent’s contention that the PRC imposed ‘harder requirements’ upon entities such as the respondent. These were said to be beyond the control of the respondent. They are the basis of the ‘force majeure’ frustration plea. However, there is no plea about what is meant by the expression ‘harder requirements’. These requirements are said to be beyond the control of the respondent and constitute a force majeure which frustrated the ability of the respondent to perform any obligations it might ‘otherwise’ have had under the Deed.
There is no plea of what the frustrating event may have been except that it had the effect of preventing (it appears) the respondent’s ability to perform under the Deed. If that is correct, there is no pleading of an event said to be the basis of the plea of frustration.
The respondent then further pleads an inability to complete the application due to the lack of cooperation and there is some further pleading in support of this allegation. It alleges a term implied by law that the applicant would use its ‘best endeavours’ to ensure the satisfaction of any contingency on which the commercial object of the Deed depended, namely the lodgement of the CFDA application. There is no plea of the circumstances in contemplation under which such a contingency may arise or may be identified by the applicant. It alleges that the applicant was required to do all things necessary to assist in its successful preparation of the application (according to the Deed), it breached the obligation by failing to render assistance to the respondent as requested and this breach caused or contributed to the inability of the respondents to complete its obligations under the Deed.
This is a questionable plea at a number of levels. Its reasoning is, at best, opaque and it is largely vacant of meaning. It does not identify the extent of the respondent’s inability to complete the application. It does not identify the harder requirements or how these might affect obligations under the Deed.
In relation to the alleged implied term, as a matter of law, it is to be recalled that the pleaded case concerns a contract in writing. It is not, for example, an employment contract, or a professional contract for the provision of services where duties of care are implied as a matter of law. It does not concern a bailment contract for safe storage of goods with similar duties (implied by law) or a building contract where the law requires a term requiring the builder to use reasonable care in the provision of services and materials. Although the categories of cases where a term may be implied as a matter of law are not closed, these are the usually understood categories of case where an implied term arises as a matter of law. And the Court is here considering a contract in writing and the difficulties associated with the implication of terms into such an agreement.
As well, a ‘best endeavours’ implied term would not, in the usual course, arise as a matter of law. It is not necessary for me to make any particular findings on that topic except to make the observation that the pleading of such an implied term in this context appears to be questionable.
Then, within the pleading, this implied term to use best endeavours evolves to an absolute obligation to cooperate and do all things necessary in assisting with the successful preparation of the application. This obligation is then said to have been breached by the applicant and so caused or contributed to the respondent’s ‘inability’ to fulfill the contract. It is to be recalled that this inability of the respondent is concerned with the ‘harder requirements’ on the respondent from the decisions of the relevant authorities of the PRC. I do not need to state any final conclusions about that pleading even though it is obviously circular in nature. I consider that there are significant doubts about the pleaded case even though I do not need to make any final decision about that topic. It brings into stark relief the requirements of the PRC which the respondent alleges were made ‘harder’ (in some unspecified way), to complete requirements that compounded what are alleged to be the failures of the applicant to cooperate.
An issue for the trial Court on the pleading is whether the respondent complied with the Deed. This pleaded defence, in part, appears to aver that the respondent has not complied with the Deed for two principal reasons. First, the ‘harder requirements’ imposed by the PRC and second, the breach of an implied term arising as a matter of law. The implied term allegation focuses upon the conduct of the applicant. The force majeure argument is far broader and because of its complete paucity of particularity, must be treated and considered broadly and not narrowly.
I have set out earlier the categories of documents for which the applicant seeks further discovery. These fall into two categories. Documents described as the accreditation applications and, second, the brand slot registration (the CFDA). The respondent has admitted that as part of its obligation to the applicant, it has sought and obtained the accreditation under the application. It did not obtain the brand slot registration. I consider this second aspect of the matter namely the brand slot registration issue, to be the principal source of contention on this application.
I first turn to the relevant authorities. The obligation to make general discovery is prescribed within UCR 73.7(2) and (5). The obligation upon a party is to make discovery of discoverable documents in the possession custody or power of the party. A document is a discoverable document if it is directly relevant to an issue raised in the pleadings and that are defined by the pleadings. UCR 73.7(6) provides that a document is directly relevant in the context of discovery if it is intended to be relied upon at trial by the party or its supports or adversely affects a party’s case (my emphasis). In Toskas v Waldron,[4] Judge Burnett held at [18] and [19] that a document is discoverable as directly relevant if it constitutes circumstantial evidence, tending along with other evidence, to prove or disprove a matter in issue in the proceedings. A document would not be directly relevant if it merely tended to prove or disprove something that may be relevant to a matter or issue in a proceeding or if there was only a chance that it might rise to that level of proof. I respectfully agree with his Honours judgment.
[4] [2020] SADC 76.
If a document, whether alone or with other admissible evidence amounts to an admissible form of circumstantial evidence which proves or disproves a matter in issue, then that document is directly relevant.
UCR 73.15 provides as follows:
73.15—Enforcement and other orders
(1)If there is reason to doubt whether a person has fully complied with an obligation to discover, produce for inspection or copy a document under this Part (whether under the rules in or an order or agreement under this Part), the Court may make such orders as it thinks fit to determine whether there has been full compliance or to ensure or enforce full compliance.
(2) For example, the Court may order that—
(a) a person’s list of documents be verified on oath;
(b) a person make specific discovery of specified documents, or categories of documents, in their possession, custody or power;
(c) a person file an affidavit, or give oral evidence, deposing to whether a person has specified documents or categories of documents in their possession, custody or power;
(d) a person answer written questions; or
(e) a person appear before the Court for examination.
It is well accepted that for the Court to have reason to doubt, it is not necessary for a Judge to be satisfied beyond reasonable doubt, or on the balance of probabilities. It is necessary for a Judge to be satisfied at a level beyond a mere possibility. It is more than a mere suspicion. This is because, in the usual course, the court will presume that the party filing the list of documents has complied with and discharged its obligations to make discovery.
The authorities in relation to the application of the requirements of UCR 73.7 and 73.15 are well settled. These are so well settled that it is unnecessary to further cite authorities for those prepositions. They may be summarised as follows:-
1.A party filing a list of documents is presumed to have discharged that party’s obligations under the rules;
2.If another party seeks further discovery, the onus falls upon that other party to identify to a court matters which satisfy the court that it should not proceed upon the basis of that presumption;
3.In order to obtain an order for further disclosure, it is necessary for the presumption to be displaced;
4.The court must be satisfied to a sufficient degree beyond a mere possibility, that a party’s disclosure is inadequate;
5.A discoverable document for UCR 73.7(5) is directly relevant if it proves or disproves a matter in issue on the pleading. For example, if it comprises circumstantial evidence, when viewed with other evidence, which proves or disproves a matter in issue in the proceedings.
In this case, it is not in dispute that the documents sought by the applicant to be discovered by the respondent actually exist and are available. The contention of the respondent is that the documents are not discoverable. I am sufficiently satisfied that the documents do exist, that they are available to the respondent and may, upon the order of the court, be discovered. The position taken by the respondent is that, on the pleaded cases of the parties the documents sought are not directly relevant and so a deliberate decision has been made by the respondent not to discover those documents in its lists of documents.
It follows that the application of the applicant may be considered against the general rules in relation to discovery, UCR 73.7 and under the operation of UCR 73.15. At all events, it is necessary to recall that a directly relevant document is one which may form a piece of circumstantial evidence which, when viewed with other such evidence, may prove a fact in issue.
The respondent contends that in relation to the first category of documents, as there is no contest that the respondent obtained the necessary accreditation for their manufacturing facility then on the pleadings there is no obligation to make disclosure of documents sought. Nor could it be said that for UCR 73.15, there is reason to doubt that the respondent has complied with its discovery obligations.
The respondent admits that the manufacturing facility has been approved by the relevant authorities of the PRC for accreditation (the CNCA). The applicant points to two key paragraphs within the claim namely paragraph 12 and paragraph 13 (a) and (b) in which the applicant pleads that it was ready, willing and able to perform its obligations under the Deed. That pleading is denied at paragraph 12 of the defence. Paragraph 13 of the statement of claim pleads a failure by the respondent to fulfil its contractual obligations which are answered by reference to an alleged frustrating event.
The applicant pleads relevant obligations namely the accreditation obligation being a requirement imposed upon the respondent to obtain accreditation of the manufacturing premises. This will enable the formulations to be produced. The second was the registration obligation which arose after the accreditation obligation was obtained and refers to the application to the CFDA as the relevant regulatory body. The third is the brand slot obligation required the respondent to include the applicant’s products at the time that the respondent applied for the brand slot registrations.
On the material before me, and in particular the second affidavit of Mr Graney, and by reference to exhibit TJG8 to that affidavit, I am satisfied that it is necessary for an overseas producer to identify the types and brands which are the subject of the applications for registration. The applicant’s position which is not disputed by the respondent is that when the accreditation application is lodged, and so at the first stage of the relevant process, it is necessary for a producer to identify the specific brands of which it will eventually seek registration subsequently.
Exhibit TJG9 to the second affidavit of Mr Graney also discloses a copy of the application form produced by the relevant body for the accreditation application. At item 9 on the table, the applicant is required to list the name of the products to be exported to China. It sets out a series of requirements in relation to the description of those products.
Therefore, any application lodged for the first stage of the process must comply with regulation number 152 which is to be found in exhibit TJG8 to the second affidavit of Mr Graney. The evidence before the court satisfies me that when an applicant seeks accreditation, that applicant must advise the relevant authorities of the PRC of the actual specific products for which accreditation is being sought upon registration. Therefore, the applicant for accreditation must identify those products which are to be registered.
There does not appear to be any doubt that the respondent did not include the applicant at the outset of its application. If that be the case, then there is significant doubt about the defence raised by the respondent of frustration of contract or, accepting for the sake of discussion that there was an implied duty to cooperate, whether there was compliance with that duty or whether there were any other consequences. Those matters fall into irrelevancy when it is known that, as appears to be the case, the respondent had no intention at any time to include the applicant as part of the second stage of that process.
Finally, exhibit TJG7 to the second affidavit of Mr Graney lists a number of registrations in the name of the respondent in relation to infant milk products. In particular, reference is made to item 9 which is an entry associated with infant formula dairy products. Reference is also made to the relevant column for 1 January 2022 and it is apparent that there were a number of registrations connected with the infant milk formula product. It is also apparent that item 9 relates to the accreditation application, namely the first stage of the process. The respondent has admitted in its pleadings that the accreditation application was obtained on 27 December 2017. Therefore, item 9 of exhibit TJG7 to the second affidavit of Mr Graney indicates that this registration has been renewed. This contradicts the contention raised by the respondent in submissions that none of the brand slot applications, being part of the second stage of the process were successful. There is no plea by the respondent that the applications in respect of third parties were not successful. There is also no evidence before the court to that effect and I am not prepared to accept any unsupported contention to the contrary. Therefore, it is not an answer, as may usually be the case, that because the admission is made by the respondent that the necessary accreditation for the manufacturing facility has been obtained, no documents are discoverable. In my opinion, the documents sought by the applicant are, in those quite specific circumstances, discoverable.
The second aspect of the application must also be considered in the context of this admission about the acceptance of the accreditation application (the CNCA certificate). This means that the respondent, as a producer, is allocated with three brand slots with three infant formulae for each brand slot. The second step is then for registration by the CFDA of the specific formulations and ingredients of each infant formula produced pursuant to the producer’s allocated brand slots.
It is within this activity that documents are said to exist which have not been disclosed. This must be assessed against the respondent’s pleaded case alleging frustration because of a force majeure event, namely the unspecified and unparticularised ‘harder requirements’ of the government of the PRC and then the implied term to use ‘best endeavours’ said to arise as a matter of law and the pleaded consequence of its alleged breach.
The respondent relies upon this alleged frustrating event as a complete answer in defending the applicant’s claim for loss of opportunity. That can only be assessed when the whole of the background material relevant to the ‘harder requirements’ may be considered. The real difficulty is the quite unsatisfactory state of the respondent’s pleaded defence which is denied in the applicant’s reply. A consequence is that the applicant is put upon a very broad enquiry of facts and circumstances. These will include pieces of circumstantial evidence which, with others, prove or disprove a matter in issue. In turn, this leads to an enquiry about documents which at the least are connected with a number of issues and then, in turn, any other documents connected with them.
In his submissions, Mr Graney contended that, on the documents before the court, the respondent has renewed its accreditation registration. If that be the case, there would be no utility in such registration unless it also had brand slot registrations or there is an intention to have those registrations in the future. He also contended that any conduct pleaded by the respondent about the applicant occurred prior to the accreditation application being successful which occurred from October 2017. If it is said that there was a lack of cooperation which rendered an application futile, then, it must logically follow that all relevant conduct pleaded occurred prior to the application being successful. Any documents generated at that time are therefore relevant.
He challenged the submission of the respondent in light of the criticisms of the conduct of the applicant in October 2016 to October 2017 as being not directly relevant having regard to paragraph 12 (d) of the defence. The respondent contends that those matters are purely background. The applicant contends that this position is unsustainable because (if it was correct) none of the conduct of the applicant would be relevant. As well, having regard to the pleading and the reply, the position of the applicant is that all assistance required was provided.
Mr Graney contended that none of these material facts could form part of a background narrative. That is, the respondent’s case must be that assistance was required and so that assistance was relevant or it was not material and therefore was not relevant. Therefore, documents which came into existence during the relevant period are relevant because the respondent’s case is that the applicant did not cooperate. It follows that it is inconsistent then to say that because the application was ultimately successful that documents during the period are not relevant.
Also, Mr Graney relied upon the French affidavit to contend that it was only in March 2018 that the applicant became aware through its own enquiries that accreditation had been obtained and it was only then that it was contended by the respondent that accreditation had been obtained.
On the brand slot registration issue, Mr Graney contended that on the information before the Court, it is necessary for the respondent to identify which brands it intended to apply for registration and which, in turn, were disclosed. It may then be discerned from the outset that the respondent had no intention of applying for the applicant’s brand. This is relevant to the alleged failure of the respondent to comply with its contractual obligations. The applicant also contends that there is an inconsistency between the respondent saying that it is futile to proceed and then proceeding with another form of application.
In his submissions, Mr Manetta submitted that he understood that the application was abandoned by the respondent in October 2017 and so the contract was abandoned in October 2017. This, he said, was communicated at the time to the applicant’s staff. He relied upon an agreed statement of facts. Mr Graney did not accept that was the case or that there is anything within any agreed statement of facts which reflects this position. There is no evidence or pleading before me to that effect.
Mr Manetta submitted that it is only what happened after October 2017 that could be relevant to the question of damages and then only as a comparison in terms of conclusion in a logical way that damages may be assessed. That would be on the basis of the probability or possibility of success. Mr Manetta submitted that there were three failed alternative applications and there were no successful applications for the baby formula. However, there is no pleading to that effect. The respondent has not filed any affidavit to that effect. This contention is entirely unsupported.
That submission also fails to comprehend the approach of the court in assessing damages for loss of opportunity which involves assessing both the possibilities and the probabilities of an event and therefore an outcome.
Merely because another application failed does not and cannot mean that this application is of no relevance. That is because, when assessing possibilities and probabilities, a comparison may be made between the merits of the failed application and the merits, for example, of the applicant’s application. It is therefore not an answer logically or at all, to suggest that merely because an application failed, the documents associated with it are not directly relevant. I am unable to accept that submission. In the circumstances I am satisfied that the applicant seeks discovery of documents that are directly relevant (UCR 73.7) and the respondent has not fully complied with its obligation to discover documents in this action. It is in that background that I have arrived at my decision about the applicant’s application for discovery. The discussion which follows reflects the context and reasoning set out above. I order that the following documents be discovered by the respondent:
(a) Documents connected with the accreditation application and approval of the respondent’s premises. I accept that the regulatory requirements imposed upon the respondent at the time of its initial application for accreditation required the respondent to advise of the brands it subsequently proposed to export to the PRC. It is not contested between the parties that these regulations had operation and were applicable and the applicant has also put into evidence the application form produced by the GAC as at 13 June 2023. These have been extracted from the relevant website. That document required the provision of details concerning the products to be exported to China. The documents are relevant.
(b) Documents connected with the allocation of the three brand slots. This will enable the objective assessment of the requirements of the PRC before and after they allegedly became ‘harder’. This will require a discovery by the respondent of the proposals or decisions to seek subsequent registration by the relevant authority of specific formulations and agreements on infant formula produced pursuant to the producer’s allocated brand slots at their facility;
These documents will disclose the difficulties associated with such registration that objectively assessed did not earlier pertain and so disclosure is required of any brand slot registration in respect of any product to be sold under a brand connected with the respondent;
The documents will also disclose whether the respondent experienced the same alleged difficulties and, what, if anything occurred that informs the alleged breach of the obligations of cooperation by the applicant. It follows that it is also necessary also for discovery to be made of any application for brand slot registration connected with a brand then proposed to be sold by the respondent.
(c) Differently, but essentially for the same reasons, the documents surrounding any application for brand slot registration to be sold under a brand owned by a third party or any agreement to allocate a brand slot to a third party. These are directly relevant for a number of reasons. First, what were the requirements of the relevant department of the PRC? Second, whether ‘harder requirements’ were imposed; and third, what was the effect of these ‘harder requirements’ in order to assess the pleaded frustrating effect of these ‘harder requirements’ in the context of the actual application made?
The applicant also seeks orders for the provision of correspondence with any regulatory authorities in Australia or the PRC. I consider that for the reasons already stated, any correspondence with the regulatory authorities and the PRC in relation to its requirements is directly relevant. There is no current basis to seek discovery of correspondence with the Australian authorities.
I am unable to identify any basis for making an order that the list be verified on oath.
In the result the applicant has succeeded, in part, on its application and in summary I make the following orders: -
1.The application be marked specially returnable.
2.The proceeding be assigned to the Commercial List to be case managed by a Judge of the District Court.
3.The respondent makes specific discovery of the following categories of documents in its possession custody or power.
Accreditation
(a) Documents connected with the accreditation process and the approval of the respondent’s premises in connection with the claims of the applicant in these proceedings.
Brand Slot Registration
(b) Any documents recording or evidencing the allocation of the three brand slots that the respondent may produce as a consequence of its accreditation application, including but not limited to:-
(i) Any proposal or decision by the respondent to seek subsequent registration by the State Administration for market regulation (formerly the China Food and Drug Administration (CFDA) of the specific formulations and ingredients of each infant formula produced pursuant to the producers allocated brand slots at their facility (brand slot registration);
(ii)Any application for brand slot registration in respect of any products to be sold under a brand owned by the respondent or any of its affiliates;
(iii)Any application for brand slot registration in respect of any product.
(iv)Any agreement by the respondent to allocate a brand slot to any third party.
(v)Correspondence with any regulatory authorities in the PRC including the CNCA, its agents and employees.
(vi)Correspondence with any third party who is allocated a brand slot at the relevant time.
4.The applicant shall bring formal orders which reflects these reasons.
5.I will hear the parties in relation to costs and any consequential orders.
Confidentiality
In the course of argument, submissions were made in relation to maintaining the confidentiality of the documents of the respondent. I accept the submission of the applicant that issues in relation to confidentiality are matters relevant to production rather than to disclosure. In the course of argument, I indicated to the parties that on the topic of the preservation of necessary confidentiality I would proceed in a similar matter to that adumbrated by Hayne J in His Honours decision in Mobil Oil Australia Ltd v Guina Developments Pty Ltd.[5] It will first be necessary for the Court to be satisfied of the need to protect confidential information and only then to construct protective orders in order to protect confidentiality of any information which requires such protective orders. That will require further submissions from the parties and the drafting of the appropriate forms of order. I will hear the parties further on that matter and any other relevant matters and on costs.
[5] [1996] 2VR 34 at [39-40]. See also Cadbury Pty Ltd v Amcor Ltd (No.2) [2009] FCA 663 at [6].
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