Betterway Health Care International Group Pty Ltd v Ferngrove Pharmaceuticals Pty Ltd (No 2) - [2024] SADC 47

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Interlocutory Application)
BETTERWAY HEALTH CARE INTERNATIONAL GROUP PTY LTD v FERNGROVE PHARMACEUTICALS PTY LTD (No 2)
[2024] SADC 47
Judgment of his Honour Judge Slattery
22 April 2024
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS
The applicant obtained an order for the respondents to make discovery of a specific category of documents (Judgment No.1, 2023 SADC 107). The applicant contends that for UCR 73.15(2)(a) there is reason to doubt that the respondent has fully complied with its obligation to make disclosure pursuant to an order made by the Court on 23 August 2023 (FDN 56).
The applicant seeks an order that the respondent’s disclosure made pursuant to the orders of the Court on 23 August 2023 (FDN 56) be verified on oath by a director of the respondent.
Held:
1.The respondent’s disclosure made pursuant to the orders of the Court on 23 August 2023 (FDN 56) be verified on oath by a director of the respondent within 14 days of this day.

2. The Court will hear the parties further in relation to costs and other ancillary orders.
Uniform Civil Rules 2020 (SA), referred to.
Betterway Health Care International Group Pty Ltd v Ferngrove Pharmaceuticals Pty Ltd [2023] SADC 107; Austral Pacific Judgment (HK) Limited v Urban Activation Pty Ltd [2023] SADC 66., considered.

BETTERWAY HEALTH CARE INTERNATIONAL GROUP PTY LTD v FERNGROVE PHARMACEUTICALS PTY LTD (No 2)
[2024] SADC 47

By an interlocutory application dated 15 January 2024 (FDN 57) the applicant sought the following orders:-
1.   The respondent file a supplementary List of Documents for the specific disclosure made by the respondent pursuant to the orders made on 23 August 2023 (FDN 56).
2.   The respondent’s disclosure made pursuant to FDN 56 be verified on oath by a director of the respondent.
3. This application be referred to his Honour Judge Slattery (being the judicial officer who handed down decision ([2023] SADC 107 to which the orders in FDN 56 relate).
4.   This application be made specifically returnable on the first date convenient to the Court.
5.   The respondent pay the applicant’s costs of and incidental to the application.
The application was supported by an affidavit sworn by Timothy John Graney, solicitor dated 15 January 2024 (FDN 58) which the applicant has now read into evidence without objection or a request for cross-examination.
On 22 April 2024 the applicant only pressed for orders under paragraph 2 of this application. On that day I made an order in the terms of paragraph 2 and said that I would later publish my reasons. These are those reasons.
In order to understand my decision here, it is necessary to understand some background to the relationship between the parties. The background is summarised in a decision made by me on 11 August 2023 connected with the applicant’s interlocutory application of 23 March 2023(FDN 40) seeking orders that the respondent make specific discovery of identified categories of documents.[1] In paragraphs [1] – [9] of that judgment, I summarise the applicant’s claim. Those paragraphs are as follows:-
[1]    Betterway Health Care International Group Pty Ltd v Ferngrove Pharmaceuticals Pty Ltd, SADC 107.
1.   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).
2.   The respondent is a Therapeutic Goods Administration Licenced Contract Manufacturing Facility, particularly in the instant case, for the Peoples Republic of China (PRC).
3.   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).
4. These regulations are applicable to the accreditation and registration process.
5.   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.
6.   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.
7.   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.
8.   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.
9.   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.
By an interlocutory application of 23 March 2023 (FDN 40), the applicant sought 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 but not limited to: -
(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.
5      The Respondent pay the Applicant’s cost of and incidental to the application.
In my judgment of 11 August 2023, I held (at [54] et seq) that an overseas producer is required to identify the types and brands which are the subject of application for the registration with the CNCA. I also held at [58] of my first judgment that the respondent pursued the registration of other products and not those of the applicants. This contradicted the respondent’s contention that none of the brand slot applications were successful. To the contrary, the evidence before the Court suggested that they were negotiated, they were registered and this registration was renewed. I accepted at [70] of my first judgement that the documents, of which discovery was sought are directly relevant. I made orders at [73] as follows:-
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.
At [72] I held that there was then no basis disclosed for making an order under UCR 73.15(2)(a) that the list of documents be verified on oath. The applicant now renews its application for an order under UCR 73.15.
UCR 73.15 provides:-
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.
This rule operates in the background of the usual presumption that a party has complied with its discovery obligations. That may be referred to as the ‘compliance presumption’. To obtain an order under this rule, it is necessary for a party to identify, sufficient information to satisfy the Court that this compliance presumption has been displaced and should not apply. The Court is required to be satisfied that there is reason to doubt that the respondent has fully complied with an obligation to discover…a document under this Part. In Austral Pacific Judgment (HK) Limited v Urban Activation Pty Ltd,[2] on issue of the proper approach of a Court to an application under this rule Judge Burnett held at [32]:
[32] In Ceneavenue v Martin White J held:
“I consider that the expression ‘reason to doubt whether a party has fully complied with the party’s obligations to disclose and produce documents’ in r 145 implies a presumption that there has been compliance with a party’s disclosure obligations. Hence, it will be incumbent upon an applicant for further and better disclosure to point to matters which indicate that the Court should not give effect to that presumption. It is not necessary for the Court to be convinced that the plaintiffs’ disclosure is inadequate, or to be satisfied on the balance of probabilities that it is inadequate. It is sufficient if the Court is satisfied that there is a reasonable basis for doubting that the disclosure made is adequate. This will require a degree of satisfaction going beyond the mere possibility that the plaintiffs’ disclosure is inadequate.
An applicant may establish the doubt by demonstrating, amongst other things, that the party making the disclosure has proceeded under some form of misconception, whether as to the nature of the issues arising on the pleadings, or as to the documents which may be directly relevant to those issues, or as to the reach of the rules concerning possession. It may also satisfy the evidential onus by pointing to the documents which one would expect to have come into existence in the circumstances of the case by reason of ordinary commercial practice or experience, by reference to the pleadings themselves or by reference to other documents already disclosed.”(footnotes omitted).
I respectfully agree with and adopt his Honours approach.
[2] [2023] SADC 66.
Within the rules, there are two occasions on which the power to make an order that a party verify a list on oath is provided. The first is UCR 73.14(2)(k) UCR 73.14 provides:-
73.14—Modification of rules for discovery
(1)The Court may order that the operation of the rules in this Part be modified in a manner specified in the order.
(2)     For example, the Court may order that—
(a)     the parties, or a party, need not make discovery or the parties’, or a party’s, obligations to make discovery be limited;
(b)     the criteria for a discoverable document be modified (including broadening or narrowing the criteria);
(c)     the time for filing a list of documents be modified;
(d)     discovery be made in stages;
(e)     a document, or class of documents, need not be discovered, or be discovered separately;
(f)     a party describe documents with greater precision;
(g)     a bundle of documents be listed as a single item;
(h)     the simple electronic protocol or complex electronic protocol apply instead of the physical protocol;
(i)    the form of a list of documents otherwise be modified;
(j)    documents be produced for inspection in a specified manner or copies be provided on specified terms;
(k)     a person’s list of documents be verified on oath; or
(l)    an agreement made under rule 73.18 be cancelled and the parties make discovery under the rules in, or an order under, this Part.
As the heading to the rule suggests, this rule is concerned with the modification of the operation of the rules for discovery in a specified manner. Although UCR 73.14(2)(k) may not at first glance appear to fit within the nature of those orders contemplated under UCR 73.14(1) and (2), it is included for obvious purposes. There will be occasions arising, which are factually based, where such a rule is justified and appropriate. This, for example, may be due to the content of a party’s pleadings separately or combined with other proven behaviour of the party in the subject action or in other circumstances. There are many other such examples. Importantly, this rule empowers a Court to order a party yet to make discovery to verify the list on oath. Its use may be rare but that does not detract from its proper use on the appropriate occasion. The other is UCR 73.15.
I do not consider that the application of UCR 73.14(2) is subsumed under the operation of UCR 73.15. I do not think that his argument must logically follow. These are two separate rules with different work to do. UCR 73.15(1) establishes the requirement to satisfy the Court of a ‘reason to doubt’ in order to displace the compliance presumption.

From the outset in this case, the applicant has pointed to documents which ordinarily would be expected to exist because of usual commercial practice. In support of its initial application, the applicant contended that such documents would, in the usual course, be expected to exist, based on the parties pleaded cases and the applicant’s own material. The applicant submitted that the respondent did not contend that the documents sought on its application did not exist. Initially, the respondent argued that the documents were not relevant. Following the delivery of my first judgment the respondent has filed a further list of documents and the applicant claims that it, too, is insufficient in many respects.
The applicant has now renewed its application for the respondent’s disclosure made pursuant to the orders made by the Court on 23 August 2023 (FDN 56) (the orders) be verified on oath by a director of the respondent. This application was heard on 22 April 2024. In the argument the applicant relied upon a book of documents filed 4 December 2023 (FDN 23), a statement of agreed facts filed on 8 December 2020 (FDN 25) and other documents to which reference was made in argument.
The issue for my determination is whether there is reason to doubt that complete discovery has been made.
FDN 61 is the respondent’s List of Documents and document 1 of that list describes a registration application lodged in respect of a first stage of the process for registration in China. That disclosure was made in the course of the applicant’s disclosure argument that required the respondent to identify the brands that it was going to apply for from commencement. This document is dated 16 June 2014, which predates the events the subject of the applicant’s claim.
All of the documents described from document 1 through to document 33, within that list of documents, relate to this application and all are dated 16 June 2014. They are described as documents provided at the time of an application for registration for the first stage of that process.
The next document, document 34, is an email from the respondent to the Department of Agriculture dated 6 December 2023. Thus, no disclosure has been made by the respondent of any document in the period between 16 June 2014 and 6 December 2023. At best, this is very peculiar and suggests a failure to make proper discovery absent any other explanatory material.
Documents 35 to 43 in this list are all specifications of the infant formula. These are lodged at the time of lodgement of the specifications for the brands. These applications are required to provide the formula for the brand. That is the only disclosure made of that process, other than items 44 and 45 of the List of Documents which are said to be no longer in the possession of the respondent. These documents are said to relate to the second stage of the process in the application to the Chinese authority for registration of formula by the respondent.
Annexure TJG10 to the affidavit of Timothy Graney sworn 15 January 2024 (FDN 58) discloses an application by the respondent to the relevant Chinese authority signed by the contact person Mr Wei Tang, who is the director of the respondent. That application also contains a reference to a document brand spreadsheet called ‘Document 2 – Brand spreadsheet’; that document was signed by Mr Tang on 16 June 2014.
In the course of this application, the respondents filed an affidavit of Haixuan Zhou sworn 22 March 2024 (FDN 66). In his affidavit, Mr Zhou deposes to giving assistance to two employees to fill out the application form of 16 June 2014. The application that has been disclosed by the respondent is known to have been made on 16 June 2014 but no further documents about that application have been discovered by the respondent. For example, there are no documents surrounding whether that application was submitted and whether there was any response to that application. In his affidavit of 22 March 2024 (FDN 66), Mr Zhou says that he supervised two people to fill out a ‘certification and accreditation administration of the Peoples Republic of China (CNCA) imported milk based infant and follow on formula overseas production registration application form’. He deposes that he prepared the relevant documents in the period between 2016 and 2018. The two employees whom he was supervising encountered difficulties when filling out the application form. His task was to formulate a strategy with the two employees. It is unclear from this paragraph whether there has been an application which has been prepared and lodged. As a matter of ordinary inference, such an application appears to have been lodged. There has been no discovery in relation to it. The applicant submits that on this basis alone, there is reason to doubt the disclosure that has been made on the basis of the earlier application that has already been disclosed.
The applicant also contends that from November 2023, it made complaints about the respondent’s disclosure and contended that there must be other documents connected with the first stage of the process. The applicant contends that there has been no disclosure about any correspondence with any regulatory authority in the Peoples Republic of China in relation to the first stage. The applicant contended that the Zhou affidavit only related to the second stage of the process.
In addressing the test under UCR 73.15, the applicant contended that these documents are either known to be in existence or reasonably could be expected to be in existence. These documents must also include any email or other correspondence connected with the application being submitted and received by the relevant authority in the Peoples Republic of China. These would include any correspondence about the progress of the applications and the outcome of the applications. For example, a successful registration would result in a certificate or some other document identifying registration.
The applicant also relies upon an agreement between the parties (within an agreed statement of facts) that there is a site audit requirement which is part of the application process. There has been no disclosure made of any materials connected with any site audit requirements. It is also known and accepted (within the same agreed statement of facts) that the respondent has renewed its CNCA registration on a number of occasions but there has been no disclosure of any materials connected with that renewal since December 2017 to the present time. Nothing has been disclosed on that topic.
In relation to the brand slot registration (generally called the second stage of the process) which is discussed in my first judgment, extracts were taken from a book of documents before the Court on an argument about a preliminary point for the determination of the appeal from the decision of Judge Durrant. I have earlier referred to paragraph 4 of the affidavit of Mr Zhou (FDN 66) dated 22 March 2024 in which he makes reference to two employees. In paragraphs 2(e) to (h), of the agreed facts for the preliminary determination point, there is a references to a number of employees: Mr Wei Tang; Ms Yavanna Jaing; Ms Veronica Yang; and Mr Pradeep Jobanputra, the latter of whom is the quality control officer of the respondent. At paragraphs [14]-[36] of the agreed statement of facts, in relation to the time after the initial deed was executed, there is disclosure of a number of emails between the applicant and those employees between 15 August 2016 and December 2017. During that time, the applicant was advised that the respondent had proceeded with other brands (and not the applicant’s brands). In the same period, the applicant corresponded with a number of those employees not including the two people referred to by Mr Zhou at paragraph 4 of his affidavit of 22 March 2024 (FDN 66). Those persons were said to be responsible for the second stage of the application process.
Agreed fact 31 recites that between December 2016 and September 2017, the applicant liaised with the quality control officer of the respondent, Mr Jobanputra, about of a number of representations. Also before the Court as an agreed document is a telephone log from the director of the respondent with persons from whom the respondent corresponded over that period. These included the employees of the respondent who, at the time, the respondent agreed were involved in the process. In his affidavit, Mr Zhou does not depose that he has spoken to any of those people and therefore, the two persons to whom he has spoken do not appear to be those persons earlier identified by the respondent in the proceedings as the people to whom he should be speaking as having been involved in the process.
In correspondence, the solicitors for the respondent reported in a letter of 1 November 2023, that the writer, Ms Luu had repeatedly asked the respondent to make reasonable enquiries with the Chinese entities but has been unable to obtain any documents. However, the affidavit of Mr Zhou of 22 March 2024 (FDN 66) discloses that no enquiries were made until 21 March 2024, notwithstanding that the issue had been raised as early as November 2023.
In evidence before me is a letter from a Mr Eugene Ng, who is Regulatory Manager of the respondent, addressed to the Department for Agriculture (attention Mr Clint Mossman). The subject of the letter is ‘Ferngrove Pharmaceuticals …export infant formula SAMR status.’ It refers to an establishment number ‘1829’, enquires about the SAMR registration, suggests that the registration is currently unclear, and advises that Ferngrove had already submitted three brands and three stages for each brand, namely nine product formulations to China. It enquires whether or not there has been an ‘all clear’ from SAMR.
The letter identifies the three brands as ‘OZ Good Dairy stage 123’, ‘AuSupp, stage 123’ and ‘CuddleCare, stage 123’. The nine specifications are attached for reference. The letter goes on to say:-
‘Since 2016 we have been investing continuously on our factory and maintaining capacity, waiting to serve the Chinese market. While keeping renewing our factory permit with GACC for approx. ten years there is no foreseeable return on our investment as SAMR have not finalised the approval. We have been struggling to communicate with SAMR as the requirement is not clear. We suspect SAMR had already rejected the nine products we proposed yet there is no clear communications, let alone why and how’.
There has been no disclosure of any proposal or decision by the respondent to seek brand slot registration whether for itself or for other parties and there has been no disclosure in connection with these matters to which reference has been made by Mr Ng and which is the subject of these proceedings.
All of those documents were required to be disclosed under the orders made by me following my first judgment. The applicant submits that this information constitutes overwhelming evidence that there is reason to doubt whether the disclosure obligations of the respondent had been complied with. I agree with that submission as it is obviously correct. I have earlier made reference to the content of UCR 73.15. I am satisfied on the material discussed herein that at a number of levels, there are reasons to doubt that the respondents have complied with their disclosure obligations. This is notwithstanding the orders made by me in my first judgment. I am therefore satisfied that the applicants have discharged the burden upon them sufficient to seek the orders within the application of 15 January 2024 (FDN 57) in paragraph 2.
I make the following orders:-
1.   The respondent’s disclosure made pursuant to the orders made by the Court on 23 August 2023 (FDN 56) (the orders) be verified on oath by a director of the respondent within 14 days of this day.
2.   The verification required pursuant to order 1 address each category of documents identified in the orders being those contained in orders 3 (a) and (b) (i) to (vi) inclusive.
3.   This action be adjourned for further directions to 6 May 2024 at 9 am.
I will hear the parties further in relation to costs and other ancillary relief.