Guizhou v Livestock Air
[2019] VCC 105
•13 February 2019
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| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-17-01052
| GUIZHOU PROVINCE WUCHUAN COUNTY SHENJIMEIYANGYANG AGRICULTURAL TECHNOLOGY CO. LTD | Plaintiff |
| v | |
| LIVESTOCK AIR CORPORATION PTY LTD (ACN 007321 039) | First Defendant |
| and | |
| KWOK FU TSE | Second Defendant |
| and | |
| WILLIAM GEOFFREY PATTEN | Third Defendant |
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JUDGE: | HER HONOUR JUDGE MARKS | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 8-12,15-16 and 24-25 October 2018 | |
DATE OF JUDGMENT: | 13 February 2019 | |
CASE MAY BE CITED AS: | Guizhou v Livestock Air | |
MEDIUM NEUTRAL CITATION: | [2019] VCC 105 | |
REASONS FOR JUDGMENT
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MISLEADING AND DECEPTIVE CONDUCT – Exporter agreed to export sheep from Australia to China – Importer agreed to vary initial contract to require the importer to make two advance payments to the exporter before any sheep were loaded onto a plane to be airfreighted – Importer made the advance payments – The contract did not proceed and no sheep were sent – Whether the importer agreed to vary the initial contract and make the advance payments as a result of misleading and deceptive conduct of those involved in negotiations on behalf of the exporter – Turns on own facts.
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiff | Mr D Farrands and | Thomas Victoria Lawyers |
| For the first and third defendants | Dr M Barrett | Karavias & Associates |
| For the second defendant | Mr A Bell | Maxim Legal |
Contents
Overview
PLEADED CLAIMS
Representation 1
Representation 2
The alleged involvement of Bill and Eddy
The conduct said to have conveyed the representations
The people involved
EVIDENCE
Import process
Letters of credit
Negotiations
ANALYSIS
Representation 1 not conveyed
Representation 2 not conveyed
Both representations
No inducement shown
CONCLUSION
HER HONOUR:
Overview
Guizhou Province Wuchuan County Shenjimeiyangyang Agricultural Technology Co Ltd (Guizhou) is the plaintiff in this case. It signed a contract with the first defendant, Livestock Air Corporation Pty Ltd (LAC) to export over 1,500 sheep of various breeds from Australia to China.
Xin Mao Import and Export Co Ltd (Xin Mao) acted as Guizhou’s agent in the transaction.
The initial contract required LAC to buy the sheep from farmers in Australia, pay for their air freight to China and put them on board a plane, before it could seek any payment from Guizhou. Guizhou’s payments to LAC were to be secured by an appropriate letter of credit to be arranged by Guizhou – via its agent Xin Mao – naming LAC as beneficiary.
Agreement about the form of the letter of credit was not reached. After various negotiations and amendments to the initial contract, Guizhou and LAC agreed to amend the contract such that Guizhou was required to make two payments to LAC in advance of the sheep being put on the plane.
Guizhou made an initial payment of RMB852,187.50 (AUD165,409.59) to LAC in October 2016. It made a later payment of RMB3,067,875 (AUD579,160.18) in December 2016.
However, LAC never sent any sheep and the contract did not proceed.
Guizhou commenced this proceeding against LAC. It sued for breach of contract, seeking the return of the money it paid, and profits on the contract which did not proceed.
Just before the trial was listed to begin in June 2018, LAC was put into liquidation by its sole director and shareholder, Mr William Patten (known as Bill)[1]. The trial was adjourned.
[1]The main people involved in the negotiations at the heart of the dispute in this case principally referred to each other by the names Bill, Eddy and Shirley in their many messages and emails to each other. Those names are used in this judgment, so that it is easier to understand the references in those documents.
Guizhou’s case proceeds as against the second defendant, Mr Kwok Fu Tse (known as Eddy), and against the third defendant, Bill. Guizhou claims that as a result of two representations they made, which it alleges constitute misleading and deceptive conduct under the Australian Consumer Law (ACL), Guizhou agreed to amend the initial contract, and made the two payments to LAC.
By the end of trial, Guizhou claimed the return of the payments, interest, and some bank charges it says were related to making the payments.
I am not satisfied that the alleged misleading and deceptive conduct occurred, for the reasons set out below.
I will give judgment for the second and third defendants.
PLEADED CLAIMS
The misleading and deceptive conduct complained of arises from two complicated, lengthy representations, each of which deal with at least four subject matters. They are said to have been made by Bill and Eddy to Guizhou’s director, Ms Xiaomei Qian (known as Shirley). Guizhou alleges that those representations were misleading and deceptive, and induced it to make the payments.
Representation 1
The first representation alleged (Representation 1) relates to the first payment made by Guizhou (via its agent Xin Mao) on 31 October 2016 of RMB852,187.50.
Representation 1 was pleaded in the statement of claim[2] as follows:
[2]The current statement of claim is the third further amended statement of claim.
[25] Prior to 26 October 2016, the First Defendant and/or Second Defendant as agent and representative of the First Defendant represented to the Plaintiff that:
(a)the agent of the Plaintiff in China, Xin Mao Import & Export Co Ltd (“the Plaintiff’s Agent”), might not, despite being required under the Original Contract, as agent of the Plaintiff, to issue a letter of a credit for USD 1,262,500, pay funds to the First Defendant under the letter of credit as required by the Original Contract;
(b)the First Defendant knew of the risk of non-payment referred to in (a) because of previous transactions the Plaintiff’s Agent had been involved in, in particular that the Plaintiff’s agent had a terrible business record and was involved in a law suit with another client;
(c)as a consequence, the First Defendant would require of the Plaintiff that it agree to amend the Original Contract so that the Plaintiff would be required to make a cash payment of 10% of the purchase price for the sheep;
(d)if the Plaintiff did not agree to amend the Original Contract in the manner set-out in (c) above, the First Defendant would not be prepared to continue to deal with the Plaintiff.
(“the Pre-Payment Requirement Representation”)
Particulars
(i)The Pre-Payment Representation was partly oral and partly in writing as follows.
(ii)On 23 September 2017, the Second Defendant was introduced to Xiaomei Qian by the First Defendant’s representative, Mr W Patten, in Shanghai, China, who told Xiaomei Qian that the Second Defendant would be involved in all aspects of the Contract (as amended) as the Second Defendant could speak fluent Chinese and was an expert in banking, letters of credit, and livestock importation. Mr Patten, the Second Defendant, and the Plaintiff’s representative, Xiaomei Qian, then went to Beijing to meet the Plaintiff’s Agent.
(iii)The Pre-Payment Requirement Representation was oral and was made by the Second Defendant as agent and representative of the First Defendant to the Plaintiff on 20 October 2016 at the Second Defendant’s hotel room, No 1, 1614, Beijing International Hotel, Beijing, China and 25 October 2016 in face to face conversations between the Second Defendant and Xiaomei Qian of the Plaintiff, and in respect of 25 October 2016, in writing by WeChat. The substance of the conversations was as alleged.
(iv)In the conversation on 20 October 2016 at the Second Defendant’s hotel room, No 1, 1614, Beijing International Hotel, Beijing, China, the Second Defendant told Xiaomei Qian of the Plaintiff that there was a lawsuit against the Plaintiff’s Agent and that the Plaintiff’s Agent was a bad business to deal with. The Second Defendant requested that the Plaintiff make a 10% payment of the purchase price for the sheep in lieu of the issue of a Letter of Credit to be dealt with by the Plaintiff’s Agent.
(v)In a conversation on 25 October 2016, the Second Defendant told Xiaomei Qian of the Plaintiff that the Plaintiff’s Agent might not pay funds to the First Defendant because the Plaintiff’s Agent had a terrible business record, and therefore the First Defendant needed a pre-payment first, and in writing by WeChat.
(vi)To the extent to which the Pre-Payment Requirement Representation was in writing, the Plaintiff will rely at trial on the following.
(vii)By email of 28 September 2016 from Mr Patten of the First Defendant to Xiaomei Qian (in China) (referred to as Shirley in the email) of the Plaintiff, the First Defendant told the Plaintiff that it had been warned by two people who were familiar with the Plaintiff’s Agent, not to do business with them because of their history and current problems. In the email, the First Defendant asked the Plaintiff to give thought to a bank draft or telegraphic transfer if the Plaintiff had concerns about the Plaintiff’s Agent’s legal problems. In the email, the First Defendant stated: “Be wise to give this some thought, to protect yourself and your money.”
(viii)By email of 14 October 2016 from Mr Patten of the First Defendant to Xiaomei Qian (in China) (referred to as Shirley in the email) of the Plaintiff, the First Defendant told the Plaintiff that the Plaintiff’s Agent was using the Plaintiff’s money and that despite the Plaintiff’s instructions it was not remitting the deposit, delaying the Plaintiff a further three weeks. In the email, the First Defendant also alleged that it suited the Plaintiff’s Agent to keep delaying as it gave the Plaintiff’s Agent more time to use the Plaintiff’s money. In the email, the First Defendant also stated: “You signed the Amended Contract so you must be happy with that, it’s Xinmao [the Plaintiff’s Agent] that keep interfering and at the end of the day, they are YOUR agent and should be following your instructions.”
(ix)On 26 October 2016, the Original Contract was amended to provide for the pre-payment referred to in the preceding sub-paragraph. The Plaintiff refers to and repeats paragraph 7(a) herein.
(x)The Pre-Payment Requirement Representation was also partly in writing and contained in the Second Defendant’s SMS to the Plaintiff on 25 October 2016. A copy of the SMS is in the possession of the solicitors for the Plaintiff and may be inspected by prior appointment.
(xi)Mr Patten of the first defendant also made the Pre Payment Representation by email to Xiaomei Qian of the plaintiff on: 5 September 2016 at 7.43 and 9.20; 12 September 2016 at 6.48; 15 September 2016 at 9.59; 18 September 2016 at 9.46; 15 October 2016 at 8.00; and 18 October 2016 at 6.52.
(xii)Mr Patten of the first defendant also made the Pre Payment Representation orally to Xiaomei Qian of the plaintiff on: 5 September 2016 on the telephone and 23 September 2016 in person in Beijing, China.
Representation 2
Representation 2 is said to have induced Guizhou to make the second payment of RMB3,067,875 on 20 December 2016.
Guizhou pleaded Representation 2 in the statement of claim as follows:
[32] Further, on 1 December 2016, pursuant to the Original Contract as amended, the Plaintiff issued an irrevocable Letter of Credit with a value of RMB 7,669,687.50 through the Bank of China, the beneficiary of which was the First Defendant.
Particulars
A copy of the Letter of Credit is available for inspection upon request.
[33] On or about 7 December 2016, the First Defendant rejected the Letter of Credit referred to in the preceding paragraph.
[34] Prior to 12 December 2016, the First Defendant and/or Second Defendant as agent and representative of the First Defendant represented to the Plaintiff that:
(a)the Letter of Credit referred to in the preceding paragraph had been rejected because the Plaintiff’s Agent in China (Xin Mao Import & Export Co Ltd), might not, despite being required under the Original Contract as amended on 26 October 2016, as agent of the Plaintiff, pay to the First Defendant funds of RMB 1,533,937.50 (being 20% of the amount required to be the subject of a Letter of Credit as referred to in paragraph 7(b));
(b)the First Defendant knew of the risk of non-payment referred to in (a) because of previous transactions the Plaintiff’s Agent had been involved in;
(c)as a consequence, the First Defendant would require that the Plaintiff agree to amend the Original Contract so that the Plaintiff would be required to make a cash payment of 40% of the purchase price for the sheep on or before 20 December 2016;
(d)if the Plaintiff did not agree to amend the Original Contract in the manner set-out in (c) above, the First Defendant would not be prepared to continue to deal with the Plaintiff.
(“the Further Pre-Payment Requirement Representation”)
Particulars
(i) The representation was partly oral and partly in writing.
(ii)To the extent to which it was oral, the Further Pre-Payment Requirement Representation was made by the Second Defendant as agent and representative of the First Defendant to the Plaintiff in the period 9 November to 12 December 2016 in face to face conversations between the Second Defendant and Xiaomei Qian of the Plaintiff. The substance of the conversations was as alleged. Between 21 November and 25 November 2016, the above representation was made in Mildura, Victoria and between 2 December and 4 December 2016, at the Second Defendant’s home at 453 Doncaster Road, Doncaster, Victoria.
(iii)The further Pre-Payment Requirement Representation was also made in mid-December 2016 at a meeting in Melbourne attended by the First Defendant’s representative, Mr Patten, the Second Defendant, and Xiaomei Qian of the Plaintiff. The substance of the conversation was as alleged. The second pre-payment was made on 20 December 2016.
(iv)By email sent on 1 December 2016 from Mr Patten to Xiaomei Qian (in Australia), Mr Patten told Xiaomei Qian that the Plaintiff needed to urgently work out a payment arrangement, that he would not speak to anybody from the Plaintiff’s Agent, and that he had “reported them to the Australian authorities for their deception, lies and business practices.” In the email, Mr Patten stated “My terms are payment before the animals leave now, and a new agreement will be drawn up.” A copy of the email is available for inspection. By further email on 1 December 2016, Mr Patten told Xiaomei Qian that the balance of 50% of the purchase price would be required to be paid seven days prior to shipment of the sheep. A copy of the email is available for inspection.
(v)By email on 2 December 2016, Mr Patten queried whether the Plaintiff had taken steps to “sue [the Plaintiff’s Agent] when they kept it a secret from you that Frontier have lost their Export Licence and Ruralco (Frontier’s parent company)? Simple answer – NO !!” In the email, Mr Patten stated “Let me tell you in plain English what will happen now as you continue to “poke the tiger with a stick” ME, I WILL CANCEL THIS SHIPMENT if the 40% is not in my account on or before the 7th of December, a week’s grace. I WILL CANCEL THE SHIPMENT if the 2nd payment is not made seven (7) days before the designated shipment date that is not a threat but a promise.” The Plaintiff received the email when Xiaomei Qian of the Plaintiff was in Australia. A copy of the email is available for inspection.
(vi)By email dated 6 December 2016, Mr Patten told Xiaomei Qian (in China) that he was not happy with the Letter of Credit and that he could not access the second payment. A copy of the email is available for inspection.
(vii)By further email on 6 December 2016, Mr Patten told Xiaomei Qian (in China) that final payment would have to be made before the animals left Australia as “no compromise now as is it (sic) clear that [the Plaintiff’s Agent] are not following your instructions and have lost all trust from both myself and [the Second Defendant]. This is the 2nd occasion when they have clearly tried to deceive me, over the method of payment.” A copy of the email is available for inspection.
(viii)On 6 December 2016, the First Defendant received the Letter of Credit and rejected it.
(ix)By email dated 8 December 2016, Mr Patten of the First Defendant requested Xiaomei Qian (in China) of the Plaintiff to sign and return an attached “Charter” agreement, being a fresh contract materially different from the Original Contract as amended prior to 8 December 2016. In the Charter contract, the terms of payment were for: an initial deposit of 10% (received); second payment, USD$454,500 required to be paid “now”; third payment, USD$681,750, seven days prior to shipment. The Plaintiff rejected the proposed contract.
(x)By email dated 20 December 2016 from Mr Patten to Xiaomei Qian (in China) (copied to the Second Defendant), Mr Patten told Xiaomei Qian that “I didn’t comment on the L/C, your agent deceitfully tried to give me a document on two(2) occasions knowing full well I wouldn’t get paid.” A copy of the email is available for inspection.
(xi)The representation was also partly in writing and contained in the Second Defendant’s SMS to the Plaintiff on 6 December 2016 at 10.33am and 5.37pm. A copy of the SMS is in the possession of the solicitors for the Plaintiff and may be inspected by prior appointment.
(x)Mr Patten of the first defendant also made the Further Pre Payment Representation orally to Xiaomei Qian of the plaintiff on 30 November 2016.
The alleged involvement of Bill and Eddy
Guizhou pleads that Bill and Eddy were involved in LAC’s contraventions of the ACL.
[41] Further, at all material times, the Second Defendant and the Third Defendant were involved in the contraventions of the ACL as aforesaid by the First Defendant within the meaning of the term “involved” within section 2 of the ACL, in that the Second Defendant and the Third Defendant:
(a) aided; and/or
(b) abetted; and/or
(c) counselled; and/or
(d) procured; and/or
(e) induced; and/or
(f) was directly or indirectly knowingly concerned with; and/or
(g) a party to,
the contraventions of section 18 as aforesaid.
Particulars
(i)The Second Defendant was the agent and representative of the First Defendant, and made the representations as aforesaid on behalf of the First Defendant.
(ii)The Second Defendant knew or ought to have known that the issue of the Letter of credit by the Plaintiff’s Agent under the Original Contract and/or the Original Contract as amended on 26 October 2016 did not pose a credit risk to the First Defendant as the Plaintiff’s Agent was a reputable and trustworthy business and had conducted agency business for a long period in China and the Second Defendant had no reasonable grounds for the making of the representations.
(iii)The Second Defendant knew or ought to have known that the representations it was making to the Plaintiff on behalf of the First Defendant were false and that the reputation of the Plaintiff’s Agent was not dubious or doubtful.
(iv)The Third Defendant was at all material times the sole director and shareholder of the First Defendant and made the representations on behalf of the First Defendant as referred to in the particulars to paragraphs 25 and 34.
…
Guizhou pleads, further and in the alternative, that Bill and Eddy made each of the representations in their own right:
[44] Further or alternatively:
(a) the Pre-Payment Requirement Representation and/or the Further Pre-Payment Requirement Representation were made in trade or in commerce by the Second and/or Third Defendants in their own right to the extent of their making as aforesaid;
Particulars
The plaintiff refers to and relies on the particulars subjoined to paragraphs 25 and 34 above.
(b) as to the Pre-Payment Requirement Representation, the plaintiff refers to and repeats paragraphs 27 and 28, and refers to and repeats paragraphs 29- 31 as if references to the First Defendant were references to the Second and/or Third Defendants;
(c) as to the Further Pre-Payment Requirement Representation, the plaintiff refers to and repeats paragraphs 32 and 33, and refers to and repeats paragraphs 35, 38- 40 as if references to the First Defendant were references to the Second and/or Third Defendants.
The conduct said to have conveyed the representations
In any case where misleading or deceptive conduct is alleged, it is necessary to look carefully at what message is alleged to have been conveyed by words and conduct.
Counsel for Guizhou confirmed repeatedly in the course of the trial that Guizhou did not seek to depart from its pleaded case.
However, it was difficult to determine precisely what that pleaded case consisted of because the particulars of the communications relied on to establish the alleged misrepresentations are pleaded in a convoluted way.
Each representation is pleaded as being made by communications contained in various emails, messages and conversations over an approximately six week period.
In many instances, the particulars given of a representation state that the ‘substance’ of a specific conversation or document was ‘as alleged’, or state that ‘the representation’ was contained in a particular document.[3] However, Guizhou does not in fact press a case that any one document contains the entirety of either alleged representation, or of any one conversation where one of the alleged representations was conveyed. Rather, it says that taken together, the various matters particularised conveyed the representations.
[3]See statement of claim [25] particulars (iii), (x) (xi) and (xii); and statement of claim [34] particulars (ii), (iii), (xi) and (x).
Guizhou’s written closing submissions finally gave the details of precisely what was relied on from specific conversations or documents as having constituted part of the making of each representation[4].
[4]The matters relied on to establish the making of Representation 1 were set out at Guizhou’s closing submissions at [30] to [63]. The matters relied on to establish the making of Representation 2 were set out at Guizhou’s closing submissions at [65] to [88].
I have considered the relevant evidence in detail below[5]. I have highlighted in grey formatting those parts of the communications which Guizhou relies on, either as being part of how the representations were conveyed or as supporting the probability that they were made[6]. This enables consideration of them in the context of the detailed overall negotiations that took place.
[5]This judgment records the most relevant aspects of the evidence. I have carefully considered all of the evidence in reaching this decision.
[6]The matters Guizhou pleads as constituting the making of the representations are set out at [15] and [17] in this judgment. The other matters highlighted in grey formatting are contained in [30] to [88] of Guizhou’s closing submissions.
The people involved
Before turning to the evidence of the negotiations, I will first outline the people involved in those negotiations. I will also outline the evidence given of how the process of importing sheep into China works, and how letters of credit operate. The evidence of the negotiations makes more sense with that background in mind.
Shirley was the only witness to give evidence about the alleged representations and about the allegation that they induced Guizhou to make the payments.
She is the sole director and shareholder of Guizhou, which is a company she set up in order to start importing sheep from Australia to the province of Guizhou in China (where she was living).
Her background was that she had been an auditor, then worked in human resources. She has a master’s degree. She had not been involved in importing livestock previously.
Shirley did almost all of the negotiating on behalf of her company in relation to the proposed importing of the sheep to China.
Shirley gave evidence over the course of nearly four days. She speaks fluent Chinese, but her English is what her Counsel described as ‘conversational’. She gave her evidence through an interpreter as English is not her first language. Even then – as stated by her Counsel – her expression lacked fluency when converted to English.
Her evidence was often unclear and difficult to follow, as is apparent from some of the transcript extracts in this judgment. Shirley was often unresponsive to the questions asked, and appeared determined, instead of answering particular questions put to her, to tell the Court things she considered important.
I do not accept Shirley’s evidence of what she alleges Bill or Eddy said to her, except where it is backed up by contemporaneous documents. She did not keep notes of the conversations. Any conversations in which Bill was involved were conducted in English, which is not a language Shirley is fluent in. I do not accept that she necessarily always understood the nuances of what was said to her in English during the relevant negotiations, which would also have affected her ability to give evidence about what was said later. Having observed her giving evidence nearly two years after the events in question, I am not satisfied that at the time of trial, she actually remembered what had been said by either Bill or Eddy to her on critical matters relating to the alleged representations, or that she remembered when such things had been said to her.
As McLelland CJ in Equity observed in Watson v Foxman (1995) 49 NSWLR 315 at 319:
… human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the process of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.
In the recent English High Court of Justice decision of Blue v Ashley (No 2) [2017] EWHC 1928 (Comm), Leggatt J said at [67]:
… I expressed the opinion in the Gestmin case (at para 22) that the best approach for a judge to adopt in the trial of a commercial case is to place little if any reliance on witnesses’ recollection of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts.
I put primary emphasis on the objective facts surrounding what occurred, including the contemporaneous documents.
Shirley’s husband had some limited involvement in the negotiations, including signing at least one amendment to the contract, and apparently travelling to Australia at one stage to discuss the proposed letter of credit. He did not give evidence.
Bill is the sole director and shareholder of LAC, and Shirley dealt with him extensively in relation to the negotiations between Guizhou and LAC. Bill lives in Australia. Shirley first met him in person in Shanghai on about 22 November 2016. Most of their negotiation was by emails and sms messages, with some telephone calls. Bill did not give evidence.
Eddy lives in China and is fluent in Chinese. Bill introduced Eddy to Shirley to assist in the transaction. The parties disagreed as to the extent of his involvement in the negotiations and what his precise role was (that is, in particular, whether he was an agent for LAC). Eddy had a number of discussions, emails and WeChat messages with Shirley and with Bill, met Shirley and Bill in China in November 2016, and accompanied Shirley assisting with sheep selection in regional Victoria. He did not give evidence.
Guizhou engaged Xin Mao as its agent to ensure compliance with Chinese import regulations, and to act for it in the negotiations. Mr Jason Chang, Ms Shelley Sun and Mr An Guofeng all worked for Xin Mao and were involved in aspects of the negotiations. They did not give evidence.
Part of the evidence involved attempts by Guizhou to obtain a letter of credit that was acceptable to LAC as security. Mr Paul Delaney and Mr Rowan Ashworth from the Commonwealth Bank of Australia were involved in this aspect. They both gave evidence.
EVIDENCE
Import process
Shirley gave evidence as to what she understood was the process for importing live sheep from Australia to China. Her evidence was not clear but it appeared that the process as she understood it was as follows.
In order to import sheep into China, the buyer requires an agent. (Xin Mao was Guizhou’s agent.) The agent must purchase the sheep on behalf of the buyer. Chinese regulations require that all money is to be paid by the buyer to the agent first.
The buyer needs to apply for a quarantine station permit from the Chinese government, which allows the sheep to be put into quarantine at the station. (Guizhou set up a quarantine station in Guizhou Province.)
Chinese regulations require the buyer to obtain the quarantine permit before paying for the stock.
Once the quarantine station permit is obtained, the next step is to apply for an import permit. It is issued by the ‘Chinese Inspection and Quarantine Authority’. The buyer’s agent needs to obtain that permit.
Shirley gave evidence of the next step required, this time by the exporter:
Then, once that import permit has been translated into English, then the exporter need to utilise that translations to approach the agriculture – the Australian Agriculture Department to initiate the step that is required to be done by the exporter. Then the Australian Agriculture Department will notify the Chinese inspection and quarantine bureau - -
Once the buyer has an import permit, it can send selectors to Australia to select their sheep from farms in Australia.
After the sheep are selected, the seller (LAC in this case) must arrange for the sheep to have blood tests done on the farms in Australia.
If the blood tests are clear, then the seller arranges for the sheep to be sent to pre-export quarantine (also called PEQ) in Australia for further testing and checking for diseases.
The seller is responsible for booking a plane and entering into a carrier contract in order to fly the sheep to China.
Some documents can only be produced once the sheep are on the plane. One such document is the veterinary health certificate. This:
will only be issued after the sheep has been put onto the cargo plane. So only the ..... have been put on to the cargo plane … Attached to the back of this is that it provides all the ear tag and the blood test of every individual sheep. So therefore, the health certificate is a set of documents, not just one piece of paper.
Letters of credit
I am satisfied from the documents and messages the parties exchanged that none of Shirley, Bill, Eddy or the relevant Xin Mao representatives understood the detail of how letters of credit operate or about the different types of letters of credit in use. This added to the confusion and misunderstandings apparent in their communications.
Paul Delaney of CBA gave evidence, which I summarise below, explaining how letters of credit operate. Paul Delaney described a letter of credit as a conditional undertaking given by a bank (the issuing bank) that it will pay monies in favour of a beneficiary. It is a conditional undertaking because conditions requiring the presentation of certain documents are attached to letters of credit. These conditions are dictated by the terms of the underlying contract between the importer and exporter.
The terms of the letter of credit must conform to the terms of that underlying contract. Provided the conditions are complied with, by the beneficiary presenting the required documents, the issuing bank is obliged to pay out on the letter of credit to the beneficiary.
Letters of credit are governed by a set of rules called the International Chamber of Commerce UCP600, which all banks must subscribe to if they want to be a party to a letter of credit.
In the context of an international transaction – as here, between Australia and China – the process begins with the importer requesting its bank (the issuing bank) open a letter of credit in favour of the exporter as the beneficiary. The issuing bank (in this case Bank of China), requires the provision of sufficient security or credit lines from the importer in order to open the letter of credit.
Once issued, the letter of credit is sent by the issuing bank to the beneficiary’s bank, known as the advising bank (here, CBA).
The letter of credit is sent to the advising bank via the SWIFT communication system, and is received immediately by the Trade Solutions Department of CBA.
SWIFT is a worldwide bank-to-bank communication system. It is an identifying code used by banks to identify who the other bank is in relation to letter of credit transactions. Every branch of each bank has its own SWIFT code which identifies it.
Once it receives the letter of credit, the advising bank will verify the authenticity of the SWIFT message. Once satisfied of its authenticity, the advising bank is obliged to advise the letter of credit out to the beneficiary: that is, advise that the letter of credit is available, and inform the beneficiary that the goods can now be shipped under the letter of credit.
It is the responsibility of the beneficiary to check whether the letter of credit is correct or not. CBA’s custom is to insert a clause on the letter of credit asking the beneficiary to check that the terms of the letter of credit are correct, and if they are not, to seek an amendment to the letter of credit from the importer.
It is not up to the advising bank to reject a letter of credit as a letter of credit is in favour of a beneficiary. However, if a letter of credit was seen by it to be fraudulent, CBA would query it with the issuing bank.
If the beneficiary is satisfied that the letter of credit is correct, it can then effect the shipment of goods.
Once the beneficiary has shipped the goods, it will obtain all of the documentation specified in the letter of credit. Generally, this documentation will include a title document (such as a bill of lading or airway bill), an invoice phytosanitary certificate (regarding the quality of the livestock) and a packing list. It is then up to the beneficiary to present those documents to the advising bank (in CBA’s case they are sent to the Trade Solutions Department) which will check the documents to ensure they comply with the terms of the letter of credit.
If they are correct, the advising bank will lodge the documents by courier with the issuing bank and request payment under the letter of credit on behalf of the beneficiary. When CBA does this, it encloses a covering letter which requests the Bank of China to pay the proceeds under the letter of credit to a specified account. If the Trade Solutions Department identifies an issue with the documents presented, they advise the beneficiary of this and ask what the beneficiary wants to do. In this situation, the beneficiary can try to fix the problem with the documents or ask the importer to amend the letter of credit.
Once the issuing bank receives the documents, they have five working days to verify that the documents comply with the terms of the letter of credit, and if they do, then to pay the money under the letter of credit to the advising bank. If there are any discrepancies contained in the documents lodged, the issuing bank must advise the advising bank of these, so that the beneficiary can also be advised of the problem by the advising bank.
In cross-examination Paul Delaney admitted there is a risk on payment of a letter of credit if the documents do not comply precisely with what is required in the letter of credit. Where there is a discrepancy the buyer’s agent needs to agree to the release of the funds.
Confirmation of Letters of Credit
One procedure that can occur, but does not have to, is that letters of credit can be issued in circumstances where the advising bank is requested to confirm the letter of credit.
A letter of credit requesting confirmation involves the issuing bank requesting the advising bank to add the advising bank’s confirmation to the letter of credit when it issues the letter of credit. The term used in the SWIFT terminology is that these letters of credit are described as being ‘with or without confirmation’.
Confirmation has the effect that the advising bank takes on the risk as to whether the issuing bank later pays out on the letter of credit. It benefits the beneficiary (exporter).
Where confirmation occurs, the advising bank will then pay out the monies under the letter of credit once the beneficiary lodges their documents, without waiting for the money to come from the issuing bank.
CBA recognises letters of credit whether they are confirmed or not.
Chinese banks, including the Bank of China, generally issue letters of credit without confirmation. In that situation, it is up to the beneficiary of the letter of credit to request the advising bank to add its confirmation to the letter of credit. CBA will advise the beneficiary of the cost for it to add confirmation. CBA will also assess whether it is in its interest to add its confirmation to the letter of credit. In making this assessment, CBA considers who the issuing bank is, and who the beneficiary is, as it wants to be confident the beneficiary is capable of shipping the goods and has experience in the relevant market.
Red letters of credit
Some letters of credit are what is known as ‘red letter letters of credit’ or ‘red clause letters of credit’. These allow for the beneficiary to draw the monies under the letter of credit in the form of an advance under the letter of credit – prior to shipment of goods. In other words it requires the advising bank or the issuing bank to advance funds to the beneficiary, prior to shipment. Paul Delaney’s evidence about this was:
The red clause LC, as we call it in the bank, allows for a letter of credit to be – a drawing to be made under that letter of credit in the form of an advance under the letter of credit prior to shipment. It’s, in effect, a loan given or a – sorry, requested by the applicant’s bank or Commonwealth Bank to advance funds to the actual beneficiary prior to actual shipment taking place. I would note to your Honour they’re extremely rare. I’ve only handled two transactions in my banking career that have allowed for a red clause and the reason for that is red clauses are somewhat risky to the applicant of the letter of credit because if the beneficiary fails to effect shipment, there’s no way of repaying that loan. So you would only do that in the situation where there was a lot of trust between both parties and, in my experience, it has been where they’re interrelated companies and it’s a way of financing the shipper – head of shipment.
Red letter letters of credit are very rare as they are risky for the importer. The beneficiary may fail to ship the goods, but the advance will already have been paid to the beneficiary.
Mr Delaney gave evidence that he had only handled two transactions in his banking career that have allowed for a red clause. He said that red letter letters of credit would only be used between trusted parties or where the parties are interrelated companies.
Negotiations
The facts underlying the claim are complex. Many communications took place between various people relevant to the contract in question, including by emails, sms messages and WeChat messages. Many proposed amendments to the initial contract were discussed – and different drafts exchanged – and the negotiations about these are not easily followed from the documentation in evidence. Much discussion took place about what was necessary to have the sheep imported into China from Australia. A great deal of discussion took place as to what was required in relation to a letter of credit proposed to be given by Guizhou to LAC.
In the course of negotiations, Bill demanded payment on behalf of LAC, and Shirley responded on behalf of Guizhou. They wrote to each other without always referring to ‘LAC’ or ‘Guizhou’. In this judgment I sometimes refer to Bill demanding payment or Shirley refusing, for example. At all relevant times they were communicating on behalf of their corporate entities.
I have endeavoured to set out conversations and documents and messages in the order they appear to have occurred. However, some of the documentary evidence of emails, sms messages and WeChat messages was reproduced with an Australian Eastern Standard time stamp, and others with a Chinese time stamp (which did not always make clear if it was an ‘a.m.’ or ‘p.m.’ time). The precise order in which communications occurred on particular days was not always clear.
In June 2016 Guizhou proposed to enter into a contract to purchase livestock from Frontier. The three parties to the contract were to be Guizhou as buyer, Frontier as seller, and Xin Mao as agent of the buyer.
A copy of the proposed contract was produced at Court. It was executed only by Frontier. Shirley initially gave evidence that Guizhou definitely also signed the contract. After there was a call for production of the contract, Shirley gave evidence that Guizhou had not signed the contract because Frontier had lost its license before Guizhou signed.
Although the Frontier contract did not proceed, it is relevant to consider some of its terms because they were discussed to some degree in communications between Bill and Shirley and Xin Mao later. (Shirley told the Court she had never given a copy of this to LAC. It is clear that LAC got hold of it – either from Xin Mao or in some other way – as in later emails Bill refers to it.)
The Frontier contract included a requirement of an initial payment of USD127,350 to be made to the seller by the agent of the buyer through telegraphic transfer within 20 days after signing the contract.
The Frontier contract was prepared by Xin Mao and had the same contract number as the initial contract which LAC entered into with Guizhou: XMC2016 – 10. This, together with the similarities of its context, satisfies me that Xin Mao adopted the Frontier contract in drafting the initial contract between LAC and Guizhou.
Shirley gave evidence that she came to know about Xin Mao through Frontier. Xin Mao was the agent involved with the Frontier contract. Before August 2016 she met ‘the boss’, An Guofeng, because preparation needed to be done with regards to the quarantine area. She said she also met Jason Chang and some other employees.
Shirley said she first contacted LAC by ‘a selection by Xin Mao and myself’ after the contract with Frontier could not proceed because Frontier had lost a necessary license. She said before she signed the contract with LAC, she had a telephone conversation with Bill:
Bill Patten, over the phone, said that he has more than 30 years of experience in this field. Also, he has a partner who is based in Hong Kong. Purchasing. So he says that this Hong Kong partner – when he comes to purchasing, this Hong Kong partner is able to offer assistance. Also, he said that he would accept 100 per cent of the letter of credit. So, therefore, this is the main reason why we have selected him.
On 12 August, Guizhou and LAC entered the initial contract for LAC to sell 1,520 sheep (of specific breeds and quantities) to Guizhou.
Article 2.1 dealt with pedigree certificates:
The Seller shall provide the Buyer with purebred breeding sheep. All animals will be provided an export pedigree certificate issued by the relative breed association for previous three generations. The Seller will provide the electronic pedigree certificates as soon as possible after entry to quarantine and latest this can be done is 10 days after quarantine entry. The original pedigree certificates shall accompany the sheep on the aircraft.
Article 3 set out the selection process. It included the following:
The Buyer shall send selectors to Australia after the AQSIQ import permit issued (by latest date 20th September 2016) for selecting the animals at Quarantine…. All animal selected will be quarantined and inspected in accordance with the veterinary agreement signed between Chinese and Australia governments. Only those animals that have passed the quarantine inspections will be eligible for export….
Article 4 dealt with payment terms:
1. An irrevocable letter of credit for second [sic] payment of US$1,262,500.00will be issued 14 days prior to the sheep selection date by the Agent of the Buyer, and the condition for the payment under the letter of credit shall be the Seller submits all the documents in Article Five.
2. The second payment of US$1,276,015 will be made 2 weeks before sheep depart to the Buyer’s farm to the bank account designated by the Seller through T/T by Agent of Buyer subject to the condition that the Seller has provided the Buyer with the commerce invoice with the value equal to the contractual price of this contract in advance.
3. The last payment of US$ 687,085.00 will be made… within 30 business days after the animals are released from the domestic quarantine in china.
The parties agreed that the reference to ‘second payment’ in Article 4.1 should have read ‘first’ payment. It seems likely that this was a typographical error caused by adopting the Frontier draft contract which provided for an extra payment – of an initial deposit.
So, under the initial contract, the following payments were due:
·A first payment of USD1,262,500 secured by a letter of credit to be issued 14 days prior to the sheep selection date (with payment conditional on documents being submitted by LAC).
·A second payment of USD1,276,015 to be made by telegraphic transfer from Xin Mao to LAC, two weeks before the sheep departed to Guizhou’s farm. (The parties disagreed as to whether this meant two weeks before they left for China or something else. Shirley gave evidence that the sheep would have been in quarantine in China two weeks before they were to leave for Guizhou’s farm. I am satisfied on the evidence that it meant two weeks before the sheep left quarantine in China for Guizhou’s farm.)
·A third payment of USD687,085 to be made within 30 business days after the animals are released from domestic quarantine in China.
On 12 August, Guizhou and Xin Mao entered into an agency contract. This set out the terms in which Xin Mao would be involved in the import of 1,520 breeding sheep on behalf of Guizhou. It was headed ‘Import Agent Service Agreement’.
Article 7 set out payment details:
1. The Client shall pay the fees under this Agreement by the following methods:
1) Within 7 working days after signing this Agreement, after the Agent submits to the Client a copy of the Import Contract formally entered into between the Agent and the Australian breeding sheep supplier (terms and conditions of this contract shall be consistent with those confirmed by the Client in advance), the Client shall make the advance payment of RMB 305,998.80 (in words: Three hundred and five thousand nine hundred and ninety-eight yuan eighty cents) to the Agent by T/T.
2)Within 7 working days after signing this Agreement, the Client shall pay RMB 50,000.00 (in words: Fifty thousand yuan) to the Agent by T/T as the compensation for the quarantine station costs.
3)In 2 weeks before going overseas to select the breeding sheep, if the Agent has provided the Client with the proof that all necessary approvals have been obtained for the quarantine station in Guiyang, the Client shall pay the purchase price of RMB 8.585,000.00 (in words: Eight million five hundred and eighty-five thousand Yuan) to the Agent. The Agent shall issue a Letter of Credit in accordance with the import regulations.
4)In 30 day before the entry of the breeding sheep, the Client shall pay the Agent RMB 2,600,989.80 (in words: Two million six hundred thousand nine hundred and eighty-nine yuan eighty cents), for which the Agent shall be responsible for the preparations for receiving goods and quarantine work.
5)In 2 weeks before the breeding sheep are approved to leave the quarantine station, the Client shall pay the Agent RMB 8,829,901.40 (in words: Eight million eight hundred and twenty-nine thousand nine hundred and one yuan forty cents) according to the commercial invoice of the foreign supplier and the domestic invoice which shall include the domestic fees of RM 152,999.40 (in words: One hundred and fifty-two thousand nine hundred and ninety-nine yuan forty cents).
6) Within 30 working days after the breeding sheep are approved to leave the quarantine station and arrive at the Client's farm, the Agent shall issue a warranty guarantee valid for 6 months with the amount of RMB 7 million for the Client, and the Client shall pay RMB 4,672,178.00 (in words: Four million six hundred and seventy-two thousand one hundred and seventy-eight Yuan) to the Agent.
On 22 August at 8:17, Shirley sent an email to Bill and Jason:
Bill,
Further to our telephone conversation, I am sending you the new Amendment Contract which is clearly stated the unit price of sheep when we claim the damage…
Jason,
I have discussed with Bill if we can move sheep selection earlier to week of September 19th…
On 22 August at 11:46, Shirley wrote to Bill and Jason:
Bill,
We also request u to sign every page of the annex of the original contract which u have missed signing last time, and scan it back to us by today.
Shirley gave evidence that moving the sheep selection date meant that the letter of credit needed to be done by 5 September – two weeks before 19 September.
On 22 August at 12:14, Bill sent an email to Shirley:
my apologies for this not being sent earlier but I wanted Jason to amend and add a sentence and he chose to ignore my request. I’m signing it reluctantly to speed up the process
Attached to his email was the first amendment contract. It provided for liquidated damages where sheep died or suffered serious injury compared with the number purchased as set out in the initial contract. It also deleted the requirement for the third payment required in the initial contract:
Sub-clause 3 of Article 4 shall be deleted. And Parties shall not perform any provision under said Sub-clause 3 of Article 4.
A copy of this amendment contract was later executed for Guizhou by Shirley’s husband and apparently dated 1 November 2016. Shirley gave evidence that her husband told her he in fact signed this on 22 August.
On 29 August 2016, Shirley wrote to Bill:
… I have not got permit to install Guiyang quarantine, that will take a couple weeks around and then Jason will have local inspection bureas [sic] approve to get permit back, total 3 weeks around.
The email went on to say that she would like to change the number of sheep and the types of sheep she was ordering.
Bill wrote to Jason that day:
with all these amendments annexes etc it is confusing re the payments and time frame. Could you list in simple terms amounts and due date of all payments to be received by LAC?
Bill also wrote to Shirley:
all Sheep have been selected and we plan for on farm testing on the 14th September.
The final payment on the Charter is due 14/09/2016 –same day. We plan to move the Sheep into PEQ on the 29th of September.
On 30 August, Jason emailed Bill, copying in Shirley:
there is the details re the payment
Shirley said she did not receive the attachment. No attachment was in evidence.
Shirley gave evidence about a telephone call with Bill on 31 August 2016. She said that she told Bill about the renovation of the farm and the quarantine site, and that the renovation should be done by 10 September. She told him that she ‘would make payment 100%’. She said that this payment would be made to Xin Mao.She went on to say:
In the conversation, Bill Patten did mention that he has concern regarding the payment and how is it going, and, regarding the concern to the payment, he expressed concern regarding to Xin Mao.
…
So he did mention over the telephone – saying that Xin Mao, in the past, did have some legal issues. So – and also, Xin Mao’s current situation is extremely terrible. So, therefore, Bill Patten is concerned, given the situation – the progress of our transactions.[7]
[7]As indicated at [26] of this judgment, grey formatting indicates where Guizhou has alleged in the statement of claim that particular communications form part of Representation 1 or Representation 2, and where it has relied on that communication in its closing submissions in relation to those representations.
Shirley was cross-examined to the effect that Bill did not mention Xin Mao’s legal issues in that conversation on 31 August, and that Shirley was confused with later conversations. She turned towards me, held up her hand as if taking an oath, and said:
So I can be absolute guarantee to you as from the first telephone conversation I had with Mr Bill Patten. He has been saying that Xin Mao has got all sort of problems.
I have already indicated that I do not accept Shirley’s evidence of conversations where that evidence is unsupported by contemporaneous documents. In particular, I note that I do not accept Shirley’s evidence that Xin Mao’s ‘legal issues’ or its ‘current situation is extremely terrible’ were mentioned by Bill as early as 31 August. The detailed particulars Guizhou gave in its statement of claim of Representation 1 do not include a reference to anything said by Bill then (despite those particulars being added to in different amendments, and clearly having been given much thought). This alleged conversation was first stated to be relied on by Guizhou in its closing submissions.
On 31 August, Shirley wrote to Bill, copying in Jason:
Further to our telephone conversation, I confirm I am fixing up quarantine, it will be done by September 10th, I will make 100% payment once quarantine permit is given.
Shirley agreed in giving evidence that this meant she would pay before the sheep left Australia. However she said that the payment would ‘all …go to the agent’, who would deal with the letter of credit which had its ‘own sort of regulations and clauses’.
On September 1, at 8:45, Bill wrote to Shirley:
…As I had a meeting with Johnny Tan earlier in the week, he has no doubt spoken to you I have a deadline of 7th of September when USD500K must be paid to the airline…
These monies are non-refundable, and as you are no doubt aware no funds have been deposited into our USD account by Xinmao.
I will endeavour to stretch it out to 9th of September, however if I have not received the full amount USD 1,273,500 clear funds into our USD Bank account with the Commonwealth Bank Ltd., on or before the 9th, then I will assume that this is not proceeding.
Shirley, this situation in no way reflects on you, as I know you are doing your best. However I am disappointed with Xinmao and Jason in this project as we have supplied them with more than they need in checking our bona fides, yet they have been less than transparent from their side. After all they are your agent when all is said and done.
I trust you understand our situation.
Shirley agreed in cross-examination that it was clear from this email that Bill was demanding payment to his bank account by 9 September.
At 10:12, Shirley wrote to Bill, copying in Jason:
As I explained on the phone, permit is the key to go through this contract, pls take fully speed to get it by September 10th, otherwise this contract is no [sic] possible to be delivered, we three lose [sic] money.
At 10:20, Shirley wrote to Bill:
…I had a talk with Johnny and Jason respectively, I am pushing Jason to get permit done by September 10th, otherwise XinMao will take responsibility for all the lose [sic].
She agreed in cross-examination that she did not think Xin Mao was doing its job properly at that time, because it did not ‘try to facilitate that application of the permit'.
On 5 September at 7:43am CST, Bill sent Shirley an email. He wrote:
The rain has delayed the draft of the Whites till today, Jason did not inform me that the permit was conditional on receipt of the pedigrees !!
…
I will write a lengthy letter to you today setting out the problems we are experiencing with your agent, I stress we are now at a critical stage-to meet your deadline I insist on “clear” funds by Friday.
Please read my correspondence before you make any decisions, I am drafting it now.
Shirley gave evidence of a conversation she said she had with Bill after she read this email:
So Bill – Bill Patten explained to me that .... unfortunately – that ..... has suffer once-in-a-hundred years flooding, major rain. So the – it rained so heavily that all the farm is not able to operate. So therefore the work that he needs to do on this site needs to be delayed. So he said that he is very concerned about Xin Mao’s legal/financial issues in the past. Well, Bill Patten was saying that he already booked the aeroplane, and also he has made a payment of US$50,000 as a deposit. So he said that the payment needs to be made to the airline before 7 September. If not, the deposit will be forfeited by the airline. So out of concern for Xin Mao and also his personal loss – so he wished that a 10 per cent payment would be made.
….I said that I – I do understand he’s concerned, and I’m willing to make a – a partial payment, but I need to have further communication with the agent.
Shirley was cross-examined to the effect that Bill did not use the phrase ‘once in a 100 years flooding’ at this time and that she might be confused with an email he sent at a later time. She replied, very definitely, ‘the first time Bill Patten mentioned regarding the rain and all that was on 28 August in the email and on 5 September once again he mentioned about that major rain.’ She was definite that he said there was a one in a 100 year flooding in the 5 September conversation.
At 7:45am on 5 September, Jason sent a template of a letter of credit to Bill. This is the first letter of credit document in evidence.
The above attachment is the template of LC, pls check it and make sure everything is fine. If there is any question or uncertain pls let me know.
The letter of credit attached referred to contract number ‘XMC2016-10’. It had a date of expiry of 31 December 2016. Xin Mao was the applicant, LAC the beneficiary. It was for USD1,262,500. It provided for ‘by sight payment’. Paul Delaney of CBA, gave evidence that this meant that LAC would be paid when the Bank of China saw the documents required by the letter of credit, which would allow the sheep to be cleared through Chinese quarantine.
The documents required included a manually signed commercial invoice; on board ocean bills of lading; ‘air waybills showing freight prepaid and consigned to Xin Mao Imp & Emp Co. Ltd.’; a certificate of origin; a copy of veterinary health certificate issued by ‘DA’; semen quality certificate; selection list signed by the buyer and seller; and a copy of shipping advice.
At 9:20 on 5 September, Bill wrote:
I should have mentioned that I did ask again for the pedigrees and I will follow up again this afternoon, I was supposed to see them over the weekend.
They know it is urgent.
Please see my letter attached.
Bill’s letter stated:
Just to update you as I have spoken to all parties involved with this export …
The Blacks are not a problem and my suppliers know of your specifications, my Veterinarians will verify they meet your criteria when they leave later in the week to do the on-farm testing. As far as the Whites are concerned, we need to get into the properties to do the final draft, they expect heavy rain and if it comes it will delay their inspections, because at present it is too wet to drive in.
I understand that Xinmao had to vet our Company’s bona fides, frankly they went over the top asking us for all the documents they wanted to sight, anyway I supplied them. What I am not happy with is I have no contract and I’ve signed three(3) contracts with your agent-hence my stipulation on the receipt of the funds by Friday the 9th otherwise I will stop the process and we will have to book another date.
We diligently sent both signed electronic copies and hard copies on the 19th instant, of all documents, yet to this date have nothing in return and I’m afraid it is too late now. As I explained to both Johnny Tan and yourself my commitment on the 7th is USD500K and it is clear to me that Xinmao want us to fail as their co-operation is less than satisfactory. It is too late for a Letter of Credit as we have little time to peruse and vet the document with our bankers. I asked Jason for a copy of the L/C last month, without success.
Despite sending the signed contract back more than three(3) weeks ago the initial deposit has never been sent to our USD account.
We want to work with you Shirley. Johnny is keen for us to work with you and I’m looking forward to meeting you in Shanghai. This project can be salvaged with your help however time is not on our side now.
I look forward to your comments.
Representation 1 not conveyed
I am not satisfied that Representation 1[22] was conveyed.
[22]The pleading re Representation 1 is set out at [15] of this judgment.
As indicated above, I do not accept, on the balance of probabilities, that Shirley remembers the details of the conversations with Bill and Eddy that she gave evidence about.
The documentary evidence also does not convey Representation 1.
The documentary evidence conveys, amongst other things, that Bill wanted a payment in advance of sending the sheep, regardless of what the initial contract had been. It also conveys that he was frustrated for various reasons in dealing with Xin Mao. He separately was negotiating with them. He complained of them being too slow in processing contracts, and in providing the proposed letter of credit. He then said it was too late for a letter of credit and that he needed the first payment to be made in advance, directly to LAC.
The initial contract was signed on 12 August 2016.
Under that initial contract, delivery of the sheep in China was due by 31 October 2016. The payment terms meant, in effect, LAC would not be paid before then.
Bill then campaigned to have amendments to the payment terms. He wanted to be paid before any sheep left Australia.
There were then a series of discussions (in writing, and orally) about possible amendments.
Some amendments which were orally agreed then took time to be formally recorded and executed. Bill clearly became confused about what was due to be paid to LAC when.
On 29 August, Bill wrote to Jason Chang of Xin Mao:
with all these amendments annexes etc it is confusing re the payments and time frame. Could you list in simple terms amounts and due date of all payments to be received by LAC?
On 1 September, Bill wrote to Shirley:
…As I had a meeting with Johnny Tan earlier in the week, he has no doubt spoken to you I have a deadline of 7th of September when USD500K must be paid to the airline…
These monies are non-refundable, and as you are no doubt aware no funds have been deposited into our USD account by Xin Mao.
I will endeavour to stretch it out to 9th of September, however if I have not received the full amount USD 1,273,500 clear funds into our USD Bank account with CBA Ltd., on or before the 9th, then I will assume that this is not proceeding.
Shirley, this situation in no way reflects on you, as I know you are doing your best. However I am disappointed with Xin Mao and Jason in this project as we have supplied them with more than they need in checking our bona fides, yet they have been less than transparent from their side. After all they are your agent when all is said and done.
I trust you understand our situation.
I am satisfied that on 1 September Bill made it clear he was demanding payment of USD1,273,500 by 9 September. This demand was in no way linked to any concern (as pleaded) about whether Xin Mao ‘would’ pay him under ‘the’ letter of credit.
On 5 September, Bill wrote to Shirley:
I will write a lengthy letter to you today setting out the problems we are experiencing with your agent, I stress we are now at a critical stage to meet your deadline I insist on “clear” funds by Friday.
In the letter he sent that day he wrote:
…
Despite sending the signed contract back more than three(3) weeks ago the initial deposit has never been sent to our USD account.
…
Shirley wrote back:
I will pay 5% tomorrow, Xinmao transfer this amount to you by T/T, 95% will be paid next week upon the situation of permit is this Ok?
On 12 September, Bill wrote to say that there was still nothing paid by Xin Mao or Guizhou:
you sent message to us and Jason re payments(5% immediately, 95% by T/T) and I’m confused as after checking our USD account this morning there is nothing from Xin Mao or yourself.
To further confuse things Jason seems to ignore your instructions and continue to refer to the letter of credit document.
To repeat myself again, we are well passed an L/C. I explained my deadline on the 7th and delayed till the weekend to try and resolve this impasse.
We are committed to two (2) Charters for delivery in the last week of September
hence the importance of receiving funds by T/T for your shipment.
On 14 September, Shirley paid approximately 10% of what had been described as the ‘first payment’ under the initial contract to Xin Mao (between RMB850,000 and RMB890,000). Bill was not told about this payment to Xin Mao at that stage.
On 15 September, Bill made it clear to Shirley that if she wanted the contract to proceed he wanted the 10% deposit paid to him immediately:
…
If you still want to proceed I can only work on a settlement basis of 10% deposit immediately, the balance by a direct telegraphic transfer(90%)-we cannot accommodate Xin Mao’s L/C.Amendments to follow.
…
He said in another message sent that day:
Jason did say 10% to start with, so please make it that.
On 18 September, Bill wrote to Shirley:
If you are coming to inspect on farm then:
1) You must get Jason to send me the 10% deposit unconditionally. …
Shirley wrote back:
I understood the situation, I agree Jason pay you 10% L/C at moment once you sign the updated contract.
And then 90% L/C once we three confirm the terms.
Let’s talk with Jason/ agency in the same email.
The parties then met and negotiated in China on about 23 September 2016.
On 26 September, Jason sent an amendment contract, said to be based on what was discussed at the meeting, and agreeing to transfer 10% CIP by telegraphic transfer after ‘the amendment contract 3 signed and Shirley authorization’. (Shirley gave evidence that CIP meant cargo insurance price.)
Shirley gave evidence that by making the 10% CIP transfer she thought it would help to pay LAC’s expenses in Australia.
On 28 September, Bill wrote:
the deposit payment was unconditional.
I have emailed Jason and asked him for the pro-forma L/C…but this document has nothing to do with the deposit.
It appears that by 14 October, Bill believed Shirley had transferred RMB2,300,000 to Xin Mao, and that Xin Mao was still not remitting the deposit to him. He wrote to her:
I asked [Eddy] to call you as he agrees with me that Xin Mao are using your money and despite your instructions are not remitting the deposit, even though you have paid them RMB2.3M. They have now delayed you a further three (3) weeks.
I have no issue with the L/C, I do have an issue when I can draw down on it and have insisted all along that the funds be available two (2) weeks before the Sheep leave for PEQ.
This same clause was in Frontier’s contract, so I am not asking for anything outside of what you offered Frontier-let me get that clear.
What I am asking is that to support the L/C draw-down (90%), I provide three (3) sets of documents only:
1) Commercial Invoice (5 copies)
2) Certificate of Origin (3 copies)
3) Ear Tag List (3 copies)
I’m not denying the other documents in Article 5 just that they be delivered to you within seven (7) days of shipment.
It suits Xin Mao to keep delaying as it gives them more time to use your money-that is my impression and Eddy’s.
You signed the Amended Contract so you must be happy with that, it’s Xin Mao that keep interfering and at the end of the day, they are YOUR agent and should be following your instructions.
Representation 1 was not conveyed.
Representation 2 not conveyed
I am not satisfied that Representation 2[23] was conveyed.
[23]The pleading re Representation 2 is set out at [17] of this judgment.
As indicated above, I do not accept, on the balance of probabilities, that Shirley remembers the details of the conversations with Bill and Eddy that she gave evidence about.
The documentary evidence also does not convey Representation 2.
The documentary evidence conveys, amongst other things, Bill’s frustration with Xin Mao, some concerns about Xin Mao, his frustration with the negotiations generally, and his disagreement with what should be included in an acceptable letter of credit. It conveys that he insisted on LAC being paid in advance if it was to proceed with the contract.
Guizhou paid RMB3,067,875 to Xin Mao on 23 November 2016. Xin Mao paid it to LAC about four weeks later, on 20 December 2016. This payment represented 40% of the ‘first’ payment due under the initial contract between Guizhou and LAC.
Bill wrote on 15 September 2016 that the transaction would only proceed if he was paid 10% of the ‘first’ payment (the deposit) immediately, and if the remaining 90% of the ‘first’ payment was then paid directly to him by telegraphic transfer.
On 14 October (in the email extracted above) Bill said that he had ‘insisted’ all along that the funds be available two weeks before the sheep left for pre-export quarantine.
On 30 November Xin Mao made an application for a letter of credit.
A copy of a document generated by that application appears to have been sent to Bill. He wrote that what was sent to him was not a letter of credit – which he was right about.
By this stage it is clear from this message that Bill was frustrated with Xin Mao and with the delays.
On 30 November, he demanded payment of 20% of the ‘first’ payment in advance referring to the fact the document was ‘an application’ only:
your document is a phoney document, it is an application only-there are no Bank stamps or authorising signatures- nothing !! Do you take me for a fool !!
I gave your Company (As Agent) till 5PM today to deposit the 20% into our CNY account. All Contracts & Amendments are now null and void due to this egregious breach of contract.
We have taken measures to cancel everything and will report your company to LIVECORP and the Australian Government, we will take action to report your actions in this matter to the Chinese authorities and in the press, you have not heard the last of this.
Representation 2 was not conveyed.
Both representations
By 7 February 2017, Guizhou had engaged Tao Jing Lawyers. That firm sent a letter of demand addressed to Bill, at LAC, and to Eddy. The letter stated that:
…[Eddy] did in fact made the Representations to [Shirley] of Shenjimei that the Letters of Credit issues by the Bank were useless and waste of time and accordingly, Shirley should enter into the amended contracts with Livestock Air to make prepayments to Livestock Air by Telegraphic Transfers.
…
Shirley and Shenjimei were induced by and relied upon [Eddy’s] conduct in making [Eddy’s] Representations…
The representations alleged in that letter – made while the events complained of were fresher in Shirley’s mind – were not the same as the representations alleged in this proceeding, and they did not mention Bill making any of them. Shirley’s explanation for this was that on the day she saw the lawyer, she was furious, and provided him with a lot of the amended documents. She said she spent half a day going through the documents with the lawyer and then the lawyer sent out the letter. She gave evidence:
So when I saw that particular lawyer at that particular day, I did not have sufficient time to gather and to provide all the email that is related to this case to give it to him.
The original version of the statement of claim also alleged significantly different representations to those now pleaded. In relation to Eddy, for example, the following was pleaded:
Prior to entering into the Amendment Contract, the Second Defendant represented to the Plaintiff that ("the Representations"):
(a)He is an experienced business man dealing with international cattle imports and exports.
(b)That he has many years experience working for the bank.
(c)That he is very familiar with international trades documentations.
(d)That he is trustworthy as a Chinese.
(e)That he is very familiar with Letter of Credit.
(f)That the Letters of Credit issued by the Bank were unnecessarily tedious and meaningless and unworkable.
(g)That the Letter of Credit issued by the Plaintiff's agent's bank in China is not acceptable by the Banks in Australia.
The original statement of claim made no claims about things having been represented, and relied upon, about:
· Xin Mao’s reputation;
· the concerns of risk of non-payment due to that reputation;
· a demand by LAC to be paid by pre-payment;
· any threat by LAC to walk away if the demand for pre-payment was not made.
It was not until February 2018 – more than 14 months after the events in question – that an allegation in its current form was made in an amendment to the statement of claim.
Guizhou submits that I should draw a Jones v Dunkel inference from the fact that Bill and Eddy were not called to give evidence. Jones v Dunkel (1959) 101 CLR 298 is authority for the proposition that the court may draw an adverse inference against a party who does not call a witness who might have been expected to be called about a matter, without a satisfactory reason. The inference that can be drawn is that that party’s evidence would not have helped the case; evidence to the contrary from the other side may be more readily accepted.
As I am not satisfied from the evidence for Guizhou that either of the alleged representations was conveyed by Bill or Eddy (or indeed both of them), the inference that is sought to be drawn is not relevant – there is no ‘evidence to the contrary’ to more readily accept.
No inducement shown
Even if Guizhou had established that the misleading and deceptive conduct occurred, I would not have been satisfied on the evidence that such conduct induced the payments.
In order to establish the case of inducement, Guizhou relied on Shirley’s oral testimony – which was scant on this point, and which in any event I do not accept – and on certain sentences plucked from different communications.
I find that Guizhou decided to amend the contract and then make the payments because Bill made it clear that if it did not, the contract would not have proceeded, and Guizhou wanted it to continue. It was a commercial decision.
Further, Shirley gave evidence in relation to the first payment that by making the 10% transfer she thought it would help pay LAC’s expenses in Australia.
And in relation to the second payment, her reason for payment was set out in her WeChat message to Eddy on 8 December:
… I agreed to pay 40% in advance not because I did not know that I did not breach the contract, but because I knew that Bill would need to make payments to the sheep farmers, so it was my special offer to him.
CONCLUSION
The plaintiff has not established its case.
I will give judgment for the second and third defendants.
I direct the parties to consider the orders that should be made as a result of these reasons, including as to interest and costs. If the proposed orders are not agreed, submissions as to the proposed orders should also be provided by each party. If a hearing is required on these matters, it will then be listed.
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Certificate
I certify that these 89 pages are a true copy of the reasons for decision of her Honour Judge Marks, delivered on 13 February 2019, revised on 14 February 2019.
Dated: 14 February 2019
Samantha Marinic
Associate to Her Honour Judge Marks
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