Selective Trade Pty Limited v Ferngrove Pharmaceuticals Australia Pty Ltd

[2022] NSWDC 131

District Court

New South Wales

Medium Neutral Citation:

Selective Trade Pty Limited v Ferngrove Pharmaceuticals Australia Pty Ltd & Anor [2022] NSWDC 131

Hearing dates:

20-24, 27-29 September 2021
1 & 7 October 2021, final written submissions 22 October 2021

Date of orders:

29 April 2022

Decision date:

29 April 2022

Jurisdiction:

Civil

Before:

Coleman SC DCJ

Decision:

1. Judgment for the plaintiff against the first defendant on the amended statement of claim in the sum of $1064.37.

2. Judgment for the second defendant on the amended statement of claim.

3. The plaintiff is to pay the defendants’ costs of the proceedings as agreed or assessed.

Catchwords:

Contract – Construction of Contract – Breach of Contract – Failure To Deliver Goods – Sale of Goods Act 1923 (NSW) – Claim for Statutory & Common Law Damages – Whether the Defendants Repudiated the Contract – Whether the Defendants Engaged in Misleading and Deceptive Conduct –– Australian Consumer Law (ACL) – Breach of Statutory Implied Warranty – Assessment of Damages – No Evidence of Loss or Damage – Nominal Damages

Legislation Cited:

Competition and Consumer Law Act 2010 (Cth) Sch 2 ('Australian Consumer Law') ss 18, 236

District Court Act 1973 (NSW) s 4

Evidence Act 1995 (NSW) ss 131, 131(2)(g), 131(2)(i), 131(5)(a),

Sale of Goods Act 1923 (NSW) ss 17, 32, 53

Cases Cited:

Anderson v Canaccord Genuity Financial Ltd [2022] NSWSC 58

Ashby v White (1703) 2 Ld Raym 938

Castel Electronics Pty Ltd v Toshiba Singapore Pte Ltd [2011] FCAFC 55

Charter Reinsurance Co Ltd v Fagan [1996] 3 All ER 46; [1997] AC 313

Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1; [2016] HCA 26

Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 343 ALR 58; [2017] HCA 12

Electricity Generation Corporation (T/as Verve Energy) v Woodside Energy Limited (2014) 251 CLR 640; [2014] HCA 7

Equuscorp Pty Ltd v Glengallen Investments Pty Ltd (2004) 218 CLR 471; [2004] HCA 55

Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (AWA Case) (1995) 37 NSWLR 438

Hadley v Baxendale [1843 – 60] All ER Rep 461; (1854) 156 ER 145

Jones v Dunkel (1959) 101 CLR 298

Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61

Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11

Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286

Malouf v Constantinou [2017] NSWSC 923

Mediana, Owners of the Steamship v Owners, Master & Crew of the Lightship Comet [1900] AC 113

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37

New South Wales v Moss (2000) 54 NSWLR 536; [2000] NSWCA 133

New South Wales v Stevens (2012) 82 NSWLR 106; [2012] NSWCA 415

Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35

Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257; [2003] HCA 10

Rivat Pty Ltd v B & N Elomar Engineering Pty Ltd [2007] NSWSC 638

The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52

Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632

Troulis v Vamvoukakis [1998] NSWCA 237

Whitfeld v De Lauret & Co Ltd (1920) 29 CLR 71; [1920] HCA 75

Texts Cited:

N/A

Category:

Principal judgment

Parties:

Selective Trade Pty Limited (Plaintiff)
Ferngrove Pharmaceuticals Australia Pty Ltd (First Defendant)
Wei Tang (Second Defendant)

Representation:

Counsel:
Mr D Parish (Plaintiff)
Mr S Burchett (First & Second Defendants)

Solicitors:
H & H Lawyers (Plaintiff)
Juris Cor Legal (First & Second Defendants)

File Number(s):

2020/136755

Publication restriction:

N/A

Judgment

Background

1. These proceedings arise from a dispute about an agreement, or several agreements according to the defendants, for the purchase and distribution by the plaintiff, Selective Trade Pty Limited (“Selective Trade”), of various “mother care” products manufactured by the first defendant, Ferngrove Pharmaceuticals Australia Pty Ltd (“Ferngrove”).

2. Selective Trade pursues claims for statutory and/or common law damages arising out of the agreement. It seeks damages for what it says were actual and expectation losses caused by the repudiatory conduct of Ferngrove. It also seeks damages caused by Ferngrove failing to deliver goods pursuant to s 53 of the Sale of Goods Act 1923 (NSW) (SOGA), and also damages from both Ferngrove and the second defendant (and director of Ferngrove), Mr Wei Tang (“Mr Tang”), for misleading and deceptive conduct under s 236 of the Australian Consumer Law (ACL). Those claims allege misleading and deceptive conduct in representing that Ferngrove would manufacture and deliver the products within a reasonable time and perform its obligations in accordance with the contract, and also against Mr Tang for further misrepresentations in respect of the ownership of the NTSA brand.

3. This matter first came before me on Friday, 10 September 2021, at which time I heard a motion filed by Ferngrove and Mr Tang on 3 September 2021. Ferngrove and Mr Tang were then granted leave to file and serve a Further Amended Defence, which was later filed on 13 September 2021. Selective Trade then filed a Reply to that Further Amended Defence and additional affidavit evidence on 15 September 2021. In addition, the parties were both ordered to and provided written opening submissions and outlines of objections on 15 September 2021.

4. The substantive hearing then commenced before me on Monday, 20 September 2021. There were many issues in this case. All of them were hard fought. There was virtually no common ground. No agreed facts were tendered during the course of the hearing and initially, the parties could not even identify a list of issues in dispute. They had to be ordered to prepare and provide one. That list, when provided and somewhat ironically entitled “Agreed Issues in Dispute”, highlighted the fact that everything of substance in the case was in issue between the parties.

5. The hearing concluded with oral submissions on 7 October 2021 and final written submissions on 22 October 2021.

6. Selective Trade claimed damages of approximately $1.31 million (not including interest). The jurisdiction of this Court is $750,000 (see s 4 of the District Court Act 1973 (NSW)). When this issue was raised with Mr Parish of Counsel for Selective Trade, the Court was told that his client had elected to take the availability of a hearing date over the possibility of the award of significantly more damages (should it be successful): T23.49‑T24.06. Thus, Selective Trade accepts that the maximum damages it can be awarded is $750,000.

7. That election, however, as it turns out was optimistic. By reason of evidential rulings made by me during the hearing and referred to in more detail below, Selective Trade has no evidence of any expectation/loss of opportunity loss or damage suffered by it causally related to the conduct it says Ferngrove engaged in. As can be seen from the reasons below, I have found that Ferngrove did repudiate the contract between it and Selective Trade. However, apart from a very small amount of shipping costs, because there is no evidence of any loss, and despite its submissions to the contrary, Selective Trade will recover only nominal damages for the contractual remedies and no other damages. It has not been successful on its other claims. Even if it had been successful on those claims, it would not have been able to recover damages as it has placed no evidence before the Court by which those damages could be assessed.

8. Thus, the following examination of not uncomplicated facts from a hearing lasting over two weeks with a multitude of contested issues is, in essence and rather frustratingly, proverbially for almost nothing.

9. Having said that, the parties are entitled to pursue their dispute for a resolution by the court and a decision as to their rights and obligations under their contractual arrangement. Below are my findings in that regard.

The Pleaded Case

The Plaintiff

10. By Amended Statement of Claim filed 16 November 2020 the plaintiff alleges that in about August 2018 it entered into an agreement with FPA for the manufacture and supply to it of various health supplements and milk powder products. These products incorporated the brands FPA, NTSA and some other brand names. The agreement was alleged to be for the plaintiff to exclusively distribute those products to retailers in China. The plaintiff alleged that this agreement was oral and made at a meeting between the second defendant, Mr Tang who was the sole director, secretary and shareholder of FPA Mr Liang Wang. In oral submissions it was said that Selective Trade did not rely on this agreement and it was pleaded only as a background matter. All of the matters in that agreement were said to have been superseded by the later written agreement.

11. It was pleaded that, at all material times, Ferngrove was aware that Selective Trade would be buying the product to on sell them to sub-buyers or retailers in China for distribution and sale in the Chinese consumer market.

12. It is alleged that on or about 1 November 2018 Selective Trade and Ferngrove entered into a written contract, with a term of three years, for the sale of the products and granting Selective Trade an exclusive right to distribute those products in mainland China. Various express terms of the agreement were pleaded, including that Ferngrove would deliver the products within 60 days after receipt of a deposit. Further it was said the agreement provided that Selective Trade would complete sales of 125,000 units within six months from the date of receipt of the first batch of products. Ferngrove was not to transfer the exclusive right to distribution of the products in China to any other person or company during the term.

13. Selective Trade says that it ordered certain products from Ferngrove on 15 November 2018 which constituted the First Order. An invoice was issued on 8 January 2019 stating that a 30% deposit was to be paid, being $104,400 prior to the order being processed.

14. Selective Trade pleads that on 29 January 2019 on 12 April 2019 it made payment of sums of $50,000 and $54,400 respectively which constituted the 30% deposit for the First Order.

15. It was pleaded that there was a Second Order made on 27 February 2019. During the hearing, Mr Parish said that no claim is made as a result of this Second Order. Later, the pleading asserts a Third Order, but again, no claim is made in relation to the Third Order.

16. On 24 April 2019 it was alleged that Selective Trade collected part of the First Order.

17. Selective Trade alleges that in or about early June 2019 Ferngrove requested that it vary the contract to add an additional financial guarantee and stricter pricing terms into the contract. This request was rejected by Selective Trade on or about 3 June 2019. It says it requested delivery of the remainder of the First Order by 21 June 2019.

18. Selective Trade alleges that by reason of the terms of the contract, Ferngrove was required to supply and deliver the remainder of the First Order by no later than 9 July 2019 (being 60 days after the payment of the balance of the deposit on 12 April 2019). Selective Trade says that on 16 July 2019 it was informed by Mr Tang that Ferngrove would not perform its obligations under the contract. Mr Tang offered to refund the deposit paid for the First Order less the costs of the products already delivered.

19. On 19 September 2019, it is pleaded that Ferngrove refunded the balance of the deposit in the sum of $92,400. Thereafter, it failed, neglected, or refused to deliver the First Order by 9 July 2019 in accordance with the contract or, alternatively, within a reasonable time as required by s 32 of the SOGA. Selective Trade alleges it suffered loss and damage by reason of the breach of contract or, alternatively the SOGA.

20. It is further alleged that there was a breach of warranty as to title in that in May 2019 Ferngrove informed Selective Trade that it was having difficulty meeting its obligations under the contract because a company known as Aoxinlaite (Xiamen) Technology Co Ltd (“Xiamen”) complained to Ferngrove that the products were too similar to other goods supplied by Ferngrove to it for distribution in China. Not having been disclosed to Selective Trade, this is said to constitute a breach of the statutory implied warranty under section 17 of the SOGA thereby causing Selective Trade loss and damage.

21. Selective Trade alleges that by virtue of communicating that it was not willing or able to perform its part of the contract, and offering to refund the balance of the deposit, Ferngrove engaged in repudiatory conduct. Selective Trade says it elected to accept the repudiation on 30 August 2019, thus terminating the contract. Selective Trade says that it is entitled thereby to recover damages, including liquidated damages, under the contract, loss of profits and expectation loss to put it in the position it would have been as if the full term of the contract had been fulfilled.

22. Selective Trade also brings a claim in misleading and deceptive conduct by virtue of representations it says were made by Ferngrove and, alternatively, Mr Tang. It says that Ferngrove represented that the products would be manufactured and delivered within a reasonable time and that it would perform its obligations in accordance with the contract. It says those representations were misleading and deceptive in that Ferngrove failed to comply with the contract and deliver the products on time or at all.

23. In so far as Mr Tang is concerned, it is alleged that he represented that Ferngrove would manufacture and deliver the products within a reasonable time and that he would cause Ferngrove to perform its obligations in accordance with the contract. Further, it is said that he misrepresented that he did not own the NTSA brand, whereas in fact he had full ownership and control of that brand.

24. As a consequence of the misleading and deceptive conduct, Selective Trade says it is entitled to damages pursuant to s 236 of the ACL.

25. Selective Trade also claims “additional damages” by reason of having undertaken various business activities with third parties so, it says, it could fulfil its obligations under the contract. Those third parties include the Beijing Fu Tai Wei Ye Trading Co Ltd (“the Beijing Company”) and international carrier companies who would ship the products to China. Selective Trade alleges it entered into a distribution agreement with the Beijing Company on 1 October 2018 for a period of one year whereby the Beijing Company would be responsible for customs procedures, domestic transportation distribution and marketing activities of the product.

26. Selective Trade alleges that by reason of Ferngrove’s breach of the contract it was unable to distribute the products to the Beijing Company pursuant to the distribution agreement and thereby suffered loss of profit and damages. It also claims damages for what it says are losses suffered by it by reason of breaches of contracts with third-party distributors in China and “the real possibility of legal action by third-party companies for breaches of contract or other action”.

The Defence

27. The defendants deny that the August 2018 oral agreement was made as alleged by Selective Trade. At [4] of their Further Amended Defence, filed 13 September 2021, the defendants plead that Selective Trade was advised in or about August 2018 that Ferngrove already had an association with Xiamen as its distributor in China, through its parent company, FPA Group Limited ("FPA Group"). It further pleads that Selective Trade was then advised that the existing distributor was associated with the distribution of the “Slaite” brand of products in China.

28. The defendants’ version is that the August 2018 agreement was that if Selective Trade was granted an exclusive distributorship of any of its products, then it could only sell those products in China through a “special” or “closed” channel of direct marketing. It would not be able to sell or market those products in any way so as to adversely affect, or compete with, the marketing of other brands by Ferngrove’s existing distributors. The defendants argue that this condition was a collateral agreement to the substantive written agreement (“the Collateral Contract”). The defendants plead that they were unaware that Selective Trade intended on re‑selling the products to “sub‑buyers” outside of any such closed channel. They further argue that by selling the NTSA products outside of a “closed” channel of direct marketing, Selective Trade did not comply with the Collateral Contract.

29. The defendants say that Selective Trade was required to comply with its standard terms of sale of goods, as contained in both the written contract and in a “New Account Application” form executed by Selective Trade contemporaneously with the written contact.

30. The defendants argue that it was an implied term of the agreement that Selective Trade was to pay the deposit on any order within a reasonable time after placing the order and prior to the delivery date specified for the order. They say that this deposit was to include GST. They say that Selective Trade did not comply with that implied term when making the First Order. They say the $104,400 paid by way of deposit for the First Order did not include any payment of GST. Accordingly, the defendants say that Selective Trade never paid the full deposit as required by the agreement, which would have been an additional 10% for GST; being a total of $114,400. It is alleged that Mr Zhou advised Mr Wang on 12 April 2019 and 13 May 2019 that the deposit paid for the First Order was short of GST. The defendants deny that Mr Zhou ever told Mr Wang that GST was not payable if a bill of lading was provided to Ferngrove.

31. In addition, the defendants note that the second payment of $54,000 made by Selective Trade on 12 April 2019 as the final tranche of the deposit for the First Order was paid after the specified delivery date for the First Order (as shown on Ferngrove’s written confirmation as 29 March 2019). This payment was said to be contrary to the agreement.

32. Selective Trade took delivery of the initial 1,500 units of the First Order on 24 April 2019. No payment (over and above the deposit already paid) was made. The defendants further plead that taking those goods without making full payment was another breach of the agreement.

33. The defendants say that Selective Trade was in breach of its obligations pursuant to the Collateral Contract and the contract by marketing the NTSA branded products in competition with Slaite products in China.

34. Ferngrove denies it was in breach of any of its obligations under the agreements or the SOGA and says that it was the plaintiff who repudiated the contract. It says this repudiation was accepted by it, whereby the contractual arrangements were terminated.

35. Ferngrove and Mr Tang deny they made the representations alleged or engaged in misleading and deceptive conduct.

36. They deny Selective Trade has suffered the loss and damage alleged, or any loss or damage at all.

The Reply

37. In its reply to the Further Amended Defence, the plaintiff pleads that by reason of an agreement made in late December 2018 or early January 2019, no GST was payable on the 30% deposit required on the purchase price of the goods.

38. It is alleged that relying on that agreement it did not pay GST on the 30% deposit it otherwise paid for the First Order. It says that at no time did Ferngrove say that GST was payable on the deposit, nor demand payment of it.

39. It says that Ferngrove is estopped from resiling form the agreement with respect to GST and the deposit, or otherwise asserting that GST was payable on the deposit and that Selective Trade is in breach of the contract by its failure to pay that GST.

40. Alternatively, it is alleged that the failure of Ferngrove to inform it that the deposit was payable was misleading and deceptive conduct in contravention of the ACL.

List of Issues in Dispute

41. As I have mentioned, prior to the hearing commencing, and only after some encouragement by the Court, the parties set out a list of Agreed Issues in Dispute. They are:

1. Which documents/oral conversations comprise the Contract between the parties (accepting it includes the Agency Agreement and the Account Application)? This requires resolution of the following sub-issues:

1. Was an oral or collateral agreement concluded in August 2018 and if so:

1. Was it agreed to grant an immediate right of distributorship of the NTSA brand?

2. Did the plaintiff agree to, or represent that it would, limit the use of any distributorship to be granted to the sale of the goods through a “special” or “closed channel” and not in competition with FPA’s existing distribution agency and its mother-child retail network in China?

2. What were the terms/obligations under the Contract/Collateral Contract (if it is found to form part of or constitute a separate legal agreement) and in particular:

1. What was the nature and extent of the exclusive distribution? Was it agreed to grant an immediate right of distributorship of the NTSA brand? Did the plaintiff agree to or represent that it would limit the use of any distributorship to be granted to the sale of goods through “special” or “closed channel” and not in competition with FPA’s existing distributor agency and its mother-child retail network in China?

2. Was the purchase price to be GST free or exclusive?

3. Was it required to pre-pay 30% of each order on or within a reasonable time and pay the balance on or [within] a reasonable time before delivery and before property would pass to it?

4. Was it required to “complete the purchase” of a min. 125,000 units in six months?

5. Was the first defendant required to deliver within 60 days of order or only ready for shipping and in either case, was the obligation subject to receipt of payment?

6. Was FPA entitled to terminate the order (as) and resell the manufactured goods for failure to pay for them or otherwise to comply with those terms/obligations?

3. What awareness, conversations or communications do the parties have before entry into the contracts, which are relevant to their construction, including:

1. Was the first defendant aware beforehand, that the plaintiff would be on selling to retailers for distribution and sale to consumers in China?

2. Did the plaintiff only seek authority from the first defendant to distribute through an “special” or “closed channel” and was it aware beforehand of the existing “open channel” distribution of first defendant goods through Slaite?

3. Was there a conversation between Mr Wang and Mr Zhou shortly before execution or delivery of the written Agency Agreement on 1 November 2018 and what was its relevant effect?

4. In respect of the 30% deposit issue on the First Order :

1. Did Mr Wang and Mr Zhou have a conversation in late December 2018-early January 2019 in which it was agreed that the deposit of 30% was to be GST free?

2. If so, what is the effect of that agreement?

3. Did the conduct of the first defendant lead it to being estopped from denying that the deposit paid by the plaintiff was sufficient to engage its delivery obligations?

5. Was there an obligation to deliver the First Order within 60 working days? And if so, had that obligation been engaged and when?

6. Did the first defendant have any obligations in respect of the Second and Third Orders? In particular:

1. Was the “Second Order” merely a request for advanced delivery of an instalment of the “First Order”, with which FPA complied in its discretion by the delivery of 24 April 2019?

2. What was the effect of that delivery without payment of the full price upon the obligation of the Plaintiff to pay for the deposit or full price of the “First Order”?

3. Was the “Third Order” made in breach of the contracts, never accepted and of no or any effect?

7. In respect of the Sale of Goods Act 1923 (NSW):

1. Was the first defendant under an obligation to deliver the goods within a reasonable time and what time was reasonable?

2. Was a relevant warranty under s 17 of the Sale of Goods Act implied in the circumstances of the Contract(s) and breach by the first defendant by reason of complaints of Slaite advised to the plaintiff on or about 5 May 2019?

8. Did the first defendant repudiate the Contract?

9. Did the plaintiff accept the repudiation of the first defendant and validly terminate the Contract?

10. Was the plaintiff in breach or engaged in repudiating conduct of the Contract/Collateral Contract and if so what was the effect of that, including was the plaintiff entitled to terminate?

11. Did the first defendant validly terminate the Contract/Collateral Contract for default or repudiation by the plaintiff?

12. Did the first defendant engage in misleading and deceptive conduct in breach of s 18 of the Australian Consumer Law in:

1. Misrepresenting that the goods would be manufactured within a reasonable time; and

2. That it would perform its obligations in accordance with the Contract?

13. Did the second defendant engage in misleading and deceptive conduct in breach of s 18 of the Australian Consumer Law in:

1. Misrepresenting that the goods would be manufactured within a reasonable time; and

2. That it would perform its obligations in accordance with the contract; and

3. That he did not own the NTSA brand when he had full control and ownership through his companies.

14. Were the representations allegedly made by the plaintiff as terms of the Collateral Agreement as to future matters misleading or deceptive in breach of s 18 of the Australian Consumer Law?

15. Did any breaches of the contract, repudiating conduct, breach of the Sale of Goods Act or breaches of the Australian Consumer Law by the first defendant cause the plaintiff loss or damage?

16. Did or will any breaches of the contract, repudiating conduct, breaches of the Sale of Goods Act or breaches of the Australian consumer Law by the plaintiff cause the first defendant loss or damage?

17. What is the quantum of any such loss or damage?

18. Costs.

42. I propose to deal with those issues as appropriate, and in so far as they arise having regard to findings on the evidence or other issues, after summarising the evidence of the witnesses and making general assessments of them. I will also summarise my reasons for making some evidential rulings during the hearing, particularly with respect to parts of the plaintiff’s evidence.

Materials, Witnesses & Evidence

43. The parties prepared a Court Book ("CB") which contained the pleadings, affidavits and documentary evidence. It comprised 3 volumes and there were supplementary tender bundles from each of the parties containing additional documents deployed in cross-examination or otherwise relied upon.

44. The Court also received Plaintiff’s Closing Submissions filed 6 October 2021 (“PCS”), Defendants’ Final Submissions filed 6 October 2021 (“DFS), Defendants’ Submissions in Reply filed 21 October 2021 and Plaintiff’s Amended Submissions in Reply filed 22 October 2021 (“PASR”). The Court is grateful to the parties for these cogent and thorough submissions.

The Plaintiff’s Witnesses

45. The plaintiff read affidavits of Mr Liang (“Nathan”) Wang. Mr Wang had, for two decades, worked in the logistics industry and identified that there were opportunities to market and sell Australian made health supplements and milk powders in China.

46. He gave evidence that Selective Trade was incorporated on 31 July 2018. Mr Wang is the sole director of Selective Trade.

47. From about 17 August 2018, Mr Wang had discussions primarily with an employee of Ferngrove, Mr Terry Zhou, and with Mr Tang with a view to reaching an agreement to buy a pre‑existing range of products produced by Ferngrove (the NTSA brand of products) and for it to sell those products in mainland China. There is a dispute about whether any substantive agreement was concluded at this time or whether, if one was, it survived a later written agreement. I will return in more detail to the events of this day and the different versions and the effect of what occurred below.

48. Mr Wang describes how on or about 1 October 2018, Selective Trade entered into an “Exclusive Distribution Agreement” with the Beijing Company, to distribute infant and child nutrition products in China.

49. He gave evidence as to the signing of the Agreement on 1 November 2018 with Ferngrove and the signing of the New Account form on that day.

50. In order to facilitate the payment of currency into Australia by the Beijing Company (who had an obligation under the Exclusive Distribution Agreement to pay in advance “according to the product demanding plan”), it was necessary to use custom clearance companies. To that end, on 5 January 2019, Selective Trade retained Shen Zhen Daichful Union Supply Chain Co Ltd (“SDU Supply Chain”) and Guangzhou Zhangmoshi International Trading Co Ltd (“GZ International”) for the purpose of shipping orders to China and meeting currency requirements.

51. Mr Wang deposed to an oral agreement he said he had made with Mr Terry Zhou of Ferngrove, in December 2018, that if the plaintiff provided the defendant with a bill of lading for the export of the products, no GST was payable by the plaintiff to the defendant on the purchase of the products. Mr Wang said that by reason of this agreement he did not pay any GST on the 30% deposit of the First Order. He said that the GST on that deposit was never demanded by Mr Tang or Mr Zhou.

52. Mr Wang deposes to the issues which arose in China in April/May 2019 when Xiamen complained that the distribution by the plaintiff through the Beijing Company of NTSA products in China was in conflict with its rights to distribute Slaite products. He referred to a group being formed with the relevant players to discuss this matter and see if a solution could be reached. The parties to this group chat were representatives of the Beijing Company, Slaite, Mr Tang and Mr Zhou of Ferngrove and Mr Wang.

53. Objection was taken by Mr Burchett of counsel for Ferngrove, to the copies of the messages the plaintiff sought to tender. Copies were also in the defendant’s evidence but Mr Burchett said he would not have tendered them if his objection was upheld.

54. The basis of the objection was that the messages were communications made between persons in a dispute, or with third parties, in an attempt to negotiate a settlement of the dispute. Thus, Mr Burchett submitted, evidence of those communications could not be adduced by reason of s 131 of the Evidence Act 1995 (NSW).

55. The dispute was said to be “whether or not the Beijing Company, through its relationship with the plaintiff, was able to market goods as being goods of the FPA Group, a company that is related to the first defendant. The dispute was whether such marketing caused a problem which needed to be resolved in relation to FPA Groups agency of another distribution company called “Slaite” in China which was distributing much of the same type of goods”. (T 37.4-9).

56. Mr Burchett submitted that from the very first meeting between Mr Tang and Mr Wang in August 2018, the relationship of the first defendant with other entities in China distributing similar goods was disclosed to the plaintiff. He submitted that it was agreed that if the plaintiff got a distributorship to market a particular brand of the first defendant’s goods in China, it would not market it in a way that affected the existing relationships of the FPA Group with its existing distributors in China. However, as it turned out, the behaviour of the Beijing Company marketing the NTSA goods was causing significant interference to the interests of the first defendant. Indeed, he submitted, the agreement between the plaintiff and the first defendant required the marketing of the products to be undertaken in a way that had regard to the interests of each party. Mr Burchett argued that, properly construed, the agreement between the plaintiff and the first defendant protected the interest that the first defendant (through another group company) had with the Chinese companies. He said the WeChat messages reflected a significant period of negotiation between the Beijing Company, the Slaite company and Mr Tang with some small involvement from the plaintiff (see T 37.11-30).

57. Mr Parish, of counsel for Selective Trade, submitted that if the communications were caught by s 131 of the Evidence Act (which he did not accept) they fell within the exception in s131(2)(g). He submitted that the evidence already led in the proceedings, or an inference from evidence that had already been adduced in the proceedings, would be likely to mislead the Court unless the evidence of these communications was also adduced to contradict or qualify that evidence. That evidence related, he submitted, to the dispute between the parties about the payment of the deposit and, eventually, the alleged repudiation by the defendant of the contract it had with the plaintiff by refusing to supply the products to the plaintiff and the refund of part of the deposit. That is, the evidence related to the very rights the plaintiff was asserting under the contract in issue in these proceedings. The court would be misled, he submitted, about the other evidence as to those rights if these communications were not admitted.

58. I allowed the evidence to be adduced as I formed the view that as explained by Mr Burchett the “dispute” was not one in which relief may be given in an Australian or overseas proceeding (see s 131(5)(a) Evidence Act). That is because as the matter in discussion was between the Beijing Company and Slaite and a related company of the first defendant with the plaintiff peripherally involved and a discussion as to whether or not what the plaintiff was seeking to do through the Beijing Company in distributing the first defendant’s products in China caused “any problems” for Slaite. No evidence of any agreements between the first defendant or any related company and Slaite which govern the rights and obligations of those parties with respect to the distribution by Slaite of products of the related company of the first defendant in China was put before me. Thus, in my opinion, I could not form the view as to whether or not there was a justiciable issue which could have been the subject of relief in Australia or, indeed, in China. No cause of action was properly identified which it was said arose out of the dispute and was the subject of the negotiations.

59. In any event, I accept the submissions of Mr Parish I’ve referred to above. Further, and in addition, it seems to me that the exception in s 131(2)(i) Evidence Act also applied. That is because the communications, at least in part, also involve discussions with respect to the supply by the first defendant of its products to the plaintiff pursuant to the Australian contract and, ultimately as I’ve observed above, the alleged repudiation of the contract by the conduct of the first defendant in refusing to supply those products and the refund of part of the deposit. Thus, the communications went to the very right the plaintiff was asserting in the proceedings: the enforcement of its contractual rights.

60. There were other matters that were dealt with in Mr Wang’s affidavit evidence. That included the termination of the arrangements with Ferngrove. He also sought to give some evidence of the losses he says the plaintiff suffered. I will return to that question below.

61. Mr Wang was cross-examined extensively on the contents of his affidavits. Generally, I formed the view that he was doing his best to answer the questions asked of him accurately and truthfully. He made concessions when appropriate and was generally a reliable and credible witness, although I did not accept all of his evidence. I will deal in more detail with Mr Wang’s evidence when dealing with the issues in dispute.

62. The plaintiff also sought to read an affidavit of Mr William Wei Wang affirmed 20 November 2020. Mr William Wang (no relation to Mr Nathan Wang) is an accountant and tax agent practising in both China and Australia. His affidavit was sought to be read to provide an estimate calculation of the projected net profits Selective Trade would have made from its contractual arrangement with Ferngrove. He set out a significant number of assumptions he made based upon instructions from Mr Nathan Wang to calculate the net profit estimate.

63. Mr Parish explained (at T19 3.40) that the purpose of the affidavit was for Mr William Wang to provide a set of calculations, or a “management budget”, based on information provided to him by Mr Nathan Wang and to “come up with a forecast… and as part of that, to also calculate immediate wholesale market price of similar goods sold in China”. The results of his calculations were then provided to a Mr Ngyuen, an expert, who was then to opine on the losses suffered by Selective Trade. (I will deal with Mr Nguyen’s evidence below).

64. The admission of Mr William Wang’s affidavit was debated for some time during the fourth day of the hearing (see T193-T207.15). Ultimately, I rejected Mr William Wang’s affidavit. Primarily, that was because many of the assumptions that he was asked to make were based upon his review of a number of third-party documents. He then made assumptions that certain things were going to happen based on those documents. He then assessed what would have happened in the future to provide his profit forecast.

65. The plaintiff relied on the decision of Castel Electronics Pty Ltd v Toshiba Singapore Pte Ltd [2011] FCAFC 55 (“Castel”) in support of the admissibility of Mr Wang’s affidavit. For the reasons I gave at T197-198, I considered that what the plaintiff was seeking to do in this case with Mr Wang’s affidavit was distinguishable from what occurred in Castel. That was primarily because, in that case, the accountant there took into account the financial records of Castel to determine as accurately as he could the cost occasioned to remedy defective products and explain a calculation he made. The court held that his evidence was, therefore, informative and not an opinion.

66. In this case, Mr Wang was making assumptions as to what third parties would do, or what costs those third parties would incur, in performance of contracts with Selective Trade. He was not analysing Selective Trade’s records and providing information on those records. On that basis, I formed the view that he was providing an opinion based upon the assumptions that he made and that it was not going to be possible on the evidence for any of those assumptions to be proved. There was no evidence as to the provenance of many of the documents upon which he was said to base his opinion and the plaintiff was not in a position to prove the truth of the contents of those documents. I formed the view that the defendant would have been significantly prejudiced in not being able to test the opinions because it could not test or challenge the contents of the documents on which the opinion was said to be expressed.

67. The plaintiff also sought to read an affidavit and expert’s report of Mr Nguyen of 4 December 2020. Mr Nguyen is a forensic accountant. That report (CB 585) responded to instructions answering three questions (CB 590), namely,:

1. Estimate the lost share of profits (if any) Selective Trade would have earned, but did not earn, from the completion of the FPA Supply Agreement over the term of that agreement.

2. Identify the expenses that Selective Trade:

1. has incurred and paid in relation to the Supply Agreement, and

2. will be required to pay as a result of the alleged wrongful termination of the Supply Agreement.

3. Calculate the damages payable by FPA pursuant to articles 4(4) and 6(1) of the Supply Agreement.

68. I rejected that report as it was based wholly on, or at least inextricably linked to, the affidavit and conclusions of Mr William Wang. As that affidavit had been rejected, it followed that Mr Nguyen’s report was rejected too. Further, his expertise on which he expressed his opinion as a forensic accountant was based upon his experience in Australian businesses and disputes. It was not said he had any training, knowledge or experience in relation to the relevant market that the products were to be sold or in any business in China or the export of products to China. I did not accept he had the expertise to opine on the issues he had been asked to in the report.

68. The plaintiff was given leave to file and serve an additional affidavit of Mr Nguyen as to the effect on his report, and the opinions he expressed, of the rejection of Mr William Wang’s affidavit. When this was done, I upheld the objection of Mr Burchett that what Mr Nguyen did in this additional affidavit, and in the report attached to it, was in fact provide a second and new opinion on the losses said to have been suffered by Selective Trade. I rejected this as being unfair to the defendant who had taken the forensic decision not to obtain expert evidence on the bases of the objections it had taken (successfully as it turned out) to the affidavit of Mr William Wang and the report of Mr Nguyen.

69. By reason of these rulings, as I refer to when dealing with damages below, the plaintiff has no evidence of damages it says it suffered by reason of the alleged breaches of the contract by Ferngrove, or any other conduct of Ferngrove said to be in contravention of the ACL or the SOGA.

The Defendants’ Witnesses

71. The defendant read affidavits from Mr Tang and Mr Zhou.

72. Mr Tang is the sole director of the first defendant, Ferngrove. He has been in the field of pharmaceuticals since 1990. He established the first defendant in 2011 and has acted as director and secretary of the company since that time.

73. Ferngrove specialises in health supplements and milk powder processing and its business comprises:

1. Original equipment manufacturing (that is processing other client’s own formulas and turning them into final products and packaging in them);

2. Original design manufacturing (that is researching and designing and developing a client’s own brand together with raw materials purchasing on the processing and packaging); and

3. Original brand manufacturing (that is establishing Ferngrove’s own brands and product plans and manufacturing the final products for clients to sell).

74. He gives evidence that in 2015 he founded FPA Group for investment purposes and with the prospects of an initial public offering (IPO).

75. He says that in 2015 Xiamen became a client of Ferngrove. In 2017, owing to what he saw as the potential of that company, on behalf of FPA Group he invested in it. Xiamen’s brand “Slaite” became FPA Group’s first direct brand.

76. Mr Tang gives evidence of the first meeting in August 2018 with Mr Wang who was introduced to him by his friend Lao Fei. During the meeting, Mr Zhou joined them. It was at this meeting that the defendant says the Collateral Contract was reached. I will return to it in more detail below.

77. Mr Tang says that he left the day-to-day management of the relationship between Ferngrove and Selective Trade to Mr Zhou.

78. Mr Tang then gives evidence of complaints by Mr Song, the Chinese director of Xiamen, in 2019 about the promotion by the Beijing Company of the NTSA brands in China. His evidence was to the effect that on or about 24 April 2019, the director of Xiamen, a company affiliated with Ferngrove in China and selling a rival brand of milk powder named “Slaite”, complained about Selective Trade’s agent in China marketing directly in competition with the Slaite brand’s existing market sales channel.

79. He said that on or about 5 May 2019, Ferngrove informed Selective Trade that it was having difficulty in meeting its obligations under the contract because Xiamen had complained that the products being provided to Selective Trade were too similar to other goods that were supplied by Ferngrove to Xiamen for distribution in China. Selective Trade alleges that, at all material times, the defendants did not disclose to it that:

1. Ferngrove may not have the right to sell the products which were the subject of the contract;

2. Selective Trade may not be able to enjoy quiet possession of those products; and

3. The products may be subject to a charge or encumbrance in favour of a third party before or at the time the contract was entered into.

80. He deposed to discussions with representatives of that company and later with the plaintiff to try and resolve any problems that might have arisen from the complaints of Mr Song.

81. His evidence was that in about June 2019 Mr Song proposed terms of a supplemental agreement to be entered into by the plaintiff with respect to the complaints about the Beijing Company’s operations in China. There were WeChat messages reflecting this proposed “supplemental” agreement.

82. Mr Tang says that by July 2019 he was not sure if Selective Trade intended to carry on with the distribution agency agreement or not, so that on 16 July 2019 in the NTSA group chat, he offered the plaintiff an option of refunding their deposit. This was later done.

83. Mr Tang was cross-examined on his evidence. I found his evidence generally to be unconvincing. I will return to specific examples when dealing with some of the issues below. Two matters stand out. Firstly, it became apparent that he had not seen several important documents, including the PEAA entered into on 1 November 2018 with Selective Trade, until it was shown to him in the witness box. Yet, he purported to give evidence as to the terms of that agreement and its impact on the relationship with the plaintiff. It also became apparent that he had not seen other documents the terms and contents of which were referred to in Ferngrove’s pleadings, which pleadings (and terms) he verified as true and correct. Whilst Mr Burchett sought to downplay this issue, I formed the view that it did not reflect well on Mr Tang that he had nonchalantly verified a pleading without, as his affidavit said he had, satisfying himself that the contents of the pleading, and the documents to which it referred, were true and correct.

84. I also accept the plaintiff’s submissions that he had to be asked by the Court to give direct answers to questions on several occasions. He was argumentative and often, in my view, sought to avoid answering a question by asking questions himself.

85. Where the evidence of Mr Tang conflicted with that of Mr Wang, and unless otherwise corroborated by independent documents, I preferred the evidence of Mr Wang.

86. Mr Zhou also swore an affidavit. In that affidavit he deposed to his commencing employment with Ferngrove in 2015 as an account manager. He rose through the ranks to become a project manager in 2018. In that capacity he had the day-to-day responsibility for Ferngrove’s NTSA brand. He is also responsible for managing the accounts and relationships of Ferngrove with particular clients, including the plaintiff.

87. He gave evidence about the meeting in August 2018 with Mr Wang that I’ve referred to previously and to which I will return in more detail. He then deposed to further meetings and discussions with Mr Wang about what he says were to be the restrictions on distribution by the plaintiff of NTSA products in China if a substantive agreement was reached. He deposes to discussions between he and Mr Wang about the terms of any exclusive distribution agreement between Ferngrove and Selective Trade, including the amount of a deposit and minimum sales. He gave evidence about the various drafts of what became the agreement entered into between the parties on 1 November 2018 and discussions which, he says, took place when the contract was signed.

88. Mr Zhou deposed to the matters giving rise to the First Order, the payment of the deposit by instalments by the plaintiff and, he said, the failure of the plaintiff to pay the total amount of the deposit due.

89. Mr Zhou also gave evidence about the issues that arose with respect to the distribution by the Beijing Company of the NTSA brands in China and the complaints by Mr Song. He gave evidence about the discussions arising from those complaints and the attempt to negotiate a possible solution with the parties.

90. Whilst I did not find that Mr Zhou was deliberately giving dishonest evidence, I did not find him to be an impressive witness in some aspects of his evidence. Even allowing for the not infrequent breakup of the communication lines being used take his evidence by audio-visual link, often I formed the view he was not giving a direct answer, or answering the question. Rather, he was seeking to give an answer he thought was best for the defendants’ case.

91. Where his evidence differed from that of Mr Wang, and unless independently corroborated, I preferred the evidence of Mr Wang.

92. Additionally, as the plaintiff identified in [27] of its closing submissions, on several occasions his evidence contradicted that of Mr Tang. For example, Mr Tang said he had not seen the PEAA before he entered the witness box. Mr Zhou said he had shown him previous versions of the agreement and had told Mr Tang that it had been signed after 1 November 2018 (T431.16) Mr Tang said he did not know about the agreement and did not need to look at the written version despite him asserting that it was a condition of that agreement that NTSA products could only be sold by way of a closed channel and that this condition was very important to him (T349.45-350.11; T351.2). In so far as there are inconsistencies between the evidence of Mr Tang and Mr Zhou I preferred the evidence of Mr Zhou.

Issue 1

93. This issue relates to a resolution of what documents made up the contract between the parties. It is, essentially, accepted by both sides that the Product Exclusive Agency Agreement (“PEAA”) signed on 1 November 2018 (CB 93-98) and the New Account Application (“NAA”) (CB 1006-1010) (together the Contract), which contains the standard terms and conditions of sales by Ferngrove and which was also entered into on 1 November 2018, applied to govern the relationship of the parties. Of course, there are questions as to the construction and interplay of these two documents having regard to the events which happened and the claims now made arising out of the relationship between the two parties. This will be considered further in issue 2.

94. The real question to be resolved for this issue (described as a sub-issue in the List of Agreed Issues in Dispute) is whether or not there was an oral agreement, either standalone or collateral to the contract, entered into on 17 August 2018.

95. As I have mentioned above, the plaintiff pleads at [4] of the FASOC that an oral agreement was entered into on 17 August 2018. It pleads that this agreement was that Ferngrove would manufacture and supply the products to Selective Trade who would exclusively distribute them in China. It particularised the agreement as having been made by discussions between Mr Tang and Mr Wang.

96. This agreement, the plaintiff said, preceded the contract and was “overtaken” by it. Mr Parish, in opening, said that the plaintiff did not “rely on… anything that was agreed before the execution of the agreement on 1 November 2018.” (T 4.3).

97. The defendant, on the other hand, submits that the agreement made in August 2018 was to the effect, that if the plaintiff was granted an exclusive distributorship of any of Ferngrove’s products (as it later was in the PEAA) then it was required to sell those products in China only through a “special” or “closed” channel. This restriction was that sales could only be through direct marketing. The sales were not to adversely affect, or compete with, the marketing of other brands by the existing distributors of the first defendant and its related entities in China (see [6] DFS).

98. The defendant also submits that the plaintiff cannot now resile from its pleaded case that there was a binding oral agreement entered into in August 2018. There is force in this submission. For example, at [34] PCS, it is said that the evidence of Mr Tang does not support a finding of offer and acceptance and that the evidence of Mr Zhou, as to what Mr Wang said, does not arise to a concluded contract. That submission does not sit with the plaintiff’s pleaded case.

99. In any event, the plaintiff’s primary position is that the oral agreement made in August 201 was superseded by the PEAA and NAA. I accept that it is entitled to argue this position. Additionally, the terms of the earlier agreement pleaded by the plaintiff are different to those alleged by the defendant as the Collateral Contract. The question thus remains whether there was a binding Collateral Contract as pleaded by the defendant.

The Evidence

100. In order to determine whether or not the defendants’ submissions as to the Collateral Contract should be accepted, it is necessary to review the evidence as to the events of that period.

101. Mr Wang says that from about early 2018 he was looking for an Australian company that manufactured health supplements and milk powder products to distribute them in China. He says that in about March 2018 he came in contact with Mr Feng Guo, the director of the Beijing Company.

102. In July 2018 he said he first became aware of Ferngrove and Mr Tang through one of his friends, a Mr Chen. He understood Ferngrove was in the business of manufacturing and supplying the types of products he wanted to sell in China. On 31 July 2018 he incorporated Selective Trade. He gave one of the shares in that company to Mr Chen as a gesture of appreciation for introducing him to Mr Tang.

103. On 17 August 2018 he says that he went to FPA’s premises with Mr Chen to meet Mr Zhou and Mr Tang. He said that he had a conversation with Mr Tang as follows:

“Me:   We do not have our own brand currently, we wish your company could provide us with the brand. We could be the China Mainland general agent

Tang:   I agreed to give you the NTSA brand, which is our own brand. You can talk to Terry for details.

Me: Thank you. Please give me Terry’s contact information.

Tang: You can add Terry on We chat.”

104. Mr Wang says that either at the meeting on 17 August 2018, or shortly thereafter, he told Mr Zhou about the Beijing Company and said that he knew the director of the company. He said that the company was to be his business partner in China to distribute the NTSA products. He said that he told Mr Zhou that the Beijing Company already had “an established distribution channel so it would be good for business”.

105. Mr Wang also put in evidence WeChat conversations between he and Mr Zhou. These included one on 17 August 2018 after the meeting earlier that day (CB 81). This message corroborates Mr Wang’s version of him discussing the Beijing Company at the meeting. In the message he says that he had “communicated with people in China this afternoon”. Those people (the Beijing Company) required certain information. The message confirmed that the NTSA brand would be the brand of products Ferngrove was willing to supply to Selective Trade.

106. In any event, it does not appear to be in real dispute that the Beijing Company was discussed. In cross-examination (T 89) it was put to Mr Wang that, at the meeting on 17 August 2018, he told Mr Tang that the Beijing Company in China had an established distribution network in direct marketing, not in retail stores. Mr Wang denied this. He said that he told Mr Tang that he intended to sell the products he obtained from the plaintiff in mother and child health care shops (T 90.8). Mr Wang denied that he was told by Mr Tang that if he was offered a distributorship from Ferngrove, it would have to be one which did not directly compete with any of the existing Ferngrove brand sales channels. (T 93.1-5).

107. Mr Tang’s version of the meeting on 17 August 2018 was that Mr Wang told him he was interested in the health supplements product business. He said that Mr Wang told him that the Beijing Company, his partners in China, had an established sales network to sell products via their “special sales channel”. He said that at no time during the conversation did Mr Wang mention any intention to sell Ferngrove products in the mother-infant-child retail market. ( I pause to note here that, as observed below, Mr Tang appeared to resile from this in cross-examination). Mr Tang said that Mr Zhou showed Mr Wang around the showroom, which included displays of Slaite, Enervite, NTSA and other products associated with Ferngrove and its related entities.

108. Mr Tang said that during the meeting, Mr Wang asked about registering his own brand in China. He was told that this would take 6 to 9 months in Australia and 18 to 24 months in China. Mr Wang then asked if there were any other options. He said that he told Mr Wang that if he wanted to use Ferngrove’s own brand, that would be conditional upon him not adversely impacting Ferngrove’s existing brands and sales channels in China. There would also be a minimum purchase of products per year. He said Mr Wang told him he was very interested in this opportunity. This is the basis of what the defendants allege is the Collateral Contract.

109. Mr Tang said after Mr Wang left, he and Mr Zhou discussed the matter. As the Beijing partners were to sell the products within their own special channel, he said they felt there was not much risk of influence on Ferngrove’s other brands like Slaite. They discussed the appropriate brand to sell to Selective Trade and decided that NTSA would be best.

110. In cross-examination it was put to Mr Tang that he did not ask Mr Wang about the Beijing partners and closed channels he said he did. He said that he was told that Mr Wang and his Beijing partners would sell through a special channel. He did accept that he could not remember every detail of the conversation of that day. He also accepted, contrary to what was in his affidavit, that Mr Wang did refer to an intention to sell products in the mother-infant-child market in China.

111. Mr Zhou’s evidence about the meeting was that Mr Wang expressed interest in Ferngrove’s mother-child health care products and said that he had a business connection in Beijing who had their “own sales channel already” and were looking for a brand of health supplement products for sale. He said on the day after the initial meeting, he then took Mr Wang through the display room. He showed Mr Wang products of the FPA Group and its subsidiaries. After discussion where Mr Wang enquired about the time to register a new brand and deciding that that was too long, he said Mr Tang said that Mr Wang should “consider using one of our brands, on the condition that you cannot adversely affect, or directly compete with, our brands existing sales channel. We also have annual minimum purchase requirements”. Mr Zhou said that Mr Wang told Mr Tang that this would not be a problem and that “our Beijing company has its own special sales channel and its own particular customer base. It won’t compete with your brands on the open retail market.”.

112. Mr Zhou said that during that meeting no one from Ferngrove, in his presence or to his knowledge, reached any agreement with Selective Trade in relation to the use of the NTSA brand exclusively or at all.

Submissions

113. The plaintiff submits that no Collateral Contract of the type suggested by the defendants was reached at the meeting on 17 August 2018. It submits that the Court should reject the versions given by the defendants’ witnesses ([34] PCS). It submits even if the versions of Mr Tang and Mr Zhou are accepted, their evidence does not rise high enough to establish either an oral contract (at least one that survived the written terms of the contract subsequently entered into) or a Collateral Contract of the type submitted by the defendant.

114. The plaintiff submits that, at its highest, from the defendants point of view, all that was discussed was if Selective Trade was given a distributorship of Ferngrove products there may be certain conditions as to how those products were distributed. It was, in effect, an early discussion or negotiation between the parties about what might happen if they agreed on a relationship. However, the plaintiff observes (accurately), that no such term found its way into the PEAA executed on 1 November 2018. It submits that the PEAA reflects the final result of the negotiations. As such, it submits that the earlier negotiations are subsumed in, and overtaken by, the written contract.

113. The plaintiff submits that even if a Collateral Contract was entered into on that day, the collateral contract cannot impinge or alter the provisions of the main contract or the rights created by it: Crown Melbourne LtdvCosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1; [2016] HCA 26 (‘Crown Melbourne’). Thus, it submits, even if there was a Collateral Contract, it cannot stand with the primary contract if the court finds, on a proper construction of that primary contract, that the rights to distribute products were not restricted to closed or specified channels.

114. Further, it submits that the contract overtook or subsumed any oral contract that may have been agreed on 17 August. It says that a party executing a written agreement is bound by the terms of that agreement and the court will not find that they intended to ignore or modify those terms in favour of some prior oral agreement: Equuscorp Pty Ltd v Glengallen Investments Pty Ltd (2004) 218 CLR 471; [2004] HCA 55

115. The defendant submits that the versions given by Mr Tang and Mr Zhou should be accepted. It submits that Mr Chen who attended the 17 August meeting was not called and that a Jones v Dunkel (1959) 101 CLR 298 inference should be drawn that anything he said could not have assisted the plaintiff.

116. The defendant also refers to the decision in Crown Melbourne. The High Court (at [61]-[62]) there affirmed the principle that:

“a representation made in the course of negotiations may result in an agreement collateral to the main agreement, if it can be concluded that the parties intended that the representation be contractually binding… The question of intention is adjudged by reference to the words and conduct of the parties, but it is an objective test-of what a reasonable person in the position of the parties would necessarily have understood to have been intended.”

119. The defendants note that the plaintiff had pleaded that an agreement was reached at this meeting at [4] of the amended statement of claim. Yet, it now abandons this claim.

120. The defendants say that Mr Wang’s denials of the limitation of sale by the Beijing Company in special or closed markets are not tenable. It referred to Mr Tang’s evidence that any distributorship would be conditional upon the Beijing Company sales channel being a closed channel. Whilst this condition was not included in subsequent WeChat, or the written agreement, this was perhaps because Mr Tang and Mr Zhou were “over trusting” of Mr Wang.

Consideration

121. In my opinion the submissions of the plaintiff should be preferred. I do not accept that any agreement of the type suggested by the defendant, which could stand alone as a collateral agreement to the subsequently agreed PEAA, was reached on 17 August 2018. In my opinion what occurred at that time was simply initial discussions as to the prospects of there being a distributorship in China through the Beijing company. I do not accept that Mr Tang said that any distributorship was conditional upon sales only being in a limited closed markets.

122. I accept that Mr Wang mentioned that he intended to sell in the infant-child-mother retail market. That Mr Wang was interested in the mother-child infant formula market was accepted by the defendant’s witnesses. Mr Zhou deposed to telling Mr Tang that Mr Wang wanted to do “general trade” ([15] Zhou affidavit). This is not consistent with sales in a closed market of the type suggested by the defendant. His effort to explain this in cross-examination (T 426.11- 427.47) was not convincing and I do not accept it.

123. I do not accept that any inference should be drawn by the failure of the plaintiff to call Mr Chen. The relevant witness of the plaintiff responsible for the negotiations and entry into any distributor agreement was Mr Wang. Mr Chen appeared merely to be an intermediary who introduced Mr Wang to Mr Tang. A Jones v Dunkel inference is an inference that nothing the witness could have said would have assisted the party who didn’t call them. It is not an inference that the evidence would have been adverse to that party: Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11 at [64].

124. Additionally, in the WeChats between Mr Wang and Mr Zhou following the meeting, there was no reference to a restriction on the markets in which any products the subject of a distribution agreement would be sold. That is so in the WeChat of 17 August 2018 immediately following the meeting (CB 81) and on 31 August 2018 (CB 82 and CB 908). The latter WeChat followed discussions which took place between Mr Wang and Mr Zhou as to the possibility of an exclusive distributorship. It included what Mr Zhou said would be the requirements of any such exclusive distributorship and was as follows:

“Terry: hello, we can give you exclusive right. But there are two requirements. Please talk to your clients in Beijing see if they can accept them. 1. For each exclusive item, 50,000 bottles minimum per year, but you need to pay a 30% deposit of 50,000 bottles first, and pay the corresponding balance before each delivery. By the end of one year, if there are remaining quotas that have not been purchased, the deposit will not be refunded. 2. If our Shanghai team wants to sell your exclusive products, you will purchase each bottle of product from you at your net cost (factory product price + shipping fee + tariff) +1 Australian dollar.…”(emphasis added)

125. Additionally, the absence of a clause in the PEAA restricting the channels or markets in which the plaintiff could sell the products in China is completely inconsistent with any discussion or agreement prior to the entry into the contract of such a term. No satisfactory explanation was given as to why such a critical term to Ferngrove was not included in the PEAA.

126. It was Mr Zhou who was responsible for the negotiation of the contract with Mr Wang. He said that he had been told by Mr Tang what was to be included in the contract, including the conditions or restrictions as to sales channels: (T 429.9-23). He does not recall whether he showed the contract to Mr Tang prior to it being executed (T 430.12) or even after it had been executed (T 430.37). When confronted with the absence of such a restriction in the contract, he said that because it was mentioned in the first meeting, there was no need to repeat it in the contract (T 429.35). I do not accept that explanation. I do not accept that the condition was mentioned in the 17 August meeting. Even if I am wrong about that, I find it improbable that if it was discussed in the detail that the defendants suggest at the earlier meeting and was of such importance to them that it would not have been included in the final written agreement that was to govern the business relationship of the parties.

127. Additionally, there are two letters from Ferngrove responding to the plaintiff’s solicitors (see pp 7 and 10 of the plaintiff’s cross-examination bundle: Ex P1). Each of those letters was written by Mr Zhou on instructions from Mr Tang (T 431.28-432.10). Those letters, relevantly, state unequivocally that the problem from the defendants’ end was the plaintiff “doing an unauthorized advertising via the internet using our company group name- FPA Group”. They state that the NTSA brand is not owned by FPA Group. Clause 1.2 of the PEAA is referred to. There is no mention of the plaintiff improperly operating other than in closed or special channels. The absence of any reference to what is now said to be fundamental breaches by the plaintiff, re-affirms my conclusion that no agreement was reached on 17 August of the type alleged by the defendants.

128. There is no suggestion by the defendants that the PEAA contains any express or implied term limiting the channels in which the plaintiff could distribute the products it purchased from Ferngrove. Rather, it is said that these restrictions were part of the prior, oral, Collateral Contract. If I am wrong in my conclusion that there was no agreement about these restrictions on 17 August, then I accept the plaintiff’s submissions that the final concluded bargain between the parties is that contained in the PEAA. That is, if there was a prior agreement, it was superseded by the final written agreement. Objectively, Mr Zhou was the officer of Ferngrove tasked with negotiating the contract terms, and agreeing to the document in its final form. There is no reason why Ferngrove should not be held to the bargain as contained in that contract properly construed.

129. The submissions that there was a Collateral Contract made at an earlier time which contains a clause significantly restricting the operation of the written agreement ultimately reached should be rejected.

130. The parties accept that the PEAA (CB 93) and the NAA containing the Standard Terms and Conditions of Sale (CB 1006) are contractually binding. The evidence establishes that Mr Wang went to Ferngrove’s office to deliver a signed copy of the PEAA on 1 November 2018 and on that occasion he also signed the NAA.

131. In terms of the interaction of those documents, Selective Trade refers to the decision of Parker J in Malouf v Constantiou [2017] NSWSC 923 where at [37] his Honour summarise the following propositions of law:

1. Where a contract is made up of a number of documents terms may cut across each other but they should be construed if possible as if they have some effect;

2. For instance, if one terms general and the other specific, it may be possible to read them together so that they can both have some operation;

3. If the terms are irreconcilable, words or possibly entire clauses should be rejected if they are inconsistent with the “main object” of the contract.

132. Selective Trade submits that the PEAA had two main objects: first, to grant an exclusive right of distribution of NTSA products in China to it and next, to provide a mechanism for the purchase of those goods by Selective Trade in Australia, including the purchase price of the products. It submits that to the extent that the NAA fits harmoniously with the objects of the PEAA, the Court should recognise and apply the terms of the NAA. It submits, however, that the NAA cannot and should not restrict, or modify, the PEAA’s rights and obligations pertaining to the exclusive distribution rights in China. It would not be consistent, it is submitted, with the main object of the PEAA, or the objective intention of the parties, if the pro forma account opening former was to supersede the main agreement. It submits that to the extent the documents are in contradiction, the PEAA ought to take precedence (see Rivat Pty Ltd v B & N Elomar Engineering Pty Ltd [2007] NSWSC 638 at [43]-[44]).

133. There is no dispute that, on 29 August 2018, less than two weeks after the 17 August 2018 meeting, Mr Zhou sent Mr Wang a copy of the NAA. The other agreement was then negotiated in full knowledge of the requirement for entry into those terms of account which were applicable to contracts for sale by Ferngrove to Selective Trade of goods under any final agency agreement which had been negotiated.

134. The defendants accept that both agreements were executed contemporaneously on 1 November 2018. It is obvious, they submit that those documents are intended to work together. It is necessary to seek to reconcile them with specifically negotiated terms taking precedence over the standard terms, if otherwise not reconcilable.

135. In other words, it appears, the parties are in agreement that the PEAA and the NAA work together to constitute the contract between the parties, with the terms of the distribution in the PEAA taking precedence, to the extent of any inconsistency, with the pro forma sales and conditions terms in the NAA.

136. Thus, the resolution of Issue 1 is as follows:   

1. The documents that comprise the Contract between the parties are the “PEAA” (CB 93) and the “ NAA” containing the “ Standard Terms and Conditions of Sale” (CB 1006) (together the Contract);

1. There was no oral collateral agreement concluded on 17 August 2018.

1. No

2. No

Issue 2

137. This issue requires resolution of what the terms/obligations under the Contract were, in particular the nature and extent of the distributorship granted to the plaintiff.

Nature and Extent of the Exclusive Distributorship

138. As this sub-issue is framed, I have already resolved the questions referable to the Collateral Contract. Thus, the only part of this sub-issue to be resolved is the “nature and extent of the exclusive distribution”.

139. In so far as answering this question (or other questions below) concerns a construction or interpretation of the Contract, I approach that task having in mind the relevant principles of contractual construction. Those principles include the necessity to construe the contract objectively by reference to what a reasonable person in the position of the contracting parties would have understood to be the meaning of its language when read in light of the document as a whole and the surrounding circumstances known to the parties at the time of the transaction: see, for example Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35; Toll (F GCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52; Electricity Generation Corporation (T/as Verve Energy) v Woodside energy Limited (2014) 251 CLR 640; [2014] HCA 7; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37.

140. It should also be observed at this point, that it is apparent that the parties did not avail themselves of legal advice for the purposes of drafting the PEAA or, arguably, the NAA. The PEAA is a poorly drafted document. It contains both the Mandarin language and English language versions of the relevant clauses. It was not suggested during the hearing that the translation into English of the document in evidence was inaccurate.

141. With respect to poorly drafted documents, in Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 343 ALR 58; [2017] HCA 12, Nettle J said at [97] and following:

[97]… The precept that commercial contracts be construed as it is thought an honest and reasonable businessperson would construe them will stretch only so far. As Lord Mustill observed in Charter Reinsurance Co Ltd V Fagan [1996] 3 All ER 46 at 54; [1997] AC 313 at 388:

“There comes a point at which the court should remind itself that task is to discover what the parties meant from what they have said, and that to force upon the words a meeting which they cannot fairly bear is to substitute for the bargain actually made one which the court believes could better have been made. This is an illegitimate role for the court”

1. Poor drafting may justify a court in being more ready to depart from the natural and ordinary meaning of the terms of a contract, and no doubt, the poorer the drafting, the less willing a Court would be to be “driven by semantic niceties to a tribute to the parties and improbable and un-businesslike intention”. But poor drafting provides “no reason to depart from the fundamental rule of construction of contractual documents that the intention of the parties must be ascertained from the language they have used interpreted in light of the relevant factual situation in which the contract was made”. Where there is ambiguity which permits of two alternative and semantically not improbable interpretations, construction in accordance with what it may be supposed would be the approach of honest and reasonable businesspersons may assist in choosing one such alternative over the other. But where… the language and surrounding circumstances of a commercial contract presented choice between the one hand, a plain, ordinary and commercially not a rational meaning of a clause and, on the other, a meaning which is significantly removed from the natural and ordinary meaning of the terms of the clause, which accords with other provisions of the agreement, and which in the end produces an outcome that is more commercially acceptable from one of the parties’ point of view only, the precept runs out of application. Unless the Anglo-Australian objective theory of contract is now to be cast aside, the commercial approach to construction is not a licence to alter the meaning of a term that is quite clear and fairly susceptible of one meeting only” to achieve the result that the court may think to be reasonable. The court is not authorised under the guise of construction to make a new contract for the parties at odds with the contract which they have agreed. Where… all things considered, the words of a clause a fairly susceptible of only one meaning, they must be given that effect” (references omitted)

   142. The PEAA states, inter-alia, that :

   “ Seller [Ferngrove] shall designate Buyer [Selective Trade] as the exclusive sales representative of “NTSA” series of products in mainland China…

   Article 1 Buyer’s Authority

   Buyer is responsible for marketing management of the “NTSA” series products produced by Seller in mainland China. The rights include:

   Designate distributors and establish marketing networks…

   During the term of this agreement, Seller shall not designate any other person or company to perform the same or similar product sales in the sales area where buyer is located.”

   During the term of this agreement, Seller shall not transfer the exclusive distribution rights of the region.…

   Article 6 Term

   This distribution agreement is valid for three years. After the expiration of the period, if Buyer is willing to continue to distribute the products of the Seller, it is necessary to re-sign the agreement.”

   143. From these provisions I conclude that the PEAA granted an exclusive agency for Selective Trade to sell NTSA products for a term of three years from 1 November 2018. The geographical area of the agency was the whole of mainland China. During the term, Ferngrove was not to designate any other person or company to perform the same or similar product sales in China, nor was it to transfer the exclusive distribution rights to any other entity.

   144. For the avoidance of doubt, there was no restriction on the sales channels in which Selective Trade could distribute in mainland China the products it purchased from Ferngrove under the PEAA. Further, it was expressed under Article 1 of the PEAA that it was within Selective Trade’s authority to designate distributors and establish marketing networks as part of its responsibility for the marketing management of the NTSA series of products in mainland China. That is, Selective Trade’s use of the Beijing Company as its distributor in China was not a contravention of the Contract.

Was the purchase price to be GST free or exclusive?

145. The PEAA is silent with respect to the application of GST to any purchases by Selective Trade. That agreement does state in Article 5 that:

“Buyer shall repay a certain proportion of the purchase price in accordance with the contract as a deposit for the sale of “NTSA” series products in mainland China.

After receiving the deposit from Buyer, Seller shall produce a full quantity of products within the specified time in accordance with the sales order provided by the Buyer.

After Seller receives all the payment from Buyer (except for the deposit), Seller shall transfer the ownership of the goods to Buyer in time.

Buyer is responsible for product transportation and customs clearance matters…”

146. I pause to note at this stage, that the PEAA does not define the words “contract” nor “sales order”. I accept the defendants’ submissions at [61]-[63] of DFS as to the interplay between the PEAA and the NAA with respect to this matter. As was submitted, it was contemplated by the parties that there would be individual orders by Selective Trade and acceptances of them by Ferngrove constituting separate contracts under the PEAA. That agreement was not intended to, and did not, include all of the terms upon which the products were sold by Ferngrove to Selective Trade, but dealt generally with the conferral of any exclusive distribution on Selective Trade of the NTSA series goods to be sold in mainland China. The NAA contained the standard terms and conditions of sale which applied to each sale.

230. The pleaded representations against Mr Tang can be found in [41]-[42] of the Amended Statement of Claim. In addition to the alleged representation that Ferngrove would manufacture and deliver the products within a reasonable time and that Mr Tang would cause Ferngrove to perform its obligations in accordance with the terms of the contract, the plaintiff says that Mr Tang further misrepresented that he did not own the NTSA brand. In fact, it is said, he was the sole director and shareholder of a company known as Natural Therapy Sciences Pty Ltd and had full control and ownership of NTSA.

231. The pleading particularises the representations as being WeChats on 3 June 2019 and also correspondence from the plaintiff’s solicitors. Once again, correspondence after the pleading providing further particulars indicates that those pleaded particulars are typographical errors and should not be relied upon. Instead, the particulars are said to be paragraphs [4] – [36] of the Amended Statement of Claim.

232. I accept the defendants’ submissions that there are no proper particulars of how Mr Tang is alleged to have made the representations pleaded. It is singularly unhelpful when a request for further and better particulars of the representations was made, in the context of the pleaded representations being in error, to simply refer back to the balance of the pleading which do not plead any representations.

233. In any event, as the defendants submit, it was Mr Zhou (not Mr Tang) who signed the PEAA and was most significantly involved in the negotiations with Mr Wang with respect to its terms and finalisation. True it is, as the defendants accept, Mr Tang can be taken to have been aware of the terms of that agreement and it was executed by Mr Zhou with his authority, however, that does not form a basis for a finding of the representations as pleaded by the plaintiff. As I’ve said above, I do not accept that the mere entry into the agreement represents the matters alleged by the plaintiff.

234. In respect to the representation that Mr Tang is said to have made with respect to the ownership of the NTSA brand, the plaintiff has not pointed to any evidence upon which a finding could be based that Mr Tang made the representation as pleaded. I do not accept the plaintiff’s submissions at PCS [147]-[153].

235. There is no foundation for the claim against Mr Tang personally.

Issue 14

236. Having regard to my finding that there was no Collateral Contract as alleged by the defendants, this issue does not arise.

Issue 15

Did any of the breaches of contract, repudiate conduct, breach of the Soga cause the plaintiff loss or damage?

237. I accept the general statements of principle with respect to contractual damages contained in [155]-[157] of the PCS. Selective Trade is entitled to be put into the position it would have been had the contract been performed by Ferngrove. I accept this encompasses damages which fairly and reasonably can be considered to arise naturally in the ordinary course of dealings and damages that may reasonably be supposed to have been in the contemplation of the parties at the time they made the contract as the probable result of any breach of it: Hadley v Baxendale (1854) 156 ER 145.

238. As it is claiming a loss from the breach of contract, Selective Trade must, however, prove on the balance of probabilities that it lost something of value and the extent of that loss: Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286.

239. In this case, Selective Trade says that it had entered into a three-year agreement with Ferngrove to distribute the NTSA products in China. As discussed in more detail below, it says that it entered into agreements with third parties to assist in that distribution. By reason of Ferngrove’s repudiation of the contract, Selective Trade says it has lost the opportunity to make profits it expected from the sale and distribution of the NTSA products in China over the three-year term.

240. In a situation such as this, in order to discharge its onus on the issue of causation of loss, Selective Trade must establish on the balance of probabilities that had there been no breach by Ferngrove, the steps it would have taken and that the opportunity to gain a financial benefit was thereby lost: Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (AWA Case) (1995) 37 NSWLR 438 at 529.

241. As I have described above, evidential rulings made by me during the course of the trial rejected the evidence that Selective Trade sought to adduce on the question of damages, namely the evidence of Mr William Wang and the expert report of Mr Nguyen. As a result, apart from establishing actual loss of $964.37 for shipping expenses (CB 166), Selective Trade has to seek to rely on other evidence before the Court to discharge its onus with respect to loss and damage.

242. Relevant to this issue is the agreement entered into between Selective Trade and the Beijing Company (CB 84-89). Selective Trade says that it also entered into an oral profit share agreement with the Beijing Company for the sale of the NTSA products in China. Alternatively, it says that it lost the chance to partake in the business opportunity for the sale of those products with the Beijing Company, which chance was lost by reason of the breach of the Contract by Ferngrove.

243. The written agreement with the Beijing Company was entered into on 1 October 2018. By that agreement Selective Trade appointed the Beijing company as exclusive distributor in China of Selective Trade’s infant and child nutrition products. The term was for one year expiring 30 September 2019. There is no evidence that the agreement would have been renewed for a further two years (to equate to the three-year term of the PEAA).

244. The agreement provides that Selective Trade was responsible for providing products and transporting them to China and the Beijing Company was responsible for customs procedures, domestic transportation, distribution, and conducting marketing activities in China.

245. In terms of payment for orders, clause II deals with Product Prices and payment methods. That clause provides:

“1. The price of Party B’s exclusive distributing products (see attachment for details).

2. Based on the product prices determined by both parties, Party B may determine the wholesale and retail prices according to market conditions, and report to Party A for keeping records.

3. Party B will advance the payment to Party A’s account in advance according to the product demanding plan. Party A will determine the product transportation arrangements after payment is received.”

246. Party A is Selective Trade and Party B is the Beijing Company

247. There was no attachment to the copy of the agreement that was in evidence setting out the price for the products as referred to in subclause 1. There was also no “product demanding plan” in evidence referred to in subclause 3

248. Clause VI .3 provides that the dealings between the parties “shall be in writing, the only acceptable format is signed and sealed (agreement). The oral agreement between [Selective Trade] and [Beijing Company] and the private representations from the sale person shall have no binding effect.”

249. The agreement is silent as to profit share of the sales of the products in China. In this regard Selective Trade relies on an alleged oral agreement between Mr Wang and Mr Feng Guo in about late 2018 when it was agreed that the Beijing Company would take 60% of the net profits and Selective Trade would take 40% of the net profits.

250. Selective Trade said at [161] of PCS that:

“Judged through the lens of Australian Contract law, the Exclusive Distribution Agreement is not perfect and it is not clear how the oral 60/40 split arrangement co-exists with the document, but the court does not need to reconcile these two. There is sufficient evidence to show Beijing Company had committed to the distribution of products and intended to share the profits with Selective Trade.”

251. I do not accept this submission. As the defendants submit ([137] DFS) no corroborative evidence was called from the Beijing Company in support of any profit share agreement or that the one year “limited term” of the agreement would be extended. Additionally, insofar as profit share is concerned, the alleged oral agreement is inconsistent with the terms of the written agreement which require any agreement between the parties to be in writing and expressly excludes any oral agreement.

252. The cross-examination of Mr Wang on this issue was also telling. For example, at T11 9.39-120.38, Mr Wang accepted that the written terms of the agreement prohibited additional oral agreements but he relied on “mutual trust” with respect to the oral agreement he said he reached. Additionally, the mutual trust did not extend to Selective Trade sharing in the costs of the Beijing company.

253. I do not accept Mr Wang’s evidence that such a profit share agreement existed or, if it was made after the entry into the written agreement, that it is a valid variation of that agreement.

254. I do not think that the “lawyers letter” from the “Humane Law Firm” dated 25 August 2021 (supposedly the lawyers for the Beijing Company) assists. That letter makes a demand pursuant to article 577 of the Civil Code of the People’s Republic of China and other parts of that Code for damages arising from the alleged breach of the contract between Selective Trade and the Beijing Company. Particularly, it seeks the refund of the deposit paid by the Beijing Company to Selective Trade. In fact, Mr Wang’s evidence was that that deposit had been repaid (T273 .46). Additionally, there is no mention in this letter about any profit share agreement.

255. Even if such an agreement was made, there is no evidence before the Court on which the profits to be earned by the Beijing Company could be calculated. The table and schedule of damages in the PCS is, in my opinion, mere speculation.

256. As such, I do not accept that the plaintiff is entitled to any damages by reason of the alleged loss of profits it would have made from distributing the products in China through the Beijing Company. It has failed to discharge its onus to establish an entitlement to such damages.

257. In any event, on the evidence put before the Court by Selective Trade I cannot be satisfied on the balance of probabilities that any profits would have been achieved from Selective Trade’s relationship with the Beijing Company pursuant to the agreement even if there was an additional profit share oral agreement, nor the amount of those profits. I accept the defendants’ submissions on this topic.

258. Selective Trade made additional submissions with respect to damages it said it had suffered by reason of a loss of opportunity to make profits from the sale of the NTSA products in China. It submitted that if the Court did not find that the agreement with Beijing Company and profit share agreement arose to the level of binding legal agreements, the evidence indicated on the balance of probabilities that, at the time of the repudiatory conduct, there was at least an opportunity of value for Selective Trade to make a profit. It submitted ([182]-[191] PCS) that provided there is evidence that it lost something of value, the difficulty in assessing damages is no bar to recovery. It submitted the Court would be more ready to shoulder the burden of acting without specific evidence where that evidence is difficult to call. It said that where precise evidence is obtainable, the Court expects to have it-but where it is not, the Court must do the best it can: New South Wales v Moss (2000) 54 NSWLR 536; [2000] NSWCA 133 at [72]. It says that restoration of loss by compensation in this regard is accomplished to “a large extent by the exercise of a sound imagination and practice of the broad axe”: Whitfield v De Lauret & Co Ltd (1920) 29 CLR 71; [1920] HCA 75 at 81.

259. Selective Trade said that it could not provide precise evidence about the expectation loss and it had gathered the best evidence it could. It said it could not provide precise evidence because Ferngrove had repudiated the contract before Beijing Company could make any of the proposed sales in China and that the best evidence would come from Beijing Company who is in China and making demands for damages from Selective Trade (referring to the letter from the Humane Law Firm). I do not accept these submissions.

260. I accept the defendants’ submissions in response that the plaintiff has not called the best evidence it can. I have already referred to the so-called letter of demand from the Humane Law Firm above. I accept the defendants’ submission that there is no satisfactory explanation for failure by the plaintiff to call appropriate evidence with respect to the profits that it says would have been made, any agreement between it and Beijing Company with respect to those profits and the opportunities it had with respect to the marketing of the NTSA goods in China.

261. I am prepared to accept from the evidence that is available on the balance of probabilities that Selective Trade may have lost an opportunity of some value to it. I also accept that, in those circumstances the Court is to do the best it can in assessing that value. However, there are limits to the lengths to which a court may properly go in doing the best it can to assess damages. In Troulis v Vamvoukakis [1998] NSWCA 237 at 14, Gleeson CJ said:

“As Deane J observed in The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at [118] – [119], the limitations of the curial process, or the nature of the subject matter in question, often mean that the task of assessing damages involves a pragmatic exercise of a kind traditionally left to the good sense of a jury. Where, however, what is involved is the valuation of goodwill of a business, and the plaintiff fails to adduce either reliable evidence of the trading results of the business, or evidence as to how one goes about valuing such a business, then there is an absence of the raw material to which good sense may be applied. Justice does not dictate that, in such a case, a figure should be plucked out of the air”.

262. Whilst this case does not deal with the valuation of the goodwill of the plaintiff, it does deal with an allegation that it lost an opportunity to make money out of the sale of the NTSA products in China through third parties. As such, it was bound to adduce reliable evidence, or at least some evidence, constituting the “raw material” to which Gleeson CJ referred on which the good sense of the Court may be applied. That raw material would be evidence of the terms of the relationship with the third party, including evidence as to any profit sharing, evidence as to the cost of doing its business with that third party so that some estimate of profit could be made.

263. What Selective Trade is asking the Court to do in this case is to pluck figures out of the air. There is no proper basis on the evidence by which I could be satisfied on the balance of probabilities that the schedule of damages contained in PCS, and the material relied on by the plaintiff to justify the figures in it, would be an appropriate way to calculate the plaintiff’s loss of opportunity or expectation damages. I decline to do so. The fact that the plaintiff initially sought to rely on what was ruled to be inadmissible evidence as to loss and now has no evidence does not mean it can then say to the Court – “you do the best you can”. There must be a tree into which the Court can wield the proverbial axe. Here, there is no wood, no tree and the Court is asked to guess as to a figure for the value of the opportunity the plaintiff lost.

264. Selective Trade also submits that it is entitled to liquidated damages pursuant to Articles 4.4 and 6.1 of the PEAA (PCS [189] and PSR [10]). It says that for the First Order, this equates to $68,940. The defendants (DCS [133]-[134]) deny that those Articles operate in that manner. Fundamentally, the defendants say (if the plaintiff’s construction of the clauses is correct which they deny) the clauses require the plaintiff to establish loss for any delay in delivery. This it has not done.

265. I do not accept that the plaintiff is entitled to liquidated damages under these clauses. I agree that Article 4.4 (set out in [180] above) requires the plaintiff to establish loss if there is a delay and then caps the amount that would be payable to the plaintiff for such loss at 0.5% of the Purchase Price for that order. It has not established any such loss.

266. Article 6.1 states:

“Seller should provide the products according to the sales order quantity +/- 5%. Buyer has the right to ask for compensation from Seller for the loss of Buyer by 20% of the amount over/under shortage product”

267. This article deals with the quantity of goods delivered and the entitlement of the plaintiff to compensation if the correct quantity of the sales order +/- 5% is not delivered. It has no application in this case.

268. For the avoidance of doubt, insofar as I have not dealt expressly with any of the plaintiff’s submissions about the nature of the losses suffered or the quantum of that loss (for example “additional damages”) I accept the defendants’ submissions in respect to those matters and I reject that the plaintiff is entitled to any such damages.

269. Having established that Ferngrove repudiated the contractual arrangement, but having failed to prove any losses causally attributable to that conduct or the quantum of such losses, the question arises as to whether or not Selective Trade is entitled to nominal damages.

270. In Anderson v Canaccord Genuity Financial Ltd [2022] NSWSC 58 (at [2778] – [2791]) Ward CJ Eq outlined the following principles regarding nominal damages (omitting reference to some authorities cited by her Honour):

1. Nominal damages are available to a plaintiff that has shown a breach of contract but has not demonstrated, or is unable to, demonstrate loss, causation by breach of the relevant loss, or is unable to quantify the loss in question.

2. A plaintiff may be entitled to nominal damages in the following circumstances:

1. Wherever the defendant is liable for breach of contract, although no actual damage is proved.

2. Where the plaintiff’s common law rights are violated, even without proof of special damage.

3. Where the plaintiff has suffered loss but has failed to show an adequate causal link between the breach of contract.

4. Where the plaintiff fails to prove the amount of its loss.

3. In an action for breach of contract, if a plaintiff establishes liability, and obtains an order for payment of nominal damages, that plaintiff is usually not to be regarded as the successful party in the action.

4. The underlying rationale for nominal damages is explained on the basis that “every injury imports a damage, though it does not cost the party one farthing:” Holt CJ in Ashby v White (1703) 2 Ld Raym 938 at [955].

5. While historically the quantum of nominal damages has been small, this need not necessarily be the case: Mediana, Owners of the Steamship v Owners, Master and Crew of the Lightship Comet [1900] AC 113.

6. The quantification of nominal damages is discretionary: New South Wales v Stevens (2012) 82 NSWLR 106; [2012] NSWCA 415 at [36] (Stevens).

7. Nominal damages are “vindicatory, not compensatory.” Stevens at [26].

8. When calculating nominal damages, a degree of estimation is permitted, and indeed required, where precise evidence of loss cannot be adduced: Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257; [2003] HCA 10.

9. The amounts awarded as nominal damages have not been uniform but have always been minimal: Stevens at [68].

10. Most commonly, the amount set in recent years for nominal damages appears to have been in the order of $100.

271. I have found that the plaintiff’s contractual rights have been violated but it has not proved loss it says it has suffered in expectation of the performance of the contract by the first defendant. In these circumstances, it is in my opinion appropriate to award nominal damages. From the authorities reviewed by Ward CJ in Eq, the amount of nominal damages is usually $100.

271. Accordingly, I will award Selective Trade damages in the sum of $100 for the loss of opportunity for it to sell the NTSA products in China for the term of the PEAA, which loss has not been proved and cannot be calculated on the evidence placed before the Court.

Summary of Conclusions and Orders

273. For convenience, I set out a summary of my main conclusions on the claims made by Selective Trade and relevant matters raised the defendants:

1. There was no Collateral Contract entered into on 18 August 2018 as alleged by the defendants;

2. On a proper construction of the PEAA and NAA read together as the contractual documents, Selective Trade was granted a right of exclusive distributorship of the NTSA products in China for a period of three years from 1 November 2018;

3. A deposit of 30% of the Purchase Price was to be paid by Selective Trade before Ferngrove had an obligation to process the order.

4. The Purchase Price (and deposit) was GST inclusive;

5. On payment of the full amount of the 30% deposit, Ferngrove was obliged to manfuacture the products ordered and have them packaged and delivered to Selective Trade’s Australian warehouse (or some other place in Australia nominated by selective trade) or ready for collection by Selective Trade if otherwise arranged within 60 days from the payment of the full amount of the deposit.

6. Selective Trade was not in breach of its obligations under the contractual arrangements.

7. The final tranche of the deposit for the First Order was paid by Selective Trade on 12 April 2019. Accordingly, Ferngrove was obliged to have ready for delivery, and deliver, the balance of the first order (apart from the 1500 units of lactoferrin already collected by Selective Trade) by 9 July 2019.

8. Ferngrove failed to deliver the balance of the First Order by that time and was thus in breach of contract.

9. The conduct of Ferngrove through Mr Tang and Mr Zhou relating to the complaints by Mr Song, together with the failure to deliver the products as referred to above constituted a repudiation of the contract by Ferngrove.

10. Selective Trade accepted the repudiation and validly terminated the contractual arrangements.

11. Neither Ferngrove nor Mr Tang engaged in any misleading or deceptive conduct in contravention of the Australian Consumer Law.

12. Selective Trade has failed to adduce any evidence on which expectation damages or loss of opportunity damages could be assessed and is entitled to nominal damages only (in addition to the $964.37 for its actual loss).

Costs

274. In respect of costs, Selective Trade has established its claim with respect to the Contract. This includes it establishing what it says were the terms of the contractual arrangements and Ferngrove’s repudiation of them. It has not had any success in proving the nature or extent of its loss. Nor has it established any entitlement to remedies under the ACL.

275. As I’ve said in the opening paragraphs of this judgment, every issue in this litigation was hard fought. That included the defendants challenging every aspect of the plaintiff’s claim, including the allegations that Ferngrove was in breach of its obligations under the contractual arrangements.

276. However, ultimately Selective Trade has failed to establish anything other than an entitlement to nominal damages. It cannot be seen to have succeeded in the proceedings. The entitlement to nominal damages cannot be the “peg” upon which Selective Trade hangs an entitlement to its costs: New South Wales v Stevens (2012) 82 NSWLR 106; [2012] NSWCA 415 at [22] per McColl JA.

277. In my opinion the appropriate order with respect to cost should be that Selective Trade pays Ferngrove’s costs of the proceedings. As Selective Trade failed in its claims against Mr Tang, it will also be ordered to pay his costs of the proceedings.

Orders

278. I made orders as follows:

1. Judgment for the plaintiff against the first defendant on the amended statement of claim in the sum of $1064.37.

2. Judgment for the second defendant on the amended statement of claim.

3. The Plaintiff is to pay the defendants’ costs of the proceedings as agreed or assessed.

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Decision last updated: 29 April 2022