Ferngrove Pharmaceuticals Australia Pty Ltd v HLW Investments Pty Ltd

Decision

1. HLW did not enter the Contract as agent for Slaite. It is liable to pay Ferngrove for the goods it ordered. Ms Lu and Me He are liable, as Guarantors, for the same amount.

The Contract

1. Neither the Contract nor the Guarantee is ambiguous. According to their terms, their effect is to impose liability on HLW for the goods it ordered from Ferngrove and to impose on Ms Lu and Mr He liability as surety of HLW's obligations.
2. The Contract is an eight page paginated document comprising the Credit Application, a statement about the Privacy Act 1988 (Cth), the Guarantee and three pages of Terms and Conditions of Sales.
3. Within the Credit Application Mr He, as a director of HLW, declared that he had read and understood the "Ferngrove Standard Terms and Conditions of Sale presented within this document and accept the same …. "
4. The Contract identifies HLW as the "Applicant" and the "Customer".
5. "Customer" is defined to mean: " … the entity purchasing the Goods the subject of these Conditions of sale".
6. However, at the foot of the Contract, the "Customer" is identified in Mr He's handwriting, and adjacent to his signature as director, as HLW.
7. Clause 2 of the Contract provides that: "A contract for the sale of Goods … by Ferngrove to the Customer shall be formed upon the loading of the Goods for delivery to the Customer".
8. "Goods" is defined to mean: "… any item of whatsoever nature which is sold by Ferngrove to the Customer".
9. Clause 4.1 of the Terms and Conditions provides that: "Subject to condition 4.2 the Customer must pay the Purchase Price for the Goods in advance or cash on delivery".
10. Condition 4.2 provides for the time by which payment is to be made, and for the payment of interest on overdue accounts. It does not relevantly qualify HLW's obligation under condition 4.1.
11. Clause 2 also provides: "The only contractual terms which are binding upon Ferngrove are those set forth herein or otherwise agreed in writing by Ferngrove and those, if any, which are imposed and cannot be excluded by law".
12. There is no suggestion that Ferngrove "otherwise agreed in writing" or that there is a relevant term imposed by law that had the effect that HLW had no liability to Ferngrove by reason of any relationship with Slaite.
13. Thus, the Contract was one expressed to be wholly in writing. Its terms unambiguously imposed on HLW liability to pay Ferngrove for goods delivered to it.
14. The only reference to "Slaite" in the Contract is under the heading "Retail Brand Ownership" where one "retail brand" said to be "owned by the Applicant and its associates" is stated to be "Slaite".

The Guarantee

1. The Guarantee identifies the "Applicant" as "the person named as Applicant on the Credit Application annexed hereto". That is HLW. It identifies Ms Lu and Mr He as "guarantors".
2. It obliges Ms Lu and Mr He: "To guarantee and to be answerable to the Ferngrove for the due payment by the applicant [ie HLW] of all monies owing to or unpaid to Ferngrove on any account or any matter whatsoever by the applicant …"
3. It also provides: "The guarantor hereby indemnifies Ferngrove in respect of all amounts payable by the applicant [ie HLW] to Ferngrove on account of goods … supplied by Ferngrove to the applicant …"

Ferngrove knew of Slaite's involvement

1. HLW may have been acting as Slaite's Australian agent. As I set out below, [1] in 2015 HLW entered an agreement with a Chinese company associated with Ms Lu's brother and sister which in turn entered an agreement with Slaite in relation to the importation of "health supplements products, dairy products and leisure food etc" from Australia.
2. Ferngrove knew from the Contract that an associated "retail brand" was "Slaite". [2] As I set out below, the orders Ferngrove received from HLW were expressed to be on behalf of Slaite. Ferngrove packaged the goods using Slaite's logo.
3. But this begs the question of whether Ferngrove and HLW nonetheless intended that HLW itself be liable to Ferngrove for the product ordered.

The Defendants' case

1. Although Ms Lu said in cross-examination that she felt that she was "forced" to sign the Contract and that, because she does not read English, she did not understand its terms, no defence was advanced by the Defendants on this basis.
2. The Defendants do not rely on any asserted implied term of the Contract. Nor do they seek to have the documents rectified, or otherwise to challenge their terms.
3. Nor do the Defendants contend that the contract between HLW and Ferngrove is partly oral and partly in writing. That would have been a hard proposition to maintain. The Contract appears complete on the face of it and is expressed to be wholly in writing. [3]
4. The Defendants' sole defence is that HLW did not enter the Contract on its own account, but only as agent for its principal Slaite.
5. In his written closing submissions, Mr Bulley, who appeared for the Defendants, submitted that there was "nothing clearly inconsistent" between the terms of the Contract and HLW having entered it only as agent for Slaite.
6. That submission was, at least in part, based on the proposition that: "The term 'Customer' is not defined as referring to a particular named entity or even the entity which executes the document".
7. This was incorrect, as Mr Bulley accepted in a note sent to my Associate after the conclusion of oral argument. The Contract in terms identified HLW as the "Customer". [4]
8. Mr Bulley nonetheless pressed the submissions that: 1. "the definition of 'Customer' was drafted such that it was able to encompass an undisclosed principal"; 2. the terms and conditions of the Contract did not suggest "that the 'Customer' is an entity named in that Credit Application"; and 3. "the Credit Application does not itself contain anything which suggests that the 'Customer' cannot be a principal or that it is in any way limited to [HLW]".
9. I do not accept any of those submissions because: 1. "Customer" is defined to be HLW and only HLW; there is no room for a construction of the Contract to the effect that HLW might have an undisclosed principal; 2. the terms and conditions of the Contract identified the "Customer" as HLW; HLW was named in the Credit Application as the "Applicant"; and 3. the Credit Application named HLW, and only HLW, as the "Applicant" and made express reference to the Terms and Conditions which identified HLW, and only HLW, as the "Customer". [5]
10. To establish their case that HLW entered into the Contract only as agent for Slaite the Defendants seek to rely on events occurring after the date of the Contract.
11. In final address, Mr Bulley said that those evidence of those events "can be accepted to show the proper parties to the agreement" and to show "the context" in which the Contract was made [6] .
12. The general rule is that post contractual conduct of the parties is not available to construe the Contract. [7]
13. Such conduct is available for some other purposes, especially in circumstances where a contract is partly in writing and partly oral [8] . For example, such conduct is receivable to show whether a contract was formed [9] .
14. Mr Bulley referred to the observations of Campbell JA in Lym International Pty Ltd v Marcolongo [10] that "post contractual events providing retrospectant evidence of a surrounding circumstance that was known to the parties at the time of contracting" may be receivable on the question of construction [11] .
15. But such evidence could not be called to contradict the clear terms of a contract which is evidently complete on its face and is in terms clear as to its parties; nor to prove that the "proper parties" to the contract were not those stated in the contract.
16. Thus, in BH Australia Constructions Pty Ltd v Kapeller [12] Leeming JA, after a detailed review of the authorities, concluded that: "With great respect to the broader statements in the cases referred to above, to the effect that post contractual conduct may be used to identify the parties, I do not think that is so in the case of a contract which is wholly written and which is not said to be a sham or to involve fraud or is sought to be rectified in equity … On the view of the law I favour, the post contractual conduct must be disregarded, except insofar as it bears upon some relevant aspect of the pre-contractual purpose or context." [13]
17. In any event, for the reasons I explain below, the evidence Mr Bulley sought to deploy casts no light on the identity of the parties to the Contract.
18. As Mr Burchett, who appeared for Ferngrove submitted, that evidence shows no more than that representatives of Ferngrove engaged in discussions with Ms Lu and Mr He from HLW and with a Mr Song from Slaite with a view to expediting payment by Slaite to HLW, so that HLW could pay Ferngrove.
19. So far as the Guarantee is concerned, Mr Bulley accepted that Ms Lu's and Mr He's defence to Ferngrove's claim under the Guarantee stands or falls depending on whether HLW could establish that it entered the Contract only as agent for Slaite. As HLW has not made out that defence, Ms Lu and Mr He are liable under the Guarantee.

The course of events

1. Ferngrove commenced doing business with HLW in 2015. On 20 May 2015, HLW executed a "New Account Application" addressed to Ferngrove. Ferngrove does not rely on that document here.
2. On 18 May 2015, a Chinese company associated with Ms Lu's brother and sister, Guangzhou Aotewa Biotechnology Co Ltd ("Aotewa") entered into an "Import Agent Agreement" with HLW. By that agreement Aotewa agreed to act as HLW's "sales agent" of health supplements and milk formula that HLW "produced in Australia in a brand name of Slaite". The Agreement recited that the "Chinese buyer" of this product was Slaite.
3. On 1 August 2015, Aotewa entered into an "Import Agent Agreement" with Slaite in which Aotewa agreed to act as "sales agent" for Slaite "of importing health supplements products, dairy products and leisure foods etc from Australia Au Slaite Group produced in Australia [sic]".
4. The 18 May 2015 and 1 August 2015 agreements were entered in China and in the Chinese language. The words I have set out are from translations that were included, without objection, in the Court Book.
5. In March 2016 Ms Lu telephoned Ferngrove's customer manager, Mr Haixuan Zhou and said: "Our company's business of supplying [Ferngrove's] products to Slaite has developed to such a large scale, that we would like to apply for a credit account with [Ferngrove]. Is that possible?"
6. Mr Zhou replied: "I will instruct my colleague to send you a credit account application form and we will consider it, when received with all the required information."
7. On 16 March 2016, an accounts department officer employed by Ferngrove, Ms Ann Chan, sent HLW's accountant a copy of Ferngrove's Credit Application form under cover of an email: "Please kindly find the attachment for our Credit application form. Please sign both Term condition & Personal guarantee and also please provide the copy of your Driver licence as well. Thanks."
8. The Credit Application was in the same form as that ultimately executed by HLW on 20 September 2015 and, like that document, incorporated a Deed of Guarantee and Indemnity and Ferngrove's Terms and Conditions of Sales.
9. Mr Zhou received from Ms Lu the Credit Application form completed by Slaite, dated 30 March 2016 and signed by a director of Slaite, Mr Song. The document was completed in the Chinese language.
10. The document named the "applicant" as Mr Song and the "Trade Name" of the party seeking credit as "Slaite". Mr Song and another director Slaite executed the guarantee and indemnity.
11. Mr Zhou then caused two new credit accounts to be opened at Ferngrove in the name of Slaite, one being an AUD account and the other being a USD account.
12. In the meantime, in March 2016, Aotewa had sent Ferngrove three orders on behalf of Slaite causing Ferngrove to issue three "Order Confirmations" dated 17 March 2016 addressed to Slaite and showing the delivery address as Slaite.
13. At the beginning of April 2016 Ms Lu telephoned Mr Zhou and they had this conversation: Ms Lu: "I am ringing about the confirmation orders in Slaite's name. HLW will make a payment to [Ferngrove], instead of Slaite. So please issue tax invoices addressed to HLW, instead of Slaite." Mr Zhou: "We cannot issue tax invoices in HLW's name because in [Ferngrove's] system, the name on our tax invoice must be consistent with the name on the orders." Ms Lu: "Then, please change the name on the orders to HLW." Mr Zhou: "Okay, I will instruct my colleagues to resend the confirmations of the orders reflecting the change from Slaite to HLW."
14. As a result, from April 2016 the AUD and USD accounts previously in the name of Slaite were changed so as to be in the name of HLW.
15. Thereafter, Ferngrove reissued the order confirmations referred to at [57] naming the party placing the order as "HLW Investments Pty Ltd - Au Slaite" and showing the delivery address as HLW's premises in Sefton.
16. In May and July 2016, Ms Lu sent Ferngrove eight orders for product. Each of the orders described the ordered product by reference to what appears to be a Slaite product name: eg "Slaite Fish Oil Liquid", "Slaite Calcium Gluconate Powder" and so on. Seven of the eight orders were headed "Slaite order". As I have mentioned, Ferngrove produced the product so that it bore Slaite's logo. On each occasion Ferngrove delivered an order confirmation addressed to "HLW Investments Pty Ltd - Au Slaite". The delivery address was that of HLW at its premises at Sefton.
17. In each case, the goods the subject of the order were collected by HLW from Ferngrove's premises at some time after the date on the 20 September 2016 Contract. Once the goods were collected, Ferngrove issued a tax invoice addressed to "HLW Investments Pty Limited - Au Slaite".
18. In relation to each order, HLW issued a tax invoice directed to Slaite, describing Slaite as the "buyer" and HLW as the "seller".
19. Another company associated with Ms Lu and Mr He, Sunnya Pty Ltd, sent those tax invoices to Slaite under cover of emails dated 2 August 2016.
20. Between March and August 2016, what Mr Zhou described in his affidavit as a "substantial amount of debt" accrued in the HLW accounts.
21. Consequently, in mid-September 2016 Mr Zhou telephoned Ms Lu at HLW and they had this conversation: Mr Zhou: "Now that we have corrected the account name in the Slaite products and it is HLW, who is invoiced by us and liable to pay us, we need to have a credit account application from HLW covering the credit given on that account. It will need to be guaranteed by your directors, like the Slaite application was guaranteed by its directors." Ms Lu: "Okay, please resend the credit application form and we will sign it."
22. Ms Chan sent Ms Lu a new Credit Application form.
23. Mr He or Ms Lu returned the Credit Application form, completed in the name of HLW in Mr He's handwriting and dated 20 September 2016. It was signed by both Mr He and Ms Lu as directors of HLW both as directors of HLW and as guarantors of HLW's obligations.
24. This document is the Contract on which Ferngrove sues in these proceedings.
25. The fact that HLW agreed to put itself, rather than Slaite, forward as the "Applicant" for a credit limit with Ferngrove, and to offer its directors, as opposed to those of Slaite as guarantors of HLW's obligations is objective confirmation of its intention to assume liability for the goods supplied under the Contract. Indeed, were HLW not liable to Ferngrove for such goods by reason of the fact that the goods were ultimately to be on-sold to Slaite, it is hard to see what point there was in Mr He and Ms Lu executing the guarantee and indemnity.
26. Thereafter, HLW continued to place orders with Ferngrove for produce ultimately destined to be supplied to Slaite. HLW collected the goods from Ferngrove's premises. Such payments as were made to Ferngrove during the life of the Contract were made by HLW [14] .
27. I have mentioned that Ferngrove's Order Confirmations and Tax Invoices included the expression "Au Slaite" after HLW's name thus: "HLW Investments Pty Ltd - Au Slaite". Indeed, Ferngrove's internal records of HLW's account adopted the same form.
28. Mr Bulley did not put to Ms Chan or submit that this use of language somehow bespoke an acknowledgment by Ferngrove that it was dealing with HLW only as the agent for Slaite. I was not directed to any evidence explaining why Ferngrove prepared its documents in this form. It may well be that Ferngrove was simply seeking to identify which of the goods it supplied to HLW was understood by it to be ultimately destined for on-sale by HLW to Slaite.

Post contractual events

1. Both parties pointed to communications after 20 September 2016 which they contended supported their position.
2. Mr Burchett for Ferngrove pointed to a demand sent by Ferngrove to HLW on 8 October 2018. Mr He, on behalf of HLW, responded to the demand by asking Ferngrove to "issue a credit note to our company" in a particular amount. That appears to bespeak an acceptance by Mr He, and thus HLW, that HLW was otherwise responsible for payment of the amount due for the goods supplied.
3. Mr Burchett also pointed to an email sent to Mr He by Mr Kevin Ren, from Ferngrove's "Audit Team" in which Mr Ren said: "[Ferngrove] and HLW, HLW and Slaite are business partners of each other. However, according to the record of the accounting system of all parties involved, there are still unsettled accounts receivable which have been delayed for a long time. [Ferngrove], as the product manufacturer in the business chain, is willing to cooperate with HLW and Slaite in the account checking so as to allow our three parties to clarify accounts and settle the payments as soon as possible."
4. Mr He replied attaching a list of invoices and stating: "These are the list of what Slaite has paid and list of the payment exemption".
5. I do not see Mr He's responses throwing any further light on the situation.
6. So far as Ferngrove is concerned, I have found the Contract to be clear in its terms and to impose direct liability on HLW to pay for the goods it ordered from Ferngrove.
7. I have also found that post-contractual communications between Ferngrove and HLW cannot be used to contradict the clear terms of the Contract.
8. In any event, the communications relied on are either equivocal or consistent with the terms of the Contract.
9. The post-contract communications to which Mr Bulley referred comprised minutes of meetings between Mr William Tang from Ferngrove, Ms Lu and Mr He from HLW and Mr Song from Slaite together with WeChat communications between those parties.
10. I do not find it necessary to set out the details of those minutes or communications. They include demands by Mr Tang that Mr Song cause Slaite to pay Ferngrove the amount outstanding. However, this was in the context of the parties seeking to achieve a commercial resolution to the impasse caused by Slaite's failure to pay for the goods.
11. The communications led to a statement made by Mr Tang in a WeChat exchange on 10 July 2018: "Slaite doesn't pay HLW, HLW doesn't pay me, this is the knot".
12. This is an English language translation of the WeChat message. I would infer that the Chinese expression which is translated as "this is the knot" means something to the effect "this is the problem".
13. Mr Song is recorded as responding "How do I pay?"
14. That exchange bespeaks an understanding between Mr Tang and Mr Song that Slaite's contractual relationship was with HLW, while HLW's contractual relationship was with Ferngrove.
15. That is consistent with a proposition that Mr Bulley to Ms Chan in these terms: "Q: And that reflects what you understood at the time, that HLW paid Ferngrove when HLW received monies from Slaite. A: "I understand that".
16. All of this is consistent with the terms of the Contract and, if anything, confirms that the Contract means what it says.

The orders placed between March and September 2016

1. Mr Bulley submitted that an issue arose as to which contract governed orders placed by HLW on Ferngrove between April and September 2016; that is between the 30 March 2016 contract between Ferngrove and Slaite and the 20 September 2016 Contract between Ferngrove and HLW.
2. The short answer to that submission is to be found in cl 2 of the Contract [15] that the relevant contract for the sale of goods arose upon the loading of the goods for delivery.
3. In each case, that occurred after 20 September 2016. [16] Accordingly, the relevant sales are governed by the Contract.

The set-off defences

1. In their Response, the Defendants claimed, by way of set-off, amounts that they contended that either HLW or Slaite had paid Ferngrove in diminution of the amount claimed.
2. In his closing submissions Mr Bulley recorded that Ferngrove "now gives [HLW] credit in relation to the amounts which have been sought by way of set-off" in identified amounts. Mr Bulley informed me that this represented the Defendants' entire response to Mr Burchett's submissions concerning the question of set-off. [17] I took this to mean that the Defendants no longer contended for any set-off beyond that accepted by Ferngrove.

Interest

1. Ferngrove claimed interest on the amount outstanding.
2. The Contract provides that: "Ferngrove shall have the right in addition to all other rights which are herein given or which are conferred by law, to charge interest at the rate equivalent to two per cent (2%) on a daily basis in excess of such rates as shall be charged from time to time to Ferngrove by its bankers for overdraft accommodation". [18]
3. Ferngrove did not at any relevant time have overdraft accommodation. Ferngrove's contractual entitlement to interest depended on its bankers actually charging overdraft interest; hence the reference to rates "as shall be charged" from time to time. As no such interest was charged, Ferngrove is not entitled to contractual interest.
4. However Ferngrove has been held out of its money, I see no reason why it should not have interest at Court rates. Mr Bulley made no submission to the contrary.
5. Nor did Mr Bulley did not seek to challenge Mr Burchett's submission that Ferngrove should also have interest at Court rates on that part of its claim as is in United States dollars.

Conclusion

1. Ferngrove is entitled to judgement against the defendants in the amount claimed, together with interest at Court rates.
2. Counsel should confer and agree on the precise amount.
3. On the face of it, Ferngrove is entitled to its costs of the proceedings. If there is to be any argument as to costs, the parties should confer and agree on a timetable for short submissions. I will deal with any such argument on the papers.

Endnotes

1. At [47]-[49].
2. See [20] above.
3. See [17] above.
4. See [12] above.
5. See [9]-[10] above.
6. T97.
7. Agricultural & Rural Finance Pty Limited v Gardiner (2008) 238 CLR 570; [2008] HCA 57: see P Herzfeld and T Prince Interpretation (2020, LawBook Co) at [29.150] and J D Heydon, Heydon on Contract (2019, Lawbook Co) at [9.1680].
8. See Herzfeld and Prince at [29.160] and Heydon at [9.1560].
9. For example Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [25] (Heydon JA).
10. [2011] NSWCA 303.
11. At [142].
12. 100 NSWLR 367; [2019] NSWSC 1086.
13. At [90] and [118].
14. Although since these proceedings were commenced, Slaite and other entities have made some payments to Ferngrove that Ferngrove accepts must now be brought to account.
15. Set out at [13] above.
16. See [62] above.
17. T102.
18. Clause 4.2 of the Terms and Conditions. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 August 2020