Guang Dong Zhi Gao Australia Pty Limited v Fortuna Network Pty Limited

Guang Dong Zhi Gao Australia Pty Limited v Fortuna Network Pty Limited - [2009] NSWSC 1170 - NSWSC 2009 case summary — Zoe

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Amalgamated Property Company v Texas Bank [1982] QB 84 Australian Medic-Care Company Ltd v Hamilton Pharmaceutical Pty Limited [2009] FCA 1220 Bank of Australasia v Palmer [1897] AC 540); Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 Bolckow v Seymour (1864) 17 CB NS 107; 144 ER 43; 142 RR 272 Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424 (FC) Carmichael v National Power Plc [1999] 1 WLR 2042; [1999] 4 All ER 897 (UKHL) County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Company Pty Ltd (1975) 133 CLR 72 Deane v The City Bank of Sydney (1904) 2 CLR 198 Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 Finucane v NSW Egg Corporation (1988) 80 ALR 486 (FCA) Freeman & Lockyer (a firm) v Buckhurst Park Properties ( Mangal) Ltd & Anor [1964] 2 QB 480 Gardiner v Grigg (1938) 38 SR (NSW) 524 Gillespie Brothers & Co v Cheney, Eggar & Co [1896] 2 QB 59 Gordon v Macgregor (1909) 8 CLR 316 Handbury v Nolan (1977) 13 ALR 339 (HCA) Health Outdoor at 191D-F Helmos Enterprises Pty Limited v Jaylor Pty Limited [2005] NSWCA 235 CASES CITED : Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348 Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133 J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 WLR 1078; [1976] 2 All ER 930 Jessop v McInteer [2003] QCA 170 (FC) Liverpool City Council v Irwin [1977] AC 239 Maggs v Marsh [2006] EWCA Civ 1058; [2006] BLR 395 Masterton Homes PTY LTD v Palm Assets Pty Ltd [2009] NSWCA 234 Maybury v Atlantic Union Oil Co Ltd (1953) 89 CLR 507 Moore v Garwood (1849) 4 Exch 681 at 689-90; 154 ER 1388 Nicolazzo v Harb [2009] VSCA 79 Nicom Interiors Pty Ltd v Circuit Finance Pty Ltd (2004) 50 ACSR 25 Norwest Beef Industries Ltd v Peninsular and Oriental Steam Navigation Co (1987) 8 NSWLR 568 NSW Cancer Council v Sarfaty (1992) 28 NSWLR 68 Palmer v Bank of Australasia (1895) 16 NSWLR (L) 219 Prime Constructions v West Bridge Investments [2004] NSWSC 861 Saad v TWT Ltd [1998] NSWCA 199 State Rail Authority (NSW) v Health Outdoor Pty Ltd (1986) 7 NSWLR 170 Stones v Dowler (1860) 29 LJ Ex 122 Torbett v Faulkner [1952] 2 TLR 659 (EWCA) Turner v Forwood [1951] 1 All ER 746 (EWCA) Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387

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indeed in its final submissions the defendant acknowledged that section 127 of the Corporation Act 2001 does not limit the ways in which a company may execute a document, adding: "so there may be other valid manners of execution, eg by reference by reference to the company Constitution or by estoppel." iii. close to the commencement of the final oral address the defendant's counsel accepted that he had always understood there to be being litigated, an issue of estoppel raised against the defendant [that is to say an estoppel preventing the defendant from denying that the so-called deed of release could be enforced] [T 629-630]. 7 In any event the defendant's pleaded case includes the contention that if, which it denies, it executed the deed of release, it is entitled to have that deed set aside or varied pursuant to section 87 of the Trade Practices Act (Cwlth). 8 Another part of the pleaded issues concerns Fortuna's claim that without its consent and in breach of the contractual arrangements, GDA imported a large number of GCAC air-conditioners with the Blueway trademark into Australia, this also being claimed as a breach of the Blueway Trademark. It is to be recalled that the Convention on the International Sale of Goods (CISG) governs the international trade agreement and disputes. 9 Each party claims damages for alleged breaches by the other of the terms of the contractual arrangements. Separate question order 10 During the hearing the Court ordered that the issue of liability be first determined. 11 The disputes which appear to have led to the current extremely hotly contested proceedings at least in part concerned the plaintiff's contention that Fortuna failed to account to it for a relevant sales and also concerns the refusal of Fortuna to release particular units. 12 Before travelling further it is appropriate to examine some of the parameters which underpinned the proper approach especially to the decision as to the so-called deed of release. I proceed accordingly. The principles informing the decision as to whether or not an agreement that parties have entered into is wholly in writing or partly in writing and partly oral 13 In Masterton Homes PTY LTD v Palm Assets Pty Ltd [2009] NSWCA 234 Campbell JA [with as reasons Allsop P and Baston JA agreed] at 90 observed as follows in relation to these principles:

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Fortuna responsible for after-sales tasks and bear costs. If disputes in end market involving quality problems of a large number of products, GCAC and Fortuna jointly responsible and jointly bear costs. GCAC will offer technical assistance. Warranty claims are made 31 The first of the problems was quick to emerge. When the 2005 Shipment air- conditioners were delivered to consumers in late November early December 2005, Fortuna began receiving warranty claims from consumers for defects: 100% of model BLR and BCR 70GW had a non-compliant soft starter component. The air-conditioners installed suffered burn-out, and it was necessary to replace all soft starters in delivered and undelivered air-conditioners; 100% of Model 82GW were defective: they had a brittle copper pipe which broke during installation (267 air-conditioners). GCAC remedies this by shipping 267 model 82GW air-conditioners to GDA as replacements for the defective model 82GW air-conditioners; Model 35GW had an unacceptable noise level from the indoor condenser during operation; various other manufacturing defects such as a wiring problem, bracket problem and distorted plastic casing, which GCAC concedes. 32 In the result Fortuna was unable to supply further air-conditioners to its customers until the cause of the failures was identified. The events which followed 33 Fortuna claims to have avoided the two Agreements of 13 August 2005 [the supply agreement and the payment methods agreement] and to have cancelled further orders from GCAC. Fortuna's contention is that the event giving rise to the avoidance was a conversation which occurred in late December 2005 or early January 2006. It also contends that it is not necessary under the Vienna Convention for such a declaration to utilise any more formality than a simple oral avoidance. 34 It contends that under article 51 of the Sale of Goods (Vienna Convention) Act 1986 No 119, where the seller delivers only a part of the goods or if only part of the goods delivered is in conformity with the contract, articles 46 to 50 apply in respect of the part which is missing or which does not conform, so that the buyer may declare the contract avoided in its entirety only if the failure to make delivery completely or in conformity with the contract amounts to a fundamental breach of the contract.

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If there is more .than one Managing Director appointed at any time, and unless otherwise provided at the time the appointments are made, all concurrently acting Managing Directors shall be entitled to individually' exercise the powers of a sole Managing Director in the manner provided in the preceding sub-regulation." 68 At this point it is convenient to interpolate that, subject always to the terms of appointment, it is evident that the law tends to assume that where the board resolves to appoint a chief executive officer, his or her powers to control the operational and managerial aspects of the company's business will be broad indeed. In the seminal case of Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd & Anor [1964] 2 QB 480, for example, Lord Diplock held (at 505) that where a board permits a person to "act in the management or conduct of the company's business", that delegation of executive authority alone is sufficient to vest that person with ostensible authority to bind the company to transactions usually entered into "in the course of such business" by such managers. (See also: Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Company Pty Ltd (1975) 133 CLR 72 at 79-80, per the Court (Gibbs, Mason and Jacobs JJ). The evidence of Mrs Zheng Ye 69 Although on occasion Mrs Zheng Ye became flustered and on other occasions she appeared to exaggerate, standing back from the miniature with which she was required to deal, it seems to me that on balance she was a reliable witness. 70 In particular her evidence is accepted concerning Mr Chein Hsuan Lee, during a meeting of 18 September 2006 [in response to her request in him to acknowledge that given the existence of other directors he was authorised to sign for Fortuna], having answered in the affirmative. 71 Ms Ye canvassed the important details regarding the document dated 18 September 2006 in that it was prepared by the plaintiff's solicitors as a result of negotiations in Australia and in China. 72 Under cross-examination, Ms Ye stated that she was actively involved with this document. She was present when the document was put in front of Chairman Lai and Chien Hsuan Lee. She confirmed that she had attempted to contact Mrs Lay in order for her to sign the document (T 141). 73 Mrs Zheng Ye gave evidence:

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Q. Ms Christine Lay was not involved in the negotiation of this document at all was she? A. Correct. 91 From this exchange, it seemed that Mrs Lay, as a fallback position, claimed to have given an instruction to Mr Chien Hsuan Lee to "resolve the matter of the respective units" as opposed to a full settlement of the all issues between the parties. Again, this claim is rejected in light of Mrs Lay's other evidence. 92 If the instruction had in fact been given and Mr Chien Hsuan Lee was only authorised to resolve issues regarding defective units, it would be contrary to any lack of knowledge that a meeting was to take place in China on 18 September 2006 (see T 374). Her claim is also inconsistent with documentary evidence that Mrs Maria Elsa Lee was cross-examined upon which will be explained below. 93 In the result the evidence of Mrs Christine Lay must on the balance of probabilities be rejected. There were too many inconsistencies in the evidence which she gave. Furthermore the vehemence with which she rejected certain propositions made it quite obvious that in her approach to many questions was very heavily influenced by a partisan point of view. The evidence of Mrs Maria Elsa Lee 94 The evidence of Mrs Maria Elsa Lee was unreliable in a number of respects. In particular, she initially came forward with a large number of denials, but subsequently made concessions that negated those denials. 95 Nevertheless, the evidence elicited from her in cross-examination is vital in establishing the context and the purpose of the purported deed of release on 18 September 2006. 96 In relation to the purported deed of release, Mrs Maria Elsa Lee confirmed that she had provided information at the request of Ms Ye or her husband Chien Hsuan Lee (T 458). Furthermore, Mrs Maria Elsa Lee conceded that her husband had, in fact, signed the 18 September document (T 473). 97 Importantly the evidence of Mrs Maria Elsa Lee regarding the purported deed of release revolves around two crucial antecedent documents created close to 18 September 2006. 98 The first document was a facsimile, which prima facie, was a spreadsheet that quantified inventory as at 11 September 2006. It was dated 14 September 2006, less than one week before the purported deed. 99 Mrs Maria Elsa Lee firmly denied ownership of this document (T 458-459). Notwithstanding any denial, there is a clear link between this document, and the purported deed of release:

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Q. And that business card disclosed that you were the managing director? A. Yes. 120 Mr Lee conceded that the prior to the deed of release the only document that governed the relationship between the three companies was that of 13 August 2005 (T 576). 121 Mr Lee denied seeing or reading the 15 September 2006 spreadsheet (T 577). However, this denial is difficult to sustain given the fact the final figure of $166,493.18 (T 579) is exactly double of the payout figure on the purported deed of release itself ($83,246,59). Throughout his cross-examination, Mr Lee maintained that he never agreed to those figures and that they were subject to final confirmation by the accounting department (see for instance T 594 and 597). 122 He was persistent in stating that the negotiations with Chairman Li were conducted hastily and that he did not familiarise himself with the contemporaneous documents. Rather, he insisted that Mrs Christine Lay was in charge of the details (T 579-580). 123 He even went as far as to say that he only spent half an hour reading it (T 590). 124 An unusual situation was faced when Mr Chein Hsuan Lee under cross-examination surprised both his own counsel as well as the plaintiffs counsel by producing what he contended was his personal original version of the deed of release handed to him on 18 September 2006. 125 He then sought to give evidence [never put to Mr Li Xin Hao], to the effect that at the time that he signed the agreement he had asked Mr Li Xin Hao not to put down the date and 'not yet to get the three witnesses'. Hence in producing the document one is able to see that this original version on page 2 (of 9) is not dated. Curiously he does not seem to have appreciated that the cover document to the deed of agreement to be found on page 1 in fact had the typed and printed date-18 September 2006. 126 The defendant's counsel acknowledged that this document had never been discovered. It does not seem to me that in the circumstances the court can place any weight on Mr Chein Hsuan Lee very late and well-hidden revelation that he had asked Mr Li Xin Hao not to put down the date on the document. In the way in which that evidence has come forward it seems to me to be appropriate to reject the evidence under section 135 of the Evidence Act for the reason that the probative value of the evidence is substantially outweighed by the prejudice to the plaintiff should the evidence be allowed at the stage of the proceedings which had been reached when the document was produced. [See T 648 as to the defendant's position. 127 Nor does the failure of Mr Chein Hsuan Lee to have come forward with his having privately retained [and never cause to be discovered] the above document instill confidence in the veracity of his evidence. 128 His evidence was that, due to his haste, he wanted the agreement not to be binding until certain confirmation was made of its details. 129 Mr Chein Hsuan Lee denied that he had signed the agreement in his capacity as a managing director but rather contended that he had signed in his personal capacity [Transcript 595 -596] 130 The nub of his evidence was that he went to China not to sign any documents but merely to "set up a good direction to solve the problem". [Transcript 598] Confirmation by Mrs Christine Lay 131 Mr Chein Hsuan Lee's claim (throughout his cross-examination) that he did not intend the agreement to be binding, as he needed Mrs Christine Lay to confirm the details does not ring true. It is peculiar in that he had conceded that Mrs Christine Lay was never involved in the negotiation. 132 Firstly, if Mr Chein Hsuan Lee was so unsure whether the details were correct that he needed Mrs Lay to confirm them, it begs the question why he even signed the agreement in the first place instead of telling Mr Li Xin Hao that further confirmation was required. 133 In fact, Mr Li Xin Hao himself never heard Mr Chein Hsuan Lee speak about requiring Mrs Lay's approval (T 505):

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