Oohira Hausys Pty Ltd v Yerim Australia Pty Ltd [2017] NSWDC 366 | Case summary

District Court of NSW|2017-10-24

Solicitors: Jacobs Legal (Plaintiff) HIS Lawyers (Defendant) File Number(s): 2016/344366

Amended Statement of Claim

The plaintiff OH relied on an Amended Statement of Claim filed 17 January 2017. The Amended Statement of Claim pleads: 1. On or about 12 February 2016, a representative of YF sent an email to the director of the plaintiff suggesting "an amicable business cooperation between them via a distribution agreement"; 2. On 14 June 2016 the plaintiff arranged for the first defendant YA to be incorporated; 3. Sometime later, an agreement was reached between the plaintiff and the first defendant in which the plaintiff would source land and then organise for a warehouse to be fitted out for the first defendant, with YA and YF being jointly and severally liable for all costs incurred by the plaintiff pursuant to the agreement (paragraph 6); 4. The parties also jointly agreed that the warehouse would be used to store goods imported by the defendants which would then be sold at a fixed price to the plaintiff; 5. The plaintiff arranged a suitable warehouse for the first defendant and negotiated terms for the lease; 6. On 21 July 2016 one of the directors of YF transferred $200,000 from South Korea to the bank account of YA and then to the plaintiff for the warehouse construction work; 7. The plaintiff completed the construction work; 8. The plaintiff incurred costs of $349,278. When the $200,000 advance from YA in July 2016 was taken into account, it was asserted that a balance of $149,278 was owing; 9. It is also asserted that the plaintiff was denied access to the warehouse by the defendants and that the first defendant is holding specified goods of the plaintiff which the plaintiff wanted returned. The alleged value of those goods was sought as damages.

Defence

The defendants filed a Defence on 22 May 2017. In the Defence, the defendants: 1. Deny that the plaintiff organised the registration of YA; 2. Allege that on or about 15 June 2016 the second defendant entered into an oral agreement to supply door set units to Mr Cheung in Australia which was reduced to writing; 3. Plead that on or about 1 July 2016 subsequent to entering into a distribution agreement, the parties entered into a further agreement for the construction of a showroom at premises to be rented by the first defendant. It is further alleged that that agreement was reduced to writing but not signed; 4. Allege that on or about 3 August 2016 the parties entered into a further oral agreement for the management of the contemplated showroom by the plaintiff on behalf of the second defendant; 5. Deny that the plaintiff arranged the lease and say that the defendants entered into the lease on or about 15 August 2016; 6. Allege that $200,000 was advanced to the plaintiff being $150,000 for the construction works and $50,000 for marketing costs to advertise the showroom; 7. Deny that YA refused access to the plaintiff to collect its goods and say that the plaintiff has removed all of its possessions from the property pursuant to requests by the defendants.

Cross-Claim

The defendants filed a Cross-Claim on 22 May 2017 when they filed their Defence.
The Cross-Claim alleges in summary: 1. On or about 8 June 2012 the plaintiff and YF reached an agreement for the plaintiff to display and distribute YF's door sets in Australia. This agreement involved the plaintiff promising to sell at least 300,000 door sets per year in New South Wales in exchange for exclusive distribution rights to YF's products. There was also an agreement to purchase 10,000 door sets at an agreed price of $130 per unit. The arrangement also involved leasing a warehouse. There was an agreement for YF to pay $150,000 to the plaintiff to fit out the warehouse and a further $50,000 to market the goods to be displayed in the warehouse; 2. YF caused YA to be incorporated on 14 June 2016; 3. A lease over a warehouse was entered into commencing 15 August 2016; 4. On 7 July 2016 YF paid an amount of $50,000 for the purposes of the construction works to fit out the warehouse; 5. A further $100,000 was paid on 22 July 2016 for the construction works to the plaintiff as well as $50,000 for marketing costs; 6. The defendants also purchased a delivery van and forklift for the warehouse; 7. In July 2016 the defendant sent 10,000 units of door sets to the plaintiff; 8. The plaintiff has not paid for the consignment of 10,000 door sets; 9. This involved a breach of the distribution agreement between the parties; 10. The plaintiff has not sold 300,000 door sets per annum in New South Wales in breach of the agreement. The defendants claim the $150,000 paid for the warehouse and damages for the failure to sell 300,000 door units per annum and to pay for the 10,000 door units supplied.

Defence to Cross-Claim

The plaintiff filed a Defence to Cross-Claim on 7 August 2017. In the document it disputes the claims made by the defendants in the Cross-Claim. In particular it: 1. Admits that it received $150,000 but denies that it was received pursuant to the agreement alleged in the Cross-Claim; 2. Denies that it did not pay for the consignment of 10,000 door sets and says it was excluded from the warehouse in breach of the agreement. It is also asserted that the defendants have retained the doors and not given the plaintiff possession of the doors with the result that the plaintiff has been unable to sell the doors; 3. It is asserted that the plaintiff was locked out of the warehouse in breach of the agreement between the parties.

Evidence of Mr Cheung

The plaintiff read two affidavits of Mr Sung Dae Cheung dated 26 June 2017 and 6 October 2017. Other evidence established that Mr Cheung was appointed a director of the plaintiff OH on 11 July 2016 and is the only director of OH.
In Mr Cheung's first affidavit dated 26 June 2017, Mr Cheung gives evidence that he is a director of the plaintiff, is originally from South Korea, and has been in Australia for about 14 years. He states that the plaintiff specialises in building, construction and renovating and also completing interior work.
Mr Cheung gives evidence in his first affidavit that on 12 February 2016 he received a telephone call from a representative of the second defendant YF in South Korea who indicated that the second defendant wished to export wooden doors to Australia and wanted the assistance of Mr Cheung.
Following further discussions, it is asserted by Mr Cheung that the representative of the second defendant proposed that the second defendant enter into an exclusive distribution agreement with the plaintiff whereby the second defendant would supply wooden doors at a fixed price. Mr Cheung states that further discussions occurred and he requested to see door samples which were shipped by YF to Australia.
Mr Cheung gives evidence that two staff members from the plaintiff assisted the second defendant to set up and incorporate the first defendant.
Mr Cheung alleges in paragraph 10 of his first affidavit that on 18 June 2016 he met the CEO of the second defendant, Mr Yong Jin Chun, and a conversation took place in which the parties agreed: 1. For Mr Cheung to be the second defendant's exclusive distributor for doors in Australia; 2. Mr Cheung's company could build a warehouse to store the doors for YF; 3. For Mr Cheung to build the warehouse for an amount. Whilst Mr Cheung agreed to keep the construction cost as low as possible, he gives evidence that he indicated that generally it would cost $350,000 to $400,000 to build the warehouse. Later evidence shows that this conversation could only have been referring to renovating a warehouse not building a warehouse.
After an initial delay, Mr Cheung gives evidence that on 11 July 2016 he was requested by Mr Yong Beom Chun of YF to continue looking for a suitable place to build a warehouse and for it to be built as quickly as possible. Mr Cheung gives evidence that he located a suitable warehouse at 75-77 St Hilliers Road Auburn in Sydney ("the Auburn warehouse"). Although stating in paragraph 13 of his first affidavit that the location "was an empty space with no structure on it" this is inconsistent with photographic evidence annexed to Mr Cheung's affidavit which shows that there was an existing warehouse on the site to which a showroom and relevant office premises were added. Mr Cheung confirmed this in his oral evidence. Why Mr Cheung stated that in paragraph 13 of his first affidavit is unclear and shows his first affidavit was not prepared carefully.
Mr Cheung gives evidence that on 21 July 2016 $200,000 was transferred from the second defendant's account to the plaintiff's account. Mr Cheung said he contacted Mr Yong Beom Chun, the Vice President of the second defendant, and indicated to him that the $200,000 would not be enough and Mr Yong Beom Chun indicated to go ahead and build the warehouse and the second defendant would pay for all costs of building the warehouse and would pay the additional money in due course. Mr Cheung says he agreed to that (paragraph 14). This is the conversation relied on by the plaintiff as establishing the construction agreement alleged between the parties.
Mr Cheung gives evidence that he commenced "building the warehouse" on 25 July 2016 and it was completed by late August 2016: paragraphs 15 and 18 of his first affidavit.
Mr Cheung states that the construction included completing the structure of the ground floor and fitting a space with office rooms, partitioning, reception and signage, bathrooms, kitchenette, electrical works and plumbing. Mr Cheung gives evidence that the area could be used for its intended purpose by late August 2016.
In paragraph 17 of his first affidavit, Mr Cheung gives evidence that a large number of doors had already started being shipped by the second defendant and stored in the warehouse. However, he states in his affidavit that he "noticed the cataloguing of the doors was entirely wrong".
In paragraph 19 of his first affidavit, Mr Cheung annexes photographs of the warehouse and the interior. He also importantly states the following in paragraph 19 of his affidavit: "Annexed hereto and marked "B" are the invoices and expenses for the cost of building the warehouse."
Mr Cheung then gives evidence in his first affidavit to the following effect: 1. He spent about $198,000 on "construction costs"; 2. He spent $131,400 "for three staff wages"; 3. He spent $5,528 for "additional labour hire" and about $14,350 "for doing signage". Mr Cheung gives evidence that on 11 October 2016 Mr Yong Jin Chun attended the warehouse on behalf of the second defendant and complained that the plaintiff had not sold any doors and indicated that the defendants did not need Mr Cheung and the plaintiff anymore. Mr Cheung was apparently asked to leave the warehouse 'immediately". Mr Cheung gives evidence that he intended to return later to collect work items including tools; however, he was not allowed back on the premises. He then sets out in his affidavit the items which were left on the premises which he values at about $25,000. No independent evidence to support this valuation was included. How he arrived at this figure is unclear.
As indicated above, part of the annexures to the first affidavit are photographs of the completed fit out of the warehouse. The other annexures are documents which Mr Cheung states are the invoices and expenses for the cost of building the warehouse.
In his second affidavit dated 6 October 2017, Mr Cheung generally disputes the affidavit evidence of the two Messrs Chun. In particular, Mr Cheung: 1. Disputes that he made any guarantees on behalf of the plaintiff about how many doors the plaintiff would sell; 2. Disputes that he agreed to build the showroom and warehouse conversion for only $150,000 and states that it could not be built for that sum; 3. States that Mr Yoo, one of his staff members, was working for the plaintiff as a sales manager; 4. Disputes that he was ever sent a draft Interior Construction Contract by the second defendant; 5. States that most of the door units received from the second defendant either were not consistent with the doors in a catalogue forwarded to him or were not in the catalogue. Mr Cheung says, in paragraph 10 of his second affidavit, that as the door units were not in the catalogue "I formed the view the doors were unsellable in Australia". Why that was the case is not further explained; 6. Indicates that in October 2016 he was told by an employee of the second defendant to leave the premises at the warehouse and to return the keys.
In his oral evidence in examination in chief, Mr Cheung identified a number of the areas shown in the photographs annexed to his first affidavit. He also confirmed, contrary to what appears in his first affidavit, that the warehouse was there when he began working on it and that he did not construct the warehouse itself: cf paragraph 13 of his first affidavit.
Mr Cheung was subjected to a detailed cross-examination by counsel for the defendants. His evidence was given through a Korean interpreter. Even allowing for this factor, Mr Cheung was not an impressive witness. He frequently gave answers which did not answer the question asked. On a number of occasions it took several questions to elicit a direct answer from Mr Cheung to the question. Overall, the evidence given raised in my view serious doubts in relation to the accuracy of his affidavit evidence.
In the course of his cross-examination, Mr Cheung gave the following relevant evidence which I comment upon: 1. Mr Cheung confirmed that the claim of the plaintiff included a claim for $131,400 as set out in paragraph 9 of the Amended Statement of Claim being a claim for $43,800 for each of three staff members. He said this was part of money spent by the plaintiff in converting the warehouse and adding the showroom. He agreed that this was for wages for himself, Mr Yoo and Mr Park. As stated above, it is noted that in Mr Cheung's first affidavit, he states in paragraph 19 that annexed to that affidavit and marked "B" are the invoices and expenses "for the cost of building the warehouse"; 2. The first invoice as part of Annexure B to his first affidavit, is an invoice dated 19 October 2016 from Mr Cheung to the plaintiff company (Exhibit 3 page 1). Mr Cheung corrected an aspect of the invoice following a question from the court in his cross-examination. The invoice had two claims for $10,000 for labour supplied by Mr Cheung for September 2016. He said that the second reference to September 2016 should be to October 2016: T29.19. However, it is noted that the invoice states that it is for service provided for the period "June to September 2016". Exhibit 1 establishes that the plaintiff was only registered on 11 July 2016, so it is difficult to see how labour could have been provided by Mr Cheung to the plaintiff in June 2016 or for the first 10 days of July 2016. There was no evidence of any express pre-incorporation contract between Mr Cheung and the plaintiff in the present case; 1. In relation to Mr Cheung's assertion that the labour supply for September 2016 second appearing in the invoice should be a reference to October 2016, it is noted that according to Mr Cheung's first affidavit the construction at the warehouse was completed in late August 2016: paragraphs 15 and 18. Accordingly, it is difficult to see how labour supply in relation to the construction of the warehouse could have been supplied by Mr Cheung to the plaintiff in September or October 2016. This raises real doubts about the accuracy of the invoice; 2. In cross-examination, Mr Cheung surprisingly denied that the labour referred to in his invoice was work in relation to turning the warehouse into the showroom. Instead he gave evidence, contrary to paragraph 19 of his first affidavit, that the labour charge was for labour of his lost for committing himself to sell goods on behalf of the defendants: T15.19-.31. When further questioned about this issue, Mr Cheung stated that the invoice was not reflective of work which he did but work for which he would have otherwise earned money if he was not completing work for the defendants: T15.31. He said it was based on his weekly wage of $2,500. Mr Cheung said it was for lost income as he was not able to do other work as he was concentrating on the project for the defendants: T15.43-16.1. In other words, he was building the warehouse and he was billing the plaintiff for work he could have done elsewhere to earn fees. It seems to me, that this claim of the plaintiff in relation to Mr Cheung's invoice dated 19 October 2016 is misconceived. First, the invoice is not an invoice or expense "for the cost of building the warehouse" within paragraph 19 of Mr Cheung's first affidavit. Secondly, there is no suggestion that there was any agreement with the second defendant for payment to the plaintiff to compensate Mr Cheung for work he could otherwise have done on another project: T16.23-.29. Thirdly, neither the plaintiff nor Mr Cheung has made any claim in these proceedings for loss of opportunity to earn money as a result of a breach of contract by either of the defendants; 1. Mr Cheung was then asked questions about the invoice from Mr Yoo dated 19 October 2016 addressed to the plaintiff (Exhibit 3 page 2). There are a number of curious aspects to this invoice. First, it is in very similar format to the third invoice from Mr Park dated 19 October 2016 also annexed to Mr Cheung's first affidavit. It has the same date as Mr Park's invoice and is in very similar terms. Secondly, Mr Yoo's invoice claims an amount for labour supply by him for June 2016 in the sum of $10,000. However, at that time, the warehouse at Auburn had not even been located by Mr Cheung: see paragraphs 12-13 of his first affidavit. Thirdly, in June 2016 the plaintiff did not even exist. The plaintiff was not registered until 11 July 2016. This also impacts on the labour supply claim for the first part of July 2016. Fourthly, the invoice has an incorrect Australian business number for the plaintiff. When it was put to Mr Cheung that the invoice from Mr Yoo purported to charge the plaintiff for work that was completed before the plaintiff existed, Mr Cheung noted that it was for a period when Mr Yoo was completing work for him before the plaintiff was registered: T18.1-.4. Mr Cheung also said that as he understood it, the labour for which Mr Yoo was charging in the invoice dated 19 October 2016 was for overseeing the business of the company "in a general sense":T25.14. Mr Cheung denied that Mr Yoo was a salesman. He confirmed that Mr Yoo undertook a general management role for the plaintiff which included setting up the first defendant, reporting to him and attending to the preparation of documents and paperwork: T25.16-.41; see also T28.1-.17. At no stage did Mr Cheung indicate that Mr Yoo undertook any work for the plaintiff relating to the cost of "building the warehouse" within paragraph 19 of his first affidavit. In my view, it is difficult to see in these circumstances how Mr Yoo's invoice is connected to the plaintiff's claim for the construction of the warehouse showroom and offices; 1. Mr Cheung was asked questions about his understanding as to why the invoices from Mr Yoo and Mr Park dated 19 October 2016 included the notation: "Please note that we do not charge bin covers this time". Mr Cheung denied that he created the two invoices and copied this from another unrelated invoice. Instead he put forward the most unconvincing assumption that this must have been connected to Mr Yoo and Mr Park assisting with disposing of rubbish related to the defendants' containers of doors that were received: T26.1-.34. This suggestion that Mr Yoo and Mr Park were involved in disposing of rubbish connected with the defendants' containers of doors reinforces the suggestion that the labour for which they invoiced the plaintiff was unconnected to the construction of the warehouse showroom and offices. However, Mr Cheung did say that he did not know why the strange notation was on both invoices: T26.7. It is also noted that Mr Yoo billed for labour supplied for September 2016 after the construction work on the warehouse was completed on Mr Cheung's own evidence. Mr Cheung also suggested that Mr Yoo was charging for work outside his normal hours as an employee. However, the invoice dated 19 October 2016 suggests work far in excess of any likely overtime work (the work billed was for $10,000 per month); 1. Mr Cheung was asked questions about the invoice dated 19 October 2016 from Mr Park (Exhibit 3 page 3). This was the third invoice for $43,800 claimed by the plaintiff. Mr Cheung gave evidence that Mr Park looked after the "outside visitors" of the plaintiff in relation to the doors: T29.46. He also visited builders to sell the door product to them: T30.2. However, Mr Cheung denied that Mr Park's role was only a sales role and said that he also completed office work with Mr Yoo: T30.23; T31.43. Mr Cheung added later that Mr Park helped him with the incorporation of YA and also received the containers holding doors from the second plaintiff and checked them for quantity and removed the wrapping: T34.7-.30. Again, this work does not appear to me to be "construction work" for the completion of the construction of the warehouse showroom and offices as referred to in paragraph 19 of Mr Cheung's first affidavit. It therefore does not appear to fall within the alleged contract which the plaintiff asserts: see paragraphs 10 and 14 of Mr Cheung's first affidavit. In paragraph 10 Mr Cheung refers to $350,000 to $400,000 "to build a warehouse". In paragraph 14; there is a reference to "pay for all your costs of building the warehouse;" 1. Mr Cheung denied a suggestion from counsel for the defendants that he created the invoices of Mr Yoo and Mr Park dated 19 October 2016; 2. Mr Cheung was then asked questions in relation to the employment contract dated 1 June 2016 between "SD Cheung of Oohira Hausys Pty Ltd" and Mr Yoo (Exhibit 3 page 4). Mr Cheung confirmed that this was a contract between the plaintiff and Mr Yoo. He also confirmed that he signed the contract as indicated on the last page of the contract on 1 June 2016: T38.46; T44.19. Contrary to paragraph 19 of Mr Cheung's first affidavit, it is difficult to see how the employment contract is an invoice or expense "for the cost of building the warehouse". The employment contract with Mr Yoo appears to have been entered into after the date which it bears contrary to Mr Cheung's evidence. First, as at 1 June 2016 the parties had not even, on Mr Cheung's evidence, entered into the agreement to build the additions to the warehouse: see paragraph 10 of Mr Cheung's first affidavit where a relevant conversation was stated to have occurred on 18 June 2016. Secondly, the employment contract dated 1 June 2016 refers at Clause 15 to Mr Yoo's primary place of work being "Unit H, 75-77 St Hilliers Rd. Auburn NSW 2144". However it is clear from Mr Cheung's first affidavit that he did not locate the site at 75-77 Hilliers Road Auburn for the warehouse until at the earliest mid-July 2016: paragraphs 12-14 of Mr Cheung's first affidavit. Thirdly, as Exhibit 1 makes clear, the plaintiff did not even exist as at 1 June 2016, the date of Mr Yoo's contract, as it was not registered until 11 July 2016. Mr Cheung gave evidence that he had Mr Yoo working for him prior to 1 June 2016 and he had completed preparation work to set up the plaintiff. However, it seems difficult how a contract could have been signed with the plaintiff prior to its existence even if preliminary set up work had been undertaken. Mr Cheung's explanation for this, that he put the date of 1 June 2016 on the contract because he knew he would operate the plaintiff in the future, was confusing and unconvincing: T38.16-39.1; T43.35. 1. Mr Cheung initially gave evidence that Mr Yoo who had supplied the invoice which was annexed to his first affidavit (Exhibit 3 page 2) was employed not in sales and marketing but as the office manager: T48.19. Mr Cheung was taken to Mr Yoo's employment contract which states in Clause 4 that Mr Yoo was employed "as a Sales Manager". Mr Cheung responded that Mr Yoo's job description was fluid and that he did sales work and office work as required: T49.8. In particular, Mr Cheung said that he envisaged employing a lot more people and the description as "Sales Manager" for Mr Yoo was a role which he had in mind for Mr Yoo in the future. I was not impressed with this evidence. It seems clear that as at 1 June 2016 which was the date of the employment contract (although there are real doubts whether this date was accurate), Mr Yoo was employed by the plaintiff as a Sales Manager; 1. Mr Cheung gave evidence that Mr Park was appointed as the managing director in charge of the plaintiff company: T49.42. He was then taken to Clause 4 of Mr Park's employment contract in which it is stated that the plaintiff employed Mr Park "as a Sales Manager". Initially Mr Cheung said that the employment contract of Mr Park concerned his private business (T50.25) but then accepted that Mr Park's employer was the plaintiff and not himself: T50.38; 1. Mr Cheung agreed that he signed Mr Park's employment contract which was annexed to his first affidavit on 1 June 2016, the same date as Mr Yoo's employment contract: T51.39. 2. Despite this, the address of the place of work for Mr Park was the warehouse address at 75-77 St Hilliers Road Auburn which was not located by Mr Cheung until at least the middle of July 2016. It was put to Mr Cheung that he had fabricated the contract as the address could not have been known as at 1 June 2016. Mr Cheung responded that the address was not the original address placed in the contract and that he instructed that the address be changed. This was evidence which was difficult to accept. Having confirmed that he signed the contract on 1 June 2016, it is difficult to see how the address could have been placed in the contract in Clause 15 concerning Mr Park when it was not even known that this would have been the warehouse address as at 1 June 2016. Again, this evidence raises serious issues concerning the accuracy of Mr Cheung's evidence. Mr Cheung did not indicate that the address was changed and then the contract was re-signed but with the date being placed on it being the date the contract was originally signed and not when it was amended; 1. Mr Cheung was asked some questions about the invoice dated 18 October 2016 on the letterhead of OH in Annexure B to his first affidavit with the invoice number 1619 (Exhibit 3 page 22). Mr Cheung gave evidence that the ABN in the top right-hand corner of the invoice was that of Oohira Interior not the plaintiff. Mr Cheung confirmed that the invoice was from Oohira Interiors not from Oohira Hausys, the plaintiff: T58.14 cf T56.12. Mr Cheung gave some confusing evidence that Oohira Interiors was a company which was not a proprietary limited company but a "private company": T58.36. He denied that he had fabricated the invoice. It seems strange to me that the invoice for the construction work for which the plaintiff sues was an invoice from Oohira Interiors and not from the plaintiff, despite the plaintiff's name being on the invoice. In oral submissions, it was urged on behalf of the plaintiff that I should find that the invoice was from OH not Oohira Interiors despite Mr Cheung's oral evidence on this issue. It is difficult to accept this explanation from Mr Cheung for the invoice despite the fact that the ABN on the invoice was not that of the plaintiff: see the ABN for the plaintiff in Exhibit 1. This explanation by Mr Cheung raises further concerns in relation to his evidence. The very invoice on which the plaintiff sues for work completed in the construction of the warehouse additions was said to be an invoice not from it but from a related entity called Oohira Interiors. The plaintiff's attempts to justify the invoice on the letterhead of the plaintiff dated 18 October 2016 (written submissions dated 14 November 2017 paragraphs 26-27), were not convincing. Mr Cheung's affidavit evidence did not seek to assert that the invoice was from Oohira Interiors as opposed to the plaintiff. There was no independent evidence to justify the sums claimed in the invoice (for example by hourly rates or time spent and the cost of materials or sub-contractors).
Mr Cheung was then asked a number of questions about the affidavits which he had prepared for the purposes of the proceedings. In substance, he maintained his denials of the defendants' versions of the relevant meetings in the affidavits of the two Messrs Chun.
However, in the course of his oral evidence Mr Cheung gave evidence which was inconsistent with his affidavit evidence. First, he was asked questions about the conversation with Mr Hwang of the second defendant set out in paragraphs 4 and 5 of his first affidavit. Inconsistently with these paragraphs, Mr Cheung denied that Mr Hwang said the words to him to the effect set out in paragraph 5 of his affidavit: T61.2. Mr Cheung described Mr Hwang as only a "lower ranked employee" of the second defendant. He said he did not have a conversation to the effect set out in paragraph 5 of his first affidavit with Mr Hwang. Mr Cheung asserted that paragraph 5 of his affidavit had been changed. However, no change is referred to in Mr Cheung's second affidavit dated 6 October 2017.
Mr Cheung was then asked questions about paragraph 10 of his affidavit and the conversation set out in that paragraph. Mr Cheung asserted that there were no real discussions about money in the 18 June 2016 meeting which he refers to in paragraph 10 of his affidavit.
When Mr Cheung was taken to that part of the conversation in paragraph 10 of his first affidavit in which he is stated to have said "in general it costs about $350,000-$400,000 to build a warehouse", Mr Cheung denied that these words were said by him and said that part of his affidavit is not accurate. Mr Cheung suggested that the amount needed to build the warehouse had been suggested to him by the employee of the plaintiff, Mr Park. He stated that he did not discuss figures in the meeting on 18 June 2016. However, Mr Cheung said that his recollection was that there was a discussion about the second defendant advancing monies to the plaintiff to build the showroom addition to a warehouse.
In the course of his oral evidence Mr Cheung denied that he or the plaintiff agreed to buy 10,000 door sets immediately from the second defendant on 18 June 2016 or that he would guarantee to buy at least 300,000 door sets per year for sale in New South Wales. He did however accept that the plaintiff did receive 10,000 door sets from the second defendant.
Mr Cheung was taken to the demand dated 1 October 2016 which is at page 96 of the annexures to Mr Yong Beom Chun's affidavit sworn 29 August 2017. Mr Cheung asserted that this was the first time he had ever seen the document being the demand. However, this evidence was difficult to accept in the light of the fact that in his second affidavit dated 6 October 2017, he specifically refers to Mr Chun's 29 August 2017 affidavit in paragraph 1 and stated that he "generally [denies] the contents of the affidavit". The demand dated 1 October 2010 is specifically referred to in paragraph 28 of Mr Chun's 29 August 2017 affidavit.
Mr Cheung specifically denied that when the defendants pressed him to pay for the 10,000 door sets which had been sent to the plaintiff, the plaintiff did not have the money to pay for the sets and he abandoned the warehouse which had been leased by YA. Mr Cheung asserted that he had been 'kicked out" of the warehouse.
As indicated above, I found Mr Cheung to be a most unimpressive witness. I have set out the instances where he gave evidence inconsistent with his affidavit evidence. His assertion that he had never seen the 1 October 2016 Notice of Demand from the first defendant is difficult to believe in circumstances where he states in his affidavit that he denies the contents of Mr Chun's first affidavit and the letter of demand is referred to in that affidavit. I reject Mr Cheung's evidence that the first time that he had seen the document was in the witness box.
I have also referred to the very unsatisfactory evidence which Mr Cheung gave in relation to the various important documents which were part of Annexure B to his first affidavit. I reject the submission that "any mistakes occurring in relation to documentation arose as a result of the plaintiff's lack of English" (written submissions paragraph 28), as Mr Cheung attempted to defend his affidavits and often the documents annexed to his first affidavit.
Mr Cheung frequently did not answer questions directly and often gave non-responsive answers or answers which dealt with other matters. Even allowing for the fact that the evidence was given through a Korean interpreter, I clearly formed the conclusion that Mr Cheung sought to avoid answering difficult questions wherever possible.
Overall, I find Mr Cheung to be an unreliable witness. His evidence in relation to the important three invoices sent to the plaintiff by himself, Mr Yoo and Mr Park was very unconvincing and I reject it. His evidence in relation to the employment contracts with Mr Yoo and Mr Park was also difficult to accept and inconsistent with the documents themselves. I also reject this evidence.
Overall, having regard to these matters which substantially affect his reliability and credit, I do not accept the evidence given by Mr Cheung in relation to the crucial conversations set out in his affidavits. I also do not accept his evidence on other matters unless the evidence is not in issue or is an admission against interest or is corroborated by another witness or reliable contemporaneous evidence.

Documentary exhibits

The defendant relied on a number of documents which became exhibits in the proceedings. Exhibit 1 was the company search and ABN number evidence for the plaintiff. This showed that the plaintiff was first registered as a company on 11 July 2016 well after the June 2016 conversations relied on by both parties. It also showed that the ABN number for the plaintiff on the invoices from Mr Yoo and Mr Park dated 19 October 2016 was incorrect.

Evidence of Mr Yong Beom Chun

Mr Yong Beom Chun is the Vice President of the second defendant, YF and the Director of the first defendant YA. He is the son of Mr Yong Jin Chun, the President of YF.
The defendants read two affidavits from Mr YB Chun sworn 29 August 2017 and 13 October 2017.
In his first affidavit, Mr Chun gives evidence that YF has been exporting its door sets overseas since 2012 and developing a distributional channel for its products in Australia from November 2015.
He states that on 13 January 2016, YF, through its overseas department, sent an email to potential Australian importers and distributors of his company's product. He gives evidence that YF was approached by Mr Cheung on 13 January 2016 by way of email. In his 13 January 2016 email which is attached to Mr Chun's affidavit, Mr Cheung set out that he was in the building construction business, was currently negotiating with manufacturers in relation to door sets and concluded: "If you want to do business, please let me know". After receiving contact information from Mr Cheung, Mr Chun states that Mr Cheung in March 2016 requested a sample door set and YF sent 10 door set samples to Mr Cheung in April via airfreight.
Mr Chun states in paragraph 9 of his affidavit that he had a telephone call with Mr Cheung on 31 May 2016 in which Mr Cheung said that he was carrying on a construction business in Australia trading as "Oohira" and had substantial experience in construction in Japan and in Australia. Mr Cheung is supposed to have said to Mr Chun that he had a pending order of 200,000 units of door sets and wanted to have a discussion with YF in Australia to discuss business proposals as soon as possible.
Mr Chun says that he and his father came to Australia and met with Mr Cheung at a Japanese restaurant on about 13 June 2016. Mr Chun gives evidence that in the course of the conversation Mr Cheung said to him that he would like to have an exclusive right to sell YF's products in Australia and guaranteed to sell at least 300,000 units of door sets in New South Wales per year. Mr Chun also gives evidence that Mr Cheung said that he also guaranteed to sell 10,000 door sets immediately as long as there were current stocks of the doors at a warehouse in Australia. It was stated that Mr Cheung did not wish to sell the doors on a commission basis but to purchase them wholesale and then distribute them in Australia at a retail price. Mr Chun said that Mr Cheung requested YF to store enough stocks at a warehouse in Australia so that he could sell the products to his clients without any waiting. There were further discussions about leasing a warehouse and establishing an Australian company. Mr Chun gives evidence that Mr Cheung indicated he could complete the interior fit out works at the warehouse for YF because of his licences and experience in the construction business. He is alleged to have stated "I know how you can efficiently install a showroom for the best display."
Mr Chun asserts that Mr Cheung said he would construct the showroom at the warehouse for $150,000 and also requested a provision of financial support for marketing in the amount of $50,000. Mr Chun said that he agreed with the proposal.
In his first affidavit, Mr Chun said that YF set up its subsidiary YA in Australia and an attached company search establishes that YA was registered on 14 June 2016.
Mr Chun gives evidence that on 15 June 2016 there were discussions in relation to a building contract with Mr Yoo who was an employee of Mr Cheung and Mr Yoo confirmed that 10,000 doors should be prepared and delivered to the warehouse once it was leased. Mr Chun gives evidence about the preparation of various drafts of the contract for distribution, two of which are attached to the first affidavit of Mr Chun. Neither copy of the proposed drafts of the contract refers to either a promise to sell 300,000 door sets per year in New South Wales or the alleged agreement to purchase 10,000 door sets immediately. Both draft contracts state that an order would be placed once 'Oohira Pty Ltd" has the actual order (see the drafts at pages 25 and 36 of the annexures to Mr Chun's first affidavit).
Mr Chun gives evidence that from early June 2016 (this may be an error and it should be early July 2016 from the context of the paragraph) YF started producing 10,000 units of the product from its factory in South Korea as requested by Mr Yoo: see paragraph 15 of his first affidavit.
Mr Chun gives evidence in his affidavit about forwarding initially $50,000 to the bank account of Mr Cheung on 5 July 2016 and later forwarding further payments of $100,000 to Mr Cheung's account for the second instalment of the construction works and $50,000 to an account of the plaintiff, both on 22 July 2016: see paragraphs 18 to 21 of Mr Chun's first affidavit.
Mr Chun also gives evidence that on 22 July 2016 he arranged for the purchase of a forklift and a delivery van for use in the factory.
Mr Chun gives evidence that on 27 July 2016 he entered into an arrangement with Mr Cheung for YA and the plaintiff to share the office at the warehouse provided the premises were maintained at the plaintiff's cost and the plaintiff was responsible for paying the cost to manage its staff and business.
In paragraph 24 of his first affidavit, Mr Chun confirms that most of the works were completed by Mr Cheung in fitting out the showroom at the warehouse by 30 August 2016 but says in paragraph 25 that YA paid for a number of the works performed by other tradesmen such as electrical works. The relevant invoices are annexed to his affidavit: see pages 80-83 of the annexures.
In paragraphs 26 to 30 of his affidavit, Mr Chun states that YF sent 10,000 units of door sets to the warehouse from early August to early September 2016 as agreed with Mr Cheung and that Mr Cheung failed to sell any of the products in Australia and did not pay for the 10,000 door sets at all. In paragraph 29 of his affidavit, Mr Chun says that the plaintiff abandoned the warehouse without any reasonable prior notice to YA and, as a result, YA had to cease its business by shutting down the warehouse. A result of this was that the security deposit of $144,340 paid by YA was forfeited to the landlord in early 2017.
In his second affidavit, Mr Chun disputes the contents of Mr Cheung's first affidavit. In particular, Mr Chun denies that employees of Mr Cheung set up YA; denies that the meeting occurred on 18 June 2016 but rather occurred on 13 June 2016 as Mr Chun and his father had left Australia on 16 June 2016; denies that he requested Mr Cheung to initially hold off the search to look for a warehouse due to financial constraints; denies that the agreement for construction of the showroom was for an amount which was not specified and states that the construction cost was agreed at $150,000 with Mr Cheung and denies that Mr Cheung abandoned the warehouse because of directions from the defendants.
Mr YB Chun was cross-examined by counsel for the plaintiff.
Mr Chun accepted that Exhibit 1 showed that the plaintiff only came into existence on 11 July 2016. He agreed that the discussions in June 2016 between himself, his father and Mr Cheung involved dealing with Mr Cheung and there was no mention of the plaintiff company. This is apparent from paragraph 10 of Mr Chun's first affidavit. Mr Chun agreed that at the June 2016 meeting there was no discussion about Mr Cheung setting up a company. Mr Chun said that the purpose of the June meeting was to meet with Mr Cheung and to facilitate the sale of the doors manufactured by YF in Australia.
Although Mr Chun agreed that following the conversation in June 2016 YF commenced manufacturing the 10,000 doors which he claims were discussed in the meeting, this is inconsistent with paragraph 15 of his first affidavit. It is likely that YF did not commence producing the 10,000 door units in early June 2016 but from early July 2016. In relation to the 5 July 2016 discussion with Mr Yoo set out in paragraph 17 of Mr Chun's first affidavit, it was put to Mr Chun that the agreement was with Mr Yoo only. Mr Chun said that he regarded the agreement as being with Mr Cheung and "Oohira".
Mr Chun accepted that the advance payment referred to in the 13 June 2016 meeting (paragraph 10 of his affidavit) was not paid by Mr Cheung. He also agreed that the $3 million referred to in Clause 12.1 of the first draft of the agreement (page 27 of the annexures to his first affidavit) was also not paid and did not appear in the later version of the draft contract annexed to his first affidavit. He denied the suggestion that there was no agreement for the advance payment to be made on behalf of Mr Cheung. He stated that there was an oral agreement by YF to produce 10,000 door sets in return for an advance payment. He agreed that the 10,000 door sets were sent to Australia without the advance payment but he said that this was giving some time to the plaintiff to make the payment.
Mr Chun's attention was drawn to the two draft contracts annexed to his affidavit which refer to the parties as being YF and "Oohira Pty Ltd" not the plaintiff Oohira Hausys Pty Ltd (annexures to his first affidavit at pages 25 and 36). It is noted that the first draft was sent by Mr Yoo to Mr Chun on 1 July 2016 before the plaintiff was incorporated.
In answer to the suggestion that there was never an order for 10,000 doors placed at that time, Mr Chun denied that and said it was made pursuant to an oral agreement.
Mr Chun also agreed that there was no reference to anyone purchasing 10,000 door sets in any of the drafts attached to his affidavit. He said the agreement was made orally. He confirmed that he expected the plaintiff to pay immediately the sum of $1,300,000 for the 10,000 door sets as that was what they had agreed at the meeting in June 2016. He denied that he thought the order of the 10,000 door sets was unusual as Mr Cheung had said that he received orders for doors from customers and was paid in advance. Mr Chun accepted that there was no reference to the type of doors to be ordered in paragraph 10 of his first affidavit. He denied that the door sets which were sent to Australia by YF were old stock: T89.46. He also denied that Mr Cheung had complained that the doors sent to Australia did not match those in YF's catalogue.
Mr Chun was cross-examined in relation to the draft Consignment Management Agreement at page 72 of the annexures to his first affidavit. It was put to him that the wording of the agreement was inconsistent with the 10,000 doors being immediately purchased by the plaintiff particularly because of the suggestion in the agreement that OH had to manage the stock and was liable for any damage to it: see clauses 2.2 and 6.2. Mr Chun made the point that payment was agreed to be made in advance for the doors and OH did not pay for them even though they had agreed to do so. He also noted that OH was responsible for managing the showroom and managing the forklift and van which had been purchased to assist in storing the goods at the showroom: T100.27-.38.
Mr Chun was taken to paragraph 10 of his first affidavit where he asserted that Mr Cheong agreed to guarantee the sale of 300,000 door sets per year in New South Wales. He was then taken to the draft of the agreement at page 25 of the annexures to his affidavit and it was pointed out that there was nothing in the draft contract about an exclusive distributorship agreement.
Mr Chun said this was discussed later and at the request of Mr Cheong it was agreed to take the clause relating to an exclusive distributorship agreement out of the draft contract: . Mr Chun denied that it was a representative of YA who had requested the exclusive distributorship clause to be removed from the draft contract; see T107.13-.42.
It was put to Mr Chun that Mr Cheong did not say that he ordered 10,000 doors but only that he recommended that the second defendant store enough stock in the warehouse in Auburn for the purposes of sale. Mr Chun denied this and stated that Mr Cheong indicated to him that he had a pending offer to purchase a considerable number of doors. He said that if the 10,000 doors were supplied to him he would be able to sell them quickly: T108.1-.48.
It was put to Mr Chun that the doors that were sent by YF did not match the doors in the catalogue sent. Mr Chun denied this and said that the catalogue showed many models as well as the models for the 10,000 doors. Mr Chun gave evidence that Mr Cheong had specifically designated the model of door which he could sell immediately if the 10,000 doors were supplied.
It was put to Mr Chun that Mr Cheong never said that he could construct the show room for $150,000. Mr Chun denied this and said that Mr Cheong did say this: T109.37. In relation to the suggestion that as at the date of the 13 June 2016 meeting OH did not exist, Mr Chun said that Mr Cheong introduced his company name as Oohira: T109.43.
Mr Chun was taken by counsel for the plaintiff to the draft contract at page 54. He agreed that the agreement was between YA and OH to construct the showroom at the warehouse. He also agreed that he understood that the work was completed at the showroom as indicated. When asked to confirm that the work was completed by OH, Mr Chun said that it was completed, as he understood it, by "Oohira": T110.41. He clarified this by saying that at the beginning in the initial meeting he understood that Mr Cheong had a company named Oohira but that he later set up a company named Oohira Hausys Pty Ltd: T110.44. Mr Chun confirmed that to the best of his recollection a signed construction contract in the form of that appearing at page 54 of the annexures to his affidavit was returned to Mr Yoo of OH on 2 August 2016. The contract is in the form of Annexure 8 to his affidavit: T111.
Mr Chun accepted that $50,000 was forwarded to the plaintiff as requested in addition to the construction costs which was referred to in the request from OH as being for "incidental expenses" (see page 63 of the annexures to Mr Chun's first affidavit).
The plaintiff's case in relation to the relevant conversations in June and July 2016 was put to Mr Chun and he rejected Mr Cheong's versions. In particular, he rejected that Mr Cheong had requested more money than $200,000 to complete the construction work although he accepted there was some discussion about looking at any additional invoices which needed to be paid at the end of the project: T121.8-122.16. Some were paid: see paragraph 25 of his first affidavit.
In relation to the tax invoice on the heading of OH dated 18 October 2016 at page 22 of Exhibit 3, Mr Chun said that the defendants never received the document: T122.43.
Mr Chun denied that he placed pressure on Mr Cheong and/or OH to finish the interior construction work "as soon as possible". He also denied that Mr Cheong had complained to him that the doors were unsellable.
In relation to the assertion that the defendants locked Mr Cheong and OH out of the Auburn warehouse, Mr Chun denied that. He said that Mr Cheong and OH simply left the premises.
Mr Chun confirmed that there was various equipment of OH at the premises when it was in operation such as a refrigerator, desks, a sofa, printer, chairs and a television. He said that these items were left at the Auburn premises when OH left and they never came back to collect the goods. He denied that Mr Cheong and OH were not permitted to return to get their possessions.
In re-examination, Mr Chun denied that any of the goods set out in paragraph 9 of the Amended Statement of Claim were held by either of the defendants: T128.41.
Mr YB Chun appeared to me to be making every effort to give his evidence honestly and carefully. Although he gave his evidence with the assistance of an interpreter, he gave most of his evidence in English. He was cautious in his evidence and on occasions asked for the interpreter to have the question translated into Korean. He made concessions where appropriate including as to his recollection being limited on some points. Overall, I strongly formed the view that Mr Chun was an honest witness. In general terms, with one exception which I will discuss below, I accept his evidence.

Evidence of Mr Yong Jin Chun

The defendants read in the proceedings the affidavit of Mr Yong Jin Chun sworn 13 October 2017. Mr Chun is the President of the second defendant, YF. Mr YJ Chun referred to the first affidavit of his son, Mr YB Chun and affirmed the contents of the conversations at which he was present set out in paragraphs 9, 10 and 23 of the affidavit.
In relation to the first affidavit of Mr Cheong, Mr YJ Chun: 1. Denies that the meeting in June 2016 was on 18 June 2016 as alleged by Mr Cheong as he had left on 16 June 2016 by aeroplane from Australia; 2. Confirms that Mr Cheong in the June 2016 meeting requested an exclusive distributorship with his personal guarantee to sell at least 300,000 units of doors in New South Wales per year; 3. States that Mr Cheong indicated to him that he could build the warehouse instead of outsourcing the necessary construction works. Mr YB Chun denied that he requested Mr Cheong to keep the construction costs down and states that Mr Cheong proposed to him $150,000 as the costs to complete the construction works for the warehouse; 4. Denied that Mr Cheong made any complaints to him in relation to the wrong catalogue or products; 5. Denied that he ever requested Mr Cheong to leave the Auburn warehouse.
In cross-examination, Mr YJ Chun confirmed that he met with his son and Mr Cheong at a Japanese restaurant in June 2016. When asked how well he could recall the events at the meeting, Mr YJ Chun said that he could remember some parts of it. It was put to Mr YJ Chun that there was no discussion at the restaurant meeting where Mr Cheong said he could complete the interior construction work at a warehouse for $150,000. Mr YJ Chun rejected that and said that Mr Cheong said he could complete the interior work for a show room for that amount. He later clarified this to say that he could not really remember the exact amount which was mentioned at the meeting.
It was put to Mr YJ Chun that Mr Cheong said to him that he recommended the showroom have 10,000 doors on site because if doors were ordered they could be sold straightaway. Mr YJ Chun rejected this and said that Mr Cheong told him that he had a pending order for tens of thousands of doorsT131.30.
In answer to the suggestion that Mr Cheong did not guarantee to sell 300,000 doors per year, Mr YJ Chun said that Mr Cheong said that he could sell doors for the second defendant and had a pending order for hundreds of thousands of doors: T131.45.
It was suggested to Mr Chun that there was no discussion about Mr Cheong making an advance payment for the doors and Mr Chun denied that and said that Mr Cheong said that he could make an advance payment. It was suggested to Mr Chun that funds were requested by Mr Cheong for marketing. Mr YJ Chun said that he understood that this was agreed and that money was required for the purposes of promoting the products: T132.30.
Mr Chun denied that he ever talked to Mr Cheong over the telephone. He agreed that he came to Australia in October 2016 and visited the showroom. He denied that he had any conversations with Mr Cheong in which Mr Cheong stated that the door units did not match the catalogue or that it was impossible to sell the doors in Australia as they did not match the catalogue. Mr Chun said that according to his memory the catalogue was for future sales and had nothing to do with the order which had already been made: T134.31; T135.19. He denied that he said words to the effect to Mr Cheong to "try to sell the doors anyway": T135.47.
Mr Chun also denied that he told Mr Cheong to leave the premises as he was not needed anymore. In addition, Mr Chun denied that he told Mr Lee, an employee of the defendants, to tell Mr Chun to leave the premises.
Mr YJ Chun struck me as a truthful and careful witness. He appeared to be making every effort to give accurate evidence and made appropriate concessions in relation to his recollections.

The submissions of the parties

The parties relied on both written and oral submissions.

The plaintiff's submissions

The plaintiff's submissions, in summary, were as follows: 1. Mr Cheung's evidence should be generally preferred to that of Mr YB Chun and Mr YJ Chun; written submissions paragraph 19; 2. There was no dispute that the construction work was completed nor was there any dispute as to the quality of that work; 3. The construction agreement was entered into after the plaintiff came into existence. There was no dispute that the construction agreement was between the plaintiff and the defendants; 4. Paragraph 14 of Mr Cheung's first affidavit should be accepted; 5. Section 131 of the Corporations Act is not relevant to the plaintiff's claim as the relevant agreement was entered after 10 July 2016. See paragraph 14 of Mr Cheung's first affidavit; 6. Mr YB Chun conceded in his oral evidence that the defendants agreed to pay money over and above the $150,000 building costs: T121-2. In my view, the transcript evidence does not support that. It seems that Mr YB Chun said the defendants would consider that if invoices established additional costs: T122.4-.20. I took this to mean invoices from third parties. Some were paid - see paragraph 25 of Mr YB Chun's first affidavit; 7. Page 22 of Annexure B is an invoice which should be accepted on its face and justifies the plaintiff's claim: Written submissions paragraphs 22-27. Despite Mr Cheung's oral evidence on this point, it should be accepted as being from the plaintiff; 8. The plaintiff's claims in relation to tools, office furniture and other equipment should be accepted: written submissions paragraph 29; 9. The Cross-Claim should be dismissed. The alleged contract as to the supply of 300,000 doors per annum and 10,000 doors were pre-incorporation contracts and not binding on the plaintiff.

The defendants' submissions

The defendants' submissions, in summary, were as follows: 1. Mr Cheung should be rejected as a witness of truth. His evidence should not be accepted unless it is an admission against interest or corroborated by a witness for the defence; 2. Mr YB Chun's and Mr YJ Chun's evidence should be preferred; 3. The invoices relied upon by the plaintiff were fabricated including the invoices from Mr Park and Mr Yoo as were the two employment contracts annexed to Mr Cheung's first affidavit; 4. The invoice conceded to be from Oohira Interiors (Exhibit 3 page 22) to YA could not be relied upon by the plaintiff as being from it or as being reliable; 5. The claim for the goods should be rejected as the defendant does not have the goods; 6. Accordingly, the claims in the Statement of Claim should be dismissed; 7. As to the cross-claim, the parties' conduct established an agreement entered after the incorporation of the plaintiff on the oral terms concluded prior to incorporation.
Therefore, it is submitted that the Statement of Claim should be dismissed and the Cross-Claim found to be established, at least as far as the purchase of the 10,000 doors.

Factual findings

Having regard to all of the evidence and the submissions made by the parties, I make the following factual findings: 1. At all relevant times Mr Cheung ran a construction business in Sydney which included renovations and interior work. 2. The plaintiff Oohira Hausys Pty Ltd was registered as a corporation on 11 July 2016. The application for registration of it as a proprietary company was received by ASIC on 11 July 2016: Exhibit 1. 3. There is a substantial difference in the evidence of the witnesses in relation to what occurred at the various important meetings. As indicated above, Mr Cheung did not appear to me to be an impressive witness. In particular, as outlined above, much of his evidence in relation to the three invoices and the two employment contracts which were annexed to his first affidavit appeared to be highly questionable and I reject it. In relation to the first tax invoice from Mr Cheung addressed to the plaintiff, Mr Cheung gave evidence that this was for work which he was unable to complete due to him working on the renovation project for the warehouse. There is no claim by the plaintiff for loss of opportunity damages. Mr Cheung is not a party to the proceedings. There was no evidence of any agreement, in my opinion, involving either of the defendants in which they agreed to pay for the wages which Mr Cheung lost because he worked on the renovation to the warehouse. 4. In relation to the two invoices from Mr Yoo and Mr Park which are part of Annexure B to Mr Cheung's first affidavit, Mr Cheung's evidence did not establish that the work referred to in the invoices had anything to do with the construction work relating to the showroom and offices at the warehouse. I also note in relation to all three invoices that moneys are claimed for September and October 2016 (Mr Cheong said his invoice incorrectly stated September 2016 where second appearing) whereas the evidence from Mr Cheung was that the construction work was completed in August 2016. I find on the evidence that the construction work for the project was completed by Mr Cheung/OH by the end of August 2016. I do not accept these two invoices as accurate or relevant. 5. In relation to the two employment contracts for Mr Yoo and Mr Park, Mr Cheong gave evidence that both were signed on 1 June 2016 yet they refer to the Auburn address which was not selected until July 2016. I accordingly find that the contracts were not entered into on 1 June 2016 as Mr Cheong claims but on a much later date after at least 11 July 2016. They appear to have been created after the event. This impacts heavily upon Mr Cheung's credit; 6. Mr YB Chun and Mr YJ Chun appeared to me to be honest and careful witnesses. With one exception, I prefer their evidence as to the important oral conversations to that of Mr Cheung. Mr Cheung appeared to me to be an entirely unreliable witness and on several occasions indicated that his first affidavit was wrong. Having carefully considered the testimony of the three witnesses I generally accept Mr YB Chun's account of the discussions with Mr Cheung. 7. The exception where I do not accept the evidence of Messrs Chun is in relation to the alleged guarantee by Mr Cheung to order 300,000 door sets per year for New South Wales. I think this "guarantee" is highly unlikely to have been given. First, there is no reference to this promise in the draft contracts annexed to Mr YB Chun's affidavit. Secondly, at $130 per door that was a guarantee to purchase $3,900,000 worth of doors each year. There is nothing to suggest that Mr Cheung had the financial capacity or sales capacity in relation to that number of doors. Thirdly, there is no suggestion Mr Cheung had a track record of selling large numbers of doors. It may be that he indicated to the Chuns that he hoped to be able to sell that number of doors per year but in my view that is the extent of what may have been said. Fourthly, there is no documentary evidence supporting a guarantee of that magnitude. In particular, there is no evidence that Mr Cheung had in place agreements to on-sell the doors. Overall, such a promise would have been foolhardy in the extreme and I find it was not agreed at all let alone in the clear terms as alleged. I take this finding into account in considering the other evidence of the Messrs Chun. 8. However, with the exception of the 300,000 doors point, I do accept and find that there was an agreement made between YF (through Mr YB Chun) and Mr Cheung in the June 2016 meeting in the terms of Mr YB Chung's affidavit: 1. To guarantee to sell 10,000 door sets immediately if they are stocked in a warehouse in Australia. This is supported by YF subsequently forwarding 10,000 doors to Australia in August to September 2016. Whilst I take into account paragraph 30(g) of the plaintiff's written submissions, Mr Cheung appears to have believed that he could readily sell the doors in Australia; 2. To undertake the renovation costs at the warehouse for $150,000. I think it highly unlikely that any of the defendants would have agreed to a contract where the precise amount for which the second defendant was to be liable for the renovations was not agreed in advance; 3. To provide financial support for marketing for the sale of the YF doors in Australia in the sum of $50,000; 4. Although the initial contractual arrangements appear to have been between YF and Mr Cheung, it seems that later there was a confirmation of the agreement in relation to the construction work between YA and the plaintiff. This is confirmed in paragraph 17 of Mr YB Chun's affidavit and in the Interior Construction Contract which Mr YB Chun says was signed and returned to Mr Yoo. See Annexure 8 to Mr Chun first affidavit. Although this written contract was only signed by YA and was thus not binding it mainly reflected the oral agreement reached previously between Mr Cheung and YF. I accept the plaintiff's written submissions that the relevant contract was entered into after 11 July 2016 when the plaintiff was first registered: plaintiff's written submissions paragraphs 10 and 12-13. However, I accept the defendants' submissions that the contract sum for the construction was $150,000. Mr YB Chun's evidence at T121-2 does not, in my view, change this conclusion. A willingness to consider further invoiced sums is not inconsistent with an agreed price with the plaintiff of $150,000. I consider it very unlikely that the defendants would have agreed to pay the construction costs without stating a particular sum as the contract price. 1. I find that YF sent $150,000 to YA which was paid to Mr Cheung for the construction work on 7 July 2016 (as to $50,000) and 22 July 2016 (as to $100,000). I also find that YA forwarded $50,000 to an account in the name of OH for marketing purposes on 22 July 2016. 2. I accept the evidence of the witnesses for the defendants that the 10,000 doors were supplied by YF in Australia. This was not disputed by the plaintiff; 3. I reject the evidence of Mr Cheung that any issue was raised by him or OH in relation to the doors or complaint that they did not match the doors in the catalogue supplied. 4. I accept the evidence of the witnesses for the defendant that Mr Cheung and the other employees of his and/or the plaintiff left the premises and were not ordered to leave by representatives of the defendants. Mr Cheung's departure is consistent with OH being unable to pay for the doors; 5. I accept that the letter of demand dated 1 October 2016 was sent by YA to the registered office of OH and was likely received by it. A copy is at page 96 of the annexures to Mr YB Chun's first affidavit; 6. I also accept the evidence of the defendants that at no stage did Mr Cheung attempt to recover possessions of his that were at the Auburn premises. I accept Mr YB Chun's evidence in re-examination that neither of the defendants had any of the possessions referred to in paragraph 9 of the Amended Statement of Claim. In any case, the evidence of Mr Cheung in paragraphs 26-27 of his first affidavit provides no basis (other than his bare assertion) for his purported valuation of the items referred to of $25,000. I do not accept his evidence on this issue; 7. My preference for much of the evidence of Messrs Chun to that of Mr Cheung is partly based on my impression of them as witnesses. Their affidavits are also more supported by apparently contemporaneous documents. Mr Cheung struck me as a very unreliable witness for the reasons which I have set out in detail above, particularly in relation to the three employee invoices annexed to his affidavit.

The claim in the Amended Statement of Claim

As indicated, I generally prefer the evidence of the witnesses for the defendants to that of Mr Cheung, particularly in relation to the construction contract agreed.
I accept that in accordance with the agreement on the defendants' version, the defendants advanced $150,000 for the construction costs and $50,000 for the marketing costs. $150,000 of this was advanced to accounts in the name of Mr Cheung and $50,000 of it was advanced to an account in the name of the plaintiff. The first $50,000 for the construction costs was advanced before the plaintiff was incorporated.
Accordingly, in my view the defendants completed all of their financial obligations under the agreed construction contract entered into.
In the event I am wrong in relation to my conclusions as to the plaintiff's construction work claim, I would have rejected the following components of the plaintiff's claim: 1. The claim for Mr Cheung's lost wages in the sum of $43,800. There was no claim by the plaintiff or Mr Cheung for lost opportunity damages. There is no evidence that such sums were agreed to be paid by the defendants; 2. The two invoices from Mr Park and Mr Yoo each for $43,800. Mr Cheung's evidence confirmed that the claims did not relate to anything concerning the construction of the showroom and offices at the warehouse. I am also not satisfied the invoices were accurate; 3. The claim of $5,528 for "additional labour hire." This is not established on the evidence. I do not accept the bare assertion of this amount in paragraph 22 of Mr Cheung's first affidavit. No other evidence supporting this aspect of the claim was relied on; 4. Part of the claim for $14,350 for marketing costs. The invoices which are part of Exhibit 3 only add up to $12,243. Counsel for the plaintiff said the plaintiff's marketing costs claim was limited to these invoices; 5. The various items and tools referred to in paragraph 9 of the Amended Statement of Claim. I do not accept the claim in paragraph 9 of the Amended Statement of Claim that the defendant still holds the goods as set out. Nor do I accept that the evidence of Mr Cheung is sufficient to establish the value of the items referred to. All his evidence amounted to was an assertion of value which in my opinion is not sufficient to establish this loss; 6. The invoice at page 22 of Exhibit 3 was not from the plaintiff but from Oohira Interior. Whilst the evidence as to the invoice from Mr Cheung was not very satisfactory, there is no evidence justifying the components of the claimed amount.
Accordingly, the plaintiff's Amended Statement of Claim is dismissed.

The Cross-Claim

Section 131 of the Corporations Act 2001 (Cth) provides as follows: "131 Contracts before registration (1) If a person enters into, or purports to enter into, a contract on behalf of, or for the benefit of, a company before it is registered, the company becomes bound by the contract and entitled to its benefit if the company, or a company that is reasonably identifiable with it, is registered and ratifies the contract: (a) within the time agreed to by the parties to the contract; or (b) if there is no agreed time - within a reasonable time after the contract is entered into. (2) The person is liable to pay damages to each other party to the pre‑registration contract if the company is not registered, or the company is registered but does not ratify the contract or enter into a substitute for it: (a) within the time agreed to by the parties to the contract; or (b) if there is no agreed time - within a reasonable time after the contract is entered into. The amount that the person is liable to pay to a party is the amount the company would be liable to pay to the party if the company had ratified the contract and then did not perform it at all. (3) If proceedings are brought to recover damages under subsection (2) because the company is registered but does not ratify the pre‑registration contract or enter into a substitute for it, the court may do anything that it considers appropriate in the circumstances, including ordering the company to do 1 or more of the following: (a) pay all or part of the damages that the person is liable to pay; (b) transfer property that the company received because of the contract to a party to the contract; (c) pay an amount to a party to the contract. (4) If the company ratifies the pre - registration contract but fails to perform all or part of it, the court may order the person to pay all or part of the damages that the company is ordered to pay."
Section 133 of the Corporations Act provides as follows: "133 This Part replaces other rights and liabilities This Part replaces any rights or liabilities anyone would otherwise have on the pre - registration contract."
As stated above, the evidence establishes that the plaintiff was registered on 11 July 2016.
The Cross-Claim filed 22 May 2017 claims: 1. Damages for breach of a distribution agreement said to have been entered into between YF and the plaintiff on or about 8 June 2016 to purchase 10,000 door sets; 2. Damages for breach of the distribution agreement entered into on or about 8 June 2016 for the plaintiff to sell 300,000 door sets per annum in New South Wales; 3. Damages for breach of a management agreement to maintain the warehouse and equipment in accordance with that agreement; 4. Damages for breach of the agreement by abandoning the warehouse resulting in the defendants having lost the use and benefit of the fit out for which it paid $150,000.
I will consider each of these claims.
In relation to the claim by the defendants for damages for breach of the alleged agreement to sell 300,000 door sets per annum in New South Wales, I have indicated that I am of the view that a guarantee and agreement to sell such door sets was not entered into as the defendants allege. I refer to my analysis above. This claim was not pressed in final submissions.
In relation to the claim that a contract was entered into as part of the distribution agreement "on or about 8 June 2016" to purchase 10,000 door sets, it is clear that the evidence of the defendants' witnesses has the meeting occurring on or about 13 June 2016. I prefer this evidence to that of Mr Cheung as the evidence establishes that the Messrs Chun had already left Australia on 16 June 2015: see paragraph 10 of Mr YB Chun's second affidavit. I accept that evidence.
At that time, the plaintiff was not registered as a corporation. There is no indication in the evidence of the witnesses for the defendants that Mr Cheung entered into or purported to enter into a contract on behalf of or for the benefit of the plaintiff before it was registered. There is also no evidence that the plaintiff later ratified that agreement.
I also reject the defendants' written submissions that the oral contract in June 2016 was later adopted or confirmed by conduct by the plaintiff. The evidence is not sufficiently clear in my view to establish this. There was no evidence of a documentary order for the 10,000 doors or relevant shipping documents/invoices in the plaintiff's name.
Accordingly, in my opinion any contract was entered into with YF by Mr Cheung alone, not Mr Cheung for the benefit of the plaintiff before it was registered. It is also noted that the draft contracts at pages 25 and 36 are not in the name of the plaintiff but in the name of "Oohira Pty Ltd". Mr Cheung's evidence was that he had another "private company" with the name of Oohira Interiors.
I also note paragraph 27 of Mr YB Chun's first affidavit which suggests Mr Cheung not OH purchased the 10,000 doors.
For these reasons, I do not consider that there was any contract binding on the plaintiff to pay for the 10,000 doors ordered by Mr Cheung on or about 13 June 2016. It is also noted that the conversation between Mr Yoo and Mr YB Chun in relation to the confirmation of the order for 10,000 doors referred to in paragraph 12 of Mr YB Chun's first affidavit was said to be on 15 June 2016, again before the plaintiff was registered. There is no evidence that this was a pre-incorporation contract or that it was later ratified by OH. This claim in relation to the 10,000 doors is accordingly rejected. I accept the plaintiff's submissions in paragraph 30 (a) of the written submissions dated 14 November 2017.
The third claim of the defendants relates to a claim for damages for an alleged breach of the management agreement by not maintaining the warehouse or equipment in accordance with that agreement. The agreement alleged and relied upon is set out in paragraph 23 of the first affidavit of Mr YB Chun. In my view, assessing the matter objectively, there is no indication in this conversation that there was intended to be an immediately binding contract arising from the conversation.
In paragraphs [24]-[29] of Yangdo Pty Ltd v Equiti Group Pty Ltd [2017] NSWDC 277 I stated as follows: "[24] In Masters v Cameron (1954) 91 CLR 353, Dixon CJ, McTiernan and Kitto JJ stated as follows: Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three cases. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract. [25] In each of the first two cases referred to by the High Court, there is a binding contract. The third class is fundamentally different. There, the terms of agreement are not intended to have and therefore do not have any binding effect of their own. [26] Later cases have identified a fourth category of Masters v Cameron. However, it is clear that the categories identified in Masters v Cameron "are neither strict nor prescriptive". They are also not "exclusive nor necessarily exhaustive. Rather, they describe circumstances in which a finally binding contract may or may not have come into existence": Feldman v G&M Australia Ltd [2017] NSWCA 107 at [68] per Beazley P. [27] A useful summary of the various principles applicable to Masters v Cameron situations was set out by Beazley P in Feldman at [60]-[71]. [28] Beazley P also quoted the important passage of McHugh JA in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 where his Honour stated at 634-635 the following: … the decisive issue is always the intention of the parties which must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances. [29] That statement reflects the objective theory of contract which is the current law in Australia: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at [35]."
Accordingly, the third category of Masters v Cameron (1954) 91 CLR 353 is a situation in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.
The conversation in paragraph 23 of Mr YB Chun's first affidavit refers to Mr YB Chun saying at the end of the conversation, "Okay. I will draft a contract and send it to you soon". It is not in issue that no contract in the form of the Consignment Management Agreement which is Annexure 13 of Mr YB Chun's first affidavit was ever signed by the parties. The language in paragraph 23 does not suggest, in my opinion, an immediately binding contract but rather an informal arrangement until a formal contract was entered into.
Further, the terms of the alleged contract are vague and uncertain. What does "We will manage the show-room and the stocks" mean? What does "You shall maintain them at your cost" require? The discussions were clearly, in my view, intended to be non-binding and recorded formally in a written contract as the conversation suggests. Any damages for breach of the alleged contract have also not been established.
For these reasons I do not consider there was a breach by the plaintiff of any binding contract to maintain the warehouse and equipment as alleged in paragraph 16 of the Cross-Claim.
The final aspect of the Cross-Claim of the defendants is the assertion that as a consequence of the plaintiff's abandonment of the warehouse, the defendants have lost the use and benefit of the fit out for which it paid $150,000.
In my view this claim should be rejected.
First, the agreement relating to the distribution arrangements between the parties was, as I have indicated above, between Mr Cheung and YF not the plaintiff and YF.
Secondly, it is difficult to see how the defendants have lost the use and benefit of the fit out. YA still had the lease in its name for the warehouse and could have used it for the purposes of other business activities or could have sought to assign or sublease the warehouse with a payment from the new tenant for the amount paid.
Once the plaintiff left the premises, YA still had the benefit of the fit out in the premises for which it had a lease. That lease was for a term of three years commencing 15 August 2016 with an option to renew for a further period of three years. The defendants could have used the fit out in the premises to store the doors for other sales or marketing in Australia.
In addition, there is no evidence as to what happened to the 10,000 doors. See paragraph 30 (f) of the plaintiff's written submissions dated 14 November 2017. If none had been sold, as the evidence suggests, the warehouse as fitted out was needed by the defendants to store the doors until their disposal: see paragraphs 26-29 of Mr YB Chun's first affidavit. There is no evidence that title to the doors had been transferred to the plaintiff.
Accordingly, this aspect of the Cross-Claim should be rejected.
As each claim in the Cross-Claim has been rejected, the Cross-Claim should be dismissed.

Costs

As indicated above, in my view there should be judgment for the defendants on the Statement of Claim and judgment for the plaintiff on the Cross-Claim.
The issue therefore arises in relation to the proper order which should be made for costs in the proceedings.
In my view, by far the largest amount of time was spent on the plaintiff's claim in the Amended Statement of Claim. Most of the factual issues had to be traversed in relation to that claim. The claims in relation to the Cross-Claims were substantially within the conversations relied on by the plaintiff to establish its claim in the Amended Statement of Claim. Much of the cross-examination of the two Messrs Chun was linked to eroding their evidence concerning the claims of the plaintiff in the Amended Statement of Claim.
In exercising the discretion which I have as to costs, in my preliminary view a costs order that the plaintiff pay 75% of the costs of the defendants of the proceedings is appropriate.
I will hear from the parties in relation to the question of the final costs order which should be made in the proceedings.

Determination

For the reasons set out above, I make the following orders: 1. Judgment for the defendants in relation to the Amended Statement of Claim. The Amended Statement of Claim is dismissed; 2. Judgement for the plaintiff/cross-defendant in relation to the Cross-Claim. The Cross-Claim is dismissed; 3. Liberty to the parties to apply in relation to the question of costs. 4. Exhibits to be returned after 28 days.

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: 18 December 2017

Oohira Hausys Pty Ltd v Yerim Australia Pty Ltd

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