Federal Court of Australia Auken Animal Husbandry Pty Ltd v 3rd Solution Investment Pty Ltd (Supplementary reasons) [2022] FCA 583 File number: NSD 2412 of 2018 Judgment of: STEWART J Date of judgment: 19 May 2022 Catchwords: CONSUMER LAW – alleged misleading and deceptive conduct resulting in conclusion of improvident agricultural lease – supplementary reasons as to whether case on "usual terms representation" made out – whether pleaded statements made – whether statements give rise to the pleaded representation – whether representation caused entry into the impugned contract Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 22 Date of hearing: 12-28 October 2020, 29 March 2022 and 7 April 2022 Counsel for the Applicant M R Pesman SC and N E Furlan Solicitor for the Applicant Baker McKenzie Counsel for the Respondent M Ashurst SC, G Farland and M Keene Solicitor for the Respondent HWL Ebsworth ORDERS NSD 2412 of 2018 BETWEEN: AUKEN ANIMAL HUSBANDRY PTY LTD (ACN 611 163 690) Applicant AND: 3RD SOLUTION INVESTMENT PTY LTD (ACN 610 060 172) First Respondent CAREY LEE Second Respondent AND BETWEEN: 3RD SOLUTION INVESTMENT PTY LTD (ACN 610 060 172) Cross-Claimant AND: AUKEN ANIMAL HUSBANDRY PTY LTD (ACN 611 163 690) Cross-Respondent order made by: STEWART J DATE OF ORDER: 19 MAY 2022 THE COURT ORDERS THAT: 1. Within 14 days of these orders, the parties provide by email to the Associate of Stewart J agreed or competing orders for the disposition of the matter including as to costs. 2. In the event of competing orders, the parties also provide short written submissions in support of their respective positions and which identify any outstanding matters to be dealt with. 3. The making of final orders be dealt with on the papers unless either party seeks an oral hearing, in which event that is to be communicated in the email referred to in order 1. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. SUPPLEMENTARY REASONS FOR JUDGMENT STEWART J: 1 On 29 March 2022, I ordered that within 14 days the parties bring in agreed or competing orders for the disposition of this proceeding in accordance with my reasons for judgment published on that day. In the reasons for judgment (R) (at R[281]) I explained that that order was partly against the possibility that there are issues that I had overlooked dealing with in my reasons for judgment and that accordingly remain to be dealt with. 2 The solicitors for Auken responded by pointing out that I was in error in my reasons for judgment (at R[10]) where I said that Auken had advised the Court by email on 23 December 2020 that it did not press the pleaded misrepresentation that various terms of the proposed lease were standard for agricultural leases – what Auken refers to as the "usual terms representation". Just how the error occurred is not of particular moment, save that I accept that it is principally my error. In brief, what had occurred was that in closing written submissions Auken had said in para 13(f) in relation to the misrepresentation in question that it "accepts that this is insufficient of itself to found relief". In its email of 23 December 2020, after dealing with many other things, it stated that "the last sentence of the Applicant's Outline of Closing Submissions para 13f (in relation to the Usual Terms Representation) was included in that document inadvertently, and will be omitted from its revised written closing submission." I misread that as saying that para 13(f), and hence the usual terms representation, had been included in error and that it was intended to be omitted. On that basis, I had understood that that misrepresentation was not pressed. 3 Given the error, it is now necessary to address the misrepresentation in question. The parties are agreed that I can and should do so. In doing so I adopt the abbreviations in my earlier reasons for judgment. The usual terms representation 4 Auken pleaded that a number of matters gave rise to a representation by Mr Lee and 3SI to Auken that the terms of the cooperation agreement and the lease as to (1) a lease term of 30 years, (2) a security deposit of 30 months and (3) a price escalation of 3% plus CPI were standard for Australian agricultural leases. These matters were: [ASOC para 38C] (1) The statements by Mr Lee during the December 2015 investigation trip that paying three years' rent in advance on farm rental, paying five years' deposit on farm rental and increasing rental by 3% per annum over CPI were all common practice in Australia; and (2) The statements by Mr Lee to Mr Xia and/or Hong Wang between 1 January 2016 and 18 March 2016 that a lease period of 30 years and a security deposit of 30 months' rent was ordinary commercial practice and behaviour in Australia and that a rental increase of 3% over CPI was Australian practice and could not be negotiated. 5 It is immediately apparent that the component of this misrepresentation as to an annual rental increase of 3% over CPI being standard for Australian agricultural leases is a duplication of one component of the fair/market rental terms representation as dealt with in section D.4 (at R[246]-[279]) of my earlier reasons for judgment. There, the pleaded representation was that the increase was "normal market escalation". There were no submissions made as to any difference in the meaning or effect of that phrase and "standard for Australian agricultural leases" in relation to the increase of 3% over CPI. On that basis I do not understand Auken to draw any distinction between them. 6 In particular, the following paragraphs of my previous reasons explain why Auken's case in reliance on Mr Lee having represented that an annual rental increase of 3% over CPI was normal market escalation, or standard for Australian agricultural leases, fails: R[260], [261], [267], [271] and [277]. 7 In its closing submissions, Auken identifies what it says is the evidence supporting findings that Mr Lee made six identifiable statements which in turn justify a finding that he and 3SI made the usual terms representation. It is convenient to deal with the statements in two groups of three. 8 The first three statements are those identified in [4(1)] above, namely that the following terms are all common practice in the Australian market: (1) paying three years' rent in advance on farm rental; (2) paying five years' deposit on farm rental; and (3) increasing rental by 3% per annum over the CPI. 9 That part of Mr Xia's evidence which Auken relies on in establishing these statements as having been made by Mr Lee is referred to at R[95]. For present purposes, it is worth setting out the evidence: [T62:1-19] THE INTERPRETER: During the discussion I asked Mr Lee that if we rent the ranch, how much would that be. Mr Lee told us for the renting – for this rent it's $18 per mǔ, but also told us, too, some conditions. First of all, if we can pay five years rent as a deposit, and also we can pay the three years rent and we can have a 15 per cent discount. And if we can't pay the deposit equivalent to three years rent and we pay two years rent, we can have five per cent discount. And also the rent will be increased at three per cent plus CPI every year. And on the next day, 23rd, while we were on the way to visit Yang Fei's farm, he sent us a WeChat message saying the price – the rent price will be $109.26 per acre. MR PESMAN: And can you remember anything else he said in that conversation? THE INTERPRETER: You mean later, yes? MR PESMAN: No, in that conversation at the hotel. Can he remember anything else he said? THE INTERPRETER: And also Mr Lee said these rental terms are all the common practice in Australian market. 10 The fourth to sixth statements are those identified in [4(2)] above, namely that: (4) a lease period of 30 years of the Kia Ora farm was normal commercial practice and behaviour in Australia; (5) a security deposit of 30 months' rent for the Kia Ora farm was ordinary commercial practice and behaviour in Australia; and (6) rental increases of 3% over CPI each year was the Australian practice and could not be negotiated. 11 The evidence relied on by Auken is the following passage from the examination in chief of Mr Xia with reference to negotiations between Mr Xia and Mr Lee in March 2016: [T95:29-41] MR PESMAN: ... What can you recall of those negotiations in March 2016? THE INTERPRETER: We discussed three aspects. First of all, the rental terms. We said for the 30 years period – in China we don't have such long rental terms, but Mr Lee said it's common practice in Australia. And the second issue is a deposit. I said in China normally we would pay 12 months deposit, but he asked for 30 months rent as a deposit. It's very long for us; can you just reduce it to 12 months, but Mr Lee also said it's a common practice in Australia. And the third issue is about the CPI asset in China. Normally we don't do the CPI plus another three per cent, and Mr Lee said you cannot bargain with me. 12 Auken also relies on the following passage from the examination in chief of Mr Yang which is with reference to discussions between Mr Yang and Mr Lee in Yinchuan in January 2016: [T254:3-13] MR PESMAN: Can you remember anything about those discussions? … THE INTERPRETER: Yes, we mainly discussed about the rent issue deposit and the payment method. Mr Lee said the rent and deposit, these are all common practice in Australia so, from where I stand – from my understanding, what he meant was these are not negotiable. And also, we talked about the rent increase each year, 3 per cent plus CPI and also, we talked about the rental terms which is 30 years, and we need to pay 13 [scil. 30] months deposit. Also, Mr Lee said these are all common practice in Australia, so these actually are not negotiable and cannot be changed. 13 Mr Lee denied saying that each of the terms in relation to the deposit, CPI and the length of the lease were common practice in Australia. [T397:24-28] 14 In support of the usual terms representation, Auken also identifies a number of documents that record the proposed lease terms at different points including the terms said to form part of the representation. However, those documents do not record anything as having been said by Mr Lee as to those terms being standard for Australian agricultural leases, or words to similar effect. Since the issue in dispute in relation to the representation is not that the terms in question were proposed or said to be required by Mr Lee at different points, but whether he said that they were standard for Australian agricultural leases, or words to similar effect, the documents identified by Auken take the point nowhere. In fact, the recordal in the board meeting proposal (referred to at R[136]) that "The ranch owner is willing to lease the ranch for 30-50 years" is more consistent with Mr Lee's version that he was saying what he wanted and not what was standard or common. [CB56/911] 15 Auken draws attention to the reference in the feasibility report commissioned by Ningxia (referred to at R[125]) to "Leasing standard" in relation to basic terms of the proposed lease, and seeks to draw from that some support for the proposition that Mr Lee told Ningxia that his proposed terms were standard for Australian agricultural leases. However, as explained at R[267], that reference does not convey the pleaded representation. The relevant extract from the report is in a section headed "Summary of Project" and identifies that the project in question is "Renting an existing ranch of 90,000 mu in New South Wales, Australia", i.e., the Kia Ora farms. It then states the following: [CB44.1/762] Term of lease: 30 years Leasing standard: Calculated by the following: 1. The amount of 5 security deposit and 3 rent (equivalent to 71.91 yuan per mu) plus (CPI2+3%) [scil. CPI+3%?]; 2. The amount of 3 security deposit 3 and 2 rent (equivalent to 80.37 yuan per mu) plus (CPI2+3%) [scil. CPI+3%?]. 16 It is difficult to make sense of that paragraph. Perhaps there is an error in the translation. However, with reference to calculations titled "Method 1" and "Method 2" later in the report it is apparent that two different scenarios are compared, one of which is "Paying 5 Security Deposit and 3 Rent" and the other is "Paying 3 Security Deposit and 2 Rent". [CB44.1/776-7] It would appear that the first is a scenario where a security deposit of five years' rent is paid and three years' rent is paid in advance, and the other is that a security deposit of three years' rent is paid and two years' rent is paid in advance, although the annual increases are reflected as the same in both scenarios so it is hard to imagine why the more onerous first scenario would even be considered. However, the very substantial difference between the two scenarios erodes any suggestion that they might have been understood to be common or standard for agricultural leases in Australia, even if the two scenarios had been proposed by Mr Lee. It is apparent that the phraseology of "Leasing standard" in the report conveys that those are the two scenarios that are compared, and not that they were understood to be "standard" for Australian agricultural leases – "standard" in the sense of the level, criterion or numerical quantity to be applied. 17 On the point of the two scenarios being very different, it is to be observed that although the usual terms representation is said to include a term of a security deposit of 30 months (i.e., two and a half years) as being standard, the statements said to give rise to that representation are that a security deposit of five years' rent ([4(1)] above) and 30 months' rent ([4(2)] above) are common practice. So, which is it? The one is half the other, so even if "standard" is taken to convey a range, as opposed to a definite point within a possible range, it is hard to see how they can both be standard for Australian agricultural leases. That the statements are too varied as to be able to give rise to the pleaded specific representation therefore supports Mr Lee's version that what he was conveying was what he wanted at different points during the negotiations rather than anything normative about Australian agricultural leases. 18 To muddy the waters further, the cooperation agreement provided for a security deposit of, in effect, three and a half years' rental (30 months plus one year, see R [155(4)]), yet the lease ultimately provided for 30 months. Those variations suggest that Auken could not have thought or believed that 30 months was the standard. 19 The absence of any suggestion in any of the documentation, and in particular in any of the reports following the inspection visits and the documents forming part of Ningxia's decision-making process, tells against Auken's case that Mr Lee said that the terms in question were standard for Australian leases (see R[224]). If he did say that, the absence of any suggestion of it in the documentation referred to suggests that it was unimportant to Auken and Ningxia and had no material impact on their decision to enter into the impugned lease (see R[277]). 20 Further, because of my rejection of the "Ningxia incapacity representation" in my earlier reasons, serious doubt is cast on the reliability of Ningxia's employee witnesses, including Mr Xia and Mr Yang (see R[230]). In those circumstances, and in the absence of any corroboration in the documents, I do not accept Mr Xia and Mr Yang's evidence that Mr Lee made the statements attributed to him. 21 For those reasons, Auken's usual terms representation case also fails. Disposition 22 Having now dealt with the claim that I previously omitted to deal with, the parties should bring in short minutes of orders, agreed or competing, that dispose of the matters in accordance with these and my previous reasons. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart. Associate: Dated: 19 May 2022