New South Wales Supreme Court CITATION : Guang Dong Zhi Gao Australia Pty Limited v Fortuna Network Pty Limited [2009] NSWSC 1170 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 12/10/09 - 16/10/09, 19/10/09 - 21/10/09, 26/10/09 - 27/10/09 JUDGMENT DATE : 4 November 2009 JURISDICTION : Equity Division Commercial List JUDGMENT OF : Einstein J DECISION : Parties held to have entered into a contract on the terms provided for by the Deed. CATCHWORDS : Contract - Deeds - Whether deed only in writing or alternatively only partly in writing - Mode of execution of document purporting to be a deed - Whether or not document invalid for formal reasons - Plaintiffs alternative case that by one of a number of routes that which purported to be signed as deed of release could simply be treated as a binding and enforceable agreement - Estoppel - Holding out-Masters and Cameron - Whether defendant entitled to have deed set aside or varied pursuant to section 87 Trade Practices Act - Principles informing decision as to whether or not an agreement that parties have entered into is wholly in writing or partly in writing and partly oral Corporation Act 2001 (Cwlth) Conveyancing Act 1919 (NSW) LEGISLATION CITED : Evidence Act 1995 (Cwlth) Sale of Goods (Vienna Convention) Act 1986 No. 119 Trade Practices Act 1974 (Cwlth) CATEGORY : Principal judgment Amalgamated Property Company v Texas Bank [1982] QB 84 Australian Medic-Care Company Ltd v Hamilton Pharmaceutical Pty Limited [2009] FCA 1220 Bank of Australasia v Palmer [1897] AC 540); Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 Bolckow v Seymour (1864) 17 CB NS 107; 144 ER 43; 142 RR 272 Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424 (FC) Carmichael v National Power Plc [1999] 1 WLR 2042; [1999] 4 All ER 897 (UKHL) County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Company Pty Ltd (1975) 133 CLR 72 Deane v The City Bank of Sydney (1904) 2 CLR 198 Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 Finucane v NSW Egg Corporation (1988) 80 ALR 486 (FCA) Freeman & Lockyer (a firm) v Buckhurst Park Properties ( Mangal) Ltd & Anor [1964] 2 QB 480 Gardiner v Grigg (1938) 38 SR (NSW) 524 Gillespie Brothers & Co v Cheney, Eggar & Co [1896] 2 QB 59 Gordon v Macgregor (1909) 8 CLR 316 Handbury v Nolan (1977) 13 ALR 339 (HCA) Health Outdoor at 191D-F Helmos Enterprises Pty Limited v Jaylor Pty Limited [2005] NSWCA 235 CASES CITED : Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348 Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133 J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 WLR 1078; [1976] 2 All ER 930 Jessop v McInteer [2003] QCA 170 (FC) Liverpool City Council v Irwin [1977] AC 239 Maggs v Marsh [2006] EWCA Civ 1058; [2006] BLR 395 Masterton Homes PTY LTD v Palm Assets Pty Ltd [2009] NSWCA 234 Maybury v Atlantic Union Oil Co Ltd (1953) 89 CLR 507 Moore v Garwood (1849) 4 Exch 681 at 689-90; 154 ER 1388 Nicolazzo v Harb [2009] VSCA 79 Nicom Interiors Pty Ltd v Circuit Finance Pty Ltd (2004) 50 ACSR 25 Norwest Beef Industries Ltd v Peninsular and Oriental Steam Navigation Co (1987) 8 NSWLR 568 NSW Cancer Council v Sarfaty (1992) 28 NSWLR 68 Palmer v Bank of Australasia (1895) 16 NSWLR (L) 219 Prime Constructions v West Bridge Investments [2004] NSWSC 861 Saad v TWT Ltd [1998] NSWCA 199 State Rail Authority (NSW) v Health Outdoor Pty Ltd (1986) 7 NSWLR 170 Stones v Dowler (1860) 29 LJ Ex 122 Torbett v Faulkner [1952] 2 TLR 659 (EWCA) Turner v Forwood [1951] 1 All ER 746 (EWCA) Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 TEXTS CITED : Handley - Estoppel by Conduct and Election, Sweet and Maxwell 2006, The Interpretation of Contracts, 4th ed (2007) Sweet & Maxwell PARTIES : Guang Dong Zhi Gao Australia Pty Limited (Plaintiff) Fortuna Network Pty Limited (Defendant) FILE NUMBER(S) : SC 50185/06 COUNSEL : Mr F Santisi (Plaintiff) Mr J Levingston (Defendant) SOLICITORS : Lawside Lawyers (Plaintiff) Alexander Lee & Associates (Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Einstein J Wednesday 4 November 2009 50185/06 Guang Dong Zhi Gao Australia Pty Limited v Fortuna Network Pty Limited JUDGMENT The proceedings 1 These proceedings concern the contractual dealings between two groups of companies: i. the plaintiff Australian company Guang Dong Zhi Gao Australia Pty Ltd [GDA]; ii. its related company incorporated in China , Guangdong Chigo Air-conditioning Co. Ltd[GCAC]; iii. the defendant Australian company , Fortuna Networks Pty Ltd[Fortuna]. 2 GDA was the Australian agent for GCAC. 3 Fortuna was the owner of the registered trademark 'Blueway' which it used to sell a range of goods, including air-conditioners. It had been importing and selling air-conditioners from other manufacturers and had established markets in Australia. The extent of pleadings 4 The parties have managed to produce a very extensive suite of pleadings. The critical issues 5 The material relationship between the parties was short lived. In essence the whole of the issues fall into the period commencing in August 2005 and terminating in September/October 2006. However during that period the parties entered into a series of agreements which require close attention. This is particularly because the suite of agreements are said by the plaintiff to have terminated with a deed of release. It is that deed of release which forms the fulcrum of an extremely important issue: namely whether or not the deed was valid. That issue includes questions as to: i. whether or not the deed was wholly in writing or alternatively only partly in writing; ii. the mode of execution of the document and whether or not it is invalid for formal reasons; iii. Masters and Cameron issues. 6 The pleadings and the arguments were wide enough to embrace: i. the plaintiff's claim that the deed of release was valid and enforceable; ii. the plaintiff's alternative case that by one of a number of routes, that which purported to be signed as the deed of release could simply be treated as a binding and enforceable agreement: (a) this can be seen in a number of places where the pleading refers to the third agreement as binding and enforceable: see for example paragraph 18 of the Commercial List Statement filed on 13th February 2007 (b) the same somewhat ambulatory approach may be discerned in paragraph 24 of the Commercial List Statement filed on 13th February 2007, where the plaintiff relies upon section 127 of the Corporation Act 2001 and the judicial construction of that provision as to the validity of the third agreement and its enforceability, despite execution without witness; indeed in its final submissions the defendant acknowledged that section 127 of the Corporation Act 2001 does not limit the ways in which a company may execute a document, adding: "so there may be other valid manners of execution, eg by reference by reference to the company Constitution or by estoppel." iii. close to the commencement of the final oral address the defendant's counsel accepted that he had always understood there to be being litigated, an issue of estoppel raised against the defendant [that is to say an estoppel preventing the defendant from denying that the so-called deed of release could be enforced] [T 629-630]. 7 In any event the defendant's pleaded case includes the contention that if, which it denies, it executed the deed of release, it is entitled to have that deed set aside or varied pursuant to section 87 of the Trade Practices Act (Cwlth). 8 Another part of the pleaded issues concerns Fortuna's claim that without its consent and in breach of the contractual arrangements, GDA imported a large number of GCAC air-conditioners with the Blueway trademark into Australia, this also being claimed as a breach of the Blueway Trademark. It is to be recalled that the Convention on the International Sale of Goods (CISG) governs the international trade agreement and disputes. 9 Each party claims damages for alleged breaches by the other of the terms of the contractual arrangements. Separate question order 10 During the hearing the Court ordered that the issue of liability be first determined. 11 The disputes which appear to have led to the current extremely hotly contested proceedings at least in part concerned the plaintiff's contention that Fortuna failed to account to it for a relevant sales and also concerns the refusal of Fortuna to release particular units. 12 Before travelling further it is appropriate to examine some of the parameters which underpinned the proper approach especially to the decision as to the so-called deed of release. I proceed accordingly. The principles informing the decision as to whether or not an agreement that parties have entered into is wholly in writing or partly in writing and partly oral 13 In Masterton Homes PTY LTD v Palm Assets Pty Ltd [2009] NSWCA 234 Campbell JA [with as reasons Allsop P and Baston JA agreed] at 90 observed as follows in relation to these principles: (1) When there is a document that on its face appears to be a complete contract, that provides an evidentiary basis for inferring that the document contains the whole of the express contractual terms that bind the parties: Gillespie Brothers & Co v Cheney, Eggar & Co [1896] 2 QB 59 at 62 per Lord Russell of Killowen CJ; Gordon v Macgregor (1909) 8 CLR 316 at 319-20 per Griffith CJ (with whom O'Connor J agreed), at 322-3 per Isaacs J; Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133 at 143-4 per Isaacs J (with whom Rich J agreed); Maybury v Atlantic Union Oil Co Ltd (1953) 89 CLR 507 at 517 per Dixon CJ, Fullagar and Taylor JJ; State Rail Authority (NSW) v Health Outdoor Pty Ltd (1986) 7 NSWLR 170 at 191G-2C per McHugh JA (with whom Kirby P at 172G-3C and Glass JA at 180G agreed on this point); Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424 (FC) at 505-6 [280]-[281], 509 [293] per Allsop J (with whom Drummond and Mansfield JJ agreed); Jessop v McInteer [2003] QCA 170 (FC) at [53] per Muir J (with whom Fryberg J agreed). (2) It is open to a party to prove that, even though there is a document that on its face appears to be a complete contract, the parties have agreed orally on terms additional to those contained in the writing: Gillespie Brothers at 62 per Lord Russell of Killowen CJ; Gordon v Macgregor at 319-20 per Griffith CJ, at 323 per Isaacs J; Hoyt's v Spencer at 143-4 per Isaacs J; Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348 at 357 per Latham CJ; Maybury v Atlantic Union Oil at 517 per Dixon CJ, Fullagar and Taylor JJ; Health Outdoor at 191D-F per McHugh JA; Carmichael v National Power Plc [1999] 1 WLR 2042; [1999] 4 All ER 897 (UKHL) at WLR 2047B-D, F-H; All ER 901e-g, 901j-2b per Lord Irvine of Lairg LC (with whom Lords Goff of Chieveley, Jauncey of Tullichettle and Browne-Wilkinson agreed), at WLR 2049C-D, 2050B-D; All ER 903e-g, 904e-h per Lord Hoffmann (with whom Lords Goff of Chieveley and Jauncey of Tullichettle agreed); Saad v TWT Ltd [1998] NSWCA 199 at 6 per Handley JA (with whom Priestley and Powell JJA agreed); Jessop v McInteer at [51] per Muir J; Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 at 483-4 [35]-[36] per Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ. Conversely, it is open to a party to prove that the parties have orally agreed that a document should contain the whole of the terms agreed between them: NSW Cancer Council v Sarfaty (1992) 28 NSWLR 68 at 77A-B per Gleeson CJ and Handley JA. (3) The parol evidence rule applies only to contracts that are wholly in writing, and thus has no scope to operate until it has first been ascertained that the contract is wholly in writing: Turner v Forwood [1951] 1 All ER 746 (EWCA) at 749F per Denning LJ; Heath Outdoor at 191E, 192A-C per McHugh JA; Norwest Beef Industries Ltd v Peninsular and Oriental Steam Navigation Co (1987) 8 NSWLR 568 at 570B-C per Hope JA (with whom Samuels JA agreed); NSW Cancer Council v Sarfaty at 76G per Gleeson CJ and Handley JA; Branir v Owston Nominees at 508 [287] per Allsop J; County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [8] per Spigelman CJ; Nicolazzo v Harb [2009] VSCA 79 at [90] per Dodds-Streeton JA (with whom Ashley and Neave JJA agreed). (4) Where a contract is partly written and partly oral, the terms of the contract are to be ascertained from the whole of the circumstances as a matter of fact: Moore v Garwood (1849) 4 Exch 681 at 689-90; 154 ER 1388 at 1391-2; 80 RR 738 at 745-6 per Patteson J delivering the judgment of the Court of Exchequer Chamber; Stones v Dowler (1860) 29 LJ Ex 122 at 124; 121 RR 882 at 884 per Martin B; Bolckow v Seymour (1864) 17 CB NS 107; 144 ER 43; 142 RR 272 at CB NS 121-2; ER 49; RR 282 per Byles J, at CB NS 122; ER 49; RR 282 per Keating J; Palmer v Bank of Australasia (1895) 16 NSWLR (L) 219 at 223-4 per Darley CJ, Windeyer and Cohen JJ (affirmed on a different ground on appeal to the Privy Council in Bank of Australasia v Palmer [1897] AC 540); Deane v The City Bank of Sydney (1904) 2 CLR 198 at 209 per Griffith CJ, Barton and O'Connor JJ; J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 WLR 1078 at 1083E-F; [1976] 2 All ER 930 at 935a-b (EWCA) per Roskill LJ; Handbury v Nolan (1977) 13 ALR 339 (HCA) at 341 per Barwick CJ, 348-9 per Jacobs J, (Aickin J agreed with both Barwick CJ and Jacobs J), at 346 per Stephen J (but dissenting as to whether the evidence established a partly written and partly oral agreement), (Gibbs J agreed with Stephen J); Finucane v NSW Egg Corporation (1988) 80 ALR 486 (FCA) at 520-1 per Lockhart J; Carmichael v National Power at WLR 2049C-50E; All ER 903f-4h per Lord Hoffmann; Lewison, The Interpretation of Contracts , 4 th ed (2007) Sweet & Maxwell at [4.02] and cases there cited. Similarly, finding the terms of a wholly oral contract is a question of fact: Gardiner v Grigg (1938) 38 SR (NSW) 524 at 532 per Jordan CJ (with whom Nicholas J agreed); Torbett v Faulkner [1952] 2 TLR 659 (EWCA) at 661 per Romer LJ; Handbury v Nolan at 346 per Stephen J (with whom Gibbs J agreed); Maggs v Marsh [2006] EWCA Civ 1058; [2006] BLR 395 at [26] per Smith LJ (with whom Moses and Hallett LJJ agreed). (5) In determining what are the terms of a contract that is partly written and partly oral, surrounding circumstances may be used as an aid to finding what the terms of the contract are: Stones v Dowler at LJ Ex 124; RR 884 per Martin B; Deane v The City Bank of Sydney at 209 per Griffith CJ, Barton and O'Connor JJ; Handbury v Nolan at 341-2 per Barwick CJ, at 346 per Stephen J, at 348-9 per Jacobs J; Liverpool City Council v Irwin [1977] AC 239 at 253C-E per Lord Wilberforce. If it is possible to make a finding about what were the words the parties said to each other, the meaning of those words is ascertained in the light of the surrounding circumstances: Deane v The City Bank of Sydney at 209; Handbury v Nolan at 341-2, 346, 348-9. If it is not possible to make a finding about the particular words that were used (as sometimes happens when a contract is partly written, partly oral and partly inferred from conduct) the surrounding circumstances can be looked at to find what in substance the parties agreed: County Securities v Challenger Group Holdings at [7]-[8] per Spigelman CJ. (6) A quite separate type of contractual arrangement to a contract that is partly written and partly oral is where there is a contract wholly in writing and an oral collateral contract: J Evans & Son v Anthony Merzario at WLR 1083C-E; All ER 934h-5a per Roskill LJ, at WLR 1084H; All ER 936c per Geoffrey Lane LJ; Hoyt's v Spencer at 144-5 per Isaacs J; Equuscorp v Glengallan Investments at 484 [36] per Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ. cf: Australian Medic-Care Company Ltd v Hamilton Pharmaceutical Pty Limited [2009] FCA 1220 at [115] et seq per Finn J. Masters v Cameron - the principles 14 In Masters v Cameron (1954) 91 CLR 353 Dixon CJ, McTiernan and Kitto JJ set out the following three classes: Class 1 Where the parties have reached finality in regard to all aspects of their agreement, but propose to have the terms restated in a formal document; Class 2 Where the parties have reached finality in regard to all aspects of their agreement and intend no departure from this agreement, however have agreed that the performance of one or more of the terms is conditional upon the execution of a formal document; Class 3 Where the parties intend that they will not legally bind themselves to an agreement unless a formal document is executed. 15 The joint judgment in Masters v Cameron made the point [at 360] that in each of the first and second classes there is a binding contract: i. in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; ii. in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. The fourth class 16 McLelland J, in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 decided that "there is in reality a fourth class additional to the three mentioned in Masters v Cameron". This fourth class was where the parties have reached agreement to be bound immediately and exclusively by certain terms, however they envisage the making of a further contract which will replace the first, this latter contract containing, by consent, additional terms. This decision was recently affirmed by Young CJ in Eq in Helmos Enterprises Pty Limited v Jaylor Pty Limited [2005] NSWCA 235 at [69] but has been approved on many earlier occasions. Factual findings 17 The convenient approach is to first outline factual findings. An important integer in this approach will include identifying the relevant contractual provisions. Early 2005 18 In early 2005, GDA approached Fortuna with a request that GCAC supply air-conditioners to Fortuna for sales in the Australian market under the Blueway trademark. In the course of negotiations, Fortuna expressly told GDA/ GCAC to use a soft starter which complied with an Australian standard, and provided a sample. The agreement(s) of 13 August 2005 19 On 13 August 2005 Fortuna, GCAC and GDA signed the first of the series of agreements : a written supply agreement effective for one year, which provided in a recital that GCAC would manufacture air-conditioners using Fortuna's trade mark, to be sold to GDA and Fortuna to do the marketing in Australia. [There were in fact two separate but related parts to the first agreement i. the first dealing with a number of obligations of the parties and the like and the second dealing with described as Payment Method Agreement and dealing with payment method matters; ii. the payment Method Agreement only had as its parties, GDA and Fortuna as well as a Mr Chein Hsuan Lee (aka Mito) who was a director and 50% shareholder of Fortuna]. 20 GCAC was described as the first party; GDA was described as the second party; Fortuna was described as the third party. [To ensure a more user-friendly approach, I intend to use the abbreviated names of these parties rather than the continued reference to the first second or third parties]. 21 The first of the two agreements commenced as follows: After mutual and fair negotiations, all parties agree that GCAC shall manufacture any conditions[sic] by using Fortuna's Brand and that such air-conditioned units shall be sold to GDA and Fortune shall be in charge of the marketing and selling of the said area-condition units in the designated area. 22 Articles 1-12 were in the following terms: Article 1 – Product and Brand Air-conditions with brand "BLUEWAY" or any other brand or trademark. Article 2 – Designated Area Limited to Australia only. Article 3 – Obligations and Rights of the parties Obligations and Rights of GCAC Clause 1. GCAC shall manufacture the air-condition units within the timeframe and according to the quality and quantity as specified by GCA in its quotation or order; Clause 2. GCAC has the right to choose the materials or parts for the manufacture of air condition units as specified in this Agreement at its absolute discretion provided that all air condition units are manufactured to the level of agreed quality; Clause 3. GCAC must use the Brand authorized by Fortuna on the air-condition units according to the Authorization Agreement; Clause 4. GCAC supplies the air condition units of the agreed quantity to GDA, such air condition units manufactured must comply with the quality standard set by the technical agreement as agreed by all three parties. GCAC must also assist GDA of inspection and receipt of the said air condition units; Clause 5. GCAC shall charge the manufacture fees from GDA according to the agreement. Obligations and Rights of GDA Clause 1. In order to assist GCAC's manufacturing, GDA shall forward or give the quotation or order received from Fortuna to GCAC at least 3 days in advance. Clause 2. In accordance with the technical agreement, GDA is to inspect and to accept such air condition units. Clause 3. In compliance with the agreement, GDA is to pay GCAC for all manufacture fees. Obligations and Rights of Fortuna Clause 1. In order to maintain the level of production of GCAC and its planning process, Fortuna is to order air condition units from GDA in accordance with its annual sale. Fortuna must order at least 20,000 air condition units annually. Clause 2. Fortuna guarantees that any authorized use of the Brand does not infringe the rights of any other party. Clause 3. Fortuna is responsible for the sale and post sale service of all air-condition units manufactured under this Agreement within the Designed Area. Article 5 – Method of payment and the time limitation T/T or irremovable Letter of Credit is the method of payment agreed by all three parties. The payment must be made within one month plus 30 days after the delivery of the air condition units, this time limit may be extended for a further 10 to 14 working days provided that there is a valid and reasonable reason. Article 6 – usage of the Brand and Trademark The "Blueway" Brand is owned by Fortuna who guarantees the legality, effectiveness of the Brand. Fortuna also guarantees that the use of the Brand under this Agreement does not infringe any other party's intellectual property right. Fortuna shall supply a written agreement authorizing GCAC to use or affix the Brand in the products manufactured under this Agreement. Article 7 – After Sale Service Fortuna shall be responsible for all after sale service its costs within the Designated Area. Provided that the air-condition units sold under this Agreement has met standard or quality as required under the technical agreement agreed by all three parties, if there is any consumer dispute (for example: if the large portion of the air condition units has quality problem), then GDA and Fortuna shall be responsible for the such dispute, and GDA and Fortuna shall bear all costs equally in resolving such dispute problem. GCAC may provide technical support. Article 8 – Confidentiality All parties agree that the content of this agreement (including also any information relating to the technical know how or information relating to the air condition units, clients information and other commercial confidential information supplied) is confidential in nature and warrant to each other parties that it will not disclose this agreement and related information to an unrelated party. Article 9 – Effective Period of the Agreement This dispute arising from or related to this agreement shall be first solved by negotiation by all three parties. If the three parties cannot resolve such dispute, the said dispute shall be arbitrated by CHINA INTERNATIONAL ECONOMIC AND TRADE ARBITATION COMMISSION, SOUTH CHINA SUB-COMMISSION whose decision shall be final and conclusive. Article 12 This agreement is signed in 13 August 2005 at Lishui Town, Nanhai District, Foshan, Guandong Province. There are three copies of this agreement, each party of the three parties has one copy, and each copy of the said agreement shall be equally enforceable. Paraphrasing the first agreement 23 It is useful to paraphrase this first agreement as having relevantly provided: Article 3 Cl 1: GCAC to manufacture using Blueway trademark; Cl 4: GCAC supplies GDA; Cl 5: GCAC charges manufacture fee to GDA: (2) cl3: GDA to pay GCAC manufacture fee; (3) cl1: Fortuna to order 20,000 air-conditioners from GDA; (3) cl3: Fortuna responsible for sales and post -sale service. Article 5: GDA to pay GCAC by T/T or Letter of Credit. Article 7: Fortuna responsible for after-sales service (proviso: quality met). 24 Significantly, this agreement does not grant GDA authority to import or sell air-conditioners other than to supply orders made by Fortuna. The 'Payment Method' Agreement 25 This agreement defined GDA as the first party, and Fortuna and Mr Chien Hsuan Lee as the second party. [For simplicity I will refer to the party of the second party as Fortuna]. It provided as follows: Regarding to the sale of air-condition units in Australia under the Brand name of "BLUEWAY" and such other brand, GDA and Fortuna agree to the following payment method: 1. GDA delivers the air-condition units to Fortuna or Fortuna's nominee ("the nominee"). Upon the receipt of such air-condition units by the nominee, Fortuna shall be deemed to have received such units from GDA. 2. After the nominee received the air-condition units, Fortuna agrees the nominee to pay directly to GDA within the contractual agreed timeframe, GDA shall treat the payment by the nominee as payment by Fortuna. 3. If the nominee pays to Fortuna, Fortuna shall pay such amount to GDA within three days from the date of receiving such amount from the nominee; if the nominee fails to pay either GDA or Fortuna within the contractual agreed period, Fortuna shall pay such amount to GDA within three days after the expiration of the contractual agreed period. If Fortuna fails to pay GDA within the three-day period, Fortuna or the nominee shall pay GDA the penalty of 5/10000 on any outstanding amount on a daily basis. 4. After GDA receives the payment from the nominee, GDA shall pay 24% of such received payment to Fortuna (in accordance with the actual circumstance, the maximum being 24%) as payment to the sale and marketing expenses (including costs relating to freight, tariff, clearance, storage, after sale service, administrative expenses and commission) incurred by Fortuna. 5. Arbitration clause Any dispute arising from this Agreement shall be solved by negotiation. If the both parties cannot resolve the dispute, the said dispute shall be arbitrated by CHINA INTERNATIONAL ECONOMIC AND TRADE ARBITATION COMMISSION, SOUTH CHINA SUB-COMMISSION and the arbitration is final and shall be enforceable to both parties. Paraphrasing the Payment Method Agreement 26 Likewise paraphrasing the relevant segments of Payment Method Agreement it provided: Article 1: GCAC delivers air-conditioners to Fortuna or nominee. Article 2: After Fortuna's nominee has received air-conditioners, Fortuna to pay GCAC within time frame, GCAC's receipt from nominee is payment by Fortuna. Article 4: GCAC to pay 24% of receipts from nominee to Fortuna. The initial shipments 27 GCAC sent the first shipments of 9,146 air-conditioners to Fortuna in late 2005 (the Fortuna Shipments), which Fortuna delivered to various Australian ports and stored in third party operated warehouses in QLD, NSW and WA. 28 The 2005 Fortuna Shipments were sent on FOB Incoterms to Fortuna which used its import licence and paid the transport and import costs from Chinese port of loading to Australian warehouse, including the Australian Customs costs for Entry into Home Consumption. 29 Fortuna then commenced making sales to its customers. The 8 November 2005 agreement 30 On 8 November 2005 GCAC and Fortuna signed a further agreement for one year which was a hybrid of the Supply and Payment Method Agreements of 13/8/5.0 Paraphrasing this agreement it provided relevantly as follows: Article 3.1.2 GCAC to manufacture to agreed quality specifications; Article 3.1.3 GCAC to use Blueway on products strictly with Fortuna's consent Article 3.1.4 GCAC to supply within parameters and standards; Article 3.1.5 GCAC to collect manufacture fee from Fortuna; Article 3.2.1 Fortuna to order USD50 million annually; Article 3.2.3 Fortuna responsible for sales and after-sales service within agreed scope; Article 3.2.4 Fortuna to collect and make appropriate payments; Article 5 Payment by TT or Sight Letter of Credit (one month plus 30 days plus reasonable extension 10 to 14 days after arrival; Article 7 Fortuna responsible for after-sales tasks and bear costs. If disputes in end market involving quality problems of a large number of products, GCAC and Fortuna jointly responsible and jointly bear costs. GCAC will offer technical assistance. Warranty claims are made 31 The first of the problems was quick to emerge. When the 2005 Shipment air- conditioners were delivered to consumers in late November early December 2005, Fortuna began receiving warranty claims from consumers for defects: 100% of model BLR and BCR 70GW had a non-compliant soft starter component. The air-conditioners installed suffered burn-out, and it was necessary to replace all soft starters in delivered and undelivered air-conditioners; 100% of Model 82GW were defective: they had a brittle copper pipe which broke during installation (267 air-conditioners). GCAC remedies this by shipping 267 model 82GW air-conditioners to GDA as replacements for the defective model 82GW air-conditioners; Model 35GW had an unacceptable noise level from the indoor condenser during operation; various other manufacturing defects such as a wiring problem, bracket problem and distorted plastic casing, which GCAC concedes. 32 In the result Fortuna was unable to supply further air-conditioners to its customers until the cause of the failures was identified. The events which followed 33 Fortuna claims to have avoided the two Agreements of 13 August 2005 [the supply agreement and the payment methods agreement] and to have cancelled further orders from GCAC. Fortuna's contention is that the event giving rise to the avoidance was a conversation which occurred in late December 2005 or early January 2006. It also contends that it is not necessary under the Vienna Convention for such a declaration to utilise any more formality than a simple oral avoidance. 34 It contends that under article 51 of the Sale of Goods (Vienna Convention) Act 1986 No 119, where the seller delivers only a part of the goods or if only part of the goods delivered is in conformity with the contract, articles 46 to 50 apply in respect of the part which is missing or which does not conform, so that the buyer may declare the contract avoided in its entirety only if the failure to make delivery completely or in conformity with the contract amounts to a fundamental breach of the contract. See also article 25 which provides that a breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party has substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result. 35 Fortuna then requested GCAC's financial assistance of $80,000 for replacement of the soft starters, and began changing the soft starters using its own resources, including personnel and stock of spare parts. 36 GCAC did not provide any financial assistance but sent four technicians to investigate and assist in replacing soft-starters from about 17 February 2006 to 27 April 2006. 37 However, in early 2006 GDA imported 1,748 GCAC air-conditioners with the Blueway trademark (the GDA Shipments) without the consent of Fortuna, which was in breach of: i. the 13 August 2005 agreement; and ii. the Blueway trademark (GDA did not have authority to use the Blueway trademark). February/March 2006 38 By February/ March 2006 the summer sales season for air-conditioners was coming to an end, and there was little prospect of selling the unsold air-conditioners, which would continue to incur warehouse costs until the following season commencing summer 2006. The 24 August 2006 Deed of Agreement -the so-called 'Warehouse Agreement' 39 On 24 August 2006, Fortuna and GDA signed yet a further 'Deed of Agreement'. BETWEEN: FORTUNA NETWORK PTY LTD of 2/200 Woodpark Road, Smithfield in the State of New South Wales known as the "FN". AND GUANG DONG ZHI GAO AUSTRALIA PTY LTD of 8 Short Street, Lidcombe in the State of New South Wales, hereafter known as the "GA". WHEREAS: 1. GA owns air-conditioner units that are currently stored at warehouses controlled by FN. 2. GA is relocating and as such will be relocating the air-conditioner units. 3. FN has agreed to release the air-conditioner units to GA on the following terms. THIS DEED PROVIDES: 1. Products: (a) FN agrees and acknowledges that at the following locations it holds the specified air-conditioner units, and that these units are owned by GA: (i) Unit 2, 200 Woodpark Road, Smithfield NSW 2164: BLR-51GW (138 units). (ii) Unit 13, 171-183 Woodpark Road, Smithfield NSW 2164: BLR – 70 GW (654 units) (iii) Building 2, 243 Bradman Street, Acacia Ridge QLD 4110; BLR – 70GW (580 units). (b) On the date of this agreement, FN agrees to release the above air-conditioner units to GA. 2. Payment: On the date of this agreement, GA agrees to pay FN the sum of $37,086.17 as payment for all storage costs for the above air-conditioner units. 3. BLUEWAY trademark: GA agrees and acknowledges that by 30 Nov 2006 it will change the "BLUEWAY" trademark on the air-conditioners and all associated documentation that was released pursuant to clause 1 of this agreement and return all trademark documentation and serial numbers to FN. 4. GA agrees and acknowledges that it will pay $5,000.00 per unit to FN if it sells any of the air-conditioner units with Blueway trademark. 5. (a) GA agrees to supply spare parts form the current stock held by GA in Australia to FN on the condition that FN place an order to GA with the details of the units and customers involved and gives GA TWENTY FOUR HOURS notice. (b) FN guarantees to use the said spare parts exclusively for the post service of the air-conditioner unit models BLR, BCR, BCB and JC, which has been sold in the Australian market by FN for the warranty period as specified in the documentation supplied when those units were sold. FN acknowledges that GA has a right to check that such spare parts have been properly used by FN, and if not GA has the right to claim damages from FN. 6. Binding Effect: This Deed shall bind the parties hereto and any Executor, Administrator, Transferee, Assignee, Liquidator or Trustee in bankruptcy appointed in respect thereof. 7. Non Disclosure: The Parties agree not to disclose to any third party the terms of this Deed or the terms of the settlement except as required by law or for the purpose of legal accounting or financial advice. The parties acknowledge that a breach of this term of the Deed will constitute a fundamental breach entitling the aggrieved party to relief by way of injunction. 8. Governing Law: The construction, validity and performance of this Deed shall be governed in all respects by the law of New South Wales. 9. Warranty: The Parties hereto warrant that: (a) Each has taken independent legal advice or has been given the opportunity to take legal advice as to the nature, effect and extent of this Deed; (b) Neither party ahs made to the other party any promise, representation or inducement or been party to any conduct material to the entry into this Deed other than as set out in this Deed; and (c) Each party is aware that the other party, its or his Officers, Servants and Agents are relying upon this warranty in executing this Deed. 10. Severability: If any provision of this Deed is held to be invalid or unenforceable for any reason, it shall be severable and shall not affect the remaining provision of this Deed. 11. Costs: The Parties agree that each party shall bear its or his own costs of and associated with this Deed. 12. Entire agreement: This Deed constitutes the entire agreement of the parties relating to this Deed of Release and supersedes all prior understandings, negotiations, agreements, written and oral, express or implied, in relation thereto. 13. Acknowledgement Each party expressly acknowledges that this Deed is executed and the agreement made, between the parties to this Deed only and relates solely to the matters referred to hereto and does not amount to an admission of any wrongdoing, unfairness or fault in any conduct or documents otherwise entered into between the parties. EXECUTED AS A DEED SIGNED, SEALED & DELIVERED for a and on behalf of FORTUNA NETWORK PTY LTD in the presence of: …………………… ……………………… Witness …TAO YU…………………… Print name of Witness SIGNED, SEALED & DELIVERED for a and on behalf of GUAN DONG ZHI GAO AUSTRALIA PTY LTD in the presence of: …………..…. ……………………… Witness ………TAO YU……………… Print name of witness 40 These formalities were complied with and the evidence before the court is that the document was signed: i. on behalf of Fortuna by Mr Chien Hsuan Lee and Mr Jose Lay whose signatures were witnessed by Mr Tao Yu; ii. on behalf of GDA by Mrs Zheng Ye whose signature was also witnessed by Mr Tao Yu. Paraphrasing the 24 August Deed of Agreement 41 Here again it is useful to shortly paraphrase this agreement: Cl 1 Fortuna to release 1,372 air-conditioners to GDA Cl 2 GDA pay Fortuna $37,086.17 for storage costs Cl 3 GDA to change Blueway trademark on air-conditioners and all associated documents and return to Fortuna; Cl 4 GDA to pay $5,000 for every air-conditioner it sells with the Blueway trade mark Cl 5 GDA to provide spare parts to Fortuna Subsequent meeting and discussions 42 In or around mid September 2006 there was a meeting and discussions in China between Mr Li and Mr Chein Lee, which culminated in the so-called deed of release of 18 September 2006. The so-called 'Deed of Release' 43 The so-called Deed of Release was in the following terms: DEED OF RELEASE Deed made this 18 th day of September 2006 BETWEEN: GUANGDONG CHIGO AIR-CONDITIONING CO. LTD being a company duly incorporated under company law of the People's Republic of China and having its address at Penggang Road, Lishui town, Nanbai, Guangdong, China, hereafter known as "GC", of the first part. AND FORTUNA NETWORK PTY LTD (A.C.N. 080 464 501) being a company duly incorporated in the State of New South Wales in the Commonwealth of Australia and having its registered address in the said State at 2/200 Woodpark Road, Smithfield in the State of New South Wales. AND GUANG DONG ZHI GAO AUSTRALIA PTY LTD (A.C.N. 111 038 656) being a company duly incorporated in the Sate of New South Wales, in the Commonwealth of Australia and having its registered address in the said State at 8 Short Street, Lidcombe in the State of New South Wales. WHEREAS: 1. GC manufactures air-conditioners to GA and FN to sell in Australia. 2. The Agreement between GC, GA and FN dated 13 August 2005 (hereinafter called the 'agreement') and the agreement between GA and FN Dated 25/08/06 (hereinafter call the "the Deeds of Agreement") have come to an end. 3. GC & GA wishes to sever relationship with FN. 4. The parties have agreed to terminate any business and/or contractual relationship that exists or may have exited as between themselves, save as provided for in this Deed. 5. The parties agree to be bound by the terms and conditions hereinafter appearing. 6. Without any admissions GC, GA and FN have agreed to settle all matters arising out of their relationship as follows. THIS DEED PROVIDES: 1. Products: (a) FN and GA agrees to release all air-conditioners received from GC by shipment; that it holds to GC on the date of this Agreement. (b) FN And GA aggress and acknowledges that the air-conditioners to be release to GC should match the list of models and quantities attached to this Agreement marked 'A'. (c) for each air-conditioner on the list marked 'A' that is not released, FN will pay to GA the price for that air-conditioner on the list attached to this Agreement marked 'B' and GA pay to GC. 2. Payment: (a) GA warrants that it will repay its debt totalling $1411762.00 US Dollars owing to GC by 20 March 2007. GA is to repay such debt by accounting or otherwise forwarding 80% of its total monthly sale revenue to GC until the debt is fully satisfied. Parties hereto agree that 5% per day is a reasonable and genuine estimate of the loss and damages suffered by GC as a result of GA's breach of its obligation under this clause. (b) After all of air-conditioners have been released to GC, GA agrees to pay FN the sum of $83246.59 after all of air conditioners release to GC in full and final settlement of all relationships between GC, GA and FN. GC As a guarantor refer to this payment. (c) FN Agrees and acknowledges that the payment of $83246.59 referred to in clause 2 (b) will be reduced by the payment required by clause 1 (c). 3. FN agrees and acknowledges that GA can use the 'BLUEWAY' trademark and all associated documentation in sale of the air-conditioners that were released pursuant to clause 1 (a) of this agreement and keep all trademark documentation and serial numbers. 4. Post Sale Services: (a) GA is obliged to provide all post sale services relating to all air-conditioners sold under the "Blueway" Brand that are manufactured and supplied to FN by GC (see Annexure C). (b) GA warrants that it will place 3% of its monthly sale revenue into an account styled in the name "Guang Dong Zhi Gao Australia Pty Ltd" with Maria Elsa Lee and Zheng Ye as joint signatory. (c) GA is entitled to withdraw 20% (100% divided by five years) of the monies deposited under clause 4(b) per year for all costs and expenditures relating to the post sale services it has offered under clause 4 (a). (d) If the costs or expenditures relating the post sale services exceed the monies received under clause 4(b), GA (with GC as guarantor of GA) shall be personally liable to pay for the excess. (e) GC is to provide all necessary technical supports and (if necessary) technicians to perform or assist GA to perform the post sale services at the costs of GA. GA shall be entitled to recover such costs from the monies received under clause 4 (c). (f) FN agrees not to import or recall any air-conditioners with same or similar serial numbers or models (see Annexure C). 5. GA agrees to pay FN any GST payable on the total value of the released air-conditioners on or before 28 October 2006 by bank/company cheque. 6. Mutual Release: (a) GC & GA hereby releases and forever discharges FN, its Directors, Officers, Servants and Agents or any of them from all actions, suits claims, demands, costs and other liabilities of any nature which GC and GA now or at any time may have or but for the execution of this Deed, could or might have had against the FN arising out of or in connection with the relationship between GC & GA and FN, including but not limited to the matters recited herein. (b) FN hereby releases and forever discharges GC & GA, its Directors, Officers, Servants and Agents or any of them from all actions, suits, claims, demands, costs and other liabilities of any nature which FN now or at any time may have or but for the execution of this Deed, could or might have had against GC & GA, arising out of or in connection with the relationship between FN and GC & GA, including but not limited to the matters recited herein. (c) FN must deliver and release all the air-conditioners as stipulated in clause 1 hereof by 22 September 2006 to the storeman of GA or to any other place as directed by GA. If FN cannot deliver all air-conditioners on time, FN shall be liable to pay GA a sum of $5,000.00 per day starting from 22 September 2006 to the date of delivery of all air-conditioners. Parties hereto agree that $5,000.00 per day is a reasonable and genuine estimate of the loss and damages suffered by GA as a result of FN's breach of its obligations under this clause. 7. Binding Effect: This Deed shall bind the parties thereto and any Executor, Administrator, Liquidator or Trustee in bankruptcy appointed in respect thereof. 8. Non Disclosure: The Parties agree not to disclose to any third party the terms of this Deed or the terms of the settlement except as required by law or for the purpose of legal accounting or financial advice. The Parties acknowledge that a breach of this term of the Deed will constitute a fundamental breach entitling the aggrieved party to relief by way of injunction. 9. Bar to Proceedings; This Deed of Release may be pleaded as a full and complete defence by any party hereto to any actions, suits or proceedings commenced, continued or taken by or on behalf of another party to this Deed in connection with any matters referred to in this Deed. 10. Governing Law; The construction, validity and performance of this Deed shall be governed in all respects by the law of New South Wales. 11. Warranty: The Parties hereto warrant that: (a) Each has taken independent legal advice or has been given the opportunity to take legal advice as to the nature, effect and extent of this Deed; (b) Neither party ahs made to the other party any promise, representation or inducement or been party to any conduct material to the entry into this Deed other than as set out in this Deed; and (c) Each party is aware that the other party, its or his Officers, Servants and Agents are relying upon this warranty in executing this Deed. 12, If any provision of this Deed is held to be invalid or unenforceable for any reason, it shall be severable and shall not affect the remaining provisions of this Deed. 13. Costs: The Parties agree that each party shall bear its or his own costs of and associated with this Deed. 14. Entire agreement: This Deed constitutes the entire agreement of the parties relating to this Deed of Release and supersedes all prior undertakings, negotiations, agreements, written and oral express or implied, in relation thereto. 15. Acknowledgement Each party expressly acknowledges that this Deed is executed and the agreement made, between the parties to this Deed only and relates solely to the matters referred to hereto and does not amount to an admission of any wrongdoing, unfairness or fault in any conduct or documents otherwise entered into between the parties. 16. This deed is signed in three originals, each party hold one and each one has the same effect, Chinese and English edition has same effect. 17. In this Deed, unless inconsistent with the context or subject matter: (a) headings in this agreement are for ease of reference and convenience only and do not affect the meaning, interpretation or construction of this document; (b) words importing the singular number shall include the plural number and vice versa; (c) words importing one gender shall include any other gender; (d) references to recitals, clauses, subclauses, paragraphs, annexures, schedules or reference tables are references to recitals, clauses, subclauses, paragraphs, annexures, schedules or reference tables of or to this agreement; (e) a reference to this document includes any schedule or annexure; (f) a reference to this document or any other document includes a reference a reference to it as novated, altered or replaced; (g) a reference to anything is a reference to the whole and each part of it; (h) a reference to a party is to the party identified in this agreement; (i) a reference to a party includes a reference to that party's executors, administrators, successor and permitted assigns. (j) a reference to any statute, proclamation, rule, code, regulation, ordinance or other law includes any amendment, consolidation, modification, re-enactment or reprint of it or any statute, proclamation, rule code, regulations and other instruments under it and any consolidations, amendments, re-enactments or replacements of any of them. (k) a reference to writing includes any communication send by post or facsimile transmission; (l) a reference to time refers to time in Sydney, Australia; (m) a reference to a group of persons is a reference to all of them collectively and to each of them individually; (n) words importing natural persons include partnerships, bodies corporate, association, governments and governmental and local authorities and agencies and vice versa. (o) an agreement, representation or warranty in favour of two or more persons is in favour of them jointly and severally; (p) an agreement, representation or warranty made by two or more persons binds them jointly and severally; (q) where any word or phrase is defined, any other party of speech or other grammatical form of that word or phrase has cognate meaning; (r) unless otherwise stated, all monetary amounts are in Australian currency; (s) when one corporation is referred to as a "related body corporate", "subsidiary", "holding company", "ultimate holding company" of or in relation to another corporation, those expressions have the meanings respectively provided by Part 1.2 of the Corporations Law; (t) "company", "corporation" and "body corporate" have the meanings respectively provided by the Corporations Act 2001 (Cth); (u) the word "month" means calendar month and the word "year" means 12 calendar months; (v) "associate" has the same meaning as in S316 of the Income Tax Assessment Act; (w) no rule of construction applies to the disadvantage of a party because this agreement is prepared by (or on behalf of) that party; and (x) anything that is described or mentioned after the word, "include", "includes" or "including" does not limit what else might be included. EXECUTED AS A DEED SIGNED, SEALED & DELIVERED for a and on behalf of GUANDONG CHIGO AIR-CONDITIONING CO. LTD ………………….. in the presence of: ……………………… Witness ……………………… Print name of witness SIGNED, SEALED & DELIVERED for and on behalf of FORTUNA NETWORK PTY LTD ACN 080 463 501 by the Authorised whose signatures appear below Pursuant to section 127 of the Corporations Act 2001 ……………………… ……………………… Signature of authorised person Signature of authorised person ……………………… Chein Hsuan Lee Print name of authorised person Print name of authorised person ………………………… …………………… Office held Office held SIGNED, SEALED & DELIVERED for and on behalf of EXECUTED GUAN DONG ZHI GAO AUSTRALIA PTY LTD ACN 111 838 482 by the authorised whose signatures Appear below pursuant to section 127 of the Corporations Act 2001 in the presence of: …………………………. Signature of authorised person ……………………… Signature of authorised person Zhen Ye Print name of authorised person ……………………… Print name of witness ………………………… …………………… Office held Office held SIGNED, SEALED & DELIVERED for and On behalf of CHEIN HSUAN LEE In the presence of: ……………………… Witness ……………………… Print name of witness Attachment A to the deed 44 There was an attachment A to the deed of release which was also signed by Mr Chein Hsuan Lee and by Chairman Li at the foot of the page. Above their signatures were written in handwriting the words "To be confirmed and signed by Mrs Maria Elsa Lee and Mrs Zheng Ye. The finding is that there was only one page to the attachment. The further finding is that the attachment was de minimis in the state of affairs as it only related to a final stock take check against the event that there had been some minor change stock take which would require to be taken into account. Attachment B to the deed 45 Attachment B to the deed has little relevance being no more than a price list. It was also initialled by Mr Li Xin Hao as well as Mr Chein Hsuan Lee. 46 Upon the directors of Fortuna becoming aware that Mr Chein Lee had signed the 18 September 2006 document, in the next day or so Mrs Lay attempted to speak to Mr Li who did not take her call or call her back. On 21 September 2006 Mrs Lay then had a meeting with GCAC personnel and told them Fortuna did not accept the Deed. On their return to Australia, they caused their solicitor to write to GCAC (see letter at CSML5 dated 7 October 2006) advising the document was signed by Mr Chein Lee without any authority to bind Fortuna. Mrs Lay followed up with a phone call to Mr Zhong at GCAC and subsequently on 27 October 2006 Fortuna received a written proposal from GCAC (DD37) but the matter was never resolved. 47 Fortuna contends the 18/8/06 Deed is not binding on it by any test: whether at Equity, by statute and common law. Examining the manner in which agreements between the party were dealt with-formally or informally in terms of execution 48 There is of course importance to be attached to tracking the degree of formality [or otherwise] exhibited in the manner in which the respective agreements were executed. In the section which follows the agreements are examined from this vantage point. The first of the agreements of 13 August 2005 49 This agreement was signed in the Chinese language. 50 The evidence was that the first signature was that of the chairman of GCAC but was not witnessed: [T 49.40-50.10] 51 The evidence was that the Chinese characters alongside the Chairman's signature and the signatures of the other persons said that the parties signing or ceiling the documents represented authorised persons [T 50]. 52 The evidence was that the next signature on this document was that of a director of GDA namely Mrs Qui Bo. 53 The evidence was that the final signature was that of the director of Fortune - Mr Chein Hsuan Lee [T 51]. He had signed using both Chinese and English characters. The second of the agreements of 13 August 2005 - the Payment Method Agreement 54 The evidence was that the first signature appearing on this document was that of Mrs Qui Bo the same director of GDA. The next signature was that of Mr Chein Hsuan Lee. Again he signed in both English and Chinese The deed of agreement entered into on 24 August 2006 55 This agreement was executed in Australia by all parties. It was executed on behalf of Fortuna by Mr Chein Hsuan Lee and another director of Fortuna and by Mrs Zheng Ye on behalf of GDA: [T 52-53]. The deed of release 56 Following the provisions made by way of the 'operative terms' of the deed of release, one reaches the section stating "Executed as a Deed" which is the precursor of the place where the respective parties are to sign 57 It is then to be noticed that there was typed provision made in the document for the signing, sealing and delivering of the deed 'for and on behalf' of each of GCAC; Fortuna; and GDA. The signatures for GCAC 58 The evidence was that the first signature was that of Mr Li Xin Hao. He had purported to sign on behalf of GCAC. There was no witness to his signature. But he also initialled the document at the end of the page. . The signatures for Fortuna 59 Commencing on the same page but at the foot thereof and continuing on the following page, the place provided for the signing, sealing and delivery of the Deed by Fortuna is to be found. It seems that even before Fortuna purported to sign over the page, Mr Chein Hsuan Lee [in like fashion to the manner in which Mr Li Xin Hao had proceeded] also initialled the document at the end of the page 60 Across the final page the signature ostensibly on behalf of Fortuna is to be found: namely that of Mr Chein Hsuan Lee who had spelled his name as well under his signature. There was also no witness to his signature. The signatures on behalf of GDA 61 Next the section provided for concerning GDA was signed by Mrs Zheng Ye who also printed her name. Likewise there was no witness to her signature. The separate signature of Mr Chein Hsuan Lee 62 The final part of the document expressly provided for the signing, sealed and delivery signature of Mr Chein Hsuan Lee. He signed against those words. 63 As on the previous page, at the end final page of the part of the document dealing with signatures, one finds the initials of Mr Chein Hsuan Lee and of Chairman Li. The way forward 64 Ultimately as the reasons which follow make clear, the court can only determine the validity or invalidity of the deed of release, by reference to a combination of: i. the evidence of the conversations which took place culminating in the execution of that deed; and ii. the probabilities thrown up by the contemporaneous documentary material. 65 As has already been pointed out, in determining what are the terms of contract that is partly written and partly oral, surrounding circumstances may be used as an aid to finding what the terms of the contract were. The exercise is an attempt to ascertain whether it is possible to make a finding about what were the words the parties said to each other, and if so, the meaning of those words is to be ascertained in the light of the surrounding circumstances. Further where it is not possible to make a finding about the particular words that were used (as sometimes happens when a contract is partly written, partly oral and partly inferred from conduct) the surrounding circumstances can be looked at to find what in substance the parties agreed. Aspects of Fortuna's constitution 66 Before examining the evidence before the Court it is important to keep in mind that Fortuna's memorandum and articles and provided for a power in the directors to appointment a managing director. Articles 79.1 to 81 provided inter alia as follows: " MANAGING DIRECTOR 79.1 The directors may from time to time appoint one or more of their number to the office of managing director for such period and on such terms as they think fit, and, subject to the terms of any agreement entered into in a particular case, may revoke any such appointment…. 80.1 The directors may. upon such terms and conditions and with such restrictions as they think fit, confer upon a managing director any of the powers exercisable by them. 80.2 Any powers so conferred may be concurrent with, or be to the exclusion of, the powers of the directors. 80.3 The directors may at any time withdraw or vary any of the powers so conferred on a managing director. 67 There is additional provision for managing director at schedule 8 to the Articles of Association. "SCHEDULE 8: MANAGING DIRECTORS· ADDITIONAL PROVISIONS: Unless otherwise provided at the time the appointment is made, a Managing Director shall have all of the powers of the directors conferred upon him, shall have the authority to exercise those powers alone and without conferring or meeting with the other director of the company, and such appointment shall continue until otherwise resolved by the Directors or by the Members. If there is more .than one Managing Director appointed at any time, and unless otherwise provided at the time the appointments are made, all concurrently acting Managing Directors shall be entitled to individually' exercise the powers of a sole Managing Director in the manner provided in the preceding sub-regulation." 68 At this point it is convenient to interpolate that, subject always to the terms of appointment, it is evident that the law tends to assume that where the board resolves to appoint a chief executive officer, his or her powers to control the operational and managerial aspects of the company's business will be broad indeed. In the seminal case of Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd & Anor [1964] 2 QB 480, for example, Lord Diplock held (at 505) that where a board permits a person to "act in the management or conduct of the company's business", that delegation of executive authority alone is sufficient to vest that person with ostensible authority to bind the company to transactions usually entered into "in the course of such business" by such managers. (See also: Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Company Pty Ltd (1975) 133 CLR 72 at 79-80, per the Court (Gibbs, Mason and Jacobs JJ). The evidence of Mrs Zheng Ye 69 Although on occasion Mrs Zheng Ye became flustered and on other occasions she appeared to exaggerate, standing back from the miniature with which she was required to deal, it seems to me that on balance she was a reliable witness. 70 In particular her evidence is accepted concerning Mr Chein Hsuan Lee, during a meeting of 18 September 2006 [in response to her request in him to acknowledge that given the existence of other directors he was authorised to sign for Fortuna], having answered in the affirmative. 71 Ms Ye canvassed the important details regarding the document dated 18 September 2006 in that it was prepared by the plaintiff's solicitors as a result of negotiations in Australia and in China. 72 Under cross-examination, Ms Ye stated that she was actively involved with this document. She was present when the document was put in front of Chairman Lai and Chien Hsuan Lee. She confirmed that she had attempted to contact Mrs Lay in order for her to sign the document (T 141). 73 Mrs Zheng Ye gave evidence: i. that the deed of release was entered into on 18 September 2006 [Affidavit 23 November 06 at 45-47]; ii. that: Mr Chein Hsuan Lee signed on behalf of Fortune; Mr Li Xin Hao signed for and on behalf of GCAC; Mr Chein Hsuan Lee also signed on his personal behalf to guarantee performance; Mrs Zheng Ye signed on behalf of GDA; the document was signed in China; in accordance with custom the signatures were not witnessed; she had no notice that Mr Chein Hsuan Lee had no authority . 74 Mrs Zheng Ye also gave evidence [Affidavit 20 December 2008 paragraph 16-17] that she saw Mr Chein Hsuan Lee review the deed and there were a detailed discussions about the contents written both in English and Chinese; the time it took Mr Chein Hsuan Lee review it and the details he was raising suggested to her that he did read it in detail and fully understood it; she also said to Mr Chein Hsuan Lee, at least 10 times during the meeting of 18 September 2006: "Given the existence of the other directors as we now know are you authorised to sign for Fortuna" 75 On her evidence he replied each time "Yes, I am authorised to sign on their behalf". 76 Her further evidence was that she had raised this matter as Mr Chein Hsuan Lee had been asked to contact the other directors to attend the meeting. 77 Also, Mr Li Xin Hao and Mrs Zheng Ye tried to contact the other directors on the Chinese mobile phone number provided by Fortuna but they did not answer. 78 Her further evidence which is also accepted as reliable was that: i. discussions concerning the agreement had taken place on 15 September 2006 as between Mr Chein Hsuan Lee and the other directors of Fortuna, during which they each said: "Yes we will be there on 18 September 2006." ii. she had previously spoken to Mrs Christina Lay and told her: "You are invited to come with Mr Chein Hsuan Lee to resolve these issues." iii. the reply from Christina Lay was in words to the following effect: "I do not want to go, Mr Chein Hsuan Lee will go and I will think about going. Anyway Mr Chein Hsuan Lee handles all of those issues we are not concerned he signs documents for Fortuna." 79 When it was put to her that her understanding was that the document would be binding if and only if Chien Hsuan Lee and Mrs Lay had signed it, she was of the view that it would merely have been "helpful" for Mrs Lay to attend the signing (T 143). 80 Ms Ye conceded that regarding Attachment A of the purported deed (in particular her handwriting at the bottom of the page which referred to confirmation of the figures in the Attachment) there was, in fact, no such confirmation (T 144). 81 It was confirmed by Ms Ye that at 18 September 2006 GDA had two groups of air conditioners in its warehouses (T 243-244): (a) Those released by the deed of 24 August 2006. (b) Those GDA had in stock before the 24 August deed. 82 Finally, in relation to the plaintiff's position regarding the removal of the Blueway trademark, she refused to concede that between the agreement of 24 August 2006 and the purported deed of release the plaintiff's position had "altered completely" over a matter of weeks (T 257). The evidence of Christine Lay 83 The evidence of Mrs Christine Lay becomes critical to the ultimate decision in these proceedings, the holding being that her evidence was unreliable in crucial respects. 84 Mrs Christine Lay was adamant that Mr Chien Hsuan Lee had no authority to enter into agreements on behalf of Fortuna (T 368-369): Q. And you knew for a fact that Mr Chien Hsuan Lee was going to China to resolve all disputes once and for all in September 2006? A. Mr Chien Hsuan Lee went to China on several different occasions and I actually did ask Mr Chien Hsuan Lee to go and see Mr Li the chairman to discuss about the defective units. Q. Ms Lay, now you can answer my question. You knew for a fact that Mr Chien Hsuan Lee was going to China in September 2006 to settle all disputes? .. Q. If he could. A. Yes. Q. And he had your express authority to do that? A. He did not have my authority to sign any documents. Q. Did you ever issue a letter to GCAC before he left Australia or any time whilst he was in China informing GCAC that he had no such authority? A. I did not issue any letter to GCAC. Q. Did you ever issue any letter to GDA of the same terms before he A. I did not issue any letter to GDA. Q. And that's because he had your express authority to try and settle this matter because you didn't want to have any more to do with these air conditioning units? A. That's not true. 85 Nevertheless, the above exchange shows that Mrs Lay did not, in fact, inform GCAC that Mr Chien Hsuan Lee had no authority. 86 Furthermore, Mrs Lay stated that she explicitly instructed her directors not to sign further releases after 24 August 2006 (T 411-412). This evidence is rejected. The following sections of the transcript are relevant: Q. That in fact is the only time that you had some personal involvement concerning any of these transactions regarding these air conditioners that are the subject of the dispute, isn't that the case? A. During the first meeting I had with Yu Mei Yao she instructed to me that she represents Mr Li, the chairman of GCAC, therefore any dealings would have to be going through her and nobody else. Q. You know for a fact that the negotiations continued whereby there was the deed of agreement of 24 August? A. I believe so. Q. And then ultimately the deed of agreement of 18 September 2006? A. I am not aware of the deed of agreement of 18 September 2006. Q. So you're saying your directors, the ones that you delegated your authority to, have not properly informed you about that particular document, is that what you're saying? A. I have instructed my directors no further releases are to be signed without my permission. Q. After the deed of release was in fact signed? A. 24 August. [emphasis added] 87 However, she could not point to a specific document that verified her assertion. None of her answers shed any light on this enquiry (T 412-413): Q. In fact there is no document from Fortuna at all making such a representation to GDA or GCAC, is there? A. I discussed the matters with my internal directors and that's why it was formed(?) part of the 24 August 2006, the deed of release. Q. In fact there's no internal directors' meeting to that effect, is there? A. Yes, we do, we do have meetings, yes. Q. There's no minute of that meeting, is there? A. We have quite regularly - we do quite regularly meet up and discuss issues of, yeah, in Fortuna. … Q. And there is not one minute that you can point to where such a resolution was in fact passed by Fortuna, can you? A. Alexander Lee is our lawyer, is the lawyer of Fortuna Network. Alexander Lee has issued - and we also have meeting with Alexander Lee to discuss those matters with our directors. Q. Can you answer my question. There is not one minute of Fortuna Network where such a resolution limiting the power of Chien Hsuan Lee or Jose Lay, is there? A. The meeting took place in Alexander Lee's office. Q. So you're saying your solicitor would have a file note of that, would he? A. My solicitor is aware of that problem, yes. Q. You accept I think that there is not one letter from Fortuna or your solicitors prior to 18 September 2006 putting GCAC or GDA on notice of such a resolution, is there? A. All directors-- … Q. There is not one document informing GCAC or GDA of such a limitation in power, is there? A. We, as directors of Fortuna, we did not - I don't think it's required because of 24 August 2006, there was a deed of agreement in place. 88 Mrs Lay, in fact, went as far as disavowing knowledge of any negotiations to finally settle the matter (T 416): Q. In fact what I suggest to you is you had full knowledge of there being a meeting cause you were told about that before you left Australia? A. I had no knowledge that that meeting was to take place on 18 September 2006. 89 This disavowal is rejected. It can neither be accepted on the balance of probabilities nor in the light of her earlier evidence [T 374]: Q. You weren't aware because you weren't really part of the negotiations? A. I'm pretty much part of negotiation. Q. So you're saying that your directors went behind your back, is that what you're saying? A. No, they did not. Q. You know for a fact that you were fully aware that what was to happen at this meeting on 18 September was try and resolve it, and that was your list, your whole list of claims that you wanted from GCAC or GDA to execute the deed of release? A. My instruction to Chien Hsuan Lee in this was to resolve the matter of the respective units. 90 In fact, Mr Chien Hsuan Lee, himself, conceded that she was not part of the negotiations regarding the September deed [T: 594]: Q. Now the document being the Deed of Release that's in front of you in fact provides for a further payment to Fortuna by GDA? A. Where is it? Q. Have a look at paragraph 2B? A. 2B. Q. Do you see that payment there, payment obligation on the part of GDA for the sum of $83,246.59? A. Yes. Q. And that's an amount that you agreed to? A. I didn't agree on any figure, I didn't have all the necessary document with me and these figures need to be confirmed by the accounting department. Q. Mr Lee you had MFI P1 with you which set out all the figures and the figure that you agreed to was $83,246.59 as a further payment to Fortuna? A. I didn't have any figures with me to check the figures in the agreement. I need Christine to check all the figures. Q. Ms Christine Lay was not involved in the negotiation of this document at all was she? A. Correct. 91 From this exchange, it seemed that Mrs Lay, as a fallback position, claimed to have given an instruction to Mr Chien Hsuan Lee to "resolve the matter of the respective units" as opposed to a full settlement of the all issues between the parties. Again, this claim is rejected in light of Mrs Lay's other evidence. 92 If the instruction had in fact been given and Mr Chien Hsuan Lee was only authorised to resolve issues regarding defective units, it would be contrary to any lack of knowledge that a meeting was to take place in China on 18 September 2006 (see T 374). Her claim is also inconsistent with documentary evidence that Mrs Maria Elsa Lee was cross-examined upon which will be explained below. 93 In the result the evidence of Mrs Christine Lay must on the balance of probabilities be rejected. There were too many inconsistencies in the evidence which she gave. Furthermore the vehemence with which she rejected certain propositions made it quite obvious that in her approach to many questions was very heavily influenced by a partisan point of view. The evidence of Mrs Maria Elsa Lee 94 The evidence of Mrs Maria Elsa Lee was unreliable in a number of respects. In particular, she initially came forward with a large number of denials, but subsequently made concessions that negated those denials. 95 Nevertheless, the evidence elicited from her in cross-examination is vital in establishing the context and the purpose of the purported deed of release on 18 September 2006. 96 In relation to the purported deed of release, Mrs Maria Elsa Lee confirmed that she had provided information at the request of Ms Ye or her husband Chien Hsuan Lee (T 458). Furthermore, Mrs Maria Elsa Lee conceded that her husband had, in fact, signed the 18 September document (T 473). 97 Importantly the evidence of Mrs Maria Elsa Lee regarding the purported deed of release revolves around two crucial antecedent documents created close to 18 September 2006. 98 The first document was a facsimile, which prima facie, was a spreadsheet that quantified inventory as at 11 September 2006. It was dated 14 September 2006, less than one week before the purported deed. 99 Mrs Maria Elsa Lee firmly denied ownership of this document (T 458-459). Notwithstanding any denial, there is a clear link between this document, and the purported deed of release: (a) Mrs Maria Elsa Lee conceded under cross-examination that the originating fax number displayed was verified as Fortuna's fax number at the time (T 458). (b) The 138 units of BLR-51GW and 654 units of BLR-70GW air conditioning units featured in clause 1 of the 18 September purported deed correspond exactly to the numbers in the spreadsheet on the row labelled "SYD WES" and in the columns "BLR-51G" and "BLR-70G". 100 The other crucial document that Mrs Maria Elsa Lee was taken to was an email that she conceded was sent to Ms Ye and carbon copied to her husband on 15 September 2006, 3 days before the signing of the purported deed (T 462). She insisted that it was "only a draft paperwork to work on" (T 462). However, even at a quick glance, one can see that the document is clearly a complex one with multi-layered calculations and formulae. 101 Mrs Maria Elsa Lee denied the proposition that as an employee of Fortuna and administration manager, it was her desire to "put as much information in the document as possible so that if there was a settlement it would ensure that Fortuna received all the money it was entitled to (T 463). 102 Attached to this email was a series of spreadsheets created by Mrs Maria Elsa Lee, which formed a plaintiff's exhibit. Mrs Maria Elsa Lee conceded that the spreadsheets were a list of expenses incurred by Fortuna for the purposes of negotiations in China (T 462): Q. You've looked at that document? A. Yes. Q. And you agree that that document was sent by you to Ms Ye via email? A. Yes, this is a working document that was sent to China to do - regarding about the conversation, no negotiation. Q. Thank you. You also sent the copy to your husband, his email address is on there as well, next to the CC: column. First page. A. Yes. Q. And you were requested to provide a complete list of all expenses either paid or incurred by Fortuna for the purpose of negotiations and final settlement of all disputes, is that correct? A. It's only a draft paperwork to work on. Q. Putting aside that, was your understanding from what was requested both of you by Ms Ye and your husband that you were to provide a comprehensive list of all expenses incurred, not necessarily paid but incurred by Fortuna, is that the case? That was your understanding? A. Yes. Q. For the purpose of trying to negotiate a settlement whilst in China? A. For the paperwork yeah, it's only a negotiation. 103 As shown above, she insisted that the document was merely "draft paperwork". Aside from the fact that what she said ("draft paperwork") in itself is a concession that the spreadsheets were connected to the purported deed, closer analysis of the figures within it demonstrates the extent of the connection (T 472): Q. That's fine. And you agree that the 166,493.18 is half of the amount that's in the deed of release as being a further payment that needs to be paid to Fortuna on the release of stocks? A. I wasn't, I wasn't present and I wasn't - I can't comment that. His Honour: What were you saying, just pass it by me again please. Mr Santisi: Was she aware that the 166,493.18 is in fact half of what appears in the deed of release. His Honour: Yes, thank you. Witness: I don't have the deed of release at the time. Mr Santisi: That's fine. 104 When one looks to clause 2 of the 18 September document, subclauses (b) and (c) clearly refer to a figure of $83,246.59. This number is exactly half of $166,493.18, the final figure in the spreadsheet attached to the email that formed a plaintiff's exhibit. 105 In regard to the issue of Mr Chien Hsuan Lee's authority, before Mr Chien Hsuan Lee's cross-examination, Mrs Maria Elsa Lee confirmed that her husband was a managing director of Fortuna and was responsible for large amounts of decision making and signing of documents (T 436). Q. And the function of your husband, Mr Chien Hsuan Lee, was to be the Managing Director of Fortuna on site, is that correct? A. Yes. Q. And in fact he was responsible for a lot of the decision making and signing of documents is that correct? A. Yes. 106 The findings regarding her evidence are that: (a) Mrs Maria Elsa Lee prepared two comprehensive documents outlining the quantity of stock acquired and held by Fortuna (first document) as well as the costs incurred in doing so (second document). (b) Mr Chein Hsuan Lee, whom she conceded was managing director of Fortuna, acquired those documents. (c) Key figures from those documents were directly incorporated into the purported deed of release. (d) An inference may be drawn that Mr Chein Hsuan Lee used the documents for the purpose of negotiating the purported deed. (e) The complex nature of the documents indicates the possibility that they were created for a full resolution of benefits and liabilities between the parties. The evidence given by Mr Li Xin Hao 107 The plaintiff called Mr Li Xin Hao whose evidence was given by video link. This is a situation which both parties impressed upon the Court as appropriate. To my mind that which occurred during this video link cross-examination exemplifies how difficult it can sometimes be to assess the credit of a major witness without seeing that witness in the flesh in the witness box. What tended to occur was that Mr Li Xin Hao very often went outside the ambit of the questions being put to him and appeared to be simply advocating why it was that the defendant's case was incorrect and the case of GCAC and GDA were clear. 108 Having said that naturally the Court requires to do the best that can in assessing the evidence given by Mr Li Xin Hao. Certainly he did give responsive answers on a number of occasions. 109 My impression was that he has enormous responsibility [on his evidence being in charge of 20,000 employees and a number of facilities] so that he was not a 'details' man but very reliant upon others to brief him as and when appropriate on problems with which his group may have had to deal across a number of activities. Turning to his detailed evidence 110 Mr Li Xin Hao was questioned about the 18 September document. During cross-examination, he noted that the reason for the agreement being negotiated on 18 September 2006 was because, in his view, Fortuna had breached the agreement made on 24 August 2006 (T 500). 111 I was impressed by the vehemence with which he rejected out of hand, the notion that no final agreement had been reached between himself and in particular Mr Chein Hsuan Lee on the occasion of the signing of the deed of release. 112 As already stated Mr Li Xin Hao refuted the suggestion that Mr Chien Hsuan Lee did not have any authority to sign agreements on behalf of Fortuna (T 504): Q. Chairman Li, I don't wish to be rude to you, but you know very well that I'm talking about the agreement made on 18 September 2006 and the negotiations that took place over about two days? A. Yes. Q. And that document was received back by you? A. Yes, I received the document. Q. And then there was a discussion with Mr Chien Hsuan Lee who came to your offices again? A. Yes, we do have the discussions and the negotiations, that's the final agreement. Q. And Mr Chien Hsuan Lee said to you that he didn't have authority to sign on behalf of Fortuna and that Mrs Lay would need to approve any outcome? A. No. No. Mr Chien Hsuan Lee is the only director and the chairman from the beginning. We are dealing with them. 113 In particular, he emphasised that Mr Chien Hsuan Lee did not seek approval from Mrs Lay or Fortuna's solicitors regarding the agreement (T 505): Q. Mr Chien Hsuan Lee said to you at the meeting where people signed the document, he said to you, "I can't decide this because it has to be shown to Mrs Lay." A. No, he did not mention. He's the only person who has the full authority to do so. Q. He did not say he had the full A. He now mention Mrs Lay she has the power to do so. Q. Mr Li, you know that he also said that the document had to be approved by the Fortuna solicitor in Sydney, didn't he? A. No. No, I remember they only mentioned to someone Mrs Lay is because Mr Chien Hsuan Lee owes $50,000 Australian to Mrs Lay's share. The purpose to purchase Mrs Lay's share is to avoid tax. 114 This evidence is accepted as reliable. 115 Although, adamant that he was not familiar with the precise details of the negotiations, he flatly denied that he said to Chien Hsuan Lee "I really need you to do this as a personal favour for me" or "Please sign this document to show that you support me" (T 505-506). This evidence is accepted as reliable. He insisted that the purpose of the meetings was to finally resolve the problems and disputes (T 506). 116 Mr Li Xin Hao emphasised that Chien Hsuan Lee had voluntarily signed the agreement, rather than doing so under his prompting (T 508). This evidence is accepted as reliable. More insights from the evidence given by Mr Chein Hsuan Lee 117 More insights regarding Mr Chien Hsuan Lee's authority to enter into agreements were revealed in his cross-examination. 118 Early on, Mr Chien Hsuan Lee emphasised that he was the managing director of Fortuna (T 554): Q. You are in fact the managing director of Fortuna, is that correct? A. Yes. Q. And not only are you the managing director, you were in fact appointed as the managing director? A. Yes. Q. And not only that, you in fact disclosed to all the people that Fortuna dealt with that you were the managing director? A Yes. 119 Remarkably, Mr Chien Hsuan Lee denied that he disclosed to Ms Ye that he was a managing director of Fortuna. However, his Blueway business card, which he showed to Ms Ye clearly had the text "Managing Director" below his name (T 555-556): Q. You told Michelle Ye that you were the managing director of Fortuna as trading as Blueway? A. No such conversation. Q. And not only did you tell Michelle Ye, when you had contact with Mr Li in China you told him the same thing? A. No such need. I tell people I'm managing director. My name carries managing director already. Q. In fact it's quite a customary thing in the Chinese business world for the exchange of business cards the minute you meet? A. Yes. Q. And the first thing you would have done when you met Michelle Ye and Mr Li in China was present your business card, correct? A. Yes. Q. And that business card disclosed that you were the managing director? A. Yes. 120 Mr Lee conceded that the prior to the deed of release the only document that governed the relationship between the three companies was that of 13 August 2005 (T 576). 121 Mr Lee denied seeing or reading the 15 September 2006 spreadsheet (T 577). However, this denial is difficult to sustain given the fact the final figure of $166,493.18 (T 579) is exactly double of the payout figure on the purported deed of release itself ($83,246,59). Throughout his cross-examination, Mr Lee maintained that he never agreed to those figures and that they were subject to final confirmation by the accounting department (see for instance T 594 and 597). 122 He was persistent in stating that the negotiations with Chairman Li were conducted hastily and that he did not familiarise himself with the contemporaneous documents. Rather, he insisted that Mrs Christine Lay was in charge of the details (T 579-580). 123 He even went as far as to say that he only spent half an hour reading it (T 590). 124 An unusual situation was faced when Mr Chein Hsuan Lee under cross-examination surprised both his own counsel as well as the plaintiffs counsel by producing what he contended was his personal original version of the deed of release handed to him on 18 September 2006. 125 He then sought to give evidence [never put to Mr Li Xin Hao], to the effect that at the time that he signed the agreement he had asked Mr Li Xin Hao not to put down the date and 'not yet to get the three witnesses'. Hence in producing the document one is able to see that this original version on page 2 (of 9) is not dated. Curiously he does not seem to have appreciated that the cover document to the deed of agreement to be found on page 1 in fact had the typed and printed date-18 September 2006. 126 The defendant's counsel acknowledged that this document had never been discovered. It does not seem to me that in the circumstances the court can place any weight on Mr Chein Hsuan Lee very late and well-hidden revelation that he had asked Mr Li Xin Hao not to put down the date on the document. In the way in which that evidence has come forward it seems to me to be appropriate to reject the evidence under section 135 of the Evidence Act for the reason that the probative value of the evidence is substantially outweighed by the prejudice to the plaintiff should the evidence be allowed at the stage of the proceedings which had been reached when the document was produced. [See T 648 as to the defendant's position. 127 Nor does the failure of Mr Chein Hsuan Lee to have come forward with his having privately retained [and never cause to be discovered] the above document instill confidence in the veracity of his evidence. 128 His evidence was that, due to his haste, he wanted the agreement not to be binding until certain confirmation was made of its details. 129 Mr Chein Hsuan Lee denied that he had signed the agreement in his capacity as a managing director but rather contended that he had signed in his personal capacity [Transcript 595 -596] 130 The nub of his evidence was that he went to China not to sign any documents but merely to "set up a good direction to solve the problem". [Transcript 598] Confirmation by Mrs Christine Lay 131 Mr Chein Hsuan Lee's claim (throughout his cross-examination) that he did not intend the agreement to be binding, as he needed Mrs Christine Lay to confirm the details does not ring true. It is peculiar in that he had conceded that Mrs Christine Lay was never involved in the negotiation. 132 Firstly, if Mr Chein Hsuan Lee was so unsure whether the details were correct that he needed Mrs Lay to confirm them, it begs the question why he even signed the agreement in the first place instead of telling Mr Li Xin Hao that further confirmation was required. 133 In fact, Mr Li Xin Hao himself never heard Mr Chein Hsuan Lee speak about requiring Mrs Lay's approval (T 505): Q. Mr Mito Lee said to you at the meeting where people signed the document, he said to you, "I can't decide this because it has to be shown to Mrs Lay." A. No, he did not mention. He's the only person who has the full authority to do so. 134 Secondly, if confirmation was required, it would make more sense [in relation to such an important document] that the confirmation would occur before any documents were signed to avoid dispute regarding whether any agreement were to be binding or otherwise. Notably, the email with the $166,493.18 figure in the attached spreadsheet was not addressed to Mrs Christine Lay but rather, only carbon copied to Mr Chein Hsuan Lee. 135 In the result the evidence of Mr Chein Hsuan Lee is rejected as unreliable. One can understand that it was well nigh impossible for him to be otherwise than partisan in relation to these strongly contested proceedings. However there are just too many areas in respect of which his explanations did not appear to fit with a logical path of behaviour. One must never forget that he was an experienced businessman who had been involved in many contract situations. A factual decision 136 Ultimately the decision that the deed of release was binding is in essence a factual decision. It is heavily influenced by the findings as to which witnesses were and which witnesses were not reliable. Other parameters taken into account include the following: i. One thing seems very clear: it was, by the 18th of September 2006, extremely important to both parties that they resolve once and for all result there are differences and move on. ii. There is no doubt that each of the parties carefully considered before that date, what was in their interests and what was not. iii. The defendant's counsel accepted that it was open to the Court to infer that the parties were very anxious to have the matter resolved as the air conditioners were the subject of the seasonal market and by September the parties were looking at the start of the air-conditioning sales season [Transcript 657]. That inference is drawn. iv. Indeed the major factors that appear to have created an abiding sense of urgency in relation to the signing the purported deed of release at least included the following : a) If the air conditioning units were not sold in a timely manner, the nature of the seasonal market for air conditioners would make them obsolete and therefore worthless. b) There was the potential for future warranty claims and reputational harm regarding the stock. Holding the units could well have exposed Fortuna to up to five years of warranty claims. c) Even if Fortuna were entitled to indemnify itself against the warranty claims by suing the plaintiffs, they would have to incur the costs of doing so. In any case, there would be damage to the Blueway brand name. d) Fortuna was apparently in financial stress at the time, in particular, the time in February 2006 where it stopped paying warehousing costs and subsequent threat that the storage services in Queensland and Western Australia would sell the units at auction. v. Next there was in fact a considerable degree of formality in the drafting of the document which is said to have bound the parties. It had been drafted with the assistance of lawyers. Each of the parties warranted that it had taken independent legal advice or had been given the opportunity to take legal advice as to the nature, effect and extent of the deed. It provided that the deed may be pleaded as a full and complete defence by any party in relation to any actions suits all proceedings commenced, continued or taken by or on behalf of another party to the deed in connection with any matters referred to in the deed. vi. Further one is able to discern through the whole of the deed that its many provisions were quite precise. vii. In those circumstances and bearing in mind the signatures to the deed which have already been referred to, the defendant is forced back to a series of technical arguments in its attempt to deny the validity of the deed. Prime Constructions 137 In Prime Constructions v West Bridge Investments [2004] NSWSC 861 Young CJ in Eq had occasion to deal with problems facing parties who had made an agreement to settle which agreement was to be consummated by formal documentation. His Honours reasons [at 12-27] travel across a number of principles concerning the solemn nature of the a deed and in consequence the approach taken by the law in prescribing the way in which deeds are to be executed: 14 The prime legislation governing the execution of deeds by corporations is s 127 of the Corporations Act 2001 and s 51A of the Conveyancing Act 1919 . Section 51A enables a company to execute a deed under seal with a signature of a director and a secretary. Section 127 (2) of the Corporations Act says much the same sort of thing. However, s 127 (1) makes it clear that a company can bind itself by a deed by a less formal method. However, two directors of the company must sign the deed, or a director and a company secretary must sign the deed, and if there is only one director of a company then that director alone can sign it, and the document must be expressed to be a deed. 15 In the instant case, while the document was expressed to be a deed, only one director signed it so there was no compliance with s 127 of the Corporations Act . As there was no seal, there was no compliance with section 51A of the Conveyancing Act . 16 Section 127(4) of the Corporations Act makes it clear that the section does not limit the ways in which a company may execute a document, including a deed. It is not particularly clear what this covers. However, it would seem that it covers the common law method of executing a deed, or the method of executing a deed that is binding on the company, which is prescribed by the company's constitution… 18 However, it would seem that s 127(4) also covers the situation where, by virtue of some estoppel, the deed is binding on the company . 19 I have before today (see Nicom Interiors Pty Ltd v Circuit Finance Pty Ltd (2004) 50 ACSR 25) pointed out how essential it is for lawyers advising companies which are executing deeds to be very careful to ensure that they are executed in accordance with s 127, or other permissible methods. Unfortunately, in the present case somewhere along the line, I do not know whose fault it is, the document which was executed on 9 February failed to comply with those standards of execution, and was not, technically speaking, a deed. … 22 Even if there was not a proper execution of the deed, because Mr Park had represented to Ms Williams that the deed had been executed, it may well have been that estoppel would operate so that the plaintiff would be estopped from denying that the document was a deed, and if the defendant had taken that view, then the deed would have had the same operation as if it had been executed as a deed; 23 Accordingly, on this basis, we have what is known in specific performance law as an executed contract. Conclusion 138 This authority [and in particular the fact that section 127 (4) of the Corporations Act makes it clear that the section does not limit the ways in which a company may execute a document, including a deed and that it is not particularly clear what this covers], confirms my own view. This is that in the particular circumstances of the instant litigation, in view of the close negotiations between the parties and the finding that the terms of the deed were finally agreed upon, all that was left was confirmation of the figures set out in annexure A which was nothing more and nothing less than a checking exercise. For those further reasons the case may also be regarded as falling within the first or alternatively the second of the Masters v Cameron classes. 139 Early in these reasons [under the heading 'The critical issues'] I observed that the pleadings and arguments were wide enough to embrace a number of routes by which the plaintiff's may reach their desired result. Notwithstanding that some of these routes overlap they include the following, each of which is held to provide the plaintiffs entitlement to hold the defendant has bound by the deed of release: Holding out i. The holding out by Fortuna [of Mr Chein Hsuan Lee] as having ostensible authority to sign the deed of release: cf: Handley - Estoppel by Conduct and Election , Sweet and Maxwell 2006, at 9-001-006, where the learned author travels through the operative principles concerning holding out as agent; holding out by conduct; ostensible authority and holding out by agent. See also Corporations Act Part 2B.2 in setting the assumptions which people dealing with companies are entitled to make include: a) 129 (3) provides that a person may assume that anyone who is held out by the company to be an officer or agent of the company has been duly appointed and has authority to exercise the powers and perform the duties customarily exercised or performed by that kind of officer or agent of a similar company. b) Further section 127 (4) provides that that section does not limit the ways in which a company may execute a document (including a deed). Equitable estoppel ii. The element which both attracts the jurisdiction of a court of equity and shapes the remedy to be given is unconscionable conduct on the part of the person bound by the equity, and the remedy required to satisfy an equity varies according to the circumstances of the case. As Robert Goff J. said in Amalgamated Property Company v Texas Bank [1982] QB 84 at 103: "Of all doctrines, equitable estoppel is surely one of the most flexible." The unconscionable conduct which it is the object of equity to prevent is the failure of a party, who has induced the adoption of the assumption or expectation and who knew or intended that it would be relied on, to fulfil the assumption or expectation or otherwise to avoid the detriment which that failure would occasion. The object of the equity is not to compel the party bound to fulfil the assumption or expectation; it is to avoid the detriment which, if the assumption or expectation goes unfilled, will be suffered by the party who has been induced to act or to abstain from acting thereon." [per Brennan J in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387] In Waltons Stores, Mason CJ and Wilson J put the matter as follows: "One may therefore discern in the cases a common thread which links them together, namely, the principle that equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has 'played such a party in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it'… Equity comes to the relief of such a plaintiff on the footing that it would be unconscionable conduct on the part of the other party to ignore the assumption" Each of these parameters is satisfied in relation to the present proceedings. Legal characterisation iii. Ultimately the simplest summary may be put in terms of the 'legal characterisation' of what occurred : this was that the parties entered into a contract on the terms provided for by the deed [cf Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd & Anor [1964] 2 QB 480, earlier cited in these reasons, where Lord Diplock held (at 505) that where a board permits a person to "act in the management or conduct of the company's business", that delegation of executive authority alone is sufficient to vest that person with ostensible authority to bind the company to transactions usually entered into "in the course of such business" by such managers.] The defendants Trade Practices Defence 140 In the event that the Court would find [as has been the finding] that the 18 September 2006 document is binding, the defendant seeks orders pursuant to the Trade Practices Act [Cwlth] section 87 that the deed be set aside or varied. 141 The nature of the variation sought would be: i. To strike out all causes of the deed of release which inconsistent with the 24 August 2006 Agreement and to insert a number of provisions of the 24 August 2006 document into the deed of release; ii. In essence clause 1 (a)-(c) would be deleted; a new clause 1 would be inserted to read as follows: The deed made 24 August 2006 and annexed at schedule 1 hereto is incorporated herein and governs the rights and obligations of FN and GA as against each other; iii. Further clauses 2 (b), 3, 4 and 6 (c) would be deleted. 142 Such a contention cannot stand with the reasons already set out. Short minutes of order 143 The parties will be required to bring in short minutes of order on which occasion: i. costs may be argued; ii. the parties will be given an opportunity to point up any matters which are said to remain for decision in relation to the liability question; iii. the further conduct of the proceedings may be the subject of submissions, 10/11/2009 - typographical - Paragraph(s) Paragraph 44 – second line replace the word "Mao" with the word "Li"Paragraph 46 – fourth line delete the words "and Mr Chein Lee"Paragraph 50 - second line replace "GDAC" with "GCAC"Paragraph 57 – third line replace "GDAC" with "GCAC"Paragraph 58 – replace in heading "GDAC" with "GCACParagraph 58 – second line replace "GDAC" with "GCAC"Paragraph 63 - third line replace the word "Mao" with the word "Li"Paragraph 73 – sub-paragraph ii, second bullet point replace "GDAC" with "GCAC"Paragraph 107 – last line replace "GDAC" with "GCAC" 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.