FEDERAL COURT OF AUSTRALIA

Hume Computers Pty Ltd ACN 003 154 827 v Exact International BV
[2006] FCA 1440

PRACTICE AND PROCEDURE – service of originating process – service outside Australia – proper construction of exclusive jurisdiction clause – applicable principles – whether clause applies to claims of contravention of Trade Practices Act – representations prior to and during course of agreement – motion to stay Federal Court proceedings – leave granted to serve outside jurisdiction – stay refused

Federal Court Rules – Order 8 rule 2, Order 8 rule 3

Trade Practices Act – ss 51A, 51AC, 52

Akai Pty Ltd v People’s Insurance Company Ltd (1996) 188 CLR 418 followed

Australian Competition & Consumer Commission v CG Berbatis Holdings Pty Ltd [2000] FCA 1376 cited

Australian Competition & Consumer Commission v 4WD Systems Pty Ltd (2003) 200 ALR 491 cited

Bonython v Commonwealth (1950) 81 CLR 486 cited

FAI General Insurance Co Ltd v Ocean Marine Mutual Protection and Indemnity Association Ltd (1996) 41 NSWLR 117 cited

Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1 followed

Incitec Ltd v Alkimos Shipping Corporation (2004) 138 FCR 496 followed

Leigh-Mardon Pty Ltd v PRC Inc (1993) 44 FCR 88 distinguished

O’Connor v LEAW Pty Ltd (formerly known as Mal-Corp Pty Ltd) (1997) 42 NSWLR 285 distinguished

Pan Australian Shipping Pty Ltd v The Ship ‘Comandate’ [2006] FCA 881 followed

Quinlan v Safe International Forsakrings AB [2005] FCA 1362 followed

Re Wakim; ex parte McNally & Anor (S74 of 1998) (1999) 198 CLR 151 cited

Vision Systems Ltd v Cincom Systems of Australia Pty Ltd (1999) 43 IPR 658 followed

Voth v Manildra Four Mills Pty Limited (1990) 171 CLR 538 cited

HUME COMPUTERS PTY LTD ACN 003 154 827, HUME BUSINESS SOLUTIONS PTY LTD AND HUME BUSINESS SYSTEMS PTY LTD v EXACT INTERNATIONAL BV, EXACT SOFTWARE AUSTRALIA PTY LTD, RAJESH PATEL, ROBERT GREGORY URAND AND EDUARD HAGENS

NSD1469 OF 2006

JACOBSON J

25 OCTOBER 2006

SYDNEY

THE COURT ORDERS THAT:

1.                  Pursuant to Order 8 Rule 3 of the Federal Court Rules, the Applicants have leave to serve the Application and Statement of Claim in these proceedings on the First and Third Respondents in the Netherlands in accordance with Article 4(a)(2) of the Convention between the United Kingdom and the Netherlands regarding Legal Proceedings in Civil and Commercial Matters (London, 31 May 1932) by an agent appointed for the purpose by the party on whose initiative service of the documents is required.

2.                  The Respondents’ Notice of Motion for a permanent stay of the proceedings filed 14 September 2006 be dismissed.

3.                  The First to Fourth Respondents pay the Applicants’ costs of the Notice of Motion filed 14 September 2006.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

(REVISED FROM TRANSCRIPT)

1                     Yesterday I heard an application by the applicants, the ‘Hume Companies’, to serve the originating process in these proceedings on the first respondent, Exact International, and the third respondent, Mr Patel, out of Australia and in the Netherlands.  I also heard a motion brought by Exact International, Mr Patel and the second and fourth respondents, Exact Software Australia (ESA) and Mr Urand, for a stay of the proceedings.  I will refer to the first to fourth respondents collectively as the respondents. 

2                     Counsel for the respondents did not dispute that the conditions for leave to serve outside the jurisdiction were satisfied as stated in O 8 r 3(2) of the Federal Court Rules. The Court has jurisdiction in these proceedings because claims are brought under the Trade Practices Act 1974 (Cth) and other causes of action which are part of the same justiciable controversy; Re Wakim; Ex parte McNally & Anor (S74 of 1998) (1999) 198 CLR 511 at [135].

3                     There was no dispute that the proceeding is of a kind mentioned in O 8 r 2 and I have previously determined that the Hume Companies have an arguable claim for relief.  Nevertheless the Court retains a discretion to permit service outside Australia.  Here the substantial argument between the parties was whether the proceedings should be stayed upon the ground that Hume and Exact International are parties to an agreement which contains an exclusive jurisdiction clause (the ‘Distributorship Agreement’). 

4                     I set out the relevant background facts in my previous interlocutory judgment.  I also referred in it to the provisions of Article 27 of the Distributorship Agreement on which the respondents rely.  However, it is convenient to set out Article 27 in full as follows:

‘This Agreement shall be governed by the laws of The Netherlands and any and all disputes concerning the validity, interpretation or performance hereof shall be submitted to the competent courts of The Hague.’

5                     Article 27 is a choice of law clause and an exclusive jurisdiction clause.  That is to say, the Distributorship Agreement is to be governed by the laws of The Netherlands and disputes concerning its “validity, interpretation or performance” are to be submitted to the courts of The Hague. 

6                     An exclusive jurisdiction clause does not deprive an Australian court of its jurisdiction to try the proceedings; Akai Pty Ltd v People’s Insurance Company Ltd (1996) 188 CLR 418 at 444–445. 

7                     The applicable principle was summarised by Sundberg J in Vision Systems Ltd v Cincom Systems of Australia Pty Ltd (1999) 43 IPR 658 at [7].  His Honour there observed:

‘On its proper construction this clause is an exclusive jurisdiction clause: see Compagnie des Messageries Maritime v Wilson (1954) 94 CLR 577 at 587; Sohio Supply Co (US) v Gatoil [1989] 1 Lloyd’s Rep 588 at 592, British Aerospace plc v Dee Howard Co [1993] 1 Lloyd’s Rep 368.  The clearly inappropriate forum test applicable in relation to a stay of proceedings on forum non conveniens grounds (Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538) does not apply where there is a submission to the exclusive jurisdiction of the courts of a place other than the forum.  In such a case the parties should be held to their bargain, and while the court retains its jurisdiction, and may decline to grant a stay, substantial grounds for doing so are required: Leigh-Mardon Pty Ltd v PRC Inc (1993) 44 FCR 88 at 95-9; Akai Pty Ltd v People’s Insurance Co Ltd (1996) 188 CLR 418 at 427-9; 141 ALR 374; FAI General Insurance Co Ltd v Ocean Marine Mutual Protection and Indemnity Association (1997) 41 NSWLR 559 at 569.’

8                     However, before proceeding to determine whether there are substantial grounds for refusing the stay it is necessary to consider whether the claims which are the subject of this proceeding fall within the ambit of the exclusive jurisdiction clause.  This turns upon the proper construction of the clause and the nature of the claims pleaded; FAI General Insurance Co Ltd v Ocean Marine Mutual Protection and Indemnity Association Ltd (1996) 41 NSWLR 117 at 126–127. 

9                     The exclusive jurisdiction clause is limited to disputes "concerning" the validity, interpretation or performance of the Distributorship Agreement.  These words are not the same as the words "concerning the agreement" which have been considered to be of wide import; O'Connor v LEAW Pty Ltd (formerly known as Mal-Corp Pty Ltd) (1997) 42 NSWLR 285 at 303.  Nor is the clause in the wide terms of the clause which was considered by Beazley J in Leigh-Mardon Pty Ltd v PRC Inc (1993) 44 FCR 88.

10                  It seems to me that the effect of what was decided by the Full Court in Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1 at 23 is that the clause is to be construed in accordance with ordinary principles of the construction of commercial agreements, including the context in which the agreement was made; see also FAI at 126–127.  If the parties have chosen restricted language to describe the disputes which are to be submitted to the jurisdiction of a foreign court then they will be held to it; see Hi-Fert at 23.

11                  Here the subject matter of the Distributorship Agreement and the wording of the exclusive jurisdiction clause strongly suggest that the disputes which fall within it are disputes about the performance of the Distributorship Agreement.  That is to say disputes as to whether either party has performed the agreement or is in breach of its terms are to be submitted to the courts of The Hague.

12                  In my view upon the proper construction of the exclusive jurisdiction clause it has no application to disputes about misrepresentations said to have been made prior to the entry into of the Distributorship Agreement or to misrepresentations alleged to have been made in the course of performance of the agreement and which are said to have been relied upon by the Hume Companies. 

13                  I do not propose to set out the allegations or causes of action propounded in the statement of claim.  They comprise a number of misrepresentations which are said to constitute contraventions of s 52 of the Trade Practices Act.  The Representations were said to have been made before and during the course of the Distributorship Agreement.  The claims also include fraud, breach of duty of good faith, breach of contract, breach of fiduciary duty and breach of confidence, as well as unconscionable conduct under ss 51AA and 51AC of the Trade Practices Act and involvement in the contraventions of the Trade Practices Act by virtue of s 75B.

14                  It is true that a substantial part of the statement of claim is founded upon breach of contract.  That is to say breaches of the Distributorship Agreement and breaches of the implied duty of good faith or its equivalent in Dutch law.  It is also true that there is evidence in the report of Mr van Otterloo that there is a principle of reasonableness and fairness in the Dutch Civil Code which may be thought to be equivalent to the principles applied in Australian law.  However, the gravamen of the statement of claim is that what Exact International has done is to undertake a deliberate planned strategy to deprive Hume of the value of the distributorship business built up by it.  This claim is substantially founded upon the causes of action for misleading and deceptive conduct, fraud and misuse of confidential information as well as unconscionable conduct under the Trade Practices Act.

15                  Importantly, many of the representations that are pleaded are as to the intentions of Exact International.  They would appear to be representations as to future matters under s 51A of the Trade Practices Act.  It would therefore seem to be incumbent upon Hume to meet these allegations with evidence of reasonable grounds. 

16                  Upon the construction that I've taken of Article 27 of the Distributorship Agreement the exclusive jurisdiction clause does not apply to the causes of action other than the claims in contract and the implied terms.  It may be thought that the system of law with which those aspects of the transaction which relate to the conduct in Australia of Exact's Australian subsidiary, ESA, have the "closest and most real connection" is the law of Australia; Bonython v Commonwealth (1950) 81 CLR 486 at 498; Akai at 440–441.

17                  Applying by analogy the observations of Emmett J in Hi-Fert at 23 it may be thought that the parties to the Distributorship Agreement did not intend that claims arising under the Trade Practices Act would be resolved by the courts of The Hague.  In Hi-Fert at 29, Emmett J concluded that the company having properly commenced proceedings in this Court was entitled to prosecute the proceedings against the respondents in the Federal Court citing Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197 at 239.  On this approach it cannot be said that the Federal Court is a clearly inappropriate forum within the principle stated by the High Court in Voth v Manildra Flour Mills Pty Limited (1990) 171 CLR 538.

18                  However, even if Article 27 is construed more widely, as was contended by the respondents, the question which arises is whether a stay in aid of an implied negative stipulation in Article 27 would deprive the Hume Companies of a legitimate juridical advantage which they would have in an Australian court that would apply the provisions of the Trade Practices Act as part of the lex causae; Akai at 444–445. 

19                  The respondents sought to meet this question by pointing to the evidence in Mr van Otterloo's report of the "similarity" between the claims for misleading and deceptive conduct and the Dutch legal doctrine of fraud.  Moreover, counsel for the respondents argued that the claims under s 52 of the Trade Practices Act as pleaded in the statement of claim amount in substance to a claim in fraud.  Thus it was said that the Hume Companies would not in truth be deprived of any legitimate juridical advantage.  But it seems to me to be plain that the definition of fraud in Article 44 section 3 Book 3 of the Dutch Civil Code and the concepts of undue influence and error to which Mr van Otterloo refers are different from the elements of misleading and deceptive conduct under the Trade Practices Act.

20                  There is substance in the respondents’ argument that the gravamen of the case is a claim in fraud.  However, what underlies it is the various claimed misrepresentations, many of which are as to future matters.  I do not think it is possible to characterise the claim purely as one of fraud and to leave the applicants to discharge the higher onus.  Moreover, the applicants have a clear juridical advantage in being able to rely on the provisions of s 51A of the Trade Practices Act.  Nor is the definition of "undue influence" in the Dutch Civil Code equivalent to the prohibition upon unconscionable conduct contained in s 51AC of the Trade Practices Act.

21                  Section 51AC is broader than the concept of unconscionable conduct under the unwritten law to which the Dutch provision appears to be analogous; Australian Competition & Consumer Commission v CG Berbatis Holdings Pty Ltd [2000] FCA 1376; Australian Competition & Consumer Commission v 4WD Systems Pty Ltd (2003) 200 ALR 491.  Furthermore there was nothing in Mr van Otterloo's report to suggest that a Dutch court would apply, as part of the lex causae, the provisions of ss 51A, 51AC and 52 of the Trade Practices Act.  Thus, even if the correct approach to this application is to commence with a "firm disposition" in favour of a stay, I am satisfied that there are strong reasons for refusing it; see Akai at 445 citing Huddart Parker Ltd v The Ship "Mill Hill" (1950) 81 CLR 502 at 508–509. 

22                  As Nicholson J said in Quinlan v Safe International Forsakrings AB [2005] FCA 1362 at [49]:

‘An important factor, which should overcome the pre-disposition of the Court in favour of a stay, is whether a protective Australian statute would be avoided by forcing the plaintiff to sue in the courts of the nominated jurisdiction.’

23                  His Honour referred in support of that proposition to the decision of Byrne J in Commonwealth Bank of Australia v White [1999] 2 VR 681.

24                  In Pan Australian Shipping Pty Ltd v The Ship "Comandate" [2006] FCA 881 at [39], Rares J observed that this Court has recognised that rights granted to parties under the Trade Practices Act are important considerations in determining whether or not a stay should be granted under the International Arbitration Act 1974 (Cth).  His Honour referred to the decision of Allsop J in Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Limited [2005] FCA 1102 at [73] and Hi-Fert at 23–24.  The same approach seems to me to apply in cases where a stay is sought upon the footing of an exclusive jurisdiction clause.

25                  The position in the present case seems to me to be quite different from Leigh-Mardon where Beazley J considered that there were other causes of action that might effectively constitute an equivalent cause of action to the Trade Practices Act claims.  It is true that the contractual aspects of the claim are governed by Article 27 of the Distributorship Agreement.  However, the Court should lean against the multiplicity of proceedings in different jurisdictions.  As Allsop J said in Incitec Ltd v Alkimos Shipping Corporation (2004) 138 FCR 496 at [66]:

‘[T]his Court should not promote competing and potentially conflicting litigation in circumstances where one venue can conveniently and promptly deal with the whole controversy.’

26                  Here the only forum which is able to deal with all of the causes of action is the Federal Court.  This is a further reason for declining a stay.  The respondents pointed to the evidence of Ms Jansen as to the location of evidence of witnesses.  A short answer to this is that the evidence is at best neutral, moreover it does not answer the observations which I've made as to the important consideration of the claims under the Trade Practices Act. 

Orders

27                  Accordingly, the orders that I will make are:      

(a)     Pursuant to Order 8 Rule 3 of the Federal Court Rules, the Applicants have leave to serve the Application and Statement of Claim in these proceedings on the First and Third Respondents in the Netherlands in accordance with Article 4(a)(2) of the Convention between the United Kingdom and the Netherlands regarding Legal Proceedings in Civil and Commercial Matters (London, 31 May 1932) by an agent appointed for the purpose by the party on whose initiative service of the documents is required.

(b)     The Respondents’ Notice of Motion for a permanent stay of the proceedings filed 14 September 2006 be dismissed.

(c)     The First to Fourth Respondents pay the Applicants’ costs of the Notice of Motion filed 14 September 2006.

Associate:

Dated:         25 October 2006