Castel Electronics Pty Ltd v TCL Airconditioner (Zhongshan) Co Ltd
[2012] VSC 548
•17 December 2012
| Do Not Send for Reporting | ||
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2010 3576
| CASTEL ELECTRONICS PTY LTD (ACN 074 561 087) | Plaintiff |
| v | |
| TCL AIRCONDITIONER (ZHONGSHAN) CO LTD | Defendant |
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JUDGE: | DALY AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 26 September 2012 | |
DATE OF JUDGMENT: | 17 December 2012 | |
CASE MAY BE CITED AS: | Castel Electronics Pty Ltd v TCL Airconditioner (Zhongshan) Co Ltd | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 548 | Revised 11 February 2013 |
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PRACTICE AND PROCEDURE – Service outside Victoria under rule 7.01(1) of the Rules – Application to set aside service – Whether plaintiff required to show a strongly arguable entitlement to service out of the jurisdiction – Agar and Ors v Hyde [2000] 201 CLR 552 considered and followed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R. Garratt QC with Mr D. Bailey | Browne & Co |
| For the Defendant | Dr A.P. Trichardt | Norton Rose Australia |
HER HONOUR:
Background
Castel Electronics Pty Ltd (“Castel”) is a distributor of consumer electrical products based in Preston, Victoria. TCL Airconditioner (Zhongshan) Co Ltd (“TCL”) is a manufacturer of airconditioners based in Zhongshan, in the Peoples’ Republic of China (“China”).
Between 2003 and 2008, Castel distributed airconditioners supplied by TCL in the Australian market. The terms of the commercial relationship between Castel and TCL were governed by a document titled “General Distributorship Agreement” (“GDA”), which was made on or about 29 December 2003. Under the umbrella of the GDA, Castel and TCL entered into a series of separate contracts for the supply of airconditioners (“sales contracts”). The sales contracts would be preceded by a series of meetings, telephone discussions and email exchanges regarding such matters as the quantities and products Castel sought from TCL for the forthcoming sales season (airconditioners being a seasonal product), what quantities TCL could supply of particular models, price, and the particular technical and other requirements of the Australian market and regulatory environment. Towards the conclusion of this process, Castel would send an order form specifying the quantities of particular products it sought from TCL.
In some cases, the order forms were incomplete, in that the order of some models was said, according to notations on the order form, to be “subject to meeting specifications”, and in respect of some models, there was a notation that prices were yet to be agreed. Usually, there would be further email exchanges and telephone calls between the parties’ representatives regarding pricing, timing of shipments, specifications, and other technical and/or quality issues.
TCL would then send to Castel a document titled “Pro‑Forma Invoice” (“pro‑forma invoice”), which contained details of the product lines which TCL was able to supply, the price at which the goods would be supplied, the anticipated date of delivery, and the notation that the goods were supplied “FOB”.[1]
[1]“Free on Board” or “Freight on Board”, such that from the time the goods were delivered to the relevant port in China for dispatch to Australia, the “risk” in the goods passed to Castel.
Following receipt of the proforma invoice (on at least one occasion a revised proforma invoice was dispatched by TCL a matter of days after the first proforma invoice was issued), Castel would usually send to TCL a draft Letter of Credit to be issued by its bank (“NAB”). The draft Letter of Credit would contain a number of contractual conditions and descriptions of documents which would need to be sighted by the NAB before it would release the funds to TCL. It appears from the affidavit evidence that TCL responded to the draft Letter of Credit by email or telephone, suggesting amendments (see, for example, exhibit “MK-11” to the affidavit of Michael Kwong affirmed 9 February 2012), following which Castel would arrange for a final Letter of Credit to be issued by NAB.
In its amended statement of claim dated 20 April 2011, Castel alleges that TCL, in respect of orders placed by it in April, September and October 2006 for the 2006 sales season, and in August 2007 for the 2007 sales season, breached the terms of the relevant sales contract by shipping the goods after the date specified in TCL’s pro‑forma invoice. Further, Castel claims that TCL breached the sales contracts by supplying defective products. Castel alleges that each of the sales contracts was subject to terms implied by Article 35 of the United Nations Convention on Contracts for the International Sale of Goods (“Vienna Convention”), which obliges a seller of goods to:
(a)deliver goods of the quantity, quality and description required by the relevant sales contract; and
(b)deliver goods which are fit for the purposes for which goods of the same description would ordinarily be used.
The writ and the original statement of claim was served upon TCL on or about 12 October 2011 in accordance with the rules and conventions applicable to service of defendants domiciled overseas. Annexed to the writ is an indorsement on originating process as required by Rule 7.02 of the Rules. No point is taken by TCL that service was not properly effected, or that the indorsement did not comply with the requirements of r 7.02.
The indorsement stated as follows:
(A)The Plaintiff relies upon paragraph 7.01(f) of the Rules of Court that the proceeding is one brought to enforce, rescind, dissolve, rectify, annul or otherwise affect a contract, or to recover damages or other relief in respect of the breach of a contract, and the contract-
(i)was made within Victoria;
(ii)was made by or through an agent carrying on business or residing within Victoria on behalf of a principal carrying on business or residing out of Victoria; or
(iii)is governed by the law of Victoria.
(B)The Plaintiff also relies upon paragraph 7.01(g) of the Rules of Court in that the proceeding is brought in respect of a breach committed within Victoria of a contract wherever made, even though that breach was preceded or accompanied by a breach out of Victoria that rendered impossible the performance of that part of the contract which ought to have been performed in Victoria.
The facts supporting service of the writ outside Victoria under Rules 7.01(f) and 7.01(g)
(C)The facts relied upon are:
(a)That the Plaintiff (whose place of business is situated in Victoria, Australia) and the Defendant (whose place of business is situated at Zhongshan, China) entered into the written sales contracts details of which are more particularly referred to in paragraphs 5 to 8 of the statement of claim served with the writ and listed in the 2006 Table of Sales and Late Supplies and the 2007 Table of Sales and Late Supplies (“the sales contracts”) supplied with the writ by reason of the Plaintiff sending orders for air conditioners (“goods’) to the Defendant in China and the Defendant accepting such orders by transmitting pro forma invoices to the Plaintiff confirming details of the sales;
(b)The sales contracts were formed in Victoria by reason of the acceptance of the sales orders of the Plaintiff by the Defendant issuing pro forma invoices which reached the Plaintiff in Victoria at its address 21 Beaufort Street, Preston, Victoria;
(c)The sales contracts are governed by the law of Victoria (which includes the United Nations Convention on Contracts for the International Sale of Goods 1980) having been formed in Victoria as aforesaid and requiring the supply of goods to the Plaintiff in Victoria by the Defendant;
(d)The Defendant committed breaches of the sales contracts in Victoria as alleged in paragraphs 14, 18 and 21 of the statement of claim by shipping goods at dates later than those required by the sales contracts or supplying goods that did not conform with the sales contracts and the Plaintiff has suffered loss and damage as alleged in paragraphs 14, 18 and 22 of the statement of claim.
By summons filed 6 December 2011, TCL sought orders that service of the writ outside Australia be set aside, on the grounds that:
(a)Service of the writ outside of Australia is not authorised by the rules of this Honourable Court, in that:
(i)none of the contracts the subject of the proceeding:
(A) were made within Victoria;
(B) were made by or through an agent carrying on business or residing within Victoria on behalf of a principal carrying on business or residing out of Victoria; or
(C) are governed by the law of Victoria
within the meaning of Rule 7.01(1)(f) of the Supreme Court (General Civil Procedure) Rules 2005 (Rules); and
(ii)the proceeding is not brought in respect of a breach committed within Victoria of a contract wherever made, within the meaning of Rule 7.01(1)(g) of the Rules.
(b)The Court lacks jurisdiction.
Both parties relied upon evidence from relevant personnel which described the manner in which the parties communicated and transacted with each other, and purported to describe the contract formation process. Counsel for Castel formally objected to some of the evidence led on behalf of TCL. However, rather than rule upon each individual objection during the course of the hearing of the application, I indicated that I had already identified and would disregard statements of a conclusionary nature or statements which amounted to unqualified opinion contained in the evidence of both parties. The affidavits relied upon by the parties also exhibited a substantial volume of documents evidencing, among other things, the communications between the parties in the lead up to the shipment of goods for the 2006 and 2007 sales seasons.
Rule 7.01(1) of the Rules provides, relevantly, that an originating process may be served out of Australia without order of the Court where, among other things:
(f)the proceeding is one brought to enforce, rescind, dissolve, rectify, annul or otherwise affect a contract, or to recover damages or other relief in respect of the breach of a contract, and the contract –
(i)was made within Victoria;
(ii)was made by or through an agent carrying on business or residing within Victoria on behalf of a principal carrying on business or residing out of Victoria; or
(iii)is governed by the law of Victoria;
(g)the proceeding is brought in respect of a breach committed within Victoria of a contract wherever made, even though that breach was preceded or accompanied by a breach out of Victoria that rendered impossible the performance of that part of the contract which ought to have been performed within Victoria.
Castel asserts that it was entitled to serve the writ as its claims fit within each of the categories specified above (although no submissions were made with respect to sub-paragraph (f)(ii) above). TCL asserts that Castel’s claims fit within none of the above categories, and that the proper forum for the determination of Castel’s claims is China. I note that no application has been made to stay the proceeding on the grounds that a Victorian court is not a convenient forum for the hearing and determination of the dispute. While presumably that may not preclude TCL from doing so at some later stage, it would have been appropriate and more efficient for such an application to have been brought together with the current application.
Were the sales contracts made in Victoria?
The law regarding the formation of the sales contracts is agreed by both parties to be governed by Part II of the Vienna Convention. These provisions are to be read subject to Articles 8 and 9, under the General Provisions. These provisions provide as follows:
Article 8
(1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was.
(2) If the preceding paragraph is not applicable, statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.
(3) In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.
Article 9
(1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves.
(2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, the parties to contracts of the type involved in the particular trade concerned.
Article 11
A contract of sale need not be concluded or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses.
Articles 14 and 15 provide as follows:
Article 14
(1) A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provisions for determining the quantity and the price.
(2) A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal.
Article 15
(1) An offer becomes effective when it reaches the offeree.
(2) An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer.
Articles 18, 19, 23 and 24 of the Convention are also relevant.
Article 18
(1) A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance.
(2) An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror. An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or, if not time is fixed, within a reasonable time, due account being taken of the circumstances of the transaction, including the rapidity of the means of communication employed by the offeror. An oral offer must be accepted immediately unless the circumstances indicate otherwise.
(3) However, if, by virtue of the offer or as a result of practices which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act, such as one relating to the dispatch of the goods or payment of the price, without notice to the offeror, the acceptance is effective at the moment the act is performed, provided that the act is performed within the period of time laid down in the preceding paragraph.
Article 19
(1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer.
(2) However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance.
(3) Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party’s liability to the other or the settlement of disputes are considered to alter the terms of the offer materially.
Article 23
A contract is concluded at the moment when an acceptance of an offer becomes effective in accordance with the provisions of this Convention.
Article 24
For the purposes of this Part of the Convention, an offer, declaration or acceptance or any other indication of intention “reaches” the addressee when it is made orally to him or delivered by any other means to him personally, to his place of business or mailing address or, if he does not have a place of business or mailing address, to his habitual residence.
Castel contends that the sales contracts were made in Victoria, in that TCL’s dispatch of a pro‑forma invoice, with final quantities and prices, viewed in the context of the pre‑contractual communications and negotiations between the parties, amounted to an acceptance of Castel’s offer as contained in the order form sent by Castel to TCL, notwithstanding that the prices for some models may not have been set out in the order form, and the quantities of goods would often change. NAB’s subsequent issue of a Letter of Credit amounted to a performance of Castel’s obligation under a concluded contract, that is, the obligation to pay the invoiced amount, rather than a communication of its acceptance of TCL’s offer (or counter offer) as constituted by a proforma invoice. As such, the relevant contracts were made in Victoria (the place that Castel received the pro-forma invoice).
TCL contended that the sales contracts were concluded by NAB’s dispatch of a Letter of Credit, signifying Castel’s acceptance of the terms of TCL’s counteroffer, as contained in the pro‑forma invoice. Counsel submitted that under both the common law principles of contract formation, and the relevant provisions of the Vienna Convention, the alleged “offer” said to be constituted by Castel’s order form was not sufficiently certain to be capable of acceptance. As the Letters of Credit were received by TCL in China, the sales contracts were made in China.
Counsel for TCL submitted that Castel’s order forms were not sufficiently certain in terms of the price and quantity of the goods to be delivered by TCL to Castel to amount to offers within the meaning of article 14 of the Vienna Convention. Rather, an order form merely constituted an invitation to TCL to enter into negotiations about the terms of a sales contract. Alternatively, if Castel’s order forms were considered to be sufficiently certain to constitute offers under Article 14 of the Vienna Convention, TCL’s pro-forma invoices were “counter-offers” within the meaning of Article 19 of the Vienna Convention, in that they contained materially different terms relating to the price, quantity, and time of delivery of the goods to those provided for in the order forms. However, the TCL proforma invoices did constitute offers, because they were addressed to Castel, evinced an intention to be bound, and were definite in respect of the quantity and price of the goods. Castel communicated its “assent” to the offer by arranging for the issue of the Letter of Credit, which was received by TCL in China. As such, the issue of the Letter of Credit constituted an acceptance within the meaning of Article 18 of the Vienna Convention, and that acceptance was received by TCL in China.
Were the sales contracts governed by the laws of Victoria?
Castel contends the sales contracts were governed by the law of Victoria, in that the transactions which were governed by the sales contracts have the closest connection with Victoria (or Australia). In particular,
(a)the GDA provided for Castel to be the exclusive distributor of the TCL airconditioners in Australia;
(b)the TCL airconditioners had to be saleable in the Australian market and comply with Australian safety and energy requirements;
(c)the TCL airconditioners were to be re-sold in Australia to Australian consumers;
(d)the parties’ dealings were in English, including the emails, order forms, pro forma invoices and Letters of Credit;
(e)the GDA specified the requirements for payment to apply to sales of TCL products by TCL to Castel; and
(f)under the GDA disputes concerning matters arising under that agreement were to be arbitrated in Australia, (and, in fact, certain disputes between Castel and TCL were arbitrated in Australia).
The submissions made on behalf of Castel conceded that the following matters favour China as the place with the closest connection with the sales contracts, being:
(a)the TCL products were manufactured in China; and
(b)the TCL products were delivered FOB to a Chinese port.
In response, TCL contended that the sales contracts not governed by the law of Victoria, but by the provisions of the Vienna Convention, which operates as the mandatory law of the forum, to the exclusion of the laws of both Victoria and China.
Did any alleged breaches occur in Victoria?
Castel contends that, to the extent that Castel makes claims in respect of allegedly defective goods, the sales contracts were breached in Victoria, in that:
(a)under the GDA, TCL accepted an obligation to be responsible for defects beyond the time of FOB delivery;
(b)the evidence shows that TCL acknowledged and accepted liability for certain defects over the course of 2006 and 2007; and
(c)in any event, the provisions of the Vienna Convention provide that the seller is liable to the buyer for any lack of conformity which occurs after the time when the risk passes to the buyer.
In response, counsel for TCL submitted that given that the sales contracts specified that the goods would be shipped FOB, its alleged failure to ship the goods on time took place in China, not in Victoria. Further, any obligations to supply goods which conformed with the sales contracts and were “fit for purpose” could only have been performed in China, as the goods were manufactured and packed in China. Therefore any breach could only have been committed in China.
Has Castel established an entitlement to service out under the Rules?
Counsel submitted on behalf of Castel that it is not necessary for the purposes of this application for me to finally determine the questions of where the sales contracts were formed, which law the sales contracts were governed by, and/or where any alleged breaches took place. This is because, in applications such as these, the burden is not on the plaintiff to conclusively prove the facts and legal conclusions relied upon in its indorsement as if at trial. Rather, it is only necessary for a plaintiff to satisfy the Court that the allegations made by a plaintiff in its pleading or other originating process fall within one or more of the categories enumerated within Rule 7.01(1).
In support of this contention, counsel for Castel relied upon the discussion by the majority of the High Court in Agar v Hyde[2] regarding the operation of the New South Wales equivalent of Order 7. The majority in Agar v Hyde put the position as follows:[3]
[2](2000) 201 CLR 552.
[3]At 572-574.
[47]The applicable rules, however, mark the departure from the models based on the Chancery practice and do not require leave to serve out of the jurisdiction and do not require that the party seeking to serve out demonstrate a prima facie entitlement to the relief sought in the originating process. All that the applicable rules say is that “the plaintiff shall not proceed against [a defendant served outside Australia who has not entered appearance] except with the leave of the Court” (emphasis added). The applicable rules are silent about what matters can or should be taken into account in granting or refusing that leave.
[48]Part 10 r 1A of the applicable rules permits the service of originating process outside Australia only in certain specified cases. If a defendant served outside Australia has not entered an appearance, an applicant for leave to proceed must demonstrate that one or more of the cases set out in r 1A applies. Those cases are described either as “where the proceedings are founded on” a particular kind of claim, or as “where the subject matter of the proceedings” is of a particular kind.
[49]…
[50]In deciding whether Pt 10 r 1A applied, and thus permitted service outside Australia of the originating process in these two actions, attention must be directed to the way in which the claims made by the respondents are framed. The paragraphs speak of “proceedings [which] are founded on” a specified matter such as a cause of action arising in the State or a tort committed in the State. That focuses attention upon the nature of the claim which is made. That is, is the claim a claim in which the plaintiff alleges that he has a cause of action which, according to those allegations, is a cause of action arising in the State?
[51]The inquiry just described neither requires nor permits an assessment of the strength (in the sense of the likelihood of success) of the plaintiff’s claim. The Court of Appeal was wrong to make such an assessment in deciding whether the rules permitted service out. In so far as the contrary was held in Bank of America v Bank of New York, it should be overruled. The application of these paragraphs of 4 1A depends on the nature of the allegations which the plaintiff makes, not on whether those allegations will be made good at trial. Once a claim is seen to be of the requisite kind, the proceeding falls within the relevant paragraph of paragraphs of Pt 10 r 1A, service outside Australia is permitted, and prima facie the plaintiff should have leave to proceed.
[52]Often enough, the statement of claim will reveal all that it is necessary to know to assess whether a plaintiff’s claim is of the requisite kind. But that may not always be so. For example, the place of making of a contract, or the place of breach of a contract, may not appear from the pleading and some evidence may be required to establish that a relevant paragraph of Pt 10 r 1A is engaged. …
Accordingly, counsel for Castel submitted, upon this analysis, it is only necessary for a plaintiff to show that the claims as made fall within one or more of the categories enumerated within 7.01(1).
The test expounded in Agar v Hyde appears to amount to a lower threshold for a plaintiff seeking to defend an application to set aside an originating process served outside the jurisdiction to surmount than that consistently imposed by Victorian courts, even in decisions which post date Agar v Hyde. In Fujitsu Australia Ltd v Dewar Electronics Pty Ltd and anor,[4] no reference was made to Agar v Hyde, but the Court proceeded on the basis that it was necessary for the plaintiff to establish with some degree of certainty that the relevant contracts were made in Victoria. In that case, reference was made to the statement of McDonald J in Williams v The Society of Lloyd’s[5] that
On these applications it is for the plaintiff to persuade the court that in respect of each cause of action on which he relies against the first four defendants there is a strong arguable case that service out of the jurisdiction of that claim is justifiable under one or other of the sub rules of Rule 7.01 relied on.
[4][2001] VSC 222.
[5](1994) 1 VR 274, at 291.
In Schib Packaging Srl v Emrich Industries Pty Ltd,[6] two judges of the Court of Appeal also considered that the plaintiff
bears the onus of establishing that there is a strong arguable case, more than a prima facie case, that the relevant conditions of rule 7.01 have been satisfied.
The Court was apparently not taken to the reasoning of the majority in Agar v Hyde, as no reference was made to the discussion extracted at paragraph 25 above.
[6](2005) 12 VR 268, at 271.
So much was alluded to by Cavanough J in Puccini Festival Australia Pty Ltd v Nippon Express (Australia) Pty Ltd and anor.[7] In considering an application by the defendant to set aside service of the writ outside Victoria, Cavanough J noted that counsel for the plaintiff did not wish to submit that the relevant threshold was any different from that espoused by McDonald J in Williams or the Court of Appeal in Schib. He then went on to say (footnotes omitted):
… However I doubt that Mr Ravech’s concession is correct. Unless there is a relevant distinction between r 7.01 and the corresponding provisions of the Supreme Court Rules 1970 (NSW) which were considered by the High Court in Agar v Hyde (and at present I cannot see any), the observations of Gaudron, McHugh, Gummow and Hayne JJ of Agar, would seem to establish that, on an application to set aside service out of the jurisdiction, it is for the plaintiff to show, merely, that according to the allegations made, the plaintiff’s proceeding, answers one or other of the description in r 7.01(1)(a)-(n); and then it is for the defendant to show (if the defendant be so advised) that there is a high degree of certainty that the plaintiff’s claim (as a whole) will fail. With respect, I doubt whether Schib and the earlier cases referred to in Schib and relied on by Mr Morfuni can be reconciled with the observations to which I have referred. Agar is not referred to in Schib. In Eagle v Delta Haze Corporation, a single judge of this court cited the judgment of Gleeson CJ in Agar in support of the proposition that the question is whether there is a good or strong arguable case that the jurisdictional nexus exists. However, with respect, it seems to me that the view of Gleeson CJ (like that of Callinan J in Agar) was a minority view. Nevertheless, in view of the concession, I will proceed on the basis that the plaintiff must establish that there is a strongly arguable case that it and NEI were parties to the agreement relied upon by it to justify service out of the jurisdiction.
[7](2007) 17 VR 36.
I agree with the observations of Cavanough J that the approach adopted by Schib is difficult to reconcile with the reasoning of the High Court in Agar v Hyde. Regardless of whether the statements in Agar v Hyde are obiter or not, I would be loath to adopt a different position than that put forward in a considered analysis of materially identical rules by a plurality of the High Court.
Counsel for Castel noted that many of the cases relied upon by TCL regarding the need for a plaintiff to conclusively establish a jurisdictional nexus with Victoria pre‑dated the amendment to the relevant rules in 1986, when the previous rules, which required leave of the Court before service out of the jurisdiction could be effected, was replaced by the current rule, where leave is not a precondition to service out. These authorities certainly pre‑date Agar v Hyde, where the majority expressly stated that: “The applicable rules, however, mark the departure from the models based upon Chancery practice.”[8]
[8]At 252.
In making this observation, the majority noted the distinction prior to 1970 between the rules and practices applicable in the common law jurisdiction of the New South Wales Supreme Court (where no leave was required for service out of the jurisdiction) and the equity jurisdiction, where a plaintiff was required to apply for leave for service out of the jurisdiction, supported by evidence on affidavit, and that “no such leave shall be granted unless it shall be made sufficiently to appear to the Court or Judge that the case is a proper one for service out of the jurisdiction under this order.”[9]
[9]Rules of the Supreme Court, 1883, o 11, r 5.
The majority noted that the applicable rules under consideration in Agar v Hyde followed the pre 1970 position on the common law side, which did not require leave, or provide for the type of evidence which must be adduced in support of any application for leave (say, when seeking leave to enter judgment in default of appearance).
In Puccini Festival, Cavanough J had formed at least a preliminary view that there was no material difference in the terms of the rules considered by the High Court in Agar v Hyde, and the terms of Rule 7.01. There is in fact, some difference in the language of the rules considered by the majority in Agar v Hyde, which was regarding a claim in tort, where the applicable rules provide for service out of the jurisdiction “where the proceedings are founded on ‘a particular kind of claim’, or ‘where the subject matter of the proceedings is of a particular kind … ‘.”
No such expressions are used in those claims of Rule 7.01(1) relied upon by Castel in its endorsement, although such language is used in Rules 7.01(1)(a), (h) and (i) of the Rules. However, given the expansive nature of the observations of the majority in Agar v Hyde regarding what a plaintiff must establish in order to resist an application to set aside service out of the jurisdiction, and the observations of Cavanough J in Puccini Festival, in my view it would be somewhat incongruous that a materially different test would apply to the different categories of claims enumerated under rule 7.01(1) on the basis of subtle differences in language.
Counsel for TCL in his written submissions contended the onus was upon Castel to show that it was “strongly arguable” that the contracts were made in Victoria, were governed by the law of Victoria, or were breached in Victoria.[10] In any event, his submissions appeared to be based upon a premise that I can conclusively determine these matters on the evidence before the Court in the current application and the provisions of the Vienna Convention.
[10]Relying upon Deer Park Engineering Pty Ltd v Townsville Harbour Board [1975] VR 332; WA Dewhurst & Co Pty Ltd v Cawrse [1960] VR 278; Lewis Construction Co Pty Ltd v M Tichaeur Societe Anonyme [1966] VR 341; Leach Nominees Pty Ltd v Walter Wright Pty Ltd [1986] WAR 244.
I accept, based upon the reasoning of the majority in Agar v Hyde, the submissions of counsel for Castel that it is not necessary for Castel to prove, as if at trial, the matters contended for in its indorsement upon the writ. However, it cannot be that simply by making an allegation in a pleading or an indorsement upon a writ that a contract was made in a particular place, or governed by the law of a particular forum, or breached in a particular place, a plaintiff can take advantage of the “long arm” jurisdiction of the Court. The allegation must be one of substance, and, even if the threshold is not as high as “a strongly arguable case”, there surely is some onus upon a plaintiff to show that the proposition or propositions sought to be made with respect to the matters relied upon to establish the necessary jurisdictional nexus are reasonably arguable, are not farfetched or fanciful, or, in the language of the summary judgment provisions of the Civil Procedure Act 2010, could not be dismissed as having “no real prospect of success”.[11]
[11]See s 63(1).
There are sound reasons for requiring a plaintiff to show that the propositions which are relied upon to ground a claim that a Court has jurisdiction to hear a matter have solid foundation. After all, to put a defendant to the cost and expense of preparing for and conducting a trial in a foreign country, only for the Court to determine at trial that it did not have jurisdiction is a serious matter. That concern is no doubt the basis for statements that questions of jurisdiction ought to be determined at an early stage,[12] and the adoption by Victorian courts of the threshold test of “a strongly arguable case”. However, such considerations, while considered by the majority in Agar v Hyde, did not appear to have dissuaded the majority from its view that it was sufficient that a plaintiff made allegations which, if proven at trial, would give rise to an entitlement to service out of the jurisdiction.
[12]See W.A. Dewhurst and Co Pty Ltd v Cawrse [1960] VR 278.
In Agar v Hyde the majority stated that:
the same test should be applied in deciding whether originating process served outside Australia makes claims which have such poor prospects of success that the proceeding should not go to trial as is applied in an application for summary judgment by a defendant served locally.[13]
[13]At 576.
In making this statement the majority was considering a different issue than that before me in the current application. The majority considered that, notwithstanding that the claims made within a proceeding fell within one of the categories of claim enumerated in the New South Wales equivalent of rule 7.01(1), service might still be set aside on the basis that the Court was an inappropriate forum for the trial of the proceeding, or that the claims made have insufficient prospects of success to justify putting an overseas defendant to the time, trouble, and expense of defending the proceeding (noting that no such contentions are put forward by TCL here). It was the last ground to which the statement above was directed. However, given the Court’s statements that it was sufficient for a plaintiff to plead allegations which entitled it to serve out of the jurisdiction, then it seems to me that it is consistent to adopt the approach referred to in paragraph 39 above to an assessment of the strength of those allegations, rather than require the plaintiff to show that its contentions must be “strongly arguable’.
Conclusion
Applying this approach to the current case, I consider that Castel has established that the contentions that the relevant sales contracts were made in Victoria, and were governed by the law of Victoria, are reasonably arguable, and should not be dismissed on the basis that such contentions have no real prospect of success. In any event, should I be wrong as regards the applicability and consequences of the reasoning of the High Court in Agar v Hyde, I am in any event satisfied that Castel’s contentions that the sales contracts were made in Victoria and were governed by the laws of Victoria are at least strongly arguable. I am not satisfied that Castel’s contention that the alleged breaches occurred within Victoria has any real prospect of success.
Taking the question of contract formation first, while it is not necessary to finally determine the matter, Castel’s contentions that the contracts were formed when TCL returned the pro-forma invoice to Castel in Victoria is equally as arguable as TCL’s contentions that the contract was formed by Castel’s dispatch of the Letters of Credit.
Article 8(3) of the Vienna Convention provides that the practices of the parties and the negotiations between the parties may be considered in determining the intention of the parties, when, for example, it is necessary to determine whether a party intended to be bound by the terms of an offer, if accepted or intended to accept an offer. In the current case, the evidence does show that Castel, by its order forms, indicated to TCL what quantities of goods it would be prepared to purchase (noting that the GDA required certain minimum quantities of goods to be purchased by Castel from TCL each year), on the understanding that TCL may not be able to supply the quantities desired to be purchased by Castel. To the extent that the terms of the order forms were not on their face sufficiently certain to constitute an offer within the meaning of Article 14(1) of the Vienna Convention, counsel for Castel submitted that the pattern of communication and negotiation between Castel and TCL provides a process by which the prices and quantities of goods can be determined.
I agree. Whilst it is not possible for me to finally determine the matter, there is certainly evidence which is consistent with the contention advanced by Castel. For example, in paragraph 12 of his affidavit made 9 February 2012, Mr Michael Kwong of Castel stated as follows:
12. Castel placed orders by submitting order forms listing the types of products by model, number required and the unit cost. Castel and TCL dealt with each other on the basis that TCL was free to accept an order for less than the whole and that Castel was committed for so much of the order as TCL accepted. Neither party treated Castel’s order as only open for acceptance as a whole, or as rejected if TCL did not accept the whole order. TCL and Castel dealt with each other on the basis TCL could accept for part of the order. TCL’s response was driven by its production schedule. It was open, for example, for TCL to respond a second or further time in respect of the all or part of the unfulfilled balance of a Castel order.
While the affidavit affirmed in response by Mr Yong Wang on 1 March 2012 purported to respond to paragraph 12 of Mr Kwong’s affidavit, Mr Wang did not directly refute the statement made above. Further, there are frequent references in the correspondence exhibited to the various affidavits relied upon by the parties to the issue by Castel of “formal orders” or “confirmed orders” so that TCL could commence production planning.[14]
[14]See exhibits “YY-4”, “YY-5”, “YY-8”, “YY-15” and “YY-16” to the affidavit of Mr Yon Yongjian affirmed 9 December 2011, and exhibits “MK-8”, “MK-18”, “MK-22” and “ML-28” to the affidavit of Mr Michael Kwong sworn 9 February 2012.
It is indeed correct that there were some differences between the order forms and the pro forma invoices, particularly in respect of the quantities of goods to be supplied by TCL. This is consistent with Mr Kwong’s evidence above. However, the lack of “certainty” in the order forms has been somewhat overstated. For example, it is only in the first order form, in respect of the April 2006 sales contract, that the order form contained notations that certain models were to be supplied “subject to meeting our specifications”, or, in the case of three models, the prices were “yet to be agreed.” No such notations were made on the order forms issued by Castel in September 2006, October 2006, or August 2007, although the September 2006 and October 2006 order forms did state that the shipping locations were “to be advised”.
TCL sought to bolster its agreement that the sales contracts were made in China on the basis of a statement by Mr Yongjian in his affidavit affirmed 9 December 2011, regarding the process by which the sales contracts were entered into. He deposed as follows:[15]
[15]At paragraph 10 of his affidavit affirmed on 9 December 2011.
Pursuant to the GDA, TCL supplied Castel with air conditioners for the purpose of re-sale in Australia. In my experience, the following process usually took place in respect of the sales of air conditioners by TCL to Castel:
(a) Castel sent TCL a request for shipment of a quantity of air conditioners (usually by email) (order);
(b) TCL and Castel communicated back and forth (usually by email, facsimile and/or telephone) in relation to the terms of the Order, including the quantity of product, price, and timing of shipment of Castel’s Order;
(c) TCL sent Castel a pro forma invoice (usually by facsimile or email) containing a summary of the agreed terms of the shipment (Pro Forma Invoice);
(d) Castel signed and returned to TCL the Pro Forma Invoice (usually by email), indicating acceptance of the terms contained in the Pro Forma Invoice relating to the shipment; and
(e) Castel raised a letter of credit in payment of the products the subject of that shipment.”
Further, Mr Yongjian deposed:[16]
The Pro Forma Invoices were offers made by TCL in China for the sale of goods, namely, air conditioners.
Castel accepted these offers by signing and returning to TCL in China each Pro Forma Invoice. Each of the Sales Contracts was formed in China upon receipt by TCL of the acceptance.
[16]At paragraphs 18 and 19.
However, even setting aside issues associated with the admissibility of some of
Mr Yongjian’s evidence, one matter in particular is simply not correct. There is only one example in evidence of an occasion where a representative of Castel signed and returned to Castel a pro forma invoice, being the pro forma invoice issued by TCL in August 2007.[17] No other such documents are in evidence, and no doubt if they did exist, they would have been put into evidence by TCL.
[17]See Exhibit “YY-30” to the affidavit of Yan Yongjian affirmed 9 December 2011.
The August 2007 pro forma invoice is signed (apparently by Mr Michael Kwong of Castel), but not in the place under the printed notation “Accepted by Buyer”, but at the foot of the page next to an asterisk and a handwritten notation “less $74,498.74”. There is also an asterisk next to the total dollar amount on the pro forma invoice, and the email trail to which the pro forma invoice is attached refers to an amount to be deducted from the invoice of $US74,498.74.[18]
[18]See emails from Defery Guo of TCL to Richard Lim of Castel dated 20 August 2007.
Accordingly, the signing and return of TCL’s pro forma invoice by a representative of Castel was an isolated incident, explicable by the reference to an amount agreed by Castel and TCL to be deducted from the invoice on that occasion, rather than reflecting the usual course of conduct between Castel and TCL. It is presumably for that reason that the submissions made by TCL regarding the place of contract formation focussed upon the dispatch of the Letter of Credit as signifying Castel’s acceptance of the terms of the pro forma invoices.
TCL’s contentions that the proforma invoices were counter-offers which were ultimately accepted by the issue of the Letter of Credit certainly have some merit. However, the evidence is not entirely clear about this process, and the conclusions to be drawn from that process. The evidence shows that, usually, Castel sent TCL a draft Letter of Credit. As previously noted, the Letters of Credit were quite detailed, setting out a number of contractual terms and documentary requirements that TCL was required to fulfil prior to the funds being released by NAB. It appears that on some occasions (for the May 2006, October 2006, and August 2007 sales contracts), TCL instructed Castel to make amendments to the terms of the Letters of Credit. By way of example, in May 2006, there was an exchange between representatives of Castel and TCL regarding the terms of the draft Letter of Credit sent by Castel to TCL,[19] and, according to one of those emails, at least one telephone call between representatives of TCL and Castel regarding the matter. In paragraph 5 of his affidavit sworn 15 March 2012, Mr Michael Kwong deposes that the document with handwritten notations at exhibit “MK-11” to his affidavit sworn on 9 February 2012 was a draft Letter of Credit sent by Castel to NAB, with the handwritten notations which had been requested by TCL and agreed to by Castel.
[19]See exhibit “MK-36” to the affidavit of Michael Kwong sworn 15 March 2012.
Further, in September 2006, while the correspondence is incomplete, the Letter of Credit which is “MK-17” to Mr Kwong’s 9 February affidavit was adjusted following a request by TCL to amend the total (see the email exchange at exhibits “MK-18” and “MK-19”). There was also a further email exchange between Castel and TCL regarding the October 2006 Letter of Credit (see exhibit “MK-26”), with the final email in the exchange being a request from Kevin Wu of TCL to Kim Lim of Castel to amend the terms of the Letter of Credit. Finally, at exhibit “YY-31” to the affidavit of Yan Yongjian affirmed on 9 March 2012, there is an email from Richard Lin of Castel to Defery Guo of TCL attaching a copy of a final Letter of Credit dated 24 August 2007. The email states as follows:
Dear Defery,
Please find attached the LC we have OPENED. Some clauses have been amended according to your request, but our bank advised not to change the others.
Please proceed with you (sic) production of stock.
While no such contentions were made by either party, it appears to me to be at least reasonably arguable that the sales contracts were concluded when Castel received and agreed to the proposed amendments made by TCL to the terms of the Letters of Credit. Whether the proposed amendments were communicated by TCL to Castel by email or by telephone is not clear from the evidence. However, if these amendments were agreed to by Castel’s representatives, the place of contract formation would be Victoria.
The discussion above regarding the process of finalising the Letters of Credit highlights another arguable contention regarding the place of the location in which the sales contracts were formed. If, as contended by TCL, the sales contracts were concluded by the issue of the Letters of Credit, it should be noted that the Letters of Credit were issued, not by Castel to TCL, but by NAB on the instructions of Castel. The Letters of Credit show that they were ultimately issued by the NAB’s International Trade Solutions section located at 383 King Street, West Melbourne. If it is indeed the conduct of Castel in procuring NAB to issue the Letter of Credit that is the final act of contract formation, then this took place in Victoria. Arguably, the communication from Castel to TCL confirming that NAB had issued the Letter of Credit merely evidenced that conduct.
Furthermore, I agree with counsel for Castel that, given the absence of any formal choice of law provisions within the sales contracts, and the difficulty in inferring any choice of law from the terms of the sales contracts, the test is with which system of law the transaction has the closest connection. I also agree that the preponderance of connecting factors lies with Victoria. Of particular significance is the fact that the GDA, which governed the broad parameters of the commercial relationship between Castel and TCL, provided for disputes between the parties to be arbitrated in Australia, and the acceptance by TCL of ongoing obligations with respect to the repair and replacement of goods found to be defective in Australia. Further, by reason of the GDA, Castel was to be TCL’s exclusive distributor in Australia, and the goods had to be manufactured to Australian specifications. Transactions were conducted in English, and the focus of the communications of the parties were the particular needs of the Australian market.
As for the submissions by counsel for TCL that the proper law of the contract is the Vienna Convention, that is of course correct. However, the terms of the Vienna Convention only apply to the sales contracts by reason of the enactment by the Parliament of Victoria of the Sale of Goods (Vienna Convention) Act 1987 (Vic) (“Act”), which gave legal effect to the terms of the Vienna Convention. Thus, the Vienna Convention does not displace the laws of Victoria, rather, they form, in applicable circumstances, part of the law of Victoria. Section 1 of the Act provides as follows:
The purpose of this Act is –
(a)to give effect within Victoria to the Untied Nations Convention on Contracts for the International Sale of Goods …
Further, section 5 of the Act provides as follows:
The provisions of the Convention have the force of law within Victoria.
I do not disagree with the submissions of Counsel for TCL regarding the terms of the Vienna Convention obviating the need for disputes between parties to contracts subject to the terms of the Vienna Convention to be determined in accordance with principles governing private international law, or that the Vienna Convention in such cases is the mandatory law of the forum. However, that submission ignores the fact that, regardless of the fact that the terms of the Vienna Convention apply in this case, the Vienna Convention is simply a piece of legislation. It is not, of itself, and does not provide for, a forum in which disputes between parties to international sales contracts can be determined. Ultimately, the choice of forum is between Victoria and China, and a choice must be made.
Accordingly, the fact that the sales contracts are governed by the terms of the Vienna Convention does not displace a finding that the proper law of the sales contracts is the law of Victoria.
However, I think it can be said with some degree of certainty that the alleged breaches pleaded by Castel took place in China. Certainly, under FOB sales contracts, any breach of the obligation to ship goods on time must have taken place in China. Further, any defects in the goods must have been caused by the manufacture and/or packing of the goods, which again took place in China. I note that in Fujitsu Australia Ltd v Dewar Electronics Pty Ltd,[20] Gillard J stated, in respect of a claim against an overseas defendant for defective goods, that:
The evidence established that the goods were delivered FOB in Hong Kong and in my opinion, the breach occurred when the goods were delivered in a defective state. In other words, the breach occurred outside Victoria.
[20]At [61].
However, given my findings that Castel has at least a strongly arguable case that the sales contracts were made in Victoria, and/or are governed by the law of Victoria, the inability of Castel to make good its right to service out of the jurisdiction on this ground has no practical consequences. Once Castel’s entitlement to service out is established under r 7.01(1)(f)(i) and (iii), it can seek to recover damages for any alleged breaches of the sales contracts, regardless of where the breaches occurred.
I will hear from counsel on the form of orders, possible directions for the future conduct of the proceeding, including whether the proceeding ought to be referred to the TEC List, and the question of costs.
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CERTIFICATE
I certify that the 24 preceding pages are a true copy of the reasons for Judgment of Daly AsJ of the Supreme Court of Victoria delivered on 13 December 2012.
DATED this eleventh day of February 2013.
Associate
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