H.A.G. Import Corpn. (Australia) Pty Ltd v Krosnienskie Huty Szkla "Krosno" S.A.
[2004] FCA 1223
•17 SEPTEMBER 2004
FEDERAL COURT OF AUSTRALIA
H.A.G. Import Corpn. (Australia) Pty Ltd v Krosnienskie Huty Szkla "Krosno" S.A. [2004] FCA 1223
CONTRACT – applicant importer of Polish glassware manufactured by first respondent – agreement in 1986 for exclusive Australian distributorship between applicant and Polish export agency – whether new agreement for exclusive distributorship in 1990 between applicant and first respondent by way of novation of 1986 agreement – whether breach of 1990 agreement – whether 1986 or 1990 agreement terminated by six months notice – whether implied term that 1990 agreement terminable on five or alternatively two years notice – whether second respondent, rival Australian importer, induced breach of 1986 or 1990 agreement
TRADE PRACTICES – misleading and deceptive conduct – whether representation as to continuance of exclusive distributorship – whether reliance
PRACTICE AND PROCEDURE – application for discharge of order for service out of jurisdiction on first respondent – prima facie case – summary judgment in favour of second respondent
Trade Practices Act 1974 (Cth), s 52
Federal Court Rules, O 8 r 2(2), O 9 r 7(1)(d)Tycoon Holdings Limited v Trencor Jetco Inc (1992) 34 FCR 31 at 33 cited
Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538 at 564 applied
Western Australia v Vetter Triplet Pty Ltd (in Liq) (1991) 30 FCR 102 at 110 cited
Merpro Montassa Limited v Conoco Speciality Products Inc (1991) 28 FCR 387 at 390 cited Sydbank Soenderjylland A-S v Bannerton Holdings Pty Ltd (1996) 68 FCR 539 at 549 cited
Scarf v Jardine (1882) 7 App Cas 345 at 351 cited
Olsson v Dyson (1969) 120 CLR 365 at 388-389 cited
Harry v Fidelity Nominees Pty Ltd (1985) 41 SASR 458 at 461 cited
Tito v Wadell(No 2) [1977] 1 Ch 106 at 287 applied
Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444 at 450-451 cited
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347 applied
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129 applied
McKernan v Fraser (1931) 46 CLR 343 at 358-359 applied
Exchange Telegraph Company v Gregory & Co [1895] 1 QB 147 at 153, 155 cited
Jones Brothers (Hunstanton) Ltd v Stevens [1954] 1 QB 275 citedCheshire and Fifoot’s Law of Contract (8th Australian edition) at 359
Chitty on Contracts (29th edition) at 1201H.A.G. IMPORT CORPN. (AUSTRALIA) PTY LTD V KROSNIENSKIE HUTY SZKLA "KROSNO" S.A. AND HOUSEWARES INTERNATIONAL LIMITED
V 904 OF 2003HEEREY J
17 SEPTEMBER 2004
MELBOURNE
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
V 904 OF 2003
BETWEEN:
H.A.G. IMPORT CORPN. (AUSTRALIA) PTY LTD
APPLICANTAND:
KROSNIENSKIE HUTY SZKLA "KROSNO" S.A.
FIRST RESPONDENTHOUSEWARES INTERNATIONAL LIMITED
SECOND RESPONDENTJUDGE:
HEEREY J
DATE OF ORDER:
17 SEPTEMBER 2004
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.The order made under O 8 r 2(2) on 21 October 2003 for leave to serve originating process in this proceeding on the first respondent out of the Commonwealth be discharged;
2.There be judgment for the second respondent;
3.The applicant pay the respondents’ costs to be taxed, including reserved costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
V 904 OF 2003
BETWEEN:
H.A.G. IMPORT CORPN. (AUSTRALIA) PTY LTD
APPLICANTAND:
KROSNIENSKIE HUTY SZKLA "KROSNO" S.A.
FIRST RESPONDENTHOUSEWARES INTERNATIONAL LIMITED
SECOND RESPONDENT
JUDGE:
HEEREY J
DATE:
17 SEPTEMBER 2004
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
Contents
Paragraph 1.0 Introduction [1] 1.1 The parties and their claims [1] 1.2 Motions before the Court [6] 2.0 Krosno’s motion [10] 2.1 Setting aside process etc [10] 2.1.1 Prima facie case [10] 2.1.2 Novation to Krosno of the 1986 Agreement [13] 2.1.3 If the Krosno Agreement existed, did Krosno breach it? [24] 2.1.4 HAG’s proposed amendment: termination on reasonable notice [30] 2.1.5 Representation that Krosno would be bound by the Krosno Agreement [34] 2.1.6 Representation that exclusive distributorship would continue [36] 2.1.7 Representations that no other distributor would be appointed [39] 2.1.8 Reliance
[40] 2.1.9 Proposed amendment: representation as to five years distributorship [44] 2.1.10 Order under O 9 r 7(1) [51] 2.2 Other orders sought by Krosno [52] 3.0 Houseware’s motion [53] 3.1 Summary judgment [53] 3.1.1 Delay [53] 3.1.2 Summary judgment: the test [56] 3.1.3 Inducement to breach of contract [57] 3.1.4 Representation [60] 3.2 Other orders sought by Housewares [63] 4.0 Conclusion [64] 1.0Introduction
1.1 The parties and their claims
For many years the applicant H.A.G. Import Corpn. (Australia) Pty Ltd (HAG) has been the exclusive Australian importer and distributor of glassware manufactured in Poland by the first respondent Krosnienskie Huty Szkla “KROSNO” S.A. (Krosno).
In its amended statement of claim HAG alleges that Krosno has breached a distributorship agreement (the Krosno Agreement) and that the second respondent Housewares International Limited (Housewares) has induced that breach. HAG further alleges that, in contravention of s 52 of the Trade Practices Act 1974 (Cth), Housewares has falsely represented to customers that it is authorised to sell Krosno glassware in Australia.
Alternatively, in the event that Krosno was not bound by the Krosno Agreement, HAG alleges that Krosno falsely represented to it that it was so bound, that HAG would continue to be the exclusive distributor of Krosno products in Australia, that Krosno did not intend to appoint another distributor in Australia and that there were no contracts in place with an alternative or additional distributor in Australia.
HAG says that, in reliance on these representations, it agreed to re-launch the Krosno brand in the Australian market and has purchased Krosno glassware at a quantity and price based on a right of sole distributorship. HAG will, it claims, suffer irreparable loss and damage if Krosno is permitted to sell its glassware in Australia, either directly or through Housewares.
HAG seeks:
(i)to have Krosno restrained from appointing Housewares as an Australian distributor or selling glassware to it; and
(ii)to have Krosno and Housewares restrained from selling Krosno glassware in Australia.
HAG also claims damages.
1.2 Motions before the Court
On 21 October 2003, on the application ex parte of HAG under Federal Court Rules O 8 r 2(2), I gave leave for service of the originating process on Krosno outside the Commonwealth. Krosno now seeks orders:
(i)setting aside the originating process (O 9 r 7(1)(a));
(ii)alternatively, setting aside service thereof (O 9 r 7(1)(b));
(iii)alternatively, discharging the order giving leave to serve out (O 9 r 7(1)(d));
(iv)alternatively, a stay of the proceedings on the ground that the Federal Court is an inappropriate forum; and
(v)alternatively, a stay of the proceedings under s 7(2) of the International Arbitration Act 1974 (Cth).
Housewares seeks orders for:
(vi)summary judgment;
(vii)alternatively, that various paragraphs of HAG’s amended statement of claim be struck out.
HAG seeks orders for:
(viii)leave to further amend its amended statement of claim; and
(ix)further and better discovery from Housewares.
Counsel were not agreed on the sequence in which the various motions should be considered. I think a practical course, albeit not the only one open, will be to deal with Krosno’s motion and then with Housewares’ since if either is successful in obtaining the primary relief sought the proceeding will be effectively terminated as against that respondent. To the extent that HAG’s amendment or discovery motions may be relevant in considering the motions of the two respondents I shall take them into account.
2.0Krosno’s motion
2.1Setting aside process etc
2.1.1 Prima facie case
Since the decision to grant leave was of necessity made in the absence of Krosno, it is entitled to put before the Court additional facts and argument to show why leave should not have been given: Tycoon Holdings Limited v Trencor Jetco Inc (1992) 34 FCR 31 at 33.
Under O 8 r 2(2) the Court may give leave to serve the originating process outside the Commonwealth on being satisfied of certain matters. The one relevant for present purposes is that contained in par (c), namely that the party seeking leave has a prima facie case for the relief sought. If HAG has no prima facie case it would be appropriate to make an order under any one or more of pars (a), (b) or (d) of O 9 r 7(1). Counsel did not suggest any practical distinction for present purposes between these provisions.
HAG bears the onus of “positively persuading” the Court that it has a prima facie case: Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538 at 564. A prima facie case is made out if, on the material before the Court, inferences are open which, if translated into findings of fact, would support the relief claimed: Western Australia v Vetter Triplet Pty Ltd (in Liq) (1991) 30 FCR 102 at 110. It needs to be kept in mind that at this stage an applicant will not have had the advantage of discovery, subpoena and other procedural aids to the making out of a prima facie case at trial: Merpro Montassa Limited v Conoco Speciality Products Inc (1991) 28 FCR 387 at 390, Sydbank Soenderjylland A-S v Bannerton Holdings Pty Ltd (1996) 68 FCR 539 at 549.
2.1.2 Novation to Krosno of the 1986 Agreement
For many years HAG imported Krosno glassware not directly from that company but from a Polish entity called Minex Centrala Eksportowo-Importowa SA (Minex), a centralised trading agency. In the Communist era Polish exports and imports were channelled through Minex.
On 5 September 1986, in Warsaw, Minex and HAG entered into a written agreement (the 1986 Agreement). By cl 2 Minex granted to HAG the exclusive right of purchase of household glassware marked with the Krosno brand name for distribution in Australia. Clause 11 provided the agreement “is concluded for an indefinite period of time but each party has the right to denounce [sic] it giving six months notice by registered letter”. Clause 12 provided for disputes to be settled under the rules of conciliation and arbitration of the International Chamber of Commerce by three arbitrators, the place of arbitration to be Paris.
By par 6 of its amended statement of claim HAG alleges that on or about 1 January 2001 the 1986 Agreement “was novated and Krosno was substituted in place of Minex as the supplier of the Krosno glassware products to HAG”. Particulars of that novation are that it was in writing and to be implied. Insofar as it was in writing, it was contained in the following documents:
·Letter Minex to HAG copied to Krosno dated 2 March 2000;
·Fax Krosno to HAG dated 21 December 2000;
·Fax Krosno to HAG dated 11 January 2001.
The implication is said to arise from the terms of that correspondence and from the fact that on and from 1 January 2001 all dealings relating to the supply of Krosno glassware ceased with Minex and were conducted between Krosno and HAG. Further, it is said that the novation “was confirmed in numerous e-mails passing between Krosno and HAG referring to HAG’s status as an exclusive or sole distributor in Australia”.
Mr Artur Janowski, a Commercial Director of Krosno, has sworn that he did not know of the existence of the 1986 Agreement prior to March 2003 when HAG told Krosno that it had breached the agreement by engaging Housewares as a distributor in Australia. On 25 April 2003, Minex sent HAG a notice of termination of the 1986 Agreement as from 30 April 2003 “with legal effect on 31 October 2003”, ie the six months stipulated. For its part, Krosno, by notices dated 17 December 2003, without prejudice to its contention that it is not bound by the alleged Krosno Agreement, gave six months notice of termination. Such notice would thus have had effect on 17 June 2004.
Turning to the three documents relied on as evidencing the novation, the first, the letter from Minex to HAG dated 2 March 2000, advises that Krosno “our partner and shareholder” will “become a direct exporter using the services of their representative Minex”. All correspondence and commercial documents will be “made out and handled by Minex on behalf of and for the account of Krosno on the basis of powers of attorney granted by Krosno”. Krosno will be “the direct seller of its products and thus a party to contracts and a beneficiary of the amounts received from abroad for the exported goods”. Those alterations “will not affect in any way the already established procedure in course of cooperation but will help to simplify and shorten the circulation of money which will be received directly in the account of Krosno”. The new arrangements are to be effective from 1 April 2000 with regard to contracts concluded after that date. Contracts concluded until 31 March 2000 will be executed and accounts will be settled on the old terms irrespective of the delivery dates.
The second document, the fax from Krosno to HAG dated 21 December 2000, asks HAG, “due to necessity of terminating all finance regulations with Minex till 31.12.2000” to cancel the outstanding balance of an order therein specified.
The third document, the fax from Krosno to HAG dated 11 January 2001, deals with the cancellation of the Minex contracts referred to in the preceding fax and a “new contract 3351 (see attachment – with precise specification) in order to deal within direct contract signed between HAG and Krosno SA”. That contract is attached and is simply an order containing details of particular glassware.
The emails referred to in the particulars are contained in exhibits MG5 and MG6 to Mr Max Grundmann’s affidavit of 10 October 2003 sworn on behalf of HAG. They contain some references to exclusivity. For example, an email of 5 July 2001 from HAG to Krosno includes the statement “Krosno is supposed to be exclusive to HAG so why is it being supplied to another company in Australia?” An email of 6 January 2002 from HAG to Krosno asserts that it is “the Australian distributor of the brand name Krosno glassware”. An email of 14 March 2002 from Krosno to HAG refers to Big W and a Mr John de Meur of that firm. It is said that a trade fair in Frankfurt “we told Mr de Meur that you have exclusivity for Krosno brand on Australian market”. An email exchange on 18 July 2002 contains a complaint by HAG about an Australian importer called Visla advertising the Krosno brand name and Krosno saying they are “doing our utmost in order to control the situation”. An email from HAG to Krosno of 16 October 2002 complains about Krosno proposing cooperation with “other big distributors”.
Novation means that, there being a contract in existence, some new contract is substituted for it, either between the same parties or different parties, with consideration mutually being in the discharge of the old contract. In that sense “novation” means simply a new contract standing in the place of the old: Scarf v Jardine (1882) 7 App Cas 345 at 351; Olsson v Dyson (1969) 120 CLR 365 at 388-389; Cheshire and Fifoot’s Law of Contract (8th Australian edition) at 359. Originally a Roman Law concept, novation by its very name indicates that there must be a new (novus) contract.
I am not persuaded that HAG has made out a prima facie case of novation. As already mentioned, the uncontested evidence is that, so far from HAG and Minex agreeing to discharge the old contract in consideration of Krosno entering into a new one, Krosno was not aware of the 1986 Agreement. Moreover, well after the alleged novation, Minex treated the 1986 Agreement as still being on foot by giving notice of termination.
The fact that for some time after March 2000 Krosno dealt directly with HAG and treated it as its exclusive Australian distributor, of itself does not establish a novation of the 1986 Agreement made between HAG and Minex some 14 years earlier. The 1986 Agreement is not mentioned in any of the documents relied on as evidence of the novation. True it is, novation may arise from the conduct of the parties: Harry v Fidelity Nominees Pty Ltd (1985) 41 SASR 458 at 461, although ordinarily novation is not to be inferred from conduct without some distinct request: Chitty on Contracts (29th edition) at 1201. But the fact remains that novation is the substitution of a new contract for an old by the agreement of all parties to the old and the new: Tito v Wadell(No 2) [1977] 1 Ch 106 at 287. An animus contrahendi is required: Tito, ibid. Supply of product direct from Krosno to HAG, and Krosno treating HAG as exclusive Australian distributor, without any further express definition of rights or obligations, and without any reference to the supposedly novated 1986 Agreement, are circumstances consistent merely with that being a course of dealing that would continue only as long as it proved mutually satisfactory. This lack of contractual obligation on either side cut both ways. HAG might not have had any right to continuing exclusivity, but equally it did not have any obligations such as minimum orders or stipulated expenditure on promotion.
2.1.3 If the Krosno Agreement existed, did Krosno breach it?
The foregoing conclusion means that there is no prima facie case based on the Krosno Agreement, subject to a proposed further amendment of the statement of claim to which I shall refer later. However, I should mention briefly further obstacles in HAG’s path.
In par 8 of its amended statement of claim HAG alleges that Krosno has breached the Krosno Agreement by advising HAG that it (Krosno) has appointed Housewares as a distributor of Krosno glassware in Australia, has threatened to sell such products to Housewares for distribution in Australia and would distribute or sell glassware products itself in Australia. This is said in par 9 to constitute a repudiation of the Krosno Agreement.
Since this is an allegation of anticipatory breach, unless the breach is accepted there is no right to damages: Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444 at 450-451. The amended statement of claim expressly pleads (par 10) that the breach has not been accepted.
In one of its proposed amendments (pars 10A to 10C), HAG will allege that, in breach of the Krosno Agreement, Krosno in about December 2002 to March 2003 agreed to appoint Housewares as exclusive distributor and from February to June 2003 commenced to take orders from Housewares, Myer and David Jones for the supply of glassware. HAG alleges that it suffered loss and damage from the placing of such orders. But the evidence is clear that no such products have been supplied: see [59] infra. HAG could suffer no loss or damage.
If the Krosno Agreement ever came into existence, Krosno has, as already mentioned, given six months notice of termination which expired on 17 June 2004. There is no evidence that Krosno appointed Housewares or anybody else as a distributor or supplied glassware to any other firm prior to that time.
In any case, HAG seeks injunctions in unqualified terms to restrain Krosno from appointing Housewares as Australian distributor and from itself distributing or selling Krosno glassware in Australia or supplying glassware to Housewares for the purposes of resale in Australia. But at best for HAG the Krosno Agreement was terminable on six months notice. Any injunction could only restrict Krosno from purporting to terminate the Krosno Agreement otherwise than in accordance with that term.
2.1.4 HAG’s proposed amendment: termination on reasonable notice
In its proposed further amendments HAG alleges (par 5(e)) that it was a term of the Krosno Agreement implied by law that it could only be terminated on reasonable notice and that (par 10D) the six months notice given on 17 December 2003 was not reasonable notice. In particulars of that allegation it is said that reasonable notice was five years, or alternatively two years, having regard to “the past duration of the Krosno Agreement, the quantities of product ordered each year by HAG, the time taken for HAG to sell its stocks of Krosno glassware from time to time at proper wholesale and not fire sale price, the matters referred to in pars 18, 19 and 22 [various allegations of representations and reliance thereon, discussed infra] and the time required for HAG to obtain a reasonable commercial return on time, effort and expense incurred by reason of the Launch Agreement in respect of the new product range”. The “Launch Agreement” (par 18) is an agreement allegedly made in January 2002 whereby HAG agreed to “re-launch the Krosno brand in the Australian market by, inter alia, redesigning the Krosno glassware products, packaging, labelling and the logo used to sell Krosno glassware in Australia”.
This of course is totally inconsistent with the express provision for six months notice in the 1986 Agreement and, on HAG’s case, in its successor by novation the Krosno Agreement. An implied term cannot contradict an express term: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347. Moreover, even if the suggested term were reasonable, a proposition which Krosno could dispute with some force since the term makes Krosno an underwriter of HAG’s commercial decisions, that is not enough. An implied term must be clearly necessary for the contract to work as a matter of business efficacy: Codelfa at 346.
In any event, HAG could not rely on matters such as the Launch Agreement which occurred well after the making of the alleged Krosno Agreement, as supporting an implication of any term in that agreement.
Apart from its lack of merit, the amendment raises a “new and distinct factual legal basis” which should not be allowed to cure the absence of the proper basis for jurisdiction at the time leave to serve out was given: Costa Vraca Pty Ltd v Bell Regal Pty Ltd [2003] FCAFC 305 at [10].
2.1.5 Representations that Krosno would be bound by the Krosno Agreement
In par 16 of the amended statement of claim HAG alleges alternatively, in the event that Krosno was not bound by the terms of the Krosno Agreement, that on or about 21 December 2000 and 11 January 2001 Krosno represented to HAG that:
(a) Krosno was terminating any relationship it had with Minex;
(b)Krosno was intending to supply any outstanding orders to Minex of Krosno glassware; and
(c)Krosno would be bound by the terms of the Krosno Agreement.
Particulars given refer to the faxes from Krosno to HAG dated 21 December 2001 and 11 January 2001 referred to above.
The first two representations are not alleged to be untrue and appear on the evidence to be true. For the reasons already stated, the third representation is simply not borne out by the documents referred to. In any event, as already noted, being bound by the Krosno Agreement cannot put Krosno in any worse position than being bound to an exclusive Australian distributorship for HAG terminable on six months notice, which has already expired. There is no evidence of supply to any other distributor prior to the termination of the period. Negotiations during that time with a potential new distributor involving such matters as the supply of samples (as apparently occurred) is not a breach of an exclusive distributorship agreement. Thus, even if made, the third representation could not have resulted in HAG suffering any damage.
2.1.6 Representations that exclusive distributorship would continue
By par 17 of the amended statement of claim it is alleged that between January 2002 and February 2003 Krosno represented to HAG that it was and would continue to be the exclusive distributor of Krosno glassware in Australia and would continue to have the sole right to use the Krosno name in Australia.
The particulars given are that these representations were oral and in writing. The documents identified are emails from Krosno to HAG dated 12 and 26 March, 18 July and 26 October 2002. These do no more than state in substance that HAG was at the time the exclusive distributor in Australia for Krosno glassware. For the reasons already stated, that was true at the time but does not advance matters for HAG.
The particulars as to oral representations identify conversations between Krosno officers and Mr Grundmann of HAG in January 2002 in Melbourne, in January 2003 in Melbourne and in February 2003 in Poland. The substance of the conversations was “to the effect alleged”. The only evidence which might conceivably support the representations pleaded is in par 24 of Mr Grundmann’s affidavit of 22 March 2004 when, speaking of a visit to Melbourne by Krosno’s Chairman and other officers in January 2003, Mr Grundmann deposed that they
“…once against [sic] confirmed that HAG would continue as the exclusive distributor in Australia for Krosno glassware products and stated that they were satisfied with HAG’s performance.”
Quite apart from the vague and conclusionary nature of this evidence, it does not take the matter any further. It does not suggest that Krosno was binding itself to an exclusive distributorship indefinitely into the future (as seems to be HAG’s primary case) or even to a commitment for five, or alternatively, two, years. And as correspondence shortly to be discussed will show, HAG at the time never believed it had any such assurance.
2.1.7 Representations that no other distributor would be appointed
By par 20 of its amended statement of claim HAG alleges that on or about 19 or 20 October 2002 Krosno made additional representations to it that Krosno did not intend to appoint another distributor to sell Krosno glassware products in Australia and that there were no contracts in place with an alternative or additional distributor.
2.1.8 Reliance
In par 22 it is alleged that acting on reliance on all the representations mentioned HAG purchased from Krosno glassware products at “the quantity, price and on the basis that it would have the sole right to distribute the said products in Australia”. Particulars allege that in the period 1 July 2002 to 30 June 2003 HAG’s purchases totalled $1,631,210 and that it presently has Krosno products in stock to the value of $1,868,156 and stock in transit and to be shipped $773,339.
It is alleged that the representations were false and misleading and deceptive or likely to mislead or deceive in that:
(a) Krosno did not regard itself as bound by the Krosno Agreement;
(b)HAG did not have the exclusive right to distribute Krosno glassware products in Australia;
(c)At the time the additional representations were made ([39] supra) Krosno was intending to appoint Housewares to sell Krosno glassware products or had agreed with Housewares that it would be appointed as distributor of Krosno glassware.
Particulars of these representations are given as emails from HAG to Krosno 16 October 2002 and Krosno to HAG 19 and 27 October 2002 The 16 October email is in response to one from Krosno of 14 October which says that it is “wondering what has happened on the Australian market” and stating that Krosno has “been requested by other big distributors how to start cooperation with us in relation to Krosno products”. Mr Grundmann’s reply of 16 October is indignant. He complains of lack of cooperation by Krosno over the last few years. Of an order for machine made stemware for over 561,000 pieces about 21 per cent have been shipped: “No explanations, no advice, just no delivery”. Krosno is a household name in Australia because of HAG’s work. HAG “cannot solve all the problems of ten years of neglect in four months”. Mr Grundmann seeks
“…unequivocal confirmation that our massive investment in the Krosno brand in Australia will be respected as per our long standing contracts. I can assure you we will protect our legal rights to the fullest.”
Krosno’s reply of 19 October seeks to answer Mr Grundmann’s complaints about deliveries. It says that HAG’s business with Krosno has been decreasing year by year and the range manufactured for HAG is getting lower and lower. The only reference to the status of the distributorship is the following:
“We outlined it every time that you are doing excellent job in terms of promotion Krosno in Australia and we are not going to terminate our cooperation with you, just because someone else is knocking to [sic] our doors. Our major goal is to develop our size of business. You promised during Mr Sawicki’s visit in Australia that our total turnovers in 2002 will approach to the level of 2 mln USD. Until that time we are still very far away from these digits.”
The evidence does not appear to include the Krosno email of 27 October 2002. However, such evidence as there is falls well short of supporting the positive representations alleged. It seems to be a typical exchange of grievances between importer and manufacturer. The communications contain no representation, let alone a contractual promise, that exclusivity would continue indefinitely.
Moreover, during the period in which HAG ordered products allegedly in reliance on the representations, namely 1 July 2002 to 30 June 2003, “on the basis that it would have the sole right to distribute such products”, HAG was in fact Krosno’s only Australian distributor. After it received notice of termination of the alleged Krosno Agreement, the evidence is that HAG has continued to place orders with Krosno. These could not have been placed in reliance on any Krosno assurance that HAG would have any exclusive distributorship rights after 17 June 2004. The evidence as to representations to HAG being the sole distributor say no more than that. They were at the time they were made true.
2.1.9 Proposed amendment: representation as to five years distributorship
HAG seeks an amendment which would allege, by par 20(c), that on or about 19 and 20 October 2002 and 26 March 2003 Krosno represented to HAG that it would be the sole and exclusive distributor of Krosno glassware in Australia “on a long-term basis, being not for less than five years”.
The only new document in the particulars introduced in support of the amendment in par 20(c) is an email from Mr Jan Kurkus of Krosno to Mr Grundmann dated 26 March 2003. Mr Kurkus says:
“I am astonished by the second part of your letter referring to the rumour of changing the distributor of Krosno glassware on the Australian market. Krosno is not used to commenting on any rumours. However, this is a serious matter and therefore I would like to state that, there are no contracts with purposes to change the Australian distributorship of ‘Krosno’ branded glassware in Australia … We are convinced that HAG would like to participate and rebuild Krosno’s position on the Australian market, it should propose a program which defines short and long-term activities.”
Not only does the passage quoted in the particulars go nowhere to supporting the alleged five year, or two year, exclusivity representation, what is not quoted points clearly in the opposite direction. Mr Kurkus also said in the email:
“I would also like to take this opportunity to share our assessment of the situation on the Australian market. Frankly speaking, Krosno management is highly concerned about the weakening position of Krosno in Australia. The current situation is illustrated not only by unsatisfying turnover, but also by the growing discontent of retailers who are complaining about the poor and belated Krosno’s offer as well as improper display of ‘Krosno’ glassware in the showroom in Melbourne.
In this situation the main task of Krosno management is to restrain degradation of the Krosno’s brand in Australia. We must take positive action to stop the situation getting worse.
Max, on behalf of Krosno I would like to express our acknowledgement for all work you did for Krosno. However, each company has the right to choose the best way for its business. It is not easy to manage the two brands efficiently. Perhaps now the strategy of HAG is to focus energy, capital and know-how on developing the Maxwell and Williams brand. As I mentioned we accept the right of each company to have its own way of choosing and developing.
We are convinced that HAG would like to participate in rebuilding Krosno’s position on the Australian market, it should propose a program which defines short and long-term activities.
We do not hide that Krosno has received some offers from a few firms which has noticed the weakening position of Krosno in Australia and are ready to represent Krosno’s business in Australia, guaranteeing much higher level of turnover than it is now.
I am very interested in your opinion and assessment of the present situation. Please let me know how you feel about this.”
In my view, counsel for Krosno was correct in characterising that email as a blunt warning that Krosno was considering “alternative or additional distributors”. Moreover, it is clear from subsequent emails from HAG (which it did not put before the Court) that Mr Grundmann understood Krosno’s position to be the opposite of that now alleged. For example, on 7 April 2003 Mr Grundmann sent an email to Mr Kurkus harking back to the 1986 Agreement (although, perhaps understandably, not to the six months termination clause) and complaining that he had been “absolutely shocked” to hear from David Jones and Myer buyers that it was “common knowledge” at the Frankfurt trade fair that Krosno was openly discussing the Australian market with Housewares. Mr Grundmann says that “despite what we regard as very poor treatment at your hands we are prepared to work through the situation with a view to reaffirming our mutually beneficial partnership.” The email concludes with a request for an urgent reply “accepting unequivocally that we will continue as your exclusive Australian distributor so that we can proceed with confidence to build our mutually beneficial partnership.”
On the same day Mr Fitzell of HAG sent an email to Mr Kurkus requiring immediate confirmation that HAG would retain exclusive and sole distribution of Krosno products and a “written, formal agreement setting out all future terms and conditions of the partnership”. On 28 April HAG sent an email to Krosno asking when it could expect to hear back from Krosno regarding the situation of distribution of Krosno in Australia. On the same day Krosno emailed saying that “we will inform you of the situation soon”. On 9 May Krosno emailed raising the possibility of including another distributor and the possibility of “three partners in Australia – Krosno, HAG and Housewares”. On 12 May Mr Grundmann emailed Krosno saying that the only option was to “revitalise your loyalty” to HAG and “renounce this unsuitable suitor” Homewares. On 23 May Mr Grundmann emailed to Krosno saying that they were still waiting for a reply and stating that:
“We are not prepared to accept any variation of our existing exclusivity and as I have already stated we will take all necessary action, including legal action, to maintain and maintain our long existing rights.
Your unnecessary tardiness is no longer reasonable nor acceptable.
It seems you are determined to destroy the years of work and effort we have put in to building the Krosno brand.
We will not let this happen without seeking appropriate damages in the courts for breach of our contractual rights.”
On 30 May Krosno replied stating, amongst other things:
“The decision concerning the future of the Australian market was very delicate and considerable. We had to consider all factors. According to the recommendations of our Supervisory Board we have decided three players will be present in Australia – HAG, (Housewares) and Krosno.”
What has been put to this court on behalf of HAG in the way of evidence, proposed amendments, and evidence in support of those amendments is a s 52 case which is completely at odds with what HAG must know to be the true situation.
2.1.10 Order under O 9 r 7(1)
For the foregoing reasons I conclude that HAG has not established a prima facie case against Krosno and the latter is entitled to have the order against it for service outside the Commonwealth discharged under O 9 r 7(1)(d). This is not a case where discovery and other procedural steps might remedy the situation for HAG. The documents it relies on, and others which it has not put to the Court, are quite inconsistent with the case it seeks to raise. The alleged Krosno Agreement never came into existence. Even if it did, it has been terminated, as has the 1986 Agreement. While HAG is understandably upset at the end of a very long exclusive relationship, plainly it never relied on any representations by Krosno as to the future but has pinned its hopes on a combination of loyalty and whatever benefit it could get from the alleged Krosno Agreement.
2.2 Other orders sought by Krosno
Since the order for service out has been discharged, Krosno does not need a stay of the proceeding on the grounds relied on, or at all. Insofar as its motion seeks such orders, its motion will be dismissed. The question of costs will be dealt with later.
3.0Housewares’ motions
3.1Summary judgment
3.1.1 Delay
Housewares’ motion for summary judgment was filed on 18 June 2004. HAG’S proceeding was commenced on 25 September 2003. Housewares consented to amendments to the statement of claim on 2 December 2003 and filed a defence on 9 February 2004. It has also made discovery. Its motion for summary judgment was not filed until 18 June 2004.
HAG says the summary judgment application is too late and should be dismissed on the discretionary ground of delay alone.
I do not accept this submission. While earlier application would have been desirable, HAG does not allege that any particular prejudice has been caused to it. Further, if HAG’s case is untenable, as I think it is, there is no benefit to anyone in allowing it to go further. In any event, there is a rational basis for not bringing the motion until 18 June 2004 because it was not until then that the six months notice of termination given by Krosno had expired.
3.1.2 Summary judgment: the test
The lack of a cause of action must be clearly demonstrated. The Court must be satisfied that the plaintiff’s case cannot possibly succeed: General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129.
3.1.3 Inducement to breach of contract
In its proposed further amended statement of claim HAG alleges that Housewares “with the [sic] knowledge of the obligations of Krosno SA under the Krosno Agreement, did intentionally [that word to be inserted by the further amendment] persuade, induce or procure Krosno SA to breach the Krosno Agreement in the manner pleaded in par 8 hereof”. The breaches alleged in par 8 are set out in [25] above. They are not affected by the proposed amendments.
An essential element of the tort of inducement of breach of contract is that there is a contract in existence: McKernan v Fraser (1931) 46 CLR 343 at 358-359. For the reasons given above, I am satisfied that the alleged Krosno Agreement never existed. HAG’s claim therefore fails at the outset. In the case of HAG, it bore the onus of showing a prima facie case. With Housewares the reverse is true; it must show, to the degree of satisfaction mandated by General Steel, that HAG’S claim is groundless. Nevertheless I am satisfied that the result is the same.
Further, HAG has to show it suffered damage as a result of any inducement: Exchange Telegraph Company v Gregory & Co [1895] 1 QB 147 at 153, 155, Jones Brothers (Hunstanton) Ltd v Stevens [1954] 1 QB 275. There is positive evidence from both Krosno and Housewares that Krosno did not sell or deliver glassware to Housewares before the expiry of the termination notice on 17 June 2004. There was one order placed on 12 May 2003, which was cancelled on 3 July 2003. Thus HAG suffered no loss because up until the expiry of the Krosno Agreement (even if it ever existed) HAG was the only seller of Krosno glassware in Australia. It would not be right to allow this matter to proceed on the purely speculative and unlikely basis that discovery from Krosno might show something different.
3.1.4 Representations
HAG alleges in par 12 of its amended statement of claim that on dates which it cannot particularise until after discovery and inspection Housewares has represented to customers or potential customers of Krosno glassware products that it is authorised to sell and will commence to sell such products in Australia from 1 November 2003. The only particulars given allege that in about March 2003 a Ms Alex Liddy and a Mr Bernie Mallow both of Housewares told respectively representatives of David Jones and Lesley’s of Griffith, New South Wales that Housewares would be selling Krosno glassware products in Australia in November 2003.
Since there were in fact no such sales, HAG has suffered no loss. In any event, since the Krosno Agreement did not exist the representations were not untrue.
I conclude that Housewares has made out its case for summary judgment.
3.1Other orders sought by Housewares
It is unnecessary to make the further orders sought.
4.0Conclusion
There will be orders that
· The order made under O 8 r 2(2) on 21 October 2003 for leave to serve originating process in this proceeding on Krosno out of the Commonwealth be discharged;
· There be judgment for Housewares against HAG with costs to be taxed, including reserved costs.
Since the respondents have succeeded in obtaining the primary relief on their respective motions, and since it has become unnecessary to consider the further relief sought on their motions and HAG’s motion, there will be an order that HAG pay the respondents’ costs of all motions, including reserved costs.
I certify that the preceding sixty-five (65) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey.
Associate:
Dated: 17 September 2004
Counsel for the Applicant:
Mr P J Bick QC with Mr D Farrands
Solicitor for the Applicant:
Meerkin & Apel
Counsel for the First Respondent:
Mr S G E McLeish
Solicitor for the First Respondent:
Minter Ellison
Counsel for the Second Respondent
Mr R Peters
Solicitor for the Second Respondent
Arnold Bloch Leibler
Date of Hearing:
24 August 2004
Date of Judgment:
17 September 2004