Lew Footwear Holdings Pty Ltd v Madden International Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION

S CI 2013 2769

LEW FOOTWEAR HOLDINGS PTY LTD	Plaintiff
v
MADDEN INTERNATIONAL LTD	Defendant

---

JUDGE:	ELLIOTT J
WHERE HELD:	MELBOURNE
DATES OF HEARING:	29 APRIL, 10 JUNE 2014
FURTHER EVIDENCE AND SUBMISSIONS:	13 JUNE 2014
DATE OF JUDGMENT:	8 AUGUST 2014
CASE MAY BE CITED AS:	LEW FOOTWEAR HOLDINGS PTY LTD v MADDEN INTERNATIONAL LTD
MEDIUM NEUTRAL CITATION:	[2014] VSC 320

---

PRACTICE AND PROCEDURE – Service of originating process out of Australia – Failure to indorse the writ – Dispensation – Application to set aside or stay proceeding permanently – Relevant test – Whether evidence required to establish a strongly arguable case – Contract made within Victoria – Postal acceptance rule – Proceeding “founded on” – Meaning of “tort” – Meaning of “tortious act or omission” – Whether tort committed in Victoria – Whether damage suffered in Victoria – Discretion – No evidence of reliance – Whether this court clearly an inappropriate forum – Contract for exclusive jurisdiction of a foreign court – Supreme Court (General Civil Procedure) Rules 2005 (Vic), rr 7.01, 7.02, 7.04, 7.05, 8.09 – Trade Practices Act 1974 (Cth), ss 51A, 52 – Competition and Consumer Act 2010 (Cth), Schedule 2, Australian Consumer Law, ss 4, 18.

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	L Glick QC with C Juebner	SBA Law
For the Defendant	R M Garratt QC	Cornwall Stoddart

TABLE OF CONTENTS

A.. Introduction.................................................................................................................................. 1

B.. Background................................................................................................................................... 2

B.1... The written agreements...................................................................................................... 2
B.2... Pre-contractual negotiations.............................................................................................. 4
B.3... Execution of the Licence Agreement................................................................................ 5
B.4... Events after execution of the Licence Agreement........................................................... 5

C.. Procedural history........................................................................................................................ 7

D.. The Statement of Claim.............................................................................................................. 9

D.1... The pleading......................................................................................................................... 9
D.2... Submissions made in response to the Statement of Claim.......................................... 13

E... The Proposed Statement of Claim.......................................................................................... 15

F... Issues for determination........................................................................................................... 18

F.1... Concessions........................................................................................................................ 18
F.2... Dispensation from compliance with r 7.02(1)................................................................ 19
F.3... Service out of Australia – threshold issues.................................................................... 20
F.3.1... The relevant provisions........................................................................................ 20
F.3.2... The Former Rules................................................................................................... 22
F.3.3... The test to be applied............................................................................................ 24
F.3.3.1..... Contentions........................................................................................... 24
F.3.3.2..... Earlier Victorian decisions................................................................. 25
F.3.3.3..... The High Court – Agar v Hyde........................................................... 31
F.3.3.4..... Later Victorian decisions.................................................................... 35
F.3.3.5..... Binding authority – a strongly arguable case.................................. 37
F.3.3.6..... Assuming the absence of a binding authority of the Court of Appeal 39
F.3.3.7..... Summary............................................................................................... 47

F.3.4... Rule 7.01(1)(f)(i): “the contract was made within Victoria”........................... 47
F.3.5... Rule 7.01(1)(g): “a breach committed within Victoria of a contract wherever made”.................................................................................................................................. 53
F.3.6... Rule 7.01(1)(i): “proceeding founded on a tort committed within Victoria” 53
F.3.6.1..... “Founded on”....................................................................................... 53
F.3.6.2..... The meaning of “tort”......................................................................... 53
F.3.6.3..... Where the tort was committed.......................................................... 67
F.3.6.4..... Is it strongly arguable a tort was committed?................................. 68

F.3.7... Rule 7.01(1)(j): “proceeding is brought in respect of damage suffered wholly or partly in Victoria and caused by a tortious act or omission wherever occurring”. 74

F.4... Exercise of the court’s discretion: the issue of reliance............................................... 75
F.5... Exercise of the court’s discretion: the Governing Law Clause and the Forum Clause 77
F.5.1... Relevant principles................................................................................................ 77
F.5.2... Laws applicable in Australia............................................................................... 78
F.5.3... Other matters.......................................................................................................... 80

F.6... Injunction............................................................................................................................ 83
F.7... Appropriate order............................................................................................................. 83

G.. Conclusion................................................................................................................................... 84

HIS HONOUR:

A. Introduction

Both the plaintiff, Lew Footwear Holdings Pty Ltd (“Lew Footwear”), and the defendant, Madden International Ltd (“Madden”), have applications before the court.

Lew Footwear is incorporated in Victoria, with its registered office in Melbourne, and only conducts business in Australia. Lew Footwear seeks orders dispensing with the Supreme Court (General Civil Procedure) Rules 2005 (Vic) regarding the requirements for serving an originating process out of Australia without order of the court. Further, Lew Footwear seeks leave to file and serve an amended writ and an amended statement of claim (“the Proposed Statement of Claim”).

Madden is incorporated in Hong Kong. Madden has no offices or employees in Australia. Madden is a wholly owned subsidiary of Steven Madden Ltd, a company based in New York (“the Madden Holding Company”). Madden was served in Hong Kong with the writ and the statement of claim filed in this proceeding (“the Statement of Claim”). On 27 September 2013, a notice of conditional appearance was filed on behalf of Madden. Madden seeks the following relief in the alternative:

(1) The writ be set aside.
(2) The proceeding be stayed.
(3)An injunction restraining Lew Footwear from prosecuting the proceeding, subject to further order of the court.

For the reasons that follow, it is proposed that an order will be made staying the proceeding. However, any such order will not be made for 14 days from the date of delivery of this judgment. In the meantime, an order will be made granting liberty to apply. This will allow Lew Footwear, if so advised, to file and serve any further affidavit upon which it might seek to rely in light of these reasons. If liberty to apply is not acted upon in 14 days, then the proceeding shall be stayed permanently.

B. Background

Negotiations commenced between Lew Footwear and Madden in or about mid July 2009 with the purpose of appointing Lew Footwear as a distributor. There were extensive oral and written communications before an agreement was finally reached between the parties in late 2009. I will return to some of these communications shortly.[1]
[1]See pars 12-15 below.

B.1 The written agreements

On or about 2 December 2009, Lew Footwear and Madden entered into 2 written agreements.

By a licence and distribution agreement dated 30 November 2009, Madden appointed Lew Footwear to distribute Madden’s footwear, accessories and other products (“the Products”) in Australia and New Zealand for a term of 5 years (“the Licence Agreement”).

By a further agreement (“the Royalty Agreement”), Lew Footwear agreed to pay a royalty to Madden in relation to the Products sold by Lew Footwear pursuant to the Licence Agreement. The Royalty Agreement contained a formula pursuant to which the royalty was to be calculated. It is not necessary to give the details of the formula. However, it is necessary to understand a term of the Licence Agreement pursuant to which the price of the Products was to be calculated.

Clause 12 of the Licence Agreement (“the Pricing Term”) provided that Lew Footwear was required to buy the Products directly from Madden “on an ‘agreed cost’ basis, (such cost to be factory cost plus reasonable cost of sampling, testing, agent and Hong Kong office fees, etc. such reasonable costs not to exceed 13%)” (“the Agreed Cost Basis”). The Pricing Term also provided, amongst other things, that Lew Footwear had the ability to examine the factory invoices upon random request, such requests not to exceed 10 percent of all orders. There was no provision for Lew Footwear to examine any other invoices relevant to the calculation of prices fixed on the Agreed Cost Basis.

The Pricing Term further provided that “every order shall have a purchase price which has been pre-agreed upon by both Madden and [Lew Footwear]. No order shall be deemed final until such agreement is confirmed”. In other words, unless and until Lew Footwear had actually agreed with Madden on the price of the Products for any particular order, Madden could not fix the price pursuant to the Agreed Cost Basis or otherwise.

The Licence Agreement contained provisions concerning the choice of law and choice of forum, namely clause 22(e) and (f):
(e)Governing Law. This Agreement has been executed and delivered in, and shall be governed by and construed in accordance with the laws of the State of New York, applicable to contracts made and performed in such state and without regard to conflict of laws provisions (“the Governing Law Clause”).
(f)Resolution of Disputes. [Lew Footwear] (i) consents and submits to the jurisdiction of any state or federal court of competent jurisdiction located in the Counties of New York, Queens and Nassau, State of New York, in any action or proceeding arising out of or relating in any manner to this Agreement, (ii) waives any claim that any such state or federal court is an inconvenient forum, and (iii) irrevocably agrees that any and all actions or proceedings arising out of or relating to this Agreement or the transactions contemplated herein shall be exclusively heard only in such state or federal court, provided that nothing herein shall affect Madden’s right to bring an action or proceeding against [Lew Footwear] in the courts of any other jurisdiction where the purpose of such action or proceeding is to seek injunctive relief against [Lew Footwear], or collect moneys due and owing from [Lew Footwear] to Madden (“the Forum Clause”).
B.2 Pre-contractual negotiations

In the negotiations leading up to the execution of the Licence Agreement and the Royalty Agreement, Madden repeatedly referred to its own business model, pursuant to which it had standard forms of agreement in place. Madden asserted that the business model worked everywhere else, including in the United Kingdom, Canada, China, Turkey, Dubai and Israel. As part of the negotiations, Madden contended that the business model should also work in Australia.

Notwithstanding the position taken by Madden, Lew Footwear was persistent in relation to some of the changes it wanted made to the Licence Agreement before it was executed. One of those amendments related to the Pricing Term. There were numerous exchanges in relation to this clause.

In the last written communication from Lew Footwear on this topic, on 9 October 2009, Stephen Kenmar (“Kenmar”), a director[2] and in-house counsel[3] for Lew Footwear, contended that the then existing draft prepared by Madden left Lew Footwear very vulnerable as Lew Footwear could not know what the costs referred to in the Pricing Term would be. Kenmar also contended that, as there was no formula, Lew Footwear could not ascertain how costs were to be apportioned between Lew Footwear and other licensees of Madden.
[2]Kenmar had only recently become a director, being appointed on 2 October 2009.
[3]This, and other correspondence sent by Kenmar, was on letterhead stating Kenmar was a solicitor for “Century Plaza Group of Companies”. In his initial response to the draft licence agreement proffered by Madden, Kenmar described himself as “corporate counsel for the Lew Group”.

On 10 November 2009, in response to Lew Footwear’s concerns, Madden proposed a change to the Pricing Term. This change was accepted by Lew Footwear and was incorporated into the Licence Agreement. In short, it was only in the month leading up to the execution of the Licence Agreement that the form of words the subject of the Pricing Term was agreed. There was no suggestion in any of the exchanges between the parties that Madden had put in place some form of system to ensure that the Pricing Term as finally agreed would be complied with.[4]
[4]Cf par 37(a) below.

B.3 Execution of the Licence Agreement

On 20 November 2009, Kenmar executed the Licence Agreement on behalf of Lew Footwear. He did this at an office in Melbourne.

On the same day, Kenmar sent a signed counterpart of the Licence Agreement[5] by international express post to the Madden Holding Company, addressed to the senior vice president of strategic planning and finance of the Madden Holding Company, Alan Novich (“Novich”). The Madden Holding Company was based in Long Island City, New York. Kenmar also emailed the signed counterpart to the vice president of Madden, Ian Funk (“Funk”), copied to Novich and Daniel Hammerschlag (“Hammerschlag”)[6] of Lew Footwear.
[5]The contemporaneous email and letter sent on 20 November 2009 both suggest that 2 copies of the Licence Agreement as signed by Kenmar were sent. The affidavit evidence of Lew Footwear, sworn on information and belief, states that only 1 copy was sent. It is not necessary, or desirable, to seek to make any determination on this interlocutory application as to this apparent discrepancy.
[6]According to the historical company extract for Lew Footwear, Hammerschlag was not appointed a director until 10 February 2010. However, his affidavit sworn 25 November 2013 makes it clear he was acting on behalf of Lew Footwear from in or about July 2009, with the capacity to negotiate on Lew Footwear’s behalf.

On 2 December 2009, whilst in Melbourne, Hammerschlag received notification of Madden’s acceptance of Lew Footwear’s offer. This was by an email sent from Long Island City, New York, attaching the Licence Agreement. The Licence Agreement had been executed in Long Island City by the chief operating officer of Madden. Hammerschlag then sent an email inquiring whether a hard copy had been forwarded to Lew Footwear “by post or courier”. On 3 December 2009, Hammerschlag was told that the document had been sent by “Fed-Ex”, which duly arrived and was received by Kenmar on 4 December 2009 at his Melbourne office.

B.4 Events after execution of the Licence Agreement

Pursuant to the Licence Agreement, some time after December 2009, Lew Footwear placed orders with Madden from time to time. From approximately 28 April 2010, Madden commenced rendering invoices to Lew Footwear.

Having entered into the Licence Agreement and the Royalty Agreement, Lew Footwear took steps to establish retail stores in Australia for the purpose of selling the Products. Throughout 2010, 2011, 2012 and early 2013, Lew Footwear entered into leases for retail stores in central locations in Victoria, New South Wales, Queensland and South Australia. The Products were also supplied by Lew Footwear to David Jones Ltd. No stores were opened in New Zealand. Of the 15 stores opened by Lew Footwear, 5 of those stores have been closed, with closure dates ranging from 24 September 2012 to 27 October 2013. The remaining stores continue to operate.

As at late 2009, Madden had an established ordering process in relation to footwear sold internationally. Six times a year Madden holds “shoe shows” in New York, at which buyers from around the world attend. Since the Licence Agreement was entered into, representatives of Lew Footwear have attended these shows as a matter of course for the purpose of identifying Products in which they were interested. Representatives of Lew Footwear attend 3 to 4 shows each year.

Following each such event, Madden issues its distributors, including Lew Footwear, with itemised details in relation to the Products, together with a blank purchase order. Lew Footwear then sends an email from Australia to Madden in New York attaching a purchase order. Lew Footwear, to date, has sent between 20 to 40 orders per year.

The footwear sold by Madden under the Licence Agreement is, and has been, primarily manufactured in China and Mexico. No shoes are, or have been, manufactured in Australia. It is unclear on the evidence whether or not the manufacturing of the shoes occurs before or after orders are placed by Lew Footwear.

In any event, once the orders placed by Lew Footwear have been filled, contact is made with the freight forwarder of Lew Footwear to collect the Products and ship them to Australia. Madden has no responsibility for freighting the Products from its overseas manufacturers to Australia.

Upon the Products being delivered to the freight forwarder of Lew Footwear, Madden’s Hong Kong office sends, by email, an invoice to Lew Footwear in Melbourne. Periodically, statements of account are sent by Madden’s New York office to Lew Footwear. Payments by Lew Footwear for outstanding invoices are made by wire transfer to Madden in Hong Kong.

Contrary to the Pricing Term, from 15 March 2011, Madden remitted invoices with costs greater than costs calculated on the Agreed Cost Basis. For the period from 15 March 2011 to 17 January 2012, it is alleged 26 invoices contained prices calculated in excess of the Agreed Cost Basis, which invoices totalled $174,220.98. In addition to these invoices, for the periods 10 February 2012 to 31 March 2012 and 1 April 2012 to 30 June 2012, Madden has expressly acknowledged that Madden rendered invoices to Lew Footwear for amounts which were in excess of the prices allowed under the Pricing Term.

Although the materials of Lew Footwear do not identify precisely the amounts involved, evidence filed by Madden provided some further detail.[7] In summary, as at 13 June 2014, the total of the overpayments made by Lew Footwear for all invoices rendered was $247,702.31. This was from total sales of $9,792,293.53; representing approximately 2.53% of total sales.
[7]A further affidavit of Funk was filed and served in response to Lew Footwear’s application, made during the course of argument, to amend the particulars of loss: see par 66 below.

C. Procedural history

On 10 October 2013, Madden filed a summons seeking, in effect, to bring this proceeding to an end. Before the return date of the summons, an order was made on the papers by an associate judge providing for affidavits and submissions to be filed by the parties. The submissions filed by Madden on 27 March 2014 included a reference (for the first time[8]) to the fact that the writ was not indorsed for the purpose of service outside Australia as required by r 7.02(1) of the Supreme Court Rules.
[8]Before 27 March 2014, Madden had made no issue of the absence of an indorsement in any submission or correspondence.

On 31 March 2014, Lew Footwear filed a summons. Pursuant to r 2.04 of the Supreme Court Rules, Lew Footwear sought an order from the court dispensing with the need for compliance with r 7.02(1). The summons did not seek any other substantive relief.

Upon the return of both summonses before an associate judge on 2 April 2014, orders were made for any further submissions to be filed and served by the parties. The orders noted in other matters that it was just, efficient and cost effective that the applications be referred to a judge of the court for hearing and determination in order to avoid unnecessary delay and appeals and to facilitate the determination of all issues, including Madden’s application for an anti-suit injunction.

The matter came on for hearing before me on 29 April 2014. At that time, the following affidavits had been filed:

(1) On behalf of Madden, affidavits of:
(a)Funk, sworn 30 October 2013 and 14 November 2013;
(b)Daniel Hargraves (“Hargraves”), attorney at law of Hargraves McConnell & Costigan, New York, sworn 9 October 2013.

(2)On behalf of Lew Footwear, affidavits of:
(a)Samuel Maxwell Bond (“Bond”), solicitor for Lew Footwear, affirmed 31 March 2014 and 23 April 2014;
(b)Hammerschlag affirmed 25 November 2013 and 24 April 2014;
(c)E Leo Milonas (“Milonas”), attorney at law of Pillsbury Winthrop Shaw Pitman, New York, sworn 4 December 2013.

The submissions filed on behalf of Lew Footwear on 24 April 2014 asserted that the failure to include an indorsement on the writ in accordance with the Supreme Court Rules was by inadvertence. However, there was no evidence to this effect. In the absence of any evidence, Madden submitted it was inconceivable that the non-compliance was inadvertent.

By 29 April 2014, no attempt had been made by Lew Footwear to formulate an appropriate indorsement. It was suggested by the court that an efficient way to deal with some of the issues outstanding would be for Lew Footwear to prepare the appropriate indorsement and provide it to Madden before the matters between the parties were fully agitated.[9] This suggestion was adopted by Lew Footwear. Consequently, the matter was adjourned to a date convenient to the parties and the court, namely 10 June 2014.
[9]See r 7.02(2) in par 79 below.

On 29 April 2014, it was also noted that the court had been provided with an expert opinion on the law of New York State by Hargraves, which had been the subject of substantial disagreement in the affidavit of Milonas filed by Lew Footwear. I indicated that the court would be assisted if Hargraves provided a response to the Milonas affidavit.

Accordingly, on that date, orders were made for Lew Footwear to file and serve a proposed amended writ and proposed amended statement of claim, and for Madden to file and serve any affidavit from Hargraves in reply. The parties were also directed to file and serve updated and consolidated outlines of submissions. As a result of these orders, Hargraves swore a further affidavit on 19 May 2014, and Milonas swore an affidavit in response on 28 May 2014.

D. The Statement of Claim

D.1 The pleading

By the Statement of Claim, Lew Footwear referred to both the Licence Agreement and the Royalty Agreement. Claims were made for breach of the Licence Agreement. These claims were on the basis that the Pricing Term had not been complied with because invoices had been rendered with prices in excess of the Agreed Cost Basis.

In addition to the contractual claims, claims based on misleading or deceptive conduct[10] were made under the Trade Practices Act 1974 (Cth) and the Australian Consumer Law contained in Schedule 2 of the Competition and Consumer Act 2010 (Cth). Those claims alleged that, in or about late November or early December 2009, Madden represented to Lew Footwear that:

(a)Madden had systems in place capable of calculating prices for Products purchased by Lew Footwear from Madden equal to an “agreed cost” basis, such cost to be factory cost plus reasonable costs of sampling, testing, agent and Hong Kong office fees etc, such reasonable costs not to exceed 13% [referred to in the Statement of Claim as the “First Representation”]; and
(b)Alternatively to (a), Madden would put systems in place capable of calculating prices for Products purchased by Lew Footwear from Madden equal to an “agreed cost” basis, such cost to be factory cost plus reasonable costs of sampling, testing, agent and Hong Kong office fees etc, such reasonable costs not to exceed 13% [referred to in the Statement of Claim as the “Second Representation”].

(Emphasis added.)

[10]Trade Practices Act, s 52; Australian Consumer Law, s 18. (The Statement of Claim actually referred to s 19 of the Australian Consumer Law, but this was plainly a typographical error.)

The First Representation and the Second Representation were alleged to have been made by implication. Particulars of that implication were “the fact that Madden agreed to charge for Products in accordance with the Pricing Term under the Licence Agreement and from the fact that, in order to comply with its contractual obligations, Madden needed to have a system in place capable of calculating prices for Products purchased by Lew Footwear from Madden equal to an ‘agreed cost’ basis …”. It was also alleged that Madden was well aware of the importance of the Pricing Term to Lew Footwear by reason of correspondence between the parties prior to the Licence Agreement being entered into. Four pieces of correspondence were identified, dated 3 September 2009, 18 September 2009, 2 October 2009 and 9 October 2009 (“the Correspondence”). Each of these was sent by Kenmar.

The Statement of Claim also alleged representations were made by Madden after the Licence Agreement was executed. The next representation alleged to have been made by Madden (referred to in the Statement of Claim as the “Third Representation”) was put on the basis that, on each occasion Madden rendered an invoice for the Products, Madden represented to Lew Footwear that the price specified in each such invoice was equal to a price ascertained on the Agreed Cost Basis. The particulars to this allegation were based on the silence of Madden in failing to state that the invoice did not comply with the Pricing Term.

Finally, the Statement of Claim alleged representations were made after the overcharging had been discovered by Lew Footwear and had been accepted by Madden as having occurred. Those allegations were that, on or about 21 February 2012, Madden represented to Lew Footwear that:

(a)Madden had put systems in place capable of calculating prices for Products purchased by Lew Footwear from Madden equal to an “agreed cost” basis, such cost to be factory cost plus reasonable costs of sampling, testing, agent and Hong Kong office fees etc, such reasonable costs not to exceed 13% [referred to in the Statement of Claim as the “Fourth Representation”]; and
(b)Madden would in future render invoices to Lew Footwear for Products at an “agreed cost” basis, such cost to be factory cost plus reasonable costs of sampling, testing, agent and Hong Kong office fees etc, such reasonable costs not to exceed 13% [referred to in the Statement of Claim as the “Fifth Representation”].

The particulars in relation to the Fourth Representation and the Fifth Representation alleged that the representations were made by Funk on behalf of Madden, in conversations between Funk and Bruce Tarrant (“Tarrant”) “on behalf of Lew Footwear”. Tarrant was not employed by Lew Footwear. He was described in an affidavit filed by Lew Footwear as “an employee of Century Plaza Trading Pty Ltd (a company within the Lew group of companies)”.

Lew Footwear pleaded reliance upon “the First Representation further and alternatively, the Second Representation in entering into the Licence Agreement and the Royalty Agreement and, thereafter, incurring expenditure and liabilities in establishing a market for the Products in Australia” (emphasis added). Lew Footwear also alleged the “First Representation, further or alternatively the Second Representation, was false and misleading” (emphasis added). These allegations did not sit comfortably with the fact that the First Representation and the Second Representation were pleaded strictly in the alternative.[11]
[11]See par 37(b) above.

The particulars of reliance upon the First Representation and the Second Representation stated that Kenmar made it known to Madden that the pricing of the Products was critical to Lew Footwear. It was said this was done by certain means, including the Correspondence. It was also stated that “Lew Footwear would not have entered into the Licence Agreement if it had known that Madden had no systems in place or would not put systems in place capable of calculating prices for Products purchased by Lew Footwear from Madden equal to an ‘agreed cost’ basis …”. The particulars also refer to Lew Footwear having a belief at the time the Licence Agreement and the Royalty Agreement were entered into that Madden either had systems in place or would put them in place. No person said to hold such a belief on behalf of Lew Footwear was identified in the particulars.

It was also alleged that each of the Third Representation, the Fourth Representation and the Fifth Representation was false and misleading. Further, it was alleged that Lew Footwear relied upon each of these representations in continuing to incur expenditure and liabilities in establishing a market for the Products in Australia. Again, the particulars did not identify the person or persons at Lew Footwear that placed reliance upon the Third Representation, the Fourth Representation or the Fifth Representation in so acting.

In relation to the Second Representation and the Fifth Representation, it was pleaded that each of those representations was as to a future matter and was made without reasonable grounds. Lew Footwear stated it would rely upon s 51A of the Trade Practices Act and s 4 of the Australian Consumer Law respectively in relation to the absence of reasonable grounds.

Lew Footwear pleaded it had suffered loss and damage by reason of Madden’s misleading and deceptive conduct. In relation to the First Representation, and further or alternatively the Second Representation, the loss claimed was by reason of Lew Footwear entering into the Licence Agreement and the Royalty Agreement. Lew Footwear claimed the expenditure and liabilities incurred in establishing a market for the Products in Australia. Further, expenditure and liabilities were claimed which were said to be incurred after the making of the Third Representation, the Fourth Representation and the Fifth Representation. The particulars of loss concluded with the following:

The loss and damage is equal to:
A.the cost incurred by Lew Footwear in establishing a market for the Products in Australia, less the revenue earned by Lew Footwear from the sale of the Products; and
B.the overpayments of royalty under the Royalty Agreement, insofar as Madden has not already paid compensation to Lew Footwear for such overpayments.

No details beyond this were provided, though further particulars of loss were promised prior to trial.
D.2 Submissions made in response to the Statement of Claim

In the written submissions of Madden filed before the hearing on 29 April 2014, substantial criticism was made by Madden of the form of the pleading contained in the Statement of Claim. Further, criticism was made that the affidavits filed on behalf of Lew Footwear did not include any evidence that any officer or employee of Lew Footwear had relied upon any of the alleged representations.

In focussing on the absence of any pleading or evidence of reliance upon the alleged representations by any person on behalf of Lew Footwear, Madden submitted the court should be sceptical of the case put. It was contended that it was not self-evident that a distributor such as Lew Footwear would make outlays and investment decisions based on an uncommunicated assumption about whether the supplier had or would have a particular accounting system. It was said that this was even more so in this case as Lew Footwear had bargained expressly for rights in the Licence Agreement to inspect the supplier’s factory cost invoices, but had not sought to impose any obligation on Madden as to the kind of system that was required.

It was further submitted by Madden that it was not credible that Lew Footwear’s investment decision to establish a market in Australia for the Products was based on a belief as to the present or future existence of an accounting system when factors such as the quality of the Products, their consumer appeal or reputation and the promised cost of the Products would be the expected basis upon which a distributor would enter into the Licence Agreement.

Finally, it was submitted that the scepticism the court should attend to the allegations should be heightened by the failure of Lew Footwear to complain about the absence of the assumed accounting system in the contemporaneous communications concerning the errors in pricing (which communications were tendered in evidence by Lew Footwear).

Indeed, in the initial letter of complaint dated 25 January 2012, Kenmar stated that Lew Footwear had been involved in importing footwear into Australia for a number of years. Kenmar stated that, as a result of another company in the Lew group of companies being a major importer of women’s footwear, Lew Footwear “knows what the footwear it is acquiring from [Madden] should be costing”. Furthermore, in a later email, sent by Tarrant on 21 February 2012, Tarrant said that Lew Footwear was very appreciative that Madden had “openly worked with [Lew Footwear] and given [Lew Footwear] full transparency on the commission discrepancies”.

On 22 February 2012, Funk sent an email indicating Madden had calculated that the discrepancies totalled $231,120.11. Nothing in the evidence suggests this figure was disputed by Lew Footwear. This amount was refunded by Madden in February 2012.

In summary, it was contended that Lew Footwear could not establish a strong arguable case[12] due to the lack of pleading or evidence as to who at Lew Footwear relied upon the representations pleaded in the Statement of Claim.
[12]See pars 87-136 below.

E. The Proposed Statement of Claim

Pursuant to the orders made on 29 April 2014, Lew Footwear took the opportunity not only to include an indorsement on the proposed amended writ, but also to include substantial changes to the Statement of Claim. In contrast to what had been previously pleaded, Lew Footwear no longer pleaded representations upon which it relied in the alternative. Further, what was previously pleaded as the First Representation[13] was omitted from the Proposed Statement of Claim.
[13]See par 37(a) above.

The representations now proposed concerning the basis upon which Lew Footwear entered into the Licence Agreement are different. By the Proposed Statement of Claim, it is alleged that Madden represented to Lew Footwear that:

(a)Madden would, during the continuation of the Licence Agreement, have systems in place capable of calculating prices for Products purchased by Lew Footwear from Madden equal to an “agreed cost” basis, … [referred to in the Proposed Statement of Claim as the “First Representation”];
(b)Madden would, during the continuation of the Licence Agreement, render invoices to Lew [Footwear] at prices for Products purchased by Lew Footwear from Madden equal to an “agreed cost” basis, … [referred to in the Proposed Statement of Claim as the “Second Representation”].

In substance, the proposed First Representation encapsulates what was previously referred to as the Second Representation. Further, the proposed Second Representation is effectively a representation that Madden would comply with the Pricing Term while the Licence Agreement remained on foot. In essence, it amounts to no more than a representation that, in the future, Madden would abide by the terms of the Licence Agreement with respect to the prices charged for the Products.

The particulars of the proposed First Representation and the proposed Second Representation are that each of them was made by implication. The particulars go beyond the earlier particulars in the Statement of Claim, which referred to the existence of the Pricing Term and the Correspondence.[14]
[14]See par 38 above.

The proposed amendments include allegations that certain representations were made not only implicitly from the parties agreeing to the Pricing Term, but also from the negotiations that were conducted before the Licence Agreement was entered into.[15] The evidence is that those persons negotiating on behalf of Lew Footwear, namely Hammerschlag and Kenmar, principally conducted the negotiations from Melbourne. Further, the particulars proposed now include reference to a revised draft of the Licence Agreement which introduced the Pricing Term, and each subsequent draft.
[15]Reliance on the negotiations went beyond simply establishing the importance of the Pricing Term, as previously particularised in the Statement of Claim.

The Third Representation was also the subject of amendment. Instead of suggesting a representation based upon silence,[16] Lew Footwear alleges that the positive conduct of rendering invoices amounted to a representation that the price specified in each such invoice complied with the Pricing Term. The particulars previously provided in relation to the Third Representation were deleted. There are no new particulars proposed.
[16]See par 39 above.

There was no change proposed in relation to the Fourth Representation or the Fifth Representation. (I will refer to the representations alleged in the Proposed Statement of Claim collectively as “the Representations” and to the claims made based on the Representations collectively as “the Representations Claims”.)

The Proposed Statement of Claim alleges that Lew Footwear was induced to enter into the Licence Agreement and the Royalty Agreement “in reliance on the accuracy of each of the First Representation and the Second Representation” (emphasis added). As already noted, this was not the way the case was originally pleaded.[17]
[17]See pars 37, 42, 46 and 54 above.

The particulars of the reliance on the First Representation and the Second Representation were also amended. Such reliance is now said to include Kenmar making his requests regarding the Pricing Term in the Correspondence and executing the Licence Agreement for and on behalf of Lew Footwear in the belief that Madden would have systems in place and render invoices as alleged. The particulars also include details of Lew Footwear establishing 15 stores in reliance on the First Representation and the Second Representation. There is no suggestion that Kenmar, a director of Lew Footwear from 2 October 2009 and in-house counsel, was responsible for the decision to establish the 15 stores. No person is identified in the Proposed Statement of Claim in this regard. Given Kenmar’s position, and although he executed the Licence Agreement, it seems highly unlikely that he alone would have represented the “mind” of Lew Footwear and been responsible for the commercial decisions to proceed with the execution of the Licence Agreement and to open the stores.[18] No submission to this effect was made by Lew Footwear.
[18]The Licence Agreement included a term requiring Lew Footwear to open a total of 11 stores from 2010 to 2014.

The Proposed Statement of Claim also alleges that reliance was placed on the Third Representation, the Fourth Representation and the Fifth Representation by making payments on invoices rendered by Madden and continuing to incur expenditure and liabilities in establishing a market for the Products in Australia. Again, no person from Lew Footwear is identified as having placed such reliance upon the Third Representation, the Fourth Representation and the Fifth Representation. On the matter of reliance, reference is simply made to “Lew Footwear”. It is stated further in the particulars that Lew Footwear opened an additional store in reliance on the Fourth Representation and the Fifth Representation. The person or persons involved in this decision are not identified.

Each of the First Representation, Second Representation and Fifth Representation pleaded in the Proposed Statement of Claim is alleged to be with respect to a future matter within the meaning of s 51A of the Trade Practices Act[19] or s 4 of the Australian Consumer Law.[20] It is pleaded that reliance would be placed upon those provisions in deeming Madden not to have reasonable grounds for the making of these Representations respectively.
[19]The First Representation and the Second Representation concern allegations under the Trade Practices Act.
[20]The Fifth Representation concerns allegations under the Australian Consumer Law.

The loss and damage claimed by Lew Footwear was also the subject of amendment. However, in substance the loss as particularised in the Statement of Claim was repeated.[21]
[21]See par 46 above.

As a result of a suggestion that it was not clear in the Proposed Statement of Claim that any substantive loss had been suffered by reason of the absence of any particulars as to the amount of Lew Footwear’s revenue, Lew Footwear sought to provide further particulars of the loss claimed. Lew Footwear was granted leave to amend the proposed particulars of loss during the course of argument.[22] These further particulars claim that Lew Footwear has suffered substantial trading losses as a result of the Licence Agreement and the Royalty Agreement having been entered into. A further affidavit from Hammerschlag was filed to verify the further proposed particulars of loss. The losses claimed under this head of loss, up to October 2013, are approximately $6.8 million. It is also alleged the losses are continuing.

F. Issues for determination

[22]This was not formal leave to amend the pleading, as the Proposed Statement of Claim is yet to be filed.

F.1 Concessions

Before addressing the issues for determination, there were a number of concessions made, quite properly, on behalf of Lew Footwear.

First, Lew Footwear accepted that, if the only issues raised in this proceeding were based on contractual claims under the Licence Agreement, then there would be no proper basis for arguing that this proceeding should not be stayed or otherwise set aside. This concession gives due recognition to the Governing Law Clause and the Forum Clause.[23]
[23]See par 11 above.

Secondly, insofar as the proposed indorsement seeks to rely upon a breach of the Licence Agreement by Madden, it was accepted that it could not be established on a good arguable basis (or strongly arguable basis)[24] that the breach of the Licence Agreement occurred within Victoria.
[24]See pars 87-136 below.

Thirdly, in the event that the court ordered a stay of the proceeding based on the substantive issues before the court,[25] then Lew Footwear agreed it would not commence a fresh proceeding. Accordingly, if these circumstances were the basis of an order for a stay, and subject to any right of appeal, there would be no need for the court to consider whether an anti-suit injunction should be ordered.
[25]That is, not solely based upon the absence of an indorsement of the writ.

F.2 Dispensation from compliance with r 7.02(1)

In order to fill a lacuna in the evidence concerning the non-compliance with r 7.02(1),[26] Bond affirmed a further affidavit on 2 June 2014. In this affidavit Bond “confirm[ed] that the failure to make the necessary [i]ndorsement on the writ was as a result of my inadvertence in overlooking the requirements of Order 7 and was in no way deliberate or contrived”. This evidence was objected to by Madden on the basis that it was a conclusion rather than admissible evidence.
[26]See par 32 above.

In order to avoid any issue about the relevant evidence being properly before the court, Lew Footwear called Bond to give evidence orally. Although Madden submitted otherwise, the evidence of Bond demonstrated that the absence of an indorsement upon the writ was inadvertent, in the sense that, at the time Bond caused the service of the originating process outside Australia, he simply did not turn his mind to the need to check the Supreme Court Rules to ascertain precisely what was required. Although Bond is a very experienced solicitor, his evidence was that he could not recall ever having to consider the requirements of the Supreme Court Rules for the purpose of serving an originating process out of Australia.

Without elaborating further, based on Bond’s oral evidence, there can be no suggestion that there was a conscious or deliberate act on the part of Bond, or anyone else on behalf of Lew Footwear, not to include the indorsement on the writ.

The terms of r 2.01(1) make it plain that the failure to indorse the writ in accordance with r 7.02(1) is an irregularity and does not render the proceeding a nullity.[27] Practically speaking, there appears to be little, if anything, to be achieved by not dispensing with the requirements under r 7.02(1). Lew Footwear has indicated that, if dispensation were not ordered and the writ was set aside on this basis alone, it would simply file and serve a new writ with the appropriate indorsement.[28] As already noted, Lew Footwear has subsequently prepared an indorsement in accordance with r 7.02(1).[29]
[27]See also Transfield Philippines Inc v Pacific Hydro Ltd [2006] VSC 175, [49] (Hollingworth J); Schib Packaging Srl v Emrich Industries Pty Ltd (2005) 12 VR 268, 275 [22] (Charles JA, with whom Ashley JA agreed).
[28]See r 7.02(3) and (4): par 79 below.
[29]See also observations in Rowe v Grünenthal [2011] VSC 657, [57] (Beach J).

Without in any way diminishing the importance of complying with the Supreme Court Rules, in the event Lew Footwear is entitled to proceed, there seems to be no utility in refraining from granting dispensation. Further, the facts pleaded are sufficiently recent that no time limitation issues would arise if Lew Footwear were required to file and serve a new writ. Madden could point to no prejudice if dispensation were ordered.

In the circumstances, it is plain that, if service out of Australia is not set aside or the proceeding is not stayed, then dispensation ought to be granted.

F.3 Service out of Australia – threshold issues

As a preliminary matter, in this judgment a person who has served an originating process out of Australia will be referred to as an, or the, “Originating Party”; and an overseas defendant who has been served with an originating process out of Australia will be referred to as an, or the, “Overseas Defendant”.

F.3.1 The relevant provisions

Rule 7.01(1) relevantly provides:

Originating process may be served out of Australia without order of the Court where—
…
(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;
…

(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;

…
(i) the proceeding is founded on a tort committed within Victoria;
(j)the proceeding is brought in respect of damage suffered wholly or partly in Victoria and caused by a tortious act or omission wherever occurring;
…

It is convenient for the discussion that follows to also refer to rr 7.02, 7.04 and 7.05, which provide:

7.02(1) Originating process served on any defendant out of Australia in accordance with this Order shall, at the time of service on that defendant, contain an indorsement stating the facts and the particular paragraph of Rule 7.01 relied upon in support of such service.
(1.1)The indorsement under paragraph (1) shall be distinct from the indorsement of claim on the originating process, but any fact in support of service out of Australia which is a fact alleged by the indorsement of claim may be incorporated by specific reference in the indorsement under paragraph (1).[30]
[30]This paragraph was introduced by statutory regulation 27 of 2007, Supreme Court (Chapter I Amendment No 8) Rules 2007 (Vic), r 4 and came into operation on 1 May 2007.
(2)If the originating process does not contain the indorsement referred to in paragraph (1) at the time it is filed, the plaintiff, in accordance with paragraph (3), may amend the originating process to include the indorsement.
(3)The originating process shall be taken to be amended upon the filing by the plaintiff of a copy of the originating process with the indorsement included.
(4)Upon the filing of an amended copy of originating process under paragraph (3) or at any later time, the Prothonotary, on the request of the plaintiff, shall seal a sufficient number of copies of the originating process as amended for service and proof of service.

…
7.04(1) Where no appearance is filed by a party served with originating process out of Australia, the Court may order that the plaintiff shall be at liberty to proceed if satisfied—
(a)that the subject matter of the proceeding so far as it concerns that party is within Rule 7.01; and

(b)       that the originating process was duly served on that party.
(2)     An application for an order under paragraph (1) shall be supported by affidavit or other evidence showing the grounds on which the application is made.
7.05(1)   The Court may make an order of the kind referred to in Rule 8.09 on application by a party served with originating process out of Australia.[31]
[31]Rule 8.09 provides that the court may exercise its jurisdiction to, amongst other things, set aside a writ or originating motion or its service, or stay a proceeding on an application made by a defendant.
(2)Without limiting paragraph (1), the Court may make an order under this Rule on the ground—
(a)that service out of Australia is not authorised by these Rules; or
(b)that Victoria is not a convenient forum for the trial of the proceeding.

(3) The Court may make an order under this Rule—
(a) before an application is made under Rule 7.04; or
(b)before an order of the Court is made on such an application.

F.3.2 The Former Rules

Under the Supreme Court General Rules of Procedure in Civil Proceedings 1985 (Vic)[32] (“the Former Rules”), the rules governing service out of the jurisdiction were fundamentally different. Service could not be effected until an Originating Party seeking to serve “a writ of summons” or “notice of writ of summons” had obtained an order of the court. Order 11 r 1 set out the subject matter of which the court needed to be satisfied before leave could be granted.
[32]The Former Rules were made on 3 April 1984. They were simply a re-enactment of Chapter 1 as it previously stood under the General Rules of Procedure in Civil Proceedings 1957 (Vic), which re-enactment was necessitated by reason of the Subordinate Legislation (Review and Revocation) Act 1984 (Vic).

Before the court could make an order for service out of the jurisdiction, O 11 r 2 of the Former Rules had to be complied with, which read:

Every application for leave to serve such writ or notice on a defendant out of the jurisdiction shall be supported by affidavit or other evidence stating that in the belief of the deponent the plaintiff has a good cause of action and showing in what place or country such defendant is or probably may be found and whether such defendant is a British subject or not and the grounds upon which the application is made; and 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.
(Emphasis added.)

As is readily apparent, what was required under O 11 r 2 bears no resemblance to the matters required to be the object of an “affidavit or other evidence” under r 7.04; the latter being confined to “the grounds on which the application is made” and proof of proper service of the originating process. Further, O 11 r 2 imposed a threshold of it appearing “sufficiently” that the case “was a proper one”, which was required to be met before leave could be granted; no such threshold appears in the language of r 7.04 or any other rule of the Supreme Court Rules. (As to the significance of this, see paragraphs 92 to 96 below.)

The Former Rules provided for a defendant to be at liberty to apply to set aside the service of a writ or to discharge an order authorising service.[33] Further, if no appearance was filed in time, and no application had been made to set aside the writ, upon filing a proper affidavit of service, an Originating Party was entitled to proceed as if a foreign defendant had appeared.[34] The court also had a discretion as to whether or not to stay a proceeding upon the application of such a foreign defendant.[35]
[33]Order 12 r 17.
[34]Order 13 r 11, subject to exceptions not presently relevant. In this context, the term “foreign defendant” is used rather than “Overseas Defendant” as the Former Rules were concerned with service out of the jurisdiction, rather than out of Australia.
[35]In BHP Petroleum Pty Ltd v Oil Basins Ltd [1985] VR 725, 753.6 (Murray J), the discretion was referred to as being a discretion “either under O 11 or under the general jurisdiction of the Court”.

Consistent with earlier English decisions,[36] which “greatly influenced” the approach under the Former Rules,[37] the court was required to exercise its jurisdiction with great care. Any doubt as to whether the discretion should have been exercised was required to be resolved in favour of the foreign defendant in question.[38] With such an approach, before leave could be granted under the Former Rules, it was held that where a defendant moved the court to stay a proceeding, or to set aside a previous order, the court had to be satisfied, on the whole of the material, that “the plaintiff” had a strongly arguable case. This required the Originating Party to prove that it had a “sufficient foundation for the alleged cause of action”, together with a strong argument that the subject matter of the proceeding was within 1 or more of the paragraphs of O 11 r 1.[39]
[36]See, for example, Vitkovice Horni A Hutni Tezirstvo v Korner [1951] AC 869, 889.5 (Lord Tucker); The Hagen [1908] P 189, 201.7 (Farwell LJ); Société Générale de Paris v Dreyfus Brothers (1885) 29 Ch D 239, 242.9-243.2 (Pearson J). But, more recently, see Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Iran [1994] 1 AC 438, 450H-457A (Lord Goff, with whom the other law lords agreed).
[37]WA Dewhurst & Co Pty Ltd v Cawrse [1960] VR 278, 281.6 (Dean J).
[38]See, for example, Buttigeig v Universal Terminal & Stevedoring Corporation [1972] VR 626, 630.2 (Crockett J); Kroch v Rossell et Compagnie Societe des Personnes a Responsibilite Limitee [1937] 1 All ER 725, 730H-731B (Scott LJ), citing Société Générale de Paris v Dreyfus Brothers (1885) 29 Ch D 239, 242-243 and Johnson v Taylor Brothers & Co Ltd [1920] AC 144, 160-161.
[39]See, for example, Hartwell Trent (Australia) Pty Ltd v Tefal Societe Anonyme [1968] VR 3, 10.3 (Pape J, referring with approval to Chemische Fabrik Vormals Sandoz v Badische Anilin Und Soda Fabriks (1904) 90 LT 733, 735 (Lord Davey)); WA Dewhurst & Co Pty Ltd v Cawrse [1960] VR 278, 281.4-282.2 (Dean J); Carroll v Laurie [1959] VR 275, 277.5-278.2 (Dean J).

F.3.3 The test to be applied
F.3.3.1 Contentions

Lew Footwear raised an issue as to whether or not, on an application made under r 7.05, the court must be satisfied on evidence as to all the matters set out in r 7.01. Lew Footwear contended that it is sufficient for facts as pleaded to be relied upon to the extent those facts overlap with the subject matter of r 7.01. That said, Lew Footwear submitted that the court need not decide this issue as Lew Footwear had elected to put evidence before the court. In light of the view I have formed of this evidence, it is necessary to determine the issue.

Further, Lew Footwear contended that, putting aside hopeless or futile cases, there is no occasion for the court to consider the merits of the claims made by an Originating Party when an application is made by an Overseas Defendant under r 7.05. In contrast, Madden submitted Lew Footwear needs to satisfy the court that Lew Footwear has a strongly arguable case both as to the merits of each cause of action and the jurisdictional facts set out in r 7.01.

F.3.3.2 Earlier Victorian decisions

There is a real controversy about the test to be applied in this court in determining the requirements of r 7.01 where an originating process is served out of Australia without order of the court and its service is subsequently challenged. Given this controversy, some historical analysis of the decisions made under this rule is appropriate. The relevant starting point is 2 cases that were decided in 1992.

The earlier case was Melban Pty Ltd v Eu Chin Nominees Pty Ltd,[40] in which it was held that a party seeking to serve out of the jurisdiction must show, according to what might be called the traditional approach, “a strong arguable case”. In so deciding, Ormiston J did not refer to any authority, or any language in r 7, which supported such an approach. It is not clear from the judgment whether any competing submissions were made by counsel before his Honour handed down his decision (which was delivered on the same day the hearing was completed).
[40]Unreported, Supreme Court of Victoria, Ormiston J, 16 March 1992.

His Honour found that the Originating Party had failed on the evidence to establish such a case, both in relation to a contract being made in Victoria and with respect to a breach of that contract having been committed within Victoria. Although claims in tort were also made, no application was made by the defendant in time to set aside service out of Australia.[41] Accordingly, the issue of what an Originating Party was required to put before the court on such causes of action to establish the subject matter was within r 7.01(1) was not discussed.
[41]An application belatedly made out of time was not entertained by the court: see at 8.3.

In the later case, Williams v The Society of Lloyd’s,[42] McDonald J also adopted the traditional approach. This was done in the context where the plaintiff accepted that he was required to establish on the evidence that service out of the jurisdiction was authorised.[43]
[42][1994] 1 VR 274. (Although reported in 1994, it was decided on 19 November 1992.)
[43]At 285.9.

McDonald J referred to a line of authority including cases decided under the Former Rules[44] and the rules of the English courts. As already noted,[45] generally, before the current Supreme Court Rules, a party intending to serve a process out of the jurisdiction was required to obtain the leave of the court before the process was served.[46]
[44]See a reference to O 11 at 284.8-285.2.
[45]At par 80 above.
[46]An exception to this general statement was, in cases such as WA Dewhurst & Co Pty Ltd v Cawrse [1960] VR 278, where the originating process was served out of Victoria, but within Australia, pursuant to the provisions of the Service and Execution of Process Act 1901 (Cth), s 11.

Having considered these cases, McDonald J then referred to decisions in the Supreme Court of New South Wales[47] based on amendments to the rules of that court introduced in 1988.[48] Those rules, like the Supreme Court Rules, did away with the requirement of obtaining leave to serve an originating process out of Australia. His Honour distinguished those decisions on the basis that, in circumstances where no appearance was filed after service, the rules of New South Wales had removed the necessity of the court to be “satisfied” before leave of the court to proceed could be ordered. In so doing, the following was stated:[49]

However whereas under Pt 10 r 2 of the Supreme Court Rules of New South Wales provides that a plaintiff is not able to proceed against a defendant who does not enter an appearance "except with leave of the Court", the like rule of this court requires the court to be "satisfied" that the subject matter of the proceeding is within r 7.01 before liberty to proceed may be granted.

[47]Pendal Nominees Pty Ltd v M & A Investments Pty Ltd (1989) 18 NSWLR 383 (Rogers CJ, Comm D); Esanda Finance Corporation Ltd v Wordplex Information Systems Ltd (1990) 19 NSWLR 146 (Giles J).

[48]Supreme Court Rules 1970 (NSW). For a relevant history of these rules, see: Pendal Nominees Pty Ltd v M & A Investments Pty Ltd (1989) 18 NSWLR 383, 386G-388E (Rogers CJ Comm D).

[49][1994] 1 VR 274, 291.4.

Having set out the terms of r 7.04(1), his Honour continued:[50]

That such requirement has been retained by virtue of r 7.04(1) of the rules of this court leads to the conclusion in my view that the propositions for which Carroll v Laurie and Dewhurst[51] stand have not been overtaken by changes for the purpose of the rules of this court. Also of significance is the difference between r 8.09 of this court and Pt 11 r 8 of the Rules of the Supreme Court of New South Wales. Under the latter … there is a very wide discretion vested in the court of that State by virtue of the provisions of that rule which is not given to this court by virtue of the provisions of r 8.09 of this court.

[50]At 291.6.

[51]See fn 39 above.

Pausing here, reference was not made in the judgment to matters that previously needed to be the subject of evidence under the Former Rules before service out could occur, including a belief that the Originating Party had a good cause of action and the grounds upon which the application is made. Further, no reference was made to the removal of the threshold under the Former Rules; namely, no leave could be granted unless it had been “made sufficiently to appear” to the court that the case was a “proper” case for service out.[52]
[52]See, for example, Carroll v Laurie [1959] VR 275, 277.8-278.2 (Dean J); Vitkovice Horni a Hutni Tezirstvo v Korner [1951] AC 869, 883.4 (Lord Radcliffe); Hemelryck v William Lyall Shipbuilding Co Ltd [1921] 1 AC 698, 701.2 (Privy Council). See pars 81-82 above.

Furthermore, McDonald J did not refer in this analysis to the fact that the New South Wales Rules (as amended in 1988) not only removed the reference to the court being “satisfied”, but also ceased to impose a requirement of “anything being made to appear to the court”.[53]
[53]See Esanda Finance Corporation Ltd v Wordplex Information Systems Ltd (1990) 19 NSWLR 146, 154D (Giles J), referred to by McDonald J at [1994] 1 VR 274, 290.5.

Moreover, and perhaps most significantly, no comparison was made between the subject matter in respect of which the court needed to be satisfied under r 7.04 (concerned with non-appearance) and with what the court needed to be satisfied under the old New South Wales rule (concerned with leave to serve out). The old rule, Pt 10 r 1, had 2 matters of which the court needed to be satisfied; namely, “that the proceedings are proceedings to which r 1 applies; and that the applicant has a prima facie case for the relief which he seeks” (emphasis added).[54] The latter requirement is nowhere to be found in r 7 of the Supreme Court Rules.
[54]The relevant rule is set out at Hyde v Agar (1998) 45 NSWLR 487, 504D.

As to the differences between r 8.09 of the Supreme Court Rules[55] and Pt 11 r 8, I struggle to see any significance in the fact that the New South Wales rule provides for the court to be able to grant relief beyond setting aside the writ or staying the proceeding (such as ordering declaratory relief). It appears to me to be an entirely neutral factor. If I were required to express a different view, I would suggest that the more expanded form of relief might support an argument that the threshold in New South Wales would be raised by the existence of such further powers. In any event, I cannot see the difference as a basis for contending that the more confined terms of r 8.09 suggest an Originating Party in Victoria bears a higher burden in meeting the requirements of r 7.04 or resisting an application under r 7.05.
[55]See fn 31 above.

Returning to the judgment of McDonald J, his Honour then expressly approved “the test enunciated” in Carroll v Laurie,[56] WA Dewhurst & Co Pty Ltd v Cawrse[57] and Melban Pty Ltd v Eu Chin Nominees Pty Ltd.[58] McDonald J continued as follows:[59]

It is for the plaintiff to establish on consideration of all the admissible material that there is a strong argument for the opinion that the conditions provided by r 7.01 or such of them as may be relied upon have been satisfied. If such was not the case then a different standard and test would be applicable when leave to proceed was sought pursuant to r 7.04. For the same reasons it is not appropriate in such an application as the present, where the same or similar issues will by necessity be conclusively decided at trial as are under consideration in this application, to postpone the determination of the sufficiency of the satisfaction of the requirements of r 7.01 to the trial of the proceeding.
On these applications it is for the plaintiff to persuade the court that in respect of each cause of action on which [she, he or it] relies … 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 r 7.01 as is relied on. If at the end of the day the plaintiff has been successful in discharging the onus in respect of some of the claims made, but not others, it is for [her, him or it] to elect whether [she, he or it] will proceed only with those claims … or have the whole proceedings stayed on the basis that the statement of claim contains a cause or causes of action in respect of which the defendants could not be served out of the jurisdiction. Such claims cannot be tacked on to the claims which the plaintiff is justified in serving out of the jurisdiction.
(Citations omitted, emphasis added.)

[56][1959] VR 275, 277.5 (Dean J).

[57][1960] VR 278, 281.10 (Dean J).

[58]Unreported, Supreme Court of Victoria, Ormiston J, 16 March 1992.

[59][1994] 1 VR 274, 291.7–292.3.

There is no controversy that an Originating Party must establish that each cause of action is within r 7.01 before it may proceed with each claim that has been challenged by an Overseas Defendant.[60]
[60]See also Commonwealth Bank of Australia v White [1999] 2 VR 681, 693-694 [41] (Byrne J).

In Commonwealth Bank of Australia v White,[61] Byrne J referred to the passage in paragraph 98 above in accepting that the Originating Party must establish a strong arguable case that service out of the jurisdiction was justified.[62] But there was no argument on this issue. The parties proceeded on the agreed basis that this was the threshold to be met before the court’s discretion could be exercised. His Honour then said:[63]

I, therefore, accept this as the basis of my task, without expressing any view whether in an application made under r 7.05 the onus lies on the serving party to show that the requirements of r 7.01(1) have been met and not on the applicant to demonstrate the contrary.

[61][1999] 2 VR 681.

[62]At 693 [39].

[63]Ibid.

His Honour suggested there was a difficulty in identifying what it was that the Originating Party must establish. Having referred to the competing submissions of the parties,[64] and some English authorities, his Honour then referred to the “most helpful analysis” of the Court of Appeal of New South Wales in Hyde v Agar.[65] In that case, it was stated that the “good arguable case” test should be adopted “provided it is understood that the test is to be applied to establishing the jurisdictional nexus”.[66] Having referred to this with approval, Byrne J then addressed the matter of the court’s discretion:[67]

This done, the court must then exercise its discretion, whether to permit the serving party to proceed under r 7.04 or whether to set aside service or stay the proceeding under r 7.05. With respect to the function of the court in this discretionary phase, their Honours [in Hyde v Agar] said this: “… it is unlikely that questions of the merits of the case will play much role in the exercise of the ultimate discretion”. … It follows from this that, if I am satisfied to the required degree that a circumstance in r 7.01(1) has been made out, I might permit the proceeding to go forward unless there is good reason not to. Such a reason might be that the proceeding is futile.
(Citations omitted.)

[64]The defendant White, who as the Originating Party, submitted the strong arguable case need only be established in relation to the existence of the jurisdictional facts, whereas Lloyd’s contended the test must be satisfied as to the validity of each claim itself.

[65](1998) 45 NSWLR 487 (Spigelman CJ, Mason P and Stein JA).

[66]At 503G–504A.

[67]Commonwealth Bank of Australia v White [1999] 2 VR 681, 693 [39].

The manner in which the case was presented to Byrne J did not require his Honour to consider whether, and the extent to which, evidence was required to enable the court to be satisfied of the requirements of r 7.01. This is because substantial evidence was filed in that case. However, on the question of the discretion, again by reference to Hyde v Agar,[68] his Honour said:[69]

… the strength of the evidence needed to establish the existence of the cause of action or, in the circumstance presently under consideration, the tort, “should not be regarded as much, if anything, more than is required to survive a strike out application in accordance with the well known principles applicable in this court”. Under … the New South Wales rules, evidence is admissible on a strike out application. The cases referred to in Ritchie’s Supreme Court Procedure – New South Wales, however, show that evidence has a very restricted role in such an application, usually to demonstrate the uncontrovertible falsity of a pleaded allegation.
(Citations omitted.)

His Honour then went on to consider the evidence before him, but only on the assumed basis that, contrary to his apparent approval of Hyde v Agar, he was incorrect in following the approach of the Court of Appeal in New South Wales.[70]
F.3.3.3 The High Court – Agar v Hyde

[68](1998) 45 NSWLR 487, 507.

[69][1999] 2 VR 681, 700-701 [68].

[70]At 701 [69]. For completeness, I note that the decision of Byrne J was the subject of an application to the Court of Appeal for leave to appeal, which was refused (3 September 1999, Ormiston and Chernov JJA), and an application for special leave, which was also refused (11 February 2000, McHugh and Kirby JJ, Callinan J dissenting). In Commonwealth Bank of Australia v White (No 4) [2001] VSC 511, Warren J stated that she had been provided with a copy of the written submissions presented to the Court of Appeal on the application for leave to appeal. Her Honour continued (at [30]):

It does not appear that a transcript or argument was taken or, alternatively, was available. I observe that in the course of the written submissions senior counsel for Lloyd's squarely raised the different approaches adopted on the exclusive jurisdiction clause by McDonald J in Williams and Byrne J in White (No 1). Indeed, a catalogue of criticisms was levied in the submissions at the judgment in White (No 1). Notwithstanding the presentation of the written submissions and doubtlessly accompanying oral argument the Victorian Court of Appeal refused the application.

In the High Court, the reasons of the majority stated that “the primary judge applied the correct principles”: [2000] HCATrans 37,15.7.

On appeal to the High Court, the decision of the Court of Appeal in Hyde v Agar was overturned.[71] The decision was based on the High Court determining that sport administrators responsible for the rules of rugby union did not owe a duty of care of the kind alleged.[72] However, there were also comments made in relation to the New South Wales rules concerning service out of the jurisdiction.
[71]Agar v Hyde (2000) 201 CLR 552.
[72]At 560 [9] (Gleeson CJ), 584 [92] (Gaudron, McHugh, Gummow and Hayne JJ), 600-601 [125]-[128] (Callinan J).

The plurality judgment, delivered by Gaudron, McHugh, Gummow and Hayne JJ, commenced the discussion on service out of the jurisdiction by dispelling the notion that, in modern times at least, the exercise of the court’s jurisdiction based on rules providing for service out of the jurisdiction could be considered as exorbitant. In this regard, their Honours stated:[73]

It is, however, important to notice that rules of court, or local statutes, providing for service outside the jurisdiction are now commonplace – at least in jurisdictions whose legal systems have been formed or influenced by common law traditions. Further … contemporary developments in communications and transport make the degree of “inconvenience and annoyance” to which a foreign defendant would be put, if brought into the courts of this jurisdiction, “of a qualitatively different order to that which existed in 1885”.[74]
(Citations omitted.)

[73]At 570–571 [42].

[74]The reference to 1885 was a reference to Société Générale de Paris v Dreyfus Brothers (1885) 29 Ch D 239, 243-244 (Pearson J): see fn 36 above.

Their Honours continued:[75]

The considerations of comity and restraint, to which reference has so often been made in cases concerning service out of the jurisdiction, will often be of greatest relevance in considering questions of forum non conveniens. The starting point for the present inquiry, however, must be the terms of the Rules, not any general considerations of the kind just mentioned.
(Citation omitted, emphasis added.)

[75]At 571 [43].

Mindful that the starting point is the terms of the Supreme Court Rules and also of the fact that the High Court was considering the New South Wales Supreme Court Rules as they stood in 2000,[76] there are some observations made by the plurality that are of assistance. As may be seen, some aspects of the approach adopted by their Honours stand in stark contrast to that encapsulated in the authorities referred to by McDonald J in Williams v The Society of Lloyd’s.[77]
[76]The New South Wales Supreme Court Rules 1970, Part 10, relevantly provided:
1A(1)Subject to rule 2 and rule 2A, originating process may be served outside Australia in the following cases:
(a)where the proceedings are founded on a cause of action arising in the State,
…
(d)where the proceedings are founded on a tort committed in the State,
(e)where the proceedings, wholly or partly, are founded on, or are for the recovery of damages in respect of, damage suffered in the State caused by a tortious act or omission wherever occurring,
…
(i)where the proceedings are properly brought against a person served or to be served in the State and the person to be served outside the State is properly joined as a party to the proceedings,
…
2(1)Where an originating process is served on the defendant outside Australia and the defendant does not enter an appearance within the time limited for appearance, the plaintiff shall not proceed against that defendant except with the leave of the Court.
(2)A motion for leave under subrule (1) may be made without serving notice of the motion on the defendant.
…
6A(1)The Court may make an order of a kind referred to in Part 11 rule 8 (which relates to setting aside etc originating process) on application by a person on whom an originating process is served outside Australia.
(2)Without limiting subrule (1), the Court may make an order under this rule on the ground:
(a)that the service of the originating process is not authorised by these rules, or
(b)that this Court is an inappropriate forum for the trial of the proceedings.
…
And Part 11 relevantly provided:
8(1)The Court may, on application made by a defendant to any originating process on notice of motion filed within the time fixed by subrule (2), by order:
(a)set aside the originating process,
(b)set aside the service of the originating process on the defendant,
(c)declare that the originating process has not been duly served on the defendant,
…
(i)grant such other relief as it thinks appropriate.
[77][1994] 1 VR 274, 286.1-291.7, including Vitkovice Horni a Hutni Tezirstvo v Korner [1951] AC 869; Carroll v Laurie [1959] VR 275; WA Dewhurst & Co Pty Ltd v Cawrse [1960] VR 278; Deer Park Engineering Pty Ltd v Townsville Harbour Board (1974) 5 ALR 131. See also fn 36 above.

In point form, the relevant observations are:[78]
[78]Cf (2000) 201 CLR 552, 559 [8] (Gleeson CJ), 590 [108]-[109], 601-602 [131] (Callinan J).

(1)Attention must be directed to the way in which the claims made are framed. When the relevant paragraphs of the rules speak in terms of a proceeding “founded on”[79] a specified matter, then the focus of attention is 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?”[80] (Original emphasis.)
(2)The inquiry referred to in (1) above “neither requires nor permits an assessment of the strength (in the sense of the likelihood of success) of the plaintiff’s claim”.[81] (Emphasis added.)
(3)The application of the provisions concerning service out of the jurisdiction depends on the nature of the allegations which the Originating Party 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 or paragraphs of [the rule], service outside Australia is permitted, and prima facie the plaintiff should have leave to proceed.”[82]
(4)If the statement of claim does not contain allegations necessary to know whether or not the claim is of the requisite kind, it may be that some evidence is required to establish that a relevant paragraph is engaged.[83]
(5)Different issues arise on the hearing of an application for leave to proceed[84] from those that arise on the hearing of applications to set aside service or to decline to exercise jurisdiction.[85]
(6)On an application for leave to proceed, if the originating process makes a claim of the requisite kind, the process may be served outside Australia. On proof of service of the process, the court’s jurisdiction is, prima facie, properly invoked over the party who has been served. In the absence of some countervailing consideration, leave to proceed should then be given.[86]
(7)The rule pursuant to which an Overseas Defendant may challenge service out of the jurisdiction is in general terms and it would be wrong to attempt some exhaustive description of the grounds upon which the rule might be invoked. Nevertheless, 3 common bases for invoking the rule are first, the claims are not of the requisite kind, secondly, the court is an inappropriate forum for the trial of the proceeding, and thirdly, the claims made have insufficient prospects of success to warrant putting an Overseas Defendant to the time, expense and trouble of defending the claims.[87]

Secondly, the First and Second Representations upon which Lew Footwear now says it relied are alleged to have been relied upon by the in-house counsel, Kenmar. Although Kenmar as a director executed the Licence Agreement on behalf of Lew Footwear, there is no pleading suggesting that Kenmar alone (as distinct from Lew Footwear) was responsible for the commercial decisions to enter into the Licence Agreement and to open stores, which events are said to give rise to the loss claimed.[291]
[291]Lew Footwear submitted that, but for Kenmar’s execution of the Licence Agreement on behalf of Lew Footwear, none of the events which gave rise to the loss would have occurred. This oversimplifies the issues at hand: see March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506, 509.3-510.10, 515.5-517.2 (Mason CJ, with whom Toohey and Gaudron JJ agreed), 530.5-534.4 (McHugh J).

Thirdly, in relation to the Third Representation as now pleaded, the Fourth Representation and the Fifth Representation, there is no material fact or particular pleaded identifying any person from Lew Footwear that placed any relevant reliance upon Madden in engaging in the conduct alleged to give rise to the loss.

Fourthly, the state of the pleading is not enhanced by any evidence led on behalf of Lew Footwear. It is significant that Lew Footwear chose (understandably given the uncertainty as to the state of the law) to lead evidence in addition to relying upon the Proposed Statement of Claim. However, the evidence put forward provides no basis for properly linking the impugned conduct the subject of the Representations and the loss claimed.

More specifically, it is of some moment that Hammerschlag has affirmed 3 affidavits in opposition to Madden’s application. Those affidavits confirm his direct involvement in the negotiations preceding the Licence Agreement. However, Hammerschlag gives no evidence of any reliance by him on the First Representation or the Second Representation. Perhaps more significantly, although Hammerschlag gives evidence on information and belief, based on instructions from Kenmar, as to Kenmar’s involvement in the negotiations, he gives no evidence of Kenmar placing any reliance on the First Representation or the Second Representation.

In response to the criticisms concerning reliance, Lew Footwear submitted that reliance ought to be imputed from the circumstances leading up to the execution of the Licence Agreement. In short, although Lew Footwear accepted that reliance was a necessary element of the cause of action founded on each of the Representations Claims,[292] it submitted there was no requirement for any evidence to be led to show Lew Footwear relied upon the Representations.
[292]Lew Footwear also accepted that the fact that there was a reversal in the onus of proof for “future matters”, by operation of s 51A of the Trade Practices Act and s 4 of the Australian Consumer Law, did not relieve Lew Footwear of the burden of establishing reliance: T47.26.

In support of this submission, Lew Footwear relied upon the majority decision in MWH Australia Pty Ltd v Wynton Stone Australia Pty Ltd (in liq).[293] That case concerned an express acknowledgement in a deed of novation by a party to the deed who was being released and discharged from its obligations under an earlier contract. The acknowledgement by that party was to the effect that the services required to be performed by it under the prior contract, before the date of the deed, had been performed in accordance with its terms.
[293](2010) 31 VR 575, 599-603 [96]-[106] (Buchanan and Nettle JJA, Warren CJ dissenting). An application for special leave to appeal was refused: [2011] HCATrans 146 (French CJ, Heydon, Crennan, Kiefel and Bell JJ).

At trial, the appellant did not lead any evidence as to reliance upon the acknowledgement in entering into the deed. Buchanan and Nettle JJA found the trial judge was wrong in deciding that the absence of any such evidence meant the appellant failed to prove it relied on the acknowledgement. Their Honours held that the court was entitled to look at the acknowledgement in light of the surrounding circumstances and conclude that the acknowledgement was a “material representation calculated to induce MWH to enter into the deed and make the payment”.[294] Their Honours also stated that common sense dictated the conclusion that the acknowledgement played at least some part in inducing the appellant to enter into the deed and make the payment and that the court was entitled to draw this fair inference.[295]
[294]At 603 [106].
[295]Ibid.

As was stated in Lord Buddha Pty Ltd (in liq) v Harper,[296] the reasoning in Gould v Vaggelas[297] provides a practical guide to the way in which inferences can and should be drawn in relation to reliance. The following passages from that case are relevant:[298]

Where a plaintiff shows that a defendant has made false statements to him intending thereby to induce him to enter into a contract and those statements are of such a nature as would be likely to provide such inducement and the plaintiff did in fact enter into that contract and thereby suffered damage and nothing more appears, common sense would demand the conclusion that the false representations played at least some part in inducing the plaintiff to enter into the contract. However, it is open to the defendant to obstruct the drawing of that natural inference of fact by showing that there were other relevant circumstances.
(Emphasis added.)

[296][2013] VSCA 101, [129] (Vickery AJA, with whom Weinberg and Tate JJA agreed). See also at [148]-[150], referring to Ricochet Pty Ltd v Equity Trustees Executors and Agency Company Ltd (1993) 41 FCR 229, 233.7-234.5 (Lockhart, Gummow and French JJ).

[297](1985) 157 CLR 215.

[298]At 238.5 (Wilson J).

And further:[299]

An inference of inducement may be drawn when a party enters into a contract after a material representation has been made to him, but it is no more than an inference of fact and it is settled law that such an inference may be rebutted by the facts of the case … The relevant question for the tribunal of fact to answer on all the evidence is whether the misrepresentation alone, or with or notwithstanding other things that accompanied it, was a real inducement, or one of the real inducements to the plaintiff to do whatever caused his loss.
(Emphasis added.)

[299]At 250.8–251.1 (Brennan J).

In my view, the circumstances in MWH Australia Pty Ltd v Wynton Stone Australia Pty Ltd (in liq)[300] are far removed from the facts alleged in the Proposed Statement of Claim.
[300](2010) 31 VR 575.

In stark contrast to an express acknowledgement contained in a deed, each of the First Representation and the Second Representation is alleged to be implied and is not alleged to be the subject of any discussion. Further, there is not an obvious causal link between these alleged Representations and an investment decision to become a distributor of the Products. Put succinctly, there is not a strongly arguable case that the existence of systems of the type alleged would have been likely to provide a real inducement (whether on their own or with other inducements) in circumstances where:

(1)Lew Footwear had the ability to bargain expressly for what it required in the Pricing Term and made no suggestion of any requirement for a system.[301]
(2)Pursuant to the Pricing Term as agreed, Lew Footwear had the ability to negotiate the specific price in relation to each of the Products ordered.[302]
(3)Lew Footwear itself knew what the Products ought to be costing independent of any systems that Madden might have had in place.[303]
(4)There are other factors, such as the marketability of the Products and expected profitability of future sales by Lew Footwear, which, as a matter of common sense, would be likely to have been the real inducements to enter into the Licence Agreement.[304] It is these types of factors that might properly be the subject of inferences if representations were alleged to have been made on such matters.

Further, I am fortified in these views by the fact that, when Lew Footwear discovered the overpricing, no complaint was made about any failure of Madden to have the allegedly represented systems in place. On the contrary, appreciation was expressed by Lew Footwear for the openness and transparency afforded by Madden.[305]

[301]This position is to be contrasted with the facts in Unisys Australia Ltd v RACV Insurance Pty Ltd [2004] VSCA 81 (Phillips JA, with whom Ormiston and Batt JJA agreed), where a system was an integral part of what had been bargained for in contracting for a new computer-based system of administration.

[302]See par 10 above.

[303]See par 51 above. There is some force in Madden’s submission that it is not immediately apparent as to why a particular system would need to be in place given the Agreed Cost Basis would be expected to involve a relatively straightforward accounting exercise. However, the relevant evidence is not before the court. There is no evidence as to what was actually involved in complying with the Agreed Cost Basis. Also there was no evidence of Madden’s accounting systems (or even any evidence of where such accounting systems are maintained). Given Lew Footwear’s reliance on s 51A of the Trade Practices Act and s 4 of the Australian Consumer Law, and the fact there is no basis to form any meaningful view on this interlocutory application, there is no need to consider this matter further.

[304]See also par 49 above.

[305]See pars 50-51 above.

Lew Footwear submitted that all that needs to be pleaded on the subject of reliance is the existence of the pre-contractual representation and the fact that the Licence Agreement was entered into. It was contended that the entry into the contract was a significant matter, from which reliance ought to be inferred. This submission overstates the proposition to be derived from Gould v Vaggelas.[306] The court is still required to consider the alleged representation itself before drawing any inference as to the reason or reasons the representee entered into the contract. Based on the evidence before the court, together with the absence of any pleaded particular or evidence of actual reliance by a person or persons responsible for the commercial decisions involved, the inference Lew Footwear invites the court to draw is not sensibly open, much less strongly arguable.[307]
[306](1985) 157 CLR 215.
[307]The conclusion does not make any comment on the probative value of any evidence which might be led by Lew Footwear in the future.

Moreover, it cannot be ignored that, as already stated, Lew Footwear, when faced with strenuous criticism of the absence of any evidence of reliance in the written submissions of Madden dated 15 April 2014, has filed 2 further affidavits from Hammerschlag that have remained silent on the issue of reliance.[308]
[308]See par 206 above.

With each of the Third Representation, the Fourth Representation and the Fifth Representation, no person is identified as having relied on the relevant Representation or engaged in the conduct said to be in reliance upon the Representation. In particular, the person or persons responsible for the decision of opening a further store after the Third Representation, Fourth Representation and Fifth Representation were alleged to have been made is or are not identified. For the reasons set out in paragraph 213 above, there is not an obvious causal link between any of the Third Representation, the Fourth Representation or the Fifth Representation and the opening of a further store.

Further, with respect to the Fourth Representation and the Fifth Representation, those Representations were made to an employee of a company within the Lew group of companies other than Lew Footwear.[309] There is no evidence of the Representations being communicated to Lew Footwear itself, or of the employee in question, Tarrant, having any involvement with the decisions said to have been made in reliance upon the Fourth Representation and the Fifth Representation.
[309]See par 41 above.

In summary, on an evidentiary basis, Lew Footwear has failed to establish it is strongly arguable a tort has been committed in relation to any of the Representations.

F.3.7Rule 7.01(1)(j): “proceeding is brought in respect of damage suffered wholly or partly in Victoria and caused by a tortious act or omission wherever occurring”

For the reasons stated in paragraph 158 above, the necessary enquiry concerning the subject matter of the cause of action may, in an appropriate case, be answered substantially by reference to the pleadings.

Rule 7.01(1)(j) is concerned with a proceeding “brought in respect of” the identified subject matter. Although the language used is different, in this context there is no material distinction between the words “founded on” in r 7.01(1)(i) and the words “brought in respect of” in r 7.01(1)(j). In short, on the traditional approach, or some lesser test, ordinarily, the court is required to consider the pleaded allegations in order to ascertain whether the cause of action is “brought in respect of” the subject matter specified.

The conclusions I have reached in determining whether or not the Representations Claims made by Lew Footwear consist of subject matter that is within r 7.01(1)(i) determine the matters relating to the “tortious act or omission” to be considered under r 7.01(1)(j). For the same reasons that a claim for misleading or deceptive conduct in trade or commerce is a tort, the Representations Claims must be characterised or classified as being brought in respect of damage “caused by a tortious act or omission”.

The next question is whether the damage suffered was either wholly or partly in Victoria.

As noted above,[310] Lew Footwear principally conducts its business out of Melbourne and does not conduct any business outside Australia. Some of the 15 stores are located in Victoria. In these circumstances, there can be no doubt that any damage suffered has been suffered “wholly or partly in Victoria”.[311]
[310]At pars 2, 16, 18, 20, 25, 58, 145 and 200 above.
[311]Cf Williams v The Society of Lloyd’s [1994] 1 VR 274, 312.7 (McDonald J).

Accordingly, if the alternate approach as set out in paragraph 135 above were considered to be the correct approach, I would have found in favour of Lew Footwear by determining that the Representations Claims were within r 7.01(1)(j). However, for the reasons stated in paragraphs 202 to 218 above, I cannot be satisfied that there is a strongly arguable case regarding any of the Representations Claims. Accordingly, Lew Footwear has failed to establish this condition has been met for the purposes of service out of Australia.

F.4 Exercise of the court’s discretion: the issue of reliance

Based upon the application of the “strongly arguable case” test, there is no occasion for the court to exercise its discretion. Save for the condition in r 7.01(1)(f)(i), on the traditional test Lew Footwear has failed to satisfy the court that the subject matter of the Proposed Statement of Claim is within any relevant paragraph of r 7.01(1). As already noted,[312] Lew Footwear has conceded that if it were only successful in establishing jurisdiction in relation to the contract claim, then it must follow that this court is not an appropriate forum in light of the Governing Law Clause and the Forum Clause.[313]
[312]At par 68 above.
[313]See also par 232 below.

But if, contrary to what is set out above, the approach in paragraph 135 were correct and, as a result, Lew Footwear had established that the subject matter of each cause of action fell within r 7.01(1), it would have had a prima facie entitlement to proceed with its claims. Notwithstanding this position, the court would still have been required to exercise its discretion based on all the relevant matters as to whether or not the proceeding ought to be stayed.[314]
[314]This statement is made, mindful of what is set out in pars 107(2) and 135(4) above.

In my opinion, if I had been required to consider the exercise of the court’s discretion, it would have been inappropriate to exercise any discretion in favour of Lew Footwear when issues relating to reliance are an obvious and fundamental potential difficulty with its case. For the reasons stated,[315] there is a gap in the evidence of Lew Footwear on the issue of reliance. Unless Lew Footwear addresses this difficulty, its case would properly be considered hopeless or futile, or would have insufficient prospects of success to warrant putting an Overseas Defendant to the time, expense and trouble of defending the claims. In these circumstances, it would have been remiss of the court to allow the proceeding to go forward without having the issue addressed presently.
[315]See pars 202-218 above.

In further response to the criticisms made by Madden in relation to reliance and causation, Lew Footwear submitted that an application under r 7.05 was not the occasion to consider such matters. Lew Footwear contended it was a matter for further particulars of the Proposed Statement of Claim, or a matter to be properly considered on any summary judgment application that Madden might decide to bring. I do not accept this submission given the manner in which this application has unfolded.

To elaborate, the position adopted by Lew Footwear was to seek to put the relevant evidence before the court in order to show r 7.01(1) has been satisfied. In my opinion, because of the gap in the reliance evidence, it would have been contrary to the overarching obligations in the Civil Procedure Act 2010 (Vic)[316] to allow the matter to proceed without requiring Lew Footwear to place further evidence before the court on this issue of narrow compass.
[316]Civil Procedure Act, ss 7, 8.

Accordingly, even if the court had adopted the approach more favourable to Lew Footwear,[317] unless Lew Footwear was able to put the further necessary evidence before the court, I would have ordered a stay. This approach would ensure that Madden was not put to unnecessary cost and expense in appearing in this jurisdiction and taking interlocutory steps when there is a real issue on the material before the court as to whether or not, on a prima facie basis, it has a case to answer.
[317]See par 135 above.

F.5Exercise of the court’s discretion: the Governing Law Clause and the Forum Clause

In light of the conclusion I have reached on the issues concerning service out of the jurisdiction and reliance, it is not strictly necessary to consider the further basis upon which Madden seeks a stay. However, given that the stay is not definite at this time, and also given the uncertainty arising from the conflicting authorities on the issues relating to service out of Australia, I intend to briefly state reasons as to why a stay would not have been granted on the basis of forum. Put simply, in the circumstances, had I been of the opinion that the requirements of r 7.01(1) had been met in relation to the Representations Claims, I would not have considered this court to be clearly an inappropriate forum.[318]
[318]See par 107(7) above. See also Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538, 564.8-566.4 (Mason CJ, Deane, Dawson and Gaudron JJ).

F.5.1 Relevant principles

Key principles applicable to considering clauses such as the Governing Law Clause and the Forum Clause in this context may be shortly stated:

(1)The contractual obligation imposed by an exclusive foreign jurisdiction clause does not operate to exclude the jurisdiction of this court, but it may constitute a ground for the court to refuse to exercise its jurisdiction.[319]
(2)Where a contract contains an exclusive foreign jurisdiction clause, “the courts begin with a firm disposition in favour of maintaining that bargain unless strong reasons be adduced against a stay, it being the policy of the law that the parties who have made a contract should be kept to it”.[320]

(3)A stay may be refused where the exclusive foreign jurisdiction clause offends the public policy of the forum evinced by statute or judicial decision.[321]
[319]Akai Pty Ltd v People’s Insurance Co Ltd (1996) 188 CLR 418, 444.10-445.1 (Toohey, Gaudron and Gummow JJ), citing Compagnie Des Messageries Maritimes v Wilson (1954) 94 CLR 577, 586.5-587.10, 589.2; Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197, 224.3 (Brennan J), 259.3 (Gaudron J).
[320]Akai Pty Ltd v People’s Insurance Co Ltd (1996) 188 CLR 418, 445.5, citing Huddart Parker Ltd v The Ship “Mill Hill” (1950) 81 CLR 502, 508.8-509.3 (Dixon J).
[321]Ibid.

F.5.2 Laws applicable in Australia

A material matter relied upon by Lew Footwear in submitting a stay was inappropriate was the ability of Lew Footwear to make claims under Australian legislation that might be jeopardised if Lew Footwear was required to make its claims in a court of New York State. Speaking generally, it has been accepted that if a plaintiff makes a claim based on misleading or deceptive conduct in trade or commerce pursuant to the Trade Practices Act or the Australian Consumer Law, then that may give rise to public policy considerations which may override an otherwise binding exclusive foreign jurisdiction clause.[322] If it were otherwise, foreign corporations could place themselves outside the protection provided by this fundamental and important legislation which governs commercial interaction throughout Australia.
[322]See, for example, Commonwealth Bank of Australia v White [1999] 2 VR 681, 704 [89] (Byrne J), referred to with approval in Commonwealth Bank of Australia v White (No 4) [2001] VSC 511, [40] (Warren J) and Quinlan v Safe International Försäkrings AB (2006) 14 ANZ Ins Cas 61-693, 75,358 [49(f)] (Nicholson J).

As was stated by Byrne J in Commonwealth Bank of Australia v White, in the context of discussing misleading and deceptive conduct and breaches of companies legislation:[323]

It is undesirable that parties should, by entering into an exclusive jurisdiction agreement, be able to circumvent a legislative scheme established by Parliament to protect investors purchasing interests or prescribed interests. Put more positively, the statutes creating these standards of commercial behaviour for persons doing business in this jurisdiction do not exempt foreign corporations. Moreover, the policy behind them would not be served if exemption might be achieved by inserting stipulations as to foreign law or forum.

[323][1999] 2 VR 681, 704 [89].

Ordinarily[324] then, if an overseas corporation were to engage in conduct that was misleading or deceptive or likely to mislead or deceive in trade or commerce, and a plaintiff could establish that such conduct was committed within Victoria or caused damage suffered wholly or partly in Victoria, then it would be expected that an exclusive foreign jurisdiction clause would not be a proper basis for staying the proceeding. An obvious possible exception to this general proposition would be where there was a law in the competing foreign jurisdiction which substantially reflected the Australian or Victorian law which might otherwise be excluded.
[324]I preface the sentence with “Ordinarily” as each case must depend on its own facts.

A substantial body of expert evidence was led by each party as to the laws of New York State, and the similarities and differences with the laws of Australia and Victoria. Without descending to the detail,[325] based on the evidence, it is plain there is a “real risk” that if the claims of Lew Footwear were heard in the State of New York,[326] the Representations Claims for damages or other relief under the Trade Practices Act or the Australian Consumer Law may be shut out without a determination on the merits.[327] Both experts agree there is no equivalent law in New York State to the laws upon which Lew Footwear relies in this proceeding, created by the Trade Practices Act, and continued in the Australian Consumer Law.
[325]Senior counsel for Lew Footwear submitted that “99 percent” of all the expert evidence had probably become irrelevant on this application concerning service out of Australia. I am inclined to agree that most of it was ultimately of limited assistance in relation to the issues before the court. Neither expert expressed any opinions on the causes of action in the Proposed Statement of Claim beyond those already pleaded in the Statement of Claim. For completeness, however, I note that the expert evidence of Hargraves led by Madden was not independent evidence. Hargraves was a partner in a law firm that had been retained to act in relation to this proceeding. In contrast, Milonas was truly independent, and also highly qualified and experienced.
[326]That is, in any of the 3 counties of New York State specified in the Forum Clause: see par 11 above.
[327]See, for example, Reinsurance Australia Corporation Ltd v HIH Casualty and General Insurance (in liq) (2003) 254 ALR 29, 62-63 [320]-[321] (Jacobson J).

F.5.3 Other matters

The fact that there is a real risk that some claims may not be able to be made in New York is only 1 factor to consider in determining whether or not the court ought to exercise its discretion to stay the proceeding commenced in breach of the Governing Law Clause and the Forum Clause.

Subject always to the particular circumstances of the case, the following is a useful non-exhaustive checklist of matters that need to be considered:[328]

(1)In which country the evidence on the issues or facts is situated or more readily available.
(2)The relative convenience and expense of a trial as between the local forum and the foreign courts.
(3)Whether the foreign law applies, and if so, whether it differs from the law of the forum in any material respects.
(4)With which country the parties are connected and how closely.
(5)Whether the defendants genuinely desire a trial in the foreign country, or are seeking only procedural advantage.

[328]World Firefighters Games Brisbane v World Firefighters Games Western Australia Incorporated (2001) 161 FLR 355, 359 [13] (Philippides J), referring to The Eleftheria [1970] P 94, 99-100 (Brandon J).

Dealing briefly with each of the matters listed:

(1)The evidence appears to be located in Australia, Hong Kong and New York. The state of the evidence before the court does not allow the court to form a view with any real precision. That said, it is clear all evidence of Lew Footwear is located in Australia, principally in Victoria.
(2)I expect the inconvenience and expense of a trial would be less if conducted in Australia. Many of the key witnesses will be in Australia. Much of what is relied upon by Lew Footwear, both on the contractual claims and on the Representations Claims, is based on documentation, together with events which occurred in Australia. Although there is likely to be evidence from witnesses in New York and possibly Hong Kong, such evidence could be expected to be of narrow compass. No submission was made on behalf of Madden that if the court were otherwise minded not to stay the proceeding, particular inconvenience would be caused in conducting the proceeding in this court.
(3)The foreign law of New York State may readily be applied in this jurisdiction in relation to the contractual issues. The parties have already obtained extensive expert evidence. As to the Representations Claims, I refer to what is set out above.[329]
(4)Lew Footwear is closely connected with Australia only. Madden is principally connected with Hong Kong, but also, including through the Madden Holding Company, has connections with New York. The facts do not suggest that there is a much closer connection with New York than with Melbourne.
(5)Although there was no evidence on this point, I expect that Madden has little genuine desire for a trial in New York (or anywhere else). That said, I give little weight to this factor given no substantive submission was made in this regard.

[329]At pars 233-236 above.

By reason of the factors listed above, I cannot draw the conclusion that this court is a clearly inappropriate forum. On the contrary, given the potential difficulties that Lew Footwear would face in prosecuting the Representations Claims in New York State (assuming it were otherwise entitled to proceed in this court), then it would be inappropriate to grant a stay.

In the circumstances, if, contrary to my findings, Lew Footwear had been able to satisfy r 7.01(1), then I would have found Lew Footwear ought to be entitled to bring its claims in this court notwithstanding the Governing Law Clause and the Forum Clause. However, I wish to make some observations in relation to the Second Representation in this regard.

As already noted,[330] the Second Representation really amounts to no more than an allegation that Madden would comply with its relevant contractual obligations in the future. Such a representation might be properly pleaded in many, if not most, proceedings for breach of executory contracts.[331] If the Second Representation had been the sole basis upon which a cause of action was pleaded under the Trade Practices Act, then it is likely I would have reached a different conclusion in the exercise of the discretion given the existence of the Governing Law Clause and the Forum Clause. Each case must be considered on its own facts, but allegations such as those comprising the cause of action based on the Second Representation need to be considered carefully. Otherwise, it might be that any foreign exclusive jurisdiction clause could be circumvented on an executory contract by simply pleading that the foreign corporation implicitly represented at the time of entering into the contract that it would abide by its terms.
[330]See pars 55(b) and 56 above.
[331]Cf Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217, 239.8, 240.7-241.3 (Ormiston J).

In summary, if Lew Footwear had established that r 7.01(1) has been satisfied and that the court’s discretion otherwise ought to have been exercised in its favour, then I would have held that the claims based on the First Representation, the Third Representation, the Fourth Representation and the Fifth Representation ought to have been able to be made in this court. Further, given that service out of the jurisdiction had also properly occurred in relation to the contract claim,[332] it would have been convenient and appropriate for all claims to have continued in this proceeding.[333]
[332]See pars 137-156 above (subject to the court granting dispensation for non-compliance with r 7.02(1)).
[333]Accordingly, it is unnecessary to consider further submissions made by Lew Footwear as to the exclusivity of the jurisdiction of particular Australian courts to determine issues arising under the Trade Practices Act or the Australian Consumer Law.

F.6 Injunction

In light of the conclusion that, based on the evidence presently before the court, a stay ought to be ordered, it is not appropriate to consider whether or not an injunction ought to be granted. This is particularly so given Lew Footwear stated that, in the event the court were to order a stay on a substantive basis, then it would not seek to commence a new proceeding.[334] In short, there is presently no threat of a proceeding which could properly be the subject of an injunction.
[334]See par 70 above.

F.7 Appropriate order

The reasons set out above demonstrate that if Lew Footwear had led evidence duly establishing reliance in relation to each of the Representations, then it is likely it would have satisfied the court as to the conditions of r 7.01(1). In these circumstances, it is abundantly clear that it is not appropriate to set aside the writ. In my view, the appropriate course is to propose an order to stay the proceeding.

Given the uncertainty in relation to the state of the authorities, and that there may be evidence available which could establish a strongly arguable case in this regard, it is appropriate, and consistent with the Civil Procedure Act, to allow Lew Footwear a short period of time in which to put further evidence before the court, if so advised. However, if Lew Footwear is unable to do this promptly, then the proceeding ought to be stayed permanently.

Subject to any submissions the parties may wish to make on the issue of timing, I propose to grant liberty to apply for 14 days. If Lew Footwear files and serves further affidavit evidence within that time, the court may consider that further evidence, together with the existing evidence before the court, in determining whether r 7.01(1) has been satisfied and the court’s discretion ought to be exercised against granting a stay. If no such affidavit evidence is filed and served within 14 days, then an order will be made to the effect that the proceeding will be stayed permanently. If those further steps are taken by Lew Footwear, then the matter will need to be reconsidered promptly.

G. Conclusion

Lew Footwear has failed to establish a strongly arguable case in relation to the Representations Claims. In those circumstances, it must follow, based on existing authority, that it cannot satisfy the relevant paragraphs of r 7.01(1). Accordingly, for the reasons set out above, it is proposed the proceeding will be stayed. It also follows that no orders will be made in relation to the applications made by Lew Footwear.

Accordingly, unless Lew Footwear files and serves further affidavit evidence on the issues of reliance, and subject to any submission any party may wish to make on the question of costs, it is intended that the court will make the following orders in 14 days from today’s date:

1. The proceeding is stayed permanently.
2. The plaintiff pay the defendant’s costs, including the reserved costs.

In the meantime, there is liberty to apply.

---

[2014] VSC 320

8 AUGUST 2014