Lew Footwear Holdings Pty Ltd v Madden International Ltd (No 2)
[2014] VSC 541
•30 OCTOBER 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2013 2769
| LEW FOOTWEAR HOLDINGS PTY LTD | Plaintiff |
| v | |
| MADDEN INTERNATIONAL LTD | Defendant |
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JUDGE: | ELLIOTT J |
WHERE HELD: | MELBOURNE |
DATES OF HEARING: | 17 OCTOBER 2014 |
DATE OF JUDGMENT: | 30 OCTOBER 2014 |
CASE MAY BE CITED AS: | LEW FOOTWEAR HOLDINGS PTY LTD v MADDEN INTERNATIONAL LTD (No 2) |
MEDIUM NEUTRAL CITATION: | [2014] VSC 541 |
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PRACTICE AND PROCEDURE – Service of originating process out of Australia – Application to set aside or stay proceeding permanently – Whether proceeding founded on a tort or brought in respect of damage caused by a tortious act or omission – Whether strongly arguable case – Reliance – Further evidence – Causation - Supreme Court (General Civil Procedure) Rules 2005 (Vic), rr 7.01(1)(i) and (j), 7.05, 8.09 ‑ Trade Practices Act 1974 (Cth), ss 51A, 52, 82(1) ‑ Competition and Consumer Act 2010 (Cth), Schedule 2, Australian Consumer Law, ss 4, 18, 236(1)(a).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | L Glick QC with C Juebner | SBA Law |
| For the Defendant | R M Garratt QC | Sladen Legal |
HIS HONOUR:
A. Introduction
This judgment is concerned with the further hearing of an application by the defendant, Madden International Ltd (“Madden”) to have the proceeding stayed permanently. Madden was served in Hong Kong with a writ filed in this court.
On 8 August 2014, I delivered a judgment (“the Principal Judgment”)[1] in which I found that the plaintiff, Lew Footwear Holdings Pty Ltd (“Lew Footwear”), had failed to establish a strongly arguable case that the relevant conditions of r 7.01(1)(i) and (j) of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) had been met.[2]
[1]Lew Footwear Holdings Pty Ltd v Madden International Limited [2014] VSC 320.
[2]In addition to this finding, it was held that Lew Footwear had satisfied the conditions of r 7.01(1)(f)(i) as it was strongly arguable the relevant contract was made within Victoria (Principal Judgment, [137]-[156]), but had not satisfied r 7.01(1)(g) as it did not appear a breach of contract was committed in Victoria: Principal Judgment, [157] (a point which was conceded by Lew Footwear).
Essentially, Lew Footwear pleaded reliance as a necessary element of the relevant causes of action;[3] but it was found that Lew Footwear had failed to establish a strongly arguable case in this regard. It followed that Lew Footwear had not established a strongly arguable case that a tort had been committed or that any damage had been caused by a tortious act or omission.[4] By reason of that finding, on 8 August 2014, I proposed to stay the proceeding permanently.
[3]Principal Judgment, [207], set out at par 15 below.
[4]Principal Judgment, [119].
However, given the basis for the conclusion reached, and the finality of the order to be made on an interlocutory basis,[5] I deferred the making of the order for 14 days so that, if advised to do so, Lew Footwear could file and serve further affidavit evidence on the question of reliance.[6]
[5]Lew Footwear undertook not to issue a fresh proceeding in the event the court ordered a permanent stay of the proceeding based on the substantive issues: Principal Judgment, [70], [244].
[6]Principal Judgment, [245]-[246].
Within the 14 day period, Lew Footwear filed and served further affidavits seeking to establish its case on reliance. As a result, the matter was listed for further hearing. Before the matter came on for hearing, Lew Footwear filed additional affidavits. Further, at the request of the court, Lew Footwear amended the Proposed Statement of Claim[7] to accord with the further evidence (“the Further Proposed Statement of Claim”). [8]
[7]See Principal Judgment, [2], [54]-[66].
[8]This document has not been formally the subject of an application for leave to amend. Such an application (if it be necessary: see r 36.04(1)(a)) awaits the outcome of the resolution of the current issues.
Thus, the sole issue presently before the court is whether the totality of the evidence now filed by Lew establishes a strongly arguable case that the conditions in r 7.01(1)(i) and (j) have been met in relation to certain claims it would make pursuant to the Further Proposed Statement of Claim.
For the reasons that follow, an order will be made dismissing the summons filed by Madden insofar as it seeks to set aside service of the writ or to have the proceeding stayed.
B. Background
The factual background and procedural history in the matter are set out in the Principal Judgment.[9]
[9]At [5]-[66].
The claims of Lew Footwear include claims under the Trade Practices Act 1974 (Cth) and the Australian Consumer Law contained in Schedule 2 of the Competition and Consumer Act 2010 (Cth). In essence, it is alleged that certain representations were made in trade or commerce by Madden, both before a licence and distribution agreement was entered into by Lew Footwear and Madden on 2 December 2009 (“the Licence Agreement”)[10] and while the Licence Agreement was on foot. Pursuant to the Licence Agreement, Lew Footwear became a distributor of Madden, and opened a number of retail stores in Australia. Lew Footwear contends that it has suffered loss and damage by or because of the making of the alleged representations.
[10]See Principal Judgment, [7], [9]-[11].
Each of the pleaded representations relates to clause 12 of the Licence Agreement. In that regard, the following was said in the Principal Judgment:[11]
Clause 12 of the Licence Agreement (“the Pricing Term”) provided that Lew Footwear was required to buy the Products[12] 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.[13]
[11]At [9]-[10].
[12]“Products” is defined to mean “Madden’s footwear, accessories and other products”: Principal Judgment, [7].
[13]As to this issue, see par 27 below.
The claims based on the alleged representations (“the Representations Claims”), as they are proposed to be pleaded,[14] are as follows:
[14]As noted in fn 8, any question of leave to amend the statement of claim has been deferred until after the hearing and determination of Madden’s application. See also Principal Judgment, [2], [66] and fn 22.
6.In order to induce Lew Footwear to enter into the Licence Agreement, during the Negotiations[15] Madden represented to Lew Footwear that:
[15]“Negotiations” is defined to mean the communications between the parties from in or about mid July 2009 until about 20 November 2009: Further Proposed Statement of Claim, par 3.
(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, 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% (“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, … (“the Second Representation”).
…
6A.Further, during the period from about 28 April 2010 until about 2 January 2014 and in purported performance of its obligations under the Pricing Term, Madden rendered invoices to Lew Footwear in respect of the sale of Products.
…
7.By its conduct referred to at paragraph 6A herein, on each occasion on which Madden rendered an invoice to Lew Footwear for Products, such conduct amounted to a representation that the price specified in each such invoice complied with the Pricing Term (“the Third Representation”).
…
8.Further, on about 21 February 2012, Madden represented to Lew Footwear that:
(a)it 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% (“the Fourth Representation”); and
(b)it would in future render invoices to Lew Footwear for Products at an “agreed cost” basis, … (“the Fifth Representation”).
(I will refer to the representations alleged in the Further Proposed Statement of Claim collectively as “the Representations”.)
The First Representation and the Second Representation are alleged to be implied from the facts and circumstances leading up to the execution of the Licence Agreement and the fact that the Pricing Term formed part of the Licence Agreement. The Third Representation is pleaded as arising from the conduct of Madden rendering invoices to Lew Footwear. The Fourth Representation and the Fifth Representation are alleged to have been made orally.
Broadly speaking, Lew Footwear alleges it relied on the First Representation and the Second Representation and was induced thereby to enter into the Licence Agreement. Further, again very broadly, Lew Footwear pleads it relied upon the Third Representation, the Fourth Representation and the Fifth Representation, and was induced thereby, to make payments to Madden and to continue the operation of a loss-making distribution business under the Licence Agreement.
C. Key findings in the Principal Judgment
In the Principal Judgment, the applicability of the High Court decision of Agar v Hyde[16] was considered. Notwithstanding views expressed in that decision,[17] I held that I was bound by the Court of Appeal decision of Schib Packaging Srl v Emrich Industries Pty Ltd[18] with respect to the applicable test in determining whether the relevant conditions of r 7.01 had been met. That test requires that, upon an application by an Overseas Defendant[19] to set aside service or stay the proceeding, the Originating Party[20] must establish a “strongly arguable case … that the relevant conditions of r 7.01 have been satisfied” in order to have legitimately served an originating process out of Australia without an order of the court.[21]
[16](2000) 201 CLR 552.
[17]See Principal Judgment, [103]-[107].
[18](2005) 12 VR 268.
[19]“Overseas Defendant” is defined to mean an overseas defendant who has been served with an originating process out of Australia: Principal Judgment, [77].
[20]“Originating Party” is defined to mean a person who has served an originating process out of Australia: ibid.
[21]Principal Judgment, [112], referring to Schib Packaging Srl v Emrich Industries Pty Ltd (2005) 12 VR 268, 271 [10], 274 [18] (Charles JA, with whom Ashley JA agreed). See also pars 51-52 below.
In concluding that Lew Footwear failed to meet the conditions under r 7.01(1)(i) and (j) with respect to the Representations Claims, the following relevant findings were made in the Principal Judgment:[22]
[22]Principal Judgment, [202]-[207], [213]-[217], [224].
202To summarise the points made above,[23] first, Lew Footwear pleaded a representation which it said was a basis upon which it entered into the Licence Agreement, upon which it now no longer relies.[24] No explanation has been given as to why this representation was deleted.[25]
[23]Principal Judgment, [54]-[66].
[24]Principal Judgment, [54].
[25]There is an obvious tactical advantage in deleting the original First Representation, as it did not relate to a future matter. However, this does not entirely explain its deletion given it was pleaded as a complete alternative basis for the Licence Agreement being executed by Lew Footwear.
203Secondly, 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.[26]
[26]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).
204Thirdly, 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.
205Fourthly, 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.
206More 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.
207In 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,[27] it submitted there was no requirement for any evidence to be led to show Lew Footwear relied upon the Representations. [This submission was rejected by the court.[28]]
[27]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.
[28]Principal Judgment, [208]-[212]. See also [214].
…
213In stark contrast to an express acknowledgement contained in a deed,[29] 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:
[29]This is a reference to the facts in MWH Australia Pty Ltd v Wynton Stone Australia Pty Ltd (in liq) (2010) 31 VR 575 (Buchanan and Nettle JJA, Warren CJ dissenting) discussed in the Principal Judgment, [208]-[212].
(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.[30]
[30]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.
(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.[31]
[31]Principal Judgment, [10].
(3)Lew Footwear itself knew what the Products ought to be costing independent of any systems that Madden might have had in place.[32]
[32]Principal Judgment, [51]. 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.
(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.[33] 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.
[33]Principal Judgment, [49].
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.[34]
[34]Principal Judgment, [50]-[51].
214Lew 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.[35] 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.[36]
215Moreover, 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.[37]
216With 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[38] 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.
217Further, 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.[39] 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.
…
224Accordingly, 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.
[35](1985) 157 CLR 215.
[36]The conclusion does not make any comment on the probative value of any evidence which might be led by Lew Footwear in the future.
[37]Principal Judgment, [206].
[38]Only 1 further store is particularised as being opened in reliance upon the Third Representation, the Fourth Representation and the Fifth Representation in par 13 of the Further Proposed Statement of Claim. However, the new particulars to par 12 suggest 3 stores were opened after February 2012.
[39]Principal Judgment, [41].
In addition, with respect to the exercise of the court’s discretion, further observations were made in the Principal Judgment in relation to reliance, as follows:[40]
[40]At [225]-[230].
225Based 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,[41] 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.[42]
226But 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.[43]
227In 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,[44] 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[45] 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.
228In 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.
229To 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)[46] to allow the matter to proceed without requiring Lew Footwear to place further evidence before the court on this issue of narrow compass.
230Accordingly, even if the court had adopted the approach more favourable to Lew Footwear,[47] 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.
[41]Principal Judgment, [68].
[42]See also Principal Judgment, [232]. “The Governing Law Clause” and “the Forum Clause” are defined in the Principal Judgment: [11].
[43]This statement is made, mindful of what is set out in the Principal Judgment, [107(2)] and [135(4)].
[44]Principal Judgment, [202]-[218].
[45]Principal Judgment, [77].
[46]Civil Procedure Act, ss 7, 8.
[47]See Principal Judgment, [135].
As may be seen, it was made abundantly clear in paragraph 214 of the Principal Judgment, together with the footnote,[48] that the conclusions expressed were strictly confined to the evidence as it then stood.
[48]See fn 36 above. See also fn 32 above.
D. The case now put by Lew Footwear
Lew Footwear has now filed a significant body of additional evidence. The deponents of the further affidavits are Daniel Hammerschlag (“Hammerschlag”),[49] Stephen Kenmar (“Kenmar”)[50] and Solomon Lew (“Lew”).[51]
[49]See Principal Judgment, [17] and fn 6.
[50]See Principal Judgment, [14] and fnn 2 and 3.
[51]Hammerschlag affirmed further affidavits dated 22 August 2014, 3 September 2014 and 13 October 2014; Kenmar affirmed an affidavit dated 22 August 2014; and Lew affirmed an affidavit dated 19 September 2014 and settled a further affidavit. The latter “affidavit” of Lew is yet to be affirmed by Lew. At the time of the further hearing, Lew was overseas. An undertaking was given to the court that the affidavit would be affirmed upon his return to Australia in November 2014. As to the earlier affidavits filed, see Principal Judgment at [31], [35].
Lew described himself as the ultimate decision maker of the affairs of the Lew group of companies, including Lew Footwear.
Neither Kenmar nor Lew had previously provided any evidence themselves.[52] Further, in contrast to the evidence previously before the court, both Hammerschlag and Kenmar gave direct evidence on issues of reliance and causation relevant to all of the Representations Claims. Furthermore, Lew gave evidence concerning certain matters in 2012 and 2013.
[52]Hammerschlag had previously given some limited evidence of Kenmar’s position, based on information and belief.
It is convenient to refer to some of the additional evidence by reference to matters already set out in the Principal Judgment.
Paragraph 13 of the Principal Judgment reads as follows:
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.
The further evidence of Hammerschlag (including evidence previously the subject of a claim of client legal privilege) provided greater detail of negotiations concerning Lew Footwear’s attempts to reach agreement on the Pricing Term. This evidence sought to demonstrate that the Pricing Term was an important matter and that Lew Footwear required satisfactory wording in the pricing clause before it was willing to enter into the Licence Agreement.
Hammerschlag gave extensive evidence of his role and responsibility in his more than 20 years with the Lew group of companies. By July 2009, Hammerschlag had been responsible for the opening and operation of approximately 250 retail stores. He had also been responsible for the business relationship in respect of 3 established international licences, together with the evaluation of 4 further potential licences that did not proceed.
Further, Hammerschlag referred to a business plan (“the Business Plan”) that he prepared in anticipation of Lew Footwear becoming a distributor for Madden. The Business Plan contemplated 29 stores being established in 2010, 5 in 2011, 10 in 2012, 5 in 2013 and 6 in 2014 (being a total of 55 stores). Self-evidently, the Business Plan envisaged large volumes of the Products being traded. This fact was specifically addressed as part of the reliance evidence now before the court.[53] The Business Plan was for internal purposes. Hammerschlag prepared a document based on the Business Plan, which was forwarded to Madden on 5 August 2009.
[53]See par 27 below.
In addition, the Business Plan forecast a very large capital investment over an ongoing period of time, with projected losses in 2010, but profits thereafter. Hammerschlag deposed that, from and after the time the Business Plan was prepared, he believed that the purchase price of the Products, including transparency with respect to the purchase price, was critical to the success of any distribution arrangement with Madden. In this regard, Hammerschlag also stated:
I believed [in August 2009] that Madden, as a large and well-connected purchaser of footwear and accessories, was able to buy product from manufacturers at good prices. Therefore, I believed that our success was in part dependent upon us being able to acquire the [P]roducts at the factory prices (or close to) charged to Madden. I understood that Madden was to benefit financially from the distribution arrangement through the payment of buying commission and royalties.
Hammerschlag also gave evidence that, in late September 2009, prior to the Pricing Term being agreed, the wording being proffered by Madden did not give him sufficient comfort in relation to pricing. This evidence was clearly directed to some of the issues raised in paragraph 213 of the Principal Judgment. In this regard, he stated as follows:
I believed that there was insufficient certainty as to the cost at which [Lew Footwear] would purchase [P]roducts from Madden. Further, the suggestion of negotiating a price for each product was unworkable. … It was completely impractical to suggest that [Lew Footwear] would negotiate with Madden the price at which each product would be purchased before placing orders. The sheer volume of product required to stock the retail stores made any negotiation on a product by product basis entirely unworkable. I believed that the only workable way forward was an assurance from Madden that [Lew Footwear] would pay factory cost for each relevant product, except that I was agreeable to paying some additional costs associated with transport or third party royalties.
Equally, Kenmar gave extensive evidence in relation to the negotiations to demonstrate the importance of the Pricing Term to Lew Footwear. He also provided evidence of his long[54] and extensive involvement in negotiating contracts, including licence and distribution agreements, on behalf of companies in the Lew group of companies.
[54]Kenmar has been in-house general legal counsel since April 1997.
Paragraphs 14 and 15 of the Principal Judgment read as follows:
In the last written communication from Lew Footwear on this topic, on 9 October 2009, [Kenmar], a director[55] and in-house counsel[56] 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.
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.[57]
[55]Kenmar had only recently become a director, being appointed on 2 October 2009.
[56]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”.
[57]Cf Principal Judgment, [ 37(a)].
Further evidence was led by Lew Footwear concerning the events between 9 October 2009 and 10 November 2009. Without descending to the detail, this evidence also emphasised the significance of the Pricing Term to Lew Footwear and the manner by which the Pricing Term was capped at 13 percent in relation to any mark ups to be charged by Madden. The evidence shows Lew was briefed by both Hammerschlag and Kenmar on difficulties that were being experienced in negotiating satisfactory wording with respect to pricing.
At paragraph 20 of the Principal Judgment, some broad details were given in relation to stores opened by Lew Footwear under the Licence Agreement. Based on the evidence before the court, it was stated that of the 15 stores opened, 5 had been closed and 10 continued to operate. In fact, as at the hearing date on 10 June 2014, only 5 stores remained open.[58] The further evidence demonstrates that since 10 June 2014 the remaining 5 stores have also been closed, the last closure occurring on 22 July 2014.
[58]The discrepancy was explained by reason that the affidavit relied upon had been affirmed on 25 November 2013 and stores had closed in the meantime.
The evidence now shows that a meeting was held on 16 October 2013, attended by Hammerschlag, Kenmar, Lew and others, at which it was decided by Lew to wind down the business conducted by Lew Footwear under the Licence Agreement and to close all the stores as soon as practicable. Lew directed Hammerschlag to implement the decision.
At paragraphs 61 to 63 of the Principal Judgment, reference was made to various amendments proposed in the Proposed Statement of Claim. In so doing, the following observations were made:[59]
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.[60] No submission to this effect was made by Lew Footwear.
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.
[59]At [62]-[63].
[60]The Licence Agreement included a term requiring Lew Footwear to open a total of 11 stores from 2010 to 2014.
Kenmar gave no evidence contradictory to this passage, although he did give some relevant evidence on the matters raised. However, it was principally Hammerschlag’s further evidence that addressed the issues raised in the preceding paragraph.
Coupled with providing evidence of his substantial experience in relation to retailing in the footwear and accessory market in Australia, Hammerschlag deposed that, in mid-2009, he was acutely aware of the need for certainty with respect to pricing under any arrangement with Madden because of recent litigation in which he had been involved. This litigation, to which a company in the Lew group of companies was a party, included allegations of inflated prices charged by a supplier by reason of an agent’s undisclosed commissions. These commissions had been discovered by inadvertent disclosure to the Lew group of companies of the cost basis for products supplied and invoiced.
Based on this specific example, but also his experience generally, Hammerschlag stated his position at the time was that the opportunity with Madden would only be pursued if Lew Footwear could achieve a sufficient level of satisfaction about price control so as to achieve the gross margin which had been budgeted for in the Business Plan.
Kenmar also gave evidence of his involvement in this earlier litigation and his awareness of the concern held in the Lew group of companies about appropriate mechanisms and transparency to ensure pricing of products was charged as agreed.
Hammerschlag stated that he was responsible for making decisions on behalf of Lew Footwear about the location and number of stores which Lew Footwear would open for the purpose of retailing the Products. The number of stores actually opened was in excess of that required under the Licence Agreement.[61] As can be seen from the Business Plan, the intention was to open stores at a level that far exceeded the number of stores Lew Footwear was contractually required to open. There was no suggestion on the evidence that Lew played an active role in the negotiations with Madden or was directly involved in deciding that the wording of the Pricing Term was satisfactory.[62]
[61]See par 31 and fn 60 above.
[62]For completeness, I note that, in October 2009, Lew settled correspondence to be sent by Kenmar to Madden, and directed Hammerschlag to tell Funk (see Principal Judgment, [17]) that Funk should not travel to Australia because the pricing issues had not been agreed. Somewhat curiously, this evidence, together with other evidence concerning Lew’s involvement in the events in 2009, was only given by Kenmar and Hammerschlag, and not by Lew himself. Although no proper explanation was given for this approach, it has not altered my view as to the appropriate outcome of this present application.
Hammerschlag gave evidence relevant to the issue of reliance upon the Third Representation, the Fourth Representation and the Fifth Representation. Hammerschlag said that, in addition to the Fourth Representation and the Fifth Representation made to Tarrant,[63] Funk also made these Representations to Hammerschlag. Hammerschlag stated that he took comfort both from what Funk told him directly, and also based on what Tarrant told him in this regard. Hammerschlag disclosed that Tarrant was the chief executive officer of Lew Footwear,[64] and that he met with Tarrant on a weekly basis. It was at such a meeting, in late 2011, that Tarrant suggested to Hammerschlag that Madden appeared to be charging for Products in a manner that did not comply with the Pricing Term.
[63]See Principal Judgment, [41], [51].
[64]The earlier evidence only referred to Tarrant as an employee of another company in the Lew group of companies and did not suggest Tarrant had any official capacity with Lew Footwear: see Principal Judgment, [41].
Hammerschlag stated that if he had become aware, despite assurances from Funk in February 2012, that Madden did not have systems in place to ensure that the Pricing Term would be complied with, he certainly would not have permitted any further stores to be opened. In addition, he stated that if he had known in February 2012 that Madden would continue to render non-compliant invoices, there was a real likelihood that the business being conducted under the Licence Agreement would have been wound down and Lew Footwear would have taken legal steps to terminate the Licence Agreement. Hammerschlag said he would have raised such matters with Lew.
Lew gave evidence relevant to the Fourth Representation and the Fifth Representation. Lew stated that, if Hammerschlag had informed him of the matters set out in paragraph 40 above, Lew would have asked Hammerschlag to take steps to close down the business conducted by Lew Footwear under the Licence Agreement.
Paragraphs 203 to 206, 216 and 217 of the Principal Judgment are set out in paragraph 15 above. Kenmar and Hammerschlag both gave affidavit evidence relevant to the issues arising from those paragraphs.
Hammerschlag stated as follows:
Having fought so hard for the [P]ricing [T]erm in the course of the negotiations and as a result of Madden ultimately agreeing to a pricing term which was acceptable to Lew Footwear, I believed at the time that the [Licence Agreement] was executed that Madden would render invoices which were compliant with the [P]ricing [T]erm and that it had,[65] or would put, systems in place capable of rendering compliant invoices.
Had I been advised after we agreed to the final pricing term on 29 October 2009 that Madden could not ensure that it had, or would have, systems in place capable of calculating prices for [P]roducts purchased by Lew Footwear in accordance with the [P]ricing [T]erm that we required, I would have instructed [Kenmar] to immediately cease any further negotiations with Madden. Similarly, if [Kenmar] had advised me that he was not happy with the proposed pricing term, I would have told [Kenmar] to make it clear to Madden that Lew Footwear required the [P]ricing [T]erm, that it was a “deal breaker” and unless we were happy with the drafting there was no point proceeding further.
Of course, Lew Footwear was happy with the drafting. But, on the case put by Lew Footwear, that drafting must be understood as carrying with it the implied representation encapsulated in the First Representation and the Second Representation.
[65]Cf Principal Judgment, [37(a)], [54], [202].
The additional evidence from Kenmar was similar to that of Hammerschlag. Kenmar stated that it was a necessary incidence of Madden’s contractual obligation that Madden had the ability and capacity to comply with the Pricing Term and, accordingly, he assumed at the time he executed the Licence Agreement that Madden had the ability and capacity to do so. Kenmar also stated that, if he had been advised at any stage during the negotiations before the Licence Agreement was entered into that Madden could not ensure the necessary systems were in place, he would have immediately brought that matter to the attention of Hammerschlag. Further, Kenmar gave evidence that if the drafting of the Pricing Term had not satisfied him, he would have drawn that to the attention of Hammerschlag.
One further matter needs to be addressed in relation to the evidence. In the Principal Judgment,[66] reference was made to correspondence in February 2012 in which Lew Footwear thanked Madden for Madden’s openness and transparency when the issue of overcharging had been raised by Lew Footwear and resolved. Further submissions were made by Lew Footwear on this evidence.
[66]At [213].
In fact, at the time a resolution was reached in February 2012, it appears that the parties agreed to Madden charging a flat 13 percent (referred to in the correspondence as “13% commission”). In other words, it appears Madden did not undertake an exercise of actually recalculating previous invoice amounts incorrectly charged by applying the Agreed Cost Basis, but rather charged a flat 13 percent. Accordingly, notwithstanding the reference by Lew Footwear to Madden openly working with Lew Footwear and giving “full transparency on the commission discrepancies”, there does not appear to be any evidence before the court (and Madden pointed to none) which demonstrated that any system or appropriate accounting procedures were in place to ensure compliance with the Pricing Term.
Madden submitted that the evidence did not show that Madden did not have systems in place. It also submitted that no representation is alleged to have been made that there would not be mistakes in the future. I agree with both of these submissions. However, as Madden chose not to give any evidence on the issue, it is a matter of the proper inference to be drawn.
It follows that, although there is only direct evidence of the Pricing Term not being complied with from 15 March 2011,[67] no inference could properly be drawn on an interlocutory basis on the evidence before the court that the Pricing Term was being complied with before 15 March 2011. The claim in the Proposed Statement of Claim (repeated in the Further Proposed Statement of Claim) is that “not less than” the invoices specified in the particulars were the subject of overcharging. It is not clear on the evidence whether Madden ever charged Lew Footwear in accordance with the Agreed Cost Basis.
[67]Principal Judgment, [26].
As a result of the further evidence relied upon by Lew Footwear, significant amendments were made to its pleading.[68] The Further Proposed Statement of Claim substantially amended the particulars relied upon in order to establish reliance. In substance, the particulars now support a case that, prior to the Licence Agreement being entered into, negotiations would have ceased if Hammerschlag had been aware that Madden would not have systems in place capable of calculating prices in accordance with the Pricing Term. In those circumstances, it is alleged that Lew Footwear would not have entered into the Licence Agreement at all.
[68]See par 5 above.
Further, in relation to the Third Representation, the Fourth Representation and the Fifth Representation, Lew Footwear now alleges that it continued to incur trading losses, including by reason of the opening of a further store.[69] The claim for “incurred expenditure and liabilities in establishing a market for the Products in Australia progressively” is now not directly made.[70]
[69]See fn 38 above.
[70]Principal Judgment, [44].
E. The test of a strongly arguable case
The Principal Judgment contains an extensive discussion in relation to the test to be applied for the purposes of r 7.01(1).[71] I do not propose to repeat those matters. In summary, in Schib Packaging Srl v Emrich Industries Pty Ltd,[72] the Court of Appeal referred to WA Dewhurst & Co Pty Ltd v Cawrse[73] and Williams v The Society of Lloyd’s[74] with approval. The latter of these 2 cases referred, at the point referenced, to the decision of Carroll v Laurie[75]. These authorities, together with the authorities cited in them, make it clear that an Originating Party, in discharging the onus of establishing a strongly arguable case, is not required to prove its case on the balance of probabilities,[76] but must show more than a prima facie case.[77]
[71]At [78]-[136].
[72](2005) 12 VR 268, 271 [10].
[73][1960] VR 278 (Dean J).
[74][1994] 1 VR 274, 291 (McDonald J).
[75][1959] VR 275 (Dean J).
[76]As to which, see Briginshaw v Briginshaw (1938) 60 CLR 336, 362.2-363.3 (Dixon J).
[77]As to which, see, for example, Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, 81-82 [65] (Gummow and Hayne JJ, with whom, relevantly, Gleeson CJ and Crennan J agreed: 68 [19]); North Ganalanja Aboriginal Corporation v Queensland (1996) 185 CLR 595, 615.8-616.2 (Brennan CJ, Dawson, Toohey, Gaudron and Gummow JJ), 638.10-639.3 (McHugh J). See also Schib Packaging Srl v Emrich Industries Pty Ltd (2005) 12 VR 268, 271 [10].
Beyond stating that a strongly arguable case is a stronger case than a prima facie case, but need not be a case proved on the balance of probabilities, the test has not been stated with further precision. Within the parameters identified, it is a question of degree as to whether the test will be met. Neither party suggested any precision is required beyond what is set out above.
F. New authorities relied upon
The precise question for the court is whether the loss or damage claimed by Lew Footwear was suffered “by conduct of” or “because of the conduct of” Madden.[78]
[78]See Trade Practices Act, s 82(1) in relation to the First Representation, the Second Representation and the Third Representation insofar as those representations were made on or before 31 December 2010; and the Australian Consumer Law, s 236(1)(a) in relation to the Third Representation insofar as those representations were made on or after 1 January 2011, the Fourth Representation and the Fifth Representation.
As stated above,[79] the court rejected Lew Footwear’s submission that the court could draw an inference in relation to reliance without any evidence on the point. In response, not only has Lew Footwear introduced relevant evidence, but it relied upon authorities not previously referred to.
[79]See par 15 above.
The authorities are relied upon for the proposition that it is sufficient to show that, if Lew Footwear had known the true position in relation to the implied representations comprising the First Representation or the Second Representation, it would have acted differently (ie by ceasing negotiations and not entering into the Licence Agreement). In other words, the case is put, not on the basis that there was actual conscious reliance upon the First Representation or the Second Representation at the time the Licence Agreement was entered into, but rather, on the basis that, if the true position were known, Lew Footwear never would have finalised the negotiations. Equally, with respect to the Third, Fourth and Fifth Representations, Lew Footwear contends that, if the true position were known, it is likely the business being conducted by Lew Footwear would not have been expanded. Rather, it is likely it would have been wound down and Lew Footwear would have put steps in place to terminate the Licence Agreement.
There were 2 cases upon which particular emphasis was placed in this regard. In Casinos Austria International (Christmas Island) Pty Ltd v Christmas Island Resort Pty Ltd,[80] it was held that a party, having assumed operational responsibility for a hotel as part of a casino business, impliedly represented that: (1) it would operate and manage the hotel in a proper and efficient manner; (2) it would obtain whatever assistance it needed to do so; and (3) it was capable of operating and managing the hotel in a proper and efficient manner. At no time did the party actually state it had, or profess to have, hotel management experience or expertise. The following passage is of particular relevance to the issues at hand:[81]
Counsel for the plaintiff submitted that there was simply no evidence that any person who could speak for the defendant relied on the representations at the time of entry into the contract in October 1993. It is true that neither [K] nor [G] (the only persons who were called and who could have testified directly on the point) said that the representation was relied on. However, both said that they had no reason to doubt the competence of the plaintiff to operate the hotel efficiently. I have little doubt that the plaintiff’s reputation and experience in operating casinos played a larger part in the thought processes of the defendant’s representatives. But I do not think that the hotel management aspect was either irrelevant to, or of such little weight as to be immaterial to, the defendant’s decision to engage the plaintiff for the entire resort. I accept the proposition put by counsel for the defendant that direct evidence of reliance is not necessary and it can be obtained by way of inference.
(Citations omitted, emphasis added.)
It was found the implied representations were relied upon in entering into the relevant agreement.
[80][1998] WASC 387 (Owen J).
[81]At 48.8.
The other case is a decision of the Court of Appeal of New South Wales in Smith v Noss.[82] The following passage, which was referred to by the Victorian Court of Appeal with approval in Derring Lane Pty Ltd v Fitzgibbon,[83] is directly relevant to the issues at hand:[84]
First, the essential question is causation. There may be causation from misleading or deceptive conduct if the conduct lies in failing to disclose that which in the circumstances should have been disclosed. It is not a natural use of the notion of reliance to say that there was reliance on the failure in disclosure, but causation can be found if disclosure would have caused inaction or action other than that which was taken. …
Even where the misleading or deceptive conduct lies in disclosing something – making a representation which is false – the notion of reliance must be used with care. Causation will be established if there would have been inaction or some other action had it been known that the representation was false. Since the representee did not know the falsity of the representation, again there is a hypothetical question, and in such a case the scope for the representee to give evidence of thought processes at the time may be quite limited and “reliance” may mean no more than that the representee would have acted differently had it been known that the representation was false. To speak of a need for explanation or for specific evidence of reliance, or for evidence of a decision-making process, can lead to error; the question is one of causation.
Secondly and more fundamentally, specific evidence of reliance is not essential for proof of causation. Such evidence may be one strand, perhaps an important one, in the factual skein, but causation may be found without it.
(Emphasis added).
[82][2006] NSWCA 37.
[83](2007) 16 VR 563, 584 [111] (Ashley JA, with whom Buchanan JA and Kellam AJA agreed).
[84][2006] NSWCA 37, [25]-[27] (Giles JA, with whom Beazley and Ipp JJA agreed).
In short, causation may be satisfied for the purposes of s 82(1) of the Trade Practices Act or s 236(1)(a) of the Australian Consumer Law in certain types of cases without the existence of direct evidence of actual reliance on the impugned conduct by a person entering into an agreement or engaging in such other conduct said to give rise to the loss claimed. Such cases may or may not involve giving evidence.[85] In cases where admissible evidence is given, it may possibly include evidence given with the benefit of hindsight.[86] (However, for reasons previously stated,[87] on the facts of this case there needed to be some evidence from which an inference could properly be drawn that Lew Footwear’s claimed loss arose “by” or “because of” the alleged conduct.)
[85]See, for example, Hanave Pty Ltd v LFOT Pty Ltd (1999) 43 IPR 545, 555-556 [45] (Kiefel J, with whom Wilcox J agreed, Emmett J dissenting). See also MWH Australia Pty Ltd v Wynton Stone Australia Pty Ltd (in liq) (2010) 31 VR 575, 599-603 [96]-[106] (Buchanan and Nettle JJA, Warren CJ dissenting), discussed in the Principal Judgment, [208]-[212].
[86]This observation is made in response to Madden’s submission that evidence given with the benefit of hindsight is no substitute for proof of reliance.
[87]Principal Judgment, [202]-[217].
Lew Footwear further submitted that it was not necessary to establish that the impugned conduct was the only cause of the loss suffered. It was submitted, correctly, that it only need be 1 of the causes.[88] Further, for causes of action governed by the law up to 31 December 2010, the court may disregard the level of care taken by a plaintiff.[89] This position changed with the introduction of s 137B of the Competition and Consumer Act, effective 1 January 2011.
[88]Henville v Walker (2001) 206 CLR 459, 469 [14] (Gleeson CJ), 480 [61] (Gaudron J), 493 [106] (McHugh J, with whom Gummow J agreed); Sellars v Adelaide Petroleum NL (1994) 179 CLR 332, 356.8-357.2 (Brennan J).
[89]Henville v Walker (2001) 206 CLR 459, 482 [66] (Gaudron J), 505 [140] (McHugh J), 509-510 [165] (Hayne J), (Gummow J agreeing with McHugh and Hayne JJ).
G. A strongly arguable case
In light of the way in which the case of Lew Footwear is now put in relation to reliance and causation, together with the substantial further evidence on that issue, in my view there is a strongly arguable case that the conditions in r 7.01(1)(i) and (j) with respect to the Representations Claims have been met. Without being exhaustive or repeating what is stated in the Principal Judgment, the foundation for this conclusion includes the following:
(1)There is now a substantial body of evidence to strongly argue that the proper administration by Madden of matters pertaining to the Pricing Term was of critical importance to Lew Footwear, so much so that Lew Footwear would not have entered into the Licence Agreement if Lew Footwear knew systems were not, or would not be, in place to ensure compliance. If this case is established at trial, the fact that there may have been other factors that induced Lew Footwear to enter into the Licence Agreement[90] is no answer to the causes of action pleaded.[91]
(2)There is nothing in the language of the Pricing Term that is inconsistent with the First Representation and the Second Representation having been impliedly made. Based on the facts before the court presently, it is strongly arguable each of the First Representation and the Second Representation was made.
(3)The making of the Third Representation from 28 April 2010 to 2 January 2014 is strongly arguable. There is nothing in the evidence to suggest that, save for the invoices that were accepted by Madden to be incorrect, Madden indicated to Lew Footwear it would not be complying with the Pricing Term. It must follow that the existence of the Pricing Term coupled with Madden rendering invoices purportedly in accordance with the Licence Agreement means that it is strongly arguable Madden was representing the Pricing Term had been complied with when each invoice was rendered.
(4)There is direct evidence of the Fourth Representation and the Fifth Representation having been made orally by Madden. Plainly, the conduct of making these Representations is strongly arguable.
(5)It is apparent from the further evidence that it is strongly arguable that a system of some sort needed to be in place for the Agreed Cost Basis to be duly implemented and the Pricing Term to be complied with. By way of submission only, Madden stated that it “had, and had to have, an accounts department”. It also stated that there must have been an employee or employees responsible for preparing the invoices in accordance with the Pricing Term. Further, Madden asserted in submissions that beyond this it was not necessary for Madden to have, or to put an accounting system in place. In my view, this submission (although it may ultimately be successful at trial) does not alter the fact that, on the evidence before the court presently, Lew Footwear has established a strongly arguable case. Such evidence as is available strongly suggests that particular accounting systems or procedures needed to be in place given the volume of sales expected to be made, the wording of the Agreed Cost Basis contained in the Pricing Term was out of the ordinary for Madden and that there is a substantial body of evidence that Madden failed to charge in accordance with the Agreed Cost Basis.
(6)The uncontroversial evidence of a failure of Madden to comply with the Pricing Term for extended periods of time is highly probative of an absence of a relevant system or accounting process to ensure compliance with the Pricing Term.
(7)Although Lew Footwear did not complain for approximately 16 months after the Licence Agreement was entered into[92] about non-compliance with the Pricing Term, it was not within Lew Footwear’s capacity to precisely check the means by which amounts were calculated for the purposes of the invoices rendered by Madden.[93] The fact that Lew Footwear knew what the Products ought to be costing based on past experience[94] is not decisive on the issue of reliance in light of the further evidence. The evidence is that, notwithstanding this knowledge, it took many months of Madden acting in breach of the Pricing Term before Lew Footwear suspected the breach might be occurring.[95] A like observation may be made for the period after 21 February 2012 (when the Fourth Representation and the Fifth Representation were allegedly made). There is nothing to suggest that, until Madden forwarded emails on 18 April 2012 (dealing with the period from 10 February 2012 to 31 March 2012) and 27 August 2012 (dealing with the period from 1 April 2012 to 30 June 2012),[96] Lew Footwear had any knowledge that the Pricing Term was again not being complied with. On the contrary, the evidence demonstrates a strongly arguable case that Lew Footwear was acting in reliance upon the Fourth Representation and the Fifth Representation. This position of Lew Footwear appears to have continued until late 2012 or early 2013.[97]
(8)Even though, in February 2012, Lew Footwear expressed its gratitude for Madden working openly and with full transparency (a matter which plainly remains relevant to the issue of reliance and causation[98]), on a careful reading of the relevant correspondence there is nothing to demonstrate that any appropriate system was in place at any time before February 2012 (or, for that matter, any time thereafter).
(9)Hammerschlag has now given extensive evidence on the nature of the industry, together with certain logistics pertaining to this particular relationship. None of his evidence concerning the impracticality of negotiating prices for individual Products was the subject of any contradictory evidence. Hammerschlag’s evidence significantly increases the likelihood of reliance placed by Lew Footwear upon each of the Representations.
[90]Principal Judgment, [213(4)].
[91]See par 59 above.
[92]Of course, there could be nothing to complain about before Madden commenced rendering invoices on 28 April 2010: Principal Judgment, [19].
[93]See par 10 above.
[94]Principal Judgment, [213(3)].
[95]The evidence is it was in late 2011 that Tarrant raised the issue with Hammerschlag: see par 39 above. The accepted evidence is that from at least 15 March 2011 the Agreed Cost Basis was not being properly applied. See also par 27 above.
[96]These emails of Madden acknowledge prices charged were in excess of the Agreed Cost Basis.
[97]In his affidavit affirmed 25 November 2013, Hammerschlag gave evidence of the steps taken by Lew Footwear from July 2012 to December 2012, pursuant to which it was discovered Products purchased from Madden (accessories) were being charged to Lew Footwear at a price far in excess of the Agreed Costs Basis. These events were further referred to in Hammerschlag’s affidavit affirmed 22 August 2014.
[98]Principal Judgment, [213].
In reaching this conclusion, I have not ignored the fact that the manner in which the case has been pleaded has changed a number of times.[99] Certainly, this fact must weaken the credibility of Lew Footwear’s case to some extent. No doubt this may be relevant at any trial of this proceeding. But, in my view, this circumstance does not detract from the fact that the court now has before it affidavit evidence from witnesses experienced in the industry who have demonstrated that the Representations were critical to Lew Footwear’s decision-making process, both in relation to entering into the Licence Agreement, and also maintaining the contractual relationship with Madden up until more recently. The causal link between how Lew Footwear says it would have acted differently and the loss claimed is obvious.
[99]See Principal Judgment, [54]. See also par 49 above.
Despite being of limited importance,[100] for completeness there is a further matter to note. Although the application is interlocutory and Madden was not compelled to give any relevant evidence on the issue, it is of some significance, in deciding whether the causes of action are strongly arguable, that Madden gave no evidence of having any relevant systems in place for the purpose of complying with the Pricing Term. This must be viewed in light of the fact that Madden chose to lead some evidence on the application,[101] and in light of the reliance by Lew Footwear on s 51A of the Trade Practices Act and s 4 of the Australian Consumer Law in relation to the onus of proof with respect to future matters.[102]
[100]The reasons why this matter is of limited importance include the fact that, notwithstanding Lew Footwear’s reliance on s 51A of the Trade Practices Act and s 4 of the Australian Consumer Law, the onus remains on Lew Footwear to establish reliance and causation: see, for example, Haros v Linfox Australia Pty Ltd (2012) 287 ALR 507, 521 [57] (Gray, Marshall and Bromberg JJ). See also fn 27 above.
[101]It seems highly likely that Madden was able to put evidence on causation issues before the court without submitting to the jurisdiction: cf City of Swan v McGraw-Hill Companies Inc (2014) 99 ACSR 280, 309-310 [113]-[118] (Rares J), citing, amongst other cases, Brealey v Board of Management of Royal Perth Hospital (1999) 21 WAR 79, 87 [38] (Ipp J, with whom Malcolm CJ agreed). An example of where extensive evidence was given by both parties on whether or not the Originating Party had a good cause of action is Commonwealth Bank of Australia v White [1999] 2 VR 681, 701 [69] (Byrne J). There was no suggestion that the leading of such evidence by the Overseas Defendant meant it was at risk of submitting itself to the jurisdiction. If there was the possibility of any doubt by Madden on this issue, any such doubt ought to have been removed with the delivery of the Principal Judgment: see [119].
[102]See Principal Judgment, [64]. Contrary to Madden’s submissions, reliance upon these provisions does not equate to Lew Footwear making allegations of fraud. By relying on these sections, Lew Footwear is contending that Madden did not have reasonable grounds for the making of the First, Second and Fifth Representations. That is materially different to alleging that a representation was made as to a future matter at a time when there was no intention of the representor to act in accordance with the representation. The Proposed Further Statement of Claim contains no such allegation about an absence of intention. In submissions, Lew Footwear was at pains to point out that no allegation of fraud is made.
H. Conclusion
For the reasons stated, including the reasons in the Principal Judgment (read subject to these reasons), orders will be made dismissing Madden’s summons insofar as it seeks to set aside service of the writ or stay the proceeding. As the court has now found that the conditions of each of paragraphs (f)(i), (i) and (j) of r 7.01(1) have been met, Lew Footwear is entitled to proceed with its contractual claims and the Representations Claims.
Further observations
I.1 Injunctive relief
No further submissions were made by the parties in relation to whether or not Lew Footwear ought to be the subject of an injunction if the court were to otherwise dismiss Madden’s summons. It is not appropriate to revisit this issue based on previous submissions because the evidence before the court is now fundamentally different to the time at which earlier submissions were made on this issue. It will be a matter for Madden as to whether it wishes to pursue this aspect of the summons after consideration of these reasons.
I.2 Costs
The issues that have arisen under r 7.01(1) in this proceeding have been complex. No doubt careful judgments have been made at various stages about the evidence to be presented both in support and in opposition to this application. However, if, on 29 April 2014, Lew Footwear had presented the case it ultimately presented, a substantial amount of time and costs could have been saved. I will hear submissions from the parties if necessary, but, on the information that is presently available to the court, I would expect Lew Footwear to put in place an appropriate arrangement in relation to costs that have been incurred as a result of the staggered approach of the court that has necessarily been adopted.
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