FEDERAL COURT OF AUSTRALIA Anabelle Bits Pty Ltd v Fujitsu Ltd [2007] FCA 1190 ANABELLE BITS PTY LTD (ACN 068 649 972) v FUJITSU LTD AND FUJITSU AUSTRALIA LTD (ACN 001 011 427) NSD 1222 OF 2007 GRAHAM J 26 JULY 2007 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1222 OF 2007 BETWEEN: ANABELLE BITS PTY LTD (ACN 068 649 972) Applicant AND: FUJITSU LTD First Respondent FUJITSU AUSTRALIA LTD (ACN 001 011 427) Second Respondent JUDGE: GRAHAM J DATE OF ORDER: 26 JULY 2007 WHERE MADE: SYDNEY THE COURT: 1. Grants leave to the applicant to file in Court the affidavit of Frederic Joseph Alfred Cassis sworn 25 July 2007. 2. Orders that the applicant have leave pursuant to Order 8 rule 3(2) of the Federal Court Rules to serve the Application and the Statement of Claim on the first respondent by using the diplomatic channel. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1222 OF 2007 BETWEEN: ANABELLE BITS PTY LTD (ACN 068 649 972) Applicant AND: FUJITSU LTD First Respondent FUJITSU AUSTRALIA LTD (ACN 001 011 427) Second Respondent JUDGE: GRAHAM J DATE: 26 JULY 2007 PLACE: SYDNEY REASONS FOR JUDGMENT 1 Fujitsu Australia Limited ACN 001 011 427, the second respondent in the proceedings, was registered on 21 June 1972. It is a wholly owned subsidiary of Fujitsu Limited, the first respondent. Fujitsu Computer Products of America Inc is another wholly owned subsidiary of Fujitsu Limited. 2 In a two page brochure in respect of a Fujitsu hard drive described as 'MPG3xxxAT Series 3.5–inch ATA 5400 RPM Disk Drives' published by Fujitsu Computer Products of America Inc, the relationship of Fujitsu Limited to Fujitsu Computer Products of America Inc is disclosed. The brochure in question bears the endorsement 'Printed in the U.S.A. Qty 5M P/N DS26300900'. The brochure is the subject of a claim for copyright by Fujitsu Computer Products of America Inc. In the brochure the following appears: 'Fujitsu and the Fujitsu logo are registered trademarks of Fujitsu Limited'. Fujitsu Limited is described as being 'one of the world's largest computer companies with $49.6 billion in worldwide revenue in fiscal year ended March 2000'. It also refers to Fujitsu Limited's $3 billion annual investment in research and development. 3 By an Application filed 29 June 2007, the applicant in these proceedings, Anabelle Bits Pty Limited ACN 068 649 972 has made a number of claims against Fujitsu Limited and Fujitsu Australia Limited in respect of defective hard disk drives which it acquired over a period of time. Its case is that it bought about 17,000 hard drives from the second respondent and claims that the hard drives were manufactured by the first respondent. The applicant's claims against the second respondent arise under s 52 of the Trade Practices Act 1974 (Cth) and for breaches of alleged common law duties of care. 4 The applicant shortly contends that: (a) the second respondent made representations as to the reliability of Fujitsu hard drives which were false; (b) the second respondent failed to tell the applicant that it had incorporated a new part in its hard drives which had not been the subject of operational experience; (c) the second respondent owed a duty to exercise reasonable skill and care in advising the applicant of the characteristics of the Fujitsu hard drives which was breached; (d) by about July 2001 the second respondent knew that the Fujitsu hard drives, which the applicant had been buying, included a defective component (the previously untried component) which was causing a substantial number of hard drives to fail. In this regard, the applicant relies upon the non-disclosure of the information concerning the defective components; (e) the applicant also relies upon a breach of a duty of care by the second respondent in respect of the non-disclosure of the information which it had concerning the defective component. 5 In relation to the first respondent parallel claims are made. It is said that the literature which was provided to the applicant in Australia concerning the Fujitsu hard drives (printed in the USA) was made available by the first respondent which engaged in misleading and deceptive conduct, by providing the literature for proliferation within Australia by distributors of Fujitsu hard drives, such as the second respondent. Alternatively, it is said that the second respondent distributed the literature as agent for the first respondent. The applicant contends that the first respondent engaged in misleading and deceptive conduct and/or breaches of common law duties of care matching those alleged against the second respondent. 6 In the case of the common law duty of care, the applicant contends that the first respondent was under a duty to exercise reasonable skill and care in the manufacture and supply of hard drives so that the applicant would not be exposed to economic loss through the use of hard drives incorporating defective parts. It is also suggested that there was a duty on the part of the first respondent to exercise reasonable skill and care in advising the applicant accurately about the hard drives which was breached by the production of the literature concerning the Fujitsu hard drives which emanated from the first respondent. 7 The applicant relies in support of its claims against Fujitsu Limited upon certain allegations made by Fujitsu Limited in proceedings in the United States District Court for the Northern District of California No CO1-20987 which commenced on 19 October 2001. Those proceedings were brought by Cirrus Logic Inc against Fujitsu Limited (the first respondent). As it transpires, Cirrus Logic Inc was the supplier of the defective part. It sought in respect of the first three causes of action pleaded by it damages of $US10 million, $US20,985,018.80 and $US15,791,762.30. On 18 December 2001 the attorneys for Fujitsu Limited filed a Counter-claim, in which they said, inter alia: '6. Fujitsu manufactures, among other things, disk drives for use in computer systems. Fujitsu drives are used in various types of devices, including, among other things, personal computers, servers, and audiovisual application devices. When Fujitsu manufactures a drive, it inserts a semiconductor chip into the drive. Fujitsu sells its disk drives to large and small computer manufacturers, to distributors, and to consumers as part of Fujitsu's own computer products. The effectiveness and reliability of Fujitsu's drives is a critical element of Fujitsu's relationship with its customers and with the end-users of Fujitsu's drives. … 13. Fujitsu presently estimates that approximately four million of the approximately twelve million Himalaya 2.0 chips that Cirrus has sold to Fujitsu since March 2000 are defective and that all of the approximately 900,000 Numbur chips that Cirrus has sold to Fujitsu since that time are defective. These defects already have caused a substantial number of chips to fail (and, with them, the drives in which they are installed). Because the time period after which the chips short and cause the drives to fail is variable and unpredictable, it is highly likely that a significant number of additional chips will short and cause their drives to fail. Based on field data that it has collected, Fujitsu has determined that the Cirrus chip failure rate is in excess of all reasonable industry standards. 14 Fujitsu's customers began to complain about failing drives in May 2001. By July 2001, Fujitsu had received enough customer complaints to recognize that a mass chip failure was occurring. Before that time, Fujitsu was unaware of the chip defect and had no reason to be aware of the defect. Fujitsu performed tests and then promptly informed Cirrus of the problem and requested information from Cirrus regarding the nature and extent of the defect and Cirrus's remediation plan.' 8 In an affidavit sworn 18 July 2007, Kenneth Lowe, the Managing Director of the applicant said: '11. During the course of 1992, together with approximately 11 other Australian computer import companies, I was invited by the First Respondent to attend a tour of the First Respondent's hard disk drive and printer manufacturing facilities in Japan. On that tour, I observed the manufacturing process used by the First Respondent for the production of their hard disk drives. Following that visit, ASI [Anabelle Bits Pty Limited trading as ASI Solutions] entered into a Distributive Product Agreement in relation to printers with the Second Respondent and commenced importing printers from them. … 22. From 1999, Tony Rixon [said to be a Fujitsu employee] attended ASI's business premises about once a month. I personally met with Tony Rixon at least once every two to three months. Aside from dealing with matters concerning the ongoing daily relationship between the Second Respondent and ASI, Tony Rixon provided me and other technical staff from ASI with brochures and product specification information about new Fujitsu products, including most specifically, hard-disk drives. The brochures and information sheets supplied by Tony Rixon contained information about the features of the respective models, for example, about their reliability, capacity and speed. 23. I recall that during the course of 2000, ASI had purchased several pallets of the MPF series of hard-disk drive from Fujitsu, being the predecessor to the MPG series. I recall that when the MPG 3XXXAT series hard disk drives ("Fujitsu HDDs) were about to be released onto the Australian market by Fujitsu, during the course of a visit to ASI's premises, Tony Rixon provided me with a brochure on the characteristics of the Fujitsu HDDs. … [the brochure referred to was the US publication referred to earlier] … 25. In deciding to purchase the Fujitsu HDDs, I relied upon Fujitsu's reputation and perception in the marketplace as well as the oral and written representations referred to above. … 86. ASI's reputation also suffered with a general loss of goodwill. I believe that had the problems with the Fujitsu HDDs not occurred, ASI would have developed and expanded substantially and would be a much bigger company than it is today.' 9 In the Application filed 29 June 2007, the applicant claimed interlocutory relief in the form of a grant of leave pursuant to Order 8 rule 3(2) of the Federal Court Rules authorising the service of the Application and Statement of Claim on the first respondent by using the 'diplomatic channel'. 10 In a substantially similar case (Webster Computer Systems Pty Limited v Fujitsu Limited NSD 306 of 2007) which is presently in Cowdroy J's docket, Conti J made an order on 9 May which was the subject of his Honour's reasons for judgment of 29 May (Webster Computer Systems Pty Ltd v Fujitsu Ltd [2007] FCA 825). Conti J ordered as follows: 'The applicant have leave pursuant to Order 8 Rule 3(2) of the Federal Court Rules to serve the application and statement of claim on the first respondent by using the diplomatic channel.' 11 Order 8 rule 3(2) of the Federal Court Rules provided: '3(2) The Court may give leave to a party to serve an originating process on a person in a foreign country in accordance with a convention or the law of the foreign country, on such terms and conditions as it considers appropriate, if the Court is satisfied that: (a) the Court has jurisdiction in the proceeding; and (b) the proceeding is of a kind mentioned in rule 2; and (c) the person seeking leave has a prima facie case for the relief claimed by the person in the proceeding.' 12 Order 8 rule 3(5) provided as follows: '3(5) If an originating process was served on a person in a foreign country without the leave of the Court, the Court may, by order, confirm the service if the Court is satisfied that: (a) paragraphs (2)(a), (b) and (c) apply to the proceeding; and (b) the service was permitted by: (i) if a convention applies – the convention; or (ii) in any other case – the law of the foreign country; and (c) the failure to apply for leave is sufficiently explained.' 13 Order 8 rule 2 permits an originating process to be served on a person in a foreign country in a proceeding which 'consists of, or includes, any 1 or more of the kinds of proceeding mentioned in the following table.' A table follows setting out 22 different items. In this case, as against the first respondent, the applicant submits that the proceeding consists of or includes one or more of the following kinds of proceeding, that is to say, those covered by items 1, 4, 5, 11, 12 and 13. 14 I do not know what evidence was placed before Conti J prior to him making the order to which I have referred. 15 In the case before me there is sufficient material to indicate that the Court has jurisdiction in the proceeding and that the proceeding is of a kind mentioned in Order 8 rule 2. Evidence from the Commonwealth Attorney-General's Department demonstrates that '[t]here is no Convention, treaty or other agreement in force between Australia and Japan on the service of documents in civil proceedings.' 16 In an affidavit of Frederic Alfred Joseph Cassis sworn 25 July 2007, he has deposed to a conversation with a Catherine Fitch within the Attorney General's Department. Her evidence, which is admissible under section 75 of the Evidence Act 1995 (Cth) is that Japanese law permits the service of documents through the diplomatic channel. In the circumstances, I am satisfied in respect of each of the matters covered by Order 8 rule 3(2)(a), (b) and (c). In the circumstances, I order that the applicant have leave pursuant to Order 8 rule 3(2) of the Federal Court Rules to serve the Application and the Statement of Claim on the first respondent by using the diplomatic channel. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Graham J. Associate: Dated: 8 August 2007 Counsel for the Applicant: J C Giles Solicitor for the Applicant: Levitt Robinson Solicitors The First Respondent did not appear. The Second Respondent did not appear. Date of Hearing: 26 July 2007 Date of Judgment: 26 July 2007