WILLIAMS v LIPS-HEERLEN BV SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL PRIESTLEY, HANDLEY and SHELLER JJA 5 August 1994, 16 August 1994 [1994] NSWCA 349 PRACTICE AND PROCEDURE: refusal to exercise jurisdiction under Pt10, r1, r2 and r4, r6A and Pt11, r8(1) Supreme Court Rules - change of pleadings — removal of stay of proceedings. The appellants commenced proceedings in 1990 against the respondent alleging, inter alia, that a water turbine designed and manufactured by the respondent and sold to the appellants by Antelope Engineering Pty Ltd contained defects and was unsuitable for the required purpose. The appellants alleged that they had entered into the contract in reliance upon misleading and deceptive representations made by the respondent and sought relief under s52 of the Trade Practices Act and s42 of the Fair Trading Act and damages for negligent misstatement, breach of collateral contract and unconscionable conduct. The respondent was a company incorporated in the Netherlands and not registered as a foreign company in Australia. The appellants effected service on the respondent in the Netherlands. The respondent applied by notice of motion for a permanent stay of the proceedings. Pt10, rl, 2 and 6A (1) and (2) and Pt11, r8 (1) of the Supreme Court Rules. In the particulars accompanying the Plaintiffs' Contentions in the summons and before Giles J the appellants relied upon representations claimed to have been made by Antelope on behalf of the respondent. The respondent denied that Antelope was its agent and submitted that the appellants had failed to establish to the necessary degree that they had a cause of action, because in the absence of agency the representations could not be attributed to the respondent. Giles J commented that the appellants' claims faced great difficulties. Furthermore there was but the flimsiest evidence of agency. Giles J held that the Court should decline in its discretion to exercise its jurisdiction in the proceedings. On appeal the appellants put their case differently. They alleged that the representations relied upon were made by the respondent not by Antelope as its agent but through Antelope as an intermediary. Since once could safely accept that the appellants would be able to establish that the respondent used Antelope as an intermediary to disseminate the representations complained of and since it would be open to the appellants to apply to the Common Law Division to lift the stay on this basis, the appeal should be allowed, the stay set aside and the matter remitted for determination. The respondent contended that the claim under the Acts was out of time and asked the Court to re-exercise the discretion and affirm the stay on other grounds. In the circumstances the Court did not consider this course appropriate. As the matter was one which was suitable for an application to the Common Law Division to have the stay lifted, which would have rendered the appeal unnecessary, each party should pay its own costs of the appeal. Priestley JA I agree with Sheller JA. Handley JA I agree with Sheller JA. Sheller JA INTRODUCTION Ellis Griffths Williams and Jennifer Margaret Williams appeal by leave from a decision of Giles J given on 1 November 1991 in which his Honour ordered that proceedings by the appellants against the respondent Lips-Heerlen BV be 2 UNREPORTED JUDGMENTS permanently stayed. The respondent is a company incorporated under the laws of the Netherlands. It is not registered as a foreign corporation in Australia and claims that it does not carry on business in Australia. The appellants commenced proceedings against the respondent in the Common Law Division (Construction List) by summons filed on 28 December 1990. The appellants alleged that in or about November 1985 they entered into a contract with a company called Antelope Engineering Pty Ltd for the supply to them by the company of a water turbine designed and manufactured by the respondent for the purpose of generating electricity. In the summons under the heading "Nature of Dispute" the appellants claimed damages "for contraventions of s52 of the Trade Practices Act and s42 of the Fair Trading Act or for such other relief pursuant to the said Acts as the Court considered appropriate and for damages for negligent misstatement, breach of collateral contract and unconscionable conduct". Included in the Plaintiffs' Contentions was the following paragraph: "2. In or about late 1984 or early 1985 Lips made the following express written representations to the Plaintiffs: (a) That Lips rapidly increased its size and range of products after 1928 whereby its know-how made it possible for it to enter the field of hydropower. (b) That for the generation of electricity from water resources Lips had developed a series of standard waterturbines covering a power range from 50 to 1,400 kW with heads from 2 to 22m. (c) That all Lips turbines were equipped with a four bladed Kaplan impeller, carefully designed to meet a required application and was suitable for heavy duty operation. (d) That its standard series of low-head waterturbines had been developed to cover the practical range of application and that where special designs were required Lips had the know-how and skill to help to solve such problems and to construct a system exactly tailored to the customer's needs." In the particulars accompanying this paragraph it was said that the representations were contained in a Lips' brochure "copies of which were provided by Lips' agent Antelope for..... [sic] Dirk Dammers" to the first appellant and to the appellants' consulting engineers. In the following paragraphs of the Plaintiffs' Contentions the appellants alleged alternative oral and implied representations particularised as having been made by either Antelope or Mr Dammers on behalf of the respondent. The appellants claimed that in reliance upon the representations they entered into the contract with Antelope for the supply of the water turbine which, they alleged, contained defects and was unsuitable for the required purpose. They alleged further that it was worthless or worth far less than the price paid for it and they had lost the profits they would otherwise have made on the generation and sale of electricity. RESPONDENT'S NOTICE OF MOTION By notice of motion returnable on 4 October 1991 the respondent moved, inter alia, for a declaration that the summons had not been duly served on the respondent and for orders that the Court set aside the service or the summons or alternatively decline in its discretion to exercise its jurisdiction in the proceedings. Pt11 r8 (1) of the Supreme Court Rules provides that the Court may, on application made by a defendant to any originating process on notice of motion, by order - "(h) decline in its discretion to exercise its jurisdiction in the proceedings;" URJ WILLIAMS v LIPS-HEERLEN BV (Sheller JA) 3 Pt10, which concerns service outside the State, rules 1 and 2, as then in force, provided, so far as presently relevant, as follows: "1. (1) Subject to r2 and r2A, 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; (c) where the subject matter of the proceedings is a contract and the contract: (i) is made in the State; (ii) is made on behalf of the person to be served by or through an agent carrying on business or residing in the State; (iv) is one a breach of which was committed 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; (k) where the subject matter of the proceedings, so far as concerns the person to be served, is property in the State; (n) where the proceedings are for the construction, rectification, setting aside or enforcement of a deed, will or other instrument or of a contract, obligation or liability, affecting property in the State; 2. Leave to proceed where no appearance (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 subr(1) may be made without serving notice of the motion on the defendant." It is unnecessary to refer further to r2A. ROA (1) provided that the Court might make an order of a kind referred to in Ptl1 r8 on application by a person on whom an originating process was served outside Australia. Subr(2) provided that without limiting subr(1), the Court might make an order under the rule on the ground "(b) that this Court is an inappropriate forum for the trial of the proceedings." JUDGMENT AT FIRST INSTANCE Giles J observed at the beginning of his judgment that service of the summons was purportedly effected on the respondent in the Netherlands. His Honour held that the service of the summons was effective service, although irregular, that it should not be set aside for reason of the failures to comply with the Rules raised by the respondent and that non-compliance with Dutch law did not render the service a nullity. These conclusions were not challenged on this appeal. The appellants submitted to Giles J that all four of the causes of action relied upon and summarised under the heading "Nature of Dispute" came within para(a) or one or other of the nexus provisions found in the other paragraphs of rl (1) which I have set out. With respect to each cause of action his Honour found that the nexus alleged depended upon Antelope or Mr Dammers having made the representations alleged on behalf of the respondent. Giles J did not consider that any of the causes of action came within para(k) or para(n). So far as para(c) was concerned its application depended upon the contract alleged having been made 4 UNREPORTED JUDGMENTS in New South Wales by Antelope or Mr Dammers on behalf of the respondent. So far as para(d) was concen~ed his Honour said that if the cause of action arose in New South Wales on the facts before him then the tort was committed in New South Wales and the paragraph did not call for separate consideration. His Honour did not expressly deal with para(e). The respondent denied that either Antelope or Mr Dammers was its agent. The respondent led evidence that at no time prior to 15 November 1985 had it appointed either Antelope or Mr Dammers to be its agent for the sale of the generating plant to the appellants or generally for the sale of any other hydro electric generating plant designed and manufactured by the respondent. The respondent's evidence was that it received an order from Antelope for the generating plant, supplied the generating plant to Antelope and invoiced Antelope for the price. It submitted that the appellants had failed to establish to the degree necessary that they had a cause of action under either the Trade Practices Act 1974 or the Fair Trading Act 1987 because in the absence of agency the representations could not be attributed to the respondent. In 1989 the appellants had brought proceedings against Antelope claiming much the same damages as those claimed in these proceedings. Antelope alleged in those proceedings that it was no more than the agent of the respondent, whereupon the respondent was joined in the proceedings. Antelope then abandoned the allegation and the appellants discontinued as against the respondent on the ground that they had no basis to proceed against the respondent "except the initial allegation made by Antelope". The appellants relied upon a letter written by Antelope on 19 September 1984, to which I will return, to support the contention that Antelope was the respondent's agent. His Honour observed: "Tt seems to me that this provides but the flimsiest case that Antelope was the agent of the defendant." The respondent further submitted that any cause of action by way of recovery of loss or damage suffered by conduct in contravention of the Trade Practices Act or Fair Trading Act was no longer open to the appellants because more than three years had elapsed from the date on which the cause of action accrued; see s82 (2) of the Trade Practices Act and s68 (2) of the Fair Trading Act. In answer to this the appellants asserted that the defects in the water turbine came to light only progressively and that their cause of action did not accrue until at least the major deficiency became apparent in 1988. His Honour referred to a number of cases and said: "I do not decide whether the Trade Practices Act and Fair Trading Act claim is so unarguable that it should be struck out (a course from which the court has often held back, see Arcadi v Colonial Mutual Life Assurance Society Ltd (1984) ATPR 40-473; James v ANZ Banking Group Ltd (1986) 64 ALR 347; Nella v Kinga Pty Ltd (1986) 7 IPR 55; Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (1987) 16 FCR 410; and Famel Pty Ltd v Burswood Management Ltd (1989) ATPR 40-962; but compare Jobbins v Capel Court Corporation Ltd (1989) 91 ALR 314, where it was held that where it was clear that the applicant could not succeed on the case pleaded because s82 (2) would be a complete answer to the claim, the court should not merely defer the inevitable, but should strike the claim out). But the claim faces great difficulties." His Honour said that the cause of action in negligence depended upon the agency of Antelope and Mr Dammers and whether a sufficient case had been made out remained to be considered. Of the cause of action in contract, the URJ WILLIAMS v LIPS-HEERLEN BV (Sheller JA) 5 collateral contract, his Honour said that if the respondent made promises to the effect of the matters the subject of the representations, it made them through the provision by Antelope of a brochure and through the oral representations said to have been made by Mr Dammers. If the contract was made the breach alleged was committed in New South Wales. Of the cause of action founded on unconscionable conduct or estoppel, his Honour said that if there was a cause of action it turned upon the making of the representations and the question whether the cause of action arose in New South Wales would depend, inter alia, upon the agency of Antelope and Mr Dammers. His Honour then said: "To sum up, establishing that each of the four causes of action as set out in the plaintiffs' summary of contentions falls within one of the cases set out in Ptl0 rl (1) depends upon the agency of Antelope or Mr Dammers, and on the evidence there is what I have called the flimsiest case of agency. There appear to be considerable additional difficulties in the plaintiffs' path in relation to the causes of action under the Trade Practices Act and the Fair Trading Act, in contract and founded on estoppel. To return to agency, the correspondence between the defendant and Antelope, either in its existence or its content, really goes nowhere in establishing agency as it is quite consistent with Antelope's position as middleman, and the direct response to which I have referred to also quite consistent with that position. Antelope's statement that it had represented the defendant in Australia is substantially destroyed as a foundation for agency by Antelope's abandonment of agency in the 1989 proceedings, something which one would not expect it to do lightly because it was then left fully exposed to the plaintiffs' claim." Pt10 R6A AND Pt11 R8 Giles J said that whether or not a plaintiff's cause or causes of action fell within Pt10 rl (1) did not arise in the abstract. It arose in a plaintiffs application to proceed pursuant to Ptl0 r2 or a defendant's application to set aside service or decline to exercise jurisdiction pursuant to Ptl0 r6A and Ptll r8. His Honour said: "The Rules no longer require that the court be satisf~ed that the proceedings fall within one or more of the cases set out in Pt10 rl (1), but the strength or weakness of the case on which the authority to serve out of Australia turns remains important. And, as the rules show, there is a discretion to decline to exercise jurisdiction for which the strength or weakness of the plaintiffs' case is important, a discretion to which is also relevant the restraint in subjecting a foreigner resident abroad to local jurisdiction: although on different rules, see Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1991] 1 AC 187." It is not necessary in this appeal to comment upon this dictum, based as it is upon the careful and comprehensive judgment of Rogers CJ Commercial Division in Pendal Nominees Pty Ltd v M & A Investments Pty Ltd (1989) 18 NSWLR 383 at 394. Clearly even if the appellants showed that the causes of action they pleaded fell within one or other of the nexus paragraphs in Pt10 rl (1), the Court still had a discretion to decline to exercise jurisdiction. Giles J said that "\... if it be assumed that the plaintiffs have the causes of action found in their summary of contentions it could not be said that New South Wales is a clearly inappropriate forum........ 6 UNREPORTED JUDGMENTS Notwithstanding this, the conclusion to which I have come is that even if the service of the summons stands the court should decline in its discretion to exercise its jurisdiction in the proceedings. In my view there is not sufficient evidence of an arguable case in relation to the agency of Antelope or Mr Dammers, and that evidence is fundamental to each of the four causes of action. It is not just absence of evidence which might be overcome if the plaintiffs have access to materials presently held by the defendant. So far as appears, the plaintiffs could have supported their case before me with evidence from Antelope's records - the proceedings against Antelope were concluded - but they did not do so, and Antelope itself had disavowed agency: if Antelope was not the defendant's agent, there is no reason to think that Mr Dammers was its agent in his personal capacity. In this respect there is a significant difference from the position in Pendal Nominees Pty Ltd v M & A Investments Pty Ltd.. In relation to the causes of action under the Trade Practices Act and the Fair Trading Act, in contract and founded on estoppel there are the additional difficulties I have mentioned, and I consider they are significant. On taking all those matters into account I have come to the view that the defendant should not be subjected to the jurisdiction of this court (in passing, a second time) in relation to a far-reaching claim of the apparent weakness of the plaintiffs' claim. In my view, the court should decline in its discretion to exercise its jurisdiction in the proceedings." AGENCY It is apparent that the argument before Giles J proceeded on the basis that if the appellants were successfully to resist the respondent's application and demonstrate that the causes of action fell within the nexus provisions in Pt10 rl (1), in its then form, they must satisfy the Court that Antelope or Mr Dammers made the representations alleged as the respondent's agent, agency being used to connote an authority or capacity in one person to create legal relations between a person occupying the position of principal and third parties and not in the broader sense commonly used in the business world; see International Harvester Company of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Company (1958) 100 CLR 644. When the appellants applied for leave to appeal they indicated that they wished to put their case on a different basis. They now allege that the representations relied upon were made by the respondent not by Antelope or Mr Dammers as its agent but through them or one of them as an intermediary or conduit pipe between the respondent and the appellants; compare Barton v Croner Trading Pty Ltd (1984) 3 FCR 95 at 106. In addition to the material referred to by Giles J, the appellants relied upon the evidence of the first appellant that some time in 1984 a Rotary friend attended an engineering exhibition in Sydney at which the managing director of the respondent, Mr Fransen, was present. The Rotary friend returned from the exhibition bringing with him a copy of the brochure which contains the representations upon which the appellants rely. I agree with Giles J that on the evidence there was "but the flimsiest case that Antelope was the agent of' the respondent. However, in the letter of 19 September 1984 Antelope wrote: "Our firm has represented Lips in Australia for almost fifteen years and we have delivered a large number of controllable pitch propellers to a number of Australian yards and shipowners" and on the same day in a letter to the respondent "Attention Mr LE Fransen" and commencing "Dear URJ WILLIAMS v LIPS-HEERLEN BV (Sheller JA) 7 Lo": "It was a pleasure to work with you at the engineering exhibition and let us hope that this will be the first positive result." On their face both letters appear to have been written by Mr Darnmers. On this application one can safely accept that the appellants would be able to establish that the respondent used Antelope as an intermediary to disseminate promotional material in New South Wales including the brochures said to contain the representations about which the appellants complain. In so far as the "Plaintiffs' Contentions" can be regarded as a pleading, the making by the respondent of the representations alleged could be proved by showing that brochures and other material were disseminated by the respondent through an intermediary in the manner I have outlined. Thus can the basis, at least for the cause of action under the Trade Practices Act and Fair Trading Act, be laid. The appellants' evidentiary case is, of course, limited by the particulars they have given which assert that the brochures were provided "by Lip's agent Antelope". The appellants were unable to satisfy his Honour that they could establish the cause of action so particularised. If the appellants still relied upon agency as the basis for their claims no ground would have been shown for disturbing his Honour's order. However the order did not finally dispose of the proceedings. Accordingly it was open to the appellants to apply to the Common Law Division to have the stay lifted. This, it seems to me, they could have done on the basis of amended particulars in which agency was not alleged. Instead they sought and obtained leave to appeal. When the Court expressed a preliminary view that the appeal should be allowed the respondent argued that there were other matters which would support Giles J's orders. In particular the respondent argued that the claim under the Trade Practices Act and the Fair Trading Act must inevitably fail by reason of the limitation provisions in those Acts. His Honour did not so decide. In effect this Court was asked by the respondent to re-exercise the discretion and to affirm the stay on a different ground which had not been fully considered by the judge, and in the process to consider further evidence relied upon by the appellants and to deal with an application by them to amend the summons. I do not think that the Court should do this. There is no doubt that his Honour's conclusion about whether the proceedings fell within one or more of the nexus provisions in Ptl10 r1(1) depended in large measure, if not wholly, upon the appellants' allegations of agency. His Honour said that in relation to the causes of action under the Trade Practices Act and the Fair Trading Act, in contract and founded on estoppel there were additional difficulties which he mentioned and which he considered to be significant. His Honour took all those matters into account in holding that the respondent should not be subjected to the jurisdiction of the Court. However, central to his Honour's exercise of discretion was the appellants' inability to demonstrate to the necessary degree that the representations were made by Antelope as the respondent's agent. In my opinion the appeal should be allowed, his Honour's order permanently staying the proceedings set aside and the respondent's application remitted to the Common Law Division (Construction List) for determination. COSTS This leaves the question of costs. As the point upon which the appellants succeed on the appeal was not taken before Giles J I would not disturb the order for costs that he made. As to the costs of the appeal, the appellants made plain 8 UNREPORTED JUDGMENTS their position on the application for leave. On the other hand it seems to me that the matter was one suitable for an application by the appellants to the Common Law Division to have the stay lifted. Had this been done and had they been successful there would have been no need for the appeal. In my opinion even though successful the appellants should not have an order for their costs of the appeal. 1. Appeal allowed; 2. Order staying the proceedings set aside; 3. The respondent's application by notice of motion of 4 October 1991 remitted to the Common Law Division (Construction List) for determination; 4. Each party to pay their or its costs of the appeal. Counsel for the Appellants: P M Biscoe QC/JP Durack Solicitors for the Appellants: Corrs Chambers Westgarth Counsel for the Respondent: AW Street/GJ Nell Solicitors for the Respondent: Norton Smith & Co