WHOLESOME BAKE P/L v SWEETOZ P/L [2001] NSWSC 248

New South Wales Supreme Court

CITATION : WHOLESOME BAKE P/L v SWEETOZ P/L [2001] NSWSC 248 CURRENT JURISDICTION: EQUITY FILE NUMBER(S) : SC 1885 of 2001 HEARING DATE(S) : 30/03/01 JUDGMENT DATE : 5 April 2001

PARTIES : Wholesome Bake Pty Limited - Plaintiff Sweetoz Pty Limited - Defendant JUDGMENT OF : Bryson J at 1

COUNSEL : G. Segal - Plaintiff J. Kewley - Defendant SOLICITORS : Terence Jessop Robert D. Taylor & Assoc. (Victoria) CATCHWORDS : COURTS and JUDGES - cross-vesting - exclusive jurisdiction clause - consideration of interests of justice in circumstances of this case - proceedings transferred to SCV. LEGISLATION CITED : Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW) Jurisdiction of Courts (Cross-vesting) Act 1987 (Vic) Evans Marshall & Co. Ltd v. Bertola S.A & Anor [1973] 1 WLR 349 The Eleftheria [1970] Probate 94 CASES CITED : Bankinvest AG v Seabrook & Ors [1988] 14 NSWLR 711 Huddart Parker Ltd v. The Ship 'Mill Hill' [1950] 81 CLR 502 West's Process Engineering Pty Ltd (Administrator Appointed) v. Westralian Sands Ltd & Anor (Rolfe J 6 August 1997 unreported) DECISION : Order that the proceedings be transferred to the Supreme Court of Victoria; See para.20

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

BRYSON J.

THURSDAY 5 APRIL 2001

1885/2001 - WHOLESOME BAKE PTY LTD v SWEETOZ PTY LTD

JUDGMENT 1 HIS HONOUR: This judgment deals with stay or transfer of the proceedings. By a Distribution Agreement in writing on 15 September 2000 the defendant Sweetoz appointed the plaintiff Wholesome Bake exclusive distributor for the Sydney Metropolitan and Newcastle areas of Sweetoz products, which are chocolates, confectionary and other related products. Wholesome Bake undertook duties specified in the contract, principally in cl.10 which opens with a requirement to carry out its obligations with diligence. The agreement was initially for 10 years, although there could be extensions, and Sweetoz had a right of rescission during the initial 12 months if Wholesome Bake failed to achieve acceptable targets of sales and customer satisfaction. Wholesome Bake was to pay a purchase price of $50,000, $5,000 on signing the contract, $5,000 at six months and then two further instalments. Sweetoz gave Notice of Termination on 14 March 2001, the day before the second payment would have been due, asserting (without particulars) a breach of the agreement which was incapable of rectification and purportedly terminating the agreement effective immediately. The Notice of Termination purportedly was given under cl.16.2.2 which enabled immediate termination for a breach which was not capable of rectification. Sweetoz did not exercise the right of rescission. Later communications and evidence in these proceedings show that the breach complained of is failure to maintain service to customers to a standard which Sweetoz regards as appropriate. 2 Wholesome Bake commenced proceedings by Summons on 21 March 2001 and by Amended Summons of 29 March 2001 claimed injunctions restraining the defendant from acting on the purported notice of termination and a later confirming notice, an injunction restraining the defendant from entering into any agreement with any other distributor and related relief. On 29 March I decided after a hearing that I would not make an interlocutory injunction. Counsel for Sweetoz then applied for an order that the proceedings be stayed, and I treated that as raising for consideration whether the proceedings should be transferred to the Supreme Court of Victoria under the Cross-vesting legislation. In my view there is now little prospect of the litigation leading to a decision to grant a permanent injunction; rightly or wrongly notice of termination has brought the distributorship to what must be taken to be a permanent end, it is not practically possible that any court would attempt to restore the distributorship, and the appropriate remedy if Wholesome Bake succeeds is an award of damages. It appears to me to be unlikely that an appropriate award of damages would be a large sum, and the litigation if it is to continue in New South Wales would be appropriate for remitter to the District Court. 3 The agreement contains cl.29 GOVERNING LAW in these terms: "This Agreement is governed by the laws of the State of Victoria, the Courts at which State shall have exclusive jurisdiction." 4 Wholesome Bake operates from premises at Caringbah, New South Wales and manufactures its own range of snack foods which are sold and distributed through various channels. One channel is called the route trade in which the customers are small retailers such as service stations, convenience stores, school canteens, coffee shops, industrial canteens and similar enterprises which buy small quantities of product for on-sale to their customers. Wholesome Bake was able to supply customers including the previously established customers of Sweetoz in the course of servicing the route trade, and to some extent the product lines complemented each other. 5 The business of Sweetoz is conducted at 2/51 Reserve Road, Melton, Victoria. Sweetoz is described by its General Manager Mr Madin as essentially a marketing company, which owns product names, product and packaging design, and subcontracts production to confectionary manufacturers. It has distributors all over Australia and New Zealand, and some distribution in Singapore. Before dealing with Wholesome Bake it had an earlier distributorship arrangement in New South Wales. Sweetoz' case as shown by evidence on the application for an interlocutory injunction is to the effect that a survey of customers who control about 45 retail outlets showed that there had been poor servicing and unacceptably long intervals between service calls by Wholesome Bake, and there were other sources of complaint including that some stock was heat-damaged when delivered. The complaint of poor servicing and long service intervals is vigorously disputed by Wholesome Bake, which produced the affidavits of a number of retailers in support of its case. At the final hearing it will be necessary for each party to call the evidence of many retailers in order to make out its position with respect to whether the distributorship was carried out with diligence. If the hearing is conducted to an appropriate standard of advocacy it will not be possible for either party to let the evidence of retailer customers pass without cross-examination; the matter cannot be satisfactorily disposed of on affidavit, and the attendance of many retailers will be required. As a very general impression, it could well be that 15 or 20 retailer witnesses might be called. Defendant's counsel spoke of 40 to 50 retailer witnesses, but that number is unlikely to be called. It will also be necessary for each party to call its leading personalities and executives as witnesses. 6 In saying these things I do not offer encouragement to the parties to fight out their litigation to the end. I have already pointed out to them the advantages which I see in an attempted mediation. It will be unfortunately easy for the proceedings to involve both parties in expenditure out of scale with the value of the subject matter in dispute. 7 Considerations of convenience of the persons who will be required to attend support a hearing in Sydney. It is likely that a number of customers who do not have a direct interest in the outcome will be called as witnesses and will have to attend from their businesses in the Sydney Metropolitan and Newcastle area. It would be inconvenient for those persons if they had to attend a hearing in Melbourne. The expense of obtaining their evidence, for the parties calling them in the first instance, and ultimately for whichever party will bear the burden of costs, will be greatly increased if these witnesses must travel to Melbourne for the hearing, incurring longer absences from their ordinary occupations than otherwise necessary, and expenses for airfares and accommodation. 8 One side or the other will incur the need for its executives to travel interstate and attend for the purpose of a hearing, and also to attend in a State in which they do not usually operate to instruct lawyers and make other preparations for the hearing. These inconveniences and the attendant expense must be incurred by one side or the other and of themselves do not appear to me to be of great significance. 9 There are some other ties between the litigation and New South Wales. The agreement was negotiated and formed at Caringbah, New South Wales. The distribution of goods under the agreement was carried out in the Sydney Metropolitan and Newcastle areas, involving attendances on customers throughout the area. On the other hand, Sweetoz' operations and the source of supply are located in Victoria, and performance of the agreement required continuing communications with Sweetoz' headquarters there. Performance of the agreement required action in both places. The supposed breach was committed in New South Wales in that the failure of diligence in carrying out the distributorship occurred here. Wholesome Bake as plaintiff is authorised by the rules of court here to serve the Summons in Victoria and service is effective having regard to Federal legislation. 10 Clause 29 provides that the proper law of contract is the law of Victoria. The contract law of both States is for most practical purposes the same; there are differences but counsel were not able to point out any significant and relevant differences. 11 A significant matter then is the weight which I should give, in deciding how to act under the cross-vesting legislation, to the exclusive jurisdiction provisions in cl.29. The exclusive jurisdiction provision does not operate in accordance with its literal terms. Agreement between the parties that the Courts of Victoria shall have exclusive jurisdiction can have no effect on the jurisdiction conferred by law upon the Courts of New South Wales. The exclusive jurisdiction clause should be understood as having the meaning and effect that the parties agreed that they will not invoke the jurisdiction of courts other than the Courts of Victoria, and if so understood there is in my opinion no ground upon which the agreement should not be regarded as binding on them; with the result that by bringing the proceedings in New South Wales Wholesome Bake is acting in breach of its contractual promise. 12 The Jurisdiction of Courts (Cross-vesting) Act 1987 (N.S.W.) in s.5 which relates to Transfer of proceedings provides to the effect that where it appears to this Court that it is in the interests of justice that these proceedings be determined by the Supreme Court of another State, this Court shall transfer the proceedings to that other Supreme Court: see subs.(2)(b)(iii). This application should be approached and decided in accordance with the Jurisdiction of Courts (Cross-vesting) Acts 1987 of New South Wales and Victoria, and not by reference to the principles established where the Court is asked to stay proceedings because the parties have entered into an exclusive jurisdiction clause favouring the courts of another country. The elaborate structures of consideration and forensic burden established in England by decisions including Evans Marshall & Co. Ltd v. Bertola S.A & Anor [1973] 1 WLR 349 and The Eleftheria [1970] Probate 94, and shown in many other decisions, do not apply and the approach I should take is far less structured. There are significant observations on the workings of the cross-vesting legislation in judgments in the Court of Appeal of New South Wales in Bankinvest AG v Seabrook & Ors [1988] 14 NSWLR 711 and particularly in the judgment of Rogers AJA at 723 and following. The test indicated by the Cross-vesting legislation requires an address to the interests of justice. 13 Considerations of convenience, and the incidence of expense on the parties have to be approached with due regard to the contractual relationship between the parties and their contractual choice of Victoria as the exclusive jurisdiction. The parties including Wholesome Bake agreed that this should be so; by commencing these proceedings in New South Wales Wholesome Bake has departed from its agreement, and is not in a position to claim attention for considerations of convenience or expense for itself because it has already disposed of those considerations for itself by agreeing in quite explicit terms that its litigation should be in Victoria. The contractual choice of Victoria as the place for litigation was not extreme or fanciful; the agreement and its performance have real and strong connections with Victoria. It was clearly foreseeable that, if there was a dispute about the distributorship, considerations of the convenience of witnesses and corresponding expense would arise. The convenience of persons other than Wholesome Bake remains however a matter for consideration. 14 The significance of exclusive jurisdiction clauses has had recurring attention of courts in contexts similar to the present over many years. It was expressed by Dixon J in Huddart Parker Ltd v. The Ship 'Mill Hill' [1950] 81 CLR 502 at 508-509 in these terms: But the Courts begin with the fact that there is a special contract between the parties to refer, and therefore in the language of Lord Moulton in Bristol Corporation v. John Aird & Co. [1913] AC 241 at 259, consider the circumstances of a case with a strong bias in favour of maintaining the special bargain or as Scoutton LJ said in Metropolitan Tunnel and Public Works Ltd v. London Electric Railway Co. [1926] Ch 371 at 389, 'A guiding principle on one side and a very natural and proper one, is that parties who have made a contract should keep it.'. 15 Dixon J went on to point out that the court's discretion remained. In West's Process Engineering Pty Ltd (Administrator Appointed) v. Westralian Sands Ltd & Anor (Rolfe J 6 August 1997 unreported) his Honour noted a number of unreported Australian decisions where there has been consideration of the effect of exclusive jurisdiction clauses. It was Rolfe J's view (at p.12) that: These cases establish that proper weight must be given to such a clause in determining an application such as this, on the basis that the parties should be held to their bargain. However, it is accepted that the clause does not compel the conclusion that there should be adherence to it and hence, as I have indicated, it has been held that the Court is not obliged to grant or refuse such an application because of such a clause. 16 At p14 Rolfe J said "In my opinion, it is appropriate to give substantial weight to the jurisdiction clause for it represents the bargain of the parties. The one with the advantage of it should not be subjected to the inconveniences, to which I have referred, unless the other relevant factors are powerfully in favour of another jurisdiction." In my respectful view Rolfe J stated correctly the effect of earlier decisions and the approach which ought to be followed. 17 The exclusive jurisdiction clause is the arrangement the parties made, it was not an unrealistic or fanciful provision for the parties to agree to, but related closely to their choice of law and to the place of Sweetoz' operations. In my view cl.29 has a strong claim to fulfilment when I am considering what is required in the interests of justice; the interests of justice require that if parties make an agreement, they should keep to it, in the absence of extreme considerations such as fraud or duress. 18 My conclusion is that I should make an order transferring the proceedings to the Supreme Court of Victoria. 19 I repeat my earlier recommendation to the parties that they should endeavour to resolve this dispute, as they may find some other commercial arrangement by mediation. 20 Orders: