Granite Springs Pty Ltd v Intercooler Water Dispensers Pty Ltd [2000] VSC 224

5. The plaintiff is a supplier of water coolers that contain spring water. In about May 1997 the first defendant ("Intercooler") and the second defendant ("Thermo") agreed to supply the plaintiff with an exclusive licence to distribute water coolers in the State of Victoria ("the agreement"). The Thermo water coolers were manufactured by Thermo in Canada and imported into Australia by Intercooler. The source of spring water for the coolers was derived from spring water at a bottling plant operated by the plaintiff at Leigh Creek, Victoria.

8. The plaintiff alleges that the water coolers supplied by Intercooler and/or Thermo were not fit for purpose or were not of merchantable quality in breach of implied terms of the Thermo agreement and s.19(a) and (b) of the Goods Act 1958. The breach alleged by the plaintiff relates to the supply of inlet nuts said to have secreted a chemical known as caprolactum which tainted the taste of the spring water in the water coolers. The plaintiff alleges that as a result of the breaches it has suffered loss and damage in the sum of $387,720. The plaintiff claims, also, misleading and deceptive conduct by Intercooler and Thermo in breach of s.52 of the Trade Practices Act 1974 in that they represented to the plaintiff that the taste of the water supplied in the coolers would not be altered. The plaintiff alleges, also, that in a letter dated 7 November 1997 both Intercooler and Thermo agreed to indemnify it against loss suffered as a result of the replacement of the inlet nuts and the use of affected water coolers but later refused to do so.

11. Both Intercooler and Thermo in separate defences deny the allegations made against them by the plaintiff. By notice dated 3 November 1999 Intercooler served a notice of contribution on Thermo. Thermo filed and served a third party notice on Lefko by a notice dated 6 November 1999. In the statement of claim endorsed on the third party notice Thermo alleges that in the event of it being held liable to the plaintiff it claims an indemnity from Lefko. Thermo alleges that Lefko was the supplier of the inlet nuts for the relevant coolers and that there was an agreement between it and Lefko made partly in writing, partly oral and partly to be implied ("the Lefko agreement"). The written component of the Lefko agreement was alleged to be orders placed by it, the oral component was said to be constituted by conversations between representatives of Thermo and Lefko and so far as the agreement was implied it was implied by the fact of the order, supply, charging and payment for goods and the circumstances surrounding the arrangement between Thermo and Lefko. Further, and a matter of some significance, it is alleged by Thermo that the agreement between it and Lefko was "a contract of enterprise or for services as defined in Art. 2098 of CVIII of the Civil Code of Quebec." Article 2098 of the Code provides:

"A contract of enterprise or for services is a contract by which a person, the contractor or the provider of services, as the case may be, undertakes to carry out physical or intellectual work for another person, the client or to provide a service, for a price which the client binds himself to pay."

15. Thermo alleges that there were terms of the agreement between it and Lefko including a term that the inlet nuts were to be of merchantable quality and fit for purpose. In relation to that allegation Thermo relies upon Art. 2100 of the Code that provides, among other matters, that a "contractor" and a "provider of services" are bound to act in the best interest of the client. Thermo asserts, also, an express or implied term of the agreement between it and Lefko said to be constituted by Arts. 2103 and 1726 of the Code that provide, among other matters, that the work performed or service provided is of good quality and free of latent defects. Thermo alleges against Lefko that in breach of the terms of the agreement between those parties Lefko did not act in the best interests of Thermo and failed to produce inlet nuts of merchantable quality or fit for the purpose required and that the nuts were not free of latent defects. In the alternative, Thermo alleges that Lefko was negligent in its production of the inlet nuts. The particulars of negligence are:

"(a) allowing the inlet nuts to be `over cooked' in the moulding process; (b) producing inlet nuts that were of a yellowish tinge, instead of being white in colour with consequent damage to their constituent plastic material, nylon 6; (c) producing inlet nuts which allowed caprolactum to leach into water being stored ... ; (d) failing to manufacture inlet nuts which would not taint water stored ... ; (e) failing to supervise or properly supervise the moulding process which produce the inlet nuts; (f) producing inlet nuts that secreted or were likely to secret caprolactum."

In the particulars of negligence Thermo alleges that it also relies on the doctrine of res ipsa loquitur. As a consequence of the allegations Thermo seeks a declaration that it is entitled to be indemnified by Lefko to the full extent of the plaintiff's claim and judgment for any amount that may be found due from Thermo to the plaintiff.

20. In the third party notice Thermo alleges that the loss claimed by the plaintiff against Thermo was suffered in Victoria and that arising from the matters alleged in the statement of claim delivered with the third party notice that Lefko is a proper party to the proceeding. As a consequence, Thermo relies upon r.7.01(1)(i), (j) and (l).

23. Rule 7.01(1) provides that originating process may be served out of Australia without order of the Court where, among other matters:

"(i) the proceeding is founded on a tort committed within Victoria; (j) the proceeding is brought in respect of damage suffered wholly or partly in Victoria and caused by a tortious act or omission wherever occurring; ... (l) the proceeding is properly brought against a person duly served within or out of Victoria and another person out of Australia is a necessary or proper party to the proceeding;"

27. Rule 1.13 defines "originating process" as including a third party notice. Hence, the second defendant's notice falls within the ambit of r.7.01(1).

30. It is well established that a defendant seeking to rely upon r.7.01(1) must show a good or strongly arguable case that the claims that are the subject of the originating process fall within the rule: Melban Pty. Ltd. v. Eu Chin Nominees Pty. Ltd. [1992] VSC 3241; Enzacor Technology Pty. v. Thomas Ko Sai Ying [1992] VSC 6929; Williams v. The Society of Lloyds & Ors [1994] VicRp 19; [1994] 1 V.R. 274; Shantou Hensheng Commercial Development Co. v. P. & P. Swire Containers Ltd. [1999] VSC 347. It follows, therefore, that Thermo must show a good or strongly arguable case that its claim against Lefko:

(a) is founded on a tort committed within Victoria (r.7.01(1)(i); or

(b) is brought in respect of damage suffered wholly or partly in Victoria and caused by a tortious act or omission wherever occurring (r.7.01(1)(j)); or

(c) is properly brought against a person duly served within or out of Victoria and that person is a necessary or proper party to the proceeding (r.7.01(1)(l)).

36. Notwithstanding that the claim of Thermo against Lefko was based in part upon contract it did not seek to rely upon r.7.01(1)(g). The rule permits service outside Victoria where "... the proceeding is brought in respect of a breach committed within Victoria of a contract wherever made".

39. Alternatively, if Thermo fails under any of the heads of r.7.01(1) it sought leave to apply nunc pro tunc under r.7.07(3) for an order that service be allowed upon Lefko outside Australia of the third party notice. Rule 7.07 provides:

"7.07 Service of counterclaim or third party notice (1) This Rule applies to - (a) a counterclaim against the plaintiff and another person joined as defendant under Rule 10.03 where the person joined is not already a party to the proceeding; and (b) a third party notice filed in accordance with Order 11. (2) A counterclaim or third party notice may be served out of Australia without leave where the claim made by the defendant in the counterclaim or third party notice is of such a kind that if the claim were made by writ or other originating process, the originating process could be served out of Australia without order of the Court under Rule 7.01. (3) Where paragraph (2) does not apply, the Court may by order allow service out of Australia of a counterclaim or third party notice."

43. I consider now each of the grounds relied upon by Thermo under r.7.01(1).

Rule 7.01(1)(i) - "a tort committed within Victoria_"_

There seems on the affidavits filed on both sides to be no dispute that the acts relating to the manufacture and supply of the inlet nuts occurred in Canada, that is, outside Victoria. Lefko sought to rely on this fact to support the submission that if a tort was committed by it, the tort was not committed within Victoria as required under r.7.01(1)(i).

48. The place where a cause of action arises is the place where the act that gives rise to the cause of action occurs: Jackson v. Spittall [1870] L.R. 5 CP 542; Distillers Co. (Biochemicals) Ltd. v. Thompson [1971] A.C. 450; Sydbank Soenderjyllad A/S v. Banneron Holdings Pty. Ltd. (1996) 68 F.C.R 539. It has also been held that the tort occurs in the place where the alleged perpetrator (usually the defendant but in this case the third party) did the act that ultimately caused the harm complained of: George Monro Ltd. v. American Cynamid & Chemicals Corp. [1944] 1 K.B. 432; Lewis Construction Co. Pty. Ltd. v. Tischauer [1966] VicRp 45; [1966] V.R. 341, 346. It has also been held that the tort occurs in the place where the last ingredient necessary to complete the tort occurs: Barta v. Barta [1948] W.N. 366. It has been held, further, that a court must look at where in substance the cause of action arose as it is the act that gives a plaintiff (in this case the second defendant) its cause of complaint that must be examined not the consequences: Voth v. Manildra Flour Mills Pty. Ltd. [1990] HCA 55; (1990) 171 C.L.R. 538, 567; Enzacor Technology, supra, 26.

51. With these principles in mind the question must be asked in the present matter: was the tort alleged by Thermo against Lefko committed in Victoria? The essential criticism against Lefko is that the inlet nuts were faulty in manufacture and design. The fact remains that the manufacture and design of the product occurred in Canada. In this respect the case is very similar to that considered in Buttigieg v. Universal Terminal & Stevedoring Corporation [1972] VicRp 72; [1972] V.R. 626, 628-629. In that case the plaintiff was injured as a result of a fall through flooring in the hold of a ship located in Melbourne. However, the ship had been constructed in New York. In considering an application under formal O.11, r.1(eb), a provision virtually identical to kind O.7.01(1)(i), Crockett, J. held that on the basis of the evidence before him he could not reach a finding that any act on the part of the "fine party" gave the plaintiff a cause of complaint that occurred in Victoria. As a consequence, the learned judge held that the action against the fine party was not founded on a tort committed within the jurisdiction.

54. I have considered a number of affidavits filed on both sides including affidavits by deponents who purport to be experts in Canadian law, in particular the law of the province of Quebec. I cannot find any evidence to support the fundamental assertion that a tort was committed by Lefko against Thermo in Victoria. Ms E. Strong who appeared for Thermo submitted that whilst the manufacture of the product occurred in Canada the damage suffered by her client occurred in Victoria. Ms Strong conceded that whilst the manufacture of the inlet nuts occurred in Quebec the alleged tainting of water as a result of the use of the nuts occurred in Victoria. I cannot accept the submission for the purposes of r.7.01(1)(i). Clearly, in my view the act of negligence occurred in Canada, the location of manufacture of the product.

Rule 7.01(1)(j): "damage suffered wholly or partly in Victoria and caused by a tortious act or omission wherever occurring_"_

58. It was submitted by Mr P. Cawthorn who appeared for Lefko that there was no evidence before me to support the claim in negligence on which the court could conclude that it was strongly arguable that the jurisdictional fact namely that the tort was committed out of the jurisdiction causing damage in the jurisdiction, was made out.

61. In Moran v Pyle National (Canada) Limited (1975) 1 SCR 393 the Supreme Court of Canada found support in the Privy Council opinion in Distillers Co (Biochemicals) Limited v Thompson, supra for the conclusion that the appropriate test to apply was whether there was a real and substantial connection between the conduct of the defendant which had occurred outside the jurisdiction and the harm sustained by the plaintiff within the jurisdiction. In the case of careless manufacture the Canadian court formulated the rule that "Where a foreign defendant carelessly manufactures a product in a foreign jurisdiction which enters into the normal channels of trade and he knows or ought to know both that as a result of his carelessness a consumer may well be injured and it is reasonably foreseeable that the product would be used or consumed where the plaintiff used or consumed it, then the forum which the plaintiff suffered damage is entitled to exercise judicial jurisdiction over that foreign defendant"; see also, Jacobs v Australian Abrasives Pty Ltd (1971) Tas. SR 92.

64. Plainly Thermo suffered damage at least partly in Victoria upon the water being tainted. However, that is not sufficient of itself for the purposes of satisfying the requirements of Rule 7.01(1)(j). There is a second component to the rule that requires Thermo to satisfy this court that it has a good or strongly arguable case that a tortious act or omission occurred elsewhere, whether it was in Victoria or Canada. For the reasons already stated I cannot be satisfied that a tortious act was committed in Victoria. The question to be asked, therefore, is whether Thermo has shown a good or strongly arguable case that a tortious act or omission occurred wherever it may have been. The principal affidavits relied upon by Thermo were those sworn by Msr P-Y Morin the Legal Representative for Thermo in Canada. He deposed to instructions provided to him by the corporate President of Thermo, Mr S. Poulin. In his affidavits Msr Morin essentially purports to respond to affidavits filed on behalf of Lefko in support of its application. The affidavits on behalf of Thermo do not set out the primary facts relied upon by it in support of its claim against Lefko. Significantly, no affidavit was filed by Mr Poulin the obvious person to place the evidence before this court such that Thermo could demonstrate a good or strongly arguable case of the commission of a tortious act or omission whether in Victoria or Canada. I do not consider that the affidavits filed on behalf of Thermo satisfy the obligation upon it to show a good or strongly arguable case for the purposes of Rule 7.01(1)(j) that it suffered damage wholly or partly in Victoria caused by a tortious act or omission wherever occurring.

67. In any event, there is an unusual aspect of the arrangements between Thermo and Lefko that give rise to factors that affect the cause of action, if any, between those parties. There was no dispute between the parties that the arrangements between Thermo and Lefko were contractual. Affidavits were filed on both sides by purported experts as to the law of Quebec. Lefko filed an affidavit by Msr E. Ouimet, a Canadian attorney of some 13 years experience and who acts for Lefko in Canada. He deposed that in the Province of Quebec the civil law is governed by the Civil Code of Quebec that finds its foundations in the Code Napoleon of France as distinct from the common law foundations of Victorian law. He deposed that under the Quebec civil legal system the common law notions of tort, proximity and the like are not recognised. In essence, Msr Ouimet deposed that insofar as Thermo had rights against Lefko such rights lay in contract even if there was fault in the method of manufacture of the inlet nuts because the Lefko agreement was subject to the Civil Code of Canada that in turn had specific contractual provisions with respect to latent defects of products. Furthermore, Msr Ouimet in his affidavit described differences under the Civil Code of Canada between a contract of sale and a contract of enterprise. Essentially, a contract of sale is just that whereas a contract of enterprise is usually a construction contract. Significantly, Msr Ouimet deposed that if a contract exists between parties the litigation regime to be followed by those parties must be contractual.

70. Thermo filed an affidavit purporting to counter that of Msr Ouimet. The relevant affidavit was that of Professor N. Vezina, a Professor of Law of the University of Sherbrooke, Quebec, Canada of some eight years standing. She deposed that, as an expert in Quebec law, regardless of the nature of the contractual arrangements between Thermo and Lefko that the law of Quebec provides Thermo with recourse against Lefko equivalent to that of the law of torts in common law jurisdictions. Professor Vezina did not, on the face of the affidavit, purport to contradict the principles of law described by Msr Ouimet in the Province of Quebec. She deposed that Thermo has a right to seek damages under the Civil Code of Canada against Lefko. At least by implication it would appear that Professor Vezina conceded or acknowledged that Thermo is confined to pursuing its rights, if any, against Lefko under Canadian contract law.

73. These matters, in my view, further support the view that Thermo has failed to demonstrate that it has a good or strongly arguable case that it suffered damage wholly or partly in Victoria caused by a tortious act or omission perpetrated by Lefko whether in Canada or Victoria.

78. It follows from my findings with respect to Rule 7.01(1)(i) and (j) that there are not matters between Thermo and Lefko that fall within the jurisdiction of the State of Victoria. In my view, in order for this court to be satisfied that Lefko was a necessary or proper party to the proceeding for the purposes of Rule 7.01(1)(l) Thermo would need to demonstrate that it satisfied in some way the requirements of paragraphs (i) or (j). Arguably Thermo could have relied upon the contractual provisions of Rule 7.01(1) as contained in paragraph (g) of the Rules. However, no submissions were made in this regard. At the outset of consideration of the application of paragraph 7.01(1)(l), therefore, Thermo encounters difficulties.

81. Mr Cawthorn for Lefko relied upon dicta of the Full Court of this Court in Australian Mutual Providence Society and Ors v GEC Diesels Australia Limited and Ors [1989] VicRp 38; (1989) VR 407 at 409 where the court gave consideration as to whether or not Rule 7.01(1) applied to third party notices. The Full Court did not form a final view on the matter. In my view, in light of the definitions of "Originating process" and "Proceeding" in Rule 1.13(1) I lean towards the view that Rule 7.01(1) should not be read down so as to exclude third party notices. Rule 7.01(1) is a facilitative provision in my view intended to enable parties to overcome jurisdictional difficulties to ensure that a party that ought properly be before the court is present. It follows, in this respect, I do not accept the submission of Mr Cawthorn. However, as already indicated Thermo faces a more preliminary obstacle. An analysis of the affidavits relied upon by Thermo reveals that there is no or no sufficient evidence to demonstrate a good or strongly arguable case of any of the other limbs under Order 7.01(1). In this respect I consider that there needs to be a nexus established between the other provisions of Rule 7.01(1) before a party can turn to rely upon Rule 7.01(1)(l).

84. It follows, therefore, that Thermo has failed to satisfy the requirements of paragraph (l).

89. Essentially the argument on behalf of Thermo was that if the proceeding was to be determined between the plaintiff and the first and second defendants it was appropriate that Lefko participate in the proceeding before this court for reasons of convenience and cost savings. It was said that there were risk of inconsistent findings of fact if Lefko was not a party to the proceeding and, furthermore, that considerable expense and inconvenience would be borne by Thermo having to deal with the issues on two occasions including, in particular, the conveyance of Canadian witnesses and experts to Victoria and then repeating the process on a subsequent occasion in Quebec, Canada. In my view the convenience or inconvenience of the trial of the proceeding between Thermo and Lefko in Victoria or Quebec is finally balanced. In the modern age the difficulties historically encountered in bringing foreign witnesses to Victoria can be overcome by modern technology and the like. However, they are not the matters of significance with respect to Rules 7.07 and 7.08. The overwhelming factor is the difficulty of this court in applying Quebec law, in particular, the civil law of Canada. In my view a consideration of the respective affidavits of Msr Ouimet and Professor Vezina bear this matter out. Even if experts in Quebec and Canadian law gave evidence before this court I consider there would be considerable reluctance by a judge of this court in a trial purporting to apply the law of those jurisdictions. This is particularly so because of the major differences between Victorian law and Quebec law with respect to the law of contracts.

92. It follows, further, that even if Thermo satisfied any or all of the relevant paragraphs that it relies upon in Rules 7.01(1), 7.07 and 7.08 as a matter of discretion I do not consider that Victoria is the proper and convenient forum for the determination of any dispute between Thermo and Lefko. It follows, further, that the third party succeeds on its application and the third party notice will be set aside.