H.A.G. Import Corpn (Australia) Pty Ltd v Krosnienskie Huty Szkla

H.A.G. Import Corpn (Australia) Pty Ltd v Krosnienskie Huty Szkla - [2005] FCAFC 97 - FCAFC 2005 case summary — Zoe

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introduction 1 These reasons for judgment relate to two proceedings that were listed for hearing at the same time before this Full Court in the exercise of the Court's appellate jurisdiction. Each proceeding arises from the judgment of a judge of the Court (Heerey J) published on 17 September 2004 (see H.A.G Import Corpn (Australia) Pty Ltd v Krosnienskie Huty Szkla "Krosno" S.A. and Housewares International Limited [2004] FCA 1223). The effect of the judgment of Heerey J was to bring to an end the proceeding instituted in the original jurisdiction of the Court by H.A.G. Import Corpn (Australia) Pty Ltd ('H.A.G.') against Krosnienskie Huty Szkla "Krosno" S.A. ('Krosno') and Housewares International Limited ('Housewares'). 2 The orders made by Heerey J on 17 September 2004 were: '1. The order made under O 8 r 2(2) on 21 October 2003 for leave to serve originating process in this proceeding on the first respondent out of the Commonwealth be discharged; 2. There be judgment for the second respondent; 3. The applicant pay the respondents' costs to be taxed, including reserved costs.' 3 Before this Court H.A.G. sought leave to appeal from order 1 and, insofar as it concerned the costs of Krosno, order 3 of the orders made by Heerey J on 17 September 2004. On 1 October 2004 H.A.G. had filed a notice of appeal from order 2 and, insofar as it concerned the costs of Housewares, order 3 of his Honour's orders. 4 It was not contended by Housewares that the orders made by Heerey J in its favour constituted an interlocutory judgment within the meaning of s 24(1A) of the Federal Court of Australia Act 1976 (Cth). Section 24(1A) provides that an appeal may not be brought from an interlocutory judgment without leave. Counsel for H.A.G. drew the Court's attention to the decision of the Full Federal Court, sitting on appeal from the Supreme Court of the Australian Capital Territory, in Paramasivam v Flynn (1998) 90 FCR 489 at 493 where the Court concluded that an order giving summary judgment was final in nature and leave to appeal was unnecessary. We considered it appropriate in the circumstances to assume the validity of the notice of appeal dated 1 October 2004 without considering ourselves whether the orders made by Heerey J in favour of Housewares were interlocutory orders within the meaning of s 24(1A). 5 For the reasons set out below, we have concluded that H.A.G. should be granted leave to appeal from order 1 and, insofar as it concerned the costs of Krosno, order 3 of the orders made by Heerey J on 17 September 2004. However, in our view, the resultant appeal should be dismissed. Also for the reasons set out below, we have concluded that H.A.G.'s appeal from order 2 and, insofar as it concerned the costs of Housewares, order 3 of his Honour's orders should be allowed. 6 We draw attention to our decision to reproduce quoted material in these reasons for judgment exactly and without drawing attention to errors by the insertion of the word 'sic' in brackets. Unsurprisingly in a case concerning communications between Poland and Australia the number of errors is too great for the usual practice to be attractive.

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background facts 7 There is only limited dispute between the parties as to the primary facts that provide the background to the litigation between them. What is principally in dispute is the inferences to be drawn from those facts. 8 On 5 September 1986 in Poland an agreement in writing was entered into between an entity, described in the written agreement as 'Export-Import Enterprise MINEX', but agreed to be Minex Centrala Eksportowo‑Importowa S.A. ('Minex'), and H.A.G. By that agreement Minex granted H.A.G. the exclusive right of purchase of household glassware with the 'Krosno' brandname for distribution within Australia. Minex agreed not to sell glassware with the Krosno label to any Australian importer but H.A.G. from 1 January 1987. The agreement was by its terms 'concluded for an indefinites period of time' with each party having 'the right to denounce it giving six months notice by registered letter'. 9 As at the date of the above agreement ('the 1986 Agreement') Krosno did not sell any of its products directly to customers but rather supplied its products to Minex, which acted as its distributor. 10 The evidence discloses a dispute between Krosno and H.A.G. as to whether Krosno was aware in December 2000 of the 1986 Agreement. A member of the firm of solicitors acting for Krosno in respect of this litigation swore an affidavit on 17 February 2004 in which he deposed to having been informed by Artur Janowski, Commercial Director, Krosno that Krosno had no knowledge of the 1986 Agreement prior to March 2003. No details of the basis of Mr Janowski's knowledge in this regard are given. Nor does the affidavit disclose whether Mr Janowski had any involvement with Krosno, and if so what involvement, in 1986. 11 Max Grundmann ('Mr Grundmann'), a director and it seems the guiding mind of H.A.G., by an affidavit dated 22 March 2004, gave evidence as follows: 'I deny that Krosno did not know of the Krosno Agreement [ie the 1986 Agreement] prior to March 2003. In 1984 HAG requested that Minex and Krosno grant it exclusivity to Krosno branded products in Australia. This request was refused. Minex and Krosno wanted to continue with two distributors in Australia being HAG and KWL. HAG ceased to sell Krosno products in Australia as a result. At this time HAG was largest distributor in Australia of the products. Some six months later Minex and Krosno jointly approached HAG seeking to negotiate an exclusive distribution agreement for Australia with HAG. The negotiations lead to the signing of the Krosno Agreement. Both representatives from Minex and Krosno were involved in the negotiations of this agreement.' 12 By a memorandum dated 2 March 2000 Minex advised H.A.G. as follows: 'We are pleased to inform you that in order to increase the efficiency of the turnover, MINEX CEI S.A. and KHS Krosno S.A., our partner and shareholder, having made a joint decision to introduce some modifications to our cooperation. KHS KROSNO S.A. will become a direct exporter using the services of their respesentative MINEX CEI S.A. with its network of foreign companies in the same range as practised hitherto, i.e. canvassing, negotiations, conclusion of contracts, invoicing, settlements, correspondence etc. This means that all the correspondence will be carried on and commercial documents will be made out and handled by MINEX on behalf and for the account of KROSNO on the basis of powers of attorney granted by KROSNO. Becoming the subject of the foreign trade turnover, KROSNO will be the direct seller of its products, and thus a party to contracts and the beneficiary of the amounts received from abroad for the exported goods. The above alterations will not affect in any way the already established procedure and course of cooperation, but will help to simplify and shorten the circulation of money which will be received directly in the account of KROSNO. The name of the bank and the number of KROSNO's account will be given to you in due time. The new arrangement will become effective as from April 1, 2000 with regard to contracts concluded after that date. Contracts agreed upon and concluded till March 31, 2000 will be executed and accounts will be settled on the old terms, irrespective of the delivery dates.' 13 On 21 December 2000 a member of the Board of Krosno advised Mr Grundmann in writing that it was necessary for Krosno to terminate 'all finance regulations with Minex' by 31 December 2000. H.A.G. was requested to cancel certain contracts that related to the outstanding balance of an order that it had placed with Minex and to send the official cancellation both to Minex and to Krosno. H.A.G. cancelled the contracts as requested and entered into a new contract with Krosno for the supply of the glassware products involved. 14 Thereafter H.A.G. placed all orders for Krosno glassware products directly with Krosno. Minex did not at this time exercise its right to 'denounce' the 1986 Agreement (see [8] above) by giving six months' notice by registered letter, or at all. 15 Communications between H.A.G. and Krosno during 2001 and 2002 reveal some conflict between the two companies. H.A.G. asserted its exclusive right to distribute Krosno glassware in Australia and complained about the level of support that it received from Krosno. Krosno acknowledged H.A.G.'s exclusive rights but complained about the size of the orders being placed by H.A.G. and advised H.A.G. that other distributors had approached it in respect of the Australian market. 16 By an e-mail dated 6 January 2002 Mr Grundmann invited two representatives of Krosno, including Mr Sawicki, to visit H.A.G.'s offices in Australia and 'to attend appointments with our major customers Myer Grace Bros and David Jones.' 17 Mr Grundmann's invitation was accepted. It appears that during the visit a target level of turnover of Krosno glassware products by H.A.G. of USD2,000,000 was agreed. Additionally it was agreed that new packaging and a new range of glassware products would be designed. It seems that these agreements ultimately led to what H.A.G. regards as a 'relaunch' of the Krosno brand in Australia. 18 By an e‑mail dated 2 April 2002 Mr Grundmann advised Krosno as follows: 'We have once again considered whether or not to place additional orders for the clearance of KROSNO existing items and packaging. We have decided to use only our existing stock for this clearance as we do not want to saturate the market with discounted KROSNO which would make it difficult to relaunch the NEW KROSNO in July as planned. This means we will not require any stock at the specially discounted price you have offered, but I would like to thank you for the offer anyway. Our design department are now working on the new gift box designs for the launch of the new collection and I expect to email you our concept very soon. In the meantime I am working on the existing range of items which we will continue with in the new packaging and I am planning to email you the orders for May June and July shipment by the end of next week prior to my departure for Poland.' 19 It appears that Krosno was also working on new designs for Krosno packaging. By an e-mail dated 28 June 2002 Krosno advised Mr Grundmann, amongst other things: 'By the end of June we have shipped your oders scheduled in May and June. Now we have another order to be shipped in July and two order in August for VIVACE stemware. I would like to know your plans for the comming months. Both you and our people spent lots of time on developing new designes of Krosno new packaging labels, leaflets in order to refresh Krosno. We invested money for that and now we hope for long terms relations and new orders. We are prepared to support you more in promoting Krosno and following your idea. Keep me in touch, please. Max, it is also very interesting for me what should we do in order to maintain the sales on the level from at least 1999 year? Where the problem supposed to be?' 20 On 14 October 2002 Krosno sent Mr Grundmann an e‑mail on the subject of orders. This e‑mail included the following paragraph: 'Regarding the orders we are wondering what has happened on the Australian market. We have been requested by other big distributors how to start cooperation with us in relation to Krosno products. They notice huge expansion of different products from other manufacturers.' 21 Mr Grundmann, by an e‑mail dated 16 October 2002, responded in indignant terms. His e‑mail concluded: 'I am most disappointed in the approach of your email and would like to have your unequivocal confirmation that our massive investment in the KROSNO brand in Australia will be respected as per our long standing contracts. I can assure you we will protect our legal rights to the fullest.' 22 On 19 October 2002 Krosno responded stating, amongst other things: 'It's remarkable that year by year you are decreasing business with Krosno. Few years ago HAG was the biggest customer for Krosno and now the range of products manufactured for you is getting to be lower and lower. … We outlined it every time that you are doing excellent job in terms of promotion Krosno in Australia and we are not going to terminate our cooperation with you just because someone else is knocking to our doors. Our major goal is to develop our size of business. You promised during Mr Sawicki's visit to Australia that our total turnover in 2002 will approach to the level of 2mil USD. Until that time we are still very far away from these digits.' 23 On 12 February 2003 Krosno and Housewares signed a 'letter of intent' which outlined a proposal for Housewares to become a distributor of the Krosno brand in Australia. 24 It appears that Housewares commenced to meet with potential customers for Krosno glassware products in Australia, including David Jones, in early March 2003. 25 By an e‑mail dated 20 March 2003 Mr Grundmann advised Krosno that a rumour had come to his attention that Krosno had prepared a contract that purported to change the Australian distribution of Krosno branded glassware in Australia. The e‑mail includes the following paragraph: 'This suggestion concerns and alarms me greatly as we have had exclusivity for the distribution of KROSNO in Australia under written agreements between our two companies since 1986. This ongoing agreement has never been terminated or questioned by either party and is therefore an ongoing exclusivity.' 26 Krosno replied to the e‑mail dated 20 March 2003 on 27 March 2003 acknowledging that it had received offers 'from a few firms which has noticed the weakening position of Krosno in Australia' but denying that it had entered into a contract purporting to change the distribution of Krosno branded glassware in Australia. However, Krosno's reply stated that 'Krosno management is highly concerned about the weakening position of Krosno in Australia' and expressed the view that 'each company has the right to choose the best way for its business'. 27 On 29 March 2003 Krosno advised Housewares that it had been sure that there was a verbal agreement between Minex and H.A.G. concerning exclusivity in the Australian market but that it had learnt that the agreement was in writing. 28 By an e‑mail dated 7 April 2003, addressed to the President of Krosno, H.A.G. referred to 'the importance of reinstating Krosno as a brand leader in the Australian market' and said: 'To reinvigorate Krosno in the short term is going to take a considerable investment in both time and money and will tie up significant resources, however we are extremely confident that our goals will be achieved and the effort rewarded by returning the brand to its rightful position. However to enable this to occur we must be confident that our position is protected and that a fruitful partnership between Krosno and HAG … endures. To this end, firstly we require by return your immediate confirmation that HAG retains exclusive and sole distribution of Krosno products and secondly a written, formal agreement setting out all future terms and conditions of the partnership, is established. We believe this to be both commercially prudent and comforting for both parties and in the same vein as your current action of registering KROSNO as a Trade Mark in Australia. The agreement should cover distribution rights; define marketing and promotional responsibilities of the parties as well as detail procedures and recourse in case of a breach of the contract. We would be most happy to work with you in developing a suitable agreement.' 29 On 14 April 2003 Krosno advised Housewares that it had on that day sent certain product samples to Housewares. 30 By a letter dated 25 April 2003 Minex gave H.A.G. six months' notice of a decision to terminate the 1986 Agreement with effect from 31 October 2003. 31 On 9 May 2003 Krosno sent an e‑mail to Mr Grundmann in which it stated that it thought that the best solution to improve the position of Krosno in Australia was for Krosno, H.A.G. and Housewares to each distribute different Krosno products in Australia. Mr Grundmann sent a detailed response to this e‑mail on 12 May 2003 in which he argued that it would be dangerous for the Krosno brand to have competing distributors in Australia. He urged Krosno to 'revitalise' its loyalty to H.A.G. 32 On 12 May 2003 Housewares placed an order with Krosno for the supply of glassware products but that order was subsequently cancelled on 3 July 2003. 33 By an e‑mail dated 23 May 2003 to Krosno, Mr Grundmann noted that he was still waiting for a reply to his earlier e‑mail. Amongst other things he stated: 'We are not prepared to accept any variation of our existing contractual exclusivity and as I have already stated, we will take all necessary action including legal action to maintain and enforce our long existing rights. Your unnecessary tardiness is no longer reasonable nor acceptable. It seems you are determined to destroy the years of work and effort we have put in to building the KROSNO brand. We will not let this happen without seeking appropriate damages in the courts for breach of our contractual rights.' 34 On 30 May 2003 Mr Grundmann received advice from Krosno that: 'According to the recommendation of our Supervisory Board we have decided three players will be present in Australia: HAG, HWI [Housewares] and KROSNO.' 35 The present proceeding was initiated by H.A.G. on 25 September 2003. 36 The solicitors for Krosno served two notices of termination dated 17 December 2003 on H.A.G. Only one of the notices need be referred to. By that notice Krosno:

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the claims of h.a.g. 38 It is convenient to consider the claims made by H.A.G. against Krosno and Housewares respectively by reference principally to H.A.G.'s amended statement of claim dated December 2003 ('the Statement of Claim'). Although H.A.G. sought leave from Heerey J to further amend the statement of claim, on the approach adopted by his Honour it was unnecessary for him to rule on that application. 39 H.A.G. alleged that by the 1986 Agreement Minex had granted to H.A.G. an exclusive right to purchase and distribute Krosno household glassware products in Australia. H.A.G. further alleged that on or about 1 January 2001 the 1986 Agreement was novated and Krosno was substituted in place of Minex as the supplier of Krosno glassware products to H.A.G. The alleged novated agreement is hereafter referred to as 'the Krosno Agreement'. 40 H.A.G. further alleged that on or about 30 May 2003 Krosno repudiated the Krosno Agreement when it advised H.A.G. that it had appointed Housewares as a distributor of Krosno glassware products in Australia and that it would distribute or sell Krosno glassware products itself in Australia. 41 The Statement of Claim pleaded a cause of action, or possibly causes of action, under s 52 of the Trade Practices Act 1974 (Cth) ('the TPA') against Krosno in the alternative (ie presumably in the alternative to the allegation that Krosno was bound by and repudiated the Krosno Agreement). H.A.G. alleged that, in the event that Krosno was not bound by the terms of the Krosno Agreement, Krosno made representations that it would be bound by the terms of the Krosno Agreement and that H.A.G. would continue to be the exclusive distributor of Krosno glassware in Australia with the sole right to use the Krosno name in Australia. H.A.G. further alleged that, acting in reliance on those representations, H.A.G. agreed with Krosno to relaunch the Krosno brand in the Australian market by, among other things, redesigning the Krosno glassware products, packaging, labelling and the logo used to sell Krosno glassware in Australia and quitting its existing stock at a discounted price. Additionally, it alleged that thereafter Krosno represented that it did not intend to, and had not, appointed another distributor to sell Krosno glassware products in Australia and that, acting in reliance on those representations, H.A.G. purchased Krosno glassware products in the quantity, and at the price, appropriate for an exclusive distributorship. 42 Two causes of action were pleaded by the Statement of Claim against Housewares. The first cause of action was that Housewares intentionally persuaded, induced or procured Krosno to breach the Krosno Agreement. Further, or in the alternative, a cause of action pursuant to s 52 of the TPA was pleaded against Housewares. H.A.G. alleged that in or about March 2003 Housewares engaged in misleading or deceptive conduct by representing to customers or potential customers of Krosno glassware products that it was authorised to sell, and would commence to sell, such products from 1 November 2003. 43 In addition to claims for injunctive relief, H.A.G. claimed damages against Housewares and Krosno including damages pursuant to s 82 of the TPA.

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Krosno's Motion 47 Heerey J observed that on Krosno's motion to discharge the order granting leave to serve originating process outside the Commonwealth H.A.G. bore the onus of persuading the Court that it had a prima facie case for relief against Krosno. His Honour reminded himself that it was necessary to keep in mind that H.A.G. had not at that stage had the advantage of discovery, subpoena and other procedural aids to the making out of a prima facie case. 48 His Honour was not satisfied that H.A.G. had made out a prima facie case that the Krosno Agreement had come into existence by novation. His Honour concluded that: 'the uncontested evidence is that, so far from HAG and Minex agreeing to discharge the old contract in consideration of Krosno entering into a new one, Krosno was not aware of the 1986 Agreement. Moreover, well after the alleged novation, Minex treated the 1986 Agreement as still being on foot by giving notice of termination. The fact that for some time after March 2000 Krosno dealt directly with HAG and treated it as its exclusive Australian distributor, of itself does not establish a novation of the 1986 Agreement made between HAG and Minex some 14 years earlier. The 1986 Agreement is not mentioned in any of the documents relied on as evidence of the novation. True it is, novation may arise from the conduct of the parties: Harry v Fidelity Nominees Pty Ltd (1985) 41 SASR 458 at 461, although ordinarily novation is not to be inferred from conduct without some distinct request: Chitty on Contracts (29th edition) at 1201. But the fact remains that novation is the substitution of a new contract for an old by the agreement of all parties to the old and the new: Tito v Wadell (No 2) [1977] 1 Ch 106 at 287. An animus contrahendi is required: Tito, ibid. Supply of product direct from Krosno to HAG, and Krosno treating HAG as exclusive Australian distributor, without any further express definition of rights or obligations, and without any reference to the supposedly novated 1986 Agreement, are circumstances consistent merely with that being a course of dealing that would continue only as long as it proved mutually satisfactory. This lack of contractual obligation on either side cut both ways. HAG might not have had any right to continuing exclusivity, but equally it did not have any obligations such as minimum orders or stipulated expenditure on promotion.' 49 His Honour's finding that there was no prima facie case of novation led to a conclusion that, subject to the proposed further amendment of the Statement of Claim, H.A.G. had not established a prima facie case against Krosno based on the Krosno Agreement. Additional obstacles in the way of H.A.G. establishing a prima facie case against Krosno were also identified by his Honour. Those obstacles were that there is no right to damages in respect of an anticipatory breach of contract that is not accepted, that H.A.G. could not suffer loss or damage from the mere placing of orders with Krosno for the supply of Krosno glassware (as opposed to from the actual supply of the glassware) and that the case for H.A.G. overlooked the provision in the Krosno Agreement, which Krosno had invoked, allowing its termination on six months' notice. 50 By its proposed further amended statement of claim H.A.G. sought to allege that it was a term of the Krosno Agreement, implied by law, that it could only be terminated on reasonable notice and that the six months' notice of termination given by Krosno was not reasonable notice. Heerey J noted that this proposed pleading was inconsistent with the express provision in the 1986 Agreement for six months' notice of termination. His Honour further noted that an implied term must be clearly necessary for the contract to work as a matter of business efficacy, citing Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 ('Codelfa') at 346. By inference his Honour concluded that a term requiring reasonable notice of termination was not clearly necessary to make the Krosno Agreement work as a matter of business efficacy. Additionally, his Honour concluded that the proposed amendment to plead the implied term raised a 'new and distinct factual legal basis' which should not be allowed to cure the absence of a proper basis for jurisdiction at the time leave to serve out was given. In this regard his Honour placed reliance on Costa Vraca Pty Ltd v Bell Regal Pty Ltd [2003] FCAFC 305 at [10]. 51 In respect of H.A.G.'s alternative allegation against Krosno that, in the event that it was not bound by the Krosno Agreement, it had represented that it would be bound by the terms of the Krosno Agreement, Heerey J placed reliance on the provision in the agreement for six months' notice of termination. His Honour concluded that such notice had been given and had expired with the consequence that H.A.G. could not establish that it had suffered any damage consequent upon the alleged representation. 52 Heerey J found that the evidence did not support the alleged representation that H.A.G. was, and would continue to be, the exclusive distributor of Krosno glassware in Australia and would continue to have the sole right to use the Krosno name in Australia. His Honour took the view that correspondence received in evidence showed that H.A.G. had not believed that it had any such assurance. 53 The primary judge's conclusion on Krosno's motion is recorded at [51] of his Honour's reasons for judgment in the following terms: 'For the foregoing reasons I conclude that HAG has not established a prima facie case against Krosno and the latter is entitled to have the order against it for service outside the Commonwealth discharged under O 9 r 7(1)(d). This is not a case where discovery and other procedural steps might remedy the situation for HAG. The documents it relies on, and others which it has not put to the Court, are quite inconsistent with the case it seeks to raise. The alleged Krosno Agreement never came into existence. Even if it did, it has been terminated, as has the 1986 Agreement. While HAG is understandably upset at the end of a very long exclusive relationship, plainly it never relied on any representations by Krosno as to the future but has pinned its hopes on a combination of loyalty and whatever benefit it could get from the alleged Krosno Agreement.'

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novation 59 The nature of novation was considered recently by Finkelstein J in Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2005] FCA 288. At [20] his Honour said: 'Novation is a method employed to circumvent the non-assignability of choses in action at law yet achieve the same result: O Marshall, The Assignment of Choses in Action (1950) at 69. Novation involves making a new contract in place of the old. The consideration for the new contract (for consideration is required) is usually the discharge of the old contract: Scarf v Jardine (1882) 7 App Cas 345, 351. Thus, for there to be a novation it will be necessary to find the existence of an agreement between Underworks and Sara Lee to discharge the sub-licence and another agreement between Underworks and Pacific Brands to enter into a new licence substantially on the same terms as the sub-licence that has been discharged. Unless all three parties are involved in reaching the requisite agreements there can be no novation: Southway Group Ltd v Esther Wolf and Morris Wolff (1991) 57 BLR 33, 51.' 60 Neither H.A.G. nor Krosno challenged the admissibility on the motions before the primary judge of any of the evidence before his Honour. Much of that evidence was hearsay for the purposes of the hearsay rule contained in s 59 of the Evidence Act 1995 (Cth) ('the Evidence Act'). It would appear that the hearings before his Honour and this Court were conducted by the parties on the basis that the evidence before his Honour was received on all motions and that at least one of the exceptions to the hearsay rule had relevant application. In the circumstances we consider it appropriate to proceed on the same basis. 61 As already mentioned, there was evidence before the primary judge that the 1986 Agreement was concluded and executed in Warsaw, Poland between Minex and H.A.G. There was also evidence before the primary judge that: (a) Minex, a Polish company, had been established in 1949 as a state‑owned enterprise but was converted to a company in 1983; (b) as at 1986 Krosno did not sell any of its own products directly to customers but rather supplied its products to Minex, which acted as its distributor; and (c) in December 2000 Krosno commenced distributing and selling its glassware products directly to customers including H.A.G. 62 As mentioned in [10] above, a solicitor gave affidavit evidence on information and belief that Krosno had no knowledge of the 1986 Agreement before March 2003. H.A.G. relied on the following evidence as establishing a prima facie case of knowledge notwithstanding Krosno's denial:

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"Please be informed our Supervisory Board is going to take official decision concerning the exclusivity in general next week. The decision will be to cancel all exclusivity in written form all over the world. We will give notice to Max [of H.A.G.] next week. However we will probably maintain 6 months notice period. As the result you would be able to start the sales in 1st of November 2003. We MUST to apply 6 months notice period due to our partnership with Max we had so far." (emphasis added) 63 In considering whether the inference was open to be drawn from the above material that it is more likely than not that Krosno did have knowledge of the 1986 Agreement earlier than March 2003, the memorandum dated 2 March 2000 is, in our view, of considerable significance. The memorandum is on the letterhead of Minex. It describes Krosno as Minex's partner and shareholder and asserts that Minex and Krosno have made a joint decision to introduce some modifications to their co‑operation in respect of the export of Krosno glassware. This memorandum bears two signatures; one signature appears over the two titles Chairman of the Board and Director General and the other signature appears over the title Sales Director. 64 In our view, it is open to be inferred from the representations contained in the memorandum of 2 March 2000 that representatives of Minex and Krosno respectively had, in early 2000, given consideration to the commercial arrangements pursuant to which the two companies co‑operated with respect to the export of Krosno glassware and had decided to change those arrangements. An aspect of the commercial arrangements pursuant to which the two companies co‑operated at that time was the 1986 Agreement under which Minex arranged the export of Krosno glassware to Australia. It is open to be inferred that the relationship between Minex and H.A.G. would at that time have been of particular significance to Krosno. Krosno, in an e‑mail dated 19 October 2002, asserted that a '[f]ew years ago HAG was the biggest customer for Krosno'. 65 Additionally, the characterisation in the memorandum of 2 March 2000 of Krosno as a partner and shareholder of Minex that worked in co‑operation with Minex in respect of the export of Krosno glassware tends to lend support to the evidence of Mr Grundmann that representatives from both Minex and Krosno were involved in the negotiation of the 1986 Agreement. 66 It is also of significance, in our view, that no notice of termination was given by Minex under the 1986 Agreement ahead of the 'new arrangements' becoming effective from 1 April 2000. Rather, as mentioned in [13] above, by a memorandum dated 21 December 2000 a member of the Board of Krosno advised Mr Grundmann that Krosno needed to terminate all financial 'regulations' with Minex and requested H.A.G. to cancel the outstanding balance of an order that it had placed with Minex. 67 Further, by a memorandum dated 11 January 2001 the same member of the Krosno Board indicated to H.A.G. that Krosno would supply the products the subject of the cancelled contracts. The memorandum stated: 'Thank you very much for cancellation of MINEX contracts: 5711, 5712, 5713, 5714, 5715, 5715, 5718, ref. your purchase order 7450293‑0. We are on the termination of our co‑operation with MINEX and that is way we must clear up all common matters. Anyway, as you have been told by phone we have already manufactured plenty of commodities within these contracts for the total value USD 52806.54, volume 81.60 cbm.' 68 In our view, on the evidence referred to above, inferences are open which, if translated into findings of fact, would support the following conclusions:

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73 The Statement of Claim did not advance an express claim of damages for breach of contract. Under the heading 'Relief' the Statement of Claim pleaded that H.A.G. would suffer irreparable loss and damage in the event that Krosno was permitted to sell Krosno glassware in Australia, or alternatively sell Krosno glassware to Housewares for distribution in Australia. Claims were advanced for orders restraining Krosno from appointing Housewares as a distributor of Krosno glassware products, from providing Krosno glassware products to Housewares and from selling glassware products in Australia. It was also pleaded that, by reason of the conduct of Krosno pleaded in certain paragraphs of the Statement of Claim under the heading 'Misleading Conduct of Krosno', H.A.G. had suffered and would continue to suffer loss and damage. 74 The issue of whether Krosno breached the Krosno Agreement in the way alleged by H.A.G. is a question of law that depends on the proper interpretation of the 1986 Agreement. On H.A.G.'s case, the 1986 Agreement became by novation the Krosno Agreement. 75 Clause 2 of the 1986 Agreement is in the following terms: 'MINEX grants hereby to H.A.G. the exclusive right of purchase of household glassware market with "KROSNO" brand name for distribution in the territory of Australia, hereinafter called TERRITORY.' 76 Clause 5 of the 1986 Agreement is in the following terms: 'From the 1st of January 1987, MINEX is obliged to restrain from selling glassware with "KROSNO" label to any Australian importer but HAG.' 77 As mentioned above, H.A.G. did not challenge the correctness of the proposition that a repudiation or anticipatory breach of a contract entitles the other party to damages only if that party terminates the contract. The proposition is not entirely uncontroversial (see Seddon, N and Ellinghaus, M, Cheshire and Fifoot's Law of Contract 8th Australian Ed at 23.20). However, it reflects the present state of High Court authority (see, for example, Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444 per Barwick CJ at 450 and per Gibbs, Mason and Jacobs JJ at 459‑462). For that reason, in our view, the primary judge was right to conclude that H.A.G. had not demonstrated a prima facie case for damages for breach of contract by Krosno. 78 Had his Honour granted leave to H.A.G. to file and serve its proposed further amended statement of claim, H.A.G. would have alleged that Krosno had breached clauses 2 and 5 of the Krosno Agreement by agreeing to appoint or appointing Housewares as exclusive distributor of Krosno glassware products in Australia and by taking orders for the supply of Krosno glassware products to Housewares. We note, however, that by the proposed further amended statement of claim H.A.G. continued to plead that it had elected to affirm the Krosno Agreement. 79 Even if this aspect of the proposed further amended statement of claim is put to one side, the conduct pleaded by the proposed amended statement of claim is, in our view, incapable of constituting a breach or breaches of clauses 2 and 5 of the Krosno Agreement. The proposed further amended statement of claim does not plead that Krosno accorded to a party other than H.A.G. a right to purchase household glassware marked with the 'Krosno' brand name for distribution in Australia (see clause 2). Nor does it plead that Krosno had sold glassware marked with the Krosno label to any Australian importer other than H.A.G. (see clause 5). There is no plea that a term is to be implied into the Krosno Agreement that Krosno was not entitled during the life of the Krosno Agreement to agree to appoint or to appoint a party other than H.A.G. to distribute Krosno glassware products in Australia after the termination of the Krosno Agreement. Nor is there a plea of an implied term prohibiting Krosno from taking orders during the life of the Krosno Agreement for Krosno glassware products to be distributed in Australia after the termination of the Krosno Agreement. 80 Had his Honour granted leave to H.A.G. to file and serve the proposed further amended statement of claim, H.A.G. would have alleged that Krosno had purported to terminate the contract on six months' written notice when in the circumstances five years' notice, or alternatively two years' notice, was reasonable notice in the circumstances. 81 As the primary judge noted, this alleged implied term is directly inconsistent with an express provision contained in the 1986 Agreement allowing for termination on six months' notice (see Codelfa at 347). Moreover it is not clearly necessary to give the Krosno Agreement commercial efficacy (Codelfa at 346). 82 Before this Court H.A.G. foreshadowed that it might seek to plead that the express provision allowing for termination on six months' notice had been varied in late 2002 or early 2003 to provide for notice on five years', or alternatively two years', notice. H.A.G.'s case was not put to the primary judge on this basis. Moreover, the submission that the provision allowing for termination was varied in conjunction with the 'relaunch' of the Krosno brand in Australia (see [17]‑[18] above) finds no support in the evidence. 83 We conclude that no error has been demonstrated in the conclusion of the primary judge that H.A.G. had not demonstrated a prima facie case against Krosno for damages for breach of contract.

[27]

housewares appeal 93 For the reasons set out in [59]‑[68] above, we do not consider that his Honour was entitled, on the evidence before him, to be satisfied that H.A.G. could not possibly succeed in establishing that the Krosno Agreement came into existence as a result of novation of the 1986 Agreement. However, for the reasons set out in [71]‑[82], we consider that, even if his Honour had allowed H.A.G. to file and serve the proposed further amended statement of claim, H.A.G.'s case that Housewares had intentionally induced Krosno to breach the Krosno Agreement could not possibly succeed. No conduct capable of constituting a breach of the Krosno Agreement was pleaded by H.A.G. 94 As mentioned above, H.A.G.'s alternative claim against Housewares was a claim pursuant to s 52 of the TPA. H.A.G. alleged that in or about March 2003 Housewares engaged in misleading or deceptive conduct by representing to customers or potential customers of Krosno glassware that it was authorised to sell, and would commence to sell, such products from 1 November 2003. 95 The relevance of the date 1 November 2003 is that it is on that day that the six months' notice of termination of the 1986 Agreement given by Minex expired. Of course, if H.A.G. succeeds in establishing that the Krosno Agreement came into existence by novation of the 1986 Agreement, it is arguable that the critical notice of termination was that given by Krosno on 17 December 2003. That notice expired on 17 June 2004. 96 Were H.A.G. to establish the existence of the Krosno Agreement and that the Krosno Agreement was not effectively terminated until 17 July 2004, it seems that H.A.G. might well be able to establish that Housewares had represented to customers and potential customers of Krosno glassware products that it was authorised to sell, and would commence to sell, such products from 1 November 2003. Indeed, by its defence Housewares admits that in about March 2003 it informed David Jones that from late 2003 it would be selling Krosno glassware in Australia. On the assumptions identified above, Housewares was not authorised to sell Krosno glassware products in Australia from 1 November 2003; it did not have any authority to do so before 17 July 2004. 97 With respect to the contrary view taken by the primary judge, we are not satisfied that H.A.G. could not have suffered loss as a result of Housewares' representation of authority to sell Krosno glassware products in Australia unless Housewares in fact sold such products at a time when it was not authorised to do so. It is possible, in our view, that a representation of authority to sell from 1 November 2003 made by Housewares could have caused one or more retailers not to place orders with H.A.G. that would otherwise have been placed with H.A.G. 98 In our view, his Honour's order that there be judgment for the second respondent should be set aside together with so much of the orders as to costs made by his Honour as relates to the costs of Housewares.

[36]

Background 102 The applicant, H.A.G. Import Corpn (Australia) Pty Ltd ("HAG") has, for many years, imported into Australia, and distributed here, glassware made in Poland by the first respondent, Krosnienskie Huty Szkla "Krosno" S A ("Krosno"). 103 HAG considered that it had an exclusive right to import and distribute Krosno's glassware in Australia. In the alternative, it contended that Krosno had represented to HAG that it did not intend to appoint another distributor in Australia in lieu of, or additional to, HAG. HAG further contended that, in reliance on the representations of Krosno, it re-launched the Krosno brand in Australia and purchased a quantity of glassware at a price based on its asserted right to sole distributorship. 104 HAG also considered that Housewares International Limited ("HWI") had sought to induce Krosno to breach its agreement with HAG by having Krosno appoint it as a distributor of its products in Australia. 105 HAG commenced a proceeding in this Court in which it sought, amongst other orders, that Krosno be restrained from appointing HWI as an Australian distributor or from selling glassware to HWI. It also sought to restrain Krosno and HWI from selling Krosno glassware in Australia. 106 On 21 October 2003, the primary judge, gave HAG leave under O 8 r 2(2) of the Rules of Court for it to serve the originating process on Krosno outside of the Commonwealth of Australia. In response, Krosno sought, amongst other orders, that the service of the originating process be set aside and the originating process itself be set aside: see O 9 r 7(1)(a) and (b). 107 The primary judge ordered that the order of 21 October 2003 for leave to serve on Krosno be discharged. He considered that HAG had not persuaded him that it had a prima facie case for the relief sought in the proceeding. He formed that view after considering the submissions of Krosno as to why it considered that leave should not have been given to HAG under O 8 r 2. 108 At [12] of his judgment the learned primary judge said: "HAG bears the onus of "positively persuading" the Court that it has a prima facie case: Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538 at 564. A prima facie case is made out if, on the material before the Court, inferences are open which, if translated into findings of fact, would support the relief claimed: Western Australia v Vetter Triplet Pty Ltd (in Liq) (1991) 30 FCR 102 at 110. It needs to be kept in mind that at this stage an applicant will not have had the advantage of discovery, subpoena and other procedural aids to the making out of a prima facie case at trial: Merpro Montassa Limited v Conoco Speciality Products Inc (1991) 28 FCR 387 at 390, Sydbank Soenderjylland A-S v Bannerton Holdings Pty Ltd (1996) 68 FCR 539 at 549."

[39]

113 The primary judge next dealt with and dismissed HAG's submission that, despite the 1986 Agreement being expressly terminable on six months notice, it could only be terminated on reasonable notice which was somewhere between two and five years. 114 His Honour then considered an alternative submission of HAG that, in the event that the 1986 Agreement did not apply, Krosno represented to HAG in late December 2000/early January 2001 that it would supply HAG with any outstandingMinex orders and that it, Krosno, would be bound by the 1986 Agreement. The primary judge also rejected that submission. 115 The primary judge next dealt with a claim by HAG that between January 2002 and February 2003, Krosno represented to it that HAG was and would continue to be the exclusive distributor of Krosno glassware in Australia and would continue to have the sole right to use the Krosno name in Australia. His Honour found that those representations were true when made but were affected by the terminationof the 1986 Agreement on 17 June 2004. 116 At [39] of his judgment the primary judge referred to a further allegation of HAG that on or about 19 or 20 October 2002, Krosno made additional representations to it that Krosno did not intend to appoint another distributor to sell its glassware products in Australia and that there were no contracts in place with an alternative distributor. At [42] his Honour rejected the proposition that such representations had been made. 117 The primary judge then considered a submission by HAG, based on a proposed amendment to its statement of claim, that in October 2002 and March 2003 Krosno made certain representations to HAG. Those representations were that HAG would be its exclusive distributor in Australia, "on a long-term basis, being not for less than five years". His Honour also rejected that submission. 118 The primary judge concluded at [51] that: "… HAG has not established a prima facie case against Krosno and the latter is entitled to have the order against it for service outside the Commonwealth discharged under O 9 r 7(1)(d). This is not a case where discovery and other procedural steps might remedy the situation for HAG."

[40]

Novation 119 Counsel for HAG, Mr Bick QC, submitted that the primary judge should have found that the 1986 Agreement had been novated to Krosno. Mr Bick contended that his Honour erred in finding that there was uncontested evidence that Krosno was not aware of the 1986 Agreement between HAG and Minex when there was evidence to the contrary. Counsel referred to an email sent by a Krosno representative on 29 March 2003, which referred to a written agreement between MINEX, described as "our previous agent" and HAG. However, that email is consistent with the primary judge's observations at [16] that "Mr Artur Janowski, a Commercial Director of Krosno, has sworn that he did not know of the existence of the 1986 Agreement prior to March 2003 when HAG told Krosno that it had breached the agreement by engaging Housewares as a distributor in Australia." 120 One must search elsewhere for some evidence of Krosno consenting in December 2000/January 2001 to be substituted for Minex as a party to the 1986 Agreement. At [17] to [20] of his judgment, the primary judge referred to documents which were said by HAG to evidence the novation. None of those documents, in terms, stated that Krosno was to be substituted for Minex in the 1986 Agreement. Further, as the primary judge said at [22], "Minex treated the 1986 Agreement as still being on foot by giving notice of termination". As his Honour said at [16], that notice was sent on 25 April 2003. 121 Out of an abundance of caution, Krosno decided to give HAG six months notice of the termination of the 1986 Agreement. This notice was effective to terminate the Agreement, if the agreement applied to Krosno. It cannot, however, alter the fact that there was no evidence of novation at the time the agreement was said to be novated. 122 Contrary to the submissions of Mr Bick, I am not satisfied that the primary judge had sufficient evidence before him to support a prima facie case that the 1986 Agreement had been novated to Krosno. For the reasons set out by the primary judge at [17] to [20] of his judgment, the evidence before him did not support the case alleged by HAG. In considering whether there was a novation in December 2000/January 2001, it was not to the point that Krosno assisted Minex in negotiating the agreement or that in 2001 Minex and Krosno both sought that Krosno deal directly with HAG. There was no evidence that in late 2000/early 2001 Krosno had agreed that it be substituted for Minex for the purposes of the 1986 Agreement, in the sense that it chose to adopt it or recognise, at the relevant time, that liability in respect of it, was being transferred from Minex to Krosno.

[42]

The representations 124 It is necessary to deal with HAG's alternative submission that, if not bound by the 1986 Agreement, Krosno nonethelessrepresented in December 2000 and January 2001 that it would be bound by it. This submission is rejected on the basis that no such representation was made by Krosno, on the evidence before the primary judge; being the same evidence he considered in rejecting the submission that novation had occurred at late 2000/early 2001. 125 The next representations to consider are those related to the alleged circumstances of an exclusive distributorship for HAG. Mr Bick submitted that the primary judge, in substance, found that there was insufficient evidence to support such a representation. His Honour actually found that the documents relied on by HAG did no more than state that HAG was the exclusive distributor at the relevant time, that is, March, July and October 2002. His Honour correctly determined that there was no evidence before him that Krosno was binding itself to an exclusive distributorship indefinitely into the future. Mr Bick referred the Full Court to documents which, he contended, showed that his Honour was not correct in holding that view. Insofar as those documents emanated from Krosno, none of them supported the alleged representations about exclusive distributorship into the future. The closest any of the documents came to that description was an email from a Krosno representative to a HAG representative on 19 October 2002 which advised HAG that Krosno was "not going to terminate its cooperation" with HAG, "just because someone else is knocking on the door". 126 The allegation of HAG that Krosno represented in October 2002 that it did not intend to appoint an additional distributor and that there were no contracts in place with an additional distributor is also founded upon the 19 October 2002 email referred to in the preceding paragraph. However, as the primary judge said at [42] "[t]he communications contain no representation, let alone a contractual promise, that exclusivity would continue indefinitely."

At a glance

Court

Decision date

Before

Source

Judgment (57 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (13)

Cited By (1)