Kim Michael Productions Pty Ltd v Tropical Islands Management Ltd

Kim Michael Productions Pty Ltd v Tropical Islands Management Ltd - [2010] NSWSC 269 - NSWSC 2010 case summary — Zoe

[16]

Facts 2 The plaintiff ("KMP") is a company incorporated in Australia and carrying on business in the entertainment industry. Kim Douglas Michael is now the sole director and shareholder of the company and is a resident in this State. The company's place of business is also in New South Wales. 3 The defendants are all incorporated and conduct their businesses outside Australia. The first defendant ("TI Cayman") is incorporated in the Cayman Islands, the second defendant ("TI Germany") in Germany and the third defendant ("Tanjong UK") is incorporated in the United Kingdom and also registered in Malaysia. The third defendant is an investment holding company for the subsidiaries through which the group operates. Ultimately the plaintiff conceded that this company was not a proper defendant. 4 A significant part of the defendants' business is the operation of the Tropical Island Resort ("the resort") in Germany near Berlin. As part of the entertainment for persons visiting the resort, shows are performed with themes centred on specific nations. 5 In 2004 KMP and TI Germany entered into a written contract for the production of a show at the resort entitled "Viva Brazil". The contract was expressed to be governed by German law and the German Civil Code. Payments made under the contract were sent to KMP's account at a Westpac Bank in Sydney. No dispute arose under this contract. 6 In July 2005 discussions took place between KMP and Henry Fernando, an employee of a Malaysian subsidiary company of Tanjong ("TI Malaysia"). There had been some earlier interest shown in the plaintiff producing such a show and Mr Michael had travelled to Trinidad to determine the viability of the project. These discussions concerned a production for the resort called "Caribbean Carnivale". At one stage Mr Michael travelled to Germany to make a presentation to the management of the resort. This appeared to have been well received. Further discussions occurred between Mr Michael and Mr Fernando. These discussions occurred while Mr Michael was in Trinidad and Mr Fernando in Malaysia. KMP alleges that the agreement was that it would produce the show and it was to commence on 1 November 2005 and would run for 6 months. 7 As a result of these discussions and other events set out in the Statement of Claim, KMP alleges that an oral contract was formed on or about 30 July 2005 between KMP, on the one part, and each of the defendant companies, on the other. It is alleged that the agreement included a payment of US$500,000 as consideration for staging the show and that the defendants would pay interim invoices while the production was in progress. A term of the contract is alleged to be that funds would be paid into the plaintiff's account at a bank in Sydney. The initial contract was said to be subject to Mr Fernando obtaining budget approval from the defendants. However it is alleged that Mr Fernando informed Mr Michael on 30 July that budget had been approved and Mr Michael was to work towards a 1 November 2005 opening. 8 It is also alleged that the contract was varied on 15 August 2005 during further discussions between Mr Michael, who was in Trinidad, and Mr Fernando, who was in Malaysia, with the result that the show was to be made up of less performers and that KMP would be paid $420,000. In late August Mr Michael requested a written contract. Mr Fernando replied in the affirmative. There were discussions between Mr Fernando and Mr Michael about KPM's need for finances and the former agreed that US$30,000 would be sent as part payment for the production costs. 9 On 5 September 2005 KMP issued an invoice for the sum of US$65,000 for "Caribbean Carnivale Production Costs Payment". The invoice instructed that payment be by telegraphic transfer to KMP in a Westpac account in Sydney. On 14 September 2005 US$30,000 was transferred into that account. It appears that the payment of this sum was authorised by Mr Fernando. 10 On 22 September 2005 Mr Fernando travelled to Trinidad and gave Mr Michael a "Letter of Intent for the Production of the Caribbean Carnival". This stated that a fee of US$185,150 was to be paid to KMP "on a scheduled payment over a period of 6 months commencing September 2005". This document was signed by Mr Michael on behalf of KMP but was not signed by Mr Fernando. Mr Michael states that this was an oversight on his part. 11 Mr Michael states that on 15 October 2005 Mr Fernando informed him that the company's lawyers were still working on the written contract. On 17 October there was some suggestion by Mr Fernando that the production might be delayed until the following February. 12 KMP asserts that in late October and November 2005 the defendants repudiated the contract. This was the result of two telephone calls from an employee of TI Malaysia to Mr Michael denying that there was any contract on the grounds that Mr Fernando was not authorised to contract on behalf of the defendants. The first defendant wrote a letter from Malaysia to this effect to KMP on 10 November 2005. As a consequence of these repudiations, KMP terminated the contract. As a result KMP claims damages for production costs, lost profits and lost opportunity. 13 On 31 December 2008 KMP filed the Statement of Claim in this Court. It also commenced proceedings against each of the defendants in the District Court of Berlin ("the German proceedings"). These proceedings involve the same parties and the same subject matter. The defendants have taken steps to defend the German proceedings and are prepared to appear and actively defend them. There is a statement in the affidavit filed by Mr Michael that these proceedings were taken in order to comply with a time limit for the commencement of proceedings under German law. He says it was, in effect, a stopgap measure as he always intended to have the dispute resolved by proceedings in this Court. 14 On 10 March 2009 the Notice of Motion seeking to set aside the Statement of Claim was filed in this Court. Subsequently TI Germany and TI Cayman were served with the Statement of Claim. On 29 April 2009 an Amended Notice of Motion was filed which joined the first and second defendants to the third defendant's application. The defendants object to these proceedings on the grounds, first, that there was no jurisdiction to serve the proceedings outside Australia and, secondly, that this Court is an inappropriate forum.

[20]

(c) if the subject-matter of the proceedings is a contract and the contract: (i) is made in New South Wales, or (ii) is made on behalf of the person to be served by or through an agent carrying on business or residing in New South Wales, or (iii) is governed by the law of New South Wales, or (iv) is one a breach of which was committed in New South Wales, 18 It was not in issue that the contract was not made in NSW, nor on behalf of the person to be served by or through an agent carrying on business or residing in NSW, nor was governed by the law of NSW. The plaintiff suggested that the contract was probably made in Malaysia but ultimately conceded that an implied term of the contract was that the relevant law would be that of Germany. This is one of the planks upon which the defendants argue that this Court is not an appropriate forum. 19 There was some question raised as to whether there was any difference between (b) and (c)(iv) of Schedule 6 seeing that they both refer to a breach of a contract in New South Wales. The parties took the view that, if there were a breach in the State of any contract between the parties, it would fall within either of the two categories and it did not matter which. 20 The defendants argued that the only alleged breach of contract were three acts of repudiation by the defendants. It was submitted that the acts of repudiation occurred in Malaysia and not in NSW: see Stanley Kerr Holdings Pty Ltd v Gibor Textile Enterprises Ltd (1987) 2 NSWLR 373. These were two phone calls made by an employee of TI Malaysia who was in Malaysia when he made the calls and a letter written in Malaysia, therefore, it was in that country that the alleged acts of repudiation occurred and not in NSW: Safran v Chan (1970) 1 NSWR 70. 21 It was argued by the defendants that even if, as suggested in the affidavit of Mr Michael, that there was a breach in the non-payment of the contract price, there was no such allegation in the Statement of Claim and, in any event, no term could be inferred that the payment would be made in NSW.

[29]

Part payment in the sum of $30,000 was made by the defendants on or about 14 September 2005 to the plaintiff's Sydney Westpac account; and 6. The demand for payment was issued in NSW. 31 In addition to the abovementioned facts, KMP's sole director's principal place of residence was NSW, TI Germany had paid money into KMP's NSW bank account previously and there was no evidence that KMP had any bank accounts outside NSW. 32 Considering the circumstances of this case, it is clear to me that the parties intended that the contract price be paid into KMP's NSW bank account. It had no office or staff in any other jurisdiction, and there was no suggestion of any foreign bank accounts. It is difficult to imagine how KMP could be paid other than the way it was paid for the last show: that is into its NSW bank account. That is how the invoice was part paid in relation to the sum of US$30,000. 33 Furthermore, in my opinion, the circumstances of this case would also satisfy the general test for the incorporation of an implied term into an informal contract. The term will be implied if it is "necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case": see Hawkins v Clayton (1988) 164 CLR 539 at 573. 34 KMP submitted that the non-payment of money due under a contract is a breach of the contract in the place where the payment was to be made. Therefore, in this case, as the payment was to be made into a NSW bank account, then non-payment is a breach in NSW. 35 The defendants submitted that despite the amendment, the cause of action brought by KMP is for damages arising from the alleged repudiation by the defendants that was accepted by KMP when it terminated the contract. And furthermore, it was submitted that any claim for an alleged failure to pay part of the consideration was lost once the repudiation was accepted. It was submitted that in these circumstances the innocent party has a right to claim damages for the repudiation only. 36 The defendant relied upon the following passage from the judgment of Dixon J in McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 477:

[32]

[15] Accordingly, one fundamental issue is whether, in the present context, the right to trailer commission in respect of settled loans is, for relevant purposes, an "accrued right". Where a contract is discharged by termination, as distinct from rescinded ab initio, the parties are discharged from further performance of the contract, but the contract is determined so far as it is executory only: rights which have already been unconditionally acquired are not divested or discharged, and rights and obligations which arise from the partial execution of the contract, as well as causes of action which have accrued from its breach, continue unaffected following termination [ McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-7 (Dixon J; Rich and McTiernan JJ agreeing)]. Accrued rights to receive performance of a contractual obligation after termination endure for the benefit of, and may be enforced by, the party whose breach resulted in the termination, as well as the innocent party [ Ettridge v Vermin Board of the District of Murat Bay [1928] SASR 124 at 128 (SASC, FC); Hyundai Heavy Industries Co Ltd v Papadopoulos [1980] 2 All ER 29; 1 WLR 1129, 1136 (Viscount Dilhorne, HL); Berger & Co Inc v Gill & Duffus SA [1984] AC 382 at 390; Bank of Boston Connecticut v European Grain and Shipping Ltd [1989] AC 1056 at 1098-9; Elkhoury v Farrow Mortgage Services Pty Ltd (1993) 114 ALR 541]. 40 Of significance to the application of Schedule 6, I cannot see how, if the non payment of the $35,000 was a breach of the contract, the breach somehow disappears, is subsumed by a claim for expectation damages for repudiation, or in any other way cannot be relied upon by KMP once the contract has been terminated. 41 Thus the jurisdictional question turns upon whether the failure to pay the $35,000 was a breach of the alleged contract. 42 KMP submitted that the oral contract contained an implied term that KMP be paid upon invoice for incurred production costs. KMP submitted that the term was incorporated into the contract by the party's prior course of dealing. Reliance was placed on what Deane J said in Hawkins v Clayton (1988) 164 CLR 539 at 573:

[34]

A course of dealing occurs when the contract between the parties is preceded by a series of transactions over time… The course of dealing must be consistent and sufficiently long. For example, in J Spurling Ltd v Bradshaw [1956] 2 All ER 121 a course of dealing was established by reason of the fact that the parties had contracted on 'many' occasions prior to the contract which gave rise to the dispute… By way of contrast, no course of dealing was established in D J Hill & Co Pty Ltd v Walter H Wright Pty Ltd [1971] VR 749, even though the parties had contracted on a number of occasions. 46 However, the part payment of the invoice evidences the fact that there was an implied condition of any contract as that alleged by the plaintiff that payment would be made upon invoice. In my opinion such a condition would be reasonable as the subject matter of the alleged contract would require the payment of expenses by the plaintiff in putting the production together. The nature of the contract assumes that KMP would have to incur financial costs before the show commenced to run and seems reasonable that in those circumstances the contract would contain provision for the payment to KMP of money spent in performing the contract. At least the contract for the previous show evidences that such a condition would be a reasonable one. 47 I have more difficulty in implying a condition in the contract that the full sum of the invoice should without more be paid by the defendants. One of the curious features of the conduct of KMP is that it apparently never demanded the full payment of the invoice even though only $US30,000 was paid by the defendants. It was never asserted to be a breach of the contract by KMP until the hearing seeking leave to amend the Statement of Claim. Up until that time KMP was relying upon the repudiation of the contract as it's grounds for later terminating the contract. I will consider this situation later when dealing with the application for a stay on the ground of inappropriate forum. 48 However, I am of the opinion that it is arguable, although barely, that the failure to pay the $35,000, of the 5 September invoice, by 1 December 2005, constituted a breach of the contract due to the non payment of moneys within a reasonable time into KMP's bank account in NSW as a result of the issuing of the invoice. 49 The evidence of a letter of demand, dated 7 December, sent from KMP to the defendants, shows that the contract had not been terminated by 1 December 2005, thus any rights unconditionally acquired by KMP on or before 1 December would survive termination. 50 I should indicate that this basis for a breach of contract in the State is very tenuous indeed. But it is sufficient to sustain the jurisdiction of this Court to hear the Amended Statement of Claim. I am prepared to grant leave to the plaintiff to file the Amended Statement of Claim notwithstanding the tenuous nature of the jurisdiction of this Court to determine it. I only do so because I cannot see how the defendants are prejudiced by the amendment except that, without the amendment, they would in all likelihood have succeeded in satisfying me that this Court did not have jurisdiction to determine the original Statement of Claim. 51 The defendants submitted that, if KMP could show that the claim for the $35,000 was within jurisdiction, it cannot tack on the claim based upon repudiatory breach of contract for the reason that a party seeking to sue a foreign defendant in respect of a number of different claims must bring each of those claims within one of the respective heads of jurisdiction. The defendants relied on News Corporation v Lenfest Communications Inc (1996) 21 ACSR 553 at 557-558 where Giles J, as he then was, said:

[41]

The Plaintiff does not know and is uncertain which of the First and Second Defendants it had commercial dealings and contractual relationships with for the purpose of these proceedings and will not become aware until particulars are answered and evidence in the proceedings is heard. 59 Counsel for KMP submitted that Mr Michael knew he was dealing with Mr Fernando, but there was confusion as for whom Mr Fernando was acting at the relevant times. 60 A basis for the confusion can be seen from a comparison of Annexures 'D' and 'J' to the affidavit of Kim Douglas Michael dated 3 July 2009. Annexure 'D' is a letter, dated 13 May 2005, sent from TI Germany to KMP signed Henry Fernando, the "Entertainment and Merchandising Manager". 61 Annexure 'J' is a Letter of Intent, dated 13 September 2005, regarding the production of Caribbean Carnival written by Tan Kong Han (a director of TI Cayman) on behalf of T1 Cayman, sent to KMP. In the final paragraph Tan Kong Han said: "Should you require further information or clarification, kindly contact our Entertainment and Merchandising Manager, Mr Henry Fernando at email: henry.fernando@my-tropical-islands.com…" 62 Thus Mr Fernando was held out to Mr Michael as the "Entertainment & Merchandising Manager" of both TI Cayman and TI Germany. In which capacity Mr Fernando spoke to Mr Michael regarding Caribbean Carnival is unclear. 63 Also a potential cause of confusion is that the e-mail address given by Mr Tan for Mr Fernando in Annexure 'J', when he held Mr Fernando out as the "Entertainment and Merchandising Manager" of TI Cayman, is an e-mail address the domain of which is owned, or at least operated, by TI Germany. Annexure 'C' is a letter from TI Germany to KMP on its letterhead; TI Germany's website is advertised as www.my-tropical-islands.com; the e-mail of Mr Fernando given in Annexure 'J' is henry.Fernando@my-tropical-islands.com. 64 The above point was not raised directly by counsel for KMP, but was raised indirectly when counsel referred the Court to the letter of intent (Annexure 'J') in response to a question from me as to why TI Cayman appears in these proceedings. 65 Furthermore, in the letter of intent from TI Cayman, dated 13 September (Annexure 'J'), Mr Tan says in the first sentence:

[48]

It is prima facie vexatious and oppressive, in the strict sense of those terms, to commence a second or subsequent action in the courts of this country if an action is already pending with respect to the matter in issue. And although there are cases in which it has been held that it is not prima facie vexatious, in the strict sense of that word, to bring proceedings in different countries, the problems which arise if the identical issue or the same controversy is to be litigated in different countries which have jurisdiction with respect to the matter are such, in our view, that, prima facie, the continuation of one or the other should be seen as vexatious or oppressive within the Voth sense of those words. 76 The defendants drew the Court's attention to the fact that the proceedings in both Germany and NSW involve the same parties and the same subject matter, and that the defendants have engaged lawyers in both jurisdictions to deal with the proceedings. 77 There was evidence before me that the German proceedings were commenced for "abundant caution". KMP commenced proceedings in Germany shortly before a claim for breach of contract would be statute barred on the basis that, if proceedings were stayed in NSW, then the option of pursuing proceedings in Germany could remain alive. There was evidence that, if proceedings were not stayed in NSW, the plaintiff intended to discontinue the German proceedings. 78 I do not find the reasons for commencing the proceedings in Germany as mitigating the vexation to the defendants arising from the fact that at the present time they have to defend two sets of proceedings in two different jurisdictions in relation to the one subject matter. The plaintiff finds itself in this position because it has delayed the commencement of the proceedings to such a degree that it faced the expiry of a limitation period. There is nothing in the conduct of the defendants that brought about that result. 79 The only reason offered by the plaintiff for wanting the proceedings heard in this Court is a statement to the effect that he cannot afford to conduct the proceedings in Germany. As the defendants point out, there is no evidence to support that bald assertion. I indicated that in the absence of further material I would treat it with little weight.

[53]

(c) Convenience Factors 85 The defendants pointed to a number of convenience factors that, in its submission, pointed towards NSW being an inappropriate forum. They are in effect that none of the relevant documents or witnesses, apart from Mr Michael, are located in NSW. The defendants' business records and a number of its witnesses are in Germany. 86 In answer to this submission KMP states that many of the witnesses and indeed the main witnesses are situated in Malaysia and NSW. These witnesses speak English. All of KMP's documents are located in NSW. All negotiations were conducted in English and all contemporaneous documents were in English. I do not understand how the fact that some witnesses are in Malaysia has any relevance to the resolution of the issue. The fact is that only one relevant witness is in Australia and that is Mr Michael. 87 As I have already noted, KMP claims that financial difficulties would prevent it from running the proceedings in Germany. In response the defendants referred to evidence that it would cost 9390 Euro to run the case, regardless of how long it took, and KMP had paid 8900 Euro in filing fees in the proceedings thus far. I have already noted the defendants' submission that the claim of financial difficulties had no evidentiary foundation as no financial information relevant to KMP in the form of tax returns, bank statements, profit and loss information, or similar, were in evidence. The plaintiff did not attempt to place any further evidence before the Court when the proceedings were reopened. I accept, however, that it will be considerably less expensive for the plaintiff to have the proceedings conducted in this State although it is likely that he will be liable for costs if he terminated the proceedings in Germany. (d) Connection with NSW 88 At the 2 October 2009 hearing, the defendants submitted that there was no more than a "tenuous connection" between NSW and the proceedings, being in effect only the connection of Mr Michael and his company with this State. 89 KMP answered that there were further connections between the alleged contract and this State than simply the connection between the State and KMP. It was argued that the alleged contract was partly performed here by payment of the invoiced amount into a NSW bank account, that some of the negotiations took place with Mr Michael while he was present in this State, and the contract was allegedly terminated and the demands for payment were issued in NSW. (e) The judisdiction of this Court 90 The defendants submitted that the amendment to paragraph 27 of the Statement of Claim was a colourful attempt by KMP to utilise a failure to pay a relatively small amount, US$35,000 into a bank account in NSW to justify a claim for expectation damages in the order of $660,000 where the breach relied upon by the plaintiff to terminate the contract occurred outside the State. The defendants made reference to Amaca Pty Limitied v Frost [2006] NSWCCA 173; (2006) 67 NSWLR 635, where Spigelman CJ with whom Santow and McColl JJA agreed, said at 642:

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[24 ] In such cases it is often necessary to look beyond a prolix smorgasbord of particulars to identify what is the true nature of the cause of action: for example, "in reality" (Buttigeig (at 629, line 28)) or "in truth" (James Hardie & Co Pty Ltd v Hall (at 573.3)). It is often necessary to set aside particulars which are "unreal" or "artificial" (Buttigeig (at 629, line 37 and at 629, line 41) and MacGregor v Application des Gaz (at 177)). 91 Although I do not see the particular relevance of this passage to the current proceedings, I do understand the complaint that, by finding a technical breach that occurred in NSW, the plaintiff is attempting to have the whole of the dispute resolved in this Court even though the jurisdiction of this Court has been based upon a most tenuous and somewhat hypothetical basis. The proceedings are vexatious 92 As I have already noted, the Amended Statement of Claim unquestionably came into existence in order to find some basis for this Court to determine that it had jurisdiction when it was not obvious that the jurisdiction existed on the pleadings in the original Statement of Claim. But looking past the technicality of the asserted breach in the Amended Statement of Claim, the real situation was that the plaintiff never asserted that the failure to pay the full invoice claimed was a breach of the contract. It never sought the full payment, it never questioned the non-payment of the whole of the invoice and it was not the basis for the termination of the contract. 93 Yet the proceedings are not brought to recover only the amount of US$35,000. They are brought to recover what the plaintiff says is owing to him as a result of the repudiation of the contract by the defendants, a sum in excess of US$600,000. And that sum is based upon conduct that almost entirely occurred outside the State, with persons who were, and still are, outside the State, as a result of an alleged contract made outside the State, where the repudiation occurred outside the State, where the contract is operating under foreign law and concerned the plaintiff performing its contractual obligations outside the State. Proceedings have been commenced to recover the full sum in a jurisdiction that the plaintiff must accept is the most appropriate forum and where more witnesses and documents are available than are present in this jurisdiction. Apart from the expense of running the proceedings in Germany and the convenience to him having the proceedings conducted in this Court and in English, the plaintiff also asserts that he will be able to obtain more damages in this State than he could if he were required to conduct the proceedings in Germany. This is apparently notwithstanding that he accepts that the contract is governed by German law. 94 I understand the caution with which this Court must approach an application to stay proceeding where the Court has found that it has jurisdiction. But it cannot in my view be irrelevant that the jurisdiction of this Court is highly tenuous and based upon a breach, which if it existed, was highly technical, in that it was never relied upon by the plaintiff except as a means of obtaining a finding that this Court had jurisdiction when it was likely that such a finding would not be made. 95 Prima facie the proceedings are vexatious because of the proceedings already under way in Germany. There is in my view nothing that suggests that this Court should allow the proceedings in this Court to continue notwithstanding that they are vexatious on that basis alone. But more than that, I am thoroughly convinced that the local proceedings are "productive of serious and unjustified trouble and harassment" or are "seriously and unfairly burdensome, prejudicial or damaging". New South Wales is a clearly inappropriate forum for the determination of the dispute.

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