Kim Michael Productions Pty Ltd v Tropical Islands Management Ltd

DECISION : Leave to amend the Statement of Claim granted. Further proceedings based upon the Amended Statement of Claim are stayed. The plaintiff is to pay the defendants' cost.

CATCHWORDS : PRACTICE AND PROCEDURE - Service of originating process out of jurisdiction - Whether breach of contract in the State - PRIVATE INTERNATIONAL LAW - Stay of proceedings - Clearly inappropriate forum - Contract - Whether breach in the State

Supreme Court Rules - rules 22.2, 11.7(2)(a), Schedule 6 para (b), (c) LEGISLATION CITED : Trade Practices Act 1974 (Cth) Rule 6.19 of the UCPR

Stanley Kerr Holdings Pty Ltd v Gibor Textile Enterprises Ltd (1987) 2 NSWLR 373 Safran v Chan (1970) 1 NSWR 70 Voth Manildra Flour Mills Pty Ltd (1990) 171 CLR 538 Shallay Holdings Pty Limited v Griffith Co-Operative Society Limited [1983] 1 VR 760; (1982) 48 ALR 304 Hawkins v Clayton (1988) 164 CLR 539 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 Integral Home Loans Pty Ltd and Anor v Intestar Wholesale Finance [2007] NSWSC 406 CASES CITED : Hawkins v Clayton (1988) 164 CLR 539 News Corporation v Lenfest Communications Inc (1966) 21 ACSR 553 Oceanic Sen Line Special Shipping Co Inc v Fay [1988] HCA 32; (1988) 165 CLR 197 Puttick v Tenon Ltd [2008] HCA 54; (2008) 238 CLR 265 Murakami v Wiryadi [2010] NSWCCA 7 Henry v Henry [1996] HCA 51; (1996) 185 CLR 571 Garsec Pty Limited v His Majesty the Sultan of Brunei (2008) 250 ALR 682 Amaca Pty Limited v Frost [2006] NSWCCA 173; (2006) 67 NSWLR 635

TEXTS CITED : Carter on Contract at [10-180]

PARTIES : Kim Michael Productions Pty Ltd v Tropical Islands Management Ltd and Two Others

COUNSEL : M Einfeld/J Horowitz - Plaintiff A S Bell SC/D Sulan - Defendants

SOLICITORS : Sweeney Tiggermann - Plaintiff Piper Alderman - Defendants

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

2009/20002 KIM MICHAEL PRODUCTIONS PTY LTD v TROPICAL ISLANDS MANAGEMENT LTD AND TWO OTHERS

JUDGMENT 1 HIS HONOUR: By Notice of Motion the defendants to a Statement of Claim seek orders that would have the effect of defeating the plaintiff's action in this Court. Those orders are as follows:

1. An order pursuant to rule 11.7(2)(a) of the Uniform Civil Procedure Rules 2005 (NSW) ("the UCPR") setting aside the Statement of Claim on the basis that service of the claim is not authorised by the Rules.

2. An order staying the proceedings under 11.7(2)(b) of the UCPR on the grounds that New South Wales is an inappropriate forum.

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.

Service of Statement of Claim 15 The Amended Notice of Motion came before me on 22 July 2009. The defendants sought an order under rule 11.7(2)(a) of the UCPR setting aside the service of the Statement of Claim on the basis that service of the claim was not authorised by the rules. 16 As all three defendants were both incorporated and carried out their business outside Australia, rule 11.2 applies. Rule 11.2 provides:

(1) Originating process may be served outside Australia in the circumstances referred to in Schedule 6… 17 Paragraphs (b) and (c) of Schedule 6 are relevant to this matter. They are as follows:

(b) if the proceedings are founded on a breach in New South Wales of a contract (wherever made), whether or not the breach is preceded or accompanied by a breach (wherever occurring) that renders impossible the performance of any part of the contract which ought to be performed in New South Wales,

(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.

Amended Statement of Claim 22 After oral and written submissions the Court reserved its decision. However, on 7 September by Notice of Motion the plaintiff sought leave to file an Amended Statement of Claim. An affidavit in support of the Notice of Motion sets out how the amendment came about. There were discussions concerning a complaint made on behalf of the defendants during the hearing in July that the plaintiff had not pleaded an allegation that there had been a breach of the alleged contract in this State. The Statement of Claim relied upon what were said to be repudiations of the contract and they occurred overseas. Advice was taken from a Queen's Counsel and as a result leave was sought to address this complaint by an amendment to the original Statement of Claim. 23 There was a further hearing of the matter on 2 October 2009, the plaintiff being represented by different counsel than at the first hearing. It was said that the amendment was to cure an "ambiguity or insufficiency" in the original Statement of Claim. The defendants objected to leave being granted and, after hearing argument, I determined to deal with the matter with the rest of the objections. 24 However, it was clear, at least from submissions made to the Court on the first hearing, that the plaintiff was alleging that, as a result of the repudiation of the contract, a demand had been made for the full payment under the contract. When that was not forthcoming, the plaintiff then terminated the contract. It was argued that the termination occurred in this State. 25 The Amended Statement of Claim, however, contained an allegation of a breach of the contract by the failure to pay the full $65,000 as invoiced by the plaintiff as only $30,000 had been paid. Paragraph 27 of the original Statement of Claim had been amended to read:

On 14 September 2005 the Defendants transferred to the Plaintiff's Sydney, New South Wales, Australian, Westpac Banking Corporation, bank account the sum of US$30,000 but in breach of the contract failed to pay to the said account the balance of the invoiced amount, namely US$35,000 26 There was an amendment to the particulars of loss and damage in clause 57 to specify US$35,000 "being the unpaid balance of the invoice dated 5 September 2005".

Was there a breach in NSW? 27 The issue for determination was whether the alleged contract was breached in NSW. The onus of establishing this is on KMP as it is a settled principle that a plaintiff seeking to rely on rule 11.2 bears the onus of establishing that its claim falls within one of the heads of Schedule 6: Voth Manildra Flour Mills Pty Ltd (1990) 171 CLR 538 at 564-5. 28 KMP conceded that each of the three acts of repudiation alleged in the Statement of Claim occurred outside NSW, so they could not be used to satisfy (b) or (c)(iv). However, upon the application to amend the Statement of Claim, KMP sought to rely on the allegation that the contract was to be performed in part in NSW and that the defendants breached that part of the contract in that they failed to make payment to KMP in NSW in performance of their contractual obligations. This was reliance upon the failure to pay the whole of the amount in the September invoice. 29 It was conceded that there was no express term of the contract setting out the place where the contract sum was to be paid. KMP submitted that, notwithstanding the absence of an express term, there was an implied term that the contract sum would be paid in NSW. KMP relied on the judgment of Justice Beach in Shallay Holdings Pty Limited v Griffith Co-Operative Society Limited [1983] 1 VR 760; (1982) 48 ALR 304 at page 766 where his Honour said:

In my opinion, the correct principle applicable in a situation such as this is that stated by Deane, J, in the decision to which I have just referred, that is that the place of payment depends on the place which, in the absence of express provision in the contract, it should be held from all the circumstances the parties should be taken as impliedly intending. 30 KMP relied on the following facts to support its submission that it could be implied that the parties intended that the place for payment of the contract price would be NSW:

The plaintiff is a company incorporated in the State of New South Wales, whose principle place of business is 25 Carew Street, Padstow in the State of New South Wales;

The plaintiff has no office or staff in any other jurisdiction other than New South Wales;

Past contractual dealings between the plaintiff and the defendants, in particular the Viva Brazil show, all payments were made in New South Wales;

The Plaintiff issued an invoice to the defendants from New South Wales for payment due under the contract;

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:

It does not, however, necessarily follow from these principles that when, under an executory contract for the sale of property, the price or part of it is paid or payable in advance, the seller may both retain what he has received, or recover overdue instalments, and at the same time treat himself as relieved from the obligation of transferring the property to the buyer. When a contract stipulates for payment of part of the purchase money in advance, the purchaser relying only on the vendor's promise to give him a conveyance, the vendor is entitled to enforce payment before the time has arrived for conveying the land; yet his title to retain the money has been considered not to be absolute but conditional upon the subsequent completion of the contract. "The very idea of payment falls to the ground when both have treated the bargain as at an end; and from that moment the vendor holds the money advanced to the use of the purchaser", Parke B. says: "It is clear he cannot have the land and its value too"… 37 KMP submitted that this passage from McDonald has no application to the present case as it was dealing with the sale of real property. The point there decided was that a vendor could not retain both part of the purchase price and his land where a contract of sale had been terminated by the vendor for the purchaser's breach. 38 KMP submitted that it could still sue for damages arising from breaches of the contract that had occurred prior to the termination of the contract because it had unconditionally acquired a right prior to termination, that being a debt in its favour of $35,000. This is supported by Dixon J in McDonald, at 476-7:

When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. 39 In my opinion, if the outstanding $35,000 was due at the time KMP elected to terminate, this was an accrued right, and a claim for non payment of this money is not lost upon KMP's election to terminate the contract. See Integral Home Loans Pty Ltd and Anor v Intestar Wholesale Finance [2007] NSWSC 406 where Brereton J said at [15]:

[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:

The most that can be said consistently with the need for some degree of flexibility is that, in a case where it is apparent that the parties have not attempted to spell out the full terms of their contract, a court should imply a term by reference to the imputed intention of the parties if, but only if, it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case. That general statement of principle is subject to the qualification that a term may be implied in a contract by established mercantile usage or professional practice or by a past course of dealing between the parties. 43 KMP pointed to the previous contract between it and TI Germany as evidence of a past course of dealing between the parties whereby KMP was paid upon invoice. 44 However, KMP asserts that the parties to the present contract were different to those of the previous contract: the parties to the Viva Brazil contract were KMP and TI Germany, the parties to the present contract were alleged in the original Statement of Claim to be KMP and all three defendants. 45 I doubt that in these circumstances it is open for KMP to assert that there was a "course of dealing" which could be used to incorporate a term into the contract as there was only one previous contract. See Carter on Contract at [10-180]:

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:

Where there are multiple claims, each of the claims must come within one or more of the paragraphs, and a plaintiff cannot proceed against the foreign defendant on claims not falling within a paragraph (see r 1A(1)(x) and Australian Iron & Steel Pty Ltd v Jumbo Scheepvaart Maatschappij (Curucao) NV (1988) 14 NSWLR 507; Williams v Lips-Heerlen BV (1 November 1991, SC(NSW), Giles J, No 17209/90, unreported); Tycoon Holdings Ltd v Trencor Jetco Inc (1992) 34 FCR 31; WFM Motors Pty Ltd v Maydwell (23 April 1993, SC(NSW), Bryson J, unreported); C E Heath Underwriting Insurance (Aust) Pty Ltd v Barden (19 October 1994, SC(NSW), Rolfe J, No 50132/93, unreported); Williams v Society of Lloyds [1994] 1 VR 274). 52 However in that case, the claims were varied: one was for breach of contract, one by way of estoppel and a third pursuant to the Trade Practices Act 1974 (Cth). In this case there is just one 'claim', as I understand how Giles J uses the word in that case: that is breach of contract. There are not multiple 'claims' because it is alleged there are multiple breaches, including repudiations. There might be different forms of damages sought, for example for production costs, lost profits and lost opportunity, but they are all claimed as a result of the defendants' breach of contract. 53 As the non payment breach occurred in NSW and the proceedings are for breach of contract, then the Amended Statement of Claim can be validly served outside Australia under paragraph (b) of Schedule 6. Further, as the subject-matter of the proceedings is the alleged Carribean Carnival contract and a breach of that contract was committed in NSW, the Amended Statement of Claim can be validly served outside Australia under paragraph (c)(iv) of Schedule 6.

Who are the proper defendants? 54 At the hearing of the Notice of Motion on 2 October Senior Counsel for the defendants submitted that the Court ought to at least set aside service of the proceedings against the first and third defendants as they had been improperly joined. 55 The plaintiff conceded that the third defendant should be excused from the proceedings. However the plaintiff submitted that the first defendant was not incorrectly joined. 56 Rule 6.19 of the UCPR sets out when two or more defendants may be joined in an originating process:

6.19 Proceedings involving common questions of law or fact

(1) Two or more persons may be joined as plaintiffs or defendants in any originating process if: (a) separate proceedings by or against each of them would give rise to a common question of law or fact, and (b) all rights of relief claimed in the originating process are in respect of, or arise out of, the same transaction or series of transactions, or if the court gives leave for them to be joined.

(2) Leave under subrule (1) may be granted before or after the originating process is filed. 57 Rule 6.29 describes when the court may remove a party:

6.29 Removal of parties by order The court may order that a person: (a) who has been improperly or unnecessarily joined, or (b) who has ceased to be a proper or necessary party, be removed as a party. 58 Paragraph 6 of the Amended Statement of Claim reads:

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:

"The Tropical Islands group ("TI") is desirous to showcase a Caribbean cultural show commencing for a period of 6 months commencing 1 December 2005 to 31 May 2006 or such longer period to be extended at the sole discretion of TI ("Term") at Tropical Islands Resort, Germany". 66 The use by Mr Tan of the phrase "the Tropical Islands group" further explains the confusion of Mr Michael and points towards a notion that KMP had a contract with at least both the first two defendants. A simple examination of the names of the first two defendants would suggest that they both would be included in such a group. 67 Considering the above, and that the Letter of Intent (Annexure 'J') is on TI Cayman's letterhead, is addressed to KMP, is signed by the Director of the same, and lists the conditions for the production of Caribbean Carnival at the Tropical Islands Resort, Germany, I am not satisfied that TI Cayman has been improperly or unnecessarily joined.

Forum non conveniens 68 Counsel for the defendants submitted that if, contrary to its submissions in relation to rule 11.7(2)(a), the service of the Statement of Claim was authorised by the rules, the Court would make an order staying the proceedings under rule 11.7(2)(b) on the ground that NSW is an inappropriate forum. 69 It is settled authority that the defendants bear the onus of establishing that NSW is a clearly inappropriate forum: Voth v Manildra Flour Pty Limited [1990] HCA 55; (1990) 171 CLR 538 at 563-4; Oceanic Sen Line Special Shipping Co Inc v Fay [1988] HCA 32; (1988) 165 CLR 197 at 247-8 per Dean J. 70 Principles relevant to the test were identified in Voth in the joint judgment of Mason CJ, Deane, Dawson and Gaudron JJ as being derived from the common ground of the various judgments of the members of the Court in Oceanic Sun:

……………….First, a plaintiff who has regularly invoked the jurisdiction of a court has a prima facie right to insist upon its exercise. Secondly, the traditional power to stay proceedings which have been regularly commenced, on inappropriate forum grounds, is to be exercised in accordance with the general principle empowering a court to dismiss or stay proceedings which are oppressive, vexatious or an abuse of process and the rationale for the exercise of the power to stay is the avoidance of injustice between parties in the particular case. Thirdly, the mere fact that the balance of convenience favours another jurisdiction or that some other jurisdiction would provide a more appropriate forum does not justify the dismissal of the action or the grant of a stay. Finally, the jurisdiction to grant a stay or dismiss the action is to be exercised "with great care" or "extreme caution". 71 The most recent restatement of the Voth test by the High Court was in Puttick v Tenon Ltd [2008] HCA 54; (2008) 238 CLR 265 at [27] where the Court stated:

In Voth v Manildra Flour Mills Pty Ltd, the Court held that a defendant will ordinarily be entitled to a permanent stay of proceedings instituted against it and regularly served upon it within the jurisdiction, if the defendant persuades the local court that, having regard to the circumstances of the particular case, and the availability of an alternative foreign forum to whose jurisdiction the defendant is amenable, the local court is a clearly inappropriate forum for determination of the dispute. The reasons of the plurality in Voth pointed out [at p 565] that the focus must be "upon the inappropriateness of the local court and not the appropriateness or comparative appropriateness of the suggested foreign forum". 72 The Court of Appeal recently considered the application of that test where proceedings had been stayed in this Court in Murakami v Wiryadi [2010] NSWCCA 7. There Spigelman CJ stated:

[39] As noted in CSR Ltd v Cigna Insurance [(1997) 189 CLR 345] at 401, the test of vexation or oppression adopted in Voth is based on the formulation proposed by Deane J in Oceanic Sun Line supra at 247, to the effect that the local proceedings are "productive of serious and unjustified trouble and harassment" or "seriously and unfairly burdensome, prejudicial or damaging". 73 The defendants in this case submitted that there were three bases that independently or collectively establish that proceedings in NSW are vexatious or oppressive in the relevant sense: first, the plaintiff had commenced proceedings in Germany; secondly, the applicable law is that of Germany; and, thirdly, matters of convenience such as the location of witnesses and documents. Further it was submitted that in respect of the matter that gave rise to the Amended Statement of Claim, the asserted breach is a very minor component of the plaintiff's claim whereas the real basis for the termination of the contract was its repudiation and that occurred outside the State.

(a) Parallel Proceedings 74 As has been noted, KMP commenced the German proceedings at or about the same time as commencing proceedings in this Court. 75 In support of their submission the defendants referred to Henry v Henry [1996] HCA 51; (1996) 185 CLR 571, where Dawson, Gaudron, McHugh, Gummow JJ, in a joint judgment, held, at 591 (footnotes omitted):

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.

(b) Proper Law of Contract 80 The defendants submitted that, if there were any contract, it would be subject to German law. The plaintiff did not seek to cavil with this assertion. The proceedings were conducted before me on that presumption. Clearly the contract would not have been subject to the law of this State. If past dealings between the parties have any relevance, the written contract entered into by the plaintiff for the earlier show asserted that it was subject to German law. 81 In any event, clearly by commencing proceedings in Germany the plaintiff accepts that the German court is an appropriate, if not the appropriate, forum to determine the dispute. 82 The defendants pointed to the decision of Campbell JA in Garsec Pty Limited v His Majesty the Sultan of Brunei (2008) 250 ALR 682 to support its submission that the proper law being foreign would support the proposition that NSW is a clearly inappropriate court. In that case Campbell JA said at 712:

If the subject-matter of a dispute had a tenuous connection with Australia such that an Australian court would have jurisdiction concerning it, but all the witnesses and documents were in another country and the transaction was governed by the law of that other country it would be easy to reach a conclusion that the Australian court was a clearly inappropriate forum, regardless of whether there was another place that could hear the dispute. 83 In Murakami v Wiryadi the Chief Justice stated:

[150] The fact that the court would apply foreign law, or base its own analysis to a substantial degree on foreign law, is a significant factor which must be taken into account in determining whether New South Wales is a clearly inappropriate forum. As Mr Bell submitted, the need to prove foreign law is itself a source of prejudice. One of the difficulties and uncertainties involved in such proof is, as he put it, the risk that important aspects of the foreign law will be lost in translation. The need to prove foreign law introduces additional levels of complexity, expense and uncertainty together with the risk of error in the application of foreign law. (See James Hardie Industries Pty Ltd v Grigor (1998) 45 NSWLR 20 at 37 and 42; Rickshaw Investments supra at [42].) Indeed, the majority joint judgment in Regie v Zhang supra, said at[66], in comparison with conflicts issues arising between the states of the Australian federation, proof of foreign law is a "more onerous task". (See also at [192] per Callinan J)

[151] Nevertheless, courts are often placed in a position where they must apply foreign law and will do so. As the majority judgment of the High Court said in Puttick v Tenon supra at [31]: … it by no means follows that showing that the tort which is alleged is, or may be, governed by a law other than the law of the forum demonstrates that the chosen forum is clearly inappropriate to try the action. The very existence of choice of law rules denies that the identification of foreign law as the lex causae is reason enough for an Australian court to decline to exercise jurisdiction … 84 There was no argument before me as to what effect the fact that the law of the contract was German law would have upon the resolution of the dispute between the parties. I assume there would be no difficulty in determining what the relevant German law is that has to be applied. But the simple fact that the relevant law is not the law of this State adds a complication, expense and inconvenience to the proceedings that would not occur if the proceedings were heard in Germany.

(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:

[23] The thrust of contemporary doctrine is that the Court must focus on issues of substance. It is necessary not to be distracted from this task by the ingenuity of the pleader.

[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.

Orders 1. Leave to amend the Statement of Claim granted. 2. Further proceedings based upon the Amended Statement of Claim are stayed. 3. The plaintiff is to pay the defendants' costs. **********

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