MRT Performance P/L v Mastro Motors Inc

PARTIES : MRT Performance Pty Limited v Mastro Motors Inc

Plaintiff: Dr A Bell & P Kulevski COUNSEL : Defendant: Mr G Nell & J Soars

Plaintiff: McMahons National Lawyers SOLICITORS : Defendant: Baker & McKenzie Solicitors

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1112/05 MRT PERFORMANCE PTY LIMITED v MASTRO MOTORS INC JUDGMENT 1 HIS HONOUR: The plaintiff, MRT Performance Pty Limited, whom I will call "MRT", seeks a permanent injunction restraining the defendant, Mastro Motors Inc., whom I will call "Mastro", from continuing and prosecuting a third party complaint against MRT in case 02-CA-12455 in the Circuit Court of the Ninth Judicial Circuit in and for Orange County, Florida. 2 MRT is a company incorporated in New South Wales and is engaged in the business of marketing and selling car parts and accessories. It supplies parts called sway bars and sway links for Subaru motor vehicles to Mastro. 3 Mastro is a company incorporated in Florida in the United States of America and holds a Subaru franchise in Tampa, Florida. It sells Subaru motorcars, and stocks and installs parts and accessories for Subaru motorcars. 4 MRT and Mastro are parties to a distributorship agreement made on or about 13 August 2001. In that agreement, Mastro is described as "the Agent". The agreement states MRT's wish to appoint Mastro as an exclusive MRT agent. The agreement provides for Mastro to sell and promote products provided by MRT. The "Company", apparently a reference to MRT, is to sell products to Mastro. 5 The relationship is that of supplier and distributor. The agreement includes the following terms: "The Company shall sell products to the Agent, FOB (free on board, the Agent pays shipping ex Sydney). Settlement of MRT's invoices by the Agent will be effected through Credit Card or by pre-payment (depending on each separate order). The way of transport and the forwarder that will handle the shipments FOB Sydney to the Agent will be in the Agent's discretion. The Agent will cover transport insurance unless chosen to be provided by MRT.

The Agent shall indemnify and hold MRT harmless of and from any and all claims or liability arising as a result of negligent, intentional or other acts of Agent or his agent or representatives."

6 On 27 December 2002, a Mr Azis commenced proceedings against Mastro in the Circuit Court of the Ninth Judicial Circuit in and for Orange County, Florida. In his complaint, Mr Azis alleges that on 6 April 2002 he purchased rear sway bars with front and rear sway links from Mastro. He alleges that Mastro installed the sway bars and sway links on his Subaru motor vehicle. 7 A sway bar is intended to provide stability to a car by decreasing the body roll of the vehicle around corners or over bumps. This is done by keeping the body of the car parallel with the axle. Sway links are the means by which the sway bar is attached to the left and right wheel suspension, at either the front or the rear of the car. 8 Mr Azis' Subaru motor vehicle had a factory manufactured sway bar which was replaced by a new sway bar supplied to him by Mastro, who in turn had purchased it from MRT pursuant to the distributorship agreement. The sway bar supplied to Mr Azis by Mastro was manufactured by a company called Whiteline Automotive, which is based in New South Wales. 9 In his complaint in the Florida proceedings, Mr Azis alleges that: "8. AZIS was advised by representatives of MASTRO that the larger rear swaybar would dramatically improve his handling, stating the rear sway bar installed by Subaru at the time of manufacture was 'small and useless".

9. MASTRO failed to warn AZIS that the rear swaybar would cause his vehicle to go from an under steer condition to an over steer condition, causing the vehicle to become unstable when turning or braking around a curve. Further, MASTRO failed to warn AZIS that by replacing the rear swaybar with a thicker, stiffer swaybar, and not increasing the front suspension, would cause the car to become unstable, especially in turning and braking situations." (sic)

10 Mr Azis alleges that on 8 April 2002, he crashed his car and was injured. He alleges that the proximate cause of the accident was Mastro's failure to warn him that the rear sway bar would cause the car to become unstable and fundamentally alter the car's handling. In the Florida proceedings, Mastro has filed third party complaints against Whiteline and MRT. Mastro's amended complaint against MRT alleges that as a result of Florida's products liability law, it may be held ultimately responsible for the damage allegedly caused by the third party defendants. It alleges that the cause of the damage allegedly sustained by Mr Azis, was the manufacture and distribution of a sway bar and sway links by Whiteline and MRT respectively. In its complaint against MRT, it alleges: "12. Any and all defects, as alleged by the Plaintiff, including but not necessarily limited to design defects, failures to warn and any causes of action based in strict products liability, in the WHITELINE sway bar occurred prior to the receipt of the sway bar by MASTRO and were a direct result of the acts and/or omissions of MRT or WHITELINE. 13. Any and all duties to warn, as alleged by the Plaintiff, were the sole responsibility of MRT and/or WHITELINE and the alleged defect in the product distributed by MRT to MASTRO was the sole or contributing cause of the damages sought by Plaintiff, ARIEF GUNAWAN AZIS, against Defendant/Third Party Plaintiff, MASTRO. 14. As a result of the alleged defect in the product distributed by MRT, Defendant/Third Party Plaintiff, MASTRO, has incurred and is continuing to incur damages for which MRT is legally responsible." 11 In the Florida proceedings, Mastro will seek to prove that the original packaging on the sway bars manufactured by Whiteline contained warnings relating to the effect of the installation of the product on a vehicle, but that the products were repackaged by MRT in packaging which did not contain appropriate warnings. Mastro claims that any liability it may have to Mr Azis is due to MRT's alleged removal of the warning labels and to its failure to warn Mastro of the alleged dangers of increasing the size of the rear sway bar. Mastro contends that had MRT given such a warning to it, it would have given an appropriate warning to Mr Azis. 12 MRT was served with the amended third party complaint in the Florida proceedings on 6 December 2004, pursuant to a request made by letters rogatory from the Florida Court for international judicial assistance. The Florida proceedings have been listed for trial on 2 May 2005. The trial is estimated to take eight days. 13 On 18 January 2005, MRT instituted these proceedings. On that day it obtained, ex parte, an injunction up to and including 28 January 2005, restraining Mastro from continuing and prosecuting the third party complaint in the Florida proceedings against it. That order has since been continued by consent, on the basis that MRT's claim for final relief would be dealt with on an expedited basis. It is that claim for final relief which I am now hearing. Mastro has entered an unconditional appearance in these proceedings. It raises no issue as to the Court's jurisdiction to grant the injunction sought. MRT has not submitted to the jurisdiction of the Florida court. 14 On the face of it, MRT's claim for an anti-suit injunction is unpromising. It sold products to Mastro for distribution to consumers in Florida. Florida is the natural forum for the hearing of Mr Azis' claim against Mastro for damages allegedly caused by his use of the product and by Mastro's alleged failure to provide him with appropriate warnings. Accordingly, it is also the natural forum for hearing Mastro's claim that it is entitled to be indemnified by MRT against any liability it has to Mr Azis. Prima facie, the claim against Mastro, and Mastro's claim for indemnity, should be heard by the same court to ensure consistency of decision-making, and to permit MRT to contest Mr Azis' claim, if it wishes to do so and the procedural rules of the Florida court permit. It would clearly be inappropriate for Mastro to have to re-litigate the issue of its liability to Mr Azis, in proceedings in New South Wales against MRT. (Donohue v Armco Inc [2002] 1 Lloyd's Rep 425 at 436). 15 MRT seeks to outflank these considerations by relying on the indemnity clause in its distributorship agreement. It claims that on the proper construction of the indemnity clause, or by the implication of an additional term, Mastro agreed not to sue it in respect of any and all claims and liability arising as a result of negligent, intentional or other acts of Mastro or its agent or representatives. It claims that the institution and prosecution of the third party complaint against it in Florida is a breach of contract, and that it is entitled to an injunction to restrain that breach. 16 Alternatively, it says that even if the contract does not contain such a promise by Mastro not to sue, nevertheless the indemnity clause gives it a complete defence to Mastro's claim. It submits that any claim that it pay, and any liability to pay, moneys to Mastro, is a claim or liability against which it is entitled to be indemnified by Mastro. Therefore, it says that the Florida proceedings are vexatious or oppressive because they are futile. It relies on the principle that courts will avoid circuity of action and prevent an action by A to recover money from B, where B would be entitled to recover the same sum from A. (Eastern Extension Australasia & China Telegraph Co Ltd v Federal Commissioner of Taxation (1923) 33 CLR 426 at 441.) 17 Where foreign proceedings are vexatious and oppressive or brought in breach of contract, the Court can, and it was submitted it should, restrain the party bringing the proceedings from continuing them. (CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345 at 392, 393.) 18 Mastro denies that the indemnity clause operates in this way. However, it also says that the injunction should be refused without deciding the scope of the indemnity clause. It submits that comity requires that the local forum should have a sufficient interest in or connection with the matter in question to justify the indirect interference with the foreign court, which an anti-suit injunction entails. (Airbus Industrie GIE v Patel [1999] AC 119 at 138.) It submits that there is no such connection. It also submits that for the Court to determine the scope of the indemnity clause would be for it to determine the merits of a defence which MRT might have to the Florida proceedings. But, it submits, the merits of such a defence are properly matters for the Florida court, and not for this Court. 19 Mastro also submits that New South Wales is a clearly inappropriate forum having regard to the controversy as a whole, and there is therefore, no occasion to consider the grant of an anti-suit injunction. (CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345 at 397, 398, 400-401. 20 In my view, Mastro's submission that I should not embark on a consideration of merits of MRT's construction of the indemnity clause has a different force depending on which of MRT's claims is being dealt with. If Mastro's suit against MRT in Florida has been brought in breach of contract, there is plainly jurisdiction to restrain Mastro, which has entered an unconditional appearance in this Court, from its continuation of the suit. If, in such a case, there is a requirement that the local forum have a sufficient interest in or connection with the matter in question, that requirement is satisfied by MRT's interest in being protected from the consequences of a breach of contract. 21 The principle which Mastro invokes is that enunciated by Lord Goff, with whose speech the other members of the House of Lords concurred, in Airbus Industrie GIE v Patel. His Lordship, at 138, stated the general rule that: "… before an anti-suit injunction can properly be granted by an English court to restrain a person from pursuing proceedings in a foreign jurisdiction in cases of the kind under consideration in the present case, comity requires that the English forum should have a sufficient interest in, or connection with, the matter in question to justify the indirect interference with the foreign court which an anti-suit injunction entails."

22 However, his Lordship was careful to say that in formulating that principle, he was not concerning himself with cases in which the choice of a forum had been directly or indirectly the subject of a contract between the parties. 23 This Court is not a clearly inappropriate forum to determine MRT's claim that Mastro has instituted and threatens to prosecute the third party complaint in breach of its contract with MRT. (CSR Ltd v Cigna Insurance Australia Ltd at 397.) 24 The basis of the jurisdiction to restrain a litigant from pursuing foreign proceedings in breach of contract, is different from the basis of the jurisdiction to restrain the pursuit of foreign proceeding which are otherwise vexatious or oppressive. The former involves the exercise of equitable jurisdiction in aid of a legal right. The latter jurisdiction may lie, in some cases, in the Court's inherent jurisdiction to protect its own processes. Otherwise it lies in equity's exclusive jurisdiction. Different considerations, including the comity to be afforded to the foreign court, arise, depending upon which jurisdiction is invoked. As Hoffman J, as his Lordship then was, said in Apple Corps Ltd v Apple Computer Inc & Ors [1992] RPC 70 at 79: "The reason for such caution is because, although the order operates in personam against the particular defendant, it is indirectly an interference with the foreign court. That reason is particularly strong in a case in which the English jurisdiction is preferred on the ground that England is the natural forum and the foreign court is conversely being rejected on the ground of its unsuitability as a forum. But in a case like this in which a party has expressly contracted not to sue, the argument that the order merely operates in personam is at its strongest. It involves no finding whatever about the suitability of the foreign forum but merely the universal principle that until some good contrary reason has been shown, men should be held to their bargains."

25 On MRT's claim to restrain the alleged breach of contract, it was submitted for Mastro that the Court's approach should differ according to whether it was clear that the institution of a foreign suit was a breach of contract, or whether that matter was debatable. However, in my view, it is not material whether the issue of whether there has been a breach is, or is not, clear cut. Whether the breach is clear beyond argument, or whether its demonstration requires close argument, the breach, once established, is liable to be restrained, subject only to discretionary considerations. Those considerations should be independent of the simplicity or difficulty of the argument as to breach. I do not regard the judgment of the majority of the High Court in CSR Ltd v Cigna Insurance Australia Ltd at 395 as indicating the contrary. 26 I turn then to consider MRT's claim that the institution and prosecution of the Florida proceedings is a breach of contract. That claim depends on its establishing two things: first, that the indemnity clause applies to Mastro's claim against it in the Florida proceedings; and secondly, that as a matter of construction or implication, Mastro has promised not to sue on a claim, or to enforce a liability, which is covered by the indemnity clause. In my view, MRT has established neither of these things. 27 Mastro's agreement to indemnify and hold MRT harmless applies to claims or liability "arising as a result of negligent, intentional or other acts of [Mastro] or his agent or representatives". 28 Mastro's claim to an indemnity in the Florida court is based on the alleged actions and omissions of MRT in allegedly removing labelling, and not providing Mastro with appropriate warnings. 29 MRT's argument is that the origin of Mr Azis' claim against Mastro and, hence, Mastro's claim for an indemnity against it, lies in the actions of Mastro in supplying the part in question to Mr Azis, installing it for him and in the advice given and omitted by Mastro in its dealings with Mr Azis. But for Mastro's actions, Mr Azis would have no claim against MRT and, hence, Mastro would not have a claim against MRT. 30 However, in my view, the indemnity clause on its face is one for an indemnity against claims made by third parties on MRT as a result of things which Mastro, not MRT, has done, which have resulted in such claims. That, in my view, is what is meant by the expression "indemnify" and "hold harmless". 31 An indemnity is a promise by the promisor to keep the promisee harmless against loss as a result of entering into a transaction with a third party. (Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 254.) It was submitted for MRT that the words "hold MRT harmless" extended the notion of indemnity against third party claims, to encompass Mastro holding MRT free from loss from claims from Mastro itself. I do not consider that the words have such an operation. Rather the words "hold MRT harmless" are emphatic of the indemnity for which the clause provides. They emphasise that the indemnity applies so as not only to compensate MRT for loss actually suffered by it, but to keep MRT free from having to pay a third party claim which arises as a result of Mastro's actions. 32 On MRT's construction of the clause, the only causal relationship between the claims of MRT, or the liabilities of MRT, and the actions of Mastro, (or its agent or representatives), is that but for such actions, the claim, or MRT's liability, would not have arisen. I do not consider that to be a correct construction. Even the phrase "arising out of" carries the notion of at least some causal or consequential relationship. (Dickinson v Motor Vehicle Insurance Trust (1987) 163 CLR 500 at 505.) 33 As Windeyer J said in Government Insurance Office (NSW) v R J Green & Lloyd Pty Ltd (1966) 114 CLR 437 at 447: "The words 'injury caused by or arising out of the use of a vehicle' postulate a causal relationship between the use of the vehicle and the injury. 'Caused by' connotes a 'direct' or 'proximate' relationship of cause and effect. 'Arising out of' extends this to a result that is less immediate; but it still carries a sense of consequence."

34 The phrase "arising as a result of" denotes a stronger causal relationship than "arising out of". What gave rise to the claim on MRT, and any liability of MRT, is its alleged conduct, without which the claim would not have been made, nor the alleged liability arisen. 35 The whole purpose of the distributorship agreement was for Mastro to sell and promote products produced by MRT. The effect of MRT's argument is that MRT can have no liability to Mastro arising from things done by Mastro under the agreement. Even a claim by Mastro for breach of warranty on a sale of a product by it to MRT, would be the result of Mastro's action in buying and taking delivery of the goods. MRT's construction turns the indemnity clause into a clause containing a far-reaching exclusion of MRT's liability to its distributor. 36 MRT submitted that this was simply a matter of risk allocation. It relied on the clause "Insurance is not automatic, it must be requested". However, that clause does not assist it. First, when it is read in context, it refers to transport insurance on goods shipped from Sydney to Florida. It does not refer to insurance against the consequence of MRT's breach of contract or negligence. Secondly, the fact that there is no such automatic insurance indicates that it is not likely that the parties intended that Mastro should be without recourse if MRT breached its contract, or was itself negligent. 37 In my view, MRT seeks to give the indemnity clause a far wider scope than it can reasonably bear. Considered as an exclusion clause, as Mastro contends it should be considered, the clause is to be construed on the principle that: "… the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity" (Darlington Future Ltd v. Delco Australia Pty Ltd (1986) 161 CLR 500 at 510 .)

38 The nature and object of the contract was for the supply of goods to Mastro by MRT, for the purposes of their being on-sold to consumers in Florida. That object would not be advanced by construing the clause in such a way as to make MRT free from liability to Mastro, or free from claims by Mastro, which arise in consequence of Mastro having performed its side of the agreement, but which are directly attributable to MRT's own breach, or alleged breach, of contract or negligence. 39 MRT resisted the notion that the clause was ambiguous. I do not think it is, but it does not have the meaning for which MRT contends. If I had been of a different view as to what the clause meant, I would have considered that the clause was at least ambiguous, and would then fall to be construed contra proferentem. MRT was the proferens. 40 For these reasons, the first basis for MRT's claim for breach of contract fails. If I am wrong as to the scope of the indemnity, nonetheless, I consider that the claim for breach of contract fails on the second basis also. In my view, the indemnity and agreement to hold harmless cannot be construed as a promise not to sue. Nor can such a promise be implied. 41 The reason for both these conclusions is simple. The indemnity or agreement to hold harmless (if it is different), has a different field of operation from a promise not to sue. 42 The fact that there is a defence to a claim, including a defence that the court will not permit circuity of action, does not mean that the other party promises not to sue. It is because he can sue that the defence of circuity of action is needed. 43 I turn then to the second basis on which the injunction was sought, namely, that the Florida proceedings are vexatious or oppressive because MRT has a complete defence. That claim also turns upon the acceptance of MRT's construction of the indemnity clause. For the reasons I have given, I do not consider that that claim is made out. Had this second basis of claim been the only basis on which MRT sought the injunction, or had I rejected the claim for breach of contract only on the ground that the indemnity clause was not a promise not to sue and that no such promise was implied, I would have accepted Mastro's contention that it should be left to the Florida court to rule on the correctness of that defence. It is the natural forum to determine the controversy as a whole. (CSR Ltd v Cigna Insurance Australia Ltd at 400). 44 I do not find it necessary to consider separately in relation to this basis of the claim, whether there is an insufficient connection between the claim and New South Wales to even consider granting an anti-suit injunction. There was considerable debate as to whether the distributorship agreement, as well as being made in New South Wales, was governed by New South Wales law, or arguably so. That debate was relevant to the question of whether New South Wales was a clearly inappropriate forum to entertain the claim, and whether it had sufficient interest to, or connection with, the matter in question to do so. 45 Assuming that MRT had to clear such a hurdle and could do so, I think it plain that the question of whether the agreement provides a complete defence is one which should have been left to the Florida court, had it not been necessary to consider it in disposing of the first ground of the claim. 46 However, as I have had to consider it in deciding the first ground of MRT's claim, i.e. the claim for an alleged breach of contract, and as I have reached a conclusion adverse to MRT, the case is even stronger for refusing the injunction on the second ground of the claim. 47 For these reasons, I make the following orders:

1. That the injunction ordered by McDougall J on 18 January 2005 and extended from time to time until today be dissolved;

3. Direct that if the defendant wishes there to be an inquiry as to damages pursuant to the plaintiff's undertaking as to damages, a notice of motion seeking that inquiry and an affidavit in support thereof be filed and served within twenty-eight days;

5. Order the plaintiff pay the defendant's costs of the proceedings; and

6. The exhibits may be returned after twenty-eight days. 48 In relation to order 3, I grant the defendant liberty to apply on seven days' notice. 49 These orders may be taken out forthwith.

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