Newave Investments Ltd v Complete Command SDN BHD

REASONS FOR RULING ON MOTION TO SERVE OUT OF THE JURISDICTION 1 Newave Investments Ltd ("Newave") is a company said to have been incorporated in Hong Kong. By an application filed in this Court on 28 May 1999 and subsequently amended it seeks damages under s 82 of the Trade Practices Act 1974 (Cth) for misleading or deceptive conduct and damages at common law for misrepresentation and breach of contract against a Malaysian company, Complete Command SDN BHD ("Complete Command"), and a director of that company, James Hamilton MacPhail. It is said that on 19 June 1998 an agreement in writing was made between Newave, Complete Command and MacPhail under which Complete Command would build, and deliver to Newave, a cruising/racing yacht. Various conditions of the agreement are recited. They include the following: "The First Respondent would skilfully execute and complete the Vessel in a thorough, sound and workmanlike manner in accordance with the standard of diligence and care normally employed by duly qualified persons in the performance of comparable work and in accordance with generally accepted practices appropriate to the activities undertaken and with materials suitable for marine service and for their respective purposes wholly in accordance with the Shipbuilding Agreement;" There was a further condition that Complete Command would complete the construction and delivery of the vessel to the complete satisfaction of Newave by no later than 15 November 1998. A clause providing for liquidated damages in the event of delay in delivery was also recited. 2 Under the terms of the agreement, MacPhail guaranteed its performance by Complete Command and indemnified Newave against any claims, losses, actions, damages, costs and expenses that it might suffer by reason of any failure of Complete Command to perform. The guarantee and indemnity were governed by the law of Western Australia. Entry by Complete Command into the agreement containing the pleaded clauses is said to have constituted representations by it that it would perform the various promises contained in those clauses. Each of these representations is said to have been made "without any reasonable grounds" for making it. Complete Command, it is alleged, failed to execute and complete the construction, launching, trialing and delivery of the vessel in accordance with the agreement. Particulars of the alleged failure are set out and further particulars foreshadowed. It is then said in the amended statement of claim: "9. The First Defendant's failure pleaded in paragraph 8 was: (a) contrary to the representations pleaded in paragraphs 5, 6 and 7 which representations were false and misleading by virtue of section 51A of the Trade Practices Act, 1974 contrary to section 52 of the Trade Practices Act, 1974; and (b) in breach of the Shipbuilding Agreement." Loss and damage amounting to A$97,800 and NZ$9,000 is asserted. 3 As against MacPahil, it is said that he orally represented to Newave, on behalf of Complete Command, that he was the controlling and only active director of Complete Command and as such was authorised to give personal assurances binding on that company. Moreover he represented that he was familiar with the yacht building industry in Malaysia and had access to the best available facilities, skilled personnel and necessary components, materials and design experts in Malaysia, Australia and New Zealand which would enable Complete Command to complete the vessel in accordance with the Shipbuilding Agreement and on time. He is also said to have represented that he was an expert in the area of racing yacht construction, was financially sound and was the owner of assets, including vessel moulds, which could be and subsequently were charged to Newave to secure Complete Command's performance under the Shipbuilding Agreement. He is alleged to have represented that he was the holder of sixty per cent of the share capital of Complete Command and that Complete Command would perform the Shipbuilding Agreement in accordance with the clauses earlier pleaded. These representations are said to have been misleading or deceptive or likely to mislead or deceive contrary to s 52 of the Trade Practices Act 1974. The constitutional facts necessary to support his liability as a principal under the Act are not apparent from the pleading. It is said later in the statement of claim that further, and in the alternative, MacPhail was involved in Complete Command's contraventions of s 52 of the Trade Practices Act. Reliance is no doubt placed upon the provisions of the Act relating to accessorial liability. MacPhail has been served and has entered an appearance in the action. 4 On 11 October 1999, Newave filed a notice of motion for leave to amend the application and to join Complete Command as first respondent and for leave to serve it in Malaysia. Orders for the amendment and joinder were made on 25 October but the motion was adjourned in relation to the application for leave to serve the company in Malaysia. An affidavit had been filed in support of the motion on 18 October and a further affidavit was filed on 29 October. The motion for leave to serve the application on Complete Command in Malaysia was made under O 8 r 2 of the Federal Court Rules. 5 In an affidavit in support of the motion for service out of the jurisdiction, Newave's solicitor exhibited correspondence between Peter Ahern of Newave and MacPhail. The correspondence included a faxed letter dated 11 February 1999 in which Ahern complained of the slow progress in completing the boat and gave notice that payment of liquidated damages of $250 a day would be required from Complete Command from 15 January 1999. In a faxed reply of the same date, MacPhail said he was doing what he could "with the resources and manpower available". In a further fax of 23 February 1999 MacPhail said he had tried and would "continue to try to complete your boat, but my personal finances are close to gone and there is little if any left in the business to carry on with". Referring to the contractor "Barry" who was apparently in charge of the construction work, he said: "I have placed a substantial amount of trust and dependence on Barry for his expertise and knowledge in the manufacturing of your boat and others, and while he has without doubt been committed in the past, he seems to be totally misdirected and unable to organise himself now. A substantial amount of the work that is being undertaken on your boat is directly related to a lack of supervision and direction from Barry. Under any normal circumstances, as a contractor he would be liable for much of this additional cost. More worrying to me is the impression that he seems unable to get on, and complete the necessary work at a reasonable pace! I don't know whether he has an agreement of some kind with you relating to completion work and or extras, as he does not discuss any details with me at all. When I ask him a question relating to your boat all I get is a non committal answer usually totally open ended. (Its of no concern to me if you have some kind of understanding as there is little chance that we will continue here after Richard's cruiser has left). As you are well aware I am in a very difficult position, with a commitment to you, that rely's (sic) on Barry completing the work, while Barry seems to have a different agenda, that I can little afford. There is no doubt that if he is unable to get the job completed within the next week I will together with your noted damages, have no choice but to close the door. I am writing to you as a friend and long term acquaintance, to ask if there is anything that you can do that may inject some desperation into Barry's attitude, and commitment. Its little use if he goes to KL to work, and only does 3-5 hours a day! Lastly I would like to say that apart from your commitment I have 2 other outstanding commitments that I am also doing my best to complete, and together I have tried to spread what little resources I have over these in the most cost effective way possible." 6 On 4 April 1999, MacPhail sent a fax to Ahern offering, inter alia, to honour the commitments that he had made saying that: "… if necessary I will sign over Georgie's Volvo, as security to you for the balance of the work necessary to complete the boat. (Richard and Geoffrey, hold 55% of the shares between them and so have control)." In response, Ahern said, inter alia: "Barry started work yesterday and will advise ASAP his cost to complete the boat plus Mark and any other workers or contractors we need to employ. Would like cash not a Volvo." 7 Order 8 rule 1 sets out the cases in which originating process may be served outside the Commonwealth. Relevantly it provides: "1. Subject to rule 2 and Divisions 2 and 3 of this Order, originating process may be served outside the Commonwealth in the following cases - (a) where the proceeding is founded on a cause of action arising in the Commonwealth; . . . (ab) where the proceeding: . . . (iii) is for damages or other relief in respect of the breach of a contract; and the contract: (iv) is made in the Commonwealth; or (v) is made on behalf of the person to be served by or through an agent carrying on business or residing in the Commonwealth; or (vi) is governed by the law of the Commonwealth or of a State or Territory; . . . (g) where the proceeding is properly brought against a person served or to be served in the Commonwealth and the person to be served outside the Commonwealth is properly joined as a party to the proceeding;" 8 Order 8 rule 2 sets out the conditions that have to be satisfied before the Court can grant leave to serve originating process outside the Commonwealth under Order 8. These are specified in O 8 r 2(2): "Where the Court is satisfied of the following matters - (a) that the proceeding is a proceeding in which the Court has jurisdiction; (b) that the proceeding is a proceeding to which rule 1 applies; and (c) that the applicant has a prima facie case for the relief which he seeks, the Court may, by order, grant leave to serve originating process outside the Commonwealth under this Order." It is noted that Malaysia is not a Convention country which, if it were the fact, would attract the application of Division 2 of Order 8 relating to service in Convention countries. 9 Newave relies upon the fact that the agreement was to be partly performed in Australia, including: (a) the manufacture of sails in Sydney; (b) design work in Newport, New South Wales. This was not apparent from the text of the agreement which was exhibited to the solicitor's affidavit and I was referred to no provision for any of the works to be done in Australia. The agreement was apparently prepared by Newave's solicitors, whose place of business is in Perth. There is no indication however, that it was executed within Australia by any of its parties. Each of the parties is shown, by the agreement, to be located outside Australia. Newave has a Hong Kong address, Complete Command an address at Johor in Malaysia, and MacPhail an address also at Johor in Malaysia. According to cl 16 the contract is to be governed by and construed in accordance with the laws of Malaysia. There is provision in the event of a dispute for appointment of an arbitrator by the President of the Australian Division of the Royal Institute of Naval Architects (cl 17). The guarantee and indemnity is to be governed by the laws of Western Australia (cl 30.8). Assuming, as appear to be the case, that the agreement was executed outside Australia, the representations, derived from the fact of entry into it by Complete Command, would also appear to have been made outside Australia. In clauses 5, 6 and 7 it is said that "by entering into the Shipbuilding Agreement" containing the various pleaded clauses Complete Command made representations that it would carry out the obligations set out in the pleaded clauses. On the face of it these representations were made, and therefore the misleading or deceptive conduct complained of done, outside Australia. 10 In his affidavit in support of this motion, Newave's solicitor asserts his belief that the proceedings against Complete Command "affect a contract or are for damages or other relief in respect of the breach of a contract that is governed by the law of the Commonwealth and therefore that the process may be served outside the Commonwealth pursuant to Order 8 Rule 1(ab) (ii) or (iii) and (vi)." In so far as the cause of action relies upon a breach of the agreement it is plain from its terms that, in relation to the obligations between Newave and Complete Command, it is not governed by the law of the Commonwealth, but by the law of Malaysia. The only element of the agreement that is governed by Australian law is the guarantee obligation which is governed by the law of Western Australia. The assertion that the contract was partly to be performed in Australia does not alter its character for the purposes of O 8 r 1(ab). 11 As far as the claim against MacPhail is based on the agreement, it is based upon the guarantee provision and it would appear that at least in respect of that claim, subject to the question of federal jurisdiction, the action is properly brought against him and he has been served within the Commonwealth. On that basis it may be said that in relation to the breach of contract claim against Complete Command, that company is properly joined as a party to the proceeding as its breaches would give rise to MacPhail's obligation under the guarantee. The only paragraph of O 8 r 1 applicable in this case therefore is par (g) and the application of that paragraph arises out of the contract claim against MacPhail who has been served within the Commonwealth. 12 By virtue of O 8 r 2(2) it is a necessary condition of leave to serve process outside the Commonwealth under Order 8, that the proceeding is a proceeding in which the Court has jurisdiction. In this case the Court does not have jurisdiction to entertain a breach of contract claim standing by itself. The only basis upon which the Court can entertain such a claim is that it forms part of a matter in which the Court does have jurisdiction. So the accrued jurisdiction of the Court in this case, to entertain the contract claim, depends upon its jurisdiction to determine the claim for relief arising under the Trade Practices Act 1974. 13 Under s 5 of the Trade Practices Act, Part V of the Act extends to the engaging in conduct outside Australia by bodies corporate incorporated or carrying on business within Australia or by Australian citizens or persons ordinarily resident within Australia. On the face of it there is no material to indicate that Complete Command is a body corporate "incorporated or carrying on business within Australia". Indeed, the true position appears to be to the contrary. Assuming that Complete Command were shown to be carrying on business within Australia, there would nevertheless be a requirement for ministerial consent before a claim under s 82 could be relied upon at a hearing (s 5(3)). The representations attributed to MacPhail are not located geographically and the constitutional fact necessary to support the direct application of the Trade Practices Act to him as a natural person are not pleaded. 14 In my opinion, Newave has not established that this Court has jurisdiction to entertain the action under the Trade Practices Act. If the Court lacks jurisdiction in that regard then there is no matter before the Court which could encompass the contract claims against MacPhail or against Complete Command. Were jurisdiction to be established, I would be satisfied, having regard to the pleading of s 51A, that a prima facie case for the relief sought had been shown albeit in the limited sense that there is material before the Court from which inferences are open which if translated into findings of fact would support the relief claimed. Those inferences would be critically dependant upon the evidentiary assistance of s 51A of the Trade Practices Act. 15 In the circumstances, I am not persuaded that this is a case in which the Court has jurisdiction to entertain the claim. It may be that further material can be put before the Court to meet that requirement. I will allow the applicant a further opportunity to do that.