Judgment - ex tempore
Revised and reissued 18 February 2020
This is an application under the Uniform Civil Procedure Rules 2005 (NSW), r 11.6 by a foreign defendant to have the proceedings against it dismissed for lack of jurisdiction or alternatively stayed on the ground that this Court is an inappropriate forum for the resolution of the claim against it. The defendant's notice of motion included a further alternative application for security for costs in the event that the proceedings continue against it in this Court, but it was agreed in the course of the hearing before me that this application should be held over to be dealt with after the application to dismiss or stay the proceedings had been determined, and should the proceedings continue in this Court, the defendant had filed a defence.
The defendant, Amstelside BV is a company incorporated in the Netherlands with its corporate seat in Amsterdam. It is the developer of a hotel in Amsterdam known as "QO Amsterdam Hotel" which is described in the evidence as a "state of the art luxury hotel with a focus on environmental sustainability". The operation of the hotel is actually managed by another Dutch company.
The plaintiff, Nilepac Pty Limited, is an Australian company. Currently the sole shareholder of the company and its sole director is Mrs Lauren Capelin. Her husband Mr Scott Capelin was formerly a director.
Nilepac has developed a business of designing and constructing what are known as "fitness studios" which appear to be up-market gyms. This has involved developing a brand (using the word "Embody") and associated image, get-up and customer relationship management software. It appears that Mr Capelin is largely responsible for this activity.
In 2017 when the QO Amsterdam Hotel was still under development and had not yet opened its doors, Amstelside was looking for assistance with establishing a suitable fitness studio at the hotel. Nilepac was one of the parties under consideration.
In March 2017 Mr Capelin gave a presentation on behalf of Nilepac and Nilepac was soon after selected by Amstelside as the party to undertake the establishment of the fitness studio. It was apparently contemplated that Mr Capelin would relocate to Amsterdam to do this.
A written agreement was prepared and signed by Amstelside in February 2018. The contract provided that Nilepac would provide a design for the fitness centre of the hotel; would prepare specifications; and would licence their intellectual property for the purposes of the venture. The agreement also provided that Nilepac would provide ongoing management services and supervision.
Under the agreement, Nilepac was to be paid "the agreed and budgeted cost" of its interior design services which were estimated at $35,000. Amstelside was also to pay €120,000 for working capital for the studio, to be repaid yearly in three yearly instalments starting one year after the commencement date of the agreement. Amstelside was also to make monthly payments of €20,000 until the hotel was opened and thereafter to pay an annual licence fee calculated by reference to the operating profit of the studio.
Amstelside has paid $25,000 towards the cost of the design of the studio. Amstelside also paid monthly fees of €20,000 from February to July 2018. For reasons which are not fully explained in the evidence those payments then ceased. At that stage the hotel had still not been opened and apparently its opening had been delayed by other factors.
In January 2019 articles were published in the Australian media linking Mr Capelin with fraudulent conduct. Amstelside claims this caused it reputational damage. Lawyers acting for Amstelside wrote to Nilepac on 4 March 2019 purporting to terminate the agreement. Further correspondence ensued.
On 7 June the Statement of Claim in the proceedings was filed on Nilepac's behalf. The Statement of Claim was served on Amstelside and a conditional appearance was entered. No defence has been filed. The notice of motion before me was filed on 2 September.
Nilepac's principal claim is in contract. Nilepac claims first that it has not been paid the full cost of the interior design service which it supplied. It claims that full cost of those services was $85,000 and accordingly $60,000 remains outstanding. Second, Nilepac claims payment of €20,000 per month on and from August 2018. The Statement of Claim further alleges failure to pay the €120,000 working capital, but as the agreement provided that this was to be repaid it is difficult to see how it could be a source of loss.
The Statement of Claim seeks a declaration that the agreement has not been terminated or rescinded and it remains in force. However, under the terms of the agreement it could be terminated on six months' notice and it is therefore difficult to see how Nilepac can maintain any claim once six months had expired from the point Amstelside purported to terminate.
Counsel for Nilepac accepted that if the proceedings were to remain in New South Wales the claims would probably fall within the jurisdictional limits of the District Court.
As I have mentioned no defence has been filed for Amstelside. Amstelside has foreshadowed justifying its termination on the ground that the unfavourable publicity involving Mr Capelin entitled it to do so.
Amstelside does not rely on any express terms of the contract but the contract provides that it is governed by Dutch law and Amstelside relies upon certain provisions of the Burgerlijk Wetboek [Civil Code] (Netherlands) ("Dutch Civil Code"). Article 6:248 provides:
1. An agreement not only has the legal effects which parties have agreed upon, but also those which, to the nature of the agreement, arise from law, usage (common practice) or the standards of reasonableness and fairness.
2. A rule, to be observed by parties as a result of their agreement, is not applicable insofar this, given the circumstances would be unacceptable to standards of reasonableness and fairness.
According to Amstelside's foreshadowed contention the requirement of "reasonableness and fairness" required, in the present context, that Amstelside be able to terminate the contract in the event of reputational damage being caused to it by association with Nilepac. Amstelside emphasises under the Dutch Civil Code the concept of "reasonableness and fairness" is not limited to the express provisions of the contract.
[2]
Does the Court have jurisdiction?
The circumstances in which service of process of this Court may be served outside of Australia without prior leave of this Court are set out in schedule 6 of the Uniform Civil Procedure Rules 2005 (NSW). Nilepac relied upon various paragraphs in schedule 6 as giving rise to jurisdiction.
One of these is subparagraph (c), which provides that the Court has jurisdiction:
when the claim is in respect of a breach in Australia of any contract, wherever made, whether or not that breach was preceded or accompanied by a breach outside of Australia that rendered impossible the performance of that part of the contract that ought to have been performed in Australia
Nilepac's case, as explained by counsel at the hearing, is that the €20,000 fees were required to be paid to Nilepac in Australia and, accordingly, failure to make payment of the fees, which is one of the matters complained of, was a breach in Australia.
Clause 4.5 of the agreement provided that such payments "shall be made to an account specified by" Nilepac. Although the contract did not provide for Nilepac to render invoices, invoices were in fact sent. Those invoices requested payment of the amount due by direct credit to an Australian bank account, although the actual bank account was not the same for all the invoices.
Although not pleaded precisely in these terms, Nilepac's case, as I understand it, is that the August 2018 and later monthly payments should have been made to the bank account nominated in the last invoice, namely, the one issued in July. Counsel for Amstelside disputed this analysis. Counsel pointed out that no invoices appear to have been issued for the months from August onwards. Counsel also submitted, as I understood the argument, that the inclusion of bank account details in the invoices which were issued prior to August could not be taken as a notification of a requirement to make later monthly payments to any particular bank account, whether in Australia or elsewhere.
In evaluating the competing submissions, I bear in mind that where jurisdiction depends upon debatable questions of fact, the question is whether Nilepac's claim, as formulated, if accepted, would mean that the cause of action is relevantly connected with Australia. In the present case, I do not need to be satisfied that there was actually an effective nomination of an Australian bank account for the purposes of payments which were due from August onwards. All I need to be satisfied of is that Nilepac's case includes that allegation.
As I have said, such an allegation is not expressly stated in the Statement of Claim, but I think it is fairly available having regard to the way the case has been presented by counsel. Accordingly, in my view, the Court has jurisdiction under subclause (c) of schedule 6. This conclusion makes it unnecessary to consider the other bases on which counsel for Nilepac contended that the Court has jurisdiction.
[3]
Is New South Wales an "inappropriate forum"?
It was common ground between the parties that in deciding whether the Court is an "inappropriate forum" I should apply the principles stated in Regie Nationale des Usines Renault SA v Zhang (2002) 210 CLR 491; Puttick v Tenon Limited (2008) 238 CLR 265; and McGregor v Potts (2005) 68 NSWLR 109. Those cases make it clear that whether the Court is an "inappropriate forum" is informed by concepts of abuse of process and, in particular, abuse of process "in the sense of productive of serious and unjustified trouble and harassment". But as Brereton J said in McGregor v Potts, proof of actual vexation or oppression is not required, and continuation of proceedings in an inappropriate forum is, in effect, presumed to be vexatious or oppressive in the relevant sense.
There was evidence before me (led as part of Amstelside's application for security for costs) estimating that the proceedings would cost $300,000 to defend, but there was no evidence of the comparable cost of defending the proceedings in the Netherlands. At this stage of the proceeding, the cost of defending them must, on any view, be a matter of speculation. But I think that I can assume that significant additional costs would be imposed on Amstelside in having to meet the claim in this jurisdiction. It is not suggested that Amstelside has any presence here, and I think that it is self-evident that defending proceedings under a foreign legal system on the other side of the world is bound to prove more difficult and more expensive than defending them at home.
Counsel for Nilepac countered that if the proceedings were brought in the Netherlands then that would be less convenient from Nilepac's point of view. This led to a debate as to the extent to which the Court should take account of convenience to Nilepac in assessing whether it is an "inappropriate forum". Arguably, the fact that the concept of "inappropriate forum" is informed by questions of oppression towards Amstelside, Nilepac's convenience may be of lesser weight.
In the end, I do not need to take this debate any further. In my view, New South Wales is an "inappropriate forum" because of the nature of the prospective defence. Should the case proceed here, then the Court will find itself being required to understand and apply the concept of "reasonableness and fairness" as it applies to the interpretation and enforcement of contracts under the Dutch Civil Code.
Counsel for Nilepac submitted that the mere fact that a claim is governed by foreign law does not make this Court an "inappropriate forum". So much may be accepted, but it is a relevant factor. In the present case, it seems to me to be a factor of decisive importance. Counsel for Nilepac pointed out that the Court can and does act on evidence from experts as to the content of foreign law. But in this case it is not merely a question of applying an unfamiliar doctrine. It seems to me that it may involve the Court in applying a different mindset from that which it usually uses in dealing with commercial contracts. Of course, there are concepts of good faith and reasonableness in Australian commercial contract law, but I think it is fair to say that, whatever the precise limits of good faith and reasonableness, they depend ultimately very much on the terms of the contract and take their colour from the expressed terms of the contract.
The impression that I have received on this application is that the Dutch doctrine is quite different. If it is required to do so, no doubt the Court can try to approach the resolution of this case as it would be approached in a Dutch commercial court. But it seems to me unrealistic to suppose that the Court could develop, in the course of a single case, the familiarity with the Dutch concept of "reasonableness and fairness" that Dutch courts must develop through constant application of the doctrine.
I conclude that in this sense, the resolution of the dispute in this forum would indeed be inappropriate. For these reasons, I consider that the Court should decline jurisdiction in this case under Rule 11.6. I propose to order a stay of the proceedings.
The orders of the Court are:
I order that the proceedings be stayed.
I order that the plaintiff pay the defendant's costs of its notice of motion of 2 September 2019. Such costs to be assessable forthwith.
[4]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 18 February 2020