Plaintiff v Defendant

Consult Lawyers (as town agents for Metaxas & Hager)

1 The plaintiff is a manufacturer of packaging materials based in Melbourne. The defendant manufactures pies, sausage rolls and like products for the wholesale and retail market and is based in Perth. In March 2013 the defendant issued a request for tender to the plaintiff and others for the supply of packaging materials. The plaintiff was the successful tenderer. The plaintiff supplied to the defendant flexible wrapping comprised of a metallised polyester film bonded to paper upon which the defendant's artwork is printed. The wrapping is designed for heating frozen products in microwave ovens, with the metallic component of the wrapping designed to 'crisp' the products.

2 The wrapping was manufactured by the plaintiff in Melbourne and then delivered to the defendant's premises in Perth in large rolls. The defendant wrapped its products in its Perth premises. On 4 November 2013, the purchasing manager of the defendant reported to the plaintiff some customer complaints which referred to a 'strange burning/chemical smell during heating and ... scorch marks on the interior of the wrapper'.[1] Investigations took place at both premises, which indicated that the metallic film on the wrapping was 'delaminating'. There was further correspondence and discussion regarding the testing process and results at each of the premises. It seems that the defendant lost confidence in the quality of the wrapping supplied by the plaintiff, and on 11 March 2014, it notified the plaintiff that the defendant would be moving to another supplier, albeit that it would continue to require more stock while the defendant was in a transition period.

3 By September 2014, the parties had engaged solicitors who were corresponding regarding whether the dispute should be referred to mediation or arbitration. At a relatively early stage of this process, the solicitors for the defendant indicated its intention to issue a proceeding in the Supreme Court of Western Australia. There were disputes between the solicitors about the timing and the location of the mediation. On 29 October 2014, without prior notice to the solicitors for the defendant, the plaintiff issued this proceeding.

4 In its statement of claim, the plaintiff claimed the sum of $248,022.52 by reason of unpaid invoices issued by it to the defendant, as well as damages by reason of the defendant's wrongful repudiation of the agreement between the parties ('Contract'), being loss of profits from September 2014 to May 2016, plus costs thrown away by reason of the defendant's repudiation of the Contract. The defendant filed an appearance on 12 November 2014, and a defence and counterclaim on 4 December 2014. In the defence and counterclaim the defendant disputed that the terms of the Contract incorporated certain terms pleaded by the plaintiff, including the term by which the plaintiff asserted it had been appointed as the defendant's exclusive supplier for three years, and denied that it was liable to pay the plaintiff's outstanding invoices by reason of the setoff and counterclaim.

5 The defendant claimed that it was entitled to terminate the Contract on the basis that the plaintiff had breached the Contract by reason of its supply of wrapping which was not fit for purpose, not of merchantable quality, and not free from defects. The defendant claimed the sum of $774,100, being costs incurred by it in undertaking a product recall after having been supplied with defective wrapping.

6 In its Reply and Defence to Counterclaim filed on 16 December 2014, the plaintiff denied the defendant's allegations that its products were defective, but alleged that if there were any defects, they were caused by the defendant in heat sealing the wrapping after insertion of its products in such a way as to damage the wrapping.

7 On 8 April 2015, the defendant issued a summons seeking that the proceeding be transferred to the Supreme Court of Western Australia. No steps have been taken in the proceeding since the close of pleadings.

8 The defendant's application is made under s 5(2)(b)(iii) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Vic) ('Act'), which provides that:

where it appears to the first court ... that it is otherwise in the interests of justice that the relevant proceeding be determined by the Supreme Court of another State or Territory the first court shall transfer the relevant proceeding to that other Supreme Court.

9 In the leading authority on the task before the Court in determining what the interests of justice require, BHP Billiton Ltd v Schultz ('Schultz'),[2] the relevant test was stated by Gleeson, McHugh and Heydon JJ to be as follows:

It is not necessary that it should appear that the first court is a 'clearly inappropriate forum'. It is both necessary and sufficient that, in the interests of justice, the second court is more appropriate.

10 The defendant relies upon the following matters in support of its submissions that the Supreme Court of Western Australia is a more appropriate forum, being that:

(a) the wrapping was delivered to the defendant's premises in Perth, and thus the Contract was breached in Western Australia;

(b) all of the defendant's witnesses are resident in Western Australia, and two of the plaintiff's witnesses will be giving evidence regarding conversations which took place at the defendant's premises in Perth;

(c) given the nature of the allegations in the plaintiff's reply, the manufacturing processes at the defendant's premises will be under scrutiny; and

(d) the defendant's documents are held in Perth.

11 It was submitted on behalf of the plaintiff that the relevant connecting factors favoured the proceeding remaining in Victoria. The plaintiff's lay witnesses are resident in Victoria, including the witness who will give evidence regarding the plaintiff's loss of profit claim. No party has briefed expert witnesses yet, but one might expect that relevant experts would be available in any major Australian capital city. The primary focus of the proceeding, given the allegations made by the defendant in its counterclaim about the quality of the goods supplied by the plaintiff, will be the plaintiff's manufacturing processes. Further, while counsel for the plaintiff accepted that these matters are not determinative, he submitted that the following matters are at least relevant:

(a) the fact that the Contract was made in Victoria;

(b) the existence of a clause in the Contract whereby the parties agreed to submit to the nonexclusive jurisdiction of the courts of Victoria; and

(c) the fact that the defendant filed an unconditional appearance in the proceeding, and then invoked jurisdiction of this Court by bringing a counterclaim claiming substantial damages.

12 In reply, counsel for the defendant submitted that the defendant's manufacturing processes were going to be under just as much scrutiny as the plaintiff's manufacturing processes, and disputed whether the Contract was made in Victoria. Counsel submitted that the existence of a nonexclusive jurisdiction clause was largely irrelevant, as such a clause had no meaningful content. He rejected the contention that by filing and serving a counterclaim, the defendant had irrevocably bound itself to submit to the jurisdiction of this Court.

13 One preliminary issue which is necessary to resolve for the purpose of this application is whether in fact the Contract includes a nonexclusive jurisdiction clause. While the issue was not the subject of extensive argument during the hearing of the application, this allegation is disputed by the defendant in its defence and counterclaim. However, it is apparent from the documents exhibited to the affidavit of Mr Andrew Jenkins, a manager of the defendant, that the terms of the relationship between the parties are governed by two documents: the contractual terms annexed to the Request for Tender issued by the defendant,[3] headed 'General Conditions of Contract for the Supply of Goods or Services' ('General Conditions'), and the Terms and Conditions of Sale ('Terms and Conditions') annexed to the Credit Application issued by the plaintiff and amended and executed by the defendant and returned to the plaintiff.[4]

14 Clause 17.3 of the Terms and Conditions provides as follows:

The Terms shall be governed by and shall take effect in accordance with the laws of Victoria, and the parties irrevocably submit to the nonexclusive jurisdiction of the Courts of the State of Victoria.

15 The General Conditions include the following provisions:

The Contract will take precedence in the event of any inconsistencies between the terms and conditions of this agreement and the terms and conditions of any quotations or other communications between the parties or implied by law (except to the extent that they could not be excluded); and

Risk and title to the goods and/or services will pass to the purchaser at the time of the delivery to the purchaser. Goods and/or services remain at the seller's risk until delivery.

16 The following relevant observations can be made regarding the terms of the contractual relationship between the parties. First, while the General Conditions provide for precedence of the terms of that document over the terms of any other communications between the parties (such as the Terms and Conditions) the General Conditions are silent as to the question of applicable law and the jurisdiction in which disputes may be litigated, such that, at least for the purpose of this application, clause 17.3 of the Terms and Conditions form part of the Contract. Secondly, the effect of clause 15.1 of the General Conditions means that the Contract is what is commonly known as an 'FOB contract', and therefore, the place of performance of the Contract is Western Australia.

17 In its defence and counterclaim filed on 4 December 2014, the defendant denied that the Terms and Conditions formed part of the Contract, on the basis that no consideration flowed from the plaintiff to the defendant in exchange for the defendant executing the Terms and Conditions, alternatively that there was no meeting of minds between the parties such as to amount to evidence of an intention to vary the terms of the Contract in order to incorporate the Terms and Conditions (and therefore, by implication, clause 17.3 of the Terms and Conditions), and alternatively, to the extent there was an agreement, it only concerned the time for payment.

18 In my view, without prejudice to the rights of the defendant to maintain the allegations in paragraph 4.8 of its defence and counterclaim at trial, I consider that the Contract includes the Terms and Conditions, to the extent that they do not conflict with the Terms of the General Conditions of Contract. Consideration did flow between the parties: the plaintiff agreed to extend credit to the defendant. As for whether there was a 'meeting of minds' or an objectively ascertainable intention of the parties to vary the terms of the Contract is ascertainable from the Terms and Conditions document itself: the part of the document whereby the directors of the defendant were to provide a guarantee was struck through, along with clause 9.4 of the Terms and Conditions, which provided that the defendant was required to hold all funds for payment to the plaintiff on account of goods supplied to the defendant on trust for the plaintiff. If there was no common intention to vary the Contract, or the variation was limited to the terms suggested by the defendant in its defence and counterclaim, no such amendment to the Terms and Conditions would need to be made.

19 In Sedman & Associates Pty Ltd v Morgan Stanley Wealth Management Australia Pty Ltd ('Sedman'),[5] I considered the question of the weight to be given to an exclusive jurisdiction clause when determining applications under s 5 of the Act. I see no good reason to depart from the conclusions I reached on that occasion, being that:[6]

(a) the provisions of the Act have ousted the common law doctrine of forum non conveniens insofar as it applies to disputes as to which Australian Court should hear a particular proceeding, so that while the existence of a choice of law or choice of jurisdiction clause in a contract between the parties is a relevant factor in the determination of an application of this nature, it is not determinative;

(b) as such, the question for determination is not whether the court in which the proceeding has commenced is a clearly inappropriate forum, but rather that, whether another court is a more appropriate forum; and

(c) in determining which court is the most appropriate forum, the court should have regard to the "connecting factors" described by Lord Goff in Spiliada Maritime Corp v Cansulex Ltd ('Spiliada'),[7] in order to determine with which forum the proceeding has the most real and substantial connection.

20 Accordingly, it is necessary to turn to the connecting factors ultimately derived from the statements of Lord Goff in Spiliada, as follows:

(a) the application of the substantive law, if it is peculiar to a particular jurisdiction;

(b) forensic advantages or disadvantages conferred by the competing procedural laws;

(c) the plaintiff's choice of forum and the reasons for that choice;

(d) substantive connections with the forum (residence, domicile, place of occurrence and choice of law);

(e) the balance of convenience to parties and witnesses;

21 Having regard to the factors outlined above, along with the existence of the nonexclusive jurisdiction clause and the conduct of the parties in the proceeding to date, the question of which is the more appropriate forum is about as finely balanced as it could be. There is nothing of particular relevance which stands out in relation to the matters listed at subparagraphs (a), (b), (c), (e), (f) or (g) above. In relation to (d) above, the parties to the proceeding and the events which gave rise to the issues in the proceeding have substantive connections with both Victoria and Western Australia.

22 In Sedman, the focus of the application was whether the exclusive jurisdiction clause assumed a particular significance, and, to a lesser extent, whether the defendant had, by taking certain steps in the proceeding, made a binding and irrevocable election to submit to the jurisdiction of the Courts of Victoria, as was the case in Steadmark Pty Limited v Bogart Lingerie Limited ('Steadmark').[8] In Sedman, the place of the breach assumed no real significance in the application. Accordingly, on that occasion, I was not taken to the judgment of Cavanough J in O'Donnell v Nage Holdings Pty Ltd ('O'Donnell'),[9] where his Honour noted that, on reflection, the majority judgments in Schultz might require that the place of the wrong be taken as the starting point and be given particular weight in every case. However, it was not necessary for him to finally determine the matter in that case. In the recent decision of Mutch v BHP Billiton Ltd & Ors ('Mutch'),[10] his Honour accepted the submission that the place of the wrong should be taken as the starting point and should indeed be given particular weight in every case. He restated the following passage from his reasons in O'Donnell:

Certainly, it is no longer the case that weight is to be given to the plaintiff's choice of forum. There is no onus on the defendant to displace that choice as such. The further tenor of the majority judgments in Schultz appears to be as follows. Generally speaking, the place of the wrong will be the "natural" forum or the forum which will give effect to the "reasonable expectation of the parties", especially if the parties are resident there. Hence the courts of that place will usually be the "more appropriate" forum. Therefore, it will usually be in the "interests of justice" that the proceeding be heard and determined in those courts. The "interests of justice" concern the interests of both parties, rather than the selection of the most advantageous, or the least disadvantageous, forum for one of them - for that reason, the "interests of justice" should be judged by more objective factors. The court must transfer a proceeding if it appears to the court that to do so is "in the interests of justice". Hence it is inapt to describe the power of transfer as a discretionary power. On the other hand, the power involves "the judicial evaluation of a number of factors".

Although the place of the wrong should be taken as the starting point and should be given particular weight in every case, nevertheless in a particular case there may be countervailing factors or other circumstances of such a kind that, considering the matter overall, it will not appear to the original court that it is in the 'interests of justice' that the relevant proceeding be determined by the courts of the place of the alleged wrong.

24 For current purposes, and in the absence of argument on the issue, I am prepared to accept that Cavanough J is correct. However, I would venture to add that the particular weight given to the place of the wrong may have less significance where the relevant cause of action in the proceeding is based upon a breach of contract rather than tort. Indeed, each of Schultz, O'Donnell, and Mutch were dust diseases proceedings. Indeed, in O'Donnell,[12] Cavanough J commented upon the reasoning in Schultz as follows:

With respect to cases in tort in particular, Callinan J commented that, at least prima facie, the forum of the jurisdiction in which the tort was committed will be better equipped to deal with the issues. The parties would be likely to have a presence in the jurisdiction. Proximity to the courts there was likely to lead to both expedition and savings in expense. But of at least equal importance was the fact that the events giving rise to the claim were at the time subject to, and regulated by, the laws of the jurisdiction where they occurred. The court of that place should be the most experienced and efficient in evaluating and applying such laws. One relevant law would usually be the law relating to insurance. Other state laws would usually apply. Callinan J said:

The parties' reasonable expectation would almost certainly be that in the event of a dispute about any of these matters, it would be resolved according to those laws as interpreted and applied by the court of that State.

25 The above statement emphasises the practical considerations generally relevant in tortious matters, including the fact that there are different legislative regimes and judicial processes for dealing with personal injuries matters between different States and Territories. These considerations are of less significance in cases concerning breach of contract, where there is greater legal harmony between the States and Territories, and less material differences between the judicial and administrative arrangements for hearing and determining proceedings than there are in personal injury cases, particularly dust diseases matters. However, the discussion in the above authorities does highlight one issue: the emphasis upon practical connecting factors and the objective of limiting costs and inconvenience when determining which court is the most appropriate forum.

26 Applying the above analysis and approach taken in the authorities to personal injury claims to the current proceeding, counsel for the defendant correctly submitted that the Contract was breached in Western Australia, when the faulty wrapping was delivered to the defendant's premises in Perth. However, the conduct which was said to give rise to the breach, being the manufacture of the faulty wrapping, occurred in Victoria. For all intents and purposes, Victoria is the 'place of the wrong'. I note that in Mutch, Cavanough J accepted that the place of exposure, being South Australia, was the place of the wrong, despite the fact that the plaintiffs' cause of action was arguably not complete until the first plaintiff was diagnosed with mesothelioma after having been resident in Victoria for decades, and the second plaintiff's claim was based upon a loss of consortium, which could only arise upon the illhealth of her husband (that is, in Victoria).

27 Therefore, to the extent that Schultz is good authority for the proposition that special weight ought to be given to the place of the wrong, then that is a significant factor in weighing in favour of the proceeding remaining in Victoria. In any event, I accept the submissions of counsel for the plaintiff that it will be the manufacturing processes of the plaintiff which will be under the greatest amount of scrutiny in this proceeding. While there will necessarily be some scrutiny of the defendant's manufacturing process by reason of the issues raised by the plaintiff's reply and defence to counterclaim, those claims may well be able to be evaluated by an examination of the finished product (if stocks do exist), or by a relatively straightforward reenactment of the wrapping process. On the other hand, it is clear from the correspondence between the parties after the defendant first complained about the wrapping to the plaintiff that the defendant had a range of queries and complaints about the wrapping, including, but not limited to the quality and specifications of the materials used in the manufacturing process, the testing procedures undertaken by the plaintiff, and the quality of the printed artwork on the wrapping.

28 Another relevant matter which favours the retention of the proceeding in Victoria is the plaintiff's as yet unquantified loss of profit claim. No doubt the plaintiff's claim in respect of unpaid invoices could be easily proved in either jurisdiction. However, proof of its claim for loss of profits may involve some complexity, and it is likely that the quantum of any such loss of profits claim as well as the plaintiff's entitlement to claim lost profits will be a matter of some dispute, and take up a significant proportion of court time at trial, with the burden largely falling upon the plaintiff's witnesses. In contrast, the quantum of the defendant's counterclaim has already been calculated and fixed, being its recall costs. While no doubt it will be put to its proofs in that regard, one would expect that if the plaintiff is found to be liable for the defendant's recall costs, then quantifying those losses will be a relatively straightforward exercise.

29 There are other matters which add some weight to my conclusion that Victoria is, on balance, the most appropriate forum. The existence of the nonexclusive jurisdiction clause is of some, if only modest, weight. Some weight, because of the nature of the bargain and the relative equality of bargaining power of the parties. The defendant could have insisted upon there being a similar clause, or even an exclusive jurisdiction clause in favour of adjudication of any disputes in Western Australia. As stated by Whelan J (as he then was) in Slater & Gordon v Porteous:[13]

Whilst exclusive jurisdiction clauses ... do not have the effect that they have in the "forum non conveniens" context, they remain a relevant factor and may be the critical factor in a particular case. Such a clause may indicate that the parties turned their minds to the question of where litigation should occur and agreed upon a single exclusive venue. This factor may be particularly compelling where it can be said that the parties must have been conscious at the time of the agreement of the existence of connecting factors between potential disputes and a State other than the exclusively designated State, and must have been conscious of the existence of potential inconvenience for one of the parties in litigating in the exclusively designated State.

30 The current proceeding is more akin to the proceeding before Whelan J than to Sedman, where the plaintiffs were individuals dealing with a large multinational financial institution and the exclusive jurisdiction clause was contained in a standard form document.

31 In determining that Victoria is a more appropriate forum, I also have had some regard to the steps undertaken in this proceeding. I do not consider that there was any binding election or waiver on the part of the defendant. The defendant has not, simply by reason of filing and serving a counterclaim, irrevocably bound itself to this jurisdiction in the manner in which the equivalent party in Steadmark had done, whereby the defendant had filed a defence and counterclaim, made and compromised a claim for security for costs, engaged in a mutual discovery process, and had participated in a mediation. However, the willingness of the defendant to invoke the jurisdiction of this Court is a relevant, if not determinative, factor in the current application.

32 For completeness, I should note that the fact that the plaintiff has chosen to bring its claim in Victoria is of negligible relevance to the current application. Apart from that being consistent with the authorities that the plaintiff's choice of forum is only one factor to take into account, one would be loath to unduly reward a plaintiff who, in the middle of a process aimed at making arrangements for mediation of the dispute, 'snapped on' a proceeding, although that may in part have been provoked by the threats made by the defendant's solicitors to issue a proceeding in Western Australia.

33 Accordingly, I will dismiss the defendant's application, and make further directions for the conduct of the proceeding.

[1] See exhibit 'AJ-7' to the exhibit of Andrew Nicholas Jenkins sworn on 30 March 2015.

[2] [2004] HCA 61; (2004) 221 CLR 400 at [421].

[5] [2013] VSC 549.

[7] [1987] 1 AC 460.

[8] [2013] VSC 402.

[9] [2013] VSC 115 at [13].

[10] [2015] VSC 253 at [14].

[11] [2015] VSC 253 at [13].

[13] [2005] VSC 398 at [26].