Shantou Hesheng Commercial Development Co v P & O Swire Containers Limited [1999] VSC 347

5. The defendant denies liability on various grounds and seeks, in any event, to make the following claims against a third party, Shantou SEZ Shipping Co:

(a) The shipment of the cargo from Hong Kong to Shantou was made pursuant to a bill of lading issued in Hong Kong on or about 6 April 1989 between the defendant's agent, P&O Nedlloyd (HK) Ltd as shipper and the third party as carrier. Under this contract the third party agreed to deliver the cargo in the same good order and condition as that in which it was shipped. The third party is in breach of this contract.

(b) As carrier of the cargo the third party owed to the plaintiff a duty of care. The collision and the consequent damage to the cargo was caused by its breach of this duty of care. The third party is therefore liable to make contribution to the defendant pursuant to Part IV of the Wrongs Act 1958 of the State of Victoria.

(c) The collision and the consequent damage to the cargo was caused by a breach by the third party of a duty of care owed by it to the defendant. As a result of this breach the defendant has and will suffer loss and damage on the amount it may be ordered to pay to the plaintiff.

11. The defendant applies to the court ex parte, seeking an order pursuant to R. 7.07(3) that it be allowed to serve the third party process out of Australia. The scheme of O. 7 is that originating process may be served out of Australia without leave where the claim falls within one or other of the paragraphs of R.7.01(1). Rule 7.07(2) likewise permits service out of Australia of a third party notice or a counterclaim against a person who is not already a party to the proceeding in cases where the claim made in it is of such a kind that, if made by writ or originating process, it could be served out of Australia without court order, pursuant to R. 7.01. I will refer to such a claim as a conforming claim.

14. It as accepted before me by counsel for the defendant that the first third party claim mentioned above did not fall within R.7.01(1). The bill of lading is not a Victorian contract, within the meaning of paragraph (f) nor was it breached in Victoria, within the meaning of paragraph (g).

17. It was likewise not contended that the service of the third party process in respect of the second cause of action against the third party could be supported by any paragraph of R. 7.01(1), including paragraph (l), which permits service of process on a necessary or proper party to the proceeding. Counsel accepted that the line of authorities starting with McCheane v Gyles [1902] 1 Ch 287, establishes that a third party cannot be a "necessary or proper party" to the principal claim for it is not a party at all to that claim. Where the claim against the third party is an independent proceeding, as is the case here, the question whether the party in question is a necessary or proper party to the third party proceeding must be determined from an examination of that proceeding alone without reference to the claims in the principal proceeding: Gilchrist v Dean [1960] VicRp 42; [1960] VR 266; Angus & Coote Pty Ltd v Qantas Airways Ltd [1979] 2 NSWLR 398, a case which was referred to by the Full Court of this Court without adverse comment in Australian Mutual Provident Society v GEC Diesels Australia Ltd [1989] VicRp 38; [1989] VR 407 at 411. Notwithstanding that the Angus & Coote case has been doubted in New South Wales: Australia Iron & Steel Pty Ltd v Jumbo Scheepvart Maatschappji (Curacao) NV (1988) 14 NSWLR 507 at 518, per Yeldham J, I do not see myself as at liberty to depart from this conclusion.

20. The third cause of action was added to the third party statement of claim by leave granted during the hearing of this application. It is said to amount to a claim for damages suffered in Victoria and caused by a tortious act or omission of the third party occurring outside Victoria within the meaning of R. 7.01(1)(j). As pleaded, this appears to be correct. The defendant is a company incorporated in the United Kingdom and registered as a foreign company carrying on business in Victoria, and has assets here. The loss which it may suffer in the event that the plaintiff's claim is successful is loss which it will suffer in Victoria. Service out of Australia without court order is permitted in respect of this claim: R. 7.07(2).

23. Rule 7.01(1) speaks of service of originating process. This expression includes a third party notice and a counterclaim to be served on a non-party: R. 1.13. Although the process to be served will take the form of a document in the appropriate form, R. 7.01(1) directs attention to the claim made in that document. Where this claim falls within one or other of the paragraphs to that sub-rule, service is permitted of the process out of Australia without any supervision or intervention by the court. The cases, however, show that, where the process includes a number of claims, not all of which fall within one of the paragraphs, the claimant may not serve it out of Australia: Siskina (Owners of cargo lately laden on board) v Distos Compania Naviera S.A. [1979] AC 210 at 255; Australia Iron & Steel Pty Ltd v Jumbo Scheepvart Maatschappji (Curacao) NV (1988) 14 NSWLR 507 at 517-8, per Yeldham J. If, notwithstanding this, such process is served, the claimant seeking leave to proceed pursuant to R. 7.04 where no appearance is filed, or resisting an application to set aside service pursuant to R. 7.05, must elect whether it will proceed only with the conforming claims or have the whole proceeding stayed: Williams v the Society of Lloyd's [1994] VicRp 19; [1994] 1 VR 274 at 292, per McDonald J. The rigour of this Rule is mitigated, where the process is a third party notice or a counterclaim against a non-party, by R. 7.07. As I have mentioned, this Rule provides in sub-R. (2) that service of such process may be effected out of Australia without leave if the claim is of a kind which might have been served out of Australia under R.7.01(1). It is not clear what purpose this sub-rule serves since the process to which it refers is, itself, "originating process" and therefore falls within R. 7.01(1) for that reason. In any event, sub-R. (3) provides, in respect of this process:

"(3) Where paragraph (2) does not apply, the Court may by order allow service out of Australia of a counterclaim or third party notice."

27. It is such an order that the defendant seeks in this application brought by summons filed on 11 August 1999. It does so on two grounds. First, that service should be allowed in respect of the first and second claim so that these matters may be dealt with at the same time as the plaintiff's claim. Second, since the process might be served as of right in respect of the third claim, the justice of the case requires that the alternative conforming claim against the third party be dealt with at the same time.

30. When the application first came on before me on 2 September, it was pressed primarily on the second of these two grounds and I shall deal with it first. I start from the position that service under this rule might be allowed where a substantial part of the claim falls within one or more of the paragraphs of R. 7.01(1): Commonwealth Bank of Australia v White; ex parte Lloyd's (1999) VSC 262 at [84]. Where a party seeks such an order it must show that there is a strong arguable case that these claims fall within a paragraph of R. 7.01(1). That such a burden should be imposed upon the defendant applicant in an application such as this, follows from those cases which impose this burden upon the serving party in other applications under Order 7. This is the burden of proof imposed upon an applicant for leave to serve out of the jurisdiction in those jurisdictions where leave is required: Seaconsar Far East Ltd v Bank Markazi Jomhouri Islam Iran [1994] 1 AC 438 at 453-4 (good arguable case); and upon a respondent upon an application to set aside service: Deer Park Engineering Pty Ltd v Townsville Harbour Board [1975] VicRp 31; (1974) 5 ALR 131 at 134, per Gillard J (good arguable case); WA Dewhurst & Co Pty Ltd v Cawrse [1990] VR 278 at 281, per Dean J (strong arguable case); Melban v Eu Chin Nominees Pty Ltd (unreported, Ormiston J, 16 March 1992) at p. 4 (strong arguable case); Williams v the Society of Lloyd's [1994] VicRp 19; [1994] 1 VR 274 at 291, per McDonald J (strong arguable case); Canada Trust Co v Stolzenberg No.2 [1997] EWCA Civ 2592; [1998] 1 All ER 318 (CA) (good arguable case). It follows from this, that a defendant such as the present who seeks an order under R. 7.07(3) permitting service of process in respect of non-conforming claims on the basis that they are ancillary to conforming claims, must show a strong arguable case that it has a claim or claims which fall within R. 7.01(1) and, further, that it has a strong arguable claim which in justice ought to be tried with those conforming claims.

33. In the present case, the conforming claim is that based on the breach of duty of care owed by the third party to the defendant. The evidence of the claim is that contained in Exhibit ARB3 to the affidavit of Andrew Russell Brown, the solicitor for the defendant, sworn on 11 August 1999. This is a report about the collision prepared by one Zhu Deluo dated 12 April 1998. It does not appear who is Mr Zhu. The description of the collision in this report supports a conclusion that it was caused by the Long Fa turning across the bow of the on-coming vessel in circumstances which suggest negligence on the part of the master of the Long Fa.

36. Although I had indicated to counsel a disposition to allow service of the non-conforming claims as ancillary to the tort claim, I was, on reflection, troubled about this. The evidence of the collision was not in admissible form, even on an interlocutory application. The vicarious liability of the third party for the negligence of the master had not been explored. I was troubled, too, by the possibility that the negligence claim had been introduced as a sprat thrown to catch a mackerel, to adopt the striking terminology of Goulding J in a similar context in Beck v Value Capital Ltd (No. 2) [1975] 1 WLR 6 at 15. I, therefore, had the matter re-listed for argument on 7 September.

39. On this occasion counsel addressed the first of the two grounds which I have mentioned. This is that R. 7.07(3) permits service of a third party notice whenever the justice of the case requires that this case be tried with the principal claim. In Australian Mutual Provident Society v GEC Diesels Australia Ltd [1989] VicRp 38; [1989] VR 407 at 411 the plaintiff's premises in Moorabbin were damaged by a fire which, it was alleged, started in a generator supplied by the defendant. It was alleged that the fire in the generator was caused by the negligence of the defendant. The defendant served on third parties in the United Kingdom a notice claiming indemnity or contribution under the Wrongs Act 1958, alternatively indemnity for their negligence or breach of contract. These third parties applied to set aside service. As to the statutory contribution claim, the Full Court concluded that service was permitted by R. 7.01(1)(j), that is, damage suffered in Victoria was caused by a tortious act or omission in the United Kingdom. Under the Wrongs Act 1958 contribution was available where the defendant's damage was the same damage as that suffered by the plaintiff. In that case, the damage was suffered in Victoria so that the requirements of paragraph (j) were satisfied. The present case is different because the plaintiff here is a Chinese company and its damage will be suffered out of Victoria. Accordingly, it was put, this case differs from the facts of the Australian Mutual Provident Society case only by the decision of the plaintiff to sue in Victoria, a fact over which the defendant had no control. The point made from this was that the issues at trial will not be affected by this difference so that I should be less resistant to the present application. I find myself unpersuaded by this submission. The jurisdiction of this Court is limited to cases which in various ways have a nexus with the State of Victoria. The Court does not lightly impose upon a non-resident what is, to that person, a foreign jurisdiction: Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1990] 1 QB 391 at 435, per Slade LJ. This means that the Rules of Court which permit this must be observed and, where discretion is conferred, it will be sparingly exercised. It is, therefore beside the point that this case falls nearly, but not quite within the Rules.

42. The discretion conferred by R. 7.07(3) must be exercised with this in mind and in accordance with authority. The Full Court in Australian Mutual Provident Society v GEC Diesels Australia Ltd [1989] VicRp 38; [1989] VR 407 at 411-12 made two observations which are relevant to the present case. First, the application should be made before service and not afterwards for an order nunc pro tunc. This is the course which the defendant has here followed. Second, the power conferred by R. 7.07(3) is available in a case where the difficulties which are identified in McCheane v Gyles [1902] 1 Ch 287 and Gilchrist v Dean [1960] VicRp 42; [1960] VR 266 mean that the third party claim did not technically fall within paragraph (l) of R. 7.01(1), that is, the third party is not a necessary or proper party to the plaintiff's proceeding. This is such a case.

45. In Melban v Eu Chin Nominees Pty Ltd (unreported, Ormiston J, 16 March 1992) the plaintiff sued the defendant for breach of contract with respect to the delivery of certain refrigeration units. The defendant served a third party notice on Star Refrigeration, a Scottish company which supplied the allegedly defective components to it. The components were said to have been supplied in breach of contract and negligently. The Scottish company applied under R. 7.04 to set aside this service so that it fell upon the defendant to satisfy the court that there existed a strong arguable case that the claims brought against the Scottish company would have fallen within R. 7.01(1) had the third party notice been a writ. His Honour found that the negligence claim satisfied this requirement but that the defendant had not established that there existed a strong arguable case that the contract claims put against the third party fell within any paragraph of R. 7.01(1). The question then was whether the service of these claims should be validated under R. 7.07(3).

48. Rule 7.07(3) provides no guidance as to how the discretion should be exercised. It is, however, a power which is available only in respect of a third party claim and a counterclaim against a non-party. These will inevitably be claims which are related to those made in the third party proceeding or the counterclaim, for these procedures are available only where this relationship exists. See R. 11.01, R. 10.03, which invokes R. 9.02. It is likely, then, that the court in the exercise of the discretion should have regard to this relationship. As Ormiston J put it in the Melban case at p. 17, "... the court should consider whether in the interests of justice the whole of the disputes between the parties, albeit not satisfying any head under 7.01, should be heard at the same time". His Honour continued in a passage which I venture to quote in full:

"It is, of course, a power to be exercised sparingly and with close regard to the possibility that its use may be oppressive and vexatious. What is sought here is to bring in the contract claims as well as the tort claims. In my opinion, to do so in circumstances of this kind and against a defendant which engages in trade and overseas trade would not be improper, nor would it be inconsistent with the objects of the rule. It should in this modern age be the object of the courts to see that litigation as affecting all parties is resolved as soon, as speedily and as fairly as practicable by the adoption of rules such as that which has been added to the rules in this case. If it is not oppressive and vexatious to a defendant to be brought into litigation of this kind and if the claim sought to be added is one which might fairly be added to that which is already brought between the parties, then I think an order should be made pursuant to paragraph (3) of order 7.07. Again, I bear in mind what counsel for Star Refrigeration has said, it is indeed an exercise of long-arm jurisdiction, but I trust not in circumstances which will provide any real unfairness to that third party. In exercising the jurisdiction and in making provision for the trial of any case against it, it is of course appropriate to make due allowance for the fact the party has its officers and its principal place of business many thousands of miles away, but that will merely affect the manner in which the third party's rights will be dealt with in the course of directions for hearing of the issues raised by that third party notice."

This passage was quoted with approval and applied by Smith J in Enzacor Technology Pty v Ying (unreported, 22 March 1993). I am content to do likewise.

53. In the principal proceeding it is clear enough that the plaintiff shipped the cargo to Shantou under a bill of lading issued in Victoria and that it was on the Long Fa, bound for that port, when the collision occurred. Damage and quantum are in issue. The defendant relies, by way of defence, upon the Hague/Visby Rules which, by Article 4 Rule 2, exclude liability for damage arising from any "act, neglect or default of the Master or the servants of the carrier in the navigation or in the management of the ship" or from "any other cause without the actual fault or privity of the carrier, or without the fault or neglect of the agents or servants of the carrier". This defence will require an investigation of the facts which underlie the claim of the defendant against the third party in tort. In the third party notice the first claim brought under the Hong Kong bill of lading is likely to raise the same issues. Likewise, the second, the Wrongs Act contribution claim and added tort claim. It is, therefore, desirable that these common issues be determined at the same time, in the same forum with a saving to the parties and an avoidance of the risk of inconsistent findings. It is true that this may require the attendance of witnesses from China, but it is likely that these witnesses will, in any event, be required for the claim which is presently before the court.

56. In the passage which I have quoted from the judgment of Ormiston J in the Melban case, his Honour had regard to the international nature of the business of the third party. Much the same might be said of the present third party which is a carrier of goods by sea. It does not, however, appear whether it carries on this business outside Chinese waters. Nevertheless, even such a business will, in all probability, bring it into commercial contact with foreign entities so that it does not presently appear that its involvement in this litigation will cause it undue hardship. If this be incorrect, the circumstances may be placed before the court upon an application by the third party to set aside service.

59. In the circumstances, I am satisfied that the justice of the case requires that the defendant should have the issues between it and the third party, the carrier at the time of the alleged damage, tried and determined at the same time as those between it and the plaintiff.

62. I will therefore allow the defendant to serve the amended third party process upon the third party in China. The evidence shows that its affairs appear to be handled in Hong Kong by its agent, Golden Fame Maritime Ltd. I will therefore direct that service be effected on that company in Hong Kong. I will direct that the process be accompanied by a copy of the order which I make and these reasons together with the material filed in support.