Traxon Industries Pty Ltd ACN 009 318 987 v Emerson Electric Co

REASONS FOR JUDGMENT Introduction 1 Traxon Industries Pty Ltd (Traxon) applied to the Court by motion dated 18 April 2006 for leave to serve proceedings on Emerson Electric Co (Emerson) in the United States of America (USA). The proceedings arose out of a dispute between Traxon and Emerson connected with the performance of a Confidentiality Agreement and a Distributorship Agreement relating to the marketing and sale, in the USA, of oil level control devices manufactured by Traxon. Traxon's causes of action against Emerson were for misleading or deceptive conduct in contravention of the Trade Practices Act 1974 (Cth), breach of contract, breach of duty of confidence and breach of fiduciary duty. For reasons published on 26 April 2006 the motion was adjourned and Traxon given leave to amend its statement of claim and to file further affidavit evidence in support of its application - Traxon Industries Pty Ltd v Emerson Electric Co [2006] FCA 450. The principal reason for the decision not to accede to Traxon's motion was its inclusion in the application and statement of claim of the causes of action arising out of breach of confidence and breach of fiduciary duty. These causes of action were based entirely on conduct allegedly committed by Emerson in the United States. They did not otherwise fall within any of the categories of causes of action to which the relevant rule of Court, O 8, authorising service out of the jurisdiction, applies. 2 Traxon has now filed a proposed amended application and proposed amended statement of claim together with a proposed further amended application and further amended statement of claim. It has also filed additional affidavit material. In its proposed amended application and amended statement of claim Traxon seeks to join Traxon International Ltd (Traxon International) as a second applicant. It abandons the claim for breach of duty of confidence but maintains the claim based on breach of fiduciary duty. As an alternative position, it relies upon a further amended application and further amended statement of claim which would also omit the cause of action for breach of fiduciary duty. 3 For the reasons which I now publish, I am prepared to grant leave to serve an application and statement of claim on Emerson in the United States in the form set out in the further amended application and further amended statement of claim. So that Emerson may also be served with a reasonably self contained set of reasons for that decision these reasons repeat elements of those published on 26 April 2006 adapted to take account of the amendments to the pleadings and the additional evidence which has been filed. The First Decision 4 Traxon, on 18 April 2006, commenced proceedings in this Court against Emerson. It claimed damages for misleading or deceptive conduct in contravention of the Trade Practices Act, at common law for breach of contract and, alternatively, in equity for breach of confidence and breach of fiduciary duty. Traxon is an Australian company which carries on the business of manufacturing, marketing and selling oil level control devices, one of which is known as the TraxOil Management System (the TraxOil Device). Emerson is incorporated in Missouri and currently trades under the business name Emerson Climate Technologies. It used to trade as Alco Controls. 5 By a notice of motion filed on 18 April 2006, Traxon sought leave to serve its application, statement of claim and supporting affidavits on Emerson in the USA. Its motion was filed pursuant to O 8 of the Federal Court Rules. 6 For reasons which were published on 26 April 2006, I was not satisfied that the application was one in respect of which I could make the order sought. Before such an order can be made under O 8 the case must be shown to fall within one or more of the classes of case set out in O 8 r 1 of the Federal Court Rules. Although I was satisfied that the cause of action in misleading or deceptive conduct and the cause of action in breach of contract were within the cases listed in O 8 r 1, I was not satisfied that the subrule applies to the causes of action for breach of duty of confidence and breach of fiduciary duty. 7 I also addressed the question whether the requirement in O 8 r 2 that the applicant show a 'prima facie case for the relief sought' was fulfilled. I was satisfied that a prima facie case was raised in respect of the cause of action in breach of contract. I found it questionable whether there was a prima facie case shown for misleading or deceptive conduct without more than the alleged breach of promises embodied in agreements made between the parties. I also noted that there was a disquieting confusion about the documentation comprising the written part of a so-called 'Distribution and Confidentiality Agreement' made in 1998. 8 In the conclusion of my reasons published on 26 April 2006 I said (at [66]): 'For the preceding reasons, I do not propose at the moment to make an order granting the leave sought. Traxon, it seems to me, has to address the question whether all of the causes of action pleaded can be brought within O 8 r 1 and secondly, present a somewhat clearer foundation for its contention that there is a prima facie case in relation to the existence and breach of the agreements pleaded.' At the time, I made the following orders: '1. The applicant's motion filed 18 April 2006 is adjourned to 19 May 2006 at 9.45am or such earlier date as may be fixed. 2. The applicant has leave to amend its statement of claim and to file further affidavit material in support of the application.' The Amended Application 9 By a motion filed on 15 May 2006 Traxon sought leave to join Traxon International as the second applicant. It also filed an amended application and statement of claim. It seeks leave to serve the amended application and statement of claim on Emerson in the USA. 10 The motion came on for hearing on 18 May 2006. At that time I expressed some doubt on whether the claim for damages for breach of fiduciary duty by Emerson was a cause of action to which O 8 r 1 applied. I reserved judgment on the motion until today. In the meantime, on 24 May 2006, Traxon filed a proposed further amended application and further amended statement of claim deleting the claim for damages based on breach of fiduciary duty. A covering letter from the applicants' solicitors to the Court indicated that if it were held that an application including a claim for breach of fiduciary duty could not be served out of the jurisdiction, then that claim would be omitted and reliance placed on the proposed further amended application and further amended statement of claim as a fall-back position. 11 It is convenient to set out in summary form the allegations made in the amended statement of claim. The overview, so set out, does not, of course, involve any findings of fact. The Amended Statement of Claim 12 Traxon is incorporated in Australia. Traxon International is incorporated in the United Kingdom. Traxon carries on the business of manufacturing, marketing and selling oil level control devices. Traxon International carries on the business of selling the devices. 13 After pleading their own incorporation and the nature of their businesses and that of Emerson, Traxon and Traxon International allege that at all material times Underwriters Laboratories Inc (Underwriters) which, according to the affidavit evidence, is a non-profit organisation incorporated in the USA, performed a compliance function to certify that products offered for sale in the USA complied with safety laws in force there. Such certification, according to the statement of claim, was at all material times a necessary precondition to the offering of the TraxOil Device for sale in the USA. 14 The applicants say that before November 1997 Traxon had an agreement with a United States company called Sporlan Valve under which Sporlan Valve would market and sell the TraxOil Device in the USA. During the currency of its arrangements with Sporlan Valve, Traxon 'owned' a file maintained by Underwriters in the name of Sporlan Valve in relation to the TraxOil Device (UL File). The nature of the ownership of the file is not explained. The Distribution Agreement with Sporlan Valve ceased in November 1997 and in May 1998 the applicants and Emerson agreed that Emerson would be the exclusive distributor for the TraxOil Device in the USA (the 1998 Agreement). At that time the largest single user of the device in the USA was Hussman, a company which carried on business in that country and used the TraxOil Device on Copeland compressors. They are manufactured by Copeland, a company which also carries on business in the USA and is associated with Emerson. 15 The 1998 Agreement is said to have been partly written and partly oral. The oral terms were agreed during the course of a meeting between Mr Barry Waller of the applicants, Mr Wayne Cattach of Traxon and Mr Robert Kensinger of Emerson held in May 1998 at Perth in Western Australia. The written part of the agreement comprised a document titled 'Confidentiality Agreement' executed by Traxon and Emerson and dated 7 May 1998 and a document titled 'Distribution Agreement' executed by Traxon International and Emerson in or about May 1998. 16 The applicants allege that the 1998 Agreement contained a number of express terms including the following: 1. Emerson would market and sell the TraxOil Device in the USA. 2. Emerson agreed not to disclose any data or information it received from Traxon which Traxon designated as proprietary or confidential. Nor would Emerson use that data or information for its own benefit for a period of five years after receipt of it without first obtaining written permission from Traxon. 3. Emerson would undertake any formalities and make any payments required to be made in relation to any necessary amendments to the UL File which flowed from the 1998 agreement. The UL File was to be owned and maintained by Underwriters in the name of Traxon. It is said to be an express term of the agreement that Traxon and Emerson would jointly participate in a program of further development and refinement of the TraxOil Device. They are also said to have agreed that the 1998 Agreement would be governed and construed in accordance with the laws of the State of Western Australia. 17 The applicants allege that, by entering into the 1998 Agreement, Emerson represented to them, in Western Australia, that it would comply with its terms. They say that, in reliance upon that representation, they entered into the Agreement. Traxon purchased capital equipment for the production of the TraxOil Device for the purpose of selling it in the USA and, between May 1998 and November 2003, provided Emerson with confidential information about the device. Particulars of the confidential information are given in the statement of claim. 18 In February 2000 it is said that the applicants and Emerson agreed to vary the 1998 Agreement (the 2000 Agreement). The 2000 Agreement was oral and made in the course of a meeting held on 2 and 3 February 2000 in St Louis. Mr Wayne Cattach of the applicants was present as well as a number of persons from Emerson. It was agreed under the variation that Traxon and Emerson would jointly participate in a program of further development and refinement of the TraxOil Device and would jointly participate in the development of a new model of it. 19 In the alternative, it is alleged that the 2000 Agreement was a substitute for the 1998 agreement and included the following express terms: