WSGAL Pty Ltd v Trade Practices Commission

WSGAL Pty Ltd v Trade Practices Commission - [1995] FCA 239 - FCA 1995 case summary — Zoe

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A joint venture deed dated 7 April 1988 ("the Joint Venture Deed") was entered into. Its terms are not important for present purposes. Of importance for present purposes, however, is the fact that Cell Tech and Nokia entered into a licence agreement dated 7 April 1988 ("the Licence Agreement"). By the Licence Agreement, Nokia granted to Cell Tech an exclusive licence to manufacture in Australia AMPS portable cellular telephone type 115AB designed and developed by Nokia through the use of Nokia's know-how and intellectual property. As well, Nokia granted to Cell Tech the right to appoint distributors in Australia and in New Zealand, that right being non-exclusive in the case of New Zealand. Nokia undertook to provide technical information and assistance. Cell Tech undertook to pursue, actively and diligently, the business of manufacturing the Technophone. I will say more about the terms of the Licence Agreement later. Nokia's role in the joint venture was that of the supplier of know-how and technological expertise as well as of componentry and accessories. First Abbott's role was that of financier. Cell Tech purchased componentry from Nokia and assembled the Technophone at a factory in Melbourne which it leased. For a short time at the beginning Cell Tech merely boxed up Technophones which had been assembled by Nokia in England. Then assembly by Cell Tech began locally. That was in about April 1988. Unfortunately, by the end of June 1989, the joint venture business had failed and an agreement was entered into on 29 June 1989 terminating the Licence Agreement. First Abbott's substantial outlay of funds is lost to it. In various ways, it blames Nokia for the failure of the enterprise. It says that there was a defect in the Technophone. It is not in dispute that there was a defect. Indeed, after Nokia received, on 26 July 1989, a report dated 25 July 1989 by its technical expert, a Mr Simon O'Neill, whom Nokia had sent out to Australia to investigate the problem with the product, Nokia sought to recall all the Technophones which had been sold in Australia in order that corrective work might be performed. Much of the case centres around the true nature of the defect and the extent of Nokia's understanding of it at various points of time, and, most importantly, whether the closure of the Australian factory and dissolution of the joint venture were attributable to the defect in the Technophone or to another cause. That other cause, propounded by Nokia, was a change in certain Commonwealth Government requirements. These were announced in December 1988 to take effect from 1 July 1989 and according to Nokia, made it impossible for the joint venture to be pursued. Nokia says that that change caused Cell Tech's board to decide, in February 1989, to follow the course of winding down the Australian operation and closing the assembly plant. Nokia says that it first became aware of the true cause of the defect as a result of Mr Simon O'Neill's investigation - some five months after the decision to close the factory was taken, and some four weeks after the agreement terminating the Licence Agreement was executed. There is obviously a potential for a conflict between interest and duty in a joint venture arrangement of the kind referred to. Of any dollar flowing from Cell Tech as buyer to Nokia as supplier of components, Nokia bore only 50% in its capacity as ultimate half owner of Cell Tech. Nokia protests that it was in its interest, both as supplier and as joint venturer, that the Technophone should succeed in Australia. So it was. But upon a failure of the joint venture such as occurred it was First Abbott which stood to sustain most loss. Nokia was paid by Cell Tech for all parts sold. But First Abbott not only failed (like Nokia) to make any profit in its capacity as joint venturer; it failed to recover the very substantial moneys which it had invested in the project.

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CAUSES OF ACTION PLEADED BY CELL TECH IN SUPPORT OF ITS CLAIM FOR DAMAGES Cell Tech's application was accompanied by a statement of claim. The claim for damages is said, in the application, to be made "on the grounds appearing in the accompanying statement of claim". Cell Tech pleads three causes of action: two against Nokia and one against the second respondent ("Martensson") and the third respondent ("Wagner"). First, Cell Tech pleads that Nokia breached implied terms and conditions as to fitness for purpose and merchantable quality in respect of the goods which it sold to Cell Tech over a period commencing in about March 1988 when, according to the pleading, Cell Tech established its Australian factory, to about May 1989 when, according to the pleading, Cell Tech's board decided to wind down the factory's operations and terminate the employment of staff. There were successive individual contracts of sale. From time to time Cell Tech placed orders with Nokia. The parts sold were forwarded by road and air from Nokia's plant at Camberley in Surrey, England, to Cell Tech's factory at Reservoir in Melbourne. Cell Tech paid by telegraphic transfer. The breach of the implied terms and conditions as to fitness for purpose and merchantable quality are particularised by Cell Tech in para 13 of its statement of claim as follows: "Substantially throughout the [period from about March 1988 to about May 1989] a NAM/RAM malfunction was experienced in the telephones manufactured by the applicant. This arose from design defects in complex electronic computerised components for the telephone designed and manufactured by the first respondent and supplied to the applicant. NAM is an abbreviation for 'number assignment module'. When the NAM malfunctions, the telephone loses its 'memory' for its own individual telephone number and ceases to function. RAM is an abbreviation for 'random access memory'. This is a facility whereby the telephone 'memorises' specific telephone numbers programmed into it. When it loses this facility that stored memory is lost. This problem was particularly evident after the first respondent commenced, in mid-1988, to supply components for its Mark 2 model Technophone, in which the NAM was stored in the RAM rather than in the EPROM, i.e. 'electronically programmable read-only memory'". Cell Tech particularises the loss and damage which it claims to have suffered as arising out of loan liabilities in the order of $A10 million which it incurred and the value of its business undertaking which was totally lost. The other cause of action which Cell Tech pleads against Nokia is that in breach of terms and conditions of the Licence Agreement, Nokia failed to furnish to Cell Tech necessary information in relation to modifications, improvements and enhancements of the Technophone developed by Nokia. Cell Tech particularises the provisions as those contained in clauses 3.01, 3.02 (a) and (b) and 3.03 of the Licence Agreement. The terms referred to are relevantly as follows: "3.01 The Licensor will on the execution of this Agreement at the expense of the Licensee furnish the Licensee with the information relating to the Products specified in Clause 3.02 and will from time to time thereafter during the continuance of this Agreement furnish such further information as may be necessary to keep the same up to date and as may be necessary in relation to modifications improvements and enhancements provided pursuant to clause 3.03 hereof. 3.02 The information referred to in Clause 3.01 shall consist of: (a) detailed manufacturing designs, drawings, specifications, test and quality control procedures and data in respect of the Products; (b) all of the Know-How as shall be relevant to the manufacture, service and repair of the Products; 3.03 The Licensor shall during the currency of this Agreement provide the Licensee with full details of such Know-How as may be necessary to enable the Licensee to incorporate all modifications, improvements and enhancements for or in respect of the Products as developed by or for the Licensor and the same shall forthwith form part of the Know-How."

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The third and remaining cause of action is pleaded only as against Martensson and Wagner. Paragraph 18 of the statement of claim is as follows: "18 At all material times, as directors of the applicant the second and third respondents each also owed the following duties to it: (a) a duty under section 229(1) of the Companies Code, at all times, to act honestly in the exercise of their powers and the discharge of their duties as directors, and (b) a duty under section 229(2) of the Companies Code, at all times, to exercise a reasonable degree of care and diligence in the exercise of their powers and the discharge of their duties." Three breaches of these duties are pleaded in paras 19, 20 and 21 of the statement of claim as follows: "19.In breach of the said duties the second and third respondents deliberately failed to disclose to the applicant information within their possession as to the cause of technical problems experienced in the manufacture of the Technophone by the applicant in Australia, the difficulties and time delays involved in remedying the same and the fact that such problems had manifested themselves in other countries. PARTICULARS See paragraph 13 above. To the knowledge of the second and third respondents, the NAM/RAM problem had manifested itself in Canada and other countries where the mobile telephone system was an AMPS system rather than the TACS system applying in the United Kingdom. 20.Further in breach of the said duties the second and third respondents deliberately misled the applicant as to the cause of the problems referred to above by falsely asserting that it was their opinion that the problem lay in the manufacturing process of the applicant rather than in the component parts supplied by the first respondent to the applicant for the purpose of such manufacture. 21. Further in breach of the said duties the second and third respondents failed to disclose to the applicant their understanding of the nature and cause of the problems referred to above and realistic estimates of the time which would be involved in remedying the said problems." On 8 April 1994 Foster J granted Cell Tech leave to serve outside the jurisdiction. Apparently the application and statement of claim were served in England on Nokia on 3 May 1994 and on Martensson on 12 May 1994. They have appeared conditionally. Wagner has not been served. LEGAL FRAMEWORK Order 9 r 7 Sub-rule 7 (1) of Order 9 of the Federal Court Rules is as follows: "7(1)The Court may, on application made by a respondent to any originating process on notice of motion filed within the time fixed by sub-rule (2), by order - (a)set aside the originating process; (b)set aside the service of the originating process on the respondent; (c)declare that the originating process has not been duly served on the respondent; (d)discharge any order giving leave to serve the originating process outside Australia or confirming service of the originating process outside Australia."

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An application under Order 9, sub-r 7 (1) must be distinguished from an application for summary dismissal (cf Order 20 r 2 ) and an application for the striking out of a pleading (cf Order 11 r 16), although this is not to say that in particular sets of circumstances, considerations relevant to such applications may not be relevant to an application under one or other of the paragraphs of Order 9 sub-r 7 (1). The concern of Order 9 sub-r 7 (1) is not limited to cases, such as the present, of service outside the jurisdiction. A respondent might apply under para (a), for example, in any case where the Court lacks jurisdiction to make the orders sought in the application (cf F Sharkey & Co Pty Ltd v Fisher (1980) 33 ALR 173 at 184 (FCA/Sheppard J), or where the application should not have been filed because the filing of it was an abuse of the Court's process. Paragraphs (b), (c) and (d) relate to the subsequent stage of service. An attack might be made on the acts relied on as constituting service. Not so in the present case. Here the attack on service is based on the granting of leave to serve outside Australia. The "originating process" referred to is the application by which all proceedings in the Court's original jurisdiction are commenced: see Order 4, sub-r 1 (1). The grounds on which the power given by Order 9 sub-r 7 (1) may be exercised are not stated. The fact that sub-r 7 (1) refers to the originating process and finds its place in Order 9 the subject matter of which is the appearance of respondents to proceedings and the fact that a notice of motion for an order under the sub-rule may be filed by a respondent before he enters an appearance or within 14 days after the entry of a conditional appearance by him (see sub-r 7 (2)), make it clear that the focus of concern is the invoking by an applicant of the Court's coercive power to grant the relief sought in the application. The question raised is whether a respondent should be subjected to that power by nothing more than the filing and service of an application (cf Order 4 r 1 and Form 5's words "If there is no attendance before the Court by you or by your counsel or solicitor, the application may be dealt with and judgment may be given or an order made in your absence" and "Before any attendance at that time you must file an appearance in the Registry"). The attack is not upon the accompanying affidavit or statement of claim (cf Order 4 r 6), although the content of those documents may be relevant to the attack upon the invoking of the Court's power by the applicant. Order 9 r 7 does not state the grounds on which the powers given by it may be exercised. In so far as the attack is on the granting of leave to serve outside the jurisdiction, it is necessary to inquire whether the case is an appropriate one for such service, having regard to Order 8 sub-r 2 (2) of the Federal Court Rules.

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Service outside the jurisdiction can be set aside even though the Court is satisfied of the matters referred to in paras (a), (b) and (c). In such a case, it is on account of the residual discretion conveyed by the word "may" in Order 9 sub-r 7 (i) and in Order 8 sub-r 2 (2) that service is able to be set aside. Ex hypothesi, the discretion to grant leave has already been exercised in favour of the applicant. The application to set aside service is not, relevantly, an appeal from that earlier exercise of discretion. Additional evidence before the Court on the hearing of the application to set aside service could lead to a different exercise of discretion. In the reported cases, respondents appear to have framed their applications to set aside by reference only to paragraphs (a), (b) and (c). Subject to their "threshold submission" referred to below, in the present case Nokia and Martensson did not submit that if I was satisfied as to the matters referred to in those three paragraphs, nonetheless I should exercise a residual discretion to set aside service. In relation to para (b) above, Cell Tech relied upon r 1 of Order 8 in so far as it provides as follows: "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; (ac)where the proceeding is founded on a tort committed in the Commonwealth; (ad)where the proceeding is founded on, or is for the recovery of, damage suffered wholly or partly in the Commonwealth caused by a tortious act or omission, wherever occurring; (b) where the proceeding is founded on a breach of an Act, where the breach is committed in the Commonwealth; (c) where the proceeding is founded on a breach, wherever occurring, of an Act, and is brought in respect of, or for the recovery of, damage suffered wholly or partly in the Commonwealth; ..." Outline of parties' submissions in respect of paras (a), (b) and (c) of Order 8 sub-r 2 (2) It is useful to note now, in outline, the submissions made by Nokia and Martensson in respect of the three paragraphs of Order 8 sub-r 2 (2). But first I note that they made a threshold submission that the affidavit sworn 18 March 1994 of Cell Tech's then solicitor, Graham Leonard Raffell ("Raffell"), on which Cell Tech had relied in applying for and obtaining leave to serve outside the jurisdiction, did not supply evidence appropriate to support the granting of leave and that Cell Tech was guilty of a lack of candour, and that on these grounds alone the order granting leave should now be discharged. With respect to para (a) of Order 8 sub-r 2 (2), Martensson conceded that the Court has jurisdiction in respect of the claim against him, and Nokia admitted that the Court has jurisdiction in respect of the claim against it for breach of the Licence Agreement but not for breach of the individual contracts for the sale of goods. With respect to para (b) of Order 8 sub-r 2 (2), neither respondent submitted that the proceeding was not a proceeding to which rule 1 applied. With respect to para (c) of Order 8 sub-r 2 (2), Nokia and Martensson both submitted that Cell Tech did not have a prima facie case for the relief sought against them. That relief appears in the application filed on 18 March 1994 and is, relevantly, "damages". Of these three paragraphs, it is convenient to consider para (c) of Order 8 sub-r 2 (2) first.

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To a similar effect are Western Australia v Vetter Trittler Pty Ltd (in liq) (1991) 30 FCR 102 (FCA/French J) at 109-110; Tycoon Holdings Ltd v Trencor Jetco Inc (1992) 34 FCR 31 (FCA/Wilcox J) at 35-36 and Trade Practices Commission v The Gillette Company (No 1) (1993) 45 FCR 366 (FCA/Burchett J) at 371. In Vitkovice Horni a Hutni Tezirstvo v Korner [1951] AC 869 the House of Lords was concerned with a rule which provided that service outside the jurisdiction should not be granted "unless it shall be made sufficiently to appear to the court or judge that the case is a proper one for service out of the jurisdiction". Lord Radcliffe said (at 883) that a case would not "sufficiently appear" to be a proper case for the making of an order "unless on consideration of all admissible material there remains a strong argument for the opinion that the qualifying conditions are indeed satisfied". In LEP International Pty Ltd v Atlanttrafic Express Service Inc (1987) 10 NSWLR 614, Clarke J expressed the view that that test was appropriate to be applied in the context of rules providing for service outside New South Wales which again did not invoke, in terms, a "prima facie case" test. The preponderance of authority favours the view that except in extreme cases, the provision does not require a prima facie case in respect of each cause of action pleaded or contended for, and that if a prima facie case for a particular form of relief is made out on one cause of action, it is immaterial that a prima facie case for the same relief on another cause of action is not made out: see Western Australia v Vetter Trittler Pty Ltd (in liq), supra, at 110 and Trade Practices Commission v The Gillette Company (No 1), supra at 371; but see Tycoon Holdings Ltd v Trencor Jetco Inc, supra at 35. With respect, the preponderant view is supported by several considerations. First, it accords with the plain words of para (c) of sub-r 2 (2). Secondly, the originating process may be accompanied by affidavits rather than by a statement of claim and in such a case "causes of action" may be referred to only in the course of argument or submissions. It would be odd in such a case that leave to serve outside the jurisdiction should not be granted for no reason other than that the Court rejected a submission that a prima facie case for the relief sought existed on a particular cause of action while accepting a submission that a prima facie case for the same relief was made out on a different cause of action. Thirdly, the preponderant view is consistent with the sub-rule's concern with the coercive power invoked by the issue and service of the originating process, rather than with the accompanying statement of claim or affidavits. Fourthly, it sometimes occurs that the same facts are said to give rise to more than one cause of action, such as breach of a general law duty of care and breach of an implied contractual duty of care. It would be odd that leave to serve an originating process outside the jurisdiction should be refused because, for whatever reason, one of the causes of action is thought to lie and the other not. I see no reason to treat the two causes of action pleaded against Nokia as exceptional in the present context. The relief sought in respect of both is "damages", and each is a cause of action for breach of contract. There is a significant overlap between the facts on which the two causes of action are based. Accordingly, I proceed on the basis that if a prima facie case against Nokia for damages based on either cause of action is established, it becomes unnecessary for me to decide whether a prima facie case for the same relief based upon the other cause of action is also made out. Consistently with what I have said above, where, as in the present case, a statement of claim has been filed, an applicant who establishes a prima facie case for the relief sought in the application should not fail merely because the cause of action on which that case for relief is established does not conform precisely to the words of the statement of claim. The statement of claim is useful as a statement of facts and causes of action relied on but, as noted earlier, sub-r 7 (1) of Order 9 does not provide for an attack on pleadings. Therefore, subject to any question of costs, I should not be astute to find that Cell Tech does not have a prima facie case for damages merely because an amendment to its statement of claim may be shown to be necessary or desirable. It is open to Cell Tech to tender further evidence on the hearing of the application to set aside, directed to showing that it has a prima facie case: WSGAL Pty Ltd v Trade Practices Commission, supra, at 474 (Morling J, with whom Hill J agreed), 475-476 (Beaumont J). Trade Practices Commission v The Gillette Company (No 1), supra, at 372. DRAMATIS PERSONAE Before I give a more detailed account of the relevant facts, it is appropriate to note the following dramatis personae (the descriptions being those applicable at the relevant times): FAYMAN, Marvin - a director of First Abbott and of Cell Tech. LASKY, Michael - chairman of directors of Cell Tech. LESLIE, John Anthony - current solicitor for Cell Tech. MARTENSSON, Nils E - managing director of Nokia and a director of Cell Tech. O'NEILL, Simon - manager of Nokia, sent by Nokia to Australia in July 1989 to investigate the defect in the Technophone. PEVY, Andy - software engineer employed by Nokia, sent by Nokia to Australia in July 1989 to investigate the defect in the Technophone. RAFFELL, Graham Leonard - partner of Smits Leslie Barwick, former solicitors for Cell Tech. STONE, T Gordon - general manager of Cell Tech. VEVERS, John - "commercial director" of Nokia. WAGNER, Dr Hans - a director of Nokia and of Cell Tech. WHITE, William Reginald - managing director of First Abbott. I will, for convenience and without disrespect, refer to these individuals by their surnames only.

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FACTS Introduction to facts Nokia sold its mobile cellular telephones in Australia prior to its embarking upon the joint venture with First Abbott in 1988. Its distributor had been Mobiletronics Holdings Pty Ltd, a company in the First Abbott group of companies. Apparently a governmental requirement was introduced that any seller of cellular mobile telephones in Australia would not be permitted to utilise the Telecom facilities unless a "minimum local content" requirement in relation to the manufacture of the telephones was satisfied. This was the background to the Joint Venture Deed, the establishment of Cell Tech and the execution of the Licence Agreement. As noted earlier, although Cell Tech is referred as the "manufacturer" of the Technophone in Australia, its "factory" was rather in the nature of an assembly plant, the components being manufactured by Nokia in England. Chronological account of facts It is convenient to present the salient facts in the form of a chronology: September 1987 Cell Tech assumed the name "Mobiletronics Manufacturing Pty Ltd". 1 October 1987 Martensson and Wagner were appointed as directors of Cell Tech. 11 November 1987 Memo from Mr White of Cell Tech to officers of Nokia (copy to Vevers) purporting to confirm an arrangement for the placing of orders by Cell Tech. With the memo Mr White enclosed what proved to be "edition 1" of a "preliminary order form" of Cell Tech's which was to be used "until such time as the printed version is completed". This included a term that the order was to "be construed and have effect in all respects in accordance with Australian Law". On the hearing before me much time was occupied in evidence and submissions addressing the question whether Cell Tech's purchases of components were on the terms of this document or later editions of it (as Cell Tech contended) or on the terms of Nokia's standard terms and conditions (as Nokia contended). The reason why this matter assumed importance is that it was common ground that under the latter this Court would not have jurisdiction in respect of the sale of goods cause of action. The former were consistent with this Court's having jurisdiction in respect of that claim. As will appear, I have not found it necessary to resolve this question. For that reason I will not give an account of all the evidence relating to it. 7 April 1988 The Licence Agreement of this date recited that Cell Tech wished to obtain the benefit of Nokia's "valuable experience, technical data, know-how and intellectual property rights for the purpose of manufacturing" the Technophone. Nokia granted to Cell Tech an exclusive licence to manufacture in Australia "through use of the Know-How", and a right to appoint distributors in Australia and New Zealand. Clauses 3.01, paras 3.02 (a) and (b) and clause 3.03 were set out earlier. The expression "Know-How" used above and in those provisions was defined in clause 1.01 to mean relevantly Nokia's "knowledge experience and technical information and expertise relating to the manufacture, sale and use of [the Technophone] and the benefit thereof to be provided pursuant to [the Licence] Agreement." Cell Tech undertook not to manufacture, sell or use the Technophone outside Australia and New Zealand, without Nokia's consent. Cell Tech further undertook to manufacture in conformity with Nokia's specifications and to buy all components from Nokia. Nokia was given rights of monitoring and inspection. Nokia undertook not to manufacture or to facilitate manufacture in Australia or New Zealand, but did not undertake not to appoint a distributor in New Zealand. Cell Tech agreed to pay, in addition to other sums payable, a royalty in respect of each telephone manufactured by it and capable of connection to a network. The duration of the Licence Agreement was agreed to be co-extensive with that of the Joint Venture. There was a non-exclusive submission by Cell Tech to the jurisdiction of the High Court of Justice in England. Nokia reserved the right to enforce the Licence Agreement in any jurisdiction. April 1988 The Cell Tech factory in Victoria actually began to produce the Technophone, although the operation was apparently limited at this early stage to boxing up models which had been already assembled by Nokia. 18 May 1988 Cell Tech's factory produced the first Technophones locally. Samples of these were "tested" by Nokia which sent an approval letter for submission to the relevant Australian authorities. May 1988 Cell Tech's name was changed from "Mobiletronics Manufacturing Pty Ltd" to "Cell Tech Communications Pty Ltd". 7 July 1988 A sample (Purchase Order No 0670) of "edition 2" of Cell Tech's standard printed form of purchase order was in evidence. It stated that acceptance of the order by the supplier (Nokia) would be on the conditions on the reverse side of the form including the same "Australian proper law of the contract clause" as had been included in edition 1 referred to above. The terms were consistent with this Court's having jurisdiction in respect of the sale of goods cause of action. 8 September 1988 Cell Tech received from Nokia forms of "factory order acknowledgment" stating that Nokia's acknowledgment of Cell Tech's order was subject to Nokia's "conditions of sale copy of which is available on request". Nokia's standard "conditions of sale" contained clauses 9 and 13 which were as follows: "9. LIABILITY The Supplier shall not be liable in any event for any consequential loss or damage. The supplier shall be discharged from any liability whatsoever arising out of or relating to any delivery made here-under, unless the following conditions precedent shall be satisfied:-

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The letter described Stone's understanding of the impact of the new export requirements on Cell Tech, and concluded: "These export requirements are not too onerous provided that we are given access to NZ quickly, and then this is followed with another country soon after." This was consistent with the joint press release which had said that after 1 July 1989 it would no longer be possible for, inter alia, cellular mobile telephones to be connected to the public communications network unless the manufacturer achieved a certain number of "points" by reference to, relevantly, exports, and that it would no longer be permissible "to focus exclusively on the domestic market". January 1989 According to Vevers, it was in January 1989 that the NAM/RAM dropout problem began to manifest itself and it did so because Telecom Australia had implemented on its network a certain type of infrastructure activity. According to Vevers, the problem was initially only slight and was masked by "the cyclical nature of the infrastructure". 23 February 1989 A sample (Purchase Order No 4164) of "edition 3" of Cell Tech's printed form of purchase order was in evidence. The observations made earlier in relation to edition 2 apply also to edition 3. February 1989 According to Vevers, in this month he recommended to Cell Tech's board that the factory be closed on the ground that it would not be possible for Cell Tech to comply with the "local research and development/minimum export" points requirement of the new industry development arrangements. April 1989 According to Vevers, the directors of Cell Tech decided at this time to close its factory. 2 June 1989 Cell Tech (Lasky) wrote to Stone, the general manager of Cell Tech, giving him six months' notice of termination of his contract of employment (as from 31 May 1989) and referring to the "changed Government regulations" as having made it "necessary to wind down the operations at the factory leading up to a possible sale or closure". This is strong evidence that at least in the mind of the chairman of directors of First Abbott as late as 2 June 1989, the effective cause of the closure was the change in governmental requirements rather than a defect in the product. 29 June 1989 The Termination Agreement was entered into. It recited inter alia, that Cell Tech held its assets and conducted its business "as nominee for" Kulina Investments Pty Ltd and Technophone (Australia) Pty Ltd and that its board of directors had determined to cease manufacturing the Technophone and had agreed with Nokia upon termination of the Licence Agreement. Nokia agreed to buy plant and equipment and sale stock, and to pay Cell Tech $2,000,000 subject to a right of set off in Nokia. Cell Tech released Nokia in respect of all actions and claims in respect of the Technophone or any breach or alleged breach by Nokia of the Licence Agreement subject to, inter alia, the following exception: "an identical fault or combination of faults occurring in at least 30% of the number of units of the Product manufactured by Cell Tech which results in a failure of such units or which results in such units not operating in accordance with specification and not being a failure or fault arising by virtue of the manufacture of the Product by Cell Tech other than in accordance with its obligations under the Licence Agreement or a failure or fault arising out of the misuse of such unit." Importantly, clause 18.5 was as follows: "18.5Notwithstanding the release effected by clause 18.4 hereof, Technophone shall remain liable for rectification of NAM and RAM dropout which occurs in any unit of the Product manufactured by Cell Tech and which cannot be rectified by Cell Tech by means of the procedure described as "blowing the number onto the Eprom" and in any such case rectification of such dropout shall be effected by replacement of the motherboard of the relevant unit with a new motherboard supplied by Technophone at its own expense to Cell Tech. Cell Tech shall bear the cost of installation of each such new motherboard. For the removal of doubt, it is recorded that if the dropout is not rectified by the installation of a new motherboard, such motherboard will be replaced as aforesaid by a further new motherboard and this process of replacement will continue until the dropout problem is finally resolved. Technophone hereby covenants with Cell Tech to supply Cell Tech with a rotating stock of 50 new motherboards for the purpose of the replacement programme described in this clause 18.5 and Cell Tech hereby covenants with Technophone to deliver to Technophone for its own use each replaced motherboard (but in deliveries of 25 units). Deliveries of replacement motherboards will be made by Technophone in groups of 25 units on receipt of replaced motherboards save that Technophone will initiate a delivery of 50 such motherboards." This is evidence that as late as 29 June 1989 Nokia's personnel believed that the NAM/RAM dropout problem was a hardware problem associated with the Technophone's "motherboard". 1 July 1989 The new Commonwealth Government industry development arrangements began to operate. 3 July 1989 Cell Tech (Hayman) wrote to Nokia (Martensson) asking that urgent attention be given to identification of the cause of "chronic memory loss" being experienced. The letter contained this paragraph: "The problem first appeared in November, 1988 and has continuously re-appeared without a solution being found. It now concerns me that not only do we not have a solution but the identity of the problem has not been determined and therefore we are a long way from finding an objective answer." 3 July 1989 Vevers (in Australia at the time) replied advising that Simon O'Neill and Andy Pevy were being sent out from Nokia's plant in England as soon as possible. 4 July 1989 Martensson and Wagner resigned as directors of Cell Tech. Mid July 1989 Simon O'Neill and Andy Pevy came out from Nokia's plant to Australia and investigated the problem. 18 July 1989 Vevers authored a "Statement by Technophone Limited in regard to the M2 PC105A Cellular Telephone", a copy of which is annexure "A" to these Reasons for Judgment. 25 July 1989 A memo by Simon O'Neill reported that the source of the problem was a coding error in the software, rather than a hardware problem. 26 July 1989 A copy of Simon O'Neill's memo was received by Vevers. Subsequently Nokia recalled all Technophones which had been sold in Australia in order that the software problem might be corrected. The facts generally Vevers accepted that it was Nokia's responsibility to provide all technical know-how, advice, support and information in relation to the manufacture of the Technophone in Australia and that it was First Abbott's responsibility to provide finance and marketing. Vevers accepted that Nokia "had taken on a responsibility to ensure that the product performed and met with all the technical necessities of the Australian system" (T 29.11-29.13). According to his evidence, the cyclical nature of the infrastructure "masked" what was actually happening and prevented Nokia's personnel from becoming aware at an early stage of the true nature of the problem. In cross-examination he gave the following evidence:

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"It would be more correct to say that an error was made in coding the programme of the software. That error was introduced by accident and it was not known that it was there until July 89. During the period from the software was changed, which was early 89, there were periods when there were failures of phones in quantities which were unacceptable as a result of this coding error. I would not like to put it, as you have put it, that is that we failed to provide the technical support. I wouldn't put it like that". (T 37.32-37.38) Vevers accepted that the cost of keeping Cell Tech's factory running could be expected to be in the order of $80,000-$100,000 per week (T 50) and that Cell Tech had "lost millions when it closed down" (T 53.7-53.11) Vevers' clear evidence was, however, that the closure of the factory had nothing whatsoever to do with the NAM/RAM problem. He said that his recommendation to the Cell Tech board in February 1989 that the factory be closed and the board's decision in April 1989 to act on that recommendation were based exclusively on the new "industry development arrangements" which had been announced by the Australian Government. In this regard, he said that it was not feasible for research and development to be carried out in Australia rather than in England, and that Cell Tech had no export markets. It is noteworthy that the letters from Cell Tech referred to earlier did not suggest that research and development could be undertaken in Australia, although they did refer to the possibility of export. There is no evidence, however, that Cell Tech again raised the possibility of export at any later time. In fact the Licence Agreement had referred to the possibility of Cell Tech's selling the Technophone in New Zealand as a non-exclusive distributor there, but Vevers' evidence was that "New Zealand was not interested" (transcript 57.30). Reference was made in the evidence to the possibility of exporting to Indonesia but Vevers said that there was no prospect of that. He rejected the proposition put to him that if the Technophone had been selling well in Australia and Cell Tech had been making profits, export would have been possible. The diametrically opposed positions of the parties are indicated by the following exchanges (transcript 57.19-58.12): "Q: Can you not see, Mr Vevers, that if this product had been going really well in the market and substantial profits had been derived from selling it, it would have had the wherewithal to continue to trade notwithstanding having to vary its operations to fit in with these new regulations? A: I absolutely and totally disagree with you. That factory was not viable because it could not meet the regulatory requirements for supplying phones for connection to the network; the regulatory requirements, I'm sure you were aware, that they changed, those changes caused the factory to cease to be viable. Q: All it had to do to fit in with the requirements, assuming it was profitable and could continue, was increase its export? A: It had no export markets; it was never intended that it would export to anywhere other than on a non-exclusive basis to New Zealand and the New Zealand was not interested. It had been agreed that there could be a possibility of some exports to Indonesia but that failed there was no prospect of that. There were no export markets available to that factory; the joint venture agreement did not envisage this and there were no export markets available and they could not meet R&D requirements, they could not continue to supply phones which would be approved for connection to the network. Q: You see, if you assume that the product was good and had good market penetration and the sales were high and there was profit, contrary to the reality - assume that - do you suggest that Technophone would have refused to allow Cell-Tech to export say to Indonesia in order to comply with some regulations that the government was propounding? A: There was no market in Indonesia, it didn't exist. It had never been envisaged when the joint venture was set up that it would be allowed to export other than to New Zealand on a non-exclusive basis. Why do you think in February I recommended the closure of the factory? There were no export markets available to that factory. Q: You comment about this. I think you recommended it [closure of the factory] because ... the business was hopelessly unprofitable? A: No. I recommended the closure of the factory because of the change in the government regulations; I have always made that clear, always. Q: It could not make a profit because the consumers were not happy with a phone that did not work? A: It could not continue in operations because of the change in government regulations, that is a fact." REASONS The threshold submission It suffices to say that I do not accept the submission that the evidence which was before Foster J on 8 April 1994 was not evidence on which his Honour could properly exercise his discretion to grant leave to serve the originating process outside Australia. The second aspect of the threshold submission is that in making its ex parte application for leave, Cell Tech was subject to an obligation of full and frank disclosure to the Court and that it did not discharge that obligation. Nokia and Martensson point to non-disclosure of the fact that the Licence Agreement was made in England as a matter which was not disclosed. It was not in issue that the obligation of candour existed. However, I am not persuaded that there was a failure by Cell Tech to discharge it. Of course, on the hearing before me which extended over three days, there was much more evidence than had been before Foster J on Cell Tech's ex parte application for leave. Some of the further evidence favoured Nokia and some favoured Cell Tech. This was to be expected. The "lack of candour" submission did not, with the one exception referred to above, descend into detail as to the matters not disclosed, or distinguish between undisclosed matters which were the subject of complaint and those which were not. In sum, I am not persuaded to accept the second branch of Nokia's and Martensson's threshold submission.

[25]

The claim against Nokia As noted earlier, Cell Tech seeks to make out a case against Nokia for an award of "damages" for breach of contract and the statement of claim pleads two distinct contracts: the Licence Agreement and the individual contracts for the sale of components. Counsel for Cell Tech submitted that Vevers had admitted that Nokia had breached the Licence Agreement. Counsel for Nokia, correctly in my view, submitted that he had not done so. However, the submissions of neither party addressed in detail the question of the content of Nokia's obligation under the Licence Agreement. Cell Tech's submissions referred in general terms to Vevers' several acknowledgments in cross examination that Nokia was responsible to provide all the know how and technical expertise. Nokia's submissions in respect of the alleged breach of the Licence Agreement were to the effect that until July 1989, Nokia's understanding was that the problem with the Technophone was related to hardware, and that once the seriousness of the problem became known in July 1989, Nokia acted promptly. Nokia further submitted that there was no evidence that Cell Tech had sought assistance which was not provided. Otherwise, Nokia submitted that the closure of the business was not caused by the defect in the Technophone. Finally, Nokia submitted that "the claim made by Cell Tech is that Nokia deliberately withheld information and there is no evidence from which that inference can be drawn". In paragraphs 15 and 16 of the statement of claim quoted earlier, Cell Tech does not plead felicitously the contractual obligation undertaken by Nokia in the Licence Agreement. I think, however, without expressing a final view, that it is arguable that Nokia undertook that it possessed and would provide to Cell Tech all necessary "knowledge, experience and technical information and expertise relating to the manufacture" of a merchantable, defect-free Technophone. If this was Nokia's obligation, by failing to identify correctly and overcome the true cause of the defect, it was, prima facie, in breach of it. On this view, the words in parenthesis in paragraph 16 of the statement of claim "(as was known to the first respondent, but not to it)" are superfluous. To conceive of Cell Tech's contractual claim under the Licence Agreement in this way does not require, as an element, that Nokia failed to provide information of which it was aware. I should add that on the basis of the evidence before me on this preliminary application, I am not satisfied that Nokia at any time concealed an awareness of the true nature of the problem with the Technophone. On the basis of that evidence, Nokia became aware of the true cause of the problem in late July 1989. But prima facie, if it had provided the promised support, it would have identified the true cause of the problem much earlier. In summary, I am satisfied, without determining finally questions relating to construction of the Licence Agreement or to any implied terms of it, let alone the facts as to breach, that Cell Tech has a prima facie case that Nokia breached its contractual obligations under the Licence Agreement. I next turn to the question of causation of loss or damage to which the parties gave much attention. A breach of contract gives rise to a cause of action even though it is not shown to have caused loss or damage, the reason being that there is a legal right to performance of the contract, which is infringed upon breach without more, and in such a case nominal damages are awarded to vindicate the right and to mark its infringement: Marzetti v Williams (1830) 1 B & Ad 415 (109 ER 842); The Columbus Co Ltd v Clowes [1903] 1 KB 244; Sapwell v Bass [1910] 2 KB 486; Weld-Blundell v Stephens [1920] AC 956 (HL); Dyke v McLeish Estates Ltd (1927) 27 SR (NSW) 74 (FC); Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286; James v Hutton and J Cook & Sons Ltd [1950] 1 KB 9 (CA); McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 at 411-412; Berger v Boyles [1971] VR 321 (Vic/FC) at 330; Sykes v Midland Bank Executor and Trustee Co Ltd [1971] QB 113 (CA); Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 (NSW/CA) at 156 (McHugh JA); Surrey County Council v Bredero Homes Ltd [1993] 3 All ER 705 (CA). Clearly, on a final hearing, there would be a strong contest as to whether Nokia's supposed breach of the Licence Agreement, if such breach were to be established, caused the termination of the enterprise. Apparently, Cell Tech will contend that if Nokia had duly performed its obligations under the Licence Agreement, the joint venture would have succeeded to such an extent that there would have been exports enabling it to satisfy the "points system" introduced by DITC as from 1 July 1989. But the evidence to date suggests that there was no export market available to Cell Tech and that the closure of the factory was due to an acceptance by Cell Tech's board of this fact. In the result, it may be that on a final hearing Cell Tech will fail to prove that it was caused any loss or damage by Nokia's breach. In that case, an appropriate vindication of Cell Tech's legal right would be an order for payment of only nominal damages. If that should be the result, the appropriate costs order would depend on all the circumstances. In a situation in which Cell Tech has satisfied me that it has a prima facie case against Nokia for at least nominal damages for breach in Australia of the Licence Agreement, that it in fact sustained substantial loss from the factory's closure, and that there is an issue as to whether such loss was in fact caused by the breach, I am of the view that such residual discretion as may be available to me under Order 9 sub-r 7 (1) (read in conjunction with Order 8 sub-r 2 (2)) should be exercised in Cell Tech's favour by allowing it the opportunity of proving on a final hearing, with the benefit of any relevant interlocutory procedures, that Nokia's breach did cause that loss. It is common ground that the Court has jurisdiction in relation to Cell Tech's claim for damages for breach of the Licence Agreement and that the proceeding, in so far as it is founded upon that claim, is a proceeding to which Order 8 r 1 applies. In conformity with what I have said earlier, I do not find it necessary, in order to determine the fate of the present motion, to deal with the question whether Cell Tech has also established a prima facie case for an award of damages in respect of the pleaded breach of the contracts for the sale of componentry. The result of the foregoing is that Nokia has not made out a case for any of the relief which it seeks in the motion.

At a glance

Court

Decision date

Before

Source

Judgment (28 paragraphs)

Parties

Cases Cited (10)

Cited By (1)