Vision Systems Ltd v Cincom Systems of Australia [1999] FCA 120 (19 February 1999)

Last Updated: 24 February 1999

FEDERAL COURT OF AUSTRALIA

Vision Systems Ltd v Cincom Systems of Australia

[1999] FCA 120

PRACTICE AND PROCEDURE - Action for breach of contract commenced in District Court of New South Wales - Counterclaim for breach of contract and contravention of s 52 Trade Practices Act 1974 commenced in Victorian registry of Federal Court - Motion to stay Federal Court proceedings - Exclusive jurisdiction clause - Whether claim "arising out of" agreement includes claims based on representations prior to agreement.

Trade Practices Act 1974 s 52

Compagnie des Messageries Maritime v Wilson [1954] HCA 62; (1954) 94 CLR 577 applied

Sohio Supply Co v Gatoil (USA) Inc [1989] 1 Lloyd's Rep 588 applied

British Aerospace plc v Dee Howard Co [1993] 1 Lloyd's Rep 368 applied

Voth v Manildra Flour Mills Pty Ltd [1990] HCA 55; (1990) 171 CLR 538 cited

Leigh-Mardon Pty Ltd v PRC Inc [1993] FCA 324; (1993) 44 FCR 88 applied

Akai Pty Ltd v Peoples Insurance Co Ltd [1996] HCA 39; (1995) 188 CLR 418 applied

FAI General Insurance Co Ltd v Ocean Marine Mutual Protection and Indemnity Association (1997) 41 NSWLR 559 applied

Re Hamilton-Irvine (1990) 94 ALR 428 applied

Fillite (Runcorn) Ltd v Acqua-Lift (1989) 45 BLR 27 applied

VISION SYSTEMS LTD (ACN 008 050 093) v CINCOM SYSTEMS OF AUSTRALIA PTY LTD (ACN 001 300 590)

VG 360 of 1998

SUNDBERG J

19 FEBRUARY 1999

MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 360 of 1998

BETWEEN:	VISION SYSTEMS LTD (ACN 008 050 093) Applicant
AND:	CINCOM SYSTEMS OF AUSTRALIA PTY LTD (ACN 001 300 590) Respondent

JUDGE:	SUNDBERG J
DATE OF ORDER:	19 FEBRUARY 1999
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. The motion notice of which was filed on 18 December 1998 be dismissed.

2. The respondent pay the applicant's costs of the motion.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 360 of 1998

BETWEEN:	VISION SYSTEMS LTD (ACN 008 050 093) Applicant
AND:	CINCOM SYSTEMS OF AUSTRALIA PTY LTD (ACN 001 300 590) Respondent

JUDGE:	SUNDBERG J
DATE:	19 FEBRUARY 1999
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

The two proceedings

1 On 20 May 1998 the respondent (Cincom) sued the applicant (Vision) in the District Court of New South Wales for damages for breach of an agreement made on 30 April 1997, by which Cincom agreed to grant Vision a licence to commission and use proprietary computer software programs. Cincom's statement of claim alleges that under the agreement Cincom agreed to implement a management information system through a series of stages known as Phase I to Phase IV. It was a term of the agreement that Vision could terminate it at the completion of Phase I or Phase II provided that all monies were paid up to date for Phase I if Vision was electing to cancel at the end of Phase I, and paid up to date for Phase II if Vision was electing to cancel at the end of Phase II. It was a further condition of Vision's ability to terminate that it give written notice of the proposed termination to Cincom within thirty days of the completion date of Phase I. It is alleged that Vision informed Cincom that it would not be progressing to Phase II or any further stages of the agreement, that Vision purported to terminate it, that the termination was not in accordance with the terms of the agreement and was a repudiation of it, that Cincom had accepted the repudiation, and that Cincom had suffered loss and damage in the sum of $67,346. I will call the agreement sued on by Cincom "the software licence agreement".

2 Vision objected to the "jurisdiction" of the District Court on the ground that it had a counterclaim under s 52 of the Trade Practices Act 1974 for damages of $1,127,000 which it proposed to commence in the Federal Court. That sum is in excess of the jurisdictional limit of the District Court. Vision has applied for a stay of the proceedings. The application has not yet been determined.

3 On 31 July 1998 Vision sued Cincom in this Court for damages for breach of contract and/or for contravention of s 52. The first part of the statement of claim makes the following allegations:

* by an agreement made on or about 30 April 1997 Cincom agreed to supply to Vision a computerised management information system

* insofar as the agreement was in writing, it was constituted by Vision's request for tender (RFT), Cincom's response to the RFT (Response) and the software licence agreement

* insofar as the agreement was oral it was constituted by representations and statements made between October 1996 and January 1998

* the agreement contained written terms about the system's performance capabilities, all of which are said to be contained in the Response

* the agreement contained oral terms about the capabilities of the system, constituted by the representations and statements referred to above

* in the RFT Vision made known to Cincom the purpose for which it required the system

* in breach of the terms of the agreement, the system provided by Cincom did not have all the capabilities it was said to have had

* the breaches were so substantial that Vision elected not to proceed with the agreement and had given notice thereof

* the system was not fit for the purpose for which it was supplied

* Vision has suffered loss and damage by reason of the breaches.

4 The statement of claim then alleges that prior to the making of the agreement Cincom

* warranted or represented in writing that the system had the performance capabilities referred to in the fourth dot point above

* orally represented that the system had the capabilities claimed of it in the representations and statements referred to in the fifth dot point above.

5 It is then alleged that

* all the representations were made in the course of trade or commerce for the purpose of inducing Vision to enter into the agreement and the software licence agreement, and to do other things, such as purchase hardware and build a computer facility

* in reliance on the representations Vision entered into the agreement, signed the software licence agreement and did the other things referred to above

* the representations were false

* the representations constituted misleading and deceptive conduct in contravention of s 52

* Vision has suffered loss and damage.

I will call the agreement sued on by Vision "the system agreement".

The stay application

6 Cincom has applied for an order staying Vision's proceeding pending the hearing of the matter in the District Court. At the forefront of Cincom's application is clause 9.1 of the software licence agreement:

"This Agreement and any claim, whether in contract, tort, or otherwise, arising out of this Agreement, out of the relationship created by this Agreement, or out of the activities related to this Agreement, shall be governed by and construed in accordance with the laws of the State of New South Wales and any dispute shall be conducted in the Courts of that State situated in Sydney."

7 On its proper construction this clause is an exclusive jurisdiction clause. See Compagnie des Messageries Maritime v Wilson [1954] HCA 62; (1954) 94 CLR 577 at 587; Sohis v Gatoil [1989] 1 Lloyd's Rep 588 at 592; British Aerospace plc v Dee Howard Co [1993] 1 Lloyd's Rep 368. The clearly inappropriate forum test applicable in relation to a stay of proceedings on forum non conveniens grounds (Voth v Manildra Flour Mills Pty Ltd [1990] HCA 55; (1990) 171 CLR 538) does not apply where there is a submission to the exclusive jurisdiction of the courts of a place other than the forum. In such a case the parties should be held to their bargain, and while the court retains its jurisdiction, and may decline to grant a stay, substantial grounds for doing so are required: Leigh-Mardon Pty Ltd v PRC Inc [1993] FCA 324; (1993) 44 FCR 88, at 95-99; Akai Pty Ltd v Peoples Insurance Co Ltd [1996] HCA 39; (1995) 188 CLR 418 at 427-429; FAI General Insurance Co Ltd v Ocean Marine Mutual Protection and Indemnity Association (1997) 41 NSWLR 559 at 569.

"arising out of"

8 Clause 9.1 of the software licence agreement is concerned with claims "arising out of" -

* the software agreement

* the relationship created by that agreement

* the activities related to that agreement.

9 In Re Hamilton-Irvine (1990) 94 ALR 428 Beaumont J, sitting in the Supreme Court of Norfolk Island, was concerned with the words in s 3(3) of the Jurisdiction of Courts (Cross Vesting) Act 1987 (Cth) - "the proceeding arises out of ... another proceeding". His Honour said (at 432):

"It has been held, in another context, that the words "arising out of" import a relationship which has some causal element, even if not direct or proximate, in it .... The definition of `arise' offered by the Macquarie Dictionary includes: `2. to result or proceed (fol by from)'. Definitions offered by the Shorter Oxford include `to spring up ... into existence; ... to spring, originate, or result from ...'.
In my view, it cannot be said that the proceeding in this case results, or proceeds or originates from or out of, and thus `arises out of' the litigation in the Family Court."

10 In Fillite (Runcorn) Ltd v Acqua-Lift (1989) 45 BLR 27 the English Court of Appeal considered a provision requiring "any dispute or difference or question arising under these Heads of Agreement" to be referred to arbitration. Nourse LJ, with whom Hollings J agreed, said (at 44):

"The preposition `under' presupposes that the noun which it governs already has some existence. It operates in time as well as in space. I think that it means `as a result of and with reference to'. The disputes as to express or implied terms in the composite Peterborough contract arise both as a result of and with reference to that contract and are therefore within clause 14 of the Heads of Agreement. The disputes as to negligent misstatement, misrepresentations under the 1967 Act and collateral warranty or contract, while they may in a loose sense be said to arise with reference to the contract, cannot be said to arise as a result of it. They all relate to matters which either preceded the contract or were at best contemporaneous with it. Those disputes are therefore outside clause 14."

11 Although Vision's statement of claim asserts that the system agreement, insofar as it is in writing, was constituted by the software licence agreement as well as the RFT and the Response, the written terms which are said to have been breached are all contained in the Response which was dated September 1996. The oral terms that are said to have been breached are constituted by representations and statements most of which were made before the software licence agreement was entered into. The written representations upon which Vision is said to have relied and which it says were false, were made before the software licence agreement was made. The oral representations upon which Vision claims to have relied, and which it says were false, were made in conversations most of which preceded the software licence agreement. Although there are incidental references to the software licence agreement in the statement of claim (see eg par 16), the significance of the software licence agreement lies mainly in the fact that the representations are alleged to have been made with the intention of inducing Vision to enter into agreements that included it.

12 The foregoing examination of the statement of claim shows that Vision's claim against Cincom does not arise out of the software licence agreement, or out of the relationship created by that agreement, or out of activities related to that agreement, in the sense that the claim results from or originates in the software licence agreement. It is almost entirely based on terms that came into existence, and warranties and representations that were made, before the software licence agreement was entered into. Although, as I have said, the statement of claim includes the software licence agreement as one of the written components of the system agreement, Vision does not allege the breach of any provision of that agreement.

The law governing the system agreement

13 In or about August 1996 Vision sought expressions of interest from persons interested in supplying and installing a computerised management information system that would suit Vision's requirements. Those requirements were set out in the RFT. Clause 2.5 of the RFT is headed Formal Agreement and is as follows:

"2.5.1 Execution of Agreement
Vision Systems will notify the selected Vendor whose response it wishes to accept.

The Vendor shall be prepared to have the tender response incorporated, along with other written correspondence concerning the RFT into the Agreement ....
...
2.5.1 Governing Law and Jurisdiction of Agreement
This Agreement will be governed by and construed in accordance with the laws in force in Victoria, Australia."

14 The "Agreement" referred to in clause 2.5 is the agreement that would come into existence upon Vision's acceptance of a vendor's response. Cincom responded to the RFT in or about September 1996. Vision accepted Cincom's response. The system agreement that resulted from Vision's acceptance of Cincom's response is thus governed by and to be construed in accordance with Victorian law. Even if clause 2.5.3 does not apply to the system agreement, the proper law of that agreement is clearly Victorian law. Most of the representations leading up to the agreement were made in Victoria, Vision was located in Victoria and the system was to be installed at Vision's premises there. Victoria is thus the jurisdiction with which the system agreement has the closest and most real connection.

Conclusion

15 Once clause 9.1 of the software licence agreement is put aside, the basis for the stay application disappears. The system agreement sued on is governed by Victorian law. Vision is located in Victoria. The subject matter of the system agreement and of the representations sued on was to be installed in Victoria. The representations and warranties leading up to the agreement were for the most part made in Victoria. In those circumstances it was entirely appropriate for Vision to make its application in the Victorian registry. The granting of a stay is entirely within my discretion, unaffected by clause 9.1. Although most of Cincom's proposed witnesses are located in Sydney, all Vision's witnesses are in Victoria. Accordingly I regard the location of witnesses as a neutral factor. The proceedings in the District Court relate to a different agreement from that sued on in this Court, even though the software licence agreement is alleged to be a component of the system agreement. The existence of those proceedings does not lead to the conclusion that the proceedings in this Court should be stayed. The motion for a stay is dismissed.

I certify that the preceding 15 (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sundberg

Associate:

Dated: 19 February 1999

Counsel for the Applicant:	P W Collinson
Solicitors for the Applicant:	Minter Ellison
Counsel for the Respondent:	J E Richards
Solicitors for the Respondent:	Hunt and Hunt
Date of Hearing:	5 February 1999