FILTER SOLUTIONS LIMITED AND ANOR V DONALDSON AUSTRALASIA PTY LTD ABN 78000521200 HC AK CIV 2005-404-1095

FILTER SOLUTIONS LIMITED AND ANOR V DONALDSON AUSTRALASIA PTY LTD ABN 78000521200 HC AK CIV 2005-404-1095 4 July 2006IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2005-404-1095BETWEEN FILTER SOLUTIONS LIMITED First Plaintiff AND NM & JM CONSULTANTS LIMITED Second Plaintiff AND DONALDSON AUSTRALASIA PTY LTD ABN 78000521200 Defendant Hearing: 6 June 2006 Appearances: Mr G Thwate for Plaintiff Ms V Bruton for Defendant Judgment: 4 July 2006 at 4 p.m.JUDGMENT OF ASSOCIATE JUDGE J P DOOGUESolicitors: G Thwaite, P O Box 2062, Auckland Brookfields, P O Box 240, AucklandIntroduction[1] The first plaintiff was incorporated in 1975 and the second in 1978. The companies were incorporated by Mr Neil McCorkindale. [2] The defendant is the subsidiary of an American company with worldwide trading interests which was incorporated in 1915. The defendant's business, as of the parent company, is in the area of filter products for automotive and industrial uses. These products include oil, fuel and air filters which are used on motor cars and commercial vehicles. Mr McCorkindale has spent much of his working life in occupations that have to do with filter products. [3] A further entity needs to be briefly referred to, viz, Filter Specialties Limited. This was a company the proprietor of which was Mr McCorkindale's son. It manufactured filter products in New Zealand. [4] Up until 2001 the defendant company did not have a distributorship in New Zealand. Talks began in 2001 between Mr McCorkindale and Mr Nels Johnson of the defendant's American parent company. [5] As a result of discussions two agreements were entered into between the plaintiffs and the defendant. The arrangements between the parties commenced in or about April 2001 when the agreements were signed, and ceased on or about January 2003 after the defendant give notice of termination on 22 November 2002 in relation to both contracts. [6] The recital to the first agreement gives the essence of what that agreement was concerned with:(a) The Principal designs, manufactures and sells or supplies certain products and services under various trade names. (b) The Principal wishes to appoint Filter Solutions to sell, promote and represent its products and to provide warehouse facilities, customer service and delivery services for its products ("the products") in New Zealand, Fiji and the Cook Islands and to generally promote and service the products for New Zealand, Fiji and the Cook Islands' customers.(c) Filter Solutions has agreed to accept the Principal's appointment on the terms and conditions set out in this agreement.[7] The payment which the first plaintiff was entitled to under this agreement was a commission of 15 percent on the net monthly sales value. The term of the agreement was for an initial term of one year with the agreement continuing after that from year to year until determined by a minimum of one month's notice given in writing by either party at any time after the initial term expired. [8] The first agreement by clause 23 provided:(23) Entire AgreementThis agreement: (a) Constitutes the entire agreement of the parties as to its subject matter and supersedes and cancels all prior agreements, understandings and negotiations in connection with it; and (b) May only be altered in writing signed by both parties.[9] I will make reference to other provisions of this agreement further on in my judgment. [10] The second agreement was entered into between the second plaintiff and the defendant. It contained similar or identical provisions to some of those in the first agreement. [11] The objectives of that agreement are best illustrated by quoting from clause 1 of the agreement:1 (scope of work)(1.1) the contractor [that is second plaintiff] shall provide Aftermarket Consultation services ("the services" refer Schedule A) to the Company and produce sales and profit results to the standard shown in Schedule A, annualized as appropriate. (1.2) the Contractor undertakes that the Services will be performed by such person/s that the Contractor may nominate in writing to the Company from time to time[12] Schedule A defined the services that were to be provided. I summarise these as providing market analysis and 'market intelligence' for the New Zealand filtration market; preparing sales and marketing plans providing monthly reports and updates, working in the area of business relationships with current or potential customers; representing the interests of the company with, inter alia, Government agencies; and providing advise about products, sales and service and personnel. [13] There was annexed to Schedule A a table which was Headed "Sales and Profit Expectations":Sales and Profit Expectations:New Zealand ObjectivesYear 1 Year 2 Year 3 Year 4 Year 5 AveBrake & Transmission 1,728 1,953 2,148 2,255 2,368 2,090% growth 13.0% 10.0% 5.0% 5.0% 8.3%Shell New Zealand 450 603 693 728 765 648% growth 34.0% 15.0% 5.0% 5.0% 14.8%Aftermarket Wholesalers 800 920 974 1,023 1,074 958% growth 15.0% 5.9% 5.0% 5.0% 7.7%Export Accounts 173 175 190 200 210 190% growth 1.0% 9.0% 5.0% 5.0% 5.0%TOTAL SALES 3,151 3,651 4,005 4,206 4,417 3,886% growth 13.7% 8.8% 4.8% 4.8% 8%Standard Material 2,174 2,483 2,683 2,776 2,871 2,604 FX Variance 30 30 30 30 30 30GROSS MARGIN 977 1,168 1,322 1,430 1,546 1,28230.0% 32.0% 33.0% 34.0% 35.0% 33.0% [14] The second agreement was able to be terminated by either party giving four weeks' notice in writing (clause 9.1) and, as well, the defendant had the right to terminate without notice if the second plaintiff committed any dishonest or fraudulent act or was otherwise neglectful or other events occurred such as a liquidation. Paragraph 3.1 of the contract provided that the second plaintiff would receive a fee of NZ$6,666.67 per month plus GST by way of payment under itscontract. Like the first agreement, the second agreement contained an 'entire agreement' clause in the following terms:(20) Entire AgreementThis agreement: (a) Constitutes the entire agreement of the parties as to its subject matter and supersedes and cancels all prior agreements, understandings and negotiations in connection with it; and (b) May only be altered in writing signed by both parties.[15] By clause 21 it was provided:(21) Further AssurancesEach party must do or refrain from doing (as the case may be) anything necessary or desirable to give full effect to this agreement.[16] Note 1 to Schedule A to the second agreement was as follows:(1) the company is responsible for product and inventory. The Contractor will not be penalised in any manner from lack of sales and profit performance because of adequate stocks of products. (2) At the date of this agreement the inventory held by the Contractor is insufficient to meet customers demands. Accordingly the parties agree that for the purpose of determining whether the Contractor has achieved its New Zealand Objectives as set out in this Schedule A, year one shall be deemed to commence on the date upon which (the second plaintiff) has received into its inventory the parts comprising 800 part numbers in the first price list .[17] Both of the agreements provided that the governing law was to be that of New South Wales, Australia. [18] As matters developed, once the contract was signed and trading got under way the defendant obtained products for sales in New Zealand from a manufacturing plant in Indonesia which it had interest in and from a factory belonging to Filter Specialties Limited. [19] The sales targets shown in the Schedule A to the agreement between the second plaintiff and defendant proved elusive.Procedural background[20] The plaintiffs served their proceeding out of the jurisdiction without leave pursuant to R 219. I assume that is so given the absence of any record that leave was sought under R 220. The defendant then filed and served a protest to jurisdiction pursuant to R 131. This was met by the plaintiffs filing an application for order setting aside the defendant's protest. [21] R 131 so far as relevant provides:(1) A defendant who objects to the jurisdiction of the Court to hear and determine the proceeding in which he has been served may, within the time limited for filing his statement of defence and instead of so doing, file and serve an appearance stating his objection and the grounds thereof. (2) The filing and serving of an appearance under subclause (1) shall not be or be deemed to be a submission to the jurisdiction of the Court in the proceeding. (3) A defendant who has filed an appearance under subclause (1) may apply to the Court to dismiss the proceeding on the ground that the Court has no jurisdiction to hear and determine it. (4) On hearing an application under subclause (3), the Court,– (a) If it is satisfied that it has no jurisdiction to hear and determine the proceeding, shall dismiss the proceeding; but (b) If it is satisfied that it has jurisdiction to hear and determine the proceeding, shall dismiss the application and set aside the appearance. (7) The Court, in exercising its powers under this rule, may do so on such terms and conditions as may be just and, in particular, on setting aside the appearance may enlarge the time within which the defendant may file and serve a statement of defence and may give such directions as may appear necessary regarding any further steps in the proceeding in all respects as though the application were an application for directions under rule 437 or rule 438.[22] The stated grounds for the plaintiffs' application were: a) This Court has jurisdictionb) An objection on forum non conveniens grounds is premature, no statement of defence having been filed [Mr Thwaite told me that I did not need to rule on this matter. He inserted it out of caution should an appeal against my ruling be contemplated] Alternatively: c) One or both of the plaintiffs has a "good case" and d) "this Court" is the forum conveniens for trial [23] The defendant in its notice of opposition stated (in summary): a) New Zealand is not the forum conveniensb) The parties agreed that the governing law is that of New South Wales c) The parties agreed to ADR in New South Wales and the defendant agrees to arbitration d) The plaintiffs wrongly plead causes of action derived from New Zealand law – viz, the Contractual Remedies Act 1979 e) Plaintiffs do not have a good arguable case. The agreements contained "entire agreement" provisions and yet the plaintiffs seek to imply terms both under the Contractual Remedies Act 1979 (arising from alleged pre-contractual representations) and from common law. f) New South Wales is the suitable forum because: i) of the governing law clause ii) the judgment would need to be enforced in New South Walesiii) defendant carries on business in New South Wales and most of its witnesses come from there. iv) attending a two week trial in New Zealand would be disruptive to the defendant's business. [24] In summary, the defendant does not dispute that New Zealand courts have jurisdiction. I understand, therefore, that the defendant accepts that the proceedings were properly served out of New Zealand under R 219. The defendant states however that the plaintiffs do not have a good arguable case and that forum conveniens considerations favour a trial in New South Wales.Good arguable case - principles[25] The plaintiffs accept that they must establish a good arguable case. [26] In my view that is correct. The Court retains a discretion to decline jurisdiction where service outside the jurisdiction is permitted by the rules and that jurisdiction exists regardless of whether service has taken place without leave under R 219 or with leave under R 220: Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1990] 3 NZLR 513, 529 (PC). The discretion is required because it is an established principle that a foreigner resident abroad will not lightly be subjected to the local jurisdiction; Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1989] 2 NZLR 50, 54 (CA) per Cooke P. The New Zealand court should not exercise its discretion over a foreign defendant who challenges jurisdiction under Rule 131 unless the plaintiff establishes a good arguable case on the merits: Kuwait Asia Bank EC (PC) v 523-524; Springfield Acres Ltd (in liq) v Abacus (Hong Kong) Ltd [1994] 3 NZLR 502, 507. [27] As well, if a defendant satisfies the Court that there is no good arguable case, the New Zealand proceeding should be dismissed regardless of other discretionary considerations: Biddulph v Wyeth Australia Pty Ltd [1994] 3 NZLR 49, 57. These authorities and others are referred to in the judgment of Associate Judge Faire inKunzang v Gershwin Hotel HC AK CP 318-5099, 19 September 2000[28] In Attock Cement Co Ltd v Romanian Bank for Foreign Trade [1989] 1 All ER 1189, 1196-1197 Staughton LJ said:It is to my mind plain from [Vitkovice Horni a Hutni Tezirstvo v Korner[1951] 2 All ER 334] that a master or judge may on some occasions find himself obliged to assess the relative strength of the plaintiff's and the defendant's cases. In doing so, he does not try the case on the affidavits, because he reaches only a provisional conclusion: the stage for trial and for final decision has not been reached. But he must have regard to all the admissible material before him, as Lord Simonds and Lord Radcliffe said, not just the plaintiff's case. He must conclude that there is a good arguable case (Lord Simonds), not just a case that can be argued, or a strong argument (Lord Radcliffe). What need not be shown is that the plaintiff is right beyond all reasonable doubt. Save in the speech of Lord Tucker, which deals with a special problem, I cannot find in the decision any express consideration of the balance of probability. Nevertheless I conclude that, where there is a disputed question of fact which is essentail to the application of Ord 11, r 1, the judge must reach a provisional or tentative conclusion that the plaintiff is probably right on it before he allows service to stand. The nettle must be grasped and that is what I take to be meant by a good arguable case.[29] The New Zealand Court of Appeal considered the Attock formulation of the test for a good arguable case when it decided Stone v Newman (2002) 16 PRNZ 77. McGrath J said:[24] The requirement that there be a good arguable case on the merits is in part directed at ensuring that a claim against a foreign resident defendant is not speculative. It must be borne in mind, however, in assessing that factor that, as the Court pointed out in its substantive decision in Kuwait Asia Bank(p 51; p 359), r 131 makes no explicit provision for trial of issues of fact or discovery in relation to questions raised under the rule. Indeed a trial of the jurisdiction issue in most cases would subvert the purpose of the policy behind r 131. The general expectation is rather that protests concerning jurisdiction under r 131 are to be decided at the outset of the case on affidavit evidence. To some extent the picture the Court has of the case may accordingly at this stage be incomplete in important respects. [25] In that context the focus of the Court in considering an application to dismiss for want of jurisdiction under r 131 must be on the allegations made in the statement of claim and the affidavit evidence the plaintiff has put forward in support of them. The Judge will of course have regard to the plausibility of that evidence, in light of all the material before the Court, including that in the defendant's affidavits. But in considering whether the plaintiff's account meets the required standard the Court should take into account the inability of the plaintiff to obtain for discovery at this stage especially in relation to matters that might be within the exclusive knowledge of the foreign defendant. On the other hand where the principal documentary evidence in the case appears to be available and the plaintiff's assertions contradicting it vague or improbable, a Judge is certainly notrequired to accept uncritically the factual assertions on which it is submitted on behalf of a plaintiff that there is a good arguable case. [26] We do not think it constructive to be more specific as to what constitutes a good arguable case in this context. In particular we do not regard the gloss that "the plaintiff is probably right upon it", offered in the judgment of the Court of Appeal in Attock Cement Co Ltd v Romanian Bank for Foreign Trade [1989] 1 WLR 1147 (CA) at p 1155, as helpful in New Zealand. What is a good arguable case is a straightforward test which comes down to a matter of judgment, in all the circumstances, having regard to the principle of restraint concerning a foreign citizen resident overseas.[30] I will next make reference to the causes of action and then assess whether or not the plaintiffs have established a good arguable case.Causes of actionFirst Plaintiff[31] The plaintiffs commenced proceedings against the defendant in March 2005. The current pleading is the First Statement of Claim dated 3 March 2005. It is a very lengthy document which sets out eleven causes of action. I am not going to refer to all the causes of action because that is not necessary for the purposes of the present application. [32] Of the causes of action, five are brought by the first plaintiff and the balance by the second plaintiff. [33] The first cause of action of the first plaintiff centres on the Schedule A table which formed part of the agreement between the second plaintiff and the defendant. It is said that the defendant led the first plaintiff to believe that the defendant would supply to the first plaintiff product in a volume sufficient to enable the first plaintiff to attain the figures therein. [34] It is apparently the first plaintiff's position that had adequate levels of product been made available, the first plaintiff could have achieved the necessary sales to enable it to achieve the Schedule A figures. The first plaintiff then claims loss of commission during year one and two which is the period up until termination of the contract and then claims nearly $2,000,000 additionally for the remainingperiod, that is from the end of the actual contractual period out to the end of five years from the commencement date of the contract. [35] The second cause of action alleges a breach of clauses 4.2 and clause 24 of the first agreement. [36] The first plaintiff first relies upon the undertaking is clause 4.2 of the contract which reads as follows:4.2 Principal to assist in maximising salesThe Principal must do all things reasonable and necessary to enable Filter Solutions to maximise sales of the Products in the Territory.[37] Clause 24 of the first agreement provides:24 Further assurancesEach party must do or refrain from doing (as the case may be) anything necessary or desirable to give full effect to this agreement.[38] The same losses as are pleaded in the first cause of action are claimed as well for the defendant's alleged breaches of clause 4.2 and clause 24. The purport of this pleading is that the defendant's failure to provide the quantity of product in appropriate volumes amounted to a breach of clauses 4.2 and 24. [39] The third cause of action is that the contract is subject to an implied term that the defendant would supply:Such amount of capital Product as is reasonably required for First Plaintiff to carry out its activities in terms of the agreement. (Clause 17 statement of claim)[40] The first plaintiff claims to recover the same loss or damage as in the preceding causes of action. [41] The fourth cause of action again pleads breach of an implied term. It refers back to para 18 of the Statement of Claim. There the first plaintiff pleads:18 The First Agreement contains an implied covenant of good faith on the part of each of first plaintiff and defendant.[42] It would seem that the breach of good faith that is relied upon is the failure to do those acts which would have resulted in the first plaintiff earning the commission which it has claimed under causes of action one through three. [43] The fifth cause of action pleaded by the first plaintiff is a further claim of a breach of an implied term of good faith. The allegation is apparently that the defendant breached good faith because, as part of an arrangement to divide world markets up into different zones in which it would not compete, it agreed not to compete in New Zealand thus defeating the objectives of the agreement with the first plaintiff.Second plaintiff[44] The first cause of action pleaded by the second plaintiff is that the termination of the second agreement was 'of no effect' because it was:(b) 'based upon defendant's failure to supply product and inventory and not upon any default by second plaintiff. And/or (c) It would penalise second plaintiff, through 'lack of sales and profit performance because of adequate stocks of products', which was not caused by any default of second plaintiff.[45] The second plaintiff then claims as damages monthly payments of $6,666.67 plus GST for 23 months up until 31 December 2004 and then thereafter from 31 December 2004 up until the date of judgment. In other words, the second plaintiff alleges that the purported termination by the defendant having been of no effect, there has been a continuing obligation on the defendant's part to pay the monthly retainer to the second plaintiff right from the commencement of the agreement down to the date of trial. [46] In its second cause of action, the second plaintiff pleads that there was an actionable representation under the Contractual Remedies Act, similar to that which the first plaintiff sues upon, that there would be sufficient volume of stock to ensure that the budgeted figures could be attained over the five year period. The second plaintiff asserts that the defendant breached the term by failing to provide theappropriate volume and it seeks its damages in monthly payments for the full five year term of the original agreement. [47] In its eighth cause of action the second plaintiff pleads that the defendant breached an express agreement to provide adequate product and inventory for the second plaintiff to succeed and as a result damage suffered. [48] The ninth cause of action pleads an implied term to provide adequate product and inventory with again loss resulting from the failure do that for the five year term. [49] In its next cause of action the second plaintiff pleads a breach of implied term of good faith which again essentially pleads a failure to provide adequate product and inventory with resulting loss. [50] In its final cause of action the second plaintiff again alleges an implied term as to good faith in breach of that by the asserted actions of the defendant in deciding to withdraw from the New Zealand market in conformity with an arrangements reached with persons or persons unknown to divide world markets in such a way that the defendant would not trade in New Zealand.Legal aspects of good arguable case[51] The defendant has attacked the plaintiffs' case on a number of fronts. I will not go into all of the detailed submissions that were made to me concerning this matter, but I will set out the central arguments.Reliance on Contractual Remedies Act 1979[52] As part of the process of assessing the strength of the plaintiff's case, the Court must determine whether a New Zealand court would apply part of New Zealand law, the Contractual Remedies Act, when hearing a case for which the proper law is that of New South Wales. [53] Ms Bruton for the defendant highlighted the fact that the plaintiffs appeared to base at least one of their causes of action on the provisions of the ContractualRemedies Act 1979 when the contract provided that the contracts were to be governed by the law of New South Wales. If the Act did not apply, she submitted, then the provision in the contract that the contract contained all the terms would govern the position. In that case, there would be no basis on which the plaintiffs could contend for implied terms, nor would they be able to bring claims alleging that the matters which the defendant misrepresented to the plaintiffs would entitle the plaintiffs to damages as though the alleged misrepresentations were a term of the contract by virtue of the provisions of the Act. In theory, there are two possible bases for the Court concluding that the Act governed this contract. The first is if the Act has extra-territorial operation – and Mr Thwaite submitted that it did. The second is that if a New Zealand Court was to hear the matter, then it would be bound to apply the Act on the combined grounds that it is a procedural provision and that courts apply the law of their own countries when it comes to determining procedural issues: Dicey and Morris on the Conflict of Laws (13th ed, 2000) 7R-001. [54] The parties made limited submissions on the question of whether the Act applied. [55] Ms Bruton referred to Section 14A of the Contractual Remedies Act 1979 which was enacted in 2002 and which provided:This Act does not apply to any contract, or any part of any contract, that is governed by a law other than New Zealand law.[56] Ms Bruton said that the section was inserted for the avoidance of doubt and not to make a change to the law. [57] Mr Thwaites submitted that the contrary was the case and that the law change effected by the insertion of Section 14A post-dated the contracts in this case and therefore did not apply to it. That being so, he said that the plaintiffs were able to succeed in their contention that representations made by Mr Johnson prior to contract could be relied upon as terms of the contract pursuant to the provisions of the Contractual Remedies Act 1979.[58] By its wording, the Act in its original form does not expressly restrict New Zealand courts to applying its provisions only where the proper law of the contract is that of New Zealand. Professor P.R.H. Webb in his article "Heaven Help the Overseas Conflict Lawyers" [1979] NZLJ 442 notes that in this respect the Contractual Remedies Act 1979 differs from the Frustrated Contracts Act 1944. The latter enactment provides that it will apply:where a contract governed by the law of New Zealand has become impossible of performance or been otherwise frustrated.[59] The Contractual Remedies Act 1979, in contrast, only refers to its provisions being applicable in courts. Before the Contractual Remedies Amendment Act 2002, 'court' was defined as the High Court, and in certain circumstances the District Court and Disputes Tribunal. This is an express limitation of the Act to New Zealand Courts. The 2002 amendment widened the definition of 'court', but s 14A was inserted to clarify that the Act "does not apply to any contract, or any part of any contract, that is governed by a law other than New Zealand law". [60] In my view, the original definition of "court" in s 2 simply made clear that New Zealand courts would thenceforth have the power to confer remedies under the Act on those who were entitled to them – but saying nothing about who was so entitled and in what circumstances they could invoke the court's jurisdiction under the Act. It also prescribed which New Zealand courts would have the power to apply the Act. [61] Contracts governed by foreign law would obviously come before New Zealand courts from time to time. The Act in its earlier form made no provision as to the effect its provisions would have, if any, on a contract of that kind. [62] In my view, the Act in its earlier form did not displace the traditional conflict of law rules which determine the extent to which the local court will apply the lex fori when hearing cases involving contracts which stipulated that foreign law was the proper law.[63] The particular provisions of the Contractual Remedies Act that the plaintiff seeks to apply are s 4 and s 6, which provide:4 Statements during negotiations for a contract(1) If a contract, or any other document, contains a provision purporting to preclude a Court from inquiring into or determining the question— (a) Whether a statement, promise, or undertaking was made or given, either in words or by conduct, in connection with or in the course of negotiations leading to the making of the contract; or (b) Whether, if it was so made or given, it constituted a representation or a term of the contract; or (c) Whether, if it was a representation, it was relied on— the Court shall not, in any proceedings in relation to the contract, be precluded by that provision from inquiring into and determining any such question unless the Court considers that it is fair and reasonable that the provision should be conclusive between the parties, having regard to all the circumstances of the case, including the subject-matter and value of the transaction, the respective bargaining strengths of the parties, and the question whether any party was represented or advised by a solicitor at the time of the negotiations or at any other relevant time. (2) If a contract, or any other document, contains a provision purporting to preclude a Court from inquiring into or determining the question whether, in respect of any statement, promise, or undertaking made or given by any person, that person had the actual or ostensible authority of a party to make or give it, the Court shall not, in any proceedings in relation to the contract, be precluded by that provision from inquiring into and determining that question. (3) Notwithstanding anything in section 56 or section 60(2) of the Sale of Goods Act 1908, this section shall apply to contracts for the sale of goods. ..6 Damages for misrepresentation(1) If a party to a contract has been induced to enter into it by a misrepresentation, whether innocent or fraudulent, made to him by or on behalf of another party to that contract— (a) He shall be entitled to damages from that other party in the same manner and to the same extent as if the representation were a term of the contract that has been broken; and (b) He shall not, in the case of a fraudulent misrepresentation, or of an innocent misrepresentation made negligently, be entitled to damages from that other party for deceit or negligence in respect of that misrepresentation.(2) Notwithstanding anything in section 56 or section 60(2) of the Sale of Goods Act 1908, but subject to section 5 of this Act, subsection (1) of this section shall apply to contracts for the sale of goods.[64] But it would not seem to be possible to apply only the above provisions isolation from the other parts of the enactment. That is, the Act applies in its entirety, or not at all. As well as ss 4 and 6, other sections that would apply include s 7, which deals with cancellation of contract, s 8 which provides rules applying to cancellation and s 9, which provides for the power of court to grant relief. [65] In Dicey and Morris on the Conflict of Laws at 7R the authors state their "Rule 17" in the following terms:All matters of procedure are governed by the domestic law, of the country to which the Court wherein any legal proceedings are taken belongs (lex fori).[66] On the other hand, matters of substance are governed by the lex causae (the law to which the Court is directed by its choice of law rule): see Dicey and Morris on the Conflict of Laws 7-002 – 7-003. To decide the question whether a foreign rule is procedural, the Court will look at whether the rule is of such a nature as to be procedural in the sense understood in its domestic law: Huber v Steiner (1835) 2 Bing NC 202. [67] At 7-004 of Dicey and Morris it is said:The primary object of this Rule is to obviate the inconvenience of conducting the trial of a case containing foreign elements in a manner with which the court is unfamiliar. If, therefore, it is possible to apply a foreign rule, or to refrain from applying an English rule, without causing any such incovenience, those rules should not necessarily, for the purposes of this Rule, be classified as procedural.[68] It is the lex causae which determines what are the facts in issue – this is a substantive matter; it is the lex fori which determines how the facts in issue must be proved – this is procedural: Dicey and Morris, 7-014 – 7-015.[69] In the context of this case, this means that when hearing the instant proceedings, the New Zealand High Court will apply New Zealand law to matters affecting procedure and New South Wales law to matters of substance. [70] The body of conflict of laws has its own canons for deciding what is a matter of procedure and what of substantive law. So the law of evidence is generally classed as procedural: see Dicey and Morris, 7-013. This encompasses matters such as the competence of witnesses and whether certain matters are required to be proved by writing. [71] Whether extrinsic evidence may be adduced in order to add to or vary the terms of a contract is seen as a procedural question and is thus governed by the lex fori: Korner v Witkowitzer [1950] KB 128, 162-163 (CA), affirmed in sub nom Vitkovice v Korner [1951] 1 AC 869. But even on the matter of interpretation of contract, the issues in this case go further. [72] A issue here is what the terms of the contract are. That leads to the next enquiry whether the terms are exhaustively contained in the two written contracts. That enquiry resolves itself into sub-issues that include the questions: a) Should the court embark on the exercise of its statutory power to enquire into the matters below, or, having regard to respective bargaining strengths etc of the parties, should it respect the "entire contract" clause? b) If it elects to go behind the "entire contract" provision, were there misrepresentations that effect should be given to the terms of a misrepresentation as though they were terms of the contract: s 6? c) Did the defendant give a valid notice cancelling the contract: s 7 and 8? d) What relief, if any, are the plaintiffs entitled to, assuming there has been a valid cancellation: s 9?[73] The areas just indicated involve at least some matters of substantive law. In my judgment, the answer to whether the New Zealand statute or New South Wales common law applies will resolve what is to proved in the case. In coming to its view, the New Zealand Court would, no doubt, also follow procedural rules, such as whether a given element of a party's evidence is admissible. My tentative conclusion, bearing in mind the limited argument that I heard on the matter, is that the issues in sub-paragraphs a)-d) are concerned with matters of substantive law and New South Wales law will apply in those areas, rather than the New Zealand statute.Position if the Act does not apply[74] If the Contractual Remedies Act 1979 does not apply the plaintiff must fall back upon such provisions of the New South Wales common law and statute law which govern the effect that pre-contractual representations have on the contract which follows then. [75] New South Wales law, on the limited information I have been provided, would respect the "entire contract" provision. It would not permit extrinsic evidence to be given of the terms of the contract. It would not assimilate pre-contractual misrepresentations to terms of the contract and give remedies accordingly. [76] It would seem that the plaintiffs would only be able to succeed if they were able to establish that New South Wales law allowed a plaintiff to sue for negligent pre-contractual representations causing loss. I will assume that that is so and I do not understand Ms Bruton to submit otherwise. The position that Ms Bruton took though was that any loss referable to such an amended cause of action would be calculated on a reliance basis and not on the expectation type formulation which the plaintiffs' rely upon in their statement of claim. [77] I do note though, that Ms Bruton's submission only concerns the quantum of damages claimed. Those damages might be less than those formulated in the existing pleadings but nonetheless they could be substantial. The fact that the damages are less than those now claimed does not affect the question of whether or not the plaintiffs have a good arguable claim.[78] However, the claims based on common law misrepresentations have not been formulated. It is impossible to come to any view, even provisionally, as to whether they will ultimately prove to be tenable. I therefore exclude them from my consideration of whether the plaintiffs have a good arguable claim.Other legal aspects of the plaintiffs' claims[79] The second cause of action which is based upon breach of express terms of the contract (that is the agreement to do what was necessary to maximise sales and to do everything necessary or desirable to give full effect to the agreement – clauses 4.2 and 24) does not depend on successful invocation of the Contractual Remedies Act 1979. Success under this head is not quite so unlikely. But there are still difficulties that the plaintiffs must overcome. [80] The principal of those is whether the projected sales figures expressed anything more than aspirations; and if they were, whose fault it was that they were not achieved. Then there is the role of the second plaintiff. It was the corporate embodiment of Mr McCorkindale whose expertise was at the service of the second plaintiff. The state of the New Zealand market was a matter in which he claimed expertise. His views must have been influential in preparing the sales volumes forecast. If that is so, the defendant could well say that it relied upon his assessment and indeed hoped it was correct. The defendant might well say that in the circumstances the defendant was hardly going to accept contractual liability to the first plaintiff for sales figures which embodied an estimate made by the second plaintiff. [81] There will be further matters on which they must satisfy the Court including whether or not the shortage of inventory was what caused the losses claimed or whether, as the defendant would have it, shortcomings on the part of the first and second plaintiff were the cause of problems. [82] I have mentioned the claim arising out of under-supply of inventory and the link that to clauses 4.2 and 24 at some length because it seems to me to represent the plaintiffs' 'best shot'.[83] The third, fourth and fifth cause of action depend on the implication of terms. If the "entire contract" provision applies, implied terms would seem to enjoy little prospect of success. Even if the Contractual Remedies Act 1979 applies, the court may decide not to go behind that clause. [84] The sixth cause of action (second plaintiff's first cause of action) faces real difficulties in that the termination provision contained in the second plaintiff's contract provided for termination on notice. That is, the defendant was not required to prove cause. [85] The seventh cause of action (second plaintiff's second cause of action) attempts to link loss suffered by the second plaintiff to breaches by the defendant of its agreement with the first plaintiff concerning volume of supply of product. It is not clear how this link will be achieved, given that the second plaintiff's agreement with the first plaintiff was to provide information and advice on the market. The second plaintiff, as I read the contract, was not involved in the actual marketing and sale of the defendant's products. It received a standard monthly retainer which was not varied according to sales achieved or anything of that kind. The second plaintiff, to succeed on this cause of action as well as its others, has to show there was a wrongful termination of contract. The second plaintiff has not demonstrated what this has to do with the achievement of sales which was the subject of the contract between the first plaintiff and defendant. [86] Similar comments can be made about the ninth cause of action and the tenth cause of action. [87] The eleventh and final cause of action also depends upon an implied term – this time as to good faith. It suffers the same weaknesses given the existence of the 'entire agreement' clause. As well, no evidence has been provided that the defendant acted in a way which is said to have involved a breach of good faith. [88] Taken as a whole, the second plaintiff's claims are substantially weaker than those of the first plaintiff. None of them appears to be particularly convincing.[89] Ms Bruton pointed out that the plaintiffs' claims seem to extend for periods of at least the whole five years of the contractual arrangement and, even longer, in the case of the second plaintiff's claim to be entitled to damages for loss of its monthly payments right up to the date of trial. [90] The defendant asserts that the express right to terminate on notice without cause can be defeated by implied terms requiring good faith. This assertion does not seem particularly realistic given that one of the requirements for an implied term is that it "must not contradict any express term of the contract": BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363, 376 (PC); adopted in New Zealand in Devonport Borough Council v Robbins [1979] 1 NZLR 1, 23 (CA). The purported implied term of good faith cannot operate to defeat the express term allowing termination on notice without cause.Factual aspects of good arguable case[91] The next issue is to look at the plaintiffs' claims in their factual setting. [92] Mr McCorkindale claimed that the sales expectations in the budget were arrived at more or less jointly. Those sales expectations were what underlaid the figures in Schedule A to the second agreement. [93] The plaintiffs' case is that when he was first negotiating with them Mr Johnson gave specific assurances that the defendant would supply sufficient product to the plaintiffs. McCorkindale said that the supply of product was absolutely critical to the success of the arrangement. [94] Mr McCorkindale said he worked very hard to make the agreement work. He noted as one of his particular achievements that he got new business from a company called Power Farming. He said that nonetheless very early on the defendant reduced the range of products available in New Zealand. [95] He said that in July 2002 he considered that there were major problems looming because of the defendant's failure to supply sufficient product to the New Zealand market.[96] Mr McCorkindale prepared a report which set out his analysis showing that this was the problem. In particular, in July 2002 Mr McCorkindale in his capacity as what he described as "consultant to Donaldson Australasia Pty Limited" prepared a report assessing the success and failures of the original plan for the defendant to start selling its products in New Zealand. In that paper Mr McCorkindale came to a number of conclusions. One of these was that he said that the inability to penetrate Brake & Transmission as a potential customer and dislodge them from their loyalty to the Fram automotive products came about because the delays in bringing the required products into the country were too great. It said that Brake & Transmission had advised that one of the reasons why they were going to stick with Fram was "consistency of supply". [97] Another problem that he pointed to in his report was that the original objective of being able to match the range of Fram parts had not been possible. In general, he concluded that supply had not been a success. I understand that his contention summarised is that back orders for parts that were awaiting supply were unacceptably high and this had lead to cancellation of orders and loss of sales. He recounted customers saying they could get the parts from other brand suppliers; why couldn't they get them from Donaldson? His conclusion was that once inventory levels had been addressed lost sales would only be a minor problem. [98] He said that he discussed the report with Mr Ken Morgan who had by then replaced Mr Nels Johnson as the managing director. He said Mr Johnson did not challenge the conclusions of his report. [99] He said that the termination on 22 November 2002 came out of the blue when Mr Morgan came to his office with the termination notice. He said that since the agreements were terminated he has tried to analyse why the defendants ended the agreements. It was his conclusion, he said, that as part of a re-adjustment of its marketing strategy the defendants decided not to continue in New Zealand and that possibly there was some arrangement with another company in the filter supply business pursuant to which the defendant agreed not to trade in New Zealand as aquid pro quo for concessions by that other company in another part of the world.[100] It is relevant to an assessment of the strength and bona fides of the plaintiffs' claims that there is some contemporary material consistent with the view now advanced by Mr McCorkindale in these proceedings that the defendants failed to ensure proper supply of products to enable the contracts to be translated into commercial success. The report falls into this category. [101] There are as well another contemporary document - an apparently undated letter Mr McCorkindale wrote to Mr Morgan – in which Mr McCorkindale reported on the loss of purchases from the Brakes Service Centre who gave their major reason for not proceeding with Donaldson as being deficiencies in width or range and lack of supply. [102] It is of course possible that Mr McCorkindale was simply looking for reasons to excuse failures as his end to maximise the sales in New Zealand. On the other hand, the statements he made complaining about supply were made at a time when the arrangement was still an amicable one. The statements then made are at least consistent with the complaints that he now makes. [103] The defendant rejected the plaintiffs' claim at a factual level. In his affidavit, Mr Johnson makes it plain that the defendant's entry into the market in New Zealand only took place after the defendant received advice from the plaintiffs, and in particular the second plaintiffs. Mr Johnson made it clear that because the defendant had limited knowledge of the New Zealand market it substantially relied upon what Mr McCorkindale told them about the New Zealand market. [104] Mr Johnson said that negotiations commenced with Mr McCorkindale with a view to using his warehouse facilities and for him or his company to become a third party logistics provider for the defendant. The arrangement also envisaged that the defendant would have access to Mr McCorkindale's former customers to sell the defendant's products. This last was a reference to the fact that Mr McCorkindale had previously been involved in a manufacturing operation which had customers in New Zealand. Mr Johnson said that far from him giving assurances to Mr McCorkindale, the true position was the other way around. Mr McCorkindale he said, represented to him that his existing customer base who had been buying Framfilters (that is filters made by a company called Fram) would change their custom and come across to Donaldson branded filters which were sold by the defendant. He also claimed the representations were made about very large contracts with which Mr McCorkindale was on the verge of signing up. [105] He said that Mr McCorkindale claimed he would be able to achieve sales of between $5,000,000 to $6,000,000 per year (among other representations). He said that he thought that if Mr McCorkindale's representations were achievable, it would be worth doing business with him; but Mr McCorkindale did not deliver on his representations. He said that the defendant went out of its way to make the agreement work and provided a warehouse for the product. They urgently brought in two twenty-foot container loads of spin-on filters totalling around 55,000 units. They took over some old Fram stock of Mr McCorkindale's and re-labelled it as the defendant's to assist the plaintiff in making sales and reducing their inventory. He said that, regrettably, Mr McCorkindale could not convert over the customers who had previously used Fram to the defendant's products even though he had been provided with an extensive 'product offering'. [106] Some of the promised big customers Mr McCorkindale said would be good prospects turned out not to be so. Mr Johnson instanced the case of Brakes & Transmission who declined to change over its auto filters to the defendant rather than using Fram products. Instead of the defendant achieving sales of $1.728 million in the first year, only $700,000 were achieved. [107] He said that because of the poor sales and stemming from the failure to convert customers over to the Donaldson product which Mr McCorkindale said would be possible, Donaldson had scaled back its stocking arrangements in New Zealand. This included ceasing to buy products from a factory operated by Mr McCorkindale's son, Denis McCorkindale. He said that product sales were so poor that they had to return some containers of product back to the defendant's Australian warehouse. [108] There is are indications that what Mr Johnson says in this regard is correct. The very fact that the second contract was entered into points in that direction. Thesecond plaintiff's contract with the defendant essentially amounted to the defendant engaging Mr McCorkindale as its advisor on, inter alia, questions of markets in New Zealand. Far from the defendant telling Mr McCorkindale's companies what sales levels might be expected, the reverse was the truth. Mr McCorkindale supplied estimates of the market and that is what is the subject matter of the annexure to the second contract which sets out projected sales over a five-year period. Factually, the defendant says, there is no basis for the claim that the plaintiffs make to the effect that the defendant misrepresented the position to them. [109] There is also a reasonable foundation for the defendant stating that the projections contained in the annexure to the second contract were simply estimates and that they represented the aspirations of the two contracting sides; that they did not amount to binding obligations to achieve such a level of sales. [110] Exactly what function should be allocated to the five-year estimates would have to be explored as a matter of contractual interpretation. In that process, no doubt, the structure of the two contracts and the fact that the subject matter of the second contract placed the second plaintiff in the position of advisor to the defendant would seem to support a construction that the defendant simply adopted as its objectives in the market the level of sales that is included in the schedule and in doing so took the word of the second plaintiff that such sales were achievable. [111] The causes of action based on clauses 4.2 and 24 raise a factual issue about whether or not the defendant did provide sufficient products to meet the marketing needs of the first plaintiff in New Zealand. It seems to be the case that the defendant has acknowledged that there were shortcomings in its supply and that this was conceded in contemporary documents. That must be proved if the plaintiff is to establish that the defendant is in breach of its obligations under clauses 4.2 and 24. [112] I agree that it is unlikely that the plaintiffs will be able to establish that they are entitled to damages extending beyond the period leading up to termination of the contract.Summary of good arguable case[113] In my view, it is important not to lose sight of the fact that what the plaintiff has to establish is a good arguable case: see the authorities referred to above at (current) [26]and those listed in McGechan at HR 131.10. That is to be contrasted with a case that might theoretically be viable and therefore arguable, in reality has little prospect of success. To satisfy the test, the case which the plaintiff submits for the court to consider must appear convincing. If the court is left with the view that vital aspects of the case are speculative, unclear or uncertain, then the discretion must be exercised against the plaintiff. In that circumstance, the defendant who resides in Australia should not be put to the trouble of coming before a New Zealand Court to answer the plaintiffs' claim. It would then be for the plaintiffs to decide whether they should issue proceedings in the New South Wales courts. [114] The plaintiffs do not have a good arguable claim against the defendant arising out of the alleged representations made prior to contract so far as it is asserted that those representations became transmuted into contractual terms by operations of provisions of the Contractual Remedies Act 1979. My assessment is that it is unlikely that the Contractual Remedies Act 1979 applied to the contract. There are doubts about whether the sales figures had contractual force which bound the defendant. [115] If the Contractual Remedies Act 1979 does not apply, then the causes of action which depend on implied terms are unlikely to get past the barrier posed by the 'entire contract' provision. The implied terms would have further difficulty satisfying the requirements of necessity and obviousness; also they may conflict with express terms of the contract. [116] However the first plaintiff is able to demonstrate that its second cause of action attains the standard of a good arguable case. The Court should accept jurisdiction in the proceedings.Forum conveniens[117] The law requires that for the Court to issue a stay it must be satisfied that there is some other available forum having competent jurisdiction which is clearly the more appropriate forum for the trial of the action, that is, in which the case may be tried more suitably for the interests of all the parties and the ends of justice:Biddulph v Wyeth Australia Pty Limited [1994] 3 NZLR 49, 58; Spiliada Maritime Corp. v Cansulex Ltd [1987] AC 460 (HL). The burden of proving this rests with the defendant. [118] The first matter to be considered is the fact that the contract states that it is governed by a New South Wales law. But the law which governs the contract will be of little significance as a factor if the competing fora have substantially similar domestic laws or if the legal issues are straightforward: Dicey and Morris, 12-024. [119] It is necessary to consider whether or not New Zealand judges would have difficulty applying New South Wales law. As noted above, there are differences between New South Wales law and that of New Zealand in the area of the conclusivity of "entire contract" provisions because of s 4 of the Contractual Remedies Act 1979. Further, the law concerning pre-contractual misrepresentations and cancellation of contracts has been likewise reformed by the New Zealand statute. New Zealand law in its pre-reformed state is, I assume, substantially similar to New South Wales law. Contemporary New Zealand Judges may well have had experience in applying the pre-statute law as practitioners. The law as to implied terms does not seem to have diverged greatly though. [120] Difficulty in applying New South Wales law would not seem to be a significant factor indicating New South Wales as the preferable forum. [121] Ms Bruton did not say that there were any other procedural advantages that point to New South Wales being preferred. [122] Both sides have several witnesses who would have to cross the Tasman but the need to travel would not be disproportionately burdensome to one side or the other. Possible use of video links could, in any event, mitigate difficulties under thishead. A trial in New South Wales is not preferable on this ground. There are no witnesses who cannot travel. [123] If the trial was to occur in New Zealand, legal expert witnesses may have to travel to New Zealand. But because of the short distances, they could travel relatively easily. In any event, it is likely that the parties could agree that New South Wales authorities could be read and applied by the New Zealand court. [124] Access to records would not seem to pose any problem whichever forum is the venue. [125] Ms Bruton referred to the fact that execution of any judgment would be easier given that the defendant's head office is in Australia. This is not a matter that favours the defendant. It is not a point that the plaintiffs have relied upon. They are entitled to take the risk of more difficult execution of judgment that might occur were trial, as they submit it should, to take place in New Zealand. [126] My conclusion is that it has not been demonstrated that New South Wales has been demonstrated to be the more appropriate forum for trial.Orders[127] I grant the plaintiffs' application for an order setting aside the defendant's protest to jurisdiction. [128] The defendant will pay costs on a 2B basis with disbursements to be fixed by the registrar.Progress from this point forward[129] The parties should file a joint memorandum setting out timetable steps from this point forward for my consideration. If agreement is not possible they should each file a memorandum and I will arrange a conference at which orders can be made._____________ J.P. Doogue Associate Judge