Australia: Exclusive jurisdiction clause trumped by claims under the Australian Consumer Law

In early July 2018, the Federal Court of Australia was asked to grant an anti-suit injunction in relation to proceedings commenced in the Circuit Court of Cook County, Illinois. The application was made on an ex parte basis and in circumstances where proceedings were on foot in the Federal Court of Australia concerning the same subject matter as the US proceeding.

The applicant, Home Ice Cream Pty Ltd (HIC), a Queensland Australian incorporated company, was successful in its application. The court ordered that the respondent, McNabb Technologies LLC (McNabb), a South Dakota incorporated company, take no steps to restrain HIC from prosecuting its application for interlocutory relief in the Federal Court of Australia, or to interfere with the claims of HIC in the Australian proceedings pending determination of HIC's application before the court.

THE AUSTRALIAN PROCEEDINGS

HIC's claim against McNabb was founded on allegations of misleading and deceptive conduct in contravention of s 18 of the Australian Consumer Law (schedule 2 to the Competition and Consumer Act (Cth) 2010) (ACL).

HIC had commenced its proceedings in the Federal Court on 27 April 2018 and sent unsealed copies of the originating application and statement of claim to officers of McNabb by email. The court noted that email responses recorded that the messages had been read. Sealed copies of the originating application and statement of claim were also sent by email to the officers of McNabb on 12 May 2018 together with notice of the first return date – one officer's email box responded automatically with a 'read' receipt. McNabb's awareness of the Australian proceeding was a relevant factor in the court's deliberation.

US PROCEEDINGS

On 16 May 2018, HIC's solicitors received a letter from McNabb's US lawyers enclosing a law suit filed in the Circuit Court of Cook County, Illinois against HIC. The letter asserted that 'Home Ice Cream should not proceed against McNabb in a legal action in any other court system. To do so would violate the parties' agreement [...]'. The reference to the parties' agreement was a reference to a choice of law and choice of court clause in their contract, which read as follows:

6.09 Choice of law. This agreement shall be construed and the legal relations between the parties determined in accordance with the laws of the State of Illinois, USA, without giving effect to any choice of law rules which may direct the application of the laws of any other jurisdiction. Any legal action, including any injunctive or other equitable relief, shall be brought in a court of competent jurisdiction sitting in Cook County, Illinois.

Also on 16 May 2018, HIC obtained orders from the Federal Court of Australia for the service of the Australian proceedings on McNabb. Affidavit evidence filed by HIC subsequently deposed that process servers had properly served the documents on McNabb in conformance with Article 5 of the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (also known as the Hague Convention).

ACL CLAIMS

Greenwood ACJ observed that the claims brought by HIC against McNabb in the Federal Court of Australia 'have a statutory foundation in Commonwealth law and that [t]he causes of action and remedies derive from the Act'. His Honour then observed:

The causes of action HIC seeks to litigate and the remedies it seeks, derived from prosecuting those causes of action, are not available to it in the State of Illinois. An exclusive jurisdiction clause in an agreement nominating a foreign jurisdiction does not, as a matter of principle, prevail over statutory protective provisions of a valid law of the Commonwealth of Australia. The only court which is capable of determining the questions which HIC seeks to litigate (other than the High Court of Australia in exercising its appellate jurisdiction) is the Federal Court of Australia or a court invested with the judicial power of the Commonwealth under legislation enacted in reliance upon s 77(iii) of Ch III of the Constitution. The causes of action HIC seeks to prosecute and the relief it seeks, derived from making good those causes of action, cannot be obtained from the Circuit Civil Court of Cook County Illinois. Moreover, a choice of court clause in the terms as quoted at [16] of these reasons cannot operate in such a way to deprive HIC of the rights it seeks to agitate under the Commonwealth Act nor can such a clause operate as a mechanism for contracting out of any liability arising on the part of McNabb on the footing (if made good) that McNabb engaged in conduct in contravention of the prohibition contained in s 18 of the Act.

There appears to have been no controversy as to the nature of the choice of court clause (in other words, whether it provided for exclusive or non-exclusive jurisdiction).

FORUM TO HEAR ACL CLAIMS

In considering the impact of the choice of court clause and nature of the relief sought in the Australian proceeding by HIC, his Honour had regard to an affidavit filed by an Illinois licensed attorney on behalf of HIC.

The attorney's evidence was, relevantly, that an Illinois Court was 'not likely to apply or decide any claim under the Australian [Act] likely finding instead that the parties had agreed, in the [agreement], to exclude the law of any other jurisdiction', that there may be relief available under local domestic laws in Illinois but that relief 'is not similar to, or [a] duplicate of, the relief provided under the Australian [Act]' and that 'the choice of law provision in the [agreement] has the effect of prohibiting the application of the laws of any other jurisdiction including the Australian Act'.

This evidence was accepted and was key to the success of the application.

In an earlier decision of the Federal Court of Australia—Nicola v Ideal Image Development Corporation Incorporated [2009] FCA 1177 (Nicola)—Perram J, having determined that certain claims of the applicants were not covered by an otherwise valid arbitration clause, held the parties to their exclusive foreign jurisdiction clause (being in favour of the courts in the State of Florida) even where certain claims alleged a breach of provisions of the predecessor to the ACL (Trade Practices Act (Cth) 1974).

His Honour in that case (at [75]) emphasised that the relevant choice of court clause was an exclusive jurisdiction clause and then held that the applicants had failed to discharge the evidentiary burden on them 'to establish by clear evidence that their claim was not recognisable before the courts of Florida'.

Professor Richard Garnett in his 2013 article, Jurisdiction Clauses since Akai [2013] UMelbLRS 6, observed in relation to the Nicola decision that:

Placing the burden of proof in respect of the juridical advantage argument on the plaintiff is entirely appropriate since it is that party who is seeking to extricate itself from its contractual obligations. [...]

EX PARTE ANTISUIT

Greenwood ACJ granted HIC's interlocutory application. In doing so, his Honour relied on the established principles set out in CSR Ltd v Signa Insurance Australia Ltd (1997) 189 CLR 345 (and endorsed by subsequent jurisprudence in the Australian courts).

APPLICATION FOR FINAL RELIEF

The matter returned to the Federal Court on an inter partes basis on 23 July 2018. McNabb did not appear. The application before the Court on this occasion was for a final antisuit injunction and for final judgment in the proceeding.

In relation to the antisuit, Greenwood ACJ observed at the outset that:

The particular difficulty for the applicant in this case, [HIC], is that the evidence demonstrates that [HIC] cannot bring, in the Illinois Court, a claim for relief based upon contended contraventions of the Commonwealth Act. Two things follow from that. The first is the [HIC] has "regularly engaged" the jurisdiction of this Court so as to ventilate causes of action in respect of which this Court plainly has jurisdiction. Prima facie, [HIC] has a right to have its proceeding heard. The second thing is that a cause of action based upon conduct shown to be misleading or deceptive conduct giving rise to a reliance loss in contravention of the Act simply cannot be litigated in the Illinois Court.
It follows that there is nothing to be gained from the duplication of the legal proceedings in two different jurisdictions.

The above quote again highlights the significance of the evidence of the Illinois qualified attorney as to the anticipated approach of the court in that jurisdiction to any attempt by HIC to plead breaches of the ACL.

Having held that there was no value in duplicate proceedings, his Honour restated the applicable principles on which an antisuit might be granted and then re-examined clause 6.09 of the parties' agreement, in particular, their choice of court recorded therein. His Honour observed that:

Australian jurisprudence makes it plain that a clause of that kind is no answer to an application for an antisuit injunction where the cause of action relied upon by, in this case, [HIC] cannot be litigated in the foreign court, that is, in the Illinois Court. A proceeding in an Australian court will not be stayed in favour of a foreign jurisdiction (in reliance upon an exclusive jurisdiction agreement of the kind seen in cl 6.09) where there is a legislative protective provision in the local jurisdiction which would be defeated or avoided if a stay were to be granted of the proceeding. To do so would deprive the applicant of rights and entitlements to remedial orders should the applicant make good its claim of misleading or deceptive conduct on the part of the respondent: [...]

The Court acknowledged that both proceedings might be permitted to continue, but in light of the relief sought by McNabb in the Illinois proceeding, concluded that the foreign proceedings were 'vexatious and oppressive because they will undermine the substantive adjudication of the rights and remedies asserted in the Australian proceeding'. The court also found that 'there was no doubt that Australia is not a clearly inappropriate forum for the determination of the claims in issue', observing that:

It should be recognised, of course, that once the Court's jurisdiction under the Commonwealth Act is engaged, the Australian forum is the only forum in which the claims under the Australian Act can be heard and determined.

Based on the affidavit evidence filed in support and for reasons set out in the judgment (none of which are relevant to the question of the interpretation of the exclusive jurisdiction clause or the application for a final antisuit), his Honour also gave final judgment in favour of HIC.

KEY OBSERVATIONS

The interplay between foreign exclusive jurisdiction clauses and the enforcement of statutory rights such as those available under the ACL will no doubt continue to feature in Australian jurisprudence. Each case that comes before an Australian court will have its own unique factual matrix.

The question of whether an exclusive foreign jurisdiction clause will withstand a challenge based on mandatory statutory rights creates uncertainty for parties engaging in cross border transactions.

Whilst parties cannot contract out of rights under the ACL, it would be unusual for a party to enquire during negotiation of a contract whether the foreign court agreed upon in any proposed exclusive jurisdiction clause might entertain a claim brought under the ACL or whether that jurisdiction might provide a cause of action leading to similar or duplicate relief to that which is available in an Australian court.

This is, however, an important consideration given the extent of relief available under the ACL and the extra territorial application of certain provisions of the ACL. The answer may well militate in favour of an international arbitration clause – an appropriately drafted clause can extend to both breach of contract claims and claims brought under the ACL, providing an assurance to parties to a cross border contract that their disputes can be resolved in one forum. The arbitration agreement will also bring with it the advantage of enforceability of the award in over 155 jurisdictions around the world pursuant to the New York Convention.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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