The Facts

Australian company and US company enter into agreement

In January 2016, two companies, one Australian-based and one US-based, entered an agreement under which the US company would provide social media marketing services to the Australian company. A dispute arose.

The written agreement between the two companies contained a conflict resolution clause providing that, in the event of a dispute which could not be resolved by the parties, either by themselves or with the assistance of a mutually agreed third party, the dispute would be referred to a cleric who was chief judge of a court established within a particular religion.

The director of the US company and the director of the Australian company were both practising adherents of that religion. The conflict resolution clause provided that the decision of the chief judge of the religious court would be "final and acceptable by both sides".

Australian company terminates contract and US company seeks adjudication by religious court

Despite the existence of the dispute resolution clause, in July 2016 the Australian company ended the arrangement with the US company under a clause providing that it could terminate the contract by giving two months' notice and making a payment.

However, the director of the US company remained aggrieved and, in the latter part of 2016, had discussions with other clerics of the religion, which culminated in a plan that the US company's grievances should be adjudicated by this religious court, which had been in existence since 1905.

The claim brought by the US director before the religious court was for damages up to the amount of $5 million for breach of service and partnership agreements and fraudulent use of company funds.

Director of Australian company receives summons to religious court

Over the ensuing couple of months all manner of preparatory activities – filing forms, making payments, identifying people to be involved – went on between the director of the US company and various clerics of the religion.

In December 2016, a summons to the religious court was sent to the director of the Australian company and to members of his family, who were shareholders. (They were eventually removed as parties.)

Refusal to appear before religious court leads to threat of religious sanctions

Four days later, the lawyers for the director of the Australian company wrote to the religious court and said, while expressing respect, that their client had no intention of appearing at a hearing of the religious court and that, if the director of the US company had a "proper claim", he should bring it in an appropriate civil court, in conformity with the rules of that court.

The response was rapid. One of the clerics wrote on behalf of the religious court that, if the director of the Australian company did not recant and submit, various formal sanctions would be imposed on him, which would have the effect of considerably curtailing his participation in services in the religion's places of worship, and in the religious community generally.

The cleric's advice said that these sanctions would be notified to the place of worship which the Australian director attended and that further sanctions might be imposed should his defiance persist.

Australian company director commences legal action in Supreme Court

Characterising this advice as intimidation, and being a threat of "partial excommunication", the Australian director's lawyers did not budge an inch.

The war of words went on until, in early February 2017, the lawyers for the Australian director started proceedings in the NSW Supreme Court, complaining of apprehended bias and seeking injunctive relief to restrain the religious court from hearing the dispute and from continuing to threaten the imposition of religious sanctions on the Australian director.

Subsequently, the claim was amended to include a claim that the clerics, by threatening the religious sanctions, had committed a contempt of court.

It was up to the Supreme Court to decide whether the clerics were indeed guilty of contempt of court.

Case a - The case for the Australian director

Case b - The case for the clerics

  • The reason why this claim has been made in the religious court is because it is based on wholly unfounded allegations and would have no prospect of success in any civil court in any country.
  • The religious court has jurisdiction over personal matters such as divorce, child abuse and women's rights in marriage. It has no jurisdiction over a commercial dispute between corporations such as this one.
  • The religious court does not have the power to arbitrate, and the conflict resolution clause, which referred to its chief judge rather than to the court itself, did not confer that power on it.
  • Even if the religious court had this power, in the multiple communications following the termination of the agreement, it has displayed apprehended bias, in the form of exchanges which excluded me, and advice given to the American company's director about how he might formulate his claim, in breach of the requirements of procedural fairness (frequently also called "natural justice").
  • The religious sanctions with which I have been threatened by the clerics would have severe consequences for me personally and would impact upon my good name and reputation, which I have built up over many years in the business world.
  • The conduct of the US director and the clerics amounts to a criminal contempt of court, in that they were attempting to interfere with the proper course of justice by making threats to me which were tantamount to threats of excommunication, in order to deter me from approaching the courts of New South Wales.
  • All members of our religion must seek resolution of their conflicts before the religious court, rather than in the secular courts, regardless of any agreement that they have signed.
  • All practising members of our religion are obliged to comply with religious law, which dictates, among other things, that practising members of the religion must comply with a summons to attend a hearing before the religious court to arbitrate on a dispute. Refusing a summons to the religious court is not an option for any member of our religion who wishes to remain within its framework. Such a refusal will invoke inevitable consequences in the form of religious sanctions.
  • The religious sanctions which have been threatened are a justifiable and legitimate response to a religious transgression on the part of someone who professes to be a member of our religion.
  • The conflict resolution clause in the contract is a red herring. The religious court has the power to arbitrate in the dispute independently of the conflict resolution clause. Provided that the parties to the hearing of the dispute entered an agreement under the NSW Commercial Arbitration Act 2010, the resulting decision could be registered and thus enforceable as though it were the decision of an ordinary civil court.
  • The common law rules of procedural fairness do not apply to the proceedings of the religious court, and would apply to the parties to the hearing only when an agreement under the Commercial Arbitration Act was made (although conduct of the religious court is subject under the customary law to rules similar to the rules of procedural fairness).
  • There was no bias displayed in the communications complained of. The director of the US company was just an "impatient litigant", of whom we had little prior knowledge. Acting as judges, were simply trying to bring the case on for hearing.

So, which case won?
Cast your judgment below to find out

Vote case A – the case for the Australian director
Vote case B – the case for the clerics

Geoff Baldwin
Commercial litigation
Stacks Champion

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