Involvement in complex litigation is enough to get anyone into a right state – and all the more so when the Australian State in which the litigation is taking place is not a State in which you have a main place of business (or in which you have access to trusted lawyers). A plaintiff gets to choose where litigation will be commenced, but a national scheme known as the “cross-vesting scheme” allows defendants to apply to have cases transferred to another State. So, how do you ensure that when you have your day in court, you don’t have to have a day in an airport first?
In contractual disputes, courts are increasingly emphasising the importance of “choice of forum” clauses to answer the question of which State’s courts should hear the litigation. Although “choice of forum” clauses are often simply treated as being part of the “boilerplate” in commercial contracts, two cases decided in November indicate the importance of giving them specific consideration when there is likely to be an interstate element in disputes arising from the contract.
Exclusive jurisdiction clause sees case commenced in Victoria transferred to Tasmania
In the first case, proceedings were commenced in the Supreme Court of Victoria arising from the sale of a dairy farming business. This was despite the fact that the contract included the following “choice of forum” clause:
“The parties submit to the exclusive jurisdiction of the Tasmanian courts in respect of all matters relating to this agreement.”
The defendant’s first argument on its application to transfer the proceedings to Tasmania was that the commencement of the proceedings in Victoria was an abuse of process, because the proceedings had been commenced in defiance of the exclusive jurisdiction clause. That argument was swiftly rejected by the Supreme Court of Victoria – even though commencing in Victoria might have been a breach of contract, it did not reach the level of “bringing justice into disrepute” so as to amount to an abuse of process.
Accordingly, it was necessary for the Court to consider the defendant’s argument that the matter should be transferred under the cross-vesting scheme. After considering the arguments of the parties, the Court said that the exclusive jurisdiction clause was the “overwhelming connecting factor” suggesting that the matter should be heard in Tasmania. In particular, the Court noted:
“the significant fact that the parties have chosen to make Tasmania the exclusive venue in the contract that is the subject of the current dispute. In fact the plaintiff’s lawyers actually drafted and propounded the exclusive jurisdiction clause. This is despite the fact that it must have been apparent to them that there may be potential inconvenience with such a course.”
It should be noted that the lawyers acting for the plaintiff in the proceedings were not the lawyers who drafted the exclusive jurisdiction clause. However, that might suggest this that there are now two sets of lawyers (those who drafted the clause, and those who commenced the Victorian proceedings) who have to explain to the plaintiff why the proceedings are now off to Tasmania. This might also suggest that the apportionment of blame will not be exclusive, even if the jurisdiction has been so identified.
Non-exclusive jurisdiction clause sees NSW case stay in NSW
In the second case, a Victorian defendant applied to transfer to Victoria proceedings which had been commenced in New South Wales. In this case, the relevant contracts again contained “choice of forum” clauses, although expressed in non-exclusive terms, as follows:
“Each party irrevocably and unconditionally submits to the non-exclusive jurisdiction of the courts of New South Wales”.
The Court held that the submission to jurisdiction in these clauses was “sufficient to dispose of the present application” (that is, the defendant’s application to transfer of the proceedings to Victoria). Although the defendant submitted that the clauses should be given less weight because they were in pro forma contracts, the Court held that this did not provide “any basis for either diluting or discarding the operation of these clauses”.
The Court noted that defendants did not suggest the contracts were unfair (and, importantly, did not suggest that they had entered into the contracts without taking legal advice). For completeness, the Court also noted that the fact that the plaintiff was a large commercial entity, “is not standing alone a reason why the terms of its contracts should be modified in favour of its customers”.
These cases emphasise the importance, when it comes to contractual drafting, of understanding that even the “boilerplate” clauses of the contract can have important consequences for the parties’ contractual rights. If the correct contractual provisions are selected at the outset, then the question about which State’s courts should hear any dispute which arises should have an answer less conducive to a state of anxiety, and more conducive to a state of grace.
If you’d like to learn more about choice of forum clauses, Angus is presenting a seminar on this topic at the UNSW MCLE Civil Litigation Masterclass on 15 March 2019. You can find out more details about this seminar here
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