Foreign judgments, foreign contracts and dangers of jurisdiction clauses

Not surprisingly, parties concentrate on the commercial aspects of the deal when negotiating a contract but often overlook the jurisdiction and choice of law clauses commonly found in the tail end of agreements.

When negotiating a contract with a foreign entity, be conscious of whether the agreement includes a jurisdiction clause and how the clause will operate in the event of a dispute. It is equally important to be aware of the agreement’s choice of law, as this will ultimately decide the dispute.

The jurisdiction clause may result in you being sued in a foreign court and a foreign judgment enforced against you in Australia.

Jurisdiction clauses

A jurisdiction clause gives legal authority to a particular court or courts in a specified jurisdiction (for example, a foreign country) to enable a party to sue on the contract. Jurisdiction clauses can be:

• exclusive – limiting disputes to the chosen court or jurisdiction;
• non-exclusive – nominating a court of preference between the parties without prejudicing the rights of the parties to commence proceedings in another jurisdiction; or
• one-way – a less commonly used clause where one party agrees to the exclusive jurisdiction of a court while the other party is entitled to commence proceedings in another jurisdiction.

Whether a clause will take effect as an exclusive jurisdiction clause is a question of contractual construction. The word ‘exclusive’ is not determinative, although it is generally indicative of the parties’ intention. If the parties intend for a clause to operate in a certain way, it should be clearly expressed.

Consider the scope of the jurisdiction clause and the types of disputes you intend it to cover. The courts take a wide view when interpreting jurisdiction clauses and have been willing to decide that such clauses are not restricted to contractual claims and can include antecedent conduct. For example, a jurisdiction clause using the expression ‘out of or in connection with the agreement’ has been interpreted as applying to misrepresentations inducing the agreement.

The long arm of the law

Where a contract includes a jurisdiction clause, irrespective of exclusivity, the clause will generally be taken as an express agreement to submit to the jurisdiction of the foreign court.

A party who agrees in advance to submit to the jurisdiction of a foreign court will have great difficulty later arguing that the foreign court is not an appropriate forum to hear a dispute.

Where there is a jurisdiction clause and the plaintiff obtains a final and conclusive judgment in the foreign court, they can rely on the jurisdiction clause when seeking to enforce that judgment against the defendant in Australia.

The plaintiff will simply rely upon the jurisdiction clause to establish that the defendant submitted to the jurisdiction of the foreign court.

Where there is no jurisdiction clause and the plaintiff is seeking to enforce a foreign judgment in Australia, the local court will need to determine whether there was another basis for the foreign court’s jurisdiction. This will depend on various factors, for example, whether the defendant’s participation in the foreign court proceedings constituted submission to jurisdiction.

For more information regarding what conduct may amount to participation in the foreign court proceedings see Enforcing a foreign judgment in Australia where the judgment is not registrable under the Foreign Judgments Act 1991.

Choice of law clauses

When negotiating jurisdiction clauses, consider the law you intend to govern the obligations under the agreement. In circumstances where a court is required to apply the law of another jurisdiction, you may bear additional evidentiary responsibilities of proving the foreign law. This will differ depending on the jurisdiction.

Choice of law can have significant legal ramifications when a plaintiff is successful in enforcing a foreign judgment in Australia. For example, a defendant may find they are liable for claims that are not necessarily reflected under Australian law or may be required to pay damages that would not ordinarily be awarded by an Australian court.

Comment

When negotiating a contract with a foreign entity, carefully consider the appropriateness of any jurisdiction and choice of law clauses.

If legal proceedings have been threatened or instituted in a foreign jurisdiction, you should obtain urgent legal advice regarding whether the foreign court has jurisdiction to hear the dispute and whether you should participate in the foreign court proceedings.

You should also obtain urgent legal advice if a party is seeking to enforce a foreign judgment against you in Australia. The requirements for enforcing a foreign judgment are technical and can vary depending upon whether the judgment is being enforced under the Foreign Judgments Act 1991 (Cth), a bilateral treaty or the common law. Depending on the circumstances, there may be grounds for defending the local enforcement proceedings.

If you would like more information about these issues, please contact Graham Roberts on +61 7 3231 2404.