News

Artful strategy stops foreign litigant from suing in Australia

13.04.2010

Christopher Hewitt, Solicitor

In response to the commencement of legal proceedings, defendants are usually advised by their legal advisers that they can admit and pay the claim, or defend against the claim. However those are not always the only two options. In international commercial disputes, the question of whether the claim can legitimately be pursued by a foreign plaintiff in a local court, or whether it can be permanently stayed, should always be considered.

A recent decision of the Magistrates Court of the Australian Capital Territory, that it was a “clearly inappropriate forum” to hear an art industry dispute between a UK plaintiff and an Australian defendant about the hiring of an exhibition space in London, has illuminated the rules applicable to this legal tactic, and underlined its great utility in the right circumstances.

In this Litigation Monitor, we explain the case and the surrounding law of forum non conveniens in Australia. We have found that it is not well understood, even to the extent of being overlooked when foreign litigants come knocking on the doors of domestic courts. Awareness of this law, the clever drafting of pleadings, and the proper use of court procedures, can save you time and money, and make all the difference between success and failure in your dispute.

Art world not spared by the global financial crisis

The defendant in the proceedings was an Australian art sales company with its registered office in the Australian Capital Territory (“ACT”). The plaintiff, an art exhibition company with its registered office in the United Kingdom (“UK”), alleged that it had entered into a contract with the defendant to provide a display space at a well-known annual London art exhibition, together with equipment for the use of the space. The alleged agreement was short and simple, and did not include a dispute resolution clause, nor a clause setting out a “governing jurisdiction” or forum for disputes between the parties.

The defendant paid a substantial deposit to secure its exhibition display space, but before the exhibition was held the global financial crisis hit and the defendant was forced to withdraw from the exhibition. The defendant lost its deposit, but that was not enough so far as the plaintiff was concerned, and it chased the defendant for the balance of the moneys as well.

The defendant refused to pay, and the plaintiff commenced legal proceedings in the ACT Magistrates Court to recover what it said was still due to it.

Painting the picture – what is an inappropriate forum?

The defendant’s mind first turned to the question of whether it should pay or defend. However, on the facts an alternate strategy presented itself: that the ACT court was a “clearly inappropriate forum” to hear the dispute. The pleadings for this type of an argument postpone the requirement to enter a defence, and if the argument is successful the legal proceedings in the local court can be stopped dead in their tracks.

This type of claim has a colourful and complicated legal history. In most common law countries the rule applied by the courts is that if it is more appropriate for a dispute to be decided by a court in another jurisdiction then the local court will permanently stay the proceedings. This is commonly known as the “more appropriate forum” rule.

However, since the High Court’s 1990 decision in Voth v Manildra Flour Mills1 this rule has not been applied in Australia. In Voththe majority departed from the “more appropriate forum” rule and adopted a “clearly inappropriate forum” rule. The elements of the new rule were described by the High Court as follows:

  • a plaintiff who has correctly commenced proceedings in a court has a prima facie right to insist that the court hear the dispute;
  • despite that prima facie right, the court should dismiss or stay proceedings which are oppressive, vexatious or an abuse of process, so as to avoid injustice between the parties;
  • a dismissal or stay of the proceedings will not be justified simply because the balance of convenience favours an alternative jurisdiction or an alternative jurisdiction is more appropriate; and
  • courts should decide to grant a dismissal or stay of the proceedings only with “great care” or “extreme caution”.

This restatement of the rule caused many in the academic and legal community to think that stays of proceedings would only be granted in extreme cases, and that it would take an exceptional set of facts for an Australian court to find that it was a clearly inappropriate forum.

More recent decisions suggest that these concerns are unfounded. In 2005 the Supreme Court of New South Wales delivered a helpful judgment in McGregor v Potts2 that shed further light on the application of the phrase “oppressive and vexatious”. InMcGregor the court found that in order to show that the local court was a clearly inappropriate forum it was not necessary for the defendant to prove actual oppression or vexation, but rather oppression or vexation will be assumed where “the subject matter of the action and the parties had little connection with that forum and the defendant may be put to great expense and inconvenience in contesting the action in that forum”.3

The court in McGregor said that the Voth principles did not require a finding of actual vexation or oppression for a local court to stay the proceedings. Instead, the court emphasised that a lack of “connecting factors” between the case and the jurisdiction in which the plaintiff intended to conduct its proceedings, or a sufficient imbalance of those factors between that jurisdiction and another jurisdiction, could lead to a finding that the local forum is a “clearly inappropriate” one, as distinct from merely being a “less appropriate” one.

Exhibition space dispute more “connected” to the UK than the ACT

In the exhibition space dispute proceedings in the ACT court, the defendant provided a long list of factors connecting the dispute to the UK, to show the “sufficient imbalance” that McGregor said could show that the local forum was “clearly inappropriate”. The factors connecting the dispute to the UK included:

  • the need to apply UK laws to the terms of the alleged contract;
  • the need to apply UK taxation laws to the ascertainment of the disputed amounts;
  • the formation of the contract in the UK;
  • the services under the contract were to be provided in the UK;
  • the presence of most of the witnesses in the UK; and
  • the documentary evidence was located in the UK.

The only factor connecting the exhibition space dispute to the ACT was that the defendant had its registered office in the ACT. As to the question of whether that was a sufficient “connecting factor” to allow the proceedings to be run in the ACT, the defendant successfully showed that its legal domicile in the ACT was only one of the connecting factors to be considered by the court and could not, of itself, override the weight of the factors which connected the dispute to the UK.

The ACT court determined that it was indeed a “clearly inappropriate forum” and permanently stayed the proceedings, at the same time making an order that the plaintiff pay the defendant’s legal costs.

International disputes – the importance of properly framing your case

International commercial disputes involve parties in different jurisdictions. This means that consideration must first be given to where the dispute should be heard. The jurisdiction chosen will be “foreign” to at least one of the parties.

Often a plaintiff will commence proceedings in its local jurisdiction. However the “money trail” may make it more expedient for a plaintiff to commence proceedings in a foreign jurisdiction, in the hope of avoiding the risk, complication and cost of having to enforce a judgment of its local jurisdiction in that foreign jurisdiction.

Litigants and their lawyers in international disputes need to pay careful attention to their choice of forum, lest they come up against an opponent who cares more about it than they do.

Moulis Legal represented the Australian defendant in the dispute.

For more information, please contact Christopher Hewitt on +61 2 6163 1000 or christopher.hewitt@moulislegal.com.

1. (1990) 97 ALR 124

2. [2005] NSWSC 1098

3. Voth, at 135

This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.