Choice of governing law

There are important reasons for a clear choice of law clause to create certainty for the parties, and involves consideration of the following:

• Law is unlikely to be the same, or similar
  
  • Operation of mandatory law (eg Trade Practices Act 1974 (Cth)
• Jurisdictional issues
  
  • Specialist commercial judges and commercial jurisdiction
  • Practice and procedure
  • Court power to order non-consenting parties to mediation
  • Evidentiary rules
  • Oral evidence or an exchange of witness statements or affidavits prior to hearing

Choice of law can determine the validity and enforceability of the contract1 and its terms and the extent of the rights and obligations which are not expressly set out.2 Further, the contract is unenforceable if it is illegal under the proper law or if it is illegal under the law of the forum.3

The traditional tripartite classification for choice of law is:
express, inferred and objective4 though in India and U.K., the rule has been stated in slightly different terms.5
However, this classification is also deficient as it fails to include the role of statute and international convention in international trade and commerce.

The relevant classification in international trade and commerce is:

• Any relevant statute or international convention 6
• express choice of law in the contract 7
• implied intention
• closest and most real connection 8

A typical law selection clause might appear as: This agreement is governed by the law of New South Wales; in both domestic and international agreements, and there is little doubt about what it means. But that is only the start, and the question is: whether that is a valid choice of law clause for the particular contract.

The Statute
The parties can expressly state that their contract is governed by a nominated law, or that different performance obligations are governed by different laws,9 though this is not determinative as statute may invalidate the choice. Importantly, a foreign law selection clause may limit or restrict broader rights that might otherwise exist, such as the law at the place of shipment which applies to the international carriage of goods by sea under a Bill of Lading.10 Similarly: Bills of Exchange11 and letters of Credit.12

Express choice
The general rule is that the governing law of a contract is the law which the parties have chosen,13 but a conflict may arise where the rules of the forum determine the proper law.

Implied choice of law
Absent an express choice, the question is whether there is an implied choice of law, for which the intention of the parties is to be ascertained by looking at other indicators of choice of law and choice of jurisdiction. The proper law is the system of law with which the contract is most closely connected.14

Law of the forum, place of the contract or performance
The putative proper law is the law which would be the proper law assuming the contract was validly formed.15 This can be either the place the contract is made or the place of performance. And the rules of the forum apply to determine the proper law. 16 This can be important in international trade and commerce, for example, rights might be recognized in one jurisdiction but not in another.17

Choice of jurisdiction

Jurisdiction is concerned with the competence of a court to determine a dispute, regardless of the choice of law, and involves the exercise of judicial discretion to exercise jurisdiction regardless of the chosen jurisdiction.

The general rule
The common law general rule is that exercise of jurisdiction depends on service of originating court process,18 as service can only be effected on those actually present in the jurisdiction,19 or those who submitted voluntarily or by contract to the jurisdiction.20

Historically, there was no power to permit service outside the jurisdiction,21 and a judgment in a personal action was not recognised outside the jurisdiction.22 The use of a privative clause depriving a party of the right to judicial review23 may not be conclusive as the Court has authority to decide whether a dispute is within its jurisdiction.24

The common law has a long history of controversy in its intervention in commercial law and its claim of supremacy. There is a current debate about whether common law should adopt a textual or contextual construction of contracts, so the choice of jurisdiction can be crucial to interpretation and to the outcome from different forms of dispute resolution process.

Another consideration is whether the court can exercise jurisdiction ex-juris by service of its process outside the jurisdiction in which it sits. This raises important questions of foreign sovereignty which a national court should not offend.25

A qualification
The use of a choice of jurisdiction clause may be but might not be determinative, dependent on the form of drafting and other matters, for example, whether the clause will be applied or disregarded by operation of statute, practice and procedure, mandatory application of domestic law.26

Exceptions and conflict - Admiralty and Equity
As with every general rules, there are exceptions. The choice of jurisdiction may be irrelevant. In Admiralty, the wide breadth of claims 27 may be in personam, or in rem. The Admiralty Court's in rem jurisdiction is obtained by the presence of the res (ship or other property) within the jurisdiction. In personam jurisdiction is obtained by service of court process on the defendant who appears in the jurisdiction (usually to defend the in rem claim against the res). So, in Admiralty, contractual law and jurisdiction clauses will be overridden by the presence of the res, except for some arbitration clauses: usually London arbitration on the charter party which will prevail; but not a foreign arbitration clause concerning claims for loss or damage to goods carried by sea under a bill of lading.28

In Equity (which is the jurisdiction for international and domestic commercial disputes), although contractual terms will nominate the governing law and jurisdiction, there are some matters where statute over-rides those terms, for example, bills of exchange;29 or service may be made outside the jurisdiction under rules of court which then raises issues of forum, stay and anti-suit injunction. Another consideration is whether the jurisdiction of the court is statutory or inherent.

Forum non-conveniens
Forum non conveniens is the private international law doctrine that courts have a discretionary power to decline jurisdiction when the convenience of the parties and justice would be better achieved by resolving the dispute in another forum. Forum non-conveniens issues arise in the interpretation and construction of a choice of jurisdiction clause.30 A clause should be drafted and negotiated with the knowledge that courts of different jurisdictions have adopted different tests.31

England
The English courts have adopted the 'clearly more appropriate forum' test.32

United States
The principle is that the forum clause should control absent a strong showing that it should be set aside.33

Stay proceedings – forum non-conveniens
The rationale for the exercise of power to stay a proceeding on the ground of forum non-conveniens is to avoid injustice in the sense that it would be oppressive or vexatious to allow the proceeding to continue.34 Similarly, a stay will be granted where there is a suit pending elsewhere.35

An important consideration for a defendant is whether there may be grounds to seek a stay of the proceedings commenced in another jurisdiction.

Stay proceedings – express choice of jurisdiction
Proceedings commenced contrary to a choice of jurisdiction clause are subject to an application to stay those proceedings. This also applies to international arbitration, as an agreement to submit to international arbitration will, in the absence of countervailing reasons,36 expressly stay proceedings in the Court, as there is no discretion concerning whether a stay may be granted.

Anti-suit injunctions
The principles37 governing grant of interlocutory anti-suit injunctions restraining proceedings in foreign courts include: the nature and sources of jurisdiction to grant anti-suit injunctions; whether proceedings instituted in foreign court were vexatious or oppressive according to principles of equity; whether prior application for stay or dismissal of foreign proceedings were necessary; the relationship between interlocutory anti-suit injunctions and stay of proceedings on forum non conveniens grounds; whether necessary to consider first whether to grant a stay of local proceedings on forum non conveniens grounds, whether the principles governing grant of interlocutory injunctions are applicable to interlocutory anti-suit injunctions; stay of proceedings on forum non conveniens grounds; relevant considerations when proceedings are pending in that country and abroad; the nature of the test when issues in local and foreign proceedings are not the same; local proceedings brought for dominant purpose of preventing other party from pursuing remedies available only in foreign proceedings; whether, having regard to the controversy as a whole, the local proceedings are vexatious or oppressive.

These principles are equally applicable to arbitration proceedings, such as where an application is made to restrain a proceeding pending resolution under an arbitration agreement for determination by a foreign forum.38

Enforcement

Enforcement concerns a number of issues:

• Enforcement of the choice of law and jurisdiction
• Enforcement of the arbitration award or court judgment

A reason for careful consideration of the choice of law and the jurisdiction is enforcement of the court judgment or arbitration award. It is obvious that an unenforceable order or award is of little value.

Court judgments
Historically, judgments of foreign Courts were not recognised and were unenforceable at common law.
Aat common law, a foreign judgment will only be recognised where the court exercised personal jurisdiction.39 Further, the common law rules require the presence in the jurisdiction of the person or company against whom the judgment is to be enforced, or in some circumstances, where the personal consents to appear (in the sense of entering an appearance).40

In addition to the common law rules, there are a number of other means of obtaining a judgment and enforcement relevant to international carriage by sea.
In Admiralty, a foreign judgment can be enforced against property within the jurisdiction:

• As security for a debt (even where the debt claimed has not yet matured to a judgment) by arrest of a ship (and sometimes a sister or surrogate ship);41
• By enforcing a foreign judgment against the ship sale fund held by the Admiralty court;

However, court judgments for claims in international air carriage pursuant to the Warsaw Convention do not have the same international enforceability.

Enforcement of court judgments raises questions of recognition and reciprocity42 and is not clearly resolved as judgments of a court in one jurisdiction may not be enforceable in another, and some types of judgment may not be enforceable at all.43

Conclusion
The importance of international trade and commerce for the wealth of nations is well established, and that importance has been recognised by the international trade and transport conventions of the 20th century.

The days of commercial contracts applying solely to wholly intra-state commercial transactions are mostly gone, other than for perhaps contracts for the sale of land and some businesses. Many commercial contracts are now concerned with inter-state and international activities as more commercial men widen their activities into wider markets, and the advent of global markets.

It is this wider scope of commercial activity which challenges lawyers to consider a wider range of issues when drafting a contract with effective choice of law, choice of jurisdiction, ADR and enforcement clauses.

End-Notes:

1. Saxby v Fulton [1909] 2 KB 208.
2. The 'August' [1891] P 328.
3. Boissevain v Weil [1950] AC 327.
4. See US Surgical Corp v Hospital Products [1983] 2 NSWLR 157 (CA) at 187 – 192; has been criticised both by academic writers and the High Court of Australia: see Akai Pty Ltd v People's Ins Co Ltd (1996) 188 CLR at 440 - 442 and fn (51) – (60).
5. Bonython v Commonwealth of Australia [1951] AC 201 at 209, (1950) 81 CLR 486 (PC) at 498: It has been urged that, if London is chosen as the place of payment, then English law as the lex loci solutionis governs the contract and determines the measure of the obligation. But this contention cannot be accepted. The mode of performance of the obligation may, and probably will, be determined by English law; the substance of the obligation must be determined by the proper law of the contract, ie, the system of law by reference to which the contract was made or that with which the transaction has its closest and most real connection. In consideration of the latter question, what is the proper law of the contract, and therefore what is the substance of the obligation created by it, it is a factor and sometimes a decisive one that a particular place is chosen for performance.
6. A statute or international convention can also determine the proper law of the contract, and override an express choice of law in the contract. ie., Carriage of Goods by Sea Act 1991 (Cth) s11; see Compagnie des Messageries Maritimes v Wilson (1954) 94 CLR 577.
7. There are some restrictions to an express choice of governing law: statutory provisions see Carriage of Goods by Sea Act 1991 (Cth), s11(1); and Sch 1A Art 1(b) makes ineffective an ouster of jurisdiction clause in relation to a 'sea carriage document', including such document issued under a charter party, but, this does not apply to charter parties themselves: see Incitec Ltd v Alkimos Shipping Corporation [2004] FCA 698; (2004) 138 FCR 496.
8. Mynott v Barnard (1939) 62 CLR 68 per Latham CJ at 80: Parties cannot by agreeing that their contract should be governed by the law of a foreign country exclude the operation of a 'pre-emptory rule' otherwise applicable to their transaction.
9. Hamlyn & Co v Talisker Distillery [1894] AC 202.
10. Carriage of Goods by Sea Act 1991 (Cth) s11 which makes void an ouster of Australian jurisdiction, applies the Hague Visby Rules and the amended Hague Visby Rules, to imports where the country of shipment has not adopted one of these international conventions.
11. Bills of Exchange Act 1909 (Cth), s77
12. Though less of a problem if the contract incorporates the International Chamber of Commerce Uniform Customary Practice for documentary credits (UCP 600).
13. The Eleftheria [1970] P 94 per Brandon J at 99: (1) Where plaintiffs sue in England in breach of an agreement to refer disputes to a foreign court, and the defendants apply for a stay, the English court, assuming the claim to be otherwise within its jurisdiction, is not bound to grant a stay but has a discretion whether to do so or not.
14. Compagnie D'Armament Maritime SA v Compagnie Tunisienne de Navigation SA [1971] AC 572, and see Re United Railways of Havanna [1961] AC 1007.
15. Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197 where the Court applied the law of the forum to determine when and where the contract was made, even though it was clear that the putative proper law was the law of Greece, per Brennan J at 225. A more recent decision on the same issue is Compania Naviera Micro SA v Shipley International Inc The 'Parouth' [1982] 2 Lloyd's Rep 351.
16. Male v Roberts (1800) 170 ER 574
17. In US Admiralty law a wider category of maritime lien is recognized than under Anglo-English law.
18. John Russell and Co Ltd v Cayzer, Irvine & Co Ltd [1916] 2 AC 298 at 302.
19. Berkley v Thompson (1884) 10 App Cas 45 at 49. And note Admiralty jurisdiction by which the presence of the ship within jurisdiction gives the Admiralty Court jurisdiction to determine claims against the ship: Admiralty Act 1988 (Cth).
20. Emmanuel v Simon [1908] 1 KB 302 at 308.
21. Re Anglo-African Steamship Co (1886) 32 Ch 348 at 350; Laurie v Carroll (1985) 98 CLR 310. Note that an Admiralty Writ In Rem can not be served outside the jurisdiction.
22. Sirdar Gurdyal Singh v Rajah of Faridkote (1894) AC 670 at 684; City Finance Co Ltd v Matthew Harvey & Co Ltd (1915) 21 CLR 55 at 60.
23. Darling Casino Ltd v New South Wales Casino Control Authority (1997) 143 ALR 55 per Gaudron and Gummow JJ at 73-76.
24. R v Judges of the Federal Court of Australia; Ex parte Western Australian National Football League (1979) 143 CLR 190; Bray v F Hoffman-La Roche Ltd [2003] FCAFC 153; (2003) 130 FCR 317 which considered whether the jurisdiction of the Court was dependent on satisfaction of facts prescribed by s5(1) of the Trade Practices Act 1974 (Cth). The Federal Court Rules require the originating process in the form of an Application, which must state the basis of the Court's jurisdiction: see Order 4 r1 and Form 5 Application which states: (State briefly the nature of the subject of the application or cross-claim and the legislative basis of the court's jurisdiction to hear and grant the relief sought. The required statement is not taken to be part of the pleading.) The Court has power in relation to matters within its jurisdiction to make orders and to issue writs as it thinks appropriate, s23: Jackson v Sterling Industries Ltd (1987) 162 CLR 612.
25. There are rules for effective service of process (r11.9 – 11.12) which is effected in accordance with the Attorney General's arrangements, particularly in countries which are signatory to international conventions governing service.
26. Megens & Bonnell, The Bakun dispute: Mandatory national laws in international arbitration (2007).
27. See the Admiralty Act 1988 (Cth) s4
28. Admiralty Act 1988 (Cth), s11(3).
29. Bills of Exchange Act 1909 (Cth) s77 which sets out the rules where there is a conflict of law, for determining the rights, duties, and liabilities of the parties where a bill drawn in one country is negotiated, accepted, or payable in another.
30. Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR at 241, cited by the majority in Voth [1990] 171 CLR at 550. The High Court of Australia declined to follow and apply the principles governing forum non conveniens determined by the English House of Lords in Spiliada Maritime Corp v Cansulex Ltd [1987] AC 460; Voth v Manildra Flour Mills Pty Ltd [1990] 171 CLR 538
31. the different approaches in Australia, England and the US.
32. Spiliada Maritime Corp v Cansulex Ltd [1987] AC 460 per Lord Goff at 476: The basic principle is that a stay will only be granted on the ground of forum non-conveniens where the court is satisfied that there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of the matter, ie, in which the case may be tried more suitably for the interests of all the parties and the ends of justice.
33. The Bremen v Zapata Offshore Co 407 US 1 (1972) per Burger CJ at p15.
34. See Henry v Geoprosco International Ltd [1976] QB 726 which sets out the common law rule. See also Airbus Industrie GIE v Patel [1999] 1 AC 119 per Lord Goff identifying four principles for the grant of an anti-suit injunction.
35. Lis alibi pendens, (often referred to as lis pendens) Australian Legal Dictionary, Butterworths Sydney 1997: If a dispute between a plaintiff and defendant regarding a specific issue is lis alibi pendens, the defendant may invoke this fact as a ground to prevent the plaintiff from instituting the same suit in another court against the defendant.
36. Compagnie des Messageries Maritimes v Wilson (1954) 94 CLR 577 at 582, 585 and 589-591 where it was held that agreement to submit to arbitration will, in the absence of countervailing reasons, stay proceedings in the Court.
37. CSR Ltd v Cigna Insurance Australia Ltd [1997] HCA 33, (1997) 189 CLR 345 at 396 - 397; CSR Ltd v New Zealand Ins Co Ltd (1994) 36 NSWLR 138; Incitec Ltd v Alkimos Shipping Corporation [2004] FCA 698; (2004) 138 FCR 496.
38. Hopkins v Diffrex Societe Anonyme (1966) 84 WN (Pt 1) (NSW) 297, [1966] 1 NSWR 797. As a practical matter, a plaintiff against whom an application is made should seek a conditional stay rather than a final order dismissing the claim, to protect his position in the event that the matter does not proceed in the other forum for any reason.
39. As in 'in personam proceedings': see Newcom Holdings Pty Ltd v Funge Systems Inc [2006] SASC 284 where the court declined to enforce an order of the US Bankruptcy Court in related South Australian proceedings.
40. Emanuel v Symon [1908] 1 KB 302 (CA) at 313-4; Singh v Rajah of Faridkote [1894] AC 670 at 686; or is deemed to have submitted to the jurisdiction: Victorian Phillip Stephan Photo Litho Co v Davies (1890) 11 LR (NSW) 257; De Santis v Russo [2002] 2 Qd R 230.
41. Admiralty Act 1988 (Cth) s4.
42. See the Foreign Judgments Act 1991 (Cth) ) s5 provides for substantial reciprocity of treatment to be assured
    in relation to the enforcement of money judgements, and s13 provides that money judgements are unenforceable if there is no reciprocity. The question is largely one of either treaty or reciprocity. As a rule of thumb, decisions of Commonwealth countries enjoy reciprocity in Australia, but there may be real difficulties with enforcement in countries such as the United States despite the US Free Trade Agreement Implementation Act 2004 (Cth).
43. Consider problems with the enforceability of a default judgment or a summary judgment, as these types of judgment may not be recognized nor enforceable in a foreign jurisdiction.

Bibliography:

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• P Biscoe Freezing orders hot up, Bar News, Summer 2005/2006 59.
• Commonwealth Access to Justice Report, Australian Government Printing Service, Canberra, 2 May 1994. This publication is also available on the web at www.dfat.gov.au/trade/negotiations/us_fta/final-text/chapter_14, viewed 12/03/2016.
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