Euromark Ltd v Smash Enterprises Pty Ltd

INTRODUCTION

By an application dated 5 April 2013, the defendant seeks a declaration pursuant to CPR 11(1) that the court does not have jurisdiction to hear the claimants claim, and the discharge of the order of Master Yoxall dated 7 February 2013 in which he permitted the claimant to serve the claim form on the defendant in Australia.

The issue between the parties today can be summarised in this way. The parties entered into a contract that provided that they submit to the exclusive jurisdiction of the Australian Courts. There are now disputes between the parties arising in connection with that contract; indeed, it is the claimant’s case that the defendant wrongfully repudiated the contract. The claimant maintains that, in all the circumstances, there are strong reasons for allowing them to bring these proceedings in England, regardless of the exclusive jurisdiction provision. I should say at the outset that I am extremely grateful to both counsel for their helpful and concise submissions.

THE AGREEMENT

Pursuant to a written Distribution Agreement dated 5 July 2011, the defendant engaged the claimant to distribute exclusively the defendant’s products – children’s lunchboxes and the like – for a three year term. The territorial region was the United Kingdom although possible expansion to Eire, the United States and Canada was also contemplated.

Clause 25(1) of the Distribution Agreement was in these terms:

“This Agreement and the relationship between the parties shall be governed by and in accordance with Australian law and the parties hereby submit to the exclusive jurisdiction of the courts of Australia.”

Other provisions in the Distribution Agreement included the limited rights that the defendant had to terminate (Clause 14.1); the replacement of the defendant if certain minimum purchase levels were not met (Clause 4.2); and general obligations of good faith (Clauses 8.1 and 8.2).

SUBSEQUENT EVENTS

It is the essence of the claimant’s case that on 26 October 2012, just over a year into the Distribution Agreement, the defendant purported to terminate the contract, not for any alleged default, but on the basis that it was commercially convenient for the defendant to do so. As a consequence of this decision, the defendant dealt directly with the claimant’s customers – such as Tesco and Sainsbury’s – with the result that those customers made plain that they would in future deal directly with the defendant and not the claimant. The claimant alleges that the defendant thereby wrongfully repudiated the contract and that shortly before Christmas 2012, they had no alternative but to accept that wrongful repudiation.

In response, the defendant maintains that, although it initially purported to terminate the contract without proper grounds, there were difficulties with aspects of the claimant’s performance and that, because the claimant appeared to affirm the continued existence of the contract after any alleged repudiatory breach on their part, it was the claimant who repudiated the contract in late 2012.

It will be necessary, later in this Judgment, to address the parties’ arguments on the facts in a little more detail, because it is an underlying theme of the claimant’s response to this application that they should be permitted to continue the proceedings in England, due to the strength of their claim on the merits.

THE ISSUES

There are three stages to any application of this kind:

However, in this case, there is no dispute as to either (a) or (b) above. It is accepted that gateway (7) is triggered because the claim is made in respect of breaches of contract that took place within the jurisdiction. Furthermore, it is also accepted that the claim has a reasonable prospect of success.

Accordingly, the remaining issues arise out of the provision as to the proper place for the hearing of the disputes. I set out the relevant principles of law in Section 5 below. I then analyse the dispute by reference to the following issues:

THE LAW

“Strong Reasons”

The starting point is the articulation of the ‘strong reasons’ test in Donohue v Armco Inc [2001] UKHL 54 (at paragraph 24) by Lord Bingham. He said:

“If contracting parties agree to give a particular court exclusive jurisdiction to rule on claims between those parties, and a claim falling within the scope of the Agreement is made in proceedings in a forum other than that which the parties have agreed, the English court will ordinarily exercise its discretion (whether by granting a stay of proceedings in England, or by restraining the prosecution of proceedings in the non-contractual forum abroad, or by such other procedural order as is appropriate in the circumstances) to secure compliance with the contractual bargain, unless the party suing in the non-contractual forum (the burden being on him) can show strong reasons for suing in that forum. I use the word “ordinarily” to recognise that where an exercise of discretion is called for there can be no absolute or inflexible rule governing that exercise, and also that a party may lose his claim to equitable relief by dilatoriness or other unconscionable conduct.”

At paragraph 25 he went on to say:

“Where the dispute is between two contracting parties, A and B, and A sues B in a non-contractual forum, and A's claims fall within the scope of the exclusive jurisdiction clause in their contract, and the interests of other parties are not involved, effect will in all probability be given to the clause.”

This approach is confirmed by Rule 39(2) of Dicey, Morris and Collins on the Conflict of Laws (15^th Edition 2012, Volume 1 paragraph 12R-098). At paragraph 12-149 the authors indicted the (possibly unsurprising) reason for this approach, which is that the court will endeavour to make contracting parties abide by their contracts.

Foreseeable Questions of Convenience

Where there is an exclusive jurisdiction clause, particularly if it selects the ‘home’ court of one of the contracting parties, foreseeable questions of convenience are irrelevant (see Beazley (on behalf of Lloyd’s Marine Towage Insurance) v Horizon Offshore Contractors Inc [2004] EWHC 2555 (Comm). This principle was summarised by Gloster J, as she then was, in Antec International Limited v Biosafety USA Inc [2006] EWHC 47 (Comm) where she said:

“Such overwhelming or very strong reasons do not include factors of convenience that were foreseeable at the time that the contract was entered into (save in exceptional circumstances involving the interests of justice); and it is not appropriate to embark upon a standard Spiliada balancing exercise. The defendant has to point to some factor which it could not have foreseen at the time the contract was concluded. Even if there is an unforeseeable factor or a party can point to some other reason which, in the interests of justice, points to another forum, this does not automatically lead to the conclusion that the court should exercise its discretion to release a party from its contractual bargain…”

In essence, the party seeking to invoke the jurisdiction of the English court in the face of an exclusive jurisdiction clause, which provides for disputes to be determined in a foreign court, must point to a factor which could not have been foreseen when the contract was made. Moreover, what matters is whether it ought to have been foreseen, not whether it actually was (see by way of example the judgment of Moore-Bick J, as he then was, in Mercury Communications Ltd v Communications Telesystems International [1992] All ER (Comm) 33)).

I ought also to deal, under this subheading, with one particular point raised by Mr Catherwood. He referred to the judgment of Brandon LJ in Aratra Potato Co Ltd v Egyptian Navigation Co (“El Amria”) [1981] 2 Lloyd’s Rep 119 at 123 (a passage which Lord Bingham expressly approved in Donohue) which set out various convenience issues. Mr Catherwood relied in particular on 5(d) which was “whether the defendants genuinely desire a trial in the foreign country, or are only seeking procedural advantages”.

Mr Catherwood suggested that this was a stand-alone factor which, depending on the circumstances, could be considered in the exercise of the court’s discretion as a ‘strong reason’ to allow the claimant to avoid the exclusive jurisdiction clause. I do not accept that submission. This is just one of a list of possible factors for the court when considering questions of convenience. It is not a relevant consideration when there is, as here, an exclusive jurisdiction clause. As Mr White correctly submitted, the defendant can answer this contention simply by asserting the right to rely on the exclusive jurisdiction clause which was agreed as part of the contract.

Interests of Justice

Mr Catherwood rightly drew my attention to the decision of Gross |J, as he then was, in Import Export Metro Ltd and Another v Compania Sud Americana de Vapores SA [2003] EWHC 11 (Comm), reported at [2003] 1 Lloyd’s Rep 405. In that case, at page 411 of the report, the learned judge said:

“In the nature of things for the court to exercise its jurisdiction so as not to give effect to an EJC the strong reason relied on must ordinarily go beyond a mere matter of foreseeable convenience, and extend either to some unforeseeable matter of convenience, or enter into the interests of justice itself. Even then, it cannot simply be assumed that the court will automatically exercise its discretion so as to release one party from its contractual bargain. Once the interests of justice are engaged, then factors of convenience will be relevant to the exercise by the court, of its discretion.”

In reliance on this, Mr Catherwood made various submissions about the merits of the claimant’s position, concluding that, so strong was their claim, it was in the interests of justice to retain the proceedings in England. However, in my judgment, Mr White was correct to submit that, as a matter of law, this was an incorrect reading of the expression ‘interests of justice’. In my view, this phrase, in the context of an exclusive jurisdiction clause, does not require a broad consideration of the merits of the parties competing positions, but is instead designed to deal with those rare cases where, although there is an exclusive jurisdiction clause, the courts to which such jurisdiction has been given may not afford a fair trial, or may, in some other way, be potentially unreliable or unjust.

ISSUE 1: ARE THE REASONS ADVANCED BEFORE MASTER YOXALL, TO EXPLAIN WHY THE EXCLUSIVE JURISDICTION CLAUSE SHOULD NOT BE ENFORCED, SUSTAINABLE?

Two reasons were advanced before Master Yoxall as to why there were strong reasons for the claimant not to be bound by the exclusive jurisdiction clause. On analysis, neither of those reasons stand up to scrutiny.

First, it was suggested that the defendant might decide to waive clause 25(1), and therefore subject itself to the jurisdiction of this court. It does not seem to me that this could be a strong reason unless such a waiver was clear and unequivocal. There is nothing in the present case to suggest that the defendant ever gave even a hint of it. Mr Catherwood did not advance this submission before me and, in my view, he was right not to do so.

Secondly, it was submitted that, because the defendant had repudiated the Distribution Agreement, this amounted to the “tearing up” of the contract, so that the exclusive jurisdiction provision was, in some way, no longer binding in any event. It seems to me that there are a number of answers to that.

The first is that a claim for repudiation is, in my judgement, merely a type of claim for breach of contract. There is nothing to say that the parties here intended one type of breach to be the subject of one jurisdiction, and another type of breach to be the subject of a different jurisdiction. On the contrary, there is a presumption that the parties are likely to have intended any dispute arising out of the relationship into which they entered, or purported to enter, to be decided by the same tribunal: see Fiona Trust and Holding Corp v Privalov and ors [2007] Bus LR 1719 and in particular, paragraph 13 of Lord Hoffmann’s speech. Indeed at paragraph 7 of the same speech, Lord Hoffmann expressly took repudiation as an example of the sort of claim which rational businessmen would be taken to have intended to resolve in their chosen forum. The same approach applies to jurisdiction clauses: see paragraph 26 of Lord Hope’s speech in Fiona Trust and the case of Deutsche Bank AG v Asia Pacific Broadband Wireless Communications Inc [2009] 2 All ER (Comm) 129 at paragraph 24.

The second is that I do not think that it can be seriously argued that the parties ought not to have contemplated the possibility that one or other of them might repudiate the contract and/or that the bringing of a claim for repudiation was in some way, unforeseeable. Again, to be fair, this was not at the forefront of Mr Catherwood’s submissions either. It seems to me that parties to a commercial contract will always foresee that the other party may breach those terms in some way or another, hence the agreement of a jurisdiction clause or an arbitration clause in the first place. Repudiation is simply a species of claim for breach of contract. All that is different are the consequences if the repudiatory breach is validly accepted.

On this point, I again derive assistance from the speeches of both Lord Hoffmann and Lord Hope in Fiona Trust. Indeed, I consider that paragraph 28 of the speech of Lord Hope, is of particular significance, and applies directly to the present case, and the submission that claims in respect of ‘ordinary’ breaches should be heard in one jurisdiction, whilst claims involving repudiatory breaches should be heard in another. Lord Hope said:

“The jurisdiction clause does not say where disputes about the validity of the contract are to be determined, if this is not to be in the forum which is expressly mentioned. The default position is that such claims would have to be brought in the jurisdiction where their opponents were incorporated, wherever and however unreliable that might be, while claims for breach of contract have to be brought in England. But why, it may be asked, would any sensible businessmen have wished to agree to this? As Bingham LJ said in Ashville Investments Ltd v Elmer Contractors Ltd [1989] QB 488, 517, one should be slow to attribute to reasonable parties an intention that there should in any foreseeable eventuality be two sets of proceedings. If the parties have confidence in their chosen jurisdiction for one purpose, why should they not have confidence in it for the other? Why, having chosen their jurisdiction for one purpose, should they leave the question which court is to have jurisdiction for the other purpose unspoken, with all the risks that this may give rise to? For them, everything is to be gained by avoiding litigation in two different jurisdictions. The same approach applies to the arbitration clause.”

Thirdly, I agree with Mr White that the submission advanced on behalf of the claimant in relation to repudiation, comes dangerously close to the kind of fundamental breach argument of the sort that was roundly rejected in Photo Productions Ltd v Securicor Transport Ltd [1980] AC 827. For all those reasons, therefore, it seems to me that the mere fact that the claimant relies on a claim for repudiation does not provide any sort of strong reason to avoid the consequences of the exclusive jurisdiction provision.

In the papers before Master Yoxall, there was a faint suggestion that a third reason for permitting the claim to be advanced in England was the possibility that claims against other parties, such as Tesco and Sainsbury’s, might also be necessary, so that the possible multiplicity of proceedings would be a strong reason for all the claims being dealt with together in England, rather than for the principal claim to be heard in Australia, and the other claims here. It is not clear to me how strongly that was advanced before Master Yoxall. It was not a matter on which Mr Catherwood spent very much time.

It seems to me that there is a complete answer to that point, provided by paragraph 12-152 and 12-153 of Dicey, Morris and Collins. They point out that the modern approach is that, where the claimant merely asserts that it is contemplating such joinder, or additional claims, but such claims have not been commenced, the court will not regard that as enough, and that the claimant should be regarded as having brought any jurisdictional misfortune of this kind upon itself.

Even if there was a risk of different proceedings in different places, that, of itself, seems to me to be generally insufficient, because the potential for such a situation arising – that is to say different claims against different people in different jurisdictions, arising out of the problems with the Distribution Agreement – was foreseeable, or ought to have been foreseeable when the exclusive jurisdiction agreement was made. In that regard, I consider Mr White was right to rely on the decision of Colman J to that effect in Konkola Copper Mines plc v Coromin Ltd (No. 2) [2006] 2 All ER (Comm) 400.

Finally on these more peripheral points, I reject the suggestion that the fact that the parties entered into a non-disclosure agreement some months before the Distribution Agreement, which had an exclusive jurisdiction clause in favour of the courts of England and Wales, was a point in the claimant’s favour. If the non-disclosure agreement is relevant at all, which I doubt, it shows that the parties were prepared to agree different jurisdictions for disputes that might arise under different agreements, and that in turn suggests that the exclusive jurisdiction provision in the Distribution Agreement was deliberately and carefully chosen.

ISSUE 2: IS THERE SOME OTHER STRONG REASON WHY THE EXCLUSIVE JURISDICTION CLAUSE SHOULD NOT BE ENFORCED?

General

The main argument advanced clearly today by Mr Catherwood is that, so strong is the claimant’s claim for repudiation, so gross the defendant’s breaches of contract, and so threadbare their defence to the claims, that this is, of itself, a sufficiently strong reason to ignore the exclusive jurisdiction clause. He says, at paragraph 29 of his skeleton that “the claim is effectively unanswerable”.

For the reasons that I have already noted, I do not accept that Mr Catherwood can pray, in aid of this submission, the ‘interests of justice’ argument derived from Import Export Metro (see paragraphs 18 and 19 above). Moreover, I am doubtful that, in order to reach a decision on an application of this kind, the court is required to consider the merits in great detail. In this case, these were said to include the extent of the defendant’s alleged repudiatory breaches, their impact on the claimant, the practical consequences of litigating in Australia, and whether or not the defendant is behaving in bad faith. In my view, these are all matters that are more likely to arise on a straightforward argument as to convenience, rather than an argument about whether there are strong grounds for avoiding the effect of an exclusive jurisdiction provision. However, I broadly accept that, in the exercise of the court’s discretion, the court has to consider all the relevant circumstances of the case, and in deference to Mr Catherwood’s thorough submissions, it seems to me appropriate that I deal with all the particular matters on which he specifically relied.

However, the appropriate starting point seems to me to be this. Mr Catherwood acknowledged that there was no reported authority in which the broad merits of a claimant’s position, by themselves, were said to amount to strong grounds for avoiding the effect of an exclusive jurisdiction clause. Moreover, the argument is, I think, not unlike the old practice whereby a party, who was otherwise bound by an arbitration clause, could avoid that obligation by arguing that there was no dispute to be referred to arbitration because he was entitled to summary judgment. That practice, of course, has long since gone, as a result of s.7 of the Arbitration Act 1996. For these reasons, the portents for Mr Catherwood’s approach were not promising.

The Defendant’s Conduct

I reach no concluded view as to the claimant’s allegations of gross misconduct on the part of the defendant. It is not appropriate for me to do so at an interlocutory hearing of this kind. However, I have formed the initial impression from the material before me that:

However, I ask rhetorically, where does that generally favourable impression on the merits get the claimant on this application? Even if one concludes that the claimant is very likely to win on liability at trail, the issue still remains as to where that trial should take place. There is no basis in law for concluding that a strong case should be heard in England, whilst a more arguable case should be heard in Australia. That would be absurd. Ultimately, for the reasons I have given, it seems to me that the strength of the claimant’s claim on liability is either not a relevant consideration for the purpose of this application or, if it is, it remains a matter of very little significance.

The Damaging Impact on the Claimant

I accept that the defendant’s conduct, if these allegations are proved, has had a potentially very damaging effect on the claimant. The Distribution Agreement only operated for just over a year of the three years that it was supposed to, and the losses incurred by the claimant as a result may be substantial.

On the other hand, the claimant company has been in business for about 30 years. This is not a case where the company was set up to deal solely with this Distribution Agreement, which, on the basis of the material before me, did not appear to amount to much more than 50% of the claimant’s turnover. More significantly, there is no evidence that the losses incurred as a result of the alleged repudiation mean that the claimant is somehow prevented financially from litigating in Australia. Such a submission would require a detailed analysis of the competing costs of litigating in London and litigating in Australia, and what effect those different figures would, or might, have on the claimant’s ability to pursue the claim. There is no such analysis; there is no evidence that it would be more expensive to continue this litigation in Australia rather than in London. To the extent that it is suggested that the claimant’s claim would be stifled, to use the expression commonly used in applications for security for costs, it is again necessary to observe that there is no evidence that the claim would or even might be stifled. Such evidence is, of course, a prerequisite if such an argument is going to be made out.

Difficulties of Litigating in Australia

There are some disadvantages if this litigation is to be heard in Australia. The claimant is based here. Most, but by no means all, of the witnesses are based in England. However, the extent of any necessary oral evidence may be limited, because much of the relevant material is in writing. Although the documents are here, those can easily be sent to Australia. They are not, by the standard of these sorts of disputes, voluminous.

There are also some advantages to litigating in Australia. The defendant and its lawyers are based there. Some of the witnesses are there. Most important of all, of course, Australian law is the law of the contract, pursuant to Clause 25(1).

Accordingly, I do not accept that there is any real advantage, either way, in the litigation being heard in London or in Australia. On any view, it is far from some sort of knock-out blow on behalf of the claimant.

Procedural Advantage

Mr Catherwood submitted that the court could infer that the defendant did not want a trial in Australia at all and was merely seeking to take an unfair procedural advantage. Leaving aside the truism that most defendants do not actually want a trial at all, it does not seem to me that that submission was made out on the facts. The defendant is simply trying to enforce the contract to which the parties had agreed, and there is no material on which I can conclude that there is some form of sinister or ulterior motive in the defendant’s preference for Australia rather than England. I certainly cannot say on the material before me that the defendant was acting in bad faith in pursuing these applications.

Summary

Finally, and by way of summary, I should say this. In all the circumstances of this case, even assuming a very strong claim against the defendant on liability, and even assuming some element of tactical manoeuvring by the defendant, I do not regard it as wrong or unfair if the parties’ agreement as to exclusive jurisdiction is enforced by this court. Whatever the strength of the claimant’s case on liability, there may well be major disputes about causation and loss. The parties agreed that those disputes would be tried in Australia, and in my view, for the reasons that I have given, there are no strong reasons to justify a different conclusion.

In those circumstances, therefore, I grant the claimant the declaration sought, and I discharge the order of Master Yoxall dated 7 February 2013.