Exclusive jurisdiction clauses are common in commercial contract when parties are in different states or countries and a part of most ‘boilerplate’ or standard terms and conditions. Such a clause stipulates the jurisdiction where disputes arising under the contact must be litigated.

Often one party will “try its luck” in bringing claims in an court more convenient to that party, despite what is contained in the contract and the other party will seek a stay or transfer of the proceedings in response.

When deciding whether to grant a stay or transfer, the court will turn to the principle of forum non conveniens in making a decision.

While an exclusive jurisdiction clause, say requiring that disputes must be heard in Australia , is taken into consideration, if a majority of the evidence or witnesses reside overseas, say the USA, often the most convenient international court located in proximity to the location of the evidence will be found to be appropriate.

However, in regard to interstate disputes, exclusive jurisdiction clauses have been given greater weight  as the potential for a large inconvenience on the parties is considered to be less likely overall.  Put another way, it is a lot easier (and less expensive) for a party to litigate in New South Wales from South Australia than in New South Wales from Alabama.

There are a number of cases that illustrate key principles considered by the courts in the context of interstate exclusive jurisdiction clauses.

Sykes v Povey Corporation represents the high water mark for exclusive jurisdiction clauses.  In that case the Victorian Supreme Court granted a stay of an action on the basis of a Western Australian exclusive jurisdiction clause, even though significant evidence existed in Victoria. The court applied the test set down by the High Court in Huddart Parker Ltd v The Ship Mill Hill that the plaintiff must show strong reasons why an exclusive jurisdiction clause should not be enforced. Proof that one jurisdiction was more convenient than the agreed forum was deemed inadequate.

In Sykes, Justice Tadgell said:

“I think it is desirable that I should remind myself of what Brandon, J. said in The Eleftheria (supra) at p.103, in a passage which was not specifically relied on by counsel, namely this:

“I think that it is essential that the court should give full weight to the prima facie desirability of holding the plaintiffs to their agreement. In this connection I think that the court must be careful not just to pay lip service to the principle involved, and then fail to give effect to it because of a mere balance of convenience, “

However, Bankinvest AG v Seabrook  an exclusive jurisdiction clauses was not enforced and serves as a reminder that the individual circumstances of the case are important. In this matter the proceedings were transferred to Queensland from New South Wales proceedings were already on foot in Queensland for a separate but related matter and the court considered that the running of proceedings in New South Wales would have caused two courts to hear and decide upon multiple issues with a significant overlap (and presumably risk of inconsistent decision by the two courts).

More recently Australian courts have been questioning the application of exclusive jurisdiction clauses in a number of cases and appear to be moving towards the view that exclusive jurisdiction clauses are merely one factor to be weighed into the overall equation in determining where the interests of justice lie as to the forum for trial.

In addition, legal commentary has also questioned the earlier precedents in treating interstate courts as if they were a “foreign courts”.

In Ross Mollison Group Pty Ltd v The Really Useful Company (Aust) Pty Ltd the Supreme Court of Victoria held that an exclusive jurisdiction clause should not be a bar to a transfer of proceedings where there was no clear distinction between the laws in the jurisdiction in which proceedings had been commenced and that of the nominated jurisdiction in the clause.

Parties negotiating commercial contracts should be aware of this move by the courts when considering the appropriate risk balance in the contract, as the risk of facing interstate litigation may increase despite a reliance on a classically worded choice of jurisdiction clause.

For more information please contact ERA Legal.