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Exclusive Australian jurisdiction clause upheld despite unanswerable claim

The High Court* has refused to override an exclusive Australian jurisdiction clause in a UK distribution agreement despite the distributor’s allegedly unanswerable claim.

Under an agreement between a UK distributor (D) and an Australian supplier (S)  for a minimum term of 3 years, the parties agreed to submit to the exclusive jurisdiction of the Australian courts.  After only a year, once D had built up some decent custom, S terminated the agreement and began dealing directly with the main customers.  D claimed that this was a repudiation by S, entitling it to substantial damages. D commenced proceedings in England.  It argued that its case was so strong that S had no defence to it, and that this enabled the Court to accept jurisdiction and deal with the claim despite the exclusive jurisdiction clause.

The Judge rejected that argument.  He accepted that D’s claim appeared strong, but held that its alleged merits could not justify overriding the exclusive jurisdiction clause.  Contracting parties must abide by their contracts.  Although D argued that S was simply seeking tactical advantage by insisting on adherence to the jurisdiction clause, the Judge found nothing wrong or unfair about that in the circumstances of the case.

Power to override

The Court can override an agreement giving exclusive jurisdiction to a country outside Europe, where there is strong reason to do so.  It’s no use trying to rely on matters that were known or foreseeable when the agreement was entered into – the parties are assumed to have taken them into account.  A jurisdiction agreement  will generally only be overridden where the courts with contractual jurisdiction might not afford a fair trial or there is some other serious potential for injustice.

Although this case was not about wine, it is equally applicable to wine distribution agreements. Nor does it make any difference that Australia was the agreed jurisdiction – the position would be the same for any choice of jurisdiction outside Europe.  (Within Europe, the choice would be even harder to override.)

Morality nothing to do with it

D was in effect saying: S is clearly the bad guy, it hasn’t got any defence, and the only issue is how much we should receive as damages.  Why should we be put to the trouble and expense of litigating in Australia?  But even though the Judge agreed that this might be the position, it would not justify overriding the jurisdiction clause which D had agreed to at the outset.

D clearly thought it would be at a big disadvantage if it had to litigate in Australia, and was prepared to spend quite a lot of money in the hope of avoiding having to do so.  But the case shows that jurisdiction clauses are not just  “boilerplate”, with little commercial significance. Both parties need to consider the issue of jurisdiction carefully, and to understand clearly (a) the possible options, and (b) their commercial implications, when the distribution agreement is being negotiated.

*Euromark Ltd v Smash Enterprises Pty Ltd [2013] EWHC 1627 (QB) (06 June 2013)