Jurisdiction Clauses: A Primer

It’s an all too common scenario:

  1. Company A is based in South Australia;
  2. Company B is based in Queensland;
  3. Company A provides services to Company B in Victoria under a contract;
  4. Company A breaches the contract.

In which state should Company B bring their claim? It’s a straightforward question, but the answer isn’t always so simple.

Jurisdiction clauses

As the claim is for a breach of contract, the first port of call will be to look at the contract itself to see whether it contains any dispute resolution clauses.

Typically, a dispute resolution clause will contain subclauses relating to jurisdiction and the choice of law. A choice of law clause specifies the law and rules which are to be followed in any dispute resolution process arising out of the contract. A jurisdiction clause specifies where that dispute will be heard. However, a dispute resolution clause is capable of being as complex or simple as the parties desire. As President of the NSW Court of Appeal, Justice Bell stated:

Dispute resolution clauses may be crafted and drafted in an almost infinite variety of ways and styles. The range and diversity of such clauses may be seen in the non-exhaustive digest of dispute resolution clauses considered by Australian courts over the last thirty years”: Inghams Enterprises Pty Ltd v Hannigan [2020] NSWCA 82.

Generally, there are two types of jurisdiction clauses: exclusive and non-exclusive. As the name suggests, a non-exclusive jurisdiction clause provides a potential forum to hear the dispute but does not limit the claim being brought in other jurisdictions; alternatively, an exclusive jurisdiction clause purports to limit the claim being brought to the place specified in the contract. It goes without saying that it is incredibly important when drafting a contract that due consideration is given to these clauses, as an inconvenient forum can be costly, and an unfavourable choice of law can be fatal.

An exclusive jurisdiction clause may specify that disputes under the contract are to be heard at arbitration or in public courts. Pursuant to s 7(2) of the International Arbitration Act 1974 (Cth), where proceedings are instituted by a party to a mandatory arbitration agreement, and the matter in question is “capable of settlement by arbitration”, the court will stay proceedings and refer the parties to arbitration: Roy Hill Holdings Pty Ltd v Samsung C&T Corporation [2015] WASC 458. The arbitration clause will usually specify a particular set of arbitration rules to be applied, the arbitration centre which will hear the dispute, whether that decision will be binding on the parties, and any appeal rights.

Changing forums

In cases where no exclusive jurisdiction clause applies, even after a claim has been brought, an application can be made to transfer proceedings to the Supreme Court of another state or territory under section 5(2)(b) of the uniform cross-vesting jurisdiction legislation (CV Acts). In such an application, the Courts will consider a variety of factors in determining whether the proposed transfer of jurisdiction is “more appropriate” for the relevant proceedings.

The “more appropriate” forum will ordinarily be the jurisdiction “with which the action has the most real and substantial connection”, having regard to objective factors: BHP Billiton Ltd v Schultz (2004) 221 CLR 400; [2004] HCA 61 at [170] per Kirby J. Those factors include:

  1. the location where the parties reside and carry on business: BHP Billiton Ltd v Schultz (2004) 221 CLR 400; [2004] HCA 61 at [19]; British American Tobacco Australia Ltd v Gordon [2007] NSWSC 230 at [69];
  2. the location where the cause of action arose: British American Tobacco Australia Ltd v Gordon [2007] NSWSC 230 at [69];
  3. the law governing the relevant transaction and any choice of jurisdiction by the parties: Asciano Services Pty Ltd t/as Pacific National v Australian Rail Track Corp Pty Ltd [2008] NSWSC 652 at [18]–[19]; Taurus Funds Management Pty Ltd v Aurox Resources Ltd [2010] NSWSC 1223 at [38]–[39];
  4. the disparity in the financial resources of the parties and the potential for the conduct of hard-fought interstate commercial proceedings to exacerbate the existing imbalance of financial resources between these two litigants: Plantagenet Wines Pty Ltd v Lion Nathan Wine Group Australia Ltd at 82; and
  5. the location and availability of witnesses: Bourke v State Bank of New South Wales (1988) 22 FCR 378 at 394; BHP Billiton Ltd v Schultz (2004) 221 CLR 400 at [170], [256].

The decision in Santos Ltd v Helix Energy Services Pty Ltd [2009] VSC 282 provides an example of how the Court weighs these competing interests. In that case, the court balanced the effect of a non-exclusive jurisdiction clause with the location of the parties, the location of the lawyers, the location of the documents, the location of the events, and the location of the witnesses.

Ultimately, a properly drafted dispute resolution clause can help prevent jurisdictional disputes from arising. However, in circumstances where the jurisdiction of disputes has been left open by a contract, it’s important to remember that it is possible to change the forum even after proceedings have commenced.

Please do not hesitate to contact us if you have any questions or wish to discuss your circumstances.

For more information, please contact:
Joe De Ruvo

Joe De Ruvo
Director
p.  +61 8 8124 1872
e.  Email me

This communication provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Should you wish to discuss any matter raised in this report, or what it means for you, your business or your clients' businesses, please feel free to contact us.

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