Commercial Issues in Private International Law
Steven Rares *
16 February 2018
1. Private international law, as a field of legal discourse, is concerned with identifying predictable legal rules that the courts of a forum must apply in resolving disputes that involve at least the laws of two nations. Many text books carry the expression “conflict of laws” in their titles as a neat encapsulation of what is often involved. And the theme of this conference, or at least its title, harkens back to what is likely to have been the origin of private international law, namely commercial disputes that arose out of trading relationships between nationals of different States in the ancient world. That means today, as Lord Sumption JSC, speaking for the Supreme Court of the United Kingdom said:
“Litigation between residents of different states is a routine incident of modern commercial life.”
2. The panoply of distinguished speakers who will enlighten us today, will cover an array of significant topics. I do not propose to trespass, consciously, on what any of them will say, not least because I have not seen their papers. But, I did want to use this opportunity to discuss, briefly, the enduring relevance of the central theme of the conference in the day to day work of the superior courts in Australia.
3. The principles of private international law affect the resolution of commercial issues in many areas of discourse, some of which will be discussed in this conference. These include not only the impact of electronic communication on our daily lives but also the recognition and enforcement in the forum of rights arising under another polity’s laws in relation to commercial contracts, maritime liens, the administration or reconstruction of insolvent estates, long arm service or service out of the jurisdiction of process and, arbitration agreements and awards. In addition the courts of the forum must consider the degree to which they should afford comity to the laws of another jurisdiction in deciding whether or not to stay or enjoin the bringing of litigation.
The leges maritima and mercatoria
4. Disputes arising out of breaches of contracts for the sale of goods are quintessentially commercial as well as being inevitable. Vendors want to be paid and purchasers want to be able to enforce their contractual rights to obtain that for which they paid or agreed to pay. The legal systems of the different States in which a vendor and a purchaser are located in a cross-border transaction ordinarily recognise the importance of trade to the forum and the need to give the commercial community, both domestic and foreign, confidence that will support the future willingness of traders in both their own and other jurisdictions to do business with those in the forum.
5. Maritime law was one of the earliest scenarios for the development of private international law principles. Ships needed to be supplied and repaired, freight needed to be paid. All of this occurred in ports both foreign and domestic for the ship’s owners. Creditors needed to be able to recover debts owed by peripatetic ship’s owners. The ship became a mobile security carrying a maritime lien.
6. English law has grappled differently over the centuries with whether and how to recognise a maritime lien that arises outside the forum. A maritime lien is a remedy traceable at least to Roman law. Such a lien is a claim or privilege on the res that is carried into effect by a legal process. In Anglo-Australian law, that process is now a proceeding in rem. However, that form of action came late to the common law as it did not previously have a procedure that allowed proceedings in rem. In The Ship “Sam Hawk” v Reiter Petroleum Inc the five members of the Full Court of the Federal Court of Australia discussed the history of English law’s treatment of maritime liens, which were creatures of the civil law administered by the civilian lawyers in Doctors’ Commons who constituted the Court of Admiralty before the Judicature Acts of 1873 and 1875 (UK).
7. Around the late 17th century, Holt LCJ gave a number of decisions, for the Court of King’s Bench that upheld the right of maritime creditors to proceed in the Court of Admiralty to enforce maritime liens that arose out of the jurisdiction because the lien holder had no remedy at common law that enabled the ship to be sold to answer for the liability. In Johnson v Shippen, giving the judgment of the Court, Holt LCJ emphasised the impact that a contrary approach would have on trade. He said:
“When an hypothecation is made either for money to buy necessaries, or for necessaries for the ship, in a voyage, the Court of Admiralty have a jurisdiction, for the party has no other remedy; we cannot give him any remedy against the ship; and if the suit there should not be allowed, the master will have no credit to take up necessaries for the use of the ship.
No master of a ship can have credit abroad but upon the security by hypothecation, and shall we hinder the Court of Admiralty from giving remedy, when we can give none ourselves? It will be the greatest prejudice to trade that can be, to grant a prohibition in this case. Indeed if a ship be hypothecated here in England before the voyage begin, that is not a matter within the jurisdiction of the Court of Admiralty, for it is a contract made here, and the owners can give security to perform the contract.” (emphasis added; footnotes omitted)
8. In essence, much of the underlying, perhaps often silent, judicial reasoning forming the basis of rules in private international law cases is a recognition of first, the potential impact on trade and, secondly, the perceived need for comity between or among other legal systems in order, again, to support trade. Maritime law has been a rich source of rules of private international law because, as Lord Mansfield CJ said in 1759:
“… the maritime law is not the law of a particular country, but the general law of nations.”
9. Nonetheless, as the decisions in Sam Hawk and The Halycon Isleshow, the issues that recognition, in one legal system, of a right given by another legal system, involves several policy issues, first, the categorisation in the forum of the foreign right to ascertain whether it is a right that is the same as, or closely analogous to, one given by the forum, secondly, the assessment of whether the foreign right is substantive or procedural and, thirdly, the nature of the remedy that, if it were recognised and enforceable in the forum, the local court would grant.
10. Of course, there can be no universally agreed solution as to which system of law a domestic court will apply to resolve a dispute where the relationship of the parties has more than one legal system in its background or, by the time of litigation, foreground.
Long arm service
11. Recently, the Council of Chief Justices of Australia and New Zealand agreed to adopt uniform rules for service out of the jurisdiction. The new rules rework, but do not change substantively, the legal bases on which our two nation’s superior courts exercise jurisdiction over a foreigner, and compel, at least in legal theory, him, her or it to appear in the forum, if the foreigner is not already present within the jurisdiction when the action is brought.
12. The selection of the criteria that the now, or soon to be, uniform rules prescribe to justify service out of the forum must reflect generally accepted bases on which national courts exercise jurisdiction over foreigners. That is, the principles of private international law that most national legal systems recognise must underpin the basis on which, in any particular dispute, the forum claims jurisdiction to make orders that will be enforced against a foreigner in his, her or its home jurisdiction in default of appearance in the forum.
13. If the foreigner is a party to a contract that has an express jurisdiction, or perhaps choice of law, clause, it is likely that the decision of the nominated forum will be recognised in the foreigner’s home and so will provide a sufficient spur for the foreigner to appear. But, the long arm rules allow service on wider grounds than that and have done so for over a century. Lord Porter recognised in Tyne Improvement Commissioners v Armement Anverssois S/A (The Brabo) (No 2)that “the right to add the foreigner should be sparingly used”.
14. However, the Supreme Court of the United Kingdom has recently said that it is no longer realistic to characterise the exercise of long arm jurisdiction as “exorbitant” or as an assertion of the Local Court’s power over the foreign defendant. In Abela v BaadaraniLord Sumption JSC, said that the adoption of the doctrine of forum non conveniens and the United Kingdom’s accession to a number of conventions that regulate the international jurisdiction of national courts:
“means that in the overwhelming majority of cases where service out is authorised there will have been either a contractual submission to the jurisdiction of the English Court or else a substantial connection between the dispute and this country … litigation between residents of different states is a routine incident of modern commercial life.”
15. He concluded saying:
“The decision is generally a pragmatic one in the interests of the efficient conduct of litigation in an appropriate forum.”
16. Recently in BY Winddown Inc v Vautin, Besanko, Middleton and Griffiths JJ dismissed an application for leave to appeal the making of an order for service of proceedings in the United States on a yacht manufacturer, pursuant to the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters done at the Hague on 15 November 1965. In that case, the purchaser of a yacht had sued the manufacturer’s Australian exclusive dealer arising from alleged breaches of contract concerning the purchase of the yacht and the dealer was likely to claim that the defects in the yacht were the fault of the manufacturer. Also the purchaser was concerned that the dealer may not have been able to pay all the damages. Item 20 in the table to r 10.42 of the Federal Court Rules 2011 provided that a person could be served outside Australia who was a proper and necessary party to a proceedings.
17. Importantly, the present rule was based on one of the reforms introduced in the Judicature Act 1873 (UK) being the power to grant all remedies to which any party is entitled in respect of a claim properly brought forward by that party, so far as possible, in order to avoid multiplicity of proceedings. That position is reflected in the statutes governing Australia’s superior courts. Besanko Middleton and Griffiths JJ said:
“the concept of comity, which the [manufacturer] contended was relevant to the task of construction, has limited relevance in construing subordinate legislation in the form of rules of Court. As Gummow and Hayne JJ observed in Neilson v Overseas Projects Corporation of Victoria Ltd (2005) 223 CLR 331 at , comity is “either meaningless or misleading” and “a matter for sovereigns not for judges required to decide a case according to the rights of the parties”.
… in any event, the issue of comity should be approached on the understanding that considerations of comity have evidently been taken into account in determining the items which have been included in the table in r 10.42.”
Stays and anti-suit injunctions
18. A frequent feature of international commerce has become the remedy of the anti-suit, anti-anti-suit, and even more hostile injunctions, and the stay of local proceedings. Judicial consideration of this species of remedy involves assessing the underlying basis of each party’s legal rights and the connection of them and their dispute to the forum and questions of comity.
19. Of course, the Court retains a power to stay proceedings that are properly served on a foreigner on the ground that Australia is a clearly inappropriate forum, as established in Voth v Manildra Flour Mills Pty Ltd.
20. Sometimes issues of practice and procedure, such as the obligation of a foreigner to answer a notice to produce or to give discovery, can generate a substantive dispute based on the foreigner’s conflicting obligations under the laws of his, her or its domicile and that of the forum. For example, several jurisdictions, including Australia, have dealt with the impact of the Swiss Criminal Code’s prohibition in Art 271, on anyone, without authorisation from a Swiss court or governmental authority, performing, or aiding or abetting the performance of “acts for a foreign State”. The penalty for contravention is up to three years imprisonment. Similarly, Swiss law prohibits officers of the banks’ from disclosing or assisting in the production of their employer banks’ documents. As Lehane J said in Australian Securities Commission v Bank Leumi Le-Israel (Switzerland), Lockhart and ML Foster JJ agreeing:
“… it is no light matter to enforce Australian laws in circumstances which infringe the legislative policies of other countries …”
21. The House of Lords identified the following principles as applicable in such cases:
- save in exceptional circumstances, an order should not be made by a court in the forum to compel a bank to produce books or records held by it in a branch or office outside the forum; and
- a State (including courts exercising its judicial power) should refrain from demanding obedience by foreigners to its sovereign authority in respect of their conduct outside the jurisdiction.
22. In our lifetimes electronic communication has assumed an importance in commerce that was unimaginable, at least to the unscientific, such as myself, at the time The Beatles first sang “When I’m Sixty-Four”, a topic which I unfortunately find all too timely. Today, we enter into contracts electronically, do our banking online, do research, seek entertainment and even relationships on the internet. No matter where we are in the world, one can see almost ubiquitously people in the streets walking, on public transport, and scarily sometimes driving, using smart phones or similar devices.
23. Yet, in many ways, the internet – including emanations like Twitter, the preferred means of communication of the 45th President of the United States – is a lawless place. The internet houses virtual currencies, like Bitcoin, that exist without any government that does or can regulate them effectively. The world-wide web, not to mention the more sinister, dark web, is a domain beyond the control of national courts or governments in liberal democracies. The People’s Republic of China is the location of the Great Wall, the only man made object that allegedly can be seen from space. Its government also restricts access of persons to cyberspace within China to internet sites using the Great Firewall of China. Thus, it and the Chinese Government has banned access to Google and it also filters access to some foreign news, a feat that would be unthinkable in Western nations.
24. But, a consequence of our legal traditions, that we share with many other countries, has been that a national court may have difficulty establishing jurisdiction over whomever has created a site on the internet. Often a plaintiff will seek relief because a website conveyed defamatory matter, or offered an apparently comfortable place to transact business with a person, who later appeared not to be willing to honour the contract or was a plain fraudster.
25. How does a court in a forum like Australia, make orders that are actually enforceable in respect of what appears on an internet site that is operated by persons who cannot be identified and are in a place that cannot be found? Experience has shown that an internet site can be operated by persons in one place who route their electronic communications through several disguises to servers in another jurisdiction that then present sites that appear to be local to persons browsing the internet on the other side of the world.
26. This is a practical and real challenge for those who believe in the rule of law. We must develop responsible governmental institutions, including effective judicial processes underpinned by private international law principles that will ensure their general acceptance among other jurisdictions, that can regulate what happens on the internet so that persons cannot operate, as they do now in what is virtually (in both senses) uncontrolled territory. What legally effective mechanisms exist now for persons who, thinking that they are making a bona fide contract, pay money over the internet to a fraudster operating through layers of anonymity in an untraceable place?
27. Similarly, operators of search engines or social media platforms, like Facebook, Instagram or Snapchat, provide sites on which third parties who post matter often are not present in the forum, even though the virtual site is readily accessible or downloadable there. When someone publishes a statement on his or her blog, or on Twitter, a person named in that publication can be significantly affected, yet find that there is no remedy in the forum for want of jurisdiction over the host of the site.
Cross border insolvency
28. At the present time, one area in which the principles of private international law are developing is in cross border insolvency. The Model Law on Cross Border Insolvency of the United Nations Commission on International Trade Law has now been adopted by over 40 nations, including Australia, and an analogue applies within the European Union.
29. The drafting of the Model Law, however, did not take into account the established principles of maritime law, in particular those dealing with the right, in common law jurisdictions, to bring proceedings in rem or, in civil law jurisdictions, maritime attachments. The unifying theory of the Model Law is that all creditors of an insolvent debtor should bring their claims in the jurisdiction in which the debtor’s centre of main interests is and that that jurisdiction’s laws, including of priorities, should govern the resolution of those claims.
30. Unless in making an order for recognition under Arts 19, 20 and 21 of the Model Law, a court modifies its effect under Art 22(3), its orders could interfere with the rights of creditors to enforce their securities or other rights, including mortgagees of land and fixed or floating charges over corporate assets. As well, sovereign governments could be prevented from enforcing a debtor’s liability to pay taxation or pecuniary orders under its penal law. As a practical matter, secured creditors in foreign jurisdictions expect to be able to realise their securities where they are located without having to resort to the centre of main interests of the debtor.
31. Likewise, local courts should be able to recognise the special position of their forum’s taxation or penal laws by a modification under Art 22(3) to ensure that the local revenue is not prejudiced. As Lord Mansfield CJ said in Planché v Fletcher:
“One nation does not take notice of the revenue laws of another.”
32. The solution adopted in Australia is to modify the application of the Model Law so as to permit sufficient of the debtor’s local assets to be retained in the forum that will satisfy taxation liabilities. In Akers v Deputy Commissioner of Taxation, as Allsop CJ, with whom Robertson and Griffiths JJ agreed, held that the Model Law and the Cross Border Insolvency Act 2008 (Cth) did not contain any provision that operated to destroy the rights of the local taxation authority. The Chief Justice held that it was fair and appropriate to allow the local taxation authority to retain so much of the debtor’s assets in Australia as would equate to the likely distribution it would have received, as an unsecured creditor, had the liquidation occurred here and its claim were included in the actual final distribution that the foreign liquidators would make in due course.
33. There can be other significant injustice to creditors if a broadly framed order prohibiting the filing of new proceedings and staying existing ones is imposed under Arts 19(1), 20(1) or 21(1) of the Model Law. For example, such an order could operate to inhibit creditors seeking to enforce a maritime lien or a ship’s mortgage that arose or was granted under a foreign law. Binnie J explained why, ordinarily, maritime liens have priority over ships’ mortgages when giving the opinion of the Supreme Court of Canada in Holt Cargo Systems Inc v ABC Container Line (Trustees of). He said:
“The reason for this privileged status for maritime lien holders is entirely practical. The ship may sail under a flag of convenience. Its owners may be difficult to ascertain in a web of corporate relationships (as indeed was the case here, where initially Holt named the wrong corporation as ship owner). Merchant seamen will not work the vessel unless their wages constitute a high priority against the ship. The same is true of others whose work or supplies are essential to the continued voyage. The Master may be embarrassed for lack of funds, but the ship itself is assumed to be worth something and is readily available to provide a measure of security. Reliance on that security was and is vital to maritime commerce. Uncertainty would undermine confidence. The appellant Trustees’ claim to “international comity” in matters of bankruptcy must therefore be weighed against competing considerations of a more ancient and at least equally practical international system — the law of maritime commerce.”
34. If such a stay were imposed in respect of foreign debtor-in-possession proceedings, such as Ch 11 of the United States Bankruptcy Code or its South Korean, Japanese or Italian analogues, an unpaid ship’s crew could be prevented from arresting the ship based on their maritime lien for wages that is a generally accepted remedy of the lex maritima. Ordinarily, the crew are not in a financial position where they are able to leave a ship and return to their homes, which often are not in the debtor’s owner’s centre of main interests, whether Korea or Liberia. Even if they could return home, they would then have to engage lawyers to make a claim in the debt restructuring, which could be outvoted and eliminated. Given that position, most crew are likely to be faced with a Hobson’s choice. Yet, without crew, the debtor’s ship would be stranded in a faraway port. The consequence would be, as I pointed out in Hur v Samoun Logix Corporation, that the crew could be made de facto slaves of the defaulting shipowner until the conclusion of the foreign insolvency, and even then they might not be paid in full or at all.
35. Today’s conference agenda promises some valuable contributions, from the learned and distinguished speakers, to our thinking on its theme of commercial issues in private international law.
* A judge of the Federal Court of Australia and an additional judge of the Supreme Court of the Australian Capital Territory. The author acknowledges the assistance of his associate, Georgia Allen, in the preparation of this paper. The errors are the author’s alone.
Introductory remarks presented at the University of Sydney Law School Conference on Friday 16 February 2018.
 Abela v Baadarani  1 WLR 2043 at 2062 ; see also at 2060 
 (2016) 246 FCR 337
 see Sam Hawk 246 FCR at 410-411 -
 (1703) 2 Ld Raym 982 at 983 [92 ER 154 at 155]
 Luke v Lyde (1759) 2 Burr 882 at 887
 246 FCR 337
  AC 222
  AC 326 at 339
  1 WLR 2043 at 2062-2063 
 at 2063 
 (2016) 249 FCR 262
 as I found: Vautin v BY Winddown Inc (No 2)  FCA 1235 at -; cf. Thomson Australia Holdings Pty Ltd v Trade Practices Commission (1981) 148 CLR 150 at 161 per Gibbs CJ, Stephen, Mason and Wilson JJ
 e.g. s 22 of the Federal Court of Australia Act 1976 (Cth)
 249 FCR at 273 -
 (1990) 171 CLR 538
 (1996) 69 FCR 531 at 552G
 Société Eram Shipping Co Ltd v Cie Internationale de Navigation  1 AC 260 at 274-275 - per Lord Bingham of Cornhill, 286-287  per Lord Hoffmann, with whom Lord Nicholls of Birkenhead at 277 , Lord Hobhouse of Woodborough at 287  and Lord Millett at 299 , agreed: see too Suzlon Energy Ltd v Bangad (2011) 198 FCR 1; see at 11-12 -, 12-13 , 13 
 pursuant to s 6 of the Cross Border Insolvency Act 2008 (Cth)
 (1779) 1 Doug 251 at 253; acknowledged in Government of India v Taylor  AC 491, and see too: Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 at 339 per Brennan and Dawson JJ, with whom Toohey J agreed at 354; Akers (as joint foreign representative) v Saad Investments Company Ltd  FCA 738 at  per Rares J
 (2014) 223 FCR 8 at 32 
 223 FCR at 42 - affirming Akers  FCA 738 at -
  3 SCR 907 at 925 
 (2015) 238 FCR 483 at 489 -