NSW COURT OF APPEAL CLARIFIES THE TEST FOR INTERSTATE STAY APPLICATIONS UNDER SETION 20(4) OF THE SERVICE AND EXECUTION OF PROCESS ACT (‘SEPA’)
Service of process, SEPA and the “appropriate court”: Joshan v Pizza Pan Group Pty Ltd (2021) 393 ALR 522, [2021] NSWCA 219
BACKGROUND
Joshan v Pizza Pan Group Pty Ltd (‘Joshan’) was a significant recent decision of the New South Wales Supreme Court of Appeal which impacts how the courts will determine stay applications under section 20 of the Service and Execution of Process Act (‘SEPA’).
In Joshan, the defendants were directors of a franchisee company which was defending a claim by Pizza Pan Group Pty Ltd (‘Pizza Hut Australia’) for breach of a franchise agreement and related guarantee deed.
While the franchised business subject of the dispute was based in South Australia, Pizza Hut Australia commenced proceedings in New South Wales.
The franchise agreement and the guarantee deed subject of the proceedings both contained non-exclusive jurisdiction clause. The guarantee exclusive clause, for example, provided as follows:
‘This Agreement will be governed by and construed in accordance with the law of [New South Wales] and the parties agree to submit to the non-exclusive jurisdiction of the courts of that territory’
The franchise agreement contained a similar provision.
PROCEDURAL HISTORY
The defendants applied to the New South Wales District Court for a stay of the proceedings on the basis that South Australia was the ‘more appropriate forum.’ The defendants relied on section 20 of SEPA which the defendants submitted required an assessment of a broad array of factors, including the place of residence of the likely witnesses, the place where the subject matter of the proceeding is situated and the financial circumstances of the parties.
The plaintiff opposed the stay application on the basis that the guarantee on which it relied was accepted in New South Wales and further that the ‘non-exclusive jurisdiction’ evinced clear contractual intention by the parties that New South Wales be the appropriate forum for resolution of the dispute.
In refusing the stay, the primary judge applied the “clear and compelling test” formulated in Rick Cobby Pty Ltd v Podesta Transport Pty Ltd (1997) 139 FLR 54 (‘Rick Cobby’) and found that the defendants failed to satisfy this test. The primary judge also applied the dictum of Palmer J in Asciano Services Pty Ltd v Australian Rail Track Corp Ltd [2008] NSWSC 652 (‘Asciano’) to find that the non-exclusive jurisdiction clause in the guarantee represented “the parties’ clearly expressed contractual preference for the jurisdiction of [New South Wales]”.
The defendants sought leave to appeal against the primary judge’s order in the New South Wales Court of Appeal.
ISSUES ON APPEAL
In the concurrent leave for appeal and appeal hearing, the principal issues for determination were:
1. Whether the primary judge erred in applying a standard of proof greater than the balance of probabilities, namely that of the ‘clear and compelling basis’ as stated in Rick Cobby
2. Whether the primary judge, applying the dictum of Palmer J in Asciano, erred in placing excessive reliance on the non-exclusive jurisdiction clause in the deed of guarantee
3. Whether the franchising code of conduct operated to nullify the non-exclusive jurisdiction clause in the guarantee;
4. Whether a South Australian court was “the appropriate court” to determine the matters in issue between the parties.
JOSHAN TRANSPORT: COURT OF APPEAL DECISION
The New South Wales Supreme Court of Appeal accepted the Joshans’ arguments, declaring:
1. The primary judge erred in applying a standard of proof greater than that of the balance of probabilities, namely that of the “clear and compelling basis for the relief sought” as formulated in Rick Cobby
2. The primary judge erred in giving elevated significance to the non-exclusive jurisdiction clause in the guarantee. Further, section 20(4)(d) is concerned only with exclusive jurisdiction agreements
3. The dictum of Palmer J in Asciano, that a jurisdiction clause (whether exclusive or non-exclusive), bears great weight on a stay (or cross-vesting) application, is erroneous.
The Court of Appeal then turned to the pleadings and the evidence before it. In considering the factors submitted to it by both the defendants and the plaintiff, the Court found that South Australia was clearly the more appropriate forum. The Court therefore upheld the appeal, overturned the primary judge’s decision to refuse the stay and ordered that the NSW proceedings be stayed permanently, with costs against the plaintiff.
KEY TAKEAWAYS
(1) No strong bias in favour of non-exclusive jurisdiction clauses in section 20 SEPA proceedings
The Court found that there is ‘no strong bias in favour of giving effect to a non-exclusive jurisdiction clause on an application for a stay of proceedings under s 20’.
Following the decision in Joshan, the courts will now be more likely to consider all the matters in section 20(4) without any strong bias to any particular factor (whether listed in s 20(4) or not). The courts will look at the pleadings and the evidence to determine the likely matters in issue when determining which court is the ‘more appropriate court.’
(2) ‘Appropriate court’ is to be determined neutrally, without weight given to any particular factor, based on all the factors before the Court
Further, with Rick Cobby disapproved and Asciano not followed, claimants who commence proceedings in an ‘inappropriate court’ will find it harder to rely on non-exclusive jurisdiction clauses as evidence that the court of issue is the more appropriate forum. The courts are now more likely to
consider the factor in section 20 of SEPA, without given any particular weight to one factor. This is provided that these factors are available to the court to consider, whether in evidence or the pleadings.
In the writer’s opinion, the decision of Joshan will also make it more difficult for franchisors to circumvent the forum requirements set by the Franchising Code of Conduct as the courts will now take a common sense approach when determining the appropriate court for resolution of disputes.
(3) ‘Policy of the law’ type arguments may have merit
In dictum, the New South Wales Supreme Court of Appeal left open the question of whether applicants could succeed on ‘equity’ or ‘policy of the law’ type arguments. While the court rejected the defendants’ argument that the guarantee was a ‘franchise agreement’ for the purpose of the Franchising Code of Conduct, the court did not accept that this rendered the Code irrelevant.
How the courts will accept ‘policy of the law’ based arguments is unclear however the decision of Joshan signifies a willingness of the courts to consider equity and policy based arguments when interpreting and applying statutes.
Thet contents of this article do not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.
Contact
Mark Gustavsson
Principal Solicitor E: mark@mgandassociates.com.au
Ph: (08) 7079 7651
