Akai Pty Ltd v People's Insurance Co Ltd

High Court of Australia|1994-04-21|Before: Gummow JJ, McHugh JJ, O'Keefe CJ, Kirby P

High Court of Australia Dawson, Toohey, Gaudron, McHugh and Gummow JJ Akai Pty Ltd v People's Insurance Co Ltd

Set aside the order of the New South Wales Court of Appeal. In lieu thereof set aside the orders of the Commercial Division entered 21 April 1994 and dismiss the motion filed 21 June 1993.

The respondent pay the costs of the appellant in this Court and the Court of Appeal and the costs of the motion in the Commercial Division of the Supreme Court.

Akai Pty Ltd (Akai) is a company incorporated in New South Wales and a wholly-owned subsidiary of Akai Electric Co Ltd, a company incorporated in Japan. The People's Insurance Co Ltd (PIC) is a company incorporated in Singapore. PIC conducts a credit insurance business at an international level and is reinsured by a panel of reinsurers located in the United Kingdom, the United States and Europe. Only a limited number of insurers place credit insurance business in Australia and of them the major insurers had reached their maximum exposure to underwriting this type of risk by early 1991.

In mid-1991, after making inquiries about the availability of credit insurance cover in Australia, Akai took out a credit insurance policy with PIC in Singapore. Under the policy PIC agreed to indemnify Akai for loss suffered by it as a consequence of the failure of persons to whom goods had been supplied on credit to make payment for them. The liquidation of a company, Norman Ross Homeworks Pty Ltd, to which Akai had supplied goods on credit, resulted in the failure of that company to pay for the goods. On 5 March 1993, Akai instituted proceedings in the Supreme Court of New South Wales seeking a declaration that PIC is liable to indemnify it under the insurance policy for the loss suffered by it as a result of the liquidation of Norman Ross Homeworks Pty Ltd. On the same day, Akai caused a writ to be issued against PIC in the Queen's Bench Division of the High Court of Justice in England.

Clause 9 of Art VI (cl 9) of the insurance policy provides as follows:

This policy shall be governed by the laws of England. Any dispute arising from this policy shall be referred to the Courts of England.

At the time of negotiations between Akai and PIC for insurance cover, the standard form of policy issued by PIC provided that: This policy shall be governed by the laws of Singapore. Any disputes arising from the policy shall be referred to the Courts of Singapore. However, Akai was unwilling to accept Singapore as a forum for the settlement of disputes and PIC was unwilling to accept Australia. PIC considered that, as an alternative, England was a desirable forum because it is an important centre for international insurance and dispute resolution, particularly in relation to credit insurance, because the English law of credit insurance is relatively certain and well-developed, and because the English court system is reliable and impartial. Accordingly, PIC proposed cl 9 of the policy which was agreed to by Akai.

On 21 June 1993, PIC, in reliance upon cl 9 of the policy, filed a notice of motion in the Supreme Court of New South Wales seeking a stay of the proceedings in that Court until further order or until the final determination of the proceedings brought by Akai against PIC in England. At first instance, O'Keefe CJ Comm D granted the stay sought by PIC. Akai appealed to the Court of Appeal which, by a majority (Meagher and Sheller JJA, Kirby P dissenting), dismissed the appeal [1] . Akai now appeals by special leave to this Court.

Akai Pty Ltd v People's Insurance Co Ltd (1995) 126 FLR 204

An issue likely to arise in the proceedings in New South Wales if they are not stayed is whether the Insurance Contracts Act 1984 Cth (the Act) applies to the insurance policy in question and, if so, whether Akai is entitled under the provisions of the Act to be excused for any breaches of condition which might be proved against it under the policy. Section 8 of the Act provides:

(1) Subject to section 9, the application of this Act extends to contracts of insurance and proposed contracts of insurance the proper law of which is or would be the law of a State or the law of a Territory in which this Act applies or to which this Act extends.

(2) For the purposes of subsection (1), where the proper law of a contract or proposed contract would, but for an express provision to the contrary included or to be included in the contract or in some other contract, be the law of a State or of a Territory in which this Act applies or to which this Act extends, then, notwithstanding that provision, the proper law of the contract is the law of that State or Territory.

The Act, being an Act of the Commonwealth Parliament, extends throughout Australia. It is, however, provided by s 6(1) that it extends to an external Territory only by proclamation. For present purposes, what is important is that it extends to New South Wales. Section 9 of the Act excepts from the Act certain contracts of insurance which are not presently relevant.

The application of the Act in a particular case is, however, not made dependent upon acts or events occurring in Australia but is determined by reference to the rules of private international law, namely, those rules relating to the proper law of a contract [2] . Thus if the proper law of an insurance contract is the law of a State or Territory of Australia, then the Act applies to the contract. That is the effect of s 8(1). Section 8(2) is intended to prevent the parties to an insurance contract from contracting out of the Act by selecting a proper law of the contract other than the law of a State or Territory when the law of a State or Territory would, in the absence of the selection, be the proper law. That is to say, for the purposes of the Act the proper law is to be determined without regard to "an express provision to the contrary" contained in the contract.

See Opeskin, The Use of Choice of Law Rules in Statutes Affecting Contracts: A Note on the Insurance Contracts Act 1984, Journal of Contract Law, vol 10 (1996) 231, at pp 232-233.

In the Court of Appeal, Sheller JA, with whom Meagher JA agreed, saw the appropriate exercise in this case as involving the determination of the proper law of the insurance policy in accordance with s 8 of the Act. Obviously, the first sentence of cl 9 was "an express provision to the contrary" within the meaning of s 8(2) and was to be disregarded. But, so Sheller JA held, the second sentence of cl 9 - "Any dispute arising from this policy shall be referred to the Courts of England" - was not "an express provision to the contrary", not being an express choice of law other than the law of a State or Territory. He held, however, that its existence pointed to an intention on the part of the parties, to which the Court should give effect, that English law be the proper law of the contract of insurance. Upon that basis and having regard to the choice of forum provision in cl 9 of the policy, Sheller JA held that the trial judge was correct in granting a stay of the New South Wales proceedings. In our view, it was unnecessary and premature to determine the proper law of the contract, whether applying or without applying s 8 of the Act. The application for a stay of the New South Wales proceedings could and should have been determined by reference to the choice of courts provision alone.

Clause 9 of the insurance policy is in two parts. The first relates to the choice of law and the second relates to the choice of forum or of courts. They are two different things [3] . A choice of law clause does not constitute a submission to the jurisdiction of the courts of a chosen legal system. A choice of courts clause does [4] . The second sentence or part of cl 9 is clearly a choice of courts clause. The question then arises whether it constitutes a submission to the exclusive jurisdiction of the courts which it specifies. As Hobhouse J said in Berisford Plc v New Hampshire Insurance [5] : "An exclusive jurisdiction clause is one which imposes a contractual obligation on one or more parties to litigate in the stated jurisdiction." The question is whether on its true construction the clause obliges the parties to resort to the relevant jurisdiction irrespective of whether the word exclusive is used. As a matter of construction we have no doubt that the second sentence of cl 9 amounts to a submission on the part of both parties to the insurance policy to the exclusive jurisdiction of the English courts. If it were necessary, and we do not think that it is, it may be possible to have regard to the course of negotiations from which the submission arose and that would lead inevitably to the conclusion that the second sentence of cl 9 amounts to an exclusive jurisdiction clause. In Sohio Supply Co v Gatoil (USA) Inc [6] , Staughton LJ observed of a much less clearly worded clause:

It is, I think, part of the matrix background, or surrounding circumstances, whichever term one chooses to use, that this was a contract made between sophisticated business men who specifically chose their words as to English jurisdiction for the purpose of this contract. It is not a consumer contract on a printed form, or anything like that. To my mind, it is manifest that these business men intended that clause to apply to all disputes that should arise between them. I can think of no reason at all why they should choose to go to the trouble of saying that the English Courts should have non-exclusive jurisdiction. I can think of every reason why they should choose that some Court, in this case the English Court, should have exclusive jurisdiction. 1. See Contractors Ltd v MTE Control Gear Ltd [1964] SASR 47 at 49 Keenco v SA & Territory Air Service Ltd (1974) 8 SASR 216 at 230-231 2. See Dunbee Ltd v Gilman & Co (Aust) Pty Ltd (1968) 70 SR(NSW) 219 at 225. 3. [1990] 2 QB 631 at 636. 4. [1989] 1 Lloyd's Rep 588 at 591-592.

The Act does not preclude an exclusive jurisdiction clause. True it is that such a clause is a strong indication of the parties' intention with regard to the proper law of their contract. As Brennan J observed in Oceanic Sun Line Special Shipping Co Inc v Fay [7] : "A submission to the exclusive jurisdiction of the tribunals of a particular country is an indicium of the parties' intention that the law of that country is to be the proper law of their contract." That may raise the question whether, having regard to s 8(2) of the Act, the exclusive jurisdiction provided for by cl 9 of the insurance policy is "an express provision to the contrary", which is to be disregarded in determining whether the proper law of the contract is the law of a State or Territory. That is a question which Sheller JA answered in the negative but it is a question which, in our view, it is unnecessary to answer in determining whether the second sentence of cl 9 amounts to an exclusive submission to the jurisdiction of the courts of England.

(1988) 165 CLR 197 at 224-225. See also Wragge v Sims Cooper & Co (Australia) Pty Ltd (1934) 50 CLR 483 at 500-501 Vita Food Products Inc v Unus Shipping Co [1939] AC 277 at 290

As we have said, the Act says nothing to deprive an exclusive jurisdiction clause of its effect save possibly, and contrary to the conclusion reached by the majority below, to the extent that it constitutes an indication to an Australian court of a choice of law by the parties. It is not surprising that this is so. It is a relatively common feature of international contracts that disputes are submitted to the exclusive jurisdiction of the courts of a particular country, not infrequently the courts of England [8] . It would be a serious and far-reaching interference with the freedom of the parties to such contracts to prevent them from making provision to that effect. If that were the intention of the legislature one would expect, at least, express words. None are to be found in the Act, nor does any necessary implication arise from s 8(2). Not only that, but s 7 of the Act provides:

It is the intention of the Parliament that this Act is not, except in so far as this Act, either expressly or by necessary intendment, otherwise provides, to affect the operation of any other law of the Commonwealth, the operation of law of a State or Territory or the operation of any principle or rule of the common law (including the law merchant) or of equity. Clearly then, there is no basis upon which it could be concluded that it was the intention of the legislature to preclude exclusive jurisdiction clauses. Indeed, if it is helpful to have regard to the comments of the Australian Law Reform Commission on what became s 8 of the Act, those comments indicate precisely the point we are making. The Commission stated that "the normal rules of private international law will determine what the proper law will be", with the proviso that " Australian courts will not be permitted to take into account provisions included in the contract that specify that the proper law is some foreign law" [9] . (Emphasis added.) 1. See Sohio Supply Co v Gatoil (USA) Inc [1989] 1 Lloyd's Rep 588 at 592. 2. Australia, Law Reform Commission, Insurance Contracts, Report No 20 (1982), p 280.

Section 52 of the Act prohibits contracting out of the provisions of the Act but leaves the parties free to choose their forum. Sub-section (1) of s 52 relevantly provides:

Where a provision of a contract of insurance purports to exclude, restrict or modify, or would, but for this subsection, have the effect of excluding, restricting or modifying, to the prejudice of a person other than the insurer, the operation of this Act, the provision is void. That sub-section strikes down contractual provisions which would exclude, restrict or modify the operation of the Act. An exclusive jurisdiction clause is not such a provision: the Act has no operation where the parties have agreed to have their disputes determined by the courts of another jurisdiction in circumstances where effect should be given to their intention by an Australian court. The fact that s 52(1) only strikes down provisions which would prejudice a person other than the insurer also reveals that there is no legislative intention that parties should not be free to choose their forum, for it is perfectly conceivable that the choice of a non-Australian forum may benefit a person other than an insurer.

The plain intention of the Act is that, if the parties to a contract can and do invoke the jurisdiction of an Australian court, the proper law of the contract is to be determined in such a way as to prevent the parties from contracting out of the provisions of the Act. The Act selects as the connecting factor or criterion for its operation the proper law of the contract, and if it falls to an Australian court to ascertain what the proper law is, that court must disregard an express provision indicating that the proper law shall be other than the law of a State or Territory in which the Act applies. But that is not to say that there is any intention that the parties to a contract should not submit themselves to the exclusive jurisdiction of the courts of another country which might then apply its own law in determining the proper law of the contract.

Indeed, the law has always been solicitous that when parties do contract to submit their disputes to the exclusive jurisdiction of the courts of another country they should be held to their bargain. In considering an application for a stay of court proceedings by reason of a submission to arbitration, Dixon J said in Huddart Parker Ltd v The Ship Mill Hill [10] of s 5 of the Arbitration Act 1928 Vict:

This language might appear to place the burden upon the defendants applying for a stay. But the Courts begin with the fact that there is a special contract between the parties to refer, and therefore in the language of Lord Moulton in Bristol Corporation v John Aird & Co [11] , consider the circumstances of a case with a strong bias in favour of maintaining the special bargain or as Scrutton LJ said in Metropolitan Tunnel & Public Works Ltd v London Electric Railway Co [12] , "A guiding principle on one side and a very natural and proper one, is that parties who have made a contract should keep it." Those remarks led Brennan J to observe in Oceanic Sun Line Special Shipping Co Inc v Fay [13] : Where the parties to a contract agree that the courts of a foreign country shall have exclusive jurisdiction to decide disputes arising under the contract or out of its performance, the courts of this country regard that agreement as a submission of such disputes to arbitration and will, in the absence of countervailing reasons, stay proceedings brought here to decide those disputes. In the same case, Gaudron J said [14] : Where there is an agreement to submit to another jurisdiction, the power to grant a stay rests on the principle that the courts will, except where the plaintiff adduces strong reasons against doing so, require the parties to abide by their agreement. 1. (1950) 81 CLR 502 at 508-509. 2. [1913] AC 241 at 259. 3. [1926] Ch 371 at 389. 4. (1988) 165 CLR 197 at 224. 5. Oceanic Sun Line (1988) 165 CLR 197 at 259. See also The "Makefjell" [1976] 2 Lloyd's Rep 29; The "Kislovodsk" [1980] 1 Lloyd's Rep 183; The "El Amria" [1981] 2 Lloyd's Rep 119 at 122, 123.

Nor, where there is an application for a stay to enforce an exclusive jurisdiction clause, should the case be assimilated to a case in which a stay is sought on the principle of forum non conveniens. As Brennan J pointed out in Oceanic Sun Line Special Shipping Co Inc v Fay [15] :

A case where the plaintiff seeks the exercise of a discretion to refuse to give effect to a contractual stipulation that a nominated court should have exclusive jurisdiction requires justification of a different order from that required in a case where the plaintiff has simply chosen to sue in one forum rather than another, both being available to him. 1. (1988) 165 CLR 197 at 230-231.

Even though there is "a strong bias in favour of maintaining the special bargain" [16] where there is a submission to the exclusive jurisdiction of the courts of another country, the courts of this country nevertheless retain a discretion to refuse a stay of proceedings here if sufficient cause is shown. The relevant principles were identified by Brandon J in The "Eleftheria" [17] as follows:

(1) Where plaintiffs sue in England in breach of an agreement to refer disputes to a foreign court, and the defendants apply for a stay, the English court, assuming the claim to be otherwise within its jurisdiction, is not bound to grant a stay but has a discretion whether to do so or not. (2) The discretion should be exercised by granting a stay unless strong cause for not doing so is shown. (3) The burden of proving such strong cause is on the plaintiffs. (4) In exercising its discretion the court should take into account all the circumstances of the particular case. Brandon J went on to consider a number of circumstances which might be relevant, but emphasised [18] that "the court should give full weight to the prima facie desirability of holding the plaintiffs to their agreement" and should "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". 1. Huddart Parker Ltd v The Ship Mill Hill (1950) 81 CLR 502 at 509 2. [1970] P 94 at 99. 3. The "Eleftheria" [1970] P 94 at 103.

In this case, no strong reasons are apparent which would justify the refusal of a stay of the New South Wales proceedings. Two reasons do, perhaps, emerge inferentially. The first is that the circumstances have a greater connection with New South Wales than Singapore or England. But that can hardly be a strong reason. The purpose of an exclusive jurisdiction clause may be, and appears to have been in this case, to ensure that disputes may be determined in a neutral forum having no connection with the parties. Moreover, in this case it is a reason largely, if not wholly, based upon mere convenience which is not a sufficient reason for refusing to give effect to an exclusive jurisdiction clause. The second reason is that the proper law of the contract may be found by an English court to be the law of England in which event Akai will lose the benefit of the Act. Nor is that a strong reason for granting a stay. The Act is directed to Australian courts, not the courts of another country. It does not seek to prevent the parties to a contract submitting their disputes exclusively to the courts of another country and it is therefore within the contemplation of the Act that those disputes will be determined otherwise than by the application of its provisions. Indeed, in making the application of the Act dependent upon there being an Australian proper law of the contract, the legislature necessarily contemplated cases, even in Australian courts, in which the Act would not apply.

In our view, the majority of the Court of Appeal was correct in upholding the decision of the trial judge to grant a stay, although for reasons which are somewhat different from those advanced by their Honours. We would dismiss the appeal.

This appeal from the New South Wales Court of Appeal turns upon the construction of the Insurance Contracts Act 1984 Cth (the Act). We would allow the appeal.

The People's Insurance Co Ltd (People's Insurance) is incorporated in the Republic of Singapore. Akai Pty Ltd (Akai) is incorporated in New South Wales and is a wholly-owned subsidiary of Akai Electric Co Ltd which is incorporated in Japan. Akai carries on business in Australia and, to a lesser extent, New Zealand. It has its head office in New South Wales.

In mid-1991, People's Insurance issued to Akai a policy of insurance (the Policy) under which People's Insurance undertook to indemnify Akai for loss suffered by Akai by reason of non-payment of moneys due and owing to Akai by those to whom goods had been supplied by it on credit. The contract had been negotiated by telephone, fax and letter between the broker of Akai (the Credit Insurance Association (Brokers) Ltd (CIA), which carried on business in North Sydney) and a wholly owned subsidiary of People's Insurance (Global Trade Insurance Management Pte Ltd (GTI), incorporated and carrying on business in Singapore). The Australian dollar was the currency in which there was specified the maximum liability under the Policy of People's Insurance, namely $2 million. It was also the currency in which the premium was payable, being identified as the "Policy Currency".

Akai later claimed indemnity under the Policy in respect of losses sustained by Akai consequent upon the failure of Norman Ross Homeworks Pty Ltd (Norman Ross), a company which had operated retail stores in which Akai products were sold to the public. The Supreme Court of New South Wales appointed a liquidator to Norman Ross on 10 February 1992. The company had operated approximately thirty-six stores, largely in New South Wales.

The response (in a letter dated 30 December 1992 from GTI to CIA) to the claim under the Policy by Akai was that there appeared to have been several breaches of the Policy by Akai. On 5 March 1993, Akai commenced an action in the Supreme Court of New South Wales, Commercial Division. Akai sought a declaration that People's Insurance was liable to indemnify it under the Policy for loss suffered by Akai in respect of moneys owed to it by Norman Ross, being moneys the non-payment of which was insured under the Policy. Judgment was sought for Akai in the sum of $1,292,184.98, with interest. On 21 June 1993, People's Insurance responded with a motion seeking a stay of that proceeding. Clause 9 of Art VI of the Policy (cl 9) is of prime importance for this appeal, which arises out of the motion of 21 June 1993. Clause 9 is headed "Governing Law" and states:

This policy shall be governed by the laws of England. Any dispute arising from this policy shall be referred to the Courts of England.

On the same day as Akai had commenced its action in New South Wales, there had been issued out of the English High Court of Justice (Queen's Bench Division - Commercial Court) a writ of summons wherein Akai claimed relief to the same effect as that sought in the New South Wales action. The evidence does not appear to disclose the taking of any further steps in the English action.

On 7 December 1993, the Chief Judge of the Commercial Division of the Supreme Court of New South Wales ordered that the proceeding in that Court be stayed until further order or until final determination of the proceeding brought by Akai against People's Insurance in England. An appeal, by leave, was dismissed by the Court of Appeal on 28 April 1995 [19] (Meagher and Sheller JJA, Kirby P dissenting). It is from that decision that Akai appeals to this Court.

Akai Pty Ltd v People's Insurance Co Ltd (1995) 126 FLR 204

Akai contends that the contract of insurance represented by the Policy is one to which the Act applies. This would have the result that in an Australian court (it being bound to give effect to the Act) Akai would have, or would at least have a strong case that it has, the benefit of provisions of the Act such as s 54 to provide an answer to what otherwise could be an entitlement of People's Insurance to refuse liability. The effect of the stay, Akai complains, is to deny it the opportunity to pursue its claim in a forum (the jurisdiction of which to entertain its claims is unquestioned) which must give effect to the Act.

We turn to consider the provisions of the Act which are presently material.

The Act introduced many of the changes to the law which had been recommended in Report No 20, Insurance Contracts, presented by the Australian Law Reform Commission in 1982 (the Report). Plainly the statute is of a remedial character.

An example is s 54. This section was considered in Ferrcom Pty Ltd v Commercial Union Assurance Co of Australia Ltd [20] . It is designed to restrict the circumstances in which the insurer may refuse to pay a claim, and does so by in some cases allowing the insurer to reduce the amount of the claim against it. If the act or omission which otherwise would entitle the insurer to refuse to pay a claim is of a type which could reasonably be regarded as being capable of causing or contributing to a loss covered by the insurance, the insurer may refuse to pay the claim (s 54(2)) unless the insured can prove that in the particular case the act or omission did not cause the loss (s 54(3)) or only caused a part of the loss (s 54(4)). If the act or omission is not of a type which could cause or contribute to a loss, but nevertheless causes prejudice to the insurer (eg, one may suppose, by making investigation of a claim more difficult), the insurer may reduce its liability in respect of the claim by an amount which fairly represents the extent to which the interests of the insurer were prejudiced (s 54(1)).

In the present case, the letter dated 30 December 1992 from GTI to CIA set out a number of alleged breaches by Akai. As to some of these, it may be taken that there is at least a real argument for the application of s 54 in favour of the insured.

Section 6 of the Act provides for its extension to "an external Territory", an expression defined in s 17(pd) of the Acts Interpretation Act 1901 Cth. Some reference is made in the submissions for the respondent to s 7 of the Act. This states:

Section 9 states that, except as otherwise provided by the Act, it does not apply to or in relation to certain contracts, for example, contracts of reinsurance (s 9(1)(a)) and contracts entered into in respect of aircraft engaged in commercial operations (s 9(3)). The Act is so framed that its application to any other particular contract of insurance turns upon the treatment by the Act of the governing law of the contract in question.

Section 8 is the critical provision, given the terms of cl 9 of the Policy which select English law and the English courts. Section 8 states [21] :

This should be read with s 52. It forbids "contracting out" and provides:

(1) Where a provision of a contract of insurance (including a provision that is not set out in the contract but is incorporated in the contract by another provision of the contract) purports to exclude, restrict or modify, or would, but for this subsection, have the effect of excluding, restricting or modifying, to the prejudice of a person other than the insurer, the operation of this Act, the provision is void.

(2) Subsection (1) does not apply to or in relation to a provision the inclusion of which in the contract is expressly authorized by this Act. [22]

It may be compared with s 67 of the Trade Practices Act 1974 Cth. This states: "Where: (a) the proper law of a contract for the supply by a corporation of goods or services to a consumer would, but for a term that it should be the law of some other country or a term to the like effect, be the law of any part of Australia; or (b) a contract for the supply by a corporation of goods or services to a consumer contains a term that purports to substitute, or has the effect of substituting, provisions of the law of some other country or of a State or Territory for all or any of the provisions of this Division; this Division applies to the contract notwithstanding that term." 2. It is said that there is no such term expressly authorised by the Act, as referred to in s 52(2): Kelly and Ball, Principles of Insurance Law in Australia and New Zealand, (1991), par 6.38. Section 52 may be compared with s 68(1) of the Trade Practices Act 1974 Cth. This states: "Any term of a contract (including a term that is not set out in the contract but is incorporated in the contract by another term of the contract) that purports to exclude, restrict or modify or has the effect of excluding, restricting or modifying: (a) the application of all or any of the provisions of this Division; (b) the exercise of a right conferred by such a provision; (c) any liability of the corporation for breach of a condition or warranty implied by such a provision; or (d) the application of section 75A; is void."

Taken together, ss 52 and 8 manifest a legislative intent not only that there should be no power to contract out of the provisions of the Act, but also that the regime established by the Act should be respected as regards contracts the proper law of which is, or but for selection of another law would be, that of a State or Territory. This defeats evasion of the legislative regime by the choice of some other body of law as the governing law of the contract. "In the language of conflict-of-laws specialists, the policy of [this statute] has been made part of [Australian] ordre public interne and ordre public international" [23] .

Unger, Use and Abuse of Statutes in the Conflict of Laws, Law Quarterly Review, vol 83 (1967) 427, at p 431.

The material which may be considered in the interpretation of the Act includes the Report [24] . This is important in construing s 8 of the Act because the Report identifies the scope and purpose of that provision. Appended to the Report was a draft Insurance Contracts Bill. Clause 9 of this was relevantly in the same terms as s 8 of the Act. In the notes to cl 9 of the draft Bill, the Law Reform Commission stated [25] :

This and the next clause determine the application of the draft Bill. This clause provides that the contracts to which the draft Bill applies include all contracts the proper law of which is the law of a State or Territory. The normal rules of private international law will determine what the proper law of any particular contract of insurance will be. However, Australian courts will not be permitted to take into account, in determining what the proper law of a contract of insurance is, provisions included in the contract (or in a related contract) that specify that the proper law is some foreign law. This is to avoid circumventing the Act. 1. Acts Interpretation Act 1901 Cth, s 15AB(2)(b). 2. Australia, Law Reform Commission, Insurance Contracts, Report No 20 (1982) at p 280.

Accordingly, the Act was designed to select as the connecting factor or criterion for its operation upon any given contract of insurance (outside the categories in s 9) a particular characteristic thereof, namely the presence of the law of a State or a Territory as the proper law. No difficulty would arise with this legislative design where, viewed objectively, the proper law was that with which the contract had its closest and most real connection.

However, the use of the proper law as the criterion of operation might, in a particular case, lead to circumvention of the remedial provisions of the Act. The terms of the contract itself might manifest the selection by the parties of some other law as the proper law. The Act rejects that choice. There are to be disregarded for this purpose provisions which would effect a selection as the proper law of a law not being the law of a State or Territory with which the contract had its closest and most real connection. The phrase "closest and most real connection" is drawn from the well-known statement by Lord Simonds in giving the decision of the Privy Council, on appeal from this Court, in Bonython v The Commonwealth [26] . It encapsulates a significant element in the "normal rules of private international law" referred to by the Law Reform Commission and is identified with the "objective test" for ascertainment of the proper law of the contract.

(1950) 81 CLR 486 at 498; [1951] AC 201 at 219. There is critical discussion of its lack of "conceptual content" by Barnard, Choice of Law in International Contracts - The Objective Proper Law Reconsidered, New Zealand Business Law Quarterly, vol 2 (1996) 27, at pp 38-44. The term "most real connection" was coined by Westlake in A Treatise on Private International Law (1880), s201, to identify "the truest seat of the transaction in question" and in preference to the lex loci contractus.

In this way, the legislature sought to respond to deficiencies otherwise inherent in the statutory selection of the proper law as the criterion for operation of a remedial law. Other criteria might have been selected. For example, in Freehold Land Investments Ltd v Queensland Estates Pty Ltd [27] , this Court held that the licensing requirements imposed by the Auctioneers, Real Estate Agents, Debt Collectors and Motor Dealers Acts 1922 Q operated only in respect of persons who in Queensland acted in the way described in the statute. In particular, the application of the Act was not determined by the selection of Hong Kong law as the governing law of the agency contract. Menzies J put the point as follows [28] :

The Act clearly enough is not concerned with what is done outside Queensland, even if it be done in accordance with a contract the proper law of which is the law of Queensland. On the other hand, whatever may be the proper law of an agency contract, the Act applies to a person who acts as, or carries on the business, of a real estate agent in Queensland and a Queensland court would give effect to it

The critical question is did the claimant, in doing what it did pursuant to its agency contract with the owner, act as, or carry on the business of a real estate agent in Queensland?

(1970) 123 CLR 418. 2. Freehold Land Investments (1970) 123 CLR 418 at 425. Nothing turns, for present purposes, upon the circumstance that, upon other issues, this was a dissenting judgment.

The adverse consequences for the attainment of the policy pursued by an enacting legislature of the selection of the governing law of the contract as the localising factor or criterion of operation of that statute were recognised and explained by Kitto J in the following passage from Kay's Leasing Corporation Pty Ltd v Fletcher [29] . His Honour said:

Where a provision renders an agreement void for non-compliance by the parties or one of them with statutory requirements, especially where the requirements can be seen to embody a specific policy directed against practices which the legislature has deemed oppressive or unjust, a presumption that the agreements in contemplation are only those of which the law of the country is the proper law according to the rules of private international law has no apparent appropriateness to recommend it, and indeed, for a reason of special relevance here, it would produce a result which the legislature is not in the least likely to have intended. It would mean that provisions enacted as salutory reforms might be set at nought by the simple expedient adopted in the present case of inserting in an agreement a stipulation that validity should be a matter for the law of some other country. 1. (1964) 116 CLR 124 at 143. See also Boissevain v Weil [1950] AC 327 at 343-344, where the foreign exchange law in question was held to apply to British subjects wherever they might be and did not depend for its operation upon whether the proper law of the forbidden transaction was English or foreign.

It is to that concern that the relevant provisions of the Act are directed. The passage in the Report to which we have referred makes this plain. The terms of the Act evince a legislative scheme or purpose to accept as the localising or connecting factor with Australia the proper law of the contract of insurance, but only in a limited sense. That is to say, the Act is to extend to contracts the proper law of which is the law of a State or Territory, ascertained by the objective test. The proper law as so ascertained will engage the operation of the statute. That engagement is not broken or avoided by a choice by the parties of some other law as the governing law. No doubt that choice might remain effective for other purposes. But the application of the Act is not disturbed or displaced. It is the statute which "demands application in an [Australian] court irrespective of the identity of the lex causae" [30] .

Mann, Statutes and the Conflict of Laws, British Year Book of International Law, vol 46 (1972-1973) 117, at p 135. See also Nygh, The Reasonable Expectations of the Parties as a Guide to the Choice of Law in Contract and in Tort, Recueil des Cours, vol 251 (1995) 268, at p 386; Brilmayer, The Role of Substantive and Choice of Law Policies in the Formation and Application of Choice of Law Rules, Recueil des Cours, vol 252 (1995) 1, at pp 101-103.

The phrase, in s 8(2), "but for an express provision to the contrary" identifies that part of the logical universe (the normal common law rules of private international law as understood in Australia and which identify the proper law) which remains after allowance for the operation of the objective test to select the law of a State or a Territory. The words "express provision" in that phrase embrace those provisions of the contract from which, or by recourse to which, it would be determined that the parties to the contract had selected or chosen a proper law which was not the law of a State or a Territory. Notwithstanding those provisions, if, viewed objectively, the proper law of the contract under the normal rules of private international law as understood in Australia would be the law of a State or Territory, then s 8 operates to attract the application of the Act to the relevant contract of insurance.

Clause 9 of the Policy comprises two sentences, each of which performs a distinct function. These functions reflected what was identified by Lord Diplock in Cie Tunisienne de Navigation SA v Cie d'Armement Maritime SA [31] as being the liberty accorded by the common law to the parties to a contract to choose both the proper law and the curial law which are applicable to the contract. His Lordship went on to note [32] that it was possible for the parties to choose one system of law as the proper law of the contract and a different system of law as the curial law; they might wish their mutual rights and obligations under the contract to be ascertained by reference to the system of law of a country with which the transaction had some close and real connection but nevertheless consider the court or arbitral structure of another country to be such as to make it preferable to that of the country whose system of law they selected as the proper law.

[1971] AC 572 at 603. 2. Cie Tunisienne de Navigation SA v Cie d'Armement Maritime SA [1971] AC 572 at 604

Lord Diplock referred to cases where there had been an express choice of curial law but none as to the proper law applicable to the contract. His Lordship said that, in such instances, there may also be inferred an intention of the parties to exercise their right of selection of the proper law of the contract. The selection of a particular curial law would then supply an inference that the parties intended as the proper law the system of law of the country chosen by them as their forum [33] .

Lord Morris of Borth-y-Gest spoke to similar effect as Lord Diplock: Cie Tunisienne de Navigation SA v Cie d'Armement Maritime SA [1971] AC 572 at 590

If the reasoning of Lord Diplock be applied, then the expression of intention evinced in the second as well as the first sentence of cl 9 of the Policy would be significant in deciding whether the parties had selected a proper law which was not the law of a State or Territory. However, upon the construction we give to s 8, this expression of intention shown by both sentences of cl 9 is to be dismissed. Section 8 then presents the question whether, viewing the matter objectively, the law of a State or a Territory is that in which the Policy has "its natural seat or centre of gravity" [34] .

Cheshire and North, Private International Law, 11th ed (1987), p 450.

In answering that question, it is proper to have regard to a number of matters including the places of residence or business of the parties, the place of contracting, the place of performance, and the nature and subject matter of the contract [35] . We have referred to some of these matters earlier in these reasons. The Policy was the product of negotiations conducted by communications between Sydney and Singapore. But the Policy had no practical connection with Singapore except that the insurer happened to be a Singaporean company. The Policy had no factual connection at all with England. On the other hand, the risk was very substantially situated in New South Wales. The debts insured against arose from goods supplied by Akai to Norman Ross in Australia. By Endorsement No 1 to the Policy, the only countries covered under the Policy were identified as Australia and New Zealand. The maximum liability was stated in Australian currency, and this also was the "Policy Currency". In our view, the State of New South Wales contained the system of law with which the contract of insurance comprised in the Policy had the closest and most real connection. Accordingly, s 8 of the Act operated to render it applicable to the Policy.

cf In re United Railways of the Havana and Regla Warehouses Ltd [1960] Ch 52 at 91.

The next question which would arise would involve the significance of the express choice of curial law as that administered in the English courts for the application by People's Insurance for a stay of the New South Wales action commenced by Akai. In particular, the issue would be whether Akai should be held to its express choice of an English forum and whether any provision of the Act, particularly s 52, required or permitted a different result.

However, this is not the way in which the majority of the New South Wales Court of Appeal approached either branch of the case. As to the first, that concerned directly with s 8, the decision appears to have turned upon a narrow reading of the phrase "but for an express provision to the contrary" in s 8(2). Their Honours also approached the question of the nature and function of intention in discerning the proper law of the contract in a manner with which we respectfully disagree.

The Court of Appeal (as had the primary judge), rejected the submissions for Akai that each sentence of cl 9 in the Policy was "an express provision to the contrary" within the meaning of s 8(2) and that therefore the whole of cl 9 was to be ignored in determining the proper law of the contract. They also rejected the alternative submission that the second sentence was to be treated merely as one of a number of factors to be taken into account in determining that system of law with which the contract had its closest and most real connection and that that law was the law of New South Wales, with the result that the Act applied.

Sheller JA, with whom Meagher JA agreed, said [36] :

The phrase "an express provision to the contrary" [in s 8(2) of the Act] means an express provision that the proper law of the contract will be a law other than the law of a State or a Territory. The first sentence of [cl 9] is clearly such a provision. Despite the careful arguments of counsel for the appellant to my mind the second sentence equally clearly is not. The sentence says nothing expressly about what law will govern the contract. It says only that the forum for resolving any dispute arising from the policy shall be the Courts of England. His Honour also stated [37] : In essence Australian law accepts the right of the parties to choose the law by which their contract is to be governed. It follows that if that intention is expressed or can be inferred it will determine the result. As I have said, if the parties express this choice in a clause in the contract, ordinarily the court need look no further. If they do not so express their choice but their choice can be inferred from the terms of the contract or the circumstances of the case, for like reason that choice prevails. It is only if the court is unable by these means to discern what law the parties intended to be the proper law of a contract, so that their choice, if any, is unknown, that the court must determine it by resort to that system of law which has the closest and most real connection with the transaction. A clause in a contract referring disputes to the courts of a country is a persuasive indicator of the parties' intention that the law of that country be the proper law of the contract. Sheller JA concluded that, whilst the express choice of law represented by the first sentence of cl 9 was to be disregarded, that did not mean that, but for that provision, the proper law of the contract would be that of New South Wales, so that s 8 was satisfied and the Act applied. This was because, under the relevant common law rules for discerning the choice of proper law of a contract, which apparently were treated as controlling s 8, application of the "objective" test so as to select the law of New South Wales, would only be open after the taking of two prior steps to exclude other possibilities. The first step was the existence of what his Honour described as an express statement of the relevant intention of the contract. The second was the absence of any choice of forum clause (such as that found in the second sentence in cl 9) to provide a persuasive indicator that the parties intended the law of that forum to be the proper law of their contract. Sheller JA held that, upon its proper construction, s 8(2) provided for the disregarding of the first step but not the second step. In the present case, the second step, the presence of the choice of forum clause as an indicium of an intent to select as the governing law the lex fori, produced a result which foreclosed the taking of the third step, the application of the "objective" test. 1. Akai Pty Ltd v People's Insurance Co Ltd (1995) 126 FLR 204 at 224 2. Akai Pty Ltd v People's Insurance Co Ltd (1995) 126 FLR 204 at 225

We have expressed earlier in these reasons our conclusions as to the scope and purpose of the Act and, in particular, the end which s 8 was designed to achieve. We conclude that the phrase "but for an express provision to the contrary" in s 8(2) is not to be read as identifying only what in the texts and judgments often is called an express choice of law clause, of which the first sentence of cl 9 is an example. Such a reading would cause the section, and therefore the Act itself, to misfire by falling short of addressing the mischiefs which the legislation is designed to remedy.

There would be a twilight zone for contracts of insurance which had no express choice of law clause but from the provisions of which an express choice might be inferred. Of the cases in that zone, it could not be said, within the meaning of s 8(2), that the objectively selected proper law of a State or Territory would apply were it not for an express choice of law clause. Therefore, so it would transpire, the Act would not apply to the relevant contract of insurance.

This would be the result notwithstanding that, on this reasoning, the Act would have applied if, apart from the disregarded express choice of law clause, the contract of insurance contained no other provisions from which there might be inferred a choice of law by the parties. The presence in the contract of other indicia of a choice of law becomes the determinant for the denial of the application of the Act to the contract.

Further, if the relevant contract does contain an express choice in terms such as those in the first sentence of cl 9, there is an extreme artificiality in first, as required by the statute, disregarding that express choice, and then proceeding by analysis of other provisions in the contract to infer the making by the parties of a choice of governing law. Ordinarily, the contract would be construed as a whole. Here, the critical provision with a direct statement of choice is extracted and an artificial inquiry then made as to whether there may be inferred from the balance an intention to do what the parties in fact did in the very provision which has been disregarded.

The interpretation of s 8 which we favour has thus the double advantage of permitting reason to retain her seat without rising to perform, in the phrase of Lord Wilberforce, "a remarkable acrobatic" [38] , and of giving effect to the remedial purpose of the Act.

Cie Tunisienne de Navigation SA v Cie d'Armement Maritime SA [1971] AC 572 at 595

However, it should be said both that the path chosen by the majority of the Court of Appeal was influenced by a classification stated in some texts and decisions to supply the methodology employed in ascertaining choice of law, and that this methodology requires some qualification. There is said to be a tripartite hierarchy of express, inferred and objective choice of law [39] .

Dicey and Morris on the Conflict of Laws, 11th ed (1987), vol 2, pp 1161-1162; Cheshire and North, Private International Law, 11th ed (1987), pp 457-461; Sykes and Pryles, Australian Private International Law, 3rd ed (1991), pp 600-611; and see what was said by the New South Wales Court of Appeal in US Surgical Corporation v Hospital Products [1983] 2 NSWLR 157 at 189-190

This has been criticised, but on the footing that the second category, "inferred choice", is really no choice at all and that there should be but two categories, "express choice" and "no choice" [40] . However, the better view is that the first and second categories are but species of the one genus, that concerned with giving effect to the intention of the parties.

North, Private International Law Problems in Common Law Jurisdictions (1993), pp 105-106.

In Amin Rasheed Shipping Corporation v Kuwait Insurance Co [41] , Lord Diplock referred to what he described as the "pithy definition" of the "proper law" of the contract by Lord Simonds in Bonython v The Commonwealth [42] , namely, "the system of law by reference to which the contract was made or that with which the transaction has its closest and most real connection". Lord Diplock continued [43] :

It may be worth while pointing out that the "or" in this quotation is disjunctive, as is apparent from the fact that Lord Simonds goes on immediately to speak of "the consideration of the latter question ". If it is apparent from the terms of the contract itself that the parties intended it to be interpreted by reference to a particular system of law, their intention will prevail and the latter question as to the system of law with which, in the view of the court, the transaction to which the contract relates would, but for such intention of the parties have had the closest and most real connection, does not arise. It will be noted that his Lordship spoke (and, with respect, accurately) of ascertaining an intention of the parties from the terms of the contract. In approaching that task, as Lord Diplock earlier had pointed out [44] , the court applies the ordinary rules of the common law relating to the construction of contracts. That requires consideration of the terms and nature of the contract and "the general circumstances of the case" [45] in the sense explained, with reference to contractual construction, by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW [46] . 1. [1984] AC 50 at 61. 2. (1950) 81 CLR 486 at 498; [1951] AC 201 at 219. 3. Amin Rasheed Corporation [1984] AC 50 at 61. 4. Cie Tunisienne de Navigation SA v Cie d'Armement Maritime SA [1971] AC 572 at 603 5. The phrase used by Lord Wilberforce in Cie Tunisienne de Navigation SA v Cie d'Armement Maritime SA [1971] AC 572 at 595 6. (1982) 149 CLR 337 at 347-353.

What is involved in inquiring whether the parties have exercised their liberty to select a governing law is the ascertainment of that which, in truth, the parties are to be taken to have agreed. This may be discerned from a direct statement in a formal written contract. On the other hand, or even in such a case of a formal written contract, it may be necessary to construe the contract as a whole in the manner we have described. In addition, there may be real difficulty in ascertaining, by the drawing of inferences from the evidence, the existence of the express terms of the contract. The terms of the contract may be something to be gleaned from a number of documents, conversations or business dealings over a period of time [47] .

See, eg, Thompson & Morgan (UK) Ltd v Erica Vale Australia Pty Ltd (1995) 31 IPR 335 at 344-346

It is not a question of implying a term as to choice of law. Rather it is one of whether, upon the construction of the contract and by the permissible means of construction, the court properly may infer that the parties intended their contract to be governed by reference to a particular system of law. It is in this way that a submission, in the contract, to the exclusive jurisdiction of the tribunals of a particular country, may be taken as an indication of the intention of the parties that the law of that country is to be the proper law of the contract [48] . There is, in truth, only one question here, and that is whether, upon the proper construction of the contract (which may include an expression of choice in direct language), the court properly may conclude that the parties exercised liberty given by the common law to choose a governing law for their contract. If the answer to this is in the negative, then the law itself will select a proper law.

Cie Tunisienne de Navigation SA v Cie d'Armement Maritime SA [1971] AC 572 Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197 at 224-225

References to a "three-tiered approach", with the creation of a conceptual rather than merely evidentiary distinction between an expression of intention derived from the very words used and that which appears upon a proper construction of the contract as a whole, serves needlessly to complicate matters. It complicated, in our view fatally, the construction given in the courts below to s 8 of the Act.

Another source of difficulty with the reasoning of the majority of the Court of Appeal lies in a particular accommodation required between common law and statute. This accommodation is required by the employment in s 8 of the Act of principles drawn from the common law rules of choice of law in contract as understood in Australia to provide a criterion to limit what otherwise would be apparently an unconfined imposition of the Act's remedial regime upon contracts of insurance. To this aspect of the matter we now turn.

No question arises as to the reach of the legislative power as to insurance contained in s 51(xiv) of the Constitution. But, in the absence of a provision such as that in s 8, there would be a question of construction of the Act given the generality of the expression "contract of insurance". A statute which modifies or renders void what otherwise would be contractual rights and obligations may have, on its face, an apparent universality in operation but yet be read as not applying to contracts lacking connection with Australia [49] .

See Meyer Heine Pty Ltd v China Navigation Co Ltd (1966) 115 CLR 10 at 22-23, 30-31, 38, 43; Mann, Statutes and the Conflict of Laws, British Year Book of International Law, vol 46 (1972-1973) 117, at pp 127-129.

A situation conceptually distinct from that in this case arises where the statute in question before an Australian court is a foreign law [50] . Then the question will be whether, subject to any local law which qualifies what otherwise would be the applicable common law principles of choice of law, the common law rules in the Australian forum pick up the foreign statute as part of the lex causae by the application of which the dispute is to be resolved by the Australian court.

Federal considerations arising where the statute is the law of another State or of a Territory may be put to one side.

In the present case, the statute, a law of the Commonwealth, is a law directly in force in the New South Wales forum [51] . The question then is whether, according to its terms, the statute applies to the particular contract of insurance which is in issue. Where there is no expressed connecting factor, the issue becomes whether there is to be implied any restraint upon the apparently universal application of the law.

A law of the Commonwealth will apply by the paramount force indicated in covering cl 5 of the Constitution.

In some cases, particularly where the law creates a criminal offence, this has been achieved by treating the law as applying to acts and omissions taking place in the territory of the legislature [52] . In other instances, the identity of the proper law of the contract subjected to the statutory regime has been treated as of decisive importance. In Wanganui-Rangitikei Electric Power Board v Australian Mutual Provident Society [53] , Dixon J applied to the Interest Reduction Act 1931 NSW the presumption that, unless a contrary intention appears, statutory provisions are understood as having no application to matters governed by foreign law. His Honour said that, if the New South Wales statute were construed as extending to obligations having some other proper law, in no forum out of New South Wales would it be recognised as affecting them.

See, eg, Meyer Heine Pty Ltd v China Navigation Co Ltd (1966) 115 CLR 10 at 24-25, 31-33, 43; Goodwin v Jorgensen (1973) 128 CLR 374 at 383 2. (1934) 50 CLR 581 at 601.

In the present case, the statute in question is a law of the Commonwealth and there arise none of the problems as to extraterritorial operation which, at least in the past, have arisen in consideration of the laws made by the States. However, there has been an increasing recognition of the freedom of the parties to a contract to select the law to govern it, so that the proper law in such a case need not coincide with that which otherwise would be the law which, as an objective matter, has the closest and most real connection with the contract. This has had significant consequences for legislatures seeking to impose statutory regimes upon particular classes of contract. The legislature may wish to restrain what otherwise would be an apparently universal operation of its enactment.

So it was that Kitto J pointed out in the passage we have extracted from Kay's Leasing Corporation Pty Ltd v Fletcher [54] that the simple adoption as the criterion of operation for a remedial statute of the proper law of the contracts to be affected by it would give scope to evasion. And it is to this that s 8 of the Act is addressed, with its qualified application of proper law as the criterion of its operation.

There remains the question of the stay of the New South Wales action. This is to be determined on the footing that the Policy is a contract of insurance to which the Act does apply. There was no evidence before us as to the principles of law which would now be applied by the English courts were the action already instituted there to go ahead. In particular, it is not indicated whether the English courts would apply, as part of the lex causae, s 54 of the Act to limit the scope for absolute refusal by People's Insurance to honour the claim by Akai by reason of the alleged breaches by Akai [55] . This evidentiary hiatus is to be filled, in accordance with established principle, by treating the selection of the lex causae by the English courts as determined by the common law rules of choice of law as they are understood in this country [56] .

One may be permitted to know that the Contracts (Applicable Law) Act 1990 UK applies, with some qualifications indicated in s 2 of the statute, the Rome Convention by giving it the force of law in the United Kingdom. The interpretation of the choice of law provisions in the Rome Convention is presently a subject of debate in England; see North, Private International Law Problems in Common Law Jurisdictions (1993), pp 121-143; Collier, Conflict of Laws, 2nd ed (1994), pp 181-213. 2. Standard Bank of Canada v Wildey (1919) 19 SR(NSW) 384 at 388; Nygh, Conflict of Laws in Australia, 6th ed (1995), pp 266-267.

Questions of onus of disproof of the presumption may be involved [57] . Here, People's Insurance seeks to stay the New South Wales proceeding. It relies particularly upon the second sentence in cl 9 of the Policy as containing a contractual obligation by Akai to accept the English courts as the forum for the dispute.

BP Exploration Co (Libya) Ltd v Hunt [1980] 1 NSWLR 496 at 503

The express term is that any dispute arising from the Policy shall be referred to the courts of England. Of such a provision, Fullagar J in Compagnie des Messageries Maritimes v Wilson [58] said:

When parties to a contract say: - "All disputes between us shall be determined by such and such a tribunal", they are saying that, if a dispute arises between them, the claimant will seek a determination of it by the designated tribunal, and that the other party will not object to the jurisdiction of that tribunal. But they are also saying that, as between them, no other tribunal shall have jurisdiction to determine disputes. The stay in the present case was sought essentially in aid of such an implied negative stipulation that no other court have jurisdiction to determine disputes. This stipulation, which may be described as a foreign jurisdiction clause, does not operate to exclude the jurisdiction of the Supreme Court of New South Wales, although it may constitute a ground for that Court to refuse to exercise its jurisdiction [59] . 1. (1954) 94 CLR 577 at 587. 2. Compagnie des Messageries Maritimes v Wilson (1954) 94 CLR 577 at 586-587, 589; Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197 at 259

Akai responds to the application for the stay of the proceeding in New South Wales by asserting that s 54 of the Act confers upon it a legitimate juridical advantage in any forum in which the Act will be applied as part of the lex causae and that the Supreme Court of New South Wales is such a court. It would then be for People's Insurance to show that in truth enjoyment by Akai of a legitimate juridical advantage is not confined to the New South Wales court and that, in particular, s 54 would be applied as part of the lex causae in the English courts. That task People's Insurance did not attempt.

Accordingly, the matter is to be approached on the footing that (i) the English courts would apply as the lex causae the proper law, namely that of England, chosen in the first sentence of cl 9, and (ii) this would not include as a component any relevant provisions of the Act.

In Huddart Parker Ltd v The Ship Mill Hill [60] Dixon J referred with approval to English authority which indicated that, where there was a special contract of this nature between the parties, a foreign jurisdiction clause, the courts begin with a firm disposition in favour of maintaining that bargain unless strong reasons be adduced against a stay, it being the policy of the law that the parties who have made a contract should be kept to it [61] .

(1950) 81 CLR 502 at 508-509. 2. See also The Bremen v Zapata Off-Shore Co (1972) 407 US 1 at 12-14

A stay may be refused where the foreign jurisdiction clause offends the public policy of the forum whether evinced by statute or declared by judicial decision [62] . An example of an express statutory rejection of a foreign jurisdiction clause was provided by s 9(2) of the Sea-Carriage of Goods Act 1924 Cth. This stated:

Any stipulation or agreement, whether made in the Commonwealth or elsewhere, purporting to oust or lessen the jurisdiction of the Courts of the Commonwealth or of a State in respect of any bill of lading or document relating to the carriage of goods from any place outside Australia to any place in Australia shall be illegal, null and void, and of no effect. In Compagnie des Messageries Maritimes v Wilson [63] goods had been shipped from Dunkirk to Sydney under a bill of lading containing a condition that all legal actions arising out of its interpretation or performance were to be determined by one or other of certain specified French courts. The consignee brought an action in the Supreme Court of New South Wales against the ship owner for short delivery. It was held in this Court that the condition in the bill of lading was rendered void by s 9(2) of the statute, thereby leaving no basis for any order staying the New South Wales action. 1. The Bremen v Zapata Off-Shore Co (1972) 407 US 1 at 15-16 Becker, Forum Selection and Anglo-American Unity, International and Comparative Law Quarterly, vol 22 (1973) 329, at p 332; McLeod, The Conflict of Laws (1983), p 125. 2. (1954) 94 CLR 577.

A statutory provision in less direct, but nevertheless effective, terms was considered by the Federal Court of Canada in Agro Co of Canada Ltd v The Regal Scout [64] . Paragraph 8 of Art III of The Hague Rules, as found in the Schedule to the relevant Canadian statute [65] provided that any clause "relieving the carrier or the ship from liability for loss or damage to or in connection with goods arising from negligence, fault or failure in the duties and obligations provided in this Article or lessening such liability otherwise than as provided in these Rules, shall be null and void and of no effect". It was held that a clause in a bill of lading which gave exclusive jurisdiction to a foreign court was void on proof that the foreign court would not impose liability on the carrier for negligent loss of or damage to the cargo.

(1983) 148 DLR (3d) 412. 2. Carriage of Goods by Water Act, RSC 1970, c C-15.

A provision in the same terms in The Hague-Visby Rules (as contained in the Schedule to the Carriage of Goods by Sea Act 1971 UK) was construed to like effect by the House of Lords in The "Hollandia" [66] . Lord Diplock, with whose speech the other members of the House agreed, said [67] :

My Lords, it is, in my view, most consistent with the achievement of the purpose of the Act of 1971 that the time at which to ascertain whether a choice of forum clause will have an effect that is proscribed by Art III, par 8 should be when the condition subsequent is fulfilled and the carrier seeks to bring the clause into operation and to rely upon it. If the dispute is about duties and obligations of the carrier or ship that are referred to in that rule and it is established as a fact (either by evidence or as in the instant case by the common agreement of the parties) that the foreign court chosen as the exclusive forum would apply a domestic substantive law which would result in limiting the carrier's liability to a sum lower than that to which he would be entitled if the Hague-Visby Rules applied, then an English court is in my view commanded by the Act of 1971 to treat the choice of forum clause as of no effect. These decisions are indicative of the approach to be taken in construing s 52 of the Act, to which we return later in these reasons. 1. [1983] 1 AC 565. 2. The "Hollandia" [1983] 1 AC 565 at 575.

Before doing so, we note that considerations of public policy present in an Australian court may flow from, even if not expressly mandated by the terms of, the Constitution or statute in force in the Australian forum. Thus, the courts may disregard or refuse effect to contractual obligations which, whilst not directly contrary to any express or implied statutory prohibition, nevertheless contravene "the policy of the law" as discerned from a consideration of the scope and purpose of the particular statute [68] . The Parliament has made particular legislative provision in the case of certain contracts of insurance and, to that extent, there may be curtailed or qualified in an Australian court what otherwise would be the freedom to choose a forum in which the Act has no application.

Akai relies upon s 54 of the Act to respond to the denial of liability by People's Insurance. The question arises as to whether, upon an application to stay the exercise of its jurisdiction, a court constitutionally bound by all laws made by the Parliament (covering cl 5) should, or is required to, give decisive weight to the effective operation of the Act. The present application is to be dealt with on the footing that an English court would not apply the Act as part of the lex causae. The grant of a stay would involve the State court so exercising its discretion as to stay its process in favour of an action in a court where the statute would not be enforced. This stay would be granted on the basis that in so doing a contractual obligation would be implemented. But the policy of the Act, evinced by s 8, is against the use of private engagements to circumvent its remedial provisions. To grant a stay in the present case would be to prefer the private engagement to the binding effect upon the State court of the law of the Parliament. This indicates a strong reason against the exercise of the discretion in favour of a stay. The policy of the law and of the Constitution militates against a stay.

In the event, it is unnecessary to decide the case solely upon this basis. That is because the Act itself provides, in s 52, a direct answer. The text of s 52 is set out earlier in these reasons. The section operates to render void a provision of the Policy which would, but for s 52(1), have the effect of excluding, restricting or modifying, to the prejudice of Akai, the operation of the Act. The phrase "the operation of this Act" includes the operation, to the advantage of Akai, of s 54. In the Court of Appeal, Kirby P so held in his dissenting judgment [69] , and we agree. The reasoning in Agro Co of Canada Ltd v The Regal Scout [70] and in The Hollandia [71] , to which we have referred, supports that construction of s 52. Akai would be prejudiced, within the meaning of s 52, by the grant of a stay in order that People's Insurance might enforce the obligation to refer disputes arising from the Policy to the courts of England derived from the second sentence of cl 9 of the Policy. The stay would serve to exclude the operation of s 54 from the litigation. The consequence, in our view, is that the second sentence of cl 9 is rendered void by the Act.

Akai Pty Ltd v People's Insurance Co Ltd (1995) 126 FLR 204 at 225 2. (1983) 148 DLR (3d) 412. 3. [1983] 1 AC 565.

Accordingly, the application for stay has to be considered on the basis that there is no contractual obligation to refer disputes to any foreign court and that, to adapt a phrase of Lord Diplock in The "Hollandia" [72] , Akai was prima facie at liberty to avail itself of the right of access to the New South Wales court.

It is true that a writ has been issued in London out of the Commercial Court as the first step in an apparently undeveloped action. Nevertheless, the circumstances indicate an overwhelming balance of considerations favouring the taking of the matter to trial in the Supreme Court of New South Wales, rather than in the Commercial Court in London.

The result is that the appeal should be allowed. The orders of the New South Wales Court of Appeal should be set aside. In place thereof it should be ordered that the orders of the Commercial Division entered 21 April 1994 be set aside and the motion by People's Insurance filed 21 June 1993 be dismissed. People's Insurance should pay the costs of Akai of the appeal to this Court and of the Court of Appeal and also Akai's costs of the motion in the Commercial Division of the Supreme Court.

At a glance

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Before

Source

Judgment (138 paragraphs)

Parties

Cases Cited (16)