Armacel Pty Limited v Smurfit Stone Container Corporation [2008] FCA 592 | Case summary

REASONS FOR JUDGMENT Introduction 1 Smurfit Stone Container Corporation seeks an order under O 9 r 7 of the Federal Court Rules discharging an order made on 7 November 2007 giving leave to Armacel Pty Limited to serve originating process on Smurfit in the United States. 2 Alternatively, Smurfit seeks a stay of this proceeding on the ground that the Federal Court is a clearly inappropriate forum in accordance with the principles stated by the High Court in Voth v Manildra Flour Mills Proprietary Limited (1990) 171 CLR 538 and Henry v Henry (1996) 185 CLR 571. 3 The proceeding arises out of a Technology Licence Agreement dated 28 October 2004 between Armacel and Smurfit and the negotiations which preceded the Agreement. Armacel is an Australian company which owns the intellectual property rights to an industrial process that uses pressure impact forging to produce strong plastic film-coated products that are used in a range of industries. Armacel licensed Smurfit to use the technology in the United States under the terms of the Agreement. 4 By its Application and Statement of Claim filed on 7 November 2007 Armacel claims damages under s 82 of the Trade Practices Act 1974 (Cth) and damages for breach of contract. Armacel's claim under the Trade Practices Act alleges that Smurfit made a number of pre-contractual representations on which Armacel relied in entering into the Agreement. The claim for breach of contract alleges that Smurfit breached the terms of the Agreement inter alia by disconnecting the Armacel equipment which was the subject of the Agreement and failing to use its best endeavours to exploit the technology. 5 However, on 5 October 2007, one month before Armacel filed its Application in this Court, Smurfit commenced proceedings in the United States District Court for the Middle District of Pennsylvania. In those proceedings Smurfit seeks negative declaratory relief that it has no remaining obligations under the Agreement, other than the payment of certain monthly instalments and the return of Armacel's equipment. 6 On 27 December 2007 the US District Court dismissed a motion brought by Armacel for the dismissal of the proceeding on the ground of want of jurisdiction. In doing so, the District Court rejected Armacel's contention that cl 21.3.1 of the Agreement is an exclusive jurisdiction clause under which Smurfit agreed to submit to the exclusive jurisdiction of New South Wales. Instead, the District Court held that the clause provided for the selection of New South Wales as a non-exclusive forum. 7 The question of whether cl 21.3.1 is an exclusive jurisdiction clause, and the effect of the decision of the District Court that New South Wales is a non-exclusive forum, are at the heart of the issues that arise on Smurfit's motion. Those two questions, and the current state of the proceeding in the US District Court, are also central to a motion brought by Armacel for an anti-suit injunction to restrain Smurfit from continuing with the proceeding in the US District Court. The Issues 8 Five essential issues arise on the Notices of Motion. The first issue is whether Armacel has made out a prima facie case with respect with respect to its trade practices claims, as required by O 8 r 3(2)(c) of the Federal Court Rules. 9 Smurfit relies upon a analysis of the claims set out in a number of the paragraphs of the Statement of Claim to make good its contention that no prima facie case has been demonstrated. 10 The effect of Smurfit's submission on the first issue is that, no prima facie case having been established under the Trade Practices Act, the claim for breach of contract does not fall within the accrued jurisdiction of the Court under the principles stated in Fencott v Muller (1983) 152 CLR 570 at 608-609. 11 The second issue is whether the decision of the US District Court was final and conclusive and "on the merits", so as to give rise to an issue estoppel precluding Armacel from contending that cl 21.3.1 is an exclusive jurisdiction clause. 12 The third issue is the proper construction of cl 21.3.1. That is to say, the question is whether that clause provides for the exclusive jurisdiction of New South Wales. Also falling within this issue is the subsidiary question of whether a submission to the jurisdiction of New South Wales is a submission to the jurisdiction of the New South Wales Registry of the Federal Court. Senior Counsel for Smurfit submits that it is not. This issue only arises if Armacel is not bound by an issue estoppel. 13 The fourth issue, which only arises if I am satisfied that the jurisdiction of New South Wales is non-exclusive and that Armacel is not bound by an issue estoppel, is whether this Court is a clearly inappropriate forum, ie. whether this proceeding is vexatious or oppressive in the strict sense: Voth at 564-565; Henry v Henry at 587, 591-592. 14 This issue includes the question of whether the Trade Practices Act claim is amenable to the jurisdiction of the US District Court, the stage which the proceedings have reached, and the nature of the proceedings. 15 Smurfit submits that, in substance, the proceedings raise a live dispute about a contract made in the United States, to be performed wholly within the United States so that the true subject matter of the Agreement is American in nature. 16 Smurfit also submits that, seen in this light, and having regard to the modern approach to the use of negative declarations is transnational litigation, the Court should find that the US District Court proceeding is consistent with the purpose of ensuring that the aims of justice are achieved: Messier Dowty Ltd v Sabena SA [2000] 1 Lloyd's Rep 428 at [34]ff. 17 The fifth issue is, whether in the event that Smurfit is unsuccessful on its motion, I ought to grant Armacel's motion for an anti-suit injunction. The principal question which arises under this issue is the stage that the US District Court proceeding has reached and whether to restrain it: …would be not only invidious but the reverse of comity: Aggeliki Charis Compania Maritima SA v Pagnan SpA ("the Angelic Grace") [1995] 1 Lloyd's Rep 87 at 95. The Negotiations 18 In early 2004 a representative of Smurfit made contact with Armacel in an email requesting information about Armacel's technology. At that time, Mr Frank Matich of Armacel was in discussion with a number of other American companies that were interested in licensing the technology. 19 The background to Armacel's discussions with potential American licensees appears to be that in late 2003 it won an award from an American association as technology innovator of the year in the United States. Details were published in various magazines and journals, as a result of which Armacel received enquiries from countries in North and South America for the exploitation of the technology. 20 The negotiations between Armacel and Smurfit took place over a number of months between March 2004 and October 2004 All the face-to-face meetings between the parties were held in the United States but there were communications between the parties over the telephone and by way of email between Australia and the USA. 21 The Statement of Claim alleges that representatives of Smurfit made four misrepresentations in the pre-contractual meetings. I will refer to the alleged misrepresentations later. Evidence of the conversations which are said to have taken place and of the emails are to be found, principally, in the affidavit of Mr F Matich sworn 15 February 2008. The Agreement 22 The Agreement was signed on or about 28 October 2004 by Armacel, and, several weeks later, by Smurfit. It would appear that the Agreement was signed by Smurfit in the United States. 23 Clause 2 of the Agreement provided that Armacel granted to Smurfit a non-exclusive licence to use Armacel's Technology, as defined in the Agreement, exclusively with certain Licensed Equipment, consisting of an Armacel machine to be used for the manufacture of the licensed products. The Licensed Equipment was to be located at Smurfit's facility at Jersey Shore, Pennsylvania. 24 The term of the Agreement was for a period of five years: cl 2.4. The consideration consisted of the payment of a Licence Fee and a Royalty. The Licence Fee was an amount of $US250,000 on signing the Agreement and $US5,500 per month for the 60 month term of the Agreement. 25 The Royalty was 5% of the wholesale value of the approved and/or endorsed products manufactured by Smurfit. There was no minimum royalty payable under the Agreement: cll 3 and 4. 26 Clause 7.8 provided that Smurfit would ensure that the equipment was electronically linked to Armacel at all times. Denial of remote access to the equipment constituted a breach which entitled Armacel to terminate the Agreement: cl 7.9. Upon termination, Smurfit was bound to return the equipment to Armacel: cl 7.14. 27 Clause 10 provided that Smurfit, at its own expense, was required to use reasonable effort to commercialise and exploit the technology and to manufacture, have manufactured, use, market and sell the products. 28 Clause 21.1 provided that the Agreement embodied all the terms binding between the parties and that it replaced all previous representations not embodied in the Agreement. 29 Clause 21.3 contained the sub-heading "Applicable law". The clause was in the following terms: 21.3.1 This Agreement must be read and construed according to the laws of the State of New South Wales, Australia and the parties submit to the jurisdiction of that State. If any dispute arises between the Licensor and the Licensee in connection with this Agreement or the Technology, the parties will attempt to mediate the dispute in Sydney, Australia. 21.3.2 In the event that there is a conflict between the laws of the State of New South Wales, Australia and the jurisdiction in which the Equipment is located, then the parties agree that the laws of the State of New South Wales shall prevail. 21.3.3 If the licensee is in breach of this Agreement, the Licensee must pay to the Licensor on demand the amount of any legal costs and expenses incurred by the Licensor for the enforcement of its rights under this Agreement and this provision shall prevail despite any order for costs made by any Court. 30 Clause 22 was headed "market opportunity". It provided that Armacel would not establish a competitor facility in the same geographic location as the Jersey Shore Facility and that it would not provide its technology to other nominated companies. 31 Clause 22.2 went on to provide that this "market opportunity" was granted to provide adequate time for Armacel and Smurfit to enter into and conclude discussions in relation to the expansion of the Armacel technology throughout the Smurfit Stone group in North America. The Statement of Claim 32 The representations on which Armacel is said to have relied in entering into the Agreement are pleaded in [12], [15], [18] and [21] of the Statement of Claim. I will briefly describe the pleaded representations but I do not propose to set out the particulars given in the Statement of Claim. 33 The first representation is called the Expansion Representation. It is that Smurfit represented that if provided with a licence for the technology and an Armacel Integrator Series 16B machine, Smurfit: …would expand its use of the Technology beyond one machine and beyond one site and enter into additional licences for the Technology. 34 The second representation is called the Exploitation Representation. It is that if provided with a licence and a machine, Smurfit would market and make use of the technology and use the machine to exploit the technology. 35 The third representation is called the Relocation Representation. It is that if Smurfit were provided with a licence and a machine: · the Jersey Shore facility was only a temporary location for the machine; · the machine would be relocated, within a short period, to a new location at Jersey Shore and operated there; · the new location would be a 'clean room' environment. 36 The fourth representation is called the Jurisdictional Representation. It is that Smurfit represented to Armacel that any dispute concerning the Agreement would be litigated in Australia. 37 The Statement of Claim goes on to allege reliance on the representations in entering into the Agreement, breaches of the Agreement and contraventions of the Trade Practices Act by reason of the absence of reasonable grounds for making the representations. 38 Three breaches of the Agreement are alleged in [45]-[58] of the Statement of Claim. They are, default in payment of the monthly licence fee, disconnection of access to the machine and failure to use reasonable endeavours to exploit the technology. 39 Three further breaches of the Agreement are alleged in [77] to [79] and [87]. They are commencement of the proceedings in the US District Court in breach of the exclusive jurisdiction clause, failure to mediate in Sydney in accordance with cl 21.3.1 of the Agreement and failure to return the machine to Armacel. 40 Armacel claims damages for breach of contract consisting of the outstanding monthly licence fees and loss of revenue from royalties, including lost opportunities with potential customers. 41 The claim for damages under s 82 of the Trade Practices Act consists of much the same items of loss as those claimed for breach of contract. 42 Armacel has not quantified by way of particulars the damages which it alleges it has suffered (although no written request for particulars has been made in these proceedings). However, Senior Counsel for Armacel has undertaken to provide particulars of the quantum. Prima facie case 43 In an application to set aside service under O 9 r 7, the Court conducts, by way of a re-hearing, a review of the original decision to grant leave to serve the originating process out of the jurisdiction: Bray v F Hoffman-La Roche Ltd (2003) 130 FCR 317. 44 The rehearing is conducted on the basis that the respondent should have the opportunity to put before the Court any additional material which may suggest that leave ought not to have been granted under O 8 r 3: Bray at [53]; Clough v Oil & Natural Gas Corporation Ltd [No 3] [2007] FCA 2082 at [12]. 45 The onus remains on an applicant to satisfy the Court in light of the additional materials, facts and arguments that leave ought to have been granted: Voth at 564; Clough at [12]. 46 The Court should not grant leave unless it is positively persuaded that it should do so: Voth at 564. However, the threshold is not high. The Court is not required to trawl through the material to determine the strength of the case. Rather, the Court's task is to determine whether the material presented shows that a controversy exists which warrants the use of the Court's processes in respect of litigation that brings a foreign respondent before an Australian court: Merpro Montassa Limited v Conoco Specialty Products Inc (1991) 28 FCR 387 at 390; State of Western Australia v Vetter Trittler Pty Ltd (In Liq) (1991) 30 FCR 102 at 109-110; Century Insurance Limited (In Prov Liq) v NZ Guardian Trust Limited (unreported, FCA, Lee J, 16 May 1996); Clough at [13]-[14]. 47 Senior counsel for Smurfit made a substantial attack on the representations pleaded by Armacel in [12], [15], [18] and [21] of the Statement of Claim. Ordinarily, this would have been beyond the ambit of what is contemplated by the authorities referred to above. However, here there is some substance in the defects to which Dr Bell referred. 48 Without descending into an analysis of each of the paragraphs, it is sufficient to say that the defects include oral representations made in the United States by Smurfit which would not, in themselves, be amenable to the jurisdiction of the Trade Practices Act, written communications which post-date the Agreement and communications which, when viewed in light of the affidavit evidence may not support the pleaded representations. 49 Nevertheless, I am satisfied that the Trade Practice Act claim is not "colourable" in the sense referred to in Burgundy Royale Investments Pty Ltd v Westpac Banking Corporation (1987) 18 FCR 212 at 219. Ultimately, Dr Bell conceded that this was so. 50 Nor am I satisfied that the Trade Practices Act claims are "trivial or insubstantial" in their relationship to the overall controversy: Fencott v Muller at 609; Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564 at 597-599. 51 In my view the evidence in [9], [10], [14], [26] and [27] of the affidavit of Mr Matich sworn 15 February 2008 is sufficient to establish the existence of a justiciable controversy with respect to the making of the expansion representation, the exploitation representation and the jurisdictional representation. The evidence supports the claim that these representations were made by email or telephone communications. 52 I accept that at a final hearing, reliance upon these representations may not be made out having regard to the "entire agreement" clause contained in cl 21.1 of the Agreement: Leda Holdings Pty Limited v Oraka Pty Limited (1997) ATPR 41-601 at [40,517]-[40,518]; see also Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd [(2005) 220 ALR 211 at [75]-[76], [81]; and see Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 211 ALR 101 at [35]. 53 I also accept that it is entirely possible that at the final hearing the alleged representations will add little if anything to the claim for breach of contract: see Apscore International Pty Ltd v Grand Canyon Technologies Pty Ltd [1996] FCA 1089. 54 However, the short answer to these submissions is to be found in Dr Bell's concession that the trade practicesclaim is not colourable. It follows from this that the Court has subject matter jurisdiction over the trade practices claim which has more than a trivial connection with the overall controversy. That is sufficient to warrant the grant of leave under O 8 r 3. The motion to set aside service thus ought to be refused. 55 Whether there ought to be a stay depends upon the answers to the remaining questions. Issue Estoppel 56 The High Court has adopted the formulation of Lord Guest in Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 2) [1967] 1 AC 853 at 935, of three requirements for the creation of an issue estoppel: Kuligowski v Metrobus (2004) 220 CLR 363 at [21]. The requirements are: first, that the same question has been decided; second, that the decision was final; and third, that it was in proceedings between the same parties or their privies. 57 Here, the third requirement is satisfied but there is a dispute as to whether the decision of the US District Court refusing to grant a stay (because of its finding that cl 21.3.1 was non-exclusive) satisfies the first and second conditions. 58 The first requirement draws attention to the need to identify with precision the issue which was necessarily decided in the earlier proceeding to see whether it is identical with an issue sought to be raised in the later proceeding: Blair v Curran (1939) 62 CLR 464 at 531; Makhoul v Barnes (1995) 60 FCR 572 at 579. 59 The observations of Dixon J in Blair v Curran at 531 make it plain that the question which is the subject of the first requirement may be one of fact or law. 60 The second requirement may be satisfied even if the earlier judgment is interlocutory: Castillon v P&O Ports Ltd [2007] QCA 364 at [49]ff. The requirement of finality has been broken down into two separate conditions, namely that the decision must be "final and conclusive" and "on the merits": The Sennar (No 2) [1985] 1 WLR 490 (HL) at 499. 61 Lord Brandon explained the meaning of "on the merits" in The Sennar (No 2) at 499 as follows: …a decision on the merits is a decision which establishes certain facts as proved or not in dispute; states what are the relevant principles of law applicable to such facts; and expresses a conclusion with regard to the effect of applying those principles to the factual situation concerned. 62 This passage from Lord Brandon's speech was referred to with apparent approval in Schnabel v Lui [2002] NSWSC 15 at [112]; Castillon v P&O Ports Ltd at [54]; and Prestige Property Services Pty Ltd v Madzoski [2008] WASCA 58 at [66]. 63 The need for caution in the application of the doctrine of issue estoppel is well established, especially where the estoppel is said to arise from a judgment of a foreign court, and in an interlocutory context: The Sennar (HL) at 500; Castillon v P&O Ports at [55]; Desert Sun Loan Corp v Hill [1996] 2 All ER 847 at 858. 64 Nevertheless, in Desert Sun Loan, Evans LJ stated at 858 that an issue estoppel can arise from an interlocutory judgment of a foreign court on a procedural issue where there has been an express submission of the procedural or jurisdictional issue to the foreign court and the specific issue of fact has been raised and decided by that court. 65 The Sennar is also authority for that proposition as was accepted by Holmes JA in Castillon v P&O Ports at [54]. 66 Having approached the present matter with what, I hope, is the requisite degree of caution, I have come to the view that the present case is indistinguishable from The Sennar and that, accordingly, Armacel is barred by an issue estoppel from contending that cl 21.3.1 is an exclusive jurisdiction clause. In coming to this view, I have considered the decisions of the House of Lords, and the Court of Appeal in that case. The Court of Appeal decision is cited as "The Sennar" (No 2) [1984] 2 Lloyd's Rep 142. 67 It seems to me that the reasons for judgment of Kerr LJ and Sir Denys Buckley (Cumming-Bruce LJ concurring) make it clear that it is not possible to avoid the consequence of issue estoppel by simply re-characterising the issue as one which is sought to be litigated in accordance with the law of a different jurisdiction. 68 As Kerr LJ said at 149, it was not open to the plaintiffs to say, simply: What we seek to litigate here are issues under English law, and it does not matter that we litigated precisely the same issues under other systems of law in Holland. 69 The facts of The Sennar are of some importance. The plaintiffs, who were the holders of a bill of lading, invoked the jurisdiction of a Dutch Court by arresting a sister ship of The Sennar in Rotterdam. They brought an action for damages in the Dutch Court which held that their only cause of action lay in contract and that the Dutch court was bound to decline jurisdiction because the contract contained a clause under which the parties submitted to the exclusive jurisdiction of the Court of Sudan. 70 The plaintiffs then began an action in the Admiralty Court of England. However, although they succeeded on the jurisdictional question at first instance, the Court of Appeal held that they were barred from suing in the English Court by reason of an issue estoppel arising from the determination of the Dutch Court as to the construction and effect of the exclusive jurisdiction clause. 71 Kerr LJ observed at 148 that the classification of the plaintiffs' claim, as a matter of private international law, fell to be decided by Sudanese law as the proper law of the bill of lading. He said at 149 that by applying Sudanese law, the Dutch Court of Appeal had adopted the correct approach under the English rules of private international law. 72 However, as I have said, Kerr LJ at 149 also rejected the proposition that it was open to the plaintiffs to seek to re-litigate under English law the same issue that had been litigated under other systems of law in Holland. 73 His Lordship observed at 150 that to accept this proposition would altogether remove the possibility of an issue estoppel arising "from any decision by any Court" on the jurisdiction clause. It would permit uncontrolled forum shopping and run directly counter to the policy behind the doctrine of issue estoppel. 74 Sir Denys Buckley's analysis was to the same effect. He said at 159 that the Dutch Court answered the question by reference to Dutch law, except insofar as it paid attention to Sudanese law; an English court must answer the question by reference to English law except insofar as Sudanese law would be applied. He continued: This does not, however, mean that the question for decision is not the same in each jurisdiction. 75 In the House of Lords, Lord Diplock at 494 rejected the submission that all the Dutch Court had done was to hold that it had no jurisdiction over the plaintiffs' claim so as not to fall within the category of a judgment on the merits. His Lordship observed that this is to confuse cause of action estoppel with issue estoppel. 76 Lord Brandon at 499 rejected the contention that the judgment of the Dutch Court of Appeal was procedural in nature and could not give rise to a judgment on the merits. His Lordship explained the meaning of that term in the way that I have set out above at [61]. 77 In the present case, the US District Court applied the law of the United States, as the law of the forum, in accordance with American rules of private international law. It did not apply the laws of New South Wales as the proper law of the contract. In this respect it might be thought that the present proceeding is distinguishable on the facts from The Sennar where the Dutch Court had regard to Sudanese law as the proper law of the contract. 78 Nevertheless, to seek to distinguish The Sennar in that way would be to do precisely what Kerr LJ said was contrary to the basis upon which the principle of issue estoppel arises from the decision of a foreign court. I therefore reject Mr Street SC's contention that The Sennar is distinguishable upon the footing that the US District Court did not apply New South Wales law. 79 I also reject the other basis upon which Mr Street sought to distinguish The Sennar. This was that in The Sennar the judgment of the Dutch Court was final and on the merits in the sense that it could not be varied, re-opened or set aside: The Sennar (HL) per Lord Diplock at 494. 80 Mr Street submitted that in The Sennar,the judgment of the Dutch Court was final in that sense because the Dutch Court declined jurisdiction and dismissed the claim. Here he argued that the effect of the pleadings in the action in the US District Court was that the issue was kept alive until the final hearing. 81 But to accept this submission would be to say that the US District Court may reconsider at the final hearing an issue which it has already determined adversely to Armacel on the construction of the jurisdiction clause. I do not think that can be correct. 82 There may be some force in the proposition that the US District Court ought to have determined the construction of the jurisdiction clause in accordance with Australian law, being the law chosen by the parties as the governing law of the contract. However, as Lord Diplock pointed out in The Sennar (HL) at 493, if the issue has already been determined by a court of competent jurisdiction, issue estoppel operates regardless of whether the local court would regard the reasoning of the foreign judgment as open to criticism. The Jurisdiction Clause 83 The question of construction of cl 21.3.1 does not arise because of the view I have reached that Armacel is bound by an issue estoppel. Nevertheless, I will state my view briefly. 84 Whether a jurisdiction clause is an exclusive jurisdiction clause is a question of construction of the particular contract, having regard to the relevant surrounding circumstances as far as is permissible: FAI General Insurance Co Ltd v Ocean Marine Mutual Protection and Indemnity Association (1997) 41 NSWLR 117 at 126. 85 The principles to be applied in determining the contractual intention of the parties were stated by Giles CJ Comm Div in FAI at 126-127. The absence of the word "exclusive" is not determinative. Other language in the jurisdiction clause and the overall nature and effect of the contract are to be considered. 86 These principles reflect the ordinary rules of construction of contracts which are to be found in the observations of the High Court in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22], as reaffirmed in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40]. 87 It is true that a distinction exists between choice of law and submission to the jurisdiction so that the mere choice of New South Wales law does not automatically point toward submission to that jurisdiction: eg Contractors Ltd v MTE Control Gear Ltd [1964] SASR 47 at 49. 88 However, cl 21.3.1 falls to be construed against the background that this was a contract made between business people negotiating at arms' length who must be presumed to have intended some certainty as to where their disputes would be litigated. The relevant courts, ie the courts of New South Wales or, subject to what I say below, the Federal Court, would have jurisdiction by reason of the choice of law clause. The parties agreed to mediate in Sydney. It is therefore difficult to see why they would not have intended that all their disputes be resolved in New South Wales: Sohio Supply Co v Gatoil (USA) Inc [1989] 1 Lloyd's Rep 588 at 591-592, cited in FAI at 121-122 and 127. 89 Clause 21.3.1 indicates that the parties recognised that the laws of Pennsylvania may apply in some circumstances because of the location of the equipment in that State. However, it seems to me that the better view is that by providing for New South Wales law to prevail, the parties sought to avoid the difficulties of applying Pennsylvania law in a court sitting in New South Wales. 90 It follows that but for the issue estoppel, in my opinion cl 21.3.1 would have constituted an exclusive jurisdiction clause. 91 Whether it is a submission to the jurisdiction of the courts of New South Wales, rather than to the Federal Court in New South Walesis a question of construction of the clause. 92 The parties agreed to submit to the jurisdiction of New South Wales. They did not specify the courts of New South Wales but the ordinary meaning of the phrase "the jurisdiction of that State (ie NSW)" would seem to be to the courts of that State. The Federal Court is not vested with the jurisdiction of New South Wales. Rather, it has, and applies, federal jurisdiction. 93 Nevertheless, in certain circumstances the Federal Court picks up the laws of the States under s 79 of the Judiciary Act 1903 (Cth) in the exercise of federal jurisdiction: John Robertson & Co Ltd v Ferguson Transformers Pty Ltd (1973) 129 CLR 65 at 95. Thus, a matter heard in the New South Wales Registry of the Federal Court would pick up the rules of State law, at least in those instances in which the laws of New South Wales apply generally eg to matters of procedure. The federal jurisdiction also includes accrued jurisdiction over non-federal matters as referred to in Fencott v Muller. In addition, the Federal Court has jurisdiction in associated matters under s 32 of the Federal Court Act. 94 It seems to me therefore that the better view of the intention of the parties, considered objectively, is that they intended to submit to the jurisdiction not only of the courts of the State of New South Wales but also to the Federal Court, New South Wales Registry. This is because the Federal Court sitting in New South Wales is familiar with, regularly applies, and in some circumstances is bound to apply, the laws of New South Wales. Whether the Federal Court is a clearly inappropriate forum 95 It is prima facie vexatious and oppressive to commence a proceeding in an Australian court if another action is already pending between the same parties, raising the same issues in another country. The existence of simultaneous proceedings with respect to the same controversy is a highly relevant consideration but it does not necessarily follow that there should be a stay of the Australian proceedings: Henry v Henry at 591-592; CSR v Cigna at 389ff. 96 The test to be applied is whether having regard to the controversy as a whole, the Australian proceedings are vexatious or oppressive in the Voth sense: CSR v Cigna at 401. The considerations include which forum can provide more effectively for complete resolution of the matters in controversy, which proceeding was commenced first and the stage that each of the proceedings has reached: Henry v Henry at 592. 97 Plainly, the fact that the United States proceedings were first in point of time is a relevant consideration. Moreover, for the reasons referred to by Lord Woolf in Messier Dowty at [34]-[42], I do not consider that I should approach the question with an adverse pre-disposition to the claim for negative declaratory relief: Challenger Group Holdings Ltd v Concept Equity Pty Ltd [2005] NSWSC 374 at [42] - [43]. This issue in the US District Court is not hypothetical. Our courts should be slow to criticise the approach of the foreign court to the question of negative declaratory relief. It must be a matter of discretion in all the circumstances. Moreover, the US District Court has held that it does have jurisdiction and no point was raised in the Pennsylvania proceeding about negative declaratory relief. 98 The essential question which seems to me to arise is whether Armacel would be able to obtain the relief it seeks under the Trade Practices Act in the proceedings in the US District Court. This question turns substantially upon whether the District Court has "supplemental jurisdiction" over the trade practices claims under 28 USC s 1367. I will set out the text of that section as an annexure to my reasons for judgment. 99 Armacel has not counter-claimed in the US District Court proceedings but Rule 13 of the US Federal Rules of Civil Procedure provides that a pleading shall state as a counterclaim any claim which at the time of serving the pleading, the pleader has against an opposing party: … if it arises out of the transaction or occurrence that in the subject matter of the opposing party's claim … 100 Mr Smith, Smurfit's United States legal counsel in the US District Court proceedings, has provided evidence that Armacel will be able to bring the trade practices claim by way of counterclaim under Rule 13. Mr Smith has indicated to the US District Court that Smurfit would not challenge the Court's ability to hear the trade practices claims, although it would challenge the claims on their merits. 101 Mr Smith is also of the view that the trade practices claims are so related to the contract claims made by Smurfit that they form part of the same case or controversy so as to fall within the US District Court's supplemental jurisdiction under 28 USC s 1367. 102 Mr Smith conceded in cross-examination that the claim for negative declaratory relief made by Smurfit is limited to a claim under "the contract" and that it does not address any significant pre-contract conduct. He also accepted that there is no common set of facts identified in the US District Court proceedings that raises any claim of whether Smurfit engaged in misleading conduct prior to entering into the contract. 103 However, Mr Smith did not accept that there is a very real probability that the US District Court may hold that it should not exercise jurisdiction under 28 USC s 1367. He expressed this view upon the basis that the pre-contract claims made under the Trade Practices Act are "significantly related" to the contract claims so that the court would not "carve out" or refuse jurisdiction in respect of them. 104 Mr Smith agreed that the question of whether the Court would exercise jurisdiction under 28 USC s 1367 falls within the Court's discretion. But he considered it is "very unlikely" that the Court would refuse to do so. He pointed out that it is routine for United States courts to apply the laws of other states or countries where they are applicable, although he conceded that the Pennsylvania court is not familiar with the application of the Trade Practices Act. 105 It is true that Mr Smith is not an independent expert. He gave advice to Smurfit about the commencement of the proceedings in the US District Court. He acknowledged that the decision to commence suit in the United States was a tactical decision as to the selection of the forum and where the proceeding "could be expeditiously forwarded." 106 Notwithstanding this, I have come to the view that I should accept Mr Smith's evidence. There are three reasons for this. First, Mr Smith seemed to me to give his evidence honestly and fairly. Second, Armacel's expert, Mr Wiley, did not state that the trade practices claims fell outside the supplemental jurisdiction of the court under 28 USC s 1367. 107 Mr Wiley accepted that US District Courts have in some cases opted to apply foreign law. However, he went on to say in fairly general terms that such a decision "does not necessarily correlate" to the US District Court for the Middle District of Pennsylvania being the proper forum for the trade practices claims. He said that it was therefore "possible" that the Court would decline jurisdiction. 108 In my view it is significant that Mr Wiley did not dispute Mr Smith's opinion that Armacel's trade practices claims are part of the same case or controversy as the contract claim. His suggestion that it is possible that the Court may decline jurisdiction was not supported by any reference to the particular facts of the case. Accordingly, Mr Wiley's evidence reinforces the view that I should accept Mr Smith's evidence. 109 The third reason why I consider I should accept Mr Smith's evidence is that 28 USC s 1367 bears considerable resemblance to the doctrine of the accrued jurisdiction of the Federal Court. It would be quite unusual for me to accept, as I do, that the contractual claims fall within the accrued jurisdiction of this Court while rejecting the proposition that the trade practices claims are part of the same controversy as the contract claims if the trade practices claims are pursued in the US District Court. 110 The position seems to me to be unlike that which existed in Reinsurance Australia Corporation Ltd v HIH Casualty & General Insurance Ltd (in Liquidation) [2003] FCA 56. There, it was established on the evidence that the trade practices claims could not be maintained in the United States and that the remedies which would have been available in the English court were more restricted than those that were available under the Trade Practices Act: see at [217]-[218], [322]. 111 Accordingly, I am not satisfied that Armacel is deprived of a legitimate forensic disadvantage in being forced to bring its claim in the United States. 112 There is some force in Dr Bell's submission that the dispute has a closer factual connection with the United States than it does with Australia. The principal issues in the contract claim appear to be the reasonableness of Smurfit's efforts to exploit the technology in the United States and whether it was entitled to disconnect Armacel's machine. The latter question may raise the application of United States environmental law issues including a complaint filed with the Occupational Health & Safety Administration: see Smurfit's Complaint in the US District Court [26]. 113 Moreover, the factual issues concerning Smurfit's decision to cease exploiting the technology centre upon what was, and what was not, done in the United States. It is not clear on the material that is presently before me whether or not this will entail the calling of evidence from third parties located in the United States although it seems likely that such evidence would be required to establish Armacel's loss. 114 The key witnesses for Armacel are based in Sydney whereas Smurfit's key witnesses are present and former officers of that corporation located in the United States. One of Smurfit's former officers is now employed by a competitor and may not be prepared to give evidence in Australia unless the procedure of letters rogatory is undertaken. 115 This points toward a finding that the proceeding has a closer connection with the United States. 116 The US District Court proceeding has been provisionally fixed for hearing in October 2008. It would, in my view, be possible for the case management procedures of this Court to be employed so as to ensure a relatively early final hearing of the matter if a stay is not ordered. However, I have taken into account the stage reached in the US proceedings. 117 For reasons set out below, I propose to grant a stay with liberty to apply. A stay is an interlocutory order and a court must remain in control of its own interlocutory orders: Adam P Brown Male Fashions Proprietary Limited v Philip Morris Incorporated (1981) 148 CLR 170 at 178. 118 There are two matters which have troubled me in exercising my jurisdiction to grant a stay. The first is the ordinary vicissitudes of litigation in another country. It may therefore be that, despite the views of Mr Smith, the US District Court will decline to apply the Trade Practices Act. If that were to occur, it may be appropriate to lift the stay. There may be other circumstances existing in the litigation in the United States which would also make it appropriate to consider such an application. 119 The second is that, in my view, Smurfit is in clear breach of the Agreement in two respects. First, it has refused to submit to the jurisdiction of New South Wales by filing an appearance in this proceeding. On any view, it was bound to do so. 120 Second, Smurfit is in breach of the Agreement to attempt to mediate the dispute in Sydney. In my view, that was an agreement to embark upon a process of dispute resolution and is enforceable as such: Aiton Aust Pty Ltd v Transfield Pty Ltd (1999) 153 FCR 236 at [59]. I accept that the Agreement does not nominate a particular person to be the mediator, nor does it establish the machinery for the appointment of such a person. However, the better view in this case is that if the parties cannot agree the identity of a mediator, the Court can do so with the assistance of its powers under s 53A of the Federal Court Act 1976 (Cth) and O 72 of the Federal Court Rules: see Booker Industries Proprietary Limited v Wilson Parking (Qld) Proprietary Limited (1982) 149 CLR 600 at 614-615. 121 The correspondence between the parties demonstrates that Smurfit is unwilling to mediate other than in the United States. That is also the effect of what Dr Bell put to me in a directions hearing in this Court. 122 It follows that, in my view, I ought to make the stay conditional upon Smurfit filing an appearance in the Federal Court and submitting to the process of mediation in Sydney. If it declines to do so, and to fully cooperate in that process, I will make an order under Order 72 of the Federal Court Rules. Anti-suit Injunction 123 The problems which arise if the same controversy is to be litigated in different countries which have jurisdiction with respect to the same matter are such that, prima facie, the continuation of one or other of them must be seen as vexatious or oppressive in the sense stated in Voth: see Henry v Henry at 591. 124 In any event, without assigning any fault to Armacel, the anti-suit injunction is sought after the US District Court has determined that it has jurisdiction and after it has listed, albeit provisionally, the case for hearing in October. 125 This raises the difficulty to which Leggatt and Millett LJ pointed to in The Angelic Grace at 95-96. Their Lordships referred to the serious impediments to the grant of an anti-suit injunction where the relief is sought at a time when the proceedings are too far advanced. To ask me to now grant anti-suit relief would be invidious and the reverse of comity: The Angelic Grace at 95. 126 I have come to the view that the proceeding in this Court is vexatious in that sense. Accordingly, I will refuse to grant an anti-suit injunction against Smurfit restraining it from continuing the proceeding in the U S District Court. Orders 127 For the reasons above, I propose to make the following orders: (1) The respondent's motion to set aside service be dismissed. (2) This proceeding be stayed, conditionally upon: (a) The respondent entering an appearance within 72 hours. (b) The parties doing all things as are reasonably necessary to arrange a mediation in Sydney on or before a date to be fixed, and attending that mediation. (3) Liberty to apply on 7 days' notice. (4) The application for an anti-suit injunction be dismissed. I certify that the preceding one hundred and twenty-seven (127) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.

Armacel Pty Limited v Smurfit Stone Container Corporation

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