Issue 1: What is the proper law to apply to determine whether Jasmin is a party to the Supply Agreement?
74 The first question is as follows: what is the governing law for the question of whether Jasmin is a party to the Supply Agreement? Professor Briggs has described this question as "[o]ne of the more notoriously intractable problems of the modern conflict of laws": Briggs A, "The formation of International Contracts" [1990] LMCLQ 192.
75 The editors of Dicey, Morris and Collins on The Conflict of Laws (15th ed, Sweet & Maxwell, 2012, vol 2) 1814 [32-066] observe that there are three possible choices (Professor Briggs observes that a fourth might be either of (2) or (3) depending upon characterisation of the circumstances):
(1) the lex fori;
(2) the law which the parties purport to choose (ie the law which would apply if the parties had contracted); or
(3) the law which would be the proper law in the absence of express choice.
76 Dicey, Morris and Collins observe that it appeared to have been accepted in English law, following the decision of Diplock LJ in Mackender v Feldia AG [1967] 2 QB 590, that the question of whether there is a consensus ad idem between the parties is governed by English law as the lex fori. That case concerned a claim in England to rescind an insurance contract which contained a Belgian jurisdiction clause. The question was whether leave to serve out should be given. Leave to serve out would be given if the contract was valid. Diplock LJ said (at 602) that the alternative claim of the underwriters to avoid the contract for non-disclosure of a material fact,
does raise the question as to whether there was a contract at all, and thus the question whether there was any agreement that Belgian law should be the proper law of the contract. This question, it is argued, is to be determined not by Belgian law but by a putative objective proper law, a concept which I find confusing, but which is said in this case to be English law.
77 His Lordship then continued, observing that it "may well" be that the question should be resolved by the lex fori (English law):
This argument [ie putative objective proper law], I think, is misconceived. It is based upon an imprecise use of the phrase "avoid the contract." Where acts done in England, in this case the oral negotiations between the assured's broker and the underwriters, the initialling of the slip and the signing of the policy, are alleged not to have resulted in an agreement at all (i.e., where there is a plea of non est factum) and the question is whether there was any real consensus ad idem, it may well be that this question has to be determined by English law and not by the law which would have been agreed by them as the proper law of the contract if they had reached an agreement. But that is not the position when underwriters seek to repudiate a contract upon discovering that material facts were not disclosed to them by their assured before the policy was entered into.
78 In oral submissions, senior counsel for Trina US submitted that Lord Diplock (as his Lordship had become) subsequently decided this point in Amin Rasheed Shipping Corporation v Kuwait Insurance Co [1984] 1 AC 50, 60. That case concerned the proper law of a contract of marine insurance. There was no dispute that the contract had been formed so any observations concerning the proper law for the question of contract formation would necessarily have been obiter dicta. In the passage relied upon by senior counsel for Trina US, Lord Diplock said:
The applicable English conflict rules are those for determining what is the "proper law" of a contract, i.e., the law that governs the interpretation and the validity of the contract and the mode of performance and the consequences of breaches of the contract: Compagnie Tunisienne de Navigation S.A. v Compagnie d'Armement Maritime S.A. [1971] AC 572, 603. To identify a particular system of law as being that in accordance with which the parties to it intended a contract to be interpreted, identifies that system of law as the "proper law" of the contract. The reason for this is plain; the purpose of entering into a contract being to create legal rights and obligations between the parties to it, interpretation of the contract involves determining what are the legal rights and obligations to which the words used in it give rise. This is not possible except by reference to the system of law by which the legal consequences that follow from the use of those words is to be ascertained.
79 Senior counsel for Trina US submitted that questions concerning the "validity" of a contract include whether a contract has been formed by consensus ad idem so that Lord Diplock (contrary to his earlier suggestions in Mackender) had adopted, obiter dicta, a test that the law of a disputed contract would govern the question of whether the contract had been formed. I do not accept this submission for two reasons.
80 First, I do not accept that questions concerning whether the parties have reached consensus ad idem are the same as questions of validity of a contract. The former concerns whether a contract has been formed. The latter concerns whether a contract which has been formed is valid. The concept of "validity" is a slippery term but it would include contracts that are unenforceable, voidable and probably also contracts which are void such as for reasons of illegality.
81 Secondly, the authority relied upon by Lord Diplock, Compagnie Tunisienne de Navigation S.A. v Compagnie d'Armement Maritime S.A. [1971] AC 572, illustrates that his Lordship was not concerned with questions of contract formation. That case involved a dispute between the parties as to what system of law was the proper law of the contract in an arbitration. At 603, Lord Diplock said (my emphasis added in bold):
When parties enter into an agreement which they intend to give rise to legally enforceable rights and liabilities, they must ex necessitate contemplate that there will be some system of law by reference to which their mutual rights and liabilities will be determined, i.e., the substantive or "proper" law of their agreement; and also that the procedure by which dispute about their rights and liabilities will be resolved will also be regulated by some system of law, i.e., the curial law of their agreement.
By "proper law" in this context is meant the system of law which governs the interpretation and the validity of the contract and the mode of performance and the consequences of breaches of the contract.
82 Lord Diplock's remarks were premised upon the assumption that the parties had entered into an agreement.
83 The position in English law, albeit supported by slim authority, therefore appeared to be that the proper law for the question of whether there was consensus ad idem was the law of the forum. But this changed in 1991 in circumstances where the EEC Convention on the Law Applicable to Contractual Obligations (the Rome Convention) applies, and from, 17 December, 2009, in cases involving the Rome I Regulation (which replaced the Rome Convention). The choice made in the Rome Convention and the Rome I Regulation the law which the parties purport to choose in the contract which would bind them if it were valid. In other words, the Regulation applies approach (2) of the three approaches described above at [75]. Of course, that rule only applies to a defendant who falls within the Rome I Regulation.
84 In 1992, the Australian Law Reform Commission, Report No 58, also recommended this solution (again drawing a distinction between questions of contract formation and questions of contract validity) saying (at [8.59]):
The formation of contract - offer and acceptance, consideration, the reality of consent are as much part of the substance of the law of contract as are questions of material validity and it is illogical to submit them to a different law, especially the law of the forum, merely because they are dealt with before issues of material validity arise.
85 In the article to which I referred above, Professor Briggs, in his typically lucid style, took a contrary view and expressed alarm at the proposed rule shortly before the Rome Convention. He rejected a suggestion that the law governing the question of whether the parties reached contractual agreement is "a matter for the putative proper law". He argued that there is a need for the lex fori, rather than a rule that "assumes what it sets out to prove" or "some pretended quasi-proper law" (202). Briggs argued that the lex fori must be applied for the question of whether the parties have reached agreement. By definition, the lex fori must also identify those factors by which that question is to be answered.
86 There may be understandable pragmatic reasons why a legislature would instead adopt rule (2) and apply the proper law of a contract to determine whether the parties had entered into that contract. But as a matter of principle in a case where there is an allegation that there was no consensus between the putative parties, the conclusion of Professor Briggs is unassailable. Contrary to the view of the Australian Law Reform Commission, the absurdity lies instead in applying the proper law of a disputed contract to determine whether a person is bound by that contract. The basal reason why a person is bound by the proper law contained in a contract is because that person has manifested a consent to be bound. The question of whether a person has manifested consent to be bound cannot be governed by matters contained within the very contract about which the person disputes having manifested agreement. It is arguable, and I put it no higher than that, that there could be different issues involved where the question concerns whether there was consideration for the agreement. It is not necessary to decide that point in this case.
87 Consider the application of a putative proper law to an Australian who claimed not to be a party to, and never to have seen, a contract with another Australian containing a Ruritanian proper law clause. Assuming that the choice of Ruritanian law is accepted as the proper law of the contract, if the law of the asserted contract were applied then this would mean that the Ruritanian laws of contract formation would determine whether he was bound. Senior counsel for Trina US submitted that this was the correct result because it would mean that Ruritanian law would apply consistently wherever a defendant was sued. Absent a legislative solution, for pragmatic reasons, I do not accept that the common law could reach this result as a matter of principle.
88 Trina US submitted that a distinction should be drawn between (i) a circumstance where there is a contract in existence and the only question is the persons who are parties to the contract, and (ii) a circumstance where there is no contract in existence but the question is whether the parties formed a consensus ad idem. No such distinction exists. If a person disputes whether he or she is a party to a contract in existence with someone else then that person is disputing that he or she has reached consensus ad idem with the other contracting party or parties. There is no difference in principle between asking whether person X has manifested consent to agree with Y (ie displayed a consensus ad idem with Y) or asking whether person X has manifested consent to agree with Y and Z (who had previous agreed). The question in both cases is whether there is a consensus ad idem with the party sought to be bound, ie X.
89 The Australian authority on the point is limited. The issue was considered by Brennan J, Gaudron J, and Deane J in the majority in Oceanic Sun Line Special Shipping Company Inc v Fay [1988] HCA 32; (1988) 165 CLR 197. In that case, a passenger on a cruise of the Greek islands was injured on the cruise. The passenger sued in New South Wales. The Greek cruise company pointed to an exclusive jurisdiction clause for the courts of Greece which was printed on the passenger's ticket when he boarded the vessel. The passenger argued that the contract had been concluded earlier in New South Wales when he paid the fare and was handed an "exchange order" to be exchanged for a ticket upon boarding. The Greek cruise company relied upon the exclusive jurisdiction clause only as one factor when seeking a stay on the basis of forum non conveniens.
90 The whole of the court held, applying New South Wales law as the law of the forum, that the contract had been concluded in New South Wales (see Wilson and Toohey JJ at 206-207; Brennan J at 226-228; Deane J at 255-256; Gaudron J at 261). Hence, in considering the application for a stay all of the court disregarded the terms on the Greek ticket given to the passenger.
91 Two members of the court, Brennan and Gaudron JJ, also considered, obiter dicta, the law which would apply to the question of whether the parties had formed a contract at all.
92 At 225, Brennan J said:
The question whether a contract has been made depends on whether there has been a consensus ad idem and the terms of the contract, if made, are the subject of that consensus. At all events, those are the issues which an Australian court necessarily addresses when it seeks to determine the existence of what the municipal law of this country classifies as a contract. Classification is, of course, a matter for the law of the forum. In deciding whether a contract has been made, the court has regard to all the circumstances of the case including any foreign system of law which the parties have incorporated into their communications, but it refers to the municipal law to determine whether, in those circumstances, the parties reached a consensus ad idem and what the consensus was: cf Mackender v Feldia AG [1967] 2 QB 590, per Diplock L.J. at pp 602-603. There is no system other than the municipal law to which reference can be made for the purposes of answering the preliminary questions whether a contract has been made and its terms. Mr DF Libling "Formation of International Contracts" (1979) 42 Modern Law Review 169 (an article to which Gaudron J has drawn my attention) discusses the reasons why it is inappropriate to determine those questions by reference to the so-called putative proper law of a supposed contract.
93 Similarly, Gaudron J relied upon the decision of Lord Diplock in Compagnie d'Armement Maritime SA v Compagnie Tunisienne de Navigation SA [1971] AC 572, 603 and 605, and said (at 260-261) that:
the lex fori determines (inter alia) questions as to the existence, construction and validity of terms bearing upon determination of the parties' agreement as to the proper law. Indeed I think that must be so. If the question of what is the proper law is one to be answered by application of the lex fori, until the lex fori provides the answer to that question there is no scope for the operation of any other law. In other words, all questions which are necessarily antecedent to a determination of the proper law of a contract must fall for answer in accordance with the lex fori. See also Mackender v Feldia AG [1967] 2 QB 590, at p 603; Cheshire and North, Private International Law, 11th ed. (1987), p 477.
94 A different view was expressed by Deane J, although his Honour did not need to engage in any analysis of the position because he considered that the applicable law was the law of New South Wales. At 255, his Honour said that the question "whether those transactions and actions resulted in a binding contract between the parties must, in my view, be determined by reference to the law of New South Wales - the locus contractus".
95 The lex fori approach of Brennan J and Gaudron J was followed by Rein J in Venter v Ilona MY Ltd [2012] NSWSC 1029 [25]-[26] on the question of whether terms had been incorporated into a contract. It was also followed by Davies J in Hargood v OHTL Public Company Ltd [2015] NSWSC 446 [23] in relation to where the contract was made and the terms contained in the contract.
96 Trina US relied upon a number of authorities which were said to reject the application of the law of the forum as the proper law.
97 The first of those is the decision of Langley J in Peterson Farms Inc v C & M Farming Ltd [2004] EWHC 121; [2004] 1 Lloyd's Rep 603.
98 The decision in Peterson Farms was concerned with whether an arbitral tribunal had made findings without jurisdiction. Peterson Farms, an Arkansas company, had entered an agreement with C&M, an Indian company, for the sale of poultry to other C&M entities. The poultry was infected with avian flu. The sale agreement contained an ICC, United Kingdom, jurisdiction clause and an Arkansas choice of law clause. The arbitral tribunal held that it had jurisdiction to consider claims by other C&M entities. This was based upon application of an autonomous "group of companies" doctrine and agency reasoning. The jurisdiction in relation to the other C&M entities was set aside. The group of companies doctrine was not part of English or Arkansas law. And there was no basis for a finding of agency in English or Arkansas law. However, Langley J said, at 610 [43], that the "identification of the parties to an agreement is a question of substantive not procedural law".
99 In the context of the point in issue in Peterson Farms, the comments by Langley J that the identification of the parties to an agreement is a question of substantive not procedural law did not involve an assertion that Arkansas law as the proper law of the contract, rather than English law, must govern the question of the persons who are parties to that contract. That point was not argued. No authority was cited. None, such as Mackender, was discussed. No issue of principle, such as the matters discussed in this section of my reasons, was mentioned.
100 Senior counsel for Trina US also relied upon remarks made by Warren CJ in IMC Aviation Solutions Pty Ltd v Altain Khuder LLC [2011] VSCA 248; (2011) 38 VR 303, 315 [41]. In that paragraph the Chief Justice said:
since an award is only binding on the parties to the arbitration agreement pursuant to which it was made, it must be possible for the award debtor to resist enforcement on the ground that it is not a party to that agreement. Sections 8(5) and 8(7) make no express provision for raising such a defence. Section 8(5)(b) allows an award debtor to resist enforcement on the grounds that the arbitration agreement is "not valid" under the relevant law. Yet an arbitration agreement pursuant to which the award was made may be perfectly valid without the award debtor being a party to it. The question of whether a contract is valid and the question of whether a person is a party to that contract are treated as distinct issues by the common law. It is artificial to frame an argument that a person is not a party to an agreement as an argument that the agreement is not valid vis-à-vis that person. In my opinion, Altain's construction of s 8(5)(b) does violence to the words of s 8(5)(b).
101 Senior counsel for Trina US emphasised the words by her Honour that "[i]t is artificial to frame an argument that a person is not a party to an agreement as an argument that the agreement is not valid vis-à-vis that person". But this comment does not support the submission by Trina US. It detracts from it. The point being made by Warren CJ is that there is a basic difference between issues of validity of an existing contract and issues concerning whether a contract has been formed (ie whether a person is a party to the contract).
102 In any event, her Honour's remarks were concerned with s 8(5)(b) of the International Arbitration Act. That subsection is concerned with a circumstance in which a court may refuse to enforce a foreign arbitral award because "the arbitration agreement is not valid under the law expressed in the agreement to be applicable to it or, where no law is so expressed to be applicable, under the law of the country where the award was made". Section 8(5)(b) is a legislative imposition of a contractual choice of law clause as the proper law for determining questions of validity of the contract in the context of enforcement of an award. This is the same rule as that which Lord Diplock contemplated in Amin Rasheed Shipping Corporation. It is not a rule for contract formation, as Warren CJ observed.
103 Senior counsel for Trina US also relied upon the decision of Foster J in Norden A/S v Beach Building and Civil Group Pty Ltd [2012] FCA 696; (2012) 292 ALR 161, 182 [99]. That decision was overturned by the Full Court, although no submission was made concerning the effect of the Full Court decision on the passage relied upon by Trina US: see Dampskibsselskabet Nordon A/S v Gladstone Civil Pty Ltd [2013] FCAFC 107; (2013) 216 FCR 469.
104 In the paragraph relied upon by Trina US, Foster J said:
The law expressed in the arbitration agreement as applicable to it was English law. But, in my view, English law should not be held to be the law under which the question of the validity of the arbitration agreement is to be determined for that reason, given that Beach Civil argues that it is not a party to and therefore not bound by the charterparty. However, English law is the law of the country where both awards were made. England is the seat of the arbitration. It is for these latter reasons that I think that the question of whether Beach Civil was a party to the charterparty should be decided according to English law.
105 As senior counsel acknowledged, these remarks were made in the context of s 8(5)(b) of the International Arbitration Act. They concern questions of validity of a contract, not questions of contract formation. And they concern a proper law imposed by legislation, not one which is to be determined by application of the common law.
106 For these reasons, the proper law to apply to the question of whether Jasmin is a party to the Arbitration Agreement is the law of the forum.