[2010] NSWCA 196
Neilson v Overseas Projects Corp of Victoria Ltd (2005) 223 CLR 331[2005] HCA 54
Regie Nationale des Usines Renault SA v Zhang (2002) 210 CLR 491[2002] HCA 10
Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538
Judgment (6 paragraphs)
[1]
Introduction
The plaintiff, Parnell, an Australian based company, owns the intellectual property relating to a compound known as GlucuronoXylan Sulfate (GXS), which is the active ingredient in a veterinary drug used to treat arthritis. On 15 October 2015, Parnell entered into a manufacturing services agreement (MSA) expressed to be effective as at 1 August 2013 with the defendant, Lonza, a Swiss based company, by which Lonza agreed to provide services relating to the development and optimisation of the manufacturing process for GXS and the production of GXS on an ongoing basis.
Disputes arose between Parnell and Lonza concerning Lonza's performance of its obligations under the MSA and payments Lonza claimed were due to it. The parties engaged unsuccessfully in settlement discussions in relation to those disputes during the second half of 2016. On 22 December 2016, Parnell commenced these proceedings claiming damages for breach of contract and for misleading and deceptive conduct allegedly engaged in by Lonza in contravention of s 18 of the Australian Consumer Law (ACL). On 27 February 2017, Lonza commenced proceedings in the Superior Court of the State of Delaware claiming amounts said to be due to it under the MSA (the Delaware Proceedings).
By a notice of motion filed in court on 9 March 2017, Parnell sought injunctions restraining Lonza from taking any further steps in the Delaware Proceedings and from taking any steps in the Delaware Proceedings to restrain prosecution by Parnell of these proceedings. Those injunctions were granted by Hammerschlag J on an interlocutory basis on 9 March 2017 and extended on 17 March 2017.
By a notice of motion filed by Lonza on 16 March 2017, Lonza seeks a stay of these proceedings. This judgment is concerned with that motion and the question whether the interlocutory injunctions granted by Hammerschlag J should continue.
It is now common ground between the parties that this court has jurisdiction to determine the disputes between them. It is also common ground that both proceedings should not continue and that this court should first determine whether to stay the proceedings before it. Only if it concludes that it should not, should it continue the injunctions granted by Hammerschlag J.
Lonza puts its case for a stay on three bases. First, it relies on what it says is an exclusive jurisdiction clause in the MSA in favour of the courts of Delaware. Second, it submits that the proceedings should be stayed on forum non conveniens grounds. Third, it submits that the court in the exercise of its discretion should temporarily stay these proceedings pending resolution of the Delaware Proceedings.
[2]
Background
On or about 19 June 2013, Lonza submitted a proposal to Parnell to provide optimisation and manufacturing services in respect of GXS (the Proposal). The Proposal was prepared in Switzerland by persons resident there and sent via email from Mr Raimund Hatz, a senior manager of Lonza based in Visp, Switzerland, to Mr Robert Joseph, the president and chief executive officer of Parnell's ultimate holding company, Parnell Pharmaceutical Holdings Ltd (PPH). Mr Joseph spends most of his time in PPH's US office in Kansas City, Missouri, although every four to six weeks he spends time in Parnell's offices in Sydney. According to Mr Joseph, he was in Sydney when he received the Proposal.
On 29 June 2013, Mr Joseph wrote to Mr Hatz saying that the Proposal "is acceptable" and asking Mr Hatz to "prepare the necessary paperwork to commence the process optimisation with 10% payment by Parnell upon commencement as per the proposal".
There was then a meeting in Sydney on 23 July 2013 between Mr Hatz and Dr Alan Bell and Mr Brad McCarthy, at which Mr Hatz provided Parnell with a further copy of the Proposal. Dr Bell is and was a director of Parnell and chairman of PPH. Mr McCarthy is and was a director, the secretary and the chief operating officer of Parnell. Both Mr McCarthy and Dr Bell are based in Sydney.
Following that meeting, Lonza commenced work in Switzerland in accordance with the Proposal and submitted a number of invoices for the work that it did, which were paid by Parnell.
The MSA was negotiated from November 2013 to October 2015. The negotiations occurred through emails, conference calls and a number of meetings, which occurred in Basel or Visp in Switzerland and Kansas and San Francisco in the United States. They involved representatives of Parnell based in Sydney and Kansas, and representatives of Lonza largely based in Basel or Visp, although one Lonza representative, Dr Pamleyn Lian-Simpson, was based in Singapore and another, Mr Kevin Draper, was based somewhere in the United States.
Lonza circulated the first draft of the MSA on 7 November 2013. That draft contained the following clause in relation to governing law and jurisdiction:
Governing Law/Jurisdiction. This Agreement is governed in all respects by the laws of Switzerland without regard to its conflicts of laws principles. The Parties agree to submit to the jurisdiction of the courts of Switzerland.
The evidence is that following receipt of that draft Mr Joseph had a conversation with Dr Liam‑Simpson in which Mr Joseph said "Parnell won't accept the laws and courts of Switzerland. We would prefer the laws and courts of New South Wales". Dr Lian-Simpson replied, "Just put the laws of the USA for the time being". Following that conversation, the jurisdiction clause was amended so that it read:
Governing Law/Jurisdiction. This Agreement is governed in all respects by the laws of USA without regard to its conflicts of laws principles.
The final form of the clause of the MSA dealing with the governing law and jurisdiction is in these terms:
16.5 Governing Law/Jurisdiction. This Agreement is governed in all respects by the laws of the State of Delaware, without regard to its conflicts of laws principles. The Parties agree to submit to the jurisdiction of the courts of Delaware.
How the clause in that form came to be included in the MSA is not clear from the evidence.
Parnell puts its case against Lonza in a number of ways.
First, it claims that Lonza made a number of representations in the Proposal and orally in the meeting in Sydney on 23 July 2013. It also claims that Lonza made a number of additional representations at a meeting in Basel in December 2013, by an email from Dr Lian-Simpson to Mr Joseph dated 20 December 2013 and in a teleconference between Ms Fenella Cochrane of Parnell and Mr Rainer Kramer and Mr Jϋrgen Gueck of Lonza, on or around 10 December 2013. Each of the representations is said to have been misleading and deceptive in contravention of s 18 of the ACL. To the extent that the representations are alleged to have been in respect of future matters, Parnell relies on s 4(2) of the ACL, which places the evidential onus on Lonza of adducing evidence that it had reasonable grounds for making the representations. Parnell claims that on the faith of those representations it engaged Lonza to provide the services described in the Proposal, made payments for those services and entered into the MSA. Parnell claims as damages under s 236 of the ACL the amounts it paid to Lonza and loss of profits on the sale of the drug containing GXS.
Second, Parnell claims that the Proposal was an offer which it accepted on 29 June 2013 by the email from Mr Joseph to Mr Hatz. Parnell claims damages for breach of the contract that came into existence as a result of that offer and acceptance.
Third, Parnell claims damages for breach of the MSA. It is noteworthy that the MSA contains an entire agreement clause (cl 16.6) which relevantly states that the MSA "contains the entire agreement between the Parties as to the subject matter hereof and supersedes all prior and contemporaneous agreements with respect to the subject matter hereof". In light of that clause, it is not easy to see how the claim based on the prior contract can be maintained.
In connection with its motion for injunctions, Parnell filed an expert report on Delaware law from Mr P Clarkson Collins, Jr, a partner of the law firm Morris James LLP, which practises law in Delaware. Mr Collins gives un-contradicted evidence that:
1. if the claims brought in these proceedings were brought in Delaware, the courts of Delaware would not apply the provisions of the ACL but instead would apply the law of Delaware to the misrepresentation claims;
2. the law of Delaware "prohibits misleading or deceptive conduct in commercial activities and allows for damages, including by recognizing tort causes of action for fraud, based either on fraudulent inducement to contract or fraud in general";
3. the law of Delaware contains no equivalent of s 4(2) of the ACL. It does, however, provide for extensive rights of discovery through the production of documents, written interrogatories and oral depositions.
[3]
Stay based on jurisdiction clause
The jurisdiction clause raises two issues. The first is whether it confers exclusive jurisdiction on the courts of Delaware. The second is whether it extends to cover Parnell's case based on breaches of s 18 of the ACL.
There is no evidence before the court that the law of Delaware concerning the interpretation of jurisdiction clauses in commercial contracts is different from the law of New South Wales. In the absence of evidence, the presumption is that it is the same: Neilson v Overseas Projects Corp of Victoria Ltd (2005) 223 CLR 331; [2005] HCA 54 at [125] per Gummow and Hayne JJ, at [267] per Heydon J.
A jurisdiction clause in a commercial contract is to be construed in accordance with ordinary principles of construction that apply to commercial contracts: FAI General Insurance Co Ltd v Ocean Marine Mutual Protection & Indemnity Association Ltd (1997) 41 NSWLR 117 at 126 per Giles CJ CommD; Ace Insurance Ltd v Moose Enterprise Pty Ltd [2009] NSWSC 724 at [15] per Brereton J. According to those principles, the clause is to be construed objectively by reference to what a reasonable businessperson would have understood it to mean and by reference to the commercial purpose sought to be achieved: Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12 at [16]-[17] per Kiefel, Bell & Gaudron JJ. In construing the clause, the court may also take into account the surrounding circumstances, at least in the case of ambiguity: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352 per Mason J; [1982] HCA 24; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35] per French CJ, Hayne, Crennan and Kiefel JJ.
The absence of the word "exclusive" is not decisive of the question whether a jurisdiction clause is intended (objectively) to confer exclusive jurisdiction on courts identified in the clause: FAI General Insurance at 126; Ace Insurance Ltd at [15].
Generally, a jurisdiction clause is given a broad interpretation, since courts will not readily infer that the parties intended their disputes relating to the one transaction be resolved by more than one court: Global Partners Fund Ltd v Babcock & Brown Ltd (In Liq) (2010) 79 ACSR 383; [2010] NSWCA 196 at [60]-[70] per Spigelman CJ (Giles and Tobias JJA agreeing).
In my opinion, the jurisdiction clause must be interpreted as an agreement to submit disputes with which it is concerned to the exclusive jurisdiction of the courts of Delaware. The agreement was made between a Swiss company and an Australian company. It is apparent from the negotiations between them that neither party wanted the contract to be governed by the law of the other party or for disputes to be determined by the courts of the other party. It is to be inferred from those facts that, in choosing the law and courts of Delaware, the parties chose the law and courts of a neutral state of a third country with which both parties had some connection. That object could only be achieved if the choice of courts is interpreted to be exclusive. That conclusion is consistent with the language of the clause. The agreement "to submit to the jurisdiction of the courts of Delaware" is an agreement between the parties that the courts of Delaware should determine any disputes between them. By implication, an agreement in those terms excludes the jurisdiction of any other courts. Moreover, it is difficult to understand what other commercial purpose the clause could have. The parties have no connection with Delaware other than that they chose the law of Delaware to govern their agreement and agreed to submit to the jurisdiction of the courts there. This is not a case where one party had an interest in preserving a right to sue in Delaware, leaving it open that proceedings might be brought elsewhere. Rather, both parties agreed to submit to the law and the courts of a jurisdiction that otherwise had no connection with them or the contract they entered into. The only reason they could have done so was because both accepted that that was the jurisdiction that should determine any disputes between them concerning the MSA.
It was not seriously contended that the jurisdiction clause was not sufficiently wide to cover Parnell's claim for misleading and deceptive conduct. Although that claim was framed in terms of a beach of the statutory prohibition against misleading and deceptive conduct contained in s 18 of the ACL, it is plain that the claim based on s 18 is, in substance, a claim that Lonza made misrepresentations that caused Parnell to make payments before the MSA was entered into in the expectation of a finalised agreement between the parties and caused Parnell to enter into the MSA. The parties agreed in the MSA that the agreement is governed "in all respects" by the laws of Delaware. They must have intended the submission to the jurisdiction of courts in Delaware to be equally broad. The claim that the MSA was induced by misrepresentations or that payments made in anticipation of an agreement that became the MSA were induced by misrepresentations are sufficiently connected to the MSA that it can be said that those claims fall within the choice of law and jurisdiction clause.
Nor was any real reason advanced for why, if the clause was an exclusive submission to the courts of Delaware, the court should not in the exercise of its equitable jurisdiction grant a stay to give effect to the contractual bargain of the parties. No public policy ground was advanced. The clause was agreed between sophisticated commercial parties who were each capable of protecting their own interests. The evidence is that there are available causes of action in Delaware which substantially correspond to the claims that Parnell seeks to bring here. The only significant difference that Parnell points to is that there is no equivalent provision in the law of Delaware to s 4(2) of the ACL, with the result that Parnell bears the evidential as well as the persuasive burden of proving that Lonza did not have reasonable grounds for making any of the representations it may have made concerning the future. Even assuming that is a matter relevant to the question whether the parties should be held to their bargain through the granting of a stay, it cannot be a decisive consideration in this case. The proof of the absence of reasonable grounds raises particular evidential issues. In the context of a claim based on s 18 of the ACL, those issues are addressed by reversing the evidential onus of proof. In Delaware, it is apparent that the difficulties of establishing the absence of reasonable grounds can be addressed through the extensive discovery processes available there. The fact that the different systems of law address a particular technical difficulty of proof in different ways is not a reason for refusing to hold Parnell to its bargain.
[4]
Other grounds for a stay
Having regard to the conclusions I have reached, it is strictly not necessary to deal with the other grounds on which Parnell claims to be entitled to a stay. However, I should say something briefly about them.
Assuming that cl 16.5 of the MSA does not confer exclusive jurisdiction on the courts of Delaware, I would have concluded that no stay should be granted.
The question whether a stay should be granted on forum non conveniens grounds turns on whether New South Wales is a "clearly inappropriate" forum: Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538; [1990] HCA 55 at 559 per Mason CJ, Deane, Dawson and Guadron JJ; Regie Nationale des Usines Renault SA v Zhang (2002) 210 CLR 491; [2002] HCA 10 at [78]ff per Gleeson CJ, Guadron, McHugh, Gummow and Hayne JJ.
In my opinion, New South Wales is not a clearly inappropriate forum for Parnell to seek the relief it does. Although the contract is governed by the law of Delaware, Parnell seeks relief under the ACL in respect of conduct which, at least in part, occurred in Australia. That relief is not available elsewhere, even though similar relief may be. Parnell is based in Australia and a number of witnesses are resident here. Most of Lonza's witnesses are based in Switzerland; and they would be required to travel to give evidence in person whether the proceedings were heard here or in Delaware.
Nor, on the same assumption, would I have granted a temporary stay of these proceedings pending the outcome of the proceedings in Delaware. The proceedings were commenced in New South Wales first. Although the parties have submitted to the jurisdiction of the courts in Delaware, the Supreme Court of New South Wales has jurisdiction in respect of the disputes in question. The contract is governed by the law of Delaware, but the court is unlikely to have any difficulty in applying that law in accordance with expert evidence it receives to the extent that that law is different from the law of New South Wales. As I have said, there are a number of other connecting factors to New South Wales. There are no others to Delaware.
[5]
Conclusion and orders
On the conclusions I have reached the proceedings should be stayed to give effect to the exclusive jurisdiction clause contained in the MSA. There is no reason why Parnell should not pay Lonza's costs of the proceedings.
It follows that the orders of the court are:
1. The proceedings be permanently stayed;
2. The interlocutory injunctions granted by Hammerschlag J on 9 March 2017 and extended on 17 March 2017 be discharged;
3. The plaintiff pay the defendant's costs of the proceedings.
[6]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 10 May 2017