Boilerplate clauses don't always cut it: Joshan v Pizza Pan Group Pty Ltd and the importance of exclusive jurisdiction in determining the appropriate court forum

In Joshan v Pizza Pan Group Pty Ltd [2021] NSWCA 219, the New South Wales Court of Appeal has emphasised the importance of clearly drafted jurisdiction clauses in commercial contracts when it comes to determining whether disputes under a contract are to be exclusively heard by the courts of a specific state or territory.

A jurisdiction clause is an often overlooked "boilerplate" clause in commercial contracts that determines where disputes under the contract will be heard, such as the courts of a particular state or territory. A jurisdiction clause can be exclusive (requiring proceedings to be commenced in the nominated jurisdiction) or non-exclusive (where a preferred jurisdiction is nominated by the parties). Failing to properly consider the effect of a jurisdiction clause in a contract, and the particular circumstances of the dispute at hand, can create difficulties when it comes to enforcing rights under the contract.

In Joshan, the Court of Appeal held that the judge of the District Court of New South Wales, who had determined it to be "the appropriate court" for resolving the dispute, had incorrectly placed excessive reliance on a non-exclusive jurisdiction clause in the contract. The Court of Appeal noted that non-exclusive jurisdiction clauses do not specify where proceedings should be commenced but merely indicate where proceedings may be commenced.

Background

In October 2020, the Joshans sought a "stay" of proceedings brought against them by Pizza Pan Group Pty Ltd, a sub-franchisor of Pizza Hut (Pizza Pan), in the District Court of New South Wales. The proceedings were commenced in relation to a franchise guarantor deed that concerned the obligations of the franchisee, Joshan Transport Pty Ltd, under a franchise agreement with Pizza Pan relating to the operation of a Pizza Hut restaurant located in Salisbury, South Australia.

Decision in the District Court

The Joshans argued that a South Australian court was “the appropriate court” to determine the proceedings and referred to the matters in sub-section 20(4) of the Service and Execution of Process Act 1992 (Cth) (SEP Act) that a court is to take into account when considering a stay of proceedings. Those matters included:

• the location of the Joshans which, as at the date of the application, was South Australia
• the location of the persons likely to be called by the Joshans as witnesses in South Australia
• the location of the Pizza Hut being Salisbury, South Australia; and
• financial hardship associated with litigating interstate.

It was not in dispute that a clause in the guarantee (and a clause in the franchise agreement) operated as non-exclusive jurisdiction clauses. The nominated jurisdiction was New South Wales. Pizza Pan argued that, although the nominated jurisdiction was not determinative, given Pizza Pan's office and witnesses were Sydney-based, the courts of New South Wales were the appropriate forum.

In dismissing the Joshans' application, the District Court judge applied the reasoning of Palmer J in Asciano Services Pty Ltd v Australian Rail Track Corp Ltd [2008] NSWSC 652 (Asciano) that a jurisdiction clause, whether exclusive or non-exclusive, "records a term of the bargain between the parties that litigation arising from their agreement will be resolved...by the courts of that forum" and concluded that the non-exclusive jurisdiction clause in the guarantee “clearly expressed [a] contractual preference for the jurisdiction” of New South Wales.

Decision in the Court of Appeal

On appeal, the Court had to determine whether, in applying the decision of Asciano, the primary judge had mistakenly placed excessive reliance on the non-exclusive jurisdiction clause in the guarantee, and decide whether a South Australian court was in fact “the appropriate court” to determine all the matters in issue between the parties.

In allowing the appeal, the Court decided that the Supreme Court of South Australia was the appropriate forum to litigate the dispute between the parties for all the reasons argued by the Joshans. The Court highlighted that the “centre of gravity” of the dispute was in South Australia, as all defendants, the Pizza Hut store, and witnesses likely to give admissible evidence in relation to the store, were located in South Australia.

The operation of non-exclusive jurisdiction clauses

In its decision, the Court of Appeal considered section 20 of the SEP Act and the effect of a non-exclusive jurisdiction clause on its operation. In particular, the Court noted that:

1. A non-exclusive jurisdiction clause is a submission as to the parties' willingness to litigate in a certain jurisdiction but does not determine if it is "the appropriate court", as required by section 20(3) of the SEP Act.
2. Sub-section 20(4)(d) of the SEP Act requires a court to consider (among other non-exhaustive factors) "any agreement between parties about the court or place in which proceedings should be instituted". The Court interpreted that this refers only to exclusive jurisdiction clauses. By comparison, the Court considered that non-exclusive jurisdiction clauses can assist to provide certainty that any nominated jurisdiction would be appropriate for both parties, particularly in circumstances where foreign parties are involved, but such clauses do not require the court to enforce a non-exclusive jurisdiction clause under section 20 of the SEP Act.

The Court concluded that Palmer J's reasoning in Asciano was incorrect and further said that, while the observation of Palmer J in Asciano is generally true of an exclusive jurisdiction clause:

"...it is, with respect, not true of a non-exclusive jurisdiction clause. Generally speaking (although the true nature of all such clauses is driven by their precise wording), a non-exclusive jurisdiction clause entails no more than a submission to the nominated jurisdiction."

Key takeaways

Commercial contracts usually contain a jurisdiction clause. These clauses are often lumped into an array of "general" clauses at the end of a contract and are often overlooked on the basis that they are "standard form". However, these clauses can have a significant impact on your ability to conveniently, and cost effectively, enforce rights under the contract depending on whether they are expressed as exclusive or non-exclusive. A jurisdiction clause that is drafted without careful consideration of whether it should be exclusive or non-exclusive can make a court proceeding not only more complex and costly, but also expose your business in a jurisdiction it does not want to be in.

In a dispute as to whether a particular court is "the appropriate court" for proceedings to be commenced, an exclusive jurisdiction clause in the relevant contract will assist the commencing party to keep the proceedings in a convenient court over a non-exclusive jurisdiction clause. It is not the end of the story, but it will be an influential factor.

Authors: Keiran Breckenridge, Special Counsel; Natale Ilardo, Senior Associate; Bonnie-Anne Talese, Lawyer; Sylvia Fadel, Graduate.

Lander & Rogers' Commercial Disputes and Corporate teams assist our clients on a day-to-day basis with reviews and adjustments to their commercial contracts to ensure they operate to best support our clients' businesses. We also advise, and develop practical and cost-effective solutions for, our clients when their contracts come under challenge through a dispute.