Contesting the Jurisdiction of Australian Courts by Foreign Companies and Individuals - No Exposure to Compulsory Processes of the Court
By Kathryn Edghill, Partner and Graham Maher, Partner
19 February 2008
In a recent decision (Armacel Pty Limited v Smurfit Stone Container Corporation [2007] FCA 1928) the Federal Court of Australia held that a foreign corporation which was contesting the Court’s jurisdiction in proceedings commenced against it could not be compelled to comply with compulsory processes of the Court such as Notices to Produce documents. The case has ramifications not only for foreign respondents who are served with Australian court proceedings overseas but also for persons wishing to proceed in Australia against foreign respondents.
In the Australian Federal Court (which has jurisdiction over federal matters including competition/antitrust law), originating process may be served on respondents who are located overseas by prior leave of the Court or, in certain circumstances where prior leave has not been sought, with the confirmation of the Court. Mere service of the originating process does not establish that the Court has jurisdiction over the matters which are the subject of the proceedings nor does it operate to bring the respondent within the jurisdiction of the Court unless the respondent elects not to challenge the Court’s jurisdiction.
In the Armacel case, a company incorporated in the United States (Smurfit) was served in the United States, by leave of the Federal Court, with proceedings commenced in the Federal Court in New South Wales. Smurfit filed a motion in the Federal Court seeking to set aside the order for service and, in doing so, raising for consideration by the Court whether it had jurisdiction in the proceedings. The Federal Court Rules provide that where jurisdiction is challenged by a party served outside Australia it is for the party commencing the proceedings to justify the order for service including satisfying the Court that it has a prima facie case for relief.
Upon filing of Smurfit’s motion to set aside the service of the proceedings Armacel issued to Smurfit a Notice to Produce pursuant to the Federal Court Rules requiring it to produce documents to the Court at the hearing of the motion. Smurfit challenged the Notice to Produce arguing that it could not be compelled to submit to the compulsory processes of the Court when it was challenging the very jurisdiction of the Court. The Court agreed with Smurfit, citing a decision of the New South Wales Supreme Court in News Corporation Limited v Lenfest Communications Inc (1996) 40 NSWLR 250 in which that court held that “a foreign defendant served outside Australia should not lightly be subjected to the jurisdiction of this Court, but more importantly should not have imposed upon him one of the Court’s compulsory processes in aid of establishing the jurisdiction itself. That position is not changed when, while contesting the jurisdiction, the defendant participates in the proceedings with a view to establishing the absence of jurisdiction”.
In times of increasing globalisation and conduct which extends across jurisdictions, the Armacel decision offers some comfort to foreign corporations who are drawn into proceedings commenced in Australia. While the question of jurisdiction will remain to be resolved according to the facts of each case (and, for example, in matters involving competition/antitrust laws, the legislative basis of extraterritorial application of the Australian Trade Practices Act), foreign respondents can take action to challenge jurisdiction safe in the knowledge that they cannot be compelled to produce documents to the Court unless and until the applicant has first established its right to bring proceedings in the Australian court.
However, neither the Armacel case, nor the Lenfest case cited as authority in it, expressly preclude the application of compulsory Court processes such as the issue of subpoenas to third parties or the issue of notices to produce to other parties to the proceedings (provided they are in the jurisdiction), during such challenges to jurisdiction. In the Lenfest case, it was recognised that subpoenas against persons within Australia had been upheld “although for the purpose of determining whether an order giving leave to serve originating process outside Australia should be discharged”. Where a foreign respondent has related Australian companies (whether parties to the proceedings or not) or has relevant dealings with unrelated Australian companies or persons, such companies or persons are likely to be amenable to the compulsory powers of the Court. In those circumstances the comfort offered by Armacel to a foreign respondent may well be nugatory.