The fact that Australia largely lacks an international framework for mutual recognition of judgments is a largely overlooked, if hugely significant, risk for businesses trading with foreign counterparties.
It turns out that, out of the roughly 200 countries and territories that currently exist in the world (which we will call “jurisdictions”), Australia has bilateral treaties for the mutual recognition of judgments with just two: the United Kingdom and New Zealand. The Foreign Judgments Act 1991 (“FJA”) specifically recognises judgments from a further 32 jurisdictions, based on the understanding that Australian judgments will be recognised there, too – albeit there are no actual bilateral treaties with any of these jurisdictions to enshrine that understanding.
Why is this important?
Picture this: your company has entered into a commercial agreement with a firm located outside Australia. Following a breach of contract, your company sues the other firm (your counterparty), and the matter is litigated in:
(Scenario A): a court in the country where your counterparty is located.
(Scenario B): an Australian court.
The court has issued a final judgment, where your counterparty is ordered to pay your company compensation and costs. However, your counterparty has failed to comply with the judgment and now you need to enforce the court’s judgement:
(for Scenario A): in Australia.
(for Scenario B): in the jurisdiction where your counterparty is domiciled.
In the above example, which will be referred to throughout this article, if there is mutual recognition of judgments between Australia and the country where your counterparty is domiciled, you might be able to enforce your judgment in a relatively straightforward manner (subject to certain conditions).
If not, you will need to relitigate the matter – either as a common law debt in Scenario A, or under a potentially unknown (and potentially unpredictable and unclear) system in Scenario B.
Who is on the FJA list?
Europe: United Kingdom, France, Germany, Italy, Poland, Switzerland.
Asia-Pacific: Japan, Singapore, South Korea, Taiwan, Hong Kong, Fiji, New Zealand, Papua New Guinea, Solomon Islands, Sri Lanka, Tonga, Tuvalu, Western Samoa.
Americas: Bahamas, British Virgin Islands, Cayman Islands, Dominica, Falkland Islands, Grenada, Montserrat, St Kitts and Nevis, St Vincent and the Grenadines. In Canada, notice that only the provinces of Alberta, British Columbia and Manitoba are included.
Other: Israel, Malawi, Seychelles, St Helena.
Who is not on the list?
Crucially, many important trading partners of Australian companies are not covered: notably, the United States and China have no reciprocity with Australia.
The same is true of other important jurisdictions for Australian businesses, such as South Africa, Sweden, Spain, Mongolia, Vietnam, Chile and others.
What are the implications?
FJA list jurisdictions.
If your contractual counterparty is domiciled in the UK or New Zealand, there is a good chance that a standard litigation clause will cover both parties adequately.
Things are not so clear for the remaining 32 FJA jurisdictions: though you might think your business is adequately covered as long as your counterparty is domiciled in one of these jurisdictions, there are important qualifications and grey areas you need to bear in mind.
In broad terms, the effect of the FJA is to recognise judgments from any of the recognised jurisdictions as enforceable once registered in Australia. This applies in Scenario A, provided that the judgment is final and comes from one of the Superior Courts listed in the Schedule of the Foreign Judgments Regulations 1992.
Note that the FJA excludes foreign judgments from lower courts from enforcement in Australia via the registration process. This is a very important limitation, as most judgments come from lower courts. Non-money judgments, such as injunctions, orders for specific performance or declarations of rights are also excluded.
Just as importantly, even if your counterparty’s jurisdiction is on the FJA list but you find yourself in Scenario B, the formalities and procedure of enforcing an Australian ruling in an overseas jurisdiction will depend on the laws applicable in that jurisdiction.
Finally, note that there is a risk that cross-border enforcement might fail if your counterparty shows that the original court did not have jurisdiction (e.g., your counterparty has never been to Australia and did not agree to be subject to the Australian courts in the contract) in which case the foreign court may refuse to recognise the original Australian judgment (in Scenario B).
Jurisdictions not on the list.
If your counterparty is domiciled in a jurisdiction not on the FJA list, you will need to relitigate the matter – either as a common law debt, in Scenario a, or in whichever way applies in the foreign jurisdiction, in Scenario b.
You will obviously want to avoid the expense, inconvenience and uncertainty of this.
The solution: An international arbitration clause.
Even when your counterparty’s jurisdiction is on the FJA list does not guarantee that cross-border enforcement will be straightforward, or even possible.
The best solution to avoid the risk altogether is to insert a well drafted international arbitration clause, agreeing on a recognised venue (if Australia is not acceptable to your counterparty Singapore is a good alternative) and rules.
This will give your business the widest geographical coverage and the legal certainty that comes with predictable procedures and outcomes, which can be easily enforced anywhere.
Get in touch with Praetorium Law to help your business negotiate a solid cross-border commercial agreement to adequately cover it and mitigate commercial risk, or for a confidential discussion if you need advice in connection with any of the scenarios described above.
Email: info@praetoriumlaw.com
Tel : 0410 752 667