Federal Court Of Australia Grants Stay In Favour Of US District Court Proceedings, But Requires Parties To First Mediate In Australia

Armacel Pty Limited v Smurfit Stone Container Corporation

[2008] FCA 592 (2 May 2008) Jacobson J

In brief

An American company has partially succeeded in evading its

(apparent) contractual obligation to mediate and submit to

litigation in Australia, by "getting in first", i.e.

filing an application for declaratory relief in the US District

Court.

However, the American company was not able to avoid its

contractual obligation to first submit to mediation in

Australia

The Facts

Armacel, an Australian company, licensed Smurfit to use its

technology in the United States. The parties fell out, and it

appeared that Armacel would commence legal proceedings. The

contract provided that the parties submitted to the

jurisdiction of the courts of New South Wales, and that any

dispute would first be mediated in Sydney, Australia.

Smurfit moved first: On 5 October 2007 it commenced

proceedings in the United States District Court seeking

negative declaratory relief that it had no remaining

obligations to Armacel under the agreement, other than payment

of certain monthly instalments and return of Armacel's

equipment.

On 7 November 2007, Armacel commenced proceedings in the

Federal Court of Australia, seeking damages for pre-contractual

representations by Smurfit (pursuant to the Trade Practices

Act 1974), and for breach of contract.

Armacel then moved the US District Court to dismiss the

proceedings before it for want of jurisdiction. On 27 December

2007 the US District Court dismissed this motion, holding that

the jurisdiction clause in the contract was non-exclusive.

Smurfit then filed a Notice of Motion in the Federal Court

of Australia seeking a stay of the Australian proceedings.

Armacel filed a cross-application for an anti-suit injunction

against Smurfit. The motion and application were heard by

Jacobson J in Sydney.

Whether the decision of the US District Court gave rise to

an issue estoppel

Armacel challenged the finding of the US District Court that

the jurisdiction clause in the contract was non-exclusive.

Jacobson J noted that the High Court of Australia has adopted

the test used by Lord Guest in Carl Zeiss v

Rayner1, which includes a requirement that a

decision be "final", before an issue estoppel is

created.

Jacobson J deferred to Lord Brandon's judgment in

The Sennar (No 2)2 as authority that a

final decision must be both "final and conclusive"

and "on the merits". On this basis, Lord Brandon and

other judges in England and Australia had decided that an...