Law Articles

Return to Law Dictionary Index

Foreign "long arm" Laws Can Reach Out to U.S Clients

By Clayton J. Joffrion

Most American lawyers know that extraterritorial jurisdiction began with Pennoyer v. Neff, which prohibited state courts from asserting personal jurisdiction over persons not within the territory. Sixty seven years later in International Shoe v. Washington the Supreme Court held that state courts could exercise jurisdiction over persons located outside the state if the defendant possessed "minimum contacts" with the state "such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice".

The first "long arm statute" in the common law experience was in Great Britain's Common Law Procedure Act of 1852 which gave English courts discretionary power to summons absent defendants whether English or foreigners. The important fact is that Great Britain had what we call long arm statutes 93 years before the Supreme Court would recognize them. Furthermore, most former British colonies adopted the same principles into their laws.

The early history of long arm jurisdiction (called "exorbitant jurisdiction" elsewhere) in the United States was based upon Due Process analysis under the Constitution, but not so other countries. Does this make any difference? You bet your malpractice insurance it does! In order to appreciate this potential problem a real case out of Australia is offered for illustration.

HOW CAN A MISSOURI ACCOUNTANT BE SUED IN AUSTRALIA?

Consider the High Court case of Voth vs. Manildra Flower Mills PTY. Limited which was an appeal from the Supreme Court of New South Wales. Donald Voth was an accountant who resided in Missouri (U.S.A.). The plaintiff, Manildra Flower Mills, had sold products to a related company in the U.S. with payments to include interest. Donald Voth rendered professional services to the related company and was alleged to have failed to "draw the attention of the related company" to the fact that it had to withhold taxes on interest paid by it to the company in New South Wales. The plaintiff claimed that it was liable to reimburse the related company for the taxes, penalties, and interest, and that it had paid more Australian taxes than it would have if the withholding taxes had been paid on time.

WHAT WAS THE BASIS FOR JURISDICTION?

The plaintiff relied on Part 10, Rule 1(1)(E) of the New South Wales Supreme Court Rules, which provides for the service of process outside the state "where the proceedings, wholly or partly, are founded on, or are for the recovery of damages in respect of, damage suffered in the state caused by a tortuous act or omission wherever occurring" (emphasis mine). Under the New South Wales Supreme Court Rules, this method of obtaining jurisdiction is based on the connection of damages suffered to the state.

Notice the absence of any requirement that the tortuous act or omission be related to any economic activities directed to or reasonably foreseeable as affecting Australia. This differs from the average U.S. rules where Supreme Court decisions have used such terms as "minimum contacts", "continuous and systematic activities", "purposeful availment", and "traditional notions of fair play and substantial justice".

IS THE DOCTRINE OF FORUM NON CONVENIENS AVAILABLE?

The New South Wales Rules allow for the doctrine of forum non conveniens, however, this is not a defense to jurisdiction - it is an equitable remedy which must be specifically pleaded and pursued sometimes at great costs. In the beginning Voth moved to have the statement of claim (complaint) and the service out of the state set aside; alternatively, he requested an order that the proceedings be stayed. The trial court dismissed the motion and Voth's first appeal was likewise denied. Then the High Court agreed to hear the case.

HOW DO AUSTRALIANS ANALYZE THE DOCTRINE OF FORUM NON CONVENIENS?

The original trial court, in considering the forum non conveniens argument, applied the principles set out in MacShannon vs. Rockwell Glass Ltd. (a House of Lords case) which stated: "(1) that a mere balance of conveniences is not a sufficient ground of depriving a plaintiff of the advantage of prosecuting his action in the forum, if it is otherwise properly brought; (2) in order to justify a stay (a) the defendant must satisfy the court that there is another forum, to whose jurisdiction it is amenable in which justice can be done between the parties with substantially less inconvenience and expense; (b) and such stay must not deprive the plaintiff of a legitimate or personal or juridical advantage which will be available to him, if he invoked the jurisdiction of the court in which the stay is sought".

After the trial court's decision, the House of Lords decided Spiliada Maritime Corporation vs. Cansulex Ltd. which discarded the MacShannon principles and held that the burden resting on a defendant seeking a stay "is not to show that [the jurisdiction involved] is not the natural or appropriate forum for the trial, but to establish that there is another forum which is clearly and distinctly more appropriate than the English forum". This left a distinction between the Spiliada `more appropriate forum' test and the MacShannon `inappropriate forum' test.

WHAT ABOUT FORUM SELECTION CLAUSES?

In Oceanic Sun Line Special Shipping Company Inc. vs. Fay the plaintiff, a resident of Queensland sued in New South Wales for personal injuries while he was a passenger on a tourist ship in Greek waters. The defendant was incorporated in Greece and owned and operated a ship registered in Greece. The port of both departure and destination was in Greece. The plaintiff initially sued in New York where the action was stayed on the grounds of forum non conveniens. The plaintiff then obtained leave in Australia to serve the summons outside the jurisdiction on the basis that he suffered injury within New South Wales.

The contract of carriage had been entered into in New South Wales. A brochure had been shown to the plaintiff stating that transportation of passengers was governed by the terms and conditions printed on the passenger ticket. The plaintiff did not read that part of the brochure and the tour company did not have tickets available for inspection. Clause 13 of the "conditions" stated that any action against Oceanic "must be brought only before the courts of Athens, Greece to the jurisdiction of which the passenger submits himself formally excluding the jurisdiction of all and other court or courts". The High Court found that the contract of carriage had been concluded in New South Wales and that the conditions on the ticket did not form a part of the contract. Since the forum selection clause was not part of the contract the next issue was whether the proceedings should be stayed to allow suit to be commenced in Greece, however, the High Court found that Greece was a clearly inappropriate forum.

From an American perspective, under contract law there may have not been a valid forum selection clause, but that does not rule out Greece as an appropriate forum. After all, the ship was in Greece as was the crew and the fact witnesses may have a closer contact with Greece than Australia.

THE RESOLUTION OF VOTH

Counsel for the Australian plaintiff argued that "the cause of action sued on arguably arose in substance in New South Wales. The appellant knew his work was being carried out for an Australian owned company and that it would be transmitted to Australia and have repercussions here". Voth's attorney argued that Australia was a clearly inappropriate forum and that the acts that gave rise to the plaintiff's grievance were the giving of advice in Kansas City and that is where any tort could have been committed even though the consequences might flow to Australia. He also pointed out that evidence relating to a breach of duty would have to come from professionals in America.

The High Court reviewed the complexity of the issues and admitted that trying to adopt a "more appropriate forum" test is complicated, because what is more appropriate can be subjective. Also, the "inappropriate forum" test could lead to the same problem. The majority in Voth found that the alleged tortuous act was committed in Missouri and accordingly, even if the case was handled in Australia it would be controlled by Missouri law and evidence located there. One must assume that the Court meant to adopt an "inappropriate forum" test as the dissenting opinions accused the High Court of doing so. Regardless of the name of the test, what seems to be lacking in the considerations is justice and fairness. Could not the argument be made that the Australian plaintiff knew work on its behalf was being carried out in Missouri by an American and the plaintiff assumed the risk that an error would be made in Missouri?

The plaintiff complained of three obstacles to a suit in Missouri: (1) a statute of limitations in Missouri would bar the suit; (2) they could not obtain attorney's fees, and (3) the rules regarding interest on awards were less advantageous. The majority agreed to grant the appeal to stay the action on the condition that the defendant not raise as a defense the limitation of actions.

We might find some comfort in the fact that the High Court granted forum non conveniens relief in this case, however, that success was an expensive one. Notwithstanding any analysis of the High Court, the original trial court had jurisdiction and the burden of the forum non conveniens request was on the defendant. Despite the outcome of the case one can just imagine Donald Voth still shaking his head wondering how he could have been forced to resist the exercise of jurisdiction over him in Australia.

SO WHAT DOES THAT MEAN TO YOU?

Suppose someone from Australia or any jurisdiction with a similar exorbitant jurisdiction statute appears in a physician's, or dentist's, or lawyer's office, or a hospital seeking services. If the service comes into question, could the professional be sued in Australia or another country? The answer is yes. Furthermore, the chances that a court would grant a forum non conveniens motion seems unpredictable in this grey area of the law, but unless the defendant makes an appearance to urge the motion a default judgment could be rendered.

How can you undertake to protect yourself further? Professionals must stop viewing forum selection clauses merely as domestic matters. All professionals should offer clear forum selection clauses to those seeking their services based not only on U.S. law but those designed for international needs. After Oceanic it is clear that forum selection clauses must be express and not only noticeable, but agreed to. This will at least give the potential foreign plaintiff cause to consider more clearly the proper jurisdiction. It could also pave the way for an award of attorney fees if suit was improperly filed in the foreign jurisdiction. Unlike U.S. long arm statutes, most of the foreign courts are required to review the facts and evidence before granting leave to serve the complaint out of the country. A clear forum selection clause appearing on contracts, medical consent forms, retainer agreements, and where professionally appropriate might encourage a foreign court to deny a motion for leave to summons you or your professional clients to a foreign country.

Return to International Law

Return to Law Dictionary Index