Reforming Private International Law – Finally ‘Australia in the Asian Century’?

Australia is long overdue for statutory intervention in private international law (PIL), so the recent ‘Discussion Paper 1’ (DP) from the federal Attorney-General’s Department (AGD) is very welcome. From a background in comparative and transnational business law, I strongly support legislative reform, particularly for cross-border consumer transactions and/or in relation to international arbitration. This can now draw on a wealth of experience at an international level and from our major (now mostly Asia-Pacific) trading partners. Such reforms will add tangible evidence of the Government’s recently declared commitment to ‘Australia in the Asian Century‘.

A. Possible Reform Options (ch6):
The DP remarks that opponents of legislation in this field ‘regularly argue that private international law rules should remain flexible’ and driven by case law (para 197), but the footnote (n 168) for this proposition only refers to one law journal article dating back over 20 years. The DP also points out (at para 196) that our major trading partners have (re-)legislated in this area of law – including the EU (which includes among its 27 member states, of course, jurisdictions like England and Ireland that share Australia’s case law based common law tradition). It should be added that the American Law Institute has now formally embarked on a Restatement (4th) of Foreign Relations Law, including principles of jurisdiction and judgments enforcement under US law. Many Australians and other common lawyers are also familiar with the processes and outcomes of PIL reform through the work of the Hague Conference on PIL.
The DP also suggests that developing a PIL statute for Australia would be ‘complex, potentially taking considerable time to complete’ (para 197). The footnote (n 169) gives as an example the ‘step-by-step process’ of the Netherlands since the 1970s. Another example is Japan: it has indeed amended its Civil Procedure Code regarding jurisdiction (in force from 2012, as cited at n 163), but Japan also completed in 2006 a major revision of its long-standing PIL statute covering choice of law. Australia can minimize complexity, costs and timeframes for legislative interventions by adopting a similar process, drawing furthermore on the comprehensive deliberations and comparative law analysis conducted by law reformers in major trading partners like Japan.
Adopting instead a ‘principle-based framework … aimed at harmonizing, not at unifying, private international law across Australia’ (para 192) is not a palatable alternative to statutory reform. Australian courts would be unlikely to follow such principles: they do not have a good track record in applying existing PIL principles (eg enforcement of choice of court clauses: see the empirical study of Professor Mary Keyes cited at para 53). Legislators do not need ‘a template for domestic legislation’ (para 193) because the major problems with PIL in Australia are in cross-border rather than domestic contexts, necessitating one statute in that respect. And a non-binding ‘principle-based framework’ is inappropriate for ‘parties to a contract … to shape their contractual and extra-contractual dealings’ (para 193) because PIL rules (eg the test for the choice of law if parties don’t expressly agree on one) are essentially directed at courts or arbitrators.
B. Choice of Law rules under Australian PIL (DP ch4)
Legislative reform is necessary because the applicability of mandatory substantive rules of Australian law is presently unclear and/or debatable on policy grounds, particularly in ‘consumer’ transactions. The DP remarks in relation to the Competition and Consumer Act 2010 (Cth), the new name for the Trade Practices Act (TPA), that ‘in most cases’ such legislation is prescribed to mandatorily apply to protect parties in unequal bargaining positions, such as consumers and parties to standard[-form] insurance contracts’ (para 98).
Yet, even for mandatory consumer guarantees cited at n 92 (such as acceptable quality or fitness for pre-disclosed purpose) under Pt 3-2 Div 1 of the former Act’s Schedule 2 (the Australian Consumer Law or ACL), such an outcome is not clear. ACL s67 does provide a quite protective choice of law rule: the forum should disregard any express choice of law clause in the ‘contract for the supply of goods or services to a consumer’ (eg ‘US law’), and work out what the proper law would be otherwise (applying, presumably, the ‘closest and most real connection’ test) – if that points to Australian law, the ACL will apply (despite any contrary express choice of law).
One difficulty with s67 is that many consumers (and many solicitors) will not know about the test generally, let alone how to identify and weigh specific factors developed by Australian PIL case law in applying the test.
Secondly, those factors often point more to the law of the supplier, hence an exporter (eg Amazon USA) to an Australian buyer, in which case the forum would have to apply the foreign law – such as US law, which does not have mandatory guarantees or warranties for consumers (unlike the ACL). Admittedly, an Australian court might give more weight to connections with Australia in order to protect the Australian consumer under the ACL, by extending the reasoning of the High Court of Australia in Akai Pty Ltd v People’s Insurance Co Ltd (1996) 188 CLR 418 (helpfully cited at n 94) when interpreting a similar choice of law rule in the Insurance Contracts Act 1984 (Cth). But this result is not guaranteed, especially given that the ACL’s relevant definition of ‘consumer’ (s3) is comparatively broad: mandatory warranties generally apply to sales under $40,000 even to firms purchasing for business purposes. An Australian Court might well conclude that such firms do not need to be protected in the same way as individuals purchasing for non-business purposes, and therefore apply ACL s67 so as to respect an express choice of foreign law agreed in that essentially business-to-business (B2B) context.
Another problem is that the ACL curiously omits any choice of law rule whatsoever in its new Pt 2-3 provisions regulating unfair terms generally in standard-form contracts, involving consumers (defined differently under s23(3), as individuals contracting for personal use). Perhaps Australian courts will infer that these new ACL protections are intended to apply in all cross-border supply situations, notwithstanding any express choice of foreign law. After all, they have often taken this approach regarding Australia’s statutory protections against unconscionable or misleading conduct (under the TPA, now carried over in different Parts of the ACL). But there have been exceptions regarding those provisions. Anyway they are more directly aimed at ‘levelling the playing field’ and creating a competitive market for suppliers; rather like competition law more generally, prohibitions on misleading and even unconscionable conduct involve more third-party effects. By contrast, substantive controls over unfair terms (like mandatory consumer guarantees) are traditionally justified primarily on the basis of inter-party effects. In other words, there may be less basis for always applying the ACL protections in such circumstances – which is perhaps why Australia had and retained the ACL s67 compromise choice of law rule regarding mandatory guarantees in consumer contracts.
Nonetheless, this is clearly an area where we need clarification and more policy debate. At least four options should be discussed:
(i) Should we retain ACL s67, perhaps clarifying its contours (or at least referring to a new PIL statute that details the applicable ‘closest and most real connection’ test), and then extend it to other parts of the ACL that lack an express choice of law provision?
(ii) What about instead, at least for some ACL provisions, a clear provision that the ‘consumer’ protections apply in all situations?
(iii) What about an even more protective choice of law rule: directing the forum always to apply the substantive law ‘most favourable to the consumer’? (For example, my forthcoming co-edited book on Consumer Law and Policy in Australia and New Zealand shows how EU law is sometimes even more protective than consumers than the ACL. ) This alternative choice of law rule is contained in a Brazilian-Argentinean-Paraguayan proposal for a draft OAS Inter-American Convention (CIDIP VII-Part II). It is now also urged by the International Law Association through its Committee for the International Protection of Consumers (established in 2008 and on which I serve), namely in Resolution 4/2012 adopting the ‘Sofia Statement on the Development of International Principles of Consumer Protection’.
(iv) As a compromise, what about allowing the parties to agree to opt-in to a set of contract law provisions that are quite favourable to the (consumer) buyer, albeit perhaps less so than the ACL in some respects? This is the idea behind the proposed EU Directive on a Common European Sales Law. I have suggested, in my Submission to the AGD’s separate (yet surely inter-related) Consultation on reforming contract law in Australia, that this instrument could be adopted or adapted in Australia (through a legislative intervention) as an opt-in governing law for cross-border Business-to-Consumer (B2C) transactions.
In that Submission as well as my 2010 article in the Australian International Law Journal, I also recommend legislation for Australia that clearly authorises its courts (not just arbitral tribunals under the International Arbitration Act 1974 (Cth)) to give effect to ‘non-state law’ (see DP para 103) if the parties expressly so choose. ‘Non-state law’ includes the UNIDROIT Principles of International Commercial Contracts – increasingly accepted, even in Australia, but designed instead for B2B transactions.
C. Jurisdiction (DP ch3)
As the Australian government now examines in more detail the choice of law rule possibilities, especially for cross-border consumer transactions of various types, it also should also clarify the effect of parties’ choice of a foreign court – or foreign-seated arbitration. The DP again notes that some Australian courts have refused to give effect to a foreign choice of court agreement in the context of ‘consumer’ protection legislation (para 51), but some have been more willing to allow leeway particularly for foreign arbitrators to determine whether and how to apply rules on or related to misleading or unconscionable conduct. Professor Richard Garnett and I urged the AGD to address this problem in its 2010 reforms of the International Arbitration Act 1974, and I also raised this problem with Treasury during consumer law reform consultations resulting in the ACL. Unfortunately, neither statute has addressed this important but somewhat complex issue, but now Australia has another chance.
Another point that must be considered is s11 of the Carriage of Goods by Sea Act (Cth). It requires disputes over outbound carriage under bills of lading or certain other ‘sea carriage documents’ to be resolved either in Australian courts or arbitration ‘conducted in Australia’. First, it is unclear whether ‘conducted in Australia’ requires hearings to take place here, or whether it is enough for the seat of the arbitration to be Australia. Second, Australian courts have recently split as to whether a relevant ‘sea carriage document’ includes a charterparty. Third, even if it is, we need a policy discussion as to whether than makes sense – given less problems with unequal bargaining power when negotiating charterparties, compared to say bills of lading. Fourth, even for bills of lading, does it make sense nowadays to discriminate against arbitrations ‘conducted’ outside Australia, given the much greater acceptance and quality of international commercial arbitration nowadays?
These issues must be addressed if Australia is serious about projecting itself as a regional hub for international arbitration and dispute resolution generally, as urged by this Government and others. More generally, these ongoing Consultations on PIL law reform in Australia should pay closer attention to issues specific to international arbitration, not just cross-border litigation. This is particularly important and timely given other problems in Australia’s legislative regime for international arbitration, especially an unfortunate ‘legislative black hole’ for certain pre-2010 international arbitration agreements, which must be urgently addressed anyway.

Author: Luke Nottage

Prof Luke Nottage (BCA, LLB, PhD VUW, LLM LLD Kyoto) is founding co-director of the Australian Network for Japanese Law (ANJeL), Associate Director (Japan) of the Centre for Asian and Pacific Law at the University of Sydney (CAPLUS), and Professor of Comparative and Transnational Business Law at Sydney Law School. He specialises in international dispute resolution, foreign investment law, contract and consumer (product safety) law.