Summary

For Australia, the 21st Century is the Asian Century. There has already been a significant shift in the proportion of business Australia conducts with its  traditional trading partners (in Europe and North America) to the Asia-Pacific region. For example, Australia’s trade volume with China reached $121.1 billion in 2011 1 and trade with the ASEAN countries amounted to some $104 billion in 2010-11.2  

Following the release of the Prime Minister’s White Paper on Australia in the Asian Century a number of significant developments have occurred:

  • A formal agreement with China has been reached in early April on a ‘strategic partnership’ involving yearly meetings of the Prime Minister, Foreign Minister, Treasurer and Trade Minister with their Chinese counterparts.
  • Measures are underway to implement the policies enunciated in the White Paper, for example, a Cabinet Committee on Australia in the Australian Century has been established, a Strategic Advisory Board will advise the Prime Minister and the Minister Assisting the Prime Minister on Asian Century Policy on the implementation of the policies and five countries have been identified (Japan, China, Indonesia, India and the Republic of Korea) for which specific country strategies will be developed.
  • A number of Free Trade Agreements are currently under negotiation (for example, with India, Japan, Korea, and the Trans-Pacific Partnership Agreement) or have been concluded (Malaysia, in May 2012).

However, the White Paper does not expressly tackle another important way in which trade in the region can be assisted: by providing access to an effective legal system through which parties can enforce their contractual rights [or, at the very least, will impact the parties' bargaining power in dealings with their Asian counterparts].

A number of steps are being made to rectify this problem.

Legal facilitation of Australia’s integration into the Asia-Pacific region

There are two main issues for the enforcement of contractual rights: first, which law is applicable to the contract, and; secondly, which court enforces the rights.

An international contract law for Australia

With any contract between an Australian and Asian counterparty, the question arises, is it the Asian country’s law that applies or is it the Australian party’s law that applies?

One option that is being considered as part of the Standing Council of Law and Justice consultation into Reforming Australian Contract Law is an international contract law for Australia, applying to transnational transactions. This could be achieved by either drafting a new contract code, or by using already existing international codes such as the UNIDROIT Principles of International Commercial Contracts or similar instruments.

An arguably more effective way to internationalise Australian contract law is allow contracting parties to choose the applicable law to their contract. A first step to achieving this would be for Australia to give statutory force to the new Hague Conference on Private International Law Principles of Choice of Law in International Commercial Contracts, which enshrine the freedom of parties to choose, as a valid contractual choice, the governing law or ‘rules of law’ (that is, non-state law, such as the UNIDROIT Principles). The Attorney General’s Department is currently consulting to identify whether the harmonisation of jurisdictional, choice of court and choice of law rules would deliver worthwhile microeconomic benefits for the community. Submissions have been received by the committee throughout March and April this year and are currently being considered by the Department.

This seemingly technical project is, in fact, of the greatest importance, for it goes to the very way in which different legal systems interact. This is the topic that was missing from the White Paper. The effectiveness of the project depends on further legal reform, specifically, allowing business partners to opt out of Australia’s stringent consumer protection laws (e.g. deceptive and misleading conduct).

An international commercial court

In addition to a sensible set of rules to apply to the substance of a contract, parties need an effective means of enforcing those rights. An international commercial court or, perhaps less ambitiously, an international commercial list as part of the Federal Court system would give parties the assurance that their matters are dealt with by a judge who is experienced in the unique issues which arise in the international context (such as parties, witnesses and documents being found abroad, other countries' courts interference in the proceedings and enforcement of judgments abroad).

A constitutional head of power for such a court has been identified by Allsop CJ in a speech delivered on 10 April 2013 at the Sydney University’s Conference on Australian Private International Law in the 21st Century. That head of power is the foreign affairs power, giving the greatest possible scope to the jurisdiction of such a court.

The new international commercial court could adopt procedures which provide for a more efficient and cost effective way of resolving the matter (akin to those used in international commercial arbitration). For example, it could provide for limited discovery and an early identification of the real issues in dispute.

As commendable as it might be, there are two particular issues which need discussion to make such a court effective.

  • In order for other countries' courts to respect an explicit choice of the Australian international court/list, those courts would have to be obliged to accept that choice, even if other jurisdictional rules point to their own courts. An international treaty, the Hague Convention on the Choice of Court Agreements obliges signatory countries to respect choice of court agreements. To date, however, only Mexico has ratified the Convention, and the EU and USA have signed it. Australia should ratify the Convention and urge other countries to do the same.
  • It is paramount for the success of such a court that any judgments rendered by it are enforceable in the counterparties' home country. To date, there is no international treaty which provides for the mutual recognition and enforcement of judgments. Such a treaty does exist for international arbitration – the New York Convention, covering 148 countries. Similar efforts need to be made in relation to court judgments.

Implications

While the reforms contemplated do not provide a complete solution, first steps are being made at providing Australian businesses with effective ways of enforcing their contractual rights against their Asian counterparts.

Once these projects are put into effect, Australian businesses will have a more effective way of insisting on their contractual rights, relying on the rule of law. Prior to that time, however, Australian businesses should build into their contractual planning consideration of these issues, using legal devices such as a choice of law clause and jurisdiction clause and dispute provisions.