Distribution Agreements: Exclusive jurisdiction clauses in the UK

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Distribution arrangements

In July 2011, Smash Enterprises Pty Ltd (Smash) appointed Euromark Limited (Euromark) as its exclusive distributor in the UK (with possible expansion to Ireland, the USA and Canada) for a 3 year term.

The parties’ written Distribution Agreement included a clause specifying that:

• the Agreement and the relationship was governed by and in accordance with Australian law; and
• the parties submitted to the exclusive jurisdiction of the courts of Australia (exclusive jurisdiction clause).

Termination of the Distribution Agreement

In October 2012, Smash sought to terminate the Agreement and deal directly with Euromark’s customers (including Tesco and Sainsbury’s), as those customers had made it clear to Smash that that they would only deal with Smash direct going forward.
Euromark commenced proceedings against Smash in the English High Court asserting that:

• Smash had no proper grounds for terminating the Agreement (and had just done so because it was commercially convenient); and
• by terminating and dealing with Euromark’s customers direct, Smash had wrongfully “repudiated” the Agreement, entitling Euromark to substantial compensation.

Smash’s challenge to proceedings

Smash argued that, because of the exclusive jurisdiction clause, the Court had no jurisdiction (or ability) to hear Euromark’s claim.  Rather, any claim would need to be commenced in Australia (where Smash, but not Euromark, was based).

In response, Euromark argued that:

• because its claim was so strong (and “effectively unanswerable”), the Court could ignore the exclusive jurisdiction clause; and
• Smash was only seeking an unfair procedural advantage by challenging the Court’s jurisdiction.

The Court’s decision

Essentially, the Court decided that:

• the exclusive jurisdiction clause could only be overridden if there were “strong reasons” for doing so (e.g. if courts in the relevant jurisdiction may not afford a fair trial or were potentially unreliable or unjust); and
• even though Euromark’s case against Smash appeared strong (and Smash’s defence did not), this was not enough to justify overriding the exclusive jurisdiction clause.

The Court also said that, even assuming Euromark’s claim against Smash was “very strong” and that there had been some tactical manoeuvring by Smash, it was not wrong or unfair for the Court to simply enforce the parties’ agreement (as set out in the exclusive jurisdiction clause).

The Court ultimately found that Euromark would have to commence proceedings in an Australian court (at further, potentially significant, cost to Euromark).

Implications for wine distribution agreements

Many wine distribution agreements contain exclusive jurisdiction clauses.  These may often be overlooked or regarded as simply standard (or “boilerplate”) clauses with minimal commercial importance.

However, as this case demonstrates:

• they can have significant practical and cost implications for parties should a dispute arise; and
• subject only to fairly limited exceptions, they will generally be enforced by the courts (at least in the UK and Australia).

The approach taken by courts in the United States is similar (where exclusive jurisdiction clauses will generally be upheld unless there are exceptional circumstances, such as fraud or public policy reasons).

Accordingly, when negotiating agreements, wineries and distributors should carefully consider the nominated jurisdiction to ensure it is appropriate and feasible (including having regard to relevant commercial and/or practical implications). 

This may avoid potentially costly subsequent disputes over jurisdiction or choice of law issues and any “nasty surprises” (e.g. being dragged into foreign proceedings) if or when a dispute does arise. 

It is also worth noting that whilst this case proceeded in an international context (i.e. with an international party and an international exclusive jurisdiction clause), similar considerations apply in contracts between solely Australian-based parties, where a particular State or Territory may be nominated in an exclusive jurisdiction clause.

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This Alert is intended as an alert only. It does not purport to be comprehensive advice. Readers should seek professional advice before acting in relation to these matters.