Dealing with overseas customers – a typical scenario

By Philip Colman, Principal, MST Lawyers

The administrative functions and all the banking of your business is in Melbourne.  But you have sales teams throughout Asia who obtain orders for your goods from customers throughout Australia. 

Your sales manager in Beijing obtains a large order from a customer in China.  The goods are shipped from Melbourne following receipt of a 50% deposit, but the customer does not pay the balance, alleging (without basis, in your view) it did not receive the goods and that some of them were defective. 

Your contract with the customer says that all payments are to me made by wire transfer into your Australian bank account.  It also says Australian law applies, but is silent as where litigation is to take place.

You engage a debt collector who sues for recovery of the debt in the Victorian Supreme Court.

The customer brings an application to either permanently stay (stop) the proceeding because it has been brought in the wrong venue.  If the customer succeeds with the application, your only choice to recover the debt is to litigate in China.  If this occurs you will be put to considerable extra expense, inconvenience and uncertainty as to how the Chinese legal system works.

Should you oppose the application?  How will the Victorian Supreme Court consider this application?  Or should you start again in a Chinese Court?

In considering such an application the Victorian Supreme Court will apply common law principles known as “forum conveniens”.

In this case the test will be whether the Victorian Supreme Court is a “clearly inappropriate forum”:  In the leading case the Court said:

“First, a plaintiff who has regularly invoked the jurisdiction of a court has a prima facie right to insist upon its exercise. Secondly, the traditional power to stay proceedings which have been regularly commenced, on inappropriate forum grounds, is to be exercised in accordance with the general principle empowering a court to dismiss or stay proceedings which are oppressive, vexatious or an abuse of process and the rationale for the exercise of the power to stay is the avoidance of injustice between parties in the particular case. Thirdly, the mere fact that the balance of convenience favours another jurisdiction or that some other jurisdiction would provide a more appropriate forum does not justify the dismissal of the action or the grant of a stay. Finally, the jurisdiction to grant a stay or dismiss the action is to be exercised ‘with great care’ or ‘extreme caution’.”

“Oppressive” in this context means seriously and unfairly burdensome, prejudicial or damaging; and “vexatious” means productive of serious or unjustified trouble and harassment:

The test focuses on the advantages and disadvantages arising from a continuation of the proceedings in the selected forum rather than on a judgment concerning the comparative merits of the two legal systems.

It will be difficult for the customer’s application for a stay to succeed.  Clearly you were entitled to sue in the Victorian Supreme Court, the goods were supplied from Melbourne and payment had to be made to your Australian bank account.  This will probably be enough to defeat the stay application despite factors connecting the transaction to China.

But do you really want to fight the application?  Should you start again in China?

Ultimately, your goal is to get paid.  A judgment in your favour in the Victorian Supreme Court does not guarantee payment.  It needs to be enforced and all of the customer’s assets are in China.

Despite the massive amount of trade between Australia and China, agreement had not yet been reached by the governments of both countries to recognise and enable enforcement of each other’s court judgments.

That being so, from a litigation perspective, you really have no option but to issue proceedings and take your chances in China.  It will be interesting to see whether and, if so, how, a Chinese Court will enforce the “Australian Law” provision in the contract. 

Key lessons to be learned from this scenario are;

• Don’t despatch goods overseas unless payment is secured;
• Ensure your overseas contracts provide extensive provisions requiring international arbitration;
• Before jumping the gun and suing an overseas customer in your home jurisdiction, ascertain whether any judgment you obtain can be enforced in the country where the customer’s assets are located.

MST Lawyers Dispute Resolution and Litigation team are well versed and experienced in dealing with these issues.  MST Lawyers Corporate Advisory team can also assist you in ensuring that your overseas contracts contain the best possible level of protection and assist in the negotiation of those contracts.  To contact our experienced Dispute Resolution and Litigation team, please email litigation@mst.com.au or by telephone +61 3 8540 0200.