ALRC 80 Legal risk in international transactions Contents Terms of reference Overview Summary of recommendations 1. INTRODUCTION This inquiry The Commission's findings and recommendations Aims and themes Additional issues Consultations and submissions Outline of the report Acknowledgments PART 1 2. REMEDIES, COMMERCE AND CROSS BORDER RISK Introduction Australia's international trade and investment Cross border legal issues Arnotts Limited and the Campbell Soup Company Legal initiatives and responses Business perspective Law reform Further work 3. INTERNATIONAL INITIATIVES Introduction Australia's treaties International law reform Other international activities Evaluating international agreements and harmonisation Assessing priorities Specific international initiatives 4. LITIGATION, ARBITRATION AND INSOLVENCY Introduction Litigation Cross border insolvency International arbitration Legal representation and advice Implementation 5. FINANCE AND ELECTRONIC COMMERCE Introduction Banks and international commerce Financial markets Cross border banking issues Finance law reform Electronic commerce PART 2 6. INTERNATIONAL LITIGATION Introduction Conducting international litigation Jurisdiction Service of process outside Australia Challenging jurisdiction Enforcement outside Australia Foreign evidence 7. AUSTRALIAN REMEDIES: DEBT AND INSOLVENCY Introduction Debt recovery Corporate insolvency 8. AUSTRALIAN REMEDIES: MISAPPROPRIATION AND OTHER DEFAULTS Introduction Misappropriation of assets Breach of contract Negligence Breach of statutory and fiduciary duties 9. INTERNATIONAL AGREEMENTS Introduction International agreements involving Australia Brussels Convention (1968) Lugano Convention (1988) and San Sebastian Convention (1989) Other international agreements and arrangements Hague Conference initiatives ILA Committee initiatives 10. EXTERNAL TERRITORIES Introduction Legal framework applying in the external territories Application of remedies principles in the external territories 11. INTERNATIONAL ARBITRATION Introduction International arbitration associations Model rules for arbitration Legal issues in international arbitration Enforcement Choice of law Recent Australian cases Appendix A: Participants Appendix B: Abbreviations Appendix C: List Of Submissions Appendix D: List Of Consultations Appendix E: Terms Of Reference Select Bibliography Table Of Legislation Table Of Cases Index This Report reflects the law as at 31 May 1996 © Commonwealth of Australia 1996 This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without written permission. Inquiries should be directed to the Manager, Commonwealth Information Services, Australian Government Publishing Service, GPO Box 84, Canberra ACT 2601. ISBN 0 642 25487 7 Commission Reference: ALRC 80 The Australian Law Reform Commission was established by the Law Reform Commission Act 1973. Section 6 provides for the Commission to review, modernise and simplify the law. It started operation in 1975. Terms of reference CROSS BORDER CIVIL REMEDIES Law Reform Commission Act 1973 1. I, MICHAEL LAVARCH, Attorney-General of Australia, HAVING REGARD TO: • the need for a fair, efficient and effective legal system; • concerns that have been raised about the effectiveness of remedies available to companies, firms and individuals, including shareholders and creditors, where assets are held or transferred outside Australia; • the need for effective civil remedies for claims arising out of civil and commercial transactions that involve other countries as well as Australia; REFER to the Law Reform Commission under the Law Reform Commission Act 1973: (a) civil remedies available under Australian law for claims arising out of civil or commercial transactions that involve, or require enforcement in, other countries besides Australia, (b) other civil remedies available for those types of transactions under multilateral and bilateral international instruments or arrangements to which Australia is or could be a party. 2. THE COMMISSION is to review and consider those remedies and report on the feasibility of the systematic development and reform of the law in relation to those remedies. That feasibility report shall include: (a) a summary of what those remedies are, (b) a summary of any significant difficulties that have been experienced in pursuing any of those remedies, (c) a preliminary identification of areas in which there is an absence of appropriate remedies, (d) a summary of existing initiatives within the Commonwealth Government to seek improved or additional remedies, (e) a preliminary identification of any other or further initiatives that are necessary or desirable for that purpose, and the areas of Commonwealth Government in which those initiatives might be pursued having regard to existing responsibilities, (f) an identification of the scope for the Commission to review and report further on the potential for improved or additional remedies, either separately or in conjunction with the areas of government identified under (e). 3. THE COMMISSION shall focus in its feasibility report on the following types of cases: (a) debt recovery from an individual debtor where the debtor or the debtor's major assets are located (or believed to be located) outside Australia, (b) corporate insolvency where the corporation has assets both within and outside Australia, and those in effective control of the corporation may be outside Australia, (c) the misappropriation and transfer overseas of property of an institution or fund, (d) breach of contract claims arising under a contract governed by Australian law where the debtor is located overseas, (e) negligence or other tort claims arising from commercial transactions where the injury is suffered by an Australian resident but the tort occurs outside Australia, and (f) breach of fiduciary or statutory duty where the duty is owed under Australian law but the breach occurs outside Australia. 4. THE COMMISSION shall also focus in its feasibility report on the implications of those types of cases where the overseas jurisdictions involved are one or more of: (a) a low tax jurisdiction (taking the Cook Islands as an example), (b) a jurisdiction with strict bank secrecy laws (taking Switzerland as an example), (c) a jurisdiction with reciprocal enforcement of judgment arrangements with Australia, (d) a jurisdiction without reciprocal enforcement of judgment arrangements with Australia, (e) a jurisdiction without comparable corporate regulation (taking Vietnam as an example), (f) a common law jurisdiction (taking California, USA as an example), (g) a civil code jurisdiction (taking Germany as an example), and (h) a mixed law jurisdiction (taking Indonesia as an example). 5. THE COMMISSION shall consider, among other matters: (a) the impact of Australia's participation in international trade and international financial markets on the types of civil and commercial claims that may arise, (b) the implications of electronic banking, clearing systems and international communications for the effectiveness of current remedies, (c) the extra-territorial application of relevant Australian laws, (d) jurisdictional limits, including issues relating to service of process and anticipatory injunctions, and (e) the application of Commonwealth law in Australia's external territories. 6. THE COMMISSION shall not review procedures for confiscation of assets under the Proceeds of Crime Act 1987 or the law relating to the collection of revenue. 7. THE COMMISSION shall, in performing its functions in relation to this reference, consult: (a) the Attorney-General's Department and other relevant Commonwealth departments and agencies, including AUSTRAC (b) Insolvency and Trustee Service, Australia and insolvency practitioners, (c) Australian Bankers Association, International Banks and Securities Association, Australian Stock Exchange, Sydney Futures Exchange, Reserve Bank of Australia, Australian Securities Commission and others involved in the finance and securities markets, (d) Austrade, Business Council of Australia, Chambers of Commerce and other associations of Australian exporters and importers, (e) Law Council of Australia and legal practitioners, and (f) international organisations responsible for, or with expertise in, the international instruments and arrangements referred to above, and others with relevant expertise in the jurisdictions referred to above. 8. THE COMMISSION shall have regard to previous Law Reform Commission or other reports relevant to this topic, and any government steps taken to implement them, including reports on: (a) Foreign State Immunity (ALRC 24), (b) Debt Recovery and Insolvency (ALRC 36), (c) Service and Execution of Process (ALRC 40), (d) General Insolvency Inquiry (ALRC 45), (e) Choice of Law (ALRC 58). 9. IN MAKING its feasibility report the Commission shall also have regard to its function in accordance with section 6(1)(d) of the Law Reform Commission Act 1973 to consider and present proposals for uniformity between the laws of the Territories and laws of the States. 10. THE COMMISSION is required to make its feasibility report by 30 June 1996. Dated 19 July 1995 Michael Lavarch Attorney-General Overview International commerce and law reform This report is about the legal problems faced by Australian business in international commerce. It is a feasibility report assessing the scope for law reform in this area. The report focuses on civil remedies in international commerce and their