A producer and a distributor entered into an agreement to sell shoes in Australia. The contract contained broad New York choice of law and venue provisions.  When relations soured, the distributor brought suit in an Australian court, which declined to enforce either the venue or choice of law provision finding that doing so might deprive the plaintiff of a remedy it could obtain under Australian law. Should a New York court enjoin the distributor from continuing its Australian lawsuit?

Justice Saliann Scarpulla of the Commercial Division of New York County’s Supreme Court recently confronted this difficult question of international law in Madden International, Ltd. v. Lew Footwear Holdings Pty Ltd.. It was clear that Madden, a US company, had insisted on the New York forum and New York law provision in the contract. Instead of receiving the benefit of its bargain Madden found itself embroiled in a lawsuit in Australia, with Lew Footwear successfully arguing Australian law should be applied, and that the suit should go forward in Australia.

The contract provided that Lew Footwear, a distributor based in Australia, would have exclusive rights to market and sell Madden footwear, handbags, and accessories in Australian and New Zealand. During the 2009 negotiations leading to the contract, Madden had emphasized that any disputes arising out of the agreement had to be heard in New York and decided under New York law. The contract so provided. At the end of 2013, Lew Footwear decided to terminate its relationship with Madden. Both sides threatened litigation, but Lew Footwear moved first, instituting suit in Australia under two Australian statutes providing for special damages.

The Australian court considered the forum selection and choice of law clauses in the contract, but decided that because Lew Footwear would be unable to make use of the protections of the Australian statutes in New York, strong policy considerations favored ignoring the forum selection and venue provisions. The case went forward in Australia under Australian law. In addition, Lew Footwear obtained an injunction in the Australian court prohibiting Madden from pursuing the claim in New York. This prompted Madden to seek an injunction in New York for enforcement of the forum selection clause and an injunction prohibiting Lew from continuing its Australian suit.

The New York Supreme Court upheld the forum selection clause and enjoined Lew Footwear from prosecuting its case in Australia. In arriving at this conclusion, the Court had to address issues of international comity which, the Court defined as one of “good neighbourliness, common courtesy and mutual respect between those who labour in adjoining judicial vineyards.” Madden Int’l at *14 (quoting JP Morgan Chase Bank v. Altos Hornos de Mexico, S.A. de C.V.. Ultimately, the Court ruled, comity lies within the discretion of the trial court. Because New York has a strong policy of protecting New York corporations and routinely does so through the enforcement of valid forum selection clauses, the Court decided it was worth potential conflict with the Australian court and issued the injunction against Lew Footwear.

Reminder: have your lawyer review policies in foreign jurisdictions before agreeing to a choice of law and venue provision.

It remains to be seen how the issues raised in this litigation will be resolved. Perhaps the two litigations will proceed simultaneously in contravention of the conflicting injunctions barring suit in each jurisdiction. Inconsistent findings of fact and judgments are possible, as are conflicting contempt citations. The fact that treaties govern many of the relationships between the United States and Australia may complicate matters further and any enforcement of judgments may implicate international politics.

The case provides a warning to sophisticated parties as they negotiate the terms of an international contract because foreign courts may not always apply an otherwise valid forum selection clause. As this case illustrates, under certain circumstances a strong judicial policy favoring a foreign party in its own jurisdiction can trump the terms of a private agreement.

Patrick Rieder also contributed to this article.