Posts Tagged Proactive Building Solutions v Mackenzie Keck [2013] NSWSC 1500

Sinocore International Co Ltd v RBRG Trading: The commercial court on fraus, ordre public and arbitration.

Fraus omnia corrumpit (fraud corrupts all; alternatively formulated as ex turpi causa non oritur actio) is not easily applied in conflict of laws. See an earlier post here.  In Sinocore International Co Ltd v RBRG Trading , the Commercial Court granted permission for the enforcement of a foreign arbitral award despite allegations that the transaction in question had been “tainted” by fraud: this is how the case is summarised by Mayer Brown and I am happy broadly to refer to their overview and analysis.

The Commercial Court’s relaxed attitude is another sign of strong support of the English courts for the New York Convention and its narrow application of ordre public.

An interesting case for comparative conflicts /arbitration classes.

Geert.

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Fraus omnia corrumpit or accidental oversight? New South Wales Supreme Court goes full throttle in Proactive Building Solutions

Fraus omnia corrumpit (fraud corrupts all) is not easily applied in conflict of laws.  Both forum shopping and choice of law ought not prima facie to be regarded with much suspicion, especially in a B2B context. States typically employ mandatory law provisions, sometimes restricted to ‘overriding mandatory law’ (such as in the EU’s Rome I Regulation for choice of law in contracts) to ring-fence parts of national law not capable of being avoided by choice of law in purely domestic situations, and ‘public order’ provisions to trump choice for foreign law even in not purely domestic contexts, but then only for the most essential parts of a State’s legal fabric.

In Proactive Building Solutions, McDougall J held ex tempore that a choice of court and choice of law clause in favour of the English courts cq English law, was void in its entirety for it negated the working of a provision of the New South Wales Building and Construction Industry (Security of Payment) Act 1999 (NSW) (SOP Act). The object of this Act is to ensure that any person who undertakes to carry out construction work (or who undertakes to supply related goods and services) under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work and the supplying of those goods and services.

Section 34 of that Act reads

34 No contracting out

(1) The provisions of this Act have effect despite any provision to the contrary in any contract.

(2) A provision of any agreement (whether in writing or not):

(a) under which the operation of this Act is, or is purported to be, excluded, modified or restricted (or that has the effect of excluding, modifying or restricting the operation of this Act), or

(b) that may reasonably be construed as an attempt to deter a person from taking action under this Act, is void.

Section 7(1) of the Act, not referred to in judgment, reads

Subject to this section, this Act applies to any construction contract, whether written or oral, or partly written and partly oral, and so applies even if the contract is expressed to be governed by the law of a jurisdiction other than New South Wales.

As pointed out by Leigh Duthie and his colleagues,  while Section 7(1) may have normally allowed the Court to void only the SOP relevant aspects of choice of law, the trouble in the current case was that the contract had thrown choice of court and choice of law into one clause (a very common contractual occurrence), with a foreign court adjudicating.  McDougall J found it highly unlikely that the English courts would uphold the provisions of the SOP Act, hence giving the NSWSC no choice but making the clause void in its entirety. Consequently the whole contractual arrangement became subject to choice of court and choice of law as if no express clause had been inserted, even if the workings of the SOP Act would have had only a minor impact on parties’ contractual relations.

An obvious remedy is to lift SOP relevant parts of the contract out of the choice of court clause, however even in such case some uncertainty persists: for the recalcitrant party, suing in NSW in spite of a choice of court elsewhere, could attempt to raise the SOP flag if only to delay proceedings.

An interesting case for comparative conflicts classes.

Geert.

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