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13 October 20213 minute read

Just head to arbitration

Freedom Foods Pty Ltd v Blue Diamond Growers [2021] FCA 172

The interaction between domestic laws, choice-of-law and arbitration clauses in contracts governing cross-border transactions can create uncertainty for commercial parties when disputes arise. The case of Freedom Foods Pty Ltd v Blue Diamond Growers [2021] FCA 172 is a recent reminder of this.

This case concerned a Licence Agreement that contained an express choice-of-law clause which provided that the agreement is governed by the laws of California, and an arbitration clause which required the parties to refer certain disputes to a single arbitrator in California.

Freedom Foods brought proceedings in the Federal Court of Australia seeking a declaration that Blue Diamond Growers had breached sections 18 and 21 of the Australian Consumer Law (ACL) and challenging the validity of the arbitration clause.[1] Blue Diamond Growers, who had by that time commenced an arbitration in California, sought a stay of the proceedings under section 7(2) of the International Arbitration Act 1974 (Cth).

The Federal Court ultimately rejected arguments concerning the validity of the arbitration clause.  However, a question arose as to whether the claims under the ACL (which is mandatory law that the arbitrator must apply) could be brought in the Californian arbitration. The Federal Court accepted that the ACL claims can be heard and determined in the Californian arbitration, and that Australian law would be applied in determining such claims.

The decision of the Federal Court was unsuccessfully appealed to the Full Court of the Federal Court of Australia in Freedom Foods Pty Ltd v Blue Diamond Growers [2021] FCAFC 86.

This case highlights the need for familiarity with the laws of the jurisdictions that business is conducted in not only in the preparation of cross-border transaction documents, but also in contemplating likely enforcement of such transactions and dispute resolution.

Most recently, our team at DLA Piper acted in a substantial cross-border dispute initiated in the High Court of Malaya in Kuala Lumpur which concerned an Australian contract entered into by a Malaysian and Australian entity. Our team successfully deployed the relevant laws of Malaysia to stay the Malaysian proceedings by upholding the choice-of-law and arbitration clauses in the contract.

[1] On the basis that the Licensing Agreement was a “franchise agreement” under the Australian Franchising Code and as such could not validly contain a clause mandating dispute resolution in a jurisdiction other than Australia.