Local companies standing up to big tech
Whether it be the Australian cricketers on the dustbowls in India or AFL teams travelling down the highway to Fortress Geelong, a team will always struggle away from home. The travel is draining, conditions are unfamiliar and the crowd intimidating. Even umpires struggle to maintain neutrality in these conditions.
Is it any wonder then, that when mega global corporations such as Meta (aka Facebook) and Apple are sued by local Australian companies and, having taken steps in the local litigation, they invoke their contractual rights and retreat to their local US jurisdiction? “Come and get us” yell their lawyers as they head for the Californian hills.
In response, a number of David-like Australian tech companies have successfully fought to have their disputes with these tech Goliaths continue in Australian courts. Most recently, in Instagram Inc v Dialogue Consulting Pty Ltd [2022] FCAFC 7, the Full Court of the Federal Court allowed Dialogue Consulting (Dialogue) to maintain its home ground advantage in its proceedings against Meta. This follows the decision in Epic Games, Inc v Apple Inc [2021] FCAFC 122.
Meta pulls the jurisdiction card : Instagram Inc v Dialogue Consulting Pty Ltd
Australian start-up, Dialogue provides a software product that allows its clients to publish content on Facebook and Instagram through an automated process which involves collecting its clients’ passwords on a confidential basis. Alleging this to be a breach of its terms, Meta banned Dialogue’s software product and deactivated the accounts associated with it. In response, Dialogue sued Meta in the Federal Court of Australia, seeking an injunction or damages.
Having filed a defence, served Notices to Produce, requested particulars and participated in discovery, Meta then pulled its jurisdictional clause drawcard seeking a stay of the local proceedings and to force the dispute into an American arbitration.
Meta’s argument and appeal
It was uncontroversial that Meta’s terms of use include a jurisdictional clause requiring any disputes to be resolved via a binding arbitration in the US and that any proceeding commenced in Australia be stayed. However, the terms also provide that this clause does not apply if a party has waived its right to rely on arbitration.
Accordingly, the key issue before the Court was whether, by taking multiple active steps in the litigation, Meta had waived its right to rely on the arbitration clause. At first instance, Justice Beach held that it had and, hence, no stay should be granted. Meta appealed this decision.
Meta had waived its right to a home ground advantage
In dismissing Meta’s appeal, the Full Court agreed that Meta’s conduct in taking multiple and substantive steps in the litigation before seeking its jurisdictional stay “affected, misled or prejudiced” Dialogue and meant that it had waived its right to arbitration.
Moreover, the Full Court held that, because Meta’s conduct had caused Dialogue to suffer unnecessary expenses and delays, staying the proceedings would have meant that Dialogue would have lost any benefits of arbitration.
Implications: You can’t have your cake and eat it too
To some degree, this outcome is limited to the specific terms of use. However, this decision demonstrates that, where a waiver clause is involved, global companies need to seriously think about trying to have their cake and eat it too. If they seek to rely on a jurisdictional clause, these companies need to consider not causing the local company to incur costs to the point that suits them and then hastily retreat to their home ground as soon as they deem it appropriate.
The matter also serves as a reminder for all companies to be aware of any clauses contained in contracts that govern how a dispute is to be resolved.
We look forward to providing a further update once the decision on the main proceeding is handed down.
~ with Christian Mennilli, Lawyer
