ACD Tridon Inc v Tridon Australia Pty Ltd

NEW SOUTH WALES SUPREME COURT

CITATION: ACD Tridon v Tridon Australia [2002] NSWSC 896

CURRENT JURISDICTION: Equity

FILE NUMBER(S): 5738/01

HEARING DATE{S): 4 July, 2 August 2002

JUDGMENT DATE: 04/10/2002

PARTIES:
ACD Tridon Inc (P/R)
Tridon Australia Pty Ltd (D1/A)
Richard Wellesley Lennox (D2/A)
Sandra Lennox (D3/A)
Tridon New Zealand Ltd (D4/A)

JUDGMENT OF: Austin J

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:
T F Bathurst QC with TGR Parker (P/R)
M S Jacobs QC with P Bambagiotti (D1/A,D2/A,D4/A)
S D Robb QC (D3/A)

SOLICITORS:
Allens Arthur Robinson (P/R)
Cutler Hughes & Harris (D1/A,D2/A,D4/A)
Michell Sillar (D3/A)

CATCHWORDS:
ARBITRATION - construction of arbitration clauses - whether arbitration clauses were confined to contractual disputes or extended to disputes under Corporations Act and equitable principles - meaning of 'matter' in s 7(2) of International Arbitration Act - whether disputes under Corporations Act capable of settlement by arbitration under arbitration clauses - PRACTICE AND PROCEDURE - waiver of right to refer to arbitration - meaning of 'waiver' - whether defendants waived their rights - whether disputes can and should be referred to referee under SCR Part 72

ACTS CITED:
Commercial Arbitration Act 1984 (NSW) ss 4, 25, 53
Conveyancing Act 1919 (NSW) s 163
Corporations Act 2001 (Cth) ss 175, 233, 247A, 1071B
International Arbitration Act 1974 (Cth) ss 3, 7, 24
Supreme Court Rules Pt 72

DECISION:
See under heading 'Conclusion'

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

AUSTIN J

FRIDAY 4 OCTOBER 2002

5738/01ACD TRIDON INC V TRIDON AUSTRALIA PTY LTD & ORS

JUDGMENT (revised on 16 & 17 October 2002)

HIS HONOUR: The plaintiff, which was and may still be a minority shareholder in the first defendant, seeks orders for access to corporate documents of the first defendant and its controlled entities (including the fourth defendant), orders invalidating a transfer of shares in the first defendant and rectifying the share register accordingly, and orders to address allegedly oppressive conduct in the management of the first defendant's affairs, including an order that the first defendant be wound up. In seeking this relief, the plaintiff relies partly on statutory remedies under the Corporations Act 2001 (Cth), and partly on the provisions of a shareholders' agreement between itself and the second defendant. The plaintiff also seeks to establish its right to terminate a distribution agreement between itself and the first and fourth defendants.
Broadly speaking, proceedings of this kind are staple fare in any Australian court that conducts a Corporations List. What makes the present case unusual is that the Shareholders' Agreement and the Distribution Agreement each contain an arbitration clause, and the question has arisen whether this proceeding should be wholly or partly stayed because the dispute or part of it is capable of settlement by arbitration pursuant to those clauses. This judgment relates to applications by each of the four defendants for orders staying the proceeding so that arbitration can take place.
The plaintiff ("Tridon") is a company formed in Canada, which emerged from a process of amalgamation under the laws of that country. The first defendant ("TAPL") is a company incorporated in Australia. The fourth defendant, Tridon New Zealand Pty Ltd ("TNZL"), is a company incorporated in New Zealand.
This proceeding began by a summons filed on 29 November 2001. Initially the only relief sought was access by Tridon to the books and records of TAPL. By virtue of some events occurring in January 2002, which I shall describe, the originating process was amended to claim relief against the transfer of shares, held by Tridon in TAPL, to the second defendant, Richard Lennox. There have been subsequent amendments to the originating process and the current pleading is Tridon's Third Further Amended Originating Process, filed, pursuant to leave, in June 2002.
Questions have been raised, in the course of argument and in correspondence between the parties, as to whether those who have purported to represent TAPL before the Court have proper authority to do so. There are three directors of TAPL, one of them representing the interests of Tridon, and the others being Mr Lennnox and his wife, Sandra Lennox, the third defendant. Until January 2002 Mr Lennox controlled two-thirds of the shareholding of TAPL, and Tridon held the other third. Mr Lennox claims that he has validly acquired Tridon's holding, by virtue of some procedures which Tridon challenges in this proceeding. In the circumstances, it seems to me appropriate for the Court, for the time being, to allow counsel for Mr Lennox to represent TAPL (and also its wholly-owned subsidiary, TNZL). There has been no formal challenge to counsel's retainer. If a challenge is made in future, it will be necessary to look at the issue more closely.
Before describing Tridon's claims, and the applications before me today, it will be helpful if I set out some background facts.

Background facts

The business of Tridon includes the manufacture and distribution of motor vehicle accessories and certain other hardware products (including windscreen wipers and hose clamps). Prior to 1988 TAPL was a wholly-owned subsidiary of a company called Tridon Limited, and was the Australian distributor of Tridon's products. Mr Lennox was its managing director. Among TAPL's subsidiaries is TNZL, which distributes the products in New Zealand.
In 1988 Tridon Limited sold two-thirds of the shares in TAPL to Mr Lennox for a consideration of over $1 million. Tridon Limited and Mr Lennox entered into a shareholders' agreement, which purported to regulate the conduct of TAPL's affairs for the future ("the Shareholders' Agreement"). Tridon Limited and TAPL also entered into a 99 year distributorship agreement pursuant to which TAPL and TNZL were granted exclusive rights to distribute Tridon's products in Australia and New Zealand and the Pacific Islands ("the Distribution Agreement").
Thereafter the board of TAPL consisted of Mr and Mrs Lennox, and a nominee of Tridon. Currently that nominee is Harry Arkin of Denver Colorado. Mr Lennox continued as managing director and he and his family have since 1988 been in day-to-day control of the operations of TAPL and its subsidiaries.
Tridon Limited, which was incorporated in Canada, and a company called Tomkins Canada Acquisition Corporation, part of the Tomkins Group of Canada, were the subject of a process of amalgamation under s 177 (1) of the Business Corporations Act of Ontario, effective on 30 August 1999. As part of that process, Tridon Limited resolved that upon the endorsement of a certificate of amalgamation under s 178 (4) of the Business Corporations Act, all of its shares were to be cancelled without the repayment of capital. There is some contention between the parties as to the effect of the amalgamation, and in particular, whether the amalgamation involved any reduction of capital by Tridon Limited, and whether it involved an assignment of Tridon Limited's contractual rights under the Distribution Agreement and the Shareholders' Agreement to another entity. However, as I understand them, the parties before me agree that the amalgamation had the effect that the business formerly carried on in the name of Tridon Limited came to be carried on in the name of Tridon, the plaintiff in the present proceeding.
Mr and Mrs Lennox, on the one hand, and Tridon, on the other hand, have had a falling out. Mr Lennox is concerned about the amalgamation, because some subsidiaries in the Tomkins Group, namely companies referred to as Gates, Trico, Ideal and Stant, are in direct competition with TAPL. He has formed the view that Tridon now wants to destroy TAPL and TNZL, so as to promote the interests of the Tomkins subsidiaries that compete with those companies.
On 3 July 2000 Tridon gave notice to TAPL under the Distribution Agreement, that it had ceased to manufacture all classes of products named in the second schedule to the Agreement, and consequently under the terms of the Agreement it purported to vary the second schedule by withdrawing all of the products in it. Tridon then required TAPL to obtain comparable products from subsidiaries of the Tomkins Group which were TAPL's competitors in Australia. Mr Lennox is concerned that these arrangements give his competitors sensitive commercial information about TAPL's turnover of products and the cost of products to TAPL, information which can be used for competitive advantage against TAPL.
For some time Tridon has been attempting to obtain access to the records of TAPL and its subsidiaries. It is concerned that there may have been some financial irregularities in the conduct of the affairs of TAPL, including irregularities regarding related party loans and directors' remuneration. It has obtained limited access and claims to have identified certain aspects of the conduct of TAPL's affairs which it considers to be irregular and improper. It says that full access has not been provided. As I have said, it commenced the present proceeding in November 2001, seeking orders for access to records of TAPL.
It commenced a proceeding against TNZL, TAPL and Mr Lennox in the High Court of New Zealand in December 2001, seeking orders for disclosure of information concerning the affairs of TNZL and injunctions concerning dealings with its assets. In April 2002 orders were made by consent for the indefinite adjournment of the New Zealand proceeding, after TNZL was joined as a defendant in the present proceeding. TNZL initially asserted that this Court has no jurisdiction over it. It entered an appearance while reserving its right to challenge the Court's jurisdiction, and filed and served an application for summary judgment or for a stay of the present proceeding. The application for summary judgment relied (inter alia) on an alleged lack of jurisdiction. However, TNZL later changed its position. On 2 August 2002 I made orders, by consent, dismissing TNZL's application so far as it was an application for summary judgment, so that it remains only as an application for a stay on grounds relating to arbitration. This seems to imply that there is no longer a contest about the joinder of TNZL as a defendant in the present proceeding or this Court's jurisdiction over it.
The Shareholders' Agreement provides for the compulsory acquisition of the shares of a party who is in "default" as defined in the Agreement. The relevant provision constitutes the non-defaulting party the agent and attorney of the defaulting party for the purpose of effecting the acquisition. In January 2002, purporting to rely upon this provision, Mr Lennox presented a form of transfer of Tridon's remaining shares in TAPL to the board of TAPL and sought to have the transfer approved and registered. By majority (Mr and Mrs Lennox voting in favour and Mr Arkin voting against) the transfer was approved and Tridon's shares were purportedly transferred to Mr Lennox. These events led to the amendments to the originating process to which I have referred.
Mr Arkin, as a director of TAPL, has also been seeking access to various documents held by TAPL. In April 2002 a resolution was passed by the directors of TAPL to provide him with access. However, Mr Arkin says that when he travelled to Australia to conduct his inspection, access was refused. He then commenced a proceeding in the Federal Court against TAPL, seeking orders for access in accordance with the resolution. That proceeding is being defended by TAPL and has been set down for hearing in December 2002.
There is also an arbitration proceeding before the Hon John Clarke QC between TAPL and Tridon. That proceeding was commenced by TAPL in 2000. The principal issue raised by the points of claim in their present form is whether Tridon could validly notify TAPL, as it purported to do on 3 July 2000, that it had ceased to manufacture all classes of products named in the second schedule to the Distribution Agreement and consequently that it varied the second schedule by withdrawing all of the products in it. Other issues include whether Tridon breached the Distribution Agreement by supplying products not produced by it at its Canadian plants; whether Tridon has an obligation to supply TAPL with the equipment necessary for TAPL to manufacture products not supplied by Tridon; and whether TAPL is entitled under the Agreement to obtain products from another source in replacement for products not supplied by Tridon. All these issues are commercial contractual issues having to do with the supply of products under the Distribution Agreement. The questions for the arbitrator will be questions in fact about the supply of products and questions of construction of the Distribution Agreement. There are presently no allegations of oppression or bad faith.
The proceeding became dormant in 2001 but was reactivated in May 2002 by TAPL. On 30 April 2002 TAPL sought leave to file amended points of claim in the arbitration, which would greatly expand the scope of the disputes before the arbitrator, so as to produce a substantial overlapping with the disputes which are the subject of this proceeding. Annexed to the draft amended points of claim was a document broadly in the nature of points of defence to the originating process in the present proceeding, although no defence has been filed in the present proceeding.
On 7 May 2002 TAPL sought, pursuant to s 25 of the Commercial Arbitration Act 1984 (NSW), to have the scope of the arbitration proceeding extended to include the disputes and differences referred to in the proposed amended points of claim, comprising most of the matters which are raised in the present proceeding. TAPL's application has been opposed by Tridon and has not been determined by the Arbitrator. It has been stood over pending the determination of the applications presently before this Court.

A summary of Tridon's claims

In its written submissions dated 19 June 2002, Tridon provided the following summary of its claims in the present proceeding:
"16. First, there are claims for access to documents of TAPL and its controlled entities. The claims, which will be referred to as the 'Document Access Claims', are made pursuant to:
(a) provisions of the Shareholders' Agreement;
(b) section 233 (1) (j) of the Corporations Act (on the basis that the failure to allow Tridon access to the records is oppressive); and
(c) in the case of TAPL, under section 247A of the Corporations Act.
"17. The Defendants against whom the Document Access Claims are made are :
(a) to the extent that they are based on the Shareholders' Agreement: Mr Lennox;
(b) to the extent that they are based on oppression: TAPL, Mr Lennox and Mrs Lennox;
(c) to the extent that they are based on section 247A: TAPL.
"18. Second, there are claims relating to the transfer of Tridon's shares in TAPL. These claims, which will be referred to as the 'Share Divestiture Claims', are as follows:
(a) Tridon alleges that the execution of the transfer forms was not authorised by it. On the pleadings as they currently stand, the potential issues are not yet defined, because it will be for Mr Lennox (and any other party who seeks to support the validity of the transfer forms) to plead the authority relied upon. Presumably Mr Lennox will rely upon the default provisions of the Shareholders' Agreement, whereupon Tridon will join issue by way of reply. This would give rise to various issues as to whether the default provisions have been triggered and if so whether Mr Lennox was entitled to rely upon them, which would be contractual issues; but the dispute may not be limited to contractual issues: for instance, Tridon expects that it will rely upon the failure to register the power of attorney as required by section 163 of the Conveyancing Act 1919.
(b) In any event, Tridon alleges as against TAPL that the registration was invalid because:
(i) the transfer forms were not 'proper instruments of transfer' as required by section 1071B of the Corporations Act - this is both because of the lack of authority and because they were not stamped prior to transfer; and
(ii) the transfer resolution was passed for a collateral and improper purpose.
"19. The Relief sought under this head includes an order for the rectification of TAPL's share register pursuant to section 175 of the Corporations Act.
"20. The Defendants against whom the Share Divestiture Claims are made are:
(a) to the extent that relief is sought under the Shareholders' Agreement: Mr Lennox; and
(b) to the extent that relief is sought on the basis of oppression, failure to comply with section 1017B or collateral and improper purpose: TAPL, Mr Lennox and Mrs Lennox.
"21. Third, there are claims against Mr Lennox or Mr and Mrs Lennox, that Mr Lennox or Mr and Mrs Lennox, caused TAPL and TNZL to enter into various transactions which were not in the best interests of TAPL/TNZL and were designed instead to further their own interests and those of their family and associates. These claims will be referred to as the 'Directors' Misconduct Claims' and are said to amount to:
(a) breaches by Mr Lennox of the provisions of the Shareholders' Agreement; and
(b) conduct oppressive of Tridon's interests as a shareholder of TAPL.
"22. Relief is sought in the form of an account from Mr Lennox for the losses caused to TAPL/TNZL by reason of the impugned transactions. That relief is sought pursuant to provisions of the Shareholders' Agreement and also pursuant to section 233 (1) (j) of the Corporations Act. Alternatively, orders are sought pursuant to section 233 (1) (f) that TAPL institute proceedings or cause TNZL to institute proceedings against Mr Lennox and other persons concerned for compensation.
"23 The Defendants against whom the Directors' Misconduct Claims are made are:
(a) to the extent that they are based on the Shareholders' Agreement: Mr Lennox; and
(b) to the extent that they are based on oppression: TAPL, Mr Lennox and Mrs Lennox.
"24. Fourth, Tridon also claims that there have been further instances of oppressive conduct. These include the failure by TNZL to pay dividends, and consequent failure of TAPL to pay dividends. They also include the allegations introduced by recent amendments to the Originating Process that Mr Lennox, in conducting the legal proceedings against Tridon on behalf of TAPL, has caused TAPL to act oppressively. Relief is sought in respect of these claims under section 233 (1). Furthermore, additional and alternative relief is sought under section 233 (1) against TAPL, Mr Lennox and Mrs Lennox in respect of all of the oppressive conduct both under this head and earlier heads, in the form of:
(a) an order that TAPL be wound up;
(b) an order for the compulsory purchase of Mr Lennox's shares in TAPL by Tridon.
"25. These claims, which will be referred to as the 'Further Oppression Claims' are not based on the Shareholders' Agreement: they are purely statutory. The Defendants against whom they are made are TAPL, Mr Lennox and Mrs Lennox.
"26. Fifth, there are claims as to the circumstances in which Tridon can terminate the Distribution Agreement. TAPL has signalled that it will argue that, even if Mr Lennox is found to have breached the Shareholders' Agreement in the manner alleged by Tridon, Tridon would not be entitled to terminate. The Defendants against whom these claims, which will be referred to as of the 'Distribution Agreement Termination Claims' are made are TAPL and TNZL, the other parties to the Distribution Agreement."
I adopt this summary as an accurate summary of Tridon's claims, for the purposes of the present applications.

The stay applications

TAPL, Mr Lennox and Mrs Lennox and TNZL have each applied for a stay of the present proceeding against them. The first stay application was made by Mr Lennox on 28 March 2002, and was subsequently amended. He seeks a stay of the proceeding initiated by Tridon pending determination of all disputes pursuant to s 7 (2) (b) of the International Arbitration Act 1974 (Cth). The form of orders sought by Mr Lennox, staying the proceeding "pending determination of all disputes" under the Act, tends to obscure the process required by s 7 of the Act. Section 7 (2) requires the Court, when certain pre-conditions have been met, to stay the proceeding (or so much of it as it involves the determination of the arbitrable matter) and refer the parties to arbitration in respect of that matter. There is no existing arbitral proceeding under the Shareholders' Agreement, and Mr Lennox is not a party to the arbitral proceeding under the Distribution Agreement, as he is not a party to the Agreement. Section 7 requires the Court, in those circumstances, to do two things if it concludes that the section applies, namely to stay the proceeding or part of it, and to make an order referring the proceeding or the appropriate part to arbitration.

In the alternative, Mr Lennox seeks a stay of Tridon's proceeding against him pending an award in the arbitration proceeding between Tridon and TAPL that may come about if I grant the stay applications brought by TAPL or TNZL. This alternative order is similar to one of the orders made by Merkel J in Recyclers of Australia Pty Ltd v Hettinga Equipment Inc [2000] FCA 547 (30 May 2000). In that case his Honour exercised his discretion to stay non-arbitrable claims until further order, while granting a stay under s 7 (2) in respect of arbitrable claims.
In written submissions supporting the application, counsel for Mr Lennox sought to rely, in the further alternative, on s 53 (1) of the Commercial Arbitration Act 1984 (NSW), and also on the Court's general jurisdiction under s 23 of the Supreme Court Act 1970 (NSW).
TAPL's interlocutory process was filed on 1 May 2002. It invokes s 7 (2) (b) of the International Arbitration Act (Cth) and s 53 (1) of the Commercial Arbitration Act (NSW). Insofar as it may be held that TAPL has taken a step in the proceeding, leave is sought under s 53 (2) of the latter Act to make the interlocutory application.
TNZL's interlocutory process was also filed on 1 May 2002. Insofar as it is an application for a stay of the present proceeding, it seeks relief in identical terms to TAPL's interlocutory application. As I have said, the application also sought summary dismissal of the proceeding against TNZL, but that part of the application was dismissed by consent, so only the application for a stay remains.
The applications by Mr Lennox, TAPL and TNZL sought, in the alternative, to invoke article 8 of the UNCITRAL Model Law. Tridon contended in its initial submissions in response to Mr Lennox's application that the Model Law has no application to the Shareholders' Agreement because it was not part of Australian law at the time. The same would be true of the Distribution Agreement, which was entered into at the same time. In their latest submissions, Mr Lennox, TAPL and TNZL do not develop any argument based on the Model Law. In its final written submissions, Tridon said it would assume that the defendants accept that the Model Law does not apply. Nothing was said at the hearing to contradict that assumption. I therefore take it that article 8 is no longer relied upon. It is therefore unnecessary for me to decide whether the Model Law has any application to the arbitration agreements in this case.
Mrs Lennox filed her application for a stay on 9 May 2002. The grounds upon which that relief is sought are not stated in her interlocutory process. The application is not based on any arbitration agreement, since she is not party to the Shareholders' Agreement or the Distribution Agreement. Essentially, her case is that if the stay applications against the other defendants succeed, then as a matter of convenience the proceeding against her should also be stayed.
The various applications for a stay of the proceeding rely on the arbitration clauses in the Distribution Agreement and the Shareholders' Agreement. I shall set out relevant provisions of the arbitration legislation relied upon by the applicants, and then deal with the proper construction of the arbitration clauses.

The arbitration legislation

The International Arbitration Act

The International Arbitration Act 1974 (Cth) relates to the recognition and enforcement of foreign arbitral awards and the conduct of international commercial arbitrations.
Part II deals with the enforcement of foreign awards. Section 3 (1) defines "arbitration agreement" to mean an agreement in writing of the kind referred to in sub-article 1 of Article II of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958, a copy of which is Schedule 1 to the Act. I note that the Convention is often referred to as “the New York Convention”.
Sub-article 1 of Article II refers to "an agreement under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration".
Sub-article 3 of Article II states:
“The Court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed."
Section 7 applies, inter alia, where a party to an arbitration agreement is a person who was, at the time when the agreement was made, domiciled or ordinarily resident in a country that is a Convention country: s 7 (1) (d). "Convention country" is defined in s 3 (1) to mean a country (other than Australia) that is a Contracting State within the meaning of the Convention. Section 3 (3) provides that a body corporate shall be taken to be ordinarily resident in a country if, and only if, it is incorporated or has its principal place of business in that country.
Section 7 (2) states:
"(2) Subject to this Part, where:
(a) proceedings instituted by a party to an arbitration agreement to which this section applies against another party to the agreement are pending in a court; and
(b) the proceedings involve the determination of a matter that, in pursuance of the agreement, is capable of settlement by arbitration;
on the application of a party to the agreement, the court shall, by order, upon such conditions (if any) as it thinks fit, stay the proceedings or so much of the proceedings as involves the determination of that matter, as the case may be, and refer the parties to arbitration in respect of that matter."
Section 7 (5) states:
"(5) A court shall not make an order under subsection (2) if the Court finds that the arbitration agreement is null and void, inoperative or incapable of being performed."
Section 24 of the Act authorises a party to an arbitral proceeding before an arbitral tribunal to apply to the tribunal for an order consolidating that proceeding with another arbitral proceeding.
The Commercial Arbitration Act
The Commercial Arbitration Act 1984 (NSW) makes various provisions where parties have entered into an "arbitration agreement", defined in s 4 (1) to mean an agreement in writing to refer present or future disputes to arbitration. The Act makes provisions for the appointment of arbitrators, the conduct of arbitration proceedings, awards and costs, and the powers of the Court.
One of the provisions of Part 3 of the Act, which deals with the conduct of arbitration proceedings, is s 25, which allows the arbitrator to make an order directing that the arbitration be extended to include another dispute between the parties to the arbitration agreement.
Section 53 (1) and (2) provide:
"(1) If a party to an arbitration agreement commences proceedings in a court against another party to the arbitration agreement in respect of a matter agreed to be referred to arbitration by the agreement, that other party may, subject to subsection (2), apply to that court to stay the proceedings and that court, if satisfied:
(a) that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the agreement; and
(b) that the applicant was at the time when the proceedings were commenced and still remains ready and willing to do all things necessary for the proper conduct of the arbitration,
may make an order staying the proceedings and may further give such directions with respect to the future conduct of the arbitration as it thinks fit.
"(2) An application under subsection (1) shall not, except with the leave of the Court in which the proceedings have been commenced, be made after the applicant has delivered pleadings or taken any other step in the proceedings other than the entry of an appearance."

The Distribution Agreement

The Distribution Agreement is between Tridon Limited, TAPL and TNZL, and is dated 4 October 1988. It is expressed to operate for a term of 99 years, and thereafter from year to year. By clause 1 Tridon Limited (called "the Company") grants to TAPL and TNZL (called together "the Distributor") the exclusive right to purchase and resell products specified in the second schedule to the Agreement ("the Products"), in the territories specified in the first schedule to the Agreement. During the term of the Agreement, the Distributor is granted the full and unfettered use of the Tridon trade name, trademark and logo (clause 10).
The Distribution Agreement contains detailed provisions with respect to the placing of orders, pricing, the licensing of equipment, the duties of the Company and the Distributor and their respective rights. The duties of the Distributor include a duty to pass on any useful information to the Company, and another is to provide reports and returns (clauses 7 (f) and (g)). The duties of the Company include a duty to safeguard the Distributor's exclusive rights and to prevent infringement of those rights, and a duty to give the Distributor at least six months’ prior notice of its intention to discontinue production of any item forming part of the Products (clauses 8 (d) and (e)).
Clause 9 (b) reserves to the Company the right to alter the schedule of Products by withdrawing a class or classes of Products in the event that the Company ceases to manufacture them (subject to the duty to give six months' notice).
Clause 11 deals with determination of the Distribution Agreement. It gives each party the right to give notice terminating the Agreement forthwith, for breach or if the other party enters into liquidation or compounds its debts with creditors or has a receiver appointed.
Clause 18 of the Agreement is in the following terms:
"18. ARBITRATION
18.1 Any dispute, difference or question which may arise at any time hereafter between the Company and the Distributor with respect to the true construction of this Agreement or the rights and liabilities of the parties hereto shall, unless otherwise herein expressly provided, be referred to the decision of a single arbitrator in New South Wales to be agreed upon between the parties or in default of agreement for fourteen days to be appointed at the request of either party by the President for the time being of the Institute of Chartered Accountants in accordance with and subject to the provisions of the Commercial Arbitration Act of New South Wales or any statutory modification or re-enactment thereof for the time being in force."
Clause 19 states that the Distribution Agreement is deemed to have been made in the State of New South Wales, and the construction, validity and performance of the Agreement is governed in all respects by the laws of this State.

The Shareholders' Agreement

The Shareholders' Agreement is between Tridon Limited and Mr Lennox, and is also dated 4 October 1988. The Agreement recites that Tridon Limited has agreed to sell to Mr Lennox the shares set forth in a schedule to the Agreement, at the price stated in the schedule, and that the parties wish to enter into the Agreement to make provisions concerning their shareholding in and management of the company.
Clause 3 deals with the composition of the board of directors, giving Mr Lennox the power to appoint two directors and Tridon Limited the power to appoint one director. Clause 5 imposes various obligations of good faith on the parties. Clause 6 provides that Mr Lennox will be the chief executive of the company, responsible for day-to-day management. There are provisions for the funding of future working capital, dividend policy, and the acquisition by Mr Lennox of manufacturing and assembly equipment in certain circumstances, and there are provisions with respect to default and termination.
Clause 14 deals with the transfer of shares. It contains a provision restricting each party from charging their shareholding without the consent of the other party. It prevents each party from selling or transferring their shareholding except by following a procedure for the sale of the whole of the shares, under which the selling party must offer the shares to the other party.
Clause 16 deals with default. It provides that a party shall be deemed in default of the Agreement on the happening of any of the events specified in the clause. One of those events is as follows:
"16.1 … (a) if a petition is presented or a resolution passed for its winding up (other than for the purposes of reconstruction or amalgamation) or for the reduction of its capital".
Upon the happening of an event of default, the non-defaulting party is empowered by clause 16.2 to require the defaulting party to sell all of its shares in TAPL to the non-defaulting party or its nominees at a fair valuation, and for that purpose the non-defaulting party is constituted the agent and attorney of the defaulting party for the purpose of executing all documents and doing all things necessary to be done to effect the sale.
Clause 19 is in the following terms:
"19. DISPUTES
All disputes or differences between the parties hereto touching and concerning the construction or effect of this Agreement or the rights and liabilities hereunder which cannot be amicably settled within three (3) months from the date such dispute or difference first arose shall be referred to arbitration pursuant to the provisions of the Arbitration Act 1982 as amended."
Clause 20 states that the Shareholders' Agreement is to be governed by and construed in accordance with the laws of the State of New South Wales.

Tridon's allegations of waiver

Where s 7 (2) otherwise applies, the Court is not to make an order if it finds that the arbitration agreement is, inter alia, "inoperative": s 7 (5). In Australian Granites Ltd v Eisenwerk Hensel Bayreuth GmbH [2001] 1 Qd R 461 the Queensland Court of Appeal held (at 466-7) that, as the right to apply for a stay under s 7 (2) is a private one, it may be waived. Waiver renders the arbitration agreement "inoperative" for the purposes of s 7 (5). That reasoning was not challenged before me and I respectfully accept it, though there is a difficult question as to the meaning of "waiver" in this context. It seems plain, as the Court commented at 466, that "Parliament could hardly have intended that the Court's obligation to grant a stay must be exercised in favour of an applicant even if the application is made at the end of a lengthy trial, no earlier suggestion of reliance on an arbitration clause having been made". The legal doctrinal basis for excluding such an application is far less plain.
Their Honours expressed the view (at 468-9) that the principle of estoppel identified by the High Court in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 did not apply to litigants who failed to raise the relevant matter in an interlocutory context. No reliance is placed on Anshun estoppel in the present case.
Tridon relies on "waiver" by the defendants, through their conduct of various phases of the proceeding to date. The word "waiver" is frequently used in the law, but it is often used imprecisely. As McHugh J (dissenting) pointed out in Commonwealth v Verwayen (1990) 170 CLR 394, 491, most of the cases which purport to apply the doctrine of waiver are really cases of contract, estoppel or election: see also Mason CJ at 407, Brennan J at 421ff, and Toohey J at 472. Tridon does not rely on equitable estoppel, because it does not contend that the defendants' relevant conduct has caused it any detriment that cannot be addressed by an order for costs. There is no suggestion that the defendants' omission to raise the arbitration clauses at an earlier time was attributable to a contract.
In Verwayen, Brennan J (dissenting) offered this definition of election (at 421; see also Toohey J at 472):
"Election consists in a choice between rights which the person making the election knows he possesses and which are alternative and inconsistent rights."
As Gaudron J emphasised (at 481), the essence of this concept is the assertion of two inconsistent rights, a much narrower proposition than the assertion of two inconsistent positions.
In Sargent v ASL Developments Ltd (1974) 131 CLR 634, Stephen J said (at 646) that "the words or conduct ordinarily required to constitute an election must be unequivocal in the sense that it is consistent only with the exercise of one of the two sets of rights and inconsistent with the exercise of the other"; though he added later that "less unequivocal conduct, only providing some evidence of election, may suffice if coupled with actual knowledge of the right of election".
In the present case the defendants had a choice to insist on arbitration or to allow their disputes with Tridon to be determined curially. The making of that choice would not involve election between inconsistent rights. It would simply involve selecting one of two procedures for the adjudication of the dispute. In any event, the defendants did not, prior to the hearing of the stay applications, make any unequivocal or final choice between alternative procedures. At various stages in the history of the litigation prior to the hearing, the defendants adopted positions which, if maintained concurrently, would be inconsistent positions, but they have not persisted concurrently with inconsistent positions, and even if they had, doing so would not constitute an unequivocal choice between inconsistent rights. This is not a case of election, as that word was explained in Verwayen's case.
There are, however, two other uses of the word "waiver" which are recognised by some of the High Court in Verwayen. One of them was explained by Toohey J at 472, quoting from Halsbury's Laws of England (4th ed (1976), vol 16, para 1471):
"Waiver is the abandonment of a right in such a way that the other party is entitled to plead the abandonment by way of confession and avoidance if the right is thereafter asserted, and is either express or implied from conduct. It may sometimes resemble a form of election, and sometimes be based on ordinary principles of estoppel, although, unlike estoppel, waiver must always be an intentional act with knowledge."
The difference between election and waiver in this sense, noted by Brennan J at 424, is that a right may be waived though there is no alternative right inconsistent with it.
Another sense of the word "waiver" was identified by Dawson J in Verwayen (at 457). His Honour suggested that the word "waiver", except where it was used in case law to describe what was properly an election or estoppel, was used "loosely to indicate non-insistence upon a right either by choice or by default". His Honour appears to have had in mind a matter going to the exercise of the court's discretion, rather than a legal doctrine. The exercise of the discretion would presumably arise in some such context as an application for a stay, or leave to amend, or to strike out the relevant pleading. The discretionary matter is whether a party, having failed to insist upon his right at an appropriate time, should later be allowed to do so. His Honour regarded such well-known cases as Ketteman v Hansel Properties Ltd [1987] AC 189 as authorities relevant to the issue he had in mind. That case, and others cited by his Honour, go to whether the Court should grant leave to amend a pleading at a very late stage, to raise (for example) a limitation point. While the Court is disposed to grant leave to amend subject to addressing the other side's prejudice by an order for adjournment and/or for costs, there comes a point when the delay is so great that the application should be refused.
Gaudron J explained the relationship between these two kinds of "waiver" as follows (at 482; the order is reversed):
"If, in the course of litigation, a person fails to plead a matter, take an available objection or pursue a particular point of law, the matter proceeds on the basis that the point which might have been taken is not in issue. Were it otherwise the conduct of litigation would be unmanageable. Of course, leave may be granted for the point to be raised notwithstanding the failure to take the point at the appropriate time. Generally, leave is granted if the point can be raised without injustice to the other party. That question may depend upon whether disadvantage to the other party can be avoided by adjournment or an appropriate costs order. But other issues may be taken into account. …
"When a party to litigation deliberately chooses not to take a point or fails to take a point when it comes to notice, the courts may adopt a more stringent attitude, treating the point as having been irrevocably abandoned. Usually, the party who has thus failed to take the point is said to have 'waived' it."

The latter is the kind of "waiver" defined in the passage extracted by Toohey J from Halsbury. I shall refer to it as "waiver in the stronger sense". Gaudron J gave some examples and then she proceeded (at 484):
"There is a common aspect to the situations above discussed. The relationship of the parties has changed. In cases involving questions relating to jurisdictional defect or irregularity attending the institution of the proceedings the parties have become or are treated as having become parties to a proceeding. In the case of failure to raise a matter of personal disqualification, the parties have entered a new relationship, namely parties to a proceeding which is in the course of adjudication. Again, once a matter has passed into judgment, the relationship of the parties is according to the judgment, subject only to such powers as may be exercised by an appellate court if an appeal is instituted. And, it is significant that a respondent to an appeal who fails to object that the appeal has not been properly instituted may be precluded from later raising that issue. See Park Gate Iron Co; Ward v Raw (1872) LR 15 Eq 83. Again, in that situation the parties are or are deemed to be in a new relationship, namely, that of appellant and respondent.
"Perhaps there is a principle of wider application, but it is clear that a party to litigation will be held to a position previously taken (that position having been intentionally taken with knowledge) if, as a result of that earlier position, the relationship of the parties has changed."
Counsel for Tridon sought to draw an analogy between the present circumstances and the law of waiver of legal professional privilege, relying on passages from the joint judgment of Gleeson CJ, Gaudron, Gummow and Callinan JJ in Mann v Carnell (1999) 201 CLR 1. I do not find the analogy helpful. The joint judgment (at 13) acknowledges, citing Verwayen's case, that "waiver" is a vague term, used in many senses, and that it often requires further definition according to the context. The context of "waiver" in legal professional privilege is special, as their Honours point out. Legal professional privilege protects the confidentiality of communications between lawyer and client. The waiver of the privilege occurs when the client, who is entitled to the benefit of the confidentiality, relinquishes that entitlement by engaging in conduct inconsistent with the maintenance of the confidentiality. In this context "waiver" is intentional conduct inconsistent with the maintenance of confidentiality, considerations of fairness being used to determine whether such inconsistency exists (at 13). Explained in this way, waiver of legal professional privilege could well be an application of the doctrine of approbation and reprobation. One cannot have the benefit of confidentiality without respecting the obligation to maintain it. The concept seems to me to be quite distinct from, though broadly similar to, the idea of waiver about which Toohey and Gaudron JJ spoke in Verwayen.
Tridon claims that by virtue of five steps taken by the defendants in the proceeding, they have waived their right to apply under s 7 (2) for orders staying the proceeding. The facts relating to those matters are as follows.
Initial directions and undertakings to the Court
Tridon commenced the present proceeding on 29 November 2001, by summons made returnable on 4 December 2001. On the return date, directions were made establishing a timetable for evidence. TAPL and Mr Lennox consented to those directions. However, Mr Lennox foreshadowed a stay application.
The purported transfer of Tridon's shares in TAPL to Mr Lennox took place on 19 January 2002. On 23 January 2002 Tridon filed an amended summons joining Mrs Lennox as third defendant and adding claims for relief. The new claims for relief became, eventually, the Share Divestiture Claims.
At an interlocutory hearing before Windeyer J on 29 January 2002, TAPL and Mr and Mrs Lennox gave interim undertakings not to deal with the TAPL shares purportedly transferred from Tridon. It is appropriate to infer that the undertakings were given to forestall an application for interlocutory injunctions. Subsequently in April 2002 TAPL gave an undertaking not to deal with its assets otherwise than in the ordinary course of business.
Tridon claims that in consenting to directions and then giving these undertakings, TAPL and Mr Lennox both submitted to the jurisdiction of the Court in a manner which accepted the appropriateness of the Court dealing with the claims brought by Tridon. I disagree. In my view the conduct of TAPL and Mr and Mrs Lennox in these matters was consistent with their seeking to refer the dispute to arbitration. One can rationally take the view that it is desirable to consent to timetabling directions to avoid any costs penalty, even though one believes, and intends to persuade the Court at an appropriate time, that the dispute should be arbitrated. Similarly, faced with the threat on application for an injunction, which one might judge likely to succeed, one can rationally give undertakings consistently with an intention to seek a reference to arbitration at an appropriate stage.
Delay in an application to refer a dispute to arbitration might, eventually, give rise to discretionary grounds for refusing the application ("waiver" in the weaker sense identified by Dawson J), and conduct by which a party deliberately defers the making of an application for a stay until the curial proceeding has been well-developed might constitute "waiver" in the stronger sense identified by Toohey and Gaudron JJ. But the facts here fall well short of either of these situations.
Mr Lennox foreshadowed an application for a stay based on the arbitration clause at the first return date of the summons, 4 December 2001. The proceeding was affected by his decision to purport compulsorily to acquire Tridon's shares in January 2002, and this led to amendments to the summons. But Mr Lennox made his stay application not much later, on 28 March 2002. Additionally there was agitation for the determination of a separate question in February and March 2002, and for arrangements concerning the fate of the New Zealand proceeding in March and April 2002, each of which I shall describe. Whatever else one may say about the issue concerning separate questions and the agitation concerning the New Zealand proceeding, they provided an explanation for the fact that TAPL and TNZL did not file their stay applications until 1 May 2002.
In all the circumstances, I do not regard this aspect of the defendants' conduct as giving rise to waiver in any sense.
Objection to jurisdiction in the New Zealand proceeding
Tridon commenced the New Zealand proceeding against TNZL, TAPL and Mr Lennox on 19 December 2001. The claims made in that proceeding cover part of the ground covered by the claims made in the present proceeding. There is evidence that TNZL and TAPL contested the jurisdiction of the High Court of New Zealand on the basis that "the matters sought to be put in issue in this proceeding would more appropriately and conveniently be determined" in the present proceeding. Mr Lennox contested the jurisdiction on the same basis, although he also referred to the arbitration clause in the Shareholders' Agreement.
Tridon says that by contesting jurisdiction in New Zealand in this fashion, TNZL, TAPL and Mr Lennox expressly chose to have Tridon's claims determined in this Court. I agree that these defendants expressed a preference for this Court over the High Court of New Zealand as a curial venue for determination of their disputes. However, Mr Lennox made it clear enough that arbitration remained for him an alternative to curial resolution of the disputes; and the conduct of TAPL and TNZL did not amount to the kind of abandonment of rights that would give rise to a waiver in the stronger sense. Their conduct might be contrasted, for example, with the conduct of the Commonwealth in Verwayen's case, where the Commonwealth firmly adopted the policy of not contesting liability or pleading the statute of limitations, and adhered to it for a substantial period of time.
Application for Part 31 orders
On 28 February 2002, Mr Lennox made application in this Court for the determination as separate questions of various matters arising in the proceeding. It appears that the application was supported by TAPL. It was opposed by Tridon. The application was heard by Gzell J, who made orders for separate determination, and directions for the filing of evidence.
Tridon submitted that in making this application, Mr Lennox was affirming, with TAPL's support, the continuation of the proceeding in this Court. This is true, but his conduct did not, in my opinion, amount to a waiver, in the stronger sense, of his right to seek referral to arbitration. It is evident that Mr Lennox was exploring various ways of resolving the whole or parts of the dispute, consistently with his overall objectives. One of his objectives at the hearing of the stay applications, which may also have been an objective at that time, was to achieve a degree of confidentiality with respect to the determination of certain allegations against him. As far as I can see, the Part 31 application was consistent with that objective, because the matters that would be determined under Part 31 did not involve matters which he wished to keep confidential. His conduct in relation to the Part 31 application was consistent with a desire to seek a reference to arbitration of these other matters at a later stage.
Consent to joinder of TNZL and adjournment of New Zealand proceeding
The New Zealand proceeding was commenced, as I have said, on 19 December 2001. TNZL, TAPL and Mr Lennox filed objections to the jurisdiction of the High Court of New Zealand on 15 February 2002. Tridon served an amended pleading in the proceeding in this Court, purporting to join TNZL as the fourth defendant, on 27 February 2002. On 28 March 2002 there was a directions hearing before the Registrar of this Court, adjourned by consent to allow TNZL formally to consent to joinder.
The parties agreed that the New Zealand proceeding should be adjourned pending resolution of the proceeding in this Court. On 10 April 2002 TAPL's solicitors forwarded to Tridon's solicitors a copy of a board resolution of TAPL, signed by all three directors, by which TAPL undertook as a shareholder of TNZL to consent to TNZL being joined as a party to the Australian proceeding, subject to suspension of the New Zealand proceeding.
This agreement was implemented, as far as the New Zealand proceeding was concerned, in a Consent Memorandum filed with the High Court of New Zealand. Consent orders were made for the indefinite adjournment of the New Zealand proceeding on 17 April 2002. However, on 18 April 2002 TAPL's solicitors wrote to Tridon's solicitors, saying there would be no consent to Tridon's application to join TNZL as a defendant in the proceeding before this Court, and asserting that this Court had no jurisdiction over TNZL. On 19 April 2002 the Registrar of this Court made an order for the joinder of TNZL as fourth defendant. TNZL neither consented to nor opposed that order.
In my opinion these facts are in the same category as the facts relating to the application for Part 31 orders. They indicate that the defendants were exploring various ways of achieving resolution of the whole or parts of their disputes with Tridon. They do not amount to evidence of an irrevocable step amounting to a waiver in the stronger sense.
Notice to produce
On 13 June 2002 I made orders on the application of TAPL, requiring Tridon to produce certain documents to the Court. TAPL's application was strongly resisted by Tridon.
Tridon says that in obtaining these orders, TAPL invoked the coercive power of the Court, in aid of the conduct of this proceeding. It asserts that the documents, and information gained from them, may only be used for the purposes of the proceeding in this Court, and that it would be a contempt to use them for other purposes and in particular for the purposes of an arbitration proceeding.
In my opinion the obtaining of orders for production has no bearing on the question of waiver beyond showing that TAPL was in June 2002 engaged in an interlocutory application in the curial proceeding and was not confining its attention to the stay application for the purposes of arbitration. It's conduct in seeking orders for production did not give rise to a waiver in the stronger sense.
The defendants' conduct generally
For the reasons I have given, none of the factual circumstances relied upon by Tridon, considered in isolation from the others, give rise to a waiver in the stronger sense. Nor, in my opinion, does the whole course of conduct by the defendants amount to a waiver in the stronger sense. It does not amount to evidence of an irrevocable abandonment of the right under the arbitration agreements to seek a stay of the curial proceeding and a reference to arbitration.
I should say that in the course of considering this matter, I have read the voluminous correspondence between the solicitors for the parties, and the transcripts which are in evidence of various applications before Gzell J, Handley JA and the Registrar. This material reinforces my conclusion that there was at no stage any irrevocable abandonment of the defendants' rights to refer their disputes with Tridon to arbitration. Indeed Tridon's counsel appeared to acknowledge, in submissions to Handley JA, that the question of arbitration was still a matter under consideration at that time (transcript, 25 March 2002, page 9).
As to waiver in the weaker sense identified by Dawson J, Tridon invites me to take into account, in the exercise of my discretion, that

TAPL, TNZL and Mr Lennox chose to take advantage of the proceeding in this Court when it suited them to do so, both before and after filing their stay applications;
TNZL expressly consented to its joinder in the present proceeding;
the defendants' conduct cannot be said to have been carried out in ignorance of the potential for arbitration, since there was already an arbitration proceeding between TAPL and Tridon under the Distribution Agreement, and Mr Lennox foreshadowed a stay application on the first return date for the summons.

As to the first two of these matters, my view is that the defendants have taken different approaches from time to time as to the most expeditious method of achieving resolution of their disputes with Tridon, but I do not regard their doing so as amounting to the adoption, over any substantial period of time, of a position inconsistent with referral to arbitration. I accept the evidence of Mr Lennox, in his affidavit made on 13 June 2002, that "since the beginning of the arbitration, my consistent instructions have been to pursue all avenues for the amicable and commercial resolution of all disputes" between Tridon and TAPL.
As to the third matter, I infer that Mr Lennox, and therefore TAPL and TNZL, were aware of the potential for referral to arbitration at all relevant times. Mr Lennox gave evidence, in his affidavit made on 13 June 2002, that he was unaware that the Part 31 application could have been considered to put the right to go to arbitration in any jeopardy, and that if he had been aware that there was such a risk, he would have proceeded immediately with the stay application. I agree with Tridon's submission that this evidence is irrelevant to the question of waiver in the stronger sense. The question is whether Mr Lennox was aware of the availability of arbitration, and being so aware, intentionally engaged in conduct which irrevocably abandoned the pursuit of arbitration. To the extent that waiver in the stronger sense requires an intentional act with knowledge of the availability of the course of action foregone, knowledge and intention were present here so far as Mr Lennox, TAPL and TNZL were concerned. There was no waiver in the stronger sense, however, because there was no irrevocable step of abandonment of the right of referral to arbitration by any of the defendants.
Mr Lennox's knowledge of the availability of referral to arbitration is relevant to the exercise of my discretion to refuse the application for a stay, but I do not regard it as a significant consideration. Although he was aware of the potential for referral to arbitration, he thought it appropriate to take a number of short-term steps to explore other prospects of resolution of his disputes with Tridon. In my opinion it was not unreasonable for him to do so, and it would be wrong to require him to abandon his right of referral to arbitration simply because of those steps.
To the extent that, by pursuing these other avenues, the defendants have caused Tridon to incur costs that might have been avoided if their applications for a stay and referral to arbitration had been made at the first available opportunity, any unfair prejudice to Tridon can be addressed by an appropriate order as to costs, upon the principles enunciated in such cases as Cropper v Smith (1984) 26 Ch D 700, Ketteman v Hansel Properties Ltd [1987] AC 189 and State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146. I should say that at this stage, I am far from persuaded that such a costs order is justified, though I shall hear submissions on the point.
My conclusion is that the defendants have not, in any sense, waived their right to apply for a stay of the whole or any part of proceeding and for referral of the whole or parts of the dispute to arbitration. I agree with counsel for Tridon that the Court would not permit a party to demand the enforcement of an arbitration clause at the end of the final hearing in court, either because of waiver in the strong sense or the adverse exercise of the Court's discretion. But that is not the present case. The difference is that by committing to a final hearing, the litigant has irrevocably committed to curial rather than arbitrable determination of the dispute. Lesser conduct might also amount to an irrevocable abandonment of the right to arbitration, but wherever the line is drawn, the defendants' conduct here cannot be so categorised.

Tridon's alleged acknowledgement of arbitrability

Mr Lennox alleged that Tridon has acknowledged that the shareholders' disputes raised by its originating process fell within the arbitration clause of the Shareholders' Agreement. The acknowledgement is said to have arisen from two sources. First, an affidavit by Mr Zimmerman, president of Tridon, sworn on 8 March 2002 and filed in this proceeding, stated that at no time had Tridon been accorded the right of arbitration provided by clause 19 of the Shareholders' Agreement, and asserted that this constituted another act of oppression.
In my opinion this statement does not amount to any election or waiver binding Tridon. It cannot be contended that Mr Zimmerman, on behalf of Tridon, consented to any reference to arbitration. Mr Zimmerman's belief that the disputed share transfer issue should have gone to arbitration under the Shareholders' Agreement is therefore irrelevant to any issue before the Court.
Secondly, on 27 June 2001 Tridon's solicitors wrote to the solicitors for TAPL seeking to require Mr Lennox to repay his loan to TAPL and complaining about payments to Mr Lennox, which were said to be contrary to the terms of the Shareholders' Agreement. After an exchange of facsimiles in which these allegations were disputed, Tridon's solicitors stated in a facsimile dated 10 July 2001 that unless they received satisfactory replies, they would take their client's instructions "on referring the matters in dispute … to arbitration under the Shareholders' Agreement (without prejudice to any other remedies available to our client)." The issues in dispute are now set out in the third amended originating process.

There would be a real prospect of inconsistent findings being made by the arbitrator and by the Court if overlapping facts were to be determined by the arbitrator for the purposes of the contractual aspects of the dispute reflected in the present proceeding, and by the Court in dealing with the non-contractual aspects. The problem would not be the mere inconsistency of findings, but the lack of any mechanism to resolve the differences. Orders under Part 72 will remove that problem, because the Court's power to review a referee's findings is governed by the rules of Court and the applicable case law.
Unless the matters presently before Mr Clarke QC are brought within the Part 72 orders, there will still be a risk that he will make determinations of fact as arbitrator on the matters before him, and make equivalent determinations in his report as referee, which the Court may decide not to accept. But that risk is very much lower than the risk of inconsistency between an arbitrator and the Court, if the arbitrator and the Court are respectively dealing with the contractual and non-contractual aspects of the same dispute.
(g) Confusion of arbitrator's and referee's roles
One of the problems identified by Cole J in the Aerospatiale case was that the person appointed as arbitrator and referee might make a single set of findings, which might be difficult to allocate to the arbitral and referee roles. His answer was that the selected referee was a person of such competence and experience that he could adequately separate the issues within the arbitration from the issues within the reference. The same answer could be made in the present case. There is no need to make it, since the agreed proposal is that the applications for a stay of proceeding will be dismissed by consent and the whole dispute will be referred to Mr Clarke QC as referee and not as arbitrator. The matters already before Mr Clarke QC as arbitrator under the Distribution Agreement are relatively discrete and should not involve the kind of problems raised by Cole J.
(h) Finality/appeals
For those who wish to achieve a speedy resolution of commercial disputes, a disadvantage of the procedure under Part 72, when compared with arbitration, is that the referee must report to the Court, and there is then a Court hearing for the adoption of the referee's report, which may well be a contested hearing. The Court has a wide discretion in relation to the adoption or rejection of a report pursuant to Part 72 rule 13 (1) (a) to (d), although the exercise of the discretion is normally confined to "questions of law and the application of legal standards to the facts": Alcatel Australia Ltd v Scarcella [2001] NSWCA 401, paragraph 71, per Stein JA. Additionally, there is the prospect of appeal from the Court's decision. In comparison, the determination of the arbitrator is final subject to very limited rights of review.
In the present case it would not be possible, for the reasons I have given, to remove the Court entirely from the dispute resolution process. Only the Court could make certain kinds of orders under the Corporations Act, if they are needed, even if the dispute were otherwise dealt with by arbitration. Once the Court becomes involved, the prospect of appeal from its orders necessarily arises. Therefore there is already a qualification on the degree of finality that can be delivered by arbitration in such cases as this.
More importantly for present purposes, the Part 72 procedure has been advocated by Tridon, given my rejection of its preferred alternatives, and it has been vigorously supported by TAPL, Mr Lennox and TNZL. That suggests that finality of the resolution of the dispute, and the avoidance of any prospect of appeal, are not overriding considerations in this case.
(i) Attendance
The Part 72 procedure will entail, in all probability, a single hearing involving all of the parties to the proceeding. That will not be onerous on Tridon or Mr Lennox, each of whom is vitally interested in every aspect of the dispute. Nor will it be unduly onerous on TAPL and TNZL, even if it is decided that they should be separately represented, because they too are vitally involved in most of the aspects of the dispute.
I am not sure whether Mrs Lennox should be treated differently. If she takes the view that she ought not to be required to attend the whole of the hearing before the referee, I see no reason why she could not make appropriate arrangements with the referee to be excluded from the part in the hearing process that does not affect her interests. I do not regard adoption of the Part 72 procedure as necessarily imposing on her the obligation to attend or be represented in parts of the overall dispute resolution process that do not directly involve her.
(j) Qualities of the adjudicator
The Hon John Clarke QC is a distinguished former judge of this Court, with extensive experience in company law as well as commercial arbitration. It is appropriate to take his qualifications and experience into account in deciding whether to make orders under Part 72. If a less qualified referee had been proposed, I may have taken a different approach.
Conclusion as to Part 72
Given the views I have formed on the application of s 7 of the International Arbitration Act, which will require bifurcated arbitral and curial proceedings for the resolution of the dispute between the parties, I find the proposal to make orders under Part 72 to be an appealing one.
In summary, the particular advantage of an order under Part 72 is that by using that provision, I can appoint the person selected by the parties as arbitrator under the Distribution Agreement as a referee to determine all of Tridon's claims in "one concurrent hearing" (to use Tridon's words). The saving in time and cost produced by that procedure will, I hope, be very substantial. Of course, one cannot be sure. It is for the Court to make orders when the referee reports, and there could well be a further contest at that point, and the prospect of appeal. To that extent, the process under Part 72 is less "final" than a determination by an arbitrator. But in the awkward circumstances of this case, where arbitration will lead to bifurcation, the reduction in finality seems to be a reasonable price to pay for efficiency and speed of primary outcome.
I hope the parties will consider whether the advantages of the Part 72 procedure can be maximised by their agreeing to withdraw the existing reference to arbitration under the Distribution Agreement, so that the matters currently before Mr Clarke QC can become part of the reference to him under Part 72. If they do not, it still seems to me that the advantages of dealing with the dispute reflected in the present proceeding by orders under Part 72 will outweigh the disadvantages. I am therefore prepared to make orders under Part 72 which exclude the matters currently before Mr Clarke QC for arbitration.

Application of the Commercial Arbitration Act

The Court has the power under s 53 of the Commercial Arbitration Act 1984 (NSW) to order that a proceeding be stayed until an arbitration takes place, where the requisite conditions are satisfied. Unlike s 7 (2) of the International Arbitration Act, s 53 gives the court a discretion to order a stay and does not purport to require that the discretion be exercised when the requisite preconditions have been met.
In the present case each of clause 18 of the Distribution Agreement and clause 19 of the Shareholders' Agreement is an "arbitration agreement" as defined in s 4 (1), because it is an agreement in writing to refer present or future disputes to arbitration. A party to each of those arbitration agreements, namely Tridon, has commenced the present proceeding against other parties to the respective arbitration agreements in respect of matters agreed to be referred to arbitration by the Agreements, namely the contractual parts of the dispute. The formal conditions for the application of s 53 are therefore satisfied.
The defendants have invoked s 53 as an alternative basis for the Court to make an order staying the present proceeding. I have decided that under s 7 (2) of the International Arbitration Act I am required to stay the contractual part of the dispute. The application of the International Arbitration Act does not exclude the concurrent application of State commercial arbitration legislation: Abigroup Contractors Pty Ltd v Transfield Pty Ltd and Obayashi Corporation [1998] VSC 103 (16 October 1998), paragraph 19 per Gillard J. Section 53 would be available as a basis for staying the remainder of dispute, pending the arbitrator's determination of the arbitral part, if I were satisfied of the matters set out in s 53 (1) (a) and (b), subject to any leave that may be necessary under s 53 (2). However, I have decided, for reasons given above, that it would be undesirable to stay the non-contractual part of the proceeding pending determination by the arbitrator of the contractual part of the dispute. It is therefore unnecessary to give s 53 further consideration.

Conclusion

My conclusion, therefore, is that I should make orders referring to the Hon John Clarke QC, as referee under Part 72 of the Supreme Court Rules, all of Tridon's claims made in the third amended originating process, except to the extent (if at all) that those claims are the subject of the present reference to arbitration under the Distribution Agreement.
I shall direct Tridon to prepare draft short minutes of orders to give effect to these reasons for judgment, including short minutes of orders under Part 72. The costs of the applications dealt with by these reasons for judgment, and some other outstanding issues with respect to costs, will also need to be considered. Following a suggestion by counsel for Tridon, I shall give directions for short written submissions to be exchanged by the parties and provided to my associate, with respect to all outstanding questions of costs, and for the case to return to me for brief supplementary oral submissions on costs, and for the making of orders. The draft short minutes of orders should cover these matters.
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LAST UPDATED: 17/10/2002

[2002] NSWSC 896

4 October 2002