Robotunits Pty Ltd v Mennel
[2015] VSC 268
•22 June 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
ARBITRATION LIST
S CI 2015 00874
| ROBOTUNITS PTY LTD (ACN 092 649 422) | Plaintiff |
| v | |
| JUERGEN KARL MENNEL | Defendant |
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JUDGE: | CROFT J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 6 May 2015 | |
DATE OF JUDGMENT: | 22 June 2015 | |
CASE MAY BE CITED AS: | Robotunits Pty Ltd v Mennel | |
MEDIUM NEUTRAL CITATION: | [2015] VSC 268 | REVISED 13 July 2015 |
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ARBITRATION – Stay of proceedings and referral to arbitration – International Arbitration Act 1974 (Cth) s 7(2)(b) – Determination of a “matter” – Whether “matter” for determination must be sustainable or have reasonable prospects of success – Scope of arbitration agreement – Whether matters involving the Corporations Act 2001 (Cth) are capable of settlement by arbitration – Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334 – Rinehart v Welker [2012] NSWCA 95 – Hancock v Rinehart (2013) 96 ACSR 76 – ACD Tridon Inc v Tridon Australia Pty Ltd [2002] NSWSC 896.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms T. Spencer Bruce | Hall & Wilcox Lawyers |
| For the Defendant | Dr M. Wolff | No solicitors on record |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 1
Background of the proceeding........................................................................................................ 1
The arbitration agreement................................................................................................................ 2
Principles applicable to applications to stay proceedings under the Act................................ 3
Requirements of s 7(2)(b) of the Act............................................................................................. 14
Determination of a matter.......................................................................................................... 15
Matter.................................................................................................................................. 15
Sustainable dispute........................................................................................................... 18
In pursuance of the agreement.................................................................................................. 26
Capable of settlement by arbitration........................................................................................ 33
Other matters..................................................................................................................................... 38
Conclusions and orders.................................................................................................................. 39
HIS HONOUR:
Introduction
This is an application for a stay of proceedings and referral to arbitration under s 7(2) of the International Arbitration Act 1974 (Cth) (“the Act”).
By Interlocutory Application for Stay and Referral to Arbitration — Foreign Arbitration Agreement filed on 31 March 2015, the Defendant, Mr Juergen Karl Mennel (“Mennel”) seeks:
(a) an order under s 7 of the Act staying the whole of this proceeding and referring the Plaintiff and the Defendant and the subject matter of this proceeding to arbitration;
(b) an order directing the parties to agree on the seat and the rules of the arbitration within 28 days, failing which either party may apply to the Court for determination of both; and
(c) such other orders as the Court may see fit.
The evidence before the Court in respect of the application is contained in the Defendant’s affidavit affirmed on 31 March 2015 (“the Mennel Affidavit”).
Background of the proceeding
By Writ and Statement of Claim filed on 26 February 2015, the Plaintiff, Robotunits Pty Ltd (“Robotunits”), seeks the return of the sum of $272,722.00 from Mennel, its former managing director.[1] Robotunits claims that between 19 and 25 January 2015, Mennel caused it to make five transfers to a bank account held in his name (“the Payments”). It is claimed that the Payments were made without a legal or equitable basis and in breach of Mennel’s duties as Robotunits’ managing director, under both the general law and the Corporations Act 2001 (Cth).
[1]I note that this is the sum claimed in the Plaintiff’s prayer for relief, which, incidentally, differs from the sum referred to in the Plaintiff’s Outline of Submissions (5 May 2015) [2].
Robotunits and Mennel are parties to the following three agreements:
(a) Shareholders’ Agreement dated 12 February 2004 (“the Shareholders Agreement”);[2]
(b) Amended Shareholders’ Agreement dated 1 July 2008 (“the Amended Shareholders Agreement”);[3] and
(c) Employment Contract and Agreement dated 31 December 2008 (“the Employment Agreement”).[4]
[2]Mennel Affidavit, Exhibit JM 1.
[3]Mennel Affidavit, Exhibit JM 2.
[4]Mennel Affidavit, Exhibit JM 3.
The Shareholders Agreement and the Amended Shareholders Agreement (collectively “the Shareholders Agreements”) are expressed as regulating the relationship between the shareholders in Robotunits in their capacity as shareholders.[5] Robotunits GmbH (“Robotunits Austria”), an entity apparently incorporated under the laws of Austria and with its headquarters in Austria,[6] is also a party to the Amended Shareholders Agreement, and Mr Christian Beer is a party to both agreements. Robotunits and Mennel are the sole parties to the Employment Agreement which governs Mennel’s employment with Robotunits.[7]
[5]Recital C to the Shareholders Agreement and Recital D to the Amended Shareholders Agreement.
[6]Mennel Affidavit [7]. Counsel for Mennel noted during the hearing that he was not sure whether Robotunits Austria is incorporated in Austria or Germany. The distinction makes no material difference to the present application.
[7]Recital C to the Employment Agreement.
On 18 March 2015, the Defendant filed a Notice of Conditional Appearance. At the time of hearing this application, the Defendant was yet to file a defence; however, the Mennel Affidavit provides relevant background information about the relationship between the parties and details Mennel’s version of events in relation to the Payments.
The arbitration agreement
Mennel seeks a stay and referral to arbitration on the grounds that the parties to both of the Shareholders Agreements agreed to submit disputes between them to arbitration. The arbitration agreement relied upon is contained in cl 15 of the Amended Shareholders Agreement (“the arbitration agreement”) and states:
15. Governing Law and Jurisdiction
15.1.This Amended Agreement is governed by the laws of the State of Victoria in the Commonwealth of Australia.
15.2.Each party irrevocably and unconditionally submits to arbitration in accordance with the arbitration guidelines of the Law Institute of Victoria.
Clause 15 of the Amended Shareholders Agreement is replicated in cl 19 of the Shareholders Agreement.
It is undisputed between the parties that, on its face, the arbitration agreement is pathological because “the arbitration guidelines of the Law Institute of Victoria” do not exist and do not appear to have ever existed.[8] However, Robotunits concedes that with judicial assistance, the agreement may be rendered effective.[9] By cl 15.2., each party has agreed “irrevocably and unconditionally” to submit to arbitration. These are strong words evincing a clear intention to submit disputes between the parties, which fall within the scope of the arbitration agreement, to arbitration. For these reasons, I am of the opinion that the arbitration agreement is operable, and is capable of forming the basis of the orders Mennel seeks.
[8]Defendant’s Outline of Submissions (5 May 2015) [27]; Transcript, p 14, lines 2–28.
[9]Transcript, p 18, lines 6–9.
Principles applicable to applications to stay proceedings under the Act
Mennel relies on s 7(2) of the Act which is set out below. This provision must, however, be read in the context of both the objects of the Act and its international provenance.[10] The objects of the Act are set out in s 2D:
[10]See Cameron Australasia Pty Ltd v AED Oil Ltd [2015] VSC 163, [9]–[13] for a similar discussion in the context of the Commercial Arbitration Act 2011.
2D Objects of this Act
The objects of this Act are:
(a)to facilitate international trade and commerce by encouraging the use of arbitration as a method of resolving disputes; and
(b)to facilitate the use of arbitration agreements made in relation to international trade and commerce; and
(c)to facilitate the recognition and enforcement of arbitral awards made in relation to international trade and commerce; and
(d)to give effect to Australia’s obligations under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted in 1958 by the United Nations Conference on International Commercial Arbitration at its twenty‑fourth meeting; and
(e)to give effect to the UNCITRAL Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law on 21 June 1985 and amended by the United Nations Commission on International Trade Law on 7 July 2006; and
(f)to give effect to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States signed by Australia on 24 March 1975.
Further, s 39 of the Act relevantly provides:
39 Matters to which court must have regard
(1) This section applies where:
(a) a court is considering:
…
(vi)performing any other functions or exercising any other powers under this Act, or the Model Law as in force under subsection 16(1) of this Act; or
…
(b)a court is interpreting this Act, or the Model Law as in force under subsection 16(1) of this Act; or
(c)a court is interpreting an agreement or award to which this Act applies; or
…
(2) The court or authority must, in doing so, have regard to:
(a) the objects of the Act; and
(b) the fact that:
(i)arbitration is an efficient, impartial, enforceable and timely method by which to resolve commercial disputes; and
(ii) awards are intended to provide certainty and finality.
Section 2D(e) makes clear that one of the Act’s objects is to give effect to the Model Law on International Commercial Arbitration (“the Model Law”), adopted by the United Nations Commission on International Trade Law (“UNCITRAL”) on 21 June 1985.[11] Following the adoption of the Model Law, the United Nations General Assembly recommended that—[12]
all States give due consideration to the Model Law … in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice.
The Model Law was amended for the first time by UNCITRAL in December 2006. Again, the General Assembly resolved that all States “give favourable consideration” to enacting the revised articles of the Model Law.[13] The Model Law has the “force of domestic law” in Australia by virtue of s 16(1) of the Act,[14] and the Model Law is substantially reproduced in uniform legislation governing domestic commercial arbitration in Australia.[15]
[11]UNCITRAL Model Law on International Commercial Arbitration (As adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended by the United Nations Commission on International Trade Law on 7 July 2006). The Model Law is set out in Schedule 2 to the International Arbitration Act 1974 (Cth).
[12]Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law, GA Res 40/72, UN GAOR, 40th sess, 112th mtg, Supp No 17, UN Doc A/RES/40/72 (11 December 1985) annex I [2].
[13]Revised Articles of the Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law, and the Recommendation Regarding the Interpretation of Article II, Paragraph 2, and Article VII, Paragraph 1, of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Done at New York, 10 June 1958, GA Res 61/33, UN GAOR, 61st sess, 64th mtg, Agenda Item 77, Supp No 17, UN Doc A/RES/61/33 (18 December 2006) annex I.
[14]Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 at 96 [194].
[15]See Commercial Arbitration Act 2011; Commercial Arbitration Act 2010 (NSW); Commercial Arbitration Act 2013 (Qld); Commercial Arbitration Act 2012 (WA); Commercial Arbitration Act 2011 (SA); Commercial Arbitration Act 2011 (Tas); Commercial Arbitration (National Uniform Legislation) Act 2011 (NT).
Another important object of the Act is to give effect to Australia’s obligations under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“the New York Convention”),[16] which, together with the Model Law, forms the primary basis of the provisions in the Act.
[16]Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature 10 June 1958, 330 UNTS 3 (entered into force 7 June 1959); International Arbitration Act 1974 (Cth) s 2D(d).
In TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd, the Full Court of the Federal Court of Australia, in the context of an application made under the Act to enforce an arbitral award, said:[17]
[I]t is not only appropriate, but essential, to pay due regard to the reasoned decisions of other countries where their laws are either based on, or take their content from, international conventions or instruments such as the New York Convention and the Model Law. It is of the first importance to attempt to create or maintain, as far as the language employed by parliament in the … [Act] permits, a degree of international harmony and concordance of approach to international commercial arbitration. This is especially so by reference to the reasoned judgments of common law countries in the region, such as Singapore, Hong Kong and New Zealand.
[17](2014) 311 ALR 387 at 405 [75].
In keeping with this approach, it is salutary and instructive to set out the statement of principle by the Singapore Court of Appeal in AKN v ALC, where Menon CJ (delivering the judgment of the Court of Appeal) said:[18]
[18][2015] SGCA 18, [37], [39].
37A critical foundational principle in arbitration is that the parties choose their adjudicators. Central to this is the notion of party autonomy. Just as the parties enjoy many of the benefits of party autonomy, so too must they accept the consequences of the choices they have made. The courts do not and must not interfere in the merits of an arbitral award and, in the process, bail out parties who have made choices that they might come to regret, or offer them a second chance to canvass the merits of their respective cases. This important proscription is reflected in the policy of minimal curial intervention in arbitral proceedings, a mainstay of the Model Law and the [International Arbitration Act (Singapore, cap 143A, 2002 rev ed)].[19]
…
39In the light of their limited role in arbitral proceedings, the courts must resist the temptation to engage with what is substantially an appeal on the legal merits of an arbitral award, but which, through the ingenuity of counsel, may be disguised and presented as a challenge to process failures during the arbitration. …
The policy of minimal curial intervention referred to by Menon CJ in the context of the enforcement of arbitral awards is equally applicable to applications of the kind presently before the Court; that is, to applications to enforce foreign arbitration agreements. Even though the merits of the case are necessarily yet to be canvassed by an arbitration tribunal, courts are no more entitled to delve into the merits of the case in the context of a stay application, then they are in the context of enforcement or setting-aside proceedings.[20] This is an important illustration of the need for courts to resist the temptation of “domesticity” in approaching matters involving Model Law and/or New York Convention based legislation.[21] In other words, courts must resist the temptation to approach such matters through the prism of principles and doctrines not found in the Model Law or the New York Convention, and which may be peculiar to a particular domestic jurisdiction.
[19]BLC v BLB [2014] 4 SLR 79.
[20]See, eg, Tjong Very Sumito v Antig Investments Pte Ltd [2009] 4 SLR(R) 732 at 758 [53].
[21]See Cameron Australasia Pty Ltd v AED Oil Ltd [2015] VSC 163, [21], [48], [55].
Turning to the provision relied upon in the present application, s 7 of the Act provides:
7 Enforcement of foreign arbitration agreements
(1) Where:
(a)the procedure in relation to arbitration under an arbitration agreement is governed, whether by virtue of the express terms of the agreement or otherwise, by the law of a Convention country;
(b)the procedure in relation to arbitration under an arbitration agreement is governed, whether by virtue of the express terms of the agreement or otherwise, by the law of a country not being Australia or a Convention country, and a party to the agreement is Australia or a State or a person who was, at the time when the agreement was made, domiciled or ordinarily resident in Australia;
(c)a party to an arbitration agreement is the Government of a Convention country or of part of a Convention country or the Government of a territory of a Convention country, being a territory to which the Convention extends; or
(d)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;
this section applies to the agreement.
(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.
(3)Where a court makes an order under subsection (2), it may, for the purpose of preserving the rights of the parties, make such interim or supplementary orders as it thinks fit in relation to any property that is the subject of the matter to which the first‑mentioned order relates.
(4)For the purposes of subsections (2) and (3), a reference to a party includes a reference to a person claiming through or under a party.
(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 7 of the Act is based on art II(3) of the New York Convention which provides:
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.
Article 8 of the Model Law is also based on art II(3) of the New York Convention and provides:
Article 8. Arbitration agreement and substantive claim before court
(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.
(2) Where an action referred to in paragraph (1) of this article has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.
As indicated above, art 8 of the Model Law has the force of domestic law in Australia by virtue of s 16(1) of the Act and has independent operation to s 7 of the Act.[22] Although Mennel does not rely on art 8 of the Model Law, the similarities between the two provisions and their common legislative roots in the New York Convention make it instructive to consider authorities addressing both provisions in determining the present application. By implication, this extends to authorities considering legislation based on art 8 of the Model Law, including the uniform domestic legislation to which reference has already been made.[23]
[22]Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 at 99 [204].
[23]See above n 15.
It is common ground between the parties that s 7 of the Act applies to the arbitration agreement by virtue of s 7(1)(d), and that s 7(2)(a) is satisfied.[24] As such, the outcome of this application depends upon whether the requirements of s 7(2)(b) are satisfied. In ACD Tridon Inc v Tridon Australia Pty Ltd, Austin J found there to be three issues raised by sub-s (2)(b), namely—[25]
· to identify the matter or matters for determination in the present proceeding;
· to establish the proper construction of the arbitration clauses, so as to decide whether the matter or matters for determination in the proceeding are capable of settlement by arbitration in pursuance of the agreement; and
· to determine whether any matter that, in pursuance of the relevant arbitration clause, is to be referred to arbitration is capable of settlement by arbitration.
[24]Transcript, p 48, lines 23–31.
[25][2002] NSWSC 896 [99] (emphasis in original). See also Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 at 105 [234].
In Hancock v Rinehart,[26] Bergin CJ in Eq considered the meaning of s 8(1) of the Commercial Arbitration Act 2012 (WA) (referred to in the judgment as “the 2012 Act”).[27] Her Honour conducted a detailed review of the authorities in relation to the requirement that there be a “matter which is the subject of an arbitration agreement”, including authorities considering s 7(2)(b) of the International Arbitration Act 1974 (Cth). It is convenient to set these paragraphs out as follows:[28]
[26](2013) 96 ACSR 76.
[27]Section 8 of the Commercial Arbitration Act 2012 (WA) substantially reproduces art 8 of the Model Law and provides:
8 Arbitration agreement and substantive claim before court (cf. Model Law Art 8)
(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when submitting the party’s first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.
(2) Where an action referred to in subsection (1) has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.
[28]Hancock v Rinehart (2013) 96 ACSR 76 at 97–9 [85]–[94].
[85]The 2012 Act has only been in force for about 1 month and jurisprudence in respect of its provisions, in particular s 8, is undeveloped. However similar provisions in other jurisdictions have been judicially considered. In Carter Holt Harvey Ltd v Genesis Power Ltd[29] Randerson J, the Chief High Court Judge, considered the Arbitration Act 1996 (NZ) which, pursuant to s 6, included provisions of the Model Law, in particular articles 5 and 8 (which is in identical terms to s 8 of the 2012 Act). After reviewing the relevant authorities, his Honour said:[30]
[29][2006] 3 NZLR 794.
[30]Carter Holt Harvey Ltd v Genesis Power Ltd [2006] 3 NZLR 794 at 806–7 [58].
[58] The mere fact there may be some connection between the Court proceeding and the matter which is the subject of an arbitration agreement is not sufficient to engage art 8(1). There must be a direct relationship between the matter before the Court and the matter which is the subject of the arbitration agreement. Ordinarily, this is likely to arise where the relationship between the two is sufficiently close as to give rise to a material risk of conflicting decisions on fact or law.
[86]In dealing with the prospect of a stay of arbitral proceedings which were "clearly co-extensive", his Honour said (at [61]):[31]
[31]Carter Holt Harvey Ltd v Genesis Power Ltd [2006] 3 NZLR 794 at 807 [61].
[61] ... It is possible to envisage a case where there is such a substantial degree of overlap of factual or legal issues that it would be inappropriate for both Court and arbitral proceedings to proceed simultaneously, even if the matters in the Court proceeding were not the subject of an arbitration agreement in a way which would engage art 8. While a Court might well be reluctant to intervene in such circumstances, I would not wish to preclude the Court's jurisdiction to do so in an appropriate case. I express no view as to whether the present case might fall into that category.
[87]In Gulf Canada Resources Ltd v Arochem International Ltd[32] the Court of Appeal of British Colombia considered the provisions of s 8 of the International Commercial Arbitration Act RSBC 1986, c 233 … .[33]
[32](1992) 66 BCLR (2d) 113.
[33]Section 8 of the International Commercial Arbitration Act RSBC 1986, c 233 provided:
8 Stay of legal proceedings
(1) Where a party to an arbitration agreement commences legal proceedings in court against another party to the agreement in respect of a matter agreed to be submitted to arbitration, a party to the legal proceedings may, before or after entering an appearance and before delivery of any pleadings or taking any other step in the proceedings, apply to that court to stay the proceedings.
(2)In an application under subsection (1), the court shall make an order staying the legal proceedings unless it determines that the arbitration agreement is null and void, inoperative or incapable of being performed.
(3) Notwithstanding that an application has been brought under subsection (1) and that the issue is pending before the court, an arbitration may be commenced or continued and an arbitral award made.
[88]Hinkson JA (with whom Cumming JA concurred) noted the "mandatory" terms of sub-s (2) and said that an applicant must show that a party to an arbitration agreement has commenced proceedings against another party to the agreement "in respect of the matter agreed to be submitted to arbitration".[34] His Honour said:[35]
[34]Gulf Canada Resources Ltd v Arochem International Ltd (1992) 66 BCLR (2d) 113, [31]–[32].
[35]Gulf Canada Resources Ltd v Arochem International Ltd (1992) 66 BCLR (2d) 113, [40].
Where it is arguable that the dispute falls within the terms of the arbitration agreement or where it is arguable that a party to the legal proceedings is a party to the arbitration agreement then, in my view, the stay should be granted and those matters left to be determined by the arbitral tribunal.
[89]Flakt Australia Ltd v Wilkins & Davies Construction Co Ltd[36] involved, in part, the interpretation of s 7 of the Arbitration (Foreign Awards and Agreements) Act 1974 (Cth) (later to become the International Arbitration Act 1974 (Cth)) … .
[36][1979] 2 NSWLR 243.
[90]McLelland J said:[37]
[37]Flakt Australia Ltd v Wilkins & Davies Construction Co Ltd [1979] 2 NSWLR 243 at 250.
In my opinion, the word "matter" in s 7(2)(b) denotes any claim for relief of a kind proper for determination in a court. It does not include every issue which would, or might, arise for decision in the course of the determination of such a claim. The use of the word "settlement" provides support for the view. "Settlement" is an apt term to be used in relation to a claim for relief — it is less apt in relation to a mere issue.
[91]In Tanning Research Laboratories Inc v O'Brien[38] … the High Court considered s 7(2) of the … [Act]. After referring to the meaning of the word "matter" in Ch III of the Constitution as "the whole matter", Deane and Gaudron JJ said:[39]
[38](1990) 169 CLR 332.
[39]Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 at 351 (citations omitted) (“Tanning”).
However, in any context, "matter" is a word of wide import. In the context of s 7(2), the expression "matter ... capable of settlement by arbitration" may, but does not necessarily, mean the whole matter in controversy in the court proceedings. So too, it may, but does not necessarily encompass all the claims within the scope of the controversy in the court proceedings. Even so, the expression "matter ... capable of settlement by arbitration" indicates something more than a mere issue which might fall for decision in the court proceedings or might fall for decision in arbitral proceedings if they were instituted. … It requires that there be some subject matter, some right or liability in controversy which, if not co-extensive with the subject matter in controversy in the court proceedings, is at least susceptible of settlement as a discrete controversy. The words "capable of settlement by arbitration" indicate that the controversy must be one falling within the scope of the arbitration agreement and, perhaps, one relating to rights which are not required to be determined exclusively by the exercise of judicial power.
[92] In Comandate Marine Corp v Pan Australia Shipping Pty Ltd,[40] Allsop J said that the phrase "a matter" is apt to be understood at a level of generality by reference to the arbitration agreement. His Honour said:[41]
[40](2006) 157 FCR 45 (“Comandate Marine”).
[41]Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 at 106 [235].
[T]he word "matter" in s 7(2)(b) can be seen to be a reference to the differences between the parties or the controversy that are or is covered by the terms of the arbitration agreement. That is, such part (or all) of the differences that fall within the scope of the arbitration agreement. It is that body of differences which is to be capable of settlement by arbitration.
[93]In cases concerning the meaning of the word "matter" as used in s 7(2)(b) of the … [Act], it has been held that if proceedings "extend beyond the matter which can be referred to arbitration" then the whole of the proceedings must be stayed until an award is made on the matter so referred.[42]
[94] In Recyclers of Australia Pty Ltd v Hettinga Equipment Inc[43] Merkel J also considered the provisions of s 7(2) of the … [Act]. That case involved an agreement that was governed by the law of Iowa. His Honour concluded that there was a matter that arose under the relevant sale agreement that was capable of settlement by arbitration. His Honour concluded that a stay of the proceedings in so far as it related to that "matter" had to be ordered under s 7(2) of the … [Act]. In respect of the other aspects of the litigation his Honour said:[44]
[65] In the event that a proceeding includes matters that are not capable of being referred to arbitration, but the determination of which is dependent upon the determination of the matters required to be submitted to arbitration, a court may, in the exercise of its discretion, stay the whole proceeding.[45] A court may also exercise a discretion to impose terms that the arbitration of the arbitrable claims not proceed prior to the determination of the non-arbitrable claims where the arbitral claims are seen to be subsidiary to or significantly less substantial than, but overlapping with, the non-arbitrable claims. The discretion may also be exercised to stay the proceeding were the non-arbitrable claims are the ancillary claims.
[66] The broad discretion arises as part of the exercise of a court's general power to control its own proceedings. The basis for the discretion is that the spectre of two separate proceedings — one curial, one arbitral — proceeding in different places with the risk of inconsistent findings on largely overlapping facts, is undesirable.
[42]Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 at 345.
[43](2000) 100 FCR 420.
[44]Recyclers of Australia Pty Ltd v Hettinga Equipment Inc (2000) 100 FCR 420 at 434–5 [65]–[66] (citations omitted).
[45]See Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 at 345.
In Flint Ink NZ Ltd v Huhtamaki Australia Pty Ltd, the Court of Appeal also had cause to consider some of these authorities.[46] Nettle JA (as he then was) further clarified the position as follows:[47]
[46](2014) 289 FLR 30 at 39 [30]–[33], at 51–4 [83]–[89] (“Flint Ink”). See also ACD Tridon Inc v Tridon Australia Pty Ltd [2002] NSWSC 896, [102]–[108]; Re 700 Form Holdings Pty Ltd [2014] VSC 385, [70]–[72].
[47]Flint Ink NZ Ltd v Huhtamaki Australia Pty Ltd (2014) 289 FLR 30 at 53–4 [87]–[89].
87That passage of the judgement in Flakt Australia Ltd v Wilkins & Davies Construction Co Ltd[48] has been followed and applied a number of times.[49] In view, however, of more recent developments, it appears that it should now be read as subject to three qualifications. First, although it is true that s 7(2)(b) denotes a claim for relief of a kind proper for determination in a court, we now know, as a result of the definition of “matter” undertaken by Deane and Gaudron JJ in Tanning,[50] that:
[48][1979] 2 NSWLR 243.
[49]The passage referred to is partially extracted in Hancock v Rinehart (2013) 96 ACSR 76 at 98 [90], which is extracted above at [18].
[50]Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332.
(a)s 7(2)(b) denotes not only a claim but also a defence of a kind proper for determination in a court;
(b) the claim or defence may be one which is derived by the claimant or defendant through or under a party to the arbitration agreement, in the sense that it is or was vested in that party;
(c) the claim or defence may, but does not necessarily have to be, the whole matter in controversy in the court proceedings; and
(d) although the claim or defence must be more than a mere issue for decision in the court proceedings, it may be enough that it amounts to the assertion of a right or liability in controversy which, if not co-extensive with the subject matter in controversy in the court proceedings, is at least susceptible of settlement as a discrete controversy.
88Second, although it is true to say that Brennan and Dawson JJ did not undertake the task of defining “matter” in the same way as Deane and Gaudron JJ, as Merkel J later reasoned in effect in Recyclers of Australia Pty Ltd v Hettinga Equipment Inc,[51] the fact that Brennan and Dawson JJ were able to decide Tanning without attempting a precise definition of “matter” is not a reason to regard Deane and Gaudron JJ's definition of “matter” as other than authoritative. As Merkel J put it:[52]
While Deane and Gaudron JJ may have differed in some respects from the majority on the question of the scope of a “matter”, Tanning is authority for the view that, for the purposes of s 7(2), the “matter” to be determined in a proceeding is to be ascertained by reference to the subject matter of the dispute in the proceeding and the substantive, although not necessarily the ultimate, questions for determination in the proceeding. The scope of the matter is to be ascertained from the pleadings and from the underlying subject matter upon which the pleadings, including the defence, are based.[53]
89Third, for reasons earlier stated, the difference between “the assertion of a right or liability in controversy which, if not co-extensive with the subject matter in controversy, in the court proceedings, is at least susceptible of settlement as a discrete controversy” on the one hand, and “a mere issue for decision in the court proceedings”, on the other hand, is logically to be decided as one of fact and degree by reference to the “whole matter in controversy in the court proceeding”.
[51](2000) 100 FCR 420 at 434 [65].
[52]Recyclers of Australia Pty Ltd v Hettinga Equipment Inc (2000) 100 FCR 420 at 426 [18] (emphasis in original).
[53]Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 at 343–4, 351–4. Cf Fencott v Muller (1983) 152 CLR 570 at 608; Hooper v Kirella Pty Ltd (1999) 96 FCR 1 at 13–6.
I note at this point that in addition to the need to identify the matter or matters for determination in the proceeding, Robotunits asserts the existence of a further threshold issue in order to satisfy the requirements of s 7(2)(b) of the Act, namely that the matter in question be “sustainable”. For the reasons that follow, I am of the view that sub-s (2)(b) imposes no such requirement.[54]
[54]See below [31]–[42].
Requirements of s 7(2)(b) of the Act
As indicated above,[55] whether the requirements of s 7(2)(b) of the Act are met depends upon the answers to the following three questions:
[55]See above [17].
(1) What is the matter (or matters) for determination in the present proceeding?
(2) Is the matter (or matters) capable of settlement by arbitration in pursuance of the agreement? Or, in other words, what is the scope of the arbitration agreement?
(3) Is the matter (or matters) capable of settlement by arbitration?
The elements of these questions are somewhat intertwined; however, in my view, setting them out in this way helps focus attention on the distinct requirements imposed by the statutory language in issue.
Determination of a matter
Matter
In relation to the first requirement, Mennel submits that the word “matter” in s 7(2)(b) of the Act “refers only to the arbitrability of the dispute.”[56] In light of the comprehensive set of authorities set out above, this is clearly not the case. The Court must first isolate the matters to be determined in the proceeding (or any eventual arbitration) before asking whether those matters fall within the scope of the arbitration agreement, and whether they are “arbitrable”.
[56]Defendant’s Further Submissions (5 May 2015) [6].
In my view, and as is acknowledged by Robotunits,[57] the subject matter of the proceedings is whether Mennel had a proper legal or equitable basis for causing Robotunits to make the Payments. If he did — based on the presently pleaded case and without entering into or expressing a view as to the merits of the dispute — Robotunits’ claim would presumably fail. Conversely, if Mennel did not have a proper legal or equitable basis for causing Robotunits to make the Payments, Robotunits’ claim would presumably succeed.
[57]Transcript, pp 43–4. See also Plaintiff’s Outline of Submissions (5 May 2015) [11].
By affidavit, Mennel says, apparently in response to paragraph 4 of the Statement of Claim (“the Share Payment”):[58]
[58]Mennel Affidavit [42]–[43].
42) On or about 19 January 2015 I completed the transfer of my shares in the Plaintiff to Robotunits Austria and thereafter advised ASIC accordingly.
…
43) As Robotunits Austria was as of 19 January 2015 indebted to me for the Share Transfer Sum, and as the Plaintiff was now a wholly-owned subsidiary of Robotunits Austria, I caused the Plaintiff to settle this outstanding debt by transferring the Share Transfer Sum to me.
Mennel says further, apparently in response to paragraphs 5 to 7 of the Statement of Claim (“the Entitlement Payments”):[59]
[59]Mennel Affidavit [49]–[50].
49)These steps [taken by Christian Beer and/or Robotunits Austria] made it consequently impossible for me to fulfil my duties and responsibilities as director of the Plaintiff, and also to fulfil my duties under the Employment Agreement with the Plaintiff.
50) I also understood those actions to mean that neither Christian Beer nor Robotunits Austria as sole shareholder of the Plaintiff was interested in my continued employment with the Plaintiff and that the Plaintiff, once under their control, had therefore effectively released me from my obligations to fulfil my remaining employment termination notice period with the Plaintiff. I therefore caused the Plaintiff to pay my remaining employment entitlements to me. These payments were for:
a) My salary for the month of January 2015
b)My salary for the remainder of the notice period
c)An amount to be transferred to my superannuation fund in respect to the above two payments
d)My pre-rated yearly bonus
Upon reading these passages, and in light of counsel’s submissions regarding Mennel’s expected arguments as to the merits,[60] it may be inferred that Mennel’s position is likely to be that he did have a proper legal or equitable basis for causing Robotunits to make the Payments.
[60]Defendant’s Outline of Submissions (5 May 2015) [19]–[24].
Specifically — and without expressing a view as to the merits of the dispute — Mennel apparently intends to argue that the Share Payment is justifiable with reference to the Shareholders Agreements and that the Entitlement Payments are justifiable with reference to the Employment Agreement. For example, in paragraph 49 of the Mennel Affidavit, Mennel refers to his “duties under the Employment Agreement”, before providing an explanation for the Entitlement Payments in the next paragraph.[61] Further, in paragraph 20(d) of counsel for Mennel’s outline of submissions — under the heading: “The Defendant’s expected arguments re. the substance matter of the proceedings in reply” — it is submitted that Mennel intends to argue that he was justified in causing Robotunits to make the Entitlement Payments on the basis of Robotunits’ obligations under the Employment Agreement.[62] There is no material before the Court to suggest that Mennel intends to claim that either of the Shareholders Agreements provided a legal or equitable basis for causing Robotunits to make the Entitlement Payments.
[61]Mennel Affidavit [49]–[50].
[62]Defendant’s Outline of Submissions (5 May 2015) [20(d)].
Do the questions of whether the Shareholders Agreements provided a proper legal or equitable basis for Mennel to cause Robotunits to make the Share Payments, and whether the Employment Agreement provided such a basis in relation to the Entitlement Payments, constitute matters for determination in the proceedings? In my opinion, they unequivocally do.
Robotunits submits that the question of whether Mennel was entitled to sell his shares in Robotunits at a particular price in accordance with the Shareholders Agreements is, at best, a mere issue in the proceedings, and not a matter which would fall to be settled by the court in the proceedings.[63] However, as indicated previously, the success of Robotunits’ claim, as presently pleaded and in light of the Mennel Affidavit, would appear to depend upon whether the agreements have the effect that Mennel apparently intends to contend for. These are not mere issues incidental to the dispute — they go to the heart of the controversy between the parties. As such, in my opinion, the matters to be determined in the proceeding are:
1)Whether the Shareholders Agreements provided a legal or equitable basis for Mennel to cause Robotunits to make the Share Payment; and
2)Whether the Employment Agreement provided a legal or equitable basis for Mennel to cause Robotunits to make the Entitlement Payments.
[63]Plaintiff’s Outline of Submissions (5 May 2015) [15].
On the question of how a “matter” is to be identified for the purposes of s 7(2)(b) of the Act, I would add that during the hearing I expressed the view that it may have been desirable to adjourn the hearing of the application until the close of pleadings, in order to clarify the matters requiring determination.[64] It is foreseeable that in some circumstances the material before the court may be insufficient to allow the identification of the matters to be determined in a proceeding. However, upon reflection, and for the reasons already indicated, the matters for determination in this proceeding are readily ascertainable from the material already before the Court and it is appropriate for them to be articulated with the degree of specificity provided above.
[64]See Transcript, p 53, lines 25–30; p 60, lines 24–6; p 74, lines 25–8; p 76, lines 19–22.
In my view, the making of such applications should not be arbitrarily confined to circumstances in which pleadings have closed, where the matters for determination are apparent on the face of the material before the court. Moreover, it would not appear to be the position that a “matter” for the purposes of s 7(2)(b) of the Act is identifiable only with reference to the pleadings.[65] This position is also reflective of the position under art 8 of the Model Law, which contemplates the grant of a stay before the close of pleadings by requiring the applicant to make an application “not later than when submitting his first statement on the substance of the dispute”.
[65]See Flakt Australia Ltd v Wilkins and Davies Construction Co Ltd [1979] 2 NSWLR 243 at 250; ACD Tridon Inc v Tridon Australia Pty Ltd [2002] NSWSC 896 [109]; Re 700 Form Holdings Pty Ltd [2014] VSC 385 [73].
Sustainable dispute
As indicated previously, further to its submissions as to the matters for determination in the proceeding, Robotunits submits that, in any event, any such matters must be “sustainable” in order to constitute grounds for a stay. Accordingly, Robotunits submits:[66]
16.Even if the question of whether the Shareholders’ Agreement somehow authorised the payments rises above an issue, to constitute a “matter” for the purposes of clause 7(2)(b), the allegation must be sustainable, in order to enliven any dispute under the Shareholders’ Agreement.
…
20.Here, the Defendant’s assertion that the Shareholders’ Agreement authorised the Share Payment is not sustainable, as it has no reasonable (or indeed any) prospect of success.
[66]Plaintiff’s Outline of Submissions (5 May 2015) [16], [20].
In response, Mennel submits that there is no requirement that the matters for determination in the proceeding be “sustainable” or that they have a “reasonable chance of success”.[67] In my view, and for the reasons that follow, there is no such requirement under s 7(2)(b) of the Act.
[67]Defendant’s Further Submissions (5 May 2015) [16].
In support of its submission, Robotunits relies on four decisions in related proceedings in New South Wales; two of the Supreme Court, and two of the Court of Appeal. In Welker v Rinehart (No 2),[68] Brereton J refused an application to stay proceedings under s 67 of the Civil Procedure Act 2005 (NSW), which grants the court broad powers to stay any proceedings before it. The defendants pleaded the clauses of a settlement deed in response to the plaintiffs’ statement of claim and sought to rely on an arbitration agreement contained in that deed as grounds for a stay. Upon construing the terms of the arbitration agreement and the strength of the defences under the deed, Brereton J found that there was no “dispute under … [the] deed”,[69] and refused the stay application. On appeal, in Rinehart v Welker, Bathurst CJ (with whom McColl and Young JJA agreed) held that Brereton J’s approach to determining whether to stay the proceedings, which included assessing the strength of the defences, was justified.[70]
[68][2011] NSWSC 1238.
[69]Welker v Rinehart (No 2) [2011] NSWSC 1238, [49]. See below [50] where the relevant parts of the arbitration agreement in question are set out.
[70][2012] NSWCA 95, [135].
Accordingly, Robotunits relies on the following passage of Bathurst CJ’s judgment:[71]
If the Settlement Deed had the effect of barring the claims of the respondents, then it would follow that the dispute in question was governed or controlled by the Settlement Deed as the outcome would be regulated by its terms. However, the mere fact that these assertions were made does not mean that it automatically follows that the whole claim is a dispute under the Settlement Deed. The primary judge, in my opinion, was entitled to examine the claim to form a view as to whether he could properly conclude, in the light of the evidence available, that the assertion that the claim was barred by the Settlement Deed was sustainable.[72] This was particularly the case when each party made extensive submissions on the issue and none suggested there was any further material which may become available which would be of assistance to the court on the issue of construction of the clause in question. It was also relevant, in my opinion, to look at the strength of the assertion to determine whether, as a matter of discretion, a stay of the whole or any part of the proceedings should be granted.
[71]Rinehart v Welker [2012] NSWCA 95 [135].
[72]See Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334 at 356 (“Channel Tunnel Group”).
Following the Court of Appeal decision, the plaintiffs amended their pleading and brought new claims. In Hancock v Rinehart,[73] in light of the new claims, the defendants again sought to have the proceedings stayed pursuant to the arbitration agreement in the settlement deed, this time relying on s 8(1) of the Commercial Arbitration Act 2012 (WA) (referred to in the judgment as the 2012 Act).[74] The grant of a stay again depended upon whether there was a “dispute under ... [the settlement] deed”. It was in this context that Bergin CJ in Eq said:[75]
[73](2013) 96 ACSR 76.
[74]See above n 27. As set out above, s 8 of the Commercial Arbitration Act 2012 (WA) substantially reproduces art 8 of the Model Law.
[75]Hancock v Rinehart (2013) 96 ACSR 76 at 100 [98].
The applicants claim that the new claims have been released by the deed and that the plaintiffs are barred from bringing these claims. The plaintiffs claim that the new claims were not released by the deed and they are not barred from bringing them. That is said to be the dispute "under" the deed, the outcome of which is governed and controlled by the deed. Notwithstanding the introduction of the 2012 Act, all parties proceeded in these applications on the basis that in determining whether there is such a dispute it is necessary to determine whether the assertions that the claims are barred are "sustainable”.[76]
[76]Rinehart v Welker [2012] NSWCA 95, [135].
Her Honour then went on to consider the Channel Tunnel Group[77] case, which was cited by Bathurst CJ in the Court of Appeal decision, before considering what it means for a claim to be “sustainable”. Her Honour concluded:[78]
[77]Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334.
[78]Hancock v Rinehart (2013) 96 ACSR 76 at 101 [103]–[104].
[103] Lord Mustill's reference in Channel Tunnel Group to there being "no defence" to the case, combined with Bathurst CJ's reference in the Court of Appeal judgment to the assertion being "sustainable", supports the conclusion that the test is whether the assertion has reasonable prospects of success. As the opposite to the description by Lord Pearson in Drummond-Jackson v British Medical Association, it is one that can succeed.[79]
[104] I am of the view that a "sustainable" assertion in the context of these applications is one in respect of which there would be reasonable prospects of success, that is, reasonable prospects of a finding that any of the new claims as pleaded in the 3SC, have been released by the deed.
In dismissing the leave to appeal application from Bergin CJ in Eq’s decision, the Court of Appeal applied the sustainability test set out by her Honour, impliedly approving of this analysis.[80]
[79][1970] 1 WLR 688 at 696.
[80]Rinehart v Hancock [2013] NSWCA 326, [2], [5]–[6], [11], [15].
In my view, these authorities do not support the conclusion contended for by Robotunits, namely that a “matter” for purposes of s 7(2)(b) of the Act must be sustainable, in that any claim or defence must have reasonable prospects of success. On the one hand, the decisions in Welker v Rinehart (No 2)[81] and Rinehart v Welker[82] were not made in a relevant legislative context, being an application for a stay under legislation based on the New York Convention or the Model Law. Rather, these decisions involved the determination of whether the court’s discretion to grant a stay should be exercised. On the other hand, the decisions of Hancock v Rinehart[83] and Rinehart v Hancock,[84] while made in a relative legislative context, may, in my opinion, be confined to their facts on the basis that the parties, perhaps based on their own understanding of the effect of the decision of the Court of Appeal in the earlier litigation (in Rinehart v Welker),[85] proceeded on the basis that it was necessary to determine whether the assertions in question were sustainable.[86]
[81][2011] NSWSC 1238.
[82][2012] NSWCA 95.
[83](2013) 96 ACSR 76.
[84][2013] NSWCA 326.
[85][2012] NSWCA 95.
[86]Hancock v Rinehart (2013) 96 ACSR 76 at 100 [98].
Moreover, I am of the view that the judgment of Lord Mustill in Channel Tunnel Group[87] provides no basis for finding that such a requirement exists under s 7(2)(b) of the Act. In that case, the House of Lords was tasked with determining whether a stay should be granted under s 1(1) of the Arbitration Act 1975 (c 3) (UK) (“the 1975 UK Act”).[88] Lord Mustill (with whom Lords Jauncey of Tullichettle, Goff of Chieveley, Browne-Wilkinson and Keith of Kinkel agreed) was willing to hold that the respondents were entitled to a stay under that Act, but preferred to grant a stay by what his Lordship described as the “simpler and more natural route … of inherent jurisdiction.”[89] Nevertheless, Lord Mustill considered the appellants’ argument — based on the relevant statutory language — that a stay should be refused under s 1(1) on the grounds that “there is not in fact any dispute between the parties with regard to the matter agreed to be referred” to arbitration.[90] His Lordship referred to the legislative history of these words, noting their effect as a “qualification” and “exception” to a defendant’s right to a mandatory stay where the requirements of s 1(1) of the 1975 UK Act are otherwise satisfied.[91] It is in this context that Lord Mustill said:[92]
In recent times, this exception to the mandatory stay has been regarded as the opposite side of the coin to the jurisdiction of the court … to give summary judgment in favour of the plaintiff where the defendant has no arguable defence. If the plaintiff to an action which the defendant has applied to stay can show that there is no defence to the claim, the court is enabled at one and the same time to refuse the defendant a stay and to give final judgment for the plaintiff. This jurisdiction, unique so far as I am aware to the law of England, has proved to be very useful in practice, especially in times when interest rates are high, for protecting creditors with valid claims from being forced into an unfavourable settlement by the prospect that they will have to wait until the end of an arbitration in order to collect their money.
[87]Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334.
[88]Section 1(1) of the Arbitration Act 1975 (c 3) (UK) provided:
If any party to an arbitration agreement to which this section applies, or any person claiming through or under him, commences any legal proceedings in any court against any other party to the agreement, or any person claiming through or under him, in respect of any matter agreed to be referred, any party to the proceedings may at any time after appearance, and before delivering any pleadings or taking any other steps in the proceedings, apply to the court to stay the proceedings; and the court, unless satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred, shall make an order staying the proceedings.
As explained by Lord Mustill in Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334 at 354, the New York Convention provided the “impetus for the enactment” of the 1975 UK Act.
[89]Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334 at 355.
[90]Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334 at 355–7.
[91]Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334 at 355–6.
[92]Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334 at 356.
As such, Lord Mustill’s comments with regards to there being grounds to refuse a stay where there is “no defence to the claim” (cited in Rinehart v Welker[93] and subsequently referred to in Hancock v Rinehart)[94] were made in the context of the particular words of the legislative provision in question, namely the words — “there is not in fact any dispute between the parties with regard to the matter agreed to be referred”.[95] This has been recognised by subsequent English cases which have considered the significance of the deletion of these words from s 9(1) of the Arbitration Act 1996 (c 23) (UK) (“the 1996 UK Act”), the legislative successor of s 1(1) of the 1975 UK Act.[96] Indeed, it has been held that the omission of these words from the 1996 UK Act means that the court is no longer required to determine whether there is in fact a dispute between the parties.[97] Therefore, given that the critical words in s 1(1) of the 1975 UK Act do not appear in s 7 of the International Arbitration Act 1974 (Cth), the Channel Tunnel Group case does not support the interpretation of s 7(2)(b) of the Act contended for by Robotunits.
[93][2012] NSWCA 95 [135].
[94](2013) 96 ACSR 76 at 101 [103].
[95]See Nigel Blackaby et al, Redfern and Hunter on International Arbitration (Oxford University Press, 5th ed, 2009) 22 [1.59]–[1.60] (“Redfern and Hunter”).
[96]Section 9 of the Arbitration Act 1996 (c 23) (UK) relevantly provides:
9.—(1) A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter.
…
(4)On an application under this section the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed.
…
[97]See especially Halki Shipping Corp v Sopex Oils Ltd [1998] 1 WLR 726 at 750, at 753, at 755, at 762. See also Lombard North Central plc v GATX Corp [2013] Bus LR 68 [18]; ET Plus SA v Welter [2005] EWHC 2115 (Comm) [15].
The position that no sustainability requirement is imposed by s 7(2)(b) of the Act finds support in the comments of McLure P in Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd,[98] where her Honour said — citing Redfern and Hunter[99] — that a “dispute” for the purposes of the arbitration agreement in that case, and for the purposes of s 7(2) of the Act, “does not have to satisfy any minimum merits threshold”. In Redfern and Hunter, the authors make reference to the “problem” of the possibility of an “‘open and shut’ case, to which there is no real defence”, being met with an application to stay proceedings and refer the matters for determination to arbitration.[100] The authors go on to note that the mechanism used in certain countries to dispose more efficiently of such matters was to add words not found in the New York Convention, such as those found in s 1(1) of the 1975 UK Act discussed above.[101] As indicated previously, given that words to similar effect are not found in s 7(2)(b) of the Act, the imposition of a “minimum merits threshold”, such as that contended for by Robotunits, would be contrary to the plain language of the statute.
[98](2013) 298 ALR 666 at 697 [115].
[99]Nigel Blackaby et al, Redfern and Hunter on International Arbitration (Oxford University Press, 5th ed, 2009) [1.59].
[100]Nigel Blackaby et al, Redfern and Hunter on International Arbitration (Oxford University Press, 5th ed, 2009) [1.59].
[101]Nigel Blackaby et al, Redfern and Hunter on International Arbitration (Oxford University Press, 5th ed, 2009) [1.60]. See above [37]–[38].
The position that no sustainability requirement exists under s 7(2)(b) of the Act is also supported by the reasoned judgments of common law countries in the Asia-Pacific region which consider provisions based on art 8 of the Model Law. In Tjong Very Sumito v Antig Investments Pte Ltd,[102] the Singapore Court of Appeal, considering s 6(1) of the Arbitration Act (Singapore, cap 10, 2002 rev ed),[103] said:[104]
[102][2009] 4 SLR(R) 732. Cf Merrill Lynch Pierce, Penner & Smith Inc v Prem Ramchard Harjani [2009] 4 SLR(R) 16 at 24 [19]–[21].
[103]Section 6(1) of the Arbitration Act (Singapore, cap 10, 2002 rev ed) provides:
Where any party to an arbitration agreement institutes any proceedings in any court against any other party to the agreement in respect of any matter which is the subject of the agreement, any party to the agreement may, at any time after appearance and before delivering any pleading or taking any other step in the proceedings, apply to that court to stay the proceedings so far as the proceedings relate to that matter.
[104]Tjong Very Sumito v Antig Investments Pte Ltd [2009] 4 SLR(R) 732 at 758 [52].
The circumstances, in which a stay should be refused, as stated below, are not exhaustive, but they are of a very different nature from the considerations for a summary judgment application.
And further:[105]
… not every claim that could succeed on summary judgment would result in the court’s refusal to grant a stay. The merits of the case, in other words, have absolutely no bearing on the granting of a stay unless the defendant actually admits (by unequivocal words or conduct) the claim.
[105]Tjong Very Sumito v Antig Investments Pte Ltd [2009] 4 SLR(R) 732 at 758 [53].
In a similar vein, in Tommy CP Sze & Co v Li & Fung (Trading) Ltd, Ma J, sitting in the High Court of Hong Kong and considering s 20(1) of the Arbitration Ordinance (Hong Kong) cap 609, said:[106]
[106][2003] 1 HKC 418 at 425 [21] (emphasis in original). Section 20(1) of the Arbitration Ordinance (Hong Kong) cap 609 gives effect to art 8 of the Model Law by setting it out in full.
On the assumption that there exists an arbitration agreement and that it is capable of being performed, the next step is to discover whether in reality there does exist a dispute or difference between the parties. If upon analysis no dispute or difference exists, there is nothing to refer to arbitration. Here, the relevant question is: Is there in reality a dispute or difference between the parties? … If the answer is No, no stay will be ordered.
It should be noted that Ma J’s reference to there being a “dispute or difference between the parties” may be understood — in light of the common legislative history between the provision in issue in that case and s 7(2)(b) of the International Arbitration Act 1974 (Cth), in art II(3) of the New York Convention — as a reference to whether the proceeding involves the determination of a “matter”.[107] In relation to the question posed by Ma J, his Honour went on to say:[108]
50.Prior to the enactment of the present s 6 of the Ordinance and art 8 of the Model Law, the court's approach had been that proceedings would only be stayed (and the relevant dispute or difference referred to arbitration) if a genuine dispute existed between the parties. A genuine dispute was one in which there was a substantial or arguable defence to the claim brought by the Plaintiff in the action.
51.That is no longer the law. A dispute will exist unless there is a clear and unequivocal admission not only of liability but also of quantum.
[107]See Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 at 105–6 [234]–[235]: “It is the matter, the differences between the parties, the controversy between the parties, which, under the agreement, the parties have agreed to submit to arbitration.”
[108]Tommy CP Sze & Co v Li & Fung (Trading) Ltd [2003] 1 HKC 418 at 434 [50]–[51] (citations omitted).
In light of these reasoned judgments, it is clear that art 8 of the Model Law does not impose a sustainability requirement,[109] and, therefore — further to the reasons already stated — there are no grounds for reading such a requirement into s 7(2)(b) of the Act. Indeed, in my view, to find otherwise would be to succumb to the temptation of “domesticity” referred to above, by allowing the determination of whether to stay proceedings and refer the parties to arbitration to be coloured by the merits of the case.[110] In other words, this would involve engaging in an impermissible assessment of the relative strengths and weaknesses of the parties’ claims and defences as to the substance of the dispute — a task which the Act has reserved for either the trial judge, or the arbitration tribunal (if the requirements of s 7(2) are satisfied).
[109]Cf the position in New Zealand, where the words “or that there is not in fact any dispute between the parties with regard to the matters agreed to be referred” appear in s 8(1) of the Arbitration Act 1996 (NZ). See Zurich Australian Insurance Limited v Cognition Education Limited [2014] NZSC 188, [52].
[110]See above [14].
In pursuance of the agreement
The second question to be answered in order to determine whether the requirements of s 7(2)(b) of the Act have been met is whether the matters that have been identified are capable of settlement by arbitration in pursuance of the agreement. That is, whether the determination of those matters falls within the scope of the arbitration agreement; or, in other words, whether the parties intended those matters to be settled by arbitration.
In relation to this second requirement, Mennel submits:[111]
The Arbitration Agreement is somewhat unclear in scope insofar as it does not expressly limit arbitration to (for instance) “all issues arising out of this agreement” or “all issues connected with this agreement”. Yet the common sense interpretation of the Arbitration Agreement is therefore that all issues between the parties are subject to arbitration, as any other interpretation would not be supported by the plain language of the Arbitration Agreement.
[111]Defendant’s Outline of Submissions (5 May 2015) [37] (emphasis in original). See Transcript, pp 19–21.
As such, Mennel contends for the broadest possible construction of the arbitration agreement, a construction which would easily cover the matters for determination in the proceeding which have been identified. Mennel submits further (and somewhat unclearly):[112]
In any event, it was clearly the intent of the parties to arbitrate issues arising out of or connected with the Agreement; if not, what was the purpose of the Arbitration Agreement? As will be submitted below, the main issue in dispute between the parties is whether the Payments were authorized by the Agreement, as the Defendant says and the Plaintiff presumably disputes; and to deny the Arbitration Agreement the authority to apply to the question whether the share transfer provisions of the Agreement were correctly used by a party would mean to deny the Arbitration Agreement any useful existence at all.
[112]Defendant’s Outline of Submissions (5 May 2015) [39].
For its part, Robotunits contends for a far narrower construction of the arbitration agreement, and submits:[113]
29.As clearly stated in the recitals of both the Shareholders’ Agreement and the Amended Shareholders’ Agreement, the agreements are intended to govern the relationship between shareholders, in their capacity as shareholders. The matters each agreement then goes on to address bear out this purpose. Although the Plaintiff is a party to each agreement, it appears to be so either out of caution or for limited purposes. Each agreement defines “Shareholders” to mean the “Parties”, notwithstanding the Plaintiff is a party to the agreement. Similarly, the term Party is used in each agreement in circumstances where it cannot mean the Plaintiff, notwithstanding the definition of “Parties” in the agreements.
…
31.Nothing in the words of the … [arbitration agreement] indicate that it was intended to have extended operation — there is no reference to matters “arising out of or in connection to”, or similar commonly found language to suggest the clause was intended to govern anything other than disputes under the Shareholders’ Agreement. There is nothing at all to support an objective intention to create an overarching dispute resolution mechanism for any and all disputes between the Company and its members, regardless of the capacity in which those disputes arose. It is important to be mindful of the context of the arbitration agreement — within a shareholders’ agreement.
32.The court proceeding under consideration arises out of the director/company or employee/employer relationship. This relationship is governed by the Corporations Act 2001 (Cth), the general law and the Employment Agreement, not the Shareholders’ Agreement. The Plaintiff is not seeking to exercise any claim or right against the Defendant arising out of their company/shareholder relationship.
33.No reasonable person would understand the Shareholders’ Agreement to mean that it was intended that the arbitration clause within it should govern a claim for breach of fiduciary duty by the Plaintiff against its sole director. …
[113]Plaintiff’s Outline of Submissions (5 May 2015) [29], [31]–[33] (citations omitted).
In my opinion, and for the reasons that follow, the matter of whether the Shareholders Agreements provided a legal or equitable basis for Mennel to cause Robotunits to make the Share Payment falls within the scope of the arbitration agreement.[114] However, I am of the view that the matter of whether the Employment Agreement provided a legal or equitable basis for Mennel to cause Robotunits to make the Payments — specifically the Entitlement Payments — is beyond the scope of the arbitration agreement. As such, by implication, I do not accept Mennel’s submission that the arbitration agreement requires all disputes between the parties to proceed to arbitration.
[114]See above [28].
It is settled law in Australia that the scope of an arbitration agreement is to be ascertained in accordance with contract law principles.[115] As Allsop J (as he then was, and with whom Finn and Finkelstein JJ agreed) said in Comandate Marine — citing the High Court in Pacific Carriers Ltd v BNP Paribas[116] — the meaning of an arbitration agreement—[117]
[115]Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 at 87 [162]; Rinehart v Welker [2012] NSWCA 95 [115].
[116](2004) 218 CLR 451 at 461–2 [22]. See Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40] where the High Court affirmed its approach in Pacific Carriers Ltd v BNP Paribas.
[117]Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 at 87 [162].
is to be determined by what a reasonable person in the position of the parties would have understood it to mean, having regard to the text, surrounding circumstances, purpose and object of the transaction.
In the context of a foreign, or an international, arbitration agreement, such as the agreement presently in issue (being an agreement to which s 7 of the Act applies), his Honour remarked:[118]
164… Regard should be had … to the clear tenor of approach internationally in construing arbitration clauses in international agreements. The authorities (to which I will refer shortly) are clear that a liberal approach should be taken. That is not to say that all clauses are the same or that the language used is not determinative. The court should, however, construe the contract giving meaning to the words chosen by the parties and giving liberal width and flexibility to elastic and general words of the contractual submission to arbitration.
165This liberal approach is underpinned by the sensible commercial presumption that the parties did not intend the inconvenience of having possible disputes from their transaction being heard in two places. This may be seen to be especially so in circumstances where disputes can be given different labels, or placed into different juridical categories, possibly by reference to the approaches of different legal systems. The benevolent and encouraging approach to consensual alternative non-curial dispute resolution assists in the conclusion that words capable of broad and flexible meaning will be given liberal construction and content. This approach conforms with a common-sense approach to commercial agreements, in particular when the parties are operating in a truly international market and come from different countries and legal systems and it provides appropriate respect for party autonomy.
[118]Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 at 87–8 [164]–[165]. See also Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 131 FLR 422 at 427.
In Rinehart v Welker,[119] the New South Wales Court of Appeal considered the construction and scope of a domestic arbitration agreement contained in a settlement deed. The respondents (being the plaintiffs at first instance) had commenced proceedings seeking the removal of one of the appellants (being the defendants at first instance) as trustee of the family trust, alleging misconduct. The respondents also sought certain trust information and orders under the relevant trustee legislation. The appellants sought to rely on the terms of a settlement deed as grounds for orders staying the proceeding and referring the parties to arbitration.
[119][2012] NSWCA 95. See above [33].
Clause 20 of the settlement deed relevantly provided that in “the event that there is any dispute under this deed then … the parties to this deed shall attempt to resolve such difference in the following manner” (emphasis added). The clause went on to provide that the parties would first attempt to resolve disputes by mediation and then by arbitration. The appellants argued that the proceedings were in respect of a dispute under the settlement deed on the grounds that certain clauses of the settlement deed had been expressly pleaded in their defences, in answer to the allegations made in the respondents’ statements of claim.[120]
[120]See Rinehart v Welker [2012] NSWCA 95, [32]–[33], [131].
Upon considering the construction and scope of the arbitration agreement, Bathurst CJ reviewed the relevant authorities, including Comandate Marine, and said:[121]
[121]Rinehart v Welker [2012] NSWCA 95, [125].
It seems to me that consistent with the authorities to which I have referred, if the outcome of the dispute was governed or controlled by the Settlement Deed, then there would be a dispute under the Settlement Deed irrespective of whether the claimant was invoking or enforcing some right created by the Settlement Deed.
His Honour then set out the orders sought by the respondents in their statements of claim, before observing:[122]
[122]Rinehart v Welker [2012] NSWCA 95, [127].
None of these matters, viewed in isolation from the defences, involve invoking or enforcing any rights created by the Settlement Deed nor is their outcome generated or controlled by the Settlement Deed.
However, after considering the defences raised by the appellants, his Honour said:[123]
The defences raise disputes under the Settlement Deed as they rely on provisions of the Deed in answer to the respondents' claims.
And further:[124]
If the Settlement Deed had the effect of barring the claims of the respondents, then it would follow that the dispute in question was governed or controlled by the Settlement Deed as the outcome would be regulated by its terms.
[123]Rinehart v Welker [2012] NSWCA 95, [132].
[124]Rinehart v Welker [2012] NSWCA 95, [135].
Bathurst CJ went on to hold that the mere fact that the assertions were made (in reliance on the settlement deed) did not necessarily mean that the whole claim was a dispute under the settlement deed because the assertions also had to be sustainable. For the reasons already indicated, I am of the view that no such sustainability requirement exists under s 7(2)(b) of the Act. However, I would respectfully agree with Bathurst CJ’s reasoning that if the outcome of a dispute is governed or controlled by the terms of a contract which fall within the scope of an arbitration agreement, then there is clearly a dispute under that contract. In other words, and in the context of s 7(2) of the Act, if the determination of a matter in the proceeding depends upon the terms of a contract to which an arbitration agreement applies, it follows that, in pursuance of the arbitration agreement, the parties have agreed to submit that matter to arbitration.
Robotunits focuses in its submissions on the context in which the arbitration agreement is found and emphasises that the agreement only governs disputes arising under the Shareholders Agreements. Robotunits submits that, therefore, no reasonable person in the position of the parties would have understood the arbitration agreement to apply to the present claim by Robotunits for breach of fiduciary duty against Mennel in his capacity as its sole director. This is because Robotunits’ claims (as articulated in the Statement of Claim) do not arise out of the parties’ company/shareholder relationship, nor does Robotunits seek to invoke or enforce any rights created by the Shareholders Agreements.
In light of the authorities to which I have referred, and the matters to be determined in the proceeding, Robotunits’ submissions on this point should be rejected. Robotunits correctly identifies the importance of the context in which the arbitration agreement is found, namely in a contract governing the relationship between a company and its shareholders in their capacity as shareholders.[125] However, in my opinion, Robotunits’ submissions are premised on the assumption that the question of whether the Shareholders Agreements provided a legal or equitable basis for Mennel to cause Robotunits to make the Share Payment is not a matter to be determined in the proceedings. For reasons already indicated, this assumption is not correct. Indeed, as was clarified by Nettle JA (as he then was) in Flint Ink,[126] the term “matter” in s 7(2)(b) of the Act refers to both claims and defences of a kind proper for determination in a court. Therefore, regard must be had both to how Robotunits pleads its case, and to what Mennel’s position is likely to be having regard to the material before the Court, namely the Mennel Affidavit and the submissions of counsel.
[125]See Re 700 Form Holdings Pty Ltd [2014] VSC 385, [118].
[126]Flint Ink NZ Ltd v Huhtamaki Australia Pty Ltd (2014) 289 FLR 30 at 53–4 [87]. See above [19].
As such, it does not follow from the fact that Robotunits is not seeking to exercise a claim or right against Mennel arising out of their company/shareholder relationship — as governed by the Shareholders Agreements — that the scope of the arbitration agreement does not extend to the matters to be determined in the proceeding. Rather, as indicated previously, the outcome of Robotunits’ claim, at least in relation to the Share Payment, would appear to depend upon whether the terms of the Shareholders Agreements provided a legal or equitable basis for Mennel to cause Robotunits to make the Share Payment. As such, this matter falls clearly within the scope of the arbitration agreement.
However, the position is different when it comes to the matter of whether the Employment Agreement provided a legal or equitable basis for Mennel to cause Robotunits to make the Entitlement Payments. The arbitration agreement does not include express words limiting its scope to matters arising out of or in relation to the Shareholders Agreements. However, contrary to Mennel’s submission, the common sense interpretation of the arbitration agreement is not therefore that the parties intended to submit all issues between them, regardless of how they may arise, to arbitration.
In my view, a reasonable person in the position of the parties would not have understood the arbitration agreement to extend to matters arising outside of the Shareholders Agreements. Therefore, the matter of whether the Employment Agreement provided a legal or equitable basis for Mennel to cause Robotunits to make the Entitlement Payments is beyond the scope of the arbitration agreement. I have reached this conclusion having regard to the following:
(a) The Employment Agreement was executed after both of the Shareholders Agreements;[127]
[127]See above [5].
(b) Neither the arbitration agreement, nor any other clause of the Shareholders Agreements, refers to Mennel’s employment with, or directorship of, Robotunits;
(c) The Shareholders Agreements are expressed as regulating the relationship between the shareholders in Robotunits in their capacity as shareholders;
(d) Robotunits and Mennel are the only parties to the Employment Agreement;
(e) The Employment Agreement includes a choice of law clause, but it is silent on the method with which disputes are to be resolved;
(f) There was no evidence before the Court as to other surrounding circumstances, such as an established practice between the parties of submitting all disputes between them to arbitration.
I am satisfied that this conclusion is consistent with the liberal approach taken to construing arbitration agreements articulated in Comandate Marine and other authorities.[128] It may be presumed that the parties did not intend to have possible disputes arising out of the Shareholders Agreements heard in different forums. However, the Employment Agreement governs the parties’ relationship as employee and employer and thus relates to a separate transaction altogether, being the employment of Mennel by Robotunits.
[128]Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 at 87–8 [164]–[165]. See also Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 131 FLR 422 at 427.
As such, the matter of whether the Shareholders Agreements provided a legal or equitable basis for Mennel to cause Robotunits to make the Share Payment is capable of settlement by arbitration in pursuance of the agreement; however, the matter of whether the Employment Agreement provided such a basis for the making of the Entitlement Payments is not.
Capable of settlement by arbitration
The third question to be answered in order to determine whether the requirements of s 7(2)(b) of the Act have been met is whether the matters to be determined in the proceeding are capable of settlement by arbitration.
In Comandate Marine, Allsop J (as he then was, and with whom Finn and Finkelstein JJ agreed) provided a detailed summary of the origins of the phrase “capable of settlement by arbitration”.[129] After tracing the origins of the phrase in the New York Convention and the Model Law, his Honour observed that the types of disputes that were considered incapable of settlement by arbitration (or “non-arbitral”) were “disputes such as those concerning intellectual property, anti-trust and competition disputes, securities transactions and insolvency.”[130] His Honour went on to say:[131]
It is sufficient to say three things at this point. First, the common element to the notion of non-arbitrability was that there was a sufficient element of legitimate public interest in these subject matters making the enforceable private resolution of disputes concerning them outside the national court system inappropriate. Secondly, the identification and control of these subjects was the legitimate domain of national legislatures and courts. Thirdly, in none of the travaux préparatoires was there discussion that the notion of a matter not being capable of settlement by arbitration was to be understood by reference to whether an otherwise arbitrable type of dispute or claim will be ventilated fully in the arbitral forum applying the laws chosen by the parties to govern the dispute in the same way and to the same extent as it would be ventilated in a national court applying national laws.
[129]Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 at 97–8 [199]–[200].
[130]Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 at 98 [200].
[131]Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 at 98 [200].
In light of these comments by Allsop J, it is clear that the concept of arbitrability, as understood in the context of the Model Law and the New York Convention, is directed to those disputes where, for reasons of public policy, jurisdiction is retained exclusively by national courts.[132]
[132]See Giedo van der Garde BV v Sauber Motorsport AG (2015) 317 ALR 792 at 796–7 [15]–[17].
In relation to this final requirement of s 7(2)(b) of the Act, Mennel submits:[133]
43)The Plaintiff may possibl[y] argue further that the issues raised in its Statement of Claim are not arbitrable insofar as they are pleaded as breaches of the Corporations Act 2001 (Cth) [(“the Corporations Act”)]. Such an approach is, of course, incorrect for two reasons:
a)Firstly it is no[t] supported by applicable case law as in ACD Tridon Inc v Tridon Australia Pty Ltd,[134] an issue under the Corporations Act (it concerned a minority shareholder action for oppressive conduct) was held to be arbitrable.
b)Secondly, to allow such an argument would eventually lead to the unenforceability of most arbitration agreements in Australia. A plaintiff would only have to allege some violation of the Corporations Act to defeat arbitration agreements and bring the matters into the realm of the courts. It would, in fact, ultimately even be irrelevant if there was a proper basis for such a claim: a plaintiff only would have to plead it, then refuse to submit to arbitration on the basis that only a court could deal with the Corporations Act issue. Therefore — on the basis of the admittedly very important consideration that an entire matter should be heard and decided by one single authority — the matter would not be referred to arbitration, no matter whether an arbitration agreement between the parties existed or not. Surely such an approach would not only run counter to the judiciary’s support for arbitration in Australia, it would in fact render most arbitration agreements in Australia moot.
[133]Defendant’s Outline of Submissions (5 May 2015) [43].
[134][2002] NSWSC 896 (“Tridon”).
In response, Robotunits submits that:
(a) It is not settled law in Australia that matters under the Corporations Act are arbitrable.[135]
(b) Public policy considerations mean that clear words would be required for breaches of directors’ duties to be arbitrable, particularly where the allegations involved could constitute serious criminal offences (under s 184(1) of the Corporations Act). “There is a strong public interest in having such conduct assessed in a public forum, so that ASIC may be aware of it, rather than its private determination.”[136]
(c) The parties would not have intended to refer to arbitration the determination of a matter involving an allegation which could lead to criminal prosecution.[137]
[135]Transcript, pp 68–70.
[136]Plaintiff’s Outline of Submissions (5 May 2015) [33]–[34].
[137]Transcript, pp 71–2.
As is evident from the comments of Allsop J (as he then was) set out above, what the parties intended is not relevant to the question of whether a matter is capable of settlement by arbitration. While this consideration would be relevant to the scope of the arbitration agreement, counsel for Robotunits conceded that this point was unlikely to assist her client because it would be Mennel’s reputation that would be in issue and it is Mennel that is seeking that the proceeding be referred to arbitration.[138]
[138]Transcript, p 72, lines 1–4.
In relation to Robotunits’ submission that it is not settled law that matters under the Corporations Act are arbitrable, it would appear to be uncontroversial that the relevant comments of Austin J in Tridon were made in obiter.[139] Nevertheless, I would respectfully agree with what his Honour said about the arbitrability of Corporations Act issues in that case and I am of the opinion that the matters to be determined in the proceeding are arbitrable.
[139]ACD Tridon Inc v Tridon Australia Pty Ltd [2002] NSWSC 896, [178]–[194]. See Re 700 Form Holdings Pty Ltd [2014] VSC 385, [178]; Brazis v Rosati (2014) 102 ACSR 626 at 630 [21].
In Tridon Austin J considered the arbitrability of matters including “substantial components relating to statutory rights, including rights under the Corporations Act” for the purposes of s 7(2)(b) of the Act.[140] His Honour began by clarifying the relevant question to be answered:[141]
[140]ACD Tridon Inc v Tridon Australia Pty Ltd [2002] NSWSC 896, [178].
[141]ACD Tridon Inc v Tridon Australia Pty Ltd [2002] NSWSC 896, [179], [180]. With regards to the constitutional validity of the International Arbitration Act 1974 (Cth), see TCL Air Conditioner (Zhongshan) Co Ltd v The Judges of the Federal Court of Australia [2013] HCA 5 [34].
[179]The question for determination is not whether an arbitrator can be empowered to exercise directly those powers conferred on a "Court" by the Corporations Act, a Commonwealth enactment. …
[180]The question for determination is whether it is competent for parties to an arbitration agreement to agree with one another, in this fashion, to empower the arbitrator to exercise the powers of a Court under the Corporations Act. The purpose of such an agreement could not and would not be to have the arbitrator's award operate as an order of a Court. The arbitrator's determination would be an exercise of consensual power equivalent in scope to the power of a Court under the Corporations Act, having binding effect as between the parties by force of their agreement.
His Honour then considered authorities dealing with the same issue but in relation to claims under the Trade Practices Act 1974 (Cth) and said:[142]
My conclusion is that there is nothing about legislation such as the Trade Practices Act 1974 (Cth) that would prevent the parties to an arbitration clause from referring disputed claims to relief under such legislation to an arbitrator for determination. It appears, however, that there are two kinds of limitations upon the competency of the parties to an arbitration clause to refer statutory claims to arbitration.
The first limitation to which Austin J refers is not relevant for present purposes; however, the second limitation is relevant and concerns the public policy dimension of arbitrability discussed in Comandate Marine.[143]
[142]ACD Tridon Inc v Tridon Australia Pty Ltd [2002] NSWSC 896, [184].
[143]Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 at 97–8 [199]–[200]. See above [61]–[62].
In relation to this second limitation, his Honour said:[144]
[191]In A Best Floor Sanding Pty Ltd v Skyer Australia Pty Ltd,[145] the parties to a joint venture agreement agreed to arbitrate any dispute, difference or question touching, inter alia, the dissolution or winding up of the "association" which was their joint venture entity. Warren J [(as she then was)] declined an application for an order staying a winding up proceeding, under the Victorian commercial arbitration legislation, on the ground that the arbitration clause was null and void because it had the effect of "obviating the statutory regime for the winding up of a company."[146] Her Honour's decision was partly based on public policy considerations surrounding the process of winding up a company pursuant to court order. An additional ground seems to have been that a winding up order operates to affect the rights of third parties, not merely the rights of the parties to the arbitration clause.
[192]In my opinion, the latter ground is a strongly persuasive one … . I accept, as well, that public policy considerations operate against referring to arbitration a determination to wind up a company on the grounds upon which a court may order that a company be wound up. However, I would not regard these public policy considerations as preventing parties to a dispute from referring questions to arbitration merely because those questions arise under the Corporations Act. I see nothing special about the Corporations Act that would distinguish it, as a whole, from other legislation such as the Trade Practices Act 1974 (Cth). This seems to be the position reached by United States courts.
[193]The statutory powers of a Court under the Corporations Act are, generally speaking, comparable to the powers exercised by a court under the general law (the power to make a winding up order being an exception to this proposition). They are generally not special powers to be exercised having regard to specialist public interest criteria.
[194]Specifically, the public policy considerations held by Warren J to be applicable to a disputed claim to wind up a company do not seem to me to prevent the parties from referring to arbitration a claim for some merely inter partes relief under the oppression provisions of the Corporations Act, or for access to corporate information under s 247A. However, the "in rem" nature of an order for rectification of the share register of a company may prevent reference of that power to an arbitrator.
[144]ACD Tridon Inc v Tridon Australia Pty Ltd [2002] NSWSC 896, [191]–[194] (citations omitted). See Re 700 Form Holdings Pty Ltd [2014] VSC 385, [77]–[82], [89].
[145][1999] VSC 170.
[146]A Best Floor Sanding Pty Ltd v Skyer Australia Pty Ltd [1999] VSC 170, [18].
It may be noted that Austin J’s comments in Tridon are broadly consistent with what was said later in Comandate Marine about the common element to the notion of non-arbitrability.[147] As indicated previously, I respectfully agree with Austin J’s comments on this matter. In my view, and as a general proposition, there is not a sufficient element of legitimate public interest in matters involving the Corporations Act to make their resolution by arbitration — that is, outside the national court system — inappropriate.
[147]Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 at 97–8 [199]–[200]. See above [61]–[62].
Further, I do not consider there to be a sufficient element of legitimate public interest in a matter making it inappropriate for private dispute resolution merely because a statutory body such as the Australian Securities and Investments Commission (“ASIC”) may have an interest in the proceeding, or have sufficient standing to bring an action in relation to it. In the present case, there is nothing stopping ASIC from prosecuting Mennel under s 184(1) of the Corporations Act, or any other statutory provision, if it appears to ASIC that Mennel ought be prosecuted. Indeed, although ASIC may, as Robotunits submits, have an interest in the determination of Robotunits’ claims against Mennel, the settlement of these matters by arbitration does not interfere with ASIC’s statutory powers under Part 3 of the Australian Securities and Investments Commission Act 2001 (Cth) to investigate contraventions of, and prosecute offences against, the Corporations Act.
Other matters
Given the conclusions expressed above, it is necessary to consider whether the entire proceeding should be stayed and referred to arbitration, or only the matter of whether the Shareholders Agreements provided a legal or equitable basis for Mennel to cause Robotunits to make the Share Payment. In Tanning, Brennan and Dawson JJ said that where proceedings—[148]
extend beyond the matter which can be referred to arbitration under … [the arbitration agreement], so that the proceedings are not wholly congruent with the "matter" which is to be referred to arbitration, the whole of the proceedings must be stayed until an award is made on the matter referred.[149]
In light of their Honours’ comments, I am of the view that the whole of the proceeding should be stayed but that only the matter of whether the Shareholders Agreements provided a legal or equitable basis for Mennel to cause Robotunits to make the Share Payment should proceed to arbitration. This is because, for the reasons already given, the matter of whether the Employment Agreement provided a legal or equitable basis for Mennel to cause Robotunits to make the Entitlement Payments falls outside the scope of the arbitration agreement.
[148]Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 at 345. See Hancock v Rinehart (2013) 96 ACSR 76 at 99 [93].
[149]Flakt Australia Ltd v Wilkins & Davies Construction Co Ltd [1979] 2 NSWLR 243 at 250.
Conclusions and orders
For the preceding reasons, the application for a stay of the whole of the proceeding under s 7(2) of the Act is successful; however, the parties will be referred to arbitration (in pursuance of those provisions) only in respect of the matter of whether the Shareholders Agreements provided a legal or equitable basis for Mennel to cause Robotunits to make the Share Payment.
I note that s 7(2) of the Act empowers the Court to make an order “upon such conditions (if any) as it thinks fit”. Given the pathologies of the arbitration agreement that have been identified, I am of the view that the orders should be made on the condition that the parties, within 28 days, seek to agree on the arbitral seat (insofar as it may be found not to have been agreed, at least by implication) and the rules of the arbitration (if any rules are sought to be applied). Should the parties be unable to reach agreement, there is liberty to apply.
As an aside which may assist the parties — but without expressing a concluded view on the subject — I am of the preliminary view that the seat of the arbitration would most probably be found to be Melbourne, Victoria. This preliminary view is informed by the reference to the Law Institute of Victoria in the arbitration agreement and the fact that the parties have agreed that the governing law of the contract is that of Victoria.
The parties are to bring in orders to give effect to these reasons. I otherwise reserve the question of costs.
CERTIFICATE
I certify that this and the thirty-nine preceding pages are a true copy of the reasons for Judgment of Croft J of the Supreme Court of Victoria delivered on 22 June 2015.
DATED this twenty-second day of June 2015.
Associate
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