Conclusions as to the scope of the arbitration clauses
167 It seems to me that Tridon's Distribution Agreement Termination Claims fall within the wording of clause 18 of the Distribution Agreement, to the extent that they involve the parties to the Distribution Agreement. Just as those words are wide enough to encompass disputes about an implied term or a collateral contract relating to the same transaction, they are wide enough to encompass disputes as to whether the Distribution Agreement has been validly terminated.
168 The other four categories of claims made in the third amended originating process could not, in my view, be said to arise in respect of the construction of the Distribution Agreement or the rights and liabilities of the parties to it. Therefore they are not within clause 18 of the Distribution Agreement. The question is whether they fall within clause 19 of the Shareholders' Agreement.
169 The Document Access Claims touch and concern the construction of the Shareholders' Agreement and the rights and liabilities of the parties under it. Clause 5.2 of the Shareholders' Agreement obliges Mr Lennox and Tridon to furnish each other with all necessary information in respect of matters and transactions involving or concerning the business activities or affairs of the Company. Clause 8.3 provides that the duly authorised representatives of Mr Lennox and Tridon are entitled at all reasonable times to have access to examine and inspect the books and records of the Company.
170 The Document Access Claims also assert that the defendants have acted towards Tridon in a fashion that entitles it to relief under the statutory oppression provisions of the Corporations Act, and that Tridon is entitled to orders under s 247A of the Corporations Act. On the construction of clause 19 of the Shareholders' Agreement that I favour, these claims do not touch and concern the construction of that agreement or the rights and liabilities of the parties under the agreement. They touch and concern the rights and liabilities of Mr Lennox and Tridon as shareholders in TAPL, but the rights in question are statutory rights arising out of their status as shareholders rather than under the Agreement. Therefore only part of the Document Access Claims fall within clause 19, namely that part of the claims relying on contractual rights and obligations under the Shareholders' Agreement.
171 The Share Divestiture Claims touch and concern the construction of the Shareholders' Agreement and the rights and liabilities of the parties under it. Clause 16.2 authorises the non-defaulting party, if the prerequisites for the application of the clause are satisfied, to follow a procedure under which that party is constituted the attorney of the defaulting party for the purpose of executing share transfers. The Share Divestiture Claims also raise statutory issues and an equitable issue.
172 There are essentially three statutory issues. The first is whether the authority under which Mr Lennox purported to act was constituted by a power of attorney registrable under s 163 of the Conveyancing Act 1919 (NSW), but not registered, and whether the lack of registration vitiated the authority. The second is whether the instrument of transfer by which Mr Lennox purported to transfer Tridon's shares was a proper instrument of transfer for the purposes of s 1071B (2) of the Corporations Act, and the regulations made under that provision. The third is whether any proper ground exists for rectification of the register of members of TAPL under s 175 of the Corporations Act. These are not questions concerning the rights and liabilities of the parties under the Shareholders' Agreement, Mr Lennox and Tridon. They are therefore not within clause 19.
173 The equitable matter raised by the Share Divestiture Claims is whether the directors of TAPL resolved upon the transfer of Tridon's shares for an improper purpose. In my opinion this question does not touch and concern the rights and liabilities of Mr Lennox and Tridon under the Shareholders' Agreement, since it is essentially a question about the discharge by TAPL's directors of their equitable duties to TAPL, even though a breach of the equitable duties may be enforceable derivatively by Tridon as a shareholder or former shareholder in TAPL. Clauses 5.1 and 5.2 oblige Mr Lennox and Tridon to engage themselves diligently in the business of the Company and observe the utmost good faith towards each other, but they are obligations between joint venture shareholders rather than obligations of directors to their company.
174 Therefore, in my opinion the Share Divestiture Claims fall within clause 19 to the extent that they are based on the construction of the Shareholders' Agreement and the rights and liabilities of Mr Lennox and Tridon under the Agreement. Otherwise, the Share Divestiture Claims are outside clause 19.
175 The Directors' Misconduct Claims allege that Mr and Mrs Lennox caused TAPL and TNZL to enter into transactions not in the best interests of those companies, but designed instead to further their own interests and the interests of their family and associates. In part, these claims rest on the Shareholders' Agreement. Clause 5.3 prohibits Mr Lennox and Tridon from making any profit out of dealing with or on behalf of the Company except by way of distributions from the Company pursuant to the agreement. In part, however, the claims rest on allegations of statutory oppression under the Corporations Act, giving rise to an entitlement to substantive relief under s 233 (1) (j), and also an entitlement to orders under s 233 (1) (f) requiring TAPL and TNZL to take proceedings against Mr Lennox and others for breach of directors' duties. The reasoning I have adopted implies that clause 19 applies to the extent that Tridon asserts its rights under the Shareholders' Agreement, but not to the extent that the source of the asserted rights is the Corporations Act.
176 The Further Oppression Claims concern allegations that TNZL, and consequently TAPL, have failed to pay dividends, and also that Mr Lennox has caused TAPL to act oppressively in the conduct of legal proceedings. In addition to seeking specific orders under s 233 (1), Tridon seeks an order that TAPL be wound up or that it be entitled compulsorily to acquire Mr Lennox's shares in TAPL. It is not clear to me that any part of these claims raises contractual issues under the Shareholders' Agreement. Clause 11, which is headed "dividend policy", authorises the retention of certain profits and arguably implies that except to the extent that retention is authorised, there is a contractual duty upon Mr Lennox and Tridon to cause TAPL to distribute its profits by way of dividends. To the extent that the Further Oppression Claims rely on the rights and liabilities created by clause 7 (and perhaps also clause 5.2, which imposes a duty of good faith on Mr Lennox and Tridon), clause 19 applies. But to the extent that the claims are based only on the statutory grounds for relief under the oppression provisions of the Corporations Act, clause 19 does not apply.
177 My conclusion is that some of the matters involved in the proceeding fall within the arbitration clauses in this case, but others do not. I have been urged to resist such a construction of the clauses, on the ground that the Court should not attribute to the parties an intention to have different parts of their dispute resolved before different tribunals: Francis Travel, at 165 per Gleeson CJ; Capital Trust Investment Ltd v Radio Design AB [2002] EWCA Civ 135, paragraph 52 (English Court of Appeal). That does not seem to me to be a compelling argument in the case of a Shareholders' Agreement, where the contractual arrangements are superimposed on company law rights. In any case, where the language is clear, and clearly leads to bifurcated dispute resolution processes, there is no warrant to depart from it.
Matters "capable of settlement by arbitration"
178 Tridon contends that, except for the matter or matters constituted by the Distribution Agreement Termination Claims, the "matters" for determination in the present proceeding are all incapable of settlement by arbitration, for the purposes of s 7 (2) (b), since they include substantial components relating to statutory rights, including rights under the Corporations Act. The conclusion I have reached on the construction of the arbitration clauses makes it unnecessary for me to resolve this contention. However, I shall make some observations on the matter, in view of the extensive submissions that I have received.
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. Chapter III of the Constitution would stand in the way of investing an arbitrator with the judicial power of the Commonwealth: see, for example, Chu Kheng Lim v Minister for Immigration, Local Government and Ethnic Affairs (1992) 176 CLR 1, at 36-7. The arbitration does not fall foul of Ch III because the arbitral function is founded in contractual arrangements. Emmett J explained the point in the Hi-Fert case (at 14):
"However, in determining a dispute between the parties to an arbitration agreement, an arbitrator does not exercise the judicial power of the Commonwealth, or of a State for that matter. An arbitrator exercises powers conferred by the agreement between the parties to the arbitration agreement. A distinction exists between the powers exercised by an arbitrator to whom the parties have agreed to refer a dispute and powers exercised by a court. Thus, an arbitrator does not have power to make a determination which is directly enforceable in the manner in which an order by a court is enforceable. Where a court makes a determination and a judgment is entered or an order is made, that judgment or order will be enforced by the court.
"An award by an arbitrator, however, gives rise only to contractual rights and obligations which are enforceable by or against the parties who have agreed to abide by that award. An award is binding on the parties only by force of the agreement since they have agreed that their rights and obligations are to be as stated in the arbitrator's award. If one of the parties fails to comply with or give effect to the award, it is necessary for proceedings to be brought in an appropriate court to enforce the award."
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.
181 There is now firm authority in Australia supporting the proposition that if the arbitration clause is drafted in appropriately wide language, it is legally effective to refer to arbitration statutory claims such as claims under the Trade Practices Act. In the Francis Travel case, Gleeson CJ said it had been decided by the Court of Appeal of New South Wales in the IBM Australia case (at 166):
"first, that it is possible and lawful for parties to agree to refer to arbitration a dispute under the Trade Practices Act 1974 (Cth), secondly, that an arbitrator to whom such a dispute has been referred may, in general, exercise the discretionary powers which the Act confers upon the Supreme Court or the Federal Court …".
182 In the Allergan Pharmaceuticals case Beaumont J held that an alleged contravention of Part V of the Trade Practices Act and an alleged contravention of the Patents Act 1952 (Cth) were not controversies or claims "arising out of or relating to" the agreement in question, for the purposes of the relevant arbitration clause. His Honour took the view ((1985) 7 ATPR 40-636 at 47,173) that causes of action alleging contravention of the Trade Practices Act arise exclusively from the statutory provisions themselves, whereas causes of action under the general law, whether in contract or otherwise, arise independently of those provisions. He held that, in the absence of any substantive nexus or connection between the contract sued upon and the alleged contraventions of Part V of the Trade Practices Act, those statutory causes of action could not be referable to arbitration pursuant to the agreement. In his Honour's view, it was not enough to point to the contract as part of the background to the alleged contravention of the statute, because the statutory causes of action are independent of contract. He described the statutory causes of action as "consumer protection provisions which in no way depend upon any private agreement for their source".
183 Beaumont J's reasoning might have been taken as authority for a substantial limitation on the extent to which statutory claims are capable of settlement by arbitration. However, later cases have tended to confine the Allergan decision to its facts. In Attorney-General v Mobil Oil NZ Ltd Heron J of the New Zealand High Court distinguished Allergan ([1989] 2 NZLR 649, at 663) on the ground that in the case before him, it could not be said that the question arising under the New Zealand fair trading legislation existed independently of the contract, or that the contract was just "part of the background". That decision was cited with approval by Kirby P in the IBM Australia case (at 476-7). In Francis Travel (at 166-7), Gleeson CJ treated the Allergan case as depending on the particular construction of the arbitration clause in question, observing that in the case before him the agreement was not merely in the background of the dispute, but the dispute was about the agreement, and its performance, and whether it was properly and lawfully brought to an end. In the Hi-Fert case Emmett J referred to Allergan (at 18), treating the decision as turning on the construction of the words "arising out of or relating to", rather than the words "arising from" that were before him in that case.
184 My conclusion is that there is nothing about legislation such as the Trade Practices Act 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.
185 The first limitation emerges from Heyman v Darwins Ltd [1942] AC 356. The case has been regarded as deciding that arbitrators can never have jurisdiction to decide whether the contract containing the arbitration clause is a valid contract. That proposition led Clarke and Handley JJA to the view, in the IBM Australia case, that the parties to an arbitration clause could not give the arbitrator the power to declare the contract to be void ab initio under s 87 of the Trade Practices Act. A contrary view was taken by Foster J in the QH Tours case.
186 The rationale for this limitation appears to be, in the words of Clarke JA (22 NSWLR at 486), that for an arbitrator to make a declaration that the contract containing the arbitration clause is void ab initio would be tantamount to the arbitrator deciding that he or she had no jurisdiction at all (see also State of New South Wales v Coya (Constructions) Pty Ltd (1994) 10 BCL 152, 156 per Cole J). Foster J in QH Tours carefully analysed the speeches in Heyman v Darwins, suggesting that the observations of their Lordships on the point were obiter dicta falling well short of expressions of any firm rule (105 ALR at 383). He preferred to treat the case as authority for a presumption against conferral on the arbitrator of the power to deal with the initial validity of the contract, on the basis that the parties could confer such a power, if they wished, by appropriate language. He suggested, referring to Lord Wright's speech, that the arbitration clause in a commercial contract is of an essentially different nature from the other clauses, and could be severed from the contract, so as to preserve its validity even if the remainder of the contract were invalid.
187 On the present state of authority, it appears to me that there is a limitation preventing the parties from giving their arbitrator the power to determine the initial validity of the contract containing the arbitration clause, for the "logical" reason given by Clarke JA. However, the limitation should be confined to circumstances where that rationale applies. It does not prevent an arbitrator deciding whether the contract containing the arbitration clause has been validly terminated, or whether the contract may be rectified (having regard to the line of cases cited earlier).
188 In the present case one aspect of the dispute relates to the effect of the amalgamation of Tridon Limited under Ontario law. One issue is whether the amalgamation had the effect that Tridon did not succeed to the rights of Tridon Limited under the Distribution Agreement and the Shareholders' Agreement. It was submitted that this question could not be determined by an arbitrator because it affects whether Tridon is a party to the arbitration agreement. It seems to me that the logical difficulty underlying the inability of an arbitrator to determine the initial validity of the contract does not extend to the problem posed in this case. A determination of that issue by the arbitrator would decide which entities were bound by his or her award, rather than whether the arbitration agreements validly conferred jurisdiction to make the award. Allowing the arbitrator to determine the issue would not create any practical problem. If the arbitrator determined that Tridon was now a party to the agreements, it would be bound by the arbitrator's award. If the arbitrator determined that Tridon had not become a party to the agreements, then Tridon would not strictly be bound by the award, but in any case the award would not purport to bind it. This conclusion is consistent with Gregory v Interstate/Johnson Lane Corporation 188 F3d 501 (4th Cir, 31 August 1999).
189 The second kind of limitation was described by MJ Mustill & SC Boyd, Law and Practice of Commercial Arbitration in England (second edition, 1989), p 149. After stating the general principle that any dispute or claim concerning legal rights which can be the subject of an enforceable award is capable of being settled by arbitration, and noting that the general principle was subject to some reservations, the authors proceeded to explain the reservations, including the following:
"Second, the types of remedies which the arbitrator can award are limited by considerations of public policy and by the fact that he is appointed by the parties and not by the state. For example, he cannot impose a fine or a term of imprisonment, commit a person for contempt or issue a writ of subpoena; nor can he make an award which is binding on third parties or affects the public at large, such as a judgment in rem against a ship, an assessment of the rateable value of land, a divorce decree, a winding-up order or a decision that an agreement is exempt from the competition rules of the EEC under Article 85 (3) of the Treaty of Rome." [footnotes omitted]
190 In the Metrocall case, the Industrial Relations Commission in Court Session applied these observations to hold that a disputed claim to relief under s 106 of the Industrial Relations Act 1996 (NSW) is not capable of settlement by arbitration. The Commission drew attention to the specialist nature of the jurisdiction and powers of the Commission in Court Session (52 NSWLR at 25), and the nature of the considerations required to be taken into account. They emphasised that those considerations include matters relating to the industrial relations system and the public interest.
191 In A Best Floor Sanding Pty Ltd v Skyer Australia Pty Ltd [1999] VSC 170, 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 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" (at paragraph [18]). 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, in keeping with the general observations by Mustill & Boyd. 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. This seems to be the position reached by United States courts: see Dean Witter Reynolds Inc v Byrd 470 US 213 (1985); Shearson Lehman Hutton Inc v Wagoner 944 F 2d 114 (2nd Cir 1991); also Pick v Discover Financial Services Inc 2001 No.Civ.A 00-935-SLR (D) Del Sept 28, 2001.
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.
Should a condition be imposed on the stay of proceeding?
195 The most important feature of the present case is that, as a matter of construction of the arbitration agreement, only part of Tridon's claims are within the scope of the arbitration clauses in the Shareholders' Agreement and the Distribution Agreement. Important ingredients of Tridon's case arise under statute (in particular, the Corporations Act) and equitable principles, and the arbitration agreements do not extend to these components of the dispute. In these circumstances, the Court has no jurisdiction under the Act to require Tridon to submit to arbitration in respect of those parts of its claims. On the other hand, the Court is required by s 7 (2) to order a stay of the proceeding before this Court so far as it relates to matters falling within the arbitration clauses.
196 Tridon's preferred position is that there be no stay of the proceeding in this Court, and that the proceeding be brought to trial as expeditiously as possible without any intervening arbitration. The conclusions I have reached exclude this outcome. Tridon made two alternative submissions, to be considered in the event that the Court concludes (as I have) that the stay of the proceeding must be granted to some degree. The first alternative would defer arbitration until after the conclusion of the Court proceeding, and the second alternative would defer the entire dispute to the proposed arbitrator, not as an arbitrator but as a referee under Part 72 of the Supreme Court Rules. I shall consider the first alternative, and then the reverse of it, which would cause the Court proceeding to be deferred until after arbitration. Then I shall consider the Part 72 proposal.