DISCUSSION
31 The first respondent's contentions are simple. Article 27 of the Dealership Agreement is an arbitration agreement within the meaning of s 7(2) of the International Arbitration Act between Natuzzi SpA and Nataceli. The matter within the meaning of that section may be described as claims for damages mainly by Nataceli against Natuzzi SpA. Insofar as Natcd and Mr Skornicki are concerned (not being parties to the arbitration agreement), their potential liability depends in any event on the principal liability of Natuzzi SpA. Insofar as Mr and Mrs Casaceli and Casaceli Nominees are concerned (also not being parties to the arbitration agreement), their claim is confined to a single claim based on alleged misleading or deceptive conduct in respect of the Chatswood site (the Chatswood site representations). Natuzzi SpA undertakes to agree to the resolution of these claims also by arbitration but, in any event, there is no reason why those claims could not be separately stayed to await the outcome of the arbitration. The claims, being claims for damages under the Trade Practices Act (and equivalent provisions in the Competition and Consumer Act), are all capable of settlement by arbitration in pursuance of the arbitration agreement in Article 27, a conclusion supported by the evidence of Professor Radicati to the effect that, under Italian law: - (i) Article 27 would be broadly interpreted to cover all disputes deriving from the contract or from the relationship to which the agreement refers, (ii) arbitrators have the power to determine their own jurisdiction, and (iii) an arbitral Tribunal sitting in Italy and deciding under the Rules of the Milan Arbitration Chamber a dispute involving the market of a third country would consider the applicability of the mandatory rules of that country, even if the law governing the merits of the dispute chosen by the parties were a different law.
32 According to Professor Radicati arbitrators consider the applicability of the mandatory rules of the third country for two basic reasons. First, as a matter of policy it is recognised that arbitration should not be perceived as a means to avoid or circumvent the application of such mandatory rules. Secondly, arbitrators must consider the enforceability of their awards in countries where the parties may wish to do so. For example, Article 41 of the Rules of Arbitration of the International Chamber of Commerce requires arbitrators to "make every effort to make sure that the Award is enforceable at law". Professor Radicati considered the present case not dissimilar to the seminal decision of the Supreme Court of the United States in Mitsubishi Motors Corp v Soler-Chrysler Plymouth Inc 473 US 614 (1985) in which it was held that anti-trust claims under a US statute were capable of being settled by arbitration under an agreement providing for arbitration by the Japanese Commercial Arbitration Association in circumstances where the proper law of the contract was Swiss law. Gleeson CJ in Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 at 167 applied the reasoning of the US Supreme Court (at 636-637) that:
There is no reason to assume at the outset of the dispute that international arbitration will not provide an adequate mechanism. To be sure, the international arbitral tribunal owes no particular allegiance to the legal norms of particular states; hence, it has no direct obligation to vindicate their statutory dictates. The tribunal, however, is bound to effectuate the intentions of the parties. Where the parties have agreed that the arbitral body is to decide a defined set of claims which includes, as in these cases, those arising from the application of American antitrust law, the tribunal therefore should be bound to decide that dispute in accord with the national law giving rise to the claim.
33 Although the applicants described the issues in dispute as confined to "two narrow issues" arising from the proper approach to the meaning of the words "capable of settlement by arbitration", their arguments were rather more complex. The applicants disavowed any need to resolve the expert dispute between Professor Radicati and the expert they called, Dr Giarrusso, contenting themselves with the submission that Professor Radicati's evidence was overstated. It is sufficient to say in this regard that I accept Professor Radicati's evidence as summarised above. He had substantial expertise being a practising lawyer in Milan, a Full Professor of Law at the Universita Cattolica di Milano, an arbitrator, member of the International Court of Arbitration of the International Chamber of Commerce, and author of books and articles in respect of legal issues particularly arbitration and competition law. Dr Giarrusso is a lawyer and arbitrator and has advised clients involved in arbitrations but, unlike Professor Radicati, has not appeared in arbitrations for clients or conducted arbitrations as an arbitrator. Dr Giarrusso's evidence that to her knowledge Italian arbitrators would not apply the mandatory rules of third party countries was difficult to follow, not supported by authority (unlike the evidence of Professor Radicati who referred to the decision of the Court of Appeal of Milan in Terra Amata Ltd v Tensacciai Co (No 1897, 15 July 2006) to support his views) and not based on the same high level of specialist expertise in respect of arbitrations as that of Professor Radicati. I thus prefer Professor Radicati's evidence on all disputed issues of Italian law.
34 Otherwise the applicants acknowledged that there was no dispute about the first three pre-conditions for the grant of a stay and referral to arbitration, namely: - (i) there is an arbitration agreement as defined in the International Arbitration Act, (ii) the agreement falls within the scope of one or more of the provisions of s 7(1)(a)-(d) of that Act and thus s 7(2) applies, and (iii) the proceeding has been instituted in a court by a party to the arbitration agreement to which s 7 applies against another party to that agreement as referred to in s 7(2)(a) of that Act. Accordingly, the remaining issue, which is in dispute, is whether the proceeding involves a matter that, under the arbitration agreement, is capable of settlement by arbitration as required by s 7(2)(b) of that Act.
35 The applicants' first proposition is that the "matter" in s 7(2)(b) is not limited to the issues arising on the present form of the pleading. At one level, this may be accepted. "Matter" has been said to be a word of "wide import" by Deane and Gaudron JJ in Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 at 351 (Tanning Research). Their Honours continued:
In the context of s7(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. See Flakt [Flakt Australia Ltd v Wilkins & Davies Construction Co Ltd [1979] 2 NSWLR 243 at 250]. It requires that there be some subject matter, some right or liability in controversy which, if not coextensive 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. See Mustill and Boyd, The Law and Practice of Commercial Arbitration in England, 2nd ed (1989), pp. 149-150, where it is noted that "English law has never arrived at a general theory for distinguishing those disputes which may be settled by arbitration from those which may not" but that the powers of an arbitrator "are limited by considerations of public policy and by the fact that he is appointed by the parties and not by the state".
36 In Recyclers of Australia Pty Ltd v Hettinga Equipment Inc (2000) 100 FCR 420; [2000] FCA 547 at [18]-[20] (Recyclers of Australia) Merkel J noted that:
[18] While Deane and Gaudron JJ may have differed in some respects from the majority on the question of the scope of a "matter", Tanning Research 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: Tanning Research at 343-344 and 351-354 cf Fencott v Muller (1983) 152 CLR 570 at 608, Hooper v Kirella (1999) 167 ALR 358 at 368-371.
[19] The manner in which a claim or a defence is pleaded is of importance to, but is not determinative of, the characterisation of the "matter" for the purpose of s 7(2). Once the "matter" is properly characterised the question to be determined is whether that matter is capable of settlement under the arbitration clause.
[20] The proceeding in Tanning Research, being the appeal to the Court, was stayed because the outcome of the proceeding was dependent, at least in part, on the determination of the matter to be referred to arbitration. Given the requirement in s 7(2) that only so much of the proceeding as involves the matter need be stayed, it is clear that a proceeding that includes matters severable from or independent of the matter required to be referred to arbitration need not be stayed in respect of those matters.
37 None of the considerations above are capable of changing the "matter" in the present case. Irrespective of the permutations as between the parties, the matter essentially comprises claims for statutory damages for alleged breaches of various provisions of the trade practices legislation as in force from time to time together with another claim for common law damages for alleged unlawful interference with contractual relations.
38 The applicants' second proposition is that the question posed by s 7(2)(b) must be answered by reference to Australian law despite the fact that the proper law of the Dealership Agreement is Italian law. The applicants said this proposition was supported by the decision of Allsop J (as he then was) in Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45; [2006] FCAFC 192 (Comandate Marine Corp) at [162] and Tanning Research at 352. I do not accept the proposition and do not consider it supported by the cases cited. At [162]-[163] in Comandate Marine Corp Allsop J refrained from determining the issue. At 352 in Tanning Research nothing is said to support the proposition. There is authority to the contrary which I am not satisfied is plainly wrong (Recyclers of Australia at [22]). Whether the proposition be right or wrong, however, it seems to me to make no difference to the result. It may be that based on the evidence of Professor Radicati I should be satisfied that Italian law takes a more liberal approach to arbitration clauses than Australian law (although this itself is not clear from the evidence). Whether that is so or not, even if it be assumed in favour of the applicants that insofar as the question whether the matter is capable of settlement by arbitration calls up the proper construction of the contract under Australian law, the applicants' position is not assisted.
39 The applicants' third proposition, which I will deal with as put consistently with the conclusions above, is that the arbitration agreement in this case, being Article 27 of the Dealership Agreement, does not apply at all to the dispute between Nataceli and Natuzzi SpA. The applicants contend that the sale of all categories of products to Nataceli within the definition of Products, whether sold by Natuzzi SpA, Natuzzi Asia, any other member of the Natuzzi Group or otherwise, are regulated by the general terms and conditions of sale in Attachment C to the Dealership Agreement. This is the result of Article 11.1, which provides that the sale of the Products to Nataceli as the Dealer is governed, except where the agreement stipulates otherwise, by the general conditions of supply of Products by Natuzzi Asia attached as Attachment C. Attachment C deals with all aspects of the sale of Products to Nataceli and provides in cl 10 a choice of forum (being the courts of Hong Kong) and of law in cl 11 (the 1980 United Nations Convention on Contracts for the International Sale of Goods or, if not covered thereby, the law of Hong Kong). As the Dealership Agreement does not stipulate otherwise cll 10 and 11 of Attachment C apply. It follows that Article 27 does not extend to anything covered by Attachment C. In the present case the applicants' claims include disputes relating to the sale of Products which thus fall outside the scope of the arbitration agreement in Article 27.
40 Consistent with the first respondent in its written submissions in reply I do not find this a convincing construction of the contract in accordance with the principles of construction of Australian (or, insofar as the evidence permits me to say so, Italian) law. In this regard it is sufficient for me to record that I consider that paragraphs 69 to 73 of the first respondent's written submissions in reply identify the proper construction of the Dealership Agreement in accordance with Australian law. Those paragraphs, which I adopt, are as follows:
69. What the Dealership Agreement contemplated was, that when Nataceli placed an individual order for Products, with, for instance, Natuzzi Asia, there would arise a separate contract for the sale of goods. That separate contract, between Natuzzi Asia (or some other supplier, being a company in the Natuzzi Group, or an external supplier) and Nataceli, would be on the terms in the General Terms & Conditions. That separate sale of goods contract (defined as "the Agreement" in the third recital), is the contract referred to in clauses 10 and 11 of the General Terms & Conditions. A dispute arising between the supplier, say Natuzzi Asia, and Nataceli, being the parties to that sale of goods contract, about that sale of goods contract would be subject to clauses 10 and 11. A dispute between Natuzzi and Nataceli, about that same sale of goods contract, would still be a dispute arising out of the Dealership Agreement, and would still be subject to Article 27. The parties to, and the nature of each type of dispute, are separate and distinct. Umbrella style dealership arrangements of this type were referred to in Prints for Pleasure Ltd v Oswald-Sealy (Overseas) Ltd [1968] 3 NSWR 761 at 765-766.
70. Article 11.2 of the Dealership Agreement is an example of the Dealership Agreement stipulating otherwise within the meaning of Article 11.2, and the terms there set out on pricing and payment etc would override any inconsistent terms in the General Terms & Conditions.
71. Article 17(c) contains an example of how the Dealership Agreement and the General Terms & Conditions both interact, yet operate within their own respective spheres. Article 17(c) is in the following terms:
"Without prejudice to every other right or remedy … and without prejudice also to the provisions of Clause [sic] 27.3, the Manufacturer shall have the right to terminate this agreement by means of registered post to the Dealer effective as of receipt, if:
…
c) the Dealer fails to make payment for the supply of Products 60 (sixty) days after the notice of default served on the Dealer by Natuzzi Asia;"
72. That provision recognises that Natuzzi Asia, being the putative seller of products to Nataceli, has primary responsibility to pursue payment under the General Terms & Conditions (subject to Article 11.2), but that if such payment is not made, then that gives Natuzzi a right under the Dealership Agreement to terminate that Dealership Agreement. A dispute between Natuzzi and Nataceli about whether the Dealership Agreement had been validly terminated pursuant to Article 17(c) would plainly be subject to arbitration under Article 27.1. The prefatory words in Article 17 make it plain that Article 27 applies. Any determination of such a dispute in arbitration could give rise to issues between Natuzzi and Nataceli about whether or not supply had been made, or payment made, or the like, in accordance with the General Terms & Conditions, as between Natuzzi Asia and Nataceli, but the primary dispute about termination between Natuzzi and Nataceli would still arise out of the Dealership Agreement and be subject to arbitration under Article 27.1.
73. The flaw in the applicants' submissions is that they contend that the present proceedings, being proceedings that are relevantly between Natuzzi and Nataceli, do not fall within Article 27.1 because the relevant relations are somehow governed by the General Terms & Conditions and therefore, clauses 10 and 11 of those General Terms & Conditions apply. The overarching or umbrella arrangements for the dealership between Natuzzi, as head of the Natuzzi Group, and Nataceli, as dealer, are governed by the Dealership Agreement. Any dispute between Natuzzi and Nataceli relating to the Dealership, including to use the words of Article 27.1, "those concerning its … performance", are disputes arising out of the Dealership Agreement, and fall within Article 27.1. That is so notwithstanding that fact that, under the broad umbrella arrangements established by the Dealership Agreement, Nataceli may have contracted with Natuzzi Asia to purchase a shipping container load of furniture, on the terms of the General Terms & Conditions, and the fact that in a dispute between Natuzzi Asia and Nataceli those terms would govern.
41 I do not accept the applicants' submissions to the contrary. The decision on which they relied, Lake Cumbeline Pty Ltd & Ors v EFFEM Foods Pty Ltd (t/as Uncle Ben's of Australia) [1997] FCA 292, is not authority to the contrary of the first respondent's essential proposition that the overall legal relationship between Natuzzi SpA and Nataceli is regulated by the Dealership Agreement. I do not accept that Nataceli's claims relate to the sale of products. Even the claim of unconscionable conduct in respect of the so-called marketing or co-operative fund relate to the overall relationship between Natuzzi SpA and Nataceli. The alleged 10% of the wholesale price is said to have been required to be paid as a fee to Natcd acting as the agent of Natuzzi SpA on every product sale irrespective of the source of the product. This has no real connection with the terms and conditions of sale in Attachment C but a substantial connection with the overall relationship between Natuzzi SpA and Nataceli. For this reason also the applicants' references to the dispute relating to the sale of products by Natuzzi SpA itself to Nataceli take the matter no further. The substantive controversy between Natuzzi SpA and Nataceli is not one concerning the sale of any particular consignment of furniture or even all consignments of furniture. The substantive controversy relates to the Dealership Agreement, the entry into it, its extension, the performance of it, and the requirements Natuzzi SpA is said to have imposed on the continued performance of obligations under it. In other words, this matter is not about the sale of products. The sale of products is the background to the real controversy between Natuzzi SpA and Nataceli.
42 Accordingly, insofar as a dispute between Nataceli and Natuzzi SpA is concerned I do not accept the applicants' submission that the parties intended that different disputes between them would be litigated in different jurisdictions. In respect of any dispute between Nataceli and Natuzzi SpA the parties intended the dispute to be referred to arbitration in Milan.
43 To the extent that the applicants submitted that it could not be assumed that the relevant respondent was Natuzzi SpA as opposed to any other member of the Natuzzi Group, there are two answers. First, although I accept that the matter within the meaning of s 7(2) of the International Arbitration Act is not defined only by the pleading, the fact is that the applicants have chosen to sue Natuzzi SpA and not any other member of the Natuzzi Group. Second, examination of the claims indicates that the underlying dispute, or the subject matter of the dispute in the proceeding, has nothing to do with the terms and conditions of individual sales in accordance with Attachment C to the Dealership Agreement.
44 It follows that the whole of the dispute between Nataceli and Natuzzi SpA falls within Article 27 of the Dealership Agreement.
45 The applicants' fourth proposition is that in any event a substantial part of the dispute falls outside the arbitration agreement for three reasons.
46 First, the applicants say that it is not clear that the pleaded representations have been made by Natuzzi SpA as opposed to some other member of the Natuzzi Group such as Natuzzi Asia. This might be so but the "matter" cannot extend to mere speculation. The applicants have brought the proceeding, chosen to sue Natuzzi SpA and have formulated claims against Natuzzi SpA only. The mere possibility of involvement of some other entity, not a party to the Dealership Agreement, is not a proper basis to conclude that any part of the dispute falls outside the arbitration agreement.
47 Second, the applicants say that the disputes in the proceeding are not disputes "arising out of the" Dealership Agreement within the meaning of Article 27.1. This submission is not persuasive. All of the claims against Natuzzi SpA relate one way or another to the Dealership Agreement - the entry into it, the extension of it, or its operation. It is true that there is no allegation of breach of contract. But the reasoning in Comandate Marine Corp at [175] is applicable. In this case there is a "a sufficiently close connection with the making, the terms, and the performance of the contract as permit the words "arise out of" aptly or appropriately to describe the connection with the contract".
48 Third, the applicants say that there are necessary and proper parties to the proceeding who are not parties to the Dealership Agreement. This is so. But the relevant point is that the relevant matter under s 7(2) of the International Arbitration Act is the dispute between Nataceli and Natuzzi SpA each of which is bound by the Dealership Agreement. In Tanning Research it was accepted that the issues in the proceeding extended beyond the matter (as they do here) yet the matter was referred to arbitration and the balance of the proceeding stayed to await the outcome of the arbitration (see, for example, at 345 and 351). In Recyclers of Australia at [65]-[66] Merkel J said:
[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: see Tanning Research at 216 per Brennan and Dawson JJ. 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 arbitrable claims are seen to be subsidiary to or significantly less substantial than, but overlapping with, the non-arbitrable claims: see Hi-Fert [Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (1998) 159 ALR 142] at 167-168 cf Dodwell & Co (Aust) Pty Ltd v Moss Security Ltd Federal Court, Wilcox J (unreported, 11 April 1990) at [5] and [7]. The discretion may also be exercised to stay the proceeding where 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: see Dodwell & Co per Wilcox J at [5] and [7], Hi-Fert at 167-168 and McDonnell Dowell Smith East Asia Pty Ltd v State Electricity Commission of Victoria (Supreme Court of Victoria) Beach J, 24 November 1998 (unreported) at [22] to [24].
49 In the present case the arbitrable claims as between Nataceli and Natuzzi SpA are the principal claims. There is no reason to require those claims to await the determination of the other claims in the proceeding. To the contrary it makes sense, as a matter of discretion, to stay the other claims pending the completion of the arbitration.
50 The applicants' fifth proposition is that by reason of the nature of the claims I should be satisfied that the matter is not capable of settlement by arbitration. The applicants cited Comandate Marine Corp at [200]. I do not consider that passage supports the applicants' contentions. Nor do I consider the other cases cited by the applicants as supporting their position that the type of claims they have in fact made (that is, as against Natuzzi SpA, for damages for breach of trade practices legislation) are other than capable of settlement by arbitration. It seems to me that the applicants sought to surround their claims with an aura of important public policy issues when, in substance, the dispute is a commercial cause between two companies involved in the international furniture trade by which one company seeks damages from another. The idea that a dispute of this character is only capable of resolution by an exercise of judicial power is far-fetched. Although the source of the claims is Australian legislation which serves important public policy objectives it is difficult to accept that the matter in this case is not precisely the type of matter where effect should be given to the intention of the parties to submit disputes between them arising out of contract regulating their overall commercial dealings, the Dealership Agreement, to arbitration. It is well settled that such claims are capable of settlement by arbitration (for example, Recyclers of Australia at [22], Lightsource Technologies Australia Pty Ltd v Pointsec Mobile Technologies AB (2011) 250 FLR 63; [2011] ACTSC 59 at [137]-[141], Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd at 166 and Comandate Marine Corp at [175]-[176]).
51 No different approach to the Franchising Code allegations is warranted. The fact remains that the claims for breach of the Franchising Code involves a claim for damages the essence of which concerns how Natuzzi SpA used money paid to it for marketing purposes. I do not accept that the effect of a stay in this proceeding would be to invite any franchisor to avoid the effect of the Franchising Code by inserting an arbitration clause into the franchising agreement. The submission is based on a false assumption about arbitration. As the Supreme Court said in Mitsubishi Motors Corp v Soler-Chrysler Plymouth Inc there is no reason to assume that the arbitral body in Milan will fail to recognise the mandatory laws of Australia including those giving effect to the Franchising Code. The evidence of Italian law in this case is to the same effect.
52 The applicants' sixth proposition is that the evidence leaves open sufficient uncertainty that I should not be satisfied that the national laws of Australia will be applied in an arbitration in accordance with Article 27 of the Dealership Agreement or that the arbitrators will be capable of so doing. The first concern has already been answered. The second is a variant of the first and involves mere speculation and an apparent distrust of arbitration at odds not only with the express intention of the parties when they entered into and extended the Dealership Agreement but also the policy embodied in the International Arbitration Act. The submission that Italian courts would be unfamiliar with the causes of action advanced is unpersuasive for the same reasons.
53 The applicants' seventh proposition is that the rights of third parties may be affected in that if it is held that Natuzzi SpA engaged in exclusive dealing then the public at large might have claims against, for example, David Jones. The problem with this submission is that it extends far beyond the matter in this case which is between Nataceli and Natuzzi SpA and involves claims for damages.
54 In conclusion, the requirements of s 7(2) of the International Arbitration Act are satisfied. The matter, being the whole of the dispute between Nataceli and Natuzzi SpA reflected in the claims in the proceeding, must be stayed and the matter referred to arbitration. The balance of the proceeding should also be stayed as a matter of discretion to await the outcome of the arbitration. I make orders accordingly, including orders for costs of the interlocutory application.
I certify that the preceding fifty-four (54) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.