CUFONE v CRUSE No. SCGRG-99-269 [2000] SASC 17

Supreme Court of SA|2000-02-09|Before: Bleby J

Judgment No. [2000] SASC 17

1 These proceedings arise out of a dispute between two family groups. The plaintiffs are Raffaele Cufone, Samuel Cufone, Julia Cufone, Suzanne Cufone and Cufone Holdings Pty Ltd. I will refer to them collectively as "the Cufones". The first three defendants are Robert Cruse, Valerie Arnott and Robert Cruse Nominees Pty Ltd. I will refer to them collectively as "the Cruses". Cufone Holdings Pty Ltd ("Cufone Holdings") and Robert Cruse Nominees Pty Ltd ("Cruse Nominees") are equal shareholders in a company, Fun Trading Pty Ltd ("Fun Trading"). Fun Trading is trustee of the Roulettes Tavern Unit Trust, which operates the Roulettes Tavern at Parafield Airport. Cufone Holdings and Cruse Nominees have at all material times owned an equal number of units in the unit trust.

2 Prior to February 1996, shortly before the agreement to which I am about to refer, Robert Cruse and another member of the Cruse family were the sole directors of Fun Trading. As from 19 February 1996 the directors became Robert Cruse, Raffaele Cufone and Samuel Cufone. There is no information presently before me as to how those directors were appointed or for what reason. The imbalance of numbers between the Cufones and the Cruses was, however, roughly equivalent to the amounts of loan capital then being contributed to the trust by the Cufones and by the Cruses. The Cufones contributed more loan capital than the Cruses. They also provided a property to be used as security for a loan taken out by Fun Trading to make up the deficiency in loan capital not provided by the Cruses.

3 When the business of Roulettes Tavern was established a memorandum of agreement was entered into dated 6 March 1996. The parties to the agreement were the Cufones, the Cruses and Fun Trading. One of the purposes of the agreement was to require Cruse Nominees to pay all income derived from the units (less certain identified deductions) into a separate account to discharge the bank loan and the liability of the Cufone interests under the mortgage. By that means the loan accounts between the two families would become equalised. Recital H of the agreement provided:

"H. Cufone Holdings holds two thirds of the issued shares in Fun Trading and Cruse holds the remaining third."

4 "Cruse" is defined in the agreement as meaning Cruse Holdings. That recital was not in fact correct, for, as I have mentioned, at all material times the shares were equally held by the two companies.

"5. At the end of the Accounting Period of the Trust in which for the first time the income entitlement attaching to the Cufone Holdings Income Units becomes the same unit for unit as the income entitlement attaching to the Cruse Income Units Cufone Holdings will transfer to Cruse at par and Cruse will accept whatever number of shares in Fun Trading is necessary to ensure that they each hold an equal number of shares after the transfer. Cruse must pay all stamp duty on the transfer."

In fact it was never necessary to invoke this clause because the shareholdings have at all material times been equal.

6 The bank loan was repaid and the mortgage of the Cufones' property was discharged as contemplated by the agreement. The loan capital of the two families therefore became equal.

7 After that had occurred the Cruses requested that the number of directors of Fun Trading be changed so that the number of directors appointed by each family reflected the proportion of their shareholding. They also requested that both families have an equal number of signatories to the company bank accounts. These requests were refused by the Cufones. As a result, Robert Cruse claimed that there was a dispute and applied to The Institute of Arbitrators and Mediators Australia to have an arbitrator nominated. He wrote as a director of Cruse Nominees. I will refer in due course to the arbitration agreements relied on by the Cruses in initiating the arbitration proceedings. The Cufone interests, however, asserted that the arbitrator did not have the power to reach any decisions which would be binding on them.

8 It is not clear precisely what information (if any) was initially provided to the Institute of Arbitrators and Mediators as to the nature of the dispute. However, after he had been nominated, and in his preliminary letter to the parties, the Arbitrator, who is the fourth defendant, invited the parties (without requiring them to do so) to provide him with an outline stating the nature of the problem. He also invited them to make any suggestion that they wished as to how the matter might be resolved.

9 In response to that letter Robert Cruse wrote to the Arbitrator on 10 November 1998. He identified some of the relevant history, the shareholding in Fun Trading, the ownership of the units in the Unit Trust and the directors of Fun Trading. The letter continued:

"The situation of disproportionate Directorships arose when originally Cufone contributed more capital than Cruse and pledged as extra mortgage security a property at Elizabeth to the Commonwealth Bank. Personal Guarantees were given to the Bank by the Directors.

In consideration for the above it was agreed that Cufone would receive 2/3 of profits and Cruse 1/3 until such time as Cruse paid $75,000 to Cufone and the Commonwealth Bank released the Elizabeth security. Cufone had the right to hold 2/3 of the shares in Fun Trading until the two events, above described, were finalised, although they did not do so.

Cufone appointed two Directors and Cruse appointed one Director to Fun Trading. The Agreement dated 6 March 1996 set out these arrangements but was silent on subsequent appointment of Directors.

The assets of the trust owned equally by Cufone and Cruse are controlled by the Directors of Fun Trading Pty Ltd. The number of Directors in Fun Trading is disproportionate to the Shareholdings ie there are two Cufone Directors and one Cruse Director. Cruse is therefore disadvantaged in that his interests are not proportionally represented. He is a repressed shareholder and that is not equitable, fair or reasonable.

A request by Cruse to Cufone dated 10 August 1998 to either support a motion to allow Cruse to appoint another Director to Fun Trading or alternatively to resign one of the Cufone Directors has been refused verbally."

Reference was also made to the request to appoint another signatory to the bank account and to the fact that Cruse Nominees was seeking an order against the Cufones for costs. It is to be noted that it was pointed out that the agreement of 6 March 1996 did not provide for the appointment of directors and that the letter written by Robert Cruse did not allege any such agreement.

10 The request to support a motion to allow Cruse to appoint another director or alternatively for one of the Cufones to resign was not related to any relevant provision of the Articles of Fun Trading. Article 85 provided that the number of directors should be not less than two nor more than ten. Article 88 provided that the directors had power to appoint any person as a director either to fill a casual vacancy or as an addition to the Board until the next Annual General Meeting of the company. Article 89 provided that the company in general meeting could, by special resolution, remove any director before the expiration of his office and could, by resolution, appoint another person in his stead. However, the person so appointed could only hold office during such time as the director in whose place he was appointed would have held the same office if he had not been removed.

11 The nature of the dispute received further elaboration in a letter from the solicitor for the Cruses to the Arbitrator dated 4 December 1998, written after a meeting with the Arbitrator in which questions of the Arbitrator's jurisdiction had been raised. The letter provided in part:

My client contends that two issues currently exist requiring arbitration in this matter:-

1. the breaking of dead-lock between unitholders in Roulettes Tavern Unit Trust for the appointment of a new trustee, the ownership and control of which properly represents my clients (sic) 50% interest in the Business; or

2. the breaking of a dead-lock between shareholders in Fun Trading Pty Ltd for the appointment of a director properly representing my clients (sic) 50% interest in the Business."

12 There followed some elaboration on the request to terminate Fun Trading's appointment as trustee. The letter continued:

In the alternative, my clients maintain that the arbitrator should settle in their favour the following dispute:

'The dead-lock between shareholders of Fun Trading Pty Ltd at a general meeting so that a majority can be obtained to either:

(a) Remove one of the directors appointed by Cufone;

(b) Appoint a director with Robert Cruse's consent.'

Either course of action having the purpose of balancing the directorship and the effective control of the Company so as to reflect the underlying interests of the shareholders.

The dispute should be settled in this manner as a matter of equity. The current state of affairs arose as a result of an agreement between the two parties which was intended to remain in force until the release of the Mortgage which has not been done. Accordingly as a matter of equity it is unfair for Cufone to take advantage of their position to the detriment of my clients."

13 The solicitors for Raffaele Cufone, Samuel Cufone and Cufone Holdings had maintained in a letter dated 10 November 1998 to the Chairman of the Institute of Arbitrators and Mediators that the Cruses' request had not been acceded to because the appointment of directors was governed by the Articles of the company and that the Cufone directors did not intend to appoint any further director to the Board. They asserted that the Arbitrator appointed would have no jurisdiction. That position was repeated in a letter dated 18 November 1998 to the Arbitrator, with an indication that their clients did not intend to participate in the arbitration process.

14 Eventually, there was agreement that the Arbitrator should determine the preliminary issue of his jurisdiction. Both parties were represented before the Arbitrator for that purpose. The Cruses submitted what was described as a "Prayer for Relief". It contained some nine paragraphs, each of which sought a declaration. I set out paragraphs 1, 2 and 3 of the prayer for relief, as counsel for the Cruses at the hearing before me did not seek to maintain that the Arbitrator had jurisdiction to make the declarations contained in paragraphs 4 to 9 inclusive. Paragraphs 1 to 3 are as follows:

"1. A declaration that the agreed intention of Robert Cruse and Raffaele Cufone was at all material times to operate the businesses the subject of the Memorandum of Agreement dated 6 March 1996 as a partnership (by whatever corporate or natural persons and through whatever corporate or trust structures they may from time to time nominate), with control being at all times directly proportionate to the capital risk and share of profits to which they or their respective nominees would from time to time be entitled.

2. A declaration that in order to give effect to the said intention to operate the businesses as a partnership that the Cruse interests would be equally represented with the Cufone interest on the board of the company of Fun Trading Pty Ltd from the time that the Cruse capital contribution equalled that of the Cufones.

3. A declaration that in order for the company Fun Trading Pty Ltd to properly discharge and to be seen to be discharging its duties and obligations as Unit Trust trustee to protect the rights and entitlements of the Cruse interests to enjoy and participate in the assets and profits distributed pursuant to the Deed of Trust, the Cruse interest would be equally represented with the Cufone interests on the board of the said company."

15 I will not set out in full the response of the Cufones. In short, it denied the ability of an arbitrator to make declarations, and asserted that the arbitration agreement did not confer such power on this arbitrator. It also attacked the ability to make the particular declarations in question.

16 By what the Arbitrator described as "Decision on Preliminary Issue" dated 25 February 1999 the Arbitrator made it clear that his decision was not an interim award but a decision on a preliminary issue raised by the respondents. The Arbitrator identified the dispute as follows:

"A dispute has arisen in relation to the representation on the board of directors of Fun Trading Pty Ltd, where it is said by the claimants that, notwithstanding equal shareholding between the interests of the claimants and the respondents, there are two directors appointed by the Cufone interests but only one appointed by the Cruse interests. There is said to be a history to the matter which I have not heard fully and which does not appear to be significant for the purpose of this decision."

17 He went on to say that there was some anticipation on the part of the Cruses that Fun Trading might be run in a way which does not discharge its duties and obligations as unit trustee in a way which properly protects the rights and entitlements of the Cruse interests, although he noted that it was not suggested that there had been any such conduct.

18 The Arbitrator identified his source of power as Clause 9 of the Agreement dated 6 March 1996, which clause is set out below. He considered that the provisions were wide enough to enable him to settle what he had identified as the dispute. However, most of his determination was taken up by a consideration of the power of an arbitrator to grant a declaration, the appropriateness of the remedies being sought and whether he should decline to give the claimants the opportunity to present their claims. He considered that an arbitrator does have power to make a declaration but he doubted whether some of the declarations (not presently in issue in this case) could be made. He decided to allow the Cufones to present their case. He therefore announced that he was thereupon entering upon the reference, and that pursuant to s 39(1)(a) of the Commercial Arbitration Act 1986 ("the Act") he consented to the Cufones submitting any question of law arising from this ruling to this Court for determination.

19 By application dated 28 April 1999 the Cufones sought leave to appeal from what was described as an interim award made by the Arbitrator. By paragraph 1 of their inter partes summons dated 18 May 1999 they repeated their application for leave to appeal and by paragraph 2 claimed an order by way of appeal under s 38 of the Act that the Arbitrator's decision be declared null and void. By paragraphs 3 and 4 they also sought orders pursuant to s 42 of the Act "that the Arbitrator has no jurisdiction to hear the matters raised by" the Cruses and "orders that the Arbitrator's actions in assuming jurisdiction were contrary to s 42 of the Commercial Arbitration Act". Paragraph 5 of the summons sought a declaration that the Arbitrator did not have jurisdiction to hear and determine the issues raised by the Cruses in their letters of 10 November and 4 December 1998. Paragraph 6 also sought an order pursuant to s 39(1)(b) of the Act that the Court determine a question of law, namely "whether the Arbitrator... had jurisdiction to enter into the arbitration with regard to the dispute alleged to have arisen between" the Cufones and the Cruses.

20 By order dated 18 May 1999 a Master gave the plaintiffs leave to appeal on the grounds that the Arbitrator did not have jurisdiction to make an interim award based on Clause 140 of Fun Trading's Articles of Association and that the Arbitrator had no power, pursuant to the Act, to grant declaratory relief.

21 Section 38(2) of the Act confers a right of appeal to the Supreme Court "on any question of law arising out of an award". Subsection (4) provides that such an appeal can only be brought with the consent of all other parties to the arbitration agreement or with leave of the court. There are certain restrictions on the granting of leave contained in s 40 of the Act. However, it is not necessary to consider these in the context of this appeal.

22 The appeal can shortly be disposed of. It is clear from the Arbitrator's decision that by making the determination he did he was merely entering upon the arbitration. He has not made an award. There can therefore be no question of law arising out of any award which might properly be the subject of an appeal under s 38. I therefore revoke leave to appeal and dismiss the application for leave contained in both the original application and the inter partes summons.

23 Paragraphs 3 and 4 of the inter partes summons purport to rely on s 42 of the Act to challenge the jurisdiction of the Arbitrator. That section only applies if there has been misconduct on the part of an arbitrator or if the arbitration or award has been improperly procured. The only relief that may be granted is to set aside the award either wholly or in part. As there has been no award made, any relief based on s 42 of the Act is misconceived. Those parts of the Cufones' summons must also be dismissed.

24 That leaves the claim in paragraph 5 of the inter partes summons for a declaration that the Arbitrator did not have jurisdiction to hear and determine the issues raised by the Cruses in their letters of 10 November and 4 December 1998, and the application pursuant to s 39(1) for the determination of a question of law arising in the course of the arbitration. As stated in paragraph 6 of the inter partes summons it challenges the jurisdiction of the Arbitrator to enter into the arbitration "with regard to the dispute alleged to have arisen between the Plaintiffs and the First Defendants". It does not specifically refer to the power of an arbitrator to make a declaration, a matter argued at some length before me. However, both before me and before the Arbitrator the question of the ability to grant that relief seems to have become inextricably entwined with the identification of the dispute. It will therefore be necessary to say something about the power of an arbitrator to make a declaration and the circumstances (if any) in which that might be permitted.

25 Section 39(1) of the Commercial Arbitration Act 1986 provides that an application may be made to this Court by a party to an arbitration agreement with the consent (among others) of an arbitrator who has entered on the reference. The Court's jurisdiction to determine the question of law is conditional upon such consent.

26 The Arbitrator in this case consented to the Cufones "submitting any question of law arising from this ruling to the Supreme Court for determination". Although it was not argued before me I have considerable doubt as to whether the Court's jurisdiction to determine the question of law referred to in paragraph 6 of the Summons has been properly invoked. An arbitrator's duty, if he is to give consent, is to consent to an application. No form of proposed application was submitted to the arbitrator. He was never given the opportunity to consent or withhold his consent to the particular application. In my opinion it is an abdication of an arbitrator's responsibility to give a blanket consent to whatever application one of the parties may choose to make. He has a responsibility to ensure that frivolous and time-wasting applications are not made. He also has an obligation to the parties to ensure that the particular application concerned will assist in the efficient and proper resolution of the matters before him. He cannot do that by giving a blanket consent of the type that was given in this case. Had the proper process occurred in this case, it might have assisted in identifying the real issues in the case, a matter to which I shall need to return.

27 Although I have doubts as to this Court's jurisdiction to deal with paragraph 6 of the Summons I am prepared, nevertheless, to answer the question. This is because it is effectively a corollary to paragraph 5 of the summons, because the matter was fully argued before me and because in the circumstances of this case it amounts to procedural defect which could no doubt readily be cured. However, this should not be taken as condoning the undesirable course which this application took.

28 Section 39(2) of the Act provides that the Court shall not entertain an application to determine a question of law arising in the course of an arbitration where the reference is with the consent of the arbitrator unless the Court is satisfied that -

(a) The determination of the application might produce substantial savings in cost to the parties; and

(b) The question of law is one in respect of which leave to appeal would be likely to be granted under s 38(4)(b) of the Act.

29 In relation to the first requirement, no argument was addressed to me by either party. However, as the application raises the question of the arbitrator's jurisdiction to proceed with the arbitration at all, I consider that substantial costs of a possibly barren arbitration may be saved if the question is answered in favour of the Cufones. If the question is answered in favour of the Cruses, it appears that no greater costs will be incurred, as the arbitration will proceed, but the costs of an almost inevitable appeal will be saved.

30 In relation to the second requirement, s 38(5) of the Act provides:

"(5) The Supreme Court shall not grant leave under subsection (4)(b) unless it considers that -

(a) having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement;

(i) a manifest error of law on the face of the award;

(ii) strong evidence that the arbitrator or umpire made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law."

31 So far as paragraph (a) is concerned, the question is whether the determination of the question of law could substantially affect the rights of one or more parties to the agreement, namely the right under the agreement or alternatively under Fun Trading's Articles of Association to have the alleged dispute determined by arbitration. As there are certain aspects of the dispute which may be incapable of being resolved in any other way, I am prepared to accept that the determination of the question does substantially affect the rights of the Cruses and that the requirements of paragraph (a) are satisfied.

32 So far as concerns paragraph (b), there is as yet no award, so subparagraph (i) does not apply. In relation to subparagraph (ii), the question of law at issue does not involve construction of a one off clause in a particular arbitration agreement. It has wider ramifications than that which go to the proper conduct of an arbitration and the powers of an arbitrator. Furthermore, as will appear from the reasons which follow, there is, in my opinion, a strong prima facie case that the Arbitrator made errors of law first in failing properly to identify or to have the parties identify the real nature of the dispute, and secondly in holding that an arbitrator's power to grant a declaration was at large regardless of the nature of the dispute and without properly inquiring as to the nature of this dispute. See generally Minister for Industrial Affairs v Civil Tech Pty Ltd (1998) 70 SASR 394 at 404 - 405.

The Arbitration Agreement and the Arbitrator's Jurisdiction

33 The Cruses claim to rely either on clause 140.0 of the Articles of Association of Fun Trading or clause 9 of the Memorandum of Agreement. Clause 140.0 of the Articles of Association reads as follows:

"Any dispute or difference whatsoever arising in connection with the operations of this Company between the Directors and shareholders shall be submitted to arbitration in accordance with and subject to The Institute of Arbitrators Australia Rules for the Conduct of Commercial Arbitrations.

For the purpose of this clause the Arbitrators (sic) decision shall be final and binding on all parties. The provision of this clause shall in all things and at all times subject to the Corporations Law (sic)."

34 As a source of power to justify the arbitration, this clause can shortly be disposed of. Whatever may be the meaning of the phrase "between the Directors and shareholders" - whether it means all directors and all shareholders or some of each and if so, how many - it is clear that there must be a dispute between directors and shareholders.

35 The parties to the arbitration were identified as the Cruses, on the one hand, and Raffaele Cufone, Samuel Cufone and Cufone Holdings on the other hand. The dispute therefore includes a dispute between directors and a dispute between shareholders of Fun Trading. It is difficult to see how it can be a dispute between directors (or some of them) on the one hand and shareholders (or some of them) on the other. There is no power in Article 140.0 to settle a dispute between shareholders or a dispute between directors.

36 The powers to appoint and remove directors (Articles 88 and 89) to which I have referred do not seem to give rise to a dispute of the necessary quality. Even if, as argued before me, the Cruses rely on an implied term in the agreement of 6 March 1996, a collateral agreement between the same parties or rectification of the written agreement, the dispute is not endowed with the necessary quality referred to in Article 140.0. That is not to say that such a dispute may not arise in the future because of actions taken by the directors. However, that has not arisen yet on the material before me. It does not become a dispute between the directors and shareholders merely because of some anticipation of a possible breach of an unidentified obligation of the existing directors to act in the best interests of the company and of the unit trust of which it is trustee.

37 The other possible source of jurisdiction of the arbitrator is Clause 9 of Memorandum of Agreement of 6 March 1996. That clause reads as follows:

"If at any time there is any dispute or difference between any two or more parties to this Agreement in connection with the matters dealt with in this Agreement or the operations of Fun Trading or the Business or the Wholesaling Business it must be submitted to arbitration in accordance with and subject to The Institute of Arbitrators Australia Rules for the Conduct of Commercial Arbitrations. The arbitrator's decision shall be final and binding on all the parties to the dispute."

38 I have already identified what appears to have been the statement by the Cruses of the nature of the dispute. However, the correspondence supposedly identifying the dispute begs the question as to its true nature, apart from general dissatisfaction by the Cruses, and by Cruse Nominees and Robert Cruse in particular, about inequality of power exercised through the board of Fun Trading, and some apprehension that this imbalance of power might give rise to disputes of a more serious nature in the future. However, there was never a formal demand that the directors exercise their power under Clause 88 of the Articles to appoint another director. There had never been a general meeting convened for the purpose of removing a director under Article 89. If the dispute relied on some expressed or implied agreement either between Cufone Holdings and Cruse Nominees or between the directors of Fun Trading to procure the appointment of an equal number of directors, that was never mentioned in the correspondence before the arbitrator.

39 In other words, there was a regrettable lack of definition of the dispute, which should not have been allowed to continue before the preliminary issue was sought to be resolved. It was that lack of definition which resulted in some confused argument both before the arbitrator and before me.

40 Because of the lack of definition of the precise issue to be resolved, and because of the general nature of the dissatisfaction expressed by the Cruses, one must do the best one can to define what is possibly encompassed by the dispute so identified. If it encompasses elements that fall outside the arbitration agreement, then the claimants may suffer because of that lack of definition. On the other hand, if the arbitration agreement is sufficiently wide to encompass the dispute in its widest possible form then the arbitrator should be free to exercise his jurisdiction.

41 It seems to me that the correspondence encompasses a dispute or difference which could possibly turn on whether there exists an agreement to give effect to what the Cruses claim to be their right. However, it is also stated in a manner which may not depend on the existence of an agreement. It could be directed to how voting powers at a directors' meeting or at a general meeting of the company should be exercised. It could possibly relate to the exercise of delegation of a power to appoint a person or persons to the board. It could amount merely to a determination of what is fair in the administration of Fun Trading. There may be other aspects of the dispute which I have not identified. It will be noted, however, that some aspects I have mentioned relate to the existence and enforcement of contractual rights and some do not. They relate rather to the creation of rights.

42 Given this wide range of possible interpretations of what the dispute involves, it is necessary to examine the Arbitration Agreement to see whether and to what extent it covers the full possible range.

43 In the first place Clause 9 refers to "any dispute or difference". Those terms are not defined, and there is nothing in the agreement or in the Commercial Arbitration Act to confine their meaning to a dispute as to existing rights. It has long been recognised in this country, for example, that for the purposes of s 51(xxxv) of the Constitution, an industrial dispute, so long as it has the necessary industrial character is no more than a disagreement, difference or dissidence as to whether certain legal rights should be created: Metal Trades Employers Association v Amalgamated Engineering Union [1935] HCA 79; (1935) 54 CLR 387 per Dixon J at 429. It is therefore possible that the role of an arbitrator, depending on the context in which the phrase "dispute or difference" appears, may include not only the determination of existing legal rights but the creation of new ones.

44 Next, the dispute or difference is to be between "any two or more parties to this agreement". It need not be between all of them. Any dispute or difference between any two or more will suffice. All the identifiable parties to any relevant dispute are also parties to the agreement.

45 The dispute or difference must be "in connection with" any one of a number of matters. That phrase is extremely wide. A link or association between the dispute or difference and one of the several subject matters will be sufficient: Commissioner for Superannuation v Miller [1985] FCA 445; (1985) 8 FCR 153 at 160.

46 The several subject matters in connection with which the dispute or difference must arise include "matters dealt with in this agreement". That would include claims based on mistake or misrepresentation in relation to the entry into the contract (Ashville Investments Ltd v Elmer Contractors Ltd [1988] 2 All ER 577), rectification of a contract (Dowell Australia v Triden Contractors [1982] 1 NSWLR 508) and claims in tort having a sufficient nexus with the contract (Woolf v Collis Removal Service [1948] 1 KB 11). In my opinion, it would certainly include the question as to whether a term is to be implied in the agreement.

47 The other matters with which the dispute or difference may be connected are "the operations of Fun Trading or the Business or the Wholesaling Business". "The Business" is defined in the Agreement as that of a hotel and liquor store outlet at Parafield Airport about to be established by Fun Trading. The "Wholesaling Business" is defined as meaning a wholesaling business operating from premises close to the proposed site for the Business. Between them those two terms encompass the whole possible business activities conducted by Fun Trading. If the expression "the operations of Fun Trading" is not to be construed as merely superfluous, it must be given a meaning over and above the business activities being conducted by Fun Trading. In my opinion the expression is wide enough to cover the administration and affairs of the company itself, and a dispute over the entitlement to be a director will be a dispute in connection with the operations of Fun Trading.

48 The arbitration agreement contained in Clause 9 of the Agreement is therefore an extremely wide one. In my opinion it is sufficiently wide to encompass all possible aspects of a dispute as to who should constitute the board of directors of Fun Trading, whether that dispute be based on an existing legal right or not. Notwithstanding the lack of definition of the dispute, in my opinion the Arbitrator had jurisdiction to enter upon the arbitration.

49 However, that did not mean that the Arbitrator was not obliged to identify with greater particularity the real nature of the dispute. It was unhelpful merely to request the parties to supply a "Prayer for Relief" without first having identified, for example, whether the dispute was based on an alleged existing legal right or the failure of a party to act or to exercise a discretion in a particular way which was open to him. It was because of this failure that the Arbitrator allowed himself to be misled into determining that he could make a declaration whatever the nature of the dispute might be.

50 The appellants argued that an arbitrator does not have the power to make declarations which are not ancillary to an order by way of principal relief. It was argued that the common law did not provide the courts with the power to grant declaratory relief. However, it was conceded that the courts of equity have always had the power to grant declarations ancillary to principal relief. Mr Walsh QC, for the appellants, argued that courts today only have such a power, standing alone, by virtue of statute. In the case of this Court s 31 of the Supreme Court Act provides the power to grant declaratory relief. It was argued that the only way an arbitrator could have the power to grant declaratory relief would be for it to be provided for in a statute or in the arbitration agreement. Under the Act no such power is provided for. The arbitration agreement does not confer such power. The appellants pointed by way of contrast to the fact that s 24 of the Act specifically vests in an arbitrator the power to order specific performance. As the legislature has provided arbitrators with that specific power, so it was argued that had parliament intended arbitrators to have the power to grant declaratory relief it would also have conferred such power on them.

51 As the argument was presented to the Arbitrator and in the absence of any suggestion of reliance upon any contractual right, Mr Walsh's argument has some substance. However, it cannot be applied universally to all arbitrations.

52 In Government Insurance Office of New South Wales v Atkinson-Leighton Joint Venture [1981] HCA 9; (1981) 146 CLR 206 one of the questions which arose was whether an arbitrator had power to award interest on the amount of an award even though there was no power to award interest conferred by legislation or by the arbitration agreement. Stephen J, with whom Mason and Murphy JJ agreed, held that the arbitrator did have power to award interest in those circumstances upon the footing that the parties had impliedly given the arbitrator authority to determine all differences between them in the light of the general law and as if they had chosen the alternative of litigation. After discussing a number of authorities Stephen J concluded (at 235):

"The principle to be extracted from this line of authority is that, subject to such qualifications as relevant statute law may require, an arbitrator may award interest where interest would have been recoverable and the matter been determined in a court of law. What lies behind that principle is that arbitrators must determine disputes according to the law of the land. Subject to certain exceptions, principally related to forms of equitable relief which are of no present relevance and which reflect the private and necessarily evanescent status of arbitrators, a claimant should be able to obtain from arbitrators just such rights and remedies as would have been available to him were he to sue in a court of law of appropriate jurisdiction."

53 Mason J took a similar approach at 246 - 247. Murphy J agreed with Mason J. Barwick CJ and Wilson J dissented upon the basis that the power to award interest was procedural and not substantive and required express power to be conferred. They were unable to hold that the power was based on an implied term of a consensual reference.

54 Based on the opinion of the majority, it is a small step to hold that a similar power to grant declaratory relief is to be implied in an arbitration agreement in circumstances where a court of law would have power to grant similar relief.

55 In IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466 the arbitration clause in an agreement was said to govern "any controversy or claim arising out of or related to this agreement or the breach thereof". The New South Wales Court of Appeal held that such a clause was sufficiently wide to include claims to award relief and to make orders under s 87 of the Trade Practices Act 1974 (Cth) in respect of alleged breaches of s 52 of the Trade Practices Act affecting the formation of the contract. The range of remedies provided by s 87 of the Trade Practices Act is extremely wide. The Court considered that it was bound by the majority decision in Atkinson-Leighton. The only difference between Kirby P on the one hand and Clarke and Handley JJA on the other was that the latter considered that an arbitrator could not declare the contract void ab initio, because that would be tantamount to deciding that he had no jurisdiction at all.

56 Likewise, in QH Tours Limited v Ship Design and Management (Aust) Pty Ltd [1991] FCA 637; (1991) 33 FCR 227 Foster J of the Federal Court of Australia, based on the authorities to which I have referred, had no difficulty in deciding that an arbitrator could exercise the powers under s 87 of the Trade Practices Act where the arbitration agreement referred to arbitration "any dispute or difference (arising) between the (parties) at any time as to the construction of this agreement or as to any matter or thing of whatsoever nature arising thereunder or in connection therewith". The only point of difference between Foster J in that case and the majority of the Court of Appeal in IBM was that Foster J considered that the arbitrator had power to declare the contract void ab initio.

57 In support of his argument that express conferral of the power was necessary, Mr Walsh QC relied on the decision of this Court in R v Industrial Court of SA; Ex parte General Motors-Holdens Pty Ltd (1975) 10 SASR 582. That case concerned the question of whether s 15(1)(e) of the then Industrial and Conciliation and Arbitration Act 1972 was inconsistent with the provisions of an award made under the Conciliation and Arbitration Act 1904 (Cth) and was therefore invalid. The section conferred upon the State Industrial Court jurisdiction to hear and determine any question as to whether the dismissal from his employment of an employee was harsh, unjust or unreasonable. The Court unanimously held that there was an inconsistency, and a majority of the Court (Walters and Wells JJ) refused to accede to an argument that the Court could grant declaratory relief alone without offending s 109 of the Constitution. The Court was there dealing with a statutory court, and on the authority of Adelaide Assemblers Ltd v Kutos and Freeway Motors Ltd (1974) 9 SASR 102 it could not exercise powers read into a statute by implication. The majority did not consider that the section empowered the Industrial Court to make a declaration. Bray CJ expressed a different view, but that was based on his interpretation of the section. I do not consider that this authority assists Mr Walsh's argument, based as it was on the proper interpretation of the Act in question.

58 In my opinion, based on the authorities to which I have referred, an arbitrator has an implied power to grant declaratory relief where the dispute is one which could have been submitted to this Court and where this Court could have given such relief.

59 It does not follow, however, that an arbitrator has power to grant declaratory relief in all cases. As it was argued before the arbitrator in this case, the Cruses did not appear to rely on any contractual right. As presented to the Arbitrator the dispute appeared to involve broader considerations based on principles of equity and fairness. I have already held that the Arbitrator had jurisdiction to enter upon such a reference in this case, given the all embracing nature of the arbitration agreement. However, if that is the nature of the dispute, a court of law could not grant declaratory relief in respect thereof. Indeed, a court could not grant any relief unless the dispute were based on an alleged contractual right or some other legal right. In my opinion, the Arbitrator therefore erred in holding that he could grant declaratory relief of the type referred to in paragraphs 1, 2 and 3 of the Prayer for Relief submitted by the Cruses without first satisfying himself that the nature of the dispute was contractual or based on some other legal right in connection with matters dealt with in the Agreement.

60 When the matter came before me Mr Robertson, counsel for the Cruses, indicated, so far as I could see for the first time, that the dispute was based on a term to be implied in the Agreement of 6 March 1996. Alternatively, he said it would be contended that there was a collateral agreement to the same effect which had sufficient connection with the Agreement or with the operations of Fun Trading. In the further alternative it would be argued that the Agreement of 6 March 1996 should be rectified to reflect what his clients contend was intended to be included in the Agreement. If those are in fact the true alternative bases on which the claim of the Cruses is now promoted, it may well be that the Arbitrator can grant declaratory relief, based as it is on a claim to an existing legal right and being relief which this Court could grant if the claim were so based.

61 As indicated earlier in these reasons, I revoke the leave to appeal granted on 18 May 1999 from the interim award made by the Arbitrator on 25 February 1999 upon the basis that no appealable award has been made. It follows that the plaintiffs are not entitled to any order by way of appeal sought in paragraph 2 of the inter partes summons. I also dismiss the applications contained in paragraphs 3, 4 and 5 of the plaintiffs' inter partes summons. In relation to paragraph 6 of the summons I determine the question of law arising in the course of the arbitration as follows:

(a) The Arbitrator had jurisdiction to enter into the arbitration with regard to the dispute alleged to have arisen between the plaintiffs and the first defendants.

(b) The Arbitrator has power to grant declaratory relief to the extent that the dispute before him is based on the identification and enforcement of existing legal rights of one or more of the parties to the arbitration and to the extent that such relief could be granted by this Court.

62 I will hear the parties further as to the costs of these proceedings.

Commercial Arbitration Act 1986(SA)s 38(4), s, s 24, referred

Supreme Court Act 1935(SA)s 31

Conciliation and Arbitration Act 1904(Cth)

Industrial and Conciliation and Arbitration Act 1972

Commercial Arbitration Act 1986(SA)s 38(4), s, s 24, referred

Supreme Court Act 1935(SA)s 31

Industrial and Conciliation and Arbitration Act 1972

Conciliation and Arbitration Act 1904(Cth)

At a glance

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Cases Cited (8)