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[2014] VSCA 166
Court of Appeal (Vic)
2014-08-06
Warren CJ
Original judgment source is linked above.
ARBITRATION - Appeal against decision refusing to stay third party proceeding on the basis of arbitration agreement - Claimant in third party proceeding not a party to arbitration agreement - Whether claiming 'through or under a party' to the arbitration agreement - Whether matter capable of resolution by arbitration - Appeal allowed - Tanning Research Laboratories Inc v O'Brien [1990] HCA 8; (1990) 169 CLR 332 considered - International Arbitration Act 1974 (Cth) s 7.
1 The appellant, Flint Ink NZ Limited ('Flint Ink') is a company incorporated in New Zealand that manufactures ink products at its factory in New Zealand. The first respondent, Huhtamaki Australia Pty Ltd ('Huhtamaki Australia') is a company incorporated in Australia and is part of the Huhtamaki group of companies, which manufactures and supplies packaging products including packaging used to contain food. The second respondent, Lion-Dairy & Drinks Pty Ltd ('Lion-Dairy'), is a company incorporated in Australia that manufactures dairy products and makes Yoplait yogurt products in Gippsland, Victoria.
2 In proceedings in the Trial Division, Lion-Dairy seeks damages from Huhtamaki Australia for losses following a recall of Yoplait products necessitated by defective packaging supplied to it by Huhtamaki Australia ('the principal proceedings'). The packaging had been manufactured in New Zealand by Huhtamaki New Zealand Limited ('Huhtamaki NZ'), another member of Huhtamaki group of companies, using Melam ink manufactured and supplied to it by Flint Ink. Huhtamaki Australia denies that the packaging was defective, but claims that if it were, any defects were caused by the ink supplied by Flint Ink.
3 On 4 February 2013, Huhtamaki Australia filed a third party notice in the principal proceeding against Flint Ink alleging, inter alia, that:
4 In response to this notice, Flint Ink's solicitors informed Huhtamaki Australia that the ink was supplied by it to Huhtamaki NZ pursuant to an agreement between it and Huhtamaki NZ entered into in November 2005 ('ink supply agreement'), and that it had not entered into any agreement with Huhtamaki Australia. Flint Ink also advised Huhtamaki Australia that its agreement with Huhtamaki NZ contained an arbitration clause on which it intended to rely. The clause provides:
Governing Law and Arbitration. This Agreement shall be governed by and construed in accordance with the laws of New Zealand.
Any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or validity thereof shall be finally settled by arbitration in accordance with the Arbitration Act 1996.
5 Huhtamaki Australia's reply acknowledged that it was not party to any agreement with Flint Ink and enclosed an amended third party statement of claim that abandoned the claim for breach of contract but proceeded with a claim in negligence. In its amended third party claim Huhtamaki Australia pleads that if it is liable to Lion-Dairy as alleged, then Huhtamaki Australia is entitled to indemnity or contribution from Flint Ink by reason of its failure to supply, or properly advise as to, suitable inks.
6 Flint Ink opposed Huhtamaki Australia's application to file the amended third party statement of claim and contended, amongst other things, that the claim was an impermissible attempt by Huhtamaki Australia to avoid pursuing a claim via Huhtamaki NZ by arbitration in accordance with the ink supply agreement. Flint Ink also sought a stay of the third party proceeding pursuant to s 7(2) of the International Arbitration Act 1974 (Cth) ('the IA Act'), or alternatively, art 8 of the UNCITRAL Model Law, s 8 of the Commercial Arbitration Act 2011 (Vic), Order 23 of the Supreme Court (General Civil Procedure) Rules or s 63 of the Civil Procedure Act 2010 (Vic).
7 On 18 October 2013, the trial judge delivered reasons for judgment on the applications. His Honour refused Flint Ink's application for a stay and granted Huhtamaki Australia leave to file and serve its amended third party statement of claim. The trial judge relevantly held that Huhtamaki Australia's claim against Flint Ink was not a matter capable of settlement by arbitration 'because there was no arbitration agreement which was applicable to the parties to the third party claims'.[1] His Honour further held that, in any case, Huhtamaki Australia was not claiming 'through or under' Huhtamaki NZ within the meaning of the IA Act as Huhtamaki Australia's claim was not 'in any relevant sense is derived from Huhtamaki NZ'.[2] This was the essence of his Honour's reasons.
8 Flint Ink was granted leave to appeal against the decision of the trial judge on those grounds of its proposed notice of appeal concerning the application of the IA Act.
9 Section 2D of the IA Act sets out the Act's objects:
(a) to facilitate international trade and commerce by encouraging the use of arbitration as a method of resolving disputes; and
(b) to facilitate the use of arbitration agreements made in relation to international trade and commerce; and
(c) to facilitate the recognition and enforcement of arbitral awards made in relation to international trade and commerce; and
(d) to give effect to Australia's obligations under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted in 1958 by the United Nations Conference on International Commercial Arbitration at its twenty-fourth meeting; and
(e) to give effect to the UNCITRAL Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law on 21 June 1985 and amended by the United Nations Commission on International Trade Law on 7 July 2006; and
(f) to give effect to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States signed by Australia on 24 March 1975.
7 Enforcement of foreign arbitration agreements
...
(2) Subject to this Part, where:
(a) proceedings instituted by a party to an arbitration agreement to which this section applies against another party to the agreement are pending in a court; and
(b) the proceedings involve the determination of a matter that, in pursuance of the agreement, is capable of settlement by arbitration;
on the application of a party to the agreement, the court shall, by order, upon such conditions (if any) as it thinks fit, stay the proceedings or so much of the proceedings as involves the determination of that matter, as the case may be, and refer the parties to arbitration in respect of that matter.
...
(4) For the purposes of subsections (2) and (3), a reference to a party includes a reference to a person claiming through or under a party.
11 When read together with s 7(2), s 7(4) enables a person claiming through or under a party to an arbitration agreement to be referred to arbitration even if they themselves are not a party to such an agreement. Sub-section (4) therefore enlarges the definition of 'a party to an arbitration agreement' by deeming persons claiming 'through or under' a party to be themselves parties to that agreement.
12 In the event that the circumstances set out in s 7(2) are satisfied, the Court is required to stay the proceedings or so much of the proceedings as involves the determination of that matter and refer the parties to arbitration.
14 Huhtamaki Australia also relies on the following grounds set out in its notice of contention:
1. The appeal should be dismissed and the decision below should be affirmed on the ground that:
(a) On the proper construction of s7(2)(b), a matter is only capable of settlement by arbitration in pursuance of an arbitration agreement if the matter is between the parties to the arbitration agreement or their privies;
(b) As the matter in this case is not between the parties to the arbitration agreement or their privies, it is not capable of settlement by arbitration in pursuance of the arbitration agreement, and accordingly s7 does not apply.
and accordingly, the first respondent is not claiming "through or under" a party to the arbitration agreement.
Ground 2 - Is Huhtamaki Australia claiming through or under Huhtamaki NZ?
15 Since Flint Ink must establish that Huhtamaki Australia is claiming through or under Huhtamaki NZ within the meaning of s 7(4) before s 7(2) can apply, it is convenient to deal with the second ground of appeal first.
16 The principal authority on the application of s 7 of the IA Act is the decision of the High Court in Tanning Research Laboratories Inc v O'Brien.[3] In that case Brennan and Dawson JJ, with whom Toohey J relevantly agreed, explained that:
... s 7(4) of the Act brings within the ambit of sub-s. (2) a person who claims 'through or under a party'. Although a person who was not a party to the arbitration agreement is not bound by the contract to submit to arbitration, a person who claims 'through or under a party' is so bound by force of the statute: see Bonnin v Neame. In statutes similar to s 7 of the Act, the phrase 'through or under a party' or its equivalent has been construed to apply to, inter alios, a trustee of a bankrupt's estate (Piercy v Young), an assignee of a debt arising out of a contract containing an arbitration clause (The 'Leage'), a company being a subsidiary of a parent company which is party to an arbitration agreement (Roussel-Uclaf v Searle; but cf Mount Cook (Northland) v Swedish Motors) and a company being a parent of a subsidiary company which is party to an arbitration agreement when claims are brought against both companies based on the same facts: J J Ryan & Sons v Rhone Poulenc Textile, S A ...The meaning of the phrase 'through or under a party' must be ascertained not by reference to authority but by reference to the text and context of s 7(4).
In the first place, as sub-s (2) speaks of both parties to an arbitration agreement, a person who claims through or under a party may be either a person seeking to enforce or a person seeking to resist the enforcement of an alleged contractual right. The subject of the claim may be either a cause of action or a ground of defence. Next, the prepositions 'through' and 'under' convey the notion of a derivative cause of action or ground of defence, that is to say, a cause of action or ground of defence derived from the party. In other words, an essential element of the cause of action or defence must be or must have been vested in or exercisable by the party before the person claiming through or under the party can rely on the cause of action or ground of defence...[4]
17 In a separate judgment, Deane and Gaudron JJ observed that:
To ascertain whether s. 7(2) operates in respect of proceedings pending in a court it is necessary to first identify the subject matter of the controversy which falls for determination in those proceedings. Only when that has been done is it possible to identify whether the proceedings "involve the determination of a matter ... capable of settlement by arbitration": s. 7(2)(b). That process of identification is also necessary to ascertain whether, if a party to the proceedings is not a party to the arbitration agreement, he or she is a person "claiming through or under a party": s. 7(4).[5]
...
Section 7(2) of the Act is concerned with 'proceedings [which] involve the determination of a matter ... capable of settlement by arbitration'. Its operation is thus not confined to proceedings in which the parties seek the same relief as might have been sought in arbitration proceedings. Because s 7(2) has this wider operation, the question whether a person is claiming through or under a party to the arbitration agreement is necessarily to be answered by reference to the subject matter in controversy rather than the formal nature of the proceedings or the precise legal character of the person initiating or defending the proceedings.[6]
18 Huhtamaki Australia submitted that in the reasoning of Brennan and Dawson JJ the meaning of 'through or under' requires 'standing in the same position' as the party to the agreement and is thus restricted to privies whose rights were derived from the party via an assignment or other process of law. Huhtamaki Australia further submitted that Brennan and Dawson JJ, by the use of the terms 'vested in' or 'exercisable by', were employing the language of rights in the sense of a right to a cause of action, or a right to a defence. Given that one cannot speak of an 'element of a right', Huhtamaki Australia submitted that the phrase 'essential element' as appears in the judgment does not capture their Honours' intention and thus should be disregarded. On the basis of these submissions, Huhtamaki Australia contended that as it was not pleaded that there was a relationship of agency, or a parent-subsidiary relationship between it and Huhtamaki NZ, its cause of action was independent of any cause of action available to Huhtamaki NZ and could not be seen as having derived from Huhtamaki NZ such as to bring it within s 7(4). It further argued that, to the extent that this reasoning is inconsistent with that of Deane and Gaudron JJ, it is to be preferred as it represents the view of the majority, Toohey J having agreed with Brennan and Dawson JJ on this point.
19 I do not accept these submissions. Whilst the reasoning of Brennan and Dawson JJ refers to examples from the authorities of trustee of a bankrupt's estate, an assignee and a company in a parent-subsidiary relationship, I do not consider that Brennan and Dawson JJ sought to confine the meaning of 'through or under a party' to the circumstances obtaining in these examples. On the contrary, their Honours explicitly state that the meaning of the phrase 'through or under a party' must be ascertained by reference to the text and context of s 7(4) and not by reference to the authorities.
20 In addition, I do not accept that Brennan and Dawson JJ proceeded on the basis that it is the cause of action or defence as a whole and not merely an element of it that must be vested in or be exercisable by the party for the sub-section to apply. As Huhtamaki Australia concedes, such a reading requires that words in their Honours' judgment be disregarded. In my view, neither the reasoning nor the result in Tanning compels such a reading. In Tanning, the liquidator, who was defending his refusal to admit a creditor's proof of debt on the general law grounds that the debt was not enforceable against the company, was held to be claiming through or under the company. Although the liquidator was not defending the company against a general law claim in debt, he sought to uphold his entitlement to reject the proof of debt on grounds of defence which were not only available to the liquidator but which were also available to the company under the general law. In my view, it may readily be said in these circumstances that an essential element of the liquidator's defence had been vested in the company.
21 The approach contended for by Huhtamaki Australia is also not consistent with the observation of Deane and Gaudron JJ that that the operation of s 7(2) is not confined to proceedings in which the parties seek the same relief as might have been sought in arbitration proceedings. Their Honours held that because s 7(2) is not restricted in this way, the question whether a person is claiming under or through a party must be determined by identifying the subject matter of the controversy which falls for determination rather than by the formal nature of the proceedings or the precise legal character of the person initiating the proceedings. Although the reasoning of Deane and Gaudron JJ differs in some respects from that of Brennan and Dawson JJ, I do not consider that the approaches are inconsistent on this point. Indeed, the whole of the relief sought by the liquidator, being the upholding of his entitlement to refuse to admit the proof of debt, could not have been sought by the company in arbitration.
22 The essence of Huhtamaki Australia's claim is that either under the ink supply agreement, or arising from it, Flint Ink owed Huhtamaki Australia a duty of care which it breached by advising Huhtamaki NZ to use Melam ink in the packaging material supplied to Lion-Dairy.
23 The extension of the duty to encompass Huhtamaki Australia is based primarily on the alleged proximity of Huhtamaki Australia and Huhtamaki NZ, of which it is alleged Flint Ink knew, or ought to have known. The third party claim pleads that:
24 The particulars of breach identify failures of Flint Ink to exercise reasonable care in its advice, recommendations and warnings to Huhtamaki NZ. The particulars do not identify any acts of breach in relation to Huhtamaki Australia.
25 Flint Ink submitted that the fact that it had had no dealings with Huhtamaki Australia and that every circumstance giving rise to Huhtamaki Australia's claim necessarily concerns and originates with Huhtamaki NZ provides strong support for its contention that Huhtamaki Australia is claiming through or under Huhtamaki NZ.
26 I agree. The pleaded duty arises from or out of the ink supply agreement between Flint Ink and Huhtamaki NZ. It is only in respect of Huhtamaki NZ that any act of breach by Flint Ink NZ is pleaded. In my view, any breach of duty in respect of Huhtamaki Australia is derivative from Huhtamaki NZ. To put the matter another way, in respect of the allegation of breach, Huhtamaki Australia stands in the same position vis-à-vis Flint Ink as does Huhtamaki NZ.
27 I am satisfied that the circumstances referred to by Brennan and Dawson JJ in Tanning, being that essential elements of Huhtamaki Australia's cause of action are vested in or exercisable by Huhtamaki NZ, is satisfied here. Support for this conclusion may be drawn from the very fact that particulars of breach with respect to Huhtamaki NZ are pleaded at all, since there would be no reason to do so were they were not essential to Huhtamaki Australia's claim.
28 To the extent that Deane and Gaudron JJ articulate a different approach to that of Brennan and Dawson JJ in Tanning, in my view it is also satisfied in this case. The subject matter in controversy here is whether Flint Ink is liable to provide indemnity or contribution to Huhtamaki Australia in respect of any liability of Huhtamaki Australia to Lion-Dairy. Such liability could only arise because Flint Ink was negligent in its advice to Huhtamaki NZ in relation to the suitability of the ink it supplied.
Ground 1 - Is the matter capable of settlement by arbitration?
30 The text of s 7(2)(b) directs attention to a 'matter' capable of settlement by arbitration, not to the proceeding per se.
31 In Tanning, Deane and Gaudron JJ discussed the meaning of the phrase 'matter capable of settlement by arbitration', as follows:
The word 'matter' is not defined in the Act. ... However, in any context, 'matter' is a word of wide import. In the context of s 7(2), the expression 'matter ... capable of settlement by arbitration' may, but does not necessarily, mean the whole matter in controversy in the court proceedings. So too, it may, but does not necessarily encompass all the claims within the scope of the controversy in the court proceedings. Even so, the expression 'matter ... capable of settlement by arbitration' indicates something more than a mere issue which might fall for decision in the court proceedings or might fall for decision in arbitral proceedings if they were instituted. It requires that there be some subject matter, some right or liability in controversy which, if not 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.[7]
32 Justices Brennan and Dawson found it unnecessary to attempt a precise definition of 'matter', however, their Honours observed that:
... the matter to be referred to arbitration cannot extend to issues which would not arise in proceedings between [the company] and [the creditor] or which are unrelated to the contract containing the arbitration clause...[8]
33 In Recyclers of Australia Pty Ltd v Hettinga Equipment Inc[9] Merkel J held that:
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] FCA 1584; (1999) 167 ALR 358 at 368-371. [10]
34 I respectfully agree with his Honour. Here, the relevant subject matter is whether Flint Ink breached a duty owed by it to Huhtamaki NZ, and by extension to Huhtamaki Australia, such that it should be required to provide indemnity in LionDairy's claim. I would identify the relevant matter for the purposes of s 7(2) as whether Flint Ink breached duties owed by it to Huhtamaki NZ pursuant to, or arising out of, the ink supply agreement.
35 Huhtamaki Australia conceded that a claim in negligence by Huhtamaki NZ against Flint Ink would be a matter capable of settlement by arbitration, however, it notes that no such claim has yet been made. It submitted that its action for indemnity or contribution could not be brought by Huhtamaki NZ, and was therefore independent of any cause of action that may be available to Huhtamaki NZ. Huhtamaki Australia submitted that since it was not a party to the arbitration agreement, its claim does not fall within the scope of the arbitration agreement and therefore is not a matter capable of settlement by arbitration within the meaning of s 7(2).
36 I reject this submission. For the reasons set out above, the application of s 7(4) means that Huhtamaki Australia must be deemed to be a party to the arbitration agreement. Whilst it may be accepted that s 7(4) does not provide for disputes that go beyond the scope of the arbitration agreement to be referred to arbitration, it does enlarge the content of the meaning of 'party to the agreement' and in this way, enables the referral of disputes which could not be referred to arbitration in the absence of the sub-section.
37 Having determined that Huhtamaki Australia is claiming through or under Huhtamaki NZ, there is nothing about the matter as I identify it that takes it outside the scope of the arbitration agreement, or renders it otherwise incapable of settlement by arbitration pursuant to the agreement. The question whether Flint Ink breached duties owed by it to Huhtamaki NZ pursuant to, or arising out of, the ink supply agreement is, I consider, a matter capable of settlement by arbitration.
38 I would allow ground 1. It follows that I would allow the appeal and dismiss the notice of contention.
39 At the commencement of the hearing, counsel for Flint Ink made application to amend the notice of appeal in respect of the orders it submitted should follow in the event that the appeal was successful. Counsel realised that the terms of s 7(2) require the Court to refer the matter to arbitration in the event that an order is made staying the proceedings and sought to amend the notice of appeal to conform with the requirements of this provision. I would grant leave to so amend.
40 The effect of the IA Act and the UNCITRAL is that parties are submitting more disputes to arbitration. Courts have acknowledged the commercial utility of arbitration as a means of resolving disputes and will endeavour to hold parties to their agreements to arbitrate. Indeed, this is the primary purpose of s 7(2).[11]
41 I observe that s 7(2) allows the Court to impose such conditions (if any) as it thinks fit on the parties. Any conditions imposed pursuant to s 7(2) should further the section's purpose. To that end, I would order that the third party claim be stayed pursuant to s 7(2) of the IA Act, such a stay being conditional on Flint Ink undertaking to use its best endeavours to refer Huhtamaki Australia's claims that Flint Ink breached contractual or common law duties of care alleged to have been owed to Huhtamaki NZ to arbitration in accordance with the arbitration clause and to pursue the arbitration with due expedition.
42 This is an appeal by leave from interlocutory orders of a judge of the Commercial and Equity Division. His Honour granted leave to the respondent, Huhtamaki Australia, to file and serve an amended Third Party Statement of Claim and refused an application by the appellant, Flint Ink, for a permanent stay of the Third Party proceeding pursuant to s 7(2)(b) of the IA Act.
43 The Third Party proceeding arises out of a claim by Lion-Dairy against Huhtamaki Australia for damages alleged to have been suffered as a result of defects in food packaging containers manufactured by Huhtamaki Australia's related company, Huhtamaki NZ, and sold by Huhtamaki Australia to Lion-Dairy. Huhtamaki Australia denies that the packaging was defective but says that, if it were, the defect was caused by faults in or the unsuitability of ink manufactured and sold by Flint Ink to Huhtamaki NZ for use in the manufacture of the packaging.
As originally cast, the Third Party Statement of Claim alleged that Flint Ink supplied the ink to Huhtamaki Australia under an agreement between Flint Ink and Huhtamaki Australia. Following service of the Third Party Statement of Claim, the solicitors for Flint Ink wrote to the solicitors for Huhtamaki Australia pointing out that the ink had in fact been supplied by Flint Ink to Huhtamaki NZ under an agreement between Flint Ink and Huhtamaki NZ, and that there was not and never had been an agreement between Flint Ink and Huhtamaki Australia. They also went on to point out that the agreement between Flint Ink and Huhtamaki NZ contained an arbitration agreement ('the arbitration agreement') on which Flint Ink intended to rely and therefore that any claim in relation to the ink should properly be brought by Huhtamaki NZ and be dealt with by arbitration.
44 The solicitors for Huhtamaki Australia replied, acknowledging the lack of a contract between Flint Ink and Huhtamaki Australia and advising that, in the circumstances, Huhtamaki Australia had resolved to abandon its claim in contract and proceed with its Third Party claim against Flint Ink on the basis of negligence alone. They enclosed a proposed amended Third Party Statement of Claim.
45 In turn the solicitors for Flint Ink replied that they did not agree to the proposed amendment because, among other reasons, they considered that the proposed amended claim was an impermissible attempt by Huhtamaki Australia to avoid pursuing Flint Ink by way of arbitration as was required under Clause 13.3 of the agreement between Flint Ink and Huhtamaki NZ.
46 Clause 13.3 of the agreement provides as follows:
Governing Law and Arbitration. This Agreement shall be governed by and construed in accordance with the laws of New Zealand.
Any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or validity thereof shall be finally
settled by arbitration in accordance with the Arbitration Act 1996.
47 After further correspondence and proposed amendments to the Third Party Statement of Claim, Huhtamaki Australia's application to amend the Third Party Statement of Claim came on for hearing before the judge on 23 August 2013 and then was adjourned for further hearing to 11 September 2013.
48 Meanwhile, on 5 September 2013, Flint Ink issued a summons returnable on 11 September 2103 seeking a stay of the Third Party proceeding pursuant to s 7(2) of the IA Act, alternatively, Art 8 of the UNCITRAL Model Law, s 8 of the Commercial Arbitration Act 2011 (Vic), O 23 of the Supreme Court (General Civil Procedure Rules) 2005 or s 63 of the Civil Procedure Act 2010 (Vic).
49 On 18 October 2013, the judge delivered reasons for judgment in which his Honour held that Flint Ink's summons should be dismissed and Huhtamaki Australia should have leave to amend its Third Party Statement of Claim substantially as proposed.
50 In his reasons, the judge summarised the proposed Third Party claim, accurately, as follows:
In its proposed amended third party statement of claim directed to Flint Ink NZ as the third party, Huhtamaki Australia alleges that the Lion Dairy claims are apportionable claims and that Flint Ink NZ is a concurrent wrongdoer for the purposes of Part IV of the Wrongs Act 1958 (Vic) and Part VIA of the TPA.
It pleads further that if Huhtamaki Australia is liable to Lion Dairy as alleged, and if any or all of the claims made by Lion Dairy are not apportionable claims, then Huhtamaki Australia is entitled to indemnity or contribution from Flint Ink NZ by reason of the principal allegations summarised below:
(a) Flint Ink NZ Supply Contract
(b) Claim in Respect of Advice provided by Flint Ink NZ to Huhtamaki NZ
3. Huhtamaki Australia alleges that at all material times:
(i) Huhtamaki NZ relied on Flint Ink NZ to advise it as to what would be suitable inks to use;
(ii) Flint Ink NZ knew or ought to have known of Huhtamaki NZ's reliance on it;
(iii) Flint Ink NZ knew or ought to have known that if Huhtamaki NZ, in reliance on such advice, purchased unsuitable ink products, its customers would likely suffer loss;
(iv) Flint Ink NZ in fact advised Huhtamaki NZ as to what would be suitable ink products to use;
(v) In the circumstances, Flint Ink NZ owed Huhtamaki NZ and Huhtamaki Australia (as a customer of Huhtamaki NZ) a duty to exercise reasonable care in advising Huhtamaki NZ as to what ink products to use;
(vi) Between about 2004 and August 2008, Flint Ink NZ advised Huhtamaki NZ to use Melam ink, including with corona treated substrate, for the production of yoghurt packaging for Lion Dairy (the 'Advice'); and
(vii) Relying on the Advice, Huhtamaki NZ: in or about late 2007 and early 2008, pursuant to the Flint Ink Supply Agreement, purchased Melam ink for use with a corona treated substrate in the production of packaging for Lion Dairy; between about December 2007 and July 2008, used the Melam ink in the production of such packaging for Lion Diary; between about May 2008 and August 2008 Huhtamaki NZ supplied to Huhtamaki Australia, which resupplied to Lion Dairy, the packaging material.
(c) Third Party Claim by Huhtamaki Australia in Respect of the Advice
(i) The Melam ink recommended by Flint Ink NZ and used by Huhtamaki NZ not being suitable for use with a corona treated substrate; and
(ii) The Advice being given negligently.
(i) It was not safe and/or fit for purpose because the Melam ink was not suitable for use with a corona treated substrate; and
(ii) The supply of such product by Flint Ink NZ to Huhtamaki NZ was in breach of the warranty in the Flint Ink Supply Agreement.
51 As his Honour then went on to observe, s 7(2) of the IA Act provides that:
(2) Subject to this Part, where:
(a) proceedings instituted by a party to an arbitration agreement to which this section applies against another party to the agreement are pending in a Court; and
(b) the proceedings involve the determination of a matter that, in pursuance of the agreement, is capable of settlement by arbitration;
on the application of a party to the agreement, the court shall, by order, upon such conditions (if any) as it thinks fit, stay the proceedings or so much of the proceedings as involves the determination of that matter, as the case may be, and refer the parties to arbitration in respect of that matter.[13]
52 Section 7(4) of the IA Act in turn provides that
(4) For the purposes of subsections (2) and (3), a reference to a party includes a reference to a person claiming through or under a party.
53 As the judge further observed, Flint Ink opposed the proposed amendment and sought a stay of the Third Party proceeding on the basis that Huhtamaki Australia was a party to the arbitration agreement within the meaning of s 7(4), because it was claiming through or under Huhtamaki NZ, and that the dispute between them was a matter within the meaning of s 7(2) which was capable of settlement by arbitration in pursuance of the agreement between Flint Ink and Huhtamaki NZ.
54 The judge rejected both contentions. His Honour held that he was not satisfied that Huhtamaki Australia was a person claiming through or under Huhtamaki NZ and thus through or under a party to the arbitration agreement within the meaning of s 7(4), because:
... I am not satisfied that there is sufficient proximity between the party to the Arbitration Agreement, namely Huhtamaki NZ, and the person that Flint Ink NZ claims is prosecuting or defending an action through or under that party, namely, Huhtamaki Australia.
First, there is insufficient evidence as to the relationship between Huhtamaki NZ and Huhtamaki Australia. It appears to be common ground that they do not enjoy a 'parent/subsidiary' relationship, and there is no evidence that one company habitually acts at the behest of the other. The highest it was put in oral argument was that the companies are two 'sister' entities, but there was no evidence as to the details of that relationship.
Further, the evidence, such that it was ... points away from the necessary degree of proximity. It is pleaded in Lion Dairy's statement of claim that Huhtamaki Australia was incorporated in Australia. The evidence is that Huhtamaki NZ was incorporated in New Zealand. Further, in a letter written by Flint Ink NZ's solicitors to the solicitors for Huhtamaki Australia dated 14 March 2013, the following is said: ... (c) Flint NZ did not have any dealings with Huhtamaki Australia. All of our client's dealings were with Huhtamaki NZ.
It is pleaded ... in the proposed amended third party statement of claim that Huhtamaki NZ supplied to Huhtamaki Australia film manufactured by Huhtamaki NZ using Flint Ink NZ products. ... although it establishes a commercial relationship between Huhtamaki NZ and Huhtamaki Australia, it does not materially add to the evidence so as to establish a sufficient degree of proximity between ... Huhtamaki NZ, and ... Huhtamaki Australia.[14]
55 The judge further held that the dispute between Huhtamaki Australia and Flint Ink was not a 'matter' within the meaning of s 7(2) of the IA Act which was capable of settlement by arbitration in pursuance of the arbitration agreement, because:
In the present case I am satisfied that the relevant 'matter' for the purposes of s 7(2)(b) of the IAA, as pleaded in the present third party statement of claim and the proposed third party statement of claim, essentially comprises two claims. First, a claim for indemnification or contribution pursuant to s 23B Wrongs Act 1958 (Vic) in respect of any amount ordered to be paid by Huhtamaki Australia to Lion Dairy. Second, and in the alternative, a claim for damages, pursuant to the causes of action pleaded in the third party statement of claim, which are referred to above. Neither Huhtamaki Australia nor Lion Dairy are parties to the Arbitration Agreement or to any relevant arbitration agreement.
To my mind, this matter is not capable of settlement by arbitration. An arbitral body may be regarded as capable of determining a matter in accordance with the national law agreed upon by the parties to the arbitration agreement. However, the subject matter of the third party claim cannot be referred to arbitration, because there was no arbitration agreement which was applicable to the parties to the third party claims.[15]
56 There are two grounds of appeal. First, Flint Ink contends that the judge erred in holding that the dispute between Huhtamaki Australia and Flint Ink was not a 'matter' capable of settlement by arbitration in pursuance of the arbitration agreement within the meaning of s 7(2) of the IA Act; and, secondly, Flint Ink contends that the judge erred in law in holding that Huhtamaki Australia was not claiming through or under Huhtamaki NZ within the meaning of s 7(4) of the IA Act and thus was not a party to the arbitration agreement. It is convenient to deal with the latter ground first.
57 According to high authority, 'claiming through or under a party' within the meaning of the statutory provisions like s 7(4) of the IA Act is a relatively flexible concept. In Tanning,[16] Brennan and Dawson JJ, with whom Toohey J agreed, explained that:
... s 7(4) of the Act brings within the ambit of sub-s. (2) a person who claims 'through or under a party'. Although a person who was not a party to the arbitration agreement is not bound by the contract to submit to arbitration, a person who claims 'through or under a party' is so bound by force of the statute: see Bonnin v Neame.[17] In statutes similar to s 7 of the Act, the phrase 'through or under a party' or its equivalent has been construed to apply to, inter alios, a trustee of a bankrupt's estate (Piercy v Young ),[18] an assignee of a debt arising out of a contract containing an arbitration clause (The 'Leage'),[19] a company being a subsidiary of a parent company which is party to an arbitration agreement (Roussel-Uclaf v Searle;[20] but cf Mount Cook (Northland) v Swedish Motors)[21] and a company being a parent of a subsidiary company which is party to an arbitration agreement when claims are brought against both companies based on the same facts: J J Ryan & Sons v Rhone Poulenc Textile, S A[22] ...The meaning of the phrase 'through or under a party' must be ascertained not by reference to authority but by reference to the text and context of s 7(4).
In the first place, as sub-s (2) speaks of both parties to an arbitration agreement, a person who claims through or under a party may be either a person seeking to enforce or a person seeking to resist the enforcement of an alleged contractual right. The subject of the claim may be either a cause of action or a ground of defence. Next, the prepositions 'through' and 'under' convey the notion of a derivative cause of action or ground of defence, that is to say, a cause of action or ground of defence derived from the party. In other words, an essential element of the cause of action or defence must be or must have been vested in or exercisable by the party before the person claiming through or under the party can rely on the cause of action or ground of defence...
58 In a separate judgment, Deane and Gaudron JJ reasoned differently, but to the same conclusion, that:
Section 7(2) of the Act is concerned with 'proceedings [which] involve the determination of a matter ... capable of settlement by arbitration'. Its operation is thus not confined to proceedings in which the parties seek the same relief as might have been sought in arbitration proceedings. Because s 7(2) has this wider operation, the question whether a person is claiming through or under a party to the arbitration agreement is necessarily to be answered by reference to the subject matter in controversy rather than the formal nature of the proceedings or the precise legal character of the person initiating or defending the proceedings.[23]
59 Counsel for Huhtamaki Australia stressed the observation of Brennan and Dawson JJ that the prepositions 'through' and 'under' convey the notion of a derivative cause of action or ground of defence or, in other words, a requirement that an essential element of the cause of action or defence must be or must have been vested in or exercisable by a party before the person claiming through or under the party can rely on the cause of action or ground of defence. He submitted that their Honours should be taken to have meant that a claimant or defendant is not properly to be regarded as claiming 'through or under a party' to an arbitration agreement unless asserting a claim or defence which was available to the party and to which the claimant or defendant has succeeded by way of assignment or legal process in effect tantamount to assignment (such as in Tanning, where a liquidator was empowered to assert the claims and defences of the company).
60 I do not accept that submission. Tanning does not dictate that the notion of 'through or under and party' is so limited. The authorities to which Brennan and Dawson JJ referred with apparent approval imply that the notion of 'through or under a party' is considerably broader than that.
61 For example, in Roussel-Uclaf v GD Searle & Co Ltd (No) 2,[24] Graham J said that:
There is no decisive authority on this point which covers the present case, although the words seem to have been included in the various Arbitration Acts for some time. On pages 143 and 144 of Russell on Arbitration, 18th edition , the expression 'claiming through or under' is shown to include the instances of an assignee of a contract containing the arbitration claim, of the personal representatives of a deceased party, and of the trustee of a bankrupt. It apparently has been held to exclude the mortgagee of the share in a partnership of a partner in respect of whom the partnership has been determined, because it was said the mortgagee's right to an account was independent of the deed. It was, however, held to include the insurers of a motor vehicle who stood in the shoes of their insured in respect of a policy containing an arbitration clause in relation to which an action was also begun. The action was stayed.[25]
62 His Lordship noted that the line between what is within and what is outside the description has to be drawn somewhere, and the argument in favour of a wider scope as opposed to a narrow interpretation may sometimes not admit of much elaboration. But, he said, in relation to the facts of the case before him:
I see no reason why these words in the Act should be construed so narrowly as to exclude a wholly-owned subsidiary company claiming, as here, a right to sell patented articles which it has obtained from and been ordered to sell by its parent. Of course, if the arbitration proceedings so decide, it may eventually turn out that the parent company is at fault and not entitled to sell the articles in question at all; and, if so, the subsidiary will be equally at fault. But, if the parent is blameless, it seems only common sense that the subsidiary should be equally blameless. The two parties and their actions are, in my judgment, so closely related on the facts in this case that it would be right to hold that the subsidiary can establish that it is within the purview of the arbitration clause, on the basis that it is 'claiming through or under' the parent to do what it is in fact doing whether ultimately held to be wrongful or not.[26]
63 Similarly, in Ryan & Sons v Rhone Poulenc Textiles SA,[27] the United States Court of Appeals, Fourth Circuit, held that the question whether an arbitration agreement encompasses a dispute depends on whether the factual allegations underlying the claim are within the scope of the arbitration clause, regardless of the legal label assigned to the claim.[28] Consequently, an arbitration clause which provided for the reference to arbitration of 'all disputes arising in connection with [a] contract' embraced every dispute having a significant relationship to the contract regardless of the label attached to it.[29] It followed that, where charges against a parent company and its subsidiary were based on the same facts and were inherently inseparable, the court could refer claims against the parent to arbitration even though the parent was not formally a party to the arbitration agreement.
64 It is true, as Brennan and Dawson JJ said in Tanning, that the meaning of 'through or under a party' for the purposes of s 7(4) is to be ascertained by reference to the text and context of s 7(4) rather than by reference to authority. But, as it appears to me, that observation was intended to convey that, although it had not previously been held that a liquidator could be regarded as claiming through or under the company to which he is appointed, their Honours considered that reference to the text and context of s 7(4) dictated that a liquidator should be so regarded. As such, their reference to the text and context of s 7(4) implies a relatively broad conception of the requirement that an essential element of the cause of action or defence must be or must have been vested in or exercisable by the party. That is also consistent with Deane and Gaudron JJ's conclusion that it is something to be assessed by reference to the subject matter in controversy rather than the formal nature of the proceedings or the precise legal character of the person initiating or defending the proceedings.
65 Similarly, in Mount Cook (Northland) Ltd v Swedish Motors Ltd,[30] which concerned parent and subsidiary companies, Tompkins J distilled that the essence of the matter inheres in the nature of the relationship between the claimant or defendant and the party to the agreement.
66 The facts and reasoning in Swedish Motors are also instructive. In that case, Swedish Motors had instituted a claim against Saab for damages for negligent advice which it was alleged had induced Swedish Motors to recommend and sell to one of its customers a particular type of Saab motor and drive for use in the customer's boat. The motor and drive were supplied by Saab to Swedish Motors' related company, Swedish Motors Wholesale, which on-sold them to Swedish Motors before Swedish Motors supplied them to the customer. The goods proved to be defective in the application in which they were installed and Swedish Motors sued Saab in negligence. Saab sought a stay of the proceeding on the basis of an arbitration clause in the agreement between Saab and Swedish Motors Wholesale. It contended that Swedish Motors was party to the agreement within the meaning of s 4 of the Arbitration (Foreign Agreements and Awards) Act 1982 (NZ)[31] because its claim was made through or under Swedish Motors Wholesale and that Swedish Motors' claim was a matter capable of settlement by arbitration in pursuance of the arbitration clause. Tompkins J rejected the argument on the basis that Swedish Motors' alleged cause of action was solely for damages for negligent advice proffered directly by Saab to Swedish Motors in breach of a duty of care alleged to have been owed directly by Saab to Swedish Motors. The claim was thus completely independent of any agreement between Swedish Motors Wholesale and Saab and in no way based on any obligation which may have been owed by Saab to Swedish Motors Wholesale. As Tompkins J explained:
In considering whether Swedish Motors is claiming through or under Swedish Motors Wholesale, it is, in my view, important to have regard to the nature of the claim in the second third party notice. It is an action in tort based on negligence. It is alleged that Saab is vicariously liable for the negligence ... in failing to make a proper assessment of the suitability of the engines and gearboxes and in giving negligent advice. To come within the expression the person claiming must be doing so 'through or under' the party to the arbitration agreement. So the relationship between them must be an essential ingredient of the claim. But if the claim is brought independently of the party to the agreement, so that any relationship between them is irrelevant to the grounds advanced in support of the claim, then the claim is not brought through or under the party to the agreement.[32]
67 In this case, the position is essentially the converse. Due to the way in which the amended Third Party Statement of Claim is pleaded, the relationship between Huhtamaki Australia and Huhtamaki NZ is essential to the claim. The duty of care which it is alleged Flint Ink owed to Huhtamaki Australia is alleged to have arisen out of the agreement between Huhtamaki NZ and Flint Ink; alternatively, to have arisen out of a duty of care owed by Flint Ink to Huhtamaki NZ, which in turn arose out of the agreement between Flint Ink and Huhtamaki NZ. Correspondingly, Flint Ink's breach of duty of care to Huhtamaki Australia is alleged to have been the result of Flint Ink's breach of agreement with Huhtamaki NZ or alternatively of Flint Ink's breach of its consequential duty of care to Huhtamaki NZ.
68 In summary, Huhtamaki's claim as pleaded is that, because Flint Ink had an agreement with Huhtamaki NZ and, further or alternatively, because Flint Ink owed Huhtamaki NZ a duty of care arising out of the agreement, Flint Ink also owed Huhtamaki Australia a duty of care; and, because Flint Ink breached its agreement with Huhtamaki NZ and, further or alternatively, because it breached its duty of care to Huhtamaki NZ arising out of the agreement, Flint Ink thereby breached a duty of care which it owed Huhtamaki Australia.
69 Counsel for Huhtamaki Australia submitted that, although Brennan and Dawson JJ propounded the test of 'through or under' a party in terms of it being necessary only that an essential element of a claimant's cause of action or defence be or have been vested in or exercisable by the party, the words 'an essential element' should in effect be disregarded. Read in context, counsel submitted, it was apparent that what Brennan and Dawson JJ meant to convey was that it is not enough that an element of a claimant's cause of action or defence be or have been vested in or exercisable by a party. Rather, it is necessary that the whole of the claimant's cause of action or defence be or have been vested in the party and hence that the claimant stands in the same position as the party or, to use counsel's words, stands in the shoes of the party. So much was apparent, counsel submitted, from the fact that, in the sentences which immediately follow Brennan and Dawson JJ's reference to 'an essential element', their Honours went on to say:
... A liquidator may be a person claiming through or under a company because the causes of action or grounds of defence on which he relies are vested in or exercisable by the company; a trustee in bankruptcy may be such a person because the causes of action or grounds of defence on which he relies were vested in or exercisable by the bankrupt.
A liquidator who defends his rejection of a proof of debt on the ground that, under the general law, the liability to which the proof relates in not enforceable against the company, takes his stand on the ground which is available to the company. A liquidator who resists a claim made by a creditor against the assets available for distribution on the ground that there is no liability under the general law thus stands in the same position vis-a-vis the creditor as does the company.[33]
70 Further, counsel submitted, it was not to the point that Deane and Gaudron JJ may have defined 'through or under' by reference to 'the subject matter in controversy rather than the formal nature of the proceedings or the precise legal character of the person initiating or defending the proceedings'. For inasmuch as Toohey J agreed with Brennan and Dawson JJ, Brennan and Dawson JJ's reasoning must be treated as the reasoning of the majority and so must prevail.
71 I do not accept the argument. With respect, as I read Brennan and Dawson JJ's reasons, their Honour said in terms, and so are to be understood as meaning, that a claimant may be taken as claiming 'through or under' a party if an essential element of the claimant's cause of action or defence is or has been vested in or exercisable by the party; and, on the facts of the case before them, an essential element of the liquidator's defence had been vested in the company in that, although the liquidator was defending a decision to refuse to admit a creditor's proof of debt, as opposed to defending a general law claim in debt, the liquidator was defending the decision to refuse to admit the proof on the ground that, as a matter of general law, the company was not indebted to the creditor. The reference to the liquidator standing in the same position as the company was thus epexegetical of, and not intended to contradict, the broader statement of principle earlier enunciated.
72 So understood, Brennan and Dawson JJ's reasoning is also consistent with Deane and Gaudron JJ's conclusion that s 7(2) goes beyond proceedings in which the parties seek the same relief as might have been sought in arbitration proceedings. It has a wider operation such that the question whether a claimant is claiming through or under a party is to be answered by reference to the subject matter in controversy rather than the formal nature of the proceedings or the precise legal character of the person initiating or defending the proceedings.
73 I am fortified in that interpretation of their Honours' reasoning by the fact that Brennan and Dawson JJ could not logically have come to the view that s 7(2) applied to the liquidator's claim of entitlement to resist the creditor's proof of debt, as their Honours did, without being positively persuaded that s 7(2) does go beyond proceedings in which the parties seek the same relief as might have been sought in arbitration proceedings and applies despite the formal nature of the proceedings or the precise legal character of the person initiating or defending the proceedings.
74 It follows in my view that Huhtamaki Australia is claiming through or under Huhtamaki NZ in the sense identified in Tanning. In terms of the test propounded by Brennan and Dawson JJ in Tanning, Huhtamaki Australia is so claiming because essential elements of its cause of action against Flint Ink are that Flint Ink breached its agreement with Huhtamaki NZ or breached a duty of care to Huhtamaki NZ which is alleged to have arisen out of the agreement. Equally, in terms of the test favoured by Deane and Gaudron JJ, Huhtamaki Australia is claiming through or under Huhtamaki NZ because the matter principally in controversy between Huhtamaki Australia and Flint Ink is whether Flint Ink breached its agreement with Huhtamaki NZ or breached its alleged duty of care to Huhtamaki NZ. So, too, in terms of Graham J's analysis in Roussel-Uclaf, Huhtamaki Australia is claiming through or under Huhtamaki NZ because, on the facts of the case, Huhtamaki Australia's rights against Flint Ink are so closely related to Huhtamaki NZ's rights against Flint Ink that is right to hold that Huhtamaki Australia is 'claiming through or under' Huhtamaki NZ.
75 Counsel for Huhtamaki Australia contended that so to hold would mean that s 7(2) would apply in every case where a consumer makes a product liability claim directly against a manufacturer, so long as the contract under which the manufacturer sold the product in question to the relevant wholesaler or retailer contained an arbitration clause. In counsel's submission, that would be inconsistent with the plain objectives and policy of the IA Act.
76 I reject the submission. In most consumer actions, the consumer relies on a duty of care alleged to arise independently of any contractual or common law obligations owed by the manufacturer to middlemen suppliers. Donoghue v Stevenson[34] is the paradigm. As is demonstrated by the reasoning of Tompkins J in Mount Cook,[35] which was earlier referred to, where a claimant relies on a duty of care owed directly to the claimant which is not dependent upon or derived from any claim which a wholesaler or retailer may have or have had against the manufacturer, the claimant cannot be said to be claiming through or under the middleman party. The difference in this case is that, as Huhtamaki's third party claim is pleaded, it is critically dependent upon and derivative from the contractual and common law obligations alleged to have been owed by Flint Ink to Huhtamaki NZ.
77 Counsel for Huhtamaki also prayed in aid the second reading speech relating to the IA Act, in which the Minister said that 'an arbitration agreement for this purpose is one by which the parties undertake in writing to submit their differences to arbitration'.[36] Counsel argued that the absence of any reference in the second reading speech to expanding the reach of arbitration to non-parties and staying non-arbitrable claims was indicative of a legislative intention that the IA Act should apply only to parties.
78 I reject that submission, too. The meaning of the legislation is primarily to be derived from its words;[37] and, as the High Court made clear in Tanning, according to the natural and ordinary meaning of the words of the legislation ss 7(2) and (3) apply to a non-party who claims through or under a party.
79 Counsel for Huhtamaki Australia contended that, if the words 'in pursuance of the agreement capable of settlement by arbitration' in s 7(2)(b) of the IA Act were read as anything other than a requirement that the matter to be referred to arbitration must involve a party or privy exercising or being bound by contractual rights and obligations or rights or obligations arising directly out of the contract, it would render the phrase 'in pursuance of the agreement' meaningless.
80 I do not accept that contention either. The reasoning in Tanning is enough in itself to show that the concept of a claimant or defendant claiming through or under a party is capable of extending beyond parties and their privies. Roussel-Uclaf is another example.
81 Finally, on this aspect of the matter, counsel for Huhtamaki Australia submitted that, because Huhtamaki Australia's claim against Flint Ink could not be referred to arbitration, the construction of s 7(2)(b) contended for by Flint Ink would have the result that Huhtamaki Australia's claim would be stayed.
82 The short answer to that is that for the reasons which follow, I consider that the dispute between Huhtamaki Australia and Flint Ink does involve a matter which is capable of settlement by arbitration within the meaning of s 7(2) of the IA Act and, therefore, that it is within the power of the court to refer so much of the proceeding as involves the determination of that matter to arbitration.
Matter that in pursuance of the agreement is capable of settlement by arbitration
83 As was earlier noticed, s 7(2) of the IA Act is concerned with 'proceedings [which] involve the determination of a matter ... capable of settlement by arbitration'. Its operation is not confined to proceedings in which the parties seek the same relief as might have been sought in arbitration proceedings. And the question whether a claimant is claiming through or under a party to the arbitration agreement is to be answered by reference to the subject matter in controversy rather than the formal nature of the proceedings or the precise legal character of the person initiating or defending the proceedings.
84 In Tanning, Deane and Gaudron JJ essayed the meaning of 'matter capable of settlement by arbitration', as follows:
The word 'matter' is not defined in the Act. ... However, in any context, 'matter' is a word of wide import. In the context of s 7(2), the expression 'matter ... capable of settlement by arbitration' may, but does not necessarily, mean the whole matter in controversy in the court proceedings. So too, it may, but does not necessarily encompass all the claims within the scope of the controversy in the court proceedings. Even so, the expression 'matter ... capable of settlement by arbitration' indicates something more than a mere issue which might fall for decision in the court proceedings or might fall for decision in arbitral proceedings if they were instituted. It requires that there be some subject matter, some right or liability in controversy which, if not 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.[38]
85 Counsel for Huhtamaki Australia contended that, whatever the ambit of s 7(2), it applies only to a claim for relief of a kind proper for determination in a court and not to every or any issue which might arise for decision in the course of the determination of such a claim. He further submitted that, in this case, the only relevant claim is one made by Huhtamaki Australia against Flint Ink for breach of duty alleged to be owed by Flint Ink to Huhtamaki Australia; and, as he would have it, that claim is not capable of settlement by arbitration. Counsel conceded that Huhtamaki Australia's claim, as pleaded, is based to some extent on alleged breaches of contractual and common law duty owed by Flint Ink to Huhtamaki NZ; and he conceded that a claim by Huhtamaki NZ against Flint Ink for damages for breach of those duties would be capable of settlement by arbitration. But, in counsel's submission, in the context of Huhtamaki Australia's claim against Flint Ink, questions of whether Flint Ink owed or breached any contractual duties of care to Huhtamaki NZ are simply issues which might arise for determination in Huhtamaki Australia's claim. They are not in themselves claims which are capable of settlement by arbitration, and not least for the reason that there is no claim made by Huhtamaki NZ.
86 Those submissions are largely based on the reasoning of McLelland J in Flakt Australia Ltd v Wilkins & Davies Construction Co Ltd,[39] in which his Honour said that:
In my opinion, the word 'matter' in s 7(2)(b) denotes any claim for relief of a kind proper for determination in a court. It does not include every issue which would, or might, arise for decision in the course of the determination of such a claim. The use of the word 'settlement' provides support for the view. 'Settlement' is an apt term to be used in relation to a claim for relief - it is less apt in relation to a mere issue. Furthermore, it is significant that, if the prescribed conditions are fulfilled, a stay is mandatory, notwithstanding that the governing law of the arbitration agreement is that of a country not a party to the Convention; and that, under the law of that country, a stay of proceedings on the basis of an agreement to arbitrate may be discretionary, as it is under the law of New Zealand. In such circumstances, I would not, in the absence of compelling language, attribute to Parliament an intention to require that proceedings be stayed, unless the claim made in those proceedings was capable of resolution by arbitration. Although it is legitimate to look at the terms of the Convention to resolve any ambiguity of expression in the Act, and one finds the expressions 'subject matter' and 'matter' used in Art. II, sub-arts. 1 and 3 respectively of the Convention, each of these expressions seems to be there used in a fairly loose way, to which the way in which 'matter' is used in s 7(2)(b) has no necessary relationship. Section 7(2) by no means reflects the exact language of the Convention, but there is nothing in the Convention which suggests that s 7(2) does not, on the view of its effect which I have expressed, operate to fulfil Australia's relevant obligation under Art II.[40]
87 That passage of the judgement in Flakt has been followed and applied a number of times. In view, however, of more recent developments, it appears that it should now be read as subject to three qualifications. First, although it is true that s 7(2)(b) denotes a claim for relief of a kind proper for determination in a court, we now know, as a result of the definition of 'matter' undertaken by Deane and Gaudron JJ in Tanning, that:
(a) s 7(2)(b) denotes not only a claim but also a defence of a kind proper for determination in a court;
(b) the claim or defence may be one which is derived by the claimant or defendant through or under a party to the arbitration agreement, in the sense that it is or was vested in that party;
(c) the claim or defence may, but does not necessarily have to be, the whole matter in controversy in the court proceedings; and
(d) although the claim or defence must be more than a mere issue for decision in the court proceedings, it may be enough that it amounts to the assertion of a right or liability in controversy which, if not coextensive with the subject matter in controversy in the court proceedings, is at least susceptible of settlement as a discrete controversy.
88 Secondly, although it is true to say that Brennan and Dawson JJ did not undertake the task of defining 'matter' in the same way as Deane and Gaudron JJ, as Merkel J later reasoned in effect in Hettinga,[41] the fact that Brennan and Dawson JJ were able to decide Tanning without attempting a precise definition of 'matter' is not a reason to regard Deane and Gaudron JJ's definition of 'matter' as other than authoritative. As Merkel J put it:
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... [42]
89 Thirdly, for reasons earlier stated, the difference between 'the assertion of a right or liability in controversy which, if not co-extensive with the subject matter in controversy, in the court proceedings, is at least susceptible of settlement as a discrete controversy' on the one hand, and 'a mere issue for decision in the court proceedings', on the other hand, is logically to be decided as one of fact and degree by reference to the 'whole matter in controversy in the court proceeding'.
90 Here, for reasons earlier stated, the substance of the whole of the matter in controversy between Huhtamaki Australia and Flint Ink is whether, as a result of the contractual obligations and common law duty of care which Flint Ink is alleged to have owed to Huhtamaki NZ, it owed a common law duty of care to Huhtamaki Australia; whether Flint Ink breached its alleged contractual obligations and common law duty to Huhtamaki NZ; and whether, by breaching its alleged contractual and common law duties to Huhtamaki NZ, it thereby breached its alleged duty of care to Huhtamaki Australia.
91 Thus, as also earlier stated, as Huhtamaki Australia's Third Party Statement of Claim is drawn, Huhtamaki Australia's claim against Flint Ink is critically dependent on establishing that Flint Ink breached a contractual or common law duty of care which it is alleged to have owed Huhtamaki NZ. If that claim fails, the whole claim will fail.
92 Having regard, therefore, to the whole of the matter in controversy between Huhtamaki Australia and Flint Ink in the Third Party proceeding, the claim that Flint Ink breached the contractual and common law duties of care it is alleged to have owed to Huhtamaki NZ is more than a mere issue in the Third Party proceeding. And it is also at least susceptible of settlement as a discrete controversy.
93 Further, the question of whether Flint Ink breached any contractual or common law duty of care owed to Huhtamaki NZ is one which arises out of the contract and is thus capable of settlement by arbitration. And, equally, to adopt and adapt the reasoning of Deane and Gaudron JJ in Tanning, it is a controversy as to a matter of a kind which is frequently the subject of arbitration proceedings and which could not be said to require determination only by the exercise of judicial power.[43]
94 Counsel for Huhtamaki Australia argued that courts have consistently held or proceeded on the basis that non-parties exercising rights not derived under the auspices of contract cannot be referred to arbitration. He also cited a number of judicial observations which he submitted were authority for that proposition. In my view, none of them avails him.
95 The first was of Gummow ACJ, Hayne, Heydon, Crennan and Bell JJ in Michael Wilson & Partners Ltd v Nicholls.[44] In that case, a foreign corporation alleged that a former director and shareholder and two former employees had conspired to divert clients and business opportunities away from the company for their own benefit. The former director and shareholder were respondents to an arbitration in London instituted by the corporation under an arbitration clause in the original agreement between the corporation and the former director and shareholder. Since the former employees were not party to the agreement the corporation had instituted proceedings against them in the New South Wales Supreme Court. The claims in the arbitration were for breach of contract and breach of fiduciary duties. The claims in the Supreme Court proceeding were for breach of contract, breach of fiduciary duties, knowingly assisting the former director and shareholder in breaches of his fiduciary obligations, conspiracy and procuring breach of contract. One of the issues before the High Court was whether the institution of the Supreme Court proceeding was an abuse of process. In the passage of the judgment on which counsel relied,[45] their Honours held that it was not because, although the claim for knowing assistance of breach of fiduciary duty was dependent on the claim of breach of fiduciary duty, in the sense that it 'depends upon establishing, among other things, that there has been a breach of fiduciary duty by another', the findings in the arbitration proceeding would not constitute an issue estoppel or Anshun estoppel in the court proceeding against the former employees.[46] It was not necessary to say what the position would have been if they had been binding on the former employees.
96 I do not regard those observations as applicable to the matters in issue in this appeal. Michael Wilson & Partners was not an application to stay the Supreme Court proceeding pending reference of the matter in dispute to arbitration. It was not contended in that case that the former employees qualified as parties to the arbitration agreement as claimants or defendants claiming through or under the former director and shareholder. The court had no cause to refer to or consider the meaning or application of s 7(2) of the IA Act.
97 The second observation relied upon was of McColl JA in Trustees of the Sydney Grammar School v Winch.[47] The question in that case was whether a claim brought by the daughter of a primary victim for damages for nervous shock alleged to have been suffered as a result of the victim's death was dependent on the right of action vested in the victim and so fell within the exclusive jurisdiction of the Dust Diseases Tribunal under s 11 of the Dust Diseases Tribunal Act 1989 (NSW).
98 I do not consider that to be relevant either. As I apprehend McColl JA's reasoning, the daughter's claim for nervous shock was not dependent on any right of action vested in the deceased because, in contradistinction to a Lord Campbell's Act claim, the daughter's claim for nervous shock was open to be made even though there had been no breach of duty of care to the deceased. With respect, that has little if anything to say on the subject of whether, in a case where an essential element of a claim or defence is or has been vested in a party to an arbitration agreement, the claimant asserting the claim or defence is a party to the agreement within the meaning of s 7(4) of the IA Act.
99 The third observation on which counsel relied was of Steytler P of the Western Australian Court of Appeal in Paharpur Cooling Towers Ltd v Paramount (WA) Ltd.[48] The issue there was whether a dispute between a constructor and a client arising out of the dishonour of a bill of exchange drawn by the client pursuant to amended terms of the construction agreement and accepted by the client and a third party was a dispute within the meaning of an arbitration clause in the construction agreement. The court held that it was not.
100 Assuming without deciding that the case was correctly decided, it does not appear to me to bear on the question of whether the substance of the matter in dispute in this case is one which arises out of the agreement between Flint Ink and Huhtamaki NZ or whether Huhtamaki Australia is properly to be regarded as a party to the arbitration agreement by reason of claiming through or under Huhtamaki NZ. There was no call for the court in Parharpur to consider whether a claim in tort against a defendant based on a claim that the defendant owed duties to another party under an agreement is one which arises out of that agreement, or to consider the application of s 7(2) of the IA Act to facts of that kind.
101 The fourth observation relied on was of Kirby P in IBM Australia Ltd v National Distribution Services Ltd..[49] In that case, the New South Wales Court of Appeal held that, where an arbitration clause in an agreement governed by the laws of New South Wales was expressed to govern 'any controversy or claim arising out of or related to this agreement or the breach thereof', it was sufficiently wide to include claims to award relief and otherwise to make offers under the Trade Practices Act 1974 (Cth). In the course of reasoning to that conclusion, Kirby P observed that it was unlikely the parties to the contract would have contemplated that the clause should operate in any other way. It was far more likely, his Honour said, they intended that all disputes between them concerning the terms of the contract, the performance of it and matters connected, in a real sense, with the contract should be referred to the one tribunal for determination.
102 So far from assisting Huhtamaki Australia, that appears to me to provide very strong support for the view that the substance of the controversy in this case is one arising out of or relating to the agreement between Flint Ink and Huhtamaki NZ and therefore encompassed in the agreement to arbitrate.
103 The fifth observation to which counsel referred was of Allsop J in Comandate Marine Corp v Pan Australia Shipping Pty Ltd.[50] The point which his Honour had under consideration there was whether an arbitral clause was sufficiently wide to encompass claims of misleading and deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth). One of the arguments advanced against that view was that such a claim would not be dealt with by the English arbitrator (to whom the arbitration agreement required disputes to be submitted) in the same way that it would be dealt with by an Australian court and, therefore, that the Trade Practices Act claims could not be conceived of as a 'matter' capable of being settled by arbitration within the meaning of s 7(2)(b) of the IA Act. Allsop J rejected that contention. His Honour reasoned that so to hold would undermine the New York Convention[51] by infringing the autonomy of the parties recognised by the Convention in the scope of the arbitration agreement and thus would give a meaning to the IA Act contrary to the New York Convention to which it was the evident purpose of the IA Act to give effect.[52]
104 With respect, that also appears to me to provide support for the view that the matter in dispute between Huhtamaki Australia and Flint Ink is one arising out of or relating to the agreement between Flint Ink and Huhtamaki NZ and so encompassed in the agreement to arbitrate.
105 The sixth observation was of Merkel J in Hettinga,[53] to which reference has already been made. It will be recalled that his Honour there distilled that Tanning is authority for the view that, for the purposes of s 7(2), the scope of 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 questions for determination in the proceeding; that the scope of the matter is thus to be ascertained from the pleadings and also the underlying subject matter; that, once the 'matter' is properly characterised, the question to be determined is whether the 'matter' as so characterised is capable of settlement under the arbitration clause; and that a proceeding which includes matters severable from or independent of the matter required to be referred to arbitration need not be stayed in respect of those matters. For the reasons already given, I think that runs counter to counsel's argument.
106 Seventhly, counsel referred to observations of Mansfield J in Seeley International Pty Ltd v Electra Air Conditioning BV[54] that the definition of 'arbitration agreement' incorporates Art II of the New York Convention and thus requires an undertaking or commitment by the parties by agreement to submit 'all or any differences ... concerning a subject matter capable of settlement by arbitration'. If there is no obligation by agreement to submit a certain dispute to arbitration, it is apparent that in respect of that dispute there is no 'arbitration agreement'. At the same time, Art II cl 1 also contemplates that only some of the potential disputes between the parties may be agreed to be submitted to arbitration.
107 I do not see how any of that is opposed to the notion of a claim of the kind here in issue being referred to arbitration despite the fact that it does not constitute all of the matter in controversy.
108 Eighthly, counsel referred to observations of Teare J of the Queens Bench Division (Commercial Court) in Morgan Stanley & Co International PLC v China Haisheng Juice Holdings Co Ltd.[55] In that case, his Lordship held that, on its proper interpretation, an exclusive English jurisdiction clause in an International Swaps and Derivatives Association Master Agreement (2002 form), as amended, applied only to claims between the parties to the agreement and not to claims by a party against a non-party. At [21] of his reasons, his Lordship said that:
The true construction of the exclusive jurisdiction clause in the Master Agreement must depend upon its own terms. They are not identical to those considered either by Rix J in Credit Suisse or by Lord Scott in Donohue v Armco. In construing the clause I accept that I should be guided by the approach of Lord Collins in UBS AG v HSH Nordbank AG and by the approach of Lord Hoffmann in Fiona Trust to the construction of arbitration clauses. However, the key question is whether clause 13 would reasonably be understood to mean that MSIP and CH promised each other that claims arising out or in connection with the Master Agreement would be brought in England regardless of whether the claims were against the other or a non-party to the Master Agreement. That type of issue was not addressed by either Lord Collins or Lord Hoffmann (and in the context of arbitration it could not arise because a non-party could not be subject to an arbitration to which it had not agreed).
109 With respect, there is very little of relevance in that either. Although, as Teare J noted, his approach to the construction of the exclusive jurisdiction clause before him was similar to the approach which should be adopted to the construction of an arbitration clause, his Lordship's decision was fact specific and so of very limited assistance in the construction of the arbitration clause in this case. In principle, his Lordship's approach accords with the way in which Kirby P dealt with the construction of the arbitration clause in IBM Australia.[56] But, ultimately, Morgan Stanley is a decision on the correct construction of the particular exclusive jurisdiction clause with which it was concerned.
110 Lastly, counsel invoked the reasoning of Swinfen Eady J in the old case of Bonnin v Neame.[57] The question there was whether the mortgagee of a partner's share in a partnership was a person claiming through or under the partner within the meaning of s 4 of the Arbitration Act 1889 (Imp). It was held that the mortgagee was not because, since the partnership had been terminated, the mortgagee had a statutory right to an account under s 31(2) of the Partnership Act (1890) (Imp) independent of the mortgagor's rights under the partnership agreement. Swinfen Eady J reasoned that:
The statue recognizes their [the mortgagee's] right to an account, that is, to have an account taken. ... If I were to determine that they were bound by an account taken as between the partners, it would be not to allow them the right which the statute confers upon them. They are entitled to an account, and to hold that they are to be bound by an account taken in their absence and that unless they can shew some fraud or some manifest error they are not to be entitled to come to the Court for an account would be to ignore the language of the statue altogether.[58]
111 It is enough to say about that case I think that, assuming without deciding it would still be decided the same way today, in the end it turned on what Swinfen Eady J conceived to be the mortgagee's independent statutory right to an account as opposed to claiming through or under a party to the partnership agreement within the meaning of s 4 of the Arbitration Act. That is of no assistance to Huhtamaki Australia in this appeal.
112 Finally, counsel for Huhtamaki Australia raised some issues about the form of relief. As was noted at the outset, where s 7(2) applies in relation to a court proceeding and a party to the arbitration agreement applies for a stay, the court is bound to order on such conditions (if any) as it thinks fit that so much of the proceeding as involves the determination of the 'matter' be stayed, and to refer the parties to arbitration in respect of that matter.
113 Counsel for Huhtamaki Australia submitted that, even if Huhtamaki Australia were a party within the meaning of s 7(4) of the IA Act, by reason that it claimed through or under Huhtamaki NZ, it was not certain that a New Zealand arbitrator would entertain Huhtamaki Australia as a party to the arbitration and therefore the court ought not to order it. Counsel referred to obiter dictum observations of Slicer J of the Supreme Court of Tasmania in Origin Energy Resources Ltd v Benaris International NV[59] as to what the position might have been in that case if it had been contended, although it was not, that Woodside was party to an arbitration agreement within the meaning of s 7(4).
114 The submission is not persuasive. Under s 7(2) a stay may be granted on condition that the dispute is referred to arbitration. If such an order is made, the parties will be bound to co-operate in facilitating the arbitration. In those circumstances, I think it unlikely that a New Zealand arbitrator would not co-operate to the extent of entertaining the matter. But if it came to pass that, despite the parties making all proper efforts to have the matter settled by arbitration in pursuance of the arbitration agreement, they were unable to secure an arbitrator willing to oblige, the stay could be dissolved.
115 The second issue concerning relief is how an order referring the matter to arbitration should be framed. Counsel for Flint Ink submitted that it should be expressed in terms of 'the controversy concerning the alleged wrongdoing to Huhtamaki NZ by Flint Ink in its dealings with Huhtamaki NZ'. In my view that is too broadly expressed. The statutory imperative is to refer to arbitration so much of the proceeding as involves the determination of the matter. Accordingly, I would refer the parties to arbitration in respect of so much of the third party proceeding as is constituted of Huhtamaki's claims that Flint Ink breached the contractual and common law duties of care alleged to have been owed to Huhtamaki NZ ('the Huhtamaki Australia reference claims').
116 Of course, that would leave other claims made in the Third Party Statement of Claim still to be decided. And it is not mandatory that they be stayed. But as in
Hettinga,[60] if it is determined in the arbitration proceeding that the claims against Flint Ink fail, it is unlikely that the balance of the third party claim would proceed. In any event, the two so much overlap as to make it desirable that the 'primary and substantial claims be determined first'.[61]
117 In the result, I would allow the appeal and set aside the orders below. In lieu thereof, I would order that the third party proceeding be stayed pursuant to s 7(2) of the IA Act on terms that Flint Ink undertake to use its best endeavours to refer the Huhtamaki Australia reference claims to arbitration in accordance with the arbitration clause and pursue the arbitration with due expedition.
118 The appellant, Flint Ink, a New Zealand company, manufactures ink at its factory in New Zealand. Huhtamaki NZ purchased ink from Flint Ink pursuant to an agreement that contained an arbitration clause. Huhtamaki NZ used the ink in the manufacture of packaging and supplied the packaging to the first respondent, Huhtamaki Australia, a company incorporated in Australia. In turn, Huhtamaki Australia supplied the packaging to Lion-Dairy. In the principal proceeding, Lion-Dairy instituted a proceeding against Huhtamaki Australia in this Court, claiming that it had suffered loss and damage as a result of defective packaging supplied to it by Huhtamaki Australia which resulted in it having to recall some of its yoghurt products. Huhtamaki Australia joined Flint Ink as a third party in the principal
proceeding. Flint Ink sought to have the third party proceeding stayed, relying on the arbitration clause and the provisions of the IA Act. A judge in the trial division dismissed that application and Flint Ink appeals (by leave) from that dismissal.
119 In June 2005, Lion-Dairy and Huhtamaki Australia made an agreement for the supply by Huhtamaki Australia of food packaging to Lion-Dairy. In or about July 2008, Lion-Dairy received complaints from consumers that pieces of the packaging on certain yoghurt products had become detached during consumption by children. As a result, it stopped production of the relevant products and subsequently undertook a product recall. The packaging for the products which were the subject of the recall had been supplied by Huhtamaki Australia to Lion-Dairy, pursuant to the said agreement. The packaging had been manufactured in New Zealand by Huhtamaki NZ using melam ink manufactured in New Zealand by Flint Ink.
120 The principal proceeding was instituted by Lion-Dairy on 16 November 2012. On 4 February 2013, pursuant to leave granted, Huhtamaki Australia filed a third party notice directed to Flint Ink. The third party statement of claim served with the third party notice alleged (wrongly) that there was a supply contract between Huhtamaki Australia and Flint Ink and proceeded to allege breaches of that contract and also negligent advice by Flint Ink to Huhtamaki Australia in relation to suitable ink products upon which Huhtamaki Australia had relied.
121 By summons dated 5 September 2013 Flint Ink sought orders that the third party proceeding be stayed pursuant to the IA Act (or pursuant to the Commercial Arbitration Act 2011 (Vic)), or that the third party proceeding be stayed as an abuse of process, or that there be summary judgment against Huhtamaki Australia in the third party proceeding. Prior to the issue of that summons, Huhtamaki Australia had put forward a proposed amended third party statement of claim. For the purposes of the present appeal, the relevant pleading is an amended third party statement of claim filed 22 October 2013 ('the amended statement of claim'). The judge who decided the stay application granted Huhtamaki Australia leave to amend in that form and that aspect of his order is not the subject of appeal.
122 The amended statement of claim makes allegations:
(a) in para 2(c), that Huhtamaki Australia is a part of the Huhtamaki 'group' of companies which operates worldwide and which includes Huhtamaki NZ;
(b) in para 6, that Lion-Dairy alleged and Huhtamaki Australia admitted that it supplied packaging out of its New Zealand plant to Lion-Dairy.
(c) in para 12, that Huhtamaki NZ and Flint Ink entered into an agreement whereby Huhtamaki NZ would purchase ink products from Flint Ink for the purpose of printing on flexible packaging to be used for retaining liquids or foods for human consumption.
123 Further, the amended statement of claim alleges as follows:
13A. At all material times [Huhtamaki NZ] and [Huhtamaki Australia] manufactured and supplied film packaging, including to [Lion-Dairy] for the purpose of packaging food.
...
13B. At all material times Flint Ink knew, or ought to have known, that [Huhtamaki NZ] and [Huhtamaki Australia] were manufacturing and supplying flexible packaging for the purpose of packaging food.
PARTICULARS
The knowledge can be inferred from:
(i) The commercial relationship between [Huhtamaki NZ] and Flint Ink whereby Flint Ink supplied ink to [Huhtamaki NZ] for use in the manufacture of food packaging;
(ii) The terms of the Ink Agreement:
(iii) The fact that Flint Ink had an employee placed permanently in [Huhtamaki NZ] 's business premises.
Further particulars will be provided after discovery.
13C. At all material times [Huhtamaki NZ] used, inter alia, corona treated substrates for the manufacture of flexible packaging.
13D. At all material times Flint Ink knew of the matters pleaded in paragraph 13C.
PARTICULARS
Flint Ink's knowledge can be inferred from the content of the documents referred to in the particulars to paragraph 14 below.
13E. At all material times from about 2004 Flint Ink:
(a) Was:
(b) Held itself out (including to [Huhtamaki NZ] and [Huhtamaki Australia] as, a specialist ink manufacturer and supplier.
(a) That Melam ink was a suitable ink for use in its manufacturing of flexible packaging for food;
(b) That Melam ink was a suitable ink for use with a corona treated substrate for the production of flexible packaging for food;
(c) That Melam Ink had "very good adhesion properties" with corona treated substrate;
(d) To use Melam ink, including with corona treated substrate, for the production of flexible packaging for food.
(the Advice).
PARTICULARS
The advice was partly written and partly oral and partly implied.
Insofar as it was written it was comprised of:
(i) Flint Ink document dated 23 July 2004 headed "A Proposal For the Provision of Total Ink Management Services to Huhtamaki Flexible Packaging" provided by Flint to [Huhtamaki NZ] on or about that date which contained a recommendation that Melam ink be used with corona treated substrate which recommendation was stated to be based, in part, upon "substrate compatibility i.e. adhesion":
(ii) Flint Ink Presentation Notes dated August 2004 headed Huhtamaki Flexibles and Flint Ink Total Ink Supply Proposal given to [Huhtamaki NZ] in August 2004 which included a recommendation to use Melam ink with corona treated substrate;
(iii) Flint Ink document dated 28 October 2004 headed "A Proposal For the Provision of Total ink Management Services to Huhtamaki Flexible Packaging - Working Detail and Procedures. Prepared for Huhtamaki Flexible" provided by Flint to [Huhtamaki NZ] on or about that date;
(iv) Flint Ink Melam Specification sheet headed "C4101 Meiam (sic) White 111" given to [Huhtamaki NZ] (Pat O'Brien) by Flint Ink shortly after the ink Agreement was entered in November 2005 in which it is stated that Melam ink has "very good adhesion" with corona treated substrate.
insofar as it was oral it was comprised of a presentation given by Flint to [Huhtamaki NZ] in August 2004 with the topic heading Huhtamaki Flexibles and Flint Ink Total Ink Supply Proposal.
In so far as it was implied, it was implied from the content of the, written and oral advice having regard to Flint Ink's knowledge pleaded at paragraph 13D.
Further particulars will be provided after discovery.
15. Relying on the Advice, [Huhtamaki NZ]:
(a) In or about late 2007 and early 2008 purchased Melam ink for use with a corona treated substrate in the production of flexible packaging for [Lion-Dairy];
(b) Between about December 2007 and July 2008, used the Melam ink in the production of such packaging for [Lion-Dairy].
16A. At all material times Flint Ink knew, or ought to have known, that [Huhtamaki NZ] relied on the Advice from Flint Ink as to suitable inks to use in the manufacture of flexible packaging for food.
PARTICULARS
Flint Ink's knowledge can be inferred from the circumstances in paragraphs 12, 13, 13B, 13E and 14.
Assumption of Responsibility
16B. By giving the Advice in the circumstances set out above Flint Ink assumed responsibility of advising [Huhtamaki NZ] as to what inks would be suitable for use in the manufacture of its products including flexible packaging for food.
Huhtamaki's Vulnerability
16C. In the premises, at all material times [Huhtamaki NZ] and [Huhtamaki Australia] were vulnerable and susceptible to suffering economic loss if Flint Ink recommended unsuitable inks for use in the manufacture of food packaging.
PARTICULARS
[Huhtamaki NZ] was vulnerable by reason of its reliance on Flint Ink's advice which reliance was known to Flint Ink.
[Huhtamaki Australia] was vulnerable by reason of:
(i) The proximity and nature of the relationship between it, [Huhtamaki NZ] and Flint Ink in the circumstances described above in paragraphs 2(c), 3A(c) 5, 6 and 13B;
(ii) The fact that it was unable to protect itself by obtaining any contractual warranties from Flint Ink in relation to advice given by Flint ink to [Huhtamaki NZ];
(iii) The fact that it would not reasonably be expected to obtain any warranties from [Huhtamaki NZ] to protect itself in the circumstances described above in 2(c), 3A(c), 5, 6 and 13B.
16D. At all material times, Flint Ink knew or ought to have known of the matters alleged in paragraphs 16C.
Foreseeability of Economic Loss
16E. In the premises, at all material times a reasonable person in the position of Flint Ink would have foreseen that a failure to exercise reasonable care in advising [Huhtamaki NZ] as to suitable inks to use for food packaging involved a risk of causing economic loss to [Huhtamaki NZ], [Huhtamaki Australia] and their customers including [Lion-Dairy].
Duty of Care
16F. In the premises, at all material times Flint Ink owed [Huhtamaki NZ], [Huhtamaki Australia] and [Lion-Dairy] a duty to exercise reasonable care and skill in advising [Huhtamaki NZ]as to suitable inks to use in the manufacture of flexible packaging for food and thereby avoid economic loss being suffered by [Huhtamaki NZ], [Huhtamaki Australia] and [Lion-Dairy] because of any failure in the flexible packaging.
PARTICULARS
The duty of care arises as by reason of:
(i) [Huhtamaki NZ]'s known reliance on Flint [Ink] to advise it what would be suitable ink products in the circumstances as set out in paragraphs 13A to 16A above:
(ii) The proximity of the relationship between [Huhtamaki NZ], [Huhtamaki Australia] and Flint [Ink] including the circumstances described above in 2(c), 3A(c), 5, 6 and 13B.
(iii) The assumption of responsibility by Flint [Ink] to advise [Huhtamaki NZ] as to suitable ink products set out in paragraph 16B above:
(iv) The nature and/or degree of danger associated with the use of Ink products particularly having regard to the fact that the products were to be applied to goods to be used for containing liquids and/or foods for human consumption;
(v) The foreseeability of harm if the advice was given negligently as set out in paragraph 16E above:
(vi) [Huhtamaki NZ]'s and [Huhtamaki Australia]'s vulnerability to any want of care by Flint [Ink] in advising [Huhtamaki NZ] as to what were suitable ink products as set out in paragraphs 16C and 16D above,
(a) Melam ink was not a suitable ink to be used with corona treated substrates having regard to the poor bonding characteristics of that combination and the risk that such a combination could lead to delamination:
(b) Melam ink was not designed for use with corona treated substrates:
(c) The use of Melam ink on a corona treated substrate could or would give rise to a risk that the ink would not, or would not adequately, bond with the substrate:
(d) Melam ink should not have been recommended for use with corona treated substrates:
(e) [Huhtamaki NZ] used corona treated substrates in the manufacture of flexible packaging for food.
(a) They were so because the Melam ink recommended by Flint [Ink] and used by [Huhtamaki NZ] was not suitable for use with a corona treated substrate and was the cause of any delamination;
...
(b) In breach of the duty of care alleged in paragraph 16F above, Flint Ink failed to exercise reasonable care and skill in giving the Advice to [Huhtamaki NZ] as to suitable ink to use in flexible packaging for food.
PARTICULARS
If the Alleged Failures were caused by the unsuitability of Melam ink with corona treated substrate, then Flint Ink failed to exercise reasonable care by:
(i) Advising [Huhtamaki NZ] that Melam Ink had "very good adhesion properties" with corona treated substrate when it knew, or ought to have known, the matters pleaded in paragraph 18 above:
(ii) Recommending to [Huhtamaki NZ] that it use Melam ink, including on a corona treated substrate, when it knew, or ought to have known, the matters pleaded in paragraph 18 above:
(iii) Failing to warn [Huhtamaki NZ] that the use of Melam ink on corona treated substrate could or would lead to a risk that the ink would not, or would not adequately, bond with the substrate;
(iv) Failing to warn [Huhtamaki NZ] that the use of Melam ink on corona treated substrate could result In delamination of the flexible packaging;
(v) Failing to warn [Huhtamaki NZ] that Melam ink was not an appropriate, suitable or recommended ink for use with corona treated substrates:
(vi) Failing to advise [Huhtamaki NZ] to use a recommended, appropriate, or suitable ink for use with corona treated substrates;
PARTICULARS
[Huhtamaki Australia]'s loss consists in its exposure to [Lion-Dairy]'s claim and the costs of defending it.
124 In an affidavit in support of the stay application, Flint Ink's solicitor deposed that, on his instructions, there was no contract between Flint Ink and Huhtamaki Australia, Flint Ink did not supply ink products to Huhtamaki Australia, and Flint Ink did not deal with Huhtamaki Australia.
125 Clause 13.3 of the agreement between Flint Ink and Huhtamaki NZ provided:
Governing Law and Arbitration. This Agreement shall be governed by and construed in accordance with the laws of New Zealand.
Any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or validity thereof shall be finally settled by arbitration in accordance with the Arbitration Act 1996.
126 The following are the principal relevant provisions of the Act:
2D Objects of this Act
The objects of this Act are:
(a) to facilitate international trade and commerce by encouraging the use of arbitration as a method of resolving disputes; and
(b) to facilitate the use of arbitration agreements made in relation to international trade and commerce; and
(c) to facilitate the recognition and enforcement of arbitral awards made in relation to international trade and commerce; and
(d) to give effect to Australia's obligations under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted in 1958 by the United Nations Conference on International Commercial Arbitration at its twenty-fourth meeting; and
(e) to give effect to the UNCITRAL Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law on 21 June 1985 and amended by the United Nations Commission on International Trade Law on 7 July 2006; and
(f) to give effect to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States signed by Australia on 24 March 1975.
3 Interpretation
(1) In this Part, unless the contrary intention appears:
agreement in writing has the same meaning as in the Convention.
...
arbitration agreement means an agreement in writing of the kind referred to in sub-article 1 of Article II of the Convention.
...
Convention means the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted in 1958 by the United Nations Conference on International Commercial Arbitration at its twenty-fourth meeting, a copy of the English text of which is set out in Schedule 1.
Convention country means a country (other than Australia) that is a Contracting State within the meaning of the Convention.
court means any court in Australia, including, but not limited to, the Federal Court of Australia and a court of a State or Territory.
...
7 Enforcement of foreign arbitration agreements
(1) Where:
(a) the procedure in relation to arbitration under an arbitration agreement is governed, whether by virtue of the express terms of the agreement or otherwise, by the law of a Convention country;
(b) the procedure in relation to arbitration under an arbitration agreement is governed, whether by virtue of the express terms of the agreement or otherwise, by the law of a country not being Australia or a Convention country, and a party to the agreement is Australia or a State or a person who was, at the time when the agreement was made, domiciled or ordinarily resident in Australia;
(c) a party to an arbitration agreement is the Government of a Convention country or of part of a Convention country or the Government of a territory of a Convention country, being a territory to which the Convention extends; or
(d) a party to an arbitration agreement is a person who was, at the time when the agreement was made, domiciled or ordinarily resident in a country that is a Convention country;
this section applies to the agreement.
(2) Subject to this Part, where:
(a) proceedings instituted by a party to an arbitration agreement to which this section applies against another party to the agreement are pending in a court; and
(b) the proceedings involve the determination of a matter that, in pursuance of the agreement, is capable of settlement by arbitration;
on the application of a party to the agreement, the court shall, by order, upon such conditions (if any) as it thinks fit, stay the proceedings or so much of the proceedings as involves the determination of that matter, as the case may be, and refer the parties to arbitration in respect of that matter.
(3) Where a court makes an order under subsection (2), it may, for the purpose of preserving the rights of the parties, make such interim or supplementary orders as it thinks fit in relation to any property that is the subject of the matter to which the first-mentioned order relates.
(4) For the purposes of subsections (2) and (3), a reference to a party includes a reference to a person claiming through or under a party.
(5) A court shall not make an order under subsection (2) if the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed.
127 Article II of the said Convention provides that:
[His Honour then referred to the provisions of the IA Act]
In the context of s. 7(2), the expression "matter ... capable of settlement by arbitration" may, but does not necessarily, mean the whole matter in controversy in the court proceedings. So too, it may, but does not necessarily encompass all the claims within the scope of the controversy in the court proceedings. Even so, the expression "matter ... capable of settlement by arbitration" indicates something more than a mere issue which might fall for decision in the court proceedings or might fall for decision in arbitral proceedings if they were instituted. See Flakt [Flakt Australia Ltd v Wilkins & Davies Construction Co Ltd [1979] 2 NSWLR 243, 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".[66]
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] FCA 1584; (1999) 167 ALR 358 at 368-371.
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.
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.[69]
(4) For the purposes of subsections (2) and (3), a reference to a party includes a reference to a person claiming through or under a party.
Person Claiming "Through or Under a Party" (s 7(4) of [the IA Act])
(b) Any dispute arising out of this Charter Party or any Bill of Lading issued hereunder shall be referred to arbitration in accordance with the Arbitration Act 1996 and any statutory modification or re-enactment in force. English law shall apply...
(c) The arbitrators, umpire and mediator shall be commercial persons engaged in the shipping industry. Any claim must be made in writing and the claimant's arbitrator nominated within 12 months of the final discharge of the cargo under this Charter Party, failing which any such claim shall be deemed to be waived and absolutely barred.
Next, the prepositions "through" and "under" convey the notion of a derivative cause of action or ground of defence, that is to say, a cause of action or ground of defence derived from the party. In other words, an essential element of the cause of action or defence must be or must have been vested in or exercisable by the party before the person claiming through or under the party can rely on the cause of action or ground of defence.[74]
(a) the Agreement referred to in paragraph 12 of the third party statement of claim was made between [Huhtamaki NZ] and our client [Flint Ink];
(b) your client [Huhtamaki Australia], being the defendant in the proceeding, was never a contracting party with [Flint Ink]; and
(c) [Flint Ink] did not have any dealings with [Huhtamaki Australia]. All of our client's dealings were with [Huhtamaki NZ].
Whether Negligence Claim Within Arbitration Agreement
The words "capable of settlement by arbitration" indicate that the controversy must be one falling within the scope of the arbitration agreement ...[80]
From the foregoing trend of authority, both in Australian and overseas courts, it can be seen that an arbitration clause, expressed in the language of the clause here under consideration, is not to be narrowly construed. It is sufficiently wide to include claims for rectification and for relief on the ground of misrepresentation or mistake.22
The arbitration clause in this case covered "any controversy or claim arising out of or related to this Agreement or the breach thereof".
...
These are wide words which should not be read down in absence of some compelling reason for doing so...
These words can only have been added to include within the submission claims other than in contract such as claims in tort, in restitution, or in equity. I can see no basis for excluding claims arising under statues which grant remedies enforceable in or confer powers on courts of general jurisdiction.[81]
Indeed, it is consistent with the modern policy of encouragement of various forms of alternative dispute resolution, including arbitration, mediation and conciliation, that courts should facilitate, rather than impede, agreements for the private resolution of all forms of dispute, including disputes involving claims under statutes such as the Trade Practices Act 1974 (Cth).[83]
Outline of submissions in relation to ground 2
130 Having regard to the way the appeal was argued, it is convenient to deal first with ground 2.
131 Flint Ink accepted that the judge had proceeded, correctly, in considering whether Huhtamaki Australia was claiming "through or under" Huhtamaki NZ within the meaning of s 7(4) of the IA Act by referring to two criteria that require to be satisfied, namely, that there was a relationship of sufficient proximity between those two companies and that the claim of Huhtamaki Australia was "derived from" Huhtamaki NZ. However, Flint Ink submitted that his Honour erred in his decision that these two criteria were not satisfied. Flint Ink submitted that sufficient proximity plainly existed because the allegations in the amended statement of claim conveyed and established the requisite proximity. Flint Ink referred in particular to the allegation that Huhtamaki Australia and Huhtamaki NZ were each a part of the Huhtamaki group of companies which operated worldwide, that Huhtamaki Australia and Huhtamaki NZ each manufactured and supplied packaging for food products, including to Lion-Dairy, that Huhtamaki Australia supplied the relevant packaging out of its New Zealand plant which packaging had been made in New Zealand by Huhtamaki NZ and, finally, that Huhtamaki NZ and Huhtamaki Australia were vulnerable and susceptible to suffering economic loss if Flint Ink recommended unsuitable inks and that Flint Ink would have foreseen that a failure to exercise reasonable care in advising Huhtamaki NZ involved a risk of causing loss to Huhtamaki NZ and Huhtamaki Australia.
132 Flint Ink further submitted that the judge's conclusion that Huhtamaki Australia's claim was not relevantly derived from Huhtamaki NZ was in error because it was clear, including from the pleading itself, that Huhtamaki Australia had no dealings with Flint Ink and that all relevant dealings had been with Huhtamaki NZ. Therefore, to the extent that Huhtamaki Australia might possibly have a claim against Flint Ink, every fact and circumstance giving rise to such a claim necessarily concerned and originated with Huhtamaki NZ. The 'source' of Huhtamaki Australia's claim was Huhtamaki NZ and it was therefore a derivative claim. Flint Ink referred to and relied upon what was decided by the High Court in Tanning.[85] Flint Ink referred to a key passage from the judgment of Brennan and Dawson JJ in Tanning.[86]
133 Flint Ink submitted that Huhtamaki Australia's claim was such a derivative cause of action but that, in any event, an essential element of Huhtamaki Australia's claim, namely breach of a duty of care, was alleged only against Huhtamaki NZ.
134 In response, Huhtamaki Australia submitted that its claim in the amended statement of claim was not a derivative claim but an independent claim, albeit having some of the same factual substratum. Huhtamaki Australia submitted that s 7(4) of the IA Act was directed to claims made by a party who was standing in the shoes of the party to the arbitration agreement and that, in the present case, it was not pleaded that there was any agency relationship between Huhtamaki Australia and Huhtamaki NZ, nor was there any parent-subsidiary relationship between the two corporations. Huhtamaki Australia submitted that its cause of action for damages was not a cause of action or part of a cause of action vested in Huhtamaki NZ and thus could not be correctly characterised as a derivative claim.
135 It is clear and, was not contested, that s 7 of the IA Act applied to the arbitration agreement between Flint Ink and Huhtamaki NZ because the procedure in relation to arbitration under that arbitration agreement was governed by the law of a Convention country.[87]
136 The key question is whether Huhtamaki Australia is a person 'claiming through or under' Huhtamaki NZ within the meaning of s 7(4) of the IA Act because, if so, the third party proceeding brought by Huhtamaki Australia will be treated as 'proceedings instituted by a party to an arbitration agreement...against another party to the agreement'.[88]
137 The leading authority, if not the only significant one, is the decision of the High Court in Tanning.[89] That case involved an appeal by a foreign company to the Supreme Court of New South Wales against the rejection by a liquidator of a proof of debt. The alleged debt was for the price of goods sold under an agreement between the foreign company and the company in liquidation that contained an arbitration clause. At first instance and in the New South Wales Court of Appeal consideration was given to a number of other issues but Kirby P (as he then was) decided the appeal by reference to s 7(4) of the IA Act.[90] Kirby P, after referring to the object of upholding arbitration agreements, said:
There is, moreover, in s 7(4) an indication that the legislature contemplated derivative claims...the liquidator here is claiming through or under the company which is party to the agreement. Accordingly, he is entitled by the express terms of s 7(4), so long as his claim be lawful and otherwise within his powers, to claim through the company of which he is a liquidator. His application is thus the application 'of a party to the agreement'.[91]
138 On appeal to the High Court, the appellant creditor contended that the liquidator was not claiming 'through or under' the company for a number of reasons. One reason was that the liquidator was not claiming anything, but was resisting a claim. The second reason was that the liquidator was an officer of the Court, exercising his powers as such, and not acting as a claimant or as the company's agent. The appellant further contended that the question of whether the debt should be admitted and in what amount was not a matter the determination was which was capable of settlement by arbitration.[92] In answer, the liquidator respondent submitted that the liquidator claimed through or under a party for the purposes of s 7(4) and that that provision was designed to apply to privies, that is third parties, whose rights or title in respect of property or contract were derived or claimed from or through the party and that in an appeal, the liquidator took up the company's position.
139 Brennan and Dawson JJ said that the liquidator was not the company and legal title to the assets of the company was not vested in him, nor was he a party to the arbitration agreement, but that s 7(4) of the IA Act brought within the ambit of s 7(2) a person who claimed 'through or under a party'.[93] Although a person who was not a party to the arbitration agreement was not bound by the contract to submit to arbitration, a person who claimed 'through or under a party' was so bound by the force of the statute.[94] Their Honour's said that in statutes similar to s 7 of the IA Act, the phrase 'through or under a party' or its equivalent had been construed to apply to inter alios a trustee of a bankrupt's estate, an assignee of a debt arising out of a contract containing an arbitration clause, a company being a subsidiary of a parent company which was party to an arbitration agreement and a company being a parent of a subsidiary company which was party to an arbitration agreement when claims were brought against both companies based on the same facts.[95]
In the first place, as sub-s. (2) speaks of both parties to an arbitration agreement, a person who claims through or under a party may be either a person seeking to enforce or a person seeking to resist the enforcement of an alleged contractual right. The subject of the claim may be either a cause of action or a ground of defence. Next, the prepositions "through" and "under" convey the notion of a derivative cause of action or ground of defence, that is to say, a cause of action or ground of defence derived from the party. In other words, an essential element of the cause of action or defence must be or must have been vested in or exercisable by the party before the person claiming through or under the party can rely on the cause of action or ground of defence. A liquidator may be a person claiming through or under a company because the causes of action or grounds of defence on which he relies are vested in or exercisable by the company; a trustee in bankruptcy may be such a person because the causes of action or grounds of defence on which he relies were vested in or exercisable by the bankrupt.[96]
141 Their Honour's continued by saying that a liquidator who rejected a proof of debt on general law grounds was standing in the same position vis a vis the creditor as did the company.[97] Further, the grounds raised by the liquidator fell under the arbitration clause and the question whether the company in liquidation owed the creditor an enforceable debt was clearly a 'matter' the determination of which was involved in the Supreme Court proceedings.[98]
Thirdly, the matter to be referred to arbitration cannot extend to issues which would not arise in proceedings between [the company] and [the creditor] or which are unrelated to the contract containing the arbitration clause...The ultimate question whether the liquidator's decision should be reversed or modified cannot itself be referred to arbitration though the answer to the question will follow inevitably upon determination of the matter of [the company's] debt to [the creditor].[99]
143 Toohey J, so far as relevant, agreed with Brennan and Dawson JJ.[100]
To ascertain whether s. 7(2) operates in respect of proceedings pending in a court it is necessary to first identify the subject matter of the controversy which falls for determination in those proceedings. Only when that has been done is it possible to identify whether the proceedings "involve the determination of a matter ... capable of settlement by arbitration": s. 7(2)(b). That process of identification is also necessary to ascertain whether, if a party to the proceedings is not a party to the arbitration agreement, he or she is a person "claiming through or under a party": s. 7(4).
It was contended on behalf of [the creditor] that the subject matter of the proof of debt proceedings was whether and, if so, in what amount the indebtedness of [the company] to it should be admitted in the winding up. That matter, it was argued, is not "a matter ... capable of settlement by arbitration". So much may be accepted as correct. Even so, it is clear from the proof of debt and the notice of rejection (and, as events have transpired, from the course which the proceedings have taken) that a decision as to the admission of any debt in the winding up depends entirely upon the determination of the amount, if any, owing and enforceable as a debt for goods sold and delivered by [the creditor] to [the company] pursuant to the licence agreement.
Even if some issue in addition to the amount of enforceable indebtedness must be determined before the proof of debt proceedings can be finally decided, that would not oust the operation of s. 7(2) of the Act. By requiring that the proceedings or so much of the proceedings as involves the determination of a matter capable of settlement by arbitration be stayed, s. 7(2) clearly contemplates that the proceedings may encompass issues additional to those constituting "a matter ... capable of settlement by arbitration"...
The word "matter" is not defined in the Act. In the quite different context of Ch. III of the Constitution, it has been held that the word "matter" means "the whole matter" and encompasses "all claims made within the scope of the controversy". However, in any context, "matter" is a word of wide import. In the context of s. 7(2), the expression "matter ... capable of settlement by arbitration" may, but does not necessarily, mean the whole matter in controversy in the court proceedings. So too, it may, but does not necessarily encompass all the claims within the scope of the controversy in the court proceedings. Even so, the expression "matter ... capable of settlement by arbitration" indicates something more than a mere issue which might fall for decision in the court proceedings or might fall for decision in arbitral proceedings if they were instituted. It requires that there be some subject matter, some right or liability in controversy which, if not co-extensive with the subject matter in controversy in the court proceedings, is at least susceptible of settlement as a discrete controversy. The words "capable of settlement by arbitration" indicate that the controversy must be one falling within the scope of the arbitration agreement and, perhaps, one relating to rights which are not required to be determined exclusively by the exercise of judicial power...
The substance of the controversy between [the creditor] and the liquidator is the amount, if any, enforceable as a debt for goods sold and delivered to [the company] under the licence agreement. That controversy is susceptible of settlement as a discrete controversy. And, when stated in those terms, the controversy is readily seen as one arising out of or relating to the licence agreement and thus encompassed within the agreement to arbitrate contained in cl. 10. Moreover, the controversy is as to a matter of a kind which is frequently the subject of arbitration proceedings and which could not be said to require determination only by the exercise of judicial power.[101]
145 Although the approach taken by Deane and Gaudron JJ differed from the approach taken by Brennan and Dawson JJ, I do not discern (despite submission by senior counsel for Huhtamaki Australia to the contrary) any difference of fundamental principle.
146 The question whether the claim by Huhtamaki Australia in the third party proceeding is a claim made 'through or under' Huhtamaki NZ must be determined by reference to the limited facts that are available together with the content of the amended statement of claim.
147 The uncontested evidence was that Flint Ink did not supply the ink products to Huhtamaki Australia and that Flint Ink had not dealt with Huhtamaki Australia. The following aspects of the amended statement of claim are, it seems to me, of relevance:
148 It is clear from the foregoing that any liability of Flint Ink to Huhtamaki Australia is almost entirely, if not entirely, dependent on the facts pleaded in relation to Huhtamaki NZ. Although it is pleaded that Flint Ink owed a duty of care to Huhtamaki Australia the pleading does not make it apparent as to how that duty of care arose other than by virtue of the fact that Huhtamaki Australia and Huhtamaki NZ were part of the same 'group' of companies. In those circumstances, it seems to me that Huhtamaki Australia's cause of action is a derivative one in the sense referred to in Tanning and that the claim of Huhtamaki Australia is being made 'through or under' Huhtamaki NZ. In those circumstances too, I consider that essential elements of the cause of action, having regard to the way the matter is pleaded, are 'vested in' Huhtamaki NZ in the sense referred to by Brennan and Dawson JJ in Tanning.
149 Alternatively, adopting the approach taken by Dean and Gaudron JJ, the subject matter of the controversy falling for determination in the third party proceeding is whether Flint Ink gave negligent advice as to suitable inks to Huhtamaki NZ, that advice was relied upon by Huhtamaki NZ and that, as a result, Flint Ink is liable for any foreseeable consequential loss and, hence, liable to provide indemnity or contribution to Huhtamaki Australia in respect of any liability of Huhtamaki Australia to Lion-Dairy. The determination of that matter, so far as the pleading discloses, depends almost entirely upon the factual situation as between Flint Ink and Huhtamaki NZ.[103] Therefore, it seems to me, taking that approach also, that the claim of Huhtamaki Australia is being made 'through or under' Huhtamaki NZ.
Outline of submissions in relation to ground 1
151 Huhtamaki Australia submitted that the third party proceeding did not involve the determination of a matter that, in pursuance of the arbitration agreement, was capable of settlement by arbitration.[104] In essence, Huhtamaki Australia contended that its claim involved an independent cause of action for indemnity or contribution which was not comprehended within the arbitration agreement and therefore not capable of settlement by arbitration. Huhtamaki Australia submitted that the decision of the Judge in that regard was correct.
152 In answer, Flint Ink submitted that once it was determined that the claim of Huhtamaki Australia was made 'through or under' Huhtamaki NZ, there was nothing about the subject matter of the controversy that rendered it incapable of settlement by arbitration pursuant to the arbitration agreement.
153 I would accept Flint Ink's submission. In my view, the appeal turns on the question whether Huhtamaki Australia's claim is made 'through or under' Huhtamaki NZ. I agree that, once that question is determined in favour of Flint Ink, the substantial matter involved in the third party proceeding is capable of settlement by arbitration pursuant to the arbitration agreement. I would add that I see no reason why, once the claim of Lion-Dairy against Huhtamaki Australia has been determined, an arbitrator would not be lawfully able, in pursuance of the arbitration agreement, to determine the liability of Flink Ink to Huhtamaki Australia including any questions of indemnity or contribution under Victorian law (assuming that to be the applicable law).
154 Huhtamaki Australia suggested that an arbitrator in New Zealand, or under New Zealand law, might consider that he had no power to determine the liability of Flint Ink to indemnify Huhtamaki Australia (or to make contribution) but I do not think that is so. Both Huhtamaki Australia and Flint Ink would be bound by a reference to arbitration by order of the Court and there would be no reason for an arbitrator to take such a point of his own motion.
155 I would therefore allow the appeal and in accordance with the proposed amended notice of appeal, stay the third party proceeding and refer the parties thereto to arbitration in respect of the matters the subject of the third party proceeding.
156 However, two further questions arise. The Court is empowered under s 7(2) of the IA Act to make such an order 'upon such conditions (if any) as it thinks fit.' In my opinion two conditions should be imposed (subject to any submissions by the parties). The first condition should, in my view, provide that the arbitration is not to commence unless and until this Court has determined the questions of liability and damages as between Lion-Dairy and Huhtamaki Australia. Otherwise, any arbitration would be premature - indeed the matter referred is entirely hypothetical unless and until it is determined whether, and if so, upon what basis, Huhtamaki Australia is liable in damages to Lion-Dairy. Without such a condition being satisfied, there can be no viable matter for referral to arbitration. The second condition should, in my view, provide that Flint Ink is entitled to participate in and is bound by the result of the proceeding in this Court involving the determination of liability and damages as between Lion-Dairy and Huhtamaki Australia. Without such a condition, inconsistent findings would be possible and a fundamental object of third party proceedings might be frustrated.
[1] Lion-Dairy & Drinks Pty Ltd (formerly National Foods Limited) v Huhtamaki Australia Pty Ltd & Anor [2013] VSC 555 ('Reasons').
[3] [1990] HCA 8; (1990) 169 CLR 332 ('Tanning').
[9] Recyclers of Australia Pty Ltd v Hettinga Equipment Inc [2000] FCA 547; (2000) 100 FCR 420 ('Hettinga').
[11] O'Brien v Tanning Research Laboratories Inc (1988) 14 NSWLR 601, 622 (Kirby P).
[16] [1990] HCA 8; (1990) 169 CLR 332, 341-342.
[17] [1910] 1 Ch 732, 738.
[19] [1984] 2 Ll R 259, 262.
[23] [1990] HCA 8; (1990) 169 CLR 332, 353.
[24] [1978] RPC 747 ('Roussel-Uclaf').
[28] Ibid, citing Mitsubishi Motors Corp v Soler Chrysler-Plymouth Inc [1985] USSC 203; 473 US 614, 622 FN9 (1985).
[30] [1986] 1 NZLR 720 ('Mount Cook').
[31] In relevant respects, the same as s 7 of the IA Act.
[33] [1990] HCA 8; (1990) 169 CLR 332, 342 (emphasis added).
[36] Hansard, Wednesday 2 October 1974 (emphasis added).
[37] Flemming v The Queen [1998] HCA 68; (1998) 197 CLR 250, 256 [12]; Baini v The Queen [2012] HCA 59; (2012) 246 CLR 469, 476 [14].
[38] [1990] HCA 8; (1990) 169 CLR 332, 351 (citations omitted).
[41] [2000] FCA 547; (2000) 100 FCR 420, 434 [65].
[43] [1990] HCA 8; (1990) 169 CLR 332, 352.
[44] [2011] HCA 48; (2011) 244 CLR 427 ('Michael Wilson & Partners').
[46] Since they were not parties to the arbitration.
[47] [2013] NSWCA 37; (2013) 83 NSWLR 80, 120-1 [191]-[195].
[48] [2008] WASCA 110, [33]-[47] ('Paharpur').
[49] (1991) 22 NSWLR 466, 488 ('IBM Australia').
[50] (2006) 157 FCR 107, 105 [235]-[237].
[51] Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958, done at New York on 10 June 1958 ('the New York Convention').
[53] [2000] FCA 547; (2000) 100 FCR 420, [18]-[20].
[54] [2008] FCA 29; (2008) 246 ALR 589, [16].
[55] [2010] 1 Lloyd's Rep 265, [16], [21] and [25].
[57] [1910] 1 Ch 732, 739.
[59] (Unreported, 14 August 2002), [48].
[60] [2000] FCA 547; (2000) 100 FCR 420, 435 [69].
[62] Reasons [2013] VSC 555.
[63] Casaceli v Natuzzi S.p.A [2012] FCA 691, [34].
[64] Casaceli v Natuzzi S.p.A [2012] FCA 691, [35].
[65] Tanning Research Laboratories Inc v O'Brien [1990] HCA 8; (1990) 169 CLR 332, 351.
[66] Tanning Research Laboratories Inc v O'Brien [1990] HCA 8; (1990) 169 CLR 332, 351-352.
[67] Casaceli v Natuzzi S.p.A [2012] FCA 691, [36].
[68] Recyclers of Australia Pty Ltd v Hettinga Equipment Inc [2000] FCA 547; (2000) 100 FCR 420.
[69] Recyclers of Australia Pty Ltd v Hettinga Equipment Inc [2000] FCA 547; (2000) 100 FCR 420, [18]-[20].
[70] BHPB Freight Pty Ltd v Cosco Oceania Chartering Pty Ltd [2008] FCA 551; (2008) 168 FCR 169.
[71] Tanning Research Laboratories Inc v O'Brien [1990] HCA 8; (1990) 169 CLR 332; Mangion v James Hardie & Co Pty Ltd (1990) 20 NSWLR 100; Mount Cook (Northland) Ltd v Swedish Motors Ltd [1986] 1 NZLR 720, 725; Alto Constructions Pty Ltd v University of New South Wales (unreported, Supreme Court of NSW, Young J, 15 December 1995), 13; Mulgrave Central Mill Co Ltd v Hagglunds Drives Pty Ltd [2001] QCA 471; [2002] 2 Qd R 514, 530; McHutchison v Western Research and Development Ltd [2004] FCA 419, [15].
[72] BHPB Freight Pty Ltd v Cosco Oceania Chartering Pty Ltd [2008] FCA 551; (2008) 168 FCR 169, [15
[73] Tanning Research Laboratories Inc v O'Brien [1990] HCA 8; (1990) 169 CLR 332, 342.
[74] Tanning Research Laboratories Inc v O'Brien [1990] HCA 8; (1990) 169 CLR 332.
[75] Tanning Research Laboratories Inc v O'Brien [1990] HCA 8; (1990) 169 CLR 332, 341-342.
[76] Tanning Research Laboratories Inc v O'Brien [1990] HCA 8; (1990) 169 CLR 332, 342.
[77] AED Oil Ltd v Puffin FPSO Ltd (No 2) [2009] VSC 534, [73], and upheld on appeal: AED Oil Ltd v Puffin FPSO Ltd (No 2) [2010] VSCA 37; (2010) 27 VR 22, [38]-[39]
[78] BHPB Freight Pty Ltd v Cosco Oceania Chartering Pty Ltd [2008] FCA 551; (2008) 168 FCR 169, [23]-[26].
[79] BHPB Freight Pty Ltd v Cosco Oceania Chartering Pty Ltd [2008] FCA 551; (2008) 168 FCR 169, [27].
[80] Tanning Research Laboratories Inc v O'Brien [1990] HCA 8; (1990) 169 CLR 332, 351.
[81] IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466, 487 (Citations omitted).
[82] Francis Travel v Virgin Atlantic Airways (1996) 39 NSWLR 160, 166.
[83] Francis Travel v Virgin Atlantic Airways (1996) 39 NSWLR 160, 166.
[84] Reasons [2013] VSC 555 [24]-[78].
[90] O'Brien v Tanning Research Laboratories Inc (1988) 14 NSWLR 601. McHugh JA (as he then was) agreed with Kirby P, after withdrawing his own orders; see 641.
[92] Compare ground 1 in the present appeal.
[93] See Tanning [1990] HCA 8; (1990) 169 CLR 332, 341.
[101] Ibid 350-52 (citations omitted).
[102] The amended statement of claim says that further particulars will be provided after discovery but nothing in the particulars as supplied refers to Huhtamaki Australia.
[103] Compare Roussel-Uclaf [1978] 1 Ll.L.Rep 225, 231.
Flint Ink NZ Ltd
Huhtamaki Aust Pty Ltd L & Anor [2014] VSCA 166
(1990) 169 CLR 332
(1999) 167 ALR 358
(1988) 14 NSWLR 601
(1979) 2 NSWLR 243
(2013) 83 NSWLR 80
(1991) 22 NSWLR 466
(2008) 246 ALR 589
(2008) 168 FCR 169
(1990) 20 NSWLR 100
(2010) 27 VR 22
(1996) 39 NSWLR 160
(1983) 152 CLR 570
(2000) 100 FCR 420
(1998) 197 CLR 250
(2012) 246 CLR 469
(2011) 244 CLR 427
(2006) 157 FCR 107