In the matter of Infinite Plus Pty Ltd [2017] NSWSC 470

Judgment

1. GLEESON JA: Application is made by the first defendant (Ms Qian) for a stay of this proceeding brought by the plaintiffs, Mr Zhao and La Kaffa International Co Ltd, a company incorporated in Taiwan (La Kaffa (Taiwan)) claiming relief for oppression. The second defendant, Infinite Plus Pty Ltd (Infinite Plus or the company) has not appeared in the proceeding.
2. Ms Qian primarily relies upon s 7(2) of the International Arbitration Act 1974 (Cth) (IAA) and Art 8(1) of the UNCITRAL Model Law on International Commercial Arbitration (Model Law), which is Sch 2 to the IAA. The Model Law is picked up and applied as Commonwealth law, subject to the provisions of Dvn 2, Pt III of the IAA, by s 16 of the IAA.
3. The grounds of the application are that Ms Qian and Mr Zhao are parties to a shareholders purchase agreement (the shareholders agreement) that contains an arbitration agreement and accordingly Mr Zhao cannot continue an oppression claim under s 233 of the Corporations Act 2001 (Cth) or otherwise dispute in this proceeding the validity of an Expulsion Notice given by Ms Qian under the shareholders agreement, because those "matters" fall within the arbitration agreement. As against the La Kaffa (Taiwan), Ms Qian asks that the court, in the exercise of its power under s 67 of the Civil Procedure Act 2005 (NSW) or its inherent power to control its own process, stay the claims by La Kaffa (Taiwan) pending the outcome of the arbitration between Ms Qian and Mr Zhao.

Background

1. The parties to the shareholders agreement, which is variously dated 20 June 2011 and 30 June 2011, are Chen Zhao (known as Charlley Zhao), Yang Yang Qian (known as Iris Qian), La Kaffa International Co Ltd, a company incorporated in the Cayman Islands (La Kaffa (Cayman)) and Infinite Plus.
2. Infinite Plus has since April 2009 operated as a franchisor - recruiting, selling, supporting and supplying franchisees operating under the name "ChaTime", suppling tea based cold beverages, as well as operating some stores in its own right.
3. It is common ground that up until 30 June 2011, the 495,106 ordinary shares in Infinite Plus were by Mr Zhao as to 23 percent, Ms Qian as to 22 percent and La Kaffa (Cayman) as to 55 percent.
4. The plaintiffs contend that La Kaffa (Cayman) transferred its shares in Infinite Plus to the second plaintiff, La Kaffa (Taiwan) by a document styled "shareholders purchase agreement", dated 1 July 2011. Mr Zhao gave affidavit evidence that La Kaffa (Taiwan) now holds 55 percent of the shares in the company; however, the register of members of the company was not put into evidence. There is a question as to whether the terms of the 1 July 2011 agreement effectuated any transfer of shares from La Kaffa (Cayman) to La Kaffa (Taiwan). The agreement seems to have been prepared by a non-lawyer using parts of the earlier shareholders agreement referred to at [4] above, however it does not contain any operative provisions dealing with the transfer of the shares held by La Kaffa (Cayman). Rather, it seems to assume such a transfer has taken place in some unidentified manner.

Relevant terms of the Shareholders Agreement

1. The shareholders agreement set out the objectives of the shareholders and provides that each shareholder must be just and faithful and provide full information to each other in relation to the affairs and activities of the Business (cl 2.3). "Business" is defined as the operation of retail businesses and a franchise operation associated with the sale of Asian-styled teas under the "ChaTime" brand name (cl 1.1(b)). Clause 3 deals with the appointment of the directors. Each of Mr Zhao and Ms Qian may nominate one director and La Kaffa (Cayman) may nominate up to three directors (cl 3.1). Clause 4 deals with procedures for board meetings and certain operational restrictions which require the unanimous approval of shareholders before any board decision was implemented.
2. Clause 9 deals with certain restrictions on the transfer of shares without the prior written consent of the other shareholders in the company. Relevantly, subject to compliance with the requirement that the shares be first offered to the existing shareholders, shares may be transferred to a third party provided that the transferee has entered into a deed whereby the assignee agrees to assume all of the obligations on the part of the outgoing shareholder under the shareholders agreement and under the Constitution of the company: cl 9.2(d)(v). There is no evidence of La Kaffa (Taiwan) having entered into such a deed with the company or Ms Qian.
3. Clause 10 provides a buy-out procedure following breach of the shareholders agreement. Clause 13 provides a dispute resolution mechanism. Clause 19 deals with choice of jurisdiction.
4. It is necessary to refer in more detail to the terms of cls 10, 13 and 19.
5. Clause 10 is headed "Buy-Out Following Breach" and relevantly is in the following terms: 10.1 Grounds For Issuing An Expulsion Notice Any one or more of the Shareholders (the "Non Breach Shareholders") may serve on another Shareholder (the "Breach Shareholder") a written notice ("an Expulsion Notice") identifying the notice as an Expulsion Notice and specifying the ground or grounds on which it is served in the event that, after the date of this Deed, any one or more of the following events occur in respect of the Breach Shareholder: (a) If the Breach Shareholder has breached the provisions of this Deed; … 10.2 Requirements For An Expulsion Notice An Expulsion Notice served in accordance with this Clause shall: (a) specify the ground or grounds on which it is served; (b) advise the Breach Shareholder the estimated value of Breach Shareholders interest in the Company. 10.3 Rectification of Breach In Certain Circumstances (a) Where an Expulsion Notice has been issued in reliance upon matters identified in Clause 10.1 (a) and/or 10.1 (d), the Breach Shareholder shall have thirty (30) days to rectify that breach (if it is capable of rectification). (b) Where the Breach Shareholder attempts to rectify the breach, the Non Breach Shareholders are to act reasonably in assessing whether there has been rectification of the breach. (c) If the Non Breach Shareholders accept that appropriate rectification activities have been undertaken, the Expulsion Notice is deemed withdrawn. (d) If the Non Breach Shareholders do not accept that appropriate rectification activities have been undertaken they must advise the Breach Shareholder within seven (7) days of this determination. Upon receipt of such notification, the Breach Shareholder may elect to have the matter referred to dispute resolution in accordance with Clause 13 of this Deed. If the Breach Shareholder so elects, they must do so within seven (7) days of receipt of the Non Breach Shareholders' determination. The Expulsion Notice remains valid but is held in abeyance pending the conclusion of the dispute resolution process.
6. Clause 10.4 provides for a valuation process by an accountant acting as an expert, not as an arbitrator, if the shareholder on whom an Expulsion Notice is served disagrees with the value attributed to its interest in the company and seeks to have such interest valued by a third party.
7. Clause 10.5 deals with the consequence of the service of an Expulsion Notice in the following terms: 10.5 Consequence of Service of Expulsion Notice Unless otherwise withdrawn or set aside (in accordance with Clause 10.3), where an Expulsion Notice is served, the following shall take place: (a) Payment for Shares: the Non Breach Shareholders must pay the Breach Shareholder the price of the shares (as per the value expressed in the Expulsion Notice or as agreed in accordance with Clause 10.4) within either: (i) in relation to expulsion events in Clause 10.1 (b) and/or 10.1 (c), within 30 days of serving the Expulsion Notice; or (ii) in relation to expulsion events in Clause 10.1 (a) and/or 10.1 (d), within 30 days of serving the Expulsion Notice or thirty (30) days of the conclusion of the dispute resolution process (as per Clause 10.3 (d)) whichever be the latter. (b) Transfer of Shares: the Breach Shareholder must simultaneously assign all of their right, title and interest in the Company to the Non Breach Shareholder (in equal shares) and for that purpose must do all things including executing an instrument of transfer in a form satisfactory to the Non Breach Shareholder. (c) Resignation: the Breach Shareholder must (unless otherwise agreed) cease taking any further part in the management or otherwise in respect of the Company's affairs including where relevant resigning as an employee and/or director of the Company. (d) Compensation: the Breach Shareholder shall compensate the NON Breach Shareholder all losses resulting from the grounds for Issuing An Expulsion Notice listed Clause 10.1.
8. Clause 13 is headed "Dispute Resolution" and provides: 13. DISPUTE RESOLUTION Any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or invalidity thereof, shall be settled by arbitration in accordance with the arbitration rules of the United Nations Commission on International Trade law then in force. The appointing authority shall be Hong Kong International Arbitration Centre (HKIAC). There shall be one arbitrator appointed by the HKIAC. The language of the arbitration shall be English. The award of such arbitrator shall be delivered to the parties herein in writing and shall be final and binding on the parties. Each of the parties to this Agreement hereby waives any right of appeal against the arbitration award.
9. Clause 19 is headed "Jurisdiction" and provides: In any dispute arising from or related to this Deed, the parties mutually consent to jurisdiction and venue in the court located at Hong Kong International Arbitration Centre (HKIAC).

Background of the oppression proceedings

1. The directors of the company are Ms Qian, Mr Zhao and three other persons who, according to an ASIC search, reside in Taiwan. Ms Qian's precise management role in the company is a matter in dispute. In her affidavit Ms Qian said that she has been actively involved in the management and day-to-day operations of the company, both in her capacity as a director and her position as "Head of Franchise".
2. Mr Zhao said in his affidavit that he has acted as managing director of the company with the consent and agreement and/or acquiescence of Ms Qian and La Kaffa (Taiwan), and that Ms Qian's role had been that of franchise management up until about July 2015, when family commitments prevented her fulfilling that role. (Ms Qian went on maternity leave in August 2015). Mr Zhao said that Ms Qian remained in franchise management, but with the assistance of a new general manager and franchise manager.
3. Ms Qian returned to work in January 2016. On 23 February 2016, Ms Qian complained in an email to the other directors and shareholders of a number of matters, which she viewed as marginalisation. Subsequently, Ms Qian's solicitors sent letters to the company raising concerns about the conduct of Mr Zhao and the company on 21 March 2016 and 25 April 2016. Specifically, Ms Qian complained that she had been excluded from the management of the company and that Mr Zhao had improperly used his position as a director of the company.
4. On 25 August 2016, Ms Qian issued an Expulsion Notice to Mr Zhao under cl 10 of the shareholders' agreement. That clause, the terms of which are set out above, provided for a buy-out procedure where one shareholder was in breach of the terms of the shareholders agreement. The Expulsion Notice set out alleged breaches by Mr Zhao of the shareholders agreement and specified the estimated value of Mr Zhao's interest in the company to be $1,500,000.
5. Mr Zhao's solicitors responded by letter dated 19 September 2016 asserting that the Expulsion Notice was invalid and disputing the alleged breaches of the shareholders agreement. In turn, Ms Qian's solicitors replied by a letter dated 30 September 2016 denying that the Expulsion Notice was invalid and giving further particulars of Mr Zhao's alleged breaches of the shareholders agreement.
6. On 7 October 2016, Mr Zhao commenced proceedings against Ms Qian and the company by filing a statement of claim which made allegations of oppression against Ms Qian and claimed relief under s 233 of the Corporations Act. That step was irregular. An application for relief under the Corporations Act should have been commenced by filing an originating process: Supreme Court (Corporations) Rules 1999 (NSW), r 2.2(1)(a).
7. In his statement of claim Mr Zhao pleaded that: 1. at no time since 30 June 2011 has he breached the shareholders agreement by action or inaction or negligence, nor has he induced any other person to do so (par 27); 2. he regarded the expulsion notice as invalid (par 29); 3. he had addressed the complaints of Ms Qian where possible, and sought particulars of the alleged breaches which were vague, imprecise and did not permit him an opportunity to rectify the same should any actual breach lie behind the Expulsion Notice (par 30); 4. the further particulars provided by Ms Qian by letter dated 30 September 2016 did not allow Mr Zhao to properly understand, with any degree of precision, the nature of the alleged breaches and how, if appropriate, he might rectify them (par 31); 5. at no time in the course of the dispute has La Kaffa (Taiwan) had any input into any of these matters (par 32); 6. the interests of Infinite Plus are best served by Mr Zhao retaining his shares in the company and continuing his involvement as managing director (par 33); 7. although not a party to the shareholders agreement, La Kaffa (Taiwan) has not had any part in assessing whether or not Mr Zhao is, or was, in breach of any provision of the shareholders agreement and/or has rectified any relevant breach (par 34); 8. as a consequence, Ms Qian's conduct in acting in the manner referred to above (whether with or without justification) amounts to conduct that is contrary to the interest of the members of the company as a whole, or oppressive to, or unfairly prejudicial to, or unfairly discriminatory against, Mr Zhao and La Kaffa (Taiwan) in their capacity as shareholders, or any other capacity within the meaning of s 232 of the Corporations Act (par 35). The particulars of this allegation include that insofar as the Expulsion Notice lacks a proper basis or is otherwise too vague or imprecise to permit Mr Zhao to properly understand the nature of the allegations made against him and/or to rectify the same, the service of such notice and Ms Qian's reliance upon it, exposes Mr Zhao to forfeiture of the shares in the company, as well as threatening his continuation in the management and affairs thereof. 9. alternatively, if La Kaffa (Taiwan) is a party to the shareholders agreement, the Expulsion Notice was issued, and the subsequent actions of Ms Qian were taken, in breach of various clauses of that agreement such that her actions denied La Kaffa (Taiwan) the opportunity to have any input into the processes which Ms Qian has undertaken unilaterally (par 36).
8. On 10 October 2016 Mr Zhao filed an originating process. Under the heading "Interlocutory Orders sought", Mr Zhao sought an order "that the arbitration process, established by the shareholders agreement dated 30 June 2011, and in which process the plaintiff and the first defendant are currently engaged, be stayed until the determination of these proceedings."
9. The final relief sought by Mr Zhao under s 233 is variously expressed as follows: 1. that Mr Zhao purchase Ms Qian's shares in the company at a price determined by the Court; 2. that Infinite Plus purchase Ms Qian's shares in the company at a price determined by the Court, with an appropriate reduction of share capital; 3. that Ms Qian be removed as a director of the company and/or that an order be made directing her to resign from all offices and positions held by her; 4. that Ms Qian be restrained from relying upon the Expulsion Notice by reason of its invalidity or otherwise; and 5. that "the arbitration process, established by the Shareholders' Agreement dated 30 June 2011, and in which process [Mr Zhao] and [Ms Qian] are currently engaged, be permanently stayed".
10. In his supporting affidavit sworn 17 October 2016, Mr Zhao repeated the allegations in his statement of claim.
11. On 21 November 2016, Mr Zhao filed an amended originating process joining La Kaffa (Taiwan) as second plaintiff, and claiming a declaration that the Expulsion Notice is invalid. Otherwise the plaintiffs seek relief in the same terms as sought in the originating process, referred to at [25] above, except that order (a) has been amended to include reference to either Mr Zhao or La Kaffa (Taiwan) purchasing Ms Qian's shares in the company at a price determined by the Court.
12. It should be observed that if La Kaffa (Taiwan) is not a member of the company, it lacks standing to apply for an order under s 233: see Corporations Act, s 234(a) and Treadtel International Pty Ltd v Cocco [2016] NSWCA 360. Although this issue was referred to in passing in argument, the parties did not seek a determination on the present application of La Kaffa (Taiwan)'s standing under s 234 to claim relief under s 233.
13. On 15 December 2016, Ms Qian issued a notice of arbitration under cl 13 of the shareholders agreement and Art 3 of the United Nations Commission on International Trade Law Arbitration Rules. She proposed that Mr Bailey SC be appointed as sole arbitrator and that the seat of arbitration be Sydney, Australia. The notice of arbitration identified the "Dispute" the subject of the referral as the issue of the Expulsion Notice by Ms Qian to Mr Zhao, the numerous breaches of the shareholders agreement by Mr Zhao detailed in the Expulsion Notice and Mr Zhao's subsequent denial of those breaches (Recital C).
14. By interlocutory process filed on 19 December 2016 Ms Qian seeks the following relief: 1. the proceedings be permanently stayed and the parties referred to arbitration pursuant to Article 8 of the UNCITRAL Model Law on International Commercial Arbitration. 2. in the alternative to order 1, the proceedings be stayed until final determination of the arbitral proceeding commenced by the first defendant against the first plaintiff pursuant to clause 13 of the Shareholders Purchase Agreement made between them on 30 June 2011, or until further order.

Relevant legislative provisions

1. Section 7 of the IAA deals with the enforcement of foreign arbitration agreements. Section 7(1) provides: 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. It is common ground that s 7 is engaged because La Kaffa (Cayman), being a party to the shareholders agreement, is registered in the Cayman Islands and therefore is domiciled in or is an ordinary resident of the Cayman Islands, which is a Convention country: s 7(1)(d). (It is not in dispute that the United Kingdom acceded to the New York Convention on 24 September 1974 and extended its accession to cover the Cayman Islands on 26 November 1980 with the reservation that the Convention is to apply to the recognition and enforcement of awards made in the territory of another Contracting State).
3. Counsel for the plaintiffs also accepted that s 7 is engaged because the procedure in relation to the arbitration under cl 13 is governed by the law of Hong Kong, being the jurisdiction in which the Hong Kong International Arbitration Centre is based, and Hong Kong is a Convention country: s 7(1)(b). (Again, it is not in dispute that China acceded to the New York Convention on 22 January 1987 and extended its accession to cover Hong Kong on 1 July 1997 when it resumed sovereignty of Hong Kong from the United Kingdom).
4. Section 7(2) of the IAA provides: (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.
5. The term "court" is defined in s 3(1) of the IAA to mean any court in Australia, and includes, relevantly, a court of a State. Hence the Court must stay the whole or part of this proceeding if it involves a matter (or matters) that are capable of being determined by arbitration under the relevant arbitration agreement. That question requires identification of the "matter" or matters the subject of the proceeding, and consideration of whether that matter or matters falls within the scope of the arbitration agreement.
6. In addition Ms Qian relies upon Art 8 of the Model Law which provides: A Court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.
7. Ms Qian correctly submitted that the power given to the Court by Art 8 is separate and independent from the power given by s 7(2) of the IAA: WDR Delaware Corporation v Hydrox Holdings Pty Ltd [2016] FCA 1164 at [28] (Foster J).
8. As indicated, Ms Qian also relies upon s 67 of the Civil Procedure Act 2005 (NSW) which provides that "[s]ubject to rules of court, the court may at any time and from time to time, by order, stay any proceedings before it, either permanently or until a specified day."

Submissions

1. Ms Qian submitted that the oppression proceeding concerns the validity of the Expulsion Notice which was issued under the terms of the shareholders agreement and the alleged breaches of the shareholders agreement by Mr Zhao. The matters raised in the proceeding are said to concern a "dispute, controversy or claim arising out of or relating to" the shareholders agreement and/or are concerned with a "breach" of the shareholders agreement within cl 13. Accordingly, it was submitted, that the subject matter of the proceeding, as between Ms Qian and Mr Zhao, must be arbitrated in accordance with cl 13 of the shareholders agreement.
2. In opposing a stay, counsel for the plaintiffs relied upon four arguments. First, that Ms Qian's notice of arbitration is invalid.
3. Second, that as a result of that alleged failure by Ms Qian to comply with the terms of the buy-out procedure under cl 10.5 of the shareholders agreement, Ms Qian lost her right to act upon the Expulsion Notice and the notice has, in effect, become stale.
4. Third, that the dispute the subject of the oppression proceedings brought by the plaintiffs is not a dispute or claim within the ambit of the arbitration agreement in cl 13.
5. Fourth, there are no circumstances which could warrant a stay of the claims brought by La Kaffa (Taiwan) given it is not a party to the shareholders agreement and is not bound by the terms of that agreement.

Alleged invalid notice of arbitration

1. The plaintiffs' submitted that the notice of arbitration is invalid because it recorded in recital F that Ms Qian "intends to exercise her rights under clause 10.5 of the [shareholders agreement] and have the Dispute referred to arbitration in accordance with the Arbitration Agreement to do so."
2. The plaintiffs emphasised that cl 10.5 does not confer a right on anyone to have the matter referred to arbitration. Accordingly, the plaintiffs submitted, there is no dispute under the shareholders agreement that is currently subject, or one which might be subject, to an arbitration process. I reject this submission. It involves a mischaracterisation of the recitals in the notice of arbitration.
3. As indicated, the "Dispute" identified in recital C of the notice of arbitration is the issue of the Expulsion Notice, the numerous breaches of the shareholders agreement by Mr Zhao as detailed in the Expulsion Notice and Mr Zhao's subsequent denial of those breaches. Recital D recorded that on or about 30 September 2016 Ms Qian notified Mr Zhao, among other things, that unless he elected to have the "Dispute" referred to dispute resolution in accordance with cl 13 of the shareholders agreement, Ms Qian intended to exercise her rights under cl 10.5 of the shareholders agreement. Recital E recorded that Mr Zhao had not elected to have the Dispute referred to dispute resolution. The terms of a recital F are referred to at [44] above.
4. On a fair reading of the recitals to the notice of arbitration, in particular recital F, Ms Qian did not purport to refer the identified "Dispute" to arbitration under cl 10.5. Ms Qian referred the "Dispute" to arbitration in accordance with cl 13; the reference in recital F to the referral to arbitration being in accordance with the "Arbitration Agreement" is a reference to the arbitration agreement in cl 13. This follows from the use of the expression "Arbitration Agreement" in recital C as the shorthand reference to cl 13. Read in context, the reference to cl 10.5 in recital F is simply a reference to Ms Qian's rights to acquire the shares of the alleged Breach Shareholder, namely, Mr Zhao.

Is the Expulsion Notice "stale"?

1. The plaintiffs submitted that while there was a dispute at one stage that fell within the ambit of cl 13, as a result of the inaction of the parties and their conduct, that dispute has now effectively fallen away. This followed, the plaintiffs submitted, from the fact that Ms Qian did not tender the purchase price nominated in the Expulsion Notice of $1,500,000 on or before 25 September 2016, or at all. Reference was made to cls 10.3 and 10.5 of the shareholders agreement. The submission continued that as a result of the alleged failure to comply with the terms of the shareholder agreement, Ms Qian had lost her right to act upon the Expulsion Notice and the notice has, in effect, become stale. I reject this submission. It involves a misconstruction of cl 10.3 and ignores the relationship of dependency between the parties' respective obligations under cl 10.5.
2. First, as to cl 10.3, the Non-Breach Shareholder's obligation to advise the Breach Shareholder if it does not accept that appropriate rectification activities have been undertaken, arises within seven days of "this determination" under cl 10.3(d). That is, the period specified in cl 10.3(d) for the giving of notice of such determination to the Breach Shareholder runs from the time of the "determination" by the Non-Breach Shareholder, not from the expiry of the 30 days rectification period referred to in cl 10.3(a). Accordingly the Expulsion Notice did not lapse because Ms Qian did not give notice to Mr Zhao until 30 September 2016 of her determination that she did not accept that appropriate rectification activities had been undertaken by him.
3. Second, as to cl 10.5, the Non-Breach Shareholder's obligation under cl 10.5(a) to pay the Breach Shareholder the price of the shares nominated in the Expulsion Notice is dependent on the obligation of the Breach Shareholder being ready, willing and able to assign their right, title and interest in the relevant shares to the Non-Breach Shareholder. That is made clear by the language of cl 10.5(b), when read together with cl 10.5(a). Clause 10.5(b) requires that the Breach Shareholder must "simultaneously" assign all of their right, title and interest in the shares to the Non-Breach Shareholder. The two provisions expressly contemplate that the transfer of shares will occur simultaneously upon payment of the nominated purchase price in the Expulsion Notice.

The ambit of cl 13

1. The plaintiffs submitted that since the dispute concerning the Expulsion Notice has, in effect, ceased to exist, the claims the subject of the oppression proceeding brought by the plaintiffs are not a dispute within the ambit of the arbitration agreement in cl 13. I reject this submission. For the reasons given above, the "Dispute" referred to in the notice of arbitration has not ceased to exist.
2. Next, the plaintiffs submitted that the claim the subject of the oppression proceeding is not a dispute or claim "arising out of or relating to this Agreement, or the breach … thereof". This raises the proper construction of the arbitration agreement in cl 13 and the identification of the "matter" or matters raised by the proceeding.
3. In Rinehart v Welker [2012] NSWCA 95 at [117] - [122], the Court of Appeal (Bathurst CJ, McColl and Young JJA agreeing) considered the correct approach to the construction of arbitration clauses generally. It is sufficient to refer to the passages at [117] - [120]: [117] It has frequently been stated that arbitration clauses should not be construed narrowly. In Francis Travel supra, Gleeson CJ made the following remarks (at 165): "When the parties to a commercial contract agree, at the time of making the contract, and before any disputes have yet arisen, to refer to arbitration any dispute or difference arising out of the agreement, their agreement should not be construed narrowly. They are unlikely to have intended that different disputes should be resolved before different tribunals, or that the appropriate tribunal should be determined by fine shades of difference in the legal character of individual issues, or by the ingenuity of lawyers in developing points of argument." [118] Similar remarks were made by Allsop J (as his Honour then was) in Comandate Marine Corp supra at [164], Finn and Finkelstein JJ agreeing: "[164]Relevant to the above process, as part of the surrounding circumstances, is the fact that this is a standard form international contract, often used in the commercial time chartering of working ships. The parties did not refer us to any authorities on the scope of clause 45. That is not to say, however, that that international context does not remain relevant. Regard should be had in construing clause 45 to the clear tenor of approach internationally in construing arbitration clauses in international agreements. The authorities (to which I will refer shortly) are clear that a liberal approach should be taken. That is not to say that all clauses are the same or that the language used is not determinative. The court should, however, construe the contract giving meaning to the words chosen by the parties and giving liberal width and flexibility to elastic and general words of the contractual submission to arbitration." [119] See also Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Ltd [2005] FCA 1102 at [41]-[42]; Global Partners Fund Ltd supra at [60]-[65] per Spigelman CJ, Giles and Tobias JJA agreeing; Lipman Pty Limited supra at [6]-[8]. [120] That is not to say that the words of the clause can be given a meaning they do not have to satisfy a perceived commercial purpose. Such an approach would be inconsistent with the approach to construction of contracts to which I have referred above. As stated by French J in Paper Products supra at 444 the scope of disputes covered by an arbitration clause must depend on the language of the clause. Similar statements were made by Allsop P whilst a judge of the Federal Court, in Walter Rau supra at [41] and Comandate Marine Corp supra at [164] and in this Court in Lipman Pty Limited supra at [6]-[8]. Rather, the words of an arbitration clause should be, to the extent possible, consistent with the ordinary meaning of the words, liberally construed.
4. In Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160, Gleeson CJ observed at 165 that the expression "arising out of" has usually been given a wide meaning in the cases dealing with the meaning and effect of various common arbitration clauses. In that case, claims that the purported termination of an agency agreement was wrongful by reason of what had been represented during the course of the agreement, and that such termination was either ineffective or gave rise to an entitlement to damages or compensation was held to be a dispute arising out of the agency agreement.
5. In Rinehart v Welker, the Chief Justice made the following observations at [123]-[125] concerning to the width of the words used in the arbitration clause in that case: [123] So far as the clause in question is concerned the phrase "under this deed" has consistently been given a narrower construction than phrases such as "arising out of the deed" or "in connection with the deed". In Samick Lines Co Ltd v Owners of the Antonis P Lemos [1985] AC 711, Lord Brandon, with whom the other of their Lordships agreed, made the point in the following fashion (at 727): "I would readily accept that in certain contexts the expression 'arising out of' may, on the ordinary and natural meaning of the words used, be the equivalent of the expression 'arising under' and not that of the wider expression 'connected with'. In my view however, the expression 'arising out of' is, on the ordinary and natural meaning of the words used, capable, in other contexts, of being equivalent of the wider expression 'connected with'. Whether the expression 'arising out of' has the narrower or the wider meaning in any particular case must depend on the context in which it is used." [124] In Paper Products supra, French J considered the meaning of the phrase "any dispute between the parties hereto arising under this agreement". His Honour made the following comments (at 448): "Case citations and examples could be multiplied but there is little point. When the language of the arbitration clause in question is sufficiently elastic, then the more liberal approach of the courts to which Kirby P and others have referred can have some purchase. A wide construction of such clauses can be supported on the basis advanced by Clarke JA that it is unlikely to have been the intention of the parties to artificially divide their disputes into contractual matters which could be dealt with by an arbitrator and non-contractual matters which would fall to be dealt with in the courts. When, as here, the parties have agreed upon a restricted form of words which in their terms, and as construed in the courts, limit the reference to matters arising ex contractu, there is little room for movement. I am satisfied that neither the trade practices claim, nor the claims for breach of warranty and negligent misstatement can be said to arise out of the agreement. They all arise out of matters which are antecedent to the contract even though they may involve questions which also go to its performance. No authority has been cited to me which would support the wide construction of the clause contended for by Tomlinsons and certainly the natural meaning of the words does not support their extension to disputes arising out of matters antecedent to the agreement. I come to this conclusion with some regret because I have no doubt, having regard to the various provisions of the agreement which have been set out, that much of the evidence in this case would go to the actual performance of the machines and would be evidence of the kind that one would expect to hear in an action for breach of contract. It may be that the resort to the Trade Practices Act, negligent misstatement and breach of collateral warranty is made necessary because of the limiting provisions of the agreement. It is of course possible that the parties may consent to have their dispute referred to arbitration. However, there is nothing in the language of the agreement which would justify an order for the stay of these proceedings. In the circumstances, the motion will be dismissed." [125] In BTR Engineering (Australia) Ltd v Dana Corporation [2000] VSC 246, Warren J (as her Honour then was) interpreted the word "under" to mean "governed, controlled or bound by; in accordance with", at [27]. A similar construction was given to the word by Hargrave J in TCL Airconditioner (Zhongshan) Co Ltd v Castel Electronics Pty Limited [2009] VSC 553 at [34], his Honour describing himself as "adopting a broad meaning".
6. In John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 Hammerschlag J remarked at [69] in relation to the words "arising out of": The courts have repeatedly held that words such as "arising out of", "arising under", "in connection with" or "connected with" have a wide ambit and that when commercial parties choose a forum for the resolution of disputes which may arise between them, such provisions should be liberally construed so as to further their ultimate intent, namely, that their disputes should be susceptible to the forum which they have chosen; see Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160; IBM Australia Ltd v National Distribution Services Pty Ltd (1999) 22 NSWLR 466.
7. It has also been said that a claim arises out of a matter, if it originates in, springs from, or has its foundation, in that matter: Walton v National Employers' Mutual General Insurance Association [1973] 2 NSWLR 73 at 84 (Bowen JA), a case involving the construction of an exclusion clause in an indemnity policy.
8. Ms Qian submitted that the matter or matters the subject of the oppression proceeding falls within the ambit of the arbitration agreement in cl 13 because the allegation of oppression is based upon Ms Qian's purported exercise of her buy-out rights under cl 10.5 "whether justified or not".
9. Against this, the plaintiffs submitted that the conduct of Ms Qian, the subject of the oppression proceeding, does not involve a breach of the shareholders agreement; rather it arises out of breaches of the Corporations Act, specifically alleged "contravention" by Ms Qian of s 232. This submission proceeds upon the incorrect premise that s232 prohibits oppressive conduct and that conduct answering the description of oppression in s 232 necessarily involves a contravention of the Corporations Act. That is not so. Section 232 identifies the type of conduct which, if established, enlivens the Court's discretion to grant relief under s 233. Further, conduct which is oppressive may or may not also involve a breach of the Corporations Act. As Black J explained in Byrne v A J Byrne Pty Limited [2012] NSWSC 667 at [44], ss 232 and 233 of the Corporations Act and their predecessors: … extend to conduct involving "commercial unfairness" or where the conduct complained of involves a visible departure from the standards of fair dealing and a violation of the conditions of fair play, or a decision has been made so as to impose a disadvantage, disability or burden on the plaintiff that, according to ordinary standards of reasonableness and fair dealing, is unfair. [citations omitted] The broadness of that test clearly does not require an independent breach of the Corporations Act. In the present case, no breaches of the Corporations Act are pleaded against Ms Qian in the statement of claim nor identified in the plaintiffs' written or oral submissions.
10. As indicated, whether the claims in the oppression proceeding fall within the ambit of the arbitration agreement in cl 13 requires the identification of the "matter" or matters the subject of the oppression proceedings. Ordinarily, the nature and extent of the matters involved in a court proceeding are to be ascertained from the pleadings and from the underlying subject matter upon which the pleadings, including any defence, are based: Robotunits Pty Ltd v Mennel (2015) 297 FLR 300 at 311-312; [2015] VSC 268 at [19]. In WDR Delaware Corporation, Foster J said at [105] - [107]. [105] The word "matter" in s 7(2)(b) of the IAA is not used in the constitutional sense (Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 (Tanning) at 351 per Deane and Gaudron JJ and Comandate at 105-106 [235] per Allsop J). [106] Ordinarily, the nature and extent of the "matters" involved in a Court proceeding are to be ascertained from the pleadings and from the underlying subject matter upon which the pleadings, including any defence, are based (Robotunits at 311-312 [19]). As Deane and Gaudron JJ said in Tanning (at 352), the enquiry is to ascertain the substance of the controversy between the parties in the court proceeding or, as was submitted by Woolworths, the substantive questions in dispute. These may not necessarily be the same as the ultimate questions for determination in the proceeding (Recyclers of Australia Pty Ltd v Hettinga Equipment Inc (2000) 100 FCR 420 at 426 [18] per Merkel J). [107] The matters to be determined in any given proceeding are distinct from the proceeding itself and multiple matters may exist within the one legal proceeding. As Woolworths submitted, this important aspect is recognised by the terms of s 7(2) itself.
11. After referring to the passage in Tanning Research Laboratories v O'Brien (1990) 169 CLR 332 at 351-352, Foster J continued at [110]: A "matter" for the purpose of s 7 of the IAA may or may not comprise the whole subject matter of any given proceeding. A "matter" is something more than a mere issue or question that falls for decision (Tanning at 351 per Deane and Gaudron JJ; and Flakt Australia Ltd v Wilkins & Davies Construction Co Ltd [1979] 2 NSWLR 243 at 250 per McLelland J).
12. Reference has been made above to Mr Zhao's statement of claim, the plaintiffs' amended originating process and Mr Zhao's supporting affidavit. The essential claim made in the statement of claim is that by reason of the conduct of Ms Qian in issuing the Expulsion Notice in August 2016, based on alleged breaches of the shareholders agreement by Mr Zhao which had not been remedied, Ms Qian has engaged in oppressive conduct within the meaning of s 232 of the Corporations Act by purporting to exercise her rights to buy-out the shares in the company held by Mr Zhao. Relevantly, Mr Zhao denies the validity of the Expulsion Notice, he denies the alleged breaches of the shareholders agreement and he also denies his alleged failure to remedy such breaches. That, in my view, is a dispute arising out of or relating to the shareholders agreement and alleged breaches of such agreement.
13. In Rinehart v Welker, Bathurst CJ referred at [169] - [170] to authorities which have held that parties can submit to arbitration issues involving rights conferred under statute and claims where the power to grant statutory remedies has been conferred on the court. Such cases include Francis Travel and IBM Australia Ltd v National Distribution Services Pty Ltd (1999) 22 NSWLR 466. The Chief Justice continued at [171] noting that a similar approach has been taken by the Court of Appeal of England and Wales, in Fulham Football Club (1987) Ltd v Richards [2012] 1 All ER 414 (permission to appeal to the Supreme Court refused by the Supreme Court). The Chief Justice referred with approval to the following comment of Longmore LJ (with whom Rix LJ agreed) (at [103]): It is well settled that the fact that an arbitrator cannot give all the remedies which a court could does not afford any reason for treating an arbitration agreement as of no effect, see Société Commerciale de Reassurance ERAS (International) Ltd, Re ERAS EIL appeals [1992] 1 Lloyd's Rep 570 at 610. The inability to give a particular remedy is just an incident of the agreement which the parties have made as to the method by which their disputes are to be resolved. The reason put forward by Mr Marshall for regarding the FAPL rules and FA rules as inapplicable to unfair prejudice petitions (because of the effect any award might have or might not have on third parties) is of even less substance than the supposed inability of an arbitrator to give any particular remedy.
14. The Chief Justice continued at [172]: Thus it has been held that although an arbitrator would not have power to order the winding-up of a company (see A Best Floor Sanding Pty Limited v Skyer Australia Pty Limited [1999] VSC 170 at [13]-[19]) claims for relief under s 232 of the Corporations Act and its United Kingdom equivalent s 994 of the Companies Act have been held to be capable of being resolved by arbitration: ACD Tridon supra at [191]-[194]; Fulham Football Club supra at [76]-[79], [83], [101]-[103].
15. In ACD Tridon v Tridon Australia [2002] NSWSC 896, Austin J stated that an oppression proceeding may be within the scope of an arbitration clause, subject to two limitations. The first is that an arbitrator does not have jurisdiction to determine whether the contract containing the arbitration clause is valid, and the second limitation is one of arbitrability. Austin J acknowledged at [194] that some types of relief available under s 233(1) may be of an "in rem" nature, such as an order for rectification of the share register of a company, and that may prevent reference of that power to an arbitrator. The comments of Austin J in ACD Tridon were strictly obiter as his Honour held that the arbitration clauses before him did not extend to the oppression proceeding under consideration.
16. Counsel for the plaintiffs did not advance any submissions challenging the statements in Rinehart v Welker, or ACD Tridon. Other cases which have held that claims for relief under s 232 of the Corporations Act are capable of being resolved by arbitration include: Robotunits v Mennel at [66]-[69]; and WDR Delaware Corporation at [162]-[163].
17. Subject to one matter, Ms Qian has made out a case for a stay under s 7(2) of the IAA of the claims by Mr Zhao in the oppression proceeding. The exception relates to the claim for relief in order 2(a) of the amended originating process, insofar as Mr Zhao claims an order that La Kaffa (Taiwan) purchase Ms Qian's shares in the company. That claim cannot be referred to arbitration as, on the present state of the evidence, La Kaffa (Taiwan) is not a party to the shareholders agreement and is not a party to the arbitration.
18. Nonetheless where possible the Court should avoid a multiplicity of proceedings, and it would be contrary to the just, quick and cheap resolution of the real issues in the proceeding (s 56 of the Civil Procedure Act) to permit Mr Zhao to pursue a single (and alternate) claim for relief whilst the other matters in the proceeding are stayed: cf Re 700 Form Holdings Pty Ltd [2014] VSC 385. Accordingly, Mr Zhao's claim for relief in order 2(a) (as referred to in [67] above) should, in the exercise of the Court's discretion under s 67 of the Civil Procedure Act, be stayed pending the outcome of the arbitration.

Should the claims of La Kaffa (Taiwan) be stayed?

1. The plaintiffs submitted that whatever the position between Mr Zhao and Ms Qian, the proceedings by La Kaffa (Taiwan) should not be the subject of any stay because that company is not a party to the shareholders agreement and is not bound by the terms of that agreement.
2. I will address this submission on the assumption, favourable to La Kaffa (Taiwan), that it is a member of the company although it seems not to have executed a deed as required by cl 9.2(d)(v) of the shareholders agreement. That is, La Kaffa (Taiwan) has not assumed all of the obligations on the part of La Kaffa (Cayman) under the shareholders agreement.
3. No argument was advanced by Ms Qian relying on s 7(5) of the IAA, that s 7(2) applies to La Kaffa (Taiwan) because its claim against Ms Qian is made through or under La Kaffa (Cayman), by reason of its holding of shares in Infinite Plus which were allegedly transferred to it by La Kaffa (Cayman), which is a party to the shareholders agreement. Section 7(5) provides: 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.
4. Ms Qian submitted that the claims of La Kaffa (Taiwan) ought to be stayed, as a matter of discretion, pending the outcome of the arbitration between Ms Qian and Mr Zhao.
5. In support of this submission, Ms Qian referred to the approach taken in WDR Delaware Corporation where one of the claims for relief (the winding up order) was not arbitrable. Nonetheless Foster J stayed that claim pending the outcome of the matters referred to arbitration.
6. Ms Qian also referred to Casceli v Natuzzi S.p.A. [2012] FCA 691 which involved a dispute between parties to a dealership agreement, relevantly the third applicant (Nataceli Pty Ltd) and the first respondent (Natuzzi SpA), which Jagot J found fell within an arbitration agreement in the dealership agreement. Some of the respondents were not parties to the arbitration agreement and their potential liability depended on the principal liability of Natuzzi. Some of the applicants also were not parties to the arbitration agreement; their claim was confined to a single claim based on alleged misleading or deceptive conduct in respect of one site. Her Honour dealt with the applicants' submission against a stay at [48] - [49]: [48] Third, the applicants say that there are necessary and proper parties to the proceeding who are not parties to the Dealership Agreement. This is so. But the relevant point is that the relevant matter under s 7(2) of the International Arbitration Act is the dispute between Nataceli and Natuzzi SpA each of which is bound by the Dealership Agreement. In Tanning Research it was accepted that the issues in the proceeding extended beyond the matter (as they do here) yet the matter was referred to arbitration and the balance of the proceeding stayed to await the outcome of the arbitration (see, for example, at 345 and 351). In Recyclers of Australia at [65]-[66] Merkel J said: [65] In the event that a proceeding includes matters that are not capable of being referred to arbitration, but the determination of which is dependent upon the determination of the matters required to be submitted to arbitration, a court may, in the exercise of its discretion, stay the whole proceeding: see Tanning Research at 216 per Brennan and Dawson JJ. A court may also exercise a discretion to impose terms that the arbitration of the arbitrable claims not proceed prior to the determination of the non-arbitrable claims where the arbitrable claims are seen to be subsidiary to or significantly less substantial than, but overlapping with, the non-arbitrable claims: see Hi-Fert [Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (1998) 159 ALR 142] at 167-168 cf Dodwell & Co (Aust) Pty Ltd v Moss Security Ltd Federal Court, Wilcox J (unreported, 11 April 1990) at [5] and [7]. The discretion may also be exercised to stay the proceeding where the non-arbitrable claims are the ancillary claims. [66] The broad discretion arises as part of the exercise of a court's general power to control its own proceedings. The basis for the discretion is that the spectre of two separate proceedings - one curial, one arbitral-proceeding in different places with the risk of inconsistent findings on largely overlapping facts, is undesirable: see Dodwell & Co per Wilcox J at [5] and [7], Hi-Fert at 167-168 and McDonnell Dowell Smith East Asia Pty Ltd v State Electricity Commission of Victoria (Supreme Court of Victoria) Beach J, 24 November 1998 (unreported) at [22] to [24]. [49] In the present case the arbitrable claims as between Nataceli and Natuzzi SpA are the principal claims. There is no reason to require those claims to await the determination of the other claims in the proceeding. To the contrary it makes sense, as a matter of discretion, to stay the other claims pending the completion of the arbitration.
7. In the present case, the claims by Mr Zhao against Ms Qian are the principal claims in the oppression proceeding. No separate or additional conduct of Ms Qian is relied upon by La Kaffa (Taiwan) for its oppression claim; its claim is dependent upon Mr Zhao's oppression claim. The essential matters in dispute are the alleged breaches of the shareholders agreement by Mr Zhao, whether those breaches were remedied, and whether Ms Qian's Expulsion Notice is invalid, or if valid, whether the giving of such notice was nonetheless oppressive. Having regard to these matters it is inappropriate, in my view, that La Kaffa (Taiwan)'s oppression claim proceed whilst the arbitration between Ms Qian and Mr Zhao is pending.
8. In the exercise of the discretion under s 67 of the Civil Procedure Act, the oppression claim by La Kaffa (Taiwan) should be stayed pending the outcome of the arbitration.

Conclusion and orders

1. The requirements of s 7 of the IAA are satisfied. The matter, being the whole of the dispute between Mr Zhao and Ms Qian reflected in the claims in the oppression proceeding (except the claim involving an order that La Kaffa (Taiwan) purchase Ms Qian's shares in the company) must be stayed. The balance of the proceeding by Mr Zhao and the proceeding by La Kaffa (Taiwan) should also be stayed, as a matter of discretion, to await the outcome of the arbitration.
2. It follows that the plaintiffs' interlocutory application for a stay of the arbitration process commenced by Ms Qian pending the determination of these proceedings must fail.
3. As for referral of the matter or matters in the oppression proceeding to arbitration under Art 8 of the Model Law, counsel for Ms Qian ultimately submitted that the parties should be left to sort out the mechanics of referral of those matters to arbitration (T37, lines 47-48). No order is required at this stage.
4. There is no reason why costs should not follow the event.
5. Accordingly I make the following orders: 1. Pursuant to s 7(2) of the International Arbitration Act 1974 (Cth), this proceeding, to the extent that it involves any claim as between the first plaintiff and the first defendant (except the first plaintiff's claim for relief that the second plaintiff purchase the first defendant's shares in the company), be stayed until further order. 2. This proceeding otherwise be stayed pending the outcome of the arbitration between the first plaintiff and the first defendant under cl 13 of the agreement between, among others, the first plaintiff and the first defendant entered into on or about 30 June 2011 and styled shareholders purchase agreement. 3. The plaintiffs pay the first defendant's costs of (a) the plaintiffs' application for interlocutory relief in the amended originating process filed on 21 November 2016 and (b) her interlocutory process filed on 19 December 2016.

Amendments 06 March 2018 - [65] - amend "[196]" to read [194]. [68] - amend case name "Re Form 700 Holdings Pty Ltd" to read Re 700 Form Holdings Pty Ltd. Coversheet - amend above case name accordingly. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 06 March 2018