Nigel Watts and David Murphy [1993] FCA 346(1993) 116 ALR 163
Judgment (3 paragraphs)
[1]
Solicitors:
Sophie Grace (plaintiff)
Thomson Geer (first and second defendants)
Marque Lawyers (fifth defendant)
File Number(s): 2015/128405
[2]
Judgment (ex tempore)
HIS HONOUR: By interlocutory process filed on 7 May 2014, the first defendant Ikon (Australia) Pty Limited and the second defendant Naser Taher apply for an order pursuant to (Cth) International Arbitration Act 1974, s 7 and/or s 16, read together with Article 8 of the UNCITRAL Model Law on International Commercial Arbitration 1985 ("the Model Law"), staying the proceedings and referring the plaintiff and the first and second defendants to arbitration.
International Arbitration Act, s 7, relevantly provides as follows:
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.
Section 16 provides that the Model Law has the force of law in Australia, and Article 8 of the Model Law relevantly provides as follows:
(1) 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.
…
It has not been suggested that there is any practical or relevant difference in effect between the two provisions, or that anything turns on any such difference.
In the judgment delivered this morning, I have already summarised the nature of the dispute, and in particular the relief sought by the plaintiff in the proceedings. I have also referred to the provisions of the transactional documents between the parties relevant to dispute resolution. However, it is pertinent to reiterate some of those matters. As I observed this morning, the original joint venture agreement of 31 December 2012, contained an exclusive jurisdiction clause, as follows:
27.1. This Agreement and any disputes or claims arising out of or in connection with its subject matter or formation (including non-contractual disputes or claims) are governed by and construed in accordance with the law of England. And the parties submit to the exclusive jurisdiction of the English Courts.
As the clauses in later addenda to which I shall come make clear, that provision has been amended, if not revoked. But it is part of the contractual history, and the way in which it deals with disputes, and more particularly the nature and extent of disputes which it contemplates, is relevant to the interpretation of the later provisions. In particular, it is clear from cl 27.1 that the parties were there dealing not just with contractual disputes and claims, but explicitly included "non-contractual disputes or claims" that arose out of, or were in connection with, the subject matter or formation of the joint venture agreement.
The relevant arbitration agreement is to be found in cl 23.1 of the third addendum of 28 March 2014, and is as follows:
23.1 Any and all Disputes including any question regarding the existence, validity or termination of any of the JV Documents or the Third Addendum and any disputes or differences which fall to be resolved in accordance with the dispute resolution procedure set out in Clause 22 above shall be referred to and finally resolved by arbitration under the LCIA Rules and all previous agreements under or in connection with the JV Documents conferring jurisdiction on the Courts of England and Wales are no longer operative or effective.
…
23.3 The governing law of the arbitration shall be the substantive law of England and Wales.
It will be observed that the word "disputes" in cl 23.1 is capitalised, which imports the earlier definition from cl 22.2 to which I shall come. In any event, clause 23.1 also applies to "any disputes or differences which fall to be resolved in accordance with the dispute resolution procedure set out in cl 22 above."
Reverting to cl 22 (dispute resolution procedure), cl 22.2 provides as follows:
22.2 Should any dispute or difference arise out of, in relation to or in connection with the JV Documents or any of them or the Third Addendum or the performance, validity or enforceability of any of the JV Documents or the Third Addendum (Dispute) then the Parties shall follow the procedures set out in this Clause 22.
It will be observed that the clause uses the terminology of disputes or differences that "arise out of, in relation to or in connection with" the joint venture documents, or "the performance, validity or enforceability" of the joint venture documents. Accordingly, a dispute or difference that arises out of or is in relation to or in connection with the performance of any of the joint venture documents is within the words of cl 22.2 and thus within the concept of a "Dispute" for the purposes of cl 23.1.
It is not controversial on the present application that the requirements of International Arbitration Act, s 7(1)(a), are satisfied, so that the section applies to the arbitration agreement admittedly contained in the third addendum. Nor has it been submitted that the arbitration agreement is null and void, inoperative, or incapable of being performed for the purposes of s 7(5). The only live issue is whether, for the purposes of s 7(2)(b), the proceedings before this Court involve the determination of a matter that, in pursuance of the arbitration agreement, is capable of settlement by arbitration.
I accept that one is not limited to the relief actually claimed or pleaded in deciding whether the proceedings involve the determination of a matter that is capable of settlement by arbitration in pursuance of the arbitration agreement, but the starting point is the relief claimed and what is alleged in support of it, and one must also look at what defences will be raised to that claim. It is worth observing that the concept of a dispute "arising out of" a subject matter is, generally speaking, in this context, a broader notion than that of a dispute arising "under" a particular agreement or instrument [Samick Lines Company Limited v Owners of the Antonis P Lemos [1985] AC 711, 727 (Lord Brandon); cf Paper Products Pty Ltd v Tomlinsons (Rochdale) Limited; Nigel Watts and David Murphy [1993] FCA 346; (1993) 116 ALR 163; (1993) 43 FCR 439, 448 (French J); Rinehart v Welker [2012] NSWCA 95, [123]-[125] (Bathurst CJ)].
Paragraphs 1, 2, 3 and 4 of the originating process are all founded on the assertion that Mr Dentrinos was not removed, and Mr Yehya El-Taher and Mr Lim were not appointed, in conformity with the requirements of the joint venture agreement. Indeed, reference is specifically made to the joint venture agreement in paragraph 1 of the originating process. That is, no doubt, a reference to cl 8.6 of the original joint venture agreement, which provides to the effect that directors of JVC companies other than the joint venture vehicle itself shall be appointed by the board of the joint venture vehicle - Ikon A, being for those purposes a JVC company.
Were the plaintiff's case pleaded, it would necessarily invoke and plead cl 8.6 of the joint venture agreement, and the plaintiff's success would depend on establishing that there had been non-compliance with cl 8.6, no other defect in the appointment being presently alleged. It is, in those circumstances, I think beyond argument that such a dispute arises out of, relates to or is in connection with the joint venture documents.
Claims 5 and 6 in the originating process impugn a payment of $178,000 by Ikon A to Naser Taher in February 2015. They do so on the basis of a lack of authority of the first defendant, which, in turn, raises the validity of the appointment of relevant directors of the first defendant, a view which is reinforced by the claim for relief in paragraph 7.1 of the originating process. In other words, these claims also depend on an allegation that the fourth and fifth defendants were not duly appointed directors because of cl 8.6, and on that basis, those claims also arise out of, in relation to or in connection with the joint venture agreement.
A further reason why the claims for relief in paragraphs 5 and 6 are caught by the arbitration agreement is that the defences that will be raised to them, in particular by the second defendant, invoke clauses 8.1 and 8.2 of the third addendum, pursuant to which Nasser Taher contends that he was entitled to the sum in question.
That disposes of the claims for relief in paragraphs 1 through 6 of the originating process.
The relief claimed in paragraph 7 is not claimed against the first and second defendants, although it has been foreshadowed that similar allegations are to be made against the second defendant on the basis that he is a shadow director. As those claims have not, at this stage, been made, they are not the subject of any application for a stay or referral to arbitration. But I shall make some observations about the claims for relief in paragraph 7 and the subsequent claims which largely arise out of them.
The fourth and fifth defendants are not parties to the joint venture documents, and thus not parties to any relevant arbitration agreement. At least arguably, the third defendant is not a party to the arbitration agreement. But were it to be alleged against a party to the arbitration agreement that it, or he, had, in breach of duties owed as a director of one of the joint venture companies, caused Ikon A to pay the sum of $178,000 to the second defendant, that would, for reasons already explained, be a matter arising out of or in relation to or in connection with the joint venture agreement, or the performance of the joint venture agreement.
So far as giving or acquiescing in the giving of instructions to transfer all clients of Ikon A into the "B book", as I have said in the earlier judgment, specific authority in the joint venture documents to do so would not necessarily be a complete answer to an allegation of breach of duty as a director. Nonetheless, the instruction was given in the context of the joint venture and the arrangements documented in the joint venture agreements, and in the particular case of that instruction was specifically the subject of provision in one of the addenda - which would, undoubtedly, be pleaded as at least part of the defence to the allegation. That complaint therefore arises out of or in connection with the performance of the joint venture agreement: Mr Taher effectively says that what he did, he was entitled to do under the joint venture agreement.
As to the direction to Ikon Finance to return the funds on deposit to Ikon A, again that appears to be a step taken in the performance of the arrangements established by the joint venture agreement, and the dispute in connection therewith thus arises out of the performance of the joint venture agreements.
As to failing to act on instructions of clients - in particular by denying Mr Yikilmazoglu access to bank accounts - that too is essentially a complaint of a breach of those provisions of the joint venture agreement to which I have referred in the earlier judgment pertaining to bank account access.
Accordingly, it seems to me that all the allegations of breaches of directors' duties can be seen to arise out of or relate to the joint venture agreements or, at least, the performance of the joint venture agreements. In this respect, it is beside the point that the rights sought to be invoked by the plaintiff may be statutory rights under (Cth) Corporations Act 2001 and not rights directly arising under joint venture agreements, and it is also beside the point that an arbitrator may not be able to grant all of the relief which a Court could grant under the Corporations Act. Rinehart v Welker confirms that it matters not that the arbitrator may not be able to grant all the relief or remedies that a Court could grant [Rinehart v Welker, [170] - [171] (Bathurst CJ)], and also that rights under statute can be the subject of arbitration [Rinehart v Welker, [168] - [169] (Bathurst CJ)].
Because the fourth and fifth defendants are not parties to the arbitration agreement, the claims against them are not amenable to referral to arbitration. Some of the relief claimed, even in respect of the claims that are amenable to arbitration, cannot be granted by an arbitrator. For example, I doubt that an arbitrator can make an order under Corporations Act, s 1322(4), as sought in paragraph 4 of the originating process. But the underlying questions of fact and of law can be determined by the arbitrator. In Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332, Brennan and Dawson JJ explained (at 344) that where that is the situation, and the ultimate question or relief cannot itself be referred to arbitration, although the answer to that question will follow inevitably upon a determination of the arbitration, then the appropriate course is that the proceedings be stayed until an award is made on the matter referred, so that once the arbitration is complete, the Court can then deal with the remaining issues or claims for relief in the light of the outcome of the arbitration.
The Court therefore orders that:
1. The claims for relief in the originating process against the first and second defendants contained in claims 1-6, 8-12 and 14-18 of the originating process be stayed, and the plaintiff and first and second defendants be referred to arbitration in respect of those matters.
2. The plaintiff pay the first and second defendants' costs of the interlocutory process.
[3]
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: 21 July 2015