Re 700 Form Holdings Pty Ltd [2014] VSC 385 (19 August 2014)

1 The plaintiffs are shareholders in Form 700 Holdings Pty Ltd (Form 700) and the other Corporations as defined above in the title of the proceeding. The second plaintiff is also a shareholder in the Trustee Company as defined above in the title to the proceeding. By their originating process, the plaintiffs bring, inter alia, an oppression proceeding against the first, second, third, fourth and fifth defendants seeking orders under s 233 of the Corporations Act 2001 (Cth) (Corporations Act) that those defendants purchase the plaintiffs' shares in the Corporations and the Trustee Company.

2 The first and second plaintiffs and the first, third, fourth and fifth defendants are parties to a Shareholders' and Unit Holders' Agreement (Shareholders Agreement) relating to Form 700, the other Corporations and the Trustee Company. The Shareholders Agreement contains an arbitration clause. The third plaintiff and the second, sixth, seventh, eighth and ninth defendants are not parties to the Shareholders Agreement.

3 Thus, so far as the oppression proceeding is concerned, the third plaintiff (Ferndell Pty Ltd) and the second defendant (Wasyl Rosati) are not parties to the Shareholder Agreement.

4 In this application, the defendants seek an order that pursuant to s 8 of the Commercial Arbitration Act 2011 (Vic) (the Commercial Arbitration Act), or alternatively the general law, the originating process be stayed until further order as the relevant parties have agreed under the arbitration clause to refer the oppression dispute to arbitration.

5 The Shareholders Agreement was entered into to regulate, among other things, the management and operation of Form 700 and other companies (the Group), which together were to conduct a new formwork business (the Business). Formwork is used in building commercial, industrial and high rise residential marketplace buildings for private and public enterprise. Mr Brazis deposes that the Business is worth a substantial amount. The Corporations as defined above, are part of the Group, as defined in the Shareholders Agreement. The Group is not, however, comprised solely of the Corporations.

6 As mentioned above, in 2003, the Shareholders Agreement was made between, inter alia, the first plaintiff (Paul Brazis), the first defendant (Emilio Rosati), Nick Spiropoulos (the third defendant). The Parties agreed to enter into the Shareholders Agreement to regulate, among other things, the management and operation of the Group in relation to the Business. The Group was defined to mean Form 700 and other specified companies and any other companies which may be added in the future.

7 Form 700 and other members of the Group are not parties to the Shareholders Agreement. Under the Shareholders Agreement, a further party, Frank Cicerale, was to provide funding for the Group. He and his interests have since been bought out.

8 Under the Shareholders Agreement, a Shareholder was defined to mean a party to the Agreement (except Frank Cicerale) and includes any Nominated Shareholder and further includes any person who, consistent with the Shareholders Agreement, executes a New Shareholder's Assumption Deed. The Nominated Shareholders were certain companies who were parties to the Shareholders Agreement nominated to be the registered holders of shares in a Group company as set out in a schedule to the Shareholders Agreement. For example, Mr Brazis' nominated company was Brazis Nominees Pty Ltd (Brazis Nominees) and it holds shares in Form 700, Blackshaws Property Holdings Pty Ltd, Concrete Forming Systems Pty Ltd, Hi Lift Cranes Pty Ltd and Stride Survey Pty Ltd. Brazis Nominees was a Nominated Shareholder.

9 The structure of the Shareholders Agreement was as follows. Clause 1 dealt with "Interpretation". Clause 2 dealt with "the Company". Clause 3 deal with "Funding".

10 Clause 4 dealt with "Relationship between Shareholders". Under clause 4.5 each Shareholder agreed with each other Shareholder to be just, equitable and faithful in its activities and dealings with each other Shareholder and to use all reasonable endeavours to ensure the success of the Business.

11 Clause 5 dealt with "the Board and other matters". Clause 5.1 provided that "each Board will be responsible for the management of each Group Company". Clause 5.2 provided that "each Shareholder must use its reasonable endeavours to ensure that the Board carries out its responsibilities in a manner consistent with the provisions of the Agreement". Under clause 5.22, the parties agreed that the Shareholders must exercise their powers in relation to each Group company to ensure that the company:

(1) carries on and conducts the Business in a proper and efficient manner for the benefit of the Group company; and

(2) transacts all its business on arm's length commercial terms.

The parties also agreed to other covenants as to how the business ought to be run. Under clause 5.23 the Shareholders agreed that no Shareholder may interfere with the management operations of a Group company.

12 Clause 6 dealt with "Units and Unitholders". Clause 7 dealt with "Accounts". Clause 8 dealt with "Confidentiality". Clause 9 dealt with "Several obligations". Clause 10 dealt with the "Term". Clause 11 dealt with "Transfers/Pre-emptive Rights/Change in Control". Clause 12 dealt with "Dispute Resolution". I will set these out in detail below. Clause 13 dealt with "Default by Shareholder". Clause 14 dealt with "Notices".

13 Clause 15 dealt with "Miscellaneous". Clause 15.4 provided that subject to any express provision in the Shareholders Agreement to the contrary, the rights of a Shareholder under the Shareholders Agreement were cumulative and were in addition to any other rights of that Shareholder.

14 Paul Brazis swore an affidavit of 11 November 2013 in support of the originating process. He deposed as follows. Mr Brazis is the first plaintiff in the proceeding and a director and shareholder of the second and third plaintiffs. Details of the plaintiffs' shareholdings in the Corporations are set out in a chart in the affidavit. The second plaintiff, Brazis Nominees, is the trustee of Mr Brazis' family trust and it holds 50 shares in the Trustee Company and 50 units in the RBSC Trust.

15 Brazis Nominees holds 50 shares out of 210 in Form 700. Form 700 Pty Ltd, Form 700 Plant Hire Pty Ltd and Form 700 Staff Pty Ltd are subsidiaries of Form 700. These subsidiary companies, together with the Trustee Company, are itemised in clause 2.1 of the Shareholders Agreement and are thus, with Form 700, defined as "Group companies" within the meaning of the Shareholders Agreement.

16 Each of the other Corporations as referred to in the title of the proceedings are properly part of the "Group" as defined in the Shareholders Agreement, notwithstanding that they are not subsidiaries of Form 700. Mr Brazis says that they were always treated as part of the Group.

17 The works and services of the Business include formwork, reinforcement supply and fix, post-tensioning supply and installation, concrete supply, pumping and placement, concrete lift core construction, structural safety screens and the provision of other self-climbing systems. The Group has provided services to many landmark buildings in Australia, including the Melbourne Convention Centre, the Royal Women's Hospital, the CBW at the corner of Bourke and William Streets, the South Wharf Development - Contexx, Lucient Apartments, Conservatory on Hindmarsh, and the Chadstone car-park extension.

18 The annual revenue of the Group is in the tens of millions of dollars, and Mr Brazis estimates the value of the Business to be substantial.

19 Originally, Emilio Rosati, Nick Spiropoulos and Mr Brazis worked for the Dolso Group and subsequently for Structural Systems, a listed company on the ASX, which acquired formwork material from the Dolso Group in 1999.

20 During 2002, Emilio Rosati, Nick Spiropoulos and Mr Brazis decided to establish the Group and they left the employ of Structural Systems to do so. They also involved Mr Frank Cicerale, who provided finance to the Group. Mr Cicerale was subsequently bought out of the Group.

21 In this proceeding Mr Brazis alleges that the affairs of each of the Corporations that make up the Group, and the affairs of the RBSC Trust, are being conducted oppressively and in a manner such as to justify the relief the plaintiffs seek in this proceeding. In summary, his complaints are as follows.

22 From the creation of the Group, Mr Brazis' executive position in the Group included the following responsibilities: general manager managing cash flow, facilitating capital purchases, insurances, banking matters including loans/finance, cheque issues and EFT payments, company invoicing and payments and contracts.

23 Whilst it was not always the case, the Group came to be effectively run as a dictatorship by Emilio Rosati, the first defendant. Whilst Mr Rosati was not formally a director, the appointed directors, Nick Spiropoulos and, from early 2003, Wasyl Rosati, Emilio's son, had both acted under Emilio's dictate.

24 In early 2011, Mr Brazis separated from, and subsequently divorced, his then wife. Emilio Rosati expressed great distress at the separation and its effect on the Business and thereafter Mr Rosati began to treat Mr Brazis very differently in the Business. Mr Rosati made it very clear on several occasions to Mr Brazis that he thought Mr Brazis had lost complete focus on the Business and Mr Rosati viewed the looming property dispute between Mr Brazis and his former wife as very dangerous for the Group.

25 On or about 28 February 2012, Mr Brazis' then family law solicitors received an email from Mr David Leggatt of DLA Piper, who said he was acting on behalf of Mr Rosati. The contents of that email were consistent with what Mr Rosati had been saying to Mr Brazis privately.

26 Subsequently, on 12 April 2012, Mr Brazis' then family law solicitors and the then family law solicitors for his ex-wife received a letter from Mr David Leggatt of DLA Piper which was consistent with the earlier email and which made various threats against Mr Brazis' investment and involvement in the Group. That letter stated that DLA Piper now acted for both Mr Rosati and Rosati Nominees Pty Ltd.

27 While that letter is marked "without prejudice", Mr Brazis has been told by his solicitors that the letter is not privileged because there was then no dispute between himself and/or his ex-wife (on the one hand) and Mr Rosati and Rosati Nominees Pty Ltd (on the other hand), and also because the letter made no offer of any kind.

28 Subsequently, in part because of the pressure that was being placed on Mr Brazis by Mr Rosati, Mr Brazis decided to resign as an executive of the Group, and to continue on as a non-executive director.

29 Later, on 28 February 2013, Mr Rosati and Nick Spiropoulos came into Mr Brazis' office with numerous letters/documents. These documents included a letter stating that they no longer required his services, and that they also demanded that Mr Brazis resign as a director of each Group company. They then gave Mr Brazis resignation forms which had been prepared by DLA Piper, which firm was now also acting for Form 700.

30 Mr Brazis felt very intimidated by these actions and signed the resignations. Mr Brazis subsequently asked through his solicitors, for the resignations to be rescinded. This was not agreed to, however.

31 Mr Brazis is especially concerned by what he perceives to be the 'value' and 'winding up' threats contained in the email dated 28 February 2012, the letter dated 12 April 2012 and the further letter from Mr Leggatt to Mr Brazis' lawyers.

32 That last letter of Mr Leggatt states that "Obviously, the goodwill in the Form 700 group of companies rests solely with Mr Rosati".

33 Mr Brazis disputes this is the case, as the goodwill of the business is owned by the Group. Mr Brazis deposes that nor does he believe that it is appropriate for the solicitors of Form 700 to be making such threats to one shareholder on behalf of another shareholder, or to propose a winding up.

34 Mr Brazis is concerned about various transactions that have been undertaken by Mr Rosati and the Group without his consent. For example Mr Brazis has serious concerns about an acquisition of land made by Key Property Investments Pty Ltd, the eighth defendant, and he says his inquiries of Mr Rosati about the matter have not been satisfied.

35 Mr Brazis is also very concerned that Mr Rosati, Wasyl Rosati and Nick Spiropoulos are otherwise using funds and resources of the Group to obtain benefits for themselves which they are not entitled to at law. This is evident due to Mr Rosati, Wasyl Rosati and Mr Spiropoulos not responding to Mr Brazis' request for details of what the likely dividend payments are to be at the end of 2013.

36 For example, Mr Rosati caused the Group to build a temporary house in the Form 700 factory. This temporary building was then transferred to Mr Rosati's farming property in New South Wales as a temporary house while Mr Rosati builds his new house. The temporary building took some weeks to construct and would have cost at least $150,000 to $200,000.

37 At the same time, Mr Rosati told Mr Brazis that he was going to take a loan from Form 700 to build his permanent New South Wales house and that the loan would be in the order of $2 million to $3 million. Mr Rosati said that he may never pay it back.

38 Wasyl Rosati started refurbishing a Ford Mustang car in the Form 700 yard, using Form 700 staff and parts and materials which were all purchased using Form 700 accounts and/or credit cards. The vehicle, when finished, would have been worth at least $300,000.

39 Mr Brazis also found out that Nick Spiropoulos is building a new home in Plenty which is being built for him by the Group.

40 Mr Rosati is also causing the Group to incur significant expense and business risk in seeking to expand the Business. For example, Mr Rosati caused the Group to tender for and win a tender for the new Royal Adelaide Hospital, despite the huge risk involved and despite advice to him from everyone, including Mr Brazis, to walk away from the job. Mr Rosati said that there is too much money to be made there just to walk away from.

41 However, large amounts of formwork material and plant had to be purchased to enable Form 700 to carry out this job. Somewhere in the order of $6 million to $7 million worth of capital is involved and most of this material will become redundant when the project is completed.

42 Mr Rosati also insisted that the Group purchase three new cranes at a cost of around $3 million. This further capital expense will further affect dividend payments in the future.

43 On or about 23 August 2013, Mr Brazis gave a notice of offer in accordance with the Shareholders Agreement to sell his shares and units. The offer was not accepted.

44 No responding affidavit to these allegations by Mr Brazis has been filed on behalf of Mr Rosati at this stage.

45 By their originating process, the plaintiffs seek various relief. By reason of compromises between the parties some relief is no longer required. The relief that remains relevant is as follows. Pursuant to s 233 of the Corporations Act, an order that the first to fifth defendants purchase the plaintiffs' shares in the Corporations and Trustee Company and their units in the RBSC Trust [Originating Process at paragraph 3] (Oppression Claim).

46 Pursuant to s 237 of the Corporations Act, the plaintiffs seek leave to bring a proceeding in the name of the Corporations and the Trustee Company against the first, second and third defendants seeking:

(i) statutory compensation arising out of alleged breaches of their duties; and

(ii) an account of profits made in alleged contravention of their duties;

47 Thirdly, the plaintiffs seek an order that the first to third defendants account to the Corporations and the Trustee Company for profits paid to them (or to their corporate alter egos) by the Corporations and the Trustee Company; [Originating Process at paragraph 2].

48 Further, or alternatively, they seek an order that the first to third defendants pay statutory compensation to the Corporations and the Trustee Company for alleged breaches of duty; [Originating Process at paragraph 4].

49 Further, or alternatively, they ask the Court for a declaration that the eighth defendant holds its interest in certain land (the Altona Property) on trust for Form 700; [Originating Process at paragraph 5].

50 Accordingly, the originating process comprises at least three substantive proceedings; namely, the s 233 oppression claim by the plaintiffs against the defendants; the claim by the Corporations and the Trustee Company against the defendants for compensation or account of profits (for which the plaintiffs seek leave under s 237 of the Corporations Act to bring as a derivative proceeding); and a claim for a declaration in relation to the beneficial ownership of the Altona Property (for which leave is required under s 237 of the Corporations Act as a derivative action).

51 In the application now before the Court, the defendants only seek a stay of the Oppression Claim made by the first and second plaintiffs under s 8 of the Commercial Arbitration Act. If the Oppression Claim by the first and second plaintiffs is stayed, then the defendants seek an order temporarily staying the balance of the claims pursuant to the Court's power to control its own process.

52 The relevant provisions of the Corporations Act relating to the Oppression Claim are as follows. Section 232 provides:

Bringing, or intervening in, proceedings on behalf of a company

The Court may make an order under section 233 if:

(a) the conduct of a company's affairs; or

(b) an actual or proposed act or omission by or on behalf of a company; or

(c) a resolution, or a proposed resolution, of members or a class of members of a company;

is either:

(d) contrary to the interests of the members as a whole; or

(e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.

For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company.

53 Affairs is relevantly defined in section 53:

For the purposes of the definition of examinable affairs in section 9, section 53AA, 232, 233 or 234, paragraph 461(1)(e), section 487, subsection 1307(1) or section 1309, or of a prescribed provision of this Act, the affairs of a body corporate include:

(a) the promotion, formation, membership, control, business, trading, transactions and dealings (whether alone or jointly with any other person or persons and including transactions and dealings as agent, bailee or trustee), property (whether held alone or jointly with any other person or persons and including property held as agent, bailee or trustee), liabilities (including liabilities owed jointly with any other person or persons and liabilities as trustee), profits and other income, receipts, losses, outgoings and expenditure of the body; and

(b) in the case of a body corporate (not being a licensed trustee company within the meaning of Chapter 5D or the Public Trustee of a State or Territory) that is a trustee (but without limiting the generality of paragraph (a))--matters concerned with the ascertainment of the identity of the persons who are beneficiaries under the trust, their rights under the trust and any payments that they have received, or are entitled to receive, under the terms of the trust; and

(c) the internal management and proceedings of the body; and

...

54 Section 233 provides:

Orders the Court can make

233 (1) [Powers of the Court] The Court can make any order under this section that it considers appropriate in relation to the company, including an order:

(a) that the company be wound up;

(b) that the company's existing constitution be modified or repealed;

(c) regulating the conduct of the company's affairs in the future;

(d) for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;

(e) for the purchase of shares with an appropriate reduction of the company's share capital;

(f) for the company to institute, prosecute, defend or discontinue specified proceedings;

(g) authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;

(h) appointing a receiver or a receiver and manager of any or all of the company's property;

(i) restraining a person from engaging in specified conduct or from doing a specified act;

(j) requiring a person to do a specified act.

233 (2) Order that the company be wound up. If an order that a company be wound up is made under this section, the provisions of this Act relating to the winding up of companies apply:

(a) as if the order were made under section 461; and

(b) with such changes as are necessary.

233 (3) Order altering constitution. If an order made under this section repeals or modifies a company's constitution, or requires the company to adopt a constitution, the company does not have the power under section 136 to change or repeal the constitution if that change or repeal would be inconsistent with the provisions of the order, unless:

(a) the order states that the company does have the power to make such a change or repeal; or

(b) the company first obtains the leave of the Court.

234 Who can apply for order

234 An application for an order under section 233 in relation to a company may be made by:

(a) a member of the company, even if the application relates to an act or omission that is against:

(i) the member in a capacity other than as a member; or

(ii) another member in their capacity as a member; or

(b) a person who has been removed from the register of members because of a selective reduction; or

(c) a person who has ceased to be a member of the company if the application relates to the circumstances in which they ceased to be a member; or

(d) a person to whom a share in the company has been transmitted by will or by operation of law; or

(e) a person whom ASIC thinks appropriate having regard to investigations it is conducting or has conducted into:

(i) the company's affairs; or

(ii) matters connected with the company's affairs.

56 Under s 459B, where an application is made under s 234 and the Court is satisfied that the company is insolvent, the Court may order that the company be wound up in insolvency.

Section 8 of the Commercial Arbitration Act

57 Section 8 provides as follows:

(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when submitting the party's 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.

(2) Where an action referred to in subsection (1) has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.

58 Section 7 of the Commercial Arbitration Act defines an arbitration agreement as follows -

(1) An arbitration agreement is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

59 Section 8 of the Commercial Arbitration Act has significantly changed the principles that apply to an application to stay court proceedings in favour of arbitration. Under the previous legislation dealing with domestic arbitration[1] the court retained a discretion in relation to whether to stay a proceeding that was capable of being determined by arbitration. This is no longer the case. Under the Commercial Arbitration Act the court no longer has a discretion.

60 The position was explained by Vickery J in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (No 3):[2]

Section 53 of the Commercial Arbitration Act 1984 gives the court a discretion to stay proceedings if the parties were subject to an arbitration agreement.

Section 8 of the Commercial Arbitration Act 2011 (the "Act"), on the other hand, confers no such discretion on the court ...

The use of the imperative word "must" in s 8(1), rather than the permissive "may", which was employed in the superseded Commercial Arbitration Act 1984, removes the court's discretion to refuse to grant a stay, and renders the provision mandatory. The only reason a court can refuse to grant a stay is if the arbitration agreement is found to be "null, void, inoperative or incapable of being performed". This means that if the requirements of the section are met the court has no choice but to grant a stay of the proceeding before it and refer the matter to arbitration.[3]

Accordingly, if the court finds that there is a matter before the court that is the subject of an arbitration agreement; the party seeking a stay of the court proceeding has made its application no later than when it filed its first statement on the substance of the dispute; and the arbitration agreement is not otherwise null and void, inoperative or incapable of being performed, the Court must stay the proceeding.

61 Clause 12 of the Shareholders Agreement is an arbitration agreement within the meaning of s 7 of the Commercial Arbitration Act. Clause 12.1 reads:

If a dispute arises in connection with this Agreement or in relation to the Business, a party to the dispute must give the other party or parties to the dispute notice specifying the dispute and requiring its resolution under Clause 12 ("Notice of Dispute").

62 'Agreement' is defined as "This Agreement together with its schedules and annexures as modified, amended or varied from to time". 'Business' is defined to mean "The new form work business to be carried out by the Group under this Agreement", and 'Group' is defined as "The group of companies consisting of those companies set out in Clause 2.1 of this Agreement and any other companies which may be added in the future".

63 Clause 2.1 of the Shareholders Agreement names Form 700 and each of Form 700 Pty Ltd, Form 700 Plant Hire Pty Ltd, Form 700 Staff Pty Ltd and the Trustee Company as Group companies. The other Corporations named in the originating process, namely Blackshaws Property Holdings Pty Ltd, Concrete Forming Systems Pty Ltd, Hi Lift Cranes Pty Ltd, Stride Survey Pty Ltd, 270 Blackshaws Road Pty Ltd, and Formula One Self Driving Screens Pty Ltd, are companies that were added to the Group, as contemplated in clause 2.1. None of the Group companies are parties to the Shareholders Agreement.

The dispute resolution provisions in the Shareholders Agreement

64 Clause 12 of the Shareholders Agreement provides for a cascading set of dispute resolution steps. They include: (a) the issuance of a notice of dispute (clause 12.1); (b) a conference within three days of the issuance of notice of dispute (clause 12.2); (c) mediation if the dispute is not resolved within seven days after the notice of dispute is given (clause 12.3); and (d) arbitration if the dispute is not resolved within twenty eight days after the appointment of a mediator (clause 12.6).

If the dispute is not resolved within 28 days after the appointment of the mediator ("Second Period"), the dispute is by this clause referred to arbitration. The arbitration must be conducted in Victoria by a single arbitrator.

66 In TCL Airconditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd,[4] Hargrave J held that where the words of the arbitration clause are sufficiently elastic and general, or capable of broad and flexible meaning, they should be given a liberal construction.[5]

67 Dealing generally with the construction of commercial documents, the High Court said in Pacific Carriers Ltd v BNP Paribas:[6]

The ascertainment of the scope of the clause is a question of the construction of a contract. Its meaning is to be determined by what a reasonable person in the position of the parties would have understood it to mean, having regard to the text, surrounding circumstances, purpose and object of the transaction.[7]

68 This approach was confirmed by the High Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd[8] where the Court said:

This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.[9]

69 In Rinehart v Welker[10] the New South Wales Court of Appeal considered the approach to take to the construction of an arbitration agreement. They held that the correct approach to construction was that applicable to any commercial agreement. After referring to Toll and Pacific Carriers Bathurst CJ said:

That does not mean that the court is entitled to disregard clear and unambiguous language used by the parties to produce results which the surrounding circumstances may indicate are more commercial or business-like: Western Export Services Inc v Jireh International Pty Limited. Resort may only be had to surrounding circumstance where the words in question exhibit uncertainty or ambiguity: Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales.

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."

Similar remarks were made by Allsop J (as his Honour then was) in Comandate Marine Corp supra at [164], Finn and Finklestein 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."

See also Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Ltd; Global Partners Fund Ltd per Spigelman CJ, Giles and Tobias JJA agreeing; Lipman Pty Limited.

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 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 and Comandate Marine Corp and in this Court in Lipman Pty Limited. Rather, the words of an arbitration clause should be, to the extent possible, consistent with the ordinary meaning of the words, liberally construed.

It follows that it is not appropriate for this Court to adopt what Lord Hoffman described in Fiona Corporation as a "fresh start" and construe clauses irrespective of the language in accordance with the presumption that the parties are likely to have intended any dispute arising out of the relationship into which they have entered to be decided by the same tribunal unless the language makes it clear certain questions were intended to be excluded: Fiona Corporation. Whilst the presumption that parties intended the same tribunal to resolve all their disputes may justify a liberal approach consistent with the plain meaning of the words in question, the approach suggested by Lord Hoffman is contrary, in my opinion, to the approach laid down by the High Court as to the construction of commercial contracts.

In reaching this conclusion I am conscious that the Court of Appeal in Western Australia in Paharpur Cooling Towers Ltd v Paramount (WA) Ltd, cited the speech of Lord Hoffman in Fiona Corporation supra with approval, stating at [39] that: "It was consistent with the approach taken in Australia". To the extent their Honours were stating that the approach was reflective of the liberal approach to which I have referred above, that is uncontroversial. However, to the extent their Honours were suggesting a particular rule of construction be applied irrespective of the plain meaning of the words, I am unable to agree. [11]

A matter which is the subject of an arbitration agreement

70 The High Court of Australia has addressed the meaning of 'matter ....that is capable of settlement by arbitration' in Tanning Research Laboratories Inc v O'Brien.[12] Deane J and Gaudron J in discussing these words from the International Arbitration Act 1974 (Cth) (International Arbitration Act) said as follows:

The word "matter" is not defined in the Act. In the quite different context of Ch 111 of the Constitution, it has been held that the word "matter" means "the whole matter" and encompasses "all claims made with the scope of the controversy": Fencott v Muller, see also Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd. 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. See Flakt. 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. [13]

71 Justices Brennan and Dawson (with whom Toohey agreed) found it unnecessary to define the meaning of "matter" but did say that "the matter to be referred to arbitration cannot extend to issues that could not arise in proceedings between [the parties] or which are unrelated to the contract containing the arbitration clause."[14]

72 In ACD Tridon Inc v Tridon Australia Pty Ltd,[15] Austin J considered authorities on identifying the matter or matters for determination in a proceeding for the purposes of the International Arbitration Act. Austin J said as follows:

In Flakt Australia Ltd v Wilkins & Davies Construction Co Ltd McLelland J observed that the word "matter" in s 7 (2) (b) "denotes any claim for relief of a kind proper for determination in the Court. It does not include every issue which would, or might, arise for decision in the course of the determination of such a claim.

Section 7 (2) was also considered in Tanning Research Laboratories Inc v O'Brien. There, one of the questions was whether a creditor's appeal against a liquidator's rejection of the creditor's proof of debt was a "matter" capable of being referred to arbitration. The High Court held that the determination of whether the company in liquidation owed the debt to the creditor was a "matter" capable of settlement by arbitration for the purposes of s 7 (2).

Brennan CJ and Dawson J (with whom Toohey J agreed) appear to have taken a narrow view of the meaning of the word "matter", without much discussion. Deane and Gaudron JJ set out their reasoning more fully. They held that the entire controversy as to the debt owing, including estoppel issues, constituted the matter to be referred to arbitration. They referred to the use of the word "matter" in Ch III of the Constitution, noting that in that context the word "matter" means "the whole matter" and encompasses "all claims made within the scope of the controversy" (citing Fencott v Muller and Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd). However, their Honours pointed out that the word appeared in a quite different context in Ch III. They observed that in any context, the word "matter" is a word of wide import, and after drawing the distinction between a matter and a "mere issue which might fall for decision in the court proceedings or might fall for decision in arbitral proceedings if they were instituted", they said (at 351):

"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 to settlement as a discrete controversy."

In Recyclers of Australia Pty Ltd v Hettinga Equipment Inc, Merkel J referred (at paragraph 18) to these authorities, regarding Tanning Research as "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". Applying that principle, his Honour held that the "matter" to be determined in the case before him was a claim to entitlement to recover damages by reason of representations, the entitlement being based partly in claims under the Trade Practices Act and partly in claims in negligence.

Metrocall Inc v Electronic Tracking Systems Pty Ltd provides an interesting contrast to the Recyclers case. In Metrocall the Full Bench of the Industrial Relations Commission in Court Session held that a claim under s 106 of the Industrial Relations Act 1996 (NSW) was a matter that was not capable of settlement by arbitration, notwithstanding the breadth of the arbitration clause under consideration. The Commission characterised the claim under s 106 as a matter separate from the other matters that were in dispute between the parties. The Commission emphasised that the claim under s 106 concerned the fairness of the agreement in question, rather than the actionability of certain misrepresentations relied upon in the summons for relief or the validity of the alleged termination of the agreement. Because the statutory question was different from the questions raised in other aspects of the dispute, it was proper to characterise the statutory claim as a separate "matter".[16]

73 In ACD Tridon Austin J also referred to the difficulty in identifying the subject matter in dispute before the defence was filed and the ultimate issues defined. His Honour said that he was able in the matter before him to infer from the facts what the likely defences were to be and he was also aided by draft points of defence. In this case, I am able to infer that the alleged particulars of oppression identified in Mr Brazis' affidavit are likely to be denied or justified.

May an arbitration clause refer to an arbitrator statutory rights and remedies?

74 It is well established by Australian authorities that an arbitration agreement may invest in an arbitrator the power to exercise statutory powers that a court would have in the same circumstances: Government Insurance Office of New South Wales v Atkinson-Leighton Joint Venture,[17] IBM Australia Ltd v National Distribution Services Ltd,[18] Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd[19] and ACD Tridon.

75 In Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc,[20] the issue arose whether an arbitration agreement could refer to arbitration alleged breaches of the Trade Practices Act 1974 (Cth) (the Trade Practices Act). Emmett J (with whom Branson J agreed and Beaumont J generally agreed) held that an arbitration agreement could refer a statutory cause of action to arbitration and explained that the arbitration agreement provided the contractual jurisdiction for arbitrators to make orders that the Court might make by reason of a statutory power.

76 Emmett J considered a submission that s 7 of the International Arbitration Act constituted an impermissible intrusion into the judicial power which the Constitution vests exclusively in the courts which it designates. Emmett J held that the International Arbitration Act did not seek to oust the jurisdiction of the court. In substance he held that the arbitrators in exercising their powers would only be giving effect to contractual obligations between the parties and not exercising any statutory powers. His Honour said:

Where a statute confers an entitlement on one party as against another party, a court having jurisdiction in relation to such an entitlement would be bound to exercise that jurisdiction, whether or not the statute is framed in terms which purport to impose a duty on the court or in terms which purport to create an entitlement in one of the parties. In other words, section 7 does not purport to direct the manner and outcome of the exercise by the Federal Court of its jurisdiction. The section merely lays down a general rule under which a party to an arbitration agreement is entitled to have that arbitration agreement given effect by the relevant court.

Section 7 lays down a substantive rule of law that an arbitration clause in a contract is to be given priority over all other clauses to the extent that it is to be enforced in substitution for any other clause. A statute providing that particular contractual terms may not be enforced would be valid. The effect of section 7 is simply that all contractual terms in a contract which contains an arbitration clause are not to be enforced in proceedings in a court. Nor are secondary delegations arising from breach of such a contract.

In the present case, the Court must consider and determine whether or not the pre-requisites for the granting of a stay have been established. The Court must also determine whether the arbitration agreement comprised in clause 34 is null and void, inoperative or incapable of being performed and must consider whether conditions should be imposed on the stay. All of those determinations involve the exercise of the judicial power of the Commonwealth.

However, in determining a dispute between the parties to an arbitration agreement, an arbitrator does not exercise the judicial power of the Commonwealth or of a State for that matter. An arbitrator exercises powers conferred by the agreement between the parties to the arbitration agreement. A distinction exists between the powers exercised by an arbitrator to whom the parties have agreed to refer a dispute and powers exercised by a court. Thus, an arbitrator does not have power to make a determination which is directly enforceable in the manner in which an order by a court is enforceable. Where a court makes a determination and a judgment is entered or an order is made, that judgment or order will be enforced by the court.

An award by an arbitrator, however, gives rise only to contractual rights and obligations which are enforceable by or against the parties who have agreed to abide by that award. An award is binding on the parties only by force of the agreement since they have agreed that their rights and obligations are to be as stated in the arbitrator's award. If one of the parties fails to comply with or give effect to the award, it is necessary for proceedings to be brought in an appropriate court to enforce the award. [21]

77 In ACD Tridon, Austin J proceeded under the assumption that an oppression proceeding may be within the scope of an arbitration clause, but held that in the case before him such a proceeding did not constitute a dispute or difference between the parties "touching and concerning the construction or effect of this Agreement or the rights and liabilities hereunder". Austin J also dealt generally with the authorities on connecting words that linked the matter in dispute to the relevant agreement.

[158] In the Mir Brothers case the words "arising out of the contract or concerning the performance or non-performance by either party of his obligations under the contract" were construed narrowly. The words "under the contract" suggested that the drafters contemplated only disputes closely connected with the contract. Similarly the words "arising under this Agreement" were narrowly construed by French J in the Paper Products case. Where, however, the words "arising thereunder" were combined with "or in connection therewith", a much wider construction was warranted, according to Foster J in the QH Tours case. Similarly, the words "arising out of or related to this Agreement or any breach thereof" were widely construed by the Court of Appeal of New South Wales in the IBM Australia case. In this respect the IBM Australia case should be compared with the Allergan case. There Beaumont J found that similar words did not extend to certain Trade Practices claims, because the agreement between the parties was merely part of the background to the alleged contraventions of the Trade Practices Act.

[159] The Australian cases closest to the dividing line are the Francis Travel case and the Hi-Fert case. In the former, the words "arising out of this Agreement" were given a wide construction, permitting arbitration of a dispute about purported termination of an agency agreement, involving claims based on misrepresentation, estoppel and misleading conduct in contravention of the Trade Practices Act. In the Hi-Fert case, the words "arising from" were given a relatively wide construction, so as to permit arbitration of Trade Practices claims arising out of conduct during the course of the agreement, although the words were found to be not wide enough to permit arbitration of claims arising out of conduct antecedent to the agreement. It seems that antecedent conduct can be described as conduct "arising out of" the agreement but not as conduct "arising from" the agreement.

[160] I have dealt with these cases in deference to the careful arguments based on them. In the last analysis, however, they are of no more than analogical assistance. Each arbitration clause must be construed in its own terms.

[161] In clause 18 of the Distribution Agreement, arbitration is required where the dispute, difference or question is "with respect to" construction or rights and liabilities. In my opinion that language brings clause 18 into Evans J's second category. The matters to be referred to arbitration under clause 18 are not limited to the construction of the Distribution Agreement and the rights and liabilities of the parties under it. The arbitrable matters extend as well to matters relevantly connected with the construction of the Agreement and the rights and liabilities of the parties under the Agreement. Those matters may include, for example, matters going to the rectification of the agreement or any issue of waiver, or modification by collateral contract.

[162] The linking words, "with respect to", were treated as very wide words in the Overseas Union case, and in my view they are not materially different from the words "related to", which were treated as very wide words in the IBM Australia case. They require a connection between the contention sought to be arbitrated and the rights and liabilities of the parties to the Distribution Agreement under the Agreement itself and arising out of the business relationship which the Agreement establishes. For example, a contested claim by the Company or the Distributor (or vice versa) to relief for contravention of s 52 of the Trade Practices Act with respect to conduct engaged in during performance of the obligations created by the Distribution Agreement would give rise to a dispute, difference or question with respect to the rights and liabilities of the parties to the Distribution Agreement and would therefore be arbitrable under clause 18, subject to one proviso. The proviso is that the particular relief sought under the Act must not make the matter one that is incapable of settlement by arbitration.

[163] In my opinion, clause 18 of the Distribution Agreement does not extend to rights and liabilities arising out of the relationship between TAPL and Tridon as company and shareholder. The Distribution Agreement does not purport to deal in any way with Tridon's proprietary interest in TAPL as a shareholder, or with any issue of governance concerning TAPL. The subject of the Distribution Agreement is the business relationship between supplier and distributor. The scope of clause 18 is limited to contentions with respect to the construction of the Agreement and the rights and liabilities arising out of that business relationship.

[164] In clause 19 of the Shareholders' Agreement, the linking words are "touching and concerning". Considered in isolation, those words would probably have much the same meaning as the words "in respect of" in clause 18 of the Distribution Agreement. It is significant, however, that the words in clause 19 are used in conjunction with "rights and liabilities hereunder". Taken together, these words suggest that the scope of the clause was intended to be limited to questions arising out of the effect of the Agreement itself, rather than questions about the overall relationship between the parties as co-shareholders in TAPL, including their statutory and equitable, as well as their contractual, rights and duties as co-shareholders.

[165] Such a limited construction would be in accordance with the nature of the Agreement. Of its nature, a shareholders' agreement is supplementary to the rights and liabilities of the shareholders conferred by company law. It does not purport to exclude or replace the shareholders' company law rights. Indeed, the statutory rights of shareholders cannot, for the most part, be taken away by an agreement. Instead, a shareholders' agreement imposes consensual limitations on the way in which certain rights, such as voting rights and the right to transfer shares, may be exercised.

[166] The limited construction is also supported by reflecting on the identity of the parties to the Agreement. The only parties to the Shareholders' Agreement are Mr Lennox and Tridon. TAPL itself is not a party. The statutory and equitable rights of shareholders are, to a significant degree, rights with respect to the company rather than other shareholders. If two shareholders make an agreement with respect to the exercise of their rights, and agree to arbitrate, it would be rational for them to restrict the arbitration agreement to matters concerning their contractual relationship, and not to extend it to their overall shareholding rights and liabilities which involve the company as well. [22]

79 His Honour confirmed, however, that an arbitration clause could empower an arbitrator to exercise powers of the Court under the Corporations Act as follows:

[181] The question for determination is whether it is competent for parties to an arbitration agreement to agree with one another, in this fashion, to empower the arbitrator to exercise the powers of a Court under the Corporations Act. The purpose of such an agreement could not and would not be to have the arbitrator's award operate as an order of a Court. The arbitrator's determination would be an exercise of consensual power equivalent in scope to the power of a Court under the Corporations Act, having binding effect as between the parties by force of their agreement.

[182] There is now firm authority in Australia supporting the proposition that if the arbitration clause is drafted in appropriately wide language, it is legally effective to refer to arbitration statutory claims such as claims under the Trade Practices Act. In the Francis Travel case, Gleeson CJ said it had been decided by the Court of Appeal of New South Wales in the IBM Australia case (at 166):

first, that it is possible and lawful for parties to agree to refer to arbitration a dispute under the Trade Practices Act 1974 (Cth), secondly, that an arbitrator to whom such a dispute has been referred may, in general, exercise the discretionary powers which the Act confers upon the Supreme Court or the Federal Court...[23]

80 His Honour considered Allergan Pharmaceuticals Inc v Bausch & Lomb Inc,[24] where Beaumont J held that an alleged contravention of Part V of the Trade Practices Act and an alleged contravention of the Patents Act 1952 (Cth) were not controversies or claims "arising out of or relating to" the agreement in question, for the purposes of the relevant arbitration clause.

81 Austin J said that Allergan had been held to be a decision that depended on the construction of the particular arbitration clause. Austin J continued:

My conclusion is that there is nothing about legislation such as the Trade Practices Act that would prevent the parties to an arbitration clause from referring disputed claims to relief under such legislation to an arbitrator for determination. It appears, however, that there are two kinds of limitations upon the competency of the parties to an arbitration clause to refer statutory claims to arbitration. [25]

82 His Honour said that the first limitation was that an arbitrator did not have jurisdiction to decide whether the contract containing the arbitration clause was a valid contract. The second limitation was one of arbitrability. His Honour said:

The second kind of limitation was described by MJ Mustill & SC Boyd, Law and Practice of Commercial Arbitration in England (second edition, 1989), p 149. After stating the general principle that any dispute or claim concerning legal rights which can be the subject of an enforceable award is capable of being settled by arbitration, and noting that the general principle was subject to some reservations, the authors proceeded to explain the reservations, including the following:

"Second, the types of remedies which the arbitrator can award are limited by considerations of public policy and by the fact that he is appointed by the parties and not by the state. For example, he cannot impose a fine or a term of imprisonment, commit a person for contempt or issue a writ of subpoena; nor can he make an award which is binding on third parties or affects the public at large, such as a judgment in rem against a ship, an assessment of the rateable value of land, a divorce decree, a winding-up order or a decision that an agreement is exempt from the competition rules of the EEC under Article 85 (3) of the Treaty of Rome." [footnotes omitted]

In the Metrocall case, the Industrial Relations Commission in Court Session applied these observations to hold that a disputed claim to relief under s 106 of the Industrial Relations Act 1996 (NSW) is not capable of settlement by arbitration. The Commission drew attention to the specialist nature of the jurisdiction and powers of the Commission in Court Session (52 NSWLR at 25), and the nature of the considerations required to be taken into account. They emphasised that those considerations include matters relating to the industrial relations system and the public interest.

In A Best Floor Sanding Pty Ltd v Skyer Australia Pty Ltd, the parties to a joint venture agreement agreed to arbitrate any dispute, difference or question touching, inter alia, the dissolution or winding up of the "association" which was their joint venture entity. Warren J declined an application for an order staying a winding up proceeding, under the Victorian commercial arbitration legislation, on the ground that the arbitration clause was null and void because it had the effect of "obviating the statutory regime for the winding up of a company" (at paragraph [18]). Her Honour's decision was partly based on public policy considerations surrounding the process of winding up a company pursuant to court order. An additional ground seems to have been that a winding up order operates to affect the rights of third parties, not merely the rights of the parties to the arbitration clause.

In my opinion, the latter ground is a strongly persuasive one, in keeping with the general observations by Mustill & Boyd. I accept, as well, that public policy considerations operate against referring to arbitration a determination to wind up a company on the grounds upon which a court may order that a company be wound up. However, I would not regard these public policy considerations as preventing parties to a dispute from referring questions to arbitration merely because those questions arise under the Corporations Act. I see nothing special about the Corporations Act that would distinguish it, as a whole, from other legislation such as the Trade Practices Act. This seems to be the position reached by United States courts: see Dean Witter Reynolds Inc v Byrd; Shearson Lehman Hutton Inc v Wagoner; also Pick v Discover Financial Services Inc.

The statutory powers of a Court under the Corporations Act are, generally speaking, comparable to the powers exercised by a court under the general law (the power to make a winding up order being an exception to this proposition). They are generally not special powers to be exercised having regard to specialist public interest criteria.

Specifically, the public policy considerations held by Warren J to be applicable to a disputed claim to wind up a company do not seem to me to prevent the parties from referring to arbitration a claim for some merely inter partes relief under the oppression provisions of the Corporations Act, or for access to corporate information under s 247A. However, the "in rem" nature of an order for rectification of the share register of a company may prevent reference of that power to an arbitrator. [26]

83 As to the connecting words used in this case, "in connection with the Agreement" and "relating to the Business", the New South Wales Court of Appeal said in Rinehart v Welker that the phrase "under this Deed" has consistently been given a narrower interpretation than phrases such as "arising out of the deed" or "in connection with the deed".[27]

84 In Ashville Investments Ltd v Elmer Contractors Ltd,[28] May LJ said that he had:

... no doubt that disputes between parties based upon alleged mistake at the time this contract was entered into, and upon a misrepresentation or negligent mis-statement, are ones "arising in connection" with that contract and thus within the scope of the arbitration clause in this case.[29]

A similar view was adopted in that case by Balcombe LJ[30] and Bingham LJ.[31]

85 As discussed above, in ACD Tridon, Austin J considered whether the arbitration clauses extended to an oppression proceeding. His Honour found that the two relevant arbitration clauses before him did not extend to the oppression proceeding as the arbitration clauses were limited to contentions with respect to the shareholder agreement and the rights and liabilities arising out of that relationship rather than the rights and liabilities arising out of the relationship between the parties as company and shareholder.

86 The defendants (being the applicants for the stay) claim that the oppression claim is a matter before the Court which is the subject of the arbitration agreement. The defendants claim that the oppression claim is in connection with the rights and entitlements of the parties as shareholders and falls squarely within the terms of the arbitration agreement because it is in connection with the Shareholders Agreement, or alternatively, it is in relation to the Business (as defined in the Shareholders Agreement).

87 The defendants rely on the principles of construction applicable to interpretation of an arbitration clause summarised by Hargrave J in TCL Airconditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd.[32] As mentioned above, his Honour there held that where the words of the arbitration clause are sufficiently elastic and general, or capable of broad and flexible meaning, they should be given a liberal construction.[33] In accordance with this principle, the defendants contend that the arbitration agreement should be liberally construed to include the oppression proceedings brought by the plaintiffs.

88 The defendants submit that the conduct alleged by Mr Brazis against Mr Rosati, if established, would be in breach of Mr Rosati's obligations to Mr Brazis under the equitable dealing provision of the Shareholders Agreement. The defendants say that such complaints are required to go to arbitration.

89 The plaintiffs (opposing the stay application) did not contend that an oppression proceeding is not arbitrable, or that the defendants did not apply for a stay in the correct time, or that the arbitration agreement is otherwise null and void, inoperative or incapable of being performed. It is therefore unnecessary for me to consider those matters. Rather, the plaintiffs submit that the oppression proceeding under the Corporations Act did not fall within the arbitration agreement.

90 The plaintiffs submit that in this case, the Shareholders Agreement expressly preserves the rights of shareholders under the Corporations Act. Clause 15.4 provides:

Subject to any express provision in this Agreement to the contrary, the rights of a shareholder under this Agreement are cumulative and are in addition to any other rights of that Shareholder.

91 Further, they refer to clause 5.23, which provides:

(1) Subject to paragraph (2) below, no Shareholder may interfere with the management or operations of Group Companies and without limiting the ambit of this prohibition, no Shareholder has the authority to give directions to any officers or employees of a Group Company.

(2) Nothing in paragraph (1) above restricts a Shareholders ability to vote at a meeting of Shareholders.

92 The plaintiffs contend that these provisions establish that the arbitration provision was not intended to extend to overall shareholding rights and liabilities which involve the company as well and/or to oppression actions.

(a) none of the companies in the Group are parties to the Shareholders Agreement;

(b) one of the companies in the Group is a trustee company;

(c) the Shareholders Agreement is supplementary to the rights and liabilities of the shareholders conferred by company law. It does not purport to exclude or replace the shareholders' company law rights; and

(d) the Shareholders Agreement only imposes consensual limitations on the way in which certain rights, such as voting rights and the right to transfer shares, may be exercised.

(a) there is no express provision restricting shareholders' rights and liabilities which involve the company or the statutory and equitable rights of shareholders - the contrary is so: clause 15.4; and

(b) the Shareholders Agreement expressly draws a curtain between the carrying out of the Business (as defined) and the internal management and proceedings of the body - which is the central issue in an oppression proceeding and certainly is in this proceeding.

95 The plaintiffs contend that the Shareholders Agreement by its very terms has no scope in relation to the management or operations of Group companies other than to prohibit interference in such management or operations. This being so, the plaintiffs contend that it cannot have been the intention of the parties that disputes concerning the management or operations of Group companies were intended by the parties to be resolved through or under the Agreement; and, that it cannot sensibly be submitted that disputes in respect of that embargoed area of influence are nevertheless disputes in "connection with this Agreement or in relation to the Business".

96 In my view, the relevant test in determining the matter in dispute is that laid down by Merkel J in Recyclers of Australia Pty Ltd v Hettinga Equipment Inc[34] and adopted by Austin J in ACD v Tridon and Warren CJ and Nettle JA in Flint Ink NZ Ltd v Huhtamaki Aust Pty Ltd L.[35] Applying that test, in my opinion, the subject matter of the dispute raised by the oppression claim is a claim for an order under the Corporations Act that the defendants purchase the shares held by the plaintiffs in the Corporations (and the Trustee Company and the units in the RBSC Trust). In seeking this relief, the plaintiffs rely on acts or omissions of Mr Rosati, acting for himself or on behalf of the Corporations and the Trustee Company, that are oppressive to the plaintiffs as members of those companies.

97 The plaintiffs all hold shareholdings in the Corporations. The first and second plaintiffs are parties to the Shareholders Agreement and are each defined as a Shareholder. The defendants, save for Wasyl Rosati and the sixth to ninth defendants, are also parties to the Shareholders Agreement and are each defined as a Shareholder.

98 The substance of the plaintiffs' complaints about the defendants' conduct is as follows.

99 It is alleged that the Group is run as a dictatorship by Emilio Rosati. This is a claim against only one of the defendants, Mr Rosati. Although the claim is general it appears to include an allegation against him both in his capacity as a shareholder as well as a director. The claim may relate to Mr Brazis both in his capacity as a shareholder and a director.

100 It is alleged that the appointed directors Nick Spiropoulos and Wasyl Rosati have both acted under Mr Rosati's direction. This claim appears to be a particular of the first claim that the Group is run as a dictatorship by Mr Rosati as well as a claim against Mr Spiropoulos and Wasyl Rosati. This is a claim against the three individual directors. The claim appears to relate to the defendants' activities as both directors and shareholders. The claim may relate to Mr Brazis both in his capacity as a shareholder and a director.

101 It is alleged that Mr Brazis has been bullied and threatened by Mr Rosati, and that this led to Mr Brazis resigning as an executive of the Group and then continuing as a non-executive director. The allegation against Mr Rosati may relate to his conduct as a director or shareholder. The claim by Mr Brazis does not relate to his position as a shareholder.

102 It is alleged that Mr Spiropoulos and Mr Rosati have intimidated Mr Brazis and demanded that Mr Brazis resign as a director of each Group company which Mr Brazis did. Subsequently, Mr Brazis asked for the resignations to be rescinded but this was not agreed to. The claim by Mr Brazis relates to his capacity as a director. It also appears to be a claim against the defendants in their capacities as a directors. It may, however, involve Mr Spiropoulos and Mr Rosati using their powers as shareholders.

103 It is alleged that Mr Rosati has made threats to Mr Brazis relating to the value of Mr Brazis' shares in the Group companies. This claim relates to the position of the plaintiffs and defendants as shareholders.

104 It is alleged that Mr Rosati, his son Wasyl Rosati and Mr Spiropoulos have acquired property related to the Business, through a company Key Property Investments Pty Ltd, to exclusion of Mr Brazis. This claim relates to the activities of the defendants as shareholders and directors. The claim affects Mr Brazis (and the other plaintiffs) as a shareholder.

105 It is alleged that Mr Rosati, his son Wasyl Rosati and Mr Spiropoulos have used funds and resources of the Group companies for their own benefit and to the exclusion of Mr Brazis. This is a claim by the plaintiffs as shareholders and against the defendants as directors.

106 It is alleged that Mr Rosati has caused the Group to incur unreasonable and significant expenses and assume unreasonable risks for the Business. This is a claim by the plaintiffs as shareholders against Mr Rosati as an executive or a director.

107 It is alleged that Mr Rosati and Mr Spiropoulos have failed to accept a notice of offer given to them pursuant to the Shareholders Agreement by Mr Brazis and Brazis Nominees to dispose of shares in the Form 700 Group. This claim relates to the rights and obligations of the plaintiffs and defendants as shareholders.

108 These allegations are alleged to constitute oppressive conduct for the purposes of s 233 of the Corporations Act. I have sought to identify the nature of the allegations as this will be relevant to my assessment of whether the matter is connected to the Shareholders Agreement or related to the Business, which assessment I make below.

109 To enliven the jurisdiction of the Court under oppression proceedings two elements must be satisfied. Section 232 states that the Court may make an order under s 233 if (the first element):

(b) an actual or proposed act or omission by on or on behalf of a company; or

(c) a resolution, or a proposed resolution of members or a class of members of a company;

(d) contrary to the interests of members as a whole; or

(e) oppressive to, or unfairly prejudicial to, unfairly discriminatory against, a member or members whether in that capacity, or any other capacity.

110 There is no complaint made by the plaintiffs relating to a resolution, or a proposed resolution, of members or a class of members of a company.

111 Under s 232 the offending conduct may be carried out by an individual. In many cases involving alleged oppressive conduct "the conduct of a company's affairs" complained of is that carried out by an individual. Further, an alleged "act or omission by or on behalf of a company" is often due to the conduct of an individual. What may enliven the section is the characterisation of that individual's behaviour, but at the heart of the allegation is the alleged conduct of the individual.

112 The alleged offending conduct may be against a member whether in that capacity or in any other capacity: see for example s 232(e). Further, the application may be made by a member, even if the application relates to acts or omissions that are against the member in a capacity other than as a member: s 234. Thus the offending conduct could be against a member as a director or manager of the company as well as against a member in his/her capacity as member.

113 For the reasons discussed above, the connecting words "in connection" with must be given a wide compass. In my view, the connecting words go beyond disputes relating to the breach, construction, formation and performance of the Shareholders Agreement.

114 The Shareholders Agreement sets out a relationship between the shareholders and seeks to govern that relationship. That relationship includes an obligation on the parties as shareholders "to be just and equitable and faithful in its activities and dealings with the other shareholders" (clause 4.5), and the obligation on shareholders not to interfere with the management or operations of the Group (clause 5.23). The Shareholders Agreement contains provisions for the compulsory acquisition of the shares in the Corporations of a shareholder who breaches the Shareholders Agreement (clause 13).

115 Thus, the Shareholders Agreement sets out a standard of conduct that must be observed in dealings between the shareholders and procedures for the acquisition of an offending shareholder's shares in the Corporations if the shareholder does not observe the Agreement. Of course, the purchase of the offending shareholder's shareholding would effectively end the relationship between the departing shareholder and the remaining shareholders under the Shareholders Agreement.

116 I consider that proceedings taken to enforce one shareholder to purchase the shares of another shareholder, and therefore effectively end the relationship between the shareholders under the Shareholders Agreement, is a proceeding touching on and related to the Shareholders Agreement as it will affect the relationship of the shareholders under the Shareholders Agreement.

117 I accept that the Group companies are not parties to the Shareholders Agreement. I also accept that the Shareholders Agreement does not purport to govern the conduct of the affairs of the Group companies. I also accept that no express allegation has been made that the defendants are in breach of the Shareholders Agreement. I also accept that the matter does not involve any direct allegation involving the construction or performance of the Shareholders Agreement. I note that five of the defendants, Wasyl Rosati and the sixth to ninth defendants, are not party to the Shareholders Agreement.

118 Although the terms of the arbitration agreement are to be given wide compass, the context of the arbitration agreement is also important. The arbitration agreement is in a Shareholders Agreement. Therefore the scope of 'matters in connection with the Agreement or in relation to the Business' may be limited to matters between the shareholders in their capacity as shareholders.

119 The complaint of the plaintiffs is clearly against the conduct of Mr Rosati and Mr Spiropoulos who are both shareholders, and it relates to the conduct of the affairs of the Corporations the subject of the Shareholders Agreement.

120 As discussed above, oppression proceedings may be brought by shareholders in their capacity as shareholders, or in some other capacity (see s 232(e) of the Corporations Act). So it must be considered, in determining whether arbitration clause has been enlivened, whether Mr Brazis (and the other plaintiffs) is bringing the Oppression Claim in his capacity as shareholder or in some other capacity. If in the latter capacity, the argument for the claim falling within the arbitration agreement is weaker. The connection is clearly stronger if the alleged oppressive conduct relates to the plaintiffs' position as shareholders.

121 Similarly, oppression proceedings may be brought against directors of the company or any other person conducting the affairs of the company.[36] Some of the defendants are shareholders and directors, for example Mr Rosati and Mr Spiropoulos. For those defendants, in considering whether the arbitration clause is enlivened, it should be determined whether the defendants' conduct was done in their capacity as shareholders or in their capacity as directors. If in the latter capacity, the argument for the claim falling within the arbitration agreement is weaker.

122 I have discussed above the apparent capacities of the plaintiffs and defendants for each particular of the alleged oppressive conduct.

123 The plaintiffs allege several instances of oppressive conduct. Each piece of conduct may itself amount to oppression. In the circumstances, it may be that some of the allegations fall within the arbitration agreement, and some do not. In particular, allegations by Mr Brazis in his capacity as director against the defendants in their capacities as directors, may not fall within the arbitration agreement.

124 Only the first and second plaintiffs are parties to the Shareholders Agreement. Thus Ferndell Pty Ltd is not a party. Only the first, third, fourth and fifth defendants are parties to the Shareholders Agreement. Thus, Wasyl Rosati is not a party to the Shareholders Agreement. In my view, it cannot be claimed that the oppression proceeding against Wasyl Rosati is a matter falling within the arbitration agreement. As mentioned above, the defendants Bondilly Pty Ltd, NRJMD Pty Ltd, Key Properties Investments Pty Ltd and Kirtas Pty Ltd are not parties to the oppression proceeding.

125 As mentioned above, the plaintiffs seek an order under s 233 that the first to fifth defendants purchase their shares. The plaintiffs could have sought an order under s 233 that the Corporations and the Trustee Company purchase the shares (and reduce their share capital) - s 233(1)(e). Had the plaintiffs sought that relief, the matter would not be subject to the arbitration agreement because an arbitrator cannot order the Corporations and the Trustee Company to purchase shares. This is due to the fact that the various Corporations and the Trustee Company are not party to the Shareholders Agreement.

126 There is the issue, however, of the nature of the alleged offending conduct. In some cases, the alleged conduct is conduct against the plaintiff shareholders in their capacity as shareholders and by the shareholder defendants acting in their capacity as shareholders. In those instances, I am satisfied that this dispute arises in connection with the Shareholders Agreement. I am enforced in this finding by the contractual obligation on each shareholder to be just, equitable and faithful in its activities and dealings with each other shareholder and to use all reasonable endeavours to ensure the success of the Business.

127 In the case of the alleged oppression of the plaintiff shareholders not in their capacity as shareholders or by the shareholder defendants acting not in their capacity as shareholders, there is less grounds for finding that the disputes are subject to the arbitration clause.

128 On the other hand, the fact that the relief sought is akin to the relief available under the Shareholders Agreement where there is a breach of contract and that the result of the Oppression Proceeding might be to effectively terminate the relationship between the shareholder plaintiffs and the shareholder defendants, in my view, means that the matter is a dispute arising in connection with the Shareholders Agreement or in relation to the Business. This conclusion is supported by the comments of Martin CJ, with whom Buss JA agreed, in Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd.[37] His Honour there said that Australian courts 'will favour a construction of an agreement which provides a single forum for the adjudication of all disputes arising from, or in connection with, that agreement'.[38]

129 For the sake of completeness, I should add that clause 15.4 of the Shareholders Agreement which provides that the rights of shareholders are cumulative, does not mean that the arbitration clause does not extend to oppressive conduct.

130 Accordingly, I find that the dispute between the plaintiff shareholders and the defendant shareholders encompassed in the Oppression Claim must be stayed under s 8 of the Commercial Arbitration Act, subject to what is said below.

131 The Oppression Claim is not stayed under s 8 of the Commercial Arbitration Act to the extent that the plaintiffs and defendants to the Oppression Claim are not party to the Shareholders Agreement.

132 The third plaintiff Ferndell Pty Ltd is not a party to the Shareholders Agreement, although it is a Group Company. Mr Brazis deposes that it owns shares in Formula One Self Driving Screens Pty Ltd. The claims it makes against any of the defendants are not subject to the Shareholders Agreement and are not stayed under s 8 of the Commercial Arbitration Act.

133 Further, none of the claims by the plaintiffs against the second, and sixth to ninth defendants are stayed under s 8 of the Commercial Arbitration Act as these defendants are not parties to the Shareholders Agreement.

134 The fact that some plaintiffs and defendants are not subject to the Shareholders Agreement and will not be party to an arbitration will not prevent an effective arbitration of the matter between the first and second plaintiffs on the one hand, and the first and third to fifth defendants on the other hand. An arbitrator will be able to determine whether the defendants to the arbitration (who will be parties to the Shareholders Agreement) have conducted the affairs of the relevant company in an oppressive manner. Further, if the first and or second plaintiffs are successful in the arbitration, the arbitrator will be able to order the defendants to the arbitration to purchase the plaintiffs' shares.

135 The affidavit of Mr Brazis does not seek to separate the facts supporting each individual claim. Rather, the affidavit complains of a course of conduct by Mr Rosati, Mr Spiropoulos and Wasyl Rosati. The first mention of Wasyl Rosati in Mr Brazis' affidavit is that "Whilst [Mr Rosati] was not formally a director, the appointed directors, Nick Spiropoulos and from early 2013, Wasyl Rosati, Emilio's son, have both acted under Emilio's dictates." Later, Wasyl Rosati is mentioned in connection with the purchase of the land made by Key Property Investments Pty Ltd and it is alleged that Wasyl, Mr Rosati and Mr Spiropoulos are using funds and resources of the Group for their own benefit. Finally it is alleged that Wasyl Rosati is using Group resources to refurbish a Mustang car for himself.

136 Although an arbitrator would not be able to decide the oppression proceeding so far as it seeks relief against Wasyl, it is clear that his/her consideration of the oppression complaint would consider conduct by Mr Rosati and/or Mr Spiropoulos that Wasyl was alleged to be a party to. In those circumstances, there would be an overlap between the matters being investigated by the arbitrator and the matters involved in the oppression claims against Wasyl.

137 Further, the claims against those corporate defendants that are not parties to the Shareholders Agreement also rely on the conduct of the defendants Mr Rosati and Mr Spiropoulos.

138 The second remaining matter is the balance of the plaintiffs' claims; the applications for leave to bring derivative proceedings. The defendants ask that the Court, in exercising its inherent power to regulate its own process, stay the balance of the plaintiffs' claims pending completion of the arbitration.

139 The defendants rely on principles identified by Finkelstein J in Bella Products Pty Ltd (ACN 104 531 491) v Creative Designs International Ltd[39] where His Honour stated:

[21] In TS Production LLC v Drew Pictures Pty Ltd, both at trial and on appeal, the Federal Court applied the Voth and Oceanic Sun test in respect of an application for a temporary stay of an action pending in an Australian court when there was a similar action pending in a United States court. Regrettably (all the more so because I was on the appellate bench) that approach was wrong. The correct test is that stated in Sterling Pharmaceuticals Pty Ltd v Boots Co (Aust) Pty Ltd (Sterling), a decision affirmed by the High Court in Henry v Henry and CSR Ltd v Signa Insurance Australia Ltd.

[22] In Sterling Lockhart J said there is a substantial difference between a motion for a permanent stay or dismissal of a proceeding for forum non conveniens and a motion for a temporary stay or an adjournment. He said that when the court was moved for a temporary stay or an adjournment the "clearly inappropriate forum" test was not the applicable test. Lockhart J said that in such a case the court's general power to control its own proceedings enabled it to order a temporary stay "where proceedings are pending in another court and it is desirable that those proceedings should proceed to their conclusion first".

...

[23] The following propositions may be drawn from this list. First, for obvious reasons it is undesirable that two courts should determine the same dispute. Second, practical considerations based on common sense and fairness should dictate which action should proceed first.[40]

140 The principles identified in Bella Products concern the situation where related proceedings are before another court. That is not the case here. First, the other forum in this case is arbitration, not court proceedings. Second, the arbitration is not currently on foot and may not be brought. Bella Products may not justify deferring the claims not subject to the arbitration clause until completion of an arbitration that has not yet started (and may not be brought).

141 Were an arbitration on foot, court proceedings in respect of the claims not subject to the arbitration clause may still be possible. This is because those claims would involve different parties from the arbitration parties, and the arbitration would not create a res judicata in respect of the claims not subject to the arbitration agreement. In this respect Michael Wilson & Partners Ltd v Nicholls[41] is helpful. There, a firm had instituted an arbitration and court proceedings at similar times. The arbitration was against a former partner (director and shareholder) of the firm with whom the firm had an arbitration agreement. The claim against the partner was for breach of contract and breach of fiduciary duties. The firm then commenced court proceedings against two former employees for breach of contract, breach of fiduciary duties, knowingly assisting the former partner in breaches of fiduciary duty, conspiracy and procuring breach of contract. The High Court said that the parallel proceedings were not an abuse of process, and said that even if the arbitrator found the partner had not breached his fiduciary duties, it would be open to the firm to argue in the court proceedings against the employees that the partner had breached his fiduciary duties.[42]

142 The plaintiffs have some claims that must go to arbitration if they wish to pursue them, and other claims that are not subject to the arbitration clause (part of the Oppression Claim, and the balance of the plaintiffs' claims). This raises the question whether the plaintiffs should be able to decide which claims to bring first. It may be that the plaintiffs prefer to bring the derivative action in the Court first, and then bring an arbitration later, or not bring the arbitration at all.

143 Further, as discussed, the Oppression Claim is not stayed in its entirety. That part of the Oppression Claim that is brought by the third plaintiff, or brought against the second and sixth to ninth defendants, will be heard by the Court. In this situation, where there is an arbitrable oppression claim, and an oppression claim that is not subject to arbitration, the plaintiffs are able to elect which oppression claim to bring first.

144 The plaintiffs are alleging that they have been wronged. In my view it is premature to make an order staying the claims not subject to the arbitration agreement. At this stage there is no certainty that an arbitration will go ahead. That is a matter for the plaintiffs. Accordingly, I decline, at this stage, to stay the claims not subject to the arbitration agreement. The claims not subject to the arbitration agreement are:

(a) the plaintiffs' oppression claims against Wasyl Rosati;

(b) the third plaintiff's oppression claims against the first to fifth defendants; and

(c) the plaintiffs' applications for leave to bring derivative proceedings on behalf of the Corporations and the Trustee Company.

145 I will direct that the defendants bring in draft minutes of orders for consideration and that the question of costs be decided on the bringing in of the draft minutes.

[1] Commercial Arbitration Act 1984 (Vic) s 53.

[2] [2013] VSC 435.

[4] [2009] VSC 553.

[6] [2004] HCA 35; (2004) 218 CLR 451 (Pacific Carriers).

[10] [2012] NSWCA 95 (Rinehart v Welker) (per Bathurst CJ and McColl JA, with Young JA agreeing on this issue).

[12] [1990] HCA 8; (1990) 169 CLR 332.

[15] [2002] NSWSC 896 (ACD Tridon).

[17] [1981] HCA 9; (1981) 146 CLR 206.

[18] (1991) 22 NSWLR 466.

[19] (1996) 39 NSWLR 160.

[20] (1998) 159 ALR 142.

[24] (1985) ATPR 40-636 (Allergan).

[26] Ibid, [189]-[194], (citations omitted).

[28] [1989] 1 QB 488.

[32] [2009] VSC 553, [10]-[14].

[33] Ibid, [10]; see also Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd [2014] WASC 10, [44].

[34] [2000] FCA 547; (2000) 100 FCR 420.

[35] [2014] VSCA 166, [33]-[34] (Warren CJ), [88] (Nettle JA).

[36] Re Associated Tool Industries Ltd [1964] ALR 73, 82.

[37] [2013] WASCA 66; (2013) 298 ALR 666.

[39] [2009] FCA 868; (2009) 258 ALR 538 (Bella Products).

[40] Ibid, [21]-[22], (citations omitted).

[41] [2011] HCA 48; (2011) 244 CLR 427.