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

Re 700 Form Holdings Pty Ltd [2014] VSC 385 (19 August 2014) - VSC 2014 case summary — Zoe

[92]

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]

[98]

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]

[104]

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]

[106]

[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]

[116]

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]

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