Hearsay ... the Journal of the Bar Association of Queensland
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Issue 80 - Sept 2017
Arbitrability, Separability of Disputes and Stay of Proceedings Print E-mail

By Richard Morgan store_intro.jpg

The following is an updated version of a paper presented to Cooper Grace Ward on 7 October 2016.

The Federal Court decision in WDR Delaware Corporation v. Hydrox Holdings Pty Ltd; In the Matter of Hydrox Holdings Pty Ltd [1] (27 September 2016) offers valuable insight into the scope for disputes to be held to be arbitrable, and justifying a stay of proceedings, even where what is being litigated are the grounds on which a winding up order is sought, such being an order only a Court can make. The decision explores the arbitrability of disputes where they occur within the purview of a statute such as the Corporations Act 2001, the attendant considerations of public policy and the rights of third parties who may not be parties to the arbitration clause.

Foster J held that the mere fact that a winding up order was being sought and founded upon an “oppression action” did not alter the characterisation of the real controversy as being an inter partes dispute. Although it was for the Court and the Court alone to decide whether a corporation should be wound up, issues alleged to amount to oppression within the meaning of the Corporations Act were arbitrable. Those issues were separable from the ultimate question of whether the corporation should be wound up. In such circumstances, where court proceedings were advancing disputes within the scope of an arbitration clause, they could be stayed.

The First Plaintiff, WDR Delaware Corporation (WDR) was incorporated in Delaware in the United States of America. The Second Plaintiff, Lowe’s Companies, Inc (Lowe’s) was incorporated in North Carolina. WDR was a wholly owned subsidiary of Lowe’s. The Second Defendant, Woolworths Limited was listed on the ASX. In 2009 Lowe’s and Woolworths formed a Joint Venture Agreement (JVA) to establish and operate a chain of home improvement and hardware stores known as “Masters”.

The joint venture was to operate through a corporation specifically incorporated for that purpose, Hydrox Holdings Pty Ltd (Hydrox). WDR held one third of the shares in Hydrox. Woolworths held the remaining two thirds. Hydrox was the corporate vehicle for the conduct of the Masters joint venture. The Masters venture was not a success. Disputes arose between WDR and Lowe’s on the one hand, and Woolworths on the other.

Lowe’s and WDR approached the Court on an ex parte basis and sought the early return of an Originating Process claiming a declaration that the affairs of Hydrox had been conducted in a manner oppressive to, unfairly prejudicial to or unfairly discriminatory against WDR, and an order pursuant to s.233(1)(a) of the Corporations Act or alternatively pursuant to s.461(1)(k) of the Corporations Act that Hydrox be wound up.

Foster J observed that s.233(1) empowered the Court to make one or more of ten types of orders of which a winding up order was only one.

Woolworths responded with an application seeking, inter alia, an order that the proceedings be stayed pursuant to:

(a) s.7(2) of the International Arbitration Act 1974 (Cth) (the IAA);

(b) art 8(1) of the UNCITRAL Model Law on International Commercial Arbitration, as given effect by s.16(1) of the IAA;

(c) s.23 of the Federal Court of Australia Act 1976 (Cth); and/or the implied powers of the Court.

Woolworths contended that the arbitration clause in the JVA provided that disputes of the character which comprised the subject matter of the proceedings must be determined by arbitration and that all of the disputes raised by the Plaintiffs in the proceeding were “capable of settlement by arbitration” within the meaning of that phrase in s.7(2)(b) of the IAA and also within art 8(1) of the UNCITRAL Model Law on International Commercial Arbitration.

Foster J held that s.7 of the IAA was engaged, because both WDR and Lowe’s were domiciled or ordinarily resident in the USA which was, and is, a Convention country (see s.7(1)(d)). Although neither the Plaintiffs nor Woolworths submitted that an arbitrator appointed under the JVA could make an order winding up Hydrox, the Plaintiffs argued that no part of the proceeding was arbitrable. Woolworths submitted that all of the Plaintiff’s claims, i.e. the oppression allegations disputes other than the winding up order itself were arbitrable.

The Plaintiff’s case for oppression was based upon allegations that Woolworths with its domination of Hydrox failed to provide information sought before Hydrox board meetings, that Woolworths, by its domination of Hydrox purported to require the Lowe’s nominee directors to vote on resolutions without sufficient information, in other instances swamped the Lowe’s nominees with a large amount of information immediately before those meetings where there was insufficient time to consider the information, purported at Board meetings to exercise powers by majority vote without considering the requisite approval of at least one Lowe’s nominee director, purported wrongfully and in bad faith to terminate the JVA for the improper purpose of allowing the Woolworths nominees on the Hydrox Board to pass by majority vote a resolution concerning the winding up of the Masters business, caused resolutions to be put to the meeting of the Hydrox Board against the advice of the lawyers it retained to advise Hydrox and over the objections of the Lowe’s nominees, and excluded WDR, Lowe’s and their nominees from management of the affairs of Hydrox.

The parties were also in dispute concerning the exercise by WDR of a put option requiring the purchase price of its shares in Hydrox by Woolworths to be determined pursuant to a methodology in the JVA and further, the circumstances surrounding the exercise by Woolworths of its call option under the JVA requiring WDR to sell its shares in Hydrox to Woolworths. The exercise by each party of its option triggered the necessity for Independent Expert Valuations.

WDR gave notice of dispute for the purpose of the arbitration clause as to whether the independent expert valuation obtained by Woolworths was valid within the meaning of the JVA. Woolworths similarly gave notice of arbitration for the same reasons. WDR commenced an arbitration (though Woolworths did not) on the put option and independent valuation dispute and Woolworths lodged a Defence and Counterclaim.

Foster J held that there was a “policy of minimal curial intervention” in matters governed by arbitration agreements: Robotunits Pty Ltd v. Mennel.[2] In a stay application Courts were not entitled to delve into the merits of a case any more than they were in the context of enforcement or setting aside proceedings: Robotunits.[3] There was a special need to have regard to international case law when construing and applying the IAA, the New York Convention and the Model Law: TCL Air Conditioner (Zhongshan) Co Ltd Limited v. Castel Electronics Pty Ltd.[4] The word “matter” in s.7(2)(d) of the IAA connoted that matters to be determined in any given proceeding were distinct from the proceeding itself and multiple matters may exist within the one legal proceeding. In Tanning Research Laboratories Inc v. O’Brien [5] Deane and Gaudron JJ (at 351-352) had held that, unlike Ch III of the Constitution, “matter” in s.7(2) of the IAA did not mean “the whole matter”. Foster J held that the “matter” for the purposes of s.7 of the IAA may or may not comprise the whole subject matter of any given proceeding. The Court had to identify the “matter”.

The Plaintiffs argued that the Court was being asked to exercise a power, namely winding up a corporation, a pre-condition to which was the formation of an opinion as to the appropriateness of the relief, which necessarily concerned evaluation of the allegations put forward in the oppression proceedings. Foster J observed that the issue of arbitrability went beyond the scope of an arbitration agreement. It involved a consideration of the inherent power of the national legal system to determine what issues are capable of being resolved through arbitration to be determined by application of the nation’s domestic law alone: Comandate Marine Corp v. Pan Australia Shipping Pty Ltd.[6] For a matter to be non-arbitrable there had to be a “sufficient element of legitimate public interest in the subject matter making the enforceable private resolution of disputes concerning them outside the national court’s system inappropriate”.


The Plaintiffs accepted that some claims for relief under the Corporations Act were arbitrable including claims for purely inter partes relief under s.233: ACD Tridon Inc v. Tridon Australia Pty Ltd [7] per Austin J; Robotunits;[8]  Re 700 Form Holdings Pty Ltd;[9] and Brazis v. Rosati. [10] They submitted that a claim for a winding up order was not arbitrable at all.

Foster J followed the decision in Tanning Research Laboratories Inc v. O’Brien. [11] It held that the question of whether the debt was due and if so, in what amount, was arbitrable notwithstanding that it was raised in a context which directly involved application of the Corporations legislation and even though the ultimate decision whether or not to reverse the liquidator’s rejection of a debt could only be made by the Court.

Foster J referred with approval to Fulham Football Club (1987) Limited v. Richards [12] where the Court held that although only the Court could wind up the company, the arbitration clause covered the issues in dispute which might form the grounds upon which a winding up order might later be made. In Fulham Football Club Patten LJ referred to in Re Pevril Gold Mines Limited [13] where it was said that an agreement between shareholders to resolve a dispute which might later justify a winding up order on the just and equitable ground would not, if the subject of an arbitration clause, infringe the company law statute or be void on grounds of public policy.

In Tomolugen Holdings Limited v. Silica Investments Limited [14] the Singapore Court of Appeal followed Fulham Football Club and Re Quiksilver Glorious Sun JV Limited [15] where a distinction was made between the substantive dispute, i.e. the commercial disagreement and the order which was ultimately sought.

As to separability of disputes Foster J considered ACD Tridon Inc v. Tridon Australia Pty Ltd [16] where one group of claims made in the proceeding fell within the wording of the relevant arbitral agreement but four others did not. His Honour distinguished A Best Floor Sanding Pty Ltd v. Skyer Australia Pty Ltd [17] where Warren J declined an application for an order staying a winding up proceeding on the grounds that an arbitration clause purporting to give that power was null and void, because it had the effect of obviating the statutory regime for the winding up of a company. However, the public policy considerations held by Warren J to be applicable to the disputed claim to wind up a company did not prevent the parties from referring to arbitration a claim for some merely inter partes relief under the oppression provisions of the Corporations Act.

In conclusion, Foster J held that the case was a dispute solely between the shareholders of Hydrox involving the way in which those shareholders performed their contractual and other obligations inter partes. There was no public interest element in the determination of those disputes. No one had suggested that Hydrox was insolvent. No creditor had sought leave to participate in the proceeding. The mere fact that a winding up order had been sought did not alter the characterisation of the real controversy between the parties as being an inter partes dispute.

Other than the relief sought as to a winding up order, the questions of fact and law marking out the substantive controversy between the parties were all matters which were capable of resolution by arbitration. Foster J held that if, at the end of the arbitral process the award or awards did not address satisfactorily or comprehensively all of the grounds relied upon by the Plaintiffs in support of their claims for relief in the present proceedings, then they could supplement them with any available evidence in support of a winding up application. Having regard to the fact that there were two extant arbitrations already on foot between the same parties concerning central aspects of the JVA and upon an intimation by Senior Counsel for the Plaintiffs that his clients would not wish to proceed with the hearing of the winding up application until such time as the arbitrable matters had been determined by arbitration, Foster J granted a stay of the whole of the present proceedings.

WDR Delaware v Hydrox Holdings has already been referred to in Four Colour Graphics Australia Pty Ltd v Gravitas Communications Pty Ltd [18] and applied in In the matter of Infinite Plus Pty Ltd [19] (“Infinite Plus”), another shareholder oppression claim. The most noteworthy aspect of the latter is the demonstrated breadth and flexibility of the discretion to stay a part of the proceedings even if non- arbitrable. In WDR Delaware v Hydrox Holdings, the application for the winding up order sought was non-arbitrable, but was stayed pending the outcome of the arbitrable disputes involving the oppression claim.

The orders by Gleeson JA in Infinite Plus included an order for the stay of the proceedings to operate against a co-plaintiff who was not a party to the shareholder agreement containing the arbitration clause. Gleeson JA referred to Casceli v Natuzzi S.p.A,[20] itself quoting from Merkel J in Recyclers of Australia : [21]

“ the basis for the discretion is that the spectre of two separate proceedings-one curial, one arbitral, proceeding in different places with the risk of inconsistent findings on largely overlapping facts, is undesirable” .

Thus it would seem that if arbitrability of a dispute can be shown, the mandatory language in s. 7(2) of the IAA and Article 8(1) of the Model Law will lead not only to the stay of those disputes but may also lead to the exercise of a discretion, based on the court’s inherent power to control its own process, involving claims beyond the strict scope of the arbitration clause.

Richard Morgan



[1] (2016) 245 FCR 452 .

[2] [2015] VSC 268.

[3] 306 [14].

[4] (2014) 232 FCR 361.

[5] (1990) 169 CLR 322.

[6] [2006] FCAFC 192; (2006) 157 FCR 45.

[7] [2002] NSWSC 896, [192].

[8] 325-320 [55]-[69].

[9] [2014] VSC 385.

[10] (2014) 102 ACSR 626.

[11] (1990) 169 CLR 332.

[12] [2012] Ch 333.

[13] [1898] 1 CH 122.

[14] [2015] SFGA 57.

[15] [2014] HKCFI 1306; (2014) 4 HKLRV 759.

[16] [2002] NSWSC 896.

[17] [1999] VSC 170.

[18] [2017] FCA (9 March 2017).

[19] [2017] NSWSC 470 (27 April 2017).

[20] [2012] FCA 691.

[21] Recyclers of Australia Pty Ltd v Hettinga Equipment Inc [2000] FCA 547, [65],[66].

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