We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
12 October 2017
In WDR Delaware Corporation v Hydrox Holdings Pty Ltd(1) the Federal Court stayed the proceedings brought before it and referred the dispute to arbitration, save for the ultimate question of whether a winding-up order against the first defendant should be made.
The decision illustrates the policy of minimal curial intervention that the Australian courts follow where arbitration is concerned. The decision also confirms the arbitrability of certain claims under the Corporations Act 2001 (Cth).
Further, the decision illustrates some of the more technical aspects of the stay analysis. In particular, it shows how the Australian courts determine two key issues:
The scope of the arbitration agreement is determined through a process of contractual interpretation; the issue of arbitrability is determined by reference to the law of the forum – in this case, Australian law.
The mere fact that a dispute includes an application for a winding-up order does not make the entire dispute non-arbitrable. If the basis of the winding-up order is a contractual dispute, that contractual dispute will be referred to arbitration (provided that it is within the scope of the arbitration agreement that existed between the disputing parties).
The case concerned a joint venture agreement entered into in 2009 between Woolworths Ltd and Lowe's Companies, Inc through its subsidiary WDR Delaware Corporation.
Hydrox Holdings Pty Ltd was registered as an Australian company on August 20 2009 and served as the corporate vehicle through which the Masters Home Improvement chain of hardware stores would be established and operated in Australia and New Zealand. As of the date of its incorporation, WDR held one-third of Hydrox's shares and Woolworths held the remaining two-thirds.
The Masters business had operated at a loss since its incorporation and, as a result, several disputes arose between the parties.
On August 29 2016 Lowes and WDR brought proceedings to the Federal Court of Australia, seeking a declaration that the conduct of Woolworths and its nominee directors on the Hydrox board between August 9 2016 and August 29 2016 amounted to conduct that was "oppressive to, unfairly prejudicial to or unfairly discriminatory" against them. Lowes and WDR sought an order pursuant to the Corporations Act 2001 for Hydrox to be wound up.
On August 31 2016 Woolworths sought to stay the proceedings brought by Lowes and WDR pending determination of the dispute by arbitration.
Woolworths contended that the court was bound to stay the whole of the proceedings because all of the disputes raised by WDR and Lowes were "capable of settlement by arbitration" within the meaning of Section 7(2)(b) of the International Arbitration Act 1974 and Article 8(1) of the United Nations Commission on International Trade Law Model Law (Schedule 2 to the International Arbitration Act). The International Arbitration Act applied as both WDR and Lowes were parties to the joint venture agreement (and thus parties to the arbitration agreement contained in the agreement) and were, at the time when the joint venture agreement was entered into, domiciled or ordinarily resident in the United Sates (a convention country for the purposes of the International Arbitration Act).
The court was initially faced with contention as to the subjects of the proceedings.
Lowes and WDR argued that there was a sole matter in dispute: the question as to the winding-up of Hydrox. Lowes and WDR argued that as a matter of Australian public policy, winding-up disputes cannot be resolved by arbitration.
Justice Foster disagreed with the characterisation of the dispute advanced by Lowes and WDR. Foster preferred Woolworths' contention that several separate matters within the proceedings fell within the ambit of Section 7 of the International Arbitration Act. In addition to the winding-up claim, Foster identified claims for:
In a decision of this type, there are two separate questions that must be considered:
In the present case, the scope of the arbitration clause was not at issue.
In contrast to the determination of the scope of an arbitration agreement, the concept of arbitrability is not a contractual question. It is instead a question determined by the application of the nation's domestic law alone – in this case, Australia.
WDR and Lowes submitted that there was a "sufficient element of legitimate public interest in the subject matters" of this proceeding that made their "private resolution... outside the national court system inappropriate".
WDR and Lowes contended that Australian public policy prohibited the matters from being arbitrated as they were matters concerning the Corporations Act, and therefore uniquely the subject of government authority because:
Ultimately, it was argued that the Corporations Act was structured on the basis that the winding up of a company should be a public process.
Woolworths did not dispute that it was for the court to form an opinion as to whether there existed an entitlement to a winding-up order. However, Woolworths contended that the other matters in the proceedings were "jurisdictional or forensic preconditions to the proper consideration by the Court of the appropriateness of making a winding up order".
While Foster found it "uncontroversial" that some disputes could not be the subject of private arbitration, she determined that the arbitrability of certain matters raised in any given proceeding under the Corporations Act would usually depend on the nature of those matters.
Foster took into account that there had been no suggestion that Hydrox was insolvent (indeed, Woolworths had provided letters of comfort to the directors of Hydrox as to its solvency), and that several regulatory requirements had not been fulfilled (eg, the fact that no creditor had attended the court hearings). In addition, Foster noted that the oppression claims brought under the Corporations Act were being litigated on an inter partes basis and were therefore arbitrable. As such, Foster found that there was no substantial public interest element in the determination of the dispute.
Further, Foster criticised "blanket propositions" that all claims in a Corporations Act proceeding could not be arbitrable, finding that the "mere fact" a winding-up order was sought did not alter the nature of the proceedings as, ultimately, an inter partes dispute (between the sole shareholders of Hydrox) concerning the way in which those shareholders performed their contractual and other obligations.
Foster identified a number of sources of power to grant the stay sought by Woolworths, and paid particular attention to the well-founded "policy of minimal curial intervention" in matters governed by arbitration agreements.
Pursuant to this policy, Foster noted that the court was no more entitled to delve into the merits of the case in the context of a stay application than in the context of enforcement or setting-aside proceedings. The questions of fact and law which substantiated the dispute between the parties were all capable of resolution by arbitration, and as arbitration was the forum by which the parties "by their own bargain [had] chosen",(2) the parties were to be held to that bargain.
For further information on this topic please contact Ben Luscombe at Clifford Chance LLP by telephone (+61 8 9262 5555) or email (email@example.com). The Clifford Chance website can be accessed at www.cliffordchance.com.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.