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Federal Court of Australia stays court proceedings and compels arbitration
Practical Law UK Legal Update 4-520-7055 (Approx. 3 pages)
Federal Court of Australia stays court proceedings and compels arbitration
by Practical Law
| Published on 02 Aug 2012 • Australia |
Andrew Robertson (Partner) and Ryan Kuss (Law Clerk), Piper Alderman
The Federal Court of Australia has ordered court proceedings to be stayed and the matter to be referred to arbitration in Milan in accordance with an agreement between the third applicant and the first respondent in a dealership agreement. All related proceedings were stayed pending the outcome of the arbitration.
Background
Section 7(2) of the Australian International Arbitration Act 1974 (Cth) (IAA) provides:
"(2)Subject to this Part, where:
(a) proceedings instituted by a party to an arbitration agreement to which this section applies against another party to the agreement are pending in a court; and
(b) the proceedings involve the determination of a matter that, in pursuance of the agreement, is capable of settlement by arbitration;
on the application of a party to the agreement, the court shall, by order, upon such conditions (if any) as it thinks fit, stay the proceedings or so much of the proceedings as involves the determination of that matter, as the case may be, and refer the parties to arbitration in respect of that matter."
Facts
An Italian company (Natuzzi) and an Australian company (Nataceli) had an agreement whereby Nataceli would have exclusive rights to sell certain products in New South Wales and the Australian Capital Territory. Article 27 of the agreement provided for disputes arising out of the contract to be referred to:
"… an arbitral tribunal consisting of three arbitrators, one being the President, according to the International Arbitration Rules of the Chamber of National and International Arbitration of Milan, which the Parties declare to know and accept in their entirety".
Article 27 provided that the arbitrators were to decide according to Italian law.
The relationship between the parties subsequently broke down and Nataceli, its directors and a related trustee company (applicants), commenced court proceedings against Natuzzi, a related company and the director of that related company (respondents). The applicants alleged, among other things, that the respondents had engaged in misleading and deceptive conduct. Not all of the parties were involved in all of the claims. Nataceli's directors and the related trustee company were only claimants in respect of claims for damages for a specific sub-set of misrepresentations. While there were a number of parties to the proceedings, only Natuzzi and Nataceli were parties to the arbitration agreement.
Natuzzi sought a stay of the court proceeding and the referral of the issues to arbitration pursuant to section 7 of the IAA.
Natuzzi submitted that Article 27 was an arbitration agreement for the purpose of section 7(2) and that the relevant matter for the purposes of that section was a damages claim brought by Nataceli against Natuzzi. While the other parties were not party to the arbitration agreement, some claims involving those parties depended on the outcome of the claim between Nataceli and Natuzzi. Other claims involving the other parties were not dependent on the outcome of the claim between Nataceli and Natuzzi, but Natuzzi submitted that they could be resolved by arbitration. Natuzzi agreed to undertake arbitration of these other claims but argued that, in any event, those claims could be stayed to await the outcome of the arbitration.
Finally, it submitted that the claims were capable of settlement by arbitration pursuant to the arbitration agreement in Article 27, a conclusion supported by an expert on Italian law who gave evidence that the claims could indeed be dealt with by an arbitral tribunal sitting in Italy.
The applicants conceded that most of the pre-conditions for the grant of a stay and referral to arbitration under section 7(2) of the IAA were fulfilled. However, they disputed whether the proceeding involved a matter that, under the arbitration agreement, was capable of settlement by arbitration, as required by section 7(2)(b).
The applicants made a number of submissions on this point, going into issues of arbitrability and the scope of the reference to arbitration.
Decision
Jagot J rejected the applicant's submissions, none of which were considered particularly strong, and ultimately stayed all of the claims between Nataceli and Natuzzi in the proceeding, and referred it to arbitration.
In dealing with the issue of the balance of the proceeding (that is, the non-arbitrable claims), Jagot J cited case law which discussed the court's broad discretion to stay the whole proceeding pending arbitration of the arbitrable aspects or, in certain circumstances, to impose terms preventing an arbitration from proceeding prior to the determination of the non-arbitrable aspects of a proceeding. The basis of that discretion was to avoid parallel proceedings in different places, with the risk of inconsistent findings on largely overlapping facts.
In this case, Jagot J considered that it would be sensible to stay the balance of the proceeding to await the outcome of the arbitration.
Comment
The decision to stay the whole proceedings pending arbitration between Nataceli and Natuzzi is interesting. While admittedly there was no particular urgency to the balance of the proceeding and one of the claims was dependent on the result of the arbitration, the judge's willingness to have the other parties wait while the arbitrating parties arbitrate could be seen as another manifestation of the courts' support for arbitration as a dispute resolution mechanism.