The enforcement of arbitration agreements is one of the most important principles of international arbitration. Article 8 of the UNCITRAL Model Law on International Commercial Arbitration, adopted by Australia through section 7 of the International Arbitration Act 1974 (Cth) (“IAA”), empowers a party to apply for an order to stay judicial proceedings brought against them in breach of an arbitration agreement. A stay must be ordered if the relevant proceedings fall within the scope of the agreement and involve matters which are “capable of settlement by arbitration” or “arbitrable”.
The arbitrability of winding up proceedings is, however, the subject of much discussion, with many arguing that arbitration is not the appropriate forum to resolve disputes of this nature. Foster J’s decision in WDR Delaware Corporation v Hydrox Holdings; In the Matter of Hydrox Holdings Pty Ltd  FCA 1164, has recently considered this issue.
The dispute arose out of the failed joint venture between Woolworths Ltd (“Woolworths”) and its US joint venture partner Lowes Companies, Inc and Lowes’ wholly owned subsidiary WDR Delaware Corporation (collectively referred to in this blog as “Lowes”) to operate the Masters chain of hardware stores.
The joint venture was conducted through a commercial vehicle, Hydrox Holdings Pty Ltd (“Hydrox”). The underlying joint venture agreement (“JVA”) contained an arbitration clause which (save for specific carve outs) referred all “disputes” to arbitration. “Disputes” was broadly defined to mean “any and all claims, disputes, questions or controversies arising out of or in connection with this Agreement, any other Transaction Agreement or any other agreement entered into pursuant to the foregoing, including as to the validity or subject matter, the breach or termination of such agreements, the approval of the Business Plan, or in connection with any matter contemplated by any of the foregoing, raised by a party to the relevant agreement to the other parties to that agreement …”.
Arbitrability of Winding Up Proceedings
The present case involved an application by Woolworths to stay proceedings brought by Lowes in the Federal Court of Australia to wind up Hydrox, pending the resolution of disputes between the parties by arbitration.
The winding up proceedings were filed by Lowes pursuant to ss 232(e) and s 233(1)(a) of the Corporations Act (winding up on grounds of oppression/unfair prejudice), and, alternatively, s 461(1)(k) of the Corporations Act 2001 (Cth) (winding up on just and equitable grounds), on the grounds that Woolworths, through their nominee directors on the Hydrox board, had conducted Hydrox’s affairs “in a manner oppressive to, unfairly prejudicial to or unfairly discriminatory against WDR”. There was no suggestion that Hydrox was insolvent and no claim that Hydrox should be wound up in insolvency.
In response, Woolworths sought a stay of the winding up proceedings pursuant to s 7(2) of the IAA on the basis of the arbitration clause in the JVA.
The key issue before the Court was whether the matters to be determined in the winding up proceedings were capable of settlement by arbitration. Ultimately, Foster J decided that all of these matters, save for the relief of a winding up order, were arbitrable, and stayed the winding up proceedings until such time as those matters had been determined by arbitration.
Identifying the matter
Lowes contended that there was, in substance, only one matter involved in the winding up proceedings for the purpose of s 7 — namely, whether Hydrox should be wound up pursuant to the Corporations Act. In contrast, Woolworths submitted that the subject matter of the proceedings comprised several matters, including:
In determining this question, Foster J applied the following key principles in Tanning Research Laboratories Inc v O’Brien  169 CLR 332 to identify the matter or matters to be determined by the proceedings:
Applying the above principles, Foster J found that there were several matters to be determined in the winding up proceedings (at ).
Lowes submitted that even if several matters were involved in the proceedings, none of them were arbitrable (at ). They argued that a claim for a winding up order under the Corporations Act is not arbitrable given the following public interest considerations (at ):
Lowes further argued that the legislative structure of the Corporations Act proceeds upon the basis that the winding up of a company should be subjected to a public process throughout the proceeding, and be actively publicised for the benefit of interested persons (at ).
Foster J dismissed Lowes’ arguments and determined that the substantive dispute between the parties was arbitrable.
In arriving at his decision, His Honour distinguished the present case from A Best Floor Sanding Pty Ltd v Skyer Australia Pty Ltd  VSC 170, relied upon by Lowes, where Warren J (as Her Honour then was) held that an arbitration agreement between members of a company that subsequently became insolvent was “null and void” on the basis that it purported to preclude the Corporations Act regime for the winding up of the company (at ). His Honour drew an important distinction between the terms of the arbitration agreement in A Best Floor Sanding, which “endeavoured to repose in an arbitrator the capacity to dissolve or wind up the relevant joint venture vehicle”, and the terms of the JVA which permitted each of the legal and factual disputes to be determined by arbitration, “while leaving to the Court the ultimate decision as to whether or not the matters determined in that manner and any other facts and propositions of law not determined by arbitration are sufficient to persuade the Court to form the necessary opinion which is a precondition to the making of the winding up order sought” (at ). It is also relevant to note that the parties agreed in this case that that an arbitrator appointed under the JVA could not make an order winding up Hydrox (at ).
In weighing up the public policy considerations that underpinned the decision in A Best Floor Sanding, Foster J treated as important the fact that in this case there was no claim that Hydrox was insolvent, and no creditor had attended any court hearings or sought leave to participate in the proceeding, despite public advertisement and media attention. Foster J characterised the dispute, in substance, as one between the shareholders of Hydrox, relating to the way in which those shareholders performed their contractual and other obligations, such that there was “no substantial public interest element in the determination” of the disputes (at ). In doing so, Foster J endorsed the approach taken by the English court in Fulham Football Club (1987) Ltd v Richards  Ch 333, the Singapore court in Tomolugen Holdings Ltd v Silica Investments Ltd  SGCA 57, and the Hong Kong court in Re Quiksilver Glorious Sun JV Ltd  4 HKLRD 759, and held that the mere fact that a winding up order was sought as relief was not sufficient to conclude that what was effectively an inter partes dispute was non-arbitrable (at ).
For these reasons, Foster J ordered that all of the matters identified, save for the relief of a winding up order, be referred to arbitration, and that any award arising out of the arbitration be taken into account by the court in determining whether a winding up order should be made thereafter (at -). He ordered that further steps in the winding up proceedings be stayed until such time as those matters had been determined by arbitration.
A Review of the Substance Required
Although it was not alleged in the present case that Hydrox was insolvent or should be wound up due to insolvency, Foster J’s approach mirrored that adopted by courts both in Australia and internationally to determining the extent to which claims involving insolvent companies may be permitted to be resolved through the arbitral process.
In this regard, Foster J’s decision illustrates the following three principles that have been applied in the context of insolvency cases:
Further detailed discussion of these principles can be found in INSOL International’s Special Report “When ‘Where’ Matters: Anchoring Jurisdiction in Insolvency” authored by Lipman Karas’ Jason Karas, Madeleine Harland and Scott Foreman.