11 Oct 2012

Is your dispute "capable of settlement by arbitration"?

by Madeleine Kearney

A "matter" can comprise claims for statutory damages for alleged breaches of various provisions of Australian legislation.

One of the requirements for referring a dispute to arbitration in the Federal Court is that it must be "capable of settlement by arbitration". What does this mean? A recent case – Casaceli v Natuzzi SpA [2012] FCA 691 – has some answers.

In these proceedings, Justice Jagot was asked to grant an application by Natuzzi SpA to have a dispute between it and its dealer arising under a dealership agreement referred to arbitration and proceedings stayed. This meant asking for a stay of proceeding under section 7(2) International Arbitration Act 1974 (Cth).

The dealer opposed the application, arguing that the requirements of section 7(2) were not met because the proceedings did not involve determination of a matter that, in accordance with the arbitration agreement under the dealership agreement, was capable of settlement by arbitration. However, the Court disagreed and granted Natuzzi's application.

It is clear from the judgment that the Court was not impressed by the dealer's opposition to arbitration and the numerous grounds it raised to oppose the application.

The proceedings

The proceedings were brought by the dealer and alleged Natuzzi had committed misleading and deceptive conduct, unconscionable conduct and exclusive dealing in contravention of the Australian Consumer Law and breached the Franchising Code by its and its employees' interference with contractual relations.

A complicating factor was that the employees were not parties to the dealership agreement. The Court thought that there was no reason, however, why those claims against the employees could not be separately stayed to await the outcome of the arbitration.

Another complicating factor was that the dealership agreement was governed by Italian law, yet many of the dealer's claims were made under Australian legislation. However, this difficulty was overcome by expert evidence filed to the effect that all of the claims for damages under Australian statutes were capable of settlement by arbitration under Italian law. That is, the arbitration clause would be broadly interpreted to cover all disputes deriving from the dealership agreement or from the relationship to which the dealership agreement refers.

Did the dispute involve a matter "capable of settlement by arbitration"?

The dealer put forward a number of propositions as to why the dispute was not capable of settlement by arbitration:

1. The dealer argued that the dispute did not fall within the definition of "matter".

The discussion about the meaning of the "matter" in section 7(2) of the Act in the judgment is of interest. However, the Court took the view that the "matter" could comprise claims for statutory damages for alleged breaches of various provisions of Australian legislation, together with another claim for common law damages for alleged unlawful interference with contractual relations and dismissed this argument.

2. The dealer argued that the question of whether the dispute involved a matter "capable of settlement by arbitration" should be answered by reference to Australian law notwithstanding that the proper law of the dealership agreement was Italian law.

The Court did not think that the question of what was the correct governing law made any difference to the result. Regardless, the Court took the view that even if Australian law applied, the dealer's position was not assisted.

3. The dealer submitted that the arbitration agreement did not apply at all to the dispute.

This required a particular construction to be given to the dealership agreement. The Court did not find this a convincing construction of the contract whether under Australian or Italian law. In particular, the Court did not accept the dealer's submission that the parties intended that different disputes between them would be litigated in different jurisdictions.

4. The dealer said that a substantial part of the dispute fell outside the arbitration agreement because:

  • it was not clear whether certain representations at issue in the proceedings were made by Natuzzi as opposed to some other member of the Natuzzi Group such as Natuzzi Asia;
  • the disputes in the proceeding were not disputes "arising out of the" dealership agreement; and
  • there were necessary and proper parties to the proceeding who were not parties to the dealership agreement.

The Court rejected the first two submissions. It accepted that there were parties to the proceedings that were not parties to the dealership agreement, but held that the relevant matter under section 7(2) was the dispute between the dealer and Natuzzi, each of which was bound by the dealership agreement.

5. The dealer submitted that the Court should be satisfied that the matter is not capable of settlement by arbitration.

The Court disagreed.

6. The dealer also submitted that the Court should not be satisfied that the national laws of Australia will be applied in an arbitration or that the arbitrators will be capable of so doing.

The Court stated that involved mere speculation and an apparent distrust of arbitration at odds not only with the express intention of the parties when they entered into and extended the dealership agreement but also the policy embodied in the Act.

7. Finally the dealer argued that the application should be refused because the rights of third parties may be affected.

The Court dismissed this submission saying that it extended far beyond the matter in this case which is between the dealer and Natuzzi and involves claims for damages.

In conclusion, the Court held that the requirements of section 7(2) of the Act were satisfied. Accordingly, he ordered that the proceedings be stayed and the matter referred to arbitration. The Court thought that the balance of the proceeding involving the employees should also be stayed as a matter of discretion to await the outcome of the arbitration.

Procedural question

The Federal Court has both rules and a practice note relating to applications under the Act. Importantly, rule 28.43 says that a party to an arbitration agreement who wants an order under section 7 of the Act to stay the whole or part of a proceeding must file an originating application, in accordance with Form 51. Natuzzi had not complied with this requirement and instead had brought an interlocutory application.

While noting that the purpose of the practice note was to ensure consistency in the way in which the Court deals with matters involving the Act, the Court refused the dealer's application to adjourn. This was because the dealer did not make its position known until the day before the hearing of the interlocutory application in circumstances where Natuzzi had made arrangements for evidence to be given by experts in Italian law by video-link from Italy.

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