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- Unreported Judgment
US Healthcare Food Group Pty. Ltd. v Zouky QDC 58
DISTRICT COURT OF QUEENSLAND
US Healthcare Food Group Pty Ltd v Zouky  QDC 58
US HEALTHCARE FOOD GROUP PTY LTD
ZOUKY FOR LEBANON S. A. R. L.
District Court at Brisbane
24 April 2019
25 March 2019
McGill SC DCJ
Subject to amendment of the claim and statement of claim, application dismissed.
ARBITRATION – Stay – two contracts, one with arbitration clause – whether claim arising under other contract a matter within the scope of the arbitration clause – stay refused.
International Arbitration Act 1974 (Cth) s 7.
A&B v C&D  1 Lloyd’s Rep 166 – distinguished.
Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 – cited.
Commissioner of Taxation v Sara Lee Household & Body Care (Aust) Pty Ltd (2000) 74 ALJR 1094 – cited.
Credit Suisse First Boston (Europe) Ltd v MLC (Bermuda) Ltd  1 Lloyd’s Rep 767 – cited.
Fiona Trust and Holding Corporation v Privalov  1 Lloyd’s Rep 254 – cited.
Hancock Prospecting Pty Ltd v Rinehart (2017) 350 ALR 658 – applied.
Mulgrave Central Mill Co Ltd v Hagglunds Drives Pty Ltd  Qd R 514 – applied.
Nicola v Ideal Image Development Corporation Inc (2009) 261 ALR 1 – distinguished.
Rosenblit v Vainer  HCA 23 – cited.
Roy Hill Holdings Pty Ltd v Samsung C & T Corp  WASC 458 – applied.
Sebastian Holdings Inc v Deutsche Bank AG (No 2)  1 Lloyd’s Rep 106 – followed.
Trust Risk Group SPA v AmTrust Europe Ltd  EWCA Civ 437 – applied.
UBS AG v HSH Nordbank AG  EWCA Civ 585 – considered.
D de Jersey for the plaintiff
P Travis for the defendants
Clayton Utz for the plaintiff
A J Torbey & Associates for the defendants
- In this matter the plaintiff filed in this court on 12 February 2019 a claim and statement of claim seeking an amount of $602,235 as money due and payable pursuant to two contracts and a guarantee, or in the alternative damages in that amount, together with interest under the Civil Proceedings Act 2011. On 13 March 2019 the defendants filed a conditional notice of intention to defend, by which they disputed the jurisdiction of the District Court to entertain the plaintiff’s claim against them. On the same day the defendants filed an application for an order under r 16(g) for a stay of the proceeding pursuant to the Commercial Arbitration Act 1990 s 53 and the inherent jurisdiction of the court. On 19 March 2011, the defendants filed an amended application which referred instead to the Commercial Arbitration Act 2013 s 8, and relied in the alternative on the International Arbitration Act 1974 (Cth) s 7. That came before me on 25 March 2019, when I reserved my decision, and directed that further submissions might be provided in writing within a certain time.
Background – Unit Purchase Agreement
- According to the statement of claim, on or about 21 July 2017 the plaintiff and the second defendant entered into a contract called a “unit purchase agreement”. That this occurred is evidently not contentious, because there was read before me an affidavit by the first defendant filed 20 March 2019, which exhibited what was said to be a true copy of the unit purchase agreement pleaded in the statement of claim. That agreement on its face was entered into by 3 companies, Unique Food Group Holdings LLC, a Delaware Limited Liability Company, the second defendant, a Lebanon commercial company, and the plaintiff, which is said to be acting as trustee for an Australian fixed unit trust. The agreement provided for the second defendant to sell to the plaintiff a large number of units in the Delaware company under a limited liability company agreement of that company, presumably an agreement which provided for the existence of units in that company. On completion of the sale, the plaintiff was to be admitted as a member of the Delaware company.
- The price for the units was to be two million dollars: s 2.03. The contract provided that it was governed exclusively by the federal laws of the United States and the law of the state of Delaware: s 11.05. The contract referred to a “closing”, presumably under those laws the equivalent of settlement, which was to occur in an office in Los Angeles. By s 6.12, at the closing the second defendant was to lend the Delaware company $250,000. By s 6.13, at the closing the Delaware company was to pay the plaintiff an amount equal to the actual costs incurred by the plaintiff and its affiliates for attorneys’ fees and accountants’ fees in connection with investigating, structuring, negotiating, documenting and consummating the transaction contemplated by the contract, up to the sum of $250,000.
- Article 8 contained a number of conditions, described as “closing conditions”, which I assume operated as conditions precedent to settlement of the contract of sale. Section 8.01 specified two conditions to the obligations of all parties, s 8.02 conditions to the obligations of the purchaser, s 8.03 conditions to the obligations of the seller, and s 8.04 excluded reliance by a party on the failure of any condition set forth earlier in article 8 if the failure was caused by that party’s own failure as specified. Section 8.02(g) identified, as one of the conditions to the obligations of the purchaser, that “the hospital contract shall have been executed and delivered by the parties thereto and true and complete copies thereof shall have been delivered to the purchaser.” The definition clause in the contract identifies what is meant by the “hospital contract”, though for present purposes the details do not matter.
- Section 8.02(h) provided that:
“The Transaction Documents (other than this agreement) shall have been executed and delivered by the parties thereto (other than Purchaser) and true and complete copies thereof shall have been delivered to Purchaser.”
The term “transaction documents” was also defined in article one of the agreement. In the statement of claim, the plaintiff alleged that the hospital contract and transaction documents were not executed by the second defendant and delivered to the plaintiff by 8 July 2018: para 15.
- Article 10 dealing with termination provided in s 10.01(b) that the agreement “may be terminated at any time prior to the closing…by Purchaser by written notice to Seller if: (ii) any of the conditions set forth in s 8.01 or s 8.02 shall not have been… fulfilled by December 31 2017, unless such failure shall be due to the failure of Purchaser to perform or comply with any of the covenants, agreements, or conditions hereof to be performed or complied with by prior to the closing.” In the statement of claim the plaintiff alleged that on 6 December 2018 it terminated the agreement pursuant to that clause, on the basis of the failure to satisfy s 8.01(g) and (h) of the agreement: para 16.
- Section 10.02 provided relevantly that if the plaintiff terminated the agreement pursuant to s 10.01(b)(ii) the second defendant would pay to the plaintiff as a termination fee “the actual amount of the out-of-pocket expenses incurred by Purchaser (including, but not limited to, the actual amount of attorneys’ fees and accountants’ fees incurred by Purchaser) in investigating, pursuing, negotiating, documenting and consummating the transactions contemplated hereby, estimated to be the sum of $250,000 (the Seller Termination Fee).” In the statement of claim, it is alleged that the Seller Termination Fee has not been paid: para 17.
- Section 11.6 of the agreement contained a provision that if the parties are not able to resolve any “dispute, claim or controversy arising out of or relating to this agreement or the breach, termination, enforcement, interpretation or validity of this agreement, including the determination of the scope or applicability of this agreement to arbitrate, shall be determined by binding arbitration in confidential proceedings by the American Arbitration Association under its Commercial Arbitration Rules and Mediation Procedures…in Wilmington, Delaware USA before three arbitrators who shall be required to apply the federal laws of the United States and the internal laws of the State of Delaware, without giving effect to any choice or conflict of law provision or rule.” There was then a provision for any law suit relating to such a dispute to be brought in a court of the state of Delaware, to the jurisdiction of which each of the parties consented. It was not disputed before me that, subject to the effect of termination of the agreement, this clause amounted to an effective submission to arbitration by the parties to the agreement in relation to any claim for money payable under it, or for damages for breach of it.
- The statement of claim also alleged that on or about 4 August 2017 the plaintiff and the second defendant entered into a loan agreement which partly varied the terms of the unit purchase agreement: para 8. A copy of what was said by the plaintiff to be the loan agreement, and an associated guarantee entered into by the first defendant, was exhibited to an affidavit read before me. The document recited that the plaintiff had agreed at the request of the second defendant to provide a loan to it in the sum of $500,000 on an interest free basis, to be repayable in full on 15 July 2018, unless prior to 8 July 2018 a “trigger event” occurred. A “trigger event” occurred when the parties to the unit purchase agreement all signed that agreement and it became binding, and all of the conditions precedent to the closing obligations of the plaintiff in the unit purchase agreement had been satisfied or waived in accordance with it.
- The plaintiff alleges that it did lend the loan amount to the second defendant, indeed it alleges that it paid $250,000 on 4 August 2017, and during that year paid professional fees owing by the second defendant in the amount of $352,235. The discrepancy between the loan amount specified and the amounts nominated in paras 13 and 14 of the statement of claim was not explained by evidence before me. It follows from what is otherwise alleged in the statement of claim that no trigger event occurred before 8 July 2018, and in those circumstances the plaintiff alleges that the amount lent became repayable on 15 July 2018, but it has not in fact been repaid. The amount claimed in the claim and statement of claim is in fact the total of the two sums referred to in paras 13 and 14 of the statement of claim. Clause 7.17 of the loan agreement provides that the document is governed by the law of Queensland Australia, and that each party irrevocably submits to the non-exclusive jurisdiction of the courts of Queensland. There is no arbitration clause in the loan agreement.
- By a document executed as a deed on the same day, the first defendant guaranteed the due and punctual payment of the loan debt to the plaintiff by the second defendant and indemnified the plaintiff against all loss, damage, costs and expenses suffered or incurred by the plaintiff as a result of any failure to pay the debt on the due date, or as a result of any breach of any of the covenants and conditions contained in the loan agreement. Clause 8.4 provided that it was governed by the law in force in Queensland, Australia and the guarantor agreed to submit to the jurisdiction of the courts of Queensland. There is no arbitration clause in the guarantee agreement.
- The defendants’ submission was that the unit purchase agreement was central to the proceedings, and that accordingly, the dispute between the plaintiff and the second defendant can be seen as a dispute relating to that agreement, so that it is covered by the arbitration clause in that agreement. The International Arbitration Act 1974 (Cth) s 7 provides that the court “shall by order…stay the proceedings or so much of the proceedings as involves the determination of that matter” …and refer the parties to arbitration in respect of that matter, in circumstances such as the present. The provision is mandatory, and accordingly the second defendant is entitled to a stay. With regard to the first defendant, the proceeding against him should be stayed on the basis that it was inappropriate for there to be two parallel proceedings underway, in circumstances where the proceedings were closely connected. Further the first defendant had offered to submit himself to the arbitration, so that the whole matter could be determined in the arbitration. There were discretionary grounds for staying the proceeding against the first defendant in such a situation.
- The plaintiff submitted that the relief actually sought by it in the current proceeding was relief under the loan agreement, where there was no agreement to arbitrate, not relief under the unit purchase agreement. The plaintiff claimed only repayment of the amount advanced under the loan agreement, and the first defendant had only guaranteed the obligations of the second defendant under the loan agreement, not any obligations of the second defendant under the unit purchase agreement. The only relevance of the unit purchase agreement was as background to the transaction. So the application for a stay should be refused.
Effect of termination
- One matter which concerned me during the hearing was whether the events that had occurred meant that the unit purchase agreement had been terminated, and whether that meant that the provisions of that agreement which provided for the disputes between the parties to that agreement to be resolved by arbitration had also terminated. There was no express provision for survival of that clause; s 10.03 of the agreement, dealing with the effect of termination, provided that in the event of termination in accordance with article 10 “this agreement shall forthwith become void and there shall be no liability on the part of any party hereto, except (a) as set forth in this article 10, s 6.06 and article 9 hereof; and (b) nothing herein shall relieve any party hereto from liability for any breach of any provision hereof.”
- The arbitration agreement in s 11.06 is not in those parts of the agreement which are preserved by para (a) above. Nevertheless, the provision in clause 11.06(a) in relation to the subject matter of disputes which were submitted to arbitration included a dispute arising out of or relating to the termination of the agreement. That wording suggests that the arbitration clause was intended to continue to operate and to apply to a dispute notwithstanding the termination of the agreement, if a dispute between the parties arising out of the termination of the agreement was subject to it.
- Apart from that, there are authorities supporting the proposition that where there is an agreement to arbitrate included in a contract the agreement to arbitrate stands as a separate agreement from the principle contract which contains it, so that the termination of the principle contract will not put an end to the agreement to arbitrate. This is referred to as the principle of separability, explained in Hancock Prospecting Pty Ltd v Rinehart (2017) 350 ALR 658 at . Circumstances therefore which entitle the party to bring a contract to an end, or even I suppose which lead a contract to terminate automatically, will not necessarily terminate the operation of an arbitration agreement. That will only occur if there are circumstances specific to the arbitration agreement which entitle a party to it to terminate that agreement as a separate agreement; Fiona Trust and Holding Corporation v Privalov  1 Lloyd’s Rep 254 at .
- The plaintiff submitted that ultimately the question was one for the proper interpretation of the contract, and that, in circumstances where clause 10.03 expressly provided that the agreement would become “void” on termination under that clause, this contract was distinguishable from others where it was held that the termination of the overall contract did not produce the termination of the arbitration agreement. The term “void” is one which has in the past frequently given rise to difficulties in interpretation, and there are cases where it has been held that the term “void” should be interpreted as “voidable”.
- There are also situations where the term has been given a strict interpretation, so that for example a contract will become void regardless of whether either party seeks to terminate it. However s 10.01 specifically requires the agreement to be terminated by one party by written notice to the other, or by mutual consent, or by one of the parties in the event that certain things happen, and does not provide that in certain circumstances the agreement will just terminate automatically. In such a situation, although the agreement provided that on termination it became void, in my view the correct interpretation of that clause is that, if grounds for termination existed, the agreement was voidable, and became void upon one or both parties taking the relevant step to bring it to an end. In that situation, the contract is regarded as having been valid up to the point where it was in that way brought to an end, an interpretation which is confirmed by the fact that termination of the agreement did not discharge any party from liability for any breach prior to termination, under s 10.03(b).
- So the effective termination of the contract only brought it to an end for the future, it did not mean that it was to be treated as never having existed. Hence notwithstanding the termination there was at one time a contractual agreement to submit disputes to arbitration, and the doctrine of separability will then operate to preserve that part of the agreement notwithstanding the termination of the agreement overall. It does not assist the plaintiff simply to show that the unit purchase agreement as a whole has been terminated. It follows that the plaintiff cannot rely on the proviso in s 7(5), because that would only apply if it could be shown that the relevant contract never came into existence as a valid contract. If it did, the principle of separability would preserve the arbitration clause, even if the rest of the contract was avoided or set aside. To set aside the arbitration clause requires a ground for invalidity or avoidance based on facts specific to the arbitration agreement, which will be effective specifically against it: Hancock Prospecting (supra) at . Nothing of that kind is raised here.
- The International Arbitration Act 1974 (Cth) s 7(2) provides that the court shall stay a proceeding instituted by a party to an arbitration agreement against another party to the agreement where the proceeding involves the determination of a matter that, pursuant to the agreement, is capable of settlement by arbitration. The operation of that provision turns on the question of whether there is a matter involved in the proceeding which is capable of settlement by arbitration, which in turn depends on the scope of the arbitration agreement. Section 7(2) is not expressed in terms where it is necessary in order to obtain a stay to show that every matter involved in the proceeding is capable of settlement by arbitration. It was submitted for the plaintiff that, on the authorities, the term “matter” was confined to the pursuit of a right to relief, and it was not sufficient just to show that some issue in a proceeding arose in relation to the contract which contained an arbitration clause.
- Reference was made to the decision of the Full Federal Court in Hancock Prospecting (supra) at . There was certainly in that judgment at that point reference to propositions to that effect having been stated by the judge at first instance, but the Full Court went on at  to emphasise that the identification of the “matter” for the purposes of s 7(2), and similar statutes, turned on the interpretation of the arbitration clause in question, rather than any limitation derived from the interpretation of the section in the Act. Accordingly the real question was one of interpretation of the arbitration clause. The Full Court also endorsed the proposition that arbitration clauses should be given a wide and liberal construction, consistent with a presumption that as provisions in a commercial contract there was an expectation that the parties to the contract would not wish to draw fine distinctions between different degrees of connection between the contract between them and any particular dispute.
- In that case the court characterised the situation as one where various claims were to be brought which would be met by pleading a deed entered into earlier by the parties, containing an arbitration clause, with the plaintiffs responding by seeking to have the deed set aside, but not on a ground based on the proposition that the deed never validly existed: . On this characterisation, it was held that the claims fell within the description of “any dispute under this deed” so that the arbitration agreement in the deed applied to them, and the court proceedings were stayed.
- In the present case the relevant part of s 11.6 of the agreement referred to a “dispute, claim or controversy arising out of or relating to this agreement, or the breach, termination enforcement interpretation or validity of this agreement was to be determined by arbitration.” I think it is clear that the expression “relating to this agreement” is wide enough to encompass disputes or claims touching on the validity of the agreement, such as claims alleging that the agreement was made contrary to the Trade Practices Act, or in circumstances which would give a right to terminate the contract in equity, but the plaintiff submitted that that was not the situation here. Rather, there was a separate, later agreement involving two of the parties to the unit sale agreement, and an additional party, the first defendant, in relation to a separate transaction, a loan of money, which was made later than the unit sale agreement and was essentially independent of it.
- The defendants submitted however that the loan agreement was necessarily linked to the unit purchase agreement, by the reference to a “trigger event”, which was defined by reference to the operation of the unit purchase agreement. The unit purchase agreement was connected to the loan agreement because the determination of whether or not a trigger event had occurred depended upon the resolution of questions arising in relation to the unit purchase agreement, and, if a trigger event did occur, the money lent was to be treated as a deposit under the unit purchase agreement, and part payment of the purchase price payable under that agreement by the plaintiff to the second defendant, so that any obligation to repay the amount would be discharged upon “closing” in accordance with the unit purchase agreement. Accordingly, the fate of the obligation under the loan agreement depended on what happened with the unit purchase agreement, so that a dispute about the existence of the obligation to repay the loan would necessarily involve determining what the position was of the parties in relation to the satisfaction of the conditions precedent to closure under the unit purchase agreement, and hence whether one or other party was or was not obliged to settle the unit purchase agreement.
- Perhaps, from a functional point of view, the loan agreement could be seen as something akin to a modification of the unit purchase agreement, to provide for a deposit to be paid by the plaintiff to the second defendant which will be treated as part payment of the purchase price in the event of the contract being completed, but which will otherwise be refundable to the plaintiff. In a broad, commercial sense it is possible for what occurred here perhaps to be characterised in that way, but in my view there are obstacles to such a characterisation.
- The first is that the loan agreement cannot be characterised as an amendment of the unit purchase agreement, because there were three parties to the unit purchase agreement, and only two of those parties entered into the loan agreement. A contract can be amended by a later contract, but only if the later contract is one between all of the parties to the earlier contract. Accordingly, whatever the practical function of the loan contract, it must be characterised as an independent contract involving just the parties to it. The second objection is that it incorporated the first defendant as a party by way of a guarantor of the second defendant’s obligations, and by the provision of an indemnity in relation to the loan agreement, so that the first defendant became liable to the plaintiff under this contract. This in my view cannot be characterised as the introduction of a new party to the unit purchase contract.
- There is also the feature that the loan amount cannot be characterised as a “deposit” in the ordinary sense, because a deposit functions as an earnest of performance as well as part payment of a purchase price, and will therefore ordinarily be forfeited if the sale is not completed as a result of the default of the purchaser. On the other hand, my interpretation of clause 3.2(a) of the loan agreement is that the obligation to repay the amount lent is released and discharged only upon settlement of the unit purchase agreement, that is, only if the payment does function as part payment of the purchase price. If for any reason the unit purchase agreement does not settle, it seems to me that the money lent remains repayable. This will be relevant if there is a trigger event before the “sunset date”, but no “closing” subsequently occurs, for whatever reason. It seems to me therefore that strictly speaking the loan amount does not function as a deposit under the unit purchase agreement. Rather the loan contract provides that if the obligation to pay the purchase price under the unit purchase agreement arises the obligation to repay the loan amount is to be set off against that obligation. The proper characterisation of the loan agreement is that it is a contract for a loan of money, with a provision for a contractual set off in certain circumstances.
- Counsel for the defendants did not refer me to a case where a proceeding to enforce a right arising under a separate contract had been stayed just because the operation of that contract was linked in a practical way with the operation of the contract containing an agreement to arbitrate. One such case was A&B v C&D  1 Lloyd’s Rep 166, where the facts were unusual. The defendant D had been contracted to construct a liquefied natural gas plant, and the defendant C to provide supervisory services in the construction. Later there was a separate contract with C, for it to provide advice and services in connection with the operation of the plant. One part of the plant failed, and C provided further services in connection with the inspection and repair of the plant; there was a dispute as to whether they were provided under a third contract, or under the second contract. Later there was a further failure, and the plaintiffs sued C & D for damages for breach of each contract.
- The first two contracts provided that they were governed by the law of the Netherlands, and contained an arbitration clause, covering “any dispute which may arise in connection with this agreement.” Mustill J held that the plaintiff’s claim for damages for breach of the third agreement was a dispute within the earlier arbitration clauses, for three reasons: First, he was doubtful that there was a third agreement; second, such a contract was for the investigation and repair of work done under the first agreement, and was governed by the same terms as to liability as applied to both other agreements. As well, the plaintiff’s claims were based on the same facts whether breach of the first, second or third agreement was relied on. This was an example of a contract between the same parties, relating to the work done under the earlier contracts, and seems to me to have been more closely connected with the earlier contracts than is the case here. Russell on Arbitration says of this case that it shows that the words “in relation to” may be sufficient to catch disputes arising under another contract related to the contract containing the arbitration clause.
- One aspect of the present situation is that the loan agreement provides that it is governed by the law of Queensland. That suggests that the patties to it were not intending to “pick up” the arbitration clause in the earlier agreement at that time, because the Delaware arbitrators would more easily apply their local law, which is the proper law of that contract. In UBS AG v HSH Nordbank AG  EWCA Civ 585, it was said at  that there were two inconsistent provisions for jurisdiction in different contracts, where “the agreements were all connected and part of one package.” In that case the court held that “where the parties have entered into a complex transaction it is the jurisdiction clauses in the agreements which are at the commercial centre of the transaction which the parties must have intended to apply to such claims as” have been made: . Reference was made however to an earlier decision, Credit Suisse First Boston (Europe) Ltd v MLC (Bermuda) Ltd  1 Lloyd’s Rep 767 at 777, where Rix J had said that, where jurisdictions clauses were in conflict, “the clause in the contract which is closer to the claim and which is more specifically invoked in the claim should prevail over the clause which is only more distantly or collaterally invoked.”
- These decisions were considered by the Court of Appeal in Trust Risk Group SPA v AmTrust Europe Ltd  EWCA Civ 437, where the court also referred to the decision in Sebastian Holdings Inc v Deutsche Bank AG (No 2)  1 Lloyd’s Rep 106, and said at , :
“The current (16th) edition of Dicey, Morris and Collins states (at §12-110) that:
"Where a complex financial or other commercial transaction is put in place by means of a number of interlinked contracts, and each has its own provision for the resolution of disputes, the point of departure will be that it is improbable that a jurisdiction clause in one contract, even expressed in ample terms, was intended to capture disputes more naturally seen as arising under a related contract. …Even if the effect is that there will be a risk of fragmentation of the overall process for the resolution of disputes, this is not by itself sufficient to override the construction, and consequent giving of effect to, the complex agreements for the resolution of disputes which the parties have made."
In short, what is required is a careful and commercially-minded construction of the agreements providing for the resolution of disputes. This may include enquiring under which of a number of inter-related contractual agreements a dispute actually arises, and seeking to do so by locating its centre of gravity and thus which jurisdiction clause is "closer to the claim". In determining the intention of the parties and construing the agreement, some weight may also be given to the fact that the terms are standard forms plainly drafted by one of the parties.
There may be a difference between a complex series of agreements about a single transaction or enabling particular types of transactions, and the situation in which there is a single contract creating a relationship which is followed by a later contract embodying a subsequent agreement about the relationship. The agreements in the UBS case about the issues of securities under a collateralised debt obligation transaction which were "all connected and part of one package", and those in the Sebastian Holdings case enabling over the counter derivative contracts and trading in foreign exchange and equities are examples of the former. The agreements in this case, separated in time by just under six months, are an example of the latter. Where the contracts are not "part of one package", it may be easier to conclude that the parties chose to have different jurisdictions to deal with different aspects of the relationship.”
- If one draws that distinction, this case also falls into the latter category. As well, if one looks at the contract to which the claim is more closely connected, the answer again is the loan agreement. In those circumstances, if in the present case the plaintiff is seeking only to enforce the loan agreement and guarantee against the defendants, in my opinion that claim does not involve a dispute, claim or controversy arising out of or relating to the unit purchase agreement, or otherwise within the scope of the arbitration clause in that agreement.
- Nevertheless, on the current wording of the claim and statement of claim the defendant could easily have thought that the proceeding was one which in part sought to enforce the unit purchase agreement. There are inconsistencies in the expression of the relief claimed, but it seems to me that those are deficiency in pleading, mainly in pleading surplusage, and that if one focuses on what is actually sought by way of relief, it is a case where the relief claimed is only relief to enforce the loan agreement, not relying on any obligation arising under the unit purchase agreement. The situation ought to be made clear, by appropriate amendments to the claim and statement of claim, that no reliance is placed on any right arising under the unit purchase agreement, and in particular, that the plaintiff is not seeking by the present proceeding to enforce an entitlement to recover out of pocket expenses under s 11.02. If the plaintiff had sought to recover that payment in the present proceeding, I consider that it would have been subject to the arbitration clause and the proceeding would have been stayed, notwithstanding the involvement of the first defendant. However, if the proceeding is amended so as to make it clear that no such claim is being enforced by this proceeding, then the application for a stay should be dismissed.
- I should say something about the significance of the fact that the first defendant is not a party to the arbitration agreement. There are cases where the involvement of persons not a party to the arbitration agreement has been said to be a relevant factor in not requiring a plaintiff to proceed by way of arbitration. However, neither the International Arbitration Act s 7 nor the Commercial Arbitration Act 2013 s 8 provides any discretion in circumstances where it applies. If I had found that the plaintiff’s claim against the second defendant was within the scope of the arbitration agreement in the unit purchase agreement, I would have had no choice but to stay that claim, notwithstanding the involvement of the first defendant.
- That would have given rise to the difficulty about whether the plaintiff’s claim against the first defendant should also be stayed. The first defendant is prepared to submit to the arbitration, but if the plaintiff is unwilling to proceed in that way, it would be a question of whether it was appropriate to stay the proceeding as against the first defendant on the basis that it would be an abuse of process, or otherwise unfair, to allow the plaintiff to pursue a claim against the first defendant in court when the claim against the second defendant was being pursued by way of arbitration. It seems clear that there is no general power in the court at the present time to refer to arbitration a matter pending in the court without the consent of both (or all) parties to the proceeding. Subject to those considerations, it would seem that the plaintiff would have a right to continue the existing proceeding against the first defendant.
- There are cases which have suggested that, in such a situation, that is a reason not to stay the proceeding against the defendant subject to the arbitration clause, but it seems to me that that could only be relevant in circumstances where there is a discretion under the applicable statute, and the applicable statutes here confer no such discretion on the court. Fortunately, as long as the plaintiff amends so as to make it clear that it is not seeking in any way to enforce any right arising under the unit purchase agreement, on the view that I take of the situation there would be no stay against the second defendant anyway, and therefore no reason why the action cannot proceed also against the first defendant. So I do not need to decide this point.
- In these circumstances I will relist the matter to confirm that the plaintiff is prepared to make the necessary amendments, but subject to that the defendants’ application will be dismissed. At that stage I will hear submissions in relation to costs.
 See p 7 of the agreement: I suspect that such units are the Delaware equivalent of shares in a company limited by shares.
 This provision was not wider in its scope than the arbitration clause s 11.6, so there was not separate argument for a stay based on this provision.
 Affidavit of Sharry filed 21 March 2019, Exhibit SWS1.
 The position is the same under the Commercial Arbitration Act 2013 s 8, so I can assume the Commonwealth Act applies.
 Mulgrave Central Mill Co Ltd v Hagglunds Drives Pty Ltd  Qd R 514. Nicola v Ideal Image Development Corporation Inc (2009) 261 ALR 1 was also relied on, but in that case a stay was granted only because the third applicant, who was not a party to the arbitration agreement, had not pleaded a proper cause of action: .
 That is not conclusive: Roy Hill Holdings Pty Ltd v Samsung C & T Corp  WASC 458 at .
 See also Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 at , .
 See also Roy Hill Holdings (supra) at .
 See Hancock Prospecting (supra) at .
 For example Casey v Quabba  QCA 187.
 Loan agreement cl. 3.2(a).
 Commissioner of Taxation v Sara Lee Household & Body Care (Aust) Pty Ltd (2000) 74 ALJR 1094.
 Brien v Dwyer (1978) 141 CLR 378.
 Russell on Arbitration (24th Ed 2015) p 82 para 2-103.
 Affidavit of Zouky filed 20 March 2019, para 3.
 C.f. Hancock Prospecting (supra) at . See, as to the power to stay generally, Rosenblit v Vainer  HCA 23, and cases there discussed.
 Mulgrave Central Mill Co Ltd v Hagglunds Drives Pty Ltd  2 Qd R 514.
- Published Case Name:
US Healthcare Food Group Pty. Ltd. v Zouky
- Shortened Case Name:
US Healthcare Food Group Pty. Ltd. v Zouky
 QDC 58
24 Apr 2019