two-thirds of the shares in Hydrox,
while U.S. company WDR Delaware
Corporation (WDR), a subsidiary of
Lowe's Companies, Inc. (Lowe's), owned
one third.
Disputes arose in relation to the
Masters business. WDR and Lowe's
commenced proceedings alleging
oppressive conduct by Hydrox and sought
orders that Hydrox be dissolved pursuant
to the oppression remedy or alternatively
on "just and equitable" grounds.
Woolworths sought that the
proceedings be stayed on the basis that
the terms of the joint venture agreement
between the parties required disputes to
be determined by arbitration.
Section 7(2) of the Australian
International Arbitration Act 1974
requires proceedings to be stayed
and referred to arbitration if they are
commenced by a party to an arbitration
agreement and the matter is capable of
being settled by arbitration.
The central issue in the proceedings
was whether the matters raised by WDR
and Lowe's in their proceedings could be
resolved by arbitration.
WDR and Lowe's argued that there
was only one matter to be determined by
Hydrox should be dissolved. WDR and
Lowe's argued that this determination
could only be made by a court and not
by private arbitration.
The court rejected this argument and
agreed with Woolworths in finding that
the proceedings involved several matters
to be referred to arbitration (such as
whether there was a failure to provide
information and whether the joint
venture agreement had been breached
as alleged by WDR and Lowe's).
The court stated that whether these
matters were arbitrable involved "a
consideration of the inherent power of a
national legal system to determine what
issues are capable of being resolved
through arbitration. The issue goes
beyond the will or the agreement of
the parties. The parties cannot agree to
submit to arbitration disputes that are
not arbitrable."
The court noted that matters
incapable of being resolved by
arbitration shared a "sufficient element
of legitimate public interest in the
subject matters making the enforceable
private resolution of disputes concerning
them outside the national court system
inappropriate."
for a dissolution order is not arbitrable
on the basis that it affects the legal status
of a person, it affects a number of third
parties, the creation and dissolution of
a company legal entity is a matter of
governmental authority, and there is
a public interest in ensuring that the
procedural steps by which a company
is liquidated are governed by court and
determined publicly rather than by
private arbitration.
Woolworths argued that the question
the arbitrator would answer was not
whether to dissolve Hydrox. The
arbitrator would resolve the matters
that the court would have regard to in
determining whether to dissolve Hydrox,
such as whether there had actually
been a failure to provide information or
whether a breach of the joint venture
agreement had occurred as alleged by
WDR and Lowe's.
The court had regard to Australian
and international case law on the
arbitrability of matters, and was of the
view that the matters raised by WDR and
Lowe's could be arbitrated. The matters
were in substance contractual disputes
and other obligations between private
parties. The fact that a dissolution order
was sought by WDR and Lowe's did not
change the nature of the dispute between
the parties that needed to be resolved.
While the court saw no issue in having
these matters determined by arbitration,
it held that the ultimate decision of
whether to dissolve Hydrox was only
capable of being made by the court and
was not arbitrable.
from agreements that are reached
between local and foreign parties. It
is essential that local expertise be
obtained in dealing with any cross-
border transactions. The Masters Case
is an example in which local Australian
shareholder remedies did not overrule
the joint venture agreement reached
between an Australian company and a
U.S. company.