La Donna v Wolford AG [2005] VSC 359

What the court decided

By a summons filed 4 August 2005 Wolford sought a stay of La Donna's proceeding under section 7 of the International Arbitration Act 1974 (Cth), the Commercial Arbitration Act 1984 (Vic) or the inherent jurisdiction [2]. Wolford, an Austrian company, had appointed La Donna, a Victorian company, as its Australian and New Zealand distributor [1], [3]. The appointment was made under a Sole Distributorship Agreement dated 23 June 2003 [3]. The agreement provided that Austrian law would govern and that all disputes arising out of it or related to its violation, termination or nullity would be arbitrated in Bregenz [3]. La Donna conceded that section 7 applied because the clause was an arbitration agreement governed by the law of a Convention country, Austria [5].

By a summons dated 26 May 2005 Wolford had sought security for its costs in the sum of $388,682 [10]. Its affidavits estimated the costs of litigating the matter in the Court to the conclusion of the trial and gave no indication of any intended stay application [10]. After an unsuccessful mediation, Master Evans dismissed that application, his Honour being told this was because Wolford had not established the financial threshold for security [11]. There was no material indicating that the stay application had been foreshadowed before the stay summons was issued [14].

Applying Australian law, his Honour concluded that all of La Donna's claims fell within the arbitration provision, saying that such clauses "should not be read narrowly" [20]. He reached that conclusion subject to La Donna's argument about the relevance of Austrian law [20], which he later found it unnecessary to decide [28].

His Honour said that the right to apply for a stay under section 7(2) is a private right which may be waived [21]. He described Austin J in ACD Tridon Inc v Tridon Australia Pty Ltd as identifying "waiver in the stronger sense", an unequivocal final choice between alternative procedures [21]. The second form identified by Austin J, waiver in the weaker sense, was conduct which might preclude a successful application in the exercise of the Court's discretion [22].

La Donna relied on Wolford's failure to reserve its position or foreshadow a stay application, its contest of the injunction, its acquiescence in directions and its participation in the mediation [23]. His Honour considered that conduct relevantly similar to the conduct Austin J found insufficient in Tridon [23]. Although the party in Tridon had expressly reserved its position, his Honour did not think that circumstance alone made a difference [23]. Had the steps on the interlocutory injunction, the directions and the mediation been all that was relied on, he would have found no abandonment [24]. A party could rationally take part in those steps while intending to persuade the Court at an appropriate time that the dispute should be arbitrated [24].

The security application, however, fell into "an entirely different category" because it was based on the explicit premise that, in the absence of a settlement, the litigation would proceed to trial [25]. By it Wolford sought an advantage, or sought to impose a burden on La Donna, on the basis that it would incur costs in litigation in the Court [26]. This step, his Honour held, was an unequivocal abandonment of a stay and arbitration [26]. To allow Wolford to rely on the arbitration provision would permit it to "approbate and reprobate", and it had waived the provisions and thereby rendered them inoperative [27].

His Honour did not deal with La Donna's other arguments, including that Wolford had to prove Austrian law [28]. He rejected the alternative stay applications under the Commercial Arbitration Act and the inherent jurisdiction for the same reason [29]. The summons was dismissed because the arbitration agreement was inoperative under section 7(5) of the International Arbitration Act [30].

Why it matters

A party wanting to arbitrate may contest an interlocutory injunction, agree to directions and take part in mediation without necessarily losing a stay. Seeking security for costs on the footing that the case will be tried in court, however, may be treated as an unequivocal choice to litigate, waiving the right to arbitrate. Solicitors acting for a party relying on an arbitration clause should bring any stay application before taking any step premised on the dispute being tried in court.

Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.