Australia Court Confirms Proceedings May Be Split Between Court and Arbitration

A recent decision of the New South Wales Court of Appeal¹ addressed the operation of section 7 of the International Arbitration Act 1974 (Cth) in circumstances where only part of a dispute fell within an arbitration agreement. The decision provides important guidance on the identification of arbitrable “matters,” mandatory stay of proceedings and the limits of arbitrability. While arising in the context of a major construction joint venture dispute, its implications extend more broadly to parties to international commercial contracts in Australia, particularly in complex, multiparty disputes.

Background

Elecnor Australia Pty Ltd (Elecnor) and Clough Projects Australia Pty Ltd (Clough) were joint venture partners on Project EnergyConnect, a major electricity transmission infrastructure project for Transgrid. Following Clough’s insolvency in late 2022 and the subsequent implementation of a deed of company arrangement (DOCA), a dispute arose concerning the ownership of Clough’s interest in the joint venture.

In December 2024, Elecnor commenced proceedings in the Commercial List of the Supreme Court of New South Wales against Clough and the trustees of the DOCA. Elecnor sought declarations that the DOCA had not transferred Clough’s joint venture interest, the joint venture deed or the engineer, procure and construct contract to the trustees, together with orders requiring Clough to comply with the contractual compulsory acquisition process under the joint venture deed. 

Clough and the trustees defended the claim and alleged that Elecnor had breached its good faith and quasi-fiduciary obligations in connection with the proposed acquisition. Clough also filed a separate cross-claim seeking contribution following Transgrid’s earlier call on bank guarantees and insurance bonds procured at Clough’s request.

The joint venture deed contained an arbitration clause requiring disputes to be referred to arbitration in Singapore. Elecnor contended that Clough’s contribution cross-claim fell within that arbitration agreement and should therefore be stayed and referred to arbitration, even though Elecnor’s compulsory acquisition claim would remain before the court. Clough and the trustees, on the other hand, argued that the proceedings should not be split and sought to have Elecnor’s claim referred to arbitration if any part of the dispute was to be arbitrated.

The central question was whether, and to what extent, the proceedings comprised distinct “matters” that fell within the scope of the arbitration agreement.

Proceedings Can Be Split

The court confirmed that a single set of proceedings may involve more than one “matter” for the purposes of section 7(2) of the International Arbitration Act. As a result, only those matters that fall within the scope of the arbitration agreement, and are capable of settlement by arbitration, should be stayed and referred to arbitration.

This may create parallel proceedings. However, that is a consequence of the parties’ agreement and the mandatory operation of section 7(2). Convenience is not the test.

Parties and their advisers should consider and account for this when drafting dispute resolution clauses and commencing proceedings pursuant to them. Matters involving insolvency, multiple parties or overlapping contractual and statutory rights are particularly prone to fragmentation across forums.

Insolvency Disputes Have Limits

The court held that the primary judge did not err in concluding that the compulsory acquisition dispute was not arbitrable. Resolution of that dispute required construction of the DOCA and consideration of the part 5.3A regime under the Corporations Act 2001 (Cth) in a way that could affect the rights of third-party creditors and engage statutory rights beyond the parties themselves.

By contrast, Clough’s contribution claim—a dispute arising between the parties under the joint venture deed that could be determined without affecting third-party or statutory interests—was referred to arbitration.

The distinction is important. Parties should not assume that an arbitration clause will extend to every dispute that arises in, or is shaped by, an insolvency context. The question remains whether the particular matter is capable of settlement by arbitration, including having regard to whether its resolution may affect nonparties or the operation of a statutory regime.

Waiver Requires Unequivocal Conduct

The court also clarified when an arbitration agreement will be treated as inoperative. The threshold is high. A party must demonstrate clear and unequivocal conduct showing that the other party no longer intends to be bound by the arbitration agreement.

Elecnor sought a stay promptly after Clough’s cross-claim was filed. That conduct was consistent with an intention to arbitrate, not to abandon the arbitration agreement. The court confirmed that commencing court proceedings in respect of a nonarbitrable matter does not, without more, constitute waiver of the right to arbitrate a separate, arbitrable matter.

What This Means in Practice

Three key points follow from the decision.

First, arbitration agreements will be enforced even where only part of a dispute is arbitrable. Parties should plan for the possibility of parallel proceedings arising from the court’s task of identifying arbitrable “matters” at a granular level.

Second, disputes that require determination of statutory rights or may affect third-party creditors may fall outside the scope of arbitration, depending on their character. This is particularly relevant where contractual rights intersect with insolvency regimes or other statutory frameworks.

Third, parties who intend to rely on an arbitration agreement must act consistently and promptly. Delay or equivocal conduct may create an argument that the arbitration agreement has become inoperative.

The decision is an important reminder that arbitration clauses are not always all-encompassing. In complex commercial disputes, courts will enforce arbitration agreements according to their terms but with an eye to retaining jurisdiction of matters that are not capable of arbitral determination.