Background
Elecnor Australia Pty Ltd and Clough Projects Australia Pty Ltd were equal joint-venture partners engaged by Transgrid to deliver a large-scale energy infrastructure project in New South Wales under an Engineer, Procure and Construct contract. Their Joint Venture Deed contained a compulsory acquisition mechanism (cl 21.3) allowing the non-defaulting party to purchase a defaulting party’s participating interest, a step-in clause triggered by insolvency (cl 22.2), and an ICC arbitration clause nominating Singapore as the seat (cl 23.3). In late 2022 Clough fell into financial difficulty, failed to provide contractual security, and entered voluntary administration. Elecnor issued default notices and, after Transgrid drew down approximately $110 million in bank guarantees and insurance bonds issued at Clough’s request in February 2023, Elecnor stepped in to complete the project alone. Clough subsequently entered a Deed of Company Arrangement (DOCA), with the sale of its business to a third-party purchaser forming the centrepiece of that arrangement.
Elecnor initiated Supreme Court proceedings in December 2024 seeking a declaration that the DOCA had not transferred Clough’s joint-venture interest to the DOCA trustees, and specific performance of the cl 21.3 compulsory-acquisition process — in effect, an order compelling Clough to sell its 50% interest to Elecnor for $1.00 (the “Clause 21.3 Matter”). In response, Clough’s Commercial List defence raised a bad-faith breach contention — that Elecnor had breached its quasi-fiduciary and good-faith obligations under the Joint Venture Deed in making the $1.00 offer. Clough also filed a separate cross-claim seeking contribution from Elecnor for 50% of the $110 million Transgrid called on Clough’s security (the “Call Contribution Matter”).
Elecnor applied under s 7(2) of the International Arbitration Act 1974 (Cth) to stay both the bad-faith defence and the Call Contribution cross-claim and refer them to Singapore arbitration. The primary judge (Stevenson J) stayed and referred the Call Contribution Matter to arbitration but declined to stay either Elecnor’s main claim or the bad-faith defence. Clough appealed the stay of the Call Contribution Matter; Elecnor cross-appealed the refusal to stay the bad-faith defence.
The Court’s Holding
Bell CJ (Ward P and Free JA agreeing) granted leave to appeal and cross-appeal on all grounds except ground 5 (a case-management stay of the curial proceedings pending arbitration), but dismissed both the appeal and the cross-appeal. The Court confirmed the primary judge’s conclusion that the bad-faith breach contention formed part of the same “matter” as the Clause 21.3 Matter: it was a genuine, non-colourable component of Clough’s defence to Elecnor’s compulsory-acquisition claim, not a discrete controversy that could be separately settled by arbitration. Because both parties had already submitted the Clause 21.3 Matter to curial resolution (Elecnor by commencing proceedings, Clough by defending them), any right to arbitrate the bad-faith defence — which was part of that same matter — had been waived.
The Call Contribution Matter, by contrast, was a separate “matter” within the meaning of s 7(2): a standalone claim for security-call contribution arising from Clough’s own defaults, capable of being settled as a discrete controversy independently of who ultimately prevailed on the compulsory-acquisition question. The Court held that the mere fact Elecnor disputed the Call Contribution cross-claim did not mean Elecnor was not “ready, willing and able” to perform its contractual obligations under the Clause 21.3 regime; readiness to perform is assessed against essential obligations, and resisting a separate cross-claim is not a failure to perform the compulsory-acquisition process. The arbitration agreement was not rendered “inoperative” by waiver, abandonment, or repudiation: Elecnor had sought a stay of the cross-claim promptly after it was filed, conduct wholly inconsistent with an intentional relinquishment of arbitral rights.
The Court also upheld — as not strictly necessary but correct — the primary judge’s finding that the Clause 21.3 Matter was in any event non-arbitrable, because resolving it required construing the DOCA and the distinctive statutory regime for deeds of company arrangement under Pt 5.3A of the Corporations Act 2001 (Cth) in ways that could affect the rights of third-party creditors, a task that falls outside the proper province of private consensual arbitration. On the s 7(4) “through or under” question, the Court held that the DOCA trustees were not claiming through or under Clough, since their position depended on the operation of the DOCA and the Corporations Act rather than any defence available to them derivatively through Clough.
Key Takeaways
- A defence raised in response to a curial claim forms part of the same “matter” as that claim for the purposes of s 7(2) of the International Arbitration Act 1974 (Cth) if it is a genuine, non-colourable aspect of the dispute — in which case both parties are taken to have submitted the whole matter to court, waiving any right to compel arbitration of the defence separately.
- A cross-claim that arises from different facts and constitutes a discrete controversy is a separate “matter” susceptible of a stay and referral to arbitration, even where it arises between the same parties and under the same deed; and resisting such a cross-claim does not make the resisting party “not ready, willing and able” to perform its contractual obligations in the primary curial dispute.
- Disputes that turn on the construction of a deed of company arrangement and the operation of the Corporations Act Pt 5.3A regime — with potential effects on third-party creditors — are non-arbitrable, even if the underlying contractual relationship contains a broad arbitration clause.
- An arbitration agreement does not become “inoperative” by repudiation merely because a party commences court proceedings on a matter that is not self-evidently arbitrable; and commencement of proceedings on a non-arbitrable matter says nothing about that party’s willingness to arbitrate genuinely arbitrable matters.
- A DOCA trustee defending litigation on grounds derived from the DOCA and the Corporations Act is not claiming “through or under” the insolvent company-party to an arbitration agreement within the meaning of s 7(4) of the Act.
Why It Matters
This decision is a significant exposition of s 7 of the International Arbitration Act 1974 (Cth) by the New South Wales Court of Appeal, consolidating and refining 50 years of jurisprudence on how Australian courts identify the boundaries of a “matter” capable of settlement by arbitration, when parties waive their arbitral rights by submitting to curial proceedings, and when non-parties can be compelled to arbitrate through the “through or under” gateway. The judgment provides practical guidance for practitioners drafting and enforcing international arbitration clauses in joint-venture and construction contracts, particularly where insolvency may intervene mid-project.
For insolvency and restructuring practitioners, the Court’s confirmation that disputes requiring construction of a DOCA and the Corporations Act Pt 5.3A regime are non-arbitrable — on the basis that the statutory framework is designed to protect a broader creditor constituency beyond the immediate contracting parties — has direct implications for how deed administrators and trustees should approach dispute resolution clauses in the underlying commercial contracts. Parties to joint ventures involving corporate participants should be alert to the risk that insolvency of one party may render key contractual disputes non-arbitrable, exposing them to parallel curial and arbitral proceedings even where a single broad arbitration clause was intended to capture all disputes.