Drafting arbitration clauses: Precision required

The NSW Court of Appeal has confirmed that a dispute resolution clause permitting parties to “elect” arbitration does not, without more, constitute a binding arbitration agreement, even when the clause is headed “Arbitration”.

The decision of Dnata Airport Services Pty Ltd v Polar Air Cargo Worldwide, Inc [2026] NSWCA 105 serves as a timely reminder that precision in drafting dispute resolution clauses is essential.

Decision

Dnata Airport Services Pty Ltd (Dnata) provided cargo handling services for Polar Air Cargo Worldwide, Inc (Polar Air) at Sydney Airport under an IATA Standard Ground Handling Agreement.  A Dnata employee was injured unloading cargo and sued Polar Air in negligence.  Polar Air cross-claimed against Dnata for contractual indemnity, and Dnata sought to stay that crossclaim on the basis that article 9 of the Agreement (headed “Arbitration”) constituted a binding arbitration agreement under section 7 of the International Arbitration Act 1974 (Cth).

Article 9 relevantly provided that, failing mutual resolution, “the parties may elect to resolve the dispute through arbitration”, and that if the parties failed to agree to an arbitration process, the dispute would be resolved by the courts.

At first instance, Sweeney J held that the phrase “the parties may elect” required a joint, mutual decision to arbitrate, not a unilateral right, and that article 9 was therefore an agreement to agree rather than a binding arbitration agreement.  The NSW Court of Appeal agreed, dismissing Dnata’s appeal.  The NSW Court of Appeal also cautioned against applying a tripartite analytical framework (permissive, mandatory or elective) drawn from other cases, emphasising that the focus must be on the actual words of the clause in context.

Practical Implications

This decision is a reminder that the label “Arbitration” does not make a clause an arbitration agreement.

Parties and their advisers should consider the following:

1. where arbitration is intended to be mandatory, the clause must say so clearly. For example, by providing that disputes must be submitted to arbitration rather than that the parties may elect it;
2. analytical frameworks developed in other cases can be a distraction. The Courts will focus on the specific words used and the commercial context; and
3. ambiguous dispute resolution clauses invite costly preliminary disputes about jurisdiction and forum, precisely the outcome such clauses are designed to avoid.

Disclaimer

The information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.