Amanda Lees and Yan Zhang examine a recent Australian case that highlights the importance of clear drafting in dispute resolution clauses.
Parties have the autonomy to choose arbitration as their preferred dispute resolution mechanism, and courts will uphold that choice. However, the mandatory intention to arbitrate must be clear from the wording of the clause. The NSW Supreme Court’s recent decision in Iosefa v Polar Air Cargo Worldwide [2025] NSWSC 1500 (Iosefa v Polar Air) illustrates this principle, where the court refused to stay proceedings after finding there was no binding arbitration agreement.
The decision in Iosefa v Polar Air serves as a timely reminder that the parties’ chosen dispute resolution mechanism must be clearly reflected in the wording of their agreement. Different wordings can lead to very different outcomes as can be seen in the below comparison with the earlier decision in Elecnor Australia Pty Ltd v Clough Projects Australia Pty Ltd [2025] NSWSC 610 (Elecnor).
| Case | Relevant DR clause | Outcome |
| Iosefa v Polar Air | Article 9 Arbitration
In the event of any dispute or claim concerning the scope, meaning, construction or effect of this Agreement, the parties shall make all reasonable efforts to resolve disputes amongst themselves. Failing mutual resolution of the dispute, the parties may elect to resolve the dispute through arbitration (either by a single arbitrator or a panel of arbitrators). In the event that the parties fail to agree to an arbitration process, the dispute shall be settled in accordance with the laws of the state or jurisdiction set out in Annex(es) B, by the courts set out in Annex(es) B without regard to principles of conflict of laws. |
No mandatory arbitration |
| Elecnor | 23.3 Arbitration
(a) If the parties have not resolved the dispute or agreed an alternative dispute resolution process within 45 days of the dispute being referred in writing [by] the Steering Committee pursuant to clause 23.2 (or such longer period agreed between the parties), any party may, by written notice to the other parties, submit the dispute to arbitration in accordance with, and subject to, the Rules of Arbitration of the International Chamber of Commerce (ICC Rules) in effect on the date of [the JV Deed]. |
Mandatory arbitration |
What was the underlying dispute?
Dnata Airport Services Pty Ltd (Dnata) provided cargo handling services for Polar Air Cargo Worldwide, Inc (Polar Air) under a Standard Ground Handling Agreement (Main Agreement). A Dnata employee was injured and commenced negligence proceedings against Polar Air.[1]
Polar Air filed a cross-claim against Dnata for breach of contract and indemnity under the Main Agreement. [2] In response, Dnata sought a stay of the cross-claim relying on Article 9 of the Main Agreement and s 7 of the International Arbitration Act 1974 (Cth), and other grounds.[3]
Dnata argued the parties were required to arbitrate the dispute
Dnata argued that Article 9 of the Main Agreement constituted a binding arbitration agreement under s 7 of the International Arbitration Act, requiring the dispute to be arbitrated, not litigated.[4]
Central to Dnata’s position was the construction of Article 9. Relying on the ‘Mandatory construction’ adopted in Elecnor, Dnata argued that the clause required the parties to either resolve their dispute through arbitration or leave it unresolved. Dnata submitted that this interpretation was “most consistent with the text, context and purpose of Article 9”.[5]
In the alternative, Dnata argued for an ‘Elective construction’, relying on English law, where either party could opt for arbitration, and once that election had been made, arbitration became the only mandatory mode of dispute resolution.[6]
Polar Air argued that there was no binding arbitration agreement
Polar Air’s position was that Article 9 was merely an ‘agreement to agree’ to arbitration, not a binding arbitration agreement that would trigger s 7 of the International Arbitration Act.[7] It argued against relying on decisions construing different clauses in other contracts, noting that the wording was very different to that considered in Elecnor or the English case law.[8]
Polar Air submitted that on a proper construction, Article 9 did not support a ‘Mandatory’ or ‘Elective’ construction.[9] On the contrary, it contended that the clause established a mechanism for the parties to agree to arbitration, which required mutual consent, not a unilateral choice.[10]
Polar Air argued this ‘agreement to agree’ construction was commercially sensible as some claims would not fall within the scope of the first sentence of Article 9. It avoided splitting the dispute across two forums (litigation for the employee’s claim in negligence, arbitration for the indemnity claim), which would duplicate costs and create risks of inconsistent findings.[11]
What did the court say?
Sweeney J accepted Polar Air’s construction.[12] Her Honour found that the language and structure of Article 9, specifically the phrases ‘the parties may elect‘ and ‘In the event that the parties fail to agree to the arbitration process‘, meant that arbitration was optional and required the agreement of both parties.[13] This interpretation was also commercially sensible as it avoided forcing Polar Air to fight related claims in two separate forums, thereby preventing duplicated costs.[14]
Practical impacts
This case is a crucial reminder that multi-tiered dispute resolution clauses must be drafted with precision. Any ambiguity can lead to costly and uncertain preliminary battles over forum or jurisdiction, undermining the very purpose of the clause. To ensure a dispute resolution clause is enforceable as intended, parties should use clear, unequivocal language that leaves no doubt as to whether arbitration is optional, elective by one party, or mandatory for both.
The case also illustrates the dangers of relying on the interpretation of other dispute resolution clauses in other contracts, the actual language used and the context is critical.
[1] Iosefa v Polar Air at [+2], per Sweeney J.
[2] Above at [3].
[3] Above at [1], [13]-[17].
[4] Above at [16].
[5] Above at [26].
[6] Above at [29]-[30].
[7] Above at [33].
[8] Above at [35].
[9] Above at [45].
[10] Above at [36]-[50].
[11] Above at [37], [46], [50].
[12] Above at [51]-[53].
[13] Above at [51].
[14] Above at [52].
