Does your arbitration clause actually bind? NSW Court of Appeal says check the fine print

Dnata Airport Services Pty Ltd v Polar Air Cargo Worldwide [2026] NSWCA 105

What you need to know

• The NSW Court of Appeal held that Article 9 of the IATA Standard Ground Handling Agreement did not constitute an "arbitration agreement" under the International Arbitration Act 1974 (Cth).
• Unlike standard binding clauses, Article 9 required mutual agreement before arbitration could proceed and specified none of the essential terms (institution, seat, rules, number of arbitrators). The Court treated this as a deliberate allocation of optionality and gave effect to it.
• Courts will faithfully construe what parties agreed including where parties chose litigation as the default. The broad, liberal construction typically afforded to arbitration agreements applies to a clause’s scope, not to whether the clause constitutes an arbitration agreement in the first place.

What you need to do

• If you want binding arbitration, make it binding – confer on either party a right to require arbitration, not merely to propose it.
• Specify the essential terms – name the arbitral institution, seat, number of arbitrators, language and procedural rules.
• Avoid tiered fallbacks to litigation – if you want enforceable arbitration, make it the endpoint, not a way-station requiring future consensus.

Most arbitration clauses are intended to bind the parties to arbitrate. The IATA Standard Ground Handling Agreement takes a different approach. Article 9 frames arbitration as something the parties may choose together, with litigation as the default if they do not. The NSW Court of Appeal has confirmed that courts will give effect to that structure.

In Dnata Airport Services Pty Ltd v Polar Air Cargo Worldwide, Inc [2026] NSWCA 105, the Court of Appeal (Bell CJ, with Kirk JA and McHugh JA agreeing) held that Article 9 of the IATA SGHA did not constitute an "arbitration agreement" under the International Arbitration Act 1974 (Cth). Dnata sought a stay of contractual cross-claims in favour of arbitration. The Court declined.

The dispute arose from a workplace injury at Sydney Airport. Polar Air Cargo Worldwide Inc. (Polar Air) cross-claimed against its ground handler, Dnata Airport Services Pty Ltd (Dnata), for breach of the SGHA. Article 9 (headed "Arbitration") contained this three-sentence tiered dispute resolution clause:

"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."

Three features of Article 9 confirmed it preserved party choice rather than creating a binding arbitration agreement.

The clause required joint election. “The parties may elect” in the second sentence meant both parties had to elect arbitration and agree on the process. The Court read the clause as a whole. The same phrase, “the parties”, appeared in all three sentences and plainly meant both parties in the first and third. Giving it a different meaning in the second sentence would be jarring. The drafter used “either party” elsewhere in the SGHA (articles 10.1, 10.2, 11.4–11.12). That differentiation meant “the parties” could not be read as “either party”. Even if the clause conferred a “right” to elect, it was a qualified right, effective only if both parties exercised it.

The absence of procedural terms matched the optionality. Arbitration clauses typically specify a seat and procedural rules (such as those published by ACICA, ICC, SIAC or AAA). Article 9, by contrast, named no seat, procedural rules, or number of arbitrators. The Court treated this as consistent with the parties preserving a choice about whether to arbitrate, rather than committing to do so. By contrast, the detailed clauses in Hermes One Ltd v Everbread Holdings Ltd [2016] UKPC 1 and Elecnor Australia Pty Ltd v Clough Projects Australia Pty Ltd [2025] NSWSC 610 which specified institution, seat and rules were held to create binding arbitration agreements.

The fallback to litigation reflected the parties’ default. The third sentence directed that if the parties failed to agree to an arbitration process, “the dispute shall be settled...by the courts”. The Court rejected Dnata’s argument that “dispute” here meant a different, procedural dispute about the arbitration process. That reading would give “the dispute” different meanings within the same article, despite the definite article appearing consistently in all three sentences. The third sentence addressed the substantive dispute and provided for litigation as the default where the parties did not reach consensus on arbitration. Resolving a procedural dispute curially, only to return the substantive dispute to arbitration, would produce a cumbersome and uncommercial result.

The second sentence served a distinct purpose. Dnata argued the non-binding reading rendered the second sentence superfluous. The Court disagreed. The second sentence served a legal purpose: it signalled that the exclusive jurisdiction clause in the third sentence did not bar arbitration if both parties mutually agreed. Commercially, it signalled that IATA was not opposed to arbitration — it simply left the decision to the parties. The Court accepted this as sensible in a standard form designed for global application across jurisdictions with different approaches to agreements to negotiate.

The Court also confirmed (at [44]) that the broad, liberal construction typically afforded to arbitration agreements applies to a clause’s scope — not to whether the clause constitutes an arbitration agreement at all.

Ashurst Perkins Coie can support you

Our disputes teams advise on the structuring and enforcement of dispute resolution mechanisms across international frameworks. We regularly advise on:

• drafting and negotiating bespoke arbitration agreements and contracts to ensure enforceability across multiple jurisdictions;
• applications for stay of proceedings in favour of arbitration under the International Arbitration Act 1974 (Cth) and the UNCITRAL Model Law;
• strategic assessment of tiered dispute resolution clauses and advising on whether existing contractual frameworks will withstand challenge; and
• representing parties in international commercial arbitration proceedings and related court applications.

Authors: Adam Firth, Partner; Georgia Quick, Partner; Luke Carbon, Partner; Elijah Png, Lawyer and Caitlin Green, Graduate