Agree To Disagree: NSW Court Of Appeal Holds IATA Arbitration Clause Not Unilaterally Binding

This case review was co-authored by Natalia Nader, paralegal. 

A recent decision from the NSW Court of Appeal held that Article 9 of the relevant IATA Standard Group Handling Agreement (SGHA) was not a binding arbitration agreement within the meaning of the International Arbitration Act 1974 (Cth). The decision is of importance to carriers and ground handlers operating under that wording, including in international aviation ground handling arrangements.

Background

In Dnata Airport Services Pty Ltd v Polar Air Cargo Worldwide, Inc [2026] NSWCA 105, the NSW Court of Appeal has dismissed an appeal by Dnata Airport Services (Dnata) seeking to stay proceedings brought against it by Polar Air Cargo Worldwide (Polar Air) in favour of arbitration. The decision turns on the proper construction of Article 9 of the IATA Standard Group Handling Agreement (SGHA), a standard form contract used globally by carriers and ground handlers.

The underlying dispute arose from a workplace injury suffered by a Dnata employee while unloading cargo from a Polar Air Boeing 747 freighter at Sydney Airport in March 2021. The employee sued Polar Air in negligence. Polar Air then filed third-party cross-claims against Dnata alleging breach of the SGHA, failure to indemnify, and negligence. Dnata sought to rely on Article 9 of the SGHA to stay the contractual cross-claims and refer them to arbitration.

Article 9 of the SGHA

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.

The Key Issue

Dnata argued that Article 9 constituted an “arbitration agreement” within the meaning of s 7(2) of the International Arbitration Act 1974 (Cth), such that its unilateral election to arbitrate (made via its solicitor's affidavit) was sufficient to compel arbitration. Polar Air contended that arbitration required consent of both parties.

The primary judge rejected Dnata's application. The Court of Appeal unanimously upheld that decision.

The Court of Appeal’s Reasoning

Bell CJ delivered the leading judgment. The Court's analysis rested on five main points:

1. "the parties" means both parties, not either party. The phrase "the parties may elect" in the second sentence of Article 9 required a joint election by both parties to arbitrate.
2. “In the event that the parties fail to agree to an arbitration process” confirms mutual consent is required. The fallback to litigation expressly contemplated that the parties may not agree on arbitration, reinforcing that consensus was essential.
3. No procedural framework was specified. Article 9 contained no seat of arbitration, no institutional rules, no cap on the number of arbitrators, and no right of appeal. It was unlikely that sophisticated commercial parties intending to commit to arbitration would leave so many fundamental procedural matters unresolved.
4. "the dispute" bears the same meaning throughout. Dnata argued that the third sentence in Article 9 addressed a secondary dispute about the arbitral process, leaving the substantive dispute to return to arbitration after a Court resolved those procedural questions. The Court rejected this as commercially cumbersome and textually inconsistent as the use of the definite article "the dispute" in all three sentences of Article 9 referred to one and the same substantive dispute.
5. The second sentence is not redundant. The Court accepted Polar Air's submission that the second sentence signified two legitimate purposes, even without creating a binding arbitration obligation:
   1. that the exclusive jurisdiction clause in the third sentence does not bar arbitration if both parties wish to pursue it, and
   2. IATA's own openness to the parties resolving their disputes by arbitration, should they mutually agree to do so.

International Case Law

The Court of Appeal noted the High Court of Judicature at Bombay’s decision in Nas Aviation Services India Pvt. Ltd. v Kingfisher Airlines Limited (2014), which construed a nearly identical Article 9 clause and reached the same conclusion - recourse to arbitration was optional and required both parties’ consent. Although not binding, the decision supported the construction adopted by the Court of Appeal in relation to the SGHA wording.

By contrast, in Canadian National Railway v Lovat Tunnel Equipment Inc (1999), a contractual term that “the parties may refer” was interpreted to permit either party to refer the dispute to arbitration. The Court distinguished that decision as materially different because the clause there contained no equivalent to Article 9’s third sentence, which in this case pointed away from unilateral compulsion and toward litigation absent agreement on arbitration.

Implications

Parties operating under the IATA SGHA should be aware that, under Australian law, they do not have the unilateral authority to bind the other party to arbitration under Article 9.

If mandatory arbitration is the preferred dispute resolution mechanism, that goal should be expressly stipulated as the present IATA SGHA wording in Article 9 will not force a party to arbitrate should they elect not to do so.