Full Court Press: Preliminary Discovery And Arbitration Agreements In A Basketball Showdown

In brief

In most jurisdictions in Australia, a prospective plaintiff can obtain preliminary discovery orders from a Court to ascertain whether it has a right to obtain relief from a prospective defendant, before it commences any substantive proceeding.

This blog post explores the availability of preliminary discovery where parties are subject to arbitration agreements, drawing on recent judicial decisions to provide practical insights.

Refresher on preliminary discovery

Generally, a prospective plaintiff may obtain preliminary discovery, if it can demonstrate that:

1. it has reasonable cause to believe that there may be a right to relief against the prospective defendant and that the prospective defendant is likely to have documents which would assist the prospective plaintiff decide whether to commence a substantive proceeding; and
2. after making reasonable inquiries, it does not have sufficient information to decide whether to commence proceedings.

Preliminary discovery in the context of an arbitration agreement

An interesting question arises where, before an arbitral tribunal is constituted, a party to an arbitration agreement seeks documents from a counterparty, to determine whether to initiate a case at all. Preliminary discovery may fill this gap.

For arbitrations seated in Australia, the general position is that a prospective plaintiff may seek preliminary discovery through domestic court procedures before commencing arbitration: see our earlier blog post.¹ In summary:

• Section 7(2) of the International Arbitration Act 1974 (Cth) (the "Act") provides that a court may stay proceedings and refer a "matter" to arbitration if proceedings concerning an arbitrable issue covered by a valid arbitration agreement are pending in a Court.
• However, following the decision in nearmap Ltd v Spookfish Pty Ltd ("nearmap"), Australian Courts are unlikely to treat an application for preliminary discovery as a "matter" under this section.²

In nearmap, Spookfish argued that the preliminary discovery application commenced in the NSW Supreme Court should be permanently stayed and instead decided by the arbitral tribunal pursuant to an arbitration agreement, citing s 8 of the Commercial Arbitration Act 2012 (WA) and s 8 of the Commercial Arbitration Act 2010 (NSW). Chief Judge in Equity Bergin refused to stay the Court proceedings, ruling that the preliminary discovery motion did not constitute a "matter" under these statutory provisions. Although nearmap concerned a domestic arbitration, its principles are likely also applicable to international arbitrations seated in Australia.

As a consequence, prospective plaintiffs who are parties to an arbitration agreement may seek preliminary discovery under domestic court procedures in Australia.

Illawarra Basketball Club / National Basketball League decision

The recent NSW Supreme Court decision of Illawarra Basketball Club Pty Ltd v National Basketball League Pty Ltd also considered whether parties to an arbitration agreement could seek preliminary discovery from the Court.³

The Illawarra Hawks and South East Melbourne Phoenix (the Clubs) sought preliminary discovery to obtain documents from National Basketball League Pty Ltd (NBLCO).⁴ The NBLCO operates Australia's National Basketball League (NBL). NBLCO sought to stay the Court proceedings in light of an arbitration agreement in the licence agreements between NBLCO and the Clubs.⁵ The relevant licence agreements contain an arbitration clause which provides for disputes to be arbitrated by the Court of Arbitration for Sport (CAS) in Switzerland.⁶

Avenues for a stay of the preliminary discovery proceedings

Justice Peden considered three possible avenues for a stay:

(i) s 7(2) International Arbitration Act 1974 (Cth) ("Act")

As noted above, under section 7(2) of the Act, if Court proceedings involve a "matter" that is capable of being settled by arbitration, the Court must stay the proceedings and refer the parties to arbitration.

Her Honour found that an application for preliminary discovery was not a "matter" capable of being settled under the arbitration agreement because:

• The dispute resolution procedure in the licence agreements (which ultimately culminates to referral to arbitration before CAS) captured "Grievances" which was defined as "a dispute arising out of or in relation to the Club's participation in the NBL...or any other matter".
• A contested preliminary discovery application was not a "dispute" falling within that definition because it concerns a separate interlocutory process rather than any substantive determination of the parties' rights or liabilities arising from their contractual and legal relationship.
• More broadly (and adopting the position taken by the Court in nearmap), preliminary discovery does not involve the adjudication of substantive rights or liabilities in the sense contemplated by the term "matter" in s 7(2) of the Act.
• The fact that preliminary discovery is not a procedure available in the CAS reinforced the conclusion that the preliminary discovery application is not capable of settlement by arbitration.

(ii) Article 8 of the UNCITRAL Model Law on the International Commercial Arbitration ("Model Law") contained in sch 2 of the Act

This provision mirrors section 7(2) of the Act and for the same reasons above, the Court found it did not provide a basis for a stay of the proceedings.

(iii) Court's inherent or general statutory power to order a stay

NBLCO argued that a stay should be granted nevertheless because the Clubs' preliminary discovery application breached the contractual obligation to arbitrate and the contractual covenant not to sue (in clause 14.3 of the Licence Agreements). This argument relied on the Court exercising its inherent power to stay proceedings.

Clause 14.3 provides:

The Court ultimately ordered a stay of the preliminary discovery application under its inherent powers in section 67 of the Civil Procedure Act 2005 (NSW) on the following bases:

• The covenant not to sue in clause 14.3 was not limited to disputes subject to arbitration under the Grievance Procedure set out in the licence agreements.
• Rather, it required the parties resolve all issues through private dispute resolution only.⁸ The language in clause 14.3 made clear that the parties were barred from instituting or maintaining proceedings "regarding ... any other matter regarding ... their participation in the NBL" (and not just matters that fell within the Grievance Procedure).
• The Clubs act of filing the preliminary discovery application amounted to instituting proceedings regarding the Licence Agreements, in breach of clause 14.3.
• In response to the Clubs' argument that a stay should not be ordered because the arbitral tribunal could not resolve the preliminary discovery issue, the Court held that the absence of an arbitral power to order preliminary discovery does not revive rights that had been expressly relinquished by a contractual covenant not to sue. The parties had made a bargain, part of which was to exclude them from accessing certain court procedures like preliminary discovery that were not available before CAS.

Key takeaways

The judgement offers several key insights and practical considerations where a party to an arbitration seeks preliminary discovery:

1. Importance of drafting dispute resolution and arbitration clauses: Care should be taken when drafting dispute resolution clauses to ensure that any covenants are not unduly broad or inadvertently shut out a party from domestic court procedures, such as preliminary discovery.
2. The trade-off between private dispute resolution remedies and public court processes: Parties often enter into arbitration agreements because they would prefer any disputes are dealt with in a private forum (such as arbitration). The trade-off to that may mean giving up access to court procedures such as preliminary discovery. Any carve-outs to allow a party to nevertheless seek preliminary discovery should be expressly included. Alternatively, the parties could consider whether to contractually agree to an arbitral tribunal being empowered to order preliminary discovery.
3. Strategic enforcement: For parties seeking to rely on arbitration agreements, this decision is a reminder that Courts are willing to grant stays and enforce covenants not to sue, even where an arbitral tribunal cannot resolve the immediate procedural issue.

Footnotes

1. nearmap Ltd v Spookfish Pty Ltd [2014] NSWSC 1790.

2. [2014] NSWSC 1790.

3. [2025] NSWSC 1111.

4. [2025] NSWSC 1111, [3].

5. [2025] NSWSC 1111, [1].

6. [2025] NSWSC 1111, [2], [5].

7. [2025] NSWSC 1111, [36].

8. [2025] NSWSC 1111, [44].

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.