A recent dispute between Elecnor Australia Pty Ltd and Clough Projects Australia Pty Ltd highlights the enforcement of arbitration clauses in joint venture agreements.
Need to know
- This case concerns a dispute arising out of a joint venture between Elecnor Australia Pty Ltd (Elecnor) and Clough Projects Australia Pty Ltd (Clough) for the delivery of a major electricity transmission infrastructure project. Following Clough’s insolvency and the appointment of voluntary administrators, Elecnor sought to exercise ‘step-in’ rights and acquire Clough’s interest in the joint venture under the terms of their Joint Venture Deed (JV Deed), relying on Clough’s alleged “Material Default” under the terms of the JV Deed.
- A key issue was whether certain claims brought by Clough and its administrators (the Trustees) should be referred to arbitration pursuant to an arbitration clause in the JV Deed. The Court, per Stevenson J, determined that the arbitration clause was mandatory for arbitrable matters and ordered that the cross-claim be stayed.
Background
On 8 October 2020, Elecnor and Clough entered into a JV Deed to jointly deliver a large-scale energy infrastructure project for NSW Electricity Operations Pty Ltd (Transgrid), involving the design and construction of a high voltage electricity transmission system between New South Wales and South Australia. To deliver the project, Elecnor and Clough entered into an Engineer, Procure and Construct Contract (EPC Contract) with Transgrid.
The JV Deed included a dispute resolution mechanism for arbitration in Singapore, governed by ICC Rules.
On 31 October 2022, Clough failed to provide one form of the security under the EPC Contract, constituting a “First Material Default”.
On 5 December 2022, Clough entered into administration, triggering a “Second Material Default”. Clough entered into a Deed of Company Arrangement (DOCA) on 16 February 2023. The DOCA required that property of Clough and its related parties be transferred to the Trustees. There is a dispute as to the extent to which the DOCA transferred Clough’s interests under the JV Deed and EPC Contract to the Trustees.
Elecnor stepped in to take over the JV, as permitted under the JV Deed upon a material default, and later issued a $1.00 offer to acquire Clough’s interest in the JV.
The Trustees rejected the offer and did not take steps to comply with the acquisition process.
Elecnor commenced proceedings against Clough and the Trustees on 16 December 2024, seeking a declaration that the DOCA did not cause Clough’s interest in the joint venture, the JV Deed, or the EPC Contract, to be transferred to the Trustees, and an order for specific performance of Clough’s obligations in relation to the compulsory acquisition process.
Clough and the Trustees cross-claimed for $55 million from Elecnor, seeking Elecnor’s contribution for Transgrid’s call on bank guarantees and insurance totalling $110 million that Clough had procured. Clough and the Trustees also alleged that Elecnor breached its quasi-fiduciary and good faith obligations in the JV Deed.
Elecnor contended that Clough and the Trustee’s cross-claims are arbitrable claims in accordance with the arbitration clause in the JV Deed. Elecnor sought a stay of the proceedings under s 7(2) of the International Arbitration Act 1974 (Cth) (the Act) or, alternatively, art 8 of the UNCITRAL Model Law on International Commercial Arbitration (the Model Law), or cl 23.2 of the JV Deed.
Clough and the Trustee contended that, if Elecnor succeeds in obtaining a stay, Elecnor’s claims should also be stayed under the Act, the Model Law, or as a matter of case management.
Decision and reasoning
Stevenson J held:
The arbitration clause in the JV Deed was mandatory for arbitrable disputes and Clough and Elecnor’s claims for $55 million in the cross-claim are arbitrable matters.
However, the issue regarding the compulsory acquisition process and the breach of good faith is not capable of settlement by arbitration. It does not merely involve the resolution of a private dispute, but invokes questions as to the efficacy of the DOCA and the Corporations Act. Those questions may affect the rights of creditors and there is “a legitimate public interest in seeing a dispute of that type resolved by public institutions or in accordance with structures that are established by Parliament rather than institutions and structures established by the parties”. ([109] – [111])
The Court rejected the argument that Elecnor had repudiated, waived or abandoned the arbitration clause by commencing the proceedings in the Supreme Court. ([125]-[131])
Accordingly, the Court stayed the cross-claim under s 7(2) of the International Arbitration Act. The main proceedings do not raise an arbitrable matter to which s 7(2) applies. There is no reason to stay the main proceedings for case management reasons, because the issue on the acquisition of Clough’s interest does not depend on the outcome of the arbitration of the Trustee’s claim for the $55 million contribution for the call on Clough’s security. ([132]-[135])
What’s next
Read our first case note on the recent decision in Oil Basins Limited vs Esso Australia Resources Pty Ltd [2025] VSC 34, where we explore complex jurisdictional issues and the application of the Kompetenz-Kompetenz principle in arbitration agreements.
For more information, please contact Veno Panicker or Elena Stojcevski.
