SOPA is not fundamental public policy: NSW Supreme Court confirms the narrow scope of the public policy exception to enforcement of arbitral awards

In Qube Re Services (No 2) Pty Limited v Martinus Rail Pty Ltd [2026] NSWSC 717, the Supreme Court of New South Wales enforced partial arbitral awards requiring Martinus Rail Pty Ltd (Martinus) to repay $26.4 million which had been paid by Qube Re Services (No 2) Pty Ltd (Qube).

The awards arose from a final rights arbitration concerning payments previously made under adjudication determinations issued pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA). Having determined, by way of separate questions, that significant elements of Martinus' claims were contractually time-barred, the arbitrator ordered restitution of amounts previously paid in respect of those claims and issued partial awards to that effect.

In enforcing the awards, Peden J reaffirmed the narrow scope of the public policy exception in s 36 of the Commercial Arbitration Act 2010 (NSW) (CAA). Her Honour held that the “pay now, argue later” regime embodied in SOPA does not constitute a fundamental public policy of New South Wales capable of preventing enforcement of a domestic arbitral award. Even if SOPA reflected a relevant public policy, enforcement of the awards would not offend that policy because the adjudication determinations had performed their interim function pending determination of the parties' substantive rights in arbitration.

The decision is significant for two reasons. First, it confirms that the public policy exception remains a narrow and exceptional basis for resisting enforcement of domestic arbitral awards. Secondly, it reinforces the finality of partial awards following the High Court's decision in CBI Constructors Pty Ltd v Chevron Australia Pty Ltd, emphasising that issues determined through a separate question procedure cannot later be revisited merely because related arguments remain to be determined elsewhere in the arbitration.

Background

As a result of three adjudication determinations under SOPA, Qube paid Martinus almost AUD 80 million in connection with works performed for the Moorebank Intermodal Terminal Project.

The parties subsequently commenced arbitration to determine their final contractual rights and liabilities.

In March 2026, Qube sought the determination of separate questions concerning the operation of contractual time-bar provisions, contending that certain claims for which Martinus had been paid under the SOPA determinations were contractually barred. Qube also sought restitution of amounts it alleged had been overpaid in respect of those claims.

Martinus pleaded that the relevant time-bar provisions were void and unenforceable pursuant to s 34 of SOPA or, alternatively, constituted unenforceable penalties at common law. Although those matters were pleaded, Martinus elected to advance only the penalty argument at the hearing of the separate questions and did not pursue the s 34 SOPA contention. This occurred despite the arbitrator making clear that any determination of the separate questions would be embodied in partial awards that were final and binding in respect of the issues decided.

In the First Partial Award, the arbitrator concluded that a substantial number of Martinus' claims were contractually barred. In doing so, he rejected the penalty argument and expressly recorded that Martinus' s 34 SOPA argument had not been determined because it had not been included within the questions referred for separate determination. In the Second and Third Partial Awards, the arbitrator ordered Martinus to make restitution to Qube together with interest, resulting in an award of more than $26 million.

Qube subsequently sought to enforce the awards under s 35(1) of the CAA. Martinus resisted enforcement pursuant to s 36(1)(b)(ii), arguing that enforcement would be contrary to the public policy of New South Wales.

Martinus' argument was, in substance, that:

• SOPA embodies a "pay now, argue later" policy under which contractors are entitled to receive progress payments pending the final resolution of contractual disputes;
• enforcement of the awards would undermine that policy by requiring Martinus to repay sums received under the adjudication determinations before the arbitrator had determined whether the contractual time-bar provisions were rendered void by s 34 of SOPA; and
• the awards should therefore be refused recognition and enforcement on public policy grounds.

Is the policy of SOPA a type of public policy caught by s 36(1)(b)(ii) of the CAA?

Section 36(1)(b)(ii) of the CAA provides that recognition or enforcement of an arbitral award may be refused only where “the recognition or enforcement of the award would be contrary to the public policy of this State”.

Before considering whether enforcement of the partial awards would offend public policy, Peden J examined the authorities concerning the equivalent public policy exception applicable to international awards under the International Arbitration Act 1974 (Cth) (IAA). Her Honour noted that the public policy exception is narrowly confined and is engaged only where enforcement would be contrary to the forum's most basic and fundamental notions of morality and justice. Consistently with long-established international arbitration authorities, the exception is not triggered merely because an award fails to apply, or incorrectly applies, a particular domestic law. Rather, refusal of enforcement is reserved for exceptional circumstances where enforcement would “shock the conscience”, be “clearly injurious to the public good”, or otherwise offend fundamental notions of justice.

Martinus argued that the public policy exception in s 36(1)(b)(ii) of the CAA should be interpreted more broadly in the domestic arbitration context than the equivalent provision governing the enforcement of foreign awards. Qube, by contrast, submitted that the provision should be construed consistently with the well-established international authorities.

The Court accepted Qube's submissions. In doing so, Peden J relied heavily on the recent decision of Croft J in Simple Investments Pty Ltd v Bradley Street Developments Pty Ltd [2026] VSC 510[1], which confirmed that the same fundamental principles govern the public policy exception in both domestic and international arbitration. As Croft J observed, the relevant public policy must concern rights or values that are “fundamental” to the legal system, and the threshold for establishing that enforcement would be contrary to public policy is a high one that will not be readily overcome.

Against that background, the Court rejected Martinus' contention that the “pay now, fight later” policy underpinning SOPA constituted the type of fundamental public policy capable of engaging s 36(1)(b)(ii). Although SOPA is a mandatory statute from which parties cannot contract out, Peden J held that this did not mean that it embodied a fundamental conception of morality and justice. Her Honour saw no principled basis for treating the public policy exception differently in domestic arbitrations and concluded that SOPA's statutory objectives, important though they may be, did not rise to the level of fundamental public policy required to justify refusing enforcement of an arbitral award.

The decision is significant because it draws a clear distinction between a mandatory legislative policy and the narrow conception of public policy recognised in arbitration law. The fact that legislation serves an important public purpose, or contains provisions from which parties cannot contract out, does not mean that every alleged inconsistency with that legislation will justify refusing recognition or enforcement of an award. Section 36(1)(b)(ii) remains confined to the protection of the legal system's most fundamental values.

Would the policy of SOPA and therefore the public policy of New South Wales be offended by enforcing the awards?

The Court held that, even if it were wrong to conclude that SOPA's underlying policy fell outside the scope of s 36(1)(b)(ii), enforcement of the Partial Awards would not in any event offend that policy.

Peden J observed that Martinus had already received the benefit of SOPA's interim payment regime. Consistent with the Act's well-established "pay now, argue later" philosophy, Martinus was paid pursuant to adjudication determinations pending the final resolution of the parties' rights. The subsequent arbitration was the mechanism by which those final rights were determined.

Her Honour rejected the suggestion that enforcement of the Partial Awards was inconsistent with that statutory scheme. The arbitrator had determined that certain claims were contractually time-barred and ordered restitution of amounts previously paid in respect of those claims. That process was entirely consistent with the function of SOPA, which preserves interim payment rights while leaving the parties' substantive contractual rights to be finally determined in later proceedings.

Importantly, nothing in SOPA, or in the policy underpinning it, prevented the arbitrator from determining the parties' dispute in stages through separate questions and partial awards. Nor did SOPA require the arbitrator to defer determination of the issues that had been submitted until every remaining issue in the arbitration had been resolved. As Her Honour noted, Martinus had elected not to have its s 34 SOPA argument determined as part of the separate questions that gave rise to the Partial Awards. Having made that forensic choice, it could not rely on the existence of unresolved issues to resist enforcement of awards that finally determined the matters that had been referred to the arbitrator.

Accordingly, even if SOPA embodied a relevant public policy for the purposes of s 36(1)(b)(ii), enforcement of the Partial Awards would not have undermined that policy. Martinus had already received the interim payment protection that SOPA was designed to provide, and enforcement of the awards merely gave effect to the arbitrator's determination of the parties' substantive rights. The public policy exception therefore provided no basis for refusing enforcement.

Finality of the Partial Awards

A further issue concerned whether the Partial Awards were sufficiently final to be enforced. Martinus argued that they should not be enforced because they amounted only to orders for “interim” restitution and did not finally determine the parties’ rights.

The Court rejected that submission. Peden J held that the Partial Awards were final and binding determinations of the issues that had been referred to the arbitrator for decision. In reaching that conclusion, Her Honour relied on the High Court's decision in CBI Constructors Pty Ltd v Chevron Australia Pty Ltd (2024) 283 CLR 172[2], which reaffirmed that, unless the parties agree otherwise, an arbitral tribunal has authority to determine a dispute finally and only once. Once an issue has been finally determined, the tribunal becomes functus officio in respect of that issue and lacks jurisdiction to revisit it.

Applying those principles, Her Honour found that the parties had agreed that the separate questions would be determined on a final basis and that both the arbitrator and Martinus had proceeded on that footing throughout the arbitration. The fact that other issues remained to be resolved in the broader arbitration did not deprive the Partial Awards of their final character. Rather, the awards finally disposed of the specific questions submitted to the arbitrator and therefore created binding rights and obligations capable of immediate enforcement.

The decision confirms that an award need not determine every issue in an arbitration before it can be regarded as final. Where parties agree to the separate determination of discrete questions, an award resolving those questions may constitute a final award even though other aspects of the dispute remain outstanding. Parties should therefore be alert to the consequences of agreeing to separate questions, as determinations made through partial awards may be immediately enforceable and incapable of later reconsideration.

Outcome

The Court therefore ordered that the Partial Awards be enforced as if they were judgments of the Supreme Court of New South Wales. Judgment was entered in favour of Qube for the sums awarded, together with interest, and Martinus was ordered to pay Qube's costs of the enforcement proceedings.

Conclusions

The key takeaways from the decision are:

• Australian courts continue to adopt a strong pro-enforcement approach to domestic arbitral awards and will construe the public policy exception in s 36(1)(b)(ii) of the CAA narrowly.
• SOPA's “pay now, argue later” regime does not constitute the type of fundamental public policy contemplated by s 36(1)(b)(ii) of the CAA.
• The decision confirms that the same high threshold applies to public policy challenges in both domestic and international arbitration, reinforcing the limited scope of the exception.
• The Court also reaffirmed the High Court's decision in CBI Constructors Pty Ltd v Chevron Australia Pty Ltd, confirming that partial awards are final and binding in respect of the issues they determine unless the parties have agreed otherwise.

More broadly, the judgment underscores the considerable difficulties faced by parties seeking to resist enforcement of arbitral awards on public policy grounds. Consistent with recent authorities, the Court rejected any meaningful distinction between the domestic and international conceptions of public policy and confirmed that only matters engaging the legal system's most fundamental values will justify refusal of enforcement. The decision also provides a useful reminder that a mandatory statutory regime is not necessarily synonymous with public policy for the purposes of s 36(1)(b)(ii).

The case is equally significant for its treatment of partial awards. By reaffirming the principles articulated in CBI Constructors, the Court emphasised that an award may be final and immediately enforceable even though other issues remain to be determined in the arbitration. Parties seeking the separate determination of questions should therefore carefully consider the consequences of that procedural course. Once an issue is referred for final determination and decided, the tribunal will ordinarily become functus officio in respect of that issue, and the resulting award may be immediately enforceable notwithstanding the continuation of the broader arbitration.