Sydney Water launched Federal Court action against Australian Water Holdings last year to claw back the costs after the Independent Commission Against Corruption heard allegations it footed the bill for suspect expenses.

It said on Friday it had "settled the proceedings on confidential terms".

The ICAC has yet to release findings in its inquiry into Australian Water, which was previously headed by Obeid associate and Liberal Party fundraiser Nick Di Girolamo.

A landmark High Court ruling on Wednesday on the scope of the commission's investigative powers means significant parts of that inquiry were outside its jurisdiction.

The inquiry heard allegations the Obeid family had a secret $3 million stake in the company, which had a lucrative contract with Sydney Water to roll out water and sewerage infrastructure.

But the family insists the money was a loan to Mr Di Girolamo and the shares were "security".

Fairfax Media understands the settlement is worth as much as $1.7 million.

Sydney Water's managing director Kevin Young said the utility's customers "can be assured that the decision to settle and not proceed with a potentially long, expensive and highly complex hearing, is a commercially sensible result".

The corruption watchdog heard allegations that costs at Australian Water increased after Mr Di Girolamo joined the board full time in 2007. He was behind the $3000 bottle of wine that ended Barry O'Farrell's premiership.

Liberal Senator Arthur Sinodinos, a former chairman of Australian Water, came under pressure at the ICAC when he was questioned about the company's expenses. But he was not expected to face a corruption finding.

His barrister, Robert Newlinds, SC, told The Australian Financial Review:  "He has had his good name dragged through the mud and it's now known that the context in which it happened was beyond the jurisdiction of ICAC.

"I hope ICAC acknowledge it quickly so he can get on with his life."