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Strengthening the Arbitration Act 1996? A comment on the Arbitration Amendment Act 2016

23 May 2017 - By Jack Wass

Modern arbitration regimes strive to make the arbitral process as self-contained and self-sufficient as possible. That philosophy is reflected in the New Zealand Arbitration Act 1996, which is substantially based on the UNCITRAL Model Law.

At the same time, effective arbitral procedures depend on structural support. This is important both at the beginning of an arbitration, in the constitution of a tribunal, and at the end, in the execution of the resulting award.

Parliament recently amended the Arbitration Act 1996 to strengthen its support of the arbitral process by recognising the role of emergency arbitrators and refining the process for the appointment of tribunals where the parties cannot agree. The Arbitration Amendment Act 2016 makes two changes, which came into effect on 1 March:

  1. It expands the definition of ‘arbitral tribunal’ to include an arbitral institution and any emergency arbitrator appointed pursuant to the parties’ agreement or their chosen arbitration rules; and
  2. It provides that, where the parties cannot agree on the choice of arbitrator, the appointment will be made by an authority appointed by the Minister of Justice, instead of the High Court.

The definition of ‘arbitral tribunal’

The Act originally adopted the definition of ‘arbitral tribunal’ used in Article 2 of the UNCITRAL Model Law, to mean ‘a sole arbitrator or a panel of arbitrators’. The inclusion of arbitral institutions and emergency arbitrators within the definition reflects the developing role of emergency arbitrators to provide interim measures pending the constitution of tribunals. The practice is now recognised, for example, in Article 29 of the 2012 International Chamber of Commerce (ICC) Rules of Arbitration and Schedule 1 of the Singapore International Arbitration Centre (SIAC) Rules.

The amendment forecloses any argument that an emergency arbitrator who becomes functus officio on the constitution of the tribunal and whose decisions may be modified or vacated by the full tribunal fails to meet the necessary characteristics of an arbitral tribunal. Although the need to include arbitral institutions within the definition is less obvious, the amendment largely follows the definition adopted in the Singapore International Arbitration Act (Cap 143A) in 2012. It remains to be seen what role emergency arbitrators will play in the New Zealand arbitration landscape in future.

Default appointment procedures

It is essential that arbitration legislation provide effective and efficient procedures for the constitution of a tribunal where the parties cannot agree, or the appointment processes has otherwise broken down. Delays and obstruction add transaction costs which undermine the value of arbitration as a dispute resolution mechanism.

Schedule 1 of the Arbitration Act 1996 largely reflects the UNCITRAL Model Law. Article 11 of the Schedule governs the appointment of arbitrators, and (prior to the amendment) provided that where the parties could not agree on an appointment then the appointment would be made by the High Court.

The 2016 amendment transfers this role to a body appointed by the Minister of Justice. The appointed authority is likely to be the Arbitrators’ and Mediators Institute of New Zealand Inc (AMINZ) or the New Zealand International Arbitration Centre, although Parliament rejected a submission by AMINZ that its role should be written into the legislation (see Ministry of Justice Judicature Modernisation Bill: Report of the Ministry of Justice to the Justice and Electoral Committee (April 2014) at [913]).

This development reflects the position in other jurisdictions, including Singapore and Hong Kong, where the role is played by the president of the SIAC Court of Arbitration and the HKIAC respectively (Singapore International Arbitration Act 2002 (Cap 143A), s 8(2); Hong Kong Arbitration Ordinance (Cap 609), s 13(2)).

There is much to be said for this change. As AMINZ noted in support of the amendment, this ensures that appointments are made by a body that is knowledgeable about the attributes and experience of local arbitrators, and should ensure that appointments can be made quicker than is possible in the context of formal court proceedings. The Act contemplates that appointments will be made within 30 days.

Two caveats, however

First, a new paragraph (7) of Article 11 permits a party to apply to the High Court if the appointed body fails to make an appointment within 30 days or ‘a dispute arises in respect of the appointment process that the appointed body uses.’ The broad language of that provision is concerning, and creates scope for a stonewalling party to raise all manner of objections to the way in which the appointment has been made.

While the High Court can be expected to set a high bar for entertaining such a complaint, the very fact that it can be raised has the potential to create undesirable cost and delay. One hopes the appointed authority will develop clear and robust appointment procedures to resist such a possibility.

Second, Parliament has failed to address longstanding concerns with the default appointment under Schedule 2, which apply to most New Zealand arbitrations instead of Article 11. As noted above, Schedule 1 of the Act reflects the Model Law and applies to all arbitrations. Schedule 2 contains a supplementary set of rules that apply to arbitrations which are not international arbitrations (unless the parties otherwise agree) and modify the rules in Schedule 1.

The definition of an international arbitration is found in Article 1(3) of Schedule 1, and includes cases where the parties have their places of business in different states, or if the place of arbitration or the place closely connected to the parties’ obligations or the subject-matter of the dispute is outside the country where the parties have their place of business, or the parties have agreed that the subject matter of the arbitration relates to more than one country.

‘Quick draw’

Clause 1 of Schedule 2 contains a distinctive ‘quick draw’ procedure for the default appointment of arbitrators, which operates to the exclusion of the procedure in Article 11 (Hitex Plastering Ltd v Santa Barbara Homes Ltd [2002] 3 NZLR 695 (HC)). In a case with a sole arbitrator, the parties are required to agree on the person to be appointed.

Clause 1(4) provides that where a party fails to act as required, or the parties are unable to agree, or an institution fails to perform any function entrusted to it, then either party may write to the other, specifying ‘the details of that person’s default’ and proposing that unless the default is remedied within seven days, the writing party’s proposed arbitrator will be appointed.

While that procedure makes sense in cases of true default, it applies equally where the parties have taken different but legitimate positions on who should be appointed. Although the High Court has emphasised the importance of making genuine efforts to agree before triggering the procedure, the consequence is that the first party to pull the trigger gains the unilateral right to appoint their chosen arbitrator.

The New Zealand Law Commission expressed concern at the prospect of one party being able to compel another party to accept their nominated arbitrator with no recourse to the Court, and suggested that the quick draw procedure be abolished in favour of permitting recourse to the High Court (New Zealand Law Commission Improving the Arbitration Act 1996 (NZLC R83, 2003) at [180], [193]).

It is unfortunate that Parliament did not take the opportunity to take up the Commission’s recommendation, and the result is that many parties will not be able to take advantage of the worthwhile amendment to Article 11.

Jack Wass is a Wellington barrister practising from Stout Street Chambers. He practises civil litigation with an emphasis on commercial disputes, arbitration and private and public international law.

Last updated on the 23rd May 2017