A description of the arbitration
process
The Arbitration Act 1996 - an overview
Structure
of the Arbitration Act 1996
Provisions
of the First Schedule
Provisions
of the Second Schedule
Confidentiality
of Arbitration
A single
arbitrator is the default option in the Act.
There are
no specific qualifications required to be an arbitrator, except to be
independent and impartial in all respects. Generally they are senior or
experienced members of a profession suitably related to the nature of the
dispute. The Arbitrator's and Mediator's Institute of NZ promotes
professionalism and training, draws it's members from many professions, and maintains
a "Panel" of qualified persons (generally AMINZ Fellows) who are
suitable for the task.
Colin R
Orchiston (FAMINZ) is a
member of the AMINZ Arbitration Panel, Mediation Panel, and Adjudication Panel.
Where
possible the procedures in the contract should be followed. If they
provide for the appointment of a single arbitrator, then the parties should
endeavour to agree upon one, by one party forwarding to the other a list of two
or three persons, from whom the other party selects one.
If the
parties are unable to agree upon a person, then it is suggested that they agree
on a neutral body, such as the President of the Arbitrators and Mediators
Institute of NZ, to select the arbitrator.
If either
of those procedures do not result in an appointment, then one party can give
notice to the other specifying their default, and calling upon them to rectify
it within not less than seven days, failing which the party named in that
notice shall be deemed appointed. (Arb Act Second Schedule (1) (4)).
Failing
that, Article 11 of the First Schedule of the Arbitration Act provides that a
party may apply to the High Court to appoint an arbitrator.
If the
contract does not require a single arbitrator, and a single arbitrator cannot
be agreed upon or is not appointed as above, then each party may appoint an
arbitrator, and those two arbitrators appoint a third. In such a case the
outcome is the majority or consensus decision of the three arbitrators.
NZIA and
NZS standard conditions of contract provide for the resolution of disputes by
arbitration, as do most standard building contracts. In the absence of
such a provision, there is no reason why parties could not agree to enter into arbitration
after the dispute has arisen.
As a first
step, a timetable needs to be set for the process, and the extent of
documentation and attendant complexities needs to be assessed. I use a
pro-forma agreement as a starter to discuss these issues. Where the
parties are co-operating in trying to resolve the dispute, it is often useful
for them to each infill the agreement as far as possible, and return to me with
a copy to the other party.
Depending
on the dispute I either fill the agreement out at the hearing or hold a
preliminary meeting for that purpose, and I will make that call if it seems
necessary to follow up on items as a result of the response to the agreement,
or if one of the parties fails to return the agreement. If, as a result of
considering the agreement you (or your legal advisors) would prefer to have a
preliminary meeting to discuss procedures (not to put "arguments"),
then please so advise.
A description of the
arbitration process
An arbitration
process must be carried out in conformance with the Arbitration Act 1996, and
in addition, AMINZ publishes procedures, guidelines, and a code of
ethics. The procedure for the arbitration is generally established by the
arbitrator to suit the circumstances of the dispute, and it is my practice to
discuss those issues with the parties as soon as possible after
appointment. Where agreement on the timetabling and procedures cannot be
achieved, then the arbitrator will determine such issues.
I find it
helpful for as much documentary evidence as possible to be identified and
produced at the preliminary meeting, failing which a timetable will be set for
it to be provided. Where further responses to the documents are then
required, that also can be timetabled.
The parties
will have a reasonable opportunity to have their case heard, and for relevant
documents and/or site features to be viewed by the arbitrator.
It is
usual, but not always necessary, to have a hearing, the length of which is
dependent on the issues. It is always my intention to deal with matters
as informally and efficiently as possible: an arbitrator will often use
mediation techniques in the process of an arbitration, so that some issues in
dispute can be resolved in a way that suits the parties, and those particular
items can be incorporated in the arbitrator's award as "by
consent".
All the
arbitrator's fees and costs will need to be paid in order to uplift the
award. Unless the parties agree otherwise in advance, the costs of the
arbitration are usually equally shared by the parties, but one party may prefer
to pay all of them in order to uplift the award. The award will
redistribute those costs depending on the outcome of the dispute and the
conduct of the parties, and it is my practise to invoice on the basis of that
apportionment for the purposes of the parties' accounting procedures.
The
Arbitration Act 1996 - An Overview
Structure of the
Arbitration Act 1996
Provisions of the
First Schedule
Provisions of the
Second Schedule
Confidentiality of
Arbitration
Structure of the Arbitration Act 1996
The Act comprises
20 sections covering the legal aspects which are applicable to all
arbitrations, but the First Schedule ("Rules applying to arbitration
generally") is vital to the operation of the Act in respect of NZ
projects, and the Second Schedule ("Additional optional rules applying
to arbitration") will also apply unless the parties agree
otherwise.
Provisions
of the First Schedule
Section 6
of the Act requires that all arbitrations in New Zealand shall be in accordance
with all the provisions of the First Schedule. The clauses are referred
to as "Articles", and the significant provisions are:
Unless
otherwise agreed, communications are deemed to be received on the day that they
are delivered in writing to the recipient's usual place of business or
residence. (Article 3)
A party who
proceeds further when they could otherwise object to a procedural failure is
deemed to have waived their rights to that objection. (Article 4)
An
agreement to arbitration may be oral or written, or by reference to it within a
contract. (Article 7)
A Court
must stay proceedings in favour of an arbitration agreement if application is
made by a party no later than when they submit to the Court their first "statement
on the substance of the dispute" (Article 8). The
arbitration may proceed even if the matter is pending before the Court.
This "statement" is probably a Statement of Defence, which is very
different from the 1908 Act provisions wherein almost any action could cause
the court to upset the arbitration proceedings.
The Court
and the arbitrator(s) are able to order security and preservation of monies,
goods, and the like. (Articles 9 and 17)
If the
contract does not set out the procedures for appointment (or replacement, or
objection thereto) of the arbitrator, then that is set out in Articles 10 to
15.
Where a
contract has a provision for disputes to be resolved by arbitration, that
provision remains operative even if there is a dispute about whether the wider
contract is valid. The arbitrator may be appointed, and then may decide
whether there is an arbitration agreement and it's scope, before addressing
other issues in dispute (Article 16).
There is to
be one arbitrator only, unless the parties agree otherwise (Article 10), and if
they cannot agree upon an arbitrator, either party may apply to the High Court
to appoint one (Article 11).
If more
than one arbitrator is appointed, then decisions on the dispute are made by a
majority of them (Article 29).
Subject to
the rules of natural justice, the arbitrator(s) and the parties are free to
establish the procedures suitable to the task (Articles 18 to 24),
may terminate the proceedings for want of action (Article 25), may seek the input
of experts (Article 26), and be assisted by the Court as necessary to secure
evidence (Article 27).
The Award
(i.e. the decisions) by the arbitrator(s) shall be in writing; unless the
parties agree otherwise it shall give reasons for the decisions (Article 31).
There is
very limited scope for the High Court to review or set aside the Award (Article
34).
Upon
application by a party the High Court shall enter the Award as a judgement of
the Court (Article 35), and, as for Article 34, there is very limited scope for
the Court not to do so.
Provisions of the Second Schedule
Section 6
of the Act requires that all arbitrations in New Zealand shall be in accordance
with the provisions of the Second Schedule unless the parties agree
otherwise. The clauses are written such that if no action is taken, they
will apply by default. Opting out of or altering the default provisions
would be an exception requiring careful contemplation of the consequences of
the actual wording of the Act on a clause by clause basis, and is likely to be
warranted only on major projects or to suit particular circumstances.
The
significant provisions are:
If a party
fails to act under the stipulated or agreed procedure for appointing an
arbitrator, any party may write to require that default to be remedied failing
which their named appointee shall be appointed (Clause 1).
Where
several disputes have related facts or parties or arbitrators, the arbitrators
or the High Court has the opportunity to consolidate them and/or to schedule
them to suit the circumstances (Clause 2).
The
arbitrator(s) have wide powers to act as necessary to determine the dispute,
including asking questions, drawing on their own knowledge, ordering production
of evidence, setting the procedure and timetabling, making an interim award, or
seeking the assistance from the court for any such matters (Clause 3).
If a
question of law arises in the course of the dispute, it may be referred to the
High Court for determination only with the consent of all parties or the
arbitrator(s). The Court must be satisfied that there will be substantial
savings to the parties, or that the rights of a party are substantially
affected, before they will accept such an application. (Clause 4).
Clause 5
provides that if a question of law arises out of the award, it may be referred
to the High Court for determination only if the parties have specifically
agreed to such a referral before the making of the award (subclause 1(a)), or
if all the parties agree after the making of the award (subclause 1(b)), or
with the leave (approval) of the High Court (subclause 1(c)). The Court
must be satisfied that the rights of a party are substantially affected before
they will accept such an application. The Court may then confirm, vary,
or set aside the award, or remit it to the arbitrators for reconsideration.
The award
will set out how the costs and expenses of the arbitration are to be fixed and
distributed between the parties; the High Court may review the amount or
allocation of those costs. If no award is made, the parties are
responsible for their own costs, and for an equal share of the fees and costs
of the arbitrators (Clause 6).
Reference
should be made to Clause 6 in respect of offers of settlement made during the
course of the arbitration.
Where a
contract stipulates a time within which arbitration proceedings are to be
commenced, a District Court or High Court has the power to extend that time if it
thinks undue hardship would be caused otherwise (Clause 7).
A consumer
relationship arises when one party enters into a contract "otherwise than
in trade", with the other party entering the contract "in
trade".
Section 11
of the Act effectively provides that if the Principal/Owner/Employer is a
Consumer, then they will not be bound by the arbitration agreement unless they
specifically and separately agree that disputes are to be resolved by
arbitration. It is not sufficient that they agree to standard conditions
of contract which include a submission to arbitration:
"Where a contract contains an arbitration agreement .......[it] is
enforceable against the consumer only if ....the consumer, by separate written
agreement, certifies that, having read and understood the arbitration
agreement, the consumer agrees to be bound by it.....[and discloses if] all or
any of the provisions of the Second Schedule do not apply...."
Only in the
event that there is some doubt whether the definition of a consumer applies to
one party to a contract, and they do not want to be bound by the arbitration
provisions in the contract, does it become necessary to establish whether that
party is a bona fide "consumer".
If that
party expected to claim back the GST component of contract expenditure then
they would not be a "consumer" because it would be inconsistent for
them to assert that they entered the contract "otherwise than in
trade".
Such
matters should be sorted out before the contract is signed! The following
declaration would be suitable for attachment to a building contract:
Principal's
declaration as to arbitration:
I/we
(name) are entering this contract as consumers. I/we have read and
understood the dispute resolution procedures set out in the agreement dated
(insert date) between me/us and (insert name). I/we agree to be bound by
the provisions for the arbitration of disputes in accordance with the
Arbitration Act 1996, with the proviso that subclause 5.1(c) of the Second
Schedule shall not apply.
Confidentiality of Arbitration
Section 14
of the Act makes it quite clear that unless otherwise agreed by the parties,
all information relating to an arbitration is confidential to the parties,
their advisors, and the arbitrators. Unfortunately, the position of
witnesses is not explicit, so it would still be prudent to obtain a signed
confidentiality agreement from witnesses if circumstances so require.
Where a
standard form of general conditions of contract is incorporated in the
subcontract agreement, the arbitration clause in the head contract would also
apply to the subcontract. An arbitration agreement may be oral, but where
the subcontract is oral, there may be more difficulty in implying incorporation
of an arbitration agreement unless it was self-evident that such subcontracts
were knowingly and customarily undertaken in accordance with a standard form of
general conditions of contract which included an arbitration clause.
Article 16
First Schedule (described above) will mean that it is likely that the
arbitrator appointed under the main contract will need to decide whether the
subcontract arbitration agreement (if any) is operative.
These notes are provided by Orchiston Architects Ltd, Architecture & Dispute Resolution, P.O. Box 9136 Wellington, ph 04 5627 438, based on information as at 20/08/06. They remain the copyright of Orchiston Architects Ltd, and may be copied and redistributed if and only if reproduced in full without any change in content whatsoever to the notes, letterhead/logo, and this footer. They are intended as a general guide only, and not specific advice: the author accepts no responsibility for persons acting or not acting upon the information herein, and specific advice should be sought from the author or other suitable professional in respect of particular issues as and when required.