IPENZ Engineers New Zealand

HOME > publications > engineering-NZ > volume53-1998 > 1998-04-apr > LAW

Back to Publications

New Zealand Engineering 1998 March

Arbitration</h3>   Arbitration - New Battlefield <HR>James Cornish is a barrister, arbitrator, and consultant in Wellington <IMG SRC="../gifs/law1.GIF" NOSAVE HEIGHT=157 WIDTH=258 ALIGN=RIGHT> The Arbitration Act 1996 came into force last year, and provides brand new rules and procedures for arbitrations, and a very different legislative framework from the previous 1908 Act. Arbitration is still accepted within the construction industry as the main formal dispute resolution vehicle and all the Standard Form Contracts including NZS 3910 provide for this process. Lord Parker (a leading English Judge) observed that arbitration "is a form of ordering human society as old as society itself." The first English Arbitration Act was passed in 1698 with the aim of making the written submission of an existing dispute to named arbitrator(s) enforceable in the courts. New Zealand inherited this Act in 1840 and the English arbitration legislation of 1889 formed the basis for the New Zealand Arbitration Act 1890 and the 1908 Act which superseded it. Further amendments were contained in the English Arbitration Act 1934. The New Zealand 1938 Arbitration Amendment Act essentially reproduced the 1934 English Act. In 1991 the NZ Law Commission investigated and reported on the New Zealand Arbitration Act 1908 and the 1908 Act which superseded it. Further amendments were contained in the English Arbitration Act 1934. The New Zealand 1938 Arbitration Amendment Act essentially reproduced the 1934 English Act. In 1991 the NZ Law Commission investigated and reported on the New Zealand Arbitration Act 1908 and Amendments, and recommended that the UNCITRAL (United Nations Commission on International Trade Law) Model Law be adopted in New Zealand. Hence the Arbitration Act 1996 essentially adopts this model and was enacted on 2 September 1996, and came into force on 1 July 1997. The United Kingdom, Australia, Canada and a number of other countries have adopted this UNCITRAL Model Law. Arbitration is defined in the dictionary as "the settlement of a dispute by a person(s) to whom the conflicting parties agree to refer their claims, in order to obtain an equitable resolution". It is one of a number of methods for settling disputes. Many disputes are resolved informally, by agreement, and sometimes with the assistance of a mediator or conciliator. Other more structured methods include arbitration and litigation before a judge, and provide an imposed binding decision by a third party. Arbitration offers some advantages over litigation including the choosing of a professional `expert' as decision-maker, some informality and flexibility in procedure. Less time and cost, and an agreed choice of governing principles and law, and privacy. The new Arbitration Act The Act applies to all arbitrations commenced on or after 1 July 1997. The following notes just cover the more important provisions. The Act itself must be consulted for specific legal requirements. The Purposes of the Act are set out in Section 5. They include the encouragement of arbitration as an agreed method of resolving commercial and other disputes, to promote consistency in the process, to redefine and clarify the limits of judicial review, and to facilitate the recognition and enforcement of arbitration agreements and arbitral awards. Section 6 divides arbitration into domestic arbitrations, ie. those held in New Zealand between New Zealand parties, and international arbitrations, ie. those where certain international elements exist such as the parties being headquartered outside New Zealand. The Framework of the Act comprises: • Sections 1 to 20 - the core sections • First Schedule - enacting the UNCITRAL Model Law, applying to all arbitrations • Second Schedule enacting additional rules not included in the Model Law, primarily for domestic arbitrations. The parties can agree to contract out of these provisions. Parties to international arbitrations can agree to contract into these provisions • Third Schedule - international treaties • Fourth Schedule - enactments amended. New key concepts Section 2: • "Arbitral tribunal" means a sole arbitrator or a panel of arbitrators • "Arbitration" means any arbitration whether or not administered by a permanent arbitral institution • "Arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not • "Award" means a decision of the arbitral tribunal on the substance of the dispute and includes any interim, interlocutory or partial award • "Party" means a party to an arbitration agreement, or, in any case where an arbitration does not involve all the parties to the arbitration agreement, means a party to the arbitration. Section 4: The Act binds the Crown. Section 14 protects the privacy and confidentiality of the arbitral process. Article 16 provides that the arbitral tribunal may rule on its own jurisdiction. Article 18 provides that the parties shall be treated with equality and each party shall be given a full opportunity of presenting that party's case. The process An overriding feature of this new Act is that arbitration is now firmly controlled by the parties themselves. Court intervention is restricted to those cases where there has been a failure to comply with the elements of natural justice in the arbitral procedure, or the arbitration is contrary to public policy, or is otherwise illegal. The substance of the law and practice of "domestic" arbitrations are now predominantly contained in the first and second schedules. The parties can adopt as much or as little of the second schedule as they wish. Also, there is some discretion as to whether some of the first schedule is excluded - in particular, the appointment of the arbitral tribunal and the preliminary procedures. It is essential that the parties consider and agree on these matters before the arbitration itself commences. There are no significant changes to the appointment procedure. The parties choose their arbitrator, or if there is to be more than one, each chooses one and the persons chosen appoint a third. In litigation the parties are obliged to accept whichever judge is allocated to the hearing. But with arbitration the parties can choose a person with appropriate technical expertise, such as an engineer or construction lawyer, for a dispute under an engineering contract. The arbitration process can now be tailored to the nature of the dispute. For example, if the dispute is limited to the proper meaning of a contract, the background facts may be agreed, and the hearing limited to legal argument on written submissions only. But if say quality of workmanship or materials of a project are in question, the arbitrator may be invited to inspect and make an expert judgement. If facts are in issue, evidence may be called and witnesses cross-examined much as in a court of law. If the parties cannot agree on the appropriate procedure or process, the arbitral tribunal, ie. the sole arbitrator or arbitrators if more than one, will decide. The procedure must in those cases be one which meets the requirements of the Act. This flexibility of procedure and the ability to choose a suitably qualified arbitrator should result in significant cost and time savings. It is the responsibility of the parties to agree to the number of arbitrators. If they cannot agree, the new Act provides that the number shall be three in the case of an international arbitration, and one in all other cases. The parties should consider and agree, whether there should be any changes from the procedures in the schedules to the Act. For example, should a simpler process be adopted? Should the second schedule apply? Should the arbitrator(s) be required to give reasons for the award? Do the parties want the limited right of appeal in clause 5 of the second schedule, or do they want to exclude any right of appeal? Powers and duties of the arbitrator Arbitrators now have powers and duties equivalent of a judge. Under Section 12, an arbitral tribunal can award any remedy or relief that could have been ordered by the High Court, if the dispute had been subject to civil proceedings. Chapter IV of the first schedule provides that the arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order any party to take such interim measure of protection as the arbitral tribunal may consider necessary in respect of the subject matter of the dispute, including appropriate security. If the provisions of Clause 3 of the second schedule are not excluded, the powers of the arbitral tribunal include the adoption of inquisitorial processes, the drawing on its own knowledge and expertise, the fixing of time limits, the ordering of discovery and production of documents, interrogatories, affidavits, evidence on oath and making interim awards.The parties are entitled and expect to have their dispute settled according to the law of the land, and the fact that they have chosen arbitration as the procedure by which that law shall be applied in the settlement does not give the arbitrator(s) any authority to ignore the law.One of the more difficult matters with which a non-legal arbitrator has to contend is the admissibility of evidence. Indeed, to an arbitrator not well versed in the law of evidence there are many pitfalls if the strict rules of evidence are to apply, as they must unless the parties have agreed otherwise. However, training overcomes these difficulties, and engineers are encouraged to become qualified arbitrators. <HR> </td> </tr> <tr> <td width="30"><img src="/ipenz/images/front/1x1tr.gif" alt="Blank space" width="30" height="50"></td> <td width="160" valign="top" align="left"><img src="/ipenz/images/front/1x1tr.gif" alt="Blank space" width="160" height="50"></td> <td width="20"><img src="/ipenz/images/front/1x1tr.gif" alt="Blank space" width="20" height="50"></td> <td width="400" align="left" valign="top" class="bodya"><img src="/ipenz/images/front/1x1tr.gif" alt="Blank space" width="400" height="50"></td> <td align="right" valign="top" width="250"> </td> </tr> </table> <div id="footer"> © 1996 - 2010 IPENZ </div> </div> </body> </html>