Building Disputes
Orchiston Architects Ltd  An architecture firm with specific expertise in building disputes

Arbitration

  • Selection of the arbitrator
  • Initial procedural matters
  • 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
  • Consumer Protection Clauses
  • Confidentiality of Arbitration
  • Subcontracts

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Selection of the arbitrator

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 Arbitrators and Mediators Institute of NZ promotes professionalism and training, draws its 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 the contract between the parties provides for arbitration, then the procedures in the contract should be followed.  If (as is usual) they provide for the appointment of a single arbitrator, then the parties should try to agree upon one:  this is sometimes done 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.


Initial procedural matters
 
As a matter of priority, consideration should be given to whether the dispute should be dealt with by way of mediation, adjudication, or arbitration. 

Most standard conditions of contract provide for the resolution of disputes by arbitration;  but often it is first necessary to attempt resolution by mediation.  In the absence of a contract provision for arbitration, 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 complete filling out the agreement at the hearing or hold a preliminary meeting for that purpose.  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 actual procedure for the arbitration is generally established by the arbitrator to suit the circumstances of the dispute. 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.  Typically the basic information required is the claim and the counterclaim (if any) together with some supporting documentation.  The extent of the further information required, and the process and timetabling for producing it and/or responses to the claim and the counterclaim, can then be arranged.  
 
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 decision as "by consent".  
 
The arbitrator’s decision is called an Award.  Generally it is limited to providing a decision on all the issues of the claim and counterclaim (if any), and reasons for those decisions.  Where appropriate, it will set out the conditions applying to the decision – such as the date by which payment must be made, or the extent of work required before a payment becomes due.  In some cases, it may be useful to issue one or more Interim Awards limited to some items, leaving other items to be addressed in a later Final Award.
 
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 uplifting the award 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 generally be invoiced on the basis of that apportionment.
 
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The Arbitration Act 1996 - An Overview
 
Structure of the Arbitration Act 1996
Provisions of the First Schedule
Provisions of the Second Schedule
Consumer Protection Clauses
Confidentiality of Arbitration
Subcontracts
 

Structure of the Arbitration Act 1996
 
The Act includes Sections covering the legal aspects which are applicable to all arbitrations.  In addition the First Schedule ("Rules applying to arbitration generally") will apply to 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 some or all of the default provisions would require 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).
 
Consumer Protection Clauses
 
Section 11 of the Act provides that if the Principal/Owner/Employer is a Consumer, then they will not be bound by the arbitration agreement unless (after the dispute has arisen) they specifically and separately agree that disputes are to be resolved by arbitration.  A consumer relationship arises when one party enters into a contract "otherwise than in trade", with the other party entering the contract "in trade".

The general expectation would be that if a party expected to claim back the GST component of contract expenditure, they would not be a "consumer", because it would be inconsistent for them to assert that they entered the contract "otherwise than in trade".  

 It is not sufficient to merely agree to standard conditions of contract which include a submission to arbitration:
 [Section 11]       ".....the arbitration agreement is enforceable against the consumer only if—
(c) the consumer, by separate written agreement entered into by the consumer and the other party to the contract after a dispute has arisen out of, or in relation to, that contract, certifies that, having read and understood the arbitration agreement, the consumer agrees to be bound by it; and
(d) the separate written agreement referred to in paragraph (c) discloses, if it is the case, the fact that all or any of the provisions of Schedule 2 do not apply to the arbitration agreement."

Confidentiality of Arbitration
 
Unless otherwise agreed by the parties, all information relating to an arbitration is confidential to the parties, their advisors, and the arbitrators. (Refer Section 14 of the Act).  Unfortunately, the position of witnesses is not explicit, so it would be prudent to obtain a signed confidentiality agreement from them if circumstances so require.
 
Subcontracts
 
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. 

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