New Zealand

Introduction

Overview of arbitration in New Zealand

Arbitration is widely used and understood in New Zealand, which was an early adopter of the UNCITRAL Model Law on International Commercial Arbitration 1985 (Model Law). As a practical matter, arbitration is increasingly selected for the resolution of significant contractual disputes in place of High Court litigation.

The Arbitration Act 1996 (the Act) governs all forms of arbitration in New Zealand, whether commercial or consumer, domestic or international. The Act was drafted under the leadership of Sir Kenneth Keith, the then-president of the New Zealand Law Commission and now a member of the International Court of Justice. The Act is closely based on the Model Law, which is incorporated (including the 2006 amendments) into schedule 1 with only minor modifications.

The express purposes of the Act include the promotion of consistency of arbitral regimes based on the Model Law, and between the international and domestic arbitral regimes in New Zealand. New Zealand courts and arbitral tribunals are expressly empowered to refer to the preparatory works of the Model Law in interpreting the Act. New Zealand’s judiciary has been sensitive to the fact that the Act is based on model legislation which aims at international harmonisation and has generally sought to interpret the Act in an international context.

Structure of the Arbitration Act 1996

The Act contains two primary Schedules: a mandatory schedule 1, closely based upon the Model Law; and an optional schedule 2, incorporating additional procedural rules – including the possibility of an appeal on a question of law. By section 6 of the Act, Schedule 2 applies to a domestic arbitration unless the parties agree otherwise; and to an international arbitration only if the parties so agree.

This means that a simple arbitration clause selecting the seat of arbitration as New Zealand will, by default, be conducted under the Model Law. Whether additional procedural rules will also apply depends upon whether the arbitration is domestic or international.

The sections of the Act principally define its purposes (section 5), its scope of application to different classes of disputes (sections 6 to 11) and the general powers and liabilities of arbitrators (sections 12 and 13). They also include, as sections 14A to 14I, a confidentiality code inserted in 2007.

A third schedule to the Act annexes the arbitration treaties to which New Zealand is party, being the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the 1923 Geneva Protocol on Arbitration Clauses and the 1927 Geneva Convention on the Execution of Foreign Arbitral Awards.

Arbitral institutions and rules in New Zealand

Most arbitration conducted in New Zealand is ad hoc and often conducted solely under the auspices of the Act. The use of ad hoc procedural rules, such as the UNCITRAL Arbitration Rules, is still relatively rare. Many users instead rely on the procedural rules and guidance provided by the Act, particularly the optional schedule 2 containing useful default rules, including for the appointment of arbitrators without court or institutional intervention and an optional appeal on a question of law.

The prevalence of international arbitration is increasing with the globalisation of New Zealand’s economy, as greater numbers of New Zealand companies and offshore counterparties sign contracts containing arbitration clauses. Nevertheless, in practice, many arbitrations reflect a hybrid culture incorporating elements of domestic court practice as well as international arbitration best practice. This culture is evolving as documents such as the IBA Rules on the Taking of Evidence in International Commercial Arbitrations (the IBA Rules) become increasingly widely known.

New Zealand has a local arbitration institution, the New Zealand Dispute Resolution Centre (the Centre), which offers a variety of arbitration rules. In October 2014, the Centre released a new set of international arbitration rules. The most popular international institutional rules are those of the International Chamber of Commerce and the Singapore International Arbitration Centre.

The role of the courts

One of the purposes of the Act is to ‘redefine and clarify the limits of judicial review of the arbitral process and arbitral awards’. The starting point in considering the role of the New Zealand courts with respect to arbitrations is article 5 of schedule 1: ‘In matters governed by this Schedule, no court shall intervene except where so provided in this Schedule.’

A principal objective of this provision in the Model Law was to confirm that the only permissible recourse against an arbitral award was an application to have the award set aside on the limited grounds contained in article 34. This objective was deliberately moderated by the inclusion of clause 5 of schedule 2, which – where it applies – also permits an award to be appealed on a question of law.

The key areas of possible intervention in arbitral proceedings by a New Zealand court are the following:

• court assistance to uphold the arbitration agreement, including its enforcement through a stay of court proceedings (where the offending proceedings are brought in a domestic court: article 8(1), schedule 1) or the issuance of an anti-suit injunction (where the offending proceedings are brought in a foreign court);
• court assistance to ensure the proper commencement of the arbitration proceedings, including the appointment of the arbitral tribunal (article 11(1), schedule 1; see clause 1, schedule 2), considering challenges to tribunal members (article 13(3), schedule 1) and confirming replacement of arbitrators (article 14(1), schedule 1);
• court assistance with interim measures in support of the arbitration proceedings (articles 9, 17L and 17M, schedule 1);
• court assistance with the conduct of the arbitral proceedings themselves, primarily including assistance in obtaining evidence (article 27, schedule 1; and clause 3, schedule 2);
• court assistance in relation to the confidentiality of arbitration proceedings (principally, section 14E of the Act);
• court review of domestic arbitral orders and awards (articles 16(3) and 34, schedule 1; and clauses 4 and 5, schedule 2); and
• court recognition and enforcement of arbitral awards (article 36, schedule 1).

Commencing arbitration

Arbitration agreements

Article 7 of Schedule 1, which closely follows the Model Law, provides that an arbitration agreement may be made orally or in writing. It may be in the form of an arbitration clause in a contract or in the form of a separate agreement. There are no known examples in New Zealand case law of any oral arbitration agreement having been proved where its existence was disputed by the parties. Care is required in drafting written arbitration agreements in New Zealand. A recent Supreme Court decision, Carr & Anor v Gallaway Cook Allan [2014] NZSC 75, [2014] NZLR 792, held that an arbitration clause which provides for invalid recourse against an arbitral award (in that case, an appeal on a question of fact) is not a valid arbitration agreement.

Section 11(1) of the Act contains special provisions in respect of consumer arbitration agreements. These provisions apply where a person enters into a contract as a consumer and the contract contains an arbitration agreement. In this situation, the arbitration agreement is enforceable against the consumer only if two conditions are met:

• 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
• the separate written agreement must disclose (if it is the case) that all or any of the provisions of Schedule 2 do not apply to the arbitration agreement.

For the purposes of section 11(1) of the Act, a person enters into a contract as a consumer if that person is an individual and enters into the contract otherwise than in trade, and if the other party to the contract enters into that contract in trade.

Arbitrability

There are very few disputes that cannot be arbitrated. The term ‘arbitration agreement’ is defined in section 2(1) of the Act as meaning ‘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’. Virtually all disputes between parties involving an alleged breach of civil obligations will meet this definition, and the obligation need not be contractual in nature. For instance, disputes involving antitrust and consumer protection legislation have been held amenable to arbitration.

Section 10 provides that a dispute may not be determined by arbitration if the arbitration agreement is ‘contrary to public policy’ or if, under any other law, the dispute is not capable of determination by arbitration. The ‘public policy’ threshold is a very high bar.

Appointing the arbitral tribunal

The parties may appoint the arbitral tribunal in accordance with whatever procedure they have agreed in the arbitration agreement.

Failing such agreement, the appointment rules in article 11 of Schedule 1 are that, in an arbitration with three arbitrators and two parties, each party may appoint one arbitrator and the two arbitrators thus appointed must appoint the third arbitrator. In an arbitration with a sole arbitrator, the parties must agree; if they do not, the appointment must be made, upon request of a party, by the High Court.

The High Court is also empowered to make appointments where the parties’ appointment machinery has failed (unless the parties’ agreement on the appointment machinery provides other means for securing the appointment). There is no appeal from any appointments made by the High Court.

There is an alternative procedure for appointing the arbitral tribunal set out in clause 1 of the optional Schedule 2. This provides that, for the purposes of article 11 of Schedule 1, the parties are taken as having agreed on the procedure for appointing the arbitral tribunal as set out in clause 1, unless the parties agree otherwise. Clause 1 then sets out a default ‘quick draw’ procedure in the event of parties, including a third-party institution, failing to appoint any required arbitrators. This permits a party to specify by written communication the details of the party’s or institution’s default in appointment and to propose that, if the default is not remedied in a period of not less than seven days, a person named in the written communication shall be appointed as arbitrator. This is a form of self-help remedy that permits the appointment of a tribunal without the intervention of an institution or the High Court.

It also creates opportunities for gamesmanship. The first party to serve a valid notice can, in this way, seek to insist upon the identity of the relevant appointment. The High Court has confirmed, however, that a quick draw notice cannot be served unless and until a party has been given a reasonable time to make an appointment. If served too early, the notice will be ineffective. Nonetheless, this uncertainty creates potential scope for confusion over precisely when a quick draw notice will be valid and effective.

The two other relevant powers of the High Court are to assist in determining challenges to arbitrators (article 13(3)) and applications to remove an arbitrator who has become unable to act (article 14(1)). There is some (although relatively little) case law under each provision.

Article 12 of Schedule 1 adopts the Model Law position, which requires a person who is approached in connection with that person’s possible appointment as an arbitrator to disclose any circumstances likely to give rise to justifiable doubts as to that person’s impartiality or independence. New Zealand law on how this provision is to be applied is now likely to be influenced by the leading case regarding judicial impartiality, Saxmere Company Ltd v Wool Board Disestablishment Company Ltd [2009] NZSC 122, [2010] 1 NZLR 76, in which the Supreme Court confirmed that apparent bias will be shown ‘if a fair-minded lay observer might reasonably apprehend that the judge might not bring an impartial mind to the resolution of the question the judge is required to decide’.

Court assistance in upholding the arbitration agreement

Article 8(1) of Schedule 1 provides for a mandatory stay of New Zealand court proceedings commenced in breach of an arbitration agreement, subject only to the exceptions that:

• the arbitration agreement was null and void, inoperative or incapable of being performed; or
• that there is not in fact any dispute between the parties with regard to the matters agreed to be referred.

The second exception is one of the few changes made to the Model Law when it was adopted in New Zealand. This controversial exception was added to preserve a route for swiftly disposing of applications for a stay by a party who, although they wished to seek arbitration, has no arguable defence to claims made in that arbitration. It has been judicially interpreted to preserve the High Court’s summary judgment jurisdiction.

The matter came before the Court of Appeal again in Zurich Australian Insurance Ltd v Cognition Education Ltd [2013] NZCA 180. After a careful examination of the countervailing policy arguments, the Court decided that a stay may be refused where summary judgment can properly be granted.

However, the unanimous decision of the Supreme Court in Zurich Australian Insurance Ltd v Cognition Education Ltd [2014] NZSC 188 has since overturned that approach. The Supreme Court found that a matter can properly be described as a dispute within the meaning of article 8(1) even if it is capable of resolution through the summary judgment process; the words ‘not in fact any dispute’ referred only to circumstances where the dispute raised was not bona fide.

The Supreme Court’s decision in Zurich deliberately interpreted the Act in light of New Zealand’s international obligations under the New York Convention and the approach taken by the Model Law.

New Zealand courts have a residual discretion to grant a stay even where article 8(1) is not engaged. In Danone Asia Pacific Holdings Pte Ltd v Fonterra Co-operative Group Ltd [2014] NZHC 1681 the High Court held that it has a discretionary power to stay proceedings ‘in rare and compelling circumstances where the costs, convenience and the interests of justice [...] weigh in favour of a stay’ (at [39]). In that case, article 8 did not apply because the defendant was not a party to the arbitration (it was, however, the parent company of respondents in the arbitration); but the court nevertheless exercised its discretion to grant a stay pending the outcome of the arbitration. In November 2014, the Court of Appeal upheld the High Court’s decision, confirming the court’s residual discretion to grant a stay in appropriate circumstances (see Danone Asia Pacific Holdings Pte Ltd v Fonterra Co-operative Group Ltd [2014] NZCA 536).

Interim measures

New Zealand was the first country to adopt the 2006 UNCITRAL revisions on interim measures. Arbitrators have wide powers to issue interim measures and other forms of preliminary relief. Detailed provisions on interim measures and preliminary orders – corresponding to those now appearing in the Model Law – appear in articles 17 to 17M of Schedule 1, which were inserted and came into force on 18 October 2007.

Unless otherwise agreed by the parties, the arbitral tribunal may grant an ‘interim measure’ at the request of a party. An interim measure is defined in article 17 as meaning ‘a temporary measure (whether or not in the form of an award)’ by which a party is required ‘at any time before any award is made in relation to a dispute’ to carry out all or any of the following specified tasks:

(i)   to maintain or restore the status quo pending the determination of the dispute;

(ii)  to take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral proceedings;

(iii)  to provide a means of preserving assets out of which a subsequent award may be satisfied;

(iv)  to preserve evidence that may be relevant and material to the resolution of the dispute; and

(v)  to give security for costs.

The standard that must be met for granting an interim measure is set out in article 17B. An applicant for an interim measure of the kinds mentioned in (i), (ii) or (iii), above, must satisfy the arbitral tribunal of three matters:

•  that harm not adequately reparable by an award of damages is likely to result if the measure if not granted;
•  that the harm substantially outweighs the harm that is likely to result to the respondent if the measure is granted; and
•  that there is a reasonable possibility that the applicant will succeed on the merits of the claim.

Interim measures are applied for on notice to the other party and will be determined by the arbitral tribunal after hearing from both parties. However, there is also scope for the arbitral tribunal to grant a ‘preliminary order’ without notice to the respondent.

A ‘preliminary order’ is defined in article 17 as meaning ‘an order directing a party not to frustrate the purpose of an interim measure’. Article 17C provides that a claimant may, unless otherwise agreed by the parties, apply for a preliminary order without notice to any other party when making a request for the interim measure to be granted.

The arbitral tribunal may issue a preliminary order if it considers that prior disclosure of the request for the interim measure to the respondent risks frustrating the purpose of the measure. The applicant for a preliminary order must satisfy the arbitral tribunal of the same matters (modified as necessary) of which the tribunal must be satisfied when granting an interim measure (as set out in article 17B).

Article 9 of the Model Law (reproduced as article 9(1) of schedule 1 of the Act) makes no judgment as to whether the arbitral tribunal or the courts should have priority when it comes to issuing interim measures of protection. However, in practice, the parties should ordinarily apply first to the arbitral tribunal if it has been formed. The Act elaborates on article 9 of the Model Law by providing that where a party applies to the court for an interim measure of protection and the arbitral tribunal has already ruled on any matter relevant to the application, the court shall treat the ruling or any finding of fact made in the course of the ruling as conclusive for the purpose of the application to the court. Moreover, where an application is made to court for interim measures in support of arbitration proceedings, the relevant test remains that provided by articles 9 and 17B. In Safe Kids in Daily Supervision Ltd v McNeill HC Auckland CIV-2010-404-1696, 14 April 2010 at [18] the Court stated: ‘The Court will consider the granting of interim measures on the basis that they should complement and facilitate the arbitration, and in [the] same way and with the same limitations as an arbitral tribunal carrying out such an exercise’.

Articles 17L and 17M provide for recognition and enforcement (and for grounds for refusing recognition and enforcement) of interim measures granted by the arbitral tribunal. Article 17L(1) provides that interim measures must be recognised as binding and, unless otherwise provided by the arbitral tribunal, enforced upon application to a competent court. The court may refuse recognition or enforcement of an interim measure on essentially the same limited grounds as for an award.

Article 17G provides that a provisional order (as opposed to an interim measure) is binding on the parties but is not enforceable by a court and does not constitute an award.

The arbitral proceedings

The powers of the arbitral tribunal

An arbitration agreement, unless otherwise agreed by the parties, is deemed to provide that an arbitral tribunal may award any remedy or relief that could have been ordered by the High Court if the dispute had been the subject of civil proceedings in that court, as well as interest on that award (section 12). This confirms the ability of arbitrators to award relief under domestic statutes such as the Fair Trading Act 1986 and the Commerce Act 1986.

Where the parties have not agreed, before or during the arbitral proceedings, on relevant procedural matters, the arbitral tribunal is empowered to conduct the arbitration in such a manner as it considers appropriate, subject only to the mandatory provisions of Schedule 1. Examples of provisions that expressly empower the arbitral tribunal to decide matters (sometimes only in the event the parties do not agree) include:

• article 19(2), relating to the default procedural powers of the arbitral tribunal in conducting the proceedings, including the power to ‘determine the admissibility, relevance, materiality, and weight of any evidence’;
• article 20, relating to the place of arbitration and the location of hearings;
• article 22, relating to the language of the arbitration;
• article 23(1), relating to the time for filing statements of claim and defence (and whether documentary evidence is filed simultaneously or at a later date);
• article 23(2), relating to whether an amendment of a statement of claim or defence should be allowed having regard to the delay in making it;
• article 24(1), relating to whether oral hearings should be held and the nature of such hearings (but oral hearings must be held at the request of any party unless the parties have agreed that no hearings shall be held);
• article 31(5), relating to whether a sum directed to be paid in an award shall carry interest; and
• article 32(2), relating to when the proceedings terminate.

Mandatory provisions of Schedule 1

Some provisions of Schedule 1 are mandatory. Articles 4 and 34(2)(iv) of Schedule 1 refer to the existence of provisions ‘of this Schedule from which the parties cannot derogate’.

New Zealand case law has, generally in accordance with the preparatory works to the Model Law, identified articles 18, 24(2) and 24(3) as mandatory, with the result that the article 34 and 36 standards for review and recognition are also non-derogable. The article 12 challenge right has also been identified as mandatory, presumably in the sense of establishing a minimum standard of impartiality and independence.

Confidentiality

Arbitrations are generally confidential. The Act contains a detailed code relating to the confidentiality of arbitral proceedings and court proceedings involving arbitrations. Two general presumptions may be seen as underpinning the detailed confidentiality provisions. The first is that arbitrations are to be conducted in private and are to be subject to confidentiality. The second is that any court proceedings involving arbitral proceedings are generally to be conducted in public and are not subject to confidentiality obligations. Mechanisms to displace these presumptions in appropriate cases are provided.

By section 14A of the Act, arbitral proceedings must be conducted in private. Section 14B provides that arbitration agreements are deemed to provide that the parties and the arbitral tribunal must not disclose ‘confidential information’.

‘Confidential information’ is defined widely in section 2(1) as meaning ‘information that relates to the arbitral proceedings or to an award made in those proceedings’ and includes:

• all pleadings, submissions, statements or other information that a party supplies to the arbitral tribunal;
• any evidence supplied to the arbitral tribunal;
• any notes made by the arbitral tribunal of submissions or evidence before it;
• any transcript of oral evidence or submissions given; and
• any rulings and awards of the arbitral tribunal.

Section 14C of the Act provides limited circumstances in which a party or an arbitral tribunal may disclose confidential information. Disclosure may be made to a professional or other adviser of the parties or in accordance with an order made or subpoena issued by a court. Disclosure may be made if authorised or required by law or a competent regulatory body, provided that the party (or tribunal) disclosing provides notification of the fact of, and reasons for, disclosure. Disclosure is also permitted where it is necessary to ensure that a party has a full opportunity to present its case, to establish or protect its legal rights in relation to a third party or to make an application to the court. In all of these circumstances, the disclosure must be no more than what is required to serve these purposes.

There is also a regime by which a party may apply to the arbitral tribunal, and the arbitral tribunal may determine an application, for permission to disclose confidential circumstances, otherwise than as permitted by the Act. If the arbitral tribunal refuses the application, the party may appeal to the High Court, whose decision is final. Application to the High Court for permission to disclose confidential information may also be made where the mandate of the arbitral tribunal has been terminated.

The High Court may make an order allowing disclosure of confidential information only if it is satisfied, in the circumstances of the particular case, that the public interest in preserving the confidentiality of arbitral tribunals is outweighed by other considerations that render it desirable in the public interest for the confidential information to be disclosed. The disclosure may not be more than what is reasonably required to serve those other considerations making it desirable for there to be disclosure.

Section 14F of the Act provides that court proceedings under the Act must be conducted in public unless the court makes an order that the whole or any part of the proceedings must be conducted in private. Such an order may be made only on application by a party and only if the court is satisfied that the public interest in having the proceedings conducted in public is outweighed by the interests of any party to the proceedings in having the whole or any part of the proceedings conducted in private.

In determining whether the court proceedings should be conducted in private, the court is required under section 14H of the Act to consider a range of matters, including the open justice principle, the privacy and confidentiality of arbitral proceedings and the terms of any arbitration agreement.

Evidence, privilege and disclosure rules

New Zealand evidential and court procedural rules are not applicable to arbitrations under the Act, unless the parties have elected to make them so. But New Zealand privileges and immunities for witnesses are applicable regardless of party agreement.

Schedule 1 of the Act is silent on document disclosure issues, stating in article 19 only the Model Law formulation that the parties are free to agree on the procedure to be followed by the arbitral tribunal – failing which the arbitral tribunal may conduct the arbitration in such manner as it considers appropriate (in both cases, subject to the mandatory provisions of schedule 1, such as the equal treatment guarantee in article 18).

The optional schedule 2 provides that, for the purposes of article 19 of schedule 1, the parties shall be taken to have agreed that the powers conferred upon the arbitral tribunal include the power to ‘order the discovery and production of documents or materials within the possession or power of a party’. In practice, parties to a domestic arbitration in New Zealand will often have access to equivalent discovery as that available under the New Zealand High Court Rules (Schedule 2 of the Judicature Act 1908).

To provide clarity on the method and limits of disclosure, international arbitrations in New Zealand are often conducted with non-binding reference to the IBA Rules.

Court assistance with obtaining evidence

Article 27 facilitates court assistance with obtaining witness or documentary evidence. It can be triggered only by request from the arbitral tribunal, or by a party with the approval of the arbitral tribunal.

Where this procedure is used, the High Court may issue a subpoena, or a district court may issue a witness summons, to compel the attendance of a witness before an arbitral tribunal to give evidence or produce documents. Alternatively, the High Court or a district court may order any witness to submit to examination on oath before the arbitral tribunal or before an officer of the court (or other person) for the use of the arbitral tribunal. Article 27(3) provides that the High Court or a district court shall have its ordinary powers to make orders for discovery and interrogatories, the issue of a request for the taking of evidence out of the jurisdiction, or the detention, preservation, or inspection of any property or thing which is in issue in the arbitral proceedings.

The arbitral tribunal, or a party with the approval of the arbitral tribunal, may also request the High Court or a district court for assistance with any of the powers conferred upon an arbitral tribunal in accordance with clause 3(1) of schedule 2. For those purposes, the respective courts have the same powers as they have in civil proceedings.

Awards, court review of awards and enforcement

Making an award

Chapter 6 of schedule 1 sets out the rules for making awards and terminating the arbitral proceedings. Those provisions closely follow those of the Model Law.

The arbitral tribunal must decide the dispute in accordance with the rules of law chosen by the parties as applicable to the substance of the dispute. If the parties have not designated which rules of law apply, the arbitral tribunal must apply the law determined by the conflict of laws rules which the tribunal considers appropriate.

If the parties have expressly so authorised, the arbitral tribunal may decide the dispute ex aequo et bono or as amiable compositeur (that is, according to considerations of general justice and fairness). Where an arbitral tribunal is given such a power, this will result in the modification of the strict language of the written contract to the extent of any inconsistency with a fair and equitable result (see A’s Co Ltd v Dagger HC Auckland M1482-SD00, 7 March 2003, at [146]).

Where there is more than one arbitrator, any decision of the arbitral tribunal on the substance of the dispute must be made, unless the parties otherwise agree, by a majority of all its members. There is nothing expressly prohibiting arbitrators from issuing dissenting opinions to the award. Accordingly, a dissenting arbitrator may do so.

An award must be made in writing and signed by the arbitrator or a majority of the arbitrators, if the reason for any omitted signature is stated. The award must state the reasons on which it is based, unless the parties have agreed otherwise. The award must state its date and the place of arbitration and, once made, a signed copy must be delivered to each party.

Where the parties settle the dispute during the arbitral proceedings, the arbitral tribunal must terminate the proceedings. If requested by the parties, and if the arbitral tribunal does not object, the arbitral tribunal must record the settlement in the form of an arbitral award on agreed terms. An award on agreed terms must state that it is an award and must otherwise comply with the formal requirements for an award to be valid. It has the same status and effect as any other award on the merits.

The arbitral tribunal has a limited power to correct or interpret the award under article 33 of schedule 1, which follows the Model Law provisions.

Costs

Where the optional schedule 2 applies, clause 6 expressly provides that, unless the parties otherwise agree, the arbitral tribunal shall fix and allocate the costs and expenses of the arbitration (these being the legal and other expenses of the parties), the fees and expenses of the arbitral tribunal and any other expenses related either in its award under article 31 of schedule 1 or in any additional award under article 33(3) of schedule 1. In the absence of any award or additional award fixing and allocating costs and expenses, each party is responsible for its own legal and other expenses, and for an equal share of the fees and expenses of the arbitral tribunal and any other expenses relating to the arbitration.

In Casata Ltd v General Distributors Ltd [2006] NZSC 8, [2006] 2 NZLR 721, the majority of the Supreme Court held that, at least in this context, the arbitral tribunal has a duty to inquire into and make an award on costs, even where neither party expressly or impliedly claimed for costs.

Unless the parties otherwise agree, the arbitral tribunal can exercise discretion regarding who bears the costs of the arbitration. It is usual for the unsuccessful party to be ordered to pay a reasonable contribution towards the successful party’s costs.

Where the optional Schedule 2 applies, the High Court may, on the application of a party, vary the amount or allocation of the costs or expenses of the arbitration if the court is satisfied that the amount or allocation of the costs or expenses is unreasonable in all the circumstances. The arbitral tribunal is entitled to appear and be heard on such an application. The High Court’s decision is final. Such applications are, however, rare.

Review of awards – setting aside

Unless the optional Schedule 2 (permitting the possibility of appeals on questions of law) applies, the only way an award may be challenged is by applying to have the award set aside under article 34 of Schedule 1. The application must be made within three months of the date on which the party making the application to have the award set aside received the award (or, if a request for a correction, interpretation or additional award was made under article 33 of Schedule 1, of the date that request was disposed of). There is no time limit where the application to set aside is made on the ground that the award was induced or affected by fraud or corruption. The interrelationship between articles 33 and 34(3) was recently considered by the Court of Appeal in Todd Petroleum Mining Company Ltd v Shell (Petroleum Mining) Company Ltd [2014] NZCA 507, at [36]-[37]. The Court of Appeal, allowing the appeal, held that once an article 33(3) request is made, the three-month period set by article 34(3) for application to the High Court for leave to appeal runs from the date on which the request is ‘disposed of’ by the arbitral tribunal. It rejected the argument that there was a qualitative requirement that the request under article 33(3) be a ‘proper’ request.

The grounds on which an award may be set aside are limited and essentially the same as those appearing in the Model Law. In particular, an award may be set aside where the High Court finds that the subject matter of the dispute is not capable of settlement by arbitration under the law of New Zealand or the award is in conflict with the public policy of New Zealand.

The Supreme Court has recently, in Carr & Anor v Gallaway Cook Allan [2014] NZSC 75, set aside an arbitral award where the arbitration clause had provided for an invalid form of recourse against any resulting award; in that case, an appeal on a question of fact. The main lesson from this case is that arbitration agreements in New Zealand must be carefully drafted.

The courts have given some guidance on what is (or is not) in conflict with the public policy of New Zealand. The words ‘public policy’ require some fundamental principle of law and justice to be engaged. There must be some element of illegality, or enforcement of the award must involve clear injury to the public good or abuse of the integrity of the Court’s processes and powers. (See Amaltal Corporation Ltd v Maruha (NZ) Corporation Ltd [2004] 2 NZLR 614 (CA) and Downer-Hill Joint Venture v Government of Fiji [2005] 1 NZLR 554 (HC).)

An award may also be in conflict with the public policy of New Zealand if (among other things) the making of the award was induced or affected by fraud or corruption, or a breach of the rules of natural justice occurred during the arbitral proceedings or in connection with the making of the award. This ‘natural justice gloss’ on the Model Law wording of the public policy ground – which is found also in article 36 of Schedule 1, relating to enforcement of awards – creates the risk of a broad discretion to set aside awards.

One High Court decision (Ironsands Investment Ltd & Anor v Toward Industries Ltd & Anor, HC Auckland CIV-2010-404-4879, 8 July 2011) has held that a breach of natural justice in itself constitutes a conflict with the public policy of New Zealand rendering an award liable to be set aside – albeit the court would be unlikely to exercise its discretion to do so where the breach was immaterial. A subsequent High Court decision in the same proceedings (Ironsands Investment Ltd & Anor v Toward Industries Ltd & Anor [2012] NZHC 1277) held that there was no absolute rule that natural justice required an arbitrator’s findings to be based on probative evidence in the orthodox sense, and thus an award would not be set aside for this reason under the public policy ground. The true scope of the natural justice gloss has not yet been definitively settled by appellate authority.

An application to set aside the award does not operate as a stay of any enforcement proceedings. However, where both the setting aside and enforcement proceedings are being heard in the New Zealand court, it would be usual for them to be heard together. Where an enforcement proceeding is brought in a New Zealand court and an application to set aside the award is brought in the courts of the seat of arbitration, the New Zealand court may adjourn the enforcement proceeding pending the outcome of the setting aside application (article 36(2)).

The duration of any challenge proceedings depends on the nature of the challenge. But the courts will generally try to expedite the hearing of such matters, and they would typically be heard and determined within three to six months.

Review of awards – appeals on a question of law

The clause 5 appeal on a question of law is perhaps the most important rule contained in the optional Schedule 2. Where it applies, the article 34 set aside procedure is not the exclusive recourse against an arbitral award.

Where Schedule 2 applies, a party may appeal to the High Court on any question of law arising out of the award if:

• the parties agreed before the making of the award that an appeal as of right would lie;
• every party gives consent to the appeal after the award is made; or
• the High Court gives leave to appeal.

The High Court must not grant leave to appeal unless it considers, having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more of the parties. The factors that the court will consider when deciding whether to grant leave are set out in the decision of the Court of Appeal in Gold & Resource Developments (New Zealand) Ltd v Doug Hood Ltd [2000] 3 NZLR 318 (CA), which lays down eight non-exhaustive factors that should be considered when deciding whether to grant leave, such as the strength of the challenge or the nature of the point of law sought to be raised.

An appeal may be on a question of law only. Clause 5(10), which was added in 2007, provides that a question of law for the purposes of an appeal against the arbitral award does not include any question of whether the award was supported by any (or any sufficient) evidence, or whether the arbitral tribunal drew the correct factual inferences.

If leave to appeal is granted, the High Court may, in determining the appeal, confirm, vary or set aside the award or remit the award to the arbitral tribunal.

A recent High Court decision in Shell (Petroleum Mining) Company Ltd v Vector Gas Contractors Ltd [2014] NZHC 31, at [39]-[40] considered whether, on appeal of a question of law, the Court could make factual findings which had not been made by the arbitral tribunal. The Court held that it does not have the ability to make further findings of fact where the arbitral tribunal has not done so.

Recognition and enforcement of awards

The recognition and enforcement of New Zealand and foreign arbitral awards in New Zealand is governed by articles 35 and 36 of Schedule 1. Articles 35 and 36 are closely modelled on articles III and V of the New York Convention. Similar provisions therefore appear in many other jurisdictions, and not just those which have enacted legislation based on the Model Law.

Awards may be enforced by applying to the High Court for entry of judgment in terms of the award under section 35 of Schedule 1. Application is made by originating application and must be accompanied by an affidavit containing duly certified copies of the award and of the arbitration agreement (if recorded in writing). If the award or the arbitration agreement is not in English, the application must also be accompanied by a duly certified translation into English of those documents.

Article 36 sets out the grounds on which recognition and enforcement may be resisted. The grounds for opposing enforcement or recognition are limited and are essentially those identified in the Model Law. They largely mirror the grounds on which the award may be set aside. In Hi-Gene Ltd v Swisher Hygiene Franchise Corp [2010] NZCA 359, the Court of Appeal confirmed that the threshold for determining whether the public policy ground in article 36 is triggered should be approached in a similar manner to the narrow reading given to the public policy ground in the article 34 context in the Court’s earlier decision of Amaltal Corporation Ltd v Maruha (NZ) Corporation Ltd (discussed above). The Supreme Court refused leave to appeal from the Court of Appeal’s decision (Hi-Gene Ltd v Swisher Hygiene Franchise Corporation [2010] NZSC 132).

Opposing the enforcement or recognition of the award does not operate as a stay per se. But enforcement or recognition by the High Court will not occur until any opposition has been determined.

Investment treaty arbitration

New Zealand has, to date, played a modest role in – and has therefore had only limited exposure to – the investment treaty arbitration system. No New Zealand investor has yet brought an investment treaty case against a foreign state, and no foreign investor has yet brought an investment treaty case against New Zealand.

New Zealand is a party to the ICSID Convention.¹ New Zealand has been a defendant to a sole ICSID arbitration, during the 1980s, at the suit of Mobil Oil NZ Limited, which arose out of an arbitration clause contained in a private agreement between Mobil and the New Zealand Government. Mobil was successful in the ICSID arbitration (Mobil Oil Corporation & Ors v Her Majesty the Queen in Right of New Zealand, Findings on Liability, Interpretation and Allied Issues, Decision on Liability, 4 May 1989 (1997), 4 ICSID Reports 140), and also in staying New Zealand court proceedings filed by the New Zealand Government seeking to prevent the ICSID arbitration taking place (Attorney-General v Mobil Oil NZ Ltd [1989] 2 NZLR 649 (HC)).

New Zealand is a party to only two operative bilateral investment treaties (BITs): with China (1988) and Hong Kong (1995). New Zealand has also signed BITs with Chile and Argentina (both 1999), but these have not entered into force.

It is only in the past decade that New Zealand has begun to embrace the investment treaty arbitration system, which it has done within the context of comprehensive free trade or economic cooperation agreements (FTAs) rather than through negotiation of stand-alone BITs. The embedding of New Zealand’s investment promotion agreements within FTAs reflects the prominence and success of the New Zealand free trade agenda, which has been pursued strategically and in a bipartisan manner. Since 2001, New Zealand has executed FTAs containing substantive investment chapters with the ASEAN countries collectively and also with Singapore, Thailand and Malaysia individually, along with China and, most recently, Taiwan. The strength and enforceability of these investment chapters is not uniform; but binding investor-state dispute resolution is provided for in the latter four agreements. Generally, New Zealand’s FTAs are notable for broad protection of state regulatory power, including through the use of general exception clauses and annexes.

New Zealand is presently a party to negotiations for the Trans-Pacific Partnership Agreement, which evolved from the P4 Agreement between Brunei, Chile, New Zealand and Singapore. Negotiating countries now include Australia, Canada, Japan, Malaysia, Mexico, Peru, the United States and Vietnam. Present indications are that this will include an investment chapter; however, this is still under negotiation.

Notes

1. New Zealand signed the ICSID Convention in 1970 and incorporated it into domestic law through the Arbitration (International Investment Disputes) Act 1979.