New frontiers in arbitration? Update on New Zealand developments

New Zealand – already an arbitration-friendly country – is currently contemplating legislative developments which could make it even more attractive for arbitrations. The proposals aim to better protect confidentiality for arbitration, bolster the enforceability of arbitral awards, and increase the scope of disputes parties can arbitrate. In our view, the effect of this would enhance New Zealand’s arbitration landscape and strengthen our position as a sound venue for arbitrations in the Asia-Pacific region.

Some of these developments, along with the future of arbitration generally, were the focus of the Arbitrators’ and Mediators’ Institute of New Zealand (AMINZ) and the International Council for Commercial Arbitration (ICCA) International Arbitration Day in Queenstown in April. This conference was a follow-on event from the 2018 ICCA Congress in Sydney. The AMINZ-ICCA conference in Queenstown was attended by arbitration experts from around the world, including the MinterEllisonRuddWatts arbitration team.

One of the important topics covered at the conference was the Arbitration Amendment Bill 2017 (the Bill), currently before the New Zealand Parliament. This private member’s Bill deals with the three important issues flagged above (amongst others) and considered in more detail below:

  • confidentiality in arbitration-related court proceedings;
  • challenges to arbitral awards; and
  • the application of arbitration to trust disputes.

The Justice Committee released an Interim Report on the Bill, containing the Departmental Report by the Ministry of Justice, on 6 April 2018. That Departmental Report leaves matters somewhat uncertain, as it recommended against most of the matters proposed in the Bill. Following further feedback from submitters we are awaiting the Justice Committee Report in July 2018 to see how the Bill will progress.

Changes to scope of confidentiality – expanding the protection?

Where we are now: the loss of confidentiality in court hearings regarding arbitrations

Under the current law, an arbitration will be confidential. While arbitration has many benefits, confidentiality can be an important reason why parties choose to arbitrate. However, this confidentiality is usually lost if one or more of the parties chooses to go to the courts under the Arbitration Act 1996 (the Act) to seek interim relief, challenge or enforce the arbitral award. The Act presumes court proceedings will be public, unless the court is satisfied the public interest in having public proceedings is outweighed by the interests of any party to have the proceedings conducted in private. This decision involves a number of factors, including the open justice principle and the private nature of arbitration.

Where we could go: private court hearings

The Bill proposes to reverse this presumption: court proceedings will be private, unless the court makes a direction that information relating to the proceedings should be published because it is of major legal interest and the court is satisfied that the information would not reveal any confidential matter. The object of this is to make New Zealand a more attractive location for arbitration and bring us in line with other arbitration centres such as Hong Kong, Singapore, England (which has a different regime but also favours confidentiality and anonymization of judgments), as well as our Pacific neighbour the Cook Islands.

The role of confidentiality in arbitration was a topic of hot debate at the AMINZ-ICCA event. Sir David Williams QC (who had made a written submission) supported the Bill as (i) arbitrating parties often choose to arbitrate their disputes because of the guaranteed confidentiality, especially in commercially sensitive disputes, and (ii) it would ensure consistency in the Asia-Pacific region. Sir Bernard Rix and others were more equivocal, recognising that confidentiality is important but the principle of open justice, and protecting the perceived legitimacy of arbitration, meant confidentiality should not automatically be a trump card.

In its Departmental Report, the Ministry of Justice recommended that the status quo be retained. The Committee commented:

We consider that the current regime for arbitration related court proceedings strikes the appropriate balance between open justice and the private nature of arbitration. Arbitration is conducted in private to protect commercial confidentiality and allow parties to maintain business relationships. We do not consider that these reasons are sufficient to justify the reversal of the open justice principle for all arbitration related court proceedings.

What parties can do now: careful drafting of dispute resolution clauses

Whether the Justice Committee will favour the status quo – as the Departmental Report recommends – or the enhanced confidentiality as proposed by the Bill and as favoured by most submitters, is unclear at present.

Confidentiality is not the only virtue of arbitration, but even if the Bill does not pass as presently worded and the status quo (see above) in relation to confidentiality remains, there are still ways to help – at least in part – protect particularly sensitive disputes. For example, a dispute resolution clause could exclude appeals to the High Court by the parties agreeing to make the original award final, or it could utilise the confidential AMINZ Arbitration Appeals Tribunal. The best time to consider these matters is when drafting contracts – well before any dispute actually arises.

Tightening procedural loopholes – protecting the enforceability of awards

One of the advantages of arbitration is the enforceability of awards – both within New Zealand and internationally. The Bill as drafted includes several amendments designed to protect the enforceability of arbitral awards in New Zealand and minimise the losing party’s ability to challenge an award on technical grounds. In particular, some of these amendments attempt to address the risk created by the Supreme Court’s decision in Carr & Brookside Farm v Gallaway Cook Allan. (1)

In Carr, the Supreme Court held the parties’ agreement to arbitrate was invalid (as it included a right of appeal on questions of fact, not available under the Arbitration Act 1996) and the invalidity could not be remedied by the Court severing the offending words. After an entire arbitration process including appeals in the High Court, Court of Appeal and Supreme Court, the award was ultimately set aside.

The Bill proposes to tweak the language of the Act so an invalidity in the procedural elements of the arbitration agreement will not infect the validity of the agreement to arbitrate itself. The Departmental Report however did not recommend making the amendments, because in its view tweaking the Act would put New Zealand out of step with other jurisdictions. While it recognised that Carr  had created a sense of unease it commented the decision in Carr  was fact-specific and it is not clear that Carr  has in fact reduced parties’ willingness to arbitrate in New Zealand.

What parties can do now: again, carefully word dispute resolution clauses

The Bill as drafted potentially minimises the effect of Carr. However, regardless of whether the Bill becomes law the outcome in Carr  is best avoided through careful drafting of the dispute resolution clause in any agreement.

Venturing into the unknown – new types of disputes up for arbitration

When the trust is lost: moving towards arbitrating trust disputes

New Zealand has between 300,000 and 500,000 trusts. For a country of 4.5 million people that’s an impressive number. While a large numbers of these trusts will hold family assets, others may hold businesses, farms, foreign assets, or other commercial assets. Arbitrating trust disputes would improve privacy, potentially resolve disputes more quickly, and ensure a Tribunal with appropriate expertise determines the dispute. Currently, there is uncertainty whether an arbitration conducted pursuant to an arbitration clause in a trust deed would be binding under the Act. Sending trust disputes to the High Court exposes the parties to public proceedings, significant costs and delays.

However, two Bills have the potential to change this. First, the Trusts Bill 2017 increases the scope of alternative dispute resolution (ADR) for trusts. However, the Trusts Bill only goes as far as providing trustees with the ability to refer a dispute to ADR, with the agreement of each party to the matter. It does not automatically validate arbitration clauses in trust deeds. Additionally, the High Court retains the power to appoint representatives for any unascertained or incapacitated beneficiaries and must approve the use of ADR in a trust dispute.

The Arbitration Amendment Bill proposes to remedy this situation by expressly confirming that arbitration clauses inserted into trust deeds by the trust’s settlor are valid and binding. The clause also provides arbitral tribunals with the power to appoint representatives to act on behalf of any unascertained or incapacitated beneficiaries who are unable to represent themselves.

The Departmental Report recommended leaving the issue to the Trusts Bill, declining to expand further the scope of arbitration in the trusts arena. The Report stated it was not appropriate for an arbitral tribunal to have the powers of the High Court: trusts are a creature of the Court and the Court should retain jurisdiction. More broadly, it considered it was not necessary to go any further than the Trust Bill already does.

Again – this is a case of “watch this space”. It seems New Zealand will at least improve the scope of ADR for trusts under the Trusts Bill, and it may open up the world of arbitration for trust disputes under the Arbitration Amendment Bill.

The flexible process of arbitration: application in indigenous disputes

The AMINZ-ICCA conference in Queenstown also highlighted a further area where arbitration may play a role. Hon Christopher Finlayson and Associate Professor Amokura Kawharu, from the University of Auckland, spoke about the use of arbitration in resolving indigenous disputes at the conference. Arbitration, as an inherently flexible tool, would enable the parties to incorporate Māori values and practices into the dispute resolution process, with a focus on inclusiveness, harmony and collaboration.

Where to from here?

New Zealand is already an arbitration-friendly country, and in our view the Arbitration Amendment Bill could potentially add to New Zealand’s position as an ideal location for arbitrations. We will be following the progress of the Bill and providing updates on it, and other developments in the arbitration world relevant to New Zealand.

If you have any questions or comments about the issues discussed in this article, please do not hesitate to get in touch with someone from our team.

Footnotes

(1) [2014] NZSC 75.

About the authors

Fiona Tregonning leads the MinterEllisonRuddWatts Arbitration team within the National Disputes Resolution Division, assisted by Daniel Fielding, Katherine Belton, and Emma Peart – senior solicitors in the division with specialist expertise in arbitration, and Kalyani Dixit, law clerk.

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