Call to enforce arbitration clauses

Arbitration agreements should be enforceable, unless they were defective, Auckland University’s Prof Amokura Kawharu told the NZILA conference.

The senior law lecturer said Article 8 (1) of NZ’s 1996 Arbitration Act said courts should refer matters to arbitration, if an agreement to do so existed, “unless the agreement is null and void, inoperative, or incapable of being performed, or there is not in fact any dispute between the parties”.

Prof Kawharu said the words “…or that there is not in fact any dispute between the parties with regard to the matters agreed to be referred” were added after a Law Reform Commission recommendation.

Article 8 (1) was the Act’s “most litigated section” because courts had not interpreted “the added words” uniformly.

There were two perspectives, the summary judgement test or the arguable dispute test.
In the former, the court should decide whether there was an arguable defence to the claim. “If not, stay is refused and judgement entered.”

With the arguable dispute test, the question was whether there was a bona fide dispute, if so, the summary judgement process wasted resources and risked the court predetermining the merits.

Prof Kawharu said the NZ Supreme Court’s (NZSC) December 2014 decision in Zurich v Cognition was “a good and fair outcome” that resolved “the big issue”. It favoured the arguable dispute test.

She said the decision was “consistent with the Act’s purposes of encouraging use of arbitration and reducing judicial involvement” in arbitration disputes.

Prof Kawharu said arbitration had “sufficient flexibility” to design resolutions with “efficiency and autonomy” that suited disputes’ specific facts. In Zurich, the insurer sought a stay of proceedings to proceed to arbitration but Cognition argued there was no dispute capable of being arbitrated.

NZSC found the stay application should be decided first and a summary judgment application considered only if the stay was rejected, which it was not.

NZSC’s judgement was made despite the parties having settled earlier so no costs order was made. Prof Kawharu said the court decided to proceed to judgement, despite the settlement, because of the importance of the issue to arbitration law. Following Zurich, “it will be harder to get a summary judgement if the parties have agreed to arbitration, and I think that’s justified”, she said.

Exeter University’s Prof Rob Merkin QC said arbitration was widely used in insurance and reinsurance disputes in the UK because it offered confidentiality and set no precents. “People don’t want their affairs aired in public. No one knows anything unless you go to the right pub at the right time in London and a drunken broker tells you,” he said.

Arbitration offered a choice on who sat on the panel. “If it goes wrong, it’s your own fault, not whoever established the judges’ list.”

Prof Merkin described arbitration as “a judicial pension fund”. “It keeps [judges] busy when they retire.”

He said arbitration could be quicker, “but not always”. “The real problem is getting three panel members in the room at the same time. Judges don’t get paid by the parties, but arbitrators do, and you are talking serious money ... even if there’s no settlement.”

Prof Merkin said arbitration was “not the most straightforward way to deal with complex disputes, and that’s probably its main drawback”.