Arbitration

At the Bar – Arbitration Act Refinement

In early April 2017, Paul Foster-Bell MP’s private members’ bill amending the Arbitration Act 1996 was drawn from the ballot, and on 12 April 2017, the Arbitration Amendment Bill 2017 received its first reading.  It is now with the Electoral and Justice Select Committee for consideration.  Since the election, and Mr Foster-Bell MP’s retirement, the Bill has been taken over by Andrew Bayly MP.

The article linked below, discussing the amendments to the Act, and the underlying reasons for them, was published in the October edition of the NZ Bar Association’s magazine, At the Bar.

At the Bar – Refinement of the Arbitration Act

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Dispute Resolution of Construction Disputes

On Monday, 13 November 2017, AMINZ ran a one day seminar on resolving disputes in the construction industry.

The day was chaired by Derek Firth, and presentations were made by Stuart Robertson, from Kensington Swan in Auckland, on the role of the Engineer; Janine Stewart, from Minster Ellison Rudd Watts in Auckland, on adjudication under the Construction Contracts Act 2002; Michael Weatherall, from Simpson Grierson in Auckland, on the use of disputes boards; and I rounded out the day on the use of arbitration.

The panel discussion discussed each process and issues arising from all perspectives, including acting for owners, acting for contractors and acting as adjudicator/arbitrator, and provided valuable information on the topic.  The papers will be loaded on the AMINZ website shortly.  In the interim, my paper is attached:

Arbitration of Construction Disputes

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Guidance on the AMINZ Arbitration Rules

In May of this year, the AMINZ Council approved the new AMINZ Arbitration Rules.  The Rules were result of extensive work by the drafting committee, chaired by me and assisted by Sir David Williams QC from Bankside Chambers in Auckland, Wendy Miles QC from Debevoise & Plimpton LLP in London, James Hosking from Chaffetz Lindsey LLP in New York, Daniel Kalderimis from Chapman Tripp in Wellington, Timothy Lindsay from Lindsay litigation-arbitration in Auckland and Sophie East from Bell Gully in Auckland.

On 30 October this year, I presented a  Guide to the AMINZ Arbitration Rules 2017.

The Rules are innovative, in that they capture current best practice in international arbitration and they provide flexibility for both domestic and international arbitration, large and small.  Key provisions in the Rules are:

  • procedural guidance in the use of the IBA guidelines on conflicts of interest, party representation and rule of evidence
  • memorial style presentation of pleadings, submissions of fact and law and evidence upon which the parties intend to rely
  • good faith dealings, including requiring the parties’ legal counsel to comply with the overriding objective to have the dispute resolved promptly, cost effectively and proportionately to the matters in dispute
  • appointment by AMINZ under the UNCITRAL list procedure, and failing that in accordance with the AMINZ Appointments Policy
  • emergency arbitration for the granting of interim measures and procedural orders (within 14 days)
  • expedited arbitration for matters of less than NZD 2 million not involving significant disputes of fact or law (decision without reasons within one month, and a fully reasoned final award within 2 months)
  • summary dismissal of proceedings which manifestly lack legal merit
  • Kaplan Openings, requiring an “issues hearing” in advance of the main hearing to allow parties to outline their respective cases
  • costs to be determined in accordance with the AMINZ Rules and Guidelines to Awarding Costs in Arbitration
  • appeals on questions of law are, by default, excluded – however, if the parties agree to such appeals, they are to be dealt with by the AMINZ Arbitration Appeals Tribunal
  • supervision of the arbitral proceeding by the AMINZ Court of Arbitration, administration by an AMINZ appointed Registrar and the use of tribunal secretaries

This has been a significant project for AMINZ, reflected in the warm reception which the Rules have received.

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Bonds Revisited

Two recent cases in the High Court, Richina Pacific v AAI (formerly Vero Insurance) & Samson [2017] NZHC 1686 and Custom Street Hotel v Plus Construction [2016] NZHC 3049 shine the light on the use of bonds in New Zealand.

The first, Richina v Vero, concerned a development in Parnell.  The work had been practically complete, apart from a car stacker (which was being problematic), when Mainzeal Property and Construction went into receivership.  The project manager issued a practical completion certificate on the basis that the car stacker was outstanding work, and the property owner, Samson, made demand under the bond.  There were two difficulties with the demand – first, that the bond was (yet again) unclear as to whether or not it was on-demand or conditional; and the second, whether or not the bond had been released by the issue of the practical completion certificate.

The High Court held that the bond was clearly not on-demand and, in more difficult to follow reasoning, that as the contract did not provide for sectional completion, the practical completion certificate had not, in fact, been issued.

A clear lesson can be learned from the case is that if a bond is to be on-demand, then it must clearly be stated as such.  Interestingly, Justice Hinton accepted the UK position, outlined in IIG Capital LLC v Van Der Merwe [2008] EWCA Civ 542 and in Vossloh Aktiengesellschaft v Alpha Trains (UK) Ltd [2010] EWHC 2443 (Ch), that a bond will be presumed to be conditional, unless there is clear wording to the contrary.

In the second case, Custom Street Hotel  v Plus Construction, Plus had procured a bond in favour of Custom Street Hotel clearly in on-demand form; payment was expressly to be made “on demand without proof or condition.”  However due to the substantial amount secured by the bond (25% of the contract price), any such demand had to be accompanied by a certificate from the Engineer that the contractor was in default and the amount claimed properly due under the contract.  In the ordinary course, following the decision of Justice Ramsay in AES-3C Martiza East EOOD v Credit Agricole Corporate and Investment Bank [2011] EWHC 123 (TCC) and the seminal decision of Lord Denning MR in Edward Owen v Barclay’s Bank [1978] QB 159 (CA), if a demand appears to be correct on its face, under an on-demand bond the amount demanded must be paid up without further investigation.

The position in the Custom Street Hotel case, however was significantly different in that Plus Construction did not try to prevent the bond issuer, ANZ, from paying on the demand; it injuncted the Engineer from issuing his certificate and Custom Street Hotel from making demand, following the approach taken in Simon Carves v Ensus [2011] EWHC 657 (TCC).  The injunctive proceedings were settled in favour of arbitration, at which Plus Construction prevailed.  Custom Street Hotel appealed to the High Court (with leave), and Justice Gilbert concurred with the arbitrator that there was no basis for demand under the bond.  The matter was heard by the Court of Appeal (Kós P with Harrison & Clifford JJ) in October, and its decision is awaited with interest.

Attached is a paper delivered to the New Zealand Institute of Quantity Surveyors in Wellington and Auckland in September of this year.

Bonds (NZIQS)

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High Court’s new specialist commercial panel starts work today

The Senior Courts (High Court Commercial Panel) Order 2017 received Royal Assent on 7 August 2017.   Clause 5 authorises the Chief High Court Judge to assign panel judges to deal with specialist commercial disputes and applications under the Arbitration Act 1996 where the sum at issue is not less than $2 million. 

On 10 August 2017, the Chief High Court Judge announced the establishment of a specialist judicial commercial panel, comprising Justices Venning, Heath, Courtney, Wylie, Katz and Muir in Auckland, and Justices Mallon and Dobson in Wellington.

The order came into force today, 1 September.

This is great news for arbitration practitioners; this is a strong bench with considerable arbitration expertise; Justice Venning’s decision in the Danone v Fonterra case springs to mind, and Justice Heath has been a long time member and former Council member of AMINZ.

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Direct Payment Agreements and s292 – Ebert Construction v Sanson

There is growing acceptance across the construction industry, particularly among financiers and owners, that payments need to flow down the contract chain to those actually doing the work.  This has seen a growth in construction contracts requiring head contractors to prove payment of their subcontractors, if cashflow is to continue; and in financiers also requiring proof of such payment.  Similarly, head contractors are seeking direct payment obligations from project financiers to protect themselves against developer default.

The difficulty with these arrangements is that, in the event of insolvency, preferring one subcontractor over other unsecured creditors (for the obvious reason that they are needed on site), thereby diverting those payments out of the creditor pool, runs the risk of being voidable insolvent transactions in terms of s292 of the Companies Act 1993.

The recent decision of the Court of Appeal in Ebert Construction v Sanson clarifies that position.  The attached article was published in the September edition of LawTalk and has been submitted to the International Bar Association’s publication Construction Law International.

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The Arbitration Amendment Bill 2017

Submissions to the Electoral and Justice Select Committee closed on 22 June 2017.  I will post a copy of the AMINZ submissions once they have been published by the Select Committee.  We will certainly be making oral submissions, once the dates have been notified.

In the interim, here is a copy of an article written by Jeremy Johnson and me published in the July edition of LawTalk, the New Zealand Law Society’s publication, outlining the changes proposed in the Bill.

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AMINZ Arbitration Rules approved by Council

After more years and considerably more work than anticipated, on 22 June 2017 the AMINZ Council approved the AMINZ Arbitration Rules.

The Rules are intended for both domestic and international arbitrations, and they therefore tread a fine line between offering clarity, flexibility and apparent simplicity while addressing some of the more complex issues high value international arbitration requires.  To that end, the drafting committee has been ruthless in monitoring international trends in arbitration rules and adopting those concepts which seemed to us to be most relevant.  There have been a number of rules published since this project started (notably, the LCIA, SIAC and ICC); we have assessed each to consider how and to what extent they contain procedures which may be of benefit.

We hope that the new Rules will find favour, providing a New Zealand version of what is state of the art internationally while being user friendly.  An Emergency Arbitrator Protocol has also been provided for those wanting interim measures and/or preliminary orders without adopting the Rules and, of course, avoiding recourse to the High Court.

A PDF is available online, and hard copies will be published later in the year.

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Arbitrator appointment notices under clause 1 – a word of warning!

Where parties are unable to agree on the appointment of their arbitrator, or there is default in complying with the agreed procedure, clause 1(4) of the Second Schedule to the Arbitration Act 1996 provides:

… any party may, by written communication delivered to every such party, arbitrator or third party, specify the details of that person’s default and propose that, if that default is not remedied within the period specified in the communication (being not less than 7 days after the date on which the communication is received by all of the persons to whom it is delivered), a person named in the communication shall be appointed …

The normal practice is, once there is clear disagreement over the appointment of an arbitrator (usually within a time period specified in the agreement to arbitrate) either party may try to pre-empt further disagreement by naming their preferred arbitrator and giving the other party not less than seven days to respond.

In Body Corporate 200012 v Naylor Love Construction Limited Justice Muir was not convinced that there was in fact any disagreement or default, and he was not minded to follow the longstanding reasoning established by Justice Hansen in Hitex Plastering Ltd v Santa Barbara Homes Ltd [2002] 3 NZLR 695.  Interestingly, both parties issued notices against each other in the Naylor Love case – one proposing retired Justice Rodney Hansen QC and the other a Mr Walton, none other than the author of this post.

Regrettably, we both missed out on the appointment when the parties settled on Mr Tómas Kennedy-Grant QC.

Such is life!

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Arbitration Amendment Bill 2017 passes first reading

The Arbitration Amendment Bill 2017 (No 245-1) completed its first reading yesterday, and has been referred to the Justice and Electoral Committee.

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