Appeals on questions of law - A New Zealand perspective
By enacting a statute with the express purpose of redefining and clarifying the limits of judicial review of arbitral awards, Parliament has made clear its intention that parties should be made to accept the arbitral decision where they have chosen to submit their dispute to resolution in such manner. It plainly intended a strict limitation on the involvement of the Courts where this choice has been made.
Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd
[2000] 3 NZLR 318 (CA) at [52]
When the UNCITRAL Model Law on International Commercial Arbitration was released in 1985, it is hardly surprising that appeals on any issue, whether law or fact, were not catered for. The Model Law applies primarily to international commercial arbitration and appeals would result in a submission of the substance of the dispute to the courts of one or other party; this would run counter to the concepts of party autonomy; the jurisdictional independence in the selection of law and seat; and the reduced judicial supervision embodied in the Model Law. However in common with 12 other mostly common law jurisdictions, Parliament in New Zealand opted for limited appeals on questions of law, primarily for domestic arbitrations (a list of the countries which adopted appeals on questions of law is attached below).
Under the NZ Arbitration Act 1996, the Model Law is encapsulated in Schedule 1, with minimal amendment. Schedule 2 sets out provisions of general application, which may be excluded by agreement in domestic arbitrations (opt-out), or included in international arbitrations, also by agreement (opt-in).
Clause 5(1) of Schedule 2 provides for appeals on specific “question(s) of law arising out of an award” where the parties have agreed to appeals either before or after the making of the award or with the leave of the High Court. So, in practice, for domestic arbitrations, all three options will typically be available through the deeming provision, but for international arbitrations one would not expect the parties to opt in for appeals, or stipulate in their contract the need for leave to be granted by the Court before appeals can proceed.
One of the critical questions raised by clause 5(1) is the distinction between a question of law and a question of fact. Some guidance is provided by clause 5(10), introduced in the Arbitration Amendment Act 2007:
(10) For the purposes of this clause, question of law—
(a) includes an error of law that involves an incorrect
interpretation of the applicable law (whether or not the error
appears on the record of the decision); but
(b) does not include any question as to whether—
(i) the award or any part of the award was supported
by any evidence or any sufficient or substantial evidence;
and
(ii) the arbitral tribunal drew the correct factual inferences
from the relevant primary facts.
The amendment makes it clear that any findings of fact by the arbitral tribunal are binding on the parties, and not capable of being re-opened on appeal. The only issue for consideration is whether there has been any error of law.
A number of problems have bedevilled appeals on questions of law. First of all, the parties need to address carefully when drafting their arbitration agreement whether to allow for such appeals. However, it is apparent that a great many disputants and their lawyers do not adequately confront this question or fail to properly record their choice and express their decision clearly and conclusively. For example in a case last month City Care Ltd v Subsurface Civil & Drilling Ltd [2018] NZHC 363 the parties provided in their agreement as follows:
[27] The parties agree that the decision of the arbitrator will be binding
and that they will not seek recourse to the Courts except on
questions of law as provided for in Clause 5 of the Second
Schedule to the Arbitration Act 1996.
Subsurface argued that this clause meant that the only avenue of appeal available to City Care was by leave of the Court. City Care disputed that leave was required. It submitted the parties intended to provide for a right of appeal on questions of law without leave and that Clause 27 represented their agreement to such a course. The Learned Judge held that Clause 27 did not provide a right to appeal on a question of law and that City Care must file an application for leave.
The fact that a great many disputants and their lawyers do not confront the question is apparent from the very significant numbers of applications for leave to appeal. Professor Kawharu has conducted an analysis of the number of applications that have been before the Courts. For the period 2000 to 2011, of all applications (68), 20% were made under clause 5(1)(a), with the prior agreement of the parties, and the balance of 55 were under clause 5(1)(c), with leave of the court.
Not surprisingly, no applications were made by agreement after the award was issued in terms of clause 5(1)(b).
Of the total applications for leave under clause 5 over the period, 20 proceeded to the merits (one by agreement, and 19 with leave). In general terms, 13.6% of all applications succeeded in obtaining leave. Where leave was granted, 30% were successful, 15% were unsuccessful, 40% were discontinued and the remaining 15% were pending at the time of the review.
For the period since, only 26% of applications under clause 5(1)(c) were granted, compared to 36% for the previous period.[i]
It is fair to say that while a reasonable number of applications were made, few were granted leave, and even fewer were successful on even one point of substance, and the number of applications appear to be in decline.
Passing to the nature and extent of the law to be challenged, this issue was recently considered in the case of Ngati Hurungaterangi v Ngati Wahiao where the appellants argued that tikanga, or Maori customary law accepted by the parties as being applicable, should be included in questions of law in terms of clause 5.[ii] The respondent argued successfully in the High Court that, until the custom had become so well known as not to require proof, such issues were questions of fact.
This leads to the more vexed question of mixed fact and law; a major problem in New Zealand jurisprudence. A splendid article in the New Zealand Law Journal recently, (Jack Davies and Jack Alexander, Appeals on Mixed Questions under the Arbitration Act 1996 [2018] NZLJ 27, attached below) reached the conclusion that there is significant uncertainty even after so many years of appeals on questions of law as to the precise position on mixed questions of law and fact. The authors conclude:
Some 20 years after the enactment of the Arbitration Act 1996 this area
of the law remains unsettled. Moving forward we contend that a restrictive
approach should be applied to the appealability of mixed questions under
the general law, but particularly in respect of Clause 5 of the Arbitration
Act. We hope to have brought some clarity to the law on this issue, at
least until it is considered by an Appellate Court or the Law Commission
in its mixed review.
While there is case law supporting the view that mixed fact and law can be considered together,[iii] raising the issue of whether or not the facts support the legal conclusions of the arbitral tribunal (particularly in construction disputes). Much of this uncertainty can, to my mind, be resolved by clause 5(10)(b). The starting point must first be an acceptance of the findings of fact by the arbitral tribunal as being fact and therefore final. The sole issue must then be the law applied to those facts, rather than whether or not the facts support the findings of law.
Clause 5(2) requires the High Court to come to the conclusion that the appeal “could substantially affect the rights of one or more of the parties”. The Court of Appeal considered the application of this clause in Gold and Resource Developments (NZ) Ltd v Doug Hood and outlined the factors to be taken into account when granting leave:
- strength of the challenge/nature of the point of law
- how the point of law in contention arose
- qualification of the arbitral tribunal
- importance of the dispute to the parties
- amount of money involved
- delay involved in going through the courts
- whether the award was to be “final and binding”
- whether the dispute was domestic or international
Under clause 5(4), if an appeal is successful, the High Court may (a) confirm, vary or set aside the award, or (b) remit the award to the arbitral tribunal together with the court’s opinion on the matter under appeal.
The concerns which gave rise to insertion of clause 5 allowing questions of law were those primarily of the Law Commission namely that unqualified arbitrators may struggle to get the law right and, more generally on the question of the need for a continuing flow of legal precedents.
The question of legal precedents being required to allow commercial law to prosper was a matter that was the subject of controversy in England recently in the debate between the Lord Chief Justice of England, Lord Thomas and the reply by Sir Bernard Eder: “Does Arbitration Stifle the Development of the Law” should s69 be revitalised? (Lord Thomas: “Developing Commercial Law through the Courts: Rebalancing the Relationship between the Courts and Arbitration”.)
The Lord Chief Justice criticised what he saw as overly strict requirements for leave to appeal on questions of law because, in his view, it resulted in a lack of growth of the common law especially in complex commercial law cases. Sir Bernard Eder in his address to the Chartered Institute in April 2016 seems to have demolished the validity of the criticisms by the Lord Chief Justice.
Particularly in complex disputes (like construction) and open access to justice (covered by Sir David Williams QC in his paper on confidentiality),[iv] similar concerns were more vigorously expressed recently by Lord Thomas, criticising arbitration for the lack of growth in the common law in complex commercial cases.
While these are noble concerns, the appeal figures cited above do not appear to support the concern that arbitrators are not applying the law correctly, and it is hardly the role of the parties to pay for the development of the common law. In the words of Cooke P, it is doubtful whether “parties freely contracting should be obliged by public policy to make a compulsory contribution to the worthy cause of the coherent evolution of commercial law”.[v] More critically, when considering the prospect of appeals, parties and their legal advisers are less driven by the need to clarify the law than by pursuing issues more likely to succeed. All too frequently, this will involve not appealing errors of law which, while wrong, favour the appellant and abandoning important legal issues in favour of settled issues with a greater prospect of success.
These concerns aside, the option to allow for appeals on questions of law in the terms set out in clause 5(1)(a) remain consistent with the concept of party autonomy and, while a number of applications for leave is reasonably significant, few get leave and even fewer succeed on any issue on the merits.
In NZ, the Arbitrators’ and Mediators’ Institute has taken party autonomy one step further by providing for appeals to the AMINZ Arbitration Appeals Tribunal, instead of appeals to the High Court. Under this arrangement, appeals to the High Court are excluded under clause 5, and the parties agree to the appeals being heard by an AMINZ appointed tribunal by contract. Only one case has been referred to the Appeals Tribunal to date. The appeal was dealt with in three months by a retired High Court judge, and the appeal was unsuccessful (much to the relief of the arbitrator).
The benefits of the AAT should be obvious: access to a retired High Court Judge, appointed on the recommendation of a highly qualified expert panel of arbitration practitioners; and a prompt and cost effective result on appeal, given in accordance with transparent rules of procedure and the application of the rules of natural justice to be expected of a retired Judge.
Under the NZ jurisdiction, in summary, parties have the choice (opt-out or opt-in, depending on whether or not the arbitration is domestic or international) to (1) exclude rights of appeal, (2) allow for appeals on questions of law (as of right or with leave) to the High Court, or (3) to the AMINZ Arbitration Appeals Tribunal (maintaining arbitral confidentiality). Many will prefer excluding appeals altogether, accepting the recommendation of Justice Sir Robert Chambers QC, when he commented at the AMINZ Annual Conference in 2012 in Wellington that if the parties have chosen to go to arbitration, stay in arbitration. Don’t put a foot in each camp, reserving the right to have another go in court.
This advice is exemplified by the cases of General Distributors Ltd v Casata Ltd [vi] which went on for years and ended up in the Supreme Court on a relatively minor (in the context of the cost of appeals) rent review dispute, and Custom Street Hotel Ltd v Plus Construction Co Ltd, a construction case in which the unsuccessful party at arbitration appealed to the High Court and on to the Court of Appeal, losing on every issue.[vii] To my speculative mind, many of these appeals were procedurally tactical rather than merits based appeals.
Some recommendations and possible solutions
It is clear that the problems of cost, delay, and uncertainty of the law (as to what are questions of law) need consideration, and in my view the following proposals are worthy of discussion:
(i) Consider eliminating appeals on questions of law with leave.
This is the position taken by the Cook Islands in its Cook Islands
Amendment Act 2014. That Act dispenses with the category of
appeals by leave and gives the parties the choice of specifically
stipulating for appeals on questions of law or not. In other words,
either in their Arbitration Agreement or after the dispute has been
resolved by the Arbitrator, they have to agree that there should be
appeals on questions of law and put that in their Arbitration Agreement.
In short, the leave requirement has been eliminated.
(ii) As suggested by Davies & Alexander in their recent article, the Courts
should apply a restrictive approach to the appealability of mixed
questions of fact and law in relation to Clause 5 of the Arbitration Act.
Hopefully there may be a definitive ruling from the Supreme Court at
some stage on whether mixed questions of law and fact constitute
an appeal for the purposes of appeals on questions of law.
(iii) Legal advisers should take greater care in drafting clauses which deal
with the question of whether the parties agree to have appeals on
questions of law.
Davies & Alexander - Mixed Fact and Law Appeals
Notes -
[i]See A Kawharu “Arbitration appeals” [2012] NZLJ 137, and thanks to Associate Professor Kawharu for the updated figures.
[ii]Ngati Hurungaterangi v Ngati Wahiao [2016] NZLR 1486.
[iii]See Edwards (Inspector of Taxes) v Bairstow[1956] AC 14 (HL).
[iv]See Law CommissionArbitration(NZLC R20, 1991)
[v]CBI NZ v Badger Chiyoda [1989] 2 NZLR 669 (CA) at 677. See also Williams & Kawharuat 13.9.2.
[vi]General Distributors Ltd v Casata Ltd [2006] NZSC 8.
[vii]Custom Street Hotel Ltd v Plus Construction Co Ltd [2017] NZCA 36.