Appointment of arbitrators - getting your contract clauses right

Over the last 30 years or so, just about every permutation of disputes clause has come across my desk, from multi-tiered disputes clauses in construction contracts, to "baseball" arbitrations in the energy sector, DRBs, expert determinations and, of course, the blandest of referrals to arbitration.  When I started in Hong Kong in the early 1990s, one of my first tasks was to consider the enforceability of the disputes procedure for the new airport projects (Engineer's determination, mediation or conciliation, adjudication and arbitration) and the meaning of "in connection with" and "arising out of" also raised its ugly head.  At the time, the issue seemed particularly arcane, with the arrival of the UNCITRAL Model Law!

The High Court has recently shown how far we have come since those days in the case of Tumatatoro Limited v HJS AG Limited & Vanderkolk [2019] NZHC 1047.

The parties were land owners and leaseholders, respectively, of a farming property.  They had failed to reach agreement on a rent review and a number of subsidiary issues.  The lease provided:

If discussion between the Lessor and the Lessee fails to reach agreement in any dispute (including but not limited to the review of rent) the matter shall be decided according to the decision of an independent registered farm management consultant agreed to by both parties whose decision shall be binding.  If neither party can agree on a consultant then one will be appointed by Federated Farmers of New Zealand.

A dispute did break out, the parties couldn't reach agreement on their expert, and Federated Farmers declined to make an appointment.  At that point things started to unravel. Tumatatoro commenced proceedings in the Disputes Tribunal, then engaged with HJS AG in the appointment of an arbitrator by AMINZ.  The Disputes Tribunal proceedings were then discontinued.

AMINZ then appointed Mr Ben Vanderkolk, a lawyer from Palmerston North with no specific rural experience.  It should be noted that the application was made to AMINZ by HJS AG without specifying that a rural expert was required.  Tumatatoro objected to Mr Vanderkolk's appointment.

A number of issues are of interest in this case:

  1. The provision in the lease looks rather like an expert determination referral.  Notwithstanding the liberal approach to be taken to interpreting arbitration agreements, following Marnell Corrao Associates Inc v Sensation Yachts Ltd (a case particularly dear to my heart), the court will ultimately determine the jurisdiction of an expert (see Methanex Motunui v Spellman and Barclays Bank plc v The Nylon Capital LLP), and that determination will be made on the court's overall assessment of the procedure - if it looks like an arbitration, then using the words "expert not arbitrator" won't help.  
  2. Having determined that the parties had dispensed with their agreed procedure (or been frustrated by Federated Farmer's refusal to make the appointment), Duffy J was happy to find an agreement to arbitrate through the exchange of correspondence and the conduct of the parties.
  3. Having established that the parties had agreed to refer their dispute to arbitration before an arbitrator appointed by AMINZ, neither that agreement nor the appointment process was predicated on an arbitrator with rural expertise being appointed.

It is re-assuring that the court was willing to infer agreement to have the matter arbitrated; perhaps somewhat disappointing that the parties provided for expert determination without checking to see that Federated Farmers was prepared to make the appointment (AMINZ also maintains a rural list), and that they failed to request an arbitrator with rural experience.

The amount in dispute must have paled into insignificance compared to the legal costs and disruption involved in referring the matter to the High Court.