Default Appointment of Arbitral Tribunal

We frequently receive enquiries from parties to disputes (or their advisors) who are having difficulty navigating the appointment process where the contracting parties have an arbitration clause, but simply cannot reach agreement as to who should be appointed to arbitrate any given dispute, or one party is refusing to participate in the process by following the procedure for appointment provided for in the parties’ contract.

Many parties and advisors we speak with via the BDTRegistry believe that, in circumstances where the parties are unable to agree on a procedure for appointing the arbitral tribunal, they then need to apply to AMINZ as the body appointed under section 6A(1) of the Arbitration Act to resolve appointment issues under article 11, Schedule 1 of the Act ('the appointing body'). In the clear majority of cases this is simply incorrect, as it does not account for the procedure set out in Schedule 2 to the Act. 

The jurisdiction of the 'appointing body' under section 6A(1) is narrow and confined to only two circumstances:
 

(a) in relation to international arbitrations where the parties have not agreed on a procedure for appointing the arbitral tribunal; and

(b) in relation to domestic arbitrations only where a third party, including an institution, fails to perform any function entrusted to it under an appointment procedure agreed upon by the parties.

Otherwise, the appointing body simply has no jurisdiction or power to make any appointment in relation to domestic arbitrations and any appointment that is made other than by agreement of the parties will be invalid, and any award made pursuant to such appointment will be unenforceable.

Schedule 2 of the Act applies to every domestic arbitration unless the parties agree otherwise (section 6).

Clause 1 of Schedule 2 provides default procedures for appointing the arbitral tribunal. Where clause 1 of Schedule 2 applies, that clause modifies article 11 of Schedule 1 and excludes the jurisdiction of the appointing body (AMINZ) for an order appointing an arbitrator. AMINZ may only intervene and appoint an arbitrator where clause 1 of Schedule 2 does not apply.

In Hitex Plastering Ltd v Santa Barbara Homes Ltd [2002] 3 NZLR 695 (HC), the Court reviewed the appointment procedures and the inter-relationship between article 11 of Schedule 1 and clause 1 of Schedule 2 and concluded they were intended to provide separate and mutually exclusive procedures for the appointment of arbitrators in the event of default or disagreement. At [28] Rodney Hansen J held:

[art 11 of Schedule 1] and [cl 1 of Schedule 2] were intended to provide separate and mutually exclusive procedures for appointment of arbitrators in the event of ‘default’ or disagreement. Resort to the Court under [art 11] is not available where, by virtue of [cl1(1) of Schedule 2] the procedures in subcls (4) and (5) apply.

The Schedule 2 default appointment procedure simply requires a genuine attempt to reach agreement. At [29] his Honour noted that:

Anyone who peremptorily issues a notice of default without making a reasonable attempt to resolve differences will risk a successful challenge to any appointment which ensues.

In the event that parties disagree as to the composition of the arbitral tribunal, Party A simply needs to issue a notice of default to Party B. That notice of default needs to specify the details of Party B’s default (being the failure to agree) and propose that, if that default is not remedied within a specific period of time (to be not less than seven days after service of the notice of default), the individual named in the communication shall be appointed as arbitrator with respect to the dispute between Party A and Party B. Nothing more is required to be done.

Where clause 1 of Schedule 2 applies, it provides a quick and effective means of securing the appointment of an arbitral tribunal in the face of delay or obfuscation by another party to the arbitration agreement

Note that article 11 of Schedule 1 applies to an international arbitration unless the parties have expressly opted into clause 1 of Schedule 2 of the Act. Under section 6(2) of the Act, Schedule 2 of the Act applies to an international arbitration only if the parties so agree.
 

How can you avoid the problem altogether? the answer is really quite simple!

All that is required is for you to ensure that your contracts have effective arbitration clauses included in them – not the outdated, complicated, multi-tiered, and often unenforceable dispute resolution/arbitration clauses we frequently see still being used today.

BDT has developed comprehensive suites of Rules for Commercial Arbitration that are robust and certain, yet innovative in their commercial commonsense approach to challenging issues such as appointment, urgent interim relief, expedited procedures, summary procedures for early dismissal of claims and defences, joinder, consolidation, multiple contracts, confidentiality, representation, mediation, arbitral secretaries, expert evidence, appeals, and costs.

The Rules provide both a framework and detailed provisions to ensure the efficient and cost effective resolution of commercial disputes by arbitration. The Rules are set out in a manner designed to facilitate ease of use and may be adopted by agreement in writing at any time before or after a dispute has arisen.

The Rules are intended to give parties the widest choice and capacity to adopt fully administered procedures that are fair, prompt, and cost effective, and that provide a proportionate response to the amounts in dispute and the complexity of the issues involved.

The primary advantages of arbitration under BDT’s Arbitration Rules include:

• one simple model clause – the rules act as a default filter for expedited procedures according to the value of the dispute

• a sole arbitrator will be appointed unless the parties agree otherwise

• lower value claims (claims under NZ$2.5M) are dealt with under 45, 60 and 90 day expedited Rules by default  – claims under NZ$250K will dealt with on the documents by default

• no emergency arbitrator – instead, where urgent interim relief sought, a sole arbitrator or Presiding Arbitrator will be appointed by BDT within one working day to determine any application for urgent interim relief

• all fees are fixed and/or capped

• express provisions relating to mediation (arbitral tribunal must stay arbitration proceedings where parties agree to mediate - arbitrator may act as mediator subject to strict rules of conduct)

• opt-in appeals procedures

• rules governing appointment and role of arbitral secretaries – payment comes out of arbitral tribunal’s capped fee allowance

• code of conduct for expert witnesses

• clear disclosure provisions

• rules governing representation – obligation bearing on representative is an obligation or duty of represented party with costs consequences in the event of breach

For contracting parties who wish to have future disputes resolved by arbitration under BDT's Arbitration Rules and fully administered services, the following model clause is recommended for inclusion in contracts:

Any dispute or difference arising out of or in connection with this contract, or the subject matter of this contract, including any question about its existence, validity, or termination, shall be referred to and finally resolved by arbitration in accordance with the Arbitration Rules of the Building Disputes Tribunal.

Parties to an existing dispute that have not incorporated the BDT Model Clause into a prior agreement may agree to refer that dispute to Arbitration under the BDT Arbitration Rules by signing the Arbitration Agreement at Appendix 2 to those Rules.

The primary objective of modern commercial arbitration must be the fair, prompt, and cost-effective determination of any proceeding in a manner that is proportionate to the amounts in dispute and the complexity of the issues involved. Sensible contracting, by including an effective arbitration clause, is the first step to achieving those objectives.

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