Arbitration Amendment Bill — First Reading 
Arbitration Amendment Bill — First Reading 
[Volume:634;Page:5580] 
Arbitration Amendment Bill 
First Reading 
Hon CLAYTON COSGROVE (Associate Minister of Justice) 
: 
 I move  
That the Arbitration Amendment Bill be now read a first time. 
 At the appropriate time I intend to move that the Arbitration Amendment Bill be referred to the Justice and Electoral Committee for consideration. This bill is the result of a review—again by the Law Commission—of the Arbitration Act 1996. I thank the Law Commission for its hard work and effort in reviewing this important legislation. The Arbitration Amendment Bill is accompanied by two other bills that seek to give effect to the recommendations of the Law Commission as we have discussed this afternoon—the Wills Bill and the Succession (Homicide) Bill both of which have been recently introduced. 
Alternative dispute resolution is a growing trend in New Zealand and one that this Government supports. Alternative dispute resolution provides disputants with options other than litigation to resolve their disputes which may better suit their individual situation. In New Zealand the two main forms of alternative dispute resolution are mediation and arbitration. For some industries arbitration has become the main form of dispute resolution. This is particularly true for commercial contracts and property and contractual disputes. Arbitration can be the best option for these kinds of disputes because it offers the benefit of disputants having the ability by mutual agreement to select an arbitrator. The selection is usually based on the technical skill and expertise that the arbitrator can bring to the dispute. In addition many of the kinds of disputes that head to arbitration involve ongoing relationships. Arbitration provides a forum that is less adversarial than traditional litigation so the ongoing relationship is less likely to break down. 
 In 1996 New Zealand’s arbitration system which we inherited from England was overhauled and updated. The resulting 1996 Arbitration Act reflected the model law on international commercial arbitration adopted by the United Nations Commission on International Trade Law in 1985. The Act is a complete code applying to both domestic and international arbitrations. Since its enactment we have been able to observe how the Act has worked in practice and to consider what improvements if any it may need. 
In 2003 the Law Commission reported on its review of the 1996 Act. The commission concluded that the Act was working well. It did however recommend some amendments to improve the operation of the Act. 
The bill which is divided into two parts reflects the Law Commission’s recommendations. The first part amends the Arbitration Act and the second part amends the Disputes Tribunals Act 1988. Many of the amendments are relatively small and technical—for instance to clarify the operation of a provision or definition. One of the more significant changes is contained in clause 6 and relates to the confidentiality of arbitral proceedings. There is a presumption that proceedings are closed and confidential. The Act contains an absolute prohibition on disclosure of information related to arbitral proceedings. The confidentiality that applies to those proceedings is a major attraction for many parties to arbitration. 
The confidentiality enjoyed by parties to arbitration however does not apply to subsequent court proceedings. Although the Act is silent as to whether the confidentiality provisions apply to subsequent court proceedings the New Zealand courts have decided that any subsequent court proceedings remain open. If for example a party to an arbitral proceeding appealed the decision to the court the court proceedings would be open to the public. 
In addition the Act currently has only two narrow exceptions to the prohibition against disclosing information. The first exception is where the parties otherwise agree. The second exception permits disclosure of such information to a professional or other adviser of any party if the publication of the disclosure of communication is contemplated by the Act. The bill provides a more balanced approach to confidentiality issues which better recognises party autonomy and the private nature of arbitration proceedings. The bill clarifies that as a general rule arbitral proceedings are private and confidential whilst court proceedings are to be conducted in public. 
The current exceptions to this general rule are widened and clarified. For example parties will be able to apply to the court seeking to have all parts of the proceedings conducted in private. The amendment sets out the matters a court must consider when a party makes such an application. 
A related amendment has the clarification of what is meant by “a question of law”. Arbitration decisions can be challenged only on points of law. The bill does not seek to amend that provision because to question the determination of an arbitrator on facts would undermine the confidence the parties have placed in the arbitrator. Parties choose an arbitrator based on his or her technical skill and experience in a particular field. However the bill does clarify what is meant by a question of law because it is not defined in the Act. The amendment clarifies that a question of law does not include perverse findings of fact. 
One of the significant New Zealand departures from the provision of the UN model law is that the Arbitration Act is not restricted to commercial disputes; it also applies to consumers. Current provisions in the Act require a consumer to agree to arbitration as a means of dispute resolution prior to a dispute arising. In entering contracts consumers do not think about which dispute resolution process they would most prefer. Normally the trader says: “Sign here and here and here.” and the consumer does so. This approach does not provide sufficient safeguards for consumers. Arbitration works best when both parties are satisfied that it is the most appropriate dispute resolution forum. 
Under the bill consumer arbitration agreements will take effect only if arbitration has been agreed to as a method of dispute resolution after the dispute has arisen. When a consumer and a trader agree on arbitration the agreement will oust the jurisdiction of the disputes tribunal. Arbitration encourages the private resolution of disputes in a less adversarial manner thereby enabling the resumption of commercial and other contractual arrangements. The purpose of the reforms is to improve the operation of the Act and as a result to enhance arbitration as a means of private dispute resolution in New Zealand. I commend the bill to the House. 
Dr RICHARD WORTH (National) 
: 
 May I start by commending the Associate Minister of Justice for the recitation he has given on the Arbitration Amendment Bill. 
Darren Hughes 
: What a greaser. 
Dr RICHARD WORTH 
: Without wanting to be critical of what he has said and prompted by the young immature junior whip of the Labour Government I simply note that his pronunciation of “arbitral” perhaps requires some further practice. 
Hon Clayton Cosgrove 
: I didn’t go to the right school obviously. 
Dr RICHARD WORTH 
: It is not a question of not going to the right school and I am not certain what the right school is. I think the problem that the Minister confronts is that these are not issues on which he has any real knowledge at all. 
I think it is also important to note in the comments I make at this stage of the bill that this legislation has not been given any degree of urgency by the Government. As the previous speaker has said it was patterned on Law Commission report No. 83  
Improving the Arbitration Act 1996 
 and when the Government responded to that Law Commission report—as it was obliged to do—it made it very clear that these issues did not need to be accorded any degree of urgency. 
Although National supports the passage of this bill to the select committee we do so subject to some reservations that some of the changes that are proposed may in fact not be necessary. I just flag that as a possibility and the select committee that looks at this legislation will have to form a view on the merits of the proposed changes. 
There are of course a number of ways of resolving disputes without resorting to fisticuffs and warfare. One could broadly say that those possibilities in a regulated civil society include conciliation mediation arbitration and finally resolution by the courts. Conciliation of course means what it says. Mediation as a concept does not carry with it the consequence that if rulings are made views are expressed or positions are reached they will be binding on the parties. That is seen in many cases as a significant disadvantage. In the case of arbitration we are talking about a process that is consensual in that the parties come to it of their own free accord. But more important they accept the ruling of the arbitrator as being binding subject to some very limited avenues for appeal to the courts. It is interesting that although arbitration is seen as a method of resolution outside the normal legal system it is nevertheless regulated by that system in terms of limited rights of appeal and other interlocutory orders that can be made in the course of an arbitration process. 
It is probably also worthwhile reflecting that the Arbitration Act itself had its origin in initiatives taken by Peter Hilt a former member of this House who in 1996 introduced the Arbitration Bill which was based on a report prepared by the then Law Commission. As the previous speaker said the Act repealed and replaced the Arbitration Act 1908—that Act having been modelled on English arbitration procedures. The new model that was picked up—reflecting the international aspect of arbitration—was based on the model developed by the United Nations Commission on International Trade Law. 
The general policy statement in the explanatory note of the bill asserts the underlying themes of the Arbitration Act 1996 as including party autonomy reduced judicial involvement in the arbitral process consistency with laws in other jurisdictions and increased powers for the arbitral tribunal. That is not necessarily an accurate or an appropriate statement as to what those themes were because it is only partly true to talk about party autonomy as being an essential hallmark of arbitration. The reality is that with the complexity of many arbitrations these days and often their international aspects the arbitrator stands firmly in the path of the resolution process directing and encouraging the parties by various orders to advance their causes identifying clearly the issues and seeking to limit aspects of delay. 
It is right to say that there is reduced judicial involvement in the arbitral process but there is some involvement. Consistency with laws in other jurisdictions is asserted as a theme of the Arbitration Act 1996; I do not really think that is correct. Increased powers for the arbitral tribunal is also a problematic assertion because of course it has always been for the parties to assert the rules of procedure that they would like to govern the particular arbitration that faces them. 
I commend the Government for one aspect of this bill and hope it might be seen to be a practice to be followed in the future. In the explanatory note there is both a regulatory impact statement however inadequate it might be and a business compliance cost statement. Those requirements or concepts have their base in the step-by-step Cabinet guide and too often it seems to me it is the case that the Government seeks to rely on the many exceptions that are in existence to require that neither of those statements be made. It should surely be the case that the Cabinet guide is amended so that there is on a case by case basis an examination in terms of both the regulatory impact of a provision and also the business compliance cost implications. We are faced I would say with a Government that too often pursues its ideological policy positions without consideration of what the impact of the law will be—that is the proposed law that is before Parliament in the form of a bill—and particularly of what its fiscal consequences not only for the State but for the parties who are impacted by the legislation might be. 
So what of this legislation itself? As the Minister has said it is in two parts: some technical amendments to the Arbitration Act 1996 and some changes to be made to the Disputes Tribunals Act 1988. I would say in reference to just the first part—the amendments to the Arbitration Act—that some of the issues identified are also somewhat problematical. The reality is that in the market place there may often not be equality of bargaining power in the buyer-seller relationship and I am speaking particularly of consumer protection provisions which are the subject of some tinkering by this legislation. It is said that the bill improves the level of protection provided to consumers who enter into consumer arbitration agreements. Those agreements will no longer need to be signed at the same time as entering into a contract with a business. Of course they do not need to be signed now so exactly what the purport of that change is is not completely clear. But the bill proposes that an arbitration agreement between a consumer and a business takes effect only if arbitration has been specifically agreed to as a means of resolving a dispute after the dispute has arisen. 
There are changes around the question of disclosure of confidential information. If anything is a hallmark of the arbitration process it is the confidentiality of that process. It is often said that as a result of the increasing trend towards arbitration there is a limited flow of published legal principle of decided cases because the parties have taken the position that they would much prefer to see their issues resolved by arbitration not through the greater openness of the court process. 
So it is not the case that National commends this legislation; it is that we are happy for it to take a further step down the parliamentary path. 
CHRISTOPHER FINLAYSON (National) 
: 
 As Dr Worth said National will support this first reading of the bill and support it to a select committee. I certainly look forward to working on the bill with my colleagues on the Justice and Electoral Committee particularly on the issues arising in clause 6 that deal with the important issue of confidentiality and it is on confidentiality that I want to direct the major portion of my speech this afternoon. 
But I shall first refer to a few general principles. As is well known arbitration is a consensual method of dispute resolution. It enables parties to identify parameters to determine the rules that they wish to apply to the resolution of the dispute and fundamental to an arbitral process is the agreement to appoint a private judge to adjudicate and then make a binding decision. So for example it is increasingly common for retired High Court judges to be appointed as arbitrators. The Minister in his first reading speech observed that it is perhaps a less adversarial method; that has certainly not always been my experience in arbitrations. 
Arbitration is one of a number of systems of alternative dispute resolution that have become increasingly popular in recent years. Others are mediation which like arbitration has a neutral intervener but unlike arbitration the intervener facilitates but does not impose the result. Less common forms of alternative dispute resolution are the mini-trial and in the United States there is also the development of a new form of alternative dispute resolution called “med-arb” which is where the mediation turns into an arbitration and where the referee can indeed impose a result. 
More and more parties refer to arbitration and prefer arbitration to court proceedings. Why? Despite what the Minister for Courts says in this House from time to time the New Zealand court system is not working properly and large corporations are abandoning the court system for alternative dispute resolution especially arbitration which is all very well if one can afford it too bad if one cannot. That is not a good state of affairs for the poor of this land. 
I want to say something about the enactment of the Arbitration Act 1996. As Dr Worth observed it was the result of a member’s bill by Mr Peter Hilt formerly of this place and it repealed and replaced the Arbitration Act 1908. The 1908 Act had been modelled on English arbitration procedures whereas the 1996 Act was based on an international model developed by the United Nations Commission on International Trade Law. As both the Minister and Dr Worth observed the Act appears to be working very well. 
In 2003 the Law Commission published a report entitled  
Improving the Arbitration Act 1996 
. One key issue that report dealt with was the issue of confidentiality. I am going to repeat what the Law Commission said because I think the paper crystallised the issues very well. The Law Commission report stated that the key issues were firstly whether section 14 of the Act dealt adequately with issues of confidentiality and if not how the Act should be amended to deal adequately with the issue. Secondly when it is necessary for parties to an arbitration to have recourse to courts of general jurisdiction should the otherwise confidential nature of the arbitral process yield to principles of open justice which of course apply in courts of general jurisdiction? That really is what clause 6 deals with because that amends the former section 14 of the Act and imposes a regime that generally I think is an improvement. 
If one looks at section 14 of the Act as it is currently framed one can see that with two stated exceptions only section 14 contains an absolute prohibition on disclosure of information relating to arbitral proceedings and awards. The first exception is where the parties otherwise agree and the second exception set out in section 14 permits disclosure of such information to a professional or any other adviser of any party or otherwise if the publication disclosure or communication is contemplated by the Act. But it does not deal with the question of disclosure to interested parties for example a regulatory body or an insurer it does not deal with disclosures required by law but not contemplated by the Act and it does not deal with disclosures for other legitimate reasons—for example those needed to defend a proceeding in court. So there are some real problems with the legislation and that is why we need to take a look at it. 
On the second issue of the open justice question about when proceedings go from an arbitration into the general court process some important issues arise. There is this very important open justice issue. It is a difficult issue and one that has been before our courts before. I refer to what Justice Robertson said in  
Television New Zealand Ltd v Langley Productions 
. He said that a clear and unambiguous determination of Parliament should be required for the cloak of confidentiality that attaches to the arbitral process to apply to subsequent proceedings in the High Court. That is really the issue that the Law Commission was required to deal with and it is that issue that is reflected in the work done on clause 6 of the bill. 
It is important to make a few statements about the open justice principle. In general terms it can be summarised in this way: the courts should conduct their processes openly unless to do so would frustrate the administration of justice. That open justice principle reflects an underlying philosophy that justice should not only be done but—in the words of the Law Lords in the case  
Scott v Scott 
—be seen to be done. And therefore it is better to refer to the desirability of open justice as a principle rather than as a rule. 
Some statutes modify the open justice principle. So for example proceedings that are conducted before a disputes tribunal are conducted in private. Another example would be when a complainant giving evidence in a criminal case of a sexual nature may not need to have the evidence heard in open court but only before a limited number of witnesses. Judges of course can sometimes sit in chambers and very exceptionally the court in the exercise of its inherent jurisdiction is entitled to receive certain evidence in confidence—what is called in camera. But I have to say in 25 years’ practice in the courts of our land I can recall this happening on one occasion in a case in which I was involved. That was in the context of a case involving Her Majesty’s Attorney-General for England and Wales—a case about a confidentiality contract sought to be enforced in New Zealand against a former member of the UK SAS. 
So the issue is what should happen if parties to an arbitration want to have recourse to the courts of general jurisdiction: should the confidential nature of the arbitration yield to principles of open justice that apply to the courts? This bill seeks to deal with those issues and I refer members to clauses 14F to 14I. The general principle is that if one moves to the court system from an arbitration the general principle of open justice will apply unless one can come within the exceptions set out in those clauses. I think that is the right balance. I am very much looking forward to going through those clauses in detail in the select committee and then we can discuss them when the bill comes back to the House. 
There are a couple of other points that the select committee will need to look at. The first is set out in clause 8 and deals with the recognition and enforcement of arbitral awards. I do not think there is anything too magical about that clause—there are no real changes other than a more up-to-date form of English and also reference to the District Court because not all awards need be enforced through the High Court. Finally clause 9 outlines improvements to the appointment of the arbitrator. 
I join with other colleagues in supporting the bill through its first reading and for reference to the Justice and Electoral Committee. As I have said I am particularly interested in those issues of confidentiality and I look forward to working on this bill. 
CHARLES CHAUVEL (Labour) 
: 
 Like the previous speaker I rise to support the introduction of the Arbitration Amendment Bill and its referral to the Justice and Electoral Committee. As we have heard the Arbitration Act which was passed in 1996 was a significant overhaul of the arbitration system. The move of the system so that it should reflect the model law on international commercial arbitration adopted by the United Nations Commission on International Trade Law was a very positive thing from the point of view of harmonising New Zealand’s business law with that of the international community—a trend that ought to continue and is continuing in other areas. 
As we have heard in 2003 the Law Commission reviewed the Act and as I said in respect of a previous bill a very positive feature of this legislation and two other bills that have been introduced today is that they remedy the regrettable trend of allowing Law Commission reports to moulder on the shelves. As I said earlier the existence of the Law Commission is something that New Zealand is very fortunate to have in its system. It allows for considered law reform rather than perhaps the more hasty process that can occur in this House. It allows for consideration by experts and it allows “lawyers’ law” to proceed toward reform in a technical fashion until the right solutions are found. 
The review of the Arbitration Act in 2003 was conducted in a measured way by the Law Commission and the bill that is before the House today effectively implements the recommendations of the Law Commission. Again we should be pleased that the Government is bringing forward the programme of reform that has been recommended by the commission and is advancing it through the House. There is no great political gain in doing that for any Government but it is a good and right thing to do and it is to be noted and commended. 
The bill is divided into two parts obviously. The first amends the Arbitration Act the second amends the Disputes Tribunals Act. Many features of the bill are technical and as the previous speaker Chris Finlayson said simply allow for clarification of matters such as definition and bringing other matters up to date. It is a timely reform as one would expect from the commission. 
The most significant change obviously comes in clause 6 where the total confidentiality of arbitral procedures with a few well-defined exceptions is allowed for. I would have thought given the comments of the last speaker that if that makes arbitration more attractive—as it probably will to commercial parties in particular—then it is a good thing as far as relieving pressure on the general court system is concerned. The openness of justice principle is preserved by new sections 14F to 14I in that if the parties do have recourse to the ordinary court system then the principle of open justice more or less applies unless there is a very good reason to persuade a judge that the reverse position should apply in whole or in part. 
Unlike the UN model—this is a significant point—New Zealand allows arbitration in consumer disputes. It seems to me there is no logical reason why these alternative dispute resolution provisions should not apply across the board. That is what will happen here in respect of the Disputes Tribunals Act. That is a good thing because it means there will be comprehensive reform in this area which is recommended by an expert body and which is needed. 
Sitting suspended from 6 p.m. to 7.30 p.m. 
Debate interrupted.