Agreeing to disagree: default appointment of arbitrators in domestic arbitrations
Catherine Green
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 NZDRC Registry 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 the High Court for an appointment to be made in accordance with article 11, Schedule 1 of the Arbitration Act 1996 (the Act). 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.
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 High Court for an order appointing an arbitrator. The High Court 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.