The Supreme Court has clarified New Zealand's arbitration jurisprudence by ruling that parties generally cannot avoid promises to arbitrate by seeking High Court summary judgment instead.
Zurich Australian Insurance v Cognition Education  NZSC 188, delivered on 19 December, is the Supreme Court's third arbitration decision and its second this year.
In June, the Court had set aside an arbitration award on the basis that the parties had invalidated their arbitration agreement through a drafting error. This raised fears in some quarters that the Court may be inclining towards a technical, or even paternalistic, approach to supporting arbitration. Those fears have been mollified in Zurich v Cognition.
The case concerned when a court is required to stay court proceedings commenced in breach of an arbitration agreement. Under New Zealand's international treaty obligations, the courts are required to do so unless the arbitration agreement is "null and void, inoperative or incapable of being performed" (New York Convention, art II.3).
However, the Arbitration Act 1996 (First Schedule, art 8(1)) includes a deliberate gloss on this formula, adding "or there is not in fact any dispute between the parties with regard to the matters agreed to be referred" (the added words).
The legislative history of the added words demonstrates that they were included to retain the courts' summary judgment jurisdiction in circumstances where there was "not in fact any dispute". But this begged the question – what did it mean for there to be no dispute?
- Did it mean that the courts should determine – using the ordinary summary judgment process, and (potentially) considering extensive legal submissions and affidavits – whether or not the defendant had an arguable defence to the claim? In this case, a stay would be simply the converse of a decision not to grant summary judgment.
- Or did the words record a threshold which otherwise went without saying; that there must, in fact, be a dispute between the parties capable of being referred to arbitration? In this case, provided the defendant raises a defence in good faith, it is for the arbitral tribunal, and not the courts, to rule on its merits.
The Supreme Court found – in contrast to the two decisions below, and the prevailing view for the past decade or two – that the proper meaning was the second, narrow, one.
An important element in its decision was the principle that statutes should, if they can, be interpreted in a way that is consistent with New Zealand's international obligations (at ). These international obligations include promoting party autonomy and limited judicial intervention in the arbitration process.
Another factor was the Court's close reading of the relevant 1991 Law Commission report, leading the Court to conclude that the main passage which appeared to support the broad view carried a different impression when read in the context of earlier passages.
Chapman Tripp comment
For commercial parties electing to resolve disputes by arbitration, the decision confirms that the binding effect of arbitration agreements in New Zealand is not generally subject to judicial oversight through a summary judgment application.
The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.