Arbitration Amendment Bill

Thank you, Madam Chair. Arbitration Amendment Bill: clause 1, the title clause; clause 2 is commencement; clause 3, principal Act; and clause 4 proposes to insert new section 10A, with regard to validity of arbitration clauses in trust deeds. Clause 4 is a provision that warrants some attention and close examination. The difference between arbitration and litigation is that arbitration is based on consent of the parties and litigation is through the courts. The principal legislation—the Arbitration Act 1996—does two things: it governs New Zealand’s arbitration laws and also implements international obligations found in the United Nations Commission on International Trade Law and the model law on international commercial arbitration 1985, known more commonly as the model law. Sorry for sounding terribly pedagogue.

The model law is important to ensure arbitration proceedings conducted in New Zealand are practicable, consistent, and efficient. That’s the logical starting point for the Justice Committee to have carefully worked through this member’s bill under Mr Andrew Bayly’s name. Having said that, I should acknowledge the justice Minister, the Hon Andrew Little. Driven by the Justice Committee, and largely through me in my capacity as the chair of the Justice Committee, we convinced Minister Little at one point to set aside the departmental report prepared by the officials and instead appoint an independent adviser, Mr Paul Heath QC, a retired High Court judge.

What we did was extraordinary. We released the departmental report to the House, and through the House to the public, and invited the sector to submit again. Mr Heath QC then produced two reports, and the committee also received two letters from Chief Justice Sian Elias. That’s where we were then, and that’s where we are now. All I can say is that those subsequent discussions, the independent advisers’ reports together with the Justice Committee’s commentary, and the revision-tracked version all showed that the officials were correct in the first place. The points they raised in the department report were valid and correct. I thank the officials, and it’s very important for me to acknowledge that. I thank the Minister, who helped the Justice Committee to go beyond the ordinary scope and to go those extra miles to achieve what we have achieved now.

The bill in its current form is not perfect. Like any pieces of legislation, there is huge room for improvement, but I can say that the Justice Committee has delivered, although, in this case, instead of introducing many amendments or changes or deciding to do lots of things, we have instead decided not to do lots of things. That’s the reason why lots of provisions proposed under this bill have been deleted from the bill. The bill, although a member’s bill, deals with some important issues such as open justice, trusts, and, as Chief Justice Sian Elias pointed out in her letters to the Justice Committee, the role that a member’s bill can play, especially in the area of providing a mechanism for legislation dealing directly with court function.

The committee recommends clause 4 be deleted from the bill. This provision sets out that arbitration clauses in trust deeds will be valid and binding on all trustees, guardians, and beneficiaries. The Trusts Bill, a Government bill, addresses the same broad concerns. It is better suited within the Trusts Bill to consider the form of protections for unascertained and legally incompetent beneficiaries and, therefore, avoids possible issues about access to justice.

Clause 4 of the bill proposes new section 10A in the Arbitration Act, that would validate provisions in trust deeds requiring internal matters or disputes to be resolved by arbitration. As drafted, the clause would bind all beneficiaries, including unborn children, and the wider issues of the settlor plus incapacitated and unascertained beneficiaries. The clause would bind all of them and require them to resolve by arbitration any disputes that might arise at any time in the life of the trust. The effect of the clause would be to exclude beneficiaries’ entitlement to refer the conduct of trustees to the court. Needless to say, the court would have always exercised supervisory jurisdiction over such matters. The Chief Justice called it a radical exclusion of beneficiaries’ entitlements, and it is not warranted. There is a risk that the arbitration clause would simply add another layer to the dispute.

We all know that New Zealand is a rather interesting place where the notion of trusts, no matter whether in the family or business context, is well known. As a result, there has been a proliferation of trusts in family and business contexts. The concept is quite simple. We will only need to have a settlor, and normally two settlors, to establish a trust and then have a trustee or two trustees—and nowadays a corporate trustee has become very popular—with a number of beneficiaries. Deeds of family trusts and business trusts used to be drafted by lawyers, but it is no longer the case. Trust deeds in family or business contexts are often drafted by financial or taxation advisers rather than lawyers. With—

CHAIRPERSON (Poto Williams): Order! Order! I just apologise to the member. As I understand it, a lot of the work that was done on trust deeds has now actually been excluded from the bill.

Yes, that’s correct, and that’s the reason why I want to explain why clause 4 should be deleted, because the Trusts Bill, a Government bill, should be the place where lots of protections or mechanisms in that regard should be dealt with.

CHAIRPERSON (Poto Williams): And that’s appropriate, but if I could ask the member to actually refer to the bill as it has been returned to the House.

Thank you. The reason why I mentioned the trusts and the trust deeds is simply because this clause is closely related to one concept with regard to the protection of beneficiaries. That’s the reason why the Justice Committee recommends that clause 4 be deleted from this bill, simply because, back to the original point, the disputes have been exacerbated by inappropriate drafting provided to the settlor on a cut-and-paste basis, and that’s one of the reasons why clause 4 is not warranted.

The officials probably would appreciate more the reason why the Justice Committee has decided to appoint an independent adviser, simply because such kind of issues warrant close examination and scrutiny. Of course, I cannot emphasise more the importance of the collegiality at the Justice Committee level. I do miss the times when Christopher Finlayson QC and the Hon Amy Adams were in the room. They were both tough but fair and professional.

💬 Andrew Bayly: I raise a point of order, Madam Chairperson.

Oh, right, OK, Andrew Bayly—are you taking a point of order or are you taking a call?

Taking a call—sorry. Thank you. I just want to acknowledge the chair of the Justice Committee for being very supportive in terms of progressing this bill through the House, and also the members of the Justice Committee. It’s a very technical bill, as we’ve started to hear from the chair, and I think we’ve ended up—obviously, we didn’t get everything we needed, but we’ve gone some way towards improving the Arbitration Amendment Bill.

No doubt we’re going to talk about some of those aspects, but I just want to take this opportunity to talk about the Supplementary Order Paper (SOP) that’s been introduced under my name, which is SOP 180. What this SOP does is it deals with an issue which is called the quick-draw procedure, where parties that are in arbitration have the opportunity to nominate the person who will be responsible for hearing the arbitration. Under the previous arrangements, what happened was that one party could nominate the person they wanted to hear the arbitration proceedings, and if the other party didn’t respond within seven working days, the person who had nominated the arbitrator had their way and that person immediately became the person who was going to preside over the arbitration proceedings. Now, that concept is against the principle of arbitration, which is that things should be done through agreement, and therefore this SOP deals with it.

To get to this point, we had to work through the committee—and I’m very grateful for the committee in this case—and actually go to the Business Committee to seek approval to introduce and actually deal with this issue in the committee, because it was outside the scope of the original bill. So we’ve worked through the process with the Parliamentary Counsel Office helping with the drafting of it, and this is the result today, that SOP 180 deals with this quick-draw procedure. Just to summarise it, what the SOP does is it basically removes the quick-draw procedure, which is against the principle of arbitration, as I said before.

We already have in the legislation, in a previous change made back in 2017, the right for the Arbitrators’ and Mediators’ Institute of New Zealand—called AMINZ—to appoint an arbitrator to hear a proceeding if the two parties to the arbitration proceedings can’t agree. Basically, this SOP deals with that issue and also the resulting changes in the numbering of the clauses in the specific part—in clause 1 of Schedule 2. So I just wanted to be clear about what the SOP is.

Thank you, Madam Chair. I rise to speak to the Arbitration Amendment Bill as the deputy chair of the Justice Committee, which heard this. I commend the chair, Raymond Huo—who is here—and other members of the committee and the officials, who worked very hard on a bill that I could probably describe, as a layperson, as inordinately complex. A very complicated bill, hence the separating out of the Trusts Bill and the amendment bill, in terms of its arbitration. As a layperson, when weaving our way through the complexities of international arbitration, it was apparent that we needed some additional advice, and I think that the system actually worked very well to provide the committee with the correct degree of intellectual rigour to bring to this process, because if people are legally trained and they understand how arbitration works, then you add in the layers of international arbitration, and we get into some enormous complexities.

This bill was originally in the name of Paul Foster-Bell, the Hon Chris Finlayson QC took a big interest in it, and Andrew Bayly has worked tirelessly, and I commend the member for negotiating a complicated bill through some very choppy waters indeed. It didn’t quite work out in the way that was originally intended. The Government members did not support all the provisions in the bill that would have brought our arbitration laws—this bill, in particular—more in line with the international standards, and therein lay the rub. But for New Zealand, it is an opportunity to be able to have international arbitration carried out in this country, and that was really the thinking behind the bill when it was first conceived.

There are a number of countries in the world—particularly in the Asian region—where a lot of cross-border commercial activities and contracts and international treaties are taking place, so the whole area of international arbitration has grown exponentially. Indeed, the globalisation of world trade and investment has meant that the world has had to really concentrate on harmonising its arbitration measures and its practices, and that is across the world. There is a convention that was signed in New York by 159 of the world’s States which allows for the enforcement of arbitral decisions, so these were really big, heavy, grunty decisions that were focused and that many countries have agreed to.

So this bill is, in my view, a heroic attempt to try and position New Zealand well, but the issues around confidentiality were ones that were always going to be difficult to negotiate, because for people to seek arbitration—to enter into that process—they need to have absolute confidence that it’s not going to become a public discussion, because of the commercial sensitivities and the privacy which underpins many of these big international agreements. So with many nations scrambling to establish themselves as arbitration hubs of one sort or another, this is why the Government’s support—particularly here in this Parliament—has flowed on to the very successful arbitration centres in Hong Kong and Singapore. What I mean by that is that those hubs in Hong Kong and Singapore have attracted a lot of the business because many other countries are just not equipped to deal with the complexities and the nuances of it.

So we adopted one part of this—the model law—in 1996. Our pointy-headed lawyers could talk you through the various elements of what that Arbitration Act set out. It was originally the rules for the use of arbitration as an agreed method of resolving disputes, and that was consistent with international standards, but this bill has been an effort for us to move with the times. As I said, it was partially successful.

We support this bill, of course. I think it was important that we as a country, and this Parliament in particular, really needed to clarify our arbitration rules, and this bill and the length of time it has taken and the length of complexity has at least, I think, resolved—at least in Parliament’s mind—some of these complex arbitration rules and where New Zealand sits within that. So it is with considerable pleasure, after a lot of hard work in the Justice Committee, by the committee members, and, in particular, by the member Andrew Bayly, that I commend this bill to the committee.

Thank you, Madam Chair. Firstly, Mr Bayly, congratulations on your fine work in marshalling this bill through the Justice Committee, and also on your excellent explanation of your Supplementary Order Paper 180. I don’t think I need to say anything more about that. Congratulations also to Raymond Huo, our excellent chair, on managing this and on managing some very technical work and using our expert adviser to great effect.

This has become much more of a tidy-up bill, if you like, but I wanted to make it clear that although it can be viewed as simply tidying up some technical aspects, those technical aspects can be of absolutely critical importance. As Mr Bayly has explained, with the quick-draw procedure, the appointment of a tame arbitrator has been known to occur. That won’t be possible any more, and that would be a real breach. I mean, arbitration is special because it is, in a sense, private justice. It’s justice which is undertaken away from the eye of the courts and Government in the way that we usually think of justice as being done, so we need to get these rules right.

The other thing about arbitration, as has been noted already, is that it is by agreement—the parties have consented to that. Tucked away in this bill is the fact that if you wanted to challenge the agreement itself, you can’t just sit on your hands. It may well be that you argue that the arbitration agreement or the arbitration clause in your contract doesn’t apply to these circumstances or perhaps that the parties to it didn’t consent appropriately, or any other contractual ground for setting aside that arbitration agreement. Now, historically, parties could play chicken, if you like, and do nothing to see who blinked first in terms of objecting to jurisdiction. So someone could go through an arbitral process, and it would only be when the thing got to the enforcement stage that someone says, “Fooled you—I’m not bound by that clause.” Quite rightly, this bill has tidied that up. It says that if you’re going to object to jurisdiction, you must do it in a timely way. That is a good step forward. It requires discipline and it requires, essentially, no more than fair dealing, in that you can’t hold that jurisdictional ace up your sleeve until the end of the game. So well done, Mr Bayly, there.

But I must say that the suggestion that court hearings would be presumptively held confidentially was not accepted by the committee on similar principles—principles of fair dealing and open justice. Whilst the arguments were made persuasively, it has to be said that for the international arbitration market for international harmonisation, the bill that we have before us makes what we have already much, much better, but it doesn’t change in substance the way we do arbitration in New Zealand. It does recognise also the important role that the Arbitrators’ and Mediators’ Institute of New Zealand has, and it takes it just a tiny step further in formalising that relationship—their place as an appointer of arbitrators—as well.

So congratulations to Mr Bayly. This bill is progressing further through the House, but, clearly, will make it the whole way. It’s a good piece of work. It’s made our law better, and it is great to see it happening in this House in this cooperative way. Thank you, Madam Chair.

I rise to take a very short call on this bill and, really, to reiterate many of the comments that have been made tonight. I do take note of what the Hon Maggie Barry talked about, being somewhat of a layperson in this regard, but through the fine explanation of the member Mr Bayly and through the very wise advice we received, it was something of an eye-opening experience.

The aspect around open justice was the one that probably opened my eyes a little more as to the world of arbitration. I come from an organisation that was the only one in New Zealand that had binding arbitration, so perhaps I didn’t need to know quite as much about the intricacies of this, and it did surprise me as I saw this that there are jurisdictions in the world—notably, Singapore and Hong Kong—who have—

CHAIRPERSON (Poto Williams): I apologise to the member. The time has come for me to leave the Chair for the dinner hour.

Sitting suspended from 6 p.m. to 7.30 p.m.

CHAIRPERSON (Poto Williams): Before the dinner break, the House was in committee for the consideration of the Arbitration Amendment Bill. Greg O’Connor had the call and he has three minutes and 48 seconds remaining, if he so wishes, and it looks as though he does.

Thank you, Madam Chair. I would have felt that had I not taken up this call, my life would have been somewhat unfulfilled. Perhaps the other members in the House don’t feel the same way. However, I did feel that such a bill has brought my somewhat amateur view and understanding of the arbitration process to a new level—particularly around the level of confidentiality. This was where, really, the basis of this bill was. I mean there was always the opportunity that if we were to have changed the bill or changed the Act so that arbitrations could be conducted—of course, arbitrations are conducted in private but, of course, when they are elevated to the courts, there was quite some considerable discussion. And that was the basis of the bill, that in those subsequent court proceedings, the presumption would be privacy. The real rationale around that is that it would then ensure that those who had been through what has been described previously as the “private justice system” went to the open courts, they were more likely to go there because they would understand that by the very confidential nature, those issues wouldn’t become subject to public discourse.

Quite rightfully, however—although there were submitters who certainly saw the opportunity that presented for an international arbitration industry, whereby there would be organisations from all around the world that would come, knowing that they could conduct their business here without that business ever seeing the light of day or the facts—it was quite clear, as the discussion went on, that any advantages would accrue from that. The basis of justice being conducted in an open manner, there was no way that we could ever justify doing that. And I also was quite clear—Madam Chair, perhaps one can hear, at this stage my voice appears to be going. While I’m sure that the world would be a much better place for me continuing this presentation, I will, at this stage, take my seat and commend the bill.

I think it’s fitting for me to take a call to rescue my comrade! I want to take a short call, given the member in the chair, Andrew Bayly, does not expect long calls. Supplementary Order Paper 180 in Mr Bayly’s name seeks to insert new clause 7, which repeals clauses 1(4) and 1(5). He explained well in his earlier contributions relating to the issues around quick-draw procedure. The Law Commission recommended in 2003 that the procedure be deleted. That did not happen, simply because of the concerns that there were otherwise no alternative measures with regard to the procedure in relation to appointments. However, following an amendment effected by the Arbitration Amendment Act 2016, appointments can now be made by the Arbitrators’ and Mediators’ Institute of New Zealand. Therefore, a quick and independent means by which an arbitrator can be appointed now exists, removing the need for a quick-draw procedure.

I should note also that, apart from those extraordinary steps taken by the Justice Committee, as I listed in my earlier contribution, including the appointment of an independent adviser, and also releasing the departmental report earlier to the House and through the House to the public, therefore enabled new submissions to be made on the departmental report from the sector. Apart from those measures, the Justice Committee went all the way to the Business Committee, seeking the Business Committee’s approval for the Justice Committee to delete clause 1(4), simply because the deletion of it is beyond the scope of the member’s bill.

However, at the last minute, members of the Arbitrators’ and Mediators’ Institute of New Zealand detected a technical issue where clause 1(5) would need to be deleted should clause 1(4) be removed. Without clause 1(4), clause 1(5) becomes meaningless and potentially confusing, as it goes on to provide that the proposal takes effect as if it were part of the agreement to arbitrate—so, therefore, the Supplementary Order Paper in Mr Bayly’s name.

Clause 1 agreed to.

Clause 2 agreed to.

Clause 3 agreed to.

Amendments set out on Supplementary Order Paper 180 in the name of Andrew Bayly to clause 6 agreed to.

Clause 6 as amended agreed to.

Amendment set out on Supplementary Order Paper 180 in the name of Andrew Bayly to insert new clause 7 agreed to.

House resumed.

Bill reported with amendment.

Report adopted.