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Arbitration – What is it and when is it used?

Arbitration is often the mandatory process for resolution of disputes in commercial contracts. This article reviews the arbitration process and the advantages and disadvantages of this method of dispute resolution.

The arbitration process is like a private court system.  Many commercial contracts require disputes to go through the arbitration process rather than through the court system.  The process is governed by legislation (Arbitration Act 1996) and requires parties to agree on election of an arbitrator or if agreement cannot be reached, an  appointment of an arbitrator is made by the New Zealand Law Society or another recognised body.  The advantage of this is that the parties can chose an arbitrator who has expertise in the matter that is being disputed.  For example, if the matter is a breach of a share milking agreement an arbitrator with rural experience can be selected.

The arbitrator acts in a similar role to a Judge and pre-hearing conferences are held to determine how the matter is going to be resolved.  A formal arbitration is signed between the parties and the arbitrator which often provides that there is no right of appeal from an arbitrator’s decision.  This means that the outcome is final and binding which, for the successful party, can be a secure outcome in knowing that the matter will not be overturned on appeal or there is not the option to then move the matter through the Court system.  The arbitrator’s fees are usually set beforehand and it is for the parties to agree, and commit to the arbitrator, how these will be paid.

The process is similar to that of the Court system in that formal statements of claim and defence are filed and discovery is undertaken.  Evidence is generally given by way of written brief and parties have the right to cross-examine witnesses.  A key advantage to using arbitration is that, again, the timing can be dictated by the parties and provided documents are filed in a timely manner, a hearing can be held dependent on the parties’ and the arbitrator’s availability.  There is not the need to wait for the Court to allocate a fixture.

The disadvantages of arbitration are:

  1. It can be a costly process in that the parties still need to file formal documents and undertake discovery; and
  2. The decision is in the hands of the arbitrator and tends to be a win/loss outcome.  The parties take the risk that there is no right of appeal of the arbitration decision in the event they are unsuccessful.

Arbitration is the mandatory method for dispute resolution in many contracts but you may also obtain agreement from the other party to use this  process where arbitration is not mandatory if both parties want the conflict resolved quickly or if there are issues as to commercial sensitivity.  The arbitration process is private and confidential and not heard in open court or reported.


This article is current as at the date of publication and is only intended to provide general comments about the law. Harkness Henry accepts no responsibility for reliance by any person or organisation on the content of the article. Please contact the author of the article if you require specific advice about how the law applies to you.

For further information

Sarah Rawcliffe - Harkness Henry Partner

Sarah Rawcliffe

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