By Laressa Mills, senior associate, and Andrea Lim, solicitor, at Dentons Kensington Swan
There is a question whether a party is entitled to litigate instead of referring its dispute to arbitration where an arbitration clause in a construction contract such as clause 13.4 in NZS3910:2013 provides that the parties ‘may’ refer their dispute to arbitration, but does not say anything about litigation.
There is limited case law in NZ about this and often look overseas for guidance. A recent case in the Hong Kong High Court has found that an arbitration clause that says ‘may’ arbitrate means the parties ‘must’ do so.
In Kinli Civil Engineering Ltd v Geotech Engineering Ltd, the construction contract provided that in the event of a dispute, both parties may submit that dispute to arbitration for resolution. The dispute between the parties related to unpaid amounts under the contract, so Geotech referred the dispute to arbitration and commenced arbitral proceedings. Kinli issued Court proceedings.
The Hong Kong High Court was asked to consider whether Kinli was entitled to issue Court proceedings without having first referred its dispute to arbitration under the contract. Kinli argued that the word ‘may’ meant that arbitration was another option to litigation so it could choose whether to arbitrate or litigate.
The Court held the relevant clause gave the parties a choice to arbitrate, but once that choice had been exercised by one party, it would be binding on the other. The Court determined that arbitration was mandatory despite the clause using the word ‘may’.
To arbitrate and/or litigate?
Standard form clauses 13.3 and 13.4 of NZS3910:2013 provides that the parties ‘may’ by notice require that the matter in dispute be referred to mediation and/or arbitration. It does not say anything about litigation.
Courts are increasingly enforcing arbitration clauses. If a party wants to argue that they did not intend their disputes to be submitted to arbitration, i.e. want the option to litigate, then this should be spelt out and made clear in the arbitration clause in the contract.
In NZ, a party/parties are entitled to refer a dispute under a construction contract to adjudication and the CCA 2002 cannot be contracted out of.
Disclaimer: This article is not a substitute for specific professional advice on any matter. No warrant or guarantee whatsoever is given as to the accuracy of any information contained in the article, nor is any liability accepted for any actions taken based on this information.
Dentons Kensington Swan has New Zealand’s largest team of construction lawyers and we have worked on many of New Zealand’s largest construction projects. We are experts in both front end and back end construction matters.
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