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18 The “added words” of Article 8 of the First Schedule

242 THIS ISSUE CONCERNS the situation where parties have agreed to submit disputes to arbitration, but one of the parties, rather than pursuing arbitration, issues summary judgment proceedings against the other. The law reform issue is whether they should be entitled to obtain judgment by that means if the other party has no arguable defence, but still genuinely disputes the claim.

243 At present, the position is governed by Article 8 of the First Schedule. We set out Article 8 with the critical passage (the “added words”) italicised:

8 Arbitration agreement and substantive claim before court—
(1) A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting that party’s first statement on the substance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative, or incapable of being performed, or that there is not in fact any dispute between the parties with regard to the matters agreed to be referred.

244 The italicised words were added as a result of a recommendation made by this Commission in 1991. The reasons for insertion of the added words were explained in full in paragraphs 308 and 309 of our 1991 report in the following terms:

308 The proposed addition at the end of article 8(1) may be explained by a passage in the Mustill Committee report:
Section 1 of the Arbitration Act 1975 has a ground for refusing a stay which is not expressed in the New York Convention, namely “that there is not in fact any dispute between the parties with regard to the matter agreed to be referred”. This is of great value in disposing of applications for a stay by a defendant who has no arguable defence. ((1990) 6 Arbitration International at 53).
The phrase makes explicit in this provision the element of “dispute” which is already expressly included in article 7(1) when read with s 4. The same reasoning underlies the recommendation in the Alberta ILRR report that a court be empowered to refuse to stay an action if “the case is a proper one for a default or summary judgment”.
309 In the course of our consultative activity, we received a number of suggestions that the efficiency of the summary judgment procedure as it has developed under the High Court Rules should not be lost by reason of any implication that a dispute where there is no defence must be arbitrated under an arbitration agreement. We agree. Although it may be argued that if there is no dispute, then there is no “matter which is the subject of an arbitration agreement” within the meaning of article 8(1), it seems useful to spell out that the absence of any dispute is a ground for refusing a stay.

245 The AMINZ drew to our attention a decision of Master Thomson in Todd Energy Ltd v Kiwi Power (1995) Ltd.²³⁸ In that case, Master Thomson criticised the “added words” because, in his view, the court was required to hear the summary judgment application before the application for stay. The Master took the view that the Commission had made a “serious error” in recommending the insertion of the “added words”.²³⁹ The Master went so far as to suggest that applying for summary judgment had the potential to sabotage the ability to go to arbitration.²⁴⁰

246 Master Thomson summarised his reasons for thinking that the “added words” had potential to create problems in the following terms:²⁴¹

(1) The necessity for the court in each case to determine what constitutes a dispute?
(2) The approach the Court should take when faced with concurrent applications for summary judgments and stay.
(3) The fact that if the Court hears the summary judgment application and refuses it then two hearings (at least) will result. In such cases duplication of judicial resources and the extra time and costs will follow.
(5) There is a real danger if the summary judgment application fails and the dispute goes to arbitration, the arbitrator (often possessed of greater expert knowledge than the Court as to the nature of the dispute) will be handicapped in resolving it by findings made by the Judge which will be res judicata Maclean v Stewart (1997) 11 PRNZ 66.
(6) To determine the summary judgment may take hours even days to hear (the English experience), and the Master’s experience here.

247 We are not prepared to revisit this issue. The efficacy of the summary judgment procedure is in issue. Clearly the Commission, in 1991, made its recommendation after receiving submissions which led it to believe that the “added words” were necessary. We are not prepared to reject that view without undertaking further public consultation. It is a matter which submitters will be at liberty to raise with a select committee if a Bill is introduced into the House of Representatives to give effect to recommendations made in this report.