The Court of Appeal has recently recognised the importance of upholding and enforcing arbitration agreements and awards, even where part of the agreement is found to be invalid.

In Gallaway Cook Allen v Carr [2013] NZCA 1, a law firm and one of its clients signed an agreement to refer their professional negligence dispute to arbitration. The arbitration agreement, which was the subject of lengthy negotiations between the parties, contained a clause purporting to allow appeals on "questions of law and fact". The New Zealand Arbitration Act 1996 (Act) allows appeals from arbitration awards on questions of law, but not fact. Therefore, the terms of the arbitration agreement professed to confer jurisdiction on the Courts by contract that was expressly excluded by statute.

The arbitrator issued a partial award for the law firm. The client then sought to exercise his right of appeal on fact. Upon opposition by the firm on the grounds that the Act limits rights of appeal to questions of law, the client applied to have the arbitration award set aside on the basis that it was invalid. In both the High Court and Court of Appeal it was common ground that the jurisdiction of the Courts to hear appeals from arbitration awards was prescribed by statute and could not be extended by contract. The issue was whether the words "and fact" could be severed from the arbitration agreement leaving the remainder of the agreement as enforceable, or whether such severance changed the nature of the mutual promises contained in the agreement and rendered the entire agreement invalid. The High Court found that the latter applied.

The Court of Appeal overturned this decision, finding that in this case it was entirely appropriate to sever the offending phrase, "and fact", leaving the remainder of the agreement in force as, amongst other things, doing so altered only the extent of an ancillary right of appeal and not the nature and character of the agreement to arbitrate.