Carr & Ors v. Gallaway Cook Allan

Gallaway Cook Allan (Gallaway) (defendant) was a law firm that represented Carr and others (collectively, Carr) (plaintiffs). Carr claimed that Gallaway violated its professional obligations to Carr, and pursuant to their contract, the dispute was submitted to arbitration. Clause 1.1, which submitted the dispute to arbitration, stated that clause 1.1 was subject to the provisions of clause 1.2. Clause 1.2 permitted appeals of arbitrations decided in favor of Gallaway. Carr’s claims were rejected by the arbitrators. Carr appealed in New Zealand high court under clause 1.2, arguing that the arbitration agreement was invalid and seeking to set aside the arbitration award. The high court found clause 1.2 invalid because it impermissibly authorized judicial review of facts determined by the arbitrators. Gallaway sought review by the court of appeal. In proceedings before the court of appeal, neither party challenged the high court’s finding that clause 1.2 was invalid. The court of appeal determined that clause 1.1 was severable from clause 1.2 and, therefore, the invalidity of clause 1.2 did not affect the validity of clause 1.1. Carr appealed to the New Zealand Supreme Court, arguing that the term arbitration agreement as used in the New Zealand Arbitration Act (the act) referred to both the submission of a dispute to arbitration and the terms governing the arbitration process. Gallaway argued that limiting the arbitration agreement to clause 1.1 and considering clause 1.2 as a separate provision aligned with the purpose of the doctrine of separability, which prevented contractual defects outside of the arbitration agreement from interfering with the jurisdiction of the arbitrators.