Automatic application of LMAA Small Claims Procedure: to apply or not to apply?

• Shipping
• Litigation & arbitration

In 1989 London Maritime Arbitrators Association (LMAA) first introduced the Small Claim Procedure (SCP), construed for consideration of the small disputes, which deemed to be simplified, quick and more cost-effective than the procedure under general LMAA Terms. The SCP has been subject to several revisions and the latest version is in effect from 1 January 2012. Successful practical usage of SCP during 27 years has been followed by particular controversies as to its applicability.

One of such controversies is the question of automatic application of the SCP, which we have faced during representation of interests of our client in LMAA in respect of the demurrage dispute under the voyage charter party.

The parties incorporate the SCP Terms by means of express reference to them in the relevant Charter Party, either in Box Part of GENCON 94 standard form, or in the Rider Clauses thereto.

In the charter party in question no such reference has been made and the parties faced the issue: what if parties had not expressly incorporated the SCP into the Charter Party and the amount of dispute is less than USD 50,000.00? Whether the amount of dispute triggers automatic application of the SCP?

The parties agreed the following Arbitration Clause in the Charter Party:

“ARB/GA IN LONDON...LMAA TERMS, ENGLISH LAW TO APPLY”.

The Owners (Claimants) had reasonably initiated the arbitration proceedings in accordance with the LMAA Terms 2012, i.e. appointed their arbitrator, calling the Charterers (Respondents) to appoint an arbitrator from their side or to agree to appointment of the sole arbitrator. As no appointment followed from the Charterers’ side, the Owners’ arbitrator became a sole arbitrator, and the Claimants served the claim submissions regarding demurrage in the amount which did not exceed USD 50,000 (excluding interest and costs).

The Respondents intended to challenge the jurisdiction of the Tribunal and contended that the reference in the Charter Party to the “LMAA Terms” should be read as a reference to SCP whenever the claim amount in not exceeding USD 50,000.00 and thus, the SCP should apply instead of the LMAA Terms 2012.

Obviously the arguments of the Respondent were ill-grounded and the Tribunal has delivered a rational decision on jurisdiction issue.

Having competence to rule on his own substantive jurisdiction, the Tribunal did not accept the Respondent’s contentions on the following grounds:

‘[...] it is clear that, if the parties wish the SCP to apply, they must specifically provide for that in their contract. In the absence of such a specific provisions, a reference to “LMAA Terms”, without further qualification, means a reference to the latest set of LMAA Terms, namely the 2012 Terms. It is those Terms that apply to this reference.’

It should be noted that the aforementioned amount of USD 50,000 is only suggested threshold for the application of the SCP in the ‘Commentary on The LMAA Small Claims Procedure 2012’, published by the LMAA in its Handbook — LMAA Terms and List of Members. From 1^st of May 2017 the recommended limit for application of LMAA SCP will be increased to USD 100,000.00.

Accordingly, the SCP might be applied regardless of the amount of the dispute in the event the parties have expressly agreed its application to the disputes arising out of the Charter Party. The Parties are free to set their own limit for application of SCP in the arbitration clause in the Charter Party in contrast to the mandatory requirement to expressly agree on application of the SCP.

In addition, the LMAA SCP Terms 2012 give right to the parties to challenge the application of the SCP and thus grants the Tribunal with the discretion to decide whether to proceed to consideration of the dispute, following the SCP or Intermediate Claims Procedure or the general LMAA Terms.

The Commentary on the LMAA Small Claims Procedure 2012 provides that ‘[...]the Procedure to be applied regardless of the complexity of the issues involved in a particular dispute (and occasionally, regardless of the amounts involved or where the amounts involved are considerably higher than the suggested limit)’, which makes the SCP event more attractive for those who seek for fast, simplified and cost-effective consideration of maritime disputes.

Published on Аrbitration watch