Maritime arbitration: why mainly London?

• Litigation & arbitration

A question often asked is “Why do so many parties choose London as the center for their arbitration in maritime contracts?” Nowadays business negotiates charterparties at very short notice usually just by a series of email exchanges. And the arbitration clause is one of the last things, if not the last thing, to be considered. Then, why is London presently the dominant maritime arbitration center?

For centuries, England was a major maritime nation. It was probably partly the effect of its being an island state, and perhaps partly a consequence of being so close to the continent of Europe, and having to protect itself against invaders over the course of centuries. English people continue to say today quite often “overseas” that for us on the continent is not very common. It is important that England has a long tradition of shipping, both military and commercial.

To tell the truth, we strongly believe that London is chosen almost automatically in many instances when contracts are being negotiated, without much thought being given to any alternatives that are listed after. But the reasons why London became the predominant center of maritime arbitration are that:

• it still has a huge maritime community, and
• English law for business and lawyers in the field of shipping are second to none, i.e. beyond any competition.

It all gives a sense of predictability.

LMAA (London Maritime Arbitrators Association)

London maritime arbitration is often equated with the LMAA (London Maritime Arbitrators Association). This is understandable because in many respects the LMAA is the public face of London maritime arbitration. There is an important issue to be understood which relates to the difference between the LMAA and the way arbitrations are organized in many other places. The LMAA is not an administering body or an appointing authority. For instance, it is quite unlike ICC or National Chamber of Commerce and Trade arbitration. LMAA is purely an association of maritime arbitrators based in London. It publishes Terms to govern the conduct of arbitrations which are run by its members, but it does not administer the arbitrations in any way. The administration of arbitrations is done by the individual arbitrator. Shipping people do not want administered arbitration. We can understand why, because it tends to be slow, expensive and burdened with unnecessary bureaucracy.

How to start arbitration in London?

The first thing to consider is the question “How does an arbitration get started?” In most cases, where the arbitration clause provides for each party to make an appointment, the arbitration starts when one party appoints its arbitrator and gives notice of that appointment to the other party. In other cases, where the arbitration agreement provides for a sole arbitrator, the arbitration will be considered to have started when one party calls upon the other to agree upon a sole arbitrator. But the more normal clause provides for each party to make an appointment, and the tribunal is then complete when the second party appoints its arbitrator. If it does not do so within a specified time, then there are provisions in English law (and sometimes in the arbitration clause) allowing the first party to appoint its arbitrator as sole arbitrator, and that arbitrator alone thereafter acts and makes the decision.

Once arbitration has been started, the policy of LMAA is that each party’s cards should be put “on the table”. In other words, the parties are not allowed to hide things from one another or to surprise one another late in the proceedings. Thus the claimant starts things moving by serving claim submissions together with supporting documents. Those submissions have to explain what the claim is about and why the claimant says it is entitled to succeed, on the facts, and on the law if relevant. The respondent then replies with its defense submissions.

At this point it is normal to look at the case to see whether it requires an oral hearing, at which lawyers will argue and witnesses will probably give evidence, or whether it can be dealt with on documents alone. Parties do not have an automatic right to have an oral hearing. The question whether there is to be one or not is decided by the arbitrators alone. Oral hearings are expensive, because a number of people have to be gathered together for some periods, and they are often not objectively justified, particularly when regard is had to the amount involved in the dispute. The estimate is that in 80 per cent of cases matters are dealt with on written submissions and documents only. This is far quicker and cheaper than holding an oral hearing in most instances. In 2013 only 92 cases from 2966 appointments had oral hearings.

Once the submissions are closed the norm is for the arbitrator to read the whole file and form his opinion.

Arbitration costs: expensive or not

Complaints are occasionally heard about the cost of London maritime arbitration. The truth is, generally, that these complaints are not about the cost of the arbitrators themselves, but rather about the cost of lawyers and any experts involved, which sometimes can be very high indeed. In most cases arbitrators’ fees make up a quite small proportion of the total costs of any arbitration. Not every case proceeds all the way to the end; the majority is settled at an early stage, and often without the need for deep legal proceedings. In 2013 there were made 608 awards out of 2966 appointments that corresponds to some 20%. So, obviously costs are in hands of the engaged parties and their lawyers. LMAA arbitration has a special inexpensive form of dispute resolution, Small Claims Procedure, assisted by a fixed fee system to manage litigation costs: for example, the SCP caps the arbitrator’s fee at GBP 3,000.

Why not Singapore or New York?

London is handling today perhaps 75per cent or more of the world’s maritime arbitration work. Starting from 2008 each year from 3000 to 4000 appointments is made here. This compares with some 70 cases between 2009 and 2013 as reported by the SCMA (Singapore Chamber of Maritime arbitration) and 136 cases of all types in 2012, not only maritime, at the Hong Kong International Arbitration Center, and around some 100 maritime cases in New York arbitration.

Arbitration clause

Unlike many other arbitrations (especially, those which are institutional) for London it is enough to have an agreed referral of the parties like “English law. Arbitration in London”. Most proforma charterparties contain prescribed clauses which incorporate an arbitration agreement into the contracts of carriage, an example being:

NYPE ’93 Clause 45 (b) Arbitration:

“All disputes arising out of this contract shall be arbitrated at London and, unless the parties agree forthwith on a single Arbitrator, be referred to the final arbitrament of two Arbitrators carrying on business in London who shall be members of the Baltic Mercantile & Shipping Exchange and engaged in Shipping, one to be appointed by each of the parties, with power to such Arbitrators to appoint an Umpire...Any dispute arising hereunder shall be governed by English Law”.

These charterparties, together with others such as Gencon ’94, Barecon ’89 and Asbatankvoy charters, allow for an election by the parties between New York and London arbitration. Others, such as the Shelltime 4, provide only for English law and jurisdiction.

Typically, maritime disputes are around:

• the investigation of damage to transported goods and ensuing liability attached to the maritime carrier;
• bills of lading;
• sale and purchase contracts;
• damages to the ship caused by the nature of the carried goods;
• issues of lay days and demurrage including damages resulting from late entry to port or late access to the operative quay;
• damages suffered by the carrier as a result of force majeure;
• issues relating to non-execution of charter parties (for example, non-payment of the charter fee, late return of the vessel or early collection of the ship);
• sale, construction and ship repairs;
• matters relating to salvage at sea; and
• maritime insurance.

There are many other types of dispute which LMAA arbitrators handle. Where shipping and maritime transportation is involved, LMAA has the expertise to deal with any disputes which can arise.

So, summing up, we would say that if you have a claim or dispute of a maritime nature, then, it is rather being solved in London.

It is up to you to manage the case properly, including costs and timing.

You can do it yourself or by hiring a lawyer, not necessarily an English one or the one from London.

The system is very flexible. And people involved in shipping and transportation wants this very approach. And everyone feels comfortable with it.

Published on seanews.com.tr

Arthur Nitsevych

nitsevych@interlegal.com.ua

Nikolay Melnykov

melnykov@interlegal.com.ua