TRENDS

Back To Trends








 


LONDON MARITIME ARBITRATION, RECENT TRENDS
- Making it Cheaper

By
Clive Aston

Mr.Clive Aston studied law at Trinity College, Cambridge before qualifying as a Barrister in 1979. Keen to obtain experience in the industry he joined Steamship Mutual, a leading London P & I Club, where he headed up the FD & D department, providing legal advice to ship-owners and charters entered with the Club, including many in India. In 1988 he left the Club to establish Consult Marine Ltd., an independent legal consultancy providing advice and handling arbitration on behalf of clients in maritime and commodity matters. At the same time he began to practice as a Maritime Arbitrator, becoming a Full Member of the London Maritime Arbitrators Association (LMAA) in 1990. Since than Clive has been appointed arbitrator in more than 1500 cases and been a Committee Member of LMAA for six years, overseeing the introduction of new LMAA Terms and drafting the present LMAA Dispute Resolution Clause. He is also a panel arbitrator of the China Maritime Arbitrator Commission and the Singapore Chamber of Maritime Arbitration as well as being a qualified Mediator.

By way of background to this paper the following facts should be noted:

  • most major forms of charter party, contract of affreightment, ship sale and purchase contract and commodity contract provide for the resolution of disputes by arbitration;
     

  • excluding cargo claims, 75 to 80% of those disputes are referred to arbitration in London, and
     

  • 80 to 85% of the disputes referred to arbitration in London take place:-
     

  • before arbitrators who are Full Members of the London Maritime Arbitrators Association ("the LMAA") and
     

  • on the terms of LMAA (currently the LMAA Terms (2006).

For those participating in international trade or shipping, therefore, an understanding of arbitration, how it works and the terms that apply to it is important if fullest possible benefit is to be gained from this system of dispute resolution.

How did maritime arbitration develop?
Maritime arbitration began in the 17th and 18th centuries at the well known Baltic Exchange in London. If two parties had a dispute they would agree to refer that dispute to a Baltic Exchange broker who both parties knew and trusted and who would have a lot of experience in shipping matters. The procedure would be very simple. Often the two parties and the broker (arbitrator) would sit down for a long lunch during which each party would state their case to the broker. At the end of the meal the arbitrator would tell them who he thought was right and what should be done. The parties would have already agreed before lunch that they would be bound by whatever the arbitrator decided and that would be the end of the dispute. The party who lost probably paid for the lunch but I do not know this for sure!

What made arbitration attractive?
This way of resolving maritime disputes had many advantages. It was simple, quick and cheap. It was certainly easier than taking a dispute to the law courts. Legal cases could be expensive because of the lawyers' fees and take a very long time to produce a result. Arbitration would be quick and cheap and did not necessarily have to involve lawyers.

There were several other very important points for shipping people. Firstly, if they went to court the dispute would be in "open court" which meant that anybody could come along and listen to the details of the dispute and read the judgment given by the court. This meant that a ship-owner or charterers' washing was done in public and their problems became known to everybody, including their competitors. If they lost a dispute everyone would know.

Arbitration, however, was private and confidential so that nobody would come to know about the dispute and who won or who lost.

Another advantage of arbitration was that both parties could choose their arbitrator and therefore knew that the person deciding their dispute had a lot of relevant knowledge and experience in maritime matters. A judge in the court on the other hand might never even have seen a ship in his life and know nothing about the customs of the trade. He was not therefore so well qualified to decide the dispute and might reach a decision that was not commercially sensible.

For these reasons, arbitration became very popular in maritime and commercial fields.

What is the LMAA?
The London Maritime Arbitrators Association is an association of practising maritime arbitrators that was founded in 1960. When it was established its arbitrating members were mostly brokers used to having their lunch paid for by parties in dispute along the lines mentioned above. Nowadays, the association comprises about 45 Full Members and several hundred Supporting Members.

In general terms, Full Members are the arbitrating members of the Association whilst the Supporting Members are the users of arbitration services, including lawyers in London and overseas, P&I Clubs, surveyors, ship-owners, operators and traders.About one half of the Full Members are full time arbitrators whilst the other half combine their work as arbitrators with such other roles as consultants, brokers, surveyors or naval architects.

What are the LMAA terms?
These are terms that govern the procedures to be adopted in the conduct of maritime arbitration proceedings in London. The terms extend to all procedural aspects of the arbitration from the very beginning, when the arbitrators are appointed, through to the issue of an Award at the end of the case. A copy of the current terms may be found at the end of this paper or on the LMAA website at www.lmaa.org.uk.

The need for change
By the early 1990's, many of the advantages of arbitration had been eroded as the process came to be dominated by lawyers apparently determined to make arbitration more legalistic and to reflect High Court proceedings. As a result, arbitration became slower, more expensive and generally less efficient.

This was seen as a problem in need of action as owners, charterers and traders threatened to look elsewhere to have their disputes resolved.

The Small Claims Procedure
One of the first steps taken to deal with this problem was the introduction at the end of the 1980's of the LMAA Small Claims Procedure. This was introduced to cover disputes involving relatively modest sums, initially ones of up to US$25,000 but now up to US$50,000 (and often more), for a fixed fee payable in advance to the arbitrator. This procedure limited the number of submissions that could be served to claim submissions, defence submissions and reply submissions and required the service of these submissions to take place within a strict timetable. It also limited to a modest sum (presently 2,000) the level of costs that the successful party could recover in order to encourage the parties (or more particularly their lawyers) to keep their arguments to the essential minimum. In this way the procedure was streamlined and simplified, and in a manner that permitted the parties themselves, or their overseas lawyers, to handle the case from start to finish.

Importantly, the parties agreed to waive any right of appeal from the Award thereby making the Award truly final. This procedure has proved very popular and is now included as part of the BIMCO/LMAA Dispute Resolution clause. The terms of the procedure are regularly reviewed and revised and were most recently revised earlier this year.

The Arbitration Act 1996
The next major development came with the Arbitration Act of 1996. Before 1996, arbitration in England was governed by the Arbitration Act of 1950 together with various amendments to it made mostly in the 1970's. The 1996 Act was drafted with a view to bringing together in one
statute the various changes made over the years to the 1950 Act as well as addressing some of the criticisms of the old arbitration system made by practitioners and users of that system.

The 1996 Act has been the subject of numerous papers over the years and is not dealt with in any academic sense here. A major feature of the Act, though, was that it gave the parties a greater say in determining how their arbitrations should be run and limited the scope of appeal to the courts. It also widened the arbitrators' powers in a number of ways, most particularly in giving them the jurisdiction, (i) to determine their own jurisdiction (i.e. to decide if they have the power to determine a particular dispute referred to them), (ii) to award compound interest on sums awarded and (iii) to limit the circumstances in which security for costs may have be posted by a claimant (a tangible benefit for claimants in India as it meant that funds need not necessarily be tied up as security for costs whenever they pursued claims in London arbitration).

While the 1996 Act marked a change in direction in arbitration matters, it was followed by the far more widely publicised Woolf reforms of High Court proceedings. These reforms were to a large extent prompted by similar considerations to those that led to the 1996 Act – delay, excessive cost and over elaboration.

The Woolf reforms did not directly affect arbitration but were limited to High Court proceedings. Indirectly, though, they did affect arbitration as users of the arbitration system were able to see the good and bad aspects of these new ideas in practice and adopt them in the way they dealt with arbitrations. Also, the Woolf reforms forced many lawyers to change the way they dealt with cases, in particular by having to provide far more detail of disputes at an early stage of each case.

This was of benefit to arbitrators because it meant that the lawyers handling arbitrations became more receptive to positive ideas for the handling of arbitration. Just as importantly, they became more accustomed to the fact that the cases could no longer be run on the basis that every conceivable point or argument should be raised, however speculative, in the hope that one of these might succeed. As a result, the Woolf reforms prompted changes in the way in which arbitration in London was conducted.

The LMAA Terms (2002) and (2006)
The main concern behind the latest amendments made to the LMAA Terms, in 2002 and 2006, was the ever increasing volume of interlocutory correspondence generated during the course of arbitrations. This not only slowed down the progress of cases but also added to the general volume of arbitrators' work, increasing costs and diverting arbitrators' attention away from their primary function of writing Awards and deciding disputes. In short, the system was being blocked by mostly avoidable correspondence involving the arbitrators.

In an effort to deal with this the LMAA therefore introduced a set of Guidelines in 1999 to be applied by arbitrators in references conducted on LMAA terms. These were introduced on a trial basis for two years and proved successful in cutting down the volume of unnecessary correspondence in arbitration proceedings. The Guidelines were then formally adopted as part of the LMAA Terms (2002) and fine tuned in current the LMAA Terms (2006).

The most noteworthy points are contained in the Second Schedule of the LMAA Terms (2006), a copy of which is to be found at the end of this paper, in particular:-

  • claims are now in most cases to be served in an informal style accompanied by relevant supporting documents rather than the old style formal pleadings that merely set out the bare facts with little elaboration of the arguments pursued and with documents only exchanged after pleadings had been completed towards the end of the case;
     

  • mere denials of an opponent's allegations are no longer acceptable - if an allegation is denied then reasons must be given for this denial;
     

  • there is an increased emphasis on communication between the parties before any involvement of the arbitrators with the requirement that no applications may be made to the arbitrators unless the party making the application first tries to agree those directions with the other party;
     

  • once submissions have been closed the parties are to complete a questionnaire setting out details of the issues between them and the information needed to enable the arbitrators to make appropriate directions facilitating the prompt conclusion of the reference. This includes a statement of costs incurred to date and likely to be incurred to the conclusion of the case. The questionnaire is to be signed by an authorised officer of the parties so that we may be sure that the parties themselves are aware of the status of the case and costs involved in pursuing it;
     

  • preliminary meetings before the arbitrators are encouraged; and
     

  • discreet costs orders may be made against any party whose actions have caused unnecessary costs to be incurred (even if they eventually win the case).

The impact of these changes on parties in India
An important objective of these changes has been to make the arbitration process in London more accessible for parties and lawyers outside the UK. We know that lawyers in London are not cheap and that a system that requires the involvement of lawyers there in cases both great and small will quickly lose its attraction to overseas users.

We also recognise that many overseas parties prefer to work with their local lawyers when a dispute arises. With these recent changes to the arbitration procedure this has now become possible in many more cases than before and we have immediately seen an increasing number of cases where all of the legal work and submissions are undertaken by lawyers based outside England. This has made arbitration less costly and considerably more user friendly for those able to take advantage of these changes It will not now therefore always be necessary for parties in India to consult lawyers in London whenever a problem arises and we will be looking in the future to encourage greater involvement of overseas lawyers in the London arbitration process by holding seminars and workshops around the world to highlight some of the more practical aspects of the workings of London arbitration.

Another tangible advantage of the recent changes to the arbitration procedure in London has emerged, as anticipated, from the requirement that the parties disclose to each other far more of their case at an early stage. The effect of this has been to bring forward the point in time at which the parties are able to seriously, and advisedly, consider the merits of the dispute and entertain thoughts of settlement, a process that we are keen to encourage at several different stages of the arbitration process. This is not mere window dressing as we have added teeth to this process by imposing the sanction of adverse costs awards where it is felt that a party has acted unreasonably during the course of the reference, whether by dragging their heels or by raising patently unmeritorious arguments. In this way we have seen that more cases are now being settled at an earlier stage than was previously the case (and when far fewer costs have been incurred), rather than at the eleventh hour or later.

Another factor that has, and will continue to, benefit users of London arbitration in India has been the advances made in technology. Correspondence and submissions are now regularly exchanged by e-mail, avoiding delays in communication, while the use of video conferencing means that witnesses need not always come to London if their commitments make it impossible to attend the hearing. This avoids scheduling delays that might otherwise occur awaiting convenient dates for the attendance of various witnesses while also reducing costs.

As a result of these changes I believe that arbitration is now a far less daunting and more commercially attractive process than it had become, while at the same time retaining the benefits that made it popular in the first place.

Other forms of dispute resolution
Arbitration is not, of course, the only form of dispute resolution. Originally, arbitration was seen as an alternative to High Court proceedings and the option of having one's dispute determined by the High Court in the first instance remains. Some lawyers point to the advantage of greater legal certainty and predictability in the judgments of the High Court and to the fact that the parties do not pay the judges or court's fees whereas, of course, in arbitration they do so.

However, experience does not suggest any greater consistency or reliability of the judgments of the High Court, particularly where the judges may not be as experienced in commercial matters as arbitrators are. Also, High Court proceedings are conducted in open court so that the confidentiality enjoyed by arbitration proceedings does not apply to any High Court actions. This is often cited as one of the advantages of arbitration over High Court proceedings.

ADR/Mediation
For some time articles have been written about alternative methods of resolving disputes and, in particularly, mediation. To date, though, mediation has not made a significant impact as a means of resolving maritime disputes although that is not to say that it is without its advantages and potential for the future.

Put at its simplest, mediation is the intervention of a neutral third party as an intermediary between two or more parties in dispute with a view to helping them find an amicable solution to their differences.

In its classic form, mediation requires the personal attendance of the parties before the mediator (and in the case of commercial disputes the individuals attending must be decision makers with authority to settle). This is seen as an important factor in the relatively modest use of mediation as a means of resolving disputes between companies in different countries, particularly where the sums involve are not great.

The mediator will normally hold an opening session at which the parties are present. Each party in turn sets out their case and explains why they consider that they are right. This session is often the most dramatic as the tensions that may have built up before the mediation session spill over into the parties' presentation of their case.

Although this may seem a rather unsophisticated way of dealing with matters, this opening session is often very helpful because once the parties have aired their grievances they often tend then to become calmer and more rational.

After the first joint session the mediator will then meet each party on their own (in caucus), in turn. He will discuss various aspects of their case with them and try to encourage them to see for themselves the relative strengths and weaknesses of their case. He will also discuss with them what evidence or documents in their possession that may be shown to the other side. Armed with such documents and any particular comments or proposals that each party may wish him to make, the mediator then moves on to do the same with the other party. By means of this "shuttle diplomacy" the intention is for the parties to gradually move together until they reach a point at which a settlement is in sight.

If the mediator considers that there is no prospect of settlement he will draw the mediation to a conclusion. Where, however, the parties reach, or are in sight of, an agreement he will call them back for a further joint session to see whether a final agreement wording can be reached. If this is achieved, the agreement will be recorded in writing and signed by the parties and bind them both.

The entire mediation is conducted without prejudice so that nothing that is said or done by the parties during the course of the mediation may be referred to in any later legal proceedings.

Although still not widely used as a means of resolving disputes, mediation does have certain advantages and may be of benefit in the following circumstances:-

  • multi-party disputes
     

  • cases involving a non-monetary solution
     

  • commercial face saving.

The LMAA Mediation Terms (2002) may be found on the LMAA website at www.lmaa.org.uk.

There are also a number of other forms of dispute resolution that may be suited to particular types of problem, such as arb/med where an arbitrator is appointed but adopts the role of mediator as the reference proceeds with the parties then being bound by his conclusions if unable to resolve the matter themselves in the mediation session of the reference. Another means of resolving disputes is for the parties to agree to refer a set of facts to an arbitrator or some other party for their opinion, without the requirement of any formal award. Equally there are various means of settling disputes where both parties are willing to make offers but not to be the first one to do so. Obviously, though, a degree of co-operation between the parties is needed to achieve any agreement to proceed in these ways.

Choosing your advisers
It is no exaggeration to say that the choice of legal advisers is a very major consideration in any dispute situation. The quality of advice received and the manner in which a case is handled may make the difference between winning and losing a case, or at least of doing so cost effectively. For this reason careful thought should always be given to the choice of adviser.

Equally, it is important for the parties to know what their advisers may be doing or saying on their behalf in any arbitration proceedings. The instruction of lawyers or advisers is only the beginning of the arbitration process and it would be wrong to assume that the matter may simply be left in the advisers' hands. There is no reason why advisers should not copy in the party instructing them to all correspondence so that the client can make sure that the case is being handled in a manner that meets their approval.

It is surprising to report how easily a case may be driven off-course, or become far more costly than it should be, through over-enthusiasm, lack of commercial perspective or downright stupidity on the part of advisers and for this reason a hands-on approach to the conduct of ones own disputes is to be encouraged. In this way, hopefully the objectives sought when entering into any dispute may be best achieved.

Clive Aston
30 Hobbs Court
2 Jacob Street
London SE1 2BG
e-mail: cliveaston@cliveaston.com
 

 

TOP