Why consider arbitration?

The primary purpose of arbitration isto provide commercial parties witha quick, efficient and cost-effective means ofresolving their disputes.

The arbitration process can be assimple as an exchange of writtenstatements followed by a writtendetermination by the arbitrator, forexample, where the issue is astraightforward matter of contractinterpretation. The process can beexpanded to deal with the most complex of

cross-border commercial disputes, involvingoral hearings where the tribunal can hearlegal arguments, the evidence of witnessesand expert evidence on technical or forensicpoints. The arbitration process is verydeliberately designed and intended to beflexible in order that it can be tailored to theparticular dispute in question, on a case-by-case basis.

Arbitration also offers confidentiality.Unlike a court action, which is a public

matter, open for all to see and hear,arbitration is a private disputemechanism. The only partieswho will be privy to the detailsof the dispute are the partiesthemselves, their advisors, thearbitration panel and the

tribunal. This can be hugelybeneficial in a small, close-knitindustry, where parties might

prefer to keep private fromcompetitors or the industry, details

such as technical know-how, rates,

Daniella Horton, honorary secretary of theLondon Maritime Arbitrators Association(LMAA), explains what arbitration has to offerthe heavy lift, project cargo and forwardingmarket and why London is still the arbitralplace of choice.

London arbitration and the LMAA:

The heavyweight inthe arbitration ring

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London continues to be the preferred seat forarbitration, notwithstanding the substantialefforts of some of the more recently created

bodies, particularly in Asia.

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pricing mechanisms, etc, which might comeout in evidence, or even the fact of aparticular deal having been concluded at all.This is not a luxury that commercial courtscan offer.

A further benefit offered by arbitration isthat the arbitration panel will often be madeup of three people, rather than a singlejudge. Usually the parties themselves eachappoint one of the three arbitrators (the twoappointed usually appointing the third) andthe available pool of arbitrators will befamiliar with the area of the industry towhich the dispute relates, be it technical,commercial, legal or financial.

DevelopmentArbitration is a process that, withthe support of internationalconventions and trade bodies, hasdeveloped to cater for theresolution of commercial disputesinvolving parties from differentcountries.

The United NationsCommission on InternationalTrade Law (UNCITRAL) was setup in 1966 to modernise andharmonise the rules oncommercial transactions andinternational law standards aroundthe world.

The International Council forCommercial Arbitration (ICCA)instigated the drafting of theConvention on the Recognitionand Enforcement of ForeignArbitral Awards made in NewYork in 1958 – The New YorkConvention. It regulates theuniform enforcement ofarbitration awards. Theenforcement of a court judgmentmade in one country to anothercountry is only possible if there isa bilateral treaty between thosecountries (which is frequentlyunavailable, particularly in the caseof emerging trading countries suchas China).

A third body that facilitatescommercial trade, particularly inthe maritime and relatedindustries, is BIMCO. It is nowthe world’s largest internationalshipping association, providingover 300 world leading contractsand clauses to the maritimeindustry, covering the full lifecycleof ship-related operations andactivity. Standard form contractswith which the project, offshore

be agreed to by the parties, rather than aprocess imposed by a court of law or by astate. It is therefore critical to have anarbitration agreement that, for internationalenforcement purposes, must be evidencedin writing. In principle, an agreement torefer a dispute to arbitration can be reachedafter a dispute has arisen. However, inpractice, an agreement to refer differences toarbitration is more commonly reached whena contract is negotiated and entered into.

Achieving resolutionIdeally, an arbitration agreement shouldcontain three components:(i) A choice of forum – the place of

and heavy lift sectors of the shipping industrywill be familiar are HEAVYCON 2007,HEAVYLIFTVOY, PROJECTCON,TOWCON 2008 and TOWHIRE 2008,BARGEHIRE 2008, and the most recentlypublished SUPPLYTIME 2017.

Arbitration is a private process that must

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arbitration. For an arbitration agreementto be valid, there needs to be a mandatoryand exclusive reference of the parties’disputes to arbitration

(ii)A choice of law which will govern thearbitration process

(iii)A choice of procedural rules by whichthe arbitration will be run

Types of arbitrationBroadly speaking, there are two types ofarbitration: ‘institutional’ and ‘ad hoc’.Institutional arbitration is administered andsupervised by an arbitration institution,while ad hoc arbitration is conducted by thearbitration panel itself. Ad hoc arbitration isvery much preferred by the maritimecommunity, being lighter on its feet, moreflexible, and more able to adapt to marketissues as they arise. The London MaritimeArbitrators Association (LMAA) offers adhoc arbitration, conducted pursuant to oneor other of the LMAA’s procedural rules, bythe arbitral tribunal appointed.

An example of a traditional andvery common arbitration clause inthe maritime field is Londonarbitration, English law, LMAATerms.

Almost all BIMCOstandard form contracts nowcontain an arbitrationagreement which providesfor a choice of forum andlaw – for example, Londonarbitration/English law orNew York arbitration/USMaritime law. Somerecently updatedstandard forms alreadycontain the currentBIMCO disputeresolution clausewhich nowincludes a thirdchoice, namelySingaporearbitration,coupled with eitherSingapore or English law. Indefault of an option being elected,the BIMCO clause provides thatdisputes will be referred toarbitration in London, subject toEnglish law, under LMAATerms.

No one enters into acontract or concludes a newdeal expecting it to fail.However, market conditionschange, a new contractingparty may not be all it

options have been addressed the first time,incorporating an arbitration agreementcontaining these choices into any futurecontracts becomes an easy exercise.

LMAA arbitrationOver the last 20 years, LMAA arbitratorshave regularly received, on average, 3,000appointments a year; they have runapproximately 2,000 new arbitration casesper year and have issued 500-650 awardseach year.

The LMAA was one of the first maritimearbitration associations to be set up in 1960in London, along with associations in Parisin 1959 and in New York in 1963. TheLMAA is now one of at least 20 maritimearbitration organisations involved ininternational maritime arbitration fromNorth America, Europe, Africa and Asia.

While there is certainly no room forcomplacency, theconsensus is thatLondon continues

to be the preferredseat, notwithstanding

the substantial efforts ofsome of the more

recently createdbodies, particularly inAsia.

Maritimearbitration beyondLondon remainslimited innumbers. TheAsianarbitrationinstitutions, the

largest growingregion in the

maritime industry, reported filings in 2016respectively of up to 150 new cases in HongKong (HKIAC), 111 in Singapore (SIAC 65,SCMA 46) and one in Malaysia (KLRCA).There have also recently been government-backed initiatives in the Middle East Gulfstates to set up arbitral bodies that will caterfor resolution of disputes locally, althoughthey have yet to report any cases beingreferred to them.

The factors that led to London’s organicgrowth, however, remain the cause of itscontinuing popularity. These include:• Provision of a neutral forum for overseas

parties• Extensive maritime law experience and

expertise• Specific arbitration expertise• Presence of complementary maritime

professionals – the London MaritimeCluster

seemed, and sometimes mistakes justhappen. It is at this point that the disputeresolution clause in the contract, if one hasbeen agreed at all, becomes critical. If noprovision for dispute resolution has beenmade, the default position will be recourseto, often a foreign, court and a party maysuddenly find itself in very unfamiliarterritory, depending upon the location of itscontracting party.

By comparison, expressly agreeing toarbitration in advance, as part of the contractterms agreed, provides certainty from the

outset. Furthermore,once the dispute

resolution

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Expressly agreeing to arbitrationin advance, as part of thecontract terms agreed, providescertainty from the outset.

Arbitration is a process that has developed to cater for theresolution of commercial disputes involving parties fromdifferent countries.

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• Reputation for independence andintegrity

• Support (but not interference) of theEnglish Commercial Court

• Availability of a right of appeal on the law(something London is nowadays almostalone in offering)

CostLMAA arbitrators are keenly aware of theneed to provide a cost-effective means ofdispute resolution to its users. Unlikeinstitutional arbitration, LMAA arbitrationdoes not involve administrative fees andindustry feedback indicates that LMAAarbitration remains competitive and indeedcheaper than other jurisdictions. Itsprocedural rules variously provide for coststo either be fixed, capped or limited toreasonable and proportionate amounts. Inaddition, the process is not front-loadedfinancially, as is now the case with theLondon commercial court. The step ofmerely commencing arbitration can often besufficient to focus minds and prompt partiesto achieve commercial settlement. Theappointment fee of an arbitrator, required tostart an arbitration, is just GBP250(USD329). This can be compared with thecurrent court fee of GBP10,000(USD13,164) required to commence acommercial court action.

The LMAA offers procedural rulesspecifically designed for claims of differingvalues: the Small Claims Procedure (forclaims up to USD100,000), the IntermediateClaims Procedure (where USD100,000-USD400,000 is in dispute) and the LMAATerms for higher value and more complexcases.

These procedural rules offer streamlinedprocesses, which have been developed overthe association’s history, and derive from thewealth of experience among its arbitrators;they are regularly reviewed to ensure theyremain as efficient and effective as possible.The latest edition of each of these sets ofrules came into effect on May 1, 2017.

Each stage of an LMAA arbitrationactively encourages review and reassessmentof a case during the relevant procedure. Theprocess itself therefore often engenders andfacilitates commercial settlement betweenthe parties. This can be seen from the factthat only some 25 percent of arbitrationsstarted will proceed to an award, 75 percenthaving been settled before this final step inthe arbitration process.

Where settlement is not possible,arbitrators will wherever appropriate decidecases on the basis of documents alone (this isin stark contrast to institutional arbitration,

which will often mandate or require at leastone, if not two, hearings before adetermination can be made).

Recent LMAA statistics indicate that onlyaround 15 percent of all arbitration awardsissued required an oral hearing. This offerssubstantial savings to the parties.

Project logistics advantagesIn a nutshell, maritime arbitration,particularly when combined with LMAATerms, offers a cost-effective, confidential,tailor-made dispute resolution procedure,undertaken by experienced commercial

Maritime arbitration... offers acost-effective, confidential,tailor-made dispute resolutionprocedure, undertaken byexperienced commercial andtechnical arbitrators whounderstand the shipping industryand related markets.

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and technical arbitrators who understandthe shipping industry and related markets.

With cross-border contracts becomingincreasingly the norm in our globalisedworld, arbitration offers ease ofenforcement of an award around the worldthat no court can match.

London has always held internationalappeal as a neutral jurisdiction and itsbreadth of experience and expertise in thefield of commercial, in particularmaritime-related, matters is second tonone, providing a reliable forum fordomestic and international contractingparties alike.

Most maritime contracts include anarbitration clause and the majority providefor London arbitration. Since the heavylift, project cargo, offshore and forwardingsectors all dovetail with the maritimesector, to a greater or lesser extent, activelyelecting to arbitrate by including anarbitration agreement in contracts must beworthy of consideration. HLPFI

The content of this article is intended to provide ageneral guide to the subject matter. Specialist adviceshould be sought about your specific circumstances.

Most maritime contractsinclude an arbitration clauseand the majority provide for

London arbitration.