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Arbitration is often the favoured means of resolving commercial and maritime disputes. One of its benefits is that it is more flexible than Court proceedings and it is not always necessary to instruct a solicitor to conduct the arbitration. The following guide is aimed at giving a stage by stage but quick and simple insight into how arbitration works in practice.

Many standard forms of charterparty contain an arbitration clause. However, there are some that do not and therefore one must be careful not to fall into the trap of assuming that a dispute will be subject to arbitration. It is of course possible to include an arbitration clause as an additional clause but obviously this must be done at the time of fixing. Alternatively, if there is no arbitration clause, the parties may agree when a dispute arises to arbitrate on an ad hoc basis. However, in our experience this does not happen very often. Arbitration proceedings certainly under the London Maritime Arbitrators’ Association (LMAA), are more simple to pursue in the early stages than Court proceedings. The party resisting the claim often wishes to make it more difficult for a claim to be brought against him and therefore if a party has to go to the effort of issuing High Court proceedings, especially for a relatively small claim, this in itself may deter that party bringing a claim.

Often a charterparty will provide for a specific time bar in which a party may bring a claim. The time bar may appear in the arbitration clause but this is not always the case. For example, a clause dealing with the payment of demurrage may state that all claims must be brought within twelve months of final discharge failing which the claim will be barred. If there is no express time bar the standard position under English law is that an action in contract (which will include claims under charterparties) will be barred six years from the cause of action i.e. the breach of charterparty/date upon which payment becomes due1. In addition, it is important to check whether there are any preliminary steps that must be taken before pursuing a claim under the charterparty. It is common in voyage charters to provide that the claim and all supporting documents must be submitted to the other side within 60/90 days of final discharge. We have also seen that some contracts provide for a number of days’ notice to be given to the other side before arbitration proceedings can be commenced.

The arbitration clause may provide that any arbitration is to be pursued according to the LMAA Rules or if the claim is below a certain figure the LMAA Small Claims Procedure or perhaps according to the LCIA2 Rules. If no procedure is mentioned in the clause, the arbitrators powers are set out in the Arbitration Act 19963.

Again it is important to check what the arbitration clause says. If it is silent as to the number of arbitrators, the reference will be to a sole arbitrator.4 Alternatively the arbitration agreement may provide for the parties to agree a sole arbitrator. This will be the case if the LMAA Small Claims Procedure or the LMAA FALCA Rules are incorporated into the arbitration clause.

In practice it is more common to see a reference to two or three arbitrators or two arbitrators and an umpire, whereby each party shall appoint an arbitrator of their own choice and the third arbitrator/umpire is to be appointed by the two arbitrators already appointed.

The arbitration clause may give some limitation as to who may be appointed as an arbitrator for example the arbitrator may have to be a shipping or commercial man or member of the LMAA or Baltic Exchange. The Club usually recommends the appointment of members of the LMAA5. It is worth considering whether the qualifications of an arbitrator are suitable for the particular dispute in hand – is it a very technical dispute or does the dispute turn on a very fine point of law? It is possible to object to the other side’s arbitrator if the arbitrator does not fall within the qualifications required by the charterparty. However, if this is to be done it should be done promptly without delay otherwise any objection shall be deemed to be waived6.

If the arbitration clause says that the parties shall agree a sole arbitrator then the claimant should serve a notice on the opponent requesting that a sole arbitrator shall be jointly appointed within 28 days of the date of the notice. It is advisable to suggest the names of a couple of arbitrators to your opponent7.

In order to appoint your arbitrator either telephone or fax or telex the arbitrator asking whether he can accept appointment8. It is necessary to give the arbitrator details of the parties, indicating on whose behalf he is appointed, the date of the contract and name of the vessel. It is also helpful to state the extent of his terms of reference i.e. whether he is appointed in respect of a particular dispute or in respect of all disputes under the charterparty. If the arbitrator is appointed in respect of all disputes further disputes which may arise subsequent to the appointment of the Tribunal may be brought within the same arbitration.

Once the arbitrator has accepted appointment, it is necessary to notify the other side of this in writing. You should give the other side the name and address, fax or telex number of the arbitrator. Importantly, you should then call upon the other side to appoint their arbitrator either within 14 days of the date of the notification9 or if the charterparty states a longer period within that period. Notice should be given to the opposing parties’ last known business address unless the parties have agreed otherwise10. In practice the notification is often forwarded through broking channels if the parties have been communicating in this way.

It is helpful here to explain the interaction between appointing an arbitrator and protecting time. Mere appointment of an arbitrator does not, for the purpose of the Limitation Acts11 , protect time. It is the calling upon the other party to appoint an arbitrator or to agree to the appointment of an arbitrator (if the reference is to a sole arbitrator) which is the protective step12.

The arbitration clause may set out the procedure which should be followed in the event that the other party fails to appoint his arbitrator. However, if the clause gives no guidance in this respect you must rely on the provisions of the Arbitration Act 199613. You must give the party in default a further written notice advising him that unless he appoints his arbitrator within seven clear days of this further notice, you will appoint your arbitrator as sole arbitrator. It should be noted that seven clear days does not include weekends, bank holidays, nor the day of the notice.14 If the seven clear days have passed and the other party has still not appointed his arbitrator and notified you of this fact, you may appoint your arbitrator as sole arbitrator. It is recommended that this is done by fax to your arbitrator enclosing a copy of the notices sent to the party in default and a copy of the arbitration clause.

The way in which the arbitration proceeds from now on depends on the nature and complexity of the case and on what may be agreed between the parties. The arbitration may be conducted in a formal way with formal pleadings followed by discovery, exchange of expert evidence and witness statements, leading up to a hearing. In such a case it is advisable that solicitors are instructed. Counsel (a barrister) is ofteninstructed to assist with the drafting of pleadings and arguing the case before the Tribunal.

Alternatively, if the parties agree, the arbitration may be conducted on documents alone with informal pleadings. These may be set out in letter form. The Claimant serves Claim submissions setting out his case with reference to the facts and relevant charterparty clauses. Relevant documents should be attached to the written submissions. It is good practice in the last paragraph to summarise the claim and specify the remedy required from the arbitrators e.g. the sum of US dollars and/or damages and/or a declaration for an indemnity. It is also important to remember to expressly plead (claim for) interest on the sum claimed.

The Respondent then serves Defence submissions including those relating to a Counterclaim (if any). The Respondent should set out his arguments both factual and legal as to why he is not liable, careful to deal with each issue of the Claim submissions in turn. Failure to do so may be deemed as an acceptance of that particular statement by the claimant. Again the Respondent should attach relevant documents in support of the Defence and Counterclaim. Once the Defence (and Counterclaim) submissions has (have) been served the Claimant may wish to serve submissions in Reply and a Defence to Counterclaim. Thereafter the Respondent may also wish to serve further submissions.

It is important to remember to comply with any timetable which has been agreed with respect to the arbitration process. In particular, the parties may have agreed the LMAA Small Claims Procedure or the new LMAA FALCA Rules which have strict timetables in order to encourage a speedy resolution of the dispute.

Despite best efforts, it is sometimes very difficult to comply with the timetable which has been set. If you find yourself in difficulties because you are perhaps awaiting receipt of information from a third party, it is advisable to seek an extension of time in advance of the deadline. This may be done informally by writing to the opposing party but in the event that he does not agree, an application by way of letter may be made to the Tribunal. In experience of the Association, even under the LMAA Small Claims Procedure which has a very tight timetable, arbitrators do exercise their discretion by allowing extensions of time if it seems equitable to do so in the circumstances.

On the other hand, one might find oneself the victim of the other side’s unreasonable delay. In such a case it is possible to apply to the Tribunal for an order that the delaying party serves its pleading within a specified time. Under the new Arbitration Act 1996, arbitrators have extensive powers to penalise parties in default15 and in serious cases may strike out a Claimant’s claim for want of prosecution. Other interlocutory applications may include a request for the disclosure of particular documents or a request for security for costs.

Once the parties have served all their pleadings and documents, the arbitrators will consider all the materials before them and write their Award. They will notify the parties when the Award is ready for collection. Remember that the arbitrators have a lien over the Award until they receive payment for their fees and expenses. All parties to an arbitration are jointly and severally liable for the arbitrator’s fees and expenses, however, since it is usually the Claimant who has the greatest interest in obtaining the Award, the Claimant will usually advance the payment for the Award.

The arbitrators have some discretion as to how to award costs but the general rule is the loser will be liable to pay for the arbitrators’ fees and expenses and the successful party’s recoverable costs. Some parties itemise their costs in their closing submissions and if this is done the arbitrators may comment on these in the Award. More commonly the arbitrators will award costs and reserve their right to "tax" those costs if required16. As one is no doubt aware not all costs incurred are recoverable. If the parties are unable to agree what costs should be recoverable, the matter may be referred back to the arbitrators.

The parties may have agreed to limit the recovery of costs. A particular example of this is the LMAA Small Claims Procedure where the parties’ recoverable costs are limited to GBP 1,250. In addition, there is a fixed arbitrators’ fee of GBP 750. Under the Arbitration Act 1996 the arbitrators have a new power to limit in advance the recovery of costs in certain situations17. It remains to be seen how and to what extent this power is used.

It is of course possible to have settlement discussions on a without prejudice basis whilst the arbitration proceedings are in progress. Moreover, there is also a useful tool to try to encourage the opposing party to settle on your terms, in circumstances where there is a risk that you may lose on the question of liability but not quantum. This is known as a "sealed offer". The party making the offer of settlement writes to the other party advising him of the terms of settlement and that the offer is a "sealed offer". The arbitrators will be unaware of the terms of the offer and therefore it should not prejudice their decision making. If the opposing party does not accept the offer but, although successful in the arbitration, fails to beat the offer in the award, i.e. the arbitrators do not award more than what had been offered in the sealed offer, he will be penalised by way of costs. As mentioned above, the usual costs’ award follows the event in that the loser pays the costs of the award and arbitrator’s fees plus the successful party’s recoverable costs. However, in circumstances where a successful party has failed to beat a sealed offer it is only entitled to recover its costs up until the date of the sealed offer. Moreover, he is liable to pay the loser’s costs from the date of the sealed offer until the Award.

The parties have 28 days from the date of the Award in which to apply to the Court to challenge the Award either on the grounds of lack of jurisdiction, serious irregularity or appeal on a point of law. It will be necessary to instruct solicitors in such a case and it is recommended that this is done well in advance of the expiry of the 28 day period.

Once the successful party has received a copy of the Award, it is suggested that he writes to the opponent requesting payment immediately. It will be necessary to wait for the expiry of 28 days from the date of the Award (the period during which the losing party may apply to the Court to challenge the Award) before the Award becomes enforceable. Since a party will need to seek the assistance of the courts in order to enforce the Award, it is advisable to appoint a lawyer in the appropriate jurisdiction.

1 If the charterparty incorporates the Hague Rules/Hague-Visby Rules/US COGSA any claim relating to the cargo will be subject to a one year time bar from the date of delivery of cargo.
2 London Court of International Arbitration.
3 See article on page 12 of this issue of GARD NEWS.
4 Section 15(3), Arbitration Act 1996.
5 Details of the LMAA arbitrators may be found in the LMAA Handbook available upon request from the LMAA - The London Maritime Arbitrators’ Association, 46/48 Rivington Street, London, EC2A 3QP.
6 Section 24, Arbitration Act 1996.
7 Section 16(3), Arbitration Act 1996.
8 Appointments under LMAA terms may be made in this way. Under the LCIA rules, the parties must nominate an arbitration to the Court of London arbitration and the Court makes the appointment.
9 Minimum number of days notice required by Section 16 of the Arbitration Act 1996.
10 Section 76, Arbitration Act 1996.
11 The Limitation Act deals with time bars under English law. The contract may also specify other additional requirements.
12 Section 14, Arbitration Act 1996.
13 Section 16, Arbitration Act 1996.
14 For example, if notice is served on Wednesday, 26th March 1997, time shall start to run on Thursday, 27th March, Friday, 28th March (Good Friday - public holiday), Saturday, 29th, Sunday, 30th and Monday, 31st (Easter Monday - Bank holiday), Saturday, 5th April and Sunday, 6th April shall not count. The seventh day shall be Tuesday, 8th April and therefore the earliest date on which the arbitrator may be appointed as sole arbitrator is Wednesday, 9th April 1997.
15 Section 41, Arbitration Act 1996.
16 Taxation of costs is like an auditing process in which the arbitrators decide whether the costs which have been submitted are reasonable and whether they should be recoverable.
17 See article in this issue of Gard News.