Maritime arbitrations in London (other than salvage claims under Lloyd’s Open Form) are normally conducted on the basis of the LMAA Terms 2021 (“the Terms”). LMAA arbitrators will accept appointment subject to the Terms. These have been introduced after extensive consultation with those interested in maritime arbitration, and are intended to assist in the speedier and more economical resolution of disputes. Please refer to the Guidelines on Procedure under the Terms.
It is for the parties to decide for themselves whether or not to appoint legal advisers to represent them, but this should be carefully considered whenever substantial sums of money or complex points of law are in issue. The LMAA also provides an Intermediate Claims Procedure and a Small Claims Procedure which are designed for modest or small claims.
One of the simplest forms of procedure is that for an “Arbitration on Documents” as set out in the Second Schedule to the Terms.
The following general notes are primarily intended for the assistance of commercial parties, both at home and abroad, who may not be familiar with London maritime arbitration and who do not instruct lawyers to act on their behalf.
It is the duty of every member of an arbitration tribunal – regardless of how he or she was appointed – to attend to all matters with strict impartiality. Thus, an arbitrator cannot be considered as the representative of the appointing party: from the moment of appointment an equal duty is owed to both parties. An arbitrator may advise on matters of procedure, but must not advise on the merits of the case.
The only (and nowadays rare) exception arises where the arbitration clause requires two arbitrators and an umpire and where original arbitrators have disagreed and have been requested and have agreed to act as advocates for presentation of the dispute to the umpire appointed by them. (This procedure is appropriate only in relation to arbitrations on documents, since where there is an oral hearing the umpire attend and listen to the evidence and the arguments presented then. It is not applicable when the reference is to a panel of three arbitrators.)
Starting the Arbitration
It is essential that the party wishing to commence an arbitration should first consider the terms of the arbitration clause in the contract and be guided accordingly, before appointing an arbitrator. Consideration should be given to the composition of the tribunal (sole arbitrator; two arbitrators and an umpire; three arbitrators), and any specified qualification for the choice of arbitrator (e.g. “commercial man” or “member of The Baltic Exchange”) – although these are matters which can be varied (in writing) by the agreement of the parties if they wish. Care must be given to take into account any time limitation, either in the clause or in the body of the contract, as such limits requires strict observance, and extensions of time (either by agreement between the parties or by the courts) are not given lightly.
The arbitration clause will very commonly require that each party shall appoint its own arbitrator (under paragraph 2(iii) of the Terms “original arbitrators”), and for the appointment thereafter either of an umpire or a third arbitrator – the appointment of an umpire being necessary only if an oral hearing is required, or if the original arbitrators disagree.
The appointment of an “original arbitrator”, in order to be valid requires strict observance of the following formalities:
(i) the arbitrator must have been offered the appointment,
(ii) the arbitrator must have accepted the appointment, and then
(iii) the appointment and identity of the arbitrator so appointed must have been communicated to the other party.
If the arbitration clause calls for the appointment of a “sole arbitrator” (which will be implied if the arbitration clause does not specify how the tribunal is to be constituted) and the parties cannot agree upon the person to be appointed, then two courses are open to them: either, they must agree (in writing) to vary the clause to require “two arbitrators and an umpire” or “three arbitrators”, or it will be necessary to apply to the High Court for a judge to appoint a sole arbitrator.
Appointments by Default
There are provisions in the Arbitration Act 1996 which effectively prevent the establishment of a tribunal from being obstructed by one of the parties defaulting in its obligations to appoint an arbitrator. The nature of the remedy available varies according to the way in which the tribunal has to be constituted. If an “original arbitrator” has been appointed then he or she may be able to advise, but it may be necessary in any event to seek legal assistance.
Conduct of the Arbitration
English law gives the tribunal a wide discretion as to the conduct of the arbitration. The exercise of that discretion (particularly in the context of the preliminary meetings envisaged by paragraph 18 of the Terms) is primarily directed to ensuring that the dispute shall be resolved in the speediest and most economical manner. Time saved has a direct impact upon the cost of an arbitration since the tribunal’s and any lawyers’ fees are essentially dependent on the amount of time devoted to the case.
In “documents-only” cases it should be unnecessary for the tribunal to intervene once the time-scale has been set down, along the lines of the Second Schedule to the Terms. This time-scale should be agreed by the parties themselves, if at all possible (in which case the tribunal should be informed), or it will be necessary for the tribunal to decide in cases where such agreement cannot be reached. Thereafter, in the event of default by either party, the other party may request the tribunal to order that the default be remedied (e.g. provision of outstanding submissions or documents) within a specified time and, if there is a failure to comply with that order, the tribunal, upon request, may make a final “peremptory order”.
Sanctions for non-compliance with peremptory orders are set out in s.41(7) of the Arbitration Act 1996, the most common being that the tribunal proceeds to its award on the materials before it if the peremptory order is not complied with. Thus, if the default is not remedied the tribunal will then make its award.
If no submissions have been provided by way of defence to a claim, the tribunal will assume that the claim is denied, and an award in favour of the claimant will be made only if and insofar as the tribunal is satisfied that the claim has been sufficiently substantiated.
In all cases parties should endeavour to agree among themselves the necessary directions for the conduct of the arbitration – see paragraph 14 of the Second Schedule to the Terms.
Who Decides the Dispute
A sole arbitrator, by definition, decides the case alone.
Where the reference is to two arbitrators, with power to appoint an umpire, the two arbitrators, if in agreement, will decide the case. But if they disagree (even if only on one issue), the umpire takes over the reference and becomes responsible for deciding all issues in the case.
Where the reference is to a panel of three arbitrators (e.g. under the New York Produce Exchange form of charter), any third arbitrator is normally appointed by the “original arbitrators” and the decision will be that of the three-person panel. However, note paragraph 8(b)(iv) of the Terms which allows two original arbitrators to make decisions, including awards, without appointing a third arbitrator as long as they are in agreement. As to the position if a three-person panel is divided in its views, see paragraph 8(f) of the Terms.
The award will set out:
(a) the decision of the tribunal on the substantive dispute, specifying the amount of any money sum found due by either party to the other and directing payment of that amount, together with such interest as the tribunal sees fit to award;
(b) the tribunal’s directions as to who is to bear (i) the cost of the award (i.e. the tribunal’s outstanding fees and any expenses) and (ii) the parties’ costs.
The tribunal has a discretion in relation to the question of costs, but they will normally be awarded against the party who has substantially lost the case. Costs may, however, in appropriate circumstances be apportioned in order to reflect, for example, degrees of failure or success. Costs may be reserved for later determination if a partial award deals with preliminary issues which may or may not finally determine the dispute.
Release of the Award
The tribunal will notify the parties when the award is ready to be taken up (either by collection or despatch), specifying the cost of the award. The award will not be released and its contents will not be disclosed, until the tribunal has received payment of that amount. The party effecting payment will receive the original of the award, and a copy will be sent to the other party. Awards normally provide for immediate reimbursement, by the other party, of any sum so paid for which the party taking up the award has not been found liable.
If adequate security for the cost of an award has been provided in advance, the award will be released immediately it is ready.
(a) An award will contain the reasons for it unless the parties agree otherwise.
(b) The parties may agree to dispense with reasons, in which case notice must be given to the tribunal before the award is made. [Note: the effect of such agreement is to exclude the court’s jurisdiction under section 69 of the Act to determine an appeal on a question of law arising out of the award; see section 69(1)]
(c) Where, in line with paragraph (b) above, the parties have agreed to dispense with reasons the tribunal will issue an award without reasons together with a document which does not form part of the award but which gives, on a confidential basis, an outline of the reasons for the tribunal’s decision ( “privileged reasons”).
(d) Unless the court decides otherwise, the document containing privileged reasons may not be relied upon or referred to by either party in any proceedings relating to the award.
These will normally be supplied even though there has been no request for them. (Please see paragraph 25(c) of the Terms.)
Publication of Arbitration Decisions
Please see paragraph 29 of the Terms. It is entirely a matter for the parties to decide whether they are willing that publicity be given to an arbitration decision. However, since the number of arbitration awards going to the courts has been considerably curtailed since the introduction of the Arbitration Acts 1979 and 1996, there is some feeling that greater publicity should be given to arbitration decisions which may to be of general interest.
The Association has made arrangements with Lloyd’s Maritime Law Newsletter for summaries of awards to be published by it, provided the parties agree. These summaries are wholly anonymised, so they do not disclose the names of the parties or the arbitrators or the ship (if any) concerned.