Arbitration is a compelling alternative to lengthy and costly court cases.
(Article originally published in Jan/Feb 2021 edition.)
Moving ships across oceans involves interplay among numerous parties – from owners and charterers to ship managers, cargo handlers, suppliers and ports – often of different nationalities. There’s a multiplicity of contracts as well.
Added to the mix is the fact that the 2020 pandemic caused unprecedented disruptions in ship operations and a greater incidence of claims and disputes. The collapse in crude prices coupled with the introduction of IMO 2020 further contributed to the increase.
Maritime lawyers help parties navigate these claims and disputes. If court efforts fail, they can represent them in arbitration. Maritime lawyers and arbitrators are highly trained professionals, employing specialized knowledge and unique expertise to help their parties prevail. As the great English Judge Michael Mustill remarked in a speech to the House of Lords in 1997, commenting on the practice of maritime law:
There can surely be no other branch of commerce where the practical people know, and need to know, so much of the law; and where professionals know, and need to know, so much of the practice.
Singapore-based consultant Jonathan Wood explains the difference between courts and arbitration: “Courts can do without arbitration, but arbitration cannot do without the courts. The courts regulate the process via the chosen seat and, of course, provide the means to enforce any award around the globe under the New York Convention.” The New York Convention created a system whereby State Signatories gave effect to the recognition of arbitration awards, which is far wider than the judgment of state courts.
Maritime casualties and incidents can raise complex issues.
“Maritime casualty interacts with other areas of the law,” explains Queen’s Counsel Gordon Nardell, “often raising unexpected and difficult issues. A 2015 U.S. Federal Court of Appeals case considered whether U.S. military forces responding to the hijacking of a Taiwanese fishing vessel off Somalia were liable for loss of life resulting from the use of force.”
Autonomous vessels raise other challenging issues. “Unstaffed vessels raise novel questions of risk and responsibility,” says Nardell. “For example, who is liable for `cyber-piracy’ where deficient cybersecurity enables hostile entities to take over a vessel and cause it to collide with, say, an offshore petroleum installation?"
To resolve such knotty issues, certain arbitration centers specialize in handling maritime cases. The London Maritime Arbitrators Association (LMAA), which celebrated its 20th anniversary last year, is easily the most important and handles the most cases.
“LMAA exemplifies what is required of a successful maritime arbitration center,” explains past President Clive Aston. “It provides neutrality, expertise, privacy, the availability of legal services and the presence of P&I and FD&D underwriters, all backed by the unobtrusive efficiency of its supervisory English law.”
LMAA has maintained its primacy even as maritime hubs and arbitration centers have emerged elsewhere, particularly in Asia, mainly due to the unique features of LMAA arbitration:
- First, its members are all full-time arbitrators and without conflicting connections or ties.
- Second, approximately half its full members have industry-based and not merely legal experience as brokers, mariners, surveyors and the like, thus bringing a commercial perspective to their decisions.
- Third, 80 percent of LMAA’s cases are decided on documents only without the need for an oral hearing, making awards quicker and cheaper than elsewhere, and
- Fourth, awards are subject to the supervisory jurisdiction of the English courts, which has the additional advantage of ensuring the continued development of English maritime law.
The Four “E’s”
“The rationale for maritime arbitration is founded on the four ‘e's’ – efficiency, economy, expedition and enforceability,” says Jonathan Wood, Chairman of the Chartered Institute of Arbitrators. “To some extent, the first three of these have been whittled away, but institutions such as the LMAA continue to try to meet the need of the maritime sector with fast and economic processes.”
In the Nordic countries, maritime disputes have traditionally revolved around shipbuilding and insurance claims. “The reason for this,” explains Oddbjørn Slinning of SANDS Advokatfirma DA, “is that Nordic countries have a strong shipbuilding industry and a very international marine insurance presence, with both preferring local law and arbitration.”
Nonetheless, most charter parties are still subject to English law and LMAA arbitration. But this is changing. “Since the inception of the Nordic Offshore and Maritime Arbitration Association (NOMA) in 2017,” adds Slinning, “arbitration under the rules and guidelines of NOMA has gained considerable traction, and I believe it is today the preferred dispute-resolution mechanism in shipping-related disputes in the Nordics.”
In the Asia-Pacific region, where over three-quarters of world trade is centered, the continuing growth of arbitration and alternate dispute resolution comes as no surprise. Punit Oza, the Executive Director of the Singapore Chamber of Maritime Arbitration (SCMA) says, “SCMA offers specialist arbitration solutions for maritime and trade disputes via its unadministered arbitration model, which is cost-effective, more user-focused and suited for maritime and trade disputes.”
He adds that SCMA’s rules provide a framework for greater flexibility and autonomy. Claimants can appoint an arbitrator of their choice or choose one from SCMA’s panel of over 110 arbitrators hailing from over 17 countries: “Synergizing with the vibrant commercial and legal eco-system of Singapore and Asia, SCMA also offers unique and specialist arbitration procedures dealing specifically with Small Claims, Bunker Claims & Collision Claims.”
Asia has and continues to carry the bulk of maritime trade as confirmed by the 2019 UNCTAD Review – 41 percent of goods loaded and 62 percent of goods unloaded. This factor alone necessitates the need for the continued and growing presence of specialized maritime arbitral centers in Asia.
“The direct benefits generated by these centers include the sustained and consistent development of case laws that no doubt contribute to better contract models in tandem with the geographic and cultural environment norms,” explains Sundra Rajoo, Founding President of the Asian Institute of Alternative Dispute Resolution (AIADR) in Kuala Lumpur. “The proximity of these centers to the parties and locations ensures speed of proceedings while having people who understand the culture and background of the parties involved contributes to confidence in the proceedings.”
In India, too, the growth of maritime arbitration has gathered speed. “Enactment of new legislation, repealing of archaic laws, liberalization of the shipping industry and reforms like the National Maritime Development Program have provided an impetus to the growth of the maritime ecosystem in India,” says Neeti Sachdeva, Secretary General of the Mumbai Center for International Arbitration (MCIA). “With the creation of Asia’s largest maritime cluster and the establishment of specialist maritime arbitration centers, the practice of maritime arbitration is likely to grow manifold.”
The ability to proceed in rem (Ed. note: literally, “against the thing,” referring to adjudication regarding a piece of property, like a ship) and to arrest ships is unique in the enforcement of maritime claims. This important mode of enforcement in maritime claims is exercised by the Courts through their Admiralty Powers.
“The U.S. has a relatively liberal approach to vessel arrest compared to other nations,” states Raymond Waid of Liskow & Lewis in New Orleans. “The seizure may be accomplished through a warrant of arrest or a writ of attachment procedure. An arrest requires that the claimant have a maritime lien over the vessel in rem. There are many grounds for a maritime lien under U.S. law, the most common of which are liens arising from a tort committed by the vessel (e.g., collision, allision, personal injury, wrongful death or cargo damage) or arising from the provision of ‘necessaries’ to the vessel (bunkers, supplies, repairs or other services).”
Waid adds that U.S. vessel seizures may be undertaken to prosecute claims that will be litigated and tried within the U.S. or they may be used as mechanisms to obtain security for claims that will be litigated or arbitrated elsewhere.
In China, ship arrest is readily available, says Trevor Fox of HFW in Shanghai: “While claims are not brought in rem against the ship itself as they may be in the U.S. or U.K., the 22 types of claims that qualify as 'maritime claims' under PRC law are nearly identical to those of the International Convention on Arrest of Ships (1999).”
The primary consideration is invariably the level of counter security required, set at the court's discretion, often on the basis of 30-days’ hire or a percentage of the claim. “Even this obstacle is often not determinative,” Fox adds, “as the increasingly sophisticated maritime courts in China will accept counter security in the form of a guarantee from a local bank or insurance company.”
In India, the Admiralty (Jurisdiction & Settlement of Maritime Claims) Act was enacted in 2017 and conferred maritime jurisdiction on the eight coastal High Courts of India, bringing in some much-needed reforms. “However, there is no provision for ship arrest for security pending an arbitration,” says Chartered Arbitrator Madhvendra Singh, “or, for that matter, release of a ship on the furnishing of security.”
Philip Teoh is an international lawyer and maritime arbitrator based in Kuala Lumpur. He has been in legal practice in Singapore and Malaysia for over 30 years and is a frequent contributor to The Maritime Executive.
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.