12 Mar 2019
The world of shipping is a universe apart. It has its own traditions, language and values. It even has its own preferred dispute resolution method, namely ad hoc arbitrations. It is estimated that around 80% of all maritime arbitrations are ad hoc proceedings, conducted under the London Maritime Arbitrators Association (LMAA) Terms, also known as “London Arbitrations”.[1] Maritime disputes are solved in a quick and simple manner. As Stephen Kenny QC pointed out, “Maritime arbitration is not regarded as pathological on the industry, but rather part and parcel of it. Maritime arbitrators are not regarded as aliens intruding on that business, but as participants in the running of the industry.”[2]
It is clear that the maritime community favours arbitration over litigation. But why ad hoc instead of institutional arbitrations? Practitioners seem to agree on a number of advantages that ad hoc arbitrations give to parties in the specific context of the shipping world. It is all about speed, quality, flexibility and, of course, price.
First and foremost, ad hoc arbitrations are extremely quick. The standard for the LMAA to produce an award is merely six weeks.[3] According to Mistelis and Shore, “the LMAA rules and Guidelines allow the arbitrators to take charge of the arbitration reference and make robust orders when necessary and impose sanctions when those orders are disregarded. In addition, each set of LMAA rules sets down a timetable for the progress of the arbitration as well as a proposed period of time within which the award might be expected to be published.”[4] As the LMAA is an association of maritime arbitrators and does not itself administer the proceedings, the result is that its arbitrations have much less paperwork and almost no bureaucracy to be managed, saving the parties time and money to a considerable extent.[5]
Another important advantage lies in the quality of the arbitrators. Ad hoc proceedings under the LMAA guarantees to parties that their dispute will be solved by experts in the field, who are themselves businessmen. As Daniella Horton puts it, “the Association [the LMAA] and its individual members (…) are realists, commercial men, offering a sensible, considered approach to the resolution of all manner of maritime-related disputes.”[6] One specificity of the sea business, for instance, is that oral contracts are quite common.[7] As the Baltic Exchange very own motto says: “my word is my bond”. Ad hoc arbitrations, therefore, are more prone to be conducted by a tribunal that understands this and can be more ready to read the agreement from the conduct of the parties, for example.
Ad hoc arbitrations are also extremely flexible. Parties can tailor the procedure to best fit the particular needs of individual cases.[8] Daniella Horton points out to the fact that LMAA arbitrations “increasingly make use of modern technology, for example, evidence to be given by video link to keep costs down.”[9] In addition, she stresses the fact that, due to its great flexibility, the majority of LMAA arbitrations are conducted on the basis of the documents alone, without the need for a hearing.[10] This can clearly save parties considerable time and money.
This, finally, is a striking advantage of London ad hoc arbitrations. As hearings can take up to 20% of the costs of the dispute,[11] a documents-only arbitration can be a real saver. Moreover, the LMAA has devised two special proceedings, one for small and the other for intermediary claims, both of which have a limit on the amount to be recovered from the losing party and have the arbitrator’s fees fixed.[12] The terms give parties certainty and predictability of how much it will cost them and it ends being considerably cheaper than court litigation. Joanna Steele points to the fact that, under the LMAA terms, “there is no need to draft a longwinded request for arbitration or pay large upfront administration fees.”[13]
It is clear that the advantages of London ad hoc arbitrations were developed over centuries of expertise in maritime affairs both at the City of London in general and in the Baltic Exchange in particular.[14] The shipping industry is well adapted to its proceedings and, as Bruce Harris rightly remarked,[15] with the many changes brought up by IT and IA, the tendency is to occur an expansion of the use of the LMAA Terms globally, in particular in the new shipping hubs of Asia and South America. That is a welcome development as there is no need to reinvent the wheel when the Terms already represent the best practice in international maritime arbitration.
Paulo Fernando Pinheiro Machado FCIArb, is a diplomat and arbitrator, Member of the Baltic Exchange and Supporting Member of the LMAA
[1] ‘Ian Gaunt explains the benefits of London Arbitration’, in The Maritime Executive (10 June 2018). Available at <https://www.maritime-executive.com/features/ian-gaunt-explains-the-benefits-of-london-arbitration> Accessed on 20 February 2019
[2]Angela Bilbow, ‘Maritime Arbitration: a steady ship’, CDR News (11 August 2017), available at <https://www.cdr-news.com/categories/singapore/7509-maritime-arbitration-a-steady-ship> Accessed on 19 February 2019
[3] Angela Bilbow, ‘The nuances of energy and commodities arbitrations’, CDR News (8 August 2017), available at < https://www.cdr-news.com/categories/arbitration-and-adr/7499-energy-and-commodities > Accessed on 19 February 2019
[4] Loukas A. Mistelis, Laurence Shore, Arbitration Rules – National Institutions (2nd ed, New York: JurisNet), LMAA-22
[5] Bruce Harris, ‘London Maritime Arbitration’, (2011) 77 Arbitration 116-124, 121
[6] Daniella Horton, Adjusting the Sails…, 1 - available at <http://www.lmaa.london/uploads/documents/Daniella%20Horton%20Paper.pdf> Accessed on 18 February 2019
[7] Arthur Bowring, ‘Resolving Maritime Disputes Through Arbitration’, Pacific Maritime Magazine (1st January 2015), available at <https://www.pacmar.com/story/2015/01/01/features/resolving-maritime-disputes-through-arbitration/309.html> Accessed on 19 February 2019
[8] Nigel Blackaby and Constantine Partasides QC, Redfern and Hunter on International Arbitration (6th ed, Oxford, 2005) 42
[9] Adjusting the Sails…, 1
[10] Ibid
[11] Ibid
[12] Ibid
[13] The LMAA in the 21st Century: securing the future for London Maritime Arbitration, 1. Available at <http://www.lmaa.london/uploads/documents/C50TheLMAAinthe21stCentury.pdf> Accessed on 20 February 2019.
[14] Bruce Harris, ‘London Maritime Arbitration’, (2011) 77 Arbitration 116-124, 116-117
[15] Ibid