There will inevitably be disagreements between Shipowners and Charterers from time to time, although most discrepancies will be resolved amicably and with a minimum of trouble and cost. A few conflicts may cause much more difficulties. These difficulties may be that outsiders well versed in commercial law will need to be contacted in to provide independent settlement.
In such circumstances, it is crucial to establish the legal code that will apply, since laws vary from country to country, and different judgments might be reached on the identical set of cases depending on the jurisdiction that is to apply.
The place of residence of the Contracting Parties (Shipowners and Charterers), the place where the Contract (Charterparty) was created, or specific reference to a particular Place or Applicable Law may each have a bearing on where a disagreement should be evaluated, discussed, and settled. Therefore, Charterparty or other shipping contracts should stipulate the legal code that is applicable for the reference of any conflicts that may arise, for example, English Law to apply. Furthermore, Charterparty or other shipping contracts should stipulate, the format of any legal hearing. In other words, Charterparty or other shipping contracts should define whether conflicts are to be referred to Court or Maritime Arbitration.
Global shipping is conducted in the English language. In England, a wide-ranging and adaptable commercial legal code has evolved. Many Shipowners and Charterers prefer English law in times of conflict. Therefore, it is common to encounter, for instance, a Greek Shipowner and an American Charterer resolving a dry cargo Charterparty dispute before a London Arbitration based on English law.
There are important arbitration centers in New York (The Society of Marine Arbitrators) and Paris (Arbitration Facilities of the International Chamber of Commerce). However, by far the immense number of shipping disagreements are conducted in London under the terms of English law. Consequently, considerable Protection and Indemnity Clubs (P&I) Clubs were established in London.
London Maritime Arbitrators Association (LMAA), and a considerable number of lawyers that are specializing in shipping disputes are based in London. Therefore, shipping companies from the world over look to London and English law for guidance on the drafting of shipping contracts and for settling disagreements.
VOYLAY Rules and Time Charter Interpretation Code 2000 have been drafted to assist interpret some of the more common causes of disputes under Charterparty Forms. VOYLAY Rules help in cutting through the confusion that covers the perennial problem of Laytime Calculation. Time Charter Interpretation Code 2000 (FONASBA) removes the mystery of some common areas of conflict in Time Charters. Unlike the Voylay Rules, Time Charter Interpretation Code 2000 does not concern itself with one topic but covers several different scopes. VOYLAY Rules and Time Charter Interpretation Code 2000 are at the bottom of the page.
A shipping dispute that is to be resolved in the English Courts would be referred to a judge in the Commercial Court in the first instance, the Commercial Court being part of the Queen’s Bench Division of the High Court, in London. Usually, the dispute will end with judgment at that stage, although it may be possible to appeal against the verdict to the decision of a panel of judges sitting in the Court of Appeal and, similarly, against their judgment, to the highest Court in England, the House of Lords. Appealing is pricey and likely to be time-consuming, nevertheless, as a consequence of which, most parties selecting English law to opt-in their contract for any disputes to be referred to Maritime Arbitration in London.
Most diligent London-based Maritime Arbitrators are full members of the London Maritime Arbitrators Association (LMAA). London Maritime Arbitrators Association (LMAA) is an association in London. Maritime Arbitrators’ backgrounds are remarkably diverse. London Maritime Arbitrators Association’s (LMAA) members publish around 500 Arbitration Awards per year. London Maritime Arbitrators Association’s (LMAA) members are receiving around 4,000 appointments per year, presumably more than all other Maritime Arbitration Centers added together. Maritime Arbitration disputes cover a broad range of subjects, including Charterparty, Bill of Lading (B/L), Sale and Purchase (S&P), Ship Operation, Cargo Trading, and Shipbuilding contracts.
In some jurisdictions, Maritime Arbitrators may in effect be able substantially to disregard any system of law. On the other hand, London Maritime Arbitrators Association (LMAA) members and other English arbitrators are bound to and consistently apply English commercial and maritime law.
Today, English commercial and maritime law are so highly developed as to be widely regarded and applied as if it were the international law of commerce and shipping. English commercial and maritime law continues to develop to meet changing needs mainly due to the possibility of appealing decisions Arbitration Awards, especially in cases where the commercial public interest is involved.
Under the English Arbitration Act (1950), as amended by the Arbitration Act (1979), appeals are restricted, but those that are granted are heard in the Commercial Court whose judges have great experience in commercial and maritime arbitration, a factor that often facilitates equitable compromise in disputes of this nature.
Originally, arbitration was designed as a distinctly non-legal way of solving disputes and the arbitrators preferred and selected were men with a commercial background rather than with legal qualifications. It was believed that men with a commercial background would lend a fairer and less straight-laced mind to the disagreements on hand and interpret the provisions of the applicable Charterparty Forms or other commercial agreements without being strictly concerned with the legal niceties and sheer accuracy or non-accuracy of the terminology used in the Charterparty Forms’ wording.
Centrocon Arbitration Clause stipulates the appointment of men engaged in the shipping and/or grain trades and who are members of the Baltic Exchange. However, over the years, the procedure of arbitration has gradually assumed a legal flavor.
When a Charterparty Form stipulates for each party (Shipowners and Charterers) to appoint their arbitrator, if contracting parties (Shipowners and Charterers) are unable to agree an umpire be mutually nominated, it might be assumed that there is a tendency toward the arbitrators being advocates for their appointers. Nevertheless, this is a misconceived idea since an arbitrator is a private judge ruling impartially between the contracting parties (Shipowners and Charterers) whether sitting as sole arbitrator or a member of a larger tribunal.
The concept of arbitration must not be underestimated. Originally, arbitration may have been intended to have a non-legal flavor. Arbitration must retain something of the judicial since arbitration is after all an alternative. Arbitration might be the only alternative in the lack of an amicable resolution between the contracting parties themselves, to court proceedings. Although the agreement to arbitrate any dispute may originally be an oral agreement between the contracting parties (Shipowners and Charterers), it is advisable for the arbitration agreement to be included in writing either as an express clause in the Charterparty Form though it is unlikely that a court of law would grant a stay of proceedings in favor of arbitration.
Generally, Arbitration Clauses incorporate a Time Limit within which appointments of arbitrators should be made and the leading case of Ion (1971) provides a court ruling as to what happens when an Arbitration Clause provision of three (3) months Time Limit (Centrocon) conflicts with the twelve (12) months (Clause Paramount – Hague Rules) provisions which applied to the same Charterparty Form. The Hague Rules time limitation period prevailed.
Arbitration Clause in a Charterparty Form can be binding upon the innocent holder of a Bill of Lading (B/L) issued under a Charterparty Form is dependent totally upon the incorporating words in the Bill of Lading (B/L), which, if sufficiently comprehensive, could entitle a Shipowner or Carrier to compel a Bill of Lading (B/L) Holder to arbitration under an Arbitration Agreement or vice versa.
Arbitration Agreement to be binding and to have the protection afforded by the United Kingdom’s Arbitration Acts (1950-1979), must be in writing and should be explicit in arbitration terms.
An Arbitration Agreement must be precise, unambiguous, and clear in its terms and wording. Therefore, an Arbitration Clause with wording such as “Arbitration, if any, to be held in New York” is not a binding agreement to arbitrate. It merely agrees to arbitrate in a certain stipulated place if there is an agreement to arbitrate at all is a significantly different thing.
The UK Arbitration Act defines an Arbitration Agreement as a “written agreement to submit present or future differences to arbitration, whether an arbitrator is named or not”. How broad in scope the agreement to arbitrate is, depends again on the actual wording of the clause. If Arbitration Clause incorporates such words as “all matters in difference” the scope is remarkably comprehensive, however, the more typically used wording in Maritime Contracts (Charterparty Forms) is “disputes arising out of the contract” would by its face value sense exclude a dispute as to whether the contract was ever entered into in the first place.
The inclusion of an Arbitration Clause in a Charterparty Form does not automatically exclude the jurisdiction of a Court of Law to try disputes.
Despite being a party to an Arbitration Agreement, an aggrieved party in Maritime Contracts (Charterparty Forms) is not barred from taking legal action through the law. Courts have discretionary power to decide whether Courts will stay proceedings in favor of arbitration or whether Courts will try the issue.
Even if the Court stays proceedings in favor of arbitration, Court intervention may become inevitable as a means of enforcing any Arbitration Award that may eventually be made, or to set aside an Arbitration Award when there may have been misconduct of an arbitrator or the Arbitration Award has been for some reason improperly secured, or simply there has been an Error on the Face of the Arbitration Award. To elaborate on this last phrase an error of law on the face of the Arbitration Award has been described as some legal proposition contained in the Arbitration Award, or documents incorporated into the Arbitration Award, which is the basis of the Arbitration Award and which can be said to be erroneous. Nevertheless, the error must appear on the face of the Arbitration Award otherwise the Courts have no discretionary power to set it aside.
Who may be appointed as a Maritime Arbitrator?
Undoubtedly, not a madman, an idiot, an infant, or an outlaw can be appointed as Maritime Arbitrator. These are well-identified disabilities.
A competent arbitrator is an individual of sufficient skill in the arbitration under disagreement and is not restricted legally or naturally from giving proper judgment.
The type of individuals may be limited and specified as clearly it is in the Centrocon Arbitration Clause where the idea is to appoint individuals versed in the shipping and/or grain trades. It is essential that an arbitrator must be impartial and have no bias, interest, or leaning towards one or the other party. This is a ground for disqualification. Furthermore, if an arbitrator becomes a witness in the arbitration, this is also the ground for disqualification.
The procedure to be followed in Arbitration Proceedings in Chronological Order:
1- Arbitrators must be appointed by the contracting parties to the dispute and accept the appointment.
2- Arbitrators may wish to meet with the contracting parties to the dispute informally before an official hearing.
3- The case goes to a hearing, the time and place being the choice of the arbitrators unless otherwise specified. Alternatively, if the contracting parties prefer, the case may be resolved on Documents Alone.
Each contracting party’s lawyer may be present at the official hearing, at their option, provided sufficient notice is given to the opposing party. All evidence must be completely heard and the arbitrators have the absolute right to decide whether evidence is admissible or not. Great care should be exercised since the wrong admission of evidence could be such a fundamental mistake as to lead eventually to the setting aside of the Arbitration Award.
After the conclusion of the official hearing, the arbitrators must prepare the Arbitration Award which is the document incorporating the Arbitrators’ Decision. The Arbitration Award is final and for this reason must be clear, unambiguous, and decisive.
The referring of a dispute to arbitrators is known as the Reference. A distinction should be made between the costs of the Reference and the costs of the Arbitration Award. These costs are at the discretion of the arbitrators.
The costs of the Reference include all those general and special expenses incurred in the course of inquiries either by the contracting parties or by their legal advisers.
The costs of the Arbitration Award are the remuneration and expenses due to the arbitrator and which he has a right to demand as a condition precedent to his delivering his Arbitration Award. The party which is unsuccessful bears all the costs. Nevertheless, the arbitrator may, at his discretion change this and may, for instance, direct that each party bears his costs. In other words, each party pays the costs of the Reference and half the costs of the Arbitration Award.
Arbitration Act (1979) abolished the Case Stated procedure originally introduced by Arbitration Act (1950). Furthermore, Arbitration Act (1979) removed the right to have an Arbitration Award set aside because of an Error of Fact or Law on the face of the Arbitration Award. This was a long-standing right under the Common Law. It was due to the strength of this right that Maritime Arbitrators have traditionally given the Reasons for Arbitration Award in a separate document for the information of the contracting parties, not to be considered as an official part of the Arbitration Award itself.
Arbitration Act (1979) introduced a new procedure of Appeal exclusively concerned with an Error in Law. To some extent also there is still limited latitude given to an Arbitrator or either of the parties, if, during the arbitration proceeding a challenging question of law arises, to apply to the High Court for an answer. Nevertheless, the question must be of real importance substantially affecting the rights of one or both parties and one which might potentially mean substantial savings on the parties’ costs.
When the Arbitration Act (1979) first became effective, it was assumed that an appeal from an Arbitration Award would be the exception rather than the rule but it soon became clear that it was the other way round. In arbitration cases, losing parties rushed to appeal. The consequence of this was that it has now become hard to get leave to appeal. The preponderance of applications has been turned down. Therefore, it is crucial to regard the Arbitrators as the final arbiters, especially so if the contracting parties jointly expressed their wishes to that effect in the wording of the Arbitration Agreement, unless the results were so clearly wrong that, in the interests of justice they have to be corrected.
For a judge to reverse the decision of an Arbitrator on purely technical points of little significance to the real issues, was not what the drafters of the legislation had in mind. One approach proposed was that if, for instance, the Charterparty Clause in dispute was a one-off contract that was unlikely to arise again, leave to appeal should be denied unless the Arbitrator was so obviously wrong in his decision that it would be inequitable not to disturb Arbitrator’s Arbitration Award.
One section of the Arbitration Act (1950) which has remained unaffected by the Arbitration Act (1979), authorizes relief in particular circumstances when one contracting party has strictly raised against the other the Time Bar, due to the failure by the other party to appoint the arbitrator within the time allowed. Possibly, this is a feature of what Lord Denning indicated when he said the law was about justice and not strictness.
If to stand firm on the Time Bar would cause the other party undue hardship, then the Court is empowered to extend the time at its discretion. The Time Bar cannot be applied absolutely and strictly if to do so would result in undue hardship, whether the time bar itself is regarded as completely extinguishing the claim or as simply barring the remedy.
Arbitration Award Interest
Arbitrators are cloaked with the same authority as any commercial judges and are given ample discretion, provided that it is just and equitable to do so. Interest is in effect compensation for an individual who is being kept from his money.
What should be the Arbitration Award Interest Rate? Should Arbitration Award Interest Rate be the lending or the borrowing rate? In other words, should the party be remunerated because he has had to borrow money to meet a commitment that he would not have had to borrow had he been timely paid the capital sum due to him or because he has been deprived of the opportunity to timely invest the capital sum due to him and thus earn interest?. In the Wallersteiner v Moir case (1975), a reasonable rate of interest should be the minimum lending rate plus 1% to arrive at a reasonable borrowing rate.
In the Tehno Impex case (1981), the Arbitrator’s discretionary power concerning Arbitration Award Interest includes even situations where the principal sum has been paid before or after the arbitration has been started or before or after the Arbitration Award has been made. Therefore, it seems that Arbitrators have the power to Arbitration Award Interest where, for example, the respondent has paid up only at the eleventh hour before the Arbitration Award was made. Any doubt as to the correct rate of Arbitration Award Interest should be resolved in the light of any aspects relevant to the currency in which the Arbitration Award itself is made. Furthermore, Arbitrators are more qualified than judges to Arbitration Award Interest since Arbitrators are commercially minded people.
The processes and practices for Maritime Arbitration in London have become positively developed and have been codified into the London Maritime Arbitrators Association (LMAA) Terms. Especially, London Maritime Arbitrators Association (LMAA) Terms (1987) boost speed and early hearings, the power of Maritime Arbitrators to order the provision of security for costs, and to order rectification of a contract in certain cases. Furthermore, there is now a codified Small Claims Procedure to simplify smaller cases. Small Claims Procedure limits costs to a fixed, mediocre sum, whilst Conciliation and Mediation procedures are also possible.
London Maritime Arbitrators Association (LMAA) recommends a particular Arbitration Clause for insertion into Maritime Contracts (Charterparty Forms). London Maritime Arbitrators Association (LMAA) recommended Arbitration Clause is at the bottom of the page.
London Maritime Arbitrators Association (LMAA) recommended Arbitration Clause does not refer to the Small Claims Procedure. However, contracting parties are not prevented from editing the Arbitration Clause. For example, “all disputes up to a value of $100,000 are to be dealt with under the terms and conditions of the London Maritime Arbitrators Association (LMAA) Small Claims Procedure (1989)“.
Protection and Indemnity Clubs (P&I Clubs)
There are several types of Protection and Indemnity Clubs (P&I Clubs), although by far the biggest and financially strongest sector is Shipowners’ Protection and Indemnity Clubs (P&I Clubs). Shipowners’ Protection and Indemnity Clubs (P&I Clubs) are mutual and non-profit making organizations that deliver Insurance Cover for Shipowners and Ship Operators which is complementary to the insurance cover placed on the insurance market.
There is no exact dividing line between the insurance cover afforded by insurance companies and that provided by Protection and Indemnity Clubs (P&I Clubs).
Traditionally, Protection and Indemnity Clubs (P&I Clubs) provide one-quarter (1/4) of a Shipowner’s collision insurance liability. Generally, Lloyds underwriters and insurance companies insure ships and cargoes, whilst Shipowners’ Protection and Indemnity Clubs (P&I Clubs) insure Shipowners’ liabilities.
Two of the factors which contributed to the formation of Shipowners’ Protection and Indemnity Clubs (P&I Clubs):
1- Extra risks that Shipowners had to bear following the acceptance of the Hague Rules
2- Unwillingness of insurance underwriters to accept more than three-quarters (3/4) of Shipowners’ liability for damage done to another ship in a collision
Consequently, Shipowners associated together on a mutual basis, forming the directing boards of the Protection and Indemnity Clubs (P&I Clubs), whose administrators are mainly professional legal partnerships with legal experience.
Protection and Indemnity Clubs (P&I Clubs) Calls (Subscriptions) are paid yearly based on the tonnage entered and on the record of the Shipowner concerned. A high claims record should mean that the Calls (Subscriptions) will be levied at a higher rate than for an entered Shipowner with a low claims record. If forecasted claims are higher than expected, Supplementary Calls (Subscriptions) will require to be levied to enable the Protection and Indemnity Clubs (P&I Clubs) to pay their way.
Protection and Indemnity Clubs’ (P&I Clubs) Protection feature would deal with issues such as:
- One-quarter (1//4) of the Shipowner’s collision liability
- Personal Injury
- Crew Liabilities
- Damage to Piers
- Removal of Wrecks
Protection and Indemnity Clubs’ (P&I Clubs) Indemnity feature would deal with issues such as:
- Loss of or Damage to Cargo
- The proportion of General Average (GA)
- Customs’ Fines
Furthermore, Protection and Indemnity Clubs (P&I Clubs) protect Freight, Demurrage, and Defence. This would be concerned with the enforcement of legal proceedings for collection of freight and hire; conduct of actions and arbitrations, and general legal advice to Club Members.
Charterers Protection and Indemnity Clubs (P&I Clubs)
Some Protection and Indemnity Clubs (P&I Clubs) seek to attract Ship Charterers and Ship Operators as members. On the other hand, specialized Charterers Protection and Indemnity Clubs (P&I Clubs) exist to provide a scope of services for Charterers such as Defence Cover and Liability Cover.
Defense Cover: for costs and expenses incurred in asserting or defending court actions or arbitrations
Liability Cover: indemnity for liabilities towards Shipowners, Disponent Shipowners, and Cargo Owners under Voyage and Time Charterparties.
Professional Indemnity Insurance
Professional Indemnity Insurance is a third club type that exists for the benefit of Shipbrokers and Ship Agents. Professional Indemnity Insurance provides services for members acting in the exercise of their profession as agents in Chartering, S&P (Sale and Purchase) of ships, Port Agency, Freight Forwarding (FF), Liner Agency, Travel Agency, Air Booking, Bunker Broking, and Ship Management companies. Professional Indemnity Insurance is available from ITIC (International Transport Intermediaries Club). ITIC (International Transport Intermediaries Club)
is based in London. ITIC (International Transport Intermediaries Club) was established by the merger of the TIM (Transport Intermediaries Mutual) and CISBA (Chartered and International Ship Brokers and Agents Club).
Professional Indemnity Insurance Cover is developed to assist in the recovery of Brokerages and Port Disbursements (PD). Professional Indemnity Insurance Cover indemnifies members against errors, omissions, and negligence, including breach of warranty of authority. Similar insurance cover may be obtained on the Lloyds Market and from a few insurance companies. It is mandatory for members of the Baltic Exchange and for company members of the Institute of Chartered Shipbrokers (ICS) to have satisfactory Professional Indemnity Insurance Cover.
Unkonwn Charterers and Unkonwn Ship Operators
The preponderance of Charterers, Ship Operators, Shipowners, Shipbrokers, and Ship Agents are honest and decent. The functioning of shipping markets depends to a significant extent upon mutual trust.
Unscrupulous Shipowners, Ship Operators, Charterers, or Traders may have the chance to exploit the trust of other shipping market players. Therefore, Shipowners encountering previously unknown charterers and charterers uncertain about the credentials of a new shipowner must investigate the other party’s backgrounds from BIMCO (Baltic and International Maritime Council), Baltic Exchange, or the International Maritime Bureau (IMB), and Shipping Market.
Professionalism in Shipping Market
In Shipping Market, Shipbrokers should learn from experience to arm themselves with knowledge, at the same time Shipbrokers should gain a reputation for integrity. If all this can be associated, Shipbrokers should obtain a professional qualification, such as that offered by the Institute of Chartered Shipbrokers (ICS) in London. Shipbrokers should analyze and make a plan to achieve these goals.
Shipbrokers must acquire knowledge, not only of day-to-day shipping market events but also of more basic data. Shipbrokers should be members of various bodies, either individually or as an employee of a corporate entity. Shipping Market Organizations involved in dry-cargo shipping incorporate:
1- Institute of Chartered Shipbrokers (ICS): offers both individual and corporate memberships. Individual members pass through examination and leading to fellowship status which qualifies the individual to be termed a Chartered Shipbroker.
2- Baltic International Maritime Council (BIMCO): open to shipping companies. Baltic International Maritime Council (BIMCO) provides valuable expertise and facilities to the international shipping community.
3- The Baltic Exchange: The Baltic Exchange is a membership organization for the maritime industry, and freight market information provider for the trading and settlement of physical and derivative contracts. Today, The Baltic Exchange is open to associates who do not necessarily attend daily and who may be residents outside the United Kingdom.
4- International Maritime Bureau (IMB): International Maritime Bureau (IMB) is a specialized department of the International Chamber of Commerce. International Maritime Bureau’s (IMB) primary duty is to protect the integrity of international trade by seeking out fraud and malpractice. International Maritime Bureau (IMB) fights crimes related to maritime trade and transportation, especially piracy and commercial fraud, and in protecting the crew members of ships. International Maritime Bureau (IMB) is one of the shipping police forces to protect its members.
5- Protection and Indemnity Clubs (P&I Clubs): are independent, not-for-profit mutual insurance associations, providing cover for its shipowner and charterer members against third-party liabilities arising out of the use and operation of vessels. Each Protection and Indemnity Club (P&I Club) is owned by its shipowner and charterer members. Protection and Indemnity Clubs’ (P&I Clubs’) operations and activities are overseen by a BOD (Board of Directors), or committee, elected from the membership. The day-to-day operations of the Protection and Indemnity Clubs (P&I Clubs) are conducted by experienced directors who are appointed by and report to their Club board.
6- Professional Indemnity Clubs: Professional Indemnity Clubs are becoming more and more important for such as Shipbrokers and Ship Managers. ITIC (International Transport Intermediaries Club) is the leading provider of professional indemnity insurance to the marine sector. Globally, ITIC (International Transport Intermediaries Club) provides professional indemnity insurance for the world’s major shipbroking companies.
Furthermore, Shipbrokers should read as much as possible. Besides reading shipping newspapers such as Tradewinds, and Lloyd’s List, Shipbrokers should read industrial and international news to be prepared for its impact on the shipping world.
Shipbrokers should build up a library of Chartering Books that are directly relevant to Shipbrokers’ business activities. Shipbrokers should always keep alert for new books or new editions of existing Chartering Books. Furthermore, Shipbrokers should follow up HandyBulk Chartering Lessons. (www.handybulk.com/chartering-lessons)
Some of the Shipping Organizations listed above, such as the Baltic International Maritime Council (BIMCO), publish regular magazines as part of their membership whilst others, such as Lloyd’s of London Press, publish reports on maritime matters such as current law cases.
In daily trading and particularly in the drafting of Charterparty Forms, Shipbrokers should have a Charterparty Library. Charterparty may help Shipbrokers, however, there is little substitute for experience and for having the ability to incorporate what has been learned from knowledge, experience, and wide-reading into adapted Charterparty Clauses.
Eventually, Shipbrokers should work and practice in an efficient, encouraging office environment which brings us to the critical subject of Shipbrokers’ Office Organization.
Shipbrokers’ Office Organization
There are some Shipbrokers’ Offices with low overheads which regularly produce a high income and turnover with limited Chartering Team Members. On the other hand, there are over-employed Shipbrokers’ Offices, which perform poorly. It is not that employees in either group work significantly harder than in the other, although personal motivation is an important factor. The major difference comes down to Shipbrokers’ Office Organization.
In the dry-cargo market, Shipowners, Charterers, Traders, Ship Operators, Shipbrokers, and Ship Agents may require different organization types. Accordingly, it is challenging here to do more than to generalize, except to note that with computerization, many of the labor and time-demanding duties can now be tackled far more effectively.
In Shipowners’ Office Organization, office employee numbers can be related to the number of ships at sea to evaluate whether or not office management is being kept to reasonable proportions. Apparently, with a small fleet of ships, office employees per ship will likely be at a higher ratio than is required for a bigger fleet. With a large fleet, effective management from the top of the organization may be weakened unless uncompromising reporting methods are laid down and adhered to. One way of exercising effective management is to create teams of supervisors operating separate fleets within the whole, thereby doing away with departmentalization that would otherwise be required and which tends to create unnecessary rivalries, rather than to build up a more healthy, competition amongst internal fleets, which is to be encouraged. Whether departmentalized or divided into fleet units, the activities require a range of ship-management duties, such as operations, chartering, port captaincy, technical, insurance, storing and provisioning, and accountancy.
In Shipbrokers’ Office Organization, the size of the office depends on the number of clients that Shipbrokers serve. The more clients, the more Shipbrokers. The more Shipbrokers, the more backup employees such as those engaged in Post-Fixture and Accounting positions. Essentially, computers have eliminated secretarial assistance in the more technically advanced Shipbrokers’ Offices. However, there are still two (2) major areas of difficulty tending to prevent a truly thorough computerized system in Shipbrokers’ Office Organizations. The first is the hardship of preparing Charterparty Forms, almost all Charterparty Forms are based on an old-fashioned printed text that is repeatedly amended during Chartering Negotiations, calling for accuracy of precise deletions and insertions when drafting Charterparty Forms. Secondly, Junior Shipbrokers are still employed for feeding computers with the data.
In some cases, Shipowners prefer to conceal from the general market the availability of some or all of their ships, or more efficient Shipbrokers prefer to work on an exclusive basis. The last thing that any Shipbroker wants is for Charterers and Shipowners to communicate directly, as this will diminish the need for Shipbroking Services.
In Charterer’s Office Organization, the office management depends very much on the size and type of Charterer. Charterers’ Ship Chartering Department may be an extremely small and maybe minor part of the organization as a whole. In many such organizations, the principal role is in marketing their products. Likewise with traders, where the major share of profits is to be made in prosperous buying and selling of products rather than in freight activities. Some Charterers realize the requirement to be efficient in chartering as in all other corporate activities and hire qualified Shipbrokers to perform these duties. On the other hand, some Charterers outsource Chartering Department and rely heavily on external Shipbroking Services. The In-House Chartering Department will tend to be more highly staffed than outsourcing.
It is astonishing that for such a professional and long-established activity as the international shipping, Charterparty Clauses are often poorly drafted and open to miscellaneous interpretations. For example:
1- Poorly Drafted Time Charterparty Example:
“This time charter is for 20 months, with Charterers’ option of a further 12 months, to be declared minimum 3 months prior expiration of the first period. Plus or minus 1 month in Charterers’ option on final period”.
It is clear that no later than 17 months into the Charterparty period the Charterer has to declare whether the option to extend the charter by a further 12 months is to be exercised or not. It is also clear that having declared that option, the Charterer can redeliver the ship somewhere between 31 and 33 months after delivery to Time Charter.
What is not clear is what happens if the Charterers do not declare the extension option. It is almost impossible to redeliver a ship after exactly 20 months unless the ship is kept idle for some time following completion of her discharge immediately previous to the expiration of 20 months. This might mean leaving the ship idle for some days, if not weeks. Yet on the face of it, that is what the clause requires the Charterers to do. There is no 1 month more or less to be applied to the straight 20 months period. This may be legally implied. Equally, it may not. It is an example of a Poorly Drafted Time Charterparty Clause.
2- Poorly Drafted Voyage Charterparty Example:
“The cargo to be loaded at Shanghai (China) and discharged at Bangkok (Thailand) and Port Kelang (Malaysia)”.
The Charterers ordered the ship first to Port Kelang (Malaysia) and then to Bangkok (Thailand) to discharge, lightening at Port Kelang (Malaysia) down to Bangkok (Thailand) draft.
The Shipowners insisted on discharging first at Bangkok (Thailand), lightening locally at Kohsichang (Thailand), and then completing discharging at Port Kelang (Malaysia), because this geographic rotation would save them extra steaming and bunker consumption.
In this case, no mention was made in the charterparty of discharging in geographic rotation, nor was there any clause making discharge port rotation in Charterers’ or Shipowners’ Option. This is another example of a poorly drafted Charterparty Clause.
There is no legal precedent in English Law that indicates who was right or wrong, but advice ranged from discharging in the order as shown in the charterparty to reference to standard Chartering Books which refer to the “reasonable, direct route”.
Wrong Charterparty Form
There are many Charteryparty Forms available. Shipbrokers should be careful not to mix items from totally different types of Charteryparty Forms.
In the case of MV Jordan II (2003), it was heard by the UK Court of Appeal and decided in the Shipowner’s favor. Since there is the possibility that this case may go to the House of Lords the outcome may yet be reversed.
MV Jordan II (2003) case revolves around some damage caused to a steel cargo because of poor stowage. The Bill of Lading (B/L) incorporated the Hague-Visby Rules:
Hague-Visby Rules Article III Rule 2 states: “The carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried”.
Hague-Visby Rules Rule 8 states: “Any … agreement in a contract of carriage relieving the carrier or ship from liability for loss or damage … arising from negligence, fault or failure in the … obligations provided in this Article… shall be null and void…”
Although the cargo was steel products the parties had chosen to use the STEMMOR 1983 Voyage Charterparty Form:
STEMMOR 1983 Voyage Charterparty Form Clause 3 states: “Freight to be paid at … $3.3 per metric ton. F.I.O.S.T. – lashed / secured / dunnaged…”
STEMMOR 1983 Voyage Charterparty Form Clause 17 states: “Shippers/Charterers/Receivers to put the cargo on board, trim and discharge cargo free of expense to vessel…”
Deputy High Court Judge Nigel Teare QC held that neither the shipper nor receiver of a steel cargo nor the voyage charterer were entitled to sue the Jordan II’s Shipowner for alleged damage due to poor stowing and handling. Applying the precedent of Pyrene v Scindia (1954), Deputy High Court Judge Nigel Teare QC ruled that the Hague-Visby Rules (Article III Rule 2) require “proper performance’ of loading, stowing, and carriage by the carrier”, which only applies if the Shipowner had agreed to undertake those functions. The Appeal Court unanimously upheld that decision. The Courts were asked for a preliminary ruling in principle, in advance of the main claim. If the Parties (Shipowner and Charterer) had agreed, the Charterer would pay for the services, was the Shipowner still liable for “defective loading, stowage, lashing, securing, dunnaging, separation and discharge”, and responsible for “proper performance” of the loading or discharging operations?. They had to decide what the Parties (Shipowner and Charterer) had agreed in the Charterparty Form and Bill of Lading (B/L), and whether Hague-Visby still applied.
MV Jordan II was voyage chartered on STEMMOR 1983 Voyage Charterparty Form. Islamic Solidarity Shipping voyage chartered the MV Jordan II to TCI Trans Commodities to carry 5,500 tons of galvanized steel coils from India to Spain in December 1997.
STEMMOR 1983 Voyage Charterparty Form Clause 3 states: “Freight to be paid per metric ton FIOST (Free In and Out, Stowed and Trimmed) lashed/secured/dunnaged”.
STEMMOR 1983 Voyage Charterparty Form modified Clause 7 states: “Charterers to have full use of all vessel’s gear to assist in loading and discharging”, but only “supplementary to the shore gear”. Shore winchmen and crane men were “to be used at all times”.
MV Jordan II was voyage chartered on STEMMOR 1983 Voyage Charterparty Form. STEMMOR 1983 Voyage Charterparty Form was developed for the carriage of bulk ore.
STEMMOR 1983 Voyage Charterparty Form Clause 17 retained its original wording: “shipper/charterer/receiver were to load, trim and discharge the cargo free of expense to the vessel”.
Cargo Trimming is defined as leveling off the top of the bulk cargo pile. Cargo Trimming is appropriate for bulk cargoes. However, how was Cargo Trimming supposed to apply to steel coils? The charter was subject to English law and incorporated the Hague-Visby Rules.
In the case of MV Jordan II (2003):
Shipper (Seller of the Cargo): Jindal Iran and Steel Company Limited
Receiver (Purchaser of the Cargo): Hiansa S.A.
Charterer: TCI Trans Commodities
Shipowner: Islamic Solidarity Shipping Company Jordan Inc
Islamic Solidarity Shipping Company Jordan Inc is the Shipowner of the MV Jordan II. By a charterparty on the STEMMOR 1983 form dated 4 December 1997 at Hamburg the owners chartered the vessel to TCI Trans Commodities A.G. for a voyage from Mumbai in India to Barcelona and Motril in Spain. Jindal Iran and Steel Company Limited and Hiansa S.A. are respectively the sellers and purchasers of 435 steel coils. The goods were shipped from Mumbai aboard the MV Jordan II as evidenced by two (2) Bills of Lading (B/L) on the Congenbill form, both dated 2 January 1998, which were issued on behalf of the Shipowners at Mumbai. The Bills of Lading (B/L) contained or evidenced contracts of carriage to Motril, in Spain. The Bills of Lading (B/L) named Jindal Iron and Steel Company Limited as the shippers and Hiansa S.A. as consignees.
Shipper (Seller of the Cargo): Jindal Iran and Steel Company Limited; the Receiver (Purchaser of the Cargo): Hiansa S.A.; and Charterer: TCI Trans Commodities, subsequently started proceedings against Islamic Solidarity Shipping Company Jordan Inc, alleging damage in transit. TCI Trans Commodities sued under the charterparty.
Jindal Iran and Steel Company Limited and Hiansa S.A. sued as Bills of Lading (B/L) Holders. Islamic Solidarity Shipping Company Jordan Inc argued it was not liable for the cargo operations, either under the charter or the Bills of Lading (B/L) which were on the Congenbill form and incorporated the charter terms. According to the claimants, Clause 3 was inconsistent with Hague-Visby Rules (Art III R8) and so did not transfer the proper performance obligations from the Shipowner to the cargo interests. Islamic Solidarity Shipping Company Jordan Inc responded that Clause 3 and Clause 17, taken together, transferred both obligations to pay, and to ensure the operations were properly carried out. The judge decided that if Clause 3, with the FIOST provisions, was read with Clause 17, the wording clearly showed the parties intended to transfer to the Charterer the Shipowner’s common law responsibility for performance. The judge stated that “the obligation to trim”, was intended to mean responsibility for lashing, stowing, and dunnage. These were transferred to TCI Trans Commodities, as Charterer, so it could not sue under the charter, while Jindal Iran and Steel Company Limited and Hiansa S.A. could not claim compensation under the Bills of Lading (B/L) so long as the damage was not caused by the Carrier. The parties had agreed to be governed by English law, under which, according to Pyrene v Scindia, Hague-Visby Rules (Art III R2) only applied to the Carrier if Carrier had agreed to carry out the specified functions relating to the cargo.
Jindal Iran and Steel Company Limited, Hiansa S.A., and TCI Trans Commodities appealed against the judge’s interpretation of the Charterparty, and the effect of Hague-Visby Rules (Art III) on the Bills of Lading (B/L). They contended that although in the case of bulk ore, Clause 17 would have transferred all cargo work obligations to the Charterer, the word trim could not be taken to apply to manufactured steel.
The Appeal Court judges rejected this argument. The Appeal Court judges agreed with the judge that while FIOST was only a who is to pay provision, the word Free simply means at no cost to the Shipowner, it must be read with Clause 17, which determined the transfer of responsibility. Although trim was inappropriate, the rest of Clause 17 showed the Charterer was to load and discharge the cargo.
The Appeal Court judges stated that the parties had put their minds to what is required to stow the steel coils, namely, the obligation to lash, secure, and dunnage. Contracting parties intended to transfer the obligation to the Charterer, and there was no other wording to suggest they did not mean this to happen.
As to Hague-Visby Rules (Art III), judges confirmed that Pyrene v Scindia, later confirmed by the House of Lords in Renton v Palmyra, was binding in English law. So the effect of the Bills of Lading (B/L) was not invalidated by Rule 8. Hague-Visby Rules (Article III R2) do not compel the Shipowner to be responsible for the loading and unloading or for the way other parties carried out the work. Hague-Visby Rules (Article III R2) simply compels the Shipowner to load and unload properly if the Shipowner undertakes those functions and the Shipowner could contract out of them.
VOYLAY Rules 2013 (Voyage Charter Party Laytime Interpretation Rules 2013)
Laytime and Demurrage are fundamental to Tramp Shipping. Specialist terms which have evolved over the years have been extensively analyzed by legal commentators and frequently tested in the courts. This has resulted in subtle distinctions where a choice of term or use of language can advance or delay the commencement of laytime and mean the difference between demurrage starting on Friday afternoon or the following Monday morning. The Laytime Definitions for Charter Parties 2013 (Laytime Definitions) have been developed to provide practitioners with a set of meanings of commonly-used words and phrases. The objective is to help reduce disputes about party intentions in a market where fixtures are often concluded based on a recap message and listed amendments, without the exchange or return of draft contracts. The Laytime Definitions are available for incorporation into charter parties or possibly used as an agreed reference for dispute resolution. In addition, they can be used as an educational resource to assist industry entrants and others wishing to develop an understanding of the contractual and legal complexities surrounding laytime and demurrage.
In 1976, the Comité Maritime International (CMI), the private international organization for maritime legal interests, began work on a project to reduce charter party disputes by developing definitions of commonly-used terms, starting with laytime provisions. A Working Group comprising representatives from BIMCO, CMI, the UK Chamber of Shipping, and FONASBA, developed the Charter Party Laytime Definitions 1980. However, the Definitions failed to attract support and were rarely incorporated into charter parties. In response to a highly critical report about contractual arrangements in the shipping industry issued by the United Nations Commission on Trade and Development (UNCTAD) in 1990, the Definitions were revised and issued as the Voyage Charter Party Laytime Interpretation Rules (Voylayrules) 1993. Since the publication of Voylayrules, important developments and changes have taken place in case law and commercial practice. A review was therefore put in hand to determine whether the content remained relevant together with the need for any changes, including new or additional provisions, required to meet contemporary trading arrangements. The resulting Laytime Definitions for Charter Parties 2013 were adopted by BIMCO at the Documentary Committee in Paris in May 2013 and have been similarly endorsed by each of the sponsoring organizations. Accordingly, the provisions are issued as a joint document.
The Laytime Definitions have been restored to the original 1980 concept and developed as definitions. This is an important change from Voylayrules 1993 which was issued as a self-standing code of rules and differed in several significant respects from generally accepted principles and practice such as the decision to combine three variations of “Weather Working“ day into a single Rule.
The sponsoring organizations agreed that the previous radical approach had been a factor contributing to the limited use of Voylayrules and that a fresh approach was required in the development of updated provisions that would be used in the markets. It was therefore agreed to revert to definitions, setting out statements of meaning, and that the content should reflect contemporary market needs based on the current state of English law. As a result, substantive and editorial amendments have been made to a number of the Voylayrules provisions, separate explanations given once again to different forms of “Weather Working” day and new definitions introduced including “Always Accessible” and “Whether in Port or Not”.
The term “Strike”, which was introduced in Voylayrules, has been deleted because the scope and effects are often given their meaning in the underlying charter party. The term “In Writing” has been removed as unnecessary given that many, particularly BIMCO, charter parties include a clause covering the issue.
The use of abbreviations has, for the most part, been avoided. In many cases, there is no generally accepted meaning and while parties may understand their exchanges, abbreviations and acronyms can be capable of more than one interpretation. The Laytime Definitions use abbreviations only in respect of Whether in Berth or Not (WIBON) and Whether in Port or Not (WIPON) which are widely understood.
Difference between VOYLAY Rules 1993 and VOYLAY Rules 2013
The following notes comment on the updated provisions and highlight changes from or amendments to VOYLAY Rules 1993.
Preamble: The provisions relate only to laytime and demurrage issues and apply when any or all are expressly incorporated into a charter party or other contract of affreightment. It is for parties to determine the scope of application either limited to certain agreed and identified provisions or by incorporation in extenso.
List of Definitions:
1. PORT has been amended to reflect the wider concept of port area explained in The Johanna Oldendorff (1973) with reference now made to “places outside the legal, fiscal or administrative area”. The term “offshore facilities” has been added to the illustrative, but non-exhaustive, list of cargo handling areas.
2. BERTH consistent with the amendment to PORT, the restrictive reference to “place within a port” has been replaced by an open-ended list of cargo handling locations.
3. REACHABLE ON ARRIVAL this term has been the subject of considerable litigation over the years. The revised text is based on the current position that delay due to bad weather or congestion or both is a breach of charterers’ obligations. The potentially disputatious qualification “in the absence of an abnormal occurrence”, included in Voylayrules, has been deleted.
4. ALWAYS ACCESSIBLE the provision has been treated by the authorities as synonymous with “Reachable on Arrival” in the context of getting into a berth but the position on departure has been less clear. The term has therefore been set out separately with the second sentence covering the position on departure requiring charterers to enable the vessel to leave safely and without delay.
5. LAYTIME this is unchanged.
6. PER HATCH PER DAY and
7. PER WORKING HATCH PER DAY or PER WORKABLE HATCH PER DAY Laytime counting by reference to hatch calculations continues to be used, albeit to a limited extent, in some parts of the world. The provisions have been retained unchanged.
8. DAY in contrast to Definitions No 9 and 10, an unqualified DAY is now described as a period of twenty-four consecutive hours.
9. CALENDAR DAY is new and covers a period of twenty-four consecutive hours running from 0000 to 2400 hours.
10. CONVENTIONAL DAY is new and has been included in recognition of the fact that a period of twenty-four hours with laytime counting is likely to start at any point during a Calendar Day.
11. WORKING DAY the meaning has been brought into line with English law.
12. RUNNING DAYS or CONSECUTIVE DAYS the provision is unchanged. 13. RUNNING HOURS or CONSECUTIVE HOURS this is new and reflects practical usage, particularly in tanker charter parties.
14. HOLIDAY this is the (unchanged) mirror image of Definition No 11 WORKING DAY. 15-18 WEATHER WORKING in contrast to the single provision in Voylayrules covering three alternative forms of Weather Working provisions, separate meanings have been restored in line with English law decisions.
15. WEATHER WORKING DAY deductions for bad weather are calculated by reference to the length of an interruption during a vessel’s normal (or notional if waiting on a turn) working hours bear to a period of 24 hours. Thus, a two-hour stoppage during an eight-hour working day is pro-rated to six hours (or four hours in the case of a twelve-hour working day) and the time is then added to the end of laytime. No deductions are made for rain occurring outside normal working hours.
16. WEATHER WORKING DAY OF 24 CONSECUTIVE HOURS the actual duration of an interruption for bad weather at any time on a working day during or outside normal working hours and including periods on a turn, is added to the end of laytime.
17. WEATHER WORKING DAY OF 24 HOURS this is an artificial day made up of twenty-four working hours. An eight-hour working day is equal to three calendar days’ laytime but with laytime suspended for stoppages due to bad weather during working hours or during working hours when work was contemplated.
18. (WORKING DAY) WEATHER PERMITTING this has the same meaning and interpretation as Definition No 16 Weather Working Day of 24 Consecutive Hours.
19. EXCEPTED or EXCLUDED the content is unchanged
20. UNLESS SOONER COMMENCED has the effect of bringing forward the commencement of laytime if work begins before the contractual start of laytime.
21. UNLESS SOONER COMMENCED, IN WHICH CASE ACTUAL TIME USED TO COUNT the commencement of laytime remains per charter party provisions but time used in any prior period will count against laytime.
22. UNLESS USED time used during excepted periods is set against laytime.
23. TO AVERAGE LAYTIME the provision is unchanged.
24. REVERSIBLE LAYTIME the provision is unchanged. Reversibility applies between loading ports and discharging ports but not between loading ports or between discharging ports.
25. NOTICE OF READINESS this is unchanged.
26. TIME LOST WAITING FOR BERTH TO COUNT AS LOADING OR DISCHARGING TIME or AS LAYTIME the basis is unchanged in principle, subject to minor editorial improvements. Where a vessel is unable to berth but cannot tender Notice of Readiness at a waiting place, time lost will count against laytime or, on expiry, as demurrage. Once a berth is available, laytime or demurrage ceases to count until the vessel is at a place where Notice of Readiness can be given and resumes per charter party provisions.
27. WHETHER IN BERTH OR NOT (WIBON) or BERTH OR NO BERTH relates to delays due to congestion (but not on account of weather). A change has been made. Under Voylayrules, laytime or demurrage ceased once a berth became available and would not resume until the vessel was at the berth. This meant that the owner would have to bear the risk of any intervening delay, even if not otherwise contractually responsible. An adjustment has therefore been made so that time will always run per the underlying charter party provisions.
28. WHETHER IN PORT OR NOT (WIPON) this is new. It will enable an owner to give Notice of Readiness from any recognized waiting place “off the Port” if unable to proceed to the usual waiting place.
29. VESSEL BEING IN FREE PRATIQUE has been amended to address the position in Voylayrules potentially restricting time counting arrangements and possibly conflicting with underlying charter party terms. The content has been streamlined with the reference to Custom House entry removed as formalities vary considerably from one state to another. The provision now relates only to compliance with port health requirements.
30. DEMURRAGE to avoid conflict with the position of many charter parties, the Voylayrules provision that “Demurrage shall not be subject to laytime exceptions” has been qualified by “unless specifically stated in the Charter Party”.
31. DESPATCH MONEY or DESPATCH this is unchanged.
32. DESPATCH ON ALL WORKING TIME SAVED or ON ALL LAYTIME SAVED this is unchanged.
33. DESPATCH ON ALL TIME SAVED this is unchanged.
Incorporation of VOYLAY Rules:
VOYLAY Rules’ provisions have been developed for incorporation into Charterparties. There are several possible means of achieving this objective depending on the type of contractual arrangements (for example single or consecutive voyage charters or a contract of affreightment) and whether the intention is to apply the provisions in full or only those selected by the parties. While other methods might be equally effective, the following alternatives are suggested:
1- Clause for incorporation by reference: “The Laytime Definitions for Charter Parties 2013 (Laytime Definitions) are incorporated into this contract in full. In the event of any conflict between this contract and the Laytime Definitions, the provisions of the Laytime Definitions shall prevail to the extent of such conflict.” If it is agreed to incorporate only certain of the Definitions, the text can be modified to read: “Definition Numbers [identify selected provisions] in the Laytime Definitions for Charter Parties 2013 (Laytime Definitions) are incorporated into this contract. In the event of any conflict between this contract and the Laytime Definitions, the provisions of the Laytime Definitions shall prevail to the extent of such conflict.”
2- Incorporation using a cut and paste addendum setting out the full text of all or of those selected Definitions which the parties have agreed to apply. The incorporation clause should clearly state that the agreed Laytime Definitions prevail in the event of any conflict with the underlying charter party provisions.
3- Application to individual words or phrases in the body of the Charterparty where the intention is to remove any doubt about the parties’ intended interpretation of one or more specific terms. In such an event, the text of the relevant Laytime Definition(s) can be inserted as the agreed meaning.
VOYLAY Rules 2013 (Laytime Definitions For Charterparties 2013)
1. PORT shall mean any area where vessels load or discharge cargo and shall include, but not be limited to, berths, wharves, anchorages, buoys, and offshore facilities as well as places outside the legal, fiscal, or administrative area where vessels are ordered to wait for their turn no matter the distance from that area.
2. BERTH shall mean the specific place where the Vessel is to load or discharge and shall include, but not be limited to, any wharf, anchorage, offshore facility, or other location used for that purpose.
3. REACHABLE ON ARRIVAL shall mean that the charterer undertakes that an available loading or discharging Berth be provided to the Vessel on arrival at the Port which the Vessel can reach safely without delay.
4. ALWAYS ACCESSIBLE shall mean that the charterer undertakes that an available loading or discharging Berth be provided to the Vessel on arrival at the Port which the Vessel can reach safely without delay. The charterer additionally undertakes that the Vessel will be able to depart safely from the Berth and without delay at any time before, during, or on completion of loading or discharging.
5. LAYTIME shall mean the period agreed between the parties during which the owner will make and keep the Vessel available for loading or discharging without payment additional to the freight.
6. PER HATCH PER DAY shall mean that the Laytime is to be calculated by dividing the quantity of cargo by the result of multiplying the agreed daily rate per hatch by the number of the Vessel’s hatches.
Laytime = Quantity of Cargo / (Daily Rate x Number of Hatches) = Days
Each pair of parallel twin hatches shall count as one hatch. Nevertheless, a hatch that is capable of being worked by two gangs simultaneously shall be counted as two hatches.
7. PER WORKING HATCH PER DAY or PER WORKABLE HATCH PER DAY shall mean that the Laytime is to be calculated by dividing the quantity of cargo in the hold with the largest quantity by the result of multiplying the agreed daily rate per working or workable hatch by the number of hatches serving that hold.
Laytime = Largest Quantity in One Hold / (Daily Rate Per Hatch x Number of Hatches Serving that Hold) = Days
Each pair of parallel twin hatches shall count as one hatch. Nevertheless, a hatch that is capable of being worked by two gangs simultaneously shall be counted as two hatches.
8. DAY shall mean a period of twenty-four (24) consecutive hours. Any part of a Day shall be counted pro rata.
9. CALENDAR DAY shall mean a period of twenty-four (24) consecutive hours running from 0000 hours to 2400 hours. Any part of a Calendar Day shall be counted pro rata.
10. CONVENTIONAL DAY shall mean a period of twenty-four (24) consecutive hours running from any identified time. Any part of a Conventional Day shall be counted pro rata.
11. WORKING DAY shall mean a Day when by local law or practice work is normally carried out.
12. RUNNING DAYS or CONSECUTIVE DAYS shall mean Days that follow one immediately after the other.
13. RUNNING HOURS or CONSECUTIVE HOURS shall mean hours that follow one immediately after the other.
14. HOLIDAY shall mean a Day other than the normal weekly Day(s) of rest, or part thereof, when by local law or practice work during what would otherwise be ordinary working hours is not normally carried out.
15. WEATHER WORKING DAY shall mean a Working Day or part of a Working Day during which it is or, if the Vessel is still waiting for her turn, it would be possible to load/discharge the cargo without interruption due to the weather. If such interruption occurs (or would have occurred if work had been in progress), there shall be excluded from the Laytime a period calculated by reference to the ratio which the duration of the interruption bears to the time which would have or could have been worked but for the interruption.
16. WEATHER WORKING DAY OF 24 CONSECUTIVE HOURS shall mean a Working Day or part of a Working Day of 24 consecutive hours during which it is or, if the vessel is still waiting for her turn, it would be possible to load/discharge the cargo without interruption due to the weather. If such interruption occurs (or would have occurred if work had been in progress) there shall be excluded from the Laytime period during which the weather interrupted or would have interrupted work.
17. WEATHER WORKING DAY OF 24 HOURS shall mean a period of 24 hours made up of one or more Working Days during which it is or, if the Vessel is still waiting for her turn, it would be possible to load/discharge the cargo without interruption due to the weather. If such interruption occurs (or would have occurred if work had been in progress), there shall be excluded from Laytime the actual period of such interruption.
18. (WORKING DAY) WEATHER PERMITTING shall have the same meaning as WEATHER WORKING DAY OF 24 CONSECUTIVE HOURS.
19. EXCEPTED or EXCLUDED shall mean that the Days specified do not count as Laytime even if loading or discharging is carried out on them.
20. UNLESS SOONER COMMENCED shall mean that if turn-time has not expired but loading or discharging is carried out, Laytime shall commence. 21. UNLESS SOONER COMMENCED, IN WHICH CASE ACTUAL TIME USED TO COUNT shall mean that actual time used during turn-time shall count as Laytime.
22. UNLESS USED shall mean that if Laytime has commenced but loading or discharging is carried out during excepted periods, actual time used shall count as Laytime.
23. TO AVERAGE LAYTIME shall mean that separate calculations are to be made for loading and discharging and that any time saved in one operation is to be set off against any excess time used in the other.
24. REVERSIBLE LAYTIME shall mean an option given to the charterer to add together the time allowed for loading and discharging. Where the option is exercised the effect is the same as a total time being specified to cover both operations.
25. NOTICE OF READINESS shall mean the notice to the charterer, shipper, receiver, or other people as required by the Charter Party that the Vessel has arrived at the Port or Berth, as the case may be, and is ready to load or discharge.
26. TIME LOST WAITING FOR BERTH TO COUNT AS LOADING OR DISCHARGING TIME or AS LAYTIME shall mean that if no loading or discharging Berth is available and the Vessel is unable to tender Notice of Readiness at the waiting place then any time lost to the Vessel is counted as if Laytime were running, or as time on Demurrage if Laytime has expired. Such time ceases to count once the Berth becomes available. When the Vessel reaches a place where she can tender Notice of Readiness, Laytime or time on Demurrage resumes after such tender and, in respect of Laytime, on expiry of any notice time provided in the CharterParty.
27. WHETHER IN BERTH OR NOT (WIBON) or BERTH OR NO BERTH shall mean that if the designated loading or discharging Berth is not available on arrival, the Vessel on reaching any usual waiting place at the Port, shall be entitled to tender Notice of Readiness from it and Laytime shall commence per the Charterparty.
28. WHETHER IN PORT OR NOT (WIPON) shall mean that if the designated loading or discharging Berth and the usual waiting place at the Port are not available on arrival, the Vessel shall be entitled to tender Notice of Readiness from any recognized waiting place off the Port and Laytime shall commence per the Charterparty.
29. VESSEL BEING IN FREE PRATIQUE shall mean that the Vessel complies with port health requirements.
30. DEMURRAGE shall mean an agreed amount payable to the owner in respect of delay to the Vessel once the Laytime has expired, for which the owner is not responsible. Demurrage shall not be subject to exceptions that apply to Laytime unless specifically stated in the Charter Party.
31. DESPATCH MONEY or DESPATCH shall mean an agreed amount payable by the Shipowner of the Vessel completes loading or discharging before the Laytime has expired.
32. DESPATCH ON ALL WORKING TIME SAVED or ON ALL LAYTIME SAVED shall mean that Despatch Money shall be payable for the time from the completion of loading or discharging until the expiry of the Laytime excluding any periods excepted from the Laytime.
33. DESPATCH ON ALL TIME SAVED shall mean that Despatch Money shall be payable for the time from the completion of loading or discharging to the expiry of the Laytime including periods excepted from the Laytime.
Time Charter Interpretation Code 2000
FONASBA (The Federation of National Associations of Ship Brokers and Agents) produced Time Charter Interpretation Code 2000.
Where any of this code conflicts with any of the terms of the relevant time charter, those of the latter shall prevail to that extent, but no further.
In commercial practice, many aims and objectives for standardization are often frustrated by the laws in different jurisdictions and where the legal understanding and interpretation may differ one from the other. The main jurisdictions applicable to maritime disputes are:
1- The Common Law countries mainly England and the USA.
2- The Civil Law countries such as France, Germany, Italy, etc.
The endeavor is not going to be the alter-ego of the Laytime Definitions for Voyage Charters; nor is this an attempt to create new charter party clauses, but merely a Code of how to interpret existing charter party clauses as well as to assist disputing parties where charter parties are silent or non-determining. There is a vast difference between definition and interpretation, but in some ways and sometimes they may compliment one another. For example, nobody in shipping needs a definition of what speed and consumption are or mean, but how should one deal with a speed claim, if any? The chief objective of the Code is to try to eliminate many often occurring and avoidable maritime charter parties’ disputes in the field of the Time Charter.
1. Speed and Consumption:
The following is to apply to any dry cargo time charter not containing a performance clause, and to any combination carrier when engaged in dry cargo trading:
The speed and consumption warranties of the time charter are to apply for its duration and whether the vessel is fully, partly loaded, or in ballast, and shall be computed by the pilot station to pilot station on all sea passages while the vessel is on hire, excluding:
1a- Any day on which winds of Beaufort Wind Scale 4 or above are encountered for more than six (6) consecutive hours;
1b- Any time during which speed is deliberately reduced for reasons of safety, or on charterers’ orders to steam at economical or reduced speed, or when the vessel is navigating within confined waters, or when assisting vessels in distress;
1c- Any complete sea passage of less than 24 hours duration from pilot station to pilot station;
1d- Periods in which time is lost on charterers’ instructions or due to causes expressly excepted under terms of the time charter;
1e- Periods when the vessels’ speed is reduced because of hull fouling caused by charterers’ trading orders.
When specific figures have been agreed to for the vessel in the ballasted condition there shall be taken into consideration as shall agree on specifics for reduced or economical speed and consumption, when computations are made.
The mileage made good during qualifying periods shall be divided by the warranted speed and compared to the time spent. Any excess is to be treated as off-hire. If the word ‘about’ precedes the speed and consumption, the same will be understood to mean ½ knot less in the speed and 5% more in the consumption, not be cumulative.
As to consumption, the recorded qualifying periods, as above shall be multiplied by the warranted consumption on the qualifying days and compared to the actual consumption. In case of any excess, the charterers are to be compensated by the owners for such excess in cost to the charterers calculated at the prices at the last port bunkers were supplied during the time charter, or those at delivery whichever is applicable. Such an amount may be deducted from the hire.
The immediate financial consequences of a speed deficiency shall be set off with any savings caused by under-consumption.
The computations shall be made sea passage by sea passage. The vessel’s speed and consumption shall be reviewed at the end of each twelve months, or other lesser period as appropriate.
If in respect of any such review period it is found that the vessel’s speed has fallen below the warranted speed, hire shall be reduced by an amount equivalent to the loss in time involved at the rate of hire. And if in respect of any review period it is found that the vessel’s consumption has exceeded the warranted consumption, the additional costs shall be borne by the owners.
The foregoing is without prejudice to any other claims that a party may have on the other.
2. Withdrawal for Late Payment/Non-Payment of Hire:
Except where otherwise specifically permitted in the provisions of the charter party, the charterers shall have no right to make arbitrary deductions from hire which shall remain payable punctually and regularly as stipulated therein. Nothing in the charter party shall, however, prejudice the charterers’ right to make any equitable set-off against a hire payment due provided that the calculation is reasonably made bona fide and that it is in respect of a claim arising directly out of their deprivation of the use of the vessel in whole or in part.
Except as provided herein, the owners shall have a right of permanent withdrawal of their vessel when payment of hire has not been received by their bankers by the due date because of oversight, negligence, errors, or omissions of charterers or their bankers. In such cases before effecting a withdrawal of the vessel, the owners shall put the charterers on preliminary notice of their failure to pay to hire on the due date, following which the charterers shall be given two clear banking days to remedy the default. Where the breach has been cured the payment shall be deemed to have been made punctually.
For a payment of hire made in due time, but insufficient in amount, the owners shall be permitted a reasonable time to verify the correctness of a deduction. If thereafter, there is found to be disagreement on the amount of the deduction, then the amount in dispute shall be placed in escrow by the charterers and the matter referred to immediate arbitration per the terms of the charter party’s arbitration clause. In that event, there shall be no right of withdrawal.
Except as provided heretofore, withdrawal of the vessel may be made by the owners, which shall be without prejudice to any other claim they may otherwise have on the charterers.
Any period qualifying as off-hire under terms of the charter party shall be allowed to the charterers for any time lost more than three consecutive hours for each occurrence.
In addition to matters referred to as off-hire in the charter party, shall be included time lost to the charterers caused by interference by a legal, port of governmental authority, resulting in the charterers being deprived of their unfettered use of the vessel at any given time during the currency of the charter party, or in the vessel being prevented from leaving the jurisdiction contrary to charterers’ requirements.
All periods of off-hire due to deviation shall run from the commencement of the loss of time to charterers, deviation or putting back, and shall continue until the vessel is again in a fully efficient state to resume her service from a position not less favorable to the charterers than that at which the loss of time, deviation or putting back occurred.
5. Legitimacy of the Last Voyage:
In the absence of any specific provision in the time charter relating to redelivery and orders for the final voyage, the following shall apply:
Charterers undertake to arrange the vessel’s trading so as to permit redelivery within the period and permissible redelivery area as contained in the charter party. As soon as the charterers have arranged the final voyage they shall immediately so inform the owners giving a realistic estimated itinerary up to redelivery time. The owners shall notify the charterers within two working days thereafter as to whether they agree or disagree with charterers’ estimate. Should they disagree and consider the vessel will overlap the maximum period, they shall nonetheless allow the voyage to be undertaken at the time charter rate of the charter party without prejudice to their ultimate right to compensation for additional hire at the market rate should an overlap subsequently have proven to have occurred, and should the market rate be higher than the charter party rate of hire.
London Maritime Arbitrators Association (LMAA) Arbitration Clause
After consultation with the LMAA (London Maritime Arbitrators Association), BIMCO (Baltic and International Maritime Council) has adopted and is recommending the following amended arbitration clause, which the LMAA (London Maritime Arbitrators Association) recommends for future use in place of the present LMAA (London Maritime Arbitrators Association) Clause:
(a) “This Contract shall be governed by and construed in accordance with English law and any dispute arising out of or in connection with this Contract shall be referred to arbitration in London in accordance with the Arbitration Act 1996 or any statutory modification or re-enactment thereof save to the extent necessary to give effect to the provisions of this Clause.
The arbitration shall be conducted in accordance with the London Maritime Arbitrators Association (LMAA) Terms current at the time when the arbitration proceedings are commenced.
The reference shall be to three arbitrators. A party wishing to refer a dispute to arbitration shall appoint its arbitrator and send notice of such appointment in writing to the other party requiring the other party to appoint its arbitrator within 14 calendar days of that notice and stating that it will appoint its arbitrator as sole arbitrator unless the other party appoints its arbitrator and give notice that it has done so within the 14 days specified. If the other party does not appoint its arbitrator and give notice that it has done so within the 14 days specified, the party referring a dispute to arbitration may, without the requirement of any further prior notice to the other party, appoint its arbitrator as sole arbitrator and shall advise the other party accordingly. The award of a sole arbitrator shall be binding on both parties as if he had been appointed by agreement.
Nothing herein shall prevent the parties from agreeing in writing to vary these provisions to provide for the appointment of a sole arbitrator.
In cases where neither the claim nor any counterclaim exceeds the sum of US$50,000 or such other sum as the parties may agree, the arbitration shall be conducted in accordance with the LMAA Small Claims Procedure current at the time when the arbitration proceedings are commenced.
(b) Notwithstanding (a) above, the parties may agree at any time to refer to mediation any difference and/or dispute arising out of or in connection with this Contract.
In the case of a dispute in respect of which arbitration has been commenced under (a), above, the following shall apply:-
1- Either party may at any time and from time to time elect to refer the dispute or part of the dispute to mediation by service on the other party of a written notice (the “Mediation Notice”) calling on the other party to agree to mediation.
2- The other party shall thereupon within 14 calendar days of receipt of the Mediation Notice confirm that they agree to mediation, in which case the parties shall thereafter agree on a mediator within a further 14 calendar days, failing which on the application of either party a mediator will be appointed promptly by the Arbitration Tribunal (“the Tribunal”) or such person as the Tribunal may designate for that purpose. The mediation shall be conducted in such place and accordance with such procedure and on such terms as the parties may agree or, in the event of disagreement, as may be set by the mediator.
3- If the other party does not agree to mediate, that fact may be brought to the attention of the Tribunal and may be taken into account by the Tribunal when allocating the costs of the arbitration between the parties.
4- The mediation shall not affect the right of either party to seek such relief or take such steps as it considers necessary to protect its interest.
5- Either party may advise the Tribunal that they have agreed to mediation. The arbitration procedure shall continue during the conduct of the mediation but the Tribunal may take the mediation timetable into account when setting the timetable for steps in the arbitration.
6- Unless otherwise agreed or specified in the mediation terms, each party shall bear its costs incurred in the mediation and the parties shall share equally the mediator’s costs and expenses.
7- The mediation process shall be without prejudice and confidential and no information or documents disclosed during it shall be revealed to the Tribunal except to the extent that they are disclosable under the law and procedure governing the arbitration. “
Note: The parties should be aware that the mediation process may not necessarily interrupt time limits.
Dispute Resolution in Ship Chartering
Arbitration has been a longstanding method of resolving disputes in ship chartering, with its origins dating back hundreds of years. The English courts have recognized and supported maritime arbitration since the first Arbitration Act of 1698. In the context of ship chartering, arbitration provides a means of settling commercial disputes without resorting to court. Originally, arbitration was conceived as a non-legal approach to resolving seemingly intractable disputes, with arbitrators typically being individuals with a commercial background.
Taking a dispute to court can be a time-consuming and costly process, as well as being conducted in a very public manner. It can also, as anyone who has been through litigation can attest, generate a great deal of animosity between the parties involved. Companies or individuals who recognize the need to resolve disputes but who want to maintain a friendly relationship with their adversary may opt for the comparatively more amicable process of maritime arbitration. This is often the case when the parties will need to continue to work together in a business capacity, despite the dispute.
It’s important not to underestimate the formality of maritime arbitration proceedings. While they may not be as intricate or strict as court proceedings, they still maintain a judicial essence, as they serve as an alternative to court proceedings. Typically, a contract such as a charter party will include an arbitration clause. This clause states that should a dispute arise, the parties intend to resolve it through arbitration rather than through court proceedings.
Advantages of Maritime Arbitration
There are several advantages to maritime arbitration:
1- Expertise: Due to the selection of a specialist arbitrator, one who possesses expert knowledge within the particular field of contention, the parties are not required to devote valuable time and effort towards acquainting the judge with the intricate technicalities underlying the dispute at hand.
2- Flexibility: In a court of law, strict procedures must be adhered to. However, in arbitration proceedings, the parties are afforded the opportunity to establish their own rules of conduct. They may elect to maintain the formality of a High Court hearing, complete with leading counsel representing each party, or opt for a more informal approach where they convene around a table with the arbitrator, without legal representation. The process is customized to meet the specific demands of the particular dispute, thus potentially saving both time and financial resources.
3- Privacy: Arbitration in the United Kingdom is a private affair and the decision of the arbitrator is solely shared with the parties involved in the dispute. This is particularly favorable in commercial disagreements where companies may choose to keep their disagreements out of the public eye. On the contrary, in certain other countries, such as the USA, arbitration awards are made available to the public. In most jurisdictions, court proceedings are open to the general public, and comprehensive reports of all legal cases, like the Lloyd’s List Law Reports, are routinely published.
4- Finality: In the process of litigation, an appeals procedure exists, which may eventually escalate to the House of Lords. However, in the case of arbitration, the decision reached is final and binding, barring only the most exceptional circumstances.
Disadvantages of Maritime Arbitration
Despite the aforementioned benefits, the arbitration system does entail its own level of formality and can lead to delays. There has been a growing inclination for parties to engage legal representation, and if one party chooses to appoint both a solicitor and a barrister (an attorney and advocate, respectively), the other party may feel disadvantaged if they do not do the same. This consequently leads to a lengthier and more costly procedure. Furthermore, arbitration no longer maintains the expediency it was once known for, primarily due to the fact that acknowledged experts in the realm of shipping have increasingly busy schedules.
Maritime Arbitration Centres
Almost every country incorporates some form of arbitration as part of its judicial framework, and many of the distinguished ‘maritime nations’ have dedicated groups specializing in arbitration for the shipping community. The two primary centers for maritime arbitration are located in London and New York. In London, the controlling entity is the London Maritime Arbitrators Association (LMAA), while in New York, it is the Society of Maritime Arbitrators (SMA). Both of these organizations provide comprehensive arbitration services, and their rules bear many similarities. Both encourage the parties to agree on appointing a single arbitrator, while also providing provisions for each party to appoint their own arbitrator, with a third arbitrator being appointed in certain circumstances.
In the London Maritime Arbitrators Association (LMAA) Rules, this third arbitrator assumes the role of an “umpire” in case of a deadlock, while in the New York Rules, the third member becomes the Chairman of the tribunal, and a majority decision is permissible unless an umpire is specifically requested.
It is essential for both the appointee and appointer to bear in mind that an arbitrator’s role is akin to that of a judge, rather than an advocate, except in those exceptional instances when an umpire is appointed, and the two arbitrators present their arguments as advocates, with the umpire’s decision being final.
Small Claims Procedures
Many shipping voyages and time charter contracts often involve relatively minor but irritating disputed amounts, which can delay the process of finalizing figures and settling accounts between the parties. These disputes may not justify the costs and time involved in a full and formal arbitral hearing, but can still linger as commercial sores, hindering the negotiation of mutually beneficial contracts between the parties. Simplified arbitration procedures are available for such disputes, offering a swift and cost-effective means of resolving relatively uncomplicated or small claims, thus bringing arbitration within reach of those with genuine grievances where existing procedures resulted in incurring disproportionate costs.
Each association has issued details of its respective schemes, including the LMAA Small Claims Procedure 1989 (Revised 1st January 2002), and the SMA Shortened Claims Procedure, which can be obtained from their respective offices or websites.
Under the Society of Maritime Arbitrators (SMA) scheme, the maximum amount at dispute is left to the decision of the contracting parties, while the London Maritime Arbitrators Association (LMAA) originally recommended a maximum of US$25,000 but now suggests US$50,000 in the latest revision. Both associations stress that these schemes are not suitable for complex issues or disputes requiring significant examination of witnesses, even if the sum in dispute falls within this limitation. However, the procedure may be feasible for handling claims larger than US$50,000 if there is a single, straightforward issue to be resolved.
The London Maritime Arbitrators Association (LMAA) scheme mandates a sole arbitrator, which is also preferred by the Society of Maritime Arbitrators (SMA), although the New York body does not rule out a larger panel. In both cases, the arbitrators’ fees are fixed at a reasonable level, with the LMAA specifying a current fixed fee of £1250 for a sole arbitrator (with £500 extra if the respondent files a counter-claim), and the SMA stipulating US$1500 for each participating arbitrator.
The arbitrator has the sole discretion to award costs, which under London Maritime Arbitrators Association (LMAA) terms are limited to £1,750. Usually, there is no oral presentation by the parties unless the arbitrator deems it necessary. The Small Claims procedure aims to provide the award within a month of receiving all the papers from the parties.
In the case of London, the right of appeal to the courts is specifically excluded, and each party is required to confirm in writing its agreement to this procedure
LMAA FALCA (Fast and Low-Cost Arbitration)
LMAA FALCA (Fast and Low-Cost Arbitration) is an arbitration procedure designed to provide a quick and efficient resolution to disputes involving more complex cases, allowing for a longer time frame compared to the “Small Claims Procedure.” This procedure is limited to English Law, with a maximum recommended sum in dispute of $250,000. Similar to the Small Claims Procedure, a single arbitrator is involved, and oral presentations are only permitted in exceptional cases.
Another system of dispute resolution is Alternative Dispute Resolution (ADR), which involves a mediator who works towards facilitating a mutually agreed-upon resolution based on their advice and suggestions. This is a cost-effective and quick method of resolving relatively small and uncomplicated disputes. If the mediation process proves unsuccessful, the parties can resort to one of the various forms of arbitration available.
The London Maritime Arbitrators Association (LMAA) has formalized this form of dispute resolution under the London Maritime Arbitrators Association (LMAA) Conciliation Terms 1991. Similarly, the SMA New York has a Conciliation procedure as outlined in the Rules published in 1988. Additionally, the Society of Maritime Arbitrators (SMA) published a Mediation service in 1999, which complements the conciliation procedure.
Arbitration is typically associated with parties mutually agreeing to utilize this method to address a dispute, either through the inclusion of a clause in their contract or at the time the dispute arises.
However, it is also possible for a court to refer any question that arises in a legal matter before it to an official or special referee for inquiry or report. In certain cases, the entire issue may be referred to an official or special referee for trial if certain conditions are met.
These conditions include: the consent of all parties involved, the need for a prolonged examination of documents or scientific/local investigation, or if the matter in dispute involves wholly or in part matters of account.
Arbitration Act 1996
The Arbitration Act 1996 was implemented in the United Kingdom in January 1997, with the dual purpose of consolidating the previous legislation, the Arbitration Act 1979, and introducing several changes. The goal of drafting the Arbitration Act 1996 was to restate the law of arbitration in plain English, utilizing a logical format that covers the entire process, starting from the arbitration agreements and progressing to the appointment of an arbitrator, the conduct of the proceedings, and the issuance of awards.
The most significant changes introduced by the Arbitration Act of 1996 include:
1- Arbitration Appeals: The Arbitration Act 1996 significantly restricts the right to appeal an arbitration award. While the right to appeal on a point of law (Section 69) remains unchanged, an agreement not to have a reasoned award eliminates the right to appeal. An application for leave to appeal must be filed within 28 days of the award’s date. According to Section 69(3), for leave to be granted, the court must be satisfied that the question’s determination will substantially affect the rights of one or more parties, and it is a matter that the tribunal was initially asked to resolve. This point enshrines the guidelines established in The Nema (1982) case, which dictate that courts will not intervene unless “the arbitrator had misdirected himself in law or that his decision was such that no reasonable arbitrator could reach.” If the disputed issue was not raised before the arbitrators, an application for leave to appeal cannot be made.
In the event of an appeal, the court has several options:
A- The court may confirm the award;
B- The court may vary the award;
C- The court may set aside the award, either wholly or partially;
D- The court may remit the award back to the arbitrators either in its entirety or relevant sections of it, for them to reconsider in the light of the court’s decision.
2- Arbitration Costs: The manner in which costs should be allocated under the new statute is addressed in Sections 59-65, inclusive. A brief summary of the rules is as follows:
A- the parties may agree that one or other of them should pay all or part of the costs provided that they make such an agreement after the dispute has arisen (section 60);
B- subject to (a) above, the tribunal may make an award allocating costs between the parties (section 61 (1));
C- costs should follow the event as a general principle unless the parties otherwise agree. Under this subsection, the arbitrators have the discretion to vary any allocation of costs as they see fit and as may be appropriate to the circumstances of a particular case (section 62 (2)). This is a restatement of what has been the custom and practice of arbitrators previously;
D- where costs are made subject to an agreement between the parties, the costs shall be deemed to be recoverable unless otherwise expressly stated;
E- the parties are free to agree on what costs are recoverable (section 63 (1)). But in the absence of any such agreement, the tribunal has the power to determine what costs are recoverable in whatever manner it thinks fit (section 63 (2 & 3));
F- if they omit to do so, the parties may invoke the aid of the court (section 63 (4)).
3- Award Security for Costs: Under the new statute, the court no longer possesses the authority to award security for costs in arbitrations. In the Ken Ren (1995) case, the House of Lords’ decision, which confirmed that the courts could award security for costs in international arbitrations, caused “widespread dismay” in the international arbitration community, as per Lord Saville. (Coppée Lavalin SA v Ken Ren Chemicals & Fertilisers (1995)). While the arbitral tribunal has the power to award security for costs (Section 38), the parties may agree to exclude this power from their tribunal.
4- Arbitration Delayed Proceedings: According to section 41 of the new statute, the arbitral tribunal may dismiss a claim if it finds that the claimant has unreasonably and unjustifiably delayed in pursuing their claim. Therefore, it is apparent that the tribunal’s function is no longer limited to determining the dispute’s merits. Before the introduction of section 13A of the Arbitration Act 1950, under the Courts and Legal Services Act 1990, arbitrators lacked the authority to dismiss a claim for want of prosecution. On the other hand, in The Boucraa (1993) case, the Court of Appeal held that this power is not retroactive, implying that arbitrators can only consider delays occurring after January 1, 1992, while exercising their power of dismissal. This, however, does not imply that the statutory provision does not apply to arbitrations entered into before January 1, 1992.
On appeal, the House of Lords ruled that the power granted to arbitrators by section 13A of the Arbitration Act 1950 to dismiss a claim for the delay is partially retroactive. This implies that, while deciding whether to exercise their new power, arbitrators can consider the claimant’s delay in pursuing their claim before January 1, 1992. However, this final appeal decision has been criticized as “surprising” as it seems to violate the principle of non-retroactivity, which is a common law rule that a statute should not be interpreted retroactively if it would have an adverse impact on an existing right or obligation unless it is necessary based on the language used.
5- Foreign and Domestic Arbitrations: The Arbitration Act of 1996 has abolished the distinction between foreign and domestic arbitrations. Section 46 introduces a new commercial innovation, which allows arbitrators to make their decision based on considerations other than the law of the contract if agreed upon by the parties or determined by the tribunal, thus emphasizing that arbitration is fundamentally a commercial service. Several Acts of Parliament provide for the resolution of disputes through arbitration, outlining the arbitration procedures to be followed. In all other cases, the Arbitration Acts of 1950-1979 apply, which serve as the statutory regulation of the law related to arbitration. The principal Act is the Arbitration Act of 1950, which also incorporates two international measures. The objective of the Arbitration Act of 1975 is to implement the New York Convention in the United Kingdom.
A reference to arbitration by agreement of the parties must have its origin in an arbitration agreement, which can be made verbally or in writing. It is important to note that the Arbitration Acts of 1950-1979 only apply to written agreements. However, it has been established that an agreement by telex is considered “an agreement in writing,” as held in the case of Arab African Energy Corporation Ltd. v Olieprodukten Nederland BV (1983). According to Section 32 of the 1950 Act, an arbitration agreement is defined as:
“A written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not”.
The Impact of the Arbitration Agreement
An arbitration agreement can be drafted in a way that precludes any right to court proceedings until an award has been made, thereby making the award a condition precedent to the right to sue. Such a clause is commonly referred to as a Scott v Avery Clause.
Scott v Avery (1856) Case
In the landmark case of Scott v Avery (1856), a ship insurance policy stated that in the event of loss, the amount of loss would be referred to arbitration, and the award of the arbitrators would be a condition precedent to the maintenance of an action. It was ruled that no action could be maintained until an award was made. Section 25(4) of the 1950 Act provides that if the court orders that the agreement to refer the dispute to arbitration shall cease to have an effect, it may also order that the condition precedent shall cease to have an effect.
If a party to an arbitration agreement initiates legal proceedings in court contrary to their commitment to arbitration, the court, upon the other party’s request, may either order a stay of court proceedings to allow the arbitration to continue, or reject the request for a stay, thereby breaking the arbitration agreement (Section 4 of the 1950 Act). If the only issue at stake is a point of law, the court may be inclined to reject the stay of proceedings. However, in most cases, the court will grant the stay and give effect to the arbitration clause. It is important to differentiate here between a ‘domestic arbitration agreement’ and a ‘non-domestic arbitration agreement’. The court’s discretion to order or refuse a stay of court proceedings is wide in cases where the arbitration agreement is a domestic arbitration agreement (Section 4(1) of the 1950 Act), but if it is a non-domestic arbitration agreement, its discretion is limited (Arbitration Act 1975, Section 1).
An Arbitration Agreement is considered Domestic if, at the time the proceedings are initiated:
A- It does not explicitly or implicitly establish arbitration in a country other than the United Kingdom, and
B- All the parties to the Arbitration Agreement are:
- UK citizens or individuals who are habitually residing in the United Kingdom; or
- corporations that are incorporated in the United Kingdom or have their central management and control exercised in the United Kingdom [1975 Act, Section 1(4)].
For an arbitration agreement to be classified as domestic, both of these conditions must be met.
Arbitration Act 1979
The primary objective of the Arbitration Act 1996 was to streamline the Arbitration Act 1979, and some of the implications of the 1979 Act are worth examining.
The Arbitration Act 1979 introduced changes to the system of ‘judicial review’ of arbitration awards. Judicial review is the process by which the High Court reviews the proceedings of arbitration, or any lower court tribunal, to ensure that the rules of ‘natural justice’ have been followed and that the parties have received a fair hearing. The term ‘natural justice’ refers to the principle that all individuals have the right to have their case heard in accordance with legal procedural rules. Therefore, a breach of natural justice occurs when the rules of procedure or administration are not adhered to. The phrase has no connection with the application of equity and equitable remedies. In other words, natural justice is not a provision of ‘fairness’ but of ‘compliance with the rules.’
The High Court also ensures that the arbitrators have not acted beyond their powers, which is another aspect of ‘natural justice.’ Although a judicial review of arbitration is still possible, the Arbitration Act 1979 significantly limited the procedure concerning arbitration. It is no longer possible to have a review of findings of fact. The new procedure is outlined in Section 1(2) of the Arbitration Act 1979, and it exclusively deals with errors in law.
A party can appeal for a judicial review to the High Court on any issue of law that arises from the award, either:
A. With the agreement of all parties, or
B. By obtaining leave of the Court, which is only granted if: “The decision on the legal issue could significantly impact the rights of one or more parties to the arbitration agreement” Section 1(3) and (4) of the 1979 Act.
The Nema (1980) Case is an essential case in relation to judicial review, as it served as a “test case” for the application of Sections 1(3) and (4) of the Arbitration Act 1979. The Nema was chartered by its owners to charterers for seven consecutive voyages to Sorel in Canada. However, after one round voyage, the Nema arrived back at Sorrel but was unable to load due to a strike. The owners were permitted by the terms of the charter parties to take the Nema on one transatlantic voyage and decided to take her to Spain.
The primary issue between the parties was whether the Nema was bound to proceed from Spain to Sorrel and wait there until the strike ended or the open water season ended, or whether their obligations had ended due to frustration, as the owners argued. The parties agreed to arbitration by a single arbitrator who concluded that the entire charter party, except for non-performance, was not frustrated. However, on appeal to the court, leave was granted for a judicial review of the arbitration award, and it was ruled that the charter party was frustrated. The Court of Appeal later overturned this decision, leading the charterers to appeal to the House of Lords.
The House of Lords held:
- The High Court should not have granted leave to appeal on the decision of the arbitrator, nor should leave have been given to appeal to the Court of Appeal.
- The arbitrator rightly concluded that the whole charter party, except for non-performance, was not frustrated.
Regarding ‘one-off’ contracts, Parker J. stated that, unless there were special circumstances, leave should not be granted unless the court had formed a provisional view that the arbitrator was incorrect and would require significant convincing to believe otherwise, as seen in The Kerman (1982) case.
Lord Diplock emphasized that if the matter was of general interest to the commercial community, an authoritative ruling from the court would be beneficial in establishing certainty and predictability. He further noted that in a one-off contract, it was not necessarily evidence that the decision of an experienced arbitrator, chosen by the parties for their expertise in the trade, was not preferable to that of a member of the House of Lords.
A party has the right to receive an award that includes sufficient reasons for the court to conduct a judicial review. If an appeal is made to the court from the award, and the judge is unable to consider any question of law arising from the award, the judge may order the arbitrator to state the reasons for the award in sufficient detail or to supplement the reasons given in the award. However, the judge can only make such an order if either: (A) a party notified the arbitrator before the award was made that a reasoned award was required; or (B) there is some special reason why the such notice was not given, as stated in Section 1 (5) and (6) of the 1979 Act.
This right of appeal is now limited to preventing abuse, which was previously common under the old ‘special case’ procedure. This procedure involved the High Court deciding on questions of ‘pure law’ that were referred to it as a ‘special case’, which set out the facts and the point of law upon which the court’s opinion was needed. However, the court would not decide the question of fact, as it was still the arbitrator’s responsibility to determine. This system of stating special cases received criticism for being a delaying tactic that could provide an advantage, such as from a changing exchange rate. This procedure was available under Section 21 of the 1950 Act but is now only possible for arbitration agreements made before the Arbitration Act 1979 came into force, i.e., pre-August 1979 arbitration agreements.
Preliminary Points of Law
Section 2 of the Arbitration Act 1979 provides for preliminary points of law to be referred to the High Court, which must be resolved before the arbitration award can be made.
In legal matters, the High Court’s decisions may be appealed to the Court of Appeal, as per Section 1(7). However, such an appeal is only permitted if it concerns a matter of significant public interest. It’s noteworthy that there is no provision for any additional appeal to the House of Lords beyond this.
Exclusions of Judicial Review
In certain circumstances, the parties to arbitration may lawfully exclude any form of judicial review entirely. In such cases, even an appeal based on a point of law is not permitted, and the court is bereft of any authority to decide a preliminary point of law.
For the purposes of exclusion clauses, arbitrations are categorized as follows:
A. Domestic arbitrations
B. Non-Domestic arbitrations
C. Special Category arbitrations
An arbitration agreement is classified as domestic if, at the commencement of the proceedings:
- It does not explicitly or implicitly provide for arbitration in a state other than the United Kingdom, and
- All parties to the arbitration agreement are:
2a- Citizens of the United Kingdom or natural persons who habitually reside in the United Kingdom, or
2b- Corporations incorporated in the United Kingdom or having their central management and control exercised in the United Kingdom [Section 1(4) of the Arbitration Act 1975].
It is essential to note that this definition of a domestic arbitration agreement is relevant for several issues in the arbitration procedure. However, for the purposes of judicial review, the above requirement must be satisfied when the arbitration agreement is entered into, not at the commencement of the arbitration proceedings [Section 3(7) of the 1979 Act].
Special category proceedings refer to:
a- A question or claim falling within the Admiralty jurisdiction of the High Court; or,
b- A dispute arising from a contract of insurance; or,
c- A dispute arising from a commodity contract [Section 4(1) of the 1979 Act].
Civil Jurisdiction and Judgements Act 1982 and Ship Chartering Disputes
The rules for serving legal documents to individuals outside the jurisdiction are determined by whether the defendant is a member of a Contracting State under the 1968 Brussels Convention (also known as The Convention on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters). This Convention is made legally binding in England by the Civil Jurisdiction and Judgments Act 1982.
The Convention’s applicability is governed by Article I, which states that it applies to “civil and commercial matters.” In essence, if a dispute falls within the Convention’s scope, and the intended defendant is “domiciled” in a Contracting State, the general rule is that they must be sued in the courts of their domicile state (unless there is a specific Convention provision allowing them to be sued elsewhere). However, Article I specifically excludes certain matters from the Convention’s scope, with arbitration being one of the excluded matters.
What was the effect of the Nema v. ACRN Containers (1982) Case on arbitrations?
The Nema v. ACRN Containers (1982) case had a significant effect on arbitrations, particularly in the UK and other common law jurisdictions. The key implications of the case for arbitrations include:
- Limited judicial intervention: The Nema case established a high threshold for courts to intervene in arbitration awards, known as the “Nema test” or the “Nema guidelines.” According to this test, courts should only interfere with an arbitration award if the arbitrator has misdirected himself in law, or if the decision is so unreasonable that no reasonable arbitrator could have reached it. This principle has led to limited judicial intervention in arbitration awards, emphasizing the autonomy of arbitration proceedings.
- Reinforcing the finality of arbitration awards: By setting a high bar for judicial intervention, the Nema case reinforced the finality of arbitration awards. This has allowed parties to rely on arbitration as a means of dispute resolution with greater confidence, knowing that courts will respect the arbitrator’s decisions except in cases of clear legal error or patent unreasonableness.
- Respect for party autonomy: The Nema case demonstrates respect for party autonomy in the arbitration process. By limiting judicial intervention, the case ensures that parties who choose arbitration as their preferred method of dispute resolution can do so without fear of excessive judicial interference. This encourages parties to select arbitration as an alternative to litigation, especially in international disputes where neutrality and enforceability are important considerations.
- Influence on other common law jurisdictions: The Nema test has been influential in other common law jurisdictions, leading to similar principles being adopted in various countries. This has contributed to a broader trend of respecting the parties’ choice to resolve their disputes through arbitration and has bolstered the confidence of parties in the arbitration process across multiple jurisdictions.
In summary, the Nema v. ACRN Containers (1982) case has had a significant impact on arbitrations by limiting judicial intervention, reinforcing the finality of arbitration awards, respecting party autonomy, and influencing other common law jurisdictions to adopt similar principles.
What effect has the 1968 Brussels Convention on arbitrations?
The 1968 Brussels Convention, formally known as the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters does not directly address arbitrations. However, its principles and provisions have had some indirect effects on the arbitration landscape in Europe.
The main purpose of the 1968 Brussels Convention was to create a uniform set of rules governing jurisdiction and the recognition and enforcement of judgments in civil and commercial matters among the contracting states, which were initially members of the European Economic Community (EEC). The convention aimed to facilitate cross-border trade and cooperation within the EEC by providing legal certainty and predictability in these areas.
While the 1968 Brussels Convention does not directly regulate arbitration, it has had some implications for arbitration in the following ways:
- Exclusion of arbitration from the scope of the convention: Article 1(4) of the Brussels Convention expressly excludes arbitration from its scope. This means that the rules on jurisdiction and the recognition and enforcement of judgments under the convention do not apply to arbitration proceedings or arbitral awards. As a result, the Brussels Convention has not directly harmonized or regulated arbitration among the contracting states, leaving room for other instruments, such as the 1958 New York Convention, to govern arbitration-related matters.
- Relationship with arbitration agreements: The Brussels Convention includes rules on jurisdiction, which determine which courts have the power to hear a particular dispute. This may have an indirect effect on arbitration, as parties may choose to include arbitration clauses in their contracts to avoid certain jurisdictional rules under the convention. In this sense, the Brussels Convention may have contributed to the use of arbitration as a means of dispute resolution in cross-border transactions within the EEC.
The 1968 Brussels Convention does not directly address or regulate arbitrations. However, its provisions on jurisdiction and the recognition and enforcement of judgments have had indirect implications for the use of arbitration as a means of dispute resolution within the EEC. The exclusion of arbitration from the scope of the convention has left room for other instruments, such as the 1958 New York Convention, to govern arbitration-related matters.
What are the LMAA terms and procedures?
The LMAA, or London Maritime Arbitrators Association, is a leading international organization specializing in maritime arbitration. It consists of experienced maritime arbitrators who handle a wide range of shipping and maritime disputes. The LMAA provides a set of terms and procedures designed to govern and facilitate maritime arbitration proceedings conducted under its auspices. The LMAA periodically updates these terms to reflect best practices in maritime arbitration.
The LMAA Terms and Procedures consist of the following primary components:
- LMAA (London Maritime Arbitrators Association) Terms: The LMAA Terms set out the procedural framework for arbitration proceedings conducted under the LMAA. They address various aspects of the arbitration process, such as the appointment of arbitrators, communications, procedural directions, submissions, hearings, awards, and costs. The LMAA Terms are designed to be flexible and efficient, providing parties and arbitrators with the ability to tailor the arbitration process to the specific needs of their dispute.
- LMAA (London Maritime Arbitrators Association) Small Claims Procedure: The LMAA Small Claims Procedure is designed for the resolution of lower-value disputes, typically involving claims of USD 100,000 or less. This procedure offers a streamlined and cost-effective alternative to the full LMAA Terms, with shorter timeframes, simplified procedures, and restrictions on recoverable costs.
- LMAA (London Maritime Arbitrators Association) Intermediate Claims Procedure: The LMAA Intermediate Claims Procedure is intended for disputes of a moderate value or complexity, typically involving claims between USD 100,000 and USD 400,000. This procedure offers a more streamlined process than the full LMAA Terms but with greater procedural flexibility than the Small Claims Procedure. It is designed to strike a balance between efficiency and procedural safeguards for parties in medium-sized disputes.
- LMAA(London Maritime Arbitrators Association) Guidelines: The LMAA also provides guidelines to assist parties and arbitrators in conducting arbitrations under its terms and procedures. These guidelines cover various topics, such as arbitrator appointments, procedural orders, electronic communications, document production, and costs.
By providing a flexible and efficient framework for maritime arbitration, the LMAA Terms and Procedures promote the fair and expeditious resolution of shipping and maritime disputes. The LMAA’s specialized procedures for small and intermediate claims further cater to the needs of parties in lower-value and medium-sized disputes, offering tailored processes to minimize costs and streamline the resolution of such matters.
What is the arbitration clause of the LMAA?
The London Maritime Arbitrators Association (LMAA) does not provide a specific, standardized arbitration clause to be used in contracts. Instead, parties are free to draft their own arbitration clause, specifying that any disputes arising out of the contract will be resolved through arbitration under the LMAA Terms.
When drafting an arbitration clause referring to LMAA arbitration, it is essential to include certain key elements to ensure the clause is effective and enforceable. Here is a sample arbitration clause that incorporates LMAA arbitration:
“Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity, or termination, shall be referred to and finally resolved by arbitration in London, England, in accordance with the London Maritime Arbitrators Association (LMAA) Terms current at the time when the arbitration proceedings are commenced. The reference shall be to three arbitrators, with each party having the right to appoint one arbitrator and the two party-appointed arbitrators selecting the third arbitrator. The language of the arbitration shall be English.”
This sample clause addresses several crucial aspects, including:
- The scope of disputes to be submitted to arbitration (covering any disputes arising out of or in connection with the contract).
- The reference to the LMAA Terms, which will govern the arbitration proceedings.
- The seat of arbitration (London, England) and the number of arbitrators (three).
- The process for the appointment of arbitrators (each party appoints one arbitrator, and the two party-appointed arbitrators select the third).
- The language of the arbitration (English).
It is important to note that this is just a sample clause, and the specific language of an arbitration clause should be tailored to the needs of the parties and the particular contract. Parties may also wish to seek legal advice when drafting an arbitration clause to ensure that it is valid and enforceable under the applicable laws.
What is Maritime Arbitration in simple words?
Maritime arbitration, in simple words, is a process of resolving disputes related to shipping, maritime, and other ocean-related matters through arbitration instead of going to court. Arbitration is a form of alternative dispute resolution where an impartial person or a panel of experts, called arbitrators, makes a binding decision after listening to the parties’ arguments and reviewing the evidence. In maritime arbitration, the arbitrators typically have specialized knowledge and experience in the maritime industry, which helps them better understand the specific issues and complexities involved in maritime disputes.
What is LMAA Intermediate Claims Procedure 2021?
The LMAA Intermediate Claims Procedure 2021 is a set of procedural rules developed by the London Maritime Arbitrators Association (LMAA) for handling maritime disputes of moderate value or complexity. This procedure is intended for cases where the amount in dispute is generally between USD 100,000 and USD 400,000, although parties can agree to use it for disputes of other values as well. The Intermediate Claims Procedure offers a more streamlined process compared to the full LMAA Terms but with greater procedural flexibility than the LMAA Small Claims Procedure. It is designed to strike a balance between efficiency and procedural safeguards for parties in medium-sized disputes.
Some key features of the LMAA Intermediate Claims Procedure 2021 include:
- Appointment of a Sole Arbitrator: The Intermediate Claims Procedure is designed for cases with a sole arbitrator, who is appointed by the parties or, if they cannot agree, by the LMAA President.
- Expedited Procedures: The procedure sets specific time limits for submitting statements of claim and defense, as well as for any subsequent submissions, in order to streamline the arbitration process and expedite the resolution of disputes.
- Limited Discovery: The procedure encourages limited document production, with parties expected to provide only the documents they consider relevant and material to their case, minimizing the time and cost associated with extensive document discovery.
- Hearings and Procedure: Hearings are not held as a matter of course but may be requested by either party or directed by the arbitrator if deemed necessary. The arbitrator has the authority to determine the procedure for such hearings, including the examination of witnesses and the presentation of evidence.
- Awards and Costs: The arbitrator is required to render a final award within a specified time period following the conclusion of the proceedings. The procedure also contains provisions relating to the allocation of costs between the parties, with a focus on proportionality and reasonableness.
The LMAA Intermediate Claims Procedure 2021 provides parties with a more efficient and cost-effective option for resolving moderate value or complexity disputes in the maritime industry while maintaining the procedural fairness and integrity of the arbitration process.
What are the 4 types of dispute resolution in shipping?
In the shipping industry, disputes can arise from various aspects of maritime transactions and operations, such as charter parties, bills of lading, shipbuilding contracts, and insurance policies. To resolve these disputes, parties often resort to one of the following four main types of dispute resolution methods:
- Negotiation: Negotiation is the most straightforward and informal method of dispute resolution. Parties involved in a shipping dispute communicate directly with each other to discuss their differences and attempt to reach a mutually acceptable solution. Negotiation can be a quick and cost-effective way to resolve disputes, as it does not involve any third-party intervention or formal procedures.
- Mediation: Mediation is a voluntary, non-binding process where a neutral third party, called a mediator, helps the disputing parties to reach a mutually acceptable resolution. The mediator facilitates communication between the parties, assists them in identifying their interests and needs, and explores possible solutions. Mediation can be a more efficient and cost-effective alternative to litigation or arbitration, as it often results in a quicker resolution and fosters better relationships between the parties.
- Arbitration: Arbitration is a private and binding method of dispute resolution where an impartial person or a panel of experts, called arbitrators, is appointed by the parties or an arbitration institution to hear their case and render a final decision, known as an arbitral award. In the shipping industry, specialized arbitration institutions, such as the London Maritime Arbitrators Association (LMAA) and the Society of Maritime Arbitrators (SMA), handle maritime disputes. Arbitration can be more efficient and flexible than litigation, as the parties can choose the arbitrators, the procedural rules, and the applicable law.
- Litigation: Litigation is the process of resolving disputes through the court system. Parties involved in a shipping dispute may choose to file a lawsuit in a court with jurisdiction over the matter. The court will then hear the case, examine the evidence, and render a judgment that is binding on the parties. Litigation can be time-consuming and costly, but it may be necessary in certain situations, such as when a party seeks a judicial determination on a point of law or when other methods of dispute resolution have been unsuccessful.
Each of these dispute resolution methods has its advantages and disadvantages, and the appropriate method depends on factors such as the nature of the dispute, the parties’ preferences, the potential costs and time involved, and the desired outcome.
What are the Society of Maritime Arbitrators (SMA) terms and procedures?
The Society of Maritime Arbitrators (SMA) is a leading maritime arbitration organization based in New York City. The SMA is composed of experienced maritime professionals who serve as arbitrators in various shipping and maritime disputes. The SMA provides a set of rules and procedures that govern arbitrations conducted under its auspices, known as the SMA Rules.
The SMA Rules are designed to offer a flexible, efficient, and fair framework for maritime arbitration. They address various aspects of the arbitration process, such as the appointment of arbitrators, communications, pleadings, hearings, awards, and costs. Some key features of the SMA Rules include:
- Appointment of Arbitrators: The SMA Rules provide guidance on the appointment of arbitrators, including the number of arbitrators, the appointment process, and the qualifications of arbitrators. In most cases, a panel of three arbitrators is appointed, with each party appointing one arbitrator, and the two party-appointed arbitrators selecting the third.
- Communications and Case Management: The SMA Rules outline procedures for communications between the parties, their representatives, and the arbitrators. They also provide for the use of case management techniques to streamline the arbitration process and encourage the efficient resolution of disputes.
- Pleadings and Evidence: The SMA Rules set out requirements for the submission of pleadings, such as statements of claim and defense, as well as the submission of evidence, including witness statements, expert reports, and documentary evidence.
- Hearings and Procedure: The SMA Rules provide for hearings to be held at the discretion of the arbitrators, and they allow the arbitrators to determine the procedure for such hearings, including the examination of witnesses and the presentation of evidence.
- Awards and Costs: The SMA Rules address the issuance of awards, including the form and content of the awards, and they provide guidance on the allocation of costs between the parties.
- Interim Measures and Security for Claims: The SMA Rules allow arbitrators to grant interim measures and order security for claims or costs, as appropriate in the circumstances of the case.
By providing a flexible and efficient framework for maritime arbitration, the SMA Rules promote the fair and expeditious resolution of shipping and maritime disputes. The SMA’s focus on case management and procedural efficiency helps minimize the time and costs associated with the arbitration process while maintaining a high standard of fairness and procedural integrity.
Which jurisdiction is the best for maritime dispute resolution?
There isn’t a universally “best” jurisdiction for maritime dispute resolution, as the most suitable jurisdiction depends on various factors such as the nature of the dispute, the parties involved, the applicable law, and the desired outcome. However, some jurisdictions are well-known for their maritime expertise, established legal frameworks, and specialized arbitration institutions, making them popular choices for resolving maritime disputes. Some of these jurisdictions include:
- England (London): London is a leading center for maritime dispute resolution, primarily due to its long history as a global shipping hub, its well-developed maritime legal framework, and the presence of the London Maritime Arbitrators Association (LMAA). English law is often chosen as the governing law in maritime contracts, and English courts and LMAA arbitrators have extensive experience handling maritime disputes.
- United States (New York): New York is another major center for maritime dispute resolution, particularly for disputes involving parties from the Americas. The Society of Maritime Arbitrators (SMA) is a well-respected arbitration institution based in New York that specializes in handling maritime disputes. Additionally, U.S. federal courts, particularly those in New York, have extensive experience in handling maritime cases under U.S. maritime law.
- Singapore: Singapore has emerged as a leading maritime dispute resolution center in Asia, thanks to its strategic location, its well-developed legal infrastructure, and its efforts to promote itself as a hub for international arbitration. The Singapore Chamber of Maritime Arbitration (SCMA) offers specialized arbitration services for maritime disputes, and Singaporean courts have a strong reputation for their expertise in maritime law.
- Hong Kong: Hong Kong is another prominent maritime dispute resolution center in Asia. Its well-developed legal system, based on English common law, and its status as a major shipping and trading hub make it an attractive jurisdiction for maritime disputes. The Hong Kong International Arbitration Centre (HKIAC) offers specialized arbitration services for maritime disputes, and Hong Kong courts have extensive experience in handling maritime cases.
Factors to consider when choosing a jurisdiction include the applicable law, the efficiency and expertise of the courts or arbitration institutions, the enforceability of judgments or arbitral awards, and the costs involved in pursuing a dispute in that jurisdiction.
What is the best form of dispute resolution in ship chartering? and What are the dispute resolution clauses in Charterparties?
There isn’t a one-size-fits-all “best” form of dispute resolution for ship chartering, as the most suitable method depends on various factors, such as the nature and complexity of the dispute, the relationship between the parties, the potential costs, and the desired outcome. However, some common methods of dispute resolution used in ship chartering include negotiation, mediation, arbitration, and litigation.
- Negotiation: Negotiation can be the quickest and least expensive method of dispute resolution. It involves direct communication between the parties to reach a mutually acceptable solution. It is often the first step in resolving disputes and can be effective when the parties are cooperative and open to compromise.
- Mediation: Mediation involves a neutral third party, called a mediator, who facilitates communication between the parties and assists them in finding a mutually agreeable solution. Mediation can be cost-effective and efficient, and it can help preserve business relationships. It is particularly useful when parties have an ongoing relationship and are willing to collaborate to find a solution.
- Arbitration: Arbitration is a private, binding process where a neutral third party or a panel of experts, called arbitrators, hears the case and renders a final decision. Arbitration is often favored in the shipping industry because it allows for the appointment of arbitrators with specialized maritime knowledge, offers a more flexible and confidential process, and is generally faster and less expensive than litigation. Institutions like the London Maritime Arbitrators Association (LMAA) and the Society of Maritime Arbitrators (SMA) specialize in maritime arbitration and offer tailored rules and procedures for handling ship chartering disputes.
- Litigation: Litigation involves resolving disputes through the court system, and it can be time-consuming, expensive, and public. In some cases, litigation may be necessary, such as when a party requires a judicial determination on a point of law or when other methods of dispute resolution have failed. However, it is generally considered a last resort in ship chartering disputes due to its drawbacks.
When choosing the most suitable method of dispute resolution for ship chartering, parties should consider the specific circumstances of their case and consult with legal counsel to determine the most appropriate approach.
What is the effect of a Scott v Avery Clause?
A Scott v Avery clause, named after the English case Scott v Avery (1856), is a provision commonly found in commercial contracts, including maritime agreements, that requires parties to resolve their disputes through arbitration or another alternative dispute resolution (ADR) mechanism before they can initiate legal proceedings in court.
The effect of a Scott v Avery clause is to make arbitration or the chosen ADR method a condition precedent to litigation, meaning that parties must first exhaust the specified dispute resolution process before resorting to court action. If a party ignores the clause and directly files a lawsuit, the court will likely stay or dismiss the legal proceedings, requiring the parties to abide by the arbitration or ADR process specified in the contract.
The benefits of a Scott v Avery clause include:
- Encouraging parties to resolve their disputes privately and without resorting to litigation, which can be costly and time-consuming.
- Allowing parties to choose their dispute resolution method, such as arbitration, where they can select arbitrators with specialized knowledge in the relevant field and maintain the confidentiality of the proceedings.
- Providing a streamlined and efficient process for resolving disputes, which can help preserve business relationships between the parties.
It is essential for parties to draft the Scott v Avery clause clearly and unambiguously to ensure that it is enforceable and effectively guides the parties through the designated dispute resolution process before they can initiate legal proceedings.
Why would shipowners and charterers choose to go to arbitration rather than court?
Shipowners and charterers often choose arbitration over court litigation for resolving disputes for several reasons:
- Expertise: Arbitration allows parties to appoint arbitrators with specialized knowledge and experience in the maritime industry. This expertise enables arbitrators to better understand the complexities and technicalities of maritime disputes, which may lead to more informed and accurate decisions.
- Flexibility: Arbitration offers parties greater control over the dispute resolution process, such as choosing the procedural rules, the applicable law, the language of the proceedings, and the location of the arbitration. This flexibility can make the process more efficient and better suited to the parties’ specific needs and circumstances.
- Confidentiality: Arbitration proceedings are generally private and confidential, which can be particularly valuable for shipowners and charterers who wish to avoid the publicity associated with court litigation. Confidentiality can help protect sensitive commercial information and maintain the reputation of the parties involved.
- Enforceability: Arbitral awards are generally more straightforward to enforce internationally than court judgments, thanks to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This convention, which has been ratified by more than 160 countries, facilitates the recognition and enforcement of arbitral awards across borders, making it easier for successful parties to recover their claims.
- Finality: Arbitration usually provides for limited grounds for challenging or appealing an arbitral award, resulting in a quicker resolution of disputes compared to court litigation, which often involves multiple levels of appeal.
- Preservation of relationships: Arbitration, being a less adversarial process than court litigation, can help preserve commercial relationships between shipowners and charterers by focusing on a mutually agreeable resolution and reducing the potential for long-lasting disputes.
Shipowners and charterers may choose arbitration over court litigation due to the benefits of expertise, flexibility, confidentiality, enforceability, finality, and preservation of relationships. However, the suitability of arbitration depends on the specific circumstances of the dispute and the preferences of the parties involved.
What are the different types of maritime dispute resolution offered by the London and New York Associations?
The London and New York Associations, namely the London Maritime Arbitrators Association (LMAA) and the Society of Maritime Arbitrators (SMA), are two well-respected institutions specializing in maritime dispute resolution. Both associations offer a range of arbitration procedures tailored to the specific needs of parties involved in shipping disputes.
London Maritime Arbitrators Association (LMAA):
- LMAA Terms: The LMAA Terms provide a comprehensive framework for maritime arbitration in London, outlining the rules and procedures to be followed by arbitrators and parties throughout the process. The LMAA Terms are designed for disputes of varying complexity and monetary value.
- LMAA Intermediate Claims Procedure: This procedure is intended for cases where the amount in dispute is generally between USD 100,000 and USD 400,000, although parties can agree to use it for disputes of other values. It offers a more streamlined process compared to the full LMAA Terms but provides greater procedural flexibility than the LMAA Small Claims Procedure.
- LMAA Small Claims Procedure: Designed for disputes with a value not exceeding USD 100,000 or an equivalent amount in another currency, this procedure offers a fast and cost-effective method for resolving lower-value maritime disputes. The process involves a sole arbitrator, and hearings are generally not held.
Society of Maritime Arbitrators (SMA):
- SMA Rules: The SMA Rules provide a comprehensive framework for maritime arbitration in New York, setting out the procedures and guidelines for the arbitration process. Like the LMAA Terms, the SMA Rules are designed for disputes of varying complexity and monetary value.
- SMA Shortened Arbitration Procedure: This procedure offers an expedited arbitration process for disputes where the parties desire a quicker resolution. It involves a sole arbitrator, and the time limits for submissions and the rendering of the award are shortened.
- SMA Mediation Rules: In addition to arbitration, the SMA provides mediation services to help parties resolve their disputes amicably. Mediation is a voluntary, non-binding process in which a neutral third party (the mediator) facilitates communication between the parties and assists them in finding a mutually acceptable resolution.
Both the LMAA and SMA offer tailored dispute resolution processes that cater to the specific needs of parties involved in maritime disputes. The choice between these institutions and their procedures will depend on the parties’ preferences, the nature and value of the dispute, and the desired outcome.
Explain the use of Arbitration in the Settlement of Ship Chartering Disputes
Arbitration is a widely used method for resolving ship chartering disputes. In arbitration, parties involved in a dispute refer the matter to an impartial third party or a panel of experts (arbitrators) who review the case, consider the evidence, and make a binding decision called an arbitral award. Here are some key aspects of using arbitration in the settlement of ship chartering disputes:
- Contractual basis: Parties typically include an arbitration clause in their ship charter agreements, which specifies the arbitration procedure, the choice of arbitral institution, and the governing law. The arbitration clause serves as the basis for the parties’ agreement to resolve any disputes arising from the charter through arbitration rather than court litigation.
- Selection of arbitrators: In arbitration, parties can choose arbitrators with specialized knowledge and experience in the maritime industry. This expertise enables arbitrators to better understand the complexities and technicalities of ship chartering disputes, which may lead to more informed and accurate decisions.
- Procedural flexibility: Arbitration offers greater control over the dispute resolution process, as parties can choose the procedural rules, the applicable law, the language of the proceedings, and the location of the arbitration. This flexibility allows the process to be tailored to the specific needs and circumstances of the ship chartering dispute.
- Confidentiality: Arbitration proceedings are generally private and confidential, which can be particularly valuable for parties in ship chartering disputes who wish to avoid the publicity associated with court litigation. Confidentiality can help protect sensitive commercial information and maintain the reputation of the parties involved.
- Enforceability: Arbitral awards are usually easier to enforce internationally than court judgments, thanks to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The convention has been ratified by more than 160 countries, which simplifies the recognition and enforcement of arbitral awards across borders, making it easier for successful parties to recover their claims.
- Finality: Arbitration typically provides for limited grounds for challenging or appealing an arbitral award, resulting in a quicker resolution of disputes compared to court litigation, which often involves multiple levels of appeal.
Arbitration is a popular method for resolving ship chartering disputes due to its advantages in expertise, flexibility, confidentiality, enforceability, and finality. The use of arbitration can lead to more efficient, cost-effective, and satisfactory outcomes for parties involved in ship chartering disputes compared to traditional court litigation.
What are the main Charter Party Disputes?
Charter party disputes can arise from various issues in the context of a ship charter agreement, which is a contract between a shipowner and a charterer for the use of a vessel for the transportation of goods or passengers. Some of the main charter party disputes include:
- Payment disputes: Disputes may arise over the payment of charter hire, demurrage, or other fees agreed upon in the contract. These disputes can be triggered by disagreements over the calculation of amounts due, late payments, or non-payments.
- Off-hire disputes: Off-hire disputes involve disagreements about whether and when the vessel is considered “off-hire” and not earning hire payments. These disputes can arise from differing interpretations of off-hire clauses or disagreements about whether certain events or conditions qualify as off-hire events.
- Laytime and demurrage disputes: Disputes may arise over the calculation of laytime (the time allowed for loading and unloading cargo) and demurrage (the fees charged for exceeding the allowed laytime). These disputes often result from disagreements about when laytime begins, what constitutes “time used,” and whether certain events justify an extension of laytime or suspension of demurrage.
- Cargo disputes: Cargo-related disputes can arise from issues like cargo damage or loss, contamination, or misdeclaration of cargo. These disputes often involve determining the responsible party and assessing liability for the cargo issues.
- Ship performance disputes: These disputes arise when the vessel’s performance, such as speed or fuel consumption, does not meet the agreed-upon specifications in the charter party. These disputes may involve assessing the vessel’s performance, determining the extent of any deviation from the contract, and calculating any damages or compensation owed.
- Bunker disputes: Bunker disputes relate to the quality, quantity, or delivery of fuel for the vessel. They can arise from disagreements about bunker prices, payment terms, or claims of contaminated or off-specification fuel.
- Safe port/berth disputes: These disputes arise when a charterer nominates a port or berth that turns out to be unsafe for the vessel, resulting in damages or delays. In such cases, the parties may disagree on whether the port or berth was unsafe, whether the charterer was aware of the risk, and the allocation of liability for any resulting losses.
- Deviation disputes: Deviation disputes arise when a vessel deviates from its agreed route, causing delays or additional costs. These disputes often involve determining whether the deviation was justified, assessing the impact on the voyage, and calculating any damages or compensation owed.
The nature and complexity of charter party disputes can vary widely depending on the specific circumstances of each case. Resolving these disputes often requires specialized knowledge of maritime law and industry practices, which is why arbitration and other alternative dispute resolution methods are commonly used in the shipping industry.
Effects of Charter Party Arbitration Clauses
Charter party arbitration clauses play a crucial role in the resolution of disputes arising from ship charter agreements. These clauses outline the agreed-upon process for resolving disputes through arbitration rather than court litigation. The effects of charter party arbitration clauses include:
- Selection of dispute resolution method: The arbitration clause establishes arbitration as the preferred method of dispute resolution for the parties, ensuring that any disputes arising from the charter party will be referred to arbitration rather than being litigated in court.
- Choice of arbitrators: The arbitration clause often allows parties to select arbitrators with specialized knowledge and experience in the maritime industry, ensuring that the dispute resolution process is overseen by experts who understand the complexities and technicalities of the shipping sector.
- Procedural framework: The arbitration clause typically sets out the procedural framework for the arbitration, including the choice of arbitral institution, rules governing the proceedings, the applicable law, the language of the arbitration, and the place of arbitration. This framework provides parties with greater control over the dispute resolution process and ensures that the arbitration is tailored to their specific needs and circumstances.
- Confidentiality: By opting for arbitration through the arbitration clause, parties can maintain the confidentiality of the dispute resolution process, as arbitration proceedings are generally private and confidential. This can be particularly important for preserving sensitive commercial information and protecting the reputation of the parties involved.
- Enforceability of arbitral awards: Arbitration clauses facilitate the recognition and enforcement of arbitral awards, as they are generally more straightforward to enforce internationally than court judgments due to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This convention has been ratified by more than 160 countries, making it easier for successful parties to recover their claims across borders.
- Finality of the process: Arbitration clauses generally provide for limited grounds for challenging or appealing an arbitral award, which promotes the finality of the arbitration process and results in quicker resolution of disputes compared to court litigation.
- Preservation of commercial relationships: Arbitration clauses encourage the resolution of disputes through a less adversarial process than court litigation, which can help preserve commercial relationships between shipowners and charterers by focusing on a mutually agreeable resolution and reducing the potential for long-lasting disputes.
Charter party arbitration clauses have several effects on the dispute resolution process, including establishing arbitration as the preferred method of dispute resolution, providing a procedural framework, ensuring confidentiality, facilitating enforceability, promoting finality, and preserving commercial relationships.
What principal changes have the Arbitration Act 1996 made to the arbitral process?
The Arbitration Act 1996 introduced several significant changes to the arbitral process in the UK. Some of the principal changes include:
- Modernization of the law: The Act replaced the outdated Arbitration Act 1950 and brought UK law in line with international best practices. The Act provided a modern framework for arbitration, which increased the efficiency and effectiveness of the arbitral process.
- Autonomy of the parties: The Act recognized the principle of party autonomy in arbitration, which allows parties to agree on the procedure for resolving their disputes, including the choice of arbitrators, governing law, and procedural rules. This gave parties greater control over the arbitral process and allowed them to tailor the process to their specific needs and circumstances.
- Streamlined court procedures: The Act introduced a streamlined approach to court procedures, which reduced the need for court intervention in the arbitral process. The court’s role was limited to providing assistance and support to the arbitral process and enforcing arbitral awards.
- Increased powers of the arbitrator: The Act increased the powers of the arbitrator, allowing them to make orders for the attendance of witnesses, the production of documents, and the inspection of property. This gave the arbitrator greater control over the evidence-gathering process, which increased the efficiency and effectiveness of the arbitral process.
- Simplified enforcement of arbitral awards: The Act simplified the process for enforcing arbitral awards by allowing parties to enforce the award in the same way as a court judgment. This reduced the time and costs associated with enforcing awards and increased the finality of the arbitral process.
- Confidentiality: The Act introduced provisions to protect the confidentiality of the arbitral process, which increased the attractiveness of arbitration as a dispute resolution mechanism for parties who value privacy.
The Arbitration Act 1996 modernized the arbitral process in the UK, increased the autonomy of parties, and simplified court procedures. The Act gave arbitrators greater powers to manage the arbitral process, simplified the enforcement of arbitral awards, and provided provisions for protecting the confidentiality of the arbitral process.
What is Charter Party Dispute?
A Charter Party dispute is a legal dispute arising out of a contract for the use of a vessel. A Charter Party is a contract between a shipowner and a charterer, in which the shipowner agrees to make their vessel available to the charterer for a specified period or voyage, in exchange for payment.
Charter Party disputes can arise for a variety of reasons, including disputes over the terms of the contract, the condition of the vessel, the quality of the cargo, delays in delivery or performance, and disputes over payment or freight rates.
Some common types of Charter Party disputes include:
- Demurrage disputes: These disputes arise when a vessel is delayed beyond the agreed-upon laytime for loading or unloading cargo, and the charterer is required to pay demurrage charges to the shipowner.
- Off-hire disputes: These disputes arise when a vessel becomes unavailable for use due to breakdowns or other reasons, and the charterer seeks to be relieved of their obligation to pay hire during the period of unavailability.
- Cargo disputes: These disputes can arise over the quality or quantity of cargo or issues related to the loading or discharge of the cargo.
- Repairs and maintenance disputes: These disputes arise over issues related to the condition of the vessel, such as disputes over the cost and responsibility for repairs and maintenance.
Charter Party disputes can be complex and can involve a range of legal and commercial issues. They are typically resolved through arbitration, as the parties often prefer the confidentiality, flexibility, and specialized expertise of arbitration as a dispute resolution mechanism. Charter Party disputes are a common feature of the shipping industry, and they require careful attention to detail and a clear understanding of the legal and commercial issues involved.
What is meant by a “Reasoned Award” in Maritime Arbitration?
A reasoned award in maritime arbitration refers to an arbitral award that contains a clear and detailed explanation of the arbitrator’s reasoning and findings. The arbitrator is required to provide a comprehensive and reasoned decision, explaining the basis for their decision on each of the issues presented in the dispute.
A reasoned award is important in maritime arbitration because it provides the parties with a clear understanding of how the arbitrator reached their decision. This can help to avoid confusion and disputes about the reasoning behind the decision and can facilitate compliance with the award.
In addition, a reasoned award can assist the parties in any subsequent legal proceedings, such as an application to set aside or enforce the award. It can also provide guidance to future arbitrators on similar issues.
The content of a reasoned award may vary depending on the nature and complexity of the dispute. However, it generally includes a summary of the dispute, the applicable law, the issues presented, the evidence presented by the parties, the arbitrator’s findings, and the reasons for the decision.
A reasoned award is an essential element of the arbitral process in maritime disputes. It provides parties with a clear understanding of the basis for the decision and promotes transparency and consistency in the arbitration process.
Leading Maritime Arbitration Institutions and Associations in Ship Chartering
- London Maritime Arbitrators Association (LMAA): The LMAA is a prominent institution in maritime arbitration, with its members handling a significant number of international shipping disputes. The LMAA provides various procedures for dispute resolution, including the LMAA Terms, LMAA Intermediate Claims Procedure, and LMAA Small Claims Procedure.
- Society of Maritime Arbitrators (SMA): Based in New York, the SMA is another well-respected institution in the maritime arbitration field. The SMA offers a range of dispute resolution services, including arbitration under the SMA Rules, SMA Shortened Arbitration Procedure and mediation under the SMA Mediation Rules.
- Singapore Chamber of Maritime Arbitration (SCMA): The SCMA is a specialist maritime arbitration institution in Singapore that handles maritime disputes in the Asia-Pacific region. SCMA offers a range of arbitration and mediation services for ship chartering disputes and other maritime issues.
- Hong Kong International Arbitration Centre (HKIAC): The HKIAC is a leading arbitration institution in Asia that handles various types of disputes, including maritime disputes. The HKIAC has a panel of maritime arbitrators with expertise in ship chartering and other shipping-related matters.
- The Arbitration Institute of the Stockholm Chamber of Commerce (SCC): The SCC is a well-established arbitration institution that handles a wide range of disputes, including maritime disputes. The SCC has a roster of experienced maritime arbitrators who specialize in ship chartering disputes.
- China Maritime Arbitration Commission (CMAC): The CMAC is a prominent maritime arbitration institution in China, which handles various types of maritime disputes, including ship chartering. CMAC has an extensive panel of maritime arbitrators with expertise in shipping matters and provides dispute resolution services under the CMAC Rules.
- International Chamber of Commerce (ICC): Although not a maritime-specific institution, the ICC is a well-known and respected international arbitration institution that handles various types of commercial disputes, including maritime disputes. The ICC has a roster of arbitrators experienced in maritime law, including those with expertise in ship chartering disputes.
- The London Court of International Arbitration (LCIA): Like the ICC, the LCIA is a reputable international arbitration institution that handles a wide range of commercial disputes, including maritime disputes. The LCIA has a panel of arbitrators with experience in maritime law, which can be suitable for resolving ship chartering disputes.
How to choose an Arbitrator in Ship Chartering Dispute?
Choosing the right arbitrator is crucial for the successful resolution of a ship chartering dispute. Here are some factors to consider when selecting an arbitrator:
- Expertise: The arbitrator should have expertise in maritime law and specifically in ship chartering. They should be familiar with the legal and commercial aspects of the shipping industry and have experience in handling similar disputes.
- Impartiality: The arbitrator should be impartial and not have any conflicts of interest that could affect their ability to make an unbiased decision. It is important to ensure that the arbitrator has no prior relationship with either party that could influence their decision.
- Availability: The arbitrator should be available to hear the case and should not have any conflicts that could delay the arbitration process. It is important to consider the arbitrator’s schedule and availability before selecting them.
- Location: The arbitrator’s location should be convenient for both parties, and it should be easy to arrange the hearing at the chosen location. The location should also be a jurisdiction that is familiar with maritime law.
- Reputation: The arbitrator should have a good reputation for fairness and impartiality. Parties should consider the arbitrator’s previous experience and consult with industry peers and legal advisors to ensure that they have a good reputation.
- Language: The arbitrator should be fluent in the language used in the arbitration, as this will facilitate the process and ensure that there are no misunderstandings.
- Cost: Parties should consider the arbitrator’s fees and expenses, as well as any administrative costs associated with the arbitration.
In addition to the above factors, parties should also consider the specific requirements of their dispute, such as the governing law, the complexity of the issues, and the need for technical expertise.
Ultimately, the goal is to select an arbitrator who is experienced, impartial, and available, and who has a good reputation for handling ship chartering disputes. By taking the time to carefully consider these factors, parties can increase their chances of a successful and satisfactory outcome to their dispute.
Another important factor to consider when choosing an arbitrator is the type of dispute resolution method that will be used. Arbitration institutions may offer different procedures and rules for the resolution of disputes, and parties should carefully consider these before selecting an arbitrator.
For example, some arbitration institutions offer expedited procedures that can be more cost-effective and efficient for resolving smaller claims. Other institutions may offer more formal procedures with detailed rules and timelines for the resolution of disputes.
Parties should also consider whether they want a sole arbitrator or a panel of arbitrators to hear their dispute. A sole arbitrator may be more suitable for smaller disputes, while a panel may be necessary for more complex or high-value claims.
When selecting an arbitrator, it is also important to consider the language of the arbitration. Parties should ensure that the arbitrator is fluent in the language used in the arbitration, as this will help to avoid misunderstandings and ensure that the proceedings run smoothly.
Finally, parties should ensure that they select an arbitrator who is familiar with the specific requirements of their dispute. For example, if the dispute involves a specific type of vessel or cargo, parties may wish to select an arbitrator who has experience in that area.
Choosing an arbitrator for a ship chartering dispute requires careful consideration of a range of factors, including the arbitrator’s expertise, impartiality, availability, location, reputation, cost, and the type of dispute resolution method that will be used. By taking the time to carefully consider these factors, parties can increase their chances of a successful and satisfactory outcome to their dispute.
What are the three Problems Caused by Arbitration Clauses?
While arbitration clauses are commonly used in contracts to resolve disputes, they can also give rise to several problems, including:
- Lack of transparency: The use of arbitration clauses can lead to a lack of transparency in the dispute resolution process. Unlike court proceedings, arbitration hearings are often private, and the arbitrator’s decision may not be made public. This can result in a lack of accountability and may undermine public trust in the fairness of the arbitration process.
- Limited rights of appeal: The use of arbitration clauses can also limit the parties’ rights of appeal. In many cases, the arbitrator’s decision is final and binding, and there may be limited options for appeal. This can be problematic if the arbitrator’s decision is perceived to be unfair or incorrect, and can result in parties being stuck with an unfavorable outcome.
- Higher costs: Arbitration can be more expensive than court proceedings, especially if the dispute involves complex technical issues or multiple parties. The parties are typically responsible for paying the fees and expenses of the arbitrator, as well as any administrative costs associated with the arbitration process. This can make arbitration prohibitive for some parties and may result in disputes being left unresolved.
In addition, arbitration clauses can be difficult to enforce in certain jurisdictions, and the effectiveness of the arbitration process may be limited in cases where there is a significant power imbalance between the parties. While arbitration clauses can be a useful tool for resolving disputes, they can also give rise to several problems, including a lack of transparency, limited rights of appeal, and higher costs. It is important for parties to carefully consider these issues before including an arbitration clause in their contracts.
What is Alternative Dispute Resolution (ADR) in Ship Chartering?
Alternative Dispute Resolution (ADR) is a method of resolving disputes outside of the traditional court system. ADR methods are increasingly used in ship chartering disputes as a means of resolving disputes in a more cost-effective, efficient, and flexible manner.
There are several forms of ADR that can be used in ship chartering disputes, including:
- Mediation: Mediation is a voluntary process in which a neutral third party helps the parties to reach a settlement. Mediation can be particularly useful in ship chartering disputes, where parties often have an ongoing business relationship and may wish to preserve that relationship.
- Arbitration: Arbitration is a more formal process than mediation, in which an independent third party (the arbitrator) is appointed to make a binding decision on the dispute. Arbitration can be a more cost-effective and efficient means of resolving disputes than traditional court proceedings, and can also provide greater confidentiality and flexibility.
- Expert determination: Expert determination involves the appointment of an independent expert to determine a specific issue or dispute. Expert determination can be particularly useful in ship chartering disputes, where technical expertise may be required to resolve certain disputes.
- Mini-trial: A mini-trial involves the parties presenting their case to a panel of experts, who then provide non-binding recommendations for the resolution of the dispute. The parties can then use these recommendations as the basis for settlement negotiations.
Alternative Dispute Resolution (ADR) can be a useful tool for resolving ship chartering disputes, as it can help to avoid the time and expense of traditional court proceedings, and can also provide greater flexibility and confidentiality. However, it is important for parties to carefully consider the specific circumstances of their dispute and to choose the appropriate form of Alternative Dispute Resolution (ADR) that best suits their needs.
The incorporation of a Charterparty Arbitration Clause
The incorporation of a charterparty arbitration clause is a common practice in the shipping industry. A charterparty is a contract between a shipowner and a charterer for the use of a vessel, and the inclusion of an arbitration clause allows parties to resolve any disputes that may arise under the contract through arbitration.
The arbitration clause will typically specify the rules that will govern the arbitration, such as the jurisdiction and governing law, the number of arbitrators, and the language of the arbitration. The clause may also specify the location of the arbitration, the qualifications required for the arbitrators, and the procedural rules that will apply.
The incorporation of a charterparty arbitration clause can provide several benefits for parties. Arbitration can be a faster and more cost-effective means of resolving disputes than traditional court proceedings. It can also provide greater confidentiality and flexibility, as parties have more control over the arbitration process and the selection of arbitrators.
In addition, the incorporation of an arbitration clause can help to avoid potential jurisdictional issues that may arise if disputes are resolved in different courts. It can also provide greater predictability and consistency in the resolution of disputes, as the same set of rules and procedures will apply to all disputes under the contract.
The incorporation of a charterparty arbitration clause is a common and important practice in the shipping industry. It can provide parties with a more efficient, cost-effective, and flexible means of resolving disputes that may arise under the contract.