Maritime Arbitration

  • Maritime Arbitration facilitates maritime commerce by promoting the efficient resolution of maritime disputes
  • Maritime Arbitration is a separate body of law
  • Maritime Arbitration is a different legal processes

In United States, Maritime Arbitration is based upon the Federal Arbitration Act. Federal Arbitration Act applies to any maritime transaction or contract evidencing a transaction involving commerce. On the other hand, use of Maritime Arbitration to resolve both domestic and international maritime disputes reflect the fundamental purposes and traditions of maritime law.

There are a number of specialized maritime arbitration associations to handle maritime disputes. Typically, maritime arbitrators include experienced maritime professionals whom are experienced at maritime industry, ships and maritime trade, like shipbrokers, shipbuilders etc. Some maritime arbitrators are well-regarded maritime attorneys with understanding of the unique aspects of maritime law.

Maritime arbitration process allows parties to focus on commercial practicalities and industry customs, as well as legal rules. Maritime arbitration process also allows the parties an opportunity to resolve their disputes far more promptly and efficiently than cases litigated through the often-clogged court system. Maritime arbitration system is not perfect, but arbitration might resolve disputes of parties, depending on:

  • Terms of the arbitration agreement
  • Rules chosen for the arbitration
  • Panel,
  • Nature of the dispute

Maritime Arbitration Cons:

  • Maritime arbitration panels lack the same procedural enforcement powers of a court
  • Maritime arbitration pre-hearing disputes over the discovery of evidence can be frustrating Maritime arbitration’s losing party may believe itself to have been denied victory by a misunderstanding or misapplication of the law
  • Maritime arbitration’s losing party may be disappointed at the lack of meaningful judicial review.

Maritime arbitration might not be necessarily the right forum for all disputes or for all parties. Hence, before entering into an arbitration agreement, parties must think carefully.

Maritime claim can be taken to arbitration if parties signed an agreement to resolve disputes by arbitration. Usually, arbitration agreement is documented before the dispute comes up. Arbitration agreement might be documented through charter party clause or bill of lading (B/L) or other any kind of contact. Furthermore, parties can agree to arbitration after a dispute arises.

In United States, arbitration agreements involving maritime contracts are governed by Federal Arbitration Act (FAA). In United Kingdom, arbitration agreements involving maritime contracts are governed by United Kingdom Arbitration Act of 1996. United Kingdom Arbitration Act of 1996 is significantly more detailed that Federal Arbitration Act (FAA), but their provisions are generally similar.

Arbitration Agreement Requirements:

Arbitration Agreement have to be in written form. Court can only enforce an agreement to arbitrate that is documented in a writing or collection of writings that cumulatively document the agreement of the parties to arbitrate. There is no need for specific form of writing as long as the agreement to arbitrate is reflected in a document that is enough to create an enforceable arbitration agreement. Arbitration agreement could be a separate contract or clause in a contract.

Court could also enforce an agreement to arbitrate that may be reflected through emails or facsimiles. Maritime arbitration agreement could be express or in some cases, written arbitration agreement is shown by reference like an email from shipper to carrier that refers standard terms of carriers’ Bill of Lading (B/L) or agreed charter-party. Emails and the form agreement would be viewed by a court as establishing a written agreement to arbitrate.

Arbitration agreement does not have to be signed. Federal Arbitration Act (FAA) or United Kingdom Arbitration Act United Kingdom Arbitration Act does not require that an arbitration agreement be signed.

Scope of an arbitration agreement to arbitrate depends on the language of the arbitration clause.

  • If arbitration clause states that arbitration includes “all matters arising under this agreement”. Arbitration would include all disputes concerning the agreement itself, but not ancillary matters, like as tort claims.
  • If arbitration clause states that arbitration includes “all matters arising under or related to this agreement”. Arbitration would include all matters between the parties that bear a relationship to the underlying transaction.

Furthermore, parties can agree to limit the scope of the arbitration to specific matters or issues.

Under Federal Arbitration Act (FAA), if one party refuses to arbitrate, other party can petition a court to compel arbitration. If court finds no dispute that the parties (plaintiff and defendant) had an agreement to arbitrate documented by written provision, then court shall order the parties (plaintiff and defendant) to go to arbitration in accordance with their agreement. On the other hand, if parties dispute:

  • whether they had reached an agreement to arbitrate
  • whether the other party has refused to arbitrate

then court proceed to a trial to determine the question.

  • If arbitration is a maritime matter, trial will in front of the judge, sitting without a jury
  • If arbitration includes non-admiralty matters, then trial will be to a jury if the party alleged to be in breach of the arbitration agreement demands one

In United States, a court can order arbitration if the arbitration agreement is for foreign arbitration. Federal Arbitration Act (FAA) is the enactment into United States law of the International Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Under the terms of International Convention on the Recognition and Enforcement of Foreign Arbitral Awards, an agreement for foreign arbitration can be enforced by a United States court. In order to enforced by a United States court:

  • Agreement in writing to arbitrate the subject of the dispute
  • Agreement provide for arbitration in the territory of a signatory of the International Convention on the Recognition and Enforcement of Foreign Arbitral Awards
  • Agreement must arise out of a commercial matter
  • Party to the agreement a foreign citizen or commercial relationship have some reasonable relation with one or more foreign states

If all above is sustained, then court enforce the international arbitration agreement.

Party (plaintiff and defendant) to an arbitration agreement is not prohibited from starting maritime court case. If one party goes straight to court despite an arbitration agreement, other party can ask the court to grant a stay of the proceedings until the arbitration is conducted. Party (plaintiff and defendant) to an arbitration agreement can start a case by bringing a maritime case against a ship (in rem) through maritime arrest or maritime attachment.

By arresting ship or attaching property:

  • Claimant can get security for the maritime claim
  • Effective for getting the other party’s attention to the case
  • Avoiding delays that might otherwise occur in moving the arbitration along

Generally, arbitrators apply as substantive law which is preferred by the parties in maritime contract’s choice-of-law clause. If parties did not identify a choice of law in maritime contract, then arbitration panel will apply the law that is most closely connected to the issue.

Arbitration organizations regulate and govern the arbitrations conducted under their auspices. Usually, arbitration rules provide:

  • mechanism for selecting the arbitrators
  • submitting the arguments to the arbitration panel
  • conducting hearings
  • submitting evidence
  • resolving procedural disputes

Well-known Maritime Arbitration Organizations:

  • Society of Maritime Arbitrators (SMA)
  • London Maritime Arbitration Association (LMAA)
  • Houston Maritime Arbitration Association (HMAA)
  • The Maritime Arbitration Association of the United States (MAA)
  • Association of Maritime Arbitrators of Canada (AMAC)
  • China Maritime Arbitration Commission (CMAC)
  • American Arbitration Association (AAA)
  • Piraeus Association for Maritime Arbitration (PAMA)
  • German Maritime Arbitration Association (GMAA)
  • Tokyo Maritime Arbitration Commission (TOMAC)
  • International Court of Arbitration (ICA)

Choice of arbitrator depends on the terms of the arbitration agreement and arbitration rules. Under some arbitration agreements, an arbitrator must be commercial person (experienced person of the industry) would exclude maritime lawyers. Some arbitration agreements allow arbitrator who may be commercial person or lawyer. Arbitrator would be disqualified:

  • If arbitrator has a financial or personal interest in the outcome of the arbitration
  • If arbitrator has obtained detailed knowledge of the matter outside of the arbitration
  • If arbitrator is subject to evident partiality on behalf of a party

Generally, each party appoints one arbitrator and two arbitrators so chosen then pick a third arbitrator to serve as chairman of arbitration panel. While all three arbitrators should hear the case impartially, the extent to which the party-appointed arbitrators can do so is a matter of some debate. On the other hand, some arbitrations are handled by a single arbitrator. Single arbitrator can be appointed either by agreement of the parties or by arbitration organization.

Traditionally, arbitrators (arbitration panel) hold one or more hearings and then meet to decide the award. However, parties might agree to an abbreviated arbitration procedure which is based on the submission of papers only. Abbreviated arbitration procedure expedites arbitration matters and reduce costs. Abbreviated arbitration procedure is often used for low value disputes.

Arbitration Hearings are much more informal than a trial in court. Arbitration Hearings are usually held in a conference room. Arbitration Hearings begin much less formally than a court proceeding. Arbitration Hearings tend to look more like meetings than hearings.

Generally, before Arbitration Hearings, parties submit all documentary evidence in advance. Arbitration Hearings begin with opening statements of parties. Afterwards, party bringing the claim present its case through witnesses. Party defending against the claim present witnesses. Both parties’ witnesses are sworn (under oath). Arbitrators question witnesses. After witnesses have been heard, arbitrator panel may allow the parties to make closing statements. In many arbitration cases, arbitration panel may ask to submit closing briefs within a week, instead of closing statements. Closing brief summarize the evidence and legal arguments in writing and can be useful to arbitration panel when writing their decision.

In contrast to the procedure in court cases, there is no rules of evidence in arbitration cases. Absence of specific rules of evidence means that the parties to the arbitration do not have to go through the same cumbersome process that lawyers have to follow in court. In contrast to the procedure in arbitration cases, in court case attorneys must authenticate documents, photographs and other evidence through testimony of witnesses. Arbitration panel decide whether the evidence is relevant and probative. Usually, arbitration panel accept all submissions, decide whether any particular document is credible, relevant and persuasive. Arbitration panel accept all submissions, because one of the few reasons for overturning an arbitration award is when the panel refuses to hear evidence pertinent and material to the controversy.

In arbitration cases, if a party wants to challenge a document as not accurate, they can object to. However, arbitration process still works more quickly than court. Arbitration requires substantially less pre-trial work and therefore less expensive.

Examination of witnesses in an arbitration case is similar to examinations in court case. However, Examination of witnesses in an arbitration is less structured than court. Arbitrators try to find their way to the truth of the matter while not being overly concerned about any particular process of questioning.

In many arbitration cases, parties may decide not to call witnesses to the hearing, but instead submit testimony in the form of an affidavit which is more convenient and less expensive, but might be less persuasive. Practically, in maritime arbitration cases, parties may decide to submit less controversial testimony by affidavit and call witnesses for crucial testimony.

Arbitration panel makes decision by vote of the arbitrators and arbitration outcome is set out in an award. Generally, arbitration panel issue reasoned award which spell out the reasons for their decision. Furthermore, an arbitrator who dissents from the award may write a partial or total dissent to be attached to arbitration award.

Arbitration Award is not directly enforceable by itself. If losing party does not pay Arbitration Award, then winning party need to get court order to authorize the authorities to get more aggressive in enforcing the award. Furthermore, if arbitration agreement provides that judgment of the court may be entered on the award, then winning party may apply to get court order confirming the award.

In United States, according to Federal Arbitration Act (FAA), an application to confirm an arbitration award must be made within one (1) year after the award is made. In Arbitration Award procedure, arbitration’s winning party makes an application for confirmation and attaching arbitration award. If loosing party fails to petition the court to vacate the award, then arbitration award is confirmed as a court order, enforceable by the authorities to the same extent as any other court order.

Vacating or Appealing an Arbitration Award

In arbitration case, losing party has the right to challenge an arbitration award by petitioning the court where arbitration award was made to vacate the award within three (3) months after the award is delivered. If losing party fails to petition to vacate the arbitration award within three (3) months period, losing party also loses the right to challenge arbitration award.

In order to vacate an arbitration award, losing party must show that:

  • Arbitration award was procured by corruption, fraud or undue means
  • Evident partiality or corruption in the arbitrators
  • Arbitrators were guilty of misconduct in refusing to postpone hearing, upon sufficient cause shown or in refusing to hear evidence pertinent and material to the controversy or of any other misbehavior by which the rights of any party have been prejudiced
  • Arbitrators exceeded their powers or so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made

Generally, court is not supposed to substitute its judgment for that of the arbitrators. Objective of the arbitration is to provide more efficient and expedient means of resolving disputes. Hence, advantages of arbitration process would be undone if parties could simply re-litigate disputes in the context of an action to vacate or enforce the award.

Arbitration Award cannot be overturned if the arbitrators make a mistake of law. Arbitration favor commercial reasonableness and practice over legal niceties. Court reviewing an arbitration do not vacate an arbitration award, even if court believes the arbitration panel made mistakes about the law. Only exception is that a court might vacate an arbitration award if the court concludes that the arbitrators committed manifest disregard of the law by willfully ignoring or rejecting the clearly applicable law. Court must find that the applicable law alleged to have been ignored by the arbitrators was well defined, explicit and clearly applicable and the arbitrators knew about the existence of the clearly governing legal principle but decided to ignore it.

In United States, arbitration parties cannot agree to allow a reviewing court to review the legal decisions of the arbitration. Jurisdiction of a district court to review an arbitration award is limited by the terms of Federal Arbitration Act (FAA). Arbitration parties cannot expand that jurisdiction, even if both parties agree to do so.

Arbitration Award cannot be overturned if the arbitrators make a mistake of fact. Permitting arbitration parties to challenge the factual findings of arbitration panel would undo the primary benefit of arbitrations by undercutting their finality. Unless arbitration award is vacated for other reasons, facts found by the arbitrators cannot be challenged later.