Maritime arbitration in London – the LMAA
The London Maritime Arbitrators Association – the LMAA1 – has its roots in the commercial shipping market. In the City of London, it was the practice for disputes to be resolved, often informally, by members of the shipbroking fraternity, often brokers on the Baltic Exchange – sometimes over a gin and tonic in the bar!
The LMAA was founded in 1960 by a group of such brokers who had been acting as arbitrators. Its membership has expanded beyond commercial shipping to include vessel construction, off-shore projects, yachts and super yachts – indeed everything to do with ships, shipping and boats (as well as the occasional commodity or oil transaction). Among its members are all kinds of commercial people, lawyers and people from commercial and technical backgrounds including marine engineers and naval architects.
Not an institution
The most important thing to know about the LMAA is that it is not an institution but is simply an association of arbitrators. Its main purposes are to assist with the cost-effective and speedy resolution of disputes and to promote best practice among maritime arbitrators.
Unlike institutions (such as the ICC and the London Court of International Arbitration (LCIA)), the LMAA does not administer arbitrations. There are three main advantages to this.
Parties do not pay administration fees to the LMAA. The institutions have staff who supervise the conduct of arbitrations and the resultant awards. The LMAA members deal with administrative matters themselves.
The procedure is quicker than institutional arbitration. For example, it is not necessary to spend time drafting and agreeing terms of reference at the beginning of the arbitration. Instead, these are defined through the submissions and questionnaires which are completed by the parties. When the arbitrators write their decision, is not necessary for anyone to review and approve it.
In most cases, the LMAA does not appoint arbitrators. Parties are free to choose their arbitrators, subject to any restrictions in the arbitration clause in their contract. They do not even have to choose LMAA arbitrators, though arbitrators must be independent, and it is a good idea to use arbitrators who are familiar with the LMAA Terms. The Full and Supporting Members of the Association have a wide range of experience and skills, so for any case it will be possible to find suitable arbitrators from the membership.
Terms and Procedures
The LMAA publishes terms for arbitrations (“the LMAA Terms”). These can be found on our website, where copies can be downloaded. There are also guidelines, to help parties understand how the Terms operate.
The Terms are frequently reviewed and updated by a sub-committee, to ensure that they reflect current best practices. Indeed this process if going on at present so that in a few months the 2017 Terms, which are current, should be replaced by the LMAA Terms 2021.
Where parties agree to LMAA arbitration in their contract, these Terms will apply. They also apply whenever arbitrators accept appointment on the basis of the Terms, which all members of the LMAA do.
In addition to the LMAA Terms of general application, there are procedures for small and medium-sized claims:
The Small Claims Procedure (SCP). This is designed to provide a quick and cost-effective method of resolving small disputes, by limiting the length of submissions and the scope for evidence. In most cases, disputes are resolved under the SCP without an oral hearing, by reference to written submissions and documents alone.
The Intermediate Claims Procedure (ICP).
The LMAA Terms, reflecting the provisions of the Arbitration Act 1996, which governs arbitrations in England and Wales, state that the purpose of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense. They make it clear that the arbitrators are under a duty to act fairly and impartially between the parties.
Because the Terms are available to read, we will not discuss the procedures in any detail here, but rather will give a brief description of the sort of experience which a party to an arbitration might have.
For most disputes, it is likely that a party will have a lawyer to represent it, although sometimes parties represent themselves, particularly in small claims.
The arbitration is started by the appointment of the tribunal. If a lawyer is involved, then they will arrange for this on the party’s behalf. It is important for parties to discuss with their lawyer their choice of arbitrator. A party has no control over the arbitrator chosen by its opponent unless there is some agreement with them about this. But both will want to be sure that they appoint an arbitrator who has relevant experience. The LMAA publishes profiles of its Full Members on its website.
Appointment is a simple process. There is no need for a request to be filed with the LMAA. To appoint an arbitrator, one will email or telephone them, to check first that they have no conflict of interest and that they are available to accept the appointment. The arbitrator is permitted to invoice for an appointment fee, currently £350, plus UK VAT where applicable.
Usually, the arbitration agreement will be for a tribunal of three arbitrators, and sometimes for a sole arbitrator. Occasionally, there may be an umpire instead of a third arbitrator. In many cases a sole arbitrator is a good idea, since the efficiency of the process can be heightened and the costs reduced with a single person.
As the LMAA Terms state, every arbitrator is impartial and is not to be considered as the representative of the party who appointed them.
First let us consider an arbitration under the general LMAA Terms and then look briefly at the SCP and the ICP. Lastly we mention briefly mediation, a process which many LMAA members also offer, and which is very different from arbitration.
Arbitration under the LMAA Terms
The usual procedure is that one party appoints an arbitrator and gives notice of that appointment to the other party. Under many arbitration clauses, the party making the first appointment calls on its opponent to appoint a second arbitrator and to give notice of that appointment within 14 days, saying that if they do not do so, the first party will appoint its arbitrator as sole. There are variations on this scheme, and absent any particular provisions the Arbitration Act 1996 sets out details as regards appointments.
Sometimes the arbitration clause provides for a sole arbitrator, or the parties agree to this. In such a case, if they cannot agree on the choice of arbitrator within 14 days, then either of them can apply to the President of the LMAA to make an appointment, as long as the arbitration agreement is on LMAA Terms and says nothing to the contrary. Failing that, the Court has to make the appointment.
The arbitrators have a discretion to decide all matters relating to procedure and evidence, with a view to making the arbitration efficient and cost-effective. The normal procedure is set out in the Second Schedule to the LMAA Terms, although this can be varied.
In many cases, the parties will agree that the arbitrators can proceed to their decision on the basis of the written submissions and supporting documents, without any further proceedings. If that is not so, then after exchange of submissions, the parties must complete a form of questionnaire. This is an important document. It describes the issues between the parties and helps the arbitrators to decide what procedures should be followed. It covers such questions as whether either party seeks further disclosure of documents, whether witnesses of fact and experts will be required, and whether a hearing date can be fixed.
It also obliges the parties to estimate costs to the end of the arbitration. This is very important because it requires the parties to focus on the likely costs of resolving their dispute. Experience shows that where there is an oral hearing, it is the later stages of a case that are the most important. The parties must also state whether they have considered mediation.
The questionnaire must be signed by an authorised officer of the relevant party. This ensures that each party considers the content of its questionnaire and that it is not left entirely to their lawyers.
If there is to be evidence from witnesses of fact and experts, the arbitrators fix a timetable for exchange of written witness statements and experts’ reports. The arbitrators will usually require the experts to discuss the issues in the case between themselves, to narrow those issues as far as possible and to produce a joint statement, describing areas of agreement and of disagreement. The purpose of this is to ensure that expert evidence at the hearing is limited to matters which are really in dispute.
In the Fourth Schedule to the Terms, there is a series of guidelines in the form of a checklist, with a view to ensuring that the parties conduct the proceedings efficiently and cost-effectively.
If the dispute is not to be resolved on written submissions and documents alone, there will be a hearing.
We try to avoid delay in the fixing of hearing dates by reason of the arbitrators’ lack of availability. At the beginning of the arbitration, if it is known that an early hearing will be required, the parties must consult and check on the availability of the arbitrators at that stage. Otherwise, there are terms in the Fifth Schedule, the object of which is that the arbitrators should be available to fix a hearing within a reasonable time of the date when the parties expect to be ready. In certain circumstances, arbitrators can be replaced if they are unable to offer availability in an appropriate time. Happily this very rarely happens nowadays.
The hearing usually takes place in London at a neutral venue. There are specialised venues for dispute resolution which provide facilities for arbitration in central London. At the hearing, the parties are usually represented by their law firms. The case is presented to the arbitrators, either by members of those firms or by barristers.
Arbitration hearings are much less formal than court proceedings. The lawyers do not wear wigs or gowns. The parties and their representatives sit round tables in an office environment.
Because of the COVID-19 pandemic, hearings have been taking place virtually, using video facilities. Even when the restrictions are eased, it is likely that many hearings will continue to be conducted at least partly by virtual means. Even before the pandemic it had become quite common for witnesses to give evidence by video link, to save the costs of travel or accommodation, or when they were unable to attend at the hearing in person.
The LMAA has published a set of guidelines for virtual hearings. They are based on practical experience of arbitrators, barristers and law firms and are very detailed. They cover such matters as preparation for the hearing, etiquette at the hearing, oral testimony from witnesses, and the use of electronic bundles.
The LMAA tries to ensure that awards are issued promptly. The time for the award always depends on the circumstances of the case. It will take longer when there has been lengthy factual and expert evidence than in a case which turns on the legal interpretation of the contract. Paragraph 22 of the LMAA Terms states that the award should normally be available within six weeks from the close of the proceedings: in many cases the time will be shorter.
During the arbitration, the arbitrators can issue interim invoices for their fees and expenses. They can also require that the parties give them security for their fees and expenses. The award is issued to the parties when they have paid the balance of the arbitrators’ fees and expenses. Sometimes, the parties agree to pay 50% each. On other occasions, one party pays 100%. The award then determines the ultimate liability for this sum, depending on which party has been successful.
Arbitrators have power to award recoverable legal costs and disbursements to a successful party.
The Small Claims Procedure
The Small Claims Procedure provides for a sole arbitrator. If the parties cannot agree on the choice of arbitrator, then one of them can apply to the LMAA and the President will make the appointment. The President takes into account the nature of the dispute when making that choice.
There is a fixed fee for an arbitration under the SCP. This is currently £4,000, plus an administration fee of £350 for appointment of the arbitrator by the President, plus VAT where applicable. The fixed fee covers the arbitrator’s charges for the proceedings, including the award.
There is a timetable for exchange of written submissions and supporting documents. There are limits on the length of these submissions. The parties can rely on experts’ reports only with the permission of the arbitrator. There is no hearing unless, in exceptional circumstances, the arbitrator requires this.
The arbitrator makes every effort to publish the award within one month after receiving all relevant documents and submissions.
In a simple case, where there is no counterclaim, no expert evidence and no oral hearing, the arbitration can be concluded within 13 weeks of the appointment of the arbitrator, and sometimes more quickly. If there is a counterclaim, then that period might extend to 15 weeks. In either case, the time will be shortened if the arbitrator is able to issue an award in less than one month. If there is expert evidence or an oral hearing, the timetable is less certain, but hearings are very unusual in SCP arbitrations.
The Intermediate Claims Procedure
The ICP also provides a streamlined procedure for certain disputes. Under the ICP, the timetable for submissions is similar to that in the SCP, but it is more common for parties to rely on factual witness statements and sometimes experts’ reports, so the overall time is somewhat longer. Nevertheless, the arbitrators’ decision is usually made by reference to documents and written submissions only. It is only in exceptional cases that an oral hearing is permitted.
As for the costs of an ICP arbitration, there is no fixed fee. But the amount of costs recoverable by one party from another is capped by reference to a percentage of the claim and any counterclaim. This is designed to discourage the parties from running up excessive costs. The arbitrators’ fees are also capped.
In all LMAA cases, it is always open to the parties to agree a much shorter timetable if they both want to cooperate in having their dispute resolved quickly.
Some LMAA members also act as mediators.
Mediation is different from arbitration because a mediator does not decide the dispute: the job of the mediator is to facilitate negotiations and help the parties to settle their dispute amicably.
Sometimes mediation will take place before any arbitration proceedings are started. Sometimes, it will take place while the arbitration proceedings are pending, often after written submissions have been exchanged.
In a mediation, the parties exchange written summaries of the dispute, for the information of the mediator. The mediation usually takes place on one day at a neutral venue. Lawyers may attend on behalf of the parties, but the mediator will not want to hear formal submissions from lawyers. It is important that mediation is attended by the parties themselves, or by representatives of the parties who have settlement authority.
The mediator consults with the parties on the best way to use the time in the mediation, but the mediator is responsible for creating the framework. They might, for example, start with a joint session during which each party describes its position. In any event, the mediator will spend time with each of the parties in turn, in order to understand their respective positions and their objectives. The mediator is likely to shuttle between the parties throughout the day.
If an agreement is reached in the mediation, then the mediator might assist the parties in drawing up a settlement agreement. Sometimes, outline heads of agreement are written down, and a formal settlement agreement is drafted later, with the assistance of lawyers.
The LMAA’s Mediation Terms can also be found on our website, together with a list of Full Members who are willing to act as mediators.
Bruce Harris, President,
David Steward, Committee Member
1 Further information is available on the Association’s website: lmaa.london.