Pacific Maritime Magazine - Marine Business for the Operations Sector

Resolving Maritime Disputes Through Arbitration

 


I am a representative of shipowners, and also serve as a commercial arbitrator and mediator. I work with maritime arbitration in both roles, and the interests of both are largely aligned. The goal of both is a fair, honest, fast and competitive way of resolving disputes.

In the following article I will describe some of the issues, strengths and weaknesses of maritime arbitration as I see them, and then describe some potential strategies for successful maritime dispute resolution by arbitration.

Maritime Arbitration is generally ad-hoc. This means that the parties and the arbitrators agree to the procedure, although a set of ready-made ad-hoc rules might be adopted. Maritime claims tend to be fairly small, on average, and rarely lead to a hearing, tending to be decided on documents only. Institutional arbitration is felt to be time consuming and expensive, but parties might prefer institutional arbitration for larger claims, so that proceedings are administered in an orderly and regular manner. But since most maritime arbitrations are ad-hoc, this article will deal more with ad-hoc arbitrations.

While a basic knowledge of the law is important for an arbitrator, it is also important to recognize that most maritime contracts are not agreed between lawyers. They are agreed between commercial people, who will have many other commercial issues to deal with when negotiating the terms of the contract. When a negotiation takes place to charter a ship, for example, the interest of the owner is to find employment for his vessel, while the interest of the charterer is to fulfill a purchase or sale contract. They agree to the contract as willing parties, but are usually not too concerned about the exact wording contained in that contract. ‘My word is my bond’, as the Baltic Exchange in London used to promote. The intention of both parties at the outset is usually clear; to agree to work with each other in the performance of the contract. A handshake or verbal agreement is felt to be just as good as a written contract. This is why, for many maritime arbitrations, the contract is described in the fixture note, a short recap that is intended to be written into the more detailed proforma contract referred to in the fixture note, but rarely is.

It is said that many owners and perhaps also charterers tend to put the contract, possibly unsigned, in the bottom drawer of their desk, so that they can get on with other important issues. Nowadays, they might store it in some mailbox in their e-mail program. The agreement is there, that the charterer will charter the ship and the owner will provide the ship and, of course, nothing will ever go wrong.

Then a dispute arises. So the bottom drawer is opened, and the contract found. A commercial person will go through the contract to see if there is a clause that permits or does not permit the reason for the dispute, and if it is not immediately obvious the contract will be handed to a lawyer to find reason to berate the other side.

The dispute then becomes a legal argument, which tends to be based on what the wording of the contract says, and which could well be different from what the parties intended when they made the contract. Some of the legal arguments can be quite creative, and perhaps persuasive to the party being advised. This is when I would advise mediation, at this early stage when the parties are still very much involved and retain at least some memory of why they made the contract in the first place. Better to settle the dispute rather than to harm the relationship between the parties. Mediation, however, has the drawback that the decision to settle has to be made by the parties, not by the mediator. Sometimes, what is needed by one party or both is an expert decision, a third party decision, so the losing party can go back to his superior with a decision in hand that he did not make.

And so arbitrators are appointed. Occasionally the Claimant will ask that a lawyer be appointed. This is not necessarily a bad thing, but one has to ask the question ‘why’? Is there a difference in the Claimant’s view of the decision that a lawyer is likely to make compared to that of a non-lawyer? Perhaps the Claimant’s argument will be very legal, and they consider that a lawyer will better understand the argument.

This sends the signal that the argument of the Claimant is quite possibly based on a legal interpretation of the fine print of the commercial agreement, which might not be what the parties had in mind or understood when they agreed the contract. In fact, what can become apparent in some cases is the more extensive the legal argument, the less confidence the advisor to that party has in winning the dispute. The amount of paper submitted to a Tribunal is not always evidence of confidence in succeeding.

Arbitration should be the resolution of commercial disputes by commercial people. Of course, this includes lawyers, particularly those with commercial understanding. Arbitration is not the extensive legal analysis of every word of a contract, but an attempt to understand what the parties intended when the contract was agreed.

There are instances, perhaps too many, of parties entering a contract with the intent not to perform the contract at all, or with the intent not to perform in accordance with the terms of the contract. It is very possible that in these types of dispute, a firm legalistic approach could be necessary, in order to make sense of what will likely be a long drawn out process.

Which leads to the first entry on a list of strategies for successful dispute resolution by arbitration.

Know your contract partner. For a while I was in charge of compliance in dry bulk chartering of a commodity trader. On many occasions, the procedures we put in place to know the contract partner before the trade took place were totally ignored. The desire to charter a ship, any ship, to fulfill a commodity trade overrode the basic principles of knowing who you were working with. On more than one occasion, we were left with a ship that had not sailed for some considerable time. This is still happening today – a fancy website with web links to well known companies is not a sign that you are dealing with a potential first class partner. Nor are the promises of the partner’s good standing offered by a broker.

Do not overlook the dispute resolution clause. The main issue that concentrates the mind during negotiations is the amount of freight or the payment clause. Too often, dispute resolution clauses are ignored because it is assumed during negotiation that a dispute will never arise. They tend to consist of no more than 6 words, with no indication of what will happen if one of the parties becomes reluctant. A good dispute resolution clause, and every contract has the potential to end up in a dispute, is worth its weight in gold.

Choose the seat of the arbitration very carefully. This should not be a negotiation, where somewhere is agreed that is not the residence of either of the parties, or is located mid-way between the parties. What is the procedural law in that place of arbitration? Can you choose your arbitrators or do you have to accept an arbitrator appointed for you? Can you have an ad-hoc arbitration, or does it have to be administered?

Choose the substantive law of the contract very carefully. This is not something that should be a compromise between the parties when negotiating, but the result of an assessment of the differences in legal systems.

Retain evidence, and obtain witness statements early on in the process. Too often, claims or defenses fail due to lack of evidence, and who can remember exactly what took place some 3 years ago.

Be involved in the resolution of the dispute. Too often, it seems that the parties are not involved, and are surprised when their representative calls them to a hearing or to produce more evidence.

Take any opportunity to settle the dispute. Times will arise during the process when potential resolution is possible, and it is important to be able to move fast with authority and intent.

Have a strategy in place if your counterparty becomes reluctant. How will you press forward with your claim?

Present a complete set of Claim Submissions at the start of the arbitration. Too often I have been presented with Claim submissions that are half-baked, do not add up, with claims that are not justified and without supporting evidence of those claims. There might not be another shot at the claim if the Respondent becomes reluctant.

Reduce the number of issues at the earliest opportunity. The number of issues can mount during the arbitration, leading to lengthy hearings that could have been cut to a minimal time, or even dispensed with, if the number of issues could have been reduced. It is not necessary to argue out each point with lengthy and detailed submissions, submissions that might well become repetitive. This results in even more for the arbitrator to read, boosting his costs and reducing his boredom threshold.

Above all, keep your professionalism. Just because one party is acting like a spoiled child (forgive the comparison, but it does happen) does not mean that both parties need to spoil for a fight.

Arbitration continues to be the preferred method of determining maritime disputes. It might not always be the least expensive, especially for long drawn out disputes with many issues to resolve, but for the majority of maritime disputes it is cheaper than litigation. Arbitration is confidential, especially if the Parties have not opted-in to allow for appeal, and it is enforceable in foreign courts through the provisions of the New York Convention.

And if you are considering arbitration, then Hong Kong must be on your list of preferred jurisdictions. Our system of Common Law, availability of highly experienced law firms and Hong Kong resident arbitrators, convenient access to the mainland and the major maritime centers in Asia, and the support of the judiciary and our Hong Kong International Arbitration Centre all make Hong Kong a good choice for arbitration.

Arthur Bowring is the Managing Director of the Hong Kong Shipowners Association, and a Maritime Arbitrator and Mediator. He has more than 45 years of experience in the marine industry, both operational and commercial, and more than 25 years of experience in resolving maritime disputes, as a party (as charterer, operator, owner and manager) and as an arbitrator and mediator. He can be reached at arthur.bowring@hksoa.org.

 
 

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