The Future Lawyer Weekly Briefing – W/C 20th November 2023

MARITIME ARBITRATION: AN OVERVIEW

Arbitration, a form of ADR, is a technique for resolving disputes outside the courts. The parties to a dispute refer it to arbitration by one or more person’s arbitrators and agree to be bound by the decision (the ‘award’).

A third party reviews the evidence of the case and imposes a legally binding decision on both sides, which is enforceable in the courts.

Arbitration is less formal, less costly and more accessible than court procedures.

Background

Arbitration has historically been used in the international shipping sector to settle disputes. The bulk of marine contracts, including those for construction, contracts for the carriage of commodities by sea, maritime insurance, and salvage, which govern the most crucial phases of nautical life, from the birth of the vessel to its demise, provide recourse to arbitration.

Maritime contracts typically entail arguments over large sums of money between knowledgeable parties, pushed by the mandate to maintain the ships at sea to continue the generation of revenue. The decision to arbitrate is driven by significant procedural benefits, including the global enforceability of arbitral rulings, the forum’s neutrality, the option to select sector-specific arbitrators, the procedures’ efficiency, and the privacy this process ensures.

Maritime Arbitration is independent with its own objective rules that are represented in the applicable law on the subject of the dispute. It makes great strides in establishing its professional law with its sources manifested in typical Navy contracts as a means of dispute resolution, the practices and customs of maritime trade, and Navy arbitral precedents.

It is, therefore, the pinnacle of international commercial arbitration due to its diversity and scope. It is present worldwide, both in institutions and in its conventional ad hoc form, and it exactly fits the definitions of ‘international’ and ‘commercial’ in Article 1 of the UNCITRAL Model Law.

Maritime activities

Differing nationalities of the ship, the carrier, and the charger bring on international marine activity. This activity is related to the movement of goods and services between nations and the correlation between marine activities and, therefore, accommodates the flexibility and nature of arbitration. As one of the most significant economic activities various countries have chosen to engage in, the state and the general public are becoming more involved in maritime activities.

As a result, the parties to the marine transaction wanted to keep the national judiciary’s jurisdiction away from them out of concern that it wouldn’t be able to keep up with the interests of the State Parties to the maritime interactions.

Maritime arbitration’s use is evident in the following circumstances:

Disputes arising from Navy contracts

Contracts of affreightment

A contract of affreightment is an agreement between a shipowner and a charterer in which the shipowner guarantees to provide the charterer with a specified number of cargoes at a fixed price during a specified timeframe.

Regardless of whether the goods are prepared for shipment, the charterer must cover the shipping cost under this agreement. Affreightment contract disputes can occur for several reasons, such as:

• Freight and payment disputes – Arbitration is an effective way for parties to settle disputes regarding freight prices, payment schedules, or similar financial considerations.
• Cargo quantity and quality disputes – Arbitration may be used to settle disagreements over the quantity and quality of the cargo. This may apply when the delivered cargo falls short of the agreed-upon requirements or when damage occurs.
• Liability and indemnity claims – Arbitration can offer a neutral forum to evaluate these claims if one party seeks compensation or indemnity for claimed contract violations or liabilities.
• Contract breach claims – An arbitration provision can ensure that such claims are settled out of court when one party accuses the other of breaking the contract.
• Insurance coverage disputes – Arbitration may be a good option if there is a disagreement regarding insurance coverage or reimbursement for cargo damage, pollution incidents, or other insured events.

Bill of lading

A bill of lading (BOL) is a legal document with several uses for marine trade and shipping. It serves as a document of title, a receipt for commodities, and a transportation contract.

It describes the terms and conditions of the agreement for the transportation of the products between the shipper (the person sending the goods) and the carrier (the party in charge of conveying the goods, sometimes a shipping business). Upon receiving the goods, the carrier issues the BOL to the shipper or their representative.

Shipbuilding contracts

Following the conclusion of a contract, there may be disagreements regarding the vessel’s conformance to the predetermined standards between the contracting parties.

Insurance

Some arguments over insurance-related issues can occur among individuals who take the place of original beneficiaries per the subrogation concept.

Associated marine matters

Marine-related problems, such as lawsuits against ship providers or conflicts with port authorities, may also occur.

Disputes arising out of marine accidents

Collision

Due to the nature of a maritime collision, it is unlikely that the parties involved have prior agreements requiring them to resolve their differences through arbitration. Therefore, the use of the appropriate courts to resolve these conflicts is accomplished. Any marine collision brings to light two key issues: responsibility and compensation.

Salvage

It is undertaken through the use of special model contracts, whereby the signing of the ship’s captain on the model signifies an acknowledgement of the ship’s owner’s obligation to pay this agreement’s expenses without mentioning their value, which is frequently determined by arbitration as held under the prescribed rules, and which is commonly attached to the model.

Maritime arbitration parties and representatives

In most cases, the owners and tenants of ships who are parties to this type of arbitration may be sellers or buyers of ships. Conversely, protection and indemnity clubs may be paid as a party to the maritime arbitration where there are insurance offers against other parties, with an example being the insurance against damage or loss of goods or marine insurance against various naval accidents.

This is primarily due to the nature of the insurance coverage offered by P & I Clubs and the fact that most activities connected to tort claims or disputes result from contracts that don’t frequently contain arbitration clauses. Thus, there aren’t many of these issues needing arbitration.

On the other hand, the defence clubs are only responsible for covering their members’ legal fees whether they are being prosecuted or defended. In this sense, the defence clubs’ discretion governs whether or not to reimburse the members of these groups for their legal costs.

The law applicable to the subject of the maritime dispute

In an arbitration agreement, the applicable law on the dispute’s subject is entirely up to the parties. This legislation recognises its priority, which is the explicit will of contracting parties or the implied ones to choose the applicable law on the subject of the dispute. So long as this does not violate jus rules relating to public order in the contiguous state, the parties may choose to apply the principles established in the most comparative legislation when organising conflict of laws rules in the foreign-element contractual relationships.

The freedom granted to the parties to the maritime relationship in this regard is to be given to the maritime arbitral tribunal, which has the freedom to determine the law, which may be a national or non-national law, according to which the arbitral tribunal considers appropriate to settle the subject of the dispute.

Suppose the parties to the maritime relationship did not explicitly or implicitly decide the applicable law on the subject of the conflict. However, the Hamburg Treaty of 1978 relating to international maritime transport of goods, the first international text addressing sea arbitration, limited the freedom granted to the arbitral tribunal.

In conclusion, maritime arbitration is a subset of international commercial arbitration because it transfers money, goods, and services across the borders of numerous nations, whether this relationship is started between private individuals or between them and a public entity.

Being a sea contractual activity, maritime arbitration handles all disputes resulting from international maritime private contacts, whether those relationships are contractual or otherwise, further defined by the type of activity it uses to resolve conflicts.

Maritime Arbitration is independent with its rules of procedure manifested in Arbitration Maritime regulations, whether institutional or free. The laws must be adhered to by the parties when choosing this institution or another.

Further, the regulation of the Centre for the Free Maritime Arbitration abides by the arbitrators due to the parties’ commitment, which has become accessible to all practitioners of marine activities.

Briefing by Noor Tahir