This article explains the process and costs of arbitration under the LMAA rules and how to effectively enforce an arbitral award.
What is the LMAA?
The LMAA (London Maritime Arbitrators Association) is an association of practising maritime arbitrators founded in 1960. The association promotes the adjudication of maritime disputes through ad hoc arbitration in London. To this end, the LMAA has developed a set of arbitration rules and regularly updates the same to reflect recent practice, administers a list of arbitrators and promotes their qualifications.
Unlike fixed, institutional arbitrations (e.g. GAFTA, FOSFA, LCIA or ICC), the LMAA procedure is an ad hoc arbitration which is formed specifically to deal with one particular dispute. The arbitration procedure is controlled solely by the arbitrators (not the association itself) in accordance with the terms of the LMAA.
LMAA arbitrators must meet high requirements: they must have at least 15 years' experience in shipping (commercial, technical, legal) together with knowledge of English contract and tort law and arbitration procedures.
When can I commence LMAA arbitration?
The parties can commence LMAA arbitration in two cases:
- if the contract contains an LMAA arbitration clause;
- if the contract, although not containing an LMAA arbitration clause, provides that both parties shall nominate arbitrators in the case of a dispute. Later, the parties may submit to the arbitrators a written confirmation of their agreement to hear the dispute before the LMAA.
In the arbitration clause, it is advisable to detail the terms of the arbitration: the number of arbitrators who will hear the dispute, how they will be appointed, the specific LMAA terms under which the dispute is to be heard (the LMAA has developed several such terms). For example, the parties often stipulate that if the claim does not exceed USD 100,000, the dispute shall be heard under the LMAA Small Claims Procedure (simplified procedure).
What kinds of disputes are heard by the LMAA?
Arbitrations under the auspices of the LMAA most commonly deal with disputes over charterparties, bills of lading, ship sale and purchase, marine insurance, offshore and oil and gas industry disputes and other maritime related matters.
However, there are no restrictions in the terms to deal with other kinds of disputes not related to "shipping", and as such any dispute may be referred to LMAA arbitration.
The LMAA Terms
As mentioned above, the LMAA has developed several versions of arbitration terms.
LMAA Small Claims Procedure
This procedure involves a single arbitrator, a limitation on the length of documents (e.g. a letter of claim not exceeding 2,500 words) and no oral hearings. There is also no possibility of appeal to the High Court of Justice in London.
If the Parties wish for the "simplified" terms to apply to a dispute, they sould state this in the arbitration clause. As a general rule, arbitrators will deal with disputes up to USD 100,000 using this procedure. If the amount in dispute is higher, any party may submit a note to the arbitrator requesting that the dispute be dealt with under the LMAA Intermediate Claims Procedure or the LMAA Terms 2021. If such a note is not submitted, the dispute, even if it exceeds USD 100,000, will continue to be handled under the simplified terms.
The parties may set a higher limit in the arbitration clause for disputes that can be dealt with under the simplified procedure, e.g. USD 500,000.
LMAA Intermediate Claims Procedure
A dispute shall be dealt with under this procedure if the parties have stipulated so in the relevant arbitration clause.
As a general rule, the tribunal will hear disputes over USD 100,000 (or such higher amount that the parties themselves have stipulated shall be heard using the "simplified" proceedings) but not exceeding USD 400,000. If the claim or counterclaim exceeds this amount, either party may submit a note requesting that the dispute be heard under LMAA Terms 2021.
LMAA Terms 2021
These are the standard terms that apply to all disputes unless the parties have chosen another procedure.
Compared to the previous edition of 2017, the new terms have been supplemented with a detailed procedure for remote hearings. Another innovation is the possibility to sign the award with an electronic signature (unless the parties separately request written copies).
Cost of arbitration
The costs of arbitration proceedings depends on which arbitration terms apply to the dispute:
- LMAA Terms: the arbitration fee is unlimited. There is then an hourly charge for the arbitrators' time spent on the dispute. The arbitrators may request an advance on future arbitration costs (and they frequently do so).
- Procedure for "intermediate" disputes: the arbitration fee should not exceed 1/3 of the claimant's legal costs.
- "Simplified" procedure: the arbitration fee is fixed at £4,000 and an additional £2,500 if a counterclaim is filed in excess of the claim.
In all three cases, the parties are required to pay an additional £350 for the appointment of an arbitrator.
If the costs of arbitration is not paid, the arbitrators may decide to dismiss the case.
As a general rule, the cost of arbitration shall be reimbursed by the losing party to the successful party.
Can legal costs be recovered?
Yes. As with the cost of arbitration, arbitrators can impose legal costs on the losing party as a result of the dispute.
The procedure for "intermediate" disputes sets a limit on the recovery of legal costs which must not exceed 30% of the value of the claim. This limit increases to 50% in the case of oral hearings.
Under the simplified procedure, the limit for recovering legal costs is £5,000.
What is the procedure for adjudicating a dispute?
The arbitration will commence when a party submits a written request for the nomination of an arbitrator to the other party. Depending on the terms of the arbitration clause, the tribunal may consist of one or three arbitrators. In certain cases, the LMAA President is authorised to appoint the arbitrator(s) (e.g. if the parties have failed to agree on a single arbitrator).
Further steps and timelines depend on the specific LMAA rules under which the dispute is being handled. Using the LMAA Small Claims Procedure as an example, the process is as follows:
- the claimant has 14 days to file a letter of claim from the date of the arbitrator's nomination;
- the defendant then has 28 days to file a letter of defence;
- the claimant may then file a letter of reply within 21 days;
- the defendant has the right to file its reply within 14 days.
Subsequent exchanges of written submissions are possible, subject to the arbitrator's authorisation.
80% of disputes in the LMAA are resolved by written documents, without an oral hearing. The issue of oral hearings is decided by the parties themselves, but if they do not agree, the arbitrator/tribunal will decide.
Can an LMAA arbitration award be appealed?
An arbitration award can be appealed to the High Court on the following limited grounds:
- an error in the application or interpretation of the law. To appeal on this ground, permission from the court must be obtained;
- a serious breach of arbitration procedure (arbitrators violated the principle of impartiality, exceeded their authority, did not follow the procedure agreed by the parties, etc.);
- a breach of jurisdiction of the dispute (e.g. the arbitral tribunal could not hear the dispute, or the arbitration agreement was invalid).
Practice shows that appeals to the High Court are successful only in isolated cases.
How do I enforce the award?
Once the award is issued by the tribunal, it has to be recognised and enforced either at the place of registration of the company or at the location of the debtor's assets (e.g. in the country where the debtor has a bank account). Normally, the recognition procedure involves filing a certified copy of judgment and of the contract containing the relevant arbitration clause with the local court, in order to verify compliance with the formal legal requirements of the country in which enforcement is sought. At the recognition stage, the court does not review the award on the merits. The award is then handed over to the executor to seize assets and enforce recovery against the debtor.
How can the award be enforced?
If the place of arbitration is London, to enforce the award, the prevailing party can apply to the English court for a “worldwide freezing order” (known as a WFO).
Its purpose is to "freeze" the debtor's worldwide assets for the amount owed. Even more impressive is that directors and sometimes beneficiaries can face imprisonment if they fail to comply with such an order. In tandem with a WFO, it is also common for an applicant to obtain a disclosure order, under which the debtor is required to disclose all his assets (the consequences of violating this order are similar to a WFO).
The main advantage of the WFO is that it can be obtained before the claimant goes to arbitration, and the hearing where the court will decide whether to issue the WFO is held without the debtor being present (in order to avoid tipping off the debtor and allow him/her to dissipate any assets).
Fortior Law is an international dispute resolution firm with its main office in Geneva (Switzerland), and offices in Rotterdam (the Netherlands), and Kyiv (Ukraine). The Ukrainian office and GAFTA and FOSFA arbitration practice are headed by Danil Hristich, who has been recommended by The Legal 500 in Dispute Resolution and International Trade in 2020. For more information, please contact [email protected], [email protected] or your usual contact at Fortior.