REUTERS | Toby Melville

If it ain’t broke, don’t fix it: the LMAA Terms 2017

The London Maritime Arbitrators Association (LMAA) Terms 2017 come into force on 1 May 2017 and apply to all LMAA arbitrations commenced on or after that date. In truth, the new terms introduce very limited changes to the well-established and familiar LMAA procedures, and can probably be seen as more of a fine-tuning exercise than a root and branch reform. Indeed, the LMAA has been upfront about this: the committee tasked with reviewing and amending the terms wished to maintain the existing “light touch” approach of LMAA arbitration.

A little context first. Although routinely ignored in surveys and statistics relating to international arbitration, LMAA arbitration represents the lion’s share of commercial arbitration which takes place in London. The LMAA has estimated that 1,813 LMAA arbitrations were commenced in 2015, a figure that exceeds all other international arbitrations in London. Admittedly, many of these arbitrations will concern smaller or more straightforward claims. However, and nevertheless, LMAA arbitration is a popular and well-established method of resolving disputes. In saying that, LMAA arbitration is not “institutional”, in the sense that these arbitrations are not administered by the LMAA. Instead, the terms provide a general framework but leave scope for the parties and tribunal to adopt and tailor procedures.

Against that background, it is perhaps not surprising that the LMAA has adopted a cautious approach to reform. For example, and as already noted, and unlike many other arbitration institutions, no provision is made for emergency arbitrators. This is hardly surprising, given the availability of freezing injunctions from the Commercial Court and vessel arrests worldwide as means of securing claims in maritime arbitration. The LMAA will no doubt have had in mind the familiarity of parties with the existing rules and procedures, which are now deeply embedded in London maritime arbitration.

So what changes have been introduced? Perhaps the most significant amendment is not really a change at all: the Checklist (previously published as Schedule 3 to the 2006 Terms, then relegated to advisory status in the 2012 Terms) is reintroduced in the Fourth Schedule and given greater force by paragraph 13 of the Second Schedule. Paragraph 13 requires the parties to “actively consider ways in which to make the arbitral process as cost-effective and efficient as possible”; this includes taking into account the Checklist. Further, a failure to comply with the Checklist may be taken into account when awarding costs (Second Schedule, paragraph 19). These changes reflect the fact that the Checklist was often ignored or forgotten in practice (the LMAA commented that some parties and representatives appeared to be “blissfully unaware” of its existence). It probably also reflects a more general desire to ensure the efficiency and cost-effectiveness of LMAA arbitration, with a view to maintaining the LMAA’s position in the arbitration market. The effect of the amendment in practice will depend, of course, on whether arbitrators and parties pay real regard, rather than just lip service, to the guidelines in the Checklist… old habits die hard, and it will be interesting to see whether, for example, failure to adhere to the Checklist will affect liability for costs in practice.

Appointments procedures have been tidied up a little, with new provisions clarifying that the default procedure under section 17 of the English Arbitration Act 1996 (AA 1996) applies where parties are required to appoint a three person tribunal. For sole arbitrators, there is a new term (paragraph 11) providing for the President of the LMAA to make default appointments. In the context of smaller claims, the Small Claims Procedure (SCP) financial limit is raised from US $50,000 to US $100,000. New provisions aimed at limiting the length of submissions, and allowing the tribunal to require submissions to be reformulated if they are too long, have also been introduced. In practice, lengthy submissions in SCP arbitrations have become ever more prevalent, and these new provisions send a strong message to parties and their representatives.

The new terms also strengthen the tribunal’s ability to order security for its own fees, by conferring greater discretion as to when and by whom security may be requested, and the consequences of failure to provide security. This includes the ability to make a peremptory order and suspend its work, as well as vacate hearing dates (paragraph E of the First Schedule). There has long been a power to order such security (and the tribunal would have power in any event under the AA 1996). However, the new terms aim to strengthen the tribunal’s position. The significance of being able to make a peremptory order is that failure to comply will entitle the tribunal to dismiss the claim. Of course, this hardly ever happens in practice.

Chain disputes are very common in the shipping context. The LMAA decided against introducing a wholesale power to consolidate disputes, but the new terms provide (Second Schedule paragraph 16) for time limits to be truncated in such cases. This is intended to avoid the delays that can occur when back-to-back submissions have to travel up and down the chain.

The new terms also make clear that the CPR Part 36 regime relating to offers to settle do not apply in LMAA arbitration. In practice, tribunals and parties have often referred to the principles underlying Part 36 by way of analogy; for example, by making an offer that states that it is intended to have the same consequences as a Part 36 offer. The new terms confirm that Part 36 is not relevant. However, no guidance is given as to the factors that may be taken into account. In practice, it is unlikely that parties or tribunals will ignore the Part 36 jurisprudence entirely.

In summary, these are cautious and incremental changes, and their effect in practice will depend in large part upon whether parties and tribunals are willing to embrace them.

20 Essex Street Karen Maxwell

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