PRE-EMINENCE OF PREFERRED SEATS IN MARITIME ARBITRATION – A CRITICAL REVIEW OF RELEVANT FACTORS AND GLOBAL TRENDS

Aditya Sethi*

Abstract

Shipping and arbitration have co-existed since the early development of shipping laws. Arbitration agreements have traditionally been admissible as a recognized principle of freedom of contract with merchants relying primarily on the temperament, wisdom and abilities of their experienced colleagues having knowledge and expertise in the related field.

Over the years,maritime arbitration has been fast emerging as a preferred means of dispute resolution in cases involving shipping and commercial interests. Arbitration is often regarded as a procedural countenance of lexmercatoria essentially because of its inclination towards party autonomy, where disputing parties intend to settle their disputes before a neutral and independent panel of experts. The law of arbitration is often viewed in light of practical expediencies, keeping in mind the ethical and economic norms of the disputing parties.

The seat of arbitration is a relevant consideration, given the fact that it operates with the framework of a national legal order and supports the local courts to procure evidence and assist in the appointment and removal of arbitrators. However, only a handful of the seats of maritime arbitration globally command the trust and confidence of the parties in dispute, making them the preferred seats.  

An examination of the relevant factors which lend credibility to the seat of maritime arbitration is thus essential for holistic understanding of the subject and also its qualitative proliferation.A critical analysis of thecurrently preferred seats of maritime arbitrationby threadbare review and co-relation of the relevant factors instrumental for its relative popularity internationally is also important for establishment and promulgation of the best practices in this field.

Key Words:Maritime arbitration, preferred seat, lexmercatoria, justice dispensation, party autonomy

PRE-EMINENCE OF PREFERRED SEATS IN MARITIME ARBITRATION – A CRITICAL REVIEW OF RELEVANT FACTORS AND GLOBAL TRENDS

Introduction

Shipping is and likely to remain the principle medium of global commerce. Along with the physical transportation of commodities, the growth in maritime transport and shipping has resulted in the proliferation of ancillary services like the port, financial & banking services, insurance, communications, IT & technical management sector, etc, thereby increasing the complexity and number of disputes amongst parties involved. Shipping law is a unique branch of commercial law which has evolved significantly with increased interactions between merchants through agreements which has formed the regulatory basis for shipping trade.

Shipping and arbitration have been natural allies since the early development of shipping laws.Arbitration agreements have traditionally been admissible as a recognized principle of freedom of contract with merchants accepting the decisions of their fellows having knowledge and expertise in the related field. Arbitration developed as a means of dispute resolution within the trade and merchant groups to privately resolve disputes in accordance with shared understandings and norms of the community.

            Arbitration is often regarded as a procedural countenance of lexmercatoria essentially because of its inclination towardsparty autonomy, where disputing parties intend to settle their disputes before a neutral and independent panel of experts. The law of arbitration is often viewed in light of practical expediencies, keeping in mind the ethical and economic norms of the disputing parties.

The fact that maritime arbitration and shipping complement each other, the practice in maritime arbitration is different from international commercial arbitration in terms of both infrastructure and procedures. The growth of maritime arbitration has predominantly been observed in common law jurisdictions like London, New York and Singapore with civil law jurisdictions being responsible for the regulation of commercial arbitration.

However, only a handful of the seats of maritime arbitration globally command the trust and confidence of the parties in dispute, making them the preferred seats.This essay seeks to examine relevant factors which facilitate pre-eminence of preferred seats in maritime arbitration and analyze the global trends.

Importance of Seat of Arbitration

The seat of arbitration is a relevant consideration[1], given the fact that it operates with the framework of a national legal order and supports the local courts to procure evidence and assist in the appointment and removal of arbitrators.[2] It directly influences issues of arbitrability, determines the substantial law governing the arbitration agreement and is relevant from the standpoint of challenging awards on standards of fairness and procedural impropriety.[3]It is argued that parties choose a particular seat as a matter of convenience which is governed by their desire for neutrality.[4]As a matter of fact, the seat is determined not by the parties but by the arbitration tribunal that they have selected.[5]

In Union of India v. McDonnel Douglas[6], the Court observed the importance of seat in context of the supervisory jurisdiction of the court rather than law applicable to the proceedings. The decision in Dubai Islamic Bank PJSC[7] reflected that the procedural regime could not be changed once a seat had been selected. This intersection has been incorporated in the domestic legislations of many jurisdictions[8], thereby encouraging and respecting the crucial aspect of party autonomy.[9]

Relevant Factors for Selection of Seat

It is pertinent that significant impetus is placed on the factors that positively influence the decisions of the parties in their choice of selecting a particular seat.TheQueen Mary University London and White & Case in the 2010 and 2015 Surveysconcluded that parties’ regard choice of seat as an important factor at the time of drafting their arbitration agreements.

In the two surveys, the participants indicated Londonto be the most preferred seat, followed by Paris, Geneva, Hong Kong and Singapore. The 2018 Survey reflected a similar positionwith the exception of Singapore having gained an effective margin of 10% above Hong Kong. Switzerland was also amongst the list of important jurisdictions with 38 % of the participants indicating it as their preference. Zurich in addition, to Geneva was considered to be the second best Swiss city as was preferred by 8% of the Respondents.

The 2010 Survey further indicated thatthe primary reasons for the dominance of London as a traditional seat for resolution of commercial disputes has been the use of English language[10]and the accessibility of its law in terms of procedural flexibility.[11] These factors have appealed the new arbitration markets of Russia and Middle East.[12]

Upon analysis of the statistics ofregional centres, Singapore and Hong Kong were ranked significantly high in the Asia-Pacific region.[13]  Geneva was the third most popular seat in Europe and Africa.[14]Sao Paulo was regarded as an important centre in Latin American region[15] with Rio de Janerio[16] and Miami[17] enjoying the reputation of being the gateway between North and South America.

The presence of a ‘formal legal infrastructure[18] with elements of reputation and recognition[19], independence and impartiality of the local legal system[20], national arbitration laws[21] and a coherent framework for enforcement of awards[22]have been regarded as the foremost parameters in the determining the choice for seat of arbitration. It is relevant to note that though parties are well aware of the undertones of the choice of seat, they expect that the arbitrators would strive to resolve important matters with minimum intervention by the courts.[23] These factors have remained consistent through the three surveys[24]hence, indicating that parties attach a certain degree of durabilityand consider them as inherent in determining the choice of seat.  

It is true that the emergence of an international arbitration procedure under the UNCITRAL Model Law has led to the gradual harmonization of the domestic arbitration laws, the fact that two thirds of the arbitration cases are seated in Non-Model Law jurisdictions like China, Japan, United States of America, and France is rather intriguing. This facetreflects on the standpoint that in addition, to formulation of regulatory standards, other parameters like local judiciary, tax incentives and general infrastructure like hotels, transport links, hearing rooms and practical considerations of language, culture, industry related expertise, costs, safety and bribery concerns have a major impact in determining the relevant characteristics of a particular seat.[25]

Relevant Factors for Selection of AnArbitral Institution

The 2015 Survey indicated that the responding parties view selection of a particular institution by taking account of the macro perspectives rather than dealing with specific aspects relating to their efficiency in administration of cases.[26] The factors that contribute essentially include general reputation and recognition[27], administrative experience of a particular tribunal[28], and previous experience of the institution[29], neutrality and wide pool of experienced arbitrators[30]. The reputation of the institution is also contingent upon the geographical background of the parties in the cases that are administered by a particular institution. In the choice for selecting the procedural framework in ad hoc arbitrations, the London Maritime Association Terms stood third[31], falling behind the UNCITRAL Arbitration Rules[32] and national arbitration laws[33]. The Respondents categorically agreed to the importance of ad hoc arbitration in the resolution of disputes in the maritime industry and commodity markets.

Prominent Seats for Maritime Arbitration

Over a period of time, some seats of maritime arbitration have attained unprecedented pre-eminence in comparison to others. Majority of these have been the traditional maritime centres, port cities or the successful seats of commercial arbitration. Their transition as preferred seat of maritime arbitration was perhaps a result of favorable evolution with time. At the same time some seats which did not enjoy the traditional advantage in the field like Moscow or Dubai, too have emerged as competing seats of maritime arbitration. An examination of the relevant factors which lend credibility to the seat of maritime arbitration is thus essential for holistic understanding of the subject and also its qualitative proliferation. A critical analysis of thecurrently preferred seats of maritime arbitration by threadbare review and co-relation of the relevant factors instrumental for its relative popularity internationally is also important for establishment and promulgation of the best practices in this field.

London

In recent years, London has established itself as one of the foremost centres for settlement for maritime disputes.[34] One of the primary reasons for this success has been the important role played by the London Maritime Arbitration Association(LMAA) in establishing procedures for the conduct of maritime arbitration in congruence with the expectations of the market and with the support of specialist arbitrators on the approved list of the Baltic Exchange. The positive intent shown by the judiciary[35] has also contributed in giving huge confidence to parties engaged in maritime commerce to adopt London as the preferred seat for dispute resolution.[36]

The LMAA conducts ad-hoc arbitrations under the auspices of the English Arbitration Act, 1996, offering the services of arbitrators who are trained lawyerswith experience of commercial and technical skills thereby reducing the requisite of evidence of market practice from expert witnesses.[37]

One significant advantage that holds London in high stead amongst other seats is the publication of precedents which provide useful guidance to the maritime community. The decisions are suitably anonymized to respect the confidentiality of parties and awards are published on principles of general application.

The LMAA Small Claims Procedure augments cheap and resolute means to limit costs by dealing with claims valued under USD 50,000. The LMAA offers adjudication by way of two-arbitrator tribunal on documents only, therefore, reducing costs of oral hearings.[38] With 80% of the LMAA arbitrations conducted only on documents, it is reflective of the fact that parties appreciate that oral hearings increase the cost of the proceedings disproptionately. However, the judiciary has on numerous occasions emphasized on the advantages of oral hearings.[39]

            With diversity in the nature of cases in arbitration, London has been afforded an opportunity to develop common law and impact the maritime regime in other jurisdictions through their informed and consistent decisions. The LMAA with the pro arbitration approach of the judiciary and the numerous advantages provided by the Arbitration Act, 1996 has been able to cater well to the concerns of the commercial parties. For London to retain its position at the top in the global maritime dispute resolution regime, thepositive intent must subsist at all times to ensure that considerations of costs, confidentiality requirements and certainty in the nature of the outcome remain paramount.

New York

The Society of Maritime Arbitrators of New York (SMANY) was established in 1963 to establish an Alternate Dispute Resolution mechanism for resolution of maritime disputes. New York has developed as a significant centre for maritime arbitration, with courts of Southern District of New York involved in dealing with maritime disputes on regular basis. The US Federal Arbitration Act, 1925 contains specific provisions to deal with maritime disputes.[40] The SMANY has contributed to the jurisprudence maritime arbitration by publishing its awards which can be relied upon by the parties to understand relative reasoning in decisions for future arbitrations. The SMANY, in addition the Arbitration and Mediation Rules has a code of ethics[41] to regulate the professional conduct for arbitrators and an approved list of panel of arbitrators.

Singapore

The Singapore Chamber of Maritime Arbitration (SCMA) was established in 2004 under the auspices of the Singapore International Arbitration Centre (SIAC). The Institution charged administrative fees, scrutinized drafts and collected fees for payment to arbitrators. The SCMA did not function well as part of SIAC primarily because the lawyers were accustomed to ad hoc style of arbitration as was conducted by the LMAA. The SCMA separated from the SIAC andstarted to function as an independent company limited by guarantee in 2009.[42]

The SCMA underwent a structural shift as it started inviting memberships from individuals and corporates in the maritime community. The SCMA Rules ensured a compatible framework for flexible and unadministered arbitration as conducted by the LMAA. Upon its reorganization, the SCMA no longer charges management fees, neither does it collect or fix fees for the arbitrators but assists parties in the appointment of arbitrators.[43] The Baltic and International Maritime Council (BIMCO) in 2012 included Singapore as one of the three seats along with LMAA and SMANY in its standard forms with SCMA being the arbitral institution.

The SCMA has also formulated a set of expedited rules to facilitate small scale collision claims known as the Expedited Arbitral Determination of Collision Rules (SEADOCC) which have been incorporated in the SCMA Rules in 2015. The SCMA Small Claims Procedure is aimed at providing an expedited framework for disputes where the sum of the claim and counterclaim is under USD 150, 000.[44] The time interval of 30 days as provided under the SCMA Arbitration Rules to serve case statements has been reduced to 14 days to accelerate the arbitration process.[45]

The dispute under this procedure would be considered by a sole arbitrator with the mandate to render an award within a period not exceeding 21 days.[46] The arbitration proceedings may be conducted on the basis of written submission alone, unless the Tribunal directs otherwise, and if so directed, then the arguments would be based on only arguments.[47]

Being a relatively new institution, the future of SCMA looks prosperous with flexibility in procedure and it being situated in an arbitration friendly jurisdiction.   

Moscow

The Moscow Arbitration Centre (MAC) is one of the oldest arbitration centres in the world. Established in 1930s with intent to deal with merchant shipping disputes relating to sea shipping, rescue matters and company related matters[48], it has helped Russia to become a formalized centre for resolution of maritime dispute without it being a port.  Being a conventional arbitral institution, the Rules of the MAC are greatly influenced by the UNCITRAL Arbitration Rules. It deals in both domestic and international disputes and heard about 4500 cases since its establishment.[49]

The New Rules of the Maritime Arbitration Commission at the Russian Chamber of Commerce and Industry(‘New Rules’)were adopted in January 2017. The New Rules prescribe that statement of claim should contain information including contact details and email address of the parties for important communication. The time limit rectifying defects in the claims has been reduced from 30 to 15 days.[50] The consequence of not eliminating such defects would result in the continuing of the proceedings until the Tribunal renders an award terminating the arbitral proceedings.[51] The New Rules entail a comprehensive regulation for the involvement of third parties not having raised claims against the parties to the proceedings.[52] The Rules provide for multi-claim proceedings[53] and consolidation of claims, if they are under the same agreement dealing with the same point in substantive law.[54]With the intent to fast track arbitration proceedings, the Tribunal has the discretion to submit deadlines for submission of written statement[55] and evidence without allowing amendments that may cause unreasonable delay.

The arbitration proceedings must be conducted in Russian language, unless parties otherwise request[56], while the documents can be submitted in the original language. The Tribunal reserves the discretion to request the parties to submit the translation of the documents.

The MAC in keeping pace, with the recent developments in the arbitral process has developed a framework for expedited procedure where claims upto USD 15,000[57] would be considered by a single arbitrator only on written submissions and will have to be decided within a period not exceeding 120 days.[58] With respect to confidentiality requirements[59], the threshold has been extended to parties and their representatives in addition to the Tribunal with its staff and its arbitrators.

Tokyo

The Japan Exchange Inc. was created in 1921 with the objective to facilitate freight and charter contracts on similar terms with the Baltic Exchange of London. The Tokyo Maritime Arbitration Commission(TOMAC) deals with diverse range of cases from bills of lading, contracts relating to shipbuilding, ship financing and charterparties.[60] The TOMAC has its own arbitration rules and contributes to the knowledge and jurisprudence of maritime arbitration by selectively publishing awards.[61] The TOMAC has its own annual journal Wavelengthwhich contains extract reports of arbitration awards and contents, records of the activities of the Japan Shipping Exchange Ltd. and encapsulates contemporary changes in the maritime law.[62]

Conclusion

Given the advantage of practical expediencies of time time-bound justice dispensation, and neutral adjudication of disputes by an expert body of specially trained arbitrators, ease of the proceedings and implementation of the awards, arbitration has become the first choice in resolution of commercial and maritime disputes. Just as in the case of commercial arbitration, culture of maritime arbitration too has shown exponential proliferation in a short period.

The Maritime arbitration regime has achieved a categorical degree of standardization and harmony with instruments such as the New York Convention and engagement of arbitrators in leading seats thereby granting uniformity to enforcement of awards and arbitration agreements.Other seats of maritime arbitration have also developed a culture of efficiency and have emerged as credible, preferred and competing seats of maritime arbitration. Notwithstanding proliferation in this field, only a handful of the seats of maritime arbitration globally command the trust and confidence of the parties in dispute, making them the preferred seats.  

With London being a universally acclaimed arbitration seat for maritime disputes, there are significant reasons that juxtapose this reality vis-a vis other jurisdictions. The familiarity of English law with the international maritime community is perhaps the most relatable as it is applied comprehensively to most standard form Charterparties and other maritime and trade contracts. In addition, the English law countenances the commercial interests of the parties as it is based on the principle of freedom of contract. A comprehensive and detailed system of international case laws and precedents further contributes to its popularity on practical considerations. Some of these reasons provide substantive dispute points to suggest the technicalities for the preference of certain seats over the others. Therefore, for other jurisdictions to establish a formidable regime for maritime dispute settlement, it is imperative that significant lessons are drawn from the regime followed in London and henceforth incorporated into their domestic laws.

Study in this field clearly highlights the importance and relevance of some factors which have direct bearing on promotion of the seat of maritime arbitration. An examination of these relevant factors which lend credibility to the seat of maritime arbitration is thus essential for holistic understanding of the subject and also its qualitative proliferation. A critical analysis of the currently preferred seats of maritime arbitration by threadbare review and co-relation of the relevant factorsinstrumental for its relative popularity internationally andcentral to establishment and promulgation of the best practices in this field.

*Student of School of Law, Christ.

This essay has been selected for publication through the 1st NLUO-Ganesh & Co. National Maritime Law Essay Writing Competition, 2019.


[1] S Jarvin, The Place of Arbitration , 7(2), ICC Bulletin, 54-58 (1996).

[2]LoukasMistelis,Competition of Arbitral Seats in Attracting International Maritime Arbitration Disputes, Chapter in The Role of Arbitration in Shipping Law,Miriam Goldby and LoukasMistelis, Oxford University Press, June 2016.

[3] A Philip, ‘The Seat of Arbitration as Place of Arbitration, and Limits to Court Intervention, in Procedural Decision, in Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention, ICCA Congress Series No. 9’, Kluwer Law International (A.J. Van der Berg, (ed.) 1999).

[4] Julian Lew et al, Comparative International Commercial Arbitration, Kluwer Law International 2003,

[5]LoukasMistelis, Supra Note 2.

[6]Union of India v. McDonnel Douglas, [1993] 2 Lloyd’s Rep. 48.

[7]Dubai Islamic Bank PJSC v. Paymentech Merchant Services Inc., [2001] 1 Lloyd’s Rep 65 (QB),

[8] French Code of Civil Procedure, Article 1494; The English Arbitration Act, 1996, Sections 3 and 4.

[9]Emmanuel Gaillard and John Savage, ‘Fouchard Gaillard Goldman on International Commercial Arbitration’, Kluwer, 1999, ¶141; Swiss Private International Law, Article 182.

[10] Siegfried Elsing, ‘The Influence of the English Language-A Gradual Acceptance of Anglo-American Legal Culture in International Arbitration’, in Stefan Kroll, Loukas A. Mistelis, V. Rogers and P. PeralesViscassilas (eds.), International Arbitration and International Commercial Law: Synergy, Convergence and Evolution-Liber Amicorum Eric Bergsten, Kluwer Law International,2011.

[11]LoukasMistelis,, Competition of Arbitral Seats in Attracting International Maritime Arbitration Disputes, Chapter in The Role of Arbitration in Shipping Law,Miriam Goldby and LoukasMistelis, Oxford University Press, June 2016.

[12]Id

[13]Queen Mary University of London-White and Case International Arbitration Survey 2018, Chart 7.

[14]Id.

[15]Id.

[16]Id.  Rio de Janeiro was ranked 14th globally and 8th in the Latin American subgroup (QMUL-White and Case Survey 2018)

[17]Id. Miami was ranked 12th globally and 7th in the Latin American subgroup.

[18]Queen Mary University of London-White and Case International Arbitration Survey, 2010, p. 17 (QMUL-White and Case Survey 2010)

[19]Queen Mary University of London-White and Case International Arbitration Survey 2018,Chart 8, p. 11 (14%)

[20]Id(13%).

[21]Id (12%).

[22]Id(11%).

[23] Yves Dezalay and Bryan Garth, Dealing in Virtue- International Commercial Arbitration and the Construction of a Transnational Legal Order, University of Chicago Press, 1996.

[24]Qmul-White and Case Survey 2010, Chart 14, p. 18; Queen Mary University of London-White and Case International Arbitration Survey 2015, Chart 10, p. 14.

[25]LoukasMistelis,, Competition of Arbitral Seats in Attracting International Maritime Arbitration Disputes, Chapter in The Role of Arbitration in Shipping Law,Miriam Goldby and LoukasMistelis, Oxford University Press, June 2016.

[26]Queen Mary University of London-White and Case International Arbitration Survey 2018 Survey, Chart 13, p. 14.

[27]Id.

[28]Id.

[29]Id.

[30]Queen Mary University of London-White and Case International Arbitration Survey 2018 Survey, Chart 13, p. 14.

[31]Queen Mary University of London-White and Case International Arbitration Survey 2018 Survey, Chart 13, p.15 (6%).

[32]Id, Chart 14, p.15 (84%).

[33]Id, Chart 14, p.15 (33%).

[34]Clare Ambrose and Karen Maxwell, London Maritime Arbitration, Third Edition, Taylor & Francis, 2009.

[35] The Arbitration Act, 1996, Section 44.

[36]Universal Cargo Carriers Corporation v. Citati, [1957] 2 QB 402 at 527.

[37] Ian Gaunt, Maritime Arbitration in London, Chapter in The Role of Arbitration in Shipping Law,Miriam Goldby and LoukasMistelis, Oxford University Press, June 2016.

[38]Id.

[39]Maestro Bulk Shipping v. Cosco Bulk Carrier Co. Ltd., [2014 EWHC 3978 (Comm).

[40]Society of Maritime Arbitrators, available at:  http://www.smany.org/about.html.

[41] Society of Maritime Arbitrators Inc., Code of Ethics, available at: http://www.smany.org/pdf/sma-arbitrators-code-of-ethics.pdf.

[42] Shi Yan Lee Lee, Singapore Chamber of Maritime Arbitration, The Asia-Pacific Arbitration Review 2020, Global Arbitration Review, 24 May 2019.

[43]Singapore Chamber of Maritime Arbitration Arbitration Rules, 2015, 3rd Edition, available at: https://www.scma.org.sg/SiteFolders/scma/387/rules/rules_201510_eng.pdf.

[44]Id, Rule 46.1.

[45]Id, Rule 8.

[46]Singapore Chamber of Maritime Arbitration Arbitration Rules, 2015, 3rd Edition, Rule 46.9, available at: https://www.scma.org.sg/SiteFolders/scma/387/rules/rules_201510_eng.pdf.

[47]Id, Rule 25.3.

[48] Roman Khodykin, Chapter on ICAC and MAC of the Russian Federation, in LoukasMistelis and Laurrence Shore (eds), World Arbitration Reporter, Juris 2010.

[49] Dmitry Davidenko, New Development at the Russian Maritime Arbitration Commission, available at: http://www.cisarbitration.com/tag/dmitry-davydenko/.

[50]Rules of Maritime Arbitration Commission At The Chamber of Commerce And Industry of Russia, Rule 6(1).

[51]Id, Rule  6(2).

[52]Rules of Maritime Arbitration Commission At The Chamber of Commerce And Industry of Russia.Rule 14.

[53]Id, Rule 12.

[54]Id, Rule13.

[55]Id, Rule25.

[56]Id, Rule 21(1).

[57]Id, Rule 30(1).

[58]Id, Rule 30(5).

[59]Id, Rule 42(2).

[60]The Japan Shipping Exchange Inc., available at: http://www.jseinc.org/en/tomac/index.html.

[61]The Japan Shipping Exchange Inc., available at: http://www.jseinc.org/en/tomac/award/index.html.

[62]The Japan Shipping Exchange Inc., available at: http://www.jseinc.org/en/bulletin/index.html.

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