THE ROLE OF ARBITRATION IN INTERNATIONAL MARITIME DISPUTES

Ram Kumar*

Abstract:

Arbitration in maritime industry is the most widely practice as compared to the litigation which involves more time and cost. It is the defining feature of maritime disputes since time immemorial. This paper looks into the various advantages and disadvantages of litigation, arbitration, mediation and conciliation. The author had examined the international laws, conventions and rules on maritime arbitration such as the Hague-Visby rule, the Hamburg rule of 1978, the Multimodal Convention, 1980 and the New York Convention, 1958.A careful study of the arbitral award in the case of Allianz  SpA v West Tankers Inc and the  Sea Master case were also taken. This paper further attempt to refocus the debate on the litigation and mediation as a cost- effective and speedy award. Finally various harmonized solutions have been proposed such as to bring uniformity in international conventions, argued for the creation of an international maritime court, to revisit the New York Convention and to recognize the London Maritime Arbitrator Association as the supreme arbitral tribunal to decide the cases.

Keywords: arbitration, mediation, UNCTAD, marine disputes, bill of lading, New York convention, maritime contracts

Introduction

Arbitration is one of the ways to resolve the maritime disputes. It involves mainly the International Commercial Dispute, with the transferring of goods and services, cargo and freight from one country to another. It gives the advantage for the parties to determine the case according to their own need which makes arbitration the most widely practice as compared to the litigation which involves more time, disclosure of trade secrets, rigidity, and more general approach of the court. It also helps the parties to determine the case in more specialized way and to touch every aspect of the case.[1]Parties don’t go for judiciary to solve their dispute because they feared that the courts are failed to keep pace with the advancement in the maritime laws and also they want the quick disposal of the case, which is not possible with courts which are already burdened with large number of cases.

Maritime Arbitration dates as back as to the time of lexmercatoria[2], but it gained popularity in the recent time due to the global booming in international trade and commerce.Shipping industry has gained a lot of importance in the present era because it caters the demand of both passenger and freight market.A large volume of cargo is transported every day due to the increasing international free trade agreements and increasing relations between countries.

The role of arbitration generally arises when there is dispute between the two parties on the terms contained in the contract between them and only if they don’t agree to mediate between them. There is a complex network of tribunals set up to deals with maritime issue both at interstate and transnational level. Usually issues which centered around maritime disputes are demurrage (charge payable on the failure to discharge or load the ship within the given stipulated time),deadfreight (amount chargeable on those space  which are booked ,but are not occupied on ships or charter) ,issues of lay days and freights ,damages ,maritime insurance ,forwarding ,reloading and composition contract ,multi-modal transport contracts, contract for repairs, construction or sale of the ships, damage to port facilities, environmental pollution etc.

International maritime disputes are very less in numbers and are ad-hoc in nature which requires both the parties to agree for the procedures. There are considerable numbers of cases every year which deals with the maritime disputes. Increasing trade through shipping between countries further led to a considerable rise in the maritime disputes. Due to the rising number of maritime disputes every year specialized arbitration centre and arbitration law  is developed to tackle all these issues.Nowdays ,parties to the dispute put an ex ante clause in their contract  ,so that in future parties can decide the case by appointing an impartial  arbitrator mutually to solve the commercial maritime dispute between the parties.

Types of contracts in maritime disputes

• Time-Charter Party-It is a contract where a lessor places a ship for the hire to lessee for a specified period. This period is known as hire and disputes are usually arises damage to the ship during this period.

• Voyage Charter parties-In this contract the owner of the ship provides the ship for the carriage of goods between the specified ports. Disputes generally arise to the certain loss of the ship and during discharging or charging of the ship. One who hires the ship is known as voyage charterer.

• Contracts of affreightment-In this contract the owner of the ship is oblige to transport a certain quantity of goods over a period of time or to give a space or part of a ship to the charterer for a specific journey or specific time.

• Bills of Lading-A Bill of Lading is one of the most disputed contract nowdays.It is issued by the carrier or an agent to acknowledge the receipt of the cargo of the shipment.It contains all the details in the process of freight shipment.It usually contains consigner and consignee name, volume of cargo, date of departure and arrival, freight rate and other details.

•  Shipbuilding Contract-It is contract which deals with the construction of the ship.Diputes generally arises when there is non-conformity of specification agreed between the parties for the construction of the ship and not involve the disputes related to maritime jurisdiction.

Different types of disputes in Marine contract

• Collision-In collision parties usually prefer to resolve the dispute in the courts as the tribunal only decide the case based upon the liability found only in fault and the damage occurred due to collision is so huge. One of the most recent case related to collision  is St. Lawrence Seaway Management Corporation v. BBC Lena (Vessel), 2018 FC 1026[3]

• Salvage-One of the most complete definitions of “salvage” is that given by Geoffrey Brice, QC in his book, “Maritime Law of Salvage” i.e., the right to salvage arises when a person, acting as a volunteer, preserves or contributes to preserving at sea any vessel, cargo, freight or other recognized subject of salvage in danger.[4]Salvage law applies when any person helps in recovering the ship of another which is in danger.

International laws on maritime arbitration

All these and many other such disputes have been the most widely contested issues in the maritime and shipping industry. However, insurance issues have been dealt by some arbitration tribunal. The dispute usually arises due to the arbitration clause commonly found in the Bill of Lading. The clause defines the number of arbitrator to be appointed, method of appointment and place of arbitration. In most of the cases one arbitrator is appointment and there are cases in which two arbitrators is appointed to resolve the maritime dispute. Many a times only documents are referred by the arbitrator for the disposal of the case. The place of arbitration is of immense importation. Usually it is the place where judgment took place, but if it involves the multiple places then it must be decided by the party which will be the place of arbitration. The place of arbitration defines which law should be applicable to different parts of the case. Parties to the dispute must explicitly decide which law should be applicable to the subject to the dispute in the arbitration agreement. If the parties were unable to decide which law should be applicable to their dispute then the law must be decided by the maritime arbitral tribunal. The freedom to decide the award is further restricted by para 4 of article 22 Hamburg Treaty of 1978 which clearly states that the arbitrator or arbitration tribunal shall apply the rules of this convention.[5]

 The Hague[6] and the Hague-Visby[7] rules which are the set of international rule does not explicitly deals with the arbitration disputes, but Article 3(6) contains a limit of on year for bringing the suit against the carrier. This rule is the touchstone for determining any cause arises by in bill of lading.

Under the rules[8] the carriers duty is to properly load and deliver the goods, discharge the goods and take all due diligence while the shippers have only few obligation namely to pay freight, to keep check on the dangerous goods and others. It also had some potential restriction on their application .So, UNCTAD felt that the Hague and the Hague-Visby rule is made in the favor of shipowners.[9]As a result of which UNCTAD developed Hamburg Rules of 1978.[10]

The Hamburg rule of 1978[11] was a clear attempt to fill the gap that arises in the Hague and Hague-Visby Rule[12].The Hamburg rule is remarkable because it involves more than 78 nations in drafting it.[13]The rules are not perfect but it makes the entire attempt to remove the complications that arises in resolving the dispute in the maritime arbitration. It also resolves the concerns raised by many countries that Hague-Visby Rules[14] is drafted by the colonists countries to serve their own purpose. Article 20 barred any arbitration proceeding related to shipping if not initiated within 2 years, whereas in Hague-Visby rule this limitation period is one year. Article 22 of the Hamburg Rules had a broad provision which authorizes the parties to refer their dispute for arbitration. This Rule also specifies various places for the suit for arbitration.

Although the importance of the Hamburg rule is widely accepted but many of the provisions had been taken from the Hague-Visby Rules with few substantial changes, so there arises a need to wholly change the Hamburg Rule and place a legislation which contains all the necessity clauses as according to the need arises. So finally the Multimodal Convention 1980 [15]is drafted by the UNCTAD.The Rules in it do not have the force of law but if it is incorporated in the Bill of Lading then it must be applicable to the parties.This Convention is only applicable to the multimodal transport contract.[16] Like the Hamburg rules it also provide for the liability if there is a delay in the delivery of the Cargo. Article 25 of the Multimodal Convention 1980[17]  provide the time limitation of 2 year if there is no judicial or arbitral proceeding has been initiated within 2 years. The limitation period commences when the operator of the multimodal transport delivered the good. The person against whom the claim is made may declare the extension of the period by declaration in writing. Under article 27(1) of the Multimodal Convention 1980 parties may provide in writing of the dispute to be referred for the arbitration .Article 27(2) of the Multimodal Convention 1980 provides the different places for the proceeding of the suit. Article 27(3) of the Multimodal Convention 1980 provides that the arbitrator or arbitration tribunal shall apply the provision of this convention.Article 27 of the Multimodal Convention 1980  had a equivalent provision to Article 22 of the Hamburg Rules with similar consequences applicable to multimodal transport contracts.[18]

For the past several decade there has been a debate about the complications arises in these Rules and Convention .Hamburg rules is only applicable in the Contract of Carriage by Sea.So, today Hamburg Rule is more relevant as the maritime industry is moving away from the Bill of Lading to the Contract of Carriage by Sea .Also, several countries had tried to avoid several irregularities in these Rules and Convention by using the national legislations.

Case Analysis

1. Allianz  SpA and Others v West Tankers Inc.

In the case of Allianz  SpA and Others v West Tankers Inc[19] which  involves Front Comor, a vessel owned by West Tankers Inc and  chartered by Erg Petroli SpA.Front Comor collided with Erg’s jetty at Syracuse at Italy causing damage to the jetty. The Charterparty between Erg Petroli and appellant  contained an arbitration agreement which provided for all the disputes arising out of the charter to be referred to arbitration in London with English law to apply.Erg’s insurers ,claiming the money they had paid to Erg,and relying on their right of subrogation under the Italian civil code brought proceedings against the shipowners  in the Tribunale de Syracuse in Italy.Consequently the shipowners commenced proceeding in the English High Court seeking an anti-suit injunction restraining the insurer from pursuing proceeding other than arbitration due to the existence of the arbitration agreement between the parties. The English Court relied on Article 1(2)(d) of the Brussels Agreement[20] which specifically excludes the arbitration agreement from the Brussels Agreement and granted the anti-suit injunction.The insurers then appealed to the House of Lords arguing that the injunction was contrary to the Council Regulation No 44/2001 of 22 December 2000[21] which provides the European Court of Justice (hereinafter as ECJ) the exclusive jurisdiction to decide the case.The House of Lords referred the question to the ECJ .ECJ held that anti-suit injunction preventing proceeding in another member state from being prosecuted because they were against the arbitration agreement  was incompatible with the regulation.

 This case had  significant impact on the merits of the London as the arbitration seat.[22].There are potential harmful implications of such decision of ECJ in which there is a possibility of inconsistent decision by the national court on the one hand and arbitral tribunal on the other hand. The agreement should be less-complex in a more simple language  which won’t allow any unscrupulous party to take benefit of it.[23] Parties should also consider building additional contractual mechanisms to refrain from commencing proceedings other than in accordance with arbitration agreement. The Tribunal are often inclined to give anti-injunction suit ,so it is advisable that the paties should refrain from  getting such award which causes jurisdictional issues.The recent commercial court decision in Nori Holdings Ltd v Bank Otkritie Financial Corporation[24]has confirmed that the West Tankers decision still holds a good law.[25] The ECJ decision of West Tankers furthers undermines the New York Convention one of whose principal objective is to uphold the arbitration agreement, it raises the clashing agreement between the New York Convention and Brussels agreement.Though it is argued that the West Tankers decision is only applicable to the European countries but there needs be world- level dialogue on the anti-suit injunctions and the priority should be given to the Tribunals or High Courts and the member state must stay its proceeding in the meantime.[26]

B.)  Sea Master Shipping Inc v Arab Bank (Switzerland) Limited (The Sea Master).

In another case of Sea Master Shipping Inc v Arab Bank (Switzerland) Limited (The Sea Master) [27].In this case on 24 June 2016 ,soyabean  meal  was shipped on board the vessel  MV “SEA MASTER” at Argentina.The vessel has been chartered by  Agribusiness United DMCC .The finance for the purchase has been provided by Arab Bank (Switzerland ) Limited (the Bank) who took possession of Bill of Lading as security.The Bill of Lading contains the terms contract of carriage as well as provision of London Arbitration on LMAA Arbitration  Clause.There arose various problems with the onward sell of the vessel,the vessel was then redirected to different ports of vessel.The Bank and the Agribusiness entered into a pledge agreement which assigned the bank all rights arising from the documents of the title in relation to the goods finance by the bank,including Bill of Lading.In order to solve this problem,the Bank agreed to the Vessel owner to issue a Switch Bill of Lading to allow delivery at different ports of discharge.The bank surrendered the original Bill of Lading to the owner for cancellation and took possession of the new Switch Bill of Lading as security.The Switch Bill incorporated the charterparty arbitration clause. During the time in which the onward sale of the ship is being resolved ,charterer Agribusiness  United DMCC become liable for a substantial amount of demurrage under the Charterparty which ultimately fails to pay.On 22 March 2017 the bank commenced arbitration proceedings against the owner in respect of the claim under different Bills of Lading relating to other cargo on board of vessel.[28]The owners brought a counterclaim against the bank for demurrage or damages for the detention under the Switch Bill of Lading.The tribunal held that it did not have jurisdiction to determine the owner’s counterclaim under Section 2 of the Carriage of  Goods by Sea Act 1992 (hereinafter  as COGSA )[29].The owner applied to the English High Court to set aside or vary the arbitration award under section 67 of the Arbitration Act 1996[30].They claimed the bank was original  party to the Switch Bill of Lading.The Bank claimed that although it had become party to the Switch Bill pursuant to section 2 of COGSA[31] but had not performed any act triggering liability under section 3 of COGSA[32].

The Court  discusses the doctrine of separability[33] and held that statute such as COGSA which addresses the substantive rights and obligations of the parties,these rights and obligations cannot be assumed in the ancillary arbitration agreement.The Court further concluded that the effect of Section 2 and 3 of COGSA is not to bifurcate arbitration clause in the contract of carriage into rights and obligations.The Section 2 of COGSA[34] makes a party to the contract of carriage in the arbitration clause a lawful holder.The Court finally concluded that the tribunal did have the jurisdiction to hear the dispute between the parties ,but didn’t determine whether the bank was original party to the Switch Bill and therefore liable for demurrage under the contract of carriage.[35]

Conclusion and Suggestions

Earlier arbitration is more sought than litigation, but despite its own popularity it is now lagging because the complexity and non-availability of judgements to a large extent  in the public domain .Also the irregularity in the interpretation of the rules and conventions by different tribunals had also force the parties to take litigation to solve all their disputes. Arbitrators also lost their power to decide the case.

Today many shipping corporation don’t want arbitration because the cost involved and the delay it takes in decision.They also feared about the intervention of the courts in their dispute which further aggrieved the problem. Apart from delays and cost, vague arbitration clause, criteria involved in the appointment of arbitrator, complicated choice of laws applicable to the dispute made by the parties had further enhanced the problem. Delay is often caused in the choice of more trustworthy and experienced arbitrator.

All these complexities also push the shipping corporation to move forward the process of direct negotiation and conciliation which involve very less cost and it will save a lot of time of the parties. It may sometime involve the appointment of a professional negotiator.

Some more harmonized solutions have been proposed like by creating  consistency in the international conventions and rules ,to remove irregularity in different interpretation ,consistency should be involved in national legislations related to maritime in all countries ,arbitral judgements should also be published so that shipping corporations were able to appoint better arbitrator and decide the laws applicable to the dispute. It will also help in avoiding the future controversies.[36]Some also argued that there is a need for better cooperation among the arbitral tribunals around the world.[37]

Some also argued for making a permanent panel of international arbitrators to appoint arbitrator for maritime disputes[38], while some have also proposed the creation of an international maritime court within the International Maritime Organization, [39]to resolve all the disputes relating to maritime. In order to strengthen the maritime arbitration process, countries need to strengthen their national laws to be as par with Model Laws on maritime disputes.

As per the UNCITRAL Model law on International Commercial Law[40] there should be a provision on to give power on the Courts to take evidence when requested by the arbitration tribunals.

Countries  should publish their arbitration rules which will create confidence among the shipping industry .It will further turn the arbitration  a best choice to resolve the dispute in comparison to other methods like mediation and litigation. The intricacies that involved in the arbitration clause with non-uniform approach by different arbitral tribunals and different national laws on maritime further aggravated the problem.[41]

Moreover New York Convention[42] adopted by United Nation in 1958.More than 196 countries had ratified this convention. Article V of the Convention provides the grounds on which the foreign award by the arbitral tribunal may be refused by the courts of country which has ratified the convention. It provides the various grounds on which arbitral award may be refused. So a harmonized approach needs to be adopted and United Nation need to revisit this law so that there is minimal interference from the court.[43]

The London Maritime Arbitrator Association (hereinafter as LMAA) is the world’s leading group of maritime arbitrators. It handles more than 2,500 cases and gives more than 600 awards every year.[44]It is recognized as the supreme arbitral tribunal amongst all tribunals around the world trusted most by the parties to the dispute. A more harmonic possible solution is to recognize the LMAA as the supreme arbitral tribunal whose award will be binding upon all the tribunals. It should be made as a centre of excellence which not only provides award ,but also should bring uniformity in maritime laws, provide certification, training to arbitrators and also  involve the process of modern information technology for dispute clearance and to keep satisfying the needs of the maritime industry.

*Student, Chanakya National Law University, Patna

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

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[1] GREGORI, MARCO, MARITIME ARBITRATION AMONG PAST, PRESENT AND FUTURE , 324 (Massimiliano Musi ed. 2015).

[2] Andreas F. Lowenfeld, Lex Mercatoria: An Arbitrator’s View,TRANS-LEX,( July 15,2019 7:56 PM), https://www.trans-lex.org/126000/_/lowenfeld-andreas-f-lex-mercatoria:-an-arbitrators-view-arbint-l-1990-at-133-et-seq/.

[3]Case Summaries , AdmiralityLaw , (July 16 2019, 8:05 AM), http://www.admiraltylaw.com/grouped_summaries.php?topic=6.

[4]Starklogic,The Role of Marine Insurers in the Salvage Process, SafeWatersMarine ,(July 16 2019 ,5:00 PM), https://safewatersmarine.com/the-role-of-marine-insurers-in-the-salvage-process/.

[5]United Nations Convention on the Carriage of Goods by Sea ,1978 (1994).

[6] The International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading, 1931 (1984).

[7] The International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading, 1931 amended by the Brussels Protocol 1968 (1984).

[8] Ibid.

[9] Capt Rajeev Jassal ,A basic and simplified guide of Hague Visby rules for seafarers,(July 17 2019 9:05 PM), https://www.myseatime.com/blog/detail/a-basic-and-simplified-guide-of-hague-visby-rules-for-seafarers.

[10] The United Nations Convention on the Carriage of Goods by Sea, 1978 (1994).

[11] Ibid.

[12] Brussels ,Supra  note  7.

[13] D. E. Murray, The Hamburg Rules: A Comparative Analysis, 12 U. Miami Inter-Am. L. Rev.59,91 (1980).

[14] Brussels ,Supra note  7.

[15]United Nations Convention on International Multimodal Transport of Goods, adopted at Geneva,24 May  1980,( not yet  in force ).

[16] Article 3(1) , United Nations Convention on International Multimodal Transport of Goods, adopted at Geneva,  24 May 1980,( not yet  in force ).

[17] Article 25 , United Nations Convention on International Multimodal Transport of Goods, adopted at Geneva,  24 May 1980, ( not yet  in force ).

[18] FRANCESCO BERLINGIERI et al.,THE HAMBURG RULES:A CHOICE FOR THE E.E.C ?  55 ( makalu-bruylant-nomos-schulthess 1994).

[19]West Tankers Inc. v Allianz SpA2 (Case C-185/07) [2009] EUECJ C-185/07 [2009] .

[20] Article 1(2)(d) of the Brussels Agreement. ( The 2001 Brussels Regulation has largely been superseded by Regulation (EU) 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.).

[21] Council Regulation (EC) 44/2001 of 22 December 2000 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters.

[22] Alexandra Cottrell & Shamir Khimji,UK: Anti-Suit Injunctions: Allianz SpA And Another v West Tankers Inc Case C-185/07,MONDAQ,(July 19 2019 5:37 PM),http://www.mondaq.com/uk/x/75826/Marine+Shipping/AntiSuit+Injunctions+Allianz+SpA+And+Another+v+West+Tankers+Inc+Case+C18507.

[23] The practical implications of the West Tankers decision,SLAUGHTER AND MAY,(July 19 2019 6:53 pm),https://www.slaughterandmay.com/what-we-do/publications-and-seminars/publications/client-publications-and-articles/t/the-practical-implications-of-the-west-tankers-decision.aspx.

[24] Nori Holdings Ltd v Bank Otkritie Financial Corporation [2018] EWHC 1343 (Comm).

[25] Garreth Wong & Lewis Brooke,Arbitration SpeedRead: An Update on Anti-Suit Injunctions and the Recast Brussels Regulation,TWOBIRDS,(July 20 2019 6:29 PM 2019),https://www.twobirds.com/en/news/articles/2018/global/arbitration-speedread-an-update-on-anti-suit-injunctions-and-the-recast-brussels-regulation.

[26] West Tankers: Damages for breach of arbitration agreement,ALLENOVERY,(July 21 5:41 PM),http://www.allenovery.com/publications/en-gb/Pages/West-Tankers-Damages-for-breach-of-arbitration-agreement.aspx.

[27]Sea Master Shipping Inc v Arab Bank (Switzerland) Ltd [2018] EWHC 1902 (Comm).

[28] Lewis Moore,Toby Miller,Chris Primikiris & Beatrice Cameli,Sea Master Shipping Inc -v- Arab Bank (Switzerland) Limited (The “SEA MASTER”) [2018] EWHC 1902 (Comm),HILLDICKINSON,(July 22 2019 6:49 pm),https://www.hilldickinson.com/insights/articles/sea-master-shipping-inc-v-arab-bank-switzerland-limited-%E2%80%9Csea-master%E2%80%9D-2018-ewhc.

[29] Section 2 of the Carriage of Goods by Sea Act 1992, c. 50.

[30] Section 67 of the Arbitration Act 1996, c.23.

[31] Section 2 Supra note 29 .

[32] Section 3 of the Carriage of Goods by Sea Act 1992, c. 50.

[33] ANANYA PRATAP SINGH,English Commercial High Court (QB): Whether the lawful holder of a bill of lading is bound by its arbitration clause?,ARBITRATORANANYA,(July 22 2019 7:12 PM),https://arbitratorananya.wordpress.com/2018/07/30/english-commercial-high-court-qb-whether-the-lawful-holder-of-a-bill-of-lading-is-bound-by-its-arbitration-clause/.

[34] Section 2 Supra note 29.

[35] DO ARBITRATION AGREEMENTS IN BILLS OF LADING BIND THEIR HOLDERS?,WFW,(July 22 2019 8:10 PM),https://www.wfw.com/articles/do-arbitration-agreements-in-bills-of-lading-bind-their-holders/.

[36] Maritime, Supra note 1.

[37] Ibid.

[38] José M. Alcántara ,An International Panel of Maritime Arbitrators?, 11 Jour. of Inter. Arbi,117,121 (1994).

[39]Marrella, Fabrizio, Unity and Diversity in International Arbitration: The Case of Maritime Arbitration, Amer. Univ. Inter. Law. ,1055 ,1099 (2005).

[40] UNCITRAL Model Law on International Commercial Arbitration,1985 (Amendments adopted in 2006).

[41] Dr. Carlos Esplugues Mota,Incorporation by Reference of Arbitration Agreements in International Maritime Arbitration: A South-Korean and Comparative Approach,A J. of Inter. Busi. Transac. Law,1,31 (2018).

[42] Convention on the Recognition and Enforcement of Foreign Arbitral Awards ,1958 (2015).

[43] Settling Business Disputes: Arbitration and Alternative Dispute Resolution,64 (2d ed. 2015) .

[44] London Maritime Arbitrators Association is a Corporate member of Maritime London,Maritime London,(July 28 2019 9:08 PM), https://www.maritimelondon.com/member/london-maritime-arbitrators-association.