Newsletter

Arbitration for Small Claims

Author: M Jagannath
Date: November 23, 2015

When parties are involved in negotiating shipping contracts such as charterparties, they often do not pay enough attention on dispute resolution including arbitration clauses. This is obviously understandable given that parties intend to work together for mutual benefit. However, disputes do occur and therefore it would be best to consider a proper dispute resolution clause prior to them arising to so as to avoid unnecessary issues.

  1. Arbitration clauses are generally of two types, one being “administered” arbitration (which is administered by institutions such as International Chamber of Commerce, Singapore International Arbitration Centre, Hong Kong International Arbitration Centre amongst others) and the other being “ad-hoc” arbitration where parties mutually agree on the arbitration process and procedures to deal with the dispute. Both these types have their advantages and disadvantages and as there is enough literature readily available, we shall not comment on this. Invariably, most of the shipping contracts / charter parties provide for “ad-hoc” arbitration clauses and our article will focus on these clauses together with the impact it may have on "Small Claims".

  2. In our view, any claim below US$100,000 should be considered as Small Claims. By way of reference, we list below the claim amounts in the LMAA and SCMA Small Claims Procedure / Rules.

    1. LMAA Small Claims - upto claim amount of US$50,000

      1. Single Arbitrators fee's capped at £3000 (approx.US$4554) if no counter claims and an additional amount of £2000 (approx.US$3035) if counter claim is greater than claim.
      2. Legal fee's is capped at £4000 (approx.US$6070) if there are no counter claims and at £4500 (approx.US$6831) if counter claims are greater than claims.

    2. SCMA Small Claims - upto claim amount of US$150,000

      1. Single Arbitrators fee's capped at US$5000 if no counter claim and US$8000 if counter claim exists.
      2. Legal fee's capped at US$7000 if no counter claim and US$10000 if counter claim exists.

  3. In the recent past, we have seen some Fixture Notes providing for arbitration by way of a clause such as “any and all disputes arising under the charter party to be decided by Arbitration in Singapore with English Law to apply” with all other terms as per Gencon C/P 1994.

    The significance of conducting arbitration in Singapore (or for that matter any other state mentioned in the arbitration clause) is that this would determine the law governing the conduct of the arbitration (known as the “lex arbitri” or the “curial law”). With respect to Singapore, the International Arbitration Act Cap.143A governs International Arbitrations and the Singapore Arbitration Act Cap.10 govern Domestic Arbitrations (where both parties are Singapore parties). The major difference between these two acts is that under the International Arbitration Act, there is no right of appeal on a question of law. However, parties, both International and Domestic may voluntarily agree in their contract for the arbitration to be governed by either the Domestic Arbitration or the International Arbitration Act and in which case, that specific act would apply.

  4. Ad hoc arbitrations are more vulnerable to obstructive tactics as an opponent can frustrate proceedings by delaying or refusing to nominate an arbitrator. Hence, the efficiency of an ad hoc arbitration agreement would depend on the wording of the arbitration agreement. When the dispute involved is for small sums, opponents will try to frustrate by not agreeing to either vary the arbitration agreement (if the arbitration agreement did not consider small claims) and / or refuse to nominate arbitrators / participate in the arbitration. Absent provisions for the appointment of arbitrators in the relevant arbitration clause, the claimant would have to consider approaching the appointing authority (lex arbitri) for the appointment of arbitrators. In this regard, the procedure and costs for the appointment of arbitrators in UK, Singapore and Hong Kong is as follows:

    1. UK: Parties have to approach the English court as provided under S 18 of the UK Arbitration Act 1996. 

    2. Singapore: S$3000(approx.US$2131) for single & S$5000(approx.US$3151) for three arbitrators by the Chairman of the SIAC and who is the appointing authority under both the International Arbitration Act and the Arbitration Act.

    3. Hong Kong: HK$8000(approx.US$1032) per arbitrator by the Chairman of the HKIAC and who is empowered under the Hong Kong Arbitration Ordinance.

  5. In the case above (see para 3 above), the fixture note provided for the incorporation of the Gencon C/P 1994. Clause 19 of Gencon C/P 1994 deals with Law and Arbitration and states as below: 

    Law and Arbitration:

    1. This Charter Party shall be governed by and construed in accordance with English law and any dispute arising out of this Charter Party shall be referred to arbitration in London in accordance with the Arbitration Acts 1950 and 1979 or any statutory modification or re-enactment thereof for the time being in force. Unless the parties agree upon a sole arbitrator, one arbitrator shall be appointed by each party and the arbitrators so appointed shall appoint a third arbitrator, the decision of the three-man tribunal thus constituted or any two of them, shall be final. On the receipt by one party of the nomination in writing of the other party's arbitrator, that party shall appoint their arbitrator within fourteen days, failing which the decision of the single arbitrator appointed shall be final. For disputes where the total amount claimed by either party does not exceed the amount stated in Box 25** the arbitration shall be conducted in accordance with the Small Claims Procedure of the London Maritime Arbitrators Association.

    2. This Charter Party shall be governed by and construed in accordance with Title 9 of the United States Code and the Maritime Law of the United States and should any dispute arise out of this Charter Party, the matter in dispute shall be referred to three persons at New York, one to be appointed by each of the parties hereto, and the third by the two so chosen; their decision or that of any two of them shall be final, and for purpose of enforcing any award, this agreement may be made a rule of the Court. The proceedings shall be conducted in accordance with the rules of the Society of Maritime Arbitrators, Inc.. For disputes where the total amount claimed by either party does not exceed the amount stated in Box 25** the arbitration shall be conducted in accordance with the Shortened Arbitration Procedure of the Society of Maritime Arbitrators, Inc..

    3. Any dispute arising out of this Charter Party shall be referred to arbitration at the place indicated in Box 25, subject to the procedures applicable there. The laws of the place indicated in Box 25 shall govern this Charter Party.

    4. If Box 25 in Part 1 is not filled in, sub-clause (a) of this Clause shall apply. (a), (b) and (c) are alternatives; indicate alternative agreed in Box 25. Where no figure is supplied in Box 25 in Part 1, this provision only shall be void but the other provisions of this Clause shall have full force and remain in effect. The parties therefore have an option either to arbitrate using the English Arbitration Act or Title 9 of United States Code and the Maritime Law of the United States or at a place indicated in Box 25 and which would govern the procedure for arbitration. Absent any option marked in Boxed 25, the default position would be for the arbitration to be conducted on the basis of option a) i.e. London Arbitration with English Law. Failure to mention the claim amounts in Box 25 would result in the small claims clause of being of now effect.

  6. As the fixture note provided for the Arbitration to be conducted in Singapore with English Law, it is submitted that this would be considered as an express choice akin to sub-para (c) of Clause 25. Accordingly, the Singapore International Arbitration Act or the Singapore Arbitration Act would apply depending on whether the arbitration  is International or Domestic (please see Para 3 above). Section 9 of the Singapore International Arbitration Act and Section 12 of the Singapore Arbitration Act deals with the number of arbitrators and provides that if the number is not determined by the parties, there shall be a single arbitrator (In Hong Kong this will depend on the decision of HKIAC and who could decide to either appoint 1 or 3 arbitrators, In UK, this will be a single arbitrator). In the case at point, failure of the parties to agree on the single arbitrator would mean that either one or both of the parties would have to approach the Chairman of the Singapore International Arbitration Centre to appoint the Arbitrator. If the parties had instead agreed on a process in which the arbitrators could be appointed say by an industry body (such as the  London Maritime Arbitrators Association, Singapore Chamber of Maritime Arbitration) when the parties fail to agree, then the appointment of arbitrators could be effected with lesser costs. In this regard, we give below the charges for appointment of arbitrators by the above bodies.

    1. LMAA: £250 - approx.US$383 - but does not apply for Small Claims Procedure as this is included in the fee's

    2. SCMA: S$1500 - approx.US$1060 (S$750 per party)

  7. The decision on whether to pursue Small Claims or not would generally be made on the basis of the potential costs which may be incurred in pursuing the dispute. Unfortunately, as neither the fixture note nor the charter party provided for Small Claims procedure, the costs which may have been incurred by our clients to pursue could have been as much as the claimed sum. However, if the arbitration clause provided for Small Claim together with the modalities on appointment of the arbitrator, this would have reduced the costs significantly such that it would have allowed our clients (and for that matter any party) to pursue their opponents for a modest claim at least on a matter of principle if not for recovery.

  8. To conclude, it is important to consider incorporating a well-crafted arbitration clause in shipping contracts / charterparties to suit both Large and Small Claims. In particular, the process for Small Claims should be  simple and economical so as to avoid unnecessary costs.

 

 

 

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