Arbitration for Liner Container Disputes: Is It a Panacea?

Arbitration: A Panacea for Liner Container Disputes?

The problem of disproportionate costs:
1. We have consistently advocated arbitration as an effective means of resolving disputes in shipping, particularly in the liner container trade, where many claims are of small or medium value¹. One of arbitration’s principal attractions is procedural flexibility: parties can select a procedure that reflects the value, complexity and urgency of the dispute, rather than defaulting to the time and expense of conventional litigation.
2. The fact is that many claims are never pursued. The costs and management time required to establish liability, obtain an enforceable decision and recover payment may exceed the amount at stake. Cargo abandonment illustrates the difficulty: carriers may incur storage, detention, disposal and other charges that are difficult or uneconomic to recover, especially where no effective recovery strategy was contemplated when the business was accepted. Same is the case for cargo damage claims when the amounts involved are small – the cost of pursuit would invariably exceed the value of cargo damage and therefore rarely, if ever, pursued.
3. A decision not to pursue a claim may be commercially rational, but it can leave an understandable sense of injustice for a party convinced that it is in the right. Justice, however, has a price. Arbitration is not exempt from that reality. Even a streamlined process may be disproportionate for a very small claim. The existence of a remedy must therefore be distinguished from the commercial wisdom of invoking it.
The right dispute-resolution pathway
1. Arbitration is only one available pathway. Others include negotiation, mediation, expert determination and litigation. Parties may also consciously decide not to pursue a dispute, although avoidance leaves the underlying issues unresolved and may carry time-bar or repeat-exposure risks².
2. Negotiation and mediation depend on the parties’ consent to any settlement; neither a negotiating counterparty nor a mediator can impose a resolution. In contrast, arbitration and litigation ordinarily culminate in an adjudicative decision. Expert determination serves a different purpose: depending on the parties’ agreement, an appointed expert may determine a defined technical, valuation or accounting issue on a binding basis.
3. Where a negotiated or mediated settlement is realistic, it should generally be explored early. It may reduce expense and help preserve commercial relationships. Where settlement is not possible, the parties need a credible and proportionate means of obtaining a binding determination.
4. Arbitration can also accommodate mediation after proceedings commence. If a settlement is reached, the arbitration may be discontinued or, where the applicable requirements are met, the settlement may be recorded in a consent award. If mediation fails, arbitration can resume. Importantly, the commencement of valid arbitration proceedings may help protect a claim against an approaching contractual or statutory time bar; the applicable law and clause must nevertheless be checked.
Three recurring objections to arbitration: In discussions with those less persuaded of arbitration’s advantages, three concerns recur: (i) the limited opportunity to appeal; (ii) enforceability; and (iii) costs. Each deserves careful consideration before arbitration is either embraced or rejected.
1. Limited rights of appeal:
  1. The UNCITRAL Model Law on International Commercial Arbitration, on which legislation in 93 States and 127 jurisdictions is based or influenced, does not provide a general appeal on a question of substantive law. It instead provides defined grounds for setting aside an award, principally under Article 34³.
  2. English arbitration law takes a different approach. Section 69 of the Arbitration Act 1996, as amended by the Arbitration Act 2025⁴, permits an appeal on a question of law, but only subject to stringent statutory requirements and unless the parties have excluded that right. Moreover, some rules expressly exclude it: the LMAA Small Claims Procedure⁵ excludes appeals on questions of law, while Article 26.8 of the LCIA Rules 2020 contains a broad waiver of recourse to courts insofar as such waiver is legally permissible⁶.
  3. Litigation often provides an appellate structure, but an appeal is not necessarily available as of right and is commonly subject to permission requirements. Nor does the availability of an appeal make further proceedings commercially sensible in every case.
  4. The M/V MSC Flaminia litigation (72 F.4th 430 (2d Cir. 2023)), involving dangerous goods and claims running into hundreds of millions of US dollars, is an illustration of exceptional exposure in container shipping and which was appealed to the 2^nd Circuit Court in the US. The cargo was declared dangerous, but the warnings were found inadequate in relation to its particular hazards. Cases of this magnitude should not determine the default procedure for the much more common, lower-value liner claim⁷.
  5. The question therefore should be whether the additional layer of review is worth the potential expense and delay for the class of disputes the parties are likely to encounter.
Enforcement across borders
1. Shipping transactions are mainly international. One attraction of arbitration is the New York Convention 1958, under which arbitral awards can generally be recognised and enforced across more than 170 Contracting States, subject to limited refusal grounds⁸.
2. Court judgments may also be enforceable abroad through domestic law, bilateral arrangements, regional regimes and applicable international conventions. However, the Hague Convention of 2005 on Choice of Court Agreements has a narrower contracting-party footprint and, importantly for shipping, excludes carriage of passengers and goods from its scope. Direct numerical comparisons between the two conventions therefore require care⁹.
3. Neither an award nor a judgment guarantees recovery. Enforcement may be slow or expensive in some jurisdictions, and a debtor may have insufficient assets or attempt to move them. This is fundamentally a counterparty and asset-recovery risk, not a problem unique to arbitration. Know-your-customer enquiries, appropriate credit limits, contractual security and periodic reviews should be undertaken before disputes arise — not only after an award has been obtained¹⁰.
Costs and proportionality
1. Arbitral procedure/Rules such as LMAA, SCMA, HKMAG offer different procedural tracks, including small-claims and expedited processes. These can limit submissions, shorten timetables, dispense with oral hearings where appropriate and, in some procedures, cap specified tribunal fees. The choice should be driven by the combined value of claims and counterclaims, complexity, likely evidence and enforceability.
2. It is tempting to assume that a successful claimant will recover all costs in arbitration. That is not assured. Cost allocation and recoverability depend on the applicable rules, governing law, tribunal discretion and parties’ conduct. The same is true, in different ways, of litigation. Any comparison must account for tribunal and institutional charges, lawyers’ fees, expert evidence, enforcement and the likely amount of unrecovered expenditure.
3. Virtual hearings and electronic document-only procedures can further reduce travel and hearing expenses. They are particularly attractive where the amount in dispute does not justify a conventional in-person hearing, provided that procedural fairness is preserved.
Conclusion: arbitration is a tool, not a universal cure
1. Arbitration is an important option for liner container disputes, but not a panacea. Its strength lies in allowing parties to adopt an appropriate procedure and, where necessary, secure an internationally enforceable award. Those advantages may be lost if a small claim is subjected to an unnecessarily elaborate process.
2. Parties should therefore consider a practical hierarchy: prevent disputes through clear contracts and sound KYC; seek early commercial resolution through negotiation or mediation; and use a proportionate adjudicative mechanism, such as arbitration where settlement fails. When recovery is unrealistic, the decision not to pursue a claim should be a conscious and documented commercial choice.
3. Ultimately, the objective should not be arbitration for its own sake, or litigation simply because it is familiar. It should be the resolution of disputes in a manner proportionate to their value, risks and commercial consequences.