GA – Arbitration Clause

In our earlier article, The Ever-Given Mela – IIⁱ, we mentioned that the appointed Average Adjusters collected GA Guaranteesⁱⁱ from insured cargo interests which incorporated a LMAA arbitration. With respect to the wordings of the GA Bond sought from the uninsured cargo interests (which should be together with a cash deposit), it appeared to us that it would be on a similar basis i.e., with a LMAA arbitration clause. Given that the use of an arbitration clause is not provided in standard GA Bonds and Guaranteesⁱⁱⁱ and that the arbitration clause, in our opinion, may be detrimental to containerized cargo interests, we did not understand why cargo interests agreed to provide security on this basis. We are writing this article to state our thoughts on this subject and also invite cargo interests to advise as to why they agreed to the wordings of the security sought.  

1. Dispute Resolution:
   1. Invariably, charterparties and/or the BL would provide for a specific law and form of dispute resolution to deal with disputes arising from the contract of carriage. Absent any other law or dispute resolution provisions provided in the GA Clause^iv, parties would be bound to resolve their disputes including GA^v in this manner. This should not be an issue, say in voyage charters, given the limited number of parties involved and further the underlying/overlying charter parties are generally on a “back-to-back” basis. However, this will indeed be an issue in container shipments given the multitude of parties involved together with BL’s having differing Law and Dispute Resolution Clauses.
   2. If the charter parties/Bills of Lading do not provide for arbitration, in theory, following the incident, parties can freely negotiate and agree to arbitration as the dispute resolution process. The question would then be whether cargo interests must agree to the security wordings sought by the Owners, particularly when they are not in line with the common wordings and which may also be detrimental to their interests? We submit that there is only a duty on the cargo interests to provide reasonable and adequate security. What is reasonable is a question of fact and would depend on the circumstances of each case including the terms of the charterparty/BL’s. This being the case, if the security sought is unreasonable, cargo interests can refuse to provide the security sought and instead propose reasonable security. If unfortunately, owners and cargo interests are unable to reach an agreement, then parties can always make an application to court who has jurisdiction to hear this matter.
   3. In the case of Ever-Given, we are not aware as to whether the cargo interests had an option of agreeing to the wordings of the security demanded. Even if the cargo interests voluntarily agreed for arbitration as the dispute resolution process, then the arbitration process should be fit for purpose. In the case of Ever Given, there were about 18,000 containers such that if all or some of the parties involved are to arbitrate, there would be considerable number of concurrent arbitrations^vi leading to increased costs. Additionally, most disputes would not be for substantial sums^vii such that costs of arbitrating would also be a barrier in considering whether to challenge the contributions sought? This could have been avoided if the arbitration process provided for consolidation^viii. While it is technically possible for LMAA arbitrations to be consolidated basis S 35 of the English Arbitration Act 1996, it would require the agreement of all parties, and which would be rare^ix. However, if the procedural rules did provide for consolidation^x, then the arbitrations could be consolidated such that there would be a savings in costs and time for all.
2. Equity: As stated in the CMI Guidelines relating to GA^xi, “the principle of GA has its origin in the earliest days of maritime trade and is based on simple equity:
   1. English Arbitration: English Law provides for an implied confidentiality of arbitration proceedings^xii. If the intention to incorporate an English GA clause was to tactically take advantage of this fact, then we submit that equity^xiii is not maintained. Accordingly, if English arbitration is agreed as the dispute resolution process for Container GA’s, this duty should be removed, say by providing for it contractually. This will not only preserve equity but also lead to the development of soft law, say by way of published GA arbitration awards.
   2. Challenges: Some jurisdictions may not allow for the enforcement if the arbitration clause is not freely negotiated (similar to a jurisdiction clause in a BL). However, in the case of GA, given that the parties had an implied choice to either agree or disagree, we submit that it would be difficult to now deny the use of arbitration as the agreed dispute resolution process.
   3. Appropriate Dispute Resolution process:
      1. While we are indeed in favor of Arbitration to deal with shipping disputes including GA, we submit that any dispute resolution process should be appropriate for the issues at hand. In this regard, if arbitration is being considered for Container GA’s, then at the very least, the arbitration process should provide for consolidation. 
      2. The York Antwerp Rules (“YAR”), incorporated in the Charterparties/BL’s, are regularly updated. This being the case, the better way to consider the appropriate dispute resolution process for GA including jurisdiction is to discuss with all the stake holders and incorporate this in the next edition of the YAR. This may result in a well-crafted dispute resolution clause to deal with GA’s keeping in mind the interests of all parties.
         

^i. We had written a serious of articles following the Suez Canal incident and which are The Ever-Given Mela, The Ever-Given Mela – II, The Ever-Given Mela – III and The Ever-Given Mela – IV.
^ii. GA Guarantees would be provided by the Cargo Insurers whereas GA Bonds would be provided by the Cargo Owners.
^iii. See Average Bond – LAB 77 and Average Guarantee in Appendix 4 in Lowndes & Rudolf – XV edition.
^iv. While the entitlement to GA is an independent right and recognised in common law, contracts of carriage (both charterparties and BL’s) incorporate a clause which allows the GA to be adjusted on the basis of the York Antwerp Rules (the latest edition of the Rules is 2016 whereas the most popularly used remain 1994). The York Antwerp Rules are therefore contractually agreed to and in some instances allow for GA allowances even though they may not fall under the common law definition of GA.
^v. See 30.31 of Lowndes & Rudolf – XV edition.
^vi.See Article of Richard Sarll on The “Ever Given”: not your average dispute.
^vii. We believe that the average cargo value in a container would not exceed USD 50,000.00. Given that the security sought cannot exceed the cargo values, we submit that most shippers will be deterred to pursue further considering the costs of pursuit and which would include the engagement of their solicitors, fees to the arbitrators, etc.
^viii.See an article from HFW which can be viewed at https://www.hfw.com/downloads/003468-Core-issues-in-international-arbitration.pdf
^ix, See https://lmaa.london/proceeding-with-an-lmaa-arbitration/#:~:text=If%20so%2C%20how%3F,the%20parties%20may%20agree%20it.
^x. See Rule 8 of the SIAC Rules 2016 which do provide for Consolidation.
^xi.See CMI Guidelines
^xii. https://arbitrationblog.kluwerarbitration.com/2022/08/18/the-english-approach-to-the-law-governing-confidentiality-in-international-arbitration/
^xiii.What Is Equity? (uollb.com)