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Logistics Contracts – Arbitration

Jagan - April 30, 2024 - 0 comments

  1. We recently participated in a talk on “Why is Arbitration important in Logistics” jointly conducted by Singapore Logistics Association and the Singapore Chamber of Maritime Arbitration held on 30th of April 2024i. It has been our firm belief that trades such as Shipping, Freight Forwarding and Logistics should ideally consider arbitration as the dispute resolution process instead of litigation and which we have written extensively onii.
  2. The main points in favor of Arbitration for the Logistics industry are:
    1. Procedure: Rules of various arbitral institution such as SCMA have various pathways depending on the quantum and complexity of the dispute at hand. Most of the disputes, in our opinion, would be for smaller sums of money with simpler issues. The Small Claims Procedure available under the SCMA Rules 3rd editioniii deals with disputes up to a sum of USD 150,000 or the Expedited Procedure as available under the SCMA Rules 4th editioniv deals with disputes up to a sum of USD 300,000 is one such way to deal the dispute with. The advantage of these different procedures is that costs could be capped for both the arbitration and recovery of costs with strict timelines to ensure that the matter is expeditiously dealt with. It is also possible to use these procedures for higher value claims subject to agreement of all parties.
    2. Industry expertise: The practices in Shipping, Freight Forwarding and Logistics are complex and continue to develop as the industry continues to develop and innovate. While judges of the commercial courts do have the expertise, we submit that as this development is continuous, an industry expert well versed not only in the industry practices but also the law of arbitration (commonly called as a Technical Arbitrator) would be better suited to deal with such disputes. Fortunately, there are ample industry experts available and who can act as arbitrators to hear such disputes.
    3. Recovery of costs: In common law countries, costs generally follow the event, and the winning party is entitled to recovery of costs. Unfortunately, the recovery is never 100% and therefore the winning party would have to necessarily bear a portion of the costs of pursuit / defense. In this regard, Arbitrators vis-à-vis litigation generally allow for higher recoverability of costs.
    4. Flexibility: Parties may wish to consider other pathways to resolve their disputes once they have signaled their intention to pursue their claim. This can be by way of mediationv after the arbitration has been initiated. The reason why arbitration is first initiated is to ensure that the short time bars available contractually or under law stop counting and subsequently, parties can consider the best way to deal with the matter at hand.
    5. Enforcement: Logistics contracts may be between parties in the same jurisdiction or in other jurisdictions. If parties are based in different jurisdiction, for a court judgement to be enforced, there must be reciprocal arrangement / treaties between the enforcement and the judgement state. In this regard, International Arbitration trumps court judgements given that 172 contracting states are parties to The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (commonly known as the New York Convention) and which means that International Arbitration Awards can be easily enforced in these states.
    6. New legislation: As transportation develops, various jurisdiction enact new laws to facilitate movement of cargo. In this regard, Singapore recently legislated the Singapore Multimodal Transport Act 2021vi. This act permits arbitration as a method to deal with disputes. Given that it is statutorily provided, there would be advantages to Multimodal Transport Operators to incorporate an arbitration clause in their contracts of carriage.
  3. There remains one issue outstanding for all types of dispute resolution methods i.e. whether it is worthwhile to pursue the counterparty for recovery? This is more of a counterparty risk, and which can be dealt by doing a proper “Know Your Customer” (“KYC”) prior to doing any business and which should then be regularly conducted at periodic intervals. Depending on the health of the Customer, a service provider should calibrate the provision of any credit and services being provided to their customer.
  4. To conclude, the logistics industry will immensely benefit if they consider new ways to deal with their disputes including arbitration. This will not only reduce costs but has the potential to make recovery for smaller sized claims.

i.SLA Talk
ii.Arbitration for Liner Bills of LadingArbitration – Low Value Claims & Arbitration Clause – Liner Bills of Lading.
See Rule 46 of the SCMA Rules 3rd edition.
iv.See Rule 44 of the SCMA Rules 4th edition.SLA Talk
The SCMA Rules 4th Edition does provide for the Arbitration/Mediation/Arbitration (“AMA”) as one of the pathways to deal with the dispute.
See our earlier articles The Singapore Multimodal Transport Act 2021 and The Singapore Multimodal Transport Act 2021 – 2.

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