Maritime Arbitration – Time consuming and expensive?

1. During our recent visit to Chennai, we had the opportunity to interact with the trade during two events, one conducted at the Southern India Chamber of Commerce and Industry (commonly known as SICCI) and the Madras Branch of the Institute of Chartered Shipbrokers. One of the comments made during our interaction was that Maritime Arbitration was expensive and time consuming. The intention of this article is to try and argue that Arbitration should be the default dispute resolution process at least for International Contracts (including maritime) and that contrary to belief, it is neither expensive nor time consuming if the arbitration clause / process has been well thought of.
2. Why arbitrate?
   1. Maritime Contracts are generally between parties from different jurisdictions. If there is a dispute between these parties and which is litigated (if the Courts have accepted jurisdiction), the winning party would have to consider enforcement of the judgement if it has been provided by a court of another jurisdiction (based on the agreed dispute resolution clause). Enforcement of judgements by other courts is possible if there is some sort of treaty between the two jurisdictions (the jurisdiction which has provided the judgement and the jurisdiction where the judgement is being enforced)ⁱ.
   2. In the case of International Arbitration, as of date, 172 contracting states are signatories of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958) (“New York Convention”) and which includes 151 UN Member States. The aim of the New York Convention is to recognize and enforce international arbitration awards made in the territory of a member stateⁱⁱ.
   3. With respect to court judgements, there is the 2005 Hague Convention on Choice of Court Agreements which has 32 contracting parties. It works like the New York Convention but given that the number of signatories is not substantial, parties may prefer to arbitrate instead of litigating their disputes.
   4. Both the New York and the Hague Convention on Choice of Court Agreements allow member states to deny the enforcement of awardsⁱⁱⁱ/judgements^iv on limited grounds and which are similar in nature.
3. Timelines:
   1. The timelines involved in arbitration would depend on the procedural rules being followed. If the arbitration is conducted either on the small claims or expedited procedure, there are generally strict timelines^v and which allow for the quicker completion of arbitration.
   2. Parties may take tactical positions to derail arbitrations. This may also happen in litigation. The main difference is that arbitrators function as quasi-judges, their powers are limited to what is provided under the contract and law. This being the case, delays may indeed be seen in some limited instances. In the case of litigation, parties may have no control as the process would be dictated by the court, and which may in some jurisdictions be swamped with cases to deal with.
4. Expensive:
   1. The arbitration agreed between parties may be either institutional or ad-hoc/unadministered arbitration. The main difference between these two types is that to initiate arbitration under institutional rules, parties may first have to make payment of the first tranche/filing fee^vi of the arbitral institutional involved. This may not be required under the ad-hoc^vii/unadministered rules^viii (except that to engage an arbitrator, parties may first have to agree and make payment of the appointment fees).
   2. Given that shipping claims have short time bars (contractual or otherwise), parties would wish to protect time by initiating arbitration or litigation. In the case of ad-hoc/unadministered arbitration, this is relatively simple given that most of the rules provide for the submission of a notice of arbitration to commence arbitration. Parties can then continue to negotiate and if unsuccessful, move on to arbitrate their disputes.
   3. Arbitration Rules of various institutions/associations allow different pathways for low valued claims. Such rules allow for faster processes heard by a single member tribunal with capped costs^ix. Should parties be desirous of using the same process for larger claims, they can expressly provide for in their arbitration clause^x.
   4. We admit that parties, in addition to paying their counsel’s fees, would also pay the arbitrator’s fees (which is not required in litigation except that there would be a court filing fee based on the size of the dispute). However, arbitrators allow the winning party to recover a higher portion of the costs incurred from the losing party and which may not be the case in litigation. Parties can also choose to arbitrate themselves instead of engaging counsel/representatives, thus avoiding legal costs but this is highly unlikely given the specialized knowledge required.
5. There are other advantages in arbitrating such as choice of appointing a tribunal well versed with the trade practices, confidentiality, etc. In this regard, Lexis Nexis has published Arbitration vs Litigation: Making the right choice and which provides further details on the advantages and disadvantages. The main disadvantage is that there is limited^xi or no right of appeal^xii on a point of law which is available in litigation. Having said that, the risks are similar, and our view is to respect the decision of the Tribunal or the court, whatever it may be.
6. Conclusion:
   1. While there may be advantages in litigating, parties would have to first consider whether a court judgement would be enforceable in the first instance? Arbitration scores over litigation in this regard.
   2. Arbitration does provide various pathways to deal with disputes expeditiously and with capped costs. To take advantage of these benefits, parties may wish to incorporate a well-crafted arbitration clause allowing for the use of such pathways.

^i. For instance, in India enforcement of foreign judgements is possible if the judgement has been made in specific reciprocating territories by superior courts. Some of the territories are the UK, UAE, Singapore, Malaysia, Bangladesh, Hong Kong, New Zealand, etc.
^ii. See article on Enforcement under the New York Convention authored by Emmanuel Gaillard and Benjamin Siino.
^iii. Art V of the New York Convention.
^iv. Art IX of the Hague Convention on Choice of Court Agreement.
^v. See Rule 5 of the LMAA Small Claims Procedure 2021, Rule 7 of the LMAA Intermediate Claims Procedure 2021 and Rule 44 of the SCMA Rules, 4^th Edition.
^vi. See Rule 6.3(i) of the SIAC Rules, 7^th Edition, 01 Jan 2025.
^vii. See Rule 10 of the LMAA Terms 2021 and the Appointment fees stated in the First Schedule.
^viii. See Rule 6 of the SCMA Arbitration Rules, 4^th Edition, 01^st Jan 2022.
^ix. See Rule XIII of the SIAC Rules, 7^th Edition – Streamlined Procedure, LMAA Small Claims Procedure 2021 for claims not exceeding USD 100,000 and LMAA Intermediate Claims Procedure 2021 for claims from USD 100,000 to USD 400,000 and R 44 – Expedited Procedure under the SCMA Rules, 4^th Edition.
^x. Arbitrators may seek additional payment of fees given that the work involved for larger claims may be substantial vis-à-vis lower value claim.
^xi. See S69 of the English Arbitration Act 1996.
^xii. See Art V of the Model Law and which forms a part of the Singapore International Arbitration Act 1994.