Management of claims and dispute

CERTIFICATE IN MARINE CLAIMS

2009

MODULE 6

Management of Claims and Disputes

AUTHOR

Henry AdamsAssociate

Birketts LLP, UK

Lloyd's and the Lloyd's crest are the registered trademarks of the society incorporated by the Lloyd's Act 1871 by the name of ‘Lloyd's’

Certificate in Marine Claims 2009 (LW1072) 6-1

Page No.

1. INTRODUCTION 3

2. EARLY STAGES OF A POTENTIAL CLAIM 4

2.1 Who to Inform About the Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42.2 Appointment of Surveyors and Local Representatives . . . . . . . . . . . .52.3 Disclosure Obligations: Confidential vs. Privileged Documents . . . . .52.4 Other Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72.5 Mitigation of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72.6 Security for Claims and Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82.7 Managing the Media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

3. DISPUTE RESOLUTION 18

3.1 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .183.2 The Arbitration Act 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .193.3 The Role of the London Maritime Arbitrators Association (LMAA) . .213.4 The LMAA Terms (2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .213.5 The Arbitration Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .213.6 Concurrent Arbitrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .263.7 Consolidated Arbitrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .273.8 Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .273.9 Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .323.10 A Quick Tour of English Court Procedure . . . . . . . . . . . . . . . . . . . . .343.11 Law and Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .353.12 Anti-Suit Injunctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36

4. PRACTICAL CONSIDERATIONS FOR DISPUTE RESOLUTION 38

4.1 Insurance/Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .384.2 Recoverability of Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .394.3 Costs and Chains of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .424.4 Protecting Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .434.5 Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44

CONTENTS

Contents Module 6

6-2 Certificate in Marine Claims 2009 (LW1072)

4.6 Assessment of Costs Where There Is No Agreement . . . . . . . . . . .444.7 Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45

FURTHER READING 47

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6-001 Managing a claim or dispute carefully from the outset can mean the differencebetween expensive, protracted litigation and a swift, cost-effective settlement. Itis critical to manage the claim strategy from the very outset of the incident,whether you are bringing the claim or defending it.

6-002 This Module covers the main elements involved in effective management ofdisputes. In particular, it looks at:

• What should be done right at the start of a dispute: notices, appointmentof representatives and surveyors, preliminary considerations

• Security: arrest, liens, LOUs, freezing orders, escrow accounts, securityfor costs

• Dispute resolution: court proceedings/arbitration, advantages anddisadvantages of different methods, jurisdiction, appointment ofarbitrators, concurrency/consolidation, time bars, anti-suit injunctions,appeals

• Practical and strategic considerations in litigation: recoverability of costs,assessment of costs, settlement agreements

• Enforcement of awards and judgments: the New York Convention, EUJudgments Regulation

6-003 For the purposes of this Module, unless expressly stated otherwise, the topic ofmanagement of claims and disputes will be discussed from a predominantlyEnglish law perspective.

1. INTRODUCTION


2.1 WHO TO INFORM ABOUT THE CLAIM

6-004 It is imperative that as soon as any incident occurs, the relevant insurer isnotified so that the insurer is in a position to take all necessary steps to protectits position. Failure to do so may in due course prejudice the assured’s right tobe reimbursed under the insurance policy. In many cases, it will be necessary forthe insurer or broker to appoint a surveyor or expert to carry out an inspectionof the alleged damage. For example, in cases involving damage to a vessel, amarine superintendent, class surveyor, Master Mariner or naval architect mayneed to be appointed. The expert(s) should be instructed to advise as to thecourse of the damage. The experts should also be instructed in suchcircumstances to draw up recommendations for repair and perhaps instruct theshipyard accordingly.

6-005 It may be necessary to give formal notices and/or reservations of rights topotential opponents. The governing contract should be examined immediatelyupon any potential claim arising, as failure to give the correct notices orreservation of rights can, in some cases, give rise to arguments of estoppel orwaiver, potentially jeopardising the right to claim at a later date. Alternatively,failure to abide by a contractually agreed method of presenting or notifying theother party of a claim may impact upon the burden of proof or even bar the claimaltogether.

2. EARLY STAGES OF A POTENTIAL CLAIM

LEARNING OUTCOMES

Upon completion of this chapter, you should be able to:

� Know who to notify when an incident occurs and the procedureto follow.

� Appoint local surveyors and representatives.

� Distinguish clearly between confidential and privilegeddocuments.

� Assess what steps should be taken at the outset of a claim.

� Understand the importance of mitigating your loss at the earlystages of a claim.

� Demonstrate a clear understanding of the different methods ofsecurity for claims and costs.

6-006 For example, if the claim involves a dispute under a charterparty caused bystevedore damage to a vessel, the charterparty may set out a procedure whichmust be followed strictly as a condition precedent to the charterer’s liability beingincurred. Similarly, where the claim is for loss of or damage to cargo under theHague or Hague-Visby Rules, cargo interests must notify the carrier or its agentof the claim within three days of discovery of the loss/damage at the latest,failing which the removal of the goods by cargo interests will be prima facieevidence that the cargo was delivered in sound condition.

2.2 APPOINTMENT OF SURVEYORS AND LOCAL REPRESENTATIVES

6-007 A local representative and/or advisor should be appointed as soon as possibleto coordinate events on the ground, such as obtaining the necessary evidenceand liaising with the party’s appointed expert(s)/surveyor. In some areas, therewill be a limited number of suitably qualified representatives. The longer this isleft, the greater the possibility that the other party will secure the services of themost suitably skilled local representative.

6-008 The local representative(s) of choice should be called as early as possible andasked to do a simple conflict check. If they are free to act, ask them to be onstandby and to accept no instructions from any other parties pending yourfurther instructions.

Module 6 Early Stages of a Potential Claim


Tip: Act early! Appoint your local representatives or advisors as soon aspossible, even if they are just to be on standby. If you don’t, the other side will.

2.3 DISCLOSURE OBLIGATIONS: CONFIDENTIAL VS. PRIVILEGEDDOCUMENTS

6-009 Parties must bear in mind from the very outset of a dispute that documents mayneed to be disclosed in subsequent proceedings. It is very important to note thatconfidential documents may also need to be disclosed as confidentiality is nobar to disclosure.

6-010 Disclosure is the stage in court/arbitration proceedings when parties to a disputeinform each other of those documents they have or have had in their possessionwhich relate to the case. There are two distinct stages of disclosure, first,providing a list of documents and second, inspection of those documents. Thisusually occurs once pleadings have been served.

6-011 The purpose of disclosure is to clarify the issues, evaluate the strength of bothyour and the other side’s case, to encourage settlement and to ensure that thecourt/tribunal has all the facts if the case continues to trial/a hearing.

6-012 Disclosure is defined in Civil Procedure Rules (CPR), r. 31.2, which states that‘a party discloses a document by stating that the document exists or hasexisted’.

6-013 CPR r. 31.6 defines standard disclosure and requires a party to disclose:

a) the documents on which he relies: and

b) the documents which:

(i) adversely affect his own case;

(ii) adversely affect another party’s case: or

(iii) support another party’s case; or

c) the documents which he is required to disclose by a relevant Practice Direction.

6-014 An application for early disclosure may be possible under the CPR or inarbitration proceedings.

2.3.1 Privileged Documents

6-015 There are some circumstances in which a party will not have to allow the otherparty to inspect a disclosed document because it is ‘privileged’. There arevarious types of privileged documents.

• Document which are subject to legal professional privilege. There are twotypes of legal advice privilege, first, advice privilege which applies only to communications between a solicitor and his client (for example, lettersof advice, draft submissions, telephone attendance notes) and second,litigation privilege which is concerned with communication between asolicitor and third party and the clients’ own documents (for example,internal memos, in house reports, proof of evidence, instructions toexperts).

• Documents which might lead the party to being prosecuted (self-incrimination).

• Documents which are excluded on the ground of public interest.

• ‘Without prejudice’ documents, that is, documents prepared for thepurpose of amicable settlement of the dispute.

6-016 Merely stating that documents are privileged and prepared for the purpose ofproceedings, or without prejudice, is not conclusive.

2.3.2 Failure to Disclose

6-017 Failure by a party to disclose a document that is likely to have been in theirpossession may prejudice the court/tribunal’s perception towards them. Thedocument in question is likely to be deemed to be adverse to that party’s positionin the dispute.

Early Stages of a Potential Claim Module 6


2.3.3 Disclosure Obligations

6-018 Under Rule 11.01 of the Law Society’s Code of Conduct, solicitors have a dutynot to deceive or knowingly mislead the court. A solicitor must make sure thathis client understands the duties to conduct a reasonable and proper search andthen to give full and frank disclosure. The client must also appreciate thatdisclosure is an ongoing obligation.



Tip: Parties must be aware of their disclosure obligations from the outsetand take early measures to (1) retain all relevant documentation and (2)decide at an early stage in Court proceedings (not arbitration as it is aprivate process) whether they will want to pursue or defend a claim if doingso will lead to disclosure of commercially sensitive and sometimespotentially damaging information into the public domain.

Serious consideration should be given to settling a claim amicably, if you willhave to disclosure in due course documents that the opposition have notseen which are unfavourable to your case.

2.4 OTHER CONSIDERATIONS

2.4.1 Appointment of Surveyor/Expert

6-019 Where a surveyor is to be appointed, consider whether he or she is also likelyto be appointed as an expert witness in litigation. If this is likely, ask whether theintended surveyor is experienced in court or arbitration procedures and, inparticular, in being cross-examined. If not, it might be worthwhile sending alitigation-experienced surveyor/expert out to the incident, even if this is a moreexpensive option than appointing a local surveyor. In short, if legal or arbitrationproceedings are likely, it is advisable to instruct an expert from the outset who isnot simply an expert in his field, but is also an expert at providing evidence inproceedings.

2.4.2 Take Statements Early

6-020 Consider also taking statements from key people involved in the incident at anearly stage. A statement made at the time, while events are fresh in the witness’mind, is likely to be more accurate and complete and thus more persuasive to acourt or tribunal than one made many months later when litigation is already inprogress and memories may have become selective.

2.5 MITIGATION OF LOSS

6-021 Under English law, a party may not recover damages in respect of losses whichhe could reasonably have avoided. A detailed discussion of mitigation of loss isbeyond the scope of this Module, but it should be borne in mind from the outset

of any claim that the potential claimant must take all reasonable steps tominimise his losses.

6-022 As to what constitutes reasonable steps, this will vary with each individual case.If he incurs reasonable costs in taking these steps, these may be recoverablefrom the other party.

6-023 The burden of proof is on the defendant to show that a claimant has failed to takereasonable steps to mitigate his loss. Nevertheless, a potential claimant shouldensure that all mitigating steps taken after an incident, are carefullydocumented. If, for example, it is necessary to take steps to prevent furtherdamage occurring, or to organise a salvage sale of damaged cargo, it isimportant that all stages of the process are recorded and supportingdocumentation produced, for example to evidence that the damaged cargo wasput up for tender to a wide potential market.

2.6 SECURITY FOR CLAIMS AND COSTS

6-024 From the claimant’s perspective, it goes without saying that there is little point inbringing a successful claim against an impecunious party who is unable tohonour a judgment or award, or against one who has the necessary financialwherewithal but will be able to evade payment.

6-025 Where you are the defendant/respondent, you should also consider the financialstatus of your opponent. If you succeed in defending the claim, will the otherparty honour a costs award in your favour?

6-026 These problems can in some circumstances be solved by ensuring that a sumof money covering either the amount of the claim plus projected interest andcosts, or the likely costs of defence, is protected in some way at the start ofproceedings. There are various methods of securing the money, which areexamined below.

2.6.1 Arrest

6-027 Arresting a vessel is a means of preventing her from moving and thus fromtrading, pending resolution of a claim or, more commonly, the provision ofadequate security. In practice, a threatened arrest is often enough to persuadea vessel’s owner to provide voluntary security in some other form, usually a P&IClub Letter of Undertaking (see below).

6-028 Under an arrest, the court of the place in question may hold the vessel assecurity for any judgement/award given in favour of the claimant. The security iseffective even if the shipowner becomes insolvent in the meantime.

2.6.1.1 Procedure in England and Wales

6-029 The right to bring proceedings in rem (that is, a claim against a ship) in Englandand Wales is governed by the Supreme Court Act 1981. Traditionally, in rem



claims were commenced via a warrant of arrest. Nowadays, they arecommenced by the issue of an Admiralty in rem Claim Form.

• If the arrest occurs before judgement, any subsequent judgement will beenforced against the property arrested.

• If the arrest takes place after judgment, the judgement is enforced againstthe property arrested.

6-030 A claimant and a judgement creditor may apply to have a warrant of arrestissued (r.61.5(1) of CPR 1998 (‘CPR’)). Under r.61.5(3) CPR, a ‘party making anapplication for arrest must

(a) request a search to be made in the Register before the warrant is issuedto determine whether there is a caution against arrest in force with respectto that property; and

(b) file a declaration in the form set out in the practice direction.’

6-031 Under PD 61.5 para 5.1 an application for arrest must be

‘1. in the form ADM4 (which must also contain an undertaking); and

2. accompanied by a declaration in the form ADM5.’

6-032 The declaration must state:

a) the nature of the claim or counterclaim;

b) that it has not been satisfied;

c) the name of the ship connected with the claim;

d) the nature of the property to be arrested, including the port of registry ofthe ship;

e) the amount of security sought;

f) that any relevant notices have been given (for example, under sometreaties or conventions, a notice to the consul).

6-033 There are further requirements under CPR PD 61.5.3 if the claim relates to oilpollution.

6-034 Where the claim is one which gives rise to a statutory right to claim in rem, underSection 21(4) of the Supreme Court Act 1981, the declaration must also state:

a) the name of the person who would be liable for the claim in personam;

b) that this person was the owner at the time the cause of action arose;

c) that at the time the Claim Form was issued, this person was the beneficialowner of all the shares in the ship.



2.6.1.2 What If There Is More Than One Claimant?

6-035 Where there is more than one claimant to the action, there is no need for eachone to carry out an arrest. It is sufficient for the claimants to protect theirinterests by entering a ‘caveat’ (caution) in the Admiralty Registrar’s CaveatBook once the vessel has been arrested.

2.6.1.3 What Happens After an Arrest Warrant Has Been Issued?

6-036 Under r.61.5(8) CPR, property may only be arrested by the Marshal or hissubstitute. See The ‘Johnny Two1’, where Mr Justice Sheen provided a briefnote on the current procedures for arresting a ship:

‘Upon issue of the warrant the Admiralty Marshal telephones the relevant officerof H.M. Customs and Excise and instructs him to arrest the ship. He tells theCustoms Officer his requirements for ensuring the security of the arrest. That isfollowed up by sending a ‘Note of Action’ by fax confirming his instructions toarrest the ship and giving the folio number of the action, the name of the plaintiffand the name of the plaintiff’s solicitors. An officer of H.M. then arrests the shipby attaching the Note of Action to the ship. This can be carried out within a veryshort space of time.

The warrant of arrest and the writ are sent by post to H.M. Customs forexecution and service respectively. But frequently, of course, security will havebeen provided and service of the writ accepted by solicitors so that the ship willhave been released before these documents are received by H.M. Customs.’

2.6.1.4 Effect of Arrest

6-037 A vessel cannot be moved whilst she is under arrest. A shipowner will beincurring expenses and not making any profit during this time, so is likely to bewilling to offer alternative security such as a Letter of Undertaking to obtain thevessel’s release.

2.6.1.5 Wrongful Arrest

6-038 If a vessel is arrested when it should not have been (‘wrongful arrest”), theshipowners may suffer a substantial loss. However, under English law theshipowners are able to recover that loss from the arresting party only where theycan show that the arresting party is guilty of mala fides or crassa negligentia.2

6-039 The protection given to shipowners against wrongful arrest differs from onejurisdiction to another. In some jurisdictions, the arresting party is required to putup counter-security against any possible claim for wrongful arrest. It is thereforeessential to take local advice as soon as an arrest is contemplated.

2.6.1.6 Release

6-040 The vessel will be released once reasonable security has been provided andeither the arresting party consents, or the court orders release. An application



1 [1992] 2 Lloyd’s Rep 2572 The Evangelismos (1858) 12 Moo PC 352

for release together with the consent of the arresting party will need to be filedat the court.

6-041 If there is more than one claimant to the proceedings, a ‘caveat’ against therelease of the vessel may have been entered in the Admiralty Registrar’s CaveatBook. This would prevent the vessel being released without the consent of theparty entering the caveat. Once security has been provided for the original arrest,the person who has filed a ‘caveat’ against the release can take over the arrest.

6-042 Reasonable security is based on the amount sufficient to cover the arrestingparty’s reasonable best case, together with interest and costs. The amount ofsecurity cannot exceed the value of the property arrested.

Security is normally provided in one of the following forms:

• A first class bank guarantee or guarantee by an insurance company witha satisfactory credit rating.

• A Letter of Undertaking provided by the shipowners’ P&I Club. The P&IClub would have sufficient backing to honour the undertaking if it is amember of the International Group. However, note that it may be difficult toenforce the undertaking if the P&I Club is not a member of theInternational Group.

• Cash can be paid into an escrow account. If this is the chosen form ofsecurity, a detailed escrow agreement will need to be drawn up.

6-043 The procedure outlined above applies only in England and Wales. Proceduresdiffer according to the country in which the arrest is to be made. Although thebasic requirements are governed by international convention (The InternationalConvention for the Unification of Certain Rules Relating to the Arrest of Sea-going Ships, Brussels 1952), some jurisdictions are acknowledged to be moreconvenient for claimants than others.

2.6.1.7 Re-arrest

6-044 A party may retain the right to re-arrest the vessel if the security provided isinsufficient. As noted above, the amount of security provided cannot exceed thevalue of the ship at the time when she was initially arrested.

2.6.1.8 Sister Ship Arrests

6-045 These occur where the owning company of ship A is the same as that of ship B.In these circumstances, it is possible to arrest ship B for the debts incurred byship A.

6-046 Section 21(4) of the Supreme Court Act 1981 states the conditions which needto be satisfied if a claim is to be brought against a sister ship as follows:

‘(a) the claim must have arisen in connection with a ship (‘ship A’); and

(b) the person who would be liable on the claim in an action in personam (‘therelevant person’), was, when the cause of action arose, the owner or the



charterer in possession or in control of, the ship ('ship A’), an action in remmay (whether or not the claim gives rise to a maritime lien on that ship) bebrought in the High Court against –

(i) that ship, if at the time when the action is brought the relevantperson is either the beneficial owner of that ship as respects all theshares in it or the charterer of it under a charter by demise; or

(ii) any other ship of which, at the time when the action is brought, therelevant person is the beneficial owner as respects all the shares init (‘ship B’).’

6-047 However, in practice this remedy is now in decline. Nowadays, shipowners areoften aware of the potential for a sister ship arrest and thus often set up shipowning companies to protect their fleet from arrest.

2.6.2 Liens

6-048 A lien is the right to retain control of that which is in one’s possession belongingto another until a debt relating to it has been paid. This legal mechanism is oftenused as a bargaining tool.

6-049 There are two types of lien:

1. A ‘particular’ lien is a lien exercised over goods for all monies owed inrespect of the particular goods.

2. A ‘general’ lien is a lien exercised for all monies owed, irrespective ofwhether the monies are owed in relation to the particular goods liened.

6-050 A lien may be either ‘contractual’ or exist at ‘common law’. A contractual lien isprovided by an express clause in a contract, so of necessity can only beexercised if the right to do so has been reserved in advance of any dispute. Acommon law lien arises in certain circumstances without any expresscontractual provision. A common law lien is always a particular lien.

2.6.2.1 How Do You Exercise a Lien?

6-051 Possession of the goods or documents giving title to the goods should beretained and the debtor and other interested parties should be informed of whathas been done and the amount of money that is due to get the goods ordocuments back.

6-052 The British International Freight Association advises that notice should be givento as many other interested parties as possible when exercising a lien. If asubsequent liquidation occurs, the notice will prove valid against the liquidatoras it will help to establish that the lien was exercised before the liquidation.

6-053 It is imperative that the goods or documents subject to the lien are properlylooked after. You may be liable to the debtor if they are damaged, destroyed orstolen.



6-054 Beware: there are two main pitfalls to be aware of if you are consideringexercising a lien:

1. Perishable goods. If the goods which are subject to the lien are likely todeteriorate quickly, or need special care (for example, refrigeration), or aretime-sensitive, think very carefully before exercising a lien: you maybecome liable for any damage or fall in value which occurs during theperiod of the lien.

2. Storage charges. You will be liable for the cost of storing the goods duringthe period of the lien unless you have expressly reserved the right tocharge for storage in the lien clause in the contract. Note that many lienclauses omit this important provision. If the lien is non-contractual(common law), you will not be able to claim storage charges from thedebtor. This could become an expensive option.

2.6.3 Letters of Undertaking

6-055 An LOU is the most commonly used form of security for maritime claims and willoften be given in order to secure release of an arrested vessel or to prevent itsarrest in the first place. It constitutes a contract between the claimant and theprovider of the LOU, whereby the claimant promises to refrain from seekingalternative security in exchange for a promise to pay a specified amountawarded in favour of the claimant or agreed in amicable settlement.

6-056 Where an LOU is given by an International Group P&I Club, it is readilyenforceable. However, there are some pitfalls to be aware of:

2.6.3.1 Does the LOU Provide for Jurisdiction of the Substantive Proceedings?

6-057 The wording of many LOUs refers to an award or judgement of a specifiedtribunal or court.The LOU will not be enforceable against an award or judgementfrom any other tribunal or court. This can be a problem. Consider, for example,a claim arising under a bill of lading which incorporates a London arbitrationclause from a charterparty. Any claim under the bill must be brought in Londonarbitration. If, however, a claim has been wrongly started in the cargo receivers’local courts, and the LOU provides an undertaking to pay an amount awardedexclusively by those courts, any claim subsequently brought in the correctjurisdiction will not be enforceable against the LOU.

6-058 Conversely, from a carrier’s point of view, an LOU which undertakes to pay anamount awarded by a particular tribunal can, in some circumstances, amount toa variation of the contract of carriage so as to give that specified tribunaljurisdiction for the claim.

2.6.3.2 Does It Provide for Jurisdiction Governing the LOU Itself?

6-059 Bear in mind that it might be necessary to enforce the LOU against the partyproviding it. Where it is given by an International Group P&I Club, this is notusually a problem, but where the provider’s financial health or reliability is in anydoubt, make sure the LOU states clearly that the terms of the LOU (and thereinits enforceability) is subject to the jurisdiction of the English High Court.



6-060 Do not accept an LOU before taking legal advice.

2.6.4 Freezing Orders

6-061 In the UK, a freezing order (formerly ‘Mareva injunction’) is, strictly speaking, notintended to give a claimant security for his claim but to ‘protect the efficacy ofcourt proceedings’ (Lord Bingham in Fourie v Le Roux and others [2007] UKHL1) by preventing a defendant from dissipating assets which might be used tosatisfy a judgement. Its effect, however, is to ensure that a successful claimantwill have a fund against which to enforce a court judgement or arbitration award.

6-062 To obtain a freezing order in the UK, a claimant must satisfy the court that (a) hehas a good arguable case; and (b) that there is a real risk that judgement will gounsatisfied by reason of the disposal by the defendant of his assets, unless heis restrained from doing so (CPR Part 25).

2.6.4.1 Rule B Attachments in the US

6-063 Another form of freezing order is available in the US. The ‘Rule B attachment’allows maritime claimants to secure their claims through an application underRule B of Claims of Federal Rules of Civil Procedure and the SupplementalRules for Certain Admiralty and Maritime Claims. Basically, the application, ifgranted, allows money passing through the New York banking system to befrozen (‘attached’) pending resolution of a maritime claim. There are both initialand ongoing costs involved in the application, but it can be an extremely usefultool where other forms of security are not available.

6-064 If a Rule B application might be appropriate – or if you find yourself subject toone – it is important to seek legal advice from US lawyers experienced in thiskind of application as soon as possible.

6-065 Rule B applications can only be made if a business is trading in US dollars. Toescape coming under the ambit of the applications, some businesses are nowtrading exclusively in euros. Further, Rule B applications cannot be madeagainst entities who are registered in New York state.

2.6.5 Escrow Accounts

6-066 This is a legal arrangement whereby an asset (normally cash) is deposited intosafe keeping (a bank account) to be held by a third party until a specified set ofcircumstances occurs. Usually, this involves disputed funds being paid into anaccount in the name of a law firm or P&I Club for safe keeping until either anarbitration award/court judgment has been made, or the parties agree to settlethe dispute.

6-067 An escrow account cannot be set up unilaterally: it requires the agreement ofboth parties to the dispute and should be subject to a written agreement. Thewritten agreement should specify the account details, the names of the parties,a brief note of the nature of the dispute and how it is to be resolved and the exactcircumstances in which the money will be paid out. It should also set out the lawand jurisdiction which is to govern the escrow account itself.



2.6.6 Security for Costs

6-068 Defending proceedings can be both time consuming and expensive. The totalamount spent on litigation is very rarely fully recovered, even where a claim issuccessfully defended. It is also possible that an unsuccessful claimant mightnot be able to satisfy a costs order made against it. A defendant may in certaincircumstances protect against this by applying for security for costs.

6-069 Part 25 of the CPR 1998 deals with the procedure for an order of security forcosts. The procedure is only available to defendants (or defendants under a Part20 claim) to use against the claimant (CPR r. 25.12(1).

6-070 If one of the grounds under Part 25 applies, the defendant can ask the court toexercise its discretion to order the claimant to provide security for costs. Theorder granted will state the amount of money to be paid and the time limit formaking payment. The claim can be dismissed if the claimant fails to comply withthe order.

2.6.6.1 Procedure

1. Contact the claimant and ask for security to be put up on a voluntary basis.

2. If the claimant does not respond, prepare an application to the court forsecurity (CPR r. 25.12.(5)).

3. Issue the application.

4. Satisfy the conditions for grant of the order (CPR r. 25.13). One of thestated grounds must be satisfied and it must be ‘just in all thecircumstances’ for the order to be granted.

5. The four grounds (CPR r. 25.13(2)) on which the defendant may apply areas follows:

a. The claimant is resident out of jurisdiction but not in an EU orLugano state;

b. Impecuniosity;

c. The claimant is evasive (he has changed address since the claimwas commenced or failed to give his address in the Claim Form);

d. There is some reason to believe he will not be able to pay thedefendant’s costs if ordered to do so, or is known to have takensteps to make it difficult to enforce a costs order.

6. The factors to show it is just in all the circumstances are as follows:

a. The strength of the claim and the defence. The stronger theclaimant’s case, the less likely the court will be to order security forcosts.



b. The claimant’s ability to provide security. The court must strike abalance between the right of the claimant to pursue a genuine claimand the unfairness to the defendant of allowing the claimant to do sowithout providing security.

c. The causes of the claimant’s impecuniosity. Where the courtconcludes that the defendant is the cause of the claimant’s financialdifficulties, it will be less likely to award security for costs.

d. Location of assets. The court is unlikely to grant the order if theclaimant has assets within jurisdiction, but if the court has anyreason to doubt the honesty of the claimant, the nature of the assetsbecomes relevant.

e. The timing of the application. The application should be made assoon as is practicable.The court will be less willing to grant the orderwhere the defendant has delayed for no good reason.

7. The court may be unwilling to award all the costs up to the trial as it is notcertain the case will reach the trial stage as the parties may settle, or itwould be a huge burden for the claimant to bear. In this situation, thesolution would be to award the costs up to a particular stage of theproceedings (to disclosure or from disclosure up to the exchange ofwitness statements/exchange of expert evidence and/or exchange to trial).

8. The claimant may ask the defendant for an extension of time for paymentinto court of the security. If the claimant does not pay as ordered, thedefendant may apply to the court for an ‘unless’ order. This will give theclaimant a further period to pay, failing which the claim will automaticallybe struck out. If there is a breach of the ‘unless’ order, the original claimantwill be liable for all the parties’ costs.

2.7 MANAGING THE MEDIA

6-071 In the media saturated environment that we live in today, it is imperative thatshipowners, operators and charterers act responsibly and are seen to be doingso. This is of particular importance for liquid cargo carriers and owners. In theevent of a major incident, the media will focus on what safeguards were in place,the age and condition of the vessel and whether good seamanship wasemployed.

6-072 The key to managing the media is to manage the information that is released tothem and to maintain as open a dialogue with the media as commerciallypossible.

6-073 What information is in the public domain?

• Charterparty fixtures

• Ownership of vessels



• Marine Accident Investigation Branch (MAIB) report

• Pleadings in court proceedings

6-074 What information is not in the public domain?

• Charterparties

• Fixture notes

• Arbitration awards



CASE STUDY: MSC NAPOLI

In January 2007, the container ship ‘MSC Napoli’ encountered severestorms off the coast of Devon, causing her to suffer a serious failure of herhull. As a result, the Vessel was abandoned by her 26 crew and beachedon the World Heritage Coast site.

The impact of this was two-fold. Firstly, approximately 58 containers werewashed ashore, leading to scavenging by organised gangs. One containersplit to reveal 20 BMW motorbikes, whilst other containers were loadedwith shoes, wine, nappies, dog food, Citroen car parts and face cream!Secondly, a five mile slick of oil could be seen coming from the strickencontainer ship impacting severely on the local sea birds.

In light of this, a MAIB report has been published. A key outcome of thereport is that ‘the MAIB (have) requested the major classification societiesto conduct urgent checks on the buckling strength of a number of shipdesigns.’

As you can imagine, the public, environmental groups and the press had alot to say about this and the scale of the adverse publicity for the shippingindustry as a whole has been considerable.


6-075 There are a number of options for formal dispute resolution: court proceedings,arbitration, mediation and other alternative dispute resolution (ADR) procedures.Usually, a clause in the contract will determine which form of dispute resolutionapplies to the claim. However, it is possible to agree to use a different methodafter a dispute has arisen.

3.1 ARBITRATION

6-076 In maritime claims, arbitration is most often the chosen forum. Arbitration differsfrom the other forms of ADR in that the tribunal’s decision is binding on the

3. DISPUTE RESOLUTION

LEARNING OUTCOMES

By the end of this chapter, you should be able to:

� Suggest common dispute resolution methods.

• Compare the advantages and disadvantages of arbitration andmediation.

• Understand the application of the Arbitration Act 1996.

• Discuss the role of the LMAA and the LMAA Terms 2006.

• Demonstrate an understanding of the framework for arbitrationprocedure.

• Distinguish between concurrent and consolidated arbitration.

• Demonstrate how to enforce awards and recognise the groundsfor appeal.

• Explain briefly the English Court procedure.

• Recognise governing law and jurisdiction clauses in a contract.

• Describe and be aware of anti-suit injunctions.

parties, in much the same way as a court judgment is binding. An arbitral awardcan be enforced like a judgement.

3.1.1 Advantages of Arbitration:

– it tends to be more expedient than litigation as the parties can proceed to arbitration as quickly as they want to without undertaking many pre-litigation steps;

– on the whole it is less costly than litigation but the parties have to pay forarbitrators’ fees and, if an oral hearing is necessary, venue costs;

– an arbitration tribunal has much more flexibility in the award it can grant,as contrasted with the limited powers of a trial judge in litigation;

– arbitration awards are more widely recognised around the world thanEnglish court judgements for enforcement purposes;

– the procedures involved are less formal;

– proceedings are conducted in a private forum, so it avoids adversepublicity – commercially sensitive information can be protected;

– parties can choose and agree upon the choice of arbitrators who areexperienced in the trade or business in question. The arbitrators do notneed to be lawyers.

3.1.2 Disadvantages of Arbitration:

– the process is a finding as to fact and there are limited options to appeal;

– arbitrators cannot grant an injunction.

3.2 THE ARBITRATION ACT 1996

6-077 Arbitration in England and Wales is governed by the Arbitration Act 1996 (‘theAct’). Where an arbitration agreement is silent on a point, the relevant provisionsof the Act apply.

6-078 The general principles are set out in Section 1 of the Act:

‘(a) the object of arbitration is to obtain the fair resolution of disputes by animpartial Tribunal without unnecessary delay or expense;

(b) the parties should be free to agree how their disputes are resolved,subject only to such safeguards as are necessary in the public interest;

(c) in matters governed by this Part the court should not intervene except asprovided by this Part.’

Module 6 Dispute Resolution


6-079 The Act contains certain mandatory provisions which cannot be excluded by theagreement. However, the parties can contract out and thereby exclude the effectof certain provisions of the Act. If the arbitration agreement is silent on a point,then the Act applies to fill in the missing provisions.

6-080 The general duties of the arbitral tribunal are set out in Section 33 of the Act:

‘(1) The Tribunal shall

(a) act fairly and impartially as between the parties, giving each areasonable opportunity of putting his case and dealing with that ofhis opponent, and

(b) adopt procedures suitable to the circumstance of the particularcase, avoiding unnecessary delay or expense, so as to provide a fairmeans for the resolution of the matters falling to be determined.

(2) The Tribunal shall comply with that general duty in conducting the arbitralproceedings, in its directions on matters of procedure and evidence andin the exercise of all other powers conferred on it.’

6-081 Other sections of the Act:

– duties of the parties;

– the arbitration agreement;

– the arbitrators: number, appointment procedure, removal, replacement;

– commencement of proceedings;

– staying litigation;

– challenging the arbitrators’ jurisdiction;

– unco-operative party;

– security for costs;

– provisional awards;

– final awards;

– enforcing the award;

– challenging the award;

– domestic arbitrations; and

– recognition of foreign awards and various miscellaneous provisions.

Dispute Resolution Module 6




3.3 THE ROLE OF THE LONDON MARITIME ARBITRATORS ASSOCIATION (LMAA)

6-082 Maritime arbitration in England and Wales has a high reputation throughout thecommercial world, due largely to the expertise of the arbitrators and thedegree of commercial certainty this engenders. As a result, London is still themost desirable location for maritime arbitration. Previously, maritime arbitratorswere members of the shipping trade who voluntarily took on that role. In thepresent day, due to the increased demand for maritime arbitration, the role isoccupied by professional full time arbitrators who practise from variousbackgrounds.

6-083 The LMAA is an association of practising arbitrators, founded in 1960. Theassociation deals with disputes relating to contracts of affreightment, shipbuilding, insurance matters and repair cases, charterparty disputes, offshore oiland gas industries and cargo claims under bills of lading.

6-084 The main objective of the LMAA is ‘to advance and encourage the professionalknowledge of London maritime arbitrators and, by recommendation and advice,to assist the expeditious procedure and disposal of dispute’.3

3.4 THE LMAA TERMS (2006)

6-085 The latest LMAA Terms came into force on 1 January 2006. LMAA memberstend to rely upon the Terms when accepting arbitration appointments. The Termsare deemed to apply whenever a dispute is referred to:

– a sole arbitrator; or

– two original arbitrators who are full members of the LMAA.

6-086 The Act applies to all arbitrations in England and Wales and it is applicable toLMAA arbitrations as modified or supplemented by the LMAA Terms. The Termsare therefore additional and supplemental to the requirements under the Act.The Terms are flexible in nature and can be varied or disregarded by agreementbetween the parties and arbitrators at any time.

3.5 THE ARBITRATION PROCEDURE

6-087 The English court procedure provides a framework for the arbitration procedureunder LMAA Terms.

3.5.1 Appointing the Arbitrator

6-088 It is very rare for an arbitration agreement to name the arbitrator; it will normallyspecify how the arbitrator is to be appointed.

3 www.Imaa.org.uk

6-089 Section 15(1) of the Act states that ‘the parties are free to agree on the numberof arbitrators to form the Tribunal and whether there is to be a chairman orumpire.’

• Sole arbitrator

6-090 The default position under the Section 15(3) of the Act is that a sole arbitratorshall be appointed where there is no agreement. An application to the court ismade under Section 18 of the Act where there has been a failure to appoint anarbitrator. Under Section 18(3) the court can appoint a sole arbitrator or givedirections on the procedure for appointing. However, there may be situationswhere the arbitration agreement provides that the parties write to the Presidentof the LMAA when appointing an arbitrator.

• Two arbitrators

6-091 It is rare for an arbitration to provide for two arbitrators to be appointed as thereis an inherent risk that the arbitrators will not be able to agree on a solution tothe dispute. However, it is not uncommon, especially in cases involving modestsums of money, for the parties to agree not to appoint a third arbitrator before afull hearing or a decision is imminent (for example during the interlocutory stageof the proceedings) in order to save costs.

6-092 Each party appoints its own arbitrator within 14 days of a request in writing to doso (Section 16(4) of the Act). Section 17 of the Act sets out the procedure forfailing to appoint an arbitrator. If an arbitrator is not appointed within the 14 days,the first party can give a further 7 day notice. If the party in default does notappoint an arbitrator within this time, the first party may appoint his arbitrator assole arbitrator.

• Three arbitrators

6-093 The parties are free to appoint three arbitrators. The usual practice is that eachparty appoints its own arbitrator within 14 days of written request to do so(Section 16(5)(a) of the Act) and then the first two arbitrators appoint the thirdarbitrator to act as chairman (Section 15(5)(b) of the Act). The Section 17procedure will apply where there is a failure to appoint an arbitrator. If thearbitrators are unable to agree on a chairman, then either party may apply to thecourt to solve the problem (Section 18 of the Act).

6-094 If the agreement provides for an Umpire, then if the two arbitrators cannot agree,the Umpire must consider the submissions by himself and come to a decision.

3.5.2 Commencement of the Arbitration

6-095 The parties are free to agree when arbitration proceedings are to be consideredcommenced. Under the Act, proceedings are commenced when written noticeto agree a sole arbitrator or appoint another arbitrator is served by one party onthe other party (s.14).



3.5.3 Statements of Case

6-096 The 2nd Schedule of the Terms sets out the typical timetable for the service ofpleadings.

6-097 Claim submissions are served first, accompanied by all supporting documents.Submissions are documents completed by a party setting out its case. Thedefendants must serve their defence submissions, with all relevant supportingdocuments, 28 days from the date of receipt of the claim submissions. Failure bya party to disclose all relevant documentation may lead to monetary penaltiesbeing imposed on the party. Any reply must be served within 14 days. However,there are 28 days to respond if the defence submissions include a counterclaim.

6-098 Either party may apply to the tribunal for an Order requiring service within areasonable period if a timetable is not complied with. Parties to shipping andinternational trade cases are frequently given a longer period in which to preparetheir case where the matters are complex.

6-099 Parties are able to apply to amend their submissions in light of new evidence.Whether such amendments can be made is at the discretion of the tribunal. Thegeneral position is that amendments can be made until late on in theproceedings. It should be noted that the tribunal may stipulate that the applyingparty pay any costs associated with the amendments.

3.5.4 Interim Awards

6-100 An application for an interim award can be made by a party if sums are said tobe indisputably due and owing. The tribunal may grant the respondent only alimited time to respond (see para 2 of the 2nd Schedule to the LMAA Terms).

3.5.5 Security for Costs

6-101 An application for security for costs made by a respondent will not be consideredby the tribunal until after service of defence submissions (see para 7 of the 2ndSchedule).

3.5.6 Disclosure

6-102 In contrast to court proceedings, parties are encouraged to attach relevantdocumentation to their submissions in arbitration proceedings. The LMAA Termsprovide that the parties are entitled to ask each other for any missing relevantdocuments. The disclosure obligations on the parties are generally the same asin civil proceedings.

3.5.7 Witness Statements

6-103 The tribunal can give directions as to the order in which witness statements areto be served. The usual process is for a simultaneous exchange of witnessstatements. The witness statement will stand as evidence in chief of the witness.



The usual procedure is that the witness will be asked to confirm that theirstatement is true and then they will be subject to cross examination by the otherparty. The tribunal may permit the witness to amplify their statement or giveevidence on matters which have arisen since he served his witness statement.

3.5.8 Expert Evidence

6-104 Due to the complexity of maritime arbitrations the evidence of experts in therelevant field(s) is crucial. The duty of an expert is to assist the tribunal onmatters within his expertise. They should be objective and unbiased, eventhough it is usual for each party to instruct its own independent expert, who maythus be privy to privileged documents.

6-105 Expert evidence is to be given in a written report unless the tribunal directsotherwise. The reports are usually exchanged simultaneously on or before aspecified date. After exchange has occurred, supplemental reports are usuallysubmitted in response to the other expert’s evidence.

6-106 The tribunal will usually direct the experts to meet and discuss the issues in theproceedings with the aim of reaching an agreement on the issues. This willensure that any disagreements are narrowed down as much as possible beforethe hearing begins, thereby saving both time and costs.

6-107 Where the costs of two experts would be disproportionate in order to resolve thedispute, the tribunal may order a single joint expert. In such circumstances, thereis no need for reports to be exchanged. Where a single joint expert is appointedby the tribunal neither party may meet the expert without the other party beingin attendance.

3.5.9 Oral Hearings

6-108 Oral hearings may not always take place as they are not mandatory. Eventhough arbitrators are bound by the general duties as stipulated in Section 33 ofthe Act, they are not bound to have on oral hearing, even if a party demands oneas stated by Section 34(2)(h) of the Act.

6-109 The LMAA Terms provide that the parties present the tribunal with a completedquestionnaire within 14 days after final submissions, thus aiding the decision ofthe tribunal as to whether a hearing is required or not. The general rule of thumbis that the more complicated a dispute, the more likely a request for an oralhearing will be granted. In order to assess the complexity of a matter, the tribunalwill consider various factors:

– Is there a need for oral evidence?

– Is the credibility of a witness an issue?

– Will experts need to be cross examined?

– Will time be saved by having a hearing?



6-110 If the tribunal decide that a hearing will be necessary, they will fix an acceptabledate according to the availability of the parties, their representatives and theirwitnesses. A booking fee will become payable when the hearing date has beenfixed.

6-111 The arbitration process is seen to be more informal and flexible than a civil courthearing. Only the parties, their witnesses and the people permitted by theparties are allowed to attend the hearing as it takes place in private.

6-112 After the conclusion of the hearing, the tribunal has time to deliberate beforethey reach their decision. New evidence and submissions may be permittedduring this interim if the tribunal so directs. However, if the new evidence couldhave been provided at the hearing, the tribunal will refuse to permit it.

3.5.10 Documents Only Procedure

6-113 It is estimated by the LMAA that approximately 80 per cent of awards granted bytheir members are made on the basis of written submissions and documentsalone.

6-114 Once all the submissions have been filed, notification will be given to the partiesthat the tribunal will proceed to an award unless either party raises an objectionwithin the next seven days (see para 13I of the Terms).

3.5.11 Small Claims Procedure

6-115 The introduction of the Small Claims Procedure aims to provide a quick andmore cost-effective way of resolving small claims. All parties to the claim mustagree to employ it for it to apply.

6-116 Arbitration clauses in charterparties often expressly state that the Small Claimsprocedure will apply to claims and/or counterclaims below $50,000 (this iscurrently the suggested maximum claim amount).

6-117 A sole arbitrator can be appointed in one of two ways:

1. by agreement of the parties; or

2. by the President of the LMAA.

6-118 Arbitrators’ fees for the procedure are capped at £2,000 (plus £1,250 forcounterclaims greater than the claim). The applicant may recover costs, howeverthese are also capped at a figure of £2,750 (or £3,250 where there is a counterclaim).

6-119 The arbitration process is based, as much as possible, on written submissionsand relevant documents. Only in exceptional circumstances will oral hearings beallowed. The arbitrator is able to order further disclosure if it is deemednecessary. In the Small Claims Procedure there is a very strict timetable toadhere to in terms of exchange of submissions and any disclosure. There is noright of appeal against a small claims decision.



3.5.12 Intermediate Claims Procedure

6-120 The Intermediate Claims Procedure (“ICP”) was introduced in 2009 and aims to provide a streamlined structure for determining disputes which arebetween US$100,000 and US$400,000 in value, where agreed between theparties.

6-121 The ICP deals with all aspects of arbitral procedure. The key points are that:

– Claim submissions must be appointed within 14 days of the constitution ofthe tribunal.

– Defence submissions must be served within 28 days of receipt of the claimsubmissions.

– The claimant then has 21 days to serve a Reply and any Defence toCounterclaim submissions, following which the Respondent has 21 daysto serve any Reply to the Defence and Counterclaim.

– There is no formal stage of disclosure. Each party must produce allrelevant documents with its opening submissions. The parties mayrequest specific disclosure of documents in their opening submissions. Ifsuch documents are not disclosed within 14 days of completion ofopening submissions, the tribunal may draw an adverse inference in itsaward.

– The tribunal will award costs on a summary and commercial basis and willhave an absolute discretion as to whether the costs are fair, reasonableand proportionate. The parties’ costs will be capped to a maximum of 30%of the claim value, alternatively 50% if there is an oral hearing.

– Oral hearings will only take place in exceptional circumstances.

3.6 CONCURRENT ARBITRATIONS

6-122 Concurrent arbitrations are references in which the submissions made anddocuments disclosed in one arbitration are made available to the parties inanother, related reference. Arbitrations are often conducted concurrently wherethe same set of facts gives rise to two or more related disputes between differentparties, for example in a chain of charterparties involving the same vessel.Concurrency can either be agreed between all the parties or ordered by thetribunal under Rule 14(b) of the LMAA Rules.

6-123 Its advantage is that it can save costs where for example charterparties are back to back and submissions can simply be passed up and down the chain.However, concurrency means that documents are disclosed to third parties andthis may not always be convenient or acceptable to the parties.

6-124 Concurrency makes no difference to the tribunal’s powers to award costs. It doesnot bring with it a power to order costs against any party outside each referencein a chain of concurrent arbitrations. There has to be a separate costs order foreach of the concurrent references.



3.8 AWARDS

6-126 The decision produced by the Arbitration Tribunal will be final and binding on theparties. The successful party can enforce the award.

6-127 The award sets out the tribunal’s decision as to:

– the substantive dispute;

– any sums payable;

– any interest.

6-128 The tribunal also has the discretion to award costs, including:

– costs of the award (including the tribunal’s costs); and

– the parties’ costs.

6-129 As with litigation, on the whole, costs will be awarded against the losing party.However, the tribunal has more discretion to apportion the costs of resolving the dispute between the parties as it feels appropriate. The tribunal also has thediscretion to reserve the costs for an interim award, as with litigation, until all theissues have been decided.

6-130 The parties are free to agree on the form and content of the award. If this is notdecided then the only requirements under Section 52 of the Act are that the award:

– should be in writing;

– should be signed by all arbitrators or all assenting arbitrators;

– shall contain reasons for the award, unless parties have agreed todispense with requirement; and

– shall contain the date the award was made and the seat of arbitration.



Tip! As a general rule, the lower down in the chain you are, the less willingyou should be to consolidate.

3.7 CONSOLIDATED ARBITRATIONS

6-125 Where a number of claims are connected to the same set of facts, it is alsopossible for the claims to be consolidated. Unlike concurrency, which can beordered by the tribunal, consolidation can be achieved only by consent of all theparties. Consolidation means that the arbitrations are effectively conducted asone reference, and the tribunal is free to make one costs order in relation to allthe arbitrations, which otherwise it has no power to do (see Section 4.3 ‘Costsand chains of claims’). This means that the parties at the top and bottom of thechain are in a vulnerable position, as they can end up being ordered to payeveryone’s costs.

3.8.1 Reasons for the Award

6-131 A key factor to bear in mind is that if the parties wish to know the reasons for theaward, they must specifically ask the tribunal for them. An appeal on a point oflaw is not permitted in cases where the parties do not ask for the reasons. Thearbitrators are under no obligation to provide an analysis of the law and/orauthorities in their reasons.

6-132 Under paragraph 22 of the 2006 LMAA Terms, the default position is now thatreasoned awards will be made unless the parties specifically agree otherwise.The tribunal will provide a separate document detailing the reasons for theirdecision even where the parties have agreed that there is no need for reasons(see para 22(c) of LMAA Terms (2006). This document is deemed ‘privileged’which means it cannot be subsequently used in an appeal against the award ona question of law.

6-133 In order for arbitration decisions to be published, the consent of both parties isrequired as the proceedings are confidential (see para 24 of the LMAA Terms(2006)). If permission is granted, case summaries may be published in the Lloyd’sMaritime Law Newsletter omitting the names of the parties and any ship involved.

3.8.2 Tribunal’s Fees

• Security for Payment

6-134 The arbitrator can request that security for payment is a condition of beingappointed. This is of use where a party has requested security for costs from theother side (see Section 38(3) of the Act and also Part (E) of the First Scheduleof the LMAA Terms (2006)).

• Interim Payments

6-135 An arbitrator is entitled to ask for payment of his expenses incurred to date if acase is proving to be time consuming (Part (B) of the First Schedule of the LMAATerms (2006)).

• Lien over Award

6-136 In cases where an award is to be given, an arbitrator has the power to publishthe award but stipulate that the award will not be released until the parties havepaid the tribunal’s costs.

3.8.3 The Parties’ Legal Fees

6-137 The tribunal has the discretion to allocate costs between the parties.The generalprinciple set out in Section 61 of the Act is that ‘costs should follow the eventexcept where it appears to the Tribunal that in the circumstances this is notappropriate in relation to the whole or part of the costs’. As in litigation, thelosing party pays the costs of the successful party.

6-138 In some circumstances the tribunal has to use its discretion to order costs on amore appropriate basis. This is not as straightforward as it sounds since



maritime cases often involve several claims and it may not be clear from thefacts who ‘wins’ due to partial success by either side.

6-139 In court proceedings, the court must bear in mind the factors set out in r.44.3 ofthe Civil Procedure Rules (‘CPR’) 1998:

– conduct of all the parties;

– whether the party has succeeded on part of the case, even if not thewhole; and

– any payments into court or admissible offers.

6-140 In arbitration, tribunals follow this basic guidance, but are not bound by it: costs areat the tribunal’s discretion. It can, therefore, be difficult to challenge a costs award.

3.8.4 Appeals

6-141 The general consensus is that the arbitration award should be final. Arbitrationagreements tend to state what the procedure is when parties are dissatisfied withthe decision of the arbitrator. Parties should only consider the grounds below oncethey have exhausted their remedies under the arbitration agreement.

6-142 The grounds for appeal are as follows:

1. Lack of jurisdiction

Section 67 of the Act gives a party the right to apply to the court tochallenge an award on the grounds of lack of jurisdiction. Possiblearguments include:

– the arbitration agreement was not binding on the applicant;

– the arbitration clause was void for ambiguity and uncertainty; and

– the arbitrator did not have jurisdiction to deal with the issues coveredby his award.

2. Issues of law

Parties have a right to appeal on any question of law arising out of thearbitration award (Section 69 of the Act).

An appeal can only be made if the court gives permission. Permission willonly be granted in the following situation:

– if a decision will substantially affect the rights of one or more parties;and

– it is ‘just and proper’ for the court to decide the issue.

The question of law and grounds of appeal should be identified in anyapplication made to the court for permission to appeal.



Section 69(3) sets out where permission to appeal on a point of law will begranted:

(a) the question determined will substantially affect the rights of one ofthe parties

An insignificant point of law will not qualify.

(b) the question was one which the Tribunal was asked to determine

The appealing party will need to show that the question was fairly in issue before the arbitration tribunal. Submissions may need to besubmitted with the appeal application if this is not clear from the award.

(c) that on the basis of the findings of fact in the award:

(i) the decision on that question was obviously wrong; or

(ii) the question is of general importance and the decision wasopen to doubt.

(d) ... it is just and proper in the circumstances to allow the court todetermine.

3. Issues of fact / Procedural irregularity

The arbitrator’s decision is final on questions of fact. No appeal can bemade to the courts on a question of fact. However, parties may challengethe arbitrator’s award on the basis of a serious irregularity.

The grounds listed in Section 68(2) of the Act are exhaustive:

(a) Failure by the Tribunal to comply with its general duty under Section 33

Where a party wishes to make an application relating to the fairnessand/or efficiency of a procedure, they would use this ground.

(b) Tribunal exceeding its powers (otherwise than by exceeding itssubstantive jurisdiction).

Given that most jurisdictional challenges are likely to relate to thesubstantive jurisdiction this ground is infrequently raised. It cannotbe used to challenge situations where it is felt that the tribunal hasarrived at the wrong outcome as a matter of law or fact.

(c) Failure by the Tribunal to conduct the proceedings in accordancewith the procedure agreed by the parties.

This ground is commonly used where there is a written agreementas to procedure, that is, agreement to LMAA terms. However, anappeal will not succeed under this provision where the tribunal hasheld that compliance with an agreed procedure would conflict withits general duties under Section 33 of the Act.



(d) Failure by the Tribunal to deal with all the issues that were put to it.

This ground may relate to either the proceedings or the award. Thetribunal could be approached and asked to correct the award incertain situations.

An omission in reasoning would be insufficient to prove this ground,if an appeal is sought. The reasoning must be an overall failure todeal with an issue.

(e) Any arbitral/other institution/person vested with powers in relationto the proceedings exceeding their powers.

This subsection of the Act seeks to prevent any party (other than thetribunal) acting beyond its powers.

(f) Uncertainty or ambiguity as to the effect of the award.

This ground can be proven where there is uncertainty orambiguity as to the result. An application to correct the awardmust be made within 28 days of the award. The application to thetribunal can be made under para 25 of the LMAA Terms (2006) orSection 57 of the Act.

(g) The award being obtained by fraud or the award or the way in whichit was procured being contrary to public policy.

An allegation of the award being gained by fraudulent means wouldrequire strong evidence. To be contrary to public policy, the conductmust be described as blameworthy.

(h) Failure to comply with the requirements as to the form of the award.

This ground is rarely argued. An application to remedy such defectscan be made under Section 57 of the Act.

(i) An irregularity in the conduct of the proceedings or in the awardwhich is admitted by the Tribunal / arbitral institution / party vestedwith powers.

In order to argue this ground, clear evidence of the admission by theTribunal is required. Any claims of this nature should first be thesubject of an application to the tribunal under Section 57 of the Act.

3.8.5 Making an Appeal on a Question of Law Arising out of an Award

6-143 There are two parts to the appeal process:

1. permission to appeal from the court must be obtained in accordance withSection 69(3) of the Act (unless all the parties agree); following which

2. the substantive appeal hearing must be won.



6-144 An application for appeal must be made within 28 days from the end of the arbitralprocess (s.70(3)). Generally this is the date the award was published (notreleased). The party needs to be represented by a practising solicitor (as opposed to a claims consultant) as a court application is being made. Theparty can either appoint English lawyers or represent themselves.The applicationfor leave to appeal is decided on a documents only basis. The application islodged by the appealing party and the opposing party may lodge a statementsetting out their grounds for opposing the application. The courts have the powerto permit a hearing under s.69(5) if it appears to them that it is necessary.

6-145 The judge should give an unsuccessful applicant details of which provisions ofSection 69 (3) of the Act have not been met, but need not go further and explainin great detail why the application has failed. The applicant will tend to bear thecosts incurred in an unsuccessful application.

6-146 A different judge will normally consider the substantive hearing from the onewho considered the application for permission to appeal. This would prevent a pre-conceived idea of the case being established. Admissibility of evidence canbe dealt with in one of two ways:

– decided by agreement of the parties; or

– dealt with when permission to appeal is granted by the court.

6-147 Only evidence relevant to the award will be allowed. The losing party will usuallybear the costs of the substantive hearing.

3.9 MEDIATION

3.9.1 What Does It Mean?

6-148 Mediation attempts to assist disputing parties in reaching a settlement in thepresence of a specifically trained facilitator known as a mediator. The termsmediation and conciliation are used interchangeably.The process can take placeat any stage in a dispute and it is both voluntary, ‘without prejudice’ and non-binding.

3.9.2 When Should Parties Mediate?

6-149 If a stalemate is reached between the parties in terms of settlement, mediationcan assist the parties in taking discussions forward. Mediation rarely workswhere the parties do not enter into the process with an intention to settle.

6-150 Since the introduction of the CPR, the use of mediation has increasedsignificantly. Parties are encouraged to consider the use of mediation under therules before commencing court proceedings.

3.9.3 The Mediation Process

6-151 Mediations take place with representatives of the parties in the same building,enabling issues to be resolved quickly. The mediator acts as ‘the go between’.



The parties must be represented by people (for example, solicitors) who haveauthority to reach an agreement at the mediation on their behalf.

• The third party who has been selected as a mediator will receive writtenstatements from both of the parties.

• The mediator will discuss the case separately with each party on a ‘withoutprejudice basis’, identifying those areas which are in dispute and thoseareas where the parties are in agreement, with the aim of trying to movethe parties towards constructive solutions.

• The discussions enable the mediator to identify the most important pointsand areas of disagreements between the parties.

• The mediator is not to pass confidential information from one party toanother, unless he has permission to do so.

3.9.4 Advantages of Mediation

• The parties can negotiate extra terms to the settlement agreement.

• The mediation is recorded as a contractual agreement.

• The parties are in different rooms and see the mediator separately.

• Mediation is non-confrontational, thus preserving the business relationshipbetween the parties.

• Proceedings are confidential, thus preventing adverse publicity.

• The parties can choose what they wish to disclose and can walk away atanytime.

• Mediation is cheap and (if successful) quick. If an early settlement isreached, management time and legal costs are saved.

• Mediation can be arranged at short notice; if a matter is urgent within days.

• High success rate: between 75–85 per cent of mediation cases result in asettlement.

• The parties remain in control of settlement negotiations and do not haveto hand control over to a judge or arbitrator.

• Litigation or arbitration can be commenced or continued whilst mediationis attempted.

• Where an agreement is not reached during the mediation process,settlement often nevertheless follows subsequently. If not, all is not lost asthe parties will have a better understanding of their opponents’ position.

• Can avoid potential difficulties in enforcing a judgment or award if theparties have agreed a settlement.



3.9.5 Disadvantages of Mediation

• Mediation is not binding on the parties unless the contrary has been agreed.

• Parties to the mediation may leave at anytime.

• There is no guarantee of success as settlement is voluntary.

• The process can be exploited by a cynical opponent.

• If mediation fails, arbitration or litigation will be resumed (or have to bestarted).

3.10 A QUICK TOUR OF ENGLISH COURT PROCEDURE

3.10.1 Choice of Court

6-152 Court procedure in England and Wales is governed by the Civil Procedure Rules1998 (CPR). Maritime cases are normally heard in either the Commercial Courtor the Admiralty Court. Both of these courts form part of the Queen’s BenchDivision, which is one of three divisions of the High Court.

• Commercial Court

6-153 The Commercial Court provides a specialised service for businessmen. Thejudges are specifically assigned to the court. Part 58 of the CPR governs theCommercial Court. A case should only be commenced in the CommercialCourt if it fulfils the characteristics of a ‘commercial claim’ as defined by CPR r. 58.1(2).

• Admiralty Court

6-154 Maritime and shipping disputes relating to collisions, salvage, the carriage ofcargo and limitations are dealt with in the Admiralty Court. As mentioned earlier,the court has the power to arrest vessels and cargoes and sell them within thejurisdiction of England and Wales. Part 61 of the CPR governs the workings ofthe Admiralty Court.

3.10.2 Time Limits

• Commercial Court

6-155 In the Commercial Court, the defendant is obliged to file an Acknowledgment ofService (AOS) within 14 days of service of the Claim Form (CPR rr. 58.5/58.6).Failure to do so entitles a claimant to seek a default judgement. If the AOS filedindicates an intention to defend, the claimant must serve Particulars of Claimwithin 28 days of filing the AOS.

6-156 The time limit for serving and filing a Defence is 28 days after service ofParticulars of Claim. Paragraph C3.2 CPR states that the period may beextended by an agreement between the parties by up to 28 days.



6-157 CPR r. 58.10 says that the time for filing and serving a Reply is 21 days afterservice of the Defence. A claimant should make a written application to the courtfor an extension of time where necessary.

• Admiralty Court

6-158 A claim in rem may be started by the issue of an in rem Claim Form. Particularsof Claim must be served on the defendant by the claimant within 75 days afterservice of the Claim Form (CPR r. 61.3(3)(b)). An AOS must be filed within 14 days after service of the Claim Form. A claimant may obtain a judgement indefault in certain circumstances (CPR r. 61.9).

3.10.3 Counterclaims

6-159 Part 20 CPR enables counterclaims and other additional claims to be made. If adefendant wishes to make a counterclaim against a claimant, he should fileparticulars of the counterclaim with the Defence. A defendant will require thecourt’s permission if he decides to make a counterclaim after he has alreadyfiled his Defence (CPR r. 20.4). If a claimant wishes to dispute the counterclaim,he should file a Defence to the counterclaim within the usual 14-day period. Theparties can agree an extension of up to 28 days in addition to the initial 14-dayperiod.

3.10.4 Advantages of Court Proceedings

• A binding and legally enforceable decision is achieved.

• There is a right to appeal.

• Fair and consistent decisions that are authoritative and based onprecedent.

• Range of interim remedies available.

3.10.5 Disadvantages of Court Proceedings

• Not a voluntary process; potentially expensive and time consuming.

• Adversarial nature – often drives parties apart.

• May be reported and thus lead to adverse publicity.

• More limited range of outcomes.

3.11 LAW AND JURISDICTION

3.11.1 What Does the Contract Provide?

6-160 The governing law and jurisdiction for a claim is normally set out expressly in thecontract. The first step should be to establish whether the contract provides for



court proceedings or arbitration. If arbitration, what is the procedure forappointing arbitrators?

6-161 Where there is no express choice of jurisdiction, or the claim is not broughtunder the terms of a contract, a number of different questions may be involvedin establishing which is the proper governing law and forum for the proceedings.These issues are beyond the scope of an overview such as this (see ‘FurtherReading’ at the end of this Module for suggested authorities on this topic).

6-162 The important point, however, is that the questions of where and howproceedings are to be commenced must be addressed right at the start of anydispute. If a claim is commenced in the wrong jurisdiction, in breach of acontractual provision, it might prevent the claim being brought at all due to a timebar, no matter how good the merits of your case.

6-163 There is particular scope for pitfalls of this kind where the contract incorporatesterms from another contract, for example where a bill of lading incorporatesterms from a charterparty. Where, for example, a Congenbill subject to theHague Rules incorporates the terms of a charterparty which is subject toEnglish law and London arbitration and cargo interests commence proceedingsin their local court, it is quite possible for the one-year Hague Rules timebar toarise before the claimants realise that the claim is being brought in the wrongjurisdiction. The carrier may then be in a position to apply to the English HighCourt for an anti-suit injunction (see below), preventing the cargo claimants fromcontinuing with the claim other than by London arbitration. By that time, anyclaim brought in London arbitration would automatically fail because of thetimebar. This can occur even where there appears to be a good reason for theclaim to be brought in the claimants’ local court.

3.12 ANTI-SUIT INJUNCTIONS

6-164 Where there is a breach of an arbitration or jurisdiction agreement, an anti-suitinjunction may be sought.This is an order issued by the court to prevent the opposingparty from commencing/continuing proceedings in another jurisdiction or forum.

6-165 In Horn Linie GmbH & Co v Panamericana Formas E Impresos SA, Ace SegurosSA [2006] EWHC 373 (Comm), subrogated insurers of receivers in Colombia,brought a claim in the Colombian courts against the Colombian agent of aGerman shipowner in respect of the total loss of a cargo of printing machinery.The cargo had been carried on deck, contrary to instructions. The carrier’sliability seemed to be in no doubt.

6-166 The bill of lading contained a clause giving exclusive jurisdiction to the EnglishHigh Court. It also incorporated the normal Hague-Visby one-year timebar. TheColombian Code of Commerce, however, appeared to provide that any claim inrespect of goods delivered to Colombia should be brought in the Colombiancourts, under Colombian law.

6-167 The shipowners applied to the English High Court for an anti-suit injunction torestrain the Colombian proceedings on the grounds that the receivers and theirsubrogated insurers were bound by the English law and jurisdiction clause



contained in the bill of lading. The insurers challenged this by saying that theirclaim was brought not against the shipowner, and not under the bill of lading, butagainst the agent, under the Colombian Code of Commerce.

6-168 In granting the injunction, The Hon. Mr Justice Morison held that the claim wasbrought under the bill of lading and that the insurer was, accordingly, bound bythe jurisdiction clause. By this time, the one-year time bar had passed, allowingthe shipowners to obtain a declaration of non-liability, despite the apparentmerits of the claim.

6-169 This case illustrates the fact that the English Courts will grant anti-suitinjunctions to protect English High Court jurisdiction clauses where proceedingsare brought or threatened in another forum outside the EC. The English Courtswill grant similar sanctions to protect London arbitration clauses (“The Kallang”[2007] 1 LLR 160). But what is the position where proceedings are brought orthreatened within the EC, in contravention of an English High Court or Londonarbitration clause?

6-170 It is well established that the English Courts will not grant an anti-suit injunctionto restrain a party from pursuing or commencing court proceedings in an ECmember state or Lugano Contracting State, in breach of an exclusive Englishcourt jurisdiction agreement (see for example Turner v. Grovit [2004] ECR I-3565). However, the position has until recently been less clear as regardsrestraint of breach of a London arbitration clause.

6-171 The position is now settled following the decision of the European Court ofJustice (“ECJ”) in the “Front Comor” (Case C-185/07). In that case, thecharterparty contained a London arbitration clause and provided for English law. The claimants commenced proceedings under the charterparty in Italy. Thedefendants in the Italian proceedings sought an anti-suit injunction before the English Courts restraining the claimants from pursuing their claim in Italy.The anti-suit injunction was granted at first instance, principally on the basis that Turner V. Grovit did not preclude the granting of anti-suit injunctions toprotect London arbitration clauses (as opposed to English High Court clasues).The issue was ultimately referred to the ECJ, who concluded that granting an anti-suit injunction to protect a London arbitration clause from proceedingscommenced in the EC, undermined the EC Regulation on jurisdiction(Regulation 44/2001) and may therefore not be granted. As such, the ECJ heldthat it is for the court in which proceedings are first started (the “court firstseised”) to determine for itself whether it should hear the claim or whether itshould dismiss the claim in favour of London arbitration proceedings.

6-172 From a cargo interests’ point of view, these cases demonstrate the importanceof taking advice on the appropriate law and jurisdiction for any potential claim: aclaim brought in the wrong place may be fatally flawed.

6-173 For the carrier, they show that it is essential to take advice immediately if a claimis threatened in a foreign court: the right to challenge jurisdiction caninadvertently be lost and along with it, a potentially complete defence.




4.1 INSURANCE/SUBROGATION

6-174 The need to inform the insurer immediately an incident occurs has beendiscussed in the opening chapter. This does not mean, however, that the burdenpasses entirely to the insurer: the insured should continue to take all the stepshe would expect to take if he were facing an uninsured claim. These includepreserving documents and other evidence which will be needed for disclosure ata later stage. The policy may contain a provision that the insured has an expressobligation in this respect.

6-175 Subrogation arises where an insurer indemnifies an insured by paying a claimunder a contract of insurance. In exchange for indemnifying the insured, theinsurer acquires the right to bring a claim against a third party in the name of theinsured. For marine insurance, this right is codified in Section 79 of the MarineInsurance Act 1906. Under English law, the subrogated insurer effectively stepsinto the shoes of the insured.This means that any recovery action against a thirdparty must be brought in the name of the insured, not the insurance companyitself.

6-176 However, many civil law jurisdictions do not recognise the concept ofsubrogation. Instead, the insurer is assigned the rights of the insured once theclaim is paid. Where the insurer acquires a right of suit by assignment, ratherthan subrogation, the action must be brought in the name of the insurer(s) itself.

4. PRACTICAL CONSIDERATIONS FORDISPUTE RESOLUTION

LEARNING OUTCOMES

Upon completion of this chapter, you should be able to:

� Demonstrate a clear understanding of how to recover costs in amatter.

• Apply the relationship of costs to chains of claims.

• Discuss the methods of protecting costs.

• Give examples of points to include in a settlement agreement.

• Recognise how to enforce an award in the UK and outside ofjurisdiction.

Module 6 Practical Considerations for Dispute Resolution


This is a point which needs careful attention where a claim has been paid in acivil law jurisdiction, and a recovery is to be made under English law: it isessential to bring the claim in the name of the correct party with the right to suethe defendant. If there are multiple insurers, each insurer will need to be namedin the proceedings for their interest to be protected.

4.2 RECOVERABILITY OF COSTS

6-177 The general rule on costs under English law is set out in CPR Rule 44.3(2):

‘If a court decides to make an order about costs

(a) the general rule is that the unsuccessful party will be ordered to pay thecosts of the successful party; but

(b) the court may make a different order.’

4.2.1 What Are Costs?

6-178 Costs are defined by r.43.2(1)(a) as ‘fees, charges, disbursements, expenses,remuneration, reimbursement allowed to a litigant in person under Rule 48.6,any additional liability incurred under a funding arrangement and any fee orreward charged by a lay representative for acting on behalf of a party inproceedings allocated to the small claim track.’

6-179 Costs include:

• barristers’ fees;

• solicitors’ fees;

• experts’ fees;

• costs incurred before proceedings have begun (r.44.3(6)(d)).

6-180 Under r.44.3(1), the court has the discretion to decide:

‘(a) whether costs are payable by one party to another;

(b) the amount of those costs; and

(c) when they are to be paid.’

6-181 When deciding what order to make as to costs, the court will have to considerthe factors set out in r.44.3(4):

‘(a) the conduct of all the parties;

(b) whether a party has succeeded on part of his case, even if he has notbeen wholly successful; and

Practical Considerations for Dispute Resolution Module 6


(c) any payment into court or admissible offer to settle made by a party whichis drawn to the court’s attention, and which is not an offer to which costsconsequences under Part 36 apply.’

6-182 By r.44.3(5) the conduct of the parties is as follows:

‘(a) conduct before, as well as during, the proceedings, and in particular theextent to which the parties followed any relevant pre-action protocol;

(b) whether it was reasonable for a party to raise, pursue or contest aparticular allegation or issue;

(c) the manner in which a party has pursued or defended his case or aparticular allegation or issue;

(d) whether a claimant who has succeeded in his claim, in whole or in part,exaggerated his claim.’

6-183 Where a court is to assess the costs, it will do so either on:

• the standard basis; or

• the indemnity basis.

4.2.2 The Standard Basis

6-184 Rule 44.4(2) states that the court will

‘(a) only allow costs which are proportionate to the matters in issue; and

(b) resolve any doubt which it may have as to whether costs were reasonablyincurred or reasonable and proportionate in amount in favour of thepaying party.’

6-185 The Court of Appeal has provided guidance on the issue of proportionality. Therequirement of proportionality is applicable to:

• decisions as to whether an order for costs should be made, and

• to the assessment of costs which should be paid when an order has beenmade.

6-186 It was held in Lownds v Home Office: Practice Note4 that a two-stage approachshould be taken on an assessment:

1. a global approach to the costs claimed; and

2. an item by item approach.

4 [2002] EWCA Civ 365, [2002] 1 W.L.R. 2450

4.2.3 The Indemnity Basis

6-187 Costs on this basis are awarded as a penalty due to the court’s annoyance withthe parties’ behaviour prior to and/or during proceedings. Rule 44.4(3) states asfollows:

‘Where the amount of costs is to be assessed on the indemnity basis, the courtwill resolve any doubt which it may have as to whether costs were reasonablyincurred or were reasonable in amount in favour of the receiving party.’

6-188 Factors that the court should taken into consideration when deciding the amountof costs to be awarded can be found in r.44.5(3); they are as follows:

‘(a) the conduct of the parties, including in particular

(i) conduct before, as well as during, the proceedings; and

(ii) the effort made, if any, before and during the proceedings in orderto try to resolve the dispute;

(b) the amount in value of any money or property involved;

(c) the importance of the matter to all the parties;

(d) the particular complexity of the matter or the difficulty or novelty of thequestions raised;

(e) the skill, effort, specialised knowledge and responsibility involved;

(f) the time spent on the case; and

(g) the place where and the circumstances in which work or any part of it wasdone.’

6-189 Under English law, the basic rule is that the losing party pays the winning party’scosts. This is, however, subject to a number of provisos.

6-190 As outlined above, in arbitration, costs are awarded at the discretion of thetribunal. The award does not, however, set out the amount to be paid. This is leftto the parties to agree. If they cannot agree, the tribunal normally reserves theright to make a separate award as to costs, for which a further arbitration fee ispayable.

6-191 Where neither party is wholly successful, the award will normally allocate costsas a percentage, so that party A must pay a certain percentage of party B’scosts and, where appropriate, vice versa. It is very rare for any party to recoverall the costs it has incurred in bringing or defending the claim. As a rule of thumb,a party who wins on all points can expect to recover 70 – 80 per cent of costsincurred in the arbitration.

6-192 This percentage may be less in court proceedings, where the options forawarding costs are more limited.





4.3 COSTS AND CHAINS OF CLAIMS

6-193 In maritime claims, the question of costs is often complicated by the fact thatclaims come in chains.

6-194 The Antaios [1981] 2 Lloyd’s Rep. 284 concerned arbitrations relating to a chainof four charterparties, which involved essentially the same dispute over paymentof a war risk insurance premium. The arbitrations were held before the sametribunal, at the same time. The tribunal ordered the losing party in eacharbitration to pay the costs of the successful party in that arbitration. This meantthat the parties in the middle, who were successful in one reference butunsuccessful in the next one in the chain, could not recover the costs they hadpaid to the successful party in one arbitration from their unsuccessful opponentin arbitration.

6-195 On appeal, the court confirmed the tribunal’s costs award. In the absence of anexpress agreement, a tribunal could award costs only in respect of the particulararbitration between the parties in question. It could not award costs incurred inanother arbitration, so a party in the middle had to bear the costs awardedagainst it ‘up the chain’ and could not recover them from sub-charterers ‘downthe chain’.

6-196 Neither was it possible to claim the costs incurred in the unsuccessful referenceas damages. The court held that such a claim could succeed only if the sub-charterers’ breach was the direct cause of the costs being incurred. The sub-charterers’ failure to pay a sum which was held to be due could not be a directcause of the middle party’s costs liability. The middle party’s own decision towithhold payment and to litigate the dispute with head owners broke the chainof causation between breach and loss.

6-197 A similar situation arose in The Vakis T [2004] 2 Lloyd’s Rep. 465. Here, headowners claimed against charterers for damage allegedly caused by thecharterers’ breach of the safe port warranty. Charterers passed the claim downto sub-charterers. Head owners’ claim was abandoned when it became clearthat the damage had been caused by the vessel’s unseaworthiness. It was heldthat the charterers could not recover damages from head owners in respect ofthe costs of bringing the arbitration against sub-charterers: the direct cause ofthe charterers’ loss was not the breach by head owners, but their own decisionto make a similar, ill-founded claim against sub-charterers.

6-198 To summarise, where Party A has succeeded in a claim against Party B, butlost in a claim by Party C, a tribunal cannot order Party B to pay the costsincurred by A in the arbitration against C. A has to bear his own costs in thearbitration in which he has been unsuccessful unless he can show that he isentitled to recover the costs as damages from B. This depends on his beingable to show that a breach of contract by B directly caused his liability towards C.

6-199 In court proceedings, it is possible to join other defendants, so that the claimsare determined in the same set of proceedings. One costs order can then bemade in respect of the whole proceedings.

4.4 PROTECTING COSTS

6-200 It is very important to consider from an early stage what strategies should beemployed to protect costs.

6-201 As discussed above, simply passing on a claim up or down a charterparty chaincan turn out to be an expensive option. In some circumstances, it can be betterto defer commencing a related reference until liability is decided in the firstreference. Where it is necessary to commence arbitration in order to obtainsecurity, or beat a timebar, the best option may be to stay the proceedings, oncecommenced, until the first reference is complete.

4.4.1 Part 36 and ‘Part 36 Type’ Offers

6-202 The Civil Procedure Rules Part 36 contains provisions which allow a claimant ora defendant to make an offer to settle at any stage of the proceedings. Theimpetus behind the introduction of ‘Part 36’ is to encourage parties to reach anearly settlement. Any pre-action offer will be considered by the court whenmaking a costs order.

6-203 The Part 36 offer must comply with the requirements in r.36.2(2), it must:

‘(a) be in writing;

(b) state on its face that it is intended to have the consequences of Part 36;

(c) specify a period of not less than 21 days within which the defendant willbe liable for the claimant’s costs in accordance with Rule 36.10 if the offeris accepted;

(d) state whether it relates to the whole of the claim or to part of it or to anissue that arises in it and if so to which part or issue; and

(a) state whether it takes into account any counterclaim.

6-204 Where the offeree chooses not to accept the offer, the costs consequences ofCPR r. 36.14 are triggered.

6-205 Rule 36.14 provides that where a claimant fails to obtain a judgement moreadvantageous than a defendant’s Part 36 offer, the court may order that theclaimant pay the defendant’s costs from the date on which the relevant periodof the offer expired, plus interest on those costs. Where a judgment is givenagainst a defendant which is at least as advantageous to the claimant as aPart 36 offer, the court may order that the defendant pay the claimant’s costson an indemnity basis from the date the relevant period expired, plus intereston those costs, plus an enhanced rate of interest on any sum of moneyawarded.

6-206 A similar procedure may be available to parties to an arbitration.



4.5 SETTLEMENT

6-207 It is vital that once settlement terms have been agreed between the parties, theyare recorded clearly and accurately in writing. A settlement agreement is aseparate contract between the parties. Points to consider including in asettlement agreement are:

• timescale within which settlement funds are to be paid;

• the account details to which the money is to be paid;

• law and jurisdiction of any claim relating to the settlement agreement;

• defining any action to be taken other than payment, that is, return of anoriginal LOU, formally discontinuing court proceedings, and so on;

• prohibition of bringing any further claim in respect of the samecontract/incident and/or an indemnity in respect of any other party bringingthe same claim.

6-208 Where the claim is subject to court proceedings, settlement can be recorded ina court order drawn up with the consent of all the parties. This procedure isgoverned by CPR r. 40.6.

6-209 A Tomlin Order is a form of consent order in which the proceedings are stayedon agreed terms which are attached to the order in a schedule. The terms of thesettlement can thereby be kept confidential. A Tomlin order is appropriate wheredetailed settlement terms are needed which it would be inappropriate to includein the order itself. Where, however, the intention is that the terms of settlementshould be enforceable as an order, as opposed to a separate contract, the termsmust be included in the order itself.

4.6 ASSESSMENT OF COSTS WHERE THERE IS NO AGREEMENT

6-210 Parties to court proceedings or to arbitration are free to agree between them, aspart of an amicable settlement, who should pay costs to whom and how muchshould be paid. Where, however, no such agreement can be reached, the courtor tribunal can be asked to assess and award costs.

6-211 In court proceedings, costs can either be assessed summarily by the judge whohears the substantive proceedings, or can be subject to a detailed assessmentby the court under CPR Part 47.

6-212 To commence detailed assessment proceedings, the party expecting to receivecosts serves on the ‘paying’ party a notice of commencement plus a copy of adetailed bill of costs, normally prepared specially for the proceedings by a costsdraftsman. The paying party has 21 days in which to serve points of dispute,failing which the receiving party may apply for a default costs certificate.

6-213 In an arbitration, the tribunal normally reserves the right in the award to assesscosts if they cannot be agreed. Both parties have a chance to make submissionson the successful party’s statement of costs, after which the tribunal makes a





binding award as to costs, which usually also awards interest at a specified rateover a specified period.

4.6.1 Right to Appeal a Costs Order

6-214 It is possible to appeal costs where they have been assessed by a judge. Theappeal procedure is set out in r.47.22.The time limit for filing the notice of appealis 14 days from the date of the costs order.

4.7 ENFORCEMENT

4.7.1 Enforcing an Arbitral Award

6-215 To enforce an award in the UK, it is necessary for the winning party to apply tothe High Court for leave to enforce the award as if it were a court judgment(Section 66 of the Act). The order must be served on the debtor if leave isgranted and they have 14 days to apply to have it set aside. If the application failsor is not made, then the claimant can use the usual methods of enforcement.

6-216 The court is able to give two alternative remedies in response to an applicationmade under s.66:

– an Order granting permission to enforce the award s.66(1); or

– a judgement in the same terms as the award s.66(2).

6-217 The UK is a party to the Convention on the Recognition and Enforcement ofForeign Arbitral Awards 1958 (‘the New York Convention’). The existence of thisConvention means that it is often simpler to enforce an award overseas than anEnglish court judgement.

6-218 The Convention sets out the requirements for enforcement of an arbitral awardin a signatory state. Article IV sets out which documents must be supplied. Intheory, all that is required is an authenticated copy of the award, the originalarbitration agreement and a translation of both if not written in an officiallanguage of the country in which enforcement is applied for. The award mustthen be enforced by the court unless the party against whom the award isinvoked can bring himself under one of the five recognised defences in Article Vof the Convention. These are (a) the parties to the agreement were under someincapacity or the agreement is not valid; (b) lack of notice of the award; (c) theaward deals with a matter beyond the power of the tribunal; (d) the Tribunal wasimproperly constituted; and (e) the award has not yet become binding or hasbeen set aside by a competent authority.

6-219 In practice, Article IV can cause problems, as local views on what constitutes an‘authenticated’ copy of the award can differ. Often it is necessary to have theaward both notarised (in the UK by a notary public) and apostilled (authenticatedby a government department or consulate). In maritime matters, involving claimsunder charterparties, it is often the case that no final, written agreement wasdrawn up at the time of the fixture, so there is no ‘original’ agreement to show to

the enforcing court. Rules on how this is dealt with differ from country to country.Detailed advice must be taken at the outset from a lawyer in the country ofenforcement.

4.7.2 Enforcement of a Court Order Outside the Jurisdiction

6-220 Enforcement of court orders within the EU is governed by the JudgmentsRegulation (44/2001). The Regulation is intended to allow judgements given bythe courts of one member state to be enforced by the courts of another memberstate without the need for any formal steps to be taken. The judgement is simplyenforced as though it were a judgement of the enforcing court.

6-221 Enforcement of judgements outside the EU may not be so straightforward. Thereare a number of reciprocal enforcement agreements, such as the LuganoConvention, which governs recognition and enforcement of judgements inIceland, Norway, and Switzerland. The Administration of Justice Act 1920governs enforcement in former Commonwealth countries and the ForeignJudgements (Reciprocal Enforcement) Act 1933 governs the enforcement underEnglish law of judgements given by the courts of various non-Commonwealthcountries. Guidelines and a summary of the arrangements relating to individualcountries can be found in CPR r. 74.11.




1. 2008. The White Book Service 2008 (Sweet & Maxwell) Vols 1 & 2.

2. Briggs, A. and Rees P. 2005. Civil Jurisdiction and Judgments (Lloyd’sCommercial Law Library) (Fourth Edition).

3. Harris, B. 2002. London Maritime Arbitration (Lloyd’s Shipping Law Library)(Second Edition).

4. Harris B., Planterose R. and Tecks J. 2007. The Arbitration Act 1996 (BlackwellPublishing) (Fourth Edition).

5. Jackson D.C. 2005. Enforcement of Maritime Claims (Lloyd’s Shipping LawLibrary) (Fourth Edition).

6. Meeson, N. 2003. Admiralty Jurisdiction and Practice (Lloyd’s Shipping LawLibrary) (Third Edition).

FURTHER READING