What is Maritime Arbitration?

Arbitration is widely used in maritime disputes, which require specialized knowledge and understanding of the industry's specifics.

Arbitration is a method of resolving commercial disputes when the parties submit their dispute to an arbitration tribunal for resolution. The arbitration tribunal is formed with the participation of the parties themselves. The parties can entrust the resolution of their dispute to specific specialists whose competence and independence they are confident in.

Maritime disputes are disputes arising from contracts for the carriage of goods by sea, marine insurance, chartering, sale and purchase, mortgage and repair of sea vessels, towage, pilotage and ice guidance, as well as in connection with any use of sea vessels in commercial activities.

How to refer a dispute to arbitration?

In order for a dispute to be considered by arbitration, it is necessary to conclude an arbitration agreement. As a rule, an arbitration agreement is included when agreeing on the text of the contract in the form of a special clause.

An arbitration clause usually contains an indication of the rules by which the dispute will be considered, how many arbitrators will form the arbitration tribunal (usually disputes are considered by one or three arbitrators), in what language the proceedings will be conducted, and where the dispute will be resolved. The arbitration clause may also contain other issues related to the dispute resolution procedure from a specific contract.

If the clause specifies one of the existing arbitration institutions, then this arbitration institution will assist in the arbitration and administer the case. It is also possible to form an arbitration tribunal without an arbitration institution (ad hoc arbitration), in that case all functions for administering the matter will be assigned to the arbitration tribunal.

If the contract does not contain an arbitration clause, it is possible to agree to refer the dispute to arbitration later, even if the dispute is already being considered in a state court. In practice this is rather an exception.

Advantages of arbitration

Today, arbitration has become one of the most popular and effective ways to resolve maritime disputes.

The widespread use of arbitration is due to its advantages:

• Specialization. The parties have the right to select arbitrators from among qualified persons - specialists who know the specifics of merchant shipping and have experience in resolving maritime disputes;
• Enforceability. An arbitration award, as well as a settlement agreement approved by the arbitration tribunal, can be enforced in 172 countries around the world, which is especially important when resolving disputes from international commercial transactions. In most cases, decisions of Russian state courts cannot or are very difficult to enforce abroad;
• Confidentiality. The fact of arbitration, as well as the case materials are confidential and known only to the parties and arbitrators;
• Independence. The arbitrators hearing the case guarantee their independence and impartiality.
• Speed. Arbitration is usually conducted in a shorter time than hearings in a state court. There are arbitration rules that provide for the consideration of maritime disputes under an expedited procedure. Awards are final and can be cancelled only on a limited number of grounds.
• Free choice of the language of the proceedings. The exchange of documents and the conduct of the hearing are available in the language agreed by the parties.

Since arbitration is a means of quickly and efficiently resolving commercial disputes, it uses all means aimed at reducing the time and financial costs of the parties. Thus, e-mail can be used to communicate with the parties, hearings can be held online, and closed cloud storage can be used to transfer case materials.

What are the procedures for arbitrating maritime disputes?

The parties may refer a dispute from their contract to any arbitration institution in Russia or abroad of their choice. However, some arbitration rules have been developed specifically for arbitration of maritime disputes and some arbitration institutions operate that consider only maritime disputes. They are designed to facilitate the prompt and professional resolution of maritime disputes.

LMAA Terms. Arbitration conducted under the Terms of the London Maritime Arbitrators Association (LMAA) has become widely known in the industry. The LMAA Terms are specifically designed to resolve maritime disputes, although they are often used in ordinary commercial contracts. One of the advantages of the LMAA Terms is the expedited procedures for disputes with a small claim value (up to USD 100,000). Such disputes can be considered within one month. Arbitration under the LMAA Terms is ad hoc arbitration. The parties notify the Secretary of the association of the commencement of arbitration, and then the arbitrators administer the arbitration themselves.

HKMAG Terms. . Arbitration is similarly conducted under the Terms of the Hong Kong Maritime Arbitration Group (HKMAG). Established in 2000 as a division of the Hong Kong Arbitration Centre, the HKMAG offers special terms for resolving maritime disputes, as well as procedures for expedited consideration of small claims.

SCMA. One of the major centres for resolving maritime disputes is the Singapore Chamber of Maritime Arbitration (SCMA). This is a permanent arbitration institution specializing in maritime arbitration. The Chamber administers various categories of maritime disputes. In addition to the general rules for resolving maritime disputes, the Chamber has adopted special rules for expedited procedures for disputes arising from collisions of vessels, arbitration of bunker disputes, and disputes with a small amount of claims.

CMAC. The China Maritime Arbitration Commission (CMAC) was established under the China Chamber of Commerce and Industry and is the only arbitration institution dealing with maritime disputes in mainland China. The Commission's rules provide for a standard (up to 6 months) and an accelerated (up to 3 months) dispute resolution procedure.

MAC at the RF CCI. The Maritime Arbitration Commission at the Russian Chamber of Commerce and Industry (MAC at the RF CCI) was created specifically to administer maritime disputes. The MAC at the RF CCI rules provide for a simple and relatively inexpensive procedure for resolving maritime disputes. The case is heard by one or two arbitrators selected by the parties. The dispute is administered by a Reporter appointed by the Secretariat of the MAC at the RF CCI from among the Reporters approved by the arbitration institution. The MAC at the RF CCI considers international and domestic maritime disputes, as well as disputes arising from inland waterway transport. Established in 1930, the MAC at the RF CCI is one of the oldest existing arbitration institutions.

How much does arbitration cost?

The amount of the fee paid for consideration of the case depends on the arbitration rules and is calculated proportionally to the amount of the claim. We recommend using the calculator, which is available on the website of most arbitration institutions.

If the dispute is administered by an arbitration institution, the fee usually consists of a registration fee to the arbitration institution and an arbitration fee, which is deposited for the arbitrators' fees. In some jurisdictions, arbitrators use standard hourly rates for conducting arbitration proceedings.

If the proceedings are terminated due to the plaintiff's withdrawal of claims, in particular, due to the fact that the parties have settled the dispute amicably, the fee is usually reduced.

How is arbitration conducted in Russia?

The arbitration tribunal is usually formed from one to three arbitrators. Each party may appoint an arbitrator. In this case, an arbitrator may be either a person included in the recommended list of the arbitration institution or a person who is not included in this list.

The parties may specify in the arbitration agreement that the case shall be resolved by a sole arbitrator, for example, if the contract amount is relatively small.

If the parties fail to appoint an arbitrator within the time limit, the arbitration institution shall appoint an arbitrator for them. However, in the vast majority of cases, the parties actively exercise their right to appoint an arbitrator.

The arbitral tribunal shall review the status of preparation of the case for the trial and shall take the following measures to prepare the case for the trial:

• determine an arbitration schedule (the procedure and time limits for the submission by the parties of additional written statements, evidence and other documents);
• give other instructions to the parties, specifying the time limits for their implementation;
• determine the time, place and procedure for the oral hearing of the case;
• determine the range of issues to be considered, based on the possible stages of the arbitration;
• hold, if it deems necessary, an organizational meeting with the participation of the parties and their representatives.

In practice, arbitrators increasingly often make an order at an early stage, where they provide an arbitration schedule. Then the issue of accepting new materials from the parties is decided taking into account compliance with this schedule. In the event of a breach of the time limits established therein, the arbitrators shall act depending on the circumstances, including taking into account the cause of the breach.

The arbitrators may take this breach into account when distributing the arbitration costs of the case. This right follows from the authority of the arbitral tribunal to recover costs in favour of one of the parties from the other party if the costs incurred by the former due to the inappropriate or bad faith actions of the second party.

The case shall be considered on the basis of the written materials submitted by the parties and, as a rule, with an oral hearing. Sometimes one hearing is not enough to consider the dispute. This is usually due to the fact that representatives of one of the parties request that the hearing be postponed to allow them to submit additional evidence. Satisfaction of this request is always at the discretion of the panel of arbitrators in the case. As a rule, both parties participate in the hearings. There are, however, cases when a party does not participate or requests that the case be considered in its absence. In any case, the arbitrators shall verify the evidence of proper notification of each party.

Russian law has all the necessary instruments for conducting arbitration, as well as recognizing and enforcing foreign arbitral awards.

Do sanctions affect arbitration?

Arbitration tribunals may consider almost any disputes arising from civil legal relations between participants in maritime business turnover both within the country and with the participation of foreign persons. In foreign trade, the parties are free to choose any place of arbitration and arbitration institution.

However, when choosing a place and method of resolving disputes, it is important for Russian companies to take into account the actual restrictions that have arisen due to the sanctions imposed against Russia. Thus, problems caused by the sanctions may arise when paying arbitration fees to a foreign arbitration institution, appointing arbitrators from "unfriendly" jurisdictions, choosing legal representatives, experts, etc.