LONDON MARITIME ARBITRATION

LONDON MARITIME ARBITRATION THIRD EDITION BY CLARE AMBROSE, FClArb Barrister, 20 Essex Street AND KAREN MAXWELL Head of Arbitration, Practical Law Company WITH ANGHARAD PARRY Barrister, 20 Essex Street CONSULTANT EDITOR BRUCE HARRIS, FClArb Chartered Arbitrator informa LONDON 2009

Detailed Contents Foreword Preface Abbreviations Table of Cases Table of Legislation Table of Civil Procedure Rules Page vii ix xxv xxvii xlv xlix CHAPTER 1. LONDON MARITIME ARBITRATION 1 1. Introduction 1 2. The London Maritime Arbitrators Association 2 History and aims 2 Members 2 3. The LMAA Terms 3 When are LMAA Terms applicable? 4 Which LMAA Terms apply? 5 4. The Small Claims Procedure 6 5. FALCA Rules 7 6. Intermediate Claims Procedure 8 7. Maritime arbitration and the Civil Procedure Rules 10 8. Arbitration and the Human Rights Act 1998 12 9. Arbitration and European Competition law 15 CHAPTER 2. THE ARBITRATION ACT 1996 19 1. Introduction 19 2. History 20 The Mustill Report 20 The Marriott Working Group 20 Work under the auspices of the DTI 21 3. Aims of the 1996 Act 21 4. Application of the 1996 Act 23 Commencement 23 Relevance of the seat 23 Mandatory provisions 24 5. Interpretation of the 1996 Act 24 Relevance of earlier case law 25 Recourse to the Model Law 27 Use of the DAC Report 27 xiii

Xiv DETAILED CONTENTS 6. Time limits 27 Reckoning time limits 28 Extension of time limits 28 CHAPTER 3. MEDIATION AND ARBITRATION 31 1. Introduction 31 2. Agreements to mediate or use ADR 32 3. LMAA mediation terms 34 4. Procedure 35 5. Confidentiality in mediation 36 6. The role of arbitrators in encouraging mediation 37 7. Cost implications of mediation 39 Cost implications of refusing to mediate 39 8. EU Directive 2008/52 40 CHAPTER 4. THE ARBITRATION AGREEMENT 43 1. Introduction 43 2. Types of arbitration agreement 44 Agreements to refer existing disputes 44 Express and implied arbitration agreements 44 Conditional or hybrid arbitration agreements 46 Unilateral arbitration clauses 47 3. Form 47 Agreements to be in writing 47 The meaning of "agreement in writing" 48 4. Uncertainty 49 5. Incorporation 51 The 1996 Act 51 Bills of lading cases: common law background 52 Cases following the 1996 Act 53 6. The parties 55 Capacity 55 Administration or liquidation of corporate party to an arbitration agreement 55 7. Scope and construction 56 8. Counterclaims 57 9. Scott v Avery clauses 58 Loss of right to rely on Scott v Avery clauses 58 10. Termination 59 CHAPTER 5. THE CONFLICT OF LAWS 61 1. Introduction 61 2. The substance of the dispute 62 3. The procedure of the arbitration 64 Procedure normally governed by law of the seat of the arbitration 64 The 1996 Act 65 Application of mandatory provision 65 Designation of the seat of the arbitration 66 The court's supportive powers available regardless of seat 67 4. The agreement to arbitrate 68 5. The reference to arbitration 71 6. The arbitration award 71

DETAILED CONTENTS XV CHAPTER 6. DISPUTES ABOUT THE TRIBUNAL'S JURISDICTION 73 1. Introduction 73 Common law background 74 2. Types of jurisdictional issue 75 "Whether there is a valid arbitration agreement" 75 "Whether the tribunal is properly constituted" 76 "What matters have been submitted to arbitration in accordance with the arbitration agreement" 77 3. Separability 77 4. The scheme of the statutory provisions 78 5. Tribunal's power to rule on its own jurisdiction 79 Source of the tribunal's power 79 Relationship with stays 79 Practice 80 Challenging the tribunal's ruling 82 Ad hoc agreements 83 6. Court's power to determine jurisdictional issues 84 Preliminary determination of jurisdictional issue under section 32 85 Post-award challenge under section 67 86 Non-participating parties 86 7. Arbitral proceedings pending challenges to jurisdiction 87 8. Loss of the right to object 88 CHAPTER 7. STAYS OF ENGLISH COURT PROCEEDINGS BROUGHT IN BREACH OF AN AGREEMENT TO ARBITRATE 91 1. Introduction 91 2. Mandatory stays under section 9 of the 1996 Arbitration Act 91 Requirements for a stay 91 Party to an arbitration agreement 92 Party against whom legal proceedings are brought 94 A dispute to be referred to arbitration 95 No step taken in the proceedings to answer the substantive claim 96 Arbitration agreement null, void, inoperative or incapable of being performed 98 Other reasons precluding a stay 99 3. The inherent jurisdiction to grant a stay 99 4. Stays and jurisdictional issues 100 5. Practice 103 Stays and obtaining permission to serve out of the jurisdiction 103 Security for a claim 104 Appeals CHAPTER 8. INJUNCTIONS AND ARBITRATIONS 105 1. Introduction 105 2. Types of injunction 105 3. Arbitrators' jurisdiction to grant injunctions 106 4. Injunctions and the 1996 Act 107 5. Injunctions to restrain foreign proceedings 108 Injunctions to restrain proceedings within the EU 109 Alternative remedies, including anti-suit injunctions from the arbitral tribunal 110 Injunctions to restrain proceedings outside the EU 111 1 CM-

XVi DETAILED CONTENTS 6. Injunctions to restrain arbitral proceedings 114 7. Practice U 7 CHAPTER 9. EXTENDING AGREED TIME LIMITS FOR BEGINNING ARBITRAL PROCEEDINGS 11! 1. Introduction 11! 2. The application of the power to extend under section 12 121 An agreement to refer future disputes to arbitration 121 The arbitration agreement fixes a period for beginning arbitral proceedings 12 A claim has arisen 12: Any available arbitral process for obtaining an extension of time has been exhausted 12: The time provided by statute for commencing arbitration has not expired 12: 3. The test for granting an extension 12: "The circumstances are such as were outside the reasonable contemplation of the parties when they agreed the provision in question" 12 "The reasonable contemplation of the parties" 12' "The relevant circumstances" 12: "It would be just to extend time" 12i "The conduct of one party makes it unjust to hold the other party to the strict terms of the provision in question" 12 Application of the test under section 12(3) 12 4. When time begins to run 12 5. Practice 12 The arbitration claim 12' Alternative applications based on the time-bar being inapplicable 129 Permission to serve a claim form out of the jurisdiction 131 Costs 131 Conditions and length of extension 131 Appeals 132 CHAPTER 10. APPOINTMENT OF ARBITRATORS AND UMPIRES 133 1. Introduction 133 2. Number of arbitrators to be appointed 134 3. Procedures for the appointment of arbitrators 134 Appointment of a sole arbitrator 135 Appointment of tribunals of two arbitrators 136 Appointment of tribunals of three arbitrators 137 Appointment of tribunals of more than three arbitrators and other cases 138 4. Default procedure where one party fails to appoint an arbitrator 138 Where a sole arbitrator is to be appointed 138 Where two or three arbitrators are to be appointed 140 Where there are to be more than three arbitrators and other cases 142 5. Appointment of umpires 142 Default appointments of umpires 143 6. Substituting arbitrators and umpires 144 7. Remedies for defective appointments 145 8. Commencing arbitration for the purpose of time limits 146 What notice is required to commence arbitration? 146

DETAILED CONTENTS Service of the notice 148 Contractual time-bars 149 9. Terms of appointment 150 CHAPTER 11. THE ARBITRATOR 151 1. The arbitrator's status 151 2. Qualifications 152 Qualifications required by the arbitration clause 152 Membership of arbitral organisations 153 3. Bias 154 The test for bias 157 An arbitrator's personal interest in the outcome 157 Proven or conscious bias 158 Apparent or unconscious bias 158 4. Remedies against an arbitrator 160 Pre-award remedies 160 Revocation of an arbitrator's authority 160 Removal of an arbitrator 161 Removal on grounds of circumstances raising justifiable doubts as to the impartiality of the arbitrator 161 Removal for mental or physical incapacity 162 Removal for failure or refusal to "properly to conduct the proceedings" 162 Failure or refusal to use all reasonable despatch in conducting the proceedings or making an award 162 Post-award challenge 163 5. Loss of the right to object to an arbitrator 163 Scope of section 73 164 When and what sort of objection must be made? 165 The consequences of making an objection 166 6. Arbitrators' immunity 167 7. Resignation of an arbitrator 168 LMAA Terms on resignation 168 CHAPTER 12. PROCEDURE AND EVIDENCE 171 1. Introduction 171 2. The source of control over procedure 171 3. Mandatory duties of the tribunal and the parties 172 Mandatory duty of the tribunal 172 Section 33(a) 173 Oral hearings 174 Opportunity to put case 174 Arbitrations on documents only 176 Non-participating parties 177 Other aspects of section 33(a) 177 Section 33(b) 178 Section 40: duty of the parties 178 4. Agreement of the parties 179 The LMAA Terms (2006) 179 5. Powers of the tribunal 180 6. Procedure in London maritime arbitration 180 Statements of case 180 Disclosure 182 XV11

XViii DETAILED CONTENTS Privileged documents 183 Disputed disclosure 183 Evidence 184 Witness statements 184 Absent witnesses 185 Expert evidence 185 Oral hearings 186 Fixing hearing dates 187 Adjournment applications 187 Documents for the hearing 187 The hearing 188 New evidence tendered before an award is made 188 New evidence tendered after an award 189 Documents-only procedure 189 Interlocutory applications 189 Inquisitorial role 190 LMAA Small Claims Procedure 190 LMAA Intermediate Claims procedure 191 7. Sanctions for failure to comply with procedural orders 191 8. Judicial sanctions and supportive powers 192 Judicial sanctions 192 Supportive powers of the court 192 CHAPTER 13. CONFIDENTIALITY IN ARBITRATION 195 1. Introduction 195 2. The nature of the duty 195 3. Exceptions 197 4. Confidentiality of awards 200 5. Confidentiality and court proceedings 202 Court hearing in public or private 202 Judgment published or private 203 Disclosure of court documents 204 6. Practice and remedies 205 CHAPTER 14. REMEDIES FOR DELAY 207 1. Introduction 207 2. Contractual provisions 207 3. The duty of the tribunal and the parties to avoid delay 208 The nature of the duty 208 Remedies for breach of duty 208 Breach of section 33 208 Breach of section 40 209 4. Remedies under section 41 of the 1996 Act 209 The application of section 41(3) 210 The principles governing section 41(3) 211 Inordinate delay 211 The relevance of pre-commencement delay and limitation periods 212 Inexcusable delay 213 Serious prejudice or substantial risk of unfair resolution of disputes 213 Serious prejudice 215 Substantial risk of unfair resolution of the dispute 215

DETAILED CONTENTS Practice 215 Failure to make submissions: section 41(4) 216 Preemptory orders: section 41(5) 216 XIX CHAPTER 15. ARBITRATION AND THIRD PARTIES 219 1. Introduction 219 2. Consolidated arbitrations and concurrent hearings 220 Arbitration under LMAA Terms 221 Express agreements to consolidate proceedings 222 3. Practice in multi-party disputes 223 Appointment 223 The conduct of the arbitration 223 Submissions and evidence 225 4. Costs and third parties 225 Costs in multi-party disputes 226 LMAA Terms and recovery of costs against third parties 227 Security for costs 227 Costs orders against third parties maintaining an arbitration 228 Costs orders against lawyers 229 5. Agents and arbitration 229 6. Assignment 229 7. Insurers 232 8. Contracts (Rights of Third Parties) Act 1999 232 Introduction 232 Application of the Contracts (Rights of Third Parties) Act 1999 234 Jurisdictional issues 235 Appointment of the tribunal 236 Can disputes between all the parties be joined? 236 Enforcement of terms enabling a third party to arbitrate 237 9. Effects of arbitration awards on third parties 238 10. Competition law issues 239 CHAPTER 16. PRELIMINARY ISSUES 241 1. Introduction 241 2. The arbitrator's determination of preliminary issues 242 Procedure 243 3. The court's determination of preliminary issues of law 244 Determination under section 45 of the 1996 Act 244 Procedure on making an application under section 45 246 Costs 247 Appeal on a question of law under section 69 of the 1996 Act 247 CHAPTER 17. SECURITY FOR COSTS 249 1. Introduction 249 2. Arbitrators' powers to grant security for costs 249 3. Discretion on security for costs 250 Difficulty of enforcement of an award of costs 251 The nature of the arbitration 252 Counterclaiming respondents 253 Merits of the claim (or counterclaim) 254

XX DETAILED CONTENTS Oppressive use of an application for security 254 Delay in making the application 254 4. The courts' power to grant security for costs of court applications 255 5. Practice in applications for security for costs 256 Agreeing security 256 Applications for security 256 6. Form and amount of security for costs 256 7. Challenging an order for security for costs 257 8. Consequences of failing to give security 258 CHAPTER 18. SECURITY FOR CLAIMS IN ARBITRATION 261 1. Introduction 261 Power of tribunal and of court 261 Court's powers to make orders against third parties 262 2. Freezing injunctions 262 Jurisdiction 262 The tribunal 262 The court 263 "Unless otherwise agreed" 264 "Urgency" 265 Inability of tribunal to act effectively 266 The effect of a freezing injunction 266 Ancillary orders 267 When to apply for a freezing injunction 267 How to apply for a freezing injunction 268 The application 268 The terms of the order 269 The principles governing the grant of a freezing injunction 270 Good arguable case 270 Real risk that the award will not be satisfied 271 3. Arrest of vessels 271 Stay of the proceedings 271 Power to continue arrests 272 4. Other means of securing claims 273 Power to make order for preservation of property 273 Tribunal's power 273 Court's power 274 Sale of goods 274 Discretionary orders 274 CHAPTER 19. ARBITRATION AWARDS 275 1. Introduction 275 2. Decision making 276 3. Types of award 277 Awards on different issues 277 Provisional orders 279 4. When is a decision an award? 279 5. Formalities of an award 281 Recitals 282 6. Remedies 282 7. Agreed awards 283

DETAILED CONTENTS 8. Certainty and completeness 284 9. Reasons for an award 284 The requirement to give reasons 284 What reasons are expected? 285 Relief if no reasons are given or the reasons are inadequate 286 Reasons of a dissenting arbitrator 288 10. Correcting mistakes 289 11. The effect of an award 292 12. Interest on awards 295 Interest payable up to the date of the award 298 Interest payable from the date of the award 298 Interest on an amount claimed but paid before an award is made 298 Interest pursuant to agreed powers or other grounds 298 13. Currency of an award 299 CHAPTER 20. ARBITRATORS' FEES AND EXPENSES 301 1. Introduction 301 2. Agreements on fees 301 3. The amount of fees recoverable 302 Fees and expenses in LMAA arbitrations 304 4. Who pays an arbitrator's fees? 305 5. How an arbitrator will secure payment of fees 306 An arbitrator's lien over awards 306 Payment in advance: booking fees and commitment fees 306 Interim payments 307 LMAA Terms on interim payments 308 An arbitator's right to sue for fees 310 Security for fees 310 LMAA Terms on security for the tribunal's fees 310 6. Fees on settlement, resignation, death, removal or where no valid award is made 312 Settlement of the dispute 312 Resignation 313 Death or illness 314 Removal or no valid award is made 315 7. Challenging fees 316 Challenging the amount of fees payable 316 Practice 317 Other means of challenge jurisdiction, appeals, removal and serious irregularity 318 XXI CHAPTER 21. COSTS 321 1. Introduction 321 2. Meaning of "costs" 322 3. Controlling the costs of an arbitration 323 Procedural steps 323 Power to limit recoverable costs 324 Multi-party situations 325 4. Agreements governing costs 325 Agreements governing the incidence of costs 325 Agreements governing the recoverability of costs 326 5. Tribunal's power to decide who pays costs 326 Power to make an award 326

Xxii DETAILED CONTENTS Procedure 327 Final hearings 327 Interlocutory applications 327 General principle: costs follow the event 327 Departing from the general principle 328 The conduct of the parties 329 Partial success 330 Counterclaims 330 6. Offers to settle 331 Without prejudice offers 331 Open offers 331 Sealed offers 331 7. The amount of costs recoverable 333 8. Challenging costs awards 334 CHAPTER 22. CHALLENGING AN AWARD IN THE ENGLISH COURTS 337 1. Introduction 337 2. Appeals 338 Agreements excluding the right of appeal 338 Questions of law arising out of the award 339 Discretion to grant permission to appeal 340 "The determination of the question will substantially affect the rights of one or more of the parties" 341 "The question is one which the tribunal was asked to determine" 341 The tribunal was "obviously wrong" or "the question is one of general public importance and the decision of the tribunal is at least open to serious doubt" 342 "Despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in all circumstances for the court to determine the question" 344 The permission to appeal application 345 Evidence admissible on a permission to appeal application 346 The substantive appeal hearing 346 Costs of an appeal 348 3. Challenging an award for serious irregularity 348 Substantial injustice 349 The grounds of irregularity under section 68 351 (a) Failure by the tribunal to comply with its general duty under section 33 351 (b) The tribunal exceeding its powers otherwise than by exceeding its substantive jurisdiction 353 (c) Failure by the tribunal to conduct the proceedings in accordance with procedure agreed by the parties 354 (d) Failure by the tribunal to deal with all the issues that were put to it 355 (e) Any arbitral or other institution or person vested with powers exceeding its powers 356 (f) Uncertainty or ambiguity as to the effect of the award 356 (g) The award being obtained by fraud or procured in a way contrary to public policy 357 (h) Failure to comply with the requirements as to the form of the award 360

DETAILED CONTENTS (i) An irregularity in the conduct of the proceedings or in the award which is admitted 360 4. Challenging an award for lack of jurisdiction 361 Challenge under section 67 of the 1996 Act 361 Challenge under section 68 or 69 362 Declaratory, injunctive and other relief 362 5. Time limits and loss of the right to challenge 363 Statutory time limits 363 Time limits where corrections are sought from the tribunal 364 Extension of time limits 365 Loss of the right to challenge an award 367 Striking out an application for breach of court rules 367 6. The effect of a challenge 368 Pending decision on the challenge 368 Remission 368 Confirmation 369 Variation 370 Setting aside and declaring the award to be of no effect 370 7. Appeals to the Court of Appeal 371 General requirements for appeals under sections 68 and 69 of the 1996 Act 371 Appeals for error of law under section 69 of the 1996 Act 372 Appeals from other challenges 373 The approach of the Court of Appeal on an appeal 373 8. Practice in making an arbitration claim 374 9. Service out of the jurisdiction 375 XXlll CHAPTER 23. ENFORCEMENT OF AWARDS 379 1. Introduction 379 2. Summary enforcement: section 66 380 Scope of application 380 The remedy under section 66 380 Limits to the section 66 procedure 381 Procedure for section 66 application 381 3. Action on the award 382 Basis of the action 383 Procedure 383 4. Defences to enforcement 384 New York Convention awards 384 "(a) that a party to the arbitration agreement was (under the law applicable to him) under some incapacity" 384 "(b) that the arbitration agreement was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the country where the award was made" 384 "(c) that he was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case" 385 "(d) that the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration or contains decisions on matters beyond the scope of the submission to arbitration (but see subsection (4))" 385

XXiv DETAILED CONTENTS "(e) that the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, with the law of the country in which the arbitration took place" 386 "(f) that the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which it was made" 386 State immunity 386 Non-Convention awards 387 Jurisdiction 387 Defects in form or substance 387 Limitation 387 Public policy 388 Suspension 390 5. The order enforcing the award 390 Partial enforcement 390 Costs 391 Interest 391 Foreign currency 392 6. Security for enforcement 392 7. Foreign awards 392 APPENDICES Appendix A The Arbitration Act 1996 395 Appendix B LMAA Terms (2006) and Commentary 451 Appendix C LMAA Small Claims Procedure (2006) and Commentary 469 Appendix D LMAA Intermediate Claims Procedure (2009) and Commentary 475 Appendix E LMAA/Baltic Exchange Mediation Terms (2009) 483 Appendix F The UNCITRAL Model Law 489 Appendix G CPR Part 62: Arbitration Claims 503 Appendix H Arbitration Practice Direction supplementing Part 62 513 Appendix I The Admiralty and Commercial Courts Guide (extract relating to arbitration) 519 Appendix J DAC Report on the Arbitration Bill 527 Appendix K DAC Supplementary Report on the Arbitration Act 1996 577 Appendix L Flow Charts (i) LMAA Standard Procedure 589 (ii) LMAA ICP Procedure 590 (iii) LMAA Small Claims Procedure 591 (iv) Arbitration Claims 592 Index 595