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Introduction

Commencing arbitration is a relatively straightforward process which involves appointing an arbitrator and then notifying opponents that arbitration has been commenced. If an arbitrator is appointed incorrectly, this can have significant consequences, including the setting aside of any award. It is therefore crucial to ensure that the proper procedure for appointment is followed and that correct notice of arbitration is given.

The contract

The underlying principle when appointing an arbitrator is consent. Consent is required in terms of both an arbitrator accepting their appointment and in terms of the prior agreement to arbitration by the contracting parties.

A contract governing the dispute, for instance a charterparty, is the starting point for appointing an arbitrator, as it may contain within its dispute resolution clause (or elsewhere) the outline of where arbitration is to take place, the seat of arbitration, under which set of rules the arbitration is to proceed, the practicalities for appointment, and the applicable law.

Some clauses are more detailed than others and can range from basic requirements or simply “arbitration to be held in London”, to fully explained methods of service and appointment. Adhering to the agreed contractual terms on arbitration is mandatory. A deviation from the prescribed terms could see the arbitration or any resulting award successfully challenged.

A standard form charterparty will often include an arbitration clause. For instance, clause 45(b) of the standard NYPE 93 form provides the following:

LONDON

All disputes arising out of this contract shall be arbitrated at London and, unless the parties agree forthwith on a single Arbitrator, be referred to the final arbitrament of two Arbitrators carrying on business in London who shall be members of the Baltic Mercantile & Shipping Exchange and engaged in Shipping, one to be appointed by each of the parties, with power to such Arbitrators to appoint an Umpire. No award shall be questioned or invalidated on the ground that any of the Arbitrators is not qualified as above, unless objection to his action be taken before the award is made. Any dispute arising hereunder shall be governed by English Law.

For disputes where the total amount claimed by either party does not exceed US $ ** the arbitration shall be conducted in accordance with the Small Claims Procedure of the London Maritime Arbitrators Association.

Where there are no contractual terms as to how to commence arbitration, or no agreement as to which set of rules arbitration will take place under, and if English law is applicable, the Arbitration Act 1996 (the “1996 Act”) may apply.

Frequently, due to time bar constraints, arbitration must be commenced within a certain time frame. It is important to check the contract to discern which time bars apply and whether there is a deadline to commencing arbitration. Whilst the courts are capable to extending time, it is rare that such a power is exercised.

Appointing an arbitrator

Depending on what the contract stipulates, the next step is appointing an arbitrator. This could be a sole arbitrator who is mutually agreed or the first arbitrator in a tribunal of two or three.

Some arbitration clauses will specify that instead of a third arbitrator, an umpire is to be appointed by the first and second arbitrators. Where a third arbitrator performs the same role as the first two arbitrators, an umpire has no powers of decision until the first and second arbitrators disagree. Where the disagreement is irreconcilable, the arbitrators will drop out of the arbitration entirely, and the umpire will assume control of the whole matter on their own.

As per s. 15(3) of the 1996 Act, the default position, where the size of the tribunal is not stipulated, is that a sole arbitrator should be appointed. Even where a contract refers to “arbitrators” but does not specify an exact number, the default position of a sole arbitrator is adopted.[1]

Where the contract requires the appointment of a sole arbitrator, the first step is to seek the agreement of opponents on the choice of arbitrator. The next step, or first step in cases where more than one arbitrator is to be appointed, is to write to the potential arbitrator requesting their appointment in relation to the dispute. The contract may stipulate certain conditions on who can be appointed as an arbitrator. A common term in dispute resolution clauses is that an arbitrator must be a “commercial man” or, as with the NYPE 93 standard clause, that arbitrators must “be members of the Baltic & Shipping Exchange”. These terms should be adhered to as far as possible in order to avoid a potential challenge to a tribunal or award later down the line. If the opposing party delays in making any objection to the choice of arbitrator, they may lose their right to complain under s. 73 of the 1996 Act.

After sending a notice of appointment, it is likely that a potential arbitrator will accept their appointment under certain conditions, such as “subject to the application of the LMAA Terms 2021”. Therefore, even where LMAA arbitration is not provided for contractually, the usual case is that shipping disputes referred to arbitration will end up governed by the LMAA terms. Depending on the nature of the dispute and the arbitrator appointed, other rules may instead be adopted. For instance, GAFTA or FOSFA rules might apply under commodities contracts.

In the case that an arbitrator does not specify whether arbitration is subject to a particular arbitral body’s ruleset or arbitrators disagree on which arbitral body’s ruleset to employ, the arbitration will commence on an ‘ad-hoc’ basis. This essentially means that the arbitration will commence on the basic rules provided for by the 1996 Act and any rules agreed between appointed arbitrators.

Notice of Arbitration

After an arbitrator has been appointed, notice of arbitration (NOA) must be served on the opposing party. Aside from commencing arbitration, a notice of arbitration may also have the effect of interrupting time bars.

It is critical that notice of arbitration is served on a party that has authority to accept service of a notice of arbitration. Chartering brokers, P&I clubs, and other agents may not have the requisite authority. Current LMAA guidance is that notice should be served on generic corporate email addresses and to avoid exclusively personal emails where possible. S. 76(3) of the 1996 Act states that notice may be served by “any effective means”; this includes service via email.

Depending on whether a sole arbitrator is to be appointed or the tribunal is made up of more than one arbitrator, it is necessary to give opponents a time limit to either join in the appointment of a sole arbitrator or appoint their own. The contract may provide a time limit for opponents to respond; however, the statutory minimum is 14 days. Where opponents fail to appoint/agree to the appointment of an arbitrator in 14 days and the contract is silent on consequences, the first party must give a further 7 days of clear notice under s. 17 of the 1996 Act. Then, if no appointment is made, the first party’s arbitrator may be appointed sole arbitrator under s. 17. It may be prudent to include in the NOA a proviso that where the opponents fail to make an appointment in the allowed time, a sole arbitrator will be appointed.

Concurrency and consolidation

As is often the case with a maritime dispute, there may be one or more disputes connected to an initial dispute. For instance, in a back-to-back charterparty chain, a head owner may seek to recover from charterers who then seek to recover from sub-charterers. Likewise, there are often situations where claims are made simultaneously under different contractual instruments for losses resulting from the same damage. For instance, a bill of lading holder and a charterer may seek to recover from owners for losses flowing from the same incident.

It will often be more expedient for disputes in a charter chain to be held concurrently or for separate disputes arising from the same damage to be consolidated.

Under the 1996 Act, a tribunal (or sole arbitrator) has no intrinsic authority to order concurrency or consolidation in arbitration. Since arbitration arises only as a result of agreement, the tribunal’s powers extend only to the parties that have consented to a particular arbitration. Notwithstanding the absence of a tribunal’s innate power to order consolidation or concurrency, it is possible that where all parties offer their consent, arbitral proceedings can be consolidated or held concurrently. Such an agreement may be achieved via an arbitration clause, the agreed arbitration rules under which the arbitration is pursued, or through ad hoc agreement under s. 35 of the 1996 Act.

For instance, LMAA rules paragraph 16 provides that, “where two or more arbitrations raise common issues of fact or law, the tribunals may direct that they shall be conducted… [or] heard concurrently”. When this is the case, the tribunals are granted further powers to modify time limits for submissions, allow the distribution of disclosed documents between tribunals, and order that evidence given in one arbitration shall be received and admitted in another tribunal.

Conclusion

The procedural rules for commencing arbitration are dependent upon what has been agreed upon between the parties. Where the scope of the agreement fails to cover key aspects of commencement, parties may default to the rules provided under the Arbitration Act 1996. A combination of agreed procedure, the 1996 Act, and any applicable arbitral institutional rules will likely provide the necessary framework for commencement.

[1]  Itochu Corporation v Johann MK Blumenthal GmbH & Co & Ors [2012] EWCA Civ 996 (24 July 2012)