Reed Smith Client Alerts

Authors: Chloe S. Clift George Panagopoulos

The London Maritime Arbitrators Association (LMAA) has published a set of new terms, the LMAA Terms 2017, which are due to come into effect for appointments on or after 1 May 2017. They seek to improve the time and cost-efficiency of the LMAA, while maintaining its ‘light touch’ approach.

Why the update?

Since the LMAA Terms 2012 came into effect, LMAA members, committees and users have called for improvements in the speed and cost-effectiveness of LMAA arbitration. There is, however, undeniable market understanding that the main reason why LMAA arbitration remains so popular is the ability for parties and tribunals to pick and choose the procedures that are the most suitable to their particular case. It has, after all, proved to be a success for a large number of arbitrations, covering a broad range of issues.

The LMAA has maintained a conservative approach to the updating of the arbitration rules and many of the updates reflect the 2015 guidance notes on the LMAA Terms 2012. However, it has made a conscious effort to listen to users and LMAA members, in order to bring about useful and functional change.

Significant changes

The most significant change under the LMAA Terms 2017 (the Terms) is that the President of the LMAA is now able to appoint a sole arbitrator where the parties fail to agree. Previously parties had to apply to the High Court in order to do so. This saves parties considerable time and money where an impasse is reached in agreeing a sole arbitrator or when one party is being deliberately difficult.

Another key update to the Terms is the ability for an arbitrator appointed by one party to become the sole arbitrator, formally adopting the position under s. 17 of the Arbitration Act 1996. Further express powers to ensure time limits for submissions have also been added, so that they can be abbreviated or modified where arbitrations are concurrent. Although there was call for concurrent proceedings to be consolidated, the LMAA deemed that this was not possible.

It’s all in the detail

Amendments have also been made to the LMAA schedules. These include:

First Schedule: This now allows tribunals greater clarity in relation to the timing of their requirement for security for costs. A tribunal can now request security wherever it deems appropriate and stipulate a ‘long-stop’ deadline of 21 days before a hearing. Failure to comply will give rise to a peremptory order pursuant to s. 41 of the Arbitration Act 1996. In the worst case scenario, this can lead to the dismissal of a claim.

Second Schedule: This has been subject to most change. Key amendments include:

(i) Parties are now required to provide all documentation to the other side with their statement of case.

(ii) Following the service of a reply, a party can only make further submissions if it can provide supporting reasons, and the tribunal has given permission for further submissions. This hopefully puts an end to endless replies, rejoinders and surrejoinder submissions.

(iii) Tribunals can now make procedural directions if the parties fail to agree 21 days after the exchange of LMAA questionnaires. This is a further attempt to move matters forward where the parties procrastinate.

(iv) Tribunals are now entitled to take into account unreasonable or inefficient conduct in relation to costs.

(v) There is now a provision to give prompt notice of the appointment of legal representation. Late instruction of legal representatives is no longer a valid ground for delaying the arbitration process.

(vi) The tribunal must now be notified of any order or direction agreed between the parties, which, unless agreed otherwise, will take effect as an order or direction of the tribunal. This removes previous uncertainty as to the effect of an order or direction agreed between the parties.

Third Schedule: This sets out the LMAA questionnaire (the Questionnaire), which now incorporates guidance previously issued in relation to the LMAA Terms 2012, and emphasises the importance of the Questionnaire as a tool for case management. The Questionnaire now requires parties to identify issues that require witness statements and expert evidence, as well as whether interpreters will be required at the hearing. This forces the parties to be more upfront and organised in the first instance.

Not to forget the SCP and ICP

Updates have also been made to the Small Claims Procedure (the SCP) and the Intermediate Claims Procedure (the ICP). Most significantly, under the SCP, where the parties have not agreed a financial limit, an express provision has been made for the financial limit of claims to be capped at US$100,000 (applicable separately to both claim and counterclaim). Other changes under the ICP and SCP include the requirement that when parties apply to the President of the LMAA to appoint a sole arbitrator, they must not suggest any particular names of potential arbitrators.

Sealed Offers

One of the areas where the LMAA terms were silent until now was that of sealed offers; that is to say, settlement offers made without prejudice, save as to costs. There had been some debate as to whether an offer made in accordance with Part 36 of the Civil Procedure Rules applied in arbitration, if not in form at least in substance. The Terms now expressly state that a tribunal “will be entitled to take account of offers made without prejudice save as to costs” (i.e., sealed offers). However, the English High Court regime in relation to Part 36 does not apply. The effect of this is not entirely clear. Presumably it formally recognises that a tribunal’s discretion in ordering or assessing costs includes considering sealed offers. Nevertheless, the new wording suggests that it is not mandatory for a tribunal to give effect to any consequences where a party, for example, has done better than their sealed offer. Although the strict form of Part 36 may not be applicable, a tribunal should always, in our view, take into account the substance of such an offer in assessing costs. It is submitted that it would have been helpful if the Terms went a step further and included a formal recognition of the effect of sealed offers akin to Part 36. Perhaps this is something for a future revision of the LMAA terms.

Final Thoughts

While in no way an overhaul, the LMAA Terms 2017 introduce some positive changes by showing a recognition by the LMAA of the needs of its users. It will be interesting to see, in the years to come, whether these changes do improve the speed and cost-effectiveness of the LMAA arbitration process, while maintaining the ‘semi-autonomous’ approach that is fundamental to arbitration.

For further information on the new Terms, please see the LMAA website: lmaa.london.

Client Alert 2017-059