The new LMAA Terms 2021

The London Maritime Arbitrators Association (LMAA) recently published a revised version of its terms of procedure, which came into effect on 1 May 2021 (the ‘2021 Terms’). Subject to the relevant arbitration agreement or any other agreement between the parties, the 2021 Terms will apply to LMAA references commenced on or after 1 May 2021.

Revisions have been made to the 2017 edition of the LMAA Terms, LMAA Small Claims Procedure (SCP) and LMAA Intermediate Claims Procedure (ICP) (collectively, the ‘2017 Terms’). The full revised terms and procedures are available at the LMAA website.

This article discusses the key differences between the 2017 Terms and the 2021 Terms.

Highlights of the LMAA Terms 2021

There are several amendments to the LMAA full terms, many of which are to fine-tune the pre-existing terms. The key changes, discussed further below, relate to:

1. The constitution and powers of the arbitral tribunal;
2. The recognition of virtual and semi-virtual hearings and the applicable procedures;
3. Guidance on the preparation and content of witness statements; and
4. The requirement for more detailed cost estimates in the LMAA Questionnaires.

The arbitral tribunal

First, where there are three arbitrators, the new paragraph 8(b)(v) allows for decisions, orders and awards to be made if one of the three arbitrators can no longer act and the remaining arbitrators are in agreement. This makes the process more efficient and cost-effective.

Second, the new paragraph 10 provides a more straightforward mechanism for the appointment of a sole arbitrator. If a party does not appoint its arbitrator within 14 days (or within the agreed timeframe) after receiving due notice to do so from the other party, the other party may, without any further notice to the defaulting party, appoint its arbitrator as sole arbitrator. Under the 2017 Terms (which give effect to the position under the Arbitration Act 1996) if a respondent fails to appoint its own arbitrator within 14 days of receiving the claimant’s notice of appointment, the claimant is obliged to serve further notice on the respondent to give the respondent an additional grace period. Only after the expiry of the grace period can the claimant appoint its own arbitrator as the sole arbitrator. This is a welcome development, as it is a simpler and speedier approach to the procedure set out in the 2017 Terms and/or under the Arbitration Act 1996, and is particularly useful for cases where the respondent fails or refuses to participate in the arbitration.

Third, the new paragraph 12 deals with substituting arbitrators – it grants the LMAA president the discretionary power to appoint a substitute arbitrator in circumstances where the original arbitrator is incapable of conducting the proceedings or attending the hearing. Similarly, this addition potentially provides a faster avenue to substitute an arbitrator as compared to filing a formal application to court for a substitute arbitrator.

Virtual and semi-virtual hearings

The 2021 Terms now formally recognise and allow for hearings to take place virtually or semi-virtually (see paragraphs 15(c) and 15(d)), and provide a set of protocols for the conduct of virtual or part-virtual hearings as set out in the Sixth Schedule. The protocols are useful to streamline such proceedings and to ensure consistency across LMAA arbitrations if they are conducted virtually or semi-virtually.

As a corollary to the general endorsement of virtual proceedings, the 2021 Terms also confirm that arbitral awards may now be signed electronically and in counterparts (see paragraph 24). This allows for greater flexibility in the preparation and publication of awards. However, parties should bear in mind that there could be enforcement issues for an electronically signed award in certain jurisdictions. If this is likely to be a concern, the tribunal should be informed that original hand-signed copies of the award are required.

In the light of the Covid-19 pandemic restrictions over the last 18 months, many arbitration hearings and proceedings had to be conducted virtually or part-virtually. Accordingly, these new rules and guidelines provide welcome clarity to the process as, moving forward, virtual or part-virtual hearings are likely to be far more commonplace. This is expected to be the case even when international travel resumes, given the significant savings as to costs and time of conducting hearings virtually or part-virtually.

Witness statements

In line with the recent important procedural amendments in the English courts regarding witness statements, the new wording at paragraph 2(a) of the Fourth Schedule requires witness statements to be ideally in the witnesses’ own words and that statements should only contain factual matters about which the witness has personal knowledge or recollection. The paragraph expressly prohibits using witness statements to canvass arguments.

This new addition addresses a longstanding problem that factual witness statements have sometimes been abused to serve as an extension of the pleadings and submissions, rather than simply as an account of relevant facts. The extent of enforcement of this new provision and the potential consequences of failing to adhere to it (by way of possible cost sanctions) remains to be seen.

Costs

A short note has been included in paragraph 16 of the Third Schedule to require a more detailed breakdown of costs to be provided in the LMAA Questionnaire. This new obligation not only provides greater transparency as to the costs claimed, but may also have the potential effect of encouraging the parties to be more cost-sensitive or assist with budgeting.

Key changes to the ICP and SCP

The main revisions to the ICP include:

1. Both the arbitrator appointment revision and updated witness statement guidance in the full terms (as discussed above);
2. Clarification on the timing for respondents to serve closing submissions (see paragraph 12), as well as the tribunal’s discretion, when proceeding after a party has defaulted, to require a non-defaulting party to adduce further material to the tribunal (see paragraph 13); and
3. The wording on costs which clarifies that the cap applicable to the parties’ recoverable costs is to be calculated without including claims for interest and costs (see paragraph 16).

The key revisions to the SCP are as follows:

1. Paragraph 3(b) now makes payment of the SCP fees a condition precedent to moving forward with proceedings. Paragraph 3(d) widens the circumstances in which part of this fee can be retained as compensation by the arbitrator;
2. Paragraph 7 now makes clear that awards under the SCP must be reasoned;
3. Paragraph 8 has been updated to require any breakdowns or explanations regarding costs (limited to 500 words) to be provided within seven days of service of the last submission under the SCP;
4. Paragraph 9(c) has been revised to clarify that if the SCP is determined to be inappropriate and inapplicable, the existing sole arbitrator will retain jurisdiction over the dispute and may order that it proceed under the LMAA Terms 2021 or ICP 2021, as appropriate.

Why the changes?

LMAA remains a popular forum for dispute resolution in the shipping industry. The LMAA committee has been constantly revising the terms over the years in a bid to ensure that LMAA arbitration remains as effective and as cost-efficient as possible. The changes are always pragmatic and practical, aimed at reflecting the changing procedures and to address specific issues that have arisen in recent years.

The last revision took place in 2017. Since then, there have been significant changes in the way in which proceedings and hearings are conducted (due to the COVID-19 pandemic and the move towards telecommuting and virtual hearings) as well as recent developments in the witness evidence rules in English court proceedings. The 2021 Terms were published to adapt to the challenges of the COVID-19 pandemic and to reflect the current legal environment.

This article was authored by Andrew Lee and Jade Chia.