UK: 2017 Revisions To The LMAA Terms Of Arbitration

On 7 February 2017, the London Maritime Arbitrators Association ("LMAA") published their latest revisions to the LMAA Terms, the Intermediate Claims Procedure ("ICP") and the Small Claims Procedure ("SCP"), collectively the "LMAA Rules". The LMAA Rules 2017 will come into effect for appointments on or after 1 May 2017.

This short update seeks to identify some of the key changes to the LMAA Rules and does not cover every single amendment in all of the procedures.  For a more comprehensive guide, please see the 'Explanatory Note' to the LMAA Rules 2017 dated 1 February 2017 published by the LMAA together with the marked up versions of the LMAA Rules 2012 on the LMAA website

The Main LMAA Terms

Failure of appointment procedure.  Two new paragraphs, 10 & 11, have been introduced to deal with the situation where a party fails or refuses to appoint an arbitrator or where the parties are unable to agree on the appointment of a sole arbitrator.

Paragraph 10 clarifies the position that, in arbitrations in which both parties must appoint their own arbitrator and one party fails or refuses to do so, Section 17 of the Arbitration Act 1996 ("the Act") shall apply.  Section 17 of the Act allows the non-defaulting party to give 7 days' prior written notice to the defaulting party to appoint an arbitrator, following which the non-defaulting party's arbitrator will become the sole arbitrator whose award shall be binding on both parties.  In our view, this does not alter the position as it stands prior to the amendment and seeks only to clarify the position for the avoidance of doubt. 

Paragraph 11 deals with circumstances where the arbitration agreement provides for a sole arbitrator (which will be the case where there is no provision for the number of arbitrators, see Section 15(3) of the Act) and within 14 days of one party calling for arbitration, the parties have not agreed upon a sole arbitrator.  Although it is not expressly stated, this is understood to also include the situation where the other party fails completely to take part in discussions for the agreement of a sole arbitrator.  In this situation, either party may apply to the President of the LMAA to appoint an arbitrator.  A fee will be payable by the party making the application.  The fee payable under the new paragraph 11 is not yet known, although based on the current fees for appointment, it is likely to be £250.

The ability for the parties to make an application to the LMAA to appoint a sole arbitrator is likely to be much quicker and cheaper than the requirement under the Act to make an application to the Court in the same circumstances.  However, paragraph 11 is only helpful if the arbitration agreement provides that the LMAA Terms shall apply in the first instance, failing which the procedure (i.e. an application to the Court) under the Act must be followed.

Period for the parties to agree procedural directions.  A new paragraph 11(b) has been added to the Second Schedule to the LMAA Terms and provides for a 21 day period following the exchange of the LMAA Questionnaires to allow the parties to agree the procedural directions.  If no agreement is reached in this period, the Tribunal may make such directions or other orders as it thinks appropriate.  This provision merely implements in the LMAA Terms the guidance notes to the 2012 LMAA Terms.

Cost effectiveness and efficiency of proceedings.  Paragraph 13 of the Second Schedule to the LMAA Terms has been added to place an obligation on the parties to "actively consider ways in which to make the arbitral process as cost-effective and efficient as possible".  This involves taking into account the guidelines/checklist set out in the new Fourth Schedule ("the Checklist").

The Checklist covers many areas, including factual evidence, expert evidence, documents for the hearing and skeleton arguments.  It encourages the parties to discuss all of these areas as early as possible to identify what measures in each area can be implemented to increase the cost-effectiveness and efficiency of the arbitral process.  The Checklist deals with everything from ensuring that there is no duplication of documents to deciding whether it is necessary to have oral evidence.  It is likely that a party will need to show it has been through and discussed each point in the Checklist with the other party or parties in order to satisfy the new paragraph 13.

Costs consequences. The new paragraph 13 is linked to a new paragraph 19(b) of the Second Schedule to the LMAA Terms that expressly provides that, when exercising its discretion in respect of liability for costs, a Tribunal may take into account:

i. Unreasonable or inefficient conduct by a party;
ii. Any failure to comply with the Checklist;
iii. Any without prejudice offer; and,
iv. Any costs estimates provided in the LMAA Questionnaire.

Again, this probably only reflects the position in practice under the 2012 LMAA Terms, save that (i) and (ii) refer to the express duty on the parties identified in paragraph 13 to consider the Checklist as evidence of whether they have conducted the arbitration in a cost-effective and efficient manner.  It is unclear whether compliance with (i) and (ii) is restricted to considering the matters in the Checklist; in our view it is not.  If our view is correct, further clarification is needed as to what should be done to evidence compliance with and/or consideration of the matters set out in the Checklist.

No Part 36 regime.  Paragraph 19(b) also clarifies the position that Part 36 of the English Civil Procedure Rules (without prejudice offers) does not apply to LMAA arbitration.  This, in our view, clarifies the existing position.  However, it is common practice for parties to make an offer analogous to a Part 36 offer under threat of similar sanctions (such as enhanced interest and/or indemnity costs) in the case that an offeree fails to better the without prejudice offer.  This recent amendment suggests that a Tribunal is unlikely to rigidly apply an analogous regime, if at all.

The Small Claims Procedure

SCP Limit now US$100,000.  One point to note is that the applicable monetary limit as to when the SCP will apply has been increased from US$50,000 to US$100,000 in the absence of agreement to the contrary between the parties.

Conclusion

The recent revisions to the LMAA Terms reflect the intended cautious approach of the LMAA to changing the rules which have generally operated satisfactorily in practice.  The majority of the revisions are unlikely to change much in practice and are limited to bringing into effect the main terms of the guidance notes that were published in 2015.

That said, the addition of the Fourth Schedule and the duty on the parties to actively consider ways to make the arbitration cost-effective and efficient under threat of costs sanctions is designed to re-focus the minds of parties to arbitral proceedings. Parties must be seen to be actively progressing the proceedings in a cost-effective and efficient manner.

In the rare situation where the agreement to arbitrate makes references to an earlier edition of the LMAA Rules than those currently in force,  it is necessary to ensure that the arbitrator accepts their appointment on the version of the LMAA Rules previously agreed between the parties.

2017 Revisions To The LMAA Terms Of Arbitration

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.