Guide To Maritime Arbitration In New York

Answers to Frequently-Asked Questions about Arbitration
under the rules of the Society of Maritime Arbitrators, Inc.


©Society of Maritime Arbitrators, Inc. 1997

FOREWORD

Many parties who have had cordial and long-term commercial relationships with one another, find, from time to time, that they have disputes with each other which can best be resolved through arbitration. Using a panel of neutral commercial maritime arbitrators or a sole arbitrator who are or have been in the shipping business to resolve such disputes is both quick and cost-effective. It also allows for the continued, normal conduct of other ongoing commercial arrangements by isolating the matter in dispute.

New York has been a center of international arbitration since the late nineteenth century. Since 1963, the Society of Maritime Arbitrators (SMA) has been providing the shipping industry with sound arbitration practices and experienced maritime arbitrators.

We hope that this handbook will render arbitration in New York more accessible to international users, their underwriters and their lawyers.

The Society of Maritime Arbitrators, Inc. New York

November 1997

Table of Contents

1. How is a maritime arbitration proceeding initiated in New York?
2. Where can one find the names of SMA arbitrators in New York?
3. Who are members of the SMA?
4. What types of disputes are arbitrated by SMA arbitrators?
5. How is an arbitrator appointed to a Panel?
6. Who can be appointed under a clause which provides that the arbitrators shall be "commercial men"?
7. Do SMA arbitrators charge an appointment fee?
8. Does the SMA charge administrative fees?
9. Are there different types of maritime arbitration in New York?
10. Are SMA arbitrators impartial?
11. Does a party have to be represented by a lawyer in a New York arbitration?
12. What is the procedure if the other party does not appoint an arbitrator?
13. If there are many parties to a dispute, can the various cases be consolidated in one proceeding in New York?
14. Once the arbitrators have been appointed, what are the next procedural steps?
15. Can an arbitration be conducted without a hearing?
16. Do SMA arbitrators charge fees to reserve hearing dates?
17. Where and when are hearings held?
18. What is the language of an arbitration in New York?
19. Is a transcript taken of the proceedings?
20. Are awards by New York arbitration panels followed as precedents by other arbitrators?
21. Can SMA arbitrators issue awards in a foreign currency?
22. Do SMA arbitrators award attorneys fees?
23. What if the three arbitrators do not agree?
24. Are arbitration decisions by SMA members published?
25. Are New York or SMA arbitration awards enforceable in court?
26. Are New York or SMA arbitration awards appealable?
27. What are the advantages of incorporating SMA Rules?
28. Does the SMA provide non-binding "Alternative Dispute Resolution" (ADR)?
29. How does one obtain more information about New York maritime arbitration and ADR?

GUIDE TO MARITIME ARBITRATION IN NEW YORK

Answers to Frequently-Asked Questions about SMA Arbitration

1. How is a maritime arbitration proceeding initiated in New York?

As the claimant, you simply advise the other party that you are invoking the arbitration clause in the Charter Party or contract and simultaneously advise that party of your nominated arbitrator's name, address, telephone and telefax numbers. Under the most common New York arbitration clause, such as Clause 17 of the New York Produce Exchange Time Charter Party, three arbitrators must be appointed: each party to the dispute appoints one and the two party-appointed arbitrators then appoint the third arbitrator who serves as Chairman of the arbitration panel conducting the proceeding. The claimant appoints the first arbitrator and asks his opponent to appoint his. However, if your Charter Party or contract provides for a sole arbitrator, you begin by providing your opponent with a list of suggested arbitrators upon which you need to reach agreement, so that the sole appointee can be selected. If you cannot agree on a sole arbitrator, you need to apply to the court so that it can appoint one. If the parties agree only to arbitrate but do not mention the number of arbitrators, by law, the dispute will be decided by a sole arbitrator.

2. Where can one find the names of SMA arbitrators in New York?

The Society of Maritime Arbitrators, Inc. publishes a roster of its members, which contains a description of their background and experience and specialized areas of expertise. Upon request, the SMA office will forward a copy.

3. Who are members of the SMA?

Members of the SMA are commercial people of wide-ranging experience in numerous areas of the shipping industry. SMA members are presently employed in, or have worked in responsible commercial positions in the maritime industry for at least 10 years prior to being selected as SMA members. They come from varied backgrounds and have appropriate professional credentials. A number of SMA members have law degrees, but none are practicing attorneys.

4. What types of disputes are arbitrated by SMA arbitrators?

The majority of disputes arise out of Charter Parties, voyage, time charter and bareboat charter parties or Bills of Lading. We also hear disputes arising under sales or purchase contracts for vessels and commodities, shipbuilding and repair contracts, government supply contracts, service and liner agreements. More recently, we have developed special rules to cover salvage arbitration for small vessels and recreational boats.

5. How is an arbitrator appointed to a Panel?

After you or your lawyer have reviewed the background and experience of potential arbitrators from the roster, you make your selection and contact the arbitrator. You advise the arbitrator of your interest to appoint him or her, identify the parties involved and briefly outline the dispute so that the prospective arbitrator may determine that he or she has the requisite experience in the issue(s) in dispute and has no conflict of interest. The person is usually able to respond promptly to your request for such information. You then confirm that person's appointment in writing. In the United States, arbitrators are required to disclose any and all relationships with principals, lawyers and fellow arbitrators who may be involved in a particular case.

6. Who can be appointed under a clause which provides that the arbitrators shall be "commercial men"?

"Commercial men" has been interpreted by the U.S. Maritime Law Association (the U.S. maritime bar) as meaning "commercial persons", regardless of gender. In a recent court decision in New York, the State's highest Federal court, the United States Court of Appeals for the Second Circuit, interpreted commercial persons to mean individuals who have substantial, practical, commercial experience and who work or have worked for commercial ventures. According to the Court, a lawyer whose only experience has been the practice of commercial law, does not qualify as a commercial person. Arbitration clauses in some Charter Parties provide that the Chairman shall be an Admiralty attorney.

7. Do SMA arbitrators charge an appointment fee?

New York arbitrators do not, as distinct from other fora.

8. Does the SMA charge administrative fees?

The SMA charges no administrative fees as it does not administer cases. SMA arbitrators participate in ad hoc arbitration as required by the usual arbitration clauses: the parties or their attorneys appoint the arbitrators directly and communicate with the Chairman or sole arbitrator after the panel's formation. The arbitrators will deal with their fees in their award and may ask for escrow deposits to be made to the SMA escrow account or to be held by the parties' attorneys.

9. Are there different types of maritime arbitration in New York?

The vast majority of maritime arbitration are ad hoc, which means that each party appoints an arbitrator and the two so selected then appoint a third. The parties may also agree to a sole arbitrator, instead. A few maritime arbitrations are administered by the American Arbitration Association, a national organization which also has a maritime panel comprised mostly of practicing attorneys or retired attorneys. In an AAA arbitration, the parties have to pay administrative fees on the basis of the amounts of their claim and counterclaim.

10. Are SMA arbitrators impartial?

Under the SMA Code of Ethics, SMA arbitrators are required to be impartial whether or not they are party-appointed. Under the Federal Arbitration Act, which governs maritime arbitrations in the United States, an award may be vacated for "evident partiality."

11. Does a party have to be represented by a lawyer in a New York arbitration?

No, you do not have to be represented by a lawyer in an arbitration proceeding. Under SMA rules, anyone who is duly authorized may act before the panel on the behalf of the claimant or respondent. However, if the other party employs an attorney in the arbitration, proceeding without counsel should be carefully considered.

12. What is the procedure if the other party does not appoint an arbitrator?

If your Charter Party or contract calls for New York arbitration by three arbitrators, but does not provide for arbitration under the rules of the Society of Maritime Arbitrators, the only way you can compel your opponent to arbitrate is by court action. This will require a lawyer to file a motion to compel arbitration in Federal District Court, usually in the U.S. District Court for the Southern District of New York. The court will be asked to appoint an arbitrator on your opponent's behalf, to complement the arbitrator you have already named. The two will appoint the third arbitrator.

If your Charter Party or contract specifies that the arbitration be conducted under the rules of the Society of Maritime Arbitrators, instead of compelling arbitration in court, you can avoid the costly and time-consuming process of going to court by simply invoking Section 10 of the Rules and by informing your opponent that he has twenty (20) days to appoint his arbitrator, failing which, you can appoint a second arbitrator on his behalf. The two arbitrators so named shall appoint the third, who will serve as Chairman. At that point, the panel has been legally constituted and you can proceed with the arbitration.

Some Charter Parties provide that the disputes be adjudicated under the SMA Shortened Arbitration Procedure. Under this procedure, the disputants are encouraged to agree on a sole arbitrator. If you cannot agree, you can appoint your arbitrator and give fifteen (15) days to your opponent to appoint a second arbitrator, failing which the arbitrator appointed by you shall become the sole arbitrator. If your opponent appoints an arbitrator, the two party-appointed arbitrators must then agree upon the third arbitrator within 10 days from the date of their acceptance of their appointment.

Other Charter Parties provide for arbitration by two arbitrators. If they are unable to agree, they must appoint an umpire, who then acts as sole arbitrator. This type of clause is most commonly found in London proceedings, but may sometimes be encountered in New York. Under the umpire system, once the two party-appointed arbitrators disagree, they submit their own oral or written argument to the umpire, along with the documents given them earlier, presenting their positions on the issues over which they cannot agree. Thereafter, the umpire sits as a sole arbitrator and renders his/her award on the unresolved items which could not earlier be decided by the two party-appointed arbitrators.

13. If there are many parties to a dispute, can the various cases be consolidated in one proceeding in New York?

If your Charter Party does not provide for SMA Rules, you must go to court to consolidate a dispute. If a judge decides that there was an agreement of all the parties to consolidate the disputes, the court may order consolidation. Otherwise, the court will probably refuse to do so. However, if all the Charter Parties in a chain contain reference to SMA Rules, Section 2 of the Rules allows that the disputes be consolidated and heard by a single panel, provided they arise from common questions of fact or law. This saves time and expense by providing an efficient and coordinated proceeding, which will result in a uniform decision, consistent with the facts.

Under SMA Rules, unless the parties agree to a sole arbitrator, consolidated disputes must be heard by a three-arbitrator Panel, which will either be appointed by agreement of all parties or, failing such an agreement, as ordered by the Court.

14. Once the arbitrators have been appointed, what are the next procedural steps?

After the Chairman has been appointed, all further communications pertaining to the proceeding must go to the Chairman. Copies of any documentation sent to the Chairman should also be simultaneously sent to the other arbitrators and to the other party.

In New York arbitration, arbitrators must make disclosures of their relationships with the parties, the lawyers involved and with the other arbitrators on the Panel. If you are a Claimant and want to press your case, you should ask for disclosures so that you can start presenting your case. Disclosures may be made by mail or verbally at the first hearing.

15. Can an arbitration be conducted without a hearing?

Yes, a great number of arbitrations in New York are handled by documents via mail, without the need for a formal hearing. Some are handled by individuals in other cities or countries, be they lawyers or employees of the disputant companies. You do not have to declare at the outset of an arbitration whether the arbitration is going to be conducted on documents alone. You can start the arbitration by mail and reserve the right to ask for a hearing at a later date.

16. Do SMA arbitrators charge fees to reserve hearing dates?

Unlike London arbitrators, SMA arbitrators do not charge booking fees to reserve hearing dates. However, if a hearing is canceled on short notice an arbitrator may charge a fee for the canceled hearing(s).

17. Where and when are hearings held?

Panels usually meet in a conference room of a lawyer's office, in the Chairman's office or the office of the Society of Maritime Arbitrators. Depending on the Panel's availability, hearings may be held all day, during lunchtime only or in the evening, after business hours.

18. What is the language of an arbitration in New York?

English, but given the international character of New York, many arbitrators know and are even native-speakers of other languages. When required, independent interpreters attend arbitration hearings.

19. Is a transcript taken of the proceedings?

Yes, a court reporter is normally present in New York arbitration proceedings. Under the SMA Shortened Arbitration Procedure which allows for only one hearing, however, a court reporter is not required. If the parties desire a written transcript of the proceedings, they can arrange for a court reporter.

20. Are awards by New York panels followed as precedents by other arbitrators?

No, they do not serve as precedents and arbitrators are not required to follow decisions rendered by other Panels, but such earlier decisions can influence the award rendered by the Panel. Arbitrators often follow a previous decision if they agree with the reasoning of the award issued by a previous panel and the facts in the dispute are similar.

21. Can SMA arbitrators issue awards in a foreign currency?

Yes, SMA arbitrators have awarded and can award sums in a foreign currency.

22. Do SMA arbitrators award attorneys fees?

Under United States law and practice, it is not clear whether arbitrators are empowered to award attorneys fees when there is no specific reference to them in the arbitration clause. If both parties to a proceeding demand or request an award of attorneys fees, the Panel may do so. However, under SMA Rules (that is a unique feature of SMA Rules), arbitrators have the power to award a reasonable allowance toward attorneys fees and are encouraged to do so. In many awards, SMA arbitrators now award all or a portion of legal expenses incurred by the prevailing party, as well as the cost of conducting the arbitration proceeding against the losing party.

23. What if the three arbitrators do not agree?

In a tripartite arbitration, which prevails in the United States, a decision by any two of the arbitrators renders the award final. The dissenting arbitrator usually writes his or her opinion separately which is attached to the Panel's award. It does not, however, affect the finality of the majority decision.

24. Are arbitration decisions by SMA members published?

Yes, the SMA publishes its members' decisions as a matter of course in its Award Service. In New York, arbitrators explain the reasons for their decisions. If both parties do not wish the SMA to publish the award, they must so specify at the beginning of the arbitration proceeding. If one party does not want to reveal, in the Award, some information which it considers to be proprietary, the arbitrators will generally accommodate the party making such a request.

25. Are New York or SMA arbitration awards enforceable in court?

Yes, under the Federal Arbitration Act, once you win and your opponent has not satisfied the Award, you can go to court to confirm the award and enforce it. Once the court confirms the Panel's Award, it becomes a judgment which is enforceable in the same manner as any decision rendered by the court, itself. A motion to confirm usually must be made within one (1) year or, if it is an international award, within three (3) years from the date of the Award.

Because the United States is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and to the Inter-American Convention on International Commercial Arbitration, New York arbitration Awards are enforceable in any country, signatory to these Conventions.

26. Are New York or SMA arbitration awards appealable?

Maritime arbitration awards in New York are usually final and binding. Under the Federal Arbitration Act, there are very few specific grounds under which an Award can be vacated and those grounds are narrowly defined. They pertain only to arbitrators' misconduct exceeding their powers and to the fairness of the arbitration procedure not to mistakes, no matter how egregious. A mistake in law or fact is generally not a ground for vacatur. A motion seeking to vacate, modify or correct an Award may only be made within three (3) months of the date of the Award.

27. What are the advantages of incorporating SMA Rules?

If the arbitration clause does not mention SMA Rules, the hearings are conducted according to existing maritime practice and procedure. By incorporating SMA Rules in your arbitration clause, however, you can derive great benefits. The Rules allow you to consolidate disputes, to force your opponent to arbitrate without having to compel arbitration in court, and to have flexibility. You may also have the opportunity to be awarded attorneys fees and your share of Panel expenses.

28. Does the SMA offer non-binding "Alternative Dispute Resolution" (ADR)?

The SMA has promulgated Conciliation Rules which were developed in 1988 following the UNCITRAL Model. Conciliation, or mediation, both of which are non-binding, can be useful in resolving all or a part of outstanding disputes while still keeping long-term business relationships intact.
In 1999, the SMA has introduced Rules for Mediation.

29. How does one obtain information about New York maritime arbitration and ADR?

You may obtain:
· Maritime Arbitration in New York, the SMA brochure which contains the Rules, the Shortened Arbitration Procedure, the Conciliation Rules and the United States Federal Arbitration Act
· Roster of SMA arbitrators
· Details about subscribing to the SMA Award Service
· Salvage Rules
· SMA Rules for Mediation
by contacting the SMA office, in New York, by dialing (212) 786-7404. Our facsimile transmission number is (212) 786-7317.

One Penn Plaza, 36th Floor - New York, NY 10119 - Tel: (212) 786-7404 - eMail: info@smany.org

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