More of the same but better: the new LMAA Terms 2017, April 2017

Arbiitration, Legal — By on April 28, 2017 at 1:49 PM

Baptiste Weijburg, Senior Associate at HFW LLP

The LMAA Terms 2017 (the 2017 Terms) come into force on 1 May 2017. The LMAA committee have taken a light touch approach to adapting the 2012 Terms and the changes highlight the LMAA’s continuing efforts to target efficiency and cost-effectiveness, while keeping the key features which have maintained the popularity of LMAA arbitration in the maritime industry.

Tribunal appointment and constitution

The LMAA have refined the tribunal appointment process in two ways. The 2017 Terms expressly allow for the appointment of a sole arbitrator by one party, where the other party to the dispute fails to appoint their own arbitrator. This inclusion provides welcome clarification, although it may not actually be a departure from the current position.1

In addition, a new paragraph 11 of the 2017 Terms has made an important change to the process for the appointment of a sole arbitrator in circumstances where the parties have been unable to agree who should be appointed. Any party in this situation may now apply to the President of the LMAA to appoint the arbitrator. This is an excellent variation from the 2012 Terms, relieving parties from costly and time consuming applications to the High Court for the appointment of the sole arbitrator.

Security for the tribunal’s costs

Tribunals now have greater flexibility in obtaining security for their costs. The tribunal may now request security whenever it considers it appropriate to do so.2 Arbitrators can set an exact date by which security must be provided and finally they may now decide which party should provide the security. Previously, the party requesting a hearing had to provide the security, so this should spread the burden of providing security more equitably.

In addition to this flexibility, tribunals are empowered by the new rules to make orders under the Arbitration Act dismissing a party’s case where the party fails to comply with an order for security for costs. This brings much needed additional power to tribunals to prevent parties attempting to subvert the arbitration.

Increasing efficiency

In recognition of perceived inefficiencies under the 2012 Terms, the Second Schedule of the 2017 Terms has introduced a number of additions. For example, parties must now seek permission from the tribunal before serving submissions after the Reply to Defence to Counterclaim. It is hoped that this will prevent the unnecessary serving of multiple submissions by both sides.

Parties and tribunals are expressly required to ensure that the process is as cost effective and efficient as possible. This is supported by the inclusion of a LMAA Checklist (the Checklist), which has been incorporated into the 2017 Terms by way of the Fourth Schedule. It was felt that the Checklist was too regularly ignored under the 2012 Terms. Unsurprisingly, tribunals are authorised to take account of the parties’ conduct in this regard when deciding costs.

The 2017 Terms have also clarified that a tribunal should take into account any offers made without prejudice when considering liability for costs. However, the terms are clear that High Court CPR Part 36 offers do not apply under the 2017 Terms. It will therefore still be within the discretion of the tribunal how costs will be calculated where previous settlement offers have been made.

Finally, there is now a more robust approach to dealing with the common tactic of postponing the appointment of lawyers by a party in an attempt to delay proceedings. Only in exceptional circumstances will it be considered a valid ground for a party to delay progress of the arbitration.

Intermediate Claims Procedure (ICP)

The 2017 Terms have made only small amendments to the ICP. These relate to procedure and clarify the tribunal’s power to dismiss a claim where submissions are not served on time.

Small Claims Procedure (SCP)

The SCP financial limit has increased to US$100,000, in the absence of an alternative agreement of the parties. This will apply separately to both claims and counterclaims.

In addition, where a counterclaim exceeds US$100,000, and if the parties agree, the arbitrator initially appointed may retain jurisdiction over the dispute and can decide which regime of the LMAA rules should apply.

Incorporation of the 2017 Terms

The standard LMAA Arbitration Clause provides that the LMAA terms which are current at the time when the arbitration proceedings are commenced shall apply to the reference. Accordingly, where this standard clause has been used, any arbitration which begins on or after 1 May 2017 will be determined in accordance with the 2017 Terms.

We recommend that parties always use the standard LMAA wording for arbitration clauses to avoid any ambiguity as to which version of the terms apply.

HFW perspective

The changes we have highlighted are some of the most significant amendments to the 2017 Terms.3 They show that the LMAA is keen to refine both the efficiency and cost management of its arbitrations. The LMAA took a conscious decision to steer clear of the more radical step of providing for the tribunal to have the power to consolidate related proceedings into a single arbitration. This is to be compared to the alternative arbitration regimes available from the international arbitration institutions (for example, SIAC, ICC and LCIA). While consolidation remains controversial, and undoubtedly allows parties to save costs, it seems that the LMAA were content to rely upon their existing power to order concurrent hearings.‎

It will be interesting to see if there is any competitive impact ‎in not providing for consolidation and whether the LMAA ultimately adopts this mechanism further down the line. Otherwise, the changes found in the 2017 Terms are a refreshing step in the right direction‎.

For more information, please contact Baptiste Weijburg, Senior Associate, London, on +44 (0)20 7264 8248, or baptiste.weijburg@hfw.com, or your usual contact at HFW. Research conducted by Matt Tozzi, Trainee Solicitor.

Footnotes

  1. The 2017 rules contain a new paragraph 10 in relation to this, which now makes specific reference to section 17 of the Arbitration Act 1996 (the Arbitration Act).
  2. These changes are made by additions to the First Schedule.
  3. There are also other amendments. The full terms are available from the LMAA here and a complete commentary is available on the LMAA site here.
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