The last word

ARBITRATION is a very effective method of dispute resolution. Inevitably, it has its critics. But nobody has ever devised a means of resolving disputes which meets with universal approval. What’s more, nobody ever will. After all, somebody has to have the last word.

Criticism of arbitration often focuses on speed and cost. Both issues are readily identifiable and directly affect the parties to arbitration.

As to cost, significant events have taken place in New York which have changed the familiar landscape. Under the so-called American rule, parties have traditionally had to bear their own legal fees and expenses. In response to user comments, the Society of Maritime Arbitrators now advocates - and includes in its rules - the awarding of costs and expenses when appropriate.

Those who have arbitrated in London are, of course, familiar with the awarding of costs. The difference is that, in London, the arbitrators award legal fees and costs, and the taxing master then quantifies the award. In New York, the quantum of legal fees and expenses is dealt with by the arbitrators in their final award.

Recently, an award was issued in New York dealing solely with attorneys’ fees and costs. After submissions to the panel, the charterers paid the balance of freight and demurrage, together with interest. This left the owners’ claim for costs, which the owners pursued and the panel awarded.

Of course, arbitrators have no influence over the choice of law firms, or their hourly rates or the cost of experts, but they must certainly be held accountable for their own fees and expenses. On occasion, the question is asked how arbitrators assess their fees. There are no set schedules and, in the US, the Federal Arbitration Act does not provide for details. The arbitrators calculate their own fees, based on time spent at their individual hourly/daily rate.

The custom is that the fees are stated on a quantum meruit basis. Some panels are conscious of the relationship between damages, complexity and their fees, and try to find commercially viable solutions. In a recent US case, the arbitrators stated that the amount in dispute did not warrant the use of a three-man panel and, although the panel individually incurred higher fees, the arbitrators nevertheless decided to limit their fees to those applicable under the SMA Shortened Procedure, i.e., $1,000 per arbitrator.

As to speed, the SMA recommends to its membership that awards should be issued no later than 120 days after the completion of the final submission. The Shortened Arbitration Procedure provides for a thirty-day deadline.

New York arbitration awards are binding and final. 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, the exceeding of powers and the fairness of the arbitration procedure, but not to mistakes made, whether in law or fact.

The US courts have been very supportive of arbitration, seeing it as the most suitable means of resolving commercial disputes and, as such, appeals are not granted too often.

One peculiar aspect of New York arbitration is the dissenting opinion. Most arbitrations in New York are conducted before panels of three arbitrators, two of whom are party-appointed and who then select the third arbitrator (or chairman for procedural matters). All members of a panel, and especially those in which SMA members participate, are to be neutral. The rules of the SMA provide that the arbitrators render disclosure statements, which include comments on personal or business relationships with the parties, counsel and other panel members.

Critics of New York arbitration have drawn attention to the fact that, sometimes, party-appointed arbitrators dissent in favour of those who appoint them. Yes, it happens. But isolated incidents should not taint the overall process. Indeed, it is not unknown for a chairman to dissent.

Furthermore, dissenting should not really come as a surprise. Why else would arbitration clauses provide that the decision of the arbitrators - or that of any two of them - shall be final and binding upon the parties? Arbitrators generally, and understandably, get selected because of their expertise and their business background, which might affect or strengthen their views on any given problem.

Dissents should not be considered as negative factors. They can be provocative, stimulating and different, and should always be taken for what they are - still the opinion of a minority. Even though they do not have precedential value, they nevertheless might give rise to closer scrutiny, and to a reassessment of earlier decisions, which ultimately may lead to a sounder interpretation of the law.

One should also keep in mind the fact that tolerance to consider and record the views of the dissenters is not an indication of weakness. It is the realisation that there may be more than one side to a coin. Dissenting must be a matter of conviction, and not the result of partisanship, advocacy or bias. It must serve, in its own way, for the general advancement and improvement of the system.

Some experts praise the merits of mediation and conciliation, which, over the past few years, have become buzzwords as part of the ADR movement. Courts get involved in mandatory mediation assignments, and training classes are being arranged to educate potential candidates.

Although arbitration and mediation are part of the Alternative Dispute Resolution process, they are different creatures. Conciliation and mediation are advisory functions, whereas arbitration is judicial in nature. The one recommends, the other decides. The arbitrator acts in a quasi-judicial role, weighing the evidence and applying the law to commercial circumstances. It is a clinical process. A decision of right or wrong will be rendered without regard to the economic consequences.

On the other hand, mediation and conciliation are trading processes, sequences of give and take. The mediator must be able to see the arguments and positions of the parties, and must then consider them in a commercial setting before working towards a mutually acceptable settlement, which may involve compromise on liability and quantum. A mediator can structure payment schedules and facilitate settlements. But is that not what we expected the brokers to do?

Mediation is not binding, even if court-ordered. If you have gone through a mediation process and then do not like the result, you can simply walk away from it. But it will still have cost you money. At the moment, it is difficult to see what a mediator could contribute to most maritime disputes.

As to New York, all is well. New York arbitration is not perfect. But it is certainly user-friendly and responsive. Changes have been made. And there is always room for improvement.