Do as I say, not as I do

What does it take to be a commercial person, asks Manfred Arnold?

IN the last four years, a series of seven arbitrations between Maersk Line Limited and US Ship Management, Inc., under the same time charterparties, were decided, and made splashes in the trade press. The disputes covered various subjects, involved more than a dozen vessels and were addressed by four different panels. The one additional constant was the panel composition, as Maersk nominated the same arbitrator for all seven cases.

The decisions included four unanimous awards for Maersk, one majority decision in favour of Maersk and two majority decisions in favour of USSM. The following schedule sets forth the participants and results (D denotes dissent):

MML Appt. - USSM Appt. - Chair - SMA Award - Award Date - Prevailing Party

1. Harper - Finnerty - Siciliano - Nil - 10/19/01 - MLL
2. Harper - Duffy - Berg - 3842 - 02/06/04 - MLL
3. Harper - Duffy - Berg - 3843 - 02/24/04 - MLL
4. Harper - Novack(D) - Berg - 3844 - 03/10/04 - MLL
5. Harper - Duffy - Berg - 3859 - 07/19/04 - MLL
6. Harper(D) - Novack - Arnold - 3862 - 09/24/04 - USSM
7. Harper(D) - Jaffe - Arnold - 3871 - 12/20/04 - USSM

My personal views are not decisive or meant to be influential as far as other arbitrators are concerned. They are my views and not meant to address what is right or wrong, but simply how I view the progress. Indeed, there are no absolute standards. What is perceived to be as right, wrong or appropriate are individual choices, which, when challenged after an award has been rendered and viewed by the judicial system, must stand up to scrutiny.

The arbitration clause in the custom-made time charters demanded the following qualification of the three arbitrators:

Each of the three (3) arbitrators shall be a commercial person knowledgeable in the operation and chartering of container vessels and the operation of scheduled container services. No person shall serve as an arbitrator (A) who has, or had had or then has any expectation of acquiring, any business or financial relationship with either of the parties hereto (except such relationship as may be acquired by reason of being selected to serve on the arbitration panel) or (B) who has acquired from either party of any other source detailed prior knowledge of the matter which is subject of the Dispute.

There is nothing wrong with composing specific clauses with even more specific requirements. In fact, it is commendable that parties think about the details of their arbitration clause as for many it is the last thing they consider, if at all, when fixing a charter. But why create a clause which will not fully (or only marginally) be adhered to?

The clause called for “commercial person knowledgeable in the operation and chartering of container vessels,” and the claimants appointed an attorney as arbitrator. A challenge was mounted against Mr Harper as not meeting the criteria of a commercial man. The defendants argued that “in order to qualify as a commercial person as defined in the time charters, the arbitrator’s relevant expertise must be acquired while actually serving as a commercial person in the industry and not while working as a lawyer.” Harper rejected USSM’s arguments and declined to recuse himself. USSM then appointed Peter J Finnerty, also a lawyer by education, but in charge of an active containership company.

USSM’s contention was that Harper did not meet the commercial man qualification because whatever knowledge he had (or stated to have) was not acquired when actually being involved in container operations, chartering or scheduling, but rather was acquired from his work as a lawyer who had rendered legal advice to container companies.

The initial determination whether one should or should not remain on a panel is strictly up to the challenged arbitrator. It is not a matter of support by counsel or the fellow arbitrators. The decision on whether or not to stay should be identical to the acceptance of an appointment. If there is a question as to one’s qualifications to serve, it is probably easier to not accept the appointment or get off the panel, if this is possible prior to the commencement of the hearings. For some, it may be difficult to make this decision for personal, commercial or other reasons, but in the end, the process is more important than an arbitrator’s ego or cash flow.

The chairman for the first arbitration was to be appointed by the president of the SMA. When the SMA president inquired about my willingness and qualifications to serve as chairman, I declined the opportunity as my qualifications to potentially serve were acquired not through direct experience but rather through other arbitrations and/or consulting work. Strangely enough, when I was selected as chairman for arbitrations six and seven, my qualifications had not changed and no-one challenged my serving. It is my understanding that ultimately none of the arbitrations actually involved “the operation and chartering of container vessels and the operation of scheduled container services.”

Normally, if the individual declines to recuse himself in response to a challenge, the available option for the parties is to petition the court. In the past, parties have made application to the courts, petitioning for the arbitrator’s removal before the proceedings had commenced, or at the first hearing when the panel made its disclosure statements with respect to their individual relationships to the parties, counsel and fellow arbitrators. The courts, as a general rule, have declined to deal with the challenges, directed the parties to proceed with the arbitration, and advised them to re-file once the award has been issued. Critics have commented that when hoping for a reversal, this procedure might be a waste of time and money, as they would have to repeat the proceedings. On the other hand, in many instances, post-award court proceedings include additional issues.

In the subsequent court proceedings for the first award, the arguments in the motions to disqualify Harper addressed the W K Webster v APL case, and also relied on Pando Compania v Filmo, for which the courts had held that the prerequisite for a commercial person was “the familiarity with the customs and practices of the maritime trade obtained from substantial, practical, commercial, non-legal experience through the conduct of maritime commerce rather than solely from the practice of admiralty law.” The Second Circuit confirmed the lower court decision on Harper’s qualifications and ability to serve. The Court of Appeals’ decision was published with the caveat that it “may not be cited as precedential authority to this or any other court, but may be called to the attention of this or any other court in a subsequent stage of this case, in a related case, or in any case for purposes of collateral estoppel or res judicata.”

Since the courts established Harper’s qualifications and entitlement to serve after the first arbitration, it was no surprise that he was then nominated again for the subsequent cases. Nevertheless, Harper was challenged by USSM’s counsel in the following arbitrations, which apparently remained just that – without subsequent court proceedings and/or rulings. The puzzling thing was that for the last arbitration, USSM appointed Mark Jaffe, a practicing admiralty attorney. Using a colloquialism – “go figure”.

Why do parties or their lawyers ‘stray’ into these areas which are bound to be contested? Is it that they see advantages of having a lawyer-educated person sitting on a commercial men panel? They certainly are aware that challenges on these narrow points create expenses and cause delays. If it were their intent to nominate a lawyer, why then go through a charade of creating a unique arbitration clause setting forth specific prerequisites? After praising the effort of creating individual and peculiar arbitration clauses, I am now wondering whether we are better off with the generic language used in the ASBATANKVOY charter party which refers to “a board of three persons” (and which would also eliminate the gender arguments).

The silver lining in this arbitration clause was the time constraints. The parties had agreed that the award would be rendered 45 days after the appointment of the chairman, thus placing the length of the proceedings into a direct and absolute timeframe, which could only be modified by concurrence of the parties. Prompted by a statement made by Justice Oliver Wendell Holmes that the “life of law has not been logic; it has been experience,” I wonder how the courts would resolve a motion to have a commercial person accepted under a ‘lawyers only’ arbitration clause. Could the argument be made that a commercial man with 30-40 years involvement in maritime arbitration absorbed enough law to qualify for the purpose of an arbitration?

Let me conclude on a lighter note. A while back, I wrote on the commercial man concept and arbitration clauses. Facetiously, I suggested that the nursery rhyme

Rub-a-dub-dub
Three men in a tub,
And who do you think they be?
The butcher, the baker,
The candlestick maker,
And they all sailed out to sea.

could well qualify for an arbitration clause as it specifies three commercial men involved in shipping. To date, I have not heard by anyone has expressed an interest to adopt that clause.