Arbitration gains ground as means for settling maritime disputes

Flexible and quicker.

Arbitration is an efficient procedure for settling disputes. Cases can move out of the courts quickly (and the limelight) and into less formal settings where the rules for evidence and procedure have been simplified.  

By Rachael Philip, Malaysia Correspondent, Maritime Fairtrade

Lawyer Nadesh Ganabaskaran recalls with no particular fondness the memory of him dragging large bags filled with papers into airports as he travelled for cases. He said those days are long gone and he is glad.

Ganabaskaran was a speaker at an online event entitled International Arbitration in the post-Covid-19 Era attended by Maritime Fairtrade on November 18. He started his career as an arbitrator, an increasingly common career move these days as arbitration is no longer the domain of grey-haired law practitioners. 

Post pandemic, both litigation and arbitration have moved online, the papers have gone digital and the costs have certainly dropped. There are no flight tickets to claim, hotel room bookings, meals and miscellaneous expenditure.

“With the lockdowns everywhere, it was decided that arbitration should also move online so that disputes can be settled and resolutions reached,” he said.

The maritime industry’s preferred mode of dispute resolution

According to another speaker at the event, international lawyer and arbitrator Philip Teoh, arbitration has always been the preferred mode for trying maritime disputes, even before the pandemic. In fact, arbitration clauses are commonly found in maritime contracts, for example common ones such as Charterparties and Memorandum of Agreement of Sale of Vessels. Even the standard industry forms published by BIMCO has arbitration clauses. 

“Arbitration is necessary for maritime contracts as these involve parties of different nationalities and only Arbitration Awards are recognized and enforceable internationally in most jurisdictions. The enforcement is via the New York Convention on Recognition and Enforcement of Arbitral Awards,” he told Maritime Fairtrade. 

“Arbitration is also flexible. As an arbitrator based in Malaysia, I can easily preside over a dispute between say, an Indian party and an Indonesian party. Parties have great flexibility in drafting their arbitration clause and also in appointing their counsel and arbitrator.”

In Asia, Singapore stands out with its strong ecosystem for dispute resolution and concentration of excellent domestic and international law firms for specialist practices including for shipping and arbitration. 

Parties adopting Singapore as a forum for arbitration are often from outside Singapore, choosing Singapore as a neutral venue. Singapore is home to the Singapore Chamber of Maritime Arbitration (SCMA), established in 2004 and currently led by executive director Punit Oza.

Malaysia, meanwhile, has the Asian International Arbitration Centre (AIAC). 

“It should be noted that while AIAC is based in Kuala Lumpur and SCMA in Singapore, these centers are international in scope and cater to arbitration between domestic and international parties,” said Teoh.

He said judicial and legislative support is important to promote growth in the arbitration procedure. Malaysia’s Arbitration Act 2005 has provisions which support international and maritime arbitration including court interim measures, emergency arbitrator provisions, arrest of vessels as security for pending or ongoing international arbitration.

Teoh said: “The courts will lend support by staying disputes which should be tried in arbitration as per the contract provisions. Malaysia has all the ecosystem to grow as an international arbitration center. The challenge for Malaysia is to convince international parties to adopt AIAC as an arbitration center of choice.

“All types of shipping or maritime cases are suitable for arbitration. Apart from recognition and enforcement, arbitration allows parties to nominate arbitrators with industry expertise. These arbitrators readily appreciate the industry practices, terminology and technical rules.”

Philip Teoh says arbitration has always been the preferred mode for trying maritime disputes. 

Arbitration vs mediation

In comparing arbitration and mediation, Teoh said both are different processes. While arbitration aims to decide the facts and legal issues in conflict, mediation aims to bring parties to a settlement as far as possible. A successful mediation results in a settlement, said Teoh adding that mediation clauses are increasingly being adopted but it is still a developing area.

On which maritime or shipping cases work for mediation, Teoh feels that it is not so much the type of cases but whether the parties are open and see can the value of settling the case. 

“If both parties take the view that they are right then mediation will not work.”

Covid-19 causes more disputes

Covid-19 has caused lawyers to become busier due to the disputes arising from the supply chain disruptions and delays as well as unfulfilled deliveries. As Teoh puts it, anything that causes disruptions will increase disputes. 

“During the peak of the pandemic, when factories were forced to close and goods could not be moved to the port, the charterer could not load vessels which had arrived. In the case of infections, vessels could not obtain free pratique, and all these caused demurrage claims,” he said.

“The industry is examining their contractual clauses as well as their insurance coverage to see if situations and disruptions caused by Covid-19 are adequately catered for.”

Reshaping the industry in post-Covid new era

The disruptions caused directly and indirectly by Covid-19 have affected the world and industries including shipping. There were incidents, although not caused by the pandemic, which happened these two years, such as the blockage caused by the megaship Ever Given. There are also the continuing effects of trade wars. 

Teoh elaborated: “Apart from the US-China wars, which caused supply chains to be disrupted and parties to disguise their supply chain origins by issuing ‘switch bills of lading’, we also have the Australia-China spat. At the early stage of the pandemic, cruise ships became Covid-19 incubators. The crews being stranded on board vessels and not being able to discharge for long periods. These are among some of the effects.”

Despite the maritime industry being hit hard in the last two years, there are silver linings from this crisis. Teoh said that the pandemic has brought the industry into focus. 

“We saw how the industry affects everyday life and commerce. Shipowners, managers, shippers as well as key industry bodies including IMO, BIMCO, Nautical Institute are all learning and adapting to the changes brought on by the pandemic. 

“On the service side the closing of borders and the inability to travel had forced arbitration to go online. The world has changed, and shipping and all parties involved including maritime lawyers, arbitrators, arbitral centers as well as courts have learnt to adapt. These adaptations will continue, and I believe this is positive.”

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Rachael Philip

Rachael Philip

Rachael Philip, our Malaysia correspondent based in Kuala Lumpur, brings more than 20 years of experience in reporting, editing and management to the team. She feels that passion coupled with integrity can make a real difference in our personal and professional space.

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