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New York Shipping Group Flags Up Appeal of Arbitration in Big Apple

November 9, 2015

New York has long been a key arbitration centre, second only to London. But it is facing increasing competition from emerging players, particularly Singapore as well as closer neighbours like Houston and new entrant Panama.

The role of New York arbitration in maritime matters began with the city’s Dutch roots, according to an earlier article by lawyer Clay Maitland, managing partner of International Registries and chairman of New York Maritime (NYMAR), a member of the New York Maritime Consortium.

The Society of Maritime Arbitrators (SMA) was formed in 1963. It has issued more than 4,200 awards and has 63 arbitrators on its roster hailing from a wide spectrum of roles in the industry.

SMA president Jack Warfield says the group’s dynamics have changed over the last 53 years. Compared to the early days when decisions were made over drinks at the bar at New York’s Whitehall Club, SMA arbitrations are now more “legalistic”.

Cost Advantage

Yet they remain more flexible and informal than going to court or waging arbitration under the London Maritime Arbitrators Association, which is still considered the leading arbitration body. Parties, for example, can decide the procedures that the arbitration proceedings will follow. That means it tends to be more cost-efficient, says Warfield.

The New York Maritime Consortium, a group of area maritime organisations including the SMA, has been on a mission to bolster the Big Apple’s status as a maritime arbitration centre. In that effort, it continues to draw on a video produced some months ago to give an inside look into the city’s role in the resolution of shipping disputes.

Dramatic news footage, as part of the “very off-Broadway” mock arbitration hearing surrounding a fictional casualty, shows acrid black smoke billowing into the air near the entrance to New York Harbor after an explosion on a chemical tanker carrying paraffin wax, a cargo that does not ignite in normal circumstances.

Unlike courtroom proceedings, arbitration is held in private, although the SMA stands out as a rare body that makes its decisions available to the public.

The mock arbitration, in which the sides battled over whether the charterer of the stricken chemical tanker had to post security, showed the power of an SMA arbitration panel to issue subpoenas and require such security, and to convene on short notice, Warfield says.

Arbitrations are on the decline globally, as parties work out smaller disputes on their own and as mediation gains wider use.

“We think one of the benefits that we bring to the table is that we have over the years published over 4,200 reasoned awards. There’s no other venue that does that,” Warfield said. “We think that’s helpful but it also helps people settle.”

Burke & Parsons lawyer Keith Heard, who has handled cases before SMA arbitration panels and is one of the scriptwriters of the mock arbitration, says that compared to courts, SMA arbitrators bring the benefit of strong commercial knowledge about the industry.

“Judges are very smart and well educated, but they’re broad-based,” he said a recent presentation of the mock arbitration video in Darien, Connecticut. “Unless they were maritime lawyers in private practice, and very few of them were, they won’t have the knowledge of international commerce and trade, the knowledge of ships and the shipping industry that the arbitrators will.”

That leads to arbitration proceedings that are typically far quicker than court cases, although one audience member at the Darien event complained of an instance of an arbitration that lasted years.

Legal experts say some in the shipping industry believe SMA arbitrators to have a tendency to favour, for example, charterers or owners in their decision making, and that they are chosen by parties for arbitration panels based on that bias.

But SMA arbitrator Bengt Nergaard, who is an in-house lawyer for Heidmar, does not believe that arbitrators hold such biases. Rather, because SMA awards are public, parties and their attorneys review prior awards and form an opinion about how a particular arbitrator might rule.

“That gives us a great sense of predictability which they don’t have in the other arbitration forums,” Nergaard said.

He also notes that split decisions make up a minority of awards at the SMA. He says that is rooted in the wide commercial experience among arbitrators, who are made up of chartering executives, technical professionals, brokers, agents, insurance experts and other shipping industry specialties.

“These people who are appointed know the industry very well. Depending on what kind of dispute you have, you want probably to select somebody as your arbitrator who has past experience with that particular segment of the industry,” he said. “Because of that, the awards tend to be fairly unanimous.”

There also remains a perception by some that one of London’s advantages in arbitration is that there are fee-shifting rules that require the losing party to pay legal fees of the winning party.

But while US courts do not have that “loser pays” system, the SMA has long had fee shifting in its rules, says Bruce Paulsen, a maritime lawyer with Seward & Kissel.

“If you adopt the SMA rules, to a certain extent the loser is going to pay,” he said. “But for whatever reason, I’m not sure that the knowledge of this is in the marketplace, so despite the fact that’s no longer a major advantage for London, some people still think it is.”


05 Nov 2015, 19:00 GMT

by Eric Martin – Darien, Connecticut