Society of Maritime Arbitrators, Inc.

Initiating an Arbitration

The arbitration clause calling for New York as the place of arbitration usually does not place a time limit within which an arbitrator must be appointed. No general statute of limitations applies to maritime arbitration. Issues of time bar are for arbitrators to decide and are often influenced by analogous statutes of limitations, such as the one-year time bar for cargo claims and the six-year period prescribed by New York State law when time limitation is not provided under Federal Law.

Usually, a panel consists of three arbitrators, although the parties are free to agree to a sole arbitrator in any proceeding. Under the Shortened Arbitration Procedure of the SMA, the dispute will be referred to a sole arbitrator [Document No. 2].

Under a typical New York arbitration clause, the claimant demands arbitration by naming an arbitrator-appointee, describing the nature of the dispute, and stating the amount involved. The other party must then appoint an arbitrator. The two arbitrators thus chosen appoint the third, who generally acts as Chairman of the panel for procedural matters. Disputes are increasingly arbitrated in New York under other types of arbitration clauses, some requiring two arbitrators or an Umpire, if the two cannot agree.

Compelling Arbitration

Under a Charter Party which provides for New York arbitration but does not include the Rules of the Society of Maritime Arbitrators nor specify the time limits within which the respondent must appoint its arbitrator, the claimant may petition the Court to "compel arbitration" under Section 4 of the Act [Document No. 6].

In such an application, the claimant may also request the Court to appoint an arbitrator on behalf of the other party under Section 5 of the Act. The Court examines the validity and scope of the agreement to arbitrate and decides whether the arbitration agreement is broad enough to apply to the dispute. Issues relating to the merits of the claim are left to the arbitrators.

If the Charter Party provides for the arbitration to be conducted under the Rules of the SMA, Section 10 of the Rules for standard arbitration allows the claimant to appoint the second arbitrator if the other party does not appoint an arbitrator within 20 days. In order for this section to take effect, the claimant must first have given requisite notice to the other party.

Under the Shortened Arbitration Procedure of the SMA, the respondent has 10 days to respond regarding claimant's nomination, failing which, the person so nominated becomes the sole arbitrator.

Conduct of the Arbitration

A. Standard Arbitration

At the outset, the Panel members must disclose any potential conflicts of interest. This is usually done at the first hearing, unless a party requests written disclosures in advance. If the arbitration proceeds on documents alone, such disclosures are done by mail. The parties have the right to challenge a particular panel member if, for instance, that arbitrator has any financial or personal interest in the outcome of the arbitration. If validly challenged, an arbitrator must withdraw or recuse himself or herself. Once the disclosures have been made and the panel has been accepted by both parties, the panel is then sworn [Appendix A of Document No. 1].

In a typical arbitration, which may consist of one or more hearings, the parties may offer such evidence as they wish. They may handle the matters themselves, be represented by attorneys or by a duly-appointed representative. Witnesses are called to testify under oath and submit to cross-examination. Unless the parties agree otherwise, a court reporter is customarily used to record the proceedings. At the conclusion, the parties submit and simultaneously exchange written briefs and reply briefs. Under SMA rules, the parties have the option of presenting their final arguments in a Final Oral Hearing instead of having to exchange post-hearing briefs. At all times, all communications, briefs and exhibits must be submitted to the Panel and to the opposing counsel.

B. Shortened Arbitration

This procedure, which was originally presented to the industry in January1989, is designed to provide a quick and inexpensive method to resolve small, simple disputes. In the original procedure, the disputants were encouraged to agree on a sole arbitrator but were allowed to have a three-person panel. They were also allowed to have a hearing, and there was no limit to the number of issues in dispute.

The procedure was revised as of March 1, 2001 [Document No. 2] and applies to contracts entered into on or after March 1, 2001. It now calls for the claimant to nominate an arbitrator from the SMA roster to act as sole arbitrator and to simultaneously request the respondent's agreement. Failing a response within 10 days, the arbitrator so nominated becomes the sole arbitrator. If the parties cannot agree on the sole arbitrator, the president of the SMA will appoint the sole arbitrator.

The revised procedure provides short deadlines for submission of the claim and defense and counterclaim. The arbitration is to proceed on documents alone. There is a limit of four items of dispute which can be presented under this procedure although, at the arbitrator's sole discretion, a reasonable amendment to this limitation is permitted. The procedure does not permit oral hearings. No discovery is allowed except as requested by the arbitrator.

The decision must be issued within 30 days from receipt of final replies or from the date of the closing of the proceeding. The arbitrator's fee and expenses are specifically limited. Legal expenses or time and expenses incurred by the prevailing party in the prosecution or defense of the case can be awarded up to a specified maximum.

The Award

Sometimes, while proceedings are still in progress, a panel will issue a partial final award by which it may dispose of a claim which is independent and severable from the remaining issues in dispute. A final award in the arbitration is ultimately issued when the arbitration is completed. The panel's ability to rule on threshold questions often simplifies the case and in some instances may even dispose of it in its entirety.

As soon as practicable after the exchange of reply briefs and after the proceedings have been declared closed, the arbitrators meet and deliberate as often or as long as may be necessary to arrive at a decision, unanimously or by majority. SMA rules urge speedy issuance of awards and require that they be issued within 120 days from the last exchange of briefs or from the closing of proceedings. If the decision is not unanimous, the dissenter should draft a separate dissenting opinion which is attached to the award. If the dispute was arbitrated under a clause requiring two arbitrators and if they could not agree, the Umpire will take their arguments into consideration and issue the decision as sole arbitrator. Under the Shortened Arbitration Procedure, the award must be issued within 30 days.

Once the panel has reached a decision and an award is issued, it is final. Having issued a final award, the panel is functus officio, and does not have the power to hear re-argument. It may, however, correct inadvertent clerical or arithmetical errors which are apparent on the face of the award.

In addition to disposing of the claims between the parties, the award will fix and allocate the arbitrators' fees as well as other arbitral costs. Under Section 30 of the SMA Rules, the arbitrators may also award reasonable attorneys' fees and expenses or costs incurred by a party or parties in the prosecution or defense of the case.

Confirming the Award

Awards are most often paid voluntarily. If not, however, Section 9 of the Act [Document No. 6] provides for the confirmation of an arbitration award, which then allows the prevailing party to enter a judgment and collect on it. By reason of international convention, awards are enforceable in virtually all jurisdictions throughout the world. A motion to confirm an award must usually be brought within one year. Under certain circumstances, such motion may be permissible within three years from the date of the award.

Vacating the Award

An award may be vacated, on only a few specific grounds pertaining to the fairness of the arbitration procedure or, very rarely, because it is against "public policy." A mistake in law or fact is not a ground for vacatur. There is, effectively, no appeal to the courts on the merits. Federal policy strongly favors arbitration, and for this reason, the U.S. Congress has severely limited the opportunities for successful attacks upon arbitration awards made in the United States.

A motion to vacate, modify or correct an award must be made within three months after the award has been issued.