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Better maritime arbitration must for 8% growth

Better maritime arbitration must for 8% growth
Maritime disputes have rocked the oceans and countries over the decades following disasters like the oil spills in the incidents involving the Exxon Valdez, Chevron and others which caused vast damage in terms of both money and environment. Oil slicks caused by rogue tankers and old, damaged ships too have left their mark alike at both the beaches of countries and their economies in the cleanup process. For those criminals who were caught and had to cough up hefty fines running into millions of dollars, the affected countries could heave a sigh of relief at putting them in the dock and also recovering their money spent on the millions of dollars in cleanup efforts, but when the matter begins to involve countries, that is when the situation gets worse and calls for mediation by experienced international arbitrators. This and various other issues were the subject of debate and discussion in a conference on “Resolving Maritime Disputes Through Arbitration,” by the experts and companies in the field of arbitration and maritime industry in Mumbai recently.

Dr Vishwapati Trivedi, Secretary, Ministry of Shipping, who released the ICA’s “Rules of International Commercial Arbitration” in Mumbai during the conference, said “You need to lead a tirade against all sorts of delays in settling these disputes. Today there is a sense of confidence that your suggestions will see the light of day and the government is working in this direction. Where arbitration in India is concerned, the high costs and delay in this regard are so much that even I feel its high and am scared of even going into arbitration. Some arbitration proceedings are so gross that I would never attempt arbitration. Institutional arbitration is probably the best way to go as cases suffer due to delay, loss of cargo etc, besides correct decisions taken with full honesty and diligence often being challenged in court. In several cases where there is a mute government, there have been observances of collusion. Hence, arbitration is the only way out and a very good idea. We need to have ample number of  arbitration centres here as well.”

Noting that this conference is the second such conference being held in Mumbai, he said there should be an arbitration centre operating in this city. “If there is a time limit and “fear” (to adhere to this time limit) in arbitrations, then solutions happen. But the need for self-discipline should be there to make this happen. We must bring in some hard-hitting law that arbitration should be non-appealable unless very necessary. Some kind of window should be left for the judiciary in this regard. The Indian Bilateral Trade Agreement is so expensive and amenable to misuse. One such contract failed and the original company has taken us (government) up in the international courts. I’m (government) spending  several crores just to decide the arbitrator and venue of arbitration, which is just for a port that is incurring losses and is completely  out of line. Coming to the ports side, courts are very reticent  in taking up such cases. Most of port contracts have a standard reference but a mechanism should be there.”

N G Khaitan, President, Indian Council of Arbitration (ICA), said “This is the first time we are having a Maritime Arbitration conference in Mumbai. But why has Arbitration failed in India while succeeding in rest of the world? There are 1200 such institutions in the world. With the world’s 40 per cent population in China and India — besides 60 per cent global population in Asia itself —trade is shifting.

India is still very poor as far as shipping is concerned. In the USA, 90 per cent of shipping disputes are resolved through arbitration. Today, India is a global player where 30 per cent of domestic business comes from abroad. Our courts have been lately appreciating arbitration as it helps to promote trade and commerce. Our arbitration fees are the cheapest in the world.  Majority of disputes are resolved through conciliation and litigation. But if your rules are strong, then there is no reason why arbitration will not succeed. Our Prime Minister is saying that we should be among the top 50 countries in the world. But when it comes to enforcing agreements, India is rated number 186 in the world as it takes 1400 days to enforce this in India. We must have a  fly in and fly out principle like other countries have as foreign clients always expect their lawyers to be with them. Arbitration in India is prohibitive and very time-consuming. The Law Commission states that arbitration fees should not exceed Rs 30 lakh (thus capping these fees) and that the award must be given in two years time limit. But the main issue is how to make India the hub of international arbitration, as our lawyers, judges are “cited” in judgements around the world.”

Deepak Shetty, Joint Director-General, Directorate of Shipping, Ministry of Shipping,  said India’s legal system is choked and there is a crying need for reforms. “With India being one of the “litigist” countries in the world, there is a need to tap into alternate solutions in this regard and arbitration is the best solution. The law commission has proposed that a mechanism of institutional arbitration should be encouraged before knocking on the doors of the judiciary.

The Malaysian example is extremely relevant and represents the mindset change India needs to promote ease of business. A conducive mechanism and environment is needed for setting up arbitration. It needs to be converted into a self-regulatory organization (SRO) to bring in a semblance of organization to the proceedings. MOS and DG, Shipping have identified several number of enactments that have outlived their time. Ones such is the coastal act. There are also amendments that are set to be junked that includes rate fixation by Maritime Administration and giving robustness to arbitration world would be a step in the right direction,” he said.

Commenting on Shetty’s observations, Khaitan said “There is a need for relook into legislations and the government has recommended 270 acts to be scrapped. Today there is new sense of confidence where we start speaking and things will happen.”

Since the dawn of humanity, the sea has been a source of sustenance, providing food and avenues of trade where earliest civilizations used it as an avenue to search for wealth in the form of spices, minerals and other natural resources. This search resulted in the establishment of the maritime industry whose long history is dotted with both success and disputes.  In the maritime industry, arbitration has served as a common tool for the settlement of disputes for several decades.

Presently, the shipping industry is no longer made up of a small number of people or concentrated in one country and this results in a loss of the close personal contact that facilitated arbitration in the past. These changes in the shipping industry led to the immediate consultation of lawyers as a necessity when problems arise, and the continued presence of lawyers through the resolution of those problems. Despite any changes, maritime arbitration remains a popular way to resolve maritime disputes that arise, in part because of the often-lower costs involved and the ability to mould the process to the needs of the parties involved. Charter parties facilitate world trade, have a broad international scope and are numerous  – making them remarkable contracts. They are also a major source of maritime arbitration.

The foundations of maritime law may be traced to primary sources — the lex maritima on one hand and national statutes and international conventions on the other. The lex maritime developed as part of the lex mercatoria and evolved primarily from the roles of Oleron of the 12th century. There are traces of its existence, however, as far back as the Rhodian law of the 8th or 9th century B.C.

Attachment, maritime liens and general average are example of the lex maritime, which continue to exist even today as jus commune. Second, the common forms, terms, and practices of the shipping industry, particularly with respect to carriage of goods by sea under bills of lading and the hire of ships and their services under charter parties, are international examples of accepted general maritime law.

The Lex Mercatoria: The jus commune is a law common to a whole jurisdiction or more than one jurisdiction. It is composed of broad, general principles and is usually unwritten at first and then often condified. The lex mercatoria is also a jus commune, just as is the lex maritima, which is known as the “general maritime law” today. It has been argued that the lex mercatoria developed over centuries of trade, particularly in countries around the Mediterranean Sea and have come to represent our current-day principles of law. Now, the realm of the lex mercatoria encompasses a number of areas of law that have been demarcated and compartmentalized through codification. Two such areas are arbitration and the general maritime law. Therefore, it is submitted that the basic principles of the two areas of law would essentially be similar, if not the same. Principles of natural justice, fair play and equity are found common to both regimes.

Thus, the origins of maritime law and arbitration, which can be traced back to pre-Christian times, have the same bases. However, over centuries of practice, new theories and global circumstances have emerged, the most recent being the phenomenon of globalization. Therefore, there arises a need for such regimes that have lasted this long, to be able to adapt themselves to constantly changing commercial scenario. In present times, arbitration in the maritime industry is effected by arbitration clauses within the contract, not unlike other industries.

The United Nations Conference on International Commercial Arbitration: Convention on The Recognition And Enforcement of Foreign Awards (1958) requires that all contracting parties to the convention recognize arbitration agreements in writing. Article II reads thus: “Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not , concerning a subject matter capable of settlement by arbitration.”

This ‘writing requirement’ of an arbitration agreement is peculiar to this species of contract. Consider the formal requirements of contract formation: under the uniform civil Code and the convention on the international sale of goods where no such requirement exists. Indeed, oral agreements are upheld in most common law jurisdictions. Therefore the question arises as to the purpose of Article 7 of the UNCITRAL Model Law. One possible reason is the evidentiary value of the intent of the parties it contains. Parties to a dispute submit themselves before a court of law, which has been constituted by the law of the land, with expectation that justice will be dispensed and that the dispute will be resolved. This has been the very basis of adjudication of private disputes since time immemorial.

Arbitration is a significant departure from the traditional adjudicatory process. Until recently, litigation was favored over arbitration and “arbitration clauses were routinely struck down as invalid attempts to oust the jurisdiction of the courts.” However, post 1995, foreign maritime arbitration agreements began to be recognized.

With Malaysia introducing its Fast Track Rules, 2010, arbitrators feel there is urgent need to promote Fast Track Arbitration (FTA) in India. The Indian judiciary also realized the importance of FTA as an expedient, economical and efficient means of dispute resolution. In fact, the Supreme Court observed in one case that “Litigation in courts can be compared to an overcrowded old bus, arbitration to a new car and FTA to an aeroplane charging nominal fare.” However, while the Indian arbitral awards match the best quality in the world, India lags behind in respect to time and cost, cumbersome procedures – thus eclipsing its potential to become a preferred venue for international commercial arbitration. The Ernest Young Report of 2011 noted that most Indian businesses preferred to go abroad to settle arbitration matters, with Singapore being a popular destination in this regard.

Dominick Rodrigues

Dominick Rodrigues

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