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Pre-hearing Procedure in LMAA Arbitrations

Procedure matters. When one sits in a lecture hall it seems far from sexy and indeed downright boring. An arbitrator faced with a pile of faxes, particularly after a day hearing another case, will find it difficult to become excited about procedural applications. However, it is generally estimated that about 75–80 per cent of arbitrations settle before an award has been published. In other words, in the majority of cases, the only contact between the parties and the arbitration tribunal will have related to procedural matters. Furthermore, it is clear that in many cases the approach of the tribunal towards interlocutory applications may assist the settlement process or slow it down. Like many things in life that are not very sexy, pre-hearing procedure is very important.

One of the great strengths of arbitration is simultaneously one of its great potential weaknesses. The courts in all countries have their own equivalent of the English rules of civil procedure which specify what steps have to be taken by both parties in different cases and within what time scales. Institutional arbitration systems such as those supervised by the ICC, the LCIA or the Chambre Arbitrale Maritime de Paris also have standard procedural rules. However, LMAA arbitrations and other non-institutional and therefore ad hoc arbitrations do not have any standard procedures. That means that the ideal procedure can be devised and applied for an individual arbitration reference. That is one of the strengths of LMAA arbitrations. However, it can also be one of its weaknesses because the absence of a set procedure increases the scope for either party to attempt to take advantage of the other. Frequently, claimants want to push on so quickly with the reference that a respondent cannot properly defend the claim. Conversely, it is generally assumed that a respondent will want to protract the proceedings for as long as possible. However, there are other less obvious potential forms of abuse. For instance, a party may seek to impose onerous demands in terms of disclosure of documents in the hope that the other party will negotiate a nuisance settlement. It would be wrong to suggest that all parties and their lawyers are devious and will resort to underhand tactics in order to obtain an unfair advantage over their opponents. However, it is a fact of life that claimants and respondents inevitably view cases from diametrically opposed points of view and lawyers will act in the best interests of their clients within the professional restrictions to which they are subject.

Experienced arbitrators will generally be able to deal effectively with inappropriate applications. However, the LMAA is anxious to ensure that unnecessary time and expense should not be wasted on exchanges about applications that should either never have been made or only in a more moderate form. The LMAA also wants to reduce the sheer volume of interlocutory applications. They generate unnecessary expenses. There is always the danger that, within a mass of correspondence, an inappropriate application may not be handled properly. Alternatively, it may be time-consuming even for an experienced tribunal to sort out the justified and unjustified elements of an application.

It is often suggested that many potential problems could be identified and dealt with at what used to be called a directions hearing and in the courts is now called a case management meeting, early on in the reference. However, more than 3,000 LMAA arbitrations are commenced each year. Some of them are commenced merely to protect indemnity rights that would otherwise become time-barred. Others involve large sums of money and require comprehensive procedural directions to be made. It would obviously be disproportionately expensive to have a case management meeting in every single reference.

The Second Schedule of the LMAA Terms is designed to avoid many of the problems that have been mentioned briefly above. An earlier version of what is now the Second Schedule began life as procedural guidelines. With the benefit of our experience of using them over two years and with comments from users, they became the Second Schedule to the LMAA Terms and therefore automatically applicable in references governed by those Terms. Before setting out and reviewing the different provisions of the Terms, there are three general points that should be made.

First, the Second Schedule preserves the principle of party autonomy. In other words, it is always open to the parties to agree that some elements (or indeed all of them!) of the Second Schedule should not be applicable to their reference. That is consistent with the approach of the Arbitration Act 1996 under which party autonomy is preserved.

Secondly, as indeed is the current approach of the courts following the Woolf reforms, there is emphasis on ‘‘cards on the table’’. Parties should be able to identify the true nature of the case being made against them as early as possible. The old-fashioned approach of a party being able to ‘‘keep its powder dry’’ until the hearing is no longer acceptable in arbitrations any more than it is in the courts.

Thirdly, the Second Schedule only applies to relatively standard cases. The Schedule is designed to avoid time-consuming and petty debates in such cases. The aim is to prevent a debate about, for instance, whether submissions in response to a claim for demurrage should be served within 21, 28 or 35 days. However, there is nothing to stop a party from making an application on the ground that the standard procedure should not apply to a case that it considers to be non-standard.

It will be most convenient to set out the individual paragraphs of the Schedule and then to comment on them.

‘‘1. The normal procedure (which shall apply unless the parties agree otherwise) requires service of claim submissions. If, exceptionally, formal pleadings are thought appropriate (e.g. in more complicated references) special permission must be obtained from the tribunal. Whether claim submissions or points of claim are served, they must set out the position of the claimants in respect of the issues that have arisen between the parties as clearly, concisely and comprehensively as possible, and must always be accompanied by all supporting documentation relevant to the issues between the parties.’’

Paragraph 1 is intended to make written submissions rather than pleadings the norm. In our experience, what are sometimes referred to as ‘‘old-style’’ or ‘‘Temple pleadings’’ are often very unilluminating, particularly for a lay party. Such pleadings traditionally contained only the allegations of a party, without any supporting evidence or legal argument. Submissions with supporting documentation will generally be much more informative. However, para.1 leaves open the possibility of a case in which a more formal pleading may still be appropriate. Claim submissions should be served together with all supporting documentation relevant to the issues between the parties. Sometimes it will be legitimate for a party simply to serve, for instance, a final hire statement. However, on other occasions there may have been a specific incident or factual situation giving rise to the dispute. Although a party cannot be required to foreshadow possible defences, it may well be appropriate for it to serve the relevant documentation together with its claim submissions.

‘‘2. Except in unusual cases (e.g. applications for interim final awards for sums which are said to be indisputably due and owing) defence submissions or, if the tribunal has permitted formal pleadings, points of defence (and counterclaim, if any) with all documentation relevant to the issues between the parties (other than that disclosed by the claimants) are to be served 28 days after receipt of the claim submissions or points of claim. An allegation that all relevant documentation has not been disclosed with the claim submissions or points of claim will not normally be a reason for allowing additional time for service of defence submissions or points of defence. However a failure to disclose all relevant documentation at an appropriate stage may be penalised in costs.’’

Paragraph 2 specifies that in a normal case defence submissions are to be served within 28 days of receipt of the claim submissions. Those paying for arbitrations would be amazed at the number of exchanges that used to take place debating whether submissions should be served within 14 or 28 or even 42 days and whether the crucial time was the date of service or the date of receipt. Paragraph 2 standardises the time-limit in usual cases. Occasionally respondents argue that they cannot serve defence submissions until they receive additional documentation. Paragraph 2 makes it clear that, in general, complaints about inadequate disclosure of documentation will not justify a delay in serving defence submissions.

‘‘3. Submissions in reply or, if the tribunal has permitted formal pleadings, points of reply are to be served 14 days after service of submissions or points of defence unless there is also a defence to a counterclaim, in which case the submissions or pleadings are to be served within 28 days from receipt of the submissions or points of defence and counterclaim. Any reply to the defence to counterclaim must be served within 14 days thereafter.’’

Paragraph 3 merely sets out the standard time limits.

‘‘4. A party serving supporting documentation must check with the tribunal whether it wishes to receive copies of all or some of the documentation at that stage. The aim should be for a tribunal to see enough documentation to be able to identify the issues in the case but not to be burdened with, for instance, copy invoices at the commencement of a reference.’’

Paragraph 4 deals with the routine matter of documentation being copied to the tribunal. It tends to be feast or famine. Sometimes tribunals receive lever-arch files of invoices which, in the opening stages of a reference, are of no interest to them. At other times a tribunal is asked to deal with procedural applications when it does not even have the charterparty on its files!

‘‘5. All submissions and pleadings must be set out in numbered paragraphs.’’

It may be surprising to some parties to find such a self-evident direction being set out in the Second Schedule. However, people would also be surprised by how often submissions could be set out in large masses of scarcely separated paragraphs!

‘‘6. Bare denials in response to an allegation will not be acceptable. If an allegation is denied, reasons must be given and if appropriate a positive contrary case put forward.’’

It used to be permissible for a party simply to deny a case being advanced against it. Often a positive explanation would only be put forward at the hearing. Paragraph 6 now requires a party to state a positive case; that means that from an early date the other party will know what case is being advanced against it.

‘‘7. Applications for security for costs will not be considered until after service of defence submissions (or points of defence, if formal pleadings have been permitted). Any application must be accompanied by a justification for it and a breakdown of the costs which it is reasonably anticipated will be incurred up to the stage of the reference for which security is sought. In the light of paragraph (E) of the First Schedule it will not be appropriate for security for costs to include any provision for the fees of a tribunal.’’

Not infrequently, a party asks for security for costs as soon as claim submissions have been served. A tribunal has to have an idea of the merits of a case and the possible costs of it. It cannot take those matters into account in order to exercise its discretion with regard to the ordering of security for costs unless defence submissions have been served. Paragraph 7 makes it clear that applications for security for costs will not be considered until defence submissions have been served. Respondents sometimes complain that they should not be put to the cost of preparing even defence submissions without having security for costs.

However, it has to be borne in mind that originally they were prepared to enter into a contract with the other party. The possible risk of being unsecured for the costs of preparing defence submissions is simply an exposure that has to be accepted by any party entering into a commercial contract.

‘‘8. Unless the parties agree that the reference is ready to proceed to an award on the exclusive basis of the written submissions that have already been served, both parties must complete the Questionnaire set out at the end of this Schedule within 14 days of the service of the final submissions or pleadings as set out in paragraph 4 above. Unless the parties agree, the tribunal will then establish the future procedural course of the reference, either on the basis of the Questionnaires and any other applications made to it in writing or, if appropriate, after a preliminary meeting.’’

Paragraph 8 requires the parties after the service of final submissions to complete the questionnaire. Unfortunately, parties often fail to complete such a questionnaire, sometimes thinking that it applies only if there is to be an oral attended hearing. However, the questionnaire is designed to alert both the parties and the tribunal to any procedural matters that should be dealt with early in the reference. The need to advise costs that have already been incurred as well as possible future costs may also act as a salutary amber light to whoever is funding the arbitration! In our experience, if the questionnaire is indeed filled in early in the proceedings it does actually avoid many last minute (and therefore expensive) hiccups. The questionnaire is intended to be straightforward and easy to answer. We are sometimes puzzled by parties saying that they wish to have it completed by counsel.

‘‘9. Subject to any specific agreement between the parties or ruling from the tribunal, both parties are entitled at any stage to ask each other for any documentation that they consider to be relevant which has not previously been disclosed. Parties will not generally be required to provide broader disclosure than is required by the courts. Generally a party will only be required to disclose the documents on which it relies or which adversely affect its own case, as well as documents which either support or affect the other party’s case.’’

In the past, arbitrators tried to restrict within sensible bounds the almost endless categories of documentation that a party could be required to disclose at common law. The more restrictive attitude towards disclosure now adopted by the courts strengthens the hand of arbitrators who are anxious to avoid excessive and onerous disclosure requirements, which may be expensive and time-consuming to comply with or which may even be intended to intimidate a party with limited resources.

‘‘10. If a party wishes to obtain disclosure of certain documents prior to service of submissions or a pleading, it must seek the agreement of the other party, failing which it should make an appropriate written application to the tribunal, explaining the rival positions of the parties in question.’’

It will be unusual, but there may be cases in which a party is justified in seeking advance disclosure before serving its submissions.

‘‘11. In appropriate cases the tribunal may order the service of a statement of truth signed by an officer or by the legal representative of a party confirming the accuracy of any submissions or of any declarations that a reasonable search for relevant documentation has been carried out.’’

It is surprising how often, notwithstanding assertions that full searches for documentation have been carried out, the requirement of an affidavit or statement of truth by a named person often triggers another more productive search!

‘‘12. Subject to contrary agreement of the parties or an appropriate ruling by the tribunal, the parties will be required to exchange statements of evidence of fact (whether to be adduced in evidence under the Civil Evidence Acts or to stand as evidence in chief) as well as expert evidence covering areas agreed by the parties or ordered by the tribunal within a time scale agreed by the parties or ordered by the tribunal. Statements of evidence of fact or expert evidence that have not been exchanged in accordance with these provisions will not be admissible at a hearing without leave of the tribunal which will only be granted in exceptional circumstances.’’

This paragraph is intended to avoid the unexpected and last-minute production of witness or expert evidence.

‘‘13. Any application to a tribunal for directions as to procedural or evidential matters should, save in exceptional circumstances, be made only after the other party has been afforded an opportunity to agree, within three working days, the terms of the directions proposed. Any application that has not previously been discussed with the representatives of such other party and that does not fully record the rival positions of the parties will normally simply be rejected by a tribunal. If a party has been requested by another party to discuss and agree any application, but has failed to respond within three working days (or such other time as may be allowed by the tribunal), the tribunal will not elicit the comments of that party or make orders conditional on objections not being received.’’

It is surprising how often an application is made directly to the tribunal, without having first been put to the other party. Not infrequently, the other party is in fact prepared to agree all or some of the orders required and so unnecessary costs would have been incurred.

‘‘14. Communications regarding procedural matters should be made expeditiously.’’

In the days of fax and email communications, sending a letter by second-class mail can certainly slow things down!

‘‘15. Tribunals will not acknowledge receipt of correspondence despite any request to that effect unless there is particular reason to do so.’’

Solicitors tend to ask people to acknowledge receipt of correspondence almost as a matter of routine. There is nothing offensive about that. However, it all costs money!

‘‘16. Only in the most exceptional circumstances can it be appropriate for a party to question the terms of any procedural order made or seek a review of it by the tribunal.’’

No doubt because of their potential effect on a case, procedural applications are frequently the subject of very numerous and lengthy exchanges. Unfortunately, even when the tribunal has made its decision after receiving all the submissions, some lawyers have a tendency to consider that to be merely a step in a continuing debate and they then try and persuade the tribunal to reverse their decision. This paragraph is intended to bring finality to interlocutory applications, once they have been ruled upon by a tribunal in the light of all the submissions received from the parties.

‘‘17. If a tribunal considers that unnecessary costs have been incurred at any stage of a reference, it may of its own volition or on the application of a party make rulings as to the liability for the relevant discrete costs. Unnecessary costs may be incurred by, e.g. inappropriate applications having been made or not agreed, excessive photocopying or unnecessary communications being generated by the same message being sent by fax and/or email, and mail and/or courier. Tribunals may order such costs to be assessed and paid immediately.’’

Many lawyers and parties feel that many procedural applications are pursued unnecessarily, sometimes no doubt with a view to impressing the clients. This paragraph is intended to allow discrete costs orders to be made in respect of such applications.

‘‘QUESTIONNAIRE (Information to be provided as required in paragraph 8 of the Second Schedule to the LMAA Terms)

As many as possible of the procedural issues should be agreed by the parties. If agreement has been possible, then please make that clear in the answers to the Questionnaire.

  1. A brief note of the nature of the claim (e.g. ‘unsafe port’ or ‘balance of accounts dispute’).
  2. Approximate quantum of the claim.
  3. Approximate quantum of any counterclaim.
  4. The principal outstanding issues requiring determination raised by the claim and any counterclaim.
  5. Are any amendments to the claim, defence or counterclaim required?
  6. Are any of the issues in the reference suitable for determination as a preliminary issue?
  7. Are there any areas of disclosure that remain to be dealt with?
  8. Would a preliminary meeting be useful, and if so at what stage?
  9. What statement evidence is it intended to adduce and by when; and (if there is to be a hearing) what oral evidence will be adduced?
  10. What expert evidence is it intended to adduce by way of reports and/or oral testimony and by when will experts reports be exchanged? Generally a meeting of experts will be useful. Unless the parties agree or the tribunal rules that such a meeting would not be appropriate, when should the meeting take place?
  11. Suggested timetable for preparation for the close of submissions if the case is to go ahead on documents alone or for a hearing if that is appropriate.
  12. Estimated length of the hearing, if any.
  13. Which witnesses of fact and experts is it anticipated will be called at the hearing, if there is to be one?
  14. Is it appropriate for a hearing date to be fixed now? (Save in exceptional circumstances, a hearing date will not be fixed until the preparation of the case is sufficiently advanced to enable the duration of the hearing to be properly estimated; this will normally be after disclosure of documents has been substantially completed.)
  15. Estimated costs of each party (i) up to completion of this Questionnaire; and (ii) through to the end of the reference.
  16. Does either party consider that it is entitled to security for costs and, if so, in what amount?
  17. Have the parties considered whether mediation might be worthwhile?’’

If lawyers get into the habit of completing the questionnaire at a sufficiently early stage in all cases, it will be much easier for tribunals to identify cases in which active case management by the tribunal perhaps with an early directions meeting will be beneficial. There is, of course, a huge range of disputes that are subject to arbitration and many of them do throw up unusual procedural problems. However, if lawyers and arbitrators can be consistent in using the Second Schedule, the answers to the routine questions in standard cases are to be found there with a considerable saving in time and cost.

Mark Hamsher and Patrick O'Donovan
The Journal of the Chartered Institute of Arbitrators
November 2004

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