GRS Turkey

Maritime Arbitration

History of Maritime Arbitration

Arbitration is a form of alternative dispute resolution (ADR) for resolving disputes outside the courts. An arbitration may be defined as “maritime” when it involves maritime commercial disputes, namely when there is a connection between the res litigiosa (things that are subject to litigation) and maritime navigation, industry or trade. The general principle for the maritime arbitration is, that it should in some way involve a ship. However; there is no strict definition that requires a ship or anything else. In fact, any arbitration carried out in terms of the London Maritime Arbitrators’ Association might be considered as maritime arbitration. The connection between the arbitration case and the ship serves as the constant element of maritime arbitration. Some typical issues can be followed as: disputes arise out of charter parties, Bill of Ladings, contracts of affreightments, second-hand ship sales, shipbuilding contracts, marine insurance, associated marine matters, and disputes arise out of marine accidents, such as collisions, groundings, salvage, etc.

The origins of Maritime Arbitration dated back to the ancient times, more ancient than we know. There are historical records of Maritime Arbitration in B.C 1000s. According to those historical evidences, mainly merchants and sea traders used arbitration method for resolution of their disputes. These records of application of arbitration method was in Ancient Egypt and latterly in the Greek City States among which in ancient Athens, the prime known example of an arbitration in maritime matters were observed as reported by Demosthenes in his speech Against Formio, it dealt with a dispute raised over a contract of carriage of goods following the wreck of the ship occurred during the voyage.

On the other hand, some bibliographies also show that arbitration had been used as a means of dispute resolution, originated in ancient Rome, formed and developed in the United Kingdom, Sweden and other European countries, and then be spread to other countries in the world. After those two historiography conclusions for origins of Maritime Arbitration, we can conclude that arbitration emerged in Ancient Egypt and Greece then, ancient Rome is another important period for the spread of maritime arbitration to European Countries.

Furthermore; one of the first legal and written testimonials of maritime arbitration could be observed in Venice, in the Capitolare Navium of the Republic Serenissima (Maritime Code of the Republic of Venice), in a document dating back to 1229. These rules basically directed maritime people to solve their disputes in compulsory maritime arbitration which was consist of the said rules and three arbitrators who are experts in maritime matters.

Distinctive Nature of Maritime Arbitration

Maritime trade consists of several steps, each of these could be subject to different law or procedures. It is plausible to say that maritime arbitration is characterized by immanent character of internationality. Considering the nationality and place of residence of the parties, the nature of the dispute and of the underlying commercial transaction, the disputes in the maritime trade may be subject to plural governing laws. These different laws and procedures must be unified in some way for the decision-making mechanism in the said maritime disputes.

The agreement of maritime arbitration is usually included in the various type of contacts (such as charter party contracts, carriage contracts, multi-model transportation contracts, shipbuilding contracts, salvage agreements, etc.) based on uniform forms drafted and periodically updated by maritime organizations such as the Baltic and International Maritime Council (BIMCO), the Association of Ship Brokers & Agents (ASBA) and the Japan Shipping Exchange (JSE). This is a clear indication that there are several international bodies, even some of them governmental organizations, takes part in case of maritime arbitration. We can also talk about necessity of a cooperation relationships between maritime arbitral tribunal and the national courts in connection with what the arbitral tribunal cannot implement as taking temporary or conservatory measures.

Maritime Arbitration has many similarities with the international commercial arbitration but what makes it special is the sources of law, the characteristic of the maritime arbitral proceedings and the kind of arbitrated disputes mostly. Nowadays, maritime arbitration is one of the most widely used way for dispute resolutions among international shipping companies to solve almost every kind of dispute, and consequently, arbitration clauses are commonly included in most of the maritime contract forms. The most important reason for that is today’s hectic and busy commercial operations and to save time via arbitration.

Due to historical, geographical reasons, London as an international shipping center has a long history. It collects many shipping organizations and corporation headquarters. Simultaneously, insurance coverage, shipping finance, ship trading, ship leasing, and brokers’ management business are quite prosperous. The well-developed maritime economy provides an important foundation for maritime arbitration in London. Moreover, the advanced British maritime Law attracts the parties to choose London arbitration. After then, perfect Arbitration Act 1996 and LMAA Rules ensure the arbitration procedure successfully underway. Supports from British courts, government maritime and lawyers make London always be in the leading position as international arbitration center.

Maritime Arbitration is a unique arbitration method with its rules of procedure manifested in arbitration. The procedures and applications used in the past, have been specialized and even created its own jargon in the industry. For that reason, it became a necessity for the arbitrators who are handling maritime cases being familiar with those technical details and jargon.

Apart from other kind of arbitration types, there are several international constitutions which are just specialized in the resolution of maritime disputes. Such as; the London Maritime Arbitrators Associations (LMAA) based in London, the Society of Maritime Arbitrators of New York (SMA), the Chamber Arbitrable Maritime de Paris (CAMP), the Tokyo Maritime Arbitration Commission (TOMAC), the Singapore Chamber of Maritime Arbitration and China Maritime Arbitration Commission (CMAC), whose rules or terms constitute a source of maritime arbitration in presence of a reference in the contract. Among these, LMAA is the most active one by far most due to English hegemony in the maritime trade.

Maritime Arbitration and its Application

Due to its complex nature, arising of the commercial disputes is almost inevitable in the whole maritime industry. Arbitration is, as it should be, the most popular way of dispute resolution mechanism in it. Moreover, it is plausible to say that there is also a popular trend for arbitration, the reason behind that can be explained as the historical context out of which this tradition emerged. “Shipping and interport trade were centered not around ships per se, but around the transportation and delivery of commodities. Disputes had to be resolved as fairly and quickly as possible ‘in the course of business’ in order for this overall purpose not to suffer.

Although most of the present-day disputes involve much larger sums of money and much more complex legal issues, maritime parties continue to incorporate arbitration clauses in their contracts and use the arbitration as the initial option to resolve their disputes.

Nowadays’ maritime trade is continuously developing trough multimodal shipping with different means of transport, which creates legal uncertainty on the traditional function of the vessel as exclusive and essential mode of operating maritime transport.

Maritime arbitration provides one of the means for peaceful settlement of disputes provided by international law, the Convention on the Law of the Sea of December 10, 1982 (“Montego Bay Convention”). That leaves ample room for international arbitration, regulated by Articles 279-289 and Annexes VII-VIII. Hamburg Treaty of 1978 relating to international maritime transport of goods was the first international text relating to sea arbitration in particular.

There are several reasons why arbitration became the most frequently used dispute resolution mechanism in the maritime trade markets as a legal system. Some of which can be explained as:

- The secrecy of the maritime arbitration compares to national courts which do not allow it to parties both for the confidentiality of the procedures or for the secrecy of the judgement issued by them. This confidentiality plays an important role due to commercial operations of the companies.

- The desire of the parties of maritime relations in resolving their disputes quickly may not be available for them in national courts in different countries which are already burdened with larger number of cases.

- Due to international status of most of the maritime disputes, national courts could not cope with this flexibility and international status.

- The fear of intervention of the state parties during litigation in various countries allows arbitration to become much reasonable choice for the dispute resolution.

Maritime arbitration must inherit the general characteristics of international commercial arbitration, such as autonomy, flexibility, economy, security, and ease of implementation. Consummate maritime arbitration regime should not only reflect and perform the inherent advantages of international commercial arbitration to achieve fairness and efficiency, but also to fit the characteristics of maritime disputes to ensure a proper and especial solution for maritime disputes. Indeed, general treaties on international commercial arbitration such as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (the “New York Convention”) and the Convention on the Execution of Foreign Arbitral Awards (1961) (the “Geneva Convention”) are applicable.

In many cases in the maritime disputes, due to its necessity of pace, the parties may agree on the settlement of the dispute by the designated arbitrators by them without the appointment of the Chairman of the arbitral tribunal where the adjudication is agreed through documents only without holding hearings and this measure is used in approximately 80% of the Maritime Arbitration in London and some of the conditions provide for the conditions that must be met by the appointed arbitrator.

Conclusion

Although all these developments in the sector, it is hard to say that, all the same situations are valid for Turkish Maritime Industry. The method of application to arbitration or dispute settlement process is still far from common in Turkey. In the country, the charter parties or carriage contracts, or maritime insurance contracts does not contain such clauses and we are still well behind other countries for resolution of disputes. Regretfully, without these clauses, any disputes arising between parties becoming a mess and mostly directing to the state courts in which handling those disputes usually takes very long time, even years, due to extensive work load in these courts. Indeed, in such an industry, time is money, and every single day, parties waited for resolution of their disputes, they are losing money.

Arbitration is no longer an extraordinary way, but it is a basic legal system that has become indispensable in the settlement of maritime disputes and has been developed to push the international maritime trade wheel to further progress and prosperity. Arbitration has the respect of the international community which speeds up the pace towards the conclusion of international treaties, establishing of arbitration regulations and typical arbitration laws that make arbitration language of the age and its favorite reality.

As a country, so much active in shipping industry and international trade due to its geopolitical location; we should understand the importance of resolution of our disputes and disagreements out of courts.

For doing that, we, as Global Recovery Services provide shipowners and insurance companies the way of amicable settlements with their opponent parties for their long-waited disputes. Regarding to the geographical limitation, as our brand “Global Recovery Services” denotes, we work globally, and we have partners all around the world through which we can penetrate into any countries without toil. We are mostly involved in the pre-legal stages of disputes and try to bring opponents around the table to reach amicable settlement first, if we cannot succeed, then we involve lawyers from the applicable jurisdiction.

Another important point regarding that although we have an arbitration center in Turkey, ISTAC (Istanbul Arbitration Center), most of the maritime contracts, even if both parties are Turkish, does not refer to ISTAC for resolution of their disputes. ISTAC is a newly founded arbitration center with which we would like to work together for handling Turkish companies’ disputes. We should promote Turkish Maritime Industry through alternative dispute resolution mechanisms which also domestic and local. In the initial stages, GRS and at the later stages, such as if the disputes cannot be solved amicable between two parties, then, with the arbitral proceedings in ISTAC. The related articles should be added to the contracts especially when the both parties are Turkish.

In addition to the economic advantages are also many advantages using ISTAC for settlement of disputes between Turkish Companies. For example, ISTAC arbitration is faster than state courts, and economical compare to other arbitration centers in the world. Within its young business life, ISTAC has already rewarded one arbitral award regarding a maritime law dispute. The award has taken 3.5 months to be rewarded by sole arbitrator.

Since we are having difficult times as a country with escalating exchange rates, we should direct our focus towards national institutions in the maritime law as well, such as GRS (Global Recovery Services) and Istanbul Arbitration Center (ISTAC). The easiest way of doing that is, adding relevant clauses to the contractual agreements. When the disputes occurred, parties should contact firms like GRS, of which has great experience and knowledge in maritime dispute resolutions. GRS would be ready to use all these knowledge and experience in order to move our maritime industry further.

In case you have any question regarding to this article or our firm, please feel free to contact with me.

Associate Captain Hüseyin Kılçık

Claims and Recovery Specialist

Msc in Finance and Dispute Resolutions

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Leader in Dispute Resolutions and Maritime Arbitration - GRS Turkey