Shipping: Steady as she goes

Britannia is still holding her own in the shipping and international trade arena, says Fred Konynenburg

Traditionally London has enjoyed a reputation as the world’s leading centre for resolving legal disputes in the fields of shipping and international trade. Recently, however, London’s global market share has come under assault from various competitors and, as a result, there is a perception that it is in decline. But is this perception true?

Escalating costs and excessive delays have fomented serious criticism from secessionists about London law firms’ conduct on cases. During the past 20 years maritime arbitration seems to have shifted from a gentlemanly consensual approach towards aggressive partisanship. What is clear is that this tendency to fight over every single point, whether substantive or procedural, drives arbitrators to distraction, alienates existing clients, and deters prospective users of the system.

Shipping is a complex, profit-driven business and its practitioners are no fools. Clients know when they are not getting value for money, especially where such tactics create interminable delay. Looking at some correspondence files, three-quarters of the correspondence will relate to pointless litigation skirmishing over the smallest issues, such as the time limit for serving submissions. Escalating costs and endless delays have poisoned London’s reputation and are widely perceived as damaging to its customer base. The decline appears to have accelerated in the past decade.

There seems to be a consensus that there was a contraction in this sector around the turn of the millennium. But it is certainly valid to ask whether this was peculiar to London arbitration and whether, if this process was unique, it only has itself to blame. The answer is no on both counts.

London firms specialising in the shipping and commodity markets are certainly no less busy, and in fact may be busier than five years ago. This trend is reflected in a gradual increase in appointments at arbitration forum the London Maritime Arbitrators Association (LMAA) in the past five years. Furthermore, charging rates appear to be comparable across the board. A magic circle firm in Singapore or New York will charge the same level of rates as one in London – helped along by these days of global homogenisation, when they would often be one and the same firm. Likewise, smaller niche firms in any of these jurisdictions tend to operate uniformly smaller charging regimes.

Recent cost estimates from firms in Singapore for the handling of shipping arbitrations have broadly equated to London rates at niche firms. Just as the larger firms in New York or London have a curious tendency to throw teams of partners and assistants at even the smallest case, a niche partner in one of the smaller firms in these jurisdictions will handle, within reason, the biggest case alone.

A steady market
An analysis of LMAA appointments during the past 20 years will reveal an enormous number of relatively small disputes and a significant percentage of the large ones. The number reached a peak during the 1980s, when a disproportionate number of appointments were made simply to protect time bars. Disregarding this now virtually extinct phenomenon, the clear impression is that there was no long-term slump at all in the incidence of appointments. This prevailing view is reflected in the fact that, during the period between 1996 and 2005, the number of LMAA awards published was remarkably consistent. Apart from one high of 525 in 1998 and two lows of 405 and 408 in 2003 and 2004, the figure has stuck resolutely around the 450 mark. The only reliable extrapolation from this data is that there was no ‘great depression’.

From what statistics are available, it is evident that there is a wide gulf between the number of arbitration references in London and any other forum. This appears to be due to a combination of factors, including a residual conservatism in the market as a whole. More importantly, London arbitration offers a uniform approach to case management by a tried and tested body of experienced arbitrators, generally leading to a predictability in outcome. New York was long touted as a threat, but it never really materialised, with costs usually being cited as the reason.

While one should be wary of facts – precise figures are hard to come by – there is enough evidence to suggest that none of these alternative regimes have anything like the sheer volume of work that London enjoys in the maritime sphere. In particular, commodity disputes will continue to gravitate towards the associations that are geared to dealing with them. In a sense this reflects a tendency towards ‘trial by peers’. The arbitration panels at the Grain & Feed Trade Association (Gafta) and the Federation of Oils, Seeds and Fats Associations (Fosfa) are made up of individuals that in many cases actively participate in the trade. They have a close familiarity with the commercial reality of disputes.

As an example, all seasoned Gafta arbitrators are well versed in the intermittent problems caused by governmental export embargoes because they have personal experience from working in-house on the relevant trading desks. Indeed, many of these arbitrators were around during the mid-1970s when the issue first arose as a result of the soya bean meal crisis. There is a consistency and depth. It is also important to bear in mind that these trade organisations are federal in nature, with a global membership represented by national associations, of which London is the administrative nucleus.

Global cooperation
The larger general commercial cases appear to be spread more evenly across the globe. In particular, the Singapore International Arbitration Centre (SIAC) has shown significant growth, particularly in the conduct of major engineering and construction disputes, growing from two cases in 1991 to 67 in 1998. By 2003 the SIAC was reported to have handled 723 arbitrations. The picture this presents is one of regional hubs developing their own sophisticated arbitration systems in response to strong economic growth so as to handle major disputes that require immediate accessibility, as well as growing particular expertise such as facility with a specific language and, naturally, local law.

Many Chinese shipyards insist, for instance, on contractual stipulations for Hong Kong arbitration. This has nothing to do with the charging rates of London lawyers or their style of arbitration, it simply reflects the respective bargaining positions of the two parties. This particularisation of large-scale disputes often takes place under the aegis of a supra-national arbitration forum. For instance, many of the arbitrations that take place in a specific seat such as Singapore are actually under the auspices of the International Chamber of Commerce.

While regional economic development has given birth to local arbitration forums that meet specific needs, London retains its importance and, in many sectors, dominance as the pre-eminent arbitration forum. One of the most interesting byproducts of this process has been the growth in cooperation between lawyers in different jurisdictions. In a climate of increasing defaults, the imperative of finding security to protect the client’s claim often provides the connection. While the substantive claim may be subject to an entirely foreign body of law, the lex loci situ will govern any attempt to attach assets. When you need to secure a claim, you need local expertise, and so you need to work together.

Fred Konynenburg is a partner at Middleton Potts