LMAA SMALL CLAIMS PROCEDURE 2006

 

THE LMAA SMALL CLAIMS

PROCEDURE

and COMMENTARY

(Revised 1st January 2006)

THE LMAA SMALL CLAIMS PROCEDURE

1. INTRODUCTION

These provisions shall be known as the LMAA Small Claims Procedure 2006 effective 1st

January 2006. They shall apply to any dispute which parties have agreed should be referred

to arbitration under this Procedure. If any such agreement refers to a monetary limit for

disputes that may be so referred, such limit shall be deemed to exclude interest and costs

unless the parties agree otherwise.

2. APPOINTMENT OF ARBITRATOR

(a) If a dispute has arisen and the parties have agreed that it should be referred to arbitration

under the Small Claims Procedure, then, unless a sole arbitrator has already been agreed

on, either party may give notice to the other requiring him to join in appointing a sole

arbitrator. If within fourteen days the parties have agreed on a sole arbitrator and the

intended arbitrator has agreed to act, the Claimant shall within a further fourteen days

send to the Respondent (with copies to the arbitrator) a letter of claim accompanied by

copies of all relevant documents including experts’ reports and shall also send to the

arbitrator a remittance in his favour for the Small Claims fee as defined in para 3(b).

(b) If the parties have not within fourteen days agreed on a sole arbitrator, either party may

apply in writing to the Honorary Secretary, London Maritime Arbitrators Association for

the appointment of a sole arbitrator by the President. Such application shall be copied

to the other party and shall be accompanied by a copy of the letter of claim together with

copies of all said relevant documents and a remittance for the said Small Claims fee plus

£100, plus VAT where applicable, in favour of the LMAA. Where appropriate a party

applying to the President should provide a concise explanation of the issues which are

likely to arise and an indication as to whether any particular expertise on the part of the

arbitrator is required. The President, having considered the nature of the dispute shall

appoint an appropriate arbitrator and shall give notice to the parties. The LMAA. shall

send to the arbitrator the letter of claim and the documents together with the said Small

Claims fee, and shall retain the balance in respect of administrative expenses.

3. THE ARBITRATOR’S FEE

(a) The Small Claims fee includes the appointment fee, interlocutories, a hearing not

exceeding one day (if required by the arbitrator pursuant to para 5 (g)), the writing of the

Award and the assessment of costs (if any). It does not include expenses, such as the

hire of an arbitration room, which shall in the first instance be paid by the Claimant on

demand. However if there is any challenge to jurisdiction which, or which it is suggested

falls to the arbitrator to resolve, the arbitrator shall be entitled to charge on a reasonably

appropriate basis for such work, his additional fees being payable in the first instance by

the Claimant before he makes any award, ultimate liability for such additional fees being

for the arbitrator to resolve.

(b) The Small Claims fee shall be such standard fee as shall be fixed from time to time by the

Committee of the LMAA*: VAT shall be payable where applicable. For all purposes,

including time limits, payment of the Small Claims fee within 14 days of agreement being

reached upon a sole arbitrator under paragraph 2(a) shall be a condition precedent to the

valid commencement of proceedings under the Small Claims Procedure.

(c) In the event of the Respondent putting forward a counterclaim which exceeds the amount

of the claim an additional fixed fee in such amount (plus VAT where applicable), as shall

be fixed from time to time by the Committee of the LMAA*, is payable by the Respondent.

Payment of such fee within fourteen days of service of defence and counterclaim

submissions shall, for all purposes including time limits, be a condition precedent to the

Respondent’s entitlement to bring any such counterclaim within the proceedings in

question.

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(d) If the case is settled amicably before an award has been written, the arbitrator may retain

out of the Small Claims fee a sum sufficient to compensate him for services thus far

rendered and any balance shall be repaid.

4. RIGHT OF APPEAL EXCLUDED

The right of appeal to the Courts is excluded under this procedure. By adopting the Small

Claims Procedure the parties shall be deemed to have agreed to waive all rights of appeal.

For the avoidance of doubt, this provision does not apply to any ruling by an arbitrator on his

own jurisdiction.

5. PROCEDURE

(a) A letter of defence and details of counterclaim (if any) accompanied in each case by

copies of all relevant documents including any experts’ reports shall be delivered by the

Respondent to the Claimant within twenty-eight days from receipt of the letter of claim or

from the date of the appointment of the arbitrator, whichever shall be the later.

(b) A letter of reply and defence to counterclaim (if any) shall be delivered by the Claimant to

the Respondent within a further twenty-one days. Where an additional fee is payable

under paragraph 3(c) hereof in respect of the counterclaim, the twenty-one days shall run

only from receipt by the arbitrator of the additional fee. The arbitrator shall be entitled to

refuse to admit evidence submitted at the stage of reply and defence to counterclaim (if

any) if it should properly have been served with the letter of claim.

(c) The Respondent shall, if he so wishes, deliver to the Claimant a letter of reply to defence

to any counterclaim within a further fourteen days.

(d) Any extension to the above time limits (including that for the service of a letter of claim

set out in paragraph 2(a) above) must be applied for before expiry of the existing time

limit. If a party fails to serve its pleading within the time limit set, the arbitrator, on the

application of the other party or of his own motion, will notify the defaulting party that

unless the outstanding communication is received within a fixed period (maximum 14

days) he will proceed to the award on the basis of the submissions and documents before

him to the exclusion of all others. (In the case of failure to serve a letter of claim the

arbitrator shall make an award dismissing the claim.) The time allowed by the arbitrator’s

notice, added to any extension of time previously agreed between the parties in respect

of the same pleading, shall not in total exceed 28 days. Any pleading submitted by the

defaulting party subsequent to expiry of the time limit set by the arbitrator’s notice shall

not be admissible.

(e) Following the service of the letter of reply, or, where there is a counterclaim, following

service of the letter of reply to defence to counterclaim, the arbitrator may declare to the

parties that pleadings have closed. No further pleadings shall be considered by the

arbitrator following such a declaration.

(f) Copies of all the above letters and documents shall be sent to the arbitrator and to the

other party, or if the other party is acting through a solicitor or representative, to that

solicitor or representative.

(g) There shall be no hearing unless, in exceptional circumstances, the arbitrator requires

this.

(h) In the case of an oral hearing the arbitrator shall have power to allocate the time available

(which shall be limited to one working day) between the parties in such manner that each

party has an equal opportunity in which to present his case.

(i) All communications or notifications under this procedure may be by letter, telex, telefax

or e-mail.

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6. DISCLOSURE OF DOCUMENTS

(a) There shall be no disclosure, but if in the opinion of the arbitrator a party has failed to

produce any relevant document(s), he may order the production of such document(s) and

may indicate to the party to whom the order is directed that, if without adequate

explanation that party fails to produce the document(s), he may proceed on the

assumption that the contents of such document(s) do not favour that party’s case.

(b) The expression “relevant documents” includes all documents relevant to the dispute,

whether or not favourable to the party holding them. It includes witness statements,

experts’ reports and the like on which a party intends to rely, but does not include

documents which are not legally disclosable.

7. THE AWARD

The arbitrator will make every effort to publish the award within one month, in a documentsonly

case, from the date when he has received all relevant documents and submissions, or,

where there is an oral hearing, from the close of the hearing.

8. COSTS

The arbitrator shall assess and award costs on a commercial basis having regard to the nature

of the reference. Unless the parties otherwise agree, the amount which one party may be

ordered to pay to the other in respect of legal costs (including disbursements) shall be

assessed at a sum in the arbitrator’s absolute discretion up to such maximum figure as shall

be fixed and published from time to time by the Committee of the LMAA*. Where there is a

counterclaim in respect of which an additional fixed fee is payable to the arbitrator pursuant

to para (c) hereof, this amount (after striking any necessary balance between costs orders

where there is more than one) shall not exceed such other maximum figure as shall be fixed

and published from time to time by the Committee of the LMAA*. No breakdowns of such

costs are to be provided unless the parties agree otherwise or the arbitrator so requires, in

which event they must be provided within 7 days of the service of the last pleading as in para

5(e) above or the arbitrator’s direction, whichever is later. The successful party will normally

be awarded the Small Claims fee (including the fee of £100.00 payable to the LMAA. in cases

where the President is requested to appoint an arbitrator) in addition to any legal costs which

he has incurred (subject to the limits mentioned above), provided always that any award of

costs shall be in the sole discretion of the arbitrator.

9. GENERAL

The arbitrator may in any case which, in his discretion, he considers exceptional depart from

or vary the above provisions as he considers appropriate, save that he shall not be entitled to

vary the maximum figure which can be awarded under the Small Claims Procedure in respect

of legal costs unless the parties agree otherwise.

In any case where it is determined or agreed, because of the nature and/or weight of a case,

that the Small Claims Procedure is inappropriate and shall not be applicable, it shall cease to

apply in its entirety.

* The current sums, as fixed by the LMAA Committee, may be found on the LMAA website at

www.lmaa.org.uk.

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COMMENTARY ON THE LMAA SMALL CLAIMS PROCEDURE (2006)

(Note: Attention is particularly drawn to the passages in bold type below. These indicate

substantial changes to the Commentary made at the time of the 2006 Revision of the Procedure.)

1. INTRODUCTION

The Small Claims Procedure has been introduced to provide a simplified, quick and

inexpensive procedure for the resolution of small claims. It is supplementary to the

Documents Only procedure contained in the Third Schedule to the LMAA Terms (2006).

It is suggested that it should be used where neither the claim nor any counterclaim exceeds

the sum of $50,000 (excluding interest and costs). It is not suitable for use where there are

complex issues or where there is likely to be examination of witnesses. On the other hand,

the Procedure may be suitable for handling larger claims where there is a single issue at stake.

There has been a regrettable tendency to apply the Procedure regardless of the complexity

of the issues involved in a particular dispute (and occasionally, regardless of the amounts

involved). This is likely to lead to dissatisfaction with and criticism of the Procedure since the

constraints on the arbitrator and the parties imposed by the limited financial remuneration for

their services (which is an essential part of the Procedure) may mean that a particular dispute

is not dealt with as the parties envisage. Parties proposing to use the Procedure are therefore

encouraged to consider at the outset whether it is appropriate to vary the terms of the

Procedure (for example, by mutually agreeing to increase the maximum amount of

recoverable costs). The position of the arbitrator is dealt with further in the context of

discretion at paragraph 9 below.

Attention is drawn to the following features:

2. REFERENCE TO A SOLE ARBITRATOR

This will provide a saving both in time and expense. It is expected and hoped that in most

cases the parties will be able to agree on the sole arbitrator. Where they cannot agree,

application may be made to the L.M.A.A. and the President will then make the appointment.

There will be a charge of £100 to cover the administrative expenses. The attention of the

parties is drawn to the fact that payment of the fixed fee in full (including the additional

element when the appointment is made by the President) is a condition precedent to the

commencement of proceedings. In requesting the President to make an appointment under

the Procedure, the appointing party should provide as full an explanation as is practicable of

the issues which he expects to arise. He should also draw the attention of the President to

the fact that particular expertise on the part of the arbitrator may be desirable (for example,

engineering expertise in the case of a performance dispute). Parties should also be aware

that it is the practice of the President not to consider for appointment in a particular case any

arbitrator whose name he knows has been put forward by either party. The objective of this

practice is to avoid any perception on the part of the other party that a party has secured an

advantage by having the President appoint as arbitrator one of the individuals whom he has

proposed. A party asking the President to make an appointment should therefore disclose

the names of the arbitrators proposed by either party.

Claimants must also note that by virtue of paragraph 3(b), payment of the Small Claims

fee is a condition precedent to the commencement of arbitration, including for the

purposes of any time bar. Similarly under sub-paragraph (c), a counterclaim may not be

brought until any relevant fee has been paid by the respondent. (Further, by paragraph

5(b), the claimant’s time for responding to a counterclaim does not run until any fee

relevant to the counterclaim has been paid.)

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3. ARBITRATOR TO RECEIVE A FIXED FEE

So that the parties know where they stand at an early stage it is provided that the arbitrator

will receive a fixed fee. In the case of a counterclaim which exceeds the amount of the claim

there is an additional fixed fee. This additional fee is charged because a counterclaim that

exceeds the claim will normally involve different issues. No additional charge is made in

respect of counterclaims which do not in total exceed the amount of the claim. Members of

the LMAA have agreed to deal with disputes under the LMAA Small Claims Procedure as a

service to the industry, though it will be appreciated that, having regard to current rates of

remuneration, it may in many cases involve some financial sacrifice. Any expenses must be

paid in addition.

The amounts of these fees are determined from time to time by the LMAA Committee

and will be found in the LMAA Newsletter and on the website at www.lmaa.org.uk

Challenges to jurisdiction can involve a great deal of work additional to that required to

resolve the merits of a dispute. Accordingly it seems appropriate that such work should

be paid for on a quantum meruit basis before the arbitrator resolves the challenge, and

that such fees should be borne – in the first instance only – by the claimant.

4. EXCLUSION OF APPEAL

Under the Arbitration Act 1996 there is no restriction on the parties to exclude the right of

appeal. An agreement to arbitrate under the LMAA Small Claims Procedure will automatically

be treated as an agreement to exclude the right of appeal. In view of this, while a Reasoned

Award will be given, it will be expected that reasons will be relatively brief. This exclusion

does not, by virtue of the Arbitration Act 1996, apply to challenges to jurisdiction.

5. INFORMAL PROCEDURE

There will be no formal pleadings and no disclosure as such. Each party will be informed of

the case against him by a simple exchange of letters accompanied by copies of all relevant

documents, including witness statements. A strict but reasonable timetable is imposed, and,

if a party fails to comply with a final time limit set by the arbitrator, the arbitrator will proceed

to his award on the basis of the documents already received. There is substituted for

disclosure (a procedure frequently used to gain time) an obligation on the parties to disclose

all relevant documents with their letters of claim or defence. Should a party fail in this

obligation, the arbitrator is given power to order production of any missing documents and to

give warning to that party that, if he fails to produce them without adequate explanation, the

arbitrator may proceed on the basis that those documents do not favour that party’s case.

Claimants should note that any attempt to secure a tactical advantage by withholding

production of evidence which should properly accompany the claim submissions until the

stage of a reply may be met with a refusal on the part of the arbitrator to admit such further

evidence.

6. LEGAL REPRESENTATION

The use of lawyers is not excluded, though it is thought that in many cases they will not be

necessary. But it should be borne in mind that advice from a lawyer can often indicate to a

party the strength or weakness of his case and can assist in reaching an amicable settlement;

also, if settlement cannot be reached, the case may be presented by a lawyer in a more

orderly and concise manner.

7. THE AWARD

The arbitrator will normally make his Award within one month from the date on which he has

received all the papers.

8. THE COSTS

The power of an arbitrator to award costs has been retained as an important feature of

London arbitration. It operates to deter spurious claims or defences and may assist in

promoting an amicable settlement. The arbitrator is given power to tax or assess legal costs,

but on a commercial basis. The amount recoverable will be assessed at a sum in the

arbitrator’s discretion not to exceed such sum as may be fixed by the Committee of the

LMAA. Where there is a counterclaim that attracts an additional fee for the arbitrator

under paragraph 3(c), again this fee is fixed by the Committee from time to time.

Although the arbitrator has a discretion to vary or depart from the provisions of the Procedure

in exceptional cases (see paragraph 9 below) this discretion does not extend to varying the

amount of legal costs recoverable under this Procedure. It is regarded as being of

fundamental importance so far as the Procedure is concerned that a party agreeing to

arbitrate disputes according to the Procedure can be certain at the outset of his maximum

liability in terms of costs.

Unless otherwise agreed or requested by the arbitrator, parties are not required to

present schedules of the costs claimed: the amount is to be left to the arbitrator’s

discretion.

9. DISCRETION

It is expected that in the great majority of cases the strict timetable and provisions of the

Procedure will be observed and enforced, but in exceptional cases there is discretion for the

arbitrator to vary or depart from them. The success of the Procedure in promoting costeffective

arbitration in London has led to a regrettable number of cases in which disputes

have been referred to arbitration according to the Procedure which are not appropriate for

determination in accordance with the spirit, if not the letter, of that Procedure. Such situations

can arise simply as the result of the fact that parties to a contract agreed in that contract to

apply the Procedure to all disputes involving less than a certain sum of money, regardless of

the nature of such disputes. In such cases the parties should be aware that the arbitrator may

at the outset or at any time thereafter inform them that in his opinion the dispute referred to

him cannot be dealt with satisfactorily according to the Procedure. He will then be entitled to

invite the parties either to agree to an appropriate variation of the Procedure or, alternatively,

to agree to his continuing to act on the basis of the LMAA Terms in force for the time being.

In the event of a refusal by the parties so to agree the arbitrator shall be entitled to resign from

the reference whilst retaining out of the Small Claims fee a sum sufficient to remunerate him

for services thus far rendered. An amendment to paragraph 9 makes it clear that where

the Small Claims Procedure is deemed inappropriate, it shall cease to apply in all

respects.