Mapping The Developments In Maritime Arbitration - Unraveling The Trends And Challenges
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Category: Arbitration & ADR
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MAPPING THE DEVELOPMENTS IN MARITIME
ARBITRATION: UNRAVELING THE TRENDS AND
CHALLENGES
Vaidik Sohani, School of Law, Forensic Justice and Policy Studies, National Forensic Sciences University
ABSTRACT
Development in the various facets of dispute resolution has been a very dominant reason for expanding the efficiency of globalization. Countries and people throughout the globe engage in a legal relationship, premising the aspect that there are ample means of dispute resolution, and there exists an affirmative guarantee that at any point in time, no party will be deprived of their rights and privileges. One of the foundational aspects of globalization is the continual expansion of trade and commerce, mainly through means of seas and the ocean. Numerous legal relationships are created daily in the form of Charter-party agreements for Non-liner ships and Bills of Lading for transmission of goods at distinct locations worldwide through liners.
Port authorities daily enter into contracts of bailment, registration of vessels, and transfer of bills of lading to other ports and shipping companies, and offshore oil field operators enter into contracts with refineries, coasting vessel owners, and other individuals for the sale of oil extracts petro-chemicals from the seas and ocean as part of concerned exclusive economic zones. All such multifaceted economic activities have one thing in common, i. e. , the clauses for dispute resolution. Since time immemorial across the globe, maritime dispute resolution has been governed through standard mutually agreed laws adopted by signatory countries through subsequent ratifications. Marine disputes are predominantly addressed through negotiation or arbitration.
Maritime arbitration is a commonly observed practice globally where the concerned party has the autonomy to select the seat and venue of arbitration in case of institutional arbitration at their convenience and mutually appoint an arbitrator in case of ad-hoc arbitration. India, being a country rich in trade and commerce mainly due to its peninsular geography, has displayed an adaptive approach to identify the need for increasing maritime trade and commerce and has amalgamated maritime dispute resolution centers into its as part of maritime regulatory infrastructure. The Indian Council for Arbitration has a dedicated platform for registering maritime arbitration. Under the aegis of the Ministry of Ports,
Shipping and Waterways and, Gujarat Maritime University (GMU) has developed a resolute platform for maritime dispute resolution referred to as Gujarat International Maritime Arbitration Center (GIMAC). This article will predominantly emphasize upon developments in the domain of maritime Arbitration and evaluate the prospectus underlined by its growth and the scope to address the challenges that came up during process execution, such as the applicability of arbitration clause in the charter-party agreement to a third party, transfer of arbitration clause through bill of lading and challenges faced by the port authority in case of any dispute. Keywords: Maritime Arbitration, Charter-party Agreements, Bill of Lading, Liner and Non-Liner Shippers.
INTRODUCTION
In the observable era of mega-commercialization, where trade and commerce are heading towards their peak with a common objective to interlink the world in almost every perceptible aspect, be it the exchange of fast-moving consumer goods, raw materials, natural resources such as petro-chemicals and other minerals, medicinal products as rightly observed in the realm of the global pandemic of Covid-19 which portrayed significant reliance on the means of trade and commerce for smooth exchanges escaping any foreseeable hurdle that may occur in the absence of efficient trade and commerce.
At the base of all such advancements, which appear to be superficial outputs, there exists a strong and reliable lubricating factor of efficient trade and commerce, which is not a development of few decades but has been functional since time immemorial and consistent growth of practice which has contributed towards the betterment of fraternity is what visible today. The immense and continual growth of trade and commerce is not only because of advancements in technology but also because of its reliable and consistent regulatory framework that is intact. It witnesses subsequent revisions to keep pace with technological advancements and assures relevancy. If we observe the domain of International trade and commerce, one thing that is quite evident at any instant is mutual coordination between countries subject to the applicability of rules and regulations, and practices to be followed.
Therefore, instead of regulating international trade and commerce through local law or subjecting international trade to local barriers, the countries indulged in exchanges usually opt for mutually feasible procedures. Since time immemorial, this has been a common practice.
Since the inception of trade and commerce, maritime trade, or the opting means of sea and ocean transportation, has been instrumental. At this instant, almost the entire globe’s reach has been made feasible because of the non-exhaustive ambit of trade and commerce due to waterways. Since the 16th century, India has been very influential in regulating and participating in commercial activities, majorly due to its dominance in the food and spices sector. Another major influencing factor is India’s geographical position and connectivity. Indian land forms a peninsula where seas and oceans surround 3 sides of its land, which makes India a potential place for executing activities related to trade and commerce.
At this juncture, the Indian administration has already recognized India’s geographical location and has developed lucrative policy propositions that catalyze the smooth operations thereof. Apart from the regulatory framework, another major aspect of dispute resolution goes in tandem with the regulatory framework, which abridges the lacunas in the functioning of trade and commerce. As rightly discussed, the Commercial Activities that take place through the mode of marine generally function on laws developed through International Customs and practices that have been observed from time immemorial. Over a period of time, these customary practices have evolved into mutually agreed maritime laws.
Over the centuries, it’s been quite evident that arising of a dispute over a mutual disagreement, breach of stipulated practice, hampering of law and order situation and failure to comply with settled law is increasing hand in hand with the expansion of maritime commerce, which functions over the maritime agreements, which are generally referred as the Charter-party Agreement and the Bill of lading. One of the objectives of this paper will be to effectively analyze the intricacies of both types of agreements prevalent in maritime operations. Dispute resolution in the marine sector is dominantly premised on maritime arbitration.
Maritime Arbitration has been the practice for dispute resolution almost since the commencement of maritime trade and commerce, where parties in a contract mutually decide the applicability of conduct rules upon themselves, subject to regulations and, in case of any dispute, mutually decide the third party who has ample knowledge to understand the cause and intricate developments in the conflicts along with the applicability of laws. In the modern-day scenario, the arbitrator is the person who has the technical as well as legal orientation towards dispute resolution.
REVIEW OF LITERATURE
• RECENT DEVELOPMENTS IN PORTS AND SHIPPING SECTOR: AN
OVERVIEW
India has a massive coastline of 7,517 kilometers, covering 9 states and 4 union territories with over 12 major ports as notified by the Ministry of Ports, Shipping and Waterways, Govt. of India under the Major Ports Authorities Act, 2021. Excluding these 12 major ports, which Govt. of India undertakes, various non-major ports are undertaken by particular state govt. there are more than 250 notified major ports in India. This significant attribute of India makes it a strategic place for commerce through freight and carriages. Statistics show that the cargo volume at major ports in India is growing at a compounded annual growth rate (CAGR) of 3. 05% between 2019-20 and 2023-24, and the same for non-major ports is at 2%1.
Initially, the central government managed and administered the ports and cargo terminals; however, since the instantaneous systems of governments are predominantly inclined towards capitalist forms of governance approach, thus private investments have observed an uptick in operations and management of ports and terminals. The most prevalent forms of port development are the Design, Build, Finance, Operate and Transfer (DBFOT) or Build Operate Transfer (BOT) models under which all aspects of construction and development, as well as operations and maintenance of the port, are undertaken by private concessionaires. In other models, such as leases, licenses, management contracts and service agreements, the degree of involvement of the private sector is more limited.
The Ministry of Ports, Shipping and Waterways has highlighted the prospectus of 81 projects with a budget outlay of INR 424 Billion in the pattern of trenches-based distribution for various Public Private Partnerships (PPPs) for the development of ports and terminals across various locations for facilitating commercial activities at mega-level.
• CATEGORIZATION OF GENERAL CLAIMS FACED BY PORT AND TERMINAL
AUTHORITIES.
Ø Disputes pertaining to non-payment of port tariffs by Ship Operators and undue
1 S&R Associates | Indian Law Firm | Legal Services Mumbai & New Delhi
charges imposed by port authorities. Before 2021, the regulation concerning the imposition of tariffs was handled by the Major Ports Trust Act. According to this legislation, the decision pertaining to the imposition of tariffs was explicitly under the ambit of the authority of Tariffs for major ports. However, observing the rising influence and engagement of private players, the Govt. of India, in consonance with the Ministry of Ports, Shipping and Waterways, brought up the Major Ports Act, 2021, which replaced the former legislation. The new legislation was curated to address the rising trade and commerce. The newly enacted legislation emphasized integrating Public-Private Partnerships (PPPs) into ports and the shipping sector. The legislation developed the Tariff Guidelines 2021, which feature increased autonomy of port operators to impose tariffs within specified limits.
This strategic alteration allowed the port concessionaires to maintain the required competition in the market. This flexibility enables the port concessionaries to alter the tax bands considering the fluctuations in economic factors such as the balance of mercantile trade. Port charges are imposed on the vessels and the ship operator for using the port services, including using of port facilities, bunkers, parking areas, loading and unloading cargo, etc. Despite all such provisions, which are contemporary and intact for increasing private investments, there are numerous instances where issues related to the illicit charging of tariffs arise and require a robust resolution through maritime arbitration. Due to an uptick in PPPs, arbitration is reflected as the best means of dispute resolution. Ø Arising of Disputes due to the Collision of Vessels at port, causing damages to either party.
Global exchange of goods often leads to visits of ships at distinct ports, which requires the ship operator to enter into a contract with that port authority to acquire a space at that terminal. During this course, if any damage is caused to the terminal’s infrastructure, then in that case, the ship owner is both contractually and statutorily liable for repayment of damages. The port authority can bring a civil suit against the ship operator or invoke arbitration against the Ship owner. Another facet also exists where, due to the failure of port authorities to navigate the ships or assist the ships
through tug boats, a ship may incur damages. During this situation, a Ship owner has the remedy to bring a lawsuit against port authorities for the ship's wreckage. The port authorities are contractually liable to furnish the ship operator with the required damages. In this instant situation, ship operators generally opt for arbitration as a dispute resolution at the seat and venue, which is mutually decided upon during contract signing. Ø Issues arising due to contractual ambiguities under concession agreements. There is always a possibility of disputes arising due to ambiguities present in the agreements of Concessionaries. Concession agreements are agreements that are pretty lengthy and descriptive and incorporate a plethora of rights and obligations within them.
Such disputes often stem from ambiguous contractual terms, performance issues, performance delays, cost escalation issues, unexpected regulatory changes and other economic factors, such as market conditions.
• ANALYSIS OF ARBITRATION CLAUSE IN CHARTER PARTY AGREEMENTS
AND BILL OF LADING: POSSIBLE CHALLENGES
Maritime contracts or contracts for shipping mainly revolve around 2 strategic types, i. e. charter party agreements and bills of lading, which are premised on non-liner and liner ships, respectively. CHARTER-PARTY AGREEMENT: A charter party is a contract of affreightment between the ship owner and the charterer pertinent to the use of the vessel to transport goods. Such agreements are made and executed when a party/consigner wants to send some bulky goods to a particular destination and subsequently hire an entire vessel; such transportation may be of containers, essential commodities, oils through tanker, food items, etc. In that situation, the ship owner takes the entire responsibility for goods and how they are transported. The charter party agreement is a non-transferrable agreement. BILLS OF LADING: BOL is a transferable, negotiable document representing the receipt of goods.
BOL permits the parties to transfer the title of goods on the high seas during
transit to the other parties. The Bill of Lading is a document generated when the agreement for the transmission of goods is made through Liner Ships that operate regularly on a designated route and sail to and fro. Thus, if the consignment aims to address any other port, the Liner vessel transfers a Bill of Lading to another liner operator to appropriately deliver the consignment. The possible issue arose when the arbitration clause, which initially intended to govern the parties, consented to the charter-party agreement; it also binds parties to the BOL who may not have been signatories to the original charter-party agreement, such as consignees or third-party holders of the BOL.
This raises an issue of “deemed consent”, creating an absurd situation where a non-signatory third party is bound by a charter party arbitration agreement (whose existence it might not even be aware of) simply by holding the BOL. This circumvents the requirement of consent as a core tenet of arbitration law. The legal framework in India that governs Arbitration is the Arbitration and Conciliation Act 1996, and Section 7(5) of the act mentioned act provides for an arbitration agreement to be incorporated by reference, provided that the arbitration clause is in writing and the reference in the subsequent document is such as to make the arbitration clause part of the contract.
Ø CASE REFERENCES
Few landmark cases have attempted to solve the ambiguity regarding the obligation to maintain an Arbitration Agreement incorporated under a Charter-party Agreement and its enforcement under transferred bills of lading to the parties who have actually not consented to the agreement of the Arbitration and which was initially added to establish a legal dispute resolution scheme between parties under a charter-party agreement. 1. MV Baltic Confidence V. State Trading Corporation of India Ltd.2- Extending Charterparty agreement to BOL. Before this case, there was an ambiguity in the interpretation of section 7(5) of the Arbitration and Conciliation Act, which the Supreme Court solved in this case. The 2 1. MV Baltic Confidence V. State Trading Corp. of India Ltd, Supreme Ct. of India, Aug. 20, 2001(India).
issue before the Bench was ‘whether the arbitration clause added to the charter-party agreement is extended to disputes arising under BOL. ’ Suppose we understand the incorporation clause used in BOL literally through its wording. In that case, it says that BOL will incorporate all terms and conditions, liberties, and exceptions of the charter party agreement, even extending to the disputes arising from BOL. The most straightforward understanding of this clause is to incorporate all the terms, conditions, rights, liberties, and considerations to be conferred upon BOL, which were initially incorporated under the charter party agreement. The major catch here is the dispute resolution process through arbitration, which goes hand in hand with the incorporation clause for the third party under BOL that has not even consented.
Hon’ble Supreme Court of India, in this case, observed the fact that the Indian jurisprudence somehow has a lower ambit in deciding such kind of conflict, thus referred a case law from British Jurisprudence and held that the Incorporation of Arbitration Clause in BOL should be premised on the intention of Parties to that effect. While ascertaining the aspects of the Intention to incorporate the same arbitration clause, which was previously added for charter-party agreement and subsequently became part of BOL, the court attempted to uphold the meaningful addition of the Incorporation clause. At any point in time, it should not pivot towards any unworkable and absurd situation, thus culminating into an unjust situation at the end of a third party who is a stakeholder at BOL. The Court also emphasized a similar aspect while referring to the case of T. W. Thomas and Co. Ltd. v.
Portsea Steamship Co. Ltd. It held that specific reference should be made while incorporating arbitration clauses into Bills of Lading (BOL).
2. M.R. Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd.3- Binding third-party
non-signatory members The Factual matrix of the case revolves around a situation where Party 1 i.e. Som Datt 3M.R. Eng'rs & Contractors (P) Ltd. v. Som Datt Builders Ltd, Supreme Ct. of India, July 7, 2009, SLP [C] No.11117 of 2006, (India).
Builders, entered into a contract with PWD, Kerala and subsequently, for fulfilling specific requirements that needed distinct expertise, Som Datt Builders entered into a contract of Subletting with MR. Engineers and Contractors (P) Ltd. who is a nonsignatory to the previous contract, and The latter contract carries forward all the terms, conditions, rights and liberties. However, the Court held that mere incorporation to the arbitration clause is insufficient; a specific reference must be under section 7(5) of the Arbitration and Conciliation Act to ascertain the Arbitration Agreement's conscientious acceptance.
3. Inox Wind Limited V. Thermocables Ltd.4 – An Exception to what was ruled in the case
of MR. Engineers. Hon’ble court, in the case of Inox Wind, though, agreed with the rationale of MR. Engineers contrastingly held that the mere presence of a standard Incorporation Clause would be tantamount to the applicability of all the clauses of Charter-party agreement into the Bills of lading, including the clause of Arbitration.
4. Giriraj Garg V. Coal India ltd5.- The most conclusive explanation among all the cases
introduces the concept of a single-double contract in Indian arbitral jurisdiction. With the clear objective of sorting out the ambiguities developed from the precedents, the Hon’ble Supreme Court of India imported the concept of Single-Double Contracts from the Queen’s Division bench imparted in the case of Habas Sinai Ve Tibbi Gazlar Istihsal Endustri AS V. VSC Steel Co. Ltd. Court held that the Single Contract is the case when an Arbitration Agreement is Incorporated into the Sub-contract by merely using a reference explicitly when the contract is between the same parties and not any third party/parties are going to engage in the agreement, In the case of Double Contract, the Court Propounded a stricter rule to be observed. In the case of two or a double contract, the contract refers to a secondary document, a third-party contract.
The inclusion of the arbitration clause will not be based on mere reference from the initial contract, and an element of intent must exist to accept that particular arbitration clause. 4Inox Wind Ltd. V. Thermocables Ltd, Supreme Ct. of India, Jan. 5, 2025, (India). 5Giriraj Garg V. Coal India ltd, Supreme Ct. of India, Feb. 15, 2025, at XXXX (India).
In para 4 of the above-cited case, the court explicitly mentioned that the Bill of Lading will be covered under the ambit of Double Contract. Lastly, the Supreme Court, in the recent case of NBCC Media Limited (India) V. Zillion Infraprojects 2024, reiterated the principles laid down by the Queen’s division bench in the case of Habas Sinai and held that mere reference to the previous document doesn’t incorporate the Arbitration clause into another Contract and will be declared as insufficient unless there exists a clear intention to do so.
• CONCLUSION FROM ALL THE CASES-
All the mentioned cases attempt to distinguish the incorporation of all the terms by reference into another third party/double contract versus the specific reference needed to be given to the arbitration clause for its incorporation into another contract regulating conduct with the third party. This specific reference entitles the third party to the willingness/intent to accept the terms and conditions of the arbitration clause further to the arbitration agreement. However, in the maritime context, the problem is not yet solved; there might be high chances during the transfer of BOL that it may not contain all the information pertaining to the preexisting charter-party agreement, and the third party during negotiation might accept the BOL unacknowledged with the arbitration clause in it which it never intended to accept or may reject if acknowledged during negotiation.
Therefore, for it to be established that the BOL holders intended to be bound by the incorporated arbitration clause must be aware of its incorporation in the BOL. Indian Jurisprudence significantly lacks possible solutions to such problems, and the only feasible solution available under the CONGENBILL 2022 provides an express mechanism for incorporating an Arbitration clause into a third-party agreement.
• STRATEGIC SCOPE OF ARBITRATION IN AGREEMENTS CONCERNING
TRADE OF MARINE RESOURCES.
Marine Resources are of strategic economic importance. Every country has a designated Exclusive Economic Zone (EEZ). It’s the expansion in high seas and oceans where a particular country has the sole right to conduct economic activities of extracting underwater marine
resources and minerals that, in future courses, can be used for energy generation and other strategic purposes. It is also evident that India's recent regime of governance is actively advocating private investment in almost every domain or actively engaging in the publicprivate partnership (PPP) model, envisaging efficiency in technological developments by incorporating a sound tinkering approach. Hitherto, the Oil and Natural Gas Corporation (ONGC) and National Mineral Development Corporation (NMDC) are prominent in resource and mineral extraction from the sea bed. Still, the strategic private investments in such extraction processes force the parties to enter into contracts for dignifying obligations that must be undertaken during process execution. These projects covered under contracts are lengthy, have significantly high duration, and are price intensive.
So many factors influence such agreements, such as Political Shifts, Geopolitical dynamics, and Environmental concerns. Since these contracts are generally made for longer durations thus, the disputes arising due to price escalations are usually at a very uptick. Fluctuating resource prices around the globe eventually force the parties to renegotiate the contracts and keep the prices at par with global trends. Thus, the parties often have disputes due to price escalation and de-escalation despite having a price review provision enclosed within the contract. At this juncture, Arbitration and other forms of ADR, such as mediation and conciliation followed by negotiation, are the best means of dispute resolution. They help them reach an amicable settlement and continue with the business operation by passing all the impediments.
Continuing such contracts for a very long duration also has a chance of getting hampered due to shifts in global and domestic policies, especially when the geopolitical turmoil anywhere in the globe is at an uptick. Thus, the parties must be very adaptive to change and always alert to pivot and adjust them to par with global trends. Such flexibility can be rightly achieved due to efficient dispute-resolution mechanisms that avoid hefty engagement in traditional disputeresolution modes and allow continuous operations without disruptions.
Ø CURRENT TRENDS IN INDIA
Rajya Sabha recently cleared The Oilfields (Regulation and Development) Amendment Bill,
20246 (The Oilfields Bill), replacing the Old Oilfields Act of 1948, which governs the
6 Oilfield (Regulation and Development) Amendment Act, law, Dec. 3, 2024, (India).
Exploration of oils and petroleum resources in Indian Exclusive Economic Zones and active sites in Indian Jurisdiction. The Centre envisages that this strategic amendment will put forth the domestic production of oils and petrochemicals to reduce imports. The amendment also emphasizes private investment to expedite the process with the strategic infusion of funds, and all such manifested upgrades are premised on effective modes of dispute resolution to deliver the objectives enshrined in the propositions.
Another significant addition is a dedicated Maritime Arbitration Center known as GIMAC (Gujarat Maritime Arbitration Center) under the aegis of Gujarat Maritime University, exclusively dedicated to a mission of reshaping the domain of maritime arbitration, mediation and expert determination proceeding in disputes related to maritime and shipping sector, envisaged access to experienced arbitrators, legal professionals practicing in maritime & admiralty law as well as professionals and experts from the marine and shipping sector, and the GIMAC intends to shape up the ADR mechanism for quick and effective dispute resolution in the maritime and shipping sector and compete at par with other globally renowned maritime arbitral institutions.
CHALLENGES AND POSSIBLE SOLUTIONS
India, with a very strategic coastal position, is in the sound pace of making India a hub for commercial and maritime arbitration with an onus to address the clients globally.
For that matter, it is very necessary to keep a check on continual improvement and effectively fill up the legislative lacunas to make India a strategic dispute resolution space specifically for maritime arbitration because despite maritime arbitration being a one-stop solution for dispute resolution there are many procedural challenges such as the enforcement of arbitral award as arbitrators lack coercive powers unlike courts thus sometimes parties may be forced to approach court may be for challenging Arbitral Award or for disregarding the mandate of Arbitrator and the basic premise behind choosing arbitration as a means of dispute resolution, which was kept up with speed and economy is actually lost due to it and parties end up engaging in lengthy trial processes.
Thus, a possible solution could be training lawyers effectively with mercantile laws and international Commercial Arbitration in the maritime domain through which they have adequate maritime literacy and technical understanding, giving them an upper edge to effectively execute the arbitration process in the marine and shipping sector. Another very pragmatic solution could be setting up an Arbitral Appellate Tribunal, through the aegis
of global convention or one which is globally affirmed, that can significantly help in reducing the judicial intervention and prevent hanging up parties in the logjam of cases who are actually seeking quick dispute resolution. Developments that envisage the incorporation of e-arbitrations and the use of electronic means to execute arbitration procedures can also be considered a bane for making India a strategic location for institutional arbitration globally.