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The Cost of Arbitration under the Rules of the London Maritime Arbitrators Association, Compared with the Cost of the Mediation Procedure

Costs of Arbitration in London

In international maritime contracts, the arbitration clause referring to the Terms of the London Maritime Arbitrators Association (LMAA) remains the most popular so far. Unfortunately, the parties, automatically agreeing to this clause, do not always understand in advance what costs await them in the event of a dispute.

Today, we will look at the cost of arbitration under the 2021 LMAA Terms and compare it to the cost of mediation.

In their contracts, the parties may choose the standard LMAA Terms.

The parties to the agreement may also choose other LMAA rules: Intermediate Claims Procedure (ICP) (ICP) - apply to disputes under $400,000, and Small Claims Procedure (SCP) - for disputes under $100,000. These special terms apply only if the parties expressly and clearly agreed to their application in the contract.

The most popular rules are the standard LMAA Terms, since arbitration clauses are rarely looked at, and using standard contract forms, the parties do not explore current opportunities.

The LMAA is not an arbitration institution and, therefore, arbitration within it is not an institutional arbitration. The LMAA does not participate in or regulate arbitration in any way, but may assist in the appointment of an arbitrator.

When a request for the appointment of an arbitrator is made to the President of the LMAA, he will appoint an arbitrator, for which a fee of £350 will be charged.

The parties may independently appoint an arbitrator or several arbitrators. Arbitrator rates in London range from £300 to £1,000 per hour depending on circumstances such as whether the arbitrator is self-employed or employed by a large law firm.

Arbitrators from other countries may name other amounts of fees, work on an hourly basis or for a certain fixed amount (for small claims).

The terms of the LMAA do not specify an arbitrator's fee, but they do specify a "booking fee" for hearings (upfront payment). The booking fee scale currently looks like this:

• £1,250 per day for hearings up to 10 days.
• £1,625 per day for hearings up to 15 days.
• £2,000 per day for hearings up to 20 days.
• GBP 2,000 + agreed rate per day for hearings > 20 days.

The rate is indicated for each arbitrator. There can be three, five or nine arbitrators in the composition of the tribunal, depending on the complexity of the hearings and the choice of the parties.

For example, a 12-day hearing with one arbitrator would cost £19,500:

£1,250 x 12 days = £19,500.

These costs do not include the arbitrator's fee for examining documents, correspondence, renting a conference room for the hearing, the arbitrator's travel expenses if he or she is visiting from another city, accommodation and meals.

Also, these costs do not include the services of lawyers for representation in arbitration.

When evaluating these costs, you might consider saving and holding an online hearing.

However, maintaining the security and confidentiality of hearings, if these risks matter to the parties, can be much more expensive.

Mediation costs

The parties to a dispute may agree that, before they commence arbitration, they will contact a mediator and attempt to amicably resolve the dispute.

In order to use this procedure, the parties enter into an agreement with the mediator to resolve the dispute through mediation. In the agreement, the parties may choose the rules for mediation.

The LMAA recommends its own rules for mediation, but you can choose any other rules. Good rules are those adopted taking into account the latest international standards - the UNCITRAL Rules for Mediation for International Trade Disputes (2021).

If the parties elect a mediator who is educated and experienced as a lawyer in England, then mediation rates can vary between £300-500 per hour. It is accepted in the world that the mediator's rates should be less than the rates of a lawyer.

If the parties are ready to use the services of a Russian mediator with international experience in trade and transport agreements, then the rates offered by the Solis Mediation Center can be taken as a guideline. Depending on the amount of the claim, these rates range from $170 to $300 per hour for each party, with the number of mediation hearings usually not exceeding two or three.

Thus, the participation of a mediator in three meetings for each party, according to the rules of the Solis Mediation Center, will cost from $4080 to $ 7200 US.

The mediator's fee also does not include the cost of renting the negotiation areas, transport costs, accommodation and meals, administrative support of the center for the organization of hearings.

However, the participation of lawyers in negotiations with a mediator is not mandatory, and even more often it is recommended to exclude lawyers from this process. The Center can provide legal support for the procedure for a small fee.

Mediation can also be done online. However, since during mediation it is not required to prove positions, interview witnesses, check whether the party tells them, the technical requirements for online mediation are simpler than for online arbitration.

Thus, amicable dispute resolution through mediation can be more beneficial for the parties than going to arbitration.
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