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An important aspect of conducting business with any party in any jurisdiction is the ability to enforce the terms of the agreement. It is highly risky to conduct business in a jurisdiction where there are questions whether an aggrieved party has a venue to air such grievances. Moreover, it is important to conduct business with a party in a jurisdiction that offers an expedited and efficient model of such enforcement. Even if a jurisdiction has laws that allow for an aggrieved party to address issues and seek redress for complaints, there must be an efficient way of attaining those results. If litigating a case requires cutting through an enormous amount of red tape, then it is a risky proposition to do business in such a place, even though the laws of the jurisdiction, by themselves, provides a proper and fair forum for enforcement.

To that end, many maritime-related contracts and the like contain arbitration clauses wherein the parties, in the event of a dispute, will go to an arbiter to hear the case. The arbiter will render a final decision that is binding on the parties. It will be more cost effective than heading to court and often is much more efficient than litigating a maritime dispute in federal court.

Arbitration Clause

The Federal Arbitration Act, Chapter 1 Clause 1, provides: ”’Maritime transactions, as herein defined, means charter parties, bills of lading of water carriers, agreements relating to wharfage (the use of a sharf), supplies furnished vessels or repairs to vessels, collisions, or any other matters in foreign commerce which, if the subject of controversy, would be embraced within admiralty jurisdiction; ‘commerce’, as herein defined, means commerce among the several States or with foreign nations, or in any Territory of the United States or in the District of Columbia, or between any such Territory and another, or between any such Territory and any State or foreign nation, or between the District of Columbia and any State or Territory or foreign nation, but nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

The language of the Federal Arbitration Clause uses the Commerce Clause of the US Constitution, suggesting that it is predicated on interstate commerce. Interstate commerce can be between commerce in different states or internationally.

Under the rules of the Federal Arbitration Act, after the parties go to an arbiter, the winning party must gain confirmation of the ruling in court. Technically, a court of law can overturn the ruling of an arbiter if the ruling violates partiality, is corrupt, or the like. In practice, courts are very deferential to arbitration rulings and almost always follow such rulings. The timeframe to attain a confirmation is within one year of the arbiter’s ruling. What is more, based on the Supreme Court case Hall Street Associates v. Mattel from 2008, even if the parties agree that a court will have expanded powers than those in the Federal Arbitration Act, such a clause will be disregarded.

Involved in the shipping business? Contact a lawyer who knows the rules of maritime law. Speak with the Kolodny law firm.

(image courtesy of Erwan Hesry)

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