Web alert: the pitfalls of using the outdated LMAA Small Claims Procedure

Since the introduction by the LMAA of the Small Claims Procedure (SCP), which provides a simplified and more cost-effective procedure for resolving smaller claims, there have been various revisions of these terms.
 
The present version of the terms - the LMAA Small Claims Procedure 2012 - is usually the version incorporated into most agreements or charterparties, either explicitly or by referring to the terms ‘in force at the time the dispute arises’.  There are, however, instances where previous versions of the SCP have been agreed, such as the SCP 2006 or even the SCP 2002.
 
Using outdated terms can lead to interpretation problems and may even lead to members being caught out and time barred when trying to bring an action. 
 
Commencement of SCP proceedings
 
Under the SCP 2012, it is intended that the dispute will be referred to a sole arbitrator.  Unless the sole arbitrator has already been agreed on, either of the parties may give notice to the other party requiring them to agree in appointing a joint sole arbitrator.  The parties have 14 days from this notice to agree the sole arbitrator.  The claimant has a further 14 days from such an agreement being reached within which to send the arbitrator a remittance in his favour for the applicable LMAA Small Claims fee.  Before the expiry of this period, the claimant must also serve his Claim Submissions.
 
In the event that the parties cannot agree on a sole arbitrator within 14 days, either party may make an application in writing to the Honorary Secretary of the LMAA, with a copy to the other party, requesting the appointment of a sole arbitrator by the President, attaching a copy of the letter of claim and supporting documents, as well as a remittance for the applicable small claims fee, plus a small administrative fee.
 
Under the various versions of the SCP terms, this procedure is more or less identical.  However, differences become apparent when it comes to considering when proceedings can be said to have been validly commenced.
 
SCP 2002 and SCP 2006
 
In their terms, the SCP 2002 and SCP 2006 provide as follows (emphasis added):

• SCP 2002: 
   
  3(b): “…Payment of the Small Claims fee shall be a condition precedent to the valid commencement of proceedings under the Small Claims Procedure.”
• SCP 2006:
   
  3(b): “…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."

The Commentary for the SCP 2002 states in paragraph 2 that: 

“…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…”

The Commentary for the SCP 2006 goes on to clarify that:

“…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…”

Therefore, where either the SCP 2002 or SCP 2006 applies, a claimant could find that his or her claim has become time barred by virtue of the simple fact that s/he had not made the payment of the Small Claims fee before the expiry of the timebar applicable, say, under a charterparty.  Under the 2002 and 2006 SCP terms it would appear that neither sending a notice to the other party requiring him to agree in appointing a sole arbitrator, nor agreement of the sole arbitrator alone,  would satisfy time being protected.
 
Instead, for the time bar to be interrupted, one of the following scenarios would have to be complied with:

1. If the parties have agreed a sole arbitrator, the claimant must have paid the Small Claims fee; or
2. If within 14 days the parties have not agreed a sole arbitrator, the claimant must have made an application to the Honorary Secretary and paid the Small Claims fee.

In situations where the expiry time is imminent, waiting until the last minute to commence arbitration could lead to difficulties in abiding by the correct procedure and ensuring that time is protected.
 
SCP 2012
 
A slight amendment has been introduced to the wording of clause 3(b) SCP 2012, which provides that (emphasis added):

“…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 pursuit of proceedings under the Small Claims Procedure…” 

The Commentary to the SCP 2012 provides in the final paragraph of paragraph 2 that: 

“…It is now provided that the payment of the Small Claims fee shall be a condition precedent to the pursuit of proceedings under the Small Claims Procedure, rather than to the valid commencement of proceedings so as to avoid the possibility that a claim might become time barred by virtue of a failure to pay the fee, sometimes before the time for agreeing on a sole arbitrator had expired...” 

Whilst the nuances of the change in language appear slight, it is clear that, under the SCP 2012, a claim is not considered time barred in circumstances where the Small Claims fee has not been paid before the expiry of time.
 
This amendment to the SCP terms and commentary is significant and probably came about due to claimants missing time bars for their simple failure to pay the relevant fee within the given timeframe.  This change removes what may have been seen by the LMAA as an arbitrary reason for which to deny a claimant the chance to bring a claim, as well as denying a defendant’s time bar argument that may have come about due to a minor procedural or administrative error on the claimant’s part.
 
It is interesting to note that, under the Intermediate Claims Procedure 2012 terms, clause 19(e) provides in clear language that it is the notice calling on the other party to agree on the appointment of a sole arbitrator which protects a time bar, rather the payment of the applicable fee:

Clause 19(e): “…For all purposes, including time limits, arbitration proceedings shall be deemed to be commenced under this Procedure upon one of the parties appointing an arbitrator or upon one of the parties calling upon the other party to agree on the appointment of a sole arbitrator…”

Conclusion
 
We would recommend that, if members decide to incorporate LMAA terms as the rules by which a dispute arising under a contract will be governed, they familiarize themselves with the relevant terms and ensure that such references refer to the most up-to-date terms of the LMAA. The current LMAA Terms can be found here.
 

The Standard Club is always on hand to assist. If in any doubt, the reader should contact the authors of this article, or their usual club contact.