Law and Arbitration

What it does

A law and arbitration clause specifies the law that governs the contract and the means by which disputes are resolved, most often arbitration at a chosen seat under a recognised set of rules, or alternatively litigation in a chosen court. It fixes both the substantive legal framework applied to the parties' rights and the procedure and forum for deciding any dispute.

The clause typically identifies the governing law, the seat or place of arbitration, the rules or institution, and practical matters such as the number of arbitrators and the language. By settling these in advance, it gives certainty about where and how a claim will be decided and which legal principles will apply, which is fundamental to how every other clause is enforced.

Commercial effect

The choice of law and forum has a major practical effect, since different legal systems and arbitral seats can produce different outcomes, costs, and timescales, and the governing law shapes how the substantive clauses are construed. Parties often have strong preferences for established maritime law and arbitration centres because of their developed jurisprudence and predictability.

The clause also affects enforceability, since arbitration awards made at a recognised seat are widely enforceable across borders, which matters in international shipping. It underpins the whole contract, because the value of every other clause depends on how, where, and under which law it can be enforced, making the law and arbitration provision one of the most important general clauses.

Owner's perspective

The owner wants a governing law and a dispute-resolution forum that are predictable, well understood, and likely to enforce the contract as written, often favouring established maritime law and a recognised arbitration seat. It values the developed body of precedent that makes outcomes more foreseeable and the wide enforceability of awards from a respected seat.

The owner also weighs the practical features, such as the rules, the number of arbitrators, and the costs, since these affect how efficiently it can pursue or defend a claim, including freight, hire, and demurrage disputes. It negotiates the law and arbitration provision to secure a framework in which its rights under the rest of the contract can be reliably enforced.

Charterer's perspective

The charterer similarly wants a governing law and forum that are predictable and neutral, with developed maritime jurisprudence and enforceable outcomes, so that disputes over cargo, performance, or payment are decided in a framework it understands. It values certainty and efficiency in the dispute-resolution mechanism.

The charterer also considers the practical and cost implications of the chosen seat, rules, and procedure, since these affect its ability to bring or resist claims. It negotiates the law and arbitration clause to ensure the framework is balanced and that the terms it bargained for elsewhere in the contract can be enforced on a fair and foreseeable basis.

Negotiation points

• The governing law of the contract.
• The seat or place of arbitration, or the choice of court.
• The arbitration rules or institution and the number of arbitrators.
• Practical matters such as language, costs, and any small-claims procedure.

Common variations

• A clause providing for a chosen maritime law and arbitration at a recognised seat.
• A provision selecting an established arbitration institution and its rules.
• A clause specifying the number of arbitrators and the procedure for appointment.
• A jurisdiction clause referring disputes to a chosen court instead of arbitration.