Arbitration in Norway – benefits of NOMA vs. ad hoc arbitration
Arbitration is the most commonly used dispute resolution mechanism in shipping and offshore contracts. Very often however, parties tend to spend little or no effort reflecting on the type of arbitration solution chosen, i.e. ad hoc vs. institutional arbitration. In this article, we will highlight the benefits of agreeing to arbitration under the rules of NOMA – the Nordic Offshore and Maritime Arbitration Association vs. ad hoc arbitration.
Arbitrations in Norway have traditionally been ad hoc, based on the rules of the Norwegian Arbitration Act 2004 (“NAA”) and similar preceding legislation. Ad hoc arbitration is not administered by an institution, leaving the parties to agree how the proceedings are to be conducted for determination of the particular dispute. This generally provides greater flexibility to the parties as the NAA is somewhat limited in scope and contains only limited regulations. However, where the parties are unable to agree on procedural aspects of the arbitration, this also gives the tribunal a wide ranging discretion as to how the arbitration shall be conducted. So unless the parties agree otherwise, the NAA states that the arbitration shall be conducted in such manner (procedurally) as the tribunal considers appropriate. These characteristics of ad hoc arbitration can sometimes create a lack of transparency and predictability, and ad hoc arbitration is thus often perceived as somewhat of a “black box”.
The alternative to ad hoc arbitration is institutional arbitration, where the arbitration is administered by and conducted pursuant to pre-established rules and procedures of arbitration institutions such as the International Chamber of Commerce (ICC), the London Maritime Arbitrators Association (LMAA) or the Nordic Offshore and Maritime Arbitration Association (NOMA), considered further below. Institutional arbitration generally ensures a high degree of foreseeability in respect of how the arbitration will be conducted, particularly as regards the procedural rules. On the other hand however, pre-established arbitration rules will limit flexibility, although parties are usually free to vary those rules by agreement, even after a dispute has arisen.
NOMA arbitration – Nordic best practice
NOMA was established on 28 November 2017 as a common Nordic alternative to both the traditional ad hoc and established institutional arbitrations. The lack of transparency and foreseeability in ad hoc arbitration was seen as making international parties reluctant to agree to refer their disputes to arbitration in Norway and the Nordics. On the other hand, the rules of traditional arbitration institutions such as ICC and LMAA were perceived as too rigid and not compatible with the more flexible Nordic legal tradition. Thus, NOMA’s ambition was to preserve and codify a Nordic best practice for the conduct of arbitration and to limit as much as possible the institutionalisation of those rules and best practices. The result is the NOMA Rules and NOMA Best Practice Guidelines.
Unlike traditional arbitration institutions NOMA does not charge administrative fees, offering the use of the NOMA Rules and Best Practice Guidelines free of charge. Further, NOMA does not administer the arbitration proceedings, only stepping in for certain limited matters upon the parties’ request. NOMA therefore ensures a certain degree of flexibility and party autonomy, whilst at the same time promoting transparency and foreseeability in the arbitration process.
The benefits of NOMA vs. ad hoc arbitration
It is a general and overarching feature of the NOMA Rules and Best Practice Guidelines that they promote efficiency and simplicity in the arbitration process.
Efficiency (both in cost and time) is achieved in particular through detailed provisions in the NOMA Guidelines on case preparations and procedural rules. For instance, NOMA require a case management conference (CMC) shortly after constitution of the tribunal. It is explicitly stated in the Guidelines that the objective of the CMC is to agree procedural directions to be followed at the outset to ensure a prudent and cost-effective determination of a dispute. A comprehensive CMC-Matrix setting out detailed particulars of the items to be discussed and agreed at the CMC is included as Annex 1 to the Guidelines.
Further, NOMA’s procedural timetable and time limits are shorter than those in ad hoc arbitrations based on the rules of the NAA. For instance, the time limit for appointment of arbitrators (provided the parties cannot agree) is reduced from one month to 21 days. Default time limits for submissions of pleadings are also included, being 28 days for submission of a statement of claim and statement of defence and 21 days for submission of subsequent pleadings. There are no similar time limits under the NAA, as these are left to the parties to agree or to be directed by the arbitrators at their discretion. Moreover, under NOMA arbitration rules, oral hearings shall take place no later than 6 months after commencement of the arbitration for hearings of 4 days or less, and within 12 months for hearings of more than 4 days. In comparison, there are no time limits for the scheduling of hearings under the NAA.
NOMA is also currently working on a separate set of rules for small claims or fast track proceedings aimed at streamlining the determination of smaller, low value claims. These rules, which are expected to be launched shortly, will also seek to further limit costs and reduce applicable time limits.
It is also important to note that whilst there are very limited rules on evidence contained in the NAA, NOMA offers detailed rules on evidence. A specific set of rules, the NOMA Rules on the Taking of Evidence, are set out as Annex 2 to the NOMA Guidelines.
To conclude, we believe that NOMA arbitration has many benefits, making it an attractive option for contracting parties. We have also seen an increasing uptake in NOMA arbitration both in terms of contracts specifically providing for NOMA as the dispute resolution mechanism and as something which the parties agree to if and when a dispute arises. This is not surprising as NOMA first and foremost represents a Nordic best practice way of conducting arbitration, with greater emphasis being placed on transparency and efficiency. The current suggested wording for a NOMA arbitration clause is set out below.
Arbitration clause and governing law
This agreement shall be governed by and construed in accordance with [insert governing law] law.
Any dispute arising out of or in connection with this agreement, including any disputes regarding the existence, breach, termination or validity thereof, shall be finally settled by arbitration under the rules of arbitration procedure adopted by the Nordic Offshore and Maritime Arbitration Association (“Nordic Arbitration”) in force at the time when such arbitration proceedings are commenced. Nordic Arbitration’s Best Practice Guidelines shall be taken into account.
The place of arbitration shall be [insert city and country] and the language of the arbitration shall be [insert Danish, Norwegian, Swedish or English].
The arbitration tribunal shall be composed of three (3) arbitrators.