Clause 38 Decoded: Why the Small Claims Clause Might Be the Most Underrated Lifesaver in Your Charter Party

 ⚖️ Clause 38 Decoded: Why the Small Claims Clause Might Be the Most Underrated Lifesaver in Your Charter Party

❓Three Quick Questions to Spark Your Curiosity:

1. Can you save time and legal costs on shipping disputes under $75,000?
2. Do you know what the Small Claims Procedure (S.C.P.) actually involves?
3. Are you aware of how this clause affects both Owners and Charterers in real-world scenarios?

 

📜 Clause 38 – Small Claims Clause Breakdown

Clause Text:

“Notwithstanding anything to the contrary in this Charter Party, the parties agree that all arbitrations where the amount in issue in the dispute(s) is less than U.S. Dollars 75,000 shall be conducted according to the Small Claims Procedure 1994 (S.C.P.) of the London Maritime Arbitrators Association (as amended from time to time).”

 

✅ What Does This Mean?

This clause directs that any dispute under $75,000 USD must follow the LMAA Small Claims Procedure (SCP) 1994, regardless of other terms in the charter party. It overrides general arbitration provisions for small-scale disputes.

 

💥 Why It Matters (Implications):

• Cost-Effective: SCP is intentionally simplified to avoid full-blown legal battles.
• Faster Resolution: Most cases are resolved based on documents without lengthy hearings.
• Neutral Process: Applies regardless of whether you're Owner, Charterer, or Manager.

 

🔍 Common Use Case:

Let’s say your vessel arrives 12 hours late, and the Charterer claims $40,000 in damages. Instead of a complex London arbitration, the SCP allows a streamlined resolution — typically on written submissions only, within weeks — saving both time and legal fees.

 

⚠️ Common Pitfalls to Avoid:

• Misjudging the Dispute Value: If the claim is slightly above $75,000, the SCP won’t apply unless both parties agree otherwise.
• Not Knowing the SCP Rules: Many operators are unaware of how simplified the process is. Familiarize yourself with the latest LMAA version.
• Assuming SCP is “weaker” arbitration: It’s still legally binding and enforceable like full arbitration — just leaner and faster.

 

🧠 BIMCO Commentary (if available):

BIMCO supports mechanisms that streamline dispute resolution. While not every charter includes Clause 38, it aligns with industry efforts to promote efficiency and reduce litigation costs.

 

📌 Actionable Takeaways for Shipping Stakeholders

✅ Owners & Charterers
— Ensure the clause is present in your CP if you want quick dispute resolution.
— Use SCP for genuine small claims; avoid inflating disputes just to bypass it.

✅ Operators/Managers
— Train ops/legal teams on SCP basics.
— Keep templates or SOPs ready for initiating SCP-based arbitration.

✅ Legal & Claims Teams
— Bookmark and review the latest SCP 1994 version from LMAA.org.
— Consider past SCP cases as precedent (many are public and instructive).

 

✅ Conclusion & Call to Action:

The Small Claims Clause may be buried in your Charter Party — but it's a golden tool for speed, savings, and sanity when things go wrong.

If this breakdown helped you understand Clause 38 better, do us a favor:
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⚠️ Disclaimer:

This blog is for informational purposes only and does not constitute legal advice. For specific arbitration or charter party issues, always consult with a qualified maritime legal expert.