Originally from Navigating Maritime Arbitration: The Experts Speak - Second Edition

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I. INTRODUCTION

“A deterrent to the pursuit of disproportionately expensive claims is the prospect that a party who loses on the merits will also have to pay, in addition to its own legal fees and expenses, all or a substantial part of the fees and expenses of its adversary.”  This deterrence is what makes sealed offers of settlement so potent as practitioners are faced with uncertainty regarding the likelihood of succeeding on the merits of a claim and/or defense. Since New York maritime arbitrators typically award the prevailing party a proportion of reasonably incurred legal fees and expenses, this enhances the efficacy of sealed offers as a mechanism which encourages settlement and discourages unnecessary and expensive litigation over complicated legal issues of liability and damages. 

Sealed offers in arbitration have gained significant traction in recent years as a strategy for resolving disputes in the early stages of proceedings while safeguarding parties from liability for legal expenses. Consequently, the Society of Maritime Arbitrators (“SMA”) recently amended Rule 31 of its Rules to account for this practice. The revised rule is detailed below as well as its operation. 

II. SEALED OFFERS CUSTOM AND PRACTICE

In the course of an arbitration proceeding in which a sealed offer is not used, the prevailing party is typically awarded its reasonable expenses, including attorneys’ fees and the costs associated with the arbitration.