PNS October Insight — Alternative Methodologies in Performance Disputes

Untested Alternative Methodologies in Performance Disputes – Facts, Context, and Legal Perspective.

Capt Andreas D. Karamitsas, LMAA Supp member, Head of Legal and specialist consultant in performance disputes in speed and consumption claims in bulk carriers and tankers with commercial background since 2006, explained just recently inter alia that;

“Alternative methodologies are welcomed. However and so far, there are many untested methods. The starting point remains the contract and this is the basis of any performance assessment. As far as new methods seek to circumvent the parties’ agreements, it should be disregarded both in practice and in London Arbitration”.

One will appreciate indeed that the Key considerations include:

1. Validation and Reproducibility – Courts and arbitral tribunals expect methodologies to be tested, transparent, and reproducible. An untested approach may be seen as speculative.
2. Contextual Accuracy – Methodologies must account for vessel type, route conditions, weather, and other operational factors. Oversimplified assumptions can undermine credibility.
3. Agreed Standards – Disputes are easier to resolve when parties have pre-agreed on the performance measurement method in the charterparty.
4. Expert Evidence – English courts rely heavily on expert reports. Even a fact-based alternative methodology must be supported by recognized industry expertise to be persuasive.

In practice:

Unproven methods can only be considered in exceptional cases, typically where no standard data exists and both parties acknowledge the limitations. Otherwise, reliance on established, tested methodologies remains the safest approach.

Prokopios Krikris, FCIArb, consultant and arbitrator, explained and offered a practical, insightful overview of this issue, supported by LMAA and SMA arbitration awards and case law including, “The Divinegate.”

In “Reflections on Speed and Performance Claims (Part IV): Hull fouling in practice”.

Mr.Krikris explained that any applied methodology must be consistent with the requirements of law, facts, and practice. The difficulty with some (not all) alternative approaches is that they fail to satisfy one or more of these criteria.

This recurring issue persists, and the root cause lies in a lack of proper understanding of one or more of the three essential components noted above, by third parties analysing performance.

For instance, the Divinegate decision highlights the inherent risks associated with alternative methodologies, particularly when they result in an inflated calculation of loss. Courts and tribunals remain alert to the danger of over-compensating a party, a concern discernible upon closer reading of London Arbitration 15/23 and London Arbitration 23/21.

In both instances, the arbitrator applied his technical expertise to recalculate performance figures as a matter of fact – findings not subject to appeal – while simultaneously ensuring that the application of law prevented any award that might result in over-compensation. Other alternative methods fail in their application of both facts and law.

Ms Ambrose has further stated in The Divinegate, that any alternative method must be reliable and consistent with the charterparty terms. If the “about” allowances are part of the charterparty warranted terms, these should apply.

Takeaway: We must confirm that Innovation and alternative approaches are welcome—but in performance disputes, English law favors tested, transparent, and contextually valid methods.

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