Private Governance: Creating Order in Economic and Social Life by Edward Peter Stringham

Author:Edward Peter Stringham [Stringham, Edward Peter]
Language: eng
Format: epub, pdf
Published: 2015-05-04T08:05:01+00:00

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PT ER 10

When Third-Party Review Is “Necessary”

Adjudication by Contract

10.1. INTRODUCTION

It’s the year 1880, and you are the captain of merchant vessel on the high seas.

The hull was damaged in a storm and the vessel is taking on water. You are sure that ship and cargo will be lost, but as luck would have it, another ship appears that has the capability to help salvage your cargo and save your crew. Salvage operations are costly and quite risky for the salver, but in moments of duress, spending a long time negotiating all the terms of a contract is not practical.

Your counterparty is a particularly philosophical sailor and begins: “How much should I be compensated, and how much should my firm be responsible if we damage your vessel or cargo in the process? On one hand, if we get nothing in return or are wholly responsible for any damage to a sinking ship, we have no incentive to help. On the other hand, I understand that we might not be entitled to be the full owner of boat, and if we are, it will not give you any incentive to assist us with the salvage. What legal procedures and what rules of evidence should we use? Who will determine the potential differences between us? We are in international waters, so what court will have jurisdiction, and who will select the judges? There is so much for us to talk about. Where shall we begin?” Before he has finished speaking, your boat has sunk, and both of you have nothing. Lawyers and jurists could debate the possibilities forever, but luckily common practice was for both parties to agree to a “Lloyd’s salvage agreement” (also known as a “Lloyd’s open form”). The agreement meant that salvage could commence quickly and the details could be sorted out later by . . . drumroll please . . . private arbitrators at Lloyd’s of London (Mitcalfe, 1896).

Lloyd’s of London, formerly known as Lloyd’s Coffeehouse, was located just blocks from the stock market at Jonathan’s Coffeehouse. Lloyd’s became ( 148 )

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